I am really happy with the performance of the Mad Hedge Long Term Portfolio since the last update on February 2, 2021. In fact, not only did we nail the best sectors to go heavily overweight, we also completely dodged the bullets in the worst-performing ones.
For new subscribers, the Mad Hedge Long Term Portfolio is a “buy and forget” portfolio of stocks and ETFs. If trading is not your thing and you don’t want to remain glued to a screen all day, these are the investments you can make. Then don’t touch them until you start drawing down your retirement funds at age 72.
For some of you, that is not for another 50 years. For others, it was yesterday.
There is only one thing you need to do now and that is to rebalance. Buy or sell what you need to reweight every position to its appropriate 5% or 10% weighting. Rebalancing is one of the only free lunches out there and always adds performance over time. You should follow the rules assiduously.
Despite the seismic changes that have taken place in the global economy over the past nine months, I only need to make minor changes to the portfolio, which I have highlighted in red on the spreadsheet.
To download the entire new portfolio in an excel spreadsheet, please go to www.madhedgefundtrader.com, log in, go “My Account”, then “Global Trading Dispatch”, the click on the “Long Term Portfolio” button, then “Download.”
Changes
Biotech
Pfizer (PFE) has nearly doubled in six months, while Crisper Therapeutics (CRSP) has almost halved. Since the pandemic, which Pfizer made fortunes on, is peaking and we are still at the dawn of the CRISPR gene editing revolution, the natural switch here is to take profits in (PFE) and double up on (CRSP).
Technology
I am maintaining my 20% in technology which are all close to all-time highs. I believe that Apple (AAPL), (Amazon (AMZN), Google (GOOGL), and Square (SQ) have a double or more over the next three years, so I am keeping all of them.
Banks
I am also keeping my weighting in banks at 20%. Interest rates are imminently going to rise, with a Fed taper just over the horizon, setting up a perfect storm in favor of bank earnings. Loan default rates are falling. Banks are overcapitalized, thanks to Dodd-Frank. And because of the trillions in government stimulus loans they are disbursing, they are now the most subsidized sector of the economy. So, keep Morgan Stanley (MS), Goldman Sachs (GS), JP Morgan (JPM), and Bank of America, which will profit enormously from a continuing bull market in stocks. They are also a key part of my” barbell” portfolio.
International
China has been a disaster this year, with Alibaba (BABA) dropping by half, while emerging markets (EEM) have gone nowhere. I am keeping my positions because it makes no sense to sell down here. There is a limit to how much the Middle Kingdom will destroy its technology crown jewels. Emerging markets are a call option on a global synchronized recovery which will take place next year.
Bonds
Along the same vein, I am keeping 10% of my portfolio in a short position in the United States Treasury Bond Fund (TLT) as I think bonds are about to go to hell in a handbasket. I rant on this sector on an almost daily basis so go read Global Trading Dispatch. Eventually, massive over-issuance of bonds by the US government will destroy this entire sector.
Foreign Exchange
I am also keeping my foreign currency exposure unchanged, maintaining a double long in the Australian dollar (FXA). Eventually, the US dollar will become toast and could be your next decade-long trade. The Aussie will be the best performing currency against the US dollar.
Australia will be a leveraged beneficiary of the synchronized global economic recovery through strong commodity prices which have already started to rise, and the post-pandemic return of Chinese tourism and investment. I argue that the Aussie will eventually make it to parity with the US dollar, or 1:1.
Precious Metals
As for precious metals, I’m keeping my 0% holding in gold (GLD). From here, it is having trouble keeping up with other alternative assets, like Bitcoin, and there are better fish to fry.
I am keeping a 5% weighting in the higher beta and more volatile iShares Silver Trust (SLV), which has far wider industrial uses in solar panels and electric vehicles. The arithmetic is simple. EV production will rocket from 700,000 in 2020 to 25 million in 2030 and each one needs two ounces of silver.
