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april@madhedgefundtrader.com

The Market Outlook for the Week Ahead, or The Special No Confidence Issue

Diary, Homepage Posts, Newsletter

It’s official: Absolutely no one is confident in their long-term economic forecasts right now. I heard it from none other than the chairman of the Federal Reserve himself. The investment rule book has been run through the shredder.

It has in fact been deleted.

That explains a lot about how markets have been trading this year. It looks like it is going to be a reversion to the mean year. Forecasters, strategists, and gurus alike are rapidly paring down their stock performance targets for 2025 to zero.

When someone calls the fire department, it’s safe to assume that there is a fire out there somewhere. That’s what Fed governor Jay Powell did last week. It raises the question of what Jay Powell really knows that we don’t. Given the opportunity, markets will always assume the worst, that there’s not only a fire, but a major conflagration about to engulf us all. Jay Powell’s judicious comments last week certainly had the flavor of a president breathing down the back of his neck.

It's interesting that a government that ran on deficit reduction pressured the Fed to end quantitative tightening. That’s easing the money supply through the back door.

For those unfamiliar with the ins and outs of monetary policy, let me explain to you how this works.

Since the 2008 financial crisis, the Fed bought $9.1 trillion worth of debt securities from the US Treasury, a policy known as “quantitative easing”. This lowers interest rates and helps stimulate the economy when it needs it the most. “Quantitative easing” continued for 15 years through the 2020 pandemic, reaching a peak of $9.1 trillion by 2022. For beginners who want to know more about “quantitative easing” in simple terms, please watch this very funny video.

The problem is that an astronomically high Fed balance sheet like the one we have now is bad for the economy in the long term. They create bubbles in financial assets, inflation, and malinvestment in risky things like cryptocurrencies. That’s why the Fed has been trying to whittle down its enormous balance sheet since 2022.

By letting ten-year Treasury bonds it holds expire instead of rolling them over with new issues, the Fed is effectively shrinking the money supply. This is how the Fed has managed to reduce its balance sheet from $9.1 trillion three years ago to $6.7 trillion today and to near zero eventually. This is known as “quantitative tightening.” At its peak a year ago, the Fed was executing $120 billion a month quantitative tightening.

By cutting quantitative tightening, from $25 billion a month to only $5 billion a month, or effectively zero, the Fed has suddenly started supporting asset prices like stocks and increasing inflation. At least that is how the markets took it to mean by rallying last week.

Why did the Fed do this?

To head off a coming recession. Oops, there’s that politically incorrect “R” word again! This isn’t me smoking California’s largest export. Powell later provided the forecasts that back up this analysis. The Fed expects GDP growth to drop from 2.8% to 1.7% and inflation to rise from 2.5% to 2.8% by the end of this year. That’s called deflation. Private sector forecasts are much worse.

Just to be ultra clear here, the Fed is currently engaging in neither “quantitative easing nor “quantitative tightening,” it is only giving press conferences.

Bottom line: Keep selling stock rallies and buying bonds and gold on dips.

Another discussion you will hear a lot about is the debate over hard data versus soft data.

I’ll skip all the jokes about senior citizens and cut to the chase. Soft data are opinion polls, which are notoriously unreliable, fickle, and can flip back and forth between positive and negative. A good example is the University of Michigan Consumer Confidence, which last week posted its sharpest drop in its history. Consumers are panicking. The problem is that this is the first data series we get and is the only thing we forecasters can hang our hats on.

Hard data are actual reported numbers after the fact, like GDP growth, Unemployment Rates, and Consumer Price Indexes. The problem with hard data is that they can lag one to three months, and sometimes a whole year. This is why by the time a recession is confirmed by the hard data, it is usually over. Hard data often follows soft data, but not always, which is why both investors and politicians in Washington DC are freaking out now.

Bottom line: Keep selling stock rallies and buying bonds and gold (GLD) on dips.

