Global Market Comments
March 20, 2024
Fiat Lux
Featured Trade:
(WELCOME TO THE DEFLATIONARY CENTURY),
(TLT), (TBT), (AAPL), (MSFT)
Posts
Ignore the lessons of history, and the cost to your portfolio will be great. Especially if you are a bond trader!
Meet deflation, upfront and ugly.
If you look at a chart for data from the United States consumer prices are rising at an annual 3.2% rate. The long-term average is 3.0%.
This is above the Federal Reserve’s own 2.0% annual inflation target, with most of the recent gains coming from housing costs.
We are not just having a deflationary year or decade. We may be having a deflationary century.
If so, it will not be the first one.
The 19th century saw continuously falling prices as well. Read the financial history of the United States, and it is beset with continuous stock market crashes, economic crises, and liquidity shortages.
The union movement sprung largely from the need to put a break on falling wages created by perennial labor oversupply and sub-living wages.
Enjoy riding the New York subway? Workers paid 10 cents an hour built it 125 years ago. It couldn’t be constructed today, as other more modern cities have discovered. The cost would be wildly prohibitive. Look no further than the California Bullet Train, now expected to cost $100 billion. A second transbay tube in San Francisco will cost $29 billion.
The causes of the 19th-century price collapse were easy to discern. A technology boom sparked an industrial revolution that reduced the labor content of end products by ten to a hundredfold.
Instead of employing 100 women for a day to make 100 spools of thread, a single man operating a machine could do the job in an hour.
The dramatic productivity gains swept through the developing economies like a hurricane. The jump from steam to electric power during the last quarter of the century took manufacturing gains a quantum leap forward.
If any of this sounds familiar, it is because we are now seeing a repeat of the exact same impact of accelerating technology. Machines and software are replacing human workers faster than their ability to retrain for new professions. If you want to order a Big Mac at McDonald’s these days, you need a PhD in Computer Science from MIT. The new stores have no humans to take orders.
This is why there has been no net gain in middle-class wages for the past 40 years. That is until the pandemic hit which created labor shortages that are still working their way out. It is the cause of the structurally high U-6 “discouraged workers” employment rate, as well as the millions of millennials still living in their parent’s basements.
To the above add the huge advances now being made in healthcare, biotechnology, genetic engineering, DNA-based computing, and big data solutions to problems. Did anyone say “AI”?
If all the major diseases in the world were wiped out, a probability within 10 years, how many healthcare jobs would that destroy?
Probably tens of millions.
So the deflation that we have been suffering in recent years isn’t likely to end any time soon. In fact, it is just getting started.
Why am I interested in this issue? Of course, I always enjoy analyzing and predicting the far future, using the unfolding of the last half-century as my guide. Then I have to live long enough to see if I’m right.
I did nail the rise of eight-track tapes over six-track ones, the victory of VHS over Betamax, the ascendance of Microsoft (MSFT) operating systems over OS2, and then the conquest of Apple (AAPL) over Motorola. So, I have a pretty good track record on this front.
For bond traders especially, there are far-reaching consequences of a deflationary century. It means that there will be no bond market crash, as many are predicting, just a slow grind up in long-term bond prices instead.
Amazingly, the top in rates in this cycle only reaches the bottom of past cycles at 5.49% for ten-year Treasury bonds (TLT), (TBT).
The soonest that we could possibly see real wage rises will be when a generational demographic labor shortage kicks in during the late 2020s.
I say this not as a casual observer, but as a trader who is constantly active in an entire range of debt instruments.
I just thought you’d like to know.
Hey, Have You Heard About John Deere?
Global Market Comments
March 18, 2024
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or THE BIG ROTATION IS ON),
(SNOW), (FCX), (XOM), (TLT), (ALB), (NVDA), (MSFT), (AAPL), (META), (GOOGL), (GOLD), (WPM), (UNP) (FDX), (UNG)
Here is the only statistic you need to know right now.
If NVIDIA (NVDA) continues growing at the same rate it has for the last year it will be larger than the entire global economy by 2030, about $100 trillion, up from the current $2 trillion.
Which suggests that it might not actually achieve that lofty goal. Others have reached the same conclusion as I and the stock held up remarkably well in the face of absolutely massive profit-taking last week.
