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
May 1, 2024
Fiat Lux
Featured Trade:
(SEVEN REASONS TO BUY CHARLES SCHWAB),
(SCHW), (TLT), (GS), (MS), (C), (BAC),
(TESTIMONIAL),
(TAKING A BITE OUT OF STEALTH INFLATION)
Looking for a financial to add to your tech-heavy portfolio?
I think the nimble investor can pick up shares of online broker Charles Schwab (SCHW) and gain an outsized return.
That’s assuming that the current correction in the stock market remains in single digits, and doesn’t explode into a full-blown bear market.
There are many things that can go right with (SCHW).
Of the major online brokers, Charles Schwab pays the highest tax rate. With the least amount of international business, it is unable to hide billions of dollars tax-free offshore, as do (GS), (MS), (BAC), and (C).
It therefore pays the highest tax rate of the major financials and will be the most to benefit from any tax cut, if and when that ever happens.
Big funds have been soaking up the stock all year.
That leads to the second play. With the smallest amount of international earnings, the company will suffer the least from a coming weak US dollar.
With 90-day US Treasury bill ticking at 5.39% this morning, the greenback will almost certainly remain strong for a few more months. Once the cuts start, look out below.
Since financials are the one sector most sensitive to interest rates, (SCHW) should do well when rates fall.
At a 4.70% ten-year yield, we are closer to the bottom in all fixed-income yields than the 2020 top at 0.32%.
Personally, I don’t think the ten-year will go any lower than 5.10% in this cycle.
Here is the fourth reason to pick up some (SCHW).
When my New American Golden Age resumes, stock markets will rise threefold and volumes will explode.
The retail investor will make a long-awaited return to investing in equities.
Ever wonder why your online brokers keep disappearing?
Why TradeMonster get taken over by Option House, which then was swallowed by E-Trade?
It’s the major players making bets that financials will become the top-performing sector of the next decade. Always follow the big money.
This makes Charles Schwab a takeover target.
And if Schwab doesn’t get bought out, it will benefit from reason number six, a huge concentration of the industry that will finally allow commissions to RISE instead of fall, as they have over the last four decades.
Reduced competition always leads to higher profits. If you’re not convinced look no further than the airline business.
Charles Schwab originally sprang from a well-written newsletter from the 1960s and is now both a bank and brokerage firm, based in San Francisco, California.
It was founded in 1971 by Charles R. Schwab and was one of the earliest discount brokerage houses. It is now one of the largest brokerage firms in the United States.
The company provides services for individuals and institutions that are investing online.
(SCHW) offers an electronic trading platform for the trade of common stocks, preferred stocks, futures contracts, exchange-traded funds, options, mutual funds, and fixed-income investments.
It also provides margin lending and cash management services. The company also provides services through registered investment advisers.
It is not cheap, with a price-earnings multiple of 31, but it does offer a dividend of 1.33%.
This is a market that is all about expensive stocks getting more expensive, which cheap stocks (retail) get cheaper.
(SCHW) total market capitalization stood at $110 billion at the end of trading yesterday.
Of course, there’s the seventh reason to buy the shares of Charles Schwab.
I have the box next to the one owned by (SCHW) founder and CEO Charles Schwab himself at the San Francesco Opera House.
At the intermission for the season opener for Puccini’s Turondot, I asked him what he thought about the price of his shares here.
All he would say was “I’m not selling”, and gave me a wink.
The last time I bet on a wink like that, I got a double in the shares.
That’s good enough for me.
Global Market Comments
March 4, 2024
Fiat Lux
(MARKET OUTLOOK FOR THE WEEK AHEAD, or WHO NEEDS THE FED?
(AAPL), (TSLA), (AAPL), (GOOGL), (MSFT), (MSFT), (BRK/B), (BA), (JPM), (BA), (C), (SNOW), (NVDA)
I have to tell you that this has been a really good week to be John Thomas.
