Global Market Comments
November 30, 2023
Fiat Lux
Featured Trade:
(SO WHAT IS YOUR “INFLUENCER” SCORE)
(REPORT FROM THE ORIENT EXPRESS)
I was awoken from a dead sleep in the middle of the night in my suite on the Orient Express by a juddering halt and the smell of burning breaks in the air.
We were somewhere high in the Swiss Alps, and every single passenger on the all-first-class train had to be thinking that a murder had just been discovered.
It turned out that in the darkness we had hit a 400-pound wild boar astride the tracks. We spent four hours on a remote siding waiting for Swiss National Rail to deliver us a new engine.
I elicited chuckles when I ordered boar for lunch the next day. The matre’d assured me it wasn’t ready yet, as the meat had to soak in vinegar for 48 hours before cooking. That’s the kind of thing you only hear in Europe.
I boarded the train that morning at London’s Victoria Station in anticipation of the trip of a lifetime. Venice Simplon Orient Express didn’t disappoint, although I would not be surprised if the IRS questioned the $8,500 cost for the 34-hour trip as a business expense on my tax return this year.
The legendary train has featured in a dozen films (James Bond and Agatha Christie), and two dozen television shows, and played a major part in countless novels. You can even buy a video game.
The modern Orient Express has three different trains.
From Victoria Station in London to Folkstone on the coast, I traveled on a vintage British train that was showing its age.
Then I boarded a bus, which drove on to a flatbed rail car that whisked us through the tunnel 1,500 feet under the English Channel. There, we claustrophobes closed our eyes and held our breath for 20 minutes.
The real luxury started when I boarded a vintage 1924 Pullman first-class sleeping car in Calais, France, lovingly restored to the day it was built.
I set my watch ahead one hour and back 100 years. Suddenly, the trees resembled those in impressionist paintings, the land was dotted with Norman fortresses, and gasoline was $8 a gallon.
The original Orient Express, from Paris to Istanbul, made its inaugural journey in 1882 and quickly became famous for its unheard-of luxury and speed. Modern bullet trains and cut-rate airlines put it out of business 100 years later.
The current incarnation started in 1977 when James Sherwood, who had built up a fortune through Sea-Land Containers, bought three dilapidated Pullman rail cars at an auction in Monte Carlo. Like all of us with insanely expensive hobbies, he sought a way for outsiders to fund his passion.
Hence, the Venice-Simplon Orient Express started luring big spenders and the romantically inclined in 1982 (click here for their site)
I became one of the original passengers in England when my broker chartered it for a day of client entertainment, an ancient steam engine laboring all the way.
Over the next 30 years, Sherwood built Orient Express into one of the world’s preeminent luxury brands, on par with Cartier, Tiffany, and Channel.
He developed a massive global network of cross-marketing deals that tied in package tours, hotels, cruises, and other vintage trains.
Today, the parent company, Belmond (BEL) carries a market cap of $1.3 billion (click here for that site).
Ironically, the company today still only owns one of its dozens of rail cars. The rest have been sold to Middle Eastern investors with long-term leaseback contracts.
The dinner onboard is the highlight of the trip, a fabulous six-course, three-hour affair. There you meet the other passengers, all dressed to the nines.
Most were wealthy elderly couples knocking off a bucket list item, along with a few young hedge fund managers and a passel of mistresses.
I was one of the few Americans. I ate with a casino operator in Ireland and the owner of a manufacturing company in the UK. All I can say is thank goodness for the elastic waist on my tux trousers.
Having spent a lifetime analyzing corporate management, I was fascinated by the operation of the train. While the onboard staff is limited to 79, they are supported by a management, marketing, and engineering team of no less than 4,500.
You don’t just show up with a 17-car train in Europe’s incredibly congested rail network. You must first file a route plan and get a clearance slot, much like any airline.
Engines and crews must be changed at every border. Mechanics are onboard with an ample stockpile of 1920s rail car parts. Oblivious passengers are frequently left stranded behind at stations along the way and must be retrieved by taxis, which catch the train down the line.
