Global Market Comments
March 11, 2024
Fiat Lux
Featured Trade:
(The Mad MARCH traders & Investors Summit is ON!)
(MARKET OUTLOOK FOR THE WEEK AHEAD, or HIGHER HIGHS)
(NVDA), (META), (IWM), (AMZN), (RIVN), (SNOW), (GLD), (GOLD), (NEM), (FXI), DELL), (AAPL), (TSLA), (CCJ), ($NIKK), (USO), (GOLD)
I was all ready to write another hyper-bullish report for the week. That was at least until noon EST on Friday. That’s when NVIDIA (NVDA) Peaked at $955 and then free fell $100 to $855. New all-time and then a new intraday low on huge volume and that is the textbook definition of a market top.
Not that we should be complaining. At the high, (NVDA) was up an unimaginable 105% so far this year. I spent my week buying back short put options for 50 cents that I initially sold for $20. With a quarterly quadruple witching due this Friday, anything can happen.
By the end of February, more than half of all analyst 2024 yearend targets were met. The response was a rush to raise yearend targets, triggering the current melt-up.
It always ends in tears.
And I’m about to tell you something that you will absolutely love to hear. Lower interest rates dramatically increase corporate stock buybacks, already set at $1.25 trillion for 2024. That’s because of the lower cost of capital.
What do more share buybacks automatically bring? High stock prices, especially for large positive cash flow companies like big tech.
As much as the permabears hate to admit it, good news really is good news.
With all of the media obsession with NVIDIA (NVDA), my largest holding, and Meta (META), the fact is that the rally is broadening out. More than half of all industrial stocks are trading at all-time highs. Long-forgotten small caps (IWM) are also approaching 2021 all-time highs.
Going into this week managers were either overweight big tech and extremely nervous or out of big tech and kicking themselves. The urge to rotate is strong. But your standby rotation sectors, industrials, biotech, and banking have also seen big moves.
Which brings us to the subject of gold (GLD).
After a tedious one-year sideways consolidation, the barbarous relic blasted out to the upside above $2,200 an ounce, a new all-time high. After soaking up as much gold as they could over the past decade, China and Russia have finally taken the gold market net short, which is why we saw such dramatic price action.
With interest rates in the US soon to fall, the opportunity cost of owning non-yielding gold is about to shrink. That will cut the knees out from under the US dollar prompting a stampede into precious metals and Bitcoin.
Except this time, it’s different.
Gold miners usually outperform the yellow metal by four to one to the upside. Not so this time. Barrick Gold (GOLD) and Newmont Mining (NEM) were barely able to keep pace with the barbarous relic. That’s because inflation has boosted their costs and cut profit margins. After all, they are stock first and gold plays second.
Still, if gold reaches my $3,000 target in 2025 the LEAPS I sent out for (GOLD) last June should easily hit its maximum profit point of 298%.
That other weak dollar play, oil (USO) may not deliver the joys of past cycles and may in fact be trapped in a fairly narrow $60-$80 range. The futures markets are saying that the price of Texas tea will be lower in a year.
The US is now the world’s top oil producer at 13 million barrels/day and that is rising (thanks to enormously generous tax breaks), capping prices. Non-OPEC+ production is increasing, especially from Brazil and Canada. China, the world’s largest oil importer is missing in action. But low inventories, especially at the American Strategic Petroleum Reserve, are preventing a crash as well. Shale production is growing.
Still, even a $20 rally can have a dramatic impact on the share prices of the big US producers, like Exxon (XOM) and Occidental Petroleum (OXY), some 25% of which is now owned by Warren Buffet. Even without some sexy price action, this sector pays some of the highest dividend yields in the markets.
In February we closed up +7.42%. So far in March, we are up +0.70%. My 2024 year-to-date performance is at +3.21%. The S&P 500 (SPY) is up +7.11% so far in 2024. My trailing one-year return reached +54.28% versus +40.94% for the S&P 500.
That brings my 16-year total return to +689.74%. My average annualized return has recovered to +52.05%.
Some 63 of my 70 trades last year were profitable in 2023. Some 11 of 15 trades have been profitable so far in 2024.
I used the ballistic move in (NVDA) to take profits in my double long there. I am maintaining longs in (AMZN) and Snowflake (SNOW). I am both long and short the bond market (TLT) and I am 60% in cash given the elevated level of the stock markets.
Nonfarm Payroll Report Rose 275,000 in February. The Headline Unemployment Rate rose to 3.9%, a two-year high. The report illustrates a labor market that is gradually downshifting, with more moderate job and pay gains that suggest the economy will keep expanding without much risk of a reacceleration in inflation. These are very Fed friendly numbers.
JOLTS Job Openings Report Rises by 140,000 to 8,890,000, less than expected. Leisure and hospitality led with 41,000 new jobs, construction added 28,000 and trade, transportation and utilities contributed 24,000. Growth was concentrated among larger companies, as establishments with fewer than 50 employees contributed just 13,000 to the total.
Rivian Shares Soar, on news it is halting plans to build a new $2.25 billion factory in Georgia, an abrupt reversal aimed at cutting costs while the company prepares to launch a cheaper electric vehicle. Shifting planned production of the forthcoming R2 model to an existing facility in Illinois will allow Rivian to begin deliveries in the first half of 2026, earlier than expected. Buy (RIVN) on dips.
New York Community Bancorp Bailed Out, with a cash infusion led by former Treasury secretary Steve Mnuchin. The shares soared from $2 to $3.41. That takes the heat off the sector….until the next one. The US is shrinking from 4236 banks to only six banks. Who says politics doesn’t pay?
Europe Moves Towards Interest Rate Cuts, igniting a global bond market rally. Staff projections now see economic growth of 0.6% in 2024, from a previous forecast of 0.8%. They presented a more positive picture of inflation, with the forecast for the year brought to an average 2.3% from 2.7%. Market bets increased on rate cuts taking place as early as June, with the euro trading 0.35% lower against the British pound following the news.
Beige Book Comes in Moderate, saying "labor market tightness eased further," in February but noted "difficulties persisted attracting workers for highly skilled positions." The Beige Book is a review of economic conditions across all 12 Fed districts. Fed Chair Jerome Powell told Congress on Wednesday that the U.S central bank expected "inflation to come down, the economy to keep growing," but shied away from committing to any timetable for interest rate cuts.
China Targets 5% Growth for 2024, but nobody buys it for a second. A covid hangover, residential real estate crisis triggering a financial crisis, and constant invasion threats over Taiwan, make this target a pipe dream. Avoid (FXI) and all Middle Kingdom plays.
Gold Hits New All-Time High, at $2,141 an ounce on expectations of imminent rate cuts by the Fed. Gold, often used as a safe store of value during times of political and financial uncertainty, has climbed over $300 dollars since the start of the Israel-Hamas war. Buy (GLD), (GOLD), and (NEM) on dips.
Dell (DELL) Becomes an AI Stock, sending the shares up 47% in a Day. That’s been changing over the past year, as Dell has been reporting strong orders of servers designed to power generative AI workloads—many of which use chips supplied by AI kingmaker Nvidia. The company’s fourth quarter results convinced any doubters. Can Apple (AAPL) do the same?
Tesla Plunges on Poor China Sales, down $14.50 on sales data dimmed the outlook for Tesla's global deliveries, at a time when the top EV maker is battling a decline in demand and is weighed down by a lack of entry-level vehicles and the age of its product line-up. Not the time to be in EVs or solar. Buy (TSLA) on bigger dip.
US National Debt is Rising by $1 Trillion Every 100 Days. A trillion here, a trillion there, sooner or later that adds up to a lot of money. Eventually, someone is going to have to do something about this. The US national debt stands at $34.5 trillion, or $104,545 per person.
The Uranium Shortage is Getting Extreme, with yellow cake up 112% in a year. Owners of left-for-dead uranium mines are restarting operations to capitalize on rising demand for the nuclear fuel. Most of those American mines were idled in the aftermath of Fukushima when uranium prices crashed and countries like Germany and Japan initiated plans to phase out nuclear reactors. Now, with governments turning to nuclear power to meet emissions targets and top uranium producers struggling to satisfy demand, prices of the silvery-white metal are surging. Buy (Cameco (CCJ) on dips.
Japan’s Nikkei ($NIKK) Tops 40,000, a new 34-year high. The ultra-weak Japanese economy is giving the economy there a free lunch, but better hedge your currency exposure. Good thing I missed a dead market for 34 years.
NVIDIA Replaces Tesla as Top Traded Stock, with volumes migrating to the options market as well. Blockbuster profits are catnip for traders, while EV price wars aren’t. Tesla is down 52% from its all-time high two years ago and is one of the biggest percentage decliners in the Nasdaq 100 Index this year.
My Ten-Year View
When we come out the other side of the recession, we will be perfectly poised to launch into my new American Golden Age, or the next Roaring Twenties. The economy decarbonizing and technology hyper accelerating, creating enormous investment opportunities. The Dow Average will rise by 800% to 240,000 or more in the coming decade. The new America will be far more efficient and profitable than the old.
Dow 240,000 here we come!
On Monday, March 11 at 7:00 AM EST, the Consumer Inflation Expectations are announced.
On Tuesday, March 12 at 8:30 AM, Inflation Rate for February is released.
On Wednesday, March 13 at 2:00 PM, MBA Mortgage Applications are published
On Thursday, March 14 at 8:30 AM, the Weekly Jobless Claims are announced. We also get the Producer Price Index.
On Friday, March 15 at 2:30 PM, the University of Michigan Consumer Sentiment is published. At 2:00 PM the Baker Hughes Rig Count is printed.
As for me, I have met many interesting people over a half-century of interviews, but it is tough to beat Corporal Hiroshi Onoda of the Japanese Army, the last man to surrender in WWII.
I had heard of Onoda while working as a foreign correspondent in Tokyo. So, I convinced my boss at The Economist magazine in London that it was time to do a special report on the Philippines and interview President Ferdinand Marcos. That accomplished, I headed for Lubang island where Onoda was said to be hiding, taking a launch from the main island of Luzon.
I hiked to the top of the island in the blazing heat, consuming two full army canteens of water (plastic bottles hadn’t been invented yet). No luck. But I had a strange feeling that someone was watching me.
When the Philippines fell in 1945, Onoda’s commanding officer ordered the remaining men to fight on to the last man. Four stayed behind, continuing a 30-year war.
As a massive American military presence and growing international trade raised Philippine standards of living, the locals eventually were able to buy their own guns and kill off Onoda’s companions one by one. By 1972 he was alone, but he kept fighting.
The Japanese government knew about Onoda from the 1950s onward and made every effort to bring him back. They hired search crews, tracking dogs, and even helicopters with loudspeakers, but to no avail. Frustrated, they left a one-year supply of the main Tokyo newspaper and a stockpile of food and returned to Japan. This continued for 20 years.
Onoda read the papers with great interest, believing some parts but distrusting others. His worldview became increasingly bizarre. He learned of the enormous exports of Japanese automobiles to the US, so he concluded that while still at war, the two countries were conducting trade.
But when he came to the classified ads, he found the salaries wildly out of touch with reality. Lowly secretaries were earning an incredible 50,000 yen a year, while a salesman could earn an obscene 200,000 yen.
Before the war, there was one Japanese yen to the US dollar. In the hyperinflation that followed the yen fell to 800, and then only recovered to 360. Onoda took this as proof that all the newspapers were faked by the clueless Americans who had no idea of true Japanese salary levels.
So he kept fighting. By 1974 he had killed 17 Philippino civilians.
After I left Lubang island, a Japanese hippy named Norio Suzuki with long hair, beads, and sandals followed me, also looking for Onoda. Onoda tracked him as he had me but was so shocked by his appearance that he decided not to kill him. The hippy spent two days with Onoda explaining the modern world.
Then Suzuki finally asked the obvious question: what would it take to get Onoda to surrender? Onoda said it was very simple, a direct order from his commanding officer. Suzuki made a beeline straight for the Japanese embassy in Manila and the wheels started turning.
A nationwide search was conducted to find Onoda’s last commanding officer and a doddering 80-year-old was turned up working in an obscure bookstore. Then the government custom-tailored a prewar Imperial Japanese Army uniform and flew him down to the Philippines.
The man gave the order and Onoda handed over his samurai sword and rifle, or at least what was left of it. Rats had eaten most of the wooden parts. You can watch the surrender ceremony by clicking here on YouTube.
When Onoda returned to Japan, he was a sensation. He displayed prewar mannerisms and values like filial piety and emperor worship that had been long forgotten. Emperor Hirohito was still alive.
When I finally interviewed him, Onoda was sympathetic. I had by then been trained in Bushido at karate school and displayed the appropriate level of humility, deference, mannerisms, and reference.
I asked why he didn’t shoot me. He said that after fighting for 30 years he only had a few shells left and wanted to save them for someone more important.
Onoda didn’t last long in the modern Japan, as he could no longer tolerate modern materialism and cold winters. He moved to Brazil to start a school to teach prewar values and survival skills where the weather was similar to that of the Philippines. Onoda died in 2014 at the age of 91. A diet of coconuts and rats had extended his life beyond that of most individuals.
Onoda wasn’t actually the last Japanese to surrender in WWII. I discovered an entire Japanese division in 1975 that had retreated from China into Laos and just blended in with the population. They were prized for their education and hard work and married well.
During the 1990’s a Japanese was discovered in Siberia. He was released locally at the end of the war, got a job, married a Russian woman, and forgot how to speak Japanese. But Onoda was the last to stop fighting.
The Onoda story reminds me of the fact that journalists learn very early in their careers. You can provide all the facts in the world to some people. But if they conflict with their own deeply held beliefs, they won’t buy them for a second.
Hiro Onoda Surrenders
Budding Journalist John Thomas
Good Luck and Good Trading,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Global Market Comments
March 8, 2024
Fiat Lux
Featured Trade:
(MARCH 6 BIWEEKLY STRATEGY WEBINAR Q&A),
(SPX), (QQQ), (PANW), (SNOW), (NVDA), (GLD), (GOLD), (NEM), (BA), (AMZN), (TLT), (AAPL), (COIN)
Below please find subscribers’ Q&A for the March 6 Mad Hedge Fund Trader Global Strategy Webinar, broadcast from Silicon Valley, CA.
Q: With your projections of the Dow going to $240,000 in 10 years, would it be wise to invest in the Dow?
A: The Dow is just an indicator that everybody understands and is familiar with what the media uses. What I tell people to do is if you are not an aggressive person, put half your money in the S&P 500 (SPX), which is getting most of the gains, and half in the technology (QQQ), which is getting all of the gains. If you're an aggressive person, say in your twenties, thirties, or forties, then you put all of your money in the Invesco QQQ NASDAQ Trust (QQQ) because you'll live long enough to survive the inevitable downturns.
Q: What should we do now with Palo Alto Networks (PANW)?
A: Keep it. It’s a fantastic long-term company. This is a rare opportunity to get in on the long side, as this is a company that I think could double over the next 3 to 5 years. Hacking is never going out of style and now they have AI. The selloff was caused by a major platform upgrade which may cause profits to dip for a quarter. That’s now in the price.
Q: With the successful launch of Bitcoin, should we allocate 5% or 10% of our portfolio to Bitcoin?
A: Only if you can handle a 90% decline at any time without warning because that's exactly what it did in 2021. Calling it a store of value is a fantasy. You also still have big theft issues with Bitcoin. You don't have theft issues if you have all your money at Morgan Stanley, Goldman Sachs, Merrill Lynch, and so on, so there is a security issue (with Bitcoin). The only way to bypass the security issues is to have a hot wallet, and the only way to have a hot wallet is to be a computer programmer yourself or have a degree in computer science—so it's not for most people. If you can navigate all of that, then maybe; but again, nobody knows when the next 90% decline is going to come. By the way, if I can find stocks with Mad Hedge Fund Trader that go up faster than Bitcoin, I'd much rather own the stocks, because at least I know what they make.
Q: Is Snowflake (SNOW) a buy here at $155?
A: Absolutely. Another great cybersecurity database company. But if we drop to $155, we're going to stop out of the front month call spread and try to buy it back lower down.
Q: Do you think it's wise to sell the semiconductor stocks now and buy them back lower down, and pay the taxes?
A: Probably not. They are really the most volatile sector in the market. If you sell now, it's unlikely you'll be able to pick up the next bottom and get back in, and you have to pay the taxes. So it's probably better just to keep a core long-term position in the semis, especially Nvidia (NVDA); and if it drops 200 points, just buy more. That's what I'm doing. I'm keeping all of my Nvidia LEAPS. All my call spreads and short put positions are about to expire at max profit, and I even have a little bit of stock that I'm keeping. So I think Nvidia goes to $1,000 at one point and now, the forecast of $1,400 is out there. So as Nvidia goes, so goes the entire rest of the semiconductor industry.
Q: You're only 30% invested. Are you looking for a pullback, or are you just waiting for new opportunities to appear?
A: Yes and Yes. I'm waiting for a fantastic company to come up with conservative guidance, which these days means an immediate 20 to 25% sell-off. That is your entry point for these good companies. That's how we got into Palo Alto Networks (PANW), and that's how we got into Snowflake (SNOW). In an extremely overbought market, those are your only opportunities until the market generally sells off or until the domestic plays finally start to take off, and we got the first hints of that last week.
Q: What is your view on junior gold mining stocks?
A: They are a buy here, absolutely, but you get enough volatility in the majors that you don't need to bother with the minors—that's always been my view. Because minors go out of business, they close mines, they don't find gold. A lot of minors have stocks go up on the possibility of gold being found, whereas the majors like Barrick Gold (GOLD) and Newmont Mining (NEM) actually have the gold, and it's just an industrial process of mining it. You know the minors, the juniors, are extremely speculative and high-risk, and that's why most of them are listed in Canada. They can't get a US listing. So that's enough of a tell for me to stay away.
Q: I just realized I have the wrong expiration date on my Amazon (AMZN) spread. Should I exit immediately?
A: What I would do is exit what you have and then wait for another down day on Amazon, and then put it back on. That's the way to deal with that one. The answer to all mistakes is to exit immediately. That's an automatic rule at Morgan Stanley; if you don't do that, you get fired. Or come up with a new set of logic as to why you own this position, which has been done by more than a few traders, I imagine.
Q: Would you be willing to be a Boeing 737 Max passenger right now or ever?
A: Yes! If you don't fly Boeings (BA), your life is suddenly very narrow and limited because you’re stuck on the ground. Boeing is the biggest-selling airplane in the world, and most fleets are made of Boeings. However, I'm a pilot, so if anything goes wrong I can run up front and take control, or at least tell the pilot what to do. I also have 25 parachute jumps, if they're handing those out in first class. So remember, every airplane without engines is a glider and I can land a glider anywhere. The company has major problems to sort out until it becomes a “BUY”.
Q: I cannot get into the (TLT) trade to save my life. Is the (TLT) April $89-$92 vertical bull call debit spread pushing the risk limits?
A: Yes. I would walk away from the trade and wait for a better entry point rather than chase. The whole fixed-income space has flipped from the bid side to the offered side, meaning we've gone from net sellers to net buyers. All asset classes have done that; you're seeing that in gold, silver, and even uranium. All the REITs are having a fantastic week. All interest rate plays are now being bid, and it's hard to buy stuff when things are being bid.
Q: What's it like being 6’4” and living in Japan?
A: Well, I did knock myself out a couple of times, banging myself on the door. You get used to bowing a lot, but bowing is a part of the culture in Japan. If you're watching the new Hulu miniseries, Shogun, you would know that. Once I was working for Sony and I was late for work, so I was running up the stairs, and they had a steel lintel to their door, and I just ran bang into that and knocked myself out. The Sony people thought, “Oh my gosh, we just killed a foreigner!” So yes, it was hard. The only clothes I could buy in Japan for ten years were belts and ties. I had to fly to Hong Kong and had everything else custom-made in those days.
Q: What's your opinion of Masters of the Air?
A: I absolutely love it. It's heartbreaking to watch. I knew a lot of guys who were there, and I was one of the last people trained on how to fly a Boeing B-17 Flying Fortress. Anybody who watched Masters of the Air with me gets to watch it with someone who is one of the last living people who rated on a B-17 as a pilot.
Q: Are we in a liquidity bubble right now?
A: Yes, we are, and boy, I love every minute of it. But we're not in the year 2000 in a liquidity bubble, we're in 1995 just getting started. And the profits from AI are just getting started which is what's creating this endless liquidity that people are seeing now.
Q: What should I buy the dip in Tesla (TSLA)?
A: There's no downside target for Tesla right now. We just have to wait for the meltdown in demand to finish, and who knows where that is. But with BYD entering the market, Tesla is definitely going to get more competition in emerging markets—that's where BYD is selling the cars now. I also understand they're selling them in Australia.
Q: How much longer can tech stocks keep rising?
A: 5 to 10 more years, but we are way overdue for some kind of pullback.
Q: What are your thoughts on Apple's (APPL) weakness?
A: Apple has become that great backward-looking company. It could drop to $160 or even $140, then we’ll be taking a serious look at some call spreads and LEAPS. You just wait. In four months when they announce their next batch of new products suddenly, they’ll become an AI company and recover the $200 level in no time.
Q: Should I dive into Coinbase (COIN)?
A: Absolutely not on pain of death! It's made its move. You're better off buying Nvidia (NVDA) at that kind of inclination because at least you know what they make.
To watch a replay of this webinar with all the charts, bells, whistles, and classic rock music, just log in to www.madhedgefundtrader.com, go to MY ACCOUNT, select your subscription (GLOBAL TRADING DISPATCH, TECHNOLOGY LETTER, or Jacquie's Post), then WEBINARS, and all the webinars from the last 12 years are there in all their glory.
Good Luck and Stay Healthy,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Thank You NVIDIA!
Global Market Comments
March 7, 2024
Fiat Lux
Featured Trade:
(REMEMBERING THE OLD DAYS AT MORGAN STANLEY),
(MS), (GS), (GLD), (FCX), (FXE), (FXY), (CCJ)
Global Market Comments
January 12, 2024
Fiat Lux
Featured Trade:
(JANUARY 10 BIWEEKLY STRATEGY WEBINAR Q&A)
(SPY), (UNG), (NVDA), (UUP), (FXA), (GOOG), (GOOGL), (GLD), (GOLD), (WPM), (BYDDY), (F), (GM), (TSLA)
Below please find subscribers’ Q&A for the January 10 Mad Hedge Fund Trader Global Strategy Webinar, broadcast from Silicon Valley, CA.
Q: Would you sell Nvidia (NVDA) covered calls?
A: No, I would not. Nvidia could double at any time, or at least go up 50%. That is not a covered call writing situation, that is a long call situation, or at the very least a long call spread situation. Do not bet against Nvidia on pain of death—one of the seven-stop losses I had last year was a short in Nvidia.
Q: Do you recommend any brokers for executing my trades?
A: Yes, I recommend Tastytrade (click here) because I know the owner of the company, and they have the lightest code in the entire industry. It’s written to go very fast; that gives you a price advantage over other platforms. Plus they have very competitive margin rates and commissions. They only charge commissions on openings, not on closings.
Q: Why are you adding positions when the market timing index is so high? Aren't you supposed to be avoiding risk here?
A: The market timing index in the PowerPoint is for the S&P 500 only. If you look at the individual stocks that I've added in the last two days, they've all had 10-20% corrections. So you don't want to touch the main market up here. If anything it's a short, and I am looking at an S&P 500 (SPY) short, by the way, to hedge our other longs. Individual stocks have already corrected, and I've already started to add positions in the leaders for the year. Big tech is moving up; it’s leading the rally so that is what's happening there.
Q: Is it time to buy Tesla (TSLA)? It's a 200-day moving average.
A: I don't want to touch Tesla until the price war is over. Obviously, it's still continuing and Tesla itself is leading the charge on the price war, so I would hold off on that while the other tech stocks like Nvidia (NVDA) are so hot.
Q: I bought the UNG (United States Natural Gas Fund) LEAPS you put out over the Christmas vacation. They have since doubled in value in two weeks. Should I take profits?
A: Yes. Always take a profit in any option play when you get an immediate return because they have the tendency to give up those returns very quickly. They do call natural gas the “widow maker” in the commodities market because of the extreme volatility. So when you get a 50% move in natural gas or any commodity, take the money and run. Go to Las Vegas for a weekend, take your wife to Hawaii, pay off your kid's student loans, or buy yourself a new Rolex watch! Take the quick profit. You always get a chance to buy again on a dip, and there’s nothing like starting off 2024 with a double on a LEAP. For me, it's a matter of professional pride, not about the money. So way to go, John Thomas.
Q: Has crude oil reached the bottom?
A: $70 per barrel has been holding for a long time, but it's not acting like a bottom. I have to tell you, it's not getting any big dead cat bounces you see at real bottoms. So my guess is we have to move into the 60s, maybe all the way down to $62 before we get a turnaround. We need to see a turnaround in the global economy before we get a turnaround in the price of oil, and especially a turnaround in China, which is the world's largest importer of oil—and there is no sign of that happening anytime soon. So there is your answer; watch China.
Q: Will any Bitcoin ETFs be approved in the US?
A: Probably yes, but that also could mark a top of the market. Remember the insiders, the miners, have a huge trading advantage over us. Which is one reason why I'm avoiding this asset class this time around. I have a feeling we'll peak lower than the last high, and then we go back down into lows again. So avoid Bitcoin. There are too many other better things to buy now like Nvidia. During the last Bitcoin peak, all the techs were insanely expensive, and now they're not. We have better alternatives to crypto than we did two years ago.
Q: With China not improving, do you still like the US dollar to drop and the Australian dollar to increase?
A: I do expect the US dollar (UUP) to fall. I think it's peaked out and already dropped 10%, and I expect the Aussie (FXA) to rise. It's already risen by about 7%, but not because of China. It's happening because the US will cut interest rates anywhere from 3 to 6 times this year. And it could be either; it could be 3 quarter-point rate cuts, or it could be 6. I'm kind of leaning towards 6 myself. Which leads to the next question...
Q: Do you still like bonds?
A: Absolutely, yes. (TLT) is trading around $97 today. I'm looking for it to hit $110 to $120 by the end of the year, plus the interest payments. So the total return on (TLT) bonds will be between 18% and 28% on the year. Most people will take that.
Q: Do you still like uranium?
A: Yes. In fact, just last week, France announced it was building 14 new nuclear power plants. These are the big 1 to 4-megawatt old-style plants on top of their additional programs. So that creates more demand for yellow cake fuel and more demand for uranium, and it is getting a lot of push these days as a green fuel. Which it is—it is non-carbon producing. By the way, look at NuScale (SMR) if you're interested in uranium because they have the newest design that solves all the old nuclear problems. And the stock just had a big selloff because they lost a customer.
Q: Do you still like the banks?
A: Well, all four of the financial LEAPS that I recommended at the bottom of the banking crisis in March are all expiring this month at max profits anywhere over a hundred percent. So yes, I love the banks, but I don't especially like them right here, not on top of 30-35% gains. So wait for a pullback. These would be great candidates for any sell-off going into March; that's when we take another look at these. Oh, and if another bank goes bankrupt so much the better, that creates much better entry points.
Q: What's the best way to trade long-term dollar shorts (UUP)?
A: The answer is through futures contracts through banks, is the cheapest way to do it. You get a leverage of 10 to 100 times depending on the contract. You can do long or short. The dealing expenses are the cheapest, and that's how professionals trade for their own account, is through futures contracts through banks. It's not really an equity play. There are a number of short-dollar ETFs out there, but dealing with expenses wide, tracking errors is big so it is not an efficient way to do it. So, that would be my recommendation on long-term dollar shorts. The other way is to buy the Australian dollar, the (FXA).
Q: How are your stem cell knee injections working, John?
A: Fantastic. It completely cured my arthritis with my stem cell injections in my knees and lower back. And after I got shot in the hip in Ukraine, I had a Stem cell injection there too, and that worked. So the pain is completely gone from that bullet wound I got from the Russians in October. Yes, I'm one of the lucky people where everything stem cell-related seems to work, so I do all of them. Go ahead and try it, it’ll only cost you a thousand dollars or two per injection.
Q: When trading Google, do you use the (GOOGL) or just the (GOOG)?
A: One is the holding company, and one is the operating company for the search business. It's really six of one and half a dozen of the other. Both are liquid. The tracking between the two is almost nil, so I don't bother.
Q: Do you expect a recession or high unemployment this year?
A: No, you never get recessions or high unemployment in election years. And much of the spending that the administration obtained years ago has yet to be spent. You know, the lag time on government spending is in the years and it magically tends to happen the most in election years. Go figure. So after a slowdown in the first quarter, I'm expecting to speed up going into the rest of the year.
Q: How much can gold (GLD) go up this year?
A: At least 20 to 30%. Which means the Barrick Gold (GOLD) and Newmont Mining (NEM) could easily double this year. And what about silver? It should go up even more. Which means a Wheaton Precious Metals (WPM) leap at this level should go up 400%. Yes, you've heard it here first, 400% with fairly low risk. And if you want to know how to do that, just search for LEAPS on my website or become a concierge member and you can call me and I'll tell you how to do it. I'll guide your hand on how to do the trade.
Q: Is BYD in China a threat to Tesla (TSLA)?
A: No. BYD Motors (BYDDY) is taking over the low end of the market. Read the least profitable end of the market in China where they actually sell more cars than Tesla including hybrids, but Tesla still leads in EVs, and it's the question of would you rather own a Rolls Royce or a Volkswagen. That is the choice. In China, people buy EVs to show off their wealth, and a BYD car shows off your humility or at least your stinginess. So in some emerging markets where cost is the issue, BYD may take over the market, but they won't make very much money at it. And in other markets where quality is the issue like the US, like China, Tesla will dominate and you may end up with a situation like you have with Apple (APPL). Apple has only a 6% market share in the global cell phone business, but they account for 91% of global profits in the cell phone business, and Tesla could do the same. They could end up making all the money with a lesser market share ceding the bottom end or the money-losing end of the market to BYD, Ford (F), General Motors (GM), or anybody else down there.
Q: What do you think of a (TLT) February $90-$93 vertical bull call debit spread for February?
A: I like it. It’s a little close to the money—I usually try to go out $5 points on the TLT strikes when I'm setting these up. So that's a little aggressive, but you'll end up making more money. My bet is you could make 20% on this call spread right here. So many people are still trying to get into the bond market. They got left out, the move up was so fast since October. The institutional investors that dominate that market are not used to the idea of speed. So yes, I think we're looking at a sideways move before the next leg up.
To watch a replay of this webinar with all the charts, bells, whistles, and classic rock music, just log in to www.madhedgefundtrader.com, go to MY ACCOUNT, click on GLOBAL TRADING DISPATCH, TECHNOLOGY LETTER, or JACQUIE'S POST, then WEBINARS, and all the webinars from the last 12 years are there in all their glory.
Good Luck and Stay Healthy,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Global Market Comments
January 8, 2024
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or HERE IS THE TRADE OF THE YEAR),
(TLT), (TSLA), (BYDDY), (FCX), (TLT) (F), (GLD), (X)
During 2023, the market spent the entire year climbing the proverbial wall of worry. The question is how much we have to give back from deferred tax selling from the profitable 2023 trades before 2024 can start anew.
It could be weeks. It could be months.
Last year was the Year of the Magnificent Seven. So far this year, it is looking like the Year of the Magnificent 493, when everything else goes up.
Which brings me to the most important topic of the day.
The best trade out there this year may be the most boring one of all, the ten-year US Treasury notes, now yielding 4.10%.
Let’s say the Federal Reserve delivers on its promise to cut interest rates three times in 2024 from 5.5% taking the overnight rate down to 4.75%. The futures markets are giving us a 70% probability this will start in March, but I think that Jay Powell will want to torture us for a few extra months until June to make sure inflation is well and truly dead.
In that case, bond prices (TLT) should rise at least from $96 to $110 by the end of the year, taking the yield down from 4.10% today to 3.60% Add in the current 4.10% yield and that should give you a very low-risk total return for the year of 18% or better.
But what if the 2024 yearend liquidity surge discounts the 3 additional interest rate cuts to take place in 2025? That could add another $10 to this trade, taking the total return for the year up to 28%. Most investors will take an annual return of 28% all day long.
There is in fact a better way to do this.
Don’t buy the (TLT), which has high management and administration costs and wide dealing spreads that probably top 2% a year. Bypass all of that through buying the ten-year US Treasury note directly from your broker. That’s easy to do, has minimal commissions and the bonds trade like water.
After all, the US government has a unique talent for issuing bonds and there are already trillions of dollars’ worth outstanding. That shifts the 2% take of the (TLT) from Wall Street into your pocket.
It gets better.
What are the chances that another pandemic will occur in the next decade? I’d say about 50/50. After all, with a global population of 8 billion and rising, international travel and trade reaccelerating, pandemic risks are rising once again.
If you don’t believe me, just try and get an Airbnb (ABNB) in Florence, Italy, the epicenter of the last breakout in Europe. There are hardly any Italians left in Florence because they can’t compete with tourists on housing costs and can’t afford to live there anymore. So it is now more important to hedge your portfolio from pandemic risks.
It just so happens that there is a way you can do this: buy ten-year US Treasury notes. What happened with the last pandemic (see chart below)? The (TLT) doubled in value from $80 to $165, taking yields from 5.0% all the way down to 0.32%. Back then, investors were worried about return OF capital, not return ON capital, for which the US government has a perfect record.
It turns out that bonds will not only hedge all of your stocks from pandemic risks, but ALL INVESTMENTS OF EVERY KIND, including commodities, the dollar, precious metals, energy, and even your own home.
And with a 4.1% yield, bonds offer an insurance policy that pays you to own it.
Ten-year US Treasury notes are also the perfect position to have during times of inflation. Falling inflation enables more Fed rate cuts, which automatically increase the value of the notes….by a lot.
How do I know inflation is falling? Because I went bowling last week in Incline Village, Nevada. The establishment is under new ownership. They gutted the place, fired all the staff, and remodeled it in a cool sixties motif. Then they hired two people to run the place.
All payments have to take place online, even for video games, where you also now have to reserve your lanes. As a result, instead of casually walking in to take a lane, you have to book them two weeks in advance. The place is always full.
Cut costs, and soaring revenues, you want to own this bowling alley, as you do for the Magnificent 493. This is going on across the entire US economy, like it or not. This is highly deflationary.
Hedge funds are piling into the ten-year US Treasury note trade in record numbers because you only see a low-risk, high-return setup like this once every decade or so.
My bet is that there are maybe four points of downside risk in this trade against a potential gain of 28 points. That’s a risk/reward ratio of 7:1.
I Like it!
I just thought you’d like to know.
So far in January, we are up 0% since I have done no trades and have a 100% cash position. My 2024 year-to-date performance is also at 0%. The S&P 500 (SPY) is down -2.51% so far in 2024. My trailing one-year return reached +73.94% versus +34.46% for the S&P 500.
My 15-year total return is +676.63% and my average annualized return is +54.05%.
Some 63 of my 70 trades last year were profitable in 2023.
Did We Just See Another 2009 Bottom? If so, we could be looking at rising stocks for another 13 years, making my own Dow 120,000 forecast look conservative. Certainly, the fundamentals are there, as long as we don’t get another pandemic or 100 other things go wrong.
The Nonfarm Payroll Report Sizzles, at 216,000, better than expected. The headline Unemployment Rate maintained a near 50-year low at 3.7%. December’s payroll gains were driven by three categories: Education/health, leisure/hospitality, and government. The overall level of leisure/hospitality jobs remains below the pre-pandemic high, showing that some parts of the job market are still normalizing after the COVID-19 shock.
JOLTS Falls in December, nudging lower to 8.79 million, about in line with the Dow Jones estimate for 8.8 million and the lowest level since March 2021. The ratio of job openings to available workers fell to 1.4 to 1, still elevated but down sharply from the 2 to 1 level that had been prevalent in 2022.
Weekly Jobless Claims Dropped to 202,000, a two-month low. pointing to underlying labor market strength even as demand for workers is easing. With the report from the Labor Department on Thursday also showing the number of people on unemployment rolls remained elevated towards the end of December, financial markets continued to anticipate that the Federal Reserve would start cutting interest rates in March.
Tesla (TSLA) is Still the World’s Largest EV Maker. BYD (BYDDY) delivered 1.57 million EVs in 2023 compared to 1.8 million for Tesla (TSLA). BYD, which I visited in China 12 years ago when Warren Buffet bought a stake in it, is building factories in Europe, Latin America, and across Asia as part of a broader effort to expand sales across these continents, and its cars and buses are popping up in cities all over the world. They could never meet quality standards in the US. They offer a cheaper, lower margin, lesser quality product, but that is all that is needed in many emerging markets.
Copper (FCX) to Rise 75% in 2024, say industry analysts. Copper is headed for a price spurt over the next two years, as mining supply disruptions coincide with higher demand for the metal. Rising demand driven by the green energy transition and a decline in the U.S. dollar strength come the second half of 2024 will fuel support for copper prices. I’m going to keep telling you this until you buy more copper.
The Auto Business is Booming, at 15.6 million units delivered in 2023, a four-year high. Ford (F) saw a 7.6% increase in sales. Also a sign of a strong economy. The company’s F series pickup trucks remain the best-selling vehicle in America.
Pending Home Sales were Unchanged in November, despite record 30-year fixed-rate mortgages at 8.0%. The underlying real estate is far stronger than people realize. Mortgage rates are now solidly in the mid-6% range, but the supply of homes for sale is still very low. REMAX CEO Nick Baily says the market is short 4.5 to 5 million homes which will take a decade to build.
Gold (GLD) to Hit New High in 2024, with fundamentals of a dovish pivot in U.S. interest rates, continued geopolitical risk, and central bank buying is expected to support the market after a volatile 2023. Spot gold posted a 13% annual rise in 2023, its best year since 2020, trading around $2,060 per ounce.
Nippon Steel Buys US Steel (X) for $55 a Share, or $14.9 billion. That is double the next competing offer from Cleveland Cliffs (CLF). In clearly what is a trophy purchase, the buyer will honor all existing union deals. That certainly puts my December 2025 $20-$23 LEAPS issued last June at its maximum profit of 132%. Sell now if you still have it. There is only downside risk from here.
Home Prices Hit New All-Time Highs, according to S&P Case Shiller, up 0.6% in October and 4.8% YOY. That is nine consecutive months of gains. A 30-year fixed rate mortgage down to 6.7% is a help. Detroit had the biggest increase at 8.1%, followed by San Diego with 7.2% and New York with 7.1%. Portland, Oregon, was the only one of the 20 cities where prices fell year over year. A decade-long bull market has begun.
Core PCE Dives to a 3.2% YOY Rate. Headline Personal Consumption Expectation fell to only 2.6%, closing in on the Fed’s 2.0% target. It’s no longer a question of if the Fed will cut interest rates, but how much and how fast.
My Ten-Year View
When we come out the other side of the recession, we will be perfectly poised to launch into my new American Golden Age or the next Roaring Twenties. The economy decarbonizing and technology hyper accelerating, creating enormous investment opportunities. The Dow Average will rise by 800% to 240,000 or more in the coming decade. The new America will be far more efficient and profitable than the old.
Dow 240,000 here we come!
On Monday, January 8, at 8:30 AM EST, the Consumer Inflation Expectations are out, one of the Fed’s favorite inflation reads.
On Tuesday, January 9 at 8:30 AM, the NFIB Business Optimism Index will be released.
On Wednesday, January 10 at 2:00 PM, the MBA Mortgage Applications will be published.
On Thursday, January 11 at 8:30 AM the Weekly Jobless Claims are announced. We also get the Consumer Price Index for December.
On Friday, January 12 at 2:30 PM, the December Producer Price Index is published. At 2:00 PM the Baker Hughes Rig Count is printed.
As for me, when I drove up to visit my pharmacist in Incline Village, Nevada, I warned him in advance that I had a question he never had heard before: How good is 80-year-old morphine?
He stood back and eyed me suspiciously. Then I explained in detail.
Two years ago, I led an expedition to the South Pacific Solomon Island of Guadalcanal for the US Marine Corps Historical Division (click here for the link). My mission was to recover physical remains and dog tags from the missing in action there from the epic 1942 battle.
Between 1942 and 1944, nearly four hundred Marines vanished in the jungles, seas, and skies of Guadalcanal. They were the victims of enemy ambushes and friendly fire, hard fighting, malaria, dysentery, and poor planning.
They were buried in field graves, in cemeteries as unknowns, if not at all left out in the open where they fell. They were classified as “missing,” “not recovered,” and “presumed dead.”
I managed to accomplish this by hiring an army of kids who knew where the most productive battlefields were, offering a reward of $10 a dog tag, a king's ransom in one of the poorest countries in the world. I recovered about 30 rusted, barely legible oval steel tags.
They also brought me unexploded Japanese hand grenades (please don’t drop), live mortar shells, lots of US 50 caliber and Japanese 7.7 mm Arisaka ammo, and the odd human jawbone, nationality undetermined.
I also chased down a lot of rumors.
There was said to be a fully intact Japanese zero fighter in flying condition hidden in a container at the port for sale to the highest bidder. No luck there.
There was also a just discovered intact B-17 Flying Fortress bomber that crash-landed on a mountain peak with a crew of 11. But that required a four-hour mosquito-infested jungle climb and I figured it wasn’t worth the malaria.
Then, one kid said he knew the location of a Japanese hospital. He led me down a steep, crumbling coral ravine, up a canyon, and into a dark cave. And there it was, a Japanese field hospital untouched since the day it was abandoned in 1943.
The skeletons of Japanese soldiers in decayed but full uniform lay in cots where they died. There was a pile of skeletons in the back of the cave. Rusted bottles of Japanese drugs were strewn about, and yellowed glass sachets of morphine were scattered everywhere. I slowly backed out, fearing a cave-in.
It was creepy.
I sent my finds to the Marine Corps at Quantico, Virginia, who traced and returned them to the families. Often the survivors were the children, or even grandchildren of the MIA’s. What came back were stories of pain and loss that had finally reached closure after eight decades.
Wandering about the island, I often ran into Japanese groups with the same goals as mine. My Japanese is still fluent enough to carry on a decent friendly conversation with the grandchildren of their veterans. It turned out I knew far more about their loved ones than they did. After all, it was our side that wrote the history. They were very grateful.
How many MIAs were they looking for? 30,000! Every year they found hundreds of skeletons and cremated them in a ceremony, one of which I was invited to. The ashes were returned to giant bronze urns at Yasakuni Ginja in Tokyo, the final resting place of hundreds of thousands of their own.
My pharmacist friend thought the morphine I discovered had lost half of its potency. Would he take it himself? No way!
As for me, I was a lucky one. My dad made it back from Guadalcanal, although the malaria and post-traumatic stress bothered him for years. And you never wanted to get in a fight with him….ever.
I can work here and make money in the stock market all day long. But my efforts on Guadalcanal were infinitely more rewarding. I’ll return as soon as I get the chance, now that I know where to look.
True MIA’s, the Ultimate Sacrifice
My Collection of Dog Tags and Morphine
My Army of Scavengers
Dad on Guadalcanal (lower right)
Good Luck and Good Trading,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Global Market Comments
January 3, 2024
Fiat Lux
2024 Annual Asset Class Review
A Global Vision
FOR PAID SUBSCRIBERS ONLY
Featured Trades:
(SPX), (QQQ), (IWM) (AAPL), (XLF), (BAC) (JPM), (BAC), (C), (MS), (GS),
(X), (CAT), (DE),(TLT), (TBT), (JNK), (PHB), (HYG), (MUB), (LQD), (FXE), (EUO),
(FXC), (FXA), (YCS), (FXY), (CYB), (DIG), (RIG), (USO), (DUG), (UNG), (USO),
(XLE), (AMLP),(GLD), (DGP), (SLV), (PPTL), (PALL), (ITB), (LEN), (KBH), (PHM)