Last week, the markets ignored a collapsing bond market, exploding national debt, global shooting wars, trade wars, tariff chaos, rapidly weakening economic data, and the shredding of our international relations. It’s a lot like 1999, when every news headline was taken as yet another reason to buy more tech stocks, most of which are no longer with us.

Only a blind man would be establishing new longs up here. How can this madness take place? What happens when someone hands the market a pair of glasses? Markets are priced for perfection, but we live in anything but a perfect world.

The explanation is very simple. Investors have been focusing on promised corporate tax cuts, some 100% of which will go into stock buybacks. It explains why the biggest buyback companies, like Alphabet (GOOGL), Microsoft (MSFT), Nvidia (NVDA), JP Morgan (JPM), and Visa (V), have seen the best performance since the April 9 bottom. Only in the case of Apple (AAPL) have gigantic share buybacks kept their shares falling more, instead of rising.

In fiscal year 2024, the U.S. federal government collected approximately $530 billion in revenue from corporate income taxes. This accounted for 11% of the total federal government revenue collected in FY2024, which was roughly $5 trillion. If the corporate tax rate drops from 21% to 15% as the House budget bill proposes, that would free up a further $151 billion for more stock buying.

And that’s just the appetizer. Add in other proposed tax breaks, such as the expensing of capital investment entirely in the year the money was spent. That takes the total corporate tax breaks rise to a mind-numbing $664 billion, all of which will go into stock buybacks. That’s on top of the $1.2 trillion in buybacks budgeted for this year.

And that’s your entire bull case right there.

Corporations made all-time high profits in 2024 and haven’t even been asking for tax cuts. Their origins are purely ideological.

Some 100% of this will be borrowed from future generations. It is amazing how short-term the view of this administration is. By adding $3 trillion to the deficit, the strategy seems to be “Play now and pay later,” except that later we will be broke. We are eating all of our seed corn. It’s like there has been a hostile takeover of the US economy by an asset-stripping vulture fund.

Another explanation for the endless bull is that the muscle memory for both individual and institutional investors for the past 16 years has been to “Buy the dip”. Despite a brief two-month dip during the 2020 Pandemic and a six-week heart attack this year, this strategy has worked the entire time.

Institutions are still underweight equities. No serious professional bought into the rapidly weakening fundamentals for the US economy. If you back out the previous month’s revisions, the May Nonfarm Payroll Report came in at only 44,000 jobs. Weekly Jobless Claims are at an 8-month high. Q2 corporate profits are expected to be down 25%-50%. Yet earnings multiples are back at all-time highs.

It’s starting to look like a 1999 stock market. The worse the news gets, the more stocks people want to buy.

It’s not an outlook you bet the ranch on. It’s an accident waiting to happen. Look what happened in February the last time we saw these 22X valuations. But the market sees what it wants to see.

There is one minor chink in this argument. If the China negotiations blow up and we go back to another triple-digit business-killing tariff level, we double top immediately, and the (SPX) goes back and retests the lows at 4,800.

You tell me what’s going to happen.

I’ve made most of my money this year on the short side, the first time since 2008. By cherry picking studious timing with (AAPL), (TSLA), (MSTR), and (NVDA) and hedging your shorts with gold and silver longs, you can make money even when indexes rise, such as the art of the hedge fund manager (see below).

Buy low/sell high, it’s my new investment strategy. I’m thinking of patenting it. Sell high, buy back low also works.

My silver call (SIL), (SLV), (AGQ) unfolded nicely last week, the white metal picking up a quick 10% to rise to a new 13-year high. We may get some profit taking here as silver has far more industrial demand than gold, so the recession will be a drag. But the long-term bull market is on, so buy dips from here on. $50 here we come.

Tesla provided us with a nice windfall on Thursday, with some of the most chaotic options trading in market history. On the week, the shares dropped by an incredible $85, or 23.2%. More importantly, the implied volatility for the options soared from 59% to 85%, with some strike prices closing as high as 105%.

What happened was that long-term Tesla bulls were writing out-of-the-money calls against their positions to soften the blow, mitigate risk, and lower their average cost. Cascading market orders to sell calls drove implied volatilities to unbelievable levels. As a result, I was able to cover my shorts at great prices and open up news longs at even better prices.

Traders live for events like these.

In the meantime, the value of my 2018 Model X P100D has shrunk this year from $65,000 to $35,000, according to Kelley Blue Book (click here.) I can’t park on the street in San Francisco for fear of having a swastika scratched on the side. And Tesla is offering me a brand new CyberTruck for $80,000, down 33% from the launch price, with zero percent financing for five years, lifetime free charging, and free full self-driving. They have 20,000 of them.

