Demographics is destiny.

If you ignore it as an investor, you will be constantly behind the curve wondering why your performance is so bad.

Get ahead of it, and people will think you are a genius.

I figured all this out when I was about 20.

I realized then, back in 1972, that if I could just get ahead of the baby boomer generation, everything magically seemed to work.

Buy what boomers want to buy next, and the world will be your oyster.

That strategy is still working today.

Back then, that meant buying residential real estate in California and New York, which has since risen in value 100 fold, and more, once the generous tax breaks of homeownership are added in.

Now it means investing in health care and big pharma, this year’s best performers in the stock market.

Except now, there is a new crowd in town: The Millennials.

As a long-term observer of America’s demographic picture, I was shocked to hear of a recent report from the US Census Bureau.

The US population grew by 1.75 million, or a scant 0.53% in 2023, the lowest since 1942.

You can’t start or expand a family when an essential partner in the process is off fighting WWII, and there were 17 million of them back then.

This is far below the 2.09% replacement rate that the country was holding on to only a few years ago.

As of today, there are 341,233,396 Americans. This accounts for 4.21% of the global population of 8.1 billion.

This places American population growth close to the bottom of the international reproduction sweepstakes, down with Italy (0.32%), Germany (0.11%), and Poland (0.02%).

According to the World Bank, 22 countries suffered population declines, like Portugal (-0.29%) and Japan (-0.20%). Click here for the link

The tiny Sultanate of Oman, one of my old stomping grounds as a Marine Corps pilot, enjoys the planet’s highest growth rate at 9.13%.

But then it helps if you have four wives.

The obvious cause here of America’s demographic dilemma was the pandemic. There is a high correlation between economic health and fertility a year later. Not only did one million Americans die, but women were afraid to socialize in person and eventually go to hospitals to deliver children.

So, we can only hope that the improvement in the economy sent more to the maternity ward.

If it doesn’t, it could be great news for your investment portfolio. Fewer births today translate into a shortage of workers in 20 years. That brings rising wages, flying inflation, and rapid price hikes. And stock markets love inflation because companies can pass costs on to consumers, while bondholders can’t.

Corporate profits go through the roof, as do share prices. It also produces fewer relying on government services in 40 years, which makes it easier for the government to balance the budget.

This Goldilocks scenario was already scheduled for the decade of the 2020s, when a 15-year demographic headwind flipped to a tailwind, thanks to the coming demise of the “baby boomer” generation, now a big cost to the economy and the emergency of Millennials as big spenders. But the 2024 election may have canceled out these beneficial effects.

As long as I hike ten miles a day I’ll probably live forever. I’ve already outlived three doctors. Quitting smoking when my first kids came along 40 years ago was a big help.

California is the most populous state, with over 40 million, followed by Texas (29.53 million) and New York (8.5 million). Two states saw population declines, Maine and West Virginia, where the collapse of the coal industry is sucking the life out of local businesses.

Parsing through the report, it is clear that predictions of population trends are becoming vastly more complicated, thanks to the increasingly minestrone-like makeup of the US people.

By 2040 no single racial group will be in a majority in the US. That is already the case for the entire States of California and Texas now. Hispanics now account for 38% of the population of the Golden State, followed by Caucasians at 37%.

America will come to resemble other, much smaller multiethnic societies, like Singapore, South Africa, England, and Israel. This explains much about the current state of politics in the US today.

Some 80% of new Texans were Hispanic and black, confirming my belief that the Lone Star State will become the next battleground in presidential elections.

Single ethnic groups historically will only lose their majority with a fight.

This is why gerrymandering (redistricting) is such a big deal there, with the white establishment battling to hang on to power at any cost.

Further complicating any serious analysis is the rapid decline of the traditional American nuclear family, where married parents live with their children.

With a vast concentration of wealth at the top and a long-term decline in middle-class earnings, kids are increasingly becoming a luxury of a prosperous elite.

As a result, the country’s birthrate has declined by half since 1960.

Those who do are having fewer kids, with the average family size dropping from three to two. In 1964, the final year of the baby boom, 36% of Americans were under the age of 18.

Today, that figure is just 23.5% and is expected to fall to 21% by 2050. Only 80% of women have children now, compared to 90% in the 1970’s.

One possible explanation is that the full, end-to-end cost of child rearing has soared to over $250,000 per child now.

I was a bargain as a kid, costing my parents only a tenth of that. Rocketing college costs are another barrier, with 70% of high school grads at least starting some higher education.

I went to Boy Scouts and Little League baseball, each of which cost $1 a month. A full scholarship covered my college expenses.

When I look at the checks I have written for my own children for ski lessons, soccer, youth sailing, braces, international travel, and assorted master's degrees and PhDs, I recoil in horror.

Fewer women are following that old adage of “marriage before carriage.” Some 41% of children are born out of wedlock, up 400% in 40 years.

It is definitely an education and class-driven divide. Only 10% of college-educated mothers are still single, compared to 57% of those with a high school education or less.

It is a truism in the science of demographics that educated women have fewer children. It makes possible careers that enable them to bring home paychecks instead of babies, which husbands prefer.

Blame Roe versus Wade, the Equal Rights Act, and Title Nine, but every social reform benefiting women of the past half-century has helped send the birthrate plummeting.

