Global Market Comments
December 24, 2024
Fiat Lux
Featured Trade:
(THE NEXT COMMODITY SUPER CYCLE HAS ALREADY STARTED),
(COPX), (GLD), (FCX), (BHP), (RIO), (SIL),
(PPLT), (PALL), (GOLD), (ECH), (EWZ), (IDX)
Posts
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 $14.5 trillion.
Some 20 million people a year are still moving from the countryside to the coastal cities in search of a better standard of living and improved prospects for their children.
That is the good news. The bad news is that it looks like the headaches of Australian parents of juvenile high earners may persist for a lot longer than they wish.
Buy all commodities on dips for the next several years.
Global Market Comments
September 25, 2024
Fiat Lux
Featured Trade:
(THE NEXT COMMODITY SUPER CYCLE HAS JUST BEGUN),
(COPX), (GLD), (FCX), (BHP), (RIO), (SIL), (CCJ),
(PPLT), (PALL), (GOLD), (ECH), (EWZ), (IDX)
Global Market Comments
September 9, 2024
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or SEPTEMBER LIVES UP TO ITS REPUTATION)
(COPX), (USO), (ARE), (UUP), (TLT), (JNK), (GLD), (SPY), (NASD), ($VIX)
One of my Concierge clients holds a weekly staff meeting. Each employee is told his family is being held hostage and can only be rescued if they recommend the top-performing stock for the coming week. Then everyone throws in their two cents worth.
Last week, for the first time in the company’s history, no one could come up with a single name, even if it meant sacrificing their family (nobody was really sacrificed).
That speaks volumes.
In fact, until last week, every asset class in the market was discounting an imminent recession: Commodities (COPX), energy (USO), real estate (ARE), and the US dollar (UUP). Reliable recession hideouts like bonds (TLT), fixed income (JNK), and gold (GLD) caught an endless bid. Only the stock market (SPY), (NASD) wasn’t reading from the same music sheet.
Well, stocks finally got the memo, delivering the worst week in 2 ½ years. Suddenly, the glass has gone from half full to half empty. Permabears have suddenly morphed from complete idiots to maybe having something to say. Here it is only September 9 and the Month from Hell is already living up to its awful reputation. Is the stock market the slow learner in the bunch?
I came back from Europe in August rested, refreshed, invigorated, and in a near state of panic. The last 11% rally in the (SPY) made absolutely no sense to me whatsoever. Either the September jobs data would come in hot, canceling the Fed’s expected interest rate cut. Or, the data would come in cold, proving that the Fed waited too long to cut rates and inviting a recession, causing stocks to tank.
It would have been one of the worst self-inflicted wounds and own goals of all time.
What was especially dangerous was that we were going into the worth trading month of the year, September, with the (SPY) showing a crystal-clear double top on the charts.
It was a perfect lose/lose situation.
Seasonals are important, especially this month. This is because most mutual funds run an annual year that ends on September 30. To window dress their books and those glossy marketing brochures, they sell all their losers (think energy) in September and use the cash to buy more of their winners in October. (NVDA) yes, (XOM) not so much. This creates a swing in the indexes every year of 10%-20%.
To learn more about the seasonals, read tomorrow’s letter in detail, IF YOU SELL IN MAY AND GO AWAY, WHAT TO DO IN SEPTEMBER?
So I did what I usually do when the market refuses to give me marching orders. I let all my positions expire with the August 16 options expiration, took back the cash, and then sat on my hands. Suddenly, a 100% cash position was looking like a stroke of genius. It cleared the cobwebs, moved the fog away from my eyes, and took the monkey off my back all in one fell swoop.
And you know what? After surveying my big hedge fund clients, I learned they were doing exactly the same thing.
Let me pass on another piece of interesting intel. All of the many algorithms the hedge fund industry follows are bunching up around two specific bottoms for the stock market in coming months: September 18, the Fed rate cut day, and October 22, two weeks before the presidential election.
