Global Market Comments
July 21, 2023
Fiat Lux
Featured Trades:
(WHAT THE NEXT RECESSION WILL LOOK LIKE),
(FB), (AAPL), (NFLX), (GOOGL), (KSS), (VIX), (MS), (GS),
(TESTIMONIAL)
CLICK HERE to download today's position sheet.
Posts
The probability of a recession taking place over the next 12 months is now low ranging as high as 20%. If it reaccelerates, not an impossibility, you can take that up to 100%.
And here’s the scary part. Bear markets front-run recessions by 6-12 months, i.e. now.
We’ll get a better read on the inflation numbers over the coming months. If inflation turns hot again, the Fed will be forced to raise rates to once unimagined levels.
So, it’s time to start asking the question of what the next recession will look like. Are we in for another 2008-2009 meltdown, when friends and relatives lost homes, jobs, and their entire net worth? Or can we look forward to a mild pullback that only economists and data junkies like myself will notice?
I’ll paraphrase one of my favorite Russian authors, Fyodor Dostoevsky, who in Anna Karenina might have said, “All economic expansions are all alike, while recessions are all miserable in their own way.”
Let’s look at some major pillars of the economy. A hallmark of the 2008 recession was the near collapse of the financial system, where the ATMs were probably within a week of shutting down nationally. The government had to step in with the TARP, and mandatory 5% equity ownership in the country’s 20 largest banks.
Back then, banks were leveraged 40:1 in the case of Morgan Stanley (MS) and Goldman Sachs (GS), while Lehman Brothers and Bear Stearns were leveraged 100:1. In that case the most heavily borrowed companies only needed markets to move 1% against them to wipe out their entire capital. That is exactly what happened. (MS) and (GS) came within a hair’s breadth of going the same way.
Thanks to the Dodd Frank financial regulation bill, banks cannot leverage themselves more than 10:1. They have spent a decade rebuilding balance sheets and reserves. They are now among the healthiest in the world, having become low-margin, very low-risk utilities. It is now European and Chinese banks that are going down the tubes.
How about real estate, another major cause of angst in the last recession? The market couldn’t be any more different today. There is a structural shortage of housing, especially at entry level affordable prices. While liar loans and house flipping are starting to make a comeback, they are nowhere near as prevalent as a decade ago. And the mis-rating of mortgage-backed securities from single “C” to triple “A” is now a distant memory. (I still can’t believe no one ever went to jail for that!).
And interest rates? We went into the last recession with a 6% overnight rate and a 7% 30-year fixed rate mortgage. Here we are once again.
The auto industry has been in a mild recession for the past two years, with annual production stalling at 15 million units, versus a 2009 low of 9 million units. In any, case the challenges to the industry are now more structural than cyclical, with new buyers decamping en masse to electric vehicles made on the west coast.
Of far greater concern are industries that are already in recession now. Energy has been flagging since oil prices peaked 18 months ago, despite massive tax subsidies. It is suffering from a structural oversupply and falling demand.
Retailers have been in a Great Depression for five years, squeezed on one side by Amazon and the other by China. A decade into store closings and the US is STILL over-stored. However, many of these shares are already so close to zero that the marginal impact on the major indexes will be small.
Financials and legacy banks are also facing a double squeeze from Fintech innovation and collapsing interest rates. All of those expensive national networks with branches on every street corner will be gone later in the 2020s.
And no matter how bad the coming recession gets technology, now 30% of the S&P 500, will keep powering on. Combined revenues of the “Magnificent Seven” in Q1 are at records. That leaves a mighty big cushion for any slowdown. That’s a lot more than the “eyeballs” and market shares they possessed a decade ago.
So, netting all this out, how bad will the next recession be? Not bad at all. I’m looking at a couple of quarters' small negative numbers, like two back-to-back -0.1%’s. Then we’ll see a recovery and probably another decade of decent US growth.
The stock market, however, is another kettle of fish. While the economy may slow from a 2.2% annual rate to -0.1% or -0.2%, the major indexes could fall much more than that, say 30% to 40%.
Earnings multiples are still at a 19X high compared to a 9X low in 2009. Shares would have to drop 53% just to match the last low. Equity weightings in portfolios are low. Money is pouring out of stock funds into bond ones.
Corporations buying back their own shares have been the principal prop from the market for the past three years. Some large companies, like Kohls (KSS), have retired as much as 50% of their outstanding equity in ten years.
The Next Bear Market is Not Far Off
Global Market Comments
July 12, 2023
Fiat Lux
Featured Trades:
(WHAT THE NEXT RECESSION WILL LOOK LIKE),
(FB), (AAPL), (NFLX), (GOOGL), (KSS), (VIX), (MS), (GS),
(TESTIMONIAL)
CLICK HERE to download today's position sheet.
Mad Hedge Technology Letter
April 19, 2023
Fiat Lux
Featured Trade:
(NETFLIX WORTH A TRADE)
(NFLX), (YOUTUBE)
Netflix (NFLX) missed expected subscribership by 24% and that used to never happen with the old NFLX.
NFLX was that one company among a handful like Microsoft, Google, and Apple that always beat whatever gaudy estimate that was thrown at them.
Times are different.
Tech has essentially been told to eat some humble pie.
Gone are the days of yore when a big tech firm could hire tech workers and give them a fake job just to keep “talent” away from other big tech firms.
Those were the golden years of 0% interest rate policies from the Fed and now the Fed has stopped subsidizing NFLX subscriber numbers.
The truth is that the company and its content aren’t that great especially nothing better than what is on Google’s YouTube which is free with ads.
No surprise that NFLX has rolled out an ad-tier version of its service which is another underwhelming strategy for a firm that used to be the torchbearer of digital content.
Netflix, which broadened its crackdown to include countries like Canada, New Zealand, Portugal, and Spain, in addition to the test countries of Chile, Costa Rica, and Peru, revealed it's planning "a broad rollout" of the policy this quarter that will include the US.
The ad plan, dubbed "Basic with Ads," comes at a cost of $6.99 a month in the US and serves as a complement to Netflix's existing ad-free tiers — the Standard plan ($15.49 a month) and the Basic plan ($9.99 a month.)
The company, which revealed the ad tier now has about 95% of the same content as ad-free plans due to new licensing deals.
It’s funny to see NFLX hype up its own password crackdown strategy.
When they had the mentality of abundance, they didn’t really care if whole villages were using the same password.
Now they suddenly care because growth is harder and harder to come by because the product has heaps more competition than ever before and its content doesn’t stick out as it used to.
Even Walmart and Target absorb write-downs for all the theft it experiences annually and theft still happens at a high rate.
Netflix going after password sharing as if it is some type of growth strategy underscores that its business model is more like in the 8th inning of a 9-inning game.
Where are the great ideas?
Management needs to answer to that instead of talking about their core businesses like it’s the fringes.
The stock dropped from $700 to $170 in late 2021 until mid-2022 and alarm bells were ringing inside of NFLX’s offices.
The rebound back to $320 was just a reversion to the mean because of an oversold position.
The next question is if NFLX really has a lot of juice left and I feel we are at another inflection point when the business model is weakening.
However, with interest rate cuts forecasted for later in 2023, I do believe the path to $400 per share exists along as we avoid global financial contagion or an invasion of Taiwan.
The stock is still too beaten down and I can easily visualize traders pumping up the stock to $420 only for investors to realize that a password-sharing ban is not a growth strategy and the quality of content not better than free YouTube isn’t improving by 30% every year.
This would be a good buy-the-dip candidate in the very short term.
Global Market Comments
March 27, 2023
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or THE BANKING CRISIS IS OVER),
(SPY), (TLT), (SCHW), (NFLX), (CS), (GLD), (USO), (BRK/B), (TSLA), (BAC), (C), (JPM), (IBKR), (MS)
CLICK HERE to download today's position sheet.
I think it is safe to say that the banking crisis is now in the market. You saw this in the ritual Friday selloff of bank stocks, which last week made back two-thirds of its losses by the end of the day.
Treasury Secretary Janet Yellen has made it clear that she will use her emergency authority to bail out the depositors of any US banks and leave the shareholders drifting in the wind. That’s OK as long as failures happen in ones and twos and not hundreds.
So after this coming dead, data-less week, we may launch into a serious rally next month, often the strongest of the year, back up to the top of the recent trading range. After that, it will be time to “Sell in May and go away,” and not come back until an interest rate collapse is imminent.
Personally, I have suites on the Queen Mary II and the Orient Express waiting for me. How about you?
And what happens when a crisis winds down? The need for protection ebbs as well. That means that big tech stocks with large balance sheets which had a great March will be due for a rest.
You see this in other flight-to-safety assets, like gold (GLD), which gave up some of its recent gains.
Given the failure of the Volatility Index ($VIX) to maintain a sustainable rally this year, it is clear that something important has changed in that market. That would be same-day options, which are stealing the thunder of the old ($VIX).
Instead of panicking and buying the ($VIX) at market, hedge fund algorithms are now programmed to buy individual same-day stock put options. That vastly increases the volatility of single stocks, with one day 10%-15% moves becoming normal.
When a piece of bad news erupts about the banking system, same-day put options across the entire sector rocket, regardless of whether any individual bank is having problems or not.
Needless to say, as ($VIX) opportunities fade, spectacular new trades are opening up in single stocks which Mad Hedge is happily taking advantage of. As a result, the profitability of our trading strategy has near doubled. This has produced the blowout numbers which I list below.
When panic put buying tanks a stock, we pile on call spreads, as we did two weeks ago with many bank and broker stocks. When fears of recession drive bond prices insanely high, we buy (TLT) put spreads.
Buy low, sell high, it’s my new investment strategy. I’m thinking of patenting it.
With some of the most extreme volatility of the year, Mad Hedge continued on up tear, with March up an eye-popping +12.52%.
My 2023 year-to-date performance is now at an incredible +38.28%. The S&P 500 (SPY) is up a miniscule +0.77% so far in 2023. My trailing one-year return maintains a sky-high +95.52% versus -10.23% for the S&P 500.
That brings my 15-year total return to +635.47%, some 2.8 times the S&P 500 (SPY) over the same period. My average annualized return has recovered to +48.26%, another new high.
I executed only two trades last week, content to leave alone my remaining eight positions that are profitable. I used a bond selloff to take profits with my bond short (TLT). A frenetic 25% rally prompted me to close out my long in Charles Schwab (SCHW) as we were nearing our maximum profit.
Fed Raises Interest Rates 25 basis points, to an overnight range of 4.75% to 5.00%, a 15-year high. But it left the door open to a further 25 basis points on May 3. The statement substantially weakened the prospect for future interest rate hikes, a de facto pause. Stocks loved the move, especially brokerage and technology stocks. Powell said the US banking system is sound and announced further support measures for small banks.
Yellen to Guarantee Deposits if More Banks Fail, which traders are taking to the bank as a nationwide government backstop. That explains the ballistic moves in financials yesterday. Today, Fed governor Jay Powell plays his hand.
Will the Banking Crisis End the Bear Market? I think so, as a drop in interest rates is the only possible solution. The Fed may have to guarantee all US bank deposits for a year to get there. Bank and technology stocks certainly think so, which have been on a tear this week.
Fed Window Increases By $94 Billion on the Week, and $400 billion in two weeks, in its so far successful effort to float the banking system. Some $60 billion went to foreign borrowers. It has to be viewed as a positive and the emergency need for funding is declining.
Netflix (NFLX) Soars 10%, by ending password sharing in Canada. The United States is expected to be next. The move is expected to boost paid subscriptions. I took profits on my long in (NFLX).
Oil (USO) Dives 1%, as the US energy secretary says it may take “years” to refill the Strategic Petroleum Reserve. How about never?
Existing Home Sales Soar 14.5% in February, a three-year high on a signed contract basis. The annualized rate was 4.58 million according to the National Association of Home Builders. Inventories shrink to an incredible 2.6 months or 980,000 homes. The median home prices fell 0.2% to $363,000, the first decline in 11 years. The sharp drop in interest rates last week will further turbocharge sales. Cash sales were 28% of total sales.
Gold (GLD) Tops $2,000 an Ounce, as the flight to safety bid continues. Lower interest rates sooner will also provide less yield competition for precious metals. Silver will provide the higher beta from here, as it always does.
UBS Buys Credit Suisse (CS) for $3.25 Billion, less than half of where it traded on Friday, eliminating another threat to the global financial system. It looks like there were $5 billion in hidden trading losses. Some $17 billion in lower tier bonds were written down to zero, which several US bond funds like Pimco owned. The deal includes a sweetheart $100 billion loan facility from my friends at the Swiss National Bank. The forced marriage will create one of the largest banks in Europe. Some 9,000 CS jobs will get axed.
Berkshire Hathaway Steps up Share Buybacks, totaling $1.8 billion in 2022. The three-year total is an incredible $60 billion. It explains why (BRK/B) was unchanged in an otherwise horrific year. Buffet still holds a stunning $147 billion in cash, most of which is invested in US Treasury short terms bills.
My Ten-Year View
When we come out the other side of the recession, we will be perfectly poised to launch into my new American Golden Age, or the next Roaring Twenties. The economy decarbonizing and technology hyper accelerating, creating enormous investment opportunities. The Dow Average will rise by 800% to 240,000 or more in the coming decade. The new America will be far more efficient and profitable than the old.
Dow 240,000 here we come!
On Monday, March 27 at 7:30 AM EST, the Dallas Fed Manufacturing Index is out.
On Tuesday, March 28 at 6:00 AM, the S&P Case Shiller National Home Price Index is announced.
On Wednesday, March 29 at 7:00 AM, the Pending Home Sales for February are printed.
On Thursday, March 30 at 8:30 AM, the Weekly Jobless Claims are announced. The final read on Q4 GDP is disclosed.
On Friday, March 31 at 8:30 AM, the Personal Income & Spending are released.
As for me, not a lot of people get a chance to board a WWII battleship these days. So when I got the chance, I jumped at it.
As part of my grand tour of the South Pacific for Continental Airlines in 1981, I stopped at the US missile test site at Kwajalein Atoll in the Marshall Islands, a mere 2,000 miles west southwest of Hawaii and just north of the equator.
Of course, TOP SECRET clearance was required and no civilians are allowed.
No problem there, as clearance from my days at the Nuclear Test Site in Nevada was still valid. Still, the FBI visited my parents in California just to be sure that I hadn’t adopted any inconvenient ideologies in the intervening years.
I met with the admiral in charge to get an update on the current strategic state of the Pacific. China was nowhere back then, so there wasn’t much to talk about in the wake of the Vietnam War.
As our meeting wound down, the admiral asked me if I had been on a German battleship. “It’s a bit before my time,” I replied. “How would you like to board the Prinz Eugen?" he responded.
The Prinz Eugen was a heavy cruiser, otherwise known as a pocket battleship built by Nazi Germany. It launched in 1938 at 16,000 tons and with eight 8-inch guns. Its sister ship was the Admiral Graf Spee, which was scuttled in the famous Battle of the River Platte in South America in 1939.
Early in the war, it helped sink the British battleship HMS Hood and damaged the HMS Prince of Wales. The Prinz Eugen spent much of the war holed up in a Norwegian fjord and later provided artillery support for the retreating German Army on the eastern front. At the end of the war, the ship was handed over to the US Navy as a war prize.
The US postwar atomic testing was just beginning so the Prinz Eugen was towed through the Panama Canal to be used as a target. Some 200 ships were assembled, including those from Germany, Japan, Britain, and even some American ships deemed no longer seaworthy like the USS Saratoga. One of the first hydrogen bombs was dropped in the middle of the fleet.
The Prinz Eugen was the only ship to remain afloat. In the Navy film of the explosion, you can see the Prinz Eugen jump 200 feet into the air and come down upright. The ship was then towed back to Kwajalein Atoll and put at anchor. A typhoon came later in 1946, capsizing and sinking it.
It was a bright at sunny day when I pulled up to the Prinz Eugen in a small boat with some Navy divers. There was no way the Navy was going to let me visit the ship alone.
The ship was upside-down, with the stern beached to the bow in 300 feet of pristine turquoise water. The propellers had recently been sent off to a war memorial in Germany. The ship’s eight cannons lay scattered on the bottom, falling out of their turrets when the ship tipped over.
The small part of the Prinz Eugen above water had already started to rust through. But once underwater it was like entering a live aquarium.
A lot of coral, seaweed, starfish, and sea urchins can accumulate in 36 years and every inch of the ship was covered. Brightly tropical fish swam in schools. A six-foot mako shark with a hungry look warily swam by.
My diver friends knew the ship well and showed me the highlights to a depth of 50 feet. The controls in the engine room were labeled in German Fraktur, the preferred prewar script. Broken dishes displayed the Nazi swastika. Anti-aircraft guns frozen in time pointed towards the bottom. No one had been allowed to remove anything from the ship since the war, and in the Navy, most men follow orders.
It was amazing what was still intact on a ship that had been blown up by a hydrogen bomb. You can’t beat “Made in Germany.” Our time on the ship was limited as the hull was still radioactive, and in any case, I was running low on oxygen.
A few years later the Navy banned all diving on the Prinz Eugen. Three divers had gotten lost in the dark, tangled in cables, and downed. I was one of the last to visit the historic ship.
I checked with my friends in the Navy and the Prinz Eugen is still there, but in deteriorating condition. When the ship started leaking oil in 2018 and staining the immaculate beaches nearby, the Navy launched a major effort to drain what was left from the 80-year-old tanks. No doubt a future typhoon will claim what is left.
So if someone asks if you know anybody who’s been on a German battleship, you can say “Yes,” you know me. And yes, my German is still pretty good these days.
Vielen dank!
Good Luck and Good Trading,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
The Prinz Eugen in 1940
The Prinz Eugen Today
Mad Hedge Technology Letter
March 15, 2023
Fiat Lux
Featured Trade:
(THE UNKNOWN IN THE DIGITAL AD SPACE)
(NFLX), (WBD), (DIS), (CMCSA), (ROKU)
The uncertain digital advertising environment has been a thorn in the side of legacy media giants for quite some time.
Companies from Comcast (CMCSA) to Warner Bros. Discovery (WBD) are feeling the pressure as profitability struggles pile up.
Unfavorable macroeconomic headwinds coupled with decreased ad budgets amid a decline in linear TV and digital search trends put the ad market through the wringer in 2022.
Recent ad market softness comes as media giants like Disney (DIS) and Netflix (NFLX) have embraced ad-supported streaming alternatives as the race for eyeballs escalate.
Disney's direct-to-consumer division lost an eye-popping $4 billion-plus in 2022.
Warner Bros Discovery is now targeting $4 billion in cost savings over the next two years.
Advertising revenue within NBCUniversal's media division increased by 4% in Q4 because of a boost from the incremental revenue from the FIFA World Cup.
Looking ahead, the lack of brand name events in 2023 such as the World Cup, Olympics, or U.S. midterm elections, will likely be a drag on ad spend in 2023.
Those events greatly aided the battered industry with the domestic ad market totaling $318 billion last year — an increase of 8% compared to 2021.
Similarly, Spotify (SPOT) CFO Paul Vogel told investors during the latest earnings call: "Advertising in Q4, overall, it's definitely continued to be very up and down."
Spotify's Q4 ad-supported revenue, boosted by podcasting, grew 14% on a year-over-year basis to €449 million — accounting for 14% of total revenue.
Disney and Netflix rolled out their ad tier products at a time when the ad market is in flux, but the move seems to have been a lucrative one.
At the time of the debut, the company said over 100 advertisers bought inventory for the launch — bucking the trend of a global ad spend slowdown.
Similar to Disney, Netflix is playing the long game when it comes to its recently launched ad-supported tier, which officially debuted in November.
In its latest shareholder letter, Netflix said engagement for ad-supported subscribers "is consistent with members on comparable ad-free plans, is better than what we had expected, and we believe the lower price point is driving incremental membership growth."
Investors should run to higher grounds to avoid the upcoming slaughter in legacy media.
The cord cutter phenomenon is real and the pivot to work-from-home culture has really stuck the fork in many traditional services that used to be part of American culture.
Legacy media is one of the big losers – nobody watches analog television anymore.
Investors will need to seek attractive properties such as NFLX to buy the dip.
They benefit from the first mover advantage, but Disney is also finding their way after firing former CEO Bob Chapek and replacing him with the guy before him - Bob Iger. It’s not a pure streaming play which is also an issue for the likes of Amazon and I do think Roku is a little too growth based at this point in the business cycle.
The overall message is to avoid unproven tech assets for the time being with bank turmoil and interest rate tumult.
The only exceptions are active traders who use volatility in their favor and play from the long and short side. Traders usually don’t discriminate and can jump in and out of these sharp movements.
If traders want to get into streaming or social media stocks, that is fine, but stick with the brand names and shun the exotic names for now.
Call this the Dr. Jekyll and Mr. Hyde market.
On the up days, we see the kindly ministrations of Dr. Jekyll.
On the down days, we suffer from the evil hand of Mr. Hyde.
To say that traders are confused would be an understatement. Many seasoned pros have told me that this is one of the most difficult markets they have ever seen.
Fridays have been particularly treacherous when weekly options expire. Some 56% of all options trading now takes place with expirations of five days or less. Trading before 4:00 PM sees billions of dollars of hot money trying to force closing prices just in or out of the money for key at-the-money strike prices.
What is especially disturbing is that some 80% of the gain in the S&P 500 (SPY) this year has been in just seven names, Meta, (META), Alphabet (GOOGL), Microsoft (MSFT), Apple (AAPL), Amazon (AMZN), Netflix (NFLX) and Tesla (TSLA). Most other stocks went nowhere….or down. That much concentration means that any rallies lack confidence and will fail….for now.
Remember these names because when we finally do get a real upside breakout, they will be the leaders. You can take that to the bank.
Thanks to turmoil in the House of Representatives intent on a national default, bonds have given up 70 of the 120-basis point drop in yields since October. That deprives us of one of our biggest money makers of 2022, our long bond trades.
That means were are also seeing the automatic flip side of the bond trade, a strong US Dollar (UUP), and weak precious metals, (GLD) and (SLV), and emerging markets (EEM).
This too shall end.
If it was excess liquidity that caused stocks to rocket for 13 years, then maybe we should be focusing on what little liquidity is left. That would be the font of government money pouring into infrastructure and alternative energy plays.
Some $370 billion I know available for investment in ESG, would most of it going into the battery industry for the burgeoning electric vehicle industry. Even foreign firms like Finland’s Neste is moving to the US to cash in on federal munificence, converting an old US oil refinery to produce diesel fuel out of animal and vegetable fat (click here for the link).
Probably the best bet here is in California-based Enphase Energy (ENPH), which makes a 40% gross profit margins on microinverters for solar panels and has just seen a 42% dive in its share price. That makes (ENPH) a BUY. Hint: solar stocks always follow the price of oil to which it is tied, which has lately been down.
Some nimble and aggressive trading managed to push me back in the green for February, taking me up +0.93% on the month. That’s a dramatic improvement of +5.48% from a week ago.
You might even call it making a silk purse from a sow’s ear.
My 2023 year-to-date performance is still at the top at +23.28%. The S&P 500 (SPY) is up +4.32% so far in 2023. My trailing one-year return maintains a sky-high +86.58% versus -12.97% for the S&P 500.
That brings my 15-year total return to +620.47%, some 2.78 times the S&P 500 (SPX) over the same period. My average annualized return has recovered to +46.83%, still the highest in the industry.
Last week, I piled on a Tesla (TSLA) March $155-$260 short strangle betting that the stock can stay within a $95 range for 19 trading days. I also added a deep in-the-money long in the bond market for the first time in six weeks. Both positions turned immediately 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!
Q4 GDP Dips, from 3.9% to 2.7% in the October-December quarter. Consumption took a dive, which is amazing over the holidays. This is nowhere near a recession.
Fed Minutes Show More Hikes to Come, with the emphasis on the plural. That could take the overnight borrowing rate to a 5.40% high. It certainly pees on the parade for the falling interest rates crowd.
The Tail is Wagging the Dog, with short, dated options, often same-day expiration dominating trading every Friday. Billions of dollars are battling around key strike prices attempting to force expirations in or out of the money. No place for the little guy. Better to take Fridays off.
Netflix Slashes Prices in 30 countries, taking the stock down a modest 3%. (NFLX) is still the leader in the sector with 231 million subscribers, followed by Amazon (200 million), Disney Plus (162 million, HBO Max (95 million, Peacock (18 million), and Hulu 47 million). Buy (NFLX) and (AMZN) on dips.
Individual 401k’s Lost 23% in 2022, according to a study from Fidelity. High inflation is shrinking the remaining purchasing power even faster. A rising number of workers are also borrowing against their 401k’s to make ends meet. Such loans can go up to 50% of the principal. Better start making up the losses or you’ll be spending your golden years working at Taco Bell.
Apple to Add Glucose Monitor on its Watches, to aid diabetic clients. Some 38 million Americans have diabetes and given the obesity epidemic that figure is certain to rise. It highlights Big Tech’s move into the low-hanging fruit in health care.
Existing Home Sales Dive 0.7% in January, to a 4 million annualized rate, the weakest since October 2010. That makes 12 consecutive months of falling sales. The Median Home Price sold rose to $359,000. An imminent national debt crisis and spiking interest rates is not a great environment in which to sell your home.
Biden Ukraine Visit Tanks Gas and Oil Prices, cutting Russia’s chances of a win and eventually leading to a flood of oil on the market. Biden’s visit is sending the message to Putin that there’s no chance of a win here. Energy is hitting two-year lows across the board. Only energy stocks are staying high. Energy is getting so cheap it might be worth a trade.
Germany Accelerates Move Towards Alternatives, permanently cutting all ties with Russia energy. Europe’s biggest economy, and the fourth largest in the world, hopes to get 80% of its electricity from solar and wind by 2030. Hydrogen is also entering the picture. Other countries will follow.
On Monday, February 27 at 8:30 AM EST, US Durable Goods are out.
On Tuesday, February 28 at 9:00 AM, the S&P Case Shiller National Home Price Index for December is released.
On Wednesday, March 1 at 10:00 AM, the ISM Manufacturing PMI is printed.
On Thursday, March 2 at 8:30 AM, the Weekly Jobless Claims are announced.
On Friday, March 3 at 8:30 AM, the ISM Non-Manufacturing PMI. At 2:00 the Baker Hughes Oil Rig Count is out.
As for me, I usually get a request to fund some charity about once a day. I ignore them because they usually enrich the fundraisers more than the potential beneficiaries. But one request seemed to hit all my soft spots at once.
Would I be interested in financing the refit of the USS Potomac (AG-25), Franklin Delano Roosevelt’s presidential yacht?
I had just sold my oil and gas business for an outrageous profit and had some free time on my hands so I said, “Hell Yes,” but only if I get to drive. The trick was to raise the necessary $5 million without it costing me any money.
To say that the Potomac had fallen on hard times was an understatement.
When Roosevelt entered the White House in 1932, he inherited the presidential yacht of Herbert Hoover, the USS Sequoia. But the Sequoia was entirely made of wood, which Roosevelt had a lifelong fear of. When he was a young child, he nearly perished when a wooden ship caught fire and sank, he was passed to a lifeboat by a devoted nanny.
Roosevelt settled on the 165-foot USS Electra, launched from the Manitowoc Shipyard in Wisconsin, whose lines he greatly admired. The government had ordered 34 of these cutters to fight rum runners across the Great Lakes during Prohibition. Deliveries began just as the ban on alcohol ended.
Some $60,000 was poured into the ship to bring it up to presidential standards and it was made wheelchair accessible with an elevator, which FDR operated himself with ropes. The ship became the “floating White House,” and numerous political deals were hammered out on its decks. Some noted guests included King George VI of England, Queen Elisabeth, and Winston Churchill.
During WWII Roosevelt hosted his weekly “fireside chats” on the ship’s short-wave radio. The concern was that the Germans would attempt to block transmissions if broadcast came from the White House.
After Roosevelt’s death, the Potamac was decommissioned and sold off by Harry Truman, who favored the much more substantial 243-foot USS Williamsburg. The Potamac became a Dept of Fisheries enforcement boat until 1960 and then was used as a ferry to Puerto Rico until 1962.
An attempt was made to sail it through the Panama Canal to the 1962 World’s Fair in Seattle, but it broke down on the way in Long Beach, CA. In 1964 Elvis Presley bought the Potomac so it could be auctioned off to raise money for St. Jude Children’s Research Hospital. It sold for $65,000. It then disappeared from maritime registration in 1970. At one point there was an attempt to turn it into a floating disco.
In 1980 a US Coast Guard cutter spotted a suspicious radar return 20 miles off the coast of San Francisco. It turned out to be the Potomac loaded to the gunnels with bales of illicit marijuana from Mexico. The Coast Guard seized the ship and towed it to the Treasure Island naval base under the Bay Bridge. By now the 50-year-old ship was leaking badly. The marijuana bales soaked up the seawater and the ship became so heavy it sank at its moorings.
Then a long rescue effort began. Not wanting to get blamed for the sinking of a presidential yacht on its watch the Navy raised the Potomac at its own expense, about $10 million, putting its heavy lift crane to use. It was then sold to the City of Oakland, Ca for a paltry $15,000.
The troubled ship was placed on a barge and floated upriver to Stockton, CA, which had a large but underutilized unionized maritime repair business. The government subsidies started raining down from the skies and a down-to-the-rivets restoration began. Two rebuilt WWII tugboat engines replaced the old, exhausted ones. A nationwide search was launched to recover artifacts from FDR’s time on the ship. The Potomac returned to the seas in 1993.
I came on the scene in 2007 when the ship was due for a second refit. The foundation that now owned the ship needed $5 million. So, I did a deal with National Public Radio for free advertising in exchange for a few hundred dinner cruise tickets. NPR then held a contest to auction off tickets and kept the cash (what was the name of FDR’s dog? Fala!).
I also negotiated landing rights at the Pier One San Francisco Ferry Terminal, which involved negotiating with a half dozen unions, unheard of in San Francisco maritime circles. Every cruise sold out over two years, selling 2,500 tickets. To keep everyone well-lubricated I became the largest Bay Area buyer of wine for those years. I still have a free T-shirt from every winery in Napa Valley.
It turned out to be the most successful fundraiser in the history of NPR and the Potomac. We easily got the $5 million and then some. The ship received a new coat of white paint, new rigging, modern navigation gear, and more period artifacts. I obtained my captain’s license and learned how to command a former coast guard cutter.
It was a win-win-win.
I was trained by a retired US Navy nuclear submarine commander, who was a real expert at navigating a now thin-hulled 73-year-old ship in San Francisco’s crowded bay waters. We were only licensed to cruise up to the Golden Gate bridge and not beyond, as the ship was so old.
The inaugural cruise was the social event of the year in San Francisco with everyone wearing period Depression-era dress. It was attended by FDR’s grandson, James Roosevelt III, a Bay area attorney who was a dead ringer for his grandfather. I mercilessly grilled him for unpublished historical anecdotes. A handful of still-living Roosevelt cabinet members also came, as well as many WWII veterans.
As we approached the Golden Gate Bridge, some poor soul jumped off and the Coast Guard asked us to perform search and rescue until they could get a ship on station. No body was ever found. It certainly made for an eventful first cruise.
Of the original 34 cutters constructed only four remain. The other three make up the Circle Line tour boats that sail around Manhattan several times a day.
Last summer I boarded the Potomac for the first time in 14 years for a pleasant afternoon cruise with some guests from Australia. Some of the older crew recognized me and saluted. In the cabin, I noticed a brass urn oddly out of place. It contained the ashes of the sub-commander who had trained me all those years ago.
Good Luck and Good Trading,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Captain Thomas at the Helm
