Diary Archives - Mad Hedge Fund Trader

September 7 Biweekly Strategy Webinar Q&A

Below please find subscribers’ Q&A for the September 7 Mad Hedge Fund Trader Global Strategy Webinar broadcast from Silicon Valley in California.

Q: Do you think a snapback rally has started? If so, should we increase the size of the September Microsoft (MSFT) spread?

A: Absolutely not. There is no money in 7-day-to-expiration trades. That's why you never see them from me. If you are going to do a position, we’re now looking at October, which has five weeks to run; and I'm waiting for a better entry point. One day does not make a bull market. We also have the volatility index at $25, which is not a good entry point either, so don’t double up on Microsoft here, and avoid 7-day options trades unless you want to be a day trader.

Q: What is your target for the year-end S&P 500?

A: I’m still looking at 4,800. I think we could bottom sometime in the next few weeks—the worst case is the beginning of October—and then it’ll be straight up for the rest of the year. Once we go from discounting the next CPI, which is out on Tuesday the 13th, then we have sort of a no man's land and in October, we start discounting the midterm election, which at the moment is looking like a Democratic win on all fronts.

Q: Amazon (AMZN) has been losing money over the past 2 quarters due to fuel expenses. Is the solution investment in new electric delivery trucks?

A: Yes. In fact, Amazon owns 25% of Rivian (RIVN), and their initial order was to manufacture 100,000 all-electric delivery trucks for Amazon. That has always been the basis for investing in Rivian. It’s been a fantastic investment for Amazon as a stock so far, and when Amazon goes all electric you can bet they’ll power that largely with solar energy. Then they will be out of the energy business entirely; they’ll be producing their own energy and then consuming it, which is the most efficient way to use alternatives, cutting out about 10 different middlemen.

Q: Will the UK pound perform well with this new prime minister?

A: No, the pound is being driven down by rising US interest rates and the energy crisis in Europe, and in fact, I think no matter who the prime minister is, they’re going to have a really difficult time with the economy because of Brexit, which I believe over the long term will reduce British standards of living by half. I don’t know much about the new prime minister as she was in diapers when I was living in England, but it’s a terrible place to invest for the foreseeable future for all of those reasons.

Q: Is it time to buy Tesla (TESLA) for a trade?

A: Well you know me, I’m a perfectionist always trying to buy the bottom. I’m waiting for the market to throw up on its shoes, which it just hasn’t done this year. And I did make a killing on that last move down to $210. We then went up to $310. So, I'm sitting here, 100% cash, waiting to go 100% into Tesla again. It just seems to be a money-making machine for me, and the good news about the company just keeps coming every day.

Q: What strategy would you recommend for income?

A: I would go short dated. 2-year papers now paying 3.5%. I would not go long dated at all, that would be just throwing your money away. Locking in a 3.5% yield for 10 or 20 years would be a perfect money destruction machine. So, go to 2 years, which is essentially going to cash. At least you’ll get the 3.5% with no volatility.

Q: Prediction for the midterms?

A: I’m looking for a Democratic sweep. I analyzed all 33 Senate seats last night that are up for grabs and the Democrats could pick up 2 or even 3 seats. The weak candidates the Republican party has put forward in the most important states are performing very poorly in both fundraising and the polls.

Q: When do you think would be a good time to buy a house for your personal residence?

A: I would say the next time they start to cut interest rates in a couple of years. That is when housing takes off again. I was actually researching this just yesterday—the worst housing crisis we had in 100 years, you had a bear market for houses that only lasted 2 years. That was of course the 2008-2009 disaster driven by massive overbuilding of speculative housing. We haven't had that happen this time. And in fact, we’re short 10 million houses because the capacity cutbacks that happened in ‘08 and ‘09 never recovered. So, I’m kind of thinking, you don’t get crashes in real estate prices now, you get flatlines, and then they take off again because everybody in the world now has 2.75% interest rates and if they sell their house and move their cost-of-living doubles because their mortgage interest rate doubles. So we’re all kind of trapped in our houses now and can’t sell because the alternatives are so much more expensive. That takes enormous pressure off the real estate market, which leans in favor of the flat market thesis.

Q: Do you still love Nvidia (NVDA)?

