Homepage Posts Archives - Mad Hedge Fund Trader

Bring Back the Old Asset Allocation Rules

“What to do about asset allocation” is the one question that I get every day, which I absolutely cannot answer.

The reason is simple: no two investors are alike.

The answer varies whether you are young or old, have $1,000 in the bank or $1 billion, are a sophisticated investor or a basic beginner, in the top or the bottom tax bracket, and so on.

This is something you should ask your financial advisor if you haven’t fired him already, which you probably should.

Only advisors who read the Diary of a Mad Hedge Fund Trader should merit your attention. At least they’re going the extra mile trying to figure things out.

Having said all that, there is one old hard and fast rule, which you should probably dump.

It used to be prudent to own your age in bonds. So, if you were 70, you should have had 70% of your assets in fixed income instruments and 30% in equities.

When bond interest rates were plumbing the depths at a 0.32% yield during the pandemic low, bonds were shunned by all advisers. In fact, the (TLT) was one of the best short plays I have ever executed.

But you know what? Time heals all wounds. Maybe it is time to go back to the old rules. With a 4.50% for ten-year US Treasury bonds, 7.5% for junk, 8.8% for senior loan ETFs, and 15% for some REITS, maybe fixed income doesn’t look so bad after all. And they are all about ready to take off with the Fed ready the start cutting interest rates in the coming months.

Just thought you’d like to know.

Allocation: Are You Him?

Or Him?

Testimonial

Diary, Homepage Posts, Newsletter, Testimonials

You are the only man I know who lives life at 200%.

Bill
Fort Myers, Florida

The Market Outlook for the Week Ahead, or Full Speed Ahead Towards the Cliff

Diary, Homepage Posts, Newsletter

Remember the cult classic 1955 coming-of-age drama, Rebel Without a Cause?

In it, two teenagers are racing stolen cars towards a cliff on the California coast, playing chicken to see who jumps out first. James Dean makes it out safely, but gang leader Corey Allen gets a belt on his leather jacket stuck on a door handle and plunges to his death.

I feel like we are playing a similar game of chicken these days, but it is with the stock market. Will we get out in time? Or will we suffer financial destruction?

It now seems like the stock market exchanged a trade war for artificial intelligence, abruptly on April 9, and it has been straight up ever since. Markets have endured two once-in-50-year events two months in a row, down 20% and then up 20%.

The moves have blown up every trading model out there, including my own, which depends heavily on historical data. To make matters worse, almost the entire rally took place in a mere 60 trading minutes, mostly at market openings. The last time the market recovered more than 15% in less than six weeks was in 1982 when the inflation rate was backing off 20% and the Unemployment Rate was 10.8%.

How High Can Stocks Go into a Recession?

One of my concierge clients asked an excellent question last week during one of our regular conversations. When is this damn recession going to show?

Store shelves are about to go empty. Economic data points for the next six months will be awful. The budget deficit is about to double, pushing interest rates up. How many shares do you want to buy after the sharpest move up in history?

The answer is very simple. The recession is already here, but investors won’t be able to see it until June at the earliest.

Once Trump won the election in November, companies rushed to build up inventories, in some cases as much as a year’s worth, to beat the tariffs. It was no secret that higher tariffs were coming, but no one imagined by how much. That created an order surge from November to February. Those orders then went to zero from March onward, just before the new tariffs hit. That collapse in business starts showing up in the numbers in June, only 12 days away.

As for prices, they will remain stable as long as companies can sell out of existing pre-tariff inventories. That is why the April Consumer Price Index remained at a modest 2.3%. When those inventories run out, starting from June onward, depending on the product, the next new price will be 30% higher as the new Chinese tariffs are passed on.

This is why businesses and consumers everywhere are bracing for an inflation surge. And once inflation starts, only a recession can reign it in with dried up demand.

You can be excused for being confused, befuddled, and disoriented. The administration has pursued two diametrically opposed economic policies at the same time. On the one hand, an aggressive trade war and budget cutting were hugely market negative, delivering an instant 20% selloff in stock market indexes, and 50% haircuts in single stocks.

On the other hand, a trade war retreat and tax cuts are very market-positive, as the 20% rally amply demonstrated. The net for all of this has no real movement in shares in 2025, but ballistic stress levels, increased heart attacks, and diminished retirement funds.

If we aren’t in a recession right now, then the bond market will certainly give us one by year’s end. The implications of the House budget proposals are nothing less than cataclysmic, which promises to add more than $4 trillion to the national debt in four years through massive tax cuts.

That includes chopping Medicaid for the 75 million poorest Americans. Add that to the $2 trillion a year budget deficit we are currently running, and the National Debt will soar from $36 trillion to $52 trillion by 2028.

This explains Moddy’s downgrade of the US debt from triple A to double Aa1. It was our last triple-A rating to go after Standard & Poor’s and Fitch’s posted similar downgrades in earlier years. But then, I guess Trump is used to downgrades.

If you haven’t noticed the dire consequences of such a move, the bond market has. In the last week, yields for ten-year US Treasury bonds have soared from 3.9% to 4.58%. A 5.00% yield is generally expected to cause blood to flow in the stock market and accelerate any recessions already in progress.

Inflationary tariffs will tie the Fed’s hands on interest rate cuts for another year, or at least until a new Fed governor is appointed. It turns out you can’t have your cake and eat it too, said Marie Antoinette, whom I once dated.

If you’re not already confused enough, look at the actions of individual investors. They are giving some of the worst Consumer Confidence readings in the 73-year history of the data series, with 7.3% one-year inflation expectations, almost double the current level. And then they are running out and buying the most volatile high-growth technology stocks with both hands?

Could these possibly be the same people?

Of course, not all stocks are going up, and elections have consequences. RFK’s appointment as Secretary of Health and Human Services has made biotech and health care a no-go area, possibly for four years. Look no further than UnitedHealth (UNH), which is down 65% since the election and is now under criminal investigation for Medicare fraud.

The trade war has claimed another victim with Foot Locker (FL), which imported almost all of its products from China. As the father of five children, my preschool visits there became an annual family ritual. It seemed my kids never stopped growing. They just got taken over by Dicks Sporting Goods (DKS), after a post-election 56% share price collapse.

By threatening default on US Treasury bonds, restraints on capital outflows from the US, and withholding taxes on interest payments to foreign investors, Trump has upended a global capital system that raised American standards of living for 80 years. Foreign investors now view the American glass as half empty rather than half full, they currently own $20 billion worth of all American equities, or about 20% of the total.

Supply chains are now being put through a meat grinder and will lead to lower global economic growth and stability, including in the US. A globalized trading system lifted one billion people out of poverty and turned them into consumers of American goods. Everything from Levi’s to iPhones is now at risk. The end result could be single-digit stock market returns for a decade, or maybe none at all.

I hate to sound like a Debbie Downer with such a negative outlook. But I was bullish from 2009 until 2025. Conservatives call me a liberal, and liberals accuse me of being a conservative, so I get flak from all sides. At the end of the day, I am just a humble numbers guy, and numbers don’t lie. When they give me a firm direction, I go full speed ahead. This is why I am 80% RISK OFF and 20% cash going into the next market top.

By the way, James Dean was killed in a head-on collision on a narrow highway near Paso Robles, California, while driving his Porsche 550 Spyder at 80 miles per hour after Rebel Without a Cause was released.

As for me, I won’t be wearing any leather jackets this summer.

My May performance dropped by -2.26%. That takes us to a year-to-date profit of +26.12% so far in 2025. My trailing one-year return stands at a high +83.96%. That takes my average annualized return to +50.47% and my performance since inception to +778.01%.

