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August 24 Biweekly Strategy Webinar Q&A

Below please find subscribers’ Q&A for the August 24 Mad Hedge Fund Trader Global Strategy Webinar broadcast from Silicon Valley in California.

Q: I’ve heard another speaker say that we are not heading for a Roaring Twenties; instead, we are heading for a Great Depression. Who is right?

A: There are many different possible comments to this. Number one, in the newsletter business, the easiest way to make money is to predict the Great Depression and panic people. Stock market Gurus have been predicting the next Great Depression for all of the 54 years that I have been in the financial markets. We’ve gone through a whole series of Dr. Doom's over this time. We had Nouriel Roubini, we had Henry Kaufman, and before that, there was Joe Granville who predicted Dow 300 when the Dow was at 600 and never gave up. The reason is very simple: the people making these dire forecasts are based in depressionary places. If you live in Puerto Rico, or Ukraine, or Europe, it’s easier to be depressed right now, because the economy is falling to pieces. If you live in Silicon Valley, like I do, and you see these incredible technologies delivering every day, it’s easy to be bullish about the future. So, that is another part of it. On top of that, we’ve just had a recession. And even during this last recession, earnings continued to grow at 5% for the main market, and 20-30% for individual technology companies. The market goes up 80% of the time so if you’re bullish, you’re right 80% of the time. In fact, that may increase going into the future because we just had six months of down days behind us.

Q: How do you know when to buy?

A: Well, I have about 100 different market indicators that I look at, but my favorite one is the Volatility Index (VIX). The (VIX) is the perfect contrary indicator because when fear is high the payoff for taking on risk is huge. The risk/reward swings overwhelmingly in your favor. The simplest indicators are usually the best ones. When (VIX) gets to $30—I don’t think I’ve ever lost money in my life adding on a new trade with (VIX) at $30. If I add positions with the (VIX) at under $30, the loss rate goes up; so, I’m inclined to only do trades when the (VIX) gets close to $30. If that means doing nothing for a month, that’s fine with me. If telling you to stay out of the market makes more money than getting you into the market, I’ll keep you out of the market. I’m not a broker so, I don’t get paid commission; I get paid to give you the highest annual returns so you’ll renew because I only get paid if you renew. Our renewal rate is about 80% these days, and the other 20% either die or retire.

Q: What about the Tesla (TSLA) 3:1 split?

A: In the short term I would stand back and do nothing because you often get a “buy the rumor sell the news” selloff in stocks after splits. Long term, Tesla is a strong buy; short term, we are up close to 60% in a couple of months. Betting that Tesla would rise going into this split was one of the most successful trades that I’ve ever done.

Q: Did you know Julian Robertson?

A: Yes, I did. Julian was one of the first investors in my hedge fund, and then he was one of the first buyers of my Mad Hedge newsletter. He was also my first concierge client. He had one heck of a temper; if you didn’t know your stuff cold, he would just absolutely blow up at you. But he did tend to surround himself with geniuses. He drew on Morgan Stanley people a lot, so I knew a lot of the tiger cubs. But he certainly knew stocks, and he knew markets.

Q: What do we do on the SPDR S&P 500 ETF (SPY) position?

A: Just run it into expiration. As it is my only position, I don’t really have anything else to do and I don’t really see any explosive upside moves in markets this month. And then after that, we will be 10 days to expiration; so there may be enough profit there at that time.

Q: As a long-term investor, should I take Tesla profits now?

A: If you're really a long-term investor and sell now, you’ll miss the move to $10,000. However, if you’re a trader, you should take some profits now and look to buy and scale in down $50 and more down $100, and so on, depending on what the market does.

Q: What are your thoughts on Nvidia Corporation (NVDA) and semis?

A: When recession fears exist, you will have sharp downturns in the semis, because this is the most volatile sector in the market. However, in the long term in Nvidia you might be looking at a 20% of downside, and 200% of upside on a three-year view. It just depends on how much pain you want to take while keeping your long-term position.

Q: Why is September typically the worst month of the year for stocks?

A: You need to go back 120 years when farmers accounted for 50% of the US population. In the farming business, September/October is your maximum stress point, because you’ve put out all your money for seed, for water, for fertilizer, but you don’t get paid until you sell your crop in September/October. That creates a point of maximum stress—when farmers have to max out the loans from the banks, and that creates cascading stresses in the financial system. That’s why almost every stock market crash happened in October. And of course, since that cycle started, it has become a self-fulfilling prophecy to this day. Even though only 2% of the population is in farming now, that selloff in September/October is still there. There’s no real current reason behind it.

Q: How do you find good spreads?

A: You find a good stock first, then a good chart, and then wait for the market to come to you with a high Volatility Index (VIX) with a good micro and macro tailwind. It’s that simple.

Q: Do you think healthcare will sell off once the recession fear is gone?

A: It may not because it had a massive selloff across the entire industry when COVID went away. They've taken that COVID hit. That's a recession if you’re a healthcare company. Now COVID is essentially gone, so they haven’t got it left to lose. In the meantime, technology continues to hyper-accelerate in the healthcare area, just in time for old people like me.

Q: How would you invest $1 million in a retirement portfolio today?

A: Call me—that’s a longer conversation. Or better yet, sign up for the concierge service, and we can talk as long as you want.

Q: Any hope for Facebook (META)?

A: No, when you’re advertising that you’re going to lose money and that you’re not going to make money for five years, that’s bad for the stock. I’m sorry Mr. Zuckerberg, but you should have taken those financial markets classes instead of just doing the programming ones.

Q: Will Powell be dovish or hawkish in his speech?

A: I think he has to go hawkish because he needs to justify the next interest rate hike in September. That’s why I’m 90% cash. The market is set up here not to take disappointments on top of a 4,000-point rally in two months. It’s very sensitive to disappointment, so it’s a good time to be in cash.

Q: What stocks go down the most if we get a 5-10% correction?

A: Semiconductors. Nvidia (NVDA), Advanced Micro Devices (AMD), Micron Technology (MU) are your high beta stocks. Having said that, those are the ones you want to buy at market bottoms. I’ve caught many doubles on Nvidia over the years just using that strategy. When you’ve had a horrible market, you want to go for the highest beta stocks out there, and those are the semis. Plus, semis have a long-term undercurrent of always making more money, always improving their products, always increasing market shares. So, you want to invest with tailwinds behind you all the time. 30 years ago, a new car needed ten chips. Now they need 100. That accelerates exponentially as the entire auto industry goes EV.

Q: What’s your opinion on Lithium companies?

A: You know, I haven’t really done much in this area because it is a basic commodity. The profit margins are minimal, there is no Lithium shortage in the world like there is an oil shortage. Plus, no one has a secret method of mining Lithium that is more profitable than another. No one has an advantage.

Q: Is there a logical maximum number of stocks to have in a share portfolio?

A: I keep mine at ten. You should be able to cover every good sector in the market with ten. When I talk to new concierge customers and review their portfolios, one of the most common mistakes is they own too many stocks – there can be 50, 100, 200 stocks, even several gold stocks. And you never want to own more than you can follow on a daily basis. It’s better to follow ten stocks very closely than 100 stocks just occasionally.

Q: How low do you think Apple (APPL) will go on this dip?

A: Minimum 10%, maybe 20%. Just depends on how weak the market will go in this correction.

