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The Market Outlook for the Week Ahead, or Get Ready to Sell in May

So when you are supposed to “Sell in May and go away”, what are you supposed to be doing on April 18?

Not much.

War, inflation, disease, runaway energy prices, and soaring interest rates are usually not a good backdrop for trading stocks. When the wind is blowing against me with gale-force winds instead of behind me, I tend to quit. I only like playing games that are rigged in my favor, or in yours.

Retreating to fight another day sounds like a good strategy to me because it’s much easier to dig out of a small hole than a large one. And it’s impossible to recover if you lost all your money chasing marginal low-quality trades. That 100-day cruise around the world that Cunard is offering right now looks pretty good. If the central bank says it is set on slowing the economy, believe it. The free Fed put is a distant memory.

But whatever Armageddon we are facing out there, it will be a modest one. We now have an unemployment rate of 3.6%, but there are still 11 million open jobs. That means there are more jobs in the US right now than workers, a first in history.

There are in fact several big positives the markets are ignoring right now because it is fashionable to do so. You know these supply chain problems? They’re slowly going away. You see this in falling freight rates for US truckers.

The Cass Freight Index measure of domestic shipping demand edged up a bare 0.6% in March from the month before, an unseasonable slowing of growth at the end of the quarter. From where I sit, the number of Chinese container ships at anchor in San Francisco Bay is on a definite decline.

Going into real recessions, consumers usually baton down the hatches, don their hard hats, and reign in spending. And while they tell pollsters they are worried about the economy, they act like they believe in the opposite, spending with reckless abandon. Wells Fargo (WFC) has seen spending on credit cards soaring by 33% in Q1, while it has jumped by an impressive 29% at JP Morgan (JPM).

There is also a great positive out there which is being completely ignored by the market. The pandemic is gone. Daily cases have dropped from one million to only 20,000 in two months, a record drop in the history of epidemiology. Masks are now only required at mass events like rock concerts and the San Francisco Ballet.

So I will endeavor to entertain you with my stories long enough to keep you from getting bored until trading stocks becomes the slam dunk no-brainer affair it once was. That would be in anything from 2-5 months.

Elon Musk makes $53 billion takeover bid for Twitter in a move that gobsmacked Wall Street. He made the offer in a 281-character tweet to the board of directors. His goal will be to end all censorship, which means bringing back the crazies and the violent. If they don’t accept his premium offer, then he will sell the 9.9% of shares that he already owns and the board will get sued to death by shareholders.

Inflation jumps to 8.5% YOY, a 40-year high, with half of the increase coming from gasoline prices. Stocks and bonds were up on a “buy the rumor, sell the news” move. Unless oil prices completely collapse, next month will be worse.

Producer Price Index rockets by 11.2%, an 11-year high. This is on the heels of yesterday’s red hot Core Inflation report. It makes a half-point rate hike on April 29 a sure thing.

Retail Sales jumped 0.5% in March, and up 6.9% YOY, while import prices hit an 11-year high.

Bonds hit new three-year lows, with yields soaring to 2.81% overnight. The market is transitioning from a Fed that is raising rates from a quarter point at each meeting to a half point. We may be reaching the end of this leg down, off $9.00 in weeks. Only sell the big rallies. (TLT) LEAPS holders are sitting pretty.

Mortgage Refis down 67% YOY, thanks to a 30-year fixed rate mortgage that has topped 5.0%. It looks like the loan sharks won’t be grabbing as much in fees. This market won’t recover for several years. If you didn’t refi last year at century low rates, you’re screwed.

NVIDIA downgraded from outperform to neutral and the price target was chopped from $360 to $225 by Baird & Co. It’s a bold move as (NVDA) has long been a Mad Hedge favorite and 70-bagger over the last five years. Baird cites cancellations driven by a combination of excess GPUs, or graphics processing unit in Western Europe and Asia, as well as a slowdown in consumer demand, especially in China. Slowing consumer demand for GPUs was evident in the continuing reduction in graphics card pricing. I believe any slowdowns are temporary and you should keep buying (NVDA) on dips.

Used Car Sales take a hit, as affordability becomes a major issue. Carmax just reported a 6.5% plunge in Q4. I can sell my Tesla Model X for more than I paid three years ago because it takes a year to get a new one.

Weekly Jobless Claims hit 185,000, up 18,000 from the previous week. The stock market may be worried about a coming recession but the jobs market sure isn’t.

Morgan Stanley blows away earnings. Equity trading came in a hot $3.2 billion and bond trading $2.9 billion. The shares popped 7% on the news. Buy (MS) on dips.

Mercedes breaks 600 miles range on a single charge with its EQXX prototype, driving from Stuttgart to the French Riviera. But the cost per watt is still double Tesla’s. Mercedes plans to go all-electric by the end of the decade.

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 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 March month-to-date performance retreated to a modest 0.38%. My 2022 year-to-date performance ended at a chest-beating 27.23%. The Dow Average is down -5.1% 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 68.55%.

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 539.79%, some 2.10 times the S&P 500 (SPX) over the same period. My average annualized return has ratcheted up to 44.36%, easily the highest in the industry.

We need to keep an eye on the number of US Coronavirus cases at 80.6 million, up only 300,000 in a week and deaths topping 988,000 and have only increased by 3,000 in the past week. You can find the data here. Growth of the pandemic has virtually stopped, with new cases down 98% in two months.

On Monday, April 18 at 7:00 AM EST, the NAHB Housing Market Index is out. Bank of America (BAC) reports.

On Tuesday, April 19 at 8:30 AM, Housing Starts for March are published. Netflix (NFLX) reports.

On Wednesday, April 20 at 8:30 AM, the Existing Home Sales for March are printed. Tesla (TSLA) reports.

On Thursday, April 22 at 7:30 AM, the Weekly Jobless Claims are printed. Union Pacific (UNP) reports.

On Friday, April 23 at 8:30 AM, the S&P Global Composite Flash PMI is disclosed. American Express (AXP) reports. At 2:00 PM, the Baker Hughes Oil Rig Count are out.

As for me, the call from Washington DC was unmistakable, and I knew what was coming next. “How would you like to serve your country?” I’ve heard it all before.

I answered, “Of course, I would.”

I was told that for first the first time ever, foreign pilots had access to Russian military aircraft, provided they had enough money. You see, everything in the just collapsed Soviet Union was for sale. All they needed was someone to masquerade as a wealthy hedge fund manager looking for adventure.

No problem there.

And can you fly a MiG29?

No problem there either.

A month later, I was wearing the uniform of a major in the Russian Air Force, my hair cut military short, sitting in the backseat of a black Volga limo, sweating bullets.

“Don’t speak,” said my driver.

The guard shifted his Kalashnikov and ordered us to stop, looked at my fake ID card and waved us on. We were in Russia’s Zhukovky Airbase 100 miles north of Moscow, home of the country’s best interceptor fighter, the storied Fulcrum, or MiG-29.

I ended up spending a week at the top-secret base. That included daily turns in the centrifuge to make sure I was up to the G-forces demand by supersonic flight. Afternoons saw me in ejection training. There in my trainer, I had to shout “eject, eject, eject,” pull the right-hand lever under my seat, and then get blasted ten feet in the air, only to settle back down to earth.

As a known big spender, I was a pretty popular guy on the base, and I was invited to a party every night. Let me tell you that vodka is a really big deal in Russia, and I was not allowed to leave until I had finished my own bottle, straight.

In 1993, Russia was realigning itself with the west, and everyone was putting their best face going forward. I had been warned about this ahead of time and judiciously downed a shot glass of cooking oil every evening to ward off the worst effects of alcohol poisoning. It worked.

Preflight involved getting laced into my green super tight gravity suit, a three-hour project. Two women tied the necessary 300 knots, joking and laughing all the while. They wished me a good flight.

Next, I met my co-pilot, Captain A. Pavlov, Russia’s top test pilot. He quizzed me about my flight experience. I listed off the names: Laos, Cambodia, Thailand, Israel, Croatia, Serbia, Bosnia, Kuwait, Iraq, and Saudi Arabia. It was clear he still needed convincing.

Then I was strapped into the cockpit.

Oops!

All the instruments were in the Cyrillic alphabet….and were metric! They hadn’t told me about this, but I would deal with it.

We took off and went straight up, gaining 50,000 feet in two minutes. Yes, fellow pilots, that is a climb rate of an astounding 25,000 feet a minute. They call them interceptors for a reason. It was a humid day, and when we hit 50,000 feet, the air suddenly turned to snowflakes swirling around the cockpit.

Then we went through a series of violent spins, loops, and other evasive maneuvers (see my logbook entry below). Some of them seemed aeronautically impossible. I watched the Mach Meter carefully, it frequently danced up to the “10” level. Anything over ten is invariably fatal, as it ruptures your internal organs.

Then Pavlov said, “I guess you are a real pilot, and he handed the stick over to me. I put the fighter into a steep dive, gaining the maximum handbook speed of March 2.5, or 2.5 times the speed of sound, or 767.2 miles per hour in seconds. Let me tell you, there is nothing like diving a fighter from 90,000 feet to the earth at 767.2 miles per hour.

Then we found a wide river and buzzed that at 500 feet just under the speed of sound. Fly over any structure over the speed of sound and the resulting shock wave shatters concrete.

I noticed the fuel gages were running near empty and realized that the Russians had only given me enough fuel to fly for an hour. That’s so I wouldn’t hijack the plane and fly it to Finland. Still, Pavlov trusted me enough to let me land the plane, no small thing in a $30 million aircraft. I made a perfect three-point landing and taxied back to base.

I couldn’t help but notice that there was a MiG-25 Foxbat parked in the adjoining hanger and asked if it was available. They said “yes”, but only if I had $10,000 in cash on hand, thinking this was an impossibility. I said, “no problem” and whipped out my American Express gold card.

Their eyes practically popped out of their heads, as this amounted to a lifetime of earnings for the average Russian. They took a picture of the card, called in the number, and in five minutes I was good to go.

They asked when I wanted to fly, and as I was still in my gravity suite I said, “How about right now?” The fuel truck duly back up and in 20 minutes I was ready for takeoff, Pavlov once again my co-pilot. This time, he let me do the takeoff AND the landing.

The first thing I noticed was the missile trigger at the end of the stick. Then I asked the question that had been puzzling aeronautics analysts for years. “If the ceiling of the MiG-25 was 90,000 feet and the U-2 was at 100,000 feet, how did the Russians make up the last 10,000 feet?

“It’s simple,” said Pavlov. Put on full power, stall out at 90,000 feet, then fire your rockets at the apex of the parabola to make up the distance. There was only one problem with this. If your stall forced you to eject, the survival rate was only 50%. That's because when the plane in free fall hit the atmosphere at 50,000 feet, it was like hitting a wall of concrete. I told him to go ahead, and he repeated the maneuver for my benefit.

It was worth the risk to get up to 90,000 feet. There you can clearly see the curvature of the earth, the sky above is black, you can see stars in the middle of the day, and your forward vision is about 400 miles. We were the highest men in the world at that moment. Again, I made a perfect three-point landing, thanks to flying all those Mustangs and Spitfires over the decades.

After my big flights, I was taken to a museum on the base and shown the wreckage of the U-2 spy plane flown by Francis Gary Powers shot down over Russia in 1960. After suffering a direct hit from a missile, there wasn’t much left of the U-2. However, I did notice a nameplate that said, “Lockheed Aircraft Company, Los Angeles, California.”

I asked, “Is it alright if I take this home? My mother worked at this factory during WWII building bombers.” My hosts looked horrified. “No, no, no, no. This is one of Russia’s greatest national treasures,” and they hustled me out of the building as fast as they could.

It's a good thing that I struck while the iron was hot as foreigners are no longer allowed to fly any Russian jets. And suddenly I have become very popular in Washington DC once again.

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

My MiG 25 in Russia

Russian Test Pilot A. Pavlov

Entries in my Logbook (Notice visit to leper colony on line 9)

U-2 Spyplane

April 14, 2022

Diary, Newsletter, Summary

Global Market Comments
April 14, 2022
Fiat Lux

Featured Trade:

(JULY 22 ZERMATT, SWITZERLAND STRATEGY SEMINAR)
(THE BULL CASE FOR BANKS),
(JPM), (BAC), (C), (WFC), (GS), (MS)

January 24, 2022

Diary, Newsletter, Summary

Global Market Comments
January 24, 2022
Fiat Lux

Featured Trades:

(MARKET OUTLOOK FOR THE WEEK AHEAD,
or PARACHUTING WITHOUT A PARACHUTE),
(AAPL), (SPY), (MSFT), (TLT), (TBT), (TDOC), (NFLX), (DIS), (VALE), (FCX), (USO), (JPM), (WFC), (BAC), (TSLA), (AMZN), (NVDA)

The Market Outlook for the Week Ahead, or Parachuting Without a Parachute

Diary, Newsletter, Research

It has been the worst New Year stock market opening in history.

After a two-day fake-out to the upside, stocks rolled over like the Bismarck and never looked up. NASDAQ did its best interpretation of flunking parachute school without a parachute, posting the worst month since 2008.

Markets can’t hold on to any rally longer than nanoseconds, and the last hour of the day has turned into one from hell.

What is even more confusing is that stocks are now trading like commodities, with massive one-way moves, while commodities, like oil (USO), copper( FCX), and iron ore (VALE) have resumed a steady grind up.

We had a lovefest going on here at Incline Village, Nevada for Technology and Bitcoin researcher Arthur Henry has been staying with me for the week to plot market strategy.

Once the market showed its hand, I sold short Microsoft (MSFT), which elicited torrents of complaints from readers. Then Arthur sold short Netflix (NFLX), inviting refund demands. Then I sold short Apple (AAPL), prompting accusations of high treason. Then Arthur sold short Teledoc (TDOC). There wasn’t a lot of talking, but frenetic writing and emailing instead.

Followers cried all the way to the bank.

In a mere two weeks, the price earnings multiple for the S&P 500 plunged from 22X to 20X. A lot of traders were only buying stock because they were going up. Take out the “up” and Houston we have a problem.

The entire streaming industry seems to have gone up in smoke and ex-growth practically overnight. Netflix (NFLX) delivered a gob smacking 29.5% swan dive in the wake of disappointing subscriber growth forecasts. Walt Disney (DIS), which ate the Netflix lunch, was dragged down 10% through guilt by association.

It is often said that the stock market has discounted 12 of the last six recessions. It is currently pricing in one of those non-recessions. What we are seeing is a sudden growth scare of the first order.

Despite last week’s carnage, stocks are still the most attractive asset class in the world, offering a potential 10% return in 2022. The problem is that they may make that 10% profit starting from 10% lower than here.

Despite all the red ink, big tech stocks are still on track to see a 30% earnings growth this year, and they account for a hefty 28% of the market.

Let’s look at Apple’s past declines for guidance on this meltdown.

Steve Jobs’ creation gave back 60% in the 2008 Great Recession, 34% during the 2015 growth scare, 48% during the great 2018 Christmas collapse, and 28% in the 2020 pandemic crash. So, the good news is that you won’t get killed by this selloff, you’ll just lose an arm and a leg. But they’ll grow back.

Remember, it’s always darkest just before it goes completely black. This correction is survivable, although it may not seem so at the moment.

It does vindicate my 2022 view that the first half will be about survival and that big money can be had in the second half.

So far, so good.

The Market is De-Grossing Big Time. That means cutting total market exposure and selling everything, regardless of stock or sector. The market is discounting a recession and bear market that isn’t going to happen, which occurs often. When it ends in a few weeks, interest rate sensitives, especially the banks, will bounce back hard, but tech won’t. Buy (JPM), (WFC), and (BAC) on bigger dips.

The Bond Collapse Goes Global, with German 10-year bunds going positive for the first time in three years, up 40 basis points in a month. Yes, inflation is finally hitting the Fatherland, home of post-WWI billion percent inflation. Eurozone inflation just topped 5%, well above its 2% target. British inflation hit a 30-year high. The move has lit a fire under all Euro currencies. Methinks the down move in (TLT) has more to go.

Fed to Raise Rates Eight Times, says Marathon Asset Management. That’s what will be needed to curb the current runaway inflation now at 7.0% and still rising. Personally, I think it will be 12 quarter-point increments to peak out at a 3 ¼% overnight rate. Any more and Powell might bring on a recession.

NASDAQ is Officially in Correction, down 10%, in the wake of poor performance this month. It’s the fourth one since the pandemic began two years ago. Tesla (TSLA), Amazon (AMZN), and NVIDIA (NVDA) have been leading the swan dive, all felled by rapidly rising interest rates. This could go on for months.

Weekly Jobless Claims Hit 286,000, a four-month high, as omicron sends workers fleeing home.

Goldman Sachs (GS) Gets Crushed, down 8%, on disappointing earnings. Tough market conditions are fading trading volumes while 2021 bonuses were through the roof. The move is particularly harsh in that buyers were flooding in right at support at the 200-day moving average.

China GDP (FXI) Grows 8.1% YOY but is rapidly slowing now, thanks to Omicron. China was first in and first out with the pandemic but is getting hit much harder in this round. That has prompted new mass lockdowns which will make out own supply chain problems worse for longer. In Chinese, “lockdown” means they weld your door shut, unlike here. Harsh, but it works.

Oil (USO) Hits Seven-Year High, as inventories hit a 21-year low. No new capital is entering the industry, crimping supplies as old fields play out. The threat of a Russian invasion of the Ukraine is prompting advance stockpiling. Russia is the world’s second-largest oil exporter.

Existing Homes Sales Hit a 15-Year High, at 6.12 million, the best since 2006. December fell 4.6%. Extreme inventory shortage is the issue, with only 910,000 homes for sale at the end of the year, an incredibly low 1.8-month supply. You can’t find anything on the market now, to buy or rent. The median price of a home sold in December was $358,000, a 15.8% gain YOY.

Bitcoin (BITO) Crashes, decisively breaking key support at $40,000. Non-yielding assets of every description are getting wiped. Bail on all crypto options plays asap.

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 the pandemic-driven meltdown on Friday, my January month-to-date performance bounced back hard to 5.05%. My 2022 year-to-date performance also ended at 5.05%. The Dow Average is down -6.12% so far in 2022.

Once stocks went into free fall, I piled on the short positions as fast as I could write the trade alerts, including in Microsoft (MSFT), Apple (AAPL), and a double short in the S&P 500 (SPY). I also increased my shorts in the bond market (TLT) to a triple position. When prices became the most extreme, when the Volatility Index (VIX) hit $30, I bought both (SPY) and (TLT).

If everything goes our way, we should be up 14.26% by the February 18 options expiration.

That brings my 12-year total return to 517.61%, some 2.00 times the S&P 500 (SPX) over the same period. My 12-year average annualized return has ratcheted up to 42.82% easily the highest in the industry.

We need to keep an eye on the number of US Coronavirus cases at 71 million and rising quickly and deaths topping 866,000, which you can find here.

On Monday, January 24 at 6:45 AM, The Market Composite Flash PMI for January is out. Haliburton (HAL) reports.

On Tuesday, January 25 at 6:00 AM, the S&P Case Shiller National Home Price Index for November is released. American Express (AXP) reports.

On Wednesday, January 26 at 7:00 AM, the New Home Sales for December are published. At 11:00 AM The Federal Reserve interest rate decision is announced. Tesla (TSLA), Boeing (BA), and Freeport McMoRan (FCX) report.

On Thursday, January 27 at 8:30 AM the Weekly Jobless Claims are disclosed. We also get the first look at US Q4 GDP. Alaska Air (ALK) and US Steel (X) report.

On Friday, January 28 at 5:30 AM EST US Personal Income & Spending is printed. Caterpillar (CAT) reports. At 2:00 PM, the Baker Hughes Oil Rig Count is out.

As for me, when I drove up to visit my pharmacist in Incline Village, Nevada, I warned him in advance that I had a question he never heard before: How good is 80-year-old morphine?

He stood back and eyed me suspiciously. Then I explained in detail.

Two years ago, I led an expedition to the South Pacific Solomon Island of Guadalcanal for the US Marine Corps Historical Division (click here for the link). My mission was to recover physical remains and dog tags from the missing-in-action there from the epic 1942 battle.

Between 1942 and 1944, nearly four hundred Marines vanished in the jungles, seas, and skies of Guadalcanal. They were the victims of enemy ambushes and friendly fire, hard fighting, malaria, dysentery, and poor planning.

They were buried in field graves, in cemeteries as unknowns, if not at all left out in the open where they fell. They were classified as “missing,” as “not recovered,” as “presumed dead.”

I managed to accomplish this by hiring an army of kids who knew where the most productive battlefields were, offering a reward of $10 a dog tag, a king's ransom in one of the poorest countries in the world. I recovered about 30 rusted, barely legible oval steel tags.

They also brought me unexploded Japanese hand grenades (please don’t drop), live mortar shells, lots of US 50 caliber and Japanese 7.7 mm Arisaka ammo, and the odd human jawbone, nationality undetermined.

I also chased down a lot of rumors.

There was said to be a fully intact Japanese zero fighter in flying condition hidden in a container at the port for sale to the highest bidder. No luck there.

There was also a just discovered intact B-17 Flying Fortress bomber that crash-landed on a mountain peak with a crew of 11. But that required a four-hour mosquito-infested jungle climb and I figured it wasn’t worth the malaria.

Then, one kid said he knows the location of a Japanese hospital. He led me down a steep, crumbling coral ravine, up a canyon and into a dark cave. And there it was, a Japanese field hospital untouched since the day it was abandoned in 1943.

The skeletons of Japanese soldiers in decayed but full uniform laid in cots where they died. There was a pile of skeletons in the back of the cave. Rusted bottles of Japanese drugs were strewn about, and yellowed glass sachets of morphine were scattered everywhere. I slowly backed out, fearing a cave-in.

It was creepy.

I sent my finds to the Marine Corps at Quantico, Virginia, who traced and returned them to the families. Often the survivors were the children or even grandchildren of the MIAs. What came back were stories of pain and loss that had finally reached closure after eight decades.

Wandering about the island, I often ran into Japanese groups with the same goals as mine. My Japanese is still fluent enough to carry on a decent friendly conversation with the grandchildren of their veterans. It turned out I knew far more about their loved ones than they. After all, it was our side that wrote the history. They were very grateful.

How many MIAs were they looking for? 30,000! Every year, they found hundreds of skeletons, cremated in a ceremony, one of which I was invited to. The ashes were returned to giant bronze urns at Yasakuni Ginja in Tokyo, the final resting place of hundreds of thousands of their own.

My pharmacist friend thought the morphine I discovered had lost half of its potency. Would he take it himself? No way!

As for me, I was a lucky one. My dad made it back from Guadalcanal, although the malaria and post-traumatic stress bothered him for years. And you never wanted to get in a fight with him….ever.

I can work here and make money in the stock market all day long. But my efforts on Guadalcanal were infinitely more rewarding. I’ll be going back as soon as the pandemic ends, now that I know where to look.

Stay Healthy.

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

True MIAs, the Ultimate Sacrifice

My Collection of Dog Tags and Morphine

My Army of Scavengers

Dad on Guadalcanal (lower right)

July 15, 2021

Diary, Newsletter, Summary

Global Market Comments
July 15, 2021
Fiat Lux

Featured Trade:

(THE BULL CASE FOR BANKS)
(JPM), (BAC), (C), (WFC), (GS), (MS)

June 23, 2021

Diary, Newsletter, Summary

Global Market Comments
June 23, 2021
Fiat Lux

Featured Trade:

(WHY YOU MISSED THE TECHNOLOGY BOOM AND WHAT TO DO ABOUT IT NOW),
(AAPL), (AMZN), (MSFT), (NVDA), (TSLA), (WFC), (FB)

Why You Missed the Technology Boom and What to Do About it Now

Diary, Newsletter

I often review the portfolios of new concierge subscribers looking for fundamental flaws in their investment approach and it is not unusual for me to find some real disasters.

The Armageddon scenario was quite popular a decade ago. You know, the philosophy that said that the Dow ($INDU) was plunging to 3,000, the US government would default on its debt (TLT), and gold (GLD) was rocketing to $50,000 an ounce?

Those who stuck with the deeply flawed analysis that led to those flawed conclusions saw their retirement funds turn to ashes.

Traditional value investors also fell into a trap. By focusing only on stocks with bargain basement earnings multiples, low price to book values, and high visible cash flows, they shut themselves out of technology stocks, far and away the fastest-growing sector of the economy.

If they are lucky, they picked up shares in Apple a few years ago when the earnings multiple was still down at ten. But even the Giant of Cupertino hasn’t been that cheap for years.

And here is the problem. Tech stocks defy analysis because traditional valuation measures don’t apply to them.

Let’s start with the easiest metric of all, that of sales. How do you measure the value of sales when a company gives away most of its services for free?

Take Google (GOOG) for example. I bet you all use it. How many of you have actually paid money to Google to use their search function? I would venture none.

What would you pay Google for search if you had to? What is it worth to you to have an instant global search function? Probably at least $100 a year. I would pay $10,000 as I use it all day long. With 92.05% of the global search market comprising 2 billion users, that means $200 billion a year of potential Google revenues are invisible.

Yes, the company makes a chunk of this back by charging advertisers access to these search users, generating some $55.31 Billion in revenues and $17.93 billion in net income in the most recent quarter.

But much of the increased value of this company is passed on to shareholders not through rising profits or dividend payments but through an ever-rising share price. If you’re looking for dividends, Google doesn’t exist. It is also very convenient that unrealized capital gains are tax-free until the shares are sold, which may be never.

I’ll tell you another valuation measure that investors have completely missed, that of community. The most successful companies don’t have just customers who buy stuff, they have a community of members who actively participate in a common vision, which is then monetized. There are countless communities out there now making fortunes, you just have to know how to spot them.

Facebook (FB) has created the largest community of people who are willing to share personal information. This permits the creation of affinity groups centered around specific interests, from your local kids’ school activities to municipality emergency alerts, to your preferred political party.

This creates a gigantic network effect that increases the value of Facebook. Each person who joins (FB) makes it worth more, raising the value of the shares, even though they haven’t paid it a penny. Again, it’s advertisers who are footing your tab.

Tesla (TSLA) has one million customers willing to lend it $400 billion for free in the form of deposits on future car purchases because they also share in the vision of a carbon-free economy. When you add together the costs of initial purchase, fuel, and maintenance savings, a new Tesla Model 3 is now cheaper than a conventional gasoline-powered car over its entire life.

REI, a privately held company, actively cultivates buyers of outdoor equipment, teaches them how to use it, then organizes trips. It will then pursue you to the ends of the earth with seasonal discount sales. Whole Foods (WFC), now owned by Amazon (AMZN), does the same in the healthy eating field.

If you spend a lot of your free time in these two stores, as I do, The United States is composed entirely of healthy, athletic, good-looking, and long-lived, intelligent people.

There is another company you know well that has grown mightily thanks to the community effect. That would be the Diary of a Mad Hedge Fund Trader, one of the fastest-growing online financial services firms of the past decade. What is the value of our community? To give you a hint, the price of my Global Trading Dispatch has soared from $29 a month to $3,000 a year.

We have succeeded not because we are good at selling newsletters, but because we have built a global community of like-minded investors with a common shared vision around the world, that of making money through astute trading and investment.

We produce daily research services covering global financial markets, like Global Trading Dispatch, the Mad Hedge Technology Letter, and the Mad Hedge Biotech & Healthcare Letter. We teach you how to monetize this information with our books like Stocks to Buy for the Coming Roaring Twenties and the Mad Hedge Options Training Course.

We then urge you to action with our Trade Alerts. If you want more hands-on support, you can upgrade to the Concierge Service. You can also meet me in person to discuss your personal portfolios and my Global Strategy Luncheons.

The luncheons are great because long-term Mad Hedge veterans trade notes on how best to use the service and inform me on where to make improvements. It’s a blast.

The letter is self-correcting. When we make a mistake, readers let us know in 60 seconds and we can shoot out a correction immediately. The services evolve on a daily basis.

It all comes together to enable customers to make up to 20% to 100% a year on their retirement funds. And guess what? The more money they make, the more products and services they buy from me. This is why I have so many followers who have been with me for a decade or more. And some of my best ideas come from my own subscribers.

So, if you missed technology now what should you do about it? Recognize what the new game is and get involved. Microsoft (MSFT) with the fastest-growing cloud business offers good value here. Amazon looks like it will eventually hit my $5,000 target. You want to be buying graphics card and AI company NVIDIA (NVDA) on every 10% dip. It’s going to $1,000.

You can buy the breakouts now to get involved or patiently wait until the 10% selloff that usually follows blowout quarterly earnings.

My guess is that tech stocks still have to double in value before their market capitalization of 26% matches their 50% share of US profits. And the technologies are ever hyper-accelerating. That leaves a lot of upside even for the new entrants.

I Finally Found Tech Stocks!

January 11, 2021

Diary, Newsletter, Summary

Global Market Comments
January 11, 2021
Fiat Lux

Featured Trade:

(MARKET OUTLOOK FOR THE WEEK AHEAD, or A WEEK FOR THE HISTORY BOOKS),
($INDU), (TSLA), (TBT), (TLT), (JPM), (WFC)

The Market Outlook for the Week Ahead, or A Week for the History Books

Diary, Newsletter

A man came at me with a crowbar last week.

I drove into Reno to buy some used backpacks for my Boy Scout troop and parked my Tesla in a nice residential neighborhood. Out of nowhere, a man ran down the street at me screaming profanities, crowbar in hand.

He shouted that I was from Antifa and that I had hired people to invade the Capitol Building to make President Trump look bad.

I reached into my car for my own crowbar. Then the local residents interceded, separating us. The man turned around and walked away, fuming.

“Who the heck was that?” I asked.

“He has mental issues,” said a neighbor. “We’ve had many problems with him before.”

Another said “He’s a Trump supporter. He saw your Tesla and thought you were a liberal.”

Wow! Looks like the nation has a very long way to heal.

Last year, the US defense budget amounted to $622 billion. When the greatest threat to congress in the nation’s history presented itself, it was antique chairs piled against the door that provided the best defense. Maybe we should ditch some big-ticket nuclear missiles and buy more chairs.

Of course, once the insurrection started on Wednesday, I was inundated with international calls from investors asking if they should pull all their money out of the US. I answered “NO” and that it was in fact time to double down. Those who did made a killing.

Ask any professional money manager what his reaction to a coup d’état in Washington would be, their response definitely would NOT be to run out and buy a ton of Tesla (TSLA). Yet, that was exactly the perfect thing to do, the stock soaring an astonishing $135, or 18% in two days. I have many followers who did exactly that and they made millions.

All I can say is that if a market gets hit with an insurrection, and exploding pandemic, and a crashing economy and only goes down 400 points and then bounces back the next day, you want to buy the hell out of it.

I’m talking about going on margin and taking a second mortgage on your home and pouring it into stocks. You might even consider going to a loan shark and borrowing at 18% because you can easily make double that in the right stocks.

After the Biden win and the Georgia sweep, there is now more rocket fuel pouring into the stock market than ever. Call it the “Biden blank check”. Estimates of new spending and subsidies about to hit the market now go up to $10 trillion. Let me list some of them:

*$2 trillion in enforced savings by locked up American consumers.

*Credit card balances have collapsed to multi-year lows, making available hundreds of billions in spending power.

*Trillions of Money market balances sitting on the sidelines yielding zero

*$908 billion stimulus package passed in the closing days of 2020

*A further $2 trillion stimulus package to pass shortly, including $2,000 checks for all 150 million US taxpayers.

*Add another $2 trillion infrastructure budget

*$1 trillion in student loan forgiveness for 10 million borrowers at $10,000 each

*Enormous subsidies for any alternative energy companies and Tesla cars

*The return of the deductibility of $1 trillion worth of state and local real estate taxes (known as (SALT)).

MUCH OF THIS CASH MOUNTAIN IS GOING STRAIGHT INTO THE STOCK MARKET!

It all sets up a stock market that has the potential to have “extreme” moves to the upside, according to my friend, Fundstrat’s Tom Lee.

All you need to retire early is someone to point you in the right direction, into the right sectors and the right stocks. Actually, I happen to know just the right person who can do that and that would be me!

Storming of the Capital shut down markets. After the initial crash, markets flatlined as the entire country dropped what they were doing and glued themselves to a TV, their jaws hanging open. The Dow dove 400 points, bonds and the US dollar stabilized, Tesla and oil took big hits, and gold and silver took off. The electoral college vote has been suspended, gunfights broke out on the house floor, and several explosive devices placed. Trump incited his followers to attack the capitol and they did exactly that. Washington DC is now subject to a 6:00 PM curfew for two weeks. Is this the beginning of the 2024 presidential election? It’s the worst day in Washington since the British burned it in 1814.

Democrats took Georgia, giving them Senate control and a blank check on spending for at least two years. Trump clearly blew the election for his party. My 3X short in bonds soared as the market crashed. Banks rocketed on a 10-basis point leap in interest rates. Infrastructure plays went ballistic. The US dollar faded. Add another couple of percentage points of US GDP growth for 2021.

Tesla Shorts posted biggest loss in history, setting on fire a staggering $38 billion in short positions. Many of these were financed by big oil looking to put Tesla out of business. The short interest in the stock has plunged from 37% to 5%. Did I mention that Tesla was the biggest Mad Hedge long of 2020? I’ve been buying it since it was a split-adjusted $3.30 a share in 2010 against a Friday close of $880, a gain of 290X. Elon Musk is now the richest man in the world and he’s only just getting started!

Tesla met its 500,000-unit 2020 target, far in excess of analyst forecasts. Q4 came in at a surprise 180,570 units. The firm’s 2021 target is 1.1 million units. The market Cap is about to touch $1 trillion, more than all of the global car industry combined. The Model 3 is doing the heavy lifting. Model Y production in Shanghai is about to ramp up and Berlin is to follow. If Tesla can mass-produce their solid-state batteries, they’ll attain a global monopoly in the car industry with 25 million units a year and a share price of $10,000.

A Saudi surprise production cut, a million barrels a day, sent oil over $50. But with demand that weak, how long can the rally last? The market is entering short-selling territory. I bet you didn’t use much gas today commuting from your bedroom to your home office. Use the rally to unload what energy you have left. Sell the (XLE) on rallies.

Bitcoin topped $42,000, more than doubling in a month, and exceeded $1 trillion as an asset class. A Biden-run economy means more money creation which has to find a home. My friend’s pizza purchase for 8 Bitcoin a decade ago is now worth $320,000. I hope it was good!

The Nonfarm Payroll came in at a loss of 140,000, giving more credence to the Q1 double-dip scenario and far worse than expected. The headline Unemployment Rate came in unchanged at 6.7%, Leisure & Hospitality lost a mind-blowing 498,000 and an incredible 3.9 million since January. Private Education lost 63,000 and Government 45,000. Professional & Business Services gained 161,000. The real U-6 Unemployment Rate is a very high 11.6%.

The bond crash has only just begun, with the (TLT) down $8 on the week. The risk/reward is the worst of any financial asset anywhere. I am maintaining my triple short position. Massive government borrowing will be a death knell for fixed income investors.

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 400% to 120,000 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 120,000 here we come!

My Mad Hedge Global Trading Dispatch closed out a blockbuster 2020 with a blockbuster 10.20% in December, taking me up to an eye-popping 66.64% for the year. I’m up 81% since the March low. In 2021, I shot out of the gate with an immediate 5.93% profit for the first four trading days of the year.

That brings my eleven-year total return to 428.48% double the S&P 500 over the same period. My 11-year average annualized return now stands at a nosebleed new high of 38.51%. My trailing one-year return exploded to 72.57%, the highest in the 13-year history of the Mad Hedge Fund Trader. We have earned 89% since the March low.

The coming week will be a slow one on the data front after last week's fireworks. We also need to keep an eye on the number of US Coronavirus cases at 22 million and deaths 370,000, which you can find here.

When the market starts to focus on this, we may have a problem.

On Monday, January 11 at 11:00 AM EST, US Inflation Expectations are released, which will increasingly become an area of interest.

On Tuesday, January 12 at 4:30 PM, API Crude Inventories are published.

On Wednesday, January 13 at 8:30 AM, the US Inflation Rate for December is announced.

On Thursday, January 14 at 8:30 AM, the Weekly Jobless Claims are published. We also get November Housing Starts.

On Friday, December 15 at 8:30 AM, December Retail Sales are printed. Q4 earnings seasons starts, with JP Morgan Chase (JPM) and Wells Fargo (WFC) reporting. At 2:00 PM we learn the Baker-Hughes Rig Count.

As for me, I’ll be taking my old Toyota Highlander down to the dealer in Reno. Squirrels moved into the engine and ate the wiring, knocking out the heater and the fan. All part of the cost of living in a mountain paradise. However, you have to share it with the critters.

I’ll also be investing in some pepper spray.

Stay healthy.

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