To make up for the time we lost due to the unlucky boar, the rail authorities routed us through the 12-mile long transalpine tunnel under Splügen Pass, then along the sublime shores of Lake Como, where the train rarely travels.
We roared past George Clooney’s house, who, I am told, is a frequent passenger on the train. Amazed Italians were waving and taking pictures of us with their cell phones at every stop. Suddenly the buildings were all shaded in pastels, the churches changed from Protestant to Catholic, and the trees resembled those in Renaissance religious paintings.
We raced over the causeway to Venice’s Marco Polo station that evening, dumping our considerable luggage into a private speedboat which whisked us away down a Grand Canal crowded with gondolas, en route to the fabled Cipriani Hotel.
In 2019, Belmond, the parent company of Orient Express, was taken over by the ultimate luxury brand, LVMH Moet Hennessy. I worked with the son of the current owner at Morgan Stanley 40 years ago, who everyone referred to as “Bubbles.”
Because of the scheduling difficulties of crossing the English Channel post-Brexit, this is the last year the train will operate from London. In 2024 you can only catch the fabled train from Paris.
“I’ve always been big on lowering expectations. That’s how I got married, my wife lowered her expectations,” said Warren Buffet’s late partner, Charlie Munger.
Global Market Comments
November 29, 2023
Fiat Lux
Featured Trade:
(AND MY PREDICTION IS….),
(HOW TO “SNOWBALL” YOUR FORTUNE WITH BENJAMIN FRANKLIN)
Old Benjamin Franklin, one of the fathers of our country, was a pretty smart guy.
Not only was he a publisher, scientist, postmaster general, ambassador to the court of Louis the XVI, and delegate to the constitutional convention.
He also understood the basic mathematics that underlay modern investment theories centuries ahead of time.
When the United States was first founded, there was widespread belief in Europe that its experimental Republican form of government would soon fail.
After all, democracy hadn’t succeeded since the days of ancient Greece. Why should it now? The fact that the US was chronically broke didn’t help either.
One French mathematician, Charles-Joseph Mathon de la Cour, dared anyone to make a multi-century bet that the country would not survive.
Franklin happily took him up on it.
In 1789, he added to his will a codicil that endowed a trust with the city of Boston, where he was born, and the city of Philadelphia, where he built his career, with £1,000 each.
He specified that half the money be distributed in a century, and the balance in 200 years.
That initial investment equated to $5,000 at the time, or about $100,000 today in inflation-adjusted dollars. The British pound was the preeminent reserve currency of the day, and was good as gold, as it was still exchangeable into the yellow metal on demand.
Franklin died the following year days short of the age of 85.
The trust money was primarily invested in loans at a 5% interest rate in loans to young men under the age of 25 to finance apprenticeships in the trades. Later, it financed home mortgages.
So how did Ben do?
After the first 100 years, the Boston fund was worth $391,000, and half the money was eventually used to establish the Franklin Technical School, a two-year college that is still in operation today (click here for the link).
In 1990, at the end of the second century, the remaining Boston half was worth more than $5 million.
The money was promptly divvied up, with 26% going to the city, and the balance going to the State of Massachusetts. Much of the money went into the endowment of the Franklin Technical School.
Franklin did less well in his adopted hometown of Philadelphia. Corrupt politicians diverted some funds during the 19th century. Still, by 1990, the initial £1,000 had grown to $2 million.
The funds were used to set up a scholarship fund for Philadelphia high school graduates.
Interestingly, the two trusts never came close to their 200-year theoretical maximum value in the hundreds of millions of dollars. That’s because several early borrowers defaulted on their loans.
The Civil War also no doubt took its toll.
This story highlights the value of compounding interest, well known to all savvy money managers.
Every math student knows the fable of the mathematician who invented the game of chess for an ancient potentate. As a reward, he asked for a grain of rice to be doubled with each square on a chessboard. The king agreed.