With any luck, other classic “BUY” signals will kick in at the same time with the Mad Hedge Market Timing Index below 20 by then and the Volatility Index ($VIX) over $30. It could be the best entry point of the year.
What has been fascinating is how much money has been pouring into the interest rate plays I have been banging the table about for the last six months. When was the last time the stock market has been led by AT&T (T), Altria (MO), and Crown Castle International (CCI)? You might have to look behind the radiator to find some old, dusty research on these names.
So far in September, we are down by -1.21%. My 2024 year-to-date performance is at +33.49%. The S&P 500 (SPY) is up +13% so far in 2024. My trailing one-year return reached +51.89. That brings my 16-year total return to +710.12. My average annualized return has recovered to +51.63%.
I executed only one trade last week, covering a short in Tesla at cost. I am now maintaining a 100% cash position. I’ll text you next time I see a bargain in any market. Now there is none. There is no law dictating that you have to have a position every day of the year. Only your broker wants you to trade every day.
Some 63 of my 70 round trips, or 90%, were profitable in 2023. Some 47 of 66 trades have been profitable so far in 2024, and several of those losses were really break-even. That is a success rate of +72.24%.
Try beating that anywhere.
Nonfarm Payroll Report Fades at 142,000, but the Headline Unemployment Rate stays at 4.2%. More shocking is that the previous two months saw substantial downward revisions. The BLS cut July’s total by 25,000, while June fell to 118,000, a downward revision of 61,000. If the Fed doesn’t cut by 0.50% on September 18, the stock market will crash.
Broadcom Beats and Stock Tanks driven by strong sales of its AI products and VMware software. But management’s guidance for the current quarter disappointed investors, sending shares of the chipmaker down nearly 7% in the after-market. This is too harsh of a reaction to an otherwise solid print. Buy (AVGO) on dips.
ADP Employment Change Report Hits 3 ½-Year Low, up only 99,000 in August. Economists polled had forecast private employment would advance by 145,000 positions after a previously reported gain of 122,000.
Biden Blocks Nippon Steel Takeover of US Steel, no doubt to save the jobs these deals usually destroy. Good thing we got out of the (X) LEAPS a year ago at max profit. (X) dropped 20% on the news. Not a good time to concentrate on industry.
No Subpoenas Here Says NVIDIA, refuting rumors that it was the target of an antitrust action. Don’t believe everything you read on the internet.
The Yield Curve has De-Inverted, meaning that short-term interest rates have fallen below long-term ones. Two-year interest rates at 3.72% are now 0.03% lower than ten-year ones at 3.75%. It’s a clear signal to the Fed that rates must be cut soon.
Weekly Jobless Claims Drop 5,000 to 227,000. The weekly jobless claims report from the Labor Department on Thursday, the most timely data on the economy's health, also showed unemployment rolls shrinking to levels last seen in mid-June. It reduces the urgency for the Federal Reserve to deliver a 50-basis points interest rate cut this month.
US Oil Production Hits All-Time High. In August 2024, U.S. oil production hit a record 13.4 million barrels per day according to the U.S. Energy Information Administration. Big Oil has become more productive as horizontal drilling and hydraulic fracturing, which is also known as fracking, have seen technological breakthroughs. The fossil fuel industry benefits from tax incentives, such as the intangible drilling costs tax credit, that are built into the tax code. The intangible drilling costs tax break is expected to benefit oil and gas companies by $1.7 billion in 2025 and $9.7 billion through 2034
Crude Oil Now Down on the Year, after a precipitous weekend selloff. Blame a weak China, lost OPEC discipline, and overproduction by Iraq. The bearish Goldman Sachs commodities report was also a factor. Avoid the worst-performing asset class in the market.
Eli Lilly is now a trillion-dollar stock, the first Biotech to do so. The drug giant is riding the wave of Mounjaro and Zepbound, its blockbuster injectable GLP-1 medications for weight loss. The drugs are also used to treat diabetes and cardiovascular disease. Eli Lilly’s shares have soared 65% this year.
Goldman Goes Big on Gold. Central banks in emerging market countries are continuing to buy gold — with purchases tripling since the middle of 2022 amid fears of U.S. financial sanctions and a mountain of sovereign debt. Goldman is taking a more selective approach to commodity investing as soft demand in China weighs on crude oil and copper prices. The investment bank has slashed its Brent oil outlook by $5 to a range of $70 to $85 per barrel and delayed its copper target of $12,000 per metric ton until after 2025.
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 9 at 3:00 PM EST, Consumer Inflation Expectations are out
On Tuesday, September 10 at 6:00 AM, the NFIB Business Optimism Index is released.
On Wednesday, September 11 at 7:30 AM, the Core CPI is printed.
On Thursday, September 12 at 8:30 AM, the Weekly Jobless Claims are announced. We also get the Producer Price Index.
On Friday, September 13 at 8:30 AM, the University of Michigan Consumer Sentiment. At 2:00 PM the Baker Hughes Rig Count is printed.
As for me, I was having lunch at the Paris France casino in Las Vegas at Mon Ami Gabi, one of the top ten-grossing restaurants in the United States. My usual waiter, Pierre from Bordeaux, took care of me with his typical ebullient way, graciously letting me practice my rusty French.
As I finished an excellent, but calorie packed breakfast (eggs Benedict, caramelized bacon, hash browns, and a café au lait), I noticed an elderly couple sitting at the table next to me. Easily in their 80s, they were dressed to the nines and out on the town.
I told them I wanted to be like them when I grew up.
Then I asked when they first went to Paris, expecting a date sometime after WWII. The gentleman responded, “Seven years ago.”
And what brought them to France?
“My father is buried there. He’s at the American Military Cemetery at Colleville-sur-Mer along with 9,386 other Americans. He died on Omaha Beach on D-Day. I went for the D-Day 70th anniversary.” He also mentioned that he never met his dad, as he was killed in action weeks after he was born.
I reeled with the possibilities. First, I mentioned that I participated in the 40-year D-Day anniversary with my uncle, Medal of Honor winner Mitchell Paige, and met with President Ronald Reagan.
We joined the RAF fly-past in my own private plane and flew low over the invasion beaches at 200 feet, spotting the remaining bunkers and the rusted-out remains of the once floating pier. Pont du Hoc is a sight to behold from above, pockmarked with shell craters like the moon. When we landed at a nearby airport, I taxied over railroad tracks that were the launch site for the German V1 “buzzbomb” rockets.
D-Day was a close-run thing and was nearly lost. Only the determination of individual American soldiers saved the day. The US Navy helped too, bringing destroyers right to the shoreline to pummel the German defenses with their five-inch guns. Eventually, battleships working in concert with very lightweight Stinson L5 spotter planes made sure that anything the Germans brought to within 20 miles of the coast was destroyed.
Then the gentleman noticed the gold Marine Corps pin on my lapel and volunteered that he had been with the Third Marine Division in Vietnam. I replied that my father had been with the Third Marine Division during WWII at Bougainville and Guadalcanal and that I had been with the Third Marine Air Wing during Desert Storm.
I also informed him that I had led an expedition to Guadalcanal two years ago looking for some of the 400 Marines still missing in action. We found 30 dog tags and sent them to the Marine Historical Division at Quantico, Virginia for tracing. I proudly showed them my pictures.
When the stories came back it, turned out that many survivors were children now in their 80s who had never met their fathers because they were killed in action on Guadalcanal.
Small world.
I didn’t want to infringe any further on their fine morning out, so I excused myself. He said Semper Fi, the Marine Corps motto, thanked me for my service, and gave me a fist pump and a smile. I responded in kind and made my way home.
Oh and say “Hi” when you visit Mon Ami Gabi. Tell Pierre that John Thomas sent you and give him a big tip. It’s not easy for a Frenchman to cater to all these loud Americans.
Third Marine Air Wing
The D-Day Couple
The American Military Cemetery at Colleville-sur-Mer
Stay Healthy,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Global Market Comments
August 26, 2024
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD or BEWARE THE NEXT BLACK SWAN) plus (REVISITING UKRAINE),
(SPY), ($INDU), ($COMPQ), (FXI), (COPX), (NVDA), (GM), (GOOG), (FCX), (UUP), (FXE), (FXB), (FXC), (FXA)
The summer is winding down and I view it as a huge success.
I ended up using all 20 of my vintage Hawaiian shirts, which I often get compliments on. I don’t tell people I bought them when they were new. My dry cleaner thought she died and went to Heaven.
Now that an interest rate cut is a sure thing, what happens next? This is the first bull market in history not preceded by an interest rate cut. It might pay us to review how much markets have really gone up in such a short amount of time.
Since the pandemic low, the Dow Average ($INDU) is up 116%, the S&P 500 (SPY) 181%, and the NASDAQ a positively ballistic 262%. Just since the October 26 low, the Dow Average ($INDU) is up 44%, the S&P 500 (SPY) 60%, and the NASDAQ a positively ballistic 86%.
And you want more?
So, what happens now when we get the first interest rate cut in five years? Another new bull market?
Maybe.
Dow 240,000 here we come.
Mad Hedge Fund Trader enjoyed a meteoric performance run so far in 2024, even dodging a bullet from the August 5 Nonfarm Payroll black swan. Whenever that happens, I start to get nervous. So I thought I’d make a list of potential black swans on our horizon that could upset the apple cart.
1) NVIDIA (NVDA) reports, earnings disappoint, and revises down its spectacular forward guidance citing that the AI boom has become overheated. I give this maybe a 5% probability, but even a good report could mark a market top.
2) The September 6 Nonfarm Payroll Report comes in too hot, and Jay Powell does NOT cut interest rates on September 18. This would be worth a very quick 10% correction and a retest of the (SPY) $510 August low. I give this maybe a 30% probability. The market now considers a rate cut a 100% certainty, which is always dangerous.
3) Jay Powell cuts interest rates on September 18, but only by 25 basis points. If he does this in the wake of an awful September 6 Nonfarm Payroll Report and a jump in the headline Unemployment Rate, we would similarly get a 10% correction and a retest of the (SPY) $510 August low.
4) The calendar alone could give us a correction. The biggest selloffs of both 2022 and 2023 both ended in mid-October. Is history about to repeat itself? Or at least rhyme?
5) The war in the Middle East expands when Iran attacks Israel again. For most American traders the map of the world ends on the US coasts. So even if this happens it’s not worth more than a 4% correction.
Of course, it’s the black swans you don’t see coming that really hurt. That’s why they’re called black swans. Who saw the 9/11 terrorist attacks coming? The 2014 flash crash? The pandemic?
I landed in London on the eve of the big event of the year. No, it was not the King Charles III coronation.
It was the Taylor Swift Eras concert. Thousands of ecstatic Americans crossed the pond to catch the show. I actually thought about going to Wembley Arena to watch her. The last time I had been there was in 1985 for the Live Aid concert. Before that, it was the Beach Boys and Rod Stewart in 1977, which I recently reminded Mike Love about.
But at $1,000 a ticket to get crushed by a crowd of 100,000 I decided to give it a pass. Better to give these old bones a break and catch her on iTunes for free.
But I did get a chance to grill a card-carrying Swifty about the mysterious attraction while waiting at the Virgin Atlantic first-class lounge on the way back to San Francisco.
First of all, she loved the music. But it’s more than just music. More importantly, she admired an independent woman who wrote her own songs and became a billionaire purely through her efforts.
Maybe there will be more strong, independent women in our future.
So far in August, we are up by +2.67%. My 2024 year-to-date performance is at +33.61%. The S&P 500 (SPY) is up +18.23% so far in 2024. My trailing one-year return reached +52.25. That brings my 16-year total return to +710.24. My average annualized return has recovered to +51.91%.
I executed no trades last week and am maintaining a 100% cash position. I’ll text you next time I see a bargain in any market. Now there are none.
Some 63 of my 70 round trips, or 90%, were profitable in 2023. Some 49 of 66 trades have been profitable so far in 2024, and several of those losses were break-even. That is a success rate of +74.24%.
Try beating that anywhere.
Jay Powell Says the Time to Adjust Policy is Here, and that much progress has been made toward the 2% inflation target and a sustainable path to get there is in place. Stocks had already front-run the move, but bonds liked it. The path is now clear for a September rate cut, but how much?
Where did the 818,000 Jobs Go? 50 states compiling data in 50 different ways on differing time frames is going to generate some big errors like this one. That means monthly job gains fell from 250,000 to 175,000. Is the message that the Fed waited too long to cut rates?
Weekly Jobless Claims Fall to 233,000, down a whopping 17,000, but how real is it in the wake of this week’s 12-month revision? The report comes with Wall Street on edge amid signs that job growth is slowing and even signaling a potential recession on the horizon. Jobless claims have been trending higher for much of the year, though still remain relatively tame
$6 billion Poured into US Equity Funds Last Week, bolstered by bets of a Federal Reserve rate cut in September and easing worries about a potential downturn in economic growth. That is the largest weekly net purchase since July 17. A benign inflation report last week and the Fed meeting minutes on Wednesday, indicating a potential rate cut in September, boosted investor appetite for risk assets.
Mortgage Rates Hit New 2024 Low. The average for a 30-year, fixed loan was 6.46%, down from 6.49% last week. Borrowing costs are down significantly after topping 7.48% earlier this year, giving house hunters more purchasing power and coaxing some would-be buyers off the fence. Sales of previously owned US homes in July or the first time in five months.
Waymo Picks Up the Pace, Alphabet's (GOOG) Waymo said it had doubled Robotaxi paid rides to 100,000 per week in just over three months. If robotaxis take over the world, imagine the amount of job losses to taxi drivers.
GM (GM) Cuts Staff, GM is laying off more than 1,000 salaried employees globally in its software and services division following a review to streamline the unit’s operations. This follows many other firms that are trying to keep expenses low as the economy starts to slow.
Copper (COPX) Flips from Shortage to Surplus, as the Chinese economic recovery drags on. Copper surpluses of 265,000 metric tons are now expected this year, 305,000 tons in 2025, and 436,000 in 2026. Prices may recover in the fourth quarter if exchange stocks are drawn down. ME copper hit 4-1/2 month lows of $8,714 a ton in early August as U.S. recession fears and concern the Federal Reserve has kept interest rates too high exacerbated negative sentiment from soaring inventories and lackluster demand.
China (FXI) consumes more than half of global refined copper supplies, estimated at around 26 million tons this year. But much of the copper used in China is for wiring in household goods which are then exported. A housing market slump and China's stagnant manufacturing sector highlight the headwinds copper demand faces. Hold off on (FCX).
Dollar (UUP) Hits Seven Month Low, as US interest rate cuts loom. It could be a decade-long move. Buy (FXE), (FXB), (FXC), and (FXA).
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, August 26 at 8:30 AM EST, the US Durable Goods orders are out.
On Tuesday, August 27 at 6:00 AM, the S&P Case Shiller National Home Price Index is released.
On Wednesday, August 28 at 7:30 PM, EIA Crude Stocks are printed.
On Thursday, August 29 at 8:30 AM, the Weekly Jobless Claims are announced. We also get Q2 US GDP.
On Friday, August 30 at 8:30 AM EST, the US Core PCE Index is disclosed. Also, New Home Sales are disclosed. At 2:00 PM the Baker Hughes Rig Count is printed.
As for me, you know you’re headed into a war zone the moment you board the train in Krakow, Poland. There are only women and children headed for Kiev, plus a few old men like me. Men of military age have been barred from leaving the country. That leaves about 8 million to travel to Ukraine from Western Europe the visit spouses and loved ones.
After a 15-hour train ride, I arrived at Kiev’s Art Deco station. I was met by my translator and guide, Alicia, who escorted me to the city’s finest hotel, the Premier Palace on T. Shevchenka Blvd. The hotel, built in 1909, is an important historic site as it was where the Czarist general surrendered Kiev to the Bolsheviks in 1919. No one in the hotel could tell me what happened to the general afterward.
Staying in the best hotel in a city run by Oligarchs does have its distractions. That’s to the war occupancy was about 10%. That didn’t keep away four heavily armed bodyguards from the lobby 24/7. Breakfast was well populated by foreign arms merchants. And for some reason there we always a lot of beautiful women hanging around.
The population is getting war-weary. Nightly air raids across the country and constant bombings take their emotional toll. Kiev’s Metro system is the world’s deepest and at two cents a ride the cheapest. It where the government set up during the early days of the war. They perform a dual function as bomb shelters when the missiles become particularly heavy.
My Look Out Ukraine ap duly announced every incoming Russian missile and its targeted neighborhood. The buzzing app kept me awake at night so I turned it off. The missiles themselves were nowhere near as noisy.
The sound of the attacks was unmistakable. The anti-aircraft drones started with a pop, pop, pop until they hit a big 1,000-pound incoming Russian cruise missile, then you heard a big kaboom! Disarmed missiles that were duds are placed all over the city and are amply decorated with colorful comments about Putin.
The extent of the Russian scourge has been breathtaking with an an epic resource grab. The most important resource is people to make up for a Russian population growth that has been plunging for decades. The Russians depopulated their occupied territory, sending adults to Siberia and children to orphanages to turn them into Russians. If this all sounds medieval, it is. Some 19,000 Ukrainian children have gone missing since the war started.
Everyone has their own atrocity story, almost too gruesome to repeat here. Suffice it to say that every Ukrainian knows these stories and will fight to the death to avoid the unthinkable happening to them.
It will be a long war.
Touring the children’s hospital in Kiev is one of the toughest jobs I ever undertook. Kids are there shredded by shrapnel, crushed by falling walls, and newly orphaned. I did what I could to deliver advanced technology, but their medical system is so backward, maybe 30 years behind our own, that it couldn’t be employed. Still, the few smiles I was able to inspire made the trip worth it.
The hospital is also taking the overflow of patients from the military hospitals. One foreign volunteer from Sweden was severely banged up, a mortar shell landing yards behind him. He had enough shrapnel in him to light up an ultrasound and had already been undergoing operations for months.
To get to the heavy fighting I had to take another train ride a further 15 hours east. You really get a sense of how far Hitler overreached in Russia in WWII. After traveling by train for 30 hours to get to Kherson, Stalingrad, where the German tide was turned, is another 700 miles east!
I shared a cabin with Oleg, a man of about 50 who ran a car rental business in Kiev with 200 vehicles. When the invasion started, he abandoned the business and fled the country with his family because they had three military-aged sons. He now works a minimum-wage job in Norway and never expects to do better.
What the West doesn’t understand is that Ukraine is not only fighting the Russians but a Great Depression as well. Some tens of thousands of businesses have gone under because people save during war and also because 20% of their customer base has fled.
I visited several villages where the inhabitants had been completely wiped out. Only their pet dogs remained alive, which roved in feral starving packs. For this reason, my major issued me my own AK47. Seeing me heavily armed also gave the peasants a greater sense of security.
It’s been a long time since I’ve held an AK, which is a marvelous weapon. But it’s like riding a bicycle. Once you learn you never forget.
I’ve covered a lot of wars in my lifetime, but this is the first fought by Millennials. They post their kills on their Facebook pages. Every army unit has a GoFundMe account where doners can buy them drones, mine sweepers, and other equipment.
Everyone is on their smartphones all day long killing time and units receive orders this way. But go too close to the front and the Russians will track your signal and call in an artillery strike. The army had to ban new Facebook postings from the front for exactly this reason.
Ukraine has been rightly criticized for rampant corruption which dates back to the Soviet era. Several ministers were rightly fired for skimming off government arms contracts to deal with this. When I tried to give $3,000 to the Children’s Hospital, they refused to take it. They insisted I send a wire transfer to a dedicated account to create a paper trail and avoid sticky fingers.
I will recall more memories from my war in Ukraine in future letters, but only if I have the heart to do so.
Stay Healthy,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Global Market Comments
August 5, 2024
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD or DID JAY POWELL BLOW IT?) and CHASING EARNEST HEMINGWAY),
($VIX), (INTC), (CCI), (TLT), (COPX), (BHP), (USO) (NVDA), (SLV), (FXY), (CAT), (IWM), (IBKR), (AMZN), (GLD), (BRK/B), (DE)
Global Market Comments
July 11, 2024
Fiat Lux
Featured Trade:
(JULY 10 BIWEEKLY STRATEGY WEBINAR Q&A),
(TSLA), (NVDA), (COPX), (CMG), (TLT), (TBT)
Below please find subscribers’ Q&A for the July 10 Mad Hedge Fund Trader Global Strategy Webinar, broadcast from Incline Village NV.
Q: Is the Fed waiting too long to cut interest rates?
A: Yes, they are. We are on a recession track if the Fed doesn’t move soon. In other words, the light at the end of the tunnel isn’t daylight—it’s an oncoming train. So, I think a September rate cut is a certainty. They want to see tomorrow’s data and make sure it’s cool. They need several months of really cool inflation data to justify the first rate cut and we probably are going to get that, so next update is tomorrow with the latest CPI number is crucial. Everybody’s sitting on their hands until then.
Q: When will NVIDIA (NVDA) hit a $4 trillion market valuation?
A: By the end of the year. We’re currently at $3.3 trillion, so another $700 billion is nothing for NVIDIA—you could do that in a day if you really wanted to. But give it until the end of the year, just to be conservative. The fact is, they have a global monopoly on the highest-priced product that everybody in the world has to buy or go out of business. It’s not a bad place to be—it’s kind of like where John D. Rockefeller was in the oil industry around 1900.
Q: What do you think about copper (COPX)? Should I maintain my longs?
A: Yes, all we need is further proof of falling interest rates and the entire commodities/precious metals sectors will take off like a rocket. So just sit with your positions. I put out a piece yesterday on copper. All that shines is not Copper, and it’s not dead it’s just resting, like the proverbial John Cleese parrot.
Q: Do you think a 10% stock market correction is likely before the election?
A: No, the most we’ve been able to get this year is 4% or 5% pullbacks, but not much more. We have a world with a cash glut that is underinvested in the face of a global monetary easing. Investors have been net sellers of stocks all of last year, so we were ripe for a meltup, which has, in fact, happened every day so far in July. So no, my S&P 500 target of 6,000 for the end of the year is starting to look too conservative given the moves that we’ve made lately. I’m very positive about that.
Q: Is the real estate market about to crash?
A: Well, the Florida housing collapse that is being driven by the insurance industry feeing that state. Insurance companies don’t like the hurricane risk going forward, which can cost tens of billions of dollars per event. Nobody there can get insurance anymore unless they pay outrageous amounts of money. Some people are only buying fire insurance to save money and skipping the storm insurance and rolling the dice, hoping the storms hit somewhere else in Florida. The fact is, you can’t get a home mortgage without insurance. Banks aren't willing to take the environmental risk of a house without insurance. No insurance means no bank loans, which means the market shrinks to a cash-only market. And there is a cash-only market in Florida, but it’s not at the $500,000 level, it’s more at the $50 million level. So that is a problem unique to Florida. Could it spread to other areas? Yes. Texas is having another energy crisis, as it has twice every year, ever since the power system was privatized there. No reserves for emergencies, no contingency, nothing that costs money basically. And then California definitely has a wildfire problem, although we’ve been getting off pretty light last year and this year. But the insurance companies don’t think like that. They are the classic 20/20 hindsight type companies.
Q: What’s the impact of the election on the market?
A: Zero. But it will defer buying until after the election. So if you have a 50/50 split on polls, uncertainty is at a maximum. People don’t like investing in uncertainty, they like sure things. After the election, you can expect a massive melt-up in the market no matter who wins because the uncertainty will be gone, and tech stocks will lead once again.
Q: What should I do with Nvidia (NVDA)?
A: I put out a report on this on Monday. You keep your long and write calls against them. And you can get quite a lot of money for just the August calls. I think the August $140 calls were selling for $3.50—they’re higher than that now, so you could even go out to August $145, and just keep doing that every month. If Nvidia takes off and you get taken out of your stock, you’re selling it essentially at $143.50. So that is an excellent trade—a lot of the big institutions are doing that now.
Q: Tesla's (TSLA) been on a big rally for the past month; do you expect it to continue?
A: I expect it to take a break, but the long-term uptrend is now back for good, for lots of different reasons. The immediate headline reason was because the Chinese government allowed the buying of Teslas for the first time—they are made in China after all. Second, they had a good earnings beat, so this caused a massive short-covering rally. The shorts got crushed by Tesla once again, as they have been consistently doing for the last 15 years, really. I saw a number of cumulative losses on short positions on Tesla stock since inception: $100 billion. Most of those losses were incurred by oil companies trying to put Tesla out of business.
Q: What do you call a substantial dip?
A: It’s different for every stock—for some it’s 2%, for others like Tesla or Nvidia it’s 20%. It depends on the volatility of the stock; you just have to look at the charts and make your own call.
Q: What do you think for the next earnings season?
A: It’ll be great for technology stocks and not so great for domestics as their businesses cool off.
Q: Is there anything Europe and American EV producers can do to compete against the Chinese at these lower prices?
A: Yes: keep quality high, therefore profits high, therefore profit margins high. That was the Japanese strategy in the US from the 1980s onwards, and it was hugely successful. You can cede the money-losing part—the low-end part of the market, to the Chinese. The quality of the Chinese EVs is terrible, they start to fall apart after four years, and I learned this from several Chinese EV drivers in Ecuador where they have a substantial market share already. But at $15,000 plus the shipping, you don’t make a lot of money in EVs.
Q: Is it a good time to buy put LEAPS on the ProShares UltraShort 20+ Year Treasury (TBT)?
A: Yes, especially if you’re willing to do an at-the-money and bet that the interest rates stay here or lower for the next year. You’d probably get a 100% return on that, but why bother? Because on the TBT itself, you have a much wider trading spread than the (TLT), therefore the dealing costs are higher. You might as well just go and do the long (TLT) LEAP instead.
Q: Chipotle Mexican Grill (CMG) stock has been really successful for the last five years, but it just dropped 20%, should I get in?
A: It’s a very low-margin business—I avoid those. There’s not a lot of meat in the burrito business. It doesn’t have the key elements of success. (Not just Chipotle, but with the whole industry.) It's not like you’re designing 96 stock microprocessors.
Q: Are AI stocks overhyped at this point?
A: Absolutely yes, but they can stay overhyped for another three or four years, so I think we're just at the beginning of a very long-term run. And the people who have been involved so far are making the biggest money in their lives.
To watch a replay of this webinar with all the charts, bells, whistles, and classic rock music, just log in to www.madhedgefundtrader.com , go to MY ACCOUNT, click on GLOBAL TRADING DISPATCH, then WEBINARS, and all the webinars from the last 12 years are there in all their glory.
Good Luck and Stay Healthy
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
