(MARKET OUTLOOK FOR THE WEEK AHEAD or S&P 500 6,000 TARGET ACHIEVED, plus REPORT FROM THE FROZEN WASTELANDS OF THE WEST),
(CCI), (DHI), GLD), (SLV) (JPM), (MS), (BLK),
(CCJ), (NVDA), (AMZN), (TSLA), (DGE)
I was reviled, abused, and outright laughed at by the investment community when, last January 5, I predicted that the S&P 500 would hit 6,000 by yearend, click here for the link. I was accused of sending out clickbait.
Yet here, ten months and change into the year here, we are with an intraday high today of 6,013.
Of course, in this business, you’re only as good as your last trade. So, the big question now is, what happens next?
The next two months are a gimme. The $8 trillion that has been sitting on the sideline is now pouring into the market. An S&P 500 target of 6,600 is within range. Speaking to fund managers around the country, the big concern was not over who won but whether we had a winner at all.
Three months of litigation with no outcome would have raised uncertainty to extremes and crashed the market. The risk of that scenario is now gone, which was worth a $1,500 rally in a day.
However, while the bull market continues, the targets have changed. As you will hear many times over the next four years, elections have consequences.
Falling interest rate plays are out. Don’t expect much performance from real estate, REITS (CCI), new homebuilders (DHI), gold GLD), and silver (SLV).
Deregulation plays are in. The good news is that this is a fairly wide sector. It includes banks (JPM), brokers (MS), money managers (BLK), new nuclear (CCJ), big tech that had been targeted by antitrust (NVDA) and (AMZN), and Tesla (TSLA).
Bonds are toast.
Promised Trump policies of tax cuts and spending increases will balloon the National Debt by $10-$15 trillion. The bond market is unlikely to be able to handle this amount of new issuance, especially with annual interest payments owed by the government already at $1 trillion. It is the second largest budget item after Social Security.
Selling into a national debt of $50 trillion is going to be completely different than selling into a national debt of $27 trillion when Trump last left office. This is the reason why major hedge funds are running Treasury bond shorts as their biggest positions, who were all Trump supporters and donors.
It all depends on inflation. This is not some far-distant theoretical thing. It is happening already. I got hit with several price increases today, and I am hearing about rises in other industries, like steel. The expectation is that a stronger economy can handle the price hikes.
So, the best case for bonds is that the (TLT) chops around here. The worst case is that we retest new lows at $82. It won’t help that the Federal Reserve is cutting interest rates by another 25 basis points on December 18. The Fed controls only overnight interest rates, not the 10–20-year bond market. Even if Trump appoints an ultra-dove as chairman of the Federal Reserve in 2026, bond vigilantes may have other ideas.
Then there is the matter of trade tariffs. I have been through many of these. Remember when Nixon banned the import of Japanese textiles in 1972? They don’t make textiles in Japan anymore because their rising labor costs drove that industry to China.
Trade wars are a negative sum game. There are only losers. The game is to punish your neighbors faster than they are punishing you. They shrink the pie.
If we raise tariffs on our allies, they will retaliate in kind. This will be a problem for big tech, which gets 50%-60% of their sales from abroad. Europe will target uniquely American products, like Captain Morgan rum. Notice that the brand owner, major exporter Diageo (DGE), saw its shares slaughtered last week. As a result, the price of everything here will soon start going up.
The (TLT) will be a great position to have going into the next recession. But the market won’t start discounting that for two or three years. That makes the (TLT) a trade for another day. In any case, there are better fish to fry.
Sell all (TLT) LEAPS now before they go down even more.
About that recession. Every bear market in my lifetime started with a Republican president. The pattern is always the same. Tax cuts, an excess stimulus, and deregulation lead to a higher high in the stock market as euphoria prevails. This leads to inflation, high interest rates, and recession.
This is not exactly an original thought. High rates caused the bear markets of 2008, which took the Dow Average down -52%, 2000 (-30%), 1990 (-30%), 1987 (30%). Previous bear markets in 1979 and 1973 were caused by oil shocks. 2027?
We shall see.
So make hay while the sun shines. The current euphoria binge will last three to six months. After that, we will need to reassess and start shopping for short plays among the most extreme moves, which I have already done with Tesla.
The bottom line for all of this is that equity returns for the next four years will be lower than the last four. If a recession hits, they could well be zero. This won’t be a problem if you get out at the top, as I did in 2008, 2000, 1990, and 1987. Conclusion: You need me now more than ever.
In November, we have gained a breathtaking +7.63%, thankfully because we went into the election with 70% cash and then poured money into deregulation plays. My 2024 year-to-date performance is at an amazing +60.77%.The S&P 500 (SPY) is up +25.73%so far in 2024. My trailing one-year return reached a nosebleed +69.73%. That brings my 16-year total return to +737.30%.My average annualized return has recovered to +52.98%.
I went into the election with two positions in (JPM) and (NVDA), which turned out to be great deregulations plays. I stopped out of my one interest-sensitive play in (GLD) near cost. I piled on new deregulation plays in (TSLA), (CCJ), and (MS). I also added a new short in (TSLA), taking advantage of a monster 60% implied volatility for the options.
