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The Market Outlook for the Week Ahead, or The Economy is Grinding to a Halt

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 is released.

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

February 14, 2025

Diary, Newsletter, Summary

Global Market Comments
February 14, 2025
Fiat Lux

Featured Trade:

(FEBRUARY 12 BIWEEKLY STRATEGY WEBINAR Q&A),
(MCD), (FSLR), (META), (GOOG), (AMZN), (JNK), (HYG), (F), (GM), (NVDA), (PLTR), (INTC)

February 12 Biweekly Strategy Webinar Q&A

Diary, Newsletter

Below, please find subscribers’ Q&A for the February 12 Mad Hedge Fund Trader Global Strategy Webinar, broadcast from Incline Village, NV.

Q: Can Nvidia (NVDA) go to $200 in the next three years?

A: I would imagine probably, yes. They still have a fabulous business—enormous orders and record profits. But it's not going to happen in the next six months. You need to get us out of the current stock market malaise before anything moves dramatically one way or the other, except for META, which is at an all-time high. Their basic business is still great, and the threat posed by DeepSeek is wildly overblown.

Q: Why is McDonald's (MCD) seeing declining sales?

A: Partly, it's because they have been cutting prices. So, of course, that automatically feeds into declining sales. Also, I think the weight loss drugs Mounjaro or Ozempic are having an impact. People just don't go in and eat three Big Macs for lunch anymore. They may not need any Big Macs at all. And forget about the fries and the super-size high fructose corn syrup drink. When these drugs first came out, it was speculated that fast food companies would be the number one victim of these drugs, and that is turning out to be true. Some 15.5 million people in the United States suddenly aren't hungry anymore; they just take one bite of a meal and then push their food around the plate with their fork. That’s better than taking amphetamines, which people like Judy Garland used to take to lose weight. I think that will affect not only McDonald's, but all fast-food companies which I avoid like the plague anyway because my doctor says I shouldn't eat that food.

Q: Should I buy First Solar (FSLR) based on the revised higher sales outlook?

A: I don't want to touch alternative energy anything right now. I think the government will eliminate all subsidies for all alternative energy—be it solar, windmills, hydrogen, nuclear, whatever—and turn us back into an all-oil and coal economy. That is the announced goal of the new administration. So that eliminates the subsidies for sure. It certainly will be a blow to the earnings of all solar-type companies. If you are going to do an energy form, I would do nuclear, which benefits from deregulation, if that ever happens.

Q: Do price caps fix supply problems? Because Europe is thinking about capping energy prices in the short term.

A: Price caps never work, nor does any other attempt to artificially control prices, because all it does is dry up supply. If you cap the prices, and therefore the profits that energy companies can make, they'll quit. They'll abandon the energy business, or they'll pare it down, or they won't expand. One way or the other, you reduce the return on capital. Capital is like water; it will go where it gets the highest return, and price caps certainly are not part of that formula. But what do I know? I only drilled for natural gas for six years.

Q: What's your top AI choice?

A: Well, I would say it's Nvidia (NVDA) still, and the big AI users which include Meta (META), Google (GOOG), and Amazon (AMZN). Nothing has changed here.

Q: Is there any chance that Ford Motors (F) will be bought out anytime soon or never?

A: My view of all of the legacy car companies, including Stellantis, which is the old Chrysler, Ford (F), and General Motors (GM), is that they are basically giant mountains of scrap metal and only have a scrap metal value, which is about 5 cents on the dollar. That's what they fell to in the 2008 financial crisis, and all of them except for Ford went bankrupt. So I am not a big fan of the legacy auto industry now. And now, they have a trade war. They happen to be one of the biggest victims of trade wars because to stay competitive with Tesla, they moved a lot of their production to Canada and Mexico, and now those plans are going up in flames. So it seems like they're damned if they do and they're damned if they don't. I'm happy driving my Tesla, but I'm wondering if my next car is a BYD. Prices are so low, it might even be worth paying 100% duty just to get a cheaper car that has better self-driving capability. But the future is unknown, to say the least.

Q: Is the next big rotation out of Silicon Valley and into Chinese tech stocks?

A: Over the long term, that may happen, but with the current administration and China (the number one target in restraint of trade and trade wars), I don't want to touch anything Chinese. There are too many better things to do in the U.S. Imagine you buy a Chinese stock, and then the administration announces a total cutoff of trade with China the next day. Not good. Chinese stocks are incredibly cheap. Most of the big ones are now single-digit multiples compared to multiples in the 20s, 30s, and 40s for our stocks. But they come with a very high political risk, and that has been true for several years now. There are better fish to fry than in China. I'd rather buy Europe than China right now if you really do want to go international. But I have no idea why they're going up unless they're discounting an end to the Ukraine War.

Q: Are junk bonds (JNK) and (HYG) a good play?

A: I would say yes. Their default risk has always been over-exaggerated thanks to their unfortunate name. They're yielding 6.54% and change, but it's a very slow mover. If we do get any improvement, any economy without inflation junk will go to $100. It's currently around $96. And you know, yield is a nice thing to have these days since the capital gain side seems to have dried up and turned into dust on almost any asset class.

Q: How can I decide when to sell the stocks that we bought on your recommendations?

A: Well, our trade alerts always have a buy recommendation and a sell recommendation or an expiration date. If you bought the stocks and kept it, just read Global Trading Dispatch for an updated market view. Watch our Mad Hedge Market Timing Index. When we get up into the 70s and 80s, that is definitely sell territory. It's hard for individuals to have an economic view going out to the rest of the year, but even the people who are economists have no idea what's going to happen right now. As I said, uncertainty is at an 8-year high, and that is being reflected in the market. So nothing beats cash, especially when you can earn 4.2% on 90-day US treasury bills. No one ever got fired for taking a profit.

Q: Can Intel (INTC) make a comeback this year?

A: No. I'm sorry, but they won’t. They had a horrible manager. They dumped him after a couple of disastrous years. I knew he was a horrible manager. I fought off all the pressure to buy Intel. So far, that's working. I mean, the stock has been terrible, so it is very cheap, but there is no guarantee that they will ever recover and, in fact, may get taken over by somebody else. So—too many better things to do. I'd rather be buying more Nvidia right now at these prices than sticking my neck out and praying for a miracle at Intel.

Q: A couple of years ago, I bought a bunch of Palantir (PLTR) on your recommendation for the next 10 bagger. I now have a 10 bagger. What should I do?

A: You know, we did recommend Palantir about 10 years ago, and it did nothing for the longest time. And then last year, it just took off like a rocket—I think it's up 400% last year. Price-earnings multiples are insanely high now. So what I would do is sell half your position. That way, the remaining half is all profit. You're playing with the house's money, and you're reducing your risk in a high-risk environment. Sell half, keep the other half. If it looks like it's starting to roll over and die, then you sell your remaining half.

Q: What's your favorite currency this year, and what should we do about it?

A: My favorite currency is the US dollar. If we're not going to get any interest rate cuts this year, the dollar will remain the highest-yielding currency in the world, and then everybody wants to buy it. It's really that simple. It’s all about interest rate differentials. Everybody else in the world has low interest rates, so stick with the dollar and don't touch the foreign currencies yet.

Q: Inflation expectations have exploded higher in view of today's number. Do you expect it to get worse?

A: If the trade war continues, it will absolutely get worse. 25% price increases are inflationary—period. End of story. A price increase is the definition of inflation, and right now, we are increasing the number of countries subject to high punitive tariffs, not decreasing them. You can expect markets to worry about that. And even if they put a temporary hold on these, people are raising prices now. They are not waiting for the actual tariff to hit; they are front-running that right now. So if you don't believe me, go to the grocery store where prices are through the roof. I actually went to a grocery store the other day, and I couldn't believe what things cost.

Q: I'd like to hedge my Nvidia (NVDA) position with a covered call. Which one should I do?

A: Well, it's not actually a hedge. What a covered call does is reduce your cost price and increase income. Right now, we have NVDA at $135. If you shorted something like the February $145 calls, you might get a dollar for that. That reduces your average price by a dollar. If you shorted the March $145 calls, that'll bring in probably $5, reduce your costs by $5, or bring in an extra $5 in income. And if you keep doing this every month and Nvidia stays stuck in a range, you can end up taking $10, $20, or even $30 in premium income over the next six months. And I have a feeling that will be the winning strategy for the first half of this year, using rallies to sell covered calls. You really could get your average cost down quite a lot; that way, if we have a massive sell-off, a lot of that loss will already be covered. If we get a massive rally, your stock just gets called away, and you buy it back on the next dip. The only negative here is the tax consequences of taking capital gains on the call-aways.

Q: You mentioned that the US has a demographic problem coming up; how will that affect the market in the short term?

A: It doesn't affect the market in the short term. Demographics are a long-term game. You have to think in terms of a generation being the round lot, which is about 20 years. Suffice it to say, when demographics go against you, like they did in Japan for 30 years, markets are horrible. Demographics are going against China now, and you're getting horrible markets. Demographics are good now in the US because we have millennials just entering their peak spending years, and that's when economies boom, and that should continue up to 2030. That is how to play demographics, and we keep updated here, although the government has suddenly ceased making available all demographic data to the public—I don't know why, but it's going to make the science of demographics much more difficult to follow without the government data. I don't know why they did that. I don't know what they hope to gain by clouding the demographic picture. Maybe it has to do with the allocation of congressional seats to the states or something like that.

Q: Do you have information on how to place a LEAPS order?

A: Just go to www.madhedgefundtrader.com, go to the search box, put in LEAPS in all caps, and you will find an encyclopedia of information on how to do LEAPS or Long Term Equity Anticipation Securities.

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

August 27, 2024

Diary, Newsletter, Summary

Global Market Comments
August 27, 2024
Fiat Lux

Featured Trade:

(WHY YOU MUST AVOID ALL EV PLAYS EXCEPT TESLA),
(TSLA), (GM), (F), (RIVN), (NKLA), (F-SRNQ)

Why You Must Avoid All EV Plays Except Tesla

Diary, Newsletter, Research

Markets live on fads.

Once a certain investment theme takes hold, the imitators start coming out of the woodwork in droves.

In 1989, all of the largest Japanese banks stampeded issuing naked short put options on the Nikkei Average by the billions of dollars when the index was at an all-time high. The Nikkei then fell by 85% causing tens of billions worth of losses.

I remember signing the paperwork on a $3 billion deal for the Industrial Bank of Japan on behalf of Morgan Stanley. It’s been 35 years, and I’m still waiting for those investors to come after me.

Then there was the peak of the Dotcom Bubble in 2000 and no less than five online pet food delivery companies raised billions. (remember Webvan and those cute sock puppets?) Every one of them went under.

So, what has been one of the biggest fads of 2024?

That would be electric vehicles.

You no longer have to wear Birkenstocks, grow your hair long, and smoke pot to drive an electric car. They have become a major part of the American economy. According to Adam Jonas at Morgan Stanley, EVs account for 8% of the total car market today and will grow to 10% by 2025 and 25% by 2030.

I have been involved with Tesla (TSLA) since its earliest days way back in 2003. Then it was one rich man’s hobby, with technology that was a reach at best, and unlikely to ever see the light of day as a public company. There it remained for seven years.

Then Tesla brought out the Model S in 2010, which I snapped up as fast as I could, picking up chassis no. 125 at the Fremont factory. My signature is still on the wall there as are those for all of the first 125 buyers. Every time I pick up a new Tesla I check if it is still there.

If the Model S worked it had the potential to be a real car. If it didn’t, I would wind up with $100,000 worth of inert aluminum, steel, silicon, rubber, lithium, and copper with only scrap metal value.

The trials were then only just beginning for Musk. He faced nervous breakdowns, sleeping in factories, and SEC prosecutions. After a decade of abuse, suddenly everything clicked. Total Tesla production is now running at a 1.7 million vehicle annual rate. The shares leaped 180-fold to a split-adjusted $425 from their post-IPO low of $2.40. That move financed a lot of retirements among my readers.

I remember what Steve Jobs once told me; “Like many overnight successes, this one took decades to pull off.”

Suddenly, making electric cars looked easy. Raising money to finance them looked even easier.

The problem is that all the new EV entrants now have a hyper-aggressive Tesla to compete against. Tesla has already locked up long-term supplies of crucial commodities essential for EV production, like copper, lithium, and chromium for stainless steel.

It has a 66% market share. It was a lock on experienced EV engineering talent. It has a near monopoly with a 48,000-strong national charging network which Ford (F) had no choice but to sign up for.

The best competitors can hope for is to peel off experienced employees from Tesla at inflated salaries, and then get sued by Tesla.

Enter the hoards, which I list below, a roll call of the shameless:

Nikola Badger (NKLA) – Has a hydrogen fuel cell power source that hasn’t a hope in hell of ever becoming economic. As I never tire of explaining to investors, while electric power is digital and infinitely scalable, hydrogen is analog and isn’t. Maybe that’s why the stock has been a disaster. Too many unbelievable promises and no actual functioning model. Gravity was their only actual power source. It just announced a recall of its electric trucks because of a coolant leak in the battery that caused fires.

Fisker (F-SRNQ) – If at first, you don’t succeed, why not fail again? This VEHICLE had double the number of parts of a conventional international combustion engine. Its chief claim to fame was that it got a free factory from the government in Joe Biden’s home state and the fact that Justin Bieber drove one. More flailing at the wind. It recently went bankrupt….again.

Aspark Owl – A $3.2 niche supercar with an appeal to maybe three car-collecting Saudi princes.

Bollinger B1 – Is a $125,000 SUV expected from a Michigan startup with only a 200-mile range. Why not pay nearly double the cost of a Tesla Model X and get half the performance?

The Byton M-Byte – Is a $45,000 crossover car from a Chinese start-up. China has actually been building electric cars longer than Tesla, but they have a tendency to break down or catch on fire. Quality and safety problems have until now kept them out of the US, and probably always will.

Genesis Essentia – A Croatian-based start-up with a major investment from South Korea’s Hyundai. It will most likely never get off the drawing board. The last time Croatia built cars was for the Austria-Hungarian Empire during WWI.

Rivian R1T (RIVN) – A start-up with a reasonably priced truck and up to 400 miles of range that will only make it because they have a 100,000-unit order from the largest shareholder, Amazon (AMZN). It’s perfect for local deliveries. The cars are beautiful and there is a two-year waiting list for the $80,000 list price vehicles. (RIVN) is the only alternative EV maker that will probably make it.

By now, virtually every major car manufacturer has or is about to roll out its entry in the electric car race. I list them below, skipping those that are more than two years out over the horizon. Notice the profusion of the letter “e” in the names. In fact, there are an astonishing 527 EVs either on, or about to hit the market.

They include the Porsche Taycan, Audi eTron, Jaguar I-Pace, Austin Mini Electric, Fiat 500e, Kia Niro EV, BMW i3, Chevy Bolt EV, Hyundai Kona Electric, and the Hyundai Ioniq Electric, Ford F-150 Electric, Ford Mustang Mach-E, and Nissan Ariya.

Not one of these comes even close to the price/performance and battery density of the Tesla cars. Tesla is a decade ahead of the competition and is accelerating its lead. At best, they will sell a few electric cars to those who are intensely loyal to their brands and lose money doing it.

In the meantime, Tesla hasn’t been sitting on its hands. Elon Musk plans to bring out a $25,000 model in two years that will bar entry to the field from any other competitor. It has its own $250,000 supercar, the Tesla Plaid, which will go zero to 60 MPH in 1.9 seconds and has a 600-mile range. The Tesla Cyber Truck at $60,000 has the specs to take on the enormous US pickup market. Did I mention that the company is on the verge of developing technology that will improve battery performance by a staggering 20-fold?

So Tesla is branching out to suck up every profit in every branch of the entire global auto industry.

And this is what most traders, especially the short sellers, got wrong about Tesla. The data is worth more than the car. The miles driven provide a springboard from which the company can offer very high value-added and profitable services, like autonomous driving. Not even Alphabet (GOOGL) can replicate this.

When I bought my first Tesla more than a decade ago, I knew I was betting on the company. The big risk was that General Motors (GM) would step in with their own cheap electric car and drive Tesla out of business.

In the end (GM) did that, but too little, too late. Its Chevy Bolt EV didn’t hit the market until the end of 2016. Today it offers a boring design, lacks autonomous driving, possesses only a 259-mile range for $36,620, and is subject to recall, thanks to recurring battery fires (click here for the link).

The quality is, well, Chevy quality. The company has already announced it will discontinue production.

Tesla is approaching 2 million. It’s too late to close the barn door after the horse has “bolted,” as GM is earning. Over the past decade, Tesla shares were up 180 times at the high. GM shares are nearly unchanged during the greatest bull market of all time.

It is competing against Teslas that are 20 years from the future, are fully autonomous, go to street-autonomous driving next year, and upgrade itself once or twice a month.

Make mine Tesla, please, which will soon become the world’s first trillion-dollar car company. Don’t waste your time or money on the others, either as a driver or investor.

I’ll Go with Tesla

August 26, 2024

Diary, Newsletter, Summary

Global Market Comments
August 26, 2024
Fiat Lux

Featured Trade:

(MARKET OUTLOOK FOR THE WEEK AHEAD or BEWARE THE NEXT BLACK SWAN) plus (REVISITING UKRAINE),
(SPY), ($INDU), ($COMPQ), (FXI), (COPX), (NVDA), (GM), (GOOG), (FCX), (UUP), (FXE), (FXB), (FXC), (FXA)

The Market Outlook for the Week Ahead, or Beware The Next Black Swan

Diary, Newsletter

The summer is winding down and I view it as a huge success.

I ended up using all 20 of my vintage Hawaiian shirts, which I often get compliments on. I don’t tell people I bought them when they were new. My dry cleaner thought she died and went to Heaven.

Now that an interest rate cut is a sure thing, what happens next? This is the first bull market in history not preceded by an interest rate cut. It might pay us to review how much markets have really gone up in such a short amount of time.

Since the pandemic low, the Dow Average ($INDU) is up 116%, the S&P 500 (SPY) 181%, and the NASDAQ a positively ballistic 262%. Just since the October 26 low, the Dow Average ($INDU) is up 44%, the S&P 500 (SPY) 60%, and the NASDAQ a positively ballistic 86%.

And you want more?

So, what happens now when we get the first interest rate cut in five years? Another new bull market?

Maybe.

Dow 240,000 here we come.

Mad Hedge Fund Trader enjoyed a meteoric performance run so far in 2024, even dodging a bullet from the August 5 Nonfarm Payroll black swan. Whenever that happens, I start to get nervous. So I thought I’d make a list of potential black swans on our horizon that could upset the apple cart.

1) NVIDIA (NVDA) reports, earnings disappoint, and revises down its spectacular forward guidance citing that the AI boom has become overheated. I give this maybe a 5% probability, but even a good report could mark a market top.

2) The September 6 Nonfarm Payroll Report comes in too hot, and Jay Powell does NOT cut interest rates on September 18. This would be worth a very quick 10% correction and a retest of the (SPY) $510 August low. I give this maybe a 30% probability. The market now considers a rate cut a 100% certainty, which is always dangerous.

3) Jay Powell cuts interest rates on September 18, but only by 25 basis points. If he does this in the wake of an awful September 6 Nonfarm Payroll Report and a jump in the headline Unemployment Rate, we would similarly get a 10% correction and a retest of the (SPY) $510 August low.

4) The calendar alone could give us a correction. The biggest selloffs of both 2022 and 2023 both ended in mid-October. Is history about to repeat itself? Or at least rhyme?

5) The war in the Middle East expands when Iran attacks Israel again. For most American traders the map of the world ends on the US coasts. So even if this happens it’s not worth more than a 4% correction.

Of course, it’s the black swans you don’t see coming that really hurt. That’s why they’re called black swans. Who saw the 9/11 terrorist attacks coming? The 2014 flash crash? The pandemic?

I landed in London on the eve of the big event of the year. No, it was not the King Charles III coronation.

It was the Taylor Swift Eras concert. Thousands of ecstatic Americans crossed the pond to catch the show. I actually thought about going to Wembley Arena to watch her. The last time I had been there was in 1985 for the Live Aid concert. Before that, it was the Beach Boys and Rod Stewart in 1977, which I recently reminded Mike Love about.

But at $1,000 a ticket to get crushed by a crowd of 100,000 I decided to give it a pass. Better to give these old bones a break and catch her on iTunes for free.

But I did get a chance to grill a card-carrying Swifty about the mysterious attraction while waiting at the Virgin Atlantic first-class lounge on the way back to San Francisco.

First of all, she loved the music. But it’s more than just music. More importantly, she admired an independent woman who wrote her own songs and became a billionaire purely through her efforts.

Maybe there will be more strong, independent women in our future.

So far in August, we are up by +2.67%. My 2024 year-to-date performance is at +33.61%. The S&P 500 (SPY) is up +18.23% so far in 2024. My trailing one-year return reached +52.25. That brings my 16-year total return to +710.24. My average annualized return has recovered to +51.91%.

I executed no trades last week and am maintaining a 100% cash position. I’ll text you next time I see a bargain in any market. Now there are none.

Some 63 of my 70 round trips, or 90%, were profitable in 2023. Some 49 of 66 trades have been profitable so far in 2024, and several of those losses were break-even. That is a success rate of +74.24%.

Try beating that anywhere.

Jay Powell Says the Time to Adjust Policy is Here, and that much progress has been made toward the 2% inflation target and a sustainable path to get there is in place. Stocks had already front-run the move, but bonds liked it. The path is now clear for a September rate cut, but how much?

Where did the 818,000 Jobs Go? 50 states compiling data in 50 different ways on differing time frames is going to generate some big errors like this one. That means monthly job gains fell from 250,000 to 175,000. Is the message that the Fed waited too long to cut rates?

Weekly Jobless Claims Fall to 233,000, down a whopping 17,000, but how real is it in the wake of this week’s 12-month revision? The report comes with Wall Street on edge amid signs that job growth is slowing and even signaling a potential recession on the horizon. Jobless claims have been trending higher for much of the year, though still remain relatively tame

$6 billion Poured into US Equity Funds Last Week, bolstered by bets of a Federal Reserve rate cut in September and easing worries about a potential downturn in economic growth. That is the largest weekly net purchase since July 17. A benign inflation report last week and the Fed meeting minutes on Wednesday, indicating a potential rate cut in September, boosted investor appetite for risk assets.

Mortgage Rates Hit New 2024 Low. The average for a 30-year, fixed loan was 6.46%, down from 6.49% last week. Borrowing costs are down significantly after topping 7.48% earlier this year, giving house hunters more purchasing power and coaxing some would-be buyers off the fence. Sales of previously owned US homes in July or the first time in five months.

Waymo Picks Up the Pace, Alphabet's (GOOG) Waymo said it had doubled Robotaxi paid rides to 100,000 per week in just over three months. If robotaxis take over the world, imagine the amount of job losses to taxi drivers.

GM (GM) Cuts Staff, GM is laying off more than 1,000 salaried employees globally in its software and services division following a review to streamline the unit’s operations. This follows many other firms that are trying to keep expenses low as the economy starts to slow.

Copper (COPX) Flips from Shortage to Surplus, as the Chinese economic recovery drags on. Copper surpluses of 265,000 metric tons are now expected this year, 305,000 tons in 2025, and 436,000 in 2026. Prices may recover in the fourth quarter if exchange stocks are drawn down. ME copper hit 4-1/2 month lows of $8,714 a ton in early August as U.S. recession fears and concern the Federal Reserve has kept interest rates too high exacerbated negative sentiment from soaring inventories and lackluster demand.

China (FXI) consumes more than half of global refined copper supplies, estimated at around 26 million tons this year. But much of the copper used in China is for wiring in household goods which are then exported. A housing market slump and China's stagnant manufacturing sector highlight the headwinds copper demand faces. Hold off on (FCX).

Dollar (UUP) Hits Seven Month Low, as US interest rate cuts loom. It could be a decade-long move. Buy (FXE), (FXB), (FXC), and (FXA).

My Ten-Year View

When we come out the other side of the recession, we will be perfectly poised to launch into my new American Golden Age or the next Roaring Twenties. The economy decarbonizing and technology hyper accelerating, creating enormous investment opportunities. The Dow Average will rise by 600% to 240,000 or more in the coming decade. The new America will be far more efficient and profitable than the old.

Dow 240,000 here we come!

On Monday, August 26 at 8:30 AM EST, the US Durable Goods orders are out.

On Tuesday, August 27 at 6:00 AM, the S&P Case Shiller National Home Price Index is released.

On Wednesday, August 28 at 7:30 PM, EIA Crude Stocks are printed.

On Thursday, August 29 at 8:30 AM, the Weekly Jobless Claims are announced. We also get Q2 US GDP.

On Friday, August 30 at 8:30 AM EST, the US Core PCE Index is disclosed. Also, New Home Sales are disclosed. At 2:00 PM the Baker Hughes Rig Count is printed.

As for me, you know you’re headed into a war zone the moment you board the train in Krakow, Poland. There are only women and children headed for Kiev, plus a few old men like me. Men of military age have been barred from leaving the country. That leaves about 8 million to travel to Ukraine from Western Europe the visit spouses and loved ones.

After a 15-hour train ride, I arrived at Kiev’s Art Deco station. I was met by my translator and guide, Alicia, who escorted me to the city’s finest hotel, the Premier Palace on T. Shevchenka Blvd. The hotel, built in 1909, is an important historic site as it was where the Czarist general surrendered Kiev to the Bolsheviks in 1919. No one in the hotel could tell me what happened to the general afterward.

Staying in the best hotel in a city run by Oligarchs does have its distractions. That’s to the war occupancy was about 10%. That didn’t keep away four heavily armed bodyguards from the lobby 24/7. Breakfast was well populated by foreign arms merchants. And for some reason there we always a lot of beautiful women hanging around.

The population is getting war-weary. Nightly air raids across the country and constant bombings take their emotional toll. Kiev’s Metro system is the world’s deepest and at two cents a ride the cheapest. It where the government set up during the early days of the war. They perform a dual function as bomb shelters when the missiles become particularly heavy.

My Look Out Ukraine ap duly announced every incoming Russian missile and its targeted neighborhood. The buzzing app kept me awake at night so I turned it off. The missiles themselves were nowhere near as noisy.

The sound of the attacks was unmistakable. The anti-aircraft drones started with a pop, pop, pop until they hit a big 1,000-pound incoming Russian cruise missile, then you heard a big kaboom! Disarmed missiles that were duds are placed all over the city and are amply decorated with colorful comments about Putin.

The extent of the Russian scourge has been breathtaking with an an epic resource grab. The most important resource is people to make up for a Russian population growth that has been plunging for decades. The Russians depopulated their occupied territory, sending adults to Siberia and children to orphanages to turn them into Russians. If this all sounds medieval, it is. Some 19,000 Ukrainian children have gone missing since the war started.

Everyone has their own atrocity story, almost too gruesome to repeat here. Suffice it to say that every Ukrainian knows these stories and will fight to the death to avoid the unthinkable happening to them.

It will be a long war.

Touring the children’s hospital in Kiev is one of the toughest jobs I ever undertook. Kids are there shredded by shrapnel, crushed by falling walls, and newly orphaned. I did what I could to deliver advanced technology, but their medical system is so backward, maybe 30 years behind our own, that it couldn’t be employed. Still, the few smiles I was able to inspire made the trip worth it.

The hospital is also taking the overflow of patients from the military hospitals. One foreign volunteer from Sweden was severely banged up, a mortar shell landing yards behind him. He had enough shrapnel in him to light up an ultrasound and had already been undergoing operations for months.

To get to the heavy fighting I had to take another train ride a further 15 hours east. You really get a sense of how far Hitler overreached in Russia in WWII. After traveling by train for 30 hours to get to Kherson, Stalingrad, where the German tide was turned, is another 700 miles east!

I shared a cabin with Oleg, a man of about 50 who ran a car rental business in Kiev with 200 vehicles. When the invasion started, he abandoned the business and fled the country with his family because they had three military-aged sons. He now works a minimum-wage job in Norway and never expects to do better.

What the West doesn’t understand is that Ukraine is not only fighting the Russians but a Great Depression as well. Some tens of thousands of businesses have gone under because people save during war and also because 20% of their customer base has fled.

I visited several villages where the inhabitants had been completely wiped out. Only their pet dogs remained alive, which roved in feral starving packs. For this reason, my major issued me my own AK47. Seeing me heavily armed also gave the peasants a greater sense of security.

It’s been a long time since I’ve held an AK, which is a marvelous weapon. But it’s like riding a bicycle. Once you learn you never forget.

I’ve covered a lot of wars in my lifetime, but this is the first fought by Millennials. They post their kills on their Facebook pages. Every army unit has a GoFundMe account where doners can buy them drones, mine sweepers, and other equipment.

Everyone is on their smartphones all day long killing time and units receive orders this way. But go too close to the front and the Russians will track your signal and call in an artillery strike. The army had to ban new Facebook postings from the front for exactly this reason.

Ukraine has been rightly criticized for rampant corruption which dates back to the Soviet era. Several ministers were rightly fired for skimming off government arms contracts to deal with this. When I tried to give $3,000 to the Children’s Hospital, they refused to take it. They insisted I send a wire transfer to a dedicated account to create a paper trail and avoid sticky fingers.

I will recall more memories from my war in Ukraine in future letters, but only if I have the heart to do so.

Stay Healthy,

John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader

August 22, 2024

Diary, Newsletter, Summary

Global Market Comments
August 22, 2024
Fiat Lux

Featured Trade:

(THE TOP SEVEN CHINESE RETAILIATION TARGETS),
(AAPL), (GM), (WMT), (TGT), (BA), (SBUX), (CAT),
(AND MY PREDICTION IS….)

The Top Seven Chinese Retaliation Targets

Diary, Newsletter

It’s looking like the trade war between the US and China is going to heat up some more, no matter who wins the presidential election. It is no longer a question of “if”, but “how much” and “when.”

Please forgive me, but I am new at this. I have only been covering China for 50 years now since the Cultural Revolution was sweeping an impoverished, starving third-world communist country.

With a massive US trade deficit with China in 2023, the Middle Kingdom has become a top administration target.

A real trade war would cause thousands of businesses in the US to go bankrupt and leave millions unemployed. Transpacific transportation would ground to a halt, filling up harbors with hundreds of redundant ships.

Trillions of dollars of direct investment in the two countries would be held hostage.

In other words, a trade war would be like cutting off our noses to spite our faces.

Just as America has its Tea Party and right-wing conspiracy theorists, so does China.

Their entire worldview revolves around the merciless exploitation of China by the Western powers that took place during the 19^th century.

British trading companies, like Jardine Matheson, imported cheap opium from India and sold it to the Chinese at the point of a gun, triggering three wars. With only primitive weapons at hand, the Chinese were powerless to resist.

By the time of the fall of the Qing Dynasty in 1912, the entire country had been carved up into spheres of influence dominated by the West and Japan.

Then the Japanese invaded in 1937, and 29 million Chinese died. As recently as 1938, my Marine Corps uncle, Colonel Mitchell Paige, was charged with protecting American gunboats cruising the Yangtze River.

To us, this is all ancient history inhabiting dusty textbooks in libraries never visited. Patriotic Chinese feel like this happened yesterday.

You could dismiss all this as academic musings.

But national pride and sovereignty are really big deals in China today.

During China’s last trade war with Japan only five years ago, several Japanese facilities were burned down by angry, uncontrollable mobs, and visiting businessmen were assaulted on the street. Trade ground to a halt.

So it behooves us to analyze which companies will suffer the most from any deterioration in the US-Chinese relationship before markets figure this out. The Chinese are not interested in any “America First” policy in any way, shape, or form.

Here is my hit list:

1) Apple (AAPL) – Yes, Cupertino, CA-based Apple has a big fat bull’s-eye on its back. The company is a vast, finely tuned machine that needs everything to work perfectly to deliver hundreds of millions of iPhones around the world.

The number of things that can go wrong here can’t be counted. What if the one million workers at its Foxconn subcontractor fail to show up for work someday? What if they are not allowed to go to work? What if they burn THAT factory down?

Another problem is that Chinese growth is a key part of Apple’s long-term sales strategy. A Chinese boycott would put a huge dent in those plans.

Remember, Apple is getting it from both sides, with Trump promising a 35% import duty on all Apple products. That would certainly hurt sales.

I’m sure Apple management is on tenterhooks as to how all this will play out in the coming months.

There is no backup plan here. Apple is just too big and too sophisticated to change any part of its incredibly complex supply chain in less than a decade.

2) General Motors (GM) – Is one of the most globalized US companies of all. (GM) can’t build a car in Detroit without 40% of its parts coming from Japan, Mexico, South Korea, or dozens of other countries.

General Motors is also hugely dependent on Chinese sales. It sells more Buicks in China than it does in the US. That is one-third of GM’s total worldwide sales.

Next, the company plans to sell Chinese-made Buicks in America.

While we weren’t looking, General Motors has become a Chinese company, and many others are falling suit.

3) Wal-Mart (WMT) – Imagine walking into your local Walmart one day and finding out that all of the prices have been marked up by 35%.

This is the reason why the company is called the “Chinese Embassy.” I dare you to find anything there that is NOT made in China, except for the food and the flowers (a dozen long stem red roses are only $10!).

Like Apple, the company is so big that any change in its supply chain would take years. You can add Target (TGT) to this hit list for the same reasons.

On top of that, Wal-Mart has 432 stores operating in China. Imagine the effect that a boycott would have there.

4) Boeing (BA) - The local flight school that maintains my plane has been totally taken over by Chinese students. That is because China needs to buy $1 trillion worth of aircraft over the next 20 years, some 6,800 jetliners in all.

Boeing expects to provide the lion’s share of these. The company has already entered the planning phases for the construction of a giant new aircraft assembly plant in China.

It would be really easy for China to switch a major part of these orders over to Europe’s Airbus Industries, which has been aggressively competing to accomplish exactly that.

Boeing didn’t get the business because of the advanced technology seen in the 787 Dreamliner. Chinese were simply attempting to even out the trade balance.

5) Starbucks (STBX) – Starbucks founder Howard Schultz made no secret of his dislike for Donald Trump before the election. With 2,500 stores in China, and plans to double that figure, he had little other choice.

With relations between the US and China turning colder than the firm’s overpriced ice espresso, sales, growth plans, and share prices could take a big hit. Chinese may have to postpone their caffeine addiction until the next Democratic administration.

6) Caterpillar (CAT) – You can’t have an infrastructure boom anywhere in the world without Caterpillar, whose heavy machinery is the gold standard for large public works projects. I have been covering the company for 40 years.

7) Tesla (TSLA) – Tesla’s factory in China is the company’s biggest seller. If the Chinese expropriate or impede in any way such as through strikes, Tesla’s share price would drop by half instantly. I know the Chinese promised to play nice when Tesla made this groundbreaking, technology-transferring investment. But guess what Elon? The Chinese can change their minds.

As a result of the upcoming US round of massive deficit spending, (CAT)’s share has been one of the best performers since the presidential election.

Unfortunately, this time the company is so heavily invested in China that it has also built a large assembly plant there. China accounts for 20% of the firm’s worldwide sales.

Time for a short?

The net effect on the impairment of business at all of these companies will be lower profits, high volatility of profits, and continued uncertainty. The shares will be forced to trade at a discount.

When you are running a mammoth global business, the last thing in the world you want is unpredictability.

It will also bring a rapid rise in inflation, as prices are raised to offset higher costs and a strong dollar.

Who will be the biggest victims?

Working-class Trump voters in Rust Belt states, least able to afford price hikes, especially those who already have jobs in Midwest manufacturing.

Where is the "REFUND" Button?

June 14, 2024

Diary, Newsletter, Summary

Global Market Comments
June 14, 2024
Fiat Lux

Featured Trade:

(TESTIMONIAL),
(JUNE 12 BIWEEKLY STRATEGY WEBINAR Q&A),
(NVDA), (AVGO), (ARM), (GM), (TSLA), (SQM), (FMC), (ALB), (AAPL), ($VIX), (AMZN), (MO), (NFLX), (ABNB)