Global Market Comments
April 28, 2025
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or HERE’S THE BEST-CASE SCENARIO)
(SPY), (TLT), (NFLX), (COST), (NVDA), (TSLA), (MSTR)
Global Market Comments
April 28, 2025
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or HERE’S THE BEST-CASE SCENARIO)
(SPY), (TLT), (NFLX), (COST), (NVDA), (TSLA), (MSTR)
Last week, a concierge customer asked me an excellent question. Having correctly called the top in this market to the hour, what would it take for me to go all in on the long side and get maximum bullish?
With everyone now laser-focused on downside risks, which was really a last February game, I thought I’d take the opportunity this morning to examine the upside possibilities, if there are any at all.
Let’s say that the trade war ends before the ninety-day deadline is up on July 9, and the Chinese tariffs are reduced from a trade embargo of 145% to, say, only 20%. Markets will instantly rally 10%, with possibly half of that move happening at a market opening, so you can’t participate.
That is in effect, as what happened last week, with investors willing to look through the trade war to a less onerous business environment sometime in the future. A 20% tariff still takes the US growth rate down to zero, but it at least takes a recession off the table. Problem number one: Zero-growth economies don’t command high earnings multiples.
The problem with that scenario is that we hit a wall of selling above 5,800, where the late entrants came in but are now trying to get out, at close to cost. To get above that level, we need a really powerful fundamental bull case, which is now nowhere on the horizon. That’s why it’s unlikely that the stock market will see any positive returns for 2025.
The reality is that the trade war is not the only place where the economy has been driven off the rails. Even a 20% tariff brings substantially higher prices. International trade is falling off a cliff. Massive cuts in government spending are highly deflationary. Deporting large numbers of immigrants reduces demand and shrinks the labor supply. Unless Congress can pass a budget bill soon, we are on track to see an automatic $5 trillion tax increase by yearend. The budget deficit will hit a new record for this year.
Needless to say, companies will continue to sit on their hands with this amount of uncertainty and wait for the many unknowns to play out. None of these commands higher multiples for equities, let alone the near record S&P 500 multiple at 20X that prevails now.
To really get maximum bullish like I was for most of the last 15 years, the economy would have to return to the conditions that took stocks to record highs like we had until three months ago. That would be a globalized free-trading economy with the US playing a dominant role. That’s an economy that deserves high earnings multiples.
We won’t see that for at least four more years, but markets may start to discount it in only three years as we run up to the next presidential election in 2028. Imagine a future presidential candidate who campaigns on a zero-tariff regime and a return to globalization.
To get a sustainable multi-year bull market in stocks, it would help a lot if we started from a much lower base first. New bull markets don’t start at 20X multiples. A 16X multiple is much more likely, or 20% lower than we are now. We may get that.
The government is currently trying to break up three of the Magnificent Seven with antitrust actions, which led the march to higher stock markets for years. Corporate earnings are now rapidly shrinking, but we won’t see the hard numbers until August. Until then, we only get forecasts. Lower earnings command much lower multiples. That leaves on the table my 4,500 forecast low for the (SPX).
We could well be stuck in a trading range for years. Stocks could continue to bump their heads up against a (SPX) 5,800 ceiling but also get talked up by the administration whenever it collapses towards 4,800. Some 1,000 (SPX) points is quite a wide trading range to play with and plenty enough to make money on.
I did it only last week. You have to ignore the news flow and use the volatility index ($VIX) for your market timing. When the ($VIX) hit $54 last week, I piled on longs in (NFLX), (NVDA), (MSTR), and (JPM). By Friday, I gained 8.12% in new performance, my best weekly return in the 17-year history of Mad Hedge Fund Trader.
What if you just want to take a long-term view and not have to check the ($VIX) in between every putt on the golf course?
Gold (GLD) is looking pretty darn good right now. With the collapse of the US dollar ongoing, flight to safety assets is in short supply. American economic conditions will get worse before they get better. Central bank accumulation has continued at its torrid decade-long pace. And gold seems to have broken the link with interest rates that held it back for so long, eliminating opportunity cost as an issue. Even ultra-cautious JP Morgan expects the barbarous relic to reach $4,000 an ounce this quarter.
The great mystery in the sector has been the lagging performance of the gold miners. While gold doubled, the shares of Barrack Gold (GOLD) went nowhere.
Gold miners have yet to be taken seriously by mainstream institutional investors, as they are often the subject of excessive promotion, scams, and outright fraud. Token or non-existent dividends are another impediment. Millennials have clearly gravitated towards crypto instead. Miners also got a bad rap from the ESG investment trend as they are considered a “dirty” industry. Anything US dollar-denominated is being dragged down by the weak greenback. That’s why gold only accounts for 0.54% of global portfolios today, versus 2.48% in 1998.
That may all be about to change.
Last week, Barrack Gold, which mines gold at a cost of $1,600 an ounce and sells it at the recent $3,500, completed a monster 23% move in the shares. Newmont Mining (NEM) completed an incredible 32% move. Gold attractiveness is such that only a 5% decline was enough to pull me back in on the long side last week.
High prices atone for a lot of sins.
April is now up by a spectacular +10.31%. That takes us to a year-to-date profit of +24.14% so far in 2025. My trailing one-year return stands at a spectacular +84.47%. That takes my average annualized return to +50.61% and my performance since inception to +776.03%, a new all-time high.
It has been another wild week in the market. I used the 1,200-point meltdown in the Dow Average on Monday to add longs in (NFLX), (JPM), and (MSTR). I also quickly covered a short in (MSTR). After the market rallied 2,000 points, I added shorts in (TSLA), (SPY), and a new long in (GLD). That leaves me 40% long, 30% short, and 30% cash. If everything goes our way on the May 16 options expiration day, we will be up 30% on the year.
