Page 223 - Mad Hedge Fund Trader

The Market Outlook for the Week Ahead, or Buy Now and Beat the Post Election Rush

This certainly is an October without stock market precedence.

Instead of a crash and revisit to a Volatility Index ($VIX) in the thirties, here we are at all-time highs for the Dow ($INDU), the S&P 500 (SPY), and the ($VIX) at $20. NASDAQ is a hair’s breadth from new highs. All indexes are on track to meet my lofty one-year targets.

So why is this happening? Why did the perennial October crash do a no-show?

My argument all along has been that the investor base is wildly underestimating the impact of technology in general and AI specifically. It seems that every earnings announcement in the industries I care about delivers an upside surprise.

But there is another factor.

The Great Unknown in 2024 is the presidential election, with the public polls in a dead heat. The closer this election gets, the more this uncertainty disappears. The great majority of investing institutions are holding on to usual amounts of cash, which they will not commit until the election is decided, whenever that is.

With the data undeniably showing that the US has the strongest major economy in the world, there may be a post-election melt-up in share prices. And let me tell you one more thing. Of the 6,000 followers of the Mad Hedge Fund Trader that I speak to on a daily basis, some 90% are Republican. I can pass on to you what they are telling me, and that is that the election was actually decided months ago.

No uncertainty here.

We are starting to see the election having an actual impact on the economy. Delta Airlines (DAL) last week gave a warning that earnings would be impaired this quarter due to an election-driven postponement of travel. Companies are delaying action on capital spending as well. With the policies between the two parties so diametrically opposed, the election outcome can make a big difference whether you invest or not.

What this sets up is a slowdown now and a speedup post-election. The stock market is watching this carefully.

In what was the most hyped corporate event of the year, Elon Musk finally brought out his Tesla Robotaxi (TSLA). The shares had risen 40% in expectation of the show.

For sheer entertainment value, he did not disappoint, delivering a sophisticated production worthy of the Hollywood where it took place. He brought 50 Robotaxis with him to give rides to party guests in a Warner Brothers simulated city. Musk, who arrived at the stage in one of the robotaxis - called a Cybercab - said production will start in 2027.

They will cost 20 cents a mile to operate. The vehicle will eventually be for sale for under $30,000. Optimus robots served drinks, and the entire event was covered by video drones. The Robotaxis uses Inductive charging, where they just park over the pad, and it gets wirelessly recharged.

While Elon certainly can put on a show, hard data on future sales and profits were completely missing in action. Nor was there any news about the next generation Model 2, thought to be the next leapfrog in Tesla profits. With profits for the project not arriving until 2028, it all amounted to a 19% SELL from the recent $265 high.

This sets up a new test of the $202 moving average best case and the old $170 low worse case. Long term, we go to new highs as the AI value of the company is realized. The company is making progress on all its products. One drag on the stock will be Musk’s new bromance with Donald Trump. Your classic Tesla EV buyer is not exactly a Trump supporter.

We closed out September with a blockbuster +10.28% profit. So far in October, we have given back -1.49%. My 2024 year-to-date performance is at +43.75%. The S&P 500 (SPY) is up +21.59% so far in 2024. My trailing one-year return reached a nosebleed +62.24. That brings my 16-year total return to +720.38%. My average annualized return has recovered to +52.06%.

With my Mad Hedge Market Timing Index at the 70 handles for the first time in five months, I am remaining cautious with 50% and 50% cash. I added a new long in (TSLA) on the post-Robotaxi 15% selloff. I also added a new long in (JPM) in the wake of their blockbuster earnings report. Some three of my five positions expire on the Friday, October 18 options expiration.

Some 63 of my 70 round trips, or 90%, were profitable in 2023. Some 58 of 74 trades have been profitable so far in 2024, and several of those losses were really break-even. Some 16 out of the last 19 trade alerts were profitable. That is a success rate of +78.78%.

Try beating that anywhere.

Risk On

(NEM) 10/$47-$50 call spread 10.00%

(TSLA) 10/$200-$210 call spread 10.00%

(DHI) 10/$165-$175 call spread 10.00%

(TSLA) 11/$165-$175 call spread 10.00%

(JPM) 11/$195-$205 call spread 10.00%

Risk Off

NO POSITIONS 0.00%

Total Net Position 50.00%

Total Aggregate Position 50.00%

CPI Comes in Warm at 0.3% for September and 2.4% YOY. Food was up, and shelter was down. Inflation is dying, but not dead. Coming on the heels of the surprisingly strong September employment data, this report encourages the Fed to maintain a cautious stance with the pace of the easing cycle. The likely path is still a quarter-point rate cut in November and another December quarter-point cut.

PPI Comes in Flat and up 1.8% YOY. A 0.2% decline in final demand goods prices offset a 0.2% increase in services. The release indicates that inflation is off its blistering pace that peaked more than two years ago but still mostly holds slightly above the Federal Reserve’s 2% target.

Weekly Jobless Claims Come in Hot at 258,000, the biggest weekly jump in three years. Initial claims for state unemployment benefits increased 33,000 last week to a seasonally adjusted 258,000 for the week ended October. 5, the Labor Department said. The number of Americans filing new applications for unemployment benefits surged last week, partially boosted by Hurricane Helene and furloughs at Boeing (BA) amid a nearly four-week-old strike at the U.S. planemaker. It’s a very pro-interest rate cut number.

Hurricane Milton Damage Estimated at $75 billion, less than expected. The storm backed off to a category 3 just before it hit land. Tampa lost its football stadium. The shutdown of the Florida economy, 5% of the US total, will likely shave a couple of basis points off Q3 GDP.

Junk Bond Yields Hit 17-Year Low, on top of a monster rally this year powered by yield-hungry investors. Default rates on this misnamed asset class are generally less than 2%.

Rio Tinto Buys Arcadium for $6.7 Billion in a bid to become one of the world’s largest lithium producers. The deal delivers a suite of lithium filtration technologies that are poised to revolutionize how the metal is produced for the electronics and electric vehicle industries. It’s a big bet on the recovery of fading EV sales. Follow the big money,

Money Pours into Gold ETFs, with five consecutive months of inflows. Gold ETFs store bullion for investors and account for a significant amount of investment demand for the precious metal that touched a record high of $2,685.42 an ounce on Sept. 26, buoyed by the start of U.S. interest rate cuts. Buy (GLD) and (NEM) on dips.

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 is decarbonizing, and technology hyper accelerating, creating enormous investment opportunities. 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.

Dow 240,000, here we come!

On Monday, October 14 at 8:30 AM EST, the New York Empire State Manufacturing Index is out

On Tuesday, October 15 at 6:00 AM, the New York Empire State Manufacturing Index is out.

On Wednesday, October 16 at 11:00 PM, the MBA 30-Year Mortgage Rate is printed.

On Thursday, October 17 at 8:30 AM, the Weekly Jobless Claims are announced. We also get US Retail Sales.

On Friday, October 18 at 8:30 AM, the US Building Permits are announced. At 2:00 PM the Baker Hughes Rig Count is printed.

As for me, I was recently in Los Angeles visiting old friends, and I am reminded of one of the weirdest chapters of my life.

There were not a lot of jobs in the summer of 1971, but Thomas Noguchi, the LA County Coroner, was hiring. The famed USC student jobs board had delivered! Better yet, the job included hours at night and free housing at the coroner's department.

I got the graveyard shift from midnight to 8:00 AM. All I had to do was buy a black suit from Robert Halls, for $25.

Noguchi was known as the “coroner to the stars” having famously done the autopsies on Marilyn Monroe and Jane Mansfield. He did not disappoint.

For three months, whenever there was a death from unnatural causes, I was there to pick up the bodies. If there was a suicide, gangland shooting, or horrific car accident, I was your man.

Charles Manson had recently been arrested, and I was tasked with digging up the victims. One cowboy stuntman, Shorty Shay, had his head cut off and neatly placed in between his ankles.

The first time I ever saw a full set of women’s underclothing, a girdle, and pantyhose was when I excavated a desert roadside grave that the coyotes had dug up. She was pretty far gone.

