I have been learning a new language over the past few weeks (I already speak six).
And like learning any new language, it has been a bumpy road.
I remember a family dinner I had in Tuscany in 1968. The dessert was chocolate cake. I didn’t know how to say “cake” in Italian, so I made up one. I said “Questo e una cacca magnifico”. The entire table burst into laughter. Then my host told me, “You just said this is wonderful shit.”
Oops.
Investors lately have been suffering their own “cacca” moment.
The administration’s economic policies were obscure before the election but very clear now. Pain first, pleasure later….maybe. But they run a great risk that we get into the pain stage and can’t get out with a severe austerity budget during a recession. Investors' response has been to sell now and buy back later when the upside resumes, if and when that ever happens.
Warning: uncertain stock markets trade at big discounts, not the paltry 10% haircut we have seen so far over the past month. They drop by half. (SPY) price earnings multiples have just dropped from 22X to 20X in four weeks. 18X, where we fell to in 2018, gets you to my down 20% bear market.
Half done….half to go.
Welcome to the brave new world. A “transition” means either a “recession” or “depression,” I’m not sure which yet.
So does “disruption.”
I think that a lot of businesses are going to be committing their own errors of translation in the coming months. For example, is this a recession, or a depression? Let me know when you figure that one out.
In fact, after speaking to clients over the past week, my own vocabulary has been vastly expanded.
It turns out that if you’ve been running a successful business since the pandemic, the last thing in the world you want is for it to be disrupted.
FOMO, or fear of missing out, is long gone. Fear alone is here. Sell first and ask questions later. Market sentiment is horrible and getting worse by the day.
Delta Airlines (DAL) warned us last week that sales may dramatically fall in the coming months, taking the stock down 7%. Consumers dial back discretionary spending during recessions, and at the top of that list are vacation and business travel. With that comment, you can write off the entire travel sector, including all the airlines, hotels, online travel apps, cruise lines, and rental car companies.
And other than that, how was the play Mrs. Lincoln?
And you wanted uncertainty? This is the Golden Age of Uncertainty.
The steel tariff rose from 25% to 50%, on Tuesday, then Ontario imposed a 25% duty on electricity exports to the US, then the US cut their steel tariff back to 25% and the electricity tariff went away. Every American car requires 1,000 pounds of steel and Michigan, Minnesota, and New York get the bulk of their electricity from Canada, which has abundant hydro.
An intraday trade war?
I love following anecdotal recession indicators and one is no farther than your own television set.
When CNBC runs back-to-back promotions of its own programs, it means they haven’t been able to sell those slots. Brokers greatly dial back their advertising because customers only open new accounts in rising markets, not falling ones. Greed is gone. And you see a lot of new companies ramp up ads because the price has fallen to where they can afford them. Notice the constant ads these days from eBay and Mark Cuban?
And what is the most common expression in the English language right now? “I don’t know.”
Three places to keep an eagle eye on right now for short-term market direction and risk-taking: Tesla (TSLA), Nvidia (NVDA), and the Volatility Index ($VIX). Watch the movement of these three bellwether stocks and you can guess where the rest of the market is going right now.
And just a reminder, the average recession performance of the S&P 500 (SPY) for the past 80 years is a decline of 34%. It backs my own forecast of a 20% decline looks positively bullish and the current level of a 10% pullback looks insanely optimistic.
Yes, even down here stocks are still expensive.
And here is the cruelest math of all.
The Average American now has to work an extra seven years, to get their retirement fund back to where they were at the market top on February 19, assuming a 45-year work life. With the S&P 500 now down 10%, the typical retirement fund is off 15%, since they were overweight technology stocks. That is especially true if they were just about to retire. That is unless they have been following Mad Hedge Fund Trader, in which case they are probably up on the year like I am.
How bad can it get?
The Bull Case
We are now in a recession that will probably
cost us -6% to -7% over two to three quarters like it did during the pandemic and then
ends with a $5 trillion tax cut for 2026
(SPY) down 20%-30%, and then we recover
Or
The Bear Case
No tax cut means we enter a depression
and lose 25% of GDP over 4 years
(SPY) down 60%, and then we recover
March is now up a spectacular +10.21% return so far. That takes us to a year-to-date profit of +19.68% so far in 2025. That means Mad Hedge has been operating as a perfect -2X short S&P 500 ETF since the February top. My trailing one-year return stands at a spectacular +92.10%. That takes my average annualized return to +50.59% and my performance since inception to +771.57%.
