There was so much enthusiasm for China only a month ago.
A stimulus package was announced, a massive short-covering rally ensured, and finally, after a three-year hiatus, China was back in play. Several hedge funds announced major commitments to the Middle Kingdom.
Here we are only three weeks after the US presidential election, and China now looks so much rubble. Asst prices returned to their starting points. The hedge funds have so much mud on their faces. It’s back to a long wait.
Which gives us all plenty of time to think about what China is really all about.
I ran into Minxin Pei, a scholar at the Carnegie Endowment for International Peace, who imparted to me some iconoclastic, out-of-consensus views on China’s position in the world today.
He thinks that power is not shifting from West to East; Asia is just lifting itself off the mat, with per capita GDP at $12,969, compared to $81,695 in the US.
We are simply moving from a unipolar to a multipolar world. China is not going to dominate the world, or even Asia, where there is a long history of regional rivalries and wars.
China can’t even control China, where recessions lead to revolutions, and 30% of the country, Tibet and the Uighurs want to secede.
China’s military is almost entirely devoted to controlling its own people, which makes US concerns about their recent military build-up laughable.
All of Asia’s progress, to date, has been built on selling to the US market. Take us out, and they’re nowhere.
With enormous resource, environmental, and demographic challenges constraining growth, Asia is not replacing the US anytime soon.
There is no miracle form of Asian capitalism; impoverished, younger populations are simply forced to save more because there is no social safety net.
Try filing a Chinese individual tax return, where a maximum rate of 40% kicks in at an income of $35,000 a year, with no deductions, and there is no social security or Medicare in return.
Ever heard of a Chinese unemployment office or jobs program?
Nor are benevolent dictatorships the answer, with the despots in Burma, Cambodia, North Korea, and Laos thoroughly trashing their countries.
The press often touts the 600,000 engineers that China graduates, joined by 350,000 in India. In fact, 90% of these are only educated to a trade school standard. Asia has just one world-class school, the University of Tokyo.
As much as we Americans despise ourselves and wallow in our failures, Asians see us as a bright, shining example for the world.
After all, it was our open trade policies and innovation that lifted them out of poverty and destitution. Walk the streets of China, as I have done for four decades, and you feel this vibrating from everything around you.
I’ll consider what Minxin Pei said next time I contemplate going back into the (FXI) and (EEM).
China: Not All Its Cracked Up to Be
https://www.madhedgefundtrader.com/wp-content/uploads/2013/04/China-Parade.jpg266401Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2024-11-29 09:02:432024-11-29 11:36:58China's View of China
Hardly a day goes by when a reader doesn’t ask me when the Australian real estate bubble is going to burst.
They are right to be concerned.
In the table below, Sydney is ranked as the second most expensive market in the world at 12.2 times the local median pre-tax household annual income.
It is far behind Hong Kong, at 19.9 times, and just ahead of Vancouver, Canada, at 10.8 times.
Even Australian banking regulators are concerned about a “Dutch tulip” style mania developing in the Land Down Under.
They are worried that the coming price collapse will pose a major threat to their financial system.
Indeed, a home on Sydney Harbor owned by my former employer, the Fairfax newspaper family, sold for a staggering AUS$75 million, a new record for the country.
Sure, the views are great. But AUS$75 million?
I have been through a lot of these real estate booms over the past five decades.
There was the notorious Japanese bubble in 1990. I have been through at least three such booms in California. Here, real estate brokers can turn into Uber drivers in a heartbeat.
And they always follow the same predictable pattern.
How high is high? Think of an absurd, impossible number, and then double it. That always seems to be a good rule of thumb. Except that Australia is already past that last doubling.
When my Australian friends ask how high prices can go, I tell them to check out prices in Shanghai, where apartments go for twice as high for a quarter of the space.
In fact, identifying bubble tops is a fool’s errand. When markets become irrational, the last thing buyers care about is rationality, hard data, or valuations.
In the past, the music always stopped playing for the same reasons.
Central banks fearful of inflation slammed on the brakes and drove interest rates through the roof, as Paul Volker did in 1980.
An extraneous shock, such as the 1973 and 1979 oil price spikes or the 1991 Savings & Loan Crisis, can also let the air out of the balloon.
