Mad Hedge Technology Letter
February 26, 2025
Fiat Lux
Featured Trade:
(NVIDIA EARNINGS TO SWAY THE NASDAQ)
(NVDA), (META), (BTCUSD)
Posts
It’s been a steep drop for tech stocks the last few days and there is a lot to piece through here.
It was due at some point.
Look, we are at Himalayan highs in the Nasdaq and that doesn’t mean it will be smooth sailing from here.
To find that incremental dollar to push up tech stocks is not as easy as it once was.
We aren’t in the golden years of technology anymore.
The big question is why someone should input that extra dollar when there is a flattening of momentum in the entire tech establishment.
A.I. is the big two-letter acronym that everyone is focused on so it is not a surprise that profits are being taken leading up to Nvidia’s earnings.
Nvidia isn’t as ironclad as it used to be and that worries me.
Nvidia is carrying the market on its back like it has been doing for the past year and market breadth has remarkably narrowed.
If there was no Nvidia, we would be looking at a demonstrably lower stock market than this expensive stock market we are trading right now.
Remember that I urged readers to pile into tech stocks after that mid-January Deepseek selloff and that was the perfect elixir to profits.
Now, where do we find that indicator or signal to go green?
It’s a tough one and we must be patient.
All I have left in the portfolio is a bull call spread in Meta that has been taken out to the woodshed and beaten like the proverbial red-headed stepchild.
Then we look at other signs of liquidity and alternative barometers and Bitcoin has to scare you.
The quicksand drop to $85,000 per coin questions whether the bull market in tech stocks is still alive or kicking.
At the very minimum, the kicking is getting weaker and weaker each following earnings season.
But investors can hold on to hope for a few more hours. After the bell today, the world turns to fourth-quarter earnings for the linchpin of AI euphoria, Nvidia (NVDA).
This two-plus-year bull market has weathered several multi-month periods when Nvidia's stock price sputtered. But the company's stock hasn't contributed to the bull market since last June, as its share price has effectively gone nowhere in that time.
Over the last 10 years (40 reports), buying Nvidia stock just before the earnings announcement has yielded a median return of 3% to 4% on the one-day, one-week, and one-month time frames. Holding for three months has yielded nearly 18%.
The disparity highlights the volatile earnings reactions that might net bullish results but can also cause significant discomfort in the near term.
But for the entire Nvidia obsession, investors are right to question how much AI is still a picks-and-shovels or even an energy trade (as it morphed into in 2024).
If I had to nail down a date, investors expect the 2nd half of 2025 to calculate what exactly future cash flow will look like and if the infrastructure investment in AI is really worth the hassle.
A great deal of capital was asked to front AI and we are creeping towards that day where AI will need to sink or swim.
As it stands, the AI overlords like OpenAI helmed by Sam Altman, still puts on a happy face like nothing will fail to surpass expectation. It is easier to put on a good face when someone is worth billions upon billions.
In the short, we are preparing for a buying opportunity in the best and brightest.
Global Market Comments
February 18, 2025
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD or THE TALE OF TWO MARKETS)
(GS), (TSLA), (NVDA), (VST)
While trading one market is hard enough, two is almost more than one can bear. In fact, we have all been trading two markets since 2025 began.
On the up days, it appears that the indexes are about to break out of a tediously narrow trading range. The market’s inability to go down is proof that it has to go up. Thursday was one of those days.
These are followed by down days, it appears that the indexes are about to break down. The market’s inability to stay up is proof that it has to go down. Wednesday was one of those days.
Up….down….up….down. Please excuse me if I get dizzy, which I shouldn’t, as I am a former combat pilot.
The market is calling Trump's bluff, rising in the face of threatened whopping great tariff increases against most of the world. So far, lots of noise, no action. The bark is worse than the bite. As I have been saying all year, ignore the noise and don’t fight the tape.
Which brings me to the price of copper.
Look at the ten-year chart of the red metal below, and you see a pretty positive formation is taking place. You have a similar set up in the chart of Freeport McMoRan, the world’s largest producer of copper.
This is in the face of huge negatives, like the failure of the Chinese economy to recover, the end of all alternative energy subsidies, the government announcing that it will no longer mint pennies, and the ongoing recession in residential real estate.