A question I am getting a lot these days is what to buy at the next market bottom, whether that takes place in 2025 or 2026. It’s very simple. You dance with the guy who brought you to the dance. Those are:

Best Quality Big Tech: (NVDA), (GOOGL), (AAPL), (META), (AMZN)
Big tech is justified by Nvidia CEO Jensen Huang’s comment last week that there will be $1 trillion in Artificial Intelligence capital spending by the end of 2028. While we argue over trade wars, AI technology and earnings are accelerating.

Cybersecurity: (PANW), (ZS), (CYBR), (FTNT)
Never goes out of style, never sees customers cut spending, and is growing as fast as AI.

Best Retailer: (COST)
Costco is a permanent earnings compounder. You should have at least one of those.

Best Big Pharma: (AMGN), (ABBV), (BMY)
Big pharma acts as a safety play, is cheap, and acts as a hedge for the three sectors above.

March is now up +2.92% so far. That takes us to a year-to-date profit of +12.29% in 2025. That means Mad Hedge has been operating as a perfect -1X short S&P 500 ETF since the February top. My trailing one-year return stands at a spectacular +82.50%. That takes my average annualized return to +51.12% and my performance since inception to +764.28%.

It has been another busy week for trading. I had four March positions expire at their maximum profit points on the Friday options expiration, shorts in (GM), and longs in (GLD), (SH), and (NVDA). I added new longs in (TSLA) and (NVDA). This is in addition to my existing longs in the (TLT) and shorts in (TSLA), (NVDA), and (GM).

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%.

UCLA Andersen School of Business announced a “Recession Watch,” the first ever issued. UCLA, which has been issuing forecasts since 1952, said the administration’s tariff and immigration policies and plans to reduce the federal workforce could combine to cause the economy to contract. Recessions occur when multiple sectors of the economy contract at the same time.

Retail Sales Fade, with consumers battening down the hatches for the approaching economic storm. Retail sales rose by less than forecast in February and the prior month was revised down to mark the biggest drop since July 2021.

This Has Been One of the Most Rapid Corrections in History, leaving no time to readjust portfolios and put on short positions.

The rapid descent in the S&P 500 is unusual, given that it was accomplished in just 22 calendar days, far shorter than the average of 80 days in 38 other examples of declines of 10% or more going back to World War II.

Home Builder Sentiment
Craters to a seven-month low in March as tariffs on imported materials raised construction costs, a survey showed on Monday. The National Association of Home Builders/Wells Fargo Housing Market Index dropped three points to 39 this month, the lowest level since August 2024. Economists polled by Reuters had forecast the index at 42, well below the boom/bust level of 50.

BYD Motors (BYDDF) Shares Rocket, up 72% this year, on news of technology that it claims can charge electric vehicles almost as quickly as it takes to fill a gasoline car. BYD on Monday unveiled a new “Super e-Platform” technology, which it says will be capable of peak charging speeds of 1,000 kilowatts/hr. The EV giant and Tesla rival say this will allow cars that use the technology to achieve 400 kilometers (roughly 249 miles) of range with just 5 minutes of charging. Buy BYD on dips. It’s going up faster than Tesla is going down.

Weekly Jobless Claims Rise 2,000, to 223,000. The number of Americans filing new applications for unemployment benefits increased slightly last week, suggesting the labor market remained stable in March, though the outlook is darkening amid rising trade tensions and deep cuts in government spending.

Copper Hits New All-Time High, at $5.02 a pound. The red metal has outperformed gold by 25% to 15% YTD. It’s now a global economic recovery that is doing this, but flight to safety. Chinese savers are stockpiling copper ingots and storing them at home distrusting their own banks, currency, and government. I have been a long-term copper bull for years as you well know. New copper tariffs are also pushing prices up. Buy (FCX) on dips, the world’s largest producer of element 29 on the Periodic Table.

Boeing (BA) Beats Lockheed for Next Gen Fighter Contract for the F-47, beating out rival Lockheed Martin (LMT) for the multibillion-dollar program. Unusually, Trump announced the decision Friday morning at the White House alongside Defense Secretary Pete Hegseth. Boeing shares rose 5.7% while Lockheed erased earlier gains to fall 6.8%. The deal raises more questions than answers, in the wake of (BA) stranding astronauts in space, their 737 MAX crashes, and a new Air Force One that is years late. Was politics involved? You have to ask this question about every deal from now on.

