Below please find subscribers’ Q&A for the May 24 Mad Hedge Fund Trader Global Strategy Webinar, broadcast from Silicon Valley, CA.
Q: Should I roll over my $55-$60 Freeport-McMoRan (FCX) 2024 LEAPS?
A: Yes, move it from the January 2024 expiration to January 2025—that gives you a full 18 months for the stock to recover from a recession (which it’s now discounting) and then double, which is where you make the really big money on our LEAPS.
Q: What's your year-end price prediction for Freeport-McMoRan (FCX)?
A: $50, this year’s high.
Q: If there’s a default, do members of Congress get paid?
A: No, they don’t, no money is no money, the cupboard is bare. Nothing gets paid. And the Treasury will have to choose who gets paid last because when they run out of money there's no money to pay anybody, which then leads to a default and a 50% stock market correction.
Q: Why do you buy in-the-money bull call spreads instead of selling credit spreads?
A: They’re easier to understand for beginners. It’s easier for people to understand that if you buy something and it goes up, you make money. It’s harder for people to understand that if you sell short something and it goes down, you make money. And it’s basically six of one and half a dozen of the other in terms of profit. I get that question constantly and that is always going to be the answer.
Q: What do you think about artificial intelligence; how will it affect stock prices?
A: It’ll be what takes the Dow average ($INDU) from $32,000 to $240,000 over the next 10 years. What AI does is it automatically triples the value of any company using it, even though now it may take years for the stock market to catch up. On top of that, companies will have their regular earnings growth from their traditional businesses.
Q: How far will Nvidia (NVDA) stock go up?
A: Well the consensus between fund managers is it goes up 7 times from here, to well over 1,000. It's at 300 today, so it sounds like 2,100 is the final target, assuming we don't have any more recessions. And by the way, we did recommend NVDA on a split adjusted basis around $2, so NVDA has gone up 175 times already from our initial recommendation 7 years ago when it was just a gaming play. The (NVDA) January 2025 LEAPS I recommended on September 29 at 50 cents is now worth $6.25 and expires worth $10, up 20-fold!
Q: How can companies be selling AI prediction services for traders, as no one can predict the future?
A: Well that is accurate, no one person can predict the future. However, algorithms can take patterns in the past, project them in the future, and they're often accurate as long as a black swan doesn’t happen. AI is getting so sophisticated now—not only do we have index predictions which we’ve been using now for almost 10 years to great success, but Mad Hedge is now services with single stock recommendations. They will say in 30 days (AMZN) will be at $X, and they’re right 90% of the time. This is getting very advanced very quickly, and we are at the absolute cutting edge of this (and have been for a long time), and that’s why we’re getting such spectacular results—it's me plus my algorithm.
Q: Are money market funds at risk if the US defaults?
A: If the US defaults and stays defaulted, then yes. Nothing anywhere is safe except gold bricks under the bed. If the US does default, they’ll get defaulted probably in days. And that's what happened last time, 12 years ago. So, I don't expect the world to end.
Q: What is the best strategy for a long-term retirement account?
A: If you're already retired like over 70, I would go 100% into fixed income, and spread out your fixed income exposure to 10-year treasuries which is now yielding 3.75%, to junk which is yielding 8.5%. And you might throw in a couple high dividend stocks like (CCI). Over age 70 you basically are looking for a 100% income portfolio, because you’re too old to go back to work at Taco Bell if you lose all your money. And believe me, I’ve been to Taco Bell and seen the 70-year-olds working there who did lose all their money, so you don’t want to do that. Equities are for younger kids like me, who are going to live forever.
Q: What about iShares 20 Plus Year Treasury Bond ETF (TLT)?
A: We’re watching very closely. We will do LEAPS, but I’m waiting for a capitulation selloff triggered by inaction in Washington to get there. Also, when they do reach a deal, it unleashes a bunch of bond selling by the government. The US Treasury is going to have to sell 700 billion dollars’ worth of bonds immediately, because they’re behind on their bills, how about that? They’re not paying military contractors. So yes, the initial move of a debt deal could be down for bonds—that's the move I'm waiting for.
Q: Are you buying at the money’s or out of the moneys on LEAPS?
A: At the money if you’re a conservative old fogie like me, and out of the money like 20% or 30% where you get like a 400% return for younger people so they still will live long enough to earn back all the money if they lose it.
Q: What do you think the next move on CBOE Volatility Index ($VIX) is?
A: Up, and I think we could see VIX at $30 sometime in June or July when our 10% selloff happens.
Q: Would you buy the ProShares UltraShort S&P 500 (SDS) now for protection?
A: Yes, I’d be buying some as a hedge against your long-term positions.
Q: Do you prefer one or two year LEAPS?
A: Two years is the more conservative maturity because it gives you two years to go into recession and get back out. If you think there isn’t going to be a recession and we reaccelerate from here, then you only want to do one year. With Treasuries bonds, I’m inclined to do one year because I think once the rise in prices happens it’ll happen very quickly. If you’re not happy with a 100% return in a year maybe you should consider another line of business.
Q: Is the housing market going to crash because of 7% mortgage rates?
A: No, one third of all the buyers now are cash buyers, who are spending their savings and will refinance when mortgages get back to 3% or 4%. Until then, housing prices go sideways because there is a severe shortage of housing nationwide, which is getting worse.
Q: How do I get my wife used to regenerative braking in Tesla (TSLA)?
A: Just take your foot off the acceleration pedal; as the car slows down, each of the four wheels perform as generators and recharge the battery. That means when you drive from Lake Tahoe at 7,000 ft down to the Central Valley at sea level, your power consumption is zero. You’re getting a free ride because you’re gravity powered, the wheels are recharging the battery the whole time. All you have to do is take your foot off the acceleration and the regenerative braking kicks in instantly. Teslas only use actual use brake shoes when they slowdown from five miles an hour down to zero.
Q: Which level is more likely this year in oil: $50 a barrel or $100?
A: Well, if we do get the recession or something close to it, we’ll see the $50 first, and then we’ll see the $100 on the recovery. That is what’s going to happen.
Q: When is the economic recovery going to be this year?
A: In the 4th quarter, starting in October, and the stock market will start discounting that in July or August. That is my view.
Q: What’s a better investment: stocks or real estate?
A: It depends on the person. At this level, stocks will probably deliver bigger returns than real estate. But real estate allows you 5-1 leverage. If you have an 80% mortgage, and that’s more leverage than most people can get in the stock market. The other thing about homes is that you don’t get to see the price every day in the newspaper and then panic and sell at the bottom. That's the other great thing about houses.
Q: Will this recording be available?
A: Yes we post it in about two hours on the website. You can look at all the charts and the commentary then.
Q: How would you hedge a 100% equity portfolio?
A: I would buy deep out of the money puts on the S&P 500, maybe 10% out of the money on puts—something like a 360 put on the SPY with a 2 month maturity. That gets you through the summer, gets you through any debt crisis, and certainly will reduce the volatility of your portfolio.
Q: Would you be buying Alibaba (BABA) down here?
A: No, I don’t want to get involved in China in anything—too much political risk.
To watch a replay of this webinar with all the charts, bells, whistles, and classic rock music, just log in to www.madhedgefundtrader.com , go to MY ACCOUNT, click on GLOBAL TRADING DISPATCH or TECHNOLOGY LETTER, then WEBINARS, and all the webinars from the last 12 years are there in all their glory
Good Luck and Stay Healthy,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
A Senior Citizen Teach Me the Computer at Taco Bell
https://www.madhedgefundtrader.com/wp-content/uploads/2023/05/taco-bell-lady.jpg324432Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2023-05-26 09:02:292023-05-26 11:45:51May 24 Biweekly Strategy Webinar Q&A
You can count on a bear market hitting sometime in 2038, one falling by at least 40%.
Worse, there is almost a guarantee that a financial crisis, severe real estate crash, and possibly another Great Depression will take place no later than 2058 that would take the major indexes down by 50% or more.
No, I have not taken to using an Ouija board, reading tea leaves, or examining animal entrails in order to predict the future.
I simply read the data just released from the National Center for Health Statistics, a subsidiary of the federal Centers for Disease Control and Prevention (click here for their link).
The government agency reported that the US birth rate fell to a new all-time low for the second year in a row, to 11 births per 1,000 women of childbearing age. A birth rate of 125 per 1,000 is necessary for a population to break even. The absolute number of births is 3,664,292, the lowest since 1987. In 2021, women had 37% fewer babies than in 2007.
These are the lowest number since WWII, when 17 million men were away in the military, a crucial part of the equation.
Babies grow up, at least most of them. In 20 years, they become consumers, earning wages, buying things, paying taxes, and generally contributing to economic growth.
In 45 years, they do so quite substantially, becoming the major drivers of the economy as “peak spenders”. When these numbers fall, recessions and bear markets occur with absolute certainty.