A: I still love Nvidia. They’ll make up the China losses in no time. And by the way, guess who else uses Nvidia chips? The HIMARS missiles, where demand has suddenly rocketed from 3,000 to 14,000 missiles a year, which is more than the Chinese were ever going to use, and we’re using those up very rapidly by giving them to Ukraine. Every time one of those missiles gets fired uses a whole batch of Nvidia AI cards. So use this dip to load the boat, you’re looking at 20% of downside and maybe 300% of upside on Nvidia on a three-year view. NVIDIA is now down 58% from its high so averaging anywhere around here is fine.

Q: Can you suggest a hedge for the next 4-6 weeks?

A: The only hedge that works is cash. I’ve tried a million hedging strategies over the last 50 years, and the only thing you can rely on is cash. And by the way, cash actually pays you money now. You can earn 2% in interest or more if you’re going to deposit it with a broker.

Q: With electricity shortages already happening, what electricity infrastructure company would you be looking at for investing in the future of EVs?

A: I’ve been investing based on exploding electric power costs myself for the last 15 years. A lot of my plays like SunPower (SPWR) and First Solar (FSLR) have already had enormous moves. That said, I’d use any weakness in the market to buy those on dips because one thing we know for sure is that alternative electricity demand is going to be soaring over the next several years as oil and gas are phased down to zero. And of course, the whole sector got a huge push from Vladimir Putin, who’s massively bringing forward the shift to alternative because he’s using carbon-based energy as a weapon of war against us now.

Q: What’s a good entry point on Nvidia?

A: I tell people to start scaling. A perfect scale would be, let’s say, if you want to put $100,000 into Nvidia, break it up into 10 $10,000 pieces, put in $10,000 today and $10,000 every day until you have a full position, and then you get a nice low average. This is what the companies themselves do when they’re buying their own stock—they just buy small pieces every day to minimize the market impact.

Q: How do you see the Euro?

A: Down 10% in another year, because Jay Powell is going to keep raising interest rates. And even if he doesn’t and the next rate rise is the last one, we’re still going to have interest rates 3.5% higher than everyone else in the world for at least 1 or 2 years, so you could easily get another 10% against all the currencies and maybe more. The outlook for foreign currencies: grim. Outlook for dollar: great.

Q: What about the Porsche (POAHY) IPO?

A: I always avoid IPOs because they get overhyped at the beginning, prices get too high, and then when the restrictive stock comes off, everybody dumps. So wait. I did that with Tesla. Tesla was overhyped—it had a $15 IPO price that went straight up to $30 on opening day. I waited for it to back off to the original IPO price and that’s when I went in and split-adjusted that price which today is $2.35.

Q: Wouldn’t it be good to pick up the speculator houses that aren’t really selling even 50% down with a 5% mortgage?

A: If you could get them 50% down, that would be great; but I don't think any place in the country has seen a 50% drawdown yet—maybe 5% or 10%. The markets that will have the biggest drops will be rural markets that saw the biggest increases, and I’m thinking specifically about Boise, Idaho, where prices doubled in two years, and then they’ll give up a major piece of that. That's where you’ll see the biggest declines the fastest. But, for your bigger quality markets like New York and San Francisco, they went down maybe 5% at worst, and then they go back up again. The only selling you have now is demographic selling, where people die, get married, have more kids and need to change houses for those reasons.

Q: On the electric power side, any thoughts about Clean Sparks (CLSK)?

A: I would be careful not to buy things just because they are “electrical”. You have to be discriminating in your alternative power plays because a lot of these will never make money. In the case of (CLSK), they have yet to make any money and the stock is down 90%. They are in low-margin businesses. Buying electric power and reselling it for charging stations is not a high-margin business. You’re in competition with your local utilities and unless you have something special about your business model, like putting them in shopping malls like Tesla does, the added value there is not that great. I would look very carefully at their business plans and figure out if they’re actually going to make money doing this. Tesla has the perfect model— a giant 20,000 charging station network that only Tesla cars can use, and they’re making the cars that use the power and the panels that generate it and the batteries that store it. It’s a fully integrated vertical model. Remember, anything entering alternative anything now is competing against Tesla, which has a 15-year head start and a dominant market share. So, that is the issue there.

Q: What is the risk of a European crisis and how is that going to affect the US?

