Global Market Comments
September 9, 2024
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or SEPTEMBER LIVES UP TO ITS REPUTATION)
(COPX), (USO), (ARE), (UUP), (TLT), (JNK), (GLD), (SPY), (NASD), ($VIX)
Posts
One of my Concierge clients holds a weekly staff meeting. Each employee is told his family is being held hostage and can only be rescued if they recommend the top-performing stock for the coming week. Then everyone throws in their two cents worth.
Last week, for the first time in the company’s history, no one could come up with a single name, even if it meant sacrificing their family (nobody was really sacrificed).
That speaks volumes.
In fact, until last week, every asset class in the market was discounting an imminent recession: Commodities (COPX), energy (USO), real estate (ARE), and the US dollar (UUP). Reliable recession hideouts like bonds (TLT), fixed income (JNK), and gold (GLD) caught an endless bid. Only the stock market (SPY), (NASD) wasn’t reading from the same music sheet.
Well, stocks finally got the memo, delivering the worst week in 2 ½ years. Suddenly, the glass has gone from half full to half empty. Permabears have suddenly morphed from complete idiots to maybe having something to say. Here it is only September 9 and the Month from Hell is already living up to its awful reputation. Is the stock market the slow learner in the bunch?
I came back from Europe in August rested, refreshed, invigorated, and in a near state of panic. The last 11% rally in the (SPY) made absolutely no sense to me whatsoever. Either the September jobs data would come in hot, canceling the Fed’s expected interest rate cut. Or, the data would come in cold, proving that the Fed waited too long to cut rates and inviting a recession, causing stocks to tank.
It would have been one of the worst self-inflicted wounds and own goals of all time.
What was especially dangerous was that we were going into the worth trading month of the year, September, with the (SPY) showing a crystal-clear double top on the charts.
It was a perfect lose/lose situation.
Seasonals are important, especially this month. This is because most mutual funds run an annual year that ends on September 30. To window dress their books and those glossy marketing brochures, they sell all their losers (think energy) in September and use the cash to buy more of their winners in October. (NVDA) yes, (XOM) not so much. This creates a swing in the indexes every year of 10%-20%.
To learn more about the seasonals, read tomorrow’s letter in detail, IF YOU SELL IN MAY AND GO AWAY, WHAT TO DO IN SEPTEMBER?
So I did what I usually do when the market refuses to give me marching orders. I let all my positions expire with the August 16 options expiration, took back the cash, and then sat on my hands. Suddenly, a 100% cash position was looking like a stroke of genius. It cleared the cobwebs, moved the fog away from my eyes, and took the monkey off my back all in one fell swoop.
And you know what? After surveying my big hedge fund clients, I learned they were doing exactly the same thing.
Let me pass on another piece of interesting intel. All of the many algorithms the hedge fund industry follows are bunching up around two specific bottoms for the stock market in coming months: September 18, the Fed rate cut day, and October 22, two weeks before the presidential election.
With any luck, other classic “BUY” signals will kick in at the same time with the Mad Hedge Market Timing Index below 20 by then and the Volatility Index ($VIX) over $30. It could be the best entry point of the year.
What has been fascinating is how much money has been pouring into the interest rate plays I have been banging the table about for the last six months. When was the last time the stock market has been led by AT&T (T), Altria (MO), and Crown Castle International (CCI)? You might have to look behind the radiator to find some old, dusty research on these names.
So far in September, we are down by -1.21%. My 2024 year-to-date performance is at +33.49%. The S&P 500 (SPY) is up +13% so far in 2024. My trailing one-year return reached +51.89. That brings my 16-year total return to +710.12. My average annualized return has recovered to +51.63%.
I executed only one trade last week, covering a short in Tesla at cost. I am now maintaining a 100% cash position. I’ll text you next time I see a bargain in any market. Now there is none. There is no law dictating that you have to have a position every day of the year. Only your broker wants you to trade every day.
Some 63 of my 70 round trips, or 90%, were profitable in 2023. Some 47 of 66 trades have been profitable so far in 2024, and several of those losses were really break-even. That is a success rate of +72.24%.
Try beating that anywhere.
Nonfarm Payroll Report Fades at 142,000, but the Headline Unemployment Rate stays at 4.2%. More shocking is that the previous two months saw substantial downward revisions. The BLS cut July’s total by 25,000, while June fell to 118,000, a downward revision of 61,000. If the Fed doesn’t cut by 0.50% on September 18, the stock market will crash.
Broadcom Beats and Stock Tanks driven by strong sales of its AI products and VMware software. But management’s guidance for the current quarter disappointed investors, sending shares of the chipmaker down nearly 7% in the after-market. This is too harsh of a reaction to an otherwise solid print. Buy (AVGO) on dips.
ADP Employment Change Report Hits 3 ½-Year Low, up only 99,000 in August. Economists polled had forecast private employment would advance by 145,000 positions after a previously reported gain of 122,000.
Biden Blocks Nippon Steel Takeover of US Steel, no doubt to save the jobs these deals usually destroy. Good thing we got out of the (X) LEAPS a year ago at max profit. (X) dropped 20% on the news. Not a good time to concentrate on industry.
No Subpoenas Here Says NVIDIA, refuting rumors that it was the target of an antitrust action. Don’t believe everything you read on the internet.
The Yield Curve has De-Inverted, meaning that short-term interest rates have fallen below long-term ones. Two-year interest rates at 3.72% are now 0.03% lower than ten-year ones at 3.75%. It’s a clear signal to the Fed that rates must be cut soon.
Weekly Jobless Claims Drop 5,000 to 227,000. The weekly jobless claims report from the Labor Department on Thursday, the most timely data on the economy's health, also showed unemployment rolls shrinking to levels last seen in mid-June. It reduces the urgency for the Federal Reserve to deliver a 50-basis points interest rate cut this month.
US Oil Production Hits All-Time High. In August 2024, U.S. oil production hit a record 13.4 million barrels per day according to the U.S. Energy Information Administration. Big Oil has become more productive as horizontal drilling and hydraulic fracturing, which is also known as fracking, have seen technological breakthroughs. The fossil fuel industry benefits from tax incentives, such as the intangible drilling costs tax credit, that are built into the tax code. The intangible drilling costs tax break is expected to benefit oil and gas companies by $1.7 billion in 2025 and $9.7 billion through 2034
Crude Oil Now Down on the Year, after a precipitous weekend selloff. Blame a weak China, lost OPEC discipline, and overproduction by Iraq. The bearish Goldman Sachs commodities report was also a factor. Avoid the worst-performing asset class in the market.
Eli Lilly is now a trillion-dollar stock, the first Biotech to do so. The drug giant is riding the wave of Mounjaro and Zepbound, its blockbuster injectable GLP-1 medications for weight loss. The drugs are also used to treat diabetes and cardiovascular disease. Eli Lilly’s shares have soared 65% this year.
