Global Market Comments
August 22, 2022
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or THE PARTY IS OVER)
(SPY), (QQQ), (TLT), (VIX)
It’s been one heck of a party for the last two months. We’ve been wearing lampshades on our heads, dancing the Lindyhop, and drinking hopium by the barrel.
But even the best of parties must come to an end.
It's time to put the empty bottles into the recycling bin. I’ve called Uber for the guests who can no longer walk. The hangovers have already started. The cleaning lady is probably going to fire me tomorrow.
The Party is Over, at least for now, as are the big money vacations at the Hamptons, Aspen, and Lake Tahoe. This year, wildly overbought markets are perfectly coinciding with peak vacation time.
September brings bigger worries with a Fed rate rise, doubled QT, and a looming election. I’m now net short for the first time since March.
A Volatility Index (VIX) at $19, a Mad Hedge Market Timing Index at 51, and a rally worth half of this year’s losses are telling you to stay away in droves.
Cash is king right now. Just sit back and count all the money you made with me this year. The reality is that there is a honking great dilemma in the market right now. The Fed is talking hawkish, while traders are trading dovish. The Fed ALWAYS wins this kind of bust-up.
I’m looking for stocks to give up at least half their heroic (SPY) 70-point June-August gains. That would take us down to (SPY) 50-day Moving Average at $395.
After that, we might bounce between the 50-day moving average at $395 and the 200-day at $432 all the way until the November midterm elections. Thereafter, we will launch on a meteoric yearend rally that could take us all the way up to (SPY) $480.
It couldn’t go any other way because there is too much cash lying around. In fact, short term positioning is only at 10% of historical norms, and there is still at least $500 billion worth of company share buybacks still in the pipeline, especially in tech.
That’s all fine with me because at $395, the free money trades start to set up again. At (SPY) $395, the (VIX) should be back up to $30. That means you can set up call spreads, assume we will double bottom at (SPY) $362, and STILL make the maximum potential profit. Such is the magic of vertical bull call debit spreads.
In the meantime, we might be able to squeeze out $30 or $40 worth of short-term trading profits in short positions. This will be the only place to make money for the next month or two. If you’re interested, I’m currently short the (SPY), (QQQ), and (TLT).
Yes, trading is all about alternating pain and pleasure. That’s why you must be a sadomasochist to be a great trader.
It all totally works for me.
It's no surprise that the second the yield on the ten-year US Treasury yield recovered 3.00%, the stock market rally promptly died. Message: watch the ten-year US Treasury yield like an eagle.
Tesla (TSLA) Production Tops 3 million and Elon Musk is aiming for 100 million by 2030. Mine was chassis number 125 and my name is still on the Fremont factory wall. They have driven 40 million miles since 2010, pushing their autonomous learning program far down the road when compared to others. Tesla is the third largest car maker in China. It was worth a $40 pop in the stock. The shares split 3:1 on Friday, sucking in meme interest.
Oil (USO) Collapses to New Two-Month Low to $88 a barrel, down $44, or 33% from the highs. There’s another 50-cent decline in gasoline prices in the cards. Disastrous battlefield setbacks for Russia have been the real driver. Putin has resorted to clearing out the prisons to reinforce his army. He is also forcing Ukrainian POWs to fight their own countrymen. Maybe he'll let our woman’s basketball star go free?
The Fed Minutes are out from the last meeting six weeks ago. Interest rates will rise, but not as much as expected. A pivot to flat or lower interest rates may come sooner than expected. Look for 3.50% for the overnight rate sometime in 2023, up 100 basis points from here.
Why Isn’t the Fed Balance Sheet Falling? It’s still stuck at $9 trillion, despite a massive reduction on bond buybacks via QT. The dam is about to break, with $2-$3 trillion in bond buybacks disappearing in the coming months.
Money Supply Growth Has Ground to a Halt, showing zero growth so far in 2022. It is about to start shrinking dramatically, once QT doubles up to $95 billion a month in September. This could deliver our next buying opportunity for stocks, but also might give us a recession.
Housing Starts Collapse, down 9.6% YOY in July. Labor costs are still soaring while affordability has been shattered. If you’re thinking of buying stocks now, lie down and take a long nap first, a very long nap.
Existing Home Sales Dive 6%, off for the sixth consecutive month. Sales dropped to a seasonally adjusted 4.81 million units. It’s no surprise that we are now in a housing recession while the rest of the economy remains small. Homebuyers are also still contending with tight supply. There were 1.31 million homes for sale at the end of July, unchanged from July 2021. At the current sales pace, that represents a 3.3-month supply.
20 Electric Vehicles Will Get the $7,500 Tax Credit on Day One, Biden just signed the climate bill, with Tesla far and away the leader. Only cars with 70% or more of its parts coming from the US qualify. Used EVs get a $4,000 tax credit. MSRPs must be below $55,000 and individual income no more than $150,000. The credit begins in 2023. Left out in the cold are EVs made in Japan and South Korea.
Bitcoin Hits Three-Week Low, as “RISK OFF” returns. Suddenly, stocks, oil prices, and interest rates have started going the wrong way. Avoid Crypto.
Why the IRS is Not Interested in You. Treasury secretary Yellen says the priorities will be clearing the backlog of unprocessed tax returns and improving customer service, overhauling technology, and hiring workers.
My Ten-Year View
When we come out the other side of pandemic and the recession, we will be perfectly poised to launch into my new American Golden Age, or the next Roaring Twenties. With oil prices now rapidly declining, and technology hyper-accelerating, there will be no reason not to. The Dow Average will rise by 800% to 240,000 or more in the coming decade. The America coming out the other side will be far more efficient and profitable than the old. Dow 240,000 here we come!
With some of the market volatility (VIX) now dying, my August month-to-date performance appreciated to +3.96%.
My 2022 year-to-date performance ballooned to +58.79%, a new high. The Dow Average is down -5.91% so far in 2022. It is the greatest outperformance on an index since Mad Hedge Fund Trader started 14 years ago. My trailing one-year return maintains a sky-high +73.78%.
That brings my 14-year total return to +571.35%, some 2.56 times the S&P 500 (SPX) over the same period and a new all-time high. My average annualized return has ratcheted up to +45.11%, easily the highest in the industry.
We need to keep an eye on the number of US Coronavirus cases soon reaching 94 million, up 300,000 in a week and deaths topping 1,040,000. You can find the data here.
On Monday, August 22 at 8:30 AM, the Chicago Fed National Activity Index for July is released.
On Tuesday, August 23 at 7:00 AM, New Home Sales for July are out.
On Wednesday, August 24 at 7:00 AM, Durable Goods for July are published.
On Thursday, August 25 at 8:30 AM, Weekly Jobless Claims are announced. US GDP for Q2 is released.
On Friday, August 26 at 7:00 AM, the Personal Income and Spending are disclosed. At 2:00, the Baker Hughes Oil Rig Count is out.
As for me, I have met countless billionaires, titans of industry, and rock stars over the last half-century, and one of my favorites has always been Sir Richard Branson.
I first met Richard when I was living in London’s Little Venice neighborhood in the 1970s. He lived on a canal boat around the corner. I often jogged past him sitting alone on a bench and reading a book at Regent’s Park’s London Zoo, far from the maddening crowds.
Richard was an entrepreneur from day one, starting a magazine when he was 16. That became the Virgin magazine reviewing new records, then the Virgin record stores, and later the Virgin Megastore where he built his first fortune.
When the money really started to pour in, Richard moved to a mansion in Kensington in London’s West End. It wouldn’t be long before Richard owned his own Caribbean Island.
In 1984, Branson was stuck in the Virgin Islands because of a cancelled British Airways flight. He became so angry that he chartered a plane and started Virgin Airlines on the spot, which soon became a dominant Transatlantic carrier and my favorite today.
A British Airways CEO later admitted that they did not take Branson seriously because “He did not wear a tie.” The British flag carrier resorted to unscrupulous means to force Virgin out of business. They hired teams of people to call Virgin customers, cancel their fights, and move them over to BA.
When British Airways got caught, Branson won a massive lawsuit again BA over the issue. He turned the award over to his employees.
Richard would do anything to promote the Virgin brand. He attempted to become the first man to cross the Atlantic Ocean by balloon, making it as far as Ireland.
When he opened a hotel in Las Vegas, he jumped off the roof in a hang glider. The wind immediately shifted and blew him against the building, nearly killing him.
Richard later went on to start ventures in rail, telecommunications, package tours, and eventually space.
When I flew to Moscow in 1992 for my MiG 29 flight, I picked Virgin Atlantic, one of the few airlines flying direct from London to Moscow (I never trusted Aeroflot). Who was in the first-class seat next to me but Richard Branson. We spent hours trading aviation stories, of which I have an ample supply.
As we approached Sheremetyevo Airport, he invited me up to the cockpit and told the pilot “This is my friend Captain Thomas. Would you mind if he joined you for the landing?”
He handed me a headset so I could listen in on a rare Moscow landing. When the tower called in the field air pressure, they were off by 1,000 feet. If we were flying under instrument flight rules, we would have crashed. I pointed this out to the pilot, and he commented that this was not the first time they had had a problem landing in Moscow.
Richard once confided in me that he was terrible at math and didn’t understand the slightest thing about balance sheets and income statements. A board member once tried to explain that business was like using a net (company) to catch a fish (profit) but to no avail.
Branson had built up his entire business empire through relationships, using other people to run the numbers. He was the ultimate content and product creator.
I always thought of Richard Branson as a kindred spirit. He is just better at finding and retaining great people than I am. That is always the case with billionaires, both the boring and the adventurous, iconoclastic kind.
Stay healthy,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
In Silicon Valley, you’re either a unicorn or a dinosaur, and if you are the latter,
you are investable,” said a venture capital friend of mine.
"Nobody knew it was August 1982 until it was August 1984," said Chris Verone, head of technical analysis at research boutique Strategas.
Global Market Comments
August 18, 2022
Fiat Lux
Featured Trade:
(I STILL HAVE AN OPENING FOR THE MAD HEDGE FUND TRADER CONCIERGE SERVICE)
(TESTIMONIAL)
I seem to have a recurring problem.
People make so much money from my concierge service that they retire early, and I never hear from them again.
July was particularly egregious because I piled followers into selling short Tesla (TSLA) puts, followed by a stunning 57% move up.
That trade brought my 2022 year-to-date performance to +56.97%, a new high. The Dow Average is down -7.0% so far in 2022. It is the greatest outperformance on an index since Mad Hedge Fund Trader started 14 years ago. My trailing one-year return maintains a sky-high 74.76%.
As a result, I still have one remaining Mad Hedge Concierge place open. I limit the service to only ten clients at any one time.
The goal is to provide high-net-worth individuals with the extra degree of assistance they may require in managing diversified portfolios. Tax, political, and economic issues will all be covered.
It is also the ideal service for the small and medium-sized hedge fund that lacks the resources to support their own in-house global strategist full time.
The service includes the following:
1) A risk analysis of your own personal portfolio with the goal of focusing your investment in the highest return sectors for the long term.
2) A monthly phone call from John Thomas to update you on the current state of play in the global financial markets.
3) Personal meetings with John Thomas anywhere in the world once a year to continue our in-depth discussions.
4) You get my personal cell phone number so I can act as your investment 911.
5) Early releases of strategy letters and urgent trading information.
6) More detailed recommendations on LEAPS, or two-year call options on the best high-growth names.
The cost for this highly personalized, bespoke service is $12,000 a year.
To best take advantage of my Mad Hedge Fund Trader Concierge Service, you should possess the following:
1) Be an existing subscriber of the Mad Hedge Fund Trader who is already well aware of our strengths and limitations.
2) Have a liquid net worth of over $250,000.
3) Possess a degree of knowledge and sophistication on financial markets. This is NOT for beginners.
To subscribe to Mad Hedge Fund Trader Concierge Service, please email Filomena at support@madhedgefundtrader.com. Please put “Concierge Candidate” in the subject line.
I look forward to hearing from you.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Global Market Comments
August 17, 2022
Fiat Lux
Featured Trade:
(VENICE STRATEGY LUNCHEON REPORT)
You really can’t beat the roof of the 14th century Hotel Danieli in Venice for an annual strategy luncheon.
You have a panoramic view of the Grand Canal. The Palace of the Doges is right next door and Saint Marks is around the corner. The canal is packed with every conceivable type of watercraft motoring back and forth.
The water teems with tourist-bearing gondolas filming every moment. How these many conveyances avoid crashing into each other is nothing less than amazing.
Having visited Venice for 54 years, I can tell you that there is something magical in the air. That’s because everyone there is having the greatest time of their lives, including the people who live there.
A hundred years ago, my grandfather passed through on his way to join Ernest Hemingway at the Alpine front in WWI. I first came to town 50 years later in 1968, when most of the tourists were Americans, shacking up in a bargain basement pensione.
The heiress Peggy Guggenheim was still living in her waterfront palace, enjoying the Bohemian lifestyle. Her father went down with the Titanic, so she received her inheritance early. Back then, I lacked the connections and the money to join that elevated social circle.
I was a regular visitor to Venice during the 1980s, flying my twin-engine Cessna direct from London, past the imposing Mont Blanc, and landing at Marco Polo airport. Once a thunderstorm hit me on landing that was so severe, we were stuck on the runway for an hour.
But you never forget that speedboat run from the airport to the city. Never tell your water tax driver you are in a hurry if you want to live to tell about it.
There the kids bought souvenirs and fed the hordes of pigeons. Alas, the pigeons are gone now, banned as a health hazard.
Today, Venice is chock full of Americans once again taking advantage of a Euro (FXE) at 20-year lows. But they are Americans of a different sort. The Danieli was full of incredibly wealthy young couples dressed to the nines and wearing tons of expensive jewelry. They were all Bitcoin billionaires who sold out at the top last year and were drowning in cash.
To say I was welcomed by my guests at the luncheon would be an understatement.
All said they had enjoyed the best investment year of their lives. They also admitted they had never made money in a falling market before. Those committed to the long side, like financial advisors and mutual fund managers, had massively outperformed the indexes. That’s why they flew in from Germany, France, Spain, and Rome.
I told them my story and I’m sticking to it. A weak first half will be followed by a very strong second half. It’s looking like I missed the bottom by two weeks, shares capitulating on June 15 and the Volatility Index (VIX) topping out at $35.
I promise to try harder next time.
Most investors are now sitting on double-digit losses for 2022 and are desperately trying to claw their way back into the market. That’s why it goes up every day. By comparison, Mad Hedge followers are up 57% during the same period.
My other predictions did pretty well too. Inflation has peaked and could be as low as 4% by yearend. Oil prices have also taken a nosedive, thanks to Russia’s catastrophic showing in the Ukraine War.
I finally did get to visit Peggy Guggenheim’s home this year, just one stop on the vaporetto from the Danieli. Now it is a museum featuring her favorite modern artists, most of whom were former lovers.
I did say Bohemian.
I think I’ll try to work in another Venice Strategy Luncheon next year. No Hotel Danieli though as it has been sold to the Four Seasons group and is in for a three-year gutting and modernization. I hope they don’t ruin it.
However, I hear the Orient Express goes to Venice as well. I better get those tuxes back from the dry cleaner!
Piazza San Marco in Venice 1968
Venice in 2022
Grandpa Venice 1918
“There is something so different in Venice from any other place in the world, that you leave all accustomed habits and everyday sights to enter an enchanted garden,” said the 19th century author Mary Shelley.
Global Market Comments
August 16, 2022
Fiat Lux
Featured Trade:
(HOW TO HANDLE THE FRIDAY, AUGUST 19 OPTIONS EXPIRATION),
(TLT), (TSLA),
