The Swiss franc is wildly overvalued, as are the Norwegian kroner and the Uruguayan peso. On the other hand, the Venezuelan bolivar, UAE dirham, and the Brazilian real off real value.
Who has the cheapest currency in the world? The Ukrainian hryvnia, which at 25 cents to the US dollar offers the cheapest Big Mac in the world. I had one in October, and they taste just the same, but is a bargain at $5.00. That explains the proliferation of McDonald's hamburger stands in the capital city of Kiev. They are always packed.
With interest rates and inflation the urgent topics of the day, everyone has their favorite inflation indicator. The Fed has money supply growth, you have yours, and well, I have mine.
My former employer, The Economist, once the ever-tolerant editor of my flabby, disjointed, and juvenile prose (Thanks Peter and Marjorie), released its “Big Mac” index of international currency valuations in 1987.
Although initially launched as a joke, I have followed it religiously and found it an amazingly accurate predictor of future economic success. The heart attack on a plate costs $5.69 in most of the US.
The Economist index counts the cost of McDonald’s (MCD) premium sandwiches around the world, ranging from 142% the cost of an American Big Mac in Switzerland to only 84.5% in Brazil, and comes up with a measure of currency under and overvaluation.
I couldn’t agree more with many of these conclusions. It’s as if the August weekly publication was tapping The Diary of the Mad Hedge Fund Trader for ideas.
I am no longer the frequent consumer of Big Macs that I once was, as my metabolism has slowed to such an extent that in eating one, you might as well tape it directly to my middle. Better to use it as an economic forecasting tool, than a speedy lunch.
Having followed this index religiously for 37 years, I am able to make some astute long-term observations. For a start, the US dollar has been at the top of the range for most of its life. This is because the US has had the best major economic growth rate over the last four decades, averaging a real 3.0%.
Another factor is that America has also had the world’s highest large economy interest rates, thanks to a very tough inflation-fighting Federal Reserve. I doubt Jay Powell eats Big Macs. He’s too thin.
You will also find that the cheap end of the range is always populated by the same countries year in and year out. These are poorly governed, money-printing, economically chaotic countries with little regard for their currencies. Don’t cry for me Argentina and throw in Venezuela. They will always be cheap. Invest there at your peril.
And yes, making your currency calls based on the price of hamburgers has its risks. But it does give me a wonderful excuse to travel around the world taking pictures of fast-food stands.
The Big Mac in Swiss francs is Definitely Not a Buy
https://www.madhedgefundtrader.com/wp-content/uploads/2024/02/mcdonalds.png8101080april@madhedgefundtrader.comhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngapril@madhedgefundtrader.com2024-02-13 09:02:112024-02-13 10:03:58What The Economist “Big Mac” Index is Telling Us Now
I am once again writing this report from a first-class sleeping cabin on Amtrak’s legendary California Zephyr.
By day, I have a comfortable seat next to a panoramic window. At night, they fold into two bunk beds, a single and a double. There is a shower, but only Houdini can navigate it.
I am anything but Houdini, so I foray downstairs to use the larger public hot showers. They are divine.
We are now pulling away from Chicago’s Union Station, leaving its hurried commuters, buskers, panhandlers, and majestic great halls behind. I love this building as a monument to American exceptionalism.
I am headed for Emeryville, California, just across the bay from San Francisco, some 2,121.6 miles away. That gives me only 56 hours to complete this report.
I tip my porter, Raymond, $100 in advance to ensure everything goes well during the long adventure and keep me up to date with the onboard gossip. The rolling and pitching of the car is causing my fingers to dance all over the keyboard. Microsoft’s Spellchecker can catch most of the mistakes, but not all of them.
Chicago’s Union Station
As both broadband and cell phone coverage are unavailable along most of the route, I have to rely on frenzied Internet searches during stops at major stations along the way, like Omaha, Salt Lake City, and Reno, to Google obscure data points and download the latest charts.
You know those cool maps in the Verizon stores that show the vast coverage of their cell phone networks? They are complete BS.
Who knew that 95% of America is off the grid? That explains so much about our country today.
I have posted many of my better photos from the trip below, although there is only so much you can do from a moving train and an iPhone 15 Pro.
Here is the bottom line which I have been warning you about for months. In 2024 we will probably top the 70.44% we made last year, but you are going to have to navigate the reefs, shoals, hurricanes, and the odd banking crisis. Do it and you can laugh all the way to the bank. I will be there to assist you in navigating every step.
The first half of 2024 will be all about trading, making bets on when the Fed starts cutting interest rates. Technology will continue their meteoric melt-up. In the second half, I expect the cuts to actually take place and markets to go straight up. Domestic industrials, commodities, financials, energy foreign markets, and currencies will lead.
And here is my fundamental thesis for 2024. After the Fed kept rates too low for too long and then raised them too much, it will then panic and lower them again too fast to avoid a recession. In other words, a mistake-prone Jay Powell will keep making mistakes. That sounds like a good bet to me.
Keep in mind that the Mad Hedge AI Market Timing Index is at the absolute top end of its historic range the three-month likelihood of you making money on a trade is essentially zero. But adhere to the recommendations I make in this report today and you should be up about 30% in a year.
Let me give you a list of the challenges I see financial markets facing in the coming year:
The Ten Key Variables for 2024
1) When will the Fed pivot?
2) When will quantitative tightening end?
3) How soon will the Russians give up on Ukraine?
4) When will the rotation from technology to domestic value plays happen?
5)How much of falling interest rates will translate into higher gold prices?
6) When will the structural commodities boom get a second wind?
7) How fast will the US dollar fall?
8) How quickly will lower interest rates feed into a hotter real estate market?
9) How fast can the Chinese economy bounce back from Covid-19?
10) When does the next bull market in energy begin?
2023 was a terrible year for economists who largely got it wrong. Many will be driving Uber cabs from January.
The economy is clearly slowing now from the red-hot 5.2% GDP growth rate we saw in Q3 to a much more modest 2.0% rate in Q4. We’ll get the first read on the end of January.
Any more than that and the Fed will panic and bring interest rate cuts dramatically forward to head off a recession. That is clearly what technology stocks were discounting with a melt-up of Biblical proportions, some 19% in the last two months, or $65 in the (QQQ)’s.
Anywhere you look, the data is softening, save for employment, which is holding up incredibly well at a 3.7% headline Unemployment Rate. The labor shortage may be the result of more workers dying from COVID-19 than we understand. Far more are working from home not showing up in the data. And many young people have just disappeared off the grid (they’re in the vans you see on the freeways).
The big picture view of what’s going on here is that after 15 years of turmoil caused by the 2008 financial crisis, pandemic, ultra-low interest rates, and excessive stimulus, we may finally be returning to normal. That means long-term average growth and inflation rates of 3.0% each.