It has been another busy week for trading. I stopped out of my last longs in (IBKR) and (TSLA) for small losses. I added new short positions in (GM), (NVDA), (SH), and (TSLA). I took profits on a short position in (NVDA). I also strapped on a (TLT) trade betting that interest falls going into a recession.
Some 63 of my 70 round trips, or 90%, were profitable in 2023. Some 74 of 94 trades have been profitable in 2024, and several of those losses were really break-even. That is a success rate of +78.72%.
Try beating that anywhere.
Stocks Suffer Worst Day in 3 Years but bounced off the 10% correction level at $5,550 for the (SPX). The government has abandoned Keynesianism, the principal economic model for the country for 90 years. It’s cutting spending as we head into recession. We now have a reverse hockey stick on share price valuations, with sales falling and multiples shrinking at the same time. Lower lows for everything beckon.
University of Michigan Consumer Confidence Collapses, at 57.0 versus an estimated 63.2, a four-year low. Expectations were already low, taking the Dow Average on a 300-point swoosh down, which it immediately recovered. Remember, this is a lagging indicator, and that confidence is likely much lower now.
Fed Interest Rate Cut is Back on the Table, 25 basis points on June 18, as recession fears explode. A recession will drop overnight rates to 3%, and eventually 2%.
Ceding US Leadership Will Send Stocks to Big Discounts, the guaranteed result of Trump's new foreign policies. That’s the opposite of the existing order which sent American stocks to big premiums for 80 Years. That’s why there is a massive outpouring of capital from the US to Europe causing the huge outperformance of the German stock market, up 28% YTD.
Yen Carry Trade unwind sends Japanese currency soaring, as hedge funds de-gross or reduce overall positions. That means a lot of yen buying and US dollar selling. The Japanese currency has risen by 10% against the US dollar this year.
Trump Administration to Pursue Alphabet Breakup, continuing Biden era policy. The good news? The move could enrich investors, as a breakup would double the value of the individual parts, as it did with AT&T. Buy (GOOGL) on dips.
Government to Change GDP Calculations, knocking out government spending, about a quarter of the total. The goal is to create artificially high GDP numbers and obscure the negative impact of government spending cuts. Expect multiple GDP estimates to proliferate soon from the private sector using the old model. This is against a backdrop of the sudden end of many government data services, from demographics to the weather.
Chaos Hits Economy, forcing businesses to forestall decisions and market down earnings. Job security has vaporized, forcing consumers to dial back on spending. Virtually every economic data point has rolled over and turned negative. The share buyers strike continues, with every client I have only looking to sell rallies. The Volatility Index ($VIX) hits a six-month high at $29. And we have four more years of this?
Delta Airlines Slashes Earnings Forecast, on trade wars and recession scares, taking the shares down 7%. Travel is particularly sensitive to economic slowdowns and declining discretionary spending. Cruise lines have also been hammered. For “Transition” read “Recession”. Avoid all travel plays.
Who is Sitting Pretty Now? Warren Buffet’s Berkshire Hathaway, with $335 billion in cash. Has he started buying yet? No!
US Deficit Hits New All-Time High, in February. The deficit totaled just over $307 billion for the month, nearly 2½ times what it was in January and 3.7% higher than February 2024. Five months into the government fiscal year, the national debt has grown by $5 trillion. Where are those promised savings?
Gold Hits New All-Time High, as Recession Fears Tank Interest Rates, cutting the opportunity cost of holding the Yellow Metal. Mad Hedge is already long and looking to add on dips. The central bank and Chinese retail buying continue unabated.
Tesla to Face Punitive Export Tariffs, as the trade war impact widens. Tesla warned that even with aggressive localization of the supply chain, certain parts and components are difficult or impossible to source within the United States, like large format Panasonic screens. Keep selling Telsa rallies. I’m looking for $160 by summer.
Stock Market Loses $5 Trillion in Market Value, in less than two months, a record loss. Thursday’s decline put the index’s market value down to $46.78 trillion. The decline has come in the shadow of President the expanding trade war with several of the United States’ major trading partners, with headlines about tariffs at times seeming to drive market moves. There have also been signs of slowing economic growth, with weak consumer sentiment surveys and tepid outlooks from retailers like Wal-Mart (WMT).
My Ten-Year View – A Reassessment
We 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 multiple gale-force headwinds. 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.
