Global Market Comments
April 11, 2022
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD,
or WATCH OUT FOR THE RECESSION WARNINGS)
(TLT), (TSLA), (FB), (CRSP), (TDOC), (GILD), (EDIT), (SQ), (INDU), (NVDA), (GS)
Tag Archive for: (GS)
The drumbeat of a coming recession is getting louder and louder.
There is no doubt that the traditional signals of a slowing economy are already flashing yellow, if not bright red.
Rocketing interest rates are the most obvious one, with ten-year US Treasury bonds yield soaring from 1.33% to 2.71% in a mere four months. This is why investors pulled a gut-punching $87 billion out of bond funds in Q1.
If the Fed continues with a quarter point rise at every meeting for the rest of the year, we might escape this cycle without a recession. If the Fed ramps up to a half point rate at every meeting as was discussed last week a recession becomes a sure thing.
Imminent positive real yields for the first time in a decade also threaten to draw money out of stocks and into bonds.
I happen to be in the non-recessionary camp and the reason is very simple. Companies are making too much damn money. This is especially true for technology companies, which account for some 75% of the profits made in the US. If anything, their profits are accelerating, although at a lower rate than seen in 2021.
Certainly, the tech companies themselves aren’t buying the recession scenario. They are hiring and investing as if the economic boom will continue forever. Tesla alone has completed two new factories in the past month, in Berlin, Germany and Austin, Texas, each capable of producing a half million vehicles a year. Tesla’s existing factories are all expanding capacity.
Sitting here in Silicon Valley, I can tell you that the job market is as hot as ever. Those who have jobs, like my own kids, are besieged with multiple job offers. It seems the standard time to keep a job these days is a year, after which one takes the next upgrade, promotion, and batch of stock options.
But the stock market seems hell-bent on discounting a recession anyway. You see this in the most economically sensitive sectors of the market, banks, semiconductors, and transport, which have just clocked a miserable month. If I am right (I’m always right), and there is no recession, these will be the sectors that lead the recovery.
Until the market makes up its mind, the disciplined among us will have to while away our time constructing lists of companies to buy for the rebound. That’s when the next leg of the bull market resumes.
We find out when this happens on Wednesday when the next batch of inflation data is released, which is likely to be diabolical.
Quantitative Tightening to Start as Soon as May, according to Fed Governor Brainard. That means our central bank will start selling its vast $9 trillion in bond holding in two months, a huge market negative. Bonds tanked. The Fed only quit quantitative easing in March.
Tesla Blows Away Q1 Sales, shipping 310,000 vehicles, far above expectations. This is despite supply chain problems, soaring interest rates, and the Ukraine War. Sky-high gasoline prices helped a lot, which is driving buyers into Tesla showrooms in drives. All other competitors are falling farther behind, unable to obtain parts and commodities which Tesla locked up long ago. This puts Tesla well on its way to its 1.5 million production goal for this year. Keep buying (TSLA) on dips. My long-term target is $10,000 a share.
The Metaverse May be Worth $13 Trillion by 2030, says Citibank. The same is so for Web 3.0, which includes virtual worlds, like gaming and applications in virtual reality. Citi’s broad vision of the metaverse includes smart manufacturing technology, virtual advertising, online events like concerts, as well as digital forms of money such as cryptocurrencies like I’ll be looking for the best plays.
Biotech May Be Staging a Comeback, after spending a year in hell, taking some shares down 80%-90%. Investors are also nibbling at the sector as a recession and bear market plays, as these companies keep growing regardless of the economic cycle. Buy (CRSP), Teledoc (TDOC), Gilead Sciences (GILD), ad Editas Medicine (EDIT) on dips.
US Bonds Just Suffered their Worst Quarter in a Half Century, with yields rocketing from 1.33% to 2.71%, and Mad Hedge was triple short most of the way down. Bear LEAPS holders, which are many of you, made fortunes. We could stall around current levels until the Fed delivered both barrels of a shot gun, two back-to-back half point rate rises from the Fed.
30-Year Fixed Rate Mortgage Rates Top 5.00%, trashing the home builders. If you thought buying a home was tough, its worst now. So far, no impact on home prices.
US Dollar Hits New Two-Year High. It’s all about rising interest rates. Expect a stronger greenback to come before the turn. The coming QT will put a two-step turbocharger on the move.
German Battery Sales Soar By 67%, to residential buyers to cope with pending energy shortages. Germany already has 2.2 million solar installations out of a population of 83 million. It’s a very smart move as batteries powered by solar panels can remove you from the grid entirely, as I have amply proven with my own installation. It may be the permanent solution to over-dependence on Russian energy supplies.
Tesla Moving into Bitcoin Mining, in partnership with Blockstream and Block, formerly Square (SQ). Tesla will supply the electric power with its massive 3.8-megawatt solar array. That is the size of a large nuclear power plant. The mining facility is designed to be a proof of concept for 100% renewable energy bitcoin mining at scale. If Elon Musk likes Bitcoin maybe you should too.
The Bank of Japan Now Owns 7% of the Japanese Stocks Market. The central bank had to buy the shares after it had already bought all the bonds in the country to support the economy. So, what happens when the policy flips from QE to QT? How about unloading $371 billion worth of shares on the market. This would e a neat trick since so much of the country’s shares are locked up in corporate cross holdings. Methinks I’ll be steering clear of Japanese stocks for the foreseeable future.
My Ten-Year View
When we come out the other side of pandemic, we will be perfectly poised to launch into my new American Golden Age, or the next Roaring Twenties. With interest rates still historically cheap, oil peaking out soon, and technology hyper accelerating, there will be no reason not to. The Dow Average will rise by 800% to 240,000 or more in the coming decade. The America coming out the other side of the pandemic will be far more efficient and profitable than the old. Dow 240,000 here we come!
My March month-to-date performance retreated to a modest 0.38%. My 2022 year-to-date performance ended at a chest-beating 27.23%. The Dow Average is down -4.20% so far in 2022. It is the greatest outperformance on an index since Mad Hedge Fund Trader started 14 years ago. My trailing one-year return maintains a sky-high 68.89%.
On the next capitulation selloff day, which might come with the April Q1 earnings reports, I’ll be adding long positions in technology, banks, and biotech. I am currently in a rare 100% cash position awaiting the next ideal entry point.
That brings my 13-year total return to 539.79%, some 2.10 times the S&P 500 (SPX) over the same period. My average annualized return has ratcheted up to 44.36%, easily the highest in the industry.
We need to keep an eye on the number of US Coronavirus cases at 80.3 million, up only 100,000 in a week and deaths topping 985,000 and have only increased by 2,000 in the past week. You can find the data here. Growth of the pandemic has virtually stopped, with new cases down 98% in two months.
On Monday, April 11 at 8:00 AM EST, Consumer Inflation Expectations are released.
On Tuesday, April 12 at 8:30 AM, the Core Inflation Rate for March is announced.
On Wednesday, April 13 at 8:30 AM, the Producer Price Index for March is printed.
On Thursday, April 14 at 7:30 AM, the Weekly Jobless Claims are printed. We also get Retail Sales for March.
On Friday, April 8 at 8:30 AM, NY Empire State Manufacturing Index for March. At 2:00 PM, the Baker Hughes Oil Rig Count is out.
As for me, back in 2002, I flew to Iceland to do some research on the country’s national DNA sequencing program called deCode, which analyzed the genetic material of everyone in that tiny nation of 250,000. It was the boldest project yet in the field and had already led to several breakthrough discoveries.
Let me start by telling you the downside of visiting Iceland. In the country that has produced three Miss Universes over the last 50 years, suddenly you are the ugliest guy in the country. Because guess what? The men are beautiful as well, the decedents of Vikings who became stranded here after they cut down all the forests on the island for firewood, leaving nothing with which to build long boats. I said they were beautiful, not smart.
Still, just looking is free and highly rewarding.
While I was there, I thought it would be fun to trek across Iceland from North to South in the spirit of Shackleton, Scott, and Amundsen. I went alone because after all, how many people do you know who want to trek across Iceland? Besides, it was only 150 miles or ten days to cross. A piece of cake really.
Near the trailhead, the scenery could have been a scene from Lord of the Rings, with undulating green hills, craggy rock formations, and miniature Icelandic ponies galloping in herds. It was nature in its most raw and pristine form. It was all breathtaking.
Most of the central part of Iceland is covered by a gigantic glacier over which a rough trail is marked by stakes planted in the snow every hundred meters. The problem arises when fog or blizzards set in, obscuring the next stake, making it too easy to get lost. Then you risk walking into a fumarole, a vent from the volcano under the ice always covered by boiling water. About ten people a year die this way.
My strategy in avoiding this cruel fate was very simple. Walk 50 meters. If I could see the next stake, I proceeded. If I couldn’t, I pitched my tent and waited until the storm passed.
It worked.
Every 10 kilometers stood a stone rescue hut with a propane stove for adventurers caught out in storms. I thought they were for wimps but always camped nearby for the company.
I was 100 miles into my trek, approached my hut for the night, and opened the door to say hello to my new friends.
What I saw horrified me.
Inside was an entire German Girl Scout Troop spread out in their sleeping bags all with a particularly virulent case of the flu. In the middle was a girl lying on the floor soaking wet and shivering, who had fallen into a glacier fed river. She was clearly dying of hypothermia.
I was pissed and instantly went into Marine Corp Captain mode, barking out orders left and right. Fortunately, my German was still pretty good then, so I instructed every girl to get out of their sleeping bags and pile them on top of the freezing scout. I then told them to strip the girl of her wet clothes and reclothe her with dry replacements. They could have their bags back when she got warm. The great thing about Germans is that they are really good at following orders.
Next, I turned the stove burners up high to generate some heat. Then I rifled through backpacks and cooked up what food I could find, force-fed it into the scouts and emptied my bottle of aspirin. For the adult leader, a woman in her thirties who was practically unconscious, I parted with my emergency supply of Jack Daniels.
By the next morning, the frozen girl was warm, the rest were recovering, and the leader was conscious. They thanked me profusely. I told them I was an American “Adler Scout” (Eagle Scout) and was just doing my job.
One of the girls cautiously moved forward and presented me with a small doll dressed in a traditional German Dirndl which she said was her good luck charm. Since I was her good luck, I should have it. It was the girl who was freezing the death the day before.
Some 20 years later I look back fondly on that trip and would love to do it again.
Anyone want to go to Iceland?
Stay Healthy,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Iceland 2002
Mad Hedge Bitcoin Letter
March 22, 2022
Fiat Lux
Featured Trade:
(GOLDMAN INCHES INTO CRYPTO)
(BTC), (GS), (OTC)
When it rains, it pours.
That will be the transformational effect if institutional money finally comes on board the crypto train.
They are still poking around the edges and sniffing it to see if it is something they really want to get into.
Don’t forget that many of these institutions are beholden by a rigid set of regulations that they must adhere to and joining the wild west of crypto is for some, a step too far.
There is no doubt in my mind that the industry of money is barreling towards a digitized and decentralized version of it and many of these institutions don’t want to be left behind.
It’s bad enough they didn’t participate in the meteoric rise of Bitcoin (BTC) from almost zero to above $60,000 almost as if a portfolio manager missed a 10-year bull market.
But inroads are being made nonetheless and one of the preeminent investment banks, Goldman Sachs, took a giant leap forward toward the possible wide adoption of bitcoin among institutional investors, such as hedge and pension funds.
A step that will comfort some big investors, many of whom are still on the fence to invest in cryptocurrencies and in particular in bitcoin, the first digital currency in terms of market share.
Goldman Sachs (GS) executed its first over-the-counter (OTC) crypto options trade.
The firm traded a bitcoin-linked instrument called a non-deliverable bitcoin option (NDO), which is a derivative tied to bitcoin’s price that pays out in cash.
Options are used by crypto investors to hedge risks or boost yields, and over-the-counter transactions are larger trades negotiated privately.
This transaction gets GS closer to the crypto industry with regards to having skin in the game.
At the very least, they recognize there is something there and a major revenue opportunity if they do this the right way.
This marks the first OTC crypto transaction by a major bank in the U.S., and as GS continues expanding its cryptocurrency offerings, demonstrating the continued maturation and adoption of digital assets by banking institutions.
Is Bitcoin legit?
This move is an important step in the development of the crypto market for large investors because OTCs mean that Goldman Sachs will act as a principal in the transaction.
Goldman Sachs' involvement also sends a signal to mainstream investors that cryptocurrency-related assets have matured.
We are pleased to continue to strengthen our relationship with Goldman and expect the transaction to open the door for other banks considering OTC as a conduit for trading digital assets.
The concern that offering financial services related to cryptocurrencies might increase that burden of regulation is substantial.
But the change is also a cultural switch.
Legacy banks cringe that there is still too much uncertainty surrounding the regulation of the crypto industry.
However, there have been notable changes in recent months.
Famous investors like Ray Dalio and Bill Gross have thrown their support behind cryptocurrencies, a sign that the lines are moving at hedge funds, which bodes well for bitcoin.
GS is also offering exchange-listed options and futures trading in bitcoin and ethereum.
This is the first step of a bigger pivot to crypto as GS and other banks plan to build businesses out of it.
It is yet to be determined whether they push aggressively into it, but my hunch is that they move incrementally reflecting the extreme uncertainty of the rules of the road.
Intent is one thing, and it is true that development will take time to materialize, but a development of digital currencies doesn’t take place in one day.
Either way, this is another victory in the long-term prospects of Bitcoin and crypto.
Global Market Comments
December 13, 2021
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or THE BULL AGES),
(BAC), (GS), (JPM), (TLE)
I asked a hedge fund friend of mine the other day about his favorite positions for 2022. His answer surprised me: cash.
Maybe it’s just me in my old age, but it seems we are having to work harder and harder to get fewer and fewer returns from the stock market.
Maybe it’s the increasing age of the bull, now 14 months since the last 10% correction. It is not a child anymore, or even a teenager, but more likely thirty something.
Is there a middle age crisis around the corner? While its performance will still be OK, its best years are clearly behind us. In other words, it’s a lot like you and me.
Perhaps it is the recent onslaught of black swans hitting the financial system: oil shocks, threatened Russian invasions, shocking 6.8% inflation, and Fed flip-flopping that are causing the recent reticence.
But here we are with a Dow Average at $35,970, exactly where we were two months ago. There has been a lot of Sturm und Drang, but no net movement.
Maybe this is all to test the faithful and to flush out all the hot money, which we clearly did the previous week. 2022 will be one of the highest growth years in American history, in excess of a 5% real rate.
In a year, the pandemic will be gone, supply chain problems fixed, international trade resumed, corporate profits and the stock market will be at all-time highs, and most workers will have just obtained the biggest pay increases in their lives. The only unknown is how much of this performance has already been pulled forward into 2021.
Still, we have little choice but to press ahead with our longs. With overnight rates still near zero, there are few other high-gaining investments, such as residential real estate. The funny thing is that real estate people are buying stocks because homes have gotten so expensive, while stock market people are buying second and third homes because shares have become so dear.
I call it the “grass is always greener on the other side of the fence” syndrome. It is always a sign of impending trouble.
Cogitating over this, I think I’ll go for my second helping of eggnog and my third mug of hot buttered rum.
CPI Sizzles at 6.8% YOY, the highest since 1982, after a 0.8% pop in November. Virtually everything saw big increases, with used trucks up 30%. The Fed now has more incentive to accelerate the taper and bring forward interest rate hikes. The shock was already priced into the bond market which barely moved.
ADP Soars to 11 Million Job Openings, up 431,000 in October, the most on record. Companies are screaming for new staff. If you are a computer programmer or truck driver, the world is your oyster. Resignations are declining. There are a staggering 254,000 openings in Accommodations and Food Industries, and another 45,000 in nondurable goods manufacturing. State & Local Government shrunk job openings by 115,000. It’s a sign of extreme vigor in the economy.
Weekly Jobless Claims Dive to 184,000, down an amazing 43,000 on the week, a new post-pandemic low and a 52-year low. Things are definitely getting better.
Omicron Fades as a market concern, as a 1,200-point move up in the Dow in two days proves. This was probably the last dip of 2021. Now that the bottom is in, look for volatility to fade from here into yearend. I kept all my positions in the last meltdown, both in financial and tech longs and bond shorts.
Pfizer Says Boosters Work Against Omicron, as I suspected, which is why you saw the biggest two-day rally in stocks this year. The booster increases your immunity 1,000 times. I’d buy (PFE) but it is already up 25% in a month.
Ford Stops Taking Orders for the F-150EV, as demand has been so overwhelming. Now all they have to do is make one. It’s the hottest selling Ford product since the Mustang hit the road in 1964, when the Beatles launched their first US tour. A lot of talk but little output. It’s all PR. Tesla has a 12-year head start, but (F) will probably keep going up as it transforms from a hardware manufacturer to a software company.
Why Elon Musk Hates Hydrogen, which he calls “fool cells”. I tell people to just google the term “Hindenburg”. Electricity is infinitely scalable while hydrogen isn’t, and certainly won’t be able to compete economically after the next tenfold improvement in battery densities.
US Home Prices to Keep Rising, but at only half the 2021 rate. I’ll take another 10% gain in my home value. The generational shortage of housing should keep house prices rising for another decade. Buy (TOL), PHM), and (KBH) on dips, which has resorted to lotteries to halt bidding wars.
My Ten-Year View
When we come out the other side of pandemic, we will be perfectly poised to launch into my new American Golden Age, or the next Roaring Twenties. With interest rates still at zero, oil cheap, there will be no reason not to. The Dow Average will rise by 800% to 240,000 or more in the coming decade. The American coming out the other side of the pandemic will be far more efficient and profitable than the old. Dow 240,000 here we come!
With the pandemic-driven meltdown on Friday, my November month-to-date performance bounced back hard to 9.47%. My 2021 year-to-date performance recovered to 86.23%. The Dow Average is up 17.55% so far in 2021.
I used a collapse in bond prices to take profits on my 20% position in bonds. I kept my long in (JPM),(GS), and (BAC). I am 70% in cash. I will be using any further volatility spikes to add positions in the coming week.
That brings my 12-year total return to 508.78%, some 2.00 times the S&P 500 (SPX) over the same period. My 12-year average annualized return has ratcheted up to 42.40%, easily the highest in the industry.
We need to keep an eye on the number of US Coronavirus cases at 50 million and rising quickly and deaths close to 800,000, which you can find here.
On Monday, December 13 at 8:00 AM, Consumer Inflation Expectations are out.
On Tuesday, December 14 at 8:30 AM, the Producer Price Index for November is published.
On Wednesday, December 15 at 8:30 AM, the Retail Sales for November are printed. At 11:00 AM, the Federal Reserve announces its interest rate decision.
On Thursday, December 16 at 8:30 AM, the Weekly Jobless Claims are disclosed.
On Friday, December 17 at 2:00 PM, the Baker Hughes Oil Rig Count is out.
As for me, one of the benefits of being married to a British Airways stewardess in the 1970s was unlimited free travel around the world. Ceylon, the Seychelles, and Kenya were no problem.
Usually, you rode in first class, which was half empty, as the British Empire was then rapidly fading. Or you could fly in the cockpit where, on long flights, the pilot usually put the plane on autopilot and then went to sleep on the floor, asking me to watch the controls.
That’s how I got to fly a range of larger commercial aircraft, from a Vickers Viscount VC-10 to a Boeing 747. Nothing beats flying a jumbo jet over the North Pole on a clear day, where the unlimited view ahead is nothing less than stunning.
When gold peaked in 1979 at $900 an ounce, up from $34, The Economist magazine asked me to fly from Japan to South Africa and write about the barbarous relic. That I did with great enthusiasm, bringing along my new wife, Kyoko.
Sure enough, as soon as I arrived, I noticed long lines of South Africans cashing in their Krugerrands, which they had been saving up for years in the event of a black takeover.
There was only one problem. My wife was Japanese.
While under the complicated apartheid system, Chinese were relegated to second class status along with Indians, Japanese were treated as “honorary whites” as Japan did an immense amount of trade with the country.
The confusion came when nobody could tell the difference between Chinese and Japanese, not even me. As a result, we were treated as outcasts everywhere we went. There was only one hotel in the country that would take us, the Carlton in Johannesburg, where John and Yoko Lennon stayed earlier that year.
That meant we could only take day tips from Joberg. We traveled up to Pretoria, the national capital, to take in the sights there. For lunch, we went to the best restaurant in town. Not knowing what to do, they placed us in an empty corner and ignored us for 45 minutes. Finally, we were brought some menus.
The Economist asked me to check out the townships where blacks were confined behind high barbed-wire fences in communities of 50,000. I was given a contact in the African National Conference, then a terrorist organization. Its leader, Nelson Mandela, had spent decades rotting away in an island prison.
My contact agreed to smuggle us in. While blacks were allowed to leave the townships for work, whites were not permitted in under any circumstances.
So, we were somewhat nonplussed Kyoko and I were asked to climb into the trunk of an old Mercedes. Really? We made it through the gates and into the center of the compound. On getting out of the trunk, we both burst into nervous laughter.
Some honeymoon!
After meeting the leadership, we were assigned no less than 11 bodyguards as whites in the townships were killed on sight. The favored method was to take a bicycle spoke and sever your spinal cord.
We drove the compound inspecting plywood shanties with corrugated iron roofs, brightly painted and packed shoulder to shoulder. The earth was dry and dusty. People were friendly, waving as we drove past. I interviewed several. Then we were smuggled out the same way we came in and hastily dropped on a corner in the city.
Apartheid ended in 1990 when the ANC took control of the country, electing Nelson Mandela as president. A massive white flight ensued which brought people like Elon Musk’s family to Canada and then to Silicon Valley.
Everyone feared the blacks would rise up and slaughter the white population.
It never happened.
Today, South Africa offers one of the more interesting investment opportunities on the continent. The end of apartheid took a great weight off the shoulders of the country’s economy. Check out the (EZA), which nearly tripled off of the 2020 bottom.
Kyoko passed away in 2002 at age 50.
Stay Healthy.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Global Market Comments
December 6, 2021
Fiat Lux
Featured Trade:
(THE MAD HEDGE TRADERS & INVESTORS SUMMIT IS ON FOR DECEMBER 7-9) (MARKET OUTLOOK FOR THE WEEK AHEAD, or THE TRIPLE VIRUS ATTACK),
(SPY), (TLT), (BAC), (GS), (JPM), (VIX)
Those who were bemoaning the lack of market volatility certainly had their wishes fulfilled last week and then some. Volatility attacked the $30 level remorselessly like a hoard of barbarians. But it didn’t close there.
We actually got three Omicrons last week, the virus kind, the Fed kind, and the jobs variety, with the November Nonfarm Payroll report coming in at a paltry 210,000. Yet, the Headline unemployment rate cratered to a new post-pandemic low, from 4.6% to 4.2%. Go figure.
The Fed’s move amounts to a sudden dramatic lean towards a hawkish stance. The word “transitory” has hopefully been banished from the Fed lexicon for good.
The final flush on Friday no doubt cleansed the market like a colonoscopy, vaporizing any bad positions from yearend reports. That’s why the reopening stocks like hotels, cruise lines, airlines, and casinos were sold down so hard and bounced back with equal vigor.
Last week’s violence cleared the way for the yearend rally to continue, with the final destination a close at the year’s top tic all-time high.
Of course, everyone knows interest rates are rising except the bond market, where prices seemed to magically levitate, keeping interest rates low. Rumors of hedge funds covering shorts to bury losses abound. This is the trade that everyone universally got wrong.
I think the incredible move on Friday was due to hedge funds stampeding to cover money-losing short positions ahead of embarrassing yearend reports.
From here on, trading should get easier as the smarter money departs for Hawaii, the Caribbean, Aspen, or in this case Lake Tahoe, where the pristine waters and ski slopes beckon. Volume and volatility should bleed out from here.
I’m sticking with my long tech, long financials, and short bond strategy until payday, which should be soon.
The Nonfarm Payroll Report Disappoints in November, coming in at 210,000. Over 600,000 was expected. The Headline Unemployment Rate fell to 4.2%, a new post pandemic low. There was a lot of confusing and contradictory data this month. Professional & Business Services added 90,000, Couriers & Messengers 26,800, and Leisure & Hospitality 23,000. But total Employment added 1.1 million. Government lost 25,000 jobs.
How Real is Omicron? On Friday, the market viewed it as a delta variant 2.0. I don’t think so. If anything, it shows how effective the global early response system has become to new variants. South Africa caught omicron with only a handful of cases and the borders started closing immediately. There is no indication that Omicron can’t be stopped by vaccination. It will only kill the anti-vaxers. It means we’re safer, not more at risk, and the economic recovery and the bull market should continue.
Oil Plunges Down 13% in a Day, breaking $70, as fears of a new variant-caused recession run rampant. It was a “sell everything” selloff.
Biden Says No Travel Restrictions or Lockdowns, in response to the new Covid Omicron variant. Therefore, no negative response for the stock market. It was worth a 350-point rally yesterday.
Pending Home Sales Soar by 7.5% in October. The Midwest showed the strongest sales, reflecting a mass migration to cheaper homes from the coasts.
ADP Comes in Red Hot at 534,000. Services dominated and Leisure & Hospitality picked up a massive 136,000. Large companies led the hiring binge. It augers well for the Friday Nonfarm Payroll Report.
More Taper Sooner was the bottom line on Powell’s comments last week. The Fed governor said in testimony in front of the Senate Banking Committee that inflation is no longer “transitory”, implying that hotter inflation numbers are to come. Yikes! Finally, a nod to reality! Stocks tanked 600 points on the comment. Bonds should crash but strangely are holding up. Watch this space. The news could give us a tradable bottom for all asset classes.
ISM Manufacturing Improves, from 60.8 to 61.1 in November. It’s more proof that the economy is expanding.
Weekly Jobless Claims Still Hot at 222,000, and continuing claims fell below 2 million, a new post-pandemic low. No recession here.
My Ten Year View
When we come out the other side of pandemic, we will be perfectly poised to launch into my new American Golden Age, or the next Roaring Twenties. With interest rates still at zero, oil cheap, there will be no reason not to. The Dow Average will rise by 800% to 240,000 or more in the coming decade. The American coming out the other side of the pandemic will be far more efficient and profitable than the old. Dow 240,000 here we come!
With the pandemic-driven meltdown on Friday, my December month-to-date performance plunged to -4.58%. My 2021 year-to-date performance took a haircut to 72.18%. The Dow Average is up 13.00% so far in 2021.
I used the collapse in interest rates to add a 20% position in financial stocks, Goldman Sachs (GS), and Bank of America (BAC). I got hammered with my existing short in bonds, with the ten-year yield plunging to an eye-popping 1.37%.
That brings my 12-year total return to 494.73%, some 2.00 times the S&P 500 (SPX) over the same period. My 12-year average annualized return has ratcheted up to 41.22% easily the highest in the industry.
We need to keep an eye on the number of US Coronavirus cases at 49 million and rising quickly and deaths topping 788,000, which you can find here.
The coming week will be all about the inflation numbers.
On Monday, December 6, nothing of note takes place as we move into the yearend slowdown.
On Tuesday, December 7 at 5:30 AM EST, the US Balance of Trade is released for October. We will remember Pearl Harbor Day when the US Navy lost 3,000 men.
On Wednesday, December 8 at 5:15 AM, the JOLTS Job Openings for October are published.
On Thursday, December 9 at 8:30 AM, the Weekly Jobless Claims are disclosed.
On Friday, December 10 at 5:30 AM EST the US Inflation Rate for November is printed. At 2:00 PM, the Baker Hughes Oil Rig Count is out.
As for me, occasionally I tell close friends that I hitchhiked across the Sahara Desert alone when I was 16 and am met with looks that are amazed, befuddled, and disbelieving, but I actually did it in the summer of 1968.
I had spent two months hitchhiking from a hospital in Sweden all the way to my ancestral roots in Monreale, Sicily, the home of my Italian grandfather. My next goal was to visit my Uncle Charles, who was stationed at the Torreon Air Force base outside of Madrid, Spain.
I looked at my Michelin map of the Mediterranean and quickly realized that it would be much quicker to cut across North Africa than hitching all the way back up the length of Italy, cutting across the Cote d’Azur, where no one ever picked up hitchhikers, then all the way down to Madrid, where the people were too poor to own cars.
So one fine morning found me taking deck passage on a ferry from Palermo to Tunis. From here on, my memory is hazy and I remember only a few flashbacks.
Ever the historian, even at age 16, I made straight for the Carthaginian ruins where the Romans allegedly salted the earth to prevent any recovery of a country they had just wasted. Some 2,000 years later, it worked as there was nothing left but an endless sea of scattered rocks.
At night, I laid out my sleeping bag to catch some shut-eye. But at 2:00 AM, someone tried to bash my head in with a rock. I scared them off but haven’t had a decent night of sleep since.
The next day, I made for the spectacular Roman ruins at Leptus Magna on the Libyan coast. But Muamar Khadafi pulled off a coup d’état earlier and closed the border to all Americans. My visa obtained in Rome from King Idris was useless.
I used to opportunity to hitchhike over Kasserine Pass into Algeria, where my uncle served under General Patton in WWII. US forces suffered an ignominious defeat until General Patton took over the army 1n 1943. Some 25 years later, the scenery was still littered with blown-up tanks, destroyed trucks, and crashed Messerschmitt’s.
Approaching the coastal road, I started jumping trains headed west. While officially the Algerian Civil War ended in 1962, in fact, it was still going on in 1968. We passed derailed trains and smashed bridges. The cattle were starving. There was no food anywhere.
At night, Arab families invited me to stay over in their mud brick homes as I always traveled with a big American Flag on my pack. Their hospitality was endless, and they shared what little food they had.
As a train pulled into Algiers, a conductor caught me without a ticket. So, the railway police arrested me and on arrival took me to the central Algiers prison, not a very nice place. After the police left, the head of the prison took me to a back door, opened it, smiled, and said “si vou plais”. That was all the French I ever needed to know. I quickly disappeared into the Algiers souk.
As we approached the Moroccan border, I saw trains of camels 1,000 animals long, rhythmically swaying back and forth with their cargoes of spices from central Africa. These don’t exist anymore, replaced by modern trucks.
Out in the middle of nowhere, bullets started flying through the passenger cars splintering wood. I poked my Kodak Instamatic out the window in between volleys of shots and snapped a few pictures.
The train juddered to a halt and robbers boarded. They shook down the passengers, seizing whatever silver jewelry and bolts of cloth they could find.
When they came to me, they just laughed and moved on. As a ragged backpacker I had nothing of interest for them.
The train ended up in Marrakesh on the edge of the Sahara and the final destination of the camel trains. It was like visiting the Arabian nights. The main Jemaa el-Fna square was amazing, with masses of crafts for sale, magicians, snake charmers, and men breathing fire.
Next stop was Tangiers, site of the oldest foreign American embassy, which is now open to tourists. For 50 cents a night, you could sleep on a rooftop under the stars and pass the pipe with fellow travelers which contained something called hashish.
One more ferry ride and I was at the British naval base at the Rock of Gibraltar and then on a train for Madrid. I made it to the Torreon base main gate where a very surprised master sergeant picked up half-starved, rail-thin, filthy nephew and took me home. Later, Uncle Charles said I slept for three days straight. Since I had lice, Charles shaved my head when I was asleep. I fit right in with the other airmen.
I woke up with a fever, so Charles took me to the base clinic. They never figured out what I had. Maybe it was exhaustion, maybe it was prolonged starvation. Perhaps it was something African. Possibly, it was all one long dream.
Afterwards, my uncle took for to the base commissary where I enjoyed my first cheeseburger, French fries, and chocolate shake in many months. It was the best meal of my life and the only cure I really needed.
I have pictures of all this which are sitting in a box somewhere in my basement. The Michelin map sits in a giant case of old, used maps that I have been collecting for 60 years.
Stay Healthy.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
The Mediterranean in 1968
Below please find subscribers’ Q&A for the December 1 Mad Hedge Fund Trader Global Strategy Webinar broadcast from the safety of Silicon Valley.
Q: What are your thoughts on Square (SQ)?
A: There is a whole range of FinTech companies including Square (SQ) and PayPal (PYPL), as well as Mastercard (MA), American Express (AXP), and Visa (V), which have been completely slaughtered in the last 3 months. The theme behind that selling is that Bitcoin, being a frictionless transaction system, will wipe out all existing fee taking financial services. You’re getting long-term investors selling because of that. And that’s why all of these sectors have sold in unison, so everything looks incredibly cheap now. I know a lot of people who are starting to pick up PayPal down here, so that is what's going on.
Q: How do you see iShares 20 Plus Year Treasury Bond (TLT) ETF moving forward?
A: It has to go down. Accelerated tapering with a new interest rate policy about to hit and 7% GDP growth against 6.2% inflation—this has been the toughest bond market of all time. I expect we start getting dramatic falls once people get the memo, but that hasn’t happened yet; and if anything, you could get strength at the end of the year as people throw in the towel on money-losing shorts to window dress their holdings for customers. I think that's why we had this monster ten-point rally in just a week—it’s people trying to get out of losing trades before year-end.
Q: Could Omicron trigger a recession?
A: No. This is entirely media hype. But algorithms are totally gullible to media hype. All they need to sell is the right word in a headline, like “Omicron.” When the virus first hit last year we had 0% immunity, and when Delta hit we had about 50% immunity. At 90% immunity, the virus will have ten times more difficulty stopping the economy. We now have so much testing, so many early warning systems, and so many better ways to treat the disease for people who already got it with the Pfizer pill and so on, that this is nowhere near the threat to the economy that it was even six months ago. So, buy any Omicron-inspired selloffs; that’s what I've been doing since Friday.
Q: What’s the relationship between high oil prices and the direction of Tesla (TSLA) stock?
A: They track pretty much one for one. High oil prices are great for Tesla, as they are for all-electric cars, because it makes switching to electric much more financially attractive. If you’re paying $5 per gallon at the pump as we are here in California, you have a much bigger incentive to switch to an electric car than it was when gasoline was $2. And that has historically been the case with all alternative forms of energy for the last 50 years; what would always kill alternative energy in the past was cheap oil—oil going down to $30 a barrel and gasoline at $2 a gallon. When it's that cheap, people don't want to pay a premium for electric. By the way, my energy cost is zero as I charge my cars at home with my solar panels. Even when I use public charging stations the energy cost is the same as paying 30 cents for a gallon of gas, which was the price when I was in high school.
Q: If volatility is about to explode, can we careen straight into a high-rate environment?
A: There is no quick connection between stock market volatility and interest rates. It would take dramatically higher interest rates to really hurt the stock market, and I'm talking 3% or 4% on a 10 year, not 1.48% which is what we have now. So, I don’t think interest rates rise high enough to offset the tremendous gains being made by technology and the enormous profits this is spinning off, and that is the fundamental case for a bull market that goes on for 10 more years.
Q: What is better to buy here, Apple (AAPL) or Microsoft (MSFT)?
A: Apple actually has been a laggard for the last six months, bumping up against that $150 level. Now that it has broken out to the upside, I’d be a buyer of Apple, but both are great names. I have heavy positions in both and am quite happy to run them.
Q: Is CRSPR Therapeutics (CRSP) worth a LEAP?
A: Yes, but I would go out 2 or 2.5 years to the maximum maturity, do an at-the-money like an $80-$90 LEAPS and then hope on a positive press announcement sometime in the next 2 years, and that should get you a 100% return.
Q: Thoughts on Facebook (FB)?
A: I’m avoiding Facebook because it just has too many balls in the air right now, changing their name, changing their business model—it’s not really clear what Meta is yet to most consumers, and I’d rather own Apple (AAPL) and Microsoft (MSFT).
Q: When is your autobiography being finished?
A: I don’t know because I don't know how it ends, I'm still living it. So, I'll keep chipping away at it every week when I have time. In a couple of years maybe we’ll launch the biography of John Thomas pdf book on the website, and you can all have a fascinating read. I still have decades worth of pictures in photo albums to go through to remember all the things I've done so there's a lot more good stuff to come. A Hollywood writer is working on a movie script about my life. Next week is about crossing the Sahara Desert when I was 16.
Q: Is our electric grid capable of taking care of all of the oodles of electric vehicles about to plug in?
A: Absolutely not, the grid has to be tripled in size to handle all the EV’s coming our way, which means we need to build 200,000 miles of new long-distance transmission cables, which are all made out of aluminum. Oh, and by the way, the 25 million EVs coming our way each uses 200 pounds of copper—there's another trade hint, Freeport-McMoRan (FCX). And of course, Alcoa (AA) is the big play on aluminum.
Q: What do you think of the ProShares Bitcoin Strategy (BITO) ETF?
A: I actually like it because it's tracking quite nicely with the underlying Bitcoin, the slippage there or the contango is only about 4% a year. That is worth doing to get improved liquidity and security by buying through the BITO ETF. We still have Bitcoin on a “BUY” signal is see $100,000 next year. The new fork will make it move for competitive with Ethereum.
Q: Do you expect a 5% dip in tax loss selling at the end of the year, or is this overhyped?
A: It's way overhyped because who has losses? Nobody has any losses this year to lock in, unless you have a big holding in China, so I don't think there will be any tax loss selling this year. I think we will close the markets at all-time highs on the last day of the year, and whatever tax effects there will be minimal. Plus, if you wait another month till January you don't have to pay the taxes for 16 months—sounds like a good deal to me. The chances of any major increases in tax rates have been greatly reduced over the coming play.
Q: Is copper (COPA.L) an inflation play?
A: Absolutely, it's one of the best inflation plays out there. It was always a great inflation play even before the electric car industry existed; copper and all other hard assets are great inflation plays. Oh, and then do you think at 6.2% we have inflation already? I kind of think the answer is yes! To watch a replay of this webinar with all the charts, bells, whistles, and classic rock music, just log in to www.madhedgefundtrader.com, go to MY ACCOUNT, click on GLOBAL TRADING DISPATCH, then WEBINARS, and all the webinars from the last ten years are there in all their glory.
Good Luck and Stay Healthy!
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Global Market Comments
December 2, 2021
Fiat Lux
Featured Trade:
(A NOTE ON OPTIONS CALLED AWAY)
(GS), (TLT)