More women wearing pants in the family hurts the fertility rate as well, as they are unable, or unwilling, to bear the large families of yore. The share of families where women are the primary breadwinners has leaped from 11% to 40% since 1960.

When couples do marry, they are sometimes of the same sex, now that gay marriage is legal, further muddying traditional data sources.

Some 2 million children are now being raised by gay parents. In fact, there is a gay baby boom underway, which those in the community call the “gayby” boom.”

All female couples have produced one million children over the last 30 years, 95% of whom select for blond-haired, blue-eyed, Aryan sperm donors who are over six feet tall ($40 a shot for donors if you guys are interested and live within walking distance from UC Berkeley).

I’m told by the sources that know that water polo players are particularly favored.

The numbers are so large that it is impacting the makeup of the US population.

There was a time when I could usually identify the people standing next to me on San Francisco cable cars. That time has long passed. Now I don’t have a clue.

Whenever we go to war, we become our enemy to a modest degree, both as a people and a culture.

After WWII, 50,000 German and 50,000 Japanese wives were brought home as war prizes. Sushi, hot tubs, Toyotas, and Volkswagens quickly followed.

The problem is that the US has invaded another 20 countries since 1945 and is now maintaining a military presence in 140. That generates a hell of a lot of green cards.

This has spawned sizeable Korean, and later, Iranian communities in Los Angeles, a Vietnamese one in Louisiana, a Somali enclave in Minneapolis, and a large minority of Afghans in San Jose, CA. The Arab population of Michigan could have decided the 2024 presidential election.

The fall of the Soviet Union in 1992 unleashed another dozen Eastern European ethnic groups and languages on the US. Haven’t you noticed the proliferation of Arab fast-food restaurants in your neighborhood since we sent 20 divisions to the Middle East?

What all this means is that the grand experiment called the United States is entering a new phase.

Different ethnic, racial, religious, and even political groups are blending with each other to create a population unseen in the history of the world, with untold economic consequences.

It is also setting up an example for other countries to follow.

Get your investment portfolio out in front of it, and you could prosper mightily.

 

Ignore Demographics at Your Portfolio’s Peril

 

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

 

 

 

 

 

 

 

 

 

 

When I first arrived on Wall Street during the early 1980s, some of the old veterans who worked through the 1929 stock market crash were just retiring and passed their stories on to me before they left.

One was my old friend, Sir John Templeton, founder of the Templeton funds, who often hosted me for dinner at his antebellum-style mansion at Lyford Cay in the Bahamas. John told me he was really excited when hired in ‘29 to handle the surge of brokerage business. After that, things got really boring for a decade.

The volatility we are experiencing now has many similarities to that epic event. In some ways, it's far worse. The 1929 downturn was spread over 34 months.

We all know about the Roaring Twenties, with flappers, bathtub gin, and a soaring stock market. Then, individuals could buy on ten to one margin. The high-flying tech stocks of the day, like RCA Radio, General Motors (GM), and Ford (F), soared. From 1921 to 1929, the Dow Average rocketed six-fold. The working class was sucked in.

Industry followed suit, taking the sign of rising stocks as proof of an economic boom. They massively boosted production in all sectors. That meant they went into the Great Depression loaded to the gills with inventory.

The Dow Average peaked on September 3, 1929, at 381. A slow burn of profit-taking ensued. Suddenly, a cascading waterfall of SELL orders hugely accelerated on “Black Monday” when the Dow plunged by 13%. It was followed by “Black Tuesday” when stocks lost another 13%.

Margin calls triggered a run on the banks as investors tried to withdraw cash to cover rampant cash calls. This spawned a financial crisis where eventually 4,000 banks went under.

By November, the Dow had fallen by 48% to 198. JP Morgan stepped in to stabilize the market, prompting a short-term rally. It was to no avail, with many retail investors seeing this as their last chance to sell. The market continued its slide, eventually hitting bottom at 41, or down an astonishing 89% from the top by July 8, 1932. The market then moved sideways in a wide 150-point range until the outbreak of WWII. It didn’t recover its 1929 peak until 1959.

A few years ago, I had lunch with the former governor of the Federal Reserve (click here), who did his PhD dissertation on the causes of the Great Depression. The big mistake the Fed made then was to raise interest rates to damp down stock speculation. They ended up destroying the economy, inadvertently making the depression far deeper and longer.

The world has learned a lot about central banking since those dark days. For a start, the theory of Keynesianism has been adopted whereby governments borrow and spend during economic downturns and run balanced budgets or surpluses during good times.

The modern Fed won’t be making the same mistake twice. During the last bear market, the Fed almost immediately took interest rates down to zero. Our central bank has also responded with monetary stimulus that is a large multiple of what we saw in 2008-09, essentially buying everything that was out there in fixed-income land.

My grandfather never participated in the stock boom of the 1920’s. He never found a broker he could trust. When the market crashed, he had to finish his basement in Brooklyn, New York, so that several relatives who had lost their homes could move in. We lost many equity investors for good in the 2008-09 crash. No doubt we will lose many more in this cycle.

What did Grandpa do with his money? He poured it all into real estate, including the land on which the Bellagio Hotel was eventually built, which he picked up for $500 an acre. His estate sold it in the 1970’s for $10 million.

Grandpa never bought a stock during his entire life.

 

Grandpa on Right