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The Market Outlook for the Week Ahead, or S&P 500 6,000 Target Achieved

I was reviled, abused, and outright laughed at by the investment community when, last January 5, I predicted that the S&P 500 would hit 6,000 by yearend, click here for the link. I was accused of sending out clickbait.

Yet here, ten months and change into the year here, we are with an intraday high today of 6,013.

Of course, in this business, you’re only as good as your last trade. So, the big question now is, what happens next?

The next two months are a gimme. The $8 trillion that has been sitting on the sideline is now pouring into the market. An S&P 500 target of 6,600 is within range. Speaking to fund managers around the country, the big concern was not over who won but whether we had a winner at all.

Three months of litigation with no outcome would have raised uncertainty to extremes and crashed the market. The risk of that scenario is now gone, which was worth a $1,500 rally in a day.

However, while the bull market continues, the targets have changed. As you will hear many times over the next four years, elections have consequences.

Falling interest rate plays are out. Don’t expect much performance from real estate, REITS (CCI), new homebuilders (DHI), gold GLD), and silver (SLV).

Deregulation plays are in. The good news is that this is a fairly wide sector. It includes banks (JPM), brokers (MS), money managers (BLK), new nuclear (CCJ), big tech that had been targeted by antitrust (NVDA) and (AMZN), and Tesla (TSLA).

Bonds are toast.

Promised Trump policies of tax cuts and spending increases will balloon the National Debt by $10-$15 trillion. The bond market is unlikely to be able to handle this amount of new issuance, especially with annual interest payments owed by the government already at $1 trillion. It is the second largest budget item after Social Security.

Selling into a national debt of $50 trillion is going to be completely different than selling into a national debt of $27 trillion when Trump last left office. This is the reason why major hedge funds are running Treasury bond shorts as their biggest positions, who were all Trump supporters and donors.

It all depends on inflation. This is not some far-distant theoretical thing. It is happening already. I got hit with several price increases today, and I am hearing about rises in other industries, like steel. The expectation is that a stronger economy can handle the price hikes.

So, the best case for bonds is that the (TLT) chops around here. The worst case is that we retest new lows at $82. It won’t help that the Federal Reserve is cutting interest rates by another 25 basis points on December 18. The Fed controls only overnight interest rates, not the 10–20-year bond market. Even if Trump appoints an ultra-dove as chairman of the Federal Reserve in 2026, bond vigilantes may have other ideas.

Then there is the matter of trade tariffs. I have been through many of these. Remember when Nixon banned the import of Japanese textiles in 1972? They don’t make textiles in Japan anymore because their rising labor costs drove that industry to China.

Trade wars are a negative sum game. There are only losers. The game is to punish your neighbors faster than they are punishing you. They shrink the pie.

If we raise tariffs on our allies, they will retaliate in kind. This will be a problem for big tech, which gets 50%-60% of their sales from abroad. Europe will target uniquely American products, like Captain Morgan rum. Notice that the brand owner, major exporter Diageo (DGE), saw its shares slaughtered last week. As a result, the price of everything here will soon start going up.

The (TLT) will be a great position to have going into the next recession. But the market won’t start discounting that for two or three years. That makes the (TLT) a trade for another day. In any case, there are better fish to fry.

Sell all (TLT) LEAPS now before they go down even more.

About that recession. Every bear market in my lifetime started with a Republican president. The pattern is always the same. Tax cuts, an excess stimulus, and deregulation lead to a higher high in the stock market as euphoria prevails. This leads to inflation, high interest rates, and recession.

This is not exactly an original thought. High rates caused the bear markets of 2008, which took the Dow Average down -52%, 2000 (-30%), 1990 (-30%), 1987 (30%). Previous bear markets in 1979 and 1973 were caused by oil shocks. 2027?

We shall see.

So make hay while the sun shines. The current euphoria binge will last three to six months. After that, we will need to reassess and start shopping for short plays among the most extreme moves, which I have already done with Tesla.

The bottom line for all of this is that equity returns for the next four years will be lower than the last four. If a recession hits, they could well be zero. This won’t be a problem if you get out at the top, as I did in 2008, 2000, 1990, and 1987. Conclusion: You need me now more than ever.

In November, we have gained a breathtaking +7.63%, thankfully because we went into the election with 70% cash and then poured money into deregulation plays. My 2024 year-to-date performance is at an amazing +60.77%. The S&P 500 (SPY) is up +25.73% so far in 2024. My trailing one-year return reached a nosebleed +69.73%. That brings my 16-year total return to +737.30%. My average annualized return has recovered to +52.98%.

I went into the election with two positions in (JPM) and (NVDA), which turned out to be great deregulations plays. I stopped out of my one interest-sensitive play in (GLD) near cost. I piled on new deregulation plays in (TSLA), (CCJ), and (MS). I also added a new short in (TSLA), taking advantage of a monster 60% implied volatility for the options.

Some 63 of my 70 round trips, or 90%, were profitable in 2023. Some 69 of 89 trades have been profitable so far in 2024, and several of those losses were really break evens. Some 22 out of the last 25 trade alerts were profitable. That is a success rate of +88.80%.

Try beating that anywhere.

My Ten-Year View – A Reassessment

When 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 a headwind. 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, November 11 is Veterans Day, so banks, the bond market, and the post office will be closed.

On Tuesday, November 12 at 6:00 AM EST, the NFIB Business Optimism Index takes place.

On Wednesday, November 13 at 8:30 PM, the Consumer Price Index rate is announced.

On Thursday, November 14 at 8:30 AM, the Producer Price Index is out.

On Friday, November 15 at 8:30 AM, the Retail Sales are announced. At 2:00 PM the Baker Hughes Rig Count is printed.

As for me, I am writing this from a High Sierra peak at 12,000 feet in the at the beginning of winter. It is 15 degrees, and the wind is gusting at 70 miles an hour, turning my backpack into a sail and practically blowing me off the mountain. Over the side, the next stop is 1,000 feet below. I am thirsty, but the water in my canteen is frozen solid.

I had planned to follow my tracks in the snow back down to my car, but the wind had totally obliterated them. So, I am using an old-fashioned army compass to navigate back in total whiteout conditions. Good thing I got the letter out early today!

Actually, I am not writing this, I am thinking it. If I took my hands out of my heavy mittens, my fingers would freeze in seconds. Remember, no fingers, no Trade Alerts!

A couple of times a year, I feel the need to abandon civilization and contemplate the meaning of life while accomplishing a great physical challenge. For me, this is a mandatory religious experience.

This time, I attempted to emulate one of the great physical feats in history. In October 1847, the Donner Party’s wagon train was hopelessly snowed in at a Sierra pass. Starvation loomed. When word reached Sacramento, four rescue parties were sent out, only to be repulsed by driving blizzards.

Finally, a giant of heroic strength, the famous Snowshoe Thompson, who stood at 6’6”, broke through. He emptied his massive wood frame backpack of food and then stuffed it with the two smallest children he could find. He snowshoed back to safety 120 miles over three days, nonstop. The kids grew up to become the founding fathers of modern-day Marin County, California.

I thought, “Gee, I wonder if I could do that?”

So, I sought to replicate the feat, subject to a few modern compromises. Today, Interstate 80 sits astride Thompson’s original route. Instead, I determined to snowshoe 120 miles of the Tahoe Rim Trail around Lake Tahoe, with an average elevation of 9,000 feet. I figured that the 60-pound pack I usually carry was worth the weight of two kids.

My one concession to my advanced age was that instead of going nonstop or camping out at night, I would break the epic trek into ten days at 12 miles each. That allowed me to repair my Tahoe lakefront estate nightly to thaw out my toes, treat injuries, and get some shuteye. Howling winds keep you awake at night.

I fasted while accomplishing this, eating only 600 calories a day of raw fruit and nuts. I’m down about ten pounds since I began.

Hint to readers: almonds have unique, hunger-fighting chemical properties. Eat a handful before you go to sleep, and hunger pangs won’t wake you in the middle of the night. I plan on eating some industrial strength this Christmas, things like Tom and Jerry’s and See's Peanut Brittle, so I need to get ahead of the curve. (note to self: 223 calories in a cup of eggnog).

My friends call this a death march, make excuses why they can’t come, and worry about my sanity. I think of it as a cleansing and a general stocktaking, and I feel great! I always go alone. How many other 72-year-olds do you know who are in a condition to do this sort of thing?

Sure, I might break my ankle someday, die of exposure, and have my bones scattered by wild animals. Who cares? It would be a good death. It’s worth it.

The scenery up here is so spectacular that I almost didn’t feel the pain. Almost. On more than one occasion, while gazing at the endless shades of blue the pristine waters of Lake Tahoe offered, I tripped on my snowshoes.

Once, I landed on some tree roots, which cut right through to the bone in my left forearm. I managed to stop the bleeding by tying off a tourniquet with my teeth. When I got home, I then soaked the wound in Jack Daniels to ward off infection. It works every time! (see pics below). In a pinch, Stolichnaya Vodka works just as well. It’s an old combat first-aid trick.

While hiking along the East Ridge, succeeding mountain ranges in northern Nevada explored every shade of purple. I managed to summit each major peak around the body of water the Washoe Indians called “da-ow-a-ga”, or edge of the lake, which they considered the origin of the universe. Those included Squaw Peak (8,885), Mt Tallac (9,735 feet), Monument Peak (10,067), and Mount Rose (10,776 feet). When the trail got too steep, my trusty ice ax and crampons saw me through.

I was constantly reminded that I was in the “Old West” by the many artifacts I encountered. Prominent granite boulders displayed prehistoric Indian petroglyphs. I found a few abandoned log cabins, complete with potbelly stoves and canned food from the 1850s. Rusted-out cast iron mining equipment was strewn about everywhere, covered with snow. Along the old Pony Express Trail, one finds old horseshoes and the occasional ancient bottle turned purple by the sun.

Lake Tahoe supplied all the water and bracing wood for the Comstock silver mining boom of the 1870s. A hundred years ago, not a single tree was left standing, except for the southwest section of the lake owned by mining baron “Lucky Baldwin” who won it in a card game and made it his private retreat. It was all covered in meticulous and colorful detail for the Virginia City newspaper, The Territorial Enterprise, by a budding young newspaperman who went by the name of Mark Twain.

My ambitious goals often saw me hiking well into darkness. After the batteries died on my three backup headlamps, that flashlight app on the iPhone 5s proved a real lifesaver. It’s good for a full hour and illuminates the eyes of onlooking wildlife a bright yellow up to 200 yards away.

One night, I got back to the car and found that my keys had frozen and were useless. So, I sat on them. In 15 minutes, the car flashed its lights, and the doors magically opened. There was barely enough charge to get the engine started, a trick I accomplished by holding the key right up to the ignition button. Toyota designs them to do this. It’s no fun getting stranded at 10,000 feet at 10 degrees in the middle of nowhere. No Auto Club here!

I often looked behind to make sure a mountain lion was not stalking me. Don’t worry. Only 20 people have been killed by mountain lions in California over the last 100 years. More are killed by their pet dogs every year in the Golden State, mostly by pit bulls. Besides, I am good at staring down mountain lions and black bears. It is just a matter of attitude.

The old souvenir stand for the Ponderosa Ranch, of the TV series Bonanza fame, is now the Tunnel Creek Station Café and mountain bike rental. Good luck to Patty and Max! The nearby Flume Trail offers some of the best cross-country skiing in the world.

Of course, I am not just thinking Great Thoughts during these hikes. An endless series of economic and market data points are constantly churning around in the back of my mind, and I occasionally reach a “Eureka” moment. I keep a pen and notebook in my pack so I don’t forget these earth-shaking revelations.

It was during a similar expedition up the face of the Matterhorn in the Swiss Alps (14,692 feet) last summer when I realized that the S&P was beginning a long run up that would take it to 6,000 by yearend. I’ll never forget the expression on my guide’s face when I stopped midpoint through an abseil and started feverishly writing notes. That little maneuver cost me a bottle of schnapps. The readers and Trade Alert followers prospered mightily.

What is this year’s “Eureka” conclusion? The stock market could keep going up into 2025 but with more volatility. This year was a cakewalk, as my 69.3% trailing return testifies. After that, stocks will be unable to ignore the consequences of a Trump election.

I have been doing this sort of thing since I was 22 and was in somewhat better shape. Then, I was one of the few foreigners attending karate school in Japan, learning the iron discipline and focus of samurai warriors, known as “bushido”. The actor, Steven Segal, studied at a competing school down the street.

Every February, we underwent “kangeiko”, or “winter training. This involved the entire class running the five miles around Tokyo’s Imperial Palace in a pack, suffering freezing temperatures, barefoot, every day for a week. When we returned to the dojo, we were hosed down with ice-cold water, our feet senseless, bloody stumps. Then we would train for three more hours.

The idea was that the extreme pain and exhaustion would deliver insights into us and the world at large. It worked. At least one current reader endured the experience with me and is still alive. Remember that, David? By the way, thanks for knocking out my front teeth.

On the way home, I stopped in Sacramento for a well-deserved double cheeseburger, fries, and chocolate shake at In and Out Burger. You can’t take this diet and health thing too seriously. Snowshoe Thompson would have envied me.

Well, next week, it is back to normal. I’ll be glued in front of my screens, scouring the planet for the next great trading opportunity, although I’m not sure I’ll find many. Buying market tops is against my nature. What are you supposed to do when all of your forecasts and predictions come true? I have a feeling that the answer is not to make more forecasts and predictions.

Perhaps the right answer is to take another hike. Anyone care to join me?

Your Intrepid Reporter

Good Luck and Good Trading,

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

November 4, 2024

Diary, Newsletter, Summary

Global Market Comments
November 4, 2024
Fiat Lux

Featured Trade:

(MARKET OUTLOOK FOR THE WEEK AHEAD or TRADING ONE UNCERTAINTY FOR ANOTHER plus RECOLLECTIONS OF A MARINE),
(NVDA), (DHI), (LEN), (KBH), (PHM), (TOL), (JPM)

The Market Outlook for the Week Ahead, or Trading One Uncertainty For Another

Diary, Newsletter

Here I am holed up in a mountaintop retreat.

I have six months of canned food, one month of water, and a year supply of ammo. There is an AR-15 and 12 gauge shotgun at the front door. There is a 45 caliber Colt Peacemaker and a Browning 45 at the backdoor. I sleep with a 9mm Glock 17 under my pillow and a baseball bat next to the bed. There are empty tin cans strung from the shrubbery to sound the alarm for any unexpected intruders.

Let the election begin!

Actually, I think the big surprise will be how little violence takes place. The violence threatened by one political party will fail to show. It was all talk, no substance, and just one big con. That alone should be worth a thousand-point rally in the Dow Average.

Of course, the passing of the election isn’t going to end the uncertainty for the stock market. All we are really doing is trading one kind of uncertainty for another. If Harris wins, will she be able to govern from the middle and how much will she be able to keep her party’s left wing at bay?

If Trump is elected, how many of his threats will be carried out, or was it all just talk? And how much will the courts allow him to carry out extreme policies? Then, there is the issue of who has control of the House and the Senate.

It will all add up to increased market volatility, which I love as a trader. Volatile markets yield much higher returns.

Buy this year’s winners and sell the losers. That is what every professional money manager will be doing on Wednesday morning. They want to window dress their holdings for yearend and harvest tax losses, mostly in energy. That makes the post-election rally really very easy to play.

In one of the most curious market timings in history, Dow Jones announced that it is adding Nvidia (NVDA) to their 30-strong stock market average on Friday, November 8, just three days after the presidential election, and possibly when the outcome is not yet known.

The Dow Jones Industrial Average was the only major US equity benchmark that didn't hold Nvidia. Intel (INTC) will be taken out to the woodshed, which just announced a massive $16 billion loss and has shrunk to a mere $100 billion in market cap. (INTC) is a mere shadow of its former self with a caricature of a CEO.

The normal reaction by the market is a 5-10% pop in the new Dow entrants and a similar 5-10% decline in the shares of the banished company. This is good news for followers of the Mad Hedge Fund Trader because virtually everyone now has (NVDA) as their largest holding, either by selection or capital appreciation.

The 19^th century Dow has been playing catchup in gaining exposure to the largest technology companies. The Dow became 30 stocks in 1928. The DJIA was originally created by Charles Dow in 1896 and contained just 12 stocks. The number of stocks in the DJIA increased to 20 in 1916.

The move will increase the volatility of the Dow by adding a stock that is up 170% this year while removing one that has fallen 50%. It will lead to higher highs and then lower lows. Remember, (NVDA) fell 40% in July. It also continues to technology drift of the Dow to keep up with its main competitor, NASDAQ. The last company to join the Dow was Amazon.

When you do the hard work and perform your research well, all surprises tend to be happy ones.

A number of readers have expressed concern over DH Horton’s (DHI) disappointing results. But if anything, the bull case for the industry is stronger than ever. An imminent post-election rally in the bond market and drop in interest rates is about to cause the industry to explode to the upside.

The US new homes market is massively underbuilt. We are short anywhere from 10-20 million homes. Normal inventory is 6 months, and we are currently at 3 months. We went into the pandemic short of homes and then demand exploded. The average home price is now $420,000 against an average income of $75,000, requiring $130,000 in annual income to qualify for a conventional 30-year fixed rate loan.

If you want to live in San Jose, CA you need to earn $463,000 a year. Half of the new homes built this year are in only ten cities, with four in Texas as Americans continue a century-long trend of moving from north to south and from the coasts to the southwest. Building permits are actually falling, down 7% this year.

Concentration of the industry, and therefore the elimination competition, has continued at an incredible pace. Only ten firms control 50% to 80% of new home construction, making it difficult for new entrants. That’s up from only 10% 30 years ago. As a result, the number of floor plan options has shrunk dramatically.

Vice President Harris is proposing a $25,000 tax credit for first-time buyers if elected. She has also suggested subsidies to build 3 million affordable housing units. You always buy a sector that is about to see a big inflow of government largess. Buy (LEN), (KBH), (PHM), (TOL), and (DHI) on dips.

In October, we have gained a breathtaking +7.68%. My 2024 year-to-date performance is at an amazing +52.92%. The S&P 500 (SPY) is up +19.92% so far in 2024. My trailing one-year return reached a nosebleed +65.56. That brings my 16-year total return to +729.55%. My average annualized return has recovered to +52.42%.

I am going into the election as cautious as possible, with 80% in cash and 20% long. When you’re up this much you don’t take chances. I maintained two longs in (DHI) and (JPM) that are well in the money.

Some 63 of my 70 round trips, or 90%, were profitable in 2023. Some 63 of 82 trades have been profitable so far in 2024, and several of those losses were really break-even. Some 22 out of the last 23 trade alerts were profitable. That is a success rate of +76.82%.

Try beating that anywhere.

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, November 4 at 8:30 AM EST, the US Factory Orders are published.

On Tuesday, November 5 at 6:00 AM, the US Presidential Elections take place. The last polls close in Hawaii at 1:00 AM EST.

On Wednesday, November 6 at 11:00 AM, the MBA Mortgage rate is printed.

On Thursday, November 7 at 11:00 AM, the Federal Reserve announces its interest rates decision. A 25-basis point cut is in the bag. A press conference follows at 11:30 AM.

On Friday, November 8 at 8:30 AM, the University of Michigan Consumer Sentiment is announced. At 2:00 PM the Baker Hughes Rig Count is printed.

As for me, as the son of a Marine who served on Guadalcanal in 1942, I had an unusual childhood. The memories all came flooding back to me as the HBO program, The Pacific, which aired once again over last Memorial Day weekend.

Every scene in the ten-hour series I had already heard about around campfires, at veteran’s reunions, or in officers clubs around the world. At five, I learned how to open a coconut by tapping around the three eyes with a bayonet. At ten, I could shinny up a palm tree with a belt wrapped around my ankles.

I learned that you can shoot down a Japanese zero fighter by leading with four hand widths and aiming high. A tank can be disabled by ramming a log into its tracks. There was the survival training; practicing how to find water in the desert, setting a snare trap to catch small animals to eat, and starting a fire with only flint and steel. All the sniper training was fun but was fortunately never put to use.

I can still thrill the kids by hitting a quarter taped to a tree 50 feet away with a Winchester lever action 30-30. We outfitted ourselves with surplus WWII equipment from the “Supply Sergeant” for camping trips, which you could buy for a couple of dollars. Now, you only find these things in museums. We ate leftover C-rations.

Perhaps it was dad’s explanation of how to make highly alcoholic hooch out of canned peaches that led to my degree in biochemistry. In the end, I had my own Marine career as a combat pilot in Desert Storm, and many tasks that followed. There you learn the true meaning of “gung ho.”

At 73, I stay in boot camp shape. In my free time, I hike 100 miles in the High Sierras over 8,000 feet in eight days. I am carrying a 50-pound pack, and living on only 500 calories a day entirely composed of fruit and nuts. I love every minute of it.

Watching the series, I was reminded how feeble and meaningless my profession is, toiling away all year just to create a spreadsheet full of numbers, and how the men of eight decades ago were made of sterner stuff. Buying a dip on a bad day just doesn’t equate to “taking out that machine gun.”

How times have changed. Fall down on your knees and give thanks for your simple life.

You can buy the Hugh Ambrose book the series was based on by clicking here. You can purchase the DVD by clicking here.

Good Luck and Good Trading,

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

October 28, 2024

Diary, Newsletter, Summary

Global Market Comments
October 28, 2024
Fiat Lux

Featured Trade:

(MARKET OUTLOOK FOR THE WEEK AHEAD, or HERE IS YOUR POST-ELECTION PORTFOLIO
plus THE LAST SILVER BUBBLE)
(NVDA), (META), (CRM), (TLT), (JNK), (CCI), (DHI), (LEN), (PHM),
(GLD), (SLV), (NEM), (FXE), (FXB), (FXA), (TSLA), (JPM), (BAC), (GS)

October 21, 2024

Diary, Newsletter, Summary

Global Market Comments
October 21, 2024
Fiat Lux

Featured Trade:

(MARKET OUTLOOK FOR THE WEEK AHEAD or COMPLACENSE IS RUNNING RAMPANT)
(JPM), (TSLA), (AMZN), (FXA), (FXE), (FXB), (FXY), (NEM), (DHI), (NFLX), (AAPL), (GLD), (AGQ), (SLV), (AAPL), (NVDA), (MS), (CCJ). (VST), (AVGO), (ASML), (MU), (LRCX), (DHI), (PHM), (LEN), (CCJ), (VST), (CEG), (BWXT), (OKLO)

The Market Outlook for the Week Ahead, or Complacence is Running Rampant 

Diary, Newsletter

We are now nearly three months into an almost straight-up move in the stock market, and money managers everywhere are scratching their heads. We are now only 136 points or 2.32% from my yearend (SPX) target of 6,000, which is starting to look pretty conservative. The price-earnings multiple for the S&P 500 is now 21X, the Magnificent Seven 28X, and NVIDIA 65X.

I’ve seen all this before.

We are about as close to a perfect Goldilocks scenario as we can get. Interest rates and inflation are falling. A 3% GDP growth rate means the US has the strongest major economy and is the envy of the world. We have entered the euphoria stage of the current market move in almost all asset glasses. Gold (GLD) has gone up almost every day. Some big tech remains on fire. Energy prices are in free fall. Even bonds (TLT) are trying to put in a bottom.

Complacence is running rampant.

So, how the heck do we trade a market like this? You play the laggard trade.

The biggest risk to the gold trade is that it has gone up 40% in a year. So, what do you do? The response by traders has been to move into lagging silver (SLV) (AGQ), which has been on a tear since September.

Had enough with the Mag Seven? Then, rotate in the sub $1 trillion part of the market with Broadcom (AVGO), ASML Holdings NV (ASML), Micron Technology (MU), and Lam Research (LRCX).

Tired of watching your DH Horton (DHI) go up every day? Then, flip into smaller homebuilders like Pulte Homes (PHM) and Lennar (LEN).

And then there is the biggest laggard of all, the nuclear trade, which is just crawling out of a 40-year penalty box. With news that Amazon (AMZN) was planning to order up to eight Small Modular Reactors to power its AI efforts, all uranium plays continue to go ballistic. The proliferation of power-hungry data centers is driving the greatest growth of power needs since WWII and the Manhattan Project.

Fortunately, I got in early. This is a trend that could become the next NVIDIA, as the public stocks involved are coming off such a low base. I have personally interviewed the founders and examined Nuscale’s plans with a fine tooth come and consider them genius. The company is, far and away, the overwhelming leader in the sector. The puzzle for the pros who understand the technology is why it took so long. Buy (CCJ), (VST), (CEG), (BWXT), and (OKLO) on dips.

It's like everything is racing towards a key, even with an unknown outcome. There happens to be a big one coming up: the US presidential elections on November 6.

Speaking of elections, I took the time to participate in the first day of voting in Nevada on Saturday, October 19, at the Incline Village Public Library. I waited in line for two hours in a brisk and breezy 40 degrees. I wore my Marine Corps cap and Ukraine Army ID just to confuse people. Some got so tired of waiting in the cold that they went home, retrieved their mail-in ballots, and returned to the polls to drop them off.

I looked back on the line, and women outnumbered the men by three to one. Where did all these women come from? There used to be such a shortage of women at Lake Tahoe that it was impossible to get a date. Hunting, fishing, long-distance backpacking, and skiing weren’t used to attract such large numbers of the female gender. Maybe now they do? But now they’re driving up in Mercedes AMG’s and Range Rovers.

When I finally arrived at the front of the line, I was asked to sign an agreement with my finger, acknowledging that I knew it was illegal to vote twice. The poll worker noticed my ID. When I explained what it was in the Cyrillic alphabet, she burst into tears, apologized, and said she had goosebumps all over.

It was another blockbuster week, up over 6%. So far in October, we have gained +4.89%. My 2024 year-to-date performance is at +50.13%. The S&P 500 (SPY) is up +22.43% so far in 2024. My trailing one-year return reached a nosebleed +65.90. That brings my 16-year total return to +726.76%. My average annualized return has recovered to +52.56%.

With my Mad Hedge Market Timing Index at the 70 handles for the first time in five months, I am remaining cautious with a 70% cash and 30% long. I look for a small profit in (TSLA) to reduce risk. Two of my positions expired at their maximum profit point for (NEM) and (DHI) on Friday, October 18 options expiration.

Some 63 of my 70 round trips, or 90%, were profitable in 2023. Some 60 of 80 trades have been profitable so far in 2024, and several of those losses were really break-even. Some 16 out of the last 19 trade alerts were profitable. That is a success rate of +75.00%.

Try beating that anywhere.

Risk Adjusted Basis

Current Capital at Risk

Risk On

(TSLA) 11/$165-$175 call spread 10.00%

(JPM) 11/$195-$205 call spread 10.00%

(GLD) 11/230-$235 call spread 10.00%

Risk Off

NO POSITIONS 0.00%

Total Net Position 30.00%

Total Aggregate Position 30.00%

Netflix Soars on Blockbuster Earnings, up 11% at the opening on a 5 million gain in subscribers. The company posted earnings per share of $5.40 for the period ended Sept. 30, higher than the $5.12 LSEG consensus estimate.

Crucially, Netflix saw momentum in its ad-supported membership tier, which surged 35% quarter over quarter. The streaming wars are over, and (NFLX) won. Buy (NFLX) on dips.

Silver is Ready to Break Out to the Upside after a year-long-range trade. The white metal is a predictor of a healthy recovery and a solar rebound. It’s a long overdue catch-up with (GLD). Buy (AGQ) on dips.

Apple China Sales Jump 20% on the new iPhone 16 launch. Both Apple and Huawei's (HWT.UL) latest smartphones went on sale in China on Sept. 20, underscoring intensifying competition in the world's biggest smartphone market, where the U.S. firm has been losing market share in recent quarters to domestic rivals. Buy (AAPL) on dips.

Taiwan Semiconductor Soars on Spectacular Earnings, dragging up the rest of the chip sector with it. The world's largest contract chipmaker raised its expectation for annual revenue growth and said sales from AI chips would account for mid-teen percentage of its full-year revenue. U.S.-listed TSMC shares rose nearly 9%, and if gains hold, the company's market capitalization would cross $1 trillion. Buy (NVDA) on dips.

Weekly Jobless Claims Fall. Initial claims for state unemployment benefits dropped 19,000 last week to a seasonally adjusted 241,000 for the week ended Oct. 12, the Labor Department said on Thursday. Economists polled by Reuters had forecast 260,000 claims for the latest week. Claims jumped to more than a one-year high in the prior week, attributed to Helene, which devastated Florida and large swathes of the U.S. Southeast in late September.

Morgan Stanley Announces Blowout Earnings, fueling a 32% profit jump for the third quarter. Revenue from the trading business rose 13%. That followed gains recorded by its biggest rivals as the market business lifted fortunes across the industry, and a steady rebound in investment banking fees increased dealmaking. The wealth unit generated revenue of $7.27 billion, higher than analysts’ expectations, with $64 billion in net new assets. The unit boosted its pretax margin to 28%, driven by growth in fee-based assets. Buy (MS) on dips.

Global EV Sales Up 30% in September, with the largest gains in China. Gains in the U.S. market have been lagging in anticipation of the Nov. 5 election. Chinese carmakers are seeking to grow their sales in the EU despite import duties of up to 45% and amid cooling global demand for electric cars. Chinese and European automakers were going head-to-head at the Paris Car Show on Monday. Buy (TSLA) on dips.

Dollar Hits Two Month High on rising US interest rates. Ten-year US Treasuries have risen from 3.55% to 4.12% since the September Nonfarm Payroll Report. A string of U.S. data has shown the economy to be resilient and slowing only modestly, while inflation in September rose slightly more than expected, leading traders to trim bets on large rate cuts from the Fed. Buy all foreign currencies on dips (FXA), (FXE), (FXB), (FXY).

S&P 500 Value Gain Hits $50 Trillion, since the 1982 bottom, which I remember well and is up 50X. The index hit a record high Wednesday and is trading Thursday at around 5770, up 21% so far in 2024. The index’s value is up sixfold since it stood at $8 trillion at year-end 2008, near the depth of the bear market during the financial crisis.

JP Morgan Delivers Blowout Earnings. Its stock, trading around $223, was on course for its biggest daily percentage gain in 1-1/2 years.

(JPM)'s investment-banking fees surged 31%, doubling guidance of 15% last month. Equities propelled trading revenue up 8%, exceeding an earlier 2% forecast. These earnings are consistent with the soft-landing narrative of modest U.S. economic growth. Buy (JPM) on dips.

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 is 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, October 21 at 8:30 AM EST, nothing of note takes place is out.

On Tuesday, October 22 at 6:00 AM, the Richmond Fed Manufacturing Index is out.

On Wednesday, October 23 at 11:00 AM, the Existing Home Sales is printed.

On Thursday, October 24 at 8:30 AM, the Weekly Jobless Claims are announced. We also get New Homes Sales.

On Friday, October 25 at 8:30 AM, the US Durable Goods Orders are announced. At 2:00 PM, the Baker Hughes Rig Count is printed.

As for me, I am headed out for early voting in Nevada this morning. It’s been a year since I came back from Ukraine badly wounded, so I thought I would recall my recollections from that time.

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 since the Russians Invaded. That leaves about 8 million to travel to Ukraine from Western Europe to visit spouses and loved ones.

After a 15-hour train ride, I arrived at Kiev’s magnificent 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. Thanks 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 are always a lot of beautiful women hanging around with nothing to do.

The population is definitely 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’s where the government hid out during the early days of the war. They perform a dual function as bomb shelters when the missile attacks become particularly heavy.

My Look Out Ukraine has duly announced every incoming Russian missile and its targeted neighborhood. The buzzing app kept me awake at night, so I turned it off. Let the missiles land where they may. For this reason, I reserved a south-facing suite and kept the curtains drawn to protect against flying glass.

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 epic resource grab. The most important resource is people to make up for a Russian population growth that has been plunging for the last century. 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. There will be no surrender.

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 and $10,000 in cash, 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. This is the children’s hospital that was bombed a few months ago.

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, some 250 pieces, to light up an ultrasound and had already been undergoing operations for months. It was amazing he was still alive.

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 at 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. It’s it’s like riding a bicycle. Once you learned, 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 $10,000 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. They will also be permanently posted on the home page at www.madhedfefundtrader.com under the tab “War Diary”.

Donating $10,000 to the Children’s Hospital

On the Front at Crimea with a Dud Russian Missile

A Gift or Piroshkis from Local Peasants

One of 2,000 Destroyed Russian Tanks

The Battle of Kherson with my Unit

This Blown Bridge Blocked the Russians from Entering Kiev

Good Luck and Good Trading,

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

September 13, 2024

Diary, Newsletter, Summary

Global Market Comments
September 13, 2024
Fiat Lux

Featured Trade:

(The Mad SEPTEMBER traders & Investors Summit is ON!)
(SEPTEMBER 13 BIWEEKLY STRATEGY WEBINAR Q&A),
(USO), (UUP), (FXA), (FXE), (FXC), (FXB), (DJT), ($INDU), (JPM), (BRK), (TSLA), (NVDA), (IBM), (CCJ), (BRK/B)

September 11 Biweekly Strategy Webinar Q&A

Diary, Newsletter

Below please find subscribers’ Q&A for the September 11 Mad Hedge Fund Trader Global Strategy Webinar, broadcast from Lake Tahoe Nevada.

Q: Will the Fed cut by 50 basis points at their next meeting?

A: The probability of that happening actually dropped by about half with the warm CPI report this morning with core CPI at 0.3%. That may have pushed the Fed from a 50% basis point rate cut back down to only 25%. I think if we only get 25%, the market will sell off. So that’s Wednesday next week. Mark that on your calendars—the market may well be on hold until then.

Q: Is $50/barrel oil (USO) coming by the end of this year?

A: No, but I think $60 is in the works. And that may be the bottom of this cycle because after that we expect an economic recovery, greater demand for oil, and rising prices in 2025. Until then, overproduction both in the US and in the Middle East is knocking prices down.

Q: Will the US dollar (UUP) continue its terrible performance through the end of the year?

A: Yes, and in fact, it may be for the next 10 years that the US dollar is weak—certainly 5—so any rally or dips you get in the currencies (FXA), (FXE), (FXC), and (FXB) I’d be buying with both hands.

Q: Where are you hiding at the moment?

A: 90-day T-bills, which are yielding 4.97%. You can buy and sell them any time you want, and the interest is only payable when you sell them.

Q: Is September 18th the selloff?

A: It depends on how much we do before then. Obviously, we’re making good progress today with the Dow ($INDU) down 700 points, so we shall see. However, the market is flip-flopping every other day, making it untradable—you can’t get any position and hold on to it long enough to make money, so it’s better just to stay out. There’s no law that says you have to be in the market every day of the year, and this is a day not to be in the market for sure.

Q: How will the presidential debate reaction affect the market?

A: There’s only one stock you have to follow for that and that’s the (DJT) SPAC, and that’s Trump’s own personal ETF, and it is down 13% today to a new all-time low. I believe that’s well below its IPO price, so anyone who’s touched that stock is losing money unless they got out at the top. That is a good signal.

Q: JP Morgan (JPM) stock had a steep pullback to $200/share—is it a buy here?

A: No, but we’re getting close. If we can get (JPM) close to its 200-day moving average at $188 on high volatility, that would be a fantastic buy, because (JPM) will benefit enormously from falling interest rates, and it is the world's quality banking play.

Q: Is it too soon on Berkshire Hathaway (BRK) and Tesla (TSLA)?

A: Yes on both. It’s too soon for anything right now. I wouldn’t touch anything before the interest rate cut unless you have a really special situation, and there are some out there.

Q: Do you think Nvidia (NVDA) could test $90 again?

A: It could very easily; it got within $10 of that last week. So, it just depends on how bad the news is and how scared people get in September.

Q: Is the end of carry trade affecting the market?

A: No, we had a big deleveraging there. Although people are going back in again now, it’s not enough to hurt the market.

Q: I heard Putin is threatening over raw materials. What do we get from Russia, and what stocks or ETFs would be impacted?

A: We get nothing from Russia anymore. We used to get a lot of commodities and oil from them, and that has ceased. Russia has essentially exited the global economy because of the sanctions and the war in Ukraine, so they can’t really hurt anyone at this point.

Q: What about Russia doing an end-run around with direct trade? BRICS block is going to make the dollar even more worthless in the future.

A: I don’t buy that at all. I’ve been covering sanctions for 50 years; they always work, but they always take a long time. You could always do black market trade through the back door, but the volumes are way down, and the profits are much less because people only buy sanctioned goods at big discounts. The oil that China is buying from Russia is something like a 30% discount to the market. They execute a high cost of doing business, and nobody wants to be in sanctions if they can possibly do avoid. That said, when the war ends, the sanctions may end. That could be some time next year when Russia completely runs out of tanks and airplanes.

Q: Should I buy Nvidia (NVDA) call options now?

A: It's not just a matter of Nvidia. It's what the general market is doing, and tech is doing. And tech is not doing that well—even on the up days. So I would hold off a bit on Nvidia.

Q: Why is Warren Buffet (BRK/B) unloading so much of his equity portfolio?

A: He thinks the market is expensive, and he has thought it has been expensive for years and he's been unloading stocks for years. He has something like $250 billion in cash now so he can buy whole companies in the next recession. Whether he'll live long enough to see that recession is another question, but his replacement staff is already at work and running the fund, so Berkshire will continue running on autopilot even after he’s gone.

Q: Is IBM an AI play?

A: (IBM) wants to think that it’s an AI play. They haven’t disclosed enough to the public to make the stock a real AI investment, so I would say it probably is, but we don’t know enough at this point, and there are probably too many other candidates to buy in the meantime.

Q: How do I invest in green energy stocks, and do you have any names for me?

A: Well here’s one right here and that’s the Canadian uranium producer Cameco (CCJ). There is a nuclear renaissance going on. China just announced an increase in their plants under construction from 100 to 115. You have the new modular technology ready to take off in the US, and it uses uranium alloys, or uranium aggregates, so it’s impossible for a plant to go supercritical. You also have other countries reactivating nuclear plants that have been closed, and California even delayed its Diablo Canyon shutdown by 5 years. So Nuclear is back in play, and we have an absolute bottom in the stock here and it just dropped 37%, in case you needed any more temptation. So this would be a very attractive alternative energy play for the long term right here.

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, select your subscription (GLOBAL TRADING DISPATCH, TECHNOLOGY LETTER, or Jacquie's Post), then click on 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

1942 Grumman Wildcat on Guadalcanal

The Market Outlook for the Week Ahead, or Lessons Learned

Diary, Newsletter

After the worst week of the year, we get the best. If you are confused by all of this, so am I.

On the one hand, the downside was firmly rejected by the $8 trillion sitting under the market that has been trying unsuccessfully to get into the market all year. The upside was rejected as well and who knows why? Did it run too far, too fast? Did valuations get overblown? Or was it simply time to take a summer vacation?

Who knows? All three were true.

I don’t really care. I am up 2.67% in August and am 100% in cash. I’m waiting for the market to tell me what to do next. If we get another crash, I’ll buy. I’m selling the next melt-up as well. The only thing I’m really confident in is my 6,000 target for the S&P 500 by year-end which appears right on schedule.

London certainly has become the most internationally diverse city in the world. Last week my tablemates in pubs included two women from Japan who nearly fell out of their chairs when they heard me speak Japanese. A business consultant from Milan was visiting London for the first time. The head of international marketing for Industrial Light & Magic from Mill Valley, CA, filled me in on the latest developments in the digital arts.

Two Arabic-speaking ladies from Oxford University were working for a charity getting food into Gaza. One bartender was headed for Sandhurst, England’s West Point. The other was from China, and I had to explain to him what Bushmills was (it’s an Irish whiskey). Oh, and my barber was from Syria and my cleaning lady was from Barbados.

All seven of my languages were given a thorough workout. There are 56 countries in the British Commonwealth, and it seems like all of them are here at once.

This summer’s crash down, then up offered many lessons and I want to make sure you catch them all. Let every loss be a learning experience, lest you be doomed to repeat it. Of the 20 great single-day losses in the S&P 500 (SPX) since 1923, I have traded through nine. The other 11 took place in the aftermath of the 1929 crash where the market eventually dropped by 90%. But I had many friends who traded all of those. Click here for details.

For a start, it helps a lot if you see a crash coming. This market had been begging for a crash during May and June and I positioned accordingly. I went into the meltdown with nine short positions in July-August, which covered most of my losses. And I only ran positions into very short August 16 option expiration, thus greatly limiting damage incurred by the losers.

I limited losses by stopping out of out-of-the-money losers quickly in (CAT), (BRK/B), and (AMZN), right at the August 5 opening in most cases. I then became super aggressive when the Volatility Index ($VIX) hit $65, a 2-year high. I also went hyper-conservative by adding four technology positions very deep 20% in-the-money in (NVDA), (META), (TSLA), and (MSFT), which instantly became money makers.

I used the first 1,000-point rally to add a short position for a very long, thus neutralizing the portfolio at the middle of the recent range and taking in a lot of extra income.

I did ALL of this while traveling in England, Switzerland, Lithuania, Poland, Austria, and Slovakia, from assorted airport business lounges, hotels, and Airbnb’s. The travel actually helped because the New York market doesn’t open until 3:30 PM each day, giving me plenty of time to plan the day’s strategy.

Now all we have to do is figure out what the Volatility Crash ($VIX) from $65 to $14 in 9 days means, the fastest in history by a huge margin. It usually takes 170 days to make this kind of move. Could it mean that our lives are about to become boring beyond tears once again?

I doubt it.

In July we ended up a stratospheric +10.92%. 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 +16.14% 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 +51.97%.

I spent the entire week taking profits. I cashed in on my longs in (GLD) and (DHI) and covered shorts in (TSLA), (JPM), (AAPL), and (DHI). I am now 100% in cash and boy does it feel good.

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 really break-even. That is a success rate of 74.24%.

Try beating that anywhere.

The “Soft Landing” is Back, or so says Goldman Sachs after the meteoric rise in share prices of the last ten days. The extreme concerns about the U.S. economy that have re-emerged over the past month appear overblown and investors shouldn’t get too defensive. The recent spike of market volatility had more to do with positioning than a real scare about economic growth and that investors should “keep the faith” that the U.S. avoids a recession, while also avoiding a revival in inflation.

Now it’s Volatility That’s Crashing, down a record 49 points from $65 to $16 in 9 trading days, suggesting that investors may be returning to strategies that bank on low stock volatility despite a near-meltdown in equities early this month. The ($VIX) long-term median level is $17.6. Similar reversions in the so-called fear gauge have, on average, taken 170 sessions to play out.

Consumer Price Index is a Snore, at 0.2% MOM and 2.9% YOY, below the long-term average. Ebbing inflation aligns with anecdotes from businesses that consumers are pushing back against high prices, through bargain hunting, cutting back on purchases, and trading down to lower-priced substitutes. Stock was a snore as well.

Consumer Sentiment Drops, to an eight-month low according to the University of Michigan. It was revised higher to 66.4 in July 2024 from a preliminary reading of 66.

The Yen Carry Trade is Back, with hedge funds piling back into positions they baled on only two weeks ago. It’s just a matter of math, now that the Bank of Japan has given up on raising interest rates anytime soon. What this means is more leverage, risk, and volatility for global financial markets. I love it!

New Home Construction Dives, in July to the lowest level since the aftermath of the pandemic as builders respond to weak demand that’s keeping inventory levels high. Total housing starts decreased 6.8% to a 1.2 million annualized rate last month, dragged down the biggest decline in single-family units since April 2020

Global EV Sales Jump 21% YOY, in July thanks to a large rise in China. In the European Union MG Motor, owned by China's SAIC Motor Corp, expects to be hit hardest by provisional imposed on EVs imported from China. Europe is not going to give away its core industry, especially Germany’s. EVs - whether fully electric (BEV) or plug-in hybrids (PHEV) - sold worldwide were at 1.35 million in July, of which 0.88 million were in China, where they were up 31% year-on-year.

Refi’s Rocket 35% in a Week, the result of falling inflation and a monster rally in the bond market. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($766,550 or less) fell slightly to 6.54% from 6.55%. The refinance share of mortgage activity increased to 48.6% of total applications from 41.7% in the previous week

US Producer Price Index Fades, coming in at a weak 0.1%, and giving the interest rate cut crown a high five. Stocks took off like a scalded chimp. Treasury yields fell on Tuesday as wholesale inflation measures came in softer than expected. The yield on the ten-year US Treasury was lower by about 4 basis points at 3.867%.

Foreign Investors Pull Record Amount from China, $15 billion in Q2. Chinese firms invest a record $71 billion overseas at the same time. It’s why the Chinese yuan has been so weak. The glory days are never coming back. Avoid (FXI).

Weekly Jobless Claims totaled 227,000, a decrease of 7,000 from the previous week and lower than the estimate for 235,000.

My Ten-Year View

On Monday, August 19 the Meeting of Central Bankers at Jackson Hole begins. Traders will peruse the tea leaves looking for clues about future interest rates policy. All the major countries of the world have already started cutting rates except the US.

On Tuesday, August 20 nothing of note is released.

On Wednesday, August 21 at 8:30 PM EST, the Minutes from the last FOMC meeting are released.

On Thursday, August 22 at 8:30 AM, the Weekly Jobless Claims are announced.

On Friday, August 16 at 8:30 AM, Federal Reserve Chairman Jay Powell speaks. Also, New Home Sales are disclosed. At 2:00 PM the Baker Hughes Rig Count is printed.

As for me, when a Concierge member invited me to spend a week in Lithuania, I jumped at the chance. I had never been to this miniscule country of 3 million, formerly a part of the Soviet Union. The last time I spent any appreciable amount of time in Eastern Europe was in 1968, at the height of the Cold War.

My friend grew up in the old USSR. He remembers as a child having to go to school in the snow wearing worn-out shoes repaired with duct tape because there weren’t any in the stores.

I remember the old Soviet Union and it was grim beyond belief. Standards of living were sacrificed for military spending in the extreme. I remember I swapped my Levi’s for a worn-out pair plus $50 because they were unobtainable.

My friend cashed in on the collapse of the Soviet Union and the mass privatizations that followed. As a trader in Gazprom shares, he made millions. Now he lives a life of leisure, taking occasional potshots at the market with my assistance. He has been with me since 2011.

Knowing I was an avid pilot he treated me to a day at the local glider club. Introduced as a Top Gun instructor who had flown everything from RAF Spitfires to F-18s, and whose grandfather had worked for Orville Wright, the club pilots were somewhat in awe. I was asked to sign logbooks, which is a great honor among pilots.

I donned my parachute with ease, and everyone relaxed. A tow plane took us up to 2,500 feet, we pulled the release from the cable and suddenly were floating over the endless green forests of Eastern Europe.

I took the stick and performed some light aerobatics, careful not to scare the daylights out of my co-pilot. The thing that really impresses you about gliders is the complete silence. No earplugs inside your headphones here, just the whooshing of the wind. We headed for the nearest clouds in search of uplifting thermals.

I was informed that birds knew more about thermals than any of us, and sure enough, we found a flock and followed them right in. We immediately picked up a few hundred feet, our electronic altimeter whining all the way.

Flying with the birds on a perfect day, how cool is that?

We could have stayed up for hours but I had a lunch appointment. So we yanked on the speed brakes and plummeted down towards the field. At 50 feet, wind shear hit us from the side and we fell like a ton of bricks, bouncing hard. My left elbow smashed against the side of the cockpit inflicting a big gash.

The glider club rushed the aircraft expecting the worst, but I gave them a thumbs up. Any landing you walk away from is a good landing. I later learned that the previous day another pilot broke both legs executing the same maneuver.

When the Soviet Union broke up in 1991, we thought it would take 100 years to integrate the former republics with the West. Although Lithuania is still one of the cheapest countries in Europe, the improvement in the standard of living has been enormous. Old Towns in Europe are usually prime real estate with the most expensive accommodation. Here it’s so cheap that you see a lot of young families with kids in strollers on the sidewalks and in the parks.

They have adopted our vices too, with elaborate tattoos commonplace and teenagers vaping on every street corner.

In the capital city of Vilnius, I developed a work schedule that was tolerable. I spent my mornings walking the Old Town, visiting palaces, castles, baroque churches, museums, and art galleries. Then when the New York Stock Exchange opened up at 4:30 PM I was at my computer banging out my trade alerts as fast as I could write them. The market closed at 11:00 PM. Thank goodness the bars were still open.

Of course, the language is a challenge. Usually, I can understand half of what is going on in Europe. But Lithuanian is a direct descendant of Sanskrit so I couldn’t understand a single word. Everyone under 40 speaks English so I was thankfully able to do my grocery shopping with some assistance.

Every year, I like to return to all my favorite countries, plus add one or two new ones. Where will next year’s new countries be? I’m already scheduled to visit Nicaragua, Columbia, Panama, Costa Rica, and Curacao before yearend. Estonia, Argentina, Latvia, Brazil, Tahiti, who knows?

Ask me in 2025.

To watch a short video of my Lithuanian glider flight, please click here.

Good Luck and Good Trading
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader

August 12, 2024

Diary, Newsletter, Summary

Global Market Comments
August 12, 2024
Fiat Lux

Featured Trade:

(MARKET OUTLOOK FOR THE WEEK AHEAD or THE ROUND TRIP TO NOWHERE), plus (A VISIT TO TRINITY),
(ROM), (TQQQ), ($VIX), (TLT), (SLRN), (CAT), (AMZN), and (BRK/B). (NVDA), (TSLA), (AAPL), and (META), ($INDU), (TSLA), (DHI), (DE), (AAPL), (JPM), (DE), (GLD), (DHI)