Some 63 of my 70 round trips, or 90%, were profitable in 2023. Some 69 of 89 trades have been profitable so far in 2024, and several of those losses were really break evens. Some 22 out of the last 25 trade alerts were profitable. That is a success rate of +88.80%.
Try beating that anywhere.
My Ten-Year View – A Reassessment
When 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 11 is Veterans Day, so banks, the bond market, and the post office will be closed. On Tuesday, November 12 at 6:00 AM EST, the NFIB Business Optimism Index takes place.
On Wednesday, November 13 at 8:30 PM, the Consumer Price Index rate is announced.
On Thursday, November 14 at 8:30 AM, the Producer Price Index is out.
On Friday, November 15 at 8:30 AM, the Retail Sales are announced. At 2:00 PM the Baker Hughes Rig Count is printed.
As for me, I am writing this from a High Sierra peak at 12,000 feet in the at the beginning of winter. It is 15 degrees, and the wind is gusting at 70 miles an hour, turning my backpack into a sail and practically blowing me off the mountain. Over the side, the next stop is 1,000 feet below. I am thirsty, but the water in my canteen is frozen solid.
I had planned to follow my tracks in the snow back down to my car, but the wind had totally obliterated them. So, I am using an old-fashioned army compass to navigate back in total whiteout conditions. Good thing I got the letter out early today!
Actually, I am not writing this, I am thinking it. If I took my hands out of my heavy mittens, my fingers would freeze in seconds. Remember, no fingers, no Trade Alerts!
A couple of times a year, I feel the need to abandon civilization and contemplate the meaning of life while accomplishing a great physical challenge. For me, this is a mandatory religious experience.
This time, I attempted to emulate one of the great physical feats in history. In October 1847, the Donner Party’s wagon train was hopelessly snowed in at a Sierra pass. Starvation loomed. When word reached Sacramento, four rescue parties were sent out, only to be repulsed by driving blizzards.
Finally, a giant of heroic strength, the famous Snowshoe Thompson, who stood at 6’6”, broke through. He emptied his massive wood frame backpack of food and then stuffed it with the two smallest children he could find. He snowshoed back to safety 120 miles over three days, nonstop. The kids grew up to become the founding fathers of modern-day Marin County, California.
I thought, “Gee, I wonder if I could do that?”
So, I sought to replicate the feat, subject to a few modern compromises. Today, Interstate 80 sits astride Thompson’s original route. Instead, I determined to snowshoe 120 miles of the Tahoe Rim Trail around Lake Tahoe, with an average elevation of 9,000 feet. I figured that the 60-pound pack I usually carry was worth the weight of two kids.
My one concession to my advanced age was that instead of going nonstop or camping out at night, I would break the epic trek into ten days at 12 miles each. That allowed me to repair my Tahoe lakefront estate nightly to thaw out my toes, treat injuries, and get some shuteye. Howling winds keep you awake at night.
I fasted while accomplishing this, eating only 600 calories a day of raw fruit and nuts. I’m down about ten pounds since I began.
Hint to readers: almonds have unique, hunger-fighting chemical properties. Eat a handful before you go to sleep, and hunger pangs won’t wake you in the middle of the night. I plan on eating some industrial strength this Christmas, things like Tom and Jerry’s and See's Peanut Brittle, so I need to get ahead of the curve. (note to self: 223 calories in a cup of eggnog).
My friends call this a death march, make excuses why they can’t come, and worry about my sanity. I think of it as a cleansing and a general stocktaking, and I feel great! I always go alone. How many other 72-year-olds do you know who are in a condition to do this sort of thing?
Sure, I might break my ankle someday, die of exposure, and have my bones scattered by wild animals. Who cares? It would be a good death. It’s worth it.
The scenery up here is so spectacular that I almost didn’t feel the pain. Almost. On more than one occasion, while gazing at the endless shades of blue the pristine waters of Lake Tahoe offered, I tripped on my snowshoes.
Once, I landed on some tree roots, which cut right through to the bone in my left forearm. I managed to stop the bleeding by tying off a tourniquet with my teeth. When I got home, I then soaked the wound in Jack Daniels to ward off infection. It works every time! (see pics below). In a pinch, Stolichnaya Vodka works just as well. It’s an old combat first-aid trick.
While hiking along the East Ridge, succeeding mountain ranges in northern Nevada explored every shade of purple. I managed to summit each major peak around the body of water the Washoe Indians called “da-ow-a-ga”, or edge of the lake, which they considered the origin of the universe. Those included Squaw Peak (8,885), Mt Tallac (9,735 feet), Monument Peak (10,067), and Mount Rose (10,776 feet). When the trail got too steep, my trusty ice ax and crampons saw me through.
I was constantly reminded that I was in the “Old West” by the many artifacts I encountered. Prominent granite boulders displayed prehistoric Indian petroglyphs. I found a few abandoned log cabins, complete with potbelly stoves and canned food from the 1850s. Rusted-out cast iron mining equipment was strewn about everywhere, covered with snow. Along the old Pony Express Trail, one finds old horseshoes and the occasional ancient bottle turned purple by the sun.
Lake Tahoe supplied all the water and bracing wood for the Comstock silver mining boom of the 1870s. A hundred years ago, not a single tree was left standing, except for the southwest section of the lake owned by mining baron “Lucky Baldwin” who won it in a card game and made it his private retreat. It was all covered in meticulous and colorful detail for the Virginia City newspaper, The Territorial Enterprise, by a budding young newspaperman who went by the name of Mark Twain.
