Yes, I’m back from the Frozen Wasteland of The North.
Except it was anything but a wasteland. It was far more beautiful than I remember 57 years ago. In a world beset with accelerating change everywhere, Alaska is unchanged from the primordial age. It is a natural paradise blessed with spectacular scenery and filled with wild animals.
But more on that later.
Now on with the most important question of the day.
What to do about NVIDIA?
Those who heeded my advice to load up on the Silicon Valley graphics card maker are facing a dilemma. (NVDA) is now such an outsized share of the entire stock market, some 6% of the S&P 500. Even if you don’t own (NVDA) directly, if you are an index investor in the (SPX), it is still your largest holding.
If you sell NVIDIA and it doubles again, you look like an idiot. If you hold it and it drops by half, you look like a bigger idiot. Here is my five cents worth. It will do both in the coming years.
Fortunately, there is another solution. Sell short (NVDA) out-of-the-money calls against your existing long stock position. If the shares rise, you will think you died and went to heaven. If it falls, at least your cost basis falls by the amount of option premium you received.
I’ll give you an example.
Let’s say you still have 100 shares of (NVDA) that no one has talked you out of selling yet that you bought last October at a split-adjusted $40. You can sell short the August 16, 2024 $140 calls for $3.50 which expire in six weeks and pays you $350 in options premium. If NVIDIA fails to rise above $140 and they expire worthless, you get to keep $350 ($3.50 X 100 shares per option). This reduces your cost basis \by $3.50 to $36.50.
If the shares rise above $140, they will get called away and your upside breakeven point is now $143.50 ($140 + $3.50). You get to make an extra $18.50 in capital gain to get there from Friday’s $125 close.
It’s win, win, win.
The only downside is that shares called away are treated as a sale for tax purposes. Remember, you are being taxed on a much larger profit. You can always offset the gain by taking a loss in another stock, such as in the energy sector.
I just thought you’d like to know.
Silver has been a star performer as the top precious metal this year, up 30% at the highs, but has recently been faltering. A round of profit-taking has knocked the wind out of not just the white metal, but all precious metals. Most silver ETFs have seen outflows this year, while sales of silver Eagle coins from the US mint have dropped by half.
However, while financial demand for silver has been going down the toilet, industrial demand is still soaring. This is a new development in the history of silver.
The great mystery among long-time silver watchers like myself is that silver has gone up at all this year. High interest rates and inflation and a strong economy are not the usual backdrop for a bull market in silver.
But like so many other markets recently, it has irrevocably changed. Industrial demand is taking over. Silver is the world’s best conductor of electricity. Al Capone’s Duesenberg V12 was entirely wired with silver for this reason. And the fivefold demand in the size of the national electrical grid demanded by AI has put a new spotlight on the poor man’s gold.
In 2023 silver demand from the solar panel industry jumped by 64% and it is expected to rise by another 20% this year. In the meantime, supplies of silver from Companies like Wheaton Precious Metals (WPM) have fallen marginally. It's that old supply/demand thing. Never fight it.
So any further falls in in silver prices should be bought with both hands. If you’re lucky, you might get another 10% drop. And if I’ve really hooked you with this piece, buy the 2X long silver ETF (AGQ). It will be up huge by yearend.
So far in July, we are up +0%. My 2024 year-to-date performance is at +20.02%. The S&P 500 (SPY) is up +16.14% so far in 2024. My trailing one-year return reached +34.63%.
That brings my 16-year total return to +696.65%. My average annualized return has recovered to +51.29%.
As the market reaches higher and higher, I continue to pare back risk in my portfolio. I am currently in a very rare 100% cash position.
Some 63 of my 70 round trips were profitable in 2023. Some 29 of 38 trades have been profitable so far in 2024, and several of those losses were really break-even.
Nonfarm Payroll Report Comes up Short in June at 200,000. The Headline Unemployment Rate rose to 4.1% nearly a three-year high.
Price of Bitcoin Sputters, Bitcoin price tanks as traders worry over the likely dumping of tokens from defunct Japanese exchange Mt. Gox and further selling by leveraged players after the cryptocurrency's strong run.
Bezos Cashes Out, Founder and executive chair Jeff Bezos will sell almost $5 billion worth of shares in Amazon as his e-commerce company hits all-time highs.
Trade War Between China And The E.U. Heating Up, China will investigate European brandy imports after the E.U. slapped tariffs on Chinese-made electric vehicles. This will effectively make the price of goods a lot higher in the Old Continent.
US Venture Capitalists Flood into AI Investments, U.S. venture capital funding surged to $55.6 billion in the second quarter, marking the highest quarterly total in two years. The latest data represents a 47% jump from the $37.8 billion U.S. startups raised in the first quarter. Most of these investments will go into AI.
Volkswagen Will Not Produce Rivian Cars, Rivian announced that it has no plans to produce vehicles with Volkswagen after a media report said Rivian is in early talks with the German automaker to extend a recent partnership beyond software.
Inflation Inches Up, The core personal consumption expenditures price index increased just a seasonally adjusted 0.1% for the month and was up 2.6% from a year ago. This inflation number is called the PCE.
Google Buys Solar Power Firm Google will snap up Taiwan's New Green Power and could buy up to 300 megawatts of renewable energy from the BlackRock fund-owned firm to help cut its carbon emissions and those of suppliers.
EU set to charge Meta, the European Union is set to penalize Meta for breaking the bloc's landmark digital rules. Regulators are targeting Meta's "pay or consent" model. It’s illegal in Europe.
