Global Market Comments
September 20, 2023
Fiat Lux
Featured Trade:
(FRIDAY, OCTOBER 31 MIAMI, FLORIDA GLOBAL STRATEGY LUNCHEON)
(WHY I HAVE BECOME SO BORING),
(SPY), (QQQ), (IWM), (AAPL), (TSLA),
(TACKLING THE INFLATION MYTH),
(AAPL), (GOOG), (FB)
I have recently received a few complaints from readers that I have become boring. I have to confess that they are right.
I am not a person who boredom comes to easily. I’m the guy who climbed the Matterhorn, crossed the Sahara Desert on the back of a camel, and went to surfing school.
And that’s just what I did last year! Oh, and I’m also headed for the world’s hottest combat zone.
However, I do admit that I have become boring on the trading front.
If I get a request for one thing more than any other, it is for recommendations of stocks that will rise by at least ten times over the next ten years.
Readers want to know the names of shares of companies that they can just buy and forget about, and then retire rich as Croesus a decade down the road.
What could be more reasonable?
I happen to have sent out quite a few of these over the years.
Whenever I attend my global strategy luncheons around the world, someone inevitably thanks me for my effort to cajole them into buying Tesla (TSLA) at a split-adjusted $2.50. Nothing seemed more questionable at the time (2010) in the wake of the Great Recession and financial crisis.
At my New York luncheon in June, a guest pressed a one-ounce American Gold Eagle into my hand and said thanks for NVIDIA (NVDA). He bought it at $15 and rode it all the way up to $450.
He then doubled his money by jumping into Apple (AAPL) at $56 (on a split-adjusted basis) and rode the express train to $200, again after my pleading.
Then there was the reader who offered me his mega yacht in the Mediterranean for a week for free because I virtually forced him to buy Moderna (MRNA) just before the pandemic before it rocketed 50X. It was nice cruising the Mediterranean last summer on his advice.
It’s not that I have suddenly become averse to dishing out ten-baggers. I have not grown weary in my old age either, although I confess to finding those erectile dysfunction and baldness ads on TV more fascinating by the month.
No, the real problem is that the stock markets are just not offering anything right now. And here is where I give you some great trading tips.
When stock markets are rising and financial assets are generally in “RISK ON” mode, you want to own single stocks.
Individual shares have “betas”, or a propensity to move, that is far greater than indexes. If an index rises 10%, some of its individual components can move anywhere from 15%-100%.
When stock markets are in correction (down) or consolidation (sideways) mode, as we are now, the higher betas of stocks work against you. They fall faster than the index.
Therefore, in flat and falling markets you want to trade indexes, like the S&P 500 big cap index (SPY), the NASDAQ technology index (QQQ), and the Russell 2000 small cap index (IWM). Better yet, don’t execute any trades at all, especially if you are already up 60% on the year.
Keep your powder dry. A dollar at a market bottom is worth $10 at a market top.
Your mistakes trading these relatively nonvolatile (read boring) instruments earn you less money. The risk/reward for short-term trading right now is terrible.
Therefore, by trading stocks in up markets and indexes only in down markets, you create an inbuilt bias in your portfolio that works in your favor.
A classic example of how this works was to see the market reactions to corporate earnings announcements in July. In these risk-averse times, winners were rewarded modestly, but losers were taken out to the woodshed and beaten senseless.
Look at the recent charts for Apple (AAPL), Tesla (TSLA), and Disney (DIS) and you’ll see what I mean. I bet the owners of these companies wish they had been trading indexes in August, which barely moved. Is 3% the new 10% correction?
These are all fundamentally great companies for the long term. But when people run for cash, they will often sell whatever has the most profit, and all three of these names met that standard. Investors were, in effect, raiding the piggy bank.
Of course, you can try and be clever and go long stocks in rising markets, and then sell them short in falling ones.
My half-century of experience tells me that this is easier said than done.
While many managers will promise you this bit of investing in gymnastics, very few can actually deliver. Most professionals are unable to time markets with this precision, let alone individuals.
Needless to say, don’t try this at home.
I have long told my listeners at conferences, webinars, and strategy luncheons my definition of the “new inflation”: the price for whatever you have to buy is rising, as with your home, health care, and a college education.
The price of the things you need to sell, such as your labor and services, is falling.
So while official government numbers show that the overall rate of inflation is muted at multigenerational highs, the reality is that the standard of living of most Americans is being squeezed at an alarming rate by both startling price increases and real wage cuts.
I finally found someone who agrees with me.
