“Statistics building off an extremely small base is extremely misleading. The recent economic gains look like typos in some of these categories. Let me know when you have gains from the January base and I’ll believe in the recovery, ” said Josh Brown, an investment advisor.
Global Market Comments
May 4, 2023
Fiat Lux
Featured Trade:
(WHY THE REAL ESTATE BOOM HAS A DECADE TO RUN),
(DHI), (LEN), (PHM), (ITB)
CLICK HERE to download today's position sheet.
Global Market Comments
May 3, 2023
Fiat Lux
Featured Trade:
(WHAT TO BUY AT MARKET TOPS?),
(CAT), ($COPPER), (FCX), (BHP), (RIO)
(TESTIMONIAL)
CLICK HERE to download today's position sheet.
Here is your next decade-long Play.
The urgent question of the day is WHICH stocks do you buy and forget about for good?
The answer is very simple. You buy cheap ones. And what are the cheapest stocks out there?
Commodity stocks.
My friend, Jim Umpleby, said that we are just entering a ten-year super cycle in commodities.
Jim should know. He is the CEO of Caterpillar (CAT), a company I have been following for 45 years. I even have one of their cool worn yellow baseball caps from years past.
Needless to say, the global commodity shortage has created a stampede to buy the company’s heavy machinery.
Industrial commodities are in fact the perfect sector to buy right now. Take a look at the long-term chart for copper prices, which are a great bellwether for the entire industry. They are imminently poised to make a long-term upside breakout.
Copper last peaked at the beginning of 2011, when the Chinese infrastructure build out suddenly out drew to a juddering halt. Prices cratered from $4.60 a pound to a lowly $1.90. Mines were sold off, mothballed, or permanently closed at a record rate.
Copper prices fell so low that the US Mint finally started making a profit on pennies they struck.
Then a funny thing happened.
Copper prices will be assisted by by the global synchronized economic recovery. The recent stock market collapse has given us an entry point one can only dream about.
The share prices of copper and other major commodity producers will soon go ballistic. Freeport McMoRan (FCX), the world’s largest copper producer, (whose management is a long-time reader of this letter) has just seen its stock jump ten-fold from $33.50 a share to $38.49. I expect it to someday reach $100.
You may think that it’s too late to get into the commodities space, but you’d be wrong. Having covered the sector for nearly a half century, there is one thing you learn quickly. While you can shut down a mine in weeks, it can take years to bring them back on line.
As for developing a new mine from scratch, that can take a decade by the time you get design, permits, infrastructure, equipment, and labor in place.
My Australian readers tell me that (BHP) is flying young skilled workers from Brisbane an incredible 2,000 miles to work in Northwest mines in a six week on, six week off work schedule and paying them $200,000 a year to do it. And they’re making a profit doing this!
The bottom line here is that a short squeeze has developed for industrial commodities which will last for years.
Oh, and that global economic recovery? It is on vacation until investors get a sniff of the end of Fed interest rate rises. That could happen in a few months, and no more than a year.
At least, you have something to buy now.
Global Market Comments
May 2, 2023
Fiat Lux
Featured Trade:
(PLEASE SIGN UP NOW FOR MY FREE TEXT ALERT SERVICE RIGHT NOW)
CLICK HERE to download today's position sheet.
A few years ago, my customer support office spent the entire day taking calls from readers who missed my Trade Alert to buy the iShares Barclays 20+ Year Treasury Bond Fund (TLT) March 2019 $177-$180 in-the-money vertical BEAR PUT spread at $2.40 or best. A few days later it became a $4,000 profit.
The bond market completely fell apart afterwards, taking the spread up from $2.40 to $2.70 within minutes.
And I should warn you, this kind of instant blowout result is not unusual at the Mad hedge Fund Trader, as long-time followers of my service will tell you.
Having Trade Alerts that move so fast into the money is a good problem to have.
Subscribers to the Text Alert Service received messages on their cell phones within seconds worldwide, and thus were able to act immediately on my perfectly timed Trade Alerts.
