Global Market Comments
November 25, 2024
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD or WHAT TO DO ABOUT NVIDIA), plus THE WORLD’S WORST INVESTOR),
(NVDA), (GLD), (JPM), (JPM), (NVDA), (BAC), (C),
(CCJ), (MS), (BLK) (TSLA), (TLT)
Boy, did I make the right move going into the election?
I always have a propensity to reduce risk going into a major event. Let the newbies stick their necks out. I’ll collect the low-hanging fruit afterward while trampling over their bodies. As they used to say at Morgan Stanley, “It’s the pioneers who get the arrows in their backs.”
So I went into the November 5 election with 70% cash and long JP Morgan (JPM), Nvidia (NVDA), and gold (GLD). On November 6, I quickly stopped out of gold at cost and let the other two run, which launched on major rallies driven by a new deregulation trend. I then converted the remaining cash into a deregulation portfolio.
The bottom line? Since the election, I have been able to run up a monster 18.05% profit in only 14 trading days. That works out to 1.29% a day, the most earned in the nearly 17-year history of the Mad Hedge Fund Trader.
Notice that no specific deregulation measures have been proposed. No action has been taken. What we are seeing in unrestrained buying is driven by beliefs, animal spirits, and unbounded optimism, which markets all love. Call it euphoria. The problem with euphoria is that it fades as easily as it starts. After the 2016 election, the euphoria lasted for four months, then the market died for three months.
We’ve heard a lot about deficit reduction in the coming years, and let me tell you that the bond market isn’t buying it for a second. Since September, Fed Funds futures markets have plunged from 350 basis points in interest rate cuts by June to only 150 basis points, and half of that has already been done. Even the December 25 basis point rate cut has shrunk to only a 50% probability.
And this is what the bond market has been sniffing out. Tax cuts, spending increases, mass deportation of minimum wage workers, and a trade war are all highly inflationary. The voters may buy it, but not bond investors, and the bond market is always right. All it sees is the National Debt rocketing from $35 trillion to $45 trillion in four years.
“Bond market vigilantes” is soon a term you will hear every day.
It's just a matter of time before we get a shocking, out-of-the-blue move-up in a monthly inflation report. That is when the stock market will crash, and bonds get taken out to the woodshed. Next to happen will be a US Treasury auction that fails, spiking interest rates across the board, which recently caused the British government to fall. Then, hello, recession. We will spend the next many months trading against that day. The new administration’s most important appointment will be the guy in charge of borrowing.
And let me tell you about the National Debt, which I learned all about in my years in the White House Press Corp. The Social Security budget now runs at $1.4 trillion a year in payments, while defense is at $825 billion, for a total spend of $2.225 trillion a year. On top of that, you have to add $1 trillion a year in existing interest payments on the outstanding debt.
Even if spending on these two items goes to ZERO, it would take 16 years to pay off the current National Debt. If the debt rises to $45 trillion in four years plus interest, it would take 22.5 years to pay off. And this is with the number of new retirees exploding thanks to the Baby Boomer generation and defense demands in all parts of the world rising by the day.
Cutting the deficit boils down to cutting Social Security, cutting defense, or cutting the tax subsidies for your largest donors (billionaires, the oil industry), which is why it is never going to happen. Any other spending is too small to move the needle.
One of my favorite tests for someone’s knowledge of the federal budget is to ask them how much the US gives away in foreign aid to poor countries every year, a number that gets wildly exaggerated by political parties. The guesses come in at anywhere from 1% to 10% of the total budget. The correct figure? $63.1 billion, or 0.94% of the total $6.7 trillion in US budget expenditures, or less than one-tenth of one percent. You have been warned. I’m going to give you a test the next time I run into you.
The current deficit is, in fact, a product of five successive tax CUTS (Kennedy, Reagan, Bush II, Trump 1, and soon to be Trump II), which now has far and away the lowest income tax rates in the industrialized world. Remember, before Kennedy, the Great Depression maximum marginal tax rate of 90% prevailed.
But you have to get around to know this. I know because I moved an entire hedge fund from London to San Francisco in 1994 to take advantage of lower tax rates and the emerging Internet boom. I saved millions.
