Global Market Comments
February 12, 2024
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or RAISING MY YEAREND TARGET TO (SPX) $6,000)
(AAPL), (GOOGL), (META) (MSFT), (AMZN), (V), (PANW), (CCJ), (ARM), (USO), (XOM), (OXY), (INDA), (INDY), (FXI), (BABA), (NVDA), (TSA), (RCL)
When I announced my year-end target for the S&P 500 on the first of January, I knew it was cautious. That provided for only a 15% gain for 2024. Yet here we are a mere six weeks into the New Year, and we only have 10.4% to go.
That is with the six lead stocks, which account for 30% of the entire stock market capitalization, seeing earnings grow up to 300% annually. With that kind of growth, even $6,000 is looking overly conservative, even allowing for no multiple expansion whatsoever.
The top six stocks are over 11% YTD, while half of all S&P 500 stocks are down. A few friends of mine who are still alive and have been in the market for as long as I have never seen a market this concentrated. They are amazed, befuddled, and aghast, as am I.
And if you do want to buy big tech, you’re going to have to compete with the big tech companies themselves to do so. The buyback machine continues full speed ahead, with Apple (AAPL) Hoovering up $20.5 billion of its own shares, Alphabet (GOOGL) $16.1 billion, Meta (META) 6.3 billion, and Microsoft (MSFT) $4 billion.
I am a firm believer that markets will do whatever they have to do to screw the most people. So far this year it has done an admirable job doing just that, going up in a straight line with everyone underinvested and with $8 trillion on the sideline.
This is how markets will continue screwing most people. It keeps going up a little bit more. The NVIDIA earnings announcement due out on February 21 could be the ideal turning point.
Then the market suffers a ferocious correction, maybe 10% in a short period. Traders panic and dump all their positions. Then the (SPX) turns around at about $4,800 on a dime and then rockets all the way up to $6,000, frustrating investors once again.
I just thought you’d like to know.
I am usually cautious about ultra bears, but I picked up an interesting view last week about how long it may take the Chinese economy to recover.
During the US house bust from 2007 to 2012, the United States had 3 million excess unwanted homes weighing on the market like a dead weight, or about a seven-month oversupply. That was enough excess to cause the Great Recession, a 52% crash in the S&P 500, and the demise of thousands of American companies, including Lehman Brothers and Bear Stearns.
Today, China has a staggering 50 million excess homes in a population only four times larger than ours. That is a 15-year oversupply for the market. That means China could suffer a decade and a half of subpar growth and lagging stock markets. Don’t touch Chinese stocks even though they offer attractive single-digit multiples.
Why do you care? Because China is the world’s largest consumer and importer of most commodities, food, and energy. The stocks that specialize in these areas could be facing a long-term drag from the Middle Kingdom unless it is offset somewhere else.
The Chinese are only now discovering that the principal driver of their economic growth for the past 30 years has been US investment. President Xi has managed to scare that away with a hostile attitude towards America and saber-rattling over Taiwan. Last year for the first time the US imported more from Mexico than from China, where many companies have re-shored.
Wonder why crude oil (USO), (XOM), (OXY) is at $68 a barrel when the US economy is growing at a 3.1% rate? This is the reason. It is also a strong argument in favor of investing in India, which I discussed last week. Buy the (INDA) and the (INDY), not the (FXI) or (BABA).
In the meantime, you’ve got to love ARM Holdings PLC, whose earnings announcement triggered a heroic 56% one-day move up in the stock. They execute sub-designs for almost every AI chip out there. That’s what a 3% float in the stock gets you. Anyone who has any doubts about the durability of the AI story should take a look at what happened to (ARM) last week.
So far in February, we are up +1.78%. My 2024 year-to-date performance is also at -2.50%. The S&P 500 (SPY) is up +5.03% so far in 2024. My trailing one-year return reached +60.44% versus +33.13% for the S&P 500.
That brings my 16-year total return to +674.13%. My average annualized return has retreated to +51.20%.
Some 63 of my 70 trades last year were profitable in 2023.
I am maintaining longs in (MSFT), (AMZN), (V), (PANW), and (CCJ).
Reheating is Becoming an Issue, with a strong US economy and record-low unemployment rate possibly prompting the Fed to delay interest rate cuts. The stock market has been running on steroids on the expectation of imminent cuts. This is a new market risk and could unleash a thunderstorm on our parade.
CPI Revised Down, in December, from 0.3% to 0.2%. The deflationary economy is back! Stocks loved it, with the S&P 500 catapulting to $5,000. That’s why I revised my yearend target up to $6,000.
Early Retirements are Soaring, thanks to a stock market at new all-time highs. Baby boomers can now afford to “take this job and shove it.”
NVIDIA Enters New Custom Chip Market, potentially adding another $30 billion in revenues. The dominant global designer and supplier of AI chips aim to capture a portion of an exploding market for custom AI chips and to protect itself from the growing number of companies interested in finding alternatives to its products. Buy (NVDA) on dips.
Morgan Stanley Upgrades NVIDIA to an $800 Target. An exceptional supply-demand imbalance in the artificial intelligence-chip sector, as well as a massive shift in spending toward emerging technology, is likely to persist over the near term. Buy (NVDA) on dips.
ARM Holdings (ARM) Soars by 41%, off a spectacular forecast-based demand for designed-up AI chips. UK-based Arm makes money through royalties, when companies pay for access to build Arm-compatible chips, usually amounting to a small percentage of the final chip price. Arm said its customers shipped 7.7 billion Arm chips during the September quarter.
Tesla (TSLA) Looking to Cut Jobs, and reduce costs, as is the rest of Silicon Valley. The move could mark the bottom of the stock. Elon Musk is the master job cutter, axing 80% of the Twitter staff on takeover.
Meta (META) Gains $196 Billion in Market Cap in One Day, off the back of record sales, tripled earnings, and reduced costs.
Construction Spending Gains, up 0.9% in December, the best since October. Watch the industry reaccelerate as interest rates fall.
Royal Caribbean Beats, with record bookings in an industry I have recently become intensely interested in. (RCL) is grabbing market share from land-based vacations, as Millennials are finally discovering cheap cruise vacations, where it is often cheaper than to stay in a motel with all you can eat. Only a few cruises were lost to the Red Sea War. (RCL) just launched Icon of the Seas, the world’s largest cruise ship.
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, February 12, the US Consumer Inflation Expectations are announced.
On Tuesday, February 13 at 8:30 AM EST, the Core Inflation Rate will be released.
On Wednesday, February 14 at 2:00 PM, the Producer Price Index is published. The Federal Reserve announces its interest rate decision.
On Thursday, February 15 at 8:30 AM, the Weekly Jobless Claims are announced. We also get Retail Sales.
On Friday, February 16 at 2:30 PM, the January Building Permits are published, along with the University of Michigan Consumer Sentiment. At 2:00 PM the Baker Hughes Rig Count is printed.
As for me, it was in 1986 when the call went out at the London office of Morgan Stanley for someone to undertake an unusual task. They needed someone who knew the Middle East well, spoke some Arabic, was comfortable in the desert, and was a good rider.
The higher-ups had obtained an impossible-to-get invitation from the Kuwaiti Royal family to take part in a camel caravan into the Dibdibah Desert. It was the social event of the year.
More importantly, the event was to be attended by the head of the Kuwait Investment Authority, who ran over $100 billion in assets. Kuwait had immense oil revenues, but almost no people, so the bulk of their oil revenues were invested in western stock markets. An investment of goodwill here could pay off big time down the road.
The problem was that the US had just launched air strikes against Libya, destroying the dictator, Muammar Gaddafi’s royal palace, our response to the bombing of a disco in West Berlin frequented by US soldiers. Terrorist attacks were imminently expected throughout Europe.
Of course, I was the only one who volunteered.
My managing director didn’t want me to go, as they couldn’t afford to lose me. I explained that in reviewing the range of risks I had taken in my life, this one didn’t even register. The following week found myself in a first-class seat on Kuwait Airways headed for a Middle East in turmoil.
A limo picked me up at the Kuwait Hilton, just across the street from the US embassy, where I occupied the presidential suite. We headed west into the desert.
In an hour, I came across the most amazing sight - a collection of large tents accompanied by about 100 camels. Everyone was wearing traditional Arab dress with a ceremonial dagger. I had been riding horses all my life, camels not so much. So, I asked for the gentlest camel they had.
The camel wranglers gave me a tall female, which was more docile and obedient than the males. Imagine that! Getting on a camel is weird, as you mount them while they are sitting down. My camel had no problem lifting my 180 pounds.
They were beautiful animals, highly groomed, and in the pink of health. Some were worth millions of dollars. A handler asked me if I had ever drunk fresh camel milk, and I answered no. They didn’t offer it at Safeway. He picked up a metal bowl, cleaned it out with his hand, and milked a nearby camel.
He then handed me the bowl with a big smile across his face. There were definitely green flecks of manure floating on the top, but I drank it anyway. I had to, lest my host would lose face. At least it was white. It was body temperature warm and much richer than cow’s milk.
The motion of a camel is completely different from a horse. You ride back and forth in a rocking motion. I hoped the trip was short, as this ride had repetitive motion injuries written all over it. I was using muscles I had never used before. Hit your camel with a stick and they take off at 40 miles per hour.
I learned that a camel is a super animal ideally suited for the desert. It can ride 100 miles a day, and 150 miles in emergencies, according to TE Lawrence, who made the epic 600-mile trek to Aquaba in only four weeks in the height of summer. It can live 15 days without water, converting the fat in its hump.
In ten miles, we reached our destination. The tents went up, clouds of dust rose, the camels were corralled, and the cooking began for an epic feast that night.
It was a sight to behold. Elaborately decorated huge three-by-five wide bronze platers were brought overflowing with rice and vegetables, and every part of a sheep you can imagine, none of which was wasted. In the center was a cooked sheep’s head with the top of the skull removed so the brains were easily accessible. We all ate with our right hands.
I learned that I was the first foreigner ever invited to such an event, and the Arabs delighted in feeding me every part of the sheep, the eyes, the brains, the intestines, and the gristle. I pretended to love everything and laid back and thought of England. When they asked how it tasted I said it was great. I lied.
As the evening progressed, the Johnny Walker Red came out of hiding. Alcohol is illegal in Kuwait, and formal events are marked by copious amounts of elaborate fruit juices. I was told that someone with a royal connection had smuggled in an entire container of whiskey and I could drink all I wanted.
The next morning I was awoken by a bellowing camel and the worst headache in the world. I threw a rock at him to get him to shut up and he sauntered over and peed all over me.
The things I did for Morgan Stanley!
Four years later, Iraq invaded Kuwait. Some of my friends were kidnapped and held for ransom, while others were never heard from again.
The Kuwaiti government said they would pay for the war if we provided the troops, tanks, and planes. So they sold their entire $100 million investment portfolio and gave the money to the US.
Morgan Stanley got the mandate to handle the liquidation, earning the biggest commission in the firm’s history. No doubt, the salesman who got the order was considered a genius, earned a promotion, and was paid a huge bonus.
I spent the year as a Marine Corps captain, flying around assorted American generals and doing the odd special opp. I got shot down and still set off airport metal detectors. No bonus here. But at least I gained an insight and an experience into a medieval Bedouin lifestyle that is long gone.
They say success has many fathers. This is a classic example.
You can’t just ride out into the Kuwait desert anymore. It is still filled with mines planted by the Iraqis. There are almost no camels left in the Middle East, long ago replaced by trucks. When I was in Egypt in 2019, I rode a few mangy, pitiful animals held over for the tourists.
When I passed through my London Club last summer, the Naval and Military Club on St. James Square, whose portrait was right at the front entrance? None other than that of Lawrence of Arabia.
It turns out we were members of the same club in more ways than one.
Stay healthy,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
John Thomas of Arabia
Checking Out the Local Camel Milk
This One Will Do
Traffic in Arabia
Global Market Comments
January 3, 2024
Fiat Lux
2024 Annual Asset Class Review
A Global Vision
FOR PAID SUBSCRIBERS ONLY
Featured Trades:
(SPX), (QQQ), (IWM) (AAPL), (XLF), (BAC) (JPM), (BAC), (C), (MS), (GS),
(X), (CAT), (DE),(TLT), (TBT), (JNK), (PHB), (HYG), (MUB), (LQD), (FXE), (EUO),
(FXC), (FXA), (YCS), (FXY), (CYB), (DIG), (RIG), (USO), (DUG), (UNG), (USO),
(XLE), (AMLP),(GLD), (DGP), (SLV), (PPTL), (PALL), (ITB), (LEN), (KBH), (PHM)
I am once again writing this report from a first-class sleeping cabin on Amtrak’s legendary California Zephyr.
By day, I have a comfortable seat next to a panoramic window. At night, they fold into two bunk beds, a single and a double. There is a shower, but only Houdini can navigate it.
I am anything but Houdini, so I foray downstairs to use the larger public hot showers. They are divine.
We are now pulling away from Chicago’s Union Station, leaving its hurried commuters, buskers, panhandlers, and majestic great halls behind. I love this building as a monument to American exceptionalism.
I am headed for Emeryville, California, just across the bay from San Francisco, some 2,121.6 miles away. That gives me only 56 hours to complete this report.
I tip my porter, Raymond, $100 in advance to ensure everything goes well during the long adventure and keep me up to date with the onboard gossip.
The rolling and pitching of the car is causing my fingers to dance all over the keyboard. Microsoft’s Spellchecker can catch most of the mistakes, but not all of them.
Chicago’s Union Station
As both broadband and cell phone coverage are unavailable along most of the route, I have to rely on frenzied Internet searches during stops at major stations along the way, like Omaha, Salt Lake City, and Reno, to Google obscure data points and download the latest charts.
You know those cool maps in the Verizon stores that show the vast coverage of their cell phone networks? They are complete BS.
Who knew that 95% of America is off the grid? That explains so much about our country today.
I have posted many of my better photos from the trip below, although there is only so much you can do from a moving train and an iPhone 15 Pro.
Here is the bottom line which I have been warning you about for months. In 2024 we will probably top the 70.44% we made last year, but you are going to have to navigate the reefs, shoals, hurricanes, and the odd banking crisis. Do it and you can laugh all the way to the bank. I will be there to assist you in navigating every step.
The first half of 2024 will be all about trading, making bets on when the Fed starts cutting interest rates. Technology will continue their meteoric melt-up. In the second half, I expect the cuts to actually take place and markets to go straight up. Domestic industrials, commodities, financials, energy foreign markets, and currencies will lead.
And here is my fundamental thesis for 2024. After the Fed kept rates too low for too long and then raised them too much, it will then panic and lower them again too fast to avoid a recession. In other words, a mistake-prone Jay Powell will keep making mistakes. That sounds like a good bet to me.
Keep in mind that the Mad Hedge AI Market Timing Index is at the absolute top end of its historic range the three-month likelihood of you making money on a trade is essentially zero. But adhere to the recommendations I make in this report today and you should be up about 30% in a year.
Let me give you a list of the challenges I see financial markets facing in the coming year:
The Ten Key Variables for 2024
1) When will the Fed pivot?
2) When will quantitative tightening end?
3) How soon will the Russians give up on Ukraine?
4) When will the rotation from technology to domestic value plays happen?
5)How much of falling interest rates will translate into higher gold prices?
6) When will the structural commodities boom get a second wind?
7) How fast will the US dollar fall?
8) How quickly will lower interest rates feed into a hotter real estate market?
9) How fast can the Chinese economy bounce back from Covid-19?
10) When does the next bull market in energy begin?
All the answers are below:
Somewhere in Iowa
The Thumbnail Portfolio
Equities – buy dips
Bonds – buy dips
Foreign Currencies – buy dips
Commodities – buy dips
Precious Metals – buy dips
Energy – buy dips
Real Estate – buy dips
1) The Economy – From Hot to Cool to Hot Again
2023 was a terrible year for economists who largely got it wrong. Many will be driving Uber cabs from January.
The economy is clearly slowing now from the red-hot 5.2% GDP growth rate we saw in Q3 to a much more modest 2.0% rate in Q4. We’ll get the first read on the end of January.
Any more than that and the Fed will panic and bring interest rate cuts dramatically forward to head off a recession. That is clearly what technology stocks were discounting with a melt-up of Biblical proportions, some 19% in the last two months, or $65 in the (QQQ)’s.
Anywhere you look, the data is softening, save for employment, which is holding up incredibly well at a 3.7% headline Unemployment Rate. The labor shortage may be the result of more workers dying from COVID-19 than we understand. Far more are working from home not showing up in the data. And many young people have just disappeared off the grid (they’re in the vans you see on the freeways).
The big picture view of what’s going on here is that after 15 years of turmoil caused by the 2008 financial crisis, pandemic, ultra-low interest rates, and excessive stimulus, we may finally be returning to normal. That means long-term average growth and inflation rates of 3.0% each.
I can’t wait.
2) Equities (SPX), (QQQ), (IWM) (AAPL), (XLF), (BAC) (JPM), (C), (MS), (GS), (X), (CAT), (DE)
As I travel around the world speaking with investors, I notice that they all have one thing in common. They underestimate the impact of technology, the rate at which it is accelerating, its deflationary impact on the economy, and the positive influence they have on all stocks, not just tech ones. And the farther I get away from Silicon Valley the poorer the understanding.
Since my job is to make your life incredibly easy, I am going to simplify my equity strategy for 2024.
It's all about falling interest rates.
You should pay attention. In my January 4, 2023 Annual Asset Class Review (click here), I predicted the S&P 500 would hit $4,800 by year-end end. Here we are at $4,752.
I didn’t nail the market move because I am omniscient, possess a crystal ball, or know a secret Yaqui Indian chant. I have spent the last 30 years living in Silicon Valley and have a front-row seat to the hyper-accelerating technology here.
Since the time of the Roman Empire advancing technology has been highly deflationary (can I get you a deal on a chariot!). Now is no different, which meant that the Federal Reserve would have to stop raising interest rates in the first half of the year.
The predictions of a decade-long battle with rising prices like we saw in the seventies and eighties proved so much bunk, alarmism, and clickbait. In fact, the last 25 basis point rate rise took place on July 26, taking up from an overnight rate of 5.25% to 5.5%. That rendered the hard landing forecasts for the economy nonsense.
When interest rates are as high as they are now, you only look at trades and investments that can benefit from falling interest rates. All stocks actually benefit from cheaper money, but some much more than others.
In the first half, that will be technology plays like Apple (AAPL), (Microsoft (MSFT), Amazon (AMZN), Alphabet (GOOGL), Meta (META), and NVIDIA (NVDA). Much of this move was pulled forward into the end of 2023 so this sector may flatline for a while.
In the second half, value plays will take the leadership like banks, (JPM), (BAC), (C), financials (MS), (GS), homebuilders (KBH), (LEN), (PHM), industrials (X), capital goods (CAT), (DE), and commodities (FCX). Everything is going to new all-time highs. My Dow average of 120,000 by the end of the decade is only one more triple away and is now looking very conservative.
That means we now have at hand a generational opportunity to get into the fastest-growing sectors of the US economy at bargain prices. I’m talking Cadillacs at KIA prices. Corporate profits powered by accelerating technology, artificial intelligence, and capital spending will rise by large multiples. Every contemporary earnings forecast will come up short and have to be upgraded. 2024 will be a year of never-ending upgrades.
After crossing a long, hot desert small-cap stocks can finally see water. That’s because they are the most leveraged, undercapitalized, and at the mercy of interest rates and the economic cycle. They always deliver the most heart-rending declines going into recessions. Guess what happens now with the economy headed for a soft landing? They lead to the upside, with some forecasts for the Russell 2000 going as high as a ballistic 50%.
Another category of its own, Biotech & Health Care which is now despised, should do well on its own as technology and breakthroughs are bringing new discoveries. Artificial intelligence is discovering new drugs at an incredible pace and then telling you how to cheaply manufacture them. My top three picks there are Eli Lily (ELI), Abbvie (ABBV), and Merck (MRK).
There is another equity subclass that we haven’t visited in about a decade, and that would be emerging markets (EEM). After ten years of punishment from a strong dollar, (EEM) has been forgotten as an investment allocation. We are now in a position where the (EEM) is likely to outperform US markets in 2024, and perhaps for the rest of the decade. The drivers here are falling interest rates, a cheaper dollar, a reigniting global economy, and a new commodity boom.
Block out time on your calendars, because whenever the Volatility Index (VIX) tops $20, up from the current $12, I am going pedal to the metal, and full firewall forward (a pilot term), and your inboxes will be flooded with new trade alerts.
What is my yearend prediction for the S&P 500 for 2024. We should reach $5,500, a gain of 14.58%. You heard it here first.
3) Bonds (TLT), (TBT), (JNK), (PHB), (HYG), (MUB), (LQD)
Amtrak needs to fill every seat in the dining car to get everyone fed on time, so you never know who you will share a table with for breakfast, lunch, and dinner.
There was the Vietnam Vet Phantom Jet Pilot who now refused to fly because he was treated so badly at airports. A young couple desperately eloping from Omaha could only afford seats as far as Salt Lake City. After they sat up all night, I paid for their breakfast.
A retired British couple was circumnavigating the entire US in a month on a “See America Pass.” Mennonites returning home by train because their religion forbade automobiles or airplanes.
The old bond trade is dead.
Long live the new bond trade!
After selling short bonds (TLT) from $180 all the way down to $82, I flipped to the long side on October 17. The next week, bonds saw their biggest rally in history, making instant millionaires out of several of my followers. The (TLT) has since rocketed from $82 to an eye-popping $100, a 22% gain.
In a heartbeat, we went from super bear to hyper bull.
I am looking for the Fed to cut interest rates by 1.00% in 2024 but won’t begin until the second half of the year. All of the first half bond gains were pulled forward into 2023 so I am looking for long periods of narrow trading ranges. By June, economic weakness will be so obvious that a dramatic Fed rate-cutting policy will ensue.
In addition, the Fed will end its quantitative tightening program by June, which is currently sucking $90 billion a month out of the economy. That’s a lot of bond-selling that suddenly ends.
I’m looking for $120 in the (TLT) sometime in 2024, with a possible stretch to $130. Use every five-point dip to load up on shares in the (TLT) ETF, calls, call spreads, and one-year LEAPS. This trade is going to work fast. It is the low-hanging fruit of 2024.
We are never going back to the 0.32% yields, and $165 prices we saw in the last bond peak. But you can still make a lot of money in a run-up from $82 to $120, as many happy bondholders are now discovering.
It isn’t just bonds that are going up. The entire interest rate space is doing well including junk bonds (JNK), municipal bonds (MUB), REITS (NLY), preferred stock, and convertible bonds.
A Visit to the 19th Century
4) Foreign Currencies (FXE), (EUO), (FXC), (FXA), (YCS), (FXY), (CYB)
With a major yield advantage over the rest of the world for the last decade, the US dollar has been on an absolute tear. After all, the world’s strongest economy begets the world’s strongest currency.
That is about to end.
If your primary assumption is that US interest rates will see a sharp decline sometime in 2024, then the outlook for the greenback is terrible.
Currencies are driven by interest rate differentials and the buck is soon going to see the fastest shrinking yield premium in the forex markets.
That shines a great bright light on the foreign currency ETFs. You could do well buying the Australian Dollar (FXA), Euro (FXE), Japanese yen (FXE), and British Pound (FXB). I’d pass on the Chinese yuan (CYB) right now until their Covid shutdowns end.
Look at the 50-year chart of the US dollar index below and you’ll see that a 13-year uptrend in the buck is rolling over and will lead to a 5-10-year down move. Draw your weapons.
5) Commodities (FCX), (VALE), (DBA)
Commodities are the high beta players in the financial markets. That’s because the cost of being wrong is so much higher. Get on the losing side of commodities and you will be bled dry by storage costs, interest expenses, contangos, and zero demand.
Commodities have one great attribute. They predict recessions and recoveries earlier than any other asset class. When they peaked in March of 2022, they were screaming loud and clear that a recession would hit in early 2023. By reversing on a dime on November 13, 2023, they also told us that a rip-roaring recovery would begin in 2024.
You saw this in every important play in the sector, including Broken Hill (BHP), Peabody Energy (BTU), and Freeport McMoRan (FCX). And who but me noticed that Alcoa Aluminum (AA) was up an incredible 50% in December? Maybe you can’t teach an old dog new tricks, but the old tricks work pretty darn well!
The heady days of the 2011 commodity bubble top are about to replay. Now that this sector is convinced of a substantially weaker US dollar and lower inflation, it is once more a favorite target of traders.
China will finally rejoin the global economy as a growth engine in 2024 but at only half its previous growth rate. It will be replaced by India, which is turning into the new China and is now the most populous country in the world.
And here’s another big new driver. Each electric vehicle requires 200 pounds of copper and production is expected to rise from 2 million units a year to 20 million by 2030. Annual copper production will have to increase three-fold in a decade to accommodate this increase, no easy task or prices will have to rise.
The great thing about commodities is that it takes a decade to bring new supply online, unlike stocks and bonds, which can merely be created by an entry in an Excel spreadsheet. As a result, they always run far higher than you can imagine.
Accumulate all commodities on dips.
6) Energy (DIG), (RIG), (USO), (DUG), (UNG), (USO), (XLE), (AMLP)
Energy was the top-performing sector of 2023 until it wasn’t.
We got a nice boost to $90 a barrel from the Gaza War. But that faded rapidly as there was never an actual supply disruption, just the threats of one. Saudi production has been cut back so far, some 5 million barrels a day, that it risks budget shortfalls if it reduces any more. In the meantime, US fracking production has taken off like a rocket.
In the meantime, Joe Biden is sitting on the bid in an effort to refill the Strategic Petroleum Reserves that was drawn down from 723 to 350 million barrels during the last price spike.
The trade here is to buy any energy plays when Texas tea approaches $70 and take profits at $95. Your first picks should be ExxonMobile (XOM), Occidental Petroleum (OXY) where Warren Buffet has a 27% stake, Diamondback Energy (FANG), and Devon Energy (DVN).
The really big energy play for 2024 will be in natural gas (UNG), which was slaughtered in 2023. The problem here was not a shortage of demand because China would take all we could deliver. It was in our ability to deliver, hobbled by the lack of gasification facilities needed to export. One even blew up.
In 2024 several new export facilities came online and the damaged one was repaired. That should send prices soaring. Natural gas prices now at a throw-away $2.00 per MM BTU could make it to $8.00 in the next 12 months. That takes the (UNG) from $5.00 to $15.00 (because of the contango).
Buy (UNG) LEAPS (Long Term Equity Anticipation Securities) right now.
Remember, you will be trading an asset class that is eventually on its way to zero sooner than you think. However, you could have several doublings on the way to zero. This is one of those times. And you also have a huge 35% contango headwind working against you all the time.
They call this commodity the “widow maker” for a good reason.
The real tell here is that energy companies are bailing on their own industry. Instead of reinvesting profits back into their future exploration and development, as they have for the last century, they are paying out more in dividends and share buybacks.
Take the money and run. Trade, don’t marry this asset class.
There is the additional challenge in that the bulk of US investors, especially environmentally friendly ESG funds, are now banned from investing in legacy carbon-based stocks. That means permanently cheap valuations and share prices for the energy industry.
Energy now counts for only 5% of the S&P 500. Twenty years ago, it boasted a 15% weighting.
The gradual shutdown of the industry makes the supply/demand situation infinitely more volatile.
To understand better how oil might behave in 2024, I’ll be studying US hay consumption from 1900-1920. That was when the horse population fell from 100 million to 6 million, all replaced by gasoline-powered cars and trucks.
The internal combustion engine is about to suffer the same fate.
7) Precious Metals (GLD), (DGP), (SLV), (PPTL), (PALL)
The train has added extra engines at Denver, so now we may begin the long laboring climb up the Eastern slope of the Rocky Mountains.
On a steep curve, we pass along an antiquated freight train of hopper cars filled with large boulders.
The porter tells me this train is welded to the tracks to create a windbreak. Once, a gust howled out of the pass so swiftly, that it blew a passenger train over on its side.
In the snow-filled canyons, we saw a family of three moose, a huge herd of elk, and another group of wild mustangs. The engineer informs us that a rare bald eagle is flying along the left side of the train. It’s a good omen for the coming year.
We also see countless abandoned 19th-century gold mines and broken-down wooden trestles leading to huge piles of tailings, and relics of previous precious metals booms. So, it is timely here to speak about the future of precious metals.
Here it’s important to look at the long view on gold. The barbarous relic tends to have good and bad decades. During the 2000’s the price of the yellow metal rose tenfold, from $200 to $2,000. The 2010s were very boring when gold was unchanged. Gold is doing well this decade, already up 40%, and a double or triple is in the cards.
2023 should have been a terrible year for precious metals. With inflation soaring, stocks volatile, and interest rates soaring, gold had every reason to collapse. Instead, it was up on the year, thanks to a heroic $325, 17.8%% rally in the last two months.
The reason is falling interest rates, which reduce the opportunity costs of owning gold. The yellow metal doesn’t pay a dividend, costs money to store and insure, and delivery is an expensive pain in the butt.
Chart formations are looking very encouraging with a massive upside breakout in place. So, buy gold on dips if you have a stick of courage on you, which you must if you read this newsletter.
Of course, the best investors never buy gold during a bull market. They Hoover up gold miners, which rise four times faster, like Barrack Gold (GOLD), Newmont Mining (NEM), and the basket play Van Eck Vectors Gold Miners ETF (GDX).
Higher beta silver (SLV) will be the better bet, as it already has been because it plays a major role in the decarbonization of America. There isn’t a solar panel or electric vehicle out there without some silver in them and the growth numbers are positively exponential. Keep buying (SLV), (SLH), and (WPM) on dips.
8) Real Estate (ITB), (LEN), (KBH), (PHM)
The majestic snow-covered Rocky Mountains are behind me. There is now a paucity of scenery, with the endless ocean of sagebrush and salt flats of Northern Nevada outside my window, so there is nothing else to do but write.
My apologies in advance to readers in Wells, Elko, Battle Mountain, and Winnemucca, Nevada.
It is a route long traversed by roving bands of Indians, itinerant fur traders, the Pony Express, my own immigrant forebearers in wagon trains, the Transcontinental Railroad, the Lincoln Highway, and finally US Interstate 80, which was built for the 1960 Winter Olympics at Squaw Valley.
Passing by shantytowns and the forlorn communities of the high desert, I am prompted to comment on the state of the US real estate market.
Those tormented by the shrinking number of real estate transactions over the past two years take solace. The past excesses have been unwound and we are now on the launching pad for another decade-long bull market.
There is a generational structural shortage of supply with housing which won’t come back into balance until the 2030’s. You don’t have a real estate crash when we are short 10 million homes.
The reasons, of course, are demographic. There are only three numbers you need to know in the housing market for the next ten years: there are 80 million baby boomers, 65 million Generation Xers who follow them, and 86 million in the generation after that, the Millennials.
The 76 million baby boomers (between ages 62 and 79) have been unloading dwellings to the 72 million Gen Xers (between age 41 and 56) since prices peaked in 2007. But there are not enough of the latter, and three decades of falling real incomes mean that they only earn a fraction of what their parents made. That’s what caused the financial crisis. That has created the present shortage of housing, both for ownership and rentals.
There is a happy ending to this story.
The 72 million Millennials now aged 25-40 are now the dominant buyers in the market. They are transitioning from 30% to 70% of all new buyers of homes. They are also just entering the peak spending years of middle age, which is great for everyone. Hot on their heels are 68 million Gen Z, which are now 12 to 27 years old.
The Great Millennial Migration to the suburbs and Middle America has just begun. Thanks to the pandemic and Zoom, many are never returning to the cities. That has prompted massive numbers to move from the coasts to the American heartland.
That’s why Boise, Idaho was the top-performing real estate market in 2023, followed by Phoenix, Arizona. Personally, I like Reno, Nevada, where Apple, Google, Amazon, and Tesla are building factories as fast as they can, just a four-hour drive from Silicon Valley.
As a result, the price of single-family homes should continue to rise during the 2020s, as they did during the 1970s and the 1990s when identical demographic forces were at play.
This will happen in the context of a labor shortfall, rising wages, and improving standards of living.
Increasing rents are accelerating this trend. Renters now pay 35% of their gross income, compared to only 18% for owners, and less, when multiple deductions and tax subsidies are considered. Rents are now rising faster than home prices.
Remember, too, that the US will not have built any new houses in large numbers in 17 years. The 50% of small home builders that went under during the Financial Crisis never came back.
We are still operating at only half of the 2007 peak rate. Thanks to the Great Recession, the construction of five million new homes has gone missing in action.
There is a new factor at work. We are all now prisoners of the 2.75% 30-year fixed-rate mortgages we all obtained over the past five years. If we sell and try to move, a new mortgage will cost double today. If you borrow at a 2.75% 30-year fixed rate, and the long-term inflation rate is 3%, then, over time, you will get your house for free. That’s why nobody is selling, and prices have barely fallen.
This winds down in 2024 as the Fed realizes its many errors and sharply lowers interest rates. Home prices will explode…. again.
Quite honestly, of all the asset classes mentioned in this report, purchasing your abode is probably the single best investment you can make now after you throw in all the tax breaks. It’s also a great inflation play.
That means the major homebuilders like Lennar (LEN), Pulte Homes (PHM), and KB Homes (KBH) are a buy on the dip. But don’t forget to sell your home by the 2030s when the next demographic headwind resumes. That’s when you should unload your home to a Millennial or Gen Xer and move into a cheap rental.
A second-hand RV would be better.
9) Postscript
We have pulled into the station at Truckee amid a howling blizzard.
My loyal staff have made the ten-mile trek from my estate at Incline Village to welcome me to California with a couple of hot breakfast burritos and a chilled bottle of Dom Perignon Champagne, which has been resting in a nearby snowbank. I am thankfully spared from taking my last meal with Amtrak.
After that, it was over legendary Donner Pass, and then all downhill from the Sierras, across the Central Valley, and into the Sacramento River Delta.
Well, that’s all for now. We’ve just passed what was left of the Pacific mothball fleet moored near the Benicia Bridge (2,000 ships down to six in 50 years). The pressure increase caused by a 7,200-foot descent from Donner Pass has crushed my plastic water bottle. Nice science experiment!
The Golden Gate Bridge and the soaring spire of Salesforce Tower are just coming into view across San Francisco Bay.
A storm has blown through, leaving the air crystal clear and the bay as flat as glass. It is time for me to unplug my MacBook Pro and iPhone 15 Pro, pick up my various adapters, and pack up.
We arrive in Emeryville 45 minutes early. With any luck, I can squeeze in a ten-mile night hike up Grizzly Peak and still get home in time to watch the ball drop in New York’s Times Square on TV.
I reach the ridge just in time to catch a spectacular pastel sunset over the Pacific Ocean. The omens are there. It is going to be another good year.
I’ll shoot you a Trade Alert whenever I see a window open at a sweet spot on any of the dozens of trades described above, which should be soon.
Good luck and good trading in 2024!
John Thomas
The Mad Hedge Fund Trader
Global Market Comments
December 8, 2023
Fiat Lux
SPECIAL MASTER LIMITED PARTNERSHIP ISSUE
Featured Trade:
(THE REBIRTH OF THE MASTER LIMITED PARTNERSHIP),
(USO), (AMLP), (FPL), (MLPX)
Global Market Comments
October 31, 2023
Fiat Lux
ANOTHER SPECIAL SOLAR ISSUE
Featured Trade:
(HOW TO BUY A SOLAR SYSTEM),
(SCTY), (SPWR), (TSLA), (USO)
Global Market Comments
October 16, 2023
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or TAKING SOME FIRE)
(USO), (UUP), (JPM),
I am writing this letter in a Ukrainian army truck on the banks of the Black Sea right where the Dnieper River flows in. Crimea is 20 miles across the water. We just watched an American HIMERS missile destroy a Russian facility there and the black smoke is billowing upward.
We’ve been stuck here at this army checkpoint for two hours on this gorgeous autumn day so they can check my papers and decide if I’m a Russian spy. I definitely don’t look like your average Ukrainian. What better time to knock a newsletter? After I finished my letter I took a nap.
I have to admit I have been somewhat remiss in following the market the past week.
Whenever I had the choice of checking my stock market app or Look Out Ukraine, which tracks incoming Russian missiles, the latter usually won out. Not always, but usually. Then it’s on to the next app, which gives the location of the nearest bomb shelter.
Some people go to the beach for vacations, while I choose war zones. Different strokes for different folks, I guess. Maybe I’m trying to relive my long-lost youth as a war correspondent in Southeast Asia all those years ago.
It’s Becoming increasingly obvious to all that the Fed is done raising interest rates. The only question is how long they will remain at this elevated level. Then year US Treasury yields, which hit a 17-year high of 4.80% last week, might visit 5.0% and then that’s it.
I must apologize to owners of the (TLT) October $89-$92 vertical bear put spread. I should have sent out a trade alert to take profits on Thursday during the bond market meltdown when the price hit $2.92. I know it hit this price because several followers emailed me to say thanks for the trade.
But I was pinned down by Russian fire on the west bank of the Dnieper River and couldn’t escape until after nightfall. Yes, I know, excuses, excuses.
Technical analysts are having a field day with the (SPY) seemingly trapped between the 50 and 200-day moving averages in a narrowing range. Something big is going to happen eventually.
Indexes could get resolved to the upside when big tech earnings come out the week of October 28, which are expected to be great. It could also be resolved to the downside on November 17 when the House of Representatives shuts down the US government.
Maybe this is why markets are going nowhere. In any case, the disaster in the Middle East is blotting out all other news.
Another matter on which traders increasingly agree is that big tech will lead any upside breakout. A sure sign is that they have been moving sideways for the last 2 1/2 months while interest rates-sensitive sectors have been getting slaughtered. Indeed, Alphabet (GOOGL) is down only 3% from its high for the year, a huge AI winner.
Look no further than Microsoft (MSFT), which trades at only 28.2 times earnings. The company expects 16.2% annual growth for the next three years and is the best growth and AI play out there with its ownership of OpenAI. That’s boosting Mr. Softy’s Azure cloud business enormously.
So far in August, we are up +2.23%. My 2023 year-to-date performance is still at an eye-popping +63.03%. The S&P 500 (SPY) is up +13.42% so far in 2023. My trailing one-year return reached +xx% versus +xx% for the S&P 500.
That brings my 15-year total return to +660.22%. My average annualized return has recovered to +47.71%, another new high, some 2.62 times the S&P 500 over the same period.
Some 44 of my 49 trades this year have been profitable.
It’s a Black Swan a Week that is conspiring to keep markets trapped in narrow ranges. The natural tendency seems to be up into a yearend rally, but they keep getting slammed by shocks, like a government shutdown, a leaderless house, and the Middle East War. The trade has been long big tech, long oil, and short small tech and bonds, of which Mad Hedge caught all four through its various services.
The Middle East Descends on Wall Street, and so far, the damage is limited to a few big techs. Oil (USO) is up 3% and gold caught a bid as well. If this develops into a major regional war expect more downside. It paid to buy every geopolitical crisis over the last 30 years.
Dollar (UUP) Soars on Mid East Chaos, as it catches its traditional flight to safety bid. We could be approaching a top here.
IMF Hikes US Growth Forecast. The International Monetary Fund raised its U.S. growth projection for this year by 0.3 percentage points compared with its July update, to 2.1%. It lowered its euro zone forecast by 0.2 percentage points, to 0.7%. China gets a downgrade too. For the US, 2024 is looking better and better.
The Producer Price Index Jumps 0.5%, more than expected. Markets didn’t really care. Gasoline as the biggest gainer.
The Consumer Price Index Explodes to 3.7%, Inflation is still transitory after over 3 years. Strip out food and energy and core inflation is over 4% year over year. The big question moving into 2024 is if the US consumer can handle these uncontrollable price rises and coalesce a Democratic government that parades around prices not going up less than before. The Fed hasn’t budged from their 2% inflation target, but they are taking their sweet time to get there.
JP Morgan (JPM) Announced Record Earnings, boosting the stock by 5%. With high rates, net interest income is the big winner. Reserves for loan losses were also cut. But (JPM) on dips.
Oil (USO) Jumps 4%, on a tightening of US sanctions against Russia. The goal is to deprive Russia of excess profits used to fund its war against Ukraine. Two foreign-flagged ships were barred from moving their cargo.
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 16, at 2:30 PM EST, the New York State Manufacturing Index is out.
On Tuesday, October 17 at 2:30 PM, the US Retail Sales are released.
On Wednesday, October 18 at 2:30 PM, the US Building Permits are published.
On Thursday, October 19 at 8:30 AM, the Weekly Jobless Claims are announced. We also get Existing Home Sales.
On Friday, October 20 at 2:00 PM the Baker Hughes Rig Count is printed.
As for me, I’ll record the Story of John Thomas’s Wild Ride, which took place only last Thursday.
We had just finished delivering the last of our food bags to starving peasants in the Kherson region, which is a 12-hour train ride east of Kiev. I received maybe 100 kisses and hugs from aging babushkas who had been cut off from their food supply for months. Most of their homes had been destroyed by Russian fire and they were living in basements.
They said, “Thank you.” I replied, “Stay strong.” They cried.
Then my army escort, a major who we called “Vitally”, got a call. A Russian mortar was harassing Kerson with intermittent fire inflicting casualties, and they were unable to spot it. Would we be willing to act as a decoy and draw fire?
The major looked at me to ask permission. I was on a humanitarian mission and had no obligation to engage in combat. What did I think?
I did the math. A mortar is a notoriously inaccurate weapon, plus we’d be doing at least 80 miles an hour. I decided it was more likely that I win the California lottery than get hit. So I told the major “Sure, why not.” I looked at the rest of my team and they agreed wholeheartedly. So, we headed down to the waterfront in Kherson.
The city has this long street which follows the banks of the Dnieper River. The Russian Army occupies the eastern bank and are well fortified. Kherson was completely deserted without a person or vehicle in sight. It was like a ghost town. Every statue in town had been stolen when the Russians retreated. Once we turned north, we poured on the gas.
We raced along the river as fast as the car would go, weaving left and right to avoid shell craters in the road. Occasionally we hit one and our heads bumped up against the ceiling. We sped through every red light. It was the thrill of a lifetime!
As we approached the bridge over the Dnieper River, which had already been blown up, sure enough, a mortar shell went sailing right overhead, hitting a building 100 yards to our left. Then we screeched to a halt, did a rapid 180, and tore off in the opposite direction. The Ukrainian Army’s 155 mm shells fired over our heads seconds later.
A minute later, we found a bomb shelter and jammed on the brakes. As we piled out of the car the air raid sirens were wailing. Once we got inside, we all burst into laughter. We couldn’t believe what we had just gotten away with.
And I got the whole thing on video.
Sitting in the bomb shelter I felt a stinging in my right hip. I looked down to find an AK 47 7.62mm copper jacketed bullet embedded in my flak jacket about an inch from the edge. When we left the bomb shelter, I inspected the car and sure enough, we had been sprayed with machine gun fire from across the river (see picture below).
It was a lucky hit. The bullet lost much of its velocity crossing the river and the sheet metal of the car slowed it down even further. The Kevlar bulletproof vest did its job. I got away with only a nice bruise.
As we drove out of town the major received another call. Thanks to our effort the mortar had been silenced. He gave me a big smile and a thumbs-up.
At the edge of town, we stopped for a victory photo at the city gates. That’s my team holding the American flag. The major has a scarf covering his face to keep his identity secret.
The major told me I was the bravest man he ever met. Then he turned and started walking back into Kherson.
If you want to watch the video of John Thomas’s Wild Ride please tune into my biweekly webinar on Wednesday, October 18 at 12:00 noon EST.
Stay Healthy,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
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
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)