Every time I see this happen, I am amazed that I lived this long to see this technology develop. It’s all really great…. when it works.
This eliminates frustrating delays caused by traffic surges on the Internet itself, and by your local server. Because our email application, Aweber Solutions, is unable to invest fast enough to keep up with the growth of their own business, we are encountering more frequent delays in our emails (see messages below).
To sign up for the Trade Alert Service, please email Filomena direct at support@madhedgefundtrader.com .
Time is of the essence in the volatile markets. Individual traders need to grab every advantage they can. This is an important one.
Good luck and good trading.
Global Market Comments
May 1, 2023
Fiat Lux
Featured Trade:
(FRIDAY, MAY 19, 2023 BOCA RATON, FLORIDA STRATEGY LUNCHEON)
(MARKET OUTLOOK FOR THE WEEK AHEAD, or THE MARKET THAT TIME FORGOT)
CLICK HERE to download today's position sheet.
This has become the Rip Van Winkle market. Go to sleep for 20 years and nothing has changed. Well, at least it seems like 20 years.
Last Monday saw the lowest trading volume of 2023. Trading ranges are the narrowest since the 1990s. The Volatility Index ($VIX) hit a two-year low at $15.78.
Themes come and go with no net change in the indexes. One week, it's artificial intelligence, the next it’s the regional banking crisis. Gold bubble (GLD) anyone? How about an auto price war? It’s like the market keeps throwing spaghetti on the way to see what sticks, but nothing ever does.
In fact, 80% of the gains this year have taken place in just seven stocks, and you know which ones, the AI leaders. You wouldn’t be surprised to learn that AI has added $1.4 trillion in market value this year. It has also eliminated 600,000 jobs. Most of the 200,000 tech jobs lost this year have been felled by AI.
If you are befuddled by this, you are not alone. Hedge funds lost $18 billion in Q1 on their technology shorts. That last bastion of volatility, Tesla (TSLA), saw its option implied volatility crushed from 100% to only 48.4% as both call and put prices were crushed.
I was in Las Vegas last week to visit Concierge clients where they are already boasting about the move there by the Oakland A’s baseball team. The Las Vegas A’s? It doesn’t sound quite right.
I also had the chance to drop in on an online market conference. When the question was asked how many financial newsletters were now written by ChatGPT, three-quarters of the hands went up. I sat there dumbfounded. At least ChatGPT might do better than market advice written by professional copywriters and marketers. It is a very low bar to reach.
I know you don’t want to hear this, but markets are set to remain in the same tedious ranges at least until the summer. Bonds, on the other hand, seem to be begging for an upside breakout, driven by recession fears. Keep buying (TLT) calls, call spreads, and one-year LEAPS. We are headed to a 2.50% ten-year yield by yearend.
Of course, if you know that nothing is going to happen you can make a fortune, as I have amply proven this year.
My big bet that Tesla shares would stay within a $100 range for three weeks paid off hugely. April closed out at an incredible +15.13% profit. My 2023 year-to-date performance is now at an eye-popping +61.75%. The S&P 500 (SPY) is up only a miniscule +9.47% so far in 2023. My trailing one-year return maintains a sky-high +116.20% versus +3.06% for the S&P 500.
That brings my 15-year total return to +658.94%. My average annualized return has blasted up to +49.11%, another new high, some 2.75 times the S&P 500 over the same period.
Some 43 of my 46 trades this year have been profitable. After 30 trade alerts in April, I have to admit I am getting a little tired.
I initiated no new trades last week, content to run off existing profitable ones. With the Volatility Index at a two-year low at 15.78%, opportunities are few and far between. Those include longs in Boeing (BA) and shorts in the (QQQ) and the (SPY).
That leaves me with longs and shorts in Tesla (TSLA) and a double long in the bond market (TLT). That leaves me 40% long, 20% short, for a net long of 20%.
Whenever I enjoy a terrific run like this, I become extremely cautious. Chaos Theory dictates that a reversion to the mean is coming. I just hope it’s a small one.