Some 63 of my 70 round trips in 2023, or 90%, were profitable. Some 74 of 94 trades were profitable in 2024, and several of those losses were really break-even. That is a success rate of +78.72%.
Try beating that anywhere.
Stock Market Suffers the Worst Start to a Year in History. April was the worst since 1932, and lower lows beckon. The Real “Trump Trade” was a “Sell America” trade, with stocks, bonds, energy, and the US dollar all collapsing.
Fed Beige Books Point to Stagflation. Prices are rising and economic activity has begun to slow across parts of the nation as businesses and households try to adapt to Trump’s erratic rollout of sweeping tariffs aimed at reshaping global trade, a report Wednesday from the Federal Reserve showed. Uncertainty around international trade policy was pervasive across reports, the U.S. central bank said.
Leading Economic Indicators Plunge, published Monday by research group The Conference Board, fell 0.7%, to 100.5, in March, following an upwardly revised 0.2% decline in February. Economists polled by The Wall Street Journal had expected a 0.5% decline for March. The recession is here, you just don’t know it yet.
Europe Lowers Interest Rates, down 0.25% to 2.25%, to head off a recession caused by Trump tariffs. The bank’s rate-setting council decided at a meeting in Frankfurt to lower its benchmark rate by a quarter percentage point to 2.25%. The bank has been steadily cutting rates after raising them sharply to combat an outbreak of inflation from 2022 to 2023.
Netflix Earnings rocket, setting the stock on fire, as an indication that the stock may be recession-proof. Netflix reported first-quarter adjusted earnings of $6.61 a share on revenue of $10.54 billion. Analysts surveyed by FactSet expected earnings of $5.67 a share on revenue of $10.5 billion. The stock climbed 3.4% in after-hours trading. As of the market close Thursday, it has risen 9.2% this year. Buy (NFLX) on dips.
IMF Cuts US GDP forecast for 2025 from 2.8% to 1.8%, and they are a deep lagging indicator. The prediction is part of a wide-ranging reduction in global growth. Tariffs are to blame.
US Dollar Hits Three-Year Low, as the flight from American trade accelerates. No trade with the US means no need to buy the greenback.
Gold Tops $3,424, the 1980 inflation-adjusted all-time high. A shortage of “Sell America” trades is driving everyone into gold all at once. The (GDX) gold miners ETF hit a 13-year high. Gold imports are now a major contributor to the US trade deficit.
JP Morgan Targets Gold at $4,000 in Q2, as the “Sell America” trade gathers steam. Central banks are the big winners here, which have been hoovering up the barbarous relic for years.
Tesla Bombs, with Q1 earnings down a gob-smacking 71%, a four-year low. Sales are in free fall globally. Tesla’s cost of making and selling vehicles dropped over 17% year over year, driven by lower raw material prices and reduced expenses of ramping up Cybertrucks production. Automotive gross margin for the period, excluding regulatory credits, was 12.5%, down from 30% a year ago, compared with expectations of 11.8%. Tesla short sellers have earned $11.5 billion so far this year, including myself, with the stock down 55%. The shares rose $10 on news that Elon Musk will spend significantly less time with DOGE. Buy only the biggest dips in (TSLA).
Record Funds are Pouring into Japan. Overseas investors have bought a net ¥9.64 trillion ($67.5 billion) of the Asian nation’s debt and equities so far in April, according to preliminary weekly figures released by the Ministry of Finance on Thursday. That level is already the most for any month on record, based on balance-of-payments data going back to 1996. What was the only thing Warren Buffett was buying last year? Japanese trading companies.
Existing Homes Sales Hit 16-Year Low. Sales of previously owned US homes fell 5.9% in March to an annualized rate of 4.02 million, the weakest March since 2009. The median sales price increased 2.7% from a year ago to $403,700, a record for the month of March and extending a run of year-over-year price gains dating back to mid-2023.
Apple to Move All iPhone Production to India. It is a move that has been underway for some time due to China’s soaring labor costs. Since I began covering China in the early 1970s, China's average annualized income has risen from $300 a year to $16,000, up 5,300%.
Alphabet (GOOG) Beats, after the company topped Wall Street estimates and showed growth in its advertising and search business. The company suggested that it’s too soon to tally the impact of Trump’s tariffs, but the ending of the de minimis loophole could create a “slight headwind” to its advertising business. The really interesting number was Alphabet’s estimate of a potential market size of 4 billion rides a year for its Waymo autonomous driving taxi service.
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 28, at 8:30 AM EST, the Dallas Fed Manufacturing Index is announced.
On Tuesday, April 29, at 3:30 AM, the S&P Case Shiller National Home Price Index is released. We also get the JOLTS job openings report.
On Wednesday, April 30, at 8:30 PM, the Q1 GDP growth rate is published, as is the CPI for April.
On Thursday, May 1, at 8:30 AM, the Weekly Jobless Claims are disclosed.
On Friday, May 2, at 8:30 AM, we get the Nonfarm Payroll Report for April.
As for me, when I was shopping for a Norwegian Fjord cruise a few years ago, each stop at a port was familiar to me because a close friend had blown up bridges in every one of them during WWII.
During the 1970s at the height of the Cold War, my late wife Kyoko flew a monthly round trip from Tokyo to Moscow as a British Airways stewardess. As she was checking out of her Moscow hotel, someone rushed up to her and threw a bundled typed manuscript that hit her in the chest.
Seconds later, a half dozen KGB agents dog piled on top of Kyoko. It turned out that a dissident was trying to get her to smuggle a banned book to the West. She was arrested as a co-conspirator and bundled away to the notorious Lubyanka Prison.