I remember that during the S&L Crisis, I was ushered in to see a California property, and the owner burst into tears when the agent mentioned the price because of the huge personal hit he was taking on his equity.
Except that this time, it’s different.
Real estate used to be local. Now, it’s global.
You have the same factor pushing up property in prime markets all over the world at the same time: Chinese buying.
For a decade now, buyers from the Middle Kingdom have been bidding up the prices of homes in London, Australia, New York, Vancouver, and elsewhere.
You know that nice little mansion I sold in London in 1994 for $2 million? It’s now worth $20 million.
In nearby Napa Valley, CA, the Chinese are snapping up trophy vineyards left and right, paying wildly inflated prices. Prices are up an eye-popping 16.6% year on year.
You can always tell when a property changes hands when the stone lions show up at the front gates.
Their goal is the same everywhere. Get their money out of China before the wheels fall off, be it for economic or political reasons.
The Chinese aren’t looking for retirement homes. They need bolt-hole places to hide out.
A stepped-up anti-corruption campaign by the Beijing government seems to have accelerated the trend.
The capital flows have been so enormous that the Chinese government has had to liquidate $1 trillion in foreign exchange reserves, a quarter of the total, primarily held in US Treasury bonds, notes, and bills, to support the Renminbi.
These gargantuan capital flows have created the same anomalies around the world, that of “ghost neighborhoods” owned for investment purposes only.
On the receiving end, the US government is taking measures to stem money laundering and tax evasion.
The IRS is using the Patriot Act to require proof of ownership for all real estate purchases over $2 million in New York and San Francisco.
Cayman Islands, British Virgin Islands, and Cook Islands nominee holding companies or LLC’s can no longer be used as identity shields.
Without real residents living there, local businesses, like dry cleaners, coffee shops, and supermarkets, die off for lack of customers.
Take a walk around the Mayfair district of London one of these days, and you’ll see what I mean.
Or ride up and down the elevators in the residential towers at New York’s Columbus Circle, where 60% of the apartments are foreign-owned.
I even have one of these at the end of my street here in San Francisco.
The home came on the market for $2.1 million three years ago and sold in a day for $2.3 million. It has been empty ever since.
(By the way, the opposite end of my street displays San Francisco’s other big problem, start-ups moving into cheaper residences to avoid sky-high commercial property rates. There, the lights NEVER go out.)
Real estate agents everywhere love the business.
Most of these deals are done for cash only with rushed due diligence. Loan approvals and appraisals, frequent deal killers for domestic buyers, never even enter the picture.
For the sake of full disclosure, I have to admit that I have been a happy participant in the property gold rush like everyone else, making a kings ransom on properties I bought during the 2011 bottom, at least on paper.
Look at the table below, and you’ll see that four of the world’s ten most expensive cities are in California. Perhaps I shouldn’t throwing stones in glass houses.
But at least here, you have multiple booms going on in technology, health care, alternative energy, and transportation, driving earnings, and, therefore, house prices.
Since the causes of this bubble are largely come from China, so must the end.
A serious economic slowdown in China would tip the balance. So would a trade war with the US.
Tougher controls on capital flows could stem the tide. So would political instability, never far below the surface in China.
Whatever the reason, leveraged owners of luxury real estate anywhere on the planet should always keep one thing in mind: Your fate is totally in the hands of China.
https://www.madhedgefundtrader.com/wp-content/uploads/2018/04/Worlds-least-affordable-cities-story-1-image-1-e1523486486630.jpg402580MHFTRhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMHFTR2024-11-27 09:04:142024-11-27 11:40:40The Real Estate Crash Coming to a Market Near You
Until the 19th century, children used to provide income and security for their parents as they worked on the family farm. That dynamic continued when industrialization brought families into the cities and kids into the factories.
Since then, children have been a great short.
A hundred years of state-mandated education and child labor laws increased the cost of raising children while reducing their income potential. Today, many offspring stay in increasingly expensive schools until their mid-twenties without earning a dime of income.
A century ago, 10 children were a godsend. Today, they would be ruinous. Spending on children has flipped from an investment to conspicuous consumption. I count myself in the latter category, as I have five kids of my own.
The cost of children is proving to be the most effective form of birth control.
The problem is that it is working too well, as fertility rates are collapsing in all parts of the globe, except in the Islamic world.