On Monday, March 17, at 8:30 AM EST, Retail Sales are announced.
On Tuesday, March 18, at 8:30 AM, the Housing Starts and Building Perm are released. The Federal Reserve begins its two-day Open Market Committee Meeting.
On Wednesday, March 19, at 1:00 PM, the Federal Reserve announces its interest rate decision.
On Thursday, March 20, at 8:30 AM, the Weekly Jobless Claims are disclosed. We also get the Existing Homes Sales.
On Friday, March 21, at 2:00 PM the Baker Hughes Rig Count is printed.
As for me, I was sent reeling with the passing of my old friend, comedian Robin Williams. His mother lived directly next door to my family for many years. A petite widow in her late seventies, we often looked in on her and invited her into our community social group. More than once, I came home to find my late wife chatting with her in the living room over a cup of tea.
Robin, ever the dutiful son, thanked me on many occasions. He volunteered to appear at school fundraisers for my kids. Needless to say, he was a huge hit and brought in buckets of money.
To describe Robin as a giant in his industry would be an understatement. No one could match his stream-of-consciousness outpouring of originality. I know some Disney people who worked with him on the Aladdin animated film where Robin played the genie, and he drove them nuts.
The script was just a starting point for him. You just turned him on, and it was all peripatetic improvisation after that. This forced the ultra-controlling producers to draw the animation around his monologue, no easy trick and the reverse of the usual practice.
When I attended the London premiere of Aladdin, the audience sat with there with their jaws dropped, trying to decode cultural references that were being fired at them a dozen a minute.
It was safe to say that Robin fought a lifetime battle with drug addiction. He only got out of rehab a year earlier for the umpteenth time.
His depression had to be severe. People who knew him well believed that his comedy evolved as a way of dealing with it. He used jokes as weapons to keep the demons at bay. Perhaps that is the price of true genius. In the end, it was probably genetic.
This has been reaffirmed by the many comedians I have met during my life, including Groucho Marx, Bob Hope, George Burns, Jay Leno, Chris Rock, and many others. I see Jay every year at the Pebble Beach Concourse d’Elegance vintage car show where he usually has a prime entrant, who reminds me that over the past 40 years investing in his vintage cars has done better than stocks.
Robin was a very wealthy man, at one point owning a $25 million mansion in San Francisco’s tony Pacifica district. He left behind a wife and a young child. He was at the peak of his career, with another movie coming out at Christmas, A Night at the Museum III, and a sequel to Mrs. Doubtfire in the works.
These are not normally the circumstances where one takes his own life. One can only assume that to do what he did he had to be suffering immense pain.
He will be missed.
Good Luck and Good Trading,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Global Market Comments
March 14, 2025
Fiat Lux
Featured Trade:
(REMEMBERING THE OLD DAYS AT MORGAN STANLEY),
(MS), (GS), (GLD)
It’s a good thing that the #MeToo movement wasn’t around 40 years ago. For if it was, Morgan Stanley would have been publicly humiliated in the press daily.
The firm was an “old boy” network on steroids. Employees with skirts definitely worked overtime in those prehistoric days.
However, firms evolve over the vast expanse of time. Back then, Morgan Stanley was a 1,000-man private partnership hidden away in the old General Motors building on Avenue of the Americas. Today, it is a 50,000-member global behemoth in your face on Times Square.
The share price has changed a bit, too. The average cost of my original partnership shares is 25 cents. They traded at a split-adjusted $1,000 a share today. My own share has risen 4,000 times from my original cost. And you wonder why brokers are so rich. It’s 100% capital gain now.
And like Warren Buffet, I never sold my shares so I wouldn’t have to pay the capital gains taxes. In fact, my shares cost far less than the company’s 85-cent quarterly dividend today.
It wasn’t always like this. Morgan drank the Kool-Aid big time during the 2000’s real estate bubble. When the bill came due, the firm almost went under, with the stock trading down to $5 (which was still 20 times more than my cost). Only a government bailout in the form of the TARP kept my former partners from losing everything.
The Morgan Stanley of today is a shadow of its former self in other ways. There are no more wild practical jokes, BSD’s, Masters of the Universe, or Liar’s Poker.
I can’t imagine the heads of the various equity trading desks meeting at my Manhattan Sutton Place coop to play high/low poker every Friday night, as they did for years. Carl Icahn lived a couple of floors down.
