This year seems to be the year of the windfall.

In January, we loaded up on Big Tech (AMZN), (MSFT), which then went ballistic.

In February, we doubled up on NVIDIA (NVDA), which then nearly doubled.

In March, spotting the shift into commodities, energy, and precious metals we loaded the boat with gold Freeport McMoRan (FCX), gold (GLD), silver (WPH), and oil (XOM), (OXY), which launched into torrid two-week straight up moves which continue. And for good measure, we dove into NVIDIA one more time.

Even the trades I thought about and talked about but never executed took off like a scalded chimp, such as uranium producer Cameco (CCJ), up 30% in weeks.

And while you’d think that trades like this would generate the performance of a lifetime, in fact, I begrudgingly admit I'm lagging behind the index this year. It’s incredibly annoying when after working 12 hours a day seven days a week, the indexers, the investors who sit on their hands all day and do nothing, are making more money than I am.

That’s because I put out a handful of ill-timed short positions in the S&P 500 (SPY) and Freeport McMoRan (FCX) which cut my numbers by half.

You may ask why I suffered the madness of putting out shorts when we are in a bull market and that everything is going straight up every day! That’s because I am the Mad Hedge Fund Trader, not the Mad Long-Term Investor. And hedge funds are always supposed to have balanced longs and shorts. I can tilt this by keeping only one short position against a basket of longs. But even those single longs have proved painfully expensive.

The issue here is that the market is not breathing as it normally does. There is no ebb and flow to let you in and out of positions. Sectors flatline, then launch into bull moves that take them up almost every day for months. That is an impossible market to trade.

I have only seen this twice during my lifetime: during the Great Japanese Stock Bubble of the 1980s and the Dotcom Bubble of the 1990s, which means we are in another one of these great bubbles, which will probably be the last of my lifetime.

The previous two great bubbles went on for five years. Greed can last a long time. If you count the October 26, 2023 low as the start of the new bull market, we have 4 ½ years to run in this one. What is more likely is that the pandemic low in April of 2020 was the start of this new bull market and we have averaged a 25% a year return in stocks since then. That means we have at least another year to run…. or more.

Valuations are at the high end of their recent range at 21 times S&P 500 earnings. But during the 1990’s bubble, the market average reached an earnings multiple in the 30s, and technology stocks reached a stratospheric 100 times earnings.

And today, earnings are still rising, sometimes quite sharply, such as the case with (NVDA) and (META). It’s when earnings are falling but stocks are still rising that you have to worry, as happened in 1999 and the first four months of 2000. In the 1980s in Tokyo, nobody ever looked at earnings.

Another frustration with trading today is the collapse of market volatility from $22 to $12 over the past year. That means we are getting paid half of what we were a year ago for the same options trade. You can make up for this loss of volatility by getting more aggressive with strike prices or maturities, but then that increases the number of stop losses.

And that’s the way it is.

You trade the market you have, not the one you want. But what do I know? I’ve only been doing this for 55 years.

I just thought you’d like to know.

NVIDIA Quarterly Earnings

 

So far in March, we are down -1.44%. My 2024 year-to-date performance is at +6.67%. The S&P 500 (SPY) is up +7.93% so far in 2024. My trailing one-year return reached +41.09% versus +38.92% for the S&P 500.

That brings my 16-year total return to +684.56%. My average annualized return has recovered to +51.57%.

Some 63 of my 70 round trips were profitable in 2023. Some 13 of 19 trades have been profitable so far in 2024.

I stopped out of my short position in Freeport McMoRan (FCX) last week. Markets that go straight up are hard to trade. I also came off my long in (TLT) close to cost. I initiated new longs in Tesla (TSLA) and NVIDIA (NVDA). I let my existing longs run in Freeport McMoRan (FCX), Occidental Petroleum, ExxonMobile (XOM), Wheaton Precious Metals (WPM), and Gold (GLD).

I am 70% invested and 30% in cash given the massive upside breakout in commodity, precious metals, and energy we have witnessed.

Nonfarm Payroll Jumps by 303,000 in March, almost double what was expected. The headline unemployment rate drops 0.1% to 3.8%. Wages rose 0.3% for the month and 4.1% from a year ago, both in line with Wall Street estimates. Health care led with 72,000 new jobs, followed by government (71,000), leisure and hospitality (49,000), and construction (39,000). Interest rate cuts fade into the future.

Weekly Jobless Claims Jump to 221,000, up 9,000, a two-month high. The weekly claims report from the Labor Department on Thursday also showed fewer people remaining on jobless rolls towards the end of March, suggesting that laid-off workers continued to find work, though not as easily as two years ago. There were 1.36 job openings for every unemployed person in February compared to 1.43 in January. Worker shortages persist in industries like construction.

Investors are Piling into Cash, with Money-Market funds getting $82 billion in the week through Wednesday. Investors are still flocking to cash funds, and history suggests redemptions won’t begin until a year after the Federal Reserve starts cutting interest. 5.35% for 90-day US Treasury Bond yields are still a huge draw for the cautious.

Commodities Trading Firms Harvest Record Profits, some $104 billion in 2023. The surprise increase from 2022, when the fallout from the war in Ukraine pushed up prices and supercharged profits, was driven by a wave of new entrants into the sector — including tech-focused traders and hedge funds — and rising returns from power trading activities. The figures reflect profits from the entire sector, including independent traders, banks, hedge funds, and national oil companies. This year will be even better.

 

 

Oil Continues to Bubble of Tight Supplies, supported by geopolitical tensions in the Middle East, concerns over tightening supply, and expectations about demand growth as economies improve. I’m keeping my longs in (XOM) and (OXY) and looking to pick up (COP) and (FANG).

US Dollar to Stay Higher for Longer, as a result of the higher for longer Fed tilt on interest rates. High-yielding currencies are always the strongest. The buck is up 3.3% this year against a currency basket.

Toyota Sales Soar by 20% in Q1, closely followed by Honda at 17.3%. General Motors delivered a pitiful 1.5% decline. Hybrids are the name of the day, outselling EVs and ICE cars. Toyota played it safe and won, at least for now.

Disney Wins Proxy Fight with Nelson Peltz, retaining complete control of the board. It’s a defeat for Peltz and a stamp of approval for the company’s board and CEO Bob Iger’s efforts to turn around the company. Nelson can now sell his shares for a big profit, up 30%.

PCE Comes in Hot at 0.3% for February, and 2.8% YOY, taking bonds. Personal Consumption Expenditures give an early read on inflation trends that the Fed loves. The economy is clearly much hotter than traders understand. Consumer spending shot up 0.8% on the month, well ahead of the 0.5% estimate. Personal income increased 0.3%, slightly softer than the 0.4% estimate.

Tesla Sales are Disastrous as expected, coming in at only 386,810, down 8.5% YOY. Shares drop as much as 6.7%, extending the biggest rout in the S&P 500. Analysts slashed projections in recent days, but not by enough. The Berlin factory was shut down and competition in China is ramping up. Still, Tesla produced 46,561 more cars than it sold in the quarter. For what it’s worth, BYD sales in China were even worse. The bottom for (TSLA) is fast approaching.

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, April 8, at 7:00 AM EST, the US Consumer Inflations Expectations are announced.

On Tuesday, April 9 at 8:30 AM, the NFIB Business Optimism Index will be released.

On Wednesday, April 10 at 11:00 AM, the Core Inflation Rate for March is published

On Thursday, April 11 at 8:30 AM, the Weekly Jobless Claims are announced. The final read of the Q2 US GDP is also out.

On Friday, April 12 at 8:30 AM, the Producer Price Index is out. At 2:00 PM, the Baker Hughes Rig Count is printed.

As for me, since many of you are now planning long overdue summer vacations, I thought I would pass on what I learned from the ultimate travel guru of all time.

After all, who knows how long it will be until the next pandemic? The next decade, next year, or next week?

When I backpacked around Europe in 1968, I relied heavily on Arthur Frommer’s legendary paperback guide, Europe on $5 a Day, which then boasted a cult-like following among impoverished, but adventurous Americans. The charter airline business was then booming, plunging airfares, and suddenly Europe came within reach of ordinary Americans like me.

Over the following years, he directed me down cobblestoned alleyways, dubious foreign neighborhoods, and sometimes converted WWII air raid shelters, to find those incredible travel deals. When he passed through town some 50 years later, I jumped at the chance to chat with the ever-cheerful worshipped travel guru.

Frommer believes there are three sea change trends going on in the travel industry today. Business is moving away from the big three travel websites, Travelocity, Orbitz, and Priceline, who have more preferential lucrative but self-enriching side deals with airlines than can be counted, towards pure aggregator sites that almost always offer cheaper fares, like Kayak.com, Sidestep.com, and Fairchase.com.

There is a move away from traditional 48-person escorted bus tours towards small group adventures, like those offered by Gap Adventures, Intrepid Tours, and Adventure Center, that take parties of 12 or less on culturally eye-opening public transportation.

There has also been a huge surge in programs offered by universities that turn travelers into students for a week to study the liberal arts at Oxford, Cambridge, and UC Berkeley. His favorite was the Great Books program offered by St. John’s University in Santa Fe, New Mexico.

Frommer says that the Internet has given a huge boost to international travel, but warns against user-generated content, 70% of which is bogus, posted by the hotels and restaurants touting themselves.

The 94-year-old Frommer turned an army posting in Berlin in 1952 into a travel empire that publishes 340 books a year, or one out of every four travel books on the market. I met him on a swing through the San Francisco Bay Area (his ticket from New York was only $150), and he graciously signed my tattered, dog-eared original 1968 copy of his opus, which I still have.

Which country has changed the most in his 60 years of travel writing? France, where the citizenry has become noticeably more civil since losing WWII. Bali is the only place where you can still actually travel for $5/day, although you can see Honduras for $10/day. Always looking for a deal, Arthur’s next trip is to Chile, the only country in the world he has never visited.

With the advent of AI, Arthur has been met with an onslaught of new competition. Recently, Amazon (AMZN) has been flooded with hundreds of new travel books written entirely by algorithms. They have no human author who’s ever visited the country in question and are written entirely from existing information found on the Internet. But they’re cheap.

You can easily spot them from their wishy-washy non-committal language and factual errors and omissions. For example, I recently found a travel book about Ukraine that neglected to mention that there was a war going on there and that its cities were being bombed by Russians daily.

Not for me.

Good Luck and Good Trading,

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

 

 

Arthur’s Next Big Play is Bali

1968 on the French Riviera