Global Market Comments
April 14, 2025
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD or REARRANGING THE DECKCHAIRS ON THE TITANIC),
(SPY), (GLD), (NFLX), (NVDA), (TLT), (MSTR), (SVXY), ($VIX)
(AMZN), (AAPL), (GOOGL), (PANW), (NFLX), (CORN), (WEAT), (SOYB)
Back in 1987, I flew my Cessna 340 twin from London to Rome to visit Morgan Stanley’s high-end Italian clients. Held over by meetings, I got a late start, and I didn’t get as far as the French Champagne country until midnight. Right then, at 20,000 feet, the gyroscope suddenly blew up with a great resounding “thwacking sound.”
I instantly lost all instruments and lights, but still had a radio. I commenced a very wide spiral dive in the pitch-black darkness. Paris control started yelling at me because I was deviating from my approved flight plan. I started to pass out from vertigo.
Then I did what all Marines and Eagle Scouts are taught to do in this situation.
I improvised.
I pulled a flashlight and canteen out of my cockpit side pocket. By steering to the water level, I was able to use it as an artificial horizon level and straighten out the plane. Then I used the Girl Scout compass I always kept around my neck and plotted a rough course to Paris. Then I got on the radio.
“Mayday, Mayday, Mayday, N3919G complete instruments failure, request emergency landing at nearest airfield.” The air went dead for 30 seconds.
Then I heard “N3919G, cleared for approach Charles de Gaulle, steer 240 degrees and change over to 118.15.” As I made my final approach, the Eiffel Tower sparkled off my starboard wingtip. I could see the entire Charles de Gaulle fire department (Sapeurs Pompiers in French), blinking their blue lights. When I hit the runway, they chased me all the way until I stopped.
Then a captain elaborately dressed in firefighting gear stepped out of his fire engine cabin and asked, “Are you alright?”
The experience reminds me of the government’s current economic policies. They are attempting to rebuild the engines of a plane while flying at 20,000 feet in the dark with no tools or instruments. Except there are 340 million passengers this time, not just one.
Will we pull out of the dive before we crash?
Back in January and February, my biggest concern about the markets was complacency. It is safe to say now that this concern has completely vanished, not just by me but everyone.
I have been looking for parallels to the current crisis, and there are few to choose from. Stocks, bonds, oil, commodities, and the US dollar are all crashing at the same time. S&P 500 multiples (SPY) have been marked down from 22X to 18X in a mere two months, and 16X or 14X beckon. The NASDAQ multiple has collapsed from 31 to 21. Small caps (IWM) were hit the hardest, falling to 2016 levels.
It was the action in the bond market that was most concerning, which was hit by massive waves of selling from both foreign investors and hedge funds facing margin calls. Liquidity has disappeared and the Treasury was ill-equipped to deal with this because DOGE just fired 10,000 of their people.
Most don’t realize that US bonds are the lifeblood of the global financial market. When they drop 10% in a week, as they just did, ripples become tidal waves. Suddenly, banks are undercapitalized, central banks and companies have to mark down reserves, and margin calls run rampant.
A national debt of $36 trillion, which was happily ignored for 25 years, instantly becomes a crisis. Is US debt headed for junk status? Will Trump impose capital controls to stem the outflows? You might call these questions fanciful or born of conspiracy theories, but I was woken up every morning last week from European banks asking exactly this. When they start asking in the debt markets, you have a problem.
All earnings reports coming out now can be torn up and thrown out the window. That’s because they reflect profits from an ancient economy in the distant past that no longer exists, like January-March 2025.
Back then, it was about a growing globalized economy spinning off ever-increasing profits and higher multiples and share prices. Now it’s about a shrinking global economy at war with itself, declining profits everywhere justifying lower multiples and share prices.
Last year, S&P 500 earnings came in at $240. Two months ago, the consensus forecast for 2025 was $270. Now it’s moving towards $230.
The average price earnings multiple is now back up to 20X. The 120-year average is 14X. American exceptionalism picked up another 8 multiple points after WWII. If we give all that back and the multiple returns to 14X that gets the (SPX) down to $3,220, or off 47.5% from the February high.
Confidence levels are collapsing at 50-year lows. We’re rearranging the deckchairs on the Titanic while we’re headed straight for a giant iceberg, and it's dark and darn cold outside. We are not getting a reversion to the mean in stock markets; we are getting a reversion far beyond the mean. Markets won’t bottom until all the worst-case scenarios out there are fully discounted.
The shock to the global financial system is of the same magnitude as when Nixon took the US off the gold standard in 1972. That’s why gold is rocketing now as then. The US dollar then lost half its value.
This is the first bear market created by government policies since 1930, back when the Smoot-Hawley Tariff Act started the last major trade war. When the current policies end, the bear market will end and not before then. We are now within days, if not hours, to the complete collapse of the global financial system. The global economic pie is rapidly shrinking, and everyone is fighting over the scraps that are left.
Trillions of dollars of capital from corporate America have been stranded abroad in the wrong countries because Trump convinced them to move there eight years ago, like Vietnam. Millions of small businesses unable to eat the tariffs or pass them on to consumers will go out of business.
With no policy changes from Washington expected any time soon, it’s likely that we will eventually exhaust selling and enter an “L” shaped bottom. That has stocks bottoming out and then moving sideways in a range for a long time. You can forget about any immediate sharp “V” type recovery that takes us back to the all-time highs we saw in February.
So you should use any rally in the stock market to sell short calls against the long equity positions you want to keep. If you want to be more proactive than that, I have some clever ideas for you.