A: It is going to affect the US, and we don’t have to wait for a crisis—there's one happening now. I looked at the numbers this morning, and the average British household is looking at a $4,000 annual power bill this year against a per capita income of $47,000 pretax, and their taxes are much higher than ours. Moreover, this is for a country that is a net energy producer. It’s going to be double that cost in energy-consuming countries in eastern Europe and Germany. About ⅓ of all US exports go to Europe, so yes it will affect us but we’ll have to see how it plays out.

Q: What’s your forecast for profit margins for next year?

A: I’m looking for S&P 500 earnings of 10% for 2023. That may be one reason why stocks keep failing to break down.

Q: Would a price cap on oil prices raise the price of oil?

A: No, it’s having the opposite effect, making oil go down; and you’re seeing this at the free market price, which is the price at which Russia is selling their oil to China and India. That’s happening at a 20% discount to market, so all the Russian oil going to China now is happening at $12 below the current spot price for oil, which is around $82.

Q: How about Nuclear energy plays?

A: Yeah, we did put out one recommendation for Cameco (CCJ) in the spring. I’m still buying that on the dips. Germany resuscitated three nuclear power plants, California one, and Japan is doing the same. Of course, France is sitting pretty—they already have 75% of their electric power coming from nuclear. Who ever knew the French would outsmart the Germans? But betting your energy future on Russia was a terrible idea, and only happened because a lot of key German politicians were bribed by Russians. So yes, oil is dropping and you should expect it to continue.

Q: Did we just see the peak in interest rates for the year?

A: No, at a minimum we’re looking at 3.50% on the yield. We were 3.35% yesterday but could easily overshoot to 3.60% or 3.70% which is why I’m being a little cautious jumping in on the long side here.

Q: When is the time to do LEAPS on Freeport McMoRan (FCX)?

A: Soon. If we can double bottom at around $24, that would be great LEAP territory because I expect in 2 to 3 years this will be a $100 stock and a good LEAPS to do here. If we get down to $24, then you really want to look hard at doing something like a $30/$32, because then you could get like a 500% return on that maybe a year or two out. The leverage in LEAPS is astronomical as many of you discovered with my (TLT) put LEAPS last year. If you want more specific information about LEAPS, please sign up for my Concierge service.

Q: When will you send out LEAP recommendations?

A: On a cataclysmic capitulation selloff day—that is the time to do them.

Q: If Tesla does attempt to raise more capital with new share issues, will that drive the price down?

A: Yes, that's usually what happens, but Elon Musk is a great market timer, and you can bet that he’ll wait for a massive run-up in the stock first before he does this. Every one of these capital races he’s done has been after a massive run-up in the stock and then it tends to cap the stock for 6 months after that. You can safely buy it now because Elon doesn’t think the stock has topped out yet, since he hasn’t announced any new secondary equity issues yet.

Q: What is the actual cause of the surge in natural gas prices?

A: The complete shutoff of natural gas flows from Russia to Europe, especially Germany, which used to get 55% of its total natural gas from Russia.

Q: What is your take on the current Ukraine situation?

A: Ukraine is winning—they’re doing it slowly. The US has quadrupled production of the HIMARS missiles, from 3,000 a year to 14,000 a year, and that has made all the difference in the world. Ukraine has been able to take the upper hand in this war because of literally just 16 vehicles we gave them to fire these missiles. My guess is it goes on for another year, there's a coup in Russia, Putin gets assassinated or deposed, giving us a new government in Russia, and Ukraine gets all its old territory back, joining NATO and the EC.

Q: Thoughts on Google (GOOGL)?

A: Good long-term hold but could be an antitrust target in the near future.

Q: Some say energy will be in critical shortage for many years. Why are you long-term bearish on energy/oil?

A: You have to separate the two; I’m long-term bullish on energy, which is why I built this massive solar system. But oil will be illegal within a decade—that you can count on. Demand will go to zero. It won’t be governments that do this, it’ll be the market. By the way, we’ve already gone to zero once before. If you look at the Spring of 2020, we had negative $37 in the futures market on oil. This is not some far-out thing—the zero prices will just come back. On the way to zero though, you will get several doubles, triples, and quadruples in the price. The smaller the market becomes, the more volatile the price becomes; oil is no exemption from that. That’s why Elon Musk says we need to increase our oil production for the short term to get ourselves on the way to zero—you have to do the transition. The problem is that nobody wants to make 30-year investments in a product that is going to be banned in eight years, hence the shortages.

Q: What's a flight-to-safety asset right now?

A: There are three: Cash, cash, and cash.
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, 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

Teslas are Great, but they are not Crash Proof

Quote of the Day - September 9, 2022

Diary, Newsletter, Quote of the Day

“Three cheers for the American auto industry and the American oil industry. This is a war that is fought with fuel and engines,” said Joseph Stalin at the Yalta Conference in 1943. The United States supplied 50% of Russia’s trucks, 80% of its oil, and 90% of its aviation gasoline during WWII.

September 8, 2022

Diary, Newsletter, Summary

Global Market Comments
September 8, 2022
Fiat Lux

Featured Trade:

(THE MAD HEDGE TRADERS & INVESTORS SUMMIT IS ON FOR SEPTEMBER 13-15)

The Mad Hedge Traders & Investors Summit is on for September 13-15.

Diary, Newsletter

A collection of the 28 best traders and managers in the world, or eight a day, each giving an educational webinar. Back-to-back one-hour presentations are followed by an interactive Q&A. It’s a smorgasbord of trading strategies, so pick the one that is right for you. Covering all stocks, bonds, commodities, foreign exchange, precious metals, energy, bitcoin, and real estate. It’s the best look at the rest of 2022’s money-making opportunities you will get anywhere. Oh, and you will have a chance to win $100,000 in prizes.

To view the schedule and speakers, and to register NOW, click here.

September 7, 2022

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Global Market Comments
September 7, 2022
Fiat Lux

Featured Trade:

(A NEW THEORY OF TESLA, or WHY I’M RAISING MY TARGET TO 1,000)
(TSLA)

A New Theory of Tesla, or Why I’m Raising My Target to $1,000

Diary, Newsletter

I’ve been battling shorts in Tesla for a decade….and you won.

Look at the price of Tesla shares today and I have to laugh. From the $2.35 I paid for the shares after its IPO bombed in 2010, the price is up more than 100 times. Back then, even Elon Musk gave the company only a 10% chance of surviving.

My first Tesla, chassis no 125, was scrapped for parts a long time ago, thanks to a drunk driver in a GM Silverado on Christmas Eve. A lot of people talk about Tesla, but few have completely taken them apart, as I have…. twice.

Yes, it’s still true that if you buy the stock, you get the car for free, possibly a fleet of them.

I set my target at $1,000 a decade ago. My assumption was that the company would take over a large part of the global car market, about 90 million vehicles a year, and 15 million in the US alone. Tesla’s own plans have it manufacturing about 20 million units a year by 2030.

Add in an eye-popping $15,000 upgrade for fully autonomous street-to-street driving, and Tesla should be making tons of money by then.

That looks on track to happen and is already reflected in the current share price. But what if there is more to Tesla? A lot more?

In fact, after making the rounds in Silicon Valley, it’s clear that Tesla is just getting started. Tesla will become the largest publicly listed company in the world, surpassing Apple, and account for an important share of US GDP.

It might even become the world’s first $10 trillion company.

Yes, it will even grow larger than Saudi Aramco, which manages the kingdom’s oil riches. The irony is rich.

Let’s say that it reaches its ambitious 2030 goal of 20 million units. Then what?

For a start, when Tesla goes solid-state, battery efficiencies will increase 20-fold, costs will drop by 95%, and vehicle ranges will double. This could happen in as soon as two years. They already have the solid-state batteries. All they need now is to understand economical mass production.

The company has already said it is dropping the price of its cars to $25,000 in three years, but much more is possible.

Converting the car bodies from aluminum to carbon fiber, which the wheel wells are made of now, will further cut costs, increase ranges, and improve safety. Carbon fiber is five times stronger than steel at one-tenth the weight.

To reach that goal, the total Tesla fleet will have grown from 1.5 million units today to 100 million by 2030 and account for one-third of all the cars on the road. Those cars are going to need one heck of a lot of electricity to run.

Step in Tesla.

The company already has 20,000 superchargers in the US and that figure is doubling every year. No place in the country today is more than 100 miles away from a supercharger.

