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The Market Outlook for the Week Ahead, or Powell’s Victory Lap

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

December 4, 2023

Diary, Newsletter, Summary

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)

The Market Outlook for the Week Ahead, or Goldilocks is Back!

Diary, Newsletter

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 17^th 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 47^th street and she to the Waldorf at Park and 34^th.

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

November 27, 2023

Diary, Newsletter, Summary

Global Market Comments
November 27, 2023
Fiat Lux

Featured Trade:

(MARKET OUTLOOK FOR THE WEEK AHEAD, or MELT UP),
(MSFT), (NLY), (BRK/B), (CCJ), (CRM), (GOOGL), (SNOW), (CAT), (XOM), (TLT)

The Market Outlook for the Week Ahead, or Melt Up

Diary, Newsletter

If you think the market performance for the past month has been spectacular, you have seen nothing yet. We have two major positive catalysts that are about to hit stock prices.

On December 10, we will see a lower-than-expected Consumer Price Index, driving yet another stake through the heart of inflation. On December 13, we will also be greeted with a Federal Reserve decision to keep interest rates unchanged, as they will do over the next several meetings.

“Higher for shorter” is about to become the new market mantra.

That will give the market the shot in the arm it needs to reach my $4,800 yearend target, which was precisely the goal I laid out on January 1. Caution has been thrown to the wind and hedging downside risks has become a distant memory. One of the fastest market melt-ups in 100 years will do that. Complacency is the order of the day.

Equity-oriented mutual funds have seen $43 billion in inflows so far in November. Commodity Trading Funds, or CTA’s, have seen a breathtaking $60 billion piled into long equity strategies.

Hedge funds flipped from short to long and now have the most aggressively bullish positions in 22 years, mostly in big tech. All of this has taken the Volatility Index (VIX) down to a subterranean $12 handle. Bears are suddenly lonely….and afraid.

Yes, 55 years of practice makes this easy.

On October 28, it turns out that we reached a decade-high peak in bond investment when Treasuries were flirting with new highs in yields. With perfect rear-view mirror hindsight that’s when many investors cut stock holdings to the bone. They will spend the next several months desperately trying to get back in.

Oh yes, and Company buybacks are about to surge as companies race to pick up their own stocks before the yearend deadline. Apple is the top buyback stock followed by Alphabet (GOOGL) and Microsoft (MSFT). Heard these names before?

And while big tech is starting to look expensive, they are cheap when you factor in the trillions of dollars in profits that are headed their way over the next decade.

That’s what always happens.

What could pee on my victory parade? Ten-year US treasury bonds revisiting a 5.08% yield, crude oil popping back up to $100 a barrel, oil another new blacking swan alighting out of the blue, like a Chinese invasion of Taiwan, or Russia retaking the Baltic states. That’s all.

Avoid these and stocks will continue to rise, as will your retirement funds.

The Magnificent Seven will continue to lead, as will big financials, which are still at bargain-basement levels. Energy and commodities are already posting January sale prices, discounting a 2024 recession that isn’t going to happen. This is fertile LEAPS territory.

Weekly Jobless Claims Drop 24,000, to 209,000 in one of the sharpest declines this year. It makes last week’s jump look like an anomaly.

Consumer Inflation Expectations Rise, to 3.2%, a 12-year high. They are counting on a 4.5% in 2024. They are now looking at gasoline prices. There’s your mismatch. Any decline in inflation will be viewed as a shocker and drive share prices to new all-time highs.

US Gasoline Prices Hit Three-Year Low, on recession fears and replacement concerns by EVs. Energy stocks are tracing the downside tic for tic, pulling down all other commodities. Don’t buy this dip.

Pending Home Sales Plunge to 13-Year Low, down 4.1% in October, on a signed contracts basis. Sales were down 14.6% year over year. The median price of an existing home sold in October was $391,800, an increase of 3.4% from October 2022. These are the last poor sales numbers before the collapse in interest rates. At the end of October, there were 1.15 million homes for sale, down 5.7% from a year earlier. This is about half as many homes as were available for sale pre-Covid. At the current sales pace, that represents a 3.6-month supply. A six-month supply is considered a balanced market between buyer and seller.