Carnival Cruise Lines (CCL) Raises Forecasts, on burgeoning demand from vacationers, including me. The company’s published cruises are now 80% booked. Cruise lines continue to hammer away at the value travel proposition they are offering. However, the threat of heavy port taxes from the administration looms over the sector.

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 24, at 8:30 AM EST, the S&P Global Flash PMI is announced.

On Tuesday, March 25, at 8:30 AM, the S&P Case Shiller National Home Price Index is released.

On Wednesday, March 26, at 1:00 PM, the Durable Goods are published. 

On Thursday, March 27, at 8:30 AM, the Weekly Jobless Claims are disclosed. We also get the final report for Q1 GDP.

On Friday, March 28, the Core PCE is released, and important inflation indicator. At 2:00 PM, the Baker Hughes Rig Count is printed.

As for me, I received calls from six readers last week saying I remind them of Ernest Hemingway. This, no doubt, was the result of Ken Burns’ excellent documentary about the Nobel Prize-winning writer on PBS last week.

It is no accident.

My grandfather drove for the Italian Red Cross on the Alpine front during WWI, where Hemingway got his start, so we had a connection right there.

Since I read Hemingway’s books in my mid-teens I decided I wanted to be him and became a war correspondent. In those days, you traveled by ship a lot, leaving ample time to finish off his complete work.

I visited his homes in Key West, Cuba, and Ketchum Idaho.

I used to stay in the Hemingway Suite at the Ritz Hotel on Place Vendome in Paris where he lived during WWII. I had drinks at the Hemingway Bar downstairs where war correspondent Ernest shot a German colonel in the face at point-blank range. I still have the ashtrays.

Harry’s Bar in Venice, a Hemingway favorite, was a regular stopping-off point for me. I have those ashtrays too.

I even dated his granddaughter from his first wife, Hadley, the movie star Mariel Hemingway, before she got married, and when she was also being pursued by Robert de Niro and Woody Allen. Some genes skip generations and she was a dead ringer for her grandfather. She was the only Playboy centerfold I ever went out with. We still keep in touch.

So, I’ll spend the weekend watching Farewell to Arms….again, after I finish my writing.

Oh, and if you visit the Ritz Hotel today, you’ll find the ashtrays are now glued to the tables.

As for last summer, I stayed in the Hemingway Suite at the Hotel Post in Cortina d’Ampezzo Italy where he stayed in the late 1940’s to finish a book. Maybe some inspiration will run off on me.

 

 

 

Hemingway’s Living Room in Cuba, Untouched Since 1960

 

Earnest in 1918

 

 

Typing at Hemingway’s Typewriter in Italy from the 1940’s

 

The Red Cross Uniform Hemingway Wore when He was Blown Up in 1917

 

Good Luck and Good Trading

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

 

 

 

 

 

 

 

 

 

https://www.madhedgefundtrader.com/wp-content/uploads/2024/01/John-thomas-typewriter.png 1186 1124 april@madhedgefundtrader.com https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png april@madhedgefundtrader.com2025-03-24 09:02:532025-03-24 13:19:15The Market Outlook for the Week Ahead, or The Special No Confidence Issue
MHFTF

March 24, 2025 - Quote of the Day

Diary, Newsletter, Quote of the Day

“Getting information off the Internet is akin to trying to sweep back the ocean with a broom,” said Ray Kurzweil, director of engineering at Google.