A Tesla Model 3 with a 100W battery pack driving 20,000 miles a year costs $720 to power at current prices. The entire fleet would cost $54 billion a year to run at a national average price of 12 cents/kWh.

Ring the cash register for Tesla….again.

Let’s say that rather than paying for electricity at an external charger at some distant shopping mall, you’d rather get the power at home for free.

Enter Tesla.

Finally, after a decade of waiting, Solar City, a Tesla subsidiary, is manufacturing cost-competitive solar roof tiles, or photovoltaic tiles. I have several readers already installing them at this moment. With a 15-year head start in silicon and battery technology, there is no reason why Tesla shouldn’t dominate in this industry as it already has with cars.

To keep the calculations simple, if 75 million homeowners buy solar roofs at an average of $36,000 each, the gross sales would reach $2.7 trillion. Kaching! To get a quote for your new solar roof, please click here.

To get the most out of your solar roof, you really need to buy a couple of 13.5W Tesla Powerwall storage batteries which would cost $25,000 installed. That way, the solar tiles will charge the batteries during the day, which will then power your house at night. You will become grid independent forever, as I have been for years.

Where do Powerwalls come from? Not the stork. They are recycled batteries from old Tesla cars. You can recycle silicon. You can’t recycle CO2.

That will protect you from soaring electric power costs driven by coming cascading bankruptcies of public utilities around the country, all caused by global warming. You also have your own power supply for the ten days a year the grid is down from wildfires on the west coast, or hurricanes on the east coast.

When the neighborhood lights go out, I charge my neighbors a bottle of wine for a cell phone charge. It’s not a bad racket, but I’m getting more than I can drink. In fact, I am producing enough excess electricity to power my entire neighborhood, about 20 houses.

Under the current law, the federal government will pay for 30% of your cost with alternative energy tax credits.

Naturally, you are going to want highspeed WIFI so all of the elements of your integrated solar solution can talk to each other and upgrade whenever they want. So, you’re going to need a Tesla Starlink satellite connection. The system now in beta testing will eventually deliver a 500 megabyte a second WIFI connection anywhere in the world. Starlink is already running the Internet in Ukraine….for free.

The global WIFI market is expected to grow to $7.2 trillion by 2025 (click here for the link). Give half of that to Tesla and you get another $3.6 trillion in sales. Oh, and if you want to sign up as a beta tester for Starlink, please click here.

Did I mention that Musk also owns a rocket company, Space X, which can launch satellites into space at one-tenth the cost of all competitors? Elon’s goal is to cut costs 100-fold. Musk has already taken over a lot of launch business from Europe which used to go to Russia.

Looking at Elon’s big picture as an engineer and scientist, I am amazed to find so many 10X and 100X improvements going on all at the same time!

Add all this together and you might get a market capitalization for Tesla of $10 trillion. Elon Musk would become worth $2 trillion. Then he really can afford that trip to Mars.

This prompts me to raise my target for Tesla shares to $1,000.

That’s not a particularly bold prediction. It’s only 3.6X the current share price, compared to the 117X gain seen since the IPO.

Hey, I got the last 117X right, what’s another 3.6X?

Nobody ever accused me of thinking small.

And if Tesla really does become a $10 trillion company, you’d be right to raise antitrust concerns. But as anyone who has done the math on breaking up these big companies can tell you, such a move would double their value. Tesla at $2,000 a share, anyone?

And as incredible as it may seem, Elon Musk outlined all of his grand global vision to me personally in great detail when I first met him in 1999 pitching me for an investment in X.com, which later became PayPal (PYPL).

Then the bright-eyed, fresh-faced overconfident kid was only 27 and worth a mere $10 million. But he had a nice car, a million-dollar 618 hp McLaren F-1 with a V-12 engine.

A pittance really.

I passed, which is why I am still working today.

No kidding.

Tesla’s Solid State Batter Design

What its Modeled After

Chassis No. 125….R.I.P.