It has been another wild week in the market. I stopped out of short positions in (NVDA) and (TSLA). What was I thinking when the stocks were being wildly over-promoted in Saudi Arabia? But the profits were offset by longs in these names that I had earlier taken profits in. I took profits in longs on (JPM) and (GLD). I establish a new short in (MSTR), doubling my exposure there. That leaves me 80% RISK OFF

in (GLD), (SPY), (MSTR), (AAPL), (QQQ), and (TLT), and 20% cash.

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

Try beating that anywhere.

James Dean

James Dean’s Porsche 550 Spyder – Don’t Let This Happen to You!

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, May 19, at 9:00 AM EST, the Conference Board Leading Economic Indicators are announced.

On Tuesday, May 20, at 7:55 AM, the Redbook Index of retail sales is released.

On Wednesday, May 21, at 9:30 AM, the final read for Q1 GDP is disclosed.

On Thursday, May 22, at 8:30 AM, the Weekly Jobless Claims are disclosed. We also get Existing Home Sales.

On Friday, May 23, at 7:30 AM, we get New Home Sales. At 1:00 PM, the Baker Hughes Rig Count is published.

Trump Caves on Most Chinese Demands, squeezing the shorts. You can only talk markets up for so long. Stock markets were already in the process of peaking out and are looking for the slightest excuse to dive. Chinese exports fell by 20% in April, setting off a supply chain disaster. How do you go from a 145% Chinese tariff to 80%, to 60%, to 30% in a week? The tax increase is still there, it’s just $100 billion instead of $1 trillion. The recession is still on. Getting China to agree is one thing, getting them to honor agreements is entirely another kettle of fish.

Consumer Sentiment Crashes, with the second-lowest reading in 73 years at 50.8. One-year inflation expectations are at 7.3%. The majority of the survey was completed before the U.S. and China announced a 90-day pause on most tariffs between the two countries.

Inflation comes in Cool at 2.3%, indicating that recession risks are rising. US inflation rose less than forecast in April, with the consumer price index increasing 0.2% from March, driven by tame prices for clothing and new cars. The report suggests that companies are absorbing some of the extra costs of higher tariffs, and consumers are cutting back on leisure and discretionary spending.

Coinbase Joins S&P 500 Index, taking the stock up 21%. It will replace credit card issuer Discover Financial, which is being acquired by Capital One. The move will be effective before trading begins on May 19. The move reflects S&P’s preference for adding news technology companies while dumping old economy ones.

Meta Delays Flagship Behemoth AI Product, taking the shares down 6%, as concerns about its capabilities rise. Company engineers are struggling to significantly improve the capabilities of their Behemoth large-language model, resulting in staff questions about whether improvements over earlier versions are significant enough to justify public release. Incremental improvements are shrinking, despite a planned $72 billion capital investment this year.

Retail Sales Crater, gaining 0.1% in April from March, the Census Bureau reported Thursday. Economists surveyed by FactSet had forecast that overall retail sales gained 0.2% month over month in April, a slowdown from a revised 1.7% surge in March. This is what the beginning of a recession looks like.

US Producer Prices unexpectedly declined in April by 0.5%, the weakest in five years, largely due to a slump in margins. The decline suggests companies are absorbing some of the hit from higher tariffs, rather than passing them on to consumers, who have seen only a modest impact so far. Yet another pre-recession indicator.

Weekly Jobless Claims Unchanged at 229,000. Claims have moved in a 205,000-243,000 range this year, consistent with a historically low level of layoffs. Companies have been hanging on to their workers, following difficulties finding labor during and after the COVID-19 pandemic. Trump’s on-and-off-again tariffs have created an uncertain economic environment, resulting in major companies from airlines to motor vehicle manufacturers pulling their 2025 financial forecasts.

Say Goodbye to the EV Tax Credit, long a major incentive for car buyers. Some details of the house tax bill are out. Now, automotive investors have two matters to consider: the possibility that electric-vehicle tax credits could vanish, and the potential for a new tax break on cars assembled in the U.S.. That’s a huge plus for Tesla, which prompted a major rally in the shares.

As for me, I have been known to occasionally overreach myself, and a trip to the bottom of the Grand Canyon a few years ago was a classic example.

I have done this trip many times before. Hike down the Kaibab Trail, follow the Colorado River for two miles, and then climb 5,000 feet back up the Bright Angel Trail for a total day trip of 27 miles.

I started early, carrying 36 pounds of water for myself and a companion in a big backpack. Near the bottom, there was a National Park Service sign stating that “Being Tired is Not a Reason to Call 911.” But I wasn’t worried.

The scenery was magnificent, the colors were brilliant, and each 1,000-foot descent revealed a new geologic age. As it was spring, the magnificent royal blue Colorado River was roaring with fresh snowmelt.

I took a cautious bath in the river and then began the long slog back to the south rim.

As the sun set, it was clear that we weren’t going to make it to the top. I was passed by a couple who RAN the entire route, who told me, “Better hurry up.” I realized that I had erred in calculating the sunset, it taking place an hour earlier in Arizona than in California in the same time zone.

By 8:00 PM, it was pitch dark, the trail had completely iced up, and it was 500 feet straight down over the side. I only had another 500 feet to go, but the batteries on my flashlight died. I resigned myself to spending the night on the cliff face in freezing temperatures.

Then I saw three flashlights in the distance. Some 30 minutes later, I was approached by three Austrian Boy Scouts in full dress uniform. I mentioned I was an American Scoutmaster and Eagle Scout (Adler Scout in German), and they offered to help us up.

I grabbed the belt of the last kid, who was a hefty six feet tall, my companion grabbed my belt, and they hauled us up in the darkness. We made it to the top, and I said, “Thank you”, giving them the international scout secret handshake.

It turned out that I wasn’t in as great shape as I thought. In fact, I hadn’t done the hike since I was a scout myself 30 years earlier. I spent three days recovering in the famed 1905 El Tovar Hotel, barely able to move.

As a treat, I took the steam-powered Grand Canyon Railway back to Flagstaff, where I picked up my plane. I then flew through the amazingly deep Grand Canyon on the way back to San Francisco.

Good Luck and Good Trading,

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

May 14 Biweekly Strategy Webinar Q&A

Diary, Homepage Posts, Newsletter

Below, please find subscribers’ Q&A for the May 14 Mad Hedge Fund Trader Global Strategy Webinar, broadcast from Incline Village, NV.

Q: What are the chances of Tesla (TSLA) getting their robotaxis up this year?

A: No chance. Elon Musk is someone who overpromises and underdelivers on timetables. He uses that as a whip to flog his staff, to make things happen faster. Waymo, on the other hand, has had robotaxis in San Francisco for two years, and they are far down the learning curve in the robotaxi business. They are doing 200,000 robotaxi rides a week, which is really quite amazing. I haven’t ridden one yet, but they’re supposed to be quite fun, and the accident rate is zero. There are no deaths so far on robotaxis, whereas with regular taxis, you can bet there have been quite a few deaths over the same two years, so that’s the big selling point there. At the end of the day, this isn’t a big business, only about $75 billion a year nationwide, so don’t expect a lot of new Tesla profits from robotaxis.

Q: Any opinion on private equity financing companies replacing regular banking?

A: I know there’s been a big boom in private equity and private lending deals, and those are great market-topping type indicators. When times go bad, the liquidity goes to zero, and you can’t get out of anything except at big 80% discounts. It’s kind of junk financing on steroids, great in up markets, not so much in down markets. If you can put money in and leave it untouched for 10 years, it may be okay. Anything short of that, I think it’s something being heavily over-promoted right now to people chasing higher yields, just so people can get another couple extra percent in returns on their investment. Like all things on Wall Street, the opportunities are being over-promoted and the risk under-explained.

Q: What do you think about KKR & Co. (KKR)?

A: That is the quality play in the sector. They’ve already done quite well in this recovery rally, and that’s something. KKR and BlackRock (BLK), the two leaders in the industry, are definitely long-term buys, and I would be looking to get in on any dip. They’re both incredibly well-run companies and money managers. We’ve done several trade alerts on (BLK) in the past.

Q: Do you have any other imminent stop losses?

A: Yes. Nvidia (NVDA)—we’re getting close. We’re at a 2% loss, right where we are now. But the market has just had the biggest rally in 43 years—1982 was the last time. But then, we were coming off a 20% inflation rate and a decade of non-performance in the stock market. So you can hardly compare current events to then, and therefore, a rally of this size is not justified, but it’s happening. It’s there. NVIDIA is up $5 today, so people are pouring back into their favorites. And if the loss increases any more from here, I will stop out of that position.

Q: Should I buy the dip in UnitedHealth Group (UNH)?

A: Absolutely not. As long as RFK is demolishing the Department of Health and Human Services, anything biotech or healthcare related is toxic and a no-touch. And if you don’t believe me, go look at the chart for Eli Lilly (LLY), which has similarly been destroyed.

Q: With all of this FOMO (fear of missing out) and market excitement, is the recession still on?

A: Yes, it is. It will show up in the numbers in the next month. The 2.3% CPI we got this week at 2.3% is probably the last tame one. Just listen to the guidance we got from Walmart (WMT), and it is clear there is total chaos there going on over pricing. They’re used to 3% increases, not 30%. I tend to think we’re going to get another run at the stock market lows when the harsh numbers hit. You can only talk up stocks for so long without real performance. We’ll have to wait and see.

Q: Your market timing index is saying we should have bought when it hit 2?

A: Actually, we did. We put on long positions as fast as I could write the alerts, but you can only write so many alerts in a day; we have since taken profits in all those positions, which is why we’re up so much this year.

Q: I got destroyed by the 5/$570-$580 short puts spread in the S&P 500.

A: Yes, that’s why we issue stop loss on May 5. That’s why we have risk control. If you’re going to behave like a professional trader, you have to do the full package and act like a professional trader. “STOP LOSS” means “get out now as fast as you can.” You can’t just put on positions, and when they go against you, pray that they turn good again. That just doesn’t work. We stopped out with a loss of less than $1,000 a week on our (SPY) position. If you didn’t execute the STOP LOSS, then the losses would be much larger. When 80% of our trade alerts are successful, it’s easy to stop out because 80% of the time, the next trade will be a winner. So, no discipline in this kind of market will put you out of business very quickly, which is why I’ve been doing this now for 55 years, and other people haven’t. Risk control is key. It’s easier to dig yourself out of a small hole than a big one.

Q: What’s the next black swan of 2025?

A: Wait until tomorrow or wait until this weekend. The black swans tend to happen every weekend. And we get a shock 1,000-point move on Monday, which nobody can get in or out of. So there is no way of telling. This is the most unpredictable market in my 55-year career. Two once-in-50-year moves in two months? Go figure.

Q: What do you think about Airbnb (ABNB) here, on the back of more consumer dollars being spent for the rest of the year?

A: I actually like Airbnb—I’m a huge user. I looked at my account the other day, and I’ve stayed at 45 Airbnbs in 16 different countries. And I have some really interesting experiences to share from those. They are moving into other business lines; they are now offering travel insurance, which is a great idea, and Airbnb experiences, inviting people to offer local experiences as part of their setup. I’d be a buyer of Airbnb on dips.

Q: What do you think about the latest consumer price index (CPI) report and future ones?

A: The fact that the report came in so weak at 2.3%, which is near a multi-year low, means that recession fears are overwhelming inflation fears. That’s what that means. We’re not really actually seeing that in prices in the store. I don’t know, but everything I look at in the stores is getting more expensive. And of course, the big price hits have yet to occur when the shelves run empty, which will happen sometime literally in the next few weeks when all of the Chinese goods stop coming to the United States, because the tariffs made trade impossible.

Q: Do you think now is a good time to buy gold (GLD)?

A: I would wait for this rally in stocks to burn out. When it does, you’ll get a big spike up in gold prices. Until then, expect a sideways move in gold. Long-term gold is still in a bull market. I’m aiming for $5,000, but it does need to take a rest after a massive 35% move since the November election.

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, TECHNOLOGY LETTER, or JACQUIE’S POST, then WEBINARS, and all the webinars from the last 12 years are there in all their glory.

Good Luck and Good Trading,

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

1992 in Hong Kong

How to Handle the Friday, May 16 Options Expiration

Diary, Homepage Posts, Newsletter

Followers of the Mad Hedge Fund Trader alert service have the good fortune to own One in-the-money options position that expires on Friday, May 16, and I just want to explain to the newbies how to best maximize their profits.

This involves the:

May 16 (GLD) $275-$285 vertical bull call spread

Provided that we don’t have a monster move in the market in One trading day, this position should expire at its maximum profit point.

So far, so good.

For this position (GLD) 5/$275-$285 call spread, your profit can be calculated as follows:

Profit: $10.00 expiration value – $8.80 cost = $1.20 net profit

(12 contracts X 100 contracts per option X $1.20 profit per option)

= $1,440 or 13.64% in 22 trading days.

Many of you have already emailed me asking what to do with these winning positions.

The answer is very simple. You take your left hand, grab your right wrist, pull it behind your neck, and pat yourself on the back for a job well done.

You don’t have to do anything.

Your broker (are they still called that?) will automatically use your long position to cover your short position, canceling out the total holdings.

The entire profit will be credited to your account on Monday morning, May 19, and the margin freed up.

Some firms charge you a modest $10 or $15 fee for performing this service.

If you don’t see the cash show up in your account on Monday, get on the blower immediately and find it.

Although the expiration process is now supposed to be fully automated, occasionally machines do make mistakes. Better to sort out any confusion before losses ensue.

If you want to wimp out and close the position before the expiration, it may be expensive to do so. You can probably unload them pennies below their maximum expiration value.

Keep in mind that the liquidity in the options market understandably disappears, and the spreads substantially widen, when a security has only hours or minutes until expiration on Friday. So, if you plan to exit, do so well before the final expiration at the Friday market close.

This is known in the trade as the “expiration risk.”

One way or the other, I’m sure you’ll do OK, as long as I am looking over your shoulder, as I will be, always. Think of me as your trading guardian angel.

I am going to hang back and wait for good entry points before jumping back in. It’s all about keeping that “buy low, sell high” thing going.

I’m looking to cherry-pick my new positions going into the next quarter’s end.

Take your winnings and go out and buy yourself a well-earned dinner.

Well done, and on to the next trade.

You Can’t Do Enough Research

A Different View of the US

Diary, Homepage Posts, Newsletter

My mother lives in Pakistan, my daughter in Greece, and I have a ski chalet in Peru.

What’s more, I have strategy luncheons planned for Australia, Thailand, and Turkey.

At least these would be my conclusions after looking at a map prepared by my esteemed former employer, The Economist magazine in London, of the United States, renaming each state with its international equivalent in GDP.

There are other tongue-in-cheek comparisons to be made.

Texas is portrayed as Russia, which makes sense, since both are big oil exporters. Ditto for Alaska, which is represented by Oman.

As for Hawaii? It is renamed Croatia. Now that would really give the former president birth certificate problems!

I worked for this august publication for a decade during the seventies and have been reading the best business magazine in the world for over four decades. They never cease to inform, entertain, and titillate.

An April 1 issue once did a full-page survey on a fictitious country off the coast of India called San Serif.