Once, me and another driver were sent to pick up a teenage boy who had committed suicide in Beverly Hills. The father came out and asked us to take the mattress as well. I regretted that we were not allowed to do favors on city time. He then said, “Can you take it for $200?”, then an astronomical sum.

A few minutes later found a hearse driving down the Santa Monica Freeway on the way to the dump with a double mattress expertly tied on the roof with Boy Scout knots with a giant blood spot in the middle.

Once, I was sent to a cheap motel where a drug deal gone wrong had produced several shootings. I found $10,000 in a brown paper bag under the bed. The other driver found another ten grand and a bag of drugs and kept them. He went to jail. I didn’t.

The worst pick-up of the summer was also the most disgusting and even made the old veterans sick. A 300-pound man had died of a heart attack and was not discovered for a month. We decided to each grab an arm or leg and all tug on the count of three. One, two, three, and all four limbs came off!

Eventually, I figured out that handling dead bodies could be hazardous to your health, so I asked for rubber gloves. I was fired.

Still, I ended up with some of the best summer job stories ever.

Good Luck and Good Trading,

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

LET’S TALK ABOUT THE LLAMA IN THE ROOM

Mad Hedge AI

(META), (GOOGL)

Remember when Zuckerberg was just that kid in a hoodie, helping college students rate hotness online? Well, those days are as dead as my AOL account and just as likely to make a comeback.

Meta Platforms (META) has morphed from a digital popularity contest into a tech juggernaut that's gunning for the future. And believe me, I've seen my share of tech revolutions - from the first clunky PCs that were about as user-friendly as an angry porcupine, to smartphones that outsmart most people I know.

But what Meta's cooking up? It might make those look like stone tools compared to a laser beam.

Let's dive into Meta's AI strategy, shall we? At the heart of it is Llama, their open-source AI model. Now, you might think, "Has this company lost it? They're giving away their secret code?" But before you judge them too quickly, let me say this is where it actually gets pretty interesting.

By making Llama open-source, Meta's essentially turned the entire tech world into their R&D department. It's like they've invited every code jockey with a laptop to help build their empire.

And boy, are people biting - Llama's been downloaded 400 million times. That's not just a number, folks - that's a revolution in the making.

Meanwhile, Meta's been quietly slipping AI into every nook and cranny of their platforms faster than a squirrel hoarding nuts for winter.

The result? An AI assistant with 500 million monthly users. That's more people than you'd find in the US, Canada, and the UK combined - talk about a captive audience.

It's like they've built a digital nation overnight, and every citizen is carrying around a piece of Meta's AI in their pocket.

Now, let's talk turkey. These AI shenanigans aren't just for show - they're fattening Meta's bottom line as well.

Ad click-through rates are up 11%, conversions have jumped 7.6%, and ad revenue surged 22% year-over-year in Q2.

To put that in perspective, Google (GOOGL) only managed 11% growth. Looks like the student's becoming the master, eh?

But Meta's not content with ruling the digital roost - they're eyeing the real world too.

Their Reality Labs is betting big on augmented reality (AR). Sure, it's been a money pit so far, burning cash faster than a pyromaniac at a match factory. But remember when people thought the iPhone was just a fancy toy? If AR becomes the next must-have gadget, Meta could be sitting on another gold mine.

Despite these moonshots, Meta's core business remains a cash-printing machine. We're looking at 20% revenue growth for 2024, operating margins north of 40%, and a Return on Equity above 35%.

In Q2 alone, income from operations skyrocketed 58% year-over-year to $14.9 billion. That's $60 billion annualized, for those of you keeping score at home.

But here's where it gets even more interesting. Meta's not just playing for next quarter's earnings like some Wall Street short-timers. They're positioning themselves for the next decade and beyond.

Their massive user base in emerging markets is like a ticking time bomb of potential ad revenue. As these economies grow, so will ad spending, and Meta's perfectly positioned to capture that growth like a spider waiting for flies.

And the beauty of Meta's platform model? It scales like nobody's business. They can serve billions more users without the kind of massive investments that traditional businesses need.

It's like they've built a perpetual motion machine for the digital age.

So what’s the bottom line? Meta's not just some social media company anymore. They're a full-fledged tech titan, pushing the boundaries of AI and AR like a bull in a china shop - except this bull knows exactly which pieces it wants to break.

Sure, there are risks. The tech world moves fast, and today's innovation can be tomorrow's old news quicker than you can update your status. But Meta's shown they're not afraid to bet big on the future.

For those with a long-term outlook and nerves of steel, Meta offers a unique combo platter: visionary innovation with a side of rock-solid financials. With projections pointing towards a $2 trillion-plus valuation in the coming years, Meta's looking less like a risky bet and more like a calculated move for those willing to play the long game. I suggest you buy the dip.

October 11, 2024

Tech Letter

Mad Hedge Technology Letter
October 11, 2024
Fiat Lux

Featured Trade:

(DISASTER MANAGEMENT SOFTWARE GOES BALLISTIC)
(PLTR)

Disaster Management Software Goes Ballistic

Tech Letter

In a world where natural disasters and global war has never been more common, there is one tech company whose fortunes are directly correlated in this types of chaos.

The tech firm and stock is Palantir (PLTR).

They specialize in disaster management software and even can sign contracts to prevent disaster management.

They apply unique software to deliver the best solutions for those they service, whether it is the U.S. military, a Fortune 500 company, or a state government looking at how to best allocate scarce resources during a torrid hurricane.

PLTR knows what to do, when to do it, and in what doses, and in 2024, that is a potent cocktail that has seen the company sign contract after contract.

It was only just a few months ago when PLTR was green lighted for a $99.8 million contract to extend access to the Maven Smart System to all military branches, including the U.S. Army, Air Force, Navy, Space Force, and Marine Corps.

The pact is a five-year firm-fixed price contract from the Army Combat Capabilities Development Command Army Research Laboratory aims to streamline access to current Maven Smart System capabilities, which utilize advanced artificial intelligence and machine learning.

Work is expected to enhance coordination between strategic and tactical operations, allowing the military to make informed decisions and fast actions.

Terms of the contract include support for AI-enabled battlespace awareness, global integration, force management, contested logistics, joint fires, and targeting workflows.

Combat vehicles from every military department will be outfitted by Maven to help them make the best decisions on the ground in real time.

The U.S. military and PLTR are also a common operational piece as part of its response efforts to aid in Hurricane Helene relief.

Maven specializes to facilitate battle space awareness, global integration, contested logistics, joint fires, and targeting workflows, but is being deployed to aid in the hurricane relief efforts.

While common operational tools and data systems have been used for disaster relief in the past, this marks the first time the Maven capability has been used for a hurricane.

The military is working to feed the data it is gathering directly to FEMA and other first responders. That includes general mapping data and data from various sensors that provide insights into things like road closures, communications, force movements, and which areas have yet to be serviced.

The system can also help with logistics by bringing in that data so that in real-time, based on the point of need and survey data from FEMA, food, water, medical supplies, or other goods can be reallocated to the best locations to serve citizens.

I’m not the one to wish ill on the populace, but it is almost a fact that the percentages of calamities that include natural disasters and kinetic wards have increased a great deal during the past 4 years.

There is not a company better positioned to take advantage of this through their best of breed software.

One thing I must note, management often dilutes shares by giving themselves vested shares, the stock tends to sell off big when these executives sell shares.

Wait for a big dip to jump in and ride the volatility higher.

Trade Alert - (JPM) October 11, 2024 - BUY

Trade Alert

When John identifies a strategic exit point, he will send you an alert with specific trade information as to what security to sell, when to sell it, and at what price. Most often, it will be to TAKE PROFITS, but on rare occasions, it will be to exercise a STOP LOSS at a predetermined price to adhere to strict risk management discipline. Read more

Trade Alert - (TSLA) October 11, 2024 - BUY

Trade Alert

When John identifies a strategic exit point, he will send you an alert with specific trade information as to what security to sell, when to sell it, and at what price. Most often, it will be to TAKE PROFITS, but on rare occasions, it will be to exercise a STOP LOSS at a predetermined price to adhere to strict risk management discipline. Read more

October 11, 2024

Jacque's Post

(SUMMARY OF JOHN’S OCTOBER 9, 2024, WEBINAR)

October 11, 2024

Hello everyone

TOPIC

Goldilocks on Steroids

TRADE ALERT PERFORMANCE

+720.99% since inception

+51.62% average annualized return for 16 years

+62.77% Trailing One-Year Return

PORTFOLIO

Risk On

(NEM) 10/$47-$50 call spread 10%

(TSLA) 10/$200-$210 call spread 10%

(DHI) 10/$165-$175 call spread 10%

Risk Off

No Positions

Total Aggregate Position = 30.00%

THE METHOD TO MY MADNESS

Hot September Nonfarm Payroll influences all trades.

All interest rate plays get hit – bonds, foreign currencies, gold, silver, home builders down.

Use this dip to load the boat in all these sectors.

We are unlikely to see a more than 5% drop in indexes for the rest of 2024.

Technology stocks regain the lead.

Energy spikes on Mideast and China recovery.

Buy stocks and bonds on dips, but now in ALL sectors.

THE GLOBAL ECONOMY – CHINA SURPRISE

Nonfarm Payroll reports come in hot, as US employers added 254,000 jobs in September.

Unemployment Rate fell to a three-month low of 4.1%.

US GDP revised up to 5.5% growth since the second quarter of 2020.

The port strike is settled with a 62% six-year settlement. The Strike cost the U.S. economy $5 billion/day, and it will take a month to restart.

EC imposes 45% Tariffs on Chinese EV’s.

ISM Services PMI rose to 54.9 in September from 51.5 in August.

Europe to cut interest rates by 25 basis points in October.

Blockbuster China Stimulus sets stocks on fire.

STOCKS – FROM STRENGTH TO STRENGTH

Stocks race to new all-time highs despite rising rates and Middle Eastern War.

Interactive Brokers starts US Election Forecast Trading. The opening bids were 49% for Harris and 50% for Trump.

Vistra Energy (VST) tops Nvidia as the top S&P 500 stock this year.

Spirit Airlines (SAVE) may file for bankruptcy.

Hedge Funds stampede into China on news that government agencies promised to pour $1 billion into local stock markets.

Super Micro (SMCI) splits, joining a growing list of semiconductor companies that have split their stocks.

US Car Makers get slaughtered. Avoid (GM) and (F)

Caterpillar (CAT) rallies on China stimulus and housing recovery.

Electrification is the latest hot investment theme.

BONDS – DEMOLISHED

Hot September Nonfarm Payroll demolishes bonds.

Every interest rate play gets hit hard.

Bonds will return to the long-term uptrend when we start to discount the November Fed interest rate cut.

The Yield Curve has De-Inverted, meaning that short-term interest rates have fallen below long-term ones.

Buy (TLT), (JNK), (NLY), (SLRN), and REITS on dips.

FOREIGN CURRENCIES – DOLLAR REBOUND

Dollar gets a sudden new lease on life, as hot September Nonfarm Payroll causes interest rate spike.

Higher interest rates make the US $ much more attractive to traders and investors.

This is a short-term rally only and may be the last chance to sell short the US$.

The long-term downtrend in the dollar is still intact.

There is no way the dollar can stand up to cuts down to 3.0% by summer.

Buy (FXA), (FXE), (FXB), and (FXY).

ENERGY & COMMODITIES – OIL SPIKE

Middle East war plus Biden comments on possible Israeli bombing of Iran oil facilities give oil best week in years.

Iran produces 3 million barrels a day, 90% of which goes to China.

Its sudden loss would take oil to $95 overnight.

Saudi Arabia has 3 million barrels/day in reserve production, but it would take months to bring online.

That’s why Israel won’t attack Iran’s oil supplies, so its weapon suppliers don’t see energy supplies disrupted.

Nuclear facilities and missile factories are much more likely targets.

John’s Cameco (CCJ) trade alert rallied strongly, up 25% in two weeks.

The nuclear trade is still on, with all plays hitting new highs.

PRECIOUS METALS – NEW HIGHS

Gold hits a new high at $2,668 an ounce as hedge funds pour in.

Seasonals for the barbarous relic are now the most positive of the year.

Gold holding up in the face of big interest rate rises shows it only wants to go up.

Escalation of Middle East war is very pro-gold.

Will This Crisis Take Gold to $3000? Almost certainly, yes.

The next problem? What to do when gold hits $3000?

Most likely, it keeps going up to $4,500, as the Chinese have nowhere else to save.

Buy (GLD), (SLV), (AGQ), and (WPM) on dips.

REAL ESTATE – GUT PUNCH

US Home Sales Plunge, down 4.7% in August.

Mortgage Interest rates made it down to 6.07%, then popped to 6.50%.

Buyers are clearly remaining patient amid steadily declining mortgage rates.

New single-family home sales decreased last month to an annualized rate of 716,000 after rising at the fastest pace since early 2022.

The median sales price, meantime, decreased 4.6% from a year earlier to $420,000.

That marked the seventh straight month of annual price declines, extending what was already the longest streak since 2009.

Real estate should pick up once lower interest rates feed through again.

TRADE SHEET

Stocks – buy the next big dip

Bonds – buy dips

Commodities – buy dips

Currencies – sell dollar rallies, buy currencies

Precious Metals – buy dips

Energy – buy dips

Volatility – sell over $30

Real Estate – buy dips

NEXT STRATEGY WEBINAR

12:00 EST Wednesday, October 23, from Lake Tahoe, Nevada.

RECORDING OF JACQUIE’S POST OCTOBER 6, 2024, ZOOM MONTHLY MEETING.

https://www.madhedgefundtrader.com/jacquie-munro-meeting-replay-september-2024/

Cheers

Jacquie

October 11, 2024

Diary, Newsletter, Summary

Global Market Comments
October 11, 2024
Fiat Lux

Featured Trade:

(THE MAD HEDGE SEPTEMBER 17-19 SUMMIT REPLAYS ARE UP),
(OCTOBER 9 BIWEEKLY STRATEGY WEBINAR Q&A),
(TLT), (IWM), ($VIX), (DUK), (NEE), (GLD), (FCX), (BHP), (USO)

The Mad Hedge September 17-19 Summit Replays are Up

Diary, Newsletter

Listen to all 22 speakers opine on the best strategies, tactics, and instruments to use in these volatile markets. It is a true smorgasbord of investment strategies. Find the best one to suit your own goals.

The product discounts offered last week are still valid. Start, stop, and pause the videos at your leisure. Best of all, access to the videos is FREE. Access them all by clicking here.

We look forward to working with you and the next summit is scheduled for December.

October 9 Biweekly Strategy Webinar Q&A

Diary, Newsletter

Below please find subscribers’ Q&A for the October 9 Mad Hedge Fund Trader Global Strategy Webinar, broadcast from Lake Tahoe, Nevada.

Q: Is the iShares 20+ Year Treasury Bond ETF (TLT) a buy here?

A: I think we are testing the 200-day moving average, which is at 92.75. Let’s see if that holds, and if it does, we want to do at-the-money LEAPS one year out because the Fed has basically said it’s going to keep lowering interest rates until June, and bonds can’t lose on that. That would also be a nine-point pullback from the recent high.

Q: I found a YouTube video about your Uncle Mitchell Paige, who won the first Medal of Honor in WWII.

A: Yes, there’s a ton of stuff on the internet about Uncle Mitch, even though he passed away 22 years ago. There’s even a Mattel G.I Joe version of Uncle Mitch that you can buy, which he gave me. I also inherited his samurai swords.

Q: When will small caps turn around?

A: That’s the iShares Russell 2000 (IWM). Small caps are joined at the hips with interest rates, so when interest rates go up, and bond prices go down, small caps also go down. That is because small caps are much more dependent on borrowed money than any other section of the market, 60% lose money, 40% are regional banks, and they have much weaker credit ratings. They are a leverage play on everything going great—when interest rates are rising, they aren’t great. I would hold off on the (IWM). Even when interest rates start going back down again, which I expect they will do going into the next Fed meeting, (IWM) will be about number ten on the list of interesting things to do.

Q: The hiring numbers were great with the nonfarm payroll on Friday, so will the recession be pushed back to 2026?

A: I don’t think we’re going to have a recession. I think we have a growth scare, a growth slowdown, and then we reaccelerate again as more companies start booking AI profits to their bottom lines. Also, the recovery of China would be nice, recovery of Europe would be nice—so there are many other factors at play here. The fact is the United States has the world’s strongest economy, and we are going from strength to strength. That’s why everybody in the world is sending their money over here.

Q: Do you expect heightened volatility going into the year-end?

A: I expect heightened volatility going into the election; after that, it may collapse. Right now, the Volatility Index ($VIX) is in the low $20s, which is the high end of the recent range. I expect that to fall, and then we get a ballistic market after the election once all the uncertainty is gone.

Q: Should I buy utilities and industrials now?

A: Yes, these are two of the most interest-sensitive sectors in the market—especially utilities, which are very heavy borrowers. They’ve already had tremendous runs—things like Duke Energy (DUK) and NextEra (NEE). However, I think I’m going up more if we’re going to get interest rates down to 3%. Even if we get them down to 3.5 or 4%, the rallies in all the interest-sensitive sectors will continue.

Q: If the global economy recovers, would that lead to increased inflation and an increase in interest rates?

A: In an old-fashioned economy—one driven by, for instance, the car industry—yes, that would be happening. Back then, wage settlements with the United Auto Workers had the biggest impact on your portfolio. In the modern economy, technology is dropping prices so fast that even during periods of high growth, prices are still falling. The example I give is: the cheapest PC you could get in 1990 cost $5,000, which was a Compact. Now you could get the same computer for $300. You can bet going forward that eliminating all port workers will also be highly disinflationary; we won’t have to pay those $200,000 salaries for port workers, so that goes to zero. You can cite literally hundreds of examples in the economy where technology is collapsing prices.

Q: Should I go with a safe strategy now or increase my risk?

A: I think if we don’t sell off in the next two weeks, you have to buy the hell out of the market because we have had every excuse to sell off, and the market just won’t do it. Middle Eastern war, uncertainty in the election, gigantic hurricanes which will definitely shrink economic growth this year, the port strike and the Boeing strike, which will take a month out of GDP growth on the coast—and it still won’t go down. So, if you throw bad news on a market and it still won’t go down, you buy the heck out of it. The last chance for this to go down is literally this month. After that, the seasonals turn strongly positive. What’s the opposite of “sell in May, and go away”? It’s “buy in October and ring the cash register.”

Q: Will gold (GLD) go to 3,000/oz soon?

A: Yes. That’ll happen on the next Fed interest rate cuts as we go into the end of the year. We'll probably get two more cuts of 25 basis point cuts. Gold loves that. And guess what? Chinese have nowhere else to save their money except gold. So, yes, I'm looking for $3,000 and then $4,500 after that. You definitely want to own gold.

Q: Should I dump Chinese (FXI) stocks after this short-term spike?

A: Yes, for the short term, but not for the long term. Some kind of recovery will come, because if this Chinese stimulus package fails, they'll bring another one, and you'll get another one of those monster rallies. So, if you're a long-term holder, then I would stay in. The blue-chip stocks are incredibly cheap. But I still believe the best China plays are in the US, in oil (USO), copper (FCX), iron ore (BHP), and gold (GLD).

Q: Is oil headed down after the Israel and Lebanon war?

A: That really isn’t the main factor in the oil market. These people have been fighting for a century, literally, and any geopolitical influence has not had any sustainable impact on the price of oil. Really, the sole driver for oil prices now is China. You get China back in the game, oil goes back to $95 a barrel. If China remains in recession, then oil stays low and goes back to the $60s. It’s purely a China play. The US economy will continue to grow, but most of our oil consumption is domestic now—we are the world’s largest oil producer at 13.5 million barrels a day. We do not need any Middle Eastern oil anymore, really, we’re just running out our existing contracts.

Q: Do you think cryptocurrencies will have a bull market with the stock market?

A: No, I don’t. Cryptocurrencies did well when we had a liquidity surplus and an asset shortage. Now, we have the opposite; we have a liquidity shortage and an asset surplus, and the theft problem is still rampant with the cryptocurrencies keeping most institutional and individual investors out of that market.

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Good Luck and Good Trading,

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