My ambitious goals often saw me hiking well into darkness. After the batteries died on my three backup headlamps, that flashlight app on the iPhone 5s proved a real lifesaver. It’s good for a full hour and illuminates the eyes of onlooking wildlife a bright yellow up to 200 yards away.
One night, I got back to the car and found that my keys had frozen and were useless. So, I sat on them. In 15 minutes, the car flashed its lights, and the doors magically opened. There was barely enough charge to get the engine started, a trick I accomplished by holding the key right up to the ignition button. Toyota designs them to do this. It’s no fun getting stranded at 10,000 feet at 10 degrees in the middle of nowhere. No Auto Club here!
I often looked behind to make sure a mountain lion was not stalking me. Don’t worry. Only 20 people have been killed by mountain lions in California over the last 100 years. More are killed by their pet dogs every year in the Golden State, mostly by pit bulls. Besides, I am good at staring down mountain lions and black bears. It is just a matter of attitude.
The old souvenir stand for the Ponderosa Ranch, of the TV series Bonanza fame, is now the Tunnel Creek Station Café and mountain bike rental. Good luck to Patty and Max! The nearby Flume Trail offers some of the best cross-country skiing in the world.
Of course, I am not just thinking Great Thoughts during these hikes. An endless series of economic and market data points are constantly churning around in the back of my mind, and I occasionally reach a “Eureka” moment. I keep a pen and notebook in my pack so I don’t forget these earth-shaking revelations.
It was during a similar expedition up the face of the Matterhorn in the Swiss Alps (14,692 feet) last summer when I realized that the S&P was beginning a long run up that would take it to 6,000 by yearend. I’ll never forget the expression on my guide’s face when I stopped midpoint through an abseil and started feverishly writing notes. That little maneuver cost me a bottle of schnapps. The readers and Trade Alert followers prospered mightily.
What is this year’s “Eureka” conclusion? The stock market could keep going up into 2025 but with more volatility. This year was a cakewalk, as my 69.3% trailing return testifies. After that, stocks will be unable to ignore the consequences of a Trump election.
I have been doing this sort of thing since I was 22 and was in somewhat better shape. Then, I was one of the few foreigners attending karate school in Japan, learning the iron discipline and focus of samurai warriors, known as “bushido”. The actor, Steven Segal, studied at a competing school down the street.
Every February, we underwent “kangeiko”, or “winter training. This involved the entire class running the five miles around Tokyo’s Imperial Palace in a pack, suffering freezing temperatures, barefoot, every day for a week. When we returned to the dojo, we were hosed down with ice-cold water, our feet senseless, bloody stumps. Then we would train for three more hours.
The idea was that the extreme pain and exhaustion would deliver insights into us and the world at large. It worked. At least one current reader endured the experience with me and is still alive. Remember that, David? By the way, thanks for knocking out my front teeth.
On the way home, I stopped in Sacramento for a well-deserved double cheeseburger, fries, and chocolate shake at In and Out Burger. You can’t take this diet and health thing too seriously. Snowshoe Thompson would have envied me.
Well, next week, it is back to normal. I’ll be glued in front of my screens, scouring the planet for the next great trading opportunity, although I’m not sure I’ll find many. Buying market tops is against my nature. What are you supposed to do when all of your forecasts and predictions come true? I have a feeling that the answer is not to make more forecasts and predictions.
Perhaps the right answer is to take another hike. Anyone care to join me?
Your Intrepid Reporter
Good Luck and Good Trading,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
https://www.madhedgefundtrader.com/wp-content/uploads/2013/12/John-Thomas-Hiking.jpg321426april@madhedgefundtrader.comhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngapril@madhedgefundtrader.com2024-11-11 09:02:442024-11-11 11:22:56The Market Outlook for the Week Ahead, or S&P 500 6,000 Target Achieved
Below, please find subscribers’ Q&A for the November 6 Mad Hedge Fund Trader Global Strategy Webinar, broadcast from Lake Tahoe, Nevada.
Q: What do we do in the market now in view of the Trump Victory?
The driving theme of the market has completely changed overnight. Falling interest rate plays are dead. The new theme is deregulation. The good news is that there are a lot of cheap deregulation plays out there, especially in financials. Deregulation is also a factor with (NVDA), where the government was lining up for an antitrust suit. New nuclear stocks like (CCJ) and (VST) also do well with a lighter regulatory touch.
Q: How will the defense industry perform under Trump?
A: Poorly. If we cease supplying Ukraine with weapons and withdraw from our international commitments, there’s no need for weapons at all. We’ll just have to be happy with the 50-year-old weapons that we have right now. And, of course, that's one of the reasons why Putin was such a big supporter of Trump. Avoid (LMT) and (RTX). Other stocks were already selling off as Trump rose in the polls.
Q: Will housing be a loser with the housing shortage?
A: Yes, it will, because you won’t find home buyers if they don’t have any money—if interest rates and mortgage payments are too high, those buyers are absent from the market. They can’t afford to step up to the current price levels and mortgage levels.
Q: Do you really think the Fed may not cut interest rates?