No one bets the ranch anymore. Morgan Stanley has become boring. However, boredom has a silver lining as it also brings stability, and stock investors absolutely love stability, as we are finding out now. As incredible as it may sound, Morgan Stanley has become the safe play on Wall Street.
While investors considered the immense trading profits the firm once made as coming out of a black box, fee-based earnings are predictable and reliable as a coupon stream.
You can see this newfound boredom in the firm’s employee compensation. A decade ago, it was 78% of investment banking revenue, compared to only 18% now. In my day, the janitor wouldn’t work for that.
You can thank my late mentor, Barton Biggs, for planting the seeds of the modern firm in the early 1980’s. For it was he who founded the firm’s fee-based asset management division, which is the great wellspring of profits today. Since 2005, Wealth Management’s share of profits has leaped from almost nothing during my tenure to 25% to 45% now. Today, Morgan Stanley manages an incredible $6.6 trillion, and 15% more two months ago.
Mortgage loans to customers collateralized by their shareholdings is currently the second largest source of profits. These didn’t even exist in my day (Lou Ranieri at Salomon Brothers had the lock on this business back then).
Morgan Stanley has learned some hard lessons along the way. It was forced by the Dodd-Frank financial regulation act to massively recapitalize. No more 40:1 leverage. 10:1 is much safer.
As a result, its capital position has more than doubled from $35 billion during the dark days of the 2008 crash to an astonishing $180 billion today. Profit margins are the highest since the Dotcom Bubble top in 1999. The firm is even now crafting products and services aimed at the growing band of wealthy Millennials.
Sobriety is in.
Goldman Sachs, on the other hand, has stuck to the old Wild West ways. Its earnings remain volatile, as several recent disappointing quarters of bond trading losses have attested to. The firm is now significantly smaller than Morgan, and its share price has been punished accordingly, lagging the heady appreciation of Morgan shares.
Here’s the main reason I love my old firm. It is in the catbird seat for what I call the “Exploding Deficit” trade, whereby all future investment is driven by the prospect of rising inflation.
Banks are absolutely in the sweet spot for this strategy, as is gold (GLD).
Add all this up and you have my explanation for sending out my past Trade Alerts for a long position in Morgan Stanley. They won’t be the last ones.
As for those poker nights, I think some of you guys out there still owe me a couple of grand.
Not a Bad Play
Global Market Comments
March 13, 2025
Fiat Lux
Featured Trade:
(The Mad Hedge March traders & Investors Summit is ON!)
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Leaders like Tesla and Nvidia have already suffered massive losses. Are we headed for a recession or a Great Depression?
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Hanging With David Tepper
Global Market Comments
March 11, 2025
Fiat Lux
Featured Trade:
(The Mad Hedge March traders & Investors Summit is ON!)
Global Market Comments
March 11, 2025
Fiat Lux
Featured Trade:
(PROSHARES SHORT S&P 500 ETF LEAPS),
(SH), (SPY)
Trade Alert - (SH) – BUY LEAPS
BUY the ProShares S&P 500 ETF LEAPS (SH) August 2025 $41-$42 in-the-money vertical Bull Call debit spread LEAPS at $0.60 or best
If we get any kind of rally over the next few days, you need to add this position, which offers a 66.66% profit in five months.
Opening Trade
3-11-2025
expiration date: August 15, 2025
Number of Contracts = 1 contract
I spent the weekend shopping for downside protection for US equity portfolios, and this is the best one I could find. There are a lot of them designed to do nothing more than pick your pocket, but I think I found a good one.
If the last two weeks have been painful for your long-only portfolio, this is a way to protect it from additional losses. It may also help you sleep better at night. It will also reduce the day-to-day volatility of the net asset value of your account. But like all insurance policies these days, it doesn’t come cheap.
The best thing about this LEAPS is that if we close anywhere above the upper $42 strike price by expiration in five months, you double your money.
Not bad.
Ideally, you will add this position on a day when the stock market is up and the early players are taking profits.
The ProShares S&P 500 (SH) is an inverse ETF that rises in value when the index falls on a one-to-one basis. Its current NAV is $863 million. It makes an excellent hedge for tech-heavy stock portfolios, with a hefty 32.6% exposure to the sector and 7% in Apple (AAPL) alone. If the (SPY) drops by 15% from here by the August 16 option expiration, this fund should rise by 10% to over $46.
