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October 18 Biweekly Strategy Webinar Q&A

Below please find subscribers’ Q&A for the October 18 Mad Hedge Fund Trader Global Strategy Webinar, broadcast from London England.

Q: Is Nvidia (NVDA) a buy at the current price?

A: Absolutely, if your view is more than, say, a month. This stock will easily be $1,000 in the next year or two. They have such a huge moat on their business, and the high-end chips that are banned in China are only a tiny fraction of their overall business—they’re still allowed to sell small and medium-sized chips.

Q: Where do you see bond yields peaking out?

A: My pet target is 5.2% on a spike. We may get there in a few weeks or months. The position we have breaks even at 5.15% in 21 trading days. So any kind of rally on that position becomes profitable—even a one-day rally.

Q: Are you hitting Israel next?

A: No, I covered the Middle Eastern wars for 10 years starting with the ‘73 Yom Kippur wars, and I got sick of it. They’re using the same arguments to justify their positions that they were 50 years ago. In fact, the disputes have been going on for hundreds of years. So, I moved on to other more interesting wars like Ukraine. There are plenty of newbies cutting their teeth as war correspondents in Gaza now—I'll leave it to them.

Q: Are the results for all of the newsletters or just for one?

A: Those alerts that I send out personally are the results for the Mad Hedge Global Trading Dispatch. All of the other services (we have six now) have their own trade histories which we don’t publish, as it’s too much of an account job effort to update six independent track records. People know whether they’re making money or not—that's good enough for me. That’s how we’re set up; we’re a staff-light operation so that we can keep the prices low.

Q: What do you expect for Tesla (TSLA) earnings today?

A: I never make same-day earnings calls, but I would expect they’d be good. They would be less than they were in the past because the price wars are cutting into margins, but they’re gaining market shares at everybody else’s expense, which makes (TSLA) a “BUY”. In fact, if you look at the charts, it seems to be moving sideways into an upside breakout.

Q: Is it too late to buy military?

A: No, I’d be buying any of the big military stocks like Lockheed Martin (LMT), because the increase in demand for weapons is not a short-term thing—it is a more or less permanent thing which will go out decades. Also, they all already have massive government contracts to rebuild our own weapons. Most people don't realize that almost every weapons system in the United States is more than 50 years old. The reason is we quit investing in conventional weapons because we all thought the next war would be cyber. Well, Russia got absolutely nowhere on cyber—they made a few weak attempts to shut down Ukraine and couldn't even break into Elon Musk’s Skylink system, which all of Ukraine is running on.

Q: Why is Morgan Stanley (MS) doing so poorly?

A: All the financials are getting hit because of the collapsing bond market. Once the bond market finds a bottom you want to be buying financials with both hands.

Q: When the market recovers, which sector will lead?

A: Technology. The Magnificent Seven will lead. There’s safety in size. Google/Alphabet (GOOG), Nvidia (NVDA), Tesla (TSLA), Microsoft (MSFT), Amazon (AMZN), Apple (APPL), Facebook/Meta (META). They’re already leading now, so if you have those positions, I’d keep them. If you don’t, you should start picking them up.

Q: Is Rivian (RIVN) a buy at this level?

A: Absolutely. Amazon, which owns 25% of the company, just hit 10,000 Rivian delivery vans. I’ve seen them in California, they’re completely silent—very interesting cars. It’s just a question of how quickly they can produce them.

Q: Why is there a market drop today?

A: It’s the bond market. The first thing you look at every day is the bond market—if it's doing crappy, everything sells off.

Q: Do you still suggest 90-day T-bills at this point?

A: We may end up getting a stock buying opportunity into the year-end. Even if we have to wait for a yearend rally, you get paid every day for 90-day T-bills, and you can sell them at any time and get interest up to the day you sell them because they’re discount bonds that appreciate every day to reflect the yield. It’s a great way to park money, and most brokers will let you buy stocks against your 90-day T-bill position. So say you want to go fully invested in stocks—you could do that while selling your 90-day T-bills the same day. Most brokers will let you do that, worst case charging you one day of margin.

Q: Do you think China is using the Hamas attack on Israel to distract the US?

A: No, China wouldn’t want to get involved in this. Iran has its fingerprints all over it. Iran supplied all the missiles used to attack Israel, and if the Israelis turn around and attack Iran by destroying all of their nuclear and missile-making facilities, I would not be surprised one bit. That may be what Biden is really doing over there—trying to convince the Israelis not to escalate the war.

Q: What are the chances of a US default on November 17 (TLT)?

A: So far on all of these government shutdowns, the US Treasury has been able to come up with magic tricks to keep from defaulting; but if the default is long enough, even they will have to stop paying interest to bondholders, which will increase the debt burden of the US government because a lower credit rating will cause it to pay higher interest rates. Why people think this is a great strategy is beyond me.

Q: Gasoline is down and oil is up—what’s going on?

A: That’s usually driven by the crack spread—the availability of gasoline from refineries in the US, so I wouldn’t use that as any kind of indicator.

Q: Do you think China (FXI) is shifting priorities away from economic growth to military strength?

A: No I don’t, they would love to have economic growth if they could, and in fact, their central bank has been stimulating their economy, and it's working; that’s how this morning’s report got back up to 5%. At the end of the day, they just want peace. All this military stuff—they’re just bluffing and posturing, which is really all they’ve ever done, at least since the Korean War. They weren’t even big participants in the Vietnam War, so China doesn’t worry me at all; there are bigger things to worry about. But they definitely have hit a wall in economic growth, and a big part of that is Covid, and a big part of that is a shrinking population—a shortage of workers, and a shortage of workers who can support older parents.

Q: Will there be an oil embargo against Israel? The US and Europe by OPEC countries?

A: No. The Middle Eastern governments know what's really going on here, even though what they may say in public is completely different. The fact is that Hamas started this war, and none of these other countries want Hamas in their countries because they know that the first thing they'll do is overthrow the local government. Effectively, Hamas doesn’t exist anymore either—they've really all been killed, so you just have to give some time for things to cool down out there, and of course, the US is working overtime to keep the situation from escalating, but we can only try—we can’t enforce this thing. One question I've been getting from a lot of people lately is: will the US send troops to Israel or to Gaza? The answer is no—we were in Iraq and Afghanistan for 20 years! We’re in no hurry to get back into a new war, especially a new 20-year war, and that would not be in our own interest. By the way, Israel can amply defend itself; they have the best military in the Middle East by far, largely supported by the United States. For me, the big mystery is how intelligence in Israel missed this attack. They were just completely asleep at the switch, and some day in the future there will be an investigation about this, but don’t expect it from the current government.

Q: Why won’t Egypt and Jordan take the Palestinian refugees?

A: They are both poor countries. Neither of them is oil-rich, and Egypt especially has a horrendous population problem—they are in fact the world's second largest food importer after China. They have 110 million people to feed and not enough production locally to do that, so it isn’t easy to take in 2 million Palestinians. If you don't believe me, go to Cairo—it's just incredibly crowded. With a population of 10 million you can't go anywhere, so where are they going to put 2 million more people? So this is a difficult problem, there's no easy fix depending on what side you’re on.

To watch a replay of this webinar with all the charts, bells, whistles, and classic rock music, just log in to www.madhedgefundtrader.com, go to MY ACCOUNT, select your subscription (GLOBAL TRADING DISPATCH, TECHNOLOGY LETTER, or Jacquie's Post), then click on 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

2021 Mount Rose Summit Nevada

October 10, 2023

Diary, Newsletter, Summary

Global Market Comments
October 10, 2023
Fiat Lux

Featured Trade:

(FRIDAY, OCTOBER 13 KIEV, UKRAINE GLOBAL STRATEGY LUNCHEON)
(WILL SPACEX BE YOUR NEXT TEN BAGGER?)
(EBAY), (TSLA), (SCTY), (BA), (LMT)

Will SpaceX Be Your Next Ten Bagger?

Diary, Newsletter, Research

I am constantly on the lookout for ten baggers, stocks that have the potential to rise tenfold over the long term.

Look at the great long-term track records compiled by the most outstanding money managers, and they always have a handful of these that account for the bulk of their outperformance, or alpha, as it is known in the industry.

I’ve found another live one for you.

News came out last week that Elon Musk’s SpaceX has just landed a $70 million contract with the Department of Defense for the creation of its military Star Shield satellite network.

Elon Musk’s SpaceX is so forcefully pushing forward rocket technology that he is setting up one of the great investment opportunities of the century.

In the past decade, his start-up has accomplished more breakthroughs in advanced rocket technology than seen in the last 60 years, since the golden age of the Apollo space program.

As a result, we are now on the threshold of another great leap forward into space. Musk’s ultimate goal is to make mankind an “interplanetary species.”

There is only one catch.

SpaceX is not yet a public company, being owned by a handful of fortunate insiders and venture capital firms. But you should get a shot at the brass ring someday.

The rocket launch and satellite industry is the biggest business you have never heard of, accounting for $200 billion a year in sales globally. This is probably because there are no pure stock market plays.

Only two major companies are public, Boeing (BA) and Lockheed Martin (LMT), and their rocket businesses are overwhelmed by other aerospace lines.

The high value-added product here is satellite design and construction, with rocket launches completing the job.

Once dominated by the US, the market for launches has long since been ceded to foreign competitors. The business is now captured by Europe (the Arianne 5), and China (the Long March 5). Space business for Russia and its Angara A5 rocket abruptly ended with its invasion of Ukraine.

Until recently, American rocket makers were unable to compete because decades of generous government contracts enabled costs to spiral wildly out of control.

Whenever I move from the private to the governmental sphere, I am always horrified by the gross indifference to costs. This is the world of the $10,000 coffee maker and the $20,000 toilet seat.

Until 2010, there was only a single US company building rockets, the United Launch Alliance (ULA), a joint venture of Boeing and Lockheed Martin. ULA builds the aging Delta IV and Atlas V rockets.

The vehicles are launched from Cape Canaveral, Florida and Vandenberg Air Force Base in California, both of which I had the privilege to witness. They look like huge Roman candles that just keep on going until they disappear into the blackness of space.

Enter SpaceX.

Extreme entrepreneur Elon Musk has shown a keen interest in space travel throughout his life. The sale of his interest in PayPal, his invention, to eBay (EBAY) in 2002 for $165 million, gave him the means to do something about it.

He then discovered Tom Mueller, a childhood rocket genius from remote Idaho who built the largest ever amateur liquid-fueled vehicle, with 13,000 pounds of thrust. Musk teamed up with Mueller to found SpaceX in 2002.

Two decades of grinding hard work, bold experimentation, and heart-rending testing ensued, made vastly more difficult by the 2008 Great Recession.

SpaceX’s Falcon 9 first flew in June 2010 and successfully orbited Earth. In December 2010, it launched the Dragon space capsule and recovered it at sea. It was the first private company ever to accomplish this feat.

Dragon successfully docked with the International Space Station (ISS) in May 2012. NASA has since provided $440 million to SpaceX for further Dragon development.

The result was the launch of the Dragon V2 (no doubt another historical reference) in May 2014, large enough to carry seven astronauts.

The largest SpaceX rocket now in testing has Mars capability, the 27-engine, 394-foot-high Starship, the largest rocket ever built.

Commit all these names to memory. You are going to hear a lot about them.

Musk’s spectacular success with SpaceX can be traced to several different innovations.

He has taken the Silicon Valley hyper-competitive ethos and financial model and applied it to the aerospace industry, the home of the bloated bureaucracy, the no-bid contract, and the agonizingly long time frame.

For example, his initial avionics budget for the early Falcon 1 rocket was $10,000 and was spent on off-the-shelf consumer electronics. It turns out that their quality had improved so much in recent years they met military standards.

But no one ever bothered to test them. $10,000 wouldn’t have covered the food at the design meetings at Boeing or Lockheed Martin, which would have stretched over the years.

Similarly, Musk sent out the specs for a third-party valve actuator no more complicated than a garage door opener, and a $120,000, one-year bid came back. He ended up building it in-house for $3,000. Musk now tries to build as many parts in-house as possible, giving it additional design and competitive advantages.

This tightwad, full speed ahead and damn the torpedoes philosophy overrides every part that goes into SpaceX rockets.

Amazingly, the company is using 3D printers to make rocket parts, instead of having each one custom-made.

Machines guided by computers carve rocket engines out of a single block of Inconel nickel-chromium super alloy, foregoing the need for conventional welding, a frequent cause of engine failures.

SpaceX is using every launch to simultaneously test dozens of new parts on every flight, a huge cost saver that involves extra risks that NASA would never take. It also uses parts that are interchangeable for all its rocket types, another substantial cost saver.

SpaceX has effectively combined three nine-engine Falcon 9 rockets to create the 27-engine Falcon Heavy, the world’s largest operational rocket. It has a load capacity of a staggering 53 metric tons, the same as a fully loaded Boeing 737 can carry. It has half the thrust of the gargantuan Saturn V moon rocket that last flew in 1973.

Musk is able to capture synergies among his three companies not available to any competitor. SpaceX gets the manufacturing efficiencies of a mass-production carmaker.

Tesla Motors has access to the futuristic space-age technology of a rocket maker. Solar City (SCTY) provides cheap solar energy to all of the above.

And herein lies the play.

As a result of all these efforts, SpaceX today can deliver what ULA does for 73% less money with vastly superior technology and capability. Specifically, its Falcon Heavy can deliver a 116,600-pound payload into low earth orbit for only $90 million, compared to the $380 million price tag for a ULA Delta IV 57, 156-pound launch.

In other words, SpaceX can deliver cargo to space for $772 a pound, compared to the $7,515 a pound UAL charges the US government. That’s a hell of a price advantage.

You would wonder when the free enterprise system is going to kick in and why SpaceX doesn’t already own this market.

But selling rockets is not the same as shifting iPhones, laptops, watches, or cars. There is a large overlap with the national defense of every country involved.

Many of the satellite launches are military in nature and top secret. As the cargoes are so valuable, costing tens of millions of dollars each, reliability and long track records are big issues.

Enter the wonderful world of Washington DC politics. UAL constructs its Delta IV rocket in Decatur, Alabama, the home state of Senator Richard Shelby, the powerful head of the Banking, Finance, and Urban Affairs Committee.

The first Delta rocket was launched in 1960, and much of its original ancient designs persist in the modern variants. It is a major job creator in the state.

ULA has no rocket engine of its own. So it bought engines from Russia, complete with blueprints, hardly a reliable supplier. Magically, the engines have so far been exempted from the economic and trade sanctions enforced by the US against Russia for its invasion of Ukraine.

ULA has since signed a contract with Amazon’s Jeff Bezos-owned Blue Origin, which is also attempting to develop a private rocket business but is miles behind SpaceX.

Musk testified in front of Congress in 2014 about the viability of SpaceX rockets as a financially attractive, cost-saving option. His goal is to break the ULA monopoly and get the US government to buy American. You wouldn’t think this is such a tough job, but it is.

Elon became a US citizen in 2002 primarily to qualify for bidding on government rocket contracts, addressing national security concerns.

NASA did hold open bidding to build a space capsule to ferry astronauts to the International Space Station. Boeing won a $4.2 billion contract, while SpaceX received only $2.6 billion, despite superior technology and a lower price.

It is all part of a 50-year plan that Musk confidently outlined to me 25 years ago. So far, everything has played out as predicted.

The Holy Grail for the space industry has long been the building of reusable rockets, thought by many industry veterans to be impossible.

Imagine what the economics of the airline business would be if you threw away the airplane after every flight. It would cost $1 million for one person to fly from San Francisco to Los Angeles.

This is how the launch business has been conducted since the inception of the industry in the 1950s.

SpaceX is on the verge of accomplishing exactly that. It will do so by using its Super Draco engines and thrusters to land rockets at a platform at sea. Then you just reload the propellant and relaunch.

What's coming down the line? A SpaceX cargo business where you can ship high value products like semiconductors from Silicon Value to Australia in 30 minutes, or to Europe in 20 minutes.

Talk about disruptive innovation with a turbocharger!

The company has built its own spaceport in Brownsville, Texas that will be able to launch multiple rockets a day.

The Hawthorne, CA factory (where I charge my own Tesla S-1 when in LA) now has the capacity to build 160 rockets a year. This will eventually be ramped up to hundreds.

SpaceX is the only organization that offers a launch price list on its website (click here for that link), as much as Amazon sells its books. The Falcon 9 will carry 28,930 pounds of cargo into low earth orbit for only $60.2 million. Sounds like a bargain to me.

This no doubt includes an assortment of tax breaks, which Musk has proven adept at harvesting. Elon has been a quick learner of the ways of Washington.

Customers have included the Thai telecommunications firm, Rupert Murdock’s Sky News Japan, an Israeli telecommunications group, and the US Air Force.

So when do we mere mortals get to buy the stock? Analysts now estimate that SpaceX is worth up to $200 billion.

The current exponential growth in broadband and SpaceX’s Starlink will lead to a similar growth in satellite orders, and therefore rocket launches. So the commercial future of the company looks especially bright.

However, Musk is in no rush to go public. A permanent, viable, and sustainable colony on Mars has always been a fundamental goal of SpaceX. It would be a huge distraction for a publicly managed company. That makes it a tough sell to investors in the public markets.

You can well imagine that the next recession would bring cries from shareholders for cost-cutting that would put the Mars program at the top of any list of projects to go on the chopping block. So Musk prefers to wait until the Mars project is well established before entertaining an IPO.

Musk expects to launch a trip to Mars by 2027 and establish a colony that will eventually grow to 80,000. Tickets will be sold for $500,000. Click here for the details.

There are other considerations. Many employees and early venture capital investors wish to realize their gains and move on. Public ownership would also give the company extra ammunition for cutting through Washington red tape. These factors point to an IPO that is earlier than later.

On the other hand, Musk may not care. The last net worth estimate I saw for his net worth was $300 billion. If his many companies increase in value by ten times over the next decade, as I expect, that would increase his wealth to $3 trillion, making him the richest person in the world by miles.

If an IPO does come, investors should jump in with both boots. While the value of the firm may have already increased tenfold by then, there may be another tenfold gain to come. Get on the Elon Musk train before it leaves the station.

To describe Elon as a larger-than-life figure would be something of an understatement. Musk is the person on which the fictional playboy/industrialist/technology genius, Tony Stark in the Iron Man movies, has been based.

Musk has said he wishes to die on Mars, but not on impact. Perhaps it would be the ideal retirement for him, say around 2045 when he will be 75.

To visit the SpaceX website, please click here. It offers very cool videos of rocket launches and a discussion with Elon Musk on the need for a Mars mission.

Catching a Dragon by the Tail

This Could Be the Stock Performance

Is Mars the Next Hot Retirement Spot?

The Market Outlook for the Week Ahead, or The Fed is Done!

Diary, Newsletter

We’ve just seen our last interest rate rise in the economic cycle. Yes, I know that our central bank took no action at their last meeting in September. The market has just done its work for it.

And the markets are no shrinking violet when it comes to taking bold action. The 50 basis points it took bond yields up over the last two weeks is far more than even the most aggressive, economy-wrecking, stock market-destroying Fed was even considering.

And that doesn’t even include the rate hikes no one can see, the deflationary effects of quantitative tightening, or QT. That is the $1 trillion a year the Fed is sucking out of the economy with its massive bond sales.

It really is a miracle that the US economy is growing as fast as it is. After a warm 2.4% growth rate in Q2, Q3 looks to come in at a blistering 4%-5%. That is definitely NOT what recessions are made of.

Where is all this growth coming from?

Some of the credit goes to the pandemic spending, the free handouts we call got to avoid starvation while Covid ravaged the country. You probably don’t know this, but nothing happens fast in Washington. Government spending is an extremely slow and tedious affair.

By the time that contracts are announced, bids awarded, permits obtained, men hired, and the money spent, years have passed. That means money approved by Congress way back in 2020 is just hitting the economy now.

But that is not the only reason. There is also the long-term structural push that is a constant tailwind for investors:

Hyper-accelerating technology.

Yes, I know, there goes John Thomas spouting off about technology again. But it is a really big deal.

I have noticed that the farther away you get from Silicon Valley, the more clueless money managers are about technology. You can pick up more stock tips waiting in line at a Starbucks in Palo Alto than you can read a year’s worth of research on Wall Street.

What this means is that most large money managers, who are based on the east coast are constantly chasing the train that is leaving the station when it comes to tech.

On the west coast, managers not only know about the new tech, but the tech that comes after that and another tech that comes after that, if they are not already insiders in the current hot deal. This is how artificial intelligence stole a march on almost everyone, until a year ago, unless you were on the west coast already working in the industry. Mad Hedge has been using AI for 11 years.

You may be asking, “What does all of this mean for my pocketbook?” a perfectly valid question. It means that there isn’t going to be a recession, just a recession scare. That technology will bail us out again, even though our old BFF, the Fed, has abandoned us completely.

Which brings me to the current level of interest rates. I have also noticed that the farther away you get from New York and Washington, the less people know about bonds. On the west coast mention the word “bond” and they stare at you cluelessly. Indeed, I spent much of this year explaining the magic of the discount 90-day T-bill, which no one had ever heard of before (What! They pay interest daily?).

In fact, most big technology companies have positive cash balances. Look no further than Apple’s $140 billion cash hoard, which is invested in, you guessed it, 90-day T-bills when it isn’t buying its own stock, and is earning a staggering $7.7 billion a year in interest.

The great commonality in the recent stock market correction is easy to see. Any company that borrows a lot of money saw its stock get slaughtered. Technology stocks held up surprisingly well. That sets up your 2024 portfolio.

Put half your money in the Magnificent Seven stocks of Apple (AAPL), Amazon (AMZN), Meta (META), Microsoft (MSFT), Tesla (TSLA), (NVIDIA), and Salesforce (CRM).

Put your other half into heavy borrowers that benefit from FALLING interest rates, including bonds (TLT), junk bonds (JNK), (HYG), Utilities (XLU), precious metals (GOLD), (WPM), copper (FCX), foreign currencies (FXA), (FXE), (FXY), emerging markets (EEM).

As for me, I never do anything by halves. I’m putting all my money into Tesla. If I want to diversify, I’ll buy NVIDIA. Diversification is only for people who don’t know what is going to happen.

I just thought you’d like to know.

So far in October, we are up +2.96%. My 2023 year-to-date performance is still at an eye-popping +63.76%. The S&P 500 (SPY) is up +12.89% so far in 2023. My trailing one-year return reached +76.46% versus +22.57% for the S&P 500.

That brings my 15-year total return to +660.95%. My average annualized return has fallen back to +48.07%, another new high, some 2.64 times the S&P 500 over the same period.

Some 44 of my 49 trades this year have been profitable.

Chaos Reigns Supreme in Washington, with the firing of the first House speaker in history. Will the next budget agreement take place on November 17, or not until we get a new Congress in January 2025? Markets are discounting the worst-case scenario, with government debt in free fall. Definitely NOT good for stocks, which are reaching for a full 10% correction, half of 2023’s gains.

September Nonfarm Payroll Report Rockets, to 336,000, and August was bumped up another 50,000. The economy remains on fire. The headline Unemployment Rate remains steady at an unbelievable 3.8%. And that’s with the UAW strike sucking workers out of the system. This is supposed to by impossible with 5.5% interest rates. Throw out you economics books for this one!

JOLTS Comes in Hot at 9.61 million job openings in August, 700,000 more than the July report. The record labor shortage continues. Will the Friday Nonfarm Payroll Report deliver the same?

ADP Rises 89,000 in September, down sharply from previous months, showing that private job growth is growing slower than expected. August was revised down. It’s part of the trifecta of jobs data for the new month. The mild recession scenario is back on the table, at least stocks think so.

Weekly Jobless Claims Rise to 207,000, still unspeakably strong for this point in the economic cycle. Continuing claims were unchanged at 1.664%.

Traders Pile on to Strong Dollar, headed for new highs, propelled by rising interest rates. There is a heck of a short setting up for next year.

Yen Soars on suspected Bank of Japan intervention in the foreign exchange markets to defend the 150 line against the US dollar. The currency is down 35% in three years and could be the BUY of the century.

Kaiser Goes on Strike with 75,000 health care workers walking out on the west coast. The issue is money. The company has a long history of labor problems. This seems to be the year of the strike.

Oil (USO)Gets Slammed on Recession Fears, down 5% on the day to $85, in a clear demand destruction move and worsening macroeconomic picture. Europe and China are already in recession. It’s the biggest one-day drop in a year. Is the top in?

Tesla Delivers 435,059 Vehicles in September, down 5% from forecast, but the stock rose anyway. The Cybertruck launch is imminent, where the company has 2 million new orders. Keep buying (TSLA) on Dips. Technology is accelerating.

EVs have Captured an Amazing 8% of the New Car Market. They have been helped by a never-ending price war and generous government subsidies. EV sales are now up a miraculous 48% YOY and are projected to account for a stunning 23% of all California sales in Q3. Tesla is the overwhelming leader with a 52% share in a rapidly growing market, distantly followed by Ford (F) at 7% and Jeep at 5%. However, a slowdown may be at hand, with EV inventories running at 97 days, double that of conventional ICE cars. This could create a rare entry point for what will be the leading industry of this decade, if not the century. Buy more Tesla (TSLA) on bigger dips, if we get them.

Apple Upgrades New iPhone 15 to deal with overheating from third-party gaming. It will shut down some of its background activity, including some of the new AI functions, which were stressing the central processor. Third-party apps were adding to the problem, such as Uber and games from (META). This is really cutting-edge technology.

Moderna (MRNA) Bags a Nobel Prize in Chemistry. Katalin Kariko and Drew Weissman’s work helped pioneer the technology that enabled Moderna and the Pfizer Inc.-BioNTech SE partnership to swiftly develop shots. I got four and they saved my life when I caught Covid. I survived but lost 20 pounds in two weeks. It was worth it.

My Ten-Year View

When we come out the other side of the recession, we will be perfectly poised to launch into my new American Golden Age, or the next Roaring Twenties. The economy decarbonizing and technology hyper-accelerating, creating enormous investment opportunities. The Dow Average will rise by 800% to 240,000 or more in the coming decade. The new America will be far more efficient and profitable than the old.

Dow 240,000 here we come!

On Monday, October 9, there is no data of note released.

On Tuesday, October 10 at 8:30 AM EST, the Consumer Inflation Expectations is released.

On Wednesday, October 11 at 2:30 PM, the Producer Price Index is published.

On Thursday, October 12 at 8:30 AM, the Weekly Jobless Claims are announced. The Consumer Price Index is also released.

On Friday, October 13 at 1:00 PM the September University of Michigan Consumer Expectations is published. At 2:00 PM, the Baker Hughes Rig Count is printed.

As for me, one of the many benefits of being married to a British Airways senior stewardess is that you get to visit some pretty obscure parts of the world. In the 1970s, that meant going first class for free with an open bar, and occasionally time in the cockpit jump seat.

To extend our 1977 honeymoon, Kyoko agreed to an extra round trip for BA from Hong Kong to Colombo in Sri Lanka. That left me on my own for a week in the former British crown colony of Ceylon.

I rented an antiquated left-hand drive stick shift Vauxhall and drove around the island nation counterclockwise. I only drove during the day in army convoys to avoid terrorist attacks from the Tamil Tigers. The scenery included endless verdant tea fields, pristine beaches, and wild elephants and monkeys.

My eventual destination was the 1,500-year-old Sigiriya Rock Fort in the middle of the island which stood 600 feet above the surrounding jungle. I was nearly at the top when I thought I found a shortcut. I jumped over a wall and suddenly found myself up to my armpits in fresh bat shit.

That cut my visit short, and I headed for a nearby river to wash off. But the smell stayed with me for weeks.

Before Kyoko took off for Hong Kong in her Vickers Viscount, she asked me if she should bring anything back. I heard that McDonald’s had just opened a stand there, so I asked her to bring back two Big Macs.

She dutifully showed up in the hotel restaurant the following week with the telltale paper bag in hand. I gave them to the waiter and asked him to heat them up for lunch. He returned shortly with the burgers on plates surrounded by some elaborate garnish and colorful vegetables. It was a real work of art.

Suddenly, every hand in the restaurant shot up. They all wanted to order the same thing, even though the nearest stand was 2,494 miles away.

We continued our round-the-world honeymoon to a beach vacation in the Seychelles where we just missed a coup d’état, a safari in Kenya, apartheid South Africa, London, San Francisco, and finally back to Tokyo. It was the honeymoon of a lifetime.

Kyoko passed away in 2002 from breast cancer at the age of 50, well before her time.

Stay Healthy,

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

Sigiriya Rock Fort

Kyoko

October 6, 2023

Tech Letter

Mad Hedge Technology Letter
October 6, 2023
Fiat Lux

Featured Trade:

(TESLA GAINS UPPER HAND WITH HELP FROM CHINA)
(TSLA), (LCID), (RIVN), (EV), (CHINA)

Tesla Gains Upper Hand With Help From China

Tech Letter

The American consumer has been battered.

Declining iPhone sales says it all, but that is nothing compared to the Chinese consumer who are drowning in a cesspool of their own debt.

The Chinese economy is threatening to become the new Japanese economy which is infamous for its run of lost decade after lost decade.

Who cares?

I don’t, but lithium prices do and that’s why we need to focus on as the lust for EVs in the western world picks up pace.

The Chinese have cornered the lithium market and supply has expanded.

This should allow EV makers like Elon Musk to lower the price of Tesla’s further effectively winning the price war. The inverse of Bidenomics sometimes happens, but usually takes the Chinese to flood the market with extra product and in this case lithium.

Every small EV stock should be ignored. There is Tesla and nobody else.

Lithium prices are crashing around the world.

After a buying frenzy sent global prices soaring though last year, they’ve since plunged as electric vehicle demand crashes and supplies are expected to remain strong.

The weakness has been especially pronounced there as battery makers tap stockpiles built up during the boom, while demand concerns are being exacerbated by wider fears about the country’s economy.

Chinese sentiment is being hurt by weak consumer and business confidence and an ongoing property crisis.

The nation’s EV sales growth slowed to 37% in the second quarter from a year earlier, versus a global average of 50%.

That’s helped push most-active Chinese lithium carbonate futures down about 37% since they started trading in July. They’re at a level that works out to a roughly 35% discount to lithium hydroxide futures in the US, according to traders.

The price decline has further to go. Lithium carbonate and hydroxide could drop another 30% in the near term on the back of weaker demand, high inventories and improved supply.

Tesla can lower the price of EVs as it seeks to capitalize on US consumer’s lack of discretionary budget as inflation takes a bite out of their daily budgets.

Today, the carmaker marked down the starting price of the base Model 3 by $1,250 to $38,990.

Tesla also lopped $2,250 off the price of the performance version of the Model 3, which now starts at $50,990, and $2,000 off the long-range and performance versions of the Model Y sport utility vehicle, which now cost $48,490 and $52,490, respectively.

The biggest factor contributing to Tesla’s price cuts has been the lifting of production constraints that held the company back for years.

Tesla still maintains a dominant position in the US electric-vehicle market, though it’s increasingly relied on discounting to preserve its position. Fresh product could help buoy pricing in the coming months, with the carmaker recently debuting an updated version of the Model 3.

Tesla has already identified the race to the bottom for the price of EVs and this should crush the rest of the competition as EVs turn from luxury goods to commodities.

Just take a look at rivals like Rivian (RIVN) who lose $33,000 for each vehicle they sell. EV maker Lucid’s $338,000 loss per car Is turning investors off

I wouldn’t put a cent into any other EV stock aside from Tesla.

They will be the future iPad on wheels that Steve Jobs dreamed about and now they can lower prices even more aggressively now that the price of lithium has crashed.

Musk was smart to start the price war earlier to crush competition.

October 2, 2023

Diary, Newsletter, Summary

Global Market Comments
October 2, 2023
Fiat Lux

Featured Trade:

(MARKET OUTLOOK FOR THE WEEK AHEAD, or BACK IN BUSINESS)
(TLT), (GLD), (SLV), (XLU), (IWM), (EEM), (FXA), (FXE), (FXB), (USO), (UUP), (AMZN), (TSLA), (F)

The Market Outlook for the Week Ahead, or Back in Business

Diary, Newsletter

It’s a good thing I don’t rely on my Social Security Check to cover my extravagant cost of living, which is the maximum $4,555 a month. For it came within hours of coming to a halt when an agreement was passed by Congress to renew funding for another 45 days. It was almost an entirely Democratic bill, passing 335 to 91 in the House and the Senate by 88 to 9.

Unfortunately, that does put me in the uncomfortable position of delivering humanitarian aid to Ukraine right when $6.2 billion in US assistance is cut off. That was the price the Dems had to pay to get the Republicans on board needed to pass the bill. Better a half a loaf than no loaf at all. Still, I am going to have some explaining to do next week in Kiev, Mykolaiv, and Kherson. It’s a big win for Vladimir Putin.

Funding now ends on November 17, when the next crisis begins. The big question is when the markets will deliver a sigh of relief rally on Congress hitting the “snooze” button, or whether it will focus on the next disaster in November.

We’ll have to wait and see.

In the meantime, all eyes are on the market’s leading falling interest rate plays, which continue to go from bad to worse. Those include bonds (TLT), precious metals (GLD), (SLV), utilities (XLU), small-cap stocks (IWM), emerging markets (EEM), and foreign currencies (FXA), (FXE), (FXB).

Consider this your 2024 shopping list.

Ten-year US Treasury bond yields reached a stratospheric 4.70% last week a 17-year high and up a monster 0.90% since the end of June. Summer proved a fantastic time to take a vacation from the bond market.

They could easily reach 5% before the crying is all over. Perhaps this is why my old friend, hedge fund legend David Tepper, said his best investment right now is a subprime six-month certificate of deposit yielding 7.0%.

What we might be witnessing here is a return to the “old normal” when bonds spent most of their time ranging between 2%-6%. The 60-year historic average bond yield is 2% over the inflation rate (see chart below). That alone takes us to a 5.0% bond yield.

Interest rates have been kept artificially low for 15 years because no one wanted a recession in 2008 and no one wanted a recession during the pandemic in 2000. It all melded into one big decade-and-a-half period of easy money. Pain avoidance wasn’t just the universal American monetary policy, it was the global policy.

Now it’s time to pay the piper and unwind the thousands of business models that depended on free money. There will be widespread pain, as we are now witnessing in commercial real estate and private equity. Perhaps it is best to take the 5.5% bribe 90-day Treasury bond yield is offering you and stay out of the market.

While Detroit remains mired by the UAW strike, EVs have catapulted to an amazing 8% of the new car market. They have been helped by a never-ending price war and generous government subsidies. EV sales are now up a miraculous 48% YOY and are projected to account for a stunning 23% of all California sales in Q3.

Tesla is the overwhelming leader with a 52% share in a rapidly growing market, distantly followed by Ford (F) at 7% and Jeep at 5%.

However, a slowdown may be at hand, with EV inventories running at 97 days, double that of conventional ICE cars. This could create a rare entry point for what will be the leading industry of this decade, if not the century. Buy more Tesla (TSLA) on bigger dips, if we get them.

Hedge Funds are Cutting Risk at Fastest Pace Since 2020, when the pandemic began. From retail investors to rules-based systematic traders, appetite for equities is subsiding after a 20% rally this year that’s fueled by euphoria over artificial intelligence. Fast money investors increased their bearish wagers to drive down their net leverage — a gauge of risk appetite that measures long versus short positions — by 4.2 percentage points to 50.1%, according to Goldman Sachs Group Inc.’s prime brokerage. That’s the biggest week-on-week decline in portfolio leverage since the depths of the pandemic bear market.

The Treasury Bond Freefall Continues, as long-term yields probe new highs. New issue of $134 billion this week didn’t help. Nothing can move on the risk until rates top out, even if we have to wait until 2024.

Oil (USO) Hits $95, a one-year high, as the Saudi/Russian short squeeze continues. $100 a barrel is a chipshot and much higher if we get a cold winter. Inventories at the Cushing hub are at a minimum.

The US Dollar (UUP) Hits New Highs, as “high for longer” interest rates keep powering the greenback. The buck is also catching a flight to safety bid from a potential government shutdown. It should be topping soon.

Moody’s Warns of Further US Government Downgrades, in the run up to the Saturday government shutdown. The shutdown lasts, the more negative its impact would be on the broader economy. Unemployment could soar. It would also render all US government data releases useless for the next three months.

ChatGPT Can Now Browse the Internet, according to its creator, OpenAI. Until now, the chatbot could only access data posted before September 2021. The move will exponentially improve the quality and effectiveness of AI apps, including my own Mad Hedge AI

Amazon (AMZN) Pouring $4 Billion into AI, with an investment in Anthropic, a ChatGPT competitor. (AMZN) is racing to catch up with (MSFT) and (GOOGL). Its chatbot is caused Claude 2. Amazon’s card to play here is its massive web services business AWS. The AI wars are heating up.

Hollywood Screenwriters Guild Strike Ends, after 150 days, which is thought to have cost the US economy $5 billion in output. The hit was mostly taken by Los Angeles, where 200,000 are employed. The Actor’s union is still on strike. Talk shows should be offering new content in a few days.

S&P Case Shiller Rises to New All-Time High, for the sixth consecutive month as inventory shortages drove up competition. In July, the index in increased 0.6% month over month and 1% over the last 12 months, on a seasonally adjusted basis. July’s movement reached a new high for the nationwide home index, surpassing the record set in June 2022. Chicago (+4.4%), Cleveland (+4.0%), and New York (+3.8%) delivered the biggest gains. The median home price for existing homes rose to 1.9 to $406,700 according to the National Association of Realtors (NAR). The robust housing market suggests that while some buyers pulled back due to high borrowing costs, demand continues to outweigh supply.

This is the Unit I Will be Joining at the Front in Ukraine, as made clear by their YouTube recruiting video. They asked me to assist with mine removal on territory formerly occupied by Russia. I really don’t know what I’m getting into. Improvision is key. It’s better than playing golf in retirement. Polish up your Ukrainian first.

So far in August, we are down -4.70%. My 2023 year-to-date performance is still at an eye-popping +60.80%. The S&P 500 (SPY) is up +17.10% so far in 2023. My trailing one-year return reached +92.45% versus +8.45% for the S&P 500.

That brings my 15-year total return to +657.99%. My average annualized return has fallen back to +48.15%, another new high, some 2.50 times the S&P 500 over the same period.

Some 41 of my 46 trades this year have been profitable.

My Ten-Year View

When we come out the other side of the recession, we will be perfectly poised to launch into my new American Golden Age, or the next Roaring Twenties. The economy decarbonizing and technology hyper accelerating, creating enormous investment opportunities. The Dow Average will rise by 800% to 240,000 or more in the coming decade. The new America will be far more efficient and profitable than the old.

Dow 240,000 here we come!

On Monday, October 2, at 8:30 PM EST, the ISM Manufacturing PMI is out.

On Tuesday, October 3 at 8:30 AM, the JOLTS Job Openings Report is released.

On Wednesday, October 4 at 2:30 PM, the ISM Services Report is published.

On Thursday, October 5 at 8:30 AM, the Weekly Jobless Claims are announced.

On Friday, October 6 at 2:30 PM the September Nonfarm Payroll Report is published. At 2:00 PM the Baker Hughes Rig Count is printed.

As for me, I will try to knock out a few memories early this morning while waiting for the Matterhorn to warm up so I can launch on another ten-mile hike. So I will reach back into the distant year of 1968 in Sweden.

My trip to Europe was supposed to limit me to staying with a family friend, Pat, in Brighton, England for the summer. His family lived in impoverished council housing.

I remember that you had to put a ten pence coin into the hot water heater for a shower, which inevitably ran out when you were fully soaped up. The trick was to insert another ten pence without getting soap in your eyes.

After a week there, we decided the gravel beach and the games arcade on Brighton Pier were pretty boring, so we decided to hitchhike to Paris.

Once there, Pat met a beautiful English girl named Sandy, and they both took off to some obscure Greek island, the ultimate destination if you lived in a cold, foggy country.

That left me stranded in Paris with little money.

So, I hitchhiked to Sweden to meet up with a girl I had run into while she was studying English in Brighton. It was a long trip north of Stockholm, but I eventually made it.

When I finally arrived, I was met at the front door by her boyfriend, a 6’6” Swedish weightlifter. That night found me bedding down in a birch forest in my sleeping bag to ward off the mosquitoes that hovered in clouds.

I started hitchhiking to Berlin, Germany the next day, which offered paying jobs. I was picked up by Ronny Carlson in a beat-up white Volkswagen bug to make the all-night drive to Goteborg where I could catch the ferry to Denmark.

1968 was the year that Sweden switched from driving English style on the left side of the road to the right. There were signs every few miles with a big letter “H”, which stood for “hurger”, or right. The problem was that after 11:00 PM, everyone in the country was drunk and forgot what side of the road to drive on.

Two guys on a motorcycle driving at least 80 mph pulled out to pass a semi-truck on a curve and slammed head-on to us, then were thrown under the wheels of the semi. The motorcycle driver was killed instantly, and his passenger had both legs cut off at the knees.

As for me, our front left wheel was sheared off and we shot off the mountain road, rolled a few times, and was stopped by this enormous pine tree.

The motorcycle riders got the two spots in the only ambulance. A police car took me to a hospital in Goteborg and whenever we hit a bump in the road bolts of pain shot across my chest and neck.

I woke up in the hospital the next day, with a compound fracture of my neck, a dislocated collar bone, and paralyzed from the waist down. The hospital called my mom after booking the call 16 hours in advance and told me I might never walk again. She later told me it was the worst day of her life.

Tall blonde Swedish nurses gave me sponge baths and delighted in teaching me to say Swedish swear words and then laughed uproariously when I made the attempt.

Sweden had a National Health care system then called Scandia, so it was all free.

Decades later a Marine Corps post-traumatic stress psychiatrist told me that this is where I obtained my obsession with tall, blond women with foreign accents.

I thought everyone had that problem.

I ended up spending a month there. The TV was only in Swedish, and after an extensive search, they turned up only one book in English, Madame Bovary. I read it four times but still don’t get the ending. And she killed herself because….?

The only problem was sleeping because I had to share my room with the guy who lost his legs in the same accident. He screamed all night because they wouldn’t give him any morphine.

When I was released, Ronny picked me up and I ended up spending another week at his home, sailing off the Swedish west coast. Then I took off for Berlin to get a job since I was broke. Few Germans wanted to live in West Berlin because of the ever-present risk of a Russian invasion so there we always good-paying jobs.

I ended up recovering completely. But to this day whenever I buy a new Brioni suit in Milan they have to measure me twice because the numbers come out so odd. My bones never returned to their pre-accident position and my right arm is an inch longer than my left. The compound fracture still shows up on X-rays.

And I still have this obsession with tall, blond women with foreign accents.

Go figure.

Brighton 1968

Ronny Carlson in Sweden

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

September 25, 2023

Diary, Newsletter, Summary

Global Market Comments
September 25, 2023
Fiat Lux

Featured Trade:

(MARKET OUTLOOK FOR THE WEEK AHEAD, or THE SINGULARITY IS HERE!)
(SPY), (TLT), (MSFT), (TSLA), (USO), (AMZN)

The Market Outlook for the Week Ahead, or The Singularity is Here!

Diary, Newsletter

While changing planes at Heathrow airport in London last week, my partners in artificial intelligence graciously came out to join me for lunch over some of the awful food there. I can’t tell you who they are, but if I did you would fall out of your chair.

Whenever someone gets a lead in AI applications these days, mum’s the word. There’s no point in giving the competition a leg up, let alone a commanding lead. What they told me was incredibly exciting, but also terrifying. Suffice it to say that you ain’t seen nothing yet.

2023 is probably the last year when mere humans will be able to identify what’s real and what isn’t. The Turing Test, by which machines become indistinguishable from man, laid out by Dr. Alan Turing in 1950, has been conquered. Dr. Ray Kurzweil got it all wrong. We are not going to have to wait until 2040 for the Singularity to take place, whereby man and machine become one (click here for the link).

It’s happening right now.

It seems that these days. you spend half of your day proving to robots that you’re not a robot. Let me tell you that it’s about to get a lot worse. Lately, I have been irritatingly failing these tests more often because I can’t see the part of a bicycle hiding in a corner of the box next door. It won’t be long before we are working for these robots.

That could be a good thing because robots lack human flaws, like abusing their employees, getting drunk, failing to show up for work, and demanding more pay. What they WILL do is make you work FASTER, as the employees at Amazon (AMZN) found out, where workplace accidents and exhaustion at distribution centers are running rampant. Some workers can only handle six weeks of employment at a time.

It turns out that Elon Musk was the initial founding investor in ChatGBT, pumping in $1 billion in seed capital. When you’re the richest man in the world, you can do that sort of thing.

But Musk had a great falling out in 2021 when management refused to accept his absolute control of their AI in exchange for more money. That led to ChatGPT’s sale to Microsoft (MSFT) for $13 billion, a figure which, in retrospect, seems a pittance given the $1 trillion in value it is expected to create (so buy (MSFT).

By the way, ChatGPT refers to Generalized Preprogrammed Transformers in a homage to the cartoon series. That’s how nerdy these people are.

In any case, a huge conflict of interest had arisen with Tesla’s own AI efforts. One proof of this is that my own monthly insurance rates with Tesla keep going down, now at an unbelievably low $204 a month for a $165,000 vehicle.

It’s not that I’m a better driver. At my age, I’m probably getting worse. It's because the CAR keeps getting smarter, reducing the chance of an accident and therefore the risk to Tesla’s insurance division. By the way, notice how well Tesla shares have been outperforming the market lately.

Insurance industry watch out! You are about to get disrupted.

What is especially scary is that a presidential election will take place next year just when AI is hitting its stride. In 2016, many thought that the Access Hollywood videotape would make Donald Trump unelectable.

Everyone believed the video was real, but while half the voters were outraged, the other half said that’s just Trump being Trump and he got elected. If that video were released today, only half would believe it’s real while the other half would think it’s a deep fake produced by the opposition.

The possibilities boggle the mind, with multiple deep fakes already gaining airtime for next year’s primaries.

There isn’t much to say about stocks these days except that the grand finale for the current correction is fast approaching.

The UAW strike won’t cause the stock market to crash. But add it in with a prolonged government shutdown, sharply rising interest rates, and recessions in our biggest export markets in Europe and China, and suddenly the short-term downside argument becomes a lot more persuasive.

If you DO need convincing, look no further than my Mad Hedge AI Market Timing Index. It decisively broke 50 on Friday and plunged all the way down to 36. Finally, after a tortuous six months of doing nothing, we are starting to see some value in the market.

Whenever I go through periods of issuing no trade alerts for a prolonged period because the risk/reward is terrible, I get a lot of complaints from customers. After all, who wouldn’t want more trade alerts with a 90% success rate? The only way you achieve that success rate is to stay out of markets when they suck, as in now. Lately, I have noticed on down days, I get absolutely no complaints AT ALL.

I will end this dissertation by telling you a funny story. The last time I landed at San Francisco Airport, I grabbed an Uber cab home. As we departed the airport, I noticed a rolled set of plans on the floor forgotten by the previous passenger. I pointed this out to the driver, but he was from China and didn’t speak English.

So I opened up the plans and called the phone numbers listed in the key. First, I tried the University of California at San Francisco, whose name was clearly marked at the top. No luck there. The university is just too big.

Then I tried the printing company in Berkeley that produced the plans. I asked for the customer’s cell phone number, but the printer said they never released confidential client information. After some prodding, I convinced him to call his own customer and tell him I was headed back to the gate where he debarked with the plans (I can be very convincing).

By now, I was 20 minutes away from the airport, so I had ample time to examine what I had chanced on. It turns out I had blueprints of the human brain showing 100 sites where it can be connected directly to the Internet, ranking them by transmission efficiency. The owner was headed to Los Angeles to make a presentation to fellow scientists and some venture capital investors.

Yikes, I thought!

When we pulled up to the gate, there was a man looking like he had come out of central casting for the role of “scientist”, beard, glasses, and all. He was very grateful and then disappeared into the crowd running for his plane. Yes, I know it sounds like the beginning of a science fiction thriller.

I just thought you’d like to know. Yes, it’s just another day in the life for me.

That brings my 15-year total return to +657.99%. My average annualized return has fallen back to +48.15%, some 2.50 times the S&P 500 over the same period.

Some 41 of my 46 trades this year have been profitable.

The Most Important Thing That Powell Didn’t Say in Fed press conference is that quantitative tightening, or QT, continues. That drains $1 trillion a year from the financial system through bond sales until 2031 to get the Fed balance sheet down to zero. It is a negative for bonds….and the economy. The market is fixated on the 0.25% he did raise on interest rates.

UAW Strike Expanded on Friday, adding 38 new plants to the work stoppage. It’s death by a thousand cuts. The Big Three may respond with lockouts to drain union funds. Factories in Mexico are looking better every day. Elon Musk is laughing.

Industrial Production Jumps 0.4% in August, in another sign that the US has dodged the recession bullet. It’s one of the strongest numbers of the year. Capacity Utilization also rose to a high 79.7%.

Will a Government Shutdown Finally Drive Stocks Downward? Chaos rules supreme in the House of Representatives where there is a major effort to shut down the US government. Speaker Kevin McCarthy risks getting fired if he allows a spending bill to go through with Democratic support. It’s the result of a devil’s bargain made with his right wing to land the job in January. Will an impeachment inquiry into Biden be enough to placate them?

Cathie Woods’ New Take on Tesla (TSLA). As one of the earliest investors in Tesla, along with myself, it pays to listen to Cathie Woods talk about the stock. The company is headed from a current market valuation of $845 billion to $5 trillion, with two-thirds of the growth coming from its autonomous driving technology, a $15,000 upgrade. AI sold as software-as-a-service has an 80% profit margin compared to only 20%-30% for the EV business. Cathie’s bull case is $2,000 in five to ten years and her bear case is that the stock only reached $1,400. Teslas have a 40% lower accident rate than ICE cars, thanks to AI, so take the human out of the driving formula.

Oil (USO) Hits New 2023 High, with gasoline topping $5.00 a gallon in many states. There is no oil shortage or supply disruptions. This is pure price gouging, with Saudi Arabia and Russia cutting supplies by 5 million barrels/day since June and American oil companies riding on their coattails. The move coincided with a sudden and unexpected improvement in the US economic outlook, increasing demand. Too late to play on the long side here, with prices up 40% from the May lows.

National Debt (TLT) Tops $33 Trillion, or $100,000 per man, woman, and child. Not great news for bonds, as new issuance is swamping the markets. The debt has risen by 50% since 2019. Republicans want Democrats to spend less, while Democrats want Republicans to cut their spending.

My Ten-Year View

On Monday, September 25, the Chicago Fed National Activity Index is out.

On Tuesday, September 26 at 3:00 PM EST, the S&P Case Shiller National Home Price Index is released. We also get New Home Sales.

On Wednesday, September 27 at 2:30 PM, the US Durable Goods is published.

On Thursday, September 28 at 8:30 AM, the Weekly Jobless Claims are announced. We also get the final print for Q2 GDP.

On Friday, September 29 at 2:30 PM, the Personal Income & Spending is published. At 2:00 PM, the Baker Hughes Rig Count is printed.

As for me, this is not my first Russian invasion.

Early in the morning of August 20, 1968, I was dead asleep at my budget hotel off of Prague’s Wenceslas Square when I was suddenly awoken by a burst of machine gun fire. I looked out the window and found the square filled with T-54 Russian tanks, trucks, and troops.

The Soviet Union was not happy with the liberal, pro-western leaning of the Alexander Dubcek government so they invaded Czechoslovakia with 500,000 troops and overthrew the government.

I ran downstairs and joined a protest demonstration that was rapidly forming in front of Radio Prague trying to prevent the Russians from seizing the national broadcast radio station. At one point, I was interviewed by a reporter from the BBC carrying this hulking great tape recorder over his shoulder, as I was the only one who spoke English.

It seemed wise to hightail it out of the country, post haste, as it was just a matter of time before I would be arrested. The US ambassador to Czechoslovakia, Shirley Temple Black (yes, THE Shirley Temple), organized a train to get all of the Americans out of the country.

I heard about it too late and missed the train.

All borders with the west were closed and domestic trains shut down, so the only way to get out of the country was to hitchhike to Hungary where the border was still open.

This proved amazingly easy as I placed a small American flag on my backpack. I was in Bratislava just across the Danube from Austria in no time. I figured worst case, I could always swim it, as I had earned both, the Boy Scout Swimming, and Lifesaving merit badges.

Then I was picked up by a guy driving a 1949 Plymouth who loved Americans because he had a brother living in New York City. He insisted on taking me out to dinner. As we dined, he introduced me to an old Czech custom, drinking an entire bottle of vodka before an important event, like crossing an international border.

Being 16 years old, I was not used to this amount of high-octane 40-proof rocket fuel and I was shortly drunk out of my mind. After that, my memory is somewhat hazy.

My driver, also wildly drunk, raced up to the border and screeched to a halt. I staggered through Czech passport control which duly stamped my passport. I then lurched another 50 yards to Hungary, which amazingly, let me in. Apparently, there is no restriction on entering the country drunk out of your mind. Such is Eastern Europe.

I walked another 100 yards into Hungary and started to feel woozy. So, I stumbled into a wheat field and passed out.

Sometime in the middle of the night, I felt someone kicking me. Two Hungarian border guards had discovered me. They demanded my documents. I said I had no idea what they were talking about. Finally, after their third demand, they loaded their machine guns, pointed them at my forehead, and demanded my documents for the third time.

I said, “Oh, you want my documents!”

I produced my passport, and when they got to the page that showed my age, they both started laughing.

They picked me and my backpack up and dragged me back to the road. While crossing some railroad tracks, they dropped me, and my knee hit a rail. But since I was numb, I didn’t feel a thing.

When we got to the road, I saw an endless stream of Russian army trucks pouring into Czechoslovakia. They flagged down one of them. I was grabbed by two Russian soldiers and hauled into the truck with my pack thrown on top of me. The truck made a U-turn and drove back into Hungary.

I contemplated my surroundings. There were 16 Russian Army soldiers in full battle dress holding AK-47s between their legs and two German Shepherds all looking at me quizzically. Then I suddenly felt the urge to throw up. As I assessed that this was a life-and-death situation, I made every effort to restrain myself.

We drove five miles into the country and stopped at a small church. They carried me out of the truck and dumped me and my pack behind the building. Then they drove off.

The next morning, I woke up with the worst headache of my life. My knee bled throughout the night and hurt like hell. I still have the scar. Even so, in my enfeebled condition, I realized that I just had one close call.

I hitchhiked on to Budapest, then to Romania, where I heard that the beaches were filled with beautiful women. My Italian let me get by passably in the local language.

It all turned out to be true.

Stay Healthy,

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