Goldman Goes Big on Gold. Central banks in emerging market countries are continuing to buy gold — with purchases tripling since the middle of 2022 amid fears of U.S. financial sanctions and a mountain of sovereign debt. Goldman is taking a more selective approach to commodity investing as soft demand in China weighs on crude oil and copper prices. The investment bank has slashed its Brent oil outlook by $5 to a range of $70 to $85 per barrel and delayed its copper target of $12,000 per metric ton until after 2025.
My Ten-Year View
When we come out the other side of the recession, we will be perfectly poised to launch into my new American Golden Age or the next Roaring Twenties. The economy decarbonizing and technology hyper accelerating, creating enormous investment opportunities. The Dow Average will rise by 600% to 240,000 or more in the coming decade. The new America will be far more efficient and profitable than the old.
Dow 240,000 here we come!
On Monday, September 9 at 3:00 PM EST, Consumer Inflation Expectations are out
On Tuesday, September 10 at 6:00 AM, the NFIB Business Optimism Index is released.
On Wednesday, September 11 at 7:30 AM, the Core CPI is printed.
On Thursday, September 12 at 8:30 AM, the Weekly Jobless Claims are announced. We also get the Producer Price Index.
On Friday, September 13 at 8:30 AM, the University of Michigan Consumer Sentiment. At 2:00 PM the Baker Hughes Rig Count is printed.
As for me, I was having lunch at the Paris France casino in Las Vegas at Mon Ami Gabi, one of the top ten-grossing restaurants in the United States. My usual waiter, Pierre from Bordeaux, took care of me with his typical ebullient way, graciously letting me practice my rusty French.
As I finished an excellent, but calorie packed breakfast (eggs Benedict, caramelized bacon, hash browns, and a café au lait), I noticed an elderly couple sitting at the table next to me. Easily in their 80s, they were dressed to the nines and out on the town.
I told them I wanted to be like them when I grew up.
Then I asked when they first went to Paris, expecting a date sometime after WWII. The gentleman responded, “Seven years ago.”
And what brought them to France?
“My father is buried there. He’s at the American Military Cemetery at Colleville-sur-Mer along with 9,386 other Americans. He died on Omaha Beach on D-Day. I went for the D-Day 70th anniversary.” He also mentioned that he never met his dad, as he was killed in action weeks after he was born.
I reeled with the possibilities. First, I mentioned that I participated in the 40-year D-Day anniversary with my uncle, Medal of Honor winner Mitchell Paige, and met with President Ronald Reagan.
We joined the RAF fly-past in my own private plane and flew low over the invasion beaches at 200 feet, spotting the remaining bunkers and the rusted-out remains of the once floating pier. Pont du Hoc is a sight to behold from above, pockmarked with shell craters like the moon. When we landed at a nearby airport, I taxied over railroad tracks that were the launch site for the German V1 “buzzbomb” rockets.
D-Day was a close-run thing and was nearly lost. Only the determination of individual American soldiers saved the day. The US Navy helped too, bringing destroyers right to the shoreline to pummel the German defenses with their five-inch guns. Eventually, battleships working in concert with very lightweight Stinson L5 spotter planes made sure that anything the Germans brought to within 20 miles of the coast was destroyed.
Then the gentleman noticed the gold Marine Corps pin on my lapel and volunteered that he had been with the Third Marine Division in Vietnam. I replied that my father had been with the Third Marine Division during WWII at Bougainville and Guadalcanal and that I had been with the Third Marine Air Wing during Desert Storm.
I also informed him that I had led an expedition to Guadalcanal two years ago looking for some of the 400 Marines still missing in action. We found 30 dog tags and sent them to the Marine Historical Division at Quantico, Virginia for tracing. I proudly showed them my pictures.
When the stories came back it, turned out that many survivors were children now in their 80s who had never met their fathers because they were killed in action on Guadalcanal.
Small world.
I didn’t want to infringe any further on their fine morning out, so I excused myself. He said Semper Fi, the Marine Corps motto, thanked me for my service, and gave me a fist pump and a smile. I responded in kind and made my way home.
Oh and say “Hi” when you visit Mon Ami Gabi. Tell Pierre that John Thomas sent you and give him a big tip. It’s not easy for a Frenchman to cater to all these loud Americans.
Third Marine Air Wing
The D-Day Couple
The American Military Cemetery at Colleville-sur-Mer
Stay Healthy,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Global Market Comments
September 3, 2024
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD or THE HIDDEN AI IN YOUR LIFE),
(SPX), (NVDA), (CSCO), (LEN), (DHI), (KBH), (SMCI), (BRK/B), (META), (AAPL), (GOOGL), (TSLA), (JNK), (HYG), (FXA), (FXE), (FXB), (FXC), (EEM), (IWM)
It's great to be back in California, even just temporarily.
Driving down to visit a Concierge client, the weather is hot and dry, the scenery is spectacular. What were once endless hills of dry grass are now countless miles of vineyards. Boy, has the Golden State changed a lot since 1952.
The vines are heavy with grapes. I stopped by and picked a purple bunch to test out the fruit. The grapes were rich and sweet. It looks like 2024 is going to be a good vintage. No wonder there is a wine glut.
It's going to be a vintage year for Mad Hedge performance as well. We picked up a welcome +3.74% in the testing month of August, +33.61% so far in 2024, and +711.32% since inception.
The harder I work, the luckier I get.
Which raises the most important question of the day: Did September just happen in August? The price action we saw last month is certainly reminiscent of many recent faith-testing Septembers and Octobers.
If that is the case, then it could be off to the races from now. Except this time, it won’t be just a Magnificent Seven rally. It will be an everything rally as the bull broadens out to include all interest rate sectors, which is almost everything.
(SPX) 6,000 by yearend looks like a piece of cake.
The bottom line for all of this is that investors and the markets are still wildly underestimating the impact artificial intelligence will have on our futures, and therefore stock prices. Publishing the Mad Hedge AI Letter three times a week (click here for the link), I can see AI sneaking into every aspect of our lives without our knowledge.
I visited my doctor the other day and they asked for my Medicare card. I didn’t have it because there is no use for this US government ID in Europe from where I just returned. The receptionist said, “Don’t worry, may I have your phone please?” She went into my photos app, searched for “Medicare” and there it appeared instantly. Apple had surreptitiously installed an AI search function on my phone without even telling me.
Try it!
What we are witnessing is the greatest capital spending binge since WWII 83 years ago, when in three short years, the US produced 297,000 aircraft, 193,000 artillery pieces, 86,000 tanks, and two million army trucks. It also double-tracked all east-west rail lines and created from scratch four atomic bombs.
And you want to short that???
The indexes certainly have plenty of room to run. Since the 2020 pandemic bottom, virtually all money has gone into big tech and out of the rest of the market, generating net outflows out of equities and into bonds. What happens when you get net inflows into big tech AND the rest of the market? Markets go up a….lot.
Dow 240,000 here we come.
Now for the challenging chore of sector picking.
Bonds (TLT) are usually the first pick at the beginning of any interest rate-cutting cycle. However, this has been the best telegraphed interest rate cut in history so most of the juice has already been squeezed out of this one. The (TLT) has moved a prolific $18 off the $82 bottom with no interest rate cuts at all. So there might be $5 or $10 of upside left this year, but no more.
Derivative high-yield plays have much more to offer. Those would include junk bonds (JNK), (HYG), BB-rated loans (SLRN), and REITS like the Vornado Realty Trust (VOR), my favorite Crown Castle International (CCI), and Health Properties (DOC).
Utilities usually do well in falling interest rate cycles as they are such big borrowers. In this basket, you can throw NextEra Energy (NEE), Southern Company (SO), and Duke Energy (DUK).
Falling rates also reliably deliver a weak US dollar, so buy every foreign currency play out there (FXA), (FXE), (FXB), (FXC). Also, buy foreign stock markets like the (EEM).
And then there are always big borrowing small caps (IWM), poor performers for the last decade which can always use the life jackets of falling interest rates. Keep in mind that 40% of small caps are regional banks and another 40% are money losers.
And then there are the old reliables. Any of the Magnificent Seven will probably work if you can get them on any selloff like we had on August 5.
So far in August, we are up by +2.67%. My 2024 year-to-date performance is at +33.61%. The S&P 500 (SPY) is up +18.23% so far in 2024. My trailing one-year return reached +52.25. That brings my 16-year total return to +710.24. My average annualized return has recovered to +51.91%.
I executed no trades last week and am maintaining a 100% cash position. I’ll text you next time I see a bargain in any market. Now there are none. I am running one short in Tesla (TSLA).
Some 63 of my 70 round trips, or 90%, were profitable in 2023. Some 49 of 66 trades have been profitable so far in 2024, and several of those losses were really break-even. That is a success rate of +74.24%.
Try beating that anywhere.
NVIDIA Dives on Fabulous Earnings, one of the greatest “Buy the rumor, sell the news” moves of all time. The stock dropped to $25, or 17.85% off its all-time high. Production snags with its much-awaited Blackwell chips are to blame. The company’s quarterly met or beat analysts’ estimates on nearly every measure. But Nvidia investors have grown accustomed to blowout quarters, and the latest numbers didn’t qualify. Buy (NVDA) on this dip.
PCE Rises a Modest 02% in July. That is the so-called core personal consumption expenditures price index, which strips out volatile food and energy items, according to Bureau of Economic Analysis data out Friday. On a three-month annualized basis — a metric economists say paints a more accurate picture of the trajectory of inflation — it advanced 1.7%, the slowest this year
Pending Home Sales Drop 5%, and 8.5% YOY, on a signed contracts basis. Many buyers are waiting until after the presidential election to make a move. Pending home sales fell in all four regions last month. The positive impact of job growth and higher inventory could not overcome affordability challenges and some degree of wait-and-see related to the upcoming U.S. presidential election.
Sales of new U.S. single-family homes rocketed by 10.6%, their highest level in more than a year in July. A drop in mortgage rates boosted demand, offering more evidence that the housing market is recovering. Sales reached a seasonally adjusted annual rate of 739,000 units last month, the highest level since May 2023. It was also the sharpest increase in sales since August 2022. New home sales are counted at the signing of a contract. Buy homebuilders on dips (LEN), (DHI), (KBH).
US GDP Reaccelerates to 3.0% Growth in Q2, up from the previous estimate of 2.8%, according to the Bureau of Economic Analysis. Stronger consumer spending more than offset other categories. Can’t beat the USA.
Weekly Jobless Claims Remain Unchanged at 231,000, down 2,000. After being inflated by weather and seasonal factors in July, initial jobless claims in August are stabilizing at a slightly lower level, another indication that layoffs remain low.
Is Costco (CSCO) the Next Stock Split? Costco, which has risen nearly 40% since the start of 2024, is a potential candidate. Given the company’s share price—over $900 as of Tuesday—and the trend among other retailers with similarly high prices to split.
Hindenburg Research Attacks Super Micro, alleging "accounting manipulation" at the AI server maker, the latest by the short seller whose reports have rocked several high-profile companies. Close ties with chip giant Nvidia have allowed Super Micro, known for its liquid cooling technology for high-power semiconductors, to capitalize on the surge in demand for AI servers.
Though revenue has surged, margins have taken a hit recently due to the rising costs of server production and pricing pressure from rivals including Dell. Avoid (SMCI).
Berkshire Hathaway Tops $1 Trillion Market Cap, a long-time Mad Hedge recommendation. It’s the first nontech company ever to do so, even though (BRK/B) has a major holding in Apple (AAPL). Keep buying the big dips. The stock has rallied this year on strong insurance results and economic optimism. The Omaha, Nebraska-based company joins the ranks of a small group to crack the milestone, dominated by technology giants like Alphabet Inc. (GOOGL), Meta Platforms Inc. (META) and Nvidia Corp. (NVDA).
S&P Case Shiller Hits New All-Time High in June. Prices nationally rose 5.4% in June from the year prior. An index measuring prices in 20 of the nation’s large metropolitan areas gained 6.5% from the year prior. On an unadjusted basis, it was the national index’s fourth consecutive all-time high. Prices in New York, San Diego, and Las Vegas grew the most, with year-over-year gains ranging from 8.5% and 9%, while those in Portland, Ore., Denver, Colo., and Minneapolis grew the least.
Canada Imposes 100% Tariff on Chinese EVs. The problem for Tesla is that they had been supplying the Canadian market from their China factory. The supply can be replaced with US-made cars but at a much higher cost. Tesla sold off $8 on the news. Sell rallies in (TSLA).
Is the US Tipping into Recession? A continued drop in job openings will translate into faster increases in unemployment, an argument in favor of the Fed beginning to cut interest rates to guard the labor market. The next jobs reports could be crucial. Policymakers face the dilemma of two risks: being too slow to ease policy, potentially causing a 'hard landing' with high unemployment ... or cutting rates prematurely, leaving the economy vulnerable to rising inflation
Yield Chasers Post Record Demand for Junk Bonds. That’s helped make 2024 the busiest year for the issuance of new corporate high-yield bonds, with $357 billion sold so far, since the easy money days during the pandemic. Issuance of US leveraged loans, meanwhile, is running at its fastest pace on record. Buy (JNK) and (HYG).
My Ten-Year View
When we come out the other side of the recession, we will be perfectly poised to launch into my new American Golden Age or the next Roaring Twenties. The economy decarbonizing and technology hyper accelerating, creating enormous investment opportunities. The Dow Average will rise by 600% to 240,000 or more in the coming decade. The new America will be far more efficient and profitable than the old.
Dow 240,000 here we come!
On Monday, September 2 we have Labor Day. All US markets will be closed.
On Tuesday, September 3 at 6:00 AM EST, the ISM Manufacturing PMI is released.
On Wednesday, September 4 at 7:30 PM, the JOLTS Job Openings Report is printed.
On Thursday, September 5 at 8:30 AM, the Weekly Jobless Claims are announced. We also get the ADP Employment Report.
On Friday, September 6 at 8:30 AM, the August Nonfarm Payroll Report is released. At 2:00 PM, the Baker Hughes Rig Count is printed.
As for me, having visited and lived in Lake Tahoe for most of my life, I thought I’d pass on a few stories from this historic and beautiful place.
The lake didn’t get its name until 1949 when the Washoe Indian name was bastardized to come up with “Tahoe”. Before that, it was called the much less romantic Lake Bigler after the first governor of California.
A young Mark Twain walked here in 1863 from nearby Virginia City where he was writing for the Territorial Enterprise about the silver boom. He described boats as “floating in the air” as the water clarity at 100 feet made them appear to be levitating. Today, clarity is at 50 feet, but it should go back to 100 feet when cars go all-electric.
One of the great engineering feats of the 19th century was the construction of the Transcontinental Railroad. Some 10,000 Chinese workers used black powder to blast a one-mile-long tunnel through solid granite. They tried nitroglycerine for a few months but so many died in accidents they went back to powder.
The Union Pacific moved the line a mile south in the 1950s to make a shorter route. The old tunnel is still there, and you can drive through it at any time if you know the secret entrance. The roof is still covered with soot from woodfired steam engines. At midpoint, you find a shaft to the surface where workers were hung from their ankles with ropes to place charges so they could work on four faces at once.
By the late 19th century, every tree around the lake had been cut down for shoring at the silver mines. Look at photos from the time and the mountains are completely barren. That is except for the southwest corner, which was privately owned by Lucky Baldwin who won the land in a card game. The 300-year-old growth pine trees are still there.
During the 20th century, the entire East Shore was owned by one man, George Whittell Jr., son of one of the original silver barons. A man of eclectic tastes, he owned a Boing 247 private aircraft, a custom mahogany boat powered by two Alison aircraft engines, and kept lions in heated cages.
Thanks to a few well-placed campaign donations, he obtained prison labor from the State of Nevada to build a palatial granite waterfront mansion called Thunderbird, which you can still visit today (click here ). During Prohibition, female “guests” from California crossed the lake and entered the home through a secret tunnel.
When Whittell died in 1969, a Mad Hedge Concierge Client bought the entire East Shore from the estate on behalf of the Fred Harvey Company and then traded it for a huge chunk of land in Arizona. Today the East Shore is a Nevada State Park, including the majestic Sand Harbor, the finest beach in the High Sierras.
When a Hollywood scriptwriter took a Tahoe vacation in the early 1960s, he so fell in love with the place that he wrote Bonanza, the top TV show of the decade (in front of Hogan’s Heroes). He created the fictional Ponderosa Ranch, which tourists from Europe come to look for in Incline Village today.
In 1943, a Pan Am pilot named Wayne Poulson who had a love of skiing bought Squaw Valley for $35,000. This was back when it took two days to drive from San Francisco. Wayne flew the China Clippers to Asia in the famed Sikorski flying boats, the first commercial planes to cross the Pacific Ocean. He spent time between flights at a ranch house he built right in the middle of the valley.
His wife Sandy bought baskets from the Washoe Indians who still lived on the land to keep them from starving during the Great Depression. The Poulson’s had eight children and today, each has a street named after them at Squaw.
Not much happened until the late forties when a New York Investor group led by Alex Cushing started building lifts. Through some miracle, and with backing from the Rockefeller family, Cushing won the competition to host the 1960 Winter Olympics, beating out the legendary Innsbruck, Austria, and St. Moritz, Switzerland.
He quickly got the State of California to build Interstate 80, which shortened the trip to Tahoe to only three hours. He also got the state to pass a liability limit for ski accidents to only $2,000, something I learned when my kids plowed into someone, and the money really poured in.
Attending the 1960 Olympic opening ceremony is still one of my fondest childhood memories, produced by Walt Disney, who owned the nearby Sugar Bowl ski resort.
While the Cushing group had bought the rights to the mountains, Poulson owned the valley floor, and he made a fortune as a vacation home developer. The inevitable disputes arose and the two quit talking in the 1980’s.
I used to run into a crusty old Cushing at High Camp now and then and I milked him for local history in exchange for stock tips and a few stiff drinks. Cushing died in 2003 at 92 (click here for the obituary)
I first came to Lake Tahoe in the 1950s with my grandfather who had two horses, a mule, and a Winchester. He was one-quarter Cherokee Indian and knew everything there was to know about the outdoors. Although I am only one-sixteenth Cherokee with some Delaware and Sioux mixed in, I got the full Indian dose. Thanks to him I can live off the land when I need to. Even today, we invite the family medicine man to important events, like births, weddings, and funerals.
We camped on the beach at Incline Beach before the town was built and the Weyerhaeuser lumber mill was still operating. We caught our limit of trout every day, ten back in those days, ate some, and put the rest on ice. It was paradise.
During the late 1990’s when I built a home in Squaw Valley I frequently flew with Glen Poulson, who owned a vintage 1947 Cessna 150 tailwheel, looking for untouched high-country lakes to fish. He said his mother had been lonely since her husband died in 1995 and asked me to have tea with her and tell her some stories.
Sandy told me that in the seventies she asked her kids to clean out the barn and they tossed hundreds of old Washoe baskets. Today Washoe baskets are very rare, highly sought after by wealthy collectors, and sell for $50,000 to $100,000 at auction. “If I had only known,” she sighed. Sandy passed away in 2006 and the remaining 30-acre ranch was sold for $15 million.
To stay in shape, I used to pack up my skis and boots and snowshoe up the 2,000 feet from the Squaw Valley parking lot to High Camp, then ski down. On the way up I provided first aid to injured skiers and made regular calls to the ski patrol.
After doing this for many winters, I finally got busted when they realized I didn’t have a ski pass. It turns out that when you buy a lift ticket you are agreeing to a liability release which they absolutely had to have. I was banned from the mountain.
Today Squaw Valley is owned by the Colorado-based Altera Mountain Company, which along with Vail Resorts owns most of the ski resorts in North America. The concentration has been relentless. Last year Squaw Valley’s name was changed to the Palisades Resort for the sake of political correctness. Last weekend, a gondola connected it with Alpine Meadows next door, creating the largest ski area in the US.
Today there are no Washoe Indians left on the lake. The nearest reservation is 25 miles away in the desert in Gardnerville, NV. They sold or traded away their land for pennies on the current value.
Living at Tahoe has been great, and I get up here whenever I can. I am now one of the few surviving original mountain men and volunteer for North Tahoe Search & Rescue.
On Donner Day, every October 1, I volunteer as a docent to guide visitors up the original trail over Donner Pass. Some 175 years later the oldest trees still bear the scars of being scrapped by passing covered wagon wheels, my own ancestors among them. There is also a wealth of ancient petroglyphs, as the pass was a major meeting place between Indian tribes in ancient times.
The good news is that residents aged 70 or more get free season ski passes at Diamond Peak, where I sponsored the ski team for several years. My will specifies that my ashes be placed in the Middle of Lake Tahoe. At least I’ll be recycled. I’ll be joining my younger brother who was an early Covid-19 victim and whose ashes we placed there in 2020.
Stay Healthy,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
The Ponderosa Ranch
The Poulson Ranch
At the Reno Airport
Donner Pass Petroglyphs
Global Market Comments
July 15, 2024
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or SEA CHANGE), (BB RATED BANKS LOANS), and (RESCUING THE USS POTOMAC),
(TLT), (JNK), (SLRN), (BRLN), (BKLN), (FFRHX), (WES), (CCI), (GLD), (DE), (BRK/B), (TSLA), (NVDA).
I believe there was a major sea change in the markets last week, which has taken the economy from inflation to deflation. All asset classes performed as they should, with some extreme moves. It is now time to focus on the 493 of the S&P 500 and let the Magnificent Seven take a long-needed rest.
Not only does this pave the way for a Fed interest rate cut in September, but several more to follow. This opens the floodgates for the (TLT) to rise above $100 by yearend, and maybe even to $110. Remember the old high for bonds is $166. Higher beta fixed-income plays will rise much more.
Stocks will keep rising but with different leadership from dozens of interest-sensitive sectors, including real estate, their suppliers, industrials, precious metals, financials, energy, and outright value plays long left in the doghouse. If you can’t grasp these new trends, your portfolio will be out to sea shortly. An S&P 500 of 6,000 looks like a pretty safe bet by yearend.
That brings to the fore investment in fixed-income securities. There are two ways to make money on a fixed income. Coupon interest rates are still at historically high levels. And as rates fall, fixed-income prices rise, opening the door to capital gains, which could reach 10%-20% in the coming year.
The fixed-income market at $100 trillion is double the size of the stock market. And there are many more bond listings than stock ones. So the number of possible investments is almost endless. I shall give you a brief overview of some of the more interesting subsectors.
US Government bonds – are the gold standard with a guaranteed return. But you pay for the extra security with lower rates; the current ten-year US Treasury bond yield is 4.20%, much lower than the present 90-day T-bill of 5.21%. The easiest way to buy these is through the (TLT). The 30-year government bond should be avoided as the extra 0.14% in yield doesn’t adequately compensate you for the extra 20 years of risk
Junk Bonds – Also known as “high yield” bonds have always been misnamed. The default rates never remotely approached the levels that justified their high yields, not even during the financial crisis, as my old friend former junk bond king Michael Milliken has amply proven. The (JNK) is currently yielding 6.59% and has the potential for larger capital gains than government bonds.
Master Limited Partnerships – These are partnerships granted generous tax benefits with the goal of producing oil. They issue annual Form K-1’s to include with your tax return. Dividends are deferred until the MLP’s investment reaches the end of its useful life, which can be decades. MLPs used to be a huge industry with dozens of listed companies.
When the price of oil went to negative numbers during the pandemic, most of them got wiped out. Because of this rocky past, there are a handful of large, well-capitalized MLPs with extremely high yields. One is Western Midstream Partners (WES) with a 9.20% yield. Energy Transfer Partners (ET) pay a 7.96% yield.
These yields will remain safe as long as oil prices are stable or rising, as I expect in a long-term global economic recovery. Take oil back to zero again in another pandemic and these returns will get turned on their head.
With the normalizing of interest rates, it's time to normalize investment strategies as well. That means bringing back the old 60/40 strategy where one half of the portfolio ensures the other, with a modern twist. You can put 60% of your assets in stocks, with half on technology and half on domestic cyclicals.
The other 40% should be allocated to some mix of the above fixed-income investments guaranteeing annual high returns. It is not a bad strategy for mature investors, especially if they would rather be on a golf course instead of spending all day in front of a screen picking bottoms and tops for stocks, like Millennials.
Here’s where to get a Safe 8.48% Yield, BB-rated bank loans, which will soar in value with even just one quarter-point rate cut. BB bank loans are very low risk, and they have a spread that’s about 290 basis points above the overnight Fed rate. How does one buy such an animal? The actual bank loans themselves are made by lending institutions to companies. These loans aren’t made accessible to individual investors who want to make a play for yield. Rather, large institutional investors snap them up and add them to their fixed-income portfolios. The top ticker symbols are (SLRN), (BRLN), (BKLN), and (FFRHX). Check them out.
So far in July, we are up +2.17%. My 2024 year-to-date performance is at +22.19%. The S&P 500 (SPY) is up +17.40% so far in 2024. My trailing one-year return reached +37.07.
That brings my 16-year total return to +698.82%. My average annualized return has recovered to +51.44%.
I used the blockbuster CPI Report last week to jump off my 100% cash position and piled on six new positions. Those included interest rate-sensitive longs in (CCI), (GLD), (DE), (BRK/B), and shorts in big tech leaders (TSLA) and (NVDA).
Some 63 of my 70 round trips were profitable in 2023. Some 35 of 44 trades have been profitable so far in 2024, and several of those losses were really break-even.
Nonfarm Payroll Report Comes in Weak for June at 206,000. The Headline Unemployment rate rose to a three-year high at 4.1%. All interest rate plays rocketed as a September interest rate comes back on the table. If the Fed doesn’t cut soon, we are going into recession. Buy (TLT) on dips.
Fed Governor Jay Powell Warns of Recession Risks if interest rate cuts don’t take place soon, spiking all markets. Powell is showing his cards for the next few Fed Meetings. Buy all interest rates plays like (TLT), (JNK), (NLY), and (CCI).
CPI comes in Negative. The writing is not only on the wall right now, it’s blasting us with great neon lights. That was the message this morning from the Consumer Price Index, which this morning delivered a gob-smacking 0.1% DECLINE in June. We are now in deflation and the YOY inflation rate is now down to only 3.0%. As a result, a Fed interest rate cut of 25 basis points is now a certainty in September and more will follow. All falling interest rate plays in the stock market are in play. Rising rate plays could be the trade for the rest of 2024.
PPI Rises 0.2%, with Wholesale Prices coming in as expected. The producer price index is now up 2.6% year over year. The inflation pictures goes back to mixed. Stocks rallied with big tech recovering about half of yesterday’s losses.
Consumer Sentiment at a Three-Year Low at 66.0%, down from 68.5 as the economic slide continues, according to the University of Michigan. It’s another pre-recession indicator.
Bank Earnings Beat and the stocks are rising in expectation of falling interest rates, with (JPM), (BAC), and (C) reporting. Wells Fargo (WFC) Bombed again. Buy banks on dips which have been on a tear all day.
Tesla Delays Robotaxi Day, past its original August 8 target to probably October, tanking the shares by 11%. The date propelled the massive 50% rally in the hares over the past month. Musk is always overly aggressive on his targets. Sell calls against existing (TSLA) stock positions.
Apple Expects 10% Rise in iPhone Shipments in 2024, after a bumpy 2023, counting on AI features to fuel demand for the iPhone 16. Apple is now the newly discovered AI stock. Buy (AAPL) on dips.
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, July 15 at 9:30 AM EST, Feder Governor Jay Powell speaks. He has lately been leaning dovish.
On Tuesday, July 16 at 9:30 AM, Retail Sales are published.
On Wednesday, July 17 at 9:30 AM, Building Permits are out.
On Thursday, July 18 at 8:30 AM, the Weekly Jobless Claims are announced.
On Friday, July 19 at 2:00 PM, the Baker Hughes Rig Count is printed.
As for me, I usually get a request to fund some charity about once a day. I ignore them because they usually enrich the fundraisers more than the potential beneficiaries. But one request seemed to hit all my soft spots at once.
Would I be interested in financing the refit of the USS Potomac (AG-25), Franklin Delano Roosevelt’s presidential yacht?
I had just sold my oil and gas business for an outrageous profit and had some free time on my hands so I said, “Hell Yes,” but only if I get to drive. The trick was to raise the necessary $5 million without it costing me any money.
To say that the Potomac had fallen on hard times was an understatement.
When Roosevelt entered the White House in 1932, he inherited the presidential yacht of Herbert Hoover, the USS Sequoia. But the Sequoia was entirely made of wood, which Roosevelt had a lifelong fear of. When he was a young child, he nearly perished when a wooden ship caught fire and sank, he was passed to a lifeboat by a devoted nanny.
Roosevelt settled on the 165-foot USS Electra, launched from the Manitowoc Shipyard in Wisconsin, whose lines he greatly admired. The government had ordered 34 of these cutters to fight rum runners across the Great Lakes during Prohibition. Deliveries began just as the ban on alcohol ended.
Some $60,000 was poured into the ship to bring it up to presidential standards and it was made wheelchair accessible with an elevator, which FDR operated himself with ropes. The ship became the “floating White House,” and numerous political deals were hammered out on its decks. Some noted guests included King George VI of England, Queen Elizabeth, and Winston Churchill.
During WWII Roosevelt hosted his weekly “fireside chats” on the ship’s short-wave radio. The concern was that the Germans would attempt to block transmissions if the broadcast came from the White House.
After Roosevelt’s death, the Potomac was decommissioned and sold off by Harry Truman, who favored the much more substantial 243-foot USS Williamsburg. The Potomac became a Dept of Fisheries enforcement boat until 1960 and then was used as a ferry to Puerto Rico until 1962.
An attempt was made to sail it through the Panama Canal to the 1962 World’s Fair in Seattle, but it broke down on the way in Long Beach, CA. In 1964 Elvis Presley bought the Potomac so it could be auctioned off to raise money for St. Jude Children’s Research Hospital. It sold for $65,000. It then disappeared from maritime registration in 1970. At one point, there was an attempt to turn it into a floating disco.
In 1980, a US Coast Guard cutter spotted a suspicious radar return 20 miles off the coast of San Francisco. It turned out to be the Potomac loaded to the gunnels with bales of illicit marijuana from Mexico. The Coast Guard seized the ship and towed it to the Treasure Island naval base under the Bay Bridge. By now, the 50-year-old ship was leaking badly. The marijuana bales soaked up the seawater and the ship became so heavy it sank at its moorings.
Then a long rescue effort began. Not wanting to get blamed for the sinking of a presidential yacht on its watch, the Navy raised the Potomac at its own expense, about $10 million, putting its heavy lift crane to use. It was then sold to the City of Oakland, CA for a paltry $15,000.
The troubled ship was placed on a barge and floated upriver to Stockton, CA, which had a large but underutilized unionized maritime repair business. The government subsidies started raining down from the skies and a down to the rivets restoration began. Two rebuilt WWII tugboat engines replaced the old, exhausted ones. A nationwide search was launched to recover artifacts from FDR’s time on the ship. The Potomac returned to the seas in 1993.
I came on the scene in 2007 when the ship was due for a second refit. The foundation that now owned the ship needed $5 million. So, I did a deal with National Public Radio for free advertising in exchange for a few hundred dinner cruise tickets. NPR then held a contest to auction off tickets and kept the cash (what was the name of FDR’s dog? Fala!).
I also negotiated landing rights at the Pier One San Francisco Ferry Terminal, which involved negotiating with a half dozen unions, unheard of in San Francisco maritime circles. Every cruise sold out over two years, selling 2,500 tickets. To keep everyone well-lubricated, I became the largest Bay Area buyer of wine for those years. I still have a free T-shirt from every winery in Napa Valley.
It turned out to be the most successful fundraiser in the history of NPR and the Potomac. We easily got the $5 million and then some. The ship received a new coat of white paint, new rigging, modern navigation gear, and more period artifacts. I obtained my captain’s license and learned how to command a former Coast Guard cutter.
It was a win-win-win.
I was trained by a retired US Navy nuclear submarine commander, who was a real expert at navigating a now thin-hulled 73-year-old ship in San Francisco’s crowded bay waters. We were only licensed to cruise up to the Golden Gate Bridge and not beyond, as the ship was so old.
The inaugural cruise was the social event of the year in San Francisco with everyone wearing period Depression-era dress. It was attended by FDR’s grandson, James Roosevelt III, a Bay area attorney who was a dead ringer for his grandfather. I mercilessly grilled him for unpublished historical anecdotes. A handful of still-living Roosevelt cabinet members also came, as well as many WWII veterans.
As we approached the Golden Gate Bridge, some poor soul jumped off and the Coast Guard asked us to perform search and rescue until they could get a ship on station. Nobody was ever found. It certainly made for an eventful first cruise.
Of the original 34 cutters constructed, only four remain. The other three make up the Circle Line tour boats that sail around Manhattan several times a day.
Last summer, I boarded the Potomac for the first time in 14 years for a pleasant afternoon cruise with some guests from Australia. Some of the older crew recognized me and saluted. In the cabin, I noticed a brass urn oddly out of place. It contained the ashes of the sub-commander who had trained me all those years ago.
Good Luck and Good Trading,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Captain Thomas at the Helm
Global Market Comments
May 20, 2024
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or DOW 40,000 AND HANGING WITH THE AMAZON HEADHUNTERS)
(TLT), (JNK), (WES), (ET), (GLD), (SLV), (MSFT),
(NVDA), (AAPL), (SPY), (FXI), (COPX), (FCX)
When I entered the stock market in 1982 when the Dow was at 600 and you told me the Average would reach 40,000 in 42 years, I would have thought you delusional, out of your mind, and stark raving mad.
Yet, here it is 2024 and here we are, with the index up an eye-popping 66.6 times. The good news is that we are now only one triple away from reaching my long-term target of 120,000. Never underestimate the power of compounding, which my friend Warren Buffet describes as a snowball.
You can’t help but be impressed with the performance of precious metals over the last two weeks, up 6.50% for (GLD) and a ballistic 20% for (SLV). Metals producers are unable to rush supplies to the market fast enough to cover their shorts in the futures market, creating a massive short squeeze.
Long may it continue.
The moves validate my own forecasts for the barbarous relic to hit $3,000 and the white metal to reach $50 sometime in 2025.
One cannot underestimate the power of the weakening economic data over the last fortnight. As a result, we have gone from “Higher for longer” to “Lower sooner”, with huge consequences for all asset classes.
That brings to the fore investment in fixed-income securities. There are two ways to make money on a fixed income. Coupon interest rates are still at historically high levels. And as rates fall, fixed-income prices rise, opening the door to capital gains, which could reach 10%-20% in the coming year.
The fixed-income market, at $100 trillion is double the size of the stock market. And there are many more bond listings than stock ones. So the number of possible investments is almost endless. I shall give you a brief overview of some of the more interesting subsectors.
US Government bonds – are the gold standard with a guaranteed return. But you pay for the extra security with lower rates; the current ten-year US Treasury bond yield is 4.42%, much lower than the present 90-day T-bill of 5.25%. The easiest way to buy these is through the (TLT). The 30-year government bond should be avoided as the extra 0.14% in yield doesn’t adequately compensate you for the extra 20 years of risk
Junk Bonds – Also known as “high yield” bonds have always been misnamed. The default rates never remotely approached the levels that justified their high yields, not even during the financial crisis, as my old friend former junk bond king Michael Milliken has amply proven. The (JNK) is currently yielding 6.59% and has the potential for larger capital gains than government bonds.
Master Limited Partnerships – These are partnerships granted generous tax benefits with the goal of producing oil. They issue annual Form K-1’s to include with your tax return. Dividends are deferred until the MLP’s investment reaches the end of its useful lives, which can be decades. MLP’s used to be a huge industry with dozens of listed companies.
When the price of oil went to negative numbers during the pandemic, most of them got wiped out. Because of this rocky past, there are a handful of large, well-capitalized MLP’s that with extremely high yields. One is Western Midstream Partners (WES) with a 9.20% yield. Energy Transfer Partners (ET) pay a 7.96% yield.
These yields will remain safe as long as oil prices are stable or rising, as I expect in a long-term global economic recovery. Take oil back to zero again in another pandemic and these returns will get turned on their head.
With the normalizing of interest rates, it's time to normalize investment strategies as well. That means bringing back the old 60/40 strategy where one half of the portfolio ensures the other, with a modern twist. You can put 60% of your assets in stocks, with half on technology and half on domestic cyclicals.
The other 40% should be allocated to some mix of the above fixed-income investments guaranteeing annual high returns. In not a bad strategy for mature investors, especially if they would rather be on a golf course instead of spending all day in front of a screen picking bottoms and tops for stocks, like Millennials.
So far in May, we are up +3.01%. My 2024 year-to-date performance is at +17.62%. The S&P 500 (SPY) is up +10.90% so far in 2024. My trailing one-year return reached +32.80% versus +29.02% for the S&P 500.
That brings my 16-year total return to +694.56%. My average annualized return has recovered to +51.77%.
As the market reaches higher and higher, I continue to pare back risk in my portfolio. I let my (GLD) and (SLV) positions expire at max profit. I did the same with my (MSFT) short. I sold my (NVDA) and (TLT) shorts for a nice profit. That leaves me with just two positions, a long in (SLV), which has gone ballistic, and a short in (AAPL).
Some 63 of my 70 round trips were profitable in 2023. Some 27 of 37 trades have been profitable so far in 2024.
The Bull Market has Five More Years to Run, with S&P 500 (SPY) growing earnings at 10% a year for the foreseeable future. Last year brought in $222 per share, 2024 will see $250, 2025 $270, and $300 for 2026. The Great American Golden Age has only just begun. Profit margins will expand to all-time record highs. Falling rates and a weak dollar will boost exports to a recovering Europe and Japan. Inflation should hit the Fed’s 2% in 2025 as AI chatbots replace workers at a breakneck rate, cutting costs dramatically. The future is happening fast. Buy everything on dips, even bonds.
CPI Comes in Cool, in April at 0.3% versus 0.4% expected, taking stocks to new all-time highs. Inflation resumed its downward trend at the start of the second quarter in a boost to financial market expectations for a September interest rate cut. Buy em!
PPI Comes in Hot at 0.5%, and up 2.2% YOY, putting up another potential roadblock to interest rate cuts anytime soon. The PPI is a gauge of prices received at the wholesale level that came in higher than the 0.3% estimate. Higher for longer rules. The last mile, or the last 1$ drop in inflation is always the hardest and usually requires a recession. Higher for longer rules.
Retail Sales Come in Surprisingly Flat in April, setting up a Goldilocks economy for the Fed to cut rates in September. The unchanged reading in retail sales last month followed a slightly downwardly revised 0.6% increase in March, the Commerce Department's Census Bureau said on Wednesday. Retail sales were previously reported to have risen 0.7% in March.
Biden to Increase China Tariffs (FXI) to 100%, on key sectors including electric vehicles, batteries, solar cells, steel, and aluminum. Biden has previously announced the steel and aluminum tariffs, which will increase to 25% on some products that have a 7.5% rate or no tariffs now. The EV rate aims to protect the US from a potential flood of Chinese autos that could upend the politically sensitive auto sector. The total tariff on Chinese electric vehicles will rise to 102.5% from 27.5. Biden’s union support is clear for all to see.
Copper Hits Record Highs, as hedge funds, trend followers, bearish shorts, and Chinese speculators pile in. New York prices hit $5 a pound, while London reached $11,000 per metric tonne. The price action is similar to other commodities with disrupted supplies like Cocoa and Nickel. The runaway market will continue. Buy (FCX) and (COPX) on dips.
As the Dow Tops 40,000, investors are pouring money into both bonds and stocks, according to the Bank of America. Equity funds saw $11.9 billion in inflows, while bond funds drew in $11.7 billion. Within fixed income, Treasury inflation-protected securities (TIPS) saw outflows of $700 million, the most in nine weeks. Keep buying those dips.
Weekly Jobless Claims Drop 10,000, to 222,000, after seasonal factors caused a significant increase in New York claims in the prior week. The four-week moving average, which helps smooth short-term fluctuations in weekly claims figures, increased to 217,750, the highest level since November.
Solar Storm Hits Starlink, taking out several hundred satellites and degrading service, says Elon Musk. Starlink, the satellite arm of Elon Musk's SpaceX, is suffering as the Earth is battered by the biggest geomagnetic storm due to solar activity in two decades. Starlink owns around 60% of the roughly 7,500 satellites orbiting Earth and is a dominant player in satellite internet. The U.S. National Oceanic and Atmospheric Administration has said the storm is the biggest since October 2003 and is likely to persist over the weekend, posing risks to navigation systems, power grids, and satellite navigation.
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, May 20, nothing of note takes place.
On Tuesday, May 21 at 1:30 PM EST, API Crude Oil Stocks are released.
On Wednesday, May 22 at 2:00 PM, the Existing Homes Sales are published
On Thursday, May 23 at 7:00 AM, we get New Home Sales. And at 8:30 AM, the Weekly Jobless Claims are announced.
On Friday, May 24 at 8:30 AM, the Durable Goods Report is announced. At 2:00 PM, the Baker Hughes Rig Count is printed.
As for me, when I crossed the Continental Divide at 13,300 in the Andes Mountains of Ecuador last week, the vast expanse of the Amazon Basin lay before me. Clouds danced in and out of the treetops, waterfalls plunged down precipitous slopes, and the jungle spread out for 2,000 miles east. I was somewhat buzzed by the altitude but still enjoyed every minute.
My destination was the Termos Papallacta spa on the slopes of an ancient volcano which offered steaming hot sulfuric waters and a brisk massage for $50. Colorful exotic flowers abounded. This is where the wealthy of Quito come to salve arthritis and aches and pains in magical waters.
How do you get wealthy in Ecuador? Bananas, tourism, real estate speculation, and flower exports to the US. Given my experience with Japanese onsens, I had no problem with their ultra-hot waters.
This is the land of the Jivaro Clan, the world’s last known headhunters. Their final victim was a National Geographic Society explorer in 1961. Recently, his grandson traveled to Ecuador to retrieve the head and return it to the US for a respectful burial, all to great fanfare in the local press. The Jivaro still shrinks heads, but only of animals which they sell to tourists just to keep the practice alive.
Ecuador is the great test bed for monetary experts around the world. In 1999, they suffered a financial crisis where the value of their currency, the Sucre, collapsed to 25,000 to the dollar. The central bank responded by changing the national currency to the US dollar and only permitting conversion from the old currency at $2 per person.
The move had several unintended consequences. The savings of everyone in the country were wiped out overnight. But it also eliminated their debt. Those with relatives sending back remittances from the US suddenly became wealthy and bought up all the real estate they could. In the end, it created an economic boom that continues to today.
Today, Ecuador is one of the friendliest, and cheapest countries in South America. It elected Daniel Noboa as president in 2023, the scion of a banana fortune, who has been hugely popular. The government cracked down on the drug gangs, arresting everyone with a suspect tattoo. Today the police and army are everywhere, and the streets are safe. There are armed checkpoints at key intersections. The ownership of firearms and even long knives has been banned.
The country has no seasons, sitting right on the Equator, and is temperate all year long. Even at 13,300 feet, there is no snow. I had no problem with the food, but then I had a cast iron stomach battle-tested in 135 countries. Not even the locals drink the tap water, which is only used for washing. It has to be all bottled water all the time or you die and you often see people lugging around one-gallon bottles.
Retiring Americans have noticed and some 20,000 now live in the country on their Social Security checks at one-third the cost of home. They concentrate on cultural hot spots, like the ancient city of Cuenca, where the local hospitals speak English, are experts in gerontology, and accept Medicare. You can buy a nice home in a mountain urban area for $250,000 and beachfront digs for $500,000. The Marriot Hotel in Quito cost me $160 a night and a steak dinner was $19 and to die for.
You can’t go to Quito without visiting the Equator for which the country was named, a tourist mecca where everyone gets pictures straddling the northern and southern hemispheres. The country has two summer solstices a year, one in the spring and one in the fall, as the sun transits from north to south, then south to north.
I passed on the shrunken head, which I thought grotesque, and got the T-shirt instead. Besides, US Customs might have questions (Do you have any shrunken heads to declare?). I think I’ll be returning to Ecuador soon.
Descending into the Amazon
Jivaro Indian
Shopping for Breakfast
A Slow Day at the Flower Market
A Smoothie for Lunch
Standing on the Equator, One Foot in Each Hemisphere
Good Luck and Good Trading,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Global Market Comments
May 9, 2024
Fiat Lux
Featured Trade:
(DECODING THE GREENBACK),
(BRING BACK THE OLD ASSET ALLOCATION RULES)
(TLT), (JNK), (HYG), (REIT), (BKLN)
“What to do about asset allocation” is the one question I get every day which I absolutely cannot answer.
The reason is simple: no two investors are alike.
The answer varies whether you are young or old, have $1,000 in the bank or $1 billion, are a sophisticated investor or a basic beginner, are in the top or the bottom tax bracket, and so on.
This is something you should ask your financial advisor if you haven’t fired him already, which you probably should.
Only advisors who read the Diary of a Mad Hedge Fund Trader should merit your attention. At least they’re going the extra mile trying to figure things out.
Having said all that, there is one old hard and fast rule, which you should probably dump.
It used to be prudent to own your age in bonds. So, if you were 70, you should have had 70% of your assets in fixed-income instruments and 30% in equities.
When bond interest rates were plumbing the depths at a 0.32% yield during the pandemic low, bonds were shunned by all advisers. In fact, the (TLT) was one of the best short plays I have ever executed.
But you know what? Time heals all wounds. Maybe it is time to go back to the old rules. With a 4.47% for ten-year US Treasury bonds, 7.5% for junk, 8.8% for senior loan ETFs, and 15% for some REITS, maybe fixed income doesn’t look so bad after all. And they are all about ready to take off with the Fed ready to start cutting interest rates in the coming months.
Just thought you’d like to know.
Allocation: Are You Him?
Or Him?
