Tag Archive for: (MS)

april@madhedgefundtrader.com

2025 Annual Asset Class Review

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I am once again writing this report from a first-class sleeping cabin on Amtrak’s legendary California Zephyr.

By day, I have a comfortable seat next to a panoramic window. At night, they fold into two bunk beds, a single and a double. There is a shower, but only Houdini can navigate it.

I am anything but Houdini, so I foray downstairs to use the larger public hot showers. They are divine.

 

 

We are now pulling away from Chicago’s Union Station, leaving its hurried commuters, buskers, panhandlers, and majestic great halls behind. I love this building as a monument to American exceptionalism.

I am headed for Emeryville, California, just across the bay from San Francisco, some 2,121.6 miles away. That gives me only 56 hours to complete this report.

I tip my porter, Raymond, $100 in advance to make sure everything goes well during the long adventure and to keep me up to date with the onboard gossip.

The rolling and pitching of the car is causing my fingers to dance all over the keyboard. Microsoft’s Spellchecker can catch most of the mistakes, but not all of them.

 

Chicago’s Union Station

 

As both broadband and cell phone coverage are unavailable along most of the route, I have to rely on frenzied Internet searches during stops at major stations along the way, like Omaha, Salt Lake City, and Reno, to Google obscure data points and download the latest charts.

You know those cool maps in the Verizon stores that show the vast coverage of their cell phone networks? They are complete BS.

Who knew that 95% of America is off the grid? That explains so much about our country today.

I have posted many of my favorite photos from the trip below, although there is only so much you can do from a moving train and an iPhone 16 Pro.

 

 

 

Somewhere in Iowa

 

The Thumbnail Portfolio


Equities – buy dips, but sell rallies too
Bonds – avoid
Foreign Currencies – avoid
Commodities – avoid
Precious Metals – avoid
Energy – avoid
Real Estate – avoid

 

 

1) The Economy – Cooling

I expect a modest 2.0% real GDP growth with a 4.0% inflation rate, giving an unadjusted shrinkage of the economy of negative -2% for 2025. That is down from 0% in in 2024. This may sound discouraging, but believe me, this is the optimistic view. Some of my hedge fund buddies are expecting a zero return over the next four years.

Virtually all independent economists expect the new administration's economic policies will be a drag on both the US and global economies. Trade wars are bad for everyone. When your customers are impoverished, your own business turns south. This is a big deal, since the Magnificent Seven, which accounted for 70% of stock market gains last year, get 60% of their profits from abroad.

The ballooning National Debt is another concern. The last time Trump was in office, he added $10 trillion to the deficit through aggressive tax cuts and spending increases. If this time, he adds another $10-$15 trillion, the National Debt could reach $50 trillion by 2030.

There are two issues here. For a start, Trump will find it a lot harder and more expensive to fund a National Debt at $50 trillion than $20 trillion. Second, borrowing of this unprecedented magnitude, double US GDP, will send interest rates soaring, causing a recession.

The only question then is whether this will be a pandemic-style recession, which took stocks down 30% and recovered quickly, or a 2008 recession which demolished stocks by 52% and dragged on for years.

Hope for the best but expect the worst, unless you want to consider a future career as an Uber driver.

 

 

A Rocky Mountain Moose Family

 

2) Equities – (SPY), (QQQ), (IWM), (GS), (MS), (JPM), (BAC), (C), (BLK)


The outlook for stocks for 2025 is pretty simple. You are going to have to work twice as hard to make half the money you did last year with twice the volatility. You will not be able to be as nowhere near aggressive in 2025 as you were in 2024  It’s a dream scenario for somebody like me. For you, I’m not so sure.

It’s not that US companies aren't growing gangbusters. I expect 2% GDP growth, 15% profit growth, and 12% net margin growth in 2025. But let’s face reality. Stocks are the most expensive they have been in 17 years and we know what happened after 2008. Much of the stock market gain achieved last year was through hefty multiple expansions. This is not good.

Big tech companies might be able to deliver 20% gains and are still the lead sector for the market. Normally that should deliver you a 15%, or $800 gain in the S&P 500 (SPX). We might be able to capture this in the first half of 2025.

Financials will remain the sector with the best risk/reward, and I mean the broader definition of the term, including banks, brokers, money managers, and some small-cap regional banks. The reason is very simple. Their income statements will get juiced at both ends as revenues soar and costs plunge, thanks to deregulation.

No passage of new laws is required to achieve this, just a failure to enforce existing ones. The hint for this is a new SEC chair whose primary interest is promoting the Bitcoin bubble. Buy (GS), (MS), (JPM), (BAC), (C), and (BLK).

However, this is anything but a normal year. Uncertainty is at an eight-year high, thanks to an incoming administration. If the promised policies are delivered, inflation will soar and interest rates will rise, as they already have. We could lose half or all of our stock market gains by the end of 2025.

The big “tell” for this was the awful market performance in December, down 5%. The Dow Average was down ten days in a row for the first time in 70 years. Santa Claus was unceremoniously sent packing. People Are clearly nervous. But then they should be with a bull market that is approaching a decrepit five years in age.

There is a bullish scenario out there and that has Trump doing absolutely nothing in 2025, either because he is unwilling or unable to take action. After all, if the economy isn’t actually broken, why fix it? Better yet, if you own an economy it is better not to break it in the first place.

Nothing substantial can pass Congress with a minuscule one-seat majority in the House of Representatives. There will be no new presidential action through tariffs and only a few token, highly televised deportations, not enough to affect the labor market.

Stocks will not only hold, but they may add to the 15% first-half gains for the year. I give this scenario maybe a 50% probability.

The first indication this is happening is when the presidential characterization of the economy flips in a few months from the world’s worst to the world’s best with no actual change in the numbers. Trump will take all the credit.

You heard it here first.

 

 

Frozen Headwaters of the Colorado River

 

3) Bonds (TLT), (TBT), (JNK), (PHB), (HYG), (MUB), (LQD)

Amtrak needs to fill every seat in the dining car to get everyone fed on time, so you never know who you will share a table with for breakfast, lunch, or dinner.

There was the Vietnam Vet Phantom Jet Pilot who now refused to fly because he was treated so badly at airports. A young couple desperately eloping from Omaha could only afford seats as far as Salt Lake City. After they sat up all night, I paid for their breakfast.

A retired British couple was circumnavigating the entire US in a month on a “See America Pass.” Mennonites returned home by train because their religion forbade travel by automobiles or airplanes.

The big question to ask here after a 100-basis point rise in bond yields in only three months is whether the (TLT) has suffered enough. The short answer is no, not quite yet, but we’re getting close. Fear of Trump policies should eventually take ten-year US Treasury bond yields to 5.00%, and then we will be ready for a pause at a nine-month bottom. After that, it depends on how history unfolds.

If Trump gets everything he wants, inflation will soar, bonds will crash, and 5.00% will be just a pit stop on the way to 6.00%, 7.00%, and who knows what? On the other hand, if Trump gets nothing he says he wants, then both bonds stocks and bonds will rise, creating a Goldilocks scenario for all balanced portfolios and investors.

That also sets up a sweet spot for entry into (TLT) call spreads close to 5.00% yields. A politician campaigning on one policy, then doing the opposite once elected? Stranger things have happened. The black swans will live.

 

 

A Visit to the 19th Century

 

4) Foreign Currencies (FXE), (EUO), (FXC), (FXA), (YCS), (FXY), (CYB)

If your basic assumption for interest rates is that they stay flat or rise, then you have to love the US dollar. Currencies are all about expected interest rate differentials and money always pours into the highest-paying ones. Tariffs will add fat to the fire because any reduction in international trade automatically reduces American trade deficits and is therefore pro-dollar.

This means that you should avoid all foreign currency plays like the plague, including the Euro (FXE), Japanese yen (FXY), British Pound (FXB), Canadian dollar (FXE), and Australian dollar (FXA).

A strong greenback comes with pluses and minuses. It makes our exports expensive and less competitive and therefore creates another drag on the economy. It demolishes traditional weak dollar plays like emerging markets and precious metals. On the other hand, it attracts substantial foreign investments into US stocks and bonds, which has been continuing for the past decade.

Above all, be happy you are paid in US dollars. My foreign clients are getting crushed in an increasingly expensive world.

 

 

 

5) Commodities (FCX), (BHP), (RIO), (VALE), (DBA)

Look at the chart of any commodity stock and you see grim death. Freeport McMoRan (FCX), BHP (BHP), and Rio Tinto (RIO), they’re all the same. They’re all afflicted with the same disease, over-dependence on a robustly growing China, which isn’t growing robustly, if at all.