I am therefore buying the ProShares Short S&P 500 ETF (SH) August 2025 $41-$42 in-the-money vertical Bull Call spread LEAPS at $0.60 or best.
DO NOT USE MARKET ORDERS UNDER ANY CIRCUMSTANCES.
Simply enter your limit order, wait for a few hours, and if you don’t get filled, cancel your order and increase your bid by 5 cents with a second order.
This is a bet that ProShares S&P 500 ETF (SH) will not fall below $42 by the August 15, 2025 option expiration in a little more than 5 months.
There is a catch.
Inverse ETFs have their own special problems and are ideally designed to be traded intraday. They are not cheap. There can be tracking errors, although the (SH) has tracked pretty well over time. There is a contango because the fund managers have to borrow money at around a 6% annual interest rate to buy the futures contracts that the fund invests in.
You also have to cover the cost of paying dividends for the S&P 500, now at a 1.2% annualized rate. There is a derivative risk in that the futures contracts that the fund buys, in theory, could default.
You also have a compounding risk because the fund is reset at the end of every day. That means that if the (SPY) goes up and down frequently over a short period of time, the value of the (SH) will fall.
All in all, the S&P 500 has to drop about 5% by August 16 just to cover all of the costs associated with this short position.
I did take a close look at another ETF, the ProShares Ultrashort S&P 500 ETF (SDS), a leveraged -2X short ETF. The problem here is that with twice the short position, you are paying twice the expenses. The borrowing cost goes from 6% to 12% annualized, and the short dividends go from 1.2% to 2.4%. The (SPY) would have to drop a lot just to cover these expenses unless the drop happens immediately.
It’s great for catching short, sharp selloffs. If you bought the (SDS) on February 18 bottom, you would have made a quick 12% profit on a 6% decline in the (SPY). But for a five-month hold, you are giving up the first 12% move to expenses.
To learn more about the (SH) ETF, please visit their website at https://www.proshares.com/our-etfs/leveraged-and-inverse/sh
Don’t pay more than $0.70, or you’ll be chasing on a risk/reward basis.
Please note that these options are illiquid, and it may take some work to get in or out. Executing these trades is more an art than a science.
Let’s say the Proshares S&P 500 ETF (SH) August 2025 $41-$42 in-the-money vertical Bull Call debit spread LEAPS are showing a bid/offer spread of $0.40-$0.60. Enter a good-until-cancelled order for one contract at $0.50, another for $0.55, another for $0.60, another for $0.65, and so on. Eventually, you will enter a price that gets filled immediately. That is the real price. Then, enter an order for your full position at that real price.
Notice that the day-to-day volatility of LEAPS prices is miniscule, less than 10%, since the time value is so great, and you have a long position simultaneously offset by a short one.
This means that the day-to-day moves in your P&L will be small. It also means you can buy your position over the course of a month just by entering new orders every day. I know this can be tedious but getting screwed by overpaying for a position is even more tedious.
Look at the math below, and you will see that no move in (SH) shares over 6 months will generate a 100% profit with this position, such is the wonder of LEAPS. LEAPS stands for Long Term Equity Anticipation Securities.
Here are the specific trades you need to execute this position. You must place an order for this single vertical debit spread.
Buy 1 August 2025 (SH) $41 calls at………….………$5.60
Sell short 1 August 2025 (SH) $42 calls at…………$5.00
Net Cost:………………………….………..……………......$0.60
Potential Profit: $1.00 - $0.60 = $0.40
(1 X 100 X $0.40) = $40 or 6.67% in 5 months.
To see how to enter this trade in your online platform, please look at the order ticket below, which I pulled off of Interactive Brokers.
If you are uncertain on how to execute an options spread, please watch my training video on “How to Execute a Vertical Bull Call Debit Spread” by clicking here at
https://www.madhedgefundtrader.com/ltt-vbcs/
The best execution can be had by placing your bid for the entire spread in the middle market and waiting for the market to come to you. The difference between the bid and the offer on these deep in-the-money spread trades can be enormous.
Don’t execute the legs individually, or you will end up losing much of your profit. Spread pricing can be very volatile on expiration months farther out.
Keep in mind that these are ballpark prices at best. After the alerts goes out, prices can be all over the map.
Global Market Comments
March 10, 2025
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or THE ECONOMY IS GRINDING TO A HALT),
(IBKR), (JPM), (GS), (SF), (TSLA), (GM), (TLT), (GLD)
There isn’t a CEO in the country who hasn’t halted capital investment in the face of today’s unprecedented uncertainty. You can’t invest in a business without a credible GDP forecast, and Q1 is certain to deliver a large negative number, the first half of a recession.