 

https://www.madhedgefundtrader.com/wp-content/uploads/2014/05/Ocean-Lighthouse.jpg 238 344 MHFTF https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png MHFTF2025-03-24 09:00:442025-03-24 13:18:48March 24, 2025 - Quote of the Day
april@madhedgefundtrader.com

March 21, 2025

Diary, Newsletter, Summary

Global Market Comments
March 21, 2025
Fiat Lux

 

Featured Trade:

(THE MAD HEDGE MARCH TRADERS & INVESTORS SUMMIT REPLAYS ARE UP)
(MARCH 19 BIWEEKLY STRATEGY WEBINAR Q&A),
(SH), (SDS), (COST), (PANW), (FTNT), (ZS), (MSFT), (GOOGL), (NVDA), (GLD), (AMZN), (BAIDU), (BABA), (LNG), (FXA), (FXE), (FXC), (FXB)

https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png 0 0 april@madhedgefundtrader.com https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png april@madhedgefundtrader.com2025-03-21 09:06:492025-03-21 11:00:56March 21, 2025
april@madhedgefundtrader.com

March 19 Biweekly Strategy Webinar Q&A

Diary, Homepage Posts, Newsletter

Below please find subscribers’ Q&A for the March 19 Mad Hedge Fund Trader Global Strategy Webinar, broadcast from Incline Village, NV.

Q: I tried to get into ProShares Short S&P500 (SH), it seems pretty illiquid. How did you get in?

A: Well, before I actually sent out the trade alert, I tested the liquidity of the SH seeing if you could get anything done. This is an easy thing to buy on up days in the market when others are taking profits. It is a really difficult thing to get into on down days in the market because you have so many long-only mutual funds trying to hedge their exposure through buying the (SH). We literally had just one up day at the beginning of the month, and I was able to increase my position tenfold and had no trouble getting my price on the LEAPS at $0.50. If you waited one day, you would have had to pay $0.60 for the same position, and that’s because the volatility explodes on this thing. If you look at the charts, the 1x short play has actually delivered enormous returns, as well as the 2x. It’s outperforming 2 to 1. So you have to buy when other people are selling, that’s the only way to get in and out of the (SH). Of course, I’m buying these things with the intention of running these to expiration.

Q: Is it time to sell US stocks?

A: Yes but only on the up days like today. Don’t sell into a pit, don’t sell into bottoms—wait for rally days like today. That's a good place to reduce risk and add some short positions like the ProShares Short S&P500 (SH) and the ProShares UltraShort S&P500 (SDS).

Q: How did you miss the rotation to Europe and China in emerging markets?

A: Very simple—if you ignore something for 15 years, it’s easy to miss a turn. I also missed the turn in Japan, which I ignored for 35 years. The real reason though is that I underestimated the extremity of this government, its economic policies, and the chaos it would create. I think almost everyone underestimated what the new government would actually do and how it would affect the stock market. If I knew ahead of time that the government would adopt recessionary policies, I would have done everything to get my money out of the US and into Europe and China, but this kind of unfolded with a shock a day, sometimes a shock an hour, and markets don’t like shocks and surprises, so they sold off. The more a stock had gone up in the last six months, the more it went down when the new government came into office.

Q: What are your downside targets for the market?

A: Now that we are in recession, I think any 5% rally off the recent low at 5500, you want to sell. The market could rally 3-5% off the bottom—that would be half of the recent loss. Then you’d want to get rid of more longs, cut your portfolio down to a few very high-quality positions, and add downside protection by buying the ProShares Short S&P500 (SH), the ProShares UltraShort S&P500 (SDS), doing buy rights on the calls and buying outright puts. That would be my recommendation. Eventually I see the S&P 500 falling to 5,000 by the summer, and if I’m wrong, it’s going down 30% to 4,500. That is a deep recession scenario, which we are on the track for unless the government suddenly reverses its draconian policies. This is the most extreme government in American history.

Q: Are you going to use the selloff to get into Costco (COST) after a 20% selloff?

A: Absolutely. I’ve been trying to get into Costco for years and it’s just always been too expensive. They keep increasing earnings every year —investors are willing to pay very high multiples for that. This time around, I am going to get into Costco because they are an absolutely outstanding company. By the way, my mentor at Morgan Stanley was a guy named Barton Biggs, who created the asset management division some 40 years ago. He was close friends with Sam Walton, the founder of Walmart, and Sam Walton was a huge admirer of Costco, which was just starting up then. I’m surprised they never took over the company, which is too big to take over now.

Q: What to buy at the bottom?

A: You want to buy what was leading right before we went into this collapse. Those are financials, and the highest quality profit making of the Mag7 which include Nvidia (NVDA), Amazon (AMZN), Alphabet (GOOGL), Meta (META), as well as cybersecurity stocks like Palo Alto Networks (PANW), Fortinet (FTNT), Zscaler (ZS) and so on.

Q: Why are you making your recession call when we have no evidence of that fact?

A: If you wait for proof of recession, that often is the market bottom. And that could be August of this year. You know, I talk to hundreds of businessmen around the world, and everyone is saying business is slowing. Companies stop making decisions. Customers stop buying. Everyone's afraid of the tariffs. Nobody knows what's going to happen next. Business confidence is terrible. That adds up to a recession, but data tends to move very slowly, so we won't see it in the data for months. If you're a stock trader, you don't have the luxury of waiting for confirmation of the data. By the time you get it, the move is over. But if you cut half of government spending or 12% of GDP, the recession outcome is guaranteed. It's not a speculation. That is the government's goal: to cause a recession, so they can have a recovery going into the next election to take credit for.

Q: If Alphabet (GOOGL) is broken up, what will happen to the company?


A:
With all of these big tech breakups, the parts will be worth a lot more than the whole. The individual pieces can be sold off at much bigger premiums creating new companies with more stock liquidity. This is what happened with AT&T (T) in 1982. I participated in that, and the parts were worth more than the original AT&T was within two years. I expect that to happen to Alphabet, and I expect that to happen if Amazon (AMZN) is broken up— eventually, these companies become so big, they become too big to manage. And if the management sees they can get 100% premium on a spinoff, they'll take it so fast it makes your head spin.

Q: None of the 90% gain in stock prices during the Biden administration was a result of his policies.

A: That's absolutely correct. He stayed out of the way, which is the best thing that governments can do—get the hell out of the way. American capitalism on its own will innovate and create profits far faster than any other economic system in history. Biden did quite a good job of staying away.

Q: Why are credit spreads still okay to do in this environment?

A: Because the implied volatility on the options are so high, you can get insane amounts of money—in the money like 30% or 40% —and get trades done and have a 0% chance of taking a loss on that. Suddenly you're being paid double to take risks on these option trades. The classic example is the $88-$90 call spread in Nvidia (NVDA), which we have expiring on Friday, March 21. We never even got close to $90, but the implied volatility on the day we added that trade was a ridiculous 75%. So, it's almost impossible to lose money when you put on trades with implied volatility in the options of 75%.

Q: What's your long-term target on gold now that your last long-term target of 3,000 finally got hit?

A: Yes, we've been recommending gold (GLD) for seven years now. In that time, it's doubled: $1,500 to $3,000. I'm now looking for $5,000 in gold by 2030, in five years. I got a feeling that flight-to-safety plays are going to be very popular in the world going forward. And by the way, people who did look for Bitcoin to protect them in any downturns: Bitcoin actually went down three times faster than the S&P 500 in the last month.

Q: Will stocks rise if the Fed cuts interest rates?

A: No, they won't, because the only reason the Fed will cut interest rates is if inflation falls, and right now, inflation is about to see a big upturn as those import duties of 25% or 50% work their way through the system. A lot of companies are front-running price increases before they even pay the tariffs and try to carve out some extra margin for themselves in advance. On Wednesday, Jay Powell said he expects inflation to rise from 2.5% to 2.8% by yearend and this will prove to be a low number. That is his “president breathing down the back of his next” forecast.

Q: What are your favorite Chinese stocks?

A: Well, a lot of these leading stocks have already gone up 50% or more since the beginning of the year as capital flees the United States and goes abroad. But if you held a gun to my head and said you had to buy two, I would buy Baidu (BIDU), and I would buy Alibaba (BABA). Those would be my Chinese picks. Alibaba is the closest thing you get to an Amazon in China.

Q: Has the dollar hit its lows this year?

A: No. Risk of the next Fed rate move is an interest rate cut. That is going to hang over the dollar and the currency markets for the entire year. And I don't see any recovery in the dollar this year. In fact, it's easy to see much lower lows, and higher highs in the foreign currencies. Buy (FXA), (FXE), (FXC), and (FXB) on dips.