It noted that if the West Coast kept eroding, and the East Coast continued silting up, the country would eventually run into the subcontinent, creating serious geopolitical problems.

It wasn’t until someone figured out that the country, the prime minister, and every town on the map were named after a type font that the hoax was uncovered.

This was way back, in the pre-Microsoft Word era, when no one outside the London typesetters’ union knew what “Times Roman” meant.

A Note on Assigned Options, or Options Called Away

Diary, Homepage Posts, Newsletter

Occasionally, I get a call from Concierge members asking what to do when their short positions or options are assigned or called away. The answer was very simple: fall down on your knees and thank your lucky stars. You have just made the maximum possible profit for your position instantly.

We have the good fortune to have One spread left that is deep in the money going into the May 16 option expiration in 3 days. It is the:

(GLD) 5/$275-$285 call spread

In the run up to every options expiration, which is the third Friday of every month, there is a possibility that any short options positions you have may get assigned or called away.

Most of you have short option positions, although you may not realize it. When you buy an in-the-money vertical option debit spread, it contains two elements: a long option and a short option.

The short options can get “assigned,” or “called away” at any time, as it is owned by a third party, the one you initially sold the put option to when you initiated the position.

You have to be careful here because the inexperienced can blow their newfound windfall if they take the wrong action, so here’s how to handle it correctly.

Let’s say you get an email from your broker telling you that your call options have been assigned away. I’ll use the example of the in-the-money SPDR Gold Shares SPDR (GLD) May $200-$205 vertical BULL CALL debit spread, which you bought at $4.55 or best.

For what the broker had done, in effect, it allowed you to get out of your call spread position at the maximum profit point, 8 trading days before the May 17 expiration date. In other words, what you bought for $4.55 on April 30 is now worth $5.00!

All have to do is call your broker and instruct them to exercise your long position in your (GLD) May 200 calls to close out your short position in the (GLD) May $205 calls.

This is a perfectly hedged position, with both options having the same expiration date, the same number of contracts in the same stock, so there is no risk. The name, number of shares, and number of contracts are all identical, so you have no net exposure at all.

Calls are the right to buy shares at a fixed price before a fixed date, and one option contract is exercisable into 100 shares.

To say it another way, you bought the (GLD) at $200 and sold it at $205, paid $4.55 for the right to do so for 13 days, so your profit is $0.45 cents, or ($0.45 X 100 shares X 25 contracts) = $1,125. Not bad for a 13-day defined, limited risk play.

Sounds like a good trade to me.

Call-aways most often happen in the run-up to a dividend payout. If you can collect a full monthly or quarterly dividend the day before the stock registration dates by calling away someone’s short option position, why not? In fact, a whole industry of these kinds of strategies has arisen in recent years in response to the enormous growth of the options market.

(GLD) and most tech stocks don’t pay dividends, so call aways are rare.

Weird stuff like this happens in the run-up to options expirations like we have coming.

A call owner may need to buy a long (GLD) position after the close, and exercising his long May 205 call is the only way to execute it.

Adequate shares may not be available in the market, or maybe a limit order didn’t get done by the market close.

There are thousands of algorithms out there that may arrive at some twisted logic that the calls need to be exercised.

Many require a rebalancing of hedges at the close every day, which can be achieved through option exercises.

And yes, options even get exercised by accident. There are still a few humans left in this market to make mistakes.

And here’s another possible outcome in this process.

Your broker will call you to notify you of an option called away, and then give you the wrong advice on what to do about it. They’ll tell you to take delivery of your long stock and then post additional margin to cover the risk.

Or they will tell you to sell your remaining long option position at whatever price you can get, wiping out most, if not all, of your great profit. This generates the maximum commission for your broker.

Either that, or you can just sell your shares on the following Monday and take on a ton of risk over the weekend. This generates oodles of commission for the brokers but impoverishes you.

There may not even be an evil motive behind the bad advice. Brokers are not investing a lot in training staff these days. It doesn’t pay. In fact, I think I’m the last one they really trained 50 years ago.

Avarice could have been an explanation here, but I think stupidity and poor training, and low wages are much more likely.

Brokers have so many legal ways to steal money that they don’t need to resort to the illegal kind.

This exercise process is now fully automated at most brokers, but it never hurts to follow up with a phone call if you get an exercise notice. Mistakes do happen.

Some may also send you a link to a video on what to do about all this.

If any of you are the slightest bit worried or confused by all of this, come out of your position RIGHT NOW at a small profit! You should never be worried or confused about any position tying up YOUR money.

Professionals do these things all day long, and exercises become second nature, just another cost of doing business.

If you do this long enough, eventually you get hit. I bet you don’t.

Calling All Options!

The Market Outlook for the Week Ahead, or Waiting for the Missiles to Hit

Diary, Homepage Posts, Newsletter

When I was in Ukraine, the air raid sirens used to go off every night exactly at 2:00 AM.

The Russian goal was to deprive the civilian population of sleep and to make their lives miserable. It was also when the country was least able to defend itself.

You knew the missiles were on the way, it was just a question of whether your number was up. You could only hope to make it to the basement before they hit. It was not safe to go back to sleep until you heard the explosions nearby.

It is not a pleasant feeling.

Here we are in the United States in 2025, and there are missiles on the way, but they are economic ones. Ford Motors (F) has already started raising prices so they can spread them out over a longer period of time. Food and produce prices from Mexico will deliver the first price shocks, as they can go bad in a day. The first hint of this might be visible with the release of the Consumer Price Index at 8:30 AM EST on Tuesday, May 13. That’s when we learn if the inflationary surge is hitting now, or if we have to wait until June. But we know for sure it’s coming.

In fact, there is an onslaught of horrific economic data headed our way. Economic growth is slowing dramatically, prices are rising, international trade is grinding to a halt, and consumer confidence is already at all-time lows. We just don’t know yet if it is going to hit us or blow up the neighbors down the street.

The truly alarming thing about these developments is that the data from hell is going to hit just as the stock market is completing one of its most rapid rises in history, up 19.75% in a month. Stocks are now even more expensive than they were in February, with a price earnings multiple of 22X and earnings falling.

Is anyone ready for a February market crash repeat? You may be about to get it.

I have been through many bear markets since I started trading in 1965, a move down in the indexes of 20% or more. They can last 31 months (2002) and decline as much as 56% (2009). In 1987, we had a bear market in a day!

This one is number nine for me. And while no two bear markets are alike, they all share common characteristics. I have seen them caused by oil shocks, hyperinflation, financial engineering, the Dotcom Crash, the Great Financial Crisis, and the Pandemic. This is the first one caused by a trade war.

Spoiler alert! The monster is about to jump out of a closet at you at the end of the movie.

If you’re praying that the new trade deal with the UK is going to rescue your retirement funds, don’t hold your breath. It’s not a treaty; it is simply an agreement to agree sometime in the distant future. It’s not even a letter of intent. It’s nothing but a bunch of hot air.

In 2024, the U.S. actually ran a trade surplus, not a deficit, with the UK. The surplus was $11.9 billion. The U.S. exported $79.9 billion worth of goods to the U.K. and imported $68.1 billion, resulting in a surplus.

Some $10.5 billion of US aircraft were sold to the UK in 2024, followed by $7 billion in machinery and nuclear reactors and $5.6 billion in pharmaceuticals. The deals announced last week were nothing new, just a reaffirmation of existing trade that has been going on for years.

In the meantime, the punitive 10% tariff against UK imports stands. That is nowhere near enough to move the needle for the $27.7 trillion US GDP. And this was the easy one. Why the US needs to negotiate a trade agreement with a country where it is already running a surplus is beyond me.

All of this has prompted me to run the first 100% short model portfolio in the 17-year history of the Mad Hedge Fund Trader. If the market moves sideways or up small, we will make our maximum profit by the June 20 option expiration in 28 trading days (Memorial Day is a Holiday). If the market crashes, which it can do at any time, we make the maximum profit immediately. That should take us to a 2025 year-to-date profit of over 43%.

Heads I win, tails you lose, I like it.

Current Capital at Risk

Risk On

NO POSITIONS 0.00%

Risk Off

(GLD) 5/$275-$285 call spread -10.00%

(GLD) 6/$275-$285 call spread -10.00%

(SPY) 6/$610-$620 call spread -10.00%

(MSTR) 6/$500-$510 put spread -10.00%

(NVDA) 6/$140-$145 put spread -10.00%

(AAPL) 6/$220-$230 put spread -10.00%

(TSLA) 6/$370-$380 put spread -10.00%

(QQQ) 6/$540-$550 put spread -10.00%

(TLT) 6/$80-$83 call spread -10.00%

(SH) 6/$39-$41 call spread -10.00%

Total Net Position -100.00%

Total Gross Position 100.00%

I love trade wars.

They shine brilliant spotlights on obscure, usually deeply hidden parts of the global economy, revealing almost impossible-to-find data points. And every single new data point enhances your understanding of the big picture.

My first real trade war was the 1973 Oil Shock. Saudi Arabia had cut off America’s oil supply because of our support for Israel in the Yom Kippur War. Huge lines formed at gas stations, and gasoline prices shot up from 25 cents a gallon to $3.00.

Ever the entrepreneur, I started a side business buying beat-up Volkswagen Beetles, the highest mileage car then available in the United States, driving them to Mexico, and getting them repainted and reupholstered in a day for $50. Then I resold them in LA for double the price.

I remember on my last run, I was in a hurry to catch a physics class, so I left a little early. The US customs office learned about the car and asked me if I had any work done while in Mexico. I answered “No.” As he walked away, I saw that his pants were covered with fresh green paint, which had not yet dried.

I drove away as fast as my green Beetle could go.

In the old days, hedge funds reaped huge trading advantages chasing down obscure data points. When satellite data became available to the public in the 1990s, my fund leased satellite time to track the progress of the US wheat crop.

Several successful trades in the commodities markets followed, until others caught on. You already know that I closely track container ship traffic not only in Los Angeles, but ports around the world. This is easy now through many cheap apps available through Apple’s App Store..

In the 2025 stock market, we have all had to become our own mini hedge fund managers. For a start, more money has been made on the short side than the long side, at least the few who participated in instruments like my many vertical bear put debit spreads in (NVDA), (SPY), (TSLA), (MSTR), and the (TLT). There were also nicely profitable plays in the (SH), the (SDS), and the many volatility plays out there, such as the (SVXY).

It’s all been enough to help me achieve a welcome 32% profit this year. Those who took my advice to sit out 2025 and bought 90-day US Treasury bills yielding 4.2% are also profitable this year. Any positive return this year is a great accomplishment.

A whole new cottage industry that has gone viral on the internet, offering up more obscure data points about the economy than we could ever consume. We all know that forward-looking soft sentiment data is the worst ever recorded. Credit card balances held by low-income consumers are at all-time highs. But McDonald’s (MCD) and Taco Bell sales have been falling, while those at Domino’s Pizza are rising.

What the heck is that supposed to mean?

Although this may sound arcane and deep in the weeds, the 2 year – 10 year spread recently turned positive and is now at 0.47%. That means the yield on two-year Treasury notes is higher than the yield on ten-year Treasury bonds. This has NEVER happened without a following recession. If you were looking for hard data, this is hard data.

Gold is the only asset class absent from volatility this year. That alone says a lot.

There are more than the usual number of binoculars focusing on the Port of Los Angeles these days (click here for the link). Traffic is now down a stunning 25% on the week. That means a supply chain disaster is imminent.

You learn in the Marine Corps that a 50-cent part can ground a $60 million aircraft. How much extra will you pay to get that 50-cent part to get the plane flying? $1.00, $10? $100? Certainly $1 million for a military aircraft in time of war.

This is the basis for some of the exponential inflation forecasts and supply chain disruptions on the scale last seen during the pandemic. Once started, inflation takes off like a rocket with merchants trying to outraise each other and it can take years to get under control, as we saw with the last pandemic.

By the way, I still wake up at 2:00 AM every morning expecting incoming missiles, even though I have been out of Ukraine for 18 months. It turns out that post-traumatic stress gets worse when you get older. Fortunately, my bedroom is now in the basement.

The Lucky One (it was a dud)

The Not So Lucky Ones

My May performance has reached +3.08%. That takes us to a year-to-date profit of +31.48% so far in 2025. My trailing one-year return stands at a record +90.95%. That takes my average annualized return to +50.84% and my performance since inception to +783.37%, a new all-time high.

It has been another wild week in the market. I took profits in longs in (MSTR) and (NVDA). I stopped out of a short in (SPY) for a small loss. I added a new long in (GLD) and (TLT), new shorts in (QQQ), (AAPL), and (TSLA). After the tremendous run we have just seen, I am moving towards a 100% short portfolio.

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

Try beating that anywhere.

The Stock Market is Headed for New Lows, even if the China tariffs drop from 145% to only 50%, says hedge fund guru and old friend Paul Tudor Jones. Trump’s rollout of the highest levies on imports in a century shocked the world last month, triggering extreme volatility on Wall Street. You have Trump, who’s locked in on tariffs. You have the Fed, which is locked in on not cutting rates. That’s not good for the stock market. We are the losers.

Fed Leaves Interest Rates Unchanged, at 4.25%-4.50%, supported by a consistently rising inflation rate. Stocks tanked and bonds rallied. In case you were wondering, the Fed ALWAYS prioritizes fighting inflation over unemployment because its mandate is to protect the value of the US dollar. It’s written into the 1913 law creating the Federal Reserve System. Don’t expect ANY rate cuts until year-end.

Apple Tanks on Falling Search Revenues. I bet you don’t get many short recommendations for Apple, but here’s a nice one. The implications for Apple were disastrous when a senior officer testified that artificial intelligence was demolishing their traditional search business. Of course, Alphabet (GOOGL) shares were trashed, down 7%. But Apple took a 5% hit as well because it earns an eye-popping $50 billion a year from its IOS operating system, referring all searches to Google. Apple shares have been trading rather feebly this month. While the S&P 500 rocketed 15%, (AAPL) managed to eak out an unimpressive 20% gain, while shares like Palantir (PLTR) doubled.

Bitcoin Recovers $100,000, for the first time since early February, bolstered by a dial down of the trade war in a sign that perhaps Trump is backing off his trade war. Overbought for now, sell Bitcoin rallies.

Nearly All US Exports are in Free Fall, reaching most ports across the U.S. and nearly all export market products as the trade impact of Trump’s tariffs worsens. Agriculture exports to China have been the hardest hit.

Oil Production has Peaked, thanks to the collapse in prices triggered by recession fears. Saudi Arabia is playing a market share game, and increasing production is another factor. Avoid all energy plays like the plague. We’re headed for $30 a barrel.

Warren Buffett Retires, handing over day-to-day management of Berkshire Hathaway (BRK/B) to Greg Abel. It’s a personal blow as Warren was one of the first subscribers to Mad Hedge Fund Trader. No one could ever match his investment performance, not even Warren himself, as stocks are so much more expensive now. Even if (BRK/B) shares dropped 99% from today, it would still be the top-performing S&P 500 stock since 1965. Listening to his annual shareholder summit, he’s still all there at age 94. I want to be Warren Buffett when I grow up.

