Global Market Comments
November 7, 2022
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or THE FED GIVETH AND THE FED TAKETH AWAY)
(SPY), (TLT), (JNK), (AAPL), (MSFT), (AMZN), (GOOGL), (META)
Tag Archive for: (AAPL)
Now you see it, now you don’t.
The rip-roaring rally that started in October, with which we made so much money on, vaporized in a heartbeat. Traders lulled into a false sense of security with happy talk among themselves were suddenly throwing up on their shoes.
Fed governor Powell clearly indicated that interest rates will remain higher for longer, and therefore, stock prices lower. Powell promised us pain last summer and is delivering big time. Powell’s job is NOT to defend the stock market.
Personally, I’m looking for another 75 basis points on December 14, followed by 50 basis points on February 1 and another 25 basis points on March 22. This will bring us 4.75%-5.00% range for overnight Fed funds. After that, rates will fall for years as the Fed rushes to repair the damage it inflicted on the economy. Stocks will deliver the 800% return I have been promising.
I went into the Fed meeting short and used the ensuing meltdown to take profits.
As a result, my November month-to-date performance went off to the races, already achieving a hot +2.20%.
That leaves me with a very rare 100% cash position. With midterm election results out on Wednesday and the next report on the Consumer Price Index on Thursday, that sounds like a prudent place to be.
My 2022 year-to-date performance ballooned to +77.57%, a new high. The Dow Average is down -11.85% so far in 2022.
It is the greatest outperformance on an index since Mad Hedge Fund Trader started 14 years ago. My trailing one-year return maintains a sky-high +49.51%.
That brings my 14-year total return to +590.13%, some 2.86 times the S&P 500 (SPX) over the same period and a new all-time high. My average annualized return has ratcheted up to +49.51%, easily the highest in the industry.
There is no doubt that the greatest buying opportunity of the century is setting up. Those who bought the Dotcom Crash bottom in 2003 snapped up Apple (AAPL) at 20 cents on its way to $186, split adjusted. During the 2009 Financial Crisis bottom, the savvy snapped up Microsoft (MSFT) at $11. Its top tick last year was $23.
A similar golden opportunity is setting up in the next year and will create immense wealth. Just remember that things always go down more than you think, and then rise far more than you believe possible.
However, one of the greatest questions of all time has finally been resolved. Can stock markets rise without big tech? The answer has been an overwhelming “YES.” Financial, where we have been very heavily involved, rose up to 25% while tech was falling 20%. Healthcare has been on fire as well. It all gives us a place to earn our crust of bread until the long-term trend up in tech resumes, however long that may take.
The turn will be called by the prospect of Fed interest rate CUTS sometime in 2023, and good luck calling that.
Further complicating matters near term is that this could be the greatest tax loss selling year of all time, with some stocks down up to 80% sold to offset gains elsewhere, such as in energy. But the mutual funds are already done, their tax year already ended. Whatever is left must be wound up by December 31.
Nonfarm Payroll Comes in at a Hot 261,000 in October, higher than hoped. The Headline Unemployment Rate crawled up to 3.7%, the highest since February. Average hourly earnings are up 4.7% YOY, far below the inflation rate. The U-6 “Discourage worker” rate rose from 6.7% to 6.8%. Anyone who thinks these numbers will lead to an earlier end to the Fed interest rate rises has a hole in their head.
JOLTS Beats Bigtime, with 10.7 million jobs opening, a million more than expected. No cooling of labor demand here.
ADP Rises 239,000, more than expected, nailing the coffin shut on the 75-basis point rate hike. The strong industries, like Airlines and Leisure & Hospitality, are still hiring like crazy.
Is Big Tech Dead Money? It may be for months, or even years, but Big Tech always comes back. It’s just a matter of how long it takes big double-digit earnings to return with the onset of the next robust economic recovery. Until then, expect a lot of differentiation. Apple (AAPL) will hold up best, followed by Amazon (AMZN) and Google (GOOGL). As for Meta (META), the old Facebook, it may never come back.
Tech Austerity Accelerates, with Apple (AAPL) announcing an unheard-of hiring freeze. The rest of big tech is following suit. The knees are about to be cut from under the market’s safest stock.
Fed Raises Interest Rates by 75 Basis Points but changed their language to be slightly more accommodative. Stocks rallied 500 points on the news. If this is bullish, it’s a stretch. They are still targeting a 2% inflation rate and will take into account cumulative tightening to date. Acknowledging they have already raised rates a lot is something. That is more dovish than expected.
Chicago PMI is Still Falling, from 47 estimated to 45.2 in October. Under 50 indicates a recessionary economy.
Morgan Stanley Says Rising Rates to End Soon, according to strategist Mike Wilson. The big pivot will happen sooner than later. I agree.
Twitter Hate Speech Spikes 500%, since Elon Musk took over the company, as racists and conspiracy theorists test his looser limits. The entire senior staff has been fired as they are still subject to fraud accusations from Musk. Musk thinks he can resell the company for a big premium in five years. Is this the end of democracy, or just Twitter (TWTR) whose stock no longer trades? More advertisers will bail after Musk paraded conspiracy theories in the wake of the Pelosi assassination attempt.
US Treasury to Borrow $550 Billion in Q4. It means the bond short (TLT) and (TBT) may have one more gasp to go.
Japan Spends $42 Billion to Support the Yen in October to no avail, as it threatens new lows. The yen will remain weak as long as interest rates remain near zero.
First Starship to Launch in December, the largest rock ever launched. The super heavy booster will return to earth while the capsule will land off the coast of Hawaii. Space X has a $3 billion contract from NASA to return to the moon by 2025.
US Banks Processed $1.2 Billion in Ransomware Payments this Year, triple the previous year’s level. Russia is the source of many of the attacks. And you wonder why we are supporting Ukraine?
Russian Economy Shrinks by 5% YOY in September as the sanctions take their toll. Only 45% to go. The call-up of 300,000 reservists has yet to hit the economy.
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. With the economy decarbonizing and technology hyper-accelerating, there will be no reason not to. The Dow Average will rise by 800% to 240,000 or more in the coming decade. The America coming out the other side will be far more efficient and profitable than the old. Dow 240,000 here we come!
On Monday, November 7 at 12:00 PM, the Consumer Credit for September is released.
On Tuesday, November 8, the US Midterm elections take place with 532 House and 34 Senate seats up for grabs.
On Wednesday, November 9 the entire day will be spent analyzing election results and tracking the ties.
On Thursday, November 10 at 8:30 AM, Weekly Jobless Claims are announced. We also get the US Core Inflation Rate for October.
On Friday, November 11 at 8:30 AM the University of Michigan Consumer Sentiment for November is printed. At 2:00 PM, the Baker Hughes Oil Rig Count is out.
As for me, I was recently in Los Angeles visiting old friends, and I am reminded of one of the weirdest chapters of my life.
There were not a lot of jobs in the summer of 1971, but Thomas Noguchi, the LA County Coroner, was hiring. The famed USC student jobs board had delivered! Better yet, the job included hours at night and free housing at the coroner's department.
I got the graveyard shift, from midnight to 8:00 AM. All I had to do was buy a black suit from Robert Halls, for $25.
Noguchi was known as the “coroner to the stars” having famously done the autopsies on Marilyn Monroe and Jane Mansfield. He did not disappoint.
For three months, whenever there was a death from unnatural causes, I was there to pick up the bodies. If there was a suicide, gangland shooting, or horrific car accident, I was your man.
Charles Manson had recently been arrested and I was tasked with digging up the victims. One, cowboy stuntman Shorty Shay, had his head cut off and neatly placed in between his ankles.
The first time I ever saw a full set of women’s underclothing, a girdle, and pantyhose, was when I excavated a desert roadside grave that the coyotes had dug up. She was pretty far gone.
Once, I and another driver were sent to pick up a teenage boy who had committed suicide in Beverly Hills. The father came out and asked us to take the mattress as well. I regretted that we were not allowed to do favors on city time. He then said, “can you take it for $200”, then an astronomical sum.
A few minutes later found a hearse driving down the Santa Monica Freeway on the way to the dump with a double mattress expertly tied on the roof with Boy Scout knots with a giant blood spot in the middle.
Once, I was sent to a cheap motel where a drug deal gone wrong had produced several shootings. I found $10,000 in a brown paper bag under the bed. The other driver found another ten grand and a bag of drugs and kept them. He went to jail. I didn’t.
The worst pick-up of the summer was also the most disgusting and even made the old veterans sick. A 300-pound man had died of a heart attack and was not discovered for a month. We decided to each grab an arm or leg and all tug on the count of three. One, two, three, and all four limbs came off!
Eventually, I figured out that handling dead bodies could be hazardous to your health, so I asked for rubber gloves. I was fired.
Still, I ended up with some of the best summer job stories ever.
Stay healthy,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Global Market Comments
November 3, 2022
Fiat Lux
Featured Trade:
(LONG TERM PORTFOLIO UPDATE)
(BMY), (AMGN), (CRSP), (LLY), (EEM), (BABA),
(GOOGL), (AAPL), (AMZN), (SQ), (TBT), (JNK), (JPM),
(BAC), (MS), (GS), (FXA), (FXC), (SLV)
Global Market Comments
October 19, 2022
Fiat Lux
Featured Trade:
(THE BARBELL PLAY WITH BERKSHIRE HATHAWAY),
(BRKA), (BRKA), (BAC), (KO), (AXP), (VZ), (BK) (USB),
(MRK), (ABBV), (CVX), (GM), (PCC), (BNSF), (TLT), (AAPL)
Global Market Comments
September 26, 2022
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or HOW TO TRADE THE 4TH QUARTER)
(SPY), (TLT), (AAPL), (TSLA), (RIVN)
In a mere six months, the Federal Reserve has morphed from Dr. Jekyll into Mr. Hyde.
It has changed from the stock market’s best friend to its worst enemy. Not only has the punch bowl been taken away, but it has also been smashed on the floor in a thousand pieces. A regime change has taken place in risk.
Welcome to a hostile Fed, one that utterly hates the stock market and loves cash. In fact, it loves cash so much it has raised its bid for overnight money from nothing to 4.2% in only six months. It is the fastest rise in interest rates in history.
To say that conditions have changed for the stocks would be the understatement of the century. This makes stocks less valuable, especially anything connected with growth, like technology stocks, and big borrowers, such as cruise lines.
Which raises the important question of the day: How the HECK are we going to trade the stock market in Q4?
It was in September of 2020 when 34 of my clients became millionaires buying TESLA at precisely the right time…
Well, the stars have aligned once again!!!!
In my TESLA free report, I list 10 reasons I’d tell my grandmother to mortgage her house and go all in.
Go to madhedgeradio.com and download my “Tesla Takes Over the World” free report.
Let me give you the good news first.
Q4 is likely to establish the final low for the bear market in stocks for this cycle. I don’t buy the endless years of suffering or the “lost decade” theories. Technology is just evolving too fast. It really makes no difference whether that low is at (SPX) $3,600, $3,300, or even $3,000. The best entry point for stocks in a decade will soon be at hand.
Keep in mind that with an (SPX) at $3,000 the market will be down a horrific 37.5% in a year. That is a worst-case scenario. A collapse this rapid has not happened since 1929.
This is for an economy that has seen no financial stresses whatsoever, except in crypto. This time, there are no banks going under, brokers going bust, housing crashes, or other similar stresses that drove the (SPX) down 52% by 2009.
There is nowhere near the misallocation of capital and malinvestment that we saw 15 years ago. Down 37.5% sounds like a screaming bargain to me.
The early “tell” that we are approaching the end came on Friday when the Volatility Index (VIX) hit $32.31. With any luck, it could top $40 in the coming weeks. Friday, when the Dow Average was down 800 points, we saw the largest put option buying in market history.
At that point, it will be possible for me to construct positions for you that are mathematically impossible to lose money with and offer the upside potential return of 10:1.
Once a handful of other technical indicators kick in, we’re there. This is what you should be looking for:
The (VIX) tops $40
Volume spikes
Down stocks top up ones by 90:10
The put:call ratio hits 2:1
A big intraday reversal that closes higher, like down $100 for the (SPX), up $150
Technology stocks, the most volatile sector in the market, also deliver a major turnaround
We get a dramatically lower report for the Consumer Price Index (and the next one is out October 13)
The Mad Hedge Market Timing Index falls below 10
So, what to buy this time?
With the Midterm elections now only 43 days away on Tuesday, November 8, it’s time to contemplate the implications for your retirement portfolio. The play of the decade is setting up.
Let me give you the good news first.
Whoever wins, and at this point, it really could be anyone, markets will rally after the election and power on until the end of 2022, some 10%-20%. The mere fact that the election is over is a huge market positive.
That’s the easy part.
But what if the election was held today?
The polls are telling us that the Democrats could pick up 2-3 seats in the Senate. The House now looks like a 50/50 split. Control could literally hinge on a handful of battleground states.
Suburban housewives now appear to be the great deciders.
