(MSFT) Archives - Page 11 of 76 - Mad Hedge Fund Trader

The Market Outlook for the Week Ahead, or Goldilocks is Back!

After too long of an absence, Goldilocks has moved back in once again. She arrived with Santa Claus too, a month ahead of schedule.

Can life get any better than that, Goldilocks and Santa Claus?

Santa confused Thanksgiving with Christmas this year. I saw it coming a mile off, and it’s not because my failing eyesight has suddenly improved.

Since October 26, Mad Hedge followers have earned an impressive 25%. We are on track to top an 86.5% profit for 2023, the best in the 15-year history of the service.

Concierge members who own our substantial LEAPS portfolio, now at 33 names, are up much more.

I hate to boast but let me take my victory lap. I earned it.

Stocks and bonds should continue rising but at a much slower rate. More likely is the diversification of the rally from Big Tech and big bonds (TLT) to medium tech, commodities (FCX), industrials (CAT), junk bonds (JNK), (HYG), and REITS (NLY).

Buy everything on dips.

And here are your assumptions. Collapsing energy prices will lead the inflation rate down to the Fed’s well-publicized 2% inflation rate target in the coming months. Accelerating technology and AI will reign in this year’s runaway wage increases, if not reverse them.

The UAW’s 25% salary increase over four years will only hasten the demise of General Motors (GM), as well as their own. Interest rates have to take a swan dive, supercharging all risk assets.

Goldilocks is not moving in for a fling, but a long-term relationship. Your retirement funds will love it.

Last spring, with 75 feet of snow over the winter, the rivers pouring out of the High Sierras were at record levels. That brought the solo hobbyist gold miners out in force.

It is widely believed that the 1849 gold rush extracted only 10% of the gold in the mountains and the remaining 90% is still up there. Heavy rainfalls like we received last winter flushed out some of the rest.

Rounding a turn in the river, I spotted a group of modern-day 49ers equipped with shoulder-high waders and inner tubes floating pumps and sluice boxes. So I parked the car and waded out in the freezing, fast-running water to get an update on this market.

One man proudly showed off a one-ounce gold nugget that he had found only that morning worth about $1,800. Nuggets are worth more than spot gold because they attract a collector’s market.

A record eight-ounce nugget was discovered in a river near Merced the week earlier. This year, the state government in Sacramento issued a record number of gold mining licenses.

I explained to my newfound friend that he should hang on to his gold because it would be worth a lot more the following year. Inflation was falling and that would eventually induce the Federal Reserve to cut interest rates sharply.

That meant less interest rate competition for gold and silver, which yielded nothing taking prices upward. Personally, I think this gold could hit $3,000 an ounce and silver $50 an ounce in 2025.

In addition, there was a constant bid from Russia, China, and North Korea looking to dodge financial sanctions. Money managers are also picking up the yellow metal as a hedge against any unanticipated volatility in 2024.

My friend looked at me quizzically, wondering if perhaps I was some kind of nutjob who had waded out mid-river to rob him of his prized nugget.

I’ll do anything to gain a trading edge, even freezing off my cajones.

It was a tough week for 90- and 100-year-olds with the passing of Charlie Munger, Henry Kissinger, and Supreme Court Justice Sandra Day O’Connor. I had the privilege of knowing all three.

I was in the White House Press Room one day when the press secretary James Brady asked if any of the press could ride a horse. Sheepishly, I was the only one to raise a hand.

I was ordered to pick up my riding boots and report to the White House Stables on 17^th Street. I had no idea why. Back then, even the press didn’t ask some questions.

When I arrived, I understood why. Supreme Court Justice Sandra Day O’Connor was already there kitted out ready to ride. It turns out that the justice from Arizona rode weekly with Ronald Reagan. This week, an international crisis prevented the president from doing so. I was the fill-in escort.

We talked about growing up in the Colorado Desert, and pre-air conditioning, as we enjoyed a peaceful ride along the Potomac River. A security detail kept a safe distance.

A lot of history is being in the right place at the right time.

The clock is ticking.

November closed out at +15.54%. My 2023 year-to-date performance is still at an eye-popping +81.71%. The S&P 500 (SPY) is up +19.73% so far in 2023. My trailing one-year return reached +80.80% versus +18.19% for the S&P 500.

That brings my 15-year total return to +678.90%. My average annualized return has exploded to +52.26%, another new high, some 2.48 times the S&P 500 over the same period.

I am 90% fully invested, with longs in (MSFT), (NLY), (BRK/B), (CCJ), (GOOGL), (SNOW), (CAT), and (XOM). I have one short in the (TLT). I took profits on (CRM) on Friday.

Some 56 of my 61 trades this year have been profitable this year.

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, December 4, at 8:30 AM EST, the US Factory Orders are out.

On Tuesday, December 5 at 2:30 PM, the JOLTS Job Openings Report is released.

On Wednesday, December 6 at 8:30 AM, the ADP Private Employment Report is published.

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

On Friday, December 8 at 2:00 PM the Baker Hughes Rig Count is printed and at 2:30 PM, the November Nonfarm Payroll Report is published.

As for me, back in the early 1980s, when I was starting up Morgan Stanley’s international equity trading desk, my wife Kyoko was still a driven Japanese career woman.

Taking advantage of her near-perfect English, she landed a prestige job as the head of sales at New York’s Waldorf Astoria Hotel.