Many nations have fertility rates that, during 2005-2010, plunged far below the 2.1 replacement rate, like Taiwan (1.14), Italy (1.18), Japan (1.27), and Russia (1.34).
The US is nearly at breakeven at 2.05, versus a world average of 2.55 and an amazing 7.19 in the sub-Saharan nation of Niger.
This is partially being offset by lifespans that have doubled since 1800 in the industrialized world from 40 to 80 and are now quickly ratcheting up in emerging nations.
The World Bank expects the global population to jump by 2 billion, from 7 to 9 billion by 2050, and then flatten out.
The big question for all of us: what does zero population growth mean for the economy, which until now has always been driven on an endlessly rising number of consumers?
How soon will financial markets start to discount its implications, whatever they are? Expect to hear a lot more about this issue.
https://www.madhedgefundtrader.com/wp-content/uploads/2018/04/Kids-story-2-image-1.jpg244320MHFTRhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMHFTR2024-11-27 09:02:072024-11-27 11:40:25The Falling Market for Kids
Passing through Dallas, Texas on the way to a previous Mad Hedge Strategy Luncheon a few years ago, I couldn’t help but remember the assassination of President John F. Kennedy on November 22, 1963, some 57 years ago today.
The tragedy offers valuable lessons for today’s traders, although we have to travel a somewhat circuitous route to get there.
It was one of those epochal events where people remember exactly what they were doing when they heard the news, such as the December 7, 1941 Japanese attack on Pearl Harbor, and the 9/11 attacks on the World Trade Center in 2001.
During the middle of my 5th-grade class, there was a schoolwide announcement that the president had been shot while campaigning in Dallas, Texas, but was still alive. Hours later, we were informed he was dead. The teachers started crying, and we were all sent home.
For the rest of the week, we were transfixed by the tumultuous events on our black-and-white, rabbit-eared television sets. Lyndon Johnson was sworn in as president on Air Force One. Lee Harvey Oswald was arrested. Then, nightclub owner Jack Ruby shot him in a Dallas jail on live TV.
It was all so surreal, witnessing history unfold before you. I remember that my dad told me this all might be a prelude to a military coup d’état or a Soviet nuclear attack and that we should be prepared for the worst.
Our stockpile of canned food to feed our family of nine from the previous year’s Cuban Missile Crisis was still in its cases. So were the boxes of ammunition. Those were scary times.
It seemed like the country went to pieces after that. The Vietnam War ramped up, igniting huge national demonstrations. Some 60,000 of our guys died, including 22 from my high school.
Race riots followed, setting cities on fire. I got caught in the ones in Los Angeles and Detroit. Then came the Oil Crisis, Watergate, and the Iran Hostage Crisis.
Things didn’t get back to normal until the 1980s, and guess what? The stock market started going up, and I got into the hedge fund business.
The Kennedy assassination sparked an entire industry of conspiracy theorists, armchair historians, and assorted fruitcakes and nut jobs, whose mission was to debunk the conclusions of the Warren Commission Report.
Thousands of books were published, and even more lectures were delivered. It inspired us all to distrust our government.
After all, we were told that Oswald made an impossible shot and only a “magic bullet” could achieve what the report claimed. Witnesses died like flies, against all actuarial probability. The 1938 Italian Mannlicher-Carcano rifle he used to commit the crime was impossibly flawed.
I tended to believe the version that was taught in California state textbooks as late as the 1990s, that Kennedy was the victim of either a CIA, Mafia, or Cuban plot. The Hollywood director Oliver Stone fanned the flames with his 1991 film, JFK.
Then, one day during the late 80s, while visiting big oil clients for Morgan Stanley, I found myself with a couple of free hours to kill in Dallas. I took a taxi to the Texas School Book Depository on Elm Street, now a museum.
It was a weekday, and I was the only visitor. So, I took the elevator up to the sixth floor. There, at a corner window, cases of books were set up exactly as Oswald had placed them on that fateful day.
I looked around, saw no one else, and then deftly stepped over the rope that barred public access.
It turned out that I shared some personal history with Lee Harvey Oswald. We had both been in the Marine Corps and obtained a marksman’s rating, which earned you a few extra dollars a month.
He had also been stationed in Japan a few years before I, at a base I knew well. So, I had always been curious about Oswald’s incredible shot.
I sat down in the exact spot that Oswald had and watched the traffic below. At 62 feet away, the cars were moving at 8 miles per hour, the same speed as the Kennedy motorcade. Elm Street is always busy. Then it hit me.
This was not an impossible shot. This was not even a hard shot. I could make this shot. In fact, any Marine who went through basic training at Camp Pendleton could have made this shot on a bad day with a stiff wind.
It was a revelation.
It meant that the Warren Report was right. Oswald was the single shooter. It meant that all of the Kennedy conspiracy theories I had heard about over the decades were lies.
Not only that, I also realized then that all conspiracy theories about everything were untrue, usually manufactured by people with ulterior motives, almost always driven by the desire to do more books and videos and make more money. The level of cooperation required between large numbers of people is far too improbable.
After that, theories about the Kennedy assassination started to unravel. During the 1990s, the investigative TV program 60 Minutes got several professional marksmen to easily replicate Oswald’s feat of getting off three shots with the same antiquated bolt action rifle in less than three seconds.
After a deal with Congress in 1992, the government released 5 million pages of evidence on which the Warren Report conclusion was based, which had previously been secret (click here for the National Archives link).
We obtained hours of classified testimony from Marina Oswald, Lee Harvey’s Russian wife, about how troubled the man was.
We discovered that a dozen people saw a man with a rifle in the window of the Book Depository minutes before Kennedy was due to pass by. They screamed at the police to intervene, but none could hear them over the noise.
The fourth shot from the “grassy knoll,” recorded over a police radio with a broken microphone button, turned out to be an echo of a building.
The FBI was aware that Oswald had taken a shot at the home of an army general only months before. A memo warning the Secret Service of the threat was found crumpled up in a Dallas agent’s desk drawer days after the assassination.
The Kennedy assassination has become a favorite topic of discussion among modern risk analysts who advise hedge funds. The Secret Service was well aware of many assassination risks for the liberal, Democratic president from Boston from a wide assortment of right-wing fanatics in the Deep South, and they chased down many of them.
No one imagined that the actual attempt would come from the left, and they were blindsided. It is a valuable lesson that we trade and invest by today.
Finally, it was all put together in a 2007 book by the late Vincent Bugliosi, Reclaiming History: The Assassination of President John F. Kennedy.
I had the misfortune of working with Bugliosi while he was prosecuting cult mass murderer Charles Manson (while working for the Los Angeles County Coroner, I had dug up some of his victims in the California desert, one with a missing head). I always found him a showboater and a tireless self-promoter.
However, in the book, Bugliosi does a masterful job of weaving together declassified evidence, testimony from missing witnesses, and the contribution of modern technology.
His conclusion: The Warren Report was dead right. As deranged as Oswald was, there was one thing he could do well, and that was to shoot straight. He then proceeds to expertly demolish every conspiracy theory out there and uncover their promoters as the profit-driven charlatans that they are.
Oliver Stone was a better storyteller than a historian.
It turns out that being perennially disbelieving in conspiracy theories is quite a useful philosophy to have as a trader. We are often asked by the media to believe in the conspiracies that underpin certain investment theses. Bet against them, and you’ll win every time.
If we don’t fight them in El Salvador, then we’ll be fighting them in the streets of Los Angeles. Russia wants to take over the world, and when they finish their work in the Ukraine, we are next.
We had to invade Iraq because Saddam Hussein was imminently going to use his weapons of mass destruction against us. And don’t get me started on the Ebola Virus.
When gold hit $1,927 an ounce some years ago, I heard that the bars inside Fort Knox were made of lead and painted gold. When this was discovered, the price of the barbarous relic was supposed to soar to $50,000 an ounce. I sold gold short.
After Barack Obama was elected president in 2008, the Internet abounded with assumptions of a vast left-wing conspiracy that pegged our new president as a socialist who was born in Kenya and was going to destroy corporate America and take away all of our guns.
Those who bought the story sold all their stocks because the market bottomed, unloaded their homes, and bought a dozen guns. They also ditched all their bonds because the U.S. government was going to default on its debt, ignite hyperinflation, and collapse the dollar. The advice was to put all your money into gold.
I didn’t believe any of this for a second and did the exact opposite of what the Armageddon crowd was urging on to followers.
I bought stocks, ultra-high-yielding junk bonds, MLPs, REITs, and every other risk asset out there while avoiding gold like the plague. I sold short the Japanese yen and the Euro against the U.S. dollar. So did my subscribers. You know the rest of the story. Some of my picks rose tenfold.
By the way, the newsletters that propagated those ridiculous and ruinous theories a decade ago are still prospering today.
I met Senator Ted Kennedy when he was running for president in 1982 and have kept in touch with his staff for many years. They told me he hit the deck whenever he heard a loud noise, be it a firecracker, a backfiring car, or even a slammed door. He lived a lifetime in constant fear of assassination.
Some scars never heal.
On my last trip to Tokyo, I spent some time at the magnificent, white stucco edifice that has been the residence of U.S. ambassadors there for nearly 100 years. There, I gave a briefing to then ambassador Caroline Kennedy, the daughter of the late president.
The National Archives will release the last of its files on the assassination 70 years after the event on November 22, 2033.
I hope to live that long, for by then, I’ll be nearly 82. Then, for me, the Kennedy story will come full circle.
Taking the Story Full Circle
https://www.madhedgefundtrader.com/wp-content/uploads/2014/11/Caroline-Kennedy.jpg370298MHFTRhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMHFTR2024-11-26 09:02:012024-11-26 10:30:55Trading the Kennedy Assassination
"Ask not what your country can do for you, but what you can do for your country," said John F. Kennedy, America's 35th president.
https://www.madhedgefundtrader.com/wp-content/uploads/2014/11/John-F.-Kennedy.jpg246248Arthur Henryhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngArthur Henry2024-11-26 09:00:542024-11-26 10:30:44November 26, 2023 - Quote of the Day
(MARKET OUTLOOK FOR THE WEEK AHEAD or WHAT TO DO ABOUT NVIDIA), plus THE WORLD’S WORST INVESTOR),
(NVDA), (GLD), (JPM), (JPM), (NVDA), (BAC), (C),
(CCJ), (MS), (BLK) (TSLA), (TLT)
Boy, did I make the right move going into the election?
I always have a propensity to reduce risk going into a major event. Let the newbies stick their necks out. I’ll collect the low-hanging fruit afterward while trampling over their bodies. As they used to say at Morgan Stanley, “It’s the pioneers who get the arrows in their backs.”
So I went into the November 5 election with 70% cash and long JP Morgan (JPM), Nvidia (NVDA), and gold (GLD). On November 6, I quickly stopped out of gold at cost and let the other two run, which launched on major rallies driven by a new deregulation trend. I then converted the remaining cash into a deregulation portfolio.
The bottom line? Since the election, I have been able to run up a monster 18.05% profit in only 14 trading days. That works out to 1.29% a day, the most earned in the nearly 17-year history of the Mad Hedge Fund Trader.
Notice that no specific deregulation measures have been proposed. No action has been taken. What we are seeing in unrestrained buying is driven by beliefs, animal spirits, and unbounded optimism, which markets all love. Call it euphoria. The problem with euphoria is that it fades as easily as it starts. After the 2016 election, the euphoria lasted for four months, then the market died for three months.
We’ve heard a lot about deficit reduction in the coming years, and let me tell you that the bond market isn’t buying it for a second. Since September, Fed Funds futures markets have plunged from 350 basis points in interest rate cuts by June to only 150 basis points, and half of that has already been done. Even the December 25 basis point rate cut has shrunk to only a 50% probability.
And this is what the bond market has been sniffing out. Tax cuts, spending increases, mass deportation of minimum wage workers, and a trade war are all highly inflationary. The voters may buy it, but not bond investors, and the bond market is always right. All it sees is the National Debt rocketing from $35 trillion to $45 trillion in four years.
“Bond market vigilantes” is soon a term you will hear every day.
It's just a matter of time before we get a shocking, out-of-the-blue move-up in a monthly inflation report. That is when the stock market will crash, and bonds get taken out to the woodshed. Next to happen will be a US Treasury auction that fails, spiking interest rates across the board, which recently caused the British government to fall. Then, hello, recession. We will spend the next many months trading against that day. The new administration’s most important appointment will be the guy in charge of borrowing.
And let me tell you about the National Debt, which I learned all about in my years in the White House Press Corp. The Social Security budget now runs at $1.4 trillion a year in payments, while defense is at $825 billion, for a total spend of $2.225 trillion a year. On top of that, you have to add $1 trillion a year in existing interest payments on the outstanding debt.
Even if spending on these two items goes to ZERO, it would take 16 years to pay off the current National Debt. If the debt rises to $45 trillion in four years plus interest, it would take 22.5 years to pay off. And this is with the number of new retirees exploding thanks to the Baby Boomer generation and defense demands in all parts of the world rising by the day.
Cutting the deficit boils down to cutting Social Security, cutting defense, or cutting the tax subsidies for your largest donors (billionaires, the oil industry), which is why it is never going to happen. Any other spending is too small to move the needle.
One of my favorite tests for someone’s knowledge of the federal budget is to ask them how much the US gives away in foreign aid to poor countries every year, a number that gets wildly exaggerated by political parties. The guesses come in at anywhere from 1% to 10% of the total budget. The correct figure? $63.1 billion, or 0.94% of the total $6.7 trillion in US budget expenditures, or less than one-tenth of one percent. You have been warned. I’m going to give you a test the next time I run into you.
The current deficit is, in fact, a product of five successive tax CUTS (Kennedy, Reagan, Bush II, Trump 1, and soon to be Trump II), which now has far and away the lowest income tax rates in the industrialized world. Remember, before Kennedy, the Great Depression maximum marginal tax rate of 90% prevailed.
But you have to get around to know this. I know because I moved an entire hedge fund from London to San Francisco in 1994 to take advantage of lower tax rates and the emerging Internet boom. I saved millions.
Which leads us to the most important question of the day: what to do about Nvidia (NVDA), almost certainly the largest holding of everyone who reads this letter. The company delivered spectacular earnings as promised, but the shares sold off $12. In fact, (NVDA) has only risen by $13 since June, with a drawdown of 37%. Rising volatility with incremental gains is a sign that a stock is topping out. At a $3.6 trillion market capitalization, the spectacular share price gains of the past are no longer attainable. The Law of Large Numbers is kicking in.
I still believe that (NVDA) will rise next year, but not by 200%. Some 20% is more likely. Fortunately, there is something you can do about it. With an options implied volatility of 40%, you can sell short the December 20, 2024, $156 call options against your existing position for $2.20. If Nvidia rises above $156 and your stock gets called away, your net proceeds will be $158.20, and you will think you died and went to Heaven.
If it doesn’t rise above $156, sell the January call options, and you take in another $2.20. After several months, this starts to add up to a lot of money. Eventually, the implied volatility will fade, and this trade won’t be there anymore.
But it works now.
That’s what I would do.
In November, we have gained a breathtaking +17.38%, November is proving to be our largest month of the year. My 2024 year-to-date performance is at an amazing +70.42%.The S&P 500 (SPY) is up +24.73%so far in 2024. My trailing one-year return reached a nosebleed +71.07%, up an incredible $10 on the week. That brings my 16-year total return to +747.05%.My average annualized return has recovered to an incredible +53.68%.
I maintained a 100% long-invested portfolio, betting that the market doesn’t drop below pre-election levels. That includes (JPM), (NVDA), (BAC), (C), (CCJ), (MS), (BLK) and a triple long in (TSLA). My November position in (JPM) expired at max profit. We are now so far in the money with all of our positions we should make 27 basis points a day until the December 20 option expiration in 18 trading days, thanks to time decay and falling volatility.
Some 63 of my 70 round trips, or 90%, were profitable in 2023. Some 74 of 94 trades have been profitable so far in 2024, and several of those losses were really break-even. That is a success rate of +78.72%.
Try beating that anywhere.
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 a headwind. 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, November 25 at 8:30 AM EST, the Dallas Fed Manufacturing Index is out. On Tuesday, November 26 at 8:30 AM, the S&P Case Shiller National Home Price Index is published. At 11:00 AM, the Minutes from the last Fed Meeting are announced.
On Wednesday, November 27, at 8:30 AM, the Core PCE Price Index is 11:00 AM EST. It is a half day for the stock market, which closes at 1:00 PM EST.
On Thursday, November 28, is a National holiday in the US for Thanksgiving.
On Friday, November 29, is Black Friday, and it is a half day for the stock market, which closes at 1:00 PM. At 2:00 PM, the Baker Hughes Rig Count is printed.
Today, I thought I’d recall The World’s Worst Investor, who so happened to be my grandfather on my father’s side.
He was an immigrant from Sicily who joined the army during WWI to attain US citizenship lost an eye when he was mustard gassed on the Western Front in France. I recently obtained his military records from the Department of Defense and learned he was court-martialed for refusing to wash pots and pans at the front while blind!
After the war, the sight came back in one of Grandpa’s eyes, so he
bought a three-bedroom brick home on 76th Street in the Bay Ridge section of Brooklyn street for $3,000, eventually raising four kids. Back then, there was a dairy farm across the street, and horse-drawn wagons delivered ice blocks door to door.
During the roaring twenties, an assortment of relatives chided him for avoiding the stock boom where easy fortunes were made trading on ten to one margin. When the 1929 crash came, all of them lost their homes. Grandpa finished off the basement, creating space for two entire families to move in. He had never bought a stock in his entire life.
Because Dad contracted malaria with the Marines on Guadalcanal during WWII, the old man moved the family to Los Angeles in 1947 for the dry, sunny weather. Unfortunately, my grandmother heard there were no lobsters on the west coast, so she packed two big Maine ones in a suitcase. By the time they got to Las Vegas, the smell was so bad they got kicked off the train. In the booming postwar economy, they had to wait a week to get new seats to LA.
That was enough time for a flimflam man to sell Grandpa five acres of worthless land for $500. Ten years later, my dad drove out to check out the investment. It was a tumbleweed-blown, jackrabbit and rattlesnake-ridden piece of land so far out of town that it had to be worthless. You couldn’t see downtown, even if you stood on the rusted-out model “T” Ford that occupied the site. After that, the parcel became the family joke, and Grandpa was ridiculed as the world’s worst investor.
Grandpa died of cancer in 1977 at the age of 78. What German shrapnel and gas failed to accomplish, 60 years of smoking two packs a day of non-filter Lucky Strikes did. The army gave him cigarettes for free during the war, and he never shook the addiction. Even at the end, he insisted that there was no “proof” that cigarettes caused cancer, which soldiers referred to as “coffin nails.”
His estate executor put the long-despised plot out of Sin City up for sale, and a bidding war ensued. Although the final price was never disclosed, it was thought to be well into eight figures. In the intervening 30 years, the city of Las Vegas had marched steadily westward towards Los Angeles, sending its value through the roof. The deal triggered a big fight among the heirs, those claiming he was the stupidest demanding the greatest share of the proceeds, the bad blood generated continuing to this day. It turns out the world’s worst investor was actually the best, we just didn’t know it.
What was the address of this fabled piece of real estate? Why, it is 3325 Las Vegas Blvd. South, the site today of the Venetian and Palazzo Hotels, home to the Dal Toro restaurant, the venue for the last Mad Hedge Fund Trader’s Las Vegas strategy luncheon.
I’m sure Grandpa is laughing in his grave, in between smoles.
Bought for $500 in 1947
Postscript. One day in New York a few years ago, I had a few hours to spare waiting to board Cunard’s QEII to sail for Southampton, England.
So, I decided to check out the Bay Ridge address that I had heard so much about during my childhood. I took a limo over to Brooklyn and knocked on the front door. I was told the owner was expecting a plumber, so he let me straight in, not noticing my Brioni blue blazer nor the Cadillac stretch limo out front.
I told him about my family history with the property, but I could see from the expression on his face that he didn’t believe a single word.
Then, I told him about the relatives moving into the basement during the Great Depression. He immediately let me in and gave me a tour of the house. He told me that he had just purchased the home and had extensively refurbished it. When they tore out the walls in the basement, he discovered that the insulation was composed of crumpled-up newspapers from the 1930s, so he knew I was telling the truth.
I told him that Grandpa would be glad that the house was still in Italian hands. Could I enquire what he had paid for the house that sold in 1923 for $3,000? He said he bought it as a broken-down fixer-upper for a mere $775,000. And this was after the housing crash in 2011.
My Grandparents 1926
The Fabled Bay Ridge House Bought for $3,000
Good Luck and Good Trading,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
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