There isn’t a consumer that isn’t cutting back on spending. With the price of everything rising, they have no choice. Entire markets, like real estate, are frozen.
Worst of all, there isn’t an investor who hasn’t postponed additional stock purchases. There is an unprecedented capital flight out of the US and into Europe and China taking place. Anything American, like the US dollar, has suddenly become toxic.
One of my favorite expressions is that “Money is like water; it flows to wherever it is treated best.” Right now, there is a Panama Canal’s worth of money flowing elsewhere, or into 90-day US Treasury bills.
And stocks are down by only 8.13% so far?
Welcome to government by reality TV.
The goal isn’t to create jobs, grow the economy, and help stabilize the world. The intention is to shock, amaze, appall, upset, disrupt, and maximize clicks for certain online social media platforms and websites. If so, they are wildly successful. So far, investors are giving the show very poor ratings, subterranean ones, and a definite thumbs down.
Last week was the worst one for stocks in two years. The Magnificent Seven are now down 15% year to date, and I bet that Tesla (TSLA), its stock down 50% in less than three months, is running at an operating loss. I would not be surprised if the country’s retirement savings have cratered by 10% so far in 2025.
Last week, I called my weekly letter “Armageddon”. I was too modest, reticent, and cautious. It should have been entitled “Armageddon on Steroids.” The US economy is probably in recession now, but we won’t see a hint of this until the Q1 numbers are out on April 30 and the confirmation on August 28.
The implications are global.
It's not a recession I’m worried about; it’s a Great Depression, a recession that a broken economy can’t get out of. There isn’t an economy in the world that isn’t being disrupted and turned on its head.
All asset classes are now screaming a recession. Oil is at a six-month low, interest rates are at a three-month low, and both the S&P 500 (SPY) and NASDAQ (QQQ) have broken their 200-day moving averages for the first time in 3 years when they fell 32% and 40%, respectively. And that was when interest rates were still at zero. The Atlanta Fed has ratcheted down its Q1 GDP forecast down to 2.4%, part one of a recession.
If you went to top up your coffee, you probably missed a 600-point move in the Dow Average ($INDU).
And here is the next black swan that is going to bite you.
The U.S. trade deficit surged in January, as import growth dwarfed a smaller increase in exports by 10:1. Imports rose 10% to $401.2 billion as businesses rushed to beat the tariffs, knocking 1.5% off of GDP. Exports climbed by a mere 1.2% to $269.8 billion. That yielded a net deficit of $131.4 billion, 34% greater than the $98.1 billion deficit in December. February is likely to be worse.
The Trump administration is setting up the perfect stagflation economy, with falling growth and rising prices. I suffered through this in the 1970s during the Nixon, Ford, and Carter administrations, and believe me, it was no fun. The triggers were two oil shocks and taking the US off the gold standard. This time, the Trigger is Trump.
It was a grim time. This was when the Dow Average flatlined for a decade, and stockbrokers drove taxis to make a living. It’s why, out of university, I went to work for The Economist magazine in London for ten years instead of heading straight for Wall Street. Brokers weren’t hiring. I didn’t get to Morgan Stanley until 1983, a year after the great bull market began.
The complete collapse of the banking sector has a very clear message: We are now in a recession. That means a 20% drawdown in this correction is a sure thing, and a 50% crash is not impossible. The promised deregulation and easier M&A policies never showed.
Keep adding protection through raising cash, executing buy-writes, and piling on bearish ETFs like the (SH) and (SDS). Tariffs will drop corporate profits by half if they continue and will wipe them out completely if they are increased in a future escalation.
When you impoverish your customers, as the tariffs are doing to Canada and Mexico practically overnight, you impoverish yourself. Their recession becomes our recession.
By the way, the jobs impact on the federal budget has been wildly exaggerated. Federal government jobs are at 3 million, versus 5 million state jobs, and 15 million local government jobs. Salaries account for only 4% of the federal budget as government employees are generally low-paid workers. If you cut them by half or by 1.5 million workers, it only knocks off 2% from federal spending.
Each government job directly creates two new private sector jobs or bout 5 million jobs.