David Stockman was president Ronald Reagan’s director of the Office of Management and Budget from 1981-1985. I regularly jousted with David at White House press conferences, pointing out that the budgets he was proposing would not produce a balanced budget, as he claimed.
Instead, I argued that they would lead to an enormous expansion of the federal deficit. In the end, I was right, with the national debt growing 400% during the Reagan years.
To his credit, David later admitted to running two sets of books for the national accounts, one for external consumption for people like me, and a second internal one for the president with much more dire consequences.
When David finally made the second set of books public, there was hell to pay. It was a fiery departure. I knew Ronald Reagan really well, and when the cameras weren’t rolling, he could get really angry.
After a falling out with Reagan over exactly the issues I brought up, Stockman disappeared for three decades.
He is now back with a vengeance.
He is running a blog named David Stockman’s Contra Corner (click here for the link at http://davidstockmanscontracorner.com ), a site he says “where mainstream delusions and cant about the Welfare State, the Bailout State, Bubble Finance, and Beltway Banditry are ripped, refuted and rebuked.” (Good writing was never his thing).
Despite this rant, there is no place I won’t go to discover some valid arguments and useful statistics, and Stockman is no exception.
For a start, home utility prices have been skyrocketing for the past decade, nearly doubling. Over the last 12 months alone, it has jumped by 5.3%, while natural gas is up more than 10%, compared to an annual Consumer Price Index rise of only 3.3%.
But utilities have such a low 5% weighting in the Fed’s inflation calculation it barely moves the needle.
Wait, it gets better.
Gasoline costs have also been on a relentless uptrend since the nineties. Crude oil is up from a $10 low to today’s print of $95. Retail gasoline has popped from $1 a gallon to $5.50 in California, and that’s off from the year’s high at $3.50.
That works out to an annualized increase of 57%, or more than triple the official inflation rate.
The nation’s 40 million renting households have been similarly punished with price increases. They have averaged a 5.0% annual rate, nearly double the inflation rate.
The country’s 75 million homeowners are getting hit in the pocketbook as well. They have seen the cost of water, sewer, and trash collection balloon at a 4.8% annualized rate. And this has been an almost entirely straight-line move, with no pullbacks. And home insurance? It is absolutely through the roof.
David recites a dirty laundry list of Fed omissions and understatements on the inflation front, including gold, silver, and commodities prices.
All of these nickels and dimes add up to quite a lot for a family of four who is trying to scrape by on a median household income of $69,000 a year. And Heaven help you if you try to live on that in California.
The cost of a few items has declined, but not by much. They are largely composed of cheap import substitutes from Asia, including apparel, shoes, household furniture, consumer electronics, toys, and appliances.
One area the Fed data doesn’t remotely come close to measuring is the plunging cost of technology. How do you measure the savings from products that didn’t exist 20 years ago, like smart phones, iPods, iPads, and solid-state hard drives? How do you measure the cost of services that are handed out for free as Google, Facebook, and X do?
I can personally tell the cost of my own business is probably 90% cheaper to run than it would have three decades ago. I remember shelling out $5,000 for a COMPAQ PC that costs $300 today but has 1,000 times the performance.
David finishes with his usual tirade against the Fed, accusing them of obsessing over the noise of the daily data releases and missing the long-term trend.
Anyone like myself who watched in horror how long it took our central bank to recognize the seriousness of the 2008 financial crisis pr the pandemic would agree.
This all reminds me of what a college Economics professor once told me during the late 1960’s. “Statistics are like a bikini bathing suit. What they reveal is fascinating, but what they conceal is essential.”
Mad Hedge Technology Letter
September 18, 2023
Fiat Lux
Featured Trade:
(WILL THE TECH IPO MARKET THAW?)
(ARM), (AAPL), (NVDA)
I wouldn’t say that the IPO market is back - hardly not.
There is still a long way to go before the floodgates open, but the ARM IPO is a good start and its successful debut is a good example for others that are sitting off the fence.
British chipmaker Arm (ARM) debuted on the public markets jumping 25% in trading.
The chipmaker's go-public is the most high-profile IPO that the Nasdaq has seen since 2021's IPO boom, which cycled into a bust in 2022.
However, just because these IPOs are moving doesn't mean their valuations are not a sticking point. In Arm's case, the company reportedly sought a valuation of between $60 billion and $70 billion.
Likewise, Instacart — valued at $39 billion at the close of its 2021 funding round — is reportedly now seeking a $9.3 billion valuation.
Arm is a unique company, especially among tech companies. As a chip designer, Arm's customers include some of the biggest names in tech, including Apple (AAPL).
