Global Market Comments
August 21, 2023
Fiat Lux
Featured Trades:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or LEARNING A NEW WORD),
(JPM), (WPM), (FCX), (OXY), (CCI)
(SPY), (TLT), (TSLA), (NVDA), ($WTIC)
CLICK HERE to download today's position sheet.
It’s not often that I learn a new word, at least in English anyway. Anyone who has read all 4,000 pages of John Steinbeck, where you are sent running for your Funk & Wagnalls on every page, shouldn’t be surprised too often. Steinbeck spent two winters house-sitting at Lake Tahoe where he memorized the dictionary cover to cover. But, last week I was.
The word in question is “disinversion.”
Disinversion happens in two ways. When bond yields fall and short yields fall much faster, you get good disinversion and stocks usually rise. This is what I expect to happen in 2024 and is why I am loading the boat with falling interest plays like banks (JPM), precious metals (WPM), commodities (FCX), energy (OXY), and REITS (CCI).
However, stock markets are insecure things, afraid of their own shadows, always shrinking from a fight, and constantly looking for new reasons to worry. Now they are also losing sleep over disinversion.
Disinversion also takes place when short rates are falling but bond yields are rising. When that happens the real estate market gets slaughtered but sky-high mortgage rates, the economy collapses and stocks fall. The good news is that bad disinversion only happens about 10% of the time.
However, a rising number of bond analysts are raising the alarm that we may be in for a dose of the bad kind of disinversion before the good kind kicks in. That could trigger a capitulation in the bond market that could take the ten-year US Treasury bond yield from the current 4.25% yield to 5.0% or even higher, and take the (TLT) down to a low of $90, or even $85. Stocks would drop 10%.
That would be a nightmare for 2024 LEAPS holder, no matter how brief it may be.
It doesn’t help that the government is borrowing now at a record pace, some $109 billion last week alone. That is why the (TLT) is probing one-year lows.
But whether bonds are inverting, disinverting, converting, or perverting, I’ll be buying two-year bond (LEAPS) if that happens. A 100% return in two years on a government bond risk sounds like a petty good deal to me, even if they are now rated only AA+, thanks to you know who. However you look at it, there is one heck of a bond trade setting up.
We may get our answer at 10:05 AM EST on Friday, August 25.
That’s when Jay Powell, the governor of the Federal Reserve, is due to be the keynote speaker at the meeting of global central bankers at Jackson Hole. Will this mark the bottom in bond prices and the top in yields?
Last year, Jay’s mumblings lasted only eight minutes and warned of “pain to come.” Pain we got, but for only two months. After that, it was nine months of pleasure in the form of straight-up stock prices.
Will Jay Powell Drop a Bomb Next Week?
Only Jay Powell knows for sure.
In the meantime, stocks will remain as dead as a doorknob and moribund, if not catatonic. Volatility ($VIX) will hug the $15 level, the “A” Team traders will remain at the Hamptons, and the number of new trades alerts emanating from me will remain precisely at zero.
There never is a profit trading when the Mad Hedge AI Market Timing Index vacillates around 50, as it is doing now. Sometimes you just get paid to wait, especially when 90-day T-bills are paying a healthy 5.25%.
So far in August, we are down -4.70%. My 2023 year-to-date performance is still at an eye-popping +60.80%. The S&P 500 (SPY) is up +17.10% so far in 2023. My trailing one-year return reached +92.45% versus +8.45% for the S&P 500.
That brings my 15-year total return to +657.99%. My average annualized return has fallen back to +48.15%, another new high, some 2.50 times the S&P 500 over the same period.
Some 41 of my 46 trades this year have been profitable.
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, August 21, BHP (BHP) and Zoom (ZM) announce earnings.
On Tuesday, August 22 at 7:00 AM EST, Existing Homes Sales for July are released.
On Wednesday, August 23 at 2:30 PM EST, the New Homes Sales are published.
On Thursday, August 24 at 8:30 AM EST, the Weekly Jobless Claims are announced. So are US Durable Goods.
On Friday, August 25 at 7:00 AM, Fed Governor Jay Powell gives his keynote speech at the Jackson Hole Central Bankers Conference. At 2:00 PM, the Baker Hughes Rig Count is printed.
As for me, I am often told that I am the most interesting man people ever met, sometimes daily. I had the good fortune to know someone far more interesting than myself.
When I was 14, I decided to start earning merit badges if I was ever going to become an Eagle Scout. I decided to begin with an easy one, Reading Merit Badge, where you only had to read four books and write one review. I loved reading, so “Piece of cake,” I thought.
I was directed to Kent Cullers, a high school kid who had been blind since birth. During the late 1940s, the medical community thought it would be a great idea to give newborns pure oxygen. It was months before it was discovered that the procedure caused the clouding of corneas and total blindness in infants.
Kent was one of these kids.
It turned out that everyone in the troop already had Reading Merit Badge and that Kent had exhausted our supply of readers. Fresh meat was needed.
So, I rode my bicycle over to Kent’s house and started reading. It was all science fiction. America’s Space Program had ignited a science fiction boom and writers like Isaac Asimov, Jules Verne, Arthur C. Clark, and H.G. Welles were in huge demand. Star Trek came out the following year, in 1966. That was the year I became an Eagle Scout.
It only took a week for me to blow through the first four books. In the end, I read hundreds to Kent. Kent didn’t just listen to me read. He explained the implications of what I was reading (got to watch out for those non-carbon-based life forms).
Having listened to thousands of books on the subject, Kent gave me a first-class education and I credit him with moving me towards a career in science. Kent is also the reason why I got an 800 SAT score in Math.
When we got tired of reading, we played around with Kent’s radio. His dad was a physicist and had bought him a state-of-the-art high-powered short-wave radio. I always found Kent’s house from the 50-foot-tall radio antenna.
That led to another merit badge, one for Radio, where I had to transmit in Morse Code at five words a minute. Kent could do 50. On the badge below, the Morse Code says “BSA.” In those days, when you made a new contact, you traded addresses and sent each other postcards.
Kent had postcards with colorful call signs from more than 100 countries plastered all over his wall. One of our regular correspondents was the president of the Palo Alto High School Radio Club, Steve Wozniak, who later went on to co-found Apple (AAPL) with Steve Jobs.
It was a sad day in 1999 when the US Navy retired Morse Code and replaced it with satellites and digital communication far faster than any human could send. However, it is still used as beacon identifiers at US airfields.
Kent’s great ambition was to become an astronomer. I asked how he would become an astronomer when he couldn’t see anything. He responded that Galileo, the inventor of the telescope, was blind in his later years.
I replied, “Good point.”
Kent went on to get a PhD in Physics from UC Berkeley, no mean accomplishment. He lobbied heavily for the creation of SETI, or the Search for Extra-Terrestrial Intelligence, once an arm of NASA. He became its first director in 1985 and worked there for 20 years.
In the 1987 movie Contact, written by Carl Sagan and starring Jodie Foster, Kent’s character is played by Matthew McConaughey. The movie was filmed at the Very Large Array in western New Mexico. The algorithms Kent developed there are still in widespread use today.
Out here in the West, aliens are a big deal, ever since that weather balloon crashed in Roswell, New Mexico in 1947. In fact, it was a spy balloon meant to overfly and photograph Russia, but it blew back on the US, thus its top secret status.
When people learn I used to work at Area 51, I am constantly asked if I have seen any spaceships. The road there, Nevada State Route 375, is called the Extra Terrestrial Highway. Who says we don’t have a sense of humor in Nevada?
After devoting his entire life to searching, Kent gave me the inside story on searching for aliens. We will never meet them but we will talk to them. That’s because the acceleration needed to get to a high enough speed to reach outer space would tear apart a human body. On the other hand, radio waves travel effortlessly at the speed of light.
Sadly, Kent passed away in 2021 at the age of 72. Kent, ever the optimist, had his body cryogenically frozen in Hawaii where he will remain until the technology evolves to wake him up. Minor planet 35056 Cullers is named in his honor.
There are no movies being made about my life…. yet. But there are a couple of scripts out there under development.
Watch this space.
Good Luck and Good Trading,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Dr. Kent Cullers
New Mexico Very Large Array
Reading Merit Badge
Radio Merit Badge
Global Market Comments
August 18, 2023
Fiat Lux
Featured Trades:
(WEDNESDAY, SEPTEMBER 6, 2023 SAN DIEGO, CALIFORNIA GLOBAL STRATEGY LUNCHEON)
(TESTIMONIAL)
(AUGUST 16 BIWEEKLY STRATEGY WEBINAR Q&A),
(SNOW), (PANW), (AMZN), (FCX), (WPM), (CCI), (GOLD), (WEAT), (JNK), (TLT), (X), (XOM), (HD), (AA), (UNG), (TSLA)
CLICK HERE to download today's position sheet.
Below please find subscribers’ Q&A for the August 16 Mad Hedge Fund Trader Global Strategy Webinar, broadcast from Silicon Valley, CA.
Q: Did you hear that Michael Burry was putting on a big short (the guy who made a fortune shorting housing in 2009)?
A: Yes, I heard that, but I never, ever trade-off of those kinds of comments. First of all, I think he’s wrong; and often, what happens in those situations is you hear about them going into the trade, but you never hear about them getting out, which might be tomorrow or next week. Also, there’s a nasty habit of big hedge fund managers telling you the opposite of what they’re actually doing. We hear big hedge fund traders like Bill Ackman getting super bearish at market bottoms, and then a few months later learn that they were buying with both hands, as was the case with the pandemic bottom. Be careful about other people’s opinions—they can be hazardous to your wealth. Just look at the data and the facts. That’s what I do.
Q: Would you buy Snowflake (SNOW) around current prices?
A: Yes—first of all Snowflake is a Warren Buffet favorite, which I always tend to follow. However, Warren can wait 5 years for a stock to work, and you can’t. So, I would wait for a bigger dip before getting into SNOW. So far, we are down 25% from the recent peak. One thing’s for sure, cybersecurity is a long-term winner, as seen by the ballistic move in Palo Alto Networks (PANW) since we started recommending it about 8 years ago.
Q: Why are US consumers so strong, and will that hold up for the rest of 2023?
A: US consumers are so strong because they banked so much money during 10 years of QE and all the pandemic stimulus, that they have a lot saved. They are now happy to spend to make up for the spending they couldn’t do during the pandemic. They’re basically in spending catch-up mode or revenge spending.
Q: How far do you see the iShares 20 Plus Year Treasury Bond ETF (TLT) go?
A: My worst-case scenario has it going to $90 down from $94—that’s a yield of about 4.50%. And that's where a lot of bond investors see fair value, and will start piling in. But as long as the momentum is against it, I’m not touching it. As soon as I am convinced there is a real bottom in the (TLT), I’m going to jump in with both hands and buy long-term LEAPS, where you can get a 100% or 200% return pretty quickly.
Q: Time to buy the Tesla (TSLA) dip?
A: We’re getting close. My guess is you might get a spike down to $200 from the recent $300 high. That’s also going to be LEAPS territory for us because the long-term outlook for this company is spectacular.
Q: What do you think of Freeport McMoRan (FCX), Silver (WPM), and United States Natural Gas Fund (UNG)?
A: I think they are all strong buys; I have LEAPS out on all of them. I think we start to get a big move in the 4th quarter of this year that’ll go well into next year—so big money just sitting on the table begging for you to take it.
Q: What are we to make of the crash of the Chinese Yuan?
A: The Chinese economy is weak and looks like it’s getting weaker. They still have a pandemic hangover. We don’t know what their real pandemic numbers are—they adopted our pandemic policy 2 years after we did, and they’re suffering as a result. They also insist on using their own vaccine, Sinovac, for nationalist reasons which is only 30% effective. But, when the Chinese economy does come back on stream, that’ll be the gasoline on the fire for the global economy, and that’s why we like commodities, industrials, energy, and so on.
Q: What does an 8% mortgage rate mean for the housing sector?
A: It is a disaster. I don’t think prices will drop very much—it’ll just cease all new buying because nobody qualifies for an 8% mortgage. They are going to either be only cash buyers out there or people waiting for the next drop in interest rates, and we’re already seeing that with the mortgage rate at 7.24%. If we do get a move up to 8%, it’ll just be a short-term spike that won’t last very long.
Q: Aren’t high-interest rates pushing rents higher?
A: Yes, absolutely. Since people can’t afford to buy houses, they are renting until they can, which pushes rental prices up and adds to the inflation numbers.
Q: When do you think the tech sector will rebound? It’s had a really bad three weeks.
A: End of August or sometime in September. I think. When people come back from the beach, they’re going to look at the long-term future of these companies and think “holy smokes,” why don’t I own more of these?” And we may even be doing LEAPS at high prices, which I almost never do, but the growth rate in tech next year is looking to be spectacular, and I think if we do a conservative at-the-money, we should at least double our money in a few months, similar to how US Steel (X) LEAPS did.
Q: Is Amazon (AMZN) a buy? They’re starting to develop their pharmacy rather well.
A: Yes, Amazon is on the buy list—it’s already up 50% this year. Jassy, the new CEO, is doing a great job. They also have a massive investment in AI which they can monetize anytime they want, and online pharmacies are a great place to start. They’ve been talking about doing that for at least 10 years.
Q: Are gold (GLD), wheat (WEAT), and precious metals a buy?
A: Yes, those are all strong buys on the dip.
Q: What about Tesla (TSLA) LEAPS?
A: Yes Tesla is definitely a LEAPS candidate $30 down from where it is now.
Q: What about Crown Castle International (CCI)?
A: CCI took a major hit from Verizon, canceling a contract with them (which is their biggest customer), so I want to wait for that to digest before I do anything yet. However, we are definitely approaching “BUY” territory; I think the yield is up to about 6.5% now.
Q: Should I take profits on the next jump up in United States Steel Corporation (X)?
A: Yes, it’s not worth hanging on 16 more months to maturity when there’s only 30% of the profit left. And, if all the takeover bids fail for some reason, the stock goes back to $20, and then your LEAPS becomes worthless. So, I would take profits; 100% profit in 2 months is nothing to turn up your nose at.
Q: How confident are you in (TLT) going to $110 by the end of the year?
A: Very confident; by then we will start seeing more hints of Fed interest rate cuts, inflation should be lower, and Goldman Sachs is in fact forecasting that the first rate cut will happen in March. So you’ll certainly start discounting that in the (TLT) by December. We could see the high in yields and the low in prices at the central bankers conference in Jackson Hole next week.
Q: What do you think about cruise lines and hotels right now?
A: The business is great, they’re all packed. However, during the pandemic, these sectors had to take on massive amounts of debt to keep from going under when their ships were tied up with zero revenue for two years; same with the hotels. So, the balance sheets are terrible in all of these areas including airlines. That’s why I’ve been avoiding them, too many better plays. Don’t go away from your core trades looking for trouble.
Q: When do we finally start seeing the Fed stop raising rates?
A: I think they already have; I think the most recent rate rise was the last one. If I’m wrong, they’ll do one more quarter—it’s totally dependent on the numbers.
Q: Won’t falling rates be bullish for bonds and gold?
A: Yes, that's why we’re buying them; but I’m waiting on the bond LEAPS—I want to see a firm bottom before getting back in there. 2024 will be all about falling interest rates plays.
Q: What’s causing the volatility in the United States Natural Gas Fund (UNG)?
A: A Strike in Australia, collapsing supplies in Europe (where prices are up 40%), and expectation of a global economic recovery in China. Ultimately, it’ll be China that takes this thing up to $10, $12, or $14 for the UNG, but you need them to recover first. That’ll probably happen next year, which is why we have the two-year LEAPS on there.
Q: With junk (JNK), have we seen the high rates?
A: Yes. If not, we’re very close, so it’s worth starting to scale in here.
Q: Should I short Home Depot (HD), as US consumers are holding back on home upgrades?
A: No, you should not short anything because you’re going against a long-term bull market trend that probably continues for another 10 years. So, any shorts should be measured in days and not weeks.
Q: Should I start chasing oil, because it’s been on quite a run, and should I buy Exxon (XOM)?
A: Yes, if we get an economic recovery next year, oil goes over 100 easily and will take all the oil companies up with it.
Q: Is (UNG) a domestic or foreign gas ETF?
A: It’s mostly domestic, and it’s a mix of the top natural gas producers in the US.
Q: Are the BRIC countries going to bring down the dollar?
A: You’ve got to be out of your mind. Would you rather store your money in China and Indonesia or the US? That’s your choice. I know there’s a lot of internet conspiracy theories out there—I get about a question a day on this. It’s Never going to happen; not in my lifetime. But it does attract internet traffic, which is the purpose of putting out these ridiculous stories like a BRIC-engineered digital currency replacing the dollar as a reserve currency. It’s just clickbait.
Q: Why is there a short squeeze in copper?
A: EV production is going from 2 million to 10 million a year in 2030, and every EV needs 200 pounds of copper. By the way, there are now 527 EV models on the market, but only one company makes money doing this, and that’s Tesla (TSLA).
Q: We’ve been waiting for a recession in the US for years, and US consumers are still going strong. What gives? I want rates to drop so I can invest in real estate again.
A: Well, yes. This recession has been predicted for 2 years. The problem is we have a certain political party telling us every day that the economy is the worst it’s ever been when, in actuality, the health of the economy is amazingly strong, and certainly the strongest economy in the world. So, I don't think we get a real recession until well into the 2030s because of massive technological development and a huge demographic tailwind—that’s an absolute winning combination, last seen in the 1990s. Plus, now we have AI accelerating everything. So, look at the numbers; don’t listen to opinions. Opinions can be fatal to your wealth.
Q: Does the use of an adjustable-rate loan make sense for the purchase of a second home?
A: Yes, it does. During the great interest rate spike of the 1980s, I bought my home in New York with an adjustable-rate loan. The initial interest rate was 18%, but when rates dropped to 11%, the value of the home tripled. Not a bad trade—and I bet the same kind of opportunity is out there now, provided you can get another adjustable-rate loan. By the way, in Europe, they only have adjustable-rate loans. The 30-year fixed anomaly only exists in the US and Canada because you have the US government as the unlimited buyer of last resort for 30-year fixed mortgages.
Q: Thoughts on other steel companies and aluminum?
A: I like them all. The country needs 200,000 miles of new long-distance transmission lines to accommodate the electrification of the economy, and those are all made out of aluminum except for the last mile—most people don’t know that. Buy Alcoa (AA).
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
Global Market Comments
August 14, 2023
Fiat Lux
Featured Trades:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or THE GREAT ROTATION OF 2023 IS ON)
(AAPL), (TSLA), (NVDA), (GOOGL), (OXY), (QQQ),
(TSLA), (WPM), (UNG), (BRK/B), (RIVN), (TLT)
CLICK HERE to download today's position sheet.
What a difference a vacation makes!
When I boarded the Queen Mary II in early July, big technology stocks (AAPL), (TSLA), (NVDA), (GOOGL) were on fire and knew no bounds, while bonds (TLT) were holding steady at a 3.40% yield. Energy stocks (OXY) were scraping the bottom.
One month later and big tech is in free fall while energy, commodities, and precious metals have taken over the lead. Bonds are probing for new lows at a 4.20% yield and may have another $5.00 of downside.
The Great Rotation of 2023 has begun!
The only question is how long it will last.
I happen to believe that we are into a traditional summer correction that could last until the usual September or October bottom. That is when I will be picking up long-term bull LEAPS with both hands. After that, it’s off to the races once again to new all-time highs once again.
Except that this time, everything will go up, both big tech, the domestics recovery plays, and bonds. That’s because they will be discounting the next great market mover, several successive cuts in interest rates by the Federal Reserve certain to take place in 2024.
We all know that markets discount market-moving developments six to nine months in advance. That means you should start buying about….September or October.
Perhaps the best question asked at my many strategy luncheons this summer came from a dear old friend in London. “Where is all the money coming from to pay for all this”? The answer is, well complicated. I’ll give you a list”
1) All of the Quantitative Easing money created since 2008, some $10 trillion worth, is still around. It is just sleeping in 90-day T-bills.
2) With inflation basically over, thanks to hyper-accelerating technology and collapsing energy prices, the case for the Fed to stop raising and start cutting interest rates is clear.
3) Falling interest rates trigger a collapse in the US dollar.
4) Earnings at big tech companies explode, which earn about half of their revenues from abroad.
5) The falling interest rate sectors are also set alike. These include energy, commodities, precious metals, and bonds.
6) A cheap greenback pours gasoline on the economy.
7) The $1 trillion in stimulus approved last year provides the match as most of it has yet to be spent.
8) China finally recovers and turbocharges all of the above trends.
9) 2024 is a presidential election year and the economy always seems to do mysteriously well going into such events.
10) All we are left to do is sit back and watch all our positions go up, figure out how we are going to spend all that money, and sing the praises of the Mad Hedge Fund Trader.
So far in August, we are down -4.70%. My 2023 year-to-date performance is still at an eye-popping +60.80%. The S&P 500 (SPY) is up +17.10% so far in 2023. My trailing one-year return reached +92.45% versus +8.45% for the S&P 500.
That brings my 15-year total return to +657.99%. My average annualized return has fallen back to +48.15%, some 2.50 times the S&P 500 over the same period.
Some 41 of my 46 trades this year have been profitable.
The Nonfarm Payroll drops to 187,000 in July, a one-year low, less than expectations. The Headline Unemployment Rate returned to 3.5%, a 50-year low. The soft-landing scenario lives! That’s supposed to be impossible in the face of 5.25% interest rates. Average hourly earnings grew at a restrained 3.6% annual rate. Half of the new jobs were in health care. At the rate we are aging, that is no surprise.
Rating Agencies Strike Again, with Moody’s threatened downgrade of a dozen regional banks. Stocks took it up on the nose giving up Monday’s 400-point gain. Higher funding costs, potential regulatory capital weaknesses, and rising risks tied to commercial real estate are among strains prompting the review, Moody’s said late Monday. The summer correction is finally here.
Berkshire Hathaway Post Record Profit, with profits up 38% and interest and other investment income growing sixfold as Warren Buffet’s trading vehicle goes from strength to strength to strength. Sky-high interest rates enabled its Geico insurance holding to really coin it this time. Buffet turns 93 this month. Keep buying (BRK/B) on dips. Our LEAPS are looking great, up 327% in 11 months.
Rivian Beats, losing only $1.08 a share versus an expected $1.41. The stock jumped 3% on the news. The gross profit per vehicle showed a dramatic improvement at $35,000. The production forecast edged up from 50,000 to 52,000 vehicles for 2023. Momentum is clearly improving making our LEAPS look better by the day. Buy (RIVN) on dips as the next (TSLA).
Deflation Hits China, as the post-Covid recovery continues to lag. Their Consumer Price Index fell 0.3% YOY. Imports and exports are falling dramatically as trade sanctions bite. Youth unemployment hit a new high as 11.6 million new college grads hit the market. Global commodities could get hit but so far the stocks aren’t seeing it. Avoid anything Chinese (FXI), even the food.
Inflation Jumps, 0.2% in July and 3.2% YOY. Rents, education, and insurance (climate change) were higher while used cars were down 1.3% and airfares plunged by 8.1%. Stocks rallied on the small increase preferring to focus on the smallest back-to-back increase in two years. Bonds (TLT) rallied big. The big question is what will the Fed do with this?
Weekly Jobless Claims came in at a strong 278,000, showing the Fed’s high-interest rate policy is having an effect on the jobs market. Stocks want to know how much longer it will last.
Natural Gas Soars to a new high and accomplished an upside breakout on all charts. European gas prices have just jumped 40%. An Australian strike shut down an LNG export facility. Energy traders are looking for higher highs. My (UNG) LEAPS, a Mad Hedge AI pick, are looking great, doubling off our cost in two months.
Biden Cracks Down on Technology Investment in China, especially on our most advanced tech which can be used in weapons development. Tech investment in the Middle Kingdom is already down 70% over the last two years. No point in selling China the rope with which to hang us.
Home Mortgage Rates Hit a 22-Year High, at 7.08%. But the existing home market is heating up and the new home market is absolutely on fire in anticipating of a coming rate fall. You can’t beat a gale-force demographic tailwind.
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, August 14 at 8:00 AM EST, the US Consumer Inflation Expectations are out,
On Tuesday, August 15 at 8:30 AM, US Retail Sales are released.
On Wednesday, August 16 at 2:30 PM, the US Building Permits are published.
On Thursday, August 17 at 8:30 AM, the Weekly Jobless Claims are announced.
On Friday, August 18 at 2:00 PM, the Baker Hughes Rig Count is printed.
As for me, occasionally, I tell close friends that I hitchhiked across the Sahara Desert alone when I was 16 and I am met with looks that are amazed, befuddled, and disbelieving, but I actually did it in the summer of 1968.
I had spent two months hitchhiking from a hospital in Sweden all the way to my ancestral roots in Monreale, Sicily, the home of my Italian grandfather. My next goal was to visit my Uncle Charles who was stationed at the Torreon Air Force base outside of Madrid, Spain.
I looked at my Michelin map of the Mediterranean and quickly realized that it would be much quicker to cut across North Africa than hitching all the way back up the length of Italy, cutting across the Cote d’Azur, where no one ever picked up hitchhikers, then all the way down to Madrid, where the people were too poor to own cars.
So one fine morning found me taking deck passage on a ferry from Palermo to Tunis. From here on, my memory is hazy and I remember only a few flashbacks.
Ever the historian, even at age 16, I made straight for the Carthaginian ruins where the Romans allegedly salted the earth to prevent any recovery of a country they had just wasted. Some 2,000 years later it, worked as there was nothing left but an endless sea of scattered rocks.
At night, I laid out my sleeping bag to catch some shut-eye. But at 2:00 AM, someone tried to bash my head in with a rock. I scared them off but haven’t had a decent night of sleep since.
The next day, I made for the spectacular Roman ruins at Leptus Magna on the Libyan coast. But Muamar Khadafi pulled off a coup d’état earlier and closed the border to all Americans. My visa obtained in Rome from King Idris was useless.
I used to opportunity to hitchhike over Kasserine Pass into Algeria, where my uncle served under General Patton in WWII. US forces suffered an ignominious defeat until General Patton took over the army 1n 1943. Some 25 years later, the scenery was still littered with blown-up tanks, destroyed trucks, and crashed Messerschmitts.
Approaching the coastal road, I started jumping trains headed west. While officially the Algerian Civil War ended in 1962, in fact, it was still going on in 1968. We passed derailed trains and smashed bridges. The cattle were starving. There was no food anywhere.
At night, Arab families invited me to stay over in their mud brick homes as I always traveled with a big American Flag on my pack. Their hospitality was endless, and they shared what little food they had.
As a train pulled into Algiers, a conductor caught me without a ticket. So, the railway police arrested me and on arrival took me to the central Algiers prison, not a very nice place. After the police left, the head of the prison took me to a back door, opened it, smiled, and said “si vou plais”. That was all the French I ever needed to know. I quickly disappeared into the Algiers souk.
As we approached the Moroccan border, I saw trains of camels 1,000 animals long, rhythmically swaying back and forth with their cargoes of spices from central Africa. These don’t exist anymore, replaced by modern trucks.
Out in the middle of nowhere, bullets started flying through the passenger cars splintering wood. I poked my Kodak Instamatic out the window in between volleys of shots and snapped a few pictures.
The train juddered to a halt and robbers boarded. They shook down the passengers, seizing whatever silver jewelry and bolts of cloth they could find.
When they came to me, they just laughed and moved on. As a ragged backpacker, I had nothing of interest for them.
The train ended up in Marrakesh on the edge of the Sahara and the final destination of the camel trains. It was like visiting the Arabian Nights. The main Jemaa el-Fna square was amazing, with masses of crafts for sale, magicians, snake charmers, and men breathing fire.
Next stop was Tangiers, site of the oldest foreign American embassy, which is now open to tourists. For 50 cents a night, you could sleep on a rooftop under the stars and pass the pipe with fellow travelers which contained something called hashish.
One more ferry ride and I was at the British naval base at the Rock of Gibraltar and then on a train for Madrid. I made it to the Torreon base main gate where a very surprised master sergeant picked up a half-starved, rail-thin, filthy nephew and took me home. Later, Uncle Charles said I slept for three days straight. Since I had lice, Charles shaved my head when I was asleep. I fit right in with the other airmen.
I woke up with a fever, so Charles took me the base clinic. They never figured out what I had. Maybe it was exhaustion, maybe it was prolonged starvation. Perhaps it was something African. Possibly, it was all one long dream.
Afterwards, my uncle took for to the base commissary where I enjoyed my first cheeseburger, French fries, and chocolate shake in many months. It was the best meal of my life and the only cure I really needed.
I have pictures of all this which are sitting in a box somewhere in my basement. The Michelin map sits in a giant case of old, used maps that I have been collecting for 60 years.
Mediterranean in 1968
Stay healthy,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Global Market Comments
August 3, 2023
Fiat Lux
SPECIAL PRECIOUS METALS ISSUE
Featured Trades:
(WHAT’S UP WITH GOLD?),
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(THE ULTRA BULL CASE FOR GOLD)
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Global Market Comments
January 23, 2023
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or WHERE IS THE BEAR MARKET?),
(GOLD), (GLD), (WPM), (SLV), (BRK/B), (TSLA), (OXY)
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The Pivot has started.
Not by the Fed, which is not expected to begin lowering interest rates by the summer or fall.
It's the stock market that has pirouetted, from bear to bull last October. The higher stocks rise in this miraculous, coming-from-nowhere rally, the more credibility this rally gains.
If a new bull market has well and truly begun, then there are an awful lot of portfolios out there that have the wrong stocks. Repositioning this late in the game could take the indexes to new all-time highs by yearend.
Some portfolio managers are whistling past the graveyard right now.
The Fed pivot may also take place ahead of schedule. The marketplace has shaved the February 1 interest rate hike from 50 basis points to only 25, which explains stocks’ recent virility.
My trading performance certainly shows the possibilities, which so far has tacked on a robust +20.65%. My 2023 year-to-date performance is the same at +20.65%, a spectacular new high. The S&P 500 (SPY) is up +1.86% so far in 2023.
It is the greatest outperformance on an index since Mad Hedge Fund Trader started 15 years ago. My trailing one-year return maintains a sky high +107.27%.
That brings my 15-year total return to +617.84%, some 2.8 times the S&P 500 (SPX) over the same period and a new all-time high. My average annualized return has ratcheted up to +47.22%, easily the highest in the industry.
Last week, I rode into the Friday options expiration with my 5X weighting in bonds, as well as additional longs in (TSLA), (GOLD), (WPM), and (BRK/B). Both my remaining positions are profitable, including longs in (TSLA) and (OXY) with 80% cash for a 20% net long position.
Stocks are not the only asset class on a tear because of an earlier than expected Fed easing.
Precious metals have been going virtually straight up. For the first time since the US went off the gold standard 50 years ago, gold (GLD) outperformed the S&P 500 in Q4, and silver (SLV) did even better.
Not only does gold benefit from falling inflation and interest rates, the end of the Fed’s quantitative tightening (QT) will provide a further steroid shot as well.
Sanctions against Russia and China have sent central bank purchases of the barbarous relic to new all-time highs. And you might speculate that the possible Russian use of nuclear weapons is also driving your gold northward, but you would be wrong. You may find this shocking, but Ukraine has their own nukes and if Russia attacked, Moscow would be radioactive that week.
The bottom line here is that the yellow metal could well remain strong all year and be a top performer.
Bonds continued their on again, off again rally. The prospects of falling interest rates pushes them up and then fears of a summer default push them back down again, some $2.50 for the (TLT) last week.
One thing is certain. If the Treasury is pushed into default the Fed definitely WILL NOT be raising interest rates. They won’t need to crush the economy. The House of Representatives will be doing their job for them.
The least appreciated piece of news last week was the report that China’s population fell for the first time in 50 years, thanks to a massive famine. I remember it like it was yesterday as I was there. Believe me, there are no substitutes for food. It took me a king’s ransom and some banned western books just for me to procure a single egg.
This will affect us all as there will be a sudden shortage of customers in the global economy in about 20 years. You may think that 20 years is a long time off, but the best run companies will start planning and investing for this now.
If you don’t think a shrinking population is bad for business, just ask Japan, where they’re not making Japanese anymore. Japan has suffered the worst performing stock market for the last 32 years and is still showing a negative return.
That was a nice bail!
Remember, demographics is destiny. Check out the population pyramid charts below.
The Fed May Retreat to 25 Basis Point, in their February 1 rate hike, according to a Reuters poll. It might explain why stocks have been so hot in January.
Treasury Secretary Warns of Coming US Bond Default, saying the government runs out of money by June. Bonds plunged $2.00 on the news. The House of Representatives need to raise the debt ceiling before then, or the Treasury will cease paying interest on the $31.4 trillion national debt. This is for money already spent by administrations going back to the 1980’s. Rising interest rates have already taken America’s debt service from 5% to 10% of the total budget.
This Year Won’t Be as Bad as Last, or so hope the bulls that have been piling into stocks since January 3. The weakness in tech stocks actually understates the ballistic moves in value, metals, and financial stocks, which Mad Hedge is long. Things are better than they appear. That’s what six months of deflation will do.
China Reopening Accelerates and may well head off a global recession. Letting everyone get covid and achieving heard immunity turned out to be the key. It’s demolished the entire January selloff scenario.
Wholesale Prices Drop 0.5% in December versus an expected 0.1% in another big step toward the unwind of inflation. The energy sub index fell by 7.9%. I am looking like a 4% inflation rate by yearend.
Builder Sentiment Rose 4 Points in December according to the National Association of Homebuilders. It’s the first positive data point for housing in ages. Could this be the beginning of the big turn?
Mortgage Rates Plunge to 6.04% for the 30-year fixed, sparking a 28% gain week to week. A massive rally in the bond market is the big incentive, taking ten-year Treasury bonds to 6.37%, a new five month low. Inventory remains low. Mortgage rates could easily shed another 100 basis points by summer just on falling to the traditional premium over Treasuries, which is why housing stocks like (LEN), PHM), and (KBH) have been on fire.
Business Inventories up 0.4%, right in line with expectations. Retail Sales are falling, as is Consumer Spending. Department store sales were down 6.5%, once unimaginable to see during the Christmas season.
Netflix Blows it Away with 6.7 million new subscribers., taking the stock up 7%, and 125% from the May low. It’s proof that the FANG’s are not dead yet and that the predicted Q4 earnings shortfall may be overstated. CEO Reed Hastings semi-retires. Don’t touch (NFLX) as this train has left the station. There are better fish to fry.
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, January 23 nothing of note is announced. Baker Hughes (BKR) reports earnings from the oil patch.
On Tuesday, January 24 at 8:45 AM EST, the S&P Global PMIs for December is out. Johnson & Johnson (JNJ) and Microsoft (MSFT) report earnings.
On Wednesday, January 25 at 7:30 AM, the Crude Oil Stocks are announced. Tesla (TSLA) and Boeing (BA) report earnings.
On Thursday, January 26 at 8:30 AM, the Weekly Jobless Claims are announced. Retail Sales for November are printed. We also get US Q4 GDP. Visa (V) and Intel (INTC) report earnings.
On Friday, January 27 at 5:30 AM, the Personal Income & Spending for December is disclosed. American Express (AXP) and Chevron (CVX) report earnings. At 2:00, the Baker Hughes Oil Rig Count is out.
As for me, I didn’t know what to expect when I landed on the remote South Pacific Island of Yap in 1979, one of the Caroline Islands, but I was more than pleasantly surprised.
Barely out of the Stone Age, Yap lies some 3,000 miles west of Hawaii. It was famed for the ancient lichen covered stone money that dotted the island which had no actual intrinsic value.
The value was in the effort that went into transporting them. With some cylindrical pieces larger than cars, geologists later discovered that they had been transported some 280 miles by outrigger canoe from the point of origin sometime in the distant past. Since Yap had no written language, there are no records about them, only folktales.
I often use the stone money of Yap as an example of the arbitrariness of fiat money. Who’s to say which is more valuable; a 500-pound piece of rock or a freshly printed $100 Benjamin from the US Treasury?
You decide.
The natives were a gentle and friendly people. They wore grass skirts purely for the benefit of Western visitors. They preferred to walk around as nature made them.
There was no hotel on the island at the time, so I was invited to stay with a local chief (picture below).
One of my hosts asked if I was interested in seeing a Japanese zero fighter. Yap wasn’t invaded by the US during WWII because it was bypassed by MacArthur on his way to the Philippines. The Japanese troops were repatriated after their war, but most of their equipment was left behind. It was still there.
So it was with some anticipation that I was led to a former Japanese airfield that had been abandoned for 35 years. There, still in perfect formation, was a squadron of zeroes. The jungle had reclaimed the field and several planes had trees growing up through their wings.
The natives had long ago stripped them of anything of value, the machine guns, nameplates, and Japanese language instruments. But the airframes were still there exposed to the elements and too fragile to move.
During my stay, I came across an American Peace Corp volunteer desperate for contact with home. A Jewish woman in her thirties, she had been sent there from New York City to teach English and seemed to have been forgotten by the agency.
I volunteered for the Peace Corps. myself out of college, but it turned out they had no need of biochemists in Fiji, so I was interested in learning about her experience. She confided in me that she had tried wearing a grass skirt to blend in but got ants on the second day. We ended up spending a lot of time together and I got a first-class tour of the island.
Suffice it to say that she was thrilled to run into a red-blooded American male. I wish I had taken a picture of her, but the nearest color film processing was back in Honolulu, and I had to be judicious in my use of film.
The highlight of the trip was a tribal stick dance put on in my honor around an evening bonfire among much yelping and whooping. It was actually a war dance performed with real war clubs and their furiousness was impressive.
I had the fleeting thought that I might be on the menu. Cannibalism had been practiced here earlier in the century. During the war when starvation was rampant, several of the least popular Japanese soldiers went missing, their bodies never found. When men come screaming at you with a club in the night, your imagination runs wild.
Alas, I could only spend a week on this idyllic island. I was on a tight schedule courtesy of Air Micronesia, and deadlines beckoned. Besides, there was only one plane a week off the island.
It was on to the next adventure.
A Few New Friends
Large Denomination Stone Money
My Accommodation
A Neglected Japanese Zero
China
Japan
US
Global Market Comments
January 17, 2023
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or GOING AGAINST THE CONSENSUS),
(TLT), (MUB), (JNK), (HYG), (GLD), (SLV), (GOLD), (WPM), (FCX), (BHP), (EEM), (MS), (GS), (JPM), (BAC), (C), (BRK/B), (SPY), (QQQ), (IWM), (VIX)
