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The Market Outlook for the Week Ahead, or A Week with John Thomas

In 1942, after the First Marine Division won the battle of Guadalcanal and my Uncle Mitch won his Medal of Honor, they were shipped to Melbourne, Australia for six months of rest and relaxation.

Since their uniforms were in rags and many men were barefoot, they were handed scratchy WWI surplus wool uniforms. That’s all the Aussies had, as their army was off fighting Rommel in North Africa.

All 8,000 men lived in the Melbourne Cricket Ground, and the government delivered a truckload of beer barrels every day. Whenever the men went outside, they were invited by local families off the street to have dinner. After four months, they were fat and happy.

Then one day, they were placed on a train with full battle gear, taken 50 miles out of town, and told to walk back with no food and a canteen of water. They were retraining for the next battle, which would be in New Guinea.

When economic data flip-flops, so does the market.

The red-hot January Nonfarm Report with the Unemployment Rate at a 50-year low of 3.5% gave the bulls every reason to buy stock. So stocks can’t fall.

But a strong jobs market means the Fed will keep interest rates higher for longer gives plenty of fodder for the bears. So stocks can’t rise.

My Mad Hedge Market Timing Index is equally confused at 55. You can’t get any closer to 50, which means you should do absolutely nothing.

Notice that the S&P 500 (SPY) bounced off the 200-day moving average at $390.95 to the penny and rallied, a perfect symptom of this disease. When the fundamentals are confused, technicals win.

At this late age, the only one I take orders from is named Mr. Market. Ignore his instructions at your own peril and expense. Everyone else can get lost.

That leaves us nothing to do but to wait for the next events of market consequence, the March 14 CPI and the December 22 Fed interest rate decision. We might as well twiddle our thumbs and watch the clock until then.

So I will stick to my market-neutral strategy as long as I must take in enough money to keep the lights on. I keep doing this knowing full well that the last time I do will lose money.

This could go on for months.

In the meantime, I will keep researching the long term, which continues to look better and better. The dross ends in months. It’s the next decade we need to focus on now.

It's time to polish our armor, sharpen our weapons, and get back in shape, just as the First Marine Division did 81 years ago.

Remember that we are in the “what’s next” business. Whatever you buy now has to be discounting the following coming trends:

Falling interest rates
A weak dollar
Rising commodity prices
Rising energy prices
Reaccelerating tech earnings
A new boom in real estate
Precious metals going to record highs
Strong emerging markets
A Ukraine win leading to global peace
America’s principal adversary is rendered impotent
A second peace dividend ensues

Every trade alert I send you this year will be taking of one or more of these trends. It’s just a matter of time before they begin if they haven’t already.

We had a really great last two days of February, pushing me back in the green for February, taking me up +3.41% on the month. March has so far come in at +0.80%.

My 2023 year-to-date performance is still at the top at +26.56%. The S&P 500 (SPY) is up +6.36% so far in 2023. My trailing one-year return maintains a sky-high +85.51% versus -5.66% for the S&P 500.

That brings my 15-year total return to +623.75%, some 2.72 times the S&P 500 (SPX) over the same period. My average annualized return has recovered to +47.37%, still the highest in the industry.

Nothing Happens Until March 14, at 8:30 AM EST when the next big inflation read, the Core CPI comes out. It’s all about inflation right now. Look for a flat line until then. That’s why it’s a good time to run short strangles and own lots of cash. A dollar at a market bottom is worth $10 at a market top.

S&P Case Shiller Gains 5.7% in December, YOY according to its National Home Price Index. That’s a quarter of the gains seen a year ago. Miami (15.9%), Tampa (13.9%), and Atlanta (10.4%) showed the biggest gains. High mortgage interest rates are still a big drag and will continue for another six months.

Pending Home Sales Soar 8.7% in January on a signed contract basis. It is the second straight month of gains and the biggest in 2 ½ years. See what a 1.5% drop in mortgage rates can do? While rates are back up now it shows how much demand is building up in the residential real estate market. I think this market explodes to the upside by yearend.

Mortgage Rates Jump to 6.65%, snuffing out the green shoots that briefly appeared in January. Mortgages are still maintaining an unprecedented 200 basis point premium to 30-year Treasury bond rates, which should disappear by yearend. The seeds of the next housing boom are germinating.

Tesla Tanks Semiconductor Shares, after Elon Musk announced that he plans to cut silicon carbide chips by 75%. Improved new designs will also slash the number of chips needed for EVs, whose supply and prices are notoriously volatile. New chip designs will appear in the $25,000 model 2 due out in 2025.

Ark’s Dirty Little Secret. Cathy Woods’ ARK Innovation Fund (ARKK) is one of the top-performing funds so far in 2023, up 24%. But strip out the performance of Tesla (TSLA) and the five-year return has been precisely zero. Good thing (TSLA) is up 110% this year. Maybe its cheaper just to buy (TSLA) and skip the dross and high management fees at Ark? Elon Musk thinks it’s going to $1,000 a share and so do I. Oh, and they just dropped the price of their top end Model X by $20,000.

Stellantis (STLA) Buys a Copper Mine, taking a 14.2% stake in Argentina’s McEwen Copper mine. Gee, do you think the owner of the Chrysler brand is going into EVs? They also laid off 2,000 because with 80% fewer parts EVs require far less workers. Buy Copper and Freeport McMoRan (FCX) on dips. The global copper shortage is imminent.

China Manufacturing PMI Hits 11-Year High, at 52.6 in a surprising comeback from the end of covid lockdowns. The news hit the bond market, worried about rising inflation prospects. Supply chain problems in the US should ease as a result.

Wheat Prices Crash, seeing a 6% dive in February. What always follows a food shortage? A food glut, as farmers overplant to cash in on generous government subsidies, creating a bumper crop. It’s only a 100-year cycle. Prices will stay low as long as Ukraine can keep exporting.

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, March 6 at 7:00 AM EST, US Factory Orders are out.

On Tuesday, March 7 January 31 at 7:00 AM EST, the Federal Reserve Governor Jerome Powell testifies in front of congress.

On Wednesday, March 8 at 7:00 AM EST, the JOLTS Job Opening Report is released.

On Thursday, March 9 at 8:30 AM EST, the Weekly Jobless Claims are announced.

On Friday, March 10 at 8:30 AM EST, the Nonfarm Payroll Report for February is released.

As for me, while I was in Hawaii the other week, I took the opportunity to meet up with my old friend, David, who reminded me of the week to end all week 25 years ago.

I first met David at a Tokyo karate dojo in 1974 when he was 16 and his dad was the Associated Press Bureau Chief.

As we were about the same size, Higaona Sensei paired is off as sparing partners. But to fight, David had to take off his glasses. It wasn’t long before I saw my front teeth flying across the room and skittering across the teak floorboards.

I next met David at Morgan Stanley when I was a London director, and he was a junior trader in Tokyo. After that, I took off to start my own hedge fund.

When Morgan ordered him to meet with their traders in Zurich, Switzerland, I saw the perfect excuse for an adventure. Starting in London, we first dropped off our wives for a week of shopping in Paris, flying my twin Cessna 340.

I used my old trick of getting permission to fly over the center of Paris so I could waggle my wings at the tourists as we passed the top of the Eiffel Tower.

In Zurich, I got in a fight with the tower because they ordered me into a parking stand that was still under construction. I left David to his meetings, thus enabling us to bill the entire trip to Morgan Stanley, aviation fuel, five-star hotels, three-star restaurants, and all. If you did that today at (MS) you’d probably get fired.

I then flew off to pick up a couple of cases of first-growth French wines from the owners in Bordeaux to kill time.

When I picked up David the next day, we headed south. It was a clear day, so I thought it might be a good time to visit the Matterhorn summit. As we circled, the day’s successful climbers waved their ice axes. Then it was up the Rhone River Valley, threading an Alpine valley.

When I realized that I couldn’t climb fast enough to escape the valley, I executed a quick Immelman turn. You’re never supposed to do this in a twin because there is a risk of entering a flat spin (watch the Top Gun movie to see what this is).

But I had my British Aerobatics license, my Swiss Alpine license, plenty of speed, and an oversupply of confidence, so I figured we’d be OK. I performed the first half of a loop, then at the top, I flipped the plane 180 degrees, thus righting it and heading in the opposite direction. But I think we singed the rear ends of a few mountain goats on the way.

Needless to say, this caught David’s attention.

When I popped out of the top of the Alps, I was immediately intercepted by a Mirage fighter from the Swiss Air Force. I was now in military air space. He took a few runs at me at just under Mach 1, using me for target practice. Once I was identified he went on off his merry way.

Now I was lost.

All the maneuvering put me too low to intercept any European navigational aids. So we just looked out the window. Eventually, we noticed that to roof tiles of the city below us were red, which meant we had to be over Italy. I correctly identified it as Bolzano. From there I calculated a direct track to the airfield at St. Moritz in Switzerland.

We stayed at the legendary Badrutt’s Palace Hotel. The next day, we took a cable car to the highest peak. While American ski resorts offer cheeseburgers or pizza, Swiss ones have Michelin Three Star Restaurants. We enjoyed the meal of a lifetime.

When the Tokyo stock market crashed, Morgan Stanley let go of most of its Tokyo staff. David landed on his feet, taking over as the head of trading at Lehman Brothers. He later moved on to a hedge fund, cashing in its Lehman stock well before he went under.

David later retired to the North Share of Oahu in Hawaii, and I visit whenever I’m in town. He is very proud of his tropical fruit orchard. When the 50-foot waves crash at nearby Waimea Bay, the ground shakes.

Whenever I see David, he reminds me of our “lost week” over the Alps. It was the most exciting week of his life. And I always respond, “But David, every week is like that for me.”

When I visit Bolzano this summer to research the battles there in WWI in which my great uncle perished, I’ll ask the residents if they noticed a lost airplane overhead 25 years ago.

Good Luck and Good Trading
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader

The First Marine Division in the Melbourne Cricket Ground in 1942

Higaona Sensei in 1974

Badrutt’s Palace Hotel in St. Moritz

Refueling my Cessna 340 in 1988

March 2, 2023

Diary, Newsletter, Summary

Global Market Comments
March 2, 2023
Fiat Lux

Featured Trade:

(TOUCHING BASE WITH WARREN BUFFET),
(BRK/B), (AMEX), (KO), (MS), (TSLA)

CLICK HERE to download today's position sheet.

Touching Base With Warren Buffet

Diary, Free Research, Newsletter

So how does someone with 55 years of investment experience like me learn something new? Listen to someone with 80 years of experience.

It is with great anticipation that I read Warren Buffett’s annual letter to shareholders. Having banged the table for decades that his Berkshire Hathaway (BRK/B) is a “must own” stock, keeping up with the 92-year-old Oracle of Omaha” is essential.

Besides, Warren was one of the founding subscribers to The Diary of a Mad Hedge Fund Trader 15 years ago.

I’ll give you the high points.

Berkshire companies took in a record $30.8 billion in operating profits in 2022, producing a net 3% gain in the share price.

Sounds like a deal to me!

Buffett describes himself as a business picker, not a stock picker. Over time, the great businesses prosper and compound, while the poor ones fail. The flowers bloom and the weeds wither away.

One need look no further than the Dow Average, where NO stocks were able to stay in the index over the last 100 years because of business failures. (Corn Products Refining Company? Woolworth’s? Union Carbide?). This is known as “creative destruction,” which moves capital out of the past and into the future.

“Efficient” markets exist only in textbooks, their day-to-day behavior “baffling” and only understood in retrospect.

In the ultimate act of humility, Buffet confesses to only making a dozen good decisions in his life. Coca Cola (KO) was one of those. His initial investment of $1.3 billion in 1994 is now worth $25 billion and now spins off an annual dividend of $700 million.

American Express (AXP) is the same, the initial 1995 investment of $1.3 billion is now worth $22 billion, paying $302 billion a year in dividends. Over the same time frame, an investment in 30-years bonds yielded nothing.

Warren makes the case for share buybacks, which he regularly executes whenever (BRK/B) trades at a discount. When the share count goes down, the shareholders’ ownership of the businesses goes up. This is how Berkshire created many $100 millionaires over the years.

Buffet also makes his annual case for the “Great American Tailwind.” In Buffet’s 80 years of investing, he has only seen it becalmed occasionally and briefly. Never bet against America.

Buffet started his investing career in April of 1942. Unknown to him, the US was about to win the Battle of Midway. Stocks bottomed and launched a torrid 20-year run, even though the public was unaware of the victory for three more months. It’s proof that markets see things before we mere mortals do.

As for me, I suppose I have to be even more humble than Warren Buffet, for I have only made four good investment decisions in 50 years. I agreed to accept a job offer from The Economist magazine in London, kicking off a half-century of intensive research. I took a big pay cut to go to work for Morgan Stanley (MS), which rewarded me with pre-IPO stock at book value of 25 cents a share. I bought Apple (AAPL) at $2 when Steve Jobs returned to run the company on the edge of bankruptcy. I bought Tesla (TSLA) at a split-adjusted $2.35 a share in 2010, completely buying into Elon Musk’s 30-year vision.

I only have to live another 17 years to see if he was right.

It Only Took Four Good Decisions

February 27, 2023

Diary, Newsletter, Summary

Global Market Comments
February 27, 2023
Fiat Lux

Featured Trade:

(MARKET OUTLOOK FOR THE WEEK AHEAD, or MAKING A SILK PURSE FROM A SOW’S EAR)
(META), (GOOGL), (MSFT), (AAPL), (AMZN), (NFLX), (TSLA), (SPY), (TLT), (ENPH), (UUP), (GLD), (SLV), (EEM)

CLICK HERE to download today's position sheet.

The Market Outlook for the Week Ahead, or Making a Silk Purse from a Sow’s Ear

Diary, Free Research, Newsletter

Call this the Dr. Jekyll and Mr. Hyde market.

On the up days, we see the kindly ministrations of Dr. Jekyll.

On the down days, we suffer from the evil hand of Mr. Hyde.

To say that traders are confused would be an understatement. Many seasoned pros have told me that this is one of the most difficult markets they have ever seen.

Fridays have been particularly treacherous when weekly options expire. Some 56% of all options trading now takes place with expirations of five days or less. Trading before 4:00 PM sees billions of dollars of hot money trying to force closing prices just in or out of the money for key at-the-money strike prices.

What is especially disturbing is that some 80% of the gain in the S&P 500 (SPY) this year has been in just seven names, Meta, (META), Alphabet (GOOGL), Microsoft (MSFT), Apple (AAPL), Amazon (AMZN), Netflix (NFLX) and Tesla (TSLA). Most other stocks went nowhere….or down. That much concentration means that any rallies lack confidence and will fail….for now.

Remember these names because when we finally do get a real upside breakout, they will be the leaders. You can take that to the bank.

Thanks to turmoil in the House of Representatives intent on a national default, bonds have given up 70 of the 120-basis point drop in yields since October. That deprives us of one of our biggest money makers of 2022, our long bond trades.

That means were are also seeing the automatic flip side of the bond trade, a strong US Dollar (UUP), and weak precious metals, (GLD) and (SLV), and emerging markets (EEM).

This too shall end.

If it was excess liquidity that caused stocks to rocket for 13 years, then maybe we should be focusing on what little liquidity is left. That would be the font of government money pouring into infrastructure and alternative energy plays.

Some $370 billion I know available for investment in ESG, would most of it going into the battery industry for the burgeoning electric vehicle industry. Even foreign firms like Finland’s Neste is moving to the US to cash in on federal munificence, converting an old US oil refinery to produce diesel fuel out of animal and vegetable fat (click here for the link).

Probably the best bet here is in California-based Enphase Energy (ENPH), which makes a 40% gross profit margins on microinverters for solar panels and has just seen a 42% dive in its share price. That makes (ENPH) a BUY. Hint: solar stocks always follow the price of oil to which it is tied, which has lately been down.

Some nimble and aggressive trading managed to push me back in the green for February, taking me up +0.93% on the month. That’s a dramatic improvement of +5.48% from a week ago.

You might even call it making a silk purse from a sow’s ear.

My 2023 year-to-date performance is still at the top at +23.28%. The S&P 500 (SPY) is up +4.32% so far in 2023. My trailing one-year return maintains a sky-high +86.58% versus -12.97% for the S&P 500.

That brings my 15-year total return to +620.47%, some 2.78 times the S&P 500 (SPX) over the same period. My average annualized return has recovered to +46.83%, still the highest in the industry.

Last week, I piled on a Tesla (TSLA) March $155-$260 short strangle betting that the stock can stay within a $95 range for 19 trading days. I also added a deep in-the-money long in the bond market for the first time in six weeks. Both positions turned immediately profitable.

My Ten-Year View

Q4 GDP Dips, from 3.9% to 2.7% in the October-December quarter. Consumption took a dive, which is amazing over the holidays. This is nowhere near a recession.

Fed Minutes Show More Hikes to Come, with the emphasis on the plural. That could take the overnight borrowing rate to a 5.40% high. It certainly pees on the parade for the falling interest rates crowd.

The Tail is Wagging the Dog, with short, dated options, often same-day expiration dominating trading every Friday. Billions of dollars are battling around key strike prices attempting to force expirations in or out of the money. No place for the little guy. Better to take Fridays off.

Netflix Slashes Prices in 30 countries, taking the stock down a modest 3%. (NFLX) is still the leader in the sector with 231 million subscribers, followed by Amazon (200 million), Disney Plus (162 million, HBO Max (95 million, Peacock (18 million), and Hulu 47 million). Buy (NFLX) and (AMZN) on dips.

Individual 401k’s Lost 23% in 2022, according to a study from Fidelity. High inflation is shrinking the remaining purchasing power even faster. A rising number of workers are also borrowing against their 401k’s to make ends meet. Such loans can go up to 50% of the principal. Better start making up the losses or you’ll be spending your golden years working at Taco Bell.

Apple to Add Glucose Monitor on its Watches, to aid diabetic clients. Some 38 million Americans have diabetes and given the obesity epidemic that figure is certain to rise. It highlights Big Tech’s move into the low-hanging fruit in health care.

Existing Home Sales Dive 0.7% in January, to a 4 million annualized rate, the weakest since October 2010. That makes 12 consecutive months of falling sales. The Median Home Price sold rose to $359,000. An imminent national debt crisis and spiking interest rates is not a great environment in which to sell your home.

Biden Ukraine Visit Tanks Gas and Oil Prices, cutting Russia’s chances of a win and eventually leading to a flood of oil on the market. Biden’s visit is sending the message to Putin that there’s no chance of a win here. Energy is hitting two-year lows across the board. Only energy stocks are staying high. Energy is getting so cheap it might be worth a trade.

Germany Accelerates Move Towards Alternatives, permanently cutting all ties with Russia energy. Europe’s biggest economy, and the fourth largest in the world, hopes to get 80% of its electricity from solar and wind by 2030. Hydrogen is also entering the picture. Other countries will follow.

On Monday, February 27 at 8:30 AM EST, US Durable Goods are out.

On Tuesday, February 28 at 9:00 AM, the S&P Case Shiller National Home Price Index for December is released.

On Wednesday, March 1 at 10:00 AM, the ISM Manufacturing PMI is printed.

On Thursday, March 2 at 8:30 AM, the Weekly Jobless Claims are announced.

On Friday, March 3 at 8:30 AM, the ISM Non-Manufacturing PMI. At 2:00 the Baker Hughes Oil Rig Count is out.

As for me, I usually get a request to fund some charity about once a day. I ignore them because they usually enrich the fundraisers more than the potential beneficiaries. But one request seemed to hit all my soft spots at once.

Would I be interested in financing the refit of the USS Potomac (AG-25), Franklin Delano Roosevelt’s presidential yacht?

I had just sold my oil and gas business for an outrageous profit and had some free time on my hands so I said, “Hell Yes,” but only if I get to drive. The trick was to raise the necessary $5 million without it costing me any money.

To say that the Potomac had fallen on hard times was an understatement.

When Roosevelt entered the White House in 1932, he inherited the presidential yacht of Herbert Hoover, the USS Sequoia. But the Sequoia was entirely made of wood, which Roosevelt had a lifelong fear of. When he was a young child, he nearly perished when a wooden ship caught fire and sank, he was passed to a lifeboat by a devoted nanny.

Roosevelt settled on the 165-foot USS Electra, launched from the Manitowoc Shipyard in Wisconsin, whose lines he greatly admired. The government had ordered 34 of these cutters to fight rum runners across the Great Lakes during Prohibition. Deliveries began just as the ban on alcohol ended.

Some $60,000 was poured into the ship to bring it up to presidential standards and it was made wheelchair accessible with an elevator, which FDR operated himself with ropes. The ship became the “floating White House,” and numerous political deals were hammered out on its decks. Some noted guests included King George VI of England, Queen Elisabeth, and Winston Churchill.

During WWII Roosevelt hosted his weekly “fireside chats” on the ship’s short-wave radio. The concern was that the Germans would attempt to block transmissions if broadcast came from the White House.

After Roosevelt’s death, the Potamac was decommissioned and sold off by Harry Truman, who favored the much more substantial 243-foot USS Williamsburg. The Potamac became a Dept of Fisheries enforcement boat until 1960 and then was used as a ferry to Puerto Rico until 1962.

An attempt was made to sail it through the Panama Canal to the 1962 World’s Fair in Seattle, but it broke down on the way in Long Beach, CA. In 1964 Elvis Presley bought the Potomac so it could be auctioned off to raise money for St. Jude Children’s Research Hospital. It sold for $65,000. It then disappeared from maritime registration in 1970. At one point there was an attempt to turn it into a floating disco.

In 1980 a US Coast Guard cutter spotted a suspicious radar return 20 miles off the coast of San Francisco. It turned out to be the Potomac loaded to the gunnels with bales of illicit marijuana from Mexico. The Coast Guard seized the ship and towed it to the Treasure Island naval base under the Bay Bridge. By now the 50-year-old ship was leaking badly. The marijuana bales soaked up the seawater and the ship became so heavy it sank at its moorings.

Then a long rescue effort began. Not wanting to get blamed for the sinking of a presidential yacht on its watch the Navy raised the Potomac at its own expense, about $10 million, putting its heavy lift crane to use. It was then sold to the City of Oakland, Ca for a paltry $15,000.

The troubled ship was placed on a barge and floated upriver to Stockton, CA, which had a large but underutilized unionized maritime repair business. The government subsidies started raining down from the skies and a down-to-the-rivets restoration began. Two rebuilt WWII tugboat engines replaced the old, exhausted ones. A nationwide search was launched to recover artifacts from FDR’s time on the ship. The Potomac returned to the seas in 1993.

I came on the scene in 2007 when the ship was due for a second refit. The foundation that now owned the ship needed $5 million. So, I did a deal with National Public Radio for free advertising in exchange for a few hundred dinner cruise tickets. NPR then held a contest to auction off tickets and kept the cash (what was the name of FDR’s dog? Fala!).

I also negotiated landing rights at the Pier One San Francisco Ferry Terminal, which involved negotiating with a half dozen unions, unheard of in San Francisco maritime circles. Every cruise sold out over two years, selling 2,500 tickets. To keep everyone well-lubricated I became the largest Bay Area buyer of wine for those years. I still have a free T-shirt from every winery in Napa Valley.

It turned out to be the most successful fundraiser in the history of NPR and the Potomac. We easily got the $5 million and then some. The ship received a new coat of white paint, new rigging, modern navigation gear, and more period artifacts. I obtained my captain’s license and learned how to command a former coast guard cutter.

It was a win-win-win.

I was trained by a retired US Navy nuclear submarine commander, who was a real expert at navigating a now thin-hulled 73-year-old ship in San Francisco’s crowded bay waters. We were only licensed to cruise up to the Golden Gate bridge and not beyond, as the ship was so old.

The inaugural cruise was the social event of the year in San Francisco with everyone wearing period Depression-era dress. It was attended by FDR’s grandson, James Roosevelt III, a Bay area attorney who was a dead ringer for his grandfather. I mercilessly grilled him for unpublished historical anecdotes. A handful of still-living Roosevelt cabinet members also came, as well as many WWII veterans.

As we approached the Golden Gate Bridge, some poor soul jumped off and the Coast Guard asked us to perform search and rescue until they could get a ship on station. No body was ever found. It certainly made for an eventful first cruise.

Of the original 34 cutters constructed only four remain. The other three make up the Circle Line tour boats that sail around Manhattan several times a day.

Last summer I boarded the Potomac for the first time in 14 years for a pleasant afternoon cruise with some guests from Australia. Some of the older crew recognized me and saluted. In the cabin, I noticed a brass urn oddly out of place. It contained the ashes of the sub-commander who had trained me all those years ago.

Good Luck and Good Trading,

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

Captain Thomas at the Helm

February 24, 2023

Diary, Newsletter, Summary

Global Market Comments
February 24, 2023
Fiat Lux

Featured Trade:

(FEBRUARY 22 BIWEEKLY STRATEGY WEBINAR Q&A)
(SPY), (BA), (CCI), (HD), (TLT), (TSLA), (PPLT), (PALL),
(JPM), (NVDA), (AAPL), (GOOGL), (META), (AMZN)

CLICK HERE to download today's position sheet.

February 22 Biweekly Strategy Webinar Q&A

Diary, Free Research, Newsletter

Below please find the subscribers’ Q&A for the February 22 Mad Hedge Fund Trader Global Strategy Webinar broadcast from Silicon Valley in California.

Q: Will Russia use nuclear weapons on Ukraine?

A: No, they won’t. If you’re trying to take over a country, you don’t exactly want to drop atomic bombs on it first and render it useless. If they do, Ukraine will retaliate in kind with the nukes they have. Most of the nuclear weapons the old Soviet Union had were assembled in Ukraine and the machinery is still there. We know Ukraine has four nuclear power plants and hundreds of tons of fuel so they have uranium. You only need to increase the purity from 80% to 93% and then convert it to plutonium to get weapons-grade and you only need 20 pounds to make a small bomb. At the very least, they could build a dirty truck bomb and make Moscow uninhabitable for 100 years. If the Russians did explode a nuke, the fallout cloud would blow back on them the next day, China in three days, the US in 10 days, and back on Russia again in two weeks. If Ukraine doesn’t remember how to make nuclear weapons, they can just ask me. I do have “Nuclear Test Site” on my resume.

Q: What would be the impact on the markets of a government debt default?

A: Bonds would collapse, causing interest rates to spike, and taking down stocks big time. Higher interest rates would crash the real estate market. You also can’t do real estate closings during a shutdown because Fannie Mae and Freddie Mac aren’t there to buy the debt. Commodities would fall sharply on recession fears. Even gold and silver do poorly on a massive liquidity squeeze. Government payments would cease, including Social Security, Medicare, and military salaries. Air traffic control would stop unless they are happy to work for free. The only place to hide is cash under your mattress since US Treasury bills and commercial banks will also be at risk. This is what the House Republicans are risking. It really depends on how long the shutdown lasts. Every time Georgia representative Marjorie Taylor Greene shouted “liar” at the State of the Union address you could see bond prices ticking down. She is one of the people who has to agree to a rise in the debt ceiling and she didn’t inspire a lot of confidence in bondholders. All that said, a $10 dip is a good place to buy the (TLT).

Q: Would you buy Boeing up here?

A: I loved Boeing at $100 and we did a could trades down there. At $220 not so much. It’s more than doubled off the October low and all the best-case scenarios have happened. The 737 MAX, which crashed twice due to an AI issue, got back in the air. The 787 Dreamliner is selling well. The company now has a two-year order backlog. And Air India followed up with the biggest aircraft order in history, some 450 planes over ten years. If Boeing dips $50 that would be another story because I think it hits a new all-time high at $450 in a couple of years. By the way, I took a 737 MAX on my flight back from Hawaii last weekend and the crew loved it. There are no screens on the seats. Instead, they broadcast the 800 greatest movies of all time on free WIFI.

Q: How do we know if your trade alert is for the stock, the ETF, or another underlying position?

A: Look at the ticker symbol—it always tells you exactly which security we are working in.

Q: With Bullard signaling a 50 basis-point rate hike, will the S&P (SPY) go down in the near term and how much?

A: Well Bullard is only one guy out of nine, so he doesn’t have the final say. It really depends on what Jay Powell wants. And if the data continues hot and inflation keeps rising, we will get a 50 basis point rise, and that should take the index down 10% from the recent high, or give up half of its recent year-to-date gains, so that’s a good rule of thumb. As long as we’re waiting for bad news, (which we won’t get until March 22) the markets will do nothing until then.

Q: What do you think about Crown Castle International (CCI), the cell tower company, taking a big hit with the bond market?

A: It pretty much moves in sync with the bond market, which has just dropped 10 points, so you probably want to be buying or doubling up on (CCI) right here, because it will be the first thing to recover once we see a negotiated increase in the debt ceiling which has to happen before the summer. The 5G buildout continues unabated.

Q: Would you recommend buying Tesla (TSLA) shares again?

A: Yes, but at least $50 lower, which we may get. Or at least $50 off the $217 top. I think Tesla goes to $1,000 sometime in the next couple of years and so does Elon Musk. All of the factors that could drive the stock that high are in progress. I know it’s happening over there, and that’s easily a $1,000 stock once their current breakthroughs go mass-market.

Q: Any interest in Iron Condors?

A: It is the same as Strangles, with more limited risk with four legs, a call spread and a put spread because you stop out your losses at much lower levels. But they are very trading-intensive, commission-intensive trades, and it’s really too much for most beginners to handle. However, if you’re a professional, you might consider doing iron condors on these positions. Iron Condors also max profits when nothing moves, and lately, no move is a pretty rare event. We’re going to get it for the next couple of months, but don’t count on that being a frequent trade.

Q: Any iShares 20 Plus Year Treasury Bond ETF (TLT) LEAPS to buy now?

A: Yes I've been kind of sitting on my hands waiting to see if this bottom here holds at 99 before I put out LEAPS, but we’re so close it really almost makes no difference. And if I were to do a LEAPS here it probably would be the $100-$105 one-year out. That might get you about a 100% profit in a year. That’s a very safe LEAPS, and I’ll get the numbers out when I get a chance.

Q: What’s your opinion on Home Depot (HD)?

A: I like it for the long term. Clearly, their disastrous earnings report shows that the economy for home repair is not as strong as we thought it was, so it may go lower first. I would hold off until we get a real capitulation selloff in those stocks.

Q: Are gold and silver possible candidates for LEAPS?

A: Yes, especially in view of the recent correction in these metals. And we did put these out last October at the market bottom. I probably will be updating that sometime in the next few weeks.

Q: How much longer will the Ukraine/Russia war last?

A: The general consensus among the military now is that this goes on for several more years, and both sides will just keep pouring troops into the meat grinder until they get exhausted.

Q: Any way to play Platinum (PPLT) or Palladium (PALL)?

A: Yes, there are ETFs on each of them.

Q: Any thoughts on the crypto industry?

A: I have given up on the crypto industry because it has been shown that so many of these trading platforms were stealing from their customers. Once you lose the confidence of a customer on trust, you never get it back in the financial industry. Also, crypto was interesting a couple of years ago when it was going up and everything else in the world was too expensive, but now you have all the best stocks trading not far from multi-year lows, and that makes quality stocks much more attractive than a crypto where you really don't know what’s going to happen. Crypto could be another Nikkei, which after 32 years still hasn’t reached its old highs. That is unless it gets taken over by big banks like (JPM) and regains respectability that way.

Q: Any thoughts on investing in the AI trend?

A: AI has suddenly become what crypto was 2 years ago, and what 3D printing was 15 years ago. It’s just the theme of the day, and something to promote. There are no pure AI plays. Basically, all companies have been using it for 10 or 15 years, it’s not a new thing. In fact, AI is already in every aspect of your life, you just might not know it yet. NVIDIA (NVDA) is probably the purest AI play out there whose chips everyone needs to execute AI. Beyond that, the biggest AI users are Apple (AAPL), Alphabet (GOOGL), Meta (META), and Amazon (AMZN). When Amazon makes ten more recommendations on books you might like or movies you might watch, that is AI.

To watch a replay of this webinar with all the charts, bells, whistles, and classic rock music, just log in to www.madhedgefundtrader.com, go to MY ACCOUNT, click on GLOBAL TRADING DISPATCH or TECHNOLOGY LETTER, then WEBINARS, and all the webinars from the last 12 years are there in all their glory.

Good Luck and Stay Healthy,

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

With Medal of Honor Winner Colonel Mitchel Paige

February 22, 2023

Diary, Newsletter, Summary

Global Market Comments
February 22, 2023
Fiat Lux

Featured Trade:

(TESTIMONIAL),
(TEN MORE TRENDS TO BET THE RANCH ON),
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Ten More Trends to Bet the Ranch On

Diary, Newsletter, Research

I believe that the pandemic and hyper-accelerating technology is bringing forward the future at an astonishing rate.

More applications will be created in the next year than over the last 40, some 500,000. The sum total of human knowledge is now doubling every year. The profits spun off and investment opportunities will be incredible, which is why I just doubled my ten-year forecast for the Dow Average (INDU) from 120,000 to 240,000.

Here are ten major trends for the economy and the markets that we can see already. It’s the unseen ones that will be really interesting.

(1) The Insurance Industry Changes Beyond All Recognition, confirming from “Recovery After Risk” to “Prevention of Risk”. Today, fire insurance pays you after your house burns down. Life insurance pays your next of kin after you die. And health insurance (which is really sick insurance) pays only after you get sick. During the next decade, we’ll see a new generation of insurance providers that offer you a service to KEEP you healthy and keep your house safe during a wildfire. Also, full autonomous driving will cut hospital admissions by half, dramatically dropping the cost of insurance. This is driven by machine learning, ubiquitous sensors, low-cost genome sequencing, and robotics to detect risk, prevent disaster, and guarantee safety before any costs are incurred.

(2) Autonomous Vehicles and Flying Cars (eVTOL) will make travel cheaper and easier. Fully autonomous vehicles (TSLA), (GOOGL), car-as-a-service fleets, and aerial ridesharing (flying cars) will be fully operational in most major metropolitan cities in the coming decade. The cost of transportation will plummet 3-4X, transforming real estate, finance, insurance, the materials economy, and urban planning. Where you live and work, and how you spend your time, will all be fundamentally reshaped by this future of human travel. Your kids and elderly parents will never drive. Already, a half dozen eVTOL companies have gone public raising more than $10B to fuel their growth. These vehicles are real and will help define the decade ahead. This is driven by machine learning, sensors, materials science, battery storage improvements, and ubiquitous gigabit connections.

(3) On-demand Production and On-demand Delivery Will Create an “Instant Economy of Things”. Urban dwellers will learn to expect “instant fulfillment” of their retail orders as drone and robotic last-mile delivery services carry products from local supply depots directly to your doorstep. Further riding the deployment of regional on-demand digital manufacturing (3D printing farms), individualized products can be obtained within hours—anywhere, anytime. I ordered a new high-end 50-pound garage door opener from Amazon Prime (AMZN) last month after my old one went kaput. Incredibly, they delivered it in hours! This is driven by networks, 3D printing, robotics, and AI.

(4) The Ability to Sense and Know Anything, Anytime, Anywhere. We’re rapidly approaching the era where 100 billion sensors (the Internet of Everything) are monitoring and sensing (imaging, listening, measuring) every facet of our environments, all the time. Global imaging satellites, drones, autonomous car LIDARs, and forward-looking augmented reality (AR) headset cameras are all part of a global sensor matrix, together allowing us to know anything, anytime, anywhere. In this future, it’s not “what you know,” but rather “the quality of the questions you ask” that will be most important. That gives us old guys a huge advantage. This is driven by the convergence of terrestrial, atmospheric, and space-based sensors, vast data networks, 5G and 6G communication networks (AAPL), next-gen Wi-Fi, and machine learning.

(5) Advertising Hyper Evolves. As ads become the primary driver of new services for free, AI becomes increasingly embedded in everyday life and your custom personal AI will soon understand what you want better than you do. In turn, we will begin to both trust and rely upon our AIs to make most of our buying decisions, turning over shopping to AI-enabled personal assistants. Your AI might make purchases based on your past desires, current shortages, conversations you’ve allowed your AI to listen to, or by tracking where your pupils focus on a virtual interface (i.e., what catches your attention). As a result, the advertising industry—which normally competes for your attention (whether at the Superbowl or through search engines)—will have a hard time influencing your AI. This is driven by machine learning, sensors, augmented reality, and 5G/networks.

(6) Cellular Agriculture Moves from the Lab to Inner Cities, Providing High-quality Protein that is Cheaper and Healthier. The next decade will witness the birth of the most ethical, nutritious, and environmentally sustainable protein production system devised by humankind. Stem cell-based “cellular agriculture” will allow the production of beef, chicken, and fish anywhere, on-demand, with far higher nutritional content, and a vastly lower environmental footprint than traditional livestock options. Traditional legacy steaks found at Ruth’s Chris and Morton’s will only to available to the wealthy. This is driven by biotechnology, materials science, machine learning, and agtech.

(7) Your Brain Will Integrate with Super-Fast Hardware and Software. My friend, technologist and futurist Ray Kurzweil, has predicted that by the mid-2030s, we will begin connecting the human neocortex to the cloud. This next decade will see tremendous progress in that direction, first serving those with spinal cord injuries, whereby patients will regain both sensory capacity and motor control. Yet beyond assisting those with motor function loss, several BCI pioneers are now attempting to supplement their baseline cognitive abilities, a pursuit with the potential to increase their sensorium, memory, and even intelligence. Recent demonstrations of a macaque monkey playing Pong using a Neuralink implant is proof of incredible progress. This is driven by materials science, AI/machine learning, robotics, and some fantastic imaginations.

(8) High-resolution Virtual Reality Will Transform Both Retail and Real Estate Shopping & the Future of Education. If you were a couch potato, you are about to become one on steroids. High-resolution, lightweight virtual reality headsets will allow individuals at home to shop for everything from clothing to real estate—all from the convenience of their living room. Need a new outfit? Your AI knows your detailed body measurements and can whip up a fashion show featuring your avatar wearing the latest 20 designs on a runway. Want to see how your furniture might look inside a house you’re viewing online? No problem! Your AI can populate the property with your virtualized inventory and give you a guided tour. On the education front, the use of VR and AI-driven avatars with technology such as that demonstrated by Dreamscape promises a future of game-like, immersive, and powerful education and training. This is driven by VR, machine learning, and high-bandwidth networks. Get your Oculus Rift from Facebook (FB) now!

(9) Increased Focus on Sustainability and the Environment will drive companies to invest in sustainability—both from a necessity standpoint and for marketing purposes. Breakthroughs in materials science, enabled by AI, will allow companies to drive tremendous reductions in waste and environmental contamination. One company’s waste will become another company’s profit center. Want to visit my chalet in Switzerland? You can do so by connecting your Oculus Rift headset to Google Maps….today! This is driven by materials science, AI, CRISPR, digital biology, and broadband networks.

(10) CRISPR and Gene Therapies Will Eliminate Disease. Perhaps one of the most powerful, underappreciated technologies in the world is CRISPR. In 2020, two incredible women won the Nobel Prize in medicine for its discovery, and revenues from CRISPR doubled between 2019 and 2020 to over $1.5B. A vast range of infectious diseases, from AIDS to Ebola, are now potentially curable, as are a wide range of genetic ailments like sickle cell anemia, thalassemia, and certain forms of congenital blindness. In addition, gene-editing technologies continue to advance in precision and ease of use, allowing families to treat and ultimately cure hundreds of inheritable genetic diseases. This is driven by various biotechnologies (CRISPR, Gene Therapy), genome sequencing, and AI. Only three companies have a monopoly in this sector right now, (CRSP), (EDIT), and (NTLA).

In the decade ahead, master entrepreneurs will look beyond the immediate effects of a given technology to seize secondary and tertiary, Google-sized business opportunities on the horizon.

As an investor, you should be asking yourself: What challenges or problems can I help solve? How can I leverage the coming waves of tech advancements?

I just thought you’d like to know.

John Thomas