As I travel around the world speaking with investors, I notice that they all have one thing in common. They underestimate the impact of technology, the rate at which it is accelerating, its deflationary impact on the economy, and the positive influence they have on all stocks, not just tech ones. And the farther I get away from Silicon Valley the poorer the understanding.
Since my job is to make your life incredibly easy, I am going to simplify my equity strategy for 2024.
It's all about falling interest rates.
You should pay attention. In my January 4, 2023 Annual Asset Class Review (click here), I predicted the S&P 500 would hit $4,800 by year-end end. Here we are at $4,752.
I didn’t nail the market move because I am omniscient, possess a crystal ball, or know a secret Yaqui Indian chant. I have spent the last 30 years living in Silicon Valley and have a front-row seat to the hyper-accelerating technology here.
Since the time of the Roman Empire advancing technology has been highly deflationary (can I get you a deal on a chariot!). Now is no different, which meant that the Federal Reserve would have to stop raising interest rates in the first half of the year.
The predictions of a decade-long battle with rising prices like we saw in the seventies and eighties proved so much bunk, alarmism, and clickbait. In fact, the last 25 basis point rate rise took place on July 26, taking up from an overnight rate of 5.25% to 5.5%. That rendered the hard landing forecasts for the economy nonsense.
When interest rates are as high as they are now, you only look at trades and investments that can benefit from falling interest rates. All stocks actually benefit from cheaper money, but some much more than others.
In the first half, that will be technology plays like Apple (AAPL), (Microsoft (MSFT), Amazon (AMZN), Alphabet (GOOGL), Meta (META), and NVIDIA (NVDA). Much of this move was pulled forward into the end of 2023 so this sector may flatline for a while.
In the second half, value plays will take the leadership like banks, (JPM), (BAC), (C), financials (MS), (GS), homebuilders (KBH), (LEN), (PHM), industrials (X), capital goods (CAT), (DE), and commodities (FCX). Everything is going to new all-time highs. My Dow average of 120,000 by the end of the decade is only one more triple away and is now looking very conservative.
That means we now have at hand a generational opportunity to get into the fastest-growing sectors of the US economy at bargain prices. I’m talking Cadillacs at KIA prices. Corporate profits powered by accelerating technology, artificial intelligence, and capital spending will rise by large multiples. Every contemporary earnings forecast will come up short and have to be upgraded. 2024 will be a year of never-ending upgrades.
After crossing a long, hot desert small-cap stocks can finally see water. That’s because they are the most leveraged, undercapitalized, and at the mercy of interest rates and the economic cycle. They always deliver the most heart-rending declines going into recessions. Guess what happens now with the economy headed for a soft landing? They lead to the upside, with some forecasts for the Russell 2000 going as high as a ballistic 50%.
Another category of its own, Biotech & Health Care which is now despised, should do well on its own as technology and breakthroughs are bringing new discoveries. Artificial intelligence is discovering new drugs at an incredible pace and then telling you how to cheaply manufacture them. My top three picks there are Eli Lily (ELI), Abbvie (ABBV), and Merck (MRK).
There is another equity subclass that we haven’t visited in about a decade, and that would be emerging markets (EEM). After ten years of punishment from a strong dollar, (EEM) has been forgotten as an investment allocation. We are now in a position where the (EEM) is likely to outperform US markets in 2024, and perhaps for the rest of the decade. The drivers here are falling interest rates, a cheaper dollar, a reigniting global economy, and a new commodity boom.
Block out time on your calendars, because whenever the Volatility Index (VIX) tops $20, up from the current $12, I am going pedal to the metal, and full firewall forward (a pilot term), and your inboxes will be flooded with new trade alerts.
What is my yearend prediction for the S&P 500 for 2024. We should reach $5,500, a gain of 14.58%. You heard it here first.
Amtrak needs to fill every seat in the dining car to get everyone fed on time, so you never know who you will share a table with for breakfast, lunch, and dinner.
There was the Vietnam Vet Phantom Jet Pilot who now refused to fly because he was treated so badly at airports. A young couple desperately eloping from Omaha could only afford seats as far as Salt Lake City. After they sat up all night, I paid for their breakfast.
A retired British couple was circumnavigating the entire US in a month on a “See America Pass.” Mennonites returning home by train because their religion forbade automobiles or airplanes.
The old bond trade is dead.
Long live the new bond trade!
After selling short bonds (TLT) from $180 all the way down to $82, I flipped to the long side on October 17. The next week, bonds saw their biggest rally in history, making instant millionaires out of several of my followers. The (TLT) has since rocketed from $82 to an eye-popping $100, a 22% gain.
In a heartbeat, we went from super bear to hyper bull.
I am looking for the Fed to cut interest rates by 1.00% in 2024 but won’t begin until the second half of the year. All of the first half bond gains were pulled forward into 2023 so I am looking for long periods of narrow trading ranges. By June, economic weakness will be so obvious that a dramatic Fed rate-cutting policy will ensue.
In addition, the Fed will end its quantitative tightening program by June, which is currently sucking $90 billion a month out of the economy. That’s a lot of bond-selling that suddenly ends.
I’m looking for $120 in the (TLT) sometime in 2024, with a possible stretch to $130. Use every five-point dip to load up on shares in the (TLT) ETF, calls, call spreads, and one-year LEAPS. This trade is going to work fast. It is the low-hanging fruit of 2024.
We are never going back to the 0.32% yields, and $165 prices we saw in the last bond peak. But you can still make a lot of money in a run-up from $82 to $120, as many happy bondholders are now discovering.
It isn’t just bonds that are going up. The entire interest rate space is doing well including junk bonds (JNK), municipal bonds (MUB), REITS (NLY), preferred stock, and convertible bonds.
With a major yield advantage over the rest of the world for the last decade, the US dollar has been on an absolute tear. After all, the world’s strongest economy begets the world’s strongest currency.
That is about to end.
If your primary assumption is that US interest rates will see a sharp decline sometime in 2024, then the outlook for the greenback is terrible.
Currencies are driven by interest rate differentials and the buck is soon going to see the fastest shrinking yield premium in the forex markets.
That shines a great bright light on the foreign currency ETFs. You could do well buying the Australian Dollar (FXA), Euro (FXE), Japanese yen (FXE), and British Pound (FXB). I’d pass on the Chinese yuan (CYB) right now until their Covid shutdowns end.
Look at the 50-year chart of the US dollar index below and you’ll see that a 13-year uptrend in the buck is rolling over and will lead to a 5-10-year down move. Draw your weapons.
5) Commodities (FCX), (VALE), (DBA)
Commodities are the high beta players in the financial markets. That’s because the cost of being wrong is so much higher. Get on the losing side of commodities and you will be bled dry by storage costs, interest expenses, contangos, and zero demand.
Commodities have one great attribute. They predict recessions and recoveries earlier than any other asset class. When they peaked in March of 2022, they were screaming loud and clear that a recession would hit in early 2023. By reversing on a dime on November 13, 2023, they also told us that a rip-roaring recovery would begin in 2024.
You saw this in every important play in the sector, including Broken Hill (BHP), Peabody Energy (BTU), and Freeport McMoRan (FCX). And who but me noticed that Alcoa Aluminum (AA) was up an incredible 50% in December? Maybe you can’t teach an old dog new tricks, but the old tricks work pretty darn well!
The heady days of the 2011 commodity bubble top are about to replay. Now that this sector is convinced of a substantially weaker US dollar and lower inflation, it is once more a favorite target of traders. China will finally rejoin the global economy as a growth engine in 2024 but at only half its previous growth rate. It will be replaced by India, which is turning into the new China and is now the most populous country in the world.
And here’s another big new driver. Each electric vehicle requires 200 pounds of copper and production is expected to rise from 2 million units a year to 20 million by 2030. Annual copper production will have to increase three-fold in a decade to accommodate this increase, no easy task or prices will have to rise.
The great thing about commodities is that it takes a decade to bring new supply online, unlike stocks and bonds, which can merely be created by an entry in an Excel spreadsheet. As a result, they always run far higher than you can imagine.
Accumulate all commodities on dips.
Snow Angel on the Continental Divide
6) Energy (DIG), (RIG), (USO), (DUG), (UNG), (USO), (XLE), (AMLP)
Energy was the top-performing sector of 2023 until it wasn’t.
We got a nice boost to $90 a barrel from the Gaza War. But that faded rapidly as there was never an actual supply disruption, just the threats of one. Saudi production has been cut back so far, some 5 million barrels a day, that it risks budget shortfalls if it reduces any more. In the meantime, US fracking production has taken off like a rocket.
In the meantime, Joe Biden is sitting on the bid in an effort to refill the Strategic Petroleum Reserves that was drawn down from 723 to 350 million barrels during the last price spike.
The trade here is to buy any energy plays when Texas tea approaches $70 and take profits at $95. Your first picks should be ExxonMobile (XOM), Occidental Petroleum (OXY) where Warren Buffet has a 27% stake, Diamondback Energy (FANG), and Devon Energy (DVN).
The really big energy play for 2024 will be in natural gas (UNG), which was slaughtered in 2023. The problem here was not a shortage of demand because China would take all we could deliver. It was in our ability to deliver, hobbled by the lack of gasification facilities needed to export. One even blew up.
In 2024 several new export facilities came online and the damaged one was repaired. That should send prices soaring. Natural gas prices now at a throw-away $2.00 per MM BTU could make it to $8.00 in the next 12 months. That takes the (UNG) from $5.00 to $15.00 (because of the contango).
Buy (UNG) LEAPS (Long Term Equity Anticipation Securities) right now.
Remember, you will be trading an asset class that is eventually on its way to zero sooner than you think. However, you could have several doublings on the way to zero. This is one of those times. And you also have a huge 35% contango headwind working against you all the time.
They call this commodity the “widow maker” for a good reason.
The real tell here is that energy companies are bailing on their own industry. Instead of reinvesting profits back into their future exploration and development, as they have for the last century, they are paying out more in dividends and share buybacks.
Take the money and run. Trade, don’t marry this asset class.
There is the additional challenge in that the bulk of US investors, especially environmentally friendly ESG funds, are now banned from investing in legacy carbon-based stocks. That means permanently cheap valuations and share prices for the energy industry.
Energy now counts for only 5% of the S&P 500. Twenty years ago, it boasted a 15% weighting.
The gradual shutdown of the industry makes the supply/demand situation infinitely more volatile.
To understand better how oil might behave in 2024, I’ll be studying US hay consumption from 1900-1920. That was when the horse population fell from 100 million to 6 million, all replaced by gasoline-powered cars and trucks.
The internal combustion engine is about to suffer the same fate.
The train has added extra engines at Denver, so now we may begin the long laboring climb up the Eastern slope of the Rocky Mountains.
On a steep curve, we pass along an antiquated freight train of hopper cars filled with large boulders.
The porter tells me this train is welded to the tracks to create a windbreak. Once, a gust howled out of the pass so swiftly, that it blew a passenger train over on its side. In the snow-filled canyons, we saw a family of three moose, a huge herd of elk, and another group of wild mustangs. The engineer informs us that a rare bald eagle is flying along the left side of the train. It’s a good omen for the coming year. We also see countless abandoned 19th-century gold mines and broken-down wooden trestles leading to huge piles of tailings, and relics of previous precious metals booms. So, it is timely here to speak about the future of precious metals.
Here it’s important to look at the long view on gold. The barbarous relic tends to have good and bad decades. During the 2000’s the price of the yellow metal rose tenfold, from $200 to $2,000. The 2010s were very boring when gold was unchanged. Gold is doing well this decade, already up 40%, and a double or triple is in the cards.
2023 should have been a terrible year for precious metals. With inflation soaring, stocks volatile, and interest rates soaring, gold had every reason to collapse. Instead, it was up on the year, thanks to a heroic $325, 17.8%% rally in the last two months.
The reason is falling interest rates, which reduce the opportunity costs of owning gold. The yellow metal doesn’t pay a dividend, costs money to store and insure, and delivery is an expensive pain in the butt.
Chart formations are looking very encouraging with a massive upside breakout in place. So, buy gold on dips if you have a stick of courage on you, which you must if you read this newsletter.
Of course, the best investors never buy gold during a bull market. They Hoover up gold miners, which rise four times faster, like Barrack Gold (GOLD), Newmont Mining (NEM), and the basket play Van Eck Vectors Gold Miners ETF (GDX).
Higher beta silver (SLV) will be the better bet, as it already has been because it plays a major role in the decarbonization of America. There isn’t a solar panel or electric vehicle out there without some silver in them and the growth numbers are positively exponential. Keep buying (SLV), (SLH), and (WPM) on dips.
Crossing the Great Nevada Desert Near Area 51
8) Real Estate (ITB), (LEN), (KBH), (PHM)
The majestic snow-covered Rocky Mountains are behind me. There is now a paucity of scenery, with the endless ocean of sagebrush and salt flats of Northern Nevada outside my window, so there is nothing else to do but write.
My apologies in advance to readers in Wells, Elko, Battle Mountain, and Winnemucca, Nevada. It is a route long traversed by roving bands of Indians, itinerant fur traders, the Pony Express, my own immigrant forebearers in wagon trains, the Transcontinental Railroad, the Lincoln Highway, and finally US Interstate 80, which was built for the 1960 Winter Olympics at Squaw Valley. Passing by shantytowns and the forlorn communities of the high desert, I am prompted to comment on the state of the US real estate market. Those tormented by the shrinking number of real estate transactions over the past two years take solace. The past excesses have been unwound and we are now on the launching pad for another decade-long bull market.
There is a generational structural shortage of supply with housing which won’t come back into balance until the 2030’s. You don’t have a real estate crash when we are short 10 million homes.