A: All of the announced Trump policies are highly inflationary, and one of the Fed’s primary missions is to control inflation. But, it comes down to: is the Fed going to look forward or look back? Historically, it is very much a “look back” organization, so they will probably wait on their higher interest rates. And that is what uncertainty is all about; all of a sudden, you go from very firm convictions of what’s going to happen next—what stocks to buy, what sectors to play—to “I don’t know!”. With a Harris win, at least you had some certainly. With Trump, we don’t know what he really wants to do, can do, or be allowed by the courts. It will take time to figure all this out.
Q: Why did none of these issues occur during Trump’s first term?
A: Well, virtually all of Trump’s first term, interest rates were at zero because the Fed was still doing quantitative easing, trying to recover from the ‘08 financial crisis, but also recovering from the pandemic. The amazing thing about the Biden administration is that the stock market did so well during the 5% interest rates that prevailed practically for his entire term.
Q: Do you have a “BUY” target for iShares 20+ Year Treasury Bond ETF (TLT) on the downside after the Trump win?
A: The answer is we are going to retest the low of the year, which is $82 in the TLT, and last time I checked, we were at $89.78—so down seven points. But again, we now have a lame-duck government, so no dramatic action with a split Congress. We basically have until January 20th, when the new government comes in, to find out what they will actually try to do. I think you'll find that the “campaign Trump” and the “in-office Trump” are two totally different people.
Q: Okay, what about the iShares 20+ Year Treasury Bond ETF (TLT) LEAPS position you put out two weeks ago? Should we sell or hold?
A: Well, if you want to be cautious, go cash—sell. But this is a LEAPS that has another 15 months to expiration, and there's a pretty decent chance we'll be going into recession sometime next year, especially if interest rates and inflation take off. That could make your LEAPS trade very attractive—it could drive interest rates down to 3.5%, which is virtually where they were in September. Since September, bonds have basically given up their entire rally for the year on the possibility of a Trump win. So, you know, would I put on that trade today? No. Will I put it on at $82, I probably will. We'll just have to see what the new world looks like.
Q: What's the direction for gold (GLD) and silver (SLV)?
A: Down. Those two plays were dependent on falling interest rates, which are now gone. Now that they're going back up again, it kind of trashes the entire gold-silver trade. So, at some point, gold will drop to a point where the flight to safety bid offsets the fear of rising interest rates. You still have a lot of Chinese savings in gold going on and central bank buying. That's where you get back in. Where that is is anybody's guess.
Q: Any thoughts on Crown Castle International (CCI)?
A: It is an interest-rate play. We did really well with CCI from April to September, when the 10-year treasury went from 4.5% to 3.5%. Run that movie in reverse, and it doesn't do very well. We've had a big sell-off on (CCI) this morning. So it's getting killed on the prospect of rising rates and inflation.
Q: Do smaller stocks do better under Trump?
A: No. Smaller stocks are much more dependent on interest rates than large stocks because they're very heavy borrowers at high rates. So, any rally there should be sold into.
Q: Should I bet the ranch on crypto here?
A: Absolutely not. $6,000 is where you should have bet the ranch on crypto, not at $75,000. Crypto is barely moving today, despite promises by Trump to completely deregulate the sector. So, no, I am definitely not a buyer of crypto here.
Q: What about the gold trade alert that I sent out yesterday?
A: That was on the assumption that Harris would win, and she didn't. If you want to be conservative, get out of the position now. We have five weeks to expiration on that position, so it really depends on where gold finds its bottom—it could hold up here or a little bit lower, and we'll still be at the max profit. If we go into free fall, I'm going to just stop out of the position and write that one off as me being too aggressive before the election when I had the perfect positions going into it, being long JP Morgan (JPM) and Nvidia (NVDA).
Q: Is the Occidental Petroleum (OXY) spread okay?
A: For energy, I would say yes, probably. But we'll have to see how sustainable this current rally is.
Q: So, wait on the currency plays, like (FXA), (FXE), (FXB), and (FXC)?
A: Absolutely, yes. It's another wait for the dust to settle trade.
Q: What will the price of crude oil do from here?
A: Probably go down more with large new supplies coming out of the U.S.
Q: Why are financial stocks up huge?
A: Deregulation. Financials are among the most regulated industries in the world. If you don't believe me, try running a hedge fund someday, where they're breathing down your neck every five seconds for audits, reports, and so on. They also win on the revenue side with restrictions coming off mergers and acquisitions with the end of antitrust enforcement.
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
(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)
The world was supposed to end at midnight on December 31, 1999 because computers would be unable to cope with the turnover of the new millennium. I remember making presentations to big hedge funds, predicting that Y2K was a big nothing burger and, worst case, somebody’s toaster wouldn’t work.
I spent that New Year’s Eve with my kids at Disneyland in Orlando, watching one heck of a fireworks display. What happened the next morning? Even the toasters worked.
I think we are setting up for another Y2K outcome, except that this time, it’s the presidential election that has everyone in a tizzy.
The polls are tied at 48%-48% with a margin of error of 4%. In fact, for the last 50 years, the opinion polls have been wrong by an average of 3.4%. One side already has that 3.4% and probably more, plus all seven battleground states, but we won’t know for sure until November 6.
As an investment manager, it is not my job to pick a side or impose my view upon you but to deliver the best possible investment returns for my clients.
And let me tell you how.
Remember the Pandemic? Four years after the event, we now have the luxury of copious hard data. Out of 103,436,829 cases, some 1,203,648 Americans died, or 1.3%. But, the death rate in red states was much higher than in blue states.
For example, California suffered only 101,159 deaths out of a population of 39,128,162 for a death rate of 0.26%. Florida saw 86,850 deaths out of a population of 22,634,867 for a death rate of 0.38%. Deaths in Florida were 68% higher in the Sunshine State than in the Golden State.
Florida, in effect, traded lives for business profits. Florida also had a Typhoid Mary effect in that by staying open for spring breaks and vacations; it increased the death rates in surrounding red states.
Assume that half of those who died were voters and apply this math to the entire country, and Republicans lost 393,059 votes to the pandemic compared to only 268,935 for Democrats. Some 124,125 more Republican voters died than Democrats. Is 124,125 votes enough to decide this election?
Absolutely!
In the 2020 presidential election, Biden won the three battleground states of Georgia by the famous 11,779 votes, Arizona by 10,457 votes, and Nevada by 33,596 votes. That’s 33 electoral college votes right there out of 270 needed.
The opinion polls have missed these numbers by a mile because their algorithms don’t take the pandemic into consideration. They are counting dead voters, while the actual election polls only count live ones. I predict that the opinion polls will be spectacularly wrong….again.
Of course, these are back-of-the-matchbook ballpark calculations. I’ll leave it to some future aspiring PhD candidate to research his thesis with more precise figures. I have better things to do.
So, how do we make money off of all this? I have never seen investors so underweight and cautious going into a major risk event like this election. They have been scared out of the market by the media. Therefore, I expect the stock market to rise by 10% after the election, taking the S&P 500 as high as 6,400.
Let the great chase begin!
Here is your model portfolio for the rest of 2024.
(NVDA), (META), (CRM) – Underweight fund managers will chase this year’s best performers so they can look good at yearend. Similarly, they will dump their worst performers in the energy sector. So will individual investors for tax loss harvesting.
(TLT), (JNK), (CCI) – All interest rate plays make back recent losses as the threat of $10-$15 trillion in new borrowing by a future president, Trump, disappears.
(DHI), (LEN), (PHM) – There is no better interest rate play than new homebuilding. It’s tough to beat a structure shortage of 10 million homes.
(GLD), (SLV), (NEM) – Precious metals also do very well as they have less yield competition from other interest rate plays. These have become the principal savings vehicle for Chinese individuals.
(FXE), (FXB), (FXA) – A falling interest rate advantage for the US dollar means you want to buy all the currencies.
(JPM), (BAC), (GS) – Banks also do exceedingly well in a falling interest rate environment, and brokers and money managers will cash in on exploding stock market volume.
Also, on November 6, your toaster will probably still work. And I will never understand why the Center for Disease Control never accepted my application out of college. So, I went to Vietnam instead.
So far in October, we have gained a breathtaking +5.46%.My 2024 year-to-date performance is at an amazing+50.70%.The S&P 500 (SPY) is up +21.38%so far in 2024. My trailing one-year return reached a nosebleed +66.31. That brings my 16-year total return to +727.33%.My average annualized return has recovered to +52.58%.
I am remaining cautious with a 70% cash, a 20% long, and a 10% short. I maintained two longs in (GLD) and (JPM) that are well in the money. I sold short (TSLA) to take advantage of a massive 29% gain in two days off the back of blockbuster earnings.
Some 63 of my 70 round trips, or 90%, were profitable in 2023. Some 61 of 81 trades have been profitable so far in 2024, and several of those losses were really break evens. Some 16 out of the last 19 trade alerts were profitable. That is a success rate of +75.30%.
Try beating that anywhere.
New Home Sales Jumped 4.1% in September at 738,000 seasonally adjusted units on a signed contract basis. The median home price rose to 426,300. This despite a roller coaster month on interest rates, falling to 6.0% for the 30-year, then jumping back up to 7.0%.
Fusion is going Commercial in San Francisco, with a German company, Focused Energy, making a $65 million investment. The firm will draw heavily from staff from nearby Lawrence Livermore National Labs, which achieved a net energy gain for the first time in 2022. Focused Energy is one of eight companies given grants to accommodate a doubling of power demand by 2050. Commercial fusion will be the next big thing, where three soda cans of heavy hydrogen can power San Francisco for a day.
Money Market Funds See Massive Pre-Election Inflows, as investors see to avoid promised post-election violence. According to LSEG data, investors acquired a net $29.98 billion worth of money market funds during the week, posting their fourth weekly net purchase in five weeks. Personally, I think it is another Y2K moment.
Tesla Earnings Shock to the Upside, with both third-quarter profits and margins topping estimates. Elon Musk said that he expects 20% to 30% vehicle growth next year, sending the company's shares up 11% in post-market trading. The company still sees 2025 production of a cheaper model, maybe the Model 2. The Cybertruck has reached profitability for the first time and is reaching mass production. Tesla will see “slight growth” in deliveries this year. I am using the spike in the share price to take profits on my long to avoid election risk.
Apple iPhone Sales are Lagging, according to a leading analyst, with a drop in 10 million orders expected, down to 84 million units. The stock dropped 4% from an all-time high.
Boeing Reports $6 Billion Loss, a disastrous report from a dying company with awful management. This is going to be a very long-term workout. A strike resolution may market the bottom. Avoid (BAC) like a stalling airplane.
Newmont Mining Dives 7% after missing Wall Street expectations for third-quarter profit on Wednesday. Higher costs and lower production in Nevada took the shine away from a rise in total output. Newmont said that its costs rose due to planned maintenance at the Lihir project in Papua New Guinea — which it acquired following a $17 billion buyout of Newcrest — and higher expenditure for contract services across its portfolio. Buy (NEM) on dips.
McDonald's Kills Two in E.Coli Outbreak, linked to quarter pounders sold in Colorado and Nebraska. The stock dropped 10%. It’s clearly a supply chain problem. Given their vast size, with 45,000 stands in 100 countries, it’s amazing that this doesn’t happen more often. Avoid (MCD).
Bonds Plunge Anticipating a Trump Win, with the (TLT) down $10 from the recent high. If he does win, expect another $10 decline to $82. If Harris wins, expect a $10 rally. This is the best election trade out there.
Nvidia Tops $3.5 Trillion, as the shares hit a new all-time high at $144.45. It looks like it’s on a run to $150, then $160. Earnings are about to double when reported on November 20. Before then, investors will get some insight into demand for Nvidia’s newest Blackwell chips with earnings reports from big technology companies, including Microsoft (MSFT) coming at the end of this month. Buy (NVDA) on dips.
Hedge Funds Pour into Technology Stocks, such as semiconductors and hardware, at the fastest in five months amid the start of the third-quarter earnings season, according to Goldman Sachs on Friday. Outside the U.S., diverging reports from chipmaker Taiwan Semiconductor Manufacturing (TSM) and chipmaking equipment supplier ASML Holding (ASML) in opposite directions while investors await semiconductor companies such as Advanced Micro Devices (AMD) and Nvidia (NVDA) to unveil their earnings as they seek a trend. They are betting on a big post-election move-up.
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 is decarbonizing, and technology hyper accelerating, creating enormous investment opportunities. 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.
Dow 240,000, here we come!
On Monday, October 28 at 8:30 AM EST, the Dallas Fed Manufacturing Index is published. On Tuesday, October 29 at 6:00 AM, the S&P Case Shiller National Home Price Index is out. We also get the US JOLTS Job Openings Report. Alphabet (GOOGL) and (AMD) report.
On Wednesday, October 30 at 11:00 AM, the ADP Employment Change Report is printed. (META) and (MSFT) report.
On Thursday, October 31 at 8:30 AM, the Weekly Jobless Claims are announced. We also get the US Core PCE Price Index. (AMZN) reports.
On Friday, November 1 at 8:30 AM, the October Nonfarm Payroll Report is announced. At 2:00 PM, the Baker Hughes Rig Count is printed.
As for me, with silver on fire once again and at 12-year highs, I thought I’d recall the last time a bubble popped for the white metal. I picked up this story from my late friend Mike Robertson, who ran the Dallas-based Robertson Wealth Management, one of the largest and most successful registered investment advisors in the country.
Mike is the last surviving silver broker to the Hunt Brothers, who in 1979-80 were major players in the run-up in the “poor man’s gold” from $11 to a staggering $50 an ounce in a very short time. At the peak, their aggregate position was thought to exceed 100 million ounces.
Nelson Bunker Hunt and William Herbert Hunt were the sons of the legendary HL Hunt, one of the original East Texas wildcatters and heirs to one of the largest Texas fortunes of the day. Shortly after President Richard Nixon took the US off the gold standard in 1971, the two brothers became deeply concerned about financial viability of the United States government. To protect their assets, they began accumulating silver through coins, bars, the silver refiner, Asarco, and even tea sets, and when it opened, silver contracts on the futures markets.
The brother’s interest in silver was well-known for years, and prices gradually rose. But when inflation soared into double digits, a giant spotlight was thrown upon them, and the race was on. Mike was then a junior broker at the Houston office of Bache & Co., in which the Hunts held a minority stake and handled a large part of their business.The turnover in silver contracts exploded. Mike confesses to waking up some mornings, turning on the radio to hear silver limit up, and then not bothering to go to work because they knew there would be no trades.
The price of silver ran up so high that it became a political problem. Several officials at the CFTC were rumored to be getting killed in their personal silver shorts. Eastman Kodak (EK), whose black and white film made them one of the largest silver consumers in the country, was thought to be borrowing silver from the Treasury to stay in business.
The Carter administration took a dim view of the Hunt Brothers’ activities, especially considering their funding of the ultra-conservative John Birch Society. The Feds viewed it as an attempt to undermine the US government. The proverbial sushi hit the fan.
The CFTC raised margin rates to 100%. The Hunts were accused of market manipulation and ordered to unwind their position. They were subpoenaed by Congress to testify about their motives. After a decade of litigation, Bunker received a lifetime ban from the commodities markets, a $10 million fine, and was forced into a Chapter 11 bankruptcy.