The company has been through a number of transitions over the last several years. In 2016, SoftBank acquired Arm, taking it private for around $30 billion. In 2021, Nvidia (NVDA) attempted to acquire Arm in a deal that failed after regulatory tussling for almost a year and a half.
Recently, Arm has sought to shift its revenue model, altering pricing and rolling out a changed customer licensing strategy.
In short, Arm's return to the public markets was a pivotal moment.
The positive response to this IPO won’t thaw the IPO market completely but will set the stage for 2024 such as payment processor Stripe and computer software provider Databricks.
I will say that the bar has risen significantly for tech firms who want to go public.
Before, many could go public with just hope and dreams with promises of a pot of gold at the end of the rainbow.
This usually meant paltry revenue and massive cash burn at the time of IPO.
Moving forward, it’s obvious that tech companies will need to be more mature to go public and there will be more emphasis on quality management than any time before.
This is because interest rates are still highly elevated and management teams won’t be able to tap the debt markets so easily for a bailout.
Artificial intelligence-related IPOs will also be in an advantageous position to do well post-IPO because that is where the hot money is targeting.
Instead of a slew of capital chasing the new IPOs, I do believe we default back into a rotation of big tech being the safety trade.
Higher bond yield and accelerating tech stocks is an odd couple that appears to be working like clockwork in 2023.
The next spike up in yield could happen soon with the catalyst being the price of a barrel of oil hitting that $100 per barrel mark.
As for ARM, it’s sitting at $56 per share which is down from the $65 per share.
Once the euphoria subsides, wait for a dip in the $40s to buy into ARM, at that price, ARM would be valued at around $50 billion and I would call that a steal for the long-term buy-and-hold readers.
Global Market Comments
September 11, 2023
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or THE BIG PULL FORWARD)
(AAPL), (UUP), (TSLA), (USO), (BYDDF)
Somehow, the summer got moved this year.
For here it is September, and the stock market is behaving like it is only July. July was different from normal as well, going straight up almost every day when it is usually asleep. This year, July acted like May, when you’re supposed to sell and go away.
If you’re thoroughly confused by all of this, so am I. The historic cyclicality of the markets, the ebb and flow of share prices according to the calendar, has gone out the window. But then, what isn’t confusing these days?
I went to buy a green drink from Whole Foods on Friday and the counter was closed because of staff shortages. Whole Foods unable to sell a green drink?
I tried to climb the Matterhorn this summer but was told that the guides weren’t taking anyone up because of the extreme heat. The mountain was literally melting, dropping rocks on the heads of climbers. No climbing the Matterhorn in Switzerland? I went to the Dolomites instead where you climb ice-free shear rock faces.
I tried to get into the Pantheon in Rome this summer and was met with a five-hour line. The Sistine Chapel in the Vatican was worse. When I first went there in the 1960’s the place was empty. The fact is that Italy now has more tourists than Italians. Oh, and the pope is from Argentina.
Has the world gone mad?
What has happened is that there has been a great pull forward that took place in financial markets during the first half of the year. I’ve seen this before. When a conclusion becomes obvious, everyone jumps on the bandwagon and brings everything forward.
So from January to July stock markets saw the blatantly obvious future that inflation would fall, interest rates decline, the US dollar weaken, and commodities and precious metals would rise. That’s why the “Magnificent Seven” led.
What happens next?
Now shares have to wait until these predictions actually happen before they can move any further. Markets have moved as far as they can on faith alone. Next, we need facts. This could take weeks or even months.
I knew this was going to happen. That’s why I went pedal to the metal, full speed ahead, damn the torpedoes aggressive during the first half of the year and clocked a 60% profit. I expected that if you didn’t make a profit in the first half of the year, you wouldn’t have any profits in 2023 at all.
And the trade alert drought continues.
There isn’t a day that goes by when I am not asked if America’s $33 trillion national debt will destroy the economy, cause the stock market to crash, and bring the end of Western Civilization. The answer is no, never, not in our lifetimes.
The reason is very simple. Any dollar the government borrows today sees its purchasing power go to zero in 30 years. That’s where the massive Civil War debt went, that's where the WWI debt went, and that’s where the gigantic WWII debt went, some 105% of GDP. Today’s debt will similarly vaporize over time.
Who pays for this cataclysmic decline in value? US government debt holders, who similarly see their purchasing power disappear over time. It turns out that the ultimate avoiders of risk, investors in US government debt, not only don’t get paid for their cowardice, they lose their entire principal as well, at least in terms of purchasing power.
There is a wonderful article in Barron’s this week entitled “Government Debt Needs to Be Repaid, And Other Myths About the Federal Deficit” by Paul Sheard which explains how all this works, which I quote below in its entirety.
