Global Market Comments
May 31, 2024
Fiat Lux
Featured Trade:
(The Mad June traders & Investors Summit is ON!)
(MAY 29 BIWEEKLY STRATEGY WEBINAR Q&A),
(TSLA), (AMZN), (META), (NFLX), (GLD), (SLV), (NVDA), (MSFT), (GOOG), (DELL), (MSFT), (TLT), (BRK/B), (PYPL), (BABA), (DD), (XOM), (OXY)
Below please find subscribers’ Q&A for the May 29 Mad Hedge Fund Trader Global Strategy Webinar, broadcast from Incline Village, NV.
Q: Since Elon Musk is raising tons of money for his AI startup called xAI, will this impact Tesla’s (TSLA) stock price?
A: Yes, it's a very positive move for Tesla because anytime Elon Musk raises money anywhere in his network, it takes the need off of him to sell Tesla shares for cash. And I think his xAI will be the next trillion-dollar company, and SpaceX is in front of it as another trillion-dollar company. Those stocks, he can sell any time and raise a lot of money, but the other two are still private companies. We can't buy them yet unless we buy some of the public vehicles offered by venture capitalists like Ron Baron who has heavy positions in both Tesla and SpaceX. So, no direct plays yet on these companies, but no doubt when they become incredibly valuable, he'll take them all public and become the richest man in the world two or three times over. So yes, that is a positive.
Q: Where do you think (TLT) will be in the next few months?
A: In a narrow trading range. I think we're basically in a $86 to $91 trading range, and we'll go nowhere until we get clarification on Fed interest rate cuts. At the rate the economy is slowing, we may get one in September, and even if the Fed doesn't cut, the rest of the world will, including Japan, Europe, Great Britain, and so on. So we may get our interest rates dragged down here by foreign countries that all have much weaker economies than the US.
Q: Should I keep buying big tech stocks after Nvidia's (NVDA) blowout earnings?
A: Well, if you recall back in the ancient times of April, Nvidia had a 20% sell-off, and most of the tech stocks were down at least 10%. So, I would wait for the next 20% sell-off of Nvidia not only to buy Nvidia but all other big tech stocks as well, because it basically is a big tech story and will continue for the rest of the year like that. So we're really looking to buy dips among the big tech winners, and those would include Amazon (AMZN), Meta (META), Microsoft (MSFT), and so on.
Q: How long can the US economy go without a recession?
A: Five years. The way our economic cycle works is after a long period of growth, companies get overconfident, over-invest, create excessive capacity in the markets for everything, and that leads to a crash and a recession, deflation, and lower interest rates. So even if we don't get major moves in the (TLT) upside now, you always will over the long term get interest rates going back to 2 or 3% for the 10-year so it’s a great long-term hold. That is the economic cycle—that's what creates bear markets and it’s known as “Boom and Bust”. Long may it live because that’s where we traders earn our crust of bread. But this time may be different. We may go longer than 5 years because AI is still in its infancy, still rolling out, and the number of companies making actual profits in AI will go from 3 to 300 over the next five years.
Q: I'm looking to buy gold in an investment account (GLD). Would you do that now, if so, what would you recommend?
A: I would recommend GLD (SPDR Gold Trust) because the metals are still outperforming the miners, miners being held back by the inflation rates unique to the mining industry, which are much higher than the 3.3% for the general economy. And if you want to add a little more spice to your portfolio, buy some silver (SLV) because it is rising at three times the rate of gold thanks to Chinese speculation. You might buy some copper while you're at it too—it's moving almost as fast as gold is.
Q: Which big tech firm is next to issue a dividend?
A: That's an easy answer, it's Netflix (NFLX). But there's a more important question out here— Which is the next tech stock to issue a stock split? And guess what the answer is? Netflix again, which needs to declare both a dividend and a stock split. It's at an all-time high, has a very high share price, and over time, stocks that split deliver double the performance of the S&P 500. So, the mere announcement will suck in a lot of new retail investors as we just saw with Nvidia (NVDA), where we got a $250 move on the split announcement. So, watch your splits, and in fact, I'm going to be devoting a major piece of next Monday's newsletter to splits and how to play them.
Q: Why has the stock market been so strong this year when interest rates are high?
A: The answer to that is AI. We are still in the very early days of AI, and as I mentioned earlier, only three companies are making money from AI right now. That's Nvidia (NVDA), Microsoft (MSFT), and Google (GOOG). That number will increase as AI moves down the food chain and everybody starts using it, including you and me. I view the AI development as similar to 1995 when all of a sudden we got Netscape, a navigator that made the Internet available to the public, Dell Computers (DELL), and Microsoft (MSFT) software all at once hitting the market and creating the online economy essentially from scratch. Something of that magnitude is what the stock market is discounting now. Think of it in terms of the revolutionary new technologies of 1995, which means we have another 5 or 6 years to go, and that's why the stock market is so strong.
Q: Should I invest in Berkshire Hathaway (BRK/B), or do you think their magic will run out soon?
A: I don't think their magic will ever run out. Of course, the day that Warren Buffett dies it'll be down 10%, but then you'll want to buy it with both hands because Warren has already replaced himself with a first-class management team who is carrying on his strategy. Any selloffs in Berkshire you get this summer, go in there and buy the calls, the call spreads, the stock, the LEAPS, and the kitchen sink. Still a great long-term BUY, and I see $500 either late this year or next year in (BRK/B).
Q: I'm a member of IM Academy.
A: Oh my gosh. I would let your membership expire, except you're probably on auto-renewal, and the only way to stop your subscription is to call your credit card company and ask them to block the billings. That is the problem with these predatory financial newsletters, they're impossible to get out of, even when they promise refunds anytime.
Q: Are there any Chinese stocks you like now?
A: No, but the highest quality stock in China is Alibaba (BABA). It's basically a combination of Amazon and PayPal in China, but you still have a very high political risk investing in anything in China. The currency is very weak, so better fish to fry is my opinion. And I tend to avoid countries suffering from demographic implosions.
Q: Should we buy (TLT) now or wait?
A: I would wait until we get some upside momentum going and we complete a few more downside tests.
Q: What's the best place to put cash in the summer?
A: The answer is always good old 90-day US Treasury bills. They are still paying 5.25%.
Q: What are your thoughts on PayPal (PYPL)?
A: I'm avoiding that sector because of over-competition crushing profit margins; that has been a problem for a couple of years now. Don't confuse “gone down a lot” with cheap.
Q: Which oil companies are the best to invest in right now?
A: You can buy Exxon Mobil (XOM) for the high dividend and the sheer size of the company. My second is Occidental Petroleum (OXY), because Warren Buffett owns 25% of the company, has shrunk the float, and that has a result in magnifying any moves up in the stock. Also, I somewhat admire Warren Buffett's stock-picking ability. And of course, I’ve been following the California company OXY since 1970, back when it was run by Armand Hammer, a friend of Vladimir Lenin, so my connections with the company go back a very long time.
Q: Do you like DuPont (DD) for the three-way split?
A: I do, but DuPont has a major problem looming with lawsuits over the PFAS chemicals—those are the forever chemicals which are all over the country, all over the food supply, and cause cancer. So that could be sort of like a Johnson & Johnson-type liability problem with the talcum powder. So again…why look for trouble? Buying a stock facing that kind of liability could be another tobacco situation.
To watch a replay of this webinar with all the charts, bells, whistles, and classic rock music, just log in to www.madhedgefundtrader.com, go to MY ACCOUNT, select your subscription (GLOBAL TRADING DISPATCH, TECHNOLOGY LETTER, or Jacquie's Post), then click on WEBINARS, and all the webinars from the last 12 years are there in all their glory
Good Luck and Stay Healthy,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
I have to tell you that this has been a really good week to be John Thomas.
The accolades have been pouring in. During February, my followers have made the most money in their lives, including myself. NVIDIA (NVDA), up 110% in four months, is now the largest position in everyone’s portfolios, if not because of my prodding, then through capital appreciation alone.
