(JPM) Archives - Page 4 of 29 - Mad Hedge Fund Trader

The Market Outlook for the Week Ahead or The Round Trip to Nowhere

I am writing this to you from the airport in Vilnius, Lithuania, which is under construction. The airport is packed because people are flying all planes to Paris to catch the closing ceremony of the 2024 Olympics. There is also the inflow of disappointed Taylor Swift fans returning from three concerts in Vienna, Austria that had been canceled due to terrorist threats. Some 150,000 tickets had to be refunded.

It is hard to focus on my writing because every 30 seconds, a beautiful woman walks by.

And I am told at my age I am not supposed to learn. I should know better.

Well, that was some week!

If you had taken a ten-day cruise to Alaska, you would wonder what all the fuss was about, for last week the stock market was basically unchanged. The worst day in two years, down 3%, followed by the best, up 2 ½% amounts to a big fat nothing burger.

It all reminds me of one of those advanced aerobatics classes I used to take. I was busier than a one-armed paper hanger, sending out some 13 trade alerts in all.

And while the volatility is certainly not over, it is probably at least two-thirds over, meaning that we can step out for a cup of coffee and NOT expect a 1,000 move in the Dow Average by the time we get back.

Is the Bottom IN?

I don’t think so. The valuation disparity between big tech and value is still miles wide. Uncertainty reaches a maximum just before the US presidential election. A bottom for the year is coming, but not quite yet. When it does, it will be the buying opportunity of the year. Watch this space! And watch (ROM) and (TQQQ) too.

The average drawdown per year since 2020 stands at 15%, so with our 10% haircut, the worst is over. What will remain in high volatility? After staying stuck at $12 for most of 2024 and then spiking to $65 in two days, the $20 handle should remain for the foreseeable future.

That is a dream come true and a license to print money for options traders because the higher options prices effectively double the profit per trade. So, expect a lot of trade alerts from the Mad Hedge Fund Trader going forward. That is, until the ($VIX) returns to $36, then the potential profit triples.

Up until July, I had been concerned that the market might not sell off enough to make a yearend rally worth buying into. There was still $8 trillion in cash sitting under the market buying even the smallest dips.

The Japanese took care of that in a heartbeat with a good old-fashioned financial crisis. In hours trillions of dollars’ worth of yen carry trades unwound, creating an unprecedented 14% move UP in the Japanese currency and a 26% move DOWN in the Japanese stock market.

Suddenly, the world was ending. Or at least the financial media thought it was.

Some hundreds of hedge funds probably went under as their leverage is so great at 10X-20X. But we probably won’t know who until the redemption notices go out at yearend.

It couldn’t happen to a nicer bunch of people.

Don’t expect the Fed to take any emergency action, such as a surprise 50 basis point rate cut, to help us out. Things are just not bad enough. The headline Unemployment Rate is still a low 4.3%. Corporate profits are at all-time highs. We are nowhere near a credit crisis or any other threats to the financial system. The US still has the strongest major economy in the world.

Of course, if you followed my advice and went heavy into falling interest rate plays, as I have been begging you to do for months, last week was your best of the year. The United States US Treasury Bond Fund (TLT) rocketed to a year high at $100. Junk bonds (JNK), REITS (CCI), BB-rated loan ETFs (SLRN), and high-yield stocks (MO) went up even more.

It's still not too late to pile into yield plays because the Fed hasn’t actually cut interest rates YET.

Volatility Index ($VIX) Hits Four-Year High at $65, the most since the 2020 pandemic. That implies a 2% move in the S&P 500 (SPX) every day for the next 30 days, which is $103.42 (SPX) points or $774 Dow ($INDU) points. No doubt, massive short covering played a big role with traders covering shorts they sold in size at $12. Spikes like this are usually great long-term “BUY” signals.

$150 Billion in Volatility Plays were Dumped on Monday. Volatility-linked strategies, including volatility funds and equities trend-following commodity trading advisers (CTAs), are systematic investment strategies that typically buy equities when markets are calm and sell when they grow turbulent. They became heavy sellers of stocks over the last few weeks, exacerbating a market rout brought on by economic worries and the unwind of a massive global carry trade.

Weekly Jobless Claims Drop to 233,000, sparking a 500-point rally in the market. It’s a meaningless report, but traders are now examining every piece of jobs data with a magnifying glass.

Commercial Real Estate Has Bottomed, which will be great news for regional banks. Visitations are up big in Manhattan, with Class “A” properties gaining the most attention. New leasing is now exceeding vacations.

Warren Buffet Now Owns More T-Bills than the Federal Reserve. The Omaha, Nebraska-based conglomerate held $234.6 billion in short-term investments in Treasury bills at the end of the second quarter. That compared with $195.3 billion in T-bills that the Fed owned as of July 31. The Oracle of Omaha wisely unloaded $84 billion worth of Apple at the market top.

No Recession Here says shipping giant Maersk. U.S. inventories are not at a level that is worrisome says CEO Vincent Clerc, as fears of a recession in the world’s largest economy mount. Chinese exports have helped drive overall container demand in the most recent quarter reported a decline in year-on-year underlying profit to $623 million from $1.346 billion in the second quarter and a dip in revenue to $12.77 billion from $12.99 billion.

A Refi Boom is About to Begin. Mortgage rates in the high fives are now on offer. Over 40% of existing mortgages have rates of over 6%. It’s all driven by the monster rally in the bond market this week which took the (TLT) to $100 and ten-year US Treasury yields down to 3.65%.

Google (GOOG) Gets Hit with an Antitrust Suit, a Federal judge ruling that the company has a monopoly in search, with a 92% market share. The smoking gun was the $20 billion a year (GOOG) paid Apple (AAPL) to remain their exclusive search engine. Apple is the big loser here, which I just sold short.

In July we ended up a stratospheric +10.92%. So far in August, we are up by +2.51% My 2024 year-to-date performance is at +33.45%. The S&P 500 (SPY) is up +7.34% so far in 2024. My trailing one-year return reached +51.92.

That brings my 16-year total return to +710.08. My average annualized return has recovered to +51.94%.

I used the market crash to stop out of three STOP LOSS positions in (CAT), (AMZN), and (BRK/B). When the ($VIX) hit $65 I then made all the losses back when I piled on four new technology longs in (NVDA), (TSLA), (AAPL), and (META). After the Dow Average ($INDU) rallied 2,000 points and volatility was still high I then pumped out short positions in (TSLA), (DHI), (DE), (AAPL), and (JPM). I stopped out of my position in (DE) at breakeven.

This is in addition to existing longs in (GLD) and (DHI), which I will likely run into the August 16 option expiration.

Some 63 of my 70 round trips, or 90%, were profitable in 2023. Some 48 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 72.73%.

If you were wondering why I was sending out so many trade alerts out last week it is because we were getting months’ worth of market action compressed into five days. Make hay while the sun shines and strike while the iron is hot!

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, August 12 at 8:30 AM EST, the Consumer Inflation Expectations is out.

On Tuesday, August 13 at 9:30 AM, the Producer Price Index is published.

On Wednesday, August 14 at 8:30 AM, the new Core Inflation Rate is printed.

On Thursday, August 15 at 8:30 AM, the Weekly Jobless Claims are announced. Retail Sales are also printed.

On Friday, August 16 at 8:30 AM, Building Permits are disclosed. We also get the University of Michigan Consumer Sentiment. At 2:00 PM, the Baker Hughes Rig Count is printed.

As for me, with the overwhelming success of the Oppenheimer movie, I thought I’d review my long and fruitful connection with America’s nuclear program.

When the Cold War ended in 1992, the United States judiciously stepped in and bought the collapsing Soviet Union’s entire uranium and plutonium supply.

For good measure, my client George Soros provided a $50 million grant to hire every Soviet nuclear engineer. The fear then was that starving scientists would go to work for Libya, North Korea, or Pakistan, which all had active nuclear programs. They ended up here instead.

That provided the fuel to run all US nuclear power plants and warships for 20 years. That fuel has now run out and chances of a resupply from Russia are zero. The Department of Defense attempted to reopen our last plutonium factory in Amarillo, Texas, a legacy of the Johnson administration.

But the facilities were deemed too old and out of date, and it is cheaper to build a new factory from scratch anyway. What better place to do so than Los Alamos, which has the greatest concentration of nuclear expertise in the world?

Los Alamos is a funny sort of place. It sits at 7,320 feet on a mesa on the edge of an ancient volcano so if things go wrong, they won’t blow up the rest of the state. The homes are mid-century modern built when defense budgets were essentially unlimited. As a prime target in a nuclear war, there are said to be miles of secret underground tunnels hacked out of solid rock.

You need to bring a Geiger counter to garage sales because sometimes interesting items are work castaways. A friend almost bought a cool coffee table which turned out to be part of an old cyclotron. And for a town designing the instruments to bring on the possible end of the world, it seems to have an abnormal number of churches. They’re everywhere.

I have hundreds of stories from the old nuclear days passed down from those who worked for J. Robert Oppenheimer and General Leslie Groves, who ran the Manhattan Project in the early 1940s. They were young mathematicians, physicists, and engineers at the time, in their 20’s and 30’s, who later became my university professors. The A-bomb was the most important event of their lives.

Unfortunately, I couldn’t relay this precious unwritten history to anyone without a security clearance. So, it stayed buried with me for a half century, until now.

Some 1,200 engineers will be hired for the first phase of the new plutonium plant, which I got a chance to see. That will create challenges for a town of 13,000 where existing housing shortages already force interns and graduate students to live in tents. It gets cold at night and dropped to 13 degrees F when I was there.

I was allowed to visit the Trinity site at the White Sands Missile Test Range, the first visitor to do so in many years. This is where the first atomic bomb was exploded on July 16, 1945. The 20-kiloton explosion set off burglar alarms for 200 miles and was double to ten times the expected yield.

Enormous targets hundreds of yards away were thrown about like toys (they are still there). Half the scientists thought the bomb might ignite the atmosphere and destroy the world but they went ahead anyway because so much money had been spent, 3% of US GDP for four years. Of the original 100-foot tower, only a tiny stump of concrete is left (picture below).

With the other visitors, there was a carnival atmosphere as people worked so hard to get there. My Army escort never left me out of their sight. Some 78 years after the explosion, the background radiation was ten times normal, so I couldn’t stay more than an hour.

Needless to say, that makes uranium plays like Cameco (CCJ), NextGen Energy (NXE), Uranium Energy (UEC), and Energy Fuels (UUUU) great long-term plays, as prices will almost certainly rise and all of which look cheap. US government demand for uranium and yellow cake, its commercial byproduct, is going to be huge. Uranium is also being touted as a carbon-free energy source needed to replace oil.

At Ground Zero in 1945

What’s Left of a Trinity Target 200 Yards Out

Playing With My Geiger Counter

Atomic Bomb No.3 Which was Never Used on Tokyo

What’s Left from the Original Test

Good Luck and Good Trading,

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

August 8, 2024

Diary, Newsletter, Summary

Global Market Comments
August 8, 2024
Fiat Lux

Featured Trade:

(THE IDIOT’S GUIDE TO INVESTING),
(TSLA), (BYND), (JPM)
(TESTIMONIAL)

July 29, 2024

Diary, Newsletter, Summary

Global Market Comments
July 29, 2024
Fiat Lux

Featured Trade:

(MARKET OUTLOOK FOR THE WEEK AHEAD, or THE GREAT ROTATION LIVES), or (FLYING THE 1929 TRAVELAIRE D4D),
(NVDA), (TSLA), (JPM), (CCI), (CAT),
(DHI), (SLV), (GLD), (BRK/B), (DE)

The Market Outlook for the Week Ahead, or The Great Rotation is On

Diary, Newsletter

I am writing this from the famed Hornli Hut on the north ridge of the Matterhorn at 10,700 feet. I’m not here to climb the iconic mountain one more time. Seven summits are enough for me. What left do I have to prove? It is a brilliant, clear day and I can see Zermatt splayed out before me a mile below.

No, I am here to inhale the youth, energy, excitement, and enthusiasm of this year’s batch of climbers, and to see them off at 1:00 AM after a hardy breakfast of muesli and strong coffee. My advice for beginners is liberally handed out for free.

Each country in Europe has its own personality. Observing the great variety of Europeans setting off I am reminded of an old joke. What is the difference between Heaven and hell?

In Heaven, you have a French chef, an Italian designer, a British policeman, a German engineer, and a Swedish girlfriend, and it is all organized by the Swiss.

In hell you have an English chef, a Polish designer, a German policeman, a Spanish engineer, no girlfriend, and it is all organized by the Italians.

When I recite this joke to my new comrades, I get a lot of laughs and knowing nods. Then they give me better versions of Heaven and hell

The stock market as well might have been organized by the Italians last week with the doubling of volatility and extreme moves up and down. Some 500 Dow points suddenly became a round lot, up and down. Tesla down $40? NVIDIA off 25%? Instantly, last month’s heroes became this month’s goats. It was a long time coming.

The Great Rotation, ignited by the July 11 Consumer Price Index shrinkage lives on. We are only two weeks into a reallocation of capital that could go on for months. Tech has nine months of torrid outperformance to take a break from. Interest sensitives have years of underperformance to catch up on.

Using a fund manager’s parlance, markets are simply moving from Tech to interest sensitives, growth to value, expensive to cheap, and from overbought to ignored.

A great “tell” of future share price performance is how they deliver in down markets. Last week, the Magnificent Seven (TSLA), (NVDA), got pummeled on the bad days. Interest sensitives like my (CCI), (IBKR), industrials (DE), (CAT), (BRK/B), precious metals (GLD), (SLV), and Housing (DHI) barely moved or rose.

Sector timing is everything in the stock market and those who followed me into these positions were richly rewarded. My performance hit a new all-time high every day last week.

Only the industrial metals have not been reading from the same sheet of music. Copper, (FCX), (COPX), Iron Ore (BHP), Platinum (PPLT), Silver (SLV), uranium (CCJ), and Palladium (PALL) have all suffered poor months.

You can blame China, which has yet to restart its sagging economy. I blame that on 40 years of the Middle Kingdom’s one-child policy, which is only now yielding its bitter fruit. That means 40 years of missing Chinese consumers, which started hitting the economy five years ago.

And who knows how many people they lost during the pandemic (the Chinese vaccine, Sinovac, was found to be only 30% effective). This is not a short-term fix. You can’t suddenly change the number of people born 40 years ago.

I warned Beijing 50 years ago that the one-child policy would end in disaster. You can’t beat the math. The leadership back then only saw the alternative, a Chinese population today of 1.8 billion instead of the 1.4 billion we have. But they ignored my advice.

It is the story of my life.

Eventually, US and European growth will make up for the lost Chinese demand, but that may take a while. Avoid all Chinese plays like a bad dish of egg foo young. They’re never going back to the 13% growth of the 2000’s.

So far in July, we are up a stratospheric +11.82%. My 2024 year-to-date performance is at +31.84%. The S&P 500 (SPY) is up +14.05% so far in 2024. My trailing one-year return reached +xx.

That brings my 16-year total return to +xx. My average annualized return has recovered to +708.47.

I used the market collapse to take a profit in my shorts in (NVDA) and (TSLA). Then on the first rally in these names, I slapped new shorts right back on. I used monster rallies to take profits in (JPM) and (CCI). I added new longs in interest sensitives like (CAT), (DHI), and (SLV). This is in addition to existing longs in (GLD), (BRK/B), and (DE), which I will likely run into the August 16 option expiration.

That will take my year-to-date performance up to an eye-popping 43.77% by mid-August.

Some 63 of my 70 round trips were profitable in 2023. Some 45 of 53 trades have been profitable so far in 2024, and several of those losses were break-even. That is a success rate of 84.91%.

Try beating that anywhere.

One of the great joys of hiking around Zermatt is that you meet happy people from all over the world. The other morning, I was walking up to Mount Gornergrat when I ran into two elementary school teachers from Nagoya, Japan. After recovering from the shock that I spoke Japanese I told them a story about when I first arrived in Japan in 1974.

Toyota Motors (TM) hired me to teach English to a group of future American branch sales managers. A Toyota Century limo picked me up at the Nagoya train station and drove me up to a training facility in the mountains. As we approached the building, I witnessed 20 or so men in dark suits, white shirts, and thin ties lined up. One by one they took a baseball bat and savagely beat a dummy that lay prostrate on the grass before them.

I asked the driver what the heck they were doing. He answered that they were beating the competition. A decade later, Japan had seized 44% of the US car market, with Toyota taking the largest share.

I like to think that a superior product did that and not my language instruction abilities.

US Q2 GDP Pops, up 2.8% versus 2.1% expected. The US still has the strongest major economy in the world. Consumer spending helped propel the growth number higher, as did contributions from private inventory investment and nonresidential fixed investment. Goldilocks Lives!

Personal Consumption Expenditure Drops, a key inflation indication for the Fed, up only 0.1%in June and 2.5% YOY. Core inflation, which excludes food and energy, showed a monthly increase of 0.2% and 2.6% on the year, both also in line with expectations. Personal income rose just 0.2%, below the 0.4% estimate. Spending increased 0.3%, meeting the forecast, while the personal savings rate decreased to 3.4%.

Leveraged NVIDIA Bets Cause Market Turmoil. Great when (NVDA) is rocketing, not so much when it is crashing, with (NVDA) plunging 25.7% in a month. (NVDA) is now the largest holding in 500 traded ETF’s. I already made a nice chunk of money on an (NVDA) and will go back for another bight on the smallest rally.

The US Treasury Knocks Out a Blockbuster Auction, shifting $180 Billion worth of 7 ear paper, taking yields down 5 basis points. Foreign demand was huge. Bonds are trading like interest rates are going to be cut. Stock rallied an impressive 800 points the next day.

Durable Goods Get Slammed, down 6.6% versus an expected +0.6% in June. More juice for the interest rate cut camp.

Tesla Bombs, with big earnings and sales disappointments, taking the stock down 15%. Thank goodness we were short going into this. The EV maker put off its Mexico factory until after the November election. Adjusted earnings fell to 52 cents per share in the three months ended in June, missing estimates for the fourth consecutive quarter. Tesla will now unveil robotaxis on Oct. 10, and the cars shown will only be prototypes. Cover your Tesla Shorts near max profit.

Home Sales Dive, in June, off 5.4%. Inventory jumped 23.4% from a year ago to 1.32 million units at the end of June, coming off record lows but still just a 4.1-month supply. The median price of an existing home sold in June was $426,900, an increase of 4.1% year over year.

Oil Glut to continue into 2025, thanks to massive tax subsidies creating overproduction. Morgan Stanley said it expects OPEC and non-OPEC supply to grow by about 2.5 million barrels per day next year, well ahead of demand growth. Refinery runs are set to reach a peak in August this year, and unlikely to return to that level until July 2025, it said. Avoid all energy plays until they bottom.

Homebuilders Catch on Fire, with the prospect of falling interest rates. The US has a structural shortage of 10 million homes with 5 million Millennial buyers. Homebuilders have been underbuilding since the 2008 Great Financial Crisis, seeking to emphasize profits and share buybacks over to development land purchases. Buy (DHI), (LEN), (PMH), (KBH) 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 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, July 29 at 9:30 AM EST, the Dallas Fed Manufacturing Index is out.

On Tuesday, July 30 at 9:30 AM, the JOLTS Job Openings Report is published. The Federal Reserve Open Market Committee (FOMC) meeting begins

On Wednesday, July 31 at 2:00 PM, Jay Powell announced the Fed’s interest rate decision.

On Thursday, August 1 at 8:30 AM, the Weekly Jobless Claims are announced.

On Friday, August 2 at 8:30 AM, the July Nonfarm Payroll Report is released. At 2:00 PM, the Baker Hughes Rig Count is printed.

As for me, I am reminded as to why you never want to fly with Major John Thomas

When you make millions of dollars for your clients, you get a lot of pretty interesting invitations. $5,000 cases of wine, lunches on superyachts, free tickets to the Olympics, and dates with movie stars (Hi, Cybil!).

So it was in that spirit that I made my way down to the beachside community of Oxnard, California just north of famed Malibu to meet long-term Mad Hedge follower, Richard Zeiler.

Richard is a man after my own heart, plowing his investment profits into vintage aircraft, specifically a 1929 Travel Air D-4-D.

At the height of the Roaring Twenties (which by the way we are now repeating), flappers danced the night away doing the Charleston and the bathtub gin flowed like water. Anything was possible, and the stock market soared.

In 1925, Clyde Cessna, Lloyd Strearman, and Walter Beech got together and founded the Travel Air Manufacturing Company in Wichita, Kansas. Their first order was to build ten biplanes to carry the US mail for $125,000.

The plane proved hugely successful, and Travel Air eventually manufactured 1,800 planes, making it the first large-scale general aviation plane built in the US. Then, in 1929, the stock market crashed, the Great Depression ensued, aircraft orders collapsed, and Travel Air disappeared in the waves of mergers and bankruptcies that followed.

A decade later, WWII broke out and Wichita produced the tens of thousands of the small planes used to train the pilots who won the war. They flew B-17 and B-25 bombers and P51 Mustangs, all of which I’ve flown myself. The name Travel Air was consigned to the history books.

Enter my friend Richard Zeiler. Richard started flying support missions during the Vietnam War and retired 20 years later as an Army Lieutenant Colonel. A successful investor, he was able to pursue his first love, restoring vintage aircraft.

Starting with a broken down 1929 Travel Air D4D wreck, he spent years begging, borrowing, and trading parts he found on the Internet and at air shows. Eventually, he bought 20 Travel Air airframes just to make one whole airplane, including the one used in the 1930 Academy Award-winning WWI movie “Hells Angels.”

By 2018, he returned it to pristine flying condition. The modernized plane has a 300 hp engine, carries 62 gallons of fuel, and can fly 550 miles in five hours, which is far longer than my own bladder range.

Richard then spent years attending air shows, producing movies, and even scattering the ashes of loved ones over the Pacific Ocean. He also made the 50-hour round trip to the annual air show in Oshkosh, Wisconsin. I have volunteered to copilot on a future trip.

Richard now claims over 5,000 hours flying tailwheel aircraft, probably more than anyone else in the world. Believe it or not, I am also one of the few living tailwheel-qualified pilots in the country left. Yes, antiques are flying antiques!

As for me, my flying career also goes back to the Vietnam era as well. As a war correspondent in Laos and Cambodia, I used to hold Swiss-made Pilatus Porter airplanes straight and level while my Air America pilot friend was looking for drop zones on the map, dodging bullets all the way.

I later obtained a proper British commercial pilot license over the bucolic English countryside, trained by a retired Battle of Britain Spitfire pilot. His favorite trick was to turn off the fuel and tell me that a German Messerschmidt had just shot out my engine and that I had to land immediately. He only turned the gas back on at 200 feet when my approach looked good. We did this more than 200 times.

By the time I moved back to the States and converted to a US commercial license, the FAA examiner was amazed at how well I could do emergency landings. Later, I added additional licenses for instrument flying, night flying, and aerobatics.

Thanks to the largesse of Morgan Stanley during the 1980’s, I had my own private twin-engine Cessna 421 in Europe for ten years at their expense where I clocked another 2,000 hours of flying time. That job had me landing on private golf courses so I could sell stocks to the Arab Prince owners. By 1990, I knew every landing strip in Europe and the Persian Gulf like the back of my hand.

So, when the first Gulf War broke out the following year, the US Marine Corps came calling at my London home. They asked if I wanted to serve my country and I answered, “Hell, yes!” So, they drafted me as a combat pilot to fly support missions in Saudi Arabia.

I only got shot down once and escaped with a crushed L5 disk. It turns out that I crash better than anyone else I know. That’s important because they don’t let you practice crashing in flight school. It’s too expensive.

My last few flying years have been more sedentary, flying as a volunteer spotter pilot in a Cessna-172 for Cal Fire during the state’s runaway wildfires. As long as you stay upwind there’s no smoke. The problem is that these days, there is almost nowhere in California that isn’t smokey. By the way, there are 2,000 other pilots on the volunteer list.

Eventually, I flew over 50 prewar and vintage aircraft, everything from a 1932 De Havilland Tiger Moth to a Russian MiG 29 fighter.

It was a clear, balmy day when I was escorted to the Travel Air’s hanger at Oxnard Airport. I carefully prechecked the aircraft and rotated the prop to circulate oil through the engine before firing it up. That reduced the wear and tear on the moving parts.

As they teach you in flight school, it is better to be on the ground wishing you could fly than being in the air wishing you were on the ground!

I donned my leather flying helmet, plugged in my headphones, received a clearance from the tower, and was good to go. I put on max power and was airborne in less than 100 yards. How do you tell if a pilot is happy? He has engine oil all over his teeth. After all, these are open-cockpit planes.

I made for the Malibu coast and thought it would be fun to buzz the local surfers at wave top level. I got a lot of cheers in return from my fellow thrill seekers.

After a half hour of low flying over elegant sailboats and looking for whales, I flew over the cornfields and flower farms of remote Ventura County and returned to Oxnard. I haven’t flown in a biplane in a while and that second wing really put up some drag. So, I had to give a burst of power on short finals to make the numbers. A taxi back to the hangar and my work there was done.

There are old pilots and there are bold pilots, but there are no old, bold pilots. I can attest to that.

Richard’s goal is to establish a new Southern California aviation museum at Oxnard airport. He created a non-profit 501 (3)(c), the Travel Air Aircraft Company, Inc. to achieve that goal, which has a very responsible and well-known board of directors. He has already assembled three other 1929 and 1930 Travel Air biplanes as part of the display.

The museum’s goal is to provide education, job training, restoration, maintenance, sightseeing rides, film production, and special events. All donations are tax-deductible. To make a donation please email the president of the museum, my friend Richard Conrad at
rconrad6110@gmail.com

Who knows, you might even get a ride in a nearly 100-year-old aircraft as part of a donation.

To watch the video of my joyride please click here.

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

Where I Go My Kids Go

May 6, 2024

Tech Letter

Mad Hedge Technology Letter
May 6, 2024
Fiat Lux

Featured Trade:

(BUFFETT CHIMES IN ON AI)
(BRK/A), (SMCI), (AI), ($UST10Y)

Buffett Chimes In On AI

Tech Letter

At the once-per-year shareholder meeting for Berkshire Hathaway (BRK/A) in Omaha, Nebraska, the shindig has become a caricature of itself.

A company that does so well, but the leader has self-proclaimed to understand nothing about technology.

It was fascinating to see the Oracle of Omaha Warren Buffett dabble in the cooler talk that is talk about artificial intelligence.

Ironically enough, his pep talk about AI was littered with negatives about the consequences of AI.

Warren Buffett's warning about AI’s potential harm has everything to do with his conservative risk tolerance to not beeline straight to the front of the most modern developments in the tech industry.

He’s late on most stocks but he’s right on them in the end.

It wasn’t too far back when Buffett only would invest in a company as complicated as Coca-Cola, because he famously stated that he doesn’t invest in companies that he doesn’t understand.

Insurance also made Buffett a killing pouring capital into companies like Aflac.

He finally came around to Apple which for better or worse is known as the iPhone company.

His risk tolerance of tech increasing to the almighty smartphone was quite a jump for Buffett that took many years, so don’t expect another leap of faith anytime soon.

In fact, Buffett claiming he doesn’t understand AI too well means there is a lot of capital sitting on the sidelines waiting to enter once they finally do “understand.”

I should also just note the general stockpile of money that has been waiting on the sideline since the Covid-era is enormous.

Any meaningful dip in any meaningful tech company will be met by a torrent of new buying demand.

That’s exactly what happens when the number of great tech companies can be counted on 2 hands.

Almost like what is happening with American restaurants – it’s not that American restaurants are going through a generational renaissance, no, they are packed because so many small restaurants closed after COVID.

Tech is experiencing the same playbook with investor money.

The past 7-12 years have seen the spurring on competition squelched, and the tech industry has never been closer to a full-blown monopoly in some sub-sectors.

Once the bulls get back in control, we are off to the races again, because a few companies move markets now.

That’s what I believe we are seeing in the short-term with the US 10-year inching up only for Central Bank Fed Chair Jerome Powell to deliver us a monumental dovish speech to the sticky inflation we are seeing in numbers now.

Buffett chose to talk about the darker side of AI and the potential for scamming people.

He said that scamming using AI will become a “growth industry of all time.”

Buffett pointed to the technology’s ability to reproduce realistic and misleading content in an effort to send money to bad actors.

Just because we don’t like it, we cannot write it off or afford it as investors.

Readers must deal with AI and the manifestations of it.

One of the big side effects is that it accelerates the winner-takes-all dynamics of tech.

If I were a newbie investor, Super Micro Computers (SMCI) would be on the radar as a powerful growth stock with bountiful potential and exposure to AI.

More tech companies will fail, and they will fail faster, without a trace of even existing sometimes.

It also puts extreme pressure on tech management to implement AI, lose funding, or lose the momentum the business model.

It almost makes tech management over-reliant on AI to fix any and every mess.

The reality is that there will be a lot of losers from AI and punishes companies that never figure out AI.

It is best to identify them before the stock goes to 0.

I don’t necessarily share the same dark outlook as Buffett and I commend him for doing so well on his performance, but when it comes to technology stocks, he shows up late, but it is better than never showing up.

May 3, 2024

Tech Letter

Mad Hedge Technology Letter
May 3, 2024
Fiat Lux

Featured Trade:

(ARE 8% RATES GOOD FOR TECH?)
(GOOGL), (AAPL), (JPM)

Are 8% Rates Good For Tech?

Tech Letter

Although much of the mass media ignores some of these dire reports issued by some prominent finance guys, I have taken notice.

I’m not here to scare you.

Everything will work out fine.

It was only just lately that one of the most public-facing US bankers, Jamie Dimon, delivered us a future warning that could mean bad results for many tech companies.

I won’t say that every tech company will be ripped to shreds, there are still a few that are head and shoulders above the rest and could withstand heavy shelling.

But 8% rates is a world that could spook tech investors.

It just goes to show that some numbers floating around are starting to come into the realm of possibility even if the probabilities are quite low.

Dimon’s thesis centered on “persistent inflationary pressures” and unless you’re an ostrich with your head in the ground, prices haven’t come down for most stuff that we buy including software and tech gadgets.

Rates close to 10% would kill many golden gooses in various industries and I do believe a world of rates that high would really put the sword to the throat of many tech companies.

If that happened, kiss the tech IPO market goodbye and just be happy that we squeezed into Reddit this year.

More often than not, American tech companies are gut-punched when there is a global growth slowdown because many of these companies extract revenue from everywhere.

They are so big that they have to unearth every stone in far-flung places to keep the growth narrative chugging along.

The unemployment rate remains below 4% and businesses, but a world of 8% interest rates would mean another 50% downsizing of tech staff and a rockier path to profits.

Amidst heightened global uncertainty, what has the technology sector delivered to us lately?

Shareholder returns.

Google rolled out the carpet for its first-ever dividend.

Apple increased its dividend by announcing a new $110 billion share repurchase plan.

What is my takeaway here?

Has Apple run out of bullets here so much so that a share buyback is better to do than give its clients a new product?

They do this also because they can afford to and many tech companies would view this as a luxury.

However, there will come a time where the market will demand a new killer product and that day is inching forward.

How do I know that?

iPhone sales are down 10% in the first 3 months of 2024 and that is absolutely awful.

Even if the market looks through these terrible numbers, the day of reckoning inches up, and when it comes, not even a shareholder buyback will massage the stock higher.

Like a magician, this earnings season was a great escape for tech, and I question how many more earnings seasons will they get a pass for.

In a scenario of 8% interest rates, 95% of tech stocks would drop and a few heavyweights would be forced to carry the load. Psychologically, it would scare off the incremental tech investor and that is the bigger problem.

There is only so far the can is able to get kicked down the road.

In the short term, I would be inclined to buy on the dip after we can digest this mediocre earnings season, but at some point, this “bad news is good news” will disappear with the wind.

March 4, 2024

Diary, Newsletter, Summary

Global Market Comments
March 4, 2024
Fiat Lux

(MARKET OUTLOOK FOR THE WEEK AHEAD, or WHO NEEDS THE FED?
(AAPL), (TSLA), (AAPL), (GOOGL), (MSFT), (MSFT), (BRK/B), (BA), (JPM), (BA), (C), (SNOW), (NVDA)

The Market Outlook for the Week Ahead, or Who Needs the Fed?

Diary, Newsletter

I have to tell you that this has been a really good week to be John Thomas.

The accolades have been pouring in. During February, my followers have made the most money in their lives, including myself. NVIDIA (NVDA), up 110% in four months, is now the largest position in everyone’s portfolios, if not because of my prodding, then through capital appreciation alone.

Institutions limited to keeping single holdings to 5% or 10% got away with delaying their rebalancing as long as possible.

Is it 1995 for 2,000? I vote for the former, meaning that the current melt-up could have five more years to run with occasional breaks.

Exploding corporate profits and rocketing share capitalizations have replaced the Federal Reserve as a new endless source of liquidity, as I knew it would.

Who needs the Fed? Who needs interest rate cuts?

Best of all, this new source of super liquidity isn’t at the whim of a single man, nor subject to politics of any kind. It has in fact become its own self-fulfilling prophecy.

Dow 240,000 here we come, as I have been endlessly repeating for years!

It says a lot that hedge funds, the “smart money,” are heavily overweight the Magnificent Seven, while retail mutual funds, the “dumb money” are underweight. The technology they are overweight is mostly in Apple, that great backward-looking company. This implies that to catch up mutual funds are going to have to buy hundreds of billions of Mag Seven stocks and sell their Apple to pay for the move.

The largest single source of demand for stocks will be the $1.25 trillion in corporate buybacks. What will they buy? Apple (AAPL), Alphabet (GOOGL), and Microsoft (MSFT), the three largest purchasers of their own stocks.

When the leader of the fastest-growing, best-performing company with the top-performing stock speaks, you have to pay attention. The next $1 trillion build-out in AI infrastructure is here, says NVIDIA CEO Jensen Huang, now one of the richest men in the world.

Have a good week! I’ll be spending my time shoveling snow.

In February, we closed up +7.42%. My 2024 year-to-date performance is at +3.14%. The S&P 500 (SPY) is up +7.33% so far in 2024. My trailing one-year return reached +55.73% versus +42.04% for the S&P 500.

That brings my 15-year total return to +679.77%. My average annualized return has recovered to +51.30%.

Some 63 of my 70 trades last year were profitable in 2023. Some 9 of 13 trades have been profitable so far in 2024.

I used the ballistic move-in (NVDA) to take profits in my double long there. I am maintaining a single long in (AMZN) and Snowflake (SNOW) and am 80% in cash given the elevated level of the markets.

Core PCE Comes in Cool, at 2.8%, as expected. The personal consumption expenditures price index excluding food and energy costs increased 0.4% for the month and 2.8% from a year ago, as expected. Stocks and bonds liked it, but the US dollar hated it.

Snowflake Crashes, down 20%, on weak guidance. CEO Frank Slootman is retiring. This is the third company he has taken public and it’s time to retire. He will stay on as chairman. This is one of the best cloud plays out there, and now you have a chance to buy it close to the October bottom. Buy (SNOW) on dips.

Weekly Jobless Claims Pop, up 13,000 to 215,000. However, continuing claims, which run a week behind, rose to just above 1.9 million, a gain of 45,000 and higher than the FactSet estimate of 1.88 million.

Apple Pulls the Plug on EV Project, wrong product at the wrong time. AI is where the action is. We may have to wait until the summer for this company when it starts to discount the next-generation iPhone release in the fall. Tesla can now sleep easy. Avoid (AAPL) and buy (TSLA) on dips.

Berkshire Hathaway to Top $1 Trillion in a Year, up from the current $900 billion, according to UBS analyst Brian Meredith. I think that’s a low target. Buy (BRK/B) on dips.

Boeing Hit by Damning Report, faulting the company for ineffective procedures and a breakdown in communications between senior management and other members of staff, according to an FAA report. The report is the latest to find fault with safety at Boeing, which suffered its latest blow when a panel covering an unused door flew off during an Alaska Airlines flight on Jan. 5. Buy (BA) on dips.

Warren Buffet Says Their Nothing to Buy, in his annual letter to shareholders. The few targets left are few and far between and heavily picked over. (BRK/B) has also lost the advice of its principal mentor, Charlie Munger at the age of 99. Last year Berkshire acquired Dairy Queen and Berkshire Energy. But with $905 billion in assets, those will hardly move the needle on his incredible track record. The 93-year-old Buffet has outperformed the S&P 500 by 141:1 since 1964.

CEO Jamie Diamond Sell $150 Million in (JPM) Shares, cashing in on the historic “BUY” he had at the 2009 market bottom. He earned a 36X gain on that trade. (JPM) remains the “must-own” bank for most institutional investors.

New Home Sales Weaken, curbed by frigid weather, but demand for new construction remains underpinned by a persistent shortage of previously owned homes. New home sales increased 1.5% to a seasonally adjusted annual rate of 661,000 units in January. Economists had forecast new home sales rising to a rate of 680,000 units.

Another Regional Bank is in Trouble. Commercial real estate lender New York Community Bancorp said it discovered “material weaknesses” in how it tracks loan risks, wrote down the value of companies acquired years ago, and replaced its leadership to grapple with the turmoil. The stock plunged. Expect this to be a recurring problem. The US banking system is in the process of consolidating from 4,236 banks to six. Buy (JPM), (BA), and (C) on dips.

Millennials are Becoming the Richest Generation in History. The so-called greatest generation — those typically born from 1928 to 1945 — and baby boomers — born between 1946 and 1964 — will hand over the reins to those born from 1981 to 1996 when they pass on their property- and equity-rich assets. In the U.S. alone, the shift would see $90 trillion of assets move between generations.

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 800% 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, March 4, nothing of note is announced.

On Tuesday, March 5 at 8:30 AM EST, ISM Services are released.

On Wednesday, March 6 at 2:00 PM, the Jolts Job Openings Report is published

On Thursday, March 7 at 8:30 AM, the Weekly Jobless Claims are announced.

On Friday, March 8 at 2:30 PM, the Nonfarm Payroll Report for February is published. At 2:00 PM the Baker Hughes Rig Count is printed.

As for me, I’ve found a new series on Amazon Prime called 1883. It is definitely NOT PG rated, nor is it for the faint of heart. But it does remind me of my own cowboy days.

When General Custer was slaughtered during his last stand at the Little Big Horn in 1876 in Montana, my ancestors spotted a great buying opportunity. They used the ensuing panic to pick up 50,000 acres near the Wyoming border for ten cents an acre.

Growing up as the oldest of seven kids, my parents never missed an opportunity to farm me out with relatives. That’s how I ended up with my cousins near Broadus, Montana for the summer of 1966.

When I got off the Greyhound bus in nearby Sheridan, I went into a bar to call my uncle. The bartender asked his name and when I told him “Carlat” he gave me a strange look.

It turned out that my uncle had killed someone in a gunfight in the street out front a few months earlier, which was later ruled self-defense. It was the last public gunfight seen in the state, and my uncle hasn’t been seen in town since.

I was later picked up in a beat-up Ford truck and driven for two hours down a dirt road to a log cabin. There was no electricity, just kerosene lanterns, and a propane-powered refrigerator.

Welcome to the 19^th century!

I was hired as a cowboy, lived in a bunk house with the rest of the ranch hands, and was paid the pricely sum of a dollar an hour. I became popular by reading the other cowboys' newspapers and their mail since they were all illiterate. Every three days we slaughtered a cow to feed everyone on the ranch. I ate steak for breakfast, lunch, and dinner.

On weekends, my cousins and I searched for Indian arrowheads on horseback, which we found by the shoe box full. Occasionally we got lucky finding an old rusted Winchester or Colt revolver just lying out on the range, a remnant of the famous battle 90 years before. I carried my own six-shooter to help reduce the local rattlesnake population.

I really learned the meaning of work and developed callouses on my hands in no time. I had to rescue cows trapped in the mud (stick a burr under their tail and make them mad), round up lost ones, and sawed miles of fence posts. When it came time to artificially inseminate the cows with superior semen imported from Scotland, it was my job to hold them still. It was all heady stuff for a 15-year-old.

The highlight of the summer was participating in the Sheridan Rodeo. With my uncle being one of the largest cattle owners in the area, I had my pick of events. So, I ended up racing a chariot made from an old oil drum, team roping (I had to pull the cow down to the ground), and riding a Brahman bull. I still have a scar on my left elbow from where a bull slashed me, the horn pigment clearly visible.

I hated to leave when I had to go home and back to school. But I did hear that the winters in Montana are pretty tough.

It was later discovered that the entire 50,000 acres was sitting on a giant coal seam 50 feet thick. You just knocked off the topsoil and backed up the truck. My cousins became millionaires. They built a modern four-bedroom house closer to town with every amenity, even a big-screen TV. My cousin also built a massive vintage car collection.

During the 2000s, their well water was poisoned by a neighbor’s fracking for natural gas, and water had to be hauled in by truck at great expense. In the end, my cousin was killed when the engine of the classic car he was restoring fell on top of him when the rafter above him snapped.

It all gave me a window into a lifestyle that was then fading fast. It’s an experience I’ll never forget.