'There is one peculiarity about mass psychology in that when you are in a bubble, you can't see it. Bubbles are invisible when you are inside the bubble,' said the charming Jim Dines, of The Dines Letter.
Global Market Comments
January 31, 2025
Fiat Lux
Featured Trade:
(JANUARY 29 BIWEEKLY STRATEGY WEBINAR Q&A),
(META), (AMZN), (NVDA), (AMD) (GS), (SPY), (TSLA), (SBUX), (CCJ), (ADBE), (LMT), (GD), (RTX), (NVDA)
Below please find subscribers’ Q&A for the January 29 Mad Hedge Fund Trader Global Strategy Webinar, broadcast from Salt Lake City, UT.
Q: Are AI stocks going to crash?
A: Some already have, and others haven’t. It’s really about single-stock-picking the chip area and the pure AI plays, which have been enormously overextended. If you boil it down to a single sentence, if you offer AI for free, AI users like (META) and (AMZN) do really well, while AI producers, like (NVDA) and (AMD) get crushed. I’ve been warning for months that these things were getting too high. The end result is that in two weeks the price earnings multiple for Nvidia has gone from 40 to 25. You know, at 25, it really is quite attractive. It'll be even more attractive at 20 or even 15 if we get that low. I'll show you where we hit that on the charts. Don't forget their earnings are still growing at tremendous rates—we'll talk about that in a second.
Q: What stocks are good to invest in now?
A: Watch the banks. Watch the financials. They’ve hardly sold off. I was begging for Goldman Sachs (GS) to tank. It didn't—we only got a $10 drop. It's just not letting people in, which means higher highs for all the banks and financials are coming. That has become the no-brainer one-way trade of 2025. You know, I had an enormous number of bank LEAPS expire in my personal account on the January 17 option expiration. I'm waiting to get back in now. So that is the play.
Q: What's happening with Starbucks (SBUX)? Are they investable?
A: Starbucks was a disaster area until the summer when they brought in new management, which has a fantastic track record. The stock has since gone up 30%. You're kind of late to get in on this one. I don't really follow the stock anyway. Selling cups of coffee is not a high-margin business. I'd rather stick with the Tesla’s (TSLA) and Nvidia’s (NVDA) of the world where the value added is very high
Q: What will happen with Bitcoin in the new administration?
A: It's the same with everything. Higher highs first, lower lows later. If you're a Bitcoin investor now at 100,000, the big question is what happens when Donald Trump leaves office in four years? Does it go back to 5,000? We really don't know so, why touch Bitcoin when you can get 10 to 1 returns on all these other great companies which make stuff that you can actually touch and feel? Plus, you can leverage up with the LEAPS, and no one's going to steal your account, which happens frequently with Bitcoin holdings.
Q: Do you think tariffs are a good idea for the economy?
A: No, tariffs shrink global trade, they shrink globalization. It's a race to see if we can make other countries more poor than they can make us. It's an economy-shrinking strategy. It was a major contributor to causing the Great Depression in the 1930’s. That's why we abandoned tariffs 80 years ago with the end of World War II. I mean, the last cause of the 1930’s tariffs was World War II. That was a major contributing factor. So do I like tariffs? No. It turns out it's a great defensive strategy. If someone's making a fortune off you, they tend not to blow you up. So I think that's a big mistake and I will be an anti-tariff person to my grave. There are special situations like Chinese EVs, for example, where they're using a huge cost advantage to flood the emerging markets with cheap EVs. If that happened to the US, it would crash the US economy. In that one case, I'm in favor of tariffs. By the way, their EVs are using technology they basically stole from Tesla.
Q: What are your thoughts on defense stocks? With so many wars occurring all over the world.
A: Don't touch defense stocks with a 10-foot poll if the government is in favor of cost-cutting, the largest cost after Social Security is defense. We had a defense budget of about $824 billion in 2024. We have a 2.8 million man military and that cutting there and running down our weapons stocks would mean that you don't want to buy Lockheed Martin (LMT), General Dynamics (GD), Raytheon (RTX), all the big suppliers of weapons to the Ukraine war, for example, which looks like it's going to get cut off completely. They cut off all humanitarian aid to Ukraine last week. And of course, I was personally involved in delivering some of that humanitarian aid to Ukraine in the recent past. Yeah, defense looks bad if people really get serious about cost-cutting.
Q: Do you see the Fed dropping interest rates later this year?
A: That is possible. I tend to think we don't go into recession this year. It's a next year or year after type of thing. But markets can discount recession in six months to a year in advance like they did in 2007 and 2008. I don't think we get any more interest rate cuts. We'll just have to see what policies the new government implements, and how inflationary they are. And if they are inflationary, interest rates are going up, not down. That is why everybody's sitting on their hands right now and doesn't know what to do. Uncertainty at an eight-year high. You know, the government often talks one game but does the opposite. So, there’s nothing to do but wait and see.
Q: Well, what happened to the US housing market in 2025?
A: Nothing, you know volumes are shrinking. The last two years were the lowest volume sales in housing market history since the numbers were collected, and higher interest rates for longer. It's just more bad news. You know, something like 40% of all of the sales now are all cash. Prices are still going up again on paper, but there's almost no trade happening at these higher prices. And of course, the Millennials have been almost completely shut out of the market—the largest generation in history by the way—because they don't have enough money. They can't earn enough money; especially when AI is wiping out all the entry-level jobs, as it has been doing for two years in Silicon Valley.
Q: Here's a good question. How much time do we need to spend researching a company before we make an investment there?
A: Well, not that much, really. You can spend an hour or two reading the annual report, browsing through the most recent financial statement, and doing some news searches and you'll have a better read than most individual investors are going to have on a single stock. Then you start to see trends on what makes a good company, what makes a bad company, and over time, you get a feel for a company—when to get in, when to get out. That's one way. Or you can listen to the Mad Hedge Fund Trader, who's been doing this for 55 years and watching the same stocks. You wonder why you always have the same stocks up here and it's because I've been following these guys for forever or more. So you really get a handle on when they're doing well and when they're doing awful.
Q: Should we sell Nvidia (NVDA) stock for now?
A: No, I was telling people to cut positions the next time it ran to $150, which it did a few weeks ago. Now we're probably entering buy territory more than sell territory. Nvidia will come back. I just don't know where the bottom is for now, and it depends on your own investing style. If you're a five-year investor, you can forget about all this volatility, if you're a day trader, yeah, you probably should sell Nvidia now because you could buy it back $10 cheaper.
Q: Do you expect a new high after the Fed meeting?
A: No, I don't. I think we're stuck in a range for the S&P 500 for the next six months. After that, we may get a move. Depending on what effect government policies have on the economy.
Q: What about an alert for Adobe (ADBE)?
A: I didn't put out the alert to buy Adobe. The Adobe alert is part of the Mad Hedge Technology Letter service, and if you want to get purely tech trade alerts, go to the Mad Hedge website, go to the store, and you can see the technology letter is offered for sale up there. Here is the link: https://hi290.infusionsoft.app/app/orderForms/techletter
Q: What is the right size of account for doing this kind of trading?
A: We literally have college students trading with $500 accounts. We have lots of individuals trading with $5,000 accounts—that way you can buy 10 $400 positions and still have some room. We only recommend you put 10% of your cash in any one trade. A lot of retired people will keep a large portion of their money in an index like the S&P 500 (SPY) and take 10% of their money and use it to do our trade alerts, which then adds an extra return to the index position. So, the answer is different for different people.
Q: Do I see a meaningful correction like 20% or 30% in the next six months?
A: No, I really don't, but that could be 2026 business. When we get a big correction, we get a recession. Again, it's dependent on government policies and we have no idea what those are right now. People can only guess. I'm not in the guessing business. I'm in the sure thing business.
Q: Can you explain how to complete the trade alerts you send out?
A: What all the professionals do is they put out a spread of orders. If I put out an order to buy something at $9.00, you put in a bid at $9.00, $9.10, $9.20, $9.30, and $9.40. By the close, some or all of those will get done. Often they all get done by the end of the day when the high-frequency traders have to dump their positions because they're not allowed to carry overnight positions. You make them good-until-canceled orders. So if you get a low opening the next morning, you'll get entirely filled at the $9.00 level, and this is what my clients in Australia do. They only do overnight good-until-cancelled orders since the market's open from 11:30 PM until 6:00 AM in the morning, Australia time. They tend to make more money than any of my other clients because they only enter overnight GTC orders. So, people trying to outsmart the market on an intraday basis generally don't do very well.
Q: Should I sell the Cameco Corporation (CCJ) stock I bought on the nuclear trade?
A: No, I think (CCJ) recovers. I was looking at it yesterday. Elimination of the electricity trade is complete nonsense. I think the nuclear thing is real. It'll come back. And in fact, I bought Vistra Energy (VST) yesterday, so use this extreme sell-off to get into the nuclear trade if you missed it the first time around.
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
Global Market Comments
January 30, 2025
Fiat Lux
Featured Trade:
(THE MAD HEDGE DICTIONARY OF TRADING SLANG)
The Diary of a Mad Hedge Fund Trader is read in 140 counties. About a quarter of our readers run the letter through a Google Translator before reading.
That has created a problem.
Stock trading is probably the most slang and acronym-ridden profession on the planet, second only to the United States Marine Corps. (Semper Fi).
And guess what? The Google Translator has never worked on the floor of a major stock exchange.
That means its translations often come out as gobbledygook or complete nonsense. So, the customers email me asking what the heck I am talking about in my daily newsletters, eating up a portion of my day.
I am therefore enclosing “The Mad Hedge Fund Trader’s Dictionary of Traders’ Slang” below.
To keep this a PG-rated publication, I have left some terms undefined, but you can make a good guess as to their true meaning. It turns out that most traders never went to finishing school, and many are not even gentlemen.
If any of you out there have additional terms you would like to add, please email them to me at support@madhedgefundtrader.com and put “DICTIONARY” in the subject line. I’ll use them in a future update. No doubt there are hundreds if not thousands, more.
Read, enjoy, and laugh.
Accelerated Time Decay – The increasing decline of the value of a stock option as it approaches its expiration date
Black Swan – A term made popular by Nassim Taleb that refers to a sudden, unexpected, low-probability event that has a disproportionately high impact on your portfolio.
Boredom Trading – reaching for marginally profitable trades during quiet markets because there is nothing else to do. Usually a bad idea.
Bottoming Process – When a market makes several failed attempts to make new lows, creating a medium-term bottom
Blow-off Top – The top of a price spike upward is usually associated with a volume spike as well.
Bubble – Any asset class rising in price far above and beyond any rational valuation measures
Buy the Dip – BTD/BTFD/BTMFD-Buy the recent decline in prices.
Don’t Catch a Falling Knife – don’t try and buy a stock in free fall.
Don’t be a Hero – keep positions small during volatile markets.
“Be greedy when others are fearful, and fearful when others are greedy” is a classic Benjamin Graham quote which means “buy bottoms and sell top.”
Pigs get Slaughtered – Buy a position that is too big for you and it will turn around and bite you.
Bull Trap – a strong market move-up that sucks in buyers and then dies as soon as the last one is in
Bear Trap – A strong market move-down that sucks in lots of short sellers and turns around as soon as the last one sells
Buy When There is Blood in the Streets – Buy stocks at market bottoms.
Capitulation Bottom – The last bull throws in the towel, gives up, and dumps all his stock, making the final bottom of a major move.
Capitulation Top – The last bear throws in the towel, gives up, and jumps into the market late, making the final top of a major move
Choppy – sudden and erratic price moves within a narrow range
Contrarian – one who trades against the general market consensus
Dead Cat Bounce – A brief rally in s stock that has just seen a sharp drop
Dialing for Dollars – Calling brokerage house customers to sell stocks for commissions
Don’t fight the Fed – Don’t expect markets to fall when interest rates are falling.
Don’t Fight the Tape – Don’t trade against the market trend. Comes from the paper ticker tapes that once transmitted stock prices by telegraph
Dry Powder – Keeping cash in reserve for better trading opportunities
Dumb Money – what inexperienced retail investors are doing. Thanks to the Internet, they’re not as dumb as they used to be
Get Filled – Your order is executed.
The Greeks – Greek alphabet letters that refer to option valuation components, such as delta, theta, gamma, and vega
High-Frequency Traders (HFT) – Firms using sophisticated computer programs to take positions for infinitesimally short periods taking microscopic profits in enormous volumes. They account for roughly 70% of daily trading volume.
Holding the Bag – you are left holding stock in a falling market or short in a rising one.
Honor Your Stops - don’t make excuses for ignoring stop losses. This is where the really big hits come from
Killing It – Making a series of successful trades
Locked Market – When the bid and offer are identical
Market Makers – firms that provide market liquidity with two-sided bids and offers, now largely replaced by computers
Melt Up – A straight line move upward in shares with no pullbacks whatsoever, usually triggered by a news or earnings release.
Momo – Momentum-based trading, buying rising markets and selling falling ones
Never Short a Dull Market – Quiet markets can often rally sharply because the selling is done
Noise – Random media reporting that has no true impact on the direction of stock prices
Pain Trade – the market is moving against the positions of the trading community.
Permabear – A persona who is always bearish, usually driven by some bizarre Armageddon-type ideology, or suffering from paranoia
Permabull – a person who is always bullish, despite deteriorating fundamental conditions
Picking Up Pennies in Front of a Steamroller – Sell short naked put options.
Pump and Dump – Unethical brokers run the prices of small illiquid stocks and then sell them to clients at market tops. The shares usually collapse afterward. See the movie Wolf of Wall Street.
Resistance Level – A price on a stock chart offering technical resistance to further price appreciation
Sell in May and Go Away – The preference for selling shares ahead of a period of seasonal weakness.
Sell the Rip – STR/STFR/ STMFR
Short Squeeze – A sharp run-up in share prices that forces short sellers to buy to avoid accelerating losses.
Smart Money – what the best informed, most experienced investors are doing. Not as smart as they used to be.
Snakebit – A surprise news development that comes out of the blue and costs you money
Spoofing – entering orders without any intention of executing them and canceling them before they can be executed. It is a common tactic of high-frequency traders.
Spoos – S&P 500 futures contracts
Squawk Box – A small loudspeaker on a desktop in a trading room constantly broadcasting news reports and large trades
Support Level – A price on a stock chart offering significant technical support
Stop Loss-a price at which when reached, a liquidation of the position is automatically triggered.
The Trend is Your Friend – Trade with the market direction, not against it.
Theta Burn – Time decay on options
Ticker Tape – A white ¾ inch-wide paper tape used to transmit stock prices by telegraph at the rate of 500 characters a minute that was used until the 1950s to transmit stock prices. See the ticker tape parade and delayed tape.
Topping Process – occurs when a market makes several failed attempts to make a new high, creating a medium-term top
Turnaround Tuesday – the tendency of markets to reverse direction after the markets digest weekend news on a Monday
Yellen Put – an assumption that the Fed will come to the rescue with a monetary easing on any substantial market selloff
“When asked how he manages the time to be chairman of Microsoft, run the world’s largest charity, and raise three kids, Bill Gates answered, “I don’t mow the lawn.”
Global Market Comments
January 29, 2025
Fiat Lux
Featured Trade:
(WHY GLOBALIZATION WORKS)
Having been a vociferous supporter of globalization since its dawn, first during a decade spent as a reporter for The Economist magazine, and then as an investor, I can explain how our international trading system works, and especially why it works for the US.
While waiting for a flight at Miami Airport, there was a polyglot of travelers from all over the world.
Large groups of Chinese were led by flag-bearing guides. Italian Millennials mobbed the bars at night. English couples strolled the majestic limestone fortress walls soaking up the sunshine.
There was even the occasional American student backpacker repeating my own adventure from the 1960’s.
And you know what? This disparate international group shared many things in common.
Most of them spent much of the day glued to iPhones or Androids run by US-designed apps. Many were staying in accommodations organized by Airbnb (there were over 200 listings for the immediate Dubrovnik area).
They may have made the trip from the airport in an Uber cab. They wore Levis Strauss blue jeans. American pop music pulsed through their earbuds. Probably half of them arrived on a Boeing jet financed by the US Export-Import Bank.
In short, they were all sending enormous amounts of money to US companies and shareholders in more ways than they could possibly count, without realizing it.
You never used to see tourists from most countries, like Russia, Spain, Portugal, Italy, or Ireland.
They were too poor.
Rapidly rising standards of living created by globalization changed all of that, creating an enormous new market for American products, especially technology ones.
My Airbnb neighbors in Dubrovnik included a family from Malaysia and a young couple from South Korea.
You can see some of this impact in international balance of trade statistics. In 2024, the US ran a trade deficit with the world of $634 billion with consumer electronics, oil, clothes, and cars our largest imports.
Subtract our $294 billion surplus in services, which includes, financial services, education, patents, and other intellectual property, and that brings our current account deficit down by more than half to only $340 billion.
But that doesn’t tell the whole story.
Trade data completely misses the enormous number of products and services that are now given away FOR FREE in exchange for the chance of earning some uncertain revenue at some future date.
And I include none other than the esteemed Mad Hedge Fund Trader in this category. Something like 99% of the visitors to my site never pay anything.
The monetary market value of the research I have given away for free is probably worth tens of millions of dollars.
In a pre-Internet, pre-globalized world, a service covering so many asset cases and individual stocks in real-time might have cost $100,000, if not $1 million.
And you know what? It would have been worth it!
Multiply this effect on a global scale and you see what I am talking about.
Give up your name and email address, and you can obtain almost any kind of online service for nothing. And as far as I know, no government agency has any measurement of this whatsoever.
Needless to say, the United States is far and away the leader in this immeasurable field.
By the way, this might also be the reason why the published productivity data has been so poor, despite the fact that US GDP has grown by 20% since 2009. Everywhere I look productivity is skyrocketing, including my own.
It also might be the reason why Amazon continuously sports a nosebleed valuation. Much of what they provide is FREE, and therefore immeasurable.
Of course, globalization wrought havoc on your life if you went into it with the wrong job in the wrong industry and an inadequate skill set.
Blue-collar workers tied to textiles, shoes, toys, and other low-value-added manufacturing were toast, as their jobs fled offshore.
If you didn’t retrain, or adapt you became an angry, mostly white man.
As my friend, New York Times columnist Tom Friedman likes to say, “Average doesn’t cut it anymore.”
However, while the jobs are gone, the bulk of the profits stayed here in the US. American companies offshored the $ 2-an-hour jobs (mass assembly) but kept the $100 an hour ones (design and marketing).
As my friends in the Chinese government never fail to point out, if they build the iPhone for $100 and we sell it for $1,500, we are the big winners, not them.
They believe we are perpetuating 19th-century colonialism by making wage slaves of their workers.
They may be right.
Globalization enables the US dollar to continue as the world’s reserve currency, as almost all international trade is conducted in the buck.
That is one of the greatest free lunches of all time. It enables the US government to indirectly control the global economy through its own monetary policy. Some half of all US government debt is owned by foreigners.
When sanctions forced Iran to drop out of the international trading system what did they get? A Great Depression that cut their GDP by 25%. You can’t run a country of 80 million with oil barter deals, gold, and bitcoins alone.
There are also the huge defense benefits that globalization brings us.
Back in the early days, the main reason to steer a country into capitalism was to prevent it from going communist, and therefore becoming an enemy.
Grow your allies and shrink your enemies, and your defense costs shrink dramatically, raising our standard of living.
That is what has happened.
Increased trade also boosted foreign standards of living, therefore creating a growing market for American goods and services.
This was the whole point of the World Trade Organization, NAFTA, and the Trans-Pacific Partnership.
Humans rarely bite the hands that feed them. They are also highly unlikely to set fire to their paycheck or bomb the sources of income.
Make a foreigner a millionaire, and you turn him into a pacifist. I have seen this unfold time and again over the past half-century, be it in China, Russia, Vietnam, Cambodia, and most recently in Iran.
Create an embedded base of businessmen in any country who are getting rich off of you, and international relations invariably improve.
Any system based on greed is guaranteed to succeed.
A side benefit of all of this is that stock markets for up forever.
Since globalization started in earnest in 1951, the Dow Average has risen from $239 to $18,392, a prodigious gain of some 77-fold.
And you wondered why?
Globalization is the mechanism through which America is paid the dividend for all of the good deeds it has done and inventions it has created for the past century.
I am thinking about the construction of the Panama Canal, Lend Lease, and the Marshall Plan, as well as the transistor, memory chip, microprocessor, personal computer, Windows, the Internet, online commerce, the iPhone, and social media.
That is why globalization is a win-win-win for everyone.
There are really only two true communist countries left in the world, Cuba and North Korea, which never joined the international trading community. They also happen to have the planet’s lowest standard of living.
And Cuba will become totally capitalist within two years. Just give them a million iPhones, get them talking, and see what happens. Castro will become just another neighborhood in South San Francisco.
So why end a trading system from which America and its people have profited so mightily?
Exploring the Wonders of International Trade
“We have few, if any spare tires left,” said Mohamed El-Erian, CIO of mega bond house PIMCO, about the nail studded road ahead for the US economy.
Global Market Comments
January 28, 2025
Fiat Lux
Featured Trade:
(THE NEW OFFSHORE CENTER: AMERICA),
(SIGN UP NOW FOR TEXT MESSAGING OF TRADE ALERTS)
