Global Market Comments
April 24, 2024
Fiat Lux
Featured Trade:
(THEY’RE NOT MAKING AMERICANS ANYMORE)
(SPY), (EWJ), (EWL), (EWU), (EWG), (EWY), (FXI), (EIRL), (GREK), (EWP), (IDX), (EPOL), (TUR), (EWZ), (PIN), (EIS)
Tag Archive for: (SPY)
If demographics is destiny, then America’s future looks bleak. You see, they’re not making Americans anymore.
At least that is the sobering conclusion of the latest Economist magazine survey of the global demographic picture.
I have long been a fan of demographic investing, which creates opportunities for traders to execute on what I call “intergenerational arbitrage”. When the numbers of the middle-aged big spenders are falling, risk markets plunge. Front run this data by two decades, and you have a great predictor of stock market tops and bottoms that outperforms most investment industry strategists.
You can distill this even further by calculating the percentage of the population that is in the 45-49 age bracket.
The reasons for this are quite simple. The last five years of child rearing are the most expensive. Think of all that pricey sports equipment, tutoring, braces, SAT coaching, first cars, first car wrecks, and the higher insurance rates that go with it.
Older kids need more running room, which demands larger houses with more amenities. No wonder it seems that dad is writing a check or whipping out a credit card every five seconds. I know, because I have five kids of my own. As long as dad is in spending mode, stock and real estate prices rise handsomely, as do most other asset classes. Dad, you’re basically one generous ATM.
As soon as kids flee the nest, this spending grinds to a juddering halt. Adults entering their fifties cut back spending dramatically and become prolific savers. Empty nesters also start downsizing their housing requirements, unwilling to pay for those empty bedrooms, which in effect, become expensive storage facilities.
This is highly deflationary and causes a substantial slowdown in GDP growth. That is why the stock and real estate markets began their slide in 2007, while it was off to the races for the Treasury bond market.
The data for the US is not looking so hot right now. Americans aged 45-49 peaked in 2009 at 23% of the population. According to US census data, this group then began a 13-year decline to only 19% by 2022.
You can take this strategy and apply it globally with terrific results. Not only do these spending patterns apply globally, they also back-test with a high degree of accuracy. Simply determine when the 45-49 age bracket is peaking for every country and you can develop a highly reliable timetable for when and where to invest.
Instead of pouring through gigabytes of government census data to cherry-pick investment opportunities, my friends at HSBC Global Research, strategists Daniel Grosvenor and Gary Evans, have already done the work for you. They have developed a table ranking investable countries based on when the 34-54 age group peaks—a far larger set of parameters that captures generational changes.
The numbers explain a lot of what is going on in the world today. I have reproduced it below. From it, I have drawn the following conclusions:
* The US (SPY) peaked in 2001 when our first “lost decade” began.
*Japan (EWJ) peaked in 1990, heralding 32 years of falling asset prices, giving you a nice backtest.
*Much of developed Europe, including Switzerland (EWL), the UK (EWU), and Germany (EWG), followed in the late 2000s and the current sovereign debt debacle started shortly thereafter.
*South Korea (EWY), an important G-20 “emerged” market with the world’s lowest birth rate peaked in 2010.
*China (FXI) topped in 2011, explaining why we have seen three years of dreadful stock market performance despite torrid economic growth. It has been our consumers driving their GDP, not theirs.
*The “PIIGS” countries of Portugal, Ireland (EIRL), Greece (GREK), and Spain (EWP) don’t peak until the end of this decade. That means you could see some ballistic stock market performances if the debt debacle is dealt with in the near future.
*The outlook for other emerging markets, like Indonesia (IDX), Poland (EPOL), Turkey (TUR), Brazil (EWZ), and India (PIN) is quite good, with spending by the middle age not peaking for 15-33 years.
*Which country will have the biggest demographic push for the next 38 years? Israel (EIS), which will not see consumer spending max out until 2050. Better start stocking up on things Israelis buy.
Like all models, this one is not perfect, as its predictions can get derailed by a number of extraneous factors. Rapidly lengthening life spans could redefine “middle age”. Personally, I’m hoping 72 is the new 42.
Emigration could starve some countries of young workers (like Japan) while adding them to others (like Australia). Foreign capital flows in a globalized world can accelerate or slow down demographic trends. The new “RISK ON/RISK OFF” cycle can also have a clouding effect.
So why am I so bullish now? Because demographics is just one tool in the cabinet. Dozens of other economic, social, and political factors drive the financial markets.
What is the most important demographic conclusion right now? That the US demographic headwind veered to a tailwind in 2022, setting the stage for the return of the “Roaring Twenties.” With the (SPY) up 27% since October, it appears the markets heartily agree.
While the growth rate of the American population is dramatically shrinking, the rate of migration is accelerating, with huge economic consequences. The 80-year-old trend of population moving from North to South to save on energy bills picking up speed, the Midwest is getting hollowed out at an astounding rate as its people flee to the coasts, all three of them.
As a result, California, Texas, Florida, Washington, and Oregon are gaining population, while Missouri, Iowa, Nebraska, Kansas, and Wyoming are losing it (see map below). During my lifetime, the population of California has rocketed from 10 million to 40 million. People come in poor and leave as billionaires, as Elon Musk did.
In the meantime, I’m going to be checking out the shares of the matzo manufacturer down the street.
Global Market Comments
March 1, 2024
Fiat Lux
Featured Trade:
(WHY TECHNICAL ANALYSIS IS A DISASTER)
(SPY), (QQQ), (IWM), (VIX),
(TESTIMONIAL), (NVDA)
Global Market Comments
February 26, 2024
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or WHO NEEDS RATE CUTS?
(NVDA), (TSLA), (BRK/B), (SPY), (AMZN), (UNG)
People will be sitting around campfires trading stories about last week’s NVIDIA move for decades.
Analysts have been struggling to outdo each other in describing their earnings report that came out on Thursday. Here’s my favorite: The gain in the company’s market capitalization on that day, at $278 billion the largest in history, exceeded its TOTAL market capitalization at the pandemic bottom.
And here I deserve some bragging rights. Mad Hedge followers went into last week’s melt-up, UP TO THEIR EYEBALLS in (NVDA). They owned the stock, call options, and call spreads. The LEAPS alone delivered a 12X return, and some readers who customize their own strike prices (the $295-$300s) received a 50X return. It was almost everyone’s largest position.
It was easy for me to do the NVIDIA trade. When the company launched its first high-end graphics card in 1993, every computer geek out there flocked to them. I used to tear apart my company’s PCs, throw out the graphics cards they came with, and install NVIDIA cards. The performance improvement was remarkable, especially for advanced mathematical calculations.
The company is blessed. It went public at $12 a share just before the Dotcom Bust and the IPO window closed for years. Adjusted for 12:1 splits over the years and that drops the original IPO price to $1. A dollar invested in 1999 would be worth $750 at last week’s high. NVIDIA’s CEO, Jensen Huang, is now one of the richest men in the world solely through the ownership of his NVIDIA shares.
God Bless America!
Also last week, my inbox was jammed with inquiries on what company will become the next NVIDIA. And here is the bad news. There aren’t any 750:1 returns anywhere on the horizon. There are not even any 175:1 opportunities that we earned from Tesla (TSLA) over the years either where we also had heavy exposure.
And the reason is very simple. You are not going to get the entry points today with the Dow Average at 39,000 that you got in 2009 when it was at only 6,000, or when it was at a mere 600 when I joined Morgan Stanley in 1982. The last decent entry point for (NVDA) was the $100 pandemic low in April 2020.
Want to own the next (NVDA)? Try buying (NVDA), where an analyst raised his target to $1,420, up 80% from the Friday close. It’s just a matter of time before its market cap jumps from $2 trillion to $3 trillion, making it the largest company in the world. That’s what an airtight monopoly in the world’s most valuable product gets you.
Technology earnings are now exploding at such a rapid pace that it is time to consider the unthinkable: What if stocks don’t need interest rate cuts for the bull market to continue? After all, the companies seem to be doing just fine without any such assistance.
Why try to fix what isn’t broken?
In fact, these large cash flow companies would take a hit on their income statements as they are already net creditors to the financial system. Apple (AAPL) alone would lose $8 billion in annual income if interest rates went back to zero.
While that may be true for the Magnificent Seven or the AI Five, it is not true for the Unimagnificent 493. They actually need cheaper money for their stock prices to get going or even just to survive. That is especially true for all the falling interest rate plays, like bonds, utilities, real estate, precious metals, energy, and foreign currencies.
And don’t even talk to me about small caps, which depend on low interest rates for the breath of life.
It says a lot that Warren Buffet believes there is nothing left to buy in his annual letter to shareholders, an early Mad Hedge subscriber. His spectacular annual compounded returns of 19.8% a year, more than double that of the S&P 500 (SPY), are now a thing of the past.
The few targets left out there are few and far between and heavily picked over. (BRK/B) has also lost the advice of its principal mentor, Charlie Munger at the ripe old age of 99. Last year Berkshire acquired Dairy Queen and Berkshire Energy. But at $905 billion in assets under management, those will hardly move the needle. The 93-year-old Buffet has outperformed the S&P 500 by 141:1 since 1964.
Who says age is an impediment?
So far in February, we are up +5.92%. My 2024 year-to-date performance is also at +1.64%. The S&P 500 (SPY) is up +6.50% so far in 2024. My trailing one-year return reached +57.73% versus +38.67% for the S&P 500.
That brings my 15-year total return to +678.27%. My average annualized return has recovered to +51.19%, another new high.
Some 63 of my 70 trades last year were profitable in 2023.
I used the ballistic move-in (NVDA) to take profits in my double long there. I am maintaining a single long (AMZN) and am 90% in cash given the elevated level of the markets.
NVIDIA Announces Blowout Earnings, with AI reaching the “tipping point” according to the CEO Jensen Huang. Revenues came in at a spectacular $22.1 billion versus an expected $20.6 billion off the backing of exploding data center demand, up 33%. Earnings were up 22% QOQ and 225% YOY. The shares exploded $100 in the aftermarket at one point, up 15.6%. Forward guidance was ramped up too. Buy NVDA on dips. At a PE multiple of 18X, it is the cheapest AI stock out there.
Mad Hedge Clocks Biggest One Day Gain in 16 Years, with a double weighting in NVIDIA (NVDA), up +6.072%. If you like that the Mad Hedge Technology Letter is doing even better, up +13% YTD. And we are still early days into the tech melt-up, which could go on for another decade. Our YOY gain is up +59.62%. The harder I work, the luckier I get.
Existing Home Sales Jumped 3% YOY, boosted by lower mortgage interest rates in November and December. Inventories of homes for sale in January increased to 1.01 million units, up 3.1% from January 2023, but still at a low 3-month supply. The median existing home price for all housing types in January was $379,100, up 5.1% from a year earlier and an all-time high for the month of January.
Weekly Jobless Claims Dropped to a one-month low, down 12,000 to 201,000. No recession here. California and Kentucky saw the largest declines.
China Bans Stock Selling, by institutional investors at market openings and closes when liquidity is the greatest. It’s part of the government’s most forceful attempt yet to prop up the nation’s $8.6 trillion stock market. It’s another sign of a weakening China. When restrictions are placed on markets, capital flees. Whoever thought of this one must have a hole in their head. Avoid (FXI).
California demolishes Solar Providers, cutting the price the utility PG&E has to pay for home power providers by 75%. Solar companies like SunPower (SPWR), are down 89% since last year. Avoid solar providers for now, which was always a low value-added business.
Amazon (AMZN) is getting added to the Dow Average, opening it up to massive index buying. Retailer Walgreens Boots Alliance (WBA) is getting bumped. Since 1896, the blue-chip index has made few changes to its 30-stock lineup, having altered its constituents about 60 times in its 128-year history. Buy (AMZN) on dips.
US Stocks now account for 70% of Global Stock Market Capitalization, thanks to the ballistic moves in big tech. This level represents the largest country weighting since I helped create this index way back in 1986. It also now has the lowest exposure to non-US stocks. Money is pouring into the US from all corners of the world, the planet's most successful economy.
Natural Gas Hits (UNG) Three Year Low, at $1.63MM BTU, and down an eye-popping 50% in a month. Warm weather, high inventories, and overproduction due to cheap capital are the price killers. An LNG train broke down, cutting export demand. If you didn’t get out on the double in December you’re toast. Avoid (UNG).
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, February 26, the New Home Sales are announced.
On Tuesday, February 27 at 8:30 AM EST, the Durable Goods are released. The S&P Case Shiller for December is announced.
On Wednesday, February 28 at 2:00 PM, the Q2 GDP second read is published.
On Thursday, February 29 at 8:30 AM, the Weekly Jobless Claims are announced. We also get the Core Consumer Price Expectations.
On Friday, March 1 at 2:30 PM, the December ISM Manufacturing PMI is published. At 2:00 PM the Baker Hughes Rig Count is printed.
As for me, the telephone call went out amongst the family with lightning speed, and this was back in 1962 when long-distance cost a fortune. President Dwight D. Eisenhower was going to visit my grandfather’s cactus garden in Indio the next day, said to be the largest in the country, and family members were invited.
I spent much of my childhood in the 1950s and 1960s helping grandpa look for rare cactus in California’s lower Colorado Desert, where General Patton trained before invading Africa. That involved a lot of digging out a GM pickup truck from deep sand in the remorseless heat. SUVs hadn’t been invented yet, and a Willys Jeep (click here) was the only four-wheel drive then available in the US.
I have met nine of the last 13 presidents, but Eisenhower was my favorite. He certainly made an impression on me as a ten-year-old boy, who I remember as a kindly old man.
I walked with Eisenhower and my grandfather plant by plant, me giving him the Latin name for its genus and species and citing unique characteristics and uses by the Indians. The former president showed great interest and in two hours we covered the entire garden. I still make my kids learn the Latin names of plants.
Eisenhower lived on a remote farm at the famous Gettysburg, PA battlefield given to him by a grateful nation. But the winters there were harsh, so he often visited the Palm Springs mansion of TV Guide publisher Walter Annenberg, a major campaign donor.
Eisenhower was a one-of-a-kind brilliant man that America always came up with when it needed them the most. He learned the ropes serving as Douglas MacArthur’s Chief of Staff during the 1930’s. Franklin Roosevelt picked him out of 100 possible generals to head the Allied invasion of Europe, even though he had no combat experience.
After the war, both the Democratic and Republican parties recruited him as a candidate for the 1952 election. The latter prevailed, and “Ike” served two terms, defeating the governor of Illinois Adlai Stevenson twice. During his time, he ended the Korean War, started the battle over civil rights at Little Rock, began the Interstate Highway System, and admitted Hawaii as the 50th state.
As my dad was very senior in the Republican Party in Southern California during the 1950s, I got to meet many of the bigwigs of the day. New York prosecutor Thomas Dewy ran for president twice, against Roosevelt and Truman, and was a cold fish and aloof. Barry Goldwater was friends with everyone and a decorated bomber pilot during the war.
Richard Nixon would do anything to get ahead, and it was said that even his friends despised him. He let the Vietnam War drag out five years too long when it was clear we were leaving. Some 21 guys I went to high school with died in Vietnam during this time. I missed Kennedy and Johnson. Wrong party and they died too soon. Ford was a decent man and I even went to church with him once, but the Nixon pardon ended his political future.
Peanut farmer Carter was characterized as an idealistic wimp. But the last time I checked, the Navy didn’t hire wimps as nuclear submarine commanders. He did offer to appoint me Deputy Assistant Secretary of the Treasury for International Affairs, but I turned him down because I thought the $15,000 salary was too low. There were not a lot of Japanese-speaking experts on the Japanese steel industry around in those days. Biggest mistake I ever made.
Ronald Reagan’s economic policies drove me nuts and led to today’s giant deficits, which was a big deal if you worked for The Economist. But he always had a clever dirty joke at hand which he delivered to great effect….always off camera. The tough guy Reagan you saw on TV was all acting. His big accomplishment was not to drop the ball when it was handed to him to end the Cold War.
I saw quite a lot of George Bush, Sr. whom I met with my Medal of Honor Uncle Mitch Paige at WWII anniversaries, who was a gentleman and fellow pilot. Clinton was definitely a “good old boy” from Arkansas, a glad-hander, and an incredible campaigner, but he was also a Rhodes Scholar. His networking skills were incredible. George Bush, Jr. I missed as he never came to California. And 22 years later we are still fighting in the Middle East.
Obama was a very smart man and his wife Michelle even smarter. Stocks went up 400% on his watch and Mad Hedge Fund Trader prospered mightily. But I thought a black president of the United States was 50 years early. How wrong was I. Trump I already knew too much about from when I was a New York banker.
As for Biden, I have no opinion. I never met the man. He lives on the other side of the country. When I covered the Senate for The Economist, he was a junior member.
Still, it’s pretty amazing that I met 10 out of the last 14 presidents. That’s 20% of all the presidents since George Washington. I bet only a handful of people have done that, and the rest all live in Washington DC. And I’m a nobody, just an ordinary guy.
It just makes you think about the possibilities.
Really.
Good Luck and Good Trading,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
It’s Been a Long Road
Global Market Comments
January 31, 2024
Fiat Lux
Featured Trade:
(TEN REASONS WHY STOCKS CAN’T SELL OFF BIG TIME),
(SPY)
While driving back from Lake Tahoe last weekend, I received a call from a dear friend who was in a very foul mood.
Following the advice of another newsletter that I won’t mention, he bailed out of all his stocks after the November 8 election.
After all, wasn’t the Dow Average headed straight to 3,000?
Despite the Federal Reserve now on a rate-rising path, here we are with the major stock indexes just short of all-time highs.
Why the hell are stocks still going up?
I paused for a moment as a kid driving a souped-up Honda weaved into my lane of Interstate 80, cutting me off. Then I gave my friend my response, which I summarize below:
1) While the next move in interest rates will certainly be down, they may take a while to get started. They are not going to move the needle on corporate P&Ls because at least half of US companies are net creditors to the financial system, including all the big tech ones. We are reentering a deflationary world.
At least, that’s what my friend Janet tells me.
2) The biggest leaders in the market are cheap, with NVIDIA (NVDA) and Meta (META) sporting price earnings multiples under 20X with a 60% earnings growth.
3) There is nothing else to buy. Complain all you want, but US equities are still one of the world’s highest-yielding securities, with a 1.4% dividend.
4) Oil prices are low, and the windfall cost savings are only just being felt around the world. Conversion to electrics and hybrids is happening faster than expected and much of the grid is moving away from oil to alternatives.
5) While the weak euro (FXE) ate into large multinational earnings, we are at the end of the move. The cure for a weak euro is a weak euro. The worst may be behind for US importers.
6) What follows a collapse in European economic growth? A European recovery, powered by a weak currency.
7) What follows a Chinese economic collapse? A recovery there too, as hyper-accelerating stimulus feeds into the main economy. Chinese stocks are now among the world’s cheapest with most having single-digit multiples.
8) Technology and AI everywhere are accelerating at an immeasurable pace, causing profits to do likewise. You see this in the AI 5 stocks, where blockbuster earnings reports are becoming as reliable as free upgrades.
Biotech has been on a tear as well where AI and big data are creating a new Golden Age.
8) US companies are still massive buyers of their stock, with some $1 trillion worth in 2023. Ditto for this year. This has created a free put option for investors for the most aggressive companies, like Apple (AAPL), which bought $83 billion worth of its own stock in 2023, followed by Google (GOOGL), Meta (META), Microsoft (MSFT), and Exxon (XOM), the top five repurchasers.
They are jacking up dividend payouts at a frenetic pace as well, and are expected to return more than $430 billion in payouts this year.
9) Ignore this at your peril, but there is a global synchronized economic recovery going on that has been in the works for some years. Nearly a decade of central bank monetary stimulus and government fiscal stimulus is still out there.
Q1 earnings reports start in earnest in a few weeks, and the phrase “better than expectations” is about to become well-worn. Expect (SPY) earnings per share to reach new all-time highs, hardly short seller bait.
10) Ditto for the banks, which were dragged down by falling interest rates for most of the last decade. Reverse that trade this year, and you have another major impetus to drive stock indexes higher.
My friend was somewhat setback, dazzled, and befuddled by my out-of-consensus comments. He asked me if I could think of anything that might trigger a new bear market or at least a major correction.
The traditional causes of recessions, oil prices, and interest rate spikes, are now in the rearview mirror. There are only two things that could pee on our parade: a return of inflation and another pandemic. Watch those prices!
With that, I told my friend I had to hang up, as another kid driving a souped-up Shelby Cobra GT 500, obviously stolen, was weaving back and forth in front of me requiring my attention.
Where is a cop when you need them?
Stolen?
Global Market Comments
January 29, 2024
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or TOO MUCH OF A GOOD THING?)
(SPY), (TLT), ($VIX), (MSFT), (META), (GOOGL),
(AMZN), (NVDA), (V), (PANW), (CCJ)
There can be too much of a good thing.
Inflation is dramatically falling, with Core PCE down to an amazing 2.6% YOY rate in December. At the same time, GDP growth came in at an incredible 3.3% in Q4 and 2.5% for all of 2023. The long-term average is 3.0%. It’s about as close to a Goldilocks scenario as we’ll ever get.
The problem arises when the economy gets TOO healthy right when the Fed is considering its first interest rate CUTS in four years. That could lead our nation’s central bank to postpone cuts or not to announce them at all.
That would suddenly put the three-month-old bull market on ice, perhaps indefinitely, which has given us one of the worst whipsaw markets I have ever seen. Sector leadership has changed three times so far in 2024. First, there was the AI 5, (MSFT), (META), (GOOGL), (AMZN), and (NVDA). Next came stocks that benefit the most from falling interest rates, financials, precious metals, base metals, industrials, bonds, and foreign currencies.
To say this would be a tough market to trade would be an understatement, evidenced by my multiple stop losses this month. The remedy for this is to shrink your portfolio, sit back, and wait for the market to tell you what to do. I have to say that with the Volatility Index ($VIX) camped out at the $12 handle, options are not offering a lot for you to chew on either.
If you are looking for any further proof that technology is accelerating far faster than we can understand, I shall recall for your edification my last weekend.
After my youngest went off to college, I had to get her headboard refinished because she spent two years in bed looking at her computer while enrolled in high school during COVID-19. She had completely worn the finish off but got all A’s.
So I went to Yelp to look for a furniture restoration business. I clicked on one restorer who had good reviews and lots of pictures, described the job, and included pictures. Within 60 seconds, I received not one bid for the job but four, as Yelp had put the job out for bid across its entire network. One offered to do the job the next day for $100.
Learning how easy it is to refinish furniture, I put a second job out for bid, a small beat-up desk which I picked up at an estate sale for $20. I learned that this was a 100-year-old Craftsman desk highly sought after by collectors worth $2,500. Absolutely, yes, it was worth the $750 cost of a total stripped-down restoration.
I’m thinking “poor furniture restorers”, but what they are losing in the price, they make up in volume. Their craft is in fact a dying one and they can charge whatever they want.
And now you know why I go to estate sales.
What kind of homework is my daughter getting these days? As a Computer Science major at the University of California, she was handed a box of calculators smashed with a hammer. Over a weekend, she was required to invent a tool that identified the good chips from the bad, write code to reprogram the chips, and then glue the good calculators back together.
By Sunday afternoon she had a box full of working but somewhat ugly calculators, thanks to my donation of Gorilla Glue. And this for a sophomore! Needless to say, I didn’t see much of my daughter last weekend, except when she came downstairs to do her laundry.
Next week, they have to fix cell phones.
Gulp! I doubt I could even get into the UC today, even though I graduated Magna Cum Laude 50 years ago. Such is life with college students.
Watch out! The future is happening fast!
So far in January, we are down -4.33%. My 2024 year-to-date performance is also at -4.33%. The S&P 500 (SPY) is up +1.14% so far in 2024. My trailing one-year return reached +54.54% versus +21.14% for the S&P 500.
That brings my 15-year total return to +672.30%. My average annualized return has retreated to +51.06%.
Some 63 of my 70 trades last year were profitable in 2023.
I am maintaining longs in (MSFT), (AMZN), (V), (PANW), and (CCJ).
US GDP Rocketed by 2.5% in 2023, cementing its position as the strongest major economy in the world. Q4 came in at a hot 3.3%. We’re going from soft landing to no landing at all. Unfortunately, the report also put our bond trade to sleep.
Inflation Falls, with the Core PCE index easing to 2.9% last month, the lowest since 2021. That’s in the face of consumer spending posting the biggest back-to-back increase in nearly a year. This is very positive for bond bulls. Buy (TLT) LEAPS on dips.
The Roaring Twenties are Back, says investment guru and old friend Ed Yardeni. He draws parallels with the runaway stock prices that followed the 1918 Spanish flu pandemic, which killed millions. Of course, you had a 10:1 margin during the twenties which made speculation much easier. Are same-day options any worse?
New Homes Sales Recover, on a falling interest rate push, up 8.0% to 664,000. Sales, however, can be volatile on a month-to-month basis. Sales increased 4.4% on a year-on-year basis in December.
Netflix Soars on Big Subscriber Beat, up 8.6% on an add of 13 million new subscribers. It moved solidly into more sports content with the World Wrestling Entertainment deal. Buy (NFLX) on dips, which clearly won the streaming wars. I can’t get enough of The Rock, who is a genuinely nice guy.
Microsoft Tops $3 Trillion Valuation, cementing its hold on the AI lead. (MSFT) has been a top Mad hedge holding for years which we are currently long. Buy (MSFT) on dips which may have another $100 in it this year.
Freeport McMoRan Kills it, with an earnings upside blowout, taking the stock up 5%. CEO Richard Adkerson, a long-time Mad Hedge subscriber, says any problems are short-term. Political problems in Chile and Peru are an issue, which generates 40% of the world’s copper. Electrification of the US economy will continue to be a driving theme.
Mortgage Rates Plunge to 8-Month Low. The average fixed-rate 30-year mortgage fell to 6.60% as of Thursday from 6.66% the week prior, Freddie Mac said in its weekly report on home loan borrowing costs. The next Golden Age of Housing is here.
China Markets Dive, on news that the central bank was forced into the currency markets to support the yuan. Stock markets didn’t like it a bit, down 2.7% on the day. Overseas funds have sold roughly $1.6 billion in Chinese equities so far this year, with investor confidence bruised by signs of a slowdown in the world's second-largest economy. Offshore yuan tomorrow-next forwards jumped to a more than two-month high of 4.25 points late on Monday, reflecting signs of tighter liquidity conditions. Avoid China (FXI) like some stale egg foo young.
“Oppenheimer” Sweeps the Oscars, with a record 13 nominations. It’s a movie where I knew half the characters in real life from my work at the Nuclear Test site in Nevada. It was another opportunity to discuss advanced nuclear physics over dinner with my kids. Click here for the full list. The winners will be announced on March 10.
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, January 29, the Dallas Fed Manufacturing Index was announced.
On Tuesday, January 30 at 8:30 AM EST, the S&P Case Shiller National Home Price Index is released. We also get the JOLTS Job Openings Report.
On Wednesday, January 31 at 2:00 PM, the ADP Private Jobs Opening Report is published. The Federal Reserve announces its interest rate decision.
On Thursday, February 1 at 8:30 AM, the Weekly Jobless Claims are announced.
On Friday, February 2 at 2:30 PM, the December Nonfarm Payroll Report and Unemployment Rate is published. At 2:00 PM the Baker Hughes Rig Count is printed.
As for me, I received calls from six readers last week saying I remind them of Ernest Hemingway. This, no doubt, was the result of Ken Burns’ excellent documentary about the Nobel prize-winning writer on PBS last week.
It is no accident.
My grandfather drove for the Italian Red Cross on the Alpine front during WWI, where Hemingway got his start, so we had a connection right there.
Since I read Hemingway’s books in my mid-teens I decided I wanted to be him and became a war correspondent. In those days, you traveled by ship a lot, leaving ample time to finish off his complete work.
I visited his homes in Key West, Florida, and Ketchum, Idaho. His Cuban residence is high on my list, now that Castro is gone. His home in Cuba is on the menu.
I used to stay in the Hemingway Suite at the Ritz Hotel on Place Vendome in Paris where he lived during WWII. I had drinks at the Hemingway Bar downstairs where war correspondent Ernest shot a German colonel in the face at point-blank range. I still have the ashtrays.
Harry’s Bar in Venice, a Hemingway favorite, was a regular stopping-off point for me. I have those ashtrays too.
I even dated his granddaughter from his first wife, Hadley, the movie star Mariel Hemingway, before she got married, and when she was still being pursued by Robert de Niro and Woody Allen. Some genes skip generations and she was a dead ringer for her grandfather. She was the only Playboy centerfold I ever went out with. We still keep in touch.
So, I’ll spend the weekend watching Farewell to Arms….again, after I finish my writing.
Oh, and if you visit the Ritz Hotel today, you’ll find the ashtrays are now glued to the tables.
As for last summer, stayed in the Hemingway suite at the Hotel Post in Cortina d’Ampezzo Italy where he stayed in the 1950s to finish a book. Maybe some inspiration will rub off on me.
Good Luck and Good Trading,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Global Market Comments
January 26, 2024
Fiat Lux
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