Institutions limited to keeping single holdings to 5% or 10% got away with delaying their rebalancing as long as possible.
Is it 1995 for 2,000? I vote for the former, meaning that the current melt-up could have five more years to run with occasional breaks.
Exploding corporate profits and rocketing share capitalizations have replaced the Federal Reserve as a new endless source of liquidity, as I knew it would.
Who needs the Fed? Who needs interest rate cuts?
Best of all, this new source of super liquidity isn’t at the whim of a single man, nor subject to politics of any kind. It has in fact become its own self-fulfilling prophecy.
Dow 240,000 here we come, as I have been endlessly repeating for years!
It says a lot that hedge funds, the “smart money,” are heavily overweight the Magnificent Seven, while retail mutual funds, the “dumb money” are underweight. The technology they are overweight is mostly in Apple, that great backward-looking company. This implies that to catch up mutual funds are going to have to buy hundreds of billions of Mag Seven stocks and sell their Apple to pay for the move.
The largest single source of demand for stocks will be the $1.25 trillion in corporate buybacks. What will they buy? Apple (AAPL), Alphabet (GOOGL), and Microsoft (MSFT), the three largest purchasers of their own stocks.
When the leader of the fastest-growing, best-performing company with the top-performing stock speaks, you have to pay attention. The next $1 trillion build-out in AI infrastructure is here, says NVIDIA CEO Jensen Huang, now one of the richest men in the world.
Have a good week! I’ll be spending my time shoveling snow.
In February, we closed up +7.42%. My 2024 year-to-date performance is at +3.14%. The S&P 500 (SPY) is up +7.33% so far in 2024. My trailing one-year return reached +55.73% versus +42.04% for the S&P 500.
That brings my 15-year total return to +679.77%. My average annualized return has recovered to +51.30%.
Some 63 of my 70 trades last year were profitable in 2023. Some 9 of 13 trades have been profitable so far in 2024.
I used the ballistic move-in (NVDA) to take profits in my double long there. I am maintaining a single long in (AMZN) and Snowflake (SNOW) and am 80% in cash given the elevated level of the markets.
Core PCE Comes in Cool, at 2.8%, as expected. The personal consumption expenditures price index excluding food and energy costs increased 0.4% for the month and 2.8% from a year ago, as expected. Stocks and bonds liked it, but the US dollar hated it.
Snowflake Crashes, down 20%, on weak guidance. CEO Frank Slootman is retiring. This is the third company he has taken public and it’s time to retire. He will stay on as chairman. This is one of the best cloud plays out there, and now you have a chance to buy it close to the October bottom. Buy (SNOW) on dips.
Weekly Jobless Claims Pop, up 13,000 to 215,000. However, continuing claims, which run a week behind, rose to just above 1.9 million, a gain of 45,000 and higher than the FactSet estimate of 1.88 million.
Apple Pulls the Plug on EV Project, wrong product at the wrong time. AI is where the action is. We may have to wait until the summer for this company when it starts to discount the next-generation iPhone release in the fall. Tesla can now sleep easy. Avoid (AAPL) and buy (TSLA) on dips.
Berkshire Hathaway to Top $1 Trillion in a Year, up from the current $900 billion, according to UBS analyst Brian Meredith. I think that’s a low target. Buy (BRK/B) on dips.
Boeing Hit by Damning Report, faulting the company for ineffective procedures and a breakdown in communications between senior management and other members of staff, according to an FAA report. The report is the latest to find fault with safety at Boeing, which suffered its latest blow when a panel covering an unused door flew off during an Alaska Airlines flight on Jan. 5. Buy (BA) on dips.
Warren Buffet Says Their Nothing to Buy, in his annual letter to shareholders. The few targets left are few and far between and heavily picked over. (BRK/B) has also lost the advice of its principal mentor, Charlie Munger at the age of 99. Last year Berkshire acquired Dairy Queen and Berkshire Energy. But with $905 billion in assets, those will hardly move the needle on his incredible track record. The 93-year-old Buffet has outperformed the S&P 500 by 141:1 since 1964.
CEO Jamie Diamond Sell $150 Million in (JPM) Shares, cashing in on the historic “BUY” he had at the 2009 market bottom. He earned a 36X gain on that trade. (JPM) remains the “must-own” bank for most institutional investors.
New Home Sales Weaken, curbed by frigid weather, but demand for new construction remains underpinned by a persistent shortage of previously owned homes. New home sales increased 1.5% to a seasonally adjusted annual rate of 661,000 units in January. Economists had forecast new home sales rising to a rate of 680,000 units.
Another Regional Bank is in Trouble. Commercial real estate lender New York Community Bancorp said it discovered “material weaknesses” in how it tracks loan risks, wrote down the value of companies acquired years ago, and replaced its leadership to grapple with the turmoil. The stock plunged. Expect this to be a recurring problem. The US banking system is in the process of consolidating from 4,236 banks to six. Buy (JPM), (BA), and (C) on dips.
Millennials are Becoming the Richest Generation in History. The so-called greatest generation — those typically born from 1928 to 1945 — and baby boomers — born between 1946 and 1964 — will hand over the reins to those born from 1981 to 1996 when they pass on their property- and equity-rich assets. In the U.S. alone, the shift would see $90 trillion of assets move between generations.
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, March 4, nothing of note is announced.
On Tuesday, March 5 at 8:30 AM EST, ISM Services are released.
On Wednesday, March 6 at 2:00 PM, the Jolts Job Openings Report is published
On Thursday, March 7 at 8:30 AM, the Weekly Jobless Claims are announced.
On Friday, March 8 at 2:30 PM, the Nonfarm Payroll Report for February is published. At 2:00 PM the Baker Hughes Rig Count is printed.
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 pricely 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 was 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.
Good Luck and Good Trading,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
People will be sitting around campfires trading stories about last week’s NVIDIA move for decades.
Analysts have been struggling to outdo each other in describing their earnings report that came out on Thursday. Here’s my favorite: The gain in the company’s market capitalization on that day, at $278 billion the largest in history, exceeded its TOTAL market capitalization at the pandemic bottom.
And here I deserve some bragging rights. Mad Hedge followers went into last week’s melt-up, UP TO THEIR EYEBALLS in (NVDA). They owned the stock, call options, and call spreads. The LEAPS alone delivered a 12X return, and some readers who customize their own strike prices (the $295-$300s) received a 50X return. It was almost everyone’s largest position.
It was easy for me to do the NVIDIA trade. When the company launched its first high-end graphics card in 1993, every computer geek out there flocked to them. I used to tear apart my company’s PCs, throw out the graphics cards they came with, and install NVIDIA cards. The performance improvement was remarkable, especially for advanced mathematical calculations.
The company is blessed. It went public at $12 a share just before the Dotcom Bust and the IPO window closed for years. Adjusted for 12:1 splits over the years and that drops the original IPO price to $1. A dollar invested in 1999 would be worth $750 at last week’s high. NVIDIA’s CEO, Jensen Huang, is now one of the richest men in the world solely through the ownership of his NVIDIA shares.
God Bless America!
Also last week, my inbox was jammed with inquiries on what company will become the next NVIDIA. And here is the bad news. There aren’t any 750:1 returns anywhere on the horizon. There are not even any 175:1 opportunities that we earned from Tesla (TSLA) over the years either where we also had heavy exposure.
And the reason is very simple. You are not going to get the entry points today with the Dow Average at 39,000 that you got in 2009 when it was at only 6,000, or when it was at a mere 600 when I joined Morgan Stanley in 1982. The last decent entry point for (NVDA) was the $100 pandemic low in April 2020.
Want to own the next (NVDA)? Try buying (NVDA), where an analyst raised his target to $1,420, up 80% from the Friday close. It’s just a matter of time before its market cap jumps from $2 trillion to $3 trillion, making it the largest company in the world. That’s what an airtight monopoly in the world’s most valuable product gets you.
Technology earnings are now exploding at such a rapid pace that it is time to consider the unthinkable: What if stocks don’t need interest rate cuts for the bull market to continue? After all, the companies seem to be doing just fine without any such assistance.
Why try to fix what isn’t broken?
In fact, these large cash flow companies would take a hit on their income statements as they are already net creditors to the financial system. Apple (AAPL) alone would lose $8 billion in annual income if interest rates went back to zero.
While that may be true for the Magnificent Seven or the AI Five, it is not true for the Unimagnificent 493. They actually need cheaper money for their stock prices to get going or even just to survive. That is especially true for all the falling interest rate plays, like bonds, utilities, real estate, precious metals, energy, and foreign currencies.
And don’t even talk to me about small caps, which depend on low interest rates for the breath of life.
It says a lot that Warren Buffet believes there is nothing left to buy in his annual letter to shareholders, an early Mad Hedge subscriber. His spectacular annual compounded returns of 19.8% a year, more than double that of the S&P 500 (SPY), are now a thing of the past.
The few targets left out there are few and far between and heavily picked over. (BRK/B) has also lost the advice of its principal mentor, Charlie Munger at the ripe old age of 99. Last year Berkshire acquired Dairy Queen and Berkshire Energy. But at $905 billion in assets under management, those will hardly move the needle. The 93-year-old Buffet has outperformed the S&P 500 by 141:1 since 1964.
Who says age is an impediment?
So far in February, we are up +5.92%. My 2024 year-to-date performance is also at +1.64%. The S&P 500 (SPY) is up +6.50% so far in 2024. My trailing one-year return reached +57.73% versus +38.67% for the S&P 500.
That brings my 15-year total return to +678.27%. My average annualized return has recovered to +51.19%, another new high.
Some 63 of my 70 trades last year were profitable in 2023.
I used the ballistic move-in (NVDA) to take profits in my double long there. I am maintaining a single long (AMZN) and am 90% in cash given the elevated level of the markets.
NVIDIA Announces Blowout Earnings, with AI reaching the “tipping point” according to the CEO Jensen Huang. Revenues came in at a spectacular $22.1 billion versus an expected $20.6 billion off the backing of exploding data center demand, up 33%. Earnings were up 22% QOQ and 225% YOY. The shares exploded $100 in the aftermarket at one point, up 15.6%. Forward guidance was ramped up too. Buy NVDA on dips. At a PE multiple of 18X, it is the cheapest AI stock out there.
Mad Hedge Clocks Biggest One Day Gain in 16 Years, with a double weighting in NVIDIA (NVDA), up +6.072%. If you like that the Mad Hedge Technology Letter is doing even better, up +13% YTD. And we are still early days into the tech melt-up, which could go on for another decade. Our YOY gain is up +59.62%. The harder I work, the luckier I get.
Existing Home Sales Jumped 3% YOY, boosted by lower mortgage interest rates in November and December. Inventories of homes for sale in January increased to 1.01 million units, up 3.1% from January 2023, but still at a low 3-month supply. The median existing home price for all housing types in January was $379,100, up 5.1% from a year earlier and an all-time high for the month of January.
Weekly Jobless Claims Dropped to a one-month low, down 12,000 to 201,000. No recession here. California and Kentucky saw the largest declines.
China Bans Stock Selling, by institutional investors at market openings and closes when liquidity is the greatest. It’s part of the government’s most forceful attempt yet to prop up the nation’s $8.6 trillion stock market. It’s another sign of a weakening China. When restrictions are placed on markets, capital flees. Whoever thought of this one must have a hole in their head. Avoid (FXI).
California demolishes Solar Providers, cutting the price the utility PG&E has to pay for home power providers by 75%. Solar companies like SunPower (SPWR), are down 89% since last year. Avoid solar providers for now, which was always a low value-added business.
Amazon (AMZN) is getting added to the Dow Average, opening it up to massive index buying. Retailer Walgreens Boots Alliance (WBA) is getting bumped. Since 1896, the blue-chip index has made few changes to its 30-stock lineup, having altered its constituents about 60 times in its 128-year history. Buy (AMZN) on dips.
US Stocks now account for 70% of Global Stock Market Capitalization, thanks to the ballistic moves in big tech. This level represents the largest country weighting since I helped create this index way back in 1986. It also now has the lowest exposure to non-US stocks. Money is pouring into the US from all corners of the world, the planet's most successful economy.
Natural Gas Hits (UNG) Three Year Low, at $1.63MM BTU, and down an eye-popping 50% in a month. Warm weather, high inventories, and overproduction due to cheap capital are the price killers. An LNG train broke down, cutting export demand. If you didn’t get out on the double in December you’re toast. Avoid (UNG).
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, February 26, the New Home Sales are announced.
On Tuesday, February 27 at 8:30 AM EST, the Durable Goods are released. The S&P Case Shiller for December is announced.
On Wednesday, February 28 at 2:00 PM, the Q2 GDP second read is published.
On Thursday, February 29 at 8:30 AM, the Weekly Jobless Claims are announced. We also get the Core Consumer Price Expectations.
On Friday, March 1 at 2:30 PM, the December ISM Manufacturing PMI is published. At 2:00 PM the Baker Hughes Rig Count is printed.
As for me, the telephone call went out amongst the family with lightning speed, and this was back in 1962 when long-distance cost a fortune. President Dwight D. Eisenhower was going to visit my grandfather’s cactus garden in Indio the next day, said to be the largest in the country, and family members were invited.
I spent much of my childhood in the 1950s and 1960s helping grandpa look for rare cactus in California’s lower Colorado Desert, where General Patton trained before invading Africa. That involved a lot of digging out a GM pickup truck from deep sand in the remorseless heat. SUVs hadn’t been invented yet, and a Willys Jeep (click here) was the only four-wheel drive then available in the US.
I have met nine of the last 13 presidents, but Eisenhower was my favorite. He certainly made an impression on me as a ten-year-old boy, who I remember as a kindly old man.
I walked with Eisenhower and my grandfather plant by plant, me giving him the Latin name for its genus and species and citing unique characteristics and uses by the Indians. The former president showed great interest and in two hours we covered the entire garden. I still make my kids learn the Latin names of plants.
Eisenhower lived on a remote farm at the famous Gettysburg, PA battlefield given to him by a grateful nation. But the winters there were harsh, so he often visited the Palm Springs mansion of TV Guide publisher Walter Annenberg, a major campaign donor.
Eisenhower was a one-of-a-kind brilliant man that America always came up with when it needed them the most. He learned the ropes serving as Douglas MacArthur’s Chief of Staff during the 1930’s. Franklin Roosevelt picked him out of 100 possible generals to head the Allied invasion of Europe, even though he had no combat experience.
After the war, both the Democratic and Republican parties recruited him as a candidate for the 1952 election. The latter prevailed, and “Ike” served two terms, defeating the governor of Illinois Adlai Stevenson twice. During his time, he ended the Korean War, started the battle over civil rights at Little Rock, began the Interstate Highway System, and admitted Hawaii as the 50th state.
As my dad was very senior in the Republican Party in Southern California during the 1950s, I got to meet many of the bigwigs of the day. New York prosecutor Thomas Dewy ran for president twice, against Roosevelt and Truman, and was a cold fish and aloof. Barry Goldwater was friends with everyone and a decorated bomber pilot during the war.
Richard Nixon would do anything to get ahead, and it was said that even his friends despised him. He let the Vietnam War drag out five years too long when it was clear we were leaving. Some 21 guys I went to high school with died in Vietnam during this time. I missed Kennedy and Johnson. Wrong party and they died too soon. Ford was a decent man and I even went to church with him once, but the Nixon pardon ended his political future.