Energy
As for energy, I will keep my weighting at zero. Never confuse “gone down a lot” with “cheap”. I think the bankruptcies have only just started and will stretch on for a decade. Thanks to hyper-accelerating technology, the adoption of electric cars, and less movement overall in the new economy, energy is about to become free. You are looking at the next buggy whip industry.
The Economy
My ten-year assumption for the US and the global economy remains the same. I’m looking at 3%-5% a year growth for the next decade after this year’s superheated 7% performance.
When we come out the other side of this, we will be perfectly poised to launch into my new American Golden Age, or the next Roaring Twenties. With interest rates still at zero, oil cheap, there will be no reason not to. The Dow Average will rise by 700% or more from 35,000 to 240,000 in the coming decade. The American coming out the other side of the pandemic will be far more efficient, productive, and profitable than the old.
You won’t believe what’s coming your way!
I hope you find this useful and I’ll be sending out another update in six months so you can rebalance once again. If I forget, please remind me.
Stay healthy.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png00Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2021-08-19 10:02:182021-08-19 12:09:09My Newly Updated Long-Term Portfolio
When things can’t be better, they really can’t get any better, and there is no upside left.
As I expected, big tech companies announced earnings for the ages, the top four totaling a staggering $56.6 billion in profits in Q2, or $226.4 billion annualized. That compares to total US Q1 profits of $2.347 trillion. Then their stocks fell apart, with Amazon leading the charge to the downside.
To say tech earnings were impressive would be a vast understatement, with Apple (AAPL) coming in at $21.7 billion, Amazon (AMZN) at $7.8 billion, Facebook (FB) at $10.4 billion, and Microsoft (MSFT) at $16.7 billion.
However, since we are in the “What have you done for me lately” business, what do we have to look forward in August?
Covid cases are soaring nationally tripling off the 15,000 a day lows of a month ago. The delta variant is twice as contagious and twice as fatal as earlier ones. Mask mandates are back in the big cities, pushing back economic growth and a jobs recovery out into 2022. The least vaccinated stated are seeing hospital systems overwhelmed once again. School reopenings are now an unknown, and if they do, it will be with masks.
I sent my kids to a Boy Scout camp this week. On the second day, two unvaccinated staff members tested positive for delta and the county immediately shut the place down, sending home 500 disappointed scouts and parents. Dreams of long sought merit badges went up in smoke. The same thing is happening across the entire economy.
The next three months are historically the worst performing of the year, generating an average 0.03% over the last 100 years. Inflation reports are going to remain high for the rest of the year. The Fed has a new reason to keep interest rates a zero for longer, bad for banks, brokers, commodities, and industrials.
Oh, and the next round of spectacular tech earnings are three months away.
There is another factor in play. Investors have made the most money in their lives over the last 16 months, including me. The temptation to take the money and run is strong and irresistible. Traders have visions of Ferraris dancing in their eyes. This alone would bring on an overdue 5%-10% pull back.
So what is the smart thing to do here? Sell all your short-term positions but keep all your long-term positions and LEAPS. The market isn’t going down enough to justify the round-trip expenses and capital gains taxes.
If you have new cash flows keep it in money market funds. People will be shocked by the speed and viciousness of the coming selloff. But when it occurs, the best buying opportunity in a year will be on its knees begging for your attention.
It may feel cataclysmic, another Armageddon, and like the end of the world, but it won’t be. After all, we have seen no less than 36 10% corrections in my lifetime. The investors who hung in made the most money every single time.
I’ll tell you when we hit bottom with a raft of new LEAPS recommendations, provided I can get them out fast enough.
The Fed stands pat, keeping overnight rates at 0%-0.25%. The delta variant has pushed the taper off three months, but Jay Powell gave the barest of hints that it is the next step to take. We have 9 million unemployed and 9 million job openings but there is a massive skills gap, with jobless waitresses and retails in over supply and coders and artificial intelligence specialist sought after. It’s all the result of 40 years of under investment in our education system.