Monster Pay Hikes Will Lead to Strong Japanese Yen, with whiskey maker Suntory offering 7% pay hikes. The prospect of falling US interest rates adds fuel to the fire. Buy (FXY) on dips.

Starship Two Blows Up, two minutes or 92 miles after launch. The test fire of the 33-engine spacecraft was considered a success. The massive 397-foot tall, 30-foot-wide rocket, the largest ever built, is crucial for the NASA moon launch in 2025 and the SpaceX Mars trip further down the road.

NVIDIA (NVDA) Beats, with a profit triple, but that stock sells off 6% on the news. It was a classic buy the rumor, sell the news move. Future earnings increases will not be as big. Keep "buy (NVDA) on dips" as a must-own.

Famed Short Seller Jim Chanos shut down after a massive short in Tesla shares blew up. His funds under management have plunged from $6 billion to $200 million since (TSLA) went public. Chanos had a few big wins, notably Enron in 2001. But he was also seen as a hedge against other long positions.

So far in November, we are up +12.62%. My 2023 year-to-date performance is still at an eye-popping +78.79%. The S&P 500 (SPY) is up +19.73% so far in 2023. My trailing one-year return reached +81.00% versus +18.91% for the S&P 500.

That brings my 15-year total return to +675.98%. My average annualized return has exploded to +48.57%, another new high, some 2.49 times the S&P 500 over the same period.

I am 100% fully invested, with longs in (MSFT), (NLY), (BRK/B), (CCJ), (CRM), (GOOGL), (SNOW), (CAT), and (XOM). I have one short in the (TLT).

Some 66 of my 61 trades this year have been profitable.

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, November 27, at 8:30 AM EST, the New Home Sales are out.

On Tuesday, November 28 at 2:30 PM, the S&P National Home Price Index is released.

On Wednesday, November 29 at 8:30 AM, the Q2 GDP Growth Rate is published.

On Thursday, November 30 at 8:30 AM, the Weekly Jobless Claims are announced.

On Friday, December 1 at 2:30 PM, the October ISM Manufacturing Index is published. At 2:00 PM the Baker Hughes Rig Count is printed.

As for me, When I landed in Tokyo in 1974, there were very few foreigners in the country. The WWII occupation forces had left, but the international business community had yet to arrive. You met a lot of guys who used to work for Douglas MacArthur.

There was only one way to stay more than 90 days on the standard tourist visa. That was to get another visa to study “Japanese culture.” There were only two choices: flower arranging or karate.

Since this was at the height of Bruce Lee’s career, I went for karate.

It was not an easy choice.

World War II was not that distant, and there were still hundreds of army veterans missing limbs begging for money under railroad overpasses. Some back then were still fighting on remote Pacific islands.

Many in the karate community believed that the art was a national secret and should never be taught to foreigners. So those who entered this tight-knit community paid the price and had the daylights beaten out of them. I was one of those.

To this day, I am missing five of my original teeth. There is nothing like taking a kick to the mouth and watching your front teeth fly across the dojo, skittering on the teak floor.

We trained three hours a day, five days a week. It involved punching a bloody hardwood makiwara at least 200 times. The beginners were paired with black belts who thoroughly worked us over. Then the entire class met up at a nearby public bath to soak in a piping hot ofuro. You always hurt.

During the dead of winter, we ran five miles around the Imperial Palace in our karate gi’s barefoot in freezing temperatures daily. Then we were hosed down with cold water and trained for three hours.

During this time, I was infused with the spirit of bushido, the thousand-year-old Japanese warrior code. I learned self-discipline, stamina, and concentration. In the end, karate is a form of meditation.

Knowing you’re indestructible and unassailable is not such a bad thing, especially when you’re traveling in some of the harsher parts of the world. When muggers in bad neighborhoods see me late at night, they cross the street to avoid me. I am not a guy to mess with. Utter fearlessness is a great asset to possess.

The highlight of the annual training schedule was the All-Japan Karate Championship held in the prestigious Budokan, headquarters of all Japanese martial arts near the ghostly Yasukuni Jinja, Japan’s National Cemetery. By my last year in Japan, I had my black belt, and my instructor, Higaona Sensei, urged me to enter.

