Global Market Comments
April 10, 2023
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD,
or MAD HEDGE CLOCKS 46.38% PROFIT IN Q1)
(TSLA), (USO), (WMT), (AAPL), (GLD), (GOLD), (SLV),
(UUP), (TLT), (UBI), (NVDA), (MU), (AMAT), (CCJ)
CLICK HERE to download today's position sheet.
How much pain to take?
That is the question plaguing traders and portfolio managers alike around the world. For the average bear market is only 9.7 months long and we are already 16 months into the present one.
Even the longest postwar bear market was only 2.5 years, or 30 months, the 2000-2002 Dotcom Bust, and we are nowhere near that level of economic hardship. Back then, companies posted losses for several quarters in a row, and many ceased to exist (Webvan, Alta Vista, Pets.com).
That means we only have a few more months of pain to take before another decade-long bull market resumes, or 8 months if the bear stretches to a full two years.
That is unless the new bull was actually born last October, which is entirely possible. Certainly, the stock market thinks so, with its refusal to drop on even the worst of news.
Inflation at 6%? Who cares.
A Fed that hates the stock market? Couldn’t give a damn.
Pathetic earnings growth? Call me when it’s over.
This indifference chalked up the deadest trading week I can remember, putting the Volatility Index (VIX) firmly back into “Do Nothing Land” under 20%.
So investors are cautiously putting cash into stocks on every dip, even minor ones, confident that they will be higher by yearend. If a black swan arrives in the meantime, or a political crisis boils out of control, tough luck if you can’t take a joke.
All of which is focusing a lot more attention on gold (GLD), which moved within 2% of a new all-time high last week. I am always looking for cross-asset class confirmations of current trends and the barbarous relic has certainly been one of those.
I have been bullish on gold since I put out LEAPS on Barrick Gold (GOLD) and silver (SLV) last October. They have since performed spectacularly well. The move into precious metals confirms the following. That the Fed tightening cycle will end imminently. Interest rates will fall, and the US dollar (UUP) will weaken. Everything else flows from there.
You are even seeing this in US Treasury Bond yields, with the ten-year plunging to 3.30%, a one-year low. The (TLT) hit $109 last week. Aren’t bonds supposed to be held back by the looming default by the US government?
I’m starting to wonder if the debt ceiling crisis is this generation’s Y2K. At worst, your toaster may show the wrong year but nothing further. Or maybe the pent-up demand for bonds and high yields is so great that it overwhelms all other considerations?
My 2023 year-to-date performance is now at an incredible +46.38%. The S&P 500 (SPY) is up only a miniscule +7.0% so far in 2023. My trailing one-year return maintains a sky-high +103.2% versus +7.0% for the S&P 500.
That brings my 15-year total return to +643.57%, some 2.71 times the S&P 500 (SPY) over the same period. My average annualized return has blasted up to +48.26%, another new high.
I executed no trades during the holiday-shortened week, content to run my ten profitable positions into the April 21 options expiration. If a strategy ain’t broke, don’t fix it. If I see something I like, I’ll take profits on an existing position and replace it with a new one.
Nonfarm Payroll Report Holds Up, at 236,000 in March, the lowest since December 2020. It shows that high interest rates still have not impacted the jobs market. February was revised up to 326,000. The headline Unemployment Rate dropped back to a 50-year low at 3.5%. Average Hourly Earnings dropped to 4.2% YOY, a two-year low, showing that inflation is in retreat. Leisure & Hospitality led at 74,000 followed by Government at 47,000.
Weekly Jobless Claims Drop, to 228,000, down 18,000 as recession fears rise. High interest rates are finally taking their toll, with a banking crisis thrown in for good measure.
Open Jobs Tighten, The June JOLTS survey of job openings fell to 10.698 million, down from 11.3 million last month and well below expectations of 11 million. Is this the calm before the storm when job openings disappear? This report is highly negative for the US dollar.
Tesla (TSLA) Posts Record EV Deliveries, Deliveries grew 36% from a year ago, below the 50% growth Elon Musk promised for the year on the last earnings call, but Musk has a habit of overpromising. The expansion is still a healthy sign that consumers are spending. Any pullback in Tesla is a gift for shareholders.
Oil (USO) Production Cut Sends Price Soaring, with OPEC+ including Russia has pledged a total of 3.66-million-barrel oil output cut which is nearly 3.7% of global demand. The jump in oil price will only accelerate global inflation and force the Fed into a tougher predicament. The Saudi – US cooperation is at its lowest ebb.
Walmart’s (WMT) Automation Effort Goes Into Overdrive, Walmart said it expects around 65% of its stores to be serviced by automation by 2026. The company said around 55% of packages that it processes through its fulfillment centers will be moved to automated facilities and unit cost average could improve by around 20%. This is the first step to getting rid of human employees. Eventually, the government will need to deliver universal basic income (UBI).
Gold and Miners Threaten New All-Time Highs, suggesting that a collapse in interest rates is imminent. So is an economic recovery and a resurgence of monetary expansion. Russian and China continue to be major buyers to evade sanctions. Keep buying (GLD) and (GOLD) on dips.
Apple (AAPL) Cash Hoard Soars to $165 Billion, as the cash flow king of all time goes from strength to strength. This will be one of the top targets in any tech rebound, which may be imminent. But you’re have to compete with apple to buy the shares, which is a huge buyer of its own stock.
Chip Stocks are On Fire, clocking the best sector of any in Q1. Too far, too fast, say I, but I’ll be in there buying with both hands on any serious dips. This is no future without (NVDA), (MU), and (AMAT) playing a major role.
Stock Dividends Hit New All-Time Highs, at $146.8 billion, up 7% YOY. As interest rates rose, companies had to raise dividends to keep up. The economy is also far stronger those most realize, with many analysts believing we should have entered a recession a long time ago. A high dividend also gives downside protection in bear markets.
Uranium Demand is Surging with the Nuclear Renaissance. And now the US is restarting plutonium production for the first time in 20 years, a uranium derivative. The 20-year supply we bought from the old Soviet Union has run out with a scant chance of renewal. The Los Alamos Labs in New Mexico is seeking to hire 1,200 engineers to build a brand-new factory from scratch. Buy (CCJ) on dips. And buy Los Alamos real estate if you can get a security clearance.
Keep Buying 90-Day T-Bills, now pushing a 5% risk-free yield. The regional banking crisis highlights another reason. If your bank or broker goes under, your cash deposits can be tied up in bankruptcy for three years. If you own US government securities, they can be ordered and transferred out in days to another institution. You can also buy them directly from the US government free of fee. Just thought you’d like to know.
My Ten-Year View
When we come out the other side of the recession, we will be perfectly poised to launch into my new American Golden Age, or the next Roaring Twenties. The economy decarbonizing and technology hyper accelerating, creating enormous investment opportunities. The Dow Average will rise by 800% to 240,000 or more in the coming decade. The new America will be far more efficient and profitable than the old.
Dow 240,000 here we come!
On Monday, April 10 at 7:30 AM EST, the Consumer Inflation Expectations are out.
On Tuesday, April 11 at 6:00 AM, the NFIB Business Optimism Index is announced.
On Wednesday, April 12 at 7:00 AM, the US Core Inflation Rate and Consumer Price Index are printed.
On Thursday, April 13 at 8:30 AM, the Weekly Jobless Claims are announced. The Producer Price Index is also released.
On Friday, April 14 at 8:30 AM, the US Retail Sales are released.
As for me, I covered the Persian Gulf for Morgan Stanley for ten years during the 1980s when medieval sheikdoms still living in the 14th century were suddenly showered with untold wealth. Needless to say, the firm, which we called Morgan Stallion, had a few ideas on what they should do about it.
I was picked as the emissary to the region because I had already been visiting the Middle East for 20 years and had been doing business there for 15 years. My press visa to cover the Iran-Iraq War was still valid.
In addition, I had already developed a reputation for being wild, reckless, and up for anything to enjoy a thrill or make a buck. In addition, with all the wars, terrorist attacks, and revolutions underway, everyone but me was scared to death to go near the place.
In other words, I was perfect for the job.
Being a veteran combat pilot proved particularly useful. I used to fly down on Kuwait Airlines and I still have a nice collection of the cute little Arabic artifacts they used to hand out in first class. Once in Abu Dhabi, I rented a local plane and hopped from one sheikdom to the next drumming up business. Once, I landed on a par five fairway at a private golf course just to give a presentation to a nation’s ruler.
My last stop was always Kuwait, where I turned the plane back in and met the CIA station chief for lunch to fill him in on what I had learned. It was all considered part of the job. When Iraq invaded Kuwait in 1991, I was their first call.
Of course, flying across vast expanses of the Arabian desert is not without its risks. Whenever you fly a single-engine plane you are betting your life on an internal combustion engine, never a great idea. I always carried an extra gallon bottle of water in case of a forced landing. The survival time without water is only three days.
Whenever I refueled, I filtered the 100LL aviation gas through a chamois cloth to keep out water and sand. Still, I was pretty good at desert survival, growing up near Indio California in the Lower Colorado Desert and endlessly digging my grandfather’s pickup truck out of the sand.
Once my boss tried to ban me from a trip to the Middle East because the US Navy had bombed Libya. I assured him that something as minor as that didn’t even move the needle on the risk front, at least in my lifetime.
The problem with the Persian Gulf was that they had all the money in the world and no way to spend it. An extreme Wahabis religion was strictly adhered to, and alcohol was banned. But you could have four wives and I enjoyed some of the best fruit juice in my life.
So my clients came to rely on me for diversions. The Iran-Iraq War was taking place then. I took them up in my plane to 10,000 feet and we watched the aerial war underway 50 miles to the north. The nighttime display of rockets, machine gun fire, and explosions was spectacular.
During one such foray, the wind shifted dramatically as a sandstorm rolled in. Suddenly I was landing in a 50-knot crosswind instead of a 10-knot headwind. A quick referral to the aircraft manual confirmed that the maximum crosswind component for the plane was 27 knots.
Oops!
Then I got a bright idea. I radioed the tower and asked for permission to land on the taxiway at a 90-degree angle to the main runway. After some hesitation, they responded, “If you’re willing to try it”. They knew my only alternative was to ditch at sea with two high-ranking gentlemen who couldn’t swim.
The tower very kindly talked me down with radar vectors and at the last possible second, with the altimeter reading 20 feet, the taxiway popped into view. With such a stiff wind I was able to pancake the plane down in yards, slam it on the runway, and then immediately shut the engine down. I asked for a tow, not wanting to risk the windstorm flipping the plane over.
My passengers thanked me profusely.
When Iraq invaded Kuwait in 1991, I lost most of my friends there. They were either killed, kidnapped and held for ransom, or volunteered as translators for US forces. I never saw them again.
I didn’t return to the Middle East until 2019 when I took two teenage girls to Egypt to introduce them to that part of the world. They wore hijabs, rode camels, and opened their eyes. I even set up some meetings with an educated Arab woman.
I will probably go back someday. I still haven’t seen the ruins at Petra in Jordan, nor ridden the Hijaz Railway, which Lawrence of Arabia blew up in 1918. But I have an open invitation from the king there.
I knew his dad.
Good Luck and Good Trading
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Global Market Comments
September 16, 2022
Fiat Lux
Featured Trade:
(TESTIMONIAL)
(LONG-TERM ECONOMIC EFFECTS OF THE CORONAVIRUS),
(ZM), (LOGM), (AMZN), (PYPL), (SQ), CNK), (AMC), (IMAX),
(CCL), (RCL), (NCLH), (CVS), (RAD), (WMT)
The world will never be the same again.
Not only is the old world rapidly disappearing before our eyes, the new one is kicking down the front door with alarming speed.
In short: the future is happening fast, very fast.
To a large extent, long-term economic trends already in place have been given a turbocharger. Quite simply, you just take out the people. Human contact of any kind has been minimized.
I’ll tick off some of the more obvious changes.
To say that we are merely fatigued from a nearly three-year quarantine would be a vast understatement. Climbing the walls is more like it.
As I write this, US Covid-19 deaths have topped one million and cases have surpassed 95 million. China peaked at over 5,000 deaths with four times our population. The difference was leadership issue. China welded the doors shut of early Covid carriers.
Here, it said it was a big nothing and would “magically” go away.
The magic didn’t work, nor did bleach injections.
In the meantime, you better get used to your new life. You know that home office of yours you’ve been living in? It is now a permanent affair for many of you, as your employer figured out they can make more money and earn a high stock multiple with you at home.
Besides, they didn’t like you anyway.
Many employees are never coming back, preferring to avoid horrendous commutes, $5.40 a gallon gasoline, mass transit, lower costs, and yes, future pandemic viruses. GoToMeeting (LOGM) and Zoom (ZM) are now a permanent aspect of your life.
Commerce has changed beyond all recognition. Did you do a lot of shopping on Amazon (AMZN) like I do? Now, you’re really going to pour it on.
Amazon hired a staggering one million new distribution and delivery people in 2020 and 2021 to handle the surge in business, the most by any organization since WWII. I can’t believe the stock is only at $122. It is worth double that, especially if they break up the company.
The epidemic really hammered the mall, where a fatal disease is only a sneeze away. Mall REITs have since taken off like a rocket, once it was clear that the virus was coming under control.
And how are you going to pay for that transaction? Guess what one of the most efficient transmitters of disease is? That would be US dollar bills. Something like 50% of all US paper money already test positive for drugs, according to one Fed study. While in Scandinavia last summer, I learned that physical money has almost completely phased out.
Take paper money in change and you are not only getting contact from the sales clerk, but the last dozen people who handled the money. You are crazy now to take change and then not go swimming in Purell afterwards.
Personally, I leave it all as a tip.
Contactless payment deals with this nicely and is now here to stay. Next to come is simply scanning people when they walk in the store, as with some Whole Foods shops owned by Amazon.
Conferences?
They are now a luxury. All of my public speaking events around the world have been cancelled. Webinars now rule. They offer lower conversion rates but include vastly cheaper costs as well. I can reach more viewers for $1,100 a month on Zoom (ZM) than the Money Show could ever attract to the Las Vegas Mandalay Bay for $1 million.
At least I won’t have 18 hours of jet lag to deal with anymore on my Australia trips. I’m sure Qantas will miss those first-class ticket purchases and I’ll miss the free Champaign.
Entertainment is also morphing beyond all recognition. Streaming is now the order of the day. Disney+ (DIS) was probably the best-timed launch in business history, coming out just two months before the pandemic.
They earned enough to cancel out most of the losses from the closure of the theme parks. Again, this has been a long time coming and the other major movie producers will soon follow suit.
Movie theaters, which have been closed for years, may also never see their peak business again (CNK), (AMC), (IMAX). The theaters that survive will do so by only accumulating so much debt that they won’t be attractive investments for a decade.
The same is true for cruise lines (CCL), (RCL), (NCLH). But that won’t forestall dead cat bounces that are worth a double in the meantime, as they are coming off of such low levels. No vaccination, no cruise.
Exercise has changed overnight. All gyms and health clubs closed, and are only just now slowly reopening. Working out will become a solo exercise far away on a high mountain. I have already been doing this for 30 years, so piece of cake here.
Friends with yoga classes are now doing them in the living room, streaming their instructors online. The economics of online yoga classes are so compelling, with hundreds attending online classes at once. The old model may never come back.
If you are having trouble getting your kids to comply with social distancing requirements, have a family movie night and watch Gwyneth Paltrow and Cate Winslet die horrible deaths in Contagion. It has been applauded by scientists as the most accurate presentation of the kind of out-of-control pandemic we have been dealt with.
It is bone-chilling.
I hope you learned from the last pandemic because the next one may be just around the corner, thanks to globalization. In 1918, it took three months for an enhanced mutated flu virus to get from Europe to the US. This time, it took a day to get from China.
Stay healthy.
Mad Hedge Technology Letter
August 17, 2022
Fiat Lux
Featured Trade:
(HERE WE COME VIETNAM)
(AAPL), (WMT)
There is definitely jet fuel left in Apple’s (AAPL) tank.
I guarantee it.
I like some of their recent moves, like today when they announced that they are in talks with Vietnam for the Apple Watch and MacBook to be produced in the country.
Cutting the China risk is a big deal.
The lockdown-obsessed country is a terrible place to headquarter manufacturing operations.
Apple has deadlines to meet and shareholder value to accrue, and that’s not going to cut it when the government doesn’t allow workers to work.
Vietnam’s government and Apple most likely have a wink, wink – nod, nod agreement to chill on the overbearing lockdowns, otherwise, I cannot fathom why they would move from one lockdown-prone country to another one.
Maybe Apple management just like the Vietnamese spring rolls over the Chinese, but I bet most unlikely.
Oh yeh, almost forgot about the tax breaks, Vietnam most likely will load those up to the eyeballs to convince Apple to put factories there.
Brand name companies don’t put their resources in Podunk places for free.
Another bright spot in Apple is the massive stock buyback and large dividend.
Must love a tech company that rewards shareholders and that’s why Warren Buffet loves this gravy train.
Next, the biggest fish in the largest body of water is still churning out its prized iPhone.
Now we are onto number 14 coming to you later this winter!
Demand for the iPhone remains strong. During Apple's third quarter, revenue from this segment rose 2.8% to $40.7 billion.
Selling more iPhones isn't just a matter of generating revenue for Apple. It also helps the company grow its installed base, provided a customer not previously part of Apple's network purchases a new device. That seems to be at least part of the story, as Apple reported that its installed base reached all-time highs across all its products during its latest quarter.
The long-run implications of these developments are significant. The more people are plugged into Apple's services network, the more it can monetize these users, and the more it can grow its services revenue. During Apple's third quarter, the tech giant's services segment grew faster than the rest of its business, recording total sales of $19.6 billion, 12.1% higher than the year-ago period.
This segues nicely to more eyeballs viewing Apple ads. The annual $4 billion ad business will get upgraded as Apple plans to post more ads around its ecosystem. Ad buyers will be chomping at the bit to flood Apple’s network with ads galore. I see this as a great move to add strength to the balance sheet.
The consumer is still consuming. The top 39% of US income earners who are exposed to the stock market are responsible for 65% of consumption so it is a chicken and egg thing…they will feel like they have the license to spend because they feel wealthier.
That’s what I like because the people who cannot even afford iPhones, won’t buy the iPhone 14 and never had a chance to buy an iPhone when they are shopping at the Dollar store.
There will be zero churn here in iPhone usage and I would argue that the attrition rate becomes healthier.
True, I saw that report from Walmart about higher-income families more concerned about rising prices, but this doesn’t mean their budget will exclude the iPhone 14.
Many of these higher-income families need the iPhone 14 for work purposes and many of them have work-from-home jobs where they need an Apple device always glued to their face.
The Apple monster should keep chugging along, and out of all tech companies, this is the one to ride to profits.
Mad Hedge Bitcoin Letter
August 16, 2022
Fiat Lux
Featured Trade:
(ADOPTION IN ARGENTINA)
($BTCUSD), (WMT)
Just a short time ago, the South American country Argentina began the 20th Century as one of the ten richest countries in the world.
Its ranking in the world wasn’t that bad, comparable to that of, say, Germany today.
It had a per capita income much higher than that of Japan and Belgium and comparable to that of France.
However, that was then, and this is now.
Argentina has turned into a banana republic where a government filled with incapable politicians has grounded the country.
How did this dramatic change come about?
Well, that’s for historians to debate and I’m not a historian, but let’s talk about the current, now, and present about the dire Argentinian financial situation.
Argentina’s annual inflation surged past 70% last month at one of the fastest rates in the world after renewed political turmoil fueled price spikes and a currency rout.
It even beat Turkey out in the inflation Olympics.
Consumer prices rose 71% in July from a year ago, the highest level in about 30 years, according to government data published Thursday.
Skyrocketing prices pushed Argentina’s central bank to lift rates earlier in the day by the most in three years, raising central bank rates by 9.5% to 69.5%.
It signaled a tougher monetary stance against inflation, following another large rate hike just two weeks ago. Policymakers had been only raising rates once a month previously.
All the political turmoil added volatility to an already unstable outlook, with the black-market peso losing about 15% of its value in the month and local businesses jacking up prices 20% overnight.
To signal a tougher stance on inflation, the central bank committed to stop printing more money to finance government spending — a key factor driving inflation — for the rest of the year. However, other policies, such as removing subsidies on utility bills to improve the fiscal balance, stand to keep price increases high in the near term.
Consensus has it that inflation could break the threshold of 100% by the end of the year.
I’m not going to champion Bitcoin and crypto as the greatest thing since sliced bread.
It’s not and it’s a work in progress.
There is still a high chance that this iteration of crypto isn’t the final version of what goes mainstream.
There are just too many variables to know what will happen.
However, Argentina and its financial situation is a country that is screaming to adopt Bitcoin.
Nominally, consumers start to really suffer psychological damage when inflation and prices start climbing 25% per year.
Anything past 30% is a time when crypto really needs to be looked at by Argentinians and whoever is in a similar situation in whatever country they are in.
The chaos down south shows what could become of irresponsible financial policy down the road to rich, Western countries.
The hard cold truth is that 9.1% inflation in the United States isn’t that bad.
The Rubicon will not be crossed at these levels.
I would argue that American consumers could easily handle inflation at 20%.
Granted, the upper-middle class will start shopping at Walmart (WMT) and the Walmart shoppers will start shopping at the dollar store, but Americans can handle it.
In a broad sense, the use case for Bitcoin is really starting to become attractive in countries like Argentina, because when the government throws fiat currency under the bus like the Argentinian government, there really is no alternative but Bitcoin.
9.1% inflation is nowhere near risky when other sovereign nations are close to 100% year-over-year.
Global Market Comments
August 1, 2022
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, OR A BOMBSHELL FROM WASHINGTON)
(SPY), (TLT), ($TNX), (TSLA), (META), (MSFT), (WMT), (GM), (F)
I am writing this from the balcony of my corner suite at the historic Danieli Hotel overlooking the Grand Canal in Venice, Italy.
Every conceivable watercraft imaginable are passing by in large numbers; water taxis, Vaporettos, and even the traditional gondolas. Outside my window, I see two pilots are heatedly arguing over who should enter the side canal first.
This will be my last stay at the Danieli for a while as the 200-year-old hotel cobbled together for three 700-year-old palaces has been sold to the Four Seasons and will imminently close for a three-year gutting and remodeling.
Until Thursday, the market was reaching the top of a three-month range and was ripe to roll over for an August summer correction. Then the Democrats dropped a bombshell. They announced a blockbuster $739 billion stimulus package that will be voted on as early as this week. All of a sudden, the Biden agenda is back on just at one-third its original size.
The package breaks down as follows:
Commits $369 billion to Climate change
Renews a $7,500 tax credit for electric vehicles
Allows Medicare to negotiate prices
Adds a 15% Corporate alternative minimum tax
Reduces the Deficit by $300 billion
It all amounts to a massive stimulus package just as the US economy is entering the most modest of recessions. It also represents a Hail Mary for the Democrats to maintain congressional control.
It just might work.
Who is the biggest victim of the stimulus package? Big oil companies where an alternative minimum neatly sidesteps the oil depletion allowance which enabled them to dodge most taxes since it was passed in 1913.
Who is the biggest winner? Tesla (TSLA), which accounted for 80% of global EV production and benefits enormously from a $7,500 tax credit, is made available for low-income earners purchasing electric cars. It also allows tax credits for the purchase of used EVs for the first time. That is important for the economy as a whole, as both General Motors (GM) and Ford (F) plan to have more than 50% of their production in EVs by 2030.
Traders seemed to know this, taking Tesla shares up 50% from the June bottom and minting several new Mad Hedge millionaires along the way.
The market seemed to sense that something was in the works, even though the meetings were held in secret in a windowless basement room in the Capitol Building. The markets seemed to know something was coming. July posted the best market performance in two years, with the Dow Average up 7.69%.
This is a classic example of markets sensing major events we mere humans are blind to. My favorite example of this is the Battle of Midway, where the Japanese lost a disastrous four aircraft carriers and 350 planes, which ended on June 7, 1942. Even though the outcome was top secret and withheld from the public for months, a 20-year bull market ensued and didn’t end until the 1962 Cuban Missile Crisis.
You may have noticed that I have pulled back from my aggressive shorting of the bond market. That’s because the US budget deficit is seeing the largest decline in American history. Throw in the $300 billion promised by this week’s stimulus package, and the deficit will plunge by a staggering $1.5 trillion in 2022.
That will pay off 37.5% of the $4 trillion deficit run up by the Trump administration. As a result, ten-year US Treasury yields have plunged an eye-popping 90 basis points, from 3.5% to 2.6% in only six weeks. No wonder stocks have been so hot during the same time period.
The Fed Makes Its Move, and the market loved it, taking stocks up 436 points. Notice that the market is not letting anyone in. An increasing number of investors are coming over to my view that the S&P 500 is headed over to $4,800 by yearend. The bottom for this cycle is in. The overnight rate is now 2.25%-2.5%. The Fed is rapidly catching up with the curve. Powell left the door open to raising only 0.50% next time. The futures market is betting that we hit 3.3% this year.
The US is Officially in Recession, after reporting a slight 0.9% decline in Q2. That makes two back-to-back quarters following the 1.6% decline in Q1. The big question is are we already out, given the incredible demand seen in some sectors of the economy, like airlines, hotels, and resorts? It also looks like a big spending bill is about the pass congress.
Weekly Jobless Claims Hit 256,000, down 5,000 from the previous week. Is the recession already over?
IMF Cuts GDP Forecast, cutting its 2022 forecast from 3.6% to 3.2%. 2023 gets a haircut from 3.6% to 2.9%. The IMF is always a deep lagging indicator. Inflation, a China slowdown, and the Ukraine War are the reasons. I think largest are about to start discounting a growth resurgence.
Russia and Ukraine Sign Grain Deal, opening up the Black Sea ports for wheat exports. It’s hard to imagine how this is going to work. Two countries at war but continuing international trade? Indeed, one Russian missile hit Odessa the next day with two others shot down. Still, it was enough to drop wheat prices.
Space X Breaks Launch Record, sending 32 reusable Falcon 9’s aloft so far in 2022. The Starlink ramp-up is responsible, Elon Musk’s effort to build a global satellite WIFI network. You can already become a Starlink beta tester in the US at competitive prices.
The S&P Case Shiller National Home Price Index Sees Another Drop, from 20.6% to 19.7% in May. The closely watched figure saw only its second drop in three years. Tampa (36.1%), Miami (34%), and Dallas (30.8%) brought in the strongest gains. These are still incredible mains, meaning high mortgage interest rates have yet to make a serious dent in prices.
Pending Home Sales Fell a Staggering 20% in June, on a signed contracts basis, says the National Association of Realtors. It’s the slowest pace since June 2011. The roll-over of the real estate market has just begun, in volume, if not in price. The hottest cities like Phoenix, Tampa, and Boise are seeing the sharpest falls.
Lumber Prices are Still in Free-Fall, with lumber sales down 25% in June. Commodities are still falling, showing that the end of inflation is near. Some 10.8% of orders have been cancelled and inventories are building. Construction costs are falling too.
Russia Seizes all Foreign Leased Aircraft and re-registers them as Russian. Some 515 leased aircraft worth $10 billion are trapped in the country and are not allowed by sanctions to get spare parts. Ireland is taking the biggest hit, with 40% owned there. Why insurance covers accidents and not theft as large commercial aircraft are so rarely stolen. And 515 at once! This will be a legal headache for the ages.
Walmart Gets Crushed, with the founding Walton family taking $11.4 billion in personal losses on the $13 or 10% drop in the stock suffered yesterday. Low-end retail is not what you want to own if you think a recession is headed our way. That’s on an expected 13% decline in EPS expected for the year. Sam Walton would be rolling over in his grave.
Microsoft Misses Slightly, but the stock jumps 5% anyway as the long term buyers come in. A strong dollar punches foreign earnings in the nose. The crucial azure cloud hosting and storage business is still growing at 40% a year. Buy (MSFT) on dips and sell short the puts.
Meta (META) Post First Loss Ever in Q2, with ever weaker forecasts as Market Zuckerberg’s money machine grinds to a halt. It will take 3-5 years for the metaverse to mature to the point where the world’s largest social media platform is making money again. The required investment is overwhelming. Avoid (META).
The Wealthiest 100 Americans Lost $622 Billion Since November when the stock market topped. But they are still richer than pre-pandemic. Who was the biggest loser? My friend Elon Musk, whose stock dropped 50% from $1,200 in the first half, costing him a neat $170,000 billion personally. But it created a spectacular buying opportunity for the stock for the rest of us.
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 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 will be far more efficient and profitable than the old. Dow 240,000 here we come!
With some of the greatest market volatility in market history, my July month-to-date performance exploded to +3.98%.
My 2022 year-to-date performance ballooned to 54.83%. The Dow Average is down -11.23% 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 77.02%.
That brings my 14-year total return to 567.39%, some 2.40 times the S&P 500 (SPX) over the same period and a new all-time high. My average annualized return has ratcheted up to 44.79%, easily the highest in the industry.
We need to keep an eye on the number of US Coronavirus cases at 91 million, up 300,000 in a week and deaths topping 1,030,000 and have only increased by 2,000 in the past week. You can find the data here.
On Monday, August 1 at 7:00 AM, the ISM Manufacturing PMI for July is released. Activision Blizzard (ATVI) announces earnings.
On Tuesday, August 2 at 7:00 AM, the JOLTS Job Openings for July are out. Caterpillar (CAT) and Airbnb (ABNB) announce earnings.
On Wednesday, August 3 at 7:00 AM, ISM Manufacturing PMI for July is published. MGM Resorts (MGM) announces earnings.
On Thursday, August 4 at 8:30 AM, Weekly Jobless Claims are announced. Amgen (AMGN) and Lyft (LYFT) announce earnings.
On Friday, August 5 at 8:30 AM, the Nonfarm Payroll Report for July is disclosed. Berkshire Hathaway (BRKB) announces earnings. At 2:00 the Baker Hughes Oil Rig Count is out.
As for me, I have met many interesting people over a half-century of interviews, but it is tough to beat Corporal Hiroshi Onoda of the Japanese Army, the last man to surrender in WWII.
I had heard of Onoda while working as a foreign correspondent in Tokyo. So, I convinced my boss at The Economist magazine in London that it was time to do a special report on the Philippines and interview president Ferdinand Marcos. That accomplished, I headed for Lubang island where Onoda was said to be hiding, taking a launch from the main island of Luzon.
I hiked to the top of the island in the blazing heat, consuming two full army canteens of water (plastic bottles hadn’t been invented yet). No luck. But I had a strange feeling that someone was watching me.
When the Philippines fell in 1945, Onoda’s commanding officer ordered the remaining men to fight on to the last man. Four stayed behind, continuing a 30-year war.
As a massive American military presence and growing international trade raised Philippine standards of living, the locals eventually were able to buy their own guns and kill off Onoda’s companions one by one. By 1972 he was alone, but he kept fighting.
The Japanese government knew about Onoda from the 1950s onward and made every effort to bring him back. They hired search crews, tracking dogs, and even helicopters with loudspeakers, but to no avail. Frustrated, they left a one-year supply of the main Tokyo newspaper and a stockpile of food and returned to Japan. This continued for 20 years.
Onoda read the papers with great interest, believing some parts but distrusting others. His world view became increasingly bizarre. He learned of the enormous exports of Japanese automobiles to the US, so he concluded that while still at war, the two countries were conducting trade.
But when he came to the classified ads, he found the salaries wildly out of touch with reality. Lowly secretaries were earning an incredible 50,000 yen a year, while a salesman could earn an obscene 200,000 yen.
Before the war, there was one Japanese yen to the US dollar. In the hyperinflation that followed, the yen fell to 800, and then only recovered to 360. Onoda took this as proof that all the newspapers were faked by the clueless Americans who had no idea of true Japanese salary levels.
So he kept fighting. By 1974, he had killed 17 Filipino civilians.
After I left Lubang island, a Japanese hippy named Norio Suzuki with long hair, beads, and sandals followed me, also looking for Onoda. Onoda tracked him as he had me but was so shocked by his appearance that he decided not to kill him. The hippy spent two days with Onoda explaining the modern world.
Then Suzuki finally asked the obvious question: what would it take to get Onoda to surrender? Onoda said it was very simple, a direct order from his commanding officer. Suzuki made a beeline straight for the Japanese embassy in Manila and the wheels started turning.
A nationwide search was conducted to find Onoda’s last commanding officer and a doddering 80-year-old was turned up working in an obscure bookstore. Then the government custom-tailored a prewar Imperial Japanese Army uniform and flew him down to the Philippines.
The man gave the order and Onoda handed over his samurai sword and rifle, or at least what was left of it. Rats had eaten most of the wooden parts. You can watch the surrender ceremony by clicking here on YouTube.
When Onoda returned to Japan, he was a sensation. He displayed prewar mannerisms and values like filial piety and emperor worship that had been long forgotten. Emperor Hirohito was still alive.
When I finally interviewed him, Onoda was sympathetic. I had by then been trained in Bushido at karate school and displayed the appropriate level of humility, deference, mannerisms, and reference.
I asked why he didn’t shoot me. He said that after fighting for 30 years, he only had a few shells left and wanted to save them for someone more important.
Onoda didn’t last long in the modern Japan, as he could no longer tolerate modern materialism and cold winters. He moved to Brazil to start a school to teach prewar values and survival skills where the weather was similar to that of the Philippines. Onoda died in 2014 at the age of 91. A diet of coconuts and rats had extended his life beyond that of most individuals.
Onoda wasn’t actually the last Japanese to surrender in WWII. I discovered an entire Japanese division in 1975 that had retreated from China into Laos and just blended in with the population. They were prized for their education and hard work and married well.
During the 1990s, a Japanese was discovered in Siberia. He was released locally at the end of the war, got a job, married a Russian woman, and forgot how to speak Japanese. But Onoda was the last to stop fighting.
The Onoda story reminds me of a fact about journalists very early in their careers. You can provide all the facts in the world to someone. But if they conflict with deeply held beliefs, they won’t buy them for a second. The debate over the 2020 election outcome is a perfect example. There is no cure for this disease.
Stay healthy,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Hiro Onoda Surrenders
Budding Journalist John Thomas