The seasoned trader in me knows that when you throw bad news on a commodity and it fails to go down, you buy the heck out of it. Is copper discounting the expansion of the grid independent of government assistance? There is more than meets the eye here.
What if the end of the Ukraine War is the big black swan of 2025? The best estimate for the cost of the reconstruction of Ukraine is $1 trillion. That would require a lot of copper, maybe a China’s worth.
It would also present major positives for the global economy. It would give us a peace dividend on the scale of the last one that started in 1991. For a start, energy prices would collapse as restrictions on the export of 10 million barrels a day of Russian oil come off. Ukraine would reclaim its position as one of the world’s largest food exporters, especially wheat and sunflower oil.
I know that Russia is close to running out of weapons. Some two-thirds of Russia’s tanks and planes have been destroyed, and they don’t have the parts to build new ones. That is forcing them to draw on military stockpiles from the 1950s.
I have first-hand knowledge of this. I learned from the Pentagon that the Russian missile fired at me on the eastern front lines failed to explode because it was 55 years old. The best estimate is that Russia will completely run out of some kinds of weapons by this summer.
February has started with a respectable +2.73% return so far. That takes us to a year-to-date profit of +8.53% so far in 2025. My trailing one-year return stands at a spectacular +86.48% as a bad trade a year ago fell off the one-year record. That takes my average annualized return to +50.14% and my performance since inception to +759.42%.
I used the brief weakness in Goldman Sachs (GS) to add a new long. I took profits on my two longs in Tesla on a bounce. That tops up our portfolio with a remaining short in (TSLA) and longs in (NVDA) and (VST). These latter positions expire in three trading days at max profit.
Some 63 of my 70 round trips, or 90%, were profitable in 2023. Some 74 of 94 trades have been profitable in 2024, and several of those losses were really break-even. That is a success rate of +78.72%.
Try beating that anywhere.
US Q4 Profits Hit Three-Year High. With reports in from nearly 70% of the S&P 500 companies as of Wednesday, fourth-quarter earnings are estimated to have risen 15.1% from a year earlier, up from an estimate of 9.6% growth at the start of January. The S&P 500 communication services sector, which includes companies such as Meta Platforms (META), is leading estimated fourth-quarter earnings gains among sectors, with year-over-year growth of 32.2%.
Core Inflation Rate Comes in Red Hot at 0.50%. Overall, advance was broad, led by shelter, food, and medicine. Shelter accounted for nearly 30% of the advance, according to the report from the Bureau of Labor Statistics out Wednesday. The so-called core CPI also climbed by more than forecast. That reflected higher prices for car insurance, airfares, and a record monthly increase in the cost of prescription drugs. It looks like no interest rate cuts for 2025.
PPI comes in Hot, reversing the gains on inflation of the past two years. The Producer Price Index, a measurement of average price changes seen by producers and manufacturers, rose 0.4% on a monthly basis and 3.5% for the 12 months ended in January. That held steady with December, which was upwardly revised to 3.5% according to Bureau of Labor Statistics data released Thursday.
US announced European Tariffs this Week, tanking stocks on Friday. Steel and metals shares are surging this morning. It’s pretty clear that markets hate all things tariff-related. Can we talk more about deregulation, which markets love? The reality is that markets don’t know how to price in Trump, swinging back and forth between euphoria one moment to Armageddon another. Best case, markets flatline. Worst case, they crash.
Gold (GLD) is headed for $3,000, my long-term target, on central bank and flight to safety buying. What’s the next target? $5,000 is the current turmoil in Washington continues. Notice that it’s the physical metal that’s moving, not the miners.
Foreign Investors Continue to Soak Up US Debt, seeking higher interest rates in an appreciating currency. Americans own 55% of the outstanding $36 trillion in US debt, while foreign investors own 24%, and the Federal Reserve 13%.
Wall Street Souring on Magnificent Seven. The market stronghold has diminished slightly, as the cohort struggles to meet ever-loftier expectations, and investors rotate into other parts of the market such as small caps. Tech titans also took a hit in late January after the emergence of Chinese startup DeepSeek raised concerns over how much spending will be needed to implement AI capabilities.
Market is Giving Up on any Interest Rate Cuts this Year, as the prospects of rising inflation from trade wars weigh on the market. Economists have warned that a wide-scale trade war could significantly raise prices, and consumers appear to be worried as well. Respondents to the University of Michigan’s consumer sentiment poll released Friday indicated they expect inflation to run at a 4.3% rate a year from now, up a full percentage point from the January reading.
Tesla Tanks 7%, and down 34% since December after Chinese competitor BYD announces a partnership with DeepSeek. The move is expected to accelerate BYD’s move into full self-driving. Tesla sales are falling in all major markets. Call it DeepSeek hit part 2.
Weekly Jobless Claims Fall. Initial claims for state unemployment benefits fell 7,000 to a seasonally adjusted 213,000 for the week ended February 8, the Labor Department said on Thursday. Economists polled by Reuters had forecast 215,000 claims for the latest week.
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 multiple gale force headwinds. The economy will completely stop decarbonizing. Technological 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, February 17, markets are closed for President's Day.
On Tuesday, February 18 at 8:30 AM EST, the New York Empire State Manufacturing Index is released.
On Wednesday, February 19 at 8:30 AM EST, the New Housing Starts are printed.
On Thursday, February 20 at 8:30 AM, the Weekly Jobless Claims are disclosed.
On Friday, February 21 at 8:30 AM, the Existing Home Sales are announced. At 2:00 PM the Baker Hughes Rig Count is printed.
As for me, I was having lunch at the Paris France casino in Las Vegas at Mon Ami Gabi, one of the top ten grossing restaurants in the United States. My usual waiter, Pierre from Bordeaux, took care of me in his typical ebullient way, graciously letting me practice my rusty French.
As I finished an excellent but calorie-packed breakfast (eggs Benedict, caramelized bacon, hash browns, and a café au lait), I noticed an elderly couple sitting at the table next to me. Easily in their 80s, they were dressed to the nines and out on the town.
I told them I wanted to be like them when I grew up.
Then I asked when they first went to Paris, expecting a date sometime after WWII. The gentleman responded, “Seven years ago”.
And what brought them to France?
“My father is buried there. He’s at the American Military Cemetery at Colleville-sur-Mer along with 9,386 other Americans. He died on Omaha Beach on D-Day. I went for the D-Day 70th anniversary.” He also mentioned that he never met his dad, as he was killed in action weeks after he was born.
I reeled with the possibilities. First, I mentioned that I participated in the 40-year D-Day anniversary with my uncle, Medal of Honor winner Mitchell Paige, and met with President Ronald Reagan.
We joined the RAF fly-past in my own private plane and flew low over the invasion beaches at 200 feet, spotting the remaining bunkers and the rusted-out remains of the once floating pier. Pont du Hoc is a sight to behold from above, pockmarked with shell craters like the moon. When we landed at a nearby airport, I taxied over railroad tracks that were the launch site for the German V1 “buzz bomb” rockets.
D-Day was a close-run thing and was nearly lost. Only the determination of individual American soldiers saved the day. The US Navy helped too, bringing destroyers right to the shoreline to pummel the German defenses with their five-inch guns. Eventually, battleships working in concert with very lightweight Stinson L5 spotter planes made sure that anything the Germans brought to within 20 miles of the coast was destroyed.
Then the gentleman noticed the gold Marine Corps pin on my lapel and volunteered that he had been with the Third Marine Division in Vietnam. I replied that my father had been with the Third Marine Division during WWII at Bougainville and Guadalcanal and that I had been with the Third Marine Air Wing during Desert Storm.
I also informed him that I had led an expedition to Guadalcanal two years ago looking for some of the 400 Marines still missing in action. We found 30 dog tags and sent them to the Marine Historical Division at Quantico, Virginia, for tracing. I proudly showed them my pictures.
When the stories came back, it turned out that many survivors were children now in their 80s who had never met their fathers because they were killed in action on Guadalcanal.
Small world.
I didn’t want to infringe any further on their fine morning out, so I excused myself. He said Semper Fi, the Marine Corps motto, thanked me for my service, and gave me a fist pump and a smile. I responded in kind and made my way home.
Oh, and say “Hi” when you visit Mon Ami Gabi. Tell Pierre that John Thomas sent you and give him a big tip. It’s not easy for a Frenchman to cater to all these loud Americans.
Third Marine Air Wing
The D-Day Couple
The American Military Cemetery at Colleville-sur-Mer
Stay Healthy,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Global Market Comments
February 14, 2025
Fiat Lux
Featured Trade:
(FEBRUARY 12 BIWEEKLY STRATEGY WEBINAR Q&A),
(MCD), (FSLR), (META), (GOOG), (AMZN), (JNK), (HYG), (F), (GM), (NVDA), (PLTR), (INTC)
Below, please find subscribers’ Q&A for the February 12 Mad Hedge Fund Trader Global Strategy Webinar, broadcast from Incline Village, NV.
Q: Can Nvidia (NVDA) go to $200 in the next three years?
A: I would imagine probably, yes. They still have a fabulous business—enormous orders and record profits. But it's not going to happen in the next six months. You need to get us out of the current stock market malaise before anything moves dramatically one way or the other, except for META, which is at an all-time high. Their basic business is still great, and the threat posed by DeepSeek is wildly overblown.
Q: Why is McDonald's (MCD) seeing declining sales?
A: Partly, it's because they have been cutting prices. So, of course, that automatically feeds into declining sales. Also, I think the weight loss drugs Mounjaro or Ozempic are having an impact. People just don't go in and eat three Big Macs for lunch anymore. They may not need any Big Macs at all. And forget about the fries and the super-size high fructose corn syrup drink. When these drugs first came out, it was speculated that fast food companies would be the number one victim of these drugs, and that is turning out to be true. Some 15.5 million people in the United States suddenly aren't hungry anymore; they just take one bite of a meal and then push their food around the plate with their fork. That’s better than taking amphetamines, which people like Judy Garland used to take to lose weight. I think that will affect not only McDonald's, but all fast-food companies which I avoid like the plague anyway because my doctor says I shouldn't eat that food.
Q: Should I buy First Solar (FSLR) based on the revised higher sales outlook?
A: I don't want to touch alternative energy anything right now. I think the government will eliminate all subsidies for all alternative energy—be it solar, windmills, hydrogen, nuclear, whatever—and turn us back into an all-oil and coal economy. That is the announced goal of the new administration. So that eliminates the subsidies for sure. It certainly will be a blow to the earnings of all solar-type companies. If you are going to do an energy form, I would do nuclear, which benefits from deregulation, if that ever happens.
Q: Do price caps fix supply problems? Because Europe is thinking about capping energy prices in the short term.
A: Price caps never work, nor does any other attempt to artificially control prices, because all it does is dry up supply. If you cap the prices, and therefore the profits that energy companies can make, they'll quit. They'll abandon the energy business, or they'll pare it down, or they won't expand. One way or the other, you reduce the return on capital. Capital is like water; it will go where it gets the highest return, and price caps certainly are not part of that formula. But what do I know? I only drilled for natural gas for six years.
Q: What's your top AI choice?
A: Well, I would say it's Nvidia (NVDA) still, and the big AI users which include Meta (META), Google (GOOG), and Amazon (AMZN). Nothing has changed here.
Q: Is there any chance that Ford Motors (F) will be bought out anytime soon or never?
A: My view of all of the legacy car companies, including Stellantis, which is the old Chrysler, Ford (F), and General Motors (GM), is that they are basically giant mountains of scrap metal and only have a scrap metal value, which is about 5 cents on the dollar. That's what they fell to in the 2008 financial crisis, and all of them except for Ford went bankrupt. So I am not a big fan of the legacy auto industry now. And now, they have a trade war. They happen to be one of the biggest victims of trade wars because to stay competitive with Tesla, they moved a lot of their production to Canada and Mexico, and now those plans are going up in flames. So it seems like they're damned if they do and they're damned if they don't. I'm happy driving my Tesla, but I'm wondering if my next car is a BYD. Prices are so low, it might even be worth paying 100% duty just to get a cheaper car that has better self-driving capability. But the future is unknown, to say the least.
Q: Is the next big rotation out of Silicon Valley and into Chinese tech stocks?
A: Over the long term, that may happen, but with the current administration and China (the number one target in restraint of trade and trade wars), I don't want to touch anything Chinese. There are too many better things to do in the U.S. Imagine you buy a Chinese stock, and then the administration announces a total cutoff of trade with China the next day. Not good. Chinese stocks are incredibly cheap. Most of the big ones are now single-digit multiples compared to multiples in the 20s, 30s, and 40s for our stocks. But they come with a very high political risk, and that has been true for several years now. There are better fish to fry than in China. I'd rather buy Europe than China right now if you really do want to go international. But I have no idea why they're going up unless they're discounting an end to the Ukraine War.
Q: Are junk bonds (JNK) and (HYG) a good play?
A: I would say yes. Their default risk has always been over-exaggerated thanks to their unfortunate name. They're yielding 6.54% and change, but it's a very slow mover. If we do get any improvement, any economy without inflation junk will go to $100. It's currently around $96. And you know, yield is a nice thing to have these days since the capital gain side seems to have dried up and turned into dust on almost any asset class.
Q: How can I decide when to sell the stocks that we bought on your recommendations?
A: Well, our trade alerts always have a buy recommendation and a sell recommendation or an expiration date. If you bought the stocks and kept it, just read Global Trading Dispatch for an updated market view. Watch our Mad Hedge Market Timing Index. When we get up into the 70s and 80s, that is definitely sell territory. It's hard for individuals to have an economic view going out to the rest of the year, but even the people who are economists have no idea what's going to happen right now. As I said, uncertainty is at an 8-year high, and that is being reflected in the market. So nothing beats cash, especially when you can earn 4.2% on 90-day US treasury bills. No one ever got fired for taking a profit.
Q: Can Intel (INTC) make a comeback this year?
A: No. I'm sorry, but they won’t. They had a horrible manager. They dumped him after a couple of disastrous years. I knew he was a horrible manager. I fought off all the pressure to buy Intel. So far, that's working. I mean, the stock has been terrible, so it is very cheap, but there is no guarantee that they will ever recover and, in fact, may get taken over by somebody else. So—too many better things to do. I'd rather be buying more Nvidia right now at these prices than sticking my neck out and praying for a miracle at Intel.
Q: A couple of years ago, I bought a bunch of Palantir (PLTR) on your recommendation for the next 10 bagger. I now have a 10 bagger. What should I do?
A: You know, we did recommend Palantir about 10 years ago, and it did nothing for the longest time. And then last year, it just took off like a rocket—I think it's up 400% last year. Price-earnings multiples are insanely high now. So what I would do is sell half your position. That way, the remaining half is all profit. You're playing with the house's money, and you're reducing your risk in a high-risk environment. Sell half, keep the other half. If it looks like it's starting to roll over and die, then you sell your remaining half.
Q: What's your favorite currency this year, and what should we do about it?
A: My favorite currency is the US dollar. If we're not going to get any interest rate cuts this year, the dollar will remain the highest-yielding currency in the world, and then everybody wants to buy it. It's really that simple. It’s all about interest rate differentials. Everybody else in the world has low interest rates, so stick with the dollar and don't touch the foreign currencies yet.
Q: Inflation expectations have exploded higher in view of today's number. Do you expect it to get worse?
A: If the trade war continues, it will absolutely get worse. 25% price increases are inflationary—period. End of story. A price increase is the definition of inflation, and right now, we are increasing the number of countries subject to high punitive tariffs, not decreasing them. You can expect markets to worry about that. And even if they put a temporary hold on these, people are raising prices now. They are not waiting for the actual tariff to hit; they are front-running that right now. So if you don't believe me, go to the grocery store where prices are through the roof. I actually went to a grocery store the other day, and I couldn't believe what things cost.
Q: I'd like to hedge my Nvidia (NVDA) position with a covered call. Which one should I do?
A: Well, it's not actually a hedge. What a covered call does is reduce your cost price and increase income. Right now, we have NVDA at $135. If you shorted something like the February $145 calls, you might get a dollar for that. That reduces your average price by a dollar. If you shorted the March $145 calls, that'll bring in probably $5, reduce your costs by $5, or bring in an extra $5 in income. And if you keep doing this every month and Nvidia stays stuck in a range, you can end up taking $10, $20, or even $30 in premium income over the next six months. And I have a feeling that will be the winning strategy for the first half of this year, using rallies to sell covered calls. You really could get your average cost down quite a lot; that way, if we have a massive sell-off, a lot of that loss will already be covered. If we get a massive rally, your stock just gets called away, and you buy it back on the next dip. The only negative here is the tax consequences of taking capital gains on the call-aways.
Q: You mentioned that the US has a demographic problem coming up; how will that affect the market in the short term?
A: It doesn't affect the market in the short term. Demographics are a long-term game. You have to think in terms of a generation being the round lot, which is about 20 years. Suffice it to say, when demographics go against you, like they did in Japan for 30 years, markets are horrible. Demographics are going against China now, and you're getting horrible markets. Demographics are good now in the US because we have millennials just entering their peak spending years, and that's when economies boom, and that should continue up to 2030. That is how to play demographics, and we keep updated here, although the government has suddenly ceased making available all demographic data to the public—I don't know why, but it's going to make the science of demographics much more difficult to follow without the government data. I don't know why they did that. I don't know what they hope to gain by clouding the demographic picture. Maybe it has to do with the allocation of congressional seats to the states or something like that.
Q: Do you have information on how to place a LEAPS order?
A: Just go to www.madhedgefundtrader.com, go to the search box, put in LEAPS in all caps, and you will find an encyclopedia of information on how to do LEAPS or Long Term Equity Anticipation Securities.
To watch a replay of this webinar with all the charts, bells, whistles, and classic rock music, just log in to www.madhedgefundtrader.com, go to MY ACCOUNT, click on GLOBAL TRADING DISPATCH, TECHNOLOGY LETTER, or JACQUIE'S POST, then WEBINARS, and all the webinars from the last 12 years are there in all their glory.
Good Luck and Good Trading,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Global Market Comments
February 10, 2025
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD or BACK TO BOOT CAMP)
(SPY), (EWG), (EWU), (TSLA), (NVDA), (VST)
I have a new outlook for the US stock markets.
The current government's economic policy reminds me a lot about the Marine Corps boot camp. Through harsh treatment and rigorous training, the Marines seek to destroy incoming recruits. They then spend 13 weeks rebuilding a new soldier from scratch who is obedient, respectful, follows orders, and is in much better physical condition. He is also a pretty good shot.
Since Trump inherited an almost perfect economy, with 3% real GDP growth, 2.8% inflation, and 4% unemployment, he has to break it first. Then he can spend the next four years rebuilding it and take credit for the recovery.
It looks like we are going to get more on the destruction front this week, with the US announcing European tariffs, which tanked stocks on Friday. We could remain in the destruction phase for the rest of the year. It sets up nicely at least a 20% correction sometime in 2025. Oh, and never buy on a Friday. All of the “shock and awe” announcements are occurring on the weekends. Wait for the Monday morning opening and buy the collapse.
It’s pretty clear that markets hate all things tariff-related. Can we please talk more about deregulation, which markets love? The reality is that markets don’t know how to price in Trump, swinging back and forth between euphoria one moment to Armageddon another. Best case, markets flat line. Worst case, they crash.
Here are some additional causes for concern. Big Tech was the only stock market sector that saw net inflows in 2024. It was also the only down sector in January. It just so happens to be the most overweight sector among almost all individuals and institutions, including yours. Big Tech now accounts for 35% of stock market capitalization. It is a concentration on steroids. So when we finally DO get a correction, it will be a big one, easily more than 10%.
Looking at stock market performance around the world since the 2008-09 financial crisis, it’s easy to see where the idea of American exceptionalism comes from. Since 2010, the German stock market (EWG) is up by 142% and the UK (EWU) by 112%. During the same 15-year period, the S&P 500 (SPY) soared by 1,112%, an outperformance of an eye-popping 8:1.
Since the beginning of 2025, the German stock market (EWG) is up by 12.7% and the UK (EWU) by 9%. In the meantime, the S&P 500 has managed a mere 3.5% gain. What has happened? Has something changed? Is American exceptionalism a thing of the past? If so, it would be terrible news for stocks.
In the rest of the world, 26% of corporate cash flow is reinvested in the company. In the US, it’s 42%, and for the Magnificent Seven, it’s 57%. This is American Exceptionalism distilled by a single driver. If this continues, that’s great. If rampant uncertainty drives US companies into hiding, it won’t. 90-day US Treasury bills yielding a risk-free 4.2% look pretty good in this new chaotic world, especially if you are still sitting on the gigantic profits of the past two years.
This is why Foreigners have been pouring money into the US as fast as possible and has been a major factor in our price appreciation until now. Foreign investors now own $23 trillion worth of American debt, equities, and real estate today versus only $8 trillion in 2017.
As I mentioned last week, when I suggest a European investment idea to a European, they tell me I am out of my mind and beg for more US investment ideas. I know this because about one-third of the Mad Hedge subscribers are aboard in 134 countries.
And this is why markets are so jittery. Some 23% of all the completed cars sold in the US are actually made in Mexico and Canada. For auto parts, the figure is more than 50%. The US sold 3.7 million vehicles made in Mexico and Canada. The new 25% tariff will increase prices by $6,300 per vehicle. Average car prices are now at $50,000 and are already at all-time highs. That works out to a $22.7 billion tax on the buyers of new cars who are mostly middle class.
My bet? That the prices of used cars soar, which aren’t subject to any such taxes.
Turn off the TV. Ignore the noise. Buy the down days and sell the up days. It’s no more complicated than that. If you want to play headline ping pong with the president, be my guest. But you’ll lose your shirt.
February has started with a breakeven +0.57% return so far.
That takes us to a year-to-date profit of +6.25% so far in 2025. My trailing one-year return stands at +83.45% as a bad trade a year ago fell off the one-year record. That takes my average annualized return to +5.23% and my performance since inception to +757.12%.
I used the weakness in Tesla to double up my long there. That tops up our portfolio to a long in (TSLA), a short in (TSLA), and longs in (NVDA) and (VST).
Some 63 of my 70 round trips, or 90%, were profitable in 2023. Some 74 of 94 trades have been profitable 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 multiple gale force headwinds. 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, February 10, nothing of note takes place.
On Tuesday, February 11, at 8:30 AM EST, the NFIB Business Optimism Index is released.
On Wednesday, February 12 at 8:30 AM, the Core Inflation Rate is printed.
On Thursday, February 13 at 8:30 AM, the Weekly Jobless Claims are disclosed.
On Friday, February 14 at 8:30 AM, the Producer Price Index is announced. At 2:00 PM the Baker Hughes Rig Count is printed.
As for me, it was with a heavy heart that I boarded a plane for Los Angeles to attend a funeral for Bob, the former scoutmaster of Boy Scout Troop 108.
The event brought a convocation of ex-scouts from up and down the West coast and said much about our age.
Bob, 85, called me two weeks ago to tell me his CAT scan had just revealed advanced metastatic lung cancer. I said, “Congratulations Bob, you just made your life span.”
It was our last conversation.
He spent only a week in bed and then was gone. As a samurai warrior might have said, it was a good death. Some thought it was the smoking he quit 20 years ago.
Others speculated that it was his close work with uranium during WWII. I chalked it up to a half-century of breathing the air in Los Angeles.
Bob originally hailed from Bloomfield, New Jersey. After WWII, every East Coast college was jammed with returning vets on the GI bill. So he enrolled in a small, well-regarded engineering school in New Mexico in a remote place called Alamogordo.
His first job after graduation was testing V2 rockets newly captured from the Germans at the White Sands Missile Test Range. He graduated to design ignition systems for atomic bombs. A boom in defense spending during the fifties swept him up to the Greater Los Angeles area.
Scouts I last saw at age 13 or 14 were now 60, while the surviving dads were well into their 80s. Everyone was in great shape, those endless miles lugging heavy packs over High Sierra passes obviously yielding lifetime benefits.
Hybrid cars lined both sides of the street. A tag-along guest called out for a cigarette, and a hush came over a crowd numbering over 100.
Apparently, some things stuck. It was a real cycle of life weekend. While the elders spoke about blood pressure and golf handicaps, the next generation of scouts played in the backyard or picked lemons off a ripening tree.
Bob was the guy who taught me how to ski, cast rainbow trout in mountain lakes, transmit Morse code, and survive in the wilderness. He used to scrawl schematic diagrams for simple radios and binary computers on a piece of paper, usually built around a single tube or transistor.
I would run off to Radio Shack to buy WWII surplus parts for pennies on the pound and spend long nights attempting to decode impossibly fast Navy ship-to-ship transmissions. He was also the man who pinned an Eagle Scout badge on my uniform in front of beaming parents when I turned 15.
While in the neighborhood, I thought I would drive by the house in which I grew up, once a modest 1,800 square foot ranch-style home to a happy family of nine. I was horrified to find that it had been torn down, and the majestic maple tree that I planted 40 years ago had been removed.
In its place was a giant, 6,000-square-foot marble and granite monstrosity under construction for a wealthy family from China.
Profits from the enormous China-America trade have been pouring into my hometown from the Middle Kingdom for the last decade, and mine was one of the last houses to go.
When I was class president of the high school here, there were 3,000 white kids and one Chinese. Today, those numbers are reversed. Such is the price of globalization.
I guess you really can’t go home again.
At the request of the family, I assisted in the liquidation of his investment portfolio. Bob had been an avid reader of the Diary of a Mad Hedge Fund Trader since its inception, and he had attended my Los Angeles lunches.
It seems he listened well. There was Apple (AAPL) in all its glory at a cost of $21. I laughed to myself. The master had become the student, and the student had become the master.
Like I said, it was a real circle of life weekend.
Scoutmaster Bob
1965 Scout John Thomas
The Mad Hedge Fund Trader at Age 11 in 1963
Stay Healthy,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Mad Hedge Technology Letter
February 3, 2025
Fiat Lux
Featured Trade:
(TARIFFS COME FOR TECH STOCKS)
(NVDA), (META)
Tech stocks have felt the full effect of the volatile nature of the new federal government in charge in Washington.
Tech stocks aren’t looking too pretty today.
The new admin levied a 25% tariff on goods from Mexico only to give the Mexicans a 1-month reprieve.
Like a game of high-stakes poker, but Trump is wielding the American economy at the poker table with reckless abandon.
Tech stocks whipsawed and most stocks opened up in the red, however, a stock like Meta was able to ride out the instability by surging at the open.
Not all tech stocks are created equal.
If many investors thought Trump wouldn’t follow through with his sabre-rattling, then think again.
He is hell-bent on going full throttle and pushing allies to the brink whether they can tolerate it or not.
The surge in interest rates because of the perception of higher inflation and higher geopolitical risk was the reason tech stocks were jolted at the beginning of this week.
Indeed, tech stocks are in for a sideways correction if American government policy becomes constantly aggressive and brutal.
Tech stocks will have a narrow path to go higher, but not like the prior 10 years when stocks were cheered higher by almost everyone.
Trump said this will boost US manufacturing.
The tariffs will grow the US economy, protect jobs, and raise tax revenue, he argues.
Canada’s Trudeau declared retaliatory 25% tariffs on $107 billion dollars worth of US goods on Saturday.
Mexican President Claudia Sheinbaum has directed the Secretary of Economy to impose a plan including "tariff and non-tariff measures in defense of Mexico's interests".
Together, China, Mexico, and Canada accounted for more than 40% of imports into the US last year.
Most goods from Mexico don’t affect tech stocks such as fruits like avocado, vegetables, tequila, and beer.
Canadian goods such as steel, lumber, grains, and potatoes are also likely to get pricier.
It is expected that the car manufacturing sector could see the brunt of the effects of the tariff.
It’s not like Trump is only going after Mexico and Canada, he also has the U.K. and Europe in his crosshairs.
Do tariffs cause inflation?
In the short term, tariffs will hit consumers in the U.S. with corporations front-running price increases by passing on the higher inputs to the end buyer.
The market also senses higher inflation and interest rate yields will get bid up, which is negative for tech stocks.
It is naïve to think that tech stocks will go up in a straight line like the past 10 years – they certainly will not.
If the government is hell-bent on this type of tactic, global markets will feel the pain.
Even if this doesn’t directly affect tech stocks, the American consumer will not go unscathed.
Interest rates exploding higher will certainly mean tech stocks opening up Monday mornings 3% down.
That is not a good starting point for the week and explains why the bellwether Nvidia (NVDA) is down 15% year to date.
Then throw in the chaos from the Deepseek fiasco that threatens the valuations of many AI stocks.
It’ll be tough sledding from here on out and tech investors need to be mindful to not get caved in out of nowhere.
