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The Market Outlook for the Week Ahead, or Was that the Post-Election Rally?

I have been through 11 bear markets in my lifetime, and I can tell you that the most ferocious rallies always take place in bear markets. This one is no exception. Short sellers always have a limited ability to take pain.

This rally took the Dow Average up 14.4% during the month of October, the biggest such monthly gain since 1976 (hmmm, just out of college and working for The Economist magazine in Tokyo, and dodging bullets in Cambodia).

The Dow outperformed NASDAQ by 9% in October, the most in 20 years. That is a pretty rare event. During the pandemic, the was a tremendous “pull forward” of technology stocks, as only commerce was possible. Now it is time for their earnings to catch up with pandemic valuations, which may take another year.

But first, let me tell you about my performance.

With some of the greatest market volatility in market history, my October month-to-date performance ballooned to +4.87%.

That leaves me with only one short in the (SPY) and 90% cash.

My 2022 year-to-date performance ballooned to +74.55%, a new high. The Dow Average is down -9.47% 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 +77.95%.

That brings my 14-year total return to +587.88%, 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 +45.60%, easily the highest in the industry.

And of course, there is no better indicator of the market strength than the Mad Hedge Market Timing Index, which broke above 50 for the first time in six months, all the way to 61.

It's no surprise that investors sold what was expensive (tech) and what was bought that was cheap (banks). It’s basic investing 101. Tech is still trading at a big premium to the market and double the price earnings of banks

The prospect of an end to Fed tightening has ignited a weaker dollar, prompting a stronger stock market that generated the rocket fuel for this month’s move.

All the negatives have gone, the seasonals, earnings reports, a strong dollar, and in 8 days, the election. Don’t forget that the (SPX) has delivered an eye-popping 16.3% return for every midterm election since 1961, all 15 of them.

The put/call spread is the biggest in history, about 1:4, showing that investors are piling in, or at least covering shorts, as fast as they can. Individual stock call options are trading at the biggest premiums ever.

Suffice it to say that I expected all of this, told you about it daily, and we are both mightily prospering as a result.

Much of the selling this year hasn’t been of individual stocks but of S&P 500 Index plays to hedge existing institutional portfolios. The exception is with tax loss selling to harvest losses to offset other gains. That means indiscriminate index selling begets throwing babies out with the bathwater on an industrial scale. And here is your advantage as an individual investor.

A classic example is Visa (V) which I’m’ liking more than ever right now, which I aggressively bought on the last two market downturns. The company has ample cash flow, carries no net debt, and with high inflation, is a guaranteed double-digit sales and earnings compounder.

It clears a staggering $10 trillion worth of transactions a year. With $29.3 billion in revenues in 2022 and $16 billion in net income, it has a technology-like 55% profit margin. Visa is also an aggressive buyer of its own shares, about 3% a year. That’s because it trades at a discount to other credit card processors, like Master Car (MA) and American Express (AXP).

The only negative for Visa is that it gets 55% of its earnings from aboard, which have been shrunken by the strong dollar. That is about to reverse.

It turns out that digital finance never made a dent in Visa’s prospects, as the dreadful performance of PayPal (PYPL) and Square (SQ) shares amply demonstrate.

Remember, however, that the Fed is raising interest rates by 0.75% to a 3.75%-4.00% range on Wednesday, November 2, and may do so again in December. It has been the fastest rate rise of my long and illustrious career, and also the best telegraphed.

That may give us one more dip in the stock market that will enable us to buy in on the coming Roaring Twenties.

We’ll see.

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, October 31 at 6.45 AM, the Chicago PMI for October is released.

On Tuesday, November 1 at 7:00 AM, the JOLTS job opening report for September is out.

On Wednesday, November 2 at 8:30 AM, ADP Private Employment Report for October is published. The Fed raises interest rates at 11:00 AM and follows with a press conference at 11:30.

On Thursday, November 3 at 8:30 AM, Weekly Jobless Claims are announced.

On Friday, November 4 at 8:30 AM the Nonfarm Payroll Report for October is printed. At 2:00, the Baker Hughes Oil Rig Count is out.

As for me, during the late 1980s, the demand for Japanese bonds with attached equity warrants was absolutely exploding.

Japan was Number One, the engine of technological innovation. Everyone in the world owned a Sony Walkman. They were trouncing the United States with 45% of its car market.

The most conservative estimate for the Nikkei Average for the end of 1990 was 50,000, or up 27%. The high end was at 100,000. Why not? After all, the Nikkei had just risen tenfold in ten years and the Japanese yen had tripled in value.

In 1989, my last full year at Morgan Stanley, the Japanese warrant trading desk accounted for 80% of the firm’s total equity division profits.

The deals were coming hot and heavy. Since Morgan Stanley had the largest Japanese warrant trading operation in London, a creation of my own, we were invited to join so many deals that the firm ran out of staff to attend the signings.

Since I was the head of trading, I thought it odd that the head of investment banking wanted to speak to me. It turned out that Morgan Stanley was co-managing two monster $3 billion bond deals on the same day. Could I handle the second one? Our commission for the underwritings was $10 million for each deal!

I thought, why not, better to see how the other half lived. So, I said “yes.”

The attorneys showed up minutes later. I was given a power of attorney to sign on behalf of the entire firm and commit our capital to the underwriting $3 billion five-year bond issue for the Industrial Bank of Japan. The deal was especially attractive as the bonds carried attached put options on the Nikkei which institutional investors could buy to hedge their Japanese stock portfolios.

Since the Industrial Bank of Japan thought the stock market would never see a substantial fall, they happily sold short the put options. Only the Industrial Bank of Japan could have pulled this off as it was one of the largest and highest-rated banks in Japan. I knew the CEO well.

It turned out that there was a lot more to a deal signing than I thought, as it was done in the traditional British style. We met at the lead manager’s office in the City of London in an elegant wood-paneled private dining room filled with classic 18^th century furniture.

First, there was a strong gin and tonic which you could have lit with a match. A five-course meal accompanied with a 1977 deep Pouilly Fuse white and a 1952 Bordeaux red with authority. I had my choice of elegant desserts. Sherry and a 50-year-old port followed, along with Cuban cigars, which was a problem since I had just quit smoking (my wife recently bore twins).

The British were used to these practices. Any American banker would have been left staggering, as drinking during business hours back then was illegal in New York.

Then out came the paperwork. I signed with my usual flourish and the rest of the managers followed. The Industrial Bank of Japan provided the Dom Perignon as they were about to receive $3 billion in cash the following week.

Then an unpleasant thought arose in the back of my mind. Morgan Stanley assumed the complete liability for their share of the deal. But did I just incur a massive personal liability as well?

Then I thought, naw, why pee on someone’s parade. Morgan Stanley’s been doing this for 50 years. Certainly, they knew what they were doing.

Besides, the Japanese stock market is going up forever, right? No harm, no foul. In any case, I left Morgan Stanley to start my own hedge fund a few months later.

Some seven months later, one of the greatest stock market crashes of all time began. The Nikkei fell 50% in six months and 85% in 20 years. Some 32 years later the Nikkei still hasn’t recovered its old high.

For a few years, that little voice in the back of my mind recurred. The bonds issued by the Industrial Bank of Japan fell by half in months on rocketing credit concerns. The IBJ’s naked short position in the Nikkei puts completely blew up, costing the bank $10 billion. The Bank almost went bankrupt. It was one of the worst timed deals in the history of finance. The investors were burned bigtime.

Did I ever hear about the deal I signed on again? Did process servers show up and my front door in London with a giant lawsuit? Did Scotland Yard chase me down with an arrest warrant?

Nope, nothing, nada, bupkis. I never heard a peep from anyone. It turns out you CAN lose $12 billion worth of other people’s money and face absolutely no consequences whatsoever.

Welcome to Wall Street.

Still, when the five-year maturity of the bonds passed, I breathed a sigh of relief.

My hedge fund got involved in buying Japanese equity warrants, selling short the underlying stock, thus creating massive short positions with a risk-free 40% guaranteed return. My investors loved the 1,000% profit I eventually brought in doing this.

Unlike most managers, I insisted on physical delivery of the warrant certificates, as the creditworthiness of anyone still left in the business was highly suspect. Others who took delivery used warrants to wallpaper their bathrooms (really).

They all expired worthless, I made fortunes on the short positions, and still have them by the thousands (see below).

In September 2000, the Industrial Bank of Japan, its shares down 90%, merged with the Dai-Ichi Kangyō Bank and Fuji Bank to form the Mizuho Financial Group. It was a last-ditch effort to save the Japanese financial system after ten years of recession engineered by the government.

Morgan Stanley shut down their worldwide Japanese equity warrant trading desk, losing about $20 million and laying off 200. Some staff were outright abandoned as far away as Hong Kong. Morgan Stanley was not a good firm for running large losses, as I expected.

I learned a valuable trading lesson. The greater the certainty that people have that an investment will succeed, the more likely its failure. Think of it as Chaos Theory with a turbocharger.

But we sure had a good time while the Japanese equity warrant boom lasted.

Stay Healthy,

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

October 3, 2022

Diary, Newsletter, Summary

Global Market Comments
October 3, 2022
Fiat Lux

Featured Trade:

(MARKET OUTLOOK FOR THE WEEK AHEAD, or BET THE RANCH TIME IS APPROACHING),
(SPY), (VIX), (UUP), (TSLA), (RIVN), (USO), (TLT), (FCX), (SPY), (NVDA), (BRKB)

The Market Outlook for the Week Ahead, or Bet the Ranch Time is Approaching

Diary, Newsletter, Research

September is notorious as the worst month of the year for the market. Boy, did it deliver, down a gut busting 9.7%!

As for the Mad Hedge Fund Trader, September was one of the best trading months of my 54-year career. But then I knew what was coming.

So did you.

With some of the greatest market volatility in market history, my September month-to-date performance exploded to exactly +9.72%.

I used last week’s extreme volatility and move to a Volatility Index (VIX) of $34 to add longs in Freeport McMoRan (FCX), S&P 500 (SPY), NVIDIA (NVDA), and Berkshire Hathaway (BRKB). I added shorts in the (SPY) and the (TLT). That takes me to 70% long, 20% short, and 10% cash. I am holding back my cash for any kind of rally to sell into.

My 2022 year-to-date performance ballooned to +69.68%, a new high. The Dow Average is down -23.44% 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 +80.08%.

That brings my 14-year total return to +582.24%, some 3.03 times the S&P 500 (SPX) over the same period and a new all-time high. My average annualized return has ratcheted up to +45.45%, easily the highest in the industry.

It was in May of 2020 when 34 of my clients became millionaires through buying TESLA at precisely the right time…

Well, the stars have aligned once again!!!!

In my TESLA free report, I list 10 reasons I’d tell my grandmother to mortgage her house and go all in.

Go to MADHEDGERADIO.com and download my “Tesla takes over the world” free report…that’s

madhedgeradio.com.

At the end of the month, the market was down six days in a row. That has only happened 20 times since 1950.

However, bet the ranch time is approaching. It’s time to start scaling in in a small way into your favorite long term names where the value is the greatest.

The Fed has taken away the free put that the stock market has enjoyed for the last 13 years. Now, it’s the bond market that has the free put. Hint: always own the market where the Fed is giving you free, unlimited downside protection.

People often ask what I do for a living. I always answer, “Talking people out of selling stocks at the bottom.” Here is the cycle I see repeating endlessly. They tell me they are long term investors. Then the markets take a sudden dive, like to (SPX) $3,300, a geopolitical event takes place, and the TV networks only run nonstop Armageddon gurus. They sell everything.

Then the market turns sharply, and they helplessly watch stocks soar. When they get frustrated enough, they buy, usually near a market top.

Sell low, buy high, they are perfect money destruction machines. And they wonder why they never make money in the stock market!

If any of this sounds familiar you have a problem and need to read more Mad Hedge newsletters. The people who ignore me I never hear from again. Those who follow me stick with me for decades.

Don’t make the mistake here of only looking at real GDP growth which, in recessions, is always negative. Nominal GDP is growing like a bat out of hell, 12% in 2021 and 8% in 2022. That’s 20% in two years, nothing to be sneezed at.

The problem is that all economic data has been rendered useless by the pandemic, even for legitimate and accomplished Wall Street analysts. The US economy was put through a massive restructuring practically overnight, the long-term consequences of which nobody will understand for years. Typical is the recently released Consumer Price Index, which said that real estate prices are rocketing, when in fact they are crashing.

A lot of people have asked me about the comments from my old friend, hedge fund legend Paul Tudor Jones, that the Dow Average would show a zero return for the next decade.

For Paul to be right, technological innovation would have to completely cease for the next decade. Sitting here in the middle of Silicon Valley, I can tell you that is absolutely not happening. In fact, I’m seeing the opposite. Innovation is accelerating at an exponential rate. For goodness sakes, Apple just brought out a satellite phone with its iPhone 14 pro for a $100 upgrade!

Remember, Paul got famous, and rich, from the trades he did 40 years ago with me, not because of anything he did recently. Paul has in fact been bearish for at least five years.

Still, we have a long way to go on earnings multiples. The trailing S&P 500 market multiple is now at 19. The historic low is at 15. Current earnings are $245 per (SPX) share. The 3,000 target the bears are shouting from the rooftops assumes that a severe recession takes earnings down to $200 a share ($3,000/$200 = 15X).

I don’t think earnings will get that bad. Big chunks of the economy are still growing nicely. Companies are commanding premium prices for practically everything. There is no unemployment because the jobs market is booming.

That suggests to me a final low in this market of $3,000-$3,300. That means you can buy 15%-20% deep in-the-money vertical bull call spreads RIGHT HERE and make a killing, as Mad Hedge has done all year.

Let me plant a thought in your mind.

After easing for too long, then tightening for too long, what does the Fed do next? It eases for too long….again. You definitely want to be long stocks when that happens, which will probably start some time next year.

Let me give you one more data point. The (SPY) has been down 7% or more in September only seven times since 1950. In six of the Octobers that followed, the market was up 8% or more.

Sounds like it’s time to bet the ranch to me.

Capitulation Indicators are Starting to Flash. Cash levels at mutual funds are at all-time highs. The Bank of America Investors Survey shows the high number of managers expecting a recession since the 2020 pandemic low, the last great buying opportunity. Commercial hedgers are showing the largest short positions since 2020. And of course, my old favorite, the Volatility Index (VIX) hit $34.00 on Tuesday. The risks of NOT being invested are rising.

Bank of England Moves to Support a Crashing Pound (FXB), by flipping from a seller to a buyer in the long-dated bond market, thus dropping interest rates. The move is designed to offset the new Truss government’s plan to cut taxes and boost deficit spending. The BOE also indicated that interest rate hikes are coming. The bond vigilantes are back.

Here’s the Next Financial Crisis, massive unrealized losses in the bond market. The (TLT) alone has lost 43% in 2 ½ years. Apply that to a global $150 trillion bond market and it adds up to a lot of money. Anybody who used leverage is now gone. How many investors without swimsuits will be discovered when the tide goes out?

Will the Strong Dollar (UUP) Do the Fed’s Work, forestalling a 75-basis point rate rise? It will if the buck continues to appreciate at the current rate, up a record five cents against the British pound, taking it to a record low of $1.03. Such is the deflationary impact of weak foreign currencies, which are seriously eating into US multination earnings.

Weekly Jobless Claims Hit Five-Month Low at 195,000, far below expectations. If the Fed is waiting for the job market to roll over before it quits raising interest rates, it could be a long wait.

EV Sales to Hit New All-Time High in 2022, to 13% of global new vehicle sales, up from 9% last year. The IEA expects this figure to reach 50% by 2030. That works out to 6.6 million EVs in 2021, 9.5 million in 2022, and 36 million by 2030. Buy (TSLA), the world’s largest EV seller, and (RIVN), the fastest grower in percentage terms, on dips.

EVs Take 25% of China New Vehicle Sales, and Tesla’s Shanghai factory is a major participant. Tesla just double production there. Some 403,000 EVs were sold in China in May alone. China is also ramping up its own EV production, up 183% YOY. China is much more dependent on imported oil than other large nations, most of which goes to transportation. Global EV production is expected to soar from 8 to 60 million vehicles in five years and Tesla is the overwhelming leader. Buy (TSLA) on dips again.

Oil (USO) Hits New 2022 Low at $78 a Barrel, cheaper than pre–Ukraine War prices, thanks to exploding recession fears. Is Jay Powell the most effective weapon against Russia with his most rapid interest rate rises in history?

Consumer Sentiment Hits Record Low at 59.1 according to the University of Michigan. That’s worse than the pandemic low and the 2009 Great Recession low. It could be that politics has ruined this data source making everyone permanently negative about the future. Inflation at a 40-year high isn’t helping either, nor is the prospect of nuclear war.

Case Shiller Delivers a Shocking Fall, down from 18.7% to 16.1% in June. The other shoe is falling with the sharpest drop in this data series in history. Tampa was up (31.8%), Miami (31.7%), and Dallas (24.7%). Many more declines to come.

30-Year Fixed Rate Mortgage Hits 7.08%, up from 2.75% a year ago. You can kiss those retirement dreams goodbye. It has been the sharpest rise in mortgage rates in history. Real estate has just become an all-cash market. That screeching juddering sound you hear is the existing home market shutting down.

Pending Home Sales Drop, down 2.0% in August on a signed contract basis. Sales are down for the third month in a row and are off 24% YOY. Only the west gained. Mortgage interest rates are now at 20-year highs. Buyers catching recession fears are breaking contracts and walking away from deposits.

Stock Crash Wipes Out $9 Trillion in Personal Wealth, which is the fall in equity holdings and mutual funds as of the end of June. The drop has been from $42 to $33 trillion. The bad news: it’s still going down, putting a dent in consumer spending.

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 in a sharp downtrend 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, October 3 at 8:30 AM, the ISM Manufacturing PMI for September is released.

On Tuesday, October 4 at 7:00 AM, the JOLTS Report for private job openings for September is out.

On Wednesday, October 5 at 7:00 AM, ADP Private Employment Report for September is published.

On Thursday, October 6 at 8:30 AM, Weekly Jobless Claims are announced.

On Friday, October at 8.30 AM, the Nonfarm Payroll Report for September is disclosed. At 2:00 PM, the Baker Hughes Oil Rig Count is out.

As for me, while working for The Economist magazine in London, I was invited to interview some pretty amazing people: Margaret Thatcher, Ronald Reagan, Yasir Arafat, Zhou Enlai.

But one stands out as an all time favorite.

In 1982, I was working out of the magazine’s New York Bureau off on Third Avenue and 47^th Street, just seven blocks from my home on Sutton Place, when a surprise call came in from the editor in London, Andrew Knight. International calls were very expensive then, so it had to be important.

Did anyone in the company happen to have a US top secret clearance?

I answer that it just so happened that I did, a holdover from my days at the the Nuclear Test Site in Nevada. “What’s the deal,” I asked?

A person they had been pursuing for decades had just retired and finally agreed to an interview, but only with someone who had clearance. Who was it? He couldn’t say now. I was ordered to fly to Los Angeles and await further instructions.

Intrigued, I boarded the next flight to LA wondering what this was all about. What I remember about that flight is that sitting next to me in first class was the Hollywood director Oliver Stone, a Vietnam veteran who made the movie Platoon. When Stone learned I was from The Economist, he spent the entire six hours grilling me on every conspiracy theory under the sun, which I shot down one right after the other.

Once in LA, I checked into my favorite haunt, the Beverly Hills Hotel, requesting the suite that Marilyn Monroe used to live in. The call came in the middle of the night. Rent a four-wheel drive asap and head out to a remote ranch in the mountains 20 miles east of Santa Barbara. And who was I interviewing?

Kelly Johnson from Lockheed Aircraft (LMT).

Suddenly, everything became clear.

Kelly Johnson was a legend in the aviation community. He grew up on a farm in Michigan and obtained one of the first masters degrees in Aeronautical Engineering in 1933 at the University of Michigan.

He cold called Lockheed Aircraft in Los Angeles begging for a job, then on the verge of bankruptcy in the depths of the Great Depression. Lockheed hired him for $80 a month. What was one of his early projects? Assisting Amelia Earhart with customization of her Lockheed Electra for her coming around-the-world trip, from which she never returned.

Impressed with his performance, Lockheed assigned him to the company’s most secret project, the twin engine P-38 Lightning, the first American fighter to top 400 miles per hour. With counter rotating props, the plane was so advanced that it killed a quarter of the pilots who trained on it. But it allowed the US do dominate the air war in the Pacific early on.

Kelley’s next big job was the Lockheed Constellation (the “Connie” to us veterans), the plane that entered civil aviation after WWII. It was the first pressurized civilian plane that could fly over the weather and carried an astonishing 44 passengers. Howard Hughes bought 50 just off of the plans to found Trans World Airlines. Every airline eventually had to fly Connie’s or go out of business.

The Cold War was a golden age for Lockheed. Johnson created the famed “Skunkworks” at Edwards Air Force base in the Mojave Desert where America’s most secret aircraft were developed. He launched the C-130 Hercules, which I flew in Desert Storm, the F-104 Starfighter, and the high altitude U-2 spy plane.

The highlight of his career was the SR-71 Blackbird spy plane where every known technology was pushed to the limit. It could fly at Mach 3.0 at 100,000 feet. The Russians hated it because they couldn’t shoot it down. It was eventually put out of business by low earth satellites. The closest I ever got to the SR-71 was the National Air & Space Museum in Washington DC at Dulles airport where I spent an hour grilling a retired Blackbird pilot.

Johnson greeted me warmly and complimented me on my ability to find the place. I replied, “I’m an Eagle Scout.” He didn’t mind chatting as long as I accompanied him on his morning chores. No problem. We moved a herd of cattle from one field to another, milked a few cows, and fertilized the vegetables.

When I confessed to growing up on a ranch, he really opened up. It didn’t hurt that I was also an engineer and a scientist, so we spoke the same language. He proudly showed off his barn, probably the most technologically advanced one ever built. It looked like a Lockheed R&D lab with every imageable power tool. Clearly Kelley took work home on weekends.

Johnson recited one amazing story after the other. In 1943, the British had managed to construct two Whittle jet engines and asked Kelly to build the first jet fighter. The country that could build jet fighters first would win the war. It was the world’s most valuable machine.

Johnson clamped the engine down to a test bench and fired it up surrounded by fascinated engineers. The engine immediately sucked in a lab coat and blew up. Johnson got on the phone to England and said “Send the other one.”

The Royal Air Force placed their sole remaining jet engine on a plane which flew directly to Burbank airport. It arrived on a Sunday, so the scientist charged with the delivery took the day off and rode a taxi into Hollywood to sightsee.

There, the Los Angeles police arrested him for jaywalking. In the middle of WWII with no passport, no ID, a foreign accent, and no uniform, they hauled him straight off to jail.

It took two days for Lockheed to find him. Johnson eventually attached the jet engine to a P-51 Mustang, creating the P-80, and eventually the F-80 Shooting Star (Lockheed always uses astronomical names). Only four made it to England before the war ended. They were only allowed to fly over England because the Allies were afraid the Germans would shoot one down and gain the technology.

But the Germans did have one thing on their side. The Los Angeles Police Department delayed the development of America’s first jet fighter by two days.

Germany did eventually build 1,000 Messerschmitt Me 262 jet fighters, but too late. Over half were destroyed on the ground and the engines, made of steel and not the necessary titanium, only had a ten hour life.

That evening, I enjoyed a fabulous steak dinner from a freshly slaughtered steer before I made my way home. I even helped Kelly slaughter the animal, just like I used to do on our ranch in Montana. Steaks are always better when the meat is fresh and we picked the best cuts. I went back to the hotel and wrote a story for the ages.

It was never published.

One of the preconditions of the interview was to obtain prior clearance from the National Security Agency. They were horrified with what Johnson had told me. He had gotten so old he couldn’t remember what was declassified and what was still secret.

The NSC already knew me well from our previous encounters, but MI-6 showed up at The Economist office in London and seized all papers related to the interview. That certainly amused my editor.

Johnson died at age 80 in 1990. As for me, it was just another day in my unbelievable life.

Stay healthy,

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

SR-71 Blackbird

My Former Employer

September 23, 2022

Diary, Newsletter, Summary

Global Market Comments
September 23, 2022
Fiat Lux

Featured Trade:

(SEPTEMBER 21 BIWEEKLY STRATEGY WEBINAR Q&A),
(SPY), (INTC), (NVDA), (AMD), (MU) (TBT), (TLT), (AMGN),
(VIX), (CHPT), (TSLA), (GS), (BAC), (MS), (JPM), (USO), (TLT)

September 21 Biweekly Strategy Webinar Q&A

Diary, Newsletter, Research

Below please find subscribers’ Q&A for the September 21 Mad Hedge Fund Trader Global Strategy Webinar broadcast from Silicon Valley in California.

Q: What would cause you to look for a lower bottom than $330 on the (SPY)?

A: Nuclear war with Russia would certainly do the trick—they’re now threatening to use tactical nuclear weapons in Ukraine—and higher-than-expected interest rates. If we get another 75 basis points after this one today, then I think you’re looking at new lows, but we won’t find that out until November 2. So, the market may just bounce along the bottom here for a while until it sees what the Fed is going to do, not on this rate hike but the next one after that. Other than that, a few dramatically worse earnings from corporations would also allow us to test a lower low.

Q: Is it time to nibble on Nvidia Corporation (NVDA)?

A: Nvidia is one of the most volatile stocks in the market. You don’t want to go into it until you’re absolutely sure the bottom is in. If that means you miss the first 10% of the following move up, that’s fine because when this thing moves, you get a double or triple out of it. I would wait for the indecision in the market to resolve itself before you get too aggressive on the most volatile stocks in the market. The same is true for the rest of the semiconductor sector.

Q: What does a final capitulation look like?

A: The Volatility Index (VIX) ever $40. We’ve had a high of VIX at $37 so far this year. If really get over $40, that would be a new high for the year. That would signal people that are throwing in the towel, giving up the market, selling everything—of course that is always the best time to buy.

Q: How do we get LEAPS guidance?

A: We send our LEAPS recommendations first to our concierge members—we only have a small number of those—and then after that, they go out to all subscribers to the Mad Hedge Global Trading Dispatch. Everyone gets exposure to the LEAPS. By the way, with LEAPS, you can take up to a month to execute a position. What I do is literally buy 1 contract a day, so I get a nice average over the period of a month when the market is most likely bottoming.

Q: Do you see Intel Corporation (INTC) as a good candidate for a Taiwan invasion hedge?

A: Well, first of all, China’s not going to invade Taiwan. I’ve been waiting for this for 70 years and it’s not going to happen. Also, Intel’s new management has yet to prove itself. You have a salesman running the company; I never like companies run by a salesman. I’d prefer to have an engineer run an engineering company. The court is still out on Intel and whether they can turn that company around or not; so, I would much rather buy the market leaders, Nvidia (NVDA), Advanced Micro Devices (AMD), and Micron Technology (MU) in the semiconductor space.

Q: You talked dollar/cost averaging before. Should we pause on averaging in?

A: No, that's why I say buy one contract a day and put it in order to buy at the bid side of the market. That way, any sudden swoosh down in the market and you’ll get filled. The spreads on these LEAPS are quite wide, so you want to try to buy as close to the middle or bottom end of the spread, and putting in single contract orders over a month, of course, will do that to you.

Q: Does that mean it’s time to sell the ProShares UltraShort 20+ year Treasury Yield (TBT)?

A: I would say yes; (TBT) hit $30.30 yesterday, which is a new multi-year high. I would be taking profits on that because on the next turnaround in bonds, you could get a very rapid move in (TBT) from $30 back down to $20. I’d rather have you keep that profit than try to squeeze the last dollar out of it. Remember, the (TBT) has a negative cost of carry now of 8% a year and that is a big nut to cover.

Q; Market outlook for mid-2023?

A: We could hit my $4,800 target by mid-2023; that is up 28% from here.

Q: Can we buy LEAPS on Amgen (AMGN)?

A: Absolutely yes, you can. Go for the highest listed strike prices on the call side with the longest possible maturity. I would do the January 17, 2025 $350-$360 vertical bull call spread which you can buy now for $1.00. That gives two years and four months to get a tenfold return. That’s enough time for a full-bore recession to happen and then a recovery where markets take off like a rocket. The call spread you bought for $1.00 becomes worth $10.00.

Q: Is there a long position on the beneficiary of government plans to build EV charging stations?

A: There is, but I'm not recommending EV charging stations because it’s a low value-added business. You buy electric power from the local utility, add 10 cents and resell it. The margins are small, the competition is heating up. There are much smarter ways to play EVs than the charging station. ChargePoint (CHPT) is certainly one of them, but it’s not a great investment idea. Look at how ChargePoint (CHPT) has performed over the last six months compared to Tesla (TSLA) and you see what I mean.

Q: Given the very poor investor sentiment, why don’t we get a testing of the lows and result in a (VIX) pop?

A: Absolutely yes—that is what everybody in the market is waiting for. And it could happen as soon as this afternoon. If it doesn’t happen this afternoon, allow for a little rally and then a meltdown on the next piece of bad news.

Q: I’m not able to get an email response from customer support.

A: Try emailing filomena@madhedgefundtrader.com. If that doesn’t work, you can try calling at (347) 480-1034. Filomena will always be happy to take care of you.

Q: What maturity of US Treasury securities would you buy now?

A: I would buy the 30-year. You’re getting close to a 4% yield on that—that is starting to look attractive to people who don’t want to work for a living picking stocks on a daily basis. We are about to see the rebirth of bond investing.

Q: What about banks?

A: Banks will be a screaming buy and a three-year double once recession fears end, which could be in a couple of months. We now have sharply rising interest rates, which banks love, but the bear market in stocks has killed off the IPO business, credit risk is rising, and of course, the Bitcoin business has gone to zero also. So, I would wait for fears of credit quality to end, and then you’ll get a double in the banks very quickly, and notice how they’re all flatlining at a bottom, they’re not actually going down anymore.

Q: Which banks are good choices?

A: Goldman Sachs (GS) and Bank of America (BAC) are two great ones, along with Morgan Stanley (MS) and JP Morgan (JPM).

Q: Do you think the market will bottom by the midterms?

A: I do, I think we will bottom a few weeks before the midterms, or the day after. Sometimes that’s the way it goes, and then it will be off like a rocket for the rest of the year. If we can do this from a much lower level in the SPYs, so much the better. Remember, the next Fed meeting is six days before the election. Yikes!

Q: If OPEC cuts production (USO), won’t the supply/demand cause oil prices to start rising again, increasing inflation and people’s prices at the pump?

A: Yes, but OPEC needs the money. Not necessarily Saudi Arabia, but all the other members of OPEC are starved for cash, and that is always how these shortages end. The smaller members cheat on quotas and bust the price. That's clearly what’s driven us down $50 since the February high, small member cheating. And that will continue. It is a cartel with some serious internal conflicts that will never resolve.

Q: Does it cost $17,000 to mine a Bitcoin?

A: It did four months ago. My guess is it’s more expensive now because of the higher cost of electricity around the world. We may even be up to $20,000 cost, which is why it tends to hang around the $20,000 level on the low side. Below that, miners lose money and the supply dries up, just like you see in the gold market.

Q: Do you have an opinion on Real Estate Investment Trusts (REIT)?

A: Yes; credit risk is rising, as are the yields. In a real estate recession, you start to get more defaults on REITS, but the yields on them are very high; so if you are going to play, buy a basket to spread your risk.

Q: Would you buy ProShares UltraShort 20+ year Treasury Yield (TLT) calls spreads now?

A: Yes, but I would go farther in the money, like the mid $90s, because I don’t think we’ll get that low in this cycle. I would also go out another month; instead of a one-month call spread in the mid $90s, I would do a two-month maturity. You could probably take in about $2,000 on a $10,000 position in the mid $90s.

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

Back at Lake Tahoe

September 12, 2022

Diary, Newsletter, Summary

Global Market Comments
September 12, 2022
Fiat Lux

Featured Trade:

(MARKET OUTLOOK FOR THE WEEK AHEAD, or STUCK IN THE MIDDLE)
(SPY), (TSLA), (TLT), (USO), (VIX), (AAPL)

The Market Outlook for the Week Ahead, or Stuck in the Middle

Diary, Newsletter

Buy fear, sell greed.

That is what has been my magic formula for making money over the past 50 years.

But what happens if you get nothing?

What happens if you are stuck in a big fat middle of a range? That seems to be the case now that the market is nailed to the (SPY) 4,000 level, which it turns out is exactly the middle of a four-month trading range.

The market fought the Fed for two months from June and won. It has lost since Jackson Hole. The market has only seen that degree of whipsaw four times since 1950.

It now appears that it is front running a very weak number for the Consumer Price Index on September 13. After that, we get a 75-basis point rate rise on September 20. Good cop first, then bad cop.

That leaves me twiddling my thumbs along with everyone else, waiting for the market to throw up on its shoes. We were almost getting there last week when the Volatility Index (VIX) clawed its way back to $27. Then it gave it all up, falling back to $22. Some $5 is just not enough spread with which to make a living, or worth executing a trade.

And here is the key to the market right now.

You’re not buying stocks for headlines you are seeing today, which are universally dire, cataclysmic, and predicting Armageddon.

You are buying for the headlines that will appear in a year. This will include:

Russia loses the Ukraine War
The price of oil (USO) collapses below $50 a barrel
The European energy crisis ends
Gasoline prices fall below $2.00 a gallon
Inflation falls below 4%
Interest rates stabilize around 3.50%-4.00%
Corporate earnings reaccelerate
We get another $1 trillion in corporate share buybacks

That sounds like one heck of a market to buy into. Why not buy now when everything is on sale, rather than in a year when it is expensive once again?

You don’t have to bet the ranch today. Just scale in, buying 10% of a position a day in your favorite names until you are fully invested. That way, you’ll get an average close to a bottom. You’ll at least get a seat on the train and won’t be left behind waving goodbye from the platform.

That means adding technology stocks to your portfolio, which will be the top-performing sector for the rest of this century.

The other thing you can do is to start getting rid of your defensive names. If you think oil is going below $50 in a year as I do, you don’t want to have a single oil name in your portfolio.

You want to own boring stocks in falling markets and exciting ones in rising markets.

You can’t get THE bottom. I can’t do it, so how are you going to?

There is one other factor that I guarantee you no one is looking at. Do you know anyone who bought a spec home for a quick flip lately? I bet not.

That means there is a lot of speculative capital looking for a new home and I bet that a lot of it is going into the stock market. The same is true with bitcoin.

I just thought you’d like to know.

Apple Rolls Out Next-Gen iPhone. The focus will be on larger phones with faster processors and a better camera. There may also be an inflationary $100 price increase. A new watch and Airpods are also expected. Buzz kill: every two years, this event usually marks a six-month high in the stock. Apple may no longer be the safest stock in the market.

Russia Cuts Gas Supplies to Europe until Ukraine sanctions are lifted. That took the Euro to a 20-year low of under 99 cents. You get into bed with the devil, and you pay the consequences. Russia must desperately need that trade with Europe.

Germany Fights Russia with Coal. Coal is enjoying a renaissance in Germany where it is being used to replace the total cut-off in Russian natural gas. In 2022, coal has jumped from 27% to 33% of electricity production, while gas has plunged from 18% to 11.7%. It goes against the country’s strong environmental principles and will only be used as a bridge towards greatly accelerated alternative energy efforts. Importing all the natural gas they can from the US also helps. It will greatly help Europe hold together this winter to face down the Russian energy war.

Home Equity is Shrinking, down $500 billion from the $11.5 trillion peak. It means less money is available to go into stocks. But we are nowhere near a crash, like we saw in 2008, when home equity nearly went to zero. No liar loans, exaggerated appraisals, or financial crisis this time. This housing recession will be about ice, not fire. There won’t be much of a housing crash when we’re still short 10 million homes. If you sell, your new mortgage will have double the interest rate. Ergo, don’t sell.

Weekly Jobless Claims Hit 3-Month Low, down 6,000 to 222,000. This number is not even close to an economic slowdown. In the wake of the decent nonfarm payroll report last week, it shows that employment is anything but slowing.

Tesla (TSLA) Triples China Deliveries after expanding the Shanghai factory. Elon Musk seems able to accomplish what others can’t, increasing production and sales in the face of rolling Covid lockdowns, heat waves, and materials shortages. Buy (TSLA) on dips.

California Sets a $22 Minimum Wage for fast food workers starting from 2023. It’s a catch-up with minimum wages that haven’t changed for 20 years and represents a broader issue for the rest of the country. Think this may be inflationary? Count on all of this going straight into product price rises. It may become cheaper to make your cheeseburgers at home.

The Bond Market Crashes, with ten-year US Treasury bond soaring 20 basis points to a 3.35% yield. The (TLT) hit a new 2022 low at $107.49. Bonds are reading the writing on the wall from Jackson Hole, even if stocks aren’t. Avoid (TLT).

Oil Crashes $4 on recession fears. Most Russian sales are now taking place 20% below the market to China and India. We may be approaching an interim low as winter approaches unless the Ukraine war ends.

A US Rail Strike Threatens as wage talks stall. A recession could be the result. Negotiators have until September 16 to reach a deal for 115,000 workers. A strike would also spike inflation. This could be our next black swan.

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 in a sharp decline, inflation falling, 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 markets now a snore, my September month-to-date performance ground up to +1.02%. I took profits in my last long in Microsoft (MSFT) going into a rare 100% cash position awaiting the next market entry point.

My 2022 year-to-date performance improved to +60.98%, a new high. The Dow Average is down -12% 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 +73.65%.

That brings my 14-year total return to +573.54%, some 2.48 times the S&P 500 (SPX) over the same period and a new all-time high. My average annualized return has ratcheted up to +44.98%, easily the highest in the industry.

We need to keep an eye on the number of US Coronavirus cases at 95.2 million, up 300,000 in a week and deaths topping 1,050,000 and have only increased by 2,000 in the past week. You can find the data here.

On Monday, September 12 at 8:30 AM, US Consumer Inflation Expectations for August is released.

On Tuesday, September 13 at 8:30 AM, the US Core Inflation Rate for August is out.

On Wednesday, September 14 at 7:00 AM, the Producer Price Index for August is published.

On Thursday, September 15 at 8:30 AM, Weekly Jobless Claims are announced. We also get Retail Sales for August.

On Friday, September 16 at 7:00 AM, the University of Michigan Consumer Sentiment is disclosed. At 2:00 the Baker Hughes Oil Rig Count are out.

As for me, when you’re 6’4” and 180 pounds, there is not a lot of things that can seriously toss you around. One is a horse, and another is a wave.

It was the latter that took me down to Newport Beach, CA to a beachfront house for my annual foray into body surfing. Newport Beach has some of the best waves in California.

This is the beach that made John Wayne a movie star.

John, whose real name was Marion Morrison, grew up in a Los Angeles suburb and won a football scholarship to the University of Southern California. While still a freshman in 1925, he went bodysurfing at Newport Beach with a carload of buddies. A big wave picked him up and smashed him down on the sand, breaking his right shoulder.

At football practice, there was no way a big lineman could block and tackle with a broken shoulder, so he was kicked off the team and lost his scholarship.

He still had to eat, so he resorted to the famed student USC jobs bulletin board, which I have taken advantage of myself (it’s where I got my LA coroner’s job).

The 6’4” Wayne was hired as a stagehand by up-and-coming movie director John Ford, himself also a former college football star. In 14 years, Wayne worked himself up from gopher, to extra, to a leading man in 1930, and then his breakout 1939 film Stagecoach.

During WWII, Wayne, too old, was confined to entertainment for the USO shows and making propaganda films while the rest of his generation was at the front. He never recovered from that humiliation and spent the rest of his life as a super patriot.

I saw John Wayne twice. My uncle Charles, who was the CFO of the Penn Central Railroad in the 1960s, made a fortune selling short the stock right before it went bankrupt (maybe that was legal then?). He bought a big beach house on California Balboa’s Island right next door to John Wayne’s.

One day, the family was cruising by Wayne’s house, and he was sitting on his front patio in a beach chair. Then one of our younger kids shouted out “he’s bald” which he was. Wayne laughed and waved.

The second time was in the early 1970s. I was walking across the lobby of the Beverly Hills Hotel with the movie star and Miss America runner-up Cybil Shephard on my arm. He walked right up to us and with a big smile said, “hello gorgeous”. He wasn’t talking to me.

I learned a lot about Wayne from my uncle, Medal of Honor winner Mitchell Paige, who was hired as the technical consultant for the 1949 film Sands of Iwo Jima and spent several months working closely with him. The lead character, Marine Sargent John Striker, was based on Mitch.

Film critics complained that Wayne couldn’t act, that he was just himself all the time. But I knew my uncle Mitch well, a humble, modest, self-effacing man, and Wayne absolutely nailed him to a tee.

The Searchers, made in 1958, and directed by John Ford, is considered one of the finest movies ever made. I show it to my kids every Christmas to remind them where they came from because we have an ancestor who was kidnapped in Texas by the Comanches and survived.

John Wayne was a relentless chain smoker, common for the day, and lung cancer finally caught up with him. His first bout was in 1965 when he was making In Harm’s Way, the worst war movie he ever made. His last film, The Shootist, made in 1978, was ironically about an old gunslinger dying of prostate cancer.

John Wayne hosted the 1979 Academy Awards rail thin, racked by chemotherapy and radiation treatments. He died a few months later after making an incredible 169 movies in 50 years.

John Wayne was one of those people you’re lucky to run into in life. He was a nice guy when he didn’t have to be.

As for those waves at Newport Beach, I can vouch they are just as tough as they were 100 years ago.

Stay healthy,

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

August 29, 2022

Diary, Newsletter, Summary

Global Market Comments
August 29, 2022
Fiat Lux

Featured Trade:

(MARKET OUTLOOK FOR THE WEEK AHEAD, or IT’S TIME FOR PAIN)
(SPY), (QQQ), (TLT), (VIX), (TSLA)

The Market Outlook for the Week Ahead, or It’s Time for Pain

Diary, Newsletter

Please don’t call me anymore.

I don’t want to hear from you, not even for a second!

I’ve deleted your email from my address book, unfriended you from Facebook, and already forgotten your telephone number.

For you have committed the ultimate sin.

You have asked me if the market is going to crash in September one too many times. This is for a market that over the last 100 years has gone up 80% of the time.

I wouldn’t mind if it were just you. But hundreds of you? Really?

Hardly an hour goes by without me getting an email, text message, or phone call telling me that you just heard from another guru saying that we are going into another Great Depression, 1929-style stock market crash, and financial Armageddon.

Enough already!

These permabear gurus have been the bane of my life for the last 54 years, even 60 years if you count the time I traded stocks in my dad’s brokerage account when I was a paper boy.

First, there was Joe Granville (RIP), the first Dr. Doom, who in 1982 predicted that the Dow Average would crater from 600 to 300. Instead, it went up 20 times to 12,000. Joe never did change his mind.

Next came one-hit wonder Elaine Gazarelli at Lehman Brothers who accurately predicted the 1987 crash, which delivered a one-day 20% haircut for the Dow. She kept on endlessly predicting crashes after that which never showed up. In the end, the Dow went up 18 times. At least Elaine’s Lehman Brothers stock went to zero.

Then we got another Dr. Doom, Dr. Nouriel Roubini, who turned bearish going into the 2008-2009 Great Recession when the Dow took a 54% hickey. Did the eminent doctor ever turn bullish? Not that I’ve heard, and the Dow went up 6X from that bottom.

So, here we are today. Fed governor Jay Powell has just suggested that he may keep interest rates higher for longer and that we may be in for some pain. That took the Dow down 1,000, with high-growth technology stocks leading the charge to the downside.

And what do I get, but an email from a subscriber saying he just heard from another guru saying that Powell’s comments confirm that we are not headed for a Roaring Twenties but a whimpering twenties, and that the Dow is plunging to 3,000.

Give me a break!

I have a somewhat different read on Powell’s comments.

Not only will they bring a PEAK in interest rates much sooner, but they also move forward the first CUT in interest rates in three years as well. That is what long term investors and hedge funds are looking for, not the last move in the current trend, but the first move in the next trend.

That’s what all the long-term money is doing, which accounts for 90% of market ownership.

That’s what the smart money is doing.

The Volatility Index (VIX) rocketed to $26 on Friday. Call me when it gets to $30. Then I might get interested.

In the meantime, the dumb money is selling.

It helps a lot that the principal drivers of Powell’s high interest rate are rolling over fast. Residential real estate is in the process of becoming a major drag on the economy. Used car have gone from an extreme shortage to a glut in two months. I never did sell that 1968 Chevy Corvair. The online jobs market has suddenly gone from bid to offered.

I am praying that Powell’s comments bring us a 4,000 Dow point selloff and a double bottom at (SPY) $362. For that will set up another 20%-30% worth of money-making opportunities by yearend.

If that happens, I am going to book the Owner’s Suite on the Queen Mary II for a Transatlantic cruise, the Orient Express, and a week at the Cipriani Hotel in Venice.

But wait!

I’ve already booked the owners suite on the Queen Mary II, the Orient Express, and the Cipriani Hotel, thanks to this summer’s Tesla (TSLA) trades.

How do you upgrade Q1 class?

I guess I’ll just have to get creative.

Fed Governor Powell pees on Stock Market Parade from the greatest possible height, giving an extremely hawkish speech at Jackson Hole. “Some Pain” is ahead. The market took the hint and sold off 1,000 points in a heartbeat ending at the lows, with technology taking the greatest hit. That puts a 75-basis point rate hike back on the table for September together with a major market correction. Have a nice flight back to DC Jay. That leaves me quite happy with my one put spread in the (SPY) and 90% cash.

Inflation is in Free Fall. It’s not just gasoline, but every product that uses energy. That has rapidly cut the prices of airline tickets, rental cars, butter, and even chicken breasts. Used cars have gone from a shortage to a glut in months. New job offers are fading rapidly. I’m looking for a 4% inflation rate by year-end….and a soaring stock market.

California Bans Internal Combustion Engine Sales by 2035. It’s a symbolic gesture because the market will move beyond them well before 13 years. Both (GM) and Ford (F) said they’re going all EV. I went all-EV in 2010 and saved a bundle.

QT Accelerates Next Thursday to $95 billion a month and you may wonder why stock markets aren’t crashing. QT will come to 1% of the outstanding $9 trillion Fed balance sheet per month and continue at that rate for the indefinite future. At that rate, the Fed balance sheet won’t be unwound until 2032. Many more factors will arrive to move stocks up or down before then. In order words, the Fed is trying to take $9 trillion out of the system with no one noticing. They may succeed.

Biden Cancels $10,000 in Student Debt per Borrower, and $20,000 for Pell Grants. Some 9 million borrowers will have their loans wiped clean. It is a positive for the economy and minimally inflationary as a lot of these college graduates went into low-paying jobs like teaching or government service. Biden is delivering for the people who voted for him. What a shocker! Too bad I already paid my loan in full. How much did a four-year education cost me? $3,000! It’s my most rapidly appreciating asset.

Pending Home Sales Dive 1% in July on a signed contract basis and are down 19.9% YOY. Only the west saw an increase. Some eight of nine months have shown declines. Homes are sitting on the market longer and sellers are pulling back. Anyone who sells now loses their 2.75% mortgage and won’t get it back.

US Vehicle Prices Hit Record High, despite soaring interest rates. The average transaction price rose to $46,259, up 11.5% YOY. Inventory shortages continue to limit sales, with August expected to reach 980,000 units, down 2.6% YOY. It makes big-ticket EVs even more competitive.

Toll Brothers Orders Plunge 60% in Q2, as demand for luxury homes vaporize. It expects to be down 15% for the full year. It could take 18 months for these dire numbers to be in the general economy. Tol (TOL) dominates in the “move up market” where prices average $1 million or more and is especially dependent on home mortgages.

New Home Sales Crash 12.6%, in July, the worst number since the Great Recession 2008 level. The housing recession is here for sure, but how bad will it get when we have a shortage of 10 million homes?

OPEC+ Maneuvers for Supply Cut to halt the dramatic 35% price decline. The futures market is discounting much greater declines, which the Saudis describe as “broken.” You are on the other side of this trade.

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 and inflation 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 +4.87%.

My 2022 year-to-date performance ballooned to +59.70%, a new high. The Dow Average is down -12.8% 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 +73.75%.

That brings my 14-year total return to +572.26%, 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 +44.83%, easily the highest in the industry.

We need to keep an eye on the number of US Coronavirus cases at 94 million, up 300,000 in a week and deaths topping 1,043,000 and have only increased by 2,000 in the past week. You can find the data here.

On Monday, August 29 at 8:30 AM EDT, the Dallas Fed Manufacturing Index for August is released.

On Tuesday, August 30 at 7:00 AM, the S&P Case Shiller National Home Price Index for August is out. The monthly cycle of job reports starts with JOLTS at 7:00 AM.

On Wednesday, August 31 at 7:15 AM, ADP Private Sector Employment for July is published.

On Thursday, September 1 at 8:30 AM, Weekly Jobless Claims are announced. US GDP for Q2 is released.

On Friday, September 2 at 7:00 AM, the Nonfarm Payroll Report for August is disclosed. At 2:00 the Baker Hughes Oil Rig Count is out.

As for me, back in the early 1980s, when I was starting up Morgan Stanley’s international equity trading desk, my wife Kyoko was still a driven Japanese career woman.

Taking advantage of her near-perfect English, she landed a prestige job as the head of sales at New York’s Waldorf Astoria Hotel.

Every morning, we set off on our different ways, me to Morgan Stanley’s HQ in the old General Motors Building on Avenue of the Americas and 47^th street and she to the Waldorf at Park and 34^th.

One day, she came home and told me there was this little old lady living in the Waldorf Towers who needed an escort to walk her dog in the evenings once a week. Back in those days, the crime rate in New York was sky high and only the brave or the reckless ventured outside after dark.

I said, “Sure, What was her name?”

Jean MacArthur.

I said, "THE Jean MacArthur?"

She answered “yes.”

Jean MacArthur was the widow of General Douglas MacArthur, the WWII legend. He fought off the Japanese in the Philippines in 1941 and retreated to Australia in a night PT Boat escape.

He then led a brilliant island-hopping campaign, turning the Japanese at Guadalcanal and New Guinea. My dad was part of that operation, as were the fathers of many of my Australian clients. That led all the way to Tokyo Bay where MacArthur accepted the Japanese in 1945 on the deck of the battleship Missouri.

The MacArthurs then moved into the Tokyo embassy where the general ran Japan as a personal fiefdom for seven years, a residence I know well. That’s when Jean, who was 18 years the general’s junior, developed a fondness for the Japanese people.

When the Korean War began in 1950, MacArthur took charge. His landing at Inchon harbor broke the back of the invasion and was one of the most brilliant tactical moves in military history. When MacArthur was recalled by President Truman in 1952, he had not been home for 13 years.

So it was with some trepidation that I was introduced by my wife to Mrs. MacArthur in the lobby of the Waldorf Astoria. On the way out, we passed a large portrait of the general who seemed to disapprovingly stare down at me taking out his wife, so I was on my best behavior.

To some extent, I had spent my entire life preparing for this job.

I had stayed at the MacArthur Suite at the Manila Hotel where they had lived before the war. I knew Australia well. And I had just spent a decade living in Japan. By chance, I had also read the brilliant biography of MacArthur by William Manchester, American Caesar, which had only just come out.

I also competed in karate at the national level in Japan for ten years, which qualified me as a bodyguard. In other words, I was the perfect after-dark escort for Midtown Manhattan in the early eighties.

She insisted I call her “Jean”; she was one of the most gregarious women I have ever run into. She was grey-haired, petite, and made you feel like you were the most important person she had ever run into.

She talked a lot about “Doug” and I learned several personal anecdotes that never made it into the history books.

“Doug” was a staunch conservative who was nominated for president by the Republican party in 1944. But he pushed policies in Japan that would have qualified him as a raging liberal.

It was the Japanese that begged MacArthur to ban the army and the navy in the new constitution for they feared a return of the military after MacArthur left. Women gained the right to vote on the insistence of the English tutor for Emperor Hirohito’s children, an American quaker woman. He was very pro-union in Japan. He also pushed through land reform that broke up the big estates and handed out land to the small farmers.

It was a vast understatement to say that I got more out of these walks than she did. While making our rounds, we ran into other celebrities who lived in the neighborhood who all knew Jean, such as Henry Kissinger, Ginger Rogers, and the UN Secretary-General.

Morgan Stanley eventually promoted me and transferred me to London to run the trading operations there, so my prolonged free history lesson came to an end.

Jean MacArthur stayed in the public eye and was a frequent commencement speaker at West Point where “Doug” had been a student and later the superintendent. Jean died in 2000 at the age of 101.

I sent a bouquet of lilies to the funeral.