Global Market Comments
August 16, 2024
Fiat Lux
Featured Trade:
( AUGUST 15 BIWEEKLY STRATEGY WEBINAR Q&A),
(SPY), (CMG), (SBUX), (TLT), (CCI),
(FCX), (SLRN), (DAL), (TSLA), (LRCX)
Posts
Below please find subscribers’ Q&A for the August 15 Mad Hedge Fund Trader Global Strategy Webinar, broadcast from London, England
Q: Do you think we’ll still have another significant test of the lows for the year, or was that it last week? Stocks are rebounding huge this week.
A: They never really went down very much. The average drawdown IN THE S&P 500 (SPY) in any given year is 15%. We only got a 10% drawdown this month because there is still $8 trillion dollars in cash sitting under the market, which never got into stocks. All of this year it's been waiting for a pullback, so I was kind of surprised we even got 10%. I was forecasting maybe 6%. So could we get a new low? You never discount the possibility, but we really have to have another shocking data point to get down to a 15% correction. That is exactly what triggered this sell-off with the Nonfarm Payroll we got in early July. So give me another rotten Nonfarm Payroll report, and we could be back at last week's lows. Which is why I'm 100% cash. I want to have tons of dry powder, if and when that happens.
Q: We've seen a big increase in refi’s for homes in the last week. Is this going to be positive for the economy?
A: Absolutely yes, and that's why we're not going to have a recession. You get housing back into the economy which has been dead meat for almost 3 years now, and suddenly one quarter to one-third of the economy recovers. So that's what takes us into probably 3% economic growth for another year in 2025.
Q: What do you think of the Chipotle CEO (CMG) moving to take over Starbucks (SBUX)?
A: I think it's a very positive move. Starbucks was dead in the water. Their stores are old and dirty and products need refreshing. So if anyone needs a fresh view it's Starbucks, and the guy from Chipotle has a spectacular track record. Chipotle is probably one of the more successful fast-food companies out there. I usually don't ever play fast food—the margins are too low, but I certainly like to watch the fireworks when they happen.
Q: Should I be shorting airline stocks here like Delta Airlines (DAL), now that a recession risk is on the table?
A: Absolutely not. If anything, airlines are a buy here. They've had a major sell-off over the last 3 months for many different reasons, not the least of which was the software crash that they had a month ago. This is not shorting territory. That was 3 months ago for the airlines. Just because it's gone down a lot doesn't mean you now sell, it's the opposite. You should be buying airlines. I usually avoid airlines because they never have any idea if they're going to make money or not, so it's a very high-risk industry, and the margins are shrinking. Let me tell you, the airlines in Europe are absolutely packed. The fares are rock bottom and the service is terrible. Anybody who thinks the consolidation of the airline industry brought you great service has got to be out of their mind.
Q: Do you have any rules on when you stop loss?
A: The answer is very simple. If I do call spreads, whenever we break the nearest strike price, I'm out of there. That’s where the leverage works exponentially against you. Usually, you get a 1 or 2% loss when that happens, and you want to roll it into another trade as fast as you can and make the money back. Sometimes you have to do three trades to make up one loss because when you issue stop losses, everybody else is trying to get out of there at the same time. It's not a happy situation to be in, so we try to keep them to a minimum—but that is the rule of thumb. Keep your discipline. Hoping that it can recover your costs is the worst possible investment strategy out there. Hoping is not a winning strategy.
Q: Why don't you wait for the bottom?
A: Because nobody knows where the bottoms are. All you can do is scale. When you think things are oversold, when you think things are cheap, then you start buying things one at a time unless you get these giant meltdown days like we got on August 5th. So that's what I probably will be doing, is scaling in on the weak days on stocks that have the best fundamentals. That’s the only way to manage a portfolio.
Q: Is it a good time to buy REITs for income?
A: Absolutely. REITs are looking at major drops in interest rates coming. That will greatly reduce their overheads as they refi, and of course, the recovering economy is good for filling buildings. So I've been a very strong advocate of REITs the entire year, and they really have only started to pay off big time in the last month, and Crown Castle Inc (CCI) is my favorite REIT out there.
Q: I own Freeport McMoRan (FCX). Do you think China’s problems will make FCX a sell?
A: Not a sell, but a wait. China (FXI) is delaying any recovery in a bull market. If we get another move in (FCX) down to the thirties I would double up, because eventually American demand offsets Chinese weakness, and we’ll be back in a bull market on the metals. It's American demand that is delivering the long-term bull case for copper, not the return of Chinese construction demand, which led to the last bull market. So we really are changing horses as the main driver of the demand for copper. It still takes 200 pounds of copper to make an EV whose sales are growing globally.
Q: Is it time to buy (TLT) now?
A: No, the time to buy (TLT) was at the beginning of the year, seven months ago, three months ago, a month ago. Now we've just had a really big $12 point rally, and really almost $18 points off the bottom. I would wait for at least a 5-point drop-in (TLT) before we dive back into that. If you noticed, I haven't been doing any (TLT) trades lately because the move has been so extended. And in fact, if they only cut a quarter of a point in September, then you could get a selloff in (TLT), and that'll be your entry point there. You have to ditch your buy high, sell low mentality, which most people have.
Q: What bond should I buy for a 6 to 10-year investment?
A: I’d buy junk bonds. Junk bonds have always been misnamed, or I would buy some of the high-yield plays like the BB loans (SLRN). With junk bonds, the actual default rate even in a recession, only gets to about 2%. So it certainly is worth having. I still think they're yielding 6 or 7% now, so that's where I would put my money. Or you can buy REITs which also have similarly high yields, like the (CCI), which is around 5% now. Risks in both these sectors are about to decline dramatically.
Q: Will there be an inflation spike next year?
A: No. Technology is accelerating so fast it's wiping out the prices of everything that's highly deflationary, and that pretty much has been the trend over the last 40 years. So don't expect that to change. The post-COVID inflationary spike was a one-time-only event, which then ended two years ago. We've gone from a 9% down to a 2.8% inflation rate; unless we get another COVID-induced inflation spike, there's no reason for inflation to return. Deflation is going to be the next game.
Q: What do you think of the UK economy now that you're in London?
A: Awful! Brexit was the worst thing that happened to England—that's why it was financed by the Russians. Brexit will have the effect of dropping both the economic growth rate and standards of living by half over the next 20 years. Expect England to beg their way back into Europe sometime in the future, although I may not live long enough to see it. There are no English people in London anymore. It's all foreigners. No one can afford it.
Q: Should I leap on Tesla (TSLA) where the current price is?
A: No. We’re waiting for the nuclear winter in EVs to end—no sign of it yet. And unfortunately, Elon Musk is scaring away buyers, especially in blue states, by palling around with Donald Trump, a well-known climate change denier. What's in that relationship? I have no idea. One of the first things Trump did was to dump subsidies for electric cars last time he was president. It's hard to tell who’s gone crazier, Trump or Musk.
Q: I have an empty portfolio, when should we expect your options trade to start coming in again?
A: As soon as I see a great sell-off or a great individual situation like we got a couple days ago with the Mad Hedge Technology Letter in Lam Research (LRCX). That's what we look for all day, every day of the year. There's no point in trading for the sake of trading, that only makes your broker rich, not you. There's no law that says you have to have a trade every day, and actually having cash isn't so bad these days. They're still paying 5% for 90-day T Bills. If you don’t know what T Bills are, look up 90-day T bills on my website.
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
Global Market Comments
August 14, 2024
Fiat Lux
Featured Trade:
(A REFRESHER COURSE AT SHORT SELLING SCHOOL),
(SH), (SDS), (PSQ), (DOG), (RWM), (SPXU), (AAPL), (TSLA),
(VIX), (VXX), (IPO), (MTUM), (SPHB), (HDGE)
Mad Hedge Technology Letter
August 12, 2024
Fiat Lux
Featured Trade:
(UNLOCKING THE FUTURE OF TECH)
(TSLA), (NVDA), (AMZN)
Unshackling the restraints on human labor – that is where tech is headed.
I’m talking about AI.
Robots aren’t able to perform complicated tasks and that is the holy grail of AI.
If headway is made just on this one issue then the sky is the limit.
Profits are then unlimited and the world will change into something we could have never imagined.
If stakes weren’t high enough, the next explosive leg up in tech shares is now centered on this concept.
There is only so much balance sheet maneuvering can add to the bottom line.
Magnificent 7 stocks who are experts are juicing up the balance sheet will gradually run out of levers to pull.
Technology stocks demand that management move the needle along because the alternative is that the company will get left behind.
When the Department of Defense commenced its robotics challenge in 2015, the stated goal was to develop ground robots that can aid in disaster recovery with the help of human operators.
Nearly a decade later, generative AI is accelerating that learning curve, pushing human-like machines to pick up new tasks in real-time.
And in June, Tesla (TSLA) presented an updated version of its Optimus robot at Tesla’s Investor Day and showed it roaming a factory floor. CEO Elon Musk touted the robot’s potential, saying it had the ability to push the company’s market cap to $25 trillion.
Humanoids that can adapt to existing environments have long been seen as the ultimate test if they can work alongside humans in spaces built for them.
Nvidia (NVDA) is driving rapid development through an ecosystem built specifically for humanoids. It combines high-powered chips that process data at high speeds with a digital world that allows users to train robots on skills applied in the real world.
Just last month, Nvidia unveiled “NIM Microservices,” a visual training ground that allows generative AI models to visually interpret their surroundings in 3D.
Nvidia’s ecosystem now enables robots to train using text and speech input, in addition to live demonstrations.
Humanoids have already begun taking their first steps into reality. Musk has said two Optimus robots are working at Tesla’s Fremont factory, and he expects a few thousand to be deployed by next year. Amazon (AMZN) has partnered with Oregon-based Agility to utilize its Digit robot at a test facility. Apptronik is working with Mercedes-Benz to integrate Apollo into its manufacturing line.
The goal is to adapt humanoid for the future which will allow them to operate beyond industrial use. They could become as ubiquitous if companies are able to scale and bring costs down to $10,000 per machine.
Technology is still in the stage of calculating how they bring the expenses under control.
It is not very cost-effective if a company needs to spend 5 times the actual cost of running the AI division on retrofitting the environment for a humanoid and resetting the language models for different tasks.
Much of these technical aspects are being worked out, and these companies are inching their way closer to a day when companies might be able to work fully without a human worker or alongside a minimum amount of workers.
Tesla is a company long-term that needs to be looked at and this assumption is solely based on their robotics and humanoid business. It is highly plausible that Elon Musk is at peace with sacrificing his EV business in the medium time as long as moving up the value chain to become the leader of what is next which is looking more like robotics using AI.
Musk is skating to where the puck is next and that is where the future will be.
Global Market Comments
August 12, 2024
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD or THE ROUND TRIP TO NOWHERE), plus (A VISIT TO TRINITY),
(ROM), (TQQQ), ($VIX), (TLT), (SLRN), (CAT), (AMZN), and (BRK/B). (NVDA), (TSLA), (AAPL), and (META), ($INDU), (TSLA), (DHI), (DE), (AAPL), (JPM), (DE), (GLD), (DHI)
I am writing this to you from the airport in Vilnius, Lithuania, which is under construction. The airport is packed because people are flying all planes to Paris to catch the closing ceremony of the 2024 Olympics. There is also the inflow of disappointed Taylor Swift fans returning from three concerts in Vienna, Austria that had been canceled due to terrorist threats. Some 150,000 tickets had to be refunded.
It is hard to focus on my writing because every 30 seconds, a beautiful woman walks by.
And I am told at my age I am not supposed to learn. I should know better.
Well, that was some week!
If you had taken a ten-day cruise to Alaska, you would wonder what all the fuss was about, for last week the stock market was basically unchanged. The worst day in two years, down 3%, followed by the best, up 2 ½% amounts to a big fat nothing burger.
It all reminds me of one of those advanced aerobatics classes I used to take. I was busier than a one-armed paper hanger, sending out some 13 trade alerts in all.
And while the volatility is certainly not over, it is probably at least two-thirds over, meaning that we can step out for a cup of coffee and NOT expect a 1,000 move in the Dow Average by the time we get back.
Is the Bottom IN?
I don’t think so. The valuation disparity between big tech and value is still miles wide. Uncertainty reaches a maximum just before the US presidential election. A bottom for the year is coming, but not quite yet. When it does, it will be the buying opportunity of the year. Watch this space! And watch (ROM) and (TQQQ) too.
The average drawdown per year since 2020 stands at 15%, so with our 10% haircut, the worst is over. What will remain in high volatility? After staying stuck at $12 for most of 2024 and then spiking to $65 in two days, the $20 handle should remain for the foreseeable future.
That is a dream come true and a license to print money for options traders because the higher options prices effectively double the profit per trade. So, expect a lot of trade alerts from the Mad Hedge Fund Trader going forward. That is, until the ($VIX) returns to $36, then the potential profit triples.
Up until July, I had been concerned that the market might not sell off enough to make a yearend rally worth buying into. There was still $8 trillion in cash sitting under the market buying even the smallest dips.
The Japanese took care of that in a heartbeat with a good old-fashioned financial crisis. In hours trillions of dollars’ worth of yen carry trades unwound, creating an unprecedented 14% move UP in the Japanese currency and a 26% move DOWN in the Japanese stock market.
Suddenly, the world was ending. Or at least the financial media thought it was.
Some hundreds of hedge funds probably went under as their leverage is so great at 10X-20X. But we probably won’t know who until the redemption notices go out at yearend.
It couldn’t happen to a nicer bunch of people.
Don’t expect the Fed to take any emergency action, such as a surprise 50 basis point rate cut, to help us out. Things are just not bad enough. The headline Unemployment Rate is still a low 4.3%. Corporate profits are at all-time highs. We are nowhere near a credit crisis or any other threats to the financial system. The US still has the strongest major economy in the world.
Of course, if you followed my advice and went heavy into falling interest rate plays, as I have been begging you to do for months, last week was your best of the year. The United States US Treasury Bond Fund (TLT) rocketed to a year high at $100. Junk bonds (JNK), REITS (CCI), BB-rated loan ETFs (SLRN), and high-yield stocks (MO) went up even more.
It's still not too late to pile into yield plays because the Fed hasn’t actually cut interest rates YET.
Volatility Index ($VIX) Hits Four-Year High at $65, the most since the 2020 pandemic. That implies a 2% move in the S&P 500 (SPX) every day for the next 30 days, which is $103.42 (SPX) points or $774 Dow ($INDU) points. No doubt, massive short covering played a big role with traders covering shorts they sold in size at $12. Spikes like this are usually great long-term “BUY” signals.
$150 Billion in Volatility Plays were Dumped on Monday. Volatility-linked strategies, including volatility funds and equities trend-following commodity trading advisers (CTAs), are systematic investment strategies that typically buy equities when markets are calm and sell when they grow turbulent. They became heavy sellers of stocks over the last few weeks, exacerbating a market rout brought on by economic worries and the unwind of a massive global carry trade.
Weekly Jobless Claims Drop to 233,000, sparking a 500-point rally in the market. It’s a meaningless report, but traders are now examining every piece of jobs data with a magnifying glass.
Commercial Real Estate Has Bottomed, which will be great news for regional banks. Visitations are up big in Manhattan, with Class “A” properties gaining the most attention. New leasing is now exceeding vacations.
Warren Buffet Now Owns More T-Bills than the Federal Reserve. The Omaha, Nebraska-based conglomerate held $234.6 billion in short-term investments in Treasury bills at the end of the second quarter. That compared with $195.3 billion in T-bills that the Fed owned as of July 31. The Oracle of Omaha wisely unloaded $84 billion worth of Apple at the market top.
No Recession Here says shipping giant Maersk. U.S. inventories are not at a level that is worrisome says CEO Vincent Clerc, as fears of a recession in the world’s largest economy mount. Chinese exports have helped drive overall container demand in the most recent quarter reported a decline in year-on-year underlying profit to $623 million from $1.346 billion in the second quarter and a dip in revenue to $12.77 billion from $12.99 billion.
A Refi Boom is About to Begin. Mortgage rates in the high fives are now on offer. Over 40% of existing mortgages have rates of over 6%. It’s all driven by the monster rally in the bond market this week which took the (TLT) to $100 and ten-year US Treasury yields down to 3.65%.
Google (GOOG) Gets Hit with an Antitrust Suit, a Federal judge ruling that the company has a monopoly in search, with a 92% market share. The smoking gun was the $20 billion a year (GOOG) paid Apple (AAPL) to remain their exclusive search engine. Apple is the big loser here, which I just sold short.
In July we ended up a stratospheric +10.92%. So far in August, we are up by +2.51% My 2024 year-to-date performance is at +33.45%. The S&P 500 (SPY) is up +7.34% so far in 2024. My trailing one-year return reached +51.92.
That brings my 16-year total return to +710.08. My average annualized return has recovered to +51.94%.
I used the market crash to stop out of three STOP LOSS positions in (CAT), (AMZN), and (BRK/B). When the ($VIX) hit $65 I then made all the losses back when I piled on four new technology longs in (NVDA), (TSLA), (AAPL), and (META). After the Dow Average ($INDU) rallied 2,000 points and volatility was still high I then pumped out short positions in (TSLA), (DHI), (DE), (AAPL), and (JPM). I stopped out of my position in (DE) at breakeven.
This is in addition to existing longs in (GLD) and (DHI), which I will likely run into the August 16 option expiration.
Some 63 of my 70 round trips, or 90%, were profitable in 2023. Some 48 of 66 trades have been profitable so far in 2024, and several of those losses were really break-even. That is a success rate of 72.73%.
If you were wondering why I was sending out so many trade alerts out last week it is because we were getting months’ worth of market action compressed into five days. Make hay while the sun shines and strike while the iron is hot!
Try beating that anywhere.
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 600% to 240,000 or more in the coming decade. The new America will be far more efficient and profitable than the old.
Dow 240,000 here we come!
On Monday, August 12 at 8:30 AM EST, the Consumer Inflation Expectations is out.
On Tuesday, August 13 at 9:30 AM, the Producer Price Index is published.
On Wednesday, August 14 at 8:30 AM, the new Core Inflation Rate is printed.
On Thursday, August 15 at 8:30 AM, the Weekly Jobless Claims are announced. Retail Sales are also printed.
On Friday, August 16 at 8:30 AM, Building Permits are disclosed. We also get the University of Michigan Consumer Sentiment. At 2:00 PM, the Baker Hughes Rig Count is printed.
As for me, with the overwhelming success of the Oppenheimer movie, I thought I’d review my long and fruitful connection with America’s nuclear program.
When the Cold War ended in 1992, the United States judiciously stepped in and bought the collapsing Soviet Union’s entire uranium and plutonium supply.
For good measure, my client George Soros provided a $50 million grant to hire every Soviet nuclear engineer. The fear then was that starving scientists would go to work for Libya, North Korea, or Pakistan, which all had active nuclear programs. They ended up here instead.
That provided the fuel to run all US nuclear power plants and warships for 20 years. That fuel has now run out and chances of a resupply from Russia are zero. The Department of Defense attempted to reopen our last plutonium factory in Amarillo, Texas, a legacy of the Johnson administration.
But the facilities were deemed too old and out of date, and it is cheaper to build a new factory from scratch anyway. What better place to do so than Los Alamos, which has the greatest concentration of nuclear expertise in the world?
Los Alamos is a funny sort of place. It sits at 7,320 feet on a mesa on the edge of an ancient volcano so if things go wrong, they won’t blow up the rest of the state. The homes are mid-century modern built when defense budgets were essentially unlimited. As a prime target in a nuclear war, there are said to be miles of secret underground tunnels hacked out of solid rock.
You need to bring a Geiger counter to garage sales because sometimes interesting items are work castaways. A friend almost bought a cool coffee table which turned out to be part of an old cyclotron. And for a town designing the instruments to bring on the possible end of the world, it seems to have an abnormal number of churches. They’re everywhere.
I have hundreds of stories from the old nuclear days passed down from those who worked for J. Robert Oppenheimer and General Leslie Groves, who ran the Manhattan Project in the early 1940s. They were young mathematicians, physicists, and engineers at the time, in their 20’s and 30’s, who later became my university professors. The A-bomb was the most important event of their lives.
Unfortunately, I couldn’t relay this precious unwritten history to anyone without a security clearance. So, it stayed buried with me for a half century, until now.
Some 1,200 engineers will be hired for the first phase of the new plutonium plant, which I got a chance to see. That will create challenges for a town of 13,000 where existing housing shortages already force interns and graduate students to live in tents. It gets cold at night and dropped to 13 degrees F when I was there.
I was allowed to visit the Trinity site at the White Sands Missile Test Range, the first visitor to do so in many years. This is where the first atomic bomb was exploded on July 16, 1945. The 20-kiloton explosion set off burglar alarms for 200 miles and was double to ten times the expected yield.
Enormous targets hundreds of yards away were thrown about like toys (they are still there). Half the scientists thought the bomb might ignite the atmosphere and destroy the world but they went ahead anyway because so much money had been spent, 3% of US GDP for four years. Of the original 100-foot tower, only a tiny stump of concrete is left (picture below).
With the other visitors, there was a carnival atmosphere as people worked so hard to get there. My Army escort never left me out of their sight. Some 78 years after the explosion, the background radiation was ten times normal, so I couldn’t stay more than an hour.
Needless to say, that makes uranium plays like Cameco (CCJ), NextGen Energy (NXE), Uranium Energy (UEC), and Energy Fuels (UUUU) great long-term plays, as prices will almost certainly rise and all of which look cheap. US government demand for uranium and yellow cake, its commercial byproduct, is going to be huge. Uranium is also being touted as a carbon-free energy source needed to replace oil.
At Ground Zero in 1945
What’s Left of a Trinity Target 200 Yards Out
Playing With My Geiger Counter
Atomic Bomb No.3 Which was Never Used on Tokyo
What’s Left from the Original Test
Good Luck and Good Trading,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Global Market Comments
August 8, 2024
Fiat Lux
Featured Trade:
(THE IDIOT’S GUIDE TO INVESTING),
(TSLA), (BYND), (JPM)
(TESTIMONIAL)
Global Market Comments
July 29, 2024
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or THE GREAT ROTATION LIVES), or (FLYING THE 1929 TRAVELAIRE D4D),
(NVDA), (TSLA), (JPM), (CCI), (CAT),
(DHI), (SLV), (GLD), (BRK/B), (DE)
I am writing this from the famed Hornli Hut on the north ridge of the Matterhorn at 10,700 feet. I’m not here to climb the iconic mountain one more time. Seven summits are enough for me. What left do I have to prove? It is a brilliant, clear day and I can see Zermatt splayed out before me a mile below.
No, I am here to inhale the youth, energy, excitement, and enthusiasm of this year’s batch of climbers, and to see them off at 1:00 AM after a hardy breakfast of muesli and strong coffee. My advice for beginners is liberally handed out for free.
Each country in Europe has its own personality. Observing the great variety of Europeans setting off I am reminded of an old joke. What is the difference between Heaven and hell?
In Heaven, you have a French chef, an Italian designer, a British policeman, a German engineer, and a Swedish girlfriend, and it is all organized by the Swiss.
In hell you have an English chef, a Polish designer, a German policeman, a Spanish engineer, no girlfriend, and it is all organized by the Italians.
When I recite this joke to my new comrades, I get a lot of laughs and knowing nods. Then they give me better versions of Heaven and hell
The stock market as well might have been organized by the Italians last week with the doubling of volatility and extreme moves up and down. Some 500 Dow points suddenly became a round lot, up and down. Tesla down $40? NVIDIA off 25%? Instantly, last month’s heroes became this month’s goats. It was a long time coming.
The Great Rotation, ignited by the July 11 Consumer Price Index shrinkage lives on. We are only two weeks into a reallocation of capital that could go on for months. Tech has nine months of torrid outperformance to take a break from. Interest sensitives have years of underperformance to catch up on.
Using a fund manager’s parlance, markets are simply moving from Tech to interest sensitives, growth to value, expensive to cheap, and from overbought to ignored.
A great “tell” of future share price performance is how they deliver in down markets. Last week, the Magnificent Seven (TSLA), (NVDA), got pummeled on the bad days. Interest sensitives like my (CCI), (IBKR), industrials (DE), (CAT), (BRK/B), precious metals (GLD), (SLV), and Housing (DHI) barely moved or rose.
Sector timing is everything in the stock market and those who followed me into these positions were richly rewarded. My performance hit a new all-time high every day last week.
Only the industrial metals have not been reading from the same sheet of music. Copper, (FCX), (COPX), Iron Ore (BHP), Platinum (PPLT), Silver (SLV), uranium (CCJ), and Palladium (PALL) have all suffered poor months.
You can blame China, which has yet to restart its sagging economy. I blame that on 40 years of the Middle Kingdom’s one-child policy, which is only now yielding its bitter fruit. That means 40 years of missing Chinese consumers, which started hitting the economy five years ago.
And who knows how many people they lost during the pandemic (the Chinese vaccine, Sinovac, was found to be only 30% effective). This is not a short-term fix. You can’t suddenly change the number of people born 40 years ago.
I warned Beijing 50 years ago that the one-child policy would end in disaster. You can’t beat the math. The leadership back then only saw the alternative, a Chinese population today of 1.8 billion instead of the 1.4 billion we have. But they ignored my advice.
It is the story of my life.
Eventually, US and European growth will make up for the lost Chinese demand, but that may take a while. Avoid all Chinese plays like a bad dish of egg foo young. They’re never going back to the 13% growth of the 2000’s.
So far in July, we are up a stratospheric +11.82%. My 2024 year-to-date performance is at +31.84%. The S&P 500 (SPY) is up +14.05% so far in 2024. My trailing one-year return reached +xx.
That brings my 16-year total return to +xx. My average annualized return has recovered to +708.47.
I used the market collapse to take a profit in my shorts in (NVDA) and (TSLA). Then on the first rally in these names, I slapped new shorts right back on. I used monster rallies to take profits in (JPM) and (CCI). I added new longs in interest sensitives like (CAT), (DHI), and (SLV). This is in addition to existing longs in (GLD), (BRK/B), and (DE), which I will likely run into the August 16 option expiration.
That will take my year-to-date performance up to an eye-popping 43.77% by mid-August.
Some 63 of my 70 round trips were profitable in 2023. Some 45 of 53 trades have been profitable so far in 2024, and several of those losses were break-even. That is a success rate of 84.91%.
Try beating that anywhere.
One of the great joys of hiking around Zermatt is that you meet happy people from all over the world. The other morning, I was walking up to Mount Gornergrat when I ran into two elementary school teachers from Nagoya, Japan. After recovering from the shock that I spoke Japanese I told them a story about when I first arrived in Japan in 1974.
Toyota Motors (TM) hired me to teach English to a group of future American branch sales managers. A Toyota Century limo picked me up at the Nagoya train station and drove me up to a training facility in the mountains. As we approached the building, I witnessed 20 or so men in dark suits, white shirts, and thin ties lined up. One by one they took a baseball bat and savagely beat a dummy that lay prostrate on the grass before them.
I asked the driver what the heck they were doing. He answered that they were beating the competition. A decade later, Japan had seized 44% of the US car market, with Toyota taking the largest share.
I like to think that a superior product did that and not my language instruction abilities.
US Q2 GDP Pops, up 2.8% versus 2.1% expected. The US still has the strongest major economy in the world. Consumer spending helped propel the growth number higher, as did contributions from private inventory investment and nonresidential fixed investment. Goldilocks Lives!
Personal Consumption Expenditure Drops, a key inflation indication for the Fed, up only 0.1%in June and 2.5% YOY. Core inflation, which excludes food and energy, showed a monthly increase of 0.2% and 2.6% on the year, both also in line with expectations. Personal income rose just 0.2%, below the 0.4% estimate. Spending increased 0.3%, meeting the forecast, while the personal savings rate decreased to 3.4%.
Leveraged NVIDIA Bets Cause Market Turmoil. Great when (NVDA) is rocketing, not so much when it is crashing, with (NVDA) plunging 25.7% in a month. (NVDA) is now the largest holding in 500 traded ETF’s. I already made a nice chunk of money on an (NVDA) and will go back for another bight on the smallest rally.
The US Treasury Knocks Out a Blockbuster Auction, shifting $180 Billion worth of 7 ear paper, taking yields down 5 basis points. Foreign demand was huge. Bonds are trading like interest rates are going to be cut. Stock rallied an impressive 800 points the next day.
Durable Goods Get Slammed, down 6.6% versus an expected +0.6% in June. More juice for the interest rate cut camp.
Tesla Bombs, with big earnings and sales disappointments, taking the stock down 15%. Thank goodness we were short going into this. The EV maker put off its Mexico factory until after the November election. Adjusted earnings fell to 52 cents per share in the three months ended in June, missing estimates for the fourth consecutive quarter. Tesla will now unveil robotaxis on Oct. 10, and the cars shown will only be prototypes. Cover your Tesla Shorts near max profit.
Home Sales Dive, in June, off 5.4%. Inventory jumped 23.4% from a year ago to 1.32 million units at the end of June, coming off record lows but still just a 4.1-month supply. The median price of an existing home sold in June was $426,900, an increase of 4.1% year over year.
Oil Glut to continue into 2025, thanks to massive tax subsidies creating overproduction. Morgan Stanley said it expects OPEC and non-OPEC supply to grow by about 2.5 million barrels per day next year, well ahead of demand growth. Refinery runs are set to reach a peak in August this year, and unlikely to return to that level until July 2025, it said. Avoid all energy plays until they bottom.
Homebuilders Catch on Fire, with the prospect of falling interest rates. The US has a structural shortage of 10 million homes with 5 million Millennial buyers. Homebuilders have been underbuilding since the 2008 Great Financial Crisis, seeking to emphasize profits and share buybacks over to development land purchases. Buy (DHI), (LEN), (PMH), (KBH) on dips.
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 600% 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, July 29 at 9:30 AM EST, the Dallas Fed Manufacturing Index is out.
On Tuesday, July 30 at 9:30 AM, the JOLTS Job Openings Report is published. The Federal Reserve Open Market Committee (FOMC) meeting begins
On Wednesday, July 31 at 2:00 PM, Jay Powell announced the Fed’s interest rate decision.
On Thursday, August 1 at 8:30 AM, the Weekly Jobless Claims are announced.
On Friday, August 2 at 8:30 AM, the July Nonfarm Payroll Report is released. At 2:00 PM, the Baker Hughes Rig Count is printed.
As for me, I am reminded as to why you never want to fly with Major John Thomas
When you make millions of dollars for your clients, you get a lot of pretty interesting invitations. $5,000 cases of wine, lunches on superyachts, free tickets to the Olympics, and dates with movie stars (Hi, Cybil!).
So it was in that spirit that I made my way down to the beachside community of Oxnard, California just north of famed Malibu to meet long-term Mad Hedge follower, Richard Zeiler.
Richard is a man after my own heart, plowing his investment profits into vintage aircraft, specifically a 1929 Travel Air D-4-D.
At the height of the Roaring Twenties (which by the way we are now repeating), flappers danced the night away doing the Charleston and the bathtub gin flowed like water. Anything was possible, and the stock market soared.
In 1925, Clyde Cessna, Lloyd Strearman, and Walter Beech got together and founded the Travel Air Manufacturing Company in Wichita, Kansas. Their first order was to build ten biplanes to carry the US mail for $125,000.
The plane proved hugely successful, and Travel Air eventually manufactured 1,800 planes, making it the first large-scale general aviation plane built in the US. Then, in 1929, the stock market crashed, the Great Depression ensued, aircraft orders collapsed, and Travel Air disappeared in the waves of mergers and bankruptcies that followed.
A decade later, WWII broke out and Wichita produced the tens of thousands of the small planes used to train the pilots who won the war. They flew B-17 and B-25 bombers and P51 Mustangs, all of which I’ve flown myself. The name Travel Air was consigned to the history books.
Enter my friend Richard Zeiler. Richard started flying support missions during the Vietnam War and retired 20 years later as an Army Lieutenant Colonel. A successful investor, he was able to pursue his first love, restoring vintage aircraft.
Starting with a broken down 1929 Travel Air D4D wreck, he spent years begging, borrowing, and trading parts he found on the Internet and at air shows. Eventually, he bought 20 Travel Air airframes just to make one whole airplane, including the one used in the 1930 Academy Award-winning WWI movie “Hells Angels.”
By 2018, he returned it to pristine flying condition. The modernized plane has a 300 hp engine, carries 62 gallons of fuel, and can fly 550 miles in five hours, which is far longer than my own bladder range.
Richard then spent years attending air shows, producing movies, and even scattering the ashes of loved ones over the Pacific Ocean. He also made the 50-hour round trip to the annual air show in Oshkosh, Wisconsin. I have volunteered to copilot on a future trip.
Richard now claims over 5,000 hours flying tailwheel aircraft, probably more than anyone else in the world. Believe it or not, I am also one of the few living tailwheel-qualified pilots in the country left. Yes, antiques are flying antiques!
As for me, my flying career also goes back to the Vietnam era as well. As a war correspondent in Laos and Cambodia, I used to hold Swiss-made Pilatus Porter airplanes straight and level while my Air America pilot friend was looking for drop zones on the map, dodging bullets all the way.
I later obtained a proper British commercial pilot license over the bucolic English countryside, trained by a retired Battle of Britain Spitfire pilot. His favorite trick was to turn off the fuel and tell me that a German Messerschmidt had just shot out my engine and that I had to land immediately. He only turned the gas back on at 200 feet when my approach looked good. We did this more than 200 times.
By the time I moved back to the States and converted to a US commercial license, the FAA examiner was amazed at how well I could do emergency landings. Later, I added additional licenses for instrument flying, night flying, and aerobatics.
Thanks to the largesse of Morgan Stanley during the 1980’s, I had my own private twin-engine Cessna 421 in Europe for ten years at their expense where I clocked another 2,000 hours of flying time. That job had me landing on private golf courses so I could sell stocks to the Arab Prince owners. By 1990, I knew every landing strip in Europe and the Persian Gulf like the back of my hand.
So, when the first Gulf War broke out the following year, the US Marine Corps came calling at my London home. They asked if I wanted to serve my country and I answered, “Hell, yes!” So, they drafted me as a combat pilot to fly support missions in Saudi Arabia.
I only got shot down once and escaped with a crushed L5 disk. It turns out that I crash better than anyone else I know. That’s important because they don’t let you practice crashing in flight school. It’s too expensive.
My last few flying years have been more sedentary, flying as a volunteer spotter pilot in a Cessna-172 for Cal Fire during the state’s runaway wildfires. As long as you stay upwind there’s no smoke. The problem is that these days, there is almost nowhere in California that isn’t smokey. By the way, there are 2,000 other pilots on the volunteer list.
Eventually, I flew over 50 prewar and vintage aircraft, everything from a 1932 De Havilland Tiger Moth to a Russian MiG 29 fighter.
It was a clear, balmy day when I was escorted to the Travel Air’s hanger at Oxnard Airport. I carefully prechecked the aircraft and rotated the prop to circulate oil through the engine before firing it up. That reduced the wear and tear on the moving parts.
As they teach you in flight school, it is better to be on the ground wishing you could fly than being in the air wishing you were on the ground!
I donned my leather flying helmet, plugged in my headphones, received a clearance from the tower, and was good to go. I put on max power and was airborne in less than 100 yards. How do you tell if a pilot is happy? He has engine oil all over his teeth. After all, these are open-cockpit planes.
I made for the Malibu coast and thought it would be fun to buzz the local surfers at wave top level. I got a lot of cheers in return from my fellow thrill seekers.
After a half hour of low flying over elegant sailboats and looking for whales, I flew over the cornfields and flower farms of remote Ventura County and returned to Oxnard. I haven’t flown in a biplane in a while and that second wing really put up some drag. So, I had to give a burst of power on short finals to make the numbers. A taxi back to the hangar and my work there was done.
There are old pilots and there are bold pilots, but there are no old, bold pilots. I can attest to that.
Richard’s goal is to establish a new Southern California aviation museum at Oxnard airport. He created a non-profit 501 (3)(c), the Travel Air Aircraft Company, Inc. to achieve that goal, which has a very responsible and well-known board of directors. He has already assembled three other 1929 and 1930 Travel Air biplanes as part of the display.
The museum’s goal is to provide education, job training, restoration, maintenance, sightseeing rides, film production, and special events. All donations are tax-deductible. To make a donation please email the president of the museum, my friend Richard Conrad at
rconrad6110@gmail.com
Who knows, you might even get a ride in a nearly 100-year-old aircraft as part of a donation.
To watch the video of my joyride please click here.
Good Luck and Good Trading
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Where I Go My Kids Go
