Global Market Comments
September 13, 2023
Fiat Lux
Featured Trade:
(SEPTEMBER 29 ZERMATT SWITZERLAND STRATEGY LUNCHEON)
(TRADING DEVOID OF THE THOUGHT PROCESS)
(SPY), (INDU), (TLT), (USO)
(ON EXECUTING TRADE ALERTS)
Tag Archive for: (SPY)
Global Market Comments
September 6, 2023
Fiat Lux
Featured Trade:
(HOW TO MAKE A KILLING IN TESLA)
(TESLA), (SPY), (VIX)
There is no doubt in my mind that a major leg up in Tesla shares is coming, possibly soon. That’s because of the increasing number of “Bigfoot” type sightings of the Cybertruck, the most revolutionary new vehicle launch in a decade.
Social media is increasingly being populated by links to secret videos, drone pictures, charging station sightings, and insider leaks.
The car will me made of flat stainless-steel panels to cut costs on those expensive curves. The windows are armor-plated. It has a towing capacity of 14,000 pounds, can accelerate from zero to 60 mph in 2.9 seconds, and boasts a 500-mile range. It moves the auto industry to a 48-volt platform to save on copper costs. You can have all of this starting at $60,000.
To get on the waiting list, please click here. But you may have to wait for two years to get one. You’ll be somewhere in the 2 million waiting list.
Not only did I pay for this year’s summer vacation with this year’s Tesla profits, and it was not exactly a cheap one, but I paid for next year’s as well. I’m taking a Queen Mary owner’s suite, Orient Express, Hotel Cipriani in Venice kind of vacation.
I’m about to make a lot more.
I get most of my ideas for trade alerts from my own trading. They’re just infinitely more aggressive than the ones I send to the Mad Hedge Trade Alert service. I am much more careful with client money than my own, as I hate losing other people’s money more than anything.
I would never recommend what I did below for mere mortals. If I did, I’d probably end up in jail.
One great high risk leveraged strategy is to sell short Tesla puts outright. All my puts that I sold short this month for $12-$16 are expiring worthless.
It’s not for the faint of heart and it takes a half-century of risk tolerance building to do this kind of trading. Never short more puts than you can afford to buy the stock.
There were a few things required to do such a trade.
Since no one ever gets the absolute bottom, the initial outcome of a large leveraged position is a big loss. Most of you would stop out of the position when this happens. I kept doubling up.
For I had the power of my own convictions.
By selling short puts, I was more than happy to buy Tesla stock lower down if the stock went against me. Using margin, I could buy a lot of stock.
Now that’s a trade!
When I added this position, I thought it highly unlikely that I would get to buy Tesla stock at low prices for the following reasons:
1) The stock market was oversold.
2) Tesla was even more oversold, having fallen 30%.
3) A classic “cup and handle” formation was setting up on the charts. Upside breakout day was July 24.
4) The Volatility Index (VIX) failed to confirm the selloff.
5) After sitting in the sidelines investors had accumulated massive amounts of cash.
6) We are about to move into strongly positive seasonals.
7) Tesla is getting ready to buy back its own stock.
8) Tesla bears, and there are always a lot of them out there, had just freshly topped up their short positions, leaving the stock ripe for a short squeeze.
9) Tesla is one of the most volatile stocks in the market, with option implied volatility regularly hitting 100%. By comparison, the S&P 500 (SPX) sits at a positively boring 20%.
10) Fears of a deep recession were wildly overblown.
The real cherry on top of the cake was the $370 billion Biden Climate bill, which no one expected, came totally out of the blue, and had a ballistic effect on Tesla shares. Tesla is the overwhelming beneficiary of this legislation.
They might as well have called it the “Tesla shareholder enrichment plan.”
It’s easy to commit to paying $245 for a stock that you think someday will be worth $10,000. Tesla is currently the fastest-growing car company in the world with a near global monopoly in EVs. Its market share is 66%. The best Henry Ford could do with Ford Motors (F) in the 1910s was a US market share of 75%.
So, I will probably be doing a lot more of these. I don’t need the money; I just love winning.
You’ll be the first to know.
Tesla Just Bought Me Another Tesla
Global Market Comments
August 28, 2023
Fiat Lux
Featured Trades:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or THE FAILED RALLY)
(SPY), (TLT), (FCX), (TSLA), (AAPL), (UPS)
CLICK HERE to download today's position sheet.
Market’s tried to rally last week….and failed.
The reason, of course, is Fed governor Jay Powell’s comments that interest rates may have to stay higher for longer. He seems hell-bent on reaching his 2.0% inflation target, down from the current 3.2% and well off the 9.0% high.
That puts off any rally in the interest rate-sensitive sectors, which is almost everything, by three to six months. But then, markets discount fundamentals by six to nine months in advance.
You do the math.
That means a monster rally in all financial assets should ensue sometime in September or October that could last a decade.
What a surprise!
The possibility that the next rally will be explosive is bereft of doubt. A record $5.6 trillion is now sitting on the sidelines ready to dive into risk assets on the slightest pretense. We might be in for another January 4 repeat. That includes funds in money market funds, overnight bank deposits, 90-day T-bills, IRAs, 401Ks, and cash under the mattress.
It's all very reminiscent of 1982 when we enjoyed the exact demographic tailwind as we are enjoying now. An 18-year rally followed and took the Dow Average up 20-fold.
The United States has by far the strongest major economy in the world for a reason. A 3.5% Headline Unemployment Rate, 5.25% overnight interest rates, and a 3.2% inflation rate are supposed to be mathematically impossible, yet here we are.
Did I mention that 2024 is an election year? That's when the economic data magically improve, as they have during every election over the past 200 years. Stock investors notice this.
As I spent all day every day and well into the night conducting research, I noticed a curious development. All the bears seem to live on the East Coast, while those in Silicon Valley are the most bullish I’ve ever seen.
That’s because we here in California see the hyper-accelerating technology in every meeting, with every human contact, and right on our own doorsteps. We are the beta testers for the technology that the rest of the country and the world won’t see for a few years.
While the nation is debating climate change, there is a “Robot War” taking place in San Francisco over how rapidly to permit the expansion of the self-driving taxi fleet, now capped at 1,000.
The fact that their accident rate has been near zero, far lower than human-driven vehicles, is a major point in their favor. I’m getting used to seeing no driver in the car next to me.
Walked into a McDonald's or a Taco Bell lately? It’s all computers. My theory as to why UPS agreed to such a generous 40% pay increase over five years for 340,000 workers is that when the next contract comes up for negation, they will have gone all robotic by then.
Autonomous driving, artificial intelligence, quantum computers are all still in their infancy and are in no way reflected in share prices.
In the meantime, keep massaging those 5.25% 90-day T-bill rates and enjoy your summer vacation. But the time to go all in with risk is approaching.
So far in August, we are down -4.70%. My 2023 year-to-date performance is still at an eye-popping +60.80%. The S&P 500 (SPY) is up +17.10% so far in 2023. My trailing one-year return reached +92.45% versus +8.45% for the S&P 500.
That brings my 15-year total return to +657.99%. My average annualized return has fallen back to +48.15%, some 2.50 times the S&P 500 over the same period.
Some 41 of my 46 trades this year have been profitable.
The Oracle Speaks! Fed Governor Jay Powell might as well have been reading me the New York telephone book when he indicated that “Interest rates may have to stay higher for longer” during his Jackson Hole speech. The Fed only knows two speeds: too slow and too fast. The bears are coming out of the woodwork once again. Look for lower lows to buy into for all asset classes. Start positioning yourself for a monster yearend rally.
Markets Will Snore Until September 1 Jobs Report. The August Nonfarm Payroll report is expected to come in at a weak 175,000. Enjoy the last week of summer.
The US Budget Deficit is Climbing Once Again, after a super spike in 2020. Recent environmental spending has added another trillion dollars to the bill. That will seem a bargain if we can’t slow down exploding global temperatures….quickly. It was 120 degrees in Italy this summer. Mama Mia!
Has Apple (AAPL) Topped Out? With no new products on the horizon and interest rates rising, the bull market in Apple shares may have called it a day at last month’s 200 peak. As with the rest of the “Magnificent Seven,” there was a giant pull forward of performance into the first half of this year. All of the stock’s gains have been through multiple expansions, regaining much of what was lost in 2022.
Existing Home Sales Drop Again, demolished by record-high mortgage rates. July saw sales decline by 2.2% to a six-month low on sales of 4.15 million units. Home resales, which account for a big chunk of U.S. housing sales, fell 16.6% on a year-on-year basis in July.
Ten-Year Treasuries Hit New 16-year High, at 4.32%. We could be approaching a bond-selling climax around Jay Powell’s Jackson Hole Speech on Friday and the buying opportunity of the decade.
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, August 28 at 8:00 AM EST, the Dallas Fed Manufacturing Index is out.
On Tuesday, August 29 at 8:30 AM, the US JOLTS Job Openings Report is released.
On Wednesday, August 30 at 2:30 PM, the ADP Employment Change is published.
On Thursday, August 31 at 8:30 AM, the Weekly Jobless Claims are announced. Personal Income & Spending are also announced.
On Friday, September 1 at 2:30 PM, the Nonfarm Payroll Report for August is published. At 2:00 PM, the Baker Hughes Rig Count is printed.
As for me, The Diary of a Mad Hedge Fund Trader is now celebrating its 15th year of publication.
During this time, I have religiously pumped out 3,000 words a day, or 18 newsletters a week, of original, independent-minded, hard-hitting, and often wickedly funny research.
I spent my life as a war correspondent, Marine Corps combat pilot, Wall Street trader, and hedge fund manager, and if you can’t laugh after that, something is wrong with you.
I’ve been covering stocks, bonds, commodities, foreign exchange, energy, precious metals, real estate, and even agricultural products.
You’ve been kept up on my travels around the world and listened in on my conversations with those who drive the financial markets.
I also occasionally opine on politics, but only when it has a direct market impact, such as with the recent administration's economic and trade policies. There is no profit in taking a side.
The site now contains over 20 million words, or 30 times the length of Tolstoy’s epic War and Peace.
Unfortunately, it feels like I have written on every possible topic at least 100 times over.
So, I am reaching out to you, the reader, to suggest new areas of research that I may have missed until now which you believe justify further investigation.
Please send any and all ideas directly to me at support@madhedgefundtrader.com/, and put “RESEARCH IDEA” in the subject line.
The great thing about running an online business is that I can evolve it to meet your needs on a daily basis.
Many of the new products and services that I have introduced since 2008 have come at your suggestion. That has enabled me to improve the product’s quality, to your benefit. Notice how rapidly my trade alert performance is going up, now annualizing at +47% a year.
This originally started out as a daily email to my hedge fund investors giving them an update on fast market-moving events. That was at a time when the financial markets were in free fall, and the end of the world seemed near.
Here’s a good trading rule of thumb: Usually, the world doesn’t end. History doesn’t repeat itself, but it certainly rhymes.
The daily emails gave me the scalability that I so desperately needed. Today’s global mega enterprise grew from there.
Today, the Diary of a Mad Hedge Fund Trader and its Global Trading Dispatch is read in over 140 countries by 30,000 followers. The Mad Hedge Technology Letter, the Mad Hedge Biotech & Health Care Letter, Mad Hedge AI, and Jacquie’s Post also have their own substantial followings. And the daily Mad Hedge Hot Tips is one of the most widely read publications in the financial industry.
I’m weak in distribution in North Korea and Mali, in both cases due to the lack of electricity. But that may change.
One can only hope.
If you want to read my first pitiful attempt at a post, please click here for my February 1, 2008 post.
It urged readers to buy gold at $950 (it soared to $2,200), and buy the Euro at $1.50 (it went to $1.60).
Now you know why this letter has become so outrageously popular.
Unfortunately, I also recommended that they sell bonds short. I wasn’t wrong on that one, just early, about eight years too early.
I always get asked how long will I keep doing this?
I am already collecting Social Security, so that deadline came and went. My old friend and early Mad Hedge subscriber, Warren Buffet is still working at 92, so that seems like a realistic goal. And my old friend, Henry Kissinger, is still hard at it at 100 years old.
Hiking ten miles a day with a 50-pound pack, my doctor tells me I should live forever. He says he spends all day trying to convince his other patients to be like me, and the only one who actually does it is me.
The harsh truth is that I don’t know how to NOT work. Never tried it, never will.
The fact is that thousands of subscribers love me for what I do, pay for me to travel around the world first class to the most exotic destinations, eat in the best restaurants, fly the rarest historical aircraft, then say thank you. I even get presents (keep those pounds of fudge and bottles of bourbon coming!).
Given the absolute blast I have doing this job; I would be Mad to actually retire.
Take a look at the testimonials I get only on an almost daily basis and you’ll see why this business is so hard to walk away from (click here for those).
In the end, you are going to have to pry my cold dead fingers off of this keyboard to get me to give up.
Fiat Lux (let there be light).
Stay Healthy,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Here Comes the Heat-Induced Recession.
Large parts of the UK economy are shutting down today, including the entire rail system, due to extreme heat. The temperature in London today is expected to top a record 107 degrees. Much of Britain’s infrastructure is simply not designed to operate at these temperatures.
France is worse, with temperatures there reaching 113 degrees. It will not be the last time that temps get this high. As for Southern Italy, it has become uninhabitable by humans at 116 degrees.
That brings the prospect that weather forecasts may become a much more important aspect of stock market predictions than they have in the past. Just like we have to now include new covid cases and deaths as part of our daily calculation, so might the high temperature of this day.
The temperature has in effect become a new economic indicator.
As for me, I am high in the Alps at 7,000 feet where it is a much more comfortable 80 degrees. The rivers are roaring below me with record glacier melts, tar on the roads is melting, and it is too hot to hike. With ice disappearing, there is talk of the Matterhorn breaking apart.
But at least I can catch up on my paperwork. The trouble is, so is everyone else and my Internet speed has slowed from 45 megabytes per second to an unusable 10.
Below is an email I received from British Rail which I rode only last week.
Dear Customer,
You may be aware that Network Rail has urged people across the country to only travel if absolutely necessary on Monday 18 and Tuesday 19 July. This comes as a result of the extreme heat forecast for these two days.
On Monday and Tuesday, temperatures are expected to reach up to 42°C in London and the surrounding area, and the mid-30s in the western parts of our network. As rail temperatures can be up to 20°C higher than the air around them, there is a risk of them buckling in the extreme heat.
As a result, Network Rail will introduce speed restrictions across the network to minimize the force on the tracks and reduce the chance of buckling. These speed restrictions will, in turn, make journeys longer and we will introduce a reduced service on Monday and Tuesday in a bid to give our customers certainty on what will run.
The speed restrictions will particularly affect our mainline services, with long-distance services to Exeter, Salisbury, Bournemouth, Weymouth, Southampton, and Portsmouth most likely to be impacted.
Service changes are likely to appear in journey planners at short notice, so anyone who chooses to travel despite the warnings on Monday or Tuesday is urged to check their journey before setting off and to expect last-minute delays and cancellations.
If you have no choice but to travel, you are urged to carry water with you, cover up, and wear sunscreen when traveling. Find out more about traveling in hot weather here.
If you choose to delay your travel, please note that the original ticket restrictions will still apply. If you are using an Advance Purchase ticket, please travel as close to the original departure time as possible or make use of Book With Confidence.
Thank you for your patience and understanding.
Yours sincerely,
South Western Railway
Global Market Comments
August 8, 2023
Fiat Lux
Featured Trades:
(THIS WILL BE YOUR BEST-PERFORMING ASSET FOR THE NEXT 30 YEARS),
(IYR), (PHM), (LEN), (DHI), (TLT), (HYG), (MUB), (SPY)
CLICK HERE to download today's position sheet.
Global Market Comments
July 20, 2023
Fiat Lux
Featured Trades:
(CONTANGO IN THE (UVXY) EXPLAINED ONE MORE TIME),
(UVXY), (VIX), (SPY)
CLICK HERE to download today's position sheet.
Global Market Comments
June 21, 2023
Fiat Lux
Featured Trades:
(WEDNESDAY, JULY 19, 2023 LONDON GLOBAL STRATEGY LUNCHEON)
(THE BUY AND FORGET PORTFOLIO),
(SPY), (IXUS), (EEM), (VNQ), (TLT), (TIP)
CLICK HERE to download today's position sheet.
All traders and portfolio managers with experience approaching a half-century, like myself and a handful of close friends, agree on one thing.
Someday, you will be wrong.
I don’t mean just a little bit wrong, I mean disastrously wrong. A real humdinger, even a life-threatening experience. Even wrong up the wazoo.
In fact, most old salts, even the best performing ones, suffer at least a couple of 50% losses of their total assets, and at least one 75% hit, at least once in their lives.
We’ve all been there.
The 1973 oil crisis. The 1987 stock market crash, when the Dow Average gave up a withering 22% in a single day (I tried to place an order to buy stock at the close and the clerk burst into tears and dissolved into a puddle on the floor).
The Dotcom crash. And of course, the granddaddy of them all, the Great Crash of 2008, which you all remember with the greatest discomfort.
Even my mentor, Warren Buffet, has admitted to taking three 50% hits in his lifetime and lived to tell about it.
The trick is to keep these misfortunes from wiping you out so completely that you can never make a comeback.
Better yet, don’t get into trouble in the first place. And I’ll tell you exactly how to do that right now.
One of the great pleasures of running the Mad Hedge Fund Trader is that I get to speak to thousands of interesting people every year. Believe me, there are all kinds.
I have found kids straight out of school who take to trading like a fish to water. Their instincts are incredible. They figure out the harsh realities of the market decades before I ever did.
When they ask me questions, I think, “Damn! Why didn’t I think of that?”
I have seen several of these gifted, natural born traders use the Mad Hedge Fund Trader turn pennies into millions over unbelievably short times.
You see, they have the trader gene.
Sadly, I also run into the opposite extreme. With some people you could have George Soros sitting on their left, Paul Tudor Jones on their right, both guiding their hands on the mouse to execute trades, and they are still going to still lose money.
These are not stupid people.
I have met many with Harvard MBAs, advanced degrees from MIT, and even Phi Beta Kappa’s, and it doesn’t do them a whit of good on the trading front. They just don’t have trading in them.
In other words, they lack the trading gene.
When I stumble across these people, I tell them to quit trading, end the self-abuse, and preserve whatever wealth they have left. I then order them to buy what I call my “Buy and Forget Portfolio.”
This is a collection of only six investments, which I have assembled over the decades that will be profitable in almost all circumstances. In good years it will grow generously. In bad years it will be down marginally. Over the long term, it will do extremely well.
Here it is:
The Mad Hedge Buy and Forget Portfolio
20% domestic US stocks (SPY)
20% international stocks (IXUS)
10% emerging stock markets (EEM)
20% Real Estate Investment Trusts (VNQ)
15% long term US Treasury Bonds (TLT)
15% Treasury Inflation Protected Securities (TIP)
Notice that half the money is in equities and the remainder in fixed income securities.
If you initiated this portfolio in 1997, the year that TIPS first became available to the public, you would have earned an average annualized compounded return of 7.86% through the end of 2014, assuming reinvestment of dividends and interest.
During the bear market of 2000-2002, when the S&P 500 dropped 50%, this portfolio never suffered a loss of more than -4.7%. During the Great Crash of 2008, it fell -31%, versus -37% for the (SPY), and then very quickly bounced back.
Most long-only investors would have killed for returns like these.
So the bottom line is this. Expect a 4% drawdown every decade, a 31% hickey twice a century, and one of those twice-a-century events is only eight years behind us. That is not a bad proposition.
The heavy stock weighting can be easily explained by the fact that historically, stocks have outperformed bonds by a large margin.
For long periods of time, such as much of the 19th century, the Great Depression, and now, chronic structural deflation meant that bonds paid very little in interest.
Stocks also have the advantage in that during periods of inflation they can pass rising costs on to consumers via price hikes.
Guess what? We are just going into an inflationary period.
For the past 200 years, stocks have therefore delivered a compounded average annualized return of 8.3%.
Just to give you an example of how valuable the stock advantage can be, $1 invested in 1802 would be worth $8.8 million today.
This is why Oracle of Omaha Warren Buffet constantly sings the praises of compounding and dividend reinvestment and is why he rarely sells anything. In fact, his authorized biography is entitled Snowball (a great read, by the way).
The beauty of the Buy and Forget Portfolio is that the six elements counterbalance each other in all market circumstances. When stocks go up, bonds usually go down, and vice versa.
They both go the wrong way only for very short periods, such as in 2008 and always snap back.
And remember inflation, that long-forgotten thing where prices actually go up? It will make a return someday. And there is no better time to buy TIPS than during the deflationary surge that we are enduring now. TIPS prices are cheap.
Such is the beauty of diversification.
The great thing about the Buy and Forget Portfolio is that you can literally buy and forget about it. You won’t lose sleep at night, you could care less about what they say on CNBC, and don’t have to hide those embarrassing brokerage statements from your spouse.
The only thing you have to do is to rebalance it once a year to restore each component to its original weighting. More often than that and you run up big commission and tax bills.
Remember, you are trying to buy your own yacht, not your broker’s.
This will free you up to focus on the more important things in life.
Will Daenerys Targaryen gain her rightful place on the throne of the Seven Kingdoms in The Game of Thrones? Will Don Draper get his well-deserved comeuppance in the final season of Mad Men? Can the widow, Lady Mary, ever find true love again in the next season of Downton Abbey?
Of course, knowing all of this, some bad traders will continue to trade. For some, it is like an addition. They just have to win, whatever the cost. For others, it's like buying lottery tickets. Some just love the adrenaline and the thrill of the chase, even if it costs them money.
Whatever the reason, they continue trading until they run out of money. Then they will try to borrow your money to trade.
Could this be you?
All I can do is wish them the best.
Leave the trading to the masochists, like me.
Leave the Trading to the Masochists