The reasons, of course, are demographic. There are only three numbers you need to know in the housing market for the next ten years: there are 80 million baby boomers, 65 million Generation Xers who follow them, and 86 million in the generation after that, the Millennials.
The 76 million baby boomers (between ages 62 and 79) have been unloading dwellings to the 72 million Gen Xers (between age 41 and 56) since prices peaked in 2007. But there are not enough of the latter, and three decades of falling real incomes mean that they only earn a fraction of what their parents made. That’s what caused the financial crisis. That has created the present shortage of housing, both for ownership and rentals.
There is a happy ending to this story.
The 72 million Millennials now aged 25-40 are now the dominant buyers in the market. They are transitioning from 30% to 70% of all new buyers of homes. They are also just entering the peak spending years of middle age, which is great for everyone. Hot on their heels are 68 million Gen Z, which are now 12 to 27 years old.
The Great Millennial Migration to the suburbs and Middle America has just begun. Thanks to the pandemic and Zoom, many are never returning to the cities. That has prompted massive numbers to move from the coasts to the American heartland.
That’s why Boise, Idaho was the top-performing real estate market in 2023, followed by Phoenix, Arizona. Personally, I like Reno, Nevada, where Apple, Google, Amazon, and Tesla are building factories as fast as they can, just a four-hour drive from Silicon Valley.
As a result, the price of single-family homes should continue to rise during the 2020s, as they did during the 1970s and the 1990s when identical demographic forces were at play.
This will happen in the context of a labor shortfall, rising wages, and improving standards of living.
Increasing rents are accelerating this trend. Renters now pay 35% of their gross income, compared to only 18% for owners, and less, when multiple deductions and tax subsidies are considered. Rents are now rising faster than home prices.
Remember, too, that the US will not have built any new houses in large numbers in 17 years. The 50% of small home builders that went under during the Financial Crisis never came back.
We are still operating at only half of the 2007 peak rate. Thanks to the Great Recession, the construction of five million new homes has gone missing in action.
There is a new factor at work. We are all now prisoners of the 2.75% 30-year fixed-rate mortgages we all obtained over the past five years. If we sell and try to move, a new mortgage will cost double today. If you borrow at a 2.75% 30-year fixed rate, and the long-term inflation rate is 3%, then, over time, you will get your house for free. That’s why nobody is selling, and prices have barely fallen.
This winds down in 2024 as the Fed realizes its many errors and sharply lowers interest rates. Home prices will explode…. again.
Quite honestly, of all the asset classes mentioned in this report, purchasing your abode is probably the single best investment you can make now after you throw in all the tax breaks. It’s also a great inflation play.
That means the major homebuilders like Lennar (LEN), Pulte Homes (PHM), and KB Homes (KBH) are a buy on the dip. But don’t forget to sell your home by the 2030s when the next demographic headwind resumes. That’s when you should unload your home to a Millennial or Gen Xer and move into a cheap rental.
A second-hand RV would be better.
Crossing the Bridge to Home Sweet Home
9) Postscript
We have pulled into the station at Truckee amid a howling blizzard.
My loyal staff have made the ten-mile trek from my estate at Incline Village to welcome me to California with a couple of hot breakfast burritos and a chilled bottle of Dom Perignon Champagne, which has been resting in a nearby snowbank. I am thankfully spared from taking my last meal with Amtrak.
After that, it was over legendary Donner Pass, and then all downhill from the Sierras, across the Central Valley, and into the Sacramento River Delta.
Well, that’s all for now. We’ve just passed what was left of the Pacific mothball fleet moored near the Benicia Bridge (2,000 ships down to six in 50 years). The pressure increase caused by a 7,200-foot descent from Donner Pass has crushed my plastic water bottle. Nice science experiment!
The Golden Gate Bridge and the soaring spire of Salesforce Tower are just coming into view across San Francisco Bay.
A storm has blown through, leaving the air crystal clear and the bay as flat as glass. It is time for me to unplug my MacBook Pro and iPhone 15 Pro, pick up my various adapters, and pack up.
We arrive in Emeryville 45 minutes early. With any luck, I can squeeze in a ten-mile night hike up Grizzly Peak and still get home in time to watch the ball drop in New York’s Times Square on TV.
I reach the ridge just in time to catch a spectacular pastel sunset over the Pacific Ocean. The omens are there. It is going to be another good year.
I’ll shoot you a Trade Alert whenever I see a window open at a sweet spot on any of the dozens of trades described above, which should be soon.
https://www.madhedgefundtrader.com/wp-content/uploads/2019/01/Chicago-union-station.png375499Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2024-01-03 09:00:452024-01-03 10:56:532024 Annual Asset Class Review
Below please find subscribers’ Q&A for the November 1 Mad Hedge Fund Trader Global Strategy Webinar, broadcast from Boca Raton.
Q:Earlier you said that the bull market should start from here—are you sticking to that argument?
A: Yes, there are all kinds of momentum and cash flow indicators that are flashing “buy right now.” The market timing index got down to 24—couldn’t break below 20. Hedge fund shorts: all-time highs. Quant shorts: all the time highs, creating a huge amount of buying power for the market. And, of course, the seasonals have turned positive. So yes, all of that is positive and if bonds can hold in here, then it’s off to the races.
Q: Do you have a year-end target for Berkshire Hathaway (BRK/B)?
A: Up. They have a lot of exposure to the falling interest rate trade such as its very heavy weighting in banks; and if interest rates go down, Berkshire goes up—it’s really very simple. You can’t come up with specific targets for individual stocks for year-end because of the news, and things can happen anytime. I love Berkshire; it's a very strong buy here.
Q: Tesla (TSLA) is not doing well; what's the update here?
A: It always moves more than you think, both on the upside and the downside. Last year, we thought it would drop 50%, it dropped 80%. Suffice it to say that, with the price war continuing and Tesla determined to wipe out the 200 other new entrants to the EV space, they’ll keep price cutting until they basically own that market. While that’s great for market share, it’s not great for short-term profits. Yes, Tesla could be going down more, but from here on, if you’re a long-term investor in Tesla, as you should be, you should be looking to add positions, not sell what you have and average down. Also, we’re getting close to Tesla LEAPS territory. Those have been huge winners over the years for us and I’ll be watching those closely.
Q: Any trade on the Japanese yen?
A: We broke 150 on the yen—that was like the make-or-break level. I’m looking at a final capitulation selloff on the yen, and then a decade-long BUY. The Bank of Japan is finally ending its “easy money” zero-interest-rate policy, which it’s had for 30 years, and that will give us a stronger yen when it happens, but not until then. So watch the yen carefully, it could double from here over the long term, especially if it’s the same time the US starts cutting its interest rates.
Q: What do you think about Eli Lilly (LLY)?
A: We love Eli Lilly; they’re making an absolute fortune on their weight loss drug, and they have other drugs in the pipeline being created by AI. This is really the golden age for biotech because you have AI finding cures for diseases, and then AI designing molecules to cure the diseases. It’s shortened the pipeline for new drugs from 5-10 years to 5-10 weeks. If you’re old and sick like me, this is all a godsend.
Q: Do you like Snowflake (SNOW)?
A: Absolutely, yes—killer company. Warren Buffet loves it too and has a big position; I’d be looking to buy SNOW on any dip.
Q: Would you do LEAPS on Netflix (NFLX)?
A: I would, but I would go out two years, and I would go at the money, not out of the money, Even then you’ll get a 100-200% return. You’ll get a lot even on just a 6-month call spread. These tech stocks with high volatility have enormous payoff 3-6 months out.
Q: Projection for iShares 20 Plus Year Treasury Bond ETF (TLT) in the next 6 months?
A: It’s up. We could hit $110, that would be my high, or up $25 points or so from here.
Q: Would you buy biotech here through the ProShares Ultra Nasdaq Biotechnology (BIB)?
A: Probably, yes. The long-term story is overwhelming, but it’s not a sector you want to own when the sentiment is terrible like it is now. I guess “buy the bad news” is the answer there.
Q: What did you learn from your dinner with General Mattis?
A: Quite a lot, but much of it is classified. When you get to my age, you can’t remember which parts are classified and which aren't. However, his grasp of the global scene is just incredible. There are very few people in the world I can go one on one with in geopolitics. Of course, I could fill in stuff he didn’t know, and he could fill in stuff for me, like: what is the current condition of our space weaponry? If I told you, you would be amazed, but then I would get arrested the next day, so I’ll say nothing. He really was one of the most aggressive generals in American history, was tremendously underrated by every administration, was fired by both Obama and Trump, and recently is doing the speaker circuit which is a lot of fun because there’s no question he doesn’t know the answer to! We actually agreed to do some joint speaking events sometime in the future.
Q: I have some two-year LEAPS now but I’m worried about adding too much. Could we get a final selloff in 2024?
A: The only way we could get another leg down in the market is number one if the Fed raises interest rates (right now, we’re positioned for a flat line and then a cut) or number two, another pandemic. You could also get some election-related chaos next year, but that usually doesn’t affect the market. But for those who are prone to being nervous, there are certainly a lot of reasons to be nervous next year.
Q: What iShares 20 Plus Year Treasury Bond ETF (TLT) level would we see with a 5.2% yield?
A: How about $79? That’s exactly why I picked that strike price. The $76-$79 vertical bill call spread in the (TLT) is a bet that we don’t go above 5.20% yield, and we only have 10 days to do it, so things are looking better and then we’ll see what’s available in the market once our current positions all expire at max profit.
Q: The first new nuclear power plant of 30 years went online in Georgia. Do you see more being built in the future?
A: It’s actually been 40 years since they’ve built a new plant, and it wasn’t a new plant, it was just an addition to an existing plant with another reactor added with an old design. I think there will be a lot more nuclear power plants built in the future, but they will be the new modular design, which is much safer, and doesn’t use uranium, by the way, but other radioactive elements. If you want to know more about this, look up NuScale (SMR). They have a bunch of videos on how their new designs work. That could be an interesting company going forward. The nuclear renaissance continues, and of course, China’s continuing to build 100 of the old-fashioned type nuclear power reactors, and that is driving global uranium demand.
Q: Would you hold Cameco Corp (CCJ) or sell?
A: I would keep it, I think it’s going up.
Q: How to trade the collapse of the dollar?
A: (FXA), (FXB), (FXE), and (EEM). Those are the quick and easy ways to do it. Also, you buy precious metals—gold (GLD) and silver (SLV) do really well on a weak dollar.
Q: Conclusion on the Ukraine war?
A: It will go on for years—it’s a war of attrition. About half of the entire Russian army has been destroyed as they’re working with inferior weapons. However, it’s going to be a matter of gaining yards or miles at best, over a long period of time. So, they will keep fighting as long as we keep supplying them with weapons, and that is overwhelmingly in our national interest. Plus, we’re getting a twofer; if we stop Russia from taking over Ukraine, we also stop China from invading Taiwan because they don’t want to be in for the same medicine.
Q: If more oil is released from the strategic petroleum reserve, what is our effect on security?
A: Zero because the US is a net energy producer. If our supplies were at risk, all we’d have to do is cut off our exports to China and tell them to find their oil elsewhere—and they’re obviously already trying to do that with the invasion of the South China Sea and all the little rocks out there. So, I am not worried. And also remember, every year as the US moves to more EVs and more alternatives, it is less and less reliant on oil. I would advise the administration to get rid of all of it next time we go above $100 a barrel. If you’re going to sell your oil, you might as well get a good price for it. If you look at the US economy over the last 30 years, the reliance of GDP on oil has been steadily falling.
Q: Are US exports of Cheniere Energy (LNG) helping to drive up prices here?
A: I would say yes, it’s got to have an impact on prices. We’re basically supplying Germany with all of its natural gas right now. We did that starting from scratch at the outset of the Ukraine war, and it’s been wildly successful. That avoided a Great Depression in Europe. Europe, by the way, is the largest customer for our exports. That was one of the arguments for us going into the United States Natural Gas (UNG) LEAPS in the first place.
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
With interest rates and inflation topic number one of the day, everyone has their favorite inflation indicator. The Fed has its, you have yours, and well, I have mine.
My former employer, The Economist, once the ever-tolerant editor of my flabby, disjointed, and juvenile prose (Thanks Peter and Marjorie), has released its “Big Mac” index of international currency valuations.
Although initially launched as a joke four decades ago, I have followed it religiously and found it an amazingly accurate predictor of future economic success. The index counts the cost of McDonald’s (MCD) premium sandwich around the world, ranging from $7.20 in Norway to $1.78 in Argentina, and comes up with a measure of currency under and over valuation.
What are its conclusions today? The Swiss franc (FXF), the Brazilian real, and the Euro (FXE) are overvalued, while the the Chinese Yuan (CYB), and the Thai Baht are cheap.
I couldn’t agree more with many of these conclusions. It’s as if the august weekly publication was tapping The Diary of the Mad Hedge Fund Trader for ideas.
I am no longer the frequent consumer of Big Macs that I once was, as my metabolism has slowed to such an extent that in eating one, you might as well tape it to my hip. Better to use it as an economic forecasting tool, than a speedy lunch.
https://www.madhedgefundtrader.com/wp-content/uploads/2023/11/big-mac-yen.jpg312416Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2023-11-01 09:04:142023-11-01 15:31:16Where The Economist “Big Mac” Index Finds Currency Value
We’ve just seen our last interest rate rise in the economic cycle. Yes, I know that our central bank took no action at their last meeting in September. The market has just done its work for it.
And the markets are no shrinking violet when it comes to taking bold action. The 50 basis points it took bond yields up over the last two weeks is far more than even the most aggressive, economy-wrecking, stock market-destroying Fed was even considering.
And that doesn’t even include the rate hikes no one can see, the deflationary effects of quantitative tightening, or QT. That is the $1 trillion a year the Fed is sucking out of the economy with its massive bond sales.
It really is a miracle that the US economy is growing as fast as it is. After a warm 2.4% growth rate in Q2, Q3 looks to come in at a blistering 4%-5%. That is definitely NOT what recessions are made of.
Where is all this growth coming from?
Some of the credit goes to the pandemic spending, the free handouts we call got to avoid starvation while Covid ravaged the country. You probably don’t know this, but nothing happens fast in Washington. Government spending is an extremely slow and tedious affair.
By the time that contracts are announced, bids awarded, permits obtained, men hired, and the money spent, years have passed. That means money approved by Congress way back in 2020 is just hitting the economy now.
But that is not the only reason. There is also the long-term structural push that is a constant tailwind for investors:
Hyper-accelerating technology.
Yes, I know, there goes John Thomas spouting off about technology again. But it is a really big deal.
I have noticed that the farther away you get from Silicon Valley, the more clueless money managers are about technology. You can pick up more stock tips waiting in line at a Starbucks in Palo Alto than you can read a year’s worth of research on Wall Street.
What this means is that most large money managers, who are based on the east coast are constantly chasing the train that is leaving the station when it comes to tech.
On the west coast, managers not only know about the new tech, but the tech that comes after that and another tech that comes after that, if they are not already insiders in the current hot deal. This is how artificial intelligence stole a march on almost everyone, until a year ago, unless you were on the west coast already working in the industry. Mad Hedge has been using AI for 11 years.
You may be asking, “What does all of this mean for my pocketbook?” a perfectly valid question. It means that there isn’t going to be a recession, just a recession scare. That technology will bail us out again, even though our old BFF, the Fed, has abandoned us completely.
Which brings me to the current level of interest rates. I have also noticed that the farther away you get from New York and Washington, the less people know about bonds. On the west coast mention the word “bond” and they stare at you cluelessly. Indeed, I spent much of this year explaining the magic of the discount 90-day T-bill, which no one had ever heard of before (What! They pay interest daily?).
In fact, most big technology companies have positive cash balances. Look no further than Apple’s $140 billion cash hoard, which is invested in, you guessed it, 90-day T-bills when it isn’t buying its own stock, and is earning a staggering $7.7 billion a year in interest.
The great commonality in the recent stock market correction is easy to see. Any company that borrows a lot of money saw its stock get slaughtered. Technology stocks held up surprisingly well. That sets up your 2024 portfolio.
Put half your money in the Magnificent Seven stocks of Apple (AAPL), Amazon (AMZN), Meta (META), Microsoft (MSFT), Tesla (TSLA), (NVIDIA), and Salesforce (CRM).
Put your other half into heavy borrowers that benefit from FALLING interest rates, including bonds (TLT), junk bonds (JNK), (HYG), Utilities (XLU), precious metals (GOLD), (WPM), copper (FCX), foreign currencies (FXA), (FXE), (FXY), emerging markets (EEM).
As for me, I never do anything by halves. I’m putting all my money into Tesla. If I want to diversify, I’ll buy NVIDIA. Diversification is only for people who don’t know what is going to happen.
I just thought you’d like to know.
So far in October, we are up +2.96%. My 2023 year-to-date performance is still at an eye-popping +63.76%.The S&P 500 (SPY) is up +12.89%so far in 2023. My trailing one-year return reached +76.46% versus +22.57% for the S&P 500.
That brings my 15-year total return to +660.95%. My average annualized return has fallen back to +48.07%,another new high, some 2.64 times the S&P 500over the same period.
Some 44 of my 49 trades this year have been profitable.
Chaos Reigns Supreme in Washington, with the firing of the first House speaker in history. Will the next budget agreement take place on November 17, or not until we get a new Congress in January 2025? Markets are discounting the worst-case scenario, with government debt in free fall. Definitely NOT good for stocks, which are reaching for a full 10% correction, half of 2023’s gains.
September Nonfarm Payroll Report Rockets, to 336,000, and August was bumped up another 50,000. The economy remains on fire. The headline Unemployment Rate remains steady at an unbelievable 3.8%. And that’s with the UAW strike sucking workers out of the system. This is supposed to by impossible with 5.5% interest rates. Throw out you economics books for this one!
JOLTS Comes in Hot at 9.61 million job openings in August, 700,000 more than the July report. The record labor shortage continues. Will the Friday Nonfarm Payroll Report deliver the same?
ADP Rises 89,000 in September, down sharply from previous months, showing that private job growth is growing slower than expected. August was revised down. It’s part of the trifecta of jobs data for the new month. The mild recession scenario is back on the table, at least stocks think so.
Weekly Jobless Claims Rise to 207,000, still unspeakably strong for this point in the economic cycle. Continuing claims were unchanged at 1.664%.
Traders Pile on to Strong Dollar, headed for new highs, propelled by rising interest rates. There is a heck of a short setting up for next year.
Yen Soars on suspected Bank of Japan intervention in the foreign exchange markets to defend the 150 line against the US dollar. The currency is down 35% in three years and could be the BUY of the century.
Kaiser Goes on Strike with 75,000 health care workers walking out on the west coast. The issue is money. The company has a long history of labor problems. This seems to be the year of the strike.
Oil (USO)Gets Slammed on Recession Fears, down 5% on the day to $85, in a clear demand destruction move and worsening macroeconomic picture. Europe and China are already in recession. It’s the biggest one-day drop in a year. Is the top in?
Tesla Delivers 435,059 Vehicles in September, down 5% from forecast, but the stock rose anyway. The Cybertruck launch is imminent, where the company has 2 million new orders. Keep buying (TSLA) on Dips. Technology is accelerating.
EVs have Captured an Amazing 8% of the New Car Market. They have been helped by a never-ending price war and generous government subsidies. EV sales are now up a miraculous 48% YOY and are projected to account for a stunning 23% of all California sales in Q3. Tesla is the overwhelming leader with a 52% share in a rapidly growing market, distantly followed by Ford (F) at 7% and Jeep at 5%. However, a slowdown may be at hand, with EV inventories running at 97 days, double that of conventional ICE cars. This could create a rare entry point for what will be the leading industry of this decade, if not the century. Buy more Tesla (TSLA) on bigger dips, if we get them.
Apple Upgrades New iPhone 15 to deal with overheating from third-party gaming. It will shut down some of its background activity, including some of the new AI functions, which were stressing the central processor. Third-party apps were adding to the problem, such as Uber and games from (META). This is really cutting-edge technology.
Moderna (MRNA) Bags a Nobel Prize in Chemistry. Katalin Kariko and Drew Weissman’s work helped pioneer the technology that enabled Moderna and the Pfizer Inc.-BioNTech SE partnership to swiftly develop shots. I got four and they saved my life when I caught Covid. I survived but lost 20 pounds in two weeks. It was worth it.
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, October 9, there is no data of note released.
On Tuesday, October 10 at 8:30 AM EST, the Consumer Inflation Expectations is released.
On Wednesday, October 11 at 2:30 PM, the Producer Price Index is published.
On Thursday, October 12 at 8:30 AM, the Weekly Jobless Claims are announced. The Consumer Price Index is also released.
On Friday, October 13 at 1:00 PM the September University of Michigan Consumer Expectations is published. At 2:00 PM, the Baker Hughes Rig Count is printed.
As for me, one of the many benefits of being married to a British Airways senior stewardess is that you get to visit some pretty obscure parts of the world. In the 1970s, that meant going first class for free with an open bar, and occasionally time in the cockpit jump seat.
To extend our 1977 honeymoon, Kyoko agreed to an extra round trip for BA from Hong Kong to Colombo in Sri Lanka. That left me on my own for a week in the former British crown colony of Ceylon.
I rented an antiquated left-hand drive stick shift Vauxhall and drove around the island nation counterclockwise. I only drove during the day in army convoys to avoid terrorist attacks from the Tamil Tigers. The scenery included endless verdant tea fields, pristine beaches, and wild elephants and monkeys.
My eventual destination was the 1,500-year-old Sigiriya Rock Fort in the middle of the island which stood 600 feet above the surrounding jungle. I was nearly at the top when I thought I found a shortcut. I jumped over a wall and suddenly found myself up to my armpits in fresh bat shit.
That cut my visit short, and I headed for a nearby river to wash off. But the smell stayed with me for weeks.
Before Kyoko took off for Hong Kong in her Vickers Viscount, she asked me if she should bring anything back. I heard that McDonald’s had just opened a stand there, so I asked her to bring back two Big Macs.
She dutifully showed up in the hotel restaurant the following week with the telltale paper bag in hand. I gave them to the waiter and asked him to heat them up for lunch. He returned shortly with the burgers on plates surrounded by some elaborate garnish and colorful vegetables. It was a real work of art.
Suddenly, every hand in the restaurant shot up. They all wanted to order the same thing, even though the nearest stand was 2,494 miles away.
We continued our round-the-world honeymoon to a beach vacation in the Seychelles where we just missed a coup d’état, a safari in Kenya, apartheid South Africa, London, San Francisco, and finally back to Tokyo. It was the honeymoon of a lifetime.
Kyoko passed away in 2002 from breast cancer at the age of 50, well before her time.
Stay Healthy,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png00april@madhedgefundtrader.comhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngapril@madhedgefundtrader.com2023-10-09 09:02:402023-10-09 19:19:06The Market Outlook for the Week Ahead, or The Fed is Done!
(MARKET OUTLOOK FOR THE WEEK AHEAD, or BACK IN BUSINESS)
(TLT), (GLD), (SLV), (XLU), (IWM), (EEM), (FXA), (FXE), (FXB), (USO), (UUP), (AMZN), (TSLA), (F)
It’s a good thing I don’t rely on my Social Security Check to cover my extravagant cost of living, which is the maximum $4,555 a month. For it came within hours of coming to a halt when an agreement was passed by Congress to renew funding for another 45 days. It was almost an entirely Democratic bill, passing 335 to 91 in the House and the Senate by 88 to 9.
Unfortunately, that does put me in the uncomfortable position of delivering humanitarian aid to Ukraine right when $6.2 billion in US assistance is cut off. That was the price the Dems had to pay to get the Republicans on board needed to pass the bill. Better a half a loaf than no loaf at all. Still, I am going to have some explaining to do next week in Kiev, Mykolaiv, and Kherson. It’s a big win for Vladimir Putin.
Funding now ends on November 17, when the next crisis begins. The big question is when the markets will deliver a sigh of relief rally on Congress hitting the “snooze” button, or whether it will focus on the next disaster in November.
We’ll have to wait and see.
In the meantime, all eyes are on the market’s leading falling interest rate plays, which continue to go from bad to worse. Those include bonds (TLT), precious metals (GLD), (SLV), utilities (XLU), small-cap stocks (IWM), emerging markets (EEM), and foreign currencies (FXA), (FXE), (FXB).
Consider this your 2024 shopping list.
Ten-year US Treasury bond yields reached a stratospheric 4.70% last week a 17-year high and up a monster 0.90% since the end of June. Summer proved a fantastic time to take a vacation from the bond market.
They could easily reach 5% before the crying is all over. Perhaps this is why my old friend, hedge fund legend David Tepper, said his best investment right now is a subprime six-month certificate of deposit yielding 7.0%.
What we might be witnessing here is a return to the “old normal” when bonds spent most of their time ranging between 2%-6%. The 60-year historic average bond yield is 2% over the inflation rate (see chart below). That alone takes us to a 5.0% bond yield.
Interest rates have been kept artificially low for 15 years because no one wanted a recession in 2008 and no one wanted a recession during the pandemic in 2000. It all melded into one big decade-and-a-half period of easy money. Pain avoidance wasn’t just the universal American monetary policy, it was the global policy.
Now it’s time to pay the piper and unwind the thousands of business models that depended on free money. There will be widespread pain, as we are now witnessing in commercial real estate and private equity. Perhaps it is best to take the 5.5% bribe 90-day Treasury bond yield is offering you and stay out of the market.
While Detroit remains mired by the UAW strike, EVs have catapulted to an amazing 8% of the new car market. They have been helped by a never-ending price war and generous government subsidies. EV sales are now up a miraculous 48% YOY and are projected to account for a stunning 23% of all California sales in Q3.
Tesla is the overwhelming leader with a 52% share in a rapidly growing market, distantly followed by Ford (F) at 7% and Jeep at 5%.
However, a slowdown may be at hand, with EV inventories running at 97 days, double that of conventional ICE cars. This could create a rare entry point for what will be the leading industry of this decade, if not the century. Buy more Tesla (TSLA) on bigger dips, if we get them.
Hedge Funds are Cutting Risk at Fastest Pace Since 2020, when the pandemic began. From retail investors to rules-based systematic traders, appetite for equities is subsiding after a 20% rally this year that’s fueled by euphoria over artificial intelligence. Fast money investors increased their bearish wagers to drive down their net leverage — a gauge of risk appetite that measures long versus short positions — by 4.2 percentage points to 50.1%, according to Goldman Sachs Group Inc.’s prime brokerage. That’s the biggest week-on-week decline in portfolio leverage since the depths of the pandemic bear market.
The Treasury Bond Freefall Continues, as long-term yields probe new highs. New issue of $134 billion this week didn’t help. Nothing can move on the risk until rates top out, even if we have to wait until 2024.
Oil (USO) Hits $95, a one-year high, as the Saudi/Russian short squeeze continues. $100 a barrel is a chipshot and much higher if we get a cold winter. Inventories at the Cushing hub are at a minimum.
The US Dollar (UUP) Hits New Highs, as “high for longer” interest rates keep powering the greenback. The buck is also catching a flight to safety bid from a potential government shutdown. It should be topping soon.
Moody’s Warns of Further US Government Downgrades, in the run up to the Saturday government shutdown. The shutdown lasts, the more negative its impact would be on the broader economy. Unemployment could soar. It would also render all US government data releases useless for the next three months.
ChatGPT Can Now Browse the Internet, according to its creator, OpenAI. Until now, the chatbot could only access data posted before September 2021. The move will exponentially improve the quality and effectiveness of AI apps, including my own Mad Hedge AI
Amazon (AMZN) Pouring $4 Billion into AI, with an investment in Anthropic, a ChatGPT competitor. (AMZN) is racing to catch up with (MSFT) and (GOOGL). Its chatbot is caused Claude 2. Amazon’s card to play here is its massive web services business AWS. The AI wars are heating up.
Hollywood Screenwriters Guild Strike Ends, after 150 days, which is thought to have cost the US economy $5 billion in output. The hit was mostly taken by Los Angeles, where 200,000 are employed. The Actor’s union is still on strike. Talk shows should be offering new content in a few days.
S&P Case Shiller Rises to New All-Time High, for the sixth consecutive month as inventory shortages drove up competition. In July, the index in increased 0.6% month over month and 1% over the last 12 months, on a seasonally adjusted basis. July’s movement reached a new high for the nationwide home index, surpassing the record set in June 2022. Chicago (+4.4%), Cleveland (+4.0%), and New York (+3.8%) delivered the biggest gains. The median home price for existing homes rose to 1.9 to $406,700 according to the National Association of Realtors (NAR). The robust housing market suggests that while some buyers pulled back due to high borrowing costs, demand continues to outweigh supply.
This is the Unit I Will be Joining at the Front in Ukraine, as made clear by their YouTube recruiting video. They asked me to assist with mine removal on territory formerly occupied by Russia. I really don’t know what I’m getting into. Improvision is key. It’s better than playing golf in retirement. Polish up your Ukrainian first.
So far in August, we are down -4.70%. My 2023 year-to-date performance is still at an eye-popping +60.80%.The S&P 500 (SPY) is up +17.10%so far in 2023. My trailing one-year return reached +92.45% versus +8.45% for the S&P 500.
That brings my 15-year total return to +657.99%. My average annualized return has fallen back to +48.15%,another new high, some 2.50 times the S&P 500over the same period.
Some 41 of my 46 trades this year have been profitable.
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, October 2, at 8:30 PM EST, the ISM Manufacturing PMI is out.
On Tuesday, October 3 at 8:30 AM,the JOLTS Job Openings Report is released.
On Wednesday, October 4 at 2:30 PM, the ISM Services Report is published.
On Thursday, October 5 at 8:30 AM, the Weekly Jobless Claims are announced.
On Friday, October 6 at 2:30 PM the September Nonfarm Payroll Report is published. At 2:00 PM the Baker Hughes Rig Count is printed.
As for me, I will try to knock out a few memories early this morning while waiting for the Matterhorn to warm up so I can launch on another ten-mile hike. So I will reach back into the distant year of 1968 in Sweden.
My trip to Europe was supposed to limit me to staying with a family friend, Pat, in Brighton, England for the summer. His family lived in impoverished council housing.
I remember that you had to put a ten pence coin into the hot water heater for a shower, which inevitably ran out when you were fully soaped up. The trick was to insert another ten pence without getting soap in your eyes.
After a week there, we decided the gravel beach and the games arcade on Brighton Pier were pretty boring, so we decided to hitchhike to Paris.
Once there, Pat met a beautiful English girl named Sandy, and they both took off to some obscure Greek island, the ultimate destination if you lived in a cold, foggy country.
That left me stranded in Paris with little money.
So, I hitchhiked to Sweden to meet up with a girl I had run into while she was studying English in Brighton. It was a long trip north of Stockholm, but I eventually made it.
When I finally arrived, I was met at the front door by her boyfriend, a 6’6” Swedish weightlifter. That night found me bedding down in a birch forest in my sleeping bag to ward off the mosquitoes that hovered in clouds.
I started hitchhiking to Berlin, Germany the next day, which offered paying jobs. I was picked up by Ronny Carlson in a beat-up white Volkswagen bug to make the all-night drive to Goteborg where I could catch the ferry to Denmark.
1968 was the year that Sweden switched from driving English style on the left side of the road to the right. There were signs every few miles with a big letter “H”, which stood for “hurger”, or right. The problem was that after 11:00 PM, everyone in the country was drunk and forgot what side of the road to drive on.
Two guys on a motorcycle driving at least 80 mph pulled out to pass a semi-truck on a curve and slammed head-on to us, then were thrown under the wheels of the semi. The motorcycle driver was killed instantly, and his passenger had both legs cut off at the knees.
As for me, our front left wheel was sheared off and we shot off the mountain road, rolled a few times, and was stopped by this enormous pine tree.
The motorcycle riders got the two spots in the only ambulance. A police car took me to a hospital in Goteborg and whenever we hit a bump in the road bolts of pain shot across my chest and neck.
I woke up in the hospital the next day, with a compound fracture of my neck, a dislocated collar bone, and paralyzed from the waist down. The hospital called my mom after booking the call 16 hours in advance and told me I might never walk again. She later told me it was the worst day of her life.
Tall blonde Swedish nurses gave me sponge baths and delighted in teaching me to say Swedish swear words and then laughed uproariously when I made the attempt.
Sweden had a National Health care system then called Scandia, so it was all free.
Decades later a Marine Corps post-traumatic stress psychiatrist told me that this is where I obtained my obsession with tall, blond women with foreign accents.
I thought everyone had that problem.
I ended up spending a month there. The TV was only in Swedish, and after an extensive search, they turned up only one book in English, Madame Bovary. I read it four times but still don’t get the ending. And she killed herself because….?
The only problem was sleeping because I had to share my room with the guy who lost his legs in the same accident. He screamed all night because they wouldn’t give him any morphine.
When I was released, Ronny picked me up and I ended up spending another week at his home, sailing off the Swedish west coast. Then I took off for Berlin to get a job since I was broke. Few Germans wanted to live in West Berlin because of the ever-present risk of a Russian invasion so there we always good-paying jobs.
I ended up recovering completely. But to this day whenever I buy a new Brioni suit in Milan they have to measure me twice because the numbers come out so odd. My bones never returned to their pre-accident position and my right arm is an inch longer than my left. The compound fracture still shows up on X-rays.
And I still have this obsession with tall, blond women with foreign accents.
Go figure.
Brighton 1968
Ronny Carlson in Sweden
Stay Healthy,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png00april@madhedgefundtrader.comhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngapril@madhedgefundtrader.com2023-10-02 09:02:222023-10-02 14:52:17The Market Outlook for the Week Ahead, or Back in Business
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