You have long heard me talk about the coming “Golden Age” of the 2020s. That’s when a two-decade-long demographic tailwind ensues because the number of “peak spenders’ in the economy starts to balloon to generational highs. The last time this happened was during the 1980s and in 19990’s stocks rose 20-fold.
Right now we are just coming out of two decades of demographic headwind, when the number of big spenders in the economy reached a low ebb. This was the cause of the Great Recession, the stock market crash, and the anemic 2% annual growth since then.
The reasons for the maternity ward slowdown are many. The great recession certainly blew a hole in the family plans of many Millennials. So did the pandemic. Falling incomes always lead to lower birth rates, with many Millennial couples delaying children by five years or more. Millennial mothers are now having children later than at any time in history.
Burgeoning student debt, which just topped $1.7 trillion is another. Many prospective mothers would rather get out from under substantial debt before they add to the population. So is a structural shortage of housing.
The rising education of women is another drag on childbearing and is a global trend. When spouses become serious wage earners, families inevitably shrink. Husbands would rather take the money and improve their lifestyles than have more kids to feed.
Women are also delaying having children to postpone the “pay gaps” that always kick in after they take maternity leave. Many are pegging income targets before they entertain starting families.
As a result of these trends, one in five children last year were born to women over the age of 35, a new high.
This is how Latin American moved from eight to two-child families in only one generation. The same is about to take place in Africa, where standards of living are rising rapidly, thanks to the eradication of several serious diseases.
The sharpest falls in the US have been with minorities. Since 2017, the birthrates for Hispanics has dropped by 27% from a very high level, African Americans 11%, whites 5%, and Asian 4%.
Europe has long had the same problem with plunging growth rates but only much worse. Historically the US has made up for the shortfall with immigration, but that is now falling thanks to the current administration's policies. Restricting immigration now is a guarantee of slowing economic growth in the future. It’s just a numbers game.
So watch that growth rate. When it starts to tick up again it’s time to buy….in about 20 years. I’ll be there to remind you of this newsletter.
As for me, I’ve been doing my part. I have five kids aged 17-36, and my life is only half over. Where did you say they keep the Pampers?
I'm Doing My Part
https://www.madhedgefundtrader.com/wp-content/uploads/2018/05/John-and-family-story-1-image-e1526596823183.jpg266400Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2023-05-25 09:02:492023-05-25 17:21:55They're Not Making Americans Anymore
I spent a sad and depressing but highly instructional evening with Dr. Stephen Greenspan, who had lost most of his personal fortune with Bernie Madoff.
The University of Connecticut psychology professor had poured the bulk of his savings into Sandra Mansky's Tremont feeder fund; receiving convincing trade confirms and rock-solid custody statements from the Bank of New York.
This is a particularly bitter pill for Dr. Greenspan to take because he is an internationally known authority on Ponzi schemes, and published a book entitled Annals of Gullibility - Why We Get Duped and How to Avoid It.
It is a veritable history of scams, starting with Eve's subterfuge to get Adam to bite the apple, to the Trojan horse and the Pied Piper, up to more modern-day cons in religion, politics, science, medicine, and yes, personal investments.
Madoff's genius was that the returns he fabricated were small, averaging only 11% a year, making them more believable. In the 1920s, the original Ponzi promised his Boston area Italian immigrant customers a 50% return every 45 days. My grandmother was tempted, but my grandfather nexed the idea, always the conservative guy.
Madoff also feigned exclusivity, often turning potential investors down, leading them to become even more desirous of joining his club.
https://www.madhedgefundtrader.com/wp-content/uploads/2018/04/Madoff-story-2.jpg238320MHFTRhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMHFTR2023-03-14 08:04:252023-03-14 07:42:03How to Avoid Ponzi Schemes
I believe that the pandemic and hyper-accelerating technology is bringing forward the future at an astonishing rate.
More applications will be created in the next year than over the last 40, some 500,000. The sum total of human knowledge is now doubling every year. The profits spun off and investment opportunities will be incredible, which is why I just doubled my ten-year forecast for the Dow Average (INDU) from 120,000 to 240,000.
Here are ten major trends for the economy and the markets that we can see already. It’s the unseen ones that will be really interesting.
(1) The Insurance Industry Changes Beyond All Recognition, confirming from “Recovery After Risk” to “Prevention of Risk”. Today, fire insurance pays you after your house burns down. Life insurance pays your next of kin after you die. And health insurance (which is really sick insurance) pays only after you get sick. During the next decade, we’ll see a new generation of insurance providers that offer you a service to KEEP you healthy and keep your house safe during a wildfire. Also, full autonomous driving will cut hospital admissions by half, dramatically dropping the cost of insurance. This is driven by machine learning, ubiquitous sensors, low-cost genome sequencing, and robotics to detect risk, prevent disaster, and guarantee safety before any costs are incurred.
(2) Autonomous Vehicles and Flying Cars (eVTOL) will make travel cheaper and easier. Fully autonomous vehicles (TSLA), (GOOGL), car-as-a-service fleets, and aerial ridesharing (flying cars) will be fully operational in most major metropolitan cities in the coming decade. The cost of transportation will plummet 3-4X, transforming real estate, finance, insurance, the materials economy, and urban planning. Where you live and work, and how you spend your time, will all be fundamentally reshaped by this future of human travel. Your kids and elderly parents will never drive. Already, a half dozen eVTOL companies have gone public raising more than $10B to fuel their growth. These vehicles are real and will help define the decade ahead. This is driven by machine learning, sensors, materials science, battery storage improvements, and ubiquitous gigabit connections.
(3) On-demand Production and On-demand Delivery Will Create an “Instant Economy of Things”. Urban dwellers will learn to expect “instant fulfillment” of their retail orders as drone and robotic last-mile delivery services carry products from local supply depots directly to your doorstep. Further riding the deployment of regional on-demand digital manufacturing (3D printing farms), individualized products can be obtained within hours—anywhere, anytime. I ordered a new high-end 50-pound garage door opener from Amazon Prime (AMZN) last month after my old one went kaput. Incredibly, they delivered it in hours! This is driven by networks, 3D printing, robotics, and AI.
(4) The Ability to Sense and Know Anything, Anytime, Anywhere. We’re rapidly approaching the era where 100 billion sensors (the Internet of Everything) are monitoring and sensing (imaging, listening, measuring) every facet of our environments, all the time. Global imaging satellites, drones, autonomous car LIDARs, and forward-looking augmented reality (AR) headset cameras are all part of a global sensor matrix, together allowing us to know anything, anytime, anywhere. In this future, it’s not “what you know,” but rather “the quality of the questions you ask” that will be most important. That gives us old guys a huge advantage. This is driven by the convergence of terrestrial, atmospheric, and space-based sensors, vast data networks, 5G and 6G communication networks (AAPL), next-gen Wi-Fi, and machine learning.
(5) Advertising Hyper Evolves. As ads become the primary driver of new services for free, AI becomes increasingly embedded in everyday life and your custom personal AI will soon understand what you want better than you do. In turn, we will begin to both trust and rely upon our AIs to make most of our buying decisions, turning over shopping to AI-enabled personal assistants. Your AI might make purchases based on your past desires, current shortages, conversations you’ve allowed your AI to listen to, or by tracking where your pupils focus on a virtual interface (i.e., what catches your attention). As a result, the advertising industry—which normally competes for your attention (whether at the Superbowl or through search engines)—will have a hard time influencing your AI. This is driven by machine learning, sensors, augmented reality, and 5G/networks.
(6) Cellular Agriculture Moves from the Lab to Inner Cities, Providing High-quality Protein that is Cheaper and Healthier. The next decade will witness the birth of the most ethical, nutritious, and environmentally sustainable protein production system devised by humankind. Stem cell-based “cellular agriculture” will allow the production of beef, chicken, and fish anywhere, on-demand, with far higher nutritional content, and a vastly lower environmental footprint than traditional livestock options. Traditional legacy steaks found at Ruth’s Chris and Morton’s will only to available to the wealthy. This is driven by biotechnology, materials science, machine learning, and agtech.
(7) Your Brain Will Integrate with Super-Fast Hardware and Software. My friend, technologist and futurist Ray Kurzweil, has predicted that by the mid-2030s, we will begin connecting the human neocortex to the cloud. This next decade will see tremendous progress in that direction, first serving those with spinal cord injuries, whereby patients will regain both sensory capacity and motor control. Yet beyond assisting those with motor function loss, several BCI pioneers are now attempting to supplement their baseline cognitive abilities, a pursuit with the potential to increase their sensorium, memory, and even intelligence. Recent demonstrations of a macaque monkey playing Pong using a Neuralink implant is proof of incredible progress. This is driven by materials science, AI/machine learning, robotics, and some fantastic imaginations.