The accolades have been pouring in. During February, my followers have made the most money in their lives, including myself. NVIDIA (NVDA), up 110% in four months, is now the largest position in everyone’s portfolios, if not because of my prodding, then through capital appreciation alone.
Institutions limited to keeping single holdings to 5% or 10% got away with delaying their rebalancing as long as possible.
Is it 1995 for 2,000? I vote for the former, meaning that the current melt-up could have five more years to run with occasional breaks.
Exploding corporate profits and rocketing share capitalizations have replaced the Federal Reserve as a new endless source of liquidity, as I knew it would.
Who needs the Fed? Who needs interest rate cuts?
Best of all, this new source of super liquidity isn’t at the whim of a single man, nor subject to politics of any kind. It has in fact become its own self-fulfilling prophecy.
Dow 240,000 here we come, as I have been endlessly repeating for years!
It says a lot that hedge funds, the “smart money,” are heavily overweight the Magnificent Seven, while retail mutual funds, the “dumb money” are underweight. The technology they are overweight is mostly in Apple, that great backward-looking company. This implies that to catch up mutual funds are going to have to buy hundreds of billions of Mag Seven stocks and sell their Apple to pay for the move.
The largest single source of demand for stocks will be the $1.25 trillion in corporate buybacks. What will they buy? Apple (AAPL), Alphabet (GOOGL), and Microsoft (MSFT), the three largest purchasers of their own stocks.
When the leader of the fastest-growing, best-performing company with the top-performing stock speaks, you have to pay attention. The next $1 trillion build-out in AI infrastructure is here, says NVIDIA CEO Jensen Huang, now one of the richest men in the world.
Have a good week! I’ll be spending my time shoveling snow.
In February, we closed up +7.42%. My 2024 year-to-date performance is at +3.14%. The S&P 500 (SPY) is up +7.33% so far in 2024. My trailing one-year return reached +55.73% versus +42.04% for the S&P 500.
That brings my 15-year total return to +679.77%. My average annualized return has recovered to +51.30%.
Some 63 of my 70 trades last year were profitable in 2023. Some 9 of 13 trades have been profitable so far in 2024.
I used the ballistic move-in (NVDA) to take profits in my double long there. I am maintaining a single long in (AMZN) and Snowflake (SNOW) and am 80% in cash given the elevated level of the markets.
Core PCE Comes in Cool, at 2.8%, as expected. The personal consumption expenditures price index excluding food and energy costs increased 0.4% for the month and 2.8% from a year ago, as expected. Stocks and bonds liked it, but the US dollar hated it.
Snowflake Crashes, down 20%, on weak guidance. CEO Frank Slootman is retiring. This is the third company he has taken public and it’s time to retire. He will stay on as chairman. This is one of the best cloud plays out there, and now you have a chance to buy it close to the October bottom. Buy (SNOW) on dips.
Weekly Jobless Claims Pop, up 13,000 to 215,000. However, continuing claims, which run a week behind, rose to just above 1.9 million, a gain of 45,000 and higher than the FactSet estimate of 1.88 million.
Apple Pulls the Plug on EV Project, wrong product at the wrong time. AI is where the action is. We may have to wait until the summer for this company when it starts to discount the next-generation iPhone release in the fall. Tesla can now sleep easy. Avoid (AAPL) and buy (TSLA) on dips.
Berkshire Hathaway to Top $1 Trillion in a Year, up from the current $900 billion, according to UBS analyst Brian Meredith. I think that’s a low target. Buy (BRK/B) on dips.
Boeing Hit by Damning Report, faulting the company for ineffective procedures and a breakdown in communications between senior management and other members of staff, according to an FAA report. The report is the latest to find fault with safety at Boeing, which suffered its latest blow when a panel covering an unused door flew off during an Alaska Airlines flight on Jan. 5. Buy (BA) on dips.
Warren Buffet Says Their Nothing to Buy, in his annual letter to shareholders. The few targets left are few and far between and heavily picked over. (BRK/B) has also lost the advice of its principal mentor, Charlie Munger at the age of 99. Last year Berkshire acquired Dairy Queen and Berkshire Energy. But with $905 billion in assets, those will hardly move the needle on his incredible track record. The 93-year-old Buffet has outperformed the S&P 500 by 141:1 since 1964.
CEO Jamie Diamond Sell $150 Million in (JPM) Shares, cashing in on the historic “BUY” he had at the 2009 market bottom. He earned a 36X gain on that trade. (JPM) remains the “must-own” bank for most institutional investors.
New Home Sales Weaken, curbed by frigid weather, but demand for new construction remains underpinned by a persistent shortage of previously owned homes. New home sales increased 1.5% to a seasonally adjusted annual rate of 661,000 units in January. Economists had forecast new home sales rising to a rate of 680,000 units.
Another Regional Bank is in Trouble. Commercial real estate lender New York Community Bancorp said it discovered “material weaknesses” in how it tracks loan risks, wrote down the value of companies acquired years ago, and replaced its leadership to grapple with the turmoil. The stock plunged. Expect this to be a recurring problem. The US banking system is in the process of consolidating from 4,236 banks to six. Buy (JPM), (BA), and (C) on dips.
Millennials are Becoming the Richest Generation in History. The so-called greatest generation — those typically born from 1928 to 1945 — and baby boomers — born between 1946 and 1964 — will hand over the reins to those born from 1981 to 1996 when they pass on their property- and equity-rich assets. In the U.S. alone, the shift would see $90 trillion of assets move between generations.
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, March 4, nothing of note is announced.
On Tuesday, March 5 at 8:30 AM EST, ISM Services are released.
On Wednesday, March 6 at 2:00 PM, the Jolts Job Openings Report is published
On Thursday, March 7 at 8:30 AM, the Weekly Jobless Claims are announced.
On Friday, March 8 at 2:30 PM, the Nonfarm Payroll Report for February is published. At 2:00 PM the Baker Hughes Rig Count is printed.
As for me, I’ve found a new series on Amazon Prime called 1883. It is definitely NOT PG rated, nor is it for the faint of heart. But it does remind me of my own cowboy days.
When General Custer was slaughtered during his last stand at the Little Big Horn in 1876 in Montana, my ancestors spotted a great buying opportunity. They used the ensuing panic to pick up 50,000 acres near the Wyoming border for ten cents an acre.
Growing up as the oldest of seven kids, my parents never missed an opportunity to farm me out with relatives. That’s how I ended up with my cousins near Broadus, Montana for the summer of 1966.
When I got off the Greyhound bus in nearby Sheridan, I went into a bar to call my uncle. The bartender asked his name and when I told him “Carlat” he gave me a strange look.
It turned out that my uncle had killed someone in a gunfight in the street out front a few months earlier, which was later ruled self-defense. It was the last public gunfight seen in the state, and my uncle hasn’t been seen in town since.
I was later picked up in a beat-up Ford truck and driven for two hours down a dirt road to a log cabin. There was no electricity, just kerosene lanterns, and a propane-powered refrigerator.
Welcome to the 19th century!
I was hired as a cowboy, lived in a bunk house with the rest of the ranch hands, and was paid the pricely sum of a dollar an hour. I became popular by reading the other cowboys' newspapers and their mail since they were all illiterate. Every three days we slaughtered a cow to feed everyone on the ranch. I ate steak for breakfast, lunch, and dinner.
On weekends, my cousins and I searched for Indian arrowheads on horseback, which we found by the shoe box full. Occasionally we got lucky finding an old rusted Winchester or Colt revolver just lying out on the range, a remnant of the famous battle 90 years before. I carried my own six-shooter to help reduce the local rattlesnake population.
I really learned the meaning of work and developed callouses on my hands in no time. I had to rescue cows trapped in the mud (stick a burr under their tail and make them mad), round up lost ones, and sawed miles of fence posts. When it came time to artificially inseminate the cows with superior semen imported from Scotland, it was my job to hold them still. It was all heady stuff for a 15-year-old.
The highlight of the summer was participating in the Sheridan Rodeo. With my uncle being one of the largest cattle owners in the area, I had my pick of events. So, I ended up racing a chariot made from an old oil drum, team roping (I had to pull the cow down to the ground), and riding a Brahman bull. I still have a scar on my left elbow from where a bull slashed me, the horn pigment clearly visible.
I hated to leave when I had to go home and back to school. But I did hear that the winters in Montana are pretty tough.
It was later discovered that the entire 50,000 acres was sitting on a giant coal seam 50 feet thick. You just knocked off the topsoil and backed up the truck. My cousins became millionaires. They built a modern four-bedroom house closer to town with every amenity, even a big-screen TV. My cousin also built a massive vintage car collection.
During the 2000s, their well water was poisoned by a neighbor’s fracking for natural gas, and water had to be hauled in by truck at great expense. In the end, my cousin was killed when the engine of the classic car he was restoring fell on top of him when the rafter above him snapped.
It all gave me a window into a lifestyle that was then fading fast. It’s an experience I’ll never forget.
Good Luck and Good Trading,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Mad Hedge Technology Letter
January 12, 2024
Fiat Lux
Featured Trade:
(FINANCE TURNS TO AI)
(C), (AI)
Tech is at it again and I mean artificial intelligence doing the dirty jobs for senior executives.
Citigroup (C) CEO Jane Fraser is doing the extreme by slashing a big portion of the staff and a reason to feel very comfortable about this is the upcoming implementation of generative AI into the company.
The New York bank said that it expects to eliminate 20,000 positions by 2026, which will save it $2.5 billion. It also intends to shed another 40,000 when it lists its Mexican consumer unit Banamex in an initial public offering.
Each year moving forward, investment banks need less humans, because software is replacing the need.
Gone are the moments when finance degrees were the hottest commodity, now it is all about generative AI.
That would leave Citigroup with 180,000 workers, which would likely make it the smallest of the big four banks in the US and reduce the overall size of its workforce by 25%. It ended in 2023 with 240,000.
Eventually, generative artificial intelligence (AI) could replace the equivalent of 300 million full-time jobs, a report by investment bank Goldman Sachs says.
It could replace a quarter of work tasks in the US and Europe but may also mean new jobs and a productivity boom.
And it could eventually increase the total annual value of goods and services produced globally by 7%.
Generative AI, able to create content indistinguishable from human work, is "a major advancement", the report says.
Silicon Valley is keen to promote investment in AI in not only the United States but in a way that will ultimately drive productivity gains across the global economy.
AI will complement the way bankers work, not disrupting it - making finance jobs better, rather than taking them away.
The report notes AI's impact will vary across different sectors - 46% of tasks in administrative and 44% in legal professions could be automated but only 6% in construction and 4% in maintenance, it says.
The first layoffs began in November 2023, affecting senior managers. Those cuts amounted to roughly 10% of senior manager roles or approximately 300 managers
The disclosure came on a day when Citigroup reported a net loss of $1.8 billion in the fourth quarter resulting from an FDIC assessment of $1.7 billion and other charges and reserves it previously disclosed.
Senior managers are mostly all bark and no bite these days as their work tasks have become irrelevant.
I believe the entire front office staff will be reduced to a pittance soon and by that, I mean single-digit staff.
According to research cited by the report, 60% of workers are in occupations that did not exist in 1940.
However, other research suggests technological change since the 1980s has displaced workers faster than it has created jobs.
The job cuts are part of an internal restructuring that Fraser has called the "most consequential" change to how Citigroup operates in nearly two decades.
Lower wage expense and higher output is a perfect recipe for higher share prices and that is exactly what we will get from Citigroup.
It’s not a surprise that C is investing aggressively in technology and IT.
The playbook is out there and employing a bare-bones staff is the new Silicon Valley and banks are applying the same model too.
Investment banks are the new tech company as every company is forced to become a tech company.