Q: How do you feel about natural gas?

A: I would not be a buyer here. I think we've had a terrific run off of extreme cold weather—believe me, we got some of that in Nevada too—and that is starting to fade now. This is historically when that gas starts to fade for the year. Long term, my view on gas is bullish because of increased exports to China. We have a very pro-energy administration here; that means taking off the export restraints on natural gas, which can only be good for the gas companies and the gas price. China has basically told us they'll take all the natural gas they can get from us because every shipload of gas they buy (LNG) means less coal they have to burn.

To watch a replay of this webinar with all the charts, bells, whistles, and classic rock music, just log in to www.madhedgefundtrader.com, go to MY ACCOUNT, click on GLOBAL TRADING DISPATCH, then WEBINARS, and all the webinars from the last 12 years are there in all their glory.

Good Luck and Good Trading

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

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Mad Hedge Fund Trader

March 21, 2025 - Quote of the Day

Diary, Newsletter, Quote of the Day

“Day to day, the stock market is a voting machine; in the long term, it’s a weighing machine,” said the legendary stock analyst Benjamin Graham.

 

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april@madhedgefundtrader.com

March 20, 2025

Diary, Newsletter, Summary

Global Market Comments
March 20, 2025
Fiat Lux

 

Featured Trade:

(PLEASE USE MY FREE DATABASE SEARCH)

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april@madhedgefundtrader.com

Please Use My Free Database Search

Diary, Homepage Posts, Newsletter

The original purpose of this letter was to build a database of ideas to draw on in the management of my hedge fund.

When a certain trade comes into play, I merely type in the symbol, name, currency, or commodity into the search box, and the entire fundamental argument in favor of that position pops up.

You can do the same. Just type anything into the search box with the little magnifying glass in the upper right-hand corner of my home page, and a cornucopia of data, charts, and opinions will appear.

Even the prices of camels in India (click here to find out why they’re going up).

The database goes back to February 2008, totaling 4 million words.  Watching the traffic over time, I can tell you how the database is being used:

1) Small hedge funds want to see what the large hedge funds are doing.

2) Large hedge funds look to see what they have missed, which is usually nothing.

3) Midwestern advisors to find out what is happening in New York and Chicago.

4) American investors to find out if there are any opportunities overseas (there always are).

5) Foreign investors to find out what the heck is happening in the US (about 1,000 inquiries a day come in through Google’s translation software).

6) Specialist traders in stocks, bonds, currencies, commodities, and precious metals looking for cross-market insights which will give them a trading advantage with their own book.

7) High net-worth individuals managing their own portfolios so they don’t get screwed on management fees.

8) Low net worth individuals, students, and the military looking to expand their knowledge of financial markets (lots of free online time in the Navy).

9) People at the Treasury and the Fed trying to find out what the private sector is doing.

10) Staff at the SEC and the CFTC to see if there is anything new they should be regulating.

11) More staff at the Congress and the Senate looking for new hot-button issues to distort and obfuscate.

12) Yet, even more staff in Obama’s office gauging his popularity and the reception of his policies.

13) As far as I know, no justices at the Supreme Court read my letter. They’re all closet indexers.

14) Potential investors/subscribers attempting to ascertain if I have the slightest idea of what I am talking about.

15) Me trying to remember trades that I recommended long ago, but have forgotten.

16) Me looking for trades that worked so I can say ‘I told you so.’

It’s there, it’s free, so please use it.

 

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MHFTR

March 20, 2025 - Quote of the Day

Diary, Newsletter, Quote of the Day

When asked about the urban legend that the vaults at Fort Knox are empty, and that the Fed has no gold, former Federal Reserve Chairman Ben Bernanke responded, "I've been to the basement of the New York Fed. The gold is there. I've seen it."

 

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april@madhedgefundtrader.com

March 19, 2025

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March 19, 2025
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(PROFITING FROM AMERICA'S DEMOGRAPHIC COLLAPSE)

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Profiting From America’s Demographic Collapse

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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

 

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