US Q2 GDP comes in at 6.5%, one of the strongest in economic history, but less than forecasts that were as high as 10%. Supply chain restraints we the main explanation for the shortfall. All that does is push growth into 2022, when people CAN get parts and labor. In the meantime, personal consumption soared by 11.8%, the hottest report since 1952, proving the demand is there.
Covid Cases triple from recent lows to 43,700 a day. Blame the delta variant, which originated in India, and now accounts for 86% of new cases. Twice as contiguous, with a greater fatality rate and more long-term effect, delta is prompting the return of mask mandates in several cities. Only the unvaccinated are affected. This could be the trigger for the next correction.
Smart phones will deliver the next big chip shortage, even if the chip shortage for cars abates. The bad news? There are 22 times more phones produced each year than cars, 1.4 billion versus only 64 million in 2020. Out of the frying pan and into the fire.
S&P Case Shiller smashes all records, up 17% YOY for national home prices. Phoenix (25.9%), San Diego (24.7%), and Seattle (23.4%) lead. These numbers are past “extraordinary.” Expect it to continue.
New Homes Sales plunge to 676,000, down 6.6% on a signed contract basis, but prices are up 6%. Inventories are up from 5 months to a still low 6.5 months. Shortages of land, labor, and materials are still the big issue.
Pending Home Sales drop 1.9% in June on a signed contract bases. High prices are curing high prices, with the Case-Shiller National Home Price Index up 17% YOY. The south and west posted the biggest declines. Single family homes have dropped for three months in a row to a one year low.
China meltdown continues, with the Beijing government apparently withdrawing from western capital markets. It’s all about showing the world who is in charge and punishing the billionaires by destroying their stocks. They are wiping out $1 trillion in equity per day and don’t care if you get hit as well. Cathy Wood’s Ark Innovation ETF (ARKK) is dumping everything they have. Avoid China at all cost.
Tesla announces first $1 billion profit in Q2, despite losing $23 million in Bitcoin. That is 10X the year ago report. They could have made a lot more if they had more chip supplies. The energy business brought in a rapidly growing $800 million in revenues. The Austin and Berlin Gigafactory’s are coming online at the end of the year, allowing them to scale globally. The Cybertruck is on hold and production of Powerwall’s cut back until they can get more chip supplies, creating extreme shortages. Buy (TSLA) on dips. There’s a 10X from here.
Tesla claims No.2 auto sales spot in Europe in June, just behind Volkswagen’s Golf, and beathing Daimler Benz, Audi, Fiat, and Renault. The company shipped 25,697 Model 3’s, which is perfect for the continent’s tight spaces, short distances, and green preferences. Big government subsidies to switch from internal combustion engines helped too.
Tesla Profits
Bitcoin tops $40,000 in a massive short covering rally. Tesla may start taking the crypto currency as payment for new vehicles and Amazon (AMZN) may get into the game as well. While China is studying way to make a digital yuan (CYB) and Europe a digital Euro (FXE), the US congress sees such a move as pointless.
Robinhood IPO (HOOD) Bombs, trading down as much as 12% from its $38.00 IPO price. That leaves it with a still impressive $29 billion market capitalization, a fifth the size of Morgan Stanley. What happens when individuals get their allocations? No “diamond hands” here. It looks like a “BUY” after it drops by half opportunity, just like Tesla after its IPO. The facilitator of meme stock frenzies has best ever year is behind it, or until we get another pandemic. The company has already paid $127 million in fines and almost went under in January. Avoid (HOOD) for now.
My Ten Year View
When we come out the other side of pandemic, we will be perfectly poised to launch into my new American Golden Age, or the next Roaring Twenties. With interest rates still at zero, oil cheap, there will be no reason not to. The Dow Average will rise by 800% to 240,000 or more in the coming decade. The American coming out the other side of the pandemic will be far more efficient and profitable than the old. Dow 240,000 here we come!
My Mad Hedge Global Trading Dispatch saw a modest +0.61% in July. My 2021 year-to-date performance appreciated to 69.21%. The Dow Average was up 14.16% so far in 2021.
I stuck with my four positions, a long in (JPM) and a short in the (TLT) and a double short in the (SPY). I bled all the way until Friday, when big hits to tech stocks took the (SPY) down and edging me up to a positive return for July. That leaves me 60% in cash. I’m keeping positions small as long as we are at extreme overbought conditions.
That brings my 11-year total return to 491.76%, some 2.00 times the S&P 500 (SPX) over the same period. My 12-year average annualized return now stands at an unbelievable 12.15%, easily the highest in the industry.
My trailing one-year return retreated to positively eye-popping 107.72%. I truly have to pinch myself when I see numbers like this. I bet many of you are making the biggest money of your long lives.
We need to keep an eye on the number of US Corona virus cases at 34.9 million and rising quickly and deaths topping 613,000, which you can find here.
The coming week will bring our monthly blockbuster jobs reports on the data front.
On Monday, August 2 at 7:00 AM, the Manufacturing PMI for July is published. NXP Semiconductor (NXP) reports.
On Tuesday, August 3, at 7:30 AM, Factory Orders for June are released. Amgen (AMGN), Eli Lily (LLY), and Alibaba (BABA) report. On Wednesday, August 4 at 5:30 AM, the ADP Private Employment Report is published. Uber (UBER) and General Motors (GM) report.
On Thursday, August 5 at 8:30 AM, Weekly Jobless Claims are announced. Square (SQ) reports.
On Friday, August 6 at 8:30 AM, we get the Nonfarm Payroll Report for July. Berkshire Hathaway (BRKB) reports.
As for me, I am reminded of my own summer of 1967, back when I was 15, which may be the subject of a future book and movie.
My family summer vacation that year was on the slopes of Mount Rainier in Washington state. Since it was raining every day, the other kids wanted to go home early. So my parents left me and my younger brother in the hands of Mount Everest veteran Jim Whitaker to summit the 14,411 peak (click herefor his story). The deal was for us to hitch hike back to Los Angeles when we got off the mountain.
In those days, it wasn’t such an unreasonable plan. The Vietnam war was on, and a lot of soldiers were thumbing their way to report to duty. My parents figured that since I was an Eagle Scout, I could take care of myself.
When we got off the mountain, I looked at the map and saw there was this fascinating country called “Canada” just to the north. So, it was off to Vancouver. Once there, I learned there was a world’s fair going on in Montreal some 2,843 away, so we hit the TransCanada Highway going east.
We ran out of money in Alberta, so we took jobs as ranch hands. There we learned the joys of running down lost cattle on horseback, working all day at a buzz saw, inseminating cows, and eating steak three times a day. I made friends with the cowboys by reading them their mail, which they were unable to do. There were lots of bills due, child support owed, and alimony demands.
In Saskatchewan, the roads ran out of cars, so we hopped a freight train in Manitoba, narrowly missing getting mugged in the rail yard. We camped out in a box car occupied by other rough sorts for three days. There’s nothing like opening the doors and watching the scenery go by with no billboards ad, the wind blowing through your hair!
When the engineer spotted us on a curve, he stopped the train and invited us to up the engine. There, we slept on the floor, and he even let us take turns driving! That’s how we made it to Ontario, the most mosquito-infested place on the face of the earth.
Our last ride into Montreal offered to let us stay in his boat house as long as we wanted so there we stayed. Thank you, WWII RAF bomber pilot Group Captain John Chenier!
Broke again, we landed jobs at a hamburger stand at Expo 67 in front of the imposing Russian pavilion. The pay was $1 an hour and all we could eat. At the end of the month, Madame Desjardin couldn’t balance her inventory, so she asked how many burgers I was eating a day. I answer 20, and my brother answered 21. “Well, there’s my inventory problem” she replied.
And then there was Suzanne Baribeau, the love of my life. I wonder whatever happened to her?
I had to allow two weeks to hitch hike home in time for school. When we crossed the border at Niagara Falls, we were arrested as draft dodgers as we were too young to have driver’s licenses. It took a long conversation between US Immigration and my dad to convince them we weren’t.
We developed a system where my parents could keep track of us. Long distance calls were then enormously expensive. So, I called home collect and when my dad answered he asked what city the call was coming from. When the operator gave him the answer, he said he would not accept the call. I remember lots of surprised operators. But the calls were free, and dad always knew where we were.
We had to divert around Detroit to avoid the race riots there. We got robbed in North Dakota, where we were in the only car for 50 miles. We made it as far has Seattle with only three days left until school started.
Finally, my parents had a nervous breakdown. They bought us our first air tickets ever to get back to LA, then quite an investment.
I haven’t stopped traveling since, my tally now topping all 50 states and 135 countries.
And I learned an amazing thing about the United States. Almost everyone in the country is honest, kind, and generous. Virtually every night, our last ride of the day took us home and provided us with an extra bedroom or a garage to sleep in. The next morning, they fed us a big breakfast and dropped us off at a good spot to catch the next ride.
It was the adventure of a lifetime and am a better man for it.
Stay healthy.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Summit of Mt. Rainier 1967
McKinnon Ranch Bassano Alberta 1967
American Pavilion Expo 67
Hamburger Stand at Expo 67
Picking Cherries in Michigan 1967
https://www.madhedgefundtrader.com/wp-content/uploads/2021/08/cherry-picking.png460476Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2021-08-02 11:02:082021-08-02 11:43:51The Market Outlook for the Week Ahead, or Taking a Break
Northern Californian tech companies stopped innovating because of the monopolistic nature of current business models that nestle nicely in unfettered capitalism.
They only go by one principle these days – to crush anything remotely resembling competition and they are damn good at doing it.
This has been going on in Silicon Valley for years and the government has turned a blind eye since the beginning of it.
The end result is the absence of competition.
At a higher tech level, the strong get stronger by stockpiling cash and resources, all while taking advantage of historically low rates to finance their growth models.
Why does the U.S. government largely sit on the sidelines and act if nothing has really happened?
If I deploy the concept of Occam's razor to this situation, a philosophical rule that entities should not be multiplied unnecessarily which is interpreted as requiring that the simplest of competing theories be preferred, my bet is that most of U.S. Congress own stock portfolios, even if they are the index variety, and these portfolios are spearheaded by the likes of Apple (AAPL), Facebook (FB), Amazon (AMZN), Google (GOOGL), Microsoft (MSFT), Netflix (NFLX), and of course Tesla (TSLA).
This has come into the open frequently with members of Congress even front-running the March 2020 sell-off with their own portfolios like U.S. senator Kelly Loeffler from Georgia selling $20 million in stock after attending special intelligence briefings in the weeks building up to the coronavirus pandemic.
We definitely don’t get invites to those special intelligence briefings, but Loeffler getting off scot-free by mainly just playing down what she did proves the immunity that politicians accrue from their lofty positions.
It’s a direct conflict of interest, but that's not surprising for politics in 2021 and I would say it epitomizes the era we are in.
It’s also why Congress hasn’t acted on Silicon Valley’s excessive abuse of power, which is so glaringly blatant that excuses must be crafted just to make it seem they aren’t as bad as they are.
The government likes to jawbone to the public saying they will make competition a level playing field, but actions show they are doing the opposite.
Ultimately, Silicon Valley whispers in the ear of Congress and they listen.
Well, what now?
Tech has now turned mostly into a digital marketing lovefest harnessed around the smartphone and tablet with cheap shortcuts which is partly why the efficacy of the internet has dropped greatly.
The advent of 5G has also been a bust because these titans don’t feel the need to reinvest to make that killer 5G app when they don’t need to.