Q: What was your defensive plan when you sold short Tesla puts?

A: If they got exercised against me and the Tesla shares were sold to me at my strike price, I was going to take the stock, then let the stock rally. If my long-term view for Tesla is $10,000, it’s not such a problem having a $500 put exercise against you—you just take the stock and run the stock. That was always the strategy. Never sell short more puts than you can take delivery of in the stock. Your broker won’t let you do it anyway to protect themselves.

Q: Do you think we could get a strong rally on the next CPI report?

A: Yes. The report is due out on September 13. But some of a sharp drop in the CPI in the next report is already in the market, so don’t expect another 2,000-point stock market rally like we got last time. It’ll be a much lesser move and after that, we’ll need to see more data. We may get 1,000 points out of it, probably not much more. After that, the November midterm election becomes the dominant factor in the market.

Q: When is natural gas (UNG) going to roll over?

A: When the Ukraine War ends, and that day is getting closer and closer. I think it’ll be sometime in 2023. And if you get an end to the war (and the resumption of Russian supplies is not necessarily a sure thing) you’d get a move in natgas from $9 down to $2. So, that’s why I’m very cautiously avoiding energy plays right now. The big money has been made; next to happen is that the big money gets lost.

Q: What are your thoughts on Florida’s pension fund now banning ESG stocks? I live on Florida state pension fund payments.

A: You might start checking out other income opportunities, like becoming an Uber (UBER) driver or working at MacDonalds (MCD). What the Florida governor has done is ban the pension fund from the sector that is most likely to go up over the next ten years and restricted them to the sector (oil) which is most likely to go down. That is very bad for Florida’s pension fund and any other pension funds that follow them. And I’ve seen this happen before, where a pension fund gets politicized, and it’s 100% of the time a disaster. Governors aren't great market timers; politicians are terrible at making market calls. There are too many examples to name. ESG stocks were one of the top performing sectors of the market for 5 years until we got the pandemic crash. So, that is an awful idea (and one of the many reasons I don’t live in Florida besides hurricanes, humidity, alligators, and the Bermuda Triangle).

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, or BITCOIN LETTER, whichever applies to you, then select 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

August 22, 2022

Diary, Newsletter, Summary

Global Market Comments
August 22, 2022
Fiat Lux

Featured Trade:

(MARKET OUTLOOK FOR THE WEEK AHEAD, or THE PARTY IS OVER)
(SPY), (QQQ), (TLT), (VIX)

The Market Outlook for the Week Ahead, or The Party is Over

Diary, Newsletter

It’s been one heck of a party for the last two months. We’ve been wearing lampshades on our heads, dancing the Lindyhop, and drinking hopium by the barrel.

But even the best of parties must come to an end.

It's time to put the empty bottles into the recycling bin. I’ve called Uber for the guests who can no longer walk. The hangovers have already started. The cleaning lady is probably going to fire me tomorrow.

The Party is Over, at least for now, as are the big money vacations at the Hamptons, Aspen, and Lake Tahoe. This year, wildly overbought markets are perfectly coinciding with peak vacation time.

September brings bigger worries with a Fed rate rise, doubled QT, and a looming election. I’m now net short for the first time since March.

A Volatility Index (VIX) at $19, a Mad Hedge Market Timing Index at 51, and a rally worth half of this year’s losses are telling you to stay away in droves.

Cash is king right now. Just sit back and count all the money you made with me this year. The reality is that there is a honking great dilemma in the market right now. The Fed is talking hawkish, while traders are trading dovish. The Fed ALWAYS wins this kind of bust-up.

I’m looking for stocks to give up at least half their heroic (SPY) 70-point June-August gains. That would take us down to (SPY) 50-day Moving Average at $395.

After that, we might bounce between the 50-day moving average at $395 and the 200-day at $432 all the way until the November midterm elections. Thereafter, we will launch on a meteoric yearend rally that could take us all the way up to (SPY) $480.

It couldn’t go any other way because there is too much cash lying around. In fact, short term positioning is only at 10% of historical norms, and there is still at least $500 billion worth of company share buybacks still in the pipeline, especially in tech.

That’s all fine with me because at $395, the free money trades start to set up again. At (SPY) $395, the (VIX) should be back up to $30. That means you can set up call spreads, assume we will double bottom at (SPY) $362, and STILL make the maximum potential profit. Such is the magic of vertical bull call debit spreads.

In the meantime, we might be able to squeeze out $30 or $40 worth of short-term trading profits in short positions. This will be the only place to make money for the next month or two. If you’re interested, I’m currently short the (SPY), (QQQ), and (TLT).

Yes, trading is all about alternating pain and pleasure. That’s why you must be a sadomasochist to be a great trader.

It all totally works for me.

It's no surprise that the second the yield on the ten-year US Treasury yield recovered 3.00%, the stock market rally promptly died. Message: watch the ten-year US Treasury yield like an eagle.

Tesla (TSLA) Production Tops 3 million and Elon Musk is aiming for 100 million by 2030. Mine was chassis number 125 and my name is still on the Fremont factory wall. They have driven 40 million miles since 2010, pushing their autonomous learning program far down the road when compared to others. Tesla is the third largest car maker in China. It was worth a $40 pop in the stock. The shares split 3:1 on Friday, sucking in meme interest.

Oil (USO) Collapses to New Two-Month Low to $88 a barrel, down $44, or 33% from the highs. There’s another 50-cent decline in gasoline prices in the cards. Disastrous battlefield setbacks for Russia have been the real driver. Putin has resorted to clearing out the prisons to reinforce his army. He is also forcing Ukrainian POWs to fight their own countrymen. Maybe he'll let our woman’s basketball star go free?

The Fed Minutes are out from the last meeting six weeks ago. Interest rates will rise, but not as much as expected. A pivot to flat or lower interest rates may come sooner than expected. Look for 3.50% for the overnight rate sometime in 2023, up 100 basis points from here.

Why Isn’t the Fed Balance Sheet Falling? It’s still stuck at $9 trillion, despite a massive reduction on bond buybacks via QT. The dam is about to break, with $2-$3 trillion in bond buybacks disappearing in the coming months.

Money Supply Growth Has Ground to a Halt, showing zero growth so far in 2022. It is about to start shrinking dramatically, once QT doubles up to $95 billion a month in September. This could deliver our next buying opportunity for stocks, but also might give us a recession.

Housing Starts Collapse, down 9.6% YOY in July. Labor costs are still soaring while affordability has been shattered. If you’re thinking of buying stocks now, lie down and take a long nap first, a very long nap.

Existing Home Sales Dive 6%, off for the sixth consecutive month. Sales dropped to a seasonally adjusted 4.81 million units. It’s no surprise that we are now in a housing recession while the rest of the economy remains small. Homebuyers are also still contending with tight supply. There were 1.31 million homes for sale at the end of July, unchanged from July 2021. At the current sales pace, that represents a 3.3-month supply.

20 Electric Vehicles Will Get the $7,500 Tax Credit on Day One, Biden just signed the climate bill, with Tesla far and away the leader. Only cars with 70% or more of its parts coming from the US qualify. Used EVs get a $4,000 tax credit. MSRPs must be below $55,000 and individual income no more than $150,000. The credit begins in 2023. Left out in the cold are EVs made in Japan and South Korea.

Bitcoin Hits Three-Week Low, as “RISK OFF” returns. Suddenly, stocks, oil prices, and interest rates have started going the wrong way. Avoid Crypto.

Why the IRS is Not Interested in You. Treasury secretary Yellen says the priorities will be clearing the backlog of unprocessed tax returns and improving customer service, overhauling technology, and hiring workers.

My Ten-Year View

When we come out the other side of pandemic and the recession, we will be perfectly poised to launch into my new American Golden Age, or the next Roaring Twenties. With oil prices now rapidly declining, 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!

With some of the market volatility (VIX) now dying, my August month-to-date performance appreciated to +3.96%.

My 2022 year-to-date performance ballooned to +58.79%, a new high. The Dow Average is down -5.91% 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 +73.78%.

That brings my 14-year total return to +571.35%, some 2.56 times the S&P 500 (SPX) over the same period and a new all-time high. My average annualized return has ratcheted up to +45.11%, easily the highest in the industry.

We need to keep an eye on the number of US Coronavirus cases soon reaching 94 million, up 300,000 in a week and deaths topping 1,040,000. You can find the data here.

On Monday, August 22 at 8:30 AM, the Chicago Fed National Activity Index for July is released.

On Tuesday, August 23 at 7:00 AM, New Home Sales for July are out.

On Wednesday, August 24 at 7:00 AM, Durable Goods for July are published.

On Thursday, August 25 at 8:30 AM, Weekly Jobless Claims are announced. US GDP for Q2 is released.

On Friday, August 26 at 7:00 AM, the Personal Income and Spending are disclosed. At 2:00, the Baker Hughes Oil Rig Count is out.

As for me, I have met countless billionaires, titans of industry, and rock stars over the last half-century, and one of my favorites has always been Sir Richard Branson.

I first met Richard when I was living in London’s Little Venice neighborhood in the 1970s. He lived on a canal boat around the corner. I often jogged past him sitting alone on a bench and reading a book at Regent’s Park’s London Zoo, far from the maddening crowds.

Richard was an entrepreneur from day one, starting a magazine when he was 16. That became the Virgin magazine reviewing new records, then the Virgin record stores, and later the Virgin Megastore where he built his first fortune.

When the money really started to pour in, Richard moved to a mansion in Kensington in London’s West End. It wouldn’t be long before Richard owned his own Caribbean Island.

In 1984, Branson was stuck in the Virgin Islands because of a cancelled British Airways flight. He became so angry that he chartered a plane and started Virgin Airlines on the spot, which soon became a dominant Transatlantic carrier and my favorite today.

A British Airways CEO later admitted that they did not take Branson seriously because “He did not wear a tie.” The British flag carrier resorted to unscrupulous means to force Virgin out of business. They hired teams of people to call Virgin customers, cancel their fights, and move them over to BA.

When British Airways got caught, Branson won a massive lawsuit again BA over the issue. He turned the award over to his employees.

Richard would do anything to promote the Virgin brand. He attempted to become the first man to cross the Atlantic Ocean by balloon, making it as far as Ireland.

When he opened a hotel in Las Vegas, he jumped off the roof in a hang glider. The wind immediately shifted and blew him against the building, nearly killing him.

Richard later went on to start ventures in rail, telecommunications, package tours, and eventually space.

When I flew to Moscow in 1992 for my MiG 29 flight, I picked Virgin Atlantic, one of the few airlines flying direct from London to Moscow (I never trusted Aeroflot). Who was in the first-class seat next to me but Richard Branson. We spent hours trading aviation stories, of which I have an ample supply.

As we approached Sheremetyevo Airport, he invited me up to the cockpit and told the pilot “This is my friend Captain Thomas. Would you mind if he joined you for the landing?”

He handed me a headset so I could listen in on a rare Moscow landing. When the tower called in the field air pressure, they were off by 1,000 feet. If we were flying under instrument flight rules, we would have crashed. I pointed this out to the pilot, and he commented that this was not the first time they had had a problem landing in Moscow.

Richard once confided in me that he was terrible at math and didn’t understand the slightest thing about balance sheets and income statements. A board member once tried to explain that business was like using a net (company) to catch a fish (profit) but to no avail.

Branson had built up his entire business empire through relationships, using other people to run the numbers. He was the ultimate content and product creator.

I always thought of Richard Branson as a kindred spirit. He is just better at finding and retaining great people than I am. That is always the case with billionaires, both the boring and the adventurous, iconoclastic kind.

Stay healthy,

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

June 6, 2022

Diary, Newsletter, Summary

Global Market Comments
June 6, 2022
Fiat Lux

Featured Trade:

(THE MAD HEDGE TRADERS & INVESTORS SUMMIT IS ON FOR JUNE 14-16)
(MARKET OUTLOOK FOR THE WEEK AHEAD, or PUTIN’S DEAD END),
(VIX), (HYG), (JNK), (PTON), (W), (MSTR), (RDFN), (BYND), (F), (TSLA), (NVDA)

The Market Outlook for the Week Ahead, or Putin’s Dead End

Diary, Free Research, Newsletter

The current consensus for market strategists is that volatility will remain high.

Please pinch me because I think I died and went to heaven. For every time the Volatility Index (VIX) tops $30, I make another 10%-15% for my followers.

The bulk of market players are now obsessing whether we are entering a recession or not, as if their investment faith depended on it.

Recession, resmession.

As long as I can keep making a 65.40% trailing one-year return, while the Dow Average is off -4.2% during the same time period, I could care less what the economy is actually going to do.

After an impressive 380-point, 10% rally in the S&P 500, it now looks like the stock market is failing once again. Best case, we revisit this year’s low at 3,800. Worst case, we break to new lows at 3,600. The very worst case, we break below 3,500 and wish you had never heard of the stock market.

If you are a trader, there is a fantastic opportunity here to buy low, sell high, and retire early. If you are disciplined, you still have a ton of cash left over from the end of 2021 (I was 100% cash) and will be cherry-picking on the big down days.

It's really very simple. The longer you have been doing this, the easier it gets and the more money you will make. After 52 years of practice, I can do this in my sleep.

As the bear market worsens, we are seeing old asset classes return from the dead like the revived dinosaurs of Jurassic Park. Call convertible bonds are the velociraptors of the bunch.

Take the main junk bond ETF like the iShares iBoxx High Yield Corporate Bond Fund (HYG) and the SPDR Barclays High Yield Bond Fund (JNK), which have seen yields double from 3% to over 6% in only six months.

If you are willing to take on more risk, individual busted convertible bonds yield infinitely more. You know all the names. Peloton (PTON) converts are paying a 10.4% yield to maturity, Wayfair (W) 11.0%, MicroStrategy (MSTR) 13.1%, Redfin (RDFN) 14.5%, and Beyond Meat (BYND) 19.5%. Buy ten of these and even if one goes under, you still earn a decent double-digit return.

Having run a convertible bond trading desk for ten years, I can tell you that the risk/reward balance for many individuals with this investment class is just right.

As my summer military duty approaches, information about the Ukraine War is pouring into me. I will share with you what I can, what has been declassified for the war is still a major factor in your investment outcomes. I have been able to use my “top secret” status for 50 years,= to your benefit.

The amazing thing is that in this modern age, information goes from “top secret” to declassified in only a day. It is a new strategy used by the current administration that is working incredibly well. Information is more valuable shared than locked up.

I have been getting a lot of questions from readers as to why Vladimir Putin committed such a disastrous error by invading Ukraine as he is considered a smart guy. My initial response was that he surrounded himself with “yes” men who only told him what he wanted to hear, leading to terrible outcomes, which I have seen happen many times.

The costs of the war for Putin have so far been enormous; 50,000 casualties, 1,000 tanks, 1,300 armored vehicles, banishment from the western economy, the loss of $1 trillion in foreign held assets, and the decline of the national GDP from $1.5 trillion to $1 trillion.

The costs are about to substantially rise. The US is now sending over its most advanced artillery systems, the MRLS, or Multiple Rocket Launch System, which can hit any target within 300 miles with an accuracy of one meter. All you have to do is dial in the latitude and longitude of the target and it never misses. This one weapon will certainly bring the war to a stalemate and consign it to page three of the newspapers.

But after doing a ton more research, my view has evolved. Putin has in fact launched a Resource War against the entire rest of the world. The result has been to boost the price of practically everything Russia produces, including oil ($123 billion), refined petroleum products ($63 billion), iron & steel ($28 billion), coal ($17 billion), fertilizer ($13 billion), wood ($12 billion), wheat ($9 billion), aluminium ($8 billion), platinum, palladium, uranium.

There is also the inflation angle. While the US benefits from many of these high prices as well, they have raised the US inflation rate from 5% to 8.3%. That damages the election prospects of Biden and the Democrats. High inflation improves the election of prospects of a former president who Putin seems to vastly prefer for whatever reason.

After covering Russia for 50 years, flying their front-line fighters, springing a wife out of jail in Moscow, I can tell you that everything there is a chess game, and they play a very long game.

Nonfarm Payroll Report comes in at 390,000, better than expected. Leisure & Hospitality led the gains with 84,000, and Professional & Business Services by 75,000. Manufacturing fell to only 18,000, largely because of a shortage of workers. The Headline Unemployment Rate remained the same at 3.6%. Average hourly earnings rose by an inflationary 5.2% YOY. The U6 “discouraged worker” rate rose back to 7.1%.

Weekly Jobless Claims jump 19,000 to 200,000, a two-month high, according to the Department of Labor. Compensation for American workers has hit a 30-year high. New York showed the largest increase followed by Illinois.

OPEC+ raises oil output to meet surging energy demand caused by the Ukraine War. Up 648,000 barrels a month for July and August. They could easily do a lot more. The cartel is aiming for the pre-pandemic 10 million barrels a day. No dent in prices at the pump yet.

Hedge Funds were slaughtered in May, with the flagship Tiger Global Fund down a massive 14%. Gee, Mad Hedge Fund Trader was UP 11% in May and am up 44% on the year. Maybe there’s something in the water here at Lake Tahoe. Or, maybe it’s the “Mad” that is giving me my edge?

S&P Case Shiller National Home Price Index tops 20.6%, a new all-time high. Tampa (34.8%), Miami (32.4%), and Phoenix (32.0%) lead the gains. Incredible as it may seem, price rises are accelerating. But expect that to cool off once current prices start feeding into the index.

Home Listings soar, with homes for sale up 9% YOY as homeowners fear missing getting out at the top. New listings have doubled in a year, according to Redfin. Outrageous over-market bids have definitely ended in California. So far, no hint of price drops….yet.

A Ford (F) Electric Pickup can power your house for ten days, but only if you live in a tiny house. Ford is the first company to introduce bidirectional charging that lets your home run off the vehicle’s 1,300-pound lithium-ion battery. All you need is a $3,895 hardware upgrade from Sunrun. The range is 320 miles, not as much as the latest Tesla Model X (TSLA). Good luck getting one. Ford isn’t taking any new orders until it fills the 200,000 it already has. Expect Tesla to copy the move.

The Fed may overshoot on raising interest rates if Fed governor Christopher Waller has his way. That’s because going too tight may be necessary to break the back of inflation. That’s what happened in 1980, when Fed Funds hit 17%, and ten-year bond yields hit 15.84%. My first home mortgage interest rate for a coop in Manhattan back then was 17%.

China Covid Cases fade, prompting a big Bitcoin rally. This could be the impetus for a sudden global economic recovery that will deliver a big US stock market rally. Good thing I loaded the boat with tech stocks two weeks ago.

The Fed Minutes were not so horrible, downplaying the risk of a full 1% rate rise, triggering a 1,000-point rally in the Dow. With five up days in a row this is starting to look like THE bottom. Is this the light at the end of the tunnel?

NVIDIA (NVDA) rips, surprising to the upside on almost every front, sending the stock up $30, or 18.75%. Mad Hedge followers bought (NVDA) last week. This is one of the best run companies in the world. I expect the shares to rise from the current $178.51 to $1,000 in five years. Buy (NVDA) on dips.

Q1 GDP dives 1.5%, in its final read. It’s the worst quarter since the pandemic began during Q2 2022. Weekly Jobless Claims dropped 8,000 to 210,000.

My Ten-Year View

When we come out the other side of pandemic, we will be perfectly poised to launch into my new American Golden Age, or the next Roaring Twenties. With interest rates still historically cheap, oil peaking out soon, and technology hyperaccelerating, there will be no reason not to. The Dow Average will rise by 800% to 240,000 or more in the coming decade. The American coming out the other side of the pandemic will be far more efficient and profitable than the old. Dow 240,000 here we come!

With some of the greatest market volatility seen since 1987, my June month-to-date performance recovered to +2.49%.

My 2022 year-to-date performance exploded to 44.36%, a new all-time high. The Dow Average is down -9.37% 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 65.40%.

That brings my 14-year total return to 556.92%, some 2.37 times the S&P 500 (SPX) over the same period and a new all-time high. My average annualized return has ratcheted up to 43.97%, easily the highest in the industry.

We need to keep an eye on the number of US Coronavirus cases at 84.7 million, up 300,000 in a week and deaths topping 1,000,000 and have only increased by 2,000 in the past week. You can find the data here.

On Monday, June 6 is the 78^th anniversary of the D-Day invasion of Normandy. All of the veterans I knew have long since passed. I’ll miss the memorial this year.

On Tuesday, June 7 at 8:30 AM, the US Balance of Trade for April is released.

On Wednesday, June 8 at 10:30 AM, US Crude Inventories are published.

On Thursday, June 9 at 8:30 AM, Weekly Jobless Claims are out.

On Friday, June 10 at 8:30 AM, the blockbuster US Core Inflation Rate is announced. More importantly, the new dinosaur movie, Jurassic World: Dominion, is released. At 2:00 the Baker Hughes Oil Rig Count are out.

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

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

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

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

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

I heard about it too late and missed the train.

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

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

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

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

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

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

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

I said, “Oh, you want my documents!”

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

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

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

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

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

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

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

It all turned out to be true.

Stay Healthy,

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

One More Off to College

If You Don’t Like the Price, Don’t Use it

June 3, 2022

Diary, Newsletter, Summary

Global Market Comments
June 3, 2022
Fiat Lux

Featured Trade:

(JUNE 1 BIWEEKLY STRATEGY WEBINAR Q&A),
(AAPL), (GOOGL), (MSFT), (JPM), (BAC), (C), (UUP), (FXA), (FXC), (EEM),
(VIX), (CRM), (AAPL), (TSLA), (COIN), (EDIT), (CRSP), (LMT), (RTX), (GD)

June 1 Biweekly Strategy Webinar Q&A

Diary, Free Research, Newsletter

Below please find subscribers’ Q&A for the June 1 Mad Hedge Fund Trader Global Strategy Webinar broadcast from Silicon Valley.

Q: What are the 3 best stocks to own for the end of the year?

A: Apple (AAPL), Alphabet Inc. (GOOGL), and Microsoft (MSFT). Those you want to buy on meltdown days, kind of like today. Make sure you scale into these—so maybe buy 20% on every down-500-point Dow day. Eventually, you’ll end up with a pretty decent position at a market low in a stock that will double in 3-5 years.

Q: Why these three stocks?

A: Lots of reasons: They’re huge, they’re safe, two out of three pay dividends, Alphabet is about to split, and they have huge moats so nobody can get into their sectors. They have near monopolies in what they do, and they have immense cash on the balance sheet. These are the kind of stocks that portfolio managers dream about. And watch what rallied the hardest in the last dead cat bounce we had—it was these three names. That tells you that they will lead any long-term bull market in the future. These are the stocks that people want to own.

Q: What will bring your predicted second half-bull market in the stock market?

A: Inflation drops from 8% to 4%. That will happen for a couple of reasons. The year-on-year comparisons become highly favorable starting from next month when inflation started to take off a year ago. Inflation numbers are going to be climbing the wall of worry from here on out. That could get us down to 4% by the end of the year. The second reason is the Ukraine War either ends or becomes a stalemate and is no longer a factor in the global markets, and we’ve had time to replace all the Russian oil and Ukrainian wheat.

Q: Are banks positioned to benefit from the coming rally?

A: Absolutely. I think big tech and banks will be the top-performing stock sectors for the next five years because inflation will go away, recession fears will go expire, and credit quality will improve, but interest rates will remain 300 basis points higher than they were during the pandemic. Buy (JPM), (BAC), and (C) on dips.

Q: What will be the worst performing sector?

A: Energy—anything energy-related will get absolutely slaughtered, which is why I don't want to touch it with a ten-foot pole right now. That includes oil companies, exploration companies, E&P companies, and master limited partnerships, as well as coal and other natural gas stocks. So, if you’re long these names don’t forget to sit down when the music stops playing. You could get your head handed to you at the end.

Q: Can we make lower lows?

A: Yes, that’s entirely possible. Market moves are basically random when you get down to these levels— down more than 20%. And on all future downturns, I would be spending your cash going back into the market expecting a second half rally.

Q: What about green energy?

A: Unfortunately, green energy is very tied to old energy because $120 oil makes green companies much more competitive from a cost point of view. So, I’m not going to go piling into green companies right here, especially if I think oil is topping out in the near future. Buying green energy companies here is the same as buying oil at $120 a barrel.

Q: What is the best way to play the declining US dollar?

A: Buy the iShares MSCI Emerging Markets ETF (EEM). Also, the Aussie dollar (FXA) and the Canadian Dollar (FXC), which benefit tremendously from commodity prices, which will rise for another decade in a global economic recovery.

Q: Why will energy be the worst sector?

A: If you end the war in the Ukraine or you replace Russian oil, either by finding new sources of oil, getting other producers to increase production which they can do (including the US), or by accelerating the move to alternatives, then you move oil back to pre-invasion prices which were about $70 a barrel or $50 lower than they are here.

Q: Best way to hedge a falling market?

A: Do what I'm doing: keep a balanced portfolio of longs and shorts, that way you always have something that’s going up. And if you do it through the options, you have time decay working for you on both sides of the equation. If you want to go outright, buy outright puts on individual stocks because they had double the moves of the indexes. And go to my short selling school which you can find by going to my website at https://www.madhedgefundtrader.com. There’s actually 12 different ways to benefit from falling markets.

Q: How deep in the money can we go on our call spreads?

A: Wait for the Volatility Index (VIX) to go over $30, and then go 15-20% in the money. And yes, you only make 10, 15, or 20% on those positions in a month but then you put together ten of them and that adds up to quite a lot of money. You want to find the position that has the greatest probability of happening—i.e. something that’s 20% in the money. Do that when the market has just dropped 20%, which it already has, and then you have a position that has a minuscule chance of losing money.

Q: How much longer do you see this current bear market bounce lasting?

A: Until yesterday.

Q: What's your favorite commodity ETF?

A: My favorite commodity stock is Freeport McMoRan (FCX), the world’s largest copper producer. Rather than pay the extra management fees for an ETF, I prefer just to go straight to the source and buy (FCX).

Q: When do you think the Fed will pivot to dovish or neutral?

A: This summer. It’s just a question of whether it’s the July or the September meeting.

Q: When you say “buy on dips”, what does that mean? 1%, 3%, 5%?

A: Well in this market, a dip would be a retest of the previous lows which is going to be down 10% or 15% on the major positions in your portfolio. If you’re day trading, a dip is only 1%, so it really depends on your timeframe and your risk tolerance. That’s why I always tell people to scale by doing everything in incremental pieces—20%, 25%, and so on. You never know what the market’s actually going to do on a short-term basis. Randomness can’t be predicted.

Q: If you plan to enter a LEAPS on Apple, what strikes would you do?

A: Well, first of all, I want to see if Apple drops all the way to $125, which is a lot of people’s downside target. If it did, then I would do the $125/$135 call spread two years out, and that will probably double. And if it starts a long term up trend, then I’ll keep rolling up the strike prices. If, say, Apple goes to $125, you put your LEAPS on. If the stock rises to 150, then take profits on the $125/$135 and roll into the $150/$160. That’s how you can get like 1,000% returns like we got on Tesla (TESLA) a few years ago. You just keep rolling up your strike prices on every weak day and maintain your leverage.

Q: When do we bet the farms on Editas Medicine Inc. (EDIT) and Crispr (CRSP) Therapeutics?

A: Never. These are small, highly speculative companies which will make money someday, but if the someday is in five years and you’re betting the farm with a LEAPS, you lose the farm. It's going to take a long time for these smaller biotech stocks to come back. If you want to play biotech, go with the big ones like Amgen. It takes a long time to convert cutting-edge technology into profits. The big companies already have a stable of reliable money-making drugs on hand.

Q: Salesforce Inc. (CRM) is up big on earnings—what should I do with the stock?

A: Buy the dips. It’s still way, way below its all-time highs, so use the weekdays to accumulate Salesforce for the long term. It’s one of the best cloud plays out there.

Q: What do you think about NVIDIA Corporation (NVDA)?

A: I absolutely love it. It rallied 20% off the bottom. Use any other additional weak days like today to increase your position. This stock someday is worth $1,000, up from today’s $195.

Q: Do you like SPACS?

A: No, I hate them and think they’re a rip-off. And a lot of them have become totally illiquid and untradable, so you have no choice but for them to shut down and return their money if they have any left. I’ve hated SPACS from day one and people are now getting their comeuppance on these.

Q: What do you think about the weakness in Coinbase Global Inc. (COIN) down here?

A: It’s just going down with all the other high-risk, speculative, meme stock type plays, which include all of the crypto plays like Bitcoin. I would avoid all of those. You want to buy quality at the discount now, and you want to buy the Cadillacs at Volkswagen prices and leave the speculative plays for the next generation, Gen Z, who are already highly interested in stocks.

Q: What is your favorite non-US country to invest in?

A: Australia, because you get a double play there on the currency, which should go up 30% from here, and they will benefit from a global commodity boom which continues for another ten years. They pretty much sell a lot of the major commodities like iron ore, wheat, sheep, and so on. It’s also a really nice country to visit. The only negative with Australia are the sharks.

Q: Biotech takeover targets?

A: Well (EDIT) and (CRSP) would be two of them. Things in the sector are so cheap that they are all potential takeover targets. M&A (Mergers and Acquisitions) will be a major play in the biotech sector for the foreseeable future.

Q: Should we sell short the defense industry here?

A: No, even if the war ends tomorrow, you might get some profit-taking, but the fact is that long term military spending is increasing permanently. The peace dividend now has to be paid back, and that is great for all the defense companies, so I would not be shorting them. If anything, I’d be buying on dips. Buy Lockheed Martin (LMT), Raytheon (RTX), who make the Javelin antitank missile for which there is now a two-year order backlog. You can also throw in General Dynamics (GD) for good measure which builds nuclear submarines and the Stryker armored vehicle.

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, 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

Keep Those Defense Plays

The Market Outlook for the Week Ahead or The Markets Continue Their Headlong Rush to Cheap

Diary, Newsletter

As I expected, the markets have continued their march to “cheap”, with the price-earnings multiple plunging in a week from 19X to 17X. This has occurred both through rising earnings and falling share prices.

“Cheap,” is now within range, a mere 10% drop in the (SPX) to $3,800 only 10% away, taking us to a 15X multiple. With the Volatility Index (VIX) at a sky-high $34, in another week we could be there.

The long-term smart money isn’t bothering to wait and has already started to scale into the best names. For now, they are overwhelmed by sellers panicking to sell the next market bottom, as they usually do. That won’t last.

Stocks have seen their worst start to a year since 1942, right after the crushing Japanese attack on Pearl Harbor attack. They didn’t bottom until the US won the Battle of Midway in May, seven months later, even though the public didn’t learn about the strategic victory until months later.

That took the Dow Average down exactly 20%, from $115 to $92. Thereafter, the market began one of the greatest bull moves of all time, exploding from $92 to $240, up 161%.

Dow Average 1939-1942

That is how long and how much we may have to wait for a recovery this time as well with the same long-term outcome.

Those of you who have traditional 60/40 portfolios (60% stocks and 40% bonds), which are most of you, even though I advised against it, have suffered their worst start to a year since 1981, 40 years ago. Both bonds AND stocks have gone down huge.

NASDAQ, the red-headed stepchild of the day, delivered the worst monthly performance since October 2008. Playing from the short side has been like shooting fish in a barrel. The Mae Wests which have floated this market for years have been found to be full of holes.

Consumer discretionary stock delivered a horrific performance. The discretion of consumers right now is to flee stocks and own cash.

I prefer Oracle of Omaha Warren Buffet’s approach. For the first time in years, he is pouring money into stocks, some $51 billion in Q1. That includes $26 billion into California energy major Chevron (CVX), followed by a big bet on Occidental Petroleum (OXY) (click here for my piece at https://www.madhedgefundtrader.com/take-a-look-at-occidental-petroleum-oxy-4/ ).

These are clearly a bet that oil will remain high for at least five more years. That has whittled his cash position down from $147 billion to only $106 billion. Buffet likes to keep a spare $100 billion on hand so he can take over a big cap at any time.

Warren clearly eats his own cooking, buying $26 billion worth of his own stock in 2021. If you can’t afford the lofty $4,773 price for the “A” shares, try the “B” shares at $322.83, which also offer listed options on NASDAQ and in which Mad Hedge Fund Trader currently has a long position.

Rather than fleeing what you already own, because it’s too late, you’re better off building lists of what to buy at the bottom. And the farther the market falls, the more volatility I am looking for.

Investors are salivating at the demise of Cathy Wood’s Ark Innovation ETF (ARKK), which has collapsed by 72% in 14 months. In the meantime, the short Ark ETF (SARK) rose by 50% in April Alone.

You can scale into (ARKK) on the next Armageddon Day. Better yet, you can pick up their ten largest holdings. Those include:

Tesla (TSLA)
Zoom (ZM)
Roku (ROKU)
Coinbase (COIN)
Block (BLOK)
Exact Sciences (EXAS)
Unity Software (U)
Teladoc (TDOC)
Unity
UiPath (PATH)

Over five years, you can expect two of these to go bust, three to do nothing, two to get taken over at a 50% premium, one to double, one to go up ten times, and one to go up 50 times. If you do the math on this, it’s pretty attractive. Guess which one I think is going up ten times?

After listening to endless talking heads postulating about what Bitcoin is, I have finally come up with a definition. It is a small-cap non-earning stock. For that is the asset close showing the closest correlation in the current meltdown. That is not good because I expect small-cap non-earning stocks to go nowhere for the foreseeable future. Don’t hold your breath, but when they turn, you can expect a 2X-10X return on investment, as we did before.

My Ten Year View

When we come out the other side of the pandemic, we will be perfectly poised to launch into my new American Golden Age or the next Roaring Twenties. With interest rates still historically cheap, oil peaking out soon, 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 of the pandemic will be far more efficient and profitable than the old. Dow 240,000 here we come!

My April month-to-date performance added a decent 3.33%. My 2022 year-to-date performance ended at a chest-beating 30.18%. The Dow Average is down -13.5% 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 62.56%.

On the next capitulation selloff day, which might come with the April Q1 earnings reports, I’ll be adding long positions in technology, banks, and biotech. I am currently in a rare 100% cash position awaiting the next ideal entry point.

That brings my 13-year total return to 542.74%, some 2.10 times the S&P 500 (SPX) over the same period. My average annualized return has ratcheted up to 43.71%, easily the highest in the industry.

We need to keep an eye on the number of US Coronavirus cases at 81.4 million, up only 300,000 in a week, and deaths topping 993,000 and have only increased by 5,000 in the past week. Wow, we only lost the equivalent of 12 Boeing 747 crashes in a week! Great news indeed. You can find the data here at https://coronavirus.jhu.edu.

The coming week is a big one for the jobs reports.

On Monday, May 2 at 7:00 AM EST, the ISM Manufacturing PMI is published. NXP Semiconductors (NXPI) reports.

On Tuesday, May 3 at 7:00 AM, the JOLTS Job Openings report is announced. Skyworks Solutions Reports (SWKS).

On Wednesday, May 4 at 8:30 AM, ADP Private Sector Employment Change is printed. At 11:00 AM the Federal Reserve announced its interest rate decision. Jay Powell’s press conference follows at 11:30. Moderna (MRNA) reports.

On Thursday, May 5 at 8:30 AM, Weekly Jobless Claims are disclosed. Conoco Phillips (COP) reports.

On Friday, May 6 at 8:30 AM, the Nonfarm Payroll Report for April is released.

At 2:00 PM, the Baker Hughes Oil Rig Count are out.

As for me, I spent a decade flying planes without a license in various remote war zones because nobody cared.

So, when I finally obtained my British Private Pilot’s License at the Elstree Aerodrome, home of the WWII Mosquito twin-engine bomber, in 1987, it was cause for celebration.

I decided to take on a great challenge to test my newly acquired skills. So, I looked at an aviation chart of Europe, researched the availability of 100LL aviation gasoline, and concluded that the farthest I could go was the island nation of Malta.

Caution: new pilots with only 50 hours of flying time are the most dangerous people in the world!

Malta looms large in the history of aviation. At the onset of the second world war, Malta was the only place that could interfere with the resupply of Rommel’s Africa Corps, situated halfway between Sicily and Tunisia. It was also crucial for the British defense of the Suez Canal.

So, Malta was mercilessly bombed, at first by Mussolini’s Regia Aeronautica, and later by the Luftwaffe. By April 1942, the port at Valletta became the single most bombed place on earth.

Initially, Malta had only three obsolete 1934 Gloster Gladiator biplanes to mount a defense, still in their original packing crates. Flown by volunteer pilots, they came to be known as “Faith, Hope, and Charity.”

The three planes held the Italians at bay, shooting down the slower bombers in droves. As my Italian grandmother constantly reminded me, “Italians are better lovers than fighters.” By the time the Germans showed up, the RAF had been able to resupply Malta with as many as 50 infinitely more powerful Spitfires a month, and the battle was won.

So Malta it was.

The flight school only had one plane they could lend me for ten days, a clapped-out, underpowered single-engine Grumman Tiger, which offered a cruising speed of only 160 miles per hour. I paid extra for an inflatable life raft.

Flying over the length of France in good weather at 500 feet was a piece of cake, taking in endless views of castles, vineyards, and bright yellow rapeseed fields. Italy was a little trickier because only four airports offered avgas, Milan, Rome, Naples, and Palermo. Since Italy had lost the war, they never experienced a postwar aviation boom as we did.

I figured that if I filled up in Naples, I could make it all the way to Malta nonstop, a distance of 450 miles, and still have a modest reserve.

Flying the entire length of Italy at 500 feet along the east coast was grand. Genoa, Cinque Terra, the Vatican, and Mount Vesuvius gently passed by. There was a 1,000-foot-high cable connecting Sicily with the mainland that could have been a problem, as it wasn’t marked on the charts. But my US Air Force charts were pretty old, printed just after WWII. But I spotted them in time and flew over.

When I passed Cape Passero, the southeast corner of Sicily, I should have been able to see Malta, but I didn’t. I flew on, figuring a heading of 190 degrees would eventually get me there.

It didn’t.

My fuel was showing only quarter tanks left and my concern was rising. There was now no avgas anywhere within range. I tried triangulating VORs (very high-frequency omnidirectional radar ranging).

No luck.

I tried dead reckoning. No luck there either.

Then I remembered my WWII history. I recalled that returning American bombers with their instruments shot out used to tune into the BBC AM frequency to find their way back to London. Picking up the Andrews Sisters was confirmation they had the right frequency.

It just so happened that buried in my pilot’s case was a handbook of all European broadcast frequencies. I look up Malta, and sure enough, there was a high-powered BBC repeater station broadcasting on AM.

I excitedly tuned in to my Automatic Direction Finder.

Nothing. And now my fuel was down to one-eighth tanks and it was getting dark!

In an act of desperation, I kept playing with the ADF dial and eventually picked up a faint signal.

As I got closer, the signal got louder, and I recognized that old familiar clipped English accent. It was the BBC (I did work there for ten years as their Tokyo correspondent).

But the only thing I could see were the shadows of clouds on the Mediterranean below. Eventually, I noticed that one of the shadows wasn’t moving.

It was Malta.

As I was flying at 10,000 feet to extend my range, I cut my engines to conserve fuel and coasted the rest of the way. I landed right as the sunset over Africa.

While on the island, I set myself up in the historic Excelsior Grand Hotel. Malta is bone dry and has almost no beaches. It is surrounded by 100-foot cliffs. I paid homage to Faith, the last of the three historic biplanes, in the National War Museum in Valetta.

The other thing I remember about Malta is that CIA agents were everywhere. Muammar Khadafy’s Libya was a major investor in Malta, recycling their oil riches, and by the late 1980’s owned practically everything. How do you spot a CIA agent? Crewcut and pressed creased blue jeans. It’s like a uniform. What they were doing in Malta I can only imagine.

Before heading back to London, I had to refuel the plane. A truck from air services drove up, dropped a 50-gallon drum of avgas on the tarmac along with a pump then they drove off. It took me an hour to hand pump the plane full.

My route home took me directly to Palermo, Sicily to visit my ancestral origins. On takeoff to Sardinia wind shear flipped my plane over, caused me to crash, and I lost a disk in my back.

But that is a story for another day.

Who says history doesn’t pay!

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

“Faith”

The Andrews Sisters

Spitfire

Grumman Tiger

April 4, 2022

Diary, Newsletter, Summary

Global Market Comments
April 4, 2022
Fiat Lux

Featured Trade:

(MARKET OUTLOOK FOR THE WEEK AHEAD, or WELCOME TO THE ROUND TRIP MARKET)
(SPY), (TLT), (VIX)

The Market Outlook for the Week Ahead, or Welcome to the Round-Trip Market

Diary, Newsletter

If you had followed my advice and taken a cruise around the world in December, you would be getting home about now. A review of your portfolio would review that most of your positions were either unchanged or down slightly.

And if you had chunky positions in bond shorts, as I pleaded, begged, and cajoled you into taking on, you would be sitting pretty. In fact, you could well afford to take yet another cruise around the world.

That could be the best advice I can give right now, for the next quarter, the market will remain trapped in a wide but volatile range. That’s fine if you are backed up with mainframe computers, a programming staff of a dozen strong, and dedicated lightning-fast fiber optic cables, all the resources of a high-frequency trader shooting for pennies per trade.

If instead, you’re trading on your iPhone in between meetings at work, on every other hole at the golf course, or whenever you have free time, as many of you do, you may well want to sit Q2 out. There are not any great trades out there at the moment, the market is still expensive and the challenges ahead are legion.

For a start, stocks are in the process of discounting one of those annoying recessions that aren’t going to happen, as it does about half the time. I know this is important for many of you who run their own businesses remorselessly tied to the economic cycle.

Yes, I know that there is a rising tide of recession calls from the analyst community. But the models that reliably worked in the past are missing two crucial factors.

They never had to account for Medusa’s head of supply chain problems we now face, where perhaps 5% of US GDP is tied up on the West coast docks stacked in containers ten high. Untie this Gordian knot and you get another surprise spurt for the economy.

The other is the coming reconstruction of Ukraine, one of the greatest public works projects of all time, on a scale with the WWII Marshall Plan. Every major engineering company in the world will have to get involved, including Fluor (FLR), Bechtel (private), and those in Europe, Japan, and China. I reckon it could add 1% of global growth per year for the next several years.

How are the impoverished Ukrainians going to pay for all this work? With the $1 trillion in overseas Russian assets already seized, Ukraine easily gets control through proceedings at the World Court.

All Putin really accomplished with his war was to bring forward the end of oil by 20 years, at least for Russia, and to shrink the Russian standard of living by 90% practically overnight. It has been duly kicked out of the global economy. A million Russians have already lost their jobs and the shelves in Moscow are empty.

By the way, you may have noticed that Apple was up every day for 11 days for the first time since 2003. All the war really meant is that you got to buy Apple for a few minutes at $150 instead of $160. This is not what coming recessions are made of. The Volatility Index (VIX) at $19 is screaming as much.

It all confirms my 2022 scenario of a rambunctious H1 followed an H2 zeroing in on new all-time highs. You heard it here first!

Now for last week’s highlights:

Unemployment Plunges to 3.6%, a new cycle low, with the hot 431,000 March nonfarm Payroll. It’s yet another reason for the Fed to raise interest rates and increases the prospects of a 50-basis point rise this month. Leisure and Hospitality gained an eye-popping 118,000, Professional & Business Services 102,000, and Manufacturing 38,000. The U-6 “discouraged worker rate” fell to an incredible 6.9%. The back months saw big upward revisions. Overall, it was a blowout report.

ADP up 455,000 in March, showing the jobs market is still on fire. Services are seeing huge gains. Leisure & Hospitality continues its post covid bounce back. It makes the coming Nonfarm Payroll report on Friday look pretty industry.

JOLTS Comes in Red Hot, showing that there were 11.3 million job openings in February, 5 million more than the number of unemployed. The great labor shortage continues and may be permanent, dashing all recession fears.

Will the Fed Screw Up? That is the biggest risk to the markets according to 46% of all investors. Rising inflation comes in at 33%. If the Fed panics and excessively raises interest rates in a tardy response to higher prices the 46% will be right.

The Five- and 30-Year Bonds Invert, meaning it is cheaper to borrow for 30 years than it is for five. Such a move usually presages a recession. Other than that, Mrs. Lincoln, how was the play?

Oil Plunges 8% on China Lockdown Fears, to $104.50 a barrel, as a new Covid wave hits Shanghai. China is the world's largest importer of oil by a large margin.

Tesla to Split Shares and Pay Dividend, according to SEC filings, sending the shares soaring by $90. (TSLA) has more than doubled since the last split in August 2020. Buy (TSLA) on dips.

S&P Case Shiller Up 19.2% in January, yet another new all-time high. Phoenix (33%), Tampa (31%), and Miami (28%) were the big winners and January is when mortgage interest rates started to rise sharply. This has led to an increase in all cash offers and buyers no longer qualify for loans. Home prices should keep rising for the rest of the decade, although at a slower rate.

Biden to Boost Battery Metal Production, by invoking the Defense Production Act, to hasten the end of our reliance on oil. Permitting and environmental regulation will get eased for the miners of lithium, cobalt, and nickel. The government has figured out that there are nowhere near the materials needed to meet the lofty sales forecasts of EV makers, like Tesla.

The Energy Sector Has Hit a Gusher in Profits, with earnings up an eye-popping 228% YOY. But if you are not in already, you missed it. Topping out risk is beginning, especially if the Ukraine War ends, cratering oil prices.

Biden to release 1 Million Barrels a Day for the SPR, the most in the 47-year history of the facilities, putting a serious dent in the current energy shortage. That’s against daily US consumption of 20 million barrels. The Strategic Petroleum Reserve currently has 714 barrels. It should be emptied and shut down as it is nothing more than a government subsidy for three two red states, Texas and Louisiana. Russia says it will only take rubles for oil and gas sales from Friday.

My Ten-Year View

When we come out the other side of pandemic, we will be perfectly poised to launch into my new American Golden Age, or the next Roaring Twenties. With interest rates still at zero, oil cheap, there will be no reason not to. The Dow Average will rise by 800% to 240,000 or more in the coming decade. The American coming out the other side of the pandemic will be far more efficient and profitable than the old. Dow 240,000 here we come!

With near-record volatility, my March month-to-date performance retreated to a still blistering 12.26%. My 2022 year-to-date performance ended at a chest beating 26.85%. The Dow Average is down -4.00% so far in 2022. It is the greatest outperformance on an index since Mad Hedge Fund Trader started 14 years ago.

On the next capitulation selloff day, which might come with the April Q1 earnings reports, I’ll be adding more long positions in technology.

That brings my 13-year total return to 539.41%, some 2.10 times the S&P 500 (SPX) over the same period. My average annualized return has ratcheted up to 43.80%, easily the highest in the industry.

We need to keep an eye on the number of US Coronavirus cases at 80.2 million and rising quickly and deaths topping 983,000 and have only increased by 1,000 in the past week. You can find the data here. The growth of the pandemic has virtually stopped, with new cases down 98% in two months.

On Monday, April 4 at 7:00 AM EST, US Factory Orders for February are published.

On Tuesday, April 5 at 9:00 AM, the ISM Non-Manufacturing Index for February is printed.

On Wednesday, April 6 at 11:00 AM, The minutes from the last Fed meeting are released and will almost certainly lean hawkish.

On Thursday, April 7 at 7:30 AM, the Weekly Jobless Claims are printed.

On Friday, April 8 at 8:30 AM, Wholesale Inventories for February are announced. At 2:00 PM, the Baker Hughes Oil Rig Count is out.

As for me, when I backpacked around Europe in 1968, I relied heavily on Arthur Frommer’s legendary paperback guide, Europe on $5 a Day, which then boasted a cult-like following among impoverished, but adventurous Americans. The charter airline business was then-booming, and suddenly Europe came within reach for ordinary Americans like me.

Over the following years, he directed me down cobblestoned alleyways, dubious foreign neighborhoods, and sometimes converted WWII air raid shelters, to find those incredible travel deals. When he passed through town some 50 years later, I jumped at the chance to chat with the ever cheerful worshipped travel guru.

Frommer believes there are three sea change trends going on in the travel industry today. Business is moving away from the big three travel websites, Travelocity, Orbitz, and Priceline, who have more preferential lucrative but self-enriching side deals with airlines than can be counted, towards pure aggregator sites that almost always offer cheaper fares, like Kayak.com, Sidestep.com, and Fairchase.com.

There is a move away from traditional 48-person escorted bus tours towards small group adventures, like those offered by Gap Adventures, Intrepid Tours, and Adventure Center, that take parties of 12 or less on culturally eye-opening public transportation.

There has also been a huge surge in programs offered by universities that turn travelers into students for a week to study the liberal arts at Oxford, Cambridge, and UC Berkeley. His favorite was the Great Books programs offered by St. John’s University in Santa Fe, New Mexico.

Frommer says that the Internet has given a huge boost to international travel, but warns against user-generated content, 70% of which is bogus, posted by hotels and restaurants touting themselves.

The 81-year-old Frommer turned an army posting in Berlin in 1952 into a travel empire that publishes 340 books a year or one out of every four travel books on the market. I met him on a swing through the San Francisco Bay Area (his ticket from New York was only $150), and he graciously signed my tattered, dog-eared original 1968 copy of his opus, which I still have.

Which country has changed the most in his 60 years of travel writing? France, where the citizenry has become noticeably more civil since losing WWII. Bali is the only place where you can still actually travel for $5/day, although you can see Honduras for $10/day. Always looking for a deal, Arthur’s next trip is to Chile, the only country in the world he has never visited.

Arthur’s Next Big Play is Bali

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