Global Market Comments
November 7, 2024
Fiat Lux
Featured Trade:
(REITERATION OF MY $1,000 TARGET FOR TESLA),
(TSLA)
OK, let me take my victory lap.
Since I sent out my trade alert to buy Tesla on August 5, Tesla shares have exploded upward by a breathtaking $110, or 61%, to $290, a new 2024 high.
And the best is yet to come!
Of course, we got an assist from several fronts. The Tesla Model Y became the world’s top-selling car, just edging out the Toyota Corolla. Then, both Ford (F) and General Motors (GM) signed on to use Tesla’s national supercharger network, giving it an effective monopoly.
Now Elon Musk has a Trump administration to look forward to, where Musk donated hundreds of millions of dollars. What Elon will get in exchange is the elimination of regulation from his many companies, which until now have been very heavily regulated. It was a bargain at the price. Full Self Driving in the US, until now only available in unregulated China. No problem!
Elon Musk unveiled his Master Plan 3 and unleashed a cornucopia of new data that only an immense amount of research can produce. This will require all forms of transportation to be electric-powered within 20 years, except for interplanetary rockets.
As anyone who has been through an advanced physics course can tell you, internal combustion engines are woefully inefficient, converting only 25% of their energy into forward motion and 20% if you include materials energy costs. But then, that was the best the 19th century could do, and it worked for 152 years (Nicolaus Otto built the first gasoline-powered internal combustion engine in Germany in 1872).
Electric motors in Teslas operate closer to a 50% efficiency rating, cutting energy demand by half right there.
To move the world to an all-electric economy will cost about $10 trillion, or about 10% of world GDP. Average that out at 0.5% per year, and it will take about 20 years. Adding up car and storage batteries means 24 terawatts worth of batteries will need to be manufactured. There are one trillion watts per terawatt.
By comparison, the sun produces 1 gigawatt of energy per square kilometer per day or 509,600 terawatts. That means an all-electric economy dependent on batteries equivalent to less than 0.1% of the sun’s daily output. In other words, it’s miniscule.
In fact, the world is already decarbonizing far faster than people realize.
There are currently 2 billion cars and trucks in the world, 85 million a year are manufactured, and some 16 million in the US. Global EV production came to 10.6 million vehicles in 2023, an increase of 22%.
Some 60% of new electricity generation installed last year came from alternatives. That’s because, in terms of power output, alternatives are 40% cheaper than oil, coal, or natural gas. That’s being generous as it does not include the health care costs of carbon-based energy, which make several hundred thousand people per year ill in the US alone (asthma, lung cancer, etc.).
This means that a heck of a lot of lithium is going to be needed. Soft, white lithium is number three on the period table (you’re talking to a chemist here), is a great oxidizer, and is anything but rare. What IS rare is the lack of environmental controls and cheap labor.
This is why the bulk of lithium is produced in China and South America, where it literally sits on the surface. This is all easily scalable to meet future demand. In fact, moving to an alternative-based world uses far less mining than the existing conventional one.
The shortage is not in lithium supply but in lithium processing. The world’s largest lithium consumer should know. This is why Musk recently moved into lithium processing last year.
Home heating is another challenge. Existing heat pumps, which I have, do a great job heating in winter and cooling in summer in southern and western states where the weather is mild. These use only one-third of the energy used to heat homes with oil and natural gas. States facing subzero temperatures are another story. This problem can be solved with a fundamental redesign of the heat pump hardware.
Here was a big surprise for me. EV’s are not going to create an exponential demand for lithium. Otherwise, lithium stocks would be a lot higher. Once you get up to a total installed base of 40 million batteries, recycling becomes the primary sources of lithium as batteries age out. They can then be reprocessed into new batteries. This eventually caps lithium demand. Future cars will use far less silicon carbide, further reducing its demand by 75%, saving $1,000 a car.
Musk is dumping the traditional 12-volt lead acid battery all Teslas have now, which accounts for 87% of all start failures. Instead, he is adding a second small lithium-ion one and redesigning the electrics to take 48 volts. This means lighter-weight cables can handle more power at less cost. Musk hopes to force the entire auto industry to move to a 48-volt standard, which should have been done decades ago.
The world’s 7 million Teslas now drive 123 million miles a day and represent the largest AI neural network on the planet. If a car in Florida makes a left turn, all the cars in the rest of the country learn from that experience.
Tesla now has 80,000 chargers in the US, including 40,000 superchargers, which can charge up to 450 miles per hour and give you a full charge from zero in 40 minutes. Tesla charged cars with ten terawatts of power in 2023, and per kilowatt costs have dropped by 40%, with charge times down 30%. Tesla is well on its way to becoming the largest electric power utility in the United States.
Tesla’s current manufacturing capacity is 2 million cars a year across four factories (Fremont, CA; Austin, TX; Berlin, Germany; and Shanghai, China). While it took Tesla 12 years to make its first million vehicles, the 4th million took only seven months. As of today, it is cheaper to own a Tesla than the world’s biggest formerly biggest-selling car, the Toyota Corolla, given their total lifetime costs. Work out the cost of charging a Tesla, and you are paying the equivalent of 25 cents a gallon for gasoline unless you charge at my house, in which case it is free.
The Gigafactory in Sparks, NV, which mass produces lithium-ion battery packs, is currently being doubled in size. In Texas, Tesla is buying wind power from the grid and offering Tesla owners a flat rate for charging of $30 a month because the cost is so low.
There are great hopes for the Cybertruck, for which Tesla has 2 million orders, myself included. The current price for the three-motor version will be about $80,000, the same as for a model X. The Cybertruck has a brand new third-generation platform on which all future Tesla models will be based. It will also include a 48-volt electrical design.
Tesla’s huge price cuts have been wildly successful, allowing it to gain market share at its competitor's expense. Tesla is really just passing on the recent collapse in commodity prices. So far in 2024, Lithium prices have fallen by 20% and copper by 15%. Tesla prices will continue to fall, especially when the new $25,000 Model 2 is brought to market in 2026. That will really decimate the competition.
Tesla has also taken the plunge into the insurance industry, charging drivers on their actual driving history, which they already collect. If you drive like a little old lady, it can run as little as $125 a month. If you drive like Mad Max, it’s more, but not as much as a conventional car insurance company.
Rates change monthly depending on your driving record. Parked in a garage gives you a perfect score of 90, and it drops from there. It’s all about reducing the total cost of a Tesla car. Not such a bad deal if you let their computer do all the driving.
What will Tesla disrupt next?
All in all, it was a breathtaking presentation, which Elon delivered coolly and calmly. It is with the greatest enthusiasm that I reiterate my $1,000 per share price target.
To watch the Tesla Investor Day in its entirety on YouTube, please click here.
6 X 13.5 kw Tesla Powerwall’s
“Battles are won with tactics. Wars are won with logistics. The logistics challenges at Tesla are enormous,” said Tesla founder Elon Musk.
Global Market Comments
November 6, 2024
Fiat Lux
Featured Trade:
(WHY TECHNICAL ANALYSIS DOESN’T WORK)
(SPY), (QQQ), (IWM), (VIX),
(TESTIMONIAL)
I recently heard an amazing piece of information from a subscriber.
Fidelity recently conducted a study to identify their best-performing clients.
They neatly fell into two groups: people who forgot they had an account at Fidelity and dead people.
It all underlines the futility of trading the markets without true professional guidance such as you get here at Mad Hedge Fund Trader, something many aspire to, but few actually accomplish.
Of the many thousands of online newsletters and trade mentoring services, I only know of three that actually make money for clients.
Those would be mine and two others, and I’m not taking about who the other two are.
It is an industry filled with professional marketers, charlatans, and conmen. I recently figured out that industries that employ a lot of specific jargon attract conmen because it is so easy to convince people of your expertise. Those are the health supplement and financial industries.
Let me point out a few harsh lessons learned from this most recent meltdown.
We are now transitioning from a “Sell in May” to a “Buy in November” posture.
The next six months are ones of historical seasonal market strength (click here for the misty origins of this trend at “If You Sell in May, What To Do in April?”).
The big lesson learned this summer was the utter uselessness of technical analyses. Usually, these guys are right only 50% of the time. This year, they missed the boat entirely.
When the S&P 500 (SPY) was meandering in a narrow nine-point range, and the Volatility Index (VIX) hugged the $12 neighborhood, they said this would continue for the rest of the year.
It didn’t.
This is why technical analysis is utterly useless as an investment strategy. How many hedge funds use a pure technical strategy on a stand-alone basis?
Absolutely none, as it doesn’t make any money.
At best, it is just one of 100 tools you need to trade the market effectively. The shorter the time frame, the more accurate it becomes.
On an intraday basis, technical analysis is actually quite useful. But I doubt few of you engage in this hopeless persuasion. Most senior investors would rather spend their time on a golf course than be glued to a screen.
Leave it for the kids.
This is why I advise portfolio managers and financial advisors to use technical analysis as a means of timing order executions, and nothing more.
Most professionals agree with me. That’s why so much volume bunches up at the opening and the close every day, to get a nice average.
Technical analysis derives from humans’ preference for looking at pictures instead of engaging in abstract mental processes. A picture is worth 1,000 words, and probably a lot more.
This is why technical analysis appeals to so many young people entering the market for the first time.
Buy a book for $5 on Amazon, and you can become a Master of the Universe.
Who can resist that?
The problem is that high frequency traders also bought that same book from Amazon a long time ago and have designed algorithms to frustrate every move of the technical analyst.
Sorry to be the buzz kill, but that is my take on technical analysis.
I have a much better solution than forgetting you have a trading account or dying.
Take Cunard’s round-the-world cruise (click here for the link).
I have been sailing with Cunard since the 1970’s when the original Queen Elizabeth was still afloat.
I’ve lost count of how many Transatlantic voyages I have taken across the pond.
For a mere $19,999 you can spend 122 days circumnavigating the globe with Cunard from Southampton, England in their cheapest inside cabin.
That includes all the food you can eat for four months.
On the way you can visit such exotic destinations as Bora Bora, The Seychelles, Reunion, and Moorea.
Not a bad deal.
By the time you get home, you will probably earn enough in your investment account to pay for the entire trip.
Hope you enjoyed your cruise.
Correction? What Correction?
Global Market Comments
November 5, 2024
Fiat Lux
Featured Trade:
(THE IRS LETTER YOU SHOULD DREAD),
(TESTIMONIAL)
"No better friend, nor worse enemy," says the motto of First Division of the US Marine Corps.
Global Market Comments
November 4, 2024
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD or TRADING ONE UNCERTAINTY FOR ANOTHER plus RECOLLECTIONS OF A MARINE),
(NVDA), (DHI), (LEN), (KBH), (PHM), (TOL), (JPM)
Here I am holed up in a mountaintop retreat.
I have six months of canned food, one month of water, and a year supply of ammo. There is an AR-15 and 12 gauge shotgun at the front door. There is a 45 caliber Colt Peacemaker and a Browning 45 at the backdoor. I sleep with a 9mm Glock 17 under my pillow and a baseball bat next to the bed. There are empty tin cans strung from the shrubbery to sound the alarm for any unexpected intruders.
Let the election begin!
Actually, I think the big surprise will be how little violence takes place. The violence threatened by one political party will fail to show. It was all talk, no substance, and just one big con. That alone should be worth a thousand-point rally in the Dow Average.
Of course, the passing of the election isn’t going to end the uncertainty for the stock market. All we are really doing is trading one kind of uncertainty for another. If Harris wins, will she be able to govern from the middle and how much will she be able to keep her party’s left wing at bay?
If Trump is elected, how many of his threats will be carried out, or was it all just talk? And how much will the courts allow him to carry out extreme policies? Then, there is the issue of who has control of the House and the Senate.
It will all add up to increased market volatility, which I love as a trader. Volatile markets yield much higher returns.
Buy this year’s winners and sell the losers. That is what every professional money manager will be doing on Wednesday morning. They want to window dress their holdings for yearend and harvest tax losses, mostly in energy. That makes the post-election rally really very easy to play.
In one of the most curious market timings in history, Dow Jones announced that it is adding Nvidia (NVDA) to their 30-strong stock market average on Friday, November 8, just three days after the presidential election, and possibly when the outcome is not yet known.
The Dow Jones Industrial Average was the only major US equity benchmark that didn't hold Nvidia. Intel (INTC) will be taken out to the woodshed, which just announced a massive $16 billion loss and has shrunk to a mere $100 billion in market cap. (INTC) is a mere shadow of its former self with a caricature of a CEO.
The normal reaction by the market is a 5-10% pop in the new Dow entrants and a similar 5-10% decline in the shares of the banished company. This is good news for followers of the Mad Hedge Fund Trader because virtually everyone now has (NVDA) as their largest holding, either by selection or capital appreciation.
The 19th century Dow has been playing catchup in gaining exposure to the largest technology companies. The Dow became 30 stocks in 1928. The DJIA was originally created by Charles Dow in 1896 and contained just 12 stocks. The number of stocks in the DJIA increased to 20 in 1916.
The move will increase the volatility of the Dow by adding a stock that is up 170% this year while removing one that has fallen 50%. It will lead to higher highs and then lower lows. Remember, (NVDA) fell 40% in July. It also continues to technology drift of the Dow to keep up with its main competitor, NASDAQ. The last company to join the Dow was Amazon.
When you do the hard work and perform your research well, all surprises tend to be happy ones.
A number of readers have expressed concern over DH Horton’s (DHI) disappointing results. But if anything, the bull case for the industry is stronger than ever. An imminent post-election rally in the bond market and drop in interest rates is about to cause the industry to explode to the upside.
The US new homes market is massively underbuilt. We are short anywhere from 10-20 million homes. Normal inventory is 6 months, and we are currently at 3 months. We went into the pandemic short of homes and then demand exploded. The average home price is now $420,000 against an average income of $75,000, requiring $130,000 in annual income to qualify for a conventional 30-year fixed rate loan.
If you want to live in San Jose, CA you need to earn $463,000 a year. Half of the new homes built this year are in only ten cities, with four in Texas as Americans continue a century-long trend of moving from north to south and from the coasts to the southwest. Building permits are actually falling, down 7% this year.
Concentration of the industry, and therefore the elimination competition, has continued at an incredible pace. Only ten firms control 50% to 80% of new home construction, making it difficult for new entrants. That’s up from only 10% 30 years ago. As a result, the number of floor plan options has shrunk dramatically.
Vice President Harris is proposing a $25,000 tax credit for first-time buyers if elected. She has also suggested subsidies to build 3 million affordable housing units. You always buy a sector that is about to see a big inflow of government largess. Buy (LEN), (KBH), (PHM), (TOL), and (DHI) on dips.
In October, we have gained a breathtaking +7.68%. My 2024 year-to-date performance is at an amazing +52.92%. The S&P 500 (SPY) is up +19.92% so far in 2024. My trailing one-year return reached a nosebleed +65.56. That brings my 16-year total return to +729.55%. My average annualized return has recovered to +52.42%.
I am going into the election as cautious as possible, with 80% in cash and 20% long. When you’re up this much you don’t take chances. I maintained two longs in (DHI) and (JPM) that are well in the money.
Some 63 of my 70 round trips, or 90%, were profitable in 2023. Some 63 of 82 trades have been profitable so far in 2024, and several of those losses were really break-even. Some 22 out of the last 23 trade alerts were profitable. That is a success rate of +76.82%.
Try beating that anywhere.
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 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, November 4 at 8:30 AM EST, the US Factory Orders are published.
On Tuesday, November 5 at 6:00 AM, the US Presidential Elections take place. The last polls close in Hawaii at 1:00 AM EST.
On Wednesday, November 6 at 11:00 AM, the MBA Mortgage rate is printed.
On Thursday, November 7 at 11:00 AM, the Federal Reserve announces its interest rates decision. A 25-basis point cut is in the bag. A press conference follows at 11:30 AM.
On Friday, November 8 at 8:30 AM, the University of Michigan Consumer Sentiment is announced. At 2:00 PM the Baker Hughes Rig Count is printed.
As for me, as the son of a Marine who served on Guadalcanal in 1942, I had an unusual childhood. The memories all came flooding back to me as the HBO program, The Pacific, which aired once again over last Memorial Day weekend.
Every scene in the ten-hour series I had already heard about around campfires, at veteran’s reunions, or in officers clubs around the world. At five, I learned how to open a coconut by tapping around the three eyes with a bayonet. At ten, I could shinny up a palm tree with a belt wrapped around my ankles.
I learned that you can shoot down a Japanese zero fighter by leading with four hand widths and aiming high. A tank can be disabled by ramming a log into its tracks. There was the survival training; practicing how to find water in the desert, setting a snare trap to catch small animals to eat, and starting a fire with only flint and steel. All the sniper training was fun but was fortunately never put to use.
I can still thrill the kids by hitting a quarter taped to a tree 50 feet away with a Winchester lever action 30-30. We outfitted ourselves with surplus WWII equipment from the “Supply Sergeant” for camping trips, which you could buy for a couple of dollars. Now, you only find these things in museums. We ate leftover C-rations.
Perhaps it was dad’s explanation of how to make highly alcoholic hooch out of canned peaches that led to my degree in biochemistry. In the end, I had my own Marine career as a combat pilot in Desert Storm, and many tasks that followed. There you learn the true meaning of “gung ho.”
At 73, I stay in boot camp shape. In my free time, I hike 100 miles in the High Sierras over 8,000 feet in eight days. I am carrying a 50-pound pack, and living on only 500 calories a day entirely composed of fruit and nuts. I love every minute of it.
Watching the series, I was reminded how feeble and meaningless my profession is, toiling away all year just to create a spreadsheet full of numbers, and how the men of eight decades ago were made of sterner stuff. Buying a dip on a bad day just doesn’t equate to “taking out that machine gun.”
How times have changed. Fall down on your knees and give thanks for your simple life.
You can buy the Hugh Ambrose book the series was based on by clicking here. You can purchase the DVD by clicking here.
Good Luck and Good Trading,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
"Homo Sapiens, the first truly free species, is about to decommission the natural selection, the force that made us," said E.O. Wilson, a Harvard University biology professor.
