Global Market Comments
May 7, 2024
Fiat Lux
Featured Trade:
(A NOTE ON OPTIONS CALLED AWAY),
(GLD), (SLV), (NVDA), (AAPL), (MSFT)
Tag Archive for: (GLD)
Occasionally, I get a call from Concierge members asking what to do when their short positions options were assigned or called away. The answer was very simple: fall down on your knees and thank your lucky stars. You have just made the maximum possible profit for your position instantly.
We have the good fortune to have FOUR spreads that are deep in the money going into the May 17 option expiration in 8 days. They include:
Risk On
(GLD) 5/$200-$205 call spread 10.00%
(SLV) 5/$21-$23 call spread 10.00%
Risk Off
(NVDA) 5/$980-$990 put spread -10.00%
(MSFT) 5/$430-$440 put spread -10.00%
Total Net Position 0.00%
Total Aggregate Position 40.00%
In the run-up to every options expiration, which is the third Friday of every month, there is a possibility that any short options positions you have may get assigned or called away.
Most of you have short-option positions, although you may not realize it. For when you buy an in-the-money vertical option debit 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 in-the-money SPDR Gold Shares SPDR (GLD) May $200-$205 vertical BULL CALL debit spread, which you bought at $4.55 or best.
For what the broker had done in effect is allow you to get out of your call spread position at the maximum profit point 8 trading days before the May 17 expiration date. In other words, what you bought for $4.55 on April 30 is now $5.00!
All have to do is call your broker and instruct them to exercise your long position in your (GLD) May 200 calls to close out your short position in the (GLD) May $205 calls.
This is a perfectly hedged position, with both options having the same expiration date, and the same number of contracts in the same stock, so there is no risk. The name, number of shares, and number of contracts are all identical, so you have no net exposure at all.
Calls are a right to buy shares at a fixed price before a fixed date, and one option contract is exercisable into 100 shares.
To say it another way, you bought the (GLD) at $200 and sold it at $205, paid $4.55 for the right to do so for 13 days, so your profit is $0.45 cents, or ($0.45 X 100 shares X 25 contracts) = $1,125. Not bad for a 13-day defined limited-risk play.
Sounds like a good trade to me.
Callaways most often happen in the run-up to a dividend payout. If you can collect a full monthly or quarterly dividend the day before the stock registration dates by calling away someone’s short option position, why not? If fact, a whole industry of this kind of strategies has arisen in recent years in response to the enormous growth of the options market.
(GLD) and most tech stocks don’t pay dividends so callaways are rare.
Weird stuff like this happens in the run-up to options expirations like we have coming.
A call owner may need to buy a long (GLD) position after the close, and exercising his long May 205 call 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 calls 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 make mistakes.
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. They’ll tell you to take delivery of your long stock and then post an additional margin to cover the risk.
Or they will tell you to sell your remaining long option position at whatever price you can get, wiping out most, if not all of your great profit. This generates the maximum commission for your broker.
Either that, or you can just sell your shares on the following Monday and take on a ton of risk over the weekend. This generates a oodles of commission for the brokers but impoverishes you.
There may not even be an evil motive behind the bad advice. Brokers are not investing a lot in training staff these days. It doesn’t pay. In fact, I think I’m the last one they did train 50 years ago.
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 legal ways to steal money 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!
Below please find subscribers’ Q&A for the May 1 Mad Hedge Fund Trader Global Strategy Webinar, broadcast from Silicon Valley.
Q: I see the Bank of Japan bought $35 billion in the foreign exchange on the market. What's going on?
A: First of all, they didn’t buy dollars, they sold dollars and bought yen. Well, It's really very easy. Interest rates are the primary driver of foreign exchange rates. Japan has had the lowest interest rates in the world for 40 years, and the US has had the highest for the last two years. So it’s an easy hedge fund trade—short the Yen, and use the proceeds there to buy US dollar assets—you pick up an automatic spread of 4.7%. You then multiply that 10 times, that becomes 47%, and goes into the trillions of dollars in size. And of course, every hedge fund in the world is doing this trade. So that is a massive amount of Yen selling. They sold some of of their massive dollar reserves in an attempt to head off the collapse of the Japanese yen which hit some Y160, a 40-year low. So that's what's going on there.
