Global Market Comments
January 8, 2024
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or HERE IS THE TRADE OF THE YEAR),
(TLT), (TSLA), (BYDDY), (FCX), (TLT) (F), (GLD), (X)
Tag Archive for: (TLT)
During 2023, the market spent the entire year climbing the proverbial wall of worry. The question is how much we have to give back from deferred tax selling from the profitable 2023 trades before 2024 can start anew.
It could be weeks. It could be months.
Last year was the Year of the Magnificent Seven. So far this year, it is looking like the Year of the Magnificent 493, when everything else goes up.
Which brings me to the most important topic of the day.
The best trade out there this year may be the most boring one of all, the ten-year US Treasury notes, now yielding 4.10%.
Let’s say the Federal Reserve delivers on its promise to cut interest rates three times in 2024 from 5.5% taking the overnight rate down to 4.75%. The futures markets are giving us a 70% probability this will start in March, but I think that Jay Powell will want to torture us for a few extra months until June to make sure inflation is well and truly dead.
In that case, bond prices (TLT) should rise at least from $96 to $110 by the end of the year, taking the yield down from 4.10% today to 3.60% Add in the current 4.10% yield and that should give you a very low-risk total return for the year of 18% or better.
But what if the 2024 yearend liquidity surge discounts the 3 additional interest rate cuts to take place in 2025? That could add another $10 to this trade, taking the total return for the year up to 28%. Most investors will take an annual return of 28% all day long.
There is in fact a better way to do this.
Don’t buy the (TLT), which has high management and administration costs and wide dealing spreads that probably top 2% a year. Bypass all of that through buying the ten-year US Treasury note directly from your broker. That’s easy to do, has minimal commissions and the bonds trade like water.
After all, the US government has a unique talent for issuing bonds and there are already trillions of dollars’ worth outstanding. That shifts the 2% take of the (TLT) from Wall Street into your pocket.
It gets better.
What are the chances that another pandemic will occur in the next decade? I’d say about 50/50. After all, with a global population of 8 billion and rising, international travel and trade reaccelerating, pandemic risks are rising once again.
If you don’t believe me, just try and get an Airbnb (ABNB) in Florence, Italy, the epicenter of the last breakout in Europe. There are hardly any Italians left in Florence because they can’t compete with tourists on housing costs and can’t afford to live there anymore. So it is now more important to hedge your portfolio from pandemic risks.
It just so happens that there is a way you can do this: buy ten-year US Treasury notes. What happened with the last pandemic (see chart below)? The (TLT) doubled in value from $80 to $165, taking yields from 5.0% all the way down to 0.32%. Back then, investors were worried about return OF capital, not return ON capital, for which the US government has a perfect record.
It turns out that bonds will not only hedge all of your stocks from pandemic risks, but ALL INVESTMENTS OF EVERY KIND, including commodities, the dollar, precious metals, energy, and even your own home.
And with a 4.1% yield, bonds offer an insurance policy that pays you to own it.
Ten-year US Treasury notes are also the perfect position to have during times of inflation. Falling inflation enables more Fed rate cuts, which automatically increase the value of the notes….by a lot.
How do I know inflation is falling? Because I went bowling last week in Incline Village, Nevada. The establishment is under new ownership. They gutted the place, fired all the staff, and remodeled it in a cool sixties motif. Then they hired two people to run the place.
All payments have to take place online, even for video games, where you also now have to reserve your lanes. As a result, instead of casually walking in to take a lane, you have to book them two weeks in advance. The place is always full.
Cut costs, and soaring revenues, you want to own this bowling alley, as you do for the Magnificent 493. This is going on across the entire US economy, like it or not. This is highly deflationary.
Hedge funds are piling into the ten-year US Treasury note trade in record numbers because you only see a low-risk, high-return setup like this once every decade or so.
My bet is that there are maybe four points of downside risk in this trade against a potential gain of 28 points. That’s a risk/reward ratio of 7:1.
I Like it!
I just thought you’d like to know.
So far in January, we are up 0% since I have done no trades and have a 100% cash position. My 2024 year-to-date performance is also at 0%. The S&P 500 (SPY) is down -2.51% so far in 2024. My trailing one-year return reached +73.94% versus +34.46% for the S&P 500.
My 15-year total return is +676.63% and my average annualized return is +54.05%.
Some 63 of my 70 trades last year were profitable in 2023.
Did We Just See Another 2009 Bottom? If so, we could be looking at rising stocks for another 13 years, making my own Dow 120,000 forecast look conservative. Certainly, the fundamentals are there, as long as we don’t get another pandemic or 100 other things go wrong.
The Nonfarm Payroll Report Sizzles, at 216,000, better than expected. The headline Unemployment Rate maintained a near 50-year low at 3.7%. December’s payroll gains were driven by three categories: Education/health, leisure/hospitality, and government. The overall level of leisure/hospitality jobs remains below the pre-pandemic high, showing that some parts of the job market are still normalizing after the COVID-19 shock.
JOLTS Falls in December, nudging lower to 8.79 million, about in line with the Dow Jones estimate for 8.8 million and the lowest level since March 2021. The ratio of job openings to available workers fell to 1.4 to 1, still elevated but down sharply from the 2 to 1 level that had been prevalent in 2022.
Weekly Jobless Claims Dropped to 202,000, a two-month low. pointing to underlying labor market strength even as demand for workers is easing. With the report from the Labor Department on Thursday also showing the number of people on unemployment rolls remained elevated towards the end of December, financial markets continued to anticipate that the Federal Reserve would start cutting interest rates in March.
Tesla (TSLA) is Still the World’s Largest EV Maker. BYD (BYDDY) delivered 1.57 million EVs in 2023 compared to 1.8 million for Tesla (TSLA). BYD, which I visited in China 12 years ago when Warren Buffet bought a stake in it, is building factories in Europe, Latin America, and across Asia as part of a broader effort to expand sales across these continents, and its cars and buses are popping up in cities all over the world. They could never meet quality standards in the US. They offer a cheaper, lower margin, lesser quality product, but that is all that is needed in many emerging markets.
Copper (FCX) to Rise 75% in 2024, say industry analysts. Copper is headed for a price spurt over the next two years, as mining supply disruptions coincide with higher demand for the metal. Rising demand driven by the green energy transition and a decline in the U.S. dollar strength come the second half of 2024 will fuel support for copper prices. I’m going to keep telling you this until you buy more copper.
The Auto Business is Booming, at 15.6 million units delivered in 2023, a four-year high. Ford (F) saw a 7.6% increase in sales. Also a sign of a strong economy. The company’s F series pickup trucks remain the best-selling vehicle in America.
