I am writing this to you from Indian Rock Beach, Florida, an extended sand bar outside of Tampa on the west coast. Cabin cruisers pass by every five minutes. There is not much fishing though with rain and temperatures in the low 40s, the coldest of the year. leaving a lot of free time for indoor work. Every building is missing a chunk of wall or roof if not totally destroyed from the October hurricane Helena, including my own Airbnb. The last hurricane here took place in 1921.
Everywhere I look, hedge fund managers are derisking, cutting exposure, and laying on hedges. The reason is that no one has a handle on what is going to happen in financial markets in the short term. Do we go up, down, or nowhere? The rapid unwind of the post-election rally has put the fear of markets back in them once again.
There is also a rare shortage of news in the financial media. It’s as if someone is sucking all the oxygen out of the room.
We had about a week where the Mad Hedge Market Timing Index in the mid-twenties was enticing us back into the market. I was expecting a hot December Consumer Price Index to give us a nice selloff and the perfect entry point I had been waiting a month for, in line with all the economic warm data of the last three months.
But it was not to be. The CPI printed at a cool 2.9% YOY and the Dow Average opened up 700 points the next morning, the first step in a 1,700-point three-day rally. Half the December losses came back in a heartbeat.
So much for the great entry point.
All of my target stocks like (GS), (MS), (JPM), (C), and (BAC) went ballistic. I only managed to get into a long in Tesla (TSLA) because the implied volatility was a sky-high 70%. That way, the stock could take a surprise hit and I still would have a safety cushion large enough to eke out the maximum profit by the February 20 option expiration. What’s next? How about a $100 in-the-money bearish Tesla put spread, once the rally burns out?
I can’t remember a time when there was such a narrow field of attractive trading targets. Rising interest rates have killed off bonds, foreign currencies, precious metals, and real estate. A weak China has destroyed commodities and energy, with US overproduction contributing to the latter. Only financials look interesting for the short term and big tech for the long term.
At that point, financials are not exactly undiscovered investments, but they should have another three months of life in them. That’s when big tech should reclaim the leadership, when we get another surprise AI-driven earnings burst.
What does this get us in the major indexes? With so much of the stock market on life support, not much, maybe 10% at best. After that, who knows?
There is no point in looking for any more financial news today (Sunday), as there isn’t any with a holiday tomorrow. So I am headed out for a one-hour walk of the beach.
We managed to grind out a +2.07% return so far in January. That takes us to a year-to-date profit of +2.07% so far in 2025. My trailing one-year return stands at +75.92%. That takes my average annualized return to +49.99% and my performance since inception to +753.93%.
I stopped out of my long position in (TLT) near cost. My January 2025 (TSLA) expired on Friday at its maximum profit point, soaring a torrid $50 in the two days going into expiration.
Some 63 of my 70 round trips, or 90%, were profitable in 2023. Some 74 of 94 trades were profitable in 2024, and several of those losses were really break-evens. That is a success rate of +78.72%.
Try beating that anywhere.
My Ten-Year View – A Reassessment
When have to substantially downsize our expectations of equity returns in view of the election outcome. My new American Golden Age, or the next Roaring Twenties is now looking at a headwind. The economy will completely stop decarbonizing. Technology innovation will slow. Trade wars will exact a high price. Inflation will return. The Dow Average will rise by 600% to 240,000 or more in the coming decade. The new America will be far more efficient and profitable than the old.
My Dow 240,000 target has been pushed back to 2035.
Consumer Price Index Cools at 0.2%, or 3.2% YOY, the first drop in six months. Economists see the core gauge as a better indicator of the underlying inflation trend than the overall CPI which includes often-volatile food and energy costs. The headline measure rose 0.4% from the prior month, with over 40% of the advance due to energy.
Los Angeles Fires to Cost $270 Billion, with only $30 billion covered by insurance. Inflation will rise as the cost of construction labor and materials soar. Tradesmen around the country are packing their trucks and heading west to snare work at double the normal rate. There is no trade here as the new home builders are not involved, who are set up to only build mass-produced tract homes. Yet another black swan for 2025.
$4 Trillion in Asset Management Disrupted by the Los Angeles Fires, with some relocating office space and supporting staff members who have lost their homes. The LA area is home to large industry players like Capital Group, TCW Group, hedge funds Oaktree Capital and Ares Management.
Bonds Hit 14-Month Lows at a 4.80% Yield, as fixed income dumping continues across the board. “Higher Rates for longer” don’t fit in here anywhere. But there may be a BUY setting up for (TLT) at 5.0%.
The Trump Bump is Gone, stock markets giving up all their post-election gains. Technology was especially hard hit, with lead stock NVIDIA down 15%. It seems that people finally examined the implications of what Trump was proposing for the stock market. Tax-deferred selling of the enormous profits run up under the Biden administration is a big factor.
Amazon is Getting Ready for Another Run. Strong earnings and continuing excitement about artificial intelligence will help Amazon stock move back into the green. The e-commerce and cloud company to beat estimates when it reports its fourth-quarter results—analysts are expecting a profit of $1.48 a share on sales of $187.3 billion, according to data from FactSet. Buy (AMZN) on dips.
JP Morgan Announces Record Profits, boosted by volatility tied to the US elections in November. Trading revenue at the firm rose 21% from a year earlier, jumping to $7.05 billion. Fixed income was the star, with revenue beating analysts’ estimates, while equities-trading revenue fell short. Buy (JPM) on dips.
Goldman Sachs Beats. The firm’s fourth-quarter profits more than doubled to $4.1 billion, buoyed by strength in its investment bank, expansion of its asset management business, and a surprise $472 million gain from a balance sheet bet. Goldman ended 2024 as the best-performing stock among major US banks with a 48% advance. The bank is positioning itself for a long-awaited resurgence in deals after ditching major parts of a consumer foray.
Morgan Stanley Doubles Profits. Equities were the big winner, with revenue jumping 51% in the quarter and reaching an all-time high for the full year. In the wealth business, net new assets fell just shy of estimates even as revenue topped expectations.
SEC Sues Elon Musk, alleging the billionaire violated securities law by acquiring Twitter shares at “artificially low prices.” In his purchases, Musk underpaid for Twitter shares by at least $150 million, the SEC says. Musk bought Twitter in 2022 for about $44 billion, later changing the name to X. Expect this case to get lost behind the radiator next week.
Fed Minutes are Turning Hawkish, making an interest rate cut at the March 19 meeting unlikely. Inflation is stubbornly above target, the economy is growing at about 3% pace and the labor market is holding strong. Put it all together and it sounds like a perfect recipe for the Federal Reserve to raise interest rates or at least to stay put.
EIA Expects Weak Oil Prices for All of 2025. Many analysts expect an oversupplied oil market this year after demand growth slowed sharply in 2024 in the top consuming nations: the U.S. and China. The EIA said it expects Brent crude oil prices to fall 8% to average $74 a barrel in 2025, then fall further to $66 a barrel in 2026.
Housing Starts were up 3.0% in December, with single-family homes up only 3%, while multifamily saw a 59% rise. It should shift away from home sales crushed by 7.2% mortgage rates. You can write off real estate in 2025.
EV and Hybrid Sales Reach a Record 20% of US Vehicle Sales in 2024 and now account for 10% of the total US fleet. And you wonder why oil prices are so low. That includes 1.9 million hybrid vehicles, including plug-in models, and 1.3 million all-electric models. Tesla continued to dominate sales of pure EVs but Cox Automotive estimated its annual sales fell and its market share dropped to about 49%.
SpaceX Starship Blows Up on test launch number seven. The Federal Aviation Administration issued a warning to pilots of a “dangerous area for falling debris of rocket Starship,” according to a pilots’ notice. Looks like that Mars trip will be delayed.
On Monday, January 20, the markets are closed for Martin Luther King Day.
On Tuesday, January 21 at 8:30 AM EST, nothing of note takes place.
On Wednesday, January 22 at 8:30 AM, the API Crude Oil Stocks are printed.
On Thursday, January 23 at 8:30 AM, the Weekly Jobless Claims are announced.
On Friday, January 24 at 8:30 AM, Existing Home Sales are published. At 2:00 PM the Baker Hughes Rig Count is printed.