Mike saw commissions worth $14 million in today’s money go unpaid. In the end, he was only left with a Rolex watch, his broker’s license, and a silver Mercedes. He still ardently believes today that the Hunts got a raw deal and that their only crime was to be right about the long-term attractiveness of silver as an inflation hedge. Nelson made one of the greatest asset allocation calls of all time and was punished severely for it. There never was any intention to manipulate markets. As far as he knew, the Hunts never paid more than the $20 handle for silver and that all of the buying that took it up to $50 was nothing more than retail froth.
Through the lens of 20/20 hindsight, Mike views the entire experience as a morality tale, a warning of what happens when you step on the toes of the wrong people.
The white metal’s inflation-fighting qualities are still as true as ever, and it is only a matter of time before prices once again take another run to the upside.
Unfortunately, Mike won’t be participating in the next silver bubble. Suffering from morbid obesity, he died from a heart attack a decade ago.
Silver is Still a Great Inflation Hedge
Good Luck and Good Trading,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
https://www.madhedgefundtrader.com/wp-content/uploads/2024/10/man-with-glasses.png606468april@madhedgefundtrader.comhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngapril@madhedgefundtrader.com2024-10-28 09:02:442024-10-28 11:23:59The Market Outlook for the Week Ahead, or Here is your Post Election Portfolio
Below please find subscribers’ Q&A for the August 15 Mad Hedge Fund Trader Global Strategy Webinar, broadcast from London, England
Q: Do you think we’ll still have another significant test of the lows for the year, or was that it last week? Stocks are rebounding huge this week.
A: They never really went down very much. The average drawdown IN THE S&P 500 (SPY) in any given year is 15%. We only got a 10% drawdown this month because there is still $8 trillion dollars in cash sitting under the market, which never got into stocks. All of this year it's been waiting for a pullback, so I was kind of surprised we even got 10%. I was forecasting maybe 6%. So could we get a new low? You never discount the possibility, but we really have to have another shocking data point to get down to a 15% correction. That is exactly what triggered this sell-off with the Nonfarm Payroll we got in early July. So give me another rotten Nonfarm Payroll report, and we could be back at last week's lows. Which is why I'm 100% cash. I want to have tons of dry powder, if and when that happens.
Q: We've seen a big increase in refi’s for homes in the last week. Is this going to be positive for the economy?
A: Absolutely yes, and that's why we're not going to have a recession. You get housing back into the economy which has been dead meat for almost 3 years now, and suddenly one quarter to one-third of the economy recovers. So that's what takes us into probably 3% economic growth for another year in 2025.
Q: What do you think of the Chipotle CEO (CMG) moving to take over Starbucks (SBUX)?
A: I think it's a very positive move. Starbucks was dead in the water. Their stores are old and dirty and products need refreshing. So if anyone needs a fresh view it's Starbucks, and the guy from Chipotle has a spectacular track record. Chipotle is probably one of the more successful fast-food companies out there. I usually don't ever play fast food—the margins are too low, but I certainly like to watch the fireworks when they happen.
Q: Should I be shorting airline stocks here like Delta Airlines (DAL), now that a recession risk is on the table?
A: Absolutely not. If anything, airlines are a buy here. They've had a major sell-off over the last 3 months for many different reasons, not the least of which was the software crash that they had a month ago. This is not shorting territory. That was 3 months ago for the airlines. Just because it's gone down a lot doesn't mean you now sell, it's the opposite. You should be buying airlines. I usually avoid airlines because they never have any idea if they're going to make money or not, so it's a very high-risk industry, and the margins are shrinking. Let me tell you, the airlines in Europe are absolutely packed. The fares are rock bottom and the service is terrible. Anybody who thinks the consolidation of the airline industry brought you great service has got to be out of their mind.
Q: Do you have any rules on when you stop loss?
A: The answer is very simple. If I do call spreads, whenever we break the nearest strike price, I'm out of there. That’s where the leverage works exponentially against you. Usually, you get a 1 or 2% loss when that happens, and you want to roll it into another trade as fast as you can and make the money back. Sometimes you have to do three trades to make up one loss because when you issue stop losses, everybody else is trying to get out of there at the same time. It's not a happy situation to be in, so we try to keep them to a minimum—but that is the rule of thumb. Keep your discipline. Hoping that it can recover your costs is the worst possible investment strategy out there. Hoping is not a winning strategy.
Q: Why don't you wait for the bottom?
A: Because nobody knows where the bottoms are. All you can do is scale. When you think things are oversold, when you think things are cheap, then you start buying things one at a time unless you get these giant meltdown days like we got on August 5th. So that's what I probably will be doing, is scaling in on the weak days on stocks that have the best fundamentals. That’s the only way to manage a portfolio.
Q: Is it a good time to buy REITs for income?
A: Absolutely. REITs are looking at major drops in interest rates coming. That will greatly reduce their overheads as they refi, and of course, the recovering economy is good for filling buildings. So I've been a very strong advocate of REITs the entire year, and they really have only started to pay off big time in the last month, and Crown Castle Inc (CCI) is my favorite REIT out there.
Q: I own Freeport McMoRan (FCX). Do you think China’s problems will make FCX a sell?
A: Not a sell, but a wait. China (FXI) is delaying any recovery in a bull market. If we get another move in (FCX) down to the thirties I would double up, because eventually American demand offsets Chinese weakness, and we’ll be back in a bull market on the metals. It's American demand that is delivering the long-term bull case for copper, not the return of Chinese construction demand, which led to the last bull market. So we really are changing horses as the main driver of the demand for copper. It still takes 200 pounds of copper to make an EV whose sales are growing globally.
Q: Is it time to buy (TLT) now?
A: No, the time to buy (TLT) was at the beginning of the year, seven months ago, three months ago, a month ago. Now we've just had a really big $12 point rally, and really almost $18 points off the bottom. I would wait for at least a 5-point drop-in (TLT) before we dive back into that. If you noticed, I haven't been doing any (TLT) trades lately because the move has been so extended. And in fact, if they only cut a quarter of a point in September, then you could get a selloff in (TLT), and that'll be your entry point there. You have to ditch your buy high, sell low mentality, which most people have.
Q: What bond should I buy for a 6 to 10-year investment?
A: I’d buy junk bonds. Junk bonds have always been misnamed, or I would buy some of the high-yield plays like the BB loans (SLRN). With junk bonds, the actual default rate even in a recession, only gets to about 2%. So it certainly is worth having. I still think they're yielding 6 or 7% now, so that's where I would put my money. Or you can buy REITs which also have similarly high yields, like the (CCI), which is around 5% now. Risks in both these sectors are about to decline dramatically.
Q: Will there be an inflation spike next year?
A: No. Technology is accelerating so fast it's wiping out the prices of everything that's highly deflationary, and that pretty much has been the trend over the last 40 years. So don't expect that to change. The post-COVID inflationary spike was a one-time-only event, which then ended two years ago. We've gone from a 9% down to a 2.8% inflation rate; unless we get another COVID-induced inflation spike, there's no reason for inflation to return. Deflation is going to be the next game.
Q: What do you think of the UK economy now that you're in London?
A: Awful! Brexit was the worst thing that happened to England—that's why it was financed by the Russians. Brexit will have the effect of dropping both the economic growth rate and standards of living by half over the next 20 years. Expect England to beg their way back into Europe sometime in the future, although I may not live long enough to see it. There are no English people in London anymore. It's all foreigners. No one can afford it.
Q: Should I leap on Tesla (TSLA) where the current price is?
A: No. We’re waiting for the nuclear winter in EVs to end—no sign of it yet. And unfortunately, Elon Musk is scaring away buyers, especially in blue states, by palling around with Donald Trump, a well-known climate change denier. What's in that relationship? I have no idea. One of the first things Trump did was to dump subsidies for electric cars last time he was president. It's hard to tell who’s gone crazier, Trump or Musk.
Q: I have an empty portfolio, when should we expect your options trade to start coming in again?
A: As soon as I see a great sell-off or a great individual situation like we got a couple days ago with the Mad Hedge Technology Letter in Lam Research (LRCX). That's what we look for all day, every day of the year. There's no point in trading for the sake of trading, that only makes your broker rich, not you. There's no law that says you have to have a trade every day, and actually having cash isn't so bad these days. They're still paying 5% for 90-day T Bills. If you don’t know what T Bills are, look up 90-day T bills on my website.
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, click on GLOBAL TRADING DISPATCH, then 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
(MARKET OUTLOOK FOR THE WEEK AHEAD or DID JAY POWELL BLOW IT?) and CHASING EARNEST HEMINGWAY),
($VIX), (INTC), (CCI), (TLT), (COPX), (BHP), (USO) (NVDA), (SLV), (FXY), (CAT), (IWM), (IBKR), (AMZN), (GLD), (BRK/B), (DE)
(MARKET OUTLOOK FOR THE WEEK AHEAD, or THE GREAT ROTATION LIVES), or (FLYING THE 1929 TRAVELAIRE D4D),
(NVDA), (TSLA), (JPM), (CCI), (CAT),
(DHI), (SLV), (GLD), (BRK/B), (DE)
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.
We may request cookies to be set on your device. We use cookies to let us know when you visit our websites, how you interact with us, to enrich your user experience, and to customize your relationship with our website.
Click on the different category headings to find out more. You can also change some of your preferences. Note that blocking some types of cookies may impact your experience on our websites and the services we are able to offer.
Essential Website Cookies
These cookies are strictly necessary to provide you with services available through our website and to use some of its features.
Because these cookies are strictly necessary to deliver the website, refuseing them will have impact how our site functions. You always can block or delete cookies by changing your browser settings and force blocking all cookies on this website. But this will always prompt you to accept/refuse cookies when revisiting our site.
We fully respect if you want to refuse cookies but to avoid asking you again and again kindly allow us to store a cookie for that. You are free to opt out any time or opt in for other cookies to get a better experience. If you refuse cookies we will remove all set cookies in our domain.
We provide you with a list of stored cookies on your computer in our domain so you can check what we stored. Due to security reasons we are not able to show or modify cookies from other domains. You can check these in your browser security settings.
Google Analytics Cookies
These cookies collect information that is used either in aggregate form to help us understand how our website is being used or how effective our marketing campaigns are, or to help us customize our website and application for you in order to enhance your experience.
If you do not want that we track your visist to our site you can disable tracking in your browser here:
Other external services
We also use different external services like Google Webfonts, Google Maps, and external Video providers. Since these providers may collect personal data like your IP address we allow you to block them here. Please be aware that this might heavily reduce the functionality and appearance of our site. Changes will take effect once you reload the page.