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The Market Outlook for the Week Ahead, or the Dr. Jekyll to a Mr. Hyde

I have to tell you that every year I do this, calling the market gets easier and easier. That’s because when you go from year 62 to 63 in the market, you actually learn quite a lot.

What gets more frustrating every year is convincing people to execute my trades because they are increasingly out of consensus, as opposed to conventional wisdom, tradition-shattering, or downright Mad.

Nuclear stocks? Are you out of your mind? Haven’t you heard of Three Mile Island?

So, the Fed went with 50.

Initially, the stock reaction was “Oh my gosh, the free lunch is bigger than we thought!” By the close, this morphed to “Oh my gosh, the economy must be worse than we thought!” This opens the way to another possible 50 basis point rate cut in November, which happens to be the day after the presidential election. It only took 5 seconds for most investors to realize that they had way too much cash.

By acting so aggressively and out of character, Fed governor Jay Powell is admitting that he blundered, blew it, dropped the ball, and scored an own goal all at once by not lowering interest rates in July.

By doing his best impression of a deer frozen in the headlights in H1, all Powell got us were six more weeks of job losses, taking the headline Unemployment Rate up to 4.2%.

Don’t get too complacent though. Look at the chart below and you will see that when the Fed began an aggressive round of interest rate cuts in 2007, the market launched into a major crash of 57%.

Dow 42,000.

It may seem commonplace and ordinary for mere mortals to see this number. But for those of us who remember when it was only 600 back in 1982 (and predicted to immediately plunge to 300 by the late Joe Granville), we are now in the realm of science fiction.

However, in Q3 this year, the character of the bull market suddenly changed, from a Dr. Jekyll to a Mr. Hyde. The Magnificent Seven has shrunk to the Pitiful Seven, with long boring sideways-range trades. In the meantime, growth and interest rate-sensitive value stocks that I have been pounding the table about for six months have begun trading like red-hot must-own biotech IPOs.

The choice is very simple. Do I buy a stock that has a single-digit price-earnings multiple that is flying like a bat out of hell, or do I choose an incredibly expensive tech stock with a PE multiple of 27X or worse that is stagnating?

I know what I’m going to do with my money, which reached new all-time highs almost every day this month. I’ll go with the former all day long.

Don’t get me wrong. The Mag Seven aren’t going to stay out of favor for very long. It’s like holding a basketball underwater that keeps inflating. Their earnings are still growing at an explosive rate. Personally, I think Nvidia (NVDA) will hit $160 a share by early 2025.

If there is one common factor in all financial markets today, it is the vast underestimation of the potential of AI and the impact on stock prices, which keeps surreptitiously sneaking into our lives every day.

My Cameco (CCJ) trade alert came through in a week, immediately tacking on 10%. I have to tell you that reading my email, there is a lot of demand for positions that rise by 15% in a week. But that is better than the two-week wait for the Concierge clients who bought the 2026 $40-$42 LEAPS for only 75 cents. The consolation is that they will make a lot more money, potentially some 167% by expiration. The big money is always made with long-term trades.

I can honestly say that I put 54 years of work into this trade, dating back to when I started my work at the Atomic Energy Commission Nuclear Test Site in Nevada. While advanced nuclear power plant design and fuels (low enriched uranium oxide with an M5TM zirconium-based cladding) have been around for a long time, the industry had the kiss of death on it thanks to Three Mile Island (watch the movie China Syndrome), Chornobyl, and Fukushima.

It was going to take someone bold with deep pockets to restart this industry. Then out of the blue Microsoft (MSFT) announced the reopening of Three Mile Island, the site of the worst nuclear accident in US history in 1979.

Constellation Energy announced Friday that its Unit 1 reactor, which closed five years ago, is expected to be revived in 2028, dependent on Nuclear Regulatory Commission approval. Microsoft will purchase the carbon-free energy produced from it to power its data centers to support artificial intelligence.

Twelve U.S. nuclear power reactors have permanently closed since 2012, with the most recent being Indian Point 3 on April 30, 2021. Another seven U.S. reactor retirements have been announced through 2025, with a total generating capacity of 7,109 MW (equal to roughly 7% of U.S. nuclear capacity).

I have a feeling that all of these will get reopened, which cost about $4 billion each to build and can be bought now for pennies on the dollar. In the meantime, the world’s largest uranium supplier, Kazakhstan, is cutting supplies. Buy all nuclear plays in dips.

I have to tell you that this was one of those weeks that by making 6.74% it makes all the barbarically early mornings and exhausting late nights worth it. While all my friends are working on their golf swings or improving their bowling scores, I am scoring the Internet search for the next original investment theme. Every customer I have spoken to lately is having a great year.

So far in September, we are up by a spectacular +9.67%. My 2024 year-to-date performance is at +44.36%. The S&P 500 (SPY) is up +19.08% so far in 2024. My trailing one-year return reached +63.00%. That brings my 16-year total return to +720.99%. My average annualized return has recovered to +52.43%.

I front-ran the Fed move by adding positions in interest rate sensitives like (GLD), (NEM), and (TSLA). I added (CCJ) based on the arguments above. Once the Fed showed its hand, I added another interest rate sensitives with (DHI). I also added a short in (TLT).

My logic on (TLT) was very simple. I think it is safe to say that we won’t have any downside surprises in interest rates until the next Fed meeting on November 6. We don’t even get a Nonfarm Payroll Report until October 4.

In any case, the bond market has already fully priced in half of the 250 basis points worth of interest rate cuts now discounted by the June Fed futures markets. We have just witnessed a massive $20 rally off the (TLT) bottom. Upside surprises in prices from here should be nil.

If you couldn’t get into (TLT), you are not alone. As soon as the big hedge funds saw my trade alerts, they started hammering not only the options market but the underlying bond market as well with several large $100 million sales. That pushed the trade to near max profit almost immediately and made my trade alert impossible to execute.

At The Economist, they used to say that imitation is the sincerest form of flattery.

Some 63 of my 75 round trips, or 90%, were profitable in 2023. Some 57 of 75 trades have been profitable so far in 2024, and several of those losses were break-even. That is a success rate of +76%.

Try beating that anywhere.

FedEx Gets Crushed 10%, on disappointing earnings and guidance. Cost control is a big issue. Right now, investors are presented with the Dow Industrials at all-time highs and Transports barely positive for the year. Transports are up just 2.7% year to date, and a 13% drop in FedEx shares early Friday will likely drag it into the red for 2024. Buy (FDX) on dips, a great economic recovery play.

Existing Home Sales Drop 4.2%, in August to a seasonally adjusted annualized rate of 3.86 million units, according to the National Association of Realtors. There were 1.35 million units for sale at the end of August. That’s up 0.7% from July and up 22.7% year over year. median price of an existing home sold in August was $416,700, up 3.1% from August 2023, a new all-time high. Real estate should pick up once lower interest rates feed through.

Weekly Jobless Claims Hit 4 Month Low at 219,000. This flies in the face of yesterday’s 50 basis point rate cut by the Fed yesterday based on a weakening jobs market.

Alaska Airlines Takeover of Hawaiian Gets Approval, in a rare case of agreement from the government. The Feds have opposed the most concentration of industry. I think without the deal Hawaiian would have gone under. Expect prices to go and services to decline. Avoid the airlines.

Berkshire Hathaway Cash Approaches $300 Billion. Berkshire ended the second quarter with cash and equivalents (mostly Treasury bills) of $277 billion, up from $168 billion at year-end 2023, mostly due to heavy sales of Apple (AAPL). It highlights how much money is sitting on the sidelines waiting to come in on the next dip. It's also an indication that in the 75 years of Warren Buffet’s investing experience, stocks are expensive.

The Entire Energy Sector is About to Double, once the Chinese economy starts to recover. A recovering US economy powered by lower interest rates will also help. Everything from oil futures to master limited partnerships and stocks are on sale with the highest dividends in the market. It’s almost the only place Warren Buffet is buying.

Amazon Puts AI to Work, using it to plan new delivery routes which saves time and millions of gallons of gasoline. It’s a simple application with vast results. It all goes straight to the bottom line. AI is spreading throughout the economy far faster than most people realize. Buy (AMZN) on dips.

Foreign Direct Investment into China Collapses, down 31.5% in the first eight months of 2024 the Chinese Commerce Ministry said on Saturday. This could be a drag on the recovery of global commodity prices.

US Import Prices are in Free Fall, showing the biggest drop in eight months in August, driven by a broad decline in the costs of goods.

Ebbing price pressures give the Federal Reserve ample room to focus on the labor market which has slowed considerably from last year's robust job growth. Expectations of lower interest rates as well as slowing inflation results are making people feel better about the outlook for the economy.

Foreign Investors Pour $31 Billion into Emerging Markets in August. Fixed income funds ex-China accounted for $27.8 billion of inflows, with $1.4 billion funneled to Chinese debt, the data show. The net inflow to stocks stood at $1.7 billion despite a $1.5 billion outflow from Chinese equities. It’s all about falling US interest rates and a US dollar that is expected to be weak for years.

My Ten-Year View

When we come out the other side of the recession, we will be perfectly poised to launch into my new American Golden Age or the next Roaring Twenties. The economy decarbonizing and technology hyper accelerating, creating enormous investment opportunities. The Dow Average will rise by 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, September 23 at 8:30 AM EST, the S&P Global Flash PMI
is out

On Tuesday, September 24 at 6:00 AM, the S&P Case Shiller National Home Price Index is released.

On Wednesday, September 25 at 7:30 AM, New Home Sales are printed.

On Thursday, September 26 at 8:30 AM EST, the Weekly Jobless Claims are announced. We also get the final read on Q2 GDP.

On Friday, September 27 at 8:30 AM, we learn the Fed’s favorite inflation indicator, the Core PCE Price Index. At 2:00 PM EST, the 2:00 PM the Baker Hughes Rig Count is printed.

As for me, when the Cold War ended in 1992, the United States judiciously stepped in and bought the collapsing Soviet Union’s entire uranium and plutonium supply.

For good measure, my client George Soros provided a $50 million grant to hire every Soviet nuclear engineer. The fear then was that starving scientists would go to work for Libya, North Korea, or Pakistan, which all had active nuclear programs. They ended up here instead.

That provided the fuel to run all US nuclear power plants and warships for 20 years. That fuel has now run out and chances of a resupply from Russia are zero. The Department of Defense attempted to reopen our last plutonium factory in Amarillo, Texas, a legacy of the Johnson administration.

But the facilities were deemed too old and out of date, and it is cheaper to build a new factory from scratch anyway. What better place to do so than Los Alamos, which has the greatest concentration of nuclear expertise in the world?

Los Alamos is a funny sort of place. It sits at 7,320 feet on a mesa on the edge of an ancient volcano so if things go wrong, they won’t blow up the rest of the state. The homes are mid-century modern built when defense budgets were essentially unlimited. As a prime target in a nuclear war, there are said to be miles of secret underground tunnels hacked out of solid rock.

You need to bring a Geiger counter to garage sales because sometimes interesting items are work castaways. A friend almost bought a cool coffee table which turned out to be part of an old cyclotron. And for a town designing the instruments to bring on the possible end of the world, it seems to have an abnormal number of churches. They’re everywhere.

I have hundreds of stories from the old nuclear days passed down from those who worked for J. Robert Oppenheimer and General Leslie Groves, who ran the Manhattan Project in the early 1940s. They were young mathematicians, physicists, and engineers at the time, in their 20’s and 30’s, who later became my university professors. The A-bomb was the most important event of their lives.

Unfortunately, I couldn’t relay this precious unwritten history to anyone without a security clearance. So, it stayed buried with me for a half century, until now.

Some 1,200 engineers will be hired for the first phase of the new plutonium plant, which I got a chance to see. That will create challenges for a town of 13,000 where existing housing shortages already force interns and graduate students to live in tents. It gets cold at night and dropped to 13 degrees F when I was there.

I was allowed to visit the Trinity site at the White Sands Missile Test Range, the first visitor to do so in many years. This is where the first atomic bomb was exploded on July 16, 1945. The 20-kiloton explosion set off burglar alarms for 200 miles and was double to ten times the expected yield.

Enormous targets hundreds of yards away were thrown about like toys (they are still there). Half the scientists thought the bomb might ignite the atmosphere and destroy the world but they went ahead anyway because so much money had been spent, 3% of US GDP for four years. Of the original 100-foot tower, only a tiny stump of concrete is left (picture below).

With the other visitors, there was a carnival atmosphere as people worked so hard to get there. My Army escort never left me out of their sight. Some 78 years after the explosion, the background radiation was ten times normal, so I couldn’t stay more than an hour.

Needless to say, that makes uranium plays like Cameco (CCJ), NextGen Energy (NXE), Uranium Energy (UEC), and Energy Fuels (UUUU) great long-term plays, as prices will almost certainly rise and all of which look cheap. US government demand for uranium and yellow cake, its commercial byproduct, is going to be huge. Uranium is also being touted as a carbon-free energy source needed to replace oil.

At Ground Zero in 1945

What’s Left of a Trinity Target 200 Yards Out

Playing With My Geiger Counter

Atomic Bomb No.3 Which was Never Used in Tokyo

What’s Left from the Original Test

Stay Healthy,

John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader

September 17, 2024

Diary, Newsletter, Summary

Global Market Comments
September 17, 2024
Fiat Lux

Featured Trade:

(CAMECO LEAPS),
(CCJ)

September 13, 2024

Diary, Newsletter, Summary

Global Market Comments
September 13, 2024
Fiat Lux

Featured Trade:

(The Mad SEPTEMBER traders & Investors Summit is ON!)
(SEPTEMBER 13 BIWEEKLY STRATEGY WEBINAR Q&A),
(USO), (UUP), (FXA), (FXE), (FXC), (FXB), (DJT), ($INDU), (JPM), (BRK), (TSLA), (NVDA), (IBM), (CCJ), (BRK/B)

September 11 Biweekly Strategy Webinar Q&A

Diary, Newsletter

Below please find subscribers’ Q&A for the September 11 Mad Hedge Fund Trader Global Strategy Webinar, broadcast from Lake Tahoe Nevada.

Q: Will the Fed cut by 50 basis points at their next meeting?

A: The probability of that happening actually dropped by about half with the warm CPI report this morning with core CPI at 0.3%. That may have pushed the Fed from a 50% basis point rate cut back down to only 25%. I think if we only get 25%, the market will sell off. So that’s Wednesday next week. Mark that on your calendars—the market may well be on hold until then.

Q: Is $50/barrel oil (USO) coming by the end of this year?

A: No, but I think $60 is in the works. And that may be the bottom of this cycle because after that we expect an economic recovery, greater demand for oil, and rising prices in 2025. Until then, overproduction both in the US and in the Middle East is knocking prices down.

Q: Will the US dollar (UUP) continue its terrible performance through the end of the year?

A: Yes, and in fact, it may be for the next 10 years that the US dollar is weak—certainly 5—so any rally or dips you get in the currencies (FXA), (FXE), (FXC), and (FXB) I’d be buying with both hands.

Q: Where are you hiding at the moment?

A: 90-day T-bills, which are yielding 4.97%. You can buy and sell them any time you want, and the interest is only payable when you sell them.

Q: Is September 18th the selloff?

A: It depends on how much we do before then. Obviously, we’re making good progress today with the Dow ($INDU) down 700 points, so we shall see. However, the market is flip-flopping every other day, making it untradable—you can’t get any position and hold on to it long enough to make money, so it’s better just to stay out. There’s no law that says you have to be in the market every day of the year, and this is a day not to be in the market for sure.

Q: How will the presidential debate reaction affect the market?

A: There’s only one stock you have to follow for that and that’s the (DJT) SPAC, and that’s Trump’s own personal ETF, and it is down 13% today to a new all-time low. I believe that’s well below its IPO price, so anyone who’s touched that stock is losing money unless they got out at the top. That is a good signal.

Q: JP Morgan (JPM) stock had a steep pullback to $200/share—is it a buy here?

A: No, but we’re getting close. If we can get (JPM) close to its 200-day moving average at $188 on high volatility, that would be a fantastic buy, because (JPM) will benefit enormously from falling interest rates, and it is the world's quality banking play.

Q: Is it too soon on Berkshire Hathaway (BRK) and Tesla (TSLA)?

A: Yes on both. It’s too soon for anything right now. I wouldn’t touch anything before the interest rate cut unless you have a really special situation, and there are some out there.

Q: Do you think Nvidia (NVDA) could test $90 again?

A: It could very easily; it got within $10 of that last week. So, it just depends on how bad the news is and how scared people get in September.

Q: Is the end of carry trade affecting the market?

A: No, we had a big deleveraging there. Although people are going back in again now, it’s not enough to hurt the market.

Q: I heard Putin is threatening over raw materials. What do we get from Russia, and what stocks or ETFs would be impacted?

A: We get nothing from Russia anymore. We used to get a lot of commodities and oil from them, and that has ceased. Russia has essentially exited the global economy because of the sanctions and the war in Ukraine, so they can’t really hurt anyone at this point.

Q: What about Russia doing an end-run around with direct trade? BRICS block is going to make the dollar even more worthless in the future.

A: I don’t buy that at all. I’ve been covering sanctions for 50 years; they always work, but they always take a long time. You could always do black market trade through the back door, but the volumes are way down, and the profits are much less because people only buy sanctioned goods at big discounts. The oil that China is buying from Russia is something like a 30% discount to the market. They execute a high cost of doing business, and nobody wants to be in sanctions if they can possibly do avoid. That said, when the war ends, the sanctions may end. That could be some time next year when Russia completely runs out of tanks and airplanes.

Q: Should I buy Nvidia (NVDA) call options now?

A: It's not just a matter of Nvidia. It's what the general market is doing, and tech is doing. And tech is not doing that well—even on the up days. So I would hold off a bit on Nvidia.

Q: Why is Warren Buffet (BRK/B) unloading so much of his equity portfolio?

A: He thinks the market is expensive, and he has thought it has been expensive for years and he's been unloading stocks for years. He has something like $250 billion in cash now so he can buy whole companies in the next recession. Whether he'll live long enough to see that recession is another question, but his replacement staff is already at work and running the fund, so Berkshire will continue running on autopilot even after he’s gone.