Which leads us to the most important question of the day: what to do about Nvidia (NVDA), almost certainly the largest holding of everyone who reads this letter. The company delivered spectacular earnings as promised, but the shares sold off $12. In fact, (NVDA) has only risen by $13 since June, with a drawdown of 37%. Rising volatility with incremental gains is a sign that a stock is topping out. At a $3.6 trillion market capitalization, the spectacular share price gains of the past are no longer attainable. The Law of Large Numbers is kicking in.
I still believe that (NVDA) will rise next year, but not by 200%. Some 20% is more likely. Fortunately, there is something you can do about it. With an options implied volatility of 40%, you can sell short the December 20, 2024, $156 call options against your existing position for $2.20. If Nvidia rises above $156 and your stock gets called away, your net proceeds will be $158.20, and you will think you died and went to Heaven.
If it doesn’t rise above $156, sell the January call options, and you take in another $2.20. After several months, this starts to add up to a lot of money. Eventually, the implied volatility will fade, and this trade won’t be there anymore.
But it works now.
That’s what I would do.
In November, we have gained a breathtaking +17.38%, November is proving to be our largest month of the year. My 2024 year-to-date performance is at an amazing +70.42%. The S&P 500 (SPY) is up +24.73% so far in 2024. My trailing one-year return reached a nosebleed +71.07%, up an incredible $10 on the week. That brings my 16-year total return to +747.05%. My average annualized return has recovered to an incredible +53.68%.
I maintained a 100% long-invested portfolio, betting that the market doesn’t drop below pre-election levels. That includes (JPM), (NVDA), (BAC), (C), (CCJ), (MS), (BLK) and a triple long in (TSLA). My November position in (JPM) expired at max profit. We are now so far in the money with all of our positions we should make 27 basis points a day until the December 20 option expiration in 18 trading days, thanks to time decay and falling volatility.
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
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 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, November 25 at 8:30 AM EST, the Dallas Fed Manufacturing Index is out.
On Tuesday, November 26 at 8:30 AM, the S&P Case Shiller National Home Price Index is published. At 11:00 AM, the Minutes from the last Fed Meeting are announced.
On Wednesday, November 27, at 8:30 AM, the Core PCE Price Index is 11:00 AM EST. It is a half day for the stock market, which closes at 1:00 PM EST.
On Thursday, November 28, is a National holiday in the US for Thanksgiving.
On Friday, November 29, is Black Friday, and it is a half day for the stock market, which closes at 1:00 PM. At 2:00 PM, the Baker Hughes Rig Count is printed.
Today, I thought I’d recall The World’s Worst Investor, who so happened to be my grandfather on my father’s side.
He was an immigrant from Sicily who joined the army during WWI to attain US citizenship lost an eye when he was mustard gassed on the Western Front in France. I recently obtained his military records from the Department of Defense and learned he was court-martialed for refusing to wash pots and pans at the front while blind!
After the war, the sight came back in one of Grandpa’s eyes, so he
bought a three-bedroom brick home on 76th Street in the Bay Ridge section of Brooklyn street for $3,000, eventually raising four kids. Back then, there was a dairy farm across the street, and horse-drawn wagons delivered ice blocks door to door.
During the roaring twenties, an assortment of relatives chided him for avoiding the stock boom where easy fortunes were made trading on ten to one margin. When the 1929 crash came, all of them lost their homes. Grandpa finished off the basement, creating space for two entire families to move in. He had never bought a stock in his entire life.
Because Dad contracted malaria with the Marines on Guadalcanal during WWII, the old man moved the family to Los Angeles in 1947 for the dry, sunny weather. Unfortunately, my grandmother heard there were no lobsters on the west coast, so she packed two big Maine ones in a suitcase. By the time they got to Las Vegas, the smell was so bad they got kicked off the train. In the booming postwar economy, they had to wait a week to get new seats to LA.
That was enough time for a flimflam man to sell Grandpa five acres of worthless land for $500. Ten years later, my dad drove out to check out the investment. It was a tumbleweed-blown, jackrabbit and rattlesnake-ridden piece of land so far out of town that it had to be worthless. You couldn’t see downtown, even if you stood on the rusted-out model “T” Ford that occupied the site. After that, the parcel became the family joke, and Grandpa was ridiculed as the world’s worst investor.
