(TLT) Archives - Page 5 of 102 - Mad Hedge Fund Trader

The Market Outlook for the Week Ahead, or Armageddon

Armageddon is not a word I use lightly. But this weekend, every technical service I subscribed to warned that the recent damage to the market was immense. It’s time to raise cash, hedge your positions, or otherwise position for a bear market.

I have noticed over the past half-century that the best technicians spend a lot of time reading up on fundamentals, and the best fundamentalists spend a lot of time looking at charts. When both go to hell in a handbasket, as they are now, it’s time to head for the hills.

The only way Armageddon can be avoided, or at least postponed, is if the trade war, which is about to cut S&P 500 (SPY) earnings by half, suddenly ends. Only one person knows if that is going to happen, and he isn’t sharing any of his cards with me.

If the trade war continues or expands, the math here becomes very simple. The shares of companies that earn less money are worth less.

You learn in flight school that accidents aren’t usually the result of a single problem but several compounding ones. I know this too well because I have crashed three planes, in the Austrian Alps, in Sicily, and in Paris. First, the gyroscope blows up, then the radio goes out, and then you lose an engine when the weather turns bad. It doesn’t help when someone is shooting at you, either.

The problem for stock owners now is that there isn’t just one thing going wrong with the investment landscape right now; there are several compounding ones, like inflation, immigration, taxes, the deficit, the Ukraine War, and the end of American leadership of the West.

Loss of confidence in the top, which took a quantum leap downward in the wake of the dumpster fire at a White House Zelinski meeting, has consequences. At this point, every businessman in America is asking himself if he can survive the current regime.

With a scant one-seat majority in Congress, a budget can’t pass by March 14, when a government shutdown begins. It means that there will be no new tax cuts by year-end. Chaos ratchets up. Businessmen hate chaos.

It also means that the 2017 tax cuts extension isn’t going to happen, which adds $5 trillion in new taxes on the country just when the economy is slowing dramatically. Uncertainty runs rampant.

Here's the problem for investors with that. Confident markets trade at big premiums, as we saw for the last three years. Uncertain markets trade at big discounts. If I’m right, that discount will be 20%. If I’m wrong, it's 50%.

Ceding America’s leadership of the West comes at a heavy price. It started 80 years ago with the end of WWII. American stock markets have done pretty well during this time, rising by 435 times. Why anyone would want to give up such a system is beyond me.

For example, the US dollar would lose its reserve currency status. There is no way the national debt could have risen to $36 trillion, half of which was bought by foreigners, and all of which was used to stimulate the economy, without reserve currency status. Take that away, and economic growth goes elsewhere. So do higher stock prices, which we have already seen this year in China and Europe.

There is a fundamental repricing of the market taking place, and we are only just at the beginning.

About that economy thing. On Friday, the Atlanta Fed predicted that the US economy SHRANK by -1.5% in Q1. It would be easy to say, “There goes the Atlanta Fed again,” whose model is always prone to extreme predictions. But it is safe to say that the economy is either not growing or growing at a dramatically slowing rate.

The problem for investors? Reliable growing economies, which we have had since the Pandemic five years ago, support high stock multiples. Non-growing or shrinking economies can only support low earnings multiple. Remember back in 2009, the S&P 500 traded at a lowly multiple of only 9X, against today’s 25X.

This isn’t just me howling at the moon. With a meteoric $10 rally this year, the bond market is starting to warn of a coming recession. Ten-year US Treasury bond yields have cratered from 4.80% to 4.20%. This is in the face of massive bond issuance in 2025, some $1.7 trillion worth, the product of the 2017 Trump tax cuts. Almost all new government policies are anti-economy and anti-growth.

The DOGE campaign is sucking massive amounts of money out of the economy. The yield curve has inverted, meaning that short-term interest rates are higher than long-term ones, indicating that the recession risk is real.

The dividend yield on the S&P 500 is at 1.2%. It was 2% only a couple of years ago. That is not much yield competition.

As I have been warning my Concierge members for weeks, get rid of all the stocks and asset classes you have been dating and only keep the ones you are married to. And what you keep should be hedged, such as through selling short call options against your longs, buying the (SDS), the 2X short S&P 500 ETF. And then there are 90-day US Treasury bills yield 4.2%, where nobody has ever lost money.

I learned something interesting the other day about your largest holding.

Some 70% of Nvidia is now held by indexes like the S&P 500. That’s because it has become an index proxy. It means that the shares have become an index hedge for hedge funds against which they can trade a myriad of options. This is why the (NVDA) options have implied volatilities four times those of the (SPY). It is a great arbitrage.

I watch closely the launch of new ETFs and write about the most interesting ones. I have been inundated by requests for private credit investments, which, by definition, are not available to the public.