I learned of this when the senior KGB agent for Japan contacted me, who had attended my wedding the year before and filmed it. He said he could get her released, but only if I turned over a top-secret CIA analysis of the Russian oil industry.
At a loss for what to do, I went to the US Embassy to meet with Ambassador Mike Mansfield, whom, as The Economist correspondent in Tokyo, I knew well. He said he couldn’t help me as Kyoko was a Japanese national, but he knew someone who could.
Then in walked William Colby, head of the CIA.
Colby was a legend in intelligence circles. After leading the French resistance with the OSS, he was parachuted into Norway with orders to disable the railway system. Hiding in the mountains during the day, he led a team of Norwegian freedom fighters who laid waste to the entire rail system from Tromso all the way down to Oslo. He thus bottled up 300,000 German troops, preventing them from retreating home to defend from an allied invasion.
During Vietnam, Colby became known for running the Phoenix assassination program. It was wildly successful.
I asked Colby what to do about the Soviet request. He replied, “Give it to them.” Taken aback, I asked how. He replied, “I’ll give you a copy.” Mansfield was my witness, so I could never be arrested for being a turncoat.
Copy in hand, I turned it over to my KGB friend, and Kyoko was released the next day and put on a flight out of the country. She never took a Moscow flight again.
I learned that the report predicted that the Russian oil industry, its largest source of foreign exchange, was on the verge of collapse. Only a massive investment in modern Western drilling technology could save it. This prompted Russia to sign deals with American oil service companies worth hundreds of millions of dollars.
Ten years later, I ran into Colby at a Washington event, and I reminded him of the incident. He confided in me, “You know that report was completely fake, don’t you?” I was stunned. The goal was to drive the Soviet Union to the bargaining table to dial down the Cold War. I was the unwitting middleman. It worked.
That was Bill, always playing the long game.
After Colby retired, he campaigned for nuclear disarmament and gun control. He died in a canoe accident on the lake in front of his Maryland home in 1996.
Nobody believed it for a second.
William Colby
Kyoko
Good Luck and Good Trading,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Global Market Comments
April 21, 2025
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or IN SEARCH OF THE LOST MARKET BOTTOM),
(SPY), (TLT), (NFLX), (COST), (NVDA), (TSLA), (MSTR)
Back in 1977, I met Chinese Premier Deng Xiaoping for the first time at the Foreign Correspondents Club of Japan. He was a cherubic 4’10” and I was a lanky 6’4” and when we shook hands, he craned his neck and laughed. When he asked me my name, I answered “Shorty” and we laughed again.
I know for a fact that Deng had survived the 1934 Long March. That was when the forces of Chiang Kai-shek chased the communists 5,000 miles across China in an attempt to wipe them out. The communists blew up bridges to stay ahead, starved, and gave away children to peasant families because they couldn’t feed them. The communist forces shrank from 100,000 to only 8,000 before they reached the safety of distant Yunnan province.
The lesson here? The Chinese can be tough, really tough.
Like everyone else, we here at Mad Hedge Fund Trader have no idea what is going to happen in the markets moment to moment. With trade policy changing by the hour, markets are basically untradable. The goal here is preservation of capital until better days arrive, no matter how long that may take, even if it's four years.
However, I DO know what a 3,000-point move in the Dow Average looks like. For the time being, I will be selling 3,000-point rallies and buying 3,000-point dips until Mr. Market tells me otherwise.
We have seen the biggest collapse in confidence in my lifetime, on par with the two oil shocks in the 1970s, the 1987 stock market crash, 9/11, the Great Recession, and the Pandemic. It’s not a great risk-taking environment.
As hard as it may be to believe, even after the carnage of the last two months, stocks are still historically expensive. The S&P 500 multiple is back up to 20X against a long-term average of 14X. In fact, earnings multiples are rising again because corporate earnings forecasts are being slashed.
At this point, the best-case scenario is that the government negotiates China tariffs down from 145% to only 50%. That still cuts 1% off of US GDP growth, which brings an automatic 4% corporate earnings growth.
Last year, the S&P 500 earned $240 a share, and analysts are chopping the 2025 forecast like an Alaskan lumberjack on steroids. Zero earnings growth this year at the current historically high multiple of 20X gets you a (SPX) of $4,800, where are lot of downside targets are bunching up right now. We almost got there on April 9.
But just as strategists like to competitively raise targets in bull markets, they also competitively lower them in bear markets. Zero earnings growth at an 18X multiple gets you to $4,320, and 16X gets you to $3,840. At 14X, $240 a share gets you to $3,360, where a lot of worst-case scenarios are congregating now.
If I started shouting a $3,360 target from the rooftops now, readers will assume that I‘ve become a permabear on the order of a Joe Granville, who in 1982 expected the S&P 500 Average to fall to 40.
And then what happens if earnings actually go negative this year? You can ratchet all these forecasts downward. What if China chooses not to negotiate, but waits out the trade war until a new president comes along, as most American companies are doing? Then we have four years of the Great Depression. In fact, these days, worst-case scenarios are a dime a dozen. While Republicans are swearing bullets over the mid-term elections in 18 months, the Chinese are as relaxed as ever. They don’t have elections, and if you disagree, you get shot.
The bottom line here is that the Chinese can take far more pain than we can.
The trade war is not the only thing dragging stock prices down right now. When most of the world is willing to buy unlimited amounts of your debt, a $37 trillion national debt is no problem. If they aren’t, it is a big problem. Suddenly, interest rates rise as government borrowing crowds out the private sector, as does the cost of debt service. The US Treasury has to refinance $9.2 trillion in maturing debt this year, as last week’s bond market crash may only be the opening chapter in THIS crisis.