My Ten-Year View
When we come out the other side of the recession, we will be perfectly poised to launch into my new American Golden Age, or the next Roaring Twenties. The economy decarbonizing and technology hyper accelerating, creating enormous investment opportunities. The Dow Average will rise by 800% to 240,000 or more in the coming decade. The new America will be far more efficient and profitable than the old.
Dow 240,000 here we come!
On Monday, July 8, the Consumer Inflation Expectations are released.
On Tuesday, July 9 at 7:00 AM EST, the NFIB Business Optimism Index is published.
On Wednesday, July 10, Mortgage Applications are out.
On Thursday, July 11 at 8:30 AM, the Weekly Jobless Claims are announced. We also get the Consumer Price Index.
On Friday, July 12 at 8:30 AM, the Producer Price Index is announced. At 2:00 PM, the Baker Hughes Rig Count is printed.
As for me, it was with great fondness that I returned to Alaska for the first time in 57 years.
But instead of hitchhiking heavily armed with a high-powered rifle and a pistol, this time I embarked on Cunard’s Queen Elizabeth, one of the finest cruise ships afloat.
While before I battled Grizzley bears and torrential rainstorms, in 2024 I observed the ailments that beset old age. Here’s a knee replacement, there goes a new hip, sorry about the emphysema, and hello Mr. Arthritis.
To say that America’s 49th state is enjoying boom times would be a vast understatement. Because of the Gaza War, every cruise line canceled their Middle Eastern tours and moved the ships to the Caribbean in winter and Alaska in the summer.
As a result, you have six gigantic ships disgorging 25,000 passengers and crew onto Juneau, a town of just 30,000. Try to imagine Times Square on New Year's Eve solely occupied by sober waddling obese 70-year-olds. Juneau only has dock space for five ships so one forlorn Celebrity ship had to use shuttles to ferry passengers ashore.
Welcome to the T-shirt-based economy.
Franklin Street was lined door to door with souvenir shops hawking every kind of local knick-knack. Maybe 99% of the souvenirs were made in China. There were no less than 25 jewelry stores. And if you ever had a desire for salmon or king crab for lunch, this is your place.
It has also collapsed cruise prices. The cheapest inside cabin with no windows on my ten-day cruise cost $799 with all the food included. That’s cheaper than staying at the Motel 6 and eating at Taco Bell every day. Cruising is now far and away the cheapest form of vacation travel today.
The demands on the local economy were so great that most shore excursions were sold out. In any case, mushing with sled dogs didn’t really appeal to me, nor did whale watching or sea kayaking with the orcas.
I would have done the fly fishing in a heartbeat, but it was the first to sell out. The Great American Eagle Experience offered only one sorry example which was missing half a wing after getting hit by a car.
As with every large corporation in America today, Cunard is doing everything it can to squeeze every penny of profit out of their business. Recently added were branded Cunard red and white wine, gin, whiskey, and vermouth. Oh, and the penuriously underpaid staff are now billed $1,000 for room and board, which includes a tiny cabin below the waterline with no porthole.
And many of the locals are here only temporarily. Freshly graduated college students come up from the lower 48 to work as drivers, guides, cooks, and dishwashers to handle the summer surge. Many take two or three jobs and bank enough to buy houses back home.
They live in RVs, tents, and abandoned buses. That’s no fun when it rains every day, and you have hungry raiding bears looking for dinner every night.
The population drops by half in September when the cruise ships depart for warmer climes. What do the remaining residents do for the ensuing eight months? Hunt, fish, fix things around the house, watch movies, keep the town bars in business, work on art projects, and dream about next summer. Juneau only gets three hours of sun around the winter solstice.
At one point, fed up with the melee downtown, I took a city bus 20 miles just to enjoy Alaska in its pristine natural state. It was clear that the Inside Passage received massive amounts of rain, over 120 inches a year, and 100 feet of snow. The forest was so thick that you couldn’t walk through it and the ground was covered in moss.
You would think this would make cruise line stocks a screaming buy, and in fact, it has. Carnival Corporation (CCL), the largest, owning nine cruise lines, carried a staggering 12 million passengers last year.
Royal Caribbean Cruises (RCL) has jumped by 35%, Carnival by 40%, and Norwegian Cruise Line Holdings (NCLH) by 20%. Viking Holdings (VIK) only went public in April and was met with a warm reception, tacking on 27% since then.
It's not so much the booming Alaska business that is driving share prices. Remember, these are discount offerings at the expense of higher-margin Middle Eastern business. It has more to do with the expectation of falling interest rates. All the cruise lines took on massive debt to keep from going under during Covid and a Fed interest rate cut will be a shot in the arm for these heavily indebted companies.
At the farthest north point of the trip, some 60 degrees north latitude, I enjoyed the famed Midnight sun. It was fully bright until 10:30 PM and never became completely dark. That explains the legendary size of Alaska’s summer vegetables. When I was in Fairbanks at 70 degrees, the sun came in for a landing, then took off again, never dipping below the horizon. There the Northern Lights were awesome.
The ship hosted two formal nights, a “Fire and Ice” perfect for my white dinner jacket and a “Venetian Masquerade Ball” with masks that had black written all over it. Cunard has been dialing back the formal nights over the years. Perhaps they’re just catering to the US market, or maybe society is just becoming more casual.
Many ship activities are oriented around selling you junk, like “The Excitement of Investing in Tanzanite” and “The Fine Art of Collecting Watercolors” which I learned to pass on a long time ago as blatant rip-offs.
Of course, no cruise is complete without a singles night. I put on my cleanest shirt and pressed jeans and was introduced to a dozen white-haired wealthy widows all in the 70s and 80s. No luck this time.
Maybe next year.
All in all, it was the perfect rest from this year’s tempestuous markets….until the next cruise.
Good Luck and Good Trading,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