Grandpa died of cancer in 1977 at the age of 78. What German shrapnel and gas failed to accomplish, 60 years of smoking two packs a day of non-filter Lucky Strikes did. The army gave him cigarettes for free during the war, and he never shook the addiction. Even at the end, he insisted that there was no “proof” that cigarettes caused cancer, which soldiers referred to as “coffin nails.”
His estate executor put the long-despised plot out of Sin City up for sale, and a bidding war ensued. Although the final price was never disclosed, it was thought to be well into eight figures. In the intervening 30 years, the city of Las Vegas had marched steadily westward towards Los Angeles, sending its value through the roof. The deal triggered a big fight among the heirs, those claiming he was the stupidest demanding the greatest share of the proceeds, the bad blood generated continuing to this day. It turns out the world’s worst investor was actually the best, we just didn’t know it.
What was the address of this fabled piece of real estate? Why, it is 3325 Las Vegas Blvd. South, the site today of the Venetian and Palazzo Hotels, home to the Dal Toro restaurant, the venue for the last Mad Hedge Fund Trader’s Las Vegas strategy luncheon.
I’m sure Grandpa is laughing in his grave, in between smoles.
Bought for $500 in 1947
Postscript. One day in New York a few years ago, I had a few hours to spare waiting to board Cunard’s QEII to sail for Southampton, England.
So, I decided to check out the Bay Ridge address that I had heard so much about during my childhood. I took a limo over to Brooklyn and knocked on the front door. I was told the owner was expecting a plumber, so he let me straight in, not noticing my Brioni blue blazer nor the Cadillac stretch limo out front.
I told him about my family history with the property, but I could see from the expression on his face that he didn’t believe a single word.
Then, I told him about the relatives moving into the basement during the Great Depression. He immediately let me in and gave me a tour of the house. He told me that he had just purchased the home and had extensively refurbished it. When they tore out the walls in the basement, he discovered that the insulation was composed of crumpled-up newspapers from the 1930s, so he knew I was telling the truth.
I told him that Grandpa would be glad that the house was still in Italian hands. Could I enquire what he had paid for the house that sold in 1923 for $3,000? He said he bought it as a broken-down fixer-upper for a mere $775,000. And this was after the housing crash in 2011.
My Grandparents 1926
The Fabled Bay Ridge House Bought for $3,000
Good Luck and Good Trading,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Global Market Comments
November 18, 2024
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD or OUT WITH THE NEW, IN WITH THE OLD) Plus REPORT FROM THE QUEEN MARY II),
(TLT), (TSLA), (DHI), (LEN), (KBH), (LMT), (RTX), (GD), (GLD), (SLV), (GOLD), (WPM), (JPM), (NVDA), (BAC), (C), (CCJ), (MS), (SPY)
“Take things as they are and profit off the folly of the world.”
That is one of my favorite quotes from Anselm Rothschild, founder of the Rothschild banking dynasty, which ruled the financing of Europe for centuries. I lived next door to his great X 10 grandson in London for ten years, the late Jacob Rothschild, and boy, did I learn a few nuggets from him.
It's really just another way of saying that you have to trade the market you have, not the one you want. By the way, Anselm’s other famous quote? In 1815, the year the British defeated Napoleon at the Battle of Waterloo, he said, "I care not what puppet is placed upon the throne of England to rule the Empire on which the sun never sets. The man who controls the British money supply controls the British Empire, and I control the British money supply."
And that shall be my strategy in the coming years. The good news? There is a ton of folly out there and, therefore, tons of great new trades.
Let’s start with the market themes. Out with the new, in with the old. Falling interest rates plays are out. Rates will stay higher for longer. Artificial Intelligence will take an extended vacation. Saving the environment is history. Take a look at the woeful underperformance of NASDAQ. That will allow earnings to catch up with share prices, which are already at nosebleed levels.
Money managers will sell these areas, which in many cases have seen enormous appreciation, to finance the purchase of the new themes. These include deregulation, the end of antitrust, the Bitcoin ecosystem, and Tesla (TSLA).
It helps a lot that the outgoing themes are incredibly expensive, with price-earnings multiple of 30X-100X, while the new ones are dirt cheap, with multiples of 15X down to single digits.
Buy cheap, sell expensive….I like it!
If you think I’m just an aging old hippy from Berkeley spouting his iconoclastic, out-of-touch-with-reality views, then check with Mr. Market, who agrees with me on every point and is never wrong.