So, what happens if the Democrats keep control of both houses, and the status quo is maintained?
For a start, taxes will be going up a lot, especially for the wealthy. Carried interest might finally make the ultimate sacrifice after coming back from the dead countless times. SALT taxes might get a break, but it is not likely. Once the government gets its hands on a revenue stream, it is loath to give it up.
It’s spending where we will see some important changes. Think more of the last two years, but in larger amounts.
Support for the Ukraine War will continue. So far, the US is getting great value for money. To eliminate the major military threat to the US and Europe for only $50 billion is the deal of the century. I’d pay ten times that.
So far, the Ukrainians are doing all the dying and we only write the checks. I greatly prefer that to a Vietnam-style commitment that bleeds us white (and by the way, I did some of that bleeding). Believe me, I’m doing everything I can to help by advising the Joint Chiefs of Staff.
The real game changer will be an alternative energy bill much larger than the last $733 billion bill. The goal will be to accelerate the decarbonization of the US, and ultimately the global economy. Of course, the free market will drive this anyway. No major automaker will be building internal combustion engines after 2030. What the government can do is to make it happen fast.
A year ago, climate change was an “it might happen someday after I’m long gone” kind of possibility. After a summer of 116 degrees in California and 114 degrees in France, “someday” has become “Yikes, it’s happening now!”
The last bill was truly misnamed as the “Inflation Reduction Act.” It really should have been called the “Tesla Shareholder Enrichment Bill”. Virtually every aspect of the bill somehow impinges on Elon Musk’s creation positively, which has been an overwhelming market leader in national electrification, enhanced EV subsidies, mass construction of charging stations, solar panels, and power walls, and decarbonization.
Since I am a major shareholder in (TSLA) and have been since the shares traded at $2.35, that’s fine with me. That probably explains why the shares are in the process of engineering a major upside breakout well before the election.
It isn’t just Tesla that will cash in. There is a broadening new leadership developing for the market to replace my technology stocks. Call it the “decarbonization sector”.
It includes EVs like Tesla (TSLA) and Rivian (RIVN), commodity stocks like copper miner Freeport McMoRan (FCX), uranium stocks like Cameco (CCJ) and the Uranium ETF (URA), solar companies like First Solar (FSLR) and SunPower (SPWR), alternative utilities like NextEra Energy (NEE), the world’s largest generator of electricity from wind and the sun, and silver plays like the iShares Silver Trust (SLV) and Wheaton Precious Metals (WPM), essential for high-efficiency wiring.
I will be adding more names to this list as I find them. Watch your research inbox.
Of course, 43 days in the political world is a couple of lifetimes in the real world, so anything can happen. A boatload of October surprises is probably just around the corner.
As for me, I’m putting more of my money into Tesla.
It all raises a new risk that we haven’t dealt with before.
What if the US government can’t afford to pay its own debt? When the last financial crisis and recession began in 2007, the US national debt was only a paltry $9 trillion, or 60% of GDP. It has since risen to $30 trillion, or 140% of GDP. Holy smokes!
That was all well and good while interest rates were dropping from 7% to zero. What happens when rates go back up from zero to 7.0%? The cost of carry for the US Treasury more than doubles as well, taking a much bigger bite of government spending, more than it can afford.
Just thought you’d like to know.
My Ten-Year View
When we come out the other side of pandemic and the recession, we will be perfectly poised to launch into my new American Golden Age, or the next Roaring Twenties. With oil peaking out soon, and technology hyper-accelerating, there will be no reason not to. The Dow Average will rise by 800% to 240,000 or more in the coming decade. The America coming out the other side will be far more efficient and profitable than the old. Dow 240,000 here we come!
With some of the greatest market volatility in market history, my September month-to-date performance maintained at +1.68%.
I used last week’s extreme volatility to add shorts in Apple (AAPL), the S&P 500 (SPY), and the United States US Treasury bond fund (TLT). That takes me to 30% long, 30% short, and 40% cash. I am holding back my cash for a truly cataclysmic market selloff.
My 2022 year-to-date performance ballooned to +61.64%, a new high. The Dow Average is down -18.48% so far in 2022. It is the greatest outperformance on an index since Mad Hedge Fund Trader started 14 years ago. My trailing one-year return maintains a sky-high +72.06%.
That brings my 14-year total return to +574.20%, some 2.86 times the S&P 500 (SPX) over the same period and a new all-time high. My average annualized return has ratcheted up to +44.74%, easily the highest in the industry.