The last safe job in the country was a government job. For centuries, government workers accepted lower pay in exchange for safety and stability. Government unions have not been allowed to go on strike. That contract has been broken this year. Companies are piggybacking their only layoffs on top of the government ones, using them as cover. This will have a leveraged effect on pushing unemployment upward.
Here's another reality check. Per capita, government jobs have been falling for a decade.
The US population rises by about 1% a year and increased to 340 million in 2024. It is up by 22 million in ten years. Population increases alone demanded the gross increase in government jobs of 300,000. Federal government jobs, in fact, have been growing at a declining rate for the past decade when compared to the private sector.
Oh, and you wanted to know about Tesla? The downside target is $140, last summer’s low, or down 72% from the top when Tesla was under 23 government investigations. If that doesn’t hold, we’re going to the 2022 low of $105, down 79%, but only if Elon Musk cares, which so far, he doesn’t. But Tesla will have no government investigations underway.
As for Nvidia, I am much more bullish. I see it going down to $90, down 41% from the top.
Read it and weep.
The Money Is Now Pouring Out
February is now flat at -0.87% return so far, which most people will take given this year’s 8.13% swan dive in the (SPY). That takes us to a year-to-date profit of +8.60% so far in 2025. That means Mad Hedge has been operating as a perfect short S&P 500 ETF since the February high. My trailing one-year return stands at a spectacular +81.34%. That takes my average annualized return to +49.91% and my performance since inception to +760.49%.
It has been a busy week for trading. I cut my risk by stopping out of a long in (JPM) near cost. I added a bearish downside play with the (SH) and a short in (GM). I started taking profits on my short positions that had completely collapsed, such as with the (TLT) and (TSLA). I used the meltdown to add very deep in-the-money long with (NVDA). Next week will probably be as busy.
Some 63 of my 70 round trips, or 90%, were profitable in 2023. Some 74 of 94 trades have been profitable in 2024, and several of those losses were really break-even. That is a success rate of +78.72%.
Try beating that anywhere.
Layoffs Hit Five-Year High. Challenger, an international firm that helps laid-off workers find new jobs, said that job losses spiked a whopping 245% to 172,017 last month, higher than any month since the middle of the COVID-19 pandemic in July 2020 and the highest in any February since 2009. The layoffs have only just begun.
ADP Collapses, with private sector hiring falling to only 77,000, a two-year low. Companies are frozen in the headlights, unable to take action in a trade environment that is changing by the day and an economy that is rapidly deteriorating. It’s another recession confirmation data point.
Atlanta Fed Says US GDP Shrank by -2.4% in Q1 of 2025, meaning we are already well on our way into recession. The Atlanta Fed always has the most extreme forecasts. That’s the latest reading from the Atlanta Federal Reserve Bank's GDP Now model, which is considered the central bank's primary tool for measuring growth in real-time.
January Trade Deficit Hits 80-Year High, as importers rushed to beat business killing Trump tariffs. The goods trade gap surged 25.6% to $153.3 billion last month, the Commerce Department's Census Bureau said on Friday. Goods imports vaulted 11.9% to $325.4 billion. The problem for investors is that this money is subtracted from the US GDP calculation, as these are products made abroad and not in America. Expect horrific economic numbers going forward.
Consumer Spending Falls to Four-Year Low at -0.5%. US consumers unexpectedly pulled back on spending on goods like cars in January amid extreme winter weather, and a slowdown in services, if sustained, may raise concerns about the resilience of the economy. Inflation-adjusted consumer spending fell by the biggest monthly decline in almost four years after a robust holiday season. The drop in outlays was driven by an outsize decline in motor vehicle purchases and drops in categories like recreational goods.
Bitcoin Gives Up All Post-Election Gains, plunging from $108,000 to 82,000, down 24%. My bet is that in bear markets, crypto will fall faster than stocks. Avoid all crypto.
The Oil Market is in Turmoil, with crude prices dropping below $66, a four-month low. A global recession is looming large. The administration has pulled Chevron out of Venezuela, losing 300,000 barrels a day there. But OPEC has increased production, and Iraq has been pressured into reopening its northern pipeline. “Drill baby, drill” threatens to swamp American consumers with excess supply. Avoid all energy plays for now.
The Tesla Collapse Accelerates, with February sales in Germany down -76%, Norway down -46%, and France -26%. The company is also falling behind in China, and there is no way US sales targets will be met. Consumers don’t want to make a political statement with an EV purchase. Shares are now down 49% in three months. Sell all (TSLA) rallies. The final target could be $140 a share, last summer’s low. Where is the CEO?
