Global Market Comments
February 27, 2025
Fiat Lux
Featured Trade:
(RIGHT SIZING YOUR TRADING)
I can’t tell you how many times I have been woken up in the middle of the night by an investor who was sleepless over a position that was going the wrong way.
The Dow Average cratered by 1,200 points, Gold was down $50, the Euro was spiking two cents, and oil was making one of its periodic $5 moves.
Of course, my answer is always the same.
Cut your position in half. If your position is so large that it won’t let you sleep at night on the bad days, then you have bitten off more than you can chew.
If you still can’t sleep, then cut it in half again.
Which brings me to an endlessly recurring question I get when making my rounds calling readers.
What is the right size for a single position? How much money should they be pouring into my Trade Alerts?
Spoiler alert! The answer is different for everyone.
For example, I will not hesitate to pour my entire net worth into a single option position. The only thing that holds me back is the exchange contract limits. But then I spend 12 hours a day in front of screens making sure it goes the right way.
That’s just me.
If you have a day job, would rather spend your time on a golf course, or are only interested in a five-year view, this may not be for you.
I have been trading this market for over half a century. I have probably done more research than you ever will (I basically do nothing but research all day, even when I’m backpacking, by audio book).
And I have been taking risks for my entire life, the financial and the other kind, quite successfully so, I might add. So my taking a risk is not the same as your taking a risk.
Taking risks is like drinking a fine Kentucky sipping Bourbon. The more frequently you drink, the more you have to imbibe to get a good buzz.
Eventually, you have to quit and start the cycle all over again. Otherwise, you become an alcoholic.
So, you can understand why it is best to start out small when taking on your first positions. Imagine if the first time you went out to drink with your college dorm roommates, you finished off an entire bottle of Ripple or Thunderbird. The results would be disastrous and nauseous, as they were for me.
So, I’ll take you through the drill that I always used to break in beginning traders at Morgan Stanley’s institutional equity trading desk.
You may be new to investing, new to trading, and find all of this money stuff scary. Or you may be wary, entrusting your hard-earned money to advice from a newsletter you found on the Internet!
What if my wife finds out I’m doing this with our money?
YIKES!
That is totally understandable, given that 99% of the newsletters out there are fake, written by fresh-faced kids just out of college with degrees in Creative Writing but without a scintilla of experience in the financial markets. And I know most of the 1% who are real.
I constantly hear of new subscribers who are now on their tenth $5,000 a year subscription, and Mad Hedge Fund Trader is the first one they have actually made money with.
So, it is totally understandable that you proceed with caution.
I always tell new readers to start out paper trading. Virtually all online brokers now have these wonderful paper trading facilities where you can practice the art with pretend money.
Don’t know how to use it?
They also offer endless hours of free tutorials on how to use their platform. These are great. After all, they want to get you into the market, trading, and paying commission as soon as possible.
You can put up any conceivable strategy, and they will elegantly chart out the potential profit and loss. Whenever you hit the wrong button and your money all goes “poof” and disappears, you just hit the reset button and start all over again.
No harm, no foul.
After you have run up a string of two or three consecutive winners, it’s now time to try the real thing. But start with only one single options contract, or a few shares of stock or an ETF. If you completely blow up, you will only be out a few hundred dollars.
Again, it’s not the end of the world.
Let’s say you hit a few singles with the onesies. It’s now time to ramp up. Trade 2, 3, 4, 5,1 0, 50, or 100 contracts. Pretty soon, you’ll be one of the BSDs of the marketplace.
Then, you’ll notice that your broker starts following your trades since you always seem to be right. That is the story of my life.
This doesn’t mean that you will enjoy trading nirvana for the rest of your life. You could hit a bad patch, get stopped out of several positions in a row, and lose money. Or you could get bitten by a black swan (it hurts!).
Those of you who have been following me for 17 years have seen this happen to me several times and now know what to expect. I shrink the size, reduce the frequency, and stay small until my mojo comes back.
And my mojo always comes back.
You can shrink back to trading one contract or quit trading altogether. Use the free time to analyze your mistakes, rethink your assumptions, and figure out where you went wrong.
Was I complacent? Was I greedy? Did hubris strike again? My favorite: I was in a meeting when I should have been selling. Having a 100% cash position can suddenly lift the fog of war and be a refreshingly clarifying experience. By the way, perennially losing traders always have lots of excuses.
We all get complacent and greedy. To err is human.
Then, reenter the fray once you feel comfortable again. Start out with a soft pitch.
Over time, this will become second nature. You will automatically know when to increase and decrease your size.
And you won’t have to wake me in the middle of the night.
Here is one last tip. Beginners try to hit home runs while pros aim for hundreds of singles. Home runs only happen in the movies (Trading Places, Wall Street, Margin Call).
Good luck and good trading.
Watch Out! They Bite!
“Interest rates are gravity. When they are zero, shares prices can go to infinity. When they are high, as they were during the early 1980’s, the gravitational pull can be very strong,” said Oracle of Omaha, Warren Buffet.
Global Market Comments
February 26, 2025
Fiat Lux
Featured Trade:
(THE LEAGUE OF EXTRAORDINARY TRADERS)
I never cease to be impressed with the readers of this newsletter.
I was reminded of this once again in Salt Lake City, Utah a few weeks ago.
Readers seem to fall into three categories.
1) Entrepreneurs whose businesses become so successful that they are throwing off plenty of excess cash to invest. This led them to an online search (they are also technically very savvy) that brought them to my Mad Hedge Fund Trader.
One of my guests runs a manufacturing business that builds drones. In five years, his one-time hobby grew from gross revenues from $400,000 a year to $40 million, and with big military contracts coming he says the best has yet to come.
Ten years ago, the Federal Aviation Administration predicted that there would be 1,500 drones in the air by 2020. Today, there are millions.
Interestingly, he says he is now besieged by constant foreign takeover offers. These are from European and Asian firms that have gone ex-growth and are desperately searching for new profit streams at any cost. So far, he has rebuffed all comers. More than a few friends have sold their companies to Germans lately.
2) Financial advisors who have been following my long-term macro and trading advice and who have also become very successful. Rampant cutting in their world means dumping expensive research analysts. Winning financial advisors always have new clients and cash coming which they need to know how to invest. All of my clients seem to have this problem.
3) Young men and women in their twenties and thirties who dropped out of the mainstream economy and taught themselves to become professional full-time traders. They keep begging me to go back into Bitcoin research, which I abandoned three years ago as too theft-prone.
Perhaps several hundred earn a full-time living just off of my own Trade Alerts alone. This business took a quantum leap with my introduction of the Mad Hedge Technology Letter.
My first-hand observation of the current inflation rate is that it is taking off again, and it is not just eggs at $10 a dozen….if you can find them.
Airplanes going anywhere are all full and ticket prices are soaring, while service is shrinking. The airports are packed. The cost of overnight parking in San Francisco has risen by 100% to $50 a day. The free electric charging stations, of which there are now over 50, are always full.
Mt favorite Pendleton store in Monterey, CA no longer has sales. It’s full price for everything all the time now. People have plenty of money to spend.
Stores are stocking more expensive, higher margin profits, and offering imaginative displays.
Placing your goods on top of worn-out industrial heavy machines is a popular new marketing approach. I spend more time analyzing the machines than the goods for sale.
The irony is rich.
Restaurants are more expensive too, always are full, and are also making the grab for higher margins. They now offer food that is gluten-free, locally grown, and “artisanal.” There are only five items on the menu at twice the prices and many restaurants no longer open for lunch.
When I ordered a steak, I was informed that it was hormone and preservative-free. I asked if I could have one WITH hormones and preservatives, as they put hair on my chest and preserve me as well.
No wonder everyone thinks I’m Mad.
Yet there is evidence too of the failed America, the people who got left behind. At one stoplight, I encountered a family of four holding a big sign in the freezing weather “We need money.”
They had recently been evicted from their home. All had serious health problems and were morbidly obese. They looked legit. Maybe it was a healthcare-induced bankruptcy?
I asked no questions, made no judgments, and gave them $20. They reacted like they had won the lottery.
The country clearly is not perfect.
Global Market Comments
February 25, 2025
Fiat Lux
Featured Trade:
(WHY YOUR OTHER INVESTMENT NEWSLETTER IS SO DANGEROUS)
Not a day goes by without me hearing from a reader about the competition.
They previously subscribed to a newsletter that promised a top-drawer education, an insider’s insights, and spectacular returns, sometimes 100% or more a month.
“Doubled in a day” is a frequently heard term.
The entry-level costs are only a few bucks, but they are ever teased onward by the “trade of the century”, a certain 100X winner that they will reveal to you only after another upgrade to their service.
Customers eventually spend outrageous amounts of money, $5,000, $10,000, or even $100,000 a year for the service.
They then lose their shirts.
I hear from readers who have gone through as many as ten of these scams before they find me. Some have lost millions of dollars. Others have been wiped out.
The sob stories are legion.
Then, they find the Diary of a Mad Hedge Fund Trader.
This is the source of all those effusive testimonials you find on my website (click here)
Believe me, they come in every day. I don’t make this stuff up.
Here is the problem. I work in an industry where 99% of the participants are frauds. They are giant Internet marketing firms with hundreds or thousands of employees.
They spend millions to buy your email address. They then spend millions more on copywriters and programmers to pen and distribute top-rate invitations to you to get rich.
Some of these pitches are so compelling that even I take a look from time to time. These guys are slick, really slick.
None of these people have ever worked on Wall Street. They have never been employed as traders. They have not even traded for their own account.
They would know which end of a stock to hold upward if you handed one to them.
For the most part, they are twenty-something kids who got an “A” in creative writing if they ever went to school. Many haven’t.
So, by putting your faith and your wealth in these newsletters and “trade-mentoring” services, you are placing them in the hands of kids without any experience whatsoever.
Hence the disastrous results. You’d have a better outcome tossing a coin or throwing darts at a dartboard.
Some of the larger services hire washed-out has-been investment professionals who become the “face” of the company and lend it some bogus credibility.
They know the lingo, can quote you statistics all day long, and may even boast of proprietary models and hidden indicators. But chances are they have never made a trading dollar in their life.
Without exception, they are lightweight, has-beens, and wannabes who never made it to the big show. None have ever traded for a living. If they did, they would be broke.
Better to sell the shovels to the gold miners than to try it themselves.
They include the oil newsletter that never saw the crash coming, the fixed income service that is always predicting the return of hyperinflation and a crash, and the perennial prediction that the Dow Average is about to plunge to 3,000.
And because these guys are lousy at their jobs, they always tell you to do THE EXACT OPPOSITE of the right thing to do at market extremes.
Just saw a flash crash? Sell everything! The next crash is here! Just hit a new all-time high? Load the boat! The market is about to double! For them, markets are always about zero or to infinity.
Here’s another problem. Negativity outsells a positive outlook hugely, sometimes by 10:1. It makes people look smarter. That’s the source of all of these Armageddon scenarios. They make a ton of money for their purveyors.
It’s not about being right or dispensing sage advice and proper guidance. It’s only about making a dollar, nothing else. There is no guilt or responsibility involved whatsoever.
All of this is done at your expense. I get emails from victims who sold their houses at the market bottom and want to know what to do now that the house has doubled in value and rents are rising.
There are a lot of people out there who drank the Master Limited Partnership Kool-Aid and put all of their assets there to get double-digit yields. If they are lucky, they are down only 90%.
The precious metal area is a favorite of Internet marketers during the 2010’s. Readers who bought this sector on margin, as they were urged to do with great urgency, lost everything.
I know this all sounds like sour grapes coming from me. The sad reality is that out of hundreds of competing investment and trading newsletters in the industry, I can count on one hand those run by true professionals, and I know most of them.
The rest are all crooks.
Yes, I know who these people are. But I am not going to name any names. No time to sling mud here. I can hear the collective sighs of relief already.
This is why I strive to provide the opposite of the con men. To me, it is more important to be right than to be rich. I will give you my unvarnished, undiluted views, even if it is bad for my business, which it often is.
This is why we publish our model trading performance on a daily basis, warts and all.
Notice that no other newsletter does this. If they did, they would only show huge losses, which don’t sell well. It’s all about making tons of incredible claims without a shred of documentation.
So please continue trolling the web for new investment insights and trading opportunities. After all, that’s how you found me all those years ago. But I will give you a piece of advice:
Caveat emptor!
Buyer beware!
I Think I'll Recommend This One
"As successful as solar has become, there was a bloody road of corporate carnage to get there," said Joel Makower, chairman of the GreenBiz Group.
Global Market Comments
February 24, 2025
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or THE DOWNSIDE OF DOGE, plus THE LAST GLASS OF KOOL-AID)
(SPY), (TLT), (GS), (VST), (TSLA), (WMT), (UNH)
Let’s engage in a thought experiment here.
Let’s assume that the new government is successful in all its goals and government spending is cut by $2 trillion. That is 7.2% of the $27.2 trillion US GDP. A loss of that magnitude of economic activity is known as a recession on the order of the one triggered by the pandemic.
What if that loss continues for three years? That amounts to a loss of $21.6% of the economy. The name for this? The Great Depression, when we lost 29% of GDP from 1929 to 1933.
What happens if the 25% tariffs on our major trading partners take place, and they bump up the inflation rate from 3% to 5%. Then the Federal Reserve will have to raise interest rates in the face of a weakening economy. That is exactly what caused the last great depression.
Believe it or not, this is not the worst-case scenario.
It is illegal to fire government employees, except for cause, like fraud, theft, or sexual harassment. So unless the government instantly comes up with cases for cause against 10,000 dismissed employees at USAID, it is facing a massive liability in the form of a gigantic class action suit. If they settle for $1 million each that works out to $10 billion. If the court awards $10 million per wrongfully dismissed employee, which is typical, the bill comes to $100 billion.
Multiply that figure across the many government agencies where wrongful dismissals are taking place, and you could easily get to $1 trillion. This is known as a contingent liability, which any corporation would have to disclose.
Here's another problem.
Let’s go back to USAID since that is where we have the clearest set of numbers. About $1 billion of their budget was for salaries. The other $39 billion went to US farmers for the purchase of food, like wheat, corn, and soybeans, to ship abroad to starving foreigners. USAID didn’t send any money to poor countries, just American goods and expertise.
If you take that amount of buying out of the economy, it will have a huge impact. USAID bought some $550 million worth of the $16 billion US wheat market, or 3.5%. This is happening in an already weak wheat market. The three largest wheat-growing states are North Dakota, Kansas, and Montana. They will buy less fuel to operate farm machinery, less demand for bulk shipping, and certainly a lot less hiring of farm workers. I know because I have several farmers as subscribers.
These are all known as “downstream economic effects” and I have a feeling that no one has thought of these. But they are huge, a multiple of the initial cost savings. Trump is discovering the inverse cost multiplier, that a dollar worth of cost cuts creates $3 of service cuts or more.
We will also find out that by firing half the workers in an agency you lose 100% of the functionality. It has an exponential effect. We learned today that the IRS fired 7,000 of its 100,000 workers. When you’re downsizing a company, the last people you get rid of are the bill collectors.
How much this will cut revenues is anyone’s guess, especially when you include the end of audits on high-income earners. But I bet there are more than a few considering that marginal deduction when preparing their 2024 tax returns, due April 15, like claiming that expensive dinner with a wife as an unreimbursed business expense.
That’s great news for me because I have been audited by the IRS every year for the last 12 years. It turns out that the IRS considers an online business with $200,000 a year in travel expenses a high-value target.
Who knew?
These are all known as “downstream economic effects” and I have a feeling that no one has thought of these. But they are huge, a multiple of the initial cost savings.
All of the above is known in the hedge fund industry as “long tail risks,” and is a reference to the far right and left data points in a bell-shaped curve. These are low-probability events that have an astronomical impact on markets when they occur. And you know what? The long tail risks are rising.
You know who is watching the long tail risks? The Federal Reserve, which in the new government has become the sole source of independent, well-researched economic thought.
The Federal Reserve has certainly taken notice of the above risks. One governor opined last week that the trade war would deliver a shock to the economy on the order of the COVID epidemic. Another cited the heightened risks of “pervasive ambiguity”, meaning that no one anywhere knows what the hell is going on. “Pervasive ambiguity” will probably become the “irrational exuberance” of this generation.
If these long-tail risks come to pass the stock market will notice. We got a free sample on Thursday and Friday when the down plunged intraday by some or 2.6%. The (SPX) is now up just 1.5% YTD, versus +23% for China. What was most important is that many of the highest momentum US stocks saw double-digit losses. Did momentum just die but nobody told us?
Just to prove I am not biased, there is one government move I totally agree with.
They actually asked the Department of Defense if there were any programs they would like to get rid of. I happen to know that our defense spending is greatly diluted by thousands of useless programs that exist for the sole reason that they create jobs in rural states. I know of hundreds of examples but I’ll give you just one.
My Uncle Tim was a Master Sergeant in the US Air Force and was chief mechanic for B-52 bombers stationed at Andersen Air Force Base in Guam. I used to visit him frequently when I lived in Tokyo. He showed me that the big bird was cleverly designed to be built from parts in all 50 states. That made maintenance difficult because it was hard to get replacement parts, forcing him to maintain supplies at much higher levels. Reordering was hard because many of these parts were supplied by companies that only existed on paper and no longer existed. Of the original production run of 744 B-52s from 1952 to 1962, there are only 58 in active duty today. The Air Force plans to continue with these aircraft until 2052 when they will become 100 years old.
If we get a Great Depression, we will get a Great Depression-type stock market. From 1929 we dropped 95%. Personally, I’d settle for the 52% we saw in 2008.
I still think the euphoria trade still has another month or two left. We still have one more cup of Kool-Aid left to drink. After that, we may get some rough sledding and you should seriously consider selling.
Another way of describing this course of events is “The End of American Exceptionalism” The global markets have been shouting as much at us with the massive amounts of investment capital pouring out of the US and into Europe and China, as their stock markets have indicated. The US dollar has been in free fall since mid-January. Who does worst with “The End of American Exceptionalism”? The Magnificent Seven.
Oops! Sorry to piss on your largest position from a great height. But numbers don’t lie.
Every day I go to work I ask myself what I have got wrong, what have I missed”? Do you do the same? If you don’t, maybe you should start. It will have a “long tail” effect on your own investment performance, as it has on mine.
I outlined the out-of-consensus thoughts in today’s letter with an old hedge fund friend last week and after agreeing on every point, he made an interesting observation. Warren Buffet may completely nail this near-century-long bull market in American stocks. He was born in 1930 when most of the stock market damage was done.
The really bad news? Warren Buffet is about to turn 95. In at the bottom, out at the top?
February has started with a respectable +1.76% return so far. That takes us to a year-to-date profit of +6.60% so far in 2025. My trailing one-year return stands at a spectacular +87.93% as a bad trade a year ago fell off the one-year record. That takes my average annualized return to +50.07% and my performance since inception to +759.45%.
I used the February 21 options expiration to take my model portfolio from 60% cash to 90% cash. My long positions in Nvidia (NVDA), Vistra Energy (VST), and my short position in Tesla (TSLA) all expired at their maximum profit points. That leaves me with a sole long position in Goldman Sachs (GS).
Some 63 of my 70 round trips, or 90%, were profitable in 2023. Some 74 of 94 trades have been profitable in 2024, and several of those losses were really break-even. That is a success rate of +78.72%.
Try beating that anywhere.
Economic Data Has Flipped from Mixed to Universally Bad, which is why the stock market volatility is increasing. The US now has the worst-performing major stock market in the world. Certain economies have stocks that trade at high multiples. Uncertainty, now at an 85-year high, trades at low multiples.
Goldman Boosts Gold Forecast, to $3,100 per ounce, up from $2,890 previously. Spot gold gained on Tuesday after hitting a record high at $2,942.70 per ounce on February 11. Bullion has hit eight record highs so far this year and is up 11% so far on an annual basis. (Buy (GLD) on dips.
Silver is Catching Up with Gold, which hit a new all-time high weeks ago. Usually, silver outperforms gold by 2:1. But Chinese savers are after the yellow metal, not the white one, as are central banks. Silver depends more on industrial uses and alternative energy, which is seeing all subsidies eliminated. Buy (GLD) over (SLV).
Homebuilders are Panicking Over Tariff Prospects. Sentiment among the nation’s single-family homebuilders dropped to the lowest level in five months in February. The drop was largely due to concern over tariffs, which would raise homebuilder costs significantly. Sales expectations in the next six months took a major hit in the National Association of Home Builders’ Housing Market Index.
Washington DC Economy is in Recession. Unemployment claims are up 400% YOY, home prices are down 10%, and the commute is noticeably lighter. The condition will get much worse before it gets better. Will it spread to the rest of the country? A lot of rural states are far more dependent on Washington than they realize. Alaska, Montana, Louisiana, Wyoming, and Kentucky are the top six per capita recipients of federal government money. Four out of five voted for Trump in 2024. California and Vermont received the least.
Goldman Sachs Gets Whacked, down $25, or 3.9%, along with the rest of the financial sector. The new administration has decided to continue with Biden’s ultra-tough mergers & acquisitions policy, which is pro-consumer and anti-monopoly. (GS) is still a great company and the deregulation story still applies, but the bloom is off the rose.
Cruise Line Shares Get Sunk, with big losses in (CCL) and (RCL). The New Commerce Secretary indicated that their tax-free status may end. The ships are registered in Bermuda and employ all low-paid foreign crews but almost all of the passengers and revenues come from the US.
Wal-Mart Gets Crushed, with the shares down 7%. Nobody wants to take the risk that tariffs get implemented when (WMT) would take the biggest hit. The recession risk is on.
Weekly Jobless Claims Jump 5,000, to 219,000. A big surge is coming from newly laid-off government workers.
Consumer Sentiment Nosedives, to a 30-year low according to the University of Michigan. Consumers expect prices will climb at an annual rate of 3.5% over the next five to 10 years, according to the final February reading from the University of Michigan. The news shaved 31 points off the S&P 500.
Early Recession Indicators are Collapsing, like FedEx, down 7% today. A slowing economy ships fewer packages. Warning signals for the economy are flashing red everywhere.
Has Momentum Died? Big momentum stocks like Palantir (PLTR) have been crushed, down 25% in two days. Did we miss the memo that the bear market already started?
My Ten-Year View – A Reassessment
We have to substantially downsize our expectations of equity returns in view of the election outcome. My new American Golden Age, or the next Roaring Twenties is now looking at multiple gale-force headwinds. The economy will completely stop decarbonizing. Technology innovation will slow. Trade wars will exact a high price. Inflation will return. 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.
My Dow 240,000 target has been pushed back to 2035.
On Monday, February 24, at 8:30 AM EST, the Chicago Fed National Activity Index is announced.
On Tuesday, February 25, at 8:30 AM, the S&P Case Shiller National Home Price Index is released.
On Wednesday, February 26, at 8:30 AM, the New Home Sales are printed.
On Thursday, February 27, at 8:30 AM, the Weekly Jobless Claims are disclosed. We also get the second estimate for Q4 GDP.
On Friday, February 28, at 8:30 AM, the Core PCE Prices Index is announced. At 2:00 PM, the Baker Hughes Rig Count is printed.
As for me, I usually get a request to fund some charity about once a day. I ignore them because they usually enrich the fundraisers more than the potential beneficiaries. But one request seemed to hit all my soft spots at once.
Would I be interested in financing the refit of the USS Potomac (AG-25), Franklin Delano Roosevelt’s presidential yacht?
I had just sold my oil and gas business for an outrageous profit and had some free time on my hands so I said, “Hell Yes,” but only if I get to drive. The trick was to raise the necessary $5 million without it costing me any money.
To say that the Potomac had fallen on hard times was an understatement.
When Roosevelt entered the White House in 1932, he inherited the presidential yacht of Herbert Hoover, the USS Sequoia. But the Sequoia was entirely made of wood, which Roosevelt had a lifelong fear of. When he was a young child, he nearly perished when a wooden ship caught fire and sank, he was passed to a lifeboat by a devoted nanny.
Roosevelt settled on the 165-foot USS Electra, launched from the Manitowoc Shipyard in Wisconsin, whose lines he greatly admired. The government had ordered 34 of these cutters to fight rum runners across the Great Lakes during Prohibition. Deliveries began just as the ban on alcohol ended.
Some $60,000 was poured into the ship to bring it up to presidential standards and it was made wheelchair accessible with an elevator, which FDR operated himself with ropes. The ship became the “floating White House,” and numerous political deals were hammered out on its decks. Some noted guests included King George VI of England, Queen Elizabeth, and Winston Churchill.
During WWII, Roosevelt hosted his weekly “fireside chats” on the ship’s short-wave radio. The concern was that the Germans would attempt to block transmissions if the broadcast came from the White House.
After Roosevelt’s death, the Potomac was decommissioned and sold off by Harry Truman, who favored the much more substantial 243-foot USS Williamsburg. The Potomac became a Dept of Fisheries enforcement boat in 1960 and then was used as a ferry to Puerto Rico until 1962.
An attempt was made to sail it through the Panama Canal to the 1962 World’s Fair in Seattle, but it broke down on the way in Long Beach, CA. In 1964 Elvis Presley bought the Potomac so it could be auctioned off to raise money for St. Jude Children’s Research Hospital. It sold for $65,000. It then disappeared from maritime registration in 1970. At one point there was an attempt to turn it into a floating disco.
In 1980 a US Coast Guard cutter spotted a suspicious radar return 20 miles off the coast of San Francisco. It turned out to be the Potomac loaded to the gunnels with bales of illicit marijuana from Mexico. The Coast Guard seized the ship and towed it to the Treasure Island naval base under the Bay Bridge. By now the 50-year-old ship was leaking badly. The marijuana bales soaked up the seawater and the ship became so heavy it sank at its moorings.
Then a long rescue effort began. Not wanting to get blamed for the sinking of a presidential yacht on its watch the Navy raised the Potomac at its own expense, about $10 million, putting its heavy life crane to use. It was then sold to the City of Oakland, CA for a paltry $15,000.
The troubled ship was placed on a barge and floated upriver to Stockton, CA, which had a large but underutilized unionized maritime repair business. The government subsidies started raining down from the skies and a down to the rivets restoration began. Two rebuilt WWII tugboat engines replaced the old, exhausted ones. A nationwide search was launched to recover artifacts from FDR’s time on the ship. The Potomac returned to the seas in 1993.
I came on the scene in 2007 when the ship was due for a second refit. The foundation that now owned the ship needed $5 million. So, I did a deal with National Public Radio for free advertising in exchange for a few hundred dinner cruise tickets. NPR then held a contest to auction off tickets and kept the cash (what was the name of FDR’s dog? Fala!).
I also negotiated landing rights at the Pier One San Francisco Ferry Terminal, which involved negotiating with a half dozen unions, unheard of in San Francisco maritime circles. Every cruise sold out over two years, selling 2,500 tickets. To keep everyone well-lubricated I became the largest Bay Area buyer of wine for those years. I still have a free T-shirt from every winery in Napa Valley.
It turned out to be the most successful fundraiser in the history of NPR and the Potomac. We easily got the $5 million and then some. The ship received a new coat of white paint, new rigging, modern navigation gear, and more period artifacts. I obtained my captain’s license and learned how to command a former Coast Guard cutter.
It was a win-win-win.
I was trained by a retired US Navy nuclear submarine commander, who was a real expert at navigating a now thin-hulled 73-year-old ship in San Francisco’s crowded bay waters. We were only licensed to cruise up to the Golden Gate Bridge and not beyond, as the ship was so old.
The inaugural cruise was the social event of the year in San Francisco with everyone wearing period Depression-era dress. It was attended by FDR’s grandson, James Roosevelt III, a Bay area attorney who was a dead ringer for his grandfather. I mercilessly grilled him for unpublished historical anecdotes. A handful of still-living Roosevelt cabinet members also came, as well as many WWII veterans.
As we approached the Golden Gate Bridge, some poor soul jumped off and the Coast Guard asked us to perform search and rescue until they could get a ship on station. Nobody was ever found. It certainly made for an eventful first cruise.
Of the original 34 cutters constructed only four remain. The other three make up the Circle Line tour boats that sail around Manhattan several times a day.
Last summer I boarded the Potomac for the first time in 14 years for a pleasant afternoon cruise with some guests from Australia. Some of the older crew recognized me and saluted. In the cabin, I noticed a brass urn oddly out of place. It contained the ashes of the sub-commander who had trained me all those years ago.
Good Luck and Good Trading,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Captain Thomas at the Helm