We now know that Trump is willing to resort to gaming the market by talking it up whenever the S&P 500 hits 5,000. That’s because he is taking immense heat from Americans who have lost 20%-30% of their retirement funds in two months.
You can use the next plunge to 5,000 in the (SPX) to buy the best quality technology names like (AMZN), (AAPL), (GOOGL), (PANW), and (NFLX), which likely won’t go to new lows on the next crash and will rocket on any trade war success.
There are other fish to fry.
Let’s say that a tweet hits that the trade war is progressing or is about to end. What are China’s biggest US imports? Corn (CORN), wheat (WEAT), or soybeans (SOYB), which all have actively traded ETFs just above four-year lows. They will take off like a scalded cat on any good news.
The next time the Volatility Index ($VIX) takes a run at $60, buy the Proshares Short Vix Short Term Futures ETN (SVXY), an exchange-traded fund that sells short futures in the ($VIX). You can buy shares in it like any ETF. There is no expiration date. It hit a low of $32.90 on Thursday, but traded as high as $40 the week before, and $50 in December.
By the way, icebergs don’t enter the Atlantic shipping lanes anymore. Global warming has melted them before they do. The few that do drift south are tagged with transmitters that show up on ship radars. So if you’re planning a trip to Europe this summer on the Queen Mary II, you don’t need to worry about suffering the fate of Leonardo DiCaprio.
The Financial Crisis Trade is Still On, with 10-year US Treasury bonds hitting 4.6% yields, the US dollar plunging to 3-year lows, and gold at an all-time high. Foreign investors are abandoning the US at an unprecedented pace. It turns out that confidence in the US was worth a lot more than we thought. You don’t know what you have until you lose it.
Trump Cracks, Caves, and Does a U-Turn, announcing a 90-day delay in trade tariffs forced by the imminent collapse of global financial markets. The 10% tariffs remain. Inflation is still on track to skyrocket. A Fed interest rate cut is now on the table for June to head off a recession. What is the long-term trend now? It’s anyone’s guess. But Christmas shopping is certainly going to be a lot more expensive this year.
China Imposes 125% Retaliatory Tariffs, and Europe is yet to come. China’s biggest US imports are all agricultural, and many commodities hit multi-year lows on Friday, delivering a knockout blow to US farmers just as the planting season begins. Shiploads of American grain may be left to rot in the ports as Chinese importers refuse delivery due to the dramatic price increase. Also announced were antitrust investigations of US tech companies and export restrictions on rare earths needed for tech products. It’s 1930 all over again.
Chinese Tariffs Raised to 145%, in a US retaliation to the retaliation. Markets tanked again. Most of the goods and parts cannot be obtained elsewhere. Recession fears are now going mainstream, it’s not just me.
Unemployment rises to 4.2%, a multi-year high, says the March Nonfarm Payroll Report. Nonfarm payrolls in March increased to 228,000 for the month, up from the revised 117,000 in February. Health care was the leading growth area, consistent with prior months. The industry added 54,000 jobs, almost exactly in line with its 12-month average.
Federal Reserve’s Powell Says Inflation to Rise, as a result of the larger-than-expected tariffs. But don’t expect any interest rate cuts until yearend when the Fed has the benefit of 20/20 hindsight on inflation.
Volatility Hits 16-Year High at 60, in overnight Asia trading. The ($VIX) peaked at 95 during the Financial Crisis in 2009. ($VIX) may not have peaked yet.
Oil Crashes, down an amazing $13, or 18% in a week, from $72 to $59. High dividend-paying (XOM) has collapsed by 18%. It is the sharpest fall in Texas tea prices since the 1991 Gulf War. Recession fears are running rampant, and no one wants to pay for storage until a recovery, which may be years off. Sell all energy rallies.
JP Morgan Raises Recession Risk to 79%, while credit investors remain sanguine even as funding stress threatens to build. The small-cap focused Russell 2000, which has been battered in the recent selloff, is now pricing in a 79% chance of an economic downturn, according to JPMorgan’s dashboard of market-based recession indicators. Other asset classes are also sounding alarms.
Q1 Gold Inflows Hit Three-Year High, according to the World Gold Council. Gold ETFs saw an inflow of 226.5 metric tonnes worth $21.1 billion in the first quarter, the largest amount since the first quarter of 2022, when global markets were grappling with the immediate consequences of Russia's invasion of Ukraine. This raised their total holdings by 3% to 3,445.3 tonnes by the end of March, the largest since May 2023. Their record was 3,915 tonnes in October 2020.
Canadian Visitors Fall 32%, in line with other forecasts of a collapse in international travel. That is why Delta Air Lines (DAL) crashed by 50% in three months. Conditions will get worse before they can get better. A weak dollar has caused the price of my Europe trip this summer to rise by 20%.
Consumer Confidence is in Free Fall. Friday brought a fresh signal that consumers were queasy even before Wednesday’s policy shift. US consumer sentiment tumbled to the second-lowest level on record in a University of Michigan survey, as inflation expectations soared to multi-decades highs. That result was based on interviews from March 25 through April 8, before the change in tack on tariffs.
Delta Pulls Guidance, citing the trade war’s impact on sales. The stock is down 50% in three months. No guidance from any company is possible or credible, as Q1 earnings took place in an ancient, more business-friendly world.
April is now up by -1.13% so far due to the explosion in implied volatilities in our hedged positions. A lot of the Friday options prices made no sense and may reflect broker efforts to increase margin requirements. That takes us to a year-to-date profit of +14.96% so far in 2025. My trailing one-year return stands at a spectacular +75.65%. That takes my average annualized return to +50.28% and my performance since inception to +765.85%, a new all-time high.
It has been another wild week in the market. I was forced out of longs in (GLD) and (TLT) thanks to panic-inspired out-of-the-blue freefall. I managed to hang on to my longs in (COST), (NVDA), and (NFLX) because they were so far in the money. I used a 25% rally in the leveraged long Bitcoin play (MSTR) to add a short. I also used a run by the Volatility Index ($VIX) to $54 to add the Proshares Short VIX Short Term Futures ETN (SVXY). Unusual times call for unusual trades.
Some 63 of my 70 round trips, or 90%, were profitable in 2023. Some 74 of 94 trades have been profitable in 2024, and several of those losses were really break-even. That is a success rate of +78.72%.
Try beating that anywhere.
My Ten-Year View – A Reassessment
We have to substantially downsize our expectations of equity returns in view of the election outcome. My new American Golden Age, or the next Roaring Twenties is now looking at multiple gale-force headwinds. The economy will completely stop decarbonizing. Technology innovation will slow. Trade wars will exact a high price. Inflation will return. The Dow Average will rise by 600% to 240,000 or more in the coming decade. The new America will be far more efficient and profitable than the old. My Dow 240,000 target has been pushed back to 2035.
On Monday, April 14, at 8:30 AM EST, the Consumer Inflation Expectations are announced.
On Tuesday, April 15, at 8:30 AM, the New York Empire State Manufacturing Index is released.
On Wednesday, April 16, at 1:00 PM, the Retail Sales are published.
On Thursday, April 17, at 8:30 AM, the Weekly Jobless Claims are disclosed. We also get Housing Starts and Building Permits.
On Friday, April 18, markets are closed for Good Friday.
As for me, in 1987, to celebrate obtaining my British commercial pilot’s license, I decided to fly a tiny single-engine Grumman Tiger from London to Malta and back.
It turned out to be a one-way trip.
Flying over the many French medieval castles was divine. Flying the length of the Italian coast at 500 feet was fabulous, except for the engine failure over the American air base at Naples.
But I was a US citizen, wore a New York Yankees baseball cap, and seemed an alright guy, so the Air Force fixed me up for free and sent me on my way. Fortunately, I spotted the heavy cable connecting Sicily with the mainland well in advance.
I had trouble finding Malta and was running low on fuel. So I tuned into a local radio station and homed in on that.
It was on the way home that the trouble started.
I stopped by Palermo in Sicily to see where my grandfather came from and to search for the caves where my great-grandmother lived during the waning days of WWII. Little did I know that Palermo had the worst windshear airport in Europe.
My next leg home took me over 200 miles of the Mediterranean to Sardinia.
I got about 50 feet into the air when a 70-knot gust of wind flipped me on my side perpendicular to the runway and aimed me right at an Alitalia passenger jet with 100 passengers awaiting takeoff. I managed to level the plane right before I hit the ground.
I heard the British pilot of the Alitalia jet say on the air, “Well, that was interesting.”
Fire engines flashing lights descended upon me, but I was fine, sitting in my cockpit, admiring the tree that had suddenly sprouted through my port wing.
Then the Carabinieri arrested me for endangering the lives of 100 tourists. Two days later, the Ente Nazionale per l’Aviazione Civile held a hearing and found me innocent, as the windshear could not be foreseen. I think they really liked my hat, as most probably had distant relatives in New York City.
As for the plane, the wreckage was sent back to England by insurance syndicate Lloyds of London, where it was disassembled. Inside the starboard wing tank, they found a rag that the American mechanics in Naples had left by accident.
If I had continued my flight, the rag would have settled over my fuel intake valve, cut off my gas supply, and I would have crashed into the sea and disappeared forever. Ironically, it would have been close to where French author Antoine de St.-Exupery (The Little Prince) crashed his Lockheed P-38 Lightning in 1944.
In the end, the crash only cost me a disk in my back, which I had removed in London and led to my funny walk.
Sometimes, it is better to be lucky than smart.
Antoine de St.-Exupery on the Old 50 Franc Note
Good Luck and Good Trading,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Global Market Comments
September 30, 2024
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or CHINA IS BACK! plus MY ENCOUNTER WITH ALIENS),
(GLD), (CCJ), (NEM), (TSLA), TLT), (DHI), (FXI), (BIDU), (TNE)
(USO), (BTU), (UNG), (CORN), (WEAT), (SOYB), (LVS), (WYNN) (LVUY) (HESAF)
There are always many unintended consequences to any Fed move, such as the 50-basis point interest rate cut on September 18. This time, a big one is that China would match and then exceed our own central bank’s move with a blockbuster stimulus package of their own. China has finally reached the “whatever it takes” moment, and the programs are squarely aimed at stimulating consumption.
You will hear from the talking heads on TV that the package is inadequate, a weak effort, an hour late, and a Yuan short, and will fail. But China has massive resources and will follow up with a second, larger package if they need to.
For a start, they own $860 billion worth of our US Treasury bonds, more than any foreign country, and unimaginable amounts of rapidly appreciating gold (GLD), which they have been accumulating since it was $1,020 an ounce (it is now $2,600).
China really pulled out all the stops on this one. The People's Bank of China on Wednesday cut its medium-term lending facility -- the interest for one-year loans to financial institutions -- from 2.3% to 2.0%, the lowest since 2020. The rate cuts are going to bring $140 billion in new lending.
They reduced deposits for new investment property purchases to 10% in a move clearly aimed at resuscitating their moribund real estate market. For the first time ever, they are handing out cash payments to poor people. It is the most stimulus since Covid.
China is not to be taken lightly.
