It’s a good thing that the #MeToo movement wasn’t around 40 years ago. For if it was, Morgan Stanley would have been publicly humiliated in the press daily.
The firm was an “old boy” network on steroids. Employees with skirts definitely worked overtime in those prehistoric days.
However, firms evolve over the vast expanse of time. Back then, Morgan Stanley was a 1,000-man private partnership hidden away in the old General Motors building on Avenue of the Americas. Today, it is a 50,000-member global behemoth in your face on Times Square.
The share price has changed a bit, too. The average cost of my original partnership shares is 25 cents. They traded at a split-adjusted $1,000 a share today. My own share has risen 4,000 times from my original cost. And you wonder why brokers are so rich. It’s 100% capital gain now.
And like Warren Buffet, I never sold my shares so I wouldn’t have to pay the capital gains taxes. In fact, my shares cost far less than the company’s 85-cent quarterly dividend today.
It wasn’t always like this. Morgan drank the Kool-Aid big time during the 2000’s real estate bubble. When the bill came due, the firm almost went under, with the stock trading down to $5 (which was still 20 times more than my cost). Only a government bailout in the form of the TARP kept my former partners from losing everything.
The Morgan Stanley of today is a shadow of its former self in other ways. There are no more wild practical jokes, BSD’s, Masters of the Universe, or Liar’s Poker.
I can’t imagine the heads of the various equity trading desks meeting at my Manhattan Sutton Place coop to play high/low poker every Friday night, as they did for years. Carl Icahn lived a couple of floors down.
No one bets the ranch anymore. Morgan Stanley has become boring. However, boredom has a silver lining as it also brings stability, and stock investors absolutely love stability, as we are finding out now. As incredible as it may sound, Morgan Stanley has become the safe play on Wall Street.
While investors considered the immense trading profits the firm once made as coming out of a black box, fee-based earnings are predictable and reliable as a coupon stream.
You can see this newfound boredom in the firm’s employee compensation. A decade ago, it was 78% of investment banking revenue, compared to only 18% now. In my day, the janitor wouldn’t work for that.
You can thank my late mentor, Barton Biggs, for planting the seeds of the modern firm in the early 1980’s. For it was he who founded the firm’s fee-based asset management division, which is the great wellspring of profits today. Since 2005, Wealth Management’s share of profits has leaped from almost nothing during my tenure to 25% to 45% now. Today, Morgan Stanley manages an incredible $6.6 trillion, and 15% more two months ago.
Mortgage loans to customers collateralized by their shareholdings is currently the second largest source of profits. These didn’t even exist in my day (Lou Ranieri at Salomon Brothers had the lock on this business back then).
Morgan Stanley has learned some hard lessons along the way. It was forced by the Dodd-Frank financial regulation act to massively recapitalize. No more 40:1 leverage. 10:1 is much safer.
As a result, its capital position has more than doubled from $35 billion during the dark days of the 2008 crash to an astonishing $180 billion today. Profit margins are the highest since the Dotcom Bubble top in 1999. The firm is even now crafting products and services aimed at the growing band of wealthy Millennials.
Sobriety is in.
Goldman Sachs, on the other hand, has stuck to the old Wild West ways. Its earnings remain volatile, as several recent disappointing quarters of bond trading losses have attested to. The firm is now significantly smaller than Morgan, and its share price has been punished accordingly, lagging the heady appreciation of Morgan shares.
Here’s the main reason I love my old firm. It is in the catbird seat for what I call the “Exploding Deficit” trade, whereby all future investment is driven by the prospect of rising inflation.
Banks are absolutely in the sweet spot for this strategy, as is gold (GLD).
Add all this up and you have my explanation for sending out my past Trade Alerts for a long position in Morgan Stanley. They won’t be the last ones.
As for those poker nights, I think some of you guys out there still owe me a couple of grand.
Not a Bad Play
https://www.madhedgefundtrader.com/wp-content/uploads/2018/02/morgan-stanley-street-e1517545425110.jpg253400april@madhedgefundtrader.comhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngapril@madhedgefundtrader.com2025-03-14 09:02:432025-03-14 15:52:15Remembering the Old Days at Morgan Stanley
There isn’t a CEO in the country who hasn’t halted capital investment in the face of today’s unprecedented uncertainty. You can’t invest in a business without a credible GDP forecast, and Q1 is certain to deliver a large negative number, the first half of a recession.
There isn’t a consumer that isn’t cutting back on spending. With the price of everything rising, they have no choice. Entire markets, like real estate, are frozen.
Worst of all, there isn’t an investor who hasn’t postponed additional stock purchases. There is an unprecedented capital flight out of the US and into Europe and China taking place. Anything American, like the US dollar, has suddenly become toxic.
One of my favorite expressions is that “Money is like water; it flows to wherever it is treated best.” Right now, there is a Panama Canal’s worth of money flowing elsewhere, or into 90-day US Treasury bills.
And stocks are down by only 8.13% so far?
Welcome to government by reality TV.
The goal isn’t to create jobs, grow the economy, and help stabilize the world. The intention is to shock, amaze, appall, upset, disrupt, and maximize clicks for certain online social media platforms and websites. If so, they are wildly successful. So far, investors are giving the show very poor ratings, subterranean ones, and a definite thumbs down.
Last week was the worst one for stocks in two years. The Magnificent Seven are now down 15% year to date, and I bet that Tesla (TSLA), its stock down 50% in less than three months, is running at an operating loss. I would not be surprised if the country’s retirement savings have cratered by 10% so far in 2025.
Last week, I called my weekly letter “Armageddon”. I was too modest, reticent, and cautious. It should have been entitled “Armageddon on Steroids.” The US economy is probably in recession now, but we won’t see a hint of this until the Q1 numbers are out on April 30 and the confirmation on August 28.
The implications are global.
It's not a recession I’m worried about; it’s a Great Depression, a recession that a broken economy can’t get out of.There isn’t an economy in the world that isn’t being disrupted and turned on its head.
All asset classes are now screaming a recession. Oil is at a six-month low, interest rates are at a three-month low, and both the S&P 500 (SPY) and NASDAQ (QQQ) have broken their 200-day moving averages for the first time in 3 years when they fell 32% and 40%, respectively. And that was when interest rates were still at zero. The Atlanta Fed has ratcheted down its Q1 GDP forecast down to 2.4%, part one of a recession.
If you went to top up your coffee, you probably missed a 600-point move in the Dow Average ($INDU).
And here is the next black swan that is going to bite you.
The U.S. trade deficit surged in January, as import growth dwarfed a smaller increase in exports by 10:1. Imports rose 10% to $401.2 billion as businesses rushed to beat the tariffs, knocking 1.5% off of GDP. Exports climbed by a mere 1.2% to $269.8 billion. That yielded a net deficit of $131.4 billion, 34% greater than the $98.1 billion deficit in December. February is likely to be worse.
The Trump administration is setting up the perfect stagflation economy, with falling growth and rising prices. I suffered through this in the 1970s during the Nixon, Ford, and Carter administrations, and believe me, it was no fun. The triggers were two oil shocks and taking the US off the gold standard. This time, the Trigger is Trump.
It was a grim time. This was when the Dow Average flatlined for a decade, and stockbrokers drove taxis to make a living. It’s why, out of university, I went to work for The Economist magazine in London for ten years instead of heading straight for Wall Street. Brokers weren’t hiring. I didn’t get to Morgan Stanley until 1983, a year after the great bull market began.
The complete collapse of the banking sector has a very clear message: We are now in a recession. That means a 20% drawdown in this correction is a sure thing, and a 50% crash is not impossible. The promised deregulation and easier M&A policies never showed.
Keep adding protection through raising cash, executing buy-writes, and piling on bearish ETFs like the (SH) and (SDS). Tariffs will drop corporate profits by half if they continue and will wipe them out completely if they are increased in a future escalation.
When you impoverish your customers, as the tariffs are doing to Canada and Mexico practically overnight, you impoverish yourself. Their recession becomes our recession.
By the way, the jobs impact on the federal budget has been wildly exaggerated. Federal government jobs are at 3 million, versus 5 million state jobs, and 15 million local government jobs. Salaries account for only 4% of the federal budget as government employees are generally low-paid workers. If you cut them by half or by 1.5 million workers, it only knocks off 2% from federal spending.
Each government job directly creates two new private sector jobs or bout 5 million jobs.
The last safe job in the country was a government job. For centuries, government workers accepted lower pay in exchange for safety and stability. Government unions have not been allowed to go on strike. That contract has been broken this year. Companies are piggybacking their only layoffs on top of the government ones, using them as cover. This will have a leveraged effect on pushing unemployment upward.
Here's another reality check. Per capita, government jobs have been falling for a decade.
The US population rises by about 1% a year and increased to 340 million in 2024. It is up by 22 million in ten years. Population increases alone demanded the gross increase in government jobs of 300,000. Federal government jobs, in fact, have been growing at a declining rate for the past decade when compared to the private sector.
Oh, and you wanted to know about Tesla? The downside target is $140, last summer’s low, or down 72% from the top when Tesla was under 23 government investigations. If that doesn’t hold, we’re going to the 2022 low of $105, down 79%, but only if Elon Musk cares, which so far, he doesn’t. But Tesla will have no government investigations underway.
As for Nvidia, I am much more bullish. I see it going down to $90, down 41% from the top.
Read it and weep.
The Money Is Now Pouring Out
February is now flat at -0.87% return so far, which most people will take given this year’s 8.13% swan dive in the (SPY). That takes us to a year-to-date profit of +8.60%so far in 2025. That means Mad Hedge has been operating as a perfect short S&P 500 ETF since the February high. My trailing one-year return stands at a spectacular +81.34%. That takes my average annualized return to +49.91%and my performance since inception to +760.49%.
It has been a busy week for trading. I cut my risk by stopping out of a long in (JPM) near cost. I added a bearish downside play with the (SH) and a short in (GM). I started taking profits on my short positions that had completely collapsed, such as with the (TLT) and (TSLA). I used the meltdown to add very deep in-the-money long with (NVDA). Next week will probably be as busy.
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.
Layoffs Hit Five-Year High.Challenger, an international firm that helps laid-off workers find new jobs, said that job losses spiked a whopping 245% to 172,017 last month, higher than any month since the middle of the COVID-19 pandemic in July 2020 and the highest in any February since 2009. The layoffs have only just begun.
ADP Collapses, with private sector hiring falling to only 77,000, a two-year low. Companies are frozen in the headlights, unable to take action in a trade environment that is changing by the day and an economy that is rapidly deteriorating. It’s another recession confirmation data point.
Atlanta Fed Says US GDP Shrank by -2.4% in Q1 of 2025, meaning we are already well on our way into recession. The Atlanta Fed always has the most extreme forecasts. That’s the latest reading from the Atlanta Federal Reserve Bank's GDP Now model, which is considered the central bank's primary tool for measuring growth in real-time.
January Trade Deficit Hits 80-Year High, as importers rushed to beat business killing Trump tariffs. The goods trade gap surged 25.6% to $153.3 billion last month, the Commerce Department's Census Bureau said on Friday. Goods imports vaulted 11.9% to $325.4 billion. The problem for investors is that this money is subtracted from the US GDP calculation, as these are products made abroad and not in America. Expect horrific economic numbers going forward.
Consumer Spending Falls to Four-Year Low at -0.5%.US consumers unexpectedly pulled back on spending on goods like cars in January amid extreme winter weather, and a slowdown in services, if sustained, may raise concerns about the resilience of the economy. Inflation-adjusted consumer spending fell by the biggest monthly decline in almost four years after a robust holiday season. The drop in outlays was driven by an outsize decline in motor vehicle purchases and drops in categories like recreational goods.
Bitcoin Gives Up All Post-Election Gains, plunging from $108,000 to 82,000, down 24%. My bet is that in bear markets, crypto will fall faster than stocks. Avoid all crypto.
The Oil Market is in Turmoil, with crude prices dropping below $66, a four-month low. A global recession is looming large. The administration has pulled Chevron out of Venezuela, losing 300,000 barrels a day there. But OPEC has increased production, and Iraq has been pressured into reopening its northern pipeline. “Drill baby, drill” threatens to swamp American consumers with excess supply. Avoid all energy plays for now.
The Tesla Collapse Accelerates, with February sales in Germany down -76%, Norway down -46%, and France -26%. The company is also falling behind in China, and there is no way US sales targets will be met. Consumers don’t want to make a political statement with an EV purchase. Shares are now down 49% in three months. Sell all (TSLA) rallies. The final target could be $140 a share, last summer’s low. Where is the CEO?
Germany Passes Massive $1.3 Trillion Spending Stimulus, devoted to defense spending and infrastructure. It caused the biggest drop in German bond prices and rise in yields in 35 years. It was enough to drag US interest rates up, giving bonds here a terrible day. Germany is now expanding its growth while we are shrinking ours. Is Germany now the global economic engine and the US the caboose?
The New Magnificent Seven Speaks German, with European defense rising 30% so far in 2025. After being dead money for 20 years, the Frankfurt stock market has suddenly come alive. The goal is to replace American weapons in Ukraine with German ones. Among the largest defense companies, Germany’s Rheinmetall (RHM) rose 14% on Tuesday, and Italy’s Leonardo (LDO) closed 16% higher, while BAE Systems (BA) was up 15% at the end of trading. France’s Thales (HO) rose 16%, and aircraft makers Dassault Aviation (AM) and Saab (SAAB) rose 15% and 12%, respectively.
Weekly Jobless Claims Fall, by 21,000 to 221,000. Turbulence lies ahead from tariffs on imports and deep government spending cuts. That was flagged by other data on Thursday showing layoffs announced by U.S.-based employers jumped in February to levels not seen since the last two recessions amid mass federal government job cuts, canceled contracts, and fears of trade wars.
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, March 10, at 8:30 AM EST, the Consumer Inflation Expectations are announced.
On Tuesday, March 11, at 8:30 AM, the JOLTS Job Openings Report isreleased.
On Wednesday, March 12, at 8:30 AM, the Consumer Price Index is printed.
On Thursday, March 13, at 8:30 AM, the Weekly Jobless Claims are disclosed. We also get the Producer Price Index.
On Friday, March 14, at 8:30 AM, the University of Michigan was announced as well At 2:00 PM, the Baker Hughes Rig Count is printed.
As for me, since many of you are now planning long-overdue summer vacations, I thought I would pass on what I learned from the ultimate travel guru of all time before he passed away last year.
After all, who knows how long it will be until the next pandemic? The next decade, next year, or next week?
When I backpacked around Europe in 1968, I relied heavily on Arthur Frommer’s legendary paperback guide, Europe on $5 a Day, which then boasted a cult-like following among impoverished but adventurous Americans. The charter airline business was then booming, plunging airfares, and suddenly Europe came within reach of ordinary Americans like me.
Over the following years, he directed me down cobblestoned alleyways, dubious foreign neighborhoods, and sometimes converted WWII air raid shelters to find those incredible travel deals. When he passed through town some 50 years later, I jumped at the chance to chat with the ever-cheerful, worshipped travel guru.
Frommer believed there are three sea change trends going on in the travel industry today. Business is moving away from the big three travel websites, Travelocity, Orbitz, and Priceline, who have more preferential lucrative but self-enriching side deals with airlines than can be counted, towards pure aggregator sites that almost always offer cheaper fares, like Kayak.com, Sidestep.com, and Fairchase.com.
There is a move away from traditional 48-person escorted bus tours towards small group adventures, like those offered by Gap Adventures, Intrepid Tours, and Adventure Center, that take parties of 12 or less on culturally eye-opening public transportation.
There has also been a huge surge in programs offered by universities that turn travelers into students for a week to study the liberal arts at Oxford, Cambridge, and UC Berkeley. His favorite was the Great Books program offered by St. John’s University in Santa Fe, New Mexico.
Frommer says that the Internet has given a huge boost to international travel, but warns against user-generated content, 70% of which is bogus, posted by the hotels and restaurants touting themselves.
Frommer turned an army posting in Berlin in 1952 into a travel empire that publishes 340 books a year, or one out of every four travel books on the market. I met him on a swing through the San Francisco Bay Area (his ticket from New York was only $150), and he graciously signed my tattered, dog-eared original 1968 copy of his opus, which I still have.
Which country has changed the most in his 60 years of travel writing? France, where the citizenry has become noticeably more civil since losing WWII. Bali is the only place where you can still actually travel for $5/day, although you can see Honduras for $10/day. Always looking for a deal, Arthur was on his way to Chile, the only country in the world he had never visited.
Arthur Fromer passed away in 2024 at the age of 95.
Arthur’s Last Big Play in Bali
Good Luck and Good Trading,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
https://www.madhedgefundtrader.com/wp-content/uploads/2018/07/bali-girl.jpg334472april@madhedgefundtrader.comhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngapril@madhedgefundtrader.com2025-03-10 09:02:522025-03-10 10:21:08The Market Outlook for the Week Ahead, or The Economy is Grinding to a Halt
Armageddon is not a word I use lightly. But this weekend, every technical service I subscribed to warned that the recent damage to the market was immense. It’s time to raise cash, hedge your positions, or otherwise position for a bear market.
I have noticed over the past half-century that the best technicians spend a lot of time reading up on fundamentals, and the best fundamentalists spend a lot of time looking at charts. When both go to hell in a handbasket, as they are now, it’s time to head for the hills.
The only way Armageddon can be avoided, or at least postponed, is if the trade war, which is about to cut S&P 500 (SPY) earnings by half, suddenly ends. Only one person knows if that is going to happen, and he isn’t sharing any of his cards with me.
If the trade war continues or expands, the math here becomes very simple. The shares of companies that earn less money are worth less.
You learn in flight school that accidents aren’t usually the result of a single problem but several compounding ones. I know this too well because I have crashed three planes, in the Austrian Alps, in Sicily, and in Paris. First, the gyroscope blows up, then the radio goes out, and then you lose an engine when the weather turns bad. It doesn’t help when someone is shooting at you, either.
The problem for stock owners now is that there isn’t just one thing going wrong with the investment landscape right now; there are several compounding ones, like inflation, immigration, taxes, the deficit, the Ukraine War, and the end of American leadership of the West.
Loss of confidence in the top, which took a quantum leap downward in the wake of the dumpster fire at a White House Zelinski meeting, has consequences. At this point, every businessman in America is asking himself if he can survive the current regime.
With a scant one-seat majority in Congress, a budget can’t pass by March 14, when a government shutdown begins. It means that there will be no new tax cuts by year-end. Chaos ratchets up. Businessmen hate chaos.
It also means that the 2017 tax cuts extension isn’t going to happen, which adds $5 trillion in new taxes on the country just when the economy is slowing dramatically. Uncertainty runs rampant.
Here's the problem for investors with that. Confident markets trade at big premiums, as we saw for the last three years. Uncertain markets trade at big discounts. If I’m right, that discount will be 20%. If I’m wrong, it's 50%.
Ceding America’s leadership of the West comes at a heavy price. It started 80 years ago with the end of WWII. American stock markets have done pretty well during this time, rising by 435 times.Why anyone would want to give up such a system is beyond me.
For example, the US dollar would lose its reserve currency status. There is no way the national debt could have risen to $36 trillion, half of which was bought by foreigners, and all of which was used to stimulate the economy, without reserve currency status. Take that away, and economic growth goes elsewhere. So do higher stock prices, which we have already seen this year in China and Europe.
There is a fundamental repricing of the market taking place, and we are only just at the beginning.
About that economy thing. On Friday, the Atlanta Fed predicted that the US economy SHRANK by -1.5% in Q1. It would be easy to say, “There goes the Atlanta Fed again,” whose model is always prone to extreme predictions. But it is safe to say that the economy is either not growing or growing at a dramatically slowing rate.
The problem for investors? Reliable growing economies, which we have had since the Pandemic five years ago, support high stock multiples. Non-growing or shrinking economies can only support low earnings multiple. Remember back in 2009, the S&P 500 traded at a lowly multiple of only 9X, against today’s 25X.
This isn’t just me howling at the moon. With a meteoric $10 rally this year, the bond market is starting to warn of a coming recession. Ten-year US Treasury bond yields have cratered from 4.80% to 4.20%. This is in the face of massive bond issuance in 2025, some $1.7 trillion worth, the product of the 2017 Trump tax cuts. Almost all new government policies are anti-economy and anti-growth.
The DOGE campaign is sucking massive amounts of money out of the economy. The yield curve has inverted, meaning that short-term interest rates are higher than long-term ones, indicating that the recession risk is real.
The dividend yield on the S&P 500 is at 1.2%. It was 2% only a couple of years ago. That is not much yield competition.
As I have been warning my Concierge members for weeks, get rid of all the stocks and asset classes you have been dating and only keep the ones you are married to. And what you keep should be hedged, such as through selling short call options against your longs, buying the (SDS), the 2X short S&P 500 ETF. And then there are 90-day US Treasury bills yield 4.2%, where nobody has ever lost money.
I learned something interesting the other day about your largest holding.
Some 70% of Nvidia is now held by indexes like the S&P 500. That’s because it has become an index proxy. It means that the shares have become an index hedge for hedge funds against which they can trade a myriad of options. This is why the (NVDA) options have implied volatilities four times those of the (SPY). It is a great arbitrage.
I watch closely the launch of new ETFs and write about the most interesting ones. I have been inundated by requests for private credit investments, which, by definition, are not available to the public.
The fund will launch with an initial $50 million, and the minimum investment is $100,000. The fund essentially offers daily liquidity for illiquid long-duration loans. The yield should be in line with private illiquid debt, or about 10%-12%.
How they pull this off is anybody’s guess. Past funds that tried to do this closed their doorsduring times of economic distress, known as “gating, “so beware of gating when market conditions turn less than ideal. The fund promises to hold up to 35% of its funds in private credit and the rest in a mix of junk bonds. No word yet on the yield, but it will be much higher than the leading junk bond fund (JNK), which is offering 6.48%.
February has started with a respectable +2.25% return so far. That takes us to a year-to-date profit of +9.46%so far in 2025. My trailing one-year return stands at a spectacular +81.87% as a bad trade a year ago fell off the one-year record. That takes my average annualized return to +49.83%and my performance since inception to +761.36%.
I saw the market breakdown coming a mile off and used my 90% cash to pile into new very short-term longs in JP Morgan (JPM), Interactive Brokers (IBKR), Tesla (TSLA), and Gold (GLD). I poured into new short positions with Tesla (TSLA), Nvidia (NVDA), and the United States US Treasury Bond Fund (TLT). This is in addition to an existing long in Goldman Sachs (GS). Last week, I leapt from 90% cash to 40% long, 40% short, and 20% cash.
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.
Core PCE Price Index Comes in Line. The personal consumption expenditures price index, the Federal Reserve’s preferred inflation measure, increased 0.3% for the month and showed a 2.5% annual rate. Excluding food and energy, core PCE also rose 0.3% for the month and was at 2.6% annually. Fed officials more closely follow the core measure as a better indicator of longer-term trends. Personal income posted rose 0.9% against expectations for a 0.4% increase. However, the higher incomes did not translate into spending, which decreased by 0.2%, versus the forecast for a 0.1% gain.
Retail Investors Market Sentiment Hit All-Time Bearish Highs. Options activity has also taken a big swing towards put buying. Dump all the stocks you were dating. Both Nvidia (NVDA) and Tesla (TSLA), the two most widely traded stocks in the market, broke their 200-day moving averages today. This is a very negative medium-term indicator. Only keep the ones you’re married to, not the ones you’re dating. This is not the rose garden we were promised.
US Margin Debt Hits All-Time High, at $937 billion as of January. That’s up 33% from $701 billion in January 2024. Over the same period, the S&P 500 gained 24.7%. Speculation on credit is running rampant. Margin trading, in which investors borrow funds from their brokerage firms in order to buy stocks, can amplify returns.
Weekly Jobless Claims Jump to 242,000, up 22,000, as the government firings kick in. In Washington, D.C., new claims totaled 2,047, an increase of 421, or 26%, the largest number for the city since March 25, 2023.
Nvidia Beats (NVDA) even the most optimistic expectations. The company forecasted higher first-quarter revenue, signaling continued strong demand for artificial intelligence chips, and said orders for its new Blackwell semiconductors were "amazing." The forecast helps allay doubts around a slowdown in spending on its hardware that emerged last month, following DeepSeek's claims that it had developed AI models rivaling Western counterparts at a fraction of their cost. Nvidia's outlook for gross margin in the current quarter was slightly lower than expected, though, as the company's Blackwell chip ramp-up weighs on Nvidia's profit. Nvidia forecast first-quarter gross margins will sink to 71%, below the 72.2% forecast by Wall Street, according to data compiled by LSEG.
Gold ETFs (GLD) Have Become a Hot Commodity, with $4.5 billion pouring into (GLD) — with around half of that inflow occurring during Friday’s stock market selloff. The flight to safety bid is on. Those moves come as gold prices are at all-time highs in early 2025, boosted by trade uncertainty and inflation concerns. Buy (GLD) on dips.
Chinese Inflation (FXI) Hits 20-Year Lows, as the economy continues in free fall. Beijing is also expected to release its plans for spending on defense and technological development in the year ahead, along with details on private sector support. Last year, the inflation rate came in at only 0.2%.
Pending Homes Sales Hit All-Time Low, in January down 4.6% MOM and 5.2% YOY. Inventories are rising, but affordability is at record lows. Exceptionally cold weather was a factor. Homebuilder Sentiment plummeted to 42, a two-year low, and tariff concerns. Our drywall comes from Mexico, and our lumber comes from Canada. Avoid all real estate plays like the plague.
Home Prices are Still Rising, according to the S&P Case Shiller National Home Price Index. House prices rose 0.4%. They increased 4.7% in the 12 months through December. The strong increase in prices was despite rising housing supply, which is being driven by ebbing demand amid higher mortgage rates. New York showed the biggest gain at 7.2% YOY, followed by Chicago at 6.6% and Boston at 6.35%. Washington, DC, was the only city showing a loss at -1.1%.
Consumer Confidence Collapses to a Four-Year Low, down 7 points from 105 to 98, as tariff-driven inflation fears ramp up. The Conference Board’s Consumer Confidence Index for February, released Tuesday morning, fell to 98.3, falling for the third-straight month and marking the largest monthly decline since August 2021. Technology stocks sold off hard. Bonds are starting to discount a recession.
Berkshire Hathaway (BRK/B) Builds Record Cash, at $334 billion, up $9 billion in December alone. The Oracle of Omaha has been selling huge chunks of Apple (AAPL) and Bank of America (BAC) and putting the money into US Treasury Bills. Warren earned an eye-popping $47 billion in 2024, up 27% YOY. A price earnings multiple at a record 25X for the S&P 500. If Warren Buffet is selling, should you be buying?
Jamie Dimon Sells 30% of JP Morgan Stock, yet another indicator of a market top. Jamie is famous for loading up on (JPM) at the absolute market bottom in 2009. Does he know something we don’t? Banks have been the lead sector in the market since the summer.
Existing Homes Sales Crater, on a closing contract basis, down 4.9% in January to 4.09 million units. Terrible weather was a factor. Inventories are up 17% YOY and 3.5% for the month. Al cash sales hit 29%. The average price of a home is at an all-time high at $396,800, up 4.5% YOY.
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, March 3 at 8:30 AM EST, the ISM Manufacturing PMI is announced.
On Tuesday, March 4 at 8:30 AM, the API Crude Oil Stocks isreleased.
On Wednesday, March 5 at 8:30 AM, the ADP Employment Index is printed.
On Thursday, March 6 at 8:30 AM, the Weekly Jobless Claims are disclosed.
On Friday, March 7 at 8:30 AM, the Nonfarm Payroll Report for February is announced, as well as the headline Unemployment Rate. At 2:00 PM, the Baker Hughes Rig Count is printed.
As for me, I’ll never forget when my friend Don Kagin, one of the world’s top dealers in rare coins, walked into my gym one day and announced that he had made $1 million that morning.I enquired. “How is that, pray tell?”
He told me that he was an investor and technical consultant to a venture hoping to discover the long-lost USS Central America, which sunk in a storm off the Atlantic Coast in 1857, heavily laden with gold from the California gold fields. He just received an excited call that the wreck had been found in deep water off the US east coast.
I learned the other day that Don had scored another bonanza in the rare coins business. He had sold his 1787 Brasher Doubloon for $7.4 million. The price was slightly short of the $7.6 million that a 1933 American $20 gold eagle sold for in 2002.
The Brasher $15 doubloon has long been considered the rarest coin in the United States. Ephraim Brasher, a New York City neighbor of George Washington, was hired to mint the first dollar-denominated coins issued by the new republic.
Treasury Secretary Alexander Hamilton was so impressed with his work that he appointed Brasher as the official American assayer. The coin is now so famous that it is featured in a Raymond Chandler novel where the tough private detective, Phillip Marlowe, attempts to recover the stolen coin. The book was made into a 1947 movie, “The Brasher Doubloon,” starring George Montgomery.
This is not the first time that Don has had a profitable experience with this numismatic treasure. He originally bought it in 1989 for under $1 million and has made several round trips since then. The real mystery is who bought it last. Don wouldn’t say, only hinting that it was a big New York hedge fund manager who adores the barbarous relic. He hopes the coin will eventually be placed in a public museum.
Mad Hedge followers should start paying more attention to gold, which I believe just entered another decade-long bull market, thanks to falling US interest rates. You can’t go wrong buying LEAPS in the top two miners, Barrack Gold (GOLD) and Newmont Mining (NEM).
Who says the rich aren’t getting richer?
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/gold.png584622april@madhedgefundtrader.comhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngapril@madhedgefundtrader.com2025-03-03 09:02:412025-03-03 11:05:33The Market Outlook for the Week Ahead, or Armageddon
After seven years in the penalty box, gold is finally starting to come alive, and the Armageddon crowd is absolutely loving it. Maybe after ten years of rising, stocks are finally expensive on a relative basis?
These are the guys who are perennially predicting the collapse of the dollar, the default of the US government, hyperinflation, and the end of the world.
Better to keep all your assets in gold and silver, store at least a year’s worth of canned food, and keep your untraceable guns well-oiled and supplied with ammo, preferably in high-capacity magazines.
If you followed their advice, you lost your shirt.
I have broken many of these wayward acolytes of their money-losing habits. But not all of them. There seems to be an endless supply emanating from the hinterlands.
The “Oracle of Omaha” Warren Buffet often goes to great lengths to explain why he despises the yellow metal.
The sage doesn't really care about the gold, whatever the price. He sees it primarily as a bet on fear. I imagine he feels the same about Bitcoin, the modern tulips of our age.
If investors are more afraid in a year than they are today, then you make money on gold. If they aren't, then you lose money.
The only problem now is that fear ain’t working.
If you took all the gold in the world, it would form a cube 67 feet on a side, worth $5 trillion. For that same amount of money, you could own other assets with far greater productive earning power, including:
*All the farmland in the US, about 1 billion acres, which is worth $2.5 trillion.
*Seven Apple’s (AAPL), the second largest capitalized company in the world at $731 billion.
Instead of producing any income or dividends, gold just sits there and shines, making you feel like King Midas.
I don't know. With the stock market at an all-time high and oil trading at $75/barrel, a bet on fear looks pretty good to me right now.
I'm still sticking with my long-term forecast of the old inflation-adjusted high of $2,300/ounce.
It is just a matter of time before emerging market central bank buying pushes it up there. And who knows? Fear might make a comeback too.
https://www.madhedgefundtrader.com/wp-content/uploads/2013/03/Gold-Coin.jpg235225Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2025-01-23 09:02:522025-02-20 12:40:36Why Warren Buffet Hates Gold
Being an old do-it-yourself carpenter, I never throw anything away.
My garage is filled with ancient tools I bought 50 years ago and used only once.
Scraps of wood, odd lengths of wiring, and old coffee cans filled with loose nuts, screws, and nails are everywhere.
You KNOW that if you throw a tool out, you’ll desperately need it the next day.
The same is true of my investment approach. Nothing new ever happens in the financial market, plays that worked in past years just get endlessly recycled.
My inventory of ancient trading strategies includes instruments that were once incredibly profitable (Japanese equity warrant arbitrage?), but haven’t made money in decades.
So I was rooting around my trading toolbox the other day when I found just the ones I needed: inflation plays.
Some of the greatest trades of my half-century-long career in the trenches have been with inflation plays.
Of course, gold during the 1970s was the no-brainer after President Nixon took the US off the gold standard. I started buying in the barbarous relic in the mid-$30s and chased it all the way up to $900.
I made similar fortunes in that other great inflation hedge, residential real estate. Some of the properties I owned then in California have risen 100 times in value, thanks to inflation.
It was with those fond memories in mind that found myself looking for similar inflation plays to execute.
Let me stop right here.
The oldies are still the goodies.
In the next surge of inflation that the new administration is about to unleash, I expect gold to rise from today’s $2,703 an ounce to at least $5,000. After that, look out above!
Silver (SLV) should do double, eventually touching $100 an ounce from today’s $30.83.
Your home will also be a fantastic inflation hedge. Anything you own today should rise in value at least tenfold over the next 20 years.
However, in updating my research, I came across a few new wrinkles that are definitely worthy of your attention.
The big one is TIPS.
TIPS are US Treasury bonds that are indexed to inflation. If inflation rises, the value of your TIPS rises.
Specifically, TIPS are tied to the Consumer Price Index as calculated by the US Department of Labor Bureau of Labor Statistics.
Let me show you how they work.
Let’s say you bought $1,000 worth of TIPS with a 1% coupon. If the CPI comes in at zero, you will receive $10 that year in interest payments.
If the CPI rises 2%, your $1,000 in principal increases to $1,020. Your 1% coupon is then calculated off of this new, higher amount and jumps to $10.20, giving you a total return of $32.10.
Now here is the really fun part.
If the CPI rises to 15%, as it did in 1979, the value of your investment rises by 16.15% to $1,161.50.
Yes, I still have my bell bottoms from those days, although the waist is rather tight.
This explains why many high-net-worth individuals always have a few TIPS parked away in their portfolios, usually stuck in a folder behind the radiator.
TIPS are issued by the U.S. Treasury at recurring auctions as part of the government’s overall funding program.
Currently, the Treasury conducts monthly TIPS auctions: three per year for five-year TIPS, six for 10-year TIPS, and three for 30-year TIPS.
You can buy TIPS directly from the US government and bypass hefty third-party management and brokerage fees.
However, the semi-annual inflation adjustments of a TIPS bond are treated as taxable income by the IRS, even though investors won’t see that money until they sell the bond or it matures.
So it may be wise to buy your TIPS via a mutual fund or ETF or to only hold them in a tax-exempt IRA, 401k, or deferred benefit plan.
TIPS also have the additional benefit in that, like municipal bonds, they are exempt from state and local taxes.
Well-heeled residents of highly taxed California, New York, and Illinois absolutely love them.
Like many government programs, TIPS was first created in 1997 for a problem that didn’t exist: inflation. That year the CPI was only 1.7%.
The highest CPI since then was 3.4% in 2000, the year of the dotcom bubble top. For most of 2016, it hung around 1.6%.
Since the first issuance of tips, the US economy has been steadily battered by something no one predicted: deflation.
Thanks to the onslaughts of hyper-accelerating technology, flat wage growth, and global competition, prices worldwide have been heading ever lower.
For more than two decades, investors in TIPS were shortchanged. They accepted lower yields in return for protection against something that never happened. It was the fire insurance without the fire.
That is, no fire until January this year, when we saw an actual spark.
The CPI for that month came in at 0.6%, which works out to 2.5% annualized, the fastest pace of price appreciation in four years. The TIPS explanation I have given you so far is the simple one. It gets much more complicated.
Seasoned bond pros have figured out ways to game this market six ways from Sunday using an array of sophisticated algorithms.
This enables them to add “alpha” by outperforming generic TIPS returns with aggressive high-turnover trading strategies.
Bond giant PIMCO and DoubleLine Capital are some of the more ardent practitioners of this approach.
These firms employ both top-down and bottom-up strategies, which can be broken down into the following:
Top-down strategies include:
Duration positioning
Positioning based on views of yield curve steepening/flattening
Assessing TIPS’ relative value versus nominal Treasuries, based on shifts in inflation expectations
Country rotation among inflation-linked bond issuers
Limited sector rotation among high quality non-government sectors
Bottom-up strategies include:
Positioning to exploit seasonal consumer price inflation (CPI) patterns, which presents a recurring opportunity to capture attractive risk-adjusted incremental return
“Inflation capture,” or managing the mix of short and long TIPS to express an active view that CPI will print higher than the market expects
Targeted issue selection
Relative value trading based on the implied option value of receiving at least the original principal value upon maturity (i.e., the embedded deflation put)
If all of this gives you a headache and you just want to keep your life simple, you can just buy one of the many TIPS ETFs out there.
PIMCO has the Broad US TIPS Index ETF (TIPZ).
BlackRock has the iShares TIPS Bond ETF (TIP). Barclays has the SPDR 1-10 Year TIPS ETF (TIPX).
The only way these won’t work is if deflation, instead of ending, accelerates.
Artificial intelligence is only just starting to pervade our lives, and the productivity increases and cost savings it promises are enormous.
So is the potential job and wage destruction, the largest component of the CPI calculation.
If that is the case, then the CPI could turn negative, and sharply so. In that scenario, inflation-indexed TIPS will deliver losses instead of the promised gains.
https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png00The Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngThe Mad Hedge Fund Trader2025-01-15 09:02:172025-02-20 12:40:38It's Time to Pull Out Those Old Inflation Plays Out of the Drawer
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