Weekly Jobless Claims Rise Another 5,000, to 245,000, a new year high. The tide of poor economic data is rising.
Meta (META) Earnings Explode to the Upside, taking the shares up 12%. The company seems to be the early winner in AI. A comeback in digital advertising was the major factor here. So was aggressive cost-cutting through layoffs, some 12,000 so far. It reinforced my argument that big tech is safe tech.
Boeing (BA) Bumps 737 Max Production to 38 planes a month, up from 31, returning it as the number one airplane manufacturer in the world. The stock popped 5% on the news. Net earnings are now up 28% YOY, improving net earnings by 2%. The company expects $3 -$5 billion in free cash flow this year. Buy (BA) on dips.
Tesla (TSLA) Drops Model Y Price Again, to $46,990. The base Model Y now costs $759 less than the average amount paid for a car or truck in the US. The differential between these figures has changed by more than $20,000 since the middle of last year. This is the price war to end all price wars.
$1 trillion Boosts Asset Prices in Q1. What will happen when it’s not there? Mad Hedge thinks stocks go down, never fans of draining liquidity. Another Fed Rate Rise will pour gasoline on the fire. The inflow cut 50 basis points in yield from investment-grade bonds, delivering the best total returns since 2019.
Bank Insider Buying Hits Record, with over 1,000 officers buying the shares of their own companies. Do you think they know something we don’t?
New Home Sales Pop, to 683,000, 50,000 better than expected in March. That is up 10%, the best MOM in a year on a signed contract basis. Those incentives and mortgage buydowns are coming hot and heavy. New home inventories shrunk from 8 months to 7.6 months.
Pending Home Sales Plunge 5.2%, with the high-interest rate bogeyman back for a return visit. This is the best leading indicator for the residential real estate market. A shortage of homes for sale is also a major factor. In the meantime, prices have resumed rising, although slowly.
S&P Case Shiller Rises 2%, in February, the first time in nine months. At a 2.6% YOY rate, we are seeing the slowest price growth in 11 years. Miami led the pack with a 10.8% YOY gain, followed by Tampa at 7.7% and Atlanta at 6.6%.
US GDP Slows in Q1, to a 1.1% annual rate. That’s a full percent below estimates. Rising inventories are a problem, a key recession indicator. High inflation is another issue.
New Car Loans are in Free Fall, and car sales can’t be far behind. It is collateral damage from the regional bank crisis, hastening a coming recession. High loan interest rates are another dagger through the heart. That sends Detroit into a tailspin and may explain the recent $67, or 31% plunge in Tesla too.
My Ten-Year View
When we come out the other side of the recession, we will be perfectly poised to launch into my new American Golden Age, or the next Roaring Twenties. The economy decarbonizing and technology hyper-accelerating, creating enormous investment opportunities. The Dow Average will rise by 800% to 240,000 or more in the coming decade. The new America will be far more efficient and profitable than the old.
Dow 240,000 here we come!
On Monday, May 1 at 7:30 AM, the ISM Manufacturing Index is out.
On Tuesday, May 2 at 6:00 AM, the JOLTS Job Openings is announced.
On Wednesday, May 3 at 11:00 AM, the US ADP Private Employment Report is printed.
On Thursday, May 4 at 8:30 AM, the Weekly Jobless Claims are announced. We also get the Balance of Trade.
On Friday, May 5 at 8:30 the Nonfarm Payroll Report for April is released.
As for me, as you may imagine, the most interesting man in the world is impossible to shop for when it comes to Christmas and birthdays.
So, it was no surprise when I opened a box and found a DNA testing kit from 23 and Me. So, I spat into a small test tube to humor the kids, mailed it off, and forgot about it.
I have long been a keeper of the Thomas family history and legends, so it would be interesting to learn which were true and which were myths.
A month later, what I discovered was amazing.
For a start, I am related to Louis the 16th, the last Bourbon king of France, who was beheaded after the 1789 revolution.
I am a direct descendant of Otzi the Iceman, who is 5,000 years old and was recently discovered frozen in an Alpine glacier. He currently resides in mummified form in an Italian museum. So my love of the mountains and hiking is in my genes.