If you’re not confused enough already, the Fed’s dual mandate is now diametrically opposed to each other. Inflation is going up, pushing it to raise interest rates. But there is no doubt that the economy is slowing and unemployment is rising, encouraging a cut. Let me know how this works out. As the Fed has always been a 100% backward-looking organization, the end of the year is the earliest the Fed can cut interest rates. Serious inflation hasn’t even started yet, and the Fed doesn’t anticipate things.
Speaking to several CEO’s this week, it’s clear that companies plan to spread out tariff-driven price increases over three years. Unfortunately for the Fed, that means prices will start rising now and continue indefinitely.
A collapsing economy, soaring interest rates, a trade war, inflation about to take off, and a crisis in confidence in the US do not argue for higher stock prices or multiples to me. If the US Treasury bill market is offering to pay you 4.3% to stay away, I would take it.
A concierge client asked me what would cause me to change my mind and turn 100% bullish. A declaration that all tariffs worldwide will be taken down to zero, ending the trade war. We may actually get several of these declarations, even if no real action is taken.
Once confidence is lost, it takes a really long time to get it back. Trump may have permanently broken America’s ability to borrow abroad.
As for me, I’m not holding my breath.
April is now up by +2.19% with our entire remaining portfolio expiring at max profit with the April 17 options expiration. That takes us to a year-to-date profit of +17.35% so far in 2025. My trailing one-year return stands at a spectacular +87.32%. That takes my average annualized return to +50.44% and my performance since inception to +769.24%, a new all-time high.
It has been another wild week in the market. I had the good fortune to have five options positions expire at Max profit in (NFLX), (COST), (NVDA), (TSLA), (MSTR). I added both longs and shorts in the leveraged long Bitcoin play (MSTR), betting that it will not rise or fall more than $100 in the next 19 days. I also use the collapse in the Volatility Index ($VIX) from $54 to $30 to take profits in 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.
Jay Powell Hints at No Rate Cuts This Year, due to the inflationary impact of the biggest tariff increases in history, sending markets crashing. Gold is through the roof. The Fed is also turning bearish on the economy.
US Inflation Expectations Hits 44-Year High. Sharply rising interest rates are now a new factor pushing prices up, with the bond market suffering its worst week in 25 years. The University of Michigan on Friday showed that Inflation Expectations had soared to 6.7% in the wake of Trump's April 2 reciprocal tariffs announcement.
Antitrust Case Proceeds Against Meta, with the FTC attempting to force the company to divest WhatsApp and Instagram. Other antitrust cases are proceeding against Alphabet (GOOGL) and Amazon (AMZN). Not only is Trump wrecking the US economy, but he is also dismantling the largest West Coast profit earners.
Nvidia Suffers a Perfect Storm, with a ban on selling its no.2 chip in China, the H20, and a national security investigation by Congress. The shares suffered an 11% selloff. Semiconductors are definitely the chief whipping boy in this trade war. These H20 chips are dumbed down solely for export to China so they can be sold anywhere else.
China Imposes Rare Earth Ban for US, essential elements for all electronic manufacturing. The US has plenty of rare earths, but 90% of the processing is done in China. You can’t make semiconductors without rare earths.
Foreign Central Banks Selling US Treasury Bonds, and buying Treasury bills. Fewer dollars are needed to recycle smaller trade surpluses. It’s also a good time to de-risk. Taken together, that signals foreign governments could be pessimistic on the long-term prospects of the U.S. while trying to increase their access to cash in the near term. In February, foreign central banks unloaded a net $19.6 billion in longer-term U.S. bonds and notes. They sold $24.1 billion in January, 2025, and $42.3 billion in December, 2025. A little over a billion was sold in November 2025.
China Cancels Boeing Order, as part of the tit-for-tat trade war that’s seen Trump levy tariffs of as high as 145% on Chinese goods. Beijing has also requested that Chinese carriers halt any purchases of aircraft-related equipment and parts from US companies, the people said, asking not to be identified discussing matters that are private.
Morgan Stanley Marks Down (SPX) Earnings, from $270 to $257 per share. Citigroup said the Goldilocks sentiment in place entering this year has given way to abject uncertainty. Expect an avalanche of coming downgrades of US stocks.
MicroStrategy Loads the Boat with Bitcoin. The company, which does business as Strategy, revealed in a Form 8-K that it had acquired 3,459 Bitcoins for roughly $285.8 million, or around $82,618 per Bitcoin, between April 7 and Monday, April 14. The latest purchase brought MicroStrategy’s total holdings to 531,664 units of the digital currency, with an aggregate purchase price of $35.92 billion. Sell (MSTR) rallies. This is not a RISK OFF” asset, which trades like a leveraged long tech stock.
Unemployment Fears Hit Five-Year High. Consumer worries grew over inflation, unemployment, and the stock market as the global trade war heated up in March, according to a New York Fed survey. The probability that the unemployment rate would be higher a year from now surged to 44%, up 4.6 percentage points, and the highest level going back to the early Covid pandemic days of April 2020. The expectation that the market will be higher a year from now slid to 33.8%, a decline of 3.2 percentage points to the lowest reading going back to June 2022.
Apple Flew $2 Billion Worth of iPhones from India to beat the trump tariffs. (AAPL) It is probably the worst-affected company by the trade wars. Front-running tariffs have been going on throughout the economy.
US Temporarily Exempts Import Duties on Smart Phones and Chips, lifting a huge burden off Apple’s shoulders. The administration finally realized that moving iPhone production from China to the US is impossible. Like coffee beans, they can’t be grown here, except in Hawaii. Looks like Tim Cook’s million-dollar donation to Trump paid off. Buy Apple on dips.
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 21, at 8:30 AM EST, the Conference Board Leading Economic Indicators are announced.
On Tuesday, April 22, at 3:30 AM, the Crude Oil Stocks are released.