Now, we will soon have the SPR SSGA Apollo IG Public & Privat Credit ETF (PRIV) out soon (https://www.ssga.com/us/en/intermediary/etfs/spdr-ssga-apollo-ig-public-private-credit-etf-priv ).

The fund will launch with an initial $50 million, and the minimum investment is $100,000. The fund essentially offers daily liquidity for illiquid long-duration loans. The yield should be in line with private illiquid debt, or about 10%-12%.

How they pull this off is anybody’s guess. Past funds that tried to do this closed their doors during times of economic distress, known as “gating, “so beware of gating when market conditions turn less than ideal. The fund promises to hold up to 35% of its funds in private credit and the rest in a mix of junk bonds. No word yet on the yield, but it will be much higher than the leading junk bond fund (JNK), which is offering 6.48%.

February has started with a respectable +2.25% return so far. That takes us to a year-to-date profit of +9.46% so far in 2025. My trailing one-year return stands at a spectacular +81.87% as a bad trade a year ago fell off the one-year record. That takes my average annualized return to +49.83% and my performance since inception to +761.36%.

I saw the market breakdown coming a mile off and used my 90% cash to pile into new very short-term longs in JP Morgan (JPM), Interactive Brokers (IBKR), Tesla (TSLA), and Gold (GLD). I poured into new short positions with Tesla (TSLA), Nvidia (NVDA), and the United States US Treasury Bond Fund (TLT). This is in addition to an existing long in Goldman Sachs (GS). Last week, I leapt from 90% cash to 40% long, 40% short, and 20% cash.

Some 63 of my 70 round trips, or 90%, were profitable in 2023. Some 74 of 94 trades have been profitable in 2024, and several of those losses were really break-even. That is a success rate of +78.72%.

Try beating that anywhere.

Core PCE Price Index Comes in Line. The personal consumption expenditures price index, the Federal Reserve’s preferred inflation measure, increased 0.3% for the month and showed a 2.5% annual rate. Excluding food and energy, core PCE also rose 0.3% for the month and was at 2.6% annually. Fed officials more closely follow the core measure as a better indicator of longer-term trends. Personal income posted rose 0.9% against expectations for a 0.4% increase. However, the higher incomes did not translate into spending, which decreased by 0.2%, versus the forecast for a 0.1% gain.

Retail Investors Market Sentiment Hit All-Time Bearish Highs. Options activity has also taken a big swing towards put buying. Dump all the stocks you were dating. Both Nvidia (NVDA) and Tesla (TSLA), the two most widely traded stocks in the market, broke their 200-day moving averages today. This is a very negative medium-term indicator. Only keep the ones you’re married to, not the ones you’re dating. This is not the rose garden we were promised.

US Margin Debt Hits All-Time High, at $937 billion as of January. That’s up 33% from $701 billion in January 2024. Over the same period, the S&P 500 gained 24.7%. Speculation on credit is running rampant. Margin trading, in which investors borrow funds from their brokerage firms in order to buy stocks, can amplify returns.

Weekly Jobless Claims Jump to 242,000, up 22,000, as the government firings kick in. In Washington, D.C., new claims totaled 2,047, an increase of 421, or 26%, the largest number for the city since March 25, 2023.

Nvidia Beats (NVDA) even the most optimistic expectations. The company forecasted higher first-quarter revenue, signaling continued strong demand for artificial intelligence chips, and said orders for its new Blackwell semiconductors were "amazing." The forecast helps allay doubts around a slowdown in spending on its hardware that emerged last month, following DeepSeek's claims that it had developed AI models rivaling Western counterparts at a fraction of their cost. Nvidia's outlook for gross margin in the current quarter was slightly lower than expected, though, as the company's Blackwell chip ramp-up weighs on Nvidia's profit. Nvidia forecast first-quarter gross margins will sink to 71%, below the 72.2% forecast by Wall Street, according to data compiled by LSEG.

Gold ETFs (GLD) Have Become a Hot Commodity, with $4.5 billion pouring into (GLD) — with around half of that inflow occurring during Friday’s stock market selloff. The flight to safety bid is on. Those moves come as gold prices are at all-time highs in early 2025, boosted by trade uncertainty and inflation concerns. Buy (GLD) on dips.

Chinese Inflation (FXI) Hits 20-Year Lows, as the economy continues in free fall. Beijing is also expected to release its plans for spending on defense and technological development in the year ahead, along with details on private sector support. Last year, the inflation rate came in at only 0.2%.

Pending Homes Sales Hit All-Time Low, in January down 4.6% MOM and 5.2% YOY. Inventories are rising, but affordability is at record lows. Exceptionally cold weather was a factor. Homebuilder Sentiment plummeted to 42, a two-year low, and tariff concerns. Our drywall comes from Mexico, and our lumber comes from Canada. Avoid all real estate plays like the plague.

Home Prices are Still Rising, according to the S&P Case Shiller National Home Price Index. House prices rose 0.4%. They increased 4.7% in the 12 months through December. The strong increase in prices was despite rising housing supply, which is being driven by ebbing demand amid higher mortgage rates. New York showed the biggest gain at 7.2% YOY, followed by Chicago at 6.6% and Boston at 6.35%. Washington, DC, was the only city showing a loss at -1.1%.

Consumer Confidence Collapses to a Four-Year Low, down 7 points from 105 to 98, as tariff-driven inflation fears ramp up. The Conference Board’s Consumer Confidence Index for February, released Tuesday morning, fell to 98.3, falling for the third-straight month and marking the largest monthly decline since August 2021. Technology stocks sold off hard. Bonds are starting to discount a recession.

Berkshire Hathaway (BRK/B) Builds Record Cash, at $334 billion, up $9 billion in December alone. The Oracle of Omaha has been selling huge chunks of Apple (AAPL) and Bank of America (BAC) and putting the money into US Treasury Bills. Warren earned an eye-popping $47 billion in 2024, up 27% YOY. A price earnings multiple at a record 25X for the S&P 500. If Warren Buffet is selling, should you be buying?

Jamie Dimon Sells 30% of JP Morgan Stock, yet another indicator of a market top. Jamie is famous for loading up on (JPM) at the absolute market bottom in 2009. Does he know something we don’t? Banks have been the lead sector in the market since the summer.

Existing Homes Sales Crater, on a closing contract basis, down 4.9% in January to 4.09 million units. Terrible weather was a factor. Inventories are up 17% YOY and 3.5% for the month. Al cash sales hit 29%. The average price of a home is at an all-time high at $396,800, up 4.5% YOY.

My Ten-Year View – A Reassessment

We have to substantially downsize our expectations of equity returns in view of the election outcome. My new American Golden Age, or the next Roaring Twenties, is now looking at multiple gale force headwinds. The economy will completely stop decarbonizing. Technology innovation will slow. Trade wars will exact a high price. Inflation will return. The Dow Average will rise by 600% to 240,000 or more in the coming decade. The new America will be far more efficient and profitable than the old.

My Dow 240,000 target has been pushed back to 2035.

On Monday, March 3 at 8:30 AM EST, the ISM Manufacturing PMI is announced.

On Tuesday, March 4 at 8:30 AM, the API Crude Oil Stocks is released.

On Wednesday, March 5 at 8:30 AM, the ADP Employment Index is printed.

On Thursday, March 6 at 8:30 AM, the Weekly Jobless Claims are disclosed.

On Friday, March 7 at 8:30 AM, the Nonfarm Payroll Report for February is announced, as well as the headline Unemployment Rate. At 2:00 PM, the Baker Hughes Rig Count is printed.

As for me, I’ll never forget when my friend Don Kagin, one of the world’s top dealers in rare coins, walked into my gym one day and announced that he had made $1 million that morning. I enquired. “How is that, pray tell?”

He told me that he was an investor and technical consultant to a venture hoping to discover the long-lost USS Central America, which sunk in a storm off the Atlantic Coast in 1857, heavily laden with gold from the California gold fields. He just received an excited call that the wreck had been found in deep water off the US east coast.

I learned the other day that Don had scored another bonanza in the rare coins business. He had sold his 1787 Brasher Doubloon for $7.4 million. The price was slightly short of the $7.6 million that a 1933 American $20 gold eagle sold for in 2002.

The Brasher $15 doubloon has long been considered the rarest coin in the United States. Ephraim Brasher, a New York City neighbor of George Washington, was hired to mint the first dollar-denominated coins issued by the new republic.

Treasury Secretary Alexander Hamilton was so impressed with his work that he appointed Brasher as the official American assayer. The coin is now so famous that it is featured in a Raymond Chandler novel where the tough private detective, Phillip Marlowe, attempts to recover the stolen coin. The book was made into a 1947 movie, “The Brasher Doubloon,” starring George Montgomery.

This is not the first time that Don has had a profitable experience with this numismatic treasure. He originally bought it in 1989 for under $1 million and has made several round trips since then. The real mystery is who bought it last. Don wouldn’t say, only hinting that it was a big New York hedge fund manager who adores the barbarous relic. He hopes the coin will eventually be placed in a public museum.

Mad Hedge followers should start paying more attention to gold, which I believe just entered another decade-long bull market, thanks to falling US interest rates. You can’t go wrong buying LEAPS in the top two miners, Barrack Gold (GOLD) and Newmont Mining (NEM).

Who says the rich aren’t getting richer?

Good Luck and Good Trading,

John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader

February 28, 2025

Diary, Newsletter, Summary

Global Market Comments
February 28, 2025
Fiat Lux

Featured Trade:

(FEBRUARY 26 BIWEEKLY STRATEGY WEBINAR Q&A),
(BTC), (NVDA), (TSLA), (BRK/B), (JNK), (TLT), ($WTIC)

February 26 Biweekly Strategy Webinar Q&A

Diary, Newsletter

Below, please find subscribers’ Q&A for the February 26 Mad Hedge Fund Trader Global Strategy Webinar, broadcast from Incline Village, NV.

Q: Isn’t this just a cyclical thing? Don’t all bull markets come to an end?

A: Yes, they do. But this time around, it looks like the market is being pushed off a cliff. I guess you have to say that uncertainty is the new element here. Depending on who you talk to, uncertainty is either at a 5-year high, a 30-year high, or a 96-year high (the 1929 crash). Suffice it to say that with the election results being so close (it was the 3rd closest election in history), that means essentially half of all voters are going to be pissed off no matter what happens. It’s a no-win situation. Plus, you go in with multiples at—depending on how you measure them—30-year highs or 96-year highs and dividend yields at all-time lows. A lot of these stocks have gotten stupidly expensive and are begging for a selloff. That is not a good environment to ratchet off the uncertainty.

Q: Should I buy Bitcoin (BTC) on the dip since it’s down about 15 or 20% from the highs?

A: Absolutely not. If you’re going to take a flyer, it was when it was at $6,000, not at $90,000. You can always tell when an asset class is topping because suddenly, I get a bunch of people asking if they should buy it. I've been getting that from Bitcoin all year, and the answer is absolutely not. We're looking for value here, and there's no value to be found anywhere. With Bitcoin, the question you really have to ask is: What happens when Trump leaves office? Does Bitcoin become regulated again? The answer is probably yes, so if the entire rally from $50,000 to $108,000 was based on deregulation, what happens when you re-regulate? So, no thank you, Bitcoin.

Q: Should I sell Tesla (TSLA) and Nvidia (NVDA) LEAPS?

A: It depends on your strike prices, if you're still deep in the money, I would hang on. I think the worst case is Nvidia drops to maybe $100 and Tesla drops to maybe $250. What you should have done is take profits 3 months ago when these things were at all-time highs. I did. Whenever you get up to 80% or 90% of the maximum potential profit on profit LEAPS, you should take that, especially if you have more than a year to run to expiration, because they will go to money heaven if you get a correction like this. Leave the last 10% for the next guy. So yes, I would be de-risking, you know, give all your portfolios a good house cleaning and get rid of whatever you’re not happy to keep for the next several years.

Q: What about LEAPS on financials?

A: I do think financials will come back; it’s just a question of how far they’ll drop first, and you can see I put my money where my mouth is with two financial LEAPS for the short term.

Q: Apple (APPL) expects to increase its dividends. Should I buy the stocks?

A: Actually, Apple has gone down the least out of any of the magnificent 7, but they all tend to trade as a bunch. Apple’s had a terrific run since last summer. Those are the ones that will get paired back the most. So it’s nice to get a dividend, but it’s no reason to buy a stock because you can wipe out a year’s worth of a dividend in a single day’s negative trading.

Q: What do you think of Chinese tech stocks?

A: I think they’re peaking out here; the same with Europe—they’ve had this tremendous rally this year NOT because of the resurgence of Chinese or European economies. It’s happening because of the uncertainty explosion in the United States and the fact that these European and Chinese stocks all got insanely cheap—well into single-digit price-earnings multiples. So, people are just readjusting a decade and a half long short positions in these areas. I don’t see a sustainable bull market in China or Europe based purely on fundamentals. This is just a trading play, which you’ve already missed, by the way—the big move has happened.

Q: Doesn’t it seem like the unemployment claim numbers are being told more truthfully now?

A: Nothing could be further from the truth. The unemployment claims are collected by the states and then collated by the federal government—the Bureau of Labor Statistics. I've been hearing for 50 years that the government rigs the statistics it publishes. The way you'll see that is when you get a major divergence between government data and private sector data, which we have a lot of. When they diverge, you'll know the government is fudging the data. I have a feeling they may be faking the inflation data in the not-too-distant future.

Q: Should I buy Tesla (TSLA) on the dip?

A: Absolutely not. There is no indication that the rot at the top of Tesla has ended. You basically have a company that’s leaderless and rudderless, with falling sales in China and Europe and a boycott going on in Europe against all Tesla products. Sales down 50% year on year isn't an economic thing, it’s a political thing. Suddenly, Europe doesn't like Elon Musk's politics since he’s advocating the destruction of their economies and interfering in their elections. This is why CEOs of public companies should NEVER get involved in politics—once you voice an opinion, you lose half of your customers automatically. But at a certain point, no amount of money you lose can move the needle with Elon Musk; he’s too rich to care about anything and has said as much.

Q: How much cash should I have?

A: It depends on the person. I am watching the markets 12 hours a day. I can go 100% cash and be 100% invested tomorrow. You, I'm not so sure. A lot of you have heavy index exposures, so it really is different for each person. How much do you want to sleep at night? That's what it really comes down to. Are we going to have a big recession or not? That is the question plaguing investors right now.

Q: What are your thoughts on Berkshire Hathaway (BRK/B)?

A: Buy the dips. I mean it's, you know, 50% cash right now, so it's a great place to hide out if you're a conventional money manager who isn't allowed to own cash or more than 5% cash. So yeah, I think we could go higher. Just expect a 5% correction when Warren Buffet dies. He’s 95.

Q: Why buy SPDR Bloomberg High Yield Bond ETF (JNK) and not iShares 20+ year Treasury Bond ETF (TLT)?

A: JNK has a yield that is now almost 2.3% higher than the (TLT), and that gives you a lot of downside protection, you know, a 6.54% yield. That is the reason you buy junk.

Q: Why have you changed your opinion on the markets when you've been bullish for the last many years?

A: I have a Post-it note taped to my computer monitor with a quote from John Maynard Keynes: “When the facts change, I change. What do you do, sir? The answer is very simple: the principal story of the market up until the end of last year was the miracle of AI and how it was going to make us all rich. Now, the principal story of the market is the destruction of government spending, the chaos in Washington, and tariffs. That is not an investor-friendly backdrop on which to invest. The government is 25% of the GDP, and if you cut back even a small portion of that, even just 5%, that is called a recession, ladies and gentlemen, and nobody wants to own stocks in a recession. And this is all happening with valuations at all-time highs, so it is a very dangerous situation. Suffice it to say, the Trump that campaigned and the Trump we got are entirely different people with far more extreme politics. The market is just figuring that out now, and the conclusion is the same everywhere: sell, sell, go into cash, hide. Certain markets trade at rich premiums, while uncertain markets trade at deep discounts. Guess what we have now.

Q: Isn’t $65-$77 a barrel the new trading range for crude oil ($WTIC)?

A: This has recently been true, but if we go into recession, that breaks down completely, and we probably go to the $30s or $40s, and a severe recession takes us to zero. So that is a higher risk play than you may realize; that is where the charts can get you into big trouble if you ignore the fundamentals.

Q: Do you expect interest rates to drop?

A: No, they have dropped 50 basis points this year on a weak dollar and declining confidence, and the US Treasury has issued almost no long-term bonds this year. So that has created a bond shortage, which has created a temporary shortage and a fall in long-term interest rates. That will change as soon as the new budget is passed, and the earliest that can happen is March 14th. After that, we may get a new surge in interest rates as the government becomes a big seller of bonds once again, which will drive up interest rates massively. The Treasury has to issue $1.8 trillion in new bonds this year just to break even, and now it has only 10 months to do it. So there may be a great short setting up here in the (TLT), and of course, we’ll let you know when we see that.

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 Good Trading,

John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader

February 24, 2025

Diary, Newsletter, Summary

Global Market Comments
February 24, 2025
Fiat Lux

Featured Trade:

(MARKET OUTLOOK FOR THE WEEK AHEAD, or THE DOWNSIDE OF DOGE, plus THE LAST GLASS OF KOOL-AID)
(SPY), (TLT), (GS), (VST), (TSLA), (WMT), (UNH)

February 7, 2025

Diary, Newsletter, Summary

Global Market Comments
February 7, 2025
Fiat Lux

(A NOTE ON ASSIGNED OPTIONS OR OPTIONS CALLED AWAY)
(TLT), (TSLA)

January 27, 2025

Diary, Newsletter, Summary

Global Market Comments
January 27, 2025
Fiat Lux

Featured Trade:

(MARKET OUTLOOK FOR THE WEEK AHEAD, or THE TRADE WAR BEGINS),
(SPY), (TLT), (TSLA), (NFLX)

January 17, 2025

Diary, Newsletter, Summary

Global Market Comments
January 17, 2025
Fiat Lux

Featured Trades:

(JANUARY 15 BIWEEKLY STRATEGY WEBINAR Q&A),
(GS), (MS), (JPM), (C), (BAC), (TSLA), (HOOD), (COIN), (NVDA), (MUB), (TLT), (JPM), (HD), (LOW), FXI)

January 15 Biweekly Strategy Webinar Q&A

Diary, Newsletter

Below please find subscribers’ Q&A for the January 15 Mad Hedge Fund Trader Global Strategy Webinar, broadcast from Sarasota, Florida.

Q: What would I recommend right now for my top five stocks?

A: That’s easy. Goldman Sachs (GS), Morgan Stanley (MS), JP Morgan (JPM), Citibank (C), and Bank of America (BAC). There's five right there—the top five financials that are coming out of a decade-long undervaluation. A lot of the regional banks, which are also viable, are still trading to discount the book value, which all the financials used to trade out only a couple of years ago. Of course, JP Morgan's reaching a two-year return of around double, but the news just keeps getting better and better, so buy the dips. Buy every sell-off in financials and you will be a happy camper for the year.

Q: What do you think about Robin Hood (HOOD)?

A: Well, the trouble with Robinhood is it’s very highly dependent on crypto volumes. If you think crypto is going to go higher and volumes will increase, this is a great play. However, you get another 95%, out-of-the-blue selloff in crypto like we had three years ago and Coinbase (COIN) will follow it right back down again. On the last downturn, there were concerns that Coinbase would go under, so if you can hack the volatility, take a shot, but not with my money. I have the largest banks in the country that are about to double again; I would much rather be buying LEAPS in that area and getting anywhere from 100% to 1000% percent returns on a 2-year view—much more attractive risk-reward for me. And they pay a dividend.

Q: How do you define a 5% correction?

A: Well, if you have a $100 stock and it drops $5, that is a 5% correction.

Q: Can you please explain what Tesla 2X leverage actually means and is it a way to trade Tesla as an alternative?

A: I steer people away from the 2Xs because the tracking error is really quite poor. You only get 1.5% of the upside, but 2.5 times the downside over time. These are more day trading vehicles. They take out huge fees, and huge dealing spreads—it's a very expensive way to trade. Far cheaper is just to buy Tesla (TSLA) stock on margin at 2 to 1, and there your tracking error is perfect, your fees are much lower, and you just have the margin interest rate to pay on the position, which is 6% a year or 50 basis points a month. No reason to make the ETF people richer than they already are. They keep coining these products—1x, 2x, 3x long shorts on every one of the high volume stocks, and it sucks a lot of people in, but it's higher risk, lower returns for the amount of money you're risking as far as I'm concerned. So that's the way to do it.

Q: What are your projections for Nvidia (NVDA)?

A: I think not just Nvidia, but all of the big tech is going to be kind of trading in a sideways range for a while, maybe 6 months, and then we get an upside breakout if you get the earnings breakout, which we are all expecting. AI is still in business, and still growing gangbusters. There are always a lot of Cassandra's out there saying that we're going to crash anytime, and I just don't see it. I know a lot of these people, I'm in touch with a lot of the companies, I see Beta releases of all products, the consumer products, and…the slowdown just ain't happening, I'm sorry. And I've been through a lot of these tech booms over the last 40 years, and this is only showing signs of just getting started.

Q: How come Tesla (TSLA) is up and down $30 every couple of days?

A: Number one, it is the most actively traded stock in the market right now. It has implied volatility on the options of 70%, which is really the highest in the market of any individual stock. That just creates immense amounts of trading by options traders, volatility traders, by call writing, and 2x and 3x ETF long and short players. All of the financial engineering and new products that we see all gravitate toward the high volume stocks like Nvidia, Tesla, and Apple because that's where the money is being made. Some days Tesla accounts for 25% of all the market trading. Financial engineers go where the action is, where the volume is, where the customer demand is.

Q: Why do you expect only 5% to 10% corrections if the Fed rate cuts get completely priced out?

A: I don't expect the Fed to keep cutting interest rates. We should get another rate cut this year, and that may be it for the year. If inflation comes back (and of course, all of the new administration’s policies are highly inflationary) it’s just a question of how long it takes for it to hit the system.

Q: Do you believe I should hold all of my municipal bonds (MUB) with 10-year call protection at 4.75%?

A: On a tax-adjusted basis, I would say yes. You know, stock markets may peak and deliver a zero return, and in that situation, muni bonds are very attractive. The nice thing about bonds is that you hold on to maturity—you get 100% of your money back. With stocks, that is not always the case. Stocks you have to trade because the volatility can be tremendous. And in fact, what I do is I keep all of my money in one year Treasury bills. Last time I did this, which was in September, I locked in a one-year return for 5%.

Q: Would you prefer to buy deep in the money and put spreads on top of any rally?

A: Absolutely yes. If this is a real trading year, you not only buy the dips, you sell the rallies. We did almost no real selling last year. We really only did it in June and July because the market essentially went straight up, except for two hickeys. This could be the year of not only call sprints but put spreads as well. You just have to remember to sit down when the music stops playing.

Q: You say buy the dips; what would your dip be in JP Morgan (JPM)?

A: Well lower volatility stocks by definition have smaller drawdowns. JP Morgan (JPM) is one of those, so I'd be very happy to buy a 5% dip in JP Morgan. If it drops more, you double the position on a 10% pullback. Higher volatility stocks like Tesla—I'm really waiting for 10% or 20% corrections. You saw I just bought a 22% correction twice in Tesla with it down 110 points. One of those trades is at max profit right now and the other one has probably made half its money since yesterday. That is the game. The amount of dip you buy is directly related to the volatility of the stock.

Q: Should you let your cash go uninvested?

A: Yes, never let your cash go uninvested just sitting as cash. Your broker will take that money and put it in 90-day T-bills and keep the money for himself. So buy 90-day T-bills as a cash management tool—they're paying about 4.21% right now— and you can always use those as collateral under my positions on margin.

Q: Is Home Depot (HD) a buy on the LA reconstruction story?

A: I would say no, Los Angeles is probably no more than 5% of Home Depot's business—the same with Lowe's (LOW). A single city disaster is not enough to move the stock for more than a few days, and the fact is: Home Depot is mostly dependent on home renovation, which tends not to happen during dead real estate markets because, you know, it takes the flippers out of the market. It really needs lower interest rates to get Home Depot back up to new highs.

Q: Do you expect a big market move at the end of the day when the Fed makes its announcement?

A: The market has basically fully discounted the move on January 28, and if anything happens, there'll probably be a “sell on the news.” So, I expect we could give up a piece of the recent performance on the announcement of the Fed news.

Q: Should we expect trade alerts for LEAPS coming from you?

A: Absolutely, yes. However, LEAPS are something you really only want to do on down moves. If we don't get any, we'll just do the front-month call spreads. You can still make 10%, 20% a month just concentrating on financial call spreads.

Q: What would have happened to our accounts if we kept the (TLT) $82-$85 iShares 20+ Year Treasury Bond ETF (TLT) call spread and it went all the way down to $82?

A: The value of your investment goes to zero. Of course, it was declining at a very slow rate, and the $80: you might have gotten a bounce off the $85 level. But if the inflation number had come in hot, as had all other economic data of the last month, then you could have easily gotten a gap down to $82 and lost your entire investment, because two days is not enough time to expiration to recover that 3-point loss. And that's why I stopped out yesterday.

Q: Didn't David Tepper buy China (FXI)?

A: With both hands last September, yes he did. And my bet is he got out before he got killed. I mean, that's what hedge funds do. He probably got out close to cost, and you likely won't see him promoting China again anytime in the near future.

Q: I have June 530 puts on the S&P 500, should I get rid of them?

A: Yes, I don't see a big crash coming. You probably paid a lot going all the way out to June, and it's probably not worth hanging on to. Put spreads are the better way to go—that cuts your cost by two-thirds and those you only want to put on at market tops.

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, 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 Good Trading,

John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader

January 13, 2025

Diary, Newsletter, Summary

Global Market Comments
January 13, 2025
Fiat Lux

Featured Trades:

(MARKET OUTLOOK FOR THE WEEK AHEAD or WHAT’S NEXT),
(SPY), (TSLA), (TLT), (GS)

The Market Outlook for the Week Ahead, or What's Next?

Diary, Newsletter

This is not the rose garden we were promised.

Down three of six trading days so far in 2025, with the S&P 500 off 2.2%. Worse yet, there is an almost perfect head and shoulders topsetting up on the charts portending lower lows. Lead names like Tesla (TSLA) have taken it on the nose, down 25%.

Tax-deferred selling has definitely been the dead weight hanging on the market since January 1. High-net-worth individuals would have shot the financial advisors off if they had saddled them with big tax bills during the last weeks of 2024. After two 20% back-to-back years, many of these positions had doubles and triples in them. How long it will be anyone’s guess.

Once the selling does end, the market will go into “show me” mode, waiting for the new administration to deliver the promised action. This could be a long wait. The earliest Congress can vote on a new economy-changing bill in May. Until then, the market could be entering a tedious trading range until action is delivered.

The good news? There were many times in my life when I never thought I’d live until 2025. Also, we get two extra holidays in January, Jimmy Carter’s funeral and Martin Luther King Day on the 23^rd.

So, what’s a trader to do in these suddenly benighted times? 90-day US Treasury bill looks fantastic right now with a 4.21% yield. Nothing is better than getting paid to wait. Big tech is entering a long-range trade from which it will eventually escape to the upside. A lot of the AI trade needs to be digested and earnings spun off before a major new upleg can begin.

One of the great things about a 16-day cruise from Los Angeles to Fort Lauderdale, Florida is the many fascinating people you meet. It turned out that I missed the start of the Great Los Angeles fires by a week.

I attended a wine tasting and learned that the entire event had been bought out by the preeminent aviation family of Alaska. The 93-year-old grandmother treated her extended 25-member family to a free cruise, great-grandchildren and all, at a cost of only $250,000. Apparently, aviation in Alaska pays well.

The subject of airplanes inevitably came up. They mentioned that they still had their original aircraft, a 1928 Travelaire D4D, which Grandpa bought second-hand and brought up to Alaska during WWII. They couldn’t get any of their current pilots to fly it, which they deemed too dangerous to fly.

I mentioned that I happened to be one of ten living pilots rated to fly the plane and showed them videos of me flying my kids over the Malibu coast (click here for the link).

I believe an invitation is pending.

We closed out December at +3.26%. Some 11 out of 12 months were profitable in 2024. The final number for 2024 came in at a sky-high +75.26%. I went all cash on the December 20 options expiration, expecting the current trouble that we are in. I would be thrilled if we even came close to these numbers in 2025.

I started out the New Year with 80% cash and two small hedged positions. I went long 10% (TLT) and long 10% (TSLA). These expire in four days on the January 17 option expiration, when we flip back to a 100% cash position.

Some 63 of my 70 round trips, or 90%, were profitable in 2023. Some 74 of 94 trades have been profitable so far in 2024, and several of those losses were really break-even. That is a success rate of +78.72%.

Try beating that anywhere.

My Ten-Year View – A Reassessment

When have to substantially downsize our expectations of equity returns in view of the election outcome. My new American Golden Age, or the next Roaring Twenties is now looking at a headwind. The economy will completely stop decarbonizing. Technology innovation will slow. Trade wars will exact a high price. Inflation will return. The Dow Average will rise by 600% to 240,000 or more in the coming decade. The new America will be far more efficient and profitable than the old.
My Dow 240,000 target has been pushed back to 2035.

On Monday, January 13 at 11:00 AM EST, the Consumer Inflation Expectations are released.

On Tuesday, January 14 at 8:30 AM, the Producer Price Index
is published.

On Wednesday, January 15 at 8:30 AM, the Inflation Rate is printed.

On Thursday, January 16 at 8:30 AM, the Retail Sales are announced.

On Friday, January 17 at 8:30 AM EST, Housing Starts and Building Permits are published. At 2:00 PM, the Baker Hughes Rig Count is printed.

As for me, I was recently in Los Angeles visiting old friends, and I am reminded of one of the weirdest chapters of my life.

There were not a lot of jobs in the summer of 1971, but Thomas Noguchi, the LA County Coroner, was hiring. The famed USC student jobs board had delivered! Better, yet, the job included hours at night and free housing at the coroner's department.

I got the graveyard shift, from midnight to 8:00 AM. All I had to do was buy a black suit from Robert Halls, for $25.

Noguchi was known as the “coroner to the stars” having famously done the autopsies on Marilyn Monroe and Jane Mansfield. He did not disappoint.

For three months, whenever there was a death from unnatural causes, I was there to pick up the bodies. If there was a suicide, gangland shooting, or horrific car accident, I was your man.

Charles Manson had recently been arrested and I was tasked with digging up the victims. One, cowboy stuntman Shorty Shay, had his head cut off and neatly placed in between his ankles.

The first time I ever saw a full set of women’s underclothing, a girdle, and pantyhose, was when I excavated a desert roadside grave that the coyotes had dug up. She was pretty far gone.

Once, me and another driver were sent to pick up a teenage boy who had committed suicide in Beverly Hills. The father came out and asked us to take the mattress as well. I regretted that we were not allowed to do favors on city time. He then said, “Can you take it for $200”, then an astronomical sum.

A few minutes later, I found a hearse driving down the Santa Monica Freeway on the way to the dump with a double mattress expertly tied on the roof with Boy Scout knots with a giant blood spot in the middle.

Once, I was sent to a cheap motel where a drug deal gone wrong had produced several shootings. I found $10,000 in a brown paper bag under the bed. The other driver found another ten grand and a bag of drugs and kept them. He went to jail. I didn’t.

The worst pick-up of the summer was also the most disgusting and even made the old veterans sick. A 300-pound man had died of a heart attack and was not discovered for a month. We decided to each grab an arm or leg and all tug on the count of three. One, two, three, and all four limbs came off!

Eventually, I figured out that handling dead bodies could be hazardous to your health, so I asked for rubber gloves. I was fired.

Still, I ended up with some of the best summer job stories ever.

Good Luck and Good Trading,

John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader