Global Market Comments
February 1, 2024
Fiat Lux
Featured Trade:
(THE 16th YEAR ANNIVERSARY OF THE MAD HEDGE FUND TRADER)
Global Market Comments
February 1, 2024
Fiat Lux
Featured Trade:
(THE 16th YEAR ANNIVERSARY OF THE MAD HEDGE FUND TRADER)
The Diary of a Mad Hedge Fund Trader is now celebrating its 16th year of publication.
Last year, I religiously pumped out 3,000 words a day, writing or editing 24 newsletters a week of original, independent-minded, hard-hitting, and often wickedly funny research.
I spent my life as a war correspondent, Marine Corps combat pilot, Wall Street trader, and hedge fund manager, and if you can’t laugh after that, something is wrong with you.
I’ve been covering stocks, bonds, commodities, foreign exchange, energy, precious metals, real estate, and even agricultural products for 55 years.
You’ve been kept up on my travels around the world and listened in on my conversations with those who drive the financial markets.
The site now contains over 25 million words or 40 times the length of Tolstoy’s epic War and Peace.
Unfortunately, it feels like I have written on every possible topic at least 100 times over, if you sometimes think you’re getting repeats, you are, it’s just updated.
So, I am reaching out to you, the reader, to suggest new areas of research that I may have missed until now which you believe justify further investigation.
Please send any ideas directly to me at support@madhedgefundtrader.com/, and put “RESEARCH IDEA” in the subject line.
The great thing about running an online business is that I can evolve it to meet your needs on a daily basis.
Many of the new products and services that I have introduced since 2008 have come at your suggestion. That has enabled me to improve the product’s quality, to your benefit. Notice how rapidly my trade alert performance is going up, now annualizing at +51% a year.
This originally started as a daily email to my hedge fund investors in 2008 giving them an update on fast market-moving events. That was at a time when the financial markets were in free fall, and the end of the world seemed near.
Here’s a good trading rule of thumb: Usually, the world doesn’t end. History doesn’t repeat itself, but it certainly rhymes.
The daily emails gave me the scalability that I so desperately needed. Today’s global mega enterprise grew from there. Today, the Diary of a Mad Hedge Fund Trader and its Global Trading Dispatch is read in over 140 countries by 30,000 followers. The Mad Hedge Technology Letter the Mad Hedge Biotech & Health Care Letter, Jacquie’s Post, and Mad Hedge AI also have substantial followings. And Mad Hedge Hot Tips is one of the most widely-read publications in the financial industry.
I’m weak in distribution in North Korea and Mali, in both cases due to the lack of electricity. But that may change.
One can only hope.
If you want to read my first pitiful attempt at a post, please click here for my February 1, 2008 post.
It urged readers to buy gold at $950 (it soared to $2,175), and buy the Euro at $1.50 (it went to $1.65).
Now you know why this letter has become so outrageously popular.
I always get asked how long will I keep doing this.
I am already collecting Social Security, so that deadline came and went. My old friend and early Mad Hedge subscriber, Warren Buffet is still working at 93, so that seems like a realistic goal.
Hiking ten miles a day with a 50-pound pack, my doctor tells me I should live forever. He says he spends all day trying to convince his other patients to be like me, and the only one who does it is me.
The harsh truth is that I don’t know how to NOT work. Never tried it, and never will.
This year I received a new reminder of my indestructibility. While observing a Ukrainian HIMARS missile attack on Crimea, a Russian missile landed 100 feet away from me. It was a dud and didn’t go off. If it exploded it would have killed us all. Later that day, a Russian bullet fired across the Dnieper River hit me in my right hip, caught by my body armor. If that isn’t a message from above, I don’t know what is.
The fact is that thousands of subscribers love me for what I do, pay for me to travel around the world first class to the most exotic destinations, eat in the best restaurants, fly the rarest historical aircraft, then say thank you. I even get presents (keep those pounds of fudge and bottles of bourbon coming!).
Given the absolute blast I have doing this job I would be Mad to actually retire.
Take a look at the testimonials I get only on an almost daily basis and you’ll see why this business is so hard to walk away from (click here)
In the end, you are going to have to pry my cold dead fingers off of this keyboard to get me to give up.
Fiat Lux (Let there be light).
“Believe nothing that you hear, and half of what you see,” said the legendary investor, Ron Baron.
Global Market Comments
January 31, 2024
Fiat Lux
Featured Trade:
(TEN REASONS WHY STOCKS CAN’T SELL OFF BIG TIME),
(SPY)
While driving back from Lake Tahoe last weekend, I received a call from a dear friend who was in a very foul mood.
Following the advice of another newsletter that I won’t mention, he bailed out of all his stocks after the November 8 election.
After all, wasn’t the Dow Average headed straight to 3,000?
Despite the Federal Reserve now on a rate-rising path, here we are with the major stock indexes just short of all-time highs.
Why the hell are stocks still going up?
I paused for a moment as a kid driving a souped-up Honda weaved into my lane of Interstate 80, cutting me off. Then I gave my friend my response, which I summarize below:
1) While the next move in interest rates will certainly be down, they may take a while to get started. They are not going to move the needle on corporate P&Ls because at least half of US companies are net creditors to the financial system, including all the big tech ones. We are reentering a deflationary world.
At least, that’s what my friend Janet tells me.
2) The biggest leaders in the market are cheap, with NVIDIA (NVDA) and Meta (META) sporting price earnings multiples under 20X with a 60% earnings growth.
3) There is nothing else to buy. Complain all you want, but US equities are still one of the world’s highest-yielding securities, with a 1.4% dividend.
4) Oil prices are low, and the windfall cost savings are only just being felt around the world. Conversion to electrics and hybrids is happening faster than expected and much of the grid is moving away from oil to alternatives.
5) While the weak euro (FXE) ate into large multinational earnings, we are at the end of the move. The cure for a weak euro is a weak euro. The worst may be behind for US importers.
6) What follows a collapse in European economic growth? A European recovery, powered by a weak currency.
7) What follows a Chinese economic collapse? A recovery there too, as hyper-accelerating stimulus feeds into the main economy. Chinese stocks are now among the world’s cheapest with most having single-digit multiples.
8) Technology and AI everywhere are accelerating at an immeasurable pace, causing profits to do likewise. You see this in the AI 5 stocks, where blockbuster earnings reports are becoming as reliable as free upgrades.
Biotech has been on a tear as well where AI and big data are creating a new Golden Age.
8) US companies are still massive buyers of their stock, with some $1 trillion worth in 2023. Ditto for this year. This has created a free put option for investors for the most aggressive companies, like Apple (AAPL), which bought $83 billion worth of its own stock in 2023, followed by Google (GOOGL), Meta (META), Microsoft (MSFT), and Exxon (XOM), the top five repurchasers.
They are jacking up dividend payouts at a frenetic pace as well, and are expected to return more than $430 billion in payouts this year.
9) Ignore this at your peril, but there is a global synchronized economic recovery going on that has been in the works for some years. Nearly a decade of central bank monetary stimulus and government fiscal stimulus is still out there.
Q1 earnings reports start in earnest in a few weeks, and the phrase “better than expectations” is about to become well-worn. Expect (SPY) earnings per share to reach new all-time highs, hardly short seller bait.
10) Ditto for the banks, which were dragged down by falling interest rates for most of the last decade. Reverse that trade this year, and you have another major impetus to drive stock indexes higher.
My friend was somewhat setback, dazzled, and befuddled by my out-of-consensus comments. He asked me if I could think of anything that might trigger a new bear market or at least a major correction.
The traditional causes of recessions, oil prices, and interest rate spikes, are now in the rearview mirror. There are only two things that could pee on our parade: a return of inflation and another pandemic. Watch those prices!
With that, I told my friend I had to hang up, as another kid driving a souped-up Shelby Cobra GT 500, obviously stolen, was weaving back and forth in front of me requiring my attention.
Where is a cop when you need them?
Stolen?
“Whenever I hear someone in finance say that a one in two-billion-year event just happened, I say that you just demonstrated you have a model for measuring tail risk that isn’t any good,” said former Treasury Secretary and Harvard University President Larry Summers.
Global Market Comments
January 30, 2024
Fiat Lux
Featured Trade:
(THE HARD TRUTH BEHIND BUYING IN NOVEMBER),
(NOTICE TO MILITARY SUBSCRIBERS)
Long-time Mad Hedge followers who watched the market take off like a rocket on October 26 weren’t surprised.
That’s because I am a big fan of buying straw hats in the dead of winter and umbrellas in the sizzling heat of the summer. I even load up on Christmas ornaments every January when they go on sale for ten cents on the dollar.
There IS a method to my madness.
If I had a nickel for every time that I heard the term “Sell in May and go away,” I could retire. The flip side of that is just as valuable, “Buy in November and stand pat.”
Oops, I already am retired!
In any case, I thought that I would dig out the hard numbers and see how true this old trading adage is.
