Global Market Comments
November 20, 2023
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or THE WEEK THAT WAS)
(SPY), (TLT), (JNK), (NLY) (BA), (UUP),
(TLT), (FCX), (GLD), (GDX), (GOLD)
Tag Archive for: (SPY)
In the long history of stock markets, last week will be viewed as one of the pivotal ones of the 21st century. That was when investors flipped from anticipating the end of interest rate rises to the beginning of interest rate cuts.
That is a big deal.
I have been anticipating this for months, putting all my chips on the most interest rate-sensitive sectors: US Treasury bonds (TLT), Junk bonds (JNK), REITS (NLY), and big tech. The payoff has been huge, with some followers calling me up daily with literal tears of joy. They have just made the most money in their lives.
November has been the best month of the year, up 10% from the October low, and it's only half over.
And here is the good news. We are not only in the first inning of a new bull market for all risk assets but also the first pitch of the first at-bat of the first inning. 2024 should be one of the easiest trading years in a decade. This could go on for a decade.
This is how things will play out.
After the hottest quarter of GDP growth in three years at 4.9% in Q3, the economy is slowing. Virtually every business sector is seeing sales weaken, especially real estate and EVs.
That sets up a sharp drop in the inflation rate from the current 3.2% to the Fed’s target of 2%. Get a few months of that and the Fed starts cutting interest rates from the current 5.25%-5.5%. Fed futures are currently indicating a 40% probability that will happen in March.
We could be at 4.0% overnight interest rates by the end of 2024 and 3.0% by the end of 2025 when they stabilize. Stocks and bonds will eat this up.
Better hope that the Fed stays data dependent as promised, because coming data is weak, even if it doesn’t arrive for months. We only need one weak quarter to kill off inflation, and that quarter began on October 1.
Priority One is for the Fed to de-invert the yield curve or get short-term interest rates below long rates. For encouragement, the Fed should look at the most rapidly shrinking money supply in history, which I have been glued to.
There has been no monetary growth for two years, and zero bank deposit growth for three years. The Fed's balance sheet has plunged by $1.5 trillion in 18 months. Fed quantitative tightening continues at $120 billion a month. This is unprecedented in economic history.
The biggest risk to markets is that Powell delays cutting rates as much as he delayed raising rates two years ago. This is a very slow-moving, backward-looking Fed.
If you have a ten-year view of the markets, as I do, this is all meaningless. You need to buy stocks right now. If the Fed does play hardball and rigidly holds to the 2% target it risks causing a recession.
If you see any reasons to shoot down my bull case please, please email me. I’d love to hear them.
It’s not that stocks are expensive. 2024 S&P 500 (SPY) earnings are now 18X. If you take out the Magnificent Seven, they are at 15X earnings, close to the 2008 crash low. Small cap stocks are at a bargain basement 12X earnings and are already priced for recession.
So a strong case for a new decade-long bull market is there. All you have to do is believe it. To see how this will play out look at the chart below as tech stocks are now extremely overbought short term. We no longer have the luxury of waiting for big dips. Small ones will have to do.
So far in November, we are up a breathtaking +12.59%. My 2023 year-to-date performance is still at an eye-popping +78.76%. The S&P 500 (SPY) is up +18.42% so far in 2023. My trailing one-year return reached +85.42% versus +20% for the S&P 500.
That brings my 15-year total return to +675.95%. My average annualized return ballooned to +48.57%, another new high, some 2.52 times the S&P 500 over the same period.
Some 60 of my 65 trades this year have been profitable.
CPI Comes in Flat at 3.2%, much weaker than expected. This is a game-changer. The first Fed rate cut has been moved up to May. Stocks and bonds loved it, taking ten-year US Treasury yield down to a six-week low at 4.44%. Shelter prices, which make up about a third of the overall CPI index, climbed 0.3%, half the prior month’s pace. Taking profits on my long in (TLT).
Fed to Cut Interest Rates as Early as March, or so says the futures market, which gives this a 40% probability. The (TLT) should top $100 and stocks will rocket, especially the interest sensitives. The most recent indications on the CME Group’s FedWatch gauge point to a full percentage point of interest rate cuts by the end of 2024.
Weekly Jobless Claims Hit Three Month High, up 13,000 to 231,000, as the US economy backs off from the superheated Q3. The path for a lower inflation rate is opening up. Do I hear 2%.
PPI Fell by 0.5% in October, a much bigger than expected drop, a three-year low. Inflation is fading fast. YOY came in at 1.3%. Stocks loved the news. 2024 is shaping up to be a great year for risk after two miserable ones.
Government Shutdown Delayed Until 2024, with the passage of a temporary spending bill by the House. It looks like there is a new coalition of the middle of both parties, as the bill passed with 339 votes, topping a two-thirds majority. The Johnson bill would fund some parts of the government through Jan. 19 and others through Feb. 2, setting up the possibility of yet another shutdown deadline on Groundhog Day.
The US Dollar (UUP) Takes a hit as the falling interest rate scenario starts to unfold. Even the Japanese yen rose. This could be a new decade-long trade. Currencies with falling interest rates are always the weakest.
Goldman Sachs Goes Bullish on Gold. The investment bank expects the S&P GSCI, a commodities markets index, to deliver a 21% return over the next 12 months as the broader economic environment improves, OPEC moves to support crude prices as refining is tight and with energy and gold acting as hedges against supply shocks. Buy (GLD), (GDX), and (GOLD) on dips.
Copper Bull Predicts 80% Gain in the Coming Decade, to $15,000 per metric tonne, up from $8,277 says Trafigura’s Kotas Bintas, the world’s largest metal trader. Exploding demand from EV makers is the reason, set to hit 20 million vehicles a year. Electrification of global energy sources is another. Buy (FCX) on dips.
Boeing Lands Monster Order, some $52 billion from Emirates Airlines for 90 new 777x’s and five 787’s. The stock rose 5% on the news. A giant China order is also lurking in the wings. Buy (BA) on dips.
Moody’s Rating Service Downgrades the US, citing deteriorating fiscal conditions and worsening chaos in Washington. However, it maintained its AAA Rating. Oh, and the government shut down on Friday. Buy (TLT) on the dip. Where else are investors going to go for quality?
My Ten-Year View
When we come out the other side of the recession, we will be perfectly poised to launch into my new American Golden Age or the next Roaring Twenties. The economy decarbonizing and technology hyper accelerating, creating enormous investment opportunities. The Dow Average will rise by 800% to 240,000 or more in the coming decade. The new America will be far more efficient and profitable than the old.
Dow 240,000 here we come!
On Monday, November 20, no data of note were published.
On Tuesday, November 21 at 11:00 AM EST, the Minutes from the previous Fed meeting are released.
On Wednesday, November 22 at 8:30 AM, the Durable Goods are published.
On Thursday, November 23 at 8:30 AM, the Weekly Jobless Claims are announced.
On Friday, November 24 at 2:30 PM the November S&P Flash PMI’s are published and the Baker Hughes Rig Count is printed.
As for me, I was invited to breakfast last week at the Incline Village Hyatt Hotel and was told to expect someone special, but they couldn’t tell me who for security reasons.
I was nursing a strong black coffee when a bulky figure with white hair wearing a Hawaiian shirt and thermal vest sat down at the table. It was Mike Love, lead singer of the Beach Boys.
During the 1950s, Mike’s dad was a regular visitor to Lake Tahoe, bringing his family up to camp on the then-vacant beaches. My family couldn’t have been far away.
When Mike made his fortune with one of the top rock groups of the 1960s, the natural thing to do was to buy an estate high up the mountain in Incline Village, Nevada with a great lake view. Like me, Mike fell for crystal-clear lake views in summer and spectacular snow-covered mountain vistas in winter. Local real estate agents refer to it as a “poor man’s Aspen.”
Mike ended up raising a family here, his kids eventually growing up and heading out to start their music groups. One was Wilson Phillips, made up of two of Mike’s daughters and the daughter of John Phillips of the Mamas and the Papas, who I taught how to swim at summer camp one year.
But Mike stayed. He loved the lake too much to leave so he made Incline his base for a touring schedule that ran up to a punishing 200 gigs a year.
Mike’s residence was something of a Tahoe insider’s secret. Those who knew where he lived kept the closely guarded secret. We have plenty of celebrities here, Larry Ellison, Mike Milliken, and Peoplesoft’s David Duffield, but Mike is the one everyone loves.
Mike, now 82, is not your typical rock star and I have known many. He is humble, self-effacing, and an alright guy. He avoided drugs and smoking to preserve his voice. He is a health fanatic. He has also been fighting a lifelong battle with depression which kept him off the touring circuit for years at a time and led to contemplations of suicide.
The Beach Boys formed in Hawthorne, California, a beachside suburb of Los Angeles in 1961. The group's original lineup consisted of brothers Brian, Dennis, and Carl Wilson, their cousin Mike Love, and friend Al Jardine. They were the original garage band. Together they created one of the greatest vocal harmonies of all time.
In 1963, the band enjoyed their first national hit with “Surfin USA”, beginning a string of top ten singles that reflected a southern California youth culture of surfing, cars, and teenage romance dubbed the “California sound.”
Those included "I Get Around", "Fun, Fun, Fun", "Help Me Rhonda", "Good Vibrations" and "Don't Worry Baby, which I’m sure you remember well. If you don’t, look them up on iTunes. Their 1966 album “Pet Sounds” was considered one of the most innovative ever produced.
I remember it like it was yesterday. They were one of the few groups that could stand up to the Beatles, who they became friends with. The Beach Boys were regulars on my car’s AM radio.
Buzz kill: the Beach Boys didn’t know how to surf.
All of the early Beach Boys songs were inspired by the Southern California beaches, but only half the country had beaches. So a new manager encouraged them to sing about cars, extending the life of the group by another decade. That is how we got “Little Deuce Coup,” and “409.” After all, the entire country owned cars.
The Beach Boys would eventually sell 100 million records second only to the Beatles. They were also one of the first groups to wrest production control away from the studios, a revolution for the industry that opened doors for generations of successive musicians.
In the late 1960s, the group took a religious bent, traveling to India to study under the celebrity guru Maharishi Mahesh Yogi. Mike has since been practicing transcendental meditation, and it probably saved his life.
By the 1970s, the California sound faded and was eventually killed off by disco. Their last album together was Endless Summer in 1974.
There are only three original Beach Boys left, and Mike Love alone is still touring. In 1983, Dennis Wilson drowned in a boating accident which is thought to be drug-related. In 1998, Carl Wilson died of lung and brain cancer after years of heavy smoking.
Mike was pleased that I recalled his 1980 London concert at Wembley Stadium. I had front-row seats; unaware that I would meet Mike 43 years later. In 1988, Mike was inducted into the Rock and Roll Hall of Fame.
Mike was very annoyed by the pandemic shutdown in 2020 because it prompted the cancelation of over 200 concerts worldwide. He still thinks Covid was fake. He doesn’t need to work as his royalties from 60 years of work are worth a fortune. He tours simply for the love of it.
Mike is now touring with a reconstituted Beach Boys. For their tour schedule, please click here. On November 17, 2023, Love released a special double album entitled “Unleash the Love” featuring 13 previously unreleased songs and 14 Beach Boys classics.
It was a pleasant way to spend a morning recalling the 1960s. It’s a miracle we both survived. It’s all proof that if you live long enough, you meet everyone.
Stay Healthy,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Global Market Comments
November 17, 2023
Fiat Lux
Featured Trade:
(NOVEMBER 15 BIWEEKLY STRATEGY WEBINAR Q&A),
(TLT), (AMD), (SPY), (FXA), (WYNN), (MGM), (RCL), (CCL), (TSLA), (SCHW), (BLK), (JPM), (XHB), (TSLA), (FXI), (FCX)
Below please find subscribers’ Q&A for the November 15 Mad Hedge Fund Trader Global Strategy Webinar, broadcast from Incline Village, NV.
Q: I was a little surprised that you closed the (TLT) $79-$82 vertical bull call spread so early. Why not wait longer?
A: I took an 84% profit in only four trading days and skipped the last 16% which I would have had to wait another month to get. I was much better off putting on another position and making another 100%. In this kind of market, you want to take quick profits and then roll them into new positions as fast as you can. That’s where you make the big money, and that's what we’ve been doing. You have to strike when the iron is hot.
Q: November’s results are phenomenal!
A: Yes they are, 55 years of practice makes it easy.
Q: Thoughts on Advanced Micro Devices (AMD)?
A: It’s going higher. I think the whole semiconductor sector is the leading sector in the market; we have seen that with these gigantic 30-40% moves in the semis. That will continue, and then it will spread out to the rest of big tech (which it’s already done), and eventually, we get to the industrials and commodities in the second half of 2024 when the big economic growth returns. So that is the script for the coming year.
Q: Will the upcoming Fed interest rate cuts crash the dollar, and which emerging currency should I buy?
A: Yes and yes. It will crush the dollar–we could be entering a new decade of a falling U.S. dollar. The number one currency to buy is the Australian dollar (FXA). It has the most leverage for a global economic recovery. And you can see when we get to the currency section of today’s webinar that the currencies are already starting to move. Whatever currency has falling interest rates is always the weakest, and the U.S. dollar is about to become just that.
Q: What’s the deal with casino stocks lately like Wynn Resorts (WYNN) and MGM Resorts International (MGM)?
A: These companies took on massive amounts of debt during the pandemic to stay in business, so they are now highly sensitive to interest rates. If you look at the collapse of these stocks in the last four months, it is almost perfectly in sync with rising interest rates, and that’s why the stocks performed so poorly. By the way, the same is true for all the cruise companies like Royal Caribbean (RCL), and Carnival (CCL). The flip side of that is when interest rates start to go down these stocks do great, and they are falling interest rate plays, so you probably should be buying the casinos, the cruise lines, and the hotel stocks here because they are all suffering from massive debt loads, the cost of which is about to decline sharply.
Q: Should we roll up the expiration of LEAPS to 2026?
A: Probably not a bad idea, because we may get weakness in commodities for the next several months before we enter a massive new bull market. If you have the 2025, you’ll probably make money on that, but to be ultra-safe you could roll it forward to 2026. We know there’s a global copper shortage developing because of EVs, but right now EV sales are slow, so you don’t want to be piling onto the leverage plays on that too soon. That’s also why I am not in Tesla (TSLA) for the Moment.
Q: What will happen if the Fed cuts interest rates and there’s no recession? Won’t prices of everything from houses to butter go wild?
A: They won’t go wild, but they will go up at a 2% inflation rate, which is what the Fed wants. And house prices, which have been flat for the last year, will rise. And they may rise greater than the inflation rate of 2%; they may rise more like 5%. Falling interest rates mean falling mortgages; we’ve already seen mortgage rates drop from 8 to 7.4%. It's one of the sharpest drops in history, and more drops bring more first-time home buyers into the market. And don’t forget that the Fed could also raise interest rates down the road. If the economy gets too hot again, they may raise again, but I think we’ll see a lot of cuts first.
Q: Do you think financial stocks will go up or fall with potential rate decreases?
A: Banks always go up during falling interest rates because their cost of funds goes down and the default rate on their loans also goes down, so they get a hockey stick effect on earnings; that’s why you’re seeing such monster moves in stocks like JP Morgan (JPM) and the brokers (SCHW) as well as the money managers like BlackRock (BLK).
Q: Does the bull market keep going since unemployment still hasn’t made a dent, meaning consumers are fueling the rise in stocks?
A: Yes, consumer spending is still doing well. People seem to be getting the money from somewhere and it seems to be rising wages. But I expect wage gains to drop by half; people will still get wage increases, but not the peak levels that the UAW got in their deal with Detroit. Is a Goldilocks economy that is setting up, and the economy keeps growing We never do get a recession, and all risk assets rise as a result. That is the outlook!
Q: Bullish on Berkshire Hathaway (BRK/B)?
A: I completely agree, it’s one of the best-run companies in the world. 93-year-old Warren Buffet and 99-year-old Charlie Munger have delivered double the performance of the S&P 500 over the last three years.
Q: When does the IPO market come back to life, and which industries will benefit the most?
A: AI and Technology will benefit the most. There are several AI companies in the wings waiting to go public, and they will be the first out the door with the highest multiples, and then the IPO business will broaden out from there.
Q: Will a worsening Chinese property market blow up the U.S. Stock rally or is it just a fake risk I shouldn’t worry about?
A: The Chinese (FXI) real estate market is detached from the global economy. There is no international implication, and it’s also typical of emerging markets to overbuild and then have a financial collapse. Nobody I know has suffered anything in China in a long time, and if anything, they’re liquidating what little they have left. It doesn’t affect us at all. It’s interesting reading about it in the newspapers, and that’s about it.
Q: What are some stocks we should consider day trading these days?
A: None. Most people who try day trading lose money doing it; some people pull it off but they have many years of experience. Algorithms from big brokers have essentially taken over the day trading business with high-frequency trading. You do better on a one-month view, which I do on my front-month options. Most 2023 Stock Gains Happened in only eight days, up some 14% since January 1, and only seven stocks accounted for most of the increase. If you are a day trader, you most likely missed all of this because most of the moves were on gap openings.
Q: Home builders (XHB) have just had a great run, is this an area too short?
A: “Short” is a term you need to remove from your language! You don’t want to short a big bull move like this. If anything, wait until May when the summer seasonals start to favor short positions, and it depends on how high the market runs up until then. Don’t ever think about shorting the very beginning of a new bull market in stocks–not for housing, not for anything! And the outlook for housing over the long term looks fantastic; there’s still an overwhelming supply and demand in favor of the home builders. Some 85 million new Millennials need to buy first-time homes.
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, select your subscription (GLOBAL TRADING DISPATCH, TECHNOLOGY LETTER, or Jacquie's Post), then click on WEBINARS, and all the webinars from the last 12 years are there in all their glory.
Good Luck and Stay Healthy,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
2023 Kherson Ukraine – Ha Ha Missed Me! It was a dud.
Global Market Comments
November 6, 2023
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or VINDICATION WEEK)
(SPY), (QQQ), (IWM), (NVDA), (BRK/B), (TLT)
It was truly vindication week for the bulls. All major Indexes clocked their best week of the year
The patience was rewarded. The S&P 500 (SPY) gained an impressive 6.09%, the NASDAQ ETF (QQQ) 7.35%, and the small-cap Russell 2000 (IWM) 8.64%. A recent favorite of mine, mortgage REIT lender Anally Capital Management (NLY) soared by an amazing 21%
Better yet, all of my Mad Hedge forecasts came true. Big tech led the charge, with our long in NVIDIA (NVDA) up a gob-smacking 16.67%. Another long in Berkshire Hathaway (BRK/B) gained 7.5%. And our long in US Treasury bonds (TLT) picked up a welcome $6.00, dropping ten-year yield from 5.0% to 4.52%.
The 60/40 stock and bond/portfolio came back with a vengeance. This time, everything went up.
The harder I work, the luckier I get.
The markets accomplished these feats against a geopolitical background that couldn’t be worse. The Gaza War is lurching from one tragedy to the next. The Ukraine War grinds on (but without me). Saber rattling continues in China.
It just goes to show how far out on a limb the shorts had gotten and the extent of buying demand that was pent up.
It all sets up a nice year-end rally. We may not reach the $4,800 target I expected at the beginning of 2023. But a $4,600 hit is within range. Don’t expect a straight line move there. The world is still a pretty unsettled place. It's definitely going to be a stock pickers market (NVDA), (BRK/B), and (TLT) and not an index one.
Particularly fascinating is how Berkshire Hathaway absolutely Knocked it Out of the Park, with a 41% gain in operating earnings from companies like BNSF Railroad, Geico, and Precision Castparts. But Warren Buffet was noted in his weekend earnings report more from what he didn’t own than what he did.
The Oracle of Omaha unloaded $5 billion worth of global stocks in Q3, taking his cash position up to a record $157 billion. He can now earn a staggering $8.6 billion in interest in the coming year. His explanation is that stocks never really got cheap this year and high rates were just too attractive. Keep buying (BRK/B) on dips. And buy the things he buys.
And with the number of new investment opportunities and sectors to chase that almost can’t be counted, I will prompt you to look at some oldies buy goodies.
PC stocks are back in play, namely Dell Computer (DELL) and Hewlett Packard (HPQ). How about those for a blast from the past? I think it’s been 30 years since I touched these legacy tech companies.
The fact is that AI is rapidly moving downstream as far down as your humble PC, which in the meantime has gotten cheaper and much more powerful. PCs are now the dumb end of a link that can access the AI superheroes of the day, like ChatGPT. It’s a lot like the old Quotron used to be the access point to the New York Stock Exchange mainframes for current price information.
Dell shares have already outperformed, up 57% in just six months, while HP is just getting started. You might take a look.
So far in November, we are up +1.97%. My 2023 year-to-date performance is still at an eye-popping +68.15%. The S&P 500 (SPY) is up +14.21% so far in 2023. My trailing one-year return reached +75.21% versus +25.62% for the S&P 500.
That brings my 15-year total return to +665.34%. My average annualized return has rocketed to +50.85%, another new high, some 2.61 times the S&P 500 over the same period. I am at maximum profit on all positions and am looking to add more on a dip.
Some 47 of my 52 trades this year have been profitable.
Fed Leaves Rates Unchanged. It’s not the end of high rates, nor the end of the beginning, but the beginning of the end. Powell may contemplate actual rate CUTS in six months, driven by the certain slowing of growth and inflation in the current quarter. Markets will start discounting that now as seen by the 30-basis point back off in rates this week. No surprise then that there is a short covering buying panic across the entire fixed income front today.
Palantir Rockets on New AI Demand, up 20% at the opening, even though its substantial government business slowed. The company announced the fourth consecutive quarter of profitability and highest earnings since its founding 20 years ago. The Denver-based data analysis company said Thursday it expects 2023 revenue of about $2.22 billion. Buy (PLTR) on dips.
Buying Panic Hits All Fixed Income Markets, with falling Fed interest rates appearing on the distant horizon. (TLT) is up $1.60, (JNK) $0.80, and (NLY) REITS up $0.45. This could be the trade of the decade, with (TLT) targeting $110 by early 2024.
Homebuyers are Pouring into ARMs, or adjustable-rate mortgages, shunning 30-year fixed rates at a mind-numbing 8.0%. ARMs could be had at 6.77% last week. Overall, mortgage applications are down 22% YOY.
Panasonic Says EV Demand is Sluggish, taking Tesla Shares down 5%, and off 35% from the recent high. Elon Musk says the Cybertruck will take a year to 18 months before it is a significant positive cash flow contributor. Full disclosure: I am on the waiting list. The Street expects Tesla to hit 2.3 million vehicle deliveries next year, an increase of about 500,000 year over year. Buy (TSLA) on dips.
Bank of Japan Eases Grip on Bond Yields, ending its unlimited buying operation to keep interest rates down. Japan is the last country to allow rates to rise. Expect the Japanese yen to take off like a rocket.
Hedge Fund Pour into Uranium, as the nuclear renaissance gains steam. Prices have gained 125% in three years. The International Energy Agency says demand will double by 2050. There are 440 nuclear power plants in the world that represent a non-carbon source of energy and China plans another 100 coming on line. Buy (CCJ) on dips.
My Ten-Year View
When we come out the other side of the recession, we will be perfectly poised to launch into my new American Golden Age, or the next Roaring Twenties. The economy decarbonizing and technology hyper-accelerating, creating enormous investment opportunities. The Dow Average will rise by 800% to 240,000 or more in the coming decade. The new America will be far more efficient and profitable than the old.
Dow 240,000 here we come!
On Monday, November 6 at 8:30 PM EST, the US Loan Officer Survey is out.
On Tuesday, November 7 at 2:30 PM, the US Imports and Exports are released.
On Wednesday, November 8 at 3:15 PM, the Fed Chair Jay Powell Speaks.
On Thursday, November 9 at 8:30 AM, the Weekly Jobless Claims are announced.
On Friday, November 10 at 2:30 PM, the University of Michigan Consumer Sentiment is published. At 2:00 PM the Baker Hughes Rig Count is printed.
As for me, I have been doing a lot of high-altitude winter mountain climbing lately, and with the warm spring weather, the risk of avalanches is ever-present. It takes me back to the American Bicentennial Everest Expedition, which I joined in 1976.
It was led by my old friend, instructor, and climbing mentor Jim Whitaker, who pulled an ice ax out of my nose on Mt. Rainer in 1967 (you can still see the scar). Jim was the first American to summit the world’s highest mountain. I tried to break a high-speed fall and an ice ax kicked back and hit me square in the face. If I hadn’t been wearing goggles I would have been blinded.
I made it up to 22,000 feet on Everest, to Base Camp II without oxygen because there were only a limited number of canisters reserved for those planning to summit. At that altitude, you take two steps and then break to catch your breath.
There is a surreal thing about that trip that I remember. One day, a block of ice the size of a skyscraper shifted on the Khumbu Ice Fall, and out of the bottom popped a body. It was a man who went missing on the 1962 American expedition. Everyone recognized him as he hadn’t aged a day in 15 years, since he was frozen solid.
I boiled my drinking water but at that altitude, water can’t get hot enough to purify it. So I walked 100 miles back to Katmandu with amoebic dysentery. By the time I got there, I’d lost 50 pounds, taking my weight to 120 pounds.
Jim was an Eagle Scout, the first full-time employee of Recreational Equipment Inc. (REI), and last climbed Everest when he was 61. Today, he is 92 and lives in Seattle, WA.
Jim reaffirms my belief that daily mountain climbing is a great life extension strategy, if not an aphrodisiac.
Mount Everest 1976
Stay Healthy,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Global Market Comments
November 2, 2023
Fiat Lux
Featured Trade:
(THE SECOND AMERICAN INDUSTRIAL REVOLUTION),
(INDU), (SPY), (QQQ), (GLD), (DBA),
(TSLA), (GOOGL), (XLK), (IBB), (XLE)
(TESTIMONIAL)
Circulating among the country’s top global strategists this year, visiting their corner offices, camping out in their vacation villas, or cruising on their yachts, I am increasingly hearing about a new investment theme that will lead markets for the next 20 years:
The Second American Industrial Revolution.
It goes something like this.
You remember the first Industrial Revolution, don’t you? I remember it like it was yesterday.
It started in 1775 when a Scottish instrument maker named James Watt invented the modern steam engine. Originally employed for pumping water out of a deep Shropshire coalmine, within 32 years it was powering Robert Fulton’s first commercially successful steamship, the Clermont, up the Hudson River.
The first Industrial Revolution enabled a massive increase in standards of living, kept inflation near zero for a century, and allowed the planet’s population to soar from 1 billion to 7 billion. We are still reaping its immeasurable benefits.
The Second Industrial Revolution is centered on my own neighborhood of San Francisco. It seems like almost every garage in the city is now devoted to a start-up.
The cars have been flushed out onto the streets, making urban parking here a total nightmare. These are turbocharging the rate of technological advancement.
Successes go public rapidly and rake in billions of dollars for the founders overnight. Thirty-year-old billionaires wearing hoodies are becoming commonplace.
However, unlike with past winners, these newly minted titans of industry don’t lock their wealth up in mega mansions, private jets, or the Treasury bond market. They buy a Tesla Plaid for $150,000 with a great sound system and full street-to-street auto-pilot (TSLA), and then reinvest the rest of their windfall in a dozen other startups, seeking to repeat a winning formula.
Many do it.
Thus, the amount of capital available for new ideas is growing by leaps and bounds. As a result, the economy will benefit from the creation of more new technology in the next ten years than it has seen in the past 200.
Computing power is doubling every year. That means your iPhone will have a billion times more computing power in a decade. 3D printing is jumping from the hobby world into large-scale manufacturing. In fact, Elon Musk’s Space X is already making rocket engine parts on such machines.
Drones came out of nowhere and are now popping up everywhere.
It is not just new things that are being invented. Fantastic new ways to analyze and store data, known as “big data” are being created.
Unheard new means of social organization are appearing at breakneck, leading to a sharing economy. Much of the new economy is not about invention, but organization.
The Uber ride-sharing service created $50 billion in market capitalization in only five years and is poised to replace UPS, FedEx, and the US Postal Service with “same hour” intracity deliveries. Now they are offering “Uber Eats” in my neighborhood, which will deliver you anything you want to eat, hot, in ten minutes!
Airbnb is arranging accommodation for 1 million guests a month. They even had 189 German guests staying with Brazilians during the World Cup there. I bet those were interesting living rooms on the final day! (Germany won).
And you are going to spend a lot of Saturday nights at home, alone if you haven’t heard of Match.com, eHarmony.com, or Badoo.com.
“WOW” is becoming the most spoken word in the English language. I hear myself saying I every day.
Biotechnology (IBB), an also-ran for the past half-century, is sprinting to make up for lost time. The field has grown from a dozen scientists in my day 40 years ago, to several hundred thousand today.
The payoff will be the cure for every major disease, like cancer, Parkinson’s, heart disease, AIDS, and diabetes, within ten years. Some of the harder cases, such as arthritis, may take a little longer. Soon, we will be able to manipulate our own DNA, turning genes on and off at will. The weight loss drugs Wegovy and Ozempic promise to eliminate 75% of all self-inflicted illnesses.
The upshot will be the creation of a massive global market for these cures, generating immense profits. American firms will dominate this area, as well.
Energy is the third leg of the innovation powerhouse. Into this basket, you can throw in solar, wind, batteries, biodiesel, and even “new” nuclear (see NuScale (SMR)). The new Tesla Powerwall will be a game changer. Visionary, Elon Musk, is ramping up to make tens of millions of these things.
Use of existing carbon-based fuel sources, such as oil and natural gas, will become vastly more efficient. Fracking is unleashing unlimited new domestic supplies.
Welcome to “Saudi America.”
The government has ordered Detroit to boost vehicle mileage to an average of 55 miles per gallon by 2030. The big firms have all told me they plan to beat that deadline, not litigate it, a complete reversal of philosophy.
Coal will be burned in impoverished emerging markets only, before it disappears completely. Energy costs will drop to a fraction of today’s levels, further boosting corporate profits.
Coal will die, not because of some environmental panacea, but because it is too expensive to rip out of the ground and transport around the world, once you fully account for all its costs.
Years ago, I used to get two pitches for venture capital investments a quarter, if any. Now, I am getting two a day. I can understand only half of them (those that deal with energy and biotech, and some tech).
My friends at Google Venture Capital are getting inundated with 20 a day each! How they keep all of these stories straight is beyond me. I guess that’s why they work for Google (GOOGL).
The rate of change for technology, our economy, and for the financial markets will accelerate to more than exponential. It took 32 years to make the leap from steam engine-powered pumps to ships and was a result of a chance transatlantic trip by Robert Fulton to England, where he stumbled across a huffing and puffing steam engine.
Such a generational change is likely to occur in 32 minutes in today’s hyper-connected world, and much shorter if you work on antivirus software (or write the viruses themselves!). And don’t get me started on AI!
The demographic outlook is about to dramatically improve, flipping from a headwind to a tailwind in 2022. That’s when the population starts producing more big spending Gen Xers and fewer over-saving and underproducing baby boomers. This alone should be at least 1% a year to GDP growth.
China is disappearing as a drag on the US economy. During the nineties and the naughts, they probably sucked 25 million jobs out of the US.
With an “onshoring” trend now in full swing, the jobs ledger has swung in America’s favor. This is one reason that unemployment is steadily falling. Joblessness is becoming China’s problem, not ours.
The consequences for the financial markets will be nothing less than mind-boggling. The short answer is higher for everything. Skyrocketing earnings take equity markets to the moon. Multiples blast off through the top end of historic ranges. The US returns to a steady 5% a year GDP growth, which it clocked in the recent quarter.
What am I bid for the Dow Average (INDU), (SPY), (QQQ) in ten years? Did I hear 240,000, a seven-fold pop from today’s level? Or more?
Don’t think I have been smoking the local agricultural products from California in arriving at these numbers. That is only half the gain that I saw from 1982 to 2000, when the stock average also appreciated 17-fold, from 600 to 10,000.
They’re playing the same movie all over again. Except this time, it’s on triple fast forward.
There will also be commodities (DBA) and real estate booms. Even gold (GLD) gets bid up by emerging central banks bent in increasing their holdings to Western levels as well as falling interest rates.
I tell my kids to save their money, not to fritter it away day trading now because anything they buy in 2020 will increase in value tenfold by 2033. They’ll all look like geniuses like I did during the eighties.
What are my strategist friends doing about this forecast? They are throwing money into US stocks with both bands, especially in technology (XLK), biotech (IBB), and bonds (JNK).
This could go on for decades.
Just thought you’d like to know.
It’s Amazing What You Pick Up on These Things!
Global Market Comments
October 23, 2023
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or WAS THAT THE CAPITULATION?),
(SPY), (TLT), (TSLA), (NVDA)
It’s very relaxing writing here in West London, recovering from my injuries.
No air raid alerts, no incoming missiles, no heavy artillery. The people you encounter are upbeat and optimistic, not haggard, sleep-deprived, and war-weary. I just knock out a newsletter and then head for the King’s Head for a pint of Guinness and a fish and chips.
What can be better than that?
With stocks holding up relatively well and bonds in free fall, valuations have befuddled and confused analysts, as well as sent them running for their history books. For the market as a whole, the price earnings yield for stocks how of bonds has dropped to zero for the first time in history. Both are at 5%.
With big tech share prices maintaining flatlines worst case and edging up best case, the debate has reignited as to how expensive these companies can get. The price earnings ratio for the Magnificent Seven has leapt from 29 to 45 this year.
There is an explanation for all of this.
The bottom line is that as long as the economy holds up, so will markets. The US has the only strong major economy in the world, held up by accelerating tech and AI.
That explains why even after a traumatic 2.4% drop in the S&P 500, the Volatility Index has only made it up to 21%. The first read on Q3 GDP is out on Thursday and the consensus forecast at 3.3%, or about the long-term average growth rate for the postwar US economy. The Atlanta Fed has Q3 growth as high as 5.4%.
So the growth is there.
All we need now is for bond yields to find their peak. Then we will be in for the yearend rally we have all been waiting for. From that point, you will want to own companies that suffer from rising interest rates. They will see explosive moves and the list is long.
I was walking down one of London’s cobble-stoned lanes the other day when a motorcycle passed by and backfired. I hit the ground, expecting an imminent missile strike. Passerbyes stared at me in awe, thinking an old man just suffered a massive heart attack. I simply got up, brushed myself off, and walked away.
It takes longer to leave a war than I thought.
So far in October, we are up +3.14%. My 2023 year-to-date performance is still at an eye-popping +63.94%. The S&P 500 (SPY) is up +10.79% so far in 2023. My trailing one-year return reached +71.56% versus +22.90% for the S&P 500.
That brings my 15-year total return to +661.13%. My average annualized return has returned to +47.79%, another new high, some 2.71 times the S&P 500 over the same period. A short in the bond market was a big help and long positions in Tesla and NVIDIA expired at max profit.
Some 41 of my 46 trades this year have been profitable.
My Ten-Year View
When we come out the other side of the recession, we will be perfectly poised to launch into my new American Golden Age, or the next Roaring Twenties. The economy decarbonizing and technology hyper-accelerating, creating enormous investment opportunities. The Dow Average will rise by 800% to 240,000 or more in the coming decade. The new America will be far more efficient and profitable than the old.
Dow 240,000 here we come!
On Monday, October 23, at 8:30 AM EST, the Chicago Fed National Activity Index is out.
On Tuesday, October 24 at 8:30 AM, the S&P Global Flash PMI is released.
On Wednesday, October 25 at 2:30 PM, the New Home Sales are published.
On Thursday, October 26 at 8:30 AM, the Weekly Jobless Claims are announced. The US GDP Growth Rate is revised.
On Friday, October 27 at 8:30 AM, Personal Income & Spending are published. At 2:00 PM the Baker Hughes Rig Count is printed.
As for me, you know you’re headed into a war zone the moment you board the train in Krakow, Poland. There are only women and children headed for Kiev, plus a few old men like me. Men of military age have been barred from leaving the country. That leaves about 8 million to travel to Ukraine from Western Europe to visit spouses and loved ones.
After a 15-hour train ride, I arrived at Kiev’s Art Deco station. I was met by my translator and guide, Alicia, who escorted me to the city’s finest hotel, the Premier Palace on T. Shevchenka Blvd. The hotel, built in 1909, is an important historic site as it was where the Czarist general surrendered Kiev to the Bolsheviks in 1919. No one in the hotel could tell me what happened to the general afterwards.
Staying in the best hotel in a city run by Oligarchs does have its distractions. That’s to the war occupancy was about 10%. That didn’t keep away four heavily armed bodyguards from the lobby 24/7. Breakfast was well populated by foreign arms merchants. And for some reason, there were always a lot of beautiful women hanging around.
The population is definitely getting war-weary. Nightly air raids across the country and constant bombings take their emotional toll. Kiev’s Metro system is the world’s deepest and at two cents a ride the cheapest. It where the government set up during the early days of the war. They perform a dual function as bomb shelters when the missiles become particularly heavy.
My Look Out Ukraine has duly announced every incoming Russian missile and its targeted neighborhood. The buzzing app kept me awake at night so I turned it off. The missiles themselves were nowhere near as noisy.
The sound of the attacks was unmistakable. The anti-aircraft drones started with a pop, pop, pop until they hit a big 1,000-pound incoming Russian cruise missile, then you heard a big kaboom! Disarmed missiles that were duds are placed all over the city and are amply decorated with colorful comments about Putin.
The extent of the Russian scourge has been breathtaking with an an epic resource grab. The most important resource is people to make up for a Russian population growth that has been plunging for decades. The Russians depopulated their occupied territory, sending adults to Siberia and children to orphanages to turn them into Russians. If this all sounds medieval, it is. Some 19,000 Ukrainian children have gone missing since the war started.
Everyone has their own atrocity story, most too gruesome to repeat here. Suffice it to say that every Ukrainian knows these stories and will fight to the death to avoid the unthinkable happening to them.
It will be a long war.
Touring the children’s hospital in Kiev is one of the toughest jobs I've ever undertaken. Kids are there shredded by shrapnel, crushed by falling walls, and newly orphaned. I did what I could to deliver advanced technology, but their medical system is so backward, maybe 30 years behind our own, that it couldn’t be employed. Still, the few smiles I was able to inspire made the trip worth it.
The hospital is also taking the overflow of patients from the military hospitals. One foreign volunteer from Sweden was severely banged up, a mortar shell landing yards behind him. He had enough shrapnel in him to light up an ultrasound and had already been undergoing operations for months.
To get to the heavy fighting, I had to take another train ride a further 15 hours east. You really get a sense of how far Hitler overreached in Russia in WWII. After traveling by train for 30 hours to get to Kherson, Stalingrad, where the German tide was turned, is another 700 miles east!
I shared a cabin with Oleg, a man of about 50 who ran a car rental business in Kiev with 200 vehicles. When the invasion started, he abandoned the business and fled the country with his family because they had three military-aged sons. He now works a minimum wage job in Norway and never expects to do better.
What the West doesn’t understand is that Ukraine is not only fighting the Russians but a Great Depression as well. Some tens of thousands of businesses have gone under because people save during war and also because 20% of their customer base has fled.
I visited several villages where the inhabitants had been completely wiped out. Only their pet dogs remained alive, which roved in feral starving packs. For this reason, my major issued me my own AK47. Seeing me heavily armed also gave the peasants a greater sense of security.
It’s been a long time since I’ve held an AK, which is a marvelous weapon. But it’s like riding a bicycle. Once you learn, you never forget.
I’ve covered a lot of wars in my lifetime, but this is the first fought by Millennials. They post their kills on their Facebook pages. Every army unit has a GoFundMe account where donors can buy them drones, mine sweepers, and other equipment.
Everyone is on their smartphones all day long killing time and units receive orders this way. But go too close to the front and the Russians will track your signal and call in an artillery strike. The army had to ban new Facebook postings from the front for his exact reason.
Ukraine has been rightly criticized for rampant corruption which dates back to the Soviet era. Several ministers were rightly fired for skimming off government arms contracts to deal with this. When I tried to give $3,000 to the Children’s Hospital, they refused to take it. They insisted I send a wire transfer to a dedicated account to create a paper trail and avoid sticky fingers.
I will recall more memories from my war in Ukraine in future letters, but only if I have the heart to do so. They will also be permanently posted on the home page at www.madhedfefundtrader.com under the tab “War Diary”.
Stay Healthy,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