On Wednesday, April 23, at 1:00 PM, New Home Sales are published.
On Thursday, April 24, at 8:30 AM, the Weekly Jobless Claims are disclosed. We also get Existing Home Sales.
On Friday, April 25, at 8:30 AM, we get the University of Michigan Consumer Sentiment.
As for me, not a lot of people get a chance to board a WWII battleship these days. So when I got the chance, I jumped at it.
As part of my grand tour of the South Pacific for Continental Airlines in 1981, I stopped at the US missile test site at Kwajalein Atoll in the Marshall Islands, a mere 2,000 miles west southwest of Hawaii and just north of the equator.
Of course, TOP SECRET clearance was required, which I’ve had since I was 20, and no civilians were allowed.
No problem there, as clearance from my days at the Nuclear Test Site in Nevada was still valid. Still, the FBI visited my parents in California just to be sure that I hadn’t adopted any inconvenient ideologies in the intervening years.
I met with the admiral in charge to get an update on the current strategic state of the Pacific. China was nowhere back then, so there wasn’t much to talk about in the wake of the Vietnam War.
As our meeting wound down, the admiral asked me if I had been on a German battleship. “It’s a bit before my time,” I replied. “How would you like to board the Prinz Eugen he responded.
The Prinz Eugen was a heavy cruiser, otherwise known as a pocket battleship built by Nazi Germany. It launched in 1938 at 16,000 tons and with eight 8-inch guns. Its sister ship was the Admiral Graf Spee, which was scuttled in the famous Battle of the River Plate in South America in 1939.
Early in the war, it helped sink the British battleship HMS Hood and damaged the HMS Prince of Wales. The Prinz Eugen spent much of the war holed up in a Norwegian fjord and later provided artillery support for the retreating German Army on the eastern front. At the end of the war, the ship was handed over to the US Navy as a war prize.
The US postwar atomic testing was just beginning, so the Prinz Eugen was towed through the Panama Canal to be used as a target. Some 200 ships were assembled, including those from Germany, Japan, Britain, and even some American ships deemed no longer seaworthy, like the USS Saratoga. One of the first hydrogen bombs was dropped in the middle of the fleet.
The Prinz Eugen was the only ship to remain afloat. In the Navy film of the explosion, you can see the Prinz Eugen jump 200 feet into the air and come down upright. The ship was then towed back to Kwajalein Atoll and put at anchor. A typhoon came later in 1946, capsizing and sinking it.
It was a bright and sunny day when I pulled up to the Prinz Eugen in a small boat with some Navy divers. There was no way the Navy was going to let me visit the ship alone.
The ship was upside-down, with the stern beached, the bow in 300 feet of pristine turquoise water. The propellers had recently been sent off to a war memorial in Germany. The ship’s eight cannons lay scattered on the bottom, falling out of their turrets when the ship tipped over.
The small part of the Prinz Eugen above water had already started to rust through. But once underwater, it was like entering a live aquarium.
A lot of coral, seaweed, starfish, and sea urchins can accumulate in 36 years, and every inch of the ship was covered. Brightly tropical fish swam in schools. A six-foot mako shark with a hungry look warily swam by.
My diver friends knew the ship well and showed me the highlights to a depth of 50 feet. The controls in the engine room were labeled in German Fraktur, the preferred prewar script. Broken dishes displayed the Nazi swastika. Anti-aircraft guns frozen in time pointed towards the bottom. No one had been allowed to remove anything from the ship since the war, and in the Navy, most men follow orders.
It was amazing what was still intact on a ship that had been blown up by a hydrogen bomb. You can’t beat “Made in Germany.” Our time on the ship was limited as the hull was still radioactive, and in any case, I was running low on oxygen.
A few years later, the Navy banned all diving on the Prinz Eugen. Three divers had gotten lost in the dark, tangled in cables, and drowned. I was one of the last to visit the historic ship.
I checked with my friends in the Navy, and the Prinz Eugen is still there, but in deteriorating condition. When the ship started leaking oil in 2018 and staining the immaculate beaches nearby, the Navy launched a major effort to drain what was left from the 80-year-old tanks. No doubt a future typhoon will claim what is left.
So if someone asks if you know anybody who’s been on a German battleship, you can say, “Yes,” you know me. And yes, my German is still pretty good these days.
Vielen dank!
Good Luck and Good Trading,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
The Prinz Eugen in 1940
On Pelelui Island
Global Market Comments
April 7, 2025
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or TRUMP DECLARES WAR ON THE WORLD),
(SPY), (TLT), (META), (GOOGL), (MSFT), (CRM),
(COST), (NVDA), (NFLX), (NVDA), (TSLA), (GLD)
I often get asked why I am still working after 55 years in the stock market.
With five customers calling me this morning to thank me for saving their retirement funds, you might understand why.
It is now clear that in retrospect and with the wisdom of 20/20 hindsight, corporate America flipped the switch on the economy, shutting it off and sending all hiring and investment to a grinding halt. They wanted to wait and see how business would fare under the new Trump regime. We didn’t see this in the data until February.
That’s when I started shouting from the rooftops that we were already in a recession and bear market and that you should sell everything, especially big tech stocks. If you waited until August for the data to confirm this, the move-down will be over.
T-bills, bonds, and gold were the only safe places to park your money. Gold just delivered the best quarter since 1986, up 19%. That month I took my short positions up to 80%, a 17-year high for the Mad Hedge Fund Trader.
Those now look like very wise decisions, with markets suffering their worst two-day crash since 1987, and the bad news has only just started. Option implied volatiles are at five-year highs, and risk positions everywhere are going to hell in a handbasket. Tariff-driven inflation could spike to 10% by next year.
Even securities unrelated to stocks, like junk bonds (JNK), down $6 points in two weeks, were getting thrown out with the bathwater because of margin calls. The Mad Hedge AI Market Timing Index is at a five-year low at a reading of 4. Q1 saw the fastest reversal in market momentum in 38 years.
I even heard an expression new to me: “Hate selling”. That refers to a global disengagement from investment in the US and the return of capital to better-performing foreign markets and currencies. Trump is attacking their countries.
The global nature of the selloff is most disturbing, with every country seeking its stock markets rolling over all at once. That presages a global recession.
Analysts across Wall Street are tearing up their playbooks for 2025 and setting new downside targets as fast as they can like I did in February.
Instead of the $500 billion tax increase I expected tariffs would deliver, we got $1 trillion. The worst forward guidance from corporations since the Great Depression starts next week. Retaliatory 34% tariffs from China hit today, and those from Europe will come soon. Trump has promised retaliation.
That forces me to adjust my downside target for the S&P 500 from $5,000 to $4,500. That is a 26.6% selloff from the February top, or 11% more downside from here. How do we get there? Simply assign the 2019 earnings multiple low of 18 and multiply it by S&P 500 earnings pared back by the trade war from $270 to $250. That gets you to $4,500 in months, if not weeks (18 X $250).
No help is that we entered this crash with valuation highs that have only been seen in 1999 and 1929. The higher the high, the lower the lows that follow.
In fact, there is no bottom to this market.
This forecast is based on historical data and assumes that markets are rational and orderly. But as we all know too well, markets can be anything but rational and orderly once the panic selling and margin calls begin.
Of course, a tweet on social media about negotiations could trigger a massive short-covering rally at any time. In reality, the stock market has been negotiating on behalf of Europe and China quite successfully. The further stocks fall, the greater the pressure on Trump to fold.
Tariffs advertised at the White House announcement left our trading partners scratching their heads because they were completely bogus and were a large multiple of the true tariffs. The person who came up with these cockamamie figures remains anonymous, as they used an arbitrary, obscure formula made up from scratch that had never been seen before by the economic community.
For example, the White House claimed the tariff charged by Vietnam was 90%, when in fact it is 5.5%. The claimed tariff for Taiwan was 64%, while the actual one is 1.7%.
The White House numbers supposedly included a factor for non-tariff barriers. I happen to be an expert in these because Japan was notorious for its non-tariff barriers in the 1970s. For example, import documents have to be submitted in Japanese. Hey, I speak Japanese. All they had to do was ask me! How did they quantify this?
That’s anyone’s guess.
The saddest thing is that this new bear market was not caused by surprise external events as in all others in the past century, but is totally voluntary and self-inflicted. It is actually caused by the false assumptions of conspiracy theorists. But these days, it is the conspiracy theorists who have the upper hand.
Why do we suddenly need an emergency jobs program now, when the country is operating at full employment? Many of those skills needed to man the jobs Trump is trying to take back from China, such as in textiles, clothing, shoes, and toys, haven’t existed in the US for generations. Nor does the machinery.
Some three-quarters of the US trade deficits are offset by a monster surplus in services run up by the likes of Meta (META), Alphabet (GOOGL), Microsoft (MSFT), Oracle (ORCL), and Salesforce (CRM). And if you didn’t already know, the future is in services, not in manufacturing.
I don’t know about you, but I don’t lose a lot of sleep at night worrying about our trade deficit with Vietnam. Trump took what was a great economy and destroyed it in an effort to remake it in his own image. Is this crazy experiment with 20% of your retirement funds cost so far? How about 50%?
No wonder the Republican Party is panicking! Recent elections have shown unprecedented swings by voters away from them, fearful of their 401Ks.
How many factories will return to the US as a result of the tariffs? My bet is none. There will be many announcements but no actual action, as with the first Trump administration.
Labor costs are $5 an hour in Mexico and China, versus $25-$75 an hour in America. We keep the high-paying, high-value-added jobs and send the cheap, dangerous, highly energy-consuming, and high-polluting ones abroad. Foreigners get rich and earn the money to buy our services.
Their government then takes the excess funds and buys US Treasury bonds (China still has $760 billion worth) and finances our deficits with ever-depreciating paper. It is one big mutually enriching cycle. That’s why globalization has worked for 85 years.
The best thing for companies is to now sit on their hands and do nothing and wait out the next four years until a future administration eliminates the tariffs. That’s much cheaper than spending $20 billion on a new factory here which might become useless in four years.
What is a stock market worth that is walled off from the rest of the world that's in recession? Maybe half or less the February peak value, but I’m only guessing.
It might be much worse.
Keep all cash positions in 90-day T-bills and keep all hedges of existing equity portfolios also at a maximum until the stock market can find its own bottom. I’d rather miss the first 10% move and buy on the way up than catch a falling knife right now.
April is now down -7.25% 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 +6.58% so far in 2025. My trailing one-year return stands at a spectacular +74.93%. That takes my average annualized return to +49.73% and my performance since inception to +758.47%.
It has been another busy week for trading. I used the meltdown to add very deep in-the-money longs in (COST), (NVDA), and (NFLX). I stopped out of an existing (NVDA) long as we approached the upper strike price. I kept my very deep in-the-money long in (TSLA). I also kept my (GLD) long as a hedge.
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.
Trump Announces Worst-Case Scenario Tariffs, tanking stocks and crypto, with big technology stocks taking the biggest hits. “RISK OFF” assets like gold, silver, bonds, and foreign currencies are soaring. The Dow Average could suffer a 1987-style crash on Monday. Volatility will explode. Duties on Chinese goods were raised to 34%, Europe 20%, and Southeast Asian countries up to 45%. All countries have been hit with high tariffs to avoid transshipments. Retaliation from the world is on the way. It’s another nail in the economy’s coffin, which is now almost certainly in recession. S&P 500 at 5,000 here we come. Is this the day the great depression started? Some $2 trillion in market capitalization was lost today.
Tariffs to Push All Home Prices Higher, as much as 5%, as homebuilders wind down new construction because of higher costs. Drywall comes from Mexico, lumber from Canada, and 10% of the workforce are immigrants. It could explain the recent improvement in existing home sales.
Jobless Claims Hit Three-Year High. Continuing claims, a proxy for the number of people receiving benefits, increased to 1.9 million in the week ended March 22, slightly higher than economists expected. Those applications have been hovering just under that level for several months now. Meanwhile, initial claims dipped last week, to 219,000, according to Labor Department data released Thursday.
Auto Loan Defaults Hit 21-Year High, with 6.5% of subprime borrowers at least 60 days overdue on payments. It is the largest default rate since data began collection in 1994. Yet another recession indicator.
Tesla Sales Fall off a Cliff, down 13% on the quarter, its weakest performance in nearly three years, as backlash to CEO Elon Musk's embrace of far-right politics grows and as consumers seek out newer models from rival electric-vehicle makers. The EV maker's stumbling sales indicate that the one-time leading brand is reeling from the fallout of the company not refreshing its vehicle lineup in years, and Musk's foray into politics in the United States and Europe. The company posted weak sales in numerous European markets and China, even as more consumers are opting for EVs. Sell (TSLA) on rallies.
Global Sentiment is collapsing, over trade wars and recession fears. Business sentiment among big Japanese manufacturers worsened in the three months to March, a central bank survey showed on Tuesday, a sign escalating trade tensions were already taking a toll on the export-reliant economy. Auto exports to the US are a major support for the Japanese economy, which is an American ally. A global contagion is afoot.
US Dollar Declines as a Reserve Currency, in the last quarter of 2024 while the percentage of actual dollars held as reserve ticked up, IMF data showed on Monday. Dollar-equivalent amounts dropped also among holdings in euro, pound sterling, yuan, yen, Swiss franc, and Australian and Canadian dollars, with only the latter showing a tick up in the percentage of holdings, the IMF's Currency Composition of Official Foreign Exchange Reserves (COFER) data showed. The end of American exceptionalism means a cheaper greenback.
Vaccine Stocks Get Nailed, as the FDA moves the eliminate the vaccine establishment. Expect stocks to fall and disease to rise. The Food and Drug Administration's top vaccine official, Peter Marks, has been forced to resign, the most high-profile exit at the regulator as the Trump administration undertakes an overhaul of federal health agencies.
Gold Stocks in Comex Warehouses Hit Record highs, due to the risk of import tariffs curtailing shipments to the United States from other countries. Latest data from Comex, part of CME Group, shows gold stored in its warehouses in the United States at an all-time high of 43.3 million troy ounces worth $135 billion at current prices compared with 17.1 million in November. Spot gold prices surged past $3,100 per ounce to a fresh record high on Monday. Bullion is up 19% so far this year after rising 27% in 2024. Buy (GLD) on dips.
On Monday, April 7, at 8:30 AM EST, the Used Car Prices are announced.
On Tuesday, April 8, at 8:30 AM, the NFIB Business Optimism Index is released.
On Wednesday, April 9, at 1:00 PM, the FOMC Minutes are published.
On Thursday, April 10, at 8:30 AM EST, the Weekly Jobless Claims are disclosed. We also get the Consumer Price Index and Inflation Rate.
On Friday, April 11, at 8:30 EST, the Producer Price Index for March is printed. We also get the University of Michigan Consumer Sentiment. At 2:00 PM, the Baker Hughes Rig Count is printed.
As for me, with the 38th anniversary of the 1987 crash coming up this year, when shares dove 20% in one day, I thought I’d part with a few memories.
I was in Paris visiting Morgan Stanley’s top banking clients, who back then were making a major splash in Japanese equity warrants, my particular area of expertise.
When we walked into our last appointment, I casually asked how the market was doing (Paris is six hours ahead of New York). We were told the Dow Average was down a record 300 points. Stunned, I immediately asked for a private conference room so I could call the equity trading desk in New York to buy some stock.
A woman answered the phone, and when I said I wanted to buy, she burst into tears and threw the handset down on the floor. Redialing found all transatlantic lines jammed.
I never bought my stock, nor did I find out who picked up the phone. I grabbed a taxi to Charles de Gaulle airport and flew my twin Cessna as fast as the turbocharged engines took me back to London, breaking every known air traffic control rule.
By the time I got back, the Dow had closed down 512 points. Then I learned that George Soros asked us to bid on a $250 million blind portfolio of US stocks after the close. He said he had also solicited bids from Goldman Sachs, Merrill Lynch, JP Morgan, and Solomon Brothers, and would call us back if we won.
We bid 10% below the final closing prices for the lot. Ten minutes later, he called us back and told us we won the auction. How much did the others bid? He told us that we were the only ones who bid at all!
Then you heard that great sucking sound.
Oops!
What has never been disclosed to the public is that after the close, Morgan Stanley received a margin call from the exchange for $100 million, as volatility had gone through the roof, as did every firm on Wall Street. We ordered JP Morgan to send the money from our account immediately. Then they lost the wire transfer!
After some harsh words at the top, it was found. That’s when I discovered the wonderful world of Fed wire numbers.
The next morning, the Dow continued its plunge, but after an hour managed a U-turn, and launched on a monster rally that lasted for the rest of the year. We made $75 million on that one trade from Soros.
It was the worst investment decision I have seen in the markets in 53 years, executed by its most brilliant player. Go figure. Maybe it was George’s risk control discipline kicking in?
At the end of the month, we then took a $75 million hit on our share of the British Petroleum privatization because Prime Minister Margaret Thatcher refused to postpone the issue, believing that the banks had already made too much money.
That gave Morgan Stanley’s equity division a break-even P&L for the month of October 1987, the worst in market history. Even now, I refuse to gas up at a BP station on the very rare occasions I am driving a rental internal combustion engine from Enterprise.
My Quotron Screen on 1987 Crash Day
Good Luck and Good Trading,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Global Market Comments
April 3, 2025
Fiat Lux
Featured Trade:
(A NOTE ON OPTIONS ASSIGNED OR CALLED AWAY)
(NVDA), (COST), (TSLA)
I just received an excited text message from an excited Concierge client. His long position in the (NVDA) April 17 2025 $90-$95 vertical bull call debit spread had just been called away. That meant he would receive the maximum profit a full 10 trading days before the April 17 option expiration. Whoever called away the option ended up eating all of the remaining premium.
With the heightened volatility today, I am seeing an increasing number of options positions assigned or called away.
I know all of this may sound confusing at first. But once you get the hang of it, this is the greatest way to make money since sliced bread.
I still have three positions left in my model trading portfolio that are deep in-the-money, and about to expire in 10 trading days on the April 17 options expiration day. Those are the
(NVDA) 4/$90-$95 call spread 10.00%
(COST) 4/$840-$850 call spread 10.00%
(TSLA) 4/$160/$170 put spread 10.00%
That opens up a set of risks unique to these positions.
I call it the “Screw up risk.”
As long as the markets maintain current levels, this position will expire at its maximum profit value.
There is a heightened probability that your short position in the options may get called away.
Although the return for those calling away your options is very small, this is how to handle these events.
If exercised, brokers are required by law to email you immediately.
If it happens, there is only one thing to do: fall down on your knees and thank your lucky stars. You have just made the maximum possible profit for your position instantly.
Most of you have short-option positions, although you may not realize it. For when you buy an in-the-money vertical option spread, it contains two elements: a long option and a short option.
The short options can get “assigned,” or “called away” at any time, as it is owned by a third party, the one you initially sold the put option to when you initiated the position.
You have to be careful here because the inexperienced can blow their newfound windfall if they take the wrong action, so here’s how to handle it correctly.
Let’s say you get an email from your broker telling you that your call options have been assigned away.
I’ll use the example of the Berkshire Hathaway (BRK/B) from last August $405-$415 in-the-money vertical Bull Call spread since so many of you had these.
For what the broker had done in effect is allow you to get out of your call spread position at the maximum profit point 11 days before the August 16 expiration date.
In other words, what you bought for $8.70 on July 12 is now worth $10.00, giving you a near-instant profit of $1,300 or 14.94% in only 11 trading days.
All you have to do is call your broker and instruct them to “exercise your long position in your (BRK/B) August 16 $405 calls to close out your short position in the (BRK/B) August $410 calls.”
You must do this in person. Brokers are not allowed to exercise options automatically, on their own, without your expressed permission.
You also must do this the same day that you receive the exercise notice.
This is a perfectly hedged position. The name, the ticker symbol, the number of shares, and the number of contracts are all identical, so you have no exposure at all.
Call options are a right to buy shares at a fixed price before a fixed date, and one option contract is exercisable into 100 shares.
Short positions usually only get called away for dividend-paying stocks or interest-paying ETFs like the (BRK/B). There are strategies out there that try to capture dividends the day before they are payable. Exercising an option is one way to do that.
Weird stuff like this happens in the run-up to options expirations like we have coming.
A call owner may need to sell a long (BRK/B) position after the close, and exercising his long (BRK/B) call, which you are short, is the only way to execute it.
Adequate shares may not be available in the market, or maybe a limit order didn’t get done by the market close.
There are thousands of algorithms out there that may arrive at some twisted logic that the puts need to be exercised.
Many require a rebalancing of hedges at the close every day which can be achieved through option exercises.
And yes, options even get exercised by accident. There are still a few humans left in this market to blow it by writing shoddy algorithms.
And here’s another possible outcome in this process.
Your broker will call you to notify you of an option called away, and then give you the wrong advice on what to do about it.
There is a further annoying complication that leads to a lot of confusion. Lately, brokers have resorted to sending you warnings that exercises MIGHT happen to help mitigate their own legal liability.
They do this even when such an exercise has zero probability of happening, such as with a short call option in a LEAPS that has a year or more left until expiration. Just ignore these, or call your broker and ask them to explain.
This generates tons of commissions for the broker but is a terrible thing for the trader to do from a risk point of view, such as generating a loss by the time everything is closed and netted out.
There may not even be an evil motive behind the bad advice. Brokers are not investing a lot in training staff these days. In fact, I think I’m the last one they really did train.
Avarice could have been an explanation here but I think stupidity and poor training and low wages are much more likely.
Brokers have so many ways to steal money legally that they don’t need to resort to the illegal kind.
This exercise process is now fully automated at most brokers but it never hurts to follow up with a phone call if you get an exercise notice. Mistakes do happen.
Some may also send you a link to a video of what to do about all this.
If any of you are the slightest bit worried or confused by all of this, come out of your position RIGHT NOW at a small profit! You should never be worried or confused about any position tying up YOUR money.
Professionals do these things all day long and exercises become second nature, just another cost of doing business.
If you do this long enough, eventually you get hit. I bet you don’t.
Calling All Options!
Global Market Comments
April 1, 2025
Fiat Lux
Featured Trade:
(REVISITING THE FIRST SILVER BUBBLE),
(SLV), (SLW)
Global Market Comments
March 31, 2025
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or STAGFLATION IS ON!)
(COST), (BRK/B), (GS), (MS), (NVDA), (AMZN), (TLT), (GLD), (GM), (TSLA)
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