Germany Passes Massive $1.3 Trillion Spending Stimulus, devoted to defense spending and infrastructure. It caused the biggest drop in German bond prices and rise in yields in 35 years. It was enough to drag US interest rates up, giving bonds here a terrible day. Germany is now expanding its growth while we are shrinking ours. Is Germany now the global economic engine and the US the caboose?
The New Magnificent Seven Speaks German, with European defense rising 30% so far in 2025. After being dead money for 20 years, the Frankfurt stock market has suddenly come alive. The goal is to replace American weapons in Ukraine with German ones. Among the largest defense companies, Germany’s Rheinmetall (RHM) rose 14% on Tuesday, and Italy’s Leonardo (LDO) closed 16% higher, while BAE Systems (BA) was up 15% at the end of trading. France’s Thales (HO) rose 16%, and aircraft makers Dassault Aviation (AM) and Saab (SAAB) rose 15% and 12%, respectively.
Weekly Jobless Claims Fall, by 21,000 to 221,000.
Turbulence lies ahead from tariffs on imports and deep government spending cuts. That was flagged by other data on Thursday showing layoffs announced by U.S.-based employers jumped in February to levels not seen since the last two recessions amid mass federal government job cuts, canceled contracts, and fears of trade wars.
My Ten-Year View – A Reassessment
We 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 multiple gale-force headwinds. 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.
On Monday, March 10, at 8:30 AM EST, the Consumer Inflation Expectations are announced.
On Tuesday, March 11, at 8:30 AM, the JOLTS Job Openings Report is released.
On Wednesday, March 12, at 8:30 AM, the Consumer Price Index is printed.
On Thursday, March 13, at 8:30 AM, the Weekly Jobless Claims are disclosed. We also get the Producer Price Index.
On Friday, March 14, at 8:30 AM, the University of Michigan was announced as well At 2:00 PM, the Baker Hughes Rig Count is printed.
As for me, since many of you are now planning long-overdue summer vacations, I thought I would pass on what I learned from the ultimate travel guru of all time before he passed away last year.
After all, who knows how long it will be until the next pandemic? The next decade, next year, or next week?
When I backpacked around Europe in 1968, I relied heavily on Arthur Frommer’s legendary paperback guide, Europe on $5 a Day, which then boasted a cult-like following among impoverished but adventurous Americans. The charter airline business was then booming, plunging airfares, and suddenly Europe came within reach of ordinary Americans like me.
Over the following years, he directed me down cobblestoned alleyways, dubious foreign neighborhoods, and sometimes converted WWII air raid shelters to find those incredible travel deals. When he passed through town some 50 years later, I jumped at the chance to chat with the ever-cheerful, worshipped travel guru.
Frommer believed there are three sea change trends going on in the travel industry today. Business is moving away from the big three travel websites, Travelocity, Orbitz, and Priceline, who have more preferential lucrative but self-enriching side deals with airlines than can be counted, towards pure aggregator sites that almost always offer cheaper fares, like Kayak.com, Sidestep.com, and Fairchase.com.
There is a move away from traditional 48-person escorted bus tours towards small group adventures, like those offered by Gap Adventures, Intrepid Tours, and Adventure Center, that take parties of 12 or less on culturally eye-opening public transportation.
There has also been a huge surge in programs offered by universities that turn travelers into students for a week to study the liberal arts at Oxford, Cambridge, and UC Berkeley. His favorite was the Great Books program offered by St. John’s University in Santa Fe, New Mexico.
Frommer says that the Internet has given a huge boost to international travel, but warns against user-generated content, 70% of which is bogus, posted by the hotels and restaurants touting themselves.
Frommer turned an army posting in Berlin in 1952 into a travel empire that publishes 340 books a year, or one out of every four travel books on the market. I met him on a swing through the San Francisco Bay Area (his ticket from New York was only $150), and he graciously signed my tattered, dog-eared original 1968 copy of his opus, which I still have.
Which country has changed the most in his 60 years of travel writing? France, where the citizenry has become noticeably more civil since losing WWII. Bali is the only place where you can still actually travel for $5/day, although you can see Honduras for $10/day. Always looking for a deal, Arthur was on his way to Chile, the only country in the world he had never visited.
Arthur Fromer passed away in 2024 at the age of 95.
Arthur’s Last Big Play in Bali
Good Luck and Good Trading,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