My Latest Set of Wheels

Like-Minded Found in Chicago

At the Pebble Beach Car Show

Going All-Electric

13.5 kWh Powerwall, Enough Juice to Run My House for a Day

This Lot of 300 Cars in Fremont Gets Filled and Emptied Out Three Times a Day

Back in 2010, the First Tesla They Had Ever Seen

Quote of the Day - September 7, 2022

Diary, Newsletter, Quote of the Day

“Some people don't like change, but you need to embrace change if the alternative is disaster.” – Said Founder of Tesla Elon Musk

September 6, 2022

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Global Market Comments
September 6, 2022
Fiat Lux

Featured Trade:

(MARKET OUTLOOK FOR THE WEEK AHEAD, or WELCOME TO THE ROLLING RECESSION),
(AAPL), (NVDA), (TSLA), (USO), (BTC), (MSFT), (CRM), (V), (BA), (MSFT), (CRM), (DIS)

The Market Outlook for the Week Ahead, or Welcome to the Rolling Recession

Diary, Newsletter, Research

The airline business is booming but homebuilders are in utter despair. Hotel rooms are seeing extortionate 56% YOY price increases, while residential real estate brokers are falling flat on their faces.

It’s a recession that’s here, there, and nowhere.

Welcome to the rolling recession.

If you are lucky enough to work in a handful of in-demand industries, times have never been better. If you aren’t, then it’s Armageddon.

Look at single industries one at a time, as the media tends to do, business conditions are the worst since the Great Depression and pessimism is rampant. Look at Tesla, where there is a one-year wait to get a Model X, and there is either a modest recession on the menu, or simply slowing growth at worst.

Notice that a lot of commentators are using the word “normally”. News Flash: nothing has been normal with this economy for three years.

Which leaves us with dueling yearend forecasts for the S&P 500. It will either be at 3,900, where it is now, or 4,800. A market that is unchanged, worst case, and up 20% best case sounds like a pretty good bet to me. The prospects for individual stocks, like Tesla (TSLA), Microsoft (MSFT), or NVIDIA (NVDA) are even better, with a chance of 20% of downside or 200% of upside.

I’ll sit back and wait for the market to tell me what to do. In the meantime, I am very happy to be up 60% on the year and 90% in cash.

An interesting thing is happening to big-cap tech stocks these days. They are starting to command bigger premiums both in the main market and in other technology stocks as well.

That is because investors are willing to pay up for the “safest” stocks. In effect, they have become the new investment insurance policy. Look no further than Apple (AAPL) which, after a modest 14% decline earlier this year, managed a heroic 30% gain. Steve Jobs’ creation now boasts a hefty 28X earnings multiple. Remember when it was only 9X?

Remember, the stock sells off on major iPhone general launches like we are getting this week, so I’d be careful that my “insurance policy” doesn’t come back and bite me in the ass.

Nonfarm Payroll Report Drops to 315,000 in August, a big decline, and the Headline Unemployment Rate jumps to 3.7%. The Labor Force Participation Rate increased to 62.4%. The “discouraged worker” U-6 unemployment rate jumped to 7.0%. Manufacturing gained 22,000. Stocks loved it, but it makes a 75-basis point in September a sure thing.

Jeremy Grantham Says the Stock Super Bubble Has Yet to Burst, for the seventh consecutive year. If I listened to him, I’d be driving an Uber cab by now, commuting between side jobs at Mcdonald's and Taco Bell. Grantham sees stocks, bonds, commodities, real estate, precious metals, crypto, and collectible Beanie Babies as all overvalued. Even a broken clock is right twice a day unless you’re in the Marine Corps, which uses 24-hour clocks.

Where are the Biggest Buyers on the Dip? Microsoft (MSFT), Salesforce (CRM), and Disney (DIS), followed by Visa (V), and Boeing (BA). Analysts see 20% of upside for (MSFT), 32% for (CRM), and 21% for (DIS). Sure, some of these have already seen big moves. But the smart money is buying Cadillacs at Volkswagen prices, which I have been advocating all year. Take the Powell-induced meltdown as a gift.

The Money Supply is Collapsing, down for four consecutive months. M2 is now only up less than 1% YOY. This usually presages a sharp decline in the inflation rate. With a doubling up of Quantitative Tightening this month, we could get a real shocker of a falling inflation rate on September 13. Online job offers are fading fast and used cars have suddenly become available. This could put in this year’s final bottom for stocks.

California Heads for a Heat Emergency This Weekend, with temperatures of 115 expected. Owners are urged to fully charge their electric cars in advance and thermostats have been moved up to 78 as the electric power grid faces an onslaught of air conditioning demand. The Golden State’s sole remaining Diablo Canyon nuclear power plant has seen its life extended five years to 2030. This time, the state has a new million more storage batteries to help.

Oil (USO) Dives to New 2022 Low on spreading China lockdowns. Take the world’s largest consumer offline and it has a big impact. More lows to come.

NVIDIA (NVDA) Guides Down in the face of new US export restrictions to China. The move will cost them $400 million in revenue. These are on the company’s highest-end A100 and H100 chips which China can’t copy. (AMD) received a similar ban. It seems that China was using them for military AI purposes. The shares took a 9% dive on the news. Cathie Wood’s Ark (ARKK) Funds dove in and bought the lows.

Weekly Jobless Claims Plunge to 232,000, down from 250,000 the previous week for the third consecutive week. No recession in these numbers.

First Solar (FSLR) Increases Output by 70%, thanks to a major tax subsidy push from the Biden Climate Bill. The stock is now up 116% in six weeks. We have been following this company for a decade and regularly fly over its gigantic Nevada solar array. Buy (FSLR) on dips.

Home Prices Retreat in June to an 18% YOY gain, according to the Case Shiller National Home Price Index. That’s down from a 19.9% rate in May. Tampa (35%), Miami (33%), and Dallas (28.2%) showed the biggest gains. Blame the usual suspects.

Tesla (TSLA) Needs $400 Billion to expand its vehicle output to Musk’s 20 million units a year target. One problem: there is currently not enough commodity production in the world to do this. That sets up a bright future for every commodity play out there, except oil.

Bitcoin (BTC) is Headed Back to Cost, after breaking $20,000 on Friday. With the higher cost of electricity and mining bans, spreading the cost of making a new Bitcoin is now above $17,000. It doesn’t help that much of the new crypto infrastructure is falling to pieces.

My Ten-Year View

When we come out the other side of pandemic and the recession, we will be perfectly poised to launch into my new American Golden Age, or the next Roaring Twenties. With oil prices and inflation now rapidly declining, and technology hyper-accelerating, there will be no reason not to. The Dow Average will rise by 800% to 240,000 or more in the coming decade. The America coming out the other side will be far more efficient and profitable than the old. Dow 240,000 here we come!

With a very troublesome flip-flopping market, my August performance still posted a decent +5.13%.

My 2022 year-to-date performance ballooned to +59.96%, a new high. The Dow Average is down -13.20% so far in 2022. It is the greatest outperformance on an index since Mad Hedge Fund Trader started 14 years ago. My trailing one-year return maintains a sky-high +71.90%.

That brings my 14-year total return to +572.52%, some 2.60 times the S&P 500 (SPX) over the same period and a new all-time high. My average annualized return has ratcheted up to +44.90%, easily the highest in the industry.

We need to keep an eye on the number of US Coronavirus cases at 94.7 million, up 300,000 in a week and deaths topping 1,047,000 and have only increased by 2,000 in the past week. You can find the data here.

On Monday, September 5 markets are closed for Labor Day.

On Tuesday, September 6 at 7:00 AM, the ISM Non-Manufacturing PMI for August is out.

On Wednesday, September 7 at 11:00 AM, the Fed Beige Book for July is published.

On Thursday, September 8 at 8:30 AM, Weekly Jobless Claims are announced.

On Friday, September 9 at 2:00 the Baker Hughes Oil Rig Count is out.

As for me, the first thing I did when I received a big performance bonus from Morgan Stanley in London in 1988 was to run out and buy my own airplane.

By the early 1980s, I’d been flying for over a decade. But it was always in someone else’s plane: a friend’s, the government’s, a rental. And heaven help you if you broke it!

I researched the market endlessly, as I do with everything, and concluded that what I really needed was a six-passenger Cessna 340 pressurized twin turbo parked in Santa Barbara, CA. After all, the British pound had just enjoyed a surge again the US dollar so American planes were a bargain. It had a range of 1,448 miles and therefore was perfect for flying around Europe.

The sensible thing to do would have been to hire a professional ferry company to fly it across the pond. But what’s the fun in that? So, I decided to do it myself with a copilot I knew to keep me company. Even more challenging was that I only had three days to make the trip, as I had to be at my trading desk at Morgan Stanley on Monday morning.