I have been through past market cycles when other stocks seemed to want to go to infinity. There was Apple (AAPL) in the 1980s which went ballistic, then died, was reborn, and then went ballistic again. It is now capped out at a $2.7 trillion market valuation.
Then we all had a great time trading Tesla, which exploded from a split-adjusted $2.35 to $424 and now seems mired in one of its periodic 80% corrections. But mark my word, it is headed to $1,000 someday, taking it up to a $3.2 trillion valuation.
So if NVIDIA isn’t going to $100 trillion what else should be buying right now?
The answer has been apparent in the market for the past two weeks. Interest rate-sensitive commodities have been on a tear, rising 15%-20% across the board. Investors have been using expensive stocks like (NVDA), (MSFT), (AAPL), (META), and (GOOGL) as ATMs to fund purchases of cheap stocks which in some cases have not moved for years.
It really has been an across-the-board move with money pouring into the entire interest rate-sensitive sectors, including copper (FCX), gold (GOLD), silver (WPM), lithium (ALB), Aluminum (AA), and energy (XOM).
It has spread to other economically sensitive stocks like Union Pacific (UNP) and FedEx (FDX). There seems to be an American economic recovery underway, and the bull market is broadening out. The good news is that it’s not too late to get involved.
A lot of it is investor psychology. Investors fear looking stupid more than they fear losing money. If you buy NVIDIA here on top of a one-year tripling and it tanks you will look like an idiot. If you buy commodities here and they grind up for the rest of 2024 you will look like a genius.
While many of you got slaughtered by the collapse of natural gas this winter, with (UNG) cratering from $32 down to a lowly $15, there is in fact a silver lining to this cloud. Cheap energy costs are now permeating throughout the entire global economy and are filtering down to the bottom lines of companies, municipalities, and even governments.
This has been made possible by the growth of US natural gas production from 1 trillion MM BTUs to 7.5 trillion in just the past ten years. The US is now the largest gas and oil producer in the world by a large margin. Replacing Russia as Europe’s largest energy source in just a year was thought impossible and is now a fact and is also enabling the Continent to stand up to Russian Aggression.
There is hope after all.
One question I constantly received during last week’s Mad Hedge Traders & Investors Summit was “When will Tesla (TSLA) shares bottom? The answer is a very firm “Not yet!”
I have been trading the shares of Elon Musk’s creation for 15 years and can tell you that big surges in the stock always precede major generational changes at the company.
We had a nice run from my $2.35 split-adjusted cost when the first Model S came out (I got chassis number 125 off the assembly line), replacing the toy-like two-seat Tesla Roadster, which was built on a cute little Lotus Elise body from England.
The next big run came with the advent of the much cheaper Model 3 in 2017. The ballistic melt up to $424 began with the launch of the small SUV Model Y in 2020, now the biggest-selling car in the world. All we needed was for Elon Musk to sell $10 billion worth of his own stock by early 2022 to put the final top in.
Which raises the question of when the next major generational change at Tesla. That would be the introduction of the $25,000 Model 2 in 2025. Since everything at Tesla happens late (Elon uses deadlines to flog his staff), it better count on late 2025. That means you should start scaling in around the summer. I am already running the numbers on call spreads and LEAPS now.
Can it fall more in the meantime? Absolutely. $150 a share looks like a chip shot. But to only focus on the EV business, which will account for a mere 10% of Tesla’s final total profits, is to miss Elon’s long-term grand vision of a carbon-free world.
Tesla is in the process of becoming the largest electric power utility in the US, eventually providing charging for 150 million cars. It is taking over the car insurance business. My own premiums on my Model X have plunged by 90%.
It's on the way to becoming the world’s largest processor and recycler of lithium. Tesla has a massive large-scale power storage business that no one knows about.
I fully expect Tesla to become the world’s largest company in a decade. Tesla at $1,000 a share here we come. And while the car business may be slow to turn around, the ingredients that go into the cars, like copper (FCX), Aluminum (AA), and lithium (ALB) are starting to move now.
In February we closed up +7.42%. So far in March, we are up +1.34%. My 2024 year-to-date performance is at +4.48%. The S&P 500 (SPY) is up +6.92% so far in 2024. My trailing one-year return reached +48.70% versus +27.25% for the S&P 500.
That brings my 16-year total return to +681.11%. My average annualized return has recovered to +51.40%.
Some 63 of my 70 round trips were profitable in 2023. Some 11 of 19 trades have been profitable so far in 2024.
I stopped out of my position in Snowflake (SNOW) for a small loss figuring that the tech rally’s days may be number after the most heroic move in history. I then rotated the money into new longs in Freeport McMoRan (FCX) and ExxonMobile (XOM). I also took profits on my short in bonds (TLT) after a $3.50 point dive there. I am maintaining a long in (TLT). I am 70% in cash and am looking for new commodity plays to pile into.
CPI Comes in Hot at 0.4% in February. YOY inflation crawled up to 3.2% to 3.1% expected. Higher shelter and gasoline prices are to blame. Bonds tank as interest rate cuts get pushed back. So do stocks. The market was ripe for a correction anyway.
PPI Comes in Hotter than Hot, at 0.6%. That was higher than the 0.3% forecast from Dow Jones and comes after a 0.3% increase in January. Stocks dipped for two minutes and then rocketed back up. Bad news is good news. Go figure.
Weekly Jobless Claims Dip, to 209,000 to an expected 218,000, and down 1,000 from the previous week. It’s a go-nowhere number.
Next-Generation Boeing Delayed Until 2027, says Delta Airlines, a major customer. The 737-10, Boeing's biggest Max plane with a maximum seating capacity of 230 passengers, is pending certification by the U.S. Federal Aviation Administration (FAA). Expect a hard look. Buy (BA) on the next meltdown.
BYD Launches its $12,500 Car, the Model e2 Hatchback, firing another shot across Tesla’s Bow. The EV will initially be available only in China, Tesla’s biggest market, and then in emerging countries without vehicle standards. Don’t expect to see them in the US.
Toyota Agrees to Biggest Wage Hike in 25 Years. Toyota, the world's biggest carmaker and traditionally a bellwether of the annual talks, said it agreed to the demands of monthly pay increases of as much as 28,440 yen ($193) and record bonus payments. Is the Bank of Japan about to raise interest rates? Is the Japanese yen about to rocket?
Inverted What? Economists are going up on the Inverted Yield Curve as a recession indicator. Short-term interest rates have been higher than long-term ones for two years now, but the recession never showed. Relying on obsolete data analysis can be fatal to your wealth.
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, March 18, at 7:00 AM EST, the NAHB Housing Index is announced.
On Tuesday, March 19 at 8:30 AM, Housing Starts for February are released.
On Wednesday, March 20 at 11:00 AM, the Federal Reserve Interest rate decision is published
On Thursday, March 21 at 8:30 AM, the Weekly Jobless Claims are announced.
On Friday, March 15 At 2:00 PM, the Baker Hughes Rig Count is printed.
As for me, with all of the hoopla over the Oppenheimer movie winning six Academy Awards, including one for best picture, I thought I’d recall my own experience with the nuclear establishment buried in my long and distant past.
If you were good at math there were only two career choices during the early 1970s: teaching math or working for the Dept of Defense. Since I was sick of university after six years, I chose the latter.
That decision sent me down a long bumpy, dusty road in Mercury Nevada headed for the Nuclear Test Site. There was no sign. You could only find the turnoff from US Highway 95 marked by four trailers owned by the nearest hookers to the top-secret base.
Oppenheimer himself had died three years earlier, a victim of throat cancer induced by the chain-smoking of Luck Strikes that was common in those days. But everyone on the base knew him as they had all worked on the Manhattan Project when they were young men. They worshiped him like a god.
I did meet Edward Teller, who argued in the movie that the atomic bomb was a waste of time because his design of a hydrogen bomb was 100 times more powerful. The problem was that there was no target big enough to justify a bomb of that size (there still isn’t).
As I watched the film with my kids, now junior scientists in their own right, I kept pointing out “I knew him,” except they were gnarly old and white-haired by the time I met them. Of course, they are all gone now.
My memories of the Nuclear Test Site were never to ask questions, my visit to the Glass Desert where the sand had been turned into glass by above-ground tests in the fifties, and skinny dipping with the female staff in the small swimming pool at midnight.
The MPs were pissed.
With the signing of the SALT I Treaty in 1972, underground testing moved to computer models and I lost my job. So I was sent to Hiroshima to interview survivors and write a 30-year after-action report. These were some of the most cheerful people I ever met. If an atomic bomb can’t kill you, then nothing can.
When the Cold War ended in 1992, the United States judiciously stepped in and bought the collapsing Soviet Union’s entire uranium and plutonium supply.
For good measure, my hedge fund client George Soros provided a $50 million grant to hire every unemployed Soviet nuclear engineer. The fear then was that starving scientists would go to work for Libya, Iraq, North Korea, or Pakistan, which all had active nuclear programs. They ended up in the US instead.
That provided the fuel to run all US nuclear power plants and warships for 20 years. That fuel has now run out and chances of a resupply from Russia are zero. The Department of Defense attempted to reopen our last plutonium factory in Amarillo, Texas, a legacy of the Johnson administration.
But the facilities were deemed too old and out of date, and it is cheaper to build a new factory from scratch anyway. What better place to do so than Los Alamos, which has the greatest concentration of nuclear expertise in the world.
Los Alamos is a funny sort of place. It sits at 7,320 feet on a mesa on the edge of an ancient volcano so if things go wrong, they won’t blow up the rest of the state. The homes are mid-century modern built when defense budgets were essentially unlimited. As a prime target in a nuclear war, there are said to be miles of secret underground tunnels hacked out of solid rock.
You need to bring a Geiger counter to garage sales because sometimes interesting items are work castaways. A friend almost bought a cool coffee table which turned out to be part of an old cyclotron. And for a town designing the instruments to bring on the possible end of the world, it seems to have an abnormal number of churches. They’re everywhere.
I have hundreds of stories from the old nuclear days passed down from those who worked for J. Robert Oppenheimer and General Leslie Groves, who ran the Manhattan Project in the early 1940s. They were young mathematicians, physicists, and engineers at the time, in their 20’s and 30’s, who later became my university professors. The A-bomb was the most important event of their lives.
Unfortunately, I couldn’t relay this precious unwritten history to anyone without a security clearance. So, it stayed buried with me for a half century, until now.
Some 1,200 engineers will be hired for the first phase of the new plutonium plant, which I got a chance to see. That will create challenges for a town of 13,000 where existing housing shortages already force interns and graduate students to live in tents. It gets cold at night and dropped to 13 degrees F when I was there.
I was allowed to visit the Trinity site at the White Sands Missile Test Range, the first visitor to do so in many years. This is where the first atomic bomb was exploded on July 16, 1945. The 20-kiloton explosion set off burglar alarms for 200 miles and was double to ten times the expected yield.
Enormous targets hundreds of yards away were thrown about like toys (they are still there). Some scientists thought the bomb might ignite the atmosphere and destroy the world but they went ahead anyway because so much money had been spent, 3% of US GDP for four years. Of the original 100-foot tower, only a tiny stump of concrete is left (picture below).
With the other visitors, there was a carnival atmosphere as people worked so hard to get there. My Army escort never left me out of their sight. Some 79 years after the explosion, the background radiation was ten times normal, so I couldn’t stay more than an hour.
Needless to say, that makes uranium plays like Cameco (CCJ), NextGen Energy (NXE), Uranium Energy (UEC), and Energy Fuels (UUUU) great long-term plays, as prices will almost certainly rise all of which look cheap. US government demand for uranium and yellow cake, its commercial byproduct, is going to be huge. Uranium is also being touted as a carbon-free energy source needed to replace oil.
At Ground Zero in 1945
What’s Left of a Trinity Target 200 Yards Out
Playing With My Geiger Counter
Atomic Bomb No.3 Which was Never Used in Tokyo
What’s Left from the Original Test
Good Luck and Good Trading,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Global Market Comments
March 8, 2024
Fiat Lux
Featured Trade:
(MARCH 6 BIWEEKLY STRATEGY WEBINAR Q&A),
(SPX), (QQQ), (PANW), (SNOW), (NVDA), (GLD), (GOLD), (NEM), (BA), (AMZN), (TLT), (AAPL), (COIN)
Below please find subscribers’ Q&A for the March 6 Mad Hedge Fund Trader Global Strategy Webinar, broadcast from Silicon Valley, CA.
Q: With your projections of the Dow going to $240,000 in 10 years, would it be wise to invest in the Dow?
A: The Dow is just an indicator that everybody understands and is familiar with what the media uses. What I tell people to do is if you are not an aggressive person, put half your money in the S&P 500 (SPX), which is getting most of the gains, and half in the technology (QQQ), which is getting all of the gains. If you're an aggressive person, say in your twenties, thirties, or forties, then you put all of your money in the Invesco QQQ NASDAQ Trust (QQQ) because you'll live long enough to survive the inevitable downturns.
Q: What should we do now with Palo Alto Networks (PANW)?
A: Keep it. It’s a fantastic long-term company. This is a rare opportunity to get in on the long side, as this is a company that I think could double over the next 3 to 5 years. Hacking is never going out of style and now they have AI. The selloff was caused by a major platform upgrade which may cause profits to dip for a quarter. That’s now in the price.
Q: With the successful launch of Bitcoin, should we allocate 5% or 10% of our portfolio to Bitcoin?
A: Only if you can handle a 90% decline at any time without warning because that's exactly what it did in 2021. Calling it a store of value is a fantasy. You also still have big theft issues with Bitcoin. You don't have theft issues if you have all your money at Morgan Stanley, Goldman Sachs, Merrill Lynch, and so on, so there is a security issue (with Bitcoin). The only way to bypass the security issues is to have a hot wallet, and the only way to have a hot wallet is to be a computer programmer yourself or have a degree in computer science—so it's not for most people. If you can navigate all of that, then maybe; but again, nobody knows when the next 90% decline is going to come. By the way, if I can find stocks with Mad Hedge Fund Trader that go up faster than Bitcoin, I'd much rather own the stocks, because at least I know what they make.
Q: Is Snowflake (SNOW) a buy here at $155?
A: Absolutely. Another great cybersecurity database company. But if we drop to $155, we're going to stop out of the front month call spread and try to buy it back lower down.
Q: Do you think it's wise to sell the semiconductor stocks now and buy them back lower down, and pay the taxes?
A: Probably not. They are really the most volatile sector in the market. If you sell now, it's unlikely you'll be able to pick up the next bottom and get back in, and you have to pay the taxes. So it's probably better just to keep a core long-term position in the semis, especially Nvidia (NVDA); and if it drops 200 points, just buy more. That's what I'm doing. I'm keeping all of my Nvidia LEAPS. All my call spreads and short put positions are about to expire at max profit, and I even have a little bit of stock that I'm keeping. So I think Nvidia goes to $1,000 at one point and now, the forecast of $1,400 is out there. So as Nvidia goes, so goes the entire rest of the semiconductor industry.
Q: You're only 30% invested. Are you looking for a pullback, or are you just waiting for new opportunities to appear?
A: Yes and Yes. I'm waiting for a fantastic company to come up with conservative guidance, which these days means an immediate 20 to 25% sell-off. That is your entry point for these good companies. That's how we got into Palo Alto Networks (PANW), and that's how we got into Snowflake (SNOW). In an extremely overbought market, those are your only opportunities until the market generally sells off or until the domestic plays finally start to take off, and we got the first hints of that last week.
Q: What is your view on junior gold mining stocks?
A: They are a buy here, absolutely, but you get enough volatility in the majors that you don't need to bother with the minors—that's always been my view. Because minors go out of business, they close mines, they don't find gold. A lot of minors have stocks go up on the possibility of gold being found, whereas the majors like Barrick Gold (GOLD) and Newmont Mining (NEM) actually have the gold, and it's just an industrial process of mining it. You know the minors, the juniors, are extremely speculative and high-risk, and that's why most of them are listed in Canada. They can't get a US listing. So that's enough of a tell for me to stay away.
Q: I just realized I have the wrong expiration date on my Amazon (AMZN) spread. Should I exit immediately?
A: What I would do is exit what you have and then wait for another down day on Amazon, and then put it back on. That's the way to deal with that one. The answer to all mistakes is to exit immediately. That's an automatic rule at Morgan Stanley; if you don't do that, you get fired. Or come up with a new set of logic as to why you own this position, which has been done by more than a few traders, I imagine.
Q: Would you be willing to be a Boeing 737 Max passenger right now or ever?
A: Yes! If you don't fly Boeings (BA), your life is suddenly very narrow and limited because you’re stuck on the ground. Boeing is the biggest-selling airplane in the world, and most fleets are made of Boeings. However, I'm a pilot, so if anything goes wrong I can run up front and take control, or at least tell the pilot what to do. I also have 25 parachute jumps, if they're handing those out in first class. So remember, every airplane without engines is a glider and I can land a glider anywhere. The company has major problems to sort out until it becomes a “BUY”.
Q: I cannot get into the (TLT) trade to save my life. Is the (TLT) April $89-$92 vertical bull call debit spread pushing the risk limits?
A: Yes. I would walk away from the trade and wait for a better entry point rather than chase. The whole fixed-income space has flipped from the bid side to the offered side, meaning we've gone from net sellers to net buyers. All asset classes have done that; you're seeing that in gold, silver, and even uranium. All the REITs are having a fantastic week. All interest rate plays are now being bid, and it's hard to buy stuff when things are being bid.
Q: What's it like being 6’4” and living in Japan?
A: Well, I did knock myself out a couple of times, banging myself on the door. You get used to bowing a lot, but bowing is a part of the culture in Japan. If you're watching the new Hulu miniseries, Shogun, you would know that. Once I was working for Sony and I was late for work, so I was running up the stairs, and they had a steel lintel to their door, and I just ran bang into that and knocked myself out. The Sony people thought, “Oh my gosh, we just killed a foreigner!” So yes, it was hard. The only clothes I could buy in Japan for ten years were belts and ties. I had to fly to Hong Kong and had everything else custom-made in those days.
Q: What's your opinion of Masters of the Air?
A: I absolutely love it. It's heartbreaking to watch. I knew a lot of guys who were there, and I was one of the last people trained on how to fly a Boeing B-17 Flying Fortress. Anybody who watched Masters of the Air with me gets to watch it with someone who is one of the last living people who rated on a B-17 as a pilot.
Q: Are we in a liquidity bubble right now?
A: Yes, we are, and boy, I love every minute of it. But we're not in the year 2000 in a liquidity bubble, we're in 1995 just getting started. And the profits from AI are just getting started which is what's creating this endless liquidity that people are seeing now.
Q: What should I buy the dip in Tesla (TSLA)?
A: There's no downside target for Tesla right now. We just have to wait for the meltdown in demand to finish, and who knows where that is. But with BYD entering the market, Tesla is definitely going to get more competition in emerging markets—that's where BYD is selling the cars now. I also understand they're selling them in Australia.
Q: How much longer can tech stocks keep rising?
A: 5 to 10 more years, but we are way overdue for some kind of pullback.
Q: What are your thoughts on Apple's (APPL) weakness?
A: Apple has become that great backward-looking company. It could drop to $160 or even $140, then we’ll be taking a serious look at some call spreads and LEAPS. You just wait. In four months when they announce their next batch of new products suddenly, they’ll become an AI company and recover the $200 level in no time.
Q: Should I dive into Coinbase (COIN)?
A: Absolutely not on pain of death! It's made its move. You're better off buying Nvidia (NVDA) at that kind of inclination because at least you know what they make.
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 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
Thank You NVIDIA!
With the price of Texas tea barely scratching $78 a barrel today it is time to revisit the doomed future of this ancient energy source.
With energy stocks now trading like they’re having a going out of business sale, you have to wonder if the sector will ever come back. The short answer is short-term yes, long term no.
A key part of my argument for a new Golden Age to take place during the current Roaring Twenties is that the price of energy is effectively going to zero.
It may not actually make it to zero. I’ll settle for down 90%-95%, which is good enough for me.
Take a look at the charts below.
The first one shows how the price of a watt of solar generated electricity has plunged by 99.03% since 1977, from $76.67 to $0.74.
Just in the past six years, retail prices for completed solar panels dropped by a staggering 80%. That is cheaper than electricity supplies generated by new natural gas plants
The potential price declines for natural gas from here are near zero. After all, it’s hard to improve on the near 100% burn rates you get with gas, and many producers are already losing money at current price levels of $1.61 per MM BTU.
Squeezing efficiencies out of our existing solar technology through improved software, production methods, chemistry, and design are nearly unlimited, are expected to drive solar costs by half down to 3 cents per kwh by 2035.
And here is the great shortcoming of all these wonderful predictions. Technology NEVER stays the same.
My own SunPower (SPWR) SPR A420 panels with their Maxeon solar cell technology deliver an efficiency of 20.1%, the best on the market available four years ago.
This means that they convert 22.5% of the solar energy they receive into electricity.
SunPower is now producing 25.1% efficiency panels in the lab. Another research lab in Germany, Fraunhofer, is getting 44.7%.
And my friends at the Defense Department tell me they have functioning solar cells delivering 70% efficiencies which they use in space. Whether they are economic and scalable is anyone’s guess.
(Warning: most cheap Chinese made solar cells have only lowly 15% efficiencies, so don’t be tricked by any great “deals”).
And this is how most long-term predictions fall short.
When I bought the system, I was warned the electricity production would fall 1% a year thanks to the natural degradation of the solar cells.
Instead, output has risen by 1% annually. Global warming is the only possibly explanation.
Not only do they assume that technology doesn’t change, they fail to account for dramatic improvements in other related fields.
EV technology is a classic example. Battery costs are currently falling off a cliff.
When I bought the first Nissan Leaf offered for sale in California in 2010, the battery cost $833 per kilowatt. In 2012, I purchased a high-performance Tesla (TSLA) P85 Model S-1 at $353 per kilowatt.
When the Tesla 3 became available in 2017, the 60-watt battery will ran at $250 per kilowatt. Efficiencies gained through the economies of scale from the Sparks, Nevada Gigafactory took that under $100.
However, that is not the end of the story.
The car industry will start to move towards carbon fiber in five years, which has ten times the strength of steel at one-tenth the weight. The only issue now is mass production cost.
Some 67% of the weight of a Tesla S-1 is in the body, with the four motors at 13%, and the 1,200-pound lithium ion battery at 20%.
What happens when the body weight falls by 90%, to only 6.7% of total weight? The battery weight, and cost declines by two thirds. That cuts the effective cost of the battery to $66/kilowatt.
Add up all of this, and it is easy to see how energy costs can plunge by 90% or more. And it will happen must faster than you expect.
This has been the experience with memory costs, processor speeds, and hundreds of other digital technologies over the past 70 years. The cost of cotton yarn fell by 1,000 times during the 17th and 18th century, wiping out hundreds of existing industries but creating thousands more.
I could go on and on.
This is why the State of California has mandated to get 50% of its energy from alternative sources by 2030, and to ban the new sale internal combustion engines by 2035.
Some researchers believe a 100% target could be achieved. And it is doing this while closing its last remaining nuclear power plants at Diablo Canyon by 2030.
It already hit that target on several days this year when winter filled up all the dams, producing excess hydroelectric power.
As a result, the wholesale price of electricity fell to zero on those days. The grid was producing more power than could be consumed.
To say that free energy would be a game changer is a huge understatement.
The elimination of energy as a cost has enormous consequences for all companies. You can start with the energy intensive ones in transportation, steel, and aluminum, and work your way down the list.
My bet is that you won’t recognize the car industry in 10 years.
At a $66/kilowatt effective battery cost it will make absolutely no sense to build internal combustion engines in new cars.
Too bad Detroit is a decade behind in this technology.
Lose transportation, and you lose 50% of US oil consumption, or about 10 million barrels a day. Guess what that does to oil prices?
Goodbye Middle East. Go blow yourself up.
The profitability and efficiency of the entire economy will take a great leap forward, much like we saw with the mass industrialization that was first made possible by electricity during the 1920’s.
Share prices of all kinds will go ballistic.
Since energy costs will eventually fall effectively to near zero, that wipes out the present business model of the entire electric power, coal, oil, and gas industries, about 10% of US GDP.
Their business models will be reduced to trying to sell something that is free, like air.
Dow 250,000 anyone?
Goodbye Electric Power Bills
Getting Ready for the 2020’s
Global Market Comments
January 29, 2024
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or TOO MUCH OF A GOOD THING?)
(SPY), (TLT), ($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
Featured Trade:
(JANUARY 24 BIWEEKLY STRATEGY WEBINAR Q&A)
(TLT), (IWM), (SPY), (ALK), (FXI), (UAL), (BA), (NVDA), (UUP), (UNG), (MSFT), (GOOGL), (AMZN), (NVDA), (META), (CCI)
