The Diary of a Mad Hedge Fund Trader is now celebrating its 16th year of publication.
Last year, I religiously pumped out 3,000 words a day, writing or editing 24 newsletters a week of original, independent-minded, hard-hitting, and often wickedly funny research.
I spent my life as a war correspondent, Marine Corps combat pilot, Wall Street trader, and hedge fund manager, and if you can’t laugh after that, something is wrong with you.
I’ve been covering stocks, bonds, commodities, foreign exchange, energy, precious metals, real estate, and even agricultural products for 55 years.
You’ve been kept up on my travels around the world and listened in on my conversations with those who drive the financial markets.
The site now contains over 25 million words or 40 times the length of Tolstoy’s epic War and Peace.
Unfortunately, it feels like I have written on every possible topic at least 100 times over, if you sometimes think you’re getting repeats, you are, it’s just updated.
So, I am reaching out to you, the reader, to suggest new areas of research that I may have missed until now which you believe justify further investigation.
The great thing about running an online business is that I can evolve it to meet your needs on a daily basis.
Many of the new products and services that I have introduced since 2008 have come at your suggestion. That has enabled me to improve the product’s quality, to your benefit. Notice how rapidly my trade alert performance is going up, now annualizing at +51%a year.
This originally started as a daily email to my hedge fund investors in 2008 giving them an update on fast market-moving events. That was at a time when the financial markets were in free fall, and the end of the world seemed near.
Here’s a good trading rule of thumb: Usually, the world doesn’t end. History doesn’t repeat itself, but it certainly rhymes.
The daily emails gave me the scalability that I so desperately needed. Today’s global mega enterprise grew from there. Today, the Diary of a Mad Hedge Fund Trader and its Global Trading Dispatch is read in over 140 countries by 30,000 followers. The Mad Hedge Technology Letter the Mad Hedge Biotech & Health Care Letter, Jacquie’s Post, and Mad Hedge AI also have substantial followings. And Mad Hedge Hot Tips is one of the most widely-read publications in the financial industry.
I’m weak in distribution in North Korea and Mali, in both cases due to the lack of electricity. But that may change.
One can only hope.
If you want to read my first pitiful attempt at a post, please click here for my February 1, 2008 post.
It urged readers to buy gold at $950 (it soared to $2,175), and buy the Euro at $1.50 (it went to $1.65).
Now you know why this letter has become so outrageously popular.
I always get asked how long will I keep doing this.
I am already collecting Social Security, so that deadline came and went. My old friend and early Mad Hedge subscriber, Warren Buffet is still working at 93, so that seems like a realistic goal.
Hiking ten miles a day with a 50-pound pack, my doctor tells me I should live forever. He says he spends all day trying to convince his other patients to be like me, and the only one who does it is me.
The harsh truth is that I don’t know how to NOT work. Never tried it, and never will.
This year I received a new reminder of my indestructibility. While observing a Ukrainian HIMARS missile attack on Crimea, a Russian missile landed 100 feet away from me. It was a dud and didn’t go off. If it exploded it would have killed us all. Later that day, a Russian bullet fired across the Dnieper River hit me in my right hip, caught by my body armor. If that isn’t a message from above, I don’t know what is.
The fact is that thousands of subscribers love me for what I do, pay for me to travel around the world first class to the most exotic destinations, eat in the best restaurants, fly the rarest historical aircraft, then say thank you. I even get presents (keep those pounds of fudge and bottles of bourbon coming!).
Given the absolute blast I have doing this job I would be Mad to actually retire.
Take a look at the testimonials I get only on an almost daily basis and you’ll see why this business is so hard to walk away from (click here)
In the end, you are going to have to pry my cold dead fingers off of this keyboard to get me to give up.
https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png00april@madhedgefundtrader.comhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngapril@madhedgefundtrader.com2024-02-01 09:02:512024-02-01 10:26:54The 16th Year Anniversary of the Mad Hedge Fund Trader
While driving back from Lake Tahoe last weekend, I received a call from a dear friend who was in a very foul mood.
Following the advice of another newsletter that I won’t mention, he bailed out of all his stocks after the November 8 election.
After all, wasn’t the Dow Average headed straight to 3,000?
Despite the Federal Reserve now on a rate-rising path, here we are with the major stock indexes just short of all-time highs.
Why the hell are stocks still going up?
I paused for a moment as a kid driving a souped-up Honda weaved into my lane of Interstate 80, cutting me off. Then I gave my friend my response, which I summarize below:
1) While the next move in interest rates will certainly be down, they may take a while to get started. They are not going to move the needle on corporate P&Ls because at least half of US companies are net creditors to the financial system, including all the big tech ones. We are reentering a deflationary world.
At least, that’s what my friend Janet tells me.
2) The biggest leaders in the market are cheap, with NVIDIA (NVDA) and Meta (META) sporting price earnings multiples under 20X with a 60% earnings growth.
3) There is nothing else to buy. Complain all you want, but US equities are still one of the world’s highest-yielding securities, with a 1.4% dividend.
4) Oil prices are low, and the windfall cost savings are only just being felt around the world. Conversion to electrics and hybrids is happening faster than expected and much of the grid is moving away from oil to alternatives.
5) While the weak euro (FXE) ate into large multinational earnings, we are at the end of the move. The cure for a weak euro is a weak euro. The worst may be behind for US importers.
6) What follows a collapse in European economic growth? A European recovery, powered by a weak currency.
7) What follows a Chinese economic collapse? A recovery there too, as hyper-accelerating stimulus feeds into the main economy. Chinese stocks are now among the world’s cheapest with most having single-digit multiples.
8) Technology and AI everywhere are accelerating at an immeasurable pace, causing profits to do likewise. You see this in the AI 5 stocks, where blockbuster earnings reports are becoming as reliable as free upgrades.
Biotech has been on a tear as well where AI and big data are creating a new Golden Age.
8) US companies are still massive buyers of their stock, with some $1 trillion worth in 2023. Ditto for this year. This has created a free put option for investors for the most aggressive companies, like Apple (AAPL), which bought $83 billion worth of its own stock in 2023, followed by Google (GOOGL), Meta (META), Microsoft (MSFT), and Exxon (XOM), the top five repurchasers.
They are jacking up dividend payouts at a frenetic pace as well, and are expected to return more than $430 billion in payouts this year.
9) Ignore this at your peril, but there is a global synchronized economic recovery going on that has been in the works for some years. Nearly a decade of central bank monetary stimulus and government fiscal stimulus is still out there.
Q1 earnings reports start in earnest in a few weeks, and the phrase “better than expectations” is about to become well-worn. Expect (SPY) earnings per share to reach new all-time highs, hardly short seller bait.
10) Ditto for the banks, which were dragged down by falling interest rates for most of the last decade. Reverse that trade this year, and you have another major impetus to drive stock indexes higher.
My friend was somewhat setback, dazzled, and befuddled by my out-of-consensus comments. He asked me if I could think of anything that might trigger a new bear market or at least a major correction.
The traditional causes of recessions, oil prices, and interest rate spikes, are now in the rearview mirror. There are only two things that could pee on our parade: a return of inflation and another pandemic. Watch those prices!
With that, I told my friend I had to hang up, as another kid driving a souped-up Shelby Cobra GT 500, obviously stolen, was weaving back and forth in front of me requiring my attention.
https://www.madhedgefundtrader.com/wp-content/uploads/2021/12/blue-car.png462760Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2024-01-31 09:02:532024-01-31 10:04:21Ten Reasons Why Stocks Can’t Sell Off Big Time
Long-time Mad Hedge followers who watched the market take off like a rocket on October 26 weren’t surprised.
That’s because I am a big fan of buying straw hats in the dead of winter and umbrellas in the sizzling heat of the summer. I even load up on Christmas ornaments every January when they go on sale for ten cents on the dollar.
There IS a method to my madness.
If I had a nickel for every time that I heard the term “Sell in May and go away,” I could retire. The flip side of that is just as valuable, “Buy in November and stand pat.”
Oops, I already am retired!
In any case, I thought that I would dig out the hard numbers and see how true this old trading adage is.
It turns out that it is far more powerful than I imagined. According to the data in the Stock Trader’s Almanac, $10,000 invested at the beginning of May and sold at the end of October every year since 1950 would be showing a loss today.
Amazingly, $10,000 invested every November 1 and sold at the end of April would today be worth $702,000, giving you a compound annual return of 7.10%!
This is despite the fact that the Dow Average rocketed from $409 to $38,000 during the same time period, a gain of a staggering 92.90 times!
My friends at the research house, NASDAQ Dorsey, Wright, who run a pretty powerful technical service of their own, (click here for their site) have parsed the data even further.
Since 2000, the Dow has managed a feeble annual return of only 5%, while the long winter/short summer strategy generated a stunning 64%.
Of the 72 years under study, the market was down in 25 May-October periods, but negative in only 13 of the November-April periods, and down only three times in the last 24 years!
There have been just three times when the "good 6 months" have lost more than 10% (1969, 1973, and 2008), but with the "bad six-month" time period, there have been 11 losing efforts of 10% or more.
Being a long-time student of the American, and indeed, the global economy, I have long had a theory behind the regularity of this cycle.
It’s enough to base a pagan religion around, like the once-practicing Druids at Stonehenge.
Up until the 1920s, we had an overwhelmingly agricultural economy. Farmers were always at maximum financial distress in the fall, when their outlays for seed, fertilizer, and labor were the greatest, but they had yet to earn any income from the sale of their crops.
So they had to borrow all at once, placing a large cash call on the financial system as a whole. This is why we have seen so many stock market crashes in October. Once the system swallows this lump, it’s nothing but green lights for six months.
After the cycle was set and easily identifiable by low-end computer algorithms, the trend became a self-fulfilling prophecy.
Yes, it may be disturbing to learn that we ardent stock market practitioners might in fact be the high priests of a strange set of beliefs. But hey, some people will do anything to outperform the market.
It is important to remember that this cyclicality is not 100% accurate, and you know the one time you bet the ranch, it won’t work. But you really have to wonder what investors expect when buying stocks at these elevated levels, over $488 in the S&P 500 (SPY).
Will company earnings multiples further expand from 18 to 19 or 20? Will the GDP suddenly reaccelerate from a 2% rate to the 4% expected by share prices when the daily sentiment indicators are pointing in the opposite direction?
https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png00april@madhedgefundtrader.comhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngapril@madhedgefundtrader.com2024-01-30 09:04:402024-01-30 10:45:21The Hard Truth Behind Buying in November
"The time to worry about the Fed is not when they go from accommodative to neutral, it is when they go from neutral to tight," said Bill Miller, the legendary former chairman and chief investment officer of Legg Mason Capital Management.
https://www.madhedgefundtrader.com/wp-content/uploads/2015/03/Girl-Tight-Jeans-e1427747120733.jpg258300MHFTRhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMHFTR2024-01-30 09:00:412024-01-30 10:28:17January 30, 2024 - Quote of the Day
Inflation is dramatically falling, with Core PCE down to an amazing 2.6% YOY rate in December. At the same time, GDP growth came in at an incredible 3.3% in Q4 and 2.5% for all of 2023. The long-term average is 3.0%. It’s about as close to a Goldilocks scenario as we’ll ever get.
The problem arises when the economy gets TOO healthy right when the Fed is considering its first interest rate CUTS in four years. That could lead our nation’s central bank to postpone cuts or not to announce them at all.
That would suddenly put the three-month-old bull market on ice, perhaps indefinitely, which has given us one of the worst whipsaw markets I have ever seen. Sector leadership has changed three times so far in 2024. First, there was the AI 5, (MSFT), (META), (GOOGL), (AMZN), and (NVDA). Next came stocks that benefit the most from falling interest rates, financials, precious metals, base metals, industrials, bonds, and foreign currencies.
To say this would be a tough market to trade would be an understatement, evidenced by my multiple stop losses this month. The remedy for this is to shrink your portfolio, sit back, and wait for the market to tell you what to do. I have to say that with the Volatility Index ($VIX) camped out at the $12 handle, options are not offering a lot for you to chew on either.
If you are looking for any further proof that technology is accelerating far faster than we can understand, I shall recall for your edification my last weekend.
After my youngest went off to college, I had to get her headboard refinished because she spent two years in bed looking at her computer while enrolled in high school during COVID-19. She had completely worn the finish off but got all A’s.
So I went to Yelp to look for a furniture restoration business. I clicked on one restorer who had good reviews and lots of pictures, described the job, and included pictures. Within 60 seconds, I received not one bid for the job but four, as Yelp had put the job out for bid across its entire network. One offered to do the job the next day for $100.
Learning how easy it is to refinish furniture, I put a second job out for bid, a small beat-up desk which I picked up at an estate sale for $20. I learned that this was a 100-year-old Craftsman desk highly sought after by collectors worth $2,500. Absolutely, yes, it was worth the $750 cost of a total stripped-down restoration.
I’m thinking “poor furniture restorers”, but what they are losing in the price, they make up in volume. Their craft is in fact a dying one and they can charge whatever they want.
And now you know why I go to estate sales.
What kind of homework is my daughter getting these days? As a Computer Science major at the University of California, she was handed a box of calculators smashed with a hammer. Over a weekend, she was required to invent a tool that identified the good chips from the bad, write code to reprogram the chips, and then glue the good calculators back together.
By Sunday afternoon she had a box full of working but somewhat ugly calculators, thanks to my donation of Gorilla Glue. And this for a sophomore! Needless to say, I didn’t see much of my daughter last weekend, except when she came downstairs to do her laundry.
Next week, they have to fix cell phones.
Gulp! I doubt I could even get into the UC today, even though I graduated Magna Cum Laude 50 years ago. Such is life with college students.
Watch out! The future is happening fast!
So far in January, we are down -4.33%. My 2024 year-to-date performance is also at -4.33%.The S&P 500 (SPY) is up +1.14%so far in 2024. My trailing one-year return reached +54.54% versus +21.14%for the S&P 500.
That brings my 15-year total return to +672.30%. My average annualized return has retreated to +51.06%.
Some 63 of my 70 trades last year were profitable in 2023.
I am maintaining longs in (MSFT), (AMZN), (V), (PANW), and (CCJ).
US GDP Rocketed by 2.5% in 2023, cementing its position as the strongest major economy in the world. Q4 came in at a hot 3.3%. We’re going from soft landing to no landing at all. Unfortunately, the report also put our bond trade to sleep.
Inflation Falls, with the Core PCE index easing to 2.9% last month, the lowest since 2021. That’s in the face of consumer spending posting the biggest back-to-back increase in nearly a year. This is very positive for bond bulls. Buy (TLT) LEAPS on dips.
The Roaring Twenties are Back, says investment guru and old friend Ed Yardeni. He draws parallels with the runaway stock prices that followed the 1918 Spanish flu pandemic, which killed millions. Of course, you had a 10:1 margin during the twenties which made speculation much easier. Are same-day options any worse?
New Homes Sales Recover, on a falling interest rate push, up 8.0% to 664,000. Sales, however, can be volatile on a month-to-month basis. Sales increased 4.4% on a year-on-year basis in December.
Netflix Soars on Big Subscriber Beat, up 8.6% on an add of 13 million new subscribers. It moved solidly into more sports content with the World Wrestling Entertainment deal. Buy (NFLX) on dips, which clearly won the streaming wars. I can’t get enough of The Rock, who is a genuinely nice guy.
Microsoft Tops $3 Trillion Valuation, cementing its hold on the AI lead. (MSFT) has been a top Mad hedge holding for years which we are currently long. Buy (MSFT) on dips which may have another $100 in it this year.
Freeport McMoRan Kills it, with an earnings upside blowout, taking the stock up 5%. CEO Richard Adkerson, a long-time Mad Hedge subscriber, says any problems are short-term. Political problems in Chile and Peru are an issue, which generates 40% of the world’s copper. Electrification of the US economy will continue to be a driving theme.
Mortgage Rates Plunge to 8-Month Low. The average fixed-rate 30-year mortgage fell to 6.60% as of Thursday from 6.66% the week prior, Freddie Mac said in its weekly report on home loan borrowing costs. The next Golden Age of Housing is here.
China Markets Dive, on news that the central bank was forced into the currency markets to support the yuan. Stock markets didn’t like it a bit, down 2.7% on the day. Overseas funds have sold roughly $1.6 billion in Chinese equities so far this year, with investor confidence bruised by signs of a slowdown in the world's second-largest economy. Offshore yuan tomorrow-next forwards jumped to a more than two-month high of 4.25 points late on Monday, reflecting signs of tighter liquidity conditions. Avoid China (FXI) like some stale egg foo young.
“Oppenheimer” Sweeps the Oscars, with a record 13 nominations. It’s a movie where I knew half the characters in real life from my work at the Nuclear Test site in Nevada. It was another opportunity to discuss advanced nuclear physics over dinner with my kids. Click here for the full list. The winners will be announced on March 10.
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 29, the Dallas Fed Manufacturing Index was announced.
On Tuesday, January 30 at 8:30 AM EST,the S&P Case Shiller National Home Price Index is released. We also get the JOLTS Job Openings Report.
On Wednesday, January 31 at 2:00 PM, the ADP Private Jobs Opening Report is published. The Federal Reserve announces its interest rate decision.
On Thursday, February 1 at 8:30 AM, the Weekly Jobless Claims are announced.
On Friday, February 2 at 2:30 PM, the December Nonfarm Payroll Report and Unemployment Rate is published. At 2:00 PM the Baker Hughes Rig Count is printed.
As for me, I received calls from six readers last week saying I remind them of Ernest Hemingway. This, no doubt, was the result of Ken Burns’ excellent documentary about the Nobel prize-winning writer on PBS last week.
It is no accident.
My grandfather drove for the Italian Red Cross on the Alpine front during WWI, where Hemingway got his start, so we had a connection right there.
Since I read Hemingway’s books in my mid-teens I decided I wanted to be him and became a war correspondent. In those days, you traveled by ship a lot, leaving ample time to finish off his complete work.
I visited his homes in Key West, Florida, and Ketchum, Idaho. His Cuban residence is high on my list, now that Castro is gone. His home in Cuba is on the menu.
I used to stay in the Hemingway Suite at the Ritz Hotel on Place Vendome in Paris where he lived during WWII. I had drinks at the Hemingway Bar downstairs where war correspondent Ernest shot a German colonel in the face at point-blank range. I still have the ashtrays.
Harry’s Bar in Venice, a Hemingway favorite, was a regular stopping-off point for me. I have those ashtrays too.
I even dated his granddaughter from his first wife, Hadley, the movie star Mariel Hemingway, before she got married, and when she was still being pursued by Robert de Niro and Woody Allen. Some genes skip generations and she was a dead ringer for her grandfather. She was the only Playboy centerfold I ever went out with. We still keep in touch.
So, I’ll spend the weekend watching Farewell to Arms….again, after I finish my writing.
Oh, and if you visit the Ritz Hotel today, you’ll find the ashtrays are now glued to the tables.
As for last summer, stayed in the Hemingway suite at the Hotel Post in Cortina d’Ampezzo Italy where he stayed in the 1950s to finish a book. Maybe some inspiration will rub off on me.
Good Luck and Good Trading,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
https://www.madhedgefundtrader.com/wp-content/uploads/2024/01/John-thomas-typewriter.png11861124april@madhedgefundtrader.comhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngapril@madhedgefundtrader.com2024-01-29 09:02:312024-01-29 10:29:05The Market Outlook for the Week Ahead, or Too Much of a Good Thing?
https://www.madhedgefundtrader.com/wp-content/uploads/2010/12/will-rogers.png575375Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2024-01-29 09:00:572024-01-29 10:28:56January 29, 2024 - Quote of the Day
There is a very high degree of risk involved in trading. Past results are not indicative of future returns. MadHedgeFundTrader.com and all individuals affiliated with this site assume no responsibilities for your trading and investment results. The indicators, strategies, columns, articles and all other features are for educational purposes only and should not be construed as investment advice. Information for futures trading observations are obtained from sources believed to be reliable, but we do not warrant its completeness or accuracy, or warrant any results from the use of the information. Your use of the trading observations is entirely at your own risk and it is your sole responsibility to evaluate the accuracy, completeness and usefulness of the information. You must assess the risk of any trade with your broker and make your own independent decisions regarding any securities mentioned herein. Affiliates of MadHedgeFundTrader.com may have a position or effect transactions in the securities described herein (or options thereon) and/or otherwise employ trading strategies that may be consistent or inconsistent with the provided strategies.
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