Every morning we set off on our different ways, me to Morgan Stanley’s HQ in the old General Motors Building on Avenue of the Americas and 47^th street and she to the Waldorf at Park and 34^th.

One day, she came home and told me this little old lady living in the Waldorf Towers needed an escort to walk her dog in the evenings once a week. Back in those days, the crime rate in New York was sky-high, and only the brave or the reckless ventured outside after dark.

I said “Sure” “What was her name?”

Jean MacArthur.

I said THE Jean MacArthur?

She answered “Yes.”

Jean MacArthur was the widow of General Douglas MacArthur, the WWII legend. He fought off the Japanese in the Philippines in 1941 and retreated to Australia in a dramatic night PT Boat escape.

He then led a brilliant island-hopping campaign, turning the Japanese at Guadalcanal and New Guinea. My dad was part of that operation, as were the fathers of many of my Australian clients. That led all the way to Tokyo Bay where MacArthur accepted the Japanese in 1945 on the deck of the battleship USS Missouri.

The MacArthur then moved into the Tokyo embassy where the general ran Japan as a personal fiefdom for seven years, a residence I know well. That’s when Jean, who was 18 years the general’s junior, developed a fondness for the Japanese people.

When the Korean War began in 1950, MacArthur took charge. His landing at Inchon Harbor broke the back of the invasion and was one of the most brilliant tactical moves in military history. When MacArthur was recalled by President Truman in 1952, he had not been home for 13 years.

So it was with some trepidation that I was introduced by my wife to Mrs. MacArthur in the lobby of the Waldorf Astoria. On the way out, we passed a large portrait of the general who seemed to disapprovingly stare down at me taking out his wife, so I was on my best behavior.

To some extent, I had spent my entire life preparing for this job.

I had stayed at the MacArthur Suite at the Manila Hotel where they had lived before the war. I knew Australia well. And I had just spent a decade living in Japan. By chance, I had also read the brilliant biography of MacArthur by William Manchester, American Caesar, which had only just come out.

I also competed in karate at the national level in Japan for ten years, which qualified me as a bodyguard. In other words, I was the perfect after-dark escort for Midtown Manhattan in the early eighties.

She insisted I call her “Jean”; she was one of the most gregarious women I have ever run into. She was grey-haired, petite, and made you feel like you were the most important person she had ever run into.

She talked a lot about “Doug” and I learned several personal anecdotes that never made it into the history books.

“Doug” was a staunch conservative who was nominated for president by the Republican party in 1944. But he pushed policies in Japan that would have qualified him as a raging liberal.

It was the Japanese that begged MacArthur to ban the army and the navy in the new constitution for they feared a return of the military after MacArthur left. Women gained the right to vote on the insistence of the English tutor for Emperor Hirohito’s children, an American Quaker woman. He was very pro-union in Japan. He also pushed through land reform that broke up the big estates and handed out land to the small farmers.

It was a vast understatement to say that I got more out of these walks than she did. While making our rounds, we ran into other celebrities who lived in the neighborhood who all knew Jean, such as Henry Kissinger, Ginger Rogers, and the UN Secretary-General.

Morgan Stanley eventually promoted me and transferred me to London to run the trading operations there, so my prolonged free history lesson came to an end.

Jean MacArthur stayed in the public eye and was a frequent commencement speaker at West Point where “Doug” had been a student and later the superintendent. Jean died in 2000 at the age of 101.

I sent a bouquet of lilies to the funeral.

Kyoko passed away in 2002.

In 2014, Chinas Anbang Insurance Group bought the Waldorf Astoria for $1.95 billion, making it the most expensive hotel ever sold. Most of the rooms were converted to condominiums and sold to Chinese looking to hide assets abroad.

The portrait of Douglas MacArthur is gone too. During the Korean War, he threatened to drop atomic bombs on China’s major coastal cities.

Good Luck and Good Trading,

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

December 1, 2023

Diary, Newsletter, Summary

Global Market Comments
December 1, 2023
Fiat Lux

Featured Trade:

(NOVEMBER 29 BIWEEKLY STRATEGY WEBINAR Q&A),
($VIX), UNG), (PANW), (SNOW), (HACK), (MSFT), (AAPL), (FCX), (TSLA), (F), (GM), (LLY), (CVX), (XOM), (RIVN), (TLT)

November 29 Biweekly Strategy Webinar Q&A

Diary, Newsletter

Below please find subscribers’ Q&A for the November 29 Mad Hedge Fund Trader Global Strategy Webinar, broadcast from Silicon Valley, CA.

Q: How much longer can the United States Natural Gas Fund (UNG) remain at such low levels?

A: They call this contract “The Widow Maker” for a reason. As long as the weather is warmer than usual, which has been a problem, (UNG) will remain cheap. We actually got up to $8 in the UNG a month ago and have since come back to $5.50. There are no signs of an energy shortage anywhere right now with the collapse of oil prices from $96 down to $70, so this could be the worst thing in the world if global warming continues. But I'm keeping my position. It’s basically worthless now anyway, but that has been a real shocker this year in the energy community—how cheap natural gas has gotten. And that is after supplying all on Germany’s Natgas needs with no notice.

Q: I still have Palo Alto Networks (PANW) open, what should I do?

A: You’re pretty much at a maximum profit now, so you might as well run it into the expiration because, at a Volatility Index ($VIX) of $12, there just aren’t many other attractive trades to put on right now. You’ll see that when we go through the charts. Everything has just had a massive move in our favor. It’s actually the sharpest move up in market history, so you don't want to go chasing things, and you certainly don't want to go short because that is against the long, medium, and short-term trends.

Q: Which of your positions would you suggest we can still buy right now?

A: None, except for two-year US treasury Bills to lock in high-interest rates at 4.8%. Everything is just wildly expensive on a short-term basis.

Q: When do you expect Freeport McMoRan (FCX) and the other commodities to rise?

A: Towards the middle of the year, the market will shift entirely out of technology and into domestic industrials and commodities, and we should expect exponential moves in those areas also as the economy recovers and interest rates fall. We are going to start putting LEAPS out on those pretty soon because those are the bargain of the century prices right now.

Q: I’m new to the program, and I noticed all of the trades are done as options spreads. What are the benefits of doing it in this way versus owning the underlying?

A: You get a leverage of 10X versus owning the underlying with limited risk. You also make money when markets do nothing because you are also short volatility when you do an options spread. In fact, every trade alert we send out gives you three choices usually: buy the stock, buy the options spread, or buy the ETF. So that way, you can cater your trading to your level of experience and risk tolerance. And if you want to know more, just go to our website, log in, and search for call spreads—there will be a vast library talking about the benefits of doing call spreads and how to execute them.

Q: What’s your favorite sector for next year?

A: Always a popular question for this time of the year, and that’s an easy answer.

Number one: cybersecurity. That means Palo Alto Networks (PANW), which we’re long, Snowflake (SNOW), which we’re also long, and Nvidia (NVDA), which we were long in October before it went completely nuts—it turns out that cyber security has a huge appetite for the high-end processors that Nvidia makes. There’s also an ETF on that—HACK, if you want lower volatility; so there’s three or four names for you right there. If I had to pick a single stock, the safest stock, I’d pick Microsoft (MSFT) right here; they have a 70% market share in PC operating systems worldwide, they are ramping up their efforts in AI with the ownership of ChatGPT, and it's really literally the safest stock in the market—likely to go up 30% next year. So if you can handle 30% plus a 0.80% dividend, Microsoft is your pick, but you might want to think about selling it mid-year when Freeport McMoRan (FCX) becomes my number one pick of the year.

Q: Is it too late to buy Microsoft (MSFT)?

A: Yes, wait for either a pullback of 10% or a flat line move sideways for a month, which is also called a time correction.

Q: I have several large companies I deal with that have all been hacked in the last couple of months. Several have been locked out of their systems or shut down for a month.

A: Yes, that’s absolutely going on everywhere. Also, governments have become favorite targets for hacking because they have the least amount of money to spend on cybersecurity. They are also the least sophisticated. So again, cybersecurity is a great business to be in; and by the way, I think we’re having gigantic moves in the cyber sector today. Palo Alto Networks (PANW) is up $11.61—who can beat that? That’s nice, watching your longs going up in double digits every day.

Q: Is Apple (APPL) going into the banking business now that they and Goldman are going through a divorce?

A: Yes, Apple has been slowly sneaking into the banking business for years. Look no further than Apple Pay. They have several advantages they can bring to bear here, like all of you personal information they could possibly imagine.

Q: I don’t like General Motors (GM) even though they’ve announced buybacks and dividend increases—too concerned about EV slack, market, and labor costs.

A: I couldn’t agree with you more; I think (GM) goes under in 10 years. They’ll never catch up on EVs, and basically, the company will either sell Teslas under license or be sold for scrap metal like they were back in 2008. And it really is the height of hubris to announce a 17% share buyback, which is enormous—10 billion dollars—right after they pleaded poverty with the unions to get them to agree to only a 25% wage increase. So it just absolutely fails the smell test on every front.

Q: Do you see healthcare making a big move as larger companies are really beaten down?

A: You’ll have rallies in healthcare, but basically, they’re a defensive sector and the last thing in the world that you want in a runaway bull market is a defensive sector. You will get single stock moves like Eli Lilly (LLY) from people who are specifically playing hot areas like weight loss drugs and other companies developing cancer cures with AI. That’ll be another big story next year.

Q: Any chance for Ford (F) at this point?

A: Not in the long term; again, you go back to that market share chart I showed you—Ford is only at a 7% market share in EVs and 14 years behind Tesla (TSLA), which has a 52% share. I don’t think anybody has a chance. What may happen is Tesla will take over Ford at some point, just to get at the factories; but again it will be a “pennies on the dollar” offer.

Q: What about Toyota (TM); how long can their hybrid push last?

A: A long time, because for a lot of people, hybrids are the right solution—especially people who have to go long distances and don't have time to recharge or don't have access to recharging. The hybrids that they have now are really great. They run the first 50, 60, or 70 miles solely on battery power. And I know people who have hybrids with short commutes who still have the original tank of gas the car came with when they bought it new a year ago. All-electric isn't perfect for everyone; hybrids will catch what's left of that market. Also, hybrids have thousands more parts than electric cars do. So the profit margin will never be what it is on an EV.

Q: Will Chevron (CVX) and ExxonMobil (XOM) go up?

A: Oil does absolutely, you can expect 20-30% gains on any recovery in oil, and that’s why we own them. But it’s a 2024 story.

Q: What do you think about Rivian (RIVN) here?

A: It's a long-term play; we have the LEAPS in them. The stock is just about recovered to our costs and they're increasing production. If anyone else is going to make it in the EV sector, it will be Rivian, who is run by some genius from MIT. So yeah, I would be buying dips in Rivian but I wouldn't chase.

Q: How will the iShares 20 Plus Year Treasury Bond ETF (TLT) perform in the next few months?

A: Kind of late for the LEAPS. That was really an October play, but any $ 5-point pullback and I will be in there with LEAPS because I think (TLT) hits $120 next year.

Q: Please explain the demise of Crypto.

A: Crypto did great when we had a cash surplus and an asset shortage like in 2019-2021. We now have the opposite—a cash shortage and an asset oversupply. Crypto doesn't do well in that situation. On top of that, the guys who runs every major crypto platform are looking at prison time now because of massive widespread theft. Although you do see crypto has gone up nearly a hundred percent this year, that doesn't back out all the Crypto losses from theft. It would be interesting to find out what the true performance of Crypto would be if you included the 50% that was stolen by the Crypto custodians in one way or the other. So Crypto is great when stocks were too expensive, but now they're all cheap and they pay dividends. So, much better fish to fry these days as opposed to the last market top.

Q: Do you think the election will have any effect on the stock market next year?

A: Absolutely not. Even a government shutdown won't have an effect because the fundamentals are now so powerful. We're basically discounting falling interest rates for the next 5 years. Your retirement funds will absolutely love that.

To watch a replay of this webinar with all the charts, bells, whistles, and classic rock music, just log on to www.madhedgefundtrader.com, go to MY ACCOUNT, select your subscription (GLOBAL TRADING DISPATCH, TECHNOLOGY LETTER, or Jacquie's Post), then click on WEBINARS, and all the webinars from the last 12 years are there in all their glory.

Good Luck and Stay Healthy,

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

November 27, 2023

Diary, Newsletter, Summary

Global Market Comments
November 27, 2023
Fiat Lux

Featured Trade:

(MARKET OUTLOOK FOR THE WEEK AHEAD, or MELT UP),
(MSFT), (NLY), (BRK/B), (CCJ), (CRM), (GOOGL), (SNOW), (CAT), (XOM), (TLT)

The Market Outlook for the Week Ahead, or Melt Up

Diary, Newsletter

If you think the market performance for the past month has been spectacular, you have seen nothing yet. We have two major positive catalysts that are about to hit stock prices.

On December 10, we will see a lower-than-expected Consumer Price Index, driving yet another stake through the heart of inflation. On December 13, we will also be greeted with a Federal Reserve decision to keep interest rates unchanged, as they will do over the next several meetings.

“Higher for shorter” is about to become the new market mantra.

That will give the market the shot in the arm it needs to reach my $4,800 yearend target, which was precisely the goal I laid out on January 1. Caution has been thrown to the wind and hedging downside risks has become a distant memory. One of the fastest market melt-ups in 100 years will do that. Complacency is the order of the day.

Equity-oriented mutual funds have seen $43 billion in inflows so far in November. Commodity Trading Funds, or CTA’s, have seen a breathtaking $60 billion piled into long equity strategies.

Hedge funds flipped from short to long and now have the most aggressively bullish positions in 22 years, mostly in big tech. All of this has taken the Volatility Index (VIX) down to a subterranean $12 handle. Bears are suddenly lonely….and afraid.

Yes, 55 years of practice makes this easy.

On October 28, it turns out that we reached a decade-high peak in bond investment when Treasuries were flirting with new highs in yields. With perfect rear-view mirror hindsight that’s when many investors cut stock holdings to the bone. They will spend the next several months desperately trying to get back in.

Oh yes, and Company buybacks are about to surge as companies race to pick up their own stocks before the yearend deadline. Apple is the top buyback stock followed by Alphabet (GOOGL) and Microsoft (MSFT). Heard these names before?

And while big tech is starting to look expensive, they are cheap when you factor in the trillions of dollars in profits that are headed their way over the next decade.

That’s what always happens.

What could pee on my victory parade? Ten-year US treasury bonds revisiting a 5.08% yield, crude oil popping back up to $100 a barrel, oil another new blacking swan alighting out of the blue, like a Chinese invasion of Taiwan, or Russia retaking the Baltic states. That’s all.

Avoid these and stocks will continue to rise, as will your retirement funds.

The Magnificent Seven will continue to lead, as will big financials, which are still at bargain-basement levels. Energy and commodities are already posting January sale prices, discounting a 2024 recession that isn’t going to happen. This is fertile LEAPS territory.

Weekly Jobless Claims Drop 24,000, to 209,000 in one of the sharpest declines this year. It makes last week’s jump look like an anomaly.

Consumer Inflation Expectations Rise, to 3.2%, a 12-year high. They are counting on a 4.5% in 2024. They are now looking at gasoline prices. There’s your mismatch. Any decline in inflation will be viewed as a shocker and drive share prices to new all-time highs.

US Gasoline Prices Hit Three-Year Low, on recession fears and replacement concerns by EVs. Energy stocks are tracing the downside tic for tic, pulling down all other commodities. Don’t buy this dip.

Pending Home Sales Plunge to 13-Year Low, down 4.1% in October, on a signed contracts basis. Sales were down 14.6% year over year. The median price of an existing home sold in October was $391,800, an increase of 3.4% from October 2022. These are the last poor sales numbers before the collapse in interest rates. At the end of October, there were 1.15 million homes for sale, down 5.7% from a year earlier. This is about half as many homes as were available for sale pre-Covid. At the current sales pace, that represents a 3.6-month supply. A six-month supply is considered a balanced market between buyer and seller.

Monster Pay Hikes Will Lead to Strong Japanese Yen, with whiskey maker Suntory offering 7% pay hikes. The prospect of falling US interest rates adds fuel to the fire. Buy (FXY) on dips.

Starship Two Blows Up, two minutes or 92 miles after launch. The test fire of the 33-engine spacecraft was considered a success. The massive 397-foot tall, 30-foot-wide rocket, the largest ever built, is crucial for the NASA moon launch in 2025 and the SpaceX Mars trip further down the road.

NVIDIA (NVDA) Beats, with a profit triple, but that stock sells off 6% on the news. It was a classic buy the rumor, sell the news move. Future earnings increases will not be as big. Keep "buy (NVDA) on dips" as a must-own.

Famed Short Seller Jim Chanos shut down after a massive short in Tesla shares blew up. His funds under management have plunged from $6 billion to $200 million since (TSLA) went public. Chanos had a few big wins, notably Enron in 2001. But he was also seen as a hedge against other long positions.

So far in November, we are up +12.62%. My 2023 year-to-date performance is still at an eye-popping +78.79%. The S&P 500 (SPY) is up +19.73% so far in 2023. My trailing one-year return reached +81.00% versus +18.91% for the S&P 500.

That brings my 15-year total return to +675.98%. My average annualized return has exploded to +48.57%, another new high, some 2.49 times the S&P 500 over the same period.

I am 100% fully invested, with longs in (MSFT), (NLY), (BRK/B), (CCJ), (CRM), (GOOGL), (SNOW), (CAT), and (XOM). I have one short in the (TLT).

Some 66 of my 61 trades this year have been profitable.

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, November 27, at 8:30 AM EST, the New Home Sales are out.

On Tuesday, November 28 at 2:30 PM, the S&P National Home Price Index is released.

On Wednesday, November 29 at 8:30 AM, the Q2 GDP Growth Rate is published.

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

On Friday, December 1 at 2:30 PM, the October ISM Manufacturing Index is published. At 2:00 PM the Baker Hughes Rig Count is printed.

As for me, When I landed in Tokyo in 1974, there were very few foreigners in the country. The WWII occupation forces had left, but the international business community had yet to arrive. You met a lot of guys who used to work for Douglas MacArthur.

There was only one way to stay more than 90 days on the standard tourist visa. That was to get another visa to study “Japanese culture.” There were only two choices: flower arranging or karate.

Since this was at the height of Bruce Lee’s career, I went for karate.

It was not an easy choice.

World War II was not that distant, and there were still hundreds of army veterans missing limbs begging for money under railroad overpasses. Some back then were still fighting on remote Pacific islands.

Many in the karate community believed that the art was a national secret and should never be taught to foreigners. So those who entered this tight-knit community paid the price and had the daylights beaten out of them. I was one of those.

To this day, I am missing five of my original teeth. There is nothing like taking a kick to the mouth and watching your front teeth fly across the dojo, skittering on the teak floor.

We trained three hours a day, five days a week. It involved punching a bloody hardwood makiwara at least 200 times. The beginners were paired with black belts who thoroughly worked us over. Then the entire class met up at a nearby public bath to soak in a piping hot ofuro. You always hurt.

During the dead of winter, we ran five miles around the Imperial Palace in our karate gi’s barefoot in freezing temperatures daily. Then we were hosed down with cold water and trained for three hours.

During this time, I was infused with the spirit of bushido, the thousand-year-old Japanese warrior code. I learned self-discipline, stamina, and concentration. In the end, karate is a form of meditation.

Knowing you’re indestructible and unassailable is not such a bad thing, especially when you’re traveling in some of the harsher parts of the world. When muggers in bad neighborhoods see me late at night, they cross the street to avoid me. I am not a guy to mess with. Utter fearlessness is a great asset to possess.

The highlight of the annual training schedule was the All-Japan Karate Championship held in the prestigious Budokan, headquarters of all Japanese martial arts near the ghostly Yasukuni Jinja, Japan’s National Cemetery. By my last year in Japan, I had my black belt, and my instructor, Higaona Sensei, urged me to enter.

Because I had such a long reach, incredibly, I made it to the finals. I was matched with a very tough-looking six-footer who was fighting for Japan’s national prestige, as no foreigner had ever won the contest.

I punched, he kicked, fist met foot, and foot won. My left wrist was broken. My opponent knew what happened and graciously let me fight on one hand for another minute to save face. Then he knocked me out on points.

The crowds roared.

It’s all part of a full life.

Losing the All-Japan National Karate Championship

1974 Higaona Sensei

Stay Healthy,

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

November 20, 2023

Tech Letter

Mad Hedge Technology Letter
November 20, 2023
Fiat Lux

Featured Trade:

(MICROSOFT HITS A HOME RUN)
(MSFT), (OPENAI)

Microsoft Hits A Home Run

Tech Letter

After the smoke clears, it is obvious to the naked eye that the winner of the Sam Altman firing is Sam Altman and Microsoft.

Sam Altman is the former OpenAI CEO and the face of AI.

The board at OpenAI just gave away the company to Microsoft.

The event is still reverberating around the world and is a shocker for anyone and everyone involved in technology.

It is similar to if Elon Musk is fired by the board of Tesla.

Something of this magnitude has a lot of unintended consequences and from first glance, it appears that the board of directors overplayed their hand.

The only reason why the board got its way is because of the government structure in place that allows the power of management.

The best NFL teams don’t fire their franchise quarterback or lose them for nothing.

In an ironic twist, OpenAI's biggest investor Microsoft said it is hiring Sam Altman to lead a new advanced artificial-intelligence research team, after his bid to return to OpenAI with the board that fired him declining to agree to the proposed terms of his reinstatement.

OpenAI has been relegated to second-tier status and Altman has been promoted to the big show.

Microsoft Chief Executive Satya Nadella posted on X late Sunday that Altman and Greg Brockman, OpenAI’s president and cofounder who resigned Friday in protest over Altman’s ouster, will lead its team alongside unspecified colleagues.

Altman was blindsided by the firing which shows there was something horribly wrong with the relationship between the board and Altman. It sure smells like a power struggle.

Altman was the key to the company’s close relationship with Microsoft, which became highly dependent on its technology and remains OpenAI’s largest investor with a 49% stake.

Ultimately, Altman’s insistence that the current board resigns was rebuffed.

It would have made no sense for him to go back for anything less than that plus a big salary hike.

Among all the investors, Microsoft might be the most deeply intertwined in the fate of OpenAI, and the startup’s turmoil has been a liability.

Beyond being OpenAI’s largest backer, Microsoft has reoriented its business around the startup’s AI software.

The first takeaway is that this is great for Microsoft’s stock because of the boost it will deliver to its AI business.

MSFT shares would have sold off by 10% if Altman left completely.

MSFT now has the best of breed working directly for them after becoming frustrated by the lack of insight into OpenAI.

A lack of a board seat made the transparency even blurrier.

Opportunistically, expect a mass exodus of OpenAI’s best to join Microsoft’s new AI division.

Most of the employees are already demanding for the board to resign and this situation is on the verge of erupting into a toxic mess.

Poaching is the oldest game in town and MSFT will aggressively look to add to its staff. OpenAI will be a shell of its former self soon because MSFT has the resources to pull it off. Everyone jumping ship will be granted a massive pay rise and restricted stock.

Even if MSFT needs to write down its initial AI investment into OpenAI, it pales in comparison to the potential and bottom-line boost that Altman could muster for the Washington company.

Free agents of this caliber don’t usually jump ship for free and this is a major coup for Microsoft, Altman, and anyone else that follows him to MSFT.

Half the value of OpenAI is wrapped up in Altman himself.

He is now tasked to bring what he did from OpenAI and then develop it, and this time around he has unlimited resources to deploy.

This is another win for the Magnificent 7.

I am highly bullish on MSFT.

MSFT HITS A HOME RUN WITH ALTMAN

November 13, 2023

Diary, Newsletter, Summary

Global Market Comments
November 13, 2023
Fiat Lux

Featured Trade:

(MARKET OUTLOOK FOR THE WEEK AHEAD, or THE YEAREND RALLY CONTINUES!)
(TSLA), (F), (MSFT), (NLY), (BRK/B), (TLT), (CCJ), (CRM)

The Market Outlook for the Week Ahead, or The Yearend Rally Continues!

Diary, Newsletter

Last week saw the best week for stocks in two years. As I expected, big tech led the charge and will continue to do so well into next year. Bonds (TLT) stabilized.

It looks like Mad Hedge followers will get to ring the cash register one more time in 2023!

However, we face a couple of speed bumps this coming week. On Tuesday, we get the Consumer Price Index which will tell us if inflation is well and truly dead….or not. On Wednesday, we get the Producer Price Index. And then on Friday, the US government shuts down for lack of funding.

Oops!

There have been some 92 government shutdowns in the last 50 years. Since then, the Dow Average has rocketed by 60 times.

So, I am not worried about the long-term effect on your retirement portfolio. When voters see the gravy train from Washington cut off, not to mention Social Security checks, military pay, and air traffic controller salaries, Congressmen can suddenly become very agreeable.

The short term is another story.

If House recalcitrance triggers a 500 or 1,000-point swan dive in stocks, you want to pile into the big tech leaders I have been begging you to buy for the past three weeks and fill your boots. And while 2023 was a hell of a year to make money in stocks (Mad Hedge has made only 73% so far in 2023, a three-year low), 2024 is looking much, much better.

Think falling inflation, stabilizing wages, fading interest rates, recovering profits, expanding price earnings multiples, and soaring stocks and bonds. The traditional 60/40 portfolio will come back with a vengeance.

I caught up with my old friend Ron Barron the other day, who I talked into buying Tesla shares in 2014. He got in late, at about $100 a share, or 25 times my own original split-adjusted $2.50 cost. But when you’re running big money as Ron, you can’t afford to buy the kind of wild insane risks that buying Tesla in 2010 entailed.

I can.

Ron is now the largest outside shareholder in both Tesla (TSLA) and SpaceX. Tesla is so far ahead of the competition that he expects to hold the shares for the rest of his life. Ford Motors (F) now loses $36,000 for each EV it sells, while Tesla earns a profit of $8,000, down from $15,000 a year ago.

Ford spends $7 billion to build a new factory which generates a miniscule $15 million, or 0.2%. Tesla earns 114% profit on every $7 billion factory it builds.

It's no contest.

During the 1950s, Detroit went all out to earn short-term profits by outsourcing its supply chain. Virtually every one of those third-party companies went bankrupt, irreparably harming their business models. Tesla makes virtually all of its parts in-house, including the Panasonic batteries.

Tesla is learning 100 million miles of data per day from its fleet of 6 million cars. No one else has anything close to this. In 18 months, (TSLA) will have the world’s largest computing ability, which Elon Musk refers to as “Dojo” (karate school in Japanese), which Morgan Stanley estimates will add $500 million to the value of the company.

There are 1.5 billion internal combustion engines in the world that need to be replaced. The present replacement rate is only 80 million cars a year and only 10% of these are EVs. Eventually, 100% will be EVs. Detroit carmakers don’t want to sell EVs because they require no service whereas local dealers make all their money. EVs require no service beyond changing tires every two years,

And while President Biden recently suggested that the UAW targets Tesla for unionization, they don’t have a chance. Tesla workers are by far the highest-paid auto workers in the world with the best benefits. They also own stock, many at my own $2.50 adjusted share cost. Elon was sitting pretty during the recent 46-day UAW nationwide walkout.

Buying Tesla today does not mean you are investing in the achievements of the past, which are formidable. It means that you are buying the new Cybertruck which is rolling out now and offers a new platform with many new technological leaps forward.

More importantly, you are betting on the new $25,000 Model 2 due out in 2025, where Tesla plans to build 5 million a year. Then the EV competition will well and truly be gone.

That makes my $1,000 a share target then $10,000 look extremely modest.

Don’t kid yourself. Tesla can still add to the 35.6% decline it has suffered since July 17. We could go as low as $150, a 50% hickey. This is the most volatile major stock in the market. It always goes down more than you think. But if we do, you want to take a second mortgage out on your home and put it all into Tesla. It’s going up 67 times from there.

I just thought you’d like to know.

So far in November, we are up +7.32%. My 2023 year-to-date performance is still at an eye-popping +73.49%. The S&P 500 (SPY) is up +7.89% so far in 2023. My trailing one-year return reached +74.44% versus +15.78% for the S&P 500.

That brings my 15-year total return to +670.78%. My average annualized return has rocketed to a new all-time high at +51.26%, another new high, some 2.58 times the S&P 500 over the same period.

Some 57 of my 62 trades this year have been profitable.

I went pedal to the metal last week, taking profits on my last three November positions in (TLT), (BRK/B), and (NVDA) that maxed out profits and piling in new December longs in (MSFT), (NLY), (BRK/B), (TLT), (CCJ), (CRM). That’s how you hit new all-time highs every day.

Berkshire Hathaway Knocks it Out of the Park, with a 41% gain in operating earnings from companies like BNSF Railroad, Geico, and Precision Castparts. But Warren Buffet was noted more for what he didn’t own than what he did. He unloaded $5 billion worth of global stocks in Q3, taking his cash position up to a record $157 billion. He can now earn a staggering $8.6 billion in interest in the coming year. He explains that stocks never really got cheap this year and high rates were just too attractive. Keep buying (BRK/B) on dips.

China EV Maker BYD is Building its First European Car Factory, in a clear threat to European car makers. They picked Hungary, one of the lowest-waged countries on the continent. BYD (BYDFF) which I recommended back in 2012 after visiting the factory in China is now the largest EV maker there knocking out 250,000 units this year. Is Tesla worried?

Investors Poured $5 Billion into Bond ETFs in October. Institutional investors were happy with the 5.0% yield last month and if they rose, they would simply buy more. It’s another sign that the bottom for all fixed-income prices is at hand. Buy (TLT), (JNK), and (NLY).

China Lends $1.34 Trillion for Belt and Road Initiative, from 2000 to 2001 to dominate Asian and African infrastructure. Good luck getting it back and good luck foreclosing. In the meantime, China suffered its first-ever deficit in foreign direct investment as the West de-risks from the Middle Kingdom.

Oil Hits a four-month low at $75 a Barrel, down 4% as the shine comes off the energy sector. The Gaza boost is gone. Fears of a global economic slowdown are mounting. China’s exports have fallen for six consecutive months, the world’s largest importer. Biden is back in the oil business, provided a floor bid from the Strategic Petroleum Reserve at $79.

Most 2023 Stock Gains Happened in 8 Days, up some 14% since January 1. If you are a day trader, you most likely missed all of this. This is despite stocks going up 113 days versus 102 down days. Making matters more difficult is that only seven stocks accounted for most of the increase. Talk about a narrow market!

A Soft Landing is Now More Likely, says Bank of America CEO Moynihan. Inflation is falling and could lead to Fed interest rate cuts in H2 2024. Stocks and bonds will love it.

NVIDIA is Designing Dumbed Down Chips for China, to bypass government sanctions. It’s an opportunity to recover some lost market share. Keep buying (NVDA) on dips, up 20% in two weeks. It has an impassable moat.

Weekly Jobless Claims dropped from 3,000 to 217,000. It’s still unusually low. Hiring slowed in October as the economy slowed.

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, November 13, bond markets are closed for Veterans Day. I will be leading the local parade wearing my new Medal from the Ukraine Army.

On Tuesday, November 14 at 2:30 PM EST, the Core Inflation Rate is released.

On Wednesday, November 15 at 8:30 AM, the Producer Price Index is published.

On Thursday, November 16 at 8:30 AM, the Weekly Jobless Claims are announced.

On Friday, November 17 at 2:30 PM the US Building Permits are published. At 2:00 PM the Baker Hughes Rig Count is printed.

As for me, few Americans know that 80% of all US air strikes during the Vietnam War originated in Thailand. At their peak in 1969, more US troops were serving in Thailand than in South Vietnam itself.

I was one of those troops.

When I reported to my handlers at the Ubon Airbase in northern Thailand for my next mission, they had nothing for me. They were waiting for the enemy to make their next move before launching a counteroffensive. They told me to take a week off.

The entertainment options in northern Thailand in those days were somewhat limited. Phuket and the pristine beaches of southern Thailand where people vacation today were then overrun by cutthroat pirates preying on boat people who would kill you for your boots.

Life was cheap in Asia in those days, especially your life. Any trip there would be a one-way ticket.

There were the fleshpots of Bangkok and Chang Mai. But I would likely contract some dreadful disease there. I wasn’t really into drugs, figuring whatever my future was, it required a brain. Besides, some people’s idea of a good time there was throwing a hand grenade into a crowded disco. So, I, ever the history buff, decided to go look for The Bridge Over the River Kwai.

Men of my generation knew the movie well, about a company of British soldiers who were the prisoners of bestial Japanese. At the end of the movie, all the key characters die as the bridge is blown up.

I wasn’t expecting much, maybe some interesting wreckage. I knew that the truth in Hollywood was just a starting point. After that, they did whatever they had to do to make a buck.

The fall of Singapore was one of the great Allied disasters at the beginning of WWII. Japanese on bicycles chased Rolls Royce armored cars and tanks the length of the Thai Peninsula. Two British battleships, the Repulse and the Prince of Wales, were sunk due to the lack of air cover with a great loss of life. When the Japanese arrived at Singapore, the defending heavy guns were useless as they pointed out to sea.

Some 130,000 men surrendered, including those captured in Malaysia. There were also 686 American POWs, the survivors of US Navy ships sunk early in the war. Most were shipped north by train to work as slave labor on the Burma Railway.

The Japanese considered the line strategically essential for their invasion of Burma. By building a 258-mile railway connecting Bangkok and Rangoon they could skip a sea voyage of 2,000 miles in waters increasingly dominated by American submarines.

Some 12,000 Allied troops died of malaria, beriberi, cholera, dysentery, or starvation, along with 90,000 impressed Southeast Asian workers. That earned the line the fitting name: “Death Railway.”

The Burma Railway was one of the greatest engineering accomplishments in human history, ranking alongside the Pyramids of Egypt. It required the construction of 600 bridges and viaducts. It crossed countless rivers and climbed steep mountain ranges. The work was all done in 100-degree temperatures with high humidity in clouds of mosquitoes. And it was all done in 18 months.

One of those captured was my good friend James Clavell, who spent the war at Changi Prison, now the location of Singapore International Airport. Every time I land there, it gives me the creeps.

Clavell wrote up his experiences in the best-selling book and movie King Rat. He followed up with the Taipan series set in 19th-century Hong Kong. We lunched daily at the Foreign Correspondents Club of Japan when he researched another book, Shogun, which became a top TV series for NBC.

So I navigated the Thai railway system to find remote Kanchanaburi Province where the famous bridge was said to be located.

My initial surprise was that the bridge was still standing, not destroyed as it was in the film. It was not a bridge made of wood but concrete and steel trestles. Still, you could see the scars of Allied bombing on the foundations, who tried many times to destroy the bridge from the air.

That day, the Bridge Over the River Kwai was a quiet, tranquil, peaceful place. Farmers wearing traditional conical hats made of palm leaves and bamboo strips called “ngob’s,” crossed to bring topical fruits and vegetables to market. A few water buffalo loped across the narrow tracks. The river Kwai gurgled below.

Once a day, a train drove north towards remote locations near the Burmese border where a bloody rebellion by the indigenous Shan people was underway.

The wars seemed so far away.

The only memorial to the war was a decrepit turn-of-the-century English steam engine badly in need of repair. There were no tourists anywhere.

So I started walking.

After I crossed the bridge, it wasn’t long before I was deep in the jungle. The ghosts of the past were ever present, and I swear I heard voices. I walked a few hundred yards off the line and the detritus of the war was everywhere: abandoned tools, rusted-out helmets, and yes, human bones. I didn’t linger because the snakes here didn’t just bite and poison you, they swallowed you whole.

After the war, the Allies used Japanese prisoners to remove the dead for burial in a nearby cemetery, only identified by their dog tags. Most of the “coolies” or Southeast Asian workers were left where they fell.

Today, only 50 miles of the original Death Railway remain in use. The rest proved impossible to maintain, because of shoddy construction, and the encroaching jungle.

There has been talk over the years of rebuilding the Burma Railway and connecting the rest of Southeast Asia to India and Europe. But with Burma, today known as Myanmar, a pariah state, any progress is unlikely.

Maybe the Chinese will undertake it someday.

Every Christmas vacation, when my family has lots of free time, I sit the kids down to watch The Bridge Over the River Kwai. I just wanted to pass on some of my experiences, teach them a little history, and remember my old friend Clavell.

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