The servant deserved the entire kingdom well before he reached the 64th square. The final total worked out to 18,446,744,073,709,551,615 grains of rice, or 66 trillion metric tonnes, which is 435,000 times the displacement of the Queen Mary 2.
The fairytale doesn’t tell us if the clever, mathematician ever collected his reward.
Investment legend Warren Buffett is also familiar with the concept of compounding interest. He invests only in companies with great cash flows and dividends and rarely sells.
He entered the market in 1942 when the Dow Average traded around $100, just before the tide was turned for WWII.
Timing is everything in this business.
He entitled his authorized biography “Snowball”, a reference to compounding, and a great read by the way.
Even I have my own two cents to throw in here on the compounding value of investments over the long term.
Before Morgan Stanley (MS) went public in 1986, I was allocated a part ownership of the private partnership at 25 cents a share. That is about one-third of the annualized dividend for today’s shares.
Today, they are worth $300 on a split-adjusted basis, including dividends. And since I never sold them, I never had to pay tax on the gain either.
As for how many shares I got, I’m not telling!
The original £2,000 came from Franklin’s salary for the three years he spent as the governor of Pennsylvania. He believed that the nation’s leaders should work for free and sought to set an example.
Unfortunately, it was an idea that never caught on.
The last amendment to the US Constitution, the 27th, provided for pay increases for members of Congress and was passed in 1992. It only took 203 years to ratify.
Franklin didn’t limit his charity to the Boston and Philadelphia Trusts. He also created an additional fund to award a silver medal to the most creative high school students of the day.
It is now known as the Franklin Legacy Prize Medal and is the oldest continuously funded scholarship in the country, awarded every year since 1793.
As for our friend, Charles-Joseph Mathon de la Cour, he didn’t fare so well. His head was chopped off by a guillotine only four years later during the French Revolution.
Over the 200 years in question, five different republics ruled France, which suffered through several revolutions, civil wars, and invasions.
As Warren Buffett never tires of telling fellow investors, it is a terrible idea to bet against America.
Old Ben Had a Way With Money
Franklin Legacy Prize Medal
“Investors who go into trading crypto currencies hear someone is trading turds and decide they can’t be left out,” said Warren Buffet’s partner, Charlie Munger.
Global Market Comments
November 28, 2023
Fiat Lux
Featured Trade:
(THE MAD HEDGE DECEMBER TRADERS & INVESTORS SUMMIT IS ON!)
(WHAT’S NEXT?)
A Dow Average up 11 days in a row?
Yikes!
The last time I saw this, in 1987, Armageddon ensued. It hailed fire and brimstone, and dogs and cats lay together.
Excuse me for being nervous, but I am still hanging on to my 100% invested position.
And you know what is even scarier?
Almost all of the Dow gain since October 26 has been concentrated in a
a handful of technology stock, which I own.
That is the paramount question on the minds of every trader on Wall Street going into yearend.
And here is what is keeping everyone awake all night.
Will be closing out 2023 more overbought than at any time in history. NASDAQ has risen almost every day during November!
Markets are not just prices for perfection, but double, or even triple perfection.
If perfection doesn’t arrive, the consequences could be severe.
Any professional trader caught loading the boat here would be fired.
Better to buy on a dip or a momentum-driven upside breakout, than at an absolute apex.
It was all enough to bring my 2017 year-to-date performance to 15.74%, and my trailing one-year return to a positively meteoric 81.54%. November alone now stands at an eye-popping 15.37%.
It has been the best since, well….last year!
All is now on hold until December 10. That is when we get the CPI for November, which is likely to show another decline in inflation. The recent collapse in oil prices has yet to be priced in.
Global Market Comments
November 27, 2023
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or MELT UP),
(MSFT), (NLY), (BRK/B), (CCJ), (CRM), (GOOGL), (SNOW), (CAT), (XOM), (TLT)
If you think the market performance for the past month has been spectacular, you have seen nothing yet. We have two major positive catalysts that are about to hit stock prices.