Notice the collapse of the bond market (TLT) since September. Fed funds futures have already backed out 100 basis points of easing, from 250 basis points to only 150, and we have already seen the first 75. If inflation makes a rapid comeback (prices started rising on November 6), we are likely to only see a couple more 25 basis point cuts from the Fed in this cycle, and that’s it.
The 30-year fixed rate mortgage has rocketed from 6.0% to 7.13%, sticking a dagger through the heart of the real estate market and homebuilders (DHI) (LEN), KBH).
Defense? Who needs weapons when we are withdrawing from the international community? We will just have to depend on our existing 50-year-old defense systems. And while you’re at it, end “cost plus” contracts, which have inflated defense spending since 1940.
This is what fried the shares of Lockheed Martin (LMT), builder of the Blackhawk helicopter, Raytheon (RTX), maker of Javelin antitank missiles, and General Dynamics (GD), manufacturer of the Abrams tank after the past month. What happens to these stocks when the Ukraine War ends?
I have received a lot of questions about whether it is time to go into pharmaceutical and biotech stocks. The answer is no, a thousand times no. The appointment of anti-vaxxer Robert F. Kennedy as the head of Health and Human Services puts the kibosh on that trade, who is likely to declare war on that department. That explains the wipeout of shares in that sector.
Precious metals? Forget it (GLD), (SLV), (GOLD), and (WPM). Witness their own recent hell they have entered. There is no doubt that the election ended the gold trade, which has fallen by 8.3% since November 5. That’s because investors pulled $600 million out of gold-backed ETFs just in the week ending November 8, according to the World Gold Council. It just had its worst week in three years. “Interest rates higher for longer” absolutely does not fit anywhere in the precious metals trade.
Another contributing factor has been the strength of Bitcoin, which raced to a new all-time high of $93,000 on the back of the Trump win. The industry had been a major contributor to the Trump campaign. What better way to fund Bitcoin purchases than to sell your gold, which in any case is up 40% in a year? Money has been pouring into Tesla shares for the same reason.
At some point, gold will fall to a level where Chinese saving alone supports the price. There is no way of knowing where that is, so I’ll wait for the market to tell me. Central bank buying will continue unabated, which has totaled 694 metric tonnes ($5.3 billion) so far in 2024.
I believe that gold will still hit $3,000 an ounce over the long term. But for now, the shine is clearly off those American Eagles. The last time gold took a rest, from 2011 to 2019, it was for eight years.
The bottom line is that there are plenty of new fish to fry out there and plenty of fire with which to cook them. Does anyone have any matches?
In November, we have gained a breathtaking +8.19%, amazing adding to our gains while the market dropped 2.3%. My 2024 year-to-date performance is at an amazing +61.33%. The S&P 500 (SPY) is up +25.79% so far in 2024. My trailing one-year return reached a nosebleed +62.15%. That brings my 16-year total return to +737.86%. My average annualized return has recovered to +53.02%.
I maintained a 100% long-invested portfolio, betting that the market doesn’t drop below pre-election levels. That includes (JPM), (NVDA), (BAC), (C), (CCJ), (MS), and a triple long in (TSLA). My November position in (JPM) expired at max profit. We should make 46 basis points a day until the December 20 option expiration in 24 trading days, thanks to time decay and falling volatility.
Some 63 of my 70 round trips, or 90%, were profitable in 2023. Some 73 of 93 trades have been profitable so far in 2024, and several of those losses were really break-even. That is a success rate of +78.49%.
Try beating that anywhere.
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 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, November 18 at 8:30 AM EST, the NAHB Housing Market Index is out.
On Tuesday, November 19 at 8:30 AM, the US Building Permits take place. Nvidia (NVDA) announces earnings after the close.
On Wednesday, November 20 at 8:30 AM, the MBA Mortgages Rates are announced.
On Thursday, November 21 at 8:30 AM, Existing Home sales are printed. We also get Weekly Jobless Claims.
On Friday, November 22 at 8:30 AM, the S&P Global Flash PMI is announced. At 2:00 PM the Baker Hughes Rig Count is printed.
Location: 48 degrees, 02.12 minutes North, 043 degrees, 42.08 minutes West, or 1,421 nautical miles ENE of New York.
As for me, The Queen Mary 2 is currently plowing its way through a massive fog bank a thousand miles thick, sounding the foghorn every two minutes. Visibility is less than 100 yards, and the waves are a rough 12 feet high. The captain has closed the outside decks for fear of losing a passenger overboard. The weather has disrupted our satellite link, and our Internet is down. So here I write. Leave me alone with a laptop for an hour, and I can conquer the world.
One hour out of New York, and a passenger suffered a heart attack. So the captain turned the ship around and headed back to the harbor, where the New Jersey Search and Rescue sent out a launch to pick up the unfortunate man and his distraught spouse. Every passenger leaned over the port railing to watch.
That meant we could pass under the Verrazano Bridge three times, on each occasion deftly clearing the span by a mere ten feet. Talk about inauspicious beginnings. Visions of Leonardo di Caprio going down with the ship danced across my mind.
The ship is truly gigantic. You must allow 20 minutes to get anywhere, 5 minutes to walk there, and 15 minutes to get lost. When launched two decades ago, it was the largest cruise ship ever built at 148,900 tons, nearly double the size of the now decommissioned Queen Elizabeth II. It whisks up to 3,000 passengers and 1,325 crew across the seas in the utmost luxury at a steady 21.5 knots. You could water ski behind this leviathan of a vessel if only the crew permitted it.
As a 50-year guest of Cunard and the highest paying customer on the ship, I managed to bag the Sandringham Suite, possibly the most luxurious publicly available oceangoing accommodation ever created. The 2,200 square foot, two-floor, two-bedroom, three-bathroom, Q1 class apartment on decks nine and ten included a formal dining room, kitchen, his and her closets, a small gym, and 1,000 square feet of rear-facing teak deck.
All of this was a bargain for $56,000, or about the same as renting the presidential suite at the San Francisco Ritz for a week at $10,000 a night, except at the end, you wake up in England five pounds heavier. Not that I noticed, though. By the afternoon, the two complimentary bottles of Dom Perignon Champagne were already headed for the recycling bin.
The suite came staffed with two full-time butlers, Peter and Henry, who were an endless font of fascinating information about the ship. During one unfortunate cruise, eight senior citizens passed away. The onboard morgue held only six, so the extra two were stashed in the meat locker for the duration of the voyage. There was no reported change in the flavor of the Beef Wellington.
I asked if Cunard had ever performed burials at sea in these circumstances. They said they used to. But a few years back, an elderly billionaire, “Mr. Smith,” checked into a deluxe Q1 cabin with a hot young “Mrs. Smith” and then promptly expired. The grieving widow requested he be buried mid-Atlantic with the traditional yard of sail and a cannonball. When the ship docked at Southampton, a much older, real “Mrs. Smith” appeared to claim the body and sued the company when informed of his current disposition. So, no more burials at sea.
Yes, the ship did hit a whale once, which stuck to the bulbous bow. When it landed in Portugal, Cunard was fined for commercial fishing without a license. The unlucky cetacean’s skeleton is now in a Lisbon maritime museum. Apparently, this company gets sued a lot.
Of course, the memory of the sinking of the Titanic is ever present. There is a history display down on deck 2, and you can even have your photo taken in front of a backdrop of the grand staircase of the ill-fated ship. When we passed 10,000 feet over the wreck at 48 degrees, 38.50 minutes North, 50 degrees, 00.11 minutes West one day out of New York, the Queen Mary 2 let out three long blasts of its horn in memory of the lost. Cunard took over the Titanic’s White Star Line during the Great Depression and is, therefore, the inheritor of this legacy.
When I visited the computer center, I was stunned to learn that they were offering three-hour long classes on Apple products and programs every hour, all day long. They covered iMacs, iPads, iPhones, and all of the associated software and gizmos. I promptly signed up for five classes. Watch for my next webinar. It will be a real humdinger, with all the bells and whistles.
You would think that with 280 pounds of luggage, I could remember to bring a pair of black socks. It was not to be. So I headed out to the ballroom with my black tux and navy blue socks to tango, rhumba, and foxtrot with the best of them. The problem is that just as you twirl, the ship rolls, swiping the dance floor right out from under you. With several Octogenarian couples within range and my size, the consequences could have been fatal. Still, those oldsters really knew their steps. I really hope those pictures come out, especially the one of me on the dance floor, flat on my back.