Pending Home Sales were Unchanged in November, despite record 30-year fixed-rate mortgages at 8.0%. The underlying real estate is far stronger than people realize. Mortgage rates are now solidly in the mid-6% range, but the supply of homes for sale is still very low. REMAX CEO Nick Baily says the market is short 4.5 to 5 million homes which will take a decade to build.
Gold (GLD) to Hit New High in 2024, with fundamentals of a dovish pivot in U.S. interest rates, continued geopolitical risk, and central bank buying is expected to support the market after a volatile 2023. Spot gold posted a 13% annual rise in 2023, its best year since 2020, trading around $2,060 per ounce.
Nippon Steel Buys US Steel (X) for $55 a Share, or $14.9 billion. That is double the next competing offer from Cleveland Cliffs (CLF). In clearly what is a trophy purchase, the buyer will honor all existing union deals. That certainly puts my December 2025 $20-$23 LEAPS issued last June at its maximum profit of 132%. Sell now if you still have it. There is only downside risk from here.
Home Prices Hit New All-Time Highs, according to S&P Case Shiller, up 0.6% in October and 4.8% YOY. That is nine consecutive months of gains. A 30-year fixed rate mortgage down to 6.7% is a help. Detroit had the biggest increase at 8.1%, followed by San Diego with 7.2% and New York with 7.1%. Portland, Oregon, was the only one of the 20 cities where prices fell year over year. A decade-long bull market has begun.
Core PCE Dives to a 3.2% YOY Rate. Headline Personal Consumption Expectation fell to only 2.6%, closing in on the Fed’s 2.0% target. It’s no longer a question of if the Fed will cut interest rates, but how much and how fast.
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 8, at 8:30 AM EST, the Consumer Inflation Expectations are out, one of the Fed’s favorite inflation reads.
On Tuesday, January 9 at 8:30 AM, the NFIB Business Optimism Index will be released.
On Wednesday, January 10 at 2:00 PM, the MBA Mortgage Applications will be published.
On Thursday, January 11 at 8:30 AM the Weekly Jobless Claims are announced. We also get the Consumer Price Index for December.
On Friday, January 12 at 2:30 PM, the December Producer Price Index is published. At 2:00 PM the Baker Hughes Rig Count is printed.
As for me, when I drove up to visit my pharmacist in Incline Village, Nevada, I warned him in advance that I had a question he never had heard before: How good is 80-year-old morphine?
He stood back and eyed me suspiciously. Then I explained in detail.
Two years ago, I led an expedition to the South Pacific Solomon Island of Guadalcanal for the US Marine Corps Historical Division (click here for the link). My mission was to recover physical remains and dog tags from the missing in action there from the epic 1942 battle.
Between 1942 and 1944, nearly four hundred Marines vanished in the jungles, seas, and skies of Guadalcanal. They were the victims of enemy ambushes and friendly fire, hard fighting, malaria, dysentery, and poor planning.
They were buried in field graves, in cemeteries as unknowns, if not at all left out in the open where they fell. They were classified as “missing,” “not recovered,” and “presumed dead.”
I managed to accomplish this by hiring an army of kids who knew where the most productive battlefields were, offering a reward of $10 a dog tag, a king's ransom in one of the poorest countries in the world. I recovered about 30 rusted, barely legible oval steel tags.
They also brought me unexploded Japanese hand grenades (please don’t drop), live mortar shells, lots of US 50 caliber and Japanese 7.7 mm Arisaka ammo, and the odd human jawbone, nationality undetermined.
I also chased down a lot of rumors.
There was said to be a fully intact Japanese zero fighter in flying condition hidden in a container at the port for sale to the highest bidder. No luck there.
There was also a just discovered intact B-17 Flying Fortress bomber that crash-landed on a mountain peak with a crew of 11. But that required a four-hour mosquito-infested jungle climb and I figured it wasn’t worth the malaria.
Then, one kid said he knew the location of a Japanese hospital. He led me down a steep, crumbling coral ravine, up a canyon, and into a dark cave. And there it was, a Japanese field hospital untouched since the day it was abandoned in 1943.
The skeletons of Japanese soldiers in decayed but full uniform lay in cots where they died. There was a pile of skeletons in the back of the cave. Rusted bottles of Japanese drugs were strewn about, and yellowed glass sachets of morphine were scattered everywhere. I slowly backed out, fearing a cave-in.
It was creepy.
I sent my finds to the Marine Corps at Quantico, Virginia, who traced and returned them to the families. Often the survivors were the children, or even grandchildren of the MIA’s. What came back were stories of pain and loss that had finally reached closure after eight decades.
Wandering about the island, I often ran into Japanese groups with the same goals as mine. My Japanese is still fluent enough to carry on a decent friendly conversation with the grandchildren of their veterans. It turned out I knew far more about their loved ones than they did. After all, it was our side that wrote the history. They were very grateful.
How many MIAs were they looking for? 30,000! Every year they found hundreds of skeletons and cremated them in a ceremony, one of which I was invited to. The ashes were returned to giant bronze urns at Yasakuni Ginja in Tokyo, the final resting place of hundreds of thousands of their own.
My pharmacist friend thought the morphine I discovered had lost half of its potency. Would he take it himself? No way!
As for me, I was a lucky one. My dad made it back from Guadalcanal, although the malaria and post-traumatic stress bothered him for years. And you never wanted to get in a fight with him….ever.
I can work here and make money in the stock market all day long. But my efforts on Guadalcanal were infinitely more rewarding. I’ll return as soon as I get the chance, now that I know where to look.
True MIA’s, the Ultimate Sacrifice
My Collection of Dog Tags and Morphine
My Army of Scavengers
Dad on Guadalcanal (lower right)
Good Luck and Good Trading,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Global Market Comments
January 3, 2024
Fiat Lux
2024 Annual Asset Class Review
A Global Vision
FOR PAID SUBSCRIBERS ONLY
Featured Trades:
(SPX), (QQQ), (IWM) (AAPL), (XLF), (BAC) (JPM), (BAC), (C), (MS), (GS),
(X), (CAT), (DE),(TLT), (TBT), (JNK), (PHB), (HYG), (MUB), (LQD), (FXE), (EUO),
(FXC), (FXA), (YCS), (FXY), (CYB), (DIG), (RIG), (USO), (DUG), (UNG), (USO),
(XLE), (AMLP),(GLD), (DGP), (SLV), (PPTL), (PALL), (ITB), (LEN), (KBH), (PHM)
I am once again writing this report from a first-class sleeping cabin on Amtrak’s legendary California Zephyr.
By day, I have a comfortable seat next to a panoramic window. At night, they fold into two bunk beds, a single and a double. There is a shower, but only Houdini can navigate it.
I am anything but Houdini, so I foray downstairs to use the larger public hot showers. They are divine.
We are now pulling away from Chicago’s Union Station, leaving its hurried commuters, buskers, panhandlers, and majestic great halls behind. I love this building as a monument to American exceptionalism.
I am headed for Emeryville, California, just across the bay from San Francisco, some 2,121.6 miles away. That gives me only 56 hours to complete this report.
I tip my porter, Raymond, $100 in advance to ensure everything goes well during the long adventure and keep me up to date with the onboard gossip.
The rolling and pitching of the car is causing my fingers to dance all over the keyboard. Microsoft’s Spellchecker can catch most of the mistakes, but not all of them.
Chicago’s Union Station
As both broadband and cell phone coverage are unavailable along most of the route, I have to rely on frenzied Internet searches during stops at major stations along the way, like Omaha, Salt Lake City, and Reno, to Google obscure data points and download the latest charts.
You know those cool maps in the Verizon stores that show the vast coverage of their cell phone networks? They are complete BS.
Who knew that 95% of America is off the grid? That explains so much about our country today.
I have posted many of my better photos from the trip below, although there is only so much you can do from a moving train and an iPhone 15 Pro.
Here is the bottom line which I have been warning you about for months. In 2024 we will probably top the 70.44% we made last year, but you are going to have to navigate the reefs, shoals, hurricanes, and the odd banking crisis. Do it and you can laugh all the way to the bank. I will be there to assist you in navigating every step.
The first half of 2024 will be all about trading, making bets on when the Fed starts cutting interest rates. Technology will continue their meteoric melt-up. In the second half, I expect the cuts to actually take place and markets to go straight up. Domestic industrials, commodities, financials, energy foreign markets, and currencies will lead.
And here is my fundamental thesis for 2024. After the Fed kept rates too low for too long and then raised them too much, it will then panic and lower them again too fast to avoid a recession. In other words, a mistake-prone Jay Powell will keep making mistakes. That sounds like a good bet to me.
Keep in mind that the Mad Hedge AI Market Timing Index is at the absolute top end of its historic range the three-month likelihood of you making money on a trade is essentially zero. But adhere to the recommendations I make in this report today and you should be up about 30% in a year.
Let me give you a list of the challenges I see financial markets facing in the coming year:
The Ten Key Variables for 2024
1) When will the Fed pivot?
2) When will quantitative tightening end?
3) How soon will the Russians give up on Ukraine?
4) When will the rotation from technology to domestic value plays happen?
5)How much of falling interest rates will translate into higher gold prices?
6) When will the structural commodities boom get a second wind?
7) How fast will the US dollar fall?
8) How quickly will lower interest rates feed into a hotter real estate market?
9) How fast can the Chinese economy bounce back from Covid-19?
10) When does the next bull market in energy begin?
All the answers are below:
Somewhere in Iowa
The Thumbnail Portfolio
Equities – buy dips
Bonds – buy dips
Foreign Currencies – buy dips
Commodities – buy dips
Precious Metals – buy dips
Energy – buy dips
Real Estate – buy dips
1) The Economy – From Hot to Cool to Hot Again
2023 was a terrible year for economists who largely got it wrong. Many will be driving Uber cabs from January.
The economy is clearly slowing now from the red-hot 5.2% GDP growth rate we saw in Q3 to a much more modest 2.0% rate in Q4. We’ll get the first read on the end of January.
Any more than that and the Fed will panic and bring interest rate cuts dramatically forward to head off a recession. That is clearly what technology stocks were discounting with a melt-up of Biblical proportions, some 19% in the last two months, or $65 in the (QQQ)’s.
Anywhere you look, the data is softening, save for employment, which is holding up incredibly well at a 3.7% headline Unemployment Rate. The labor shortage may be the result of more workers dying from COVID-19 than we understand. Far more are working from home not showing up in the data. And many young people have just disappeared off the grid (they’re in the vans you see on the freeways).
The big picture view of what’s going on here is that after 15 years of turmoil caused by the 2008 financial crisis, pandemic, ultra-low interest rates, and excessive stimulus, we may finally be returning to normal. That means long-term average growth and inflation rates of 3.0% each.
I can’t wait.
A Rocky Mountain Moose Family
2) Equities (SPX), (QQQ), (IWM) (AAPL), (XLF), (BAC) (JPM), (C), (MS), (GS), (X), (CAT), (DE)
As I travel around the world speaking with investors, I notice that they all have one thing in common. They underestimate the impact of technology, the rate at which it is accelerating, its deflationary impact on the economy, and the positive influence they have on all stocks, not just tech ones. And the farther I get away from Silicon Valley the poorer the understanding.
Since my job is to make your life incredibly easy, I am going to simplify my equity strategy for 2024.
It's all about falling interest rates.
You should pay attention. In my January 4, 2023 Annual Asset Class Review (click here), I predicted the S&P 500 would hit $4,800 by year-end end. Here we are at $4,752.
I didn’t nail the market move because I am omniscient, possess a crystal ball, or know a secret Yaqui Indian chant. I have spent the last 30 years living in Silicon Valley and have a front-row seat to the hyper-accelerating technology here.
Since the time of the Roman Empire advancing technology has been highly deflationary (can I get you a deal on a chariot!). Now is no different, which meant that the Federal Reserve would have to stop raising interest rates in the first half of the year.
The predictions of a decade-long battle with rising prices like we saw in the seventies and eighties proved so much bunk, alarmism, and clickbait. In fact, the last 25 basis point rate rise took place on July 26, taking up from an overnight rate of 5.25% to 5.5%. That rendered the hard landing forecasts for the economy nonsense.
When interest rates are as high as they are now, you only look at trades and investments that can benefit from falling interest rates. All stocks actually benefit from cheaper money, but some much more than others.
In the first half, that will be technology plays like Apple (AAPL), (Microsoft (MSFT), Amazon (AMZN), Alphabet (GOOGL), Meta (META), and NVIDIA (NVDA). Much of this move was pulled forward into the end of 2023 so this sector may flatline for a while.
In the second half, value plays will take the leadership like banks, (JPM), (BAC), (C), financials (MS), (GS), homebuilders (KBH), (LEN), (PHM), industrials (X), capital goods (CAT), (DE), and commodities (FCX). Everything is going to new all-time highs. My Dow average of 120,000 by the end of the decade is only one more triple away and is now looking very conservative.
That means we now have at hand a generational opportunity to get into the fastest-growing sectors of the US economy at bargain prices. I’m talking Cadillacs at KIA prices. Corporate profits powered by accelerating technology, artificial intelligence, and capital spending will rise by large multiples. Every contemporary earnings forecast will come up short and have to be upgraded. 2024 will be a year of never-ending upgrades.
After crossing a long, hot desert small-cap stocks can finally see water. That’s because they are the most leveraged, undercapitalized, and at the mercy of interest rates and the economic cycle. They always deliver the most heart-rending declines going into recessions. Guess what happens now with the economy headed for a soft landing? They lead to the upside, with some forecasts for the Russell 2000 going as high as a ballistic 50%.
Another category of its own, Biotech & Health Care which is now despised, should do well on its own as technology and breakthroughs are bringing new discoveries. Artificial intelligence is discovering new drugs at an incredible pace and then telling you how to cheaply manufacture them. My top three picks there are Eli Lily (ELI), Abbvie (ABBV), and Merck (MRK).
There is another equity subclass that we haven’t visited in about a decade, and that would be emerging markets (EEM). After ten years of punishment from a strong dollar, (EEM) has been forgotten as an investment allocation. We are now in a position where the (EEM) is likely to outperform US markets in 2024, and perhaps for the rest of the decade. The drivers here are falling interest rates, a cheaper dollar, a reigniting global economy, and a new commodity boom.
Block out time on your calendars, because whenever the Volatility Index (VIX) tops $20, up from the current $12, I am going pedal to the metal, and full firewall forward (a pilot term), and your inboxes will be flooded with new trade alerts.
What is my yearend prediction for the S&P 500 for 2024. We should reach $5,500, a gain of 14.58%. You heard it here first.
Frozen Headwaters of the Colorado River
3) Bonds (TLT), (TBT), (JNK), (PHB), (HYG), (MUB), (LQD)
Amtrak needs to fill every seat in the dining car to get everyone fed on time, so you never know who you will share a table with for breakfast, lunch, and dinner.
There was the Vietnam Vet Phantom Jet Pilot who now refused to fly because he was treated so badly at airports. A young couple desperately eloping from Omaha could only afford seats as far as Salt Lake City. After they sat up all night, I paid for their breakfast.
A retired British couple was circumnavigating the entire US in a month on a “See America Pass.” Mennonites returning home by train because their religion forbade automobiles or airplanes.
The old bond trade is dead.
Long live the new bond trade!
After selling short bonds (TLT) from $180 all the way down to $82, I flipped to the long side on October 17. The next week, bonds saw their biggest rally in history, making instant millionaires out of several of my followers. The (TLT) has since rocketed from $82 to an eye-popping $100, a 22% gain.
In a heartbeat, we went from super bear to hyper bull.
I am looking for the Fed to cut interest rates by 1.00% in 2024 but won’t begin until the second half of the year. All of the first half bond gains were pulled forward into 2023 so I am looking for long periods of narrow trading ranges. By June, economic weakness will be so obvious that a dramatic Fed rate-cutting policy will ensue.
In addition, the Fed will end its quantitative tightening program by June, which is currently sucking $90 billion a month out of the economy. That’s a lot of bond-selling that suddenly ends.
I’m looking for $120 in the (TLT) sometime in 2024, with a possible stretch to $130. Use every five-point dip to load up on shares in the (TLT) ETF, calls, call spreads, and one-year LEAPS. This trade is going to work fast. It is the low-hanging fruit of 2024.
We are never going back to the 0.32% yields, and $165 prices we saw in the last bond peak. But you can still make a lot of money in a run-up from $82 to $120, as many happy bondholders are now discovering.
It isn’t just bonds that are going up. The entire interest rate space is doing well including junk bonds (JNK), municipal bonds (MUB), REITS (NLY), preferred stock, and convertible bonds.
A Visit to the 19th Century
4) Foreign Currencies (FXE), (EUO), (FXC), (FXA), (YCS), (FXY), (CYB)
With a major yield advantage over the rest of the world for the last decade, the US dollar has been on an absolute tear. After all, the world’s strongest economy begets the world’s strongest currency.
That is about to end.
If your primary assumption is that US interest rates will see a sharp decline sometime in 2024, then the outlook for the greenback is terrible.
Currencies are driven by interest rate differentials and the buck is soon going to see the fastest shrinking yield premium in the forex markets.
That shines a great bright light on the foreign currency ETFs. You could do well buying the Australian Dollar (FXA), Euro (FXE), Japanese yen (FXE), and British Pound (FXB). I’d pass on the Chinese yuan (CYB) right now until their Covid shutdowns end.
Look at the 50-year chart of the US dollar index below and you’ll see that a 13-year uptrend in the buck is rolling over and will lead to a 5-10-year down move. Draw your weapons.
5) Commodities (FCX), (VALE), (DBA)
Commodities are the high beta players in the financial markets. That’s because the cost of being wrong is so much higher. Get on the losing side of commodities and you will be bled dry by storage costs, interest expenses, contangos, and zero demand.
Commodities have one great attribute. They predict recessions and recoveries earlier than any other asset class. When they peaked in March of 2022, they were screaming loud and clear that a recession would hit in early 2023. By reversing on a dime on November 13, 2023, they also told us that a rip-roaring recovery would begin in 2024.
You saw this in every important play in the sector, including Broken Hill (BHP), Peabody Energy (BTU), and Freeport McMoRan (FCX). And who but me noticed that Alcoa Aluminum (AA) was up an incredible 50% in December? Maybe you can’t teach an old dog new tricks, but the old tricks work pretty darn well!
The heady days of the 2011 commodity bubble top are about to replay. Now that this sector is convinced of a substantially weaker US dollar and lower inflation, it is once more a favorite target of traders.
China will finally rejoin the global economy as a growth engine in 2024 but at only half its previous growth rate. It will be replaced by India, which is turning into the new China and is now the most populous country in the world.
And here’s another big new driver. Each electric vehicle requires 200 pounds of copper and production is expected to rise from 2 million units a year to 20 million by 2030. Annual copper production will have to increase three-fold in a decade to accommodate this increase, no easy task or prices will have to rise.
The great thing about commodities is that it takes a decade to bring new supply online, unlike stocks and bonds, which can merely be created by an entry in an Excel spreadsheet. As a result, they always run far higher than you can imagine.
Accumulate all commodities on dips.
Snow Angel on the Continental Divide
6) Energy (DIG), (RIG), (USO), (DUG), (UNG), (USO), (XLE), (AMLP)
Energy was the top-performing sector of 2023 until it wasn’t.
We got a nice boost to $90 a barrel from the Gaza War. But that faded rapidly as there was never an actual supply disruption, just the threats of one. Saudi production has been cut back so far, some 5 million barrels a day, that it risks budget shortfalls if it reduces any more. In the meantime, US fracking production has taken off like a rocket.
In the meantime, Joe Biden is sitting on the bid in an effort to refill the Strategic Petroleum Reserves that was drawn down from 723 to 350 million barrels during the last price spike.
The trade here is to buy any energy plays when Texas tea approaches $70 and take profits at $95. Your first picks should be ExxonMobile (XOM), Occidental Petroleum (OXY) where Warren Buffet has a 27% stake, Diamondback Energy (FANG), and Devon Energy (DVN).
The really big energy play for 2024 will be in natural gas (UNG), which was slaughtered in 2023. The problem here was not a shortage of demand because China would take all we could deliver. It was in our ability to deliver, hobbled by the lack of gasification facilities needed to export. One even blew up.
In 2024 several new export facilities came online and the damaged one was repaired. That should send prices soaring. Natural gas prices now at a throw-away $2.00 per MM BTU could make it to $8.00 in the next 12 months. That takes the (UNG) from $5.00 to $15.00 (because of the contango).
Buy (UNG) LEAPS (Long Term Equity Anticipation Securities) right now.
Remember, you will be trading an asset class that is eventually on its way to zero sooner than you think. However, you could have several doublings on the way to zero. This is one of those times. And you also have a huge 35% contango headwind working against you all the time.
They call this commodity the “widow maker” for a good reason.
The real tell here is that energy companies are bailing on their own industry. Instead of reinvesting profits back into their future exploration and development, as they have for the last century, they are paying out more in dividends and share buybacks.
Take the money and run. Trade, don’t marry this asset class.
There is the additional challenge in that the bulk of US investors, especially environmentally friendly ESG funds, are now banned from investing in legacy carbon-based stocks. That means permanently cheap valuations and share prices for the energy industry.
Energy now counts for only 5% of the S&P 500. Twenty years ago, it boasted a 15% weighting.
The gradual shutdown of the industry makes the supply/demand situation infinitely more volatile.
To understand better how oil might behave in 2024, I’ll be studying US hay consumption from 1900-1920. That was when the horse population fell from 100 million to 6 million, all replaced by gasoline-powered cars and trucks.
The internal combustion engine is about to suffer the same fate.
7) Precious Metals (GLD), (DGP), (SLV), (PPTL), (PALL)
The train has added extra engines at Denver, so now we may begin the long laboring climb up the Eastern slope of the Rocky Mountains.
On a steep curve, we pass along an antiquated freight train of hopper cars filled with large boulders.
The porter tells me this train is welded to the tracks to create a windbreak. Once, a gust howled out of the pass so swiftly, that it blew a passenger train over on its side.
In the snow-filled canyons, we saw a family of three moose, a huge herd of elk, and another group of wild mustangs. The engineer informs us that a rare bald eagle is flying along the left side of the train. It’s a good omen for the coming year.
We also see countless abandoned 19th-century gold mines and broken-down wooden trestles leading to huge piles of tailings, and relics of previous precious metals booms. So, it is timely here to speak about the future of precious metals.
Here it’s important to look at the long view on gold. The barbarous relic tends to have good and bad decades. During the 2000’s the price of the yellow metal rose tenfold, from $200 to $2,000. The 2010s were very boring when gold was unchanged. Gold is doing well this decade, already up 40%, and a double or triple is in the cards.
2023 should have been a terrible year for precious metals. With inflation soaring, stocks volatile, and interest rates soaring, gold had every reason to collapse. Instead, it was up on the year, thanks to a heroic $325, 17.8%% rally in the last two months.
The reason is falling interest rates, which reduce the opportunity costs of owning gold. The yellow metal doesn’t pay a dividend, costs money to store and insure, and delivery is an expensive pain in the butt.
Chart formations are looking very encouraging with a massive upside breakout in place. So, buy gold on dips if you have a stick of courage on you, which you must if you read this newsletter.
Of course, the best investors never buy gold during a bull market. They Hoover up gold miners, which rise four times faster, like Barrack Gold (GOLD), Newmont Mining (NEM), and the basket play Van Eck Vectors Gold Miners ETF (GDX).
Higher beta silver (SLV) will be the better bet, as it already has been because it plays a major role in the decarbonization of America. There isn’t a solar panel or electric vehicle out there without some silver in them and the growth numbers are positively exponential. Keep buying (SLV), (SLH), and (WPM) on dips.
Crossing the Great Nevada Desert Near Area 51
8) Real Estate (ITB), (LEN), (KBH), (PHM)
The majestic snow-covered Rocky Mountains are behind me. There is now a paucity of scenery, with the endless ocean of sagebrush and salt flats of Northern Nevada outside my window, so there is nothing else to do but write.
My apologies in advance to readers in Wells, Elko, Battle Mountain, and Winnemucca, Nevada.
It is a route long traversed by roving bands of Indians, itinerant fur traders, the Pony Express, my own immigrant forebearers in wagon trains, the Transcontinental Railroad, the Lincoln Highway, and finally US Interstate 80, which was built for the 1960 Winter Olympics at Squaw Valley.
Passing by shantytowns and the forlorn communities of the high desert, I am prompted to comment on the state of the US real estate market.
Those tormented by the shrinking number of real estate transactions over the past two years take solace. The past excesses have been unwound and we are now on the launching pad for another decade-long bull market.
There is a generational structural shortage of supply with housing which won’t come back into balance until the 2030’s. You don’t have a real estate crash when we are short 10 million homes.
The reasons, of course, are demographic. There are only three numbers you need to know in the housing market for the next ten years: there are 80 million baby boomers, 65 million Generation Xers who follow them, and 86 million in the generation after that, the Millennials.
The 76 million baby boomers (between ages 62 and 79) have been unloading dwellings to the 72 million Gen Xers (between age 41 and 56) since prices peaked in 2007. But there are not enough of the latter, and three decades of falling real incomes mean that they only earn a fraction of what their parents made. That’s what caused the financial crisis. That has created the present shortage of housing, both for ownership and rentals.
There is a happy ending to this story.
The 72 million Millennials now aged 25-40 are now the dominant buyers in the market. They are transitioning from 30% to 70% of all new buyers of homes. They are also just entering the peak spending years of middle age, which is great for everyone. Hot on their heels are 68 million Gen Z, which are now 12 to 27 years old.
The Great Millennial Migration to the suburbs and Middle America has just begun. Thanks to the pandemic and Zoom, many are never returning to the cities. That has prompted massive numbers to move from the coasts to the American heartland.
That’s why Boise, Idaho was the top-performing real estate market in 2023, followed by Phoenix, Arizona. Personally, I like Reno, Nevada, where Apple, Google, Amazon, and Tesla are building factories as fast as they can, just a four-hour drive from Silicon Valley.
As a result, the price of single-family homes should continue to rise during the 2020s, as they did during the 1970s and the 1990s when identical demographic forces were at play.
This will happen in the context of a labor shortfall, rising wages, and improving standards of living.
Increasing rents are accelerating this trend. Renters now pay 35% of their gross income, compared to only 18% for owners, and less, when multiple deductions and tax subsidies are considered. Rents are now rising faster than home prices.
Remember, too, that the US will not have built any new houses in large numbers in 17 years. The 50% of small home builders that went under during the Financial Crisis never came back.
We are still operating at only half of the 2007 peak rate. Thanks to the Great Recession, the construction of five million new homes has gone missing in action.
There is a new factor at work. We are all now prisoners of the 2.75% 30-year fixed-rate mortgages we all obtained over the past five years. If we sell and try to move, a new mortgage will cost double today. If you borrow at a 2.75% 30-year fixed rate, and the long-term inflation rate is 3%, then, over time, you will get your house for free. That’s why nobody is selling, and prices have barely fallen.
This winds down in 2024 as the Fed realizes its many errors and sharply lowers interest rates. Home prices will explode…. again.
Quite honestly, of all the asset classes mentioned in this report, purchasing your abode is probably the single best investment you can make now after you throw in all the tax breaks. It’s also a great inflation play.
That means the major homebuilders like Lennar (LEN), Pulte Homes (PHM), and KB Homes (KBH) are a buy on the dip. But don’t forget to sell your home by the 2030s when the next demographic headwind resumes. That’s when you should unload your home to a Millennial or Gen Xer and move into a cheap rental.
A second-hand RV would be better.
Crossing the Bridge to Home Sweet Home
9) Postscript
We have pulled into the station at Truckee amid a howling blizzard.
My loyal staff have made the ten-mile trek from my estate at Incline Village to welcome me to California with a couple of hot breakfast burritos and a chilled bottle of Dom Perignon Champagne, which has been resting in a nearby snowbank. I am thankfully spared from taking my last meal with Amtrak.
After that, it was over legendary Donner Pass, and then all downhill from the Sierras, across the Central Valley, and into the Sacramento River Delta.
Well, that’s all for now. We’ve just passed what was left of the Pacific mothball fleet moored near the Benicia Bridge (2,000 ships down to six in 50 years). The pressure increase caused by a 7,200-foot descent from Donner Pass has crushed my plastic water bottle. Nice science experiment!
The Golden Gate Bridge and the soaring spire of Salesforce Tower are just coming into view across San Francisco Bay.
A storm has blown through, leaving the air crystal clear and the bay as flat as glass. It is time for me to unplug my MacBook Pro and iPhone 15 Pro, pick up my various adapters, and pack up.
We arrive in Emeryville 45 minutes early. With any luck, I can squeeze in a ten-mile night hike up Grizzly Peak and still get home in time to watch the ball drop in New York’s Times Square on TV.
I reach the ridge just in time to catch a spectacular pastel sunset over the Pacific Ocean. The omens are there. It is going to be another good year.
I’ll shoot you a Trade Alert whenever I see a window open at a sweet spot on any of the dozens of trades described above, which should be soon.
Good luck and good trading in 2024!
John Thomas
The Mad Hedge Fund Trader
The Omens Are Good for 2024!
Global Market Comments
January 2, 2024
Fiat Lux
Featured Trade:
(TESTIMONIAL)
(PLAYING THE SHORT SIDE WITH VERTICAL BEAR PUT SPREADS)
(TLT)
Global Market Comments
December 19, 2023
Fiat Lux
Featured Trade:
(TESTIMONIAL),
(WHAT EVER HAPPENED TO THE GREAT DEPRESSION DEBT?),
($TNX), (TLT), (TBT)
Global Market Comments
December 15, 2023
Fiat Lux
Featured Trade:
(DECEMBER 13 BIWEEKLY STRATEGY WEBINAR Q&A),
(BYDDF), (TSLA), (NEM), (UNG), (WMT), (TGT), (GOLD), (TLT), (JNK), (HYG)
Below please find subscribers’ Q&A for the December 13 Mad Hedge Fund Trader Global Strategy Webinar, broadcast from Silicon Valley, CA.
Q: I think it's a good time to buy gold, do you agree? If so, what are your top picks for a long-term hold?
A: I was looking at some very long-term gold charts, and gold tends to have really hot and really cold decades, and we're just finishing a cold decade. In fact, the price of gold today is roughly where it was 12 years ago—it hasn't moved in 12 years. But if you look at the decade before that, it went up ten times from $200 to $2,000, so we're about to enter another hot decade. It may not go up 10X, but 5X is realistic. That would take us up from $2,000 to $10,000, and I think we could see $3,000 as early as 2025.
The best plays are always the gold miners. And my two favorite picks there are Barrick Gold (GOLD) and Newmont Mining (NEM). If you want to be even more aggressive than that, the underlying miners tend to go up at four times the rate of the gold metal. I can also go with junior minors who probably are losing money now, but if gold goes up to $5,000, they'll make money. Those are hugely leveraged, high-risk plays.
Q: Is it time to sell Tesla (TSLA) stock on all long-term accounts?
A: It is not. If you truly are long-term, I think Tesla goes to $10,000 eventually, but we are in the middle of a price war. Price wars are not when you want to be involved in the stock, so I wouldn't be adding to Tesla positions here—I want to see what the final bottom looks like, when the price wars end the prices start to go up, and we'll get that with an economic recovery next year.
Q: Who are Tesla's prime competitors?
A: I would say it's BYD CO., INC. (BYDDF) in China. BYD, which I visited in China 12 years ago, is actually out selling Tesla in China, and they have the ability to produce a super cheap car. They have a $25,000 car in Europe right now, and the fear is that they will make a $15,000 car, and then flood the United States with it. I doubt that will happen; they've never been able to reach American quality and safety standards, and that's why you don't see Chinese cars here. You do see them in other countries like Australia, Hong Kong, and parts of Africa; and they're currently making a big push in Europe, which certainly has all the German car producers worried. Competition is out there and does pose a risk to Tesla, but I think long-term Tesla still wins anyway. By the way, I hasten to mention there are no American competitors to Tesla. Tesla is so far ahead that the big three will never ever catch up and eventually just be reduced to selling Teslas on license.
Q: Where do you think the bottom in oil is?
A: The consensus in the market right now is $62 a barrel. That's about another $6 or $8 lower than here, and then I think we really do bottom out. Then you want to start piling into oil producers like ExxonMobil (XOM), which we had a position in last week, and Occidental Petroleum (OXY), which is the number one pick by Berkshire Hathaway. So those are two good names to go with. What drives these and all other commodities in the future? The answer is a recovering economy. Let's assume we drop from 5.2% last quarter to maybe 2% this quarter—we will accelerate to 5% next quarter, and that's what takes all of your commodity plays upward.
Q: Would you buy retailers here like Walmart (WMT) or Target (TGT)?
A: No. The time to buy retailers is in the run-up to Christmas. I don't know about you, but I'm finished with all my Christmas shopping! You want to buy in the run-up to Christmas shopping, not when it's peaking. Target on the other hand has done really well, and on a massive cost-cutting effort.
Q: When do you think is the first interest rate cut?
A: Since the market has a consensus of May, with some people saying March, I'll go for June. I think this Fed wants to torture us a little bit more and delay any interest rate cuts, but markets will discount that anyway. So it all sets up a great backdrop to buy stocks now, because markets discount things six months in advance, and six months from now is May. That's why we've had the ballistic moves that we've seen in stocks.
Q: Whatever happened to the natural gas trade United States Natural Gas Fund (UNG)?
A: The problem with all these commodity trades is that they are all in one way or another dependent on the weather, and we are having a warm winter, so you can't fool Mother Nature. Not only is it warm here, but it's warm in China, and in Europe. I think they have this thing called…global warming? It makes you ask yourself if you even want to be near an energy trade during a time of global warming, which is accelerating. So anyway, we had a nice profit on this in October—it completely went away. The (UNG) ETF went from $8 all the way down to $4.50, so we'll just have to wait for the cold weather and for (UNG) to ramp up. If it doesn’t happen soon, we may not have a rally this year in natural gas. Pray for snow!
Q: Is junk the best to buy in bonds?
A: It's the best risk-reward ratio; it has a yield roughly 50% higher than TLT with only slightly more risk. The default ratio on junk bonds is actually quite low. And in fact, before you buy (JNK) (SPDR Bloomberg High Yield Bond ETF) or (HYG) (iShares iBoxx $ High Yield Corporate Bond ETF), go to the website and look at their largest holdings and you’ll see what I mean, it's all airlines and cruise lines which had to load up on debt during the pandemic but are doing great right now.
Q: How can the market still rally if it's time to sell and take profit?
A: We get a round of profit-taking at some point, and there's your entry point. Right now, no professional trader is buying anything right now, they're just holding back and seeing when they take profits. And the way traders think is they don't want to trade anymore until they get paid! The year end is ending shortly and the risk-reward favors taking profits and then sitting on the profits. Guess what I'm doing? I'm taking profits and sitting on the profits because traders have bonuses that tend to get paid in January.
Q: On the (TLT) put trade, should one get out once it hits $95?
A: Yes, I always stop out when we hit the nearest strike on a call spread or a put spread. That's a good discipline to have. 90% of the time, if you hold on to expiration, you make the maximum profit in these, but that 10% of the time it's a total write-off, so you get to choose. I try to keep the volatility of the Mad Hedge service low so I always stop out quickly—easier to dig yourself out of a small hole than a big one.
Q: How do you think the next two government shutdowns in January and February will affect the market? Is this a buying opportunity?
A: Absolutely, yes, it is a buying opportunity. Shutdowns tend to be short, but you may get a lot of political turmoil, especially in the House. After the Long Island by-election to replace the disgraced George Santos the Republican majority is likely to shrink to only two seats. The House could fire another speaker, for example. We're kind of in unprecedented territory here in terms of the US government, but at any stock market decline, you would be a big buyer. That's how to play it. If people want to puke out on what's happening in Washington—thank you very much, I'll take your stock.
Q: Are we still bullish on the Barack Gold (GOLD) LEAPS?
A: Absolutely, especially if you have the 2025 expiration. There is an easy double or triple here.
To watch a replay of this webinar with all the charts, bells, whistles, and classic rock music, just log in to www.madhedgefundtrader.com, go to MY ACCOUNT, click on GLOBAL TRADING DISPATCH, then WEBINARS, and all the webinars from the last 12 years are there in all their glory.
Good Luck and Stay Healthy
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
At BYD in China 2011
Global Market Comments
December 11, 2023
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or POWELL’S VICTORY LAP),
(GS), (KEY), (WBS), (COLB), (PNFP),
(NLY), (BRK/B), (GOOGL), (CAT), (TLT)
With almost all economic data now universally slowing, Fed Governor Jay Powell is limbering up to take his victory lap. That’s put inflation in full retreat and well on its way to our central bank’s 2% target by summer. Interest rate cuts are just a matter of time.
That sets up a fabulous year in 2024. While this year was mostly a hard slog, next year should be a piece of cake. I can’t wait until it starts!
That puts my 4,800 target for the end of 2023 well within range. People told me I was crazy when I made such an outlandish forecast last January 1, yet here we are.
Investors missed the mark by a mile this year because they thought the Fed's extreme moves in interest rates would trigger a recession.
It didn’t.
Those who bet on falling inflation this year were big winners. That gave the Fed permission to cancel any further rate rises. Economists were too bearish and the technical picture flipped from bearish to bullish in a heartbeat on October 26.
The kinds of moves you are seeing in the stock market, with banks and industrials turning upward, signal that we are not in a bear market, but the start of a new long-term bull one.
Stocks are looking for at least 15% gains in 2024 with earnings consistently surprising to the upside. Domestics will catch fire in the second half. Inflation will fall further than expected, well into the 2% handle, thanks to hyperaccelerating technology crushing prices.
The Fed has won the war on inflation so there is room for 10-year US Treasury bond yields to hit 3.0% next year, taking mortgage interest rates under 5.0%. That will be a shot of adrenaline for the residential real estate market.
A (SPY) target of 5,500 by the end of 2024 is entirely within reason.
It turns out that when ten-year bond yields are between 4.00% and 5.00%, stocks sport a price-earnings multiple of 20X. That allows S&P 500 earnings to hit $2.65 per share in 2025, up from today’s $2.20.
Financials (JPM), industrials (CAT), energy (XOM), and small caps (IWM) will take over market leadership sometime in 2024. The best market risk reward is here. Financials now trading in the dumps have huge multiple expansion potential.
The $240 billion in cash that left equities in 2023 will have to fight their way back in. That’s why we haven’t seen any substantial pullbacks in share prices since October. Once investors got the cash weightings they were happy with, they could never get back into stocks.
Hedge fund equity weightings are at five-year lows. Small caps have very heavy weightings in regional banks, while large banks have great capital spending plays.
Big techs, the meteoric performers of 2023, will likely take a rest sometime in Q1.
Europe and China took the big hits this year, but we didn’t. If they turn around, it will supercharge our economy….and the stock market.
Which brings me to the subject of bank stocks. Banks have had an atrocious 2023, when their shares were either flat or down big, underperforming the S&P 500 by a massive 30%. However, they are looking pretty darn attractive for 2024.
Banks now offer pretty cheap balance sheets relative to next year’s profit outlook, with many still trading at big discounts to book value. A recovering economy means new capital spending jumps, which is great for big banks. Exposure to high-risk office loans which get so much print from the financial media account for less than 5% of their loan books.
Small banks will put the March crisis behind them by recapitalizing or merging. It turns out that only a handful of banks were badly managed (no downside hedge on (TLT) holdings while they were crashing from $166 to $82!!). The survivors will build market share at higher margins.
Economic recovery also means default rates on loans ebb.
Goldman Sachs (GS) is my top pick, after being taken to the woodshed for a very expensive unwind of their poorly thought-out consumer business this year. Key Corp (KEY) is also looking good on a possible 70% earnings growth.
If you are looking for a pure small bank play, you can buy Webster Financial (WBS) based in Stamford, CT, Columbia Banking (COLB) of Tacoma, WA, or Pinnacle Financial (PNFP) from Nashville, TN.
So far in December, we are down -2.85%. We’ve had a heck of a run and the market was bound to bite back sometime. My 2023 year-to-date performance is still at an eye-popping +78.86%. The S&P 500 (SPY) is up +21.05% so far in 2023. My trailing one-year return reached +75.38% versus +24.75% for the S&P 500.
That brings my 15-year total return to +676.05%. My average annualized return has exploded to +52.00%, another new high.
I am 40% invested with 60% in cash, with longs in (NLY), (BRK/B), (GOOGL), and (CAT). Last week, I got stopped out of a long in (XOM), thanks to the oil price dive, and a short in (TLT).
Some 63 of my 70 trades this year have been profitable this year.
Nonfarm Payroll Comes in Soft, in November at 199,000. The headline Unemployment Rate fell to 3.7%, near a 50-year low. Healthcare was the biggest growth industry, adding 77,000. Other big gainers included government (49,000), manufacturing (28,000), and leisure and hospitality (40,000). Average hourly earnings, a key inflation indicator, increased by 0.4% for the month and 4% from a year ago, close to expectations. It was a Goldilocks number for the Fed.
Refi Demand Rockets, as interest rates plunge to four-month lows. The rate for the popular 30-year mortgage fell back toward 7% after hitting 8% earlier this fall. Applications to refinance a home loan index increased 14% from the previous week and were 10% higher than the same week a year ago.
Exploding Sales of EVs Are Ringing the Bell for Oil, leading forecasters to speed up their projections for when global oil use will peak, as public subsidies and improved technology help consumers overcome the sometimes eye-popping sticker prices for battery-powered cars.
Panic Buying Drives Treasury Yields to 4.10%, down nearly a full percentage point in little more than a month on weakening economic data. It’s hard to believe that we drop below 4.10% but anything is possible in this market.
Uber Entered S&P 500, on December 18, taking the stock up 10% on the news. A company needs to fulfill certain criteria to be included in the S&P 500. Firstly, its market capitalization should be at least $14.5 billion. As of Dec 1, 2023, the market capitalization of UBER was $118.02 billion. Additionally, U.S. firms that meet profitability, liquidity, and share-float standards are the ones that can qualify for the S&P 500.
Pending Home Sales Collapse, dropping to the lowest level since the National Association of Realtors began tracking them in 2001. Sales were down 8.5% from October of last year. Tight supply and still-strong demand have kept pressure on home prices, which not only continue to hit new highs but appear to be accelerating in their gains. ales of homes priced above $750,000 have been increasing simply because there is more supply on the high end of the market.
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, December 11, at 8:30 AM EST, the Consumer Inflation Expectations are out, one of the Fed’s favorite inflation reads.
On Tuesday, December 12 at 8:30 AM, the Consumer Price Index will be released. The Federal Reserve Open Market Committee starts a two-day meeting.
On Wednesday, December 13 at 2:00 PM, the Federal Reserve will release its interest rate decision. No change is expected. At 2:30, the Producer Price Index is out.
On Thursday, December 14 at 8:30 AM, the Weekly Jobless Claims are announced. We also get Retail Sales.
On Friday, December 15 at 2:30 PM, the October New York Empire State Manufacturing Index is published. At 2:00 PM, the Baker Hughes Rig Count is printed.
As for me, it was with a heavy heart that I boarded a plane for Los Angeles to attend a funeral for Bob, the former scoutmaster of Boy Scout Troop 108.
The event brought a convocation of ex-scouts from up and down the West Coast and said much about our age.
Bob, 85, called me two weeks ago to tell me his CAT scan had just revealed advanced metastatic lung cancer. I said, “Congratulations Bob, you just made your life span.”
It was our last conversation.
He spent only a week in bed and then was gone. As a samurai warrior might have said, it was a good death. Some thought it was the smoking he quit 20 years ago.
Others speculated that it was his close work with uranium during WWII. I chalked it up to a half-century of breathing the air in Los Angeles.
Bob originally hailed from Bloomfield, New Jersey. After WWII, every East Coast college was jammed with returning vets on the GI bill. So he enrolled in a small, well-regarded engineering school in New Mexico in a remote place called Alamogordo.
His first job after graduation was testing V2 rockets newly captured from the Germans at the White Sands Missile Test Range. He graduated to design ignition systems for atomic bombs. A boom in defense spending during the fifties swept him up to the Greater Los Angeles area.
Scouts I last saw at age 13 or 14 are now 60, while the surviving dads were well into their 80s. Everyone was in great shape, those endless miles lugging heavy packs over High Sierra passes yielding lifetime benefits.
Hybrid cars lined both sides of the street. A tag-along guest called out for a cigarette and a hush came over a crowd numbering over 100.
Some things stuck. It was a real cycle of life weekend. While the elders spoke about blood pressure and golf handicaps, the next generation of scouts played in the backyard or picked lemons off a ripening tree.
Bob was the guy who taught me how to ski, cast rainbow trout in mountain lakes, transmit Morse code, and survive in the wilderness. He used to scrawl schematic diagrams for simple radios and binary computers on a piece of paper, usually built around a single tube or transistor.
I would run off to Radio Shack to buy WWII surplus parts for pennies on the pound and spend long nights attempting to decode impossibly fast Navy ship-to-ship transmissions. He was also the man who pinned an Eagle Scout badge on my uniform in front of beaming parents when I turned 15.
While in the neighborhood, I thought I would drive by the house in which I grew up, once a modest 1,800 square-foot ranch-style home to a happy family of nine. I was horrified to find that it had been torn down, and the majestic maple tree that I planted 40 years ago had been removed.
In its place was a giant, 6,000-square-foot marble and granite monstrosity under construction for a wealthy family from China.
Profits from the enormous China-America trade have been pouring into my hometown from the Middle Kingdom for the last decade, and mine was one of the last houses to go.
When I was class president of the high school here, there were 3,000 white kids and one Chinese. Today, those numbers are reversed. Such is the price of globalization.
I guess you really can’t go home again.
At the family's request, I assisted in liquidating his investment portfolio. Bob had been an avid reader of the Diary of a Mad Hedge Fund Trader since its inception and attended my Los Angeles lunches.
It seems he listened well. There was Apple (AAPL) in all its glory at a cost of $21. I laughed to myself. The master had become the student and the student had become the master.
Like I said, it was a real circle of life weekend.
Good Luck and Good Trading,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Scoutmaster Bob
1965 Scout John Thomas
The Mad Hedge Fund Trader at Age 11 in 1963