Certainly, the stock market is buying it….at least for now. The main China ETF, the (FXI) had its best week in history, up 20%. Most of this was short covering. The short interest in the leading Chinese stocks like Alibaba (BABA), Baidu (BIDU), and Tencent Music Holdings (TNE) was running close to an eye-popping 50%.
So, why bother with a country half the size of our own, where the writing looks like chicken scratching, and the food has way too much MSG? Because the Middle Kingdom is the largest buyer of almost everything, including oil (USO), coal (BTU), natural gas (UNG), corn (CORN), wheat (WEAT), and soybeans (SOYB), most of which is supplied by the United States.
So, have I been burying you with China-oriented trade alerts this week? No, not really. First of all, I never buy on top of a 20% move in five days. It just goes against my bargain-hunting character. More importantly, the best China plays are here in the US. You can start with all of the ticker symbols I listed above.
There are also quite a few indirect China plays available in the West. Notice that the casinos Las Vegas Sands (LVS) and Wynn Resorts (WYNN) are up 20% across the board. The luxury stocks like LVMH Moet Hennessy (LVUY) and Hermes International (HESAF) also saw monster moves.
Dare I say it? Buy China on dips, especially blue-chip names like Alibaba (BABA) and Baidu (BIDU). If this Beijing stimulus fails, they’ll probably follow up with another one.
And what do newly enriched Chinese consumers do? They buy more gold. In fact, the gold story keeps getting better the higher it goes.
Another gold positive is the US National Debt, now at $35 trillion. Whichever candidate wins the presidential election, the national debt will keep rising, either by $500 billion a year or $2.5 trillion. Foreigners seem more worried about our debt than we are and are finding any non-dollar asset more attractive by the day. Gold is at the very top of that list.
It turns out that in a world of falling interest rates, a declining dollar, and fading faith in financial institutions, quite a few Americans like gold as well. Hey, Costco (CSCO) is selling it. How bad can it be?
So far in September, we are up by a spectacular +9.54%. My 2024 year-to-date performance is at +44.23%. The S&P 500 (SPY) is up +20.33% so far in 2024. My trailing one-year return reached +62.87%. That brings my 16-year total return to +720.86%. My average annualized return has recovered to +52.47%.
Last week was mostly about running existing successful long positions. Those would include (CCJ), (NEM), (TLT), (TSLA), and (DHI). I have one short position in (TLT).
I did add a (TLT) call spread, taking advantage of a rapid $4 dip. I also increased my Tesla (TSLA) long to a double, believing that the stock will keep running into the October 10 Robotaxi announcement.
Some 63 of my 75 round trips, or 90%, were profitable in 2023. Some 59 of 77 trades have been profitable so far in 2024, and several of those losses were really break-even. That is a success rate of +76.62%.
Try beating that anywhere.
Are Markets Melting Up? So thinks my friend Ed Yardeni. The latest policy decision lifted the odds of an “outright melt-up” in equity prices — like during the dot-com bubble when the (SPY) roared 220% from 1995 to the end of the century — to 30% from 20%. Another 50-basis point rate cut might do it. One can only hope.
What Happens When Gold Hits $3,000? It then moves on to $4,400 an ounce. Chinese savers will still have nowhere else to go. The real estate market is still dead, Chinese stocks are moribund, and they don’t trust their own currency. Keep buying (GLD), (NEM), and (GOLD) on dips.
The Core Personal Consumption Expenditures Price Index Falls, to a 2.2% annual rate, much lower than expected. The Federal Reserve’s preferred gauge to measure underlying inflation,rose 0.1% for the month, putting the 12-month inflation rate at 2.2%. Excluding food and energy, core PCE rose 0.1% in August and was up 2.7% from a year ago. The all-items inflation gauge was below Wall Street estimates and the lowest since early 2021.
American China Plays Roar, like commodities plays Freeport McMoRan (FCX), the Copper ETF, COPX), Peabody Energy (BTU), and the Platinum ETF. Indirect plays like the casinos Las Vegas Sands (LVS) and Wynn Resorts (WYNN). Dare I say it? Buy China on dips, like Alibaba (BABA) and Baidu (BIDU). If this Beijing stimulus fails, they’ll probably follow up with another one.
Silver is on a Roll, and is finally outperforming gold, as it has historically done. Silver just hit its highest price in more than a decade, and growing demand and falling interest rates mean it could have more room to run.
On Thursday, silver hit $32.43 an ounce, its highest price since 2012. The metal is up 35% so far this year. That beats a 30% rally for gold, which has been trading at all-time highs. Silver is much more sensitive to an industrial recovery than gold. Buy (SLV), (AGQ), (SIL), and (WPM) on dips.
Oil Gets Crushed on Saudi Output Burst. After a brief bounce back last week, it looks like oil is in a bearish pattern now that will be hard to break for the next few months. OPEC and its allies have been holding at least 5 million barrels of daily output off the market to prop prices, but they are expected to start bringing back production soon. Saudi Arabia, the strongest member of OPEC in that it has the most capacity to pump oil, is no longer willing to hold back production to try to push the price up to $100 a barrel.
US GDP Revised up to 5.5% Growth, since the second quarter of 2020, when the pandemic began through 2023. It was spurred mainly by bigger consumer-driven growth fueled by robust incomes. The revised figure is compared with a previously published 5.1% advance. You can’t beat America.
Electrification is the Latest Hot Investment Theme, seeking to cash in on AI demands on the power grid. Issuer Global X last week filed for its U.S. Electrification ETF, which would track an index of conventional companies in the sector, as well as those involved in alternative or cleaner energy sources — such as wind and solar — and grid infrastructure firms. Fund firm Tema also recently submitted paperwork for an ETF that would invest in companies “tied to global electrification.” These funds could become big winners.
US Homes Plunge, down 4.7% in August. Buyers are clearly remaining patient amid steadily declining mortgage rates. New single-family home sales decreased last month to an annualized rate of 716,000 after rising at the fastest pace since early 2022. The median sales price, in the meantime, decreased by 4.6% from a year earlier to $420,600. That marked the seventh straight month of annual price declines, extending what was already the longest streak since 2009
Home Mortgage Rates are in Free Fall, with the 30-year fixed at 6.08% and adjustable well into the fives. Refi activity is also exploding. Expect a real estate boom to ensue.
Can Tesla Reach $300? With (TSLA) possibly looking at a great quarter in China, Wall Street pros are rushing to increase their outlooks for the electric vehicle maker’s quarterly sales. At least four analysts have boosted their estimates for Tesla’s third-quarter delivery numbers, which are due next week. All point to signs that sales are starting to pick up in China, a key area for Tesla and a major market for electric cars globally.
Vistra Tops Nvidia, as the top S&P 500 stock this year. Vistra is a utility company based in Irving, Tex. that just so happens to be the second-largest owner of independent nuclear plants after buying three nuclear plants in Pennsylvania last year, and these days nuclear power is all the rage. Buy (VST) on dips.
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 600% 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, September 30 at 8:30 AM EST, the Chicago PMI is out
On Tuesday, October 1 at 6:00 AM, the JOLTS Job Openings Report is released.
On Wednesday, October 2 at 7:30 PM, ADP Employment Change is printed.
On Thursday, October 3 at 8:30 AM, the Weekly Jobless Claims are announced. We also get the ISM Services PMI.
On Friday, October 4 at 8:30 AM, we get the September Nonfarm Payroll Report. At 2:00 PM, the Baker Hughes Rig Count is printed.
As for me, I am often told that I am the most interesting man people ever met, sometimes daily. I had the good fortune to know someone far more interesting than myself.
When I was 14, I decided to start earning merit badges if I was ever going to become an Eagle Scout. I decided to begin with an easy one, Reading Merit Badge, where you only had to read four books and write one review. I loved reading, so “piece of cake”, I thought.
I was directed to Kent Cullers, a high school kid who had been blind since birth. During the late 1940s, the medical community thought it would be a great idea to give newborns pure oxygen. It was months before it was discovered that the procedure caused the clouding of corneas and total blindness in infants.
Kent was one of these kids.
It turned out that everyone in the troop already had Reading Merit Badge and that Kent had exhausted our supply of readers. Fresh meat was needed.
So, I rode my bicycle over to Kent’s house and started reading. It was all science fiction. America’s Space Program ignited a science fiction boom during the early 1960s and writers like Isaac Asimov, Jules Verne, Arthur C. Clark, and H.G. Wells were in huge demand. Star Trek came out the following year, in 1966. That was the year I became an Eagle Scout.
It only took a week for me to blow through the first four books. In the end, I read hundreds of books to Kent. Kent didn’t just listen to me read. He explained the implications of what I was reading (got to watch out for those non-carbon-based life forms).
Having listened to thousands of books on the subject Kent gave me a first class education and I credit him with moving me towards a career in science. Kent is also the reason why I got an 800 SAT score in Math.
When we got tired of reading, we played around with Kent’s radio. His dad was a physicist and had bought him a state-of-the-art high-powered short-wave radio. I always found Kent’s house from the 50 foot tall radio antenna.
That led to another merit badge, one for Radio, where I had to transmit in Morse Code at five words a minute. Kent could do 50. On the badge below the Morse Code says “BSA.” In those days, when you made a new contact, you traded addresses and sent each other postcards.
Kent had postcards with colorful call signs from more than 100 countries plastered all over his wall. One of our regular correspondents was the president of the Palo Alto High School Radio Club, Steve Wozniak, who later went on to co-found Apple (AAPL) with Steve Jobs.
It was a sad day in 1999 when the US Navy retired the Morse Code and replaced it with satellites and digital communication far faster than any human could send. However, it is still used as beacon identifiers at US airfields.
Kent’s great ambition was to become an astronomer. I asked how he would become an astronomer when he couldn’t see anything. He responded that Galileo, the inventor of the telescope, was blind in his later years.
I replied, “Good point”.
Kent went on to get a PhD in Physics from UC Berkeley, no mean accomplishment even for sighted people. He lobbied heavily for the creation of SETI, or the Search for Extra-Terrestrial Intelligence, once an arm of NASA. He became its first director in 1985 and worked there for 20 years.
In the 1987 movie Contact written by Carl Sagan and starring Jodie Foster, the movie was filmed at the Very Large Array in western New Mexico. The algorithms Kent developed there are still in widespread use today. I’ve never been there because I never had the time to drive an hour and a half down a dirt road.
Out here in the West, aliens have been a big deal, ever since that weather balloon crashed in Roswell, New Mexico in 1947. In fact, it was a spy balloon meant to overfly and photograph Russia, but it blew back on the US, thus its top secret status.
When people learn I used to work at Area 51, I am constantly asked if I have seen any spaceships. The road there, Nevada State Route 375, is called the Extra Terrestrial Highway. Who says we don’t have a sense of humor in Nevada?
After devoting his entire life to searching, Kent gave me the inside story on searching for aliens. We will never meet them but we will talk to them. That’s because the acceleration needed to get to a high enough speed to reach outer space would tear apart a human body. On the other hand, radio waves travel effortlessly at the speed of light.
Sadly, Kent passed away in 2021 at the age of 72. Kent, ever the optimist, had his body cryogenically frozen in Hawaii where he will remain until the technology evolves to wake him up. Minor planet 35056 Cullers is named in his honor.
There are no movies being made about my life…. yet. But there are a couple of scripts out there under development.
Watch this space.
Dr. Kent Cullers
New Mexico Very Large Array
Reading Merit Badge
Radio Merit Badge
Stay Healthy,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Pack your portfolios with agricultural plays like Mosaic (MOS) if Dr. Paul Ehrlich is just partially right about the impending collapse of the world’s food supply.
You might even throw in long positions in wheat (WEAT), corn (CORN), soybeans (SOYB), and rice.
It says a lot that when I update a sector report like this and half the companies have disappeared from takeovers (Potash and Agrium), you should take notice.
The never-dull and often controversial Stanford biology professor told me he expects that global warming is leading to significant changes in world weather patterns that will cause droughts in some of the largest food-producing areas, causing massive famines. Food prices will skyrocket, and billions could die.
At greatest risk are the big rice-producing areas in South Asia, which depend on glacial runoff from the Himalayas. If the glaciers melt, this crucial supply of fresh water will disappear.
California faces a similar problem if the Sierra snowpack fails to show up in sufficient quantities, as it has done in five of the last six years.
Rising sea levels displacing 500 million people in low-lying coastal areas is another big problem.
One of the 92-year-old professor’s early books The Population Bomb was required reading for me in college in the 1960s, and I used to drive up from Los Angeles to Palo Alto just to hear his lectures (followed by the obligatory side trip to the Haight-Ashbury).
Other big risks to the economy are the threat of a third-world nuclear war caused by population pressures, and global insect plagues facilitated by a widespread growth of intercontinental transportation and globalization.
And I won’t get into the threat of a giant solar flare frying our electrical grid. That is already well covered on the Internet.
“Super consumption” in the US needs to be reined in where the population is growing the fastest. If the world adopts an American standard of living, we need four more Earths to supply the needed natural resources.
We must raise the price of all forms of carbon, preferably through taxes, but cap and trade will work too. Population control is the answer to all of these problems, which is best achieved by giving women education, jobs, and rights, has already worked well in Europe and Japan, and is now unfolding in Latin America.
All sobering food for thought. I think I’ll skip that Big Mac for lunch.
Is There Room for Me?
Global Market Comments
October 24, 2023
Fiat Lux
Featured Trade:
(POPULATION BOMB ECHOES),
(MOS), (AGU), (WEAT), (CORN), (SOYB), (RJA)
(A SHORT HISTORY OF HEDGE FUNDS)
Global Market Comments
August 15, 2022
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD,
or WHAT THE MARKET IS REALLY DISCOUNTING NOW),
(SPY), (TLT), (AAPL), (AXP), (KO), (XOM). (TBT), (SNOW), (NFLX), (ARKK), (ETHE),
(NLR), (CCR), CORN), (WEAT), (SOYB), (DBA), (UUP), (FXA), (FXC), (BA), (TSLA)
After a half-century in the markets, I have noticed that it is the investors with the correct long-term views who make the biggest money. My favorite example is my friend, Warren Buffet, who doesn’t care if an investment turns good in five minutes or five years.
Buffet’s Berkshire Hathaway (BRKB) is the largest outside investor in Apple (AAPL). And guess what his cost has been? By the time you add up the compounded dividends he has collected since he started buying the stock in 2011, it's zero. The value today? $15.5 billion.
Buffet didn’t buy Apple for its hardware, iPhone, or iTunes. He bought it for the brand, which has improved astronomically. Look at Berkshire’s portfolio and it is packed with brands, like American Express (AXP), Coca-Cola (KO), and Exxon (XOM).
When did Buffet last buy Apple? In May when it hit $130.
That’s why Warren Buffet is Warren Buffet and you are you.
While the inflation news last week has been great and it is likely to get better, I believe that investors are missing the bigger, more important long-term picture.
The fact is that markets are now discounting an earlier than expected end to the Ukraine War, much earlier.
I get constant updates on the war from the Joint Chiefs of Staff, Britain’s Defense Committee, and NATO headquarters and I can tell you that the war has taken a dramatic turn in Ukraine’s favor just in the last two weeks.
Russian casualties have topped 80,000, nearly half the standing army. They have lost 2,200 of their 2,800 operational tanks. Some 120 front line aircraft have been destroyed. This week, Ukraine attacked the principal Russian air base in Crimea, leaving the smoking ruins of seven more aircraft there.
Russia is in effect fighting a modern digitized war with 50-year-old Cold War weapons and it isn’t working. Its generals have no experience fighting wars against determined opposition. Putin would do better listening to the retired generals on CNN for military advice.
America’s High HIMARS (the M142 High Mobility Artillery Rocket System) has become the Stinger missile of this war. The Lockheed Martin (LMT) factory in Camden, Arkansas that makes these missiles is running 24/7 on doubled orders.
The sanctions against Russia have been wildly successful. The Russian economy is utterly collapsing. What oil they are selling now is at half price. Aircraft are being cannibalized for parts to keep others flying. Much of the educated middle class has fled the country. Draft dodging is rampant.
What does all this mean for you and me?
The commodity price spike the war prompted has ended and most are now in steep downtrends. Gold (GLD), where the Russians were major buyers, has been flat as a pancake. This has put our inflation numbers into freefall. Interest rate fears peaked in June and are now in the rear-view mirror.
As is always the case, markets have seen these developments and correctly ascertained their consequences far before we humans did (except for maybe me). It has been no surprise that they have been tracking the Russian defeat day by day and have been on an absolute tear since June 15.
Even small techs suffering 18-month bear markets have now begun major recoveries, with companies like Snowflake (SNOW), up 50%, Netflix (NFLX), up 39%, and Cathie Wood’s Innovation Fund (ARKK) up 57%. Even crypto has returned from the grave, with Ethereum (ETHE) up an eye-popping 105%.
But don’t go gaga over stocks just yet.
The Fed ramps up quantitative tightening in September to $95 billion a month and will deliver another interest rate hike. That's why I am running a double short in the bond market (TLT), (TBT) once again.
We also have the midterms to worry about which, with recent developments, promise to be more contentious than ever. Look for another round of tiring new election fraud claims.
That’s great because these events will give us good entry points lower down for trade alerts, not the short-term top we are looking at right now.
It helps that with ten-year US Treasury yields at 2.80%, it has an effective price earning multiple of 37, while stocks growing earnings at 10% a year boast a price earnings multiple of only 16. That sets up a massive, long stock/short bond trade which Mad Hedge will be pushing well on into 2023.
And you know what?
The smart guys I know in the hedge fund community are starting to model for the next Fed interest rate CUT. Markets will love it and discount this far in advance.
If you want to get on the train with me before it leaves the station, just keep reading this newsletter.
Yes, markets are now being driven by rate cuts and peace prospects, not rate rises and war!
Your retirement fund will love it.
I just thought you’d like to know.
CPI Dives to 8.5%, down 0.6% in July. The peak is in, and stocks rallied 500. Look for another drop in August, with gasoline prices falling daily. The 800-pound gorilla in the room has exited.
The Producer Price Index Dives 0.5%, confirming last week’s weak CPI number. And many core prices are indicating that we will get another drop when the August numbers are reported in September. It was worth another 300-point rally in the Dow Average, which is getting seriously overbought.
Consumer Inflation Expectations dive to 6.2% for the coming year and only 3.2% for three years. according to a New York Fed Survey. Expectations for food costs saw the largest decline. The CPI is out on Wednesday. No doubt a media onslaught over a coming recession has a lot to do with it.
Elon Musk Sells $6.9 billion worth of Tesla (TSLA) Stock, explaining the $100 drop in the shares last week. Ostensibly, this is to pay for Twitter if he loses his court case. Musk clearing took advantage of a 60% rise in (TSLA) to head off distress sales in the future. Musk also opened the door to share buy backs in the future. Buy (TSLA) on dips.
85,000 IRS Agents are Headed Your Way, but only if the government can hire them and only if you are a billionaire or a profitable large oil company. The rest of us will be ignored by this unpublicized portion of the Biden inflation bill.
US Dollar (UUP) Takes a Hit on CPI Report, which effectively showed that the US saw deflation in July. The greenback is pulling back the 20-year highs which gave you the cheapest European vacation in your lives. The prospect of interest rates rising at a slower pace is dollar negative. Buy (FXA) and (FXC) on dips.
Boeing (BA) Delivered its First 787 Dreamliner in a year, after long-awaited regulatory approval. The monster 30% rise in the shares off the June low predicted as much. A global aircraft shortage helps. Airbus is going to have to start earnings its money again. Keep buying (BA) on dips.
Weekly Jobless Claims Pop 12,000 to 262,000, a new high for the year. It’s not at concerning levels yet but is definitely headed in the wrong direction. Maybe it’s just a summer slowdown? Maybe not.
Shipping Container Charges are Plunging Everywhere, except in the US, which currently has the world’s strongest economy. It’s a sign that global supply chain problems are easing. But the US leads the world in demurrage, or delays, with New York the worst, followed by Long Beach.
Import Prices are Plunging, thanks to a super strong dollar, taking more pressure off of inflation. They fell 1.4% in July according to the Department of Labor. Easing supply chain problems are helping. Biden has had the run of the table for months now
My Ten-Year View
When we come out the other side of pandemic and the recession, we will be perfectly poised to launch into my new American Golden Age, or the next Roaring Twenties. With oil prices now rapidly declining, and technology hyper accelerating, there will be no reason not to. The Dow Average will rise by 800% to 240,000 or more in the coming decade. The America coming out the other side will be far more efficient and profitable than the old. Dow 240,000 here we come!
My August performance climbed to +2.14%. My 2022 year-to-date performance ballooned to +56.97%, a new high. The Dow Average is down -7.0% so far in 2022. It is the greatest outperformance on an index since Mad Hedge Fund Trader started 14 years ago. My trailing one-year return maintains a sky-high 74.76%.
That brings my 14-year total return to 569.53%, some 2.56 times the S&P 500 (SPX) over the same period and a new all-time high. My average annualized return has ratcheted up to 44.96%, easily the highest in the industry.
We need to keep an eye on the number of US Coronavirus cases at 93 million, up 300,000 in a week and deaths topping 1,037,000 and have only increased by 2,000 in the past week. You can find the data here.
On Monday, August 15 at 8:30 AM EDT, the New York Empire State Manufacturing Index for August is released.
On Tuesday, August 16 at 8:30 AM, the Housing Starts for July are out.
On Wednesday, August 17 at 8:30 AM, Retail Sales for July are published. At 11:00 AM the Fed Minutes from the last meeting are printed.
On Thursday, August 18 at 8:30 AM, Weekly Jobless Claims are announced. Existing Home Sales for July are announced.
On Friday, August 19 at 2:00 the Baker Hughes Oil Rig Count is out.
As for me, while we’re all waiting for the dog days of August to end, it is time to reminisce about my old friend George Schultz who passed away last year at the age of 101.
My friend was having a hard time finding someone to attend a reception who was knowledgeable about financial markets, White House intrigue, international politics, and nuclear weapons.
I asked who was coming. She said Reagan’s Treasury Secretary George Shultz. I said I’d be there wearing my darkest suit, cleanest shirt, and would be on my best behavior, to boot.
It was a rare opportunity to grill a high-level official on a range of top-secret issues that I would have killed for during my days as a journalist for The Economist magazine. I guess arms control is not exactly a hot button issue these days.
I moved in for the kill.
I have known George Shultz for decades, back when he was the CEO of the San Francisco-based heavy engineering company, Bechtel Corp in the 1970s.
I saluted him as “Captain Schultz”, his WWII Marine Corp rank, which has been our inside joke for years. Now that I am a major, I guess I outrank him.
Since the Marine Corps didn’t know what to do with a PhD in economics from MIT, they put him in charge of an anti-aircraft unit in the South Pacific, as he was already familiar with ballistics, trajectories, and apogees.
I asked him why Reagan was so obsessed with Nicaragua, and if he really believed that if we didn’t fight them there, would we be fighting them in the streets of Los Angeles as the then-president claimed.
He replied that the socialist regime had granted the Soviets bases for listening posts that would be used to monitor US West Coast military movements in exchange for free arms supplies. Closing those bases was the true motivation for the entire Nicaragua policy.
To his credit, George was the only senior official to threaten resignation when he learned of the Iran-contra scandal.
I asked his reaction when he met Soviet premier Mikhail Gorbachev in Reykjavik in 1986 when he proposed total nuclear disarmament.
Shultz said he knew the breakthrough was coming because the KGB analyzed a Reagan speech in which he had made just such a proposal.
Reagan had in fact pursued this as a lifetime goal, wanting to return the world to the pre nuclear age he knew in the 1930s, although he never mentioned this in any election campaign. Reagan didn’t mention a lot of things.
As a result of the Reykjavik Treaty, the number of nuclear warheads in the world has dropped from 70,000 to under 10,000. The Soviets then sold their excess plutonium to the US, which has generated 20% of the total US electric power generation for two decades.
Shultz argued that nuclear weapons were not all they were cracked up to be. Despite the US being armed to the teeth, they did nothing to stop the invasions of Korea, Hungary, Vietnam, Afghanistan, and Kuwait.
Schultz told me that the world has been far closer to an accidental Armageddon than people realize.
Twice during his term as Secretary of State, he was awoken in the middle of the night by officers at the NORAD early warning system in Colorado to be told that there were 200 nuclear missiles inbound from the Soviet Union.
He was given five minutes to recommend to the president to launch a counterstrike. Four minutes later, they called back to tell him that there were no missiles, that it was just a computer glitch projecting ghost images on a screen.
When the US bombed Belgrade in 1989, Russian president Boris Yeltsin, in a drunken rage, ordered a full-scale nuclear alert, which would have triggered an immediate American counter-response. Fortunately, his generals ignored him.
I told Schultz that I doubted Iran had the depth of engineering talent needed to run a full-scale nuclear program of any substance.
He said that aid from North Korea and past contributions from the AQ Khan network in Pakistan had helped them address this shortfall.
Ever in search of the profitable trade, I asked Schultz if there was an opportunity in nuclear plays, like the Market Vectors Uranium and Nuclear Energy ETF (NLR) and Cameco Corp. (CCR), that have been severely beaten down by the Fukushima nuclear disaster.
He said there definitely was. In fact, he was personally going to lead efforts to restart the moribund US nuclear industry. The key here is to promote 5th generation technology that uses small, modular designs, and alternative low-risk fuels like thorium.
Schultz believed that the most likely nuclear war will occur between India and Pakistan. Islamic terrorists are planning another attack on Mumbai. This time, India will retaliate by invading Pakistan. The Pakistanis plan on wiping out this army by dropping an atomic bomb on their own territory, not expecting retaliation in kind.
But India will escalate and go nuclear too. Over 100 million would die from the initial exchange. But when you add in unforeseen factors, like the broader environmental effects and crop failures (CORN), (WEAT), (SOYB), (DBA), that number could rise to 1-2 billion. This could happen as early as 2023.
Schultz argued that further arms control talks with the Russians could be tough. They value these weapons more than we do because that’s all they have left.
Schultz delivered a stunner in telling me that Warren Buffet had contributed $50 million of his own money to enhance security at nuclear power plants in emerging markets.
I hadn’t heard that.
As the event ended, I returned to Secretary Shultz to grill him some more about the details of the Reykjavik conference held some 36 years ago.
He responded with incredible detail about names, numbers, and negotiating postures. I then asked him how old he was. He said he was 100.
I responded, “I want to be like you when I grow up”.
He answered that I was “a promising young man.” I took that as encouragement in the extreme.
Stay healthy,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
We’re Getting Pretty High
Global Market Comments
April 24, 2020
Fiat Lux
Featured Trade:
(APRIL 22 BIWEEKLY STRATEGY WEBINAR Q&A),
(SPY), (INDU), (GILD), (NEM), (GOLD), (USO),
(SOYB), (CORN), (SHOP), (PALL), (AMZN)
Global Market Comments
July 16, 2019
Fiat Lux
Featured Trade:
(THE BIGGEST TELL IN THE MARKET RIGHT NOW),
(GOOGL), (FRC), (PINS), (WORK), (UBER),
(ADSK), (WDAY), (SNE), (NVDA), (MSFT),
(POPULATION BOMB ECHOES),
(CORN), (WEAT), (SOYB), (DBA), (MOS)