Oh, one more thing. The reason I don’t have any hair on my back is that I carry 346 gene fragments that I inherited directly from a Neanderthal. Yes, I am part caveman, although past girlfriends suspected as much.
There were other conclusions.
I have a higher-than-average probability of getting prostate cancer, advanced macular degeneration (my mother had it), celiac disease, and melanoma. I immediately booked a physical with my doctor.
The service also offered to introduce me to 1,107 close relatives around the world who I didn’t know, mostly in New York, California, and Florida.
The French connection I already knew about. During the 16th century, my ancestors rebelled against the French kings over the nonpayment of taxes and were exiled to Louisiana.
Fleeing a malaria epidemic, they moved up the Mississippi River to St. Louis and stayed there for 200 years. When gold was discovered in California in 1849, they joined a wagon train headed west. It only got as far as Kansas where it was massacred by Cherokee Indians.
I am half-Italian and have birth certificates going back to 1800 to prove it. But 23 and Me says that I am only 40.7% Italian (see table below). It turns out that your genes show not only where you came from, but also who invaded your home country since the beginning of time.
In Italy’s case, that would include the ancient Greeks, Vikings, Arabs, the Normans, French, Germans, and the Spanish, thus making up my other 9.3%. Your genes also reflect the slaves your ancestors owned, for obvious reasons, as well as many of the servants who may have worked for them.
It gets better.
All modern humans are descended from a single primordial “Eve” who lived in Eastern Africa 180,000 years ago. Of the thousands of homo sapiens who probably lived at that time, the genes of no other human-made it into the modern age. We are also all descended from a single “Adam” who lived 275,000 years ago. Obviously, the two never met, debunking some modern conventions.
Around 53,000 years ago, my intrepid ancestors crossed the Red Sea to a lush jungle in the Sinai Peninsula probably pursuing abundant game. 11,000 years ago they moved onto the vast grasslands of the Central Asian Steppes. As the last Ice Age retreated, they moved into the warmer climes of South Europe. We have been there ever since.
23 and Me was founded in 2006 by Anne Wojcicki, wife of Google founder Sergei Brin. It is owned today by her and a few other partners. Its name is based on the fact that humans' entire DNA code is found on 23 pairs of chromosomes.
23 and Me and other competitors like Ancestry.com, MyHeritage, and Living DNA have sparked a DNA boom that has led to once unimagined economic and social consequences. DNA promises to be for the 21st century what electricity was to the 20th century. The investment consequences are amazing.
Talk about unintended consequences with a turbocharger.
A common ancestor going back to the early 1800s enabled Sacramento police to capture the Golden State killer. Unsolved for 40 years, it took a week for them to find him after a DNA sample was sent to a DNA database.
Thirty and 40-year-old cold cases are now being solved on a weekly basis. Long ago kidnapped children are being reunited with their parents after decades of separation.
California just froze all executions. That’s because DNA evidence showed that approximately 30% of all capital case convictions were of innocent men. That was enough for me to change my own view on the death penalty. The error rate was just too high. Dozens of men around the country have been freed after new DNA evidence surfaced, some after serving 30 years or more in prison.
23 and Me had some medical advice for me as well. They strongly recommended that I get tested for diabetes and high blood pressure, as these maladies are rife among my ancestors. They even name the specific guilty gene and haploid group.
This explains why major technology companies, like Amazon (AMZN) and Apple (AAPL) are pouring billions of dollars into genetic research.
I have long had a personal connection with DNA research. I worked on the team that sequenced the first-ever string of DNA at UCLA in 1974. It was groundbreaking work. We obtained our raw DNA from Dr. James Watson of Harvard, who along with Francis Crick, were the first to discover its three-dimensional structure. As for my UCLA professor, Dr. Winston Salser, he went on to found Amgen (AMGN) in 1980 and became a billionaire.
The developments that are taking place today then seemed to us like science fiction that was hundreds of years into the future. To see the paper created by this work please click here.
As research into DNA advances it is about to pervade every aspect of our lives. Do you have a high probability of getting a disease that costs a million dollars to cure and are counting on getting health insurance? Think again. That may well bring forward single-payer national health care for the US, as only the government could absorb that kind of liability.
And if you can only hang on a few years, you might live forever. That’s when DNA-based monoclonal antibodies and gene editing are about to cure all major human diseases. DNA is about to become central to your physical health and your financial health as well.
To learn more about 23 and Me please visit their website here.
Maybe the next time I visit the Versailles Palace outside of Paris, I should ask for a set of keys, now that I’m a relative? Unfortunately, it’s much more likely that I’ll get the keys to my Neanderthal ancestor’s cave.
Stay healthy.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Global Market Comments
April 28, 2023
Fiat Lux
Featured Trade:
(THURSDAY, MAY 16, 2023 KEY WEST, FLORIDA STRATEGY LUNCHEON)
(APRIL 26 BIWEEKLY STRATEGY WEBINAR Q&A),
(FRC), (IWM), (QQQ), (AAPL), (TSLA), (AMZN), (TSLA), (RIVN), (CRM), (TLT), (HYG)
CLICK HERE to download today's position sheet.
Below please find subscribers’ Q&A for the April 26 Mad Hedge Fund Trader Global Strategy Webinar, broadcast from Las Vegas, NV.
Q: Would you start adding to The Russell 2000 (IWM) around here?
A: No, the Russell 2000 is the most sensitive to market action and the most sensitive to an economic downturn, which it seems we have already entered. And you don’t add positions one week into the downturn, you do it like 3-6 months into the downturn. So, I would not touch (IWM) right around here.
Q: Are you buying more First Republic Bank (FRC) down here?
A: No, at this point the stock is a no-go. It is a ripe takeover target for someone, and the risk is, the takeover price is lower than your cost. I don’t understand why First Republic is down this far—like 97% — and when I don't understand things, I stay away. I had never seen a bank go under before that didn’t have bad loans, nor has anyone else. A lot of people were asking if they should double up, we went from $16 to $6 in a day, and the firm answer is that I just don’t know. The fundamentals of the company by no means justify that discount, it must be discounting something terrible that we haven’t heard yet. So I’m going to stay away and look for better trades to do.
Q: I missed the Tesla (TSLA) trade on Friday, should I be looking to buy the dips down here?
A: Yes, I would. I put out a May $110-$120 vertical bull call debit spread on Tesla, which is now only 3 weeks to expiration. Remember, at Tesla’s growth rate, the company is now 12% larger than it was when it hit the $104 bottom in January. I should point out that once our trade alert went out, it literally triggered billions of dollars worth of market action and crushed volatility. It took the implied volatility on Tesla options down 10% on that one day. So, with implied volatility this low, I’m not sure you can get Tesla done at any price that makes sense—but if you can, I’m all for it. As for the short, we’re almost in max profit on our Tesla short position. It’s cratered about $35 since we put it on, so I wouldn’t be chasing that one.
Q: Is there a reason why Freeport McMoRan (FCX) is not progressing upwards?
A: Recession fears—the long-term case for copper is spectacular— I’m looking for $100 in (FCX) a couple years down the road. With the short term, all they see is recession and US government debt default, and as long as those two things are overhanging the market, all of the economically sensitive plays are going to go down. You’re not going to get gains, you’re going to get losses. If you want to know how the debt default is working out, you can write a letter to Kevin McCarthy in Washington DC and ask him what he’s going to do. The stock market doesn’t like it for sure, so I’m inclined to go back to 100% cash and duck that whole cluster.
Q: Can China survive without foreign investment?
A: Yes, with a much lower standard of living, and technology that is greatly lagging behind the US. The Chinese use all the foreign investment going on to upgrade their own technology—it's very common for a Chinese worker to work for an American company for a year and then walk across the street and work for their main Chinese competitor. That is a major means of technology transfer. Without that, they fall way behind, and they know it. You can’t copy your way to leadership, as Japan found out to their great expense in the 1990s. You can add that to the long list of reasons why China will never invade Taiwan. Not only have they cut off their food and energy supply, but also their technology supply.
Q: Would it be safe to deposit my money with Apple (APPL) who’s offering a 4.15% interest rate?
A: Yes, Apple has about $150 billion in cash on the balance sheet to back up any deposit runs. I imagine Apple financially is probably far safer than any small regional bank in the US. But, there are better things to do than Apple, and that’s the good old 90-day US T-bill. That bill never defaults; it’s offering 5.2% — it may even be a little bit higher after May 3 when the Federal Reserve raises interest rates by 25 basis points.
Q: Aren’t earnings coming in better than expected?
A: Yes they are, however, the earnings season was frontloaded with the best-performing sector in the market—i.e. the banks—which you were 100% long of until last week, and the weaker performers are next. That seems to be what the stock market is telling us with the selloff, and of course, the weaker performers are technology stocks. So that's why I piled on the shorts (especially in the Invesco QQQ Trust), that’s why I cut back position sizes, it’s time to take the money and run.
Q: How much longer do you plan to do this?
A: Well Warren Buffet is 92 and he seems to be doing just fine. Joe Biden plans to be President of the United States until he is 86. Work for these men is their lives and they will never quit. The same is true for me. If they can do that, I can certainly run Mad Hedge Fund Trader until I am 92, or for 21 more years. Besides, what else would I do? I’m terrible at golf, I hate pickleball, Bingo is boring and is usually rigged, and all the other stuff that people my age do doesn’t appeal in the least.
Q: Are there ETFs that mirror the rates of 90-day T-bills, or is it better just to buy direct through my broker?
A: It’s always better to buy T-bills directly because your ETF does not work for free. They’re taking out fees somewhere, even if you can’t see them, even if they’re not in the marketing material—nobody works for free; except the US government, it would seem. So buy directly from the US government. If you own the T-bills and your institution goes bankrupt, you can always get your T-bills back in a couple of days. If you own their ETF that mirrors the T-bill, that can become a complete loss and you’ll get tied up in bankruptcy proceedings that last three years (and you may or may not get your money back.) So T-bills directly are the gold standard, I would buy those if you’re looking for a cash alternative.
Q: What about Rivian (RIVN)?
A: It’s red meat in this kind of market—don’t touch it. If the entire car industry is rolling over, including Tesla, don’t expect Rivian to outperform in that situation. As for Amazon (AMZN), like all tech stocks, I’m going to wait for the current selloff to work its way for its system, but then it’s probably a great long term buy and a two-year LEAPS.
Q: What’s your estimate for S&P earnings?
A: I’m at $220 a share which today gives us a multiple of 18.73, which is the middle of the recent range. We may drop a point or two from there, but that’s close enough for the cigar.
Q: Won’t wider credit spreads hurt iShares iBoxx $ High Yield Corporate Bond ETF (HYG)?
A: Yes, for the short term, but you’re being compensated for that by the 8% yield; and you’re buying junk bonds not for where they are for the next month or two, but where they are for the end of the year, which would be at least 10$-15% higher than they are now, so your total “all in” return might be as much as 25%. Not bad.
Q: What’s your thought on the Salesforce (CRM) drop?
A: I’ll buy it in about 3 months, once the next tech washout is finished and they’re throwing these things out with the bathwater.
Q: Do you think iShares 20 Plus Year Treasury Bond ETF (TLT) will trade higher if the market collapses?
A: Yes it will; that is your classic flight to safety out of stocks into bonds. We haven’t seen it in quite a while because both of them have been moving up and down together.
To watch a replay of this webinar with all the charts, bells, whistles, and classic rock music, just log in to www.madhedgefundtrader.com, go to MY ACCOUNT, click on GLOBAL TRADING DISPATCH or TECHNOLOGY LETTER, then WEBINARS, and all the webinars from the last 12 years are there in all their glory.
Good Luck and Stay Healthy.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Playing the Penny Slots in Las Vegas is Definitely NOT my Retirement