On Monday, September 26 at 8:30 AM, the Chicago Fed National Activity Index for August is released.
On Tuesday, September 26 at 7:00 AM, the Durable Goods Index for August is out. New Home Sales are also printed.
On Wednesday, September 28 at 7:00 AM, Pending Home Sales for August are published.
On Thursday, September 29 at 8:30 AM, Weekly Jobless Claims are announced. We also learn the final report for US Q2 GDP.
On Friday, September 30 at 7:00 AM, the Personal Income and Spending are disclosed. At 2:00 the Baker Hughes Oil Rig Count is out.
As for me, I’ve found a new series on Amazon Prime called 1883. It is definitely NOT PG rated, nor is it for the faint of heart. But it does remind me of my own cowboy days.
When General Custer was slaughtered during his last stand at the Little Big Horn in 1876 in Montana, my ancestors spotted a great buying opportunity. They used the ensuing panic to pick up 50,000 acres near the Wyoming border for ten cents an acre.
Growing up as the oldest of seven kids, my parents never missed an opportunity to farm me out with relatives. That’s how I ended up with my cousins near Broadus, Montana for the summer of 1966.
When I got off the Greyhound bus in nearby Sheridan, I went into a bar to call my uncle. The bartender asked his name and when I told him “Carlat”, he gave me a strange look.
It turned out that my uncle had killed someone in a gunfight in the street out front a few months earlier, which was later ruled self-defense. It was the last public gunfight seen in the state, and my uncle hasn’t been seen in town since.
I was later picked up in a beat-up Ford truck and driven for two hours down a dirt road to a log cabin. There was no electricity, just kerosene lanterns and a propane-powered refrigerator.
Welcome to the 19th century!
I was hired as a cowboy, lived in a bunk house with the rest of the ranch hands, and was paid the princely sum of a dollar an hour. I became popular by reading the other cowboys newspapers and their mail since they were all illiterate. Every three days we slaughtered a cow to feed everyone on the ranch. I ate steak for breakfast, lunch, and dinner.
On weekends, my cousins and I searched for Indian arrowheads on horseback, which we found by the shoe box full. Occasionally, we got lucky finding an old rusted Winchester or Colt revolver just lying out on the range, a remnant of the famous battle 90 years before. I carried my own six-shooter to help reduce the local rattlesnake population.
I really learned the meaning of work and developed callouses on my hands in no time. I had to rescue cows trapped in the mud (stick a burr under their tail and make them mad), round up lost ones, and sawed miles of fence posts. When it came time to artificially inseminate the cows with superior semen imported from Scotland, it was my job to hold them still. It was all heady stuff for a 15-year-old.
The highlight of the summer was participating in the Sheridan Rodeo. With my uncle being one of the largest cattle owners in the area, I had my pick of events. So, I ended up racing a chariot made from an old oil drum, team roping (I had to pull the cow down to the ground), and riding a brahman bull. I still have a scar on my left elbow from where a bull slashed me, the horn pigment clearly visible.
I hated to leave when I had to go home and back to school. But I did hear that the winters in Montana are pretty tough.
It was later discovered that the entire 50,000 acres were sitting on a giant coal seam 50 feet thick. You just knocked off the topsoil and backed up the truck. My cousins became millionaires. They built a modern four-bedroom house closer to town with every amenity, even a big screen TV. My cousin also built a massive vintage car collection.
During the 2000s, their well water was poisoned by a neighbor’s fracking for natural gas, and water had to be hauled in by truck at great expense. In the end, my cousin was killed when the engine of the classic car he was restoring fell on top of him when the rafter above him snapped.
It all gave me a window into a lifestyle that was then fading fast. It’s an experience I’ll never forget.
Stay healthy,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Mad Hedge Technology Letter
September 22, 2022
Fiat Lux
Featured Trade:
(POTENTIAL TECH REVERSAL PUSHED BACK)
(FED), (META), (AAPL)
Tech investors want nothing to do with an aggressive Federal Reserve, but that’s what we have.
I don’t choose this and neither do many others out there.
We have been spoilt in a world with low inflation, global peace, low energy, and high liquidity which was the perfect scenario for tech stocks.
The reverse has happened almost overnight and now it’s that much harder to earn your crust of bread in the tech world.
Gone are the days of buying Facebook for peanuts then going for a sauna and a nap. It’s not that easy right now.
Tech stocks don’t go up in a straight line anymore – there will be many zigs and zags along the way moving forward.
Tech stocks aren’t immune to these exogenous stocks and as anointed growth companies, they inherently need to borrow capital and grow more than the cost of it.
That endeavor is stretched to the limit as bond yield explodes to the upside with this latest rate rise.
Raising interest rates by 0.75% for the third consecutive time this afternoon was the consensus, but in fact, there was a 25% chance of a full 1% rate rise. We avoided that bullet.
Tech stock doves were hoping US Federal Reserve Governor Jerome Powell would save them, by initiating a pivot to save the stock market, but no do this time around.
It underscores that Powell is adamant about continuing this inflation battle even if I do believe it’s too little too late.
The central bank’s new benchmark borrowing rate is now between 3.0% to 3.25%, up from the current range of 2.25% to 2.5%. This would bring the fed funds rate to its highest level since 2008.
Tech stock reacts most sensitively to the change in Fed Funds rates which is why we have seen CEO and Founder of Meta (META) or Facebook Mark Zuckerberg lose $71 billion of his net wealth this year.
Not only is the macroenvironment squarely against him, but his flagship product Facebook is losing steam, and his new product the Metaverse has garnered tepid reviews from outsiders.
How long does the Fed intend to increase rates?
The updated consensus for the Fed Funds Rate shows it at 4-4.25% by the end of 2022, another hike to 4.25-4.5% at end of 2023, and one more cut in 2024 and two more in 2025.
The answer is quite a while longer.
In the meantime, this will initiate a “reverse wealth effect” and tech stocks are the biggest losers, and the US dollar is an unmitigated winner.
Delaying lower Fed Funds rates means delaying the reversal in tech stocks which need lower rates to explode higher and without it, they are quite ordinary.
Signaling higher rates for longer is designed to tame inflation, but there are so many unintended consequences for US tech stocks.
The most important themes to be concerned about are revenue and financing.
The .75% increase in rates will mean that tech stocks will produce lower annual revenue because financing costs will be higher.
This is already at a time when general costs have exploded higher such as an uncontrollable wage spiral, supply chain bottlenecks, health care costs, transportation costs, and energy costs.
It’s a great deal harder to keep the numbers down enough to profit which basically means gross margins will compress further from today.
Tech stocks will come back because they always do. They are the profit engine of corporate America, and that will never change.
I see great tech companies like Apple (AAPL) installing the framework so they can maximize on the next move up when the bull market reignites.
They are doing this by moving iPhone production to India and other tablet production to Vietnam to get out of lockdown China.
Now is the time to reset before tech bounces back and it’s painful to see tech get slaughtered, but this is a necessary evil after a wonderful bull run from 2012 to November 2021.
US FED GOVERNOR GIVES NO LOVE TO TECH STOCKS
Global Market Comments
September 12, 2022
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or STUCK IN THE MIDDLE)
(SPY), (TSLA), (TLT), (USO), (VIX), (AAPL)
Buy fear, sell greed.
That is what has been my magic formula for making money over the past 50 years.
But what happens if you get nothing?
What happens if you are stuck in a big fat middle of a range? That seems to be the case now that the market is nailed to the (SPY) 4,000 level, which it turns out is exactly the middle of a four-month trading range.
The market fought the Fed for two months from June and won. It has lost since Jackson Hole. The market has only seen that degree of whipsaw four times since 1950.
It now appears that it is front running a very weak number for the Consumer Price Index on September 13. After that, we get a 75-basis point rate rise on September 20. Good cop first, then bad cop.
That leaves me twiddling my thumbs along with everyone else, waiting for the market to throw up on its shoes. We were almost getting there last week when the Volatility Index (VIX) clawed its way back to $27. Then it gave it all up, falling back to $22. Some $5 is just not enough spread with which to make a living, or worth executing a trade.
And here is the key to the market right now.
You’re not buying stocks for headlines you are seeing today, which are universally dire, cataclysmic, and predicting Armageddon.
You are buying for the headlines that will appear in a year. This will include:
Russia loses the Ukraine War
The price of oil (USO) collapses below $50 a barrel
The European energy crisis ends
Gasoline prices fall below $2.00 a gallon
Inflation falls below 4%
Interest rates stabilize around 3.50%-4.00%
Corporate earnings reaccelerate
We get another $1 trillion in corporate share buybacks
That sounds like one heck of a market to buy into. Why not buy now when everything is on sale, rather than in a year when it is expensive once again?
You don’t have to bet the ranch today. Just scale in, buying 10% of a position a day in your favorite names until you are fully invested. That way, you’ll get an average close to a bottom. You’ll at least get a seat on the train and won’t be left behind waving goodbye from the platform.
That means adding technology stocks to your portfolio, which will be the top-performing sector for the rest of this century.
The other thing you can do is to start getting rid of your defensive names. If you think oil is going below $50 in a year as I do, you don’t want to have a single oil name in your portfolio.
You want to own boring stocks in falling markets and exciting ones in rising markets.
You can’t get THE bottom. I can’t do it, so how are you going to?
There is one other factor that I guarantee you no one is looking at. Do you know anyone who bought a spec home for a quick flip lately? I bet not.
That means there is a lot of speculative capital looking for a new home and I bet that a lot of it is going into the stock market. The same is true with bitcoin.
I just thought you’d like to know.
Apple Rolls Out Next-Gen iPhone. The focus will be on larger phones with faster processors and a better camera. There may also be an inflationary $100 price increase. A new watch and Airpods are also expected. Buzz kill: every two years, this event usually marks a six-month high in the stock. Apple may no longer be the safest stock in the market.
Russia Cuts Gas Supplies to Europe until Ukraine sanctions are lifted. That took the Euro to a 20-year low of under 99 cents. You get into bed with the devil, and you pay the consequences. Russia must desperately need that trade with Europe.
Germany Fights Russia with Coal. Coal is enjoying a renaissance in Germany where it is being used to replace the total cut-off in Russian natural gas. In 2022, coal has jumped from 27% to 33% of electricity production, while gas has plunged from 18% to 11.7%. It goes against the country’s strong environmental principles and will only be used as a bridge towards greatly accelerated alternative energy efforts. Importing all the natural gas they can from the US also helps. It will greatly help Europe hold together this winter to face down the Russian energy war.
Home Equity is Shrinking, down $500 billion from the $11.5 trillion peak. It means less money is available to go into stocks. But we are nowhere near a crash, like we saw in 2008, when home equity nearly went to zero. No liar loans, exaggerated appraisals, or financial crisis this time. This housing recession will be about ice, not fire. There won’t be much of a housing crash when we’re still short 10 million homes. If you sell, your new mortgage will have double the interest rate. Ergo, don’t sell.
Weekly Jobless Claims Hit 3-Month Low, down 6,000 to 222,000. This number is not even close to an economic slowdown. In the wake of the decent nonfarm payroll report last week, it shows that employment is anything but slowing.
Tesla (TSLA) Triples China Deliveries after expanding the Shanghai factory. Elon Musk seems able to accomplish what others can’t, increasing production and sales in the face of rolling Covid lockdowns, heat waves, and materials shortages. Buy (TSLA) on dips.
California Sets a $22 Minimum Wage for fast food workers starting from 2023. It’s a catch-up with minimum wages that haven’t changed for 20 years and represents a broader issue for the rest of the country. Think this may be inflationary? Count on all of this going straight into product price rises. It may become cheaper to make your cheeseburgers at home.
The Bond Market Crashes, with ten-year US Treasury bond soaring 20 basis points to a 3.35% yield. The (TLT) hit a new 2022 low at $107.49. Bonds are reading the writing on the wall from Jackson Hole, even if stocks aren’t. Avoid (TLT).
Oil Crashes $4 on recession fears. Most Russian sales are now taking place 20% below the market to China and India. We may be approaching an interim low as winter approaches unless the Ukraine war ends.
A US Rail Strike Threatens as wage talks stall. A recession could be the result. Negotiators have until September 16 to reach a deal for 115,000 workers. A strike would also spike inflation. This could be our next black swan.
My Ten-Year View
When we come out the other side of pandemic and the recession, we will be perfectly poised to launch into my new American Golden Age, or the next Roaring Twenties. With oil in a sharp decline, inflation falling, and technology hyper-accelerating, there will be no reason not to. The Dow Average will rise by 800% to 240,000 or more in the coming decade. The America coming out the other side will be far more efficient and profitable than the old. Dow 240,000 here we come!
With markets now a snore, my September month-to-date performance ground up to +1.02%. I took profits in my last long in Microsoft (MSFT) going into a rare 100% cash position awaiting the next market entry point.
My 2022 year-to-date performance improved to +60.98%, a new high. The Dow Average is down -12% so far in 2022. It is the greatest outperformance on an index since Mad Hedge Fund Trader started 14 years ago. My trailing one-year return maintains a sky-high +73.65%.
That brings my 14-year total return to +573.54%, some 2.48 times the S&P 500 (SPX) over the same period and a new all-time high. My average annualized return has ratcheted up to +44.98%, easily the highest in the industry.
We need to keep an eye on the number of US Coronavirus cases at 95.2 million, up 300,000 in a week and deaths topping 1,050,000 and have only increased by 2,000 in the past week. You can find the data here.
On Monday, September 12 at 8:30 AM, US Consumer Inflation Expectations for August is released.
On Tuesday, September 13 at 8:30 AM, the US Core Inflation Rate for August is out.
On Wednesday, September 14 at 7:00 AM, the Producer Price Index for August is published.
On Thursday, September 15 at 8:30 AM, Weekly Jobless Claims are announced. We also get Retail Sales for August.
On Friday, September 16 at 7:00 AM, the University of Michigan Consumer Sentiment is disclosed. At 2:00 the Baker Hughes Oil Rig Count are out.
As for me, when you’re 6’4” and 180 pounds, there is not a lot of things that can seriously toss you around. One is a horse, and another is a wave.
It was the latter that took me down to Newport Beach, CA to a beachfront house for my annual foray into body surfing. Newport Beach has some of the best waves in California.
This is the beach that made John Wayne a movie star.
John, whose real name was Marion Morrison, grew up in a Los Angeles suburb and won a football scholarship to the University of Southern California. While still a freshman in 1925, he went bodysurfing at Newport Beach with a carload of buddies. A big wave picked him up and smashed him down on the sand, breaking his right shoulder.
At football practice, there was no way a big lineman could block and tackle with a broken shoulder, so he was kicked off the team and lost his scholarship.
He still had to eat, so he resorted to the famed student USC jobs bulletin board, which I have taken advantage of myself (it’s where I got my LA coroner’s job).
The 6’4” Wayne was hired as a stagehand by up-and-coming movie director John Ford, himself also a former college football star. In 14 years, Wayne worked himself up from gopher, to extra, to a leading man in 1930, and then his breakout 1939 film Stagecoach.
During WWII, Wayne, too old, was confined to entertainment for the USO shows and making propaganda films while the rest of his generation was at the front. He never recovered from that humiliation and spent the rest of his life as a super patriot.
I saw John Wayne twice. My uncle Charles, who was the CFO of the Penn Central Railroad in the 1960s, made a fortune selling short the stock right before it went bankrupt (maybe that was legal then?). He bought a big beach house on California Balboa’s Island right next door to John Wayne’s.
One day, the family was cruising by Wayne’s house, and he was sitting on his front patio in a beach chair. Then one of our younger kids shouted out “he’s bald” which he was. Wayne laughed and waved.
The second time was in the early 1970s. I was walking across the lobby of the Beverly Hills Hotel with the movie star and Miss America runner-up Cybil Shephard on my arm. He walked right up to us and with a big smile said, “hello gorgeous”. He wasn’t talking to me.
I learned a lot about Wayne from my uncle, Medal of Honor winner Mitchell Paige, who was hired as the technical consultant for the 1949 film Sands of Iwo Jima and spent several months working closely with him. The lead character, Marine Sargent John Striker, was based on Mitch.
Film critics complained that Wayne couldn’t act, that he was just himself all the time. But I knew my uncle Mitch well, a humble, modest, self-effacing man, and Wayne absolutely nailed him to a tee.
The Searchers, made in 1958, and directed by John Ford, is considered one of the finest movies ever made. I show it to my kids every Christmas to remind them where they came from because we have an ancestor who was kidnapped in Texas by the Comanches and survived.
John Wayne was a relentless chain smoker, common for the day, and lung cancer finally caught up with him. His first bout was in 1965 when he was making In Harm’s Way, the worst war movie he ever made. His last film, The Shootist, made in 1978, was ironically about an old gunslinger dying of prostate cancer.
John Wayne hosted the 1979 Academy Awards rail thin, racked by chemotherapy and radiation treatments. He died a few months later after making an incredible 169 movies in 50 years.
John Wayne was one of those people you’re lucky to run into in life. He was a nice guy when he didn’t have to be.
As for those waves at Newport Beach, I can vouch they are just as tough as they were 100 years ago.
Stay healthy,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