Q: What's your updated view on TLT, and what's your yearend view?
A: I think we kind of chop sideways as long as there's indecision on interest rates, and then maybe 3 points of downside max; and then after that, we start another twenty-point rally. So we're all waiting for the bottom of this move on the (TLT), and then we're going to go pedal to the metal, so that's an easy one.
Q: Would you stay away from DJT?
A: Absolutely. This is the most manipulated stock in the market and the largest short interest in the market. More people would short it if they could get the stock, which now costs 550% a year to borrow and has a SPAC set up. I never touch SPACs because 95% of those turn out to be failures. So go express your support for the former president in other ways would be my advice.
Q: My son-in-law works in AI and says Apple (APPL) will be a better player than Tesla (TSLA).
A: No it won't. First of all, Tesla is 15 years ahead of everybody on AI; they actually started a major AI effort in 2014, and they have the data of all the miles driven by 6 million cars all over the world, and nobody can replicate it; so that gives them a huge head start. Tesla also has Elon Musk running it, who would beat the pants on aggressiveness and competitiveness off Tim Cook all day long, so I would vote for Elon Musk on this one. But the next big AI surprise is probably going to come from Apple. That's going to happen in June when they have their developer's conference. I've already had several kids and relatives invited to attend that conference, so I’ll have a really good read on what's happening.
Q: Where do you see inflation for the rest of the year?
A: Tiny up to sideways and then down more—we may hit the 2% target by the end of the year. The key here is you have to let AI kick in and start generating profits instead of promises, as employees start being replaced with AI.
Q: Would you return to Havana?
A: I would. I had a great time, and now I have the knowledge of experience of having gone there. I was actually looking at Airbnb condos on the beach in Havana which you can get for $70 a month. You can't beat the prices in Cuba; they're like a 10th of anywhere in the world. You can buy a two-bedroom condo in Havana for $30,000. Compare that to New York—it would probably cost you $3 million, and would certainly cost you that much in San Francisco.
Q: What is a substantial dip?
A: I always get this question. It's different for each stock. It could be 5% for a boring one like Apple (AAPL), or 20% for a really wild one like Nvidia (NVDA). You can see both of them are acting like that right now, so it's different according to the volatility of the individual stock. There's no fixed answer.
Q: Are there expatriates living in Cuba?
A: There are, incredibly; some of them are working in the tourist industry, some in the computer industry. Would you consider it safe? Probably, yes, as long as you don't engage in politics. That would be a really big mistake. It's even dangerous for Cubans to have a political opinion. Best to just shut up and do what the government says; that's what totalitarian regimes are like. I've been in a lot of them, and by the way, that may be what it's like in the United States in another year, so we'll have to wait and see. I felt relatively safe in Cuba. I wasn't followed by the secret police, which I always used to be. Maybe I'm just not as valuable as I used to be!
Q: Do you have a ballpark timeline for Freeport-McMoRan (FCX) to reach under?
A: Time is always difficult to call because there are just so many variables and black swans out there, but I easily could see a spike in (FCX) going up to $100 sometime in 2025 when the global economy starts to recover; and if you're doing LEAPs on any depth here, I would go out to end of 2025 just to be safe. If Chinese ever starts new home contraction again that becomes a chip shot.
Q: The Feds are moving marijuana stocks from a schedule 3 to a schedule 1. Are there any plays here?
A: Well, I've never been a big fan of pot stocks. The barriers to entry are very low from anybody to come in as a competitor. At the end of the day, it's a brand play, much like Coca-Cola (KO), and they still have huge competition from the black market, because the black market doesn't have to pay the 30-40% in sales taxes. And it's a fairly poorly managed business—guess why? Everybody is stoned all the time. So I'm going pass on marijuana, there's too many better fish to fry. Leave it to the potheads.
Q: Why has Nvidia (NVDA) gone flat?
A: Trees don't grow to the sky. Nvidia was up 140% in 6 months, and you have to give time for the earnings to catch up with the stock. The earnings are growing at 40% a year, so they'll catch up pretty quickly. I'm thinking we could have a shot at $1,400 in Nvidia by the end of the year.