The truth is Silicon Valley couldn’t be more complacent in 2021.
They are the ultimate corporate entity and more monolithic than ever.
Smart CFO’s are continuing the gravy train by diving deep into stock buybacks to boost stock prices and the dividends are the extra kicker.
The iPhone maker repurchased $19 billion of stock in the first quarter, bringing the total for the past fourth quarters to $77 billion.
GOOGL repurchased a record $11.4 billion of stock in the first quarter, up from $8.5 billion a year earlier, and FB bought back $3.9 billion, triple the total a year ago.
Now, they even got the White House to do their dirty work.
Huawei, the Chinese telecom company, has been the punching bag for the White House’s tech war with China.
In remarks to reporters in March 2019, Chinese politician Guo Ping said, “The U.S. government has a loser’s attitude. They want to smear Huawei because they can’t compete with us.”
Let’s get this straight, U.S. tech was never behind China and still isn’t, but I do believe the U.S. should simply outcompete with Huawei because I know they can and have the capacity to do so.
China hasn’t done much with 5G as well aside from amassing the patents, but they haven’t made it quite practical to the Chinese public as a use case for consumer products.
Instead of competing, we have Facebook tapping the political back channels to encourage the U.S. government to ban TikTok, not because it threatens Facebook’s model but because Facebook is concerned about national security.
This is from the same Mark Zuckerberg that has been attempting to destroy Snapchat (SNAP) for years after SNAP’s CEO Evan Spiegel refused to sell it to Zuckerberg.
So why innovate? Why deploy capital into research and development when you can just nick a crown jewel and make it your own?
Exactly, so innovation does not happen and will not happen.
We, as consumers, have been thrust into the cluster of ever-degrading smartphone apps that offer less and less utility.
But ultimately, even if you hate Silicon Valley at a personal level, it is literally impossible to bet against them, because all this posturing behind the scenes does boost the share price and that’s what this technology letter is about.
As we are whipsawed into this muddling world of partially vaccinated economies, tech will consolidate after they deliver earnings only to prepare for the next leg up in shares.
Sure, this year’s growth and EPS estimates have been priced perfectly, but we will start to move onto next years’ bounty and these models have never been more profitable.
Don’t fight the trend.
https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png00Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2021-07-28 15:02:002021-08-03 01:23:57The Real Rules of Tech
During the heyday of my Morgan Stanley career in the 1980s, back when I had an unlimited expense account, a favorite place to take clients was Studio 54.
The place was full of rock stars, the music was piercing, and strange things were happening in dark corners. It was all the perfect adventure for the impressible visitor from the sedentary Midwest.
Studio 54 was notoriously difficult to get into. There were these hefty doormen dressed in black with big gold chains who did the vetting. If you were famous or a free-spending investment banker, the red ropes were cast aside, and you glided right in. $100 tips spoke volumes too. The hoi polloi could only watch with envy, even after spending hours in line.
The stock market has become a lot like Studio 54. It’s not letting you in. I had ten trade alerts lined up to get into the market on Friday and Monday. I only got off four. After a scant 3.2% decline, stocks turned around so fast it made your head spin. There are strange things happening in dark corners too.
Next week is the first time in a decade when the top five tech companies report earnings. If history is any guide, they will sell off sharply on the reports, form a base in August, then begin their yearend ramp up. This is why I have been hanging on to my short positions.
I continue to belie that the major miss by the markets is how much they are underestimating tech earnings. Maybe they have fully discounted 2021 earnings, but what about 2022-2030?
Let me give you the example of Apple alone. 5G wireless technology is rolling out now which is improving performance by ten times. What about 6G, 7G, and 8G? The cumulative performance gains of a decade of technological improvement is 10,000 times at zero cost!
Do you think Apple will buy more of its own stock in anticipation of this? Do you think everyone else will too?
You bet!
The “Delta” Correction lasted a day, with deaths in some states up 100% in a week. It is a pandemic of the unvaccinated and of children. The stock market was already ripe for a 5% correction. That’s what happens when you double in 16 months. The bond market at a 1.10% yield thinks the recovery is over and we’re going below 1.00% for the ten year.
Facebook is killing people, says Biden, through enabling the spread of vaccine information. Right-wing website says the vaccine causes sterility, alters your DNA, and enables the government to track your location. (FB) says members have the right to lie to each other. This isn’t going away. (FB) shares hit a new all-time high, taking its market cap into the trillion-dollar club.
That was the shortest recession in history in 2020, lasting only two months. Straight down and then straight up, making it the shortest recession in history. But what two months it was, with an eye-popping 22 million jobs disappearing in March and April. We have since made more than half back.
The month-end selloff is back in play, with the 800-point bounce behind us. That’s when big tech reports. With trillions of dollars struggling to get into the market on any dip, a two-day, 3.2% correction is all we are going to get. I managed to strap on stock longs and bond shorts yesterday, but even I got left on the sidelines with my other trade alerts.
Bitcoin breaks $30,000, then bounces back up. It seems to be an inflation/rising interest rate play which does poorly when ten-year yields hit 1.12%. It’s almost trading 1:1 with Freeport McMoRan (FCX). That has to mean we’re soon entering “BUY” territory.
Rents are soaring, up 6.6% in May YOY, according to data collection firm Corelogic. It’s the biggest gain since 2005. Single-family homes, about half of the rental market, are leading the charge. Phoenix is delivering the biggest increases, up 14% YOY, followed by Dallas and Atlanta. What a great time to own!
Share buybacks are turbocharging this market, which could reach an eye-popping record $1 trillion in 2021 and another $550 billion in dividends. Q2 has already seen $350 billion in buybacks. Apple (AAPL) is leading the charge with a monster $250 billion in cash. Alphabet (GOOGL), Microsoft (MSFT), and Berkshire Hathaway (BRKB) follow. Even companies that have never bought the stock before may enter the fray, like Netflix (NFLX), which is a cash flow cow. My yearend target of an S&P 500 at 4,750, up 9.2% from here, is now looking totally attainable.
Existing Home Sales are up 1.4% in June to 5.86 million units, less than expected. Inventories are down 18.8% YOY to 1.25 million units to a 2.6-month supply. The Northeast was the leader, up 2.8%. Median home prices are still soaring to $363,000 and up an eye-popping 23.4% YOY. Sales of homes priced over $1 million are up 147%. No typo here. Some 14% of homes are now sold to investors, while 23% were to all-cash buyers.
GM recalls 69,000 bolts over recharging fire risk. The Ev's use will be severely restricted until fixed, citing “rare manufacturing defects.” Bolts use imported Korean batteries from LG. It’s what happens when you move into a new technology a decade late and rush to catch up. GM will never catch (TSLA). Avoid (GM) and buy (TSLA).
My Ten Year View
When we come out the other side of pandemic, we will be perfectly poised to launch into my new American Golden Age, or the next Roaring Twenties. With interest rates still at zero, oil cheap, there will be no reason not to. The Dow Average will rise by 800% to 240,000 or more in the coming decade. The American coming out the other side of the pandemic will be far more efficient and profitable than the old. Dow 240,000 here we come!
My Mad Hedge Global Trading Dispatch profit suffered a -1.65% loss so far in July. My 2021 year-to-date performance appreciated to 66.95%. The Dow Average is up 14.57% so far in 2021.
Two of my positions, a long in (JPM) and a short in the (TLT) did great. But I really took it on the nose with my short positions in the (SPY) when the market melted up on Friday. That should turn out OK when all five big tech companies report this week, which historically marks a market top. That leaves me 60% in cash. I’m keeping positions small as long as we are at extreme overbought conditions.
That brings my 11-year total return to 489.50%, some 2.00 times the S&P 500 (SPX) over the same period. My 12-year average annualized return now stands at an unbelievable 42.25%, easily the highest in the industry.
My trailing one-year return exploded to positively eye-popping 104.96%. I truly have to pinch myself when I see numbers like this. I bet many of you are making the biggest money of your long lives.
We need to keep an eye on the number of US Coronavirus cases at 34.4 million and rising quickly and deaths topping 611,000, which you can find here. Some 34.1 million Americans have contracted Covid-19.
The coming week will be a weak one on the data front.
On Monday, July 26 at 11:00 AM, New Homes Sales for June are released. Alphabet (GOOGL), Tesla (TSLA), and Amazon (AMZN) report.
On Tuesday, July 27 at 10:00 AM, the S&P Case Shiller National Home Price Index for May is published. Apple (AAPL) reports.
On Wednesday, July 28 at 9:30 AM, the Wholesale Price Index for June is disclosed. Facebook (FB) and Microsoft (MSFT) report.
On Thursday, July 29 at 8:30 AM, we get Weekly Jobless Claims. We also learn the first look at Q2 US GDP, which should be a blockbuster.
On Friday, July 30 at 8:30 PM, we get Personal Income & Spending for June.
As for me, when I was shopping for a Norwegian Fiord cruise for next summer, each stop was familiar to me because a close friend had blown up bridges in every one of them.
During the 1970s at the height of the Cold War, my late wife Kyoko flew a monthly round trip from Moscow to Tokyo as a British Airways stewardess. As she was checking out of her Moscow hote, someone rushed at her and threw a bundled typed manuscript that hit her in the chest.
Seconds later, a half dozen KGB agents dog-piled on top of her. It turned out that a dissident was trying to get Kyoko to smuggle a banned book to the West and she was arrested as a co-conspirator and bundled away to Lubyanka Prison.
I learned of this when the senior KGB agent for Japan contacted me, who had attended my wedding the year before. He said he could get her released, but only if I turned over a top-secret CIA analysis of the Russian oil industry.
At a loss for what to do, I went to the US Embassy to meet with ambassador Mike Mansfield, who as The Economist correspondent in Tokyo I knew well. He said he couldn’t help me as Kyoko was a Japanese national, but he knew someone who could. Then in walked William Colby, head of the CIA.
Colby was a legend in intelligence circles. After leading the French resistance with the OSS, he was parachuted into Norway with orders to disable the railway system. Hiding in the mountains during the day, he led a team of Norwegian freedom fighters who laid waste to the entire rail system from Tromso all the way down to Oslo. He thus bottled up 300,000 German troops, preventing them from retreating home to defend themselves from an allied invasion.
During Vietnam, Colby became notorious for running the Phoenix assassination program.
I asked Colby what to do about the Soviet request. He replied, “give it to them.” Taken aback, I asked how. He replied, “I’ll give you a copy.” Mansfield was my witness so I could never be arrested for being a turncoat. Copy in hand, I turned it over to my KGB friend and Kyoko was released the next day and put on the next flight out of the country. She never took a Moscow flight again.
I learned that the report predicted that the Russian oil industry, its largest source of foreign exchange, was on the verge of collapse. Only massive investment in modern western drilling technology could save it. This prompted Russia to sign deals with American oil service companies worth hundreds of millions of dollars.
Ten years later, I ran into Colby at a Washington event and I reminded him of the incident. He confided in me, “You know that report was completely fake, don’t you?” I was stunned. The goal was to drive the Soviet Union to the bargaining table to dial down the Cold War. I was the unwitting middleman. It worked. That was Bill, always playing the long game.
After Colby retired, he campaigned for nuclear disarmament and gun control. He died in a canoe accident in the lake in from of his Maryland home in 1996.
Nobody believed it for a second.
Stay healthy.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
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(HOW DID THOSE TECH LEAPS WORK OUT?)
(AAPL), (AMZN), (MSFT)
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