I firmly believe that this will continue until the current leadership by President Xi Zheng Ping ends. He has spent the last decade globally expanding Chinese interests, engaging in abusive trade practices, hacking, and attacking American allies like Taiwan and the Philippines.  You can only wave a red flag in front of the US before it comes back to bite you. A trade war with the US is now imminent.

This will happen sooner than later. The Chinese people don’t like being poor for very long. This is why I didn’t get sucked in on the Chinese long side in the fall, as many hedge funds did.

If China wants to go back to playing nice, as they did in the eighties and nineties, China should return to return to high growth and commodities will look like great “Buys” down here. If they don’t, American growth alone should eventually pull commodities up, as our economy is now growing at a long-term average gross unadjusted 6.00% rate. So the question is how long this takes.

It may pay to start nibbling on the best quality bombed-out names now, like those above.

 

 

Snow Angel on the Continental Divide

 

6) Energy (DIG), (USO), (DUG), (UNG), (USO), (XLE), (LNG), (CCJ), (VST), (SMR)

Energy was one of the worst-performing sectors in the market for the second year in a row and 2025 is looking no better. New supplies are surging, while demand remains stuck in the mud, with the US now producing an incredible 13.5 million barrels a day. OPEC is dead.

EVs now make up 10% of the US auto fleet, and much more in other countries, are making a big dent. Some 50% of all new car sales in China, the world’s largest market, are EVs. The number of barrels of oil needed to increase a unit of American GDP is plunging, as it has done for 25 years, through increased efficiencies. Remember your old Lincoln Continental that used to get eight miles per gallon? Now it gets 27.

Worse yet, a major black swan hovers over the sector. If the Ukraine War somehow ends, some ten million barrels a day of Russian oil will hit the market. Oil prices should plunge to $50 a barrel.

There are always exceptions to the rule, and energy plays not dependent on the price of oil would be a good one. So is natural gas, which will benefit from Cheniere Energy’s (LNG) third export terminal coming online, increasing exports to China. Ukraine cutting off Russian gas flowing to Europe will assure there is plenty of new demand.

But I prefer investing in sectors that have tailwinds and not headwinds. Better leave energy to the pros who have the inside information they need to make money here.

If someone is holding a gun to your head tell you that you MUST invest in energy, go for the new nuclear plays like (CCJ), (VST), and (SMR). We are only at the becoming of the small modular reactor trend, which could accelerate for decades.

 

 

 

7) Precious Metals (GLD), (DGP), (SLV), (PPTL), (PALL)

The train has added extra engines at Denver, so now we may begin the long laboring climb up the Eastern slope of the Rocky Mountains.

On a steep curve, we pass along an antiquated freight train of hopper cars filled with large boulders.

The porter tells me this train is welded to the tracks to create a windbreak. Once, a gust howled out of the pass so swiftly, that it blew a passenger train over on its side.

In the snow-filled canyons, we saw a family of three moose, a huge herd of elk, and another group of wild mustangs. The engineer informs us that a rare bald eagle is flying along the left side of the train. It’s a good omen for the coming year.

We also see countless abandoned 19th-century gold mines and the broken-down wooden trestles leading to huge piles of tailings, relics of previous precious metals booms. So, it is timely here to speak about the future of precious metals.

We certainly got a terrific run on precious metals in 2025, with gold at its highs up 33% and silver up 65%. The miners did even better. Even after the post-election selloff, it was still one of the best-performing asset classes of the year.

But the heat has definitely gone out of this trade. The prospect of higher interest rates for longer in 2025 has sent short-term traders elsewhere. That’s because the opportunity cost of owning precious metals is rising since they pay no interest rates or dividends. And let’s face it, there was definitely new competition for hot money from crypto, which doubled after the election.

The sector is not dead, it is resting. Central bank buying of the barbarous relic continues unabated, especially among sanctioned countries, like Russia and China. Gold is still the principal savings vehicle for many Chinese. They are not going to recover confidence in their own currency, banks, or government anytime soon. And there is still slow but steadily rising industrial demand from solar sectors.

Gold supply has also been falling for years, while costs are rising at least at double the headline inflation rate. So it’s just a matter of time before the supply/demand balance comes back in our favor. Where the final bottom is anyone’s guess as gold lacks the traditional valuation parameters of other asset classes, like dividends or interest paid. We’ll just have to wait for Mr. Market to tell us, who is always right.

Give (GLD), (SLV), (GDX), (GOLD), and (WPM) a rest for now but I’ll be back.

 

 

Crossing the Great Nevada Desert Near Area 51

 

8) Real Estate (ITB), (LEN), (KBH), (PHM), (DHI)

The majestic snow-covered Rocky Mountains are behind me. There is now a paucity of scenery, with the endless ocean of sagebrush and salt flats of Northern Nevada outside my window, so there is nothing else to do but write. 

My apologies in advance to readers in Wells, Elko, Battle Mountain, and Winnemucca, Nevada.

It is a route long traversed by roving bands of Indians, itinerant fur traders, the Pony Express, my own immigrant forebearers in wagon trains, the Transcontinental Railroad, the Lincoln Highway, and finally US Interstate 80, which was built for the 1960 Winter Olympics at Squaw Valley, California.

Passing by shantytowns and the forlorn communities of the high desert, I am prompted to comment on the state of the US real estate market.

Real estate was a nice earner for us in 2024 in the new homes sector. The election promptly demolished this trade with the prospect of higher interest rates for longer. Expect this unwelcome drag to continue in 2025.

I am not expecting a housing crash unless interest rates take off. More likely it will continue to grind sideways on low volume. That’s because the market has support from a structural shortage of 10 million homes in the US, the debris left over from the 2008 housing crash. That’s why there is still a Millennial living in your basement. Homebuilders now prioritize profit margins over market share.

I expect this sector to come back someday. New homebuilders have the advantage of offering free upgrades and discounted in-house financing. Avoid for now (DHI), (KBH), (TOL), and (PHM).

 

 

Crossing the Bridge to Home Sweet Home

9) Postscript

We have pulled into the station at Truckee amid a howling blizzard.

My loyal staff have made the ten-mile trek from my estate at Incline Village to welcome me to California with a couple of hot breakfast burritos and a chilled bottle of Dom Perignon Champagne, which has been cooling in a nearby snowbank. I am thankfully spared from taking my last meal with Amtrak.

 

After that, it was over legendary Donner Pass, and then all downhill from the Sierras, across the Central Valley, and into the Sacramento River Delta.

Well, that’s all for now. We’ve just passed what was left of the Pacific mothball fleet moored near the Benicia Bridge (2,000 ships down to six in 80 years). The pressure increase caused by a 7,200-foot descent from Donner Pass has crushed my plastic water bottle. Nice science experiment!

The Golden Gate Bridge and the soaring spire of Salesforce Tower are just coming into view across San Francisco Bay.

A storm has blown through, leaving the air crystal clear and the bay as flat as glass. It is time for me to unplug my MacBook Pro, iPad, and iPhone, pick up my various adapters, and pack up.

We arrive in Emeryville 45 minutes early. With any luck, I can squeeze in a ten-mile night hike up Grizzly Peak tonight and still get home in time to watch the ball drop in New York’s Times Square on TV.

I reach the ridge just in time to catch a spectacular pastel sunset over the Pacific Ocean. The omens are there. It is going to be another good year.

I’ll shoot you a Trade Alert whenever I see a window open at a sweet spot on any of the dozens of trades described above, which should be soon.

Good luck and good trading in 2025!

John Thomas
The Mad Hedge Fund Trader

 

The Omens Are Good for 2025!

april@madhedgefundtrader.com

December 16, 2024

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Global Market Comments
December 16, 2024
Fiat Lux

 

Featured Trade:

(MARKET OUTLOOK FOR THE WEEK AHEAD or CATCHING THE NEXT MARKET TOP), plus (A LIFETIME OF FLIGHT INSTRUCTION),
(JPM), (NVDA), (BAC), (C), (CCJ), (MS), (BLK), (TSLA)

april@madhedgefundtrader.com

The Market Outlook for the Week Ahead, or Catching the Next Market Top


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We all learned as children how to win at “Merry Go Round.” All you have to do is remember to sit down when the music stops playing.

We are now entering a market with the greatest uncertainty since the pandemic. This is when expansive election promises meet harsh reality. And the new president has to attempt to deliver on his almost uncountable promises with a one-seat majority in the House of Representatives, the smallest in history.

In 2025, you are going to have to work twice as hard to make half the money with double the volatility. Markets like this are the sweet spot for Mad Hedge Fund Trader, which makes money in all market conditions. We are entering 2025 with a 30X multiple for NASDAQ, near a record high. Since 2012, the value of the Magnificent Seven has exploded from $1 trillion to $18 trillion, and you are buying, or at least staying long, on top of that move.

Amidst all the euphoria, someone failed to notice that the Republicans actually lost two seats in the House, and two more were given away in cabinet appointments. They probably don’t realize that Republicans die faster than Democrats because they are, on average, ten years older.

There are also more Democratic women who, on average, live six years longer than men. That means the slim majority will be gone in six months. Am I the only one who pays attention to demographics?

No House means no money to do anything. Many of the new administration’s proposals cost enormous amounts of money. My ancestors came from Missouri before they moved to California during the gold rush in 1849, which is known as the “Show me” state.

Show me.

So, in my early take on the New Year, look for a 10%-15% rally in stocks led by the same old sectors during the first half of 2025. Buy election winners and sell the losers. Artificial intelligence is accelerating faster than ever, and that is going on independent of Washington. Embrace the bubble. Call it the “pre-reality” rally.

After that, look for a give-back of some, if not all, of this rally. Tax cuts and spending increases will explode the National Debt well beyond the current $36 trillion. Inflation will return. Interest rates will rise. A trade war will exact a high price. Perhaps two million small businesses will go under, thanks to their loss of cheap supplies from China. Antitrust law will only be enforced against the left coast Magnificent Seven, and everyone else will get a free pass.

And now it’s my turn to deliver you a harsh reality. Every recession and stock market in my lifetime has started during a Republican administration, and I am pretty old. The causes are always the same. The expectation of tax cuts and hands-off on regulation creates over-investment and excessive leverage that always ends in tears. When that peaks, stocks crash, and a recession ensues.

Except that this time, it’s different. The incoming administration promises to sow the seeds of its most destructive policies, a trade war, and massive tax cuts during a booming economy that explodes the deficit and inflation “on day one.” That means we could see an earlier recession than a later one. That is when the music stops playing.

That is fine with me. I make more money in down markets than I do in up markets. That is because I get the hockey stick effect of falling share prices, rising volatility, and soaring options premiums to play on the downside.

As for you, I’m not so sure. I don’t have to run faster than the bear to survive, just faster than you.

It could be a great year to “Sell in May and Go Away.” I’m already booking summer cruises on Cunard (https://www.cunard.com/en-us).

A lot of readers have been asking about my take on the sudden collapse of the Bashar al Assad regime in Syria in the context of my nearly 60 years of experience in the region. I have never been to Syria; just viewed it from a distance from the Golan Heights in Israel.

The one-liner here is that it is a huge win for the US and the West and a huge loss for Russia, Iran, and the main terrorist groups.

It ejects Russia from the Middle East for the time being after making massive 50-year investments there in military support. Syria will default on all of its billions of dollars in debts to Russia. Russia built the enormous Aswan Dam on the Nile, then saw defaults here, too, when Egypt sided with the West after the Camp David Accords.

Russia built the world's third largest military in Iraq, with 5,000 tanks, which the US then completely destroyed in the first Gulf War, where I participated. Their failure in Afghanistan caused the collapse of the Soviet Union. Russia has lost its only Mediterranean port at Aleppo, and its ships there have already been withdrawn. At this point, there must be a lot of unemployed Middle East experts in Moscow.

Iran has been fighting a proxy war against Israel and the US through Hamas, Hezbollah, and Syria for 45 years, which it has just ignominiously lost. It used to supply Gaza with weapons by trucking them through Syria and loading them on ships. It now has to go all the way around Africa, and there is no one there to take them anyway.

The cost of this victory to the US has been zero: no money, no troops, no heavy equipment. Sometimes, doing nothing is the right thing. The cost to Russia and Iran has been exponential.

Of course, in the Middle East, be careful what you wish for because you might end up getting something far worse. Assad may have just been replaced with another anti-western terrorist group. That is why President Biden has directed the complete destruction of all arms stockpiles in Syria, with the assistance of Israel and Turkey. We have their exact latitude and longitude in seconds. Better there to be no weapons and have an incoming regime that is toothless in Syria than having them fall into the hands of the next terrorist group. There are no defenders in Syria at the moment.

Finally, I was amazed to see Assad’s extensive classic and race car collection, the ultimate symbol of modern dictators. Can I make a bid on the 1956 Cadillac? To where and who do I send my offer?

In December, we have gained +2.53%. My 2024 year-to-date performance is at an amazing +74.53%. The S&P 500 (SPY) is up +26.62% so far in 2024. My trailing one-year return reached a nosebleed +75.21%. That brings my 16-year total return to +751.16%. My average annualized return has recovered to an incredible +53.65%.

My bet that the market wouldn’t drop below pre-election levels proved wildly successful. As a result, all of my long positions will expire at max profit. They are anywhere from 7% to 70% in the money. That includes (JPM), (NVDA), (BAC), (C), (CCJ), (MS), (BLK) and a triple long in (TSLA). My largest position was a triple weighting in Tesla, which went up the most. This is the first time I have been able to pull this off in the 16-year history of the Mad Hedge Fund Trader.

Some 63 of my 70 round trips, or 90%, were profitable in 2023. Some 74 of 94 trades have been profitable so far in 2024, and several of those losses were really break evens. That is a success rate of +78.72%.

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 down. 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, December 16, at 8:30 AM EST, the S&P Global Flash PMI is out.

On Tuesday, December 17 at 8:30 AM, the Retail Sales are published.

On Wednesday, December 18, at 8:30 AM, the Building Permits are printed.

On Thursday, December 19 at 8:30 AM, the US GDP Growth Rate is announced.

On Friday, December 20, Core PCE is printed. It is effectively the last trading day of the year as the BSDs take off on vacation, and the “B” team sticks around to handle the low-volume holiday trading. At 2:00 PM, the Baker Hughes Rig Count is printed.

As for me, in the seventies, Air America was not too choosy about who flew their airplanes at the end of the Vietnam War. If you were willing to get behind the stick and didn’t ask too many questions, you were hired.

They didn’t bother with niceties like pilot licenses, medicals, passports, or even real names. On some of their missions, the survival rate was less than 50%, and there was no retirement plan. The only way to ignore the ratatatat of bullets stitching your aluminum airframe was to turn the volume up on your headphones.

Felix (no last name) taught me to fly straight and level so he could find out where we were on the map. We went out and got drunk on cheap Mekong Whiskey after every mission just to settle our nerves. I still remember the hangovers.

When I moved to London to set up Morgan Stanley’s international trading desk in the eighties, the English had other ideas about who was allowed to fly airplanes. Julie Fisher at the London School of Flying got me my basic British pilot’s license.

If my radio went out, I learned to land by flare gun and navigate by sextant. She also taught me to land at night on a grass field guided by a single red-lensed flashlight. For fun, we used to fly across the channel and land at Le Touquet, taxiing over the rails for the old V-1 launching pads.

A retired Battle of Britain Spitfire pilot named Captain John Schooling taught me advanced flying techniques and aerobatics in an old 1949 RAF Chipmunk. I learned barrel rolls, loops, chandelles, whip stalls, wingovers, and Immelmann turns, everything a WWII fighter pilot needed to know.

John was a famed RAF fighter ace. Once, he got shot down by a Messerschmitt 109, parachuted to safety, took a taxi back to his field, jumped into his friend’s Spit, and shot down another German. Every lesson ended with a pint of beer at the pub at the end of the runway. John paid me the ultimate compliment, calling me “a natural stick and rudder man,” no pun intended.

John believed in tirelessly practicing engine off-landings. His favorite trick was to reach down and shut off the fuel, telling me that a Messerschmitt had just shot out my engine and to land the plane. When we got within 200 feet of a good landing, he turned the fuel back on, and the engine coughed back to life. We practiced this more than 200 times.

When I moved back to the US in the early nineties, it was time to go full instrument in order to get my commercial and military certifications. Emmy Michaelson nursed me through that ordeal. After 50 hours of flying blindfolded in a cockpit, you get very close with someone.

Then came flight test day. Emmy gave me the grim news that I had been assigned to “One Engine Larry,” the most notorious FAA examiner in Northern California. Like many military flight instructors, Larry believed that no one should be allowed to fly unless they were perfect.

We headed out to the Marin County coast in an old twin-engine Beechcraft Duchess, me under my hood. Suddenly, Larry shut the fuel off, told me my engines failed, and that I had to land the plane. I found a cow pasture aligned with the wind and made a perfect approach.

Then he asked, “How did you do that?” I told him. He said, “Do it again,” and I did. Then he ordered me back to base. He signed me off on my multi-engine and instrument ratings as soon as we landed without bothering with the rest of the test. Emmy was thrilled.

I now have to keep my many licenses valid by completing three takeoffs and landings every three months. I usually take my kids and make a day of it, letting them take turns flying the plane straight and level.

On my fourth landing, I warn my girls that I’m shutting the engine off at 2,000 feet. They cry, “No, Dad, don’t.” I do it anyway, coasting in bang on the numbers every time.

A lifetime of flight instruction teaches you not only how to fly but how to live as well. It makes you who you are. Thus, my insistence on absolute accuracy, precision, risk management, and probability analysis. I live my life by endless checklists, both short and long-term. I am the ultimate planner, and I have a never-ending obsession with the weather one week out.

It passes down to your kids as well.

Julie became one of the first female British Airways pilots, got married, and had kids. John passed on to his greater reward many years ago. There are no surviving Battle of Britain pilots left. The last one passed away this year. Emmy was an early female hire as a United pilot. She married another United pilot and was eventually promoted to full captain. I know because I ran into them in an elevator at San Francisco airport ten years ago, four captain’s bars adorning her uniform.

Flying is in my blood now, and I’ll keep flying for life. I can now fly anything anywhere and am the backup pilot on several WWII aircraft for air shows, including the B-17, B-24, and B-25 bombers, the P-51 Mustang fighter, and, of course, Supermarine Spitfires.

Captain John Schooling would be proud.

Good Luck and Good Trading,

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

Captain John Schooling and His RAF 1949 Chipmunk

 

A Mitchell B-25 Bomber

 

A 1932 De Havilland Tiger Moth

 

Flying a P-51 Mustang

 

The Next Generation

 

A Supermarine Spitfire Mark IX

 

 

 

 

 

 

 

 

april@madhedgefundtrader.com

December 9, 2024

, ,

Global Market Comments
December 9, 2024
Fiat Lux

 

Featured Trade:

(MARKET OUTLOOK FOR THE WEEK AHEAD or WHY THE MAG SEVEN ARE FADING) plus (HOW TO GET A TESLA FOR FREE),
(NVDA), (GLD), (JPM), (BAC), (C),
(CCJ), (MS), (BLK) (TSLA), (TLT)

april@madhedgefundtrader.com

The Market Outlook for the Week Ahead, or Why the Mag Seven are Fading

,

First of all, I have to apologize for skipping the last Monday Global Strategy Letter, the highlight of my writing week.

I usually write this letter on weekends, but the last one followed Thanksgiving. I thought that 30 years in the future when I am on my deathbed, I’m definitely NOT going to be regretting that I didn’t write one more letter. Instead, I will be asking myself, “Why didn’t I take an extra day off?”

There’s your answer.

Which leads us to the pressing question of the day. Why has the performance of the Magnificent Seven shares been fading since June? Largely, they have been drifting sideways, and Nvidia (NVDA) is down. Only Tesla has rocketed, thanks to an election push.

This is a big deal because all of you own the Mag Seven stocks as the bulk of your portfolios, with (NVDA) as the single largest position, thanks to spectacular performance (up 10X). This sector has buttered our bread very nicely, thank you very much, allowing Mad Hedge Fund Trader to outperform all others by a huge margin.

The reason is very simple. Their earnings growth rate relative to the rest of the market has been steadily declining. They delivered a 66% performance premium relative to the S&P 500 last year and 22% this year, compared to 3% for the rest of the market and 8% for the market as a whole. That drops to only 11% in 2025.

So, the Mag Seven will continue to perform but at a fraction of the pace of the last two years.

The slowdown is happening largely because these companies have gotten so big. You have three giants with $3 trillion-plus market capitalizations battling it out for the position as the world’s largest company (AAPL), (NVDA), and (MSFT). They are followed by Meta (META) is at $1.5 trillion, (GOOGL) is at $2 trillion, and (AMZN) at $2.2 trillion. Combined, they represent 35% of the total stock market.

That is a lot.

I’ll give you another interesting factoid.

There has not been a single 10% correction in the stock market this year. That has not happened since 1928. What happens when you skip corrections? They bunch up in the following year. We all know what happened in 1929. There has been a massive pull forward of performance from 2025 into 2024.

The bottom line is that we are going to have to work harder for our crust of bread in 2025 and get less of it in return. That is….unless you are a subscriber to the Mad Hedge Fund Trader.

Fortunately, we will still have plenty of new fish to fry. I jumped in with a 100% fully invested portfolio on day one of the new deregulation trend, up 19% in November alone. This has several more months to run.

After That? Ask me in March.

I learned a fascinating statistic the other day. The Labor Force Participation Rate for 75-year-olds and older has doubled to 9% of the total workforce since 1987. My barber is 85, and my seamstress is 84, and there are many more like them.

I happen to be one of these “Never Retirers”. They are going to have to pry my cold, dead fingers off my keyboard. Why quit taking tests when you already know all the answers? Never quitting also has health benefits in that it can substantially extend the quality and quantity of your life. I’ve had many billionaire hedge fund manager friends retire because they earned more money than they could ever possibly spend. All they do now is play golf or waste my time calling me looking for free stock tips.

I have another disincentive to retire. Some 15 people spread all over the US and around the world would lose their jobs. At some time or another, all five of my kids, aged 19-39, have worked for Mad Hedge Fund Trader. Others who own their own companies face the same predicament.

Unfortunately, the US tax system isn’t exactly set up for people like me. When I turn 73 in January, I will be forced to withdraw and pay the maximum income tax rate of 4% of my entire retirement funds, even though I don’t need them. Such is the price of a tax system that was designed in 1937, back when half of all men died before age 65.

However, there are those rare times when I am ready to throw in the towel and cash in my chips. That happens when a customer asks for a refund despite making a +75.25% profit this year. A particularly thick follower when it comes to understanding options trading strategies occasionally pushes me over the edge.

That’s when I look to my role model and mentor, Warren Buffet. He’s still working, and he’s 95.

If you’re worried about a market crash next year, one has already started. Rare Whiskey is down 40% by price and 34% by volume this year. Bottles such as the 50-year-old Macallan Lalique had been selling for as much as 50,000 pounds, while bottles of Bowmore’s First Edition have been going for 15,000 pounds. First, it was hedge fund managers trying to outbid each other. Then, wealthy Chinese piled in.

Overall, Scottish whiskey exports are off 18% this year, thanks to Brexit choking off European markets. Low interest rates had prompted investors to seek out unusual asset classes. But the bubble has popped. American whiskey prices have held up better thanks to the strong economy. But the current high interest rates have scotched that appetite as fixed income offers a more generous and stable return.

Who knows what they will collect next?

 

 

Finally, I would be remiss if I did not mention that Saturday was Pearl Harbor Day, December 7. Although the tragic 1941 attack happened before I was born, I know many people who were there on both sides and have accumulated dozens of stories. However, I do have a personal connection with this historic event.

I did my flight training at the Ford Island Naval Air Station. In the 1970’s, they used to say, “No heavy landings, please, because we still haven’t found all the Japanese bombs.”

While in the circuit, you could see the wreckage of the superstructure of the USS Arizona, the battleship that took a direct hit and took town 1,177 sailors. The location has always been kept secret by the Navy because they didn’t want fortune hunters selling souvenirs to the public.

But I know right where it is. Today, only 16 Pearl Harbor veterans survive.

In December, we have gained +1.10%. November proved to be our best month of the year, up +18.96%. My 2024 year-to-date performance is at an amazing +73.10%. The S&P 500 (SPY) is up +24.73% so far in 2024. My trailing one-year return reached a nosebleed +77.04%. That brings my 16-year total return to +749.73%. My average annualized return has recovered to an incredible +53.87%.

I maintained a 100% long-invested portfolio, betting that the market doesn’t drop below pre-election levels. That includes (JPM), (NVDA), (BAC), (C), (CCJ), (MS), (BLK) and a triple long in (TSLA). We are now so far in the money with all of our positions we can safely run them until the December 20 option expiration in 9 trading days, thanks to a Santa Claus rally, time decay, and falling volatility.

Some 63 of my 70 round trips, or 90%, were profitable in 2023. Some 74 of 94 trades have been profitable so far in 2024, and several of those losses were really break-even. That is a success rate of +78.72%.

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, December 9 at 8:30 AM EST, the Consumer Inflation Expectations is out.

On Tuesday, December 10 at 8:30 AM, the NFIB Business Optimism Index is published.

On Wednesday, December 11 at 8:30 AM, the Consumer Price Index is printed.

On Thursday, December 12 at 8:30 AM, the Producer Price Index is announced.

On Friday, December 13 at 8:30 AM, US Import and Export Prices are published. At 2:00 PM, the Baker Hughes Rig Count is printed.

As for me, I have proven yet again that if you buy Tesla shares, you get the car for free. That is the result of the triple-long-in-the-stock I egged followers into right after the election.

So when is the best time to buy a Tesla? That would be right now.

To meet yearend goals, Elon Musk always offers the best deals of the year every December. See below the offers I received yesterday of rock bottom prices, 0% financing, and free recharging. You can get the brand new Cybertruck for $99,990 and the slick Model S for a bargain $68,350.

The Tesla Model S1 (TSLA) has been rated by Consumer Reports magazine as the best car ever built, grabbing a covered 99 score out of 100. It has been ranked by the US Government Department of Transportation as the safest car ever built. Even competitors love the car.

So I decided to see if these vaunted claims were true and crash-test my own $162,500 high-performance Model X P100 on public streets.

Actually, it wasn’t I who made the decision. It was the harried housewife with four screaming kids in the back seat speaking on a cell phone while driving who made that call. She drove her GMC Silverado quad cab pickup truck straight into the side of my Tesla.

All I heard was a loud horn and a big slam as my car spun around 360 degrees. It was like going through aerobatic pilot school all over again.

I jumped out and asked if everyone was alright. They were. All I found were four deadly silent boys and a woman crying over the phone to her husband about how his brand-new truck had just gotten a small dent on the front bumper. I inspected the damage, took pictures (see below), and calculated that her repairs would run about $1,500.

Bottom line on the safety issue? I didn’t even know that I had been in an accident. The vehicle is essentially a giant crumple zone. But it comes at a high price.

All four ultra-thin racing tires tore off the wheels during the spin (expensive).  That meant the custom-painted 21-inch wheels had to scrape along the pavement, destroying them (more expensive). After teaching the AAA tow truck guy how to drive it, he hauled it away.

It was then that I learned about the arcane world of fixing Teslas. Since the car is made out of aluminum, no neighborhood body shop can work on it, as it melts at a much lower temperature than steel. Standard welders are not allowed. There are, in fact, only three specialized niche repair shops in the entire San Francisco Bay Area that can work with this ultra-lightweight metal.

Brooks Auto Body of Oakland is one of them. When I stopped by to talk about the job, the owner, a 6-foot 6-inch Korean guy, was in too much of a good mood. I would find out why later. Behind him were 16 other Teslas in varying states of assembly.

News flash: These things are not cars. They are more like giant computers, with an 18-inch screen and a 1,100-pound battery. None of the components looked anything like car parts. Only the wheels belied any connection with transportation.

It took two months to finish the repairs. Since Tesla would only sign off on the car when it was perfect, it was sent back to the factory in Fremont three times for additional realignment and recalibration. The final bill came to $32,000. The good news is that my lithium-ion battery was fine, which would have cost an extra $30,000 to replace.

The really humiliating thing about the entire experience was that I had to drive a KIA Optima loaner until the Tesla was back in action. So, for eight weeks, my life was dull, mean, and brutish. Driving on the freeway, every nut and bolt made its presence felt. And I had to buy gas at those ugly places that sell cigarettes, chewing tobacco, and condoms! Yuck! Once you’ve had electric, you never go back.

All of which brings me to Tesla’s share price, which has just nearly tripled from $140 to $390 as hot money poured into the big momentum names. Let me tell you that the revolutionary vehicle is still wildly misunderstood, and the company has done a lousy job making its case.

The electric power source is, in fact, the least important aspect of the car. Here are 15 reasons that are more important:

1) The vehicle has 75% fewer parts than any other, massively reducing production costs. The drive train has 11 parts, compared to over 1,500 for conventional gasoline-powered transportation. Tour the factory, and it is eerily silent. There are almost no people, just a handful who service the German robots that put these things together.

2) No maintenance is required, as any engineer will tell you about electric motors. You just rotate the tires every 6,000 miles.

3) This means that no dealer network is required. There is nothing to fix.

4) If you do need to repair something, usually, it can be done over the phone. Rebooting the computer addresses most issues. If not, they will send a van to do an onsite repair for free.

5) The car runs at room temperature, not the 500 degrees, in standard internal combustion cars. This means that the parts last forever.

6) The car is connected to the Internet 24/7. Once a month, it upgrades its own software when you are sleeping. You jump in the car the next morning, and a message appears on your screen saying, “We just upgraded the following 20 Apps.” This is the first car I ever owned that improved itself with age, as I do myself.

7) This is how most of the recalls have been done as well, over the Internet while you are sleeping.

8) If you need to recharge at a public station, Tesla has the world’s largest charging network. Tesla has its own national network of superchargers that will top you up in 20 minutes and allow you to drive across the country. (I can’t wait to try out the one in Winnemucca, Nevada, on my next trip to Chicago). But hotels and businesses have figured out that electric car drivers are the kind of big-spending customers they want to attract. So, public stations have been multiplying like rabbits. When I first started driving my Nissan Leaf in 2010, there were only 25 charging stations in the Bay Area. There are now over 1,000. They even have them at Costco.

9) No engine means a lot more space for other things, like storage. You get two trunks, a generous one behind and a “frunk” in front.

10) Drive an electric car, and you can drive in the HOV commuter lanes as a single driver. This also won’t last forever, but it’s a nice perk now.

11) There is a large and growing market for all American-made products. Tesla has a far higher percentage of US parts (100%) than any of the big three (GM is only at 70%).

12) Since almost every part is made on the side at the Fremont factory, supply line disruptions are eliminated. Most American cars are over-dependent on Asian supply lines for parts and frequently fall victim to disruptions.

13) There are almost no controls, providing for more cost savings. Except for the drive train, windows, and turn signals, all vehicle controls are on the touch screen, like a giant iPhone 5s.

14) A number of readers have argued that Tesla really runs on coal, as this is still the source of 16.2% of the US power supply. However, if you program the car between midnight and 7:00 AM (one of my ideas that Tesla adopted in a recent upgrade), you are using electricity generated by the utilities to maintain grid integrity at night that otherwise goes unused and wasted. How much power is wasted like this in the US every night? Enough to recharge 150 million cars per night.

15) Oh yes, the car is good for the environment, a big political issue for at least half the country.

No machine made by humans is perfect. So, in the interest of full disclosure, here are a few things Tesla did not tell you before you bought the car.

1) There is no spare tire or jack, just an instant repair kit in a can.
2) The car weighs a staggering 3 tons, so conventional jacks don’t work. Lithium is heavy stuff.

3) The car is only 8 inches off the ground, so only a scissor jack works.

4) The 21-inch tires on the high-performance model are a special order. Get a blowout in the middle of nowhere, and you could get stranded for days. So if you plan to drive to remote places, Like Lake Tahoe, as I do, better carry a 19-inch spare in the “frunk” to get you back home.

5) If you let some dummy out in the boonies jack the car up the wrong way, he might puncture the battery and set it on fire. It will be a decade before many mechanics learn how to work with this advanced technology. The solution here is to put a hockey puck between the car and the jack. And good luck explaining what this is to a Californian.

6) With my Leaf, I always carried a 100-foot extension cord in the trunk. If power got low, I just stopped for lunch at the nearest sushi shop and plugged in for a charge. Not so with Tesla. You are limited to using their own 20-foot charging cable, or it won’t work. I haven’t found anyone from the company who can tell me why this is the case.

And guess what? Detroit is so far behind in developing this technology that they will never catch up. My guess is that they eventually buy batteries and drive trains from Tesla on a licensed basis, as Toyota (for the RAV4) and Daimler Benz (for the A-Class) already are. All of Detroit’s existing hybrid technologies are older versions similarly purchased from the Japanese (I bet you didn’t know that).

You might also go out and buy a Model S1 for yourself as well. It’s like driving a street-legal Formula 1 racecar and is a total blast. Just watch out for drivers of Silverado’s speaking on cell phones.

Good Luck and Good Trading,
]

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

 

Not Much of a Wait at the Vacaville Supercharger

 

$1,500 Worth of Damage

 

$32,000 Worth of Damage

 

But the Motor Was Fine

 

 

 

 

 

 

 

 

 

 

april@madhedgefundtrader.com

November 25, 2024

, ,

Global Market Comments
November 25, 2024
Fiat Lux

 

Featured Trade:

(MARKET OUTLOOK FOR THE WEEK AHEAD or WHAT TO DO ABOUT NVIDIA), plus THE WORLD’S WORST INVESTOR),
(NVDA), (GLD), (JPM), (JPM), (NVDA), (BAC), (C),
(CCJ), (MS), (BLK) (TSLA), (TLT)

april@madhedgefundtrader.com

The Market Outlook for the Week Ahead, or What to do about Nvidia

,

Boy, did I make the right move going into the election?

I always have a propensity to reduce risk going into a major event. Let the newbies stick their necks out. I’ll collect the low-hanging fruit afterward while trampling over their bodies. As they used to say at Morgan Stanley, “It’s the pioneers who get the arrows in their backs.”

So I went into the November 5 election with 70% cash and long JP Morgan (JPM), Nvidia (NVDA), and gold (GLD). On November 6, I quickly stopped out of gold at cost and let the other two run, which launched on major rallies driven by a new deregulation trend. I then converted the remaining cash into a deregulation portfolio.

The bottom line? Since the election, I have been able to run up a monster 18.05% profit in only 14 trading days. That works out to 1.29% a day, the most earned in the nearly 17-year history of the Mad Hedge Fund Trader.

Notice that no specific deregulation measures have been proposed. No action has been taken. What we are seeing in unrestrained buying is driven by beliefs, animal spirits, and unbounded optimism, which markets all love. Call it euphoria. The problem with euphoria is that it fades as easily as it starts. After the 2016 election, the euphoria lasted for four months, then the market died for three months.

We’ve heard a lot about deficit reduction in the coming years, and let me tell you that the bond market isn’t buying it for a second. Since September, Fed Funds futures markets have plunged from 350 basis points in interest rate cuts by June to only 150 basis points, and half of that has already been done. Even the December 25 basis point rate cut has shrunk to only a 50% probability.

And this is what the bond market has been sniffing out. Tax cuts, spending increases, mass deportation of minimum wage workers, and a trade war are all highly inflationary. The voters may buy it, but not bond investors, and the bond market is always right. All it sees is the National Debt rocketing from $35 trillion to $45 trillion in four years.

“Bond market vigilantes” is soon a term you will hear every day.

It's just a matter of time before we get a shocking, out-of-the-blue move-up in a monthly inflation report. That is when the stock market will crash, and bonds get taken out to the woodshed. Next to happen will be a US Treasury auction that fails, spiking interest rates across the board, which recently caused the British government to fall. Then, hello, recession. We will spend the next many months trading against that day. The new administration’s most important appointment will be the guy in charge of borrowing.

And let me tell you about the National Debt, which I learned all about in my years in the White House Press Corp. The Social Security budget now runs at $1.4 trillion a year in payments, while defense is at $825 billion, for a total spend of $2.225 trillion a year. On top of that, you have to add $1 trillion a year in existing interest payments on the outstanding debt.

Even if spending on these two items goes to ZERO, it would take 16 years to pay off the current National Debt. If the debt rises to $45 trillion in four years plus interest, it would take 22.5 years to pay off. And this is with the number of new retirees exploding thanks to the Baby Boomer generation and defense demands in all parts of the world rising by the day.

Cutting the deficit boils down to cutting Social Security, cutting defense, or cutting the tax subsidies for your largest donors (billionaires, the oil industry), which is why it is never going to happen. Any other spending is too small to move the needle.

One of my favorite tests for someone’s knowledge of the federal budget is to ask them how much the US gives away in foreign aid to poor countries every year, a number that gets wildly exaggerated by political parties. The guesses come in at anywhere from 1% to 10% of the total budget. The correct figure? $63.1 billion, or 0.94% of the total $6.7 trillion in US budget expenditures, or less than one-tenth of one percent. You have been warned. I’m going to give you a test the next time I run into you.

The current deficit is, in fact, a product of five successive tax CUTS (Kennedy, Reagan, Bush II, Trump 1, and soon to be Trump II), which now has far and away the lowest income tax rates in the industrialized world. Remember, before Kennedy, the Great Depression maximum marginal tax rate of 90% prevailed.

But you have to get around to know this. I know because I moved an entire hedge fund from London to San Francisco in 1994 to take advantage of lower tax rates and the emerging Internet boom. I saved millions.

Which leads us to the most important question of the day: what to do about Nvidia (NVDA), almost certainly the largest holding of everyone who reads this letter. The company delivered spectacular earnings as promised, but the shares sold off $12. In fact, (NVDA) has only risen by $13 since June, with a drawdown of 37%. Rising volatility with incremental gains is a sign that a stock is topping out. At a $3.6 trillion market capitalization, the spectacular share price gains of the past are no longer attainable. The Law of Large Numbers is kicking in.

I still believe that (NVDA) will rise next year, but not by 200%. Some 20% is more likely. Fortunately, there is something you can do about it. With an options implied volatility of 40%, you can sell short the December 20, 2024, $156 call options against your existing position for $2.20. If Nvidia rises above $156 and your stock gets called away, your net proceeds will be $158.20, and you will think you died and went to Heaven.

If it doesn’t rise above $156, sell the January call options, and you take in another $2.20. After several months, this starts to add up to a lot of money. Eventually, the implied volatility will fade, and this trade won’t be there anymore.

But it works now.

That’s what I would do.

In November, we have gained a breathtaking +17.38%, November is proving to be our largest month of the year. My 2024 year-to-date performance is at an amazing +70.42%. The S&P 500 (SPY) is up +24.73% so far in 2024. My trailing one-year return reached a nosebleed +71.07%, up an incredible $10 on the week. That brings my 16-year total return to +747.05%. My average annualized return has recovered to an incredible +53.68%.

I maintained a 100% long-invested portfolio, betting that the market doesn’t drop below pre-election levels. That includes (JPM), (NVDA), (BAC), (C), (CCJ), (MS), (BLK) and a triple long in (TSLA). My November position in (JPM) expired at max profit. We are now so far in the money with all of our positions we should make 27 basis points a day until the December 20 option expiration in 18 trading days, thanks to time decay and falling volatility.

Some 63 of my 70 round trips, or 90%, were profitable in 2023. Some 74 of 94 trades have been profitable so far in 2024, and several of those losses were really break-even. That is a success rate of +78.72%.

Try beating that anywhere.

My Ten-Year View – A Reassessment

We have to substantially downsize our expectations of equity returns in view of the election outcome. My new American Golden Age, or the next Roaring Twenties, is now looking at 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 25 at 8:30 AM EST, the Dallas Fed Manufacturing Index is out.

On Tuesday, November 26 at 8:30 AM, the S&P Case Shiller National Home Price Index is published. At 11:00 AM, the Minutes from the last Fed Meeting are announced.

On Wednesday, November 27, at 8:30 AM, the Core PCE Price Index is 11:00 AM EST. It is a half day for the stock market, which closes at 1:00 PM EST.

On Thursday, November 28, is a National holiday in the US for Thanksgiving.

On Friday, November 29, is Black Friday, and it is a half day for the stock market, which closes at 1:00 PM. At 2:00 PM, the Baker Hughes Rig Count is printed.

Today, I thought I’d recall The World’s Worst Investor, who so happened to be my grandfather on my father’s side.

He was an immigrant from Sicily who joined the army during WWI to attain US citizenship lost an eye when he was mustard gassed on the Western Front in France. I recently obtained his military records from the Department of Defense and learned he was court-martialed for refusing to wash pots and pans at the front while blind!

After the war, the sight came back in one of Grandpa’s eyes, so he
bought a three-bedroom brick home on 76th Street in the Bay Ridge section of Brooklyn street for $3,000, eventually raising four kids. Back then, there was a dairy farm across the street, and horse-drawn wagons delivered ice blocks door to door.

During the roaring twenties, an assortment of relatives chided him for avoiding the stock boom where easy fortunes were made trading on ten to one margin. When the 1929 crash came, all of them lost their homes. Grandpa finished off the basement, creating space for two entire families to move in. He had never bought a stock in his entire life.

Because Dad contracted malaria with the Marines on Guadalcanal during WWII, the old man moved the family to Los Angeles in 1947 for the dry, sunny weather. Unfortunately, my grandmother heard there were no lobsters on the west coast, so she packed two big Maine ones in a suitcase. By the time they got to Las Vegas, the smell was so bad they got kicked off the train. In the booming postwar economy, they had to wait a week to get new seats to LA.

That was enough time for a flimflam man to sell Grandpa five acres of worthless land for $500. Ten years later, my dad drove out to check out the investment. It was a tumbleweed-blown, jackrabbit and rattlesnake-ridden piece of land so far out of town that it had to be worthless. You couldn’t see downtown, even if you stood on the rusted-out model “T” Ford that occupied the site. After that, the parcel became the family joke, and Grandpa was ridiculed as the world’s worst investor. 

Grandpa died of cancer in 1977 at the age of 78. What German shrapnel and gas failed to accomplish, 60 years of smoking two packs a day of non-filter Lucky Strikes did. The army gave him cigarettes for free during the war, and he never shook the addiction. Even at the end, he insisted that there was no “proof” that cigarettes caused cancer, which soldiers referred to as “coffin nails.”

His estate executor put the long-despised plot out of Sin City up for sale, and a bidding war ensued. Although the final price was never disclosed, it was thought to be well into eight figures. In the intervening 30 years, the city of Las Vegas had marched steadily westward towards Los Angeles, sending its value through the roof. The deal triggered a big fight among the heirs, those claiming he was the stupidest demanding the greatest share of the proceeds, the bad blood generated continuing to this day. It turns out the world’s worst investor was actually the best, we just didn’t know it.

What was the address of this fabled piece of real estate? Why, it is 3325 Las Vegas Blvd. South, the site today of the Venetian and Palazzo Hotels, home to the Dal Toro restaurant, the venue for the last Mad Hedge Fund Trader’s Las Vegas strategy luncheon.

I’m sure Grandpa is laughing in his grave, in between smoles.

 

Bought for $500 in 1947

Postscript. One day in New York a few years ago, I had a few hours to spare waiting to board Cunard’s QEII to sail for Southampton, England.

So, I decided to check out the Bay Ridge address that I had heard so much about during my childhood. I took a limo over to Brooklyn and knocked on the front door. I was told the owner was expecting a plumber, so he let me straight in, not noticing my Brioni blue blazer nor the Cadillac stretch limo out front.

I told him about my family history with the property, but I could see from the expression on his face that he didn’t believe a single word.

Then, I told him about the relatives moving into the basement during the Great Depression. He immediately let me in and gave me a tour of the house. He told me that he had just purchased the home and had extensively refurbished it. When they tore out the walls in the basement, he discovered that the insulation was composed of crumpled-up newspapers from the 1930s, so he knew I was telling the truth.

I told him that Grandpa would be glad that the house was still in Italian hands. Could I enquire what he had paid for the house that sold in 1923 for $3,000? He said he bought it as a broken-down fixer-upper for a mere $775,000. And this was after the housing crash in 2011.

 

My Grandparents 1926

 

The Fabled Bay Ridge House Bought for $3,000

 

Good Luck and Good Trading,

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

 

 

 

 

 

 

 

 

 

april@madhedgefundtrader.com

November 18, 2024

, ,

Global Market Comments
November 18, 2024
Fiat Lux

 

Featured Trade:

(MARKET OUTLOOK FOR THE WEEK AHEAD or OUT WITH THE NEW, IN WITH THE OLD) Plus REPORT FROM THE QUEEN MARY II),
(TLT), (TSLA), (DHI), (LEN), (KBH), (LMT), (RTX), (GD), (GLD), (SLV), (GOLD), (WPM), (JPM), (NVDA), (BAC), (C), (CCJ), (MS), (SPY)

april@madhedgefundtrader.com

The Market Outlook for the Week Ahead, or Out with the New, In with the Old

,

“Take things as they are and profit off the folly of the world.”

That is one of my favorite quotes from Anselm Rothschild, founder of the Rothschild banking dynasty, which ruled the financing of Europe for centuries. I lived next door to his great X 10 grandson in London for ten years, the late Jacob Rothschild, and boy, did I learn a few nuggets from him.

It's really just another way of saying that you have to trade the market you have, not the one you want. By the way, Anselm’s other famous quote? In 1815, the year the British defeated Napoleon at the Battle of Waterloo, he said, "I care not what puppet is placed upon the throne of England to rule the Empire on which the sun never sets. The man who controls the British money supply controls the British Empire, and I control the British money supply."

And that shall be my strategy in the coming years. The good news? There is a ton of folly out there and, therefore, tons of great new trades.

Let’s start with the market themes. Out with the new, in with the old. Falling interest rates plays are out. Rates will stay higher for longer. Artificial Intelligence will take an extended vacation. Saving the environment is history. Take a look at the woeful underperformance of NASDAQ. That will allow earnings to catch up with share prices, which are already at nosebleed levels.

Money managers will sell these areas, which in many cases have seen enormous appreciation, to finance the purchase of the new themes. These include deregulation, the end of antitrust, the Bitcoin ecosystem, and Tesla (TSLA).

It helps a lot that the outgoing themes are incredibly expensive, with price-earnings multiple of 30X-100X, while the new ones are dirt cheap, with multiples of 15X down to single digits.

Buy cheap, sell expensive….I like it!

If you think I’m just an aging old hippy from Berkeley spouting his iconoclastic, out-of-touch-with-reality views, then check with Mr. Market, who agrees with me on every point and is never wrong.

Notice the collapse of the bond market (TLT) since September. Fed funds futures have already backed out 100 basis points of easing, from 250 basis points to only 150, and we have already seen the first 75. If inflation makes a rapid comeback (prices started rising on November 6), we are likely to only see a couple more 25 basis point cuts from the Fed in this cycle, and that’s it.

The 30-year fixed rate mortgage has rocketed from 6.0% to 7.13%, sticking a dagger through the heart of the real estate market and homebuilders (DHI) (LEN), KBH).

Defense? Who needs weapons when we are withdrawing from the international community? We will just have to depend on our existing 50-year-old defense systems. And while you’re at it, end “cost plus” contracts, which have inflated defense spending since 1940.

This is what fried the shares of Lockheed Martin (LMT), builder of the Blackhawk helicopter, Raytheon (RTX), maker of Javelin antitank missiles, and General Dynamics (GD), manufacturer of the Abrams tank after the past month. What happens to these stocks when the Ukraine War ends?

I have received a lot of questions about whether it is time to go into pharmaceutical and biotech stocks. The answer is no, a thousand times no. The appointment of anti-vaxxer Robert F. Kennedy as the head of Health and Human Services puts the kibosh on that trade, who is likely to declare war on that department. That explains the wipeout of shares in that sector.

Precious metals? Forget it (GLD), (SLV), (GOLD), and (WPM). Witness their own recent hell they have entered. There is no doubt that the election ended the gold trade, which has fallen by 8.3% since November 5. That’s because investors pulled $600 million out of gold-backed ETFs just in the week ending November 8, according to the World Gold Council. It just had its worst week in three years. “Interest rates higher for longer” absolutely does not fit anywhere in the precious metals trade.

Another contributing factor has been the strength of Bitcoin, which raced to a new all-time high of $93,000 on the back of the Trump win. The industry had been a major contributor to the Trump campaign. What better way to fund Bitcoin purchases than to sell your gold, which in any case is up 40% in a year? Money has been pouring into Tesla shares for the same reason.

At some point, gold will fall to a level where Chinese saving alone supports the price. There is no way of knowing where that is, so I’ll wait for the market to tell me. Central bank buying will continue unabated, which has totaled 694 metric tonnes ($5.3 billion) so far in 2024.

I believe that gold will still hit $3,000 an ounce over the long term. But for now, the shine is clearly off those American Eagles. The last time gold took a rest, from 2011 to 2019, it was for eight years.

The bottom line is that there are plenty of new fish to fry out there and plenty of fire with which to cook them. Does anyone have any matches?

In November, we have gained a breathtaking +8.19%, amazing adding to our gains while the market dropped 2.3%. My 2024 year-to-date performance is at an amazing +61.33%. The S&P 500 (SPY) is up +25.79% so far in 2024. My trailing one-year return reached a nosebleed +62.15%. That brings my 16-year total return to +737.86%. My average annualized return has recovered to +53.02%.

I maintained a 100% long-invested portfolio, betting that the market doesn’t drop below pre-election levels. That includes (JPM), (NVDA), (BAC), (C), (CCJ), (MS), and a triple long in (TSLA). My November position in (JPM) expired at max profit. We should make 46 basis points a day until the December 20 option expiration in 24 trading days, thanks to time decay and falling volatility.

Some 63 of my 70 round trips, or 90%, were profitable in 2023. Some 73 of 93 trades have been profitable so far in 2024, and several of those losses were really break-even. That is a success rate of +78.49%.

Try beating that anywhere.

My Ten-Year View – A Reassessment

We have to substantially downsize our expectations of equity returns in view of the election outcome. My new American Golden Age, or the next Roaring Twenties, is now looking at 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 18 at 8:30 AM EST, the NAHB Housing Market Index is out.

On Tuesday, November 19 at 8:30 AM, the US Building Permits take place. Nvidia (NVDA) announces earnings after the close.

On Wednesday, November 20 at 8:30 AM, the MBA Mortgages Rates are announced.

On Thursday, November 21 at 8:30 AM, Existing Home sales are printed. We also get Weekly Jobless Claims.

On Friday, November 22 at 8:30 AM, the S&P Global Flash PMI is announced. At 2:00 PM the Baker Hughes Rig Count is printed.

Location: 48 degrees, 02.12 minutes North, 043 degrees, 42.08 minutes West, or 1,421 nautical miles ENE of New York.

As for me, The Queen Mary 2 is currently plowing its way through a massive fog bank a thousand miles thick, sounding the foghorn every two minutes. Visibility is less than 100 yards, and the waves are a rough 12 feet high. The captain has closed the outside decks for fear of losing a passenger overboard. The weather has disrupted our satellite link, and our Internet is down. So here I write. Leave me alone with a laptop for an hour, and I can conquer the world.

One hour out of New York, and a passenger suffered a heart attack. So the captain turned the ship around and headed back to the harbor, where the New Jersey Search and Rescue sent out a launch to pick up the unfortunate man and his distraught spouse. Every passenger leaned over the port railing to watch.

That meant we could pass under the Verrazano Bridge three times, on each occasion deftly clearing the span by a mere ten feet. Talk about inauspicious beginnings. Visions of Leonardo di Caprio going down with the ship danced across my mind.

The ship is truly gigantic. You must allow 20 minutes to get anywhere, 5 minutes to walk there, and 15 minutes to get lost. When launched two decades ago, it was the largest cruise ship ever built at 148,900 tons, nearly double the size of the now decommissioned Queen Elizabeth II. It whisks up to 3,000 passengers and 1,325 crew across the seas in the utmost luxury at a steady 21.5 knots. You could water ski behind this leviathan of a vessel if only the crew permitted it.

As a 50-year guest of Cunard and the highest paying customer on the ship, I managed to bag the Sandringham Suite, possibly the most luxurious publicly available oceangoing accommodation ever created. The 2,200 square foot, two-floor, two-bedroom, three-bathroom, Q1 class apartment on decks nine and ten included a formal dining room, kitchen, his and her closets, a small gym, and 1,000 square feet of rear-facing teak deck.

All of this was a bargain for $56,000, or about the same as renting the presidential suite at the San Francisco Ritz for a week at $10,000 a night, except at the end, you wake up in England five pounds heavier. Not that I noticed, though. By the afternoon, the two complimentary bottles of Dom Perignon Champagne were already headed for the recycling bin.

The suite came staffed with two full-time butlers, Peter and Henry, who were an endless font of fascinating information about the ship. During one unfortunate cruise, eight senior citizens passed away. The onboard morgue held only six, so the extra two were stashed in the meat locker for the duration of the voyage. There was no reported change in the flavor of the Beef Wellington.

I asked if Cunard had ever performed burials at sea in these circumstances. They said they used to. But a few years back, an elderly billionaire, “Mr. Smith,” checked into a deluxe Q1 cabin with a hot young “Mrs. Smith” and then promptly expired. The grieving widow requested he be buried mid-Atlantic with the traditional yard of sail and a cannonball. When the ship docked at Southampton, a much older, real “Mrs. Smith” appeared to claim the body and sued the company when informed of his current disposition. So, no more burials at sea.

Yes, the ship did hit a whale once, which stuck to the bulbous bow. When it landed in Portugal, Cunard was fined for commercial fishing without a license. The unlucky cetacean’s skeleton is now in a Lisbon maritime museum. Apparently, this company gets sued a lot.

Of course, the memory of the sinking of the Titanic is ever present. There is a history display down on deck 2, and you can even have your photo taken in front of a backdrop of the grand staircase of the ill-fated ship. When we passed 10,000 feet over the wreck at 48 degrees, 38.50 minutes North, 50 degrees, 00.11 minutes West one day out of New York, the Queen Mary 2 let out three long blasts of its horn in memory of the lost. Cunard took over the Titanic’s White Star Line during the Great Depression and is, therefore, the inheritor of this legacy.

When I visited the computer center, I was stunned to learn that they were offering three-hour long classes on Apple products and programs every hour, all day long. They covered iMacs, iPads, iPhones, and all of the associated software and gizmos. I promptly signed up for five classes. Watch for my next webinar. It will be a real humdinger, with all the bells and whistles.

You would think that with 280 pounds of luggage, I could remember to bring a pair of black socks. It was not to be. So I headed out to the ballroom with my black tux and navy blue socks to tango, rhumba, and foxtrot with the best of them. The problem is that just as you twirl, the ship rolls, swiping the dance floor right out from under you. With several Octogenarian couples within range and my size, the consequences could have been fatal. Still, those oldsters really knew their steps. I really hope those pictures come out, especially the one of me on the dance floor, flat on my back.

Looking at the vast expanse of the sea outside my cabin window, I am reminded of the opening scenes of the 1950’s WWII documentary Victory at Sea. An endless, dark, tempestuous ocean churns and boils relentlessly. I am now even more awed by my early ancestors, who took three months to cross from Falmouth to Boston in a 50-foot-long wooden ship called the Pied Cow in 1630. They did this without navigation to speak of rotten food and a dreaded fear of sea monsters. What courage or religious ferocity must have driven them?

Four days of hearing foghorns is starting to get tiring. Captain Wells has been ducking many of his social responsibilities, feeling more secure in the bridge close to the radar. After a few days of intermittent access, the Internet is now gone for good, the satellite connection having given up the ghost. People are blaming everything from a lightning strike on the Virginia ground station to late-night watching of porn by the crew.

Instead of surfing the net, I am devoting more time to exercise in anticipation of my upcoming Swiss mountain climbing adventures. I have developed a careful routine where I fast walk three times around deck 7 in a brisk wind, take the elevator down to deck 1, walk up the stairs to deck 13, speed past the kennels, the practice golf range, two swimming pools, and a bar.

I can accomplish all of this three times in an hour and do it with 40 pounds of books stashed in my backpack. My butler, Peter, tells me there is always a certifiable nut case on every cruise, and I have been designated by the crew as “THE ONE”.

The 2,600 passengers are quite a mixed batch. We have 1,200 British, 750 Americans, 350 Germans, 80 Canadians, 4 dogs, three cats, and an assortment of other nationalities, and exactly one Japanese couple who didn’t speak a word of English.

I took pity on them and spent an evening translating and catching up on the world at large with them. He was a retired dance instructor, which explains why he and his wife owned the dance floor on most nights. They were grateful for the conversation, for during their entire 30-day cruise from New York to Southampton, then the Baltic Sea and the Norwegian fiords, then back to New York, they had no one to speak to. Still, that was better than last year, when they completed a 105-day round-the-world cruise with no one to talk to. Before they left, they gave me an exquisite, handmade, traditional Japanese purse as a gift.

 

Queen Mary II Passing Under the Verrazano Bridge

 

Your Intrepid Reporter

 

Breakfast on the High Seas

 

Check Out My New Digs

 

The Hard Life at Sea

 

 

 

Good Luck and Good Trading,

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

 

 

 

 

 

 

 

 

april@madhedgefundtrader.com

November 11, 2024

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Global Market Comments
November 11, 2024
Fiat Lux

 

Featured Trade:

(MARKET OUTLOOK FOR THE WEEK AHEAD or S&P 500 6,000 TARGET ACHIEVED, plus REPORT FROM THE FROZEN WASTELANDS OF THE WEST),
(CCI), (DHI), GLD), (SLV) (JPM), (MS), (BLK),
(CCJ), (NVDA), (AMZN), (TSLA), (DGE)

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