Peanut farmer Carter was characterized as an idealistic wimp. But the last time I checked, the Navy didn’t hire wimps as nuclear submarine commanders. He did offer to appoint me Deputy Assistant Secretary of the Treasury for International Affairs, but I turned him down because I thought the $15,000 salary was too low. There were not a lot of Japanese-speaking experts on the Japanese steel industry around in those days. Biggest mistake I ever made.
Ronald Reagan’s economic policies drove me nuts and led to today’s giant deficits, which was a big deal if you worked for The Economist. But he always had a clever dirty joke at hand which he delivered to great effect….always off camera. The tough guy Reagan you saw on TV was all acting. His big accomplishment was not to drop the ball when it was handed to him to end the Cold War.
I saw quite a lot of George Bush, Sr. whom I met with my Medal of Honor Uncle Mitch Paige at WWII anniversaries, who was a gentleman and fellow pilot. Clinton was definitely a “good old boy” from Arkansas, a glad-hander, and an incredible campaigner, but he was also a Rhodes Scholar. His networking skills were incredible. George Bush, Jr. I missed as he never came to California. And 22 years later we are still fighting in the Middle East.
Obama was a very smart man and his wife Michelle even smarter. Stocks went up 400% on his watch and Mad Hedge Fund Trader prospered mightily. But I thought a black president of the United States was 50 years early. How wrong was I. Trump I already knew too much about from when I was a New York banker.
As for Biden, I have no opinion. I never met the man. He lives on the other side of the country. When I covered the Senate for The Economist, he was a junior member.
Still, it’s pretty amazing that I met 10 out of the last 14 presidents. That’s 20% of all the presidents since George Washington. I bet only a handful of people have done that, and the rest all live in Washington DC. And I’m a nobody, just an ordinary guy.
It just makes you think about the possibilities.
Really.
Good Luck and Good Trading,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
It’s Been a Long Road
With almost all economic data now universally slowing, Fed Governor Jay Powell is limbering up to take his victory lap. That’s put inflation in full retreat and well on its way to our central bank’s 2% target by summer. Interest rate cuts are just a matter of time.
That sets up a fabulous year in 2024. While this year was mostly a hard slog, next year should be a piece of cake. I can’t wait until it starts!
That puts my 4,800 target for the end of 2023 well within range. People told me I was crazy when I made such an outlandish forecast last January 1, yet here we are.
Investors missed the mark by a mile this year because they thought the Fed's extreme moves in interest rates would trigger a recession.
It didn’t.
Those who bet on falling inflation this year were big winners. That gave the Fed permission to cancel any further rate rises. Economists were too bearish and the technical picture flipped from bearish to bullish in a heartbeat on October 26.
The kinds of moves you are seeing in the stock market, with banks and industrials turning upward, signal that we are not in a bear market, but the start of a new long-term bull one.
Stocks are looking for at least 15% gains in 2024 with earnings consistently surprising to the upside. Domestics will catch fire in the second half. Inflation will fall further than expected, well into the 2% handle, thanks to hyperaccelerating technology crushing prices.
The Fed has won the war on inflation so there is room for 10-year US Treasury bond yields to hit 3.0% next year, taking mortgage interest rates under 5.0%. That will be a shot of adrenaline for the residential real estate market.
A (SPY) target of 5,500 by the end of 2024 is entirely within reason.
It turns out that when ten-year bond yields are between 4.00% and 5.00%, stocks sport a price-earnings multiple of 20X. That allows S&P 500 earnings to hit $2.65 per share in 2025, up from today’s $2.20.
Financials (JPM), industrials (CAT), energy (XOM), and small caps (IWM) will take over market leadership sometime in 2024. The best market risk reward is here. Financials now trading in the dumps have huge multiple expansion potential.
The $240 billion in cash that left equities in 2023 will have to fight their way back in. That’s why we haven’t seen any substantial pullbacks in share prices since October. Once investors got the cash weightings they were happy with, they could never get back into stocks.
Hedge fund equity weightings are at five-year lows. Small caps have very heavy weightings in regional banks, while large banks have great capital spending plays.
Big techs, the meteoric performers of 2023, will likely take a rest sometime in Q1.
Europe and China took the big hits this year, but we didn’t. If they turn around, it will supercharge our economy….and the stock market.
Which brings me to the subject of bank stocks. Banks have had an atrocious 2023, when their shares were either flat or down big, underperforming the S&P 500 by a massive 30%. However, they are looking pretty darn attractive for 2024.
Banks now offer pretty cheap balance sheets relative to next year’s profit outlook, with many still trading at big discounts to book value. A recovering economy means new capital spending jumps, which is great for big banks. Exposure to high-risk office loans which get so much print from the financial media account for less than 5% of their loan books.
Small banks will put the March crisis behind them by recapitalizing or merging. It turns out that only a handful of banks were badly managed (no downside hedge on (TLT) holdings while they were crashing from $166 to $82!!). The survivors will build market share at higher margins.
Economic recovery also means default rates on loans ebb.
Goldman Sachs (GS) is my top pick, after being taken to the woodshed for a very expensive unwind of their poorly thought-out consumer business this year. Key Corp (KEY) is also looking good on a possible 70% earnings growth.
If you are looking for a pure small bank play, you can buy Webster Financial (WBS) based in Stamford, CT, Columbia Banking (COLB) of Tacoma, WA, or Pinnacle Financial (PNFP) from Nashville, TN.
So far in December, we are down -2.85%. We’ve had a heck of a run and the market was bound to bite back sometime. My 2023 year-to-date performance is still at an eye-popping +78.86%. The S&P 500 (SPY) is up +21.05% so far in 2023. My trailing one-year return reached +75.38% versus +24.75% for the S&P 500.
That brings my 15-year total return to +676.05%. My average annualized return has exploded to +52.00%, another new high.
I am 40% invested with 60% in cash, with longs in (NLY), (BRK/B), (GOOGL), and (CAT). Last week, I got stopped out of a long in (XOM), thanks to the oil price dive, and a short in (TLT).
Some 63 of my 70 trades this year have been profitable this year.
Nonfarm Payroll Comes in Soft, in November at 199,000. The headline Unemployment Rate fell to 3.7%, near a 50-year low. Healthcare was the biggest growth industry, adding 77,000. Other big gainers included government (49,000), manufacturing (28,000), and leisure and hospitality (40,000). Average hourly earnings, a key inflation indicator, increased by 0.4% for the month and 4% from a year ago, close to expectations. It was a Goldilocks number for the Fed.
Refi Demand Rockets, as interest rates plunge to four-month lows. The rate for the popular 30-year mortgage fell back toward 7% after hitting 8% earlier this fall. Applications to refinance a home loan index increased 14% from the previous week and were 10% higher than the same week a year ago.
Exploding Sales of EVs Are Ringing the Bell for Oil, leading forecasters to speed up their projections for when global oil use will peak, as public subsidies and improved technology help consumers overcome the sometimes eye-popping sticker prices for battery-powered cars.
Panic Buying Drives Treasury Yields to 4.10%, down nearly a full percentage point in little more than a month on weakening economic data. It’s hard to believe that we drop below 4.10% but anything is possible in this market.
Uber Entered S&P 500, on December 18, taking the stock up 10% on the news. A company needs to fulfill certain criteria to be included in the S&P 500. Firstly, its market capitalization should be at least $14.5 billion. As of Dec 1, 2023, the market capitalization of UBER was $118.02 billion. Additionally, U.S. firms that meet profitability, liquidity, and share-float standards are the ones that can qualify for the S&P 500.
Pending Home Sales Collapse, dropping to the lowest level since the National Association of Realtors began tracking them in 2001. Sales were down 8.5% from October of last year. Tight supply and still-strong demand have kept pressure on home prices, which not only continue to hit new highs but appear to be accelerating in their gains. ales of homes priced above $750,000 have been increasing simply because there is more supply on the high end of the 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, December 11, at 8:30 AM EST, the Consumer Inflation Expectations are out, one of the Fed’s favorite inflation reads.
On Tuesday, December 12 at 8:30 AM, the Consumer Price Index will be released. The Federal Reserve Open Market Committee starts a two-day meeting.
On Wednesday, December 13 at 2:00 PM, the Federal Reserve will release its interest rate decision. No change is expected. At 2:30, the Producer Price Index is out.
On Thursday, December 14 at 8:30 AM, the Weekly Jobless Claims are announced. We also get Retail Sales.
On Friday, December 15 at 2:30 PM, the October New York Empire State Manufacturing Index is published. At 2:00 PM, the Baker Hughes Rig Count is printed.
As for me, it was with a heavy heart that I boarded a plane for Los Angeles to attend a funeral for Bob, the former scoutmaster of Boy Scout Troop 108.
The event brought a convocation of ex-scouts from up and down the West Coast and said much about our age.
Bob, 85, called me two weeks ago to tell me his CAT scan had just revealed advanced metastatic lung cancer. I said, “Congratulations Bob, you just made your life span.”
It was our last conversation.
He spent only a week in bed and then was gone. As a samurai warrior might have said, it was a good death. Some thought it was the smoking he quit 20 years ago.
Others speculated that it was his close work with uranium during WWII. I chalked it up to a half-century of breathing the air in Los Angeles.
Bob originally hailed from Bloomfield, New Jersey. After WWII, every East Coast college was jammed with returning vets on the GI bill. So he enrolled in a small, well-regarded engineering school in New Mexico in a remote place called Alamogordo.
His first job after graduation was testing V2 rockets newly captured from the Germans at the White Sands Missile Test Range. He graduated to design ignition systems for atomic bombs. A boom in defense spending during the fifties swept him up to the Greater Los Angeles area.
Scouts I last saw at age 13 or 14 are now 60, while the surviving dads were well into their 80s. Everyone was in great shape, those endless miles lugging heavy packs over High Sierra passes yielding lifetime benefits.
Hybrid cars lined both sides of the street. A tag-along guest called out for a cigarette and a hush came over a crowd numbering over 100.
Some things stuck. It was a real cycle of life weekend. While the elders spoke about blood pressure and golf handicaps, the next generation of scouts played in the backyard or picked lemons off a ripening tree.
Bob was the guy who taught me how to ski, cast rainbow trout in mountain lakes, transmit Morse code, and survive in the wilderness. He used to scrawl schematic diagrams for simple radios and binary computers on a piece of paper, usually built around a single tube or transistor.
I would run off to Radio Shack to buy WWII surplus parts for pennies on the pound and spend long nights attempting to decode impossibly fast Navy ship-to-ship transmissions. He was also the man who pinned an Eagle Scout badge on my uniform in front of beaming parents when I turned 15.
While in the neighborhood, I thought I would drive by the house in which I grew up, once a modest 1,800 square-foot ranch-style home to a happy family of nine. I was horrified to find that it had been torn down, and the majestic maple tree that I planted 40 years ago had been removed.
In its place was a giant, 6,000-square-foot marble and granite monstrosity under construction for a wealthy family from China.
Profits from the enormous China-America trade have been pouring into my hometown from the Middle Kingdom for the last decade, and mine was one of the last houses to go.
When I was class president of the high school here, there were 3,000 white kids and one Chinese. Today, those numbers are reversed. Such is the price of globalization.
I guess you really can’t go home again.
At the family's request, I assisted in liquidating his investment portfolio. Bob had been an avid reader of the Diary of a Mad Hedge Fund Trader since its inception and attended my Los Angeles lunches.
It seems he listened well. There was Apple (AAPL) in all its glory at a cost of $21. I laughed to myself. The master had become the student and the student had become the master.
Like I said, it was a real circle of life weekend.
Good Luck and Good Trading,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Scoutmaster Bob
1965 Scout John Thomas
The Mad Hedge Fund Trader at Age 11 in 1963
Global Market Comments
December 4, 2023
Fiat Lux
Featured Trade:
Featured Trade:
(The Mad Hedge December Traders & Investors Summit is ON!)
(MARKET OUTLOOK FOR THE WEEK AHEAD, or GOLDILOCKS IS BACK!),
(TLT), (FCX), (CAT), (JNK), (HYG), (NLY), (GM), (MSFT), (NLY), (BRK/B), (CCJ), (GOOGL), (SNOW), (XOM), (CRM)
After too long of an absence, Goldilocks has moved back in once again. She arrived with Santa Claus too, a month ahead of schedule.
Can life get any better than that, Goldilocks and Santa Claus?
Santa confused Thanksgiving with Christmas this year. I saw it coming a mile off, and it’s not because my failing eyesight has suddenly improved.
Since October 26, Mad Hedge followers have earned an impressive 25%. We are on track to top an 86.5% profit for 2023, the best in the 15-year history of the service.
Concierge members who own our substantial LEAPS portfolio, now at 33 names, are up much more.
I hate to boast but let me take my victory lap. I earned it.
Stocks and bonds should continue rising but at a much slower rate. More likely is the diversification of the rally from Big Tech and big bonds (TLT) to medium tech, commodities (FCX), industrials (CAT), junk bonds (JNK), (HYG), and REITS (NLY).
Buy everything on dips.
And here are your assumptions. Collapsing energy prices will lead the inflation rate down to the Fed’s well-publicized 2% inflation rate target in the coming months. Accelerating technology and AI will reign in this year’s runaway wage increases, if not reverse them.
The UAW’s 25% salary increase over four years will only hasten the demise of General Motors (GM), as well as their own. Interest rates have to take a swan dive, supercharging all risk assets.
Goldilocks is not moving in for a fling, but a long-term relationship. Your retirement funds will love it.
Last spring, with 75 feet of snow over the winter, the rivers pouring out of the High Sierras were at record levels. That brought the solo hobbyist gold miners out in force.
It is widely believed that the 1849 gold rush extracted only 10% of the gold in the mountains and the remaining 90% is still up there. Heavy rainfalls like we received last winter flushed out some of the rest.
Rounding a turn in the river, I spotted a group of modern-day 49ers equipped with shoulder-high waders and inner tubes floating pumps and sluice boxes. So I parked the car and waded out in the freezing, fast-running water to get an update on this market.
One man proudly showed off a one-ounce gold nugget that he had found only that morning worth about $1,800. Nuggets are worth more than spot gold because they attract a collector’s market.
A record eight-ounce nugget was discovered in a river near Merced the week earlier. This year, the state government in Sacramento issued a record number of gold mining licenses.
I explained to my newfound friend that he should hang on to his gold because it would be worth a lot more the following year. Inflation was falling and that would eventually induce the Federal Reserve to cut interest rates sharply.
That meant less interest rate competition for gold and silver, which yielded nothing taking prices upward. Personally, I think this gold could hit $3,000 an ounce and silver $50 an ounce in 2025.
In addition, there was a constant bid from Russia, China, and North Korea looking to dodge financial sanctions. Money managers are also picking up the yellow metal as a hedge against any unanticipated volatility in 2024.
My friend looked at me quizzically, wondering if perhaps I was some kind of nutjob who had waded out mid-river to rob him of his prized nugget.
I’ll do anything to gain a trading edge, even freezing off my cajones.
It was a tough week for 90- and 100-year-olds with the passing of Charlie Munger, Henry Kissinger, and Supreme Court Justice Sandra Day O’Connor. I had the privilege of knowing all three.
I was in the White House Press Room one day when the press secretary James Brady asked if any of the press could ride a horse. Sheepishly, I was the only one to raise a hand.
I was ordered to pick up my riding boots and report to the White House Stables on 17th Street. I had no idea why. Back then, even the press didn’t ask some questions.
When I arrived, I understood why. Supreme Court Justice Sandra Day O’Connor was already there kitted out ready to ride. It turns out that the justice from Arizona rode weekly with Ronald Reagan. This week, an international crisis prevented the president from doing so. I was the fill-in escort.
We talked about growing up in the Colorado Desert, and pre-air conditioning, as we enjoyed a peaceful ride along the Potomac River. A security detail kept a safe distance.
A lot of history is being in the right place at the right time.
The clock is ticking.
November closed out at +15.54%. My 2023 year-to-date performance is still at an eye-popping +81.71%. The S&P 500 (SPY) is up +19.73% so far in 2023. My trailing one-year return reached +80.80% versus +18.19% for the S&P 500.
That brings my 15-year total return to +678.90%. My average annualized return has exploded to +52.26%, another new high, some 2.48 times the S&P 500 over the same period.
I am 90% fully invested, with longs in (MSFT), (NLY), (BRK/B), (CCJ), (GOOGL), (SNOW), (CAT), and (XOM). I have one short in the (TLT). I took profits on (CRM) on Friday.
Some 56 of my 61 trades this year have been profitable this year.
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, December 4, at 8:30 AM EST, the US Factory Orders are out.
On Tuesday, December 5 at 2:30 PM, the JOLTS Job Openings Report is released.
On Wednesday, December 6 at 8:30 AM, the ADP Private Employment Report is published.
On Thursday, December 7 at 8:30 AM, the Weekly Jobless Claims are announced.
On Friday, December 8 at 2:00 PM the Baker Hughes Rig Count is printed and at 2:30 PM, the November Nonfarm Payroll Report is published.
As for me, back in the early 1980s, when I was starting up Morgan Stanley’s international equity trading desk, my wife Kyoko was still a driven Japanese career woman.
Taking advantage of her near-perfect English, she landed a prestige job as the head of sales at New York’s Waldorf Astoria Hotel.
Every morning we set off on our different ways, me to Morgan Stanley’s HQ in the old General Motors Building on Avenue of the Americas and 47th street and she to the Waldorf at Park and 34th.
One day, she came home and told me this little old lady living in the Waldorf Towers needed an escort to walk her dog in the evenings once a week. Back in those days, the crime rate in New York was sky-high, and only the brave or the reckless ventured outside after dark.
I said “Sure” “What was her name?”
Jean MacArthur.
I said THE Jean MacArthur?
She answered “Yes.”
Jean MacArthur was the widow of General Douglas MacArthur, the WWII legend. He fought off the Japanese in the Philippines in 1941 and retreated to Australia in a dramatic night PT Boat escape.
He then led a brilliant island-hopping campaign, turning the Japanese at Guadalcanal and New Guinea. My dad was part of that operation, as were the fathers of many of my Australian clients. That led all the way to Tokyo Bay where MacArthur accepted the Japanese in 1945 on the deck of the battleship USS Missouri.
The MacArthur then moved into the Tokyo embassy where the general ran Japan as a personal fiefdom for seven years, a residence I know well. That’s when Jean, who was 18 years the general’s junior, developed a fondness for the Japanese people.
When the Korean War began in 1950, MacArthur took charge. His landing at Inchon Harbor broke the back of the invasion and was one of the most brilliant tactical moves in military history. When MacArthur was recalled by President Truman in 1952, he had not been home for 13 years.
So it was with some trepidation that I was introduced by my wife to Mrs. MacArthur in the lobby of the Waldorf Astoria. On the way out, we passed a large portrait of the general who seemed to disapprovingly stare down at me taking out his wife, so I was on my best behavior.
To some extent, I had spent my entire life preparing for this job.
I had stayed at the MacArthur Suite at the Manila Hotel where they had lived before the war. I knew Australia well. And I had just spent a decade living in Japan. By chance, I had also read the brilliant biography of MacArthur by William Manchester, American Caesar, which had only just come out.
I also competed in karate at the national level in Japan for ten years, which qualified me as a bodyguard. In other words, I was the perfect after-dark escort for Midtown Manhattan in the early eighties.
She insisted I call her “Jean”; she was one of the most gregarious women I have ever run into. She was grey-haired, petite, and made you feel like you were the most important person she had ever run into.
She talked a lot about “Doug” and I learned several personal anecdotes that never made it into the history books.
“Doug” was a staunch conservative who was nominated for president by the Republican party in 1944. But he pushed policies in Japan that would have qualified him as a raging liberal.
It was the Japanese that begged MacArthur to ban the army and the navy in the new constitution for they feared a return of the military after MacArthur left. Women gained the right to vote on the insistence of the English tutor for Emperor Hirohito’s children, an American Quaker woman. He was very pro-union in Japan. He also pushed through land reform that broke up the big estates and handed out land to the small farmers.
It was a vast understatement to say that I got more out of these walks than she did. While making our rounds, we ran into other celebrities who lived in the neighborhood who all knew Jean, such as Henry Kissinger, Ginger Rogers, and the UN Secretary-General.
Morgan Stanley eventually promoted me and transferred me to London to run the trading operations there, so my prolonged free history lesson came to an end.
Jean MacArthur stayed in the public eye and was a frequent commencement speaker at West Point where “Doug” had been a student and later the superintendent. Jean died in 2000 at the age of 101.
I sent a bouquet of lilies to the funeral.
Kyoko passed away in 2002.
In 2014, Chinas Anbang Insurance Group bought the Waldorf Astoria for $1.95 billion, making it the most expensive hotel ever sold. Most of the rooms were converted to condominiums and sold to Chinese looking to hide assets abroad.
The portrait of Douglas MacArthur is gone too. During the Korean War, he threatened to drop atomic bombs on China’s major coastal cities.
Good Luck and Good Trading,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Below please find subscribers’ Q&A for the November 1 Mad Hedge Fund Trader Global Strategy Webinar, broadcast from Boca Raton.
Q: Earlier you said that the bull market should start from here—are you sticking to that argument?
A: Yes, there are all kinds of momentum and cash flow indicators that are flashing “buy right now.” The market timing index got down to 24—couldn’t break below 20. Hedge fund shorts: all-time highs. Quant shorts: all the time highs, creating a huge amount of buying power for the market. And, of course, the seasonals have turned positive. So yes, all of that is positive and if bonds can hold in here, then it’s off to the races.
Q: Do you have a year-end target for Berkshire Hathaway (BRK/B)?
A: Up. They have a lot of exposure to the falling interest rate trade such as its very heavy weighting in banks; and if interest rates go down, Berkshire goes up—it’s really very simple. You can’t come up with specific targets for individual stocks for year-end because of the news, and things can happen anytime. I love Berkshire; it's a very strong buy here.
Q: Tesla (TSLA) is not doing well; what's the update here?
A: It always moves more than you think, both on the upside and the downside. Last year, we thought it would drop 50%, it dropped 80%. Suffice it to say that, with the price war continuing and Tesla determined to wipe out the 200 other new entrants to the EV space, they’ll keep price cutting until they basically own that market. While that’s great for market share, it’s not great for short-term profits. Yes, Tesla could be going down more, but from here on, if you’re a long-term investor in Tesla, as you should be, you should be looking to add positions, not sell what you have and average down. Also, we’re getting close to Tesla LEAPS territory. Those have been huge winners over the years for us and I’ll be watching those closely.
Q: Any trade on the Japanese yen?
A: We broke 150 on the yen—that was like the make-or-break level. I’m looking at a final capitulation selloff on the yen, and then a decade-long BUY. The Bank of Japan is finally ending its “easy money” zero-interest-rate policy, which it’s had for 30 years, and that will give us a stronger yen when it happens, but not until then. So watch the yen carefully, it could double from here over the long term, especially if it’s the same time the US starts cutting its interest rates.
Q: What do you think about Eli Lilly (LLY)?
A: We love Eli Lilly; they’re making an absolute fortune on their weight loss drug, and they have other drugs in the pipeline being created by AI. This is really the golden age for biotech because you have AI finding cures for diseases, and then AI designing molecules to cure the diseases. It’s shortened the pipeline for new drugs from 5-10 years to 5-10 weeks. If you’re old and sick like me, this is all a godsend.
Q: Do you like Snowflake (SNOW)?
A: Absolutely, yes—killer company. Warren Buffet loves it too and has a big position; I’d be looking to buy SNOW on any dip.
Q: Would you do LEAPS on Netflix (NFLX)?
A: I would, but I would go out two years, and I would go at the money, not out of the money, Even then you’ll get a 100-200% return. You’ll get a lot even on just a 6-month call spread. These tech stocks with high volatility have enormous payoff 3-6 months out.
Q: Projection for iShares 20 Plus Year Treasury Bond ETF (TLT) in the next 6 months?
A: It’s up. We could hit $110, that would be my high, or up $25 points or so from here.
Q: Would you buy biotech here through the ProShares Ultra Nasdaq Biotechnology (BIB)?
A: Probably, yes. The long-term story is overwhelming, but it’s not a sector you want to own when the sentiment is terrible like it is now. I guess “buy the bad news” is the answer there.
Q: What did you learn from your dinner with General Mattis?
A: Quite a lot, but much of it is classified. When you get to my age, you can’t remember which parts are classified and which aren't. However, his grasp of the global scene is just incredible. There are very few people in the world I can go one on one with in geopolitics. Of course, I could fill in stuff he didn’t know, and he could fill in stuff for me, like: what is the current condition of our space weaponry? If I told you, you would be amazed, but then I would get arrested the next day, so I’ll say nothing. He really was one of the most aggressive generals in American history, was tremendously underrated by every administration, was fired by both Obama and Trump, and recently is doing the speaker circuit which is a lot of fun because there’s no question he doesn’t know the answer to! We actually agreed to do some joint speaking events sometime in the future.
Q: I have some two-year LEAPS now but I’m worried about adding too much. Could we get a final selloff in 2024?
A: The only way we could get another leg down in the market is number one if the Fed raises interest rates (right now, we’re positioned for a flat line and then a cut) or number two, another pandemic. You could also get some election-related chaos next year, but that usually doesn’t affect the market. But for those who are prone to being nervous, there are certainly a lot of reasons to be nervous next year.
Q: What iShares 20 Plus Year Treasury Bond ETF (TLT) level would we see with a 5.2% yield?
A: How about $79? That’s exactly why I picked that strike price. The $76-$79 vertical bill call spread in the (TLT) is a bet that we don’t go above 5.20% yield, and we only have 10 days to do it, so things are looking better and then we’ll see what’s available in the market once our current positions all expire at max profit.
Q: The first new nuclear power plant of 30 years went online in Georgia. Do you see more being built in the future?
A: It’s actually been 40 years since they’ve built a new plant, and it wasn’t a new plant, it was just an addition to an existing plant with another reactor added with an old design. I think there will be a lot more nuclear power plants built in the future, but they will be the new modular design, which is much safer, and doesn’t use uranium, by the way, but other radioactive elements. If you want to know more about this, look up NuScale (SMR). They have a bunch of videos on how their new designs work. That could be an interesting company going forward. The nuclear renaissance continues, and of course, China’s continuing to build 100 of the old-fashioned type nuclear power reactors, and that is driving global uranium demand.
Q: Would you hold Cameco Corp (CCJ) or sell?
A: I would keep it, I think it’s going up.
Q: How to trade the collapse of the dollar?
A: (FXA), (FXB), (FXE), and (EEM). Those are the quick and easy ways to do it. Also, you buy precious metals—gold (GLD) and silver (SLV) do really well on a weak dollar.
Q: Conclusion on the Ukraine war?
A: It will go on for years—it’s a war of attrition. About half of the entire Russian army has been destroyed as they’re working with inferior weapons. However, it’s going to be a matter of gaining yards or miles at best, over a long period of time. So, they will keep fighting as long as we keep supplying them with weapons, and that is overwhelmingly in our national interest. Plus, we’re getting a twofer; if we stop Russia from taking over Ukraine, we also stop China from invading Taiwan because they don’t want to be in for the same medicine.
Q: If more oil is released from the strategic petroleum reserve, what is our effect on security?
A: Zero because the US is a net energy producer. If our supplies were at risk, all we’d have to do is cut off our exports to China and tell them to find their oil elsewhere—and they’re obviously already trying to do that with the invasion of the South China Sea and all the little rocks out there. So, I am not worried. And also remember, every year as the US moves to more EVs and more alternatives, it is less and less reliant on oil. I would advise the administration to get rid of all of it next time we go above $100 a barrel. If you’re going to sell your oil, you might as well get a good price for it. If you look at the US economy over the last 30 years, the reliance of GDP on oil has been steadily falling.
Q: Are US exports of Cheniere Energy (LNG) helping to drive up prices here?
A: I would say yes, it’s got to have an impact on prices. We’re basically supplying Germany with all of its natural gas right now. We did that starting from scratch at the outset of the Ukraine war, and it’s been wildly successful. That avoided a Great Depression in Europe. Europe, by the way, is the largest customer for our exports. That was one of the arguments for us going into the United States Natural Gas (UNG) LEAPS in the first place.
To watch a replay of this webinar with all the charts, bells, whistles, and classic rock music, just log in to www.madhedgefundtrader.com, go to MY ACCOUNT, select your subscription (GLOBAL TRADING DISPATCH, TECHNOLOGY LETTER, or Jacquie's Post), then click on WEBINARS, and all the webinars from the last 12 years are there in all their glory.
Good Luck and Stay Healthy,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
2023 Krakow Poland
Global Market Comments
August 14, 2023
Fiat Lux
Featured Trades:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or THE GREAT ROTATION OF 2023 IS ON)
(AAPL), (TSLA), (NVDA), (GOOGL), (OXY), (QQQ),
(TSLA), (WPM), (UNG), (BRK/B), (RIVN), (TLT)
CLICK HERE to download today's position sheet.
What a difference a vacation makes!
When I boarded the Queen Mary II in early July, big technology stocks (AAPL), (TSLA), (NVDA), (GOOGL) were on fire and knew no bounds, while bonds (TLT) were holding steady at a 3.40% yield. Energy stocks (OXY) were scraping the bottom.
One month later and big tech is in free fall while energy, commodities, and precious metals have taken over the lead. Bonds are probing for new lows at a 4.20% yield and may have another $5.00 of downside.
The Great Rotation of 2023 has begun!
The only question is how long it will last.
I happen to believe that we are into a traditional summer correction that could last until the usual September or October bottom. That is when I will be picking up long-term bull LEAPS with both hands. After that, it’s off to the races once again to new all-time highs once again.
Except that this time, everything will go up, both big tech, the domestics recovery plays, and bonds. That’s because they will be discounting the next great market mover, several successive cuts in interest rates by the Federal Reserve certain to take place in 2024.
We all know that markets discount market-moving developments six to nine months in advance. That means you should start buying about….September or October.
Perhaps the best question asked at my many strategy luncheons this summer came from a dear old friend in London. “Where is all the money coming from to pay for all this”? The answer is, well complicated. I’ll give you a list”
1) All of the Quantitative Easing money created since 2008, some $10 trillion worth, is still around. It is just sleeping in 90-day T-bills.
2) With inflation basically over, thanks to hyper-accelerating technology and collapsing energy prices, the case for the Fed to stop raising and start cutting interest rates is clear.
3) Falling interest rates trigger a collapse in the US dollar.
4) Earnings at big tech companies explode, which earn about half of their revenues from abroad.
5) The falling interest rate sectors are also set alike. These include energy, commodities, precious metals, and bonds.
6) A cheap greenback pours gasoline on the economy.
7) The $1 trillion in stimulus approved last year provides the match as most of it has yet to be spent.
8) China finally recovers and turbocharges all of the above trends.
9) 2024 is a presidential election year and the economy always seems to do mysteriously well going into such events.
10) All we are left to do is sit back and watch all our positions go up, figure out how we are going to spend all that money, and sing the praises of the Mad Hedge Fund Trader.
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%, some 2.50 times the S&P 500 over the same period.
Some 41 of my 46 trades this year have been profitable.
The Nonfarm Payroll drops to 187,000 in July, a one-year low, less than expectations. The Headline Unemployment Rate returned to 3.5%, a 50-year low. The soft-landing scenario lives! That’s supposed to be impossible in the face of 5.25% interest rates. Average hourly earnings grew at a restrained 3.6% annual rate. Half of the new jobs were in health care. At the rate we are aging, that is no surprise.
Rating Agencies Strike Again, with Moody’s threatened downgrade of a dozen regional banks. Stocks took it up on the nose giving up Monday’s 400-point gain. Higher funding costs, potential regulatory capital weaknesses, and rising risks tied to commercial real estate are among strains prompting the review, Moody’s said late Monday. The summer correction is finally here.
Berkshire Hathaway Post Record Profit, with profits up 38% and interest and other investment income growing sixfold as Warren Buffet’s trading vehicle goes from strength to strength to strength. Sky-high interest rates enabled its Geico insurance holding to really coin it this time. Buffet turns 93 this month. Keep buying (BRK/B) on dips. Our LEAPS are looking great, up 327% in 11 months.
Rivian Beats, losing only $1.08 a share versus an expected $1.41. The stock jumped 3% on the news. The gross profit per vehicle showed a dramatic improvement at $35,000. The production forecast edged up from 50,000 to 52,000 vehicles for 2023. Momentum is clearly improving making our LEAPS look better by the day. Buy (RIVN) on dips as the next (TSLA).
Deflation Hits China, as the post-Covid recovery continues to lag. Their Consumer Price Index fell 0.3% YOY. Imports and exports are falling dramatically as trade sanctions bite. Youth unemployment hit a new high as 11.6 million new college grads hit the market. Global commodities could get hit but so far the stocks aren’t seeing it. Avoid anything Chinese (FXI), even the food.
Inflation Jumps, 0.2% in July and 3.2% YOY. Rents, education, and insurance (climate change) were higher while used cars were down 1.3% and airfares plunged by 8.1%. Stocks rallied on the small increase preferring to focus on the smallest back-to-back increase in two years. Bonds (TLT) rallied big. The big question is what will the Fed do with this?
Weekly Jobless Claims came in at a strong 278,000, showing the Fed’s high-interest rate policy is having an effect on the jobs market. Stocks want to know how much longer it will last.
Natural Gas Soars to a new high and accomplished an upside breakout on all charts. European gas prices have just jumped 40%. An Australian strike shut down an LNG export facility. Energy traders are looking for higher highs. My (UNG) LEAPS, a Mad Hedge AI pick, are looking great, doubling off our cost in two months.
Biden Cracks Down on Technology Investment in China, especially on our most advanced tech which can be used in weapons development. Tech investment in the Middle Kingdom is already down 70% over the last two years. No point in selling China the rope with which to hang us.
Home Mortgage Rates Hit a 22-Year High, at 7.08%. But the existing home market is heating up and the new home market is absolutely on fire in anticipating of a coming rate fall. You can’t beat a gale-force demographic tailwind.
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, August 14 at 8:00 AM EST, the US Consumer Inflation Expectations are out,
On Tuesday, August 15 at 8:30 AM, US Retail Sales are released.
On Wednesday, August 16 at 2:30 PM, the US Building Permits are published.
On Thursday, August 17 at 8:30 AM, the Weekly Jobless Claims are announced.
On Friday, August 18 at 2:00 PM, the Baker Hughes Rig Count is printed.
As for me, occasionally, I tell close friends that I hitchhiked across the Sahara Desert alone when I was 16 and I am met with looks that are amazed, befuddled, and disbelieving, but I actually did it in the summer of 1968.
I had spent two months hitchhiking from a hospital in Sweden all the way to my ancestral roots in Monreale, Sicily, the home of my Italian grandfather. My next goal was to visit my Uncle Charles who was stationed at the Torreon Air Force base outside of Madrid, Spain.
I looked at my Michelin map of the Mediterranean and quickly realized that it would be much quicker to cut across North Africa than hitching all the way back up the length of Italy, cutting across the Cote d’Azur, where no one ever picked up hitchhikers, then all the way down to Madrid, where the people were too poor to own cars.
So one fine morning found me taking deck passage on a ferry from Palermo to Tunis. From here on, my memory is hazy and I remember only a few flashbacks.
Ever the historian, even at age 16, I made straight for the Carthaginian ruins where the Romans allegedly salted the earth to prevent any recovery of a country they had just wasted. Some 2,000 years later it, worked as there was nothing left but an endless sea of scattered rocks.
At night, I laid out my sleeping bag to catch some shut-eye. But at 2:00 AM, someone tried to bash my head in with a rock. I scared them off but haven’t had a decent night of sleep since.
The next day, I made for the spectacular Roman ruins at Leptus Magna on the Libyan coast. But Muamar Khadafi pulled off a coup d’état earlier and closed the border to all Americans. My visa obtained in Rome from King Idris was useless.
I used to opportunity to hitchhike over Kasserine Pass into Algeria, where my uncle served under General Patton in WWII. US forces suffered an ignominious defeat until General Patton took over the army 1n 1943. Some 25 years later, the scenery was still littered with blown-up tanks, destroyed trucks, and crashed Messerschmitts.
Approaching the coastal road, I started jumping trains headed west. While officially the Algerian Civil War ended in 1962, in fact, it was still going on in 1968. We passed derailed trains and smashed bridges. The cattle were starving. There was no food anywhere.
At night, Arab families invited me to stay over in their mud brick homes as I always traveled with a big American Flag on my pack. Their hospitality was endless, and they shared what little food they had.
As a train pulled into Algiers, a conductor caught me without a ticket. So, the railway police arrested me and on arrival took me to the central Algiers prison, not a very nice place. After the police left, the head of the prison took me to a back door, opened it, smiled, and said “si vou plais”. That was all the French I ever needed to know. I quickly disappeared into the Algiers souk.
As we approached the Moroccan border, I saw trains of camels 1,000 animals long, rhythmically swaying back and forth with their cargoes of spices from central Africa. These don’t exist anymore, replaced by modern trucks.
Out in the middle of nowhere, bullets started flying through the passenger cars splintering wood. I poked my Kodak Instamatic out the window in between volleys of shots and snapped a few pictures.
The train juddered to a halt and robbers boarded. They shook down the passengers, seizing whatever silver jewelry and bolts of cloth they could find.
When they came to me, they just laughed and moved on. As a ragged backpacker, I had nothing of interest for them.
The train ended up in Marrakesh on the edge of the Sahara and the final destination of the camel trains. It was like visiting the Arabian Nights. The main Jemaa el-Fna square was amazing, with masses of crafts for sale, magicians, snake charmers, and men breathing fire.
Next stop was Tangiers, site of the oldest foreign American embassy, which is now open to tourists. For 50 cents a night, you could sleep on a rooftop under the stars and pass the pipe with fellow travelers which contained something called hashish.
One more ferry ride and I was at the British naval base at the Rock of Gibraltar and then on a train for Madrid. I made it to the Torreon base main gate where a very surprised master sergeant picked up a half-starved, rail-thin, filthy nephew and took me home. Later, Uncle Charles said I slept for three days straight. Since I had lice, Charles shaved my head when I was asleep. I fit right in with the other airmen.
I woke up with a fever, so Charles took me the base clinic. They never figured out what I had. Maybe it was exhaustion, maybe it was prolonged starvation. Perhaps it was something African. Possibly, it was all one long dream.
Afterwards, my uncle took for to the base commissary where I enjoyed my first cheeseburger, French fries, and chocolate shake in many months. It was the best meal of my life and the only cure I really needed.
I have pictures of all this which are sitting in a box somewhere in my basement. The Michelin map sits in a giant case of old, used maps that I have been collecting for 60 years.
Mediterranean in 1968
Stay healthy,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