The trip proved eventful from the first night. I was asleep in the back seat over Grand Junction, CO when I was suddenly awoken by the plane veering sharply left. My co-pilot had fallen asleep, running the port wing tanks dry and shutting down the engine. He used the emergency boost pump to get it restarted. I spent the rest of the night in the co-pilot’s seat trading airplane stories.

The stops at Kansas City, MO, Koshokton, OH, Bangor, ME proved uneventful. Then we refueled at Goose Bay, Labrador in Canada, held our breath and took off for our first Atlantic leg.

Flying the Atlantic in 1988 is not the same as it is today. There were no navigational aids and GPS was still top secret. There were only a handful of landing strips left over from the WWII summer ferry route, and Greenland was still littered with Mustang’s, B-17’s, B24’s, and DC-3’s. Many of these planes were later salvaged when they became immensely valuable. The weather was notorious. And a compass was useless, as we flew so close to the magnetic North Pole the needle would spin in circles.

But we did have NORAD, or America’s early warning system against a Russian missile attack.

The practice back then was to call a secret base somewhere in Northern Greenland called “Sob Story.” Why it was called that I can only guess, but I think it has something to do with a shortage of women. An Air Force technician would mark your position on the radar. Then you called him again two hours later and he gave you the heading you needed to get to Iceland. At no time did he tell you where HE was.

It was a pretty sketchy system, but it usually worked.

To keep from falling asleep, the solo pilots ferrying aircraft all chatted on frequency 123.45 MHz. Suddenly, we heard a mayday call. A female pilot had taken the backseat out of a Cessna 152 and put in a fuel bladder to make the transatlantic range. The problem was that the pump from the bladder to the main fuel tank didn’t work. With eight pilots chipping in ideas, she finally fixed it. But it was a hair-raising hour. There is no air-sea rescue in the Arctic Ocean.

I decided to play it safe and pick up extra fuel in Godthab, Greenland. Godthab has your worst nightmare of an approach, called a DME Arc. You fly a specific radial from the landing strip, keeping your distance constant. Then at an exact angle you turn sharply right and begin a descent. If you go one degree further, you crash into a 5,000-foot cliff. Needless to say, this place is fogged 365 days a year.

I executed the arc perfectly, keeping a threatening mountain on my left while landing. The clouds mercifully parted at 1,000 feet and I landed. When I climbed out of the plane to clear Danish customs (yes, it’s theirs), I noticed a metallic scraping sound. The runway was covered with aircraft parts. I looked around and there were at least a dozen crashed airplanes along the runway. I realized then that the weather here was so dire that pilots would rather crash their planes than attempt a second go.

When I took off from Godthab, I was low enough to see the many things that Greenland is famous for polar bears, walruses, and natives paddling in deerskin kayaks. It was all fascinating.

I called into Sob Story a second time for my heading, did some rapid calculations, and thought “damn”. We didn’t have enough fuel to make it to Iceland. The wind had shifted from a 70 MPH tailwind to a 70 MPH headwind, not unusual in Greenland. I slowed down the plane and configured it for maximum range.

I put out my own mayday call saying we might have to ditch, and Reykjavik Control said they would send out an orange bedecked Westland Super Lynch rescue helicopter to follow me in. I spotted it 50 miles out. I completed a five-hour flight and had 15 minutes of fuel left, kissing the ground after landing.

I went over to Air Sea rescue to thank them for a job well done and asked them what the survival rate for ditching in the North Atlantic was. They replied that even with a bright orange survival suit on, which I had, it was only about half.

Prestwick, Scotland was uneventful, just rain as usual. The hilarious thing about flying the full length of England was that when I reported my position in, the accents changed every 20 miles. I put the plane down at my home base of Leavesden and parked the Cessna next to a Mustang owned by a rock star.

I asked my pilot if ferrying planes across the Atlantic was also so exciting. He dryly answered “Yes.” He told me that in a normal year, about 10% of the planes go missing.

I raced home, changed clothes, and strode into Morgan Stanley’s office in my pin-stripped suit right on time. I didn’t say a word about what I just accomplished.

The word slowly leaked out and at lunch, the team gathered around to congratulate me and listen to some war stories.

Stay healthy,

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