On December 10, we will see a lower-than-expected Consumer Price Index, driving yet another stake through the heart of inflation. On December 13, we will also be greeted with a Federal Reserve decision to keep interest rates unchanged, as they will do over the next several meetings.
“Higher for shorter” is about to become the new market mantra.
That will give the market the shot in the arm it needs to reach my $4,800 yearend target, which was precisely the goal I laid out on January 1. Caution has been thrown to the wind and hedging downside risks has become a distant memory. One of the fastest market melt-ups in 100 years will do that. Complacency is the order of the day.
Equity-oriented mutual funds have seen $43 billion in inflows so far in November. Commodity Trading Funds, or CTA’s, have seen a breathtaking $60 billion piled into long equity strategies.
Hedge funds flipped from short to long and now have the most aggressively bullish positions in 22 years, mostly in big tech. All of this has taken the Volatility Index (VIX) down to a subterranean $12 handle. Bears are suddenly lonely….and afraid.
Yes, 55 years of practice makes this easy.
On October 28, it turns out that we reached a decade-high peak in bond investment when Treasuries were flirting with new highs in yields. With perfect rear-view mirror hindsight that’s when many investors cut stock holdings to the bone. They will spend the next several months desperately trying to get back in.
Oh yes, and Company buybacks are about to surge as companies race to pick up their own stocks before the yearend deadline. Apple is the top buyback stock followed by Alphabet (GOOGL) and Microsoft (MSFT). Heard these names before?
And while big tech is starting to look expensive, they are cheap when you factor in the trillions of dollars in profits that are headed their way over the next decade.
That’s what always happens.
What could pee on my victory parade? Ten-year US treasury bonds revisiting a 5.08% yield, crude oil popping back up to $100 a barrel, oil another new blacking swan alighting out of the blue, like a Chinese invasion of Taiwan, or Russia retaking the Baltic states. That’s all.
Avoid these and stocks will continue to rise, as will your retirement funds.
The Magnificent Seven will continue to lead, as will big financials, which are still at bargain-basement levels. Energy and commodities are already posting January sale prices, discounting a 2024 recession that isn’t going to happen. This is fertile LEAPS territory.
Weekly Jobless Claims Drop 24,000, to 209,000 in one of the sharpest declines this year. It makes last week’s jump look like an anomaly.
Consumer Inflation Expectations Rise, to 3.2%, a 12-year high. They are counting on a 4.5% in 2024. They are now looking at gasoline prices. There’s your mismatch. Any decline in inflation will be viewed as a shocker and drive share prices to new all-time highs.
US Gasoline Prices Hit Three-Year Low, on recession fears and replacement concerns by EVs. Energy stocks are tracing the downside tic for tic, pulling down all other commodities. Don’t buy this dip.
Pending Home Sales Plunge to 13-Year Low, down 4.1% in October, on a signed contracts basis. Sales were down 14.6% year over year. The median price of an existing home sold in October was $391,800, an increase of 3.4% from October 2022. These are the last poor sales numbers before the collapse in interest rates. At the end of October, there were 1.15 million homes for sale, down 5.7% from a year earlier. This is about half as many homes as were available for sale pre-Covid. At the current sales pace, that represents a 3.6-month supply. A six-month supply is considered a balanced market between buyer and seller.
Monster Pay Hikes Will Lead to Strong Japanese Yen, with whiskey maker Suntory offering 7% pay hikes. The prospect of falling US interest rates adds fuel to the fire. Buy (FXY) on dips.
Starship Two Blows Up, two minutes or 92 miles after launch. The test fire of the 33-engine spacecraft was considered a success. The massive 397-foot tall, 30-foot-wide rocket, the largest ever built, is crucial for the NASA moon launch in 2025 and the SpaceX Mars trip further down the road.
NVIDIA (NVDA) Beats, with a profit triple, but that stock sells off 6% on the news. It was a classic buy the rumor, sell the news move. Future earnings increases will not be as big. Keep "buy (NVDA) on dips" as a must-own.
