Global Market Comments
January 31, 2025
Fiat Lux
Featured Trade:
(JANUARY 29 BIWEEKLY STRATEGY WEBINAR Q&A),
(META), (AMZN), (NVDA), (AMD) (GS), (SPY), (TSLA), (SBUX), (CCJ), (ADBE), (LMT), (GD), (RTX), (NVDA)
Posts
Below please find subscribers’ Q&A for the January 29 Mad Hedge Fund Trader Global Strategy Webinar, broadcast from Salt Lake City, UT.
Q: Are AI stocks going to crash?
A: Some already have, and others haven’t. It’s really about single-stock-picking the chip area and the pure AI plays, which have been enormously overextended. If you boil it down to a single sentence, if you offer AI for free, AI users like (META) and (AMZN) do really well, while AI producers, like (NVDA) and (AMD) get crushed. I’ve been warning for months that these things were getting too high. The end result is that in two weeks the price earnings multiple for Nvidia has gone from 40 to 25. You know, at 25, it really is quite attractive. It'll be even more attractive at 20 or even 15 if we get that low. I'll show you where we hit that on the charts. Don't forget their earnings are still growing at tremendous rates—we'll talk about that in a second.
Q: What stocks are good to invest in now?
A: Watch the banks. Watch the financials. They’ve hardly sold off. I was begging for Goldman Sachs (GS) to tank. It didn't—we only got a $10 drop. It's just not letting people in, which means higher highs for all the banks and financials are coming. That has become the no-brainer one-way trade of 2025. You know, I had an enormous number of bank LEAPS expire in my personal account on the January 17 option expiration. I'm waiting to get back in now. So that is the play.
Q: What's happening with Starbucks (SBUX)? Are they investable?
A: Starbucks was a disaster area until the summer when they brought in new management, which has a fantastic track record. The stock has since gone up 30%. You're kind of late to get in on this one. I don't really follow the stock anyway. Selling cups of coffee is not a high-margin business. I'd rather stick with the Tesla’s (TSLA) and Nvidia’s (NVDA) of the world where the value added is very high
Q: What will happen with Bitcoin in the new administration?
A: It's the same with everything. Higher highs first, lower lows later. If you're a Bitcoin investor now at 100,000, the big question is what happens when Donald Trump leaves office in four years? Does it go back to 5,000? We really don't know so, why touch Bitcoin when you can get 10 to 1 returns on all these other great companies which make stuff that you can actually touch and feel? Plus, you can leverage up with the LEAPS, and no one's going to steal your account, which happens frequently with Bitcoin holdings.
Q: Do you think tariffs are a good idea for the economy?
A: No, tariffs shrink global trade, they shrink globalization. It's a race to see if we can make other countries more poor than they can make us. It's an economy-shrinking strategy. It was a major contributor to causing the Great Depression in the 1930’s. That's why we abandoned tariffs 80 years ago with the end of World War II. I mean, the last cause of the 1930’s tariffs was World War II. That was a major contributing factor. So do I like tariffs? No. It turns out it's a great defensive strategy. If someone's making a fortune off you, they tend not to blow you up. So I think that's a big mistake and I will be an anti-tariff person to my grave. There are special situations like Chinese EVs, for example, where they're using a huge cost advantage to flood the emerging markets with cheap EVs. If that happened to the US, it would crash the US economy. In that one case, I'm in favor of tariffs. By the way, their EVs are using technology they basically stole from Tesla.
Q: What are your thoughts on defense stocks? With so many wars occurring all over the world.
A: Don't touch defense stocks with a 10-foot poll if the government is in favor of cost-cutting, the largest cost after Social Security is defense. We had a defense budget of about $824 billion in 2024. We have a 2.8 million man military and that cutting there and running down our weapons stocks would mean that you don't want to buy Lockheed Martin (LMT), General Dynamics (GD), Raytheon (RTX), all the big suppliers of weapons to the Ukraine war, for example, which looks like it's going to get cut off completely. They cut off all humanitarian aid to Ukraine last week. And of course, I was personally involved in delivering some of that humanitarian aid to Ukraine in the recent past. Yeah, defense looks bad if people really get serious about cost-cutting.
Q: Do you see the Fed dropping interest rates later this year?
A: That is possible. I tend to think we don't go into recession this year. It's a next year or year after type of thing. But markets can discount recession in six months to a year in advance like they did in 2007 and 2008. I don't think we get any more interest rate cuts. We'll just have to see what policies the new government implements, and how inflationary they are. And if they are inflationary, interest rates are going up, not down. That is why everybody's sitting on their hands right now and doesn't know what to do. Uncertainty at an eight-year high. You know, the government often talks one game but does the opposite. So, there’s nothing to do but wait and see.
Q: Well, what happened to the US housing market in 2025?
A: Nothing, you know volumes are shrinking. The last two years were the lowest volume sales in housing market history since the numbers were collected, and higher interest rates for longer. It's just more bad news. You know, something like 40% of all of the sales now are all cash. Prices are still going up again on paper, but there's almost no trade happening at these higher prices. And of course, the Millennials have been almost completely shut out of the market—the largest generation in history by the way—because they don't have enough money. They can't earn enough money; especially when AI is wiping out all the entry-level jobs, as it has been doing for two years in Silicon Valley.
Q: Here's a good question. How much time do we need to spend researching a company before we make an investment there?
A: Well, not that much, really. You can spend an hour or two reading the annual report, browsing through the most recent financial statement, and doing some news searches and you'll have a better read than most individual investors are going to have on a single stock. Then you start to see trends on what makes a good company, what makes a bad company, and over time, you get a feel for a company—when to get in, when to get out. That's one way. Or you can listen to the Mad Hedge Fund Trader, who's been doing this for 55 years and watching the same stocks. You wonder why you always have the same stocks up here and it's because I've been following these guys for forever or more. So you really get a handle on when they're doing well and when they're doing awful.
Q: Should we sell Nvidia (NVDA) stock for now?
A: No, I was telling people to cut positions the next time it ran to $150, which it did a few weeks ago. Now we're probably entering buy territory more than sell territory. Nvidia will come back. I just don't know where the bottom is for now, and it depends on your own investing style. If you're a five-year investor, you can forget about all this volatility, if you're a day trader, yeah, you probably should sell Nvidia now because you could buy it back $10 cheaper.
Q: Do you expect a new high after the Fed meeting?
A: No, I don't. I think we're stuck in a range for the S&P 500 for the next six months. After that, we may get a move. Depending on what effect government policies have on the economy.
Q: What about an alert for Adobe (ADBE)?
A: I didn't put out the alert to buy Adobe. The Adobe alert is part of the Mad Hedge Technology Letter service, and if you want to get purely tech trade alerts, go to the Mad Hedge website, go to the store, and you can see the technology letter is offered for sale up there. Here is the link: https://hi290.infusionsoft.app/app/orderForms/techletter
Q: What is the right size of account for doing this kind of trading?
A: We literally have college students trading with $500 accounts. We have lots of individuals trading with $5,000 accounts—that way you can buy 10 $400 positions and still have some room. We only recommend you put 10% of your cash in any one trade. A lot of retired people will keep a large portion of their money in an index like the S&P 500 (SPY) and take 10% of their money and use it to do our trade alerts, which then adds an extra return to the index position. So, the answer is different for different people.
Q: Do I see a meaningful correction like 20% or 30% in the next six months?
A: No, I really don't, but that could be 2026 business. When we get a big correction, we get a recession. Again, it's dependent on government policies and we have no idea what those are right now. People can only guess. I'm not in the guessing business. I'm in the sure thing business.
Q: Can you explain how to complete the trade alerts you send out?
A: What all the professionals do is they put out a spread of orders. If I put out an order to buy something at $9.00, you put in a bid at $9.00, $9.10, $9.20, $9.30, and $9.40. By the close, some or all of those will get done. Often they all get done by the end of the day when the high-frequency traders have to dump their positions because they're not allowed to carry overnight positions. You make them good-until-canceled orders. So if you get a low opening the next morning, you'll get entirely filled at the $9.00 level, and this is what my clients in Australia do. They only do overnight good-until-cancelled orders since the market's open from 11:30 PM until 6:00 AM in the morning, Australia time. They tend to make more money than any of my other clients because they only enter overnight GTC orders. So, people trying to outsmart the market on an intraday basis generally don't do very well.
Q: Should I sell the Cameco Corporation (CCJ) stock I bought on the nuclear trade?
A: No, I think (CCJ) recovers. I was looking at it yesterday. Elimination of the electricity trade is complete nonsense. I think the nuclear thing is real. It'll come back. And in fact, I bought Vistra Energy (VST) yesterday, so use this extreme sell-off to get into the nuclear trade if you missed it the first time around.
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, TECHNOLOGY LETTER, or JACQUIE'S POST, 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
Global Market Comments
January 8, 2025
Fiat Lux
2025 Annual Asset Class Review
A Global Vision
FOR PAID SUBSCRIBERS ONLY
Featured Trades:
(SPY), (QQQ), (IWM), (GS), (MS), (JPM), (BAC), (C), (BLK),
(TLT), (TBT), (JNK), (PHB), (HYG), (MUB), (LQD), (FXE), (FXY), (FXB), (FXE), (FXA)
(FCX), (BHP), (RIO), (VALE), (DBA), (DIG), (USO), (DUG), (UNG), (USO),
(XLE), (LNG), (CCJ), (VST), (SMR), (GLD), (DGP), (SLV), (PPTL), (PALL),
(ITB), (LEN), (KBH), (PHM), (DHI)
I am once again writing this report from a first-class sleeping cabin on Amtrak’s legendary California Zephyr.
By day, I have a comfortable seat next to a panoramic window. At night, they fold into two bunk beds, a single and a double. There is a shower, but only Houdini can navigate it.
I am anything but Houdini, so I foray downstairs to use the larger public hot showers. They are divine.
We are now pulling away from Chicago’s Union Station, leaving its hurried commuters, buskers, panhandlers, and majestic great halls behind. I love this building as a monument to American exceptionalism.
I am headed for Emeryville, California, just across the bay from San Francisco, some 2,121.6 miles away. That gives me only 56 hours to complete this report.
I tip my porter, Raymond, $100 in advance to make sure everything goes well during the long adventure and to keep me up to date with the onboard gossip.
The rolling and pitching of the car is causing my fingers to dance all over the keyboard. Microsoft’s Spellchecker can catch most of the mistakes, but not all of them.
Chicago’s Union Station
As both broadband and cell phone coverage are unavailable along most of the route, I have to rely on frenzied Internet searches during stops at major stations along the way, like Omaha, Salt Lake City, and Reno, to Google obscure data points and download the latest charts.
You know those cool maps in the Verizon stores that show the vast coverage of their cell phone networks? They are complete BS.
Who knew that 95% of America is off the grid? That explains so much about our country today.
I have posted many of my favorite photos from the trip below, although there is only so much you can do from a moving train and an iPhone 16 Pro.
Somewhere in Iowa
The Thumbnail Portfolio
Equities – buy dips, but sell rallies too
Bonds – avoid
Foreign Currencies – avoid
Commodities – avoid
Precious Metals – avoid
Energy – avoid
Real Estate – avoid
1) The Economy – Cooling
I expect a modest 2.0% real GDP growth with a 4.0% inflation rate, giving an unadjusted shrinkage of the economy of negative -2% for 2025. That is down from 0% in in 2024. This may sound discouraging, but believe me, this is the optimistic view. Some of my hedge fund buddies are expecting a zero return over the next four years.
Virtually all independent economists expect the new administration's economic policies will be a drag on both the US and global economies. Trade wars are bad for everyone. When your customers are impoverished, your own business turns south. This is a big deal, since the Magnificent Seven, which accounted for 70% of stock market gains last year, get 60% of their profits from abroad.
The ballooning National Debt is another concern. The last time Trump was in office, he added $10 trillion to the deficit through aggressive tax cuts and spending increases. If this time, he adds another $10-$15 trillion, the National Debt could reach $50 trillion by 2030.
There are two issues here. For a start, Trump will find it a lot harder and more expensive to fund a National Debt at $50 trillion than $20 trillion. Second, borrowing of this unprecedented magnitude, double US GDP, will send interest rates soaring, causing a recession.
The only question then is whether this will be a pandemic-style recession, which took stocks down 30% and recovered quickly, or a 2008 recession which demolished stocks by 52% and dragged on for years.
Hope for the best but expect the worst, unless you want to consider a future career as an Uber driver.
A Rocky Mountain Moose Family
2) Equities – (SPY), (QQQ), (IWM), (GS), (MS), (JPM), (BAC), (C), (BLK)
The outlook for stocks for 2025 is pretty simple. You are going to have to work twice as hard to make half the money you did last year with twice the volatility. You will not be able to be as nowhere near aggressive in 2025 as you were in 2024 It’s a dream scenario for somebody like me. For you, I’m not so sure.
It’s not that US companies aren't growing gangbusters. I expect 2% GDP growth, 15% profit growth, and 12% net margin growth in 2025. But let’s face reality. Stocks are the most expensive they have been in 17 years and we know what happened after 2008. Much of the stock market gain achieved last year was through hefty multiple expansions. This is not good.
Big tech companies might be able to deliver 20% gains and are still the lead sector for the market. Normally that should deliver you a 15%, or $800 gain in the S&P 500 (SPX). We might be able to capture this in the first half of 2025.
Financials will remain the sector with the best risk/reward, and I mean the broader definition of the term, including banks, brokers, money managers, and some small-cap regional banks. The reason is very simple. Their income statements will get juiced at both ends as revenues soar and costs plunge, thanks to deregulation.
No passage of new laws is required to achieve this, just a failure to enforce existing ones. The hint for this is a new SEC chair whose primary interest is promoting the Bitcoin bubble. Buy (GS), (MS), (JPM), (BAC), (C), and (BLK).
However, this is anything but a normal year. Uncertainty is at an eight-year high, thanks to an incoming administration. If the promised policies are delivered, inflation will soar and interest rates will rise, as they already have. We could lose half or all of our stock market gains by the end of 2025.
The big “tell” for this was the awful market performance in December, down 5%. The Dow Average was down ten days in a row for the first time in 70 years. Santa Claus was unceremoniously sent packing. People Are clearly nervous. But then they should be with a bull market that is approaching a decrepit five years in age.
There is a bullish scenario out there and that has Trump doing absolutely nothing in 2025, either because he is unwilling or unable to take action. After all, if the economy isn’t actually broken, why fix it? Better yet, if you own an economy it is better not to break it in the first place.
Nothing substantial can pass Congress with a minuscule one-seat majority in the House of Representatives. There will be no new presidential action through tariffs and only a few token, highly televised deportations, not enough to affect the labor market.
Stocks will not only hold, but they may add to the 15% first-half gains for the year. I give this scenario maybe a 50% probability.
The first indication this is happening is when the presidential characterization of the economy flips in a few months from the world’s worst to the world’s best with no actual change in the numbers. Trump will take all the credit.
You heard it here first.
Frozen Headwaters of the Colorado River
3) Bonds (TLT), (TBT), (JNK), (PHB), (HYG), (MUB), (LQD)
Amtrak needs to fill every seat in the dining car to get everyone fed on time, so you never know who you will share a table with for breakfast, lunch, or dinner.
There was the Vietnam Vet Phantom Jet Pilot who now refused to fly because he was treated so badly at airports. A young couple desperately eloping from Omaha could only afford seats as far as Salt Lake City. After they sat up all night, I paid for their breakfast.
A retired British couple was circumnavigating the entire US in a month on a “See America Pass.” Mennonites returned home by train because their religion forbade travel by automobiles or airplanes.
The big question to ask here after a 100-basis point rise in bond yields in only three months is whether the (TLT) has suffered enough. The short answer is no, not quite yet, but we’re getting close. Fear of Trump policies should eventually take ten-year US Treasury bond yields to 5.00%, and then we will be ready for a pause at a nine-month bottom. After that, it depends on how history unfolds.
If Trump gets everything he wants, inflation will soar, bonds will crash, and 5.00% will be just a pit stop on the way to 6.00%, 7.00%, and who knows what? On the other hand, if Trump gets nothing he says he wants, then both bonds stocks and bonds will rise, creating a Goldilocks scenario for all balanced portfolios and investors.
That also sets up a sweet spot for entry into (TLT) call spreads close to 5.00% yields. A politician campaigning on one policy, then doing the opposite once elected? Stranger things have happened. The black swans will live.
A Visit to the 19th Century
4) Foreign Currencies (FXE), (EUO), (FXC), (FXA), (YCS), (FXY), (CYB)
If your basic assumption for interest rates is that they stay flat or rise, then you have to love the US dollar. Currencies are all about expected interest rate differentials and money always pours into the highest-paying ones. Tariffs will add fat to the fire because any reduction in international trade automatically reduces American trade deficits and is therefore pro-dollar.
This means that you should avoid all foreign currency plays like the plague, including the Euro (FXE), Japanese yen (FXY), British Pound (FXB), Canadian dollar (FXE), and Australian dollar (FXA).
A strong greenback comes with pluses and minuses. It makes our exports expensive and less competitive and therefore creates another drag on the economy. It demolishes traditional weak dollar plays like emerging markets and precious metals. On the other hand, it attracts substantial foreign investments into US stocks and bonds, which has been continuing for the past decade.
Above all, be happy you are paid in US dollars. My foreign clients are getting crushed in an increasingly expensive world.
5) Commodities (FCX), (BHP), (RIO), (VALE), (DBA)
Look at the chart of any commodity stock and you see grim death. Freeport McMoRan (FCX), BHP (BHP), and Rio Tinto (RIO), they’re all the same. They’re all afflicted with the same disease, over-dependence on a robustly growing China, which isn’t growing robustly, if at all.
I firmly believe that this will continue until the current leadership by President Xi Zheng Ping ends. He has spent the last decade globally expanding Chinese interests, engaging in abusive trade practices, hacking, and attacking American allies like Taiwan and the Philippines. You can only wave a red flag in front of the US before it comes back to bite you. A trade war with the US is now imminent.
This will happen sooner than later. The Chinese people don’t like being poor for very long. This is why I didn’t get sucked in on the Chinese long side in the fall, as many hedge funds did.
If China wants to go back to playing nice, as they did in the eighties and nineties, China should return to return to high growth and commodities will look like great “Buys” down here. If they don’t, American growth alone should eventually pull commodities up, as our economy is now growing at a long-term average gross unadjusted 6.00% rate. So the question is how long this takes.
It may pay to start nibbling on the best quality bombed-out names now, like those above.
Snow Angel on the Continental Divide
6) Energy (DIG), (USO), (DUG), (UNG), (USO), (XLE), (LNG), (CCJ), (VST), (SMR)
Energy was one of the worst-performing sectors in the market for the second year in a row and 2025 is looking no better. New supplies are surging, while demand remains stuck in the mud, with the US now producing an incredible 13.5 million barrels a day. OPEC is dead.
EVs now make up 10% of the US auto fleet, and much more in other countries, are making a big dent. Some 50% of all new car sales in China, the world’s largest market, are EVs. The number of barrels of oil needed to increase a unit of American GDP is plunging, as it has done for 25 years, through increased efficiencies. Remember your old Lincoln Continental that used to get eight miles per gallon? Now it gets 27.
Worse yet, a major black swan hovers over the sector. If the Ukraine War somehow ends, some ten million barrels a day of Russian oil will hit the market. Oil prices should plunge to $50 a barrel.
There are always exceptions to the rule, and energy plays not dependent on the price of oil would be a good one. So is natural gas, which will benefit from Cheniere Energy’s (LNG) third export terminal coming online, increasing exports to China. Ukraine cutting off Russian gas flowing to Europe will assure there is plenty of new demand.
But I prefer investing in sectors that have tailwinds and not headwinds. Better leave energy to the pros who have the inside information they need to make money here.
If someone is holding a gun to your head tell you that you MUST invest in energy, go for the new nuclear plays like (CCJ), (VST), and (SMR). We are only at the becoming of the small modular reactor trend, which could accelerate for decades.
7) Precious Metals (GLD), (DGP), (SLV), (PPTL), (PALL)
The train has added extra engines at Denver, so now we may begin the long laboring climb up the Eastern slope of the Rocky Mountains.
On a steep curve, we pass along an antiquated freight train of hopper cars filled with large boulders.
The porter tells me this train is welded to the tracks to create a windbreak. Once, a gust howled out of the pass so swiftly, that it blew a passenger train over on its side.
In the snow-filled canyons, we saw a family of three moose, a huge herd of elk, and another group of wild mustangs. The engineer informs us that a rare bald eagle is flying along the left side of the train. It’s a good omen for the coming year.
We also see countless abandoned 19th-century gold mines and the broken-down wooden trestles leading to huge piles of tailings, relics of previous precious metals booms. So, it is timely here to speak about the future of precious metals.
We certainly got a terrific run on precious metals in 2025, with gold at its highs up 33% and silver up 65%. The miners did even better. Even after the post-election selloff, it was still one of the best-performing asset classes of the year.
But the heat has definitely gone out of this trade. The prospect of higher interest rates for longer in 2025 has sent short-term traders elsewhere. That’s because the opportunity cost of owning precious metals is rising since they pay no interest rates or dividends. And let’s face it, there was definitely new competition for hot money from crypto, which doubled after the election.
The sector is not dead, it is resting. Central bank buying of the barbarous relic continues unabated, especially among sanctioned countries, like Russia and China. Gold is still the principal savings vehicle for many Chinese. They are not going to recover confidence in their own currency, banks, or government anytime soon. And there is still slow but steadily rising industrial demand from solar sectors.
Gold supply has also been falling for years, while costs are rising at least at double the headline inflation rate. So it’s just a matter of time before the supply/demand balance comes back in our favor. Where the final bottom is anyone’s guess as gold lacks the traditional valuation parameters of other asset classes, like dividends or interest paid. We’ll just have to wait for Mr. Market to tell us, who is always right.
Give (GLD), (SLV), (GDX), (GOLD), and (WPM) a rest for now but I’ll be back.
Crossing the Great Nevada Desert Near Area 51
8) Real Estate (ITB), (LEN), (KBH), (PHM), (DHI)
The majestic snow-covered Rocky Mountains are behind me. There is now a paucity of scenery, with the endless ocean of sagebrush and salt flats of Northern Nevada outside my window, so there is nothing else to do but write.
My apologies in advance to readers in Wells, Elko, Battle Mountain, and Winnemucca, Nevada.
It is a route long traversed by roving bands of Indians, itinerant fur traders, the Pony Express, my own immigrant forebearers in wagon trains, the Transcontinental Railroad, the Lincoln Highway, and finally US Interstate 80, which was built for the 1960 Winter Olympics at Squaw Valley, California.
Passing by shantytowns and the forlorn communities of the high desert, I am prompted to comment on the state of the US real estate market.
Real estate was a nice earner for us in 2024 in the new homes sector. The election promptly demolished this trade with the prospect of higher interest rates for longer. Expect this unwelcome drag to continue in 2025.
I am not expecting a housing crash unless interest rates take off. More likely it will continue to grind sideways on low volume. That’s because the market has support from a structural shortage of 10 million homes in the US, the debris left over from the 2008 housing crash. That’s why there is still a Millennial living in your basement. Homebuilders now prioritize profit margins over market share.
I expect this sector to come back someday. New homebuilders have the advantage of offering free upgrades and discounted in-house financing. Avoid for now (DHI), (KBH), (TOL), and (PHM).
Crossing the Bridge to Home Sweet Home
9) Postscript
We have pulled into the station at Truckee amid a howling blizzard.
My loyal staff have made the ten-mile trek from my estate at Incline Village to welcome me to California with a couple of hot breakfast burritos and a chilled bottle of Dom Perignon Champagne, which has been cooling in a nearby snowbank. I am thankfully spared from taking my last meal with Amtrak.
After that, it was over legendary Donner Pass, and then all downhill from the Sierras, across the Central Valley, and into the Sacramento River Delta.
Well, that’s all for now. We’ve just passed what was left of the Pacific mothball fleet moored near the Benicia Bridge (2,000 ships down to six in 80 years). The pressure increase caused by a 7,200-foot descent from Donner Pass has crushed my plastic water bottle. Nice science experiment!
The Golden Gate Bridge and the soaring spire of Salesforce Tower are just coming into view across San Francisco Bay.
A storm has blown through, leaving the air crystal clear and the bay as flat as glass. It is time for me to unplug my MacBook Pro, iPad, and iPhone, pick up my various adapters, and pack up.
We arrive in Emeryville 45 minutes early. With any luck, I can squeeze in a ten-mile night hike up Grizzly Peak tonight and still get home in time to watch the ball drop in New York’s Times Square on TV.
I reach the ridge just in time to catch a spectacular pastel sunset over the Pacific Ocean. The omens are there. It is going to be another good year.
I’ll shoot you a Trade Alert whenever I see a window open at a sweet spot on any of the dozens of trades described above, which should be soon.
Good luck and good trading in 2025!
John Thomas
The Mad Hedge Fund Trader
The Omens Are Good for 2025!
When I closed out my position in Freeport McMoRan (FCX) near its max profit earlier this year, I received a hurried email from a reader if he should still keep the stock. I replied very quickly:
“Hell, yes!”
When I toured Australia a couple of years ago, I couldn’t help but notice a surprising number of fresh-faced young people driving luxury Ferraris, Lamborghinis, and Porsches.
I remarked to my Aussie friend that there must be a lot of indulgent parents in The Lucky Country these days. “It’s not the parents who are buying these cars,” he remarked, “It’s the kids.”
He went on to explain that the mining boom had driven wages for skilled labor to spectacular levels. Workers in their early twenties could earn as much as $200,000 a year, with generous benefits.
The big resource companies flew them by private jet a thousand miles to remote locations where they toiled at four-week on, four-week off schedules.
This was creating social problems, as it is tough for parents to manage offspring who make far more than they do.
The Great Commodity Boom has started, and in fact, we are already years into a prolonged super cycle.
China, the world’s largest consumer of commodities, is currently stimulating its economy on multiple fronts, including generous corporate tax breaks and relaxed reserve requirements. Get a trigger like the impending settlement of its trade war with the US, and it will be off to the races once more for the entire sector.
The last bear market in commodities was certainly punishing. From the 2011 peaks, copper (COPX) shed 65%, gold (GLD) gave back 47%, and iron ore was cut by 78%. One research house estimated that some $150 billion in resource projects in Australia were suspended or cancelled.
Budgeted capital spending during 2012-2015 was slashed by a blood-curdling 30%. Contract negotiations for price breaks demanded by end consumers broke out like a bad case of chicken pox.
The shellacking was reflected in the major producer shares, like BHP Billiton (BHP), Freeport McMoRan (FCX), and Rio Tinto (RIO), with prices down by half or more. Write-downs of asset values became epidemic at many of these firms.
The selloff was especially punishing for the gold miners, with lead firm Barrack Gold (GOLD) seeing its stock down by nearly 80% at one point, lower than the darkest days of the 2008-9 stock market crash.
You also saw the bloodshed in the currencies of commodity-producing countries. The Australian dollar led the retreat, falling 30%. The South African Rand has also taken it on the nose, off 30%. In Canada, the Loonie got cooked.
The impact of China cannot be underestimated. In 2012, it consumed 11.7% of the planet’s oil, 40% of its copper, 46% of its iron ore, 46% of its aluminum, and 50% of its coal. It is much smaller than that today, with its annual growth rate dropping by more than half, from 13.7% to 2.3% in 2020.
What happens to commodity prices if China recovers the heady growth rates of yore? It boggles the mind. If China doesn’t step up, then India certainly will.
The rise of emerging market standards of living will also provide a boost to hard asset prices. As China goes, so does its satellite trading partners, who rely on the Middle Kingdom as their largest customer. Many are also major commodity exporters themselves, like Chile (ECH), Brazil (EWZ), and Indonesia (IDX), are looking to come back big time.
As a result, western hedge funds will soon be moving money out of paper assets, like stocks and bonds, into hard ones, such as gold, silver (SIL), palladium (PALL), platinum (PPLT), and copper.
A massive US stock market rally has sent managers in search of any investment that can’t be created with a printing press. Look at the best-performing sectors this year, and they are dominated by the commodity space.
The bulls may be right for as long as a decade, thanks to the cruel arithmetic of the commodities cycle. These are your classic textbook inelastic markets.
Mines often take 10-15 years to progress from conception to production. Deposits need to be mapped, plans drafted, permits obtained, infrastructure built, capital raised, and bribes paid in certain countries. By the time they come online, prices have peaked, drowning investors in red ink.
So, a 1% rise in demand can trigger a price rise of 50% or more. There are not a lot of substitutes for iron ore. Hedge funds then throw gasoline on the fire with excess leverage and high-frequency trading. That gives us higher highs, to be followed by lower lows.
I am old enough to have lived through a couple of these cycles now, so it is all old news for me. The previous bull legs of supercycles ran from 1870-1913 and 1945-1973. The current one started for the whole range of commodities in 2016. Before that, it was down from seven years.
While the present one is short in terms of years, no one can deny how business cycles will be greatly accelerated by the end of the pandemic.
Some new factors are weighing on miners that didn’t plague them in the past. Reregulation of the US banking system has forced several large players, like JP Morgan (JPM) and Goldman Sachs (GS), to pull out of the industry completely. That impairs trading liquidity and widens spreads— developments that can only accelerate upside price moves.
The prospect of falling US interest rates is also attracting capital. That reduces the opportunity cost of staying in raw metals, which pay neither interest nor dividends.
The future is bright for the resource industry. While the gains in Chinese demand are smaller than they have been in the past, they are off of a much larger base. In 20 years, Chinese GDP has soared from $1 trillion to $14.5 trillion.
Some 20 million people a year are still moving from the countryside to the coastal cities in search of a better standard of living and improved prospects for their children.
That is the good news. The bad news is that it looks like the headaches of Australian parents of juvenile high earners may persist for a lot longer than they wish.
Buy all commodities on dips for the next several years.
Global Market Comments
December 16, 2024
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD or CATCHING THE NEXT MARKET TOP), plus (A LIFETIME OF FLIGHT INSTRUCTION),
(JPM), (NVDA), (BAC), (C), (CCJ), (MS), (BLK), (TSLA)
We all learned as children how to win at “Merry Go Round.” All you have to do is remember to sit down when the music stops playing.
We are now entering a market with the greatest uncertainty since the pandemic. This is when expansive election promises meet harsh reality. And the new president has to attempt to deliver on his almost uncountable promises with a one-seat majority in the House of Representatives, the smallest in history.
In 2025, you are going to have to work twice as hard to make half the money with double the volatility. Markets like this are the sweet spot for Mad Hedge Fund Trader, which makes money in all market conditions. We are entering 2025 with a 30X multiple for NASDAQ, near a record high. Since 2012, the value of the Magnificent Seven has exploded from $1 trillion to $18 trillion, and you are buying, or at least staying long, on top of that move.
Amidst all the euphoria, someone failed to notice that the Republicans actually lost two seats in the House, and two more were given away in cabinet appointments. They probably don’t realize that Republicans die faster than Democrats because they are, on average, ten years older.
There are also more Democratic women who, on average, live six years longer than men. That means the slim majority will be gone in six months. Am I the only one who pays attention to demographics?
No House means no money to do anything. Many of the new administration’s proposals cost enormous amounts of money. My ancestors came from Missouri before they moved to California during the gold rush in 1849, which is known as the “Show me” state.
Show me.
So, in my early take on the New Year, look for a 10%-15% rally in stocks led by the same old sectors during the first half of 2025. Buy election winners and sell the losers. Artificial intelligence is accelerating faster than ever, and that is going on independent of Washington. Embrace the bubble. Call it the “pre-reality” rally.
After that, look for a give-back of some, if not all, of this rally. Tax cuts and spending increases will explode the National Debt well beyond the current $36 trillion. Inflation will return. Interest rates will rise. A trade war will exact a high price. Perhaps two million small businesses will go under, thanks to their loss of cheap supplies from China. Antitrust law will only be enforced against the left coast Magnificent Seven, and everyone else will get a free pass.
And now it’s my turn to deliver you a harsh reality. Every recession and stock market in my lifetime has started during a Republican administration, and I am pretty old. The causes are always the same. The expectation of tax cuts and hands-off on regulation creates over-investment and excessive leverage that always ends in tears. When that peaks, stocks crash, and a recession ensues.
Except that this time, it’s different. The incoming administration promises to sow the seeds of its most destructive policies, a trade war, and massive tax cuts during a booming economy that explodes the deficit and inflation “on day one.” That means we could see an earlier recession than a later one. That is when the music stops playing.
That is fine with me. I make more money in down markets than I do in up markets. That is because I get the hockey stick effect of falling share prices, rising volatility, and soaring options premiums to play on the downside.
As for you, I’m not so sure. I don’t have to run faster than the bear to survive, just faster than you.
It could be a great year to “Sell in May and Go Away.” I’m already booking summer cruises on Cunard (https://www.cunard.com/en-us).
A lot of readers have been asking about my take on the sudden collapse of the Bashar al Assad regime in Syria in the context of my nearly 60 years of experience in the region. I have never been to Syria; just viewed it from a distance from the Golan Heights in Israel.
The one-liner here is that it is a huge win for the US and the West and a huge loss for Russia, Iran, and the main terrorist groups.
It ejects Russia from the Middle East for the time being after making massive 50-year investments there in military support. Syria will default on all of its billions of dollars in debts to Russia. Russia built the enormous Aswan Dam on the Nile, then saw defaults here, too, when Egypt sided with the West after the Camp David Accords.
Russia built the world's third largest military in Iraq, with 5,000 tanks, which the US then completely destroyed in the first Gulf War, where I participated. Their failure in Afghanistan caused the collapse of the Soviet Union. Russia has lost its only Mediterranean port at Aleppo, and its ships there have already been withdrawn. At this point, there must be a lot of unemployed Middle East experts in Moscow.
Iran has been fighting a proxy war against Israel and the US through Hamas, Hezbollah, and Syria for 45 years, which it has just ignominiously lost. It used to supply Gaza with weapons by trucking them through Syria and loading them on ships. It now has to go all the way around Africa, and there is no one there to take them anyway.
The cost of this victory to the US has been zero: no money, no troops, no heavy equipment. Sometimes, doing nothing is the right thing. The cost to Russia and Iran has been exponential.
Of course, in the Middle East, be careful what you wish for because you might end up getting something far worse. Assad may have just been replaced with another anti-western terrorist group. That is why President Biden has directed the complete destruction of all arms stockpiles in Syria, with the assistance of Israel and Turkey. We have their exact latitude and longitude in seconds. Better there to be no weapons and have an incoming regime that is toothless in Syria than having them fall into the hands of the next terrorist group. There are no defenders in Syria at the moment.
Finally, I was amazed to see Assad’s extensive classic and race car collection, the ultimate symbol of modern dictators. Can I make a bid on the 1956 Cadillac? To where and who do I send my offer?
In December, we have gained +2.53%. My 2024 year-to-date performance is at an amazing +74.53%. The S&P 500 (SPY) is up +26.62% so far in 2024. My trailing one-year return reached a nosebleed +75.21%. That brings my 16-year total return to +751.16%. My average annualized return has recovered to an incredible +53.65%.
My bet that the market wouldn’t drop below pre-election levels proved wildly successful. As a result, all of my long positions will expire at max profit. They are anywhere from 7% to 70% in the money. That includes (JPM), (NVDA), (BAC), (C), (CCJ), (MS), (BLK) and a triple long in (TSLA). My largest position was a triple weighting in Tesla, which went up the most. This is the first time I have been able to pull this off in the 16-year history of the Mad Hedge Fund Trader.
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 evens. That is a success rate of +78.72%.
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 down. 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, December 16, at 8:30 AM EST, the S&P Global Flash PMI is out.
On Tuesday, December 17 at 8:30 AM, the Retail Sales are published.
On Wednesday, December 18, at 8:30 AM, the Building Permits are printed.
On Thursday, December 19 at 8:30 AM, the US GDP Growth Rate is announced.
On Friday, December 20, Core PCE is printed. It is effectively the last trading day of the year as the BSDs take off on vacation, and the “B” team sticks around to handle the low-volume holiday trading. At 2:00 PM, the Baker Hughes Rig Count is printed.
As for me, in the seventies, Air America was not too choosy about who flew their airplanes at the end of the Vietnam War. If you were willing to get behind the stick and didn’t ask too many questions, you were hired.
They didn’t bother with niceties like pilot licenses, medicals, passports, or even real names. On some of their missions, the survival rate was less than 50%, and there was no retirement plan. The only way to ignore the ratatatat of bullets stitching your aluminum airframe was to turn the volume up on your headphones.
Felix (no last name) taught me to fly straight and level so he could find out where we were on the map. We went out and got drunk on cheap Mekong Whiskey after every mission just to settle our nerves. I still remember the hangovers.
When I moved to London to set up Morgan Stanley’s international trading desk in the eighties, the English had other ideas about who was allowed to fly airplanes. Julie Fisher at the London School of Flying got me my basic British pilot’s license.
If my radio went out, I learned to land by flare gun and navigate by sextant. She also taught me to land at night on a grass field guided by a single red-lensed flashlight. For fun, we used to fly across the channel and land at Le Touquet, taxiing over the rails for the old V-1 launching pads.
A retired Battle of Britain Spitfire pilot named Captain John Schooling taught me advanced flying techniques and aerobatics in an old 1949 RAF Chipmunk. I learned barrel rolls, loops, chandelles, whip stalls, wingovers, and Immelmann turns, everything a WWII fighter pilot needed to know.
John was a famed RAF fighter ace. Once, he got shot down by a Messerschmitt 109, parachuted to safety, took a taxi back to his field, jumped into his friend’s Spit, and shot down another German. Every lesson ended with a pint of beer at the pub at the end of the runway. John paid me the ultimate compliment, calling me “a natural stick and rudder man,” no pun intended.
John believed in tirelessly practicing engine off-landings. His favorite trick was to reach down and shut off the fuel, telling me that a Messerschmitt had just shot out my engine and to land the plane. When we got within 200 feet of a good landing, he turned the fuel back on, and the engine coughed back to life. We practiced this more than 200 times.
When I moved back to the US in the early nineties, it was time to go full instrument in order to get my commercial and military certifications. Emmy Michaelson nursed me through that ordeal. After 50 hours of flying blindfolded in a cockpit, you get very close with someone.
Then came flight test day. Emmy gave me the grim news that I had been assigned to “One Engine Larry,” the most notorious FAA examiner in Northern California. Like many military flight instructors, Larry believed that no one should be allowed to fly unless they were perfect.
We headed out to the Marin County coast in an old twin-engine Beechcraft Duchess, me under my hood. Suddenly, Larry shut the fuel off, told me my engines failed, and that I had to land the plane. I found a cow pasture aligned with the wind and made a perfect approach.
Then he asked, “How did you do that?” I told him. He said, “Do it again,” and I did. Then he ordered me back to base. He signed me off on my multi-engine and instrument ratings as soon as we landed without bothering with the rest of the test. Emmy was thrilled.
I now have to keep my many licenses valid by completing three takeoffs and landings every three months. I usually take my kids and make a day of it, letting them take turns flying the plane straight and level.
On my fourth landing, I warn my girls that I’m shutting the engine off at 2,000 feet. They cry, “No, Dad, don’t.” I do it anyway, coasting in bang on the numbers every time.
A lifetime of flight instruction teaches you not only how to fly but how to live as well. It makes you who you are. Thus, my insistence on absolute accuracy, precision, risk management, and probability analysis. I live my life by endless checklists, both short and long-term. I am the ultimate planner, and I have a never-ending obsession with the weather one week out.
It passes down to your kids as well.
Julie became one of the first female British Airways pilots, got married, and had kids. John passed on to his greater reward many years ago. There are no surviving Battle of Britain pilots left. The last one passed away this year. Emmy was an early female hire as a United pilot. She married another United pilot and was eventually promoted to full captain. I know because I ran into them in an elevator at San Francisco airport ten years ago, four captain’s bars adorning her uniform.
Flying is in my blood now, and I’ll keep flying for life. I can now fly anything anywhere and am the backup pilot on several WWII aircraft for air shows, including the B-17, B-24, and B-25 bombers, the P-51 Mustang fighter, and, of course, Supermarine Spitfires.
Captain John Schooling would be proud.
Good Luck and Good Trading,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Captain John Schooling and His RAF 1949 Chipmunk
A Mitchell B-25 Bomber
A 1932 De Havilland Tiger Moth
Flying a P-51 Mustang
The Next Generation
A Supermarine Spitfire Mark IX
Global Market Comments
December 9, 2024
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD or WHY THE MAG SEVEN ARE FADING) plus (HOW TO GET A TESLA FOR FREE),
(NVDA), (GLD), (JPM), (BAC), (C),
(CCJ), (MS), (BLK) (TSLA), (TLT)
First of all, I have to apologize for skipping the last Monday Global Strategy Letter, the highlight of my writing week.
I usually write this letter on weekends, but the last one followed Thanksgiving. I thought that 30 years in the future when I am on my deathbed, I’m definitely NOT going to be regretting that I didn’t write one more letter. Instead, I will be asking myself, “Why didn’t I take an extra day off?”
There’s your answer.
Which leads us to the pressing question of the day. Why has the performance of the Magnificent Seven shares been fading since June? Largely, they have been drifting sideways, and Nvidia (NVDA) is down. Only Tesla has rocketed, thanks to an election push.
This is a big deal because all of you own the Mag Seven stocks as the bulk of your portfolios, with (NVDA) as the single largest position, thanks to spectacular performance (up 10X). This sector has buttered our bread very nicely, thank you very much, allowing Mad Hedge Fund Trader to outperform all others by a huge margin.
The reason is very simple. Their earnings growth rate relative to the rest of the market has been steadily declining. They delivered a 66% performance premium relative to the S&P 500 last year and 22% this year, compared to 3% for the rest of the market and 8% for the market as a whole. That drops to only 11% in 2025.
So, the Mag Seven will continue to perform but at a fraction of the pace of the last two years.
The slowdown is happening largely because these companies have gotten so big. You have three giants with $3 trillion-plus market capitalizations battling it out for the position as the world’s largest company (AAPL), (NVDA), and (MSFT). They are followed by Meta (META) is at $1.5 trillion, (GOOGL) is at $2 trillion, and (AMZN) at $2.2 trillion. Combined, they represent 35% of the total stock market.
That is a lot.
I’ll give you another interesting factoid.
There has not been a single 10% correction in the stock market this year. That has not happened since 1928. What happens when you skip corrections? They bunch up in the following year. We all know what happened in 1929. There has been a massive pull forward of performance from 2025 into 2024.
The bottom line is that we are going to have to work harder for our crust of bread in 2025 and get less of it in return. That is….unless you are a subscriber to the Mad Hedge Fund Trader.
Fortunately, we will still have plenty of new fish to fry. I jumped in with a 100% fully invested portfolio on day one of the new deregulation trend, up 19% in November alone. This has several more months to run.
After That? Ask me in March.
I learned a fascinating statistic the other day. The Labor Force Participation Rate for 75-year-olds and older has doubled to 9% of the total workforce since 1987. My barber is 85, and my seamstress is 84, and there are many more like them.
I happen to be one of these “Never Retirers”. They are going to have to pry my cold, dead fingers off my keyboard. Why quit taking tests when you already know all the answers? Never quitting also has health benefits in that it can substantially extend the quality and quantity of your life. I’ve had many billionaire hedge fund manager friends retire because they earned more money than they could ever possibly spend. All they do now is play golf or waste my time calling me looking for free stock tips.
I have another disincentive to retire. Some 15 people spread all over the US and around the world would lose their jobs. At some time or another, all five of my kids, aged 19-39, have worked for Mad Hedge Fund Trader. Others who own their own companies face the same predicament.
Unfortunately, the US tax system isn’t exactly set up for people like me. When I turn 73 in January, I will be forced to withdraw and pay the maximum income tax rate of 4% of my entire retirement funds, even though I don’t need them. Such is the price of a tax system that was designed in 1937, back when half of all men died before age 65.
However, there are those rare times when I am ready to throw in the towel and cash in my chips. That happens when a customer asks for a refund despite making a +75.25% profit this year. A particularly thick follower when it comes to understanding options trading strategies occasionally pushes me over the edge.
That’s when I look to my role model and mentor, Warren Buffet. He’s still working, and he’s 95.
If you’re worried about a market crash next year, one has already started. Rare Whiskey is down 40% by price and 34% by volume this year. Bottles such as the 50-year-old Macallan Lalique had been selling for as much as 50,000 pounds, while bottles of Bowmore’s First Edition have been going for 15,000 pounds. First, it was hedge fund managers trying to outbid each other. Then, wealthy Chinese piled in.
Overall, Scottish whiskey exports are off 18% this year, thanks to Brexit choking off European markets. Low interest rates had prompted investors to seek out unusual asset classes. But the bubble has popped. American whiskey prices have held up better thanks to the strong economy. But the current high interest rates have scotched that appetite as fixed income offers a more generous and stable return.
Who knows what they will collect next?
Finally, I would be remiss if I did not mention that Saturday was Pearl Harbor Day, December 7. Although the tragic 1941 attack happened before I was born, I know many people who were there on both sides and have accumulated dozens of stories. However, I do have a personal connection with this historic event.
I did my flight training at the Ford Island Naval Air Station. In the 1970’s, they used to say, “No heavy landings, please, because we still haven’t found all the Japanese bombs.”
While in the circuit, you could see the wreckage of the superstructure of the USS Arizona, the battleship that took a direct hit and took town 1,177 sailors. The location has always been kept secret by the Navy because they didn’t want fortune hunters selling souvenirs to the public.
But I know right where it is. Today, only 16 Pearl Harbor veterans survive.
In December, we have gained +1.10%. November proved to be our best month of the year, up +18.96%. My 2024 year-to-date performance is at an amazing +73.10%. The S&P 500 (SPY) is up +24.73% so far in 2024. My trailing one-year return reached a nosebleed +77.04%. That brings my 16-year total return to +749.73%. My average annualized return has recovered to an incredible +53.87%.
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). We are now so far in the money with all of our positions we can safely run them until the December 20 option expiration in 9 trading days, thanks to a Santa Claus rally, 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
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, December 9 at 8:30 AM EST, the Consumer Inflation Expectations is out.
On Tuesday, December 10 at 8:30 AM, the NFIB Business Optimism Index is published.
On Wednesday, December 11 at 8:30 AM, the Consumer Price Index is printed.
On Thursday, December 12 at 8:30 AM, the Producer Price Index is announced.
On Friday, December 13 at 8:30 AM, US Import and Export Prices are published. At 2:00 PM, the Baker Hughes Rig Count is printed.
As for me, I have proven yet again that if you buy Tesla shares, you get the car for free. That is the result of the triple-long-in-the-stock I egged followers into right after the election.
So when is the best time to buy a Tesla? That would be right now.
To meet yearend goals, Elon Musk always offers the best deals of the year every December. See below the offers I received yesterday of rock bottom prices, 0% financing, and free recharging. You can get the brand new Cybertruck for $99,990 and the slick Model S for a bargain $68,350.
The Tesla Model S1 (TSLA) has been rated by Consumer Reports magazine as the best car ever built, grabbing a covered 99 score out of 100. It has been ranked by the US Government Department of Transportation as the safest car ever built. Even competitors love the car.
So I decided to see if these vaunted claims were true and crash-test my own $162,500 high-performance Model X P100 on public streets.
Actually, it wasn’t I who made the decision. It was the harried housewife with four screaming kids in the back seat speaking on a cell phone while driving who made that call. She drove her GMC Silverado quad cab pickup truck straight into the side of my Tesla.
All I heard was a loud horn and a big slam as my car spun around 360 degrees. It was like going through aerobatic pilot school all over again.
I jumped out and asked if everyone was alright. They were. All I found were four deadly silent boys and a woman crying over the phone to her husband about how his brand-new truck had just gotten a small dent on the front bumper. I inspected the damage, took pictures (see below), and calculated that her repairs would run about $1,500.
Bottom line on the safety issue? I didn’t even know that I had been in an accident. The vehicle is essentially a giant crumple zone. But it comes at a high price.
All four ultra-thin racing tires tore off the wheels during the spin (expensive). That meant the custom-painted 21-inch wheels had to scrape along the pavement, destroying them (more expensive). After teaching the AAA tow truck guy how to drive it, he hauled it away.
It was then that I learned about the arcane world of fixing Teslas. Since the car is made out of aluminum, no neighborhood body shop can work on it, as it melts at a much lower temperature than steel. Standard welders are not allowed. There are, in fact, only three specialized niche repair shops in the entire San Francisco Bay Area that can work with this ultra-lightweight metal.
Brooks Auto Body of Oakland is one of them. When I stopped by to talk about the job, the owner, a 6-foot 6-inch Korean guy, was in too much of a good mood. I would find out why later. Behind him were 16 other Teslas in varying states of assembly.
News flash: These things are not cars. They are more like giant computers, with an 18-inch screen and a 1,100-pound battery. None of the components looked anything like car parts. Only the wheels belied any connection with transportation.
It took two months to finish the repairs. Since Tesla would only sign off on the car when it was perfect, it was sent back to the factory in Fremont three times for additional realignment and recalibration. The final bill came to $32,000. The good news is that my lithium-ion battery was fine, which would have cost an extra $30,000 to replace.
The really humiliating thing about the entire experience was that I had to drive a KIA Optima loaner until the Tesla was back in action. So, for eight weeks, my life was dull, mean, and brutish. Driving on the freeway, every nut and bolt made its presence felt. And I had to buy gas at those ugly places that sell cigarettes, chewing tobacco, and condoms! Yuck! Once you’ve had electric, you never go back.
All of which brings me to Tesla’s share price, which has just nearly tripled from $140 to $390 as hot money poured into the big momentum names. Let me tell you that the revolutionary vehicle is still wildly misunderstood, and the company has done a lousy job making its case.
The electric power source is, in fact, the least important aspect of the car. Here are 15 reasons that are more important:
1) The vehicle has 75% fewer parts than any other, massively reducing production costs. The drive train has 11 parts, compared to over 1,500 for conventional gasoline-powered transportation. Tour the factory, and it is eerily silent. There are almost no people, just a handful who service the German robots that put these things together.
2) No maintenance is required, as any engineer will tell you about electric motors. You just rotate the tires every 6,000 miles.
3) This means that no dealer network is required. There is nothing to fix.
4) If you do need to repair something, usually, it can be done over the phone. Rebooting the computer addresses most issues. If not, they will send a van to do an onsite repair for free.
5) The car runs at room temperature, not the 500 degrees, in standard internal combustion cars. This means that the parts last forever.
6) The car is connected to the Internet 24/7. Once a month, it upgrades its own software when you are sleeping. You jump in the car the next morning, and a message appears on your screen saying, “We just upgraded the following 20 Apps.” This is the first car I ever owned that improved itself with age, as I do myself.
7) This is how most of the recalls have been done as well, over the Internet while you are sleeping.
8) If you need to recharge at a public station, Tesla has the world’s largest charging network. Tesla has its own national network of superchargers that will top you up in 20 minutes and allow you to drive across the country. (I can’t wait to try out the one in Winnemucca, Nevada, on my next trip to Chicago). But hotels and businesses have figured out that electric car drivers are the kind of big-spending customers they want to attract. So, public stations have been multiplying like rabbits. When I first started driving my Nissan Leaf in 2010, there were only 25 charging stations in the Bay Area. There are now over 1,000. They even have them at Costco.
9) No engine means a lot more space for other things, like storage. You get two trunks, a generous one behind and a “frunk” in front.
10) Drive an electric car, and you can drive in the HOV commuter lanes as a single driver. This also won’t last forever, but it’s a nice perk now.
11) There is a large and growing market for all American-made products. Tesla has a far higher percentage of US parts (100%) than any of the big three (GM is only at 70%).
12) Since almost every part is made on the side at the Fremont factory, supply line disruptions are eliminated. Most American cars are over-dependent on Asian supply lines for parts and frequently fall victim to disruptions.
13) There are almost no controls, providing for more cost savings. Except for the drive train, windows, and turn signals, all vehicle controls are on the touch screen, like a giant iPhone 5s.
14) A number of readers have argued that Tesla really runs on coal, as this is still the source of 16.2% of the US power supply. However, if you program the car between midnight and 7:00 AM (one of my ideas that Tesla adopted in a recent upgrade), you are using electricity generated by the utilities to maintain grid integrity at night that otherwise goes unused and wasted. How much power is wasted like this in the US every night? Enough to recharge 150 million cars per night.
15) Oh yes, the car is good for the environment, a big political issue for at least half the country.
No machine made by humans is perfect. So, in the interest of full disclosure, here are a few things Tesla did not tell you before you bought the car.
1) There is no spare tire or jack, just an instant repair kit in a can.
2) The car weighs a staggering 3 tons, so conventional jacks don’t work. Lithium is heavy stuff.
3) The car is only 8 inches off the ground, so only a scissor jack works.
4) The 21-inch tires on the high-performance model are a special order. Get a blowout in the middle of nowhere, and you could get stranded for days. So if you plan to drive to remote places, Like Lake Tahoe, as I do, better carry a 19-inch spare in the “frunk” to get you back home.
5) If you let some dummy out in the boonies jack the car up the wrong way, he might puncture the battery and set it on fire. It will be a decade before many mechanics learn how to work with this advanced technology. The solution here is to put a hockey puck between the car and the jack. And good luck explaining what this is to a Californian.
6) With my Leaf, I always carried a 100-foot extension cord in the trunk. If power got low, I just stopped for lunch at the nearest sushi shop and plugged in for a charge. Not so with Tesla. You are limited to using their own 20-foot charging cable, or it won’t work. I haven’t found anyone from the company who can tell me why this is the case.
And guess what? Detroit is so far behind in developing this technology that they will never catch up. My guess is that they eventually buy batteries and drive trains from Tesla on a licensed basis, as Toyota (for the RAV4) and Daimler Benz (for the A-Class) already are. All of Detroit’s existing hybrid technologies are older versions similarly purchased from the Japanese (I bet you didn’t know that).
You might also go out and buy a Model S1 for yourself as well. It’s like driving a street-legal Formula 1 racecar and is a total blast. Just watch out for drivers of Silverado’s speaking on cell phones.
Good Luck and Good Trading,
]
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Not Much of a Wait at the Vacaville Supercharger
$1,500 Worth of Damage
$32,000 Worth of Damage
But the Motor Was Fine
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)