Because I had such a long reach, incredibly, I made it to the finals. I was matched with a very tough-looking six-footer who was fighting for Japan’s national prestige, as no foreigner had ever won the contest.

I punched, he kicked, fist met foot, and foot won. My left wrist was broken. My opponent knew what happened and graciously let me fight on one hand for another minute to save face. Then he knocked me out on points.

The crowds roared.

It’s all part of a full life.

Losing the All-Japan National Karate Championship

1974 Higaona Sensei

Stay Healthy,

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

November 17, 2023

Diary, Newsletter, Summary

Global Market Comments
November 17, 2023
Fiat Lux

Featured Trade:
(NOVEMBER 15 BIWEEKLY STRATEGY WEBINAR Q&A),
(TLT), (AMD), (SPY), (FXA), (WYNN), (MGM), (RCL), (CCL), (TSLA), (SCHW), (BLK), (JPM), (XHB), (TSLA), (FXI), (FCX)

November 15 Biweekly Strategy Webinar Q&A

Diary, Newsletter

Below please find subscribers’ Q&A for the November 15 Mad Hedge Fund Trader Global Strategy Webinar, broadcast from Incline Village, NV.

Q: I was a little surprised that you closed the (TLT) $79-$82 vertical bull call spread so early. Why not wait longer?

A: I took an 84% profit in only four trading days and skipped the last 16% which I would have had to wait another month to get. I was much better off putting on another position and making another 100%. In this kind of market, you want to take quick profits and then roll them into new positions as fast as you can. That’s where you make the big money, and that's what we’ve been doing. You have to strike when the iron is hot.

Q: November’s results are phenomenal!

A: Yes they are, 55 years of practice makes it easy.

Q: Thoughts on Advanced Micro Devices (AMD)?

A: It’s going higher. I think the whole semiconductor sector is the leading sector in the market; we have seen that with these gigantic 30-40% moves in the semis. That will continue, and then it will spread out to the rest of big tech (which it’s already done), and eventually, we get to the industrials and commodities in the second half of 2024 when the big economic growth returns. So that is the script for the coming year.

Q: Will the upcoming Fed interest rate cuts crash the dollar, and which emerging currency should I buy?

A: Yes and yes. It will crush the dollar–we could be entering a new decade of a falling U.S. dollar. The number one currency to buy is the Australian dollar (FXA). It has the most leverage for a global economic recovery. And you can see when we get to the currency section of today’s webinar that the currencies are already starting to move. Whatever currency has falling interest rates is always the weakest, and the U.S. dollar is about to become just that.

Q: What’s the deal with casino stocks lately like Wynn Resorts (WYNN) and MGM Resorts International (MGM)?

A: These companies took on massive amounts of debt during the pandemic to stay in business, so they are now highly sensitive to interest rates. If you look at the collapse of these stocks in the last four months, it is almost perfectly in sync with rising interest rates, and that’s why the stocks performed so poorly. By the way, the same is true for all the cruise companies like Royal Caribbean (RCL), and Carnival (CCL). The flip side of that is when interest rates start to go down these stocks do great, and they are falling interest rate plays, so you probably should be buying the casinos, the cruise lines, and the hotel stocks here because they are all suffering from massive debt loads, the cost of which is about to decline sharply.

Q: Should we roll up the expiration of LEAPS to 2026?

A: Probably not a bad idea, because we may get weakness in commodities for the next several months before we enter a massive new bull market. If you have the 2025, you’ll probably make money on that, but to be ultra-safe you could roll it forward to 2026. We know there’s a global copper shortage developing because of EVs, but right now EV sales are slow, so you don’t want to be piling onto the leverage plays on that too soon. That’s also why I am not in Tesla (TSLA) for the Moment.

Q: What will happen if the Fed cuts interest rates and there’s no recession? Won’t prices of everything from houses to butter go wild?

A: They won’t go wild, but they will go up at a 2% inflation rate, which is what the Fed wants. And house prices, which have been flat for the last year, will rise. And they may rise greater than the inflation rate of 2%; they may rise more like 5%. Falling interest rates mean falling mortgages; we’ve already seen mortgage rates drop from 8 to 7.4%. It's one of the sharpest drops in history, and more drops bring more first-time home buyers into the market. And don’t forget that the Fed could also raise interest rates down the road. If the economy gets too hot again, they may raise again, but I think we’ll see a lot of cuts first.

Q: Do you think financial stocks will go up or fall with potential rate decreases?

A: Banks always go up during falling interest rates because their cost of funds goes down and the default rate on their loans also goes down, so they get a hockey stick effect on earnings; that’s why you’re seeing such monster moves in stocks like JP Morgan (JPM) and the brokers (SCHW) as well as the money managers like BlackRock (BLK).

Q: Does the bull market keep going since unemployment still hasn’t made a dent, meaning consumers are fueling the rise in stocks?

A: Yes, consumer spending is still doing well. People seem to be getting the money from somewhere and it seems to be rising wages. But I expect wage gains to drop by half; people will still get wage increases, but not the peak levels that the UAW got in their deal with Detroit. Is a Goldilocks economy that is setting up, and the economy keeps growing We never do get a recession, and all risk assets rise as a result. That is the outlook!

Q: Bullish on Berkshire Hathaway (BRK/B)?

A: I completely agree, it’s one of the best-run companies in the world. 93-year-old Warren Buffet and 99-year-old Charlie Munger have delivered double the performance of the S&P 500 over the last three years.

Q: When does the IPO market come back to life, and which industries will benefit the most?

A: AI and Technology will benefit the most. There are several AI companies in the wings waiting to go public, and they will be the first out the door with the highest multiples, and then the IPO business will broaden out from there.

Q: Will a worsening Chinese property market blow up the U.S. Stock rally or is it just a fake risk I shouldn’t worry about?

A: The Chinese (FXI) real estate market is detached from the global economy. There is no international implication, and it’s also typical of emerging markets to overbuild and then have a financial collapse. Nobody I know has suffered anything in China in a long time, and if anything, they’re liquidating what little they have left. It doesn’t affect us at all. It’s interesting reading about it in the newspapers, and that’s about it.

Q: What are some stocks we should consider day trading these days?

A: None. Most people who try day trading lose money doing it; some people pull it off but they have many years of experience. Algorithms from big brokers have essentially taken over the day trading business with high-frequency trading. You do better on a one-month view, which I do on my front-month options. Most 2023 Stock Gains Happened in only eight days, up some 14% since January 1, and only seven stocks accounted for most of the increase. If you are a day trader, you most likely missed all of this because most of the moves were on gap openings.

Q: Home builders (XHB) have just had a great run, is this an area too short?

A: “Short” is a term you need to remove from your language! You don’t want to short a big bull move like this. If anything, wait until May when the summer seasonals start to favor short positions, and it depends on how high the market runs up until then. Don’t ever think about shorting the very beginning of a new bull market in stocks–not for housing, not for anything! And the outlook for housing over the long term looks fantastic; there’s still an overwhelming supply and demand in favor of the home builders. Some 85 million new Millennials need to buy first-time homes.

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 Kherson Ukraine – Ha Ha Missed Me! It was a dud.

August 15, 2023

Diary, Newsletter, Summary

Global Market Comments
August 15, 2023
Fiat Lux

Featured Trades:

(THE TOP SIX CHINESE RETALIATION TARGETS),
(AAPL), (GM), (WMT), (TGT), (BA), (SBUX), (CAT),
(AND MY PREDICTION IS….)

CLICK HERE to download today's position sheet.

August 10, 2023

Diary, Newsletter, Summary

Global Market Comments
August 10, 2023
Fiat Lux

Featured Trades:

(WEDNESDAY, SEPTEMBER 6, 2023 SAN DIEGO, CALIFORNIA GLOBAL STRATEGY LUNCHEON)
(HOW TO GAIN AN ADVANTAGE WITH PARALLEL TRADING),
(GM), (F), (TM), (NSANY), (DDAIF), BMW (BMWYY), (VWAPY),
(PALL), (GS), (EZA), (CAT), (CMI), (KMTUY),
(KODK), (SLV), (AAPL)

CLICK HERE to download today's position sheet.

How to Gain an Advantage with Parallel Trading

Diary, Newsletter, Research

One of the most fascinating things I learned when I first joined the equity trading desk at Morgan Stanley during the early 1980s was how to parallel trade.

A customer order would come in to buy a million shares of General Motors (GM) and what did the in-house proprietary trading book do immediately?

It loaded the boat with the shares of Ford Motors (F).

When I asked about this tactic, I was taken away to a quiet corner of the office and read the riot act.

“This is how you legally front-run a customer,” I was told.

Buy (GM) in front of a customer order, and you will find yourself in Sing Sing shortly.

Ford (F), Toyota (TM), Nissan (NSANY), Daimler Benz (DDAIF), BMW (BMWYY), or Volkswagen (VWAPY), are no problem.

The logic here was very simple.

Perhaps the client completed an exhaustive piece of research concluding that (GM) earnings were about to rise.

Or maybe a client's old boy network picked up some valuable insider information.

(GM) doesn’t do business in isolation. It has tens of thousands of parts suppliers for a start. While whatever is good for (GM) is good for America, it is GREAT for the auto industry.

So through buying (F) on the back of a (GM) might not only match the (GM) share performance, it might even exceed it.

This is known as a Primary Parallel Trade.

This understanding led me on a lifelong quest to understand Cross Asset Class Correlations, which continue to this day.

Whenever you buy one thing, you buy another related thing as well, which might do considerably better.

I eventually made friends with a senior trader at Salomon Brothers while they were attempting to recruit me to run their Japanese desk.

I asked if this kind of legal front running happened on their desk.

“Absolutely,” he responded. But he then took Cross Asset Class Correlations to a whole new level for me.

Not only did Salomon’s buy (F) in that situation, they also bought palladium (PALL).

I was puzzled. Why palladium?

Because palladium is the principal metal used in catalytic converters, which remove toxic emissions from car exhaust, and has been required for every U.S. manufactured car since 1975.

Lots of car sales, which the (GM) buying implied, ALSO meant lots of palladium buying.

And here’s the sweetener.

Palladium trading is relatively illiquid.

So, if you catch a surge in the price of this white metal, you would earn a multiple of what you would make on your boring old parallel (F) trade.

This is known in the trade as a Secondary Parallel Trade.

A few months later, Morgan Stanley sent me to an investment conference to represent the firm.

I was having lunch with a trader at Goldman Sachs (GS) who would later become a famous hedge fund manager and asked him about the (GM)-(F)-(PALL) trade.

He said I would be an IDIOT not to take advantage of such correlations. Then he one-upped me.

You can do a Tertiary Parallel Trade here through buying mining equipment companies such as Caterpillar (CAT), Cummins (CMI), and Komatsu (KMTUY).

Since this guy was one of the smartest traders I ever ran into, I asked him if there was such a thing as a Quaternary Parallel Trade.

He answered “Abso******lutely,” as was his way.

But the first thing he always did when searching for Quaternary Parallel Trades would be to buy the country ETF for the world’s largest supplier of the commodity in question.

In the case of palladium, that would be South Africa (EZA), the world's largest non-sanctioned producer, which together accounts for 74% with Russia of the world’s total production.

Since then, I have discovered hundreds of what I can Parallel Trading Chains, and have been actively making money off of them. So have you, you just haven’t realized it yet.

I could go on and on.

If you ever become puzzled or confused about a trade alert I am sending out (Why on earth is he doing THAT?), there is often a parallel trade in play.

Do this for decades as I have and you learn that some parallel trades break down and die. The cross relationships no longer function.

The best example I can think of is the photography/silver connection. When the photography business was booming, silver prices rose smartly.

Digital photography wiped out this trade, and silver-based film development is still only used by a handful of professionals and hobbyists.

Oh, and Eastman Kodak (KODK) went bankrupt in 2012.

However, it seems that whenever one Parallel Trading Chain disappears, many more replace it.

You could build chains a mile long simply based on how well Apple (AAPL) is doing.

And guess what? There is a new parallel trade in silver developing. For whenever someone builds a solar panel anywhere in the world, they are using a small amount of silver for the wiring. Build several tens of millions of solar panels and that can add up to quite a lot of silver.

What goes around comes around.

Suffice it to say that parallel trading is an incredibly useful trading strategy.

Ignore it at your peril.

Sometimes Markets are Hard to Figure Out