Brand destruction is a cruel master.

My very long-term target for Tesla is $4,600. So I shouldn’t mind buying the stock at $180, which I did on Friday. At the moment, it is a money-losing car company with potential businesses in Robotaxis, xAI, robots, and solar energy, that don’t actually exist yet. You’re essentially buying the dream. But the dream has been working for 15 years with my average share cost of $2.35. We just have to get Elon Musk to focus on engineering instead of politics.

It’s easy to see how legions of traders make a living solely trading (TSLA) options.

Any Buyers?

By the way, if you’re looking for rare earths play, look at Las Vegas-based MP Materials. Morgan Stanley just recommended the stock as their best play in the sector, causing it to soar 50% in a week.

My June performance rocketed up to +6.59%, taking us to new all-time highs on all metrics. That takes us to a year-to-date profit of +36.28%. My trailing one-year return exploded to a record +90.96%. That takes my average annualized return to +50.84% and my performance since inception to +788.18%.

It has been another week in an active market. I added a new long in Wheaton Precious Metal (WPM), taking advantage of a major upside breakout in silver. I also added a short in the (TLT), betting that the next US Treasury auction will go badly. I took profits in short positions in (TSLA) and (MSTR).

The Mad Hedge Technology Letter took profits in a long position in Palo Alto Networks (PANW). That leaves me a shrinking 60% “RISK OFF” in (GLD), (SPY), (AAPL), (TLT), and (WPM), 30% long in (MSTR) and (TSLA), and 10% cash.

Some 63 of my 70 round trips in 2023, or 90%, were profitable. Some 74 of 94 trades were profitable in 2024, and several of those losses were really break-even. That is a success rate of +78.72%.

Try beating that anywhere.

Nonfarm Payroll Report comes in weak. Nonfarm payrolls increased 139,000 last month after a combined 95,000 in downward revisions to the prior two months for a net gain of only 44,000. The unemployment rate held at 4.2%, while wage growth accelerated. Friday’s report narrowly exceeded forecasts, bolstering bulls who were primed for disappointment after data this week raised doubts about the buoyancy of American hiring.

US Trade Deficit Shrinks at the Fastest Rate in History, as imports collapse, a classic sign of a deteriorating economy. The rush of imports to beat the tariffs ended. The trade gap contracted by a record 55.5% to $61.6 billion, the lowest level since September 2023, the Commerce Department’s Bureau of Economic Analysis said on Thursday. Data for March was revised to show the trade deficit having widened to an all-time high of $138.3 billion rather than the previously reported $140.5 billion.

Worker Productivity is Collapsing, at a faster pace than initially thought in the first quarter, driving labor costs sharply higher at a time when businesses are already facing rising costs from tariffs on imported goods. Nonfarm productivity, which measures hourly output per worker, decreased at a 1.5% annualized rate last quarter, the Labor Department’s Bureau of Labor Statistics said on Thursday.

That was revised down from the previously reported 0.8% pace of decline and marked the first drop since the second quarter of 2022.

Silver Hits a 13-Year High, at $35 an ounce, and is catching up with gold quickly. Known both as a safe-haven asset and a vital industrial metal, silver has surged 24% so far in 2025. Industrial uses account for more than half of global silver demand, according to the Silver Institute industry association. $50 here we come!

U.S. Economic Output (GDP) will Fall as a Result of New Tariffs on Foreign Goods, the non-partisan Congressional Budget Office said on Wednesday. The CBO said the tariffs, which have been challenged in court cases, will raise the costs of consumer and capital goods while increasing inflation.

ADP Hits Two-Year Low, as new hiring grinds to a halt. Sectors including business services, education, and health shed jobs, pointing to a weakened demand for workers. Private-sector payrolls increased by 37,000 last month, lower than all estimates. That marked the second month in a row when the figures were well below expectations. After a strong start to the year, hiring is losing momentum.

US Factory Orders Dive, New orders for U.S.-manufactured goods dropped sharply in April, and business spending on equipment appeared to have lost momentum at the start of the second quarter as the boost from front-loading of purchases ahead of tariffs faded.

ISM Nonmanufacturing PMI drops to one-year low, down 49.9, indicating an economic contraction. Tariff uncertainty complicates business planning and affects financial guidance. Supply chain bottlenecks and tariffs drive inflation concerns. Yet another recession indicator.

Housing Stocks Plunge to One-Year Lows, on yesterday’s spike in long bond and mortgage rates. Construction spending collapsed in April, down 0.9%, for both single and multifamily homes. Another red flag for the economy.