It turns out that it is far more powerful than I imagined. According to the data in the Stock Trader’s Almanac, $10,000 invested at the beginning of May and sold at the end of October every year since 1950 would be showing a loss today.
Amazingly, $10,000 invested every November 1 and sold at the end of April would today be worth $702,000, giving you a compound annual return of 7.10%!
This is despite the fact that the Dow Average rocketed from $409 to $38,000 during the same time period, a gain of a staggering 92.90 times!
My friends at the research house, NASDAQ Dorsey, Wright, who run a pretty powerful technical service of their own, (click here for their site) have parsed the data even further.
Since 2000, the Dow has managed a feeble annual return of only 5%, while the long winter/short summer strategy generated a stunning 64%.
Of the 72 years under study, the market was down in 25 May-October periods, but negative in only 13 of the November-April periods, and down only three times in the last 24 years!
There have been just three times when the “good 6 months” have lost more than 10% (1969, 1973, and 2008), but with the “bad six-month” time period, there have been 11 losing efforts of 10% or more.
Being a long-time student of the American, and indeed, the global economy, I have long had a theory behind the regularity of this cycle.
It’s enough to base a pagan religion around, like the once-practicing Druids at Stonehenge.
Up until the 1920s, we had an overwhelmingly agricultural economy. Farmers were always at maximum financial distress in the fall, when their outlays for seed, fertilizer, and labor were the greatest, but they had yet to earn any income from the sale of their crops.
So they had to borrow all at once, placing a large cash call on the financial system as a whole. This is why we have seen so many stock market crashes in October. Once the system swallows this lump, it’s nothing but green lights for six months.
After the cycle was set and easily identifiable by low-end computer algorithms, the trend became a self-fulfilling prophecy.
Yes, it may be disturbing to learn that we ardent stock market practitioners might in fact be the high priests of a strange set of beliefs. But hey, some people will do anything to outperform the market.
It is important to remember that this cyclicality is not 100% accurate, and you know the one time you bet the ranch, it won’t work. But you really have to wonder what investors expect when buying stocks at these elevated levels, over $488 in the S&P 500 (SPY).
Will company earnings multiples further expand from 18 to 19 or 20? Will the GDP suddenly reaccelerate from a 2% rate to the 4% expected by share prices when the daily sentiment indicators are pointing in the opposite direction?
I can’t wait to see how this one plays out.
My Sources for Stock Tips is Interstellar
To the dozens of military subscribers overseas and the surrounding ships at sea, thank you for your service!
I think it is very wise to use your free time to read my letter and learn about financial markets in preparation for an entry into the financial services when you muster out.
Nobody is going to call you a baby killer and shun you, as they did when I returned from Southeast Asia five decades ago. In fact, employers have been given fantastic tax breaks and other incentives to hire you.
I have but one request. No more subscriptions with .mil addresses, please. The Defense Department, the CIA, the NSA, Homeland Security, and the FBI do not look kindly on private newsletters entering the military network, even the investment kind.
If you think civilian spam filters are tough, watch out for the military kind! And no, I promise that no secret messages are embedded with the stock tips. “BUY” really does mean “BUY.” “Sell” means “Sell” too.
If I did not know the higher-ups at these agencies, as well as the Joint Chiefs of Staff, I might be bouncing off the walls in a cell at Guantanamo by now wearing an orange jumpsuit.
It also helps that many of the mid-level officers at these organizations have made a fortune with their meager government retirement funds following my advice. All I can say is that if the Baghdad Stock Exchange ever becomes liquid, I’m going to own it.
Where would you guess the greatest concentration of readers in The Diary of a Mad Hedge Fund Trader is found? New York? Nope. London? Wrong. Chicago? Not even close. Try a ten-mile radius centered on Langley, Virginia, by a large margin.
The funny thing is, that half of the subscribing names coming in are Russian. I haven’t quite figured that one out yet. Did we hire the entire KGB at the end of the Cold War? If we did, it was a great move. Those guys were good. That includes you, Yuri.
So keep up the good work, and fight the good fight. We’re all on your side. But please, only subscribe to my letter with personal Gmail, Yahoo, or Hotmail addresses. That way my life can become a lot more boring.
Oh, and by the way, Langley, you’re behind on your bill. Please pay up, pronto, and I don’t want to hear whining about any damn budget cuts!
I Want My Mad Hedge Fund Trader!
“The time to worry about the Fed is not when they go from accommodative to neutral, it is when they go from neutral to tight,” said Bill Miller, the legendary former chairman and chief investment officer of Legg Mason Capital Management.
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