A huge new buyer may eventually enter the gold market.
That could be a year off, maybe two, or three at the most.
I’ll give you a hint who: your taxes will pay for it.
If true, it could send the price of the barbarous relic soaring above $5,000, or even $50,000 an ounce, a target long led by the tin hat Armageddon crowd.
When I spoke to a senior official at the Federal Reserve the other day, I couldn’t believe what I was hearing.
If the American economy moves into the next recession with rising inflation, a near certainty, its hands will be tied. It dare not cut rates for fear of further fanning the flames.
At that point, our central bank’s primary tool for stimulating US businesses will become utterly useless, ineffective, and impotent.
What else is in the tool bag?
How about large-scale purchases of Gold (GLD)?
You are probably as shocked as I am by this possibility. But there is a rock-solid logic to the plan. As solid as the vault at Fort Knox.
The idea is to create asset price inflation that will spread to the rest of the economy. It already did this with great success from 2009-2014 with quantitative easing, whereby almost every class of debt securities was hoovered up by the government.
“QE on steroids” would involve large-scale purchases of not only gold, but stocks, government bonds, and exchange-traded funds as well.
If you think I’ve been smoking California’s largest cash export (it’s not almonds), you would be in error. I should point out that the Japanese government is already pursuing QE to this extent, at least in terms of equity-type investments.
And, as the history buff that I am, I can tell you that it has been done in the US as well, with tremendous results.
If you thought that President Obama had it rough when he came into office in 2009, it was nothing compared to what Franklin Delano Roosevelt inherited.
The country was in its fourth year of the Great Depression. US GDP had cratered by 43%, consumer prices had crashed by 24%, the unemployment rate was 25%, and stock prices had vaporized by 90%.
Mass starvation loomed.
Drastic measures were called for.
FDR issued Executive Order 6102 banning private ownership of gold, ordering citizens to sell their holdings to the US Treasury at a lowly $20.67 an ounce.
He then urged Congress to pass the Gold Reserve Act of 1934, which instantly revalued the government’s holdings at $35.00, an increase of 69.32%. These and other measures caused the value of America’s gold holdings to leap from $4 to $12 billion.
Since the US was still on the gold standard back then, this triggered an instant dollar devaluation of more than 50%. The high gold price sucked in massive amounts of the yellow metal from abroad creating, you guessed it, inflation.
The government then borrowed massively against this artificially created wealth to fund the landscape-altering infrastructure projects of the New Deal.
It worked.
During the following three years, the GDP skyrocketed by 48%, inflation eked out a 2% gain, the unemployment rate dropped to 18%, and stocks jumped by 80%. Happy days were here again.
However, in the 21st-century version of such a gold policy, it is highly unlikely that we would see another gold ownership ban.
Instead, the Fed would most likely move into the physical gold market, sitting on the bid for years, much like it did in the 2010s Treasury bond market for five years. Gold prices would increase by a multiple of current levels.
It would then borrow against its new gold holdings, plus the 4,176 metric tonnes worth $40 billion at today’s market prices already sitting in Fort Knox, to fund a multibillion-dollar tax cut.
Yes, this all sounds like a fantasy. But negative interest rates were considered an impossibility only a few years ago.
The Fed’s move on gold would be only one aspect of a multi-faceted package of desperate last-ditch measures to resuscitate the economy at some point in the future. The time to start buying gold is RIGHT NOW!
Persistent urban legends and Internet rumors claim that the vault is actually empty or filled with fake steel bars painted gold.
That is, until Treasury Secretary Steven Mnuchin visited the vault on his way to view the solar eclipse at government expense in August 2017.
He says the gold is still there. But only if you believe Steve Mnuchin. A lot don’t.
We’ll never know for sure. Visitors are not allowed.
The Next Economic Stimulus Program?
https://www.madhedgefundtrader.com/wp-content/uploads/2018/10/Fort-Knox-oct25.png600897MHFTFhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMHFTF2025-04-29 09:02:532025-04-29 11:34:23The Next Thing for the Fed to Buy is Gold
Below, please find subscribers’ Q&A for the April 16 Mad Hedge Fund Trader Global Strategy Webinar, broadcast from Incline Village, NV.
Q:Is it time to get out of the (SH), which is the short S&P 500 LEAPS?
A: I would say no. We're still very deep in the money for the LEAPS I put out two months ago. I doubt we're going to new highs by August when that LEAPS expires, so I would hang on to it, especially if you have other longs on the stock market. But if you're nervous, you probably have at least a 50% profit in that anyway, so take the money and run.
Q: Could the S&P 500 trade down to 4,500?
A: Absolutely, yes. China is kind of in a good position. They can wait. They can wait a very long time until they get what they want. We can't. Trump needs China to fold immediately, or the trade with China will cause a never-ending recession in the US. Remember, we have elections here—in China, they don't. That puts them in a very strong negotiating position. That's why you're seeing basically all economic data roll over and point to a recession. Even if some settlement is negotiated, there still will be some tariffs left. They just won't be at 145%. You know, it’s not a great investment environment to bet your retirement savings on, and certainly not an environment to engage in very rapid short-term trading unless you have 50 years of experience like I do. That's why I'm up this month, and the rest of the world is getting absolutely crushed.
Q: Are you going to send more LEAPS?
A: LEAPS are something we do at market bottoms, not tops, because we have such enormous leverage in the LEAPS trade—they’re usually 10 - 1 to 100 - 1 leverage. At some point, there'll be a lot of fantastic LEAPS in technology stocks, but I don't think we've hit bottom yet. In fact, at best, they've mounted weak bounces over the last few days. So, the charts still look terrible—not a good time for LEAPS.
Q: When do you see the bottom?
A: I have no idea, nobody has any idea. It's like economic policy is changing hour by the hour. Best thing to do is nothing in that situation—and that's what most of the economy is doing. That's why the economy is shutting down. Nobody knows what the final picture will look like—the uncertainty is the greatest since the uncertainty of the pandemic, or 9/11 before that.
Q: Should I hide in a money market fund?
A: No, with the money market fund, you run credit risk with the issuer of that fund. With 90-day US Treasury bills, there's no risk, so you have a government guarantee to get all your money back on the maturity date. If your custodian goes bankrupt, you can always get the T-bills back. It may take you three years in custodian bankruptcy proceedings to get your money market fund back. That’s what we saw with MF Global in 2011.
Q: What is the end game of the China-US trade dispute? How does it affect the stock market?
A: Well, we can't see an end game. Basically, you have two counterparties who are stubborn as heck, and we could be stuck in no man's land for a very long time. You'd have to think eventually a settlement of some type comes. Is that worth a recession for the U.S? For most people, I doubt it. And what if China just wants to wait out Trump and wait for the tariffs to go away in four years? That is a possible outcome. Stock markets always discount the worst-case scenario first before they discount anything else. I think that's what we saw last week, when we broke 5,000 in the S&P 500.
Q: Are you optimistic about bank stocks now?
A: No. They will lead the downturn along with technology stocks. But when this all ends, they will also lead the upturn, and that's why you're seeing bank stocks have such hard bounces off their bottom. It's another one of two sectors that people will be first to rush into—banks and technology stocks. And while tech is expensive, banks are cheap.
Q: How can interest rates fall when government policies, interest rate policies, are causing them to spike?
A: Well, it's very simple: when foreign investors lose faith in the U.S. Government, they have, they pull their money out. They don't need to be here. It's a situation of, “Well, if you don't need us, we don't need you.” And foreigners own about 25% of all of the $36 trillion in national debt out there, or about $9 trillion. And in stocks they own here and the number goes up to $12 trillion. It doesn't take much selling to cause a panic in the bond market. That is what we have been seeing. Whether that continues, I have no idea—it depends on the next tweet coming out of Washington.
Q: What about Bank of America (BAC)?
A: Yeah, it will also bounce the hardest off the bottom—great buy, and these things are all cheap relative to technology stocks. You know, banks still have PE multiples in the low teens. Tech stocks are all the way down to the low 20s from the 30s and 40s, so they're roughly trading at double the multiples of bank stocks. That's one reason people are rushing back into these.
Q: What's the basis of your prediction on a falling US dollar?
A: Again, it's foreign selling. I don't think I've ever seen a falling dollar and rising interest rates in 60 years of watching. It goes against all economic fundamentals in the currency markets. But when there's a panic, there's a panic. People want out of everything at any price, and that's what's happening now. As long as foreigners are dumping our assets, the dollar will keep going down—dumping our assets means dollar selling after 80 years of dollar buying.
Q: Is gold the only safe haven?
A: Yes. We'll get into this in the gold section, but even gold went down for three days, and then wiser heads prevailed and it actually triggered a panic melt-up in gold assets. The miners were up 25% in days. That is another great weak-dollar play.
Q: How do you protect the US from a dollar fall?
A: Change our economic policies; end the trade war.
Q: Is it a good time to buy a house?
A: No, it is not, unless you can wait out the current downturn. High interest rate mortgage rates shot up from 6.5% to 7.1% in a week, and that basically kills off the housing market for the foreseeable future. And of course, when people are worried about their futures, their savings, and their assets, the last thing they do is go out and buy a house.
Q: Is there enough negative sentiment around now for us to go back into the bond market?
A: No. There is no precedent for the type of market action that's going on now. Will the U.S. government suddenly become reasonable? I doubt it. You can expect tweet bombs to happen at any time. So, people are just hoarding cash and avoiding risk at all costs. It used to be that bonds were the safe place to go. No longer. Not with 10% moves down in a week like we saw last week. Sorry—T-Bills are the only actual safe play out there, and their yield is the same as Treasury bonds without the risk.
Q: Will crypto keep going down?
A: If we continue with a risk-off market, I think you can expect crypto to keep falling. Crypto fell 30% from its top—at least Bitcoin did. It's basically matching the downside with tech stocks one for one, so no protection in crypto, no diversification. The protection aspect that was promised by crypto promoters lever shows. No flight to safety is happening there whatsoever. And that's why I'm looking to add to my short in MicroStrategy Inc. (MSTR)—they're a leveraged long Bitcoin play.
Q: Is the U.S. economy set for a hard landing?
A: I think absolutely, yes, the hard landing is in progress. That's what all of the economic data says. It's hard to find any positive news coming out of the economy—people are running for their lives, essentially.
Q: Do you expect inflation to return and take stocks lower?
A: Absolutely, yes. The highest tariffs in history start hitting retail prices in the next month or two, and the price increases should be dramatic, especially on anything from China. So yeah, we should see that come out in the data in the next few months.
Q: Do you expect silver to follow gold?
A: Yes, I do, but it hasn't been performing as well because there is a recession drag on silver, which you don't have for gold. Silver (SLV), (AGQ) are used in a lot of electronics and solar panels.
Q: When do you get back into gold (GLD)?
A: Whenever we get a dip. So far, any dips have been very brief and short-term. It's kind of reminiscent of the 1970s when gold moved from $32 an ounce to $900. That’s when you found me in a line in Johannesburg, South Africa, waiting to sell all my Krugerrands.
Q: Which countries will benefit from manufacturing moving out of China?
A: The answer is really no countries. As soon as manufacturing moves from China to another one like Vietnam, the US then puts punitive tariffs on that second country. So, there's no place to hide. It's really a war against the world. That's the message that the administration is putting out: if you don't want to build a factory here, we don't want to do business with you. We don't want your products. And most companies will do nothing. They'll wait this out, wait for a future president to eliminate all tariffs. Until then, international trade grinds to a halt. No trade makes sense at 145% tariff. Just to give you some idea on how much that is, if you buy a top end MacBook Pro for $8,000, and you pay the full 145% tariff, that is an $11,600 tariff if you have to pay it, which brings the total cost of a MacBook Pro to nearly $19,600. How many are you going to buy at that price?
Q: Do you think the Fed will cut interest rates?
A: No, we haven't seen the inflation data yet. They are backward-looking, and only after we see a sharp rise in prices will they raise rates. Chances of them cutting now are zero with all the risks in inflation to the upside right now and unemployment still under control. So, no interest rate cuts this year.
To watch a replay of this webinar with all the charts, bells, whistles, and classic rock music, just log in to www.madhedgefundtrader.com, go to MY ACCOUNT, click on GLOBAL TRADING DISPATCH, then WEBINARS, and all the webinars from the last 12 years are there in all their glory.
Good Luck and Good Trading
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
(MARKET OUTLOOK FOR THE WEEK AHEAD or REARRANGING THE DECKCHAIRS ON THE TITANIC),
(SPY), (GLD), (NFLX), (NVDA), (TLT), (MSTR), (SVXY), ($VIX)
(AMZN), (AAPL), (GOOGL), (PANW), (NFLX), (CORN), (WEAT), (SOYB)
Back in 1987, I flew my Cessna 340 twin from London to Rome to visit Morgan Stanley’s high-end Italian clients. Held over by meetings, I got a late start, and I didn’t get as far as the French Champagne country until midnight. Right then, at 20,000 feet, the gyroscope suddenly blew up with a great resounding “thwacking sound.”
I instantly lost all instruments and lights, but still had a radio. I commenced a very wide spiral dive in the pitch-black darkness. Paris control started yelling at me because I was deviating from my approved flight plan. I started to pass out from vertigo.
Then I did what all Marines and Eagle Scouts are taught to do in this situation.
I improvised.
I pulled a flashlight and canteen out of my cockpit side pocket. By steering to the water level, I was able to use it as an artificial horizon level and straighten out the plane. Then I used the Girl Scout compass I always kept around my neck and plotted a rough course to Paris. Then I got on the radio.
“Mayday, Mayday, Mayday, N3919G complete instruments failure, request emergency landing at nearest airfield.” The air went dead for 30 seconds.
Then I heard “N3919G, cleared for approach Charles de Gaulle, steer 240 degrees and change over to 118.15.” As I made my final approach, the Eiffel Tower sparkled off my starboard wingtip. I could see the entire Charles de Gaulle fire department (Sapeurs Pompiers in French), blinking their blue lights. When I hit the runway, they chased me all the way until I stopped.
Then a captain elaborately dressed in firefighting gear stepped out of his fire engine cabin and asked, “Are you alright?”
The experience reminds me of the government’s current economic policies. They are attempting to rebuild the engines of a plane while flying at 20,000 feet in the dark with no tools or instruments. Except there are 340 million passengers this time, not just one.
Will we pull out of the dive before we crash?
Back in January and February, my biggest concern about the markets was complacency. It is safe to say now that this concern has completely vanished, not just by me but everyone.
I have been looking for parallels to the current crisis, and there are few to choose from. Stocks, bonds, oil, commodities, and the US dollar are all crashing at the same time. S&P 500 multiples (SPY) have been marked down from 22X to 18X in a mere two months, and 16X or 14X beckon. The NASDAQ multiple has collapsed from 31 to 21. Small caps (IWM) were hit the hardest, falling to 2016 levels.
It was the action in the bond market that was most concerning, which was hit by massive waves of selling from both foreign investors and hedge funds facing margin calls. Liquidity has disappeared and the Treasury was ill-equipped to deal with this because DOGE just fired 10,000 of their people.
Most don’t realize that US bonds are the lifeblood of the global financial market. When they drop 10% in a week, as they just did, ripples become tidal waves. Suddenly, banks are undercapitalized, central banks and companies have to mark down reserves, and margin calls run rampant.
A national debt of $36 trillion, which was happily ignored for 25 years, instantly becomes a crisis. Is US debt headed for junk status? Will Trump impose capital controls to stem the outflows? You might call these questions fanciful or born of conspiracy theories, but I was woken up every morning last week from European banks asking exactly this. When they start asking in the debt markets, you have a problem.
All earnings reports coming out now can be torn up and thrown out the window. That’s because they reflect profits from an ancient economy in the distant past that no longer exists, like January-March 2025.
Back then, it was about a growing globalized economy spinning off ever-increasing profits and higher multiples and share prices. Now it’s about a shrinking global economy at war with itself, declining profits everywhere justifying lower multiples and share prices.
Last year, S&P 500 earnings came in at $240. Two months ago, the consensus forecast for 2025 was $270. Now it’s moving towards $230.
The average price earnings multiple is now back up to 20X. The 120-year average is 14X. American exceptionalism picked up another 8 multiple points after WWII. If we give all that back and the multiple returns to 14X that gets the (SPX) down to $3,220, or off 47.5% from the February high.
Confidence levels are collapsing at 50-year lows. We’re rearranging the deckchairs on the Titanic while we’re headed straight for a giant iceberg, and it's dark and darn cold outside. We are not getting a reversion to the mean in stock markets; we are getting a reversion far beyond the mean. Markets won’t bottom until all the worst-case scenarios out there are fully discounted.
The shock to the global financial system is of the same magnitude as when Nixon took the US off the gold standard in 1972. That’s why gold is rocketing now as then. The US dollar then lost half its value.
This is the first bear market created by government policies since 1930, back when the Smoot-Hawley Tariff Act started the last major trade war. When the current policies end, the bear market will end and not before then. We are now within days, if not hours, to the complete collapse of the global financial system. The global economic pie is rapidly shrinking, and everyone is fighting over the scraps that are left.
Trillions of dollars of capital from corporate America have been stranded abroad in the wrong countries because Trump convinced them to move there eight years ago, like Vietnam. Millions of small businesses unable to eat the tariffs or pass them on to consumers will go out of business.
With no policy changes from Washington expected any time soon, it’s likely that we will eventually exhaust selling and enter an “L” shaped bottom. That has stocks bottoming out and then moving sideways in a range for a long time. You can forget about any immediate sharp “V” type recovery that takes us back to the all-time highs we saw in February.
So you should use any rally in the stock market to sell short calls against the long equity positions you want to keep. If you want to be more proactive than that, I have some clever ideas for you.
We now know that Trump is willing to resort to gaming the market by talking it up whenever the S&P 500 hits 5,000. That’s because he is taking immense heat from Americans who have lost 20%-30% of their retirement funds in two months.
You can use the next plunge to 5,000 in the (SPX) to buy the best quality technology names like (AMZN), (AAPL), (GOOGL), (PANW), and (NFLX), which likely won’t go to new lows on the next crash and will rocket on any trade war success.
There are other fish to fry.
Let’s say that a tweet hits that the trade war is progressing or is about to end. What are China’s biggest US imports? Corn (CORN), wheat (WEAT), or soybeans (SOYB), which all have actively traded ETFs just above four-year lows. They will take off like a scalded cat on any good news.
The next time the Volatility Index ($VIX) takes a run at $60, buy the Proshares Short Vix Short Term Futures ETN (SVXY), an exchange-traded fund that sells short futures in the ($VIX). You can buy shares in it like any ETF. There is no expiration date. It hit a low of $32.90 on Thursday, but traded as high as $40 the week before, and $50 in December.
By the way, icebergs don’t enter the Atlantic shipping lanes anymore. Global warming has melted them before they do. The few that do drift south are tagged with transmitters that show up on ship radars. So if you’re planning a trip to Europe this summer on the Queen Mary II, you don’t need to worry about suffering the fate of Leonardo DiCaprio.
The Financial Crisis Trade is Still On, with 10-year US Treasury bonds hitting 4.6% yields, the US dollar plunging to 3-year lows, and gold at an all-time high. Foreign investors are abandoning the US at an unprecedented pace. It turns out that confidence in the US was worth a lot more than we thought. You don’t know what you have until you lose it.
Trump Cracks, Caves, and Does a U-Turn, announcing a 90-day delay in trade tariffs forced by the imminent collapse of global financial markets. The 10% tariffs remain. Inflation is still on track to skyrocket. A Fed interest rate cut is now on the table for June to head off a recession. What is the long-term trend now? It’s anyone’s guess. But Christmas shopping is certainly going to be a lot more expensive this year.
China Imposes 125% Retaliatory Tariffs, and Europe is yet to come. China’s biggest US imports are all agricultural, and many commodities hit multi-year lows on Friday, delivering a knockout blow to US farmers just as the planting season begins. Shiploads of American grain may be left to rot in the ports as Chinese importers refuse delivery due to the dramatic price increase. Also announced were antitrust investigations of US tech companies and export restrictions on rare earths needed for tech products. It’s 1930 all over again.
Chinese Tariffs Raised to 145%, in a US retaliation to the retaliation. Markets tanked again. Most of the goods and parts cannot be obtained elsewhere. Recession fears are now going mainstream, it’s not just me.
Unemployment rises to 4.2%, a multi-year high, says the March Nonfarm Payroll Report. Nonfarm payrolls in March increased to 228,000 for the month, up from the revised 117,000 in February. Health care was the leading growth area, consistent with prior months. The industry added 54,000 jobs, almost exactly in line with its 12-month average.
Federal Reserve’s Powell Says Inflation to Rise, as a result of the larger-than-expected tariffs. But don’t expect any interest rate cuts until yearend when the Fed has the benefit of 20/20 hindsight on inflation.
Volatility Hits 16-Year High at 60, in overnight Asia trading. The ($VIX) peaked at 95 during the Financial Crisis in 2009. ($VIX) may not have peaked yet.
Oil Crashes, down an amazing $13, or 18% in a week, from $72 to $59. High dividend-paying (XOM) has collapsed by 18%. It is the sharpest fall in Texas tea prices since the 1991 Gulf War. Recession fears are running rampant, and no one wants to pay for storage until a recovery, which may be years off. Sell all energy rallies.
JP Morgan Raises Recession Risk to 79%, while credit investors remain sanguine even as funding stress threatens to build. The small-cap focused Russell 2000, which has been battered in the recent selloff, is now pricing in a 79% chance of an economic downturn, according to JPMorgan’s dashboard of market-based recession indicators. Other asset classes are also sounding alarms.
Q1 Gold Inflows Hit Three-Year High, according to the World Gold Council. Gold ETFs saw an inflow of 226.5 metric tonnes worth $21.1 billion in the first quarter, the largest amount since the first quarter of 2022, when global markets were grappling with the immediate consequences of Russia's invasion of Ukraine. This raised their total holdings by 3% to 3,445.3 tonnes by the end of March, the largest since May 2023. Their record was 3,915 tonnes in October 2020.
Canadian Visitors Fall 32%, in line with other forecasts of a collapse in international travel. That is why Delta Air Lines (DAL) crashed by 50% in three months. Conditions will get worse before they can get better. A weak dollar has caused the price of my Europe trip this summer to rise by 20%.
Consumer Confidence is in Free Fall. Friday brought a fresh signal that consumers were queasy even before Wednesday’s policy shift. US consumer sentiment tumbled to the second-lowest level on record in a University of Michigan survey, as inflation expectations soared to multi-decades highs. That result was based on interviews from March 25 through April 8, before the change in tack on tariffs.
Delta Pulls Guidance, citing the trade war’s impact on sales. The stock is down 50% in three months. No guidance from any company is possible or credible, as Q1 earnings took place in an ancient, more business-friendly world.
April is now up by -1.13%so far due to the explosion in implied volatilities in our hedged positions. A lot of the Friday options prices made no sense and may reflect broker efforts to increase margin requirements. That takes us to a year-to-date profit of +14.96%so far in 2025. My trailing one-year return stands at a spectacular +75.65%. That takes my average annualized return to +50.28%and my performance since inception to +765.85%, a new all-time high.
It has been another wild week in the market. I was forced out of longs in (GLD) and (TLT) thanks to panic-inspired out-of-the-blue freefall. I managed to hang on to my longs in (COST), (NVDA), and (NFLX) because they were so far in the money. I used a 25% rally in the leveraged long Bitcoin play (MSTR) to add a short. I also used a run by the Volatility Index ($VIX) to $54 to add the Proshares Short VIX Short Term Futures ETN (SVXY). Unusual times call for unusual trades.
Some 63 of my 70 round trips, or 90%, were profitable in 2023. Some 74 of 94 trades have been profitable in 2024, and several of those losses were really break-even. That is a success rate of +78.72%.
Try beating that anywhere.
My Ten-Year View – A Reassessment
We have to substantially downsize our expectations of equity returns in view of the election outcome. My new American Golden Age, or the next Roaring Twenties is now looking at multiple gale-force headwinds. The economy will completely stop decarbonizing. Technology innovation will slow. Trade wars will exact a high price. Inflation will return. The Dow Average will rise by 600% to 240,000 or more in the coming decade. The new America will be far more efficient and profitable than the old. My Dow 240,000 target has been pushed back to 2035.
On Monday, April 14, at 8:30 AM EST, the Consumer Inflation Expectations are announced.
On Tuesday, April 15, at 8:30 AM, the New York Empire State Manufacturing Index isreleased.
On Wednesday, April 16, at 1:00 PM, the Retail Sales are published.
On Thursday, April 17, at 8:30 AM, the Weekly Jobless Claims are disclosed. We also get Housing Starts and Building Permits.
On Friday, April 18, markets are closed for Good Friday.
As for me, in 1987, to celebrate obtaining my British commercial pilot’s license, I decided to fly a tiny single-engine Grumman Tiger from London to Malta and back.
It turned out to be a one-way trip.
Flying over the many French medieval castles was divine. Flying the length of the Italian coast at 500 feet was fabulous, except for the engine failure over the American air base at Naples.
But I was a US citizen, wore a New York Yankees baseball cap, and seemed an alright guy, so the Air Force fixed me up for free and sent me on my way. Fortunately, I spotted the heavy cable connecting Sicily with the mainland well in advance.
I had trouble finding Malta and was running low on fuel. So I tuned into a local radio station and homed in on that.
It was on the way home that the trouble started.
I stopped by Palermo in Sicily to see where my grandfather came from and to search for the caves where my great-grandmother lived during the waning days of WWII. Little did I know that Palermo had the worst windshear airport in Europe.
My next leg home took me over 200 miles of the Mediterranean to Sardinia.
I got about 50 feet into the air when a 70-knot gust of wind flipped me on my side perpendicular to the runway and aimed me right at an Alitalia passenger jet with 100 passengers awaiting takeoff. I managed to level the plane right before I hit the ground.
I heard the British pilot of the Alitalia jet say on the air, “Well, that was interesting.”
Fire engines flashing lights descended upon me, but I was fine, sitting in my cockpit, admiring the tree that had suddenly sprouted through my port wing.
Then the Carabinieri arrested me for endangering the lives of 100 tourists. Two days later, the Ente Nazionale per l’Aviazione Civile held a hearing and found me innocent, as the windshear could not be foreseen. I think they really liked my hat, as most probably had distant relatives in New York City.
As for the plane, the wreckage was sent back to England by insurance syndicate Lloyds of London, where it was disassembled. Inside the starboard wing tank, they found a rag that the American mechanics in Naples had left by accident.
If I had continued my flight, the rag would have settled over my fuel intake valve, cut off my gas supply, and I would have crashed into the sea and disappeared forever. Ironically, it would have been close to where French author Antoine de St.-Exupery (The Little Prince) crashed his Lockheed P-38 Lightning in 1944.
In the end, the crash only cost me a disk in my back, which I had removed in London and led to my funny walk.
Sometimes, it is better to be lucky than smart.
Antoine de St.-Exupery on the Old 50 Franc Note
Good Luck and Good Trading,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
https://www.madhedgefundtrader.com/wp-content/uploads/2022/03/plane.png544844april@madhedgefundtrader.comhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngapril@madhedgefundtrader.com2025-04-14 09:02:222025-04-14 11:20:19The Market Outlook for the Week Ahead, or Rearranging the Deckchairs on the Titanic
(MARKET OUTLOOK FOR THE WEEK AHEAD, or TRUMP DECLARES WAR ON THE WORLD),
(SPY), (TLT), (META), (GOOGL), (MSFT), (CRM),
(COST), (NVDA), (NFLX), (NVDA), (TSLA), (GLD)
I often get asked why I am still working after 55 years in the stock market.
With five customers calling me this morning to thank me for saving their retirement funds, you might understand why.
It is now clear that in retrospect and with the wisdom of 20/20 hindsight, corporate America flipped the switch on the economy, shutting it off and sending all hiring and investment to a grinding halt. They wanted to wait and see how business would fare under the new Trump regime. We didn’t see this in the data until February.
That’s when I started shouting from the rooftops that we were already in a recession and bear market and that you should sell everything, especially big tech stocks. If you waited until August for the data to confirm this, the move-down will be over.
T-bills, bonds, and gold were the only safe places to park your money. Gold just delivered the best quarter since 1986, up 19%. That month I took my short positions up to 80%, a 17-year high for the Mad Hedge Fund Trader.
Those now look like very wise decisions, with markets suffering their worst two-day crash since 1987, and the bad news has only just started. Option implied volatiles are at five-year highs, and risk positions everywhere are going to hell in a handbasket. Tariff-driven inflation could spike to 10% by next year.
Even securities unrelated to stocks, like junk bonds (JNK), down $6 points in two weeks,were getting thrown out with the bathwater because of margin calls. The Mad Hedge AI Market Timing Index is at a five-year low at a reading of 4. Q1 saw the fastest reversal in market momentum in 38 years.
I even heard an expression new to me: “Hate selling”. That refers to a global disengagement from investment in the US and the return of capital to better-performing foreign markets and currencies. Trump is attacking their countries.
The global nature of the selloff is most disturbing, with every country seeking its stock markets rolling over all at once.That presages a global recession.
Analysts across Wall Street are tearing up their playbooks for 2025 and setting new downside targets as fast as they can like I did in February.
Instead of the $500 billion tax increase I expected tariffs would deliver, we got $1 trillion. The worst forward guidance from corporations since the Great Depression starts next week. Retaliatory 34% tariffs from China hit today, and those from Europe will come soon. Trump has promised retaliation.
That forces me to adjust my downside target for the S&P 500 from $5,000 to $4,500. That is a 26.6% selloff from the February top, or 11% more downside from here. How do we get there? Simply assign the 2019 earnings multiple low of 18 and multiply it by S&P 500 earnings pared back by the trade war from$270 to $250. That gets you to $4,500 in months, if not weeks (18 X $250).
No help is that we entered this crash with valuation highs that have only been seen in 1999 and 1929. The higher the high, the lower the lows that follow.
In fact, there is no bottom to this market.
This forecast is based on historical data and assumes that markets are rational and orderly. But as we all know too well, markets can be anything but rational and orderly once the panic selling and margin calls begin.
Of course, a tweet on social media about negotiations could trigger a massive short-covering rally at any time. In reality, the stock market has been negotiating on behalf of Europe and China quite successfully. The further stocks fall, the greater the pressure on Trump to fold.
Tariffs advertised at the White House announcement left our trading partners scratching their heads because they were completely bogus and were a large multiple of the true tariffs. The person who came up with these cockamamie figures remains anonymous, as they used an arbitrary, obscure formula made up from scratch that had never been seen before by the economic community.
For example, the White House claimed the tariff charged by Vietnam was 90%, when in fact it is 5.5%. The claimed tariff for Taiwan was 64%, while the actual one is 1.7%.
The White House numbers supposedly included a factor for non-tariff barriers. I happen to be an expert in these because Japan was notorious for its non-tariff barriers in the 1970s. For example, import documents have to be submitted in Japanese. Hey, I speak Japanese. All they had to do was ask me! How did they quantify this?
That’s anyone’s guess.
The saddest thing is that this new bear market was not caused by surprise external events as in all others in the past century, but is totally voluntary and self-inflicted. It is actually caused by the false assumptions of conspiracy theorists. But these days, it is the conspiracy theorists who have the upper hand.
Why do we suddenly need an emergency jobs program now, when the country is operating at full employment? Many of those skills needed to man the jobs Trump is trying to take back from China, such as in textiles, clothing, shoes, and toys,haven’t existed in the US for generations. Nor does the machinery.
Some three-quarters of the US trade deficits are offset by a monster surplus in services run up by the likes of Meta (META), Alphabet (GOOGL), Microsoft (MSFT), Oracle (ORCL), and Salesforce (CRM). And if you didn’t already know, the future is in services, not in manufacturing.
I don’t know about you, but I don’t lose a lot of sleep at night worrying about our trade deficit with Vietnam. Trump took what was a great economy and destroyed it in an effort to remake it in his own image. Is this crazy experiment with 20% of your retirement funds cost so far? How about 50%?
No wonder the Republican Party is panicking! Recent elections have shown unprecedented swings by voters away from them, fearful of their 401Ks.
How many factories will return to the US as a result of the tariffs? My bet is none. There will be many announcements but no actual action, as with the first Trump administration.
Labor costs are $5 an hour in Mexico and China, versus $25-$75 an hour in America. We keep the high-paying, high-value-added jobs and send the cheap, dangerous, highly energy-consuming, and high-polluting ones abroad. Foreigners get rich and earn the money to buy our services.
Their government then takes the excess funds and buys US Treasury bonds (China still has $760 billion worth) and finances our deficits with ever-depreciating paper. It is one big mutually enriching cycle. That’s why globalization has worked for 85 years.
The best thing for companies is to now sit on their hands and do nothing and wait out the next four years until a future administration eliminates the tariffs. That’s much cheaper than spending $20 billion on a new factory here which might become useless in four years.
What is a stock market worth that is walled off from the rest of the world that's in recession? Maybe half or less the February peak value, but I’m only guessing.
It might be much worse.
Keep all cash positions in 90-day T-bills and keep all hedges of existing equity portfolios also at a maximum until the stock market can find its own bottom. I’d rather miss the first 10% move and buy on the way up than catch a falling knife right now.
April is now down -7.25%so far due to the explosion in implied volatilities in our hedged positions. A lot of the Friday options prices made no sense and may reflect broker efforts to increase margin requirements. That takes us to a year-to-date profit of +6.58%so far in 2025. My trailing one-year return stands at a spectacular +74.93%. That takes my average annualized return to +49.73%and my performance since inception to +758.47%.
It has been another busy week for trading. I used the meltdown to add very deep in-the-money longs in (COST), (NVDA), and (NFLX). I stopped out of an existing (NVDA) long as we approached the upper strike price. I kept my very deep in-the-money long in (TSLA). I also kept my (GLD) long as a hedge.
Some 63 of my 70 round trips, or 90%, were profitable in 2023. Some 74 of 94 trades have been profitable in 2024, and several of those losses were really break-even. That is a success rate of +78.72%.
Try beating that anywhere.
My Ten-Year View – A Reassessment
We have to substantially downsize our expectations of equity returns in view of the election outcome. My new American Golden Age, or the next Roaring Twenties is now looking at multiple gale-force headwinds. The economy will completely stop decarbonizing. Technology innovation will slow. Trade wars will exact a high price. Inflation will return. The Dow Average will rise by 600% to 240,000 or more in the coming decade. The new America will be far more efficient and profitable than the old. My Dow 240,000 target has been pushed back to 2035.
Trump Announces Worst-Case Scenario Tariffs, tanking stocks and crypto, with big technology stocks taking the biggest hits. “RISK OFF” assets like gold, silver, bonds, and foreign currencies are soaring. The Dow Average could suffer a 1987-style crash on Monday. Volatility will explode. Duties on Chinese goods were raised to 34%, Europe 20%, and Southeast Asian countries up to 45%. All countries have been hit with high tariffs to avoid transshipments. Retaliation from the world is on the way. It’s another nail in the economy’s coffin, which is now almost certainly in recession. S&P 500 at 5,000 here we come. Is this the day the great depression started? Some $2 trillion in market capitalization was lost today. Tariffs to Push All Home Prices Higher, as much as 5%, as homebuilders wind down new construction because of higher costs. Drywall comes from Mexico, lumber from Canada, and 10% of the workforce are immigrants. It could explain the recent improvement in existing home sales. Jobless Claims Hit Three-Year High. Continuing claims, a proxy for the number of people receiving benefits, increased to 1.9 million in the week ended March 22, slightly higher than economists expected. Those applications have been hovering just under that level for several months now. Meanwhile, initial claims dipped last week, to 219,000, according to Labor Department data released Thursday. Auto Loan Defaults Hit 21-Year High, with 6.5% of subprime borrowers at least 60 days overdue on payments. It is the largest default rate since data began collection in 1994. Yet another recession indicator. Tesla Sales Fall off a Cliff,down 13% on the quarter, its weakest performance in nearly three years, as backlash to CEO Elon Musk's embrace of far-right politics grows and as consumers seek out newer models from rival electric-vehicle makers. The EV maker's stumbling sales indicate that the one-time leading brand is reeling from the fallout of the company not refreshing its vehicle lineup in years, and Musk's foray into politics in the United States and Europe. The company posted weak sales in numerous European markets and China, even as more consumers are opting for EVs. Sell (TSLA) on rallies.
Global Sentiment is collapsing, over trade wars and recession fears. Business sentiment among big Japanese manufacturers worsened in the three months to March, a central bank survey showed on Tuesday, a sign escalating trade tensions were already taking a toll on the export-reliant economy. Auto exports to the US are a major support for the Japanese economy, which is an American ally. A global contagion is afoot. US Dollar Declines as a Reserve Currency, in the last quarter of 2024 while the percentage of actual dollars held as reserve ticked up, IMF data showed on Monday. Dollar-equivalent amounts dropped also among holdings in euro, pound sterling, yuan, yen, Swiss franc, and Australian and Canadian dollars, with only the latter showing a tick up in the percentage of holdings, the IMF's Currency Composition of Official Foreign Exchange Reserves (COFER) data showed. The end of American exceptionalism means a cheaper greenback. Vaccine Stocks Get Nailed, as the FDA moves the eliminate the vaccine establishment. Expect stocks to fall and disease to rise. The Food and Drug Administration's top vaccine official, Peter Marks, has been forced to resign, the most high-profile exit at the regulator as the Trump administration undertakes an overhaul of federal health agencies. Gold Stocks in Comex Warehouses Hit Record highs, due to the risk of import tariffs curtailing shipments to the United States from other countries. Latest data from Comex, part of CME Group, shows gold stored in its warehouses in the United States at an all-time high of 43.3 million troy ounces worth $135 billion at current prices compared with 17.1 million in November. Spot gold prices surged past $3,100 per ounce to a fresh record high on Monday. Bullion is up 19% so far this year after rising 27% in 2024. Buy (GLD) on dips.
On Monday, April 7, at 8:30 AM EST, the Used Car Prices are announced.
On Tuesday, April 8, at 8:30 AM, the NFIB Business Optimism Index isreleased.
On Wednesday, April 9, at 1:00 PM, the FOMC Minutes are published.
On Thursday, April 10, at 8:30 AM EST, the Weekly Jobless Claims are disclosed. We also get the Consumer Price Index and Inflation Rate.
On Friday, April 11, at 8:30 EST, the Producer Price Index for March is printed. We also get the University of Michigan Consumer Sentiment. At 2:00 PM, the Baker Hughes Rig Count is printed.
As for me, with the 38th anniversary of the 1987 crash coming up this year, when shares dove 20% in one day, I thought I’d part with a few memories.
I was in Paris visiting Morgan Stanley’s top banking clients, who back then were making a major splash in Japanese equity warrants, my particular area of expertise.
When we walked into our last appointment, I casually asked how the market was doing (Paris is six hours ahead of New York). We were told the Dow Average was down a record 300 points. Stunned, I immediately asked for a private conference room so I could call the equity trading desk in New York to buy some stock.
A woman answered the phone, and when I said I wanted to buy, she burst into tears and threw the handset down on the floor. Redialing found all transatlantic lines jammed.
I never bought my stock, nor did I find out who picked up the phone. I grabbed a taxi to Charles de Gaulle airport and flew my twin Cessna as fast as the turbocharged engines took me back to London, breaking every known air traffic control rule.
By the time I got back, the Dow had closed down 512 points. Then I learned that George Soros asked us to bid on a $250 million blind portfolio of US stocks after the close. He said he had also solicited bids from Goldman Sachs, Merrill Lynch, JP Morgan, and Solomon Brothers, and would call us back if we won.
We bid 10% below the final closing prices for the lot. Ten minutes later, he called us back and told us we won the auction. How much did the others bid? He told us that we were the only ones who bid at all!
Then you heard that great sucking sound.
Oops!
What has never been disclosed to the public is that after the close, Morgan Stanley received a margin call from the exchange for $100 million, as volatility had gone through the roof, as did every firm on Wall Street. We ordered JP Morgan to send the money from our account immediately. Then they lost the wire transfer!
After some harsh words at the top, it was found. That’s when I discovered the wonderful world of Fed wire numbers.
The next morning, the Dow continued its plunge, but after an hour managed a U-turn, and launched on a monster rally that lasted for the rest of the year. We made $75 million on that one trade from Soros.
It was the worst investment decision I have seen in the markets in 53 years, executed by its most brilliant player. Go figure. Maybe it was George’s risk control discipline kicking in?
At the end of the month, we then took a $75 million hit on our share of the British Petroleum privatization because Prime Minister Margaret Thatcher refused to postpone the issue, believing that the banks had already made too much money.
That gave Morgan Stanley’s equity division a break-even P&L for the month of October 1987, the worst in market history. Even now, I refuse to gas up at a BP station on the very rare occasions I am driving a rental internal combustion engine from Enterprise.
My Quotron Screen on 1987 Crash Day
Good Luck and Good Trading,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
https://www.madhedgefundtrader.com/wp-content/uploads/2025/03/morgan-stanley.png7181040april@madhedgefundtrader.comhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngapril@madhedgefundtrader.com2025-04-07 09:02:212025-04-07 13:07:53The Market Outlook for the Week Ahead, or Trump Declares War on the World
Below please find subscribers’ Q&A for the April 2 Mad Hedge Fund Trader Global Strategy Webinar, broadcast from Incline Village, NV.
Q: Why are there days when both bonds and interest rates are going up?
A: Well, there is a tug-of-war going on in the bond market. When recession fears are the dominant theme of the day, interest rates go down and bond prices go up. Remember, it's an inverse relationship. When the deficit and inflation are the big fears and you get those on the inflation announcement days—we get three or four of those a month—then interest rate goes up and bonds go down. That will be a big driver of stock prices because they are very sensitive to interest rates always.
Q: Do you think Tesla (TSLA) has hit bottom?
A: I don't think so. I think the declining sales continue. I think the Tesla brand has been severely damaged as long as Elon Musk stays in politics. Also, no one buys cars in recessions—sorry, but that is the last thing that people or companies want to buy is a brand-new car.
Q: What will happen to the smaller EV makers?
A: They will all go bankrupt. You know, unless they have a very rich uncle like Lucin Group (LCID) does—Saudi Arabia can keep pumping money in there forever. Amazon owns a big piece of Rivian Motors (RIVN) I don't think any of the small EV makers will make it because they now have Tesla to compete against.
Q: Do you have any way to short restaurant stocks as an industry?
A: I don't know of a single industry ETF for restaurants only. Restaurants are not an industry I have spent a lot of time studying because the margins are so low. I prefer a 70% margin to a 3% margin ones. There are a lot of things like consumer discretionary, so you just have to go shopping in the ETF world. There are more than 3,000 listed ETFs these days in every conceivable subsector of the economy, more than there are listed stocks, so there might be something out there somewhere. Yes, you are correct in wanting to short restaurants going into a recession as well as airlines, rental car companies, and hotels, but these things are already down a lot—you know, 40% or so. So, be careful shorting after these things have already had enormous declines in a very short time.
Q: Will the recession cause Democrats to win midterm elections?
A: If I were a betting man—and of course I'm not, I only go after sure things, —I would say yes. But, you know, 18 months might as well be 18 years in the political world. So, who knows what will happen? Suffice it to say that yesterday's election results were overwhelmingly positive for the Democrats and represent a very strong “no vote” for Trump policies and Musk policies. Even in Florida where they won, the victory margin shrank from 35% six months ago to 12%. That is an enormous swing in the electorate away from Republicans, and that's why the Republicans are very nervous about any election. That's why the Texas governor is blocking a by-election there. He’s afraid he’ll lose.
Q: Is Tesla (TSLA) toast for good?
A: If Elon Musk went back to Silicon Valley and just managed Tesla and kept his mouth shut on non-Tesla issues, I bet the stock would double from these levels over the medium term. So yes, it just depends on how much Elon Musk wants his $200 billion back. That's how much he's lost on the stock depreciation since December.
Q: Is it time to short Delta Air Lines (DAL)?
A: You kind of missed the boat. No point in closing the barn door after the horses have bolted. This was a great short in February, and the same with hotels and rail companies. So be careful of your biggest recession indicators; they have all already collapsed and are more likely to bounce along the bottom.
Q: What are the probabilities that the tariff war could backfire, and we end up with massive job losses and a shortage of goods?
A: Actually, that is the most likely outcome. In my humble opinion, we know big layoffs are coming already. Prices are going to go up, so people will buy less. And prices will go up a lot because of the tariffs, so it's the perfect, perfect economy destruction strategy. And of course, that all feeds directly into the stock market.
Q: Do you think a 10% decline is enough to reflect all of that?
A: Absolutely not. More like down 20% or down 30% to discount the destruction of the economy—some say by half. So, that's an easy question to answer.
Q: Do you think Palantir (PLTR) will recover from this dip?
A: Only when government spending resumes. That could happen sooner once we get some clarity on where the government is actually going to spend its money. Palantir claims they can save masses of money for the government by getting it just to use their software, and a lot of companies are making that claim, like Arthur Anderson, who also had all their contracts axed. So, we don't know. “We don't know” is the most commonly heard expression in the country today. We just don't know what's going to happen.
Q: And is Palantir (PLTR) cheap after a 40% sell-off?
A: No. It's still incredibly expensive and that is the concern.
Q: Is crypto a good short-term bet in this type of high volatility?
A: No, it's not. It's a horrible bet. A 10% decline in the S&P 500 delivered a 30% decline in crypto. If we drop another 10%, you can expect crypto to drop another 30%. You know, it's like a 3x long NASDAQ ETF. That's how it's behaving. So, I watch it very carefully as a risk indicator. If we get a substantial rally, I'm looking to short the big players in crypto, which would be MicroStrategy (MSTR) and ProShares Bitcoin Strategy ETF (BITO). Looking for a good short there or at least to write calls. The call premiums are extremely high on all these crypto plays—sometimes they're 84%.
Q: How much more inflation can the economy handle before we are in a deep recession?
A: Well, I think we're in recession now. Almost every inflation indicator is pointing to lots of upside and, of course, the tariffs haven't even started yet. They start today, and it'll take at least a month or two to see what the actual impact of the tariffs will be on local prices.
Q: Why do you think the tariffs will be damaging to the economy?
A: Virtually every economist in the world has agreed that the trade wars of the 1930s were a major cause of the Great Depression, but not the sole cause. The only economists that have changed their minds now are the ones that have just gotten Trump appointments. I mean, that's it, clear and simple. You raise the price, you get less demand—basic supply and demand economics. I'm not inventing anything new here. It’s basic economics 101.
Q: Here's a good question that has puzzled people for a century: If Copper is up, why is Freeport McMoRan (FCX) down?
A: Freeport is a stock first and a commodity producer second. When stocks crash, people flee to commodities, and that is what is happening. Chinese are buying up copper ingots as a gold alternative, and people are dumping Freeport because it's in an index. Some 80% of all the selling is index selling. So if you're in that index, your stock goes down regardless of your individual fundamentals. Whether it's a good company or not, whether your earnings are expanding or not, I'm seeing this happen in lots of other great companies.
Q: Is gold (GLD) subject to 25% import duties? What will that do to the pricing of gold?
A: Physical gold got an exemption, so it is not. However,gold stocks in COMEX warehouses in New York hit record highs as the managers rushed to bring in gold to beat the tariffs to meet the ETF demand in the United States. So there’s a lot of turmoil in that market, as there are in all markets now—people trying to beat the tariffs. By the way, I bought all the computer equipment my company needs for the rest of this year in order to beat the tariff increases because all my Apple (AAPL) stuff comes from China and they're looking at 60% tariffs.
Q: If the silver (SLV) does go to a new all-time high, does that mean the S&P 500 is going to an all-time high?
A: No, if anything (SPY) goes to a multi-year low. We may be losing a generation of stock investors here. That puts silver within easy range at $50.
Q: Will biotech stocks shift because of the policy changes?
A: They're losing their government research funding, the authorization process for new drug approvals has had sand thrown at it. Time delays have been greatly extended on new approvals and suffice to say, the leadership does not have the confidence of the industry, and biotech stocks are doing horribly. You know, when you appoint someone to head a department whose main job is to dismantle that department, that's generally really horrible for the industry, especially when the industry is dependent so much on government grants for research. We are losing a generation of new scientists. That puts off any cures for cancer, Alzheimer’s, or diabetes into the far future.
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 Good Trading,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
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