(8) High-resolution Virtual RealityWill Transform Both Retail and Real Estate Shopping & the Future of Education. If you were a couch potato, you are about to become one on steroids. High-resolution, lightweight virtual reality headsets will allow individuals at home to shop for everything from clothing to real estate—all from the convenience of their living room. Need a new outfit? Your AI knows your detailed body measurements and can whip up a fashion show featuring your avatar wearing the latest 20 designs on a runway. Want to see how your furniture might look inside a house you’re viewing online? No problem! Your AI can populate the property with your virtualized inventory and give you a guided tour. On the education front, the use of VR and AI-driven avatars with technology such as that demonstrated by Dreamscape promises a future of game-like, immersive, and powerful education and training. This is driven by VR, machine learning, and high-bandwidth networks. Get your Oculus Rift from Facebook (FB) now!
(9) Increased Focus on Sustainability and the Environment will drive companies to invest in sustainability—both from a necessity standpoint and for marketing purposes. Breakthroughs in materials science, enabled by AI, will allow companies to drive tremendous reductions in waste and environmental contamination. One company’s waste will become another company’s profit center. Want to visit my chalet in Switzerland? You can do so by connecting your Oculus Rift headset to Google Maps….today! This is driven by materials science, AI, CRISPR, digital biology, and broadband networks.
(10) CRISPR and Gene Therapies Will Eliminate Disease. Perhaps one of the most powerful, underappreciated technologies in the world is CRISPR. In 2020, two incredible women won the Nobel Prize in medicine for its discovery, and revenues from CRISPR doubled between 2019 and 2020 to over $1.5B. A vast range of infectious diseases, from AIDS to Ebola, are now potentially curable, as are a wide range of genetic ailments like sickle cell anemia, thalassemia, and certain forms of congenital blindness. In addition, gene-editing technologies continue to advance in precision and ease of use, allowing families to treat and ultimately cure hundreds of inheritable genetic diseases. This is driven by various biotechnologies (CRISPR, Gene Therapy), genome sequencing, and AI. Only three companies have a monopoly in this sector right now, (CRSP), (EDIT), and (NTLA).
In the decade ahead, master entrepreneurs will look beyond the immediate effects of a given technology to seize secondary and tertiary, Google-sized business opportunities on the horizon.
As an investor, you should be asking yourself: What challenges or problems can I help solve? How can I leverage the coming waves of tech advancements?
I just thought you’d like to know.
John Thomas
https://www.madhedgefundtrader.com/wp-content/uploads/2021/08/john-at-micron.png708580Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2023-02-22 09:02:052023-02-22 10:43:06Ten More Trends to Bet the Ranch On
Last summer, I stayed at an Airbnb in Long Beach, CA in order to pick up my kids from the Boy Scout Camp on Catalina Island. It was billed as a vintage 1920s residence with all the period finishes, was two blocks from the beach, and was a short drive to the Cataline ferry, so it seemed like the ideal place.
But the second I walked into the place I was overcome by a ghostly Twilight Zone type feeling. Everything seemed strangely familiar. What really freaked me out was that the grill on the electric wall heater exactly matched the scar on my sister’s hand. Even though the place was 100 years old, I had been here before.
When I returned home, I headed straight for a voluminous genealogy file that I maintained. After an hour of going through all the family records, I hit paydirt. The address of the Airbnb was listed as the home address of my grandmother when she was married in 1925.
When the pandemic hit in February 2020, I figured Airbnb (ABNB) was toast. Global travel had ground to a halt, and competitors like Wynn Resorts (WYNN) and Hyatt Hotels (H) saw their share prices plunge to near zero.
Instead, the opposite happened.
While the big hotels continue to roast in purgatory, Airbnb catapulted to a new golden age, and how they did it was amazing.
They turned all travel local. Instead of recommending that I visit Cairo, Tokyo, or Rio de Janeiro, they suggested Carmel, Monterey, or Mendocino, all destinations within driving distance.
It worked spectacularly well, and the company is now moving from strength to strength. Since the pandemic bottom, the shares have rocketed from $69 to $210.
My neighborhood in Incline Village, NV was almost always deserted outside of holidays. Now it is packed with Airbnber’s awkwardly moving in every Friday only to flee on Sunday.
How would you like to get an 80% discount on all of your luxury hotel accommodations?
During my recent trip to Dubrovnik in Croatia, I rented an 800-square-foot, two-bedroom, two-bath home inside the city walls for $300 a night.
A single, cramped 150-square-foot room in the nearest five-star hotel was $600 night.
All that was missing was room service, a handout for a big tip, and a surly attitude at the front desk.
Sounds like a massive, game-changing disruption to me.
Thank you, Airbnb!
The big question for you and me is: Will the valuation soar tenfold from the current $106 billion to $1 trillion?
Is (ABNB) your next ten bagger?
To answer that question, I spent six weeks traveling around the world as an Airbnb customer. This enabled me to understand their business model, their strengths and weaknesses, and analyze their long-term potential.
As a customer, the value you receive is nothing less than amazing.
I have been a five-star hotel guest for most of my life, with someone else picking up the tab much of the time (thank you Morgan Stanley!), so I have a pretty good idea on the true value of accommodations.
What you get from Airbnb is nothing less than spectacular. You get three or four times the floor space for one-third the price. That’s a disruption factor of 7:1.
The standards are often five-star and at the top end, depending on how much you spend. I found I could often get an entire three-bedroom house for the price of a single hotel room, with a better location.
Or, I could get an excellent abode in rural settings, where none other was to be had, whatsoever.
That’s a big deal for someone like me who spends so much of the year on the road.
You also get a new best friend in every city you visit.
On most occasions, the host greeted me on the doorsteps with the keys, and then introduced me to the mysteries of European kitchen appliances, heating, and air conditioning.
Pre-stocking the refrigerator with fresh milk, coffee, tea, and jam seems to be a tradition the hosts pick up in their Airbnb orientation course.
One in Waterford, Ireland even left me a bottle of wine, plenty of beer, and a frozen pizza. She read my mind. She then took me on a one-hour tour of their city, divulging secrets about their favorite restaurants, city sights, and nightspots. Everyone proved golden. Thanks, Mary!
After you check out, Airbnb asks you to review the accommodation. These can be incredibly valuable in deciding your next pick.
I had one near miss with what I thought was a great deal in London, until I read, “The entire place reeks of Indian cooking.” Having caught amoebic dysentery in India once Indian cooking does not exactly bring back fond memories.
Similarly, the hosts rate you as a guest.
One hostess in Dingle, Ireland shared a story about picking up her clients from town after they got drunk and lost in the middle of the night. Then they threw up in the back of the car on the way home.
Guests forgetting to return keys is another common complaint.
Needless to say, I received top ratings from my hosts, as fixing their WIFI to boost performance became a regular and very popular habit of mine.
After my initial fabulous experience in London, I thought it might be a one-off, limited to only the largest cities. So, I started researching accommodations for my upcoming trips.
I couldn’t have been more wrong.
Just the Kona Coast on the big island of Hawaii had an incredible 300 offerings, including several bargain beachfront properties.
The center of Tokyo had over 300 listings. The historic district in Florence, Italy had a mind-blowing 351 properties. When I stayed there, six of seven floors of the building I stayed in were devoted to (ABNB) accommodations. The one full time resident was pissed and often slammed his door.
Fancy a retreat on the island of Bali in Indonesia and tune up your surfing? There are over 197 places to stay!
Airbnb has truly gone global.
Airbnb’s business model is almost too simple to be true, involving no more than a couple of popular applications. Call it an artful melding of Google Earth (GOOG), email, text, and PayPal (PYPL).
While no one was looking, it became the world’s largest hotel at a tiny fraction of the capital cost.
The company has 6 million hosts in 100,000 cities worldwide in 220 countries who so far have earned $150 billion, and 150 million users. The all-time number of guests is 1 billion. The company recently shut down all of its Russia listings.
That supply/demand imbalance shifts the burden of the cost to the renters, who usually have to fork out a 12% fee, plus the cost of the cleaning service.
Hosts only pay 3% to process the credit card fees for the payment.
To say that Airbnb has created controversy would be a huge understatement.
For a start, it has emerged as a major challenge to the hotel industry, which is still stuck with a 20th century business model. There’s no way hotels can compete on price.
One Airbnb “super host” in Manhattan managed 200 apartments, essentially, creating out of scratch, a medium-sized virtual “hotel” until the city caught on to them.
Taxes are another matter.
Some municipalities require hosts to pay levies of up to 20%, while others demand quarterly tax filings and withholding taxes. That is, if tax collectors can find them.
Airbnb may be the largest new source of tax evasion today.
In cities where housing is in short supply, Airbnb is seen as crowding out local residents. After all, an owner can make far more money subletting their residence nightly than with a long-term lease.
Several owners told me that Airbnb covered their entire mortgage and housing cost for the year while paying off the mortgage at the same time.