Looking at the vast expanse of the sea outside my cabin window, I am reminded of the opening scenes of the 1950’s WWII documentary Victory at Sea. An endless, dark, tempestuous ocean churns and boils relentlessly. I am now even more awed by my early ancestors, who took three months to cross from Falmouth to Boston in a 50-foot-long wooden ship called the Pied Cow in 1630. They did this without navigation to speak of rotten food and a dreaded fear of sea monsters. What courage or religious ferocity must have driven them?
Four days of hearing foghorns is starting to get tiring. Captain Wells has been ducking many of his social responsibilities, feeling more secure in the bridge close to the radar. After a few days of intermittent access, the Internet is now gone for good, the satellite connection having given up the ghost. People are blaming everything from a lightning strike on the Virginia ground station to late-night watching of porn by the crew.
Instead of surfing the net, I am devoting more time to exercise in anticipation of my upcoming Swiss mountain climbing adventures. I have developed a careful routine where I fast walk three times around deck 7 in a brisk wind, take the elevator down to deck 1, walk up the stairs to deck 13, speed past the kennels, the practice golf range, two swimming pools, and a bar.
I can accomplish all of this three times in an hour and do it with 40 pounds of books stashed in my backpack. My butler, Peter, tells me there is always a certifiable nut case on every cruise, and I have been designated by the crew as “THE ONE”.
The 2,600 passengers are quite a mixed batch. We have 1,200 British, 750 Americans, 350 Germans, 80 Canadians, 4 dogs, three cats, and an assortment of other nationalities, and exactly one Japanese couple who didn’t speak a word of English.
I took pity on them and spent an evening translating and catching up on the world at large with them. He was a retired dance instructor, which explains why he and his wife owned the dance floor on most nights. They were grateful for the conversation, for during their entire 30-day cruise from New York to Southampton, then the Baltic Sea and the Norwegian fiords, then back to New York, they had no one to speak to. Still, that was better than last year, when they completed a 105-day round-the-world cruise with no one to talk to. Before they left, they gave me an exquisite, handmade, traditional Japanese purse as a gift.
Queen Mary II Passing Under the Verrazano Bridge
Your Intrepid Reporter
Breakfast on the High Seas
Check Out My New Digs
The Hard Life at Sea
Good Luck and Good Trading,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Global Market Comments
October 28, 2024
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or HERE IS YOUR POST-ELECTION PORTFOLIO
plus THE LAST SILVER BUBBLE)
(NVDA), (META), (CRM), (TLT), (JNK), (CCI), (DHI), (LEN), (PHM),
(GLD), (SLV), (NEM), (FXE), (FXB), (FXA), (TSLA), (JPM), (BAC), (GS)
Global Market Comments
September 18, 2024
Fiat Lux
Featured Trade:
(TESTIMONIAL)
(HOW TO SPOT A MARKET TOP),
(SPY), (NFLX), (TSLA), (FB), (LEN), (TLT), (BAC)
It’s fall again when my most loyal readers are to be found taking transcontinental railroad journeys, crossing the Atlantic in a first-class suite on the Queen Mary 2, or getting the early jump on the Caribbean beaches.
What better time to spend your trading profits than after all the kids have gone back to school and the summer vacation destination crush has subsided?
It’s an empty nester’s paradise.
Trading in the stock market is reflecting as much, with increasingly narrowing its range since the August 5 flash crash, and trading volumes are subsiding.
Is it really September already?
It’s as if through some weird, Rod Serling-type time flip, August became September, and September morphed into August. That’s why we got a rip-roaring August followed by a sleepy, boring September.
Welcome to the misplaced summer market.
I say all this because the longer the market moves sideways, the more investors get nervous and start bailing on their best-performing stocks.
The perma bears are always out there in force (it sells more newsletters), and with the memories of the 2008 and 2020 crashes still fresh and painful, the fears of a sudden market meltdown are constant and ever-present.
In the minds of many newly gun-shy traders, the next 1,000-point flash crash is only an opening away.
In fact, nothing could be further from the truth.
What we are seeing unfold here is not the PRICE correction that people are used to but a TIME correction, where the averages move sideways for a while, in this case, a few months.
Eventually, the moving averages catch up, and it is off to the races once again.
The reality is that there is a far greater risk of an impending market melt-up than a meltdown. But to understand why, we must delve further into history and then the fundamentals.
For a start, many investors have not believed in this bull market for a nanosecond from the very beginning. They have been pouring their new cash into the generous 5% yielding bond market instead.
Some 95% of active managers are underperforming their benchmark indexes this year, the lowest level since 1997, compared to only 76% in a normal year.
Therefore, this stock market has “CHASE” written all over it.
Too many managers have only three months left to make their years, lest they spend 2025 driving a taxi for Uber and handing out free bottles of water. The rest of 2025 will be one giant “beta” (outperformance) chase.
You can’t blame these guys for being scared. My late mentor, Morgan Stanley’s money management guru Barton Biggs, taught me that bull markets climb a never-ending wall of worry. And what a wall it has been.
Worry has certainly been in abundance this year, with China collapsing, Gaza exploding, Ukraine and now Russia invaded, the contentious presidential elections looming, oil in free fall, and the worst fire season in decades.
When in doubt, Jay Powell is all about easy money until proven otherwise. Until then, think lower rates for longer, especially on the heels of a disappointing weak August Nonfarm Payroll Report.
So, I think we have a nice setup here going into Q4. It could be a Q4 2023 lite-- a gain of 5%-10% in a cloud of dust.
The sector leaders will be the usual suspects: big technology names, health care, and biotech (IBB). Banks like (BAC), (JPM), (KBE) will get a steroid shot from rising interest rates, no matter how gradual.
To add some spice to your portfolio (perhaps at the cost of some sleepless nights), you can dally in some big momentum names, like Tesla (TSLA), Netflix (NFLX), DH Horton (DHI), Lennar Housing (LEN), and Facebook (FB).
Global Market Comments
September 2, 2024
Fiat Lux
Featured Trade:
( AUGUST 28 BIWEEKLY STRATEGY WEBINAR Q&A),
(SMCI), (QQQ), (CRWD), (NVDA), (TSLA), (GOLD), (BRK/B), (BAC), (AAPL)
Below please find subscribers’ Q&A for the August 28 Mad Hedge Fund Trader Global Strategy Webinar, broadcast from Santa Barbara, CA.
Q: What is your opinion on Supermicro (SMCI)?
A: I can tell you that all fund managers have the same reaction as I do when they hear the words “accounting irregularities” ….run. So, if you haven’t, I would get out. If you’re looking to get in, there’s probably a great opportunity somewhere, but not here. Their product isn’t that high-tech, cooling racks for artificial intelligence servers. But it did have the letters “AI” attached, so it went up 50-fold. But Hindenburg is occasionally right on their research reports, although they’re wildly exaggerated to enhance their short positions. I would stay out of the way on that one for now.
Q: Are there any startup companies worth investing in on the public market right now?
A: No, because new listings are always overhyped. They come in usually double their true value. This happened with Tesla (TSLA)—I think Tesla came out at $32, I waited for the 50% selloff and all the marketing hype to wear off and I bought it at $16, and of course, that's probably about 60 cents now on a split-adjusted basis. So, I don't play the IPO game. If an IPO really is hot, chances are your broker won’t give it to you anyway; he'll give it to his largest clients. That's probably not you. So, I don't get involved in that game, I look at the aftermath. And in hot markets, there is no aftermath, you just watch them go up. The answer to that is a firm no.
Q: Home prices just hit new all-time highs, according to the S&P Case-Shiller. How do the prices keep rising with high interest rates?
A: Because people expect interest rates to fall, and they are doing so dramatically. If you look at all the interest-sensitive sectors which I've been recommending for the last four months, they've all been on fire. So if the cost of your mortgage is about to drop by half, housing prices should double, and we are starting to see that double now.
Q: Should we buy a put on the (QQQ) based on Nvidia (NVDA) earnings?
A: Nobody knows what the Nvidia earnings are going to be, so if you're willing to make a bet on a coin toss, go ahead and do it. I don't make bets on coin tosses. I make bets when there's a 90% chance that I'm going win, and there are no 90% chance trades out there anywhere in any asset class right now. It's better to watch and wait for the next opportunity. If Nvidia sells off 10% on a weak guidance, then I would be in there with both hands buying, because Nvidia is still cheap relative to the rest of the sector and the rest and of the market. And if Nvidia goes up 20%, I might even sell it short. I have shorted Nvidia this year a couple of times this year, and made money both times, so that is the trade. But right here we're in the middle of the next likely range, so no trade there at all.