Meta to Buy Nuclear Power from Constellation (CEG), as AI energy demand soars. The parent company of Facebook, Instagram, and WhatsApp signed a 20-year contract to buy 1,121 megawatts from Constellation’s Clinton plant starting in mid-2027, when a state subsidy expires. Constellation, the biggest US nuclear operator. Buy (CCJ) on dips.

Money is Fleeing Equity Funds.  U.S. equity funds faced a second successive weekly outflow in the week through May 28 as tariff threats from and concerns over rising borrowing costs prompted investors to cut exposure to U.S. assets. Investors pulled a net $5.46 billion worth of capital from U.S. equity funds during the week, adding to the previous week’s $11.02 billion net sales, data from LSEG Lipper showed.

OPEC Plus is Ramping Up Production. The world’s largest group of oil producers, OPEC+, stuck to its guns at a Saturday online meeting with another big increase of 411,000 barrels per day for July as it looks to wrestle back market share and punish over-producers. Having spent years curbing production – more than 5 million barrels a day (bpd) or 5% of world demand – eight OPEC+ countries made a modest output increase in April before tripling it for May, June, and now July. Avoid all energy plays.

My Ten-Year View – A Reassessment

On Monday, June 9, at 8:30 AM EST, the Wholesale Inventories are printed.

On Tuesday, June 10, at 7:30 AM, the Redbook Retail Sales is announced.

On Wednesday, June 11, at 1:00 PM, the Core Inflation Rate is released.

On Thursday, June 12, at 8:30 AM, the Weekly Jobless Claims are disclosed. We also get the Producer Price Index.

On Friday, June 13, at 7:30 AM, we get the University of Michigan Consumer Sentiment. At 1:00 PM, the Baker Hughes Rig Count is published.

As for me, I didn’t know what to expect when I landed on the remote South Pacific Island of Yap in 1979, one of the Caroline Islands, but I was more than pleasantly surprised.

Barely out of the Stone Age, Yap lies some 3,000 miles west of Hawaii. It was famed for the ancient lichen-covered stone money that dotted the island, which had no actual intrinsic value.

The value was in the effort that went into transporting them. With some cylindrical pieces larger than cars, geologists later discovered that they had been transported some 280 miles by outrigger canoe from the point of origin sometime in the distant past. Since Yap had no written language, there are no records about them, only folktales.

I often use the stone money of Yap as an example of the arbitrariness of fiat money. Who’s to say which is more valuable: a 500-pound piece of rock or a freshly printed $100 Benjamin from the US Treasury?

You decide.

The natives were a gentle and friendly people. They wore grass skirts purely for the benefit of Western visitors. They preferred to walk around as nature made them.

There was no hotel on the island at the time, so I was invited to stay with a local chief (picture below).

One of my hosts asked if I was interested in seeing a Japanese Zero fighter. Yap wasn’t invaded by the US during WWII because it was bypassed by MacArthur on his way to the Philippines. The Japanese troops were repatriated after the war, but most of their equipment was left behind. It was still there.

So it was with some anticipation that I was led to a former Japanese airfield that had been abandoned for 35 years. There, still in perfect formation, was a squadron of zeroes. The jungle had reclaimed the field, and several planes had trees growing up through their wings.

The natives had long ago stripped them of anything of value, the machine guns, nameplates, and Japanese language instruments. But the airframes were still there, exposed to the elements and too fragile to move.

During my stay, I came across an American Peace Corps volunteer desperate for contact with home. A Jewish woman in her thirties, she had been sent there from New York City to teach English and seemed to have been forgotten by the agency.

I volunteered for the Peace Corps. myself out of college, but it turned out they had no need for biochemists in Fiji, so I was interested in learning about her experience. She confided in me that she had tried wearing a grass skirt to blend in, but got ants on the second day. We ended up spending a lot of time together, and I got a first-class tour of the island.

Suffice it to say that she was thrilled to run into a red-blooded American male. I wish I had taken a picture of her, but the nearest color film processing was back in Honolulu, and I had to be judicious in my use of film.

The highlight of the trip was a tribal stick dance put on in my honor around an evening bonfire among much yelping and whooping. It was actually a war dance performed with real war clubs, and their furiousness was impressive.

I had the fleeting thought that I might be on the menu. Cannibalism had been practiced here earlier in the century. During the war, when starvation was rampant, several of the least popular Japanese soldiers went missing, their bodies never found. When men come screaming at you with a club in the night, your imagination runs wild.

Alas, I could only spend a week on this idyllic island. I was on a tight schedule courtesy of Air Micronesia, and deadlines beckoned. Besides, there was only one plane a week off the island.

It was on to the next adventure.

A Few New Friends

Large Denomination Stone Money

My Accommodation

A Neglected Japanese Zero

Good Luck and Good Trading,

John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader