Virtually every analyst has been puzzled by the endless weakness in oil prices (USO), (DIG), (DUG), which have been in a downward spiral for more than a year. Since Russia first invaded Ukraine, the price of Texas tea has collapsed from $132 to $66 a barrel.
In fact, oil ain’t what it used to be.
The first chart below shows the number of barrels of oil needed to generate a unit of GDP, which has been steadily declining for 40 years. The second reveals the percentage of hourly earnings required to buy a gallon of gasoline in the US, which has been mostly flat for three decades, although it has recently started to spike upwards.
The bottom line is that conservation, the rollout of more fuel-efficient vehicles and hybrids, and the growth of alternatives, are all having their desired effect. Notice how small all the new cars on the road are these days, many of which get 40 mpg with conventional gasoline engines.
As for my own household, it has gone all electric. Some 15% or all the new cars sold in the US are EVs, which don’t use oil at all, except for a tiny amount of grease on the wheels and suspension
Developed countries are getting six times more GDP growth per unit of oil than in the past, while emerging economies are getting a fourfold improvement.
The world is gradually weaning itself off of the oil economy. But the operative word here is “gradually”, and it will probably take another two decades before we can bid farewell to Texas tea, at least for transportation purposes.
But the Mileage is Great!
https://www.madhedgefundtrader.com/wp-content/uploads/2023/03/horse-car.jpg510660Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2023-03-17 09:04:182023-03-17 10:32:15Oil Isn't What It Used to Be
Below please find subscribers’ Q&A for the January 25 Mad Hedge Fund Trader Global Strategy Webinar broadcast from Silicon Valley in California.
Q: What do you think about LEAPS on Rivian (RIVN)?
A: Yes, I would do those, but a smaller position with closer strike prices. Go to the maximum maturity 2 years out and be conservative—bet on only a 50% rise in the stock. I’m sure it’ll double, but with the LEAPS you’ll have tremendous upside leverage, like 10 to 1, so don’t get greedy. Go for the 500% profit in 2 years rather than the 1,000%, because it is still a startup, and we need economic recovery for startups to get traction. If anything, Tesla (TSLA) will drag this stock back up as it dragged it down. They all move together.
Q: What’s the number of contracts on your $100,000 model portfolio?
A: Our model portfolio basically assumes we have 10 positions of $10,000 each totaling $100,000 in value. You can then change the number of contracts to suit your own private portfolio—take on as much or as little risk as you want. If you’re new. I recommend trading on paper first to make sure you can make money before you use the real thing.
Q: I’m new to this service. What’s the difference between the long-term portfolio and the short-term portfolio?
A: A long term portfolio is a buy-and-forget portfolio, with maybe a 5- or 10-year view. We only change it and make adjustments twice a year so we can average back into the new positions and take profits on the old ones. The main part of this service is usually front-month, and that’s where we take advantage of anomalies in the options market and market timing to make profits 95% of the time. And a big part of the short-term portfolio is cash; we often go 100% cash when there are no trades to be had. It’s actually more valuable knowing when not to trade than when to trade. If you have any more questions, just email customer support at support@madhedgefundtrader.com and we’ll address them individually.
Q: Is it time for a CBOE Volatility Index ($VIX) trade?
A: I hate trading ($VIX). I only do it from the short side; when you get down to these low levels it can flatline for several months, and the time decay eats you to death. I only do it from the short side, and then only the 5% of the time that we’re peaking in ($VIX). The big money is made on the short side, that’s how virtually the entire options trading industry trades this.
Q: Would you be loading up with LEAPS in February?
A: No, it’s the worst time to do LEAPS. You do LEAPS at long-term market bottoms like we had in October, and then we issued 12 different LEAPS. If you get a smaller pullback, there may be LEAPS opportunities, but only in sectors that are near all-time lows, like gold or silver. It depends on the industry and where we are in the market, but basically, you’re looking to do LEAPS at lows for the year because the leverage is so enormous, and so are the potential profits.
Q: Is the increasing good performance a result of your artificial intelligence? Learning from past mistakes?
A: Partly yes, and partly my own intelligence is improving. Believe it or not, when you go from year 54 to 55 in experience in the markets, you understand a lot more about the markets. Sometimes you just get lucky being on the right side of black swan events. Of course, knowing when the market is especially sensitive and prone to black swans is also a handy skill to have.
Q: Is it too late to get into Freeport McMoRan (FCX)?
A: Yes, I wouldn’t touch (FCX) until we get at least a $10 selloff, which we may get in February, so I think the long term target for (FCX) is $100. The stock has nearly doubled since the LEAPS went out in October from $25 a share to almost $50, so that train has left the station. Better off to wait for the next train or find another stock, there are a lot of them.
Q: Where do you park cash in the holding pattern?
A: Very professional hedge fund managers buy 90-day T-bills, because if you keep your cash in your brokerage account—their cash account—and they go bankrupt, it’ll take you 3 years to get your money back in a bankruptcy proceeding. If you own 90-day T-bills and your broker goes bankrupt, they’re required by law to just hand over the T-bills to you immediately. You take delivery of the T-bills, you park them at another brokerage house, and you keep them there. There is no loss of the use of funds.
Q: What about Long term US dollar (UUP)?
A: We go down for 10 years. Falling interest rates are poison for a currency; our rates are probably going to be falling for the next several years.
Q: Thoughts on Tesla (TSLA)?
A: Short term way overbought, we almost got up 60% from the low in weeks, but that’s Tesla, that’s just how it trades. It is the best performing major stock in the market this year. I wouldn’t be looking to go back into it until we drop back, give up half of that gain, get back down to about $135—then it would be a good options trade and a good LEAPS.
Q: Would you be taking profits in Nvidia (NVDA)?
A: I would take like half here and look to buy it back on the next dip because I think Nvidia’s got higher highs ahead of it.
Q: I can’t get a password for the website.
A: Please contact customer support on the homepage and they will set you up immediately. If not, you can call them at (347) 480-1034.
Q: Would you be selling long term positions?
A: No I would not, because if you sell a long term position they’re very hard to get back into; and I’m expecting $4,800 in the (SPX) by the end of the year. Everything goes up by the end of the year, even things you hate. So no, selling is what you did a year ago, now you’re basically looking for chances to get back in.
Q: Would you hold Tesla (TSLA) over this earnings report?
A: No, I sold my position yesterday, at 70% of its maximum potential profit. I don't need substantial selloff; I’m just going to go right back in again.
Q: Have you heard anything about Tesla silicon roof tiles tending to catch fire?
A: No I have not, but if your house got struck by lightning or if someone fired a bullet at it, that might do the trick. Otherwise, you need a huge input of energy to get silicon to catch on fire as it’s a pretty stable element. And if it was already happening on a large scale, you know the media would be absolutely all over it—the media loves to hate Tesla and loves to hate Elon Musk. That certainly would draw attention if it were happening; what's more likely is that fake news is spreading rumors that are not true. That's been a constant problem with Tesla from the very beginning.
Q: Would you open the occidental spread here today?
A: I would, but I would use strike prices $5 lower. I'd be doing the February $50-$55 vertical bull call spread to give yourself some extra protection, given that the general market itself is so high.
Q: Should I be shorting Apple (APPL) here?
A: No, but the smart thing to do is to sell the $160 calls because I don’t think we’ll get up to $160. You could take any extra premium income, and if you don’t get hit this month, keep doing it every month until you are hit, and then you can take in quite a lot of premium income by the time we get to new highs in Apple, possibly as much as $10 or $15. So, that would be a smart thing to do with Apple.
Q: What's your favorite in biotech and big pharma?
A: Eli Lilly (LLY), which just doesn't seem to let anybody in.
Q: If China were to shut down again, would it hurt the stock market?
A: Yes, but not much. The much bigger falls would be in Chinese stocks (which have already doubled since October) not ours.
Q: Thoughts on biotech?
A: Biotech is the new safety trade that will continue. Also, they’re having their secular ramp-up in technology and new drugs so that is also a good long-term bull call on biotech.
Q: What’s the dip in iShares 20+ Year Treasury Bond ETF (TLT)?
A: $4 points at a minimum, $5 is a nice one, $6 would be fantastic if you can get it.
Q: Could we get a trade-up in oil (USO)?
A: Yes, maybe $5 or $10 a barrel. But it’s just that, a trade. Long term, oil still goes to zero. Short term, China recovery gives a move up in oil and that's why we went long (OXY).
Q: You talk about California NatGas being dead, but California gets 51% of its electricity from natural gas, up from 48% in 2018.
A: Yes, but that counts all of the natural gas that gets brought in from other states. In fact, if you look at the longer-term trend over the last 20 years, coal has gone to zero, nuclear is going to zero, hydro has remained the same at about 10%. NatGas has been falling and green sources like wind and solar, have been rising quite substantially. And now, approximately 25% of all the homes in California get solar energy, or 8.4 million homes, and it is now illegal to put gas piping into any new construction. New York is doing the same. That means it will be illegal to do new natural gas installations in a third of the country. So, I think that points to lower natural gas consumption, and in fact, the 22-year target is to take it to zero, which might be optimistic but you never know. All they need is a smallish improvement in solar technology, and that 100% from green sources is doable by 2045, not only for California but for everybody. All energy plays are a trade only, not an investment.
Q: Any thoughts on the implications for the US and Germany providing tanks to Ukraine?
A: You can throw Poland in there, which is also contributing a tank division—so a total of 58 M1 Abrams tanks are going to Ukraine. By the way, I did command a Marine Corps tank battalion for two weeks on my reserve duty, so I know them really well inside and out. They are powered by a turbine engine, have a suspension as soft as a Cadillac, a laser targeting system accurate to three miles even for beginners, and fire recycled uranium shells that can cut through anything like a knife through butter. The answer is the war gets prolonged, and eventually forces Russia into a retreat or a negotiation. Even though the M1 is an ancient 47-year-old design, its track record against the Russian T72 is pretty lopsided. In the first Gulf War, the US destroyed 5,000 T72s and the US lost one M1 tank because he parked on a horizon, which you should never do with a tank. And every driver of a T72 knows that track record. So that explains why Russian tanks have been running out of gas, sugaring their gas tanks, sabotaging their diesel engines, and doing everything they can to avoid combat because of massive fatal design flaws in the T72. We only need to provide about 50 or 60 of the M1 tanks as a symbolic gesture to basically scare the entire Russian tank force away.
Q: Why do you think Elon kept selling Tesla? Did he think it would go lower?
A: Elon thinks the stock’s going to $10,000, but he needed up-front cash to build out six remaining Tesla factories, and for that, he needed about $40 billion, which is why he sold $40 billion worth of stocks last year when it was peaking. He also is sensitive to selling at tops; it’s better to sell stock in with Tesla at an all-time high than at an all-time low, so he clearly times the market to meet his own cash flows.
Q: What about military contractors?
A: I know Raytheon (RTX) and Lockheed Martin (LMT) have a two-year backlog in orders for javelin missiles and stingers, which are now 47-year-old technology that has to be redesigned from scratch. The US just placed an order for a 600% increase in artillery shells for the 155 mm howitzer. I thought we’d never use these again, which is why US stocks for ammunition got so low. But it looks like we have more or less a long term or even permanent customer in Ukraine for everything we can produce, in old Vietnam-era style technologies. How about that? I’m telling the military to give them everything we’ve got because everything we’ve got is obsolete.
Q: When should we buy Microsoft (MSFT)?
A: On the next 10% dip. It’s the quality stock in the US.
Q: Do you place an order to close the spread at profit as soon as you have filled in the trade?
A: You can do that, but it’s kind of a waste of time. Wait until we get close to the strikes; most of the big companies we deal in, you don't get overnight 10% or 20% moves, although it does happen occasionally.
Q: Natural Gas (UNG) prices are collapsing.
A: Correct, because the winter energy crisis in Europe never showed and spring is just around the corner.
Q: On the Tesla (TSLA) LEAPS, what about the January 2025 $600-$610 vertical bull call spread
A: That is way too far out of the money now. I would write that off and go back into it but do something like a January 2025 $180-$190. It has a much higher probability of going in the money, and still an extremely high return. It would be something like 500% if you get in down at these levels.
Q: How do you see Bitcoin short term/long term?
A: I think the loss of confidence in the asset has been so damaging that it may not come back in my lifetime. It could be another Tokyo situation where it takes 30 years to recover, or only recovers when the entire sector gets taken over by the big banks. So, I don’t see any merit in the crypto trade, probably forever. Once you lose confidence in the financial markets, it’s impossible to get it back. And it turns out that every one of these mainline trading platforms was stealing from the customers. No one ever comes back from that in the financial markets.
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
At 29 Palms in my M1 Abrams Tank in 2000
https://www.madhedgefundtrader.com/wp-content/uploads/2022/12/john-thomas-tank-commander.jpg318516Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2023-01-27 09:02:302023-01-27 12:37:29January 25 Biweekly Strategy Webinar Q&A
I am once again writing this report from a first-class sleeping cabin on Amtrak’s legendary California Zephyr.
By day, I have two comfortable seats facing each other 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 could 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 make sure everything goes well during the long adventure and to 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.
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 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 14 Pro Max.
Here is the bottom line which I have been warning you about for months. In 2023, we will probably top the 84.63% we made last year, but you are going to have to navigate the reefs, shoals, and hurricanes. Do it and you can laugh all the way to the bank. I will be there to assist you to navigate every step.
The first half of 2023 will be all about trading. After that, I expect markets to go straight up.
And here is my fundamental thesis for 2023. After the Fed kept rates too low for too long, 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.
Let me give you a list of the challenges I see financial markets are facing in the coming year:
The Ten Key Variables for 2023
1) When will the Fed pivot?
2) How much of a toll will the quantitative tightening take?
3) How soon will the Russians give up on Ukraine?
4) When will buyers return to technology stocks from value plays?
5) Will gold replace crypto as the new flight to safety investment?
6) When will the structural commodities boom get a second wind?
7) How fast will the US dollar fall?
8) How quickly will real estate recover?
9) How fast can the Chinese economy bounce back from Covid-19?
10) How far will oil prices keep falling?
Whether we get a recession or not, you can count on markets fully discounting one, which it is currently doing with reckless abandon.
Anywhere you look, the data is dire, save for employment, which may be the last shoe to fall. Technology companies seem to be leading us in the right direction with never-ending mass layoffs. Even after relentless cost-cutting though, there are still 1.5 tech job offers per applicant, which is down from last year’s three.
The Fed is currently predicting a weak 0.5% GDP growth rate for 2023, the same feeble rate we saw for 2022. What we might get is two-quarters of negative growth in the first half followed by a sharp snapback in the second half.
Whatever we get, it will be one of the mildest recessions or growth recessions in American economic history. There is no hint of a 2008-style crash. The banking system was shored up too well back then to prevent that. Thank Dodd/Frank.
Since my job is to make your life incredibly easy, I am going to narrow my equity strategy for 2023.
It's all about falling interest rates.
When interest rates are high, as they are now, you only look at trades and investments that can benefit from falling interest rates.
In the first half, that will be value plays like banks, (JPM), (BAC), (C), financials (MS), (GS), homebuilders (KBH), (LEN), (PHM), industrials (X), capital goods (CAT), (DE).
As we come out of any recession in the second half, growth plays will rush to the fore. Big tech will regain leadership and take the group to new all-time highs. That means the volatility and chop we will certainly see in the first half will present a generational opportunity to get into the fastest-growing sectors of the US economy at bargain prices. I’m talking Cadillacs at KIA prices.
A category of its own, Biotech & Healthcare should do well on their own. Not only are they classic defensive plays to hold during a recession, technology and breakthrough new discoveries are hyper-accelerating. My top three picks there are Eli Lily (ELI), Abbvie (ABBV), and Merck (MRK).
Block out time on your calendars because whenever the Volatility Index (VIX) tops $30, I am going pedal to the metal, and full firewall forward (a pilot term), and your inboxes will be flooded with new trade alerts.
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 by a strong dollar, (EEM) has also been forgotten as an investment allocation. We are now in a position where the (EEM) is likely to outperform US markets in 2023, and perhaps for the rest of the decade.
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 are returning home by train because their religion forbade automobiles or airplanes.
The national debt ballooned to an eye-popping $30 trillion in 2021, a gain of an incredible $3 trillion and a post-World War II record. Yet, as long as global central banks are still flooding the money supply with trillions of dollars in liquidity, bonds will not fall in value too dramatically. I’m expecting a slow grind down in prices and up in yields.
The great bond short of 2021 never happened. Even though bonds delivered their worst returns in 19 years, they still remained nearly unchanged. That wasn’t good enough for the many hedge funds, which had to cover massive money-losing shorts into yearend.
Instead, the Great Bond Crash will become a new business. This time, bonds face the gale force headwinds of three promised interest rate hikes. The year-end government bond auctions were a complete disaster.
Fed borrowing continues to balloon out of control. It’s just a matter of time before the last billion dollars in government borrowing breaks the camel’s back.
That makes a bond short a core position in any balanced portfolio. Don’t get lazy. Make sure you only sell a rally lest we get trapped in a range, as we did for most of 2021.
With a major yield advantage over the rest of the world, the US dollar has been on an absolute tear for the past decade. After all, we have the world’s strongest economy.
That is about to end.
If your primary assumption is that US interest rates will see a sharp decline sometime in 2023, 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.
5) Commodities (FCX), (VALE), (DBA)
Commodities are the high beta play 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 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 October 14, they also told us that the recovery would begin in July of 2023.
You saw this in every important play in the sector, including Broken Hill (BHP), Peabody Energy (BTU), Freeport McMoRan (TCX), and Alcoa Aluminum (AA). Excuse me for using all the old names.
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 still demand prodigious amounts of imported commodities once its pandemic shutdown ends, but not as much as in the past. Much of the country has seen its infrastructure built out, and it is turning from a heavy industrial to a service-based economy, much like the US. Investors are keeping a sharp eye on India as the next major commodity consumer.
And here’s another big new driver. Each electric vehicle requires 200 pounds of copper and production is expected to rise from 1 million units a year to 25 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.
Snow Angel on the Continental Divide
6) Energy (DIG), (RIG), (USO), (DUG), (UNG), (XLE), (AMLP)
Energy was the top-performing sector of 2022. But 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.
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.
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.
Unless you are a seasoned, peripatetic, sleep-deprived trader, there are better fish to fry.
And guess who the world’s best oil trader was in 2022? That would be the US government, which drew 400 million barrels from the Strategic Petroleum Reserve in Texas and Louisiana at an average price of $90 and now has the option to buy it back at $70, booking a $4 billion paper profit.
The possibility of a huge government bid at $70 will support oil prices for at least early 2023. Whether the Feds execute or not is another question. I’m advising them to hold off until we hit zero again to earn another $18 billion. Why we even have an SPR is beyond me, since America has been a large net energy producer for many years now. Do you think it has something to do with politics?
To understand better how oil might behave in 2023, 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.
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 the broken-down wooden trestles leading to huge piles of tailings, relics of previous precious metals booms. So, it is timely here to speak about the future of precious metals.
Fortunately, when a trade isn’t working, I avoid it. That certainly was the case with gold last year.
2022 was a terrible year for precious metals until we got the all-asset class reversal in October. With inflation soaring, stocks volatile, and interest rates soaring, gold had every reason to fall. Instead, it ended up unchanged on the year, thanks to a 15% rally in the last two months.
Bitcoin stole gold’s thunder until a year ago, sucking in all of the speculative interest in the financial system. Jewelry and industrial demand were just not enough to keep gold afloat. That is over now for good and that is why gold is regaining its luster.
Chart formations are starting to look very encouraging with a massive head-and-shoulders bottom in place. So, buy gold on dips if you have a stick of courage on you, which I hope you do.
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.
Crossing the Great Nevada Desert Near Area 51
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 banks 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 in the grip of a real estate recession take solace. We are in the process of unwinding 2022’s excesses, but no more. There is no doubt a long-term bull market in real estate will continue for another decade, once a two year break is completed.
There is a generational structural shortage of supply with housing which won’t come back into balance until the 2030s. 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 boomers (between ages 58 and 76) have been unloading dwellings to the Gen Xers (between ages 46 and 57) 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 a massive shortage of housing, both for ownership and rentals.
There is a happy ending to this story.
Millennials now aged 26-41 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.
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, followed by Phoenix, Arizona. Personally, I like Reno, Nevada, where Apple, Google, Amazon, and Tesla are building factories as fast as they can.
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 similar demographic forces were at play.
This will happen in the context of a labor shortfall, soaring wages, and rising standards of living.
Rising 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 16 years. The 50% of small home builders that went under during the Financial Crisis never came back.
We are still operating at only a 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 towards the end of 2023 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.
Recent Reno Real Estate Statistics
Crossing the Bridge to Home Sweet Home
9) Postscript
We have pulled into the station at Truckee amid a howling blizzard.
My loyal staff has 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 around the next bend 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, 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 2023!
John Thomas
The Mad Hedge Fund Trader
The Omens Are Good for 2023!
https://www.madhedgefundtrader.com/wp-content/uploads/2023/01/market-statistics.png474632Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2023-01-04 15:00:552024-01-03 10:44:502023 Annual Asset Class Review
Below please find subscribers’ Q&A for the November 30 Mad Hedge Fund Trader Global Strategy Webinar broadcast from Silicon Valley in California.
Q: You keep mentioning December 13th as a date of some significance. Is this just because the number 13 is unlucky?
A: December 13th at 8:30 AM EST is when we get the next inflation report, and we could well get another 1% drop. Prices are slowing down absolutely across the board except for rent, which is still going up. Gasoline has come down substantially since the election (big surprise), which is a big help, and that could ignite the next leg up in the bull market for this year. So, that is why December 13 is important. And we could well flatline, do nothing, and take profits on all our positions before that happens, because whatever it is you will get a big move one way or another (and maybe both) on December 13.
Q: I’m a new subscriber, and I am intrigued by your structuring of options spreads. Why do you do debit spreads instead of credit spreads?
A: It’s really six of one and a half dozen of the other—the net profit is pretty much the same for either one. However, debit spreads are easier to understand than credit spreads. We have a lot of beginners coming into this service as well as a lot of seasoned old pros. And it’s easier to understand the concept of buying something and watching it go up than shorting something and watching it go down. Now, doing the credit spreads—shorting the put spread—gives you a slight advantage in that it creates cash which you can then use to meet margin requirements. However, it’s only a small amount of cash—only the potential profit in that position. And guess what? All the big hedge funds actually kind of like easy-to-understand trade alerts also, so that’s why we do them.
Q: I have a lot of exposure in NVIDIA (NVDA), so is it worth trading out of it and coming back in at a lower rate?
A: NVIDIA is one of the single most volatile stocks in the market—it’s just come up 50%. But it could well test the lower limits again because it is so volatile, and the chip industry itself is the most volatile business in the S&P 500. If your view is short-term, I would take profits now, and look to go back in next time we hit a low. If you’re long-term, don’t touch it, because NVIDIA will triple from here over the next 3 years. I should caution you that if you do try the short-term strategy, most people miss the bottom and end up paying more to get back into the stock; and that's the problem with all these highly volatility stocks like Tesla (TSLA), NVIDIA (NVDA) and Advanced Micro Devices (AMD) unless you’re a professional and you sit in front of a screen all day long.
Q: Would you buy now and step in to make it long-term?
A: I think we get a couple more runs at the lows myself. We won’t get to the old lows, but we may get close. Those are your big buying points for your favorite stocks and also for LEAPS. And I’m going to hold back on new LEAPS recommendations—we’ve done 12 in the last two months for the Concierge members, and maybe half of those went out to Global Trading Dispatch before they took off again. So, that would be my approach there.
Q: How much farther can the Fed raise interest rates until they reverse?
A: 1%-2%, unless they get taken over by the data—unless suddenly the economy starts to weaken so much that they panic and reverse like crazy. I think that's actually what’s going to happen, which is why we went hyper-aggressive in October on the long side, especially in bonds (TLT). You drop rates on the ten-year from 4.5% to 2.5% in six months—that’s an enormous move in the bond market. That is well worth running a triple long position in it; I think that’s what's going to happen. That’s where we will make out the first 30% in 2023.
Q: Should I short the cruise lines here, like Royal Caribbean (RCL)?
A: They do have their problems—they have massive debts they ran up to survive the pandemic when all the ships were mothballed, so it is an industry with its major issues. The stock has already doubled since the summer so I wouldn’t chase it up here. I’m not rushing to short anything here right now though unless it’s really liquid or has horrendous fundamentals like the oil industry, which everyone seems to love but I hate—right now the haters are winning for the short term, until December 16, which is all I care about.
Q: Is the diesel shortage going to affect farmers and all other industries like the chip?
A: As the economy slows down, you can expect shortages of everything to disappear, as well as all supply chain issues, which is a positive for the economy for the long term.
Q: What about the 2024 iShares 20 Plus Year Treasury Bond ETF (TLT) 95—is that not a trade?
A: That’s a one-year position with a 100% potential profit. That is worth running to expiration unless we get a huge 20-point move up in the next 3 months, which is possible, and then there won’t be anything left in the trade—you’ll have 95% of the profit in hand at which point you’ll want to sell it. So, with these one-year LEAPS or two-year LEAPS, run them one or two years unless the underlying suddenly goes up a lot, and then grab the money and run; that's what I always tell people to do. Because if you sell your position, they can’t take the money away from you with a market correction.
Q: Is the current US economy the best economy in the world?
A: It is. If you look at any other place in the world, it’s hard to find an economy that's in better shape, and it’s because we have the best management in the world and hyper-accelerating technology which everyone else begs and borrows. Or steals. People who are predicting zero return on stocks for 10 years are out of their minds. You don’t short the best economy in the world. If anything, technology is accelerating, and that will take the stock market with it in the next year or so.
Q: Do you see the Dow ($INDU) outperforming the other indexes until the Fed positive pivots?
A: Absolutely yes, because the S&P 500 (SPY) has a very heavy technology weighting and technology absolutely sucks right now. That would probably be a good 3-month trade—buy the Dow, and short the S&P 500 in equal amounts. Easy to do—you might pick up 10% on a market-neutral trade like that.
Q: Do you see a Christmas rally this year?
A: Actually, I do, but it won’t start until we get the next inflation report on December 13, at which point I'm going 100% cash. I’ve made enough money this year, and this is a problem I had when I ran my hedge fund: when you make too much money, nobody believes it, so there's really no point in making more than 50% or 60% a year because people think it’s fake. This is true in the newsletter business as well. Markets also have a nasty habit of completely reversing in January; this year, we had one up day in January, and then it was bombs away and we just piled on the shorts like crazy, so you have to wait for the market to first give you the fake move for the year, and then the real one after that. The best way to take advantage of that is to be 100% cash, and that’s why I usually do.
Q: What indicators do you see that give you the most confidence that inflation has peaked?
A: There's one big one, and that’s real estate. Real estate is absolutely in a recession right now and has the heaviest weighting of any individual industry in the inflation calculation. If anybody thinks house prices are going up, please send me an email and tell me where, because I’d love to know. The general feeling is they’re down 10-15% over the last six months. New homes are only being sold with massive buydowns in interest rates and free giveaways on upgrades. It is an industry that is essentially shut down, with interest rates having gone from 2.75% to 7.5% in a year, so there’s your deflation, but unfortunately, real estate is also the slowest to price in in the Fed’s inflation calculation, so we have to go through six months of torture until the Fed finally sees proof that inflation is falling. So, welcome to the stock market because it's just one of those factors. Just for fun, I got a quote on financing an investment property. The monthly payment would have been double for half the house that I already have.
Q: Are LEAPS a buy with the CBOE Volatility Index (VIX) this low?
A: No, you want to look at stocks first, and then the VIX; and with all the stocks sitting on top of 30-50% rises, it’s a horrible place to do LEAPS. LEAPS were an October play—we bought the bottom in a dozen LEAPS in October, and those were great trades, except for Tesla (TSLA) and Rivian (RIVN) which still have two years left to run. Up here, you’re basically waiting on a big selloff before you go into these one to two-year options positions.
Q: Why does Biden keep extending student loans? Will this catch up at some point?
A: He’s going to take it to the Supreme Court, and if he loses at the Supreme Court, which is likely, then he’ll probably give up on any loan extensions. At this point, the loan extensions on student loans are something like 2 or 2.5 years. The reason he’s doing this is to get 26 million people back into the economy. As long as you have giant student loan balances, you can’t get credit, you can’t get a credit card, you can’t buy a house, you can’t get a home loan. Bringing that many new people into the economy is a huge positive for not only them but for everyone else because it strengthens the economy. That has always been the logic behind forgiving student loans—and by the way, the United States is virtually the only country in the world that makes students pay back their loans after 30 or 40 years. The rest give college educations away either for free or give some interest-free break on repayments until they can get a salary-paying job.
Q: Does the budget deficit drop impact the stock market?
A: Yes, but it impacts the bond market first and in a much bigger way. That’s one of the reasons that bonds have rallied $13 points in six weeks because less government borrowing means lower interest rates—it’s just a matter of supply and demand. This has been the fastest deficit reduction since WWII, and markets will discount that.
Q: Will the US dollar (UUP) crash?
A: Yes, it will. You get rid of those high interest rates and all of a sudden nobody wants to own the US dollar, so we have great trades setting up here against everything, except maybe the Yuan where the lockdowns are a major drag.
Q: Is silver (SLV) a buy now?
A: No, it’s just had a big 10% move; I would wait for any kind of dip in silver and gold (GOLD) before you go into those trades. And when/if you do, there are better ways to do it.
Q: How is the Ukraine war going?
A: It’ll be over next year after Ukraine retakes Crimea, which they’ve already started to do. Russia is running out of ammunition, and so are we, by the way. However, the United States, as everybody learned in WWII, has an almost infinite ability to ramp up weapons production, whereas Russia does not. Russia is literally using up leftover ammunition from WWII, and when that’s gone, they’ve got nothing left, nor the ability to produce it in any sizable way. All good reasons to sell short oil companies ahead of a tsunami of Russian oil hitting the market. By the way, oil is now down for 2022.
Q: What's the number one short in oil (USO)?
A: The most expensive one, that would be Exxon Mobile (XOM).
Q: What’s going to happen to the markets in January?
A: After this Christmas rally peters out, I’m looking for profit-taking in January.
Q: When is a good time to buy debit spreads on oil?
A: Now. Look at every short play you can find out there; I just don’t see a massive spike up in oil prices ahead of a recession. And by the way, if the war in Ukraine ends and Russian oil comes back on the market, then you’re looking at oil easily below $50.
Q: What is the best way to invest in iShares Silver Trust (SLV) in the long term?
A: A two-year LEAP on the Silver (SLV) $25-$26 call spread—that gets you a 100%-200% return on that.
Q: Is lithium a good commodity trade?
A: Lithium will move in sync with the EV industry, which seems to have its own cycle of being popular and unpopular. We’re definitely in the unpopular phase right now. Long term demand for lithium will be increasing on literally hundreds of different fronts, so I would say yes, lithium is kind of the new copper. Look at Albemarle (ALB), Societe Chemica Y Minera de Chile (SQM), and FMC Corp. (FMC).
Q: If we do a LEAPS on Crown Castle Incorporated (CCI), you won’t get the dividend right?
A: No, you won’t, it’s a dividend-neutral trade because you’re long and short in a LEAPS. You have to buy the stock outright and become a registered shareholder to earn the dividend which, these days, is a hefty 4.50%. That said, if you’re looking for a high dividend stock-only play, buying the (CCI) down here is actually a great idea. For the stock-only players, this would be a really good one right now.
Q: Do you know people who are selling because of large capital gains?
A: The only people I know who are selling have giant tax bills to pay because of all the money they made trading options this year. I happen to know several thousand of those, as it turns out. So yes, I do know and that could affect the market in the next couple of weeks, which is why I went with the flatlined scenario for the next two weeks. Most tax-driven selling will be finished in the next two weeks, and after that, it kind of clears the decks for the markets to close on a high note at the end of the year.
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 or DISPATCH TECHNOLOGY LETTER as the case may be, then click on 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
https://www.madhedgefundtrader.com/wp-content/uploads/2022/12/john-thomas-TA-418.jpg600864Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2022-12-02 13:02:582022-12-02 14:01:23November 30 Biweekly Strategy Webinar Q&A
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or THE TOP FIVE TECHNOLOGY STOCKS OF 2023),
(RIVN), (ROM), (ARKK), (PANW), (CRM), (FXE), (FXY), (FXA), (LEN), (KBH), (DHI), (TLT), (UUP), (META), (TSLA), (BA), (JNK), (HYG), (BRKB), (USO)
https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png00Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2022-11-14 10:04:422022-11-14 11:24:00November 14, 2022
The year 2022 has been driven by rising interest rates, a strong dollar, a weak economy, a bear market in stocks.
A massive reversal is about to take place. 2023 will gain the benefit of gale force macroeconomic tailwinds for the right stocks.
So far this year, Mad Hedge earned an astounding 77.20% profit cashing in on this year’s trends. We could earn the same return taking advantage of next year’s trends.
If you want to ride along on my coattails next year, that is fine with me. But it requires you to take a leap of faith.
I refer you to the motto of Britain’s Special Air Service: “Qui audet adipiscitur,” or “Who dares wins.”
For it only makes sense that the worst stocks of 2022 will be the best performers of 2023.
I have no doubt that tech stocks will bottom out sometime in 2023. Those who get in early will build some of the largest fortunes of this century. Those who miss the boat will spend their retirement years working at Taco Bell.
The reasons are very simple.
*Ultra-high interest rates will force a mild recession in early 2023. Then suddenly, inflation will plummet. We know this has already started because the largest element in the inflation calculation is housing costs, which are in free fall.
*The Fed will panic and deliver 2023 the sharpest DECLINE in interest rates in American history.
*Plunging interest rates will bring a crash in the US dollar.
*Foreign currencies like the Euro (FXE), the Japanese Yen (FXY), and the Australian dollar (FXA) will soar.
*And guess who gets the bulk of their earnings from abroad, sometimes up to two-thirds? The technology industry.
Kaching!
If you think I’m out of my mind, just look at the top performers of the historic stock market rally last week.
All the interest rate-sensitive sectors caught on fire. Technology stocks took off like a scalded cat, with Cathie Woods’ Ark Innovation Fund (ARKK) up an astounding 14% in a single day.
Bank shares soared. Homebuilders (LEN), (KBH), (DHI) caught a strong bid for the first time in ages. Junk bonds went bid only. US Treasury Bonds had their best day in 20 years (TLT), while the greenback (UUP) had its worst.
The bottom line here is so clear that I’ll write it on a wall for you. Falling interest rates will be the primary driver of stock prices for 2023 and 2024.
Of course, there is a better way to play this than buying the first technology index you stumble across.
So, let me boil this strategy down to just five names, close your eyes, and buy them.
Rivian (RIVN)– ($34) - Rivian is widely believed to be the next Tesla (TSLA). Some 25% owned by its largest customer, Amazon (AMZN), Rivian produces three types of EVs: the R1T pickup truck, the R1S SUV, and Amazon's EDV (electric delivery van). Its R1 vehicles start at under $70,000 and can travel more than 300 miles on a single charge. To learn more about Rivian, please click here.
To say that Rivian is the hot car of the day would be a vast understatement. New cars are trading for double list on the grey market. Owners complain of getting mobbed with gawkers whenever they hit the beach or the ski slopes. The buzz has led to an outstanding order book of an impressive 98,000, or four years of current production. The obvious cool factor allows enormous pricing power.
And here is the key to buying Rivian at this time. At 25,000, it is right at the mass production point where Tesla shares went ballistic all those years ago. And it already has an 80% decline in the price, in the rear-view mirror.
In 2024, Rivian plans to open its second plant in Georgia. After it fully expands its Illinois plant, it expects its annual production capacity to reach 600,000 vehicles.
Inflation Reduction Act passed this summer greatly accelerated rollout of the entire EV industry, which created a $7,500 per vehicle tax credit on top of state benefits.
Yes, this company offers venture capital-type risks. But it offers venture capital-type returns as well, up 10X-50X from here.
Ark Innovation Fund (ARKK) – ($40) – Cathie Woods’ high-tech fund was the proverbial red-headed stepchild of this bear market. It fell a gut-punching 80% from the 2021 top until last week. Just to get back to its old high, likely over the next five years, it has to rise by 400%. Its largest holdings are a real rollcall of the severely abused, Tesla (TSLA), Roku (ROKU), Exact Sciences (EXAS), Intellia (INTL), and Teladoc Health (TDOC), which Woods actively trades. But they are also a valuable insight into the future, EVs, CRISPR technology, robotic surgery, and molecular diagnostics. To learn more about the Ark Innovation Fund, please click here.
ProShares Ultra Technology ETF (ROM) – ($27) – This is a 2X long technology ETF that gives you an extremely aggressive position across the tech sector. It has 19% of its holdings in Apple (AAPL), 16% in Microsoft (MSFT), 10% in Alphabet (GOOGL) and Google (GOOG), at 3.5% in NVIDIA (NVDA), and 120 other smaller names. (ROM) shares are down a breathtaking 67% just in the past year. To learn more about the (ROM), please click here.
Palo Alto Networks (PANW) - $165 – Hacking is one of the fastest-growing sectors in technology, it is recession-proof and immune to the economic cycle. As a result, spending on the defense against hacking is absolutely exploding. Palo Alto Networks, Inc. is an American multinational cybersecurity company with headquarters in Santa Clara, California. Its core products are a platform that includes advanced firewalls and cloud-based offerings that extend those firewalls to cover other aspects of security. I have already earned a tenfold return over the past decade and expect to make another 10X in the coming years. You won’t find any dips in this stock as too many people are trying to get into it. To learn more about the Palo Alto Networks, please click here.
Salesforce (CRM) - $157 – The baby of tech genius Mark Benioff, this company is the dominant player in customer relationship management. If you want to do any business in the cloud, and almost all big companies do, you are up to your eyeballs in customer relationship management. Salesforce is the largest San Francisco-based cloud-oriented software company with virtually all of the Fortune 500 as its customer list. It provides customer relationship management software and applications focused on sales, customer service, marketing automation, analytics, and application development. Salesforce shares have been the target of a haymaker, down 55% in a year. To learn more about Salesforce, please click here.
You know what? I can do better than this.
I can create customized options LEAPS for you that will deliver a tenfold return on whatever performance these ultra-high beta stocks deliver. If the shares of one of my picks rise by 100%, you will make 1,000%.
This is an investment strategy that will enable you to retire early, real early. Tired of punching a time clock or logging into the next Zoom meeting on time?
Those will become a distant memory if you pursue my Mad Hedge Investment strategy for 2023.
As a result, my November month-to-date performance went off to the races, already achieving a hot +2.20%.
That leaves me with a very rare 100% cash position. With midterm election results out on Wednesday and the next report on the Consumer Price Index on Thursday, that sounds like a prudent place to be.
My 2022 year-to-date performance ballooned to +77.57%, a new high. The Dow Average is down -11.85% so far in 2022.
It is the greatest outperformance on an index since Mad Hedge Fund Trader started 14 years ago. My trailing one-year return maintains a sky-high +75.53%.
That brings my 14-year total return to +590.13%, some 2.86 times the S&P 500 (SPX) over the same period and a new all-time high. My average annualized return has ratcheted up to +49.51%, easily the highest in the industry.
Bonds Clock Best Day in Years, taking the ten-year US Treasury bond fund up $3.64. All low interest rate plays had monster days. Junk bond ETFs (JNK) and (HYG) were up two points. 30-year fixed rate mortgages dropped 60 basis points to 6.60%, the biggest drop in history. Long bonds will be THE big trade of 2023.
US Dollar has Worst Day in 20 Years, driven by plunging interest rates. Big tech, which gets a major share from overseas sales, rocketed. Apple alone was up $12. Cathy Wood’s Ark Innovation Fund (ARKK) was up an incredible 14%. It vindicates my view that tech will turn when interest rates and the dollar fall.
Oil Companies (USO) Book Record $200 Million Profit this year, using the Ukraine War to double your cost of gasoline. If we have a recession next year, or the war ends, energy share prices should be peaking around here. Even if they don’t, the risk-reward here is terrible. It means we will have to pay a much higher price to decarbonize the economy at a later date.
Wells Fargo Gets Hit with $1 Billion Fine for its many regulatory transgressions over the last decade. Looting of customer accounts with bogus fees has been a recurring problem. Use any selloffs to buy (WFC) on dips.
Berkshire Hathaway's 20% Profit Increase YOY and buys back another $1 billion worth of stock. However, they did take a $10 billion loss on stocks in Q3 during the market meltdown. Keep buying (BRKB) stock and LEAPS on dips.
$1.5 trillion in Homeowners Equity Lost Since May, thanks to interest rates at 20-year high and a shrinking money supply. Since July, the median home price has dropped by $11,560. The average borrower has lost $30,000 in equity. It’s not a great time to rent either as prices there are soaring. Residential housing could remain weak for another 12-24 months, compared to the six-year drawdown we had from 2006.
Boeing Orders Rise in October, but deliveries fall. The company is finally out of the penalty box, up 40% since October 1. Don’t buy (BA) up here.
The Red Wave Fails to Show, with control of congress still too close to call. Republican House control has shrunk from an expected 60 seats six months ago to maybe two today. Donald Trump threw the election for his party, picking unelectable extremist candidates and campaigning where he wasn’t wanted. A pro-life Supreme Court brought out millions of women voters across the country. If the Republicans can’t win with inflation at 8.7%, they are toast in 2024 when it drops back down to 2%.
Market Dives 646 Points on Democratic Win, with technology stocks taking the biggest hit. The red wave no-show was a black swan traders were not looking for. Energy was the worst performing sector because they aren’t getting the air cover they paid for with a red wave. The result was much as I expected, which is why I went into November 8 with a rare 100% cash position waiting to buy the next low. It turns out that rights are more important than prices.
Elon Musk Sells More Tesla Shares and Warns of a Twitter Bankruptcy, some $3.9 billion worth, bringing this year’s total to $36 billion. Musk is raising money to head off a bankruptcy of Twitter now that major advertisers are fleeing en masse. This certainly is a distress sale. If Musk was looking to build a real business, re-tweeting fringe conspiracy theories was the worst thing he could have done. Endorsing the Republican party will cost him half of his customers. Is this Musk’s Waterloo, or his Dien Bien Phu?
Facebook to Lay Off 11,000, about 13% of its total employees. Zuckerberg admits the error of pushing the company into the metaverse too far too fast. With the stock down 77%, there are not a lot of happy campers at One Hacker Way. Avoid (META) for now, but it may be a 2023 play when we get closer to a new final product.
FTX Becomes an Epic Bankruptcy, with $9.5 billion missing from its balance sheet, in one of the biggest blowups of the crypto age. Losses are expected to reach $50-$60 billion, with the bankruptcy of 130 affiliated companies. It is also a potential Dept of Justice target. All affiliated tokens and coins have gone to zero. So, placing your money with a fresh-faced kid in the Bahamas wearing baggy shorts and with no financial background was not such a great idea after all. It’s amazing how many serious people were sucked in on this one. At least Sam Bankman-Fried said he was sorry.
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. With the economy decarbonizing and technology hyper-accelerating, there will be no reason not to. The Dow Average will rise by 800% to 240,000 or more in the coming decade. The America coming out the other side will be far more efficient and profitable than the old. Dow 240,000 here we come!
On Monday, November 14 at 8:00 AM, the Consumer Inflation Expectations for October are released.
On Tuesday, November 15 at 8:30 AM, the Producer Price Index for October is released.
On Wednesday, November 16 at 8:30 AM, Retail Sales for October are published.
On Thursday, November 17 at 8:30 AM, Weekly Jobless Claims are announced. Housing Starts and Permits for October are also out.
On Friday, November 18 at 10:00 AM, the Housing Starts for October are printed. At 2:00 the Baker Hughes Oil Rig Count is out.
As for me, I am often told that I am the most interesting man people ever met, sometimes daily. I had the good fortune to know someone far more interesting than myself.
When I was 14, I decided to start earning merit badges if I was ever going to become an Eagle Scout. I decided to start with an easy one, Reading Merit Badge, where you only had to read four books and write one review.
I was directed to Kent Cullers, a high school kid who had been blind since birth. During the late 1940s, the medical community thought it would be a great idea to give newborns pure oxygen. It was months before it was discovered that the procedure caused the clouding of corneas and total blindness. Kent was one of these kids.
It turned out that everyone in the troop already had Reading Merit Badge and that Kent had exhausted our supply of readers. Fresh meat was needed.
So, I rode my bicycle over to Kent’s house and started reading. It was all science fiction. America’s Space Program had ignited a science fiction boom and writers like Isaac Asimov, Jules Verne, Arthur C. Clark, and H.G. Welles were in huge demand. Star Trek came out the following year, in 1966. That was the year I became an Eagle Scout.
It only took a week for me to blow through the first four books. In the end, I read hundreds to Kent. Kent didn’t just listen to me read. He explained the implications of what I was reading (got to watch out for those non-carbon-based life forms).
Having listened to thousands of books on the subject, Kent gave me a first class education and I credit him with moving me towards a career in science. Kent is also the reason why I got an 800 SAT score in math.
When we got tired of reading, we played around with Kent’s radio. His dad was a physicist and had bought him a state-of-the-art high-powered short-wave radio. I always found Kent’s house from the 50-foot-tall radio antenna.
That led to another merit badge, one for Radio, where I had to transmit in Morse Code at five words a minute. Kent could do 50. On the badge below the Morse Code says “BSA.” In those days, when you made a new contact, you traded addresses and sent each other postcards.
Kent had postcards with colorful call signs from more than 100 countries plastered all over his wall. One of our regular correspondents was the president of the Palo Alto High School Radio Club, Steve Wozniak, who later went on to co-found Apple (AAPL) with Steve Jobs.
It was a sad day in 1999 when the US Navy retired Morse Code and replaced it with satellites. However, it is still used as beacon identifiers at US airfields.
Kent’s great ambition was to become an astronomer. I asked how he would become an astronomer when he couldn’t see anything. He responded that Galileo, the inventor of the telescope, was blind in his later years.
I replied, “good point”.
Kent went on to get a PhD in Physics from UC Berkely, no mean accomplishment. He lobbied heavily for the creation of SETI, or the Search for Extra Terrestrial Intelligence, once an arm of NASA. He became its first director in 1985 and worked there for 20 years.
In the 1987 movie Contact written by Carl Sagan and starring Jodie Foster, Kent’s character is played by Matthew McConaughey. The movie was filmed at the Very Large Array in western New Mexico. The algorithms Kent developed there are still in widespread use today.
Out here in the west aliens are a big deal, ever since that weather balloon crashed in Roswell, New Mexico in 1947. In fact, it was a spy balloon meant to overfly and photograph Russia, but it blew back on the US, thus its top secret status.
When people learn I used to work at Area 51, I am constantly asked if I have seen any spaceships. The road there, Nevada State Route 375, is called the Extra Terrestrial Highway. Who says we don’t have a sense of humor in Nevada?
After devoting his entire life to searching, Kent gave me the inside story on searching for aliens. We will never meet them but we will talk to them. That’s because the acceleration needed to get to a high enough speed to reach outer space would tear apart a human body. On the other hand, radio waves travel effortlessly at the speed of light.
Sadly, Kent passed away in 2021 at the age of 72. Kent, ever the optimist, had his body cryogenically frozen in Hawaii where he will remain until the technology evolves to wake him up. Minor planet 35056 Cullers is named in his honor.
There are no movies being made about my life…. yet. But there are a couple of scripts out there under development.
Watch this space.
Stay healthy,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
https://www.madhedgefundtrader.com/wp-content/uploads/2022/11/boy-scouts.png625418Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2022-11-14 10:02:212022-11-14 11:26:31The Market Outlook for the Week Ahead, or The Top Five Technology Stocks of 2023
(MARKET OUTLOOK FOR THE WEEK AHEAD, or MY SECRET MARKET INDICATOR),
(SPY), (USO), (TSLA), (TBT), (NFLX), (FXY), (SNAP)
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