Q: Is IBM an AI play?

A: (IBM) wants to think that it’s an AI play. They haven’t disclosed enough to the public to make the stock a real AI investment, so I would say it probably is, but we don’t know enough at this point, and there are probably too many other candidates to buy in the meantime.

Q: How do I invest in green energy stocks, and do you have any names for me?

A: Well here’s one right here and that’s the Canadian uranium producer Cameco (CCJ). There is a nuclear renaissance going on. China just announced an increase in their plants under construction from 100 to 115. You have the new modular technology ready to take off in the US, and it uses uranium alloys, or uranium aggregates, so it’s impossible for a plant to go supercritical. You also have other countries reactivating nuclear plants that have been closed, and California even delayed its Diablo Canyon shutdown by 5 years. So Nuclear is back in play, and we have an absolute bottom in the stock here and it just dropped 37%, in case you needed any more temptation. So this would be a very attractive alternative energy play for the long term right here.

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

1942 Grumman Wildcat on Guadalcanal

July 26, 2024

Diary, Newsletter, Summary

Global Market Comments
July 26, 2024
Fiat Lux

Featured Trade:

(AUGUST 15 LONDON ENGLAND STRATEGY LUNCHEON)
(JULY 24 BIWEEKLY STRATEGY WEBINAR Q&A),
(UUP), (FXE), (FXC), (FXA), (FXB), (USO),
(FCX), (CCJ), (FXI), (CAT), (DE), (NVDA)

July 24 Biweekly Strategy Webinar Q&A

Diary, Newsletter

Below please find subscribers’ Q&A for the July 24 Mad Hedge Fund Trader Global Strategy Webinar, broadcast from Zermatt, Switzerland.

Q: Does the entry of Kamala Harris into the presidential election have any effect on the stock market?

A: No. I know someone who did research on markets and elections going all the way back to 1792 and the long-term effect has been absolutely zero over the 232-year period. Actually, what happens is you have the two candidates very close to each other in the polls, so uncertainty is at a maximum. Markets hate uncertainty, so they’ll wait until the uncertainty goes away, which will probably be about two weeks before the election. You can expect a really hot 4th quarter in the market though, so get all your cash freed up so you can pour all your money into the market for the last quarter of the year.

Q: How do falling interest rates affect the US dollar (UUP) and the currencies?

A: Currencies (FXE), (FXC), (FXA), (FXB) are always driven by interest rates. Those with high interest rates like the US dollar, are strong; those with low interest rates like Japan, are weak. Japan has had zero rates for over 20 years now. When that reverses, those currencies reverse, ending up with a weak US dollar and a strong euro, pound, etc. These changes in direction for the currency markets only happen every few years, so that will be a reliable trade.

Q: Why is oil (USO) so cheap when the rest of the economy is so strong?

A: There are many reasons. One is that the amount of barrels of oils needed to produce a unit of GDP has been falling for 30 years. That's a function of engines becoming more efficient at using gasoline. Plus more people are switching out of gasoline into electric, and more people flying instead of driving. The “work at home” movement hasn’t helped oil demand either. It’s also the most subsidized industry in the US, and you always get overproduction leading to price crashes, which we now seem to be witnessing.

Q: I have Freeport McMoRan (FCX) as a long-term hold; why has it recently been so weak?

A: Well, the number one reason is China (FXI). China is the biggest consumer of copper in the world and their economy is dead in the water. You know, 4.5% or 4.7% is a long way from the 13% we used to get during the 2000s and when copper was absolutely on fire. Eventually, I expect industrial demand in the US to make up for the shortage of demand from China, but that isn’t happening right now. It isn’t just copper—all the industrial metals have been weak the last couple of months and that is the reason.

Q: Cameco Corporation (CCJ) has been down lately, even with seemingly good news out of Kazakhstan. Is this a good buy here at the 200-day?

A: I would say it is. It’s being dragged down by the rest of the industrial metals and the energy plays. If you watch carefully, the uranium stocks trade very closely with oil, and we have an oil glut, so it tends to drag down all the other energy forms with it, including uranium and natural gas. I love uranium demand long term; it's growing far faster than oil demand and that’s why I own (CCJ).

Q: Do you think falling interest rates will bail out the real estate market?

A: Absolutely, yes. 30-year fixed-rate mortgages hanging around the mid-sixes, you get a couple of rate cuts and we could be back into the fives and even the fours in no time. So yes, big impact on real estate, all the subsidiary plays, on home builders, on the entire economy.

Q: If the market reverses today or tomorrow, what are some of the best call options to put money into?

A: Caterpillar (CAT), Deer & Co. (DE), and you might even go $50 into the money on Nvidia (NVDA). Home builders I would love to get into as well. All of these things have had great runs, but these are just the 1st leg of moves that could go on for years. So yes, this is where the barbell portfolio works: half big tech, half domestic recovery plays.

Q: Are you stopping at Edelweiss for a frosty beer on your hike?

A: Absolutely, I go to Edelweiss every year and don’t mind climbing the 1,200 feet to get there. You certainly have an appetite when you get to the top. It has a fantastic view of the town and you can stay there overnight there as well.

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 Stay Healthy,

John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader

April 8, 2024

Diary, Newsletter, Summary

Global Market Comments
April 8, 2024
Fiat Lux

Featured Trade:

(MARKET OUTLOOK FOR THE WEEK AHEAD, or THE WINDFALL YEAR),
(FCX), (TLT), (TSLA), (NVDA), (FCX),
(XOM), (WPM), (GLD), (CCJ), (META), (AMZN),
(AN EVENING WITH TRAVEL GURU ARTHUR FROMMER)

The Market Outlook for the Week Ahead, or The Windfall Year

Diary, Newsletter

This year seems to be the year of the windfall.

In January, we loaded up on Big Tech (AMZN), (MSFT), which then went ballistic.

In February, we doubled up on NVIDIA (NVDA), which then nearly doubled.

In March, spotting the shift into commodities, energy, and precious metals we loaded the boat with gold Freeport McMoRan (FCX), gold (GLD), silver (WPH), and oil (XOM), (OXY), which launched into torrid two-week straight up moves which continue. And for good measure, we dove into NVIDIA one more time.

Even the trades I thought about and talked about but never executed took off like a scalded chimp, such as uranium producer Cameco (CCJ), up 30% in weeks.

And while you’d think that trades like this would generate the performance of a lifetime, in fact, I begrudgingly admit I'm lagging behind the index this year. It’s incredibly annoying when after working 12 hours a day seven days a week, the indexers, the investors who sit on their hands all day and do nothing, are making more money than I am.

That’s because I put out a handful of ill-timed short positions in the S&P 500 (SPY) and Freeport McMoRan (FCX) which cut my numbers by half.

You may ask why I suffered the madness of putting out shorts when we are in a bull market and that everything is going straight up every day! That’s because I am the Mad Hedge Fund Trader, not the Mad Long-Term Investor. And hedge funds are always supposed to have balanced longs and shorts. I can tilt this by keeping only one short position against a basket of longs. But even those single longs have proved painfully expensive.

The issue here is that the market is not breathing as it normally does. There is no ebb and flow to let you in and out of positions. Sectors flatline, then launch into bull moves that take them up almost every day for months. That is an impossible market to trade.

I have only seen this twice during my lifetime: during the Great Japanese Stock Bubble of the 1980s and the Dotcom Bubble of the 1990s, which means we are in another one of these great bubbles, which will probably be the last of my lifetime.

The previous two great bubbles went on for five years. Greed can last a long time. If you count the October 26, 2023 low as the start of the new bull market, we have 4 ½ years to run in this one. What is more likely is that the pandemic low in April of 2020 was the start of this new bull market and we have averaged a 25% a year return in stocks since then. That means we have at least another year to run…. or more.

Valuations are at the high end of their recent range at 21 times S&P 500 earnings. But during the 1990’s bubble, the market average reached an earnings multiple in the 30s, and technology stocks reached a stratospheric 100 times earnings.

And today, earnings are still rising, sometimes quite sharply, such as the case with (NVDA) and (META). It’s when earnings are falling but stocks are still rising that you have to worry, as happened in 1999 and the first four months of 2000. In the 1980s in Tokyo, nobody ever looked at earnings.

Another frustration with trading today is the collapse of market volatility from $22 to $12 over the past year. That means we are getting paid half of what we were a year ago for the same options trade. You can make up for this loss of volatility by getting more aggressive with strike prices or maturities, but then that increases the number of stop losses.

And that’s the way it is.

You trade the market you have, not the one you want. But what do I know? I’ve only been doing this for 55 years.

I just thought you’d like to know.

NVIDIA Quarterly Earnings

So far in March, we are down -1.44%. My 2024 year-to-date performance is at +6.67%. The S&P 500 (SPY) is up +7.93% so far in 2024. My trailing one-year return reached +41.09% versus +38.92% for the S&P 500.

That brings my 16-year total return to +684.56%. My average annualized return has recovered to +51.57%.

Some 63 of my 70 round trips were profitable in 2023. Some 13 of 19 trades have been profitable so far in 2024.

I stopped out of my short position in Freeport McMoRan (FCX) last week. Markets that go straight up are hard to trade. I also came off my long in (TLT) close to cost. I initiated new longs in Tesla (TSLA) and NVIDIA (NVDA). I let my existing longs run in Freeport McMoRan (FCX), Occidental Petroleum, ExxonMobile (XOM), Wheaton Precious Metals (WPM), and Gold (GLD).

I am 70% invested and 30% in cash given the massive upside breakout in commodity, precious metals, and energy we have witnessed.

Nonfarm Payroll Jumps by 303,000 in March, almost double what was expected. The headline unemployment rate drops 0.1% to 3.8%. Wages rose 0.3% for the month and 4.1% from a year ago, both in line with Wall Street estimates. Health care led with 72,000 new jobs, followed by government (71,000), leisure and hospitality (49,000), and construction (39,000). Interest rate cuts fade into the future.

Weekly Jobless Claims Jump to 221,000, up 9,000, a two-month high. The weekly claims report from the Labor Department on Thursday also showed fewer people remaining on jobless rolls towards the end of March, suggesting that laid-off workers continued to find work, though not as easily as two years ago. There were 1.36 job openings for every unemployed person in February compared to 1.43 in January. Worker shortages persist in industries like construction.

Investors are Piling into Cash, with Money-Market funds getting $82 billion in the week through Wednesday. Investors are still flocking to cash funds, and history suggests redemptions won’t begin until a year after the Federal Reserve starts cutting interest. 5.35% for 90-day US Treasury Bond yields are still a huge draw for the cautious.

Commodities Trading Firms Harvest Record Profits, some $104 billion in 2023. The surprise increase from 2022, when the fallout from the war in Ukraine pushed up prices and supercharged profits, was driven by a wave of new entrants into the sector — including tech-focused traders and hedge funds — and rising returns from power trading activities. The figures reflect profits from the entire sector, including independent traders, banks, hedge funds, and national oil companies. This year will be even better.

Oil Continues to Bubble of Tight Supplies, supported by geopolitical tensions in the Middle East, concerns over tightening supply, and expectations about demand growth as economies improve. I’m keeping my longs in (XOM) and (OXY) and looking to pick up (COP) and (FANG).

US Dollar to Stay Higher for Longer, as a result of the higher for longer Fed tilt on interest rates. High-yielding currencies are always the strongest. The buck is up 3.3% this year against a currency basket.

Toyota Sales Soar by 20% in Q1, closely followed by Honda at 17.3%. General Motors delivered a pitiful 1.5% decline. Hybrids are the name of the day, outselling EVs and ICE cars. Toyota played it safe and won, at least for now.

Disney Wins Proxy Fight with Nelson Peltz, retaining complete control of the board. It’s a defeat for Peltz and a stamp of approval for the company’s board and CEO Bob Iger’s efforts to turn around the company. Nelson can now sell his shares for a big profit, up 30%.

PCE Comes in Hot at 0.3% for February, and 2.8% YOY, taking bonds. Personal Consumption Expenditures give an early read on inflation trends that the Fed loves. The economy is clearly much hotter than traders understand. Consumer spending shot up 0.8% on the month, well ahead of the 0.5% estimate. Personal income increased 0.3%, slightly softer than the 0.4% estimate.

Tesla Sales are Disastrous as expected, coming in at only 386,810, down 8.5% YOY. Shares drop as much as 6.7%, extending the biggest rout in the S&P 500. Analysts slashed projections in recent days, but not by enough. The Berlin factory was shut down and competition in China is ramping up. Still, Tesla produced 46,561 more cars than it sold in the quarter. For what it’s worth, BYD sales in China were even worse. The bottom for (TSLA) is fast approaching.

My Ten-Year View

When we come out the other side of the recession, we will be perfectly poised to launch into my new American Golden Age or the next Roaring Twenties. The economy decarbonizing and technology hyper accelerating, creating enormous investment opportunities. The Dow Average will rise by 800% to 240,000 or more in the coming decade. The new America will be far more efficient and profitable than the old.

Dow 240,000 here we come!

On Monday, April 8, at 7:00 AM EST, the US Consumer Inflations Expectations are announced.

On Tuesday, April 9 at 8:30 AM, the NFIB Business Optimism Index will be released.

On Wednesday, April 10 at 11:00 AM, the Core Inflation Rate for March is published

On Thursday, April 11 at 8:30 AM, the Weekly Jobless Claims are announced. The final read of the Q2 US GDP is also out.

On Friday, April 12 at 8:30 AM, the Producer Price Index is out. At 2:00 PM, the Baker Hughes Rig Count is printed.

As for me, since many of you are now planning long overdue summer vacations, I thought I would pass on what I learned from the ultimate travel guru of all time.

After all, who knows how long it will be until the next pandemic? The next decade, next year, or next week?

When I backpacked around Europe in 1968, I relied heavily on Arthur Frommer’s legendary paperback guide, Europe on $5 a Day, which then boasted a cult-like following among impoverished, but adventurous Americans. The charter airline business was then booming, plunging airfares, and suddenly Europe came within reach of ordinary Americans like me.

Over the following years, he directed me down cobblestoned alleyways, dubious foreign neighborhoods, and sometimes converted WWII air raid shelters, to find those incredible travel deals. When he passed through town some 50 years later, I jumped at the chance to chat with the ever-cheerful worshipped travel guru.

Frommer believes there are three sea change trends going on in the travel industry today. Business is moving away from the big three travel websites, Travelocity, Orbitz, and Priceline, who have more preferential lucrative but self-enriching side deals with airlines than can be counted, towards pure aggregator sites that almost always offer cheaper fares, like Kayak.com, Sidestep.com, and Fairchase.com.

There is a move away from traditional 48-person escorted bus tours towards small group adventures, like those offered by Gap Adventures, Intrepid Tours, and Adventure Center, that take parties of 12 or less on culturally eye-opening public transportation.

There has also been a huge surge in programs offered by universities that turn travelers into students for a week to study the liberal arts at Oxford, Cambridge, and UC Berkeley. His favorite was the Great Books program offered by St. John’s University in Santa Fe, New Mexico.

Frommer says that the Internet has given a huge boost to international travel, but warns against user-generated content, 70% of which is bogus, posted by the hotels and restaurants touting themselves.

The 94-year-old Frommer turned an army posting in Berlin in 1952 into a travel empire that publishes 340 books a year, or one out of every four travel books on the market. I met him on a swing through the San Francisco Bay Area (his ticket from New York was only $150), and he graciously signed my tattered, dog-eared original 1968 copy of his opus, which I still have.

Which country has changed the most in his 60 years of travel writing? France, where the citizenry has become noticeably more civil since losing WWII. Bali is the only place where you can still actually travel for $5/day, although you can see Honduras for $10/day. Always looking for a deal, Arthur’s next trip is to Chile, the only country in the world he has never visited.

With the advent of AI, Arthur has been met with an onslaught of new competition. Recently, Amazon (AMZN) has been flooded with hundreds of new travel books written entirely by algorithms. They have no human author who’s ever visited the country in question and are written entirely from existing information found on the Internet. But they’re cheap.

You can easily spot them from their wishy-washy non-committal language and factual errors and omissions. For example, I recently found a travel book about Ukraine that neglected to mention that there was a war going on there and that its cities were being bombed by Russians daily.

Not for me.

Good Luck and Good Trading,

John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader

Arthur’s Next Big Play is Bali

1968 on the French Riviera

March 11, 2024

Diary, Newsletter, Summary

Global Market Comments
March 11, 2024
Fiat Lux

Featured Trade:

(The Mad MARCH traders & Investors Summit is ON!)
(MARKET OUTLOOK FOR THE WEEK AHEAD, or HIGHER HIGHS)
(NVDA), (META), (IWM), (AMZN), (RIVN), (SNOW), (GLD), (GOLD), (NEM), (FXI), DELL), (AAPL), (TSLA), (CCJ), ($NIKK), (USO), (GOLD)

The Market Outlook for the Week Ahead, or Higher Highs

Diary, Newsletter

I was all ready to write another hyper-bullish report for the week. That was at least until noon EST on Friday. That’s when NVIDIA (NVDA) Peaked at $955 and then free fell $100 to $855. New all-time and then a new intraday low on huge volume and that is the textbook definition of a market top.

Not that we should be complaining. At the high, (NVDA) was up an unimaginable 105% so far this year. I spent my week buying back short put options for 50 cents that I initially sold for $20. With a quarterly quadruple witching due this Friday, anything can happen.

By the end of February, more than half of all analyst 2024 yearend targets were met. The response was a rush to raise yearend targets, triggering the current melt-up.

It always ends in tears.

And I’m about to tell you something that you will absolutely love to hear. Lower interest rates dramatically increase corporate stock buybacks, already set at $1.25 trillion for 2024. That’s because of the lower cost of capital.

What do more share buybacks automatically bring? High stock prices, especially for large positive cash flow companies like big tech.

As much as the permabears hate to admit it, good news really is good news.

With all of the media obsession with NVIDIA (NVDA), my largest holding, and Meta (META), the fact is that the rally is broadening out. More than half of all industrial stocks are trading at all-time highs. Long-forgotten small caps (IWM) are also approaching 2021 all-time highs.

Going into this week managers were either overweight big tech and extremely nervous or out of big tech and kicking themselves. The urge to rotate is strong. But your standby rotation sectors, industrials, biotech, and banking have also seen big moves.

Which brings us to the subject of gold (GLD).

After a tedious one-year sideways consolidation, the barbarous relic blasted out to the upside above $2,200 an ounce, a new all-time high. After soaking up as much gold as they could over the past decade, China and Russia have finally taken the gold market net short, which is why we saw such dramatic price action.

With interest rates in the US soon to fall, the opportunity cost of owning non-yielding gold is about to shrink. That will cut the knees out from under the US dollar prompting a stampede into precious metals and Bitcoin.

Except this time, it’s different.

Gold miners usually outperform the yellow metal by four to one to the upside. Not so this time. Barrick Gold (GOLD) and Newmont Mining (NEM) were barely able to keep pace with the barbarous relic. That’s because inflation has boosted their costs and cut profit margins. After all, they are stock first and gold plays second.

Still, if gold reaches my $3,000 target in 2025 the LEAPS I sent out for (GOLD) last June should easily hit its maximum profit point of 298%.

That other weak dollar play, oil (USO) may not deliver the joys of past cycles and may in fact be trapped in a fairly narrow $60-$80 range. The futures markets are saying that the price of Texas tea will be lower in a year.

The US is now the world’s top oil producer at 13 million barrels/day and that is rising (thanks to enormously generous tax breaks), capping prices. Non-OPEC+ production is increasing, especially from Brazil and Canada. China, the world’s largest oil importer is missing in action. But low inventories, especially at the American Strategic Petroleum Reserve, are preventing a crash as well. Shale production is growing.

Still, even a $20 rally can have a dramatic impact on the share prices of the big US producers, like Exxon (XOM) and Occidental Petroleum (OXY), some 25% of which is now owned by Warren Buffet. Even without some sexy price action, this sector pays some of the highest dividend yields in the markets.

In February we closed up +7.42%. So far in March, we are up +0.70%. My 2024 year-to-date performance is at +3.21%. The S&P 500 (SPY) is up +7.11% so far in 2024. My trailing one-year return reached +54.28% versus +40.94% for the S&P 500.

That brings my 16-year total return to +689.74%. My average annualized return has recovered to +52.05%.

Some 63 of my 70 trades last year were profitable in 2023. Some 11 of 15 trades have been profitable so far in 2024.

I used the ballistic move in (NVDA) to take profits in my double long there. I am maintaining longs in (AMZN) and Snowflake (SNOW). I am both long and short the bond market (TLT) and I am 60% in cash given the elevated level of the stock markets.

Nonfarm Payroll Report Rose 275,000 in February. The Headline Unemployment Rate rose to 3.9%, a two-year high. The report illustrates a labor market that is gradually downshifting, with more moderate job and pay gains that suggest the economy will keep expanding without much risk of a reacceleration in inflation. These are very Fed friendly numbers.

JOLTS Job Openings Report Rises by 140,000 to 8,890,000, less than expected. Leisure and hospitality led with 41,000 new jobs, construction added 28,000 and trade, transportation and utilities contributed 24,000. Growth was concentrated among larger companies, as establishments with fewer than 50 employees contributed just 13,000 to the total.

Rivian Shares Soar, on news it is halting plans to build a new $2.25 billion factory in Georgia, an abrupt reversal aimed at cutting costs while the company prepares to launch a cheaper electric vehicle. Shifting planned production of the forthcoming R2 model to an existing facility in Illinois will allow Rivian to begin deliveries in the first half of 2026, earlier than expected. Buy (RIVN) on dips.

New York Community Bancorp Bailed Out, with a cash infusion led by former Treasury secretary Steve Mnuchin. The shares soared from $2 to $3.41. That takes the heat off the sector….until the next one. The US is shrinking from 4236 banks to only six banks. Who says politics doesn’t pay?

Europe Moves Towards Interest Rate Cuts, igniting a global bond market rally. Staff projections now see economic growth of 0.6% in 2024, from a previous forecast of 0.8%. They presented a more positive picture of inflation, with the forecast for the year brought to an average 2.3% from 2.7%. Market bets increased on rate cuts taking place as early as June, with the euro trading 0.35% lower against the British pound following the news.

Beige Book Comes in Moderate, saying "labor market tightness eased further," in February but noted "difficulties persisted attracting workers for highly skilled positions." The Beige Book is a review of economic conditions across all 12 Fed districts. Fed Chair Jerome Powell told Congress on Wednesday that the U.S central bank expected "inflation to come down, the economy to keep growing," but shied away from committing to any timetable for interest rate cuts.

China Targets 5% Growth for 2024, but nobody buys it for a second. A covid hangover, residential real estate crisis triggering a financial crisis, and constant invasion threats over Taiwan, make this target a pipe dream. Avoid (FXI) and all Middle Kingdom plays.

Gold Hits New All-Time High, at $2,141 an ounce on expectations of imminent rate cuts by the Fed. Gold, often used as a safe store of value during times of political and financial uncertainty, has climbed over $300 dollars since the start of the Israel-Hamas war. Buy (GLD), (GOLD), and (NEM) on dips.

Dell (DELL) Becomes an AI Stock, sending the shares up 47% in a Day. That’s been changing over the past year, as Dell has been reporting strong orders of servers designed to power generative AI workloads—many of which use chips supplied by AI kingmaker Nvidia. The company’s fourth quarter results convinced any doubters. Can Apple (AAPL) do the same?

Tesla Plunges on Poor China Sales, down $14.50 on sales data dimmed the outlook for Tesla's global deliveries, at a time when the top EV maker is battling a decline in demand and is weighed down by a lack of entry-level vehicles and the age of its product line-up. Not the time to be in EVs or solar. Buy (TSLA) on bigger dip.

US National Debt is Rising by $1 Trillion Every 100 Days. A trillion here, a trillion there, sooner or later that adds up to a lot of money. Eventually, someone is going to have to do something about this. The US national debt stands at $34.5 trillion, or $104,545 per person.

The Uranium Shortage is Getting Extreme, with yellow cake up 112% in a year. Owners of left-for-dead uranium mines are restarting operations to capitalize on rising demand for the nuclear fuel. Most of those American mines were idled in the aftermath of Fukushima when uranium prices crashed and countries like Germany and Japan initiated plans to phase out nuclear reactors. Now, with governments turning to nuclear power to meet emissions targets and top uranium producers struggling to satisfy demand, prices of the silvery-white metal are surging. Buy (Cameco (CCJ) on dips.

Japan’s Nikkei ($NIKK) Tops 40,000, a new 34-year high. The ultra-weak Japanese economy is giving the economy there a free lunch, but better hedge your currency exposure. Good thing I missed a dead market for 34 years.

NVIDIA Replaces Tesla as Top Traded Stock, with volumes migrating to the options market as well. Blockbuster profits are catnip for traders, while EV price wars aren’t. Tesla is down 52% from its all-time high two years ago and is one of the biggest percentage decliners in the Nasdaq 100 Index this year.

My Ten-Year View

When we come out the other side of the recession, we will be perfectly poised to launch into my new American Golden Age, or the next Roaring Twenties. The economy decarbonizing and technology hyper accelerating, creating enormous investment opportunities. The Dow Average will rise by 800% to 240,000 or more in the coming decade. The new America will be far more efficient and profitable than the old.

Dow 240,000 here we come!

On Monday, March 11 at 7:00 AM EST, the Consumer Inflation Expectations are announced.

On Tuesday, March 12 at 8:30 AM, Inflation Rate for February is released.

On Wednesday, March 13 at 2:00 PM, MBA Mortgage Applications are published

On Thursday, March 14 at 8:30 AM, the Weekly Jobless Claims are announced. We also get the Producer Price Index.

On Friday, March 15 at 2:30 PM, the University of Michigan Consumer Sentiment is published. At 2:00 PM the Baker Hughes Rig Count is printed.

As for me, I have met many interesting people over a half-century of interviews, but it is tough to beat Corporal Hiroshi Onoda of the Japanese Army, the last man to surrender in WWII.

I had heard of Onoda while working as a foreign correspondent in Tokyo. So, I convinced my boss at The Economist magazine in London that it was time to do a special report on the Philippines and interview President Ferdinand Marcos. That accomplished, I headed for Lubang island where Onoda was said to be hiding, taking a launch from the main island of Luzon.

I hiked to the top of the island in the blazing heat, consuming two full army canteens of water (plastic bottles hadn’t been invented yet). No luck. But I had a strange feeling that someone was watching me.

When the Philippines fell in 1945, Onoda’s commanding officer ordered the remaining men to fight on to the last man. Four stayed behind, continuing a 30-year war.

As a massive American military presence and growing international trade raised Philippine standards of living, the locals eventually were able to buy their own guns and kill off Onoda’s companions one by one. By 1972 he was alone, but he kept fighting.

The Japanese government knew about Onoda from the 1950s onward and made every effort to bring him back. They hired search crews, tracking dogs, and even helicopters with loudspeakers, but to no avail. Frustrated, they left a one-year supply of the main Tokyo newspaper and a stockpile of food and returned to Japan. This continued for 20 years.

Onoda read the papers with great interest, believing some parts but distrusting others. His worldview became increasingly bizarre. He learned of the enormous exports of Japanese automobiles to the US, so he concluded that while still at war, the two countries were conducting trade.

But when he came to the classified ads, he found the salaries wildly out of touch with reality. Lowly secretaries were earning an incredible 50,000 yen a year, while a salesman could earn an obscene 200,000 yen.

Before the war, there was one Japanese yen to the US dollar. In the hyperinflation that followed the yen fell to 800, and then only recovered to 360. Onoda took this as proof that all the newspapers were faked by the clueless Americans who had no idea of true Japanese salary levels.

So he kept fighting. By 1974 he had killed 17 Philippino civilians.

After I left Lubang island, a Japanese hippy named Norio Suzuki with long hair, beads, and sandals followed me, also looking for Onoda. Onoda tracked him as he had me but was so shocked by his appearance that he decided not to kill him. The hippy spent two days with Onoda explaining the modern world.

Then Suzuki finally asked the obvious question: what would it take to get Onoda to surrender? Onoda said it was very simple, a direct order from his commanding officer. Suzuki made a beeline straight for the Japanese embassy in Manila and the wheels started turning.

A nationwide search was conducted to find Onoda’s last commanding officer and a doddering 80-year-old was turned up working in an obscure bookstore. Then the government custom-tailored a prewar Imperial Japanese Army uniform and flew him down to the Philippines.

The man gave the order and Onoda handed over his samurai sword and rifle, or at least what was left of it. Rats had eaten most of the wooden parts. You can watch the surrender ceremony by clicking here on YouTube.

When Onoda returned to Japan, he was a sensation. He displayed prewar mannerisms and values like filial piety and emperor worship that had been long forgotten. Emperor Hirohito was still alive.

When I finally interviewed him, Onoda was sympathetic. I had by then been trained in Bushido at karate school and displayed the appropriate level of humility, deference, mannerisms, and reference.

I asked why he didn’t shoot me. He said that after fighting for 30 years he only had a few shells left and wanted to save them for someone more important.

Onoda didn’t last long in the modern Japan, as he could no longer tolerate modern materialism and cold winters. He moved to Brazil to start a school to teach prewar values and survival skills where the weather was similar to that of the Philippines. Onoda died in 2014 at the age of 91. A diet of coconuts and rats had extended his life beyond that of most individuals.

Onoda wasn’t actually the last Japanese to surrender in WWII. I discovered an entire Japanese division in 1975 that had retreated from China into Laos and just blended in with the population. They were prized for their education and hard work and married well.

During the 1990’s a Japanese was discovered in Siberia. He was released locally at the end of the war, got a job, married a Russian woman, and forgot how to speak Japanese. But Onoda was the last to stop fighting.

The Onoda story reminds me of the fact that journalists learn very early in their careers. You can provide all the facts in the world to some people. But if they conflict with their own deeply held beliefs, they won’t buy them for a second.

Hiro Onoda Surrenders

Budding Journalist John Thomas

Good Luck and Good Trading,

John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader