Global Market Comments
January 4, 2023
Fiat Lux
2023 Annual Asset Class Review
A Global Vision
FOR PAID SUBSCRIBERS ONLY
Featured Trades:
(SPX), (QQQ), (IWM) (AAPL), (XLF), (BAC) (JPM), (BAC), (C), (MS), (GS),
(X), (CAT), (DE),(TLT), (TBT), (JNK), (PHB), (HYG), (MUB), (LQD), (FXE), (EUO),
(FXC), (FXA), (YCS), (FXY), (CYB), (DIG), (RIG), (USO), (DUG), (UNG), (USO),
(XLE), (AMLP),(GLD), (DGP), (SLV), (PPTL), (PALL), (ITB), (LEN), (KBH), (PHM)
I am once again writing this report from a first-class sleeping cabin on Amtrak’s legendary California Zephyr.
By day, I have two comfortable seats facing each other next to a panoramic window. At night, they fold into two bunk beds, a single and a double. There is a shower, but only Houdini could navigate it.
I am anything but Houdini, so I foray downstairs to use the larger public hot showers. They are divine.
We are now pulling away from Chicago’s Union Station, leaving its hurried commuters, buskers, panhandlers, and majestic great halls behind. I love this building as a monument to American exceptionalism.
I am headed for Emeryville, California, just across the bay from San Francisco, some 2,121.6 miles away. That gives me only 56 hours to complete this report.
I tip my porter, Raymond, $100 in advance to make sure everything goes well during the long adventure and to keep me up to date with the onboard gossip.
The rolling and pitching of the car is causing my fingers to dance all over the keyboard. Microsoft’s Spellchecker can catch most of the mistakes, but not all of them.
As both broadband and cell phone coverage are unavailable along most of the route, I have to rely on frenzied Internet searches during stops at major stations along the way to Google obscure data points and download the latest charts.
You know those cool maps in the Verizon stores that show the vast coverage of their cell phone networks? They are complete BS.
Who knew that 95% of America is off the grid? That explains so much about our country today.
I have posted many of my better photos from the trip below, although there is only so much you can do from a moving train and an iPhone 14 Pro Max.
Here is the bottom line which I have been warning you about for months. In 2023, we will probably top the 84.63% we made last year, but you are going to have to navigate the reefs, shoals, and hurricanes. Do it and you can laugh all the way to the bank. I will be there to assist you to navigate every step.
The first half of 2023 will be all about trading. After that, I expect markets to go straight up.
And here is my fundamental thesis for 2023. After the Fed kept rates too low for too long, then raised them too much, it will then panic and lower them again too fast to avoid a recession. In other words, a mistake-prone Jay Powell will keep making mistakes. That sounds like a good bet to me.
Let me give you a list of the challenges I see financial markets are facing in the coming year:
The Ten Key Variables for 2023
1) When will the Fed pivot?
2) How much of a toll will the quantitative tightening take?
3) How soon will the Russians give up on Ukraine?
4) When will buyers return to technology stocks from value plays?
5) Will gold replace crypto as the new flight to safety investment?
6) When will the structural commodities boom get a second wind?
7) How fast will the US dollar fall?
8) How quickly will real estate recover?
9) How fast can the Chinese economy bounce back from Covid-19?
10) How far will oil prices keep falling?
The Thumbnail Portfolio
Equities – buy dips
Bonds – sell buy dips
Foreign Currencies – buy dips
Commodities – buy dips
Precious Metals – buy dips
Energy – stand aside
Real Estate – buy dips
1) The Economy – Bouncing Along the Bottom
Whether we get a recession or not, you can count on markets fully discounting one, which it is currently doing with reckless abandon.
Anywhere you look, the data is dire, save for employment, which may be the last shoe to fall. Technology companies seem to be leading us in the right direction with never-ending mass layoffs. Even after relentless cost-cutting though, there are still 1.5 tech job offers per applicant, which is down from last year’s three.
The Fed is currently predicting a weak 0.5% GDP growth rate for 2023, the same feeble rate we saw for 2022. What we might get is two-quarters of negative growth in the first half followed by a sharp snapback in the second half.
Whatever we get, it will be one of the mildest recessions or growth recessions in American economic history. There is no hint of a 2008-style crash. The banking system was shored up too well back then to prevent that. Thank Dodd/Frank.
So far, so good.
2) Equities (SPX), (QQQ), (IWM) (AAPL), (XLF), (BAC) (JPM), (BAC), (C), (MS), (GS), (X), (CAT), (DE)
Since my job is to make your life incredibly easy, I am going to narrow my equity strategy for 2023.
It's all about falling interest rates.
When interest rates are high, as they are now, you only look at trades and investments that can benefit from falling interest rates.
In the first half, that will be value plays like banks, (JPM), (BAC), (C), financials (MS), (GS), homebuilders (KBH), (LEN), (PHM), industrials (X), capital goods (CAT), (DE).
As we come out of any recession in the second half, growth plays will rush to the fore. Big tech will regain leadership and take the group to new all-time highs. That means the volatility and chop we will certainly see in the first half will present a generational opportunity to get into the fastest-growing sectors of the US economy at bargain prices. I’m talking Cadillacs at KIA prices.
A category of its own, Biotech & Healthcare should do well on their own. Not only are they classic defensive plays to hold during a recession, technology and breakthrough new discoveries are hyper-accelerating. My top three picks there are Eli Lily (ELI), Abbvie (ABBV), and Merck (MRK).
Block out time on your calendars because whenever the Volatility Index (VIX) tops $30, I am going pedal to the metal, and full firewall forward (a pilot term), and your inboxes will be flooded with new trade alerts.
There is another equity subclass that we haven’t visited in about a decade, and that would be emerging markets (EEM). After ten years of punishment by a strong dollar, (EEM) has also been forgotten as an investment allocation. We are now in a position where the (EEM) is likely to outperform US markets in 2023, and perhaps for the rest of the decade.
3) Bonds (TLT), (TBT), (JNK), (PHB), (HYG), (MUB), (LQD)
Amtrak needs to fill every seat in the dining car to get everyone fed on time, so you never know who you will share a table with for breakfast, lunch, and dinner.
There was the Vietnam Vet Phantom Jet Pilot who now refused to fly because he was treated so badly at airports. A young couple desperately eloping from Omaha could only afford seats as far as Salt Lake City. After they sat up all night, I paid for their breakfast.
A retired British couple was circumnavigating the entire US in a month on a “See America Pass.” Mennonites are returning home by train because their religion forbade automobiles or airplanes.
The national debt ballooned to an eye-popping $30 trillion in 2021, a gain of an incredible $3 trillion and a post-World War II record. Yet, as long as global central banks are still flooding the money supply with trillions of dollars in liquidity, bonds will not fall in value too dramatically. I’m expecting a slow grind down in prices and up in yields.
The great bond short of 2021 never happened. Even though bonds delivered their worst returns in 19 years, they still remained nearly unchanged. That wasn’t good enough for the many hedge funds, which had to cover massive money-losing shorts into yearend.
Instead, the Great Bond Crash will become a new business. This time, bonds face the gale force headwinds of three promised interest rate hikes. The year-end government bond auctions were a complete disaster.
Fed borrowing continues to balloon out of control. It’s just a matter of time before the last billion dollars in government borrowing breaks the camel’s back.
That makes a bond short a core position in any balanced portfolio. Don’t get lazy. Make sure you only sell a rally lest we get trapped in a range, as we did for most of 2021.
A Visit to the 19th Century
4) Foreign Currencies (FXE), (EUO), (FXC), (FXA), (YCS), (FXY), (CYB)
With a major yield advantage over the rest of the world, the US dollar has been on an absolute tear for the past decade. After all, we have the world’s strongest economy.
That is about to end.
If your primary assumption is that US interest rates will see a sharp decline sometime in 2023, then the outlook for the greenback is terrible.
Currencies are driven by interest rate differentials and the buck is soon going to see the fastest shrinking yield premium in the forex markets.
That shines a great bright light on the foreign currency ETFs. You could do well buying the Australian Dollar (FXA), Euro (FXE), Japanese yen (FXE), and British Pound (FXB). I’d pass on the Chinese yuan (CYB) right now until their Covid shutdowns end.
5) Commodities (FCX), (VALE), (DBA)
Commodities are the high beta play in the financial markets. That’s because the cost of being wrong is so much higher. Get on the losing side of commodities and you will be bled dry by storage costs, interest expenses, contangos, and zero demand.
Commodities have one great attribute. They predict recessions earlier than any other asset class. When they peaked in March of 2022, they were screaming loud and clear that a recession would hit in early 2023. By reversing on a dime on October 14, they also told us that the recovery would begin in July of 2023.
You saw this in every important play in the sector, including Broken Hill (BHP), Peabody Energy (BTU), Freeport McMoRan (TCX), and Alcoa Aluminum (AA). Excuse me for using all the old names.
The heady days of the 2011 commodity bubble top are about to replay. Now that this sector is convinced of a substantially weaker US dollar and lower inflation, it is once more a favorite target of traders.
China will still demand prodigious amounts of imported commodities once its pandemic shutdown ends, but not as much as in the past. Much of the country has seen its infrastructure built out, and it is turning from a heavy industrial to a service-based economy, much like the US. Investors are keeping a sharp eye on India as the next major commodity consumer.
And here’s another big new driver. Each electric vehicle requires 200 pounds of copper and production is expected to rise from 1 million units a year to 25 million by 2030. Annual copper production will have to increase three-fold in a decade to accommodate this increase, no easy task, or prices will have to rise.
The great thing about commodities is that it takes a decade to bring new supply online, unlike stocks and bonds, which can merely be created by an entry in an excel spreadsheet. As a result, they always run far higher than you can imagine.
Accumulate all commodities on dips.
6) Energy (DIG), (RIG), (USO), (DUG), (UNG), (XLE), (AMLP)
Energy was the top-performing sector of 2022. But remember, you will be trading an asset class that is eventually on its way to zero sooner than you think. However, you could have several doublings on the way to zero. This is one of those times.
The real tell here is that energy companies are bailing on their own industry. Instead of reinvesting profits back into their future exploration and development, as they have for the last century, they are paying out more in dividends and share buybacks.
Take the money and run.
There is the additional challenge in that the bulk of US investors, especially environmentally friendly ESG funds, are now banned from investing in legacy carbon-based stocks. That means permanently cheap valuations and share prices for the energy industry.
Energy now counts for only 5% of the S&P 500. Twenty years ago, it boasted a 15% weighting.
The gradual shutdown of the industry makes the supply/demand situation infinitely more volatile.
Unless you are a seasoned, peripatetic, sleep-deprived trader, there are better fish to fry.
And guess who the world’s best oil trader was in 2022? That would be the US government, which drew 400 million barrels from the Strategic Petroleum Reserve in Texas and Louisiana at an average price of $90 and now has the option to buy it back at $70, booking a $4 billion paper profit.
The possibility of a huge government bid at $70 will support oil prices for at least early 2023. Whether the Feds execute or not is another question. I’m advising them to hold off until we hit zero again to earn another $18 billion. Why we even have an SPR is beyond me, since America has been a large net energy producer for many years now. Do you think it has something to do with politics?
To understand better how oil might behave in 2023, I’ll be studying US hay consumption from 1900-1920. That was when the horse population fell from 100 million to 6 million, all replaced by gasoline-powered cars and trucks. The internal combustion engine is about to suffer the same fate.
7) Precious Metals (GLD), (DGP), (SLV), (PPTL), (PALL)
The train has added extra engines at Denver, so now we may begin the long laboring climb up the Eastern slope of the Rocky Mountains.
On a steep curve, we pass along an antiquated freight train of hopper cars filled with large boulders.
The porter tells me this train is welded to the tracks to create a windbreak. Once, a gust howled out of the pass so swiftly that it blew a passenger train over on its side.
In the snow-filled canyons, we saw a family of three moose, a huge herd of elk, and another group of wild mustangs. The engineer informs us that a rare bald eagle is flying along the left side of the train. It’s a good omen for the coming year.
We also see countless abandoned 19th century gold mines and the broken-down wooden trestles leading to huge piles of tailings, relics of previous precious metals booms. So, it is timely here to speak about the future of precious metals.
Fortunately, when a trade isn’t working, I avoid it. That certainly was the case with gold last year.
2022 was a terrible year for precious metals until we got the all-asset class reversal in October. With inflation soaring, stocks volatile, and interest rates soaring, gold had every reason to fall. Instead, it ended up unchanged on the year, thanks to a 15% rally in the last two months.
Bitcoin stole gold’s thunder until a year ago, sucking in all of the speculative interest in the financial system. Jewelry and industrial demand were just not enough to keep gold afloat. That is over now for good and that is why gold is regaining its luster.
Chart formations are starting to look very encouraging with a massive head-and-shoulders bottom in place. So, buy gold on dips if you have a stick of courage on you, which I hope you do.
Higher beta silver (SLV) will be the better bet as it already has been because it plays a major role in the decarbonization of America. There isn’t a solar panel or electric vehicle out there without some silver in them and the growth numbers are positively exponential. Keep buying (SLV), (SLH), and (WPM) on dips.
8) Real Estate (ITB), (LEN), (KBH), (PHM)
The majestic snow-covered Rocky Mountains are behind me. There is now a paucity of scenery, with the endless ocean of sagebrush and salt flats of Northern Nevada outside my window, so there is nothing else to do but write.
My apologies in advance to readers in Wells, Elko, Battle Mountain, and Winnemucca, Nevada.
It is a route long traversed by roving banks of Indians, itinerant fur traders, the Pony Express, my own immigrant forebearers in wagon trains, the Transcontinental Railroad, the Lincoln Highway, and finally US Interstate 80, which was built for the 1960 Winter Olympics at Squaw Valley.
Passing by shantytowns and the forlorn communities of the high desert, I am prompted to comment on the state of the US real estate market.
Those in the grip of a real estate recession take solace. We are in the process of unwinding 2022’s excesses, but no more. There is no doubt a long-term bull market in real estate will continue for another decade, once a two year break is completed.
There is a generational structural shortage of supply with housing which won’t come back into balance until the 2030s. You don’t have a real estate crash when we are short 10 million homes.
The reasons, of course, are demographic. There are only three numbers you need to know in the housing market for the next ten years: there are 80 million baby boomers, 65 million Generation Xers who follow them, and 86 million in the generation after that, the Millennials.
The boomers (between ages 58 and 76) have been unloading dwellings to the Gen Xers (between ages 46 and 57) since prices peaked in 2007. But there are not enough of the latter, and three decades of falling real incomes mean that they only earn a fraction of what their parents made. That’s what caused the financial crisis. That has created a massive shortage of housing, both for ownership and rentals.
There is a happy ending to this story.
Millennials now aged 26-41 are now the dominant buyers in the market. They are transitioning from 30% to 70% of all new buyers of homes. They are also just entering the peak spending years of middle age, which is great for everyone.
The Great Millennial Migration to the suburbs and Middle America has just begun. Thanks to the pandemic and Zoom, many are never returning to the cities. That has prompted massive numbers to move from the coasts to the American heartland.
That’s why Boise, Idaho was the top-performing real estate market, followed by Phoenix, Arizona. Personally, I like Reno, Nevada, where Apple, Google, Amazon, and Tesla are building factories as fast as they can.
As a result, the price of single-family homes should continue to rise during the 2020s, as they did during the 1970s and the 1990s when similar demographic forces were at play.
This will happen in the context of a labor shortfall, soaring wages, and rising standards of living.
Rising rents are accelerating this trend. Renters now pay 35% of their gross income, compared to only 18% for owners, and less, when multiple deductions and tax subsidies are considered. Rents are now rising faster than home prices.
Remember, too, that the US will not have built any new houses in large numbers in 16 years. The 50% of small home builders that went under during the Financial Crisis never came back.
We are still operating at only a half of the 2007 peak rate. Thanks to the Great Recession, the construction of five million new homes has gone missing in action.
There is a new factor at work. We are all now prisoners of the 2.75% 30-year fixed rate mortgages we all obtained over the past five years. If we sell and try to move, a new mortgage will cost double today. If you borrow at a 2.75% 30-year fixed rate, and the long-term inflation rate is 3%, then, over time, you will get your house for free. That’s why nobody is selling, and prices have barely fallen.
This winds down towards the end of 2023 as the Fed realizes its many errors and sharply lowers interest rates. Home prices will explode…. again.
Quite honestly, of all the asset classes mentioned in this report, purchasing your abode is probably the single best investment you can make now after you throw in all the tax breaks. It’s also a great inflation play.
That means the major homebuilders like Lennar (LEN), Pulte Homes (PHM), and KB Homes (KBH) are a buy on the dip.
Recent Reno Real Estate Statistics
9) Postscript
We have pulled into the station at Truckee amid a howling blizzard.
My loyal staff has made the ten-mile trek from my estate at Incline Village to welcome me to California with a couple of hot breakfast burritos and a chilled bottle of Dom Perignon Champagne, which has been resting in a nearby snowbank. I am thankfully spared from taking my last meal with Amtrak.
After that, it was over legendary Donner Pass, and then all downhill from the Sierras, across the Central Valley, and into the Sacramento River Delta.
Well, that’s all for now. We’ve just passed what was left of the Pacific mothball fleet moored near the Benicia Bridge (2,000 ships down to six in 50 years). The pressure increase caused by a 7,200-foot descent from Donner Pass has crushed my plastic water bottle. Nice science experiment!
The Golden Gate Bridge and the soaring spire of Salesforce Tower are just around the next bend across San Francisco Bay.
A storm has blown through, leaving the air crystal clear and the bay as flat as glass. It is time for me to unplug my MacBook Pro and iPhone, pick up my various adapters, and pack up.
We arrive in Emeryville 45 minutes early. With any luck, I can squeeze in a ten-mile night hike up Grizzly Peak and still get home in time to watch the ball drop in New York’s Times Square on TV.
I reach the ridge just in time to catch a spectacular pastel sunset over the Pacific Ocean. The omens are there. It is going to be another good year.
I’ll shoot you a Trade Alert whenever I see a window open at a sweet spot on any of the dozens of trades described above, which should be soon.
Good luck and good trading in 2023!
John Thomas
The Mad Hedge Fund Trader
Global Market Comments
November 9, 2022
Fiat Lux
Featured Trade:
(TESTIMONIAL),
(THE DEATH OF PASSIVE INVESTING),
(SPY), (SPX), (QQQ), (META), (UUP), (GLD), (INDU)
Global Market Comments
April 22, 2022
Fiat Lux
Featured Trade:
(APRIL 20 BIWEEKLY STRATEGY WEBINAR Q&A),
(SPX), (TSLA), (TBT), (TLT), (BAC), (JPM), (MS),
(BABA), (TWTR), (PYPL), (SHOP), (DOCU),
(ZM), (PTON), (NFLX), (BRKB), (FCX), (CPER)
Below please find subscribers’ Q&A for the April 20 Mad Hedge Fund Trader Global Strategy Webinar broadcast from Silicon Valley.
Q: Should I take profits on the ProShares UltraShort 20+ Year Treasury ETF (TBT), or will it go lower?
A: Well, you’ve just made a 45% profit in 4 months; no one ever gets fired for taking a profit. And yes, it will go lower, but I think we’re due for a 5 -10% rally in the (TBT) and we’re seeing some of that today.
Q: Do you think the bottom is in now for the S&P 500 Index (SPX)?
A: No, I think the 50 basis point rate hikes will put the fear of God into the market and prompt another round of profit-taking in stocks. So will another ramp up or expansion in the Ukraine War, and so could another spike in Covid cases. And interest rates are getting high enough, with a ten-year US Treasury (TLT) at 2.95% and junk at 6.00% that they will start to bleed off money from stocks.
So there are plenty of risks in this market that I don’t need to chase thousand point rallies that fail the following week.
Q: What would cause a rally in the iShares 20 Plus Year Treasury Bond ETF (TLT)?
A: Everyone in the world is short, for a start. And secondly, we’ve had a $36 point drop in the market in 4 ½ months—that is absolutely screaming for a short-covering rally. It would be typical of the market to get everybody in the world short one thing, and then ramp it right back up. You can bet hedge funds are just gunning for that trade. So those are two big reasons. Another big reason is getting a slowdown in the economy. Fear of interest rate rises and yield curve inversions are certainly going to scare people into thinking that.
Q: Where to buy Tesla (TSLA)?
A: We had a $1,200 all-time high at the end of last year, then sold off to $700—that was your ideal entry point, on that one day when the market was down $1,000 and they were throwing out Tesla stock like there was no tomorrow. We have since rallied back to the 1100s, so I'd say at this point, anything you could get under just above the $200-day moving average at $900 would be a gift because the sales are happening and they’re making tons of money. They’re so far ahead of the rest of the world on EV technology that no one will ever be able to catch up. A lot of the biggest companies like Ford (F) and (GM) are still unable to mass produce electric cars, even though they’re all talking about these wonderful models they're bringing out in 2024 and 2025. So, I think Tesla is just so far ahead in the market that no one will catch them. And the stock will have to reflect that by trading at a higher premium.
Q: I Bought the ProShares UltraShort 20+ Year Treasury ETF (TBT) at your advice at $14, it’s now at 425. Time to take the money and run?
A: Yes, so that you’re in position to rebuy the (TBT) at $22, or even $20.
Q: I bought some bank LEAPS such as Bank of America (BAC), JP Morgan (JPM), and Morgan Stanley (MS) just before earnings; they’re doing well so far.
A: That will definitely be one of my target sectors on any recovery; because the only reason the stock market recovers is because recession fears have been put away, and the only reason the banks have been going down is because of recession fears. Certainly, the yield curve inversion has been helping them lot, as are absolute higher interest rates. So yes, zero in on the banks, I’m holding back waiting for better entry points, but for those who are aggressive, there’s no problem with scaling in here.
Q: If Putin uses a tactical nuclear weapon in the Ukraine, what would be the outcome?
A: Well, I don't think he will, because you don’t want to use nukes on your neighbors because the wind tends to blow the radiation back into your own country. It also depends on when he does this; if Ukraine joins NATO, joins the EC, and NATO troops enter Ukraine, and then they use tactical nukes, France and England also have their own nuclear weapons. So, attacking a nuclear foe and risking bringing in the US, who could wipe out the whole country in minutes, would not be a good idea.
Q: Would you get into Chinese stocks here?
A: Not really; China seems to have changed its business model permanently by abandoning capitalism. The Mad Hedge Technology Letter is currently running a short position in Alibaba (BABA) which has proved highly successful. Although these things are stupidly cheap, they could get cheaper before they turn around. Also, there’s the threat of delisting on the stock exchanges facing them in a year or two, and the trade tensions which continue with China. China doesn’t seem friendly anymore or is interested in capitalism. You don't want to own stocks anywhere in that situation. And by the way, Russia has also banned all foreign stock listings. China could do the same—not good if you’re an owner of those stocks.
Q: How would you play Twitter (TWTR) now?
A: I think it’s a screaming short, myself. If the board doesn’t accept Elon’s offer, which seems to be the case with their poison pill adoption, there are no other buyers of Twitter; and Elon has already said he’s not going to pay up. So you take Elon Musk’s shareholding out of the picture, and you’re looking at about a 30% drop.
Q: Many of the biggest Covid beneficiaries are near or below their March 2020 lows, such as PayPal (PYPL), Shopify (SHOP), DocuSign (DOCU), Zoom (ZM), Peloton (PTON), Netflix (NFLX), etc. Are these buys soon or are there other new names joining them?
A: I think this will continue to be a laggard sector. I think any recovery will be led by big tech, and once big tech peaks out after a 6-month run, then you may get the smaller ones catching up—especially if they're still down 80% or 90%. So that’s a no-touch for me; too many better fish to fry.
Q: Do you think inflation is transitory or are we headed toward double digits over the long term?
A: The transitory argument got thrown out the window the day Russia invaded Ukraine; they are one of the world’s largest producers of both energy and wheat. So that definitely set those markets on fire and really could end up adding an extra 5% in our inflation numbers before we peak out. I think we will see the highs sometime this year, could be as low as 4% by the end of this year. But we may have a double-digit print before we top out, and that could be next month. So, if you’re looking for another reason for stocks to sell out, that would be a good one.
Q: If the EU could limit oil purchases from Russia, then the war would be over in a month since Russia has no borrowing power or reserves.
A: The problem is whether they actually could limit oil purchases, which they can’t do immediately. If you could limit them in a year or cut them down by like 80%, we could come up with the other 20%, that is possible. Then, the war would end and Russia would starve; but Russia may starve anyway. Even with all the rubles in the world, they can’t buy anything overseas. Basically, Russia makes nothing, they only sell commodities and use those proceeds to buy consumer goods from abroad, which have all been completely cut off. They’re in for an economic disaster no matter what happens, and they have no way of avoiding it.
Q: What are your thoughts on supply chain problems?
A: I actually think they’re getting better; I watch the number of ships at anchor in San Francisco Bay, and it’s actually down by about half over the last 3 months. People are slowly starting to get things that they ordered nine months ago, used car prices are starting to roll over…so yes, it’s going to be a very slow process. It took one week to shut down the global economy, it’ll take three years to get it fully reopened. And of course, that’s extended by the Ukraine War. Plus, as long as there are supply chain problems and huge prices being paid for parts and labor, you’re not going to have a recession, it’s impossible.
Q: What’s your outlook on tech stocks?
A: I see them bottoming in the current quarter, and then going on to new all-time highs in the second half.
Q: What about covered calls?
A: It’s a really good idea, allowing you to get long a stock here, and reduce your average cost every month by writing calls against your position until they eventually get called away. Not too long ago, I wrote a piece on covered calls, so I could rerun that again to get people familiar with the concept.
Q: If Warren Buffet retires, what happens to Berkshire Hathaway (BRKB) stock?
A: It drops about 5% one day, then goes on to new highs. The concept of a 90-year-old passing away in his sleep one night is not exactly revolutionary or new. Replacements for Buffet have been lined up for so long that now the replacements are retiring. I think that’s pretty much baked in the price.
Q: Any plans to update the long-term portfolio?
A: Yes it’s on my list.
Q: Too late to buy Freeport McMoRan (FCX)?
A: Yes I’m afraid so. We’ve had a near double since September when it started moving. However, I would hold it if you already own it and add on any substantial selloff. Freeport McMoRan announced fabulous earnings today, and the stock promptly sold off 9%. It was a classic “buy the rumor, sell the news” type move. This is despite the fact that the United States Copper Fund ETF (CPER), in which (FCX) is a major holding, is up on the day. Please remember that I told you earlier that each Tesla needs 200 pounds of copper, that Tesla sales could double to 2 million this year, and that they could sell 4 million if they could make them. It sounds like a bullish argument of me, of which (FCX) is the world’s largest producer.
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, then 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
Global Market Comments
January 6, 2022
Fiat Lux
Featured Trades:
(TESTIMONIAL),
(THE DEATH OF PASSIVE INVESTING),
(SPY), (SPX), (INDU)
(NOTICE TO MILITARY SUBSCRIBERS),
Global Market Comments
January 5, 2022
Fiat Lux
2022 Annual Asset Class Review
A Global Vision
FOR PAID SUBSCRIBERS ONLY
Featured Trades:
(SPX), (QQQ), (XLF), (XLE), (XLY),
(TLT), (TBT), (JNK), (PHB), (HYG), (PCY), (MUB), (HCP)
(FXE), (EUO), (FXC), (FXA), (YCS), (FXY), (CYB)
(BHP), (FCX), (VALE), (AMLP), (USO), (UNG),
(GLD), (GDX), (SLV), (ITB), (LEN), (KBH), (PHM)
I am once again writing this report from a first-class sleeping cabin on Amtrak’s legendary California Zephyr.
By day, I have two comfortable seats facing each other next to a panoramic window. At night, they fold into two bunk beds, a single and a double. There is a shower, but only Houdini could navigate it.
I am anything but Houdini, so I go downstairs to use the larger public hot showers. They are divine.
We are now pulling away from Chicago’s Union Station, leaving its hurried commuters, buskers, panhandlers, and majestic great halls behind. I love this building as a monument to American exceptionalism.
I am headed for Emeryville, California, just across the bay from San Francisco, some 2,121.6 miles away. That gives me only 56 hours to complete this report.
I tip my porter, Raymond, $100 in advance to make sure everything goes well during the long adventure and to keep me up-to-date with the onboard gossip.
The rolling and pitching of the car is causing my fingers to dance all over the keyboard. Microsoft’s Spellchecker can catch most of the mistakes, but not all of them.
As both broadband and cell phone coverage are unavailable along most of the route, I have to rely on frenzied Internet searches during stops at major stations along the way to Google obscure data points and download the latest charts.
You know those cool maps in the Verizon stores that show the vast coverage of their cell phone networks? They are complete BS.
Who knew that 95% of America is off the grid? That explains so much about our country today.
I have posted many of my better photos from the trip below, although there is only so much you can do from a moving train and an iPhone 12X pro.
Here is the bottom line which I have been warning you about for months. In 2022, you are going to have to work twice as hard to earn half as much money with double the volatility.
It’s not that I’ve turned bearish. The cause of the next bear market, a recession, is at best years off. However, we are entering the third year of the greatest bull market of all time. Expectations have to be toned down and brought back to earth. Markets will no longer be so strong that they forgive all mistakes, even mine.
2022 will be a trading year. Play it right, and you will make a fortune. Get lazy and complacent and you’ll be lucky to get out with your skin still attached.
If you think I spend too much time absorbing conspiracy theories or fake news from the Internet, let me give you a list of the challenges I see financial markets are facing in the coming year:
The Ten Key Variables for 2022
1) How soon will the Omicron wave peak?
2) Will the end of the Fed’s quantitative easing knock the wind out of the bond market?
3) Will the Russians invade the Ukraine or just bluster as usual?
4) How much of a market diversion will the US midterm elections present?
5) Will technology stocks continue to dominate, or will domestic recovery, and value stocks take over for good?
6) Can the commodities boom get a second wind?
7) How long will the bull market for the US dollar continue?
8) Will the real estate boom continue, or are we headed for a crash?
9) Has international trade been permanently impaired or will it recover?
10) Is oil seeing a dead cat bounce or is this a sustainable recovery?
The Thumbnail Portfolio
Equities – buy dips
Bonds – sell rallies
Foreign Currencies – stand aside
Commodities – buy dips
Precious Metals – stand aside
Energy – stand aside
Real Estate – buy dips
Bitcoin – Buy dips
1) The Economy
What happens after a surprise variant takes Covid cases to new all-time highs, the Fed tightens, and inflation soars?
Covid cases go to zero, the Fed flip flops to an ease and inflation moderates to its historical norm of 3% annually.
It all adds up to a 5% US GDP growth in 2022, less than last year’s ballistic 7% rate, but still one of the hottest growth rates in history.
If Joe Biden’s build-back batter plan passes, even in diminished form, that could add another 1%.
Once the supply chain chaos resolves inflation will cool. But after everyone takes delivery of their over orders conditions could cool.
This sets up a Goldilocks economy that could go on for years: high growth, low inflation, and full employment. Help wanted signs will slowly start to disappear. A 3% handle on Headline Unemployment is within easy reach.
2) Equities (SPX), (QQQ), (IWM) (AAPL), (XLF), (BAC)
The weak of heart may want to just index and take a one-year cruise around the world instead in 2022 (here's the link for Cunard).
So here is the perfect 2022 for stocks. A 10% dive in the first half, followed by a rip-roaring 20% rally in the second half. This will be the year when a big rainy-day fund, i.e., a mountain of cash to spend at market bottoms, will be worth its weight in gold.
That will enable us to load up with LEAPS at the bottom and go 100% invested every month in H2.
That should net us a 50% profit or better in 2022, or about half of what we made last year.
Why am I so cautious?
Because for the first time in seven years we are going to have to trade with a headwind of rising interest rates. However, I don’t think rates will rise enough to kill off the bull market, just give traders a serious scare.
The barbell strategy will keep working. When rates rise, financials, the cheapest sector in the market, will prosper. When they fall, Big Tech will take over, but not as much as last year.
The main support for the market right now is very simple. The investors who fell victim to capitulation selling that took place at the end of November never got back in. Shrinking volume figures prove that. Their efforts to get back in during the new year could take the S&P 500 as high as $5,000 in January.
After that the trading becomes treacherous. Patience is a virtue, and you should only continue new longs when the Volatility Index (VIX) tops $30. If that means doing nothing for months so be it.
We had four 10% corrections in 2021. 2022 will be the year of the 10% correction.
Energy, Big Tech, and financials will be the top-performing sectors of 2022. Big Tech saw a 20% decline in multiples in 2022 and will deliver another 30% rise in earnings in 2022, so they should remain at the core of any portfolio.
It will be a stock pickers market. But so was 2021, with 51% of S&P 500 performance coming from just two stocks, Tesla (TSLA) and Alphabet (GOOGL).
However, they are already so over-owned that they are prone to dead periods as long as eight months, as we saw last year. That makes a multipronged strategy essential.
3) Bonds (TLT), (TBT), (JNK), (PHB), (HYG), (MUB), (LQD)
Amtrak needs to fill every seat in the dining car to get everyone fed on time, so you never know who you will share a table with for breakfast, lunch, and dinner.
There was the Vietnam Vet Phantom Jet Pilot who now refused to fly because he was treated so badly at airports. A young couple desperately eloping from Omaha could only afford seats as far as Salt Lake City. After they sat up all night, I paid for their breakfast.
A retired British couple was circumnavigating the entire US in a month on a “See America Pass.” Mennonites are returning home by train because their religion forbade automobiles or airplanes.
The national debt ballooned to an eye-popping $30 trillion in 2021, a gain of an incredible $3 trillion and a post-World War II record. Yet, as long as global central banks are still flooding the money supply with trillions of dollars in liquidity, bonds will not fall in value too dramatically. I’m expecting a slow grind down in prices and up in yields.
The great bond short of 2021 never happened. Even though bonds delivered their worst returns in 19 years, they still remained nearly unchanged. That wasn’t good enough for the many hedge funds, which had to cover massive money-losing shorts into yearend.
Instead, the Great Bond Crash will become a 2022 business. This time, bonds face the gale force headwinds of three promised interest rates hikes. The year-end government bond auctions were a complete disaster.
Fed borrowing continues to balloon out of control. It’s just a matter of time before the last billion dollars in government borrowing breaks the camel’s back.
That makes a bond short a core position in any balanced portfolio. Don’t get lazy. Make sure you only sell a rally lest we get trapped in a range, as we did for most of 2021.
A Visit to the 19th Century
4) Foreign Currencies (FXE), (EUO), (FXC), (FXA), (YCS), (FXY), (CYB)
For the first time in ages, I did no foreign exchange trades last year. That is a good thing because I was wrong about the direction of the dollar for the entire year.
Sometimes, passing on bad trades is more important than finding good ones.
I focused on exploding US debt and trade deficits undermining the greenback and igniting inflation. The market focused on delta and omicron variants heralding new recessions. The market won.
The market won’t stay wrong forever. Just as bond crash is temporarily in a holding pattern, so is a dollar collapse. When it does occur, it will happen in a hurry.
5) Commodities (FCX), (VALE), (DBA)
The global synchronized economic recovery now in play can mean only one thing, and that is sustainably higher commodity prices.
The twin Covid variants put commodities on hold in 2021 because of recession fears. So did the Chinese real estate slowdown, the world’s largest consumer of hard commodities.
The heady days of the 2011 commodity bubble top are now in play. Investors are already front running that move, loading the boat with Freeport McMoRan (FCX), US Steel (X), and BHP Group (BHP).
Now that this sector is convinced of an eventual weak US dollar and higher inflation, it is once more the apple of traders’ eyes.
China will still demand prodigious amounts of imported commodities once again, but not as much as in the past. Much of the country has seen its infrastructure build out, and it is turning from a heavy industrial to a service-based economy, like the US. Investors are keeping a sharp eye on India as the next major commodity consumer.
And here’s another big new driver. Each electric vehicle requires 200 pounds of copper and production is expected to rise from 1 million units a year to 25 million by 2030. Annual copper production will have to increase 11-fold in a decade to accommodate this increase, no easy task, or prices will have to ride.
The great thing about commodities is that it takes a decade to bring new supply online, unlike stocks and bonds, which can merely be created by an entry in an excel spreadsheet. As a result, they always run far higher than you can imagine.
Accumulate commodities on dips.
6) Energy (DIG), (RIG), (USO), (DUG), (UNG), (USO), (XLE), (AMLP)
Energy may be the top-performing sector of 2022. But remember, you will be trading an asset class that is eventually on its way to zero.
However, you could have several doublings on the way to zero. This is one of those times.
The real tell here is that energy companies are drinking their own Kool-Aid. Instead of reinvesting profits back into their new exploration and development, as they have for the last century, they are paying out more in dividends.
There is the additional challenge in that the bulk of US investors, especially environmentally friendly ESG funds, are now banned from investing in legacy carbon-based stocks. That means permanently cheap valuations and shares prices for the energy industry.
Energy stocks are also massively under-owned, making them prone to rip-you-face-off short squeezes. Energy now counts for only 3% of the S&P 500. Twenty years ago it boasted a 15% weighting.
The gradual shut down of the industry makes the supply/demand situation more volatile. Therefore, we could top $100 a barrel for oil in 2022, dragging the stocks up kicking and screaming all the way.
Unless you are a seasoned, peripatetic, sleep-deprived trader, there are better fish to fry.
7) Precious Metals (GLD), (DGP), (SLV), (PPTL), (PALL)
The train has added extra engines at Denver, so now we may begin the long laboring climb up the Eastern slope of the Rocky Mountains.
On a steep curve, we pass along an antiquated freight train of hopper cars filled with large boulders.
The porter tells me this train is welded to the tracks to create a windbreak. Once, a gust howled out of the pass so swiftly, that it blew a passenger train over on its side.
In the snow-filled canyons, we saw a family of three moose, a huge herd of elk, and another group of wild mustangs. The engineer informs us that a rare bald eagle is flying along the left side of the train. It’s a good omen for the coming year.
We also see countless abandoned 19th century gold mines and the broken-down wooden trestles leading to them, relics of previous precious metals booms. So, it is timely here to speak about the future of precious metals.
Fortunately, when a trade isn’t working, I avoid it. That certainly was the case with gold last year.
2021 was a terrible year for precious metals. With inflation soaring, stocks volatile, and interest rates going nowhere, gold had every reason to rise. Instead, it fell for almost all of the entire year.
Bitcoin stole gold’s thunder, sucking in all of the speculative interest in the financial system. Jewelry and industrial demand was just not enough to keep gold afloat.
This will not be a permanent thing. Chart formations are starting to look encouraging, and they certainly win the price for a big laggard rotation. So, buy gold on dips if you have a stick of courage on you.
8) Real Estate (ITB), (LEN)
The majestic snow-covered Rocky Mountains are behind me. There is now a paucity of scenery, with the endless ocean of sagebrush and salt flats of Northern Nevada outside my window, so there is nothing else to do but write.
My apologies in advance to readers in Wells, Elko, Battle Mountain, and Winnemucca, Nevada.
It is a route long traversed by roving banks of Indians, itinerant fur traders, the Pony Express, my own immigrant forebearers in wagon trains, the transcontinental railroad, the Lincoln Highway, and finally US Interstate 80, which was built for the 1960 Winter Olympics at Squaw Valley.
Passing by shantytowns and the forlorn communities of the high desert, I am prompted to comment on the state of the US real estate market.
There is no doubt a long-term bull market in real estate will continue for another decade, although from here prices will appreciate at a 5%-10% slower rate.
There is a generational structural shortage of supply with housing which won’t come back into balance until the 2030s.
There are only three numbers you need to know in the housing market for the next 20 years: there are 80 million baby boomers, 65 million Generation Xer’s who follow them, and 86 million in the generation after that, the Millennials.
The boomers have been unloading dwellings to the Gen Xers since prices peaked in 2007. But there are not enough of the latter, and three decades of falling real incomes mean that they only earn a fraction of what their parents made. That’s what caused the financial crisis.
If they have prospered, banks won’t lend to them. Brokers used to say that their market was all about “location, location, location.” Now it is “financing, financing, financing.” Imminent deregulation is about to deep-six that problem.
There is a happy ending to this story.
Millennials now aged 26-44 are now the dominant buyers in the market. They are transitioning from 30% to 70% of all new buyers of homes.
The Great Millennial Migration to the suburbs and Middle America has just begun. Thanks to Zoom, many are never returning to the cities. So has the migration from the coast to the American heartland.
That’s why Boise, Idaho was the top-performing real estate market in 2021, followed by Phoenix, Arizona. Personally, I like Reno, Nevada, where Apple, Google, Amazon, and Tesla are building factories as fast as they can.
As a result, the price of single-family homes should rocket during the 2020s, as they did during the 1970s and the 1990s when similar demographic forces were at play.
This will happen in the context of a coming labor shortfall, soaring wages, and rising standards of living.
Rising rents are accelerating this trend. Renters now pay 35% of their gross income, compared to only 18% for owners, and less, when multiple deductions and tax subsidies are taken into account. Rents are now rising faster than home prices.
Remember, too, that the US will not have built any new houses in large numbers in 13 years. The 50% of small home builders that went under during the crash aren’t building new homes today.
We are still operating at only a half of the peak rate. Thanks to the Great Recession, the construction of five million new homes has gone missing in action.
That makes a home purchase now particularly attractive for the long term, to live in, and not to speculate with.
You will boast to your grandchildren how little you paid for your house, as my grandparents once did to me ($3,000 for a four-bedroom brownstone in Brooklyn in 1922), or I do to my kids ($180,000 for a two-bedroom Upper East Side Manhattan high rise with a great view of the Empire State Building in 1983).
That means the major homebuilders like Lennar (LEN), Pulte Homes (PHM), and KB Homes (KBH) are a buy on the dip.
Quite honestly, of all the asset classes mentioned in this report, purchasing your abode is probably the single best investment you can make now. It’s also a great inflation play.
If you borrow at a 3.0% 30-year fixed rate, and the long-term inflation rate is 3%, then, over time, you will get your house for free.
How hard is that to figure out? That math degree from UCLA is certainly earning its keep.
9) Bitcoin
It’s not often that new asset classes are made out of whole cloth. That is what happened with Bitcoin, which, in 2021, became a core holding of many big institutional investors.
But get used to the volatility. After doubling in three months, Bitcoin gave up all its gains by year-end. You have to either trade Bitcoin like a demon or keep your positions so small you can sleep at night.
By the way, right now is a good place to establish a new position in Bitcoin.
10) Postscript
We have pulled into the station at Truckee in the midst of a howling blizzard.
My loyal staff has made the ten-mile trek from my beachfront estate at Incline Village to welcome me to California with a couple of hot breakfast burritos and a chilled bottle of Dom Perignon Champagne, which has been resting in a nearby snowbank. I am thankfully spared from taking my last meal with Amtrak.
After that, it was over legendary Donner Pass, and then all downhill from the Sierras, across the Central Valley, and into the Sacramento River Delta.
Well, that’s all for now. We’ve just passed what was left of the Pacific mothball fleet moored near the Benicia Bridge (2,000 ships down to six in 50 years). The pressure increase caused by a 7,200-foot descent from Donner Pass has crushed my plastic water bottle. Nice science experiment!
The Golden Gate Bridge and the soaring spire of Salesforce Tower are just around the next bend across San Francisco Bay.
A storm has blown through, leaving the air crystal clear and the bay as flat as glass. It is time for me to unplug my Macbook Pro and iPhone 13 Pro, pick up my various adapters, and pack up.
We arrive in Emeryville 45 minutes early. With any luck, I can squeeze in a ten-mile night hike up Grizzly Peak and still get home in time to watch the ball drop in New York’s Times Square on TV.
I reach the ridge just in time to catch a spectacular pastel sunset over the Pacific Ocean. The omens are there. It is going to be another good year.
I’ll shoot you a Trade Alert whenever I see a window open at a sweet spot on any of the dozens of trades described above.
Good luck and good trading in 2022!
John Thomas
The Mad Hedge Fund Trader
Global Market Comments
November 29, 2021
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD,
or NOW IT’S THE OMICRON VARIANT)
(TSLA), (NVDA), (VIX), (SPX), (JPM)
Rioting in Holland and Austria, protests in France, the new lockdowns prompted by the new Omicron Variant of the Covid virus had only one message for American Investors: SELL!
The end result was the biggest down day in 15 months, with the Dow exceeding a 1,000-point bruise at the lows, not bad for a half-day holiday session.
While the market was bidless for most stocks, that wasn’t true for the best quality fastest growers. Tesla (TSLA) gave up only 3%, Microsoft 2.4%., and NVIDIA (NVDA) 3.5%. I tried to buy several at the close and failed, even though I kept raising my bid.
We also saw one of the sharpest declines in the history of the Mad Hedge Market Timing Index, from an overbought 85 to a bargain basement 31 in mere days.
This is exactly what the market needed.
I went into last week 100% in cash because I was leery of a market that traded sideways on declining volume after a historic run. In fact, we needed some kind of selloff before the market could go higher.
As I never tire of telling followers, cash is a position and has option value. A dollar at a market top is worth $10 at a market bottom. I had to endure only 50 market corrections before I figured this out, wishing I had cash at the bottom.
At the Friday low, stocks had sold off 1,850 points, or exactly 5.0% from the November 8 high. Heard that number before?
Before stock could rise, they had to fall first. The fears over Omicron are complete nonsense. It will not affect the US economy or stock markets one iota. Some 90% of the US population is now immune to Covid. There is no evidence that Omicron can overcome vaccines. When the variant comes here, and you can’t stop it, it will only kill anti-vaxers, as it did in Europe.
The fact is that the US continues to grow at a prolific 7% rate, with no sign of slowing in sight. As the port congestion fades, supply chains will repair and the inflation that is incited will fade. US companies are making more money than ever.
We still have a second reopening trade on for 2022. In a year, the economy will be booming, we will be at full employment, inflation will have faded, the pandemic will be over, and stocks will be at new all-time highs.
While some of next year’s performance has been pulled forward into 2021, much of it remains in the future.
So, when next time we take another run at a Volatility Index (VIX) of $29, I’ll be in there with guns blazing picking up all the usual suspects.
Global Stock on Pandemic Fears Smashes Markets, with Dow futures down 800 and ten-year yields off 13 basis points. New mandatory lockdowns in Austria and Holland have triggered rioting. It’s just another less than 5% correction.
The farther we go down now, the more we can go up in December and January. America’s 90% immunity will hold at bay any variants. There is no evidence this new one can’t be stopped by vaccines. Africa is another story. I went into this 80% cash. Wait for the selling to burn out in a day or two then use the high volatility to add front-month call spreads and LEAPS in your favorites.
Biden Appoints Jay Powell for a second time in a major lurch to the middle by the president. It’s the opening shot in the 2022 mid-term elections. I’ll approve your Fed governor if you pass my social safety net. It turned out to be impossible to find anyone more dovish than Jay Powell. The stock market loves it, especially interest rate-sensitive financials. The yearend rally continues.
Another $1.75 trillion Social Spending Bill passes the House, but most won’t see the light of day in the Senate. At best, maybe a few hundred million in spending gets through. Expect to hear a lot about socialism and deficits. No market impact here.
New Home Sales lag, up only 0.8% in October versus 1.4% expected. Some 6.34 million units were shifted. Only 1.25 million homes are for sale, down 12% YOY, representing only a 2.4-month supply.
The median price for a home rose to $353,900, up 13.1% YOY, but local markets like Phoenix and Seattle are seeing far greater gains. Million-dollar homes are seeing the greatest gains, with institutional investors pouring into the market to lock in historic low-interest rates.
Rents soar by 36% in New York and Florida against a national average of 13% in October is another sign of reopening and a return to normal.
Biden Taps the SPR, releasing some 50 million barrels, or two days’ worth of consumption. The president is throwing the gauntlet down at OPEC. Oil rallied on the news, as it was not more. This is largely a symbolic gesture and will have a minimal impact on gasoline prices. Now that the US is a net energy exporter it should close down the SPR as it is simply a subsidy for a dying fuel source that is going to zero and a bribe for Texas and Louisiana voters.
Weekly Jobless Claims plunge to a 52-year low, to 199,000. People are finally coming out of hiding and going back to work. It makes the upcoming November Nonfarm Payroll Report pretty interesting. Mark it on your calendar.
Tesla sales are on fire in California, the largest market in the US. The newest small SUV Model Y is leading the charge. No other company is close to mass production of a competitor yet. Tesla has a 5% market share in the Golden State ranking it no five among all car sales. A $7,500 tax credit that started last week is a big tailwind, but you have to tax taxes to benefit. Buy (TSLA) on dips, a Mad Hedge 380 bagger. My target is $10,000, 8X from here.
The Ports Log Jam is breaking. 24-hour shifts at Los Angeles and Long Beach, which handle 40% of all US unloadings, are making a big difference. Once the supply chain problems go away, so will inflation.
My Ten Year-View
When we come out the other side of pandemic, we will be perfectly poised to launch into my new American Golden Age, or the next Roaring Twenties. With interest rates still at zero, oil cheap, there will be no reason not to. The Dow Average will rise by 800% to 240,000 or more in the coming decade. The American coming out the other side of the pandemic will be far more efficient and profitable than the old. Dow 240,000 here we come!
With the pandemic-driven meltdown on Friday, my November month-to-date performance plunged to -10.74%. My 2021 year-to-date performance took a haircut to 77.82%. The Dow Average is up 14.05% so far in 2021.
I used a spike on bond prices to add a 20% position in bonds and the Friday dive to go long JP Morgan (JPM), so I am 70% in cash. I will be using any further volatility spikes to add positions in the coming week.
That brings my 12-year total return to 500.37%, some 2.00 times the S&P 500 (SPX) over the same period. My 12-year average annualized return has ratcheted up to 41.69% easily the highest in the industry.
We need to keep an eye on the number of US Coronavirus cases at 48.2 million and rising quickly and deaths topping 780,000, which you can find here.
The coming week will be all about the inflation numbers.
On Monday, November 29 at 7:00 AM, Pending Homes Sales for October are released.
On Tuesday, November 30 at 6.45 AM, the S&P Case Shiller National Home Price Index is announced.
On Wednesday, December 1 at 5:15 AM, the ADP Private Employment Report is printed.
On Thursday, December 2 at 8:30 AM, the Weekly Jobless Claims are disclosed.
On Friday, December 3 at 8:30 AM EST, the November Nonfarm Payroll Report is published. At 2:00 PM, the Baker Hughes Oil Rig Count is out.
As for me, with all the recent violence in the Middle East, I am reminded of my own stint in that troubled part of the world. I have been emptying sand out of my pockets since 1968, when I hitchhiked across the Sahara Desert, from Tunisia to Morocco.
During the mid-1970s, I was invited to a press conference given by Yasser Arafat, founder of the Al Fatah terrorist organization and leader of the Palestine Liberation Organization, at the Foreign Correspondents Club of Japan. His organization then rampaged throughout Europe, attacking Jewish targets everywhere.
Japan recognized the PLO to secure their oil supplies from the Persian Gulf, on which they were utterly dependent.
It was a packed room on the 20th floor of the Yurakucho Denki Building, and much of the world’s major press was represented, as the PLO had few contacts with the west.
Many placed cassette recorders on Arafat’s table in case he said anything quotable. Then Arafat ranted and raved about Israel in broken English.
Mid-sentence, one machine started beeping. A journalist jumped up to turn his tape over. Suddenly, four bodyguards pulled out Uzi machine guns and pointed them directly at us.
The room froze.
Then a bodyguard deftly set his Uzi down on the table flipped over the offending cassette, and the remaining men stowed their weapons. Everyone sighed in relief. I thought it was interesting that the PLO was using Israeli firearms.
The PLO was later kicked out of Jordan for undermining the government there. They fled Lebanon for Tunisia after an Israeli invasion. Arafat was always on the losing side, ever the martyr.
He later shared a Nobel Prize for cutting a deal with Israel engineered by Bill Clinton in 1993, recognizing its right to exist. He died in 2004.
Many speculated that he had been poisoned by the Israelis. My theory is that the Israelis deliberately kept Arafat alive because he was so incompetent. That is the only reason he made it until 75.
Stay Healthy,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