“The U.S. national debt currently stands at $32.91 trillion, and 10 months into this fiscal year, the U.S. government has spent $1.6 trillion more than it has collected in revenue. Those intimidating figures animate political battles that can shut down the government and even bring it to the brink of default. But the meaning of this money isn’t as simple as it seems. Five myths in particular deserve straightening out.
The first is that the government has to borrow in order to spend and run deficits. It’s the other way around. The government creates money (injects it into the economy) when it spends and destroys money (withdraws it from the economy) when it taxes. The government taxes variously to correct for negative externalities, to redistribute income, and to modulate aggregate demand; “raising revenue” is just a cover story.
A related myth is that the government needs to repay its debt. “Debt” is a misnomer; government debt is just money (or purchasing power) in another form. A $20 bill is a liability of the Fed, which makes it a liability of the federal government. A $20 bill never has to be repaid; it just is. Fundamentally, Treasuries aren’t much different.
That government debt never needs to be repaid doesn’t mean the government can or should create as much of it as it likes.
Too big a pile of debt because of prior and ongoing budget deficits may be inflationary, as too much money chases insufficient goods and services. That will require some combination of monetary and fiscal tightening. A mountain of debt may indicate a government that is too big and intrusive in the economy for many people’s liking, an issue that can be fought out at the ballot box.
A third myth is that the Fed prints money when it does quantitative easing. The money-printing happens when the government runs a budget deficit; QE just changes the form of that money.
QE is really just a debt refinancing operation of the consolidated government—that is, the government including the Fed—whereby it refinances one form of debt (government bonds or guarantees) into another (reserves). QE changes the composition of the (consolidated) government debt in the hands of the private sector, but it doesn’t directly add one iota of new purchasing power. For every dollar the Fed “pumps into” the economy by doing QE, it “sucks out” a dollar of assets. Conversely, quantitative tightening just returns assets to private sector portfolios, expunging reserves in the process.
Reserves are like banknotes: The Fed can withdraw them, but it never has to repay them as such. It looks like the government has to repay Treasuries, but this is an institutional artifact. In extremis, the Fed could convert all outstanding Treasuries into reserves, and it could maintain monetary control by it, rather than the fiscal authorities, paying interest on reserves.
Japan is the poster child for a miserable-looking fiscal picture. Yet, the Bank of Japan, the pioneer of QE, owns almost half of the stock of outstanding Japanese government securities and, at the same time, since 2016 has managed the 10-year yield, with some leeway, to be “around zero percent.”
It is precisely because the government can create money at will that the modern monetary and fiscal architecture has been designed to put shackles on its ability to do so: The creation of an “independent” central bank within the government, the central bank not allowing the government’s account with it to go into overdraft, the central bank not buying bonds directly from the government, and governments issuing debt securities rather than leaving their deficits in the form of reserves all serve that purpose. But what the government taketh away, it can give back. Faced with the need, it could loosen those shackles.
A fourth, and related, myth is that banks could, if so moved, “lend out” the excess reserves created by QE. Banks can lend these reserves to one another but they cannot turn them into lending to companies and households in the broader economy.
It isn’t just the government that creates money. Banks do, too. A fifth myth is that banks are just financial intermediaries “taking in” deposits and “lending them out.” Not so. Banks create money when they lend. For an individual bank making a new loan, it may not feel like this, because the first thing borrowers do is spend their money. If none of that money flows back into the same bank, its reserves at the central bank will decline by the amount of the loan. It will then probably want to attract deposits to “fund” the loan, but doing so will just top up its lost reserves. Bank lending for the system is entirely self-funding (so long as none of the money created leaks into bank notes).
The U.S. economy currently produces about $27 trillion of goods and services annually, a little more than the amount of federal debt held by the public and the QE-embracing Fed. The money needed to sustain this giant prosperity-generating machine comes from the government running deficits and from banks extending credit, with the Fed’s activities linking the two. Political debates and decisions currently are based on a befuddled grasp of how this monetary system works. The stakes for society are too high for that.”
So far in August, we are down -4.70%. My 2023 year-to-date performance is still at an eye-popping +60.80%. The S&P 500 (SPY) is up +17.10% so far in 2023. My trailing one-year return reached +92.45% versus +8.45% for the S&P 500.
That brings my 15-year total return to +657.99%. My average annualized return has fallen back to +48.15%, another new high, some 2.50 times the S&P 500 over the same period.
Some 41 of my 46 trades this year have been profitable.