Famed Short Seller Jim Chanos shut down after a massive short in Tesla shares blew up. His funds under management have plunged from $6 billion to $200 million since (TSLA) went public. Chanos had a few big wins, notably Enron in 2001. But he was also seen as a hedge against other long positions.
So far in November, we are up +12.62%. My 2023 year-to-date performance is still at an eye-popping +78.79%. The S&P 500 (SPY) is up +19.73% so far in 2023. My trailing one-year return reached +81.00% versus +18.91% for the S&P 500.
That brings my 15-year total return to +675.98%. My average annualized return has exploded to +48.57%, another new high, some 2.49 times the S&P 500 over the same period.
I am 100% fully invested, with longs in (MSFT), (NLY), (BRK/B), (CCJ), (CRM), (GOOGL), (SNOW), (CAT), and (XOM). I have one short in the (TLT).
Some 66 of my 61 trades this year have been profitable.
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, November 27, at 8:30 AM EST, the New Home Sales are out.
On Tuesday, November 28 at 2:30 PM, the S&P National Home Price Index is released.
On Wednesday, November 29 at 8:30 AM, the Q2 GDP Growth Rate is published.
On Thursday, November 30 at 8:30 AM, the Weekly Jobless Claims are announced.
On Friday, December 1 at 2:30 PM, the October ISM Manufacturing Index is published. At 2:00 PM the Baker Hughes Rig Count is printed.
As for me, When I landed in Tokyo in 1974, there were very few foreigners in the country. The WWII occupation forces had left, but the international business community had yet to arrive. You met a lot of guys who used to work for Douglas MacArthur.
There was only one way to stay more than 90 days on the standard tourist visa. That was to get another visa to study “Japanese culture.” There were only two choices: flower arranging or karate.
Since this was at the height of Bruce Lee’s career, I went for karate.
It was not an easy choice.
World War II was not that distant, and there were still hundreds of army veterans missing limbs begging for money under railroad overpasses. Some back then were still fighting on remote Pacific islands.
Many in the karate community believed that the art was a national secret and should never be taught to foreigners. So those who entered this tight-knit community paid the price and had the daylights beaten out of them. I was one of those.
To this day, I am missing five of my original teeth. There is nothing like taking a kick to the mouth and watching your front teeth fly across the dojo, skittering on the teak floor.
We trained three hours a day, five days a week. It involved punching a bloody hardwood makiwara at least 200 times. The beginners were paired with black belts who thoroughly worked us over. Then the entire class met up at a nearby public bath to soak in a piping hot ofuro. You always hurt.
During the dead of winter, we ran five miles around the Imperial Palace in our karate gi’s barefoot in freezing temperatures daily. Then we were hosed down with cold water and trained for three hours.
During this time, I was infused with the spirit of bushido, the thousand-year-old Japanese warrior code. I learned self-discipline, stamina, and concentration. In the end, karate is a form of meditation.
Knowing you’re indestructible and unassailable is not such a bad thing, especially when you’re traveling in some of the harsher parts of the world. When muggers in bad neighborhoods see me late at night, they cross the street to avoid me. I am not a guy to mess with. Utter fearlessness is a great asset to possess.
The highlight of the annual training schedule was the All-Japan Karate Championship held in the prestigious Budokan, headquarters of all Japanese martial arts near the ghostly Yasukuni Jinja, Japan’s National Cemetery. By my last year in Japan, I had my black belt, and my instructor, Higaona Sensei, urged me to enter.
Because I had such a long reach, incredibly, I made it to the finals. I was matched with a very tough-looking six-footer who was fighting for Japan’s national prestige, as no foreigner had ever won the contest.
I punched, he kicked, fist met foot, and foot won. My left wrist was broken. My opponent knew what happened and graciously let me fight on one hand for another minute to save face. Then he knocked me out on points.
The crowds roared.
It’s all part of a full life.
Losing the All-Japan National Karate Championship
1974 Higaona Sensei
Stay Healthy,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