As for me, back in the early 1980s, when I was starting up Morgan Stanley’s international equity trading desk, my wife Kyoko was still a driven Japanese career woman.
Taking advantage of her near-perfect English, she landed a prestige job as the head of sales at New York’s Waldorf Astoria Hotel.
Every morning, we set off on our different ways, me to Morgan Stanley’s HQ in the old General Motors Building on Avenue of the Americas and 47th street and she to the Waldorf at Park and 34th.
One day, she came home and told me there was this little old lady living in the Waldorf Towers who needed an escort to walk her dog in the evenings once a week. Back in those days, the crime rate in New York was sky-high and only the brave or the reckless ventured outside after dark.
I said, “Sure, what was her name?”
Jean MacArthur.
I said, "THE Jean MacArthur?"
She answered, “Yes.”
Jean MacArthur was the widow of General Douglas MacArthur, the WWII legend. He fought off the Japanese in the Philippines in 1941 and retreated to Australia in a dramatic night PT Boat escape.
He then led a brilliant island-hopping campaign, turning the Japanese at Guadalcanal and New Guinea. My dad was part of that operation, as were the fathers of many of my Australian clients. That led all the way to Tokyo Bay where MacArthur accepted the Japanese in 1945 on the deck of the battleship USS Missouri.
The MacArthurs then moved into the Tokyo embassy where the general ran Japan as a personal fiefdom for seven years, a residence I know well. That’s when Jean, who was 18 years the general’s junior, developed a fondness for the Japanese people.
When the Korean War began in 1950, MacArthur took charge. His landing at Inchon Harbor broke the back of the invasion and was one of the most brilliant tactical moves in military history. When MacArthur was recalled by President Truman in 1952, he had not been home for 13 years.
So it was with some trepidation that I was introduced by my wife to Mrs. MacArthur in the lobby of the Waldorf Astoria. On the way out, we passed a large portrait of the general who seemed to disapprovingly stare down at me taking out his wife, so I was on my best behavior.
To some extent, I had spent my entire life preparing for this job.
I had stayed at the MacArthur Suite at the Manila Hotel where they had lived before the war. I knew Australia well. And I had just spent a decade living in Japan. By chance, I had also read the brilliant biography of MacArthur by William Manchester, American Caesar, which had only just come out.
I also competed in karate at the national level in Japan for ten years, which qualified me as a bodyguard. In other words, I was the perfect after-dark escort for Midtown Manhattan in the early eighties.
She insisted I call her “Jean”; she was one of the most gregarious women I have ever run into. She was grey-haired, petite, and made you feel like you were the most important person she had ever run into.
She talked a lot about “Doug” and I learned several personal anecdotes that never made it to the history books.
“Doug” was a staunch conservative who was nominated for president by the Republican party in 1944. But he pushed policies in Japan that would have qualified him as a raging liberal.
It was the Japanese who begged MacArthur to ban the army and the navy in the new constitution for they feared a return of the military after MacArthur left. Women gained the right to vote on the insistence of the English tutor for Emperor Hirohito’s children, an American Quaker woman. He was very pro-union in Japan. He also pushed through land reform that broke up the big estates and handed out land to the small farmers.
It was a vast understatement to say that I got more out of these walks than she did. While making our rounds, we ran into other celebrities who lived in the neighborhood who all knew Jean, such as Henry Kissinger, Ginger Rogers, and the UN Secretary-General.
Morgan Stanley eventually promoted me and transferred me to London to run the trading operations there, so my prolonged free history lesson came to an end.
Jean MacArthur stayed in the public eye and was a frequent commencement speaker at West Point where “Doug” had been a student and later the superintendent. Jean died in 2000 at the age of 101.
I sent a bouquet of lilies to the funeral.
Kyoko passed away in 2002.
In 2014, China’s Anbang Insurance Group bought the Waldorf Astoria for $1.95 billion, making it the most expensive hotel ever sold. Most of the rooms were converted to condominiums and sold to Chinese looking to hide assets abroad.
The portrait of Douglas MacArthur is gone too. During the Korean War, he threatened to drop atomic bombs on China’s major coastal cities.
Good Luck and Good Trading,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