Beige Book Shows Consumer Spending Slowing, long a pillar of this recovery, as the last of the pandemic bonuses work their way for the system. It’s putting a dent in corporate profits and hints at a shrinking economy, contrary to recent economic data.
The US Dollar (UUP) is Soaring, thanks to “higher interest rates for longer” and a strengthening US economy. Asian currencies are at ten-month lows and central bank intervention is looking. The dollar shorting selling opportunity of the decade is setting up.
China Restricts Sales of iPhones (AAPL), barring sales to government agencies. It’s only a small nick in overall sales, but certainly casts of cloud over doing business in the Middle Kingdom. Some $200 billion, (AAPL)’s market cap has been vaporized.
Weekly Jobless Claims Dive, down 13,000 to 216,000, a seven-month low. It’s the fourth consecutive decline and not what the Fed wanted to hear.
Rate Hikes Will Drag on the Economy for at Least a Decade, as the Fed's $8.24 trillion balance sheet unwinds, according to the San Francisco Fed. The balance sheet was only at $800 million before the 2008 Great Recession.
Saudi Arabia and Russia Engineer Short Squeeze on Oil (USO), taking the price over $90 a barrel this year. Large production cuts announced in June will be maintained until yearend. Will Biden counter with a release from the Strategic Petroleum Reserve, or SPR?
Tesla’s Chinese EV Deliveries Rise 9.3% in August, thanks to aggressive price cuts. There is a two-month wait for the Model Y. Chinese rival BYD (BYD), with its Dynasty and Ocean series of EVs and petrol-electric hybrid models, recorded deliveries of 274,086 passenger vehicles in August, a jump of 57.5% year-on-year. China has the world’s largest car market.
My Ten-Year View
When we come out the other side of the recession, we will be perfectly poised to launch into my new American Golden Age, or the next Roaring Twenties. The economy decarbonizing and technology hyper-accelerating, creating enormous investment opportunities. The Dow Average will rise by 800% to 240,000 or more in the coming decade. The new America will be far more efficient and profitable than the old.
Dow 240,000 here we come!
On Monday, September 11, US Consumer Inflation Expectations are announced.
On Tuesday, September 12 at 8:30 PM EST, NFIB Business Optimism Index is released. Apple announced the new iPhone 15.
On Wednesday, September 13 at 8:30 AM, the Core Inflation Rate for August is published.
On Thursday, September 14 at 8:30 AM, the Weekly Jobless Claims are announced. ARM started trading after its IPO, which was five times oversubscribed. NVIDIA tried but failed to take over the chip maker.
On Friday, September 15 at 2:30 PM, the Producer Price Index for August is published. At 2:00 PM the Baker Hughes Rig Count is printed.
As for me, not just anybody is allowed to fly an aircraft in Hawaii. You have to undergo special training and obtain a license endorsement to cope with the Aloha State’s many aviation challenges.
You must learn how to fly around an erupting volcano, as it can swing your compass by 30 degrees. You must master the fine art of not getting hit by a wave on takeoff since it will bend your wingtips forward. And you’re not allowed to harass pods of migrating humpback whales at a low level, a sight I will never forget.
Traveling interisland can be highly embarrassing when pronouncing reporting points that have 16 vowels. And better make sure your navigation is good. Once a plane ditched interisland and the crew was found six months later off the coast of Australia. Many are never heard from again.
And when landing on the Navy base at Ford Island you were told to do so lightly, as they still hadn’t found all the bombs the Japanese had dropped during their Pearl Harbor attack in 1941.
You are also informed that there is one airfield on the north shore of Molokai you can never land at unless you have the written permission from the Hawaii Department of Public Health. I asked why and was told that it was the last leper colony operating in the United States.
My interest piqued, the next day found me at the Hawaiian state agency with an application in hand. I still carried my UCLA ID which described me as a DNA researcher, which did the trick.
When I read my flight clearance to the controller at Honolulu International Airport, he blanched, asking if I had authorization because he’d never seen one before. I answered that yes, I did, I really was headed to the dreaded Kalaupapa Airport, the Airport of no Return.
Getting into Kalaupapa is no mean feat. You have to follow the north coast of Molokai, a 3,000-foot-high series of vertical cliffs punctuated by spectacular waterfalls. Then you have to cut your engine and dive for the runway in order to land into the wind. You can only do this on clear days, as the airport has no navigational aids. The crosswind is horrific.
If you don’t have a plane it is a 20-mile hike down a slippery trail to get into the leper colony. It wasn’t always so easy.
During the 19th century, Hawaiians were terrified of leprosy, believing it caused the horrifying loss of appendages, like fingers, toes, and noses, leaving bloody open wounds. So, King Kamehameha I exiled lepers to Kalaupapa, the most isolated place in the Pacific.