Q: McDonald's (MCD) just had a big sell-off on weak earnings, is it a buy-down here?
A: No. McDonald's has the highest exposure to sub $50,000/year earners of any of the fast food companies; they're the ones most affected by McDonald's high prices. Their margins are being crushed, and automation can't happen fast enough. And then there's the Ozempic effect: weight loss drugs are killing appetites, and eventually we'll have a hundred million people on weight loss drugs. And my bet is a lot of those are McDonald's customers, so avoid Mickey D.
Q: What about the silver trade?
A: Silver is actually starting to outperform gold on the upside as it has historically done, so you might go along with a pair of trades owning both gold (GLD) and silver (SLV). Gold just sold off at 5% and silver sold off at 10%, so maybe the old volatility of silver is returning. I'd look to buy Wheaton Precious Metals (WPM) LEAPs down here.
Q: Do you think Starbucks (SBUX) is in the same boat as McDonald's (MCD)?
A: After the similar earnings sell off, I'd say yes. Starbucks doesn't do well in recessions or economic slowdowns. It’s an easy product to economize on. And they don't do well with the sub $50,000/year crowd either. Plus, I think Starbucks in particular is being weighed down by weak China sales.
Q: What's your outlook on energy?
A: Buy the dip. We're all looking for economic recoveries worldwide next year—oil does really well in that situation. We just have to work off the current overbought situation that was given to us by the Gaza War.
Q: Why are the miners not keeping up with gold and silver?
A: The answer is inflation. Inflation in the mining industry is double or triple what it is in a regular economy because you have so many companies chasing so few production resources. For example, those giant tires that go on these huge Caterpillar trucks—those are $200,000 a tire, and there's a two-year waiting list to get one. So as more people try to mine, the cost of mining goes up. That feeds into the earnings of the mining companies. Also, miners are subject to the whims of the stock market, which the metals aren't. So that's why I've been recommending the metals first and then miners second.
Q: With the new Amazon (AMZN) earnings, will they someday pay out a dividend?
A: They just delivered their first substantial profit in the company's history that I'm sure is by design, and if they're willing to increase benefits to shareholders, can dividends and stock buybacks be far behind? If that happens, you can expect Amazon stock to double from here. So absolutely, yes.
Q: Is housing about to crash because of high-interest rates?
A: Absolutely not. It's about to take off like a rocket as interest rates fall. You'll never get a crash in housing as long as we have a shortage of 10 million houses. Housing shortages don't get crashes. We had a housing oversupply in 2007 and 2008, and that's what caused that housing crash; but half of the home builders went under then and they never came back, creating the current shortage. In the meantime, people are using 5/1 ARM loans to get lower interest rates and praying that rates fall by the time the first adjustment comes along. Then they'll move into much lower 30-year rate mortgages right around the 5% level. That is the plan of a lot of home buyers these days.
Q: How are technology companies going to cope with the margin squeeze?
A: They will fire people. They have fired 300,000 people in the Bay Area in the last 2 years, and as a result, the stocks have skyrocketed. The prime example is META (META), which fired 20% of the staff and saw the stock double. Once that happened, everybody else jumped on the bandwagon and started laying off people like crazy. It was actually Elon Musk that started the whole cost-cutting trend in Silicon Valley, so you have to thank him for that.
To watch a replay of this webinar with all the charts, bells, whistles, and classic rock music, just log in to www.madhedgefundtrader.com, go to MY ACCOUNT, select your subscription (GLOBAL TRADING DISPATCH, TECHNOLOGY LETTER, or Jacquie's Post), then click on WEBINARS, and all the webinars from the last 12 years are there in all their glory
Good Luck and Stay Healthy,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Global Market Comments
April 22, 2024
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or FACING HARSH REALITY)
($VIX), (FCX), (XOM), (WPM), (GLD), (TLT), (FCX), (NVDA), (JNK), (META), (MSFT), (TSLA), (HYG), (NFLX), (OXY), (XOM), (USO)
Global Market Comments
April 18, 2024
Fiat Lux
Featured Trade:
(APRIL 16 BIWEEKLY STRATEGY WEBINAR Q&A),
(GLD), (GLD), (GE), (GM), (NVDA), (TSLA), (ARKK), (MS), (GS)
Below please find subscribers’ Q&A for the April 16 Mad Hedge Fund Trader Global Strategy Webinar, broadcast from Key West, Florida.
Q: If Elon Musk died, would you sell Tesla (TSLA)?
A: Yes. A lot of Tesla’s success is because Elon Musk alone can push people to do the impossible, only because he’s the largest shareholder and therefore is in complete control of all of the dozen or so Tesla major operations. Certainly, nobody else would be crazy enough to invest in so many businesses at once, like SpaceX, like the storage business, SolarCity, Nueralink, and AI, and get away with it. But then, very few people are willing to work 24 hours/day, 7 days/week either. Musk is also the world’s greatest risk-taker with his own money. So Elon Musk is a large part of the Tesla added value; if you take him away, it just becomes another General Electric (GE) (or worse, General Motors (GM)).
Q: Are geopolitical risks in the Middle East a threat to the stock market?
A: No. Several people commented in my Monday morning letter that I didn’t even mention the Middle East, and that’s because it has no market impact beyond a day. Nobody could care less. All we can do is feel sorry for all the civilians who are dying on both sides. In my lifetime, every geopolitical crisis has been a “BUY” in the stock markets, and in all risk assets. In the old days, it used to take them a month or two to figure it out, now it takes a few hours, so you just get one down day, everybody buys into that low, and markets continue up. Far more impact on the market these days is the inflation rate because that's what the Fed is looking at and they’re the ones who have their hands on the interest rate throttle. And even if inflation does stay where it is now, they’ll still have to eventually cut rates because otherwise the half of the economy that is dependent on interest rates will be destroyed. The other technology half doesn’t really care because they’re all positive cash flow, so they benefit from high interest rates.
Q: How do you select your spread prices?
A: I look at the bid-offer spread in the market, I send you a screenshot of that bid-offer spread, and then I move 5 or 10 cents off the bid side of the market. Normally, if you tighten the spread at the bid side, you will get filled on that order, and if you don’t, just leave it in there, and the second the market trends down you’ll get filled, or if you leave it the next day you’ll get filled. Remember that the second I put out a trade alert, algorithms take it up to the offered side of the market, but algorithms have to go 100% cash by the end of the day and dump all their positions, so if you leave an order in until the end of the day, often you get filled unless there’s been a major market move.
Q: Will gold continue higher?
A: Yes it will. For a start, it isn’t selling off with other risk assets in the recent correction. (GLD) only dropped $10 from an intra-day high of $225, and even though the Fed may not be cutting interest rates today, their next move will be a cut, even if that's in 3, 6, or 9 months. So, people are buying gold for that reason. Also, historically, it’s cheap relative to other asset classes such as stocks and bonds. On top of that, you have China and Russia buying record amounts of gold to bypass the Western financial system. They’ve done that for many years and it’s finally created a big short position on the market. Oh, and they’re not making gold anymore—the amount of gold being mined has been declining now a decade as the costs of mining gold rise.
Q: Why is inflation staying so high?
A: One of the reasons is that there were huge gaps in the supply/demand system due to COVID-19 still being addressed three years after the fact. That created price spikes and all kinds of unexpected consequences. Also, a lot of the government stimulus, or “COVID money,” hasn’t been spent yet; it’s still out there at the contract level and is still being committed. Even if you signed a contract two years ago, it can take two years to get a major construction project started with the planning, design, etc. Rule of thumb in dealing with all governments: everything happens slowly. All over the country, there are construction projects starting using the Federal stimulus money, so that also creates inflation when you have $3 trillion in new spending. That’s what your local traffic jam is all about. Here in Key West, they are rebuilding the Atlantic side waterfront, and that has to cost billions of dollars, far beyond what the locals could afford. But the major component of inflation, which is labor, is flatlining now. We are seeing a lot of one-time-only increases in pay going through, and then there won’t be any after that for a long time. Rising rents are a big problem now.
Q: Can you explain the market timing index?
A: The profit predictor updates itself every time we do a mouse click for all the different algorithms to kick in and generate a new number, and every piece of research we send out has an updated market timing index in it. So, if you get all of our services with Mad Hedge Hot Tips, the Global Trading Dispatch, the Trade Alerts, etc., we’re sending out at least ten updates a day for the market timing index. Suffice it to say, the more services you buy, the more updates you get on the market timing index.
Q: Will (USO) oil sell off on peace in the Middle East?
A: Well actually we’re seeing that today—we’re getting a selloff on the highs after Israel did not launch a tit-for-tat retaliation on the missile attacks from Iran. On the day they do, you will see prices go back up again. But the goal here is to dial back responses. The rule of thumb in defense for the US is: when somebody attacks you, you attack back with twice the force. That way you discourage any further retaliation from the enemy. That certainly is how our nuclear response is designed, and it’s pretty successful because only the US has the ability to execute unlimited increases in military response.
Q: Is Starlink a Tesla company?
A: Starlink is owned by SpaceX, which is an independent company owned by Elon Musk and several venture capitalists, but of course, Elon Musk is the largest shareholder. Space X is worth about $180 billion these days with several large government contracts. It’s why Elon Musk became a US citizen (foreigners are not allowed to launch our top-secret military satellites).
Q: How far-in-the-money do you go in your spread purchases?
A: It’s totally driven by the volatility of the individual stock. If you have a boring stock, you only go 5% in the money in order to earn enough money to make it worth it. If you have high volatility stocks like Tesla (TSLA) or Nvidia (NVDA) which both have options implied in the mid-40%s, you can get away with 20% in-the-money and still make a decent profit one month out. As you can tell, I tend to gravitate towards the highest volatility stocks in the market that are liquid.
Q: Will the 10% staff cut at Tesla hurt the stock?
A: Staff cuts mean bigger profits because you’re reducing the overhead by 10%. Staff cuts in almost every other technology company have been positive for the stocks for this reason. So I would say no, and Tesla has bigger problems than staff cuts like the nuclear winter going on in EV sales.
Q: Why won’t Nvidia (NVDA) go down?
A: Well, it’s because it has such a lead against all competitors. And, you know, in any other industry you’d just go hire the staff or buy the division in order to get it to hold in the market—you can’t do that with Nvidia because they’re all rich and have stock options priced at the $1 or $2 level to lock them in for life. The CEO Jensen Huang is now the sixth richest man in the world.
Q: Why have bonds failed to rally with the rest of the market?
A: Because the Fed isn’t cutting interest rates any time soon and bonds are dependent on the level of interest rates, which means they will rise once the Fed does cut.
Q: Should I buy Goldman Sachs Group (GS) on their great earnings report?
A: Yes, trading volumes look good for the rest of the year and that is how brokerage houses make their crust of bread. Buy Morgan Stanley (MS) too. It’s a better quality company with less dependence on trading revenues and more on fee income. After all, they hired me!
Q: Should I buy Cathie Woods’s Ark Innovation ETF (ARKK) fund here?
A: Absolutely not. Highly leveraged funds and the most leveraged stocks are the last thing you buy on market tops. That is a market bottom play, and the last real market bottom we had was in October.
To watch a replay of this webinar with all the charts, bells, whistles, and classic rock music, just log in to www.madhedgefundtrader.com, go to MY ACCOUNT, select your subscription (GLOBAL TRADING DISPATCH, TECHNOLOGY LETTER, or Jacquie's Post), then click on WEBINARS, and all the webinars from the last 12 years are there in all their glory
Good Luck and Stay Healthy,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
2024 Key West Thinking of the Next Trade Alert
Global Market Comments
April 17, 2024
Fiat Lux
Featured Trade:
(THE LAZY MAN’S GUIDE TO TRADING),
(ROM), (UXI), (BIB), (UYG),
(THE NEXT THING FOR THE FED TO BUY IS GOLD)
(GLD), (GOLD), (GDX), (NEM)
Global Market Comments
April 15, 2024
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or VOLATILITY IS BACK!)
(REMEMBERING TRINITY)
(TLT), (TSLA), (NVDA), (FCX),
(XOM), (WPM), (GLD), (FXI), (FXY), (USO), (GOOGL)
Those who expected markets to go up forever were given a rude awakening last week with a swift slap across the face with a wet kipper. The Volatility Index ($VIX) soared from $12 to $19 and higher highs will unfold this week. The Mad Hedge Market Timing Index dropped below 50 for the first time since October and lower lows beckon.
For those of us who earn our crust of bread off of volatility, its return is like a gift from the gods. The long desert has been crossed and the fresh mountain springs beckon just ahead.
What prompted this ($VIX) melt-up is that many traders and investors are finally throwing in the towel on ANY interest rate cuts in 2024. In a mere four months, we have gone from an expectation of six rate cuts to zero. Not helping matters is that the “May” thing, as in “Sell and Go away” is only two weeks away. After an overcooked Q1, we may be headed into a summer that is the next great Ice Age.
At least that is the assumption we have to make from a trading point of view for the short-term. While this represents a worst-case scenario, I don’t expect bonds to drop much from here, maybe a couple of points, as future interest rate cuts are a certainty. All that has happened is that our rate cuts have been moved out from two months to five months. The next move in interest rates is still down.
At some point, there will be a great bond trade out there, but definitely, not yet!
Watching the market action last week, it was especially impressive how well NVIDIA (NVDA) held up.
NVIDIA is so far ahead of the competition that no one will catch up for years. What the (NVDA) bears don’t get is that the company has a moat so wide it is impossible to cross. Their enormous lead in software is the result of crucial platform decisions made 20 years ago. The key staff are all locked up with ultra-cheap equity options with strike prices around $1-$2.
Virtually everyone has now raised their upside targets for the stock over $1,000/share and there are $1,400 figures out there. That’s because, with a price-earnings multiple of only 30X, it is still the cheapest Big Tech stock in the market. By comparison, its biggest customer, (META) is at 34X, AI Leader (MSFT) is at 38X, and (AMZN) is at a stratospheric 63X.
Efforts by Alphabet (GOOGL) to break into the AI chip business are feeble at best. This is a business that has a very long learning curve with very high capital costs.
Every 15% correction in (NVDA) over the last two years has been a strong “BUY”. It really owns the AI design business. It’s looking at $250-$500 BILLION in sales growth over the next several years.
Santa Clara-based NVIDIA designs and manufactures high-end, top-performing graphics cards or GPUs. There is probably one in your PC. They are essential in the artificial intelligence, automobile, PC, supercomputing, cybersecurity, and gaming industries. As a design company only company NVIDIA represents pure intellectual added value. Its chips are manufactured in Taiwan.
They are also crucial for national defense. The Biden administration recently banned NVIDIA from exporting high-end chips and their manufacturing equipment to China, which they were using to build sophisticated weapons to use against us. Last week China banned NVIDIA chips in a typical tit-for-tat gesture.
We have had a spectacular week here at Mad Hedge Fund Trader.
So far in April, we are up +5.20%. My 2024 year-to-date performance is at +14.47%. The S&P 500 (SPY) is up +7.22% so far in 2024. My trailing one-year return reached +46.01% versus +36.12% for the S&P 500.
That brings my 16-year total return to +691.20%. My average annualized return has recovered to +51.84%.
Some 63 of my 70 round trips were profitable in 2023. Some 20 of 26 trades have been profitable so far in 2024.
We got a rare dip last week, which I used to rush into four new May positions, double positions in (NVDA) and additional ones in (FCX) and (TLT). I will let my existing April longs expire at a max profit in four days on April 19 in Freeport McMoRan (FCX), Occidental Petroleum (OXY), ExxonMobile (XOM), Wheaton Precious Metals (WPM), Tesla (TSLA), and Gold (GLD).
I am in a rare 100% invested position with no cash given the massive upside breakout in commodity, precious metals, and energy we have witnessed. This is going to be a great month.
Consumer Price Index Comes in Hot at 0.4% for March, the same rate as in February according to the Bureau of Labor Statistics, knocking stocks down 500 points. Housing and transportation were the big badges. Hopes of a June interest rate cut have been dashed. September is now the earliest. Avoid (TLT).
Producer Price Index Comes in Cold at 0.2% for March. On a 12-month basis, the PPI rose 2.1%, the biggest gain since April 2023, indicating pipeline pressures that could keep inflation elevated. Stocks rallied 200 points.
US Dollar Rockets on Hot CPI, hitting a new 34-year high against the Japanese yen at ¥151.55. Bank of Japan's intervention to support the yen is expected. Yen shorts in the futures market hit a five-month high. Avoid (FXY).
China Continues Record Gold Buying, soaking up record amounts. Central banks bought a record 1,082 metric tonnes of gold in 2023. The Bank of China bought a record 735 tonnes of gold in 2023, two-thirds of which were purchased through covert third-party middlemen. An additional 1,411 tonnes, likely to bypass a collapsing Yuan, and a whopping 228 tonnes in January 2024 alone. This is what delivered the barbarous relic’s decisive upside breakout from a three-year trading range. This dwarf’s the record 1,082 metric tonnes of gold global central banks bought in 2023. The world gold market has been taken short and prices will continue to rise.
Gold Derivatives are Now Wagging the Dog. There are 187,000 metric tonnes of gold above ground worth a mere $14.4 billion which price is 50 times that figure in paper derivatives, like ETFs, futures contracts, and options. A metric tonne of gold today is worth $77 million. That increases the barbarous relic’s volatility once it breaks out of long-term trading ranges, which it has just done. With new volatility eventually, some bodies have to float to the surface. The bad news is that this may also be a signal that China will invade Taiwan. Buy (GLD) on dips.
Oil (USO) Spikes on New Iran War Threats, sending Brent to $92, a new 2024 high. Gold (GOLD) and silver (WPM) have gone ballistic as well. Hang on for higher highs.
JP Morgan Misses on Earnings, tanking the shares by $10. The firm earned $23.1 billion in net interest income in the first three months of 2024, up 11% from a year earlier. The bank’s NII haul ended a streak of seven quarters where it posted record levels of the metric. The bank cited deposit margin compression — tightening of profits between what the bank earns on loans and pays out on deposits — and lower deposit balances in the consumer business for the sequential decline. Buy (JPM) on dips.
China’s International Trade Collapses. Exports from China slumped 7.5% year-on-year last month by value, the biggest fall since August last year. They had risen 7.1% in the January-February period.
Hong Kong's major indexes extended losses to more than 2%.
Chinese exporters are continuing to slash prices to maintain sales amid stubbornly weak domestic demand. Avoid (FXI).
Tesla Cancels Model 2, a key part of the bull story for (TSLA). Elon Musk says “Not so fast” and instead highlights the company’s move into robotic self-driving cars. Don’t be so dismissive, as Waymo completed an eye-popping 100,000 robotic taxi rides in San Francisco in December, many with thrilled first-time users. The stock held up incredibly well on awful news indicating that it believes Elon and not the media. Buy (TSLA) on dips.
My Ten-Year View
When we come out the other side of the recession, we will be perfectly poised to launch into my new American Golden Age or the next Roaring Twenties. The economy decarbonizing and technology hyper accelerating, creating enormous investment opportunities. The Dow Average will rise by 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, April 15, at 7:00 AM EST, the US Retail Sales are announced.
On Tuesday, April 16 at 8:30 AM, US Housing Starts are released.
On Wednesday, April 17 at 2:00 PM, the Beige Book notes from the previous Fed meeting are published
On Thursday, April 18 at 8:30 AM, the Weekly Jobless Claims are announced. At 10:00 AM, Existing Home Sales are out.
On Friday, April 19 at 2:00 PM, the Baker Hughes Rig Count is printed.
As for me, with the spectacular popularity of the Oppenheimer movie, I thought I’d review my own nuclear past. When the Cold War ended in 1992, the United States judiciously stepped in and bought the collapsing Soviet Union’s entire uranium and plutonium supply.
For good measure, my client George Soros provided a $50 million grant to hire every Soviet nuclear engineer. The fear then was that starving homeless scientists would go to work for Libya, North Korea, or Pakistan, which all had active nuclear programs at the time.
They ended up here instead. I just might be that the guy standing next to you in line at Safeway with a foreign accent who knows how to design a state-of-the-art nuclear bomb.
That provided the fuel to run all US nuclear power plants and warships for 20 years. That fuel has now run out and chances of a resupply from Russia are zero. The Department of Defense attempted to reopen our last plutonium factory in Amarillo, Texas, a legacy of the Johnson administration.
But the facilities were deemed too old and out of date, and it is cheaper to build a new factory from scratch anyway. What better place to do so than Los Alamos, which has the greatest concentration of nuclear expertise in the world?
Los Alamos is a funny sort of place. It sits at 7,320 feet on a mesa on the edge of an ancient volcano so if things go wrong, they won’t blow up the rest of the state. The homes are mid-century modern built when defense budgets were essentially unlimited. As a prime target in a nuclear war, there are said to be miles of secret underground tunnels hacked out of solid rock.
You need to bring a Geiger counter to garage sales because sometimes interesting items are work castaways. A friend almost bought a cool coffee table which turned out to be a radioactive part of an old cyclotron. And for a town designing the instruments to bring on the possible end of the world, it seems to have an abnormal number of churches. They’re everywhere.
I have hundreds of stories from the old nuclear days passed down from those who worked for J. Robert Oppenheimer and General Leslie Groves, who ran the Manhattan Project in the early 1940s. They were young mathematicians, physicists, and engineers at the time, in their 20s and 30s, who later became my university professors. The A-bomb was the most important event of their lives.
Unfortunately, I couldn’t relay this precious unwritten history to anyone without a security clearance. So, it stayed buried with me for a half century, until now.
Some 1,200 engineers will be hired for the first phase of the new plutonium plant, which I got a chance to see. That will create challenges for a town of 13,000 where existing housing shortages already force interns and graduate students to live in tents. It gets cold at night and dropped to 13 degrees F when I was there.
I actually started in the nuclear biz during the early 1970s when my math professor recommended me for a job there. In those days, mathematicians had only two choices. Teach or work for the Defense Department. As I was sick of school, I chose the latter.
That led me to drive down a bumpy dirt road in Mercury, Nevada to the Nuclear Test Site where underground testing was still underway. There were no signs. You could only find the road marked by four trailers occupied by hookers who did a brisk business with the nearly all-male staff. My fondest memory was the skinny dipping that took place after midnight in a small pool when the MPs were on break.
I was recently allowed to visit the Trinity site at the White Sands Missile Test Range, the first outsider to do so in many years. This is where the first atomic bomb was exploded on July 16, 1945. The 20-kiloton explosion set off burglar alarms for 200 miles and was double to ten times the expected yield.
Enormous steel targets hundreds of yards away were thrown about like toys (they are still there). Half the scientists thought the bomb might ignite the atmosphere and destroy the world but they went ahead anyway because so much money had been spent, 3% of US GDP for four years. Of the original 100-foot tower, only a tiny stump of concrete is left (picture below).
With the other visitors, there was a carnival atmosphere as people worked so hard to get there. My Army escort never left me out of their sight. Some 79 years after the explosion, the background radiation was ten times normal, so I couldn’t stay more than an hour.
Needless to say, that makes uranium plays like Cameco (CCJ), NextGen Energy (NXE), Uranium Energy (UEC), and Energy Fuels (UUUU) great long-term plays, as prices will almost certainly rise and all of which look cheap. US government demand for uranium and yellow cake, its commercial byproduct, is going to be huge. Uranium is also being touted as a carbon-free energy source needed to replace oil.
At Ground Zero in 1945
What’s Left of a Trinity Target 200 Yards Out
Playing With My Geiger Counter
Atomic Bomb No.3 Which was Never Used
What’s Left from the Original Test
Good Luck and Good Trading,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Global Market Comments
April 8, 2024
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or THE WINDFALL YEAR),
(FCX), (TLT), (TSLA), (NVDA), (FCX),
(XOM), (WPM), (GLD), (CCJ), (META), (AMZN),
(AN EVENING WITH TRAVEL GURU ARTHUR FROMMER)