Q: Will CrowdStrike (CRWD) have a financial liability for the problem it created by crashing the world's travel computers?
A: Yes, and that will no doubt be the subject of litigation for the next 10 years, which I would rather not get involved in.
Q: The tech industry keeps cutting white-collar jobs, and they have been for some time. At which point does this subside, and won’t this crush employment in Silicon Valley?
A: Well, it’s already crushed employment by about 300,000 in Silicon Valley, but artificial intelligence is now starting to soak up those employees, and they certainly are soaking up the office space, which is why the smart money that is now pouring into San Francisco buying up office buildings for pennies on the dollar. They see an employment recovery. In the meantime, buy the Magnificent Seven stocks, because they’re creating profits by cutting the excess staff which they always used to keep.
Q: When you talk about Tesla (TSLA) losing ground in the EV market, do you see the company broadening out its technologies, and growing the company down other avenues?
A: Absolutely, yes. They have a very fast-growing solar panel business, an industrial-scale battery business, and of course, they're basically running the charging network for the entire United States and the entire world. They also have new batteries under development that have the potential to increase car ranges 20 times at zero cost. Elon always has at least a dozen or so other projects underway, many of which he keeps secret. What you have to keep track of is how many of these accrue to Tesla, and how many accrue earnings to his other companies, like SpaceX, Neuralink, and xAI. SpaceX is going gangbusters right now because guess what? They're planning an IPO in the near future and should get a big multiple. xAI just raised $6 billion in a VC round.
Q: How can Nvidia (NVDA) go higher tonight if it disappoints?
A: It won't. It will drop about 10%. I'm just saying you can go higher into next year on 50% earnings growth, but we may have to give back 10%, 20%, or in the case of August 5th, 40% before we can go forward.
Q: Whatever happened to the commercial real estate problem? How is that taken care of so tightly by private capital?
A: It's a play on falling interest rates. A lot of buildings were going for 10 cents on the dollar in Manhattan and in San Francisco, so these guys know bargains, and they're long-term players, and that's how they always make money in that business. I've been watching it for 50 years, and their market timing is excellent.
Q: What will the effects of de-dollarization mean to the long-term health of the stock market?
A: Nothing, because de-dollarization isn't going to happen. It's more or less an internet conspiracy theory. There's no serious move whatsoever to replace the US Dollar, and Bitcoin or crypto in general never got to more than 1% of the total value of US dollars out there, and plus it's had its problems. So I don't think de-dollarization is going to happen in my lifetime.
Q: Why is Warren Buffett (BRK/B) unloading shares in Apple (APPL) and Bank of America (BAC)?
A: He thinks the whole market is expensive, and I would agree with him. He likes having a lot of cash during recessions or during major market crashes, so he can swoop in and buy whole companies. So that is the answer. He's thought the market has been expensive for years now, but that doesn't seem to stop them from making money.
Q: Should we take profit on the LEAPS in Barrick Gold (GOLD) expiring in January?
A: Yes, you should take the profit here. You make maybe 20% or 30% and then wait for the next sell-off, and then go back into (GOLD), but add an extra year to the expiration date. Do a 2026 instead of a 2025, because we're getting kind of short on time on all the January 2025 expirations. So that would be the smart thing to do, is to take profits on all your January 25 LEAPS, raise cash, and go back in into an 18-month LEAP on the next sell-off, and I will be reminding you to do exactly that when it happens.
Q: Should we wait until after the election to invest?
A: No. The market will start running before the election, especially if the election outcome becomes more and more certain. So that kind of sets up an October bottom for the market, and maybe even a September one—who knows? We will just have to see how the polls go, even though they are usually wrong. So that's what I would do on that.
To watch a replay of this webinar with all the charts, bells, whistles, and classic rock music, just log in to www.madhedgefundtrader.com, go to MY ACCOUNT, select your subscription (GLOBAL TRADING DISPATCH, TECHNOLOGY LETTER, or Jacquie's Post), then click on WEBINARS, and all the webinars from the last 12 years are there in all their glory
Good Luck and Good Trading,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Global Market Comments
May 1, 2024
Fiat Lux
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