Sailing ships were too scared to dock. They simply threw their passengers overboard and forced them to swim for it. Once on the beach, they were beaten a clubbed for their possessions. Many starved.
Leprosy was once thought to be a result of sinfulness or infidelity. In 1873, Dr. Gerhard Henrik Armauer Hansen of Norway was the first person to identify the germ that causes leprosy, the Mycobacterium leprae.
Thereafter, it became known as Hanson’s Disease. A multidrug treatment that arrested the disease, but never cured it, did not become available until 1981.
Leprosy doesn’t actually cause appendages to drop off as once feared. Instead, it deadens the nerves, and then rats eat the fingers, toes, and noses of the sufferers when they are sleeping. It can only be contracted through eating or drinking live bacteria.
When I taxied to the modest one-hut airport, I noticed a huge sign warning “Closed by the Department of Health.” As they so rarely get visitors the mayor came out to greet me. I shook his hand but there was nothing there. He was missing three fingers.
He looked at me, smiled, and asked, “How did you know?”
I answered, “I studied it in college.” Even today, most are terrified of shaking hands with lepers.
Not me.
He then proceeded to give me a personal tour of the colony. The first thing you notice is that there are cemeteries everywhere filled with thousands of wooden crosses. Death is the town’s main industry.
There are no jobs. Everyone lives on food stamps. A boat comes once from Oahu a week to resupply the commissary. The government stopped sending new lepers to the colony in 1969 and is just waiting for the existing population to die off before they close it down.
Needless to say, it is one of the most beautiful places on the planet.
The highlight of the day was a stop at Father Damien’s church, the 19th century Belgian catholic missionary who came to care for the lepers. He stayed until the disease claimed him and was later sainted. My late friend Robin Williams made a movie about him, but it was never released to the public.
The mayor invited me to stay for lunch, but I said I would pass. I had to take off from Kalaupapa before the winds shifted.
It was an experience I will never forget.
Stay Healthy,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
The Airport of No Return
Father Damien
Global Market Comments
September 5, 2023
Fiat Lux
Featured Trades:
(The Mad Hedge September Traders & Investors Summit is ON!)
(MARKET OUTLOOK FOR THE WEEK AHEAD, or THE NEW GOLDEN AGE IS ABOUT TO BEGIN!)
(TLT), (TSLA), (AAPL), (AMGN)
CLICK HERE to download today's position sheet.
If any of you ever had concerns about the long-term future of the United States of America you can put them to rest.
Escaping from Silicon Valley to the cooling majestic heights of the High Sierras ahead of the Labor Day weekend, Google Maps directed to a series of back roads to avoid the traffic Armageddon taking place on the freeways.
Known as the “Delta Highway,” I had to cross three ancient rickety 100-year-old bridges just to get to Stockton.
And you know what I saw?
The proverbial “majestic waves of grain.”
I passed square mile after square mile of ripening corn “as high as an elephant’s eye”. Next came square miles of fields in fallow planted with clover capturing nitrogen. That was followed by miles of the darkest and richest earth you ever saw ready for new planting.
The fields were intermittently spaced with You-Pick cherry and peach orchards crowded with Asian customers. To them, the fact you can just drive out into the countryside and pick fresh fruit for $5 a bucket was utterly amazing.
One of the questions I get asked most often from the top down is whether China will invade Taiwan. My answer is always the same: Not a chance. They’ll never do more than bluff as they have done for the last 70 years.
That is because modern China exists only because of America’s good graces. If they invaded, we would cut of their food supply the next day. There are no alternative food supplies for 1.2 billion people anywhere in the world.
Over time, they might develop some supplies in South America or Africa but by the time those had any meaningful impact, half the population would starve to death. Everything in agriculture happens slowly.
I’ve been in China during famines and let me tell you it’s no fun. There is no substitute for food, not at any price.
We know this, the Chinese know this, everybody knows this.
The power of nations used to be measured in food production, bushels of wheat in the West and baskets of rice in Asia. To some extent it still is. Who are the largest producers of food in the world? China, India, the US, and Brazil. But the first two consume their entire output and then some, while the last two are the world’s largest food exporters by miles.
Of course, China will take Taiwan if we give it to them. That’s why it’s useful to keep our Seventh Fleet in the neighborhood just to remind them that we’re still watching. It’s also not a bad idea to bring some of our semiconductor production home as well just as a hedge, a risk control measure.
So you can stop asking me if China will invade Taiwan.