Owners in the primmest of areas, like mid-town Manhattan off of Central Park, or the old city center in Dubrovnik rent, their homes out as much as 180 days a year.
It is doing nothing less than changing lives.
That has forced local governments to clamp down.
San Francisco has severe, iron-clad planning and zoning restrictions that only allow 2,000 new residences a year to come on the market.
It is cracking down on Airbnb, as well as other home-sharing apps like FlipKey, VRBO, and HomeAway, by forcing hosts to register with the city or face brutal $1,000 a day fine.
Ratting out your neighbor as an off-the-grid Airbnb member has become a new cottage industry in the City of the Bay.
Airbnb is fighting back with multiple lawsuits, citing the federal Communications Decency Act, the Stored Communications Act, and the First Amendment covering the freedom of speech.
It is a safe bet that a $91 billion company can spend more on legal fees than a city the size of San Francisco.
The company has also become the largest contributor in San Francisco’s local elections. In 2015, it fought a successful campaign against Proposition “F”, meant to place severe restrictions on their services.
An Airbnb stayover is not without its problems.
The burden of truth in advertising is on the host, not the company, and inaccurate listings are withdrawn only after complaints.
A twenty-something-year-old guy’s idea of cleanliness may be a little lower than your own.
Long-time users learn the unspoken “code”.
“Cozy” can mean tiny, “as is” can be a dump, and “lively” can bring the drunken screaming of four-letter words all night long, especially if you are staying upstairs from a pub.
And that spectacular seaside view might come with relentlessly whining Vespa’s on the highway out front as I was once confronted with in coastal Italy. Always brings earplugs and blindfolds as backups.
Researching complaints, it seems that the worst of the abuses occur in shared accommodations. Learning new foreign cultures can be fascinating. But your new roommate may want to get to know you better than you want, especially if you are female.
In one notorious incident, a Madrid guest was raped and had to call customer service in San Francisco to get the local police to rescue her. The best way to guard against such unpleasantries is to rent the entire residence for your use only, as I do.
Another problem arises when properties are rented out for illegal purposes, such as prostitution or drug dealing. Near my San Francisco home five people were shot and killed in an illegal block party nearby in a Airbnb weekend rental that was supposed let out to a “quiet couple.”
More than once, an unsuspecting resident woke up one morning to discover they were living next door to a new bordello.
Coming out of the pandemic, my conclusion is that the travel industry is entering a hyper-growth phase. Blame the emerging middle-class Chinese, who are going to be everywhere.
The real shock came when I left Airbnb and stayed in a regular hotel. Include the fees and the cleaning charges, and the service is no longer competitive for a single-night stay. Total costs now regularly run double the posted one-night price posted on websites.
In any case, most hosts have two or three-night minimums to minimize hassle.
When I checked in at a Basel, Switzerland Five Star hotel, all I got was a set of keys and a blank stare. No great restaurant tips, no local secrets, no new best friend.
I spent that night surfing www.airbnb.com, planning my next adventure.
Grandparents at Future Airbnb in 1925
https://www.madhedgefundtrader.com/wp-content/uploads/2018/10/John-Thomas-Airbnb.png466456MHFTFhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMHFTF2023-02-16 09:02:202023-02-16 15:55:35Is Airbnb Your Next Ten Bagger?
My former employer, The Economist, once the ever-tolerant editor of my flabby, disjointed, and juvenile prose (Thanks to Peter Martin and Marjorie Deane!), has just released its "Big Mac" index of relative international currency valuations.
Although initially launched as a joke five decades ago, I have followed it religiously and found it an amazingly accurate predictor of future economic success.
The index counts the cost of McDonald's (MCD) premium two beef patty sandwiches around the world, ranging from $8.35 in Venezuela to $1.68 in Lebanon, and comes up with a measure of currency under and overvaluation.
What are its conclusions today?
The Venezuelan Bolivar is wildly expensive, with 235 years of annual per capita income needed to buy a single Big Mac in local currency terms if you can find one. There are currently 4 million Bolivars to the US Dollar in this sadly bankrupt country.
The Norwegian Kroner, Swiss franc (FXF), and the US Dollar (UUP) are also dear, with the average cost of an American Big Mac at $5.35. Every year I make a ritual visit to what is often the most expensive McDonald’s in the world at Zermatt Switzerland (see pictures below). There the Big Macs taste slightly acidic.
The cheapest currencies are the South African Rand, the Russian Ruble, and the Lebanese Pound, a Big Mac coming in at $1.68 in Beirut.
I couldn't agree more with many of these conclusions. It's as if the august weekly publication was tapping The Diary of a Mad Hedge Fund Trader for ideas.
I am no longer the frequent consumer of Big Macs that I once was, as my metabolism has slowed to such an extent that in eating one, you might as well tape it to my ass. Better to use it as an economic forecasting tool than a speedy lunch.
The Big Mac is a Steal Here in Turkey
No Bargain Here in Italy Either
And Costs a King’s Ransome Here in Zermatt
https://www.madhedgefundtrader.com/wp-content/uploads/2021/08/zermatt-mcdonalds.png488652Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2023-02-14 09:02:022023-02-14 17:23:40Where the Economist “Big Mac” Index Finds Currency Value Today
The Diary of a Mad Hedge Fund Trader is read in 140 counties. About a quarter of our readers run the letter through a Google Translator before reading.
That has created a problem.
Stock trading is probably the most slang and acronym-ridden profession on the planet, second only to the United States Marine Corps. (Semper Fi).
And guess what? The Google Translator has never worked on the floor of a major stock exchange.
That means its translations often come out as gobbledygook or complete nonsense. So, the customers email me asking what the heck I am talking about in my daily newsletters, eating up a portion of my day.
I am therefore enclosing “The Mad Hedge Fund Trader’s Dictionary of Traders’ Slang” below.
To keep this a PG-rated publication, I have left some terms undefined, but you can make a good guess as to their true meaning. It turns out that most traders never got to finishing school, and many are not even gentlemen.
If any of you out there have additional terms you would like to add, please email them to me at support@madhedgefundtrader.com and put “DICTIONARY” in the subject line. I’ll use them in a future update. No doubt there are hundreds, if not thousands more.
Read, enjoy, and laugh.
Accelerated Time Decay – The increasing decline of the value of a stock option as it approaches its expiration date
Black Swan – A term made popular by Nassim Taleb that refers to a sudden, unexpected, low-probability event that has a disproportionately high impact on your portfolio.
Boredom Trading – reaching for marginally profitable trades during quiet markets because there is nothing else to do. Usually a bad idea.
Bottoming Process – When a market makes several failed attempts to make new lows, creating a medium term bottom
Blow off Top – The top of a price spike upward usually associated with a volume spike as well
Bubble – Any assets class rising in price far above and beyond any rational valuation measures
Buy the Dip – BTD/BTFD/BTMFD - Buy the recent decline in prices.
Don’t Catch a Falling Knife – don’t try and buy a stock in free fall
Don’t be a Hero – keep positions small during volatile markets
“Be greedy when others are fearful, and fearful when others are greedy” is a classic Benjamin Graham quote which means “buy bottoms and sell top.”
Pigs Get Slaughtered – Buy a position that is too big for you and it will turn around and bite you
Bull Trap – a strong market move up that sucks in buyers and then dies as soon as the last one is in
Bear Trap – A strong market move down that sucks in lots of short sellers and turns around as soon and the last one sells
Buy When There is Blood in the Streets – Buy stocks at market bottoms
Capitulation Bottom – The last bull throws in the towel, gives up, and dumps all his stock, making the final bottom of a major move
Capitulation Top – The last bear throws in the towel, gives up, and jumps into the market late, making the final top of a major move
Choppy – sudden and erratic price moves within a narrow range
Contrarian – one who trades against the general market consensus
Dead Cat Bounce – A brief rally in s stock that has just seen a sharp drop
Dialing for Dollars – Calling brokerage house customers to sell stocks for commissions
Don’t Fight the Fed – Don’t expect markets to fall when interest rates are falling
Don’t Fight the Tape – Don’t trade against the market trend. Comes for the paper ticker tapes that once transmitted stock prices by telegraph
Dry Powder – Keeping cash in reserve for better trading opportunities
Dumb Money – what inexperienced retail investors are doing. Thanks to the internet, they’re not as dumb as they used to be
Get Filled – Your order is executed
Growing Hair on It – Keeping a position for too long
The Greeks – Greek alphabet letters that refer to option valuation components, such as delta, theta, gamma, and vega
High-Frequency Traders (HFT) – Firms using sophisticated computer programs to take positions for infinitesimally short periods of time taking microscopic profits in enormous volumes. They account for roughly 70% of daily trading volume
Holding the Bag – you are left holding stock in a falling market or short in a rising one
Honor Your Stops - don’t make excuses for ignoring stop losses. This is where the really big hits come from
Killing It – Making a series of successful trades
Locked Market – When the bid and offer are identical
Market Makers – firms that provide market liquidity with two-sided bids and offers, now largely replaced by computers
Melt Up – A straight line move upward in shares with no pullbacks whatsoever, usually triggered by a news or earnings release
Never Short a Dull Market – Quiet markets can often rally sharply because the selling is done
Noise – Random media reporting that has no true impact on the direction of stock prices
Pain Trade – the market is moving against the positions of the trading community
Permabear – A persona who is always bearish, usually driven by some bizarre Armageddon-type ideology, or suffering from paranoia
Permabull – a person who is always bullish, despite deteriorating fundamental conditions
Picking Up Pennies in Front of a Steamroller – Sell short naked put options
Pump and Dump – Unethical brokers run of the prices of small illiquid stocks and then sell them to clients at market tops. The shares usually collapse afterwards. See the movie Wolf of Wall Street
Resistance Level – A price on a stock chart offering technical resistance to further price appreciation
Sell in May and Go Away – The preference for selling shares ahead of a period of seasonal weakness
Sell the Rip – STR/STFR/ STMFR
Short Squeeze – A sharp run-up in share prices that forces short sellers to buy to avoid accelerating losses.