Is Tesla the Next Boeing? By cutting production costs by 17% last year, has Musk also made the cars unsafe? That’s what happened to Boeing (BA), which prioritized raising dividends and share buybacks over quality and safety to the point where its aircraft started falling out of the sky. This year, (TSLA) shares have been matching (BA) downside one for one.

Jeff Bezos to Sell $4.7 Billion of Amazon Stock by May 2026. Time to free up some spending money. Jeff sold $13.4 billion worth of shares in 2024. Some of the money will go to finance his Blue Origin rocket hobby. Bezos still owns 9.56% of the $2 trillion company.

My Ten-Year View – A Reassessment

On Monday, May 12, at 8:30 AM EST, the WASDE Report is announced, the World Agriculture Supply and Demand Estimate.

On Tuesday, May 13, at 7:30 AM, the Consumer Price Index, a key inflation read, is released.

On Wednesday, May 14, at 9:30 AM, EIA Oil Stocks are disclosed. No move is expected in the face of a rising inflation rate. A press conference follows at 1:30.

On Thursday, May 15, at 8:30 AM, the Weekly Jobless Claims are disclosed. We also get the Producer Price Index and Retail Sales.

On Friday, May 16, at 7:30 AM, we get Housing Starts and Building Permits. At 1:00 PM, the Baker Hughes Rig Count is published.

As for me, one of the many benefits of being married to a British Airways senior stewardess is that you get to visit some pretty obscure parts of the world. In the 1970s, that meant going first class for free with an open bar, and sometimes in the cockpit jump seat.

To extend out 1977 honeymoon, Kyoko agreed to an extra round trip for BA from Hong Kong to Colombo in Sri Lanka. That left me on my own for a week in the former British crown colony of Ceylon.

I rented an antiquated left-hand drive stick shift Vauxhall and drove around the island nation counterclockwise. I only drove during the day in army convoys to avoid terrorist attacks from the Tamil Tigers. The scenery included endless verdant tea fields, pristine beaches, and wild elephants and monkeys.

My eventual destination was the 1,500-year-old Sigiriya Rock Fort in the middle of the island, which stood 600 feet above the surrounding jungle. I was nearly at the top when I thought I found a shortcut. I jumped over a wall and suddenly found myself up to my armpits in fresh bat shit.

That cut my visit short, and I headed for a nearby river to wash off. But the smell stayed with me for weeks.

Before Kyoko took off for Hong Kong in her Vickers Viscount, she asked me if she should bring anything back. I heard that McDonald’s has just opened a stand there, so I asked her to bring back two Big Macs.

She dutifully showed up in the hotel restaurant the following week with the telltale paper back in hand. I gave them to the waiter and asked him to heat them up. He returned shortly with the burgers on plates surrounded by some elaborate garnish. It was a real work of art.

Suddenly, every hand in the restaurant shot up. They all wanted to order the same this, even though the nearest stand was 2,494 miles away.

We continued our round-the-world honeymoon to a beach vacation in the Seychelles, where we just missed a coup d’état, a safari in Kenya, apartheid South Africa, London, San Francisco, and finally back to Tokyo. It was the honeymoon of a lifetime.

Kyoko passed away in 2020 from breast cancer at the age of 50, well before her time.

Sigiriya Rock Fort

Kyoko

Good Luck and Good Trading,

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

They’re Not Making Americans Anymore

Diary, Homepage Posts, Newsletter

If demographics are destiny, then America’s future looks bleak. You see, they’re just not making Americans anymore.

At least that is the sobering conclusion of the latest Economist magazine survey of the global demographic picture.

I have long been a fan of demographic investing, which creates opportunities for traders to execute on what I call “intergenerational arbitrage”. When the number of middle-aged big spenders is falling, risk markets plunge.

Front run this data by two decades, and you have a great predictor of stock market tops and bottoms that outperforms most investment industry strategists.

You can distill this even further by calculating the percentage of the population that is in the 45-49 age bracket.

The reasons for this are quite simple. The last five years of child rearing are the most expensive. Think of all that pricey sports equipment, tutoring, braces, SAT coaching, first cars, first car wrecks, and the higher insurance rates that go with it.

Older kids need more running room, which demands larger houses with more amenities. No wonder it seems that dad is writing a check or whipping out a credit card every five seconds. I know, because I have five kids of my own. As long as dad is in spending mode, stock and real estate prices rise handsomely, as do most other asset classes. Dad, you’re basically one generous ATM.

As soon as kids flee the nest, this spending grinds to a juddering halt. Adults entering their fifties cut back spending dramatically and become prolific savers. Empty nesters also start downsizing their housing requirements, unwilling to pay for those empty bedrooms, which in effect, become expensive storage facilities.

This is highly deflationary and causes a substantial slowdown in GDP growth. That is why the stock and real estate markets began their slide in 2007, while it was off to the races for the Treasury bond market.

The data for the US is not looking so hot right now. Americans aged 45-49 peaked in 2009 at 23% of the population. According to US census data, this group then began a 13-year decline to only 19% by 2022.

You can take this strategy and apply it globally with terrific results. Not only do these spending patterns apply globally, but they also backtest with a high degree of accuracy. Simply determine when the 45-49 age bracket is peaking for every country, and you can develop a highly reliable timetable for when and where to invest.

Instead of poring through gigabytes of government census data to cherry-pick investment opportunities, my friends at HSBC Global Research, strategists Daniel Grosvenor and Gary Evans, have already done the work for you. They have developed a table ranking investable countries based on when the 34-54 age group peaks—a far larger set of parameters that captures generational changes.

The numbers explain a lot of what is going on in the world today. I have reproduced it below. From it, I have drawn the following conclusions:

* The US (SPY) peaked in 2001 when our first “lost decade” began.

*Japan (EWJ) peaked in 1990, heralding 32 years of falling asset prices, giving you a nice back test.

*Much of developed Europe, including Switzerland (EWL), the UK (EWU), and Germany (EWG), followed in the late 2,000’s, and the current sovereign debt debacle started shortly thereafter.

*South Korea (EWY), an important G-20 “emerged” market with the world’s lowest birth rate, peaked in 2010.

*China (FXI) topped in 2011, explaining why we have seen three years of dreadful stock market performance despite torrid economic growth. It has been our consumers driving their GDP, not theirs.

*The “PIIGS” countries of Portugal, Ireland (EIRL), Greece (GREK), and Spain (EWP) don’t peak until the end of this decade. That means you could see some ballistic stock market performances if the debt debacle is dealt with in the near future.

*The outlook for other emerging markets, like Indonesia (IDX), Poland (EPOL), Turkey (TUR), Brazil (EWZ), and India (PIN) is quite good, with spending by the middle-aged not peaking for 15-33 years.

*Which country will have the biggest demographic push for the next 38 years? Israel (EIS), which will not see consumer spending max out until 2050. Better start stocking up on things Israelis buy.

Like all models, this one is not perfect, as its predictions can get derailed by a number of extraneous factors. Rapidly lengthening life spans could redefine “middle age”. Personally, I’m hoping 72 is the new 42.

Emigration could starve some countries of young workers (like Japan), while adding them to others (like Australia). Foreign capital flows in a globalized world can accelerate or slow down demographic trends. The new “RISK ON/RISK OFF” cycle can also have a clouding effect.

So why am I so bullish now? Because demographics is just one tool in the cabinet. Dozens of other economic, social, and political factors drive the financial markets.

What is the most important demographic conclusion right now? That the US demographic headwind veered to a tailwind in 2022, setting the stage for the return of the “Roaring Twenties.” With the (SPY) up 27% since October, it appears the markets heartily agree.

While the growth rate of the American population is dramatically shrinking, the rate of migration is accelerating, with huge economic consequences. The 80-year-old trend of population moving from North to South to save on energy bills is picking up speed, and the Midwest is getting hollowed out at an astounding rate as its people flee to the coasts, all three of them.

As a result, California, Texas, Florida, Washington, and Oregon are gaining population, while Missouri, Iowa, Nebraska, Kansas, and Wyoming are losing it (see map below). During my lifetime, the population of California has rocketed from 10 million to 40 million. People come in poor and leave as billionaires, as Elon Musk did.

In the meantime, I’m going to be checking out the shares of the matzo manufacturer down the street.

The Market Outlook for the Week Ahead, or Expensive Again

Diary, Homepage Posts, Newsletter

We certainly are having to work hard for our crust of bread in the stock market this year. April brought us the fastest downturn in stocks in 16 years, immediately followed by the sharpest upturn in 21 years.

It’s like running for a treadmill heart test, but a sadistic doctor keeps raising the angle of incline.

Still, I was able to deliver the best trading profits since December 2023, up 14.57%. The harder I work, the luckier I get. Buying when everyone else is throwing up on their shoes is certainly a winning strategy, proven yet again.

The truly disappointing thing about this rally is that it has made stocks expensive once again. In valuation terms, we are now back at February’s peak earnings multiple of 22X for the S&P 500, up from 18X a month ago. This is happening because the growth rate of earnings is falling while share prices are rising.

We are now facing record-high share prices in an economy going into a recession, DOGE cutting chunks of government spending, with rising unemployment and inflation, and a budget deficit for 2025 that is likely to hit $4-$5 trillion.

It doesn’t sound like a great bargain to me. Maybe that’s why only 26% of investors are currently bullish.

We are in fact now at the top of a $4,800-$5,800 range while also bumping up against a solid ceiling at the 200-day moving average. If this bothers anyone, please raise your hand.

Looking at the grim, almost apocalyptic data that is marching our way, I think we are much more likely to next hit an earnings multiple of 16X than 23X. There are a lot of great shorts out there right now, but being up 28.45% so far this year, I am being very cautious when to pull the trigger.

One of the countless fascinating experiences in my life was spending a summer living with a Nazi family in West Berlin in 1968. There was a huge housing shortage in Berlin at the time, and I had to take what I could get. Besides, the apple strudel for dessert was fantastic.

And even though WWII had been over for 23 years, they never shed their extremist political beliefs. Over many dinner discussions I was exposed to the full Nazi philosophy. However, they loved Americans, as it were, they who saved them from the Bolsheviks in 1945.

You know, whenever you get a shot, the nurse always squeezes a little bit of the liquid out of the needle first before sticking it into your arm? This is to prevent an air bubble from getting into your heart, creating an airlock, and stopping it dead. One of the many torments the German Gestapo used to inflict on prisoners was to inject them with air bubbles. Then it was just a matter of minutes before the prisoner died or had a stroke.

I mention all of this because the US economy has just been injected with a big air bubble. If you’re looking for a recession, you can see it with a good set of binoculars off the California coast.

I’m watching the movement of this air bubble on a daily basis.

First, there were the prices for an eastbound 40-foot container shipped from China to the US, down from $8,000 to as low as $1,500 each. About 60 very large container ships carrying 1.2 million containers have gone missing.

Then there is congestion at the Port of Los Angeles, where 200 ships are stranded offshore, unable to unload. Truck drivers are now getting laid off because importers can’t afford to pay the 145% tariffs and are abandoning them, clogging warehouses. Store shelves will start to go bare from mid-May onward, with discount electronics going first.

Any positive growth we see in Q1 will be the result of a rush of post-election over-ordering to front-run the Trump tariffs. That creates a big air bubble in the system for Q2 and onward, maybe for years, even if the trade war ends tomorrow. That’s because shutting down and then restarting a massively complex international trade network takes at least a year.

It certainly was a confusing week for economic data. We saw a succession of very weak employment reports from the ADP Private Employment Report, JOLTS Jobs Openings, and Weekly Jobless Claims, which one might expect from trade war-induced economic collapse. Then, out of the blue, we got a somewhat respectable April Nonfarm Payroll Report at 177,000. Something in these disparate things does not compute.

We haplessly slogging away in the economic forecasting industry are constantly thwarted by constantly conflicting data. You’re probably all sick of hearing the words “on the one hand” and “on the other hand.” But could the unimaginable be happening? One thing I know for sure. You are definitely not going to see strong employment figures for health care (51,000) and Transportation and Warehousing (29,000) in May that we saw in April, once the trade war really starts to bite.

It’s not just the jobs figures that are going haywire. You can count on ALL economic data to be disrupted for at least the next year as the trade war unfolds, retreats, and does whatever it is going to do. It all makes my job so much harder. But then, I always love a challenge.

You may have noticed that I have started making a lot of money from Bitcoin plays like MicroStrategy (MSTR). This is not because I have suddenly become a died in the wool crypto acolyte, a mindless true believer, a guzzler of the Kool-Aid at every opportunity. I firmly believe that Bitcoin has another 95% decline ahead of it sometime in the future and that it is nothing more than a Ponzi scheme.

As I watch the many crypto “experts” wax lyrical about their $1 million upside targets, I can’t help but notice that most aren’t even old enough to be my grandchildren. The president has recently pardoned several crypto robber barons convicted of looting customer accounts of billions of dollars. Another term for “anti-regulation” is “pro-stealing.” The SEC has morphed from securities regulation to crypto promotion.

Nevertheless, I DO know what a chart is, downside support and upside resistance, and above all, euphoria and momentum. All of these started screaming “BUY” at me three weeks ago, and I started picking up crypto play with both, and if not three. I merely did what Mr. Market was begging me to notice.

Yes, sometimes even I have to trade charts for a living. But it is definitely a position I am only dating, not marrying. I’ll only be in crypto as long as there are more buyers than sellers and the suckers keep being born. I have a feeling that, at the end of the day, all crypto has really done is to pay for some very expensive parties in Miami and Dubai.

As far as I’m concerned, I’m hoping for the stroke and not the heart attack.

My April performance closed out at a spectacular +14.57%. That takes us to a year-to-date profit of +28.40% so far in 2025. My trailing one-year return stands at a spectacular +89.79%. That takes my average annualized return to +50.61% and my performance since inception to +780.29%, a new all-time high.

It has been another wild week in the market, with the stock market up every day. I used a brief $25 dip in (TSLA) to take profits in my short play there. That leaves me 40% long, with a double position in (MSTR), and longs in (NVDA) and (NFLX). I have 20% short in (SPY) and a “risk off” position in (GLD), and 40% cash. I’m just waiting for this rally to burn out before topping up my shorts, not a bad idea in the wake of the biggest run-up in 21 years.

Try beating that anywhere.

100 Years of S&P 500 Earnings Multiples

My Ten-Year View – A Reassessment

On Monday, May 5, at 8:30 AM EST, the S&P Global Composite PMI is announced.

On Tuesday, May 6, at 3:30 AM, the Balance of Trade is released.

On Wednesday, May 7, at 1:00 PM, the Federal Reserve announces its interest rate decision. No move is expected in the face of a rising inflation rate. A press conference follows at 1:30.

On Thursday, May 8, at 8:30 AM, the Weekly Jobless Claims are disclosed.

On Friday, May 9, at 12:00 PM, the Baker Hughes Rig Count is published.

I’m Always Cautious When Pulling the Trigger

Microsoft Goes Ballistic, with the second 10% move in a month. Indications are that AI spending is continuing unabated, taking the entire tech space up with it.

ISM Manufacturing Index Says the Recession is Here. Economic activity in the manufacturing sector contracted in April for the second month in a row, following a two-month expansion preceded by 26 straight months of contraction, say the nation’s supply executives in the latest Manufacturing ISM Report On Business^®. Manufacturing in high-cost America has been in a structural decline for three years now and is accelerating to the downside.

US Q1 GDP Crashes in Q1, down 0.3%, thanks to the massive front-running of imports to beat the Trump tariffs. This quarter will certainly be worse as almost all international trade has ceased, giving us a second negative quarter that officially constitutes a recession. A three-quarter recession gives us an S&P 500 of 4,500, four quarters, 4,000.

JOLTS Job Openings Report was Weak in March at 7.1 Million, said the U.S. Bureau of Labor Statistics. Over the month, hires held at 5.4 million, and total separations changed little at 5.1 million. Within separations, quits (3.3 million) were unchanged, and layoffs and discharges (1.6 million) edged down.

Consumer Confidence Collapses, hitting a 15-Year Low, according to the Conference Board. The Index fell to 86 on the month, down a hefty 7.9 points from its prior reading and below the Dow Jones estimate for 87.7. The board’s Expectations Index, which measures how respondents look at the next six months, tumbled to 54.4, a decline of 12.5 points and the lowest reading since October 2011.

New Homes are Now Cheaper than Existing Homes, for the first time. A 30% rise in existing inventories has made the difference. New home builders can more easily discount with free upgrades and offer loan buy-downs. Some 40% of homes on the market have seen price drops, and time on the market is growing.

Weekly Jobless Claims Rocket by 18,000. First-time filings for unemployment insurance totaled a seasonally adjusted 241,000 for the week ended April 26, up 18,000 from the prior period and higher than the estimate for 225,000. Continuing claims, which run a week behind and provide a broader view of layoff trends, rose to 1.92 million, up 83,000 to the highest level since Nov. 13, 2021.

General Motors to take $5 Billion Hit on Tariffs. GM on Thursday lowered its 2025 earnings guidance to include a possible $4 billion to $5 billion impact as a result of President Donald Trump’s auto tariffs. GM said its new guidance includes adjusted EBIT of between $10 billion and $12.5 billion, down from $13.7 billion to $15.7 billion. GM released first quarter results Tuesday that beat Wall Street’s expectations but delayed its investor call and updated guidance details amid expected changes to the auto tariffs.

S&P Case-Shiller National Home Price Index Slows to 3.9% YOY, in February, a sharp slowdown. Home prices are increasingly untenable to potential home buyers. Waning consumer confidence, heightened insecurity over economic uncertainties, and the future of household budgets are impacting the consumer housing market. New York (+7.7%), Chicago (+7.0%), and Cleveland (+6.6%) show the biggest gains, while Tampa showed a (-1.4%) loss. Expect real estate to remain a major drag on the US economy, with mortgage rates at 7.0%.

Bitcoin ETF’s Suck in $3.5 Billion Last Week, as the “Sell America” trade expands. Exchange-traded funds tracking Bitcoin and Ether attracted more than $3.2 billion last week, with the iShares Bitcoin Trust ETF (IBIT) alone seeing a nearly $1.5 billion inflow — the most this year.

Crude Oil Drops on Global Recession Fears. Brent crude futures were down $1.09, or 1.63%, at $65.78 a barrel. West Texas Intermediate crude fell $1.15, or 1.82%, to $61.87 a barrel. The U.S.-China trade war is dominating investor sentiment in moving oil prices, superseding nuclear talks between the U.S. and Iran, and discord within the OPEC+ coalition. Markets have been rocked by conflicting signals from the U.S. over what progress was being made to de-escalate a trade war that threatens to sap global growth.

As for me, by the 1980s, my mother was getting on in years. Fluent in Russian, she managed the CIA’s academic journal library from Silicon Valley, putting everything on microfilm.

That meant managing a team that translated over 1,000 monthly publications on topics as obscure as Arctic plankton, deep space phenomena, and advanced mathematics. She often called me to ascertain the value of some of her findings.

But her arthritis was getting to her, and all those trips to Washington, DC were wearing her out. So I offered Mom a job. Write the Thomas family history, no matter how long it took. She worked on it for the rest of her life.

Dad’s side of the family was easy. He was traced to a small village called Monreale above the Sicilian port city of Palermo, famed for its Byzantine church. Employing a local priest, she traced birth and death certificates going all the way back to an orphanage in 1820. It is likely he was a direct illegitimate descendant of Lord Nelson of Trafalgar.

Grandpa fled to the United States when his brother joined the Mafia in 1915. The most interesting thing she learned was that his first job in New York was working for Orville Wright at Wright Aero Engines (click here). That explains my family’s century-long fascination with aviation.

Grandpa became a tail gunner on a biplane in WWI. My dad was a tail gunner on a B-17 flying out of Guadalcanal in WWII. As for me, you’ve all heard plenty of my own flying stories, and there are many more to come.

My Mom’s side of the family was an entirely different story.

Here ancestors first arrived to found Boston, Massachusetts in 1630 during the second Pilgrim wave on a ship called the Pied Cow, steered by Captain Ashley (click here for the link).

I am a direct descendant of two of the Pilgrims executed for witchcraft in the Salem Witch Trials of 1692, Sarah Good and Sarah Osborne, where children’s dreams were accepted as evidence (click here). They were later acquitted.

When the Revolutionary War broke out in 1776, the original Captain John Thomas, whom I am named after, served as George Washington’s quartermaster at Valley Forge, responsible for supplying food to the Continental Army during the winter.

By the time Mom completed her research, she had discovered 17 ancestors who fought in the War for Independence, and she became the West Coast head of the Daughters of the American Revolution. It seems the government still owes us money from that event.

Fast forward to 1820 with the sailing of the whaling ship Essex from Nantucket, Massachusetts, the basis for Herman Melville’s 1851 novel Moby Dick. Our ancestor, a young sailor named Owen Coffin signed on for the two year voyage, and his name “Coffin” appears in Moby Dick seven times.

In the South Pacific, 2,000 miles west of South America, they harpooned a gigantic sperm whale. Enraged, the whale turned around and rammed the ship, sinking it. The men escaped to whale boats. And here is where they made the fatal navigational errors that are taught in many survival courses today.

Captain Pollard could easily have just ridden the westward currents, where they would have ended up in the Marquesas Islands in a few weeks. But these islands were known to be inhabited by cannibals, which the crew greatly feared. They also might have landed in the Pitcairn Islands, where the mutineers from Captain Bligh’s HMS Bounty still lived. So the boats rowed east, exhausting the men.

At day 88, the men were starving and on the edge of death, so they drew lots to see who should live. Owen Coffin drew the black lot and was immediately shot and devoured. The next day, the men were rescued by the HMS Indian within sight of the coast of Chile and returned to Nantucket by the USS Constellation.

Another Thomas ancestor, Lawson Thomas, was on the second whaleboat that was never seen again and presumed lost at sea. For more details about this incredible story, please click here.

When Captain Pollard died in 1870, the neighbors discovered a vast cache of stockpiled food in the attic. He had never recovered from his extended starvation.

Mom eventually traced the family to a French weaver 1,000 years ago. Our name is mentioned in England’s Domesday Book, a listing of all the land ownership in the country published in 1086 (click here for the link). Mom died in 2018 at the age of 88, a very well-educated person.

There are many more stories to tell about my family’s storied past, and I will in future chapters. This week, being Thanksgiving, I thought it appropriate to mention our Pilgrim connection.

I have learned over the years that most Americans have history-making swashbuckling ancestors, but few bother to look.

I did.

Good Luck and Good Trading,

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