Global Market Comments
September 23, 2024
Fiat Lux
Featured Trade:
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD or THE DOCTOR JEKYLL AND MR. HYDE MARKET),
(NVDA), (MSFT), (GLD), (NEM), (TSLA). (CCJ), (DHI), (TLT)
Posts
I have to tell you that every year I do this, calling the market gets easier and easier. That’s because when you go from year 62 to 63 in the market, you actually learn quite a lot.
What gets more frustrating every year is convincing people to execute my trades because they are increasingly out of consensus, as opposed to conventional wisdom, tradition-shattering, or downright Mad.
Nuclear stocks? Are you out of your mind? Haven’t you heard of Three Mile Island?
So, the Fed went with 50.
Initially, the stock reaction was “Oh my gosh, the free lunch is bigger than we thought!” By the close, this morphed to “Oh my gosh, the economy must be worse than we thought!” This opens the way to another possible 50 basis point rate cut in November, which happens to be the day after the presidential election. It only took 5 seconds for most investors to realize that they had way too much cash.
By acting so aggressively and out of character, Fed governor Jay Powell is admitting that he blundered, blew it, dropped the ball, and scored an own goal all at once by not lowering interest rates in July.
By doing his best impression of a deer frozen in the headlights in H1, all Powell got us were six more weeks of job losses, taking the headline Unemployment Rate up to 4.2%.
Don’t get too complacent though. Look at the chart below and you will see that when the Fed began an aggressive round of interest rate cuts in 2007, the market launched into a major crash of 57%.
Dow 42,000.
It may seem commonplace and ordinary for mere mortals to see this number. But for those of us who remember when it was only 600 back in 1982 (and predicted to immediately plunge to 300 by the late Joe Granville), we are now in the realm of science fiction.
However, in Q3 this year, the character of the bull market suddenly changed, from a Dr. Jekyll to a Mr. Hyde. The Magnificent Seven has shrunk to the Pitiful Seven, with long boring sideways-range trades. In the meantime, growth and interest rate-sensitive value stocks that I have been pounding the table about for six months have begun trading like red-hot must-own biotech IPOs.
The choice is very simple. Do I buy a stock that has a single-digit price-earnings multiple that is flying like a bat out of hell, or do I choose an incredibly expensive tech stock with a PE multiple of 27X or worse that is stagnating?
I know what I’m going to do with my money, which reached new all-time highs almost every day this month. I’ll go with the former all day long.
Don’t get me wrong. The Mag Seven aren’t going to stay out of favor for very long. It’s like holding a basketball underwater that keeps inflating. Their earnings are still growing at an explosive rate. Personally, I think Nvidia (NVDA) will hit $160 a share by early 2025.
If there is one common factor in all financial markets today, it is the vast underestimation of the potential of AI and the impact on stock prices, which keeps surreptitiously sneaking into our lives every day.
My Cameco (CCJ) trade alert came through in a week, immediately tacking on 10%. I have to tell you that reading my email, there is a lot of demand for positions that rise by 15% in a week. But that is better than the two-week wait for the Concierge clients who bought the 2026 $40-$42 LEAPS for only 75 cents. The consolation is that they will make a lot more money, potentially some 167% by expiration. The big money is always made with long-term trades.
I can honestly say that I put 54 years of work into this trade, dating back to when I started my work at the Atomic Energy Commission Nuclear Test Site in Nevada. While advanced nuclear power plant design and fuels (low enriched uranium oxide with an M5TM zirconium-based cladding) have been around for a long time, the industry had the kiss of death on it thanks to Three Mile Island (watch the movie China Syndrome), Chornobyl, and Fukushima.
It was going to take someone bold with deep pockets to restart this industry. Then out of the blue Microsoft (MSFT) announced the reopening of Three Mile Island, the site of the worst nuclear accident in US history in 1979.
Constellation Energy announced Friday that its Unit 1 reactor, which closed five years ago, is expected to be revived in 2028, dependent on Nuclear Regulatory Commission approval. Microsoft will purchase the carbon-free energy produced from it to power its data centers to support artificial intelligence.
Twelve U.S. nuclear power reactors have permanently closed since 2012, with the most recent being Indian Point 3 on April 30, 2021. Another seven U.S. reactor retirements have been announced through 2025, with a total generating capacity of 7,109 MW (equal to roughly 7% of U.S. nuclear capacity).
I have a feeling that all of these will get reopened, which cost about $4 billion each to build and can be bought now for pennies on the dollar. In the meantime, the world’s largest uranium supplier, Kazakhstan, is cutting supplies. Buy all nuclear plays in dips.
I have to tell you that this was one of those weeks that by making 6.74% it makes all the barbarically early mornings and exhausting late nights worth it. While all my friends are working on their golf swings or improving their bowling scores, I am scoring the Internet search for the next original investment theme. Every customer I have spoken to lately is having a great year.
So far in September, we are up by a spectacular +9.67%. My 2024 year-to-date performance is at +44.36%. The S&P 500 (SPY) is up +19.08% so far in 2024. My trailing one-year return reached +63.00%. That brings my 16-year total return to +720.99%. My average annualized return has recovered to +52.43%.
I front-ran the Fed move by adding positions in interest rate sensitives like (GLD), (NEM), and (TSLA). I added (CCJ) based on the arguments above. Once the Fed showed its hand, I added another interest rate sensitives with (DHI). I also added a short in (TLT).
My logic on (TLT) was very simple. I think it is safe to say that we won’t have any downside surprises in interest rates until the next Fed meeting on November 6. We don’t even get a Nonfarm Payroll Report until October 4.
In any case, the bond market has already fully priced in half of the 250 basis points worth of interest rate cuts now discounted by the June Fed futures markets. We have just witnessed a massive $20 rally off the (TLT) bottom. Upside surprises in prices from here should be nil.
If you couldn’t get into (TLT), you are not alone. As soon as the big hedge funds saw my trade alerts, they started hammering not only the options market but the underlying bond market as well with several large $100 million sales. That pushed the trade to near max profit almost immediately and made my trade alert impossible to execute.
At The Economist, they used to say that imitation is the sincerest form of flattery.
Some 63 of my 75 round trips, or 90%, were profitable in 2023. Some 57 of 75 trades have been profitable so far in 2024, and several of those losses were break-even. That is a success rate of +76%.
Try beating that anywhere.
FedEx Gets Crushed 10%, on disappointing earnings and guidance. Cost control is a big issue. Right now, investors are presented with the Dow Industrials at all-time highs and Transports barely positive for the year. Transports are up just 2.7% year to date, and a 13% drop in FedEx shares early Friday will likely drag it into the red for 2024. Buy (FDX) on dips, a great economic recovery play.
Existing Home Sales Drop 4.2%, in August to a seasonally adjusted annualized rate of 3.86 million units, according to the National Association of Realtors. There were 1.35 million units for sale at the end of August. That’s up 0.7% from July and up 22.7% year over year. median price of an existing home sold in August was $416,700, up 3.1% from August 2023, a new all-time high. Real estate should pick up once lower interest rates feed through.
Weekly Jobless Claims Hit 4 Month Low at 219,000. This flies in the face of yesterday’s 50 basis point rate cut by the Fed yesterday based on a weakening jobs market.
Alaska Airlines Takeover of Hawaiian Gets Approval, in a rare case of agreement from the government. The Feds have opposed the most concentration of industry. I think without the deal Hawaiian would have gone under. Expect prices to go and services to decline. Avoid the airlines.
Berkshire Hathaway Cash Approaches $300 Billion. Berkshire ended the second quarter with cash and equivalents (mostly Treasury bills) of $277 billion, up from $168 billion at year-end 2023, mostly due to heavy sales of Apple (AAPL). It highlights how much money is sitting on the sidelines waiting to come in on the next dip. It's also an indication that in the 75 years of Warren Buffet’s investing experience, stocks are expensive.
The Entire Energy Sector is About to Double, once the Chinese economy starts to recover. A recovering US economy powered by lower interest rates will also help. Everything from oil futures to master limited partnerships and stocks are on sale with the highest dividends in the market. It’s almost the only place Warren Buffet is buying.
Amazon Puts AI to Work, using it to plan new delivery routes which saves time and millions of gallons of gasoline. It’s a simple application with vast results. It all goes straight to the bottom line. AI is spreading throughout the economy far faster than most people realize. Buy (AMZN) on dips.
Foreign Direct Investment into China Collapses, down 31.5% in the first eight months of 2024 the Chinese Commerce Ministry said on Saturday. This could be a drag on the recovery of global commodity prices.
US Import Prices are in Free Fall, showing the biggest drop in eight months in August, driven by a broad decline in the costs of goods.
Ebbing price pressures give the Federal Reserve ample room to focus on the labor market which has slowed considerably from last year's robust job growth. Expectations of lower interest rates as well as slowing inflation results are making people feel better about the outlook for the economy.
Foreign Investors Pour $31 Billion into Emerging Markets in August. Fixed income funds ex-China accounted for $27.8 billion of inflows, with $1.4 billion funneled to Chinese debt, the data show. The net inflow to stocks stood at $1.7 billion despite a $1.5 billion outflow from Chinese equities. It’s all about falling US interest rates and a US dollar that is expected to be weak for years.
My Ten-Year View
When we come out the other side of the recession, we will be perfectly poised to launch into my new American Golden Age or the next Roaring Twenties. The economy decarbonizing and technology hyper accelerating, creating enormous investment opportunities. The Dow Average will rise by 600% to 240,000 or more in the coming decade. The new America will be far more efficient and profitable than the old.
Dow 240,000 here we come!
On Monday, September 23 at 8:30 AM EST, the S&P Global Flash PMI
is out
On Tuesday, September 24 at 6:00 AM, the S&P Case Shiller National Home Price Index is released.
On Wednesday, September 25 at 7:30 AM, New Home Sales are printed.
On Thursday, September 26 at 8:30 AM EST, the Weekly Jobless Claims are announced. We also get the final read on Q2 GDP.
On Friday, September 27 at 8:30 AM, we learn the Fed’s favorite inflation indicator, the Core PCE Price Index. At 2:00 PM EST, the 2:00 PM the Baker Hughes Rig Count is printed.
As for me, when the Cold War ended in 1992, the United States judiciously stepped in and bought the collapsing Soviet Union’s entire uranium and plutonium supply.
For good measure, my client George Soros provided a $50 million grant to hire every Soviet nuclear engineer. The fear then was that starving scientists would go to work for Libya, North Korea, or Pakistan, which all had active nuclear programs. They ended up here instead.
That provided the fuel to run all US nuclear power plants and warships for 20 years. That fuel has now run out and chances of a resupply from Russia are zero. The Department of Defense attempted to reopen our last plutonium factory in Amarillo, Texas, a legacy of the Johnson administration.
But the facilities were deemed too old and out of date, and it is cheaper to build a new factory from scratch anyway. What better place to do so than Los Alamos, which has the greatest concentration of nuclear expertise in the world?
Los Alamos is a funny sort of place. It sits at 7,320 feet on a mesa on the edge of an ancient volcano so if things go wrong, they won’t blow up the rest of the state. The homes are mid-century modern built when defense budgets were essentially unlimited. As a prime target in a nuclear war, there are said to be miles of secret underground tunnels hacked out of solid rock.
You need to bring a Geiger counter to garage sales because sometimes interesting items are work castaways. A friend almost bought a cool coffee table which turned out to be part of an old cyclotron. And for a town designing the instruments to bring on the possible end of the world, it seems to have an abnormal number of churches. They’re everywhere.
I have hundreds of stories from the old nuclear days passed down from those who worked for J. Robert Oppenheimer and General Leslie Groves, who ran the Manhattan Project in the early 1940s. They were young mathematicians, physicists, and engineers at the time, in their 20’s and 30’s, who later became my university professors. The A-bomb was the most important event of their lives.
Unfortunately, I couldn’t relay this precious unwritten history to anyone without a security clearance. So, it stayed buried with me for a half century, until now.
Some 1,200 engineers will be hired for the first phase of the new plutonium plant, which I got a chance to see. That will create challenges for a town of 13,000 where existing housing shortages already force interns and graduate students to live in tents. It gets cold at night and dropped to 13 degrees F when I was there.
I was allowed to visit the Trinity site at the White Sands Missile Test Range, the first visitor to do so in many years. This is where the first atomic bomb was exploded on July 16, 1945. The 20-kiloton explosion set off burglar alarms for 200 miles and was double to ten times the expected yield.
Enormous targets hundreds of yards away were thrown about like toys (they are still there). Half the scientists thought the bomb might ignite the atmosphere and destroy the world but they went ahead anyway because so much money had been spent, 3% of US GDP for four years. Of the original 100-foot tower, only a tiny stump of concrete is left (picture below).
With the other visitors, there was a carnival atmosphere as people worked so hard to get there. My Army escort never left me out of their sight. Some 78 years after the explosion, the background radiation was ten times normal, so I couldn’t stay more than an hour.
Needless to say, that makes uranium plays like Cameco (CCJ), NextGen Energy (NXE), Uranium Energy (UEC), and Energy Fuels (UUUU) great long-term plays, as prices will almost certainly rise and all of which look cheap. US government demand for uranium and yellow cake, its commercial byproduct, is going to be huge. Uranium is also being touted as a carbon-free energy source needed to replace oil.
At Ground Zero in 1945
What’s Left of a Trinity Target 200 Yards Out
Playing With My Geiger Counter
Atomic Bomb No.3 Which was Never Used in Tokyo
What’s Left from the Original Test
Stay Healthy,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Global Market Comments
July 18, 2024
Fiat Lux
Featured Trade:
(AUGUST 15, 2024 LONDON, ENGLAND STRATEGY LUNCHEON)
(WHY GOLD IS GOING TO A NEW HIGH),
(GLD), (GOLD), (NEM), (GDX)
Gold has been one of the better-performing asset classes this year. And here’s the good news. It’s only just begun.
Cut US dollar interest rates in the least and the greenback takes a hit. That is a major gold positive.
Trapped in a narrow trading range for three years, the yellow metal has suddenly become everyone’s favorite hedge.
Now that gold is back in fashion, how high can it really go?
The question begs your rapt attention, as a plethora of new positive fundamentals for the barbarous relic are making their way to the surface.
It turns out that gold is THE deflationary asset to own, and inflation has just fallen for ten consecutive months.
Who knew?
I was an unmitigated bear on the price of gold after it peaked in 2011. In recent years, the world has been obsessed with yields, chasing them up to historically high levels across all asset classes.
Websites purveying investment grade coins and bars crashed multiple times, due to overwhelming demand. Some retailers have run out of stock.
So I’ll take this opportunity to review a short history of the gold market (GLD) for the young and the uninformed.
Since it last peaked in the summer of 2011 at $1,927 an ounce, the barbarous relic was beaten like the proverbial red-headed stepchild, dragging silver (SLV) down with it.
It faced a perfect storm.
Gold was traditionally sought after as an inflation hedge. But with economic growth weak, wages stagnant, and much work still being outsourced abroad, deflation became rampant.
The biggest buyers of gold in the world, the Indians, have seen their purchasing power drop by half, thanks to the collapse of the rupee against the US dollar. The government increased taxes on gold in order to staunch precious capital outflows.
Chart gold against the Shanghai index and the similarity is striking until negative interest rates became widespread in 2016.
In the meantime, the gold supply/demand balance was changing dramatically.
While no one was looking, the average price of gold production soared from $5 in 1920 to $1,400 today. Over the last 100 years, the price of producing gold has risen four times faster than the underlying metal.
It’s almost as if the gold mining industry is the only one in the world that sees real inflation since costs soared at a 15% annual rate for the past five years.
This is a function of what I call “peak gold.” They’re not making it anymore. Miners are increasingly being driven to higher-risk, more expensive parts of the world to find the stuff.
You know those tires on heavy dump trucks? They now cost $200,000 each, and buyers face a three-year waiting list to buy one.
Barrack Gold (GOLD), the world’s largest gold miner, didn’t try to mine gold at 15,000 feet in the Andes, where freezing water is a major problem, because they like the fresh air.
What this means is that when the spot price of gold fell below the cost of production, miners simply shut down their most marginal facilities, drying up supply. That has recently been happening on a large scale.
Barrick Gold, a client of the Mad Hedge Fund Trader, can still operate, as older mines carry costs that go all the way down to $600 an ounce.
No one is going to want to supply the sparkly stuff at a loss. So, the supply disappeared.
I am constantly barraged with emails from gold bugs who passionately argue that their beloved metal is trading at a tiny fraction of its true value and that the barbaric relic is really worth $5,000, $10,000, or even $50,000 an ounce (GLD).
They claim the move in the yellow metal we are seeing now is only the beginning of a 30-fold rise in prices, similar to what we saw from 1972 to 1979 when it leapt from $32 to $950.
To match the gain seen since the 1936 monetary value peak of $35 an ounce, when the money supply was collapsing during the Great Depression, and the double top in 1979 when gold futures first tickled $950, this precious metal has to increase in value by 800% from the recent $1,050 low. That would take our barbarous relic friend up to $8,400 an ounce.
To match the move from the $35/ounce, 1972 low to the $950/ounce, 1979 top in absolute dollar terms, we need to see another 27.14 times move to $28,497/ounce.
Have I gotten your attention yet?
I am long term bullish on gold, other precious metals, and virtually all commodities for that matter. But I am not that bullish. These figures make my own $3,000/ounce long-term prediction positively wimp-like by comparison.
The seven-year spike up in prices we saw in the seventies, which found me in a very long line in Johannesburg, South Africa to unload my own krugerands in 1979, was triggered by a number of one-off events that will never be repeated.
Some 40 years of unrequited demand was unleashed when Richard Nixon took the US off the gold standard and decriminalized private ownership in 1972. Inflation then peaked at around 20%. Newly enriched sellers of oil had a strong historical affinity with gold.
South Africa, the world’s largest gold producer, was then a boycotted international pariah and teetering on the edge of disaster. We are nowhere near the same geopolitical neighborhood today, and hence, my more subdued forecast.
But then again, I could be wrong.
You may have noticed that I have been playing gold from the long side recently since it bottomed in March. I’ll be back in there again, given a good low-risk, high-return entry point.
You’ll be the first to know when that happens.
As for the many investment advisor readers who have stayed long gold all along to hedge their clients other risk assets, good for you.
You’re finally learning!
Global Market Comments
April 17, 2024
Fiat Lux
Featured Trade:
(THE LAZY MAN’S GUIDE TO TRADING),
(ROM), (UXI), (BIB), (UYG),
(THE NEXT THING FOR THE FED TO BUY IS GOLD)
(GLD), (GOLD), (GDX), (NEM)
A huge new buyer may eventually enter the gold market.
That could be a year off, maybe two, or three at the most.
I’ll give you a hint who: your taxes will pay for it.
If true, it could send the price of the barbarous relic soaring above $5,000, or even $50,000 an ounce, a target long led by the tin hat Armageddon crowd.
When I spoke to a senior official at the Federal Reserve the other day, I couldn’t believe what I was hearing.
If the American economy moves into the next recession with interest rates already near zero, the markets will take the yields for all interest-bearing securities well into negative numbers.
At that point, our central bank’s primary tool for stimulating US businesses will become utterly useless, ineffective, and impotent.
What else is in the tool bag?
How about large-scale purchases of Gold (GLD)?
You are probably as shocked as I am with this possibility. But there is a rock-solid logic to the plan. As solid as the vault at Fort Knox.
The idea is to create asset price inflation that will spread to the rest of the economy. It already did this with great success from 2009 to 2014 with quantitative easing, whereby almost every class of debt securities was Hoovered up by the government.
“QE on steroids”, to be implemented only after overnight rates go negative, would involve large-scale purchases of not only gold, but stocks, government bonds, and exchange-traded funds as well.
If you think I’ve been smoking California’s largest cash export (it’s not the sunshine) you would be in error. I should point out that the Japanese government is already pursuing QE to this extent, at least in terms of equity-type investments.
And, as the history buff that I am, I can tell you that it has been done in the US as well, with tremendous results.
If you thought that President Obama had it rough when he came into office in 2009, it was nothing compared to what Franklin Delano Roosevelt inherited.
The country was in its fourth year of the Great Depression. US GDP had cratered by 43%, consumer prices crashed by 24%, the unemployment rate was 25%, and stock prices vaporized by 90%. Mass starvation loomed.
Drastic measures were called for.
FDR issued Executive Order 6102 banning private ownership of gold, ordering them to sell their holding to the US Treasury at a lowly $20.67 an ounce.
He then urged Congress to pass the Gold Reserve Act of 1934, which instantly revalued the government’s holdings at $35.00, an increase of 69.32%. These and other measures caused the value of America’s gold holdings to leap from $4 to $12 billion.
Since the US was still on the gold standard back then, this triggered an instant dollar devaluation of more than 50%. The high gold price sucked in massive amounts of the yellow metal from abroad creating, you guessed it, inflation.
The government then borrowed massively against this artificially created wealth to fund the landscape-altering infrastructure projects of the New Deal.
It worked.
During the following three years, the GDP skyrocketed by 48%, inflation eked out a 2% gain, the unemployment rate dropped to 18%, and stocks jumped by 80%. Happy days were here again.
However, in the 21st-century version of such a gold policy, it is highly unlikely that we would see another gold ownership ban.
Instead, the Fed would most likely move into the physical gold market, sitting on the bid for years, much like it recently did in the Treasury bond market for five years. Gold prices would increase by a multiple of current levels.
It would then borrow against its new gold holdings, plus the 4,176 metric tonnes worth $321.6 billion at today’s market prices already sitting in Fort Knox, to fund a multi-billion dollar infrastructure-spending program.
Yes, this all sounds like a fantasy. However negative interest rates were considered an impossibility only a few years ago.
The Fed’s move on gold would be only one aspect of a multi-faceted package of desperate last-ditch measures to resuscitate the economy at some point in the future. The time to start buying gold is RIGHT NOW!
That’s assuming that the gold is still there. The door to the vault at Fort Knox has not been opened since September 23, 1974.
Persistent urban legends and Internet rumors claim that the vault is empty or filled with fake steel bars painted gold.
That is until Treasury Secretary Steven Mnuchin visited the vault on his way to view the solar eclipse at government expense in August 2017.
He says the gold is still there. But only if you believe Steve Mnuchin. A lot don’t.
We’ll never know for sure. Visitors are not allowed.
The Next Economic Stimulus Program?
Global Market Comments
March 11, 2024
Fiat Lux
Featured Trade:
(The Mad MARCH traders & Investors Summit is ON!)
(MARKET OUTLOOK FOR THE WEEK AHEAD, or HIGHER HIGHS)
(NVDA), (META), (IWM), (AMZN), (RIVN), (SNOW), (GLD), (GOLD), (NEM), (FXI), DELL), (AAPL), (TSLA), (CCJ), ($NIKK), (USO), (GOLD)
I was all ready to write another hyper-bullish report for the week. That was at least until noon EST on Friday. That’s when NVIDIA (NVDA) Peaked at $955 and then free fell $100 to $855. New all-time and then a new intraday low on huge volume and that is the textbook definition of a market top.
Not that we should be complaining. At the high, (NVDA) was up an unimaginable 105% so far this year. I spent my week buying back short put options for 50 cents that I initially sold for $20. With a quarterly quadruple witching due this Friday, anything can happen.
By the end of February, more than half of all analyst 2024 yearend targets were met. The response was a rush to raise yearend targets, triggering the current melt-up.
It always ends in tears.
And I’m about to tell you something that you will absolutely love to hear. Lower interest rates dramatically increase corporate stock buybacks, already set at $1.25 trillion for 2024. That’s because of the lower cost of capital.
What do more share buybacks automatically bring? High stock prices, especially for large positive cash flow companies like big tech.
As much as the permabears hate to admit it, good news really is good news.
With all of the media obsession with NVIDIA (NVDA), my largest holding, and Meta (META), the fact is that the rally is broadening out. More than half of all industrial stocks are trading at all-time highs. Long-forgotten small caps (IWM) are also approaching 2021 all-time highs.
Going into this week managers were either overweight big tech and extremely nervous or out of big tech and kicking themselves. The urge to rotate is strong. But your standby rotation sectors, industrials, biotech, and banking have also seen big moves.
Which brings us to the subject of gold (GLD).
After a tedious one-year sideways consolidation, the barbarous relic blasted out to the upside above $2,200 an ounce, a new all-time high. After soaking up as much gold as they could over the past decade, China and Russia have finally taken the gold market net short, which is why we saw such dramatic price action.
With interest rates in the US soon to fall, the opportunity cost of owning non-yielding gold is about to shrink. That will cut the knees out from under the US dollar prompting a stampede into precious metals and Bitcoin.
Except this time, it’s different.
Gold miners usually outperform the yellow metal by four to one to the upside. Not so this time. Barrick Gold (GOLD) and Newmont Mining (NEM) were barely able to keep pace with the barbarous relic. That’s because inflation has boosted their costs and cut profit margins. After all, they are stock first and gold plays second.
Still, if gold reaches my $3,000 target in 2025 the LEAPS I sent out for (GOLD) last June should easily hit its maximum profit point of 298%.
That other weak dollar play, oil (USO) may not deliver the joys of past cycles and may in fact be trapped in a fairly narrow $60-$80 range. The futures markets are saying that the price of Texas tea will be lower in a year.
The US is now the world’s top oil producer at 13 million barrels/day and that is rising (thanks to enormously generous tax breaks), capping prices. Non-OPEC+ production is increasing, especially from Brazil and Canada. China, the world’s largest oil importer is missing in action. But low inventories, especially at the American Strategic Petroleum Reserve, are preventing a crash as well. Shale production is growing.
Still, even a $20 rally can have a dramatic impact on the share prices of the big US producers, like Exxon (XOM) and Occidental Petroleum (OXY), some 25% of which is now owned by Warren Buffet. Even without some sexy price action, this sector pays some of the highest dividend yields in the markets.
In February we closed up +7.42%. So far in March, we are up +0.70%. My 2024 year-to-date performance is at +3.21%. The S&P 500 (SPY) is up +7.11% so far in 2024. My trailing one-year return reached +54.28% versus +40.94% for the S&P 500.
That brings my 16-year total return to +689.74%. My average annualized return has recovered to +52.05%.
Some 63 of my 70 trades last year were profitable in 2023. Some 11 of 15 trades have been profitable so far in 2024.
I used the ballistic move in (NVDA) to take profits in my double long there. I am maintaining longs in (AMZN) and Snowflake (SNOW). I am both long and short the bond market (TLT) and I am 60% in cash given the elevated level of the stock markets.
Nonfarm Payroll Report Rose 275,000 in February. The Headline Unemployment Rate rose to 3.9%, a two-year high. The report illustrates a labor market that is gradually downshifting, with more moderate job and pay gains that suggest the economy will keep expanding without much risk of a reacceleration in inflation. These are very Fed friendly numbers.
JOLTS Job Openings Report Rises by 140,000 to 8,890,000, less than expected. Leisure and hospitality led with 41,000 new jobs, construction added 28,000 and trade, transportation and utilities contributed 24,000. Growth was concentrated among larger companies, as establishments with fewer than 50 employees contributed just 13,000 to the total.
Rivian Shares Soar, on news it is halting plans to build a new $2.25 billion factory in Georgia, an abrupt reversal aimed at cutting costs while the company prepares to launch a cheaper electric vehicle. Shifting planned production of the forthcoming R2 model to an existing facility in Illinois will allow Rivian to begin deliveries in the first half of 2026, earlier than expected. Buy (RIVN) on dips.
New York Community Bancorp Bailed Out, with a cash infusion led by former Treasury secretary Steve Mnuchin. The shares soared from $2 to $3.41. That takes the heat off the sector….until the next one. The US is shrinking from 4236 banks to only six banks. Who says politics doesn’t pay?
Europe Moves Towards Interest Rate Cuts, igniting a global bond market rally. Staff projections now see economic growth of 0.6% in 2024, from a previous forecast of 0.8%. They presented a more positive picture of inflation, with the forecast for the year brought to an average 2.3% from 2.7%. Market bets increased on rate cuts taking place as early as June, with the euro trading 0.35% lower against the British pound following the news.
Beige Book Comes in Moderate, saying "labor market tightness eased further," in February but noted "difficulties persisted attracting workers for highly skilled positions." The Beige Book is a review of economic conditions across all 12 Fed districts. Fed Chair Jerome Powell told Congress on Wednesday that the U.S central bank expected "inflation to come down, the economy to keep growing," but shied away from committing to any timetable for interest rate cuts.
China Targets 5% Growth for 2024, but nobody buys it for a second. A covid hangover, residential real estate crisis triggering a financial crisis, and constant invasion threats over Taiwan, make this target a pipe dream. Avoid (FXI) and all Middle Kingdom plays.
Gold Hits New All-Time High, at $2,141 an ounce on expectations of imminent rate cuts by the Fed. Gold, often used as a safe store of value during times of political and financial uncertainty, has climbed over $300 dollars since the start of the Israel-Hamas war. Buy (GLD), (GOLD), and (NEM) on dips.
Dell (DELL) Becomes an AI Stock, sending the shares up 47% in a Day. That’s been changing over the past year, as Dell has been reporting strong orders of servers designed to power generative AI workloads—many of which use chips supplied by AI kingmaker Nvidia. The company’s fourth quarter results convinced any doubters. Can Apple (AAPL) do the same?
Tesla Plunges on Poor China Sales, down $14.50 on sales data dimmed the outlook for Tesla's global deliveries, at a time when the top EV maker is battling a decline in demand and is weighed down by a lack of entry-level vehicles and the age of its product line-up. Not the time to be in EVs or solar. Buy (TSLA) on bigger dip.
US National Debt is Rising by $1 Trillion Every 100 Days. A trillion here, a trillion there, sooner or later that adds up to a lot of money. Eventually, someone is going to have to do something about this. The US national debt stands at $34.5 trillion, or $104,545 per person.
The Uranium Shortage is Getting Extreme, with yellow cake up 112% in a year. Owners of left-for-dead uranium mines are restarting operations to capitalize on rising demand for the nuclear fuel. Most of those American mines were idled in the aftermath of Fukushima when uranium prices crashed and countries like Germany and Japan initiated plans to phase out nuclear reactors. Now, with governments turning to nuclear power to meet emissions targets and top uranium producers struggling to satisfy demand, prices of the silvery-white metal are surging. Buy (Cameco (CCJ) on dips.
Japan’s Nikkei ($NIKK) Tops 40,000, a new 34-year high. The ultra-weak Japanese economy is giving the economy there a free lunch, but better hedge your currency exposure. Good thing I missed a dead market for 34 years.
NVIDIA Replaces Tesla as Top Traded Stock, with volumes migrating to the options market as well. Blockbuster profits are catnip for traders, while EV price wars aren’t. Tesla is down 52% from its all-time high two years ago and is one of the biggest percentage decliners in the Nasdaq 100 Index this year.
My Ten-Year View
When we come out the other side of the recession, we will be perfectly poised to launch into my new American Golden Age, or the next Roaring Twenties. The economy decarbonizing and technology hyper accelerating, creating enormous investment opportunities. The Dow Average will rise by 800% to 240,000 or more in the coming decade. The new America will be far more efficient and profitable than the old.
Dow 240,000 here we come!
On Monday, March 11 at 7:00 AM EST, the Consumer Inflation Expectations are announced.
On Tuesday, March 12 at 8:30 AM, Inflation Rate for February is released.
On Wednesday, March 13 at 2:00 PM, MBA Mortgage Applications are published
On Thursday, March 14 at 8:30 AM, the Weekly Jobless Claims are announced. We also get the Producer Price Index.
On Friday, March 15 at 2:30 PM, the University of Michigan Consumer Sentiment is published. At 2:00 PM the Baker Hughes Rig Count is printed.
As for me, I have met many interesting people over a half-century of interviews, but it is tough to beat Corporal Hiroshi Onoda of the Japanese Army, the last man to surrender in WWII.
I had heard of Onoda while working as a foreign correspondent in Tokyo. So, I convinced my boss at The Economist magazine in London that it was time to do a special report on the Philippines and interview President Ferdinand Marcos. That accomplished, I headed for Lubang island where Onoda was said to be hiding, taking a launch from the main island of Luzon.
I hiked to the top of the island in the blazing heat, consuming two full army canteens of water (plastic bottles hadn’t been invented yet). No luck. But I had a strange feeling that someone was watching me.
When the Philippines fell in 1945, Onoda’s commanding officer ordered the remaining men to fight on to the last man. Four stayed behind, continuing a 30-year war.
As a massive American military presence and growing international trade raised Philippine standards of living, the locals eventually were able to buy their own guns and kill off Onoda’s companions one by one. By 1972 he was alone, but he kept fighting.
The Japanese government knew about Onoda from the 1950s onward and made every effort to bring him back. They hired search crews, tracking dogs, and even helicopters with loudspeakers, but to no avail. Frustrated, they left a one-year supply of the main Tokyo newspaper and a stockpile of food and returned to Japan. This continued for 20 years.
Onoda read the papers with great interest, believing some parts but distrusting others. His worldview became increasingly bizarre. He learned of the enormous exports of Japanese automobiles to the US, so he concluded that while still at war, the two countries were conducting trade.
But when he came to the classified ads, he found the salaries wildly out of touch with reality. Lowly secretaries were earning an incredible 50,000 yen a year, while a salesman could earn an obscene 200,000 yen.
Before the war, there was one Japanese yen to the US dollar. In the hyperinflation that followed the yen fell to 800, and then only recovered to 360. Onoda took this as proof that all the newspapers were faked by the clueless Americans who had no idea of true Japanese salary levels.
So he kept fighting. By 1974 he had killed 17 Philippino civilians.
After I left Lubang island, a Japanese hippy named Norio Suzuki with long hair, beads, and sandals followed me, also looking for Onoda. Onoda tracked him as he had me but was so shocked by his appearance that he decided not to kill him. The hippy spent two days with Onoda explaining the modern world.
Then Suzuki finally asked the obvious question: what would it take to get Onoda to surrender? Onoda said it was very simple, a direct order from his commanding officer. Suzuki made a beeline straight for the Japanese embassy in Manila and the wheels started turning.
A nationwide search was conducted to find Onoda’s last commanding officer and a doddering 80-year-old was turned up working in an obscure bookstore. Then the government custom-tailored a prewar Imperial Japanese Army uniform and flew him down to the Philippines.
The man gave the order and Onoda handed over his samurai sword and rifle, or at least what was left of it. Rats had eaten most of the wooden parts. You can watch the surrender ceremony by clicking here on YouTube.
When Onoda returned to Japan, he was a sensation. He displayed prewar mannerisms and values like filial piety and emperor worship that had been long forgotten. Emperor Hirohito was still alive.
When I finally interviewed him, Onoda was sympathetic. I had by then been trained in Bushido at karate school and displayed the appropriate level of humility, deference, mannerisms, and reference.
I asked why he didn’t shoot me. He said that after fighting for 30 years he only had a few shells left and wanted to save them for someone more important.
Onoda didn’t last long in the modern Japan, as he could no longer tolerate modern materialism and cold winters. He moved to Brazil to start a school to teach prewar values and survival skills where the weather was similar to that of the Philippines. Onoda died in 2014 at the age of 91. A diet of coconuts and rats had extended his life beyond that of most individuals.
Onoda wasn’t actually the last Japanese to surrender in WWII. I discovered an entire Japanese division in 1975 that had retreated from China into Laos and just blended in with the population. They were prized for their education and hard work and married well.
During the 1990’s a Japanese was discovered in Siberia. He was released locally at the end of the war, got a job, married a Russian woman, and forgot how to speak Japanese. But Onoda was the last to stop fighting.
The Onoda story reminds me of the fact that journalists learn very early in their careers. You can provide all the facts in the world to some people. But if they conflict with their own deeply held beliefs, they won’t buy them for a second.
Hiro Onoda Surrenders
Budding Journalist John Thomas
Good Luck and Good Trading,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Global Market Comments
March 8, 2024
Fiat Lux
Featured Trade:
(MARCH 6 BIWEEKLY STRATEGY WEBINAR Q&A),
(SPX), (QQQ), (PANW), (SNOW), (NVDA), (GLD), (GOLD), (NEM), (BA), (AMZN), (TLT), (AAPL), (COIN)
Below please find subscribers’ Q&A for the March 6 Mad Hedge Fund Trader Global Strategy Webinar, broadcast from Silicon Valley, CA.
Q: With your projections of the Dow going to $240,000 in 10 years, would it be wise to invest in the Dow?
A: The Dow is just an indicator that everybody understands and is familiar with what the media uses. What I tell people to do is if you are not an aggressive person, put half your money in the S&P 500 (SPX), which is getting most of the gains, and half in the technology (QQQ), which is getting all of the gains. If you're an aggressive person, say in your twenties, thirties, or forties, then you put all of your money in the Invesco QQQ NASDAQ Trust (QQQ) because you'll live long enough to survive the inevitable downturns.
Q: What should we do now with Palo Alto Networks (PANW)?
A: Keep it. It’s a fantastic long-term company. This is a rare opportunity to get in on the long side, as this is a company that I think could double over the next 3 to 5 years. Hacking is never going out of style and now they have AI. The selloff was caused by a major platform upgrade which may cause profits to dip for a quarter. That’s now in the price.
Q: With the successful launch of Bitcoin, should we allocate 5% or 10% of our portfolio to Bitcoin?
A: Only if you can handle a 90% decline at any time without warning because that's exactly what it did in 2021. Calling it a store of value is a fantasy. You also still have big theft issues with Bitcoin. You don't have theft issues if you have all your money at Morgan Stanley, Goldman Sachs, Merrill Lynch, and so on, so there is a security issue (with Bitcoin). The only way to bypass the security issues is to have a hot wallet, and the only way to have a hot wallet is to be a computer programmer yourself or have a degree in computer science—so it's not for most people. If you can navigate all of that, then maybe; but again, nobody knows when the next 90% decline is going to come. By the way, if I can find stocks with Mad Hedge Fund Trader that go up faster than Bitcoin, I'd much rather own the stocks, because at least I know what they make.
Q: Is Snowflake (SNOW) a buy here at $155?
A: Absolutely. Another great cybersecurity database company. But if we drop to $155, we're going to stop out of the front month call spread and try to buy it back lower down.
Q: Do you think it's wise to sell the semiconductor stocks now and buy them back lower down, and pay the taxes?
A: Probably not. They are really the most volatile sector in the market. If you sell now, it's unlikely you'll be able to pick up the next bottom and get back in, and you have to pay the taxes. So it's probably better just to keep a core long-term position in the semis, especially Nvidia (NVDA); and if it drops 200 points, just buy more. That's what I'm doing. I'm keeping all of my Nvidia LEAPS. All my call spreads and short put positions are about to expire at max profit, and I even have a little bit of stock that I'm keeping. So I think Nvidia goes to $1,000 at one point and now, the forecast of $1,400 is out there. So as Nvidia goes, so goes the entire rest of the semiconductor industry.
Q: You're only 30% invested. Are you looking for a pullback, or are you just waiting for new opportunities to appear?
A: Yes and Yes. I'm waiting for a fantastic company to come up with conservative guidance, which these days means an immediate 20 to 25% sell-off. That is your entry point for these good companies. That's how we got into Palo Alto Networks (PANW), and that's how we got into Snowflake (SNOW). In an extremely overbought market, those are your only opportunities until the market generally sells off or until the domestic plays finally start to take off, and we got the first hints of that last week.
Q: What is your view on junior gold mining stocks?
A: They are a buy here, absolutely, but you get enough volatility in the majors that you don't need to bother with the minors—that's always been my view. Because minors go out of business, they close mines, they don't find gold. A lot of minors have stocks go up on the possibility of gold being found, whereas the majors like Barrick Gold (GOLD) and Newmont Mining (NEM) actually have the gold, and it's just an industrial process of mining it. You know the minors, the juniors, are extremely speculative and high-risk, and that's why most of them are listed in Canada. They can't get a US listing. So that's enough of a tell for me to stay away.
Q: I just realized I have the wrong expiration date on my Amazon (AMZN) spread. Should I exit immediately?
A: What I would do is exit what you have and then wait for another down day on Amazon, and then put it back on. That's the way to deal with that one. The answer to all mistakes is to exit immediately. That's an automatic rule at Morgan Stanley; if you don't do that, you get fired. Or come up with a new set of logic as to why you own this position, which has been done by more than a few traders, I imagine.
Q: Would you be willing to be a Boeing 737 Max passenger right now or ever?
A: Yes! If you don't fly Boeings (BA), your life is suddenly very narrow and limited because you’re stuck on the ground. Boeing is the biggest-selling airplane in the world, and most fleets are made of Boeings. However, I'm a pilot, so if anything goes wrong I can run up front and take control, or at least tell the pilot what to do. I also have 25 parachute jumps, if they're handing those out in first class. So remember, every airplane without engines is a glider and I can land a glider anywhere. The company has major problems to sort out until it becomes a “BUY”.
Q: I cannot get into the (TLT) trade to save my life. Is the (TLT) April $89-$92 vertical bull call debit spread pushing the risk limits?
A: Yes. I would walk away from the trade and wait for a better entry point rather than chase. The whole fixed-income space has flipped from the bid side to the offered side, meaning we've gone from net sellers to net buyers. All asset classes have done that; you're seeing that in gold, silver, and even uranium. All the REITs are having a fantastic week. All interest rate plays are now being bid, and it's hard to buy stuff when things are being bid.
Q: What's it like being 6’4” and living in Japan?
A: Well, I did knock myself out a couple of times, banging myself on the door. You get used to bowing a lot, but bowing is a part of the culture in Japan. If you're watching the new Hulu miniseries, Shogun, you would know that. Once I was working for Sony and I was late for work, so I was running up the stairs, and they had a steel lintel to their door, and I just ran bang into that and knocked myself out. The Sony people thought, “Oh my gosh, we just killed a foreigner!” So yes, it was hard. The only clothes I could buy in Japan for ten years were belts and ties. I had to fly to Hong Kong and had everything else custom-made in those days.
Q: What's your opinion of Masters of the Air?
A: I absolutely love it. It's heartbreaking to watch. I knew a lot of guys who were there, and I was one of the last people trained on how to fly a Boeing B-17 Flying Fortress. Anybody who watched Masters of the Air with me gets to watch it with someone who is one of the last living people who rated on a B-17 as a pilot.
Q: Are we in a liquidity bubble right now?
A: Yes, we are, and boy, I love every minute of it. But we're not in the year 2000 in a liquidity bubble, we're in 1995 just getting started. And the profits from AI are just getting started which is what's creating this endless liquidity that people are seeing now.
Q: What should I buy the dip in Tesla (TSLA)?
A: There's no downside target for Tesla right now. We just have to wait for the meltdown in demand to finish, and who knows where that is. But with BYD entering the market, Tesla is definitely going to get more competition in emerging markets—that's where BYD is selling the cars now. I also understand they're selling them in Australia.
Q: How much longer can tech stocks keep rising?
A: 5 to 10 more years, but we are way overdue for some kind of pullback.
Q: What are your thoughts on Apple's (APPL) weakness?
A: Apple has become that great backward-looking company. It could drop to $160 or even $140, then we’ll be taking a serious look at some call spreads and LEAPS. You just wait. In four months when they announce their next batch of new products suddenly, they’ll become an AI company and recover the $200 level in no time.
Q: Should I dive into Coinbase (COIN)?
A: Absolutely not on pain of death! It's made its move. You're better off buying Nvidia (NVDA) at that kind of inclination because at least you know what they make.
To watch a replay of this webinar with all the charts, bells, whistles, and classic rock music, just log in to www.madhedgefundtrader.com, go to MY ACCOUNT, select your subscription (GLOBAL TRADING DISPATCH, TECHNOLOGY LETTER, or Jacquie's Post), then WEBINARS, and all the webinars from the last 12 years are there in all their glory.
Good Luck and Stay Healthy,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Thank You NVIDIA!