Smart Money – what the best informed, most experienced investors are doing. Not as smart as they used to be.
Snakebit – A surprise news development that comes out of the blue and costs you money
Spoofing – entering orders without any intention of executing them and cancelling them before they can be executed. It is a common tactic of high-frequency traders
Spoos – S&P 500 futures contracts
Squak Box – A small loudspeaker on a desktop in a trading room constantly broadcasting news reports and large trades
Support Level – A price on a stock chart offering significant technical support
Stop Loss - a price at which, when reached, a liquidation of the position is automatically triggered
The Trend is Your Friend – Trade with the market direction, not against it
Theta Burn – Time decay on options
Ticker Tape – A white ¾ inch wide paper tape used to transmit stock prices by telegraph at the rate of 500 characters a minute that was used until the 1950s to transmit stock prices. See ticker tape parade and delayed tape.
Topping Process – occurs when a market makes several failed attempts to make a new high, creating a medium term top
Turnaround Tuesday – the tendency of markets to reverse direction after the markets digest weekend news on a Monday
Yellen Put – an assumption that the Fed will come to the rescue with a monetary easing on any substantial market selloff
https://www.madhedgefundtrader.com/wp-content/uploads/2021/03/John-Thomas-1.png336428MHFTRhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMHFTR2023-02-07 09:02:382023-02-07 16:09:11The Mad Hedge Dictionary of Trading Slang
Mr. John Thomas, you have changed my life. Before I found your service, I bounced from one terrible service to another, losing money at every step of the way. Even when I found you, I was pretty leery. I then pulled off 22 money-making trades in a row. I gained so much confidence that I really poured money into your strategies. Since I met you last year, I have made over $10 million. I bought call options on Tesla when it was at $80. I also filled all 45 trade alerts you send out selling short the (TLT). It really has been an amazing run.
Please accept the attached case of cabernet. It is a mixed case from boutique vineyards that aren’t sold to the public. These are all “know somebody” wines. If you could buy them, they would cost from $220-$500 a bottle.
If there are any charities you would like me to send a check to, just let me know. You’re really great!
Joseph
Napa, California
https://www.madhedgefundtrader.com/wp-content/uploads/2021/06/smiley-box.png648864Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2023-01-24 09:04:142023-01-24 14:27:46Testimonial
The market went into the new year short. After listening to dire forecasts for 2023 and January in particular, institutional investors raised cash and hedge funds sold short. That was made clear by the explosive move up in the market on Friday.
Those blinkered by a short-term view got slaughtered. Those who pursued my own long-term view expounded in my Wednesday, January 4 letter made a killing.
The December Nonfarm Payroll Report was the trigger. The headline numbers were just warm, not hot. But the average hourly earnings dropped by half, meaning workers are getting hired at lower pay levels. If we get an even modest inflation print at 8:30 AM on Thursday, January 12, you could get another gap up move in “RISK ON” markets.
The financial markets continue “pull forward movement” as they did for much of the second half of 2022.
The post-Election rally happened in October.
The Santa Claus rally took place in November.
The New Year January selloff struck in December, closing the year near a low.
What happens next?
Another dive at the lows will attack in February.
This is typical of bear markets where liquidity is thin, trading is dominated by a handful of professionals and algorithms, and individual investors are missing in action.
What is most puzzling even to me is how the Volatility Index (VIX) is remaining artificially low at $22. Is the index storing up volatility for a future run at $30 or $40?
We shall see.
My performance in January has so far tacked on an explosive +13.39%. My 2023 year-to-date performance was the same at +13.39%, a spectacular new high. The S&P 500 (SPY) is up +2.29% so far in 2023.
It is the greatest outperformance on an index since Mad Hedge Fund Trader started 15 years ago. My trailing one-year return maintains a sky-high +98.02%.
That brings my 15-year total return to +610.58%, some 2.81 times the S&P 500 (SPX) over the same period and a new all-time high. My average annualized return has ratcheted up to +46.67%, easily the highest in the industry.
I used the new year to go maximum bullish. First, I covered my short in Apple (AAPL) for a nice profit. I took my weighting in long bonds (TLT) up to 50%, which then nicely went ballistic. I also poured on new longs in Tesla (TSLA), Berkshire Hathaway (BRKB), and the metals stocks Barrick Gold (GOLD) and Wheaton Precious Metals (WPM).
That leaves me 90% long and 10% in cash, which I am holding back to add a new short in the (QQQ) at the next market top.
I have been getting a lot of questions about the chaos in the US House of Representatives. It greatly raises the risk of a default on US government debt by the summer and certainly casts a shadow over my 50% long bond position.
It also makes a government shutdown a sure thing, which is a big market negative. However, I don’t expect it to last more than a month.
The US government is basically a big recycling machine which sucks money from the coasts and spends it inland. For example, New York and California get back 75 cents of every tax dollar they send to Washington, while Wyoming and North Dakota get $1.25. They have long distances and few people. The big winners are Alaska and Hawaii, which get back $7.00 and $8.00 because of massive infrastructure and military spending.
Once red states see cash flow from the federal government dry up, opposition to a budget deal will dry up. It always does, usually after one billing cycle.
But if prices flatline and don’t fall, I’ll still make my maximum profit. I’ll just get less sleep at night.
Nonfarm Payroll Report Comes in Warm at 223,000 for November, presenting markets with a Goldilocks scenario. The Headline Unemployment Rate fell to an eye-popping 3.5%, a post-Covid low. Average hourly earnings dropped by half to 0.3% and up 4.6% YOY. No stock market crash here. If the Fed is trying to cause mass joblessness with high interest rates to kill inflation, it’s failing miserably.
Tesla to Announce Fifth Factory in Mexico, near Monterey, the Detroit of Mexico. The move is an important step in taking Tesla to an annual production of 20 million units a year, or 20% of the global car market by 2030. Construction should cost $10 billion - $20 billion. The move is a stroke of genius and is reminiscent of the old Elon Musk. By setting up in Mexico, Tesla can gain ample cheap skilled labor from the General Motors, Ford, and Hyundai factories already there. They negotiated priority customs clearance for parts coming into Mexico and finished cars headed north by rail. It is close to Texas where Tesla is already ramping up production at an Austin plant. The most likely product will be the hot-selling Model Y.
Tesla Suspends Production at Shanghai Plant in response to a rampant Covid-19 wave far worse than disclosed. The Beijing government claims only 2.5 million cases in 2022. But a leaked top-secret report says the true figure is closer to 250 million. The final capitulation selloff in Tesla is at hand. Buy calls, call spread, shares, and two-year LEAPS.
Tesla Q4 Sales Come in Short, delivering 405,278 and 1.3 million for all of 2023. The slight miss took the shares down an astounding 14%, a huge overreaction. The stock is now selling for 22 times 2023 earnings and 11 times 2025 earnings, compared to an average of 17 times earnings for the top four tech companies. That’s an eye-popping 35% discount to big tech. It’s certainly worth taking a risk going long here for a company that is still growing earnings by 40% a year.
Japan Reverses 30-Year Easy Money Policy, allowing interest rates to float up from 0.25% to 0.50%. The Japanese yen soared 4% on the move, the world's most shorted currency, which hedge funds used to fund all positions. US bonds tanked $5 in two days, as Japan is the largest buyer of US Treasury bonds (TLT). Higher rates may bring some of that money back to Japan. It’s all an indication that the US dollar has hit a decades-long peak.
Existing Home Sales Collapse, down 7.7% in November to a seasonally adjusted 4.09 million units. They are off 35.4% YOY. The median sales price is still rising, up 3.5%, to $370,700. Supplies are still tight, so 61% of homes sold in less than a month.
