Global Market Comments
March 10, 2025
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or THE ECONOMY IS GRINDING TO A HALT),
(IBKR), (JPM), (GS), (SF), (TSLA), (GM), (TLT), (GLD)
Posts
There isn’t a CEO in the country who hasn’t halted capital investment in the face of today’s unprecedented uncertainty. You can’t invest in a business without a credible GDP forecast, and Q1 is certain to deliver a large negative number, the first half of a recession.
There isn’t a consumer that isn’t cutting back on spending. With the price of everything rising, they have no choice. Entire markets, like real estate, are frozen.
Worst of all, there isn’t an investor who hasn’t postponed additional stock purchases. There is an unprecedented capital flight out of the US and into Europe and China taking place. Anything American, like the US dollar, has suddenly become toxic.
One of my favorite expressions is that “Money is like water; it flows to wherever it is treated best.” Right now, there is a Panama Canal’s worth of money flowing elsewhere, or into 90-day US Treasury bills.
And stocks are down by only 8.13% so far?
Welcome to government by reality TV.
The goal isn’t to create jobs, grow the economy, and help stabilize the world. The intention is to shock, amaze, appall, upset, disrupt, and maximize clicks for certain online social media platforms and websites. If so, they are wildly successful. So far, investors are giving the show very poor ratings, subterranean ones, and a definite thumbs down.
Last week was the worst one for stocks in two years. The Magnificent Seven are now down 15% year to date, and I bet that Tesla (TSLA), its stock down 50% in less than three months, is running at an operating loss. I would not be surprised if the country’s retirement savings have cratered by 10% so far in 2025.
Last week, I called my weekly letter “Armageddon”. I was too modest, reticent, and cautious. It should have been entitled “Armageddon on Steroids.” The US economy is probably in recession now, but we won’t see a hint of this until the Q1 numbers are out on April 30 and the confirmation on August 28.
The implications are global.
It's not a recession I’m worried about; it’s a Great Depression, a recession that a broken economy can’t get out of. There isn’t an economy in the world that isn’t being disrupted and turned on its head.
All asset classes are now screaming a recession. Oil is at a six-month low, interest rates are at a three-month low, and both the S&P 500 (SPY) and NASDAQ (QQQ) have broken their 200-day moving averages for the first time in 3 years when they fell 32% and 40%, respectively. And that was when interest rates were still at zero. The Atlanta Fed has ratcheted down its Q1 GDP forecast down to 2.4%, part one of a recession.
If you went to top up your coffee, you probably missed a 600-point move in the Dow Average ($INDU).
And here is the next black swan that is going to bite you.
The U.S. trade deficit surged in January, as import growth dwarfed a smaller increase in exports by 10:1. Imports rose 10% to $401.2 billion as businesses rushed to beat the tariffs, knocking 1.5% off of GDP. Exports climbed by a mere 1.2% to $269.8 billion. That yielded a net deficit of $131.4 billion, 34% greater than the $98.1 billion deficit in December. February is likely to be worse.
The Trump administration is setting up the perfect stagflation economy, with falling growth and rising prices. I suffered through this in the 1970s during the Nixon, Ford, and Carter administrations, and believe me, it was no fun. The triggers were two oil shocks and taking the US off the gold standard. This time, the Trigger is Trump.
It was a grim time. This was when the Dow Average flatlined for a decade, and stockbrokers drove taxis to make a living. It’s why, out of university, I went to work for The Economist magazine in London for ten years instead of heading straight for Wall Street. Brokers weren’t hiring. I didn’t get to Morgan Stanley until 1983, a year after the great bull market began.
The complete collapse of the banking sector has a very clear message: We are now in a recession. That means a 20% drawdown in this correction is a sure thing, and a 50% crash is not impossible. The promised deregulation and easier M&A policies never showed.
Keep adding protection through raising cash, executing buy-writes, and piling on bearish ETFs like the (SH) and (SDS). Tariffs will drop corporate profits by half if they continue and will wipe them out completely if they are increased in a future escalation.
When you impoverish your customers, as the tariffs are doing to Canada and Mexico practically overnight, you impoverish yourself. Their recession becomes our recession.
By the way, the jobs impact on the federal budget has been wildly exaggerated. Federal government jobs are at 3 million, versus 5 million state jobs, and 15 million local government jobs. Salaries account for only 4% of the federal budget as government employees are generally low-paid workers. If you cut them by half or by 1.5 million workers, it only knocks off 2% from federal spending.
Each government job directly creates two new private sector jobs or bout 5 million jobs.
The last safe job in the country was a government job. For centuries, government workers accepted lower pay in exchange for safety and stability. Government unions have not been allowed to go on strike. That contract has been broken this year. Companies are piggybacking their only layoffs on top of the government ones, using them as cover. This will have a leveraged effect on pushing unemployment upward.
Here's another reality check. Per capita, government jobs have been falling for a decade.
The US population rises by about 1% a year and increased to 340 million in 2024. It is up by 22 million in ten years. Population increases alone demanded the gross increase in government jobs of 300,000. Federal government jobs, in fact, have been growing at a declining rate for the past decade when compared to the private sector.
Oh, and you wanted to know about Tesla? The downside target is $140, last summer’s low, or down 72% from the top when Tesla was under 23 government investigations. If that doesn’t hold, we’re going to the 2022 low of $105, down 79%, but only if Elon Musk cares, which so far, he doesn’t. But Tesla will have no government investigations underway.
As for Nvidia, I am much more bullish. I see it going down to $90, down 41% from the top.
Read it and weep.
The Money Is Now Pouring Out
February is now flat at -0.87% return so far, which most people will take given this year’s 8.13% swan dive in the (SPY). That takes us to a year-to-date profit of +8.60% so far in 2025. That means Mad Hedge has been operating as a perfect short S&P 500 ETF since the February high. My trailing one-year return stands at a spectacular +81.34%. That takes my average annualized return to +49.91% and my performance since inception to +760.49%.
It has been a busy week for trading. I cut my risk by stopping out of a long in (JPM) near cost. I added a bearish downside play with the (SH) and a short in (GM). I started taking profits on my short positions that had completely collapsed, such as with the (TLT) and (TSLA). I used the meltdown to add very deep in-the-money long with (NVDA). Next week will probably be as busy.
Some 63 of my 70 round trips, or 90%, were profitable in 2023. Some 74 of 94 trades have been profitable in 2024, and several of those losses were really break-even. That is a success rate of +78.72%.
Try beating that anywhere.
Layoffs Hit Five-Year High. Challenger, an international firm that helps laid-off workers find new jobs, said that job losses spiked a whopping 245% to 172,017 last month, higher than any month since the middle of the COVID-19 pandemic in July 2020 and the highest in any February since 2009. The layoffs have only just begun.
ADP Collapses, with private sector hiring falling to only 77,000, a two-year low. Companies are frozen in the headlights, unable to take action in a trade environment that is changing by the day and an economy that is rapidly deteriorating. It’s another recession confirmation data point.
Atlanta Fed Says US GDP Shrank by -2.4% in Q1 of 2025, meaning we are already well on our way into recession. The Atlanta Fed always has the most extreme forecasts. That’s the latest reading from the Atlanta Federal Reserve Bank's GDP Now model, which is considered the central bank's primary tool for measuring growth in real-time.
January Trade Deficit Hits 80-Year High, as importers rushed to beat business killing Trump tariffs. The goods trade gap surged 25.6% to $153.3 billion last month, the Commerce Department's Census Bureau said on Friday. Goods imports vaulted 11.9% to $325.4 billion. The problem for investors is that this money is subtracted from the US GDP calculation, as these are products made abroad and not in America. Expect horrific economic numbers going forward.
Consumer Spending Falls to Four-Year Low at -0.5%. US consumers unexpectedly pulled back on spending on goods like cars in January amid extreme winter weather, and a slowdown in services, if sustained, may raise concerns about the resilience of the economy. Inflation-adjusted consumer spending fell by the biggest monthly decline in almost four years after a robust holiday season. The drop in outlays was driven by an outsize decline in motor vehicle purchases and drops in categories like recreational goods.
Bitcoin Gives Up All Post-Election Gains, plunging from $108,000 to 82,000, down 24%. My bet is that in bear markets, crypto will fall faster than stocks. Avoid all crypto.
The Oil Market is in Turmoil, with crude prices dropping below $66, a four-month low. A global recession is looming large. The administration has pulled Chevron out of Venezuela, losing 300,000 barrels a day there. But OPEC has increased production, and Iraq has been pressured into reopening its northern pipeline. “Drill baby, drill” threatens to swamp American consumers with excess supply. Avoid all energy plays for now.
The Tesla Collapse Accelerates, with February sales in Germany down -76%, Norway down -46%, and France -26%. The company is also falling behind in China, and there is no way US sales targets will be met. Consumers don’t want to make a political statement with an EV purchase. Shares are now down 49% in three months. Sell all (TSLA) rallies. The final target could be $140 a share, last summer’s low. Where is the CEO?
Germany Passes Massive $1.3 Trillion Spending Stimulus, devoted to defense spending and infrastructure. It caused the biggest drop in German bond prices and rise in yields in 35 years. It was enough to drag US interest rates up, giving bonds here a terrible day. Germany is now expanding its growth while we are shrinking ours. Is Germany now the global economic engine and the US the caboose?
The New Magnificent Seven Speaks German, with European defense rising 30% so far in 2025. After being dead money for 20 years, the Frankfurt stock market has suddenly come alive. The goal is to replace American weapons in Ukraine with German ones. Among the largest defense companies, Germany’s Rheinmetall (RHM) rose 14% on Tuesday, and Italy’s Leonardo (LDO) closed 16% higher, while BAE Systems (BA) was up 15% at the end of trading. France’s Thales (HO) rose 16%, and aircraft makers Dassault Aviation (AM) and Saab (SAAB) rose 15% and 12%, respectively.
Weekly Jobless Claims Fall, by 21,000 to 221,000.
Turbulence lies ahead from tariffs on imports and deep government spending cuts. That was flagged by other data on Thursday showing layoffs announced by U.S.-based employers jumped in February to levels not seen since the last two recessions amid mass federal government job cuts, canceled contracts, and fears of trade wars.
My Ten-Year View – A Reassessment
We have to substantially downsize our expectations of equity returns in view of the election outcome. My new American Golden Age, or the next Roaring Twenties, is now looking at multiple gale-force headwinds. The economy will completely stop decarbonizing. Technology innovation will slow. Trade wars will exact a high price. Inflation will return. The Dow Average will rise by 600% to 240,000 or more in the coming decade. The new America will be far more efficient and profitable than the old.
My Dow 240,000 target has been pushed back to 2035.
On Monday, March 10, at 8:30 AM EST, the Consumer Inflation Expectations are announced.
On Tuesday, March 11, at 8:30 AM, the JOLTS Job Openings Report is released.
On Wednesday, March 12, at 8:30 AM, the Consumer Price Index is printed.
On Thursday, March 13, at 8:30 AM, the Weekly Jobless Claims are disclosed. We also get the Producer Price Index.
On Friday, March 14, at 8:30 AM, the University of Michigan was announced as well At 2:00 PM, the Baker Hughes Rig Count is printed.
As for me, since many of you are now planning long-overdue summer vacations, I thought I would pass on what I learned from the ultimate travel guru of all time before he passed away last year.
After all, who knows how long it will be until the next pandemic? The next decade, next year, or next week?
When I backpacked around Europe in 1968, I relied heavily on Arthur Frommer’s legendary paperback guide, Europe on $5 a Day, which then boasted a cult-like following among impoverished but adventurous Americans. The charter airline business was then booming, plunging airfares, and suddenly Europe came within reach of ordinary Americans like me.
Over the following years, he directed me down cobblestoned alleyways, dubious foreign neighborhoods, and sometimes converted WWII air raid shelters to find those incredible travel deals. When he passed through town some 50 years later, I jumped at the chance to chat with the ever-cheerful, worshipped travel guru.
Frommer believed there are three sea change trends going on in the travel industry today. Business is moving away from the big three travel websites, Travelocity, Orbitz, and Priceline, who have more preferential lucrative but self-enriching side deals with airlines than can be counted, towards pure aggregator sites that almost always offer cheaper fares, like Kayak.com, Sidestep.com, and Fairchase.com.
There is a move away from traditional 48-person escorted bus tours towards small group adventures, like those offered by Gap Adventures, Intrepid Tours, and Adventure Center, that take parties of 12 or less on culturally eye-opening public transportation.
There has also been a huge surge in programs offered by universities that turn travelers into students for a week to study the liberal arts at Oxford, Cambridge, and UC Berkeley. His favorite was the Great Books program offered by St. John’s University in Santa Fe, New Mexico.
Frommer says that the Internet has given a huge boost to international travel, but warns against user-generated content, 70% of which is bogus, posted by the hotels and restaurants touting themselves.
Frommer turned an army posting in Berlin in 1952 into a travel empire that publishes 340 books a year, or one out of every four travel books on the market. I met him on a swing through the San Francisco Bay Area (his ticket from New York was only $150), and he graciously signed my tattered, dog-eared original 1968 copy of his opus, which I still have.
Which country has changed the most in his 60 years of travel writing? France, where the citizenry has become noticeably more civil since losing WWII. Bali is the only place where you can still actually travel for $5/day, although you can see Honduras for $10/day. Always looking for a deal, Arthur was on his way to Chile, the only country in the world he had never visited.
Arthur Fromer passed away in 2024 at the age of 95.
Arthur’s Last Big Play in Bali
Good Luck and Good Trading,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Global Market Comments
March 3, 2025
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or ARMAGEDDON)
(JPM), (IBKR), (TSLA), (NVDA), (TLT), (GS), (BRK/B), (PRIV), (GLD), (FXI)
Armageddon is not a word I use lightly. But this weekend, every technical service I subscribed to warned that the recent damage to the market was immense. It’s time to raise cash, hedge your positions, or otherwise position for a bear market.
I have noticed over the past half-century that the best technicians spend a lot of time reading up on fundamentals, and the best fundamentalists spend a lot of time looking at charts. When both go to hell in a handbasket, as they are now, it’s time to head for the hills.
The only way Armageddon can be avoided, or at least postponed, is if the trade war, which is about to cut S&P 500 (SPY) earnings by half, suddenly ends. Only one person knows if that is going to happen, and he isn’t sharing any of his cards with me.
If the trade war continues or expands, the math here becomes very simple. The shares of companies that earn less money are worth less.
You learn in flight school that accidents aren’t usually the result of a single problem but several compounding ones. I know this too well because I have crashed three planes, in the Austrian Alps, in Sicily, and in Paris. First, the gyroscope blows up, then the radio goes out, and then you lose an engine when the weather turns bad. It doesn’t help when someone is shooting at you, either.
The problem for stock owners now is that there isn’t just one thing going wrong with the investment landscape right now; there are several compounding ones, like inflation, immigration, taxes, the deficit, the Ukraine War, and the end of American leadership of the West.
Loss of confidence in the top, which took a quantum leap downward in the wake of the dumpster fire at a White House Zelinski meeting, has consequences. At this point, every businessman in America is asking himself if he can survive the current regime.
With a scant one-seat majority in Congress, a budget can’t pass by March 14, when a government shutdown begins. It means that there will be no new tax cuts by year-end. Chaos ratchets up. Businessmen hate chaos.
It also means that the 2017 tax cuts extension isn’t going to happen, which adds $5 trillion in new taxes on the country just when the economy is slowing dramatically. Uncertainty runs rampant.
Here's the problem for investors with that. Confident markets trade at big premiums, as we saw for the last three years. Uncertain markets trade at big discounts. If I’m right, that discount will be 20%. If I’m wrong, it's 50%.
Ceding America’s leadership of the West comes at a heavy price. It started 80 years ago with the end of WWII. American stock markets have done pretty well during this time, rising by 435 times. Why anyone would want to give up such a system is beyond me.
For example, the US dollar would lose its reserve currency status. There is no way the national debt could have risen to $36 trillion, half of which was bought by foreigners, and all of which was used to stimulate the economy, without reserve currency status. Take that away, and economic growth goes elsewhere. So do higher stock prices, which we have already seen this year in China and Europe.
There is a fundamental repricing of the market taking place, and we are only just at the beginning.
About that economy thing. On Friday, the Atlanta Fed predicted that the US economy SHRANK by -1.5% in Q1. It would be easy to say, “There goes the Atlanta Fed again,” whose model is always prone to extreme predictions. But it is safe to say that the economy is either not growing or growing at a dramatically slowing rate.
The problem for investors? Reliable growing economies, which we have had since the Pandemic five years ago, support high stock multiples. Non-growing or shrinking economies can only support low earnings multiple. Remember back in 2009, the S&P 500 traded at a lowly multiple of only 9X, against today’s 25X.
This isn’t just me howling at the moon. With a meteoric $10 rally this year, the bond market is starting to warn of a coming recession. Ten-year US Treasury bond yields have cratered from 4.80% to 4.20%. This is in the face of massive bond issuance in 2025, some $1.7 trillion worth, the product of the 2017 Trump tax cuts. Almost all new government policies are anti-economy and anti-growth.
The DOGE campaign is sucking massive amounts of money out of the economy. The yield curve has inverted, meaning that short-term interest rates are higher than long-term ones, indicating that the recession risk is real.
The dividend yield on the S&P 500 is at 1.2%. It was 2% only a couple of years ago. That is not much yield competition.
As I have been warning my Concierge members for weeks, get rid of all the stocks and asset classes you have been dating and only keep the ones you are married to. And what you keep should be hedged, such as through selling short call options against your longs, buying the (SDS), the 2X short S&P 500 ETF. And then there are 90-day US Treasury bills yield 4.2%, where nobody has ever lost money.
I learned something interesting the other day about your largest holding.
Some 70% of Nvidia is now held by indexes like the S&P 500. That’s because it has become an index proxy. It means that the shares have become an index hedge for hedge funds against which they can trade a myriad of options. This is why the (NVDA) options have implied volatilities four times those of the (SPY). It is a great arbitrage.
I watch closely the launch of new ETFs and write about the most interesting ones. I have been inundated by requests for private credit investments, which, by definition, are not available to the public.
Now, we will soon have the SPR SSGA Apollo IG Public & Privat Credit ETF (PRIV) out soon (https://www.ssga.com/us/en/intermediary/etfs/spdr-ssga-apollo-ig-public-private-credit-etf-priv ).
The fund will launch with an initial $50 million, and the minimum investment is $100,000. The fund essentially offers daily liquidity for illiquid long-duration loans. The yield should be in line with private illiquid debt, or about 10%-12%.
How they pull this off is anybody’s guess. Past funds that tried to do this closed their doors during times of economic distress, known as “gating, “so beware of gating when market conditions turn less than ideal. The fund promises to hold up to 35% of its funds in private credit and the rest in a mix of junk bonds. No word yet on the yield, but it will be much higher than the leading junk bond fund (JNK), which is offering 6.48%.
February has started with a respectable +2.25% return so far. That takes us to a year-to-date profit of +9.46% so far in 2025. My trailing one-year return stands at a spectacular +81.87% as a bad trade a year ago fell off the one-year record. That takes my average annualized return to +49.83% and my performance since inception to +761.36%.
I saw the market breakdown coming a mile off and used my 90% cash to pile into new very short-term longs in JP Morgan (JPM), Interactive Brokers (IBKR), Tesla (TSLA), and Gold (GLD). I poured into new short positions with Tesla (TSLA), Nvidia (NVDA), and the United States US Treasury Bond Fund (TLT). This is in addition to an existing long in Goldman Sachs (GS). Last week, I leapt from 90% cash to 40% long, 40% short, and 20% cash.
Some 63 of my 70 round trips, or 90%, were profitable in 2023. Some 74 of 94 trades have been profitable in 2024, and several of those losses were really break-even. That is a success rate of +78.72%.
Try beating that anywhere.
Core PCE Price Index Comes in Line. The personal consumption expenditures price index, the Federal Reserve’s preferred inflation measure, increased 0.3% for the month and showed a 2.5% annual rate. Excluding food and energy, core PCE also rose 0.3% for the month and was at 2.6% annually. Fed officials more closely follow the core measure as a better indicator of longer-term trends. Personal income posted rose 0.9% against expectations for a 0.4% increase. However, the higher incomes did not translate into spending, which decreased by 0.2%, versus the forecast for a 0.1% gain.
Retail Investors Market Sentiment Hit All-Time Bearish Highs. Options activity has also taken a big swing towards put buying. Dump all the stocks you were dating. Both Nvidia (NVDA) and Tesla (TSLA), the two most widely traded stocks in the market, broke their 200-day moving averages today. This is a very negative medium-term indicator. Only keep the ones you’re married to, not the ones you’re dating. This is not the rose garden we were promised.
US Margin Debt Hits All-Time High, at $937 billion as of January. That’s up 33% from $701 billion in January 2024. Over the same period, the S&P 500 gained 24.7%. Speculation on credit is running rampant. Margin trading, in which investors borrow funds from their brokerage firms in order to buy stocks, can amplify returns.
Weekly Jobless Claims Jump to 242,000, up 22,000, as the government firings kick in. In Washington, D.C., new claims totaled 2,047, an increase of 421, or 26%, the largest number for the city since March 25, 2023.
Nvidia Beats (NVDA) even the most optimistic expectations. The company forecasted higher first-quarter revenue, signaling continued strong demand for artificial intelligence chips, and said orders for its new Blackwell semiconductors were "amazing." The forecast helps allay doubts around a slowdown in spending on its hardware that emerged last month, following DeepSeek's claims that it had developed AI models rivaling Western counterparts at a fraction of their cost. Nvidia's outlook for gross margin in the current quarter was slightly lower than expected, though, as the company's Blackwell chip ramp-up weighs on Nvidia's profit. Nvidia forecast first-quarter gross margins will sink to 71%, below the 72.2% forecast by Wall Street, according to data compiled by LSEG.
Gold ETFs (GLD) Have Become a Hot Commodity, with $4.5 billion pouring into (GLD) — with around half of that inflow occurring during Friday’s stock market selloff. The flight to safety bid is on. Those moves come as gold prices are at all-time highs in early 2025, boosted by trade uncertainty and inflation concerns. Buy (GLD) on dips.
Chinese Inflation (FXI) Hits 20-Year Lows, as the economy continues in free fall. Beijing is also expected to release its plans for spending on defense and technological development in the year ahead, along with details on private sector support. Last year, the inflation rate came in at only 0.2%.
Pending Homes Sales Hit All-Time Low, in January down 4.6% MOM and 5.2% YOY. Inventories are rising, but affordability is at record lows. Exceptionally cold weather was a factor. Homebuilder Sentiment plummeted to 42, a two-year low, and tariff concerns. Our drywall comes from Mexico, and our lumber comes from Canada. Avoid all real estate plays like the plague.
Home Prices are Still Rising, according to the S&P Case Shiller National Home Price Index. House prices rose 0.4%. They increased 4.7% in the 12 months through December. The strong increase in prices was despite rising housing supply, which is being driven by ebbing demand amid higher mortgage rates. New York showed the biggest gain at 7.2% YOY, followed by Chicago at 6.6% and Boston at 6.35%. Washington, DC, was the only city showing a loss at -1.1%.
Consumer Confidence Collapses to a Four-Year Low, down 7 points from 105 to 98, as tariff-driven inflation fears ramp up. The Conference Board’s Consumer Confidence Index for February, released Tuesday morning, fell to 98.3, falling for the third-straight month and marking the largest monthly decline since August 2021. Technology stocks sold off hard. Bonds are starting to discount a recession.
Berkshire Hathaway (BRK/B) Builds Record Cash, at $334 billion, up $9 billion in December alone. The Oracle of Omaha has been selling huge chunks of Apple (AAPL) and Bank of America (BAC) and putting the money into US Treasury Bills. Warren earned an eye-popping $47 billion in 2024, up 27% YOY. A price earnings multiple at a record 25X for the S&P 500. If Warren Buffet is selling, should you be buying?
Jamie Dimon Sells 30% of JP Morgan Stock, yet another indicator of a market top. Jamie is famous for loading up on (JPM) at the absolute market bottom in 2009. Does he know something we don’t? Banks have been the lead sector in the market since the summer.
Existing Homes Sales Crater, on a closing contract basis, down 4.9% in January to 4.09 million units. Terrible weather was a factor. Inventories are up 17% YOY and 3.5% for the month. Al cash sales hit 29%. The average price of a home is at an all-time high at $396,800, up 4.5% YOY.
My Ten-Year View – A Reassessment
We have to substantially downsize our expectations of equity returns in view of the election outcome. My new American Golden Age, or the next Roaring Twenties, is now looking at multiple gale force headwinds. The economy will completely stop decarbonizing. Technology innovation will slow. Trade wars will exact a high price. Inflation will return. The Dow Average will rise by 600% to 240,000 or more in the coming decade. The new America will be far more efficient and profitable than the old.
My Dow 240,000 target has been pushed back to 2035.
On Monday, March 3 at 8:30 AM EST, the ISM Manufacturing PMI is announced.
On Tuesday, March 4 at 8:30 AM, the API Crude Oil Stocks is released.
On Wednesday, March 5 at 8:30 AM, the ADP Employment Index is printed.
On Thursday, March 6 at 8:30 AM, the Weekly Jobless Claims are disclosed.
On Friday, March 7 at 8:30 AM, the Nonfarm Payroll Report for February is announced, as well as the headline Unemployment Rate. At 2:00 PM, the Baker Hughes Rig Count is printed.
As for me, I’ll never forget when my friend Don Kagin, one of the world’s top dealers in rare coins, walked into my gym one day and announced that he had made $1 million that morning. I enquired. “How is that, pray tell?”
He told me that he was an investor and technical consultant to a venture hoping to discover the long-lost USS Central America, which sunk in a storm off the Atlantic Coast in 1857, heavily laden with gold from the California gold fields. He just received an excited call that the wreck had been found in deep water off the US east coast.
I learned the other day that Don had scored another bonanza in the rare coins business. He had sold his 1787 Brasher Doubloon for $7.4 million. The price was slightly short of the $7.6 million that a 1933 American $20 gold eagle sold for in 2002.
The Brasher $15 doubloon has long been considered the rarest coin in the United States. Ephraim Brasher, a New York City neighbor of George Washington, was hired to mint the first dollar-denominated coins issued by the new republic.
Treasury Secretary Alexander Hamilton was so impressed with his work that he appointed Brasher as the official American assayer. The coin is now so famous that it is featured in a Raymond Chandler novel where the tough private detective, Phillip Marlowe, attempts to recover the stolen coin. The book was made into a 1947 movie, “The Brasher Doubloon,” starring George Montgomery.
This is not the first time that Don has had a profitable experience with this numismatic treasure. He originally bought it in 1989 for under $1 million and has made several round trips since then. The real mystery is who bought it last. Don wouldn’t say, only hinting that it was a big New York hedge fund manager who adores the barbarous relic. He hopes the coin will eventually be placed in a public museum.
Mad Hedge followers should start paying more attention to gold, which I believe just entered another decade-long bull market, thanks to falling US interest rates. You can’t go wrong buying LEAPS in the top two miners, Barrack Gold (GOLD) and Newmont Mining (NEM).
Who says the rich aren’t getting richer?
Good Luck and Good Trading,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Global Market Comments
January 23, 2025
Fiat Lux
Featured Trades:
(WHY WATER WILL SOON BE WORTH MORE THAN OIL),
(CGW), (PHO), (FIW), (VE), (TTEK), (PNR),
(WHY WARREN BUFFETT HATES GOLD),
(GLD), (GDX), (ABX)
After seven years in the penalty box, gold is finally starting to come alive, and the Armageddon crowd is absolutely loving it. Maybe after ten years of rising, stocks are finally expensive on a relative basis?
These are the guys who are perennially predicting the collapse of the dollar, the default of the US government, hyperinflation, and the end of the world.
Better to keep all your assets in gold and silver, store at least a year’s worth of canned food, and keep your untraceable guns well-oiled and supplied with ammo, preferably in high-capacity magazines.
If you followed their advice, you lost your shirt.
I have broken many of these wayward acolytes of their money-losing habits. But not all of them. There seems to be an endless supply emanating from the hinterlands.
The “Oracle of Omaha” Warren Buffet often goes to great lengths to explain why he despises the yellow metal.
The sage doesn't really care about the gold, whatever the price. He sees it primarily as a bet on fear. I imagine he feels the same about Bitcoin, the modern tulips of our age.
If investors are more afraid in a year than they are today, then you make money on gold. If they aren't, then you lose money.
The only problem now is that fear ain’t working.
If you took all the gold in the world, it would form a cube 67 feet on a side, worth $5 trillion. For that same amount of money, you could own other assets with far greater productive earning power, including:
*All the farmland in the US, about 1 billion acres, which is worth $2.5 trillion.
*Seven Apple’s (AAPL), the second largest capitalized company in the world at $731 billion.
Instead of producing any income or dividends, gold just sits there and shines, making you feel like King Midas.
I don't know. With the stock market at an all-time high and oil trading at $75/barrel, a bet on fear looks pretty good to me right now.
I'm still sticking with my long-term forecast of the old inflation-adjusted high of $2,300/ounce.
It is just a matter of time before emerging market central bank buying pushes it up there. And who knows? Fear might make a comeback too.
Global Market Comments
January 15, 2025
Fiat Lux
Featured Trades:
(FRIDAY, JANUARY 31, 2025, SALT LAKE CITY, UTAH STRATEGY LUNCHEON)
(IT’S TIME TO PULL OUT THOSE OLD INFLATION PLAYS OUT OF THE DRAWER),
(GLD), (SLV), (TIPS)
Being an old do-it-yourself carpenter, I never throw anything away.
My garage is filled with ancient tools I bought 50 years ago and used only once.
Scraps of wood, odd lengths of wiring, and old coffee cans filled with loose nuts, screws, and nails are everywhere.
You KNOW that if you throw a tool out, you’ll desperately need it the next day.
The same is true of my investment approach. Nothing new ever happens in the financial market, plays that worked in past years just get endlessly recycled.
My inventory of ancient trading strategies includes instruments that were once incredibly profitable (Japanese equity warrant arbitrage?), but haven’t made money in decades.
So I was rooting around my trading toolbox the other day when I found just the ones I needed: inflation plays.
Some of the greatest trades of my half-century-long career in the trenches have been with inflation plays.
Of course, gold during the 1970s was the no-brainer after President Nixon took the US off the gold standard. I started buying in the barbarous relic in the mid-$30s and chased it all the way up to $900.
I made similar fortunes in that other great inflation hedge, residential real estate. Some of the properties I owned then in California have risen 100 times in value, thanks to inflation.
It was with those fond memories in mind that found myself looking for similar inflation plays to execute.
Let me stop right here.
The oldies are still the goodies.
In the next surge of inflation that the new administration is about to unleash, I expect gold to rise from today’s $2,703 an ounce to at least $5,000. After that, look out above!
Silver (SLV) should do double, eventually touching $100 an ounce from today’s $30.83.
Your home will also be a fantastic inflation hedge. Anything you own today should rise in value at least tenfold over the next 20 years.
However, in updating my research, I came across a few new wrinkles that are definitely worthy of your attention.
The big one is TIPS.
TIPS are US Treasury bonds that are indexed to inflation. If inflation rises, the value of your TIPS rises.
Specifically, TIPS are tied to the Consumer Price Index as calculated by the US Department of Labor Bureau of Labor Statistics.
Let me show you how they work.
Let’s say you bought $1,000 worth of TIPS with a 1% coupon. If the CPI comes in at zero, you will receive $10 that year in interest payments.
If the CPI rises 2%, your $1,000 in principal increases to $1,020. Your 1% coupon is then calculated off of this new, higher amount and jumps to $10.20, giving you a total return of $32.10.
Now here is the really fun part.
If the CPI rises to 15%, as it did in 1979, the value of your investment rises by 16.15% to $1,161.50.
Yes, I still have my bell bottoms from those days, although the waist is rather tight.
This explains why many high-net-worth individuals always have a few TIPS parked away in their portfolios, usually stuck in a folder behind the radiator.
TIPS are issued by the U.S. Treasury at recurring auctions as part of the government’s overall funding program.
Currently, the Treasury conducts monthly TIPS auctions: three per year for five-year TIPS, six for 10-year TIPS, and three for 30-year TIPS.
You can buy TIPS directly from the US government and bypass hefty third-party management and brokerage fees.
However, the semi-annual inflation adjustments of a TIPS bond are treated as taxable income by the IRS, even though investors won’t see that money until they sell the bond or it matures.
So it may be wise to buy your TIPS via a mutual fund or ETF or to only hold them in a tax-exempt IRA, 401k, or deferred benefit plan.
TIPS also have the additional benefit in that, like municipal bonds, they are exempt from state and local taxes.
Well-heeled residents of highly taxed California, New York, and Illinois absolutely love them.
Like many government programs, TIPS was first created in 1997 for a problem that didn’t exist: inflation. That year the CPI was only 1.7%.
The highest CPI since then was 3.4% in 2000, the year of the dotcom bubble top. For most of 2016, it hung around 1.6%.
Since the first issuance of tips, the US economy has been steadily battered by something no one predicted: deflation.
Thanks to the onslaughts of hyper-accelerating technology, flat wage growth, and global competition, prices worldwide have been heading ever lower.
For more than two decades, investors in TIPS were shortchanged. They accepted lower yields in return for protection against something that never happened. It was the fire insurance without the fire.
That is, no fire until January this year, when we saw an actual spark.
The CPI for that month came in at 0.6%, which works out to 2.5% annualized, the fastest pace of price appreciation in four years.
The TIPS explanation I have given you so far is the simple one. It gets much more complicated.
Seasoned bond pros have figured out ways to game this market six ways from Sunday using an array of sophisticated algorithms.
This enables them to add “alpha” by outperforming generic TIPS returns with aggressive high-turnover trading strategies.
Bond giant PIMCO and DoubleLine Capital are some of the more ardent practitioners of this approach.
These firms employ both top-down and bottom-up strategies, which can be broken down into the following:
Top-down strategies include:
- Duration positioning
- Positioning based on views of yield curve steepening/flattening
- Assessing TIPS’ relative value versus nominal Treasuries, based on shifts in inflation expectations
- Country rotation among inflation-linked bond issuers
- Limited sector rotation among high quality non-government sectors
Bottom-up strategies include:
- Positioning to exploit seasonal consumer price inflation (CPI) patterns, which presents a recurring opportunity to capture attractive risk-adjusted incremental return
- “Inflation capture,” or managing the mix of short and long TIPS to express an active view that CPI will print higher than the market expects
- Targeted issue selection
- Relative value trading based on the implied option value of receiving at least the original principal value upon maturity (i.e., the embedded deflation put)
If all of this gives you a headache and you just want to keep your life simple, you can just buy one of the many TIPS ETFs out there.
PIMCO has the Broad US TIPS Index ETF (TIPZ).
BlackRock has the iShares TIPS Bond ETF (TIP). Barclays has the SPDR 1-10 Year TIPS ETF (TIPX).
The only way these won’t work is if deflation, instead of ending, accelerates.
Artificial intelligence is only just starting to pervade our lives, and the productivity increases and cost savings it promises are enormous.
So is the potential job and wage destruction, the largest component of the CPI calculation.
If that is the case, then the CPI could turn negative, and sharply so. In that scenario, inflation-indexed TIPS will deliver losses instead of the promised gains.
Global Market Comments
January 8, 2025
Fiat Lux
2025 Annual Asset Class Review
A Global Vision
FOR PAID SUBSCRIBERS ONLY
Featured Trades:
(SPY), (QQQ), (IWM), (GS), (MS), (JPM), (BAC), (C), (BLK),
(TLT), (TBT), (JNK), (PHB), (HYG), (MUB), (LQD), (FXE), (FXY), (FXB), (FXE), (FXA)
(FCX), (BHP), (RIO), (VALE), (DBA), (DIG), (USO), (DUG), (UNG), (USO),
(XLE), (LNG), (CCJ), (VST), (SMR), (GLD), (DGP), (SLV), (PPTL), (PALL),
(ITB), (LEN), (KBH), (PHM), (DHI)
I am once again writing this report from a first-class sleeping cabin on Amtrak’s legendary California Zephyr.
By day, I have a comfortable seat next to a panoramic window. At night, they fold into two bunk beds, a single and a double. There is a shower, but only Houdini can navigate it.
I am anything but Houdini, so I foray downstairs to use the larger public hot showers. They are divine.
We are now pulling away from Chicago’s Union Station, leaving its hurried commuters, buskers, panhandlers, and majestic great halls behind. I love this building as a monument to American exceptionalism.
I am headed for Emeryville, California, just across the bay from San Francisco, some 2,121.6 miles away. That gives me only 56 hours to complete this report.
I tip my porter, Raymond, $100 in advance to make sure everything goes well during the long adventure and to keep me up to date with the onboard gossip.
The rolling and pitching of the car is causing my fingers to dance all over the keyboard. Microsoft’s Spellchecker can catch most of the mistakes, but not all of them.
Chicago’s Union Station
As both broadband and cell phone coverage are unavailable along most of the route, I have to rely on frenzied Internet searches during stops at major stations along the way, like Omaha, Salt Lake City, and Reno, to Google obscure data points and download the latest charts.
You know those cool maps in the Verizon stores that show the vast coverage of their cell phone networks? They are complete BS.
Who knew that 95% of America is off the grid? That explains so much about our country today.
I have posted many of my favorite photos from the trip below, although there is only so much you can do from a moving train and an iPhone 16 Pro.
Somewhere in Iowa
The Thumbnail Portfolio
Equities – buy dips, but sell rallies too
Bonds – avoid
Foreign Currencies – avoid
Commodities – avoid
Precious Metals – avoid
Energy – avoid
Real Estate – avoid
1) The Economy – Cooling
I expect a modest 2.0% real GDP growth with a 4.0% inflation rate, giving an unadjusted shrinkage of the economy of negative -2% for 2025. That is down from 0% in in 2024. This may sound discouraging, but believe me, this is the optimistic view. Some of my hedge fund buddies are expecting a zero return over the next four years.
Virtually all independent economists expect the new administration's economic policies will be a drag on both the US and global economies. Trade wars are bad for everyone. When your customers are impoverished, your own business turns south. This is a big deal, since the Magnificent Seven, which accounted for 70% of stock market gains last year, get 60% of their profits from abroad.
The ballooning National Debt is another concern. The last time Trump was in office, he added $10 trillion to the deficit through aggressive tax cuts and spending increases. If this time, he adds another $10-$15 trillion, the National Debt could reach $50 trillion by 2030.
There are two issues here. For a start, Trump will find it a lot harder and more expensive to fund a National Debt at $50 trillion than $20 trillion. Second, borrowing of this unprecedented magnitude, double US GDP, will send interest rates soaring, causing a recession.
The only question then is whether this will be a pandemic-style recession, which took stocks down 30% and recovered quickly, or a 2008 recession which demolished stocks by 52% and dragged on for years.
Hope for the best but expect the worst, unless you want to consider a future career as an Uber driver.
A Rocky Mountain Moose Family
2) Equities – (SPY), (QQQ), (IWM), (GS), (MS), (JPM), (BAC), (C), (BLK)
The outlook for stocks for 2025 is pretty simple. You are going to have to work twice as hard to make half the money you did last year with twice the volatility. You will not be able to be as nowhere near aggressive in 2025 as you were in 2024 It’s a dream scenario for somebody like me. For you, I’m not so sure.
It’s not that US companies aren't growing gangbusters. I expect 2% GDP growth, 15% profit growth, and 12% net margin growth in 2025. But let’s face reality. Stocks are the most expensive they have been in 17 years and we know what happened after 2008. Much of the stock market gain achieved last year was through hefty multiple expansions. This is not good.
Big tech companies might be able to deliver 20% gains and are still the lead sector for the market. Normally that should deliver you a 15%, or $800 gain in the S&P 500 (SPX). We might be able to capture this in the first half of 2025.
Financials will remain the sector with the best risk/reward, and I mean the broader definition of the term, including banks, brokers, money managers, and some small-cap regional banks. The reason is very simple. Their income statements will get juiced at both ends as revenues soar and costs plunge, thanks to deregulation.
No passage of new laws is required to achieve this, just a failure to enforce existing ones. The hint for this is a new SEC chair whose primary interest is promoting the Bitcoin bubble. Buy (GS), (MS), (JPM), (BAC), (C), and (BLK).
However, this is anything but a normal year. Uncertainty is at an eight-year high, thanks to an incoming administration. If the promised policies are delivered, inflation will soar and interest rates will rise, as they already have. We could lose half or all of our stock market gains by the end of 2025.
The big “tell” for this was the awful market performance in December, down 5%. The Dow Average was down ten days in a row for the first time in 70 years. Santa Claus was unceremoniously sent packing. People Are clearly nervous. But then they should be with a bull market that is approaching a decrepit five years in age.
There is a bullish scenario out there and that has Trump doing absolutely nothing in 2025, either because he is unwilling or unable to take action. After all, if the economy isn’t actually broken, why fix it? Better yet, if you own an economy it is better not to break it in the first place.
Nothing substantial can pass Congress with a minuscule one-seat majority in the House of Representatives. There will be no new presidential action through tariffs and only a few token, highly televised deportations, not enough to affect the labor market.
Stocks will not only hold, but they may add to the 15% first-half gains for the year. I give this scenario maybe a 50% probability.
The first indication this is happening is when the presidential characterization of the economy flips in a few months from the world’s worst to the world’s best with no actual change in the numbers. Trump will take all the credit.
You heard it here first.
Frozen Headwaters of the Colorado River
3) Bonds (TLT), (TBT), (JNK), (PHB), (HYG), (MUB), (LQD)
Amtrak needs to fill every seat in the dining car to get everyone fed on time, so you never know who you will share a table with for breakfast, lunch, or dinner.
There was the Vietnam Vet Phantom Jet Pilot who now refused to fly because he was treated so badly at airports. A young couple desperately eloping from Omaha could only afford seats as far as Salt Lake City. After they sat up all night, I paid for their breakfast.
A retired British couple was circumnavigating the entire US in a month on a “See America Pass.” Mennonites returned home by train because their religion forbade travel by automobiles or airplanes.
The big question to ask here after a 100-basis point rise in bond yields in only three months is whether the (TLT) has suffered enough. The short answer is no, not quite yet, but we’re getting close. Fear of Trump policies should eventually take ten-year US Treasury bond yields to 5.00%, and then we will be ready for a pause at a nine-month bottom. After that, it depends on how history unfolds.
If Trump gets everything he wants, inflation will soar, bonds will crash, and 5.00% will be just a pit stop on the way to 6.00%, 7.00%, and who knows what? On the other hand, if Trump gets nothing he says he wants, then both bonds stocks and bonds will rise, creating a Goldilocks scenario for all balanced portfolios and investors.
That also sets up a sweet spot for entry into (TLT) call spreads close to 5.00% yields. A politician campaigning on one policy, then doing the opposite once elected? Stranger things have happened. The black swans will live.
A Visit to the 19th Century
4) Foreign Currencies (FXE), (EUO), (FXC), (FXA), (YCS), (FXY), (CYB)
If your basic assumption for interest rates is that they stay flat or rise, then you have to love the US dollar. Currencies are all about expected interest rate differentials and money always pours into the highest-paying ones. Tariffs will add fat to the fire because any reduction in international trade automatically reduces American trade deficits and is therefore pro-dollar.
This means that you should avoid all foreign currency plays like the plague, including the Euro (FXE), Japanese yen (FXY), British Pound (FXB), Canadian dollar (FXE), and Australian dollar (FXA).
A strong greenback comes with pluses and minuses. It makes our exports expensive and less competitive and therefore creates another drag on the economy. It demolishes traditional weak dollar plays like emerging markets and precious metals. On the other hand, it attracts substantial foreign investments into US stocks and bonds, which has been continuing for the past decade.
Above all, be happy you are paid in US dollars. My foreign clients are getting crushed in an increasingly expensive world.
5) Commodities (FCX), (BHP), (RIO), (VALE), (DBA)
Look at the chart of any commodity stock and you see grim death. Freeport McMoRan (FCX), BHP (BHP), and Rio Tinto (RIO), they’re all the same. They’re all afflicted with the same disease, over-dependence on a robustly growing China, which isn’t growing robustly, if at all.
I firmly believe that this will continue until the current leadership by President Xi Zheng Ping ends. He has spent the last decade globally expanding Chinese interests, engaging in abusive trade practices, hacking, and attacking American allies like Taiwan and the Philippines. You can only wave a red flag in front of the US before it comes back to bite you. A trade war with the US is now imminent.
This will happen sooner than later. The Chinese people don’t like being poor for very long. This is why I didn’t get sucked in on the Chinese long side in the fall, as many hedge funds did.
If China wants to go back to playing nice, as they did in the eighties and nineties, China should return to return to high growth and commodities will look like great “Buys” down here. If they don’t, American growth alone should eventually pull commodities up, as our economy is now growing at a long-term average gross unadjusted 6.00% rate. So the question is how long this takes.
It may pay to start nibbling on the best quality bombed-out names now, like those above.
Snow Angel on the Continental Divide
6) Energy (DIG), (USO), (DUG), (UNG), (USO), (XLE), (LNG), (CCJ), (VST), (SMR)
Energy was one of the worst-performing sectors in the market for the second year in a row and 2025 is looking no better. New supplies are surging, while demand remains stuck in the mud, with the US now producing an incredible 13.5 million barrels a day. OPEC is dead.
EVs now make up 10% of the US auto fleet, and much more in other countries, are making a big dent. Some 50% of all new car sales in China, the world’s largest market, are EVs. The number of barrels of oil needed to increase a unit of American GDP is plunging, as it has done for 25 years, through increased efficiencies. Remember your old Lincoln Continental that used to get eight miles per gallon? Now it gets 27.
Worse yet, a major black swan hovers over the sector. If the Ukraine War somehow ends, some ten million barrels a day of Russian oil will hit the market. Oil prices should plunge to $50 a barrel.
There are always exceptions to the rule, and energy plays not dependent on the price of oil would be a good one. So is natural gas, which will benefit from Cheniere Energy’s (LNG) third export terminal coming online, increasing exports to China. Ukraine cutting off Russian gas flowing to Europe will assure there is plenty of new demand.
But I prefer investing in sectors that have tailwinds and not headwinds. Better leave energy to the pros who have the inside information they need to make money here.
If someone is holding a gun to your head tell you that you MUST invest in energy, go for the new nuclear plays like (CCJ), (VST), and (SMR). We are only at the becoming of the small modular reactor trend, which could accelerate for decades.
7) Precious Metals (GLD), (DGP), (SLV), (PPTL), (PALL)
The train has added extra engines at Denver, so now we may begin the long laboring climb up the Eastern slope of the Rocky Mountains.
On a steep curve, we pass along an antiquated freight train of hopper cars filled with large boulders.
The porter tells me this train is welded to the tracks to create a windbreak. Once, a gust howled out of the pass so swiftly, that it blew a passenger train over on its side.
In the snow-filled canyons, we saw a family of three moose, a huge herd of elk, and another group of wild mustangs. The engineer informs us that a rare bald eagle is flying along the left side of the train. It’s a good omen for the coming year.
We also see countless abandoned 19th-century gold mines and the broken-down wooden trestles leading to huge piles of tailings, relics of previous precious metals booms. So, it is timely here to speak about the future of precious metals.
We certainly got a terrific run on precious metals in 2025, with gold at its highs up 33% and silver up 65%. The miners did even better. Even after the post-election selloff, it was still one of the best-performing asset classes of the year.
But the heat has definitely gone out of this trade. The prospect of higher interest rates for longer in 2025 has sent short-term traders elsewhere. That’s because the opportunity cost of owning precious metals is rising since they pay no interest rates or dividends. And let’s face it, there was definitely new competition for hot money from crypto, which doubled after the election.
The sector is not dead, it is resting. Central bank buying of the barbarous relic continues unabated, especially among sanctioned countries, like Russia and China. Gold is still the principal savings vehicle for many Chinese. They are not going to recover confidence in their own currency, banks, or government anytime soon. And there is still slow but steadily rising industrial demand from solar sectors.
Gold supply has also been falling for years, while costs are rising at least at double the headline inflation rate. So it’s just a matter of time before the supply/demand balance comes back in our favor. Where the final bottom is anyone’s guess as gold lacks the traditional valuation parameters of other asset classes, like dividends or interest paid. We’ll just have to wait for Mr. Market to tell us, who is always right.
Give (GLD), (SLV), (GDX), (GOLD), and (WPM) a rest for now but I’ll be back.
Crossing the Great Nevada Desert Near Area 51
8) Real Estate (ITB), (LEN), (KBH), (PHM), (DHI)
The majestic snow-covered Rocky Mountains are behind me. There is now a paucity of scenery, with the endless ocean of sagebrush and salt flats of Northern Nevada outside my window, so there is nothing else to do but write.
My apologies in advance to readers in Wells, Elko, Battle Mountain, and Winnemucca, Nevada.
It is a route long traversed by roving bands of Indians, itinerant fur traders, the Pony Express, my own immigrant forebearers in wagon trains, the Transcontinental Railroad, the Lincoln Highway, and finally US Interstate 80, which was built for the 1960 Winter Olympics at Squaw Valley, California.
Passing by shantytowns and the forlorn communities of the high desert, I am prompted to comment on the state of the US real estate market.
Real estate was a nice earner for us in 2024 in the new homes sector. The election promptly demolished this trade with the prospect of higher interest rates for longer. Expect this unwelcome drag to continue in 2025.
I am not expecting a housing crash unless interest rates take off. More likely it will continue to grind sideways on low volume. That’s because the market has support from a structural shortage of 10 million homes in the US, the debris left over from the 2008 housing crash. That’s why there is still a Millennial living in your basement. Homebuilders now prioritize profit margins over market share.
I expect this sector to come back someday. New homebuilders have the advantage of offering free upgrades and discounted in-house financing. Avoid for now (DHI), (KBH), (TOL), and (PHM).
Crossing the Bridge to Home Sweet Home
9) Postscript
We have pulled into the station at Truckee amid a howling blizzard.
My loyal staff have made the ten-mile trek from my estate at Incline Village to welcome me to California with a couple of hot breakfast burritos and a chilled bottle of Dom Perignon Champagne, which has been cooling in a nearby snowbank. I am thankfully spared from taking my last meal with Amtrak.
After that, it was over legendary Donner Pass, and then all downhill from the Sierras, across the Central Valley, and into the Sacramento River Delta.
Well, that’s all for now. We’ve just passed what was left of the Pacific mothball fleet moored near the Benicia Bridge (2,000 ships down to six in 80 years). The pressure increase caused by a 7,200-foot descent from Donner Pass has crushed my plastic water bottle. Nice science experiment!
The Golden Gate Bridge and the soaring spire of Salesforce Tower are just coming into view across San Francisco Bay.
A storm has blown through, leaving the air crystal clear and the bay as flat as glass. It is time for me to unplug my MacBook Pro, iPad, and iPhone, pick up my various adapters, and pack up.
We arrive in Emeryville 45 minutes early. With any luck, I can squeeze in a ten-mile night hike up Grizzly Peak tonight and still get home in time to watch the ball drop in New York’s Times Square on TV.
I reach the ridge just in time to catch a spectacular pastel sunset over the Pacific Ocean. The omens are there. It is going to be another good year.
I’ll shoot you a Trade Alert whenever I see a window open at a sweet spot on any of the dozens of trades described above, which should be soon.
Good luck and good trading in 2025!
John Thomas
The Mad Hedge Fund Trader
