"My experience in business helps me as an investor, and my investment experience makes me a better businessman," said Oracle of Omaha, Warren Buffett.
"My experience in business helps me as an investor, and my investment experience makes me a better businessman," said Oracle of Omaha, Warren Buffett.
Global Market Comments
January 14, 2025
Fiat Lux
Featured Trades:
(THE KINDLE EDITION OF THE JOHN THOMAS BIO IS OUT)
"If you can get a dividend higher than the yield on ten year debt, it's an opportunity we haven't seen in our lifetime. On a five year horizon, investing in large multinationals with high dividends will have a large payday" said Lawrence Fink, CEO of Black Rock.
Global Market Comments
January 13, 2025
Fiat Lux
Featured Trades:
(MARKET OUTLOOK FOR THE WEEK AHEAD or WHAT’S NEXT),
(SPY), (TSLA), (TLT), (GS)
This is not the rose garden we were promised.
Down three of six trading days so far in 2025, with the S&P 500 off 2.2%. Worse yet, there is an almost perfect head and shoulders topsetting up on the charts portending lower lows. Lead names like Tesla (TSLA) have taken it on the nose, down 25%.
Tax-deferred selling has definitely been the dead weight hanging on the market since January 1. High-net-worth individuals would have shot the financial advisors off if they had saddled them with big tax bills during the last weeks of 2024. After two 20% back-to-back years, many of these positions had doubles and triples in them. How long it will be anyone’s guess.
Once the selling does end, the market will go into “show me” mode, waiting for the new administration to deliver the promised action. This could be a long wait. The earliest Congress can vote on a new economy-changing bill in May. Until then, the market could be entering a tedious trading range until action is delivered.
The good news? There were many times in my life when I never thought I’d live until 2025. Also, we get two extra holidays in January, Jimmy Carter’s funeral and Martin Luther King Day on the 23rd.
So, what’s a trader to do in these suddenly benighted times? 90-day US Treasury bill looks fantastic right now with a 4.21% yield. Nothing is better than getting paid to wait. Big tech is entering a long-range trade from which it will eventually escape to the upside. A lot of the AI trade needs to be digested and earnings spun off before a major new upleg can begin.
One of the great things about a 16-day cruise from Los Angeles to Fort Lauderdale, Florida is the many fascinating people you meet. It turned out that I missed the start of the Great Los Angeles fires by a week.
I attended a wine tasting and learned that the entire event had been bought out by the preeminent aviation family of Alaska. The 93-year-old grandmother treated her extended 25-member family to a free cruise, great-grandchildren and all, at a cost of only $250,000. Apparently, aviation in Alaska pays well.
The subject of airplanes inevitably came up. They mentioned that they still had their original aircraft, a 1928 Travelaire D4D, which Grandpa bought second-hand and brought up to Alaska during WWII. They couldn’t get any of their current pilots to fly it, which they deemed too dangerous to fly.
I mentioned that I happened to be one of ten living pilots rated to fly the plane and showed them videos of me flying my kids over the Malibu coast (click here for the link).
I believe an invitation is pending.
We closed out December at +3.26%. Some 11 out of 12 months were profitable in 2024. The final number for 2024 came in at a sky-high +75.26%. I went all cash on the December 20 options expiration, expecting the current trouble that we are in. I would be thrilled if we even came close to these numbers in 2025.
I started out the New Year with 80% cash and two small hedged positions. I went long 10% (TLT) and long 10% (TSLA). These expire in four days on the January 17 option expiration, when we flip back to a 100% cash position.
Some 63 of my 70 round trips, or 90%, were profitable in 2023. Some 74 of 94 trades have been profitable so far in 2024, and several of those losses were really break-even. That is a success rate of +78.72%.
Try beating that anywhere.
My Ten-Year View – A Reassessment
When 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 a headwind. 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, January 13 at 11:00 AM EST, the Consumer Inflation Expectations are released.
On Tuesday, January 14 at 8:30 AM, the Producer Price Index
is published.
On Wednesday, January 15 at 8:30 AM, the Inflation Rate is printed.
On Thursday, January 16 at 8:30 AM, the Retail Sales are announced.
On Friday, January 17 at 8:30 AM EST, Housing Starts and Building Permits are published. At 2:00 PM, the Baker Hughes Rig Count is printed.
As for me, I was recently in Los Angeles visiting old friends, and I am reminded of one of the weirdest chapters of my life.
There were not a lot of jobs in the summer of 1971, but Thomas Noguchi, the LA County Coroner, was hiring. The famed USC student jobs board had delivered! Better, yet, the job included hours at night and free housing at the coroner's department.
I got the graveyard shift, from midnight to 8:00 AM. All I had to do was buy a black suit from Robert Halls, for $25.
Noguchi was known as the “coroner to the stars” having famously done the autopsies on Marilyn Monroe and Jane Mansfield. He did not disappoint.
For three months, whenever there was a death from unnatural causes, I was there to pick up the bodies. If there was a suicide, gangland shooting, or horrific car accident, I was your man.
Charles Manson had recently been arrested and I was tasked with digging up the victims. One, cowboy stuntman Shorty Shay, had his head cut off and neatly placed in between his ankles.
The first time I ever saw a full set of women’s underclothing, a girdle, and pantyhose, was when I excavated a desert roadside grave that the coyotes had dug up. She was pretty far gone.
Once, me and another driver were sent to pick up a teenage boy who had committed suicide in Beverly Hills. The father came out and asked us to take the mattress as well. I regretted that we were not allowed to do favors on city time. He then said, “Can you take it for $200”, then an astronomical sum.
A few minutes later, I found a hearse driving down the Santa Monica Freeway on the way to the dump with a double mattress expertly tied on the roof with Boy Scout knots with a giant blood spot in the middle.
Once, I was sent to a cheap motel where a drug deal gone wrong had produced several shootings. I found $10,000 in a brown paper bag under the bed. The other driver found another ten grand and a bag of drugs and kept them. He went to jail. I didn’t.
The worst pick-up of the summer was also the most disgusting and even made the old veterans sick. A 300-pound man had died of a heart attack and was not discovered for a month. We decided to each grab an arm or leg and all tug on the count of three. One, two, three, and all four limbs came off!
Eventually, I figured out that handling dead bodies could be hazardous to your health, so I asked for rubber gloves. I was fired.
Still, I ended up with some of the best summer job stories ever.
Good Luck and Good Trading,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
“When the Dow was down 3,600 points I felt like hugging our computers. The combination of man and machine is wonderful…Computers, math and game theory are the best decision makers there are,” said Bridgewater founder Ray Dalio.
Global Market Comments
January 10, 2025
Fiat Lux
Featured Trades:
(A CHEAP HEDGE FOR THIS MARKET)
The S&P 500 is now 3.2% of its all-time high at 6,100 and is showing definientia signs of rolling over.
So financial advisors, pension fund managers, and cautious individuals have been ringing me up asking what is the best way to hedge the heady 23% gain in 2024.
You can forget about buying the Volatility Index (VIX), (VXX). The huge contango, the discount front month futures contracts have too far month ones, almost guarantees that your hedge will be enormously expensive and expire worthless before it has the chance to do any good.
No, there’s a much better way to do this.
Buy deep out-of-the-money, long-dated S&P 500 (SPY) put options. You want to go deep out-of-the-money so your insurance policy is cheap.
You also want to go long-dated, so time decay doesn’t kill you and your option position lives long enough to do some good. By long-dated, I’m thinking five months out, like the June 20, 2025 option expiration date.
All of this logic points to the (SPY) June 2025 $530 puts today priced at $8.00, which as of today are 10% out-of-the-money.
Here is the beauty of this position. A put option rises in value in falling markets. But so does option-implied volatility, creating a leveraged hockey stick effect on the value of your put position. And deep out-of-the-money options always see implied volatilities rise much faster than near-money ones.
You don’t need the market to drop the full 10% to make enough profit in this position to offset losses elsewhere in your portfolio.
A much more likely 5% market correction would cause the value of the June 2025 $530 puts to jump from $8.00 to $14.00, a gain of 75%, as long as that drop happens soon. However, add in an expected pop in implied options volatility and the profit could be as much as 100%.
So how many June 2025 $250 puts should you buy?
Let’s say you have a $100,000 portfolio. Only two put option contracts would provide enough coverage for your entire exposure ($100,000/100 shares per contract/$530 (SPY) strike price) = 1.88 contracts rounded up to two. Two contracts of the June 2025 $530 puts will cost you $1,600 (2 X 100 shares per contract X $8.00).
In other words, $1,600 buys you an insurance policy on $100,000 portfolio exposure for six months. Sounds like a deal to me.
There are endless variations of this strategy. For example, it is a good idea to long-date your longs and short-date your shorts to maximize accelerated time decay in your favor.
In such a scenario you would stay long the six-month put option described above, but sell short one-month options against it, but with a strike 15% out of the money instead of 10%. I could go on and on. That cuts the cost of this hedge by two-thirds.
There are a few qualifications with such a simple hedge. Let’s say that you read the Diary of a Mad Hedge Fund Trader and have a highly concentrated portfolio focused on technology and financial stocks.
In such case, the tracking error between the (SPY) and your portfolio will be large (after all, that is the point), and you may not get all the downside protection you want.
On the other hand, what if we really get the 10% correction? What if the black swans suddenly land in flocks? In that case, the value of your June 2025 $530 puts soar to at least $29, and more likely $32 when you add in the expected effects of rocketing implied volatilities. The value of your hedge rises to $3,200.
Yes, you don’t get complete 1:1 coverage. But it’s better than going into such a route naked, with no downside protection at all.
Let’s say you’re a cheapskate and you want your insurance policy for free. Yes, this can be done.
There is another hedging strategy that is far easier to execute. Just take a long cruise around the world. That way, corrections will come and go and you might not even know about it, unless your butler brings you an online copy of the Wall Street Journal every morning, as mine does.
This is the hedging strategy most of you have pursued for the past nine years and it has worked really well. At least you end up with a nice tan and some pleasant photos.
As for the June 2025 $530 puts, they’re most likely end up expiring worthless, but you’ll sleep better at night. Such is the price of peace.
“Incentive structures work, so you have to be very careful about what you incent people to do because various incentive structures create all sorts of consequences which you can’t anticipate,” said Apple founder Steve Jobs.
Global Market Comments
January 8, 2025
Fiat Lux
2025 Annual Asset Class Review
A Global Vision
FOR PAID SUBSCRIBERS ONLY
Featured Trades:
(SPY), (QQQ), (IWM), (GS), (MS), (JPM), (BAC), (C), (BLK),
(TLT), (TBT), (JNK), (PHB), (HYG), (MUB), (LQD), (FXE), (FXY), (FXB), (FXE), (FXA)
(FCX), (BHP), (RIO), (VALE), (DBA), (DIG), (USO), (DUG), (UNG), (USO),
(XLE), (LNG), (CCJ), (VST), (SMR), (GLD), (DGP), (SLV), (PPTL), (PALL),
(ITB), (LEN), (KBH), (PHM), (DHI)
Legal Disclaimer
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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