In the meantime, regarding your personal investment strategy, there is only one number you need to know: $5.6 trillion. That is the amount of cash, cash equivalents, money, market funds, and 90-day T-bills sitting on the sidelines waiting to go into risk assets.
And by risk assets, I mean stocks, bonds, commodities, precious metals, energy, and real estate.
Incredible as it may seem, the majority of investors still don’t believe that the greatest bull market of the ages started on October 15, 2022. They think we are in a bear market and are waiting for better buying opportunities much lower down.
Partly this is happening because they are being told by their political leaders that the US has the worst economy in the world. When they come to the harsh reality that the opposite is true, that the US has the best economy in the world by far, money will come pouring off the sidelines and take stocks up at least until 2030.
This will take place no later than October by my reckoning.
That’s when a New Golden Age kicks off that will last a decade or more, driven by AI, quantum computers, graphene, carbon fiber, free energy, superconductivity, solid state batteries, and 100 other hyper-accelerating technologies.
Make concentration of the wealth at the top work for you and get involved in the market. Become one of the 1%. I’ve done it starting from a very low base. Keep those 90-day T-bills at your peril, no matter how attractive those 5.35% guaranteed yields may be.
Which leads us to a quandary.
Stocks never got cheap during the summer selloff, they just dropped from very expensive to expensive. The Mad Hedge AI Market Timing Index didn’t get lower than 45 compared to the usual low of 20, or even 3 (the pandemic low).
That means we are going to have to invest on the basis of stocks going from expensive to extremely expensive. It’s not the game we are used to playing. But stocks have done this before.
The (QQQ) traded at a price-earnings multiple of 100 times earnings at the Dotcom Bubble top in 2000 compared to only 30.79 times now and that was only with a fraction of the emerging technologies currently under development.
You can wait for The Mad Hedge AI Market Timing Index to get to 20, or even 3, but it might never happen.
I just thought you’d like to know.
So far in September, we are unchanged with a +0.00% return. My 2023 year-to-date performance is still at an eye-popping +60.80%. The S&P 500 (SPY) is up +17.10% so far in 2023. My trailing one-year return reached +92.45% versus +8.45% for the S&P 500.
That brings my 15-year total return to +657.99%. My average annualized return has fallen back to +48.15%, another new high, some 2.50 times the S&P 500 over the same period.
Some 41 of my 46 trades this year have been profitable.
Nonfarm Payroll Comes in Weak, at 187,000, in August. The Headline Unemployment rate posted at near a 50-year low at 3.8%.
It’s the third month in a row under 200,000. The U-6 “discouraged worker” rate popped from 6.7% to 7.1%. Strikes are becoming a factor. The news took the ten-year US Treasury bond yield (TLT) under 4.0% for the first time in months.
Weekly Jobless Claims Decline to 228,000 as the economy heats up. 235,000 was expected. Continuing Claims are at 1.9 million.
Jolts Disappoints, with new job openings coming in at only 8.83 million, a 2 ½ year low. The labor shortage is getting worse, suggesting that the headline Unemployment Rate could rise on Friday and that inflation will continue falling. The drop in openings reflected declines in professional and business services, health care, and government. Hold on to your hat!
Apple (AAPL) to Launch New iPhone 15 on September 15. The highlight of the event will be the iPhone 15 lineup, which will include two entry-level models and two high-end models. The lower-end devices, likely to be called the iPhone 15 and 15 Plus, will get some capabilities of last year’s Pro models — the A16 chip, Dynamic Island interface, and a 48-megapixel rear camera — but retain the current design.
Bank Earnings Forecasts Cut, by Wells Fargo’s Mike Mayo, a noted bank analyst. New regulations are raising costs across the board. Capital requirements are rising. You can count on share buybacks to be paid back. More business is being pushed outside the banking system. Stand back from bank shares until we learn the new paradigm.
India Attempts to Win the Next Tesla Factory (TSLA), buy offering to cut import duties. Elon Musk would certainly love the non-union labor costs there. The world’s third largest car market has only an EV penetration of 2% because of the high duties, which currently range from 60%-100%.
Hedge Fund Exposure to “Magnificent Seven” at All-Time High, says Goldman Sachs. It amounts to 20% of all hedge fund holdings. Megacap tech and AI still rule. It’s momentum on steroids.
Crypto Trading Volume Hits Four-Year Low. With the SEC cracking down on all intermediaries this asset class will eventually shrink down to “hot wallets” only. No helping is a hangover of massive fraud and theft. Avoid all crypto like the plague.
Case Shiller Rises 0.7% in June, launching the shares on its usual preannouncement uptrend. High mortgage interest rates seem to no longer be having an effect. Chicago, Cleveland, and New York again reported the highest year-over-year gains among the 20 cities in June at 4.2%, 4.1%, and 3.4%, respectively.
Bigfoot Sightings are Rising, in the form of Tesla Cybertruck whose widespread release in imminent. It will be one of the greatest automotive events in history, with several generational upgrades for the general Tesla platform in store. The waiting list is 2 million long, including myself. Buy (TSLA) on dips or sell short out-of-the-money puts.
Amgen Gets FTC Go Ahead on $27.8 billion Horizon Deal and holds on to monster August gains. (AMGN) is a long-term Mad Hedge Biotech & Health Care favorite. The Stock has popped an impressive 27% since June. You can’t keep a good stock down!
My Ten-Year View
When we come out the other side of the recession, we will be perfectly poised to launch into my new American Golden Age, or the next Roaring Twenties. The economy decarbonizing and technology hyper accelerating, creating enormous investment opportunities. The Dow Average will rise by 800% to 240,000 or more in the coming decade. The new America will be far more efficient and profitable than the old.
Dow 240,000 here we come!
On Monday, September 4, US markets are closed for Labor Day.
On Tuesday, September 5 at 7:00 AM EST, US Factory Orders are released.
On Wednesday, September 6 at 7:00 AM, the ISM Services PMI is published.
On Thursday, September 7 at 8:30 AM, the Weekly Jobless Claims are announced.
On Friday, September 8 at 12:00 PM, the Used Car Prices for August are published. At 2:00 PM, the Baker Hughes Rig Count is printed.
As for me, as a lifetime oenophile, or wine lover, I long searched for the Holy Grail of the perfect bottle. I finally found my quarry in 1989.
During the 19th century, Russia was still an emerging country that sought to import advanced European technology. So, they sent agents to the top wine-growing regions of the continent to bring back cuttings from the finest first-growth Bordeaux vineyards to create a domestic wine industry. They succeeded beyond all expectations building a major wine industry in Crimea on the Black Sea.
Then the Russian Revolution broke out in 1918.
Czar Nicholas II and his family were executed in Yekaterinburg, and eventually, the wine industry was taken over by the Soviet state. They kept it going because wine exports brought in valuable foreign exchange which the government could use to import expensive foreign equipment and industrialize the country.
Then the Germans invaded in 1941.
Not wanting the enemy to capture a 100-year stockpile of fine wine, the managers of the Massandra winery dug a 100-yard-deep cave, moved their bottles in, bricked up the entrance, and hid it with shrubs. Then everyone involved in hiding the wine was killed in the war.
Some 45 years later, looking to expand the facility some Massandra workers stumbled across the entrance to the cave. Inside, they found a million bottles dating back to the 1850s kept in perfect storage conditions. It was a sensation in the wine-collecting world.
To cash in they hired Sotheby’s in London to repackage and auction off the wine one case at a time. It was the auction event of the year. For years afterwards, you could buy glasses of 100-year-old ports and sherries from the Czar’s own private stock at your local neighborhood restaurant in London for $5, the deal of the century. The market was flooded.
I attended the auction at Sotheby’s packed Bond Street showroom. The superstars of the wine-collecting world were there with open checkbooks, including one of the Koch brothers from Texas. I sat there with my paddle number 138 but was outbid repeatedly and wondered if I would get anything. In the end, I managed to pick up three of the less popular cases, an 1894 Lividia port, a 1938 sherry, and a 1940 port for about $25 a bottle each.
For years, these were my special occasion wines. I opened one when I was appointed a director of Morgan Stanley. Others went to favored hedge fund clients at Christmas. My 50th, 60th, and 70th birthdays ate into the inventory. So did the birth of children numbers four and five. Several high school fundraisers saw bottles earn $1,000 each.
One of the 1894s met its end when I came home from the Gulf War in 1992. Hey, the last Czar didn’t drink it and look at what happened to him! Another one bit the dust when I sold my hedge fund at the absolute Dotcom Bubble market top in 2000. So did capturing 6,000 new subscribers for the Mad Hedge Fund Trader in 2010, leaving me with 2,000 checks to cash.
It turns out that the empties were quite nice too, 130-year-old hand-blown green glass, each one is a sculpture in its own right.
I am now reaching the end of the road and only have a half dozen bottles left. I could always sell them on eBay where they now fetch up to $6,000 per bottle.
But you know what? I’d rather have six more celebrations than take in a few grand.
Any suggestions?
My Massandra 1894 Lividia Port
Global Market Comments
September 1, 2023
Fiat Lux
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