(TSLA) Archives

The Market Outlook for the Week Ahead, or Complacence is Running Rampant 

We are now nearly three months into an almost straight-up move in the stock market, and money managers everywhere are scratching their heads. We are now only 136 points or 2.32% from my yearend (SPX) target of 6,000, which is starting to look pretty conservative. The price-earnings multiple for the S&P 500 is now 21X, the Magnificent Seven 28X, and NVIDIA 65X.

I’ve seen all this before.

We are about as close to a perfect Goldilocks scenario as we can get. Interest rates and inflation are falling. A 3% GDP growth rate means the US has the strongest major economy and is the envy of the world. We have entered the euphoria stage of the current market move in almost all asset glasses. Gold (GLD) has gone up almost every day. Some big tech remains on fire. Energy prices are in free fall. Even bonds (TLT) are trying to put in a bottom.

Complacence is running rampant.

So, how the heck do we trade a market like this? You play the laggard trade.

The biggest risk to the gold trade is that it has gone up 40% in a year. So, what do you do? The response by traders has been to move into lagging silver (SLV) (AGQ), which has been on a tear since September.

Had enough with the Mag Seven? Then, rotate in the sub $1 trillion part of the market with Broadcom (AVGO), ASML Holdings NV (ASML), Micron Technology (MU), and Lam Research (LRCX).

Tired of watching your DH Horton (DHI) go up every day? Then, flip into smaller homebuilders like Pulte Homes (PHM) and Lennar (LEN).

And then there is the biggest laggard of all, the nuclear trade, which is just crawling out of a 40-year penalty box. With news that Amazon (AMZN) was planning to order up to eight Small Modular Reactors to power its AI efforts, all uranium plays continue to go ballistic. The proliferation of power-hungry data centers is driving the greatest growth of power needs since WWII and the Manhattan Project.

Fortunately, I got in early. This is a trend that could become the next NVIDIA, as the public stocks involved are coming off such a low base. I have personally interviewed the founders and examined Nuscale’s plans with a fine tooth come and consider them genius. The company is, far and away, the overwhelming leader in the sector. The puzzle for the pros who understand the technology is why it took so long. Buy (CCJ), (VST), (CEG), (BWXT), and (OKLO) on dips.

It's like everything is racing towards a key, even with an unknown outcome. There happens to be a big one coming up: the US presidential elections on November 6.

Speaking of elections, I took the time to participate in the first day of voting in Nevada on Saturday, October 19, at the Incline Village Public Library. I waited in line for two hours in a brisk and breezy 40 degrees. I wore my Marine Corps cap and Ukraine Army ID just to confuse people. Some got so tired of waiting in the cold that they went home, retrieved their mail-in ballots, and returned to the polls to drop them off.

I looked back on the line, and women outnumbered the men by three to one. Where did all these women come from? There used to be such a shortage of women at Lake Tahoe that it was impossible to get a date. Hunting, fishing, long-distance backpacking, and skiing weren’t used to attract such large numbers of the female gender. Maybe now they do? But now they’re driving up in Mercedes AMG’s and Range Rovers.

When I finally arrived at the front of the line, I was asked to sign an agreement with my finger, acknowledging that I knew it was illegal to vote twice. The poll worker noticed my ID. When I explained what it was in the Cyrillic alphabet, she burst into tears, apologized, and said she had goosebumps all over.

It was another blockbuster week, up over 6%. So far in October, we have gained +4.89%. My 2024 year-to-date performance is at +50.13%. The S&P 500 (SPY) is up +22.43% so far in 2024. My trailing one-year return reached a nosebleed +65.90. That brings my 16-year total return to +726.76%. My average annualized return has recovered to +52.56%.

With my Mad Hedge Market Timing Index at the 70 handles for the first time in five months, I am remaining cautious with a 70% cash and 30% long. I look for a small profit in (TSLA) to reduce risk. Two of my positions expired at their maximum profit point for (NEM) and (DHI) on Friday, October 18 options expiration.

Some 63 of my 70 round trips, or 90%, were profitable in 2023. Some 60 of 80 trades have been profitable so far in 2024, and several of those losses were really break-even. Some 16 out of the last 19 trade alerts were profitable. That is a success rate of +75.00%.

Try beating that anywhere.

Risk Adjusted Basis

Current Capital at Risk

Risk On

(TSLA) 11/$165-$175 call spread 10.00%

(JPM) 11/$195-$205 call spread 10.00%

(GLD) 11/230-$235 call spread 10.00%

Risk Off

NO POSITIONS 0.00%

Total Net Position 30.00%

Total Aggregate Position 30.00%

Netflix Soars on Blockbuster Earnings, up 11% at the opening on a 5 million gain in subscribers. The company posted earnings per share of $5.40 for the period ended Sept. 30, higher than the $5.12 LSEG consensus estimate.

Crucially, Netflix saw momentum in its ad-supported membership tier, which surged 35% quarter over quarter. The streaming wars are over, and (NFLX) won. Buy (NFLX) on dips.

Silver is Ready to Break Out to the Upside after a year-long-range trade. The white metal is a predictor of a healthy recovery and a solar rebound. It’s a long overdue catch-up with (GLD). Buy (AGQ) on dips.

Apple China Sales Jump 20% on the new iPhone 16 launch. Both Apple and Huawei's (HWT.UL) latest smartphones went on sale in China on Sept. 20, underscoring intensifying competition in the world's biggest smartphone market, where the U.S. firm has been losing market share in recent quarters to domestic rivals. Buy (AAPL) on dips.

Taiwan Semiconductor Soars on Spectacular Earnings, dragging up the rest of the chip sector with it. The world's largest contract chipmaker raised its expectation for annual revenue growth and said sales from AI chips would account for mid-teen percentage of its full-year revenue. U.S.-listed TSMC shares rose nearly 9%, and if gains hold, the company's market capitalization would cross $1 trillion. Buy (NVDA) on dips.

Weekly Jobless Claims Fall. Initial claims for state unemployment benefits dropped 19,000 last week to a seasonally adjusted 241,000 for the week ended Oct. 12, the Labor Department said on Thursday. Economists polled by Reuters had forecast 260,000 claims for the latest week. Claims jumped to more than a one-year high in the prior week, attributed to Helene, which devastated Florida and large swathes of the U.S. Southeast in late September.

Morgan Stanley Announces Blowout Earnings, fueling a 32% profit jump for the third quarter. Revenue from the trading business rose 13%. That followed gains recorded by its biggest rivals as the market business lifted fortunes across the industry, and a steady rebound in investment banking fees increased dealmaking. The wealth unit generated revenue of $7.27 billion, higher than analysts’ expectations, with $64 billion in net new assets. The unit boosted its pretax margin to 28%, driven by growth in fee-based assets. Buy (MS) on dips.

Global EV Sales Up 30% in September, with the largest gains in China. Gains in the U.S. market have been lagging in anticipation of the Nov. 5 election. Chinese carmakers are seeking to grow their sales in the EU despite import duties of up to 45% and amid cooling global demand for electric cars. Chinese and European automakers were going head-to-head at the Paris Car Show on Monday. Buy (TSLA) on dips.

Dollar Hits Two Month High on rising US interest rates. Ten-year US Treasuries have risen from 3.55% to 4.12% since the September Nonfarm Payroll Report. A string of U.S. data has shown the economy to be resilient and slowing only modestly, while inflation in September rose slightly more than expected, leading traders to trim bets on large rate cuts from the Fed. Buy all foreign currencies on dips (FXA), (FXE), (FXB), (FXY).

S&P 500 Value Gain Hits $50 Trillion, since the 1982 bottom, which I remember well and is up 50X. The index hit a record high Wednesday and is trading Thursday at around 5770, up 21% so far in 2024. The index’s value is up sixfold since it stood at $8 trillion at year-end 2008, near the depth of the bear market during the financial crisis.

JP Morgan Delivers Blowout Earnings. Its stock, trading around $223, was on course for its biggest daily percentage gain in 1-1/2 years.

(JPM)'s investment-banking fees surged 31%, doubling guidance of 15% last month. Equities propelled trading revenue up 8%, exceeding an earlier 2% forecast. These earnings are consistent with the soft-landing narrative of modest U.S. economic growth. Buy (JPM) 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 is 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, October 21 at 8:30 AM EST, nothing of note takes place is out.

On Tuesday, October 22 at 6:00 AM, the Richmond Fed Manufacturing Index is out.

On Wednesday, October 23 at 11:00 AM, the Existing Home Sales is printed.

On Thursday, October 24 at 8:30 AM, the Weekly Jobless Claims are announced. We also get New Homes Sales.

On Friday, October 25 at 8:30 AM, the US Durable Goods Orders are announced. At 2:00 PM, the Baker Hughes Rig Count is printed.

As for me, I am headed out for early voting in Nevada this morning. It’s been a year since I came back from Ukraine badly wounded, so I thought I would recall my recollections from that time.

You know you’re headed into a war zone the moment you board the train in Krakow, Poland. There are only women and children headed for Kiev, plus a few old men like me. Men of military age have been barred from leaving the country since the Russians Invaded. That leaves about 8 million to travel to Ukraine from Western Europe to visit spouses and loved ones.

After a 15-hour train ride, I arrived at Kiev’s magnificent Art Deco station. I was met by my translator and guide, Alicia, who escorted me to the city’s finest hotel, the Premier Palace on T. Shevchenka Blvd. The hotel, built in 1909, is an important historic site as it was where the Czarist general surrendered Kiev to the Bolsheviks in 1919. No one in the hotel could tell me what happened to the general afterward.

Staying in the best hotel in a city run by Oligarchs does have its distractions. Thanks to the war, occupancy was about 10%. That didn’t keep away four heavily armed bodyguards from the lobby 24/7. Breakfast was well populated by foreign arms merchants. And for some reason, there are always a lot of beautiful women hanging around with nothing to do.

The population is definitely getting war-weary. Nightly air raids across the country and constant bombings take their emotional toll. Kiev’s Metro system is the world’s deepest and, at two cents a ride, the cheapest. It’s where the government hid out during the early days of the war. They perform a dual function as bomb shelters when the missile attacks become particularly heavy.

My Look Out Ukraine has duly announced every incoming Russian missile and its targeted neighborhood. The buzzing app kept me awake at night, so I turned it off. Let the missiles land where they may. For this reason, I reserved a south-facing suite and kept the curtains drawn to protect against flying glass.

The sound of the attacks was unmistakable. The anti-aircraft drones started with a pop, pop, pop until they hit a big 1,000-pound incoming Russian cruise missile, then you heard a big kaboom! Disarmed missiles that were duds are placed all over the city and are amply decorated with colorful comments about Putin.

The extent of the Russian scourge has been breathtaking, with an epic resource grab. The most important resource is people to make up for a Russian population growth that has been plunging for the last century. The Russians depopulated their occupied territory, sending adults to Siberia and children to orphanages to turn them into Russians. If this all sounds medieval, it is. Some 19,000 Ukrainian children have gone missing since the war started.

Everyone has their own atrocity story, almost too gruesome to repeat here. Suffice it to say that every Ukrainian knows these stories and will fight to the death to avoid the unthinkable happening to them. There will be no surrender.

It will be a long war.

Touring the children’s hospital in Kiev is one of the toughest jobs I ever undertook. Kids are there shredded by shrapnel, crushed by falling walls, and newly orphaned. I did what I could to deliver advanced technology and $10,000 in cash, but their medical system is so backward, maybe 30 years behind our own, that it couldn’t be employed. Still, the few smiles I was able to inspire made the trip worth it. This is the children’s hospital that was bombed a few months ago.

The hospital is also taking the overflow of patients from the military hospitals. One foreign volunteer from Sweden was severely banged up, a mortar shell landing yards behind him. He had enough shrapnel in him, some 250 pieces, to light up an ultrasound and had already been undergoing operations for months. It was amazing he was still alive.

To get to the heavy fighting, I had to take another train ride a further 15 hours east. You really get a sense of how far Hitler overreached in Russia in WWII. After traveling by train for 30 hours to get to Kherson, Stalingrad, where the German tide was turned, is another 700 miles east!

I shared a cabin with Oleg, a man of about 50 who ran a car rental business in Kiev with 200 vehicles. When the invasion started, he abandoned the business and fled the country with his family because they had three military-aged sons. He now works at a minimum-wage job in Norway and never expects to do better.

What the West doesn’t understand is that Ukraine is not only fighting the Russians but a Great Depression as well. Some tens of thousands of businesses have gone under because people save during war and also because 20% of their customer base has fled.

I visited several villages where the inhabitants had been completely wiped out. Only their pet dogs remained alive, which roved in feral starving packs. For this reason, my major issued me my own AK47. Seeing me heavily armed also gave the peasants a greater sense of security.

It’s been a long time since I’ve held an AK, which is a marvelous weapon. It’s it’s like riding a bicycle. Once you learned, you never forget.

I’ve covered a lot of wars in my lifetime, but this is the first fought by Millennials. They post their kills on their Facebook pages. Every army unit has a GoFundMe account where doners can buy them drones, mine sweepers, and other equipment.

Everyone is on their smartphones all day long, killing time, and units receive orders this way. But go too close to the front, and the Russians will track your signal and call in an artillery strike. The army had to ban new Facebook postings from the front for exactly this reason.

Ukraine has been rightly criticized for rampant corruption, which dates back to the Soviet era. Several ministers were rightly fired for skimming off government arms contracts to deal with this. When I tried to give $10,000 to the Children’s Hospital, they refused to take it. They insisted I send a wire transfer to a dedicated account to create a paper trail and avoid sticky fingers.

I will recall more memories from my war in Ukraine in future letters, but only if I have the heart to do so. They will also be permanently posted on the home page at www.madhedfefundtrader.com under the tab “War Diary”.

Donating $10,000 to the Children’s Hospital

On the Front at Crimea with a Dud Russian Missile

A Gift or Piroshkis from Local Peasants

One of 2,000 Destroyed Russian Tanks

The Battle of Kherson with my Unit

This Blown Bridge Blocked the Russians from Entering Kiev

Good Luck and Good Trading,

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

October 7, 2024

Tech Letter

Mad Hedge Technology Letter
October 7, 2024
Fiat Lux

Featured Trade:

(ROBOTAXI HYPE IS HERE)
(TSLA), (ODFL), (CVLG), (ARCB), (ULH), (SNDR), (WERN)

Robotaxi Hype Is Here

Tech Letter

If trucks drive themselves, what will happen to long-distance drivers?

Self-driving cars and an announcement is here this week.

Musk is set to take center stage in California to host Robotaxi Day. The long-awaited event is meant to offer insight into the electric-vehicle maker's pitch that it is a tech company first and a car company second.

What will become of long-distance drivers?

Actually, self-driving cars should have been part of the street scene for a long time, at least according to X’s CEO Elon Musk's forecasts.

In 2015, the Tesla founder predicted that two years later, fully autonomous cars would be driving around.

Not so fast.

Since then, he has adjusted the forecast year after year. Musk recently said that 2023 will finally be the day, but that came and went.

But it's not just Musk who has butchered it when it comes to self-driving cars. Many car producers have announced autonomous cars every year, and investors are chomping at the bit to find out something meaningful.

Many questions remain unanswered, and I do believe Musk could deliver something underwhelming at robotaxi day. At the end of the day, there is a lot of hype attached to Musk, and every press conference doesn’t deliver.

No wonder because the technical and social challenges involved in getting fully autonomous cars on the road are enormous.

Then there is the legislation of it – can an industry that is tilted towards benefitting Elon Musk really expect any Democratic legislation that is positive?

The consensus is that anything he will try to do will need a Republican president since he has burnt the bridge with the radical left.

What about the technical level?

What happens in unforeseen traffic situations? What if the human has to take the wheel, but his driving skills have long since atrophied? What do autonomous vehicles mean for traffic and urban planning? Who is liable in case of accidents?

Is "platooning" revolutionizing the forwarding business?

In the short term, there are traffic situations that are manageable in their complexity and in which autonomous vehicles could definitely play an important role in the future.

For example, experiments with automated truck convoys have long been carried out on freeways and highways. In this so-called "platooning," several trucks drive behind one another, with only the first vehicle in the column having to be driven by a person.

"Platooning" is intended to save fuel since the vehicles' slipstream can be used more efficiently. But there is also the suspicion that staff could also be saved because fewer long-distance drivers are needed.

In the U.S., the truck driver is the most common occupation in 26 out of 50 US states. There is a 67% chance of it disappearing completely in the next twenty years because artificial intelligent solutions will deliver us a timely way to replace the driver.

The economist John Maynard Keynes predicted in 1930 that by 2030, we would only be working 15 hours a week. In an essay entitled "Economic Possibilities for our Grandchildren, " the Brit didn’t consider that these gains would be pocketed by corporations and not the people.

It’s highly possible that within 10 years, humans won’t be driving groceries or other goods across states, and this function will be replaced by an algorithm. If not that, then products will be platooned to a destination headed by one driver followed by a herd of self-driving trucks behind him or her.

Some of the winners of this A.I. revolution will be public trucking names such as Old Dominion Freight Line (ODFL), Covenant Logistics Group (CVLG), Arcbest (ARCB), Universal Logistics Holdings (ULH), Schneider National (SNDR), Werner Enterprises (WERN).

This week could be a “sell the news” event for Tesla stock.

October 7, 2024

Diary, Newsletter, Summary

Global Market Comments
October 7, 2024
Fiat Lux

Featured Trade:

(MARKET OUTLOOK FOR THE WEEK AHEAD, or GOLDILOCKS ON STEROIDS, plus A KERFFUFLE IN PARIS),
(SPY), (FXI), ($COMPQ), (CCJ), (SLB), (OXY), (TSLA),
(TLT), (DHI), (NEM), (GLD), (TSLA)

The Market Outlook for the Week Ahead, or Goldilocks on Steroids

Diary, Newsletter

The 6,000 targets for the S&P 500 are starting to go mainstream.

That was my forecast on January 1, back when everyone said I was nuts. The inflation rate is 2.2%, GDP growth is 3.0%, and interest rates are falling sharply, on their way to 3.0% by next summer.

Goldilocks is back, but this time she’s on steroids.

Also helping is that we are in the midst of a global interest rate decline. The US, Europe, China, and Australia are all cutting interest rates at the same time. Japan is the sole exception, which is on the verge of raising rates from 0.25%. All of this has a compounding effect on the health of the global economy.

Long-term market veterans like myself are amazed, astounded, and astonished that here we are on October 7, and instead of testing new lows for the year, we are punching through to new all-time highs. It’s proof that if you live long enough, you see everything.

Some five seconds after Jay Powell cut interest rates by a shocking 0.50%, everyone in the world suddenly realized they had way too much cash and not enough stocks. This is the kind of market you get from that realization, one that doesn’t breathe, take a break, have a correction, nor let in outsiders.

Further confusing matters is that we are witnessing the most contentious presidential elections in history. One party is proclaiming how great the US economy is, while the other is claiming it is the worst ever.

Those who believed the former description are having a great year. Those who bought the latter are having an awful one, with many owning no stocks at all. Fortunately, election concerns will disappear in four weeks not to return for four years. This is hugely positive for stocks.

But as all steroid users eventually find out, they cause impotence, sterility, and cancer, so enjoy while it lasts. That may be a mid-2025 or 2026 event.

China (FXI) came back with a vengeance. A 25% rise in a stock market in a week is not to be taken lightly, although a lot of this was short covering. Pouring gasoline on the fire is a government promise to buy $1 billion worth of stocks.

The question bedeviling all investors is whether China is a one-hit wonder or is it reborn again. I know that if this stimulus package doesn’t work, they have the resources to follow up with many more. But there is a bigger problem.

Chinese stock markets have not exactly done well since Xi Jinping came into power in 2013. In fact, they are exactly unchanged. During the same period, the (SPY) was up 308%, and the NASDAQ ($COMPQ) was up 525%. Many investors, like my old friend hedge fund legend Paul Tudor Jones, don’t want to touch China until Xi vacates the scene.

In any case, if you want to play China, the best risk-adjusted plays are not there but here in the US. Any US blue chip oil play (OXY) (SLB) would be a great choice, as China is the world’s largest oil consumer. Oil happens to be the cheapest and worst-performing sector in the stock market. And you don’t have to worry about a CEO getting rolled up in a carpet and disappearing for a few years, as has happened in the Middle Kingdom. At least here, you get all the US investor protections.

We closed out September with a blockbuster +10.28% profit. My 2024 year-to-date performance is at +44.97%. The S&P 500 (SPY) is up +19.92% so far in 2024. My trailing one-year return reached a nosebleed +62.77. That brings my 16-year total return to +721.60. My average annualized return has recovered to +52.32%.

With my Mad Hedge Market Timing Index at the 70 handles for the first time in five months, it was a good week to take profits. I sold longs in (CCJ) and (TSLA) and covered a short in (TLT). I stopped out of my long in (TLT) because of the blowout September Nonfarm Payroll Report on Friday.

This is what we’ve got left:

Risk On

(NEM) 10/$47-$50 call spread 10.00%

(TSLA) 10/$200-$210 call spread 10.00%

(DHI) 10/$165-$175 call spread 10.00%

Risk Off

NO POSITIONS 0.00%

Total Net Position 30.00%

Some 63 of my 70 round trips, or 90%, were profitable in 2023. Some 58 of 77 trades have been profitable so far in 2024, and several of those losses were really break evens. Some 16 out of the last 17 trade alerts were profitable. That is a success rate of +75.32%.

Try beating that anywhere.

September was Great, but October is Looking Tough, right on the doorstep of the November 5 election and the market waiting for another interest rate cut on November 6. I think I’ll run out the positions I have into the October 18 options expirations, then wait for the market to come to me. I am up too much this year to take on needless risk.

Nonfarm Payroll Report Comes in Hot, as US employers added 254,000 jobs in September, topping economists’ estimates. The payroll gain, the biggest advance since March, was led by leisure and health care. The headline Unemployment Rate fell to a three-month low of 4.1%.

Interactive Brokers Starts US Election Forecast Trading on the heels of a federal court ruling in their favor. The following Forecast Contracts on US election results will be available:

*Will Kamala Harris win the US Presidential Election in 2024?

*Will Donald Trump win the US Presidential Election in 2024?

Plus a dozen other election outcomes. The opening bids were 49% for Harris and 50% for Trump.

The port Strike is Settled with a 62% six-year settlement. The bananas were rotting. 54 container ships queued outside ports, risking shortages. The Strike cost the U.S. economy $5 billion/day. Shipping stocks tumble across Asia and Europe. Expect the US to move to full automation, where Europe went 30 years ago.

EC Imposes 45% Tariffs on Chinese EVs in a desperate bid to save the local car industry. The Commission, which oversees the bloc's trade policy, has said it would counter what it sees as unfair Chinese subsidies after a year-long anti-subsidy investigation, but it also said on Friday it would continue talks with Beijing. Expect the same to follow in the US.

A possible compromise could be to set minimum sales prices.

Hedge Funds Stampede into China on news that government agencies promised to pour $1 billion into local stock markets. Chinese equities saw the largest net buying ever from hedge funds last week, marking the most powerful weekly purchase on record, according to Goldman Sachs prime brokerage data.

Weekly Jobless Claims Climb to 225,000, not straying too far from a four-month low touched in the prior week. That is an increase from an upwardly-revised mark of 219,000 last week, data from the Labor Department showed on Thursday. Economists had anticipated 222,000.

Will This Crisis Take Gold to $3,000? Almost certainly, yes, given the way the barbarous relic traded yesterday. Buy all gold (GLD), plays on dips, the metal, ETFs, futures, and miners.

Tesla Bombs, with Q3 deliveries down flat, but the shares fell only 5%. Total deliveries came in at 462,890, while total production was 469,796. YOY Tesla is facing increased competitive pressure, especially in China, from companies like BYD and Geely, along with a new generation of automakers, including Li Auto and Nio.

US Car Makers Get Slaughtered, with Stellantis stock falling by double digits after the Jeep maker cut its 2024 financial guidance, citing deteriorating industry dynamics and Chinese competition. The warning, amid similarly negative news from other car makers, also dragged down shares of (F) and (GM). Avoid the auto industry except for (TSLA).

Nvidia Still has more to Run, so says Samantha McLemore, the founder and Chief Investment Officer of Patient Capital Management. Nvidia has been crushing every quarter for a year. CEOs want to make the decision to invest more [in AI] rather than getting caught behind. She doesn’t see the bull market ending soon. Current operating profit margins are 65%. Buy (NVDA) 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 is 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, October 7 at 8:30 AM EST, Used Car Prices are out

On Tuesday, October 8 at 6:00 AM, the NFIB Business Optimism Index is released.

On Wednesday, October 9 at 11:00 PM, the Fed Minutes from the last meeting is printed.

On Thursday, October 10 at 8:30 AM, the Weekly Jobless Claims are announced. We also get the Consumer Price Index.

On Friday, October 11 at 8:30 AM EST, the Producer Price Index and the University of Michigan Consumer Price Index are announced. At 2:00 PM, the Baker Hughes Rig Count is printed.

As for me, dentists find my mouth fascinating as it is like a tour of the world. I have gold inlays from Japan, cheap ceramic fillings from Britain’s National Health, and loads of American silver amalgam, which are now going out of style because of their mercury content.

But my front teeth are the most interesting as they were knocked out in a riot in Paris in 1968.

France was on fire that year. Riots on the city’s South Bank near Sorbonne University were a daily occurrence. A dozen blue police buses packed with riot police were permanently parked in front of the Notre Dame Cathedral, ready for a rapid response across the river. They did not pull their punches.

President Charles de Gaulle was in hiding at a French air base in Germany. Many compared the chaos to the modern-day equivalent of the French Revolution.

So, of course, I had to go.

This was back when there were five French francs to the US dollar, and you could live on a loaf of bread, a hunk of cheese, and a bottle of wine for a dollar a day. I was 16 years old.

The Paris Metro cost one franc. To save money, I camped out every night in the Parc des Buttes Chaumont, which had nice bridges to sleep under. When it rained, I visited the Louvre, taking advantage of my free student access. I got to know every corner. The French are great at castles….and museums.

To wash, I would jump in the Seine River every once in a while. But in those days, not many people in France took baths anyway.

I joined a massive protest one night, which originally began over the right of men to visit the women’s dorms at night. Then the police attacked. Demonstrators came equipped with crowbars and shovels to dig up heavy cobblestones dating to the 17^th century to throw at the police, who then threw them back.

I got hit squarely in the mouth with an airborne projectile. My front teeth went flying, and I never found them. I managed to get temporary crowns, which lasted me until I got home. I carry a scar across my mouth to this day.

I visited the Left Bank again just before the pandemic hit in 2019. The streets were all paved with asphalt to make the cobblestones underneath inaccessible. I showed my kids the bridges I used to sleep under, but they were unimpressed.

But when I showed them the Mona Lisa at the Louvre, she was as enigmatic as ever. The kids couldn’t understand what the fuss was all about.

Everyone should have at least one Paris in 1968 in their lifetime. I’ve had many and am richer for it.

Stay Healthy,

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

1968 in Paris

2019 in Paris on Top of the Eiffel Tower

October 4, 2024, 2024

Tech Letter

Mad Hedge Technology Letter
October 4, 2024
Fiat Lux

Featured Trade:

(TECH WANTS TO GET RID OF LABOR COSTS)
(TSLA), (NVDA)

Tech Wants To Get Rid Of Labor Costs

Tech Letter

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 just recently, 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 this past summer, 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.

September 30, 2024

Diary, Newsletter, Summary

Global Market Comments
September 30, 2024
Fiat Lux

Featured Trade:

(MARKET OUTLOOK FOR THE WEEK AHEAD, or CHINA IS BACK! plus MY ENCOUNTER WITH ALIENS),
(GLD), (CCJ), (NEM), (TSLA), TLT), (DHI), (FXI), (BIDU), (TNE)
(USO), (BTU), (UNG), (CORN), (WEAT), (SOYB), (LVS), (WYNN) (LVUY) (HESAF)

The Market Outlook for the Week Ahead, or China is Back!

Diary, Newsletter

There are always many unintended consequences to any Fed move, such as the 50-basis point interest rate cut on September 18. This time, a big one is that China would match and then exceed our own central bank’s move with a blockbuster stimulus package of their own. China has finally reached the “whatever it takes” moment, and the programs are squarely aimed at stimulating consumption.

You will hear from the talking heads on TV that the package is inadequate, a weak effort, an hour late, and a Yuan short, and will fail. But China has massive resources and will follow up with a second, larger package if they need to.

For a start, they own $860 billion worth of our US Treasury bonds, more than any foreign country, and unimaginable amounts of rapidly appreciating gold (GLD), which they have been accumulating since it was $1,020 an ounce (it is now $2,600).

China really pulled out all the stops on this one. The People's Bank of China on Wednesday cut its medium-term lending facility -- the interest for one-year loans to financial institutions -- from 2.3% to 2.0%, the lowest since 2020. The rate cuts are going to bring $140 billion in new lending.

They reduced deposits for new investment property purchases to 10% in a move clearly aimed at resuscitating their moribund real estate market. For the first time ever, they are handing out cash payments to poor people. It is the most stimulus since Covid.

China is not to be taken lightly.

Certainly, the stock market is buying it….at least for now. The main China ETF, the (FXI) had its best week in history, up 20%. Most of this was short covering. The short interest in the leading Chinese stocks like Alibaba (BABA), Baidu (BIDU), and Tencent Music Holdings (TNE) was running close to an eye-popping 50%.

So, why bother with a country half the size of our own, where the writing looks like chicken scratching, and the food has way too much MSG? Because the Middle Kingdom is the largest buyer of almost everything, including oil (USO), coal (BTU), natural gas (UNG), corn (CORN), wheat (WEAT), and soybeans (SOYB), most of which is supplied by the United States.

So, have I been burying you with China-oriented trade alerts this week? No, not really. First of all, I never buy on top of a 20% move in five days. It just goes against my bargain-hunting character. More importantly, the best China plays are here in the US. You can start with all of the ticker symbols I listed above.

There are also quite a few indirect China plays available in the West. Notice that the casinos Las Vegas Sands (LVS) and Wynn Resorts (WYNN) are up 20% across the board. The luxury stocks like LVMH Moet Hennessy (LVUY) and Hermes International (HESAF) also saw monster moves.

Dare I say it? Buy China on dips, especially blue-chip names like Alibaba (BABA) and Baidu (BIDU). If this Beijing stimulus fails, they’ll probably follow up with another one.

And what do newly enriched Chinese consumers do? They buy more gold. In fact, the gold story keeps getting better the higher it goes.

Another gold positive is the US National Debt, now at $35 trillion. Whichever candidate wins the presidential election, the national debt will keep rising, either by $500 billion a year or $2.5 trillion. Foreigners seem more worried about our debt than we are and are finding any non-dollar asset more attractive by the day. Gold is at the very top of that list.

It turns out that in a world of falling interest rates, a declining dollar, and fading faith in financial institutions, quite a few Americans like gold as well. Hey, Costco (CSCO) is selling it. How bad can it be?

So far in September, we are up by a spectacular +9.54%. My 2024 year-to-date performance is at +44.23%. The S&P 500 (SPY) is up +20.33% so far in 2024. My trailing one-year return reached +62.87%. That brings my 16-year total return to +720.86%. My average annualized return has recovered to +52.47%.

Last week was mostly about running existing successful long positions. Those would include (CCJ), (NEM), (TLT), (TSLA), and (DHI). I have one short position in (TLT).

I did add a (TLT) call spread, taking advantage of a rapid $4 dip. I also increased my Tesla (TSLA) long to a double, believing that the stock will keep running into the October 10 Robotaxi announcement.

Some 63 of my 75 round trips, or 90%, were profitable in 2023. Some 59 of 77 trades have been profitable so far in 2024, and several of those losses were really break-even. That is a success rate of +76.62%.

Try beating that anywhere.

Are Markets Melting Up? So thinks my friend Ed Yardeni. The latest policy decision lifted the odds of an “outright melt-up” in equity prices — like during the dot-com bubble when the (SPY) roared 220% from 1995 to the end of the century — to 30% from 20%. Another 50-basis point rate cut might do it. One can only hope.

What Happens When Gold Hits $3,000? It then moves on to $4,400 an ounce. Chinese savers will still have nowhere else to go. The real estate market is still dead, Chinese stocks are moribund, and they don’t trust their own currency. Keep buying (GLD), (NEM), and (GOLD) on dips.

The Core Personal Consumption Expenditures Price Index Falls, to a 2.2% annual rate, much lower than expected. The Federal Reserve’s preferred gauge to measure underlying inflation,rose 0.1% for the month, putting the 12-month inflation rate at 2.2%. Excluding food and energy, core PCE rose 0.1% in August and was up 2.7% from a year ago. The all-items inflation gauge was below Wall Street estimates and the lowest since early 2021.

American China Plays Roar, like commodities plays Freeport McMoRan (FCX), the Copper ETF, COPX), Peabody Energy (BTU), and the Platinum ETF. Indirect plays like the casinos Las Vegas Sands (LVS) and Wynn Resorts (WYNN). Dare I say it? Buy China on dips, like Alibaba (BABA) and Baidu (BIDU). If this Beijing stimulus fails, they’ll probably follow up with another one.

Silver is on a Roll, and is finally outperforming gold, as it has historically done. Silver just hit its highest price in more than a decade, and growing demand and falling interest rates mean it could have more room to run.

On Thursday, silver hit $32.43 an ounce, its highest price since 2012. The metal is up 35% so far this year. That beats a 30% rally for gold, which has been trading at all-time highs. Silver is much more sensitive to an industrial recovery than gold. Buy (SLV), (AGQ), (SIL), and (WPM) on dips.

Oil Gets Crushed on Saudi Output Burst. After a brief bounce back last week, it looks like oil is in a bearish pattern now that will be hard to break for the next few months. OPEC and its allies have been holding at least 5 million barrels of daily output off the market to prop prices, but they are expected to start bringing back production soon. Saudi Arabia, the strongest member of OPEC in that it has the most capacity to pump oil, is no longer willing to hold back production to try to push the price up to $100 a barrel.

US GDP Revised up to 5.5% Growth, since the second quarter of 2020, when the pandemic began through 2023. It was spurred mainly by bigger consumer-driven growth fueled by robust incomes. The revised figure is compared with a previously published 5.1% advance. You can’t beat America.

Electrification is the Latest Hot Investment Theme, seeking to cash in on AI demands on the power grid. Issuer Global X last week filed for its U.S. Electrification ETF, which would track an index of conventional companies in the sector, as well as those involved in alternative or cleaner energy sources — such as wind and solar — and grid infrastructure firms. Fund firm Tema also recently submitted paperwork for an ETF that would invest in companies “tied to global electrification.” These funds could become big winners.

US Homes Plunge, down 4.7% in August. Buyers are clearly remaining patient amid steadily declining mortgage rates. New single-family home sales decreased last month to an annualized rate of 716,000 after rising at the fastest pace since early 2022. The median sales price, in the meantime, decreased by 4.6% from a year earlier to $420,600. That marked the seventh straight month of annual price declines, extending what was already the longest streak since 2009

Home Mortgage Rates are in Free Fall, with the 30-year fixed at 6.08% and adjustable well into the fives. Refi activity is also exploding. Expect a real estate boom to ensue.

Can Tesla Reach $300? With (TSLA) possibly looking at a great quarter in China, Wall Street pros are rushing to increase their outlooks for the electric vehicle maker’s quarterly sales. At least four analysts have boosted their estimates for Tesla’s third-quarter delivery numbers, which are due next week. All point to signs that sales are starting to pick up in China, a key area for Tesla and a major market for electric cars globally.

Vistra Tops Nvidia, as the top S&P 500 stock this year. Vistra is a utility company based in Irving, Tex. that just so happens to be the second-largest owner of independent nuclear plants after buying three nuclear plants in Pennsylvania last year, and these days nuclear power is all the rage. Buy (VST) 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, September 30 at 8:30 AM EST, the Chicago PMI is out

On Tuesday, October 1 at 6:00 AM, the JOLTS Job Openings Report is released.

On Wednesday, October 2 at 7:30 PM, ADP Employment Change is printed.

On Thursday, October 3 at 8:30 AM, the Weekly Jobless Claims are announced. We also get the ISM Services PMI.

On Friday, October 4 at 8:30 AM, we get the September Nonfarm Payroll Report. At 2:00 PM, the Baker Hughes Rig Count is printed.

As for me, I am often told that I am the most interesting man people ever met, sometimes daily. I had the good fortune to know someone far more interesting than myself.

When I was 14, I decided to start earning merit badges if I was ever going to become an Eagle Scout. I decided to begin with an easy one, Reading Merit Badge, where you only had to read four books and write one review. I loved reading, so “piece of cake”, I thought.

I was directed to Kent Cullers, a high school kid who had been blind since birth. During the late 1940s, the medical community thought it would be a great idea to give newborns pure oxygen. It was months before it was discovered that the procedure caused the clouding of corneas and total blindness in infants.

Kent was one of these kids.

It turned out that everyone in the troop already had Reading Merit Badge and that Kent had exhausted our supply of readers. Fresh meat was needed.

So, I rode my bicycle over to Kent’s house and started reading. It was all science fiction. America’s Space Program ignited a science fiction boom during the early 1960s and writers like Isaac Asimov, Jules Verne, Arthur C. Clark, and H.G. Wells were in huge demand. Star Trek came out the following year, in 1966. That was the year I became an Eagle Scout.

It only took a week for me to blow through the first four books. In the end, I read hundreds of books to Kent. Kent didn’t just listen to me read. He explained the implications of what I was reading (got to watch out for those non-carbon-based life forms).

Having listened to thousands of books on the subject Kent gave me a first class education and I credit him with moving me towards a career in science. Kent is also the reason why I got an 800 SAT score in Math.

When we got tired of reading, we played around with Kent’s radio. His dad was a physicist and had bought him a state-of-the-art high-powered short-wave radio. I always found Kent’s house from the 50 foot tall radio antenna.

That led to another merit badge, one for Radio, where I had to transmit in Morse Code at five words a minute. Kent could do 50. On the badge below the Morse Code says “BSA.” In those days, when you made a new contact, you traded addresses and sent each other postcards.

Kent had postcards with colorful call signs from more than 100 countries plastered all over his wall. One of our regular correspondents was the president of the Palo Alto High School Radio Club, Steve Wozniak, who later went on to co-found Apple (AAPL) with Steve Jobs.

It was a sad day in 1999 when the US Navy retired the Morse Code and replaced it with satellites and digital communication far faster than any human could send. However, it is still used as beacon identifiers at US airfields.

Kent’s great ambition was to become an astronomer. I asked how he would become an astronomer when he couldn’t see anything. He responded that Galileo, the inventor of the telescope, was blind in his later years.

I replied, “Good point”.

Kent went on to get a PhD in Physics from UC Berkeley, no mean accomplishment even for sighted people. He lobbied heavily for the creation of SETI, or the Search for Extra-Terrestrial Intelligence, once an arm of NASA. He became its first director in 1985 and worked there for 20 years.

In the 1987 movie Contact written by Carl Sagan and starring Jodie Foster, the movie was filmed at the Very Large Array in western New Mexico. The algorithms Kent developed there are still in widespread use today. I’ve never been there because I never had the time to drive an hour and a half down a dirt road.

Out here in the West, aliens have been a big deal, ever since that weather balloon crashed in Roswell, New Mexico in 1947. In fact, it was a spy balloon meant to overfly and photograph Russia, but it blew back on the US, thus its top secret status.

When people learn I used to work at Area 51, I am constantly asked if I have seen any spaceships. The road there, Nevada State Route 375, is called the Extra Terrestrial Highway. Who says we don’t have a sense of humor in Nevada?

After devoting his entire life to searching, Kent gave me the inside story on searching for aliens. We will never meet them but we will talk to them. That’s because the acceleration needed to get to a high enough speed to reach outer space would tear apart a human body. On the other hand, radio waves travel effortlessly at the speed of light.

Sadly, Kent passed away in 2021 at the age of 72. Kent, ever the optimist, had his body cryogenically frozen in Hawaii where he will remain until the technology evolves to wake him up. Minor planet 35056 Cullers is named in his honor.

There are no movies being made about my life…. yet. But there are a couple of scripts out there under development.

Watch this space.

Dr. Kent Cullers

New Mexico Very Large Array

Reading Merit Badge

Radio Merit Badge

Stay Healthy,

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

September 27, 2024

Diary, Newsletter, Summary

Global Market Comments
September 27, 2024
Fiat Lux

Featured Trade:

(THE MAD HEDGE SEPTEMBER 17-19 SUMMIT REPLAYS ARE UP),
(SEPTEMBER 25 BIWEEKLY STRATEGY WEBINAR Q&A),
(TSLA), (NVDA), (GLD), (SLV), (AGQ), (URA), (X), (PGE), (FDX), (V), (CEG), (NEE), (CCJ), (FSLR), (TLT), (WMT), (FCX), (UBER), (LYFT), (FXB), (T)

Tag Archive for: (TSLA)