Global Market Comments
October 2, 2023
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or BACK IN BUSINESS)
(TLT), (GLD), (SLV), (XLU), (IWM), (EEM), (FXA), (FXE), (FXB), (USO), (UUP), (AMZN), (TSLA), (F)
Posts
It’s a good thing I don’t rely on my Social Security Check to cover my extravagant cost of living, which is the maximum $4,555 a month. For it came within hours of coming to a halt when an agreement was passed by Congress to renew funding for another 45 days. It was almost an entirely Democratic bill, passing 335 to 91 in the House and the Senate by 88 to 9.
Unfortunately, that does put me in the uncomfortable position of delivering humanitarian aid to Ukraine right when $6.2 billion in US assistance is cut off. That was the price the Dems had to pay to get the Republicans on board needed to pass the bill. Better a half a loaf than no loaf at all. Still, I am going to have some explaining to do next week in Kiev, Mykolaiv, and Kherson. It’s a big win for Vladimir Putin.
Funding now ends on November 17, when the next crisis begins. The big question is when the markets will deliver a sigh of relief rally on Congress hitting the “snooze” button, or whether it will focus on the next disaster in November.
We’ll have to wait and see.
In the meantime, all eyes are on the market’s leading falling interest rate plays, which continue to go from bad to worse. Those include bonds (TLT), precious metals (GLD), (SLV), utilities (XLU), small-cap stocks (IWM), emerging markets (EEM), and foreign currencies (FXA), (FXE), (FXB).
Consider this your 2024 shopping list.
Ten-year US Treasury bond yields reached a stratospheric 4.70% last week a 17-year high and up a monster 0.90% since the end of June. Summer proved a fantastic time to take a vacation from the bond market.
They could easily reach 5% before the crying is all over. Perhaps this is why my old friend, hedge fund legend David Tepper, said his best investment right now is a subprime six-month certificate of deposit yielding 7.0%.
What we might be witnessing here is a return to the “old normal” when bonds spent most of their time ranging between 2%-6%. The 60-year historic average bond yield is 2% over the inflation rate (see chart below). That alone takes us to a 5.0% bond yield.
Interest rates have been kept artificially low for 15 years because no one wanted a recession in 2008 and no one wanted a recession during the pandemic in 2000. It all melded into one big decade-and-a-half period of easy money. Pain avoidance wasn’t just the universal American monetary policy, it was the global policy.
Now it’s time to pay the piper and unwind the thousands of business models that depended on free money. There will be widespread pain, as we are now witnessing in commercial real estate and private equity. Perhaps it is best to take the 5.5% bribe 90-day Treasury bond yield is offering you and stay out of the market.
While Detroit remains mired by the UAW strike, EVs have catapulted to an amazing 8% of the new car market. They have been helped by a never-ending price war and generous government subsidies. EV sales are now up a miraculous 48% YOY and are projected to account for a stunning 23% of all California sales in Q3.
Tesla is the overwhelming leader with a 52% share in a rapidly growing market, distantly followed by Ford (F) at 7% and Jeep at 5%.
However, a slowdown may be at hand, with EV inventories running at 97 days, double that of conventional ICE cars. This could create a rare entry point for what will be the leading industry of this decade, if not the century. Buy more Tesla (TSLA) on bigger dips, if we get them.
Hedge Funds are Cutting Risk at Fastest Pace Since 2020, when the pandemic began. From retail investors to rules-based systematic traders, appetite for equities is subsiding after a 20% rally this year that’s fueled by euphoria over artificial intelligence. Fast money investors increased their bearish wagers to drive down their net leverage — a gauge of risk appetite that measures long versus short positions — by 4.2 percentage points to 50.1%, according to Goldman Sachs Group Inc.’s prime brokerage. That’s the biggest week-on-week decline in portfolio leverage since the depths of the pandemic bear market.
The Treasury Bond Freefall Continues, as long-term yields probe new highs. New issue of $134 billion this week didn’t help. Nothing can move on the risk until rates top out, even if we have to wait until 2024.
Oil (USO) Hits $95, a one-year high, as the Saudi/Russian short squeeze continues. $100 a barrel is a chipshot and much higher if we get a cold winter. Inventories at the Cushing hub are at a minimum.
The US Dollar (UUP) Hits New Highs, as “high for longer” interest rates keep powering the greenback. The buck is also catching a flight to safety bid from a potential government shutdown. It should be topping soon.
Moody’s Warns of Further US Government Downgrades, in the run up to the Saturday government shutdown. The shutdown lasts, the more negative its impact would be on the broader economy. Unemployment could soar. It would also render all US government data releases useless for the next three months.
ChatGPT Can Now Browse the Internet, according to its creator, OpenAI. Until now, the chatbot could only access data posted before September 2021. The move will exponentially improve the quality and effectiveness of AI apps, including my own Mad Hedge AI
Amazon (AMZN) Pouring $4 Billion into AI, with an investment in Anthropic, a ChatGPT competitor. (AMZN) is racing to catch up with (MSFT) and (GOOGL). Its chatbot is caused Claude 2. Amazon’s card to play here is its massive web services business AWS. The AI wars are heating up.
Hollywood Screenwriters Guild Strike Ends, after 150 days, which is thought to have cost the US economy $5 billion in output. The hit was mostly taken by Los Angeles, where 200,000 are employed. The Actor’s union is still on strike. Talk shows should be offering new content in a few days.
S&P Case Shiller Rises to New All-Time High, for the sixth consecutive month as inventory shortages drove up competition. In July, the index in increased 0.6% month over month and 1% over the last 12 months, on a seasonally adjusted basis. July’s movement reached a new high for the nationwide home index, surpassing the record set in June 2022. Chicago (+4.4%), Cleveland (+4.0%), and New York (+3.8%) delivered the biggest gains. The median home price for existing homes rose to 1.9 to $406,700 according to the National Association of Realtors (NAR). The robust housing market suggests that while some buyers pulled back due to high borrowing costs, demand continues to outweigh supply.
This is the Unit I Will be Joining at the Front in Ukraine, as made clear by their YouTube recruiting video. They asked me to assist with mine removal on territory formerly occupied by Russia. I really don’t know what I’m getting into. Improvision is key. It’s better than playing golf in retirement. Polish up your Ukrainian first.
So far in August, we are down -4.70%. My 2023 year-to-date performance is still at an eye-popping +60.80%. The S&P 500 (SPY) is up +17.10% so far in 2023. My trailing one-year return reached +92.45% versus +8.45% for the S&P 500.
That brings my 15-year total return to +657.99%. My average annualized return has fallen back to +48.15%, another new high, some 2.50 times the S&P 500 over the same period.
Some 41 of my 46 trades this year have been profitable.
My Ten-Year View
When we come out the other side of the recession, we will be perfectly poised to launch into my new American Golden Age, or the next Roaring Twenties. The economy decarbonizing and technology hyper accelerating, creating enormous investment opportunities. The Dow Average will rise by 800% to 240,000 or more in the coming decade. The new America will be far more efficient and profitable than the old.
Dow 240,000 here we come!
On Monday, October 2, at 8:30 PM EST, the ISM Manufacturing PMI is out.
On Tuesday, October 3 at 8:30 AM, the JOLTS Job Openings Report is released.
On Wednesday, October 4 at 2:30 PM, the ISM Services Report is published.
On Thursday, October 5 at 8:30 AM, the Weekly Jobless Claims are announced.
On Friday, October 6 at 2:30 PM the September Nonfarm Payroll Report is published. At 2:00 PM the Baker Hughes Rig Count is printed.
As for me, I will try to knock out a few memories early this morning while waiting for the Matterhorn to warm up so I can launch on another ten-mile hike. So I will reach back into the distant year of 1968 in Sweden.
My trip to Europe was supposed to limit me to staying with a family friend, Pat, in Brighton, England for the summer. His family lived in impoverished council housing.
I remember that you had to put a ten pence coin into the hot water heater for a shower, which inevitably ran out when you were fully soaped up. The trick was to insert another ten pence without getting soap in your eyes.
After a week there, we decided the gravel beach and the games arcade on Brighton Pier were pretty boring, so we decided to hitchhike to Paris.
Once there, Pat met a beautiful English girl named Sandy, and they both took off to some obscure Greek island, the ultimate destination if you lived in a cold, foggy country.
That left me stranded in Paris with little money.
So, I hitchhiked to Sweden to meet up with a girl I had run into while she was studying English in Brighton. It was a long trip north of Stockholm, but I eventually made it.
When I finally arrived, I was met at the front door by her boyfriend, a 6’6” Swedish weightlifter. That night found me bedding down in a birch forest in my sleeping bag to ward off the mosquitoes that hovered in clouds.
I started hitchhiking to Berlin, Germany the next day, which offered paying jobs. I was picked up by Ronny Carlson in a beat-up white Volkswagen bug to make the all-night drive to Goteborg where I could catch the ferry to Denmark.
1968 was the year that Sweden switched from driving English style on the left side of the road to the right. There were signs every few miles with a big letter “H”, which stood for “hurger”, or right. The problem was that after 11:00 PM, everyone in the country was drunk and forgot what side of the road to drive on.
Two guys on a motorcycle driving at least 80 mph pulled out to pass a semi-truck on a curve and slammed head-on to us, then were thrown under the wheels of the semi. The motorcycle driver was killed instantly, and his passenger had both legs cut off at the knees.
As for me, our front left wheel was sheared off and we shot off the mountain road, rolled a few times, and was stopped by this enormous pine tree.
The motorcycle riders got the two spots in the only ambulance. A police car took me to a hospital in Goteborg and whenever we hit a bump in the road bolts of pain shot across my chest and neck.
I woke up in the hospital the next day, with a compound fracture of my neck, a dislocated collar bone, and paralyzed from the waist down. The hospital called my mom after booking the call 16 hours in advance and told me I might never walk again. She later told me it was the worst day of her life.
Tall blonde Swedish nurses gave me sponge baths and delighted in teaching me to say Swedish swear words and then laughed uproariously when I made the attempt.
Sweden had a National Health care system then called Scandia, so it was all free.
Decades later a Marine Corps post-traumatic stress psychiatrist told me that this is where I obtained my obsession with tall, blond women with foreign accents.
I thought everyone had that problem.
I ended up spending a month there. The TV was only in Swedish, and after an extensive search, they turned up only one book in English, Madame Bovary. I read it four times but still don’t get the ending. And she killed herself because….?
The only problem was sleeping because I had to share my room with the guy who lost his legs in the same accident. He screamed all night because they wouldn’t give him any morphine.
When I was released, Ronny picked me up and I ended up spending another week at his home, sailing off the Swedish west coast. Then I took off for Berlin to get a job since I was broke. Few Germans wanted to live in West Berlin because of the ever-present risk of a Russian invasion so there we always good-paying jobs.
I ended up recovering completely. But to this day whenever I buy a new Brioni suit in Milan they have to measure me twice because the numbers come out so odd. My bones never returned to their pre-accident position and my right arm is an inch longer than my left. The compound fracture still shows up on X-rays.
And I still have this obsession with tall, blond women with foreign accents.
Go figure.
Brighton 1968
Ronny Carlson in Sweden
Stay Healthy,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Global Market Comments
August 25, 2023
Fiat Lux
Featured Trades:
(THE NEXT COMMODITY SUPERCYCLE HAS ALREADY STARTED),
(COPX), (GLD), (FCX), (BHP), (RIO), (SIL),
(PPLT), (PALL), (GOLD), (ECH), (EWZ), (IDX)
CLICK HERE to download today's position sheet.
When I closed out my position in Freeport McMoRan (FCX) near its max profit earlier this year, I received a hurried email from a reader if he should still keep the stock. I replied very quickly:
“Hell, yes!”
When I toured Australia a couple of years ago, I couldn’t help but notice a surprising number of fresh-faced young people driving luxury Ferraris, Lamborghinis, and Porsches.
I remarked to my Aussie friend that there must be a lot of indulgent parents in The Lucky Country these days. “It’s not the parents who are buying these cars,” he remarked, “It’s the kids.”
He went on to explain that the mining boom had driven wages for skilled labor to spectacular levels. Workers in their early twenties could earn as much as $200,000 a year, with generous benefits.
The big resource companies flew them by private jet a thousand miles to remote locations where they toiled at four-week on, four-week off schedules.
This was creating social problems, as it is tough for parents to manage offspring who make far more than they do.
The Next Great Commodity Boom has started and, in fact, we are already years into a prolonged supercycle that could stretch into the 2030s.
China, the world’s largest consumer of commodities, is currently stimulating its economy on multiple fronts, to break the back of a Covid hangover.
Those include generous corporate tax breaks, relaxed reserve requirements, government bailouts of financial institutions, and interest rate cuts. Get triggers like the impending moderation of its trade war with the US and it will be off to the races once more for the entire sector.
The last bear market in commodities was certainly punishing. From the 2011 peaks, copper (COPX) shed 65%, gold (GLD) gave back 47%, and iron ore was cut by 78%. One research house estimated that some $150 billion in resource projects in Australia were suspended or cancelled.
Budgeted capital spending during 2012-2015 was slashed by a blood-curdling 30%. Contract negotiations for price breaks demanded by end consumers broke out like a bad case of chicken pox.
The shellacking was reflected in the major producer shares, like BHP Billiton (BHP), Freeport McMoRan (FCX), and Rio Tinto (RIO), with prices down by half or more. Write-downs of asset values became epidemic at many of these firms.
The selloff was especially punishing for the gold miners, with lead firm Barrack Gold (GOLD) seeing its stock down by nearly 80% at one point, lower than the darkest days of the 2008-9 stock market crash.
You also saw the bloodshed in the currencies of commodity-producing countries. The Australian dollar led the retreat, falling 30%. The South African Rand has also taken it on the nose, off 30%. In Canada, the Loonie got cooked.
The impact of China cannot be underestimated. In 2012, it consumed 11.7% of the planet’s oil, 40% of its copper, 46% of its iron ore, 46% of its aluminum, and 50% of its coal. It is much smaller than that today, with its annual growth rate dropping by more than half, from 13.7% to 3.50% today.
What happens to commodity prices when China recovers even a fraction of the heady growth rates of yore? It boggles the mind.
The rise of emerging market standards of living will also provide a boost to hard asset prices. As China goes, so does its satellite trading partners, who rely on the Middle Kingdom as their largest customer. Many are also major commodity exporters themselves, like Chile (ECH), Brazil (EWZ), and Indonesia (IDX), who are looking to come back big time.
As a result, Western hedge funds will soon be moving money out of paper assets, like stocks and bonds, into hard ones, such as gold, silver (SIL), palladium (PALL), platinum (PPLT), and copper.
A massive US stock market rally has sent managers in search of any investment that can’t be created with a printing press. Look at the best-performing sectors this year and they are dominated by the commodity space.
The bulls may be right for as long as a decade thanks to the cruel arithmetic of the commodities cycle. These are your classic textbook inelastic markets.
Mines often take 10-15 years to progress from conception to production. Deposits need to be mapped, plans drafted, permits obtained, infrastructure built, capital raised, and bribes paid in certain countries. By the time they come online, prices have peaked, drowning investors in red ink.
So a 1% rise in demand can trigger a price rise of 50% or more. There are not a lot of substitutes for iron ore. Hedge funds then throw gasoline on the fire with excess leverage and high-frequency trading. That gives us higher highs, to be followed by lower lows.
I am old enough to have lived through a couple of these cycles now, so it is all old news for me. The previous bull legs of supercycles ran from 1870-1913 and 1945-1973. The current one started for the whole range of commodities in 2016. Before that, it was down from seven years.
While the present one is short in terms of years, no one can deny how business cycles will be greatly accelerated by the end of the pandemic.
Some new factors are weighing on miners that didn’t plague them in the past. Reregulation of the US banking system is forced several large players, like JP Morgan (JPM) and Goldman Sachs (GS) to pull out of the industry completely. That impairs trading liquidity and widens spreads— developments that can only accelerate upside price moves.
The prospect of falling US interest rates is also attracting capital. That reduces the opportunity cost of staying in raw metals, which pay neither interest nor dividends.
The future is bright for the resource industry. While the gains in Chinese demand are smaller than they have been in the past, they are off of a much larger base. In 20 years, Chinese GDP has soared from $1 trillion to $14.5 trillion.
Some 20 million people a year are still moving from the countryside to the coastal cities in search of a better standard of living and improved prospects for their children.
That is the good news. The bad news is that it looks like the headaches of Australian parents of juvenile high earners may persist for a lot longer than they wish.
Buy all commodities on dips for the next several years.
Global Market Comments
August 3, 2023
Fiat Lux
SPECIAL PRECIOUS METALS ISSUE
Featured Trades:
(WHAT’S UP WITH GOLD?),
(GLD), (UGL), (PPLT), (PLAT), (WPM)
(THE ULTRA BULL CASE FOR GOLD)
CLICK HERE to download today's position sheet.
Global Market Comments
June 23, 2023
Fiat Lux
Featured Trades:
(JUNE 21 BIWEEKLY STRATEGY WEBINAR Q&A),
(AAPL), (ABNB), (GLD), (BA), (CAT), (DE), (X), (PYPL), (SQ), (MSFT), (GD), (GE), (INDA), (META) (GOOGL), (CCI), (NVDA), (ABNB), (SNOW), (PLTR), (TSLA)
CLICK HERE to download today's position sheet.
Below please find subscribers’ Q&A for the June 21 Mad Hedge Fund Trader Global Strategy Webinar, broadcast from Lake Tahoe, NV.
Q: When do we buy Nvidia (NVDA) and Tesla (TSLA)?
A: On at least a 20% dip. We have had ballistic moves—some of the sharpest up moves in the history of the stock market for large stocks—and certainly the greatest creation of market caps since the market was invented under the Buttonwood Tree in 1792 at 68 Wall Street. Tesla’s almost at a triple now. Tripling one of the world's largest companies in 6 months? You have to live as long as me to see that.
Q: Is it a good time to invest in Bitcoin?
A: No, absolutely not. You only want to invest in Bitcoin when we have an excess of cash and a shortage of assets. Right now, we have the opposite, a shortage of cash and an excess of assets, and that will probably continue for several years.
Q: Should I short Apple (APPL)?
A: Only if you’re a day trader. It’s hugely overbought for the short term, but still in a multiyear long-term uptrend. I think we could see Apple at $300 in the next one or two years.
Q: Is it better to focus on single stocks or ETFs?
A: Single stocks always, because a single stock will outperform a basket that's in an ETF by 2 to 1 or even 3 to 1. That's always the case; whenever you add stocks to a basket, it diversifies risk and dilutes the performance. Better to just own Tesla, and if you want to diversify, diversify to Nvidia, but then I live next door to these two companies. That's what I tell my friends. You only diversify if you don’t know what is going to happen, which is most investors and financial advisors.
Q: Is the bottom of the housing market in, and are we due for a spike in home prices when interest rates can only go lower?
A: Yes, absolutely. In fact, we will enter a new 10-year bull leg for housing because we have a structural shortage of 10 million homes and 82 million millennials desperately trying to buy them at any price. I just got a call from my broker and she is panicking because she is running out of inventory. Even the lemons are starting to move.
Q: When do you think energy will rise?
A: Falling interest rates could be a good key because it sets the whole global economy on fire and increases energy demand.
Q: Outlook for the S&P 500 (SPY) second half of the year?
A: We hit 4,800 at least, maybe even higher. That's about a little more than 10% from here, so it’s not that much of a stretch, not like it was at the beginning of the year when it needed to rise 25% to reach my yearend target.
Q: Best time to invest from here on?
A: Either a 10% pullback in the market, or a sideways move of 3 months—that's called a time correction. It usually counts as a price correction because of course, over 3 months, earnings go up a lot, especially in tech.
Q: I’m seeing grains (WEAT) in rally mode.
A: Yes, that's true. They are commodities, and just like copper’s been rallying, and it’s yet another signal that we may get a much broader global commodity rally in everything: iron ore, coal, energy, gold, silver, you name it.
Q: Will inflation drop to 2%, causing stocks to go on another epic run?
A: The answer is yes, I do see inflation dropping to 2% —maybe not this year, but next year; not because of any action the Fed is doing, but because technology is hyper-accelerating, and technology is highly deflationary. The tech product you bought two years ago is now half the price, and they offer you twice as much functionality with an auto-renew for life. So, that is happening across the entire technology front and feeds into the inflation numbers big time, including labor. There's going to be a lot of labor replacement by machines and AI in the coming years.
Q: Is Airbnb (ABNB) a good stock to buy?
A: Well, if we’re going into the most perfect travel storm of all time, which is this summer, and which is why I’m going to remote places only like Cortina, Italy. Airbnb is the perfect stock to own. It’s a well-run company even in normal times.
Q: Should I buy gold here on the pullback?
A: Yes, you should. Gold is also highly sensitive to any decline in interest rates, and by the way: buy silver, it always moves 2.5x as much as the barbarous relic.
Q: How can inflation not go up if commodities and wage demands are going up due to state and federal unions? What about farm equipment and truck supplies? Costs keep rising, should we buy John Deere (DE)?
A: There are three questions here. Inflation will not go up because, though commodities will rise, they are only 0.6% of the $100 trillion global economy, or $660 billion in 2022. That will be more than offset by technology cutting prices, which is 30% of the stock market. You have to realize how important each individual element is in the global picture. And regarding wage demands going up caused by state and federal unions, less than 11.3% of the workforce is now unionized and that figure has been declining for 40 years. Most growth in the economy has been in non-unionized technology firms which largely depend on temporary workers, by design. What IS unionized is mostly teachers, the lowest paid workers in the economy, so incremental pay rises will be small. Unions were absolutely slaughtered when 25 million jobs were offshored to China during the Bush administration. Buy farm equipment and trucks? Absolutely, buy John Deere (DE) and buy Caterpillar (CAT) on the next dip. I was actually looking at Caterpillar for the next LEAPS the other day, but it’s already had a big run; I'm going to wait for a pullback before I get CAT and John Deere. So, again, people see headlines, see union wage headlines—I say focus on the 89% and not on the 11% if you want to make good decisions.
Q: Is Boeing (BA) a buy on the dip?
A: Yes, they got 1,000 new aircraft orders and the stock hasn't moved. So yes, if you get any kind of selloff down to $200, I'd be hoovering this thing up.
Q: Can you please explain how the profit predictor works?
A: It’s a long story; just go to our website, log in and do a search for “profit predictor,” and you’ll get a full explanation of how it works. It’s actually where Mad Hedge has been using artificial intelligence for 11 years, which is why our performance has doubled. Just for fun, I'll run the piece next week.
Q: Gold (GLD) is having a hard time going up because Russia is being squeezed by other governments. Since they need cash, they may be either selling their gold or stop buying new gold.
A: That is a good point, but at the end of the day, interest rates are the number one driver of all precious metals—period, end of story. We’re long gold too, I’ve got lots of gold coins stashed around the world in various safe deposit boxes, and I'm keeping them. I’ve got even more silver coins, which take up a lot of space.
Q: Do you like India (INDA) long term?
A: Yes, it’s the next China. But as Apple is finding out it is very difficult to get anything done there. A radical reforming Prime Minster Modi may be changing things there with his recent Biden visit and (GE) contract to build jet engines.
Q: What do you think of General Dynamics Corp (GD)?
A: I like General Dynamics because I think defense spending is in a permanent long term upcycle as a result of the Ukraine war. And it won’t end with the Ukraine war—the threat will always be out there, and the buying is done by not only us but all the other countries that think Russia is a threat.
Q: Do you like MP Materials Corp (MP)?
A: Yes, I do. The whole commodities space is ready to take off and go on fire.
Q: What about Square (SQ)?
A: The only reason I’m not recommending Square right now is huge competition in the entire sector, where all the stocks including PayPal (PYPL) are getting crushed. I will pass on Square for now, especially when I can buy US Steel (X) at close to its low for the year.
Q: If you had to pick one: Nvidia (NVDA), Tesla (TSLA), Microsoft (MSFT), Meta (META), and Google (GOOGL), which is the best to buy for next year?
A: All of them. Diversify. If I have to pick the top performer, it’s going to be either Tesla or Nvidia, probably Nvidia. But you need at least a 10% correction before you do anything. Actually, the split-adjusted price for our first (NVDA) recommendation eight years ago was $2 a share.
Q: Do you like Crown Castle International (CCI)?
A: Yes, I like it very much—it has very high dividend yield at 5.5%. The reason it hasn’t moved yet is that as long as interest rates are high, any REIT structure will suffer, and (CCI) has a REIT structure. Sure, it’s in a great sector—5G cell towers—but it is still a REIT nonetheless, and those will start to recover when interest rates go down; that’s why we did a 2.5-year LEAPS on CCI. For sure interest rates are going to go down in the next 2.5 years, and you will double your money on (CCI). That’s why we put it out.
Q: Which mid cap will do best over the long term: Airbnb (ABNB), Snowflake (SNOW), or Palantir (PLTR)?
A: That’s easy: Snowflake. They have such an overwhelming technology on the database and security front; I would be buying Snowflake all day long. Even Warren Buffet owns Snowflake, so that’s good enough for me.
Q: Could you comment on the pace of EV adoption/potential for (TSLA) robot fleet acceleration and implications for oil investments in holding pattern till the eventual collapse to near 0?
A: Yes, oil may collapse to near zero, but it may take twenty years to do it—that’s how long it takes to transition an energy source. That’s how long it took the move from horses and hay to gasoline-powered cars at the beginning of the 20th century. A national robot fleet of taxis with no drivers at all is a couple of years off. There are about 1,000 of them working in San Francisco right now, but they still have more work to do on the software. When it gets foggy, they often congregate at intersections causing traffic jams. Suffice it to say that eventually Tesla shares go to $1,000 and after that, $10,000—that’s my bet. By the way, my Tesla January 2025 $595-$600 LEAPS are starting to look pretty good.
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 or TECHNOLOGY LETTER, 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
2018 in Australia
Global Market Comments
June 8, 2023
Fiat Lux
Featured Trades:
(WHY GOLD IS GOING TO A NEW HIGH),
(GLD), (GOLD), (NEM), (GDX)
CLICK HERE to download today's position sheet.
When Elon Musk personally invited me to tour his Gigafactory in Sparks, Nevada, I thought, “How could I pass on this?” He had read my recent report on Tesla and thought the more I know about Tesla the better.
I couldn’t agree more.
As I approached the remote facility 20 miles east of Reno, I spotted a herd of wild Mustangs on the red volcanic hills above. I thought it was a great metaphor for our rapidly evolving transportation system, from horse to all-electric in 100 years.
There are no signs to the Gigafactory until you approach the main gate. I had to find it with my GPS after inputting longitude and latitude. When you upset the apple cart for the global energy system, you make a lot of enemies. Once in, no cameras are allowed.
What I found inside what much what I saw at the original Fremont, CA factory 15 years ago: an army of robots building machines. The factory is in effect a machine that makes machines….by the millions. Occasionally, a worker would swan past with an oil can in his hand and squirt some lubricant into an important joint, then swan away.
If you want a view of the future, this is it.
Elon does nothing small.
The present factory occupies about 2 million square feet, or about 33 football fields. Some 60% of the world’s lithium-ion batteries come out of this one place right now, which are devoted to Tesla Model 3’s and Powerwalls, of which I own six. Japan’s Panasonic, which has the contract to supply the batteries, occupies a substantial part of the factory space.
When completed, it will occupy 6 million square feet, making it the world’s largest building. The planet’s greatest solar array sits on top, making the entire facility energy neutral when combined with local windmills. The plant is fully automated and runs 24/7. There are still a few of those pesky humans around to perform complex tasks which robots can’t do….yet.
The State of Nevada just granted Tesla a ten-year tax holiday to start the second phase, which will employ another 5,000. Whole cities are being carved out of the virgin desert to accommodate them, so the entire city of Reno is rapidly marching east. Burger Kings, Taco Bells, Subways, and Chinese and Mexican restaurants are popping up in the middle of nowhere.
It's all coming into place to assure that Tesla meets its 1.8 million vehicle target for 2023, up 40% from 2022. The last time someone had a technology lead this great was in 1913 when Henry Ford launched assembly lines that mass-produced Model T’s for the first time. He offered them for $400 each and doubled his workers’ pay to $5 a day to buy them. This gave Ford a 75% share of the US car market for two decades.
Elon Musk will achieve the same.
Which all raises a much larger issue.
The future is happening far faster than anyone realizes.
Tesla is just the tip of the iceberg in an AI/automation trend that is rapidly taking over the world. The net effect will be to double or triple the value of the companies that embrace these trends and wipe out those that don’t. ALL companies are AI plays. This is a large part of my Dow 240,000 in a decade prediction.
Microsoft brought out its office in 1990 and it instantly made ALL companies more valuable as they adopted it. The Dow Average soared by 20 times from $600 to $12,000. The same thing is going on now with AI.
If it worked before it will work again. A 20-fold return from here takes the Dow Average from $34,000 to $680,000, except it will happen much more quickly as technology is hyper-accelerating. Dow 240,000 looks like a chipshot.
If you think this is some kind of George Lucas THX 1138 prediction, think again. These are headlines I saw in the last week.
FedEx (FDX) is firing 86,000 drivers, to be replaced by robots. Uber (UBER) is replacing its 5 million drivers with autonomous drivers to increase reliability and cut costs. Dentists adopting AI to read X-rays are catching the 12% of cavities they miss, increasing fillings and increasing profits.
I often get asked for great AI plays in the market and there are no direct ones. But in five years, companies like Microsoft’s (MSFT) ChatGPT and Alphabet’s (GOOGL) DeepMind Technologies will be spun off and sold at enormous multiples to the public, creating a frenzy.
I’ve seen it all before.
What does doubling or tripling the value of surviving companies do to the economy? It reliquefies the financial system with immense corporate cash flows. All asset classes will rocket in value, including stocks, bonds, commodities, precious metals, energy, and real estate.
While the 2010s had endless quantitative easing and zero interest rates, the 2020s will have AI and robots. Except that this time we won’t have to rely on government handouts to get there.
Suddenly, Dow 240,000 looks cheap.
I just thought you’d like to know.
My big bet-the-ranch long in banks and brokers paid off huge. My 2023 year-to-date performance is now at an incredible +49.57%. The S&P 500 (SPY) is up only a miniscule +8.42% so far in 2023. My trailing one-year return maintains a sky-high +106.31% versus -8.03% for the S&P 500.
That brings my 15-year total return to +646.76%, some 2.73 times the S&P 500 (SPY) over the same period. My average annualized return has blasted up to +48.51%, another new high.
I executed four trades last week. I used the spectacular earnings beat at (JPM) to take profits and rolled that money into Boeing (BA), which had just been trashed. I also took profits on my expiring April bond long (TLT) and rolled it into a May bond long. I will run my remaining expiring April long positions in (TSLA), (BAC), (C), (IBKR), (MS), (and FCX) into the Friday, April 21 expiration.
Inflation Takes a Dive, dropping to a 5.6% YOY rate, the ninth consecutive month of decline. I think we will fall to 3%-4% by yearend, prompting the Fed to lower interest rates. That will spark a new bull market and another leg up for residential real estate. It all more fodder for the bull case. Given what the Fed has been facing, a mild recession would be a huge win.
Fed Minutes Fear Banking Crisis May Lead to a Mild Recession, killing off today’s nascent rally. It will also hobble job growth and lead to sharp declines in interest rates in 2024. Markets now see a 75% probability of a 25-basis point rate hike on May 3.
FedEx Looking to Fire All Drivers, moving to autonomously driven delivery vehicles. It may take 20 years but it’s in the works. (FDX) has already cut 12,000 jobs since June in an effort to maintain profitability and surpass rival (UPS). In 2022, (FDX) took in $93.5 billion in revenues delivering 3 billion packages, 9 for each American. I received more than my share.
PC Sales Drop 29% YOY, in Q1, adding more ammunition to the recession camp. Apple Macs led the charge to the downside with a heart-thumping 40% decline. The news slugged (AAPL). Only 56.9 million PCs we sold during the last quarter. Even with heavy discounting inventories remain high. Amazing, isn’t it?
Tesla Cuts Prices Again, knocking $3,000 off the Model 3 and $5,000 for the Model X. That sets the cat among the pigeons with traditional car companies desperately trying to catch up. Tesla is simply passing on the 50% drop in lithium prices this year. If they flush competitors out of business in the meantime so much the better. Ford has ordered designers to cut the number of parts by 80%, which Tesla did 14 years ago. (F) and (GM) are just too slow to react, even when the writing is on the wall.
$1.5 Trillion in Commercial Real Estate Debt coming due is a Threat to all asset classes. Refi’s are coming due that will double or triple interest rates from the zero-rate era and many won’t qualify. The sector is already being hammered by the “stay-at-home” work trend, with big tech firms virtually vacating whole office building in San Francisco. Regional banks may no longer have the capital to roll over at any prices given recent massive deposit withdrawals. Avoid commercial real estate REITS.
Banks Shares Explode to the Upside. JP Morgan announced blockbuster earnings, taking the stock up a ballistic $11, or 8.6%. Revenues came in at $39.34 billion versus an expected $36.19 billion. Adjusted EPS was $4.32 a share versus an expected $3.41. It is the biggest gap up in share prices on an earnings announcement in 20 years. As a result, we are just short of the maximum profit in our long (JPM), with the shares up an eye-popping 21% from the nearest strike price.
PPI Gives Another Deflation Hint, dropping a shocking 0.5% in March to only a 2.7% YOY rate. That’s a big drop from 4.9% in February. It’s the lowest inflation indicator in two years. Stocks loved the news, jumping $383. Low inflation, and therefore sharp interest rate cuts are coming within reach.
Boeing Goes Back in the Penalty Box, with a recurring bulkhead problem halting 737 MAX production. The stock dumped 8%. Buy (BA) on the dip. They’ll fix it. The company has a massive order backlog of 4,000 planes and will crush it on the earnings. The 737 MAX will shortly be flying again, the company’s largest selling product. With the airline business booming a global aircraft shortage has emerged. The end of the trade wars with China will bring a resurgence of orders there. And Boeing just surpassed Airbus in aircraft deliveries in Q1
Weekly Jobless Claims Jump 11,000 to 239,000, showing that the Fed’s harsh medicine is starting to work. It’s all consistent with a stock market that may start to roll over soon.
Private Sector Payrolls Slow to 145,000, according to ADP, a substantial drop from the previous month. Financials took the big hit with a loss of 51,000 jobs, followed by Business Services at 46,000. Leisure & Hospitality leads again with a 98,000 gain. It is more evidence of the economic slowdown the FED has been attempting to engineer for the past 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, April 17 at 7:30 AM EST, the New York State Manufacturing Index is out.
On Tuesday, April 18 at 6:00 AM, the US Building Permits are announced.
On Wednesday, April 19 at 11:00 AM, the Fed Beige Book is printed.
On Thursday, April 20 at 8:30 AM, the Weekly Jobless Claims are announced. Existing Home Sales are out.
On Friday, April 21 at 8:30 AM, the Global Composite Flash PMI is released. We also get the April options expiration at the 4:00 PM stock market close.
As for me, I don’t get invited to help design new nuclear weapons systems very often. So when the order came from Washington to report to Los Alamos, New Mexico, I was on the next plane.
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 scientists would go to work for Libya, North Korea, or Pakistan, which all had active nuclear programs. There ended up here instead.
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.
Before they started, they launched a nationwide search for those who were still alive and had nuclear expertise the last time we made our own plutonium, and they came up with….me?
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 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 20’s and 30’s, 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. Suddenly, I had an entire room of young scientists who were fair game, and it was fun relaying stories, they hung on my every word. It was like being a Revolutionary War buff and out of the blue you meet someone who knew George Washington.
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.
As a reward for my efforts, I was allowed to visit the Trinity site at the White Sands Missile Test Range, the first visitor 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 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 the 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 78 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.
I know the numbers, but I can’t tell you as they are classified. Otherwise, I’d have to kill you and you might not renew your subscription to Mad Hedge Fund Trader.
Good Luck and Good Trading,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
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
Global Market Comments
April 14, 2023
Fiat Lux
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