This certainly is an October without stock market precedence.
Instead of a crash and revisit to a Volatility Index ($VIX) in the thirties, here we are at all-time highs for the Dow ($INDU), the S&P 500 (SPY), and the ($VIX) at $20. NASDAQ is a hair’s breadth from new highs. All indexes are on track to meet my lofty one-year targets.
So why is this happening? Why did the perennial October crash do a no-show?
My argument all along has been that the investor base is wildly underestimating the impact of technology in general and AI specifically. It seems that every earnings announcement in the industries I care about delivers an upside surprise.
But there is another factor.
The Great Unknown in 2024 is the presidential election, with the public polls in a dead heat. The closer this election gets, the more this uncertainty disappears. The great majority of investing institutions are holding on to usual amounts of cash, which they will not commit until the election is decided, whenever that is.
With the data undeniably showing that the US has the strongest major economy in the world, there may be a post-election melt-up in share prices. And let me tell you one more thing. Of the 6,000 followers of the Mad Hedge Fund Trader that I speak to on a daily basis, some 90% are Republican. I can pass on to you what they are telling me, and that is that the election was actually decided months ago.
No uncertainty here.
We are starting to see the election having an actual impact on the economy. Delta Airlines (DAL) last week gave a warning that earnings would be impaired this quarter due to an election-driven postponement of travel. Companies are delaying action on capital spending as well. With the policies between the two parties so diametrically opposed, the election outcome can make a big difference whether you invest or not.
What this sets up is a slowdown now and a speedup post-election. The stock market is watching this carefully.
In what was the most hyped corporate event of the year, Elon Musk finally brought out his Tesla Robotaxi (TSLA). The shares had risen 40% in expectation of the show.
For sheer entertainment value, he did not disappoint, delivering a sophisticated production worthy of the Hollywood where it took place. He brought 50 Robotaxis with him to give rides to party guests in a Warner Brothers simulated city. Musk, who arrived at the stage in one of the robotaxis - called a Cybercab - said production will start in 2027.
They will cost 20 cents a mile to operate. The vehicle will eventually be for sale for under $30,000. Optimus robots served drinks, and the entire event was covered by video drones. The Robotaxis uses Inductive charging, where they just park over the pad, and it gets wirelessly recharged.
While Elon certainly can put on a show, hard data on future sales and profits were completely missing in action. Nor was there any news about the next generation Model 2, thought to be the next leapfrog in Tesla profits. With profits for the project not arriving until 2028, it all amounted to a 19% SELL from the recent $265 high.
This sets up a new test of the $202 moving average best case and the old $170 low worse case. Long term, we go to new highs as the AI value of the company is realized. The company is making progress on all its products. One drag on the stock will be Musk’s new bromance with Donald Trump. Your classic Tesla EV buyer is not exactly a Trump supporter.
We closed out September with a blockbuster +10.28% profit. So far in October, we have given back -1.49%. My 2024 year-to-date performance is at +43.75%. The S&P 500 (SPY) is up +21.59% so far in 2024. My trailing one-year return reached a nosebleed +62.24. That brings my 16-year total return to +720.38%. My average annualized return has recovered to +52.06%.
With my Mad Hedge Market Timing Index at the 70 handles for the first time in five months, I am remaining cautious with 50% and 50% cash. I added a new long in (TSLA) on the post-Robotaxi 15% selloff. I also added a new long in (JPM) in the wake of their blockbuster earnings report. Some three of my five positions expire on the Friday, October 18 options expiration.
Some 63 of my 70 round trips, or 90%, were profitable in 2023. Some 58 of 74 trades have been profitable so far in 2024, and several of those losses were really break-even. Some 16 out of the last 19 trade alerts were profitable. That is a success rate of +78.78%.
Try beating that anywhere.
Risk On
(NEM) 10/$47-$50 call spread 10.00%
(TSLA) 10/$200-$210 call spread 10.00%
(DHI) 10/$165-$175 call spread 10.00%
(TSLA) 11/$165-$175 call spread 10.00%
(JPM) 11/$195-$205 call spread 10.00%
Risk Off
NO POSITIONS 0.00%
Total Net Position 50.00%
Total Aggregate Position 50.00%
CPI Comes in Warm at 0.3% for September and 2.4% YOY. Food was up, and shelter was down. Inflation is dying, but not dead. Coming on the heels of the surprisingly strong September employment data, this report encourages the Fed to maintain a cautious stance with the pace of the easing cycle. The likely path is still a quarter-point rate cut in November and another December quarter-point cut.
PPI Comes in Flat and up 1.8% YOY. A 0.2% decline in final demand goods prices offset a 0.2% increase in services. The release indicates that inflation is off its blistering pace that peaked more than two years ago but still mostly holds slightly above the Federal Reserve’s 2% target.
Weekly Jobless Claims Come in Hot at 258,000, the biggest weekly jump in three years. Initial claims for state unemployment benefits increased 33,000 last week to a seasonally adjusted 258,000 for the week ended October. 5, the Labor Department said. The number of Americans filing new applications for unemployment benefits surged last week, partially boosted by Hurricane Helene and furloughs at Boeing (BA) amid a nearly four-week-old strike at the U.S. planemaker. It’s a very pro-interest rate cut number.
Hurricane Milton Damage Estimated at $75 billion, less than expected. The storm backed off to a category 3 just before it hit land. Tampa lost its football stadium. The shutdown of the Florida economy, 5% of the US total, will likely shave a couple of basis points off Q3 GDP.
Junk Bond Yields Hit 17-Year Low, on top of a monster rally this year powered by yield-hungry investors. Default rates on this misnamed asset class are generally less than 2%.
Rio Tinto Buys Arcadium for $6.7 Billion in a bid to become one of the world’s largest lithium producers. The deal delivers a suite of lithium filtration technologies that are poised to revolutionize how the metal is produced for the electronics and electric vehicle industries. It’s a big bet on the recovery of fading EV sales. Follow the big money,
Money Pours into Gold ETFs, with five consecutive months of inflows. Gold ETFs store bullion for investors and account for a significant amount of investment demand for the precious metal that touched a record high of $2,685.42 an ounce on Sept. 26, buoyed by the start of U.S. interest rate cuts. Buy (GLD) and (NEM) on dips.
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 is decarbonizing, and technology hyper accelerating, creating enormous investment opportunities. The Dow Average will rise by 600% 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, October 14 at 8:30 AM EST, the New York Empire State Manufacturing Index is out
On Tuesday, October 15 at 6:00 AM, the New York Empire State Manufacturing Index is out.
On Wednesday, October 16 at 11:00 PM, the MBA 30-Year Mortgage Rate is printed.
On Thursday, October 17 at 8:30 AM, the Weekly Jobless Claims are announced. We also get US Retail Sales.
On Friday, October 18 at 8:30 AM, the US Building Permits are announced. At 2:00 PM the Baker Hughes Rig Count is printed.
As for me, I was recently in Los Angeles visiting old friends, and I am reminded of one of the weirdest chapters of my life.
There were not a lot of jobs in the summer of 1971, but Thomas Noguchi, the LA County Coroner, was hiring. The famed USC student jobs board had delivered! Better yet, the job included hours at night and free housing at the coroner's department.
I got the graveyard shift from midnight to 8:00 AM. All I had to do was buy a black suit from Robert Halls, for $25.
Noguchi was known as the “coroner to the stars” having famously done the autopsies on Marilyn Monroe and Jane Mansfield. He did not disappoint.
For three months, whenever there was a death from unnatural causes, I was there to pick up the bodies. If there was a suicide, gangland shooting, or horrific car accident, I was your man.
Charles Manson had recently been arrested, and I was tasked with digging up the victims. One cowboy stuntman, Shorty Shay, had his head cut off and neatly placed in between his ankles.
The first time I ever saw a full set of women’s underclothing, a girdle, and pantyhose was when I excavated a desert roadside grave that the coyotes had dug up. She was pretty far gone.
Once, me and another driver were sent to pick up a teenage boy who had committed suicide in Beverly Hills. The father came out and asked us to take the mattress as well. I regretted that we were not allowed to do favors on city time. He then said, “Can you take it for $200?”, then an astronomical sum.
A few minutes later found a hearse driving down the Santa Monica Freeway on the way to the dump with a double mattress expertly tied on the roof with Boy Scout knots with a giant blood spot in the middle.
Once, I was sent to a cheap motel where a drug deal gone wrong had produced several shootings. I found $10,000 in a brown paper bag under the bed. The other driver found another ten grand and a bag of drugs and kept them. He went to jail. I didn’t.
The worst pick-up of the summer was also the most disgusting and even made the old veterans sick. A 300-pound man had died of a heart attack and was not discovered for a month. We decided to each grab an arm or leg and all tug on the count of three. One, two, three, and all four limbs came off!
Eventually, I figured out that handling dead bodies could be hazardous to your health, so I asked for rubber gloves. I was fired.
Still, I ended up with some of the best summer job stories ever.
Good Luck and Good Trading,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