Wells Fargo Gets Tagged for $3.7 Billion, in fines for its seemingly never-ending supply of past offenses. The shares dropped 10% on the news. Avoid (WFC) for now. There are better banks to buy, like (JPM), (BAC), and (C). Shipping Costs Dive 40%, as supply chain problems end. Container prices from China cratered from $40,000 to $6,000. The market is now discounting a 2023 recession when nobody buys anything. Some retailers are dropping prices by 70%-80%, especially in clothing. The pandemic era over-ordering has come back to haunt buyers. Case Shiller Drops to 9.24% Annual Gain in October with its National Home Price Index, the fourth consecutive monthly decline. Miami (+21.0%), Tampa (+20.5%), and Charlotte (15.0%) led the gains. The price increase rate has dropped by half in a year. Fed Minutes Remain Restrictive at the December 12 meeting, with inflation cited as the greatest threat to the economy. Actually, I think the Fed is the threat. All governors voted to maintain a tight policy. They cautioned against an unwarranted early easing. They cited “data dependence,” meaning that when the recession hits in the coming year, they will lower rates then expect a below-trend growth for 2023. Not what a bull wanted to hear. Natural Gas Crashes, down 10% on the first trading day of 2023 to a new one-year low. Oil also took a 3% hit. The European gas crisis is over and energy markets are discounting a Russian surrender sometime this year. Gas may also be discounting a full-blown recession and warmer weather to come. Avoid all energy plays like the plague. Gas is now cheaper than coal in a race to the bottom.
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 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, January 9 at 8:00 AM, the Consumer Inflation Expectations are published.
On Tuesday, January 10 at 8:30 AM, the NFIB Business Optimism Index is out
On Wednesday, January 11 at 8:00 AM, a new batch of Mortgage Data is announced.
On Thursday, January 12 at 8:30 AM EST, the Weekly Jobless Claims are announced. So is the Consumer Price Index for December.
On Friday, January 13 at 8:30 AM EST, the Michigan Consumer Sentiment is disclosed. At 2:00, the Baker Hughes Oil Rig Count is out.
As for me, having visited and lived in Lake Tahoe for most of my life, I thought I’d pass on a few stories from this historic and beautiful place.
The lake didn’t get its name until 1949 when the Washoe Indian name was bastardized to come up with “Tahoe”. Before that, it was called the much less romantic Lake Bigler after the first governor of California.
A young Mark Twain walked here in 1863 from nearby Virginia City where he was writing for the Territorial Enterprise about the silver boom. He described boats as “floating in the air” as the water clarity at 100 feet made them appear to be levitating. Today, clarity is at 50 feet, but it should go back to 100 feet when cars go all-electric.
One of the great engineering feats of the 19th century was the construction of the Transcontinental Railroad. Some 10,000 Chinese workers used black powder to blast a one-mile-long tunnel through solid granite. They tried nitroglycerine for a few months but so many died in accidents they went back to powder.
The Union Pacific moved the line a mile south in the 1950s to make a shorter route. The old tunnel is still there, and you can drive through it at any time if you know the secret entrance. The roof is still covered with soot from woodfired steam engines. At midpoint, you find a shaft to surface where workers were hung from their ankles with ropes to place charges so they could work on four faces at once.
By the late 19th century, every tree around the lake had been cut down for shoring at the silver mines. Look at photos from the time and the mountains are completely barren. That is except for the southwest corner, which was privately owned by Lucky Baldwin who won the land in a card game. The 300-year-old growth pine trees are still there.
During the 20th century, the entire East shore was owned by one man, George Whittell Jr., son of one of the original silver barons. A man of eclectic tastes, he owned a Boeing 247 private aircraft, a custom mahogany boat powered by two Alison aircraft engines, and kept lions in heated cages.
Thanks to a few well-placed campaign donations, he obtained prison labor from the State of Nevada to build a palatial granite waterfront mansion called Thunderbird, which you can still visit today (click here). During Prohibition, female “guests” from California crossed the lake and entered the home through a secret tunnel.
When Whittell died in 1969, a Mad HedgeConcierge Client bought the entire East Shore from the estate on behalf of the Fred Harvey Company and then traded it for a huge chunk of land in Arizona. Today, the East Shore is a Nevada State Park, including the majestic Sand Harbor, the finest beach in the High Sierras.
When a Hollywood scriptwriter took a Tahoe vacation in the early 1960s, he so fell in love with the place that he wrote Bonanza, the top TV show of the decade (in front of Hogan’s Heroes). He created the fictional Ponderosa Ranch, which tourists from Europe come to look for in Incline Village today.
In 1943, a Pan Am pilot named Wayne Poulsen who had a love of skiing bought Squaw Valley for $35,000. This was back when it took two days to drive from San Francisco. Wayne flew the China Clippers to Asia in the famed Sikorski flying boats, the first commercial planes to cross the Pacific Ocean. He spent time between flights at a ranch house he built right in the middle of the valley.
His wife Sandy bought baskets from the Washoe Indians who still lived on the land to keep them from starving during the Great Depression. The Poulsens had eight children and today, each has a street named after them at Squaw.
Not much happened until the late forties when a New York Investor group led by Alex Cushing started building lifts. Through some miracle, and with backing from the Rockefeller family, Cushing won the competition to host the 1960 Winter Olympics, beating out the legendary Innsbruck, Austria, and St. Moritz, Switzerland.
He quickly got the State of California to build Interstate 80, which shortened the trip to Tahoe to only three hours. He also got the state to pass a liability limit for ski accidents to only $2,000, something I learned when my kids plowed into someone, and the money really poured in.
Attending the 1960 Olympics opening ceremony is still one of my fondest childhood memories, produced by Walt Disney, who owned the nearby Sugar Bowl ski resort.
While the Cushing group had bought the rights to the mountains, Poulsen owned the valley floor, and he made a fortune as a vacation home developer. The inevitable disputes arose and the two quit talking in the 1980s.
I used to run into a crusty old Cushing at High Camp now and then and I milked him for local history in exchange for stock tips and a few stiff drinks. Cushing died in 2003 at 92 (click here for the obituary)
I first came to Lake Tahoe in the 1950s with my grandfather who had two horses, a mule, and a Winchester. He was one-quarter Cherokee Indian and knew everything there was to know about the outdoors. Although I am only one-sixteenth Cherokee with some Delaware and Sioux mixed in, I got the full Indian dose. Thanks to him I can live off the land when I need to. Even today, we invite the family medicine man to important events, like births, weddings, and funerals.
We camped on the beach at Incline Beach before the town was built and the Weyerhaeuser lumber mill was still operating. We caught our limit of trout every day, ten back in those days, ate some, and put the rest on ice. It was paradise.
During the late 1990s when I built a home in Squaw Valley, I frequently flew with Glen Poulsen, who owned a vintage 1947 Cessna 150 tailwheel, looking for untouched high-country lakes to fish. He said his mother was lonely since her husband died in 1995 and asked me to have tea with her and tell her some stories.
Sandy told me that in the seventies she asked her kids to clean out the barn and they tossed hundreds of old Washoe baskets. Today Washoe baskets are very rare, highly sought after by wealthy collectors, and sell for $50,000 to $100,000 at auction. “If I had only known,” she sighed. Sandy passed away in 2006 and the remaining 30-acre ranch was sold for $15 million.
To stay in shape, I used to pack up my skis and boots and snowshoe up the 2,000 feet from the Squaw Valley parking lot to High Camp, then ski down. On the way up, I provided first aid to injured skiers and made regular calls to the ski patrol.
After doing this for many winters, I finally got busted when they realized I didn’t have a ski pass. It turns out that when you buy a lift ticket you are agreeing to a liability release which they absolutely had to have. I was banned from the mountain.
Today Squaw Valley is owned by the Colorado-based Altera Mountain Company, which along with Vail Resorts owns most of the ski resorts in North America. The concentration has been relentless. Last year Squaw Valley’s name was changed to the Palisades Resort for the sake of political correctness. Last weekend, a gondola connected it with Alpine Meadows next door, creating the largest ski area in the US.
Today, there are no Washoe Indians left on the lake. The nearest reservation is 25 miles away in the desert in Gardnerville, NV. They sold or traded away their land for pennies on the current value.
Living at Tahoe has been great, and I get up here whenever I can. I am now one of the few surviving original mountain men and volunteer for North Tahoe Search & Rescue.
On Donner Day, every October 1, I volunteer as a docent to guide visitors up the original trail over Donner Pass. Some 175 years later, the oldest trees still bear the scars of being scrapped by passing covered wagon wheels, my own ancestors among them. There is also a wealth of ancient petroglyphs, as the pass was a major meeting place between Indian tribes in ancient times.
The good news is that residents aged 70 or more get free season ski passes at Diamond Peak, where I sponsored the ski team for several years. My will specifies that my ashes be placed in the Middle of Lake Tahoe. At least, I’ll be recycled. I’ll be joining my younger brother who was an early Covid-19 victim and whose ashes we placed there in 2020.
The Ponderosa Ranch
The Poulsen Ranch
At the Reno Airport
Donner Pass Petroglyphs
An Original Mountain Man
https://www.madhedgefundtrader.com/wp-content/uploads/2023/01/tsla-car.jpg237329Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2023-01-09 10:02:252023-01-09 14:35:31The Market Outlook for the Week Ahead, or the “Pull Forward” Market
I am once again writing this report from a first-class sleeping cabin on Amtrak’s legendary California Zephyr.
By day, I have two comfortable seats facing each other next to a panoramic window. At night, they fold into two bunk beds, a single and a double. There is a shower, but only Houdini could navigate it.
I am anything but Houdini, so I foray downstairs to use the larger public hot showers. They are divine.
We are now pulling away from Chicago’s Union Station, leaving its hurried commuters, buskers, panhandlers, and majestic great halls behind. I love this building as a monument to American exceptionalism.
I am headed for Emeryville, California, just across the bay from San Francisco, some 2,121.6 miles away. That gives me only 56 hours to complete this report.
I tip my porter, Raymond, $100 in advance to make sure everything goes well during the long adventure and to keep me up to date with the onboard gossip.
The rolling and pitching of the car is causing my fingers to dance all over the keyboard. Microsoft’s Spellchecker can catch most of the mistakes, but not all of them.
As both broadband and cell phone coverage are unavailable along most of the route, I have to rely on frenzied Internet searches during stops at major stations along the way to Google obscure data points and download the latest charts.
You know those cool maps in the Verizon stores that show the vast coverage of their cell phone networks? They are complete BS.
Who knew that 95% of America is off the grid? That explains so much about our country today.
I have posted many of my better photos from the trip below, although there is only so much you can do from a moving train and an iPhone 14 Pro Max.
Here is the bottom line which I have been warning you about for months. In 2023, we will probably top the 84.63% we made last year, but you are going to have to navigate the reefs, shoals, and hurricanes. Do it and you can laugh all the way to the bank. I will be there to assist you to navigate every step.
The first half of 2023 will be all about trading. After that, I expect markets to go straight up.
And here is my fundamental thesis for 2023. After the Fed kept rates too low for too long, then raised them too much, it will then panic and lower them again too fast to avoid a recession. In other words, a mistake-prone Jay Powell will keep making mistakes. That sounds like a good bet to me.
Let me give you a list of the challenges I see financial markets are facing in the coming year:
The Ten Key Variables for 2023
1) When will the Fed pivot?
2) How much of a toll will the quantitative tightening take?
3) How soon will the Russians give up on Ukraine?
4) When will buyers return to technology stocks from value plays?
5) Will gold replace crypto as the new flight to safety investment?
6) When will the structural commodities boom get a second wind?
7) How fast will the US dollar fall?
8) How quickly will real estate recover?
9) How fast can the Chinese economy bounce back from Covid-19?
10) How far will oil prices keep falling?
Whether we get a recession or not, you can count on markets fully discounting one, which it is currently doing with reckless abandon.
Anywhere you look, the data is dire, save for employment, which may be the last shoe to fall. Technology companies seem to be leading us in the right direction with never-ending mass layoffs. Even after relentless cost-cutting though, there are still 1.5 tech job offers per applicant, which is down from last year’s three.
The Fed is currently predicting a weak 0.5% GDP growth rate for 2023, the same feeble rate we saw for 2022. What we might get is two-quarters of negative growth in the first half followed by a sharp snapback in the second half.
Whatever we get, it will be one of the mildest recessions or growth recessions in American economic history. There is no hint of a 2008-style crash. The banking system was shored up too well back then to prevent that. Thank Dodd/Frank.
Since my job is to make your life incredibly easy, I am going to narrow my equity strategy for 2023.
It's all about falling interest rates.
When interest rates are high, as they are now, you only look at trades and investments that can benefit from falling interest rates.
In the first half, that will be value plays like banks, (JPM), (BAC), (C), financials (MS), (GS), homebuilders (KBH), (LEN), (PHM), industrials (X), capital goods (CAT), (DE).
As we come out of any recession in the second half, growth plays will rush to the fore. Big tech will regain leadership and take the group to new all-time highs. That means the volatility and chop we will certainly see in the first half will present a generational opportunity to get into the fastest-growing sectors of the US economy at bargain prices. I’m talking Cadillacs at KIA prices.
A category of its own, Biotech & Healthcare should do well on their own. Not only are they classic defensive plays to hold during a recession, technology and breakthrough new discoveries are hyper-accelerating. My top three picks there are Eli Lily (ELI), Abbvie (ABBV), and Merck (MRK).
Block out time on your calendars because whenever the Volatility Index (VIX) tops $30, I am going pedal to the metal, and full firewall forward (a pilot term), and your inboxes will be flooded with new trade alerts.
There is another equity subclass that we haven’t visited in about a decade, and that would be emerging markets (EEM). After ten years of punishment by a strong dollar, (EEM) has also been forgotten as an investment allocation. We are now in a position where the (EEM) is likely to outperform US markets in 2023, and perhaps for the rest of the decade.
Amtrak needs to fill every seat in the dining car to get everyone fed on time, so you never know who you will share a table with for breakfast, lunch, and dinner.
There was the Vietnam Vet Phantom Jet Pilot who now refused to fly because he was treated so badly at airports. A young couple desperately eloping from Omaha could only afford seats as far as Salt Lake City. After they sat up all night, I paid for their breakfast.
A retired British couple was circumnavigating the entire US in a month on a “See America Pass.” Mennonites are returning home by train because their religion forbade automobiles or airplanes.
The national debt ballooned to an eye-popping $30 trillion in 2021, a gain of an incredible $3 trillion and a post-World War II record. Yet, as long as global central banks are still flooding the money supply with trillions of dollars in liquidity, bonds will not fall in value too dramatically. I’m expecting a slow grind down in prices and up in yields.
The great bond short of 2021 never happened. Even though bonds delivered their worst returns in 19 years, they still remained nearly unchanged. That wasn’t good enough for the many hedge funds, which had to cover massive money-losing shorts into yearend.
Instead, the Great Bond Crash will become a new business. This time, bonds face the gale force headwinds of three promised interest rate hikes. The year-end government bond auctions were a complete disaster.
Fed borrowing continues to balloon out of control. It’s just a matter of time before the last billion dollars in government borrowing breaks the camel’s back.
That makes a bond short a core position in any balanced portfolio. Don’t get lazy. Make sure you only sell a rally lest we get trapped in a range, as we did for most of 2021.
With a major yield advantage over the rest of the world, the US dollar has been on an absolute tear for the past decade. After all, we have the world’s strongest economy.
That is about to end.
If your primary assumption is that US interest rates will see a sharp decline sometime in 2023, then the outlook for the greenback is terrible.
Currencies are driven by interest rate differentials and the buck is soon going to see the fastest shrinking yield premium in the forex markets.
That shines a great bright light on the foreign currency ETFs. You could do well buying the Australian Dollar (FXA), Euro (FXE), Japanese yen (FXE), and British Pound (FXB). I’d pass on the Chinese yuan (CYB) right now until their Covid shutdowns end.
5) Commodities (FCX), (VALE), (DBA)
Commodities are the high beta play in the financial markets. That’s because the cost of being wrong is so much higher. Get on the losing side of commodities and you will be bled dry by storage costs, interest expenses, contangos, and zero demand.
Commodities have one great attribute. They predict recessions earlier than any other asset class. When they peaked in March of 2022, they were screaming loud and clear that a recession would hit in early 2023. By reversing on a dime on October 14, they also told us that the recovery would begin in July of 2023.
You saw this in every important play in the sector, including Broken Hill (BHP), Peabody Energy (BTU), Freeport McMoRan (TCX), and Alcoa Aluminum (AA). Excuse me for using all the old names.
The heady days of the 2011 commodity bubble top are about to replay. Now that this sector is convinced of a substantially weaker US dollar and lower inflation, it is once more a favorite target of traders.
China will still demand prodigious amounts of imported commodities once its pandemic shutdown ends, but not as much as in the past. Much of the country has seen its infrastructure built out, and it is turning from a heavy industrial to a service-based economy, much like the US. Investors are keeping a sharp eye on India as the next major commodity consumer.
And here’s another big new driver. Each electric vehicle requires 200 pounds of copper and production is expected to rise from 1 million units a year to 25 million by 2030. Annual copper production will have to increase three-fold in a decade to accommodate this increase, no easy task, or prices will have to rise.
The great thing about commodities is that it takes a decade to bring new supply online, unlike stocks and bonds, which can merely be created by an entry in an excel spreadsheet. As a result, they always run far higher than you can imagine.
Accumulate all commodities on dips.
Snow Angel on the Continental Divide
6) Energy (DIG), (RIG), (USO), (DUG), (UNG), (XLE), (AMLP)
Energy was the top-performing sector of 2022. But remember, you will be trading an asset class that is eventually on its way to zero sooner than you think. However, you could have several doublings on the way to zero. This is one of those times.
The real tell here is that energy companies are bailing on their own industry. Instead of reinvesting profits back into their future exploration and development, as they have for the last century, they are paying out more in dividends and share buybacks.
Take the money and run.
There is the additional challenge in that the bulk of US investors, especially environmentally friendly ESG funds, are now banned from investing in legacy carbon-based stocks. That means permanently cheap valuations and share prices for the energy industry.
Energy now counts for only 5% of the S&P 500. Twenty years ago, it boasted a 15% weighting.
The gradual shutdown of the industry makes the supply/demand situation infinitely more volatile.
Unless you are a seasoned, peripatetic, sleep-deprived trader, there are better fish to fry.
And guess who the world’s best oil trader was in 2022? That would be the US government, which drew 400 million barrels from the Strategic Petroleum Reserve in Texas and Louisiana at an average price of $90 and now has the option to buy it back at $70, booking a $4 billion paper profit.
The possibility of a huge government bid at $70 will support oil prices for at least early 2023. Whether the Feds execute or not is another question. I’m advising them to hold off until we hit zero again to earn another $18 billion. Why we even have an SPR is beyond me, since America has been a large net energy producer for many years now. Do you think it has something to do with politics?
To understand better how oil might behave in 2023, I’ll be studying US hay consumption from 1900-1920. That was when the horse population fell from 100 million to 6 million, all replaced by gasoline-powered cars and trucks. The internal combustion engine is about to suffer the same fate.
The train has added extra engines at Denver, so now we may begin the long laboring climb up the Eastern slope of the Rocky Mountains.
On a steep curve, we pass along an antiquated freight train of hopper cars filled with large boulders.
The porter tells me this train is welded to the tracks to create a windbreak. Once, a gust howled out of the pass so swiftly that it blew a passenger train over on its side.
In the snow-filled canyons, we saw a family of three moose, a huge herd of elk, and another group of wild mustangs. The engineer informs us that a rare bald eagle is flying along the left side of the train. It’s a good omen for the coming year.
We also see countless abandoned 19th century gold mines and the broken-down wooden trestles leading to huge piles of tailings, relics of previous precious metals booms. So, it is timely here to speak about the future of precious metals.
Fortunately, when a trade isn’t working, I avoid it. That certainly was the case with gold last year.
2022 was a terrible year for precious metals until we got the all-asset class reversal in October. With inflation soaring, stocks volatile, and interest rates soaring, gold had every reason to fall. Instead, it ended up unchanged on the year, thanks to a 15% rally in the last two months.
Bitcoin stole gold’s thunder until a year ago, sucking in all of the speculative interest in the financial system. Jewelry and industrial demand were just not enough to keep gold afloat. That is over now for good and that is why gold is regaining its luster.
Chart formations are starting to look very encouraging with a massive head-and-shoulders bottom in place. So, buy gold on dips if you have a stick of courage on you, which I hope you do.
Higher beta silver (SLV) will be the better bet as it already has been because it plays a major role in the decarbonization of America. There isn’t a solar panel or electric vehicle out there without some silver in them and the growth numbers are positively exponential. Keep buying (SLV), (SLH), and (WPM) on dips.
Crossing the Great Nevada Desert Near Area 51
8) Real Estate (ITB), (LEN), (KBH), (PHM)
The majestic snow-covered Rocky Mountains are behind me. There is now a paucity of scenery, with the endless ocean of sagebrush and salt flats of Northern Nevada outside my window, so there is nothing else to do but write.
My apologies in advance to readers in Wells, Elko, Battle Mountain, and Winnemucca, Nevada.
It is a route long traversed by roving banks of Indians, itinerant fur traders, the Pony Express, my own immigrant forebearers in wagon trains, the Transcontinental Railroad, the Lincoln Highway, and finally US Interstate 80, which was built for the 1960 Winter Olympics at Squaw Valley.
Passing by shantytowns and the forlorn communities of the high desert, I am prompted to comment on the state of the US real estate market.
Those in the grip of a real estate recession take solace. We are in the process of unwinding 2022’s excesses, but no more. There is no doubt a long-term bull market in real estate will continue for another decade, once a two year break is completed.
There is a generational structural shortage of supply with housing which won’t come back into balance until the 2030s. You don’t have a real estate crash when we are short 10 million homes.
The reasons, of course, are demographic. There are only three numbers you need to know in the housing market for the next ten years: there are 80 million baby boomers, 65 million Generation Xers who follow them, and 86 million in the generation after that, the Millennials.
The boomers (between ages 58 and 76) have been unloading dwellings to the Gen Xers (between ages 46 and 57) since prices peaked in 2007. But there are not enough of the latter, and three decades of falling real incomes mean that they only earn a fraction of what their parents made. That’s what caused the financial crisis. That has created a massive shortage of housing, both for ownership and rentals.
There is a happy ending to this story.
Millennials now aged 26-41 are now the dominant buyers in the market. They are transitioning from 30% to 70% of all new buyers of homes. They are also just entering the peak spending years of middle age, which is great for everyone.
The Great Millennial Migration to the suburbs and Middle America has just begun. Thanks to the pandemic and Zoom, many are never returning to the cities. That has prompted massive numbers to move from the coasts to the American heartland.
That’s why Boise, Idaho was the top-performing real estate market, followed by Phoenix, Arizona. Personally, I like Reno, Nevada, where Apple, Google, Amazon, and Tesla are building factories as fast as they can.
As a result, the price of single-family homes should continue to rise during the 2020s, as they did during the 1970s and the 1990s when similar demographic forces were at play.
This will happen in the context of a labor shortfall, soaring wages, and rising standards of living.
Rising rents are accelerating this trend. Renters now pay 35% of their gross income, compared to only 18% for owners, and less, when multiple deductions and tax subsidies are considered. Rents are now rising faster than home prices.
Remember, too, that the US will not have built any new houses in large numbers in 16 years. The 50% of small home builders that went under during the Financial Crisis never came back.
We are still operating at only a half of the 2007 peak rate. Thanks to the Great Recession, the construction of five million new homes has gone missing in action.
There is a new factor at work. We are all now prisoners of the 2.75% 30-year fixed rate mortgages we all obtained over the past five years. If we sell and try to move, a new mortgage will cost double today. If you borrow at a 2.75% 30-year fixed rate, and the long-term inflation rate is 3%, then, over time, you will get your house for free. That’s why nobody is selling, and prices have barely fallen.
This winds down towards the end of 2023 as the Fed realizes its many errors and sharply lowers interest rates. Home prices will explode…. again.
Quite honestly, of all the asset classes mentioned in this report, purchasing your abode is probably the single best investment you can make now after you throw in all the tax breaks. It’s also a great inflation play.
That means the major homebuilders like Lennar (LEN), Pulte Homes (PHM), and KB Homes (KBH) are a buy on the dip.
Recent Reno Real Estate Statistics
Crossing the Bridge to Home Sweet Home
9) Postscript
We have pulled into the station at Truckee amid a howling blizzard.
My loyal staff has made the ten-mile trek from my estate at Incline Village to welcome me to California with a couple of hot breakfast burritos and a chilled bottle of Dom Perignon Champagne, which has been resting in a nearby snowbank. I am thankfully spared from taking my last meal with Amtrak.
After that, it was over legendary Donner Pass, and then all downhill from the Sierras, across the Central Valley, and into the Sacramento River Delta.
Well, that’s all for now. We’ve just passed what was left of the Pacific mothball fleet moored near the Benicia Bridge (2,000 ships down to six in 50 years). The pressure increase caused by a 7,200-foot descent from Donner Pass has crushed my plastic water bottle. Nice science experiment!
The Golden Gate Bridge and the soaring spire of Salesforce Tower are just around the next bend across San Francisco Bay.
A storm has blown through, leaving the air crystal clear and the bay as flat as glass. It is time for me to unplug my MacBook Pro and iPhone, pick up my various adapters, and pack up.
We arrive in Emeryville 45 minutes early. With any luck, I can squeeze in a ten-mile night hike up Grizzly Peak and still get home in time to watch the ball drop in New York’s Times Square on TV.
I reach the ridge just in time to catch a spectacular pastel sunset over the Pacific Ocean. The omens are there. It is going to be another good year.
I’ll shoot you a Trade Alert whenever I see a window open at a sweet spot on any of the dozens of trades described above, which should be soon.
Good luck and good trading in 2023!
John Thomas
The Mad Hedge Fund Trader
The Omens Are Good for 2023!
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