Global Market Comments
May 30, 2023
Fiat Lux
Featured Trades:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or A TALE OF TWO MARKETS)
(SPY), (TLT), (TSLA), (NVDA), (TOL), (LEN), (KBH), (PHM), (TLT), (MRVL), (F)
CLICK HERE to download today's position sheet.
Investors are so out of position it hurts.
I have always believed that markets will always do whatever they have to do to screw the most people and it is doing that right now with a vengeance.
Some $750 billion has poured into cash and equivalents since January 1. Margin debt is now at the Dotcom bust low of 1.4% of the S&P 500 not seen since 2002. Equity Allocations are at a 15 Year Low, with massive amounts of cash in 90-day T-bills now yielding 5.25%.
The broader market is expensive looking at 19 times 2023 earnings. But take out the top five performing FANGS and we are down to a very reasonable 15 times for the remaining 495 stocks.
I told you this would happen, that the bear market ended on October 15 and that big tech would lead any recovery. I reiterated this view in depth with my 2023 All Asset Class Review on January 4 (click here for the link).
In the meantime, a lot of investors had angry conversations with investment advisors this week as to why they didn’t own NVIDIA (NVDA). They heard it was too expensive, that it had already moved too much (triple since October 15), the government was going default on its debt, and that we were headed into recession.
Suffice it to say that if they lived here with me in Silicon Valley, they wouldn’t take this view. The world is going NVIDIA crazy on a huge earnings beat, taking the shares up 30%. Q1 revenues came in at $7.2 billion versus an expected $6.5 billion. Demand from AI and data centers is surging.
(NVDA) has been a core Mad Hedge holding since it went public a decade ago. It is now up 175-fold and has at least another seven bagger ahead of it. (NVDA) has matched the 175-fold gain we caught with our 2010 recommendation for Tesla. The (NVDA) January 2025 LEAPS I recommended on September 29 at 50 cents is now worth $6.25 and expires worth $10, up 20-fold!
It all vindicates my own long-term vision, unique in the investing community, that in the coming decade, technology profits will more than replace the Fed liquidity we feasted on during the 2010s.
The Internet has created about $10 trillion in value since inception. AI will create a lot more than that. That’s what will take the Dow from 33,000 to 240,000.
In the meantime, new home building is incredibly going from strength to strength and is one of the few domestic sides of the economy that is prospering mightily. New Home Sales hit a 13-Month High, up 4.1% in April. If you had told me five years ago that while 30-year fixed mortgage rates were at a two-decade high of 7.0%, demand for new homes was so strong that builders were running out of inventory, I would have told you that you were out of your mind.
Yet, here we are.
This is because half of the builders that went bust in the 2008 subprime housing crash never came back, creating a structural shortage of homes that will take 20 years to return to balance.
Baby boomers now aged 61 to 78 rushed to buy homes in their late 20s during the prosperity of the 1960s and 1970s. Only 10% paid cash for their homes, many of whom worked on Wall Street, like me.
Some 75 million Millennials are now buying homes in their mid 30’s and are therefore much wealthier than previous generations. Working in tech like my kids, some 35% are paying all cash and are immune to the interest rate cycle. That means they can afford much nicer homes than we boomers could.
Those who do borrow plan to refi quickly in a year or two when mortgages are back below 5.0%. Then the residential real estate will absolutely catch on fire. Buy (TOL), (LEN), (KBH), and (PHM) on dips.
Oh, and buy boatloads of bonds (TLT) too.
There is another angle to the story that is fascinating. High housing prices are turning Yankees into Confederates and Hawaiians into cowboys.
An onslaught of my friends have recently retired from New York for the green hills of North Carolina. The problem is that if I moved there, they’d be burning crosses on my front lawn in the first week.
Natives Hawaiians have fled their green hills for the Nevada deserts because they can’t afford to live there anymore, moving from an $800,000 median homes price to $400,000. When I was in Las Vegas a few weeks ago, I noticed ads for a hula contest, Hawaiian language lessons at the county library, and SPAM at Safeway. Outrigger canoes have been spotted on a disappearing Lake Mead. The chief complaint? Leis wilt a lot faster in the dry desert air.
So far in May, I have managed a modest 1.38% profit. My 2023 year-to-date performance is now at an eye-popping +63.13%. The S&P 500 (SPY) is up only a miniscule +10.53% so far in 2023. My trailing one-year return reached a 15-year high at +108.59% versus +12.02% for the S&P 500.
That brings my 15-year total return to +660.32%. My average annualized return has blasted up to +48.91%, another new high, some 2.72 times the S&P 500 over the same period.
Some 41 of my 44 trades this year have been profitable. My last 22 consecutive trade alerts have been profitable.
I executed no trades last week, content to run my long in Tesla and a short in Tesla, the “short strangle” strategy. I now have a very rare 80% cash position due to the lack of high-return, low-risk trades. I ran a rare loss last week because while my long in Tesla is now at max profit, my short is approaching its near strike. That goes with my philosophy of when you’re wrong, be small. When you’re right, go big.
Ford (F) Cuts Deal with Tesla to Share National Charger Network, putting Elon Musk well on his way to becoming the largest electric utility in the world. It won’t affect the existing 4 million Tesla drivers yet. Ford only sold 62,000 EVs in 2022 and 25,000 the year before. Access will be provided through adapters, the (F) adopting the Tesla charging standard. It kind of screws (GM) left on its own. It was worth a $13 pop for (TSLA). Keep buying (TSLA) on dips.
Divergence Between the S&P 500 and the S&P Equal Weight is the greatest since December 1999. The Dotcom Bubble topped four months later. It’s a function of concentration in the top five tech stocks, my “Five Aces” strategy. Risk is rising. The flight to big tech balance sheets and AI has been huge. You heard it here first.
Marvel Technologies (MRVL) Rockets 25% on Spectacular Earnings Beat, as the AI fever spreads out into infrastructure plays like second-line chip makers. Demand for integrated circuits from data centers, carrier infrastructure, networking, and the auto industry is off the charts. The Internet has to grow 500% quickly to accommodate new AI demand right now. The gold rush is on. Buy (MRVL) on dips.
Inflation Continues to Fall, down 0.4% in April according to the Personal Consumption Expenditures Index Price Index. Food prices rose 6.9% from a year ago while energy fell 6.3%.
Fitch Puts US Debt on Credit Watch, meaning that it is due for a downgrade. It’s the first time since the 2011 Moody’s downgrade from AAA to AA+. Threats of default have real-world consequences.
Pending Home Sales Collapse, unchanged from March, but down 20% YOY on a signed contract basis. Soaring interest rates get the blame. The northeast took the big hit.
Ely Lily Price Target Raised to $500, by Bank of America on the strength of their Ozempic weight loss drug. The stock is up fivefold since Mad Hedge recommended it five years ago. Keep buying (LLY) on tips.
30-Year Fixed Rate Mortgages Jump Back to 7.0%, on the impasse in Washington and default fears. The residential real estate recovery goes back on hold.
(TLT) Approaches 2023 Low. The closer we get to a debt ceiling deal, the lower we go. When a deal is done, it unleashes a new onslaught of bond selling by the Treasury, and lower lows on bonds. In the dream scenario, we fall all the way to $95 in the (TLT) where we will be issuing recommendations for call spreads and LEAPS by the boatload.
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 29 is Memorial Day. All markets are closed.
On Tuesday, May 30 at 6:00 AM EST, the S&P Case Shiller National Home Price Index is printed.
On Wednesday, May 31 at 7:00 AM, the JOLTS Job Openings Report is out.
On Thursday, June 1 at 8:30 AM, the Weekly Jobless Claims are announced.
On Friday, June 2 at 2:00 PM, the May Nonfarm Payroll Report is released.
As for me, with the 36th anniversary of the 1987 crash coming up this year, when shares dove 20% in one day, I thought I’d part with a few memories.
I was in Paris visiting Morgan Stanley’s top banking clients, who then were making a major splash in Japanese equity warrants, my particular area of expertise.
When we walked into our last appointment, I casually asked how the market was doing (Paris is six hours ahead of New York). We were told the Dow Average was down a record 300 points. Stunned, I immediately asked for a private conference room so I could call the equity trading desk in New York to buy some stock.
A woman answered the phone, and when I said I wanted to buy, she burst into tears and threw the handset down on the floor. Redialing found all transatlantic lines jammed.
I never bought my stock, nor found out who picked up the phone. I grabbed a taxi to Charles de Gaulle airport and flew my twin Cessna as fast as the turbocharged engines take me back to London, breaking every known air traffic control rule.
By the time I got back, the Dow had closed down 512 points. Then I learned that George Soros asked us to bid on a $250 million blind portfolio of US stocks after the close. He said he had also solicited bids from Goldman Sachs, Merrill Lynch, JP Morgan, and Solomon Brothers, and would call us back if we won.
We bid 10% below the final closing prices for the lot. Ten minutes later he called us back and told us we won the auction. How much did the others bid? He told us that we were the only ones who bid at all!
Then you heard that great sucking sound.
Oops!
What has never been disclosed to the public is that after the close, Morgan Stanley received a margin call from the exchange for $100 million, as volatility had gone through the roof, as did every firm on Wall Street. We ordered JP Morgan to send the money from our account immediately. Then they lost the wire transfer!
After some harsh words at the top, it was found. That’s when I discovered the wonderful world of Fed wire numbers.
The next morning, the Dow continued its plunge, but after an hour managed a U-turn, and launched on a monster rally that lasted for the rest of the year. We made $75 million on that one trade from Soros.
It was the worst investment decision I have seen in the markets in 53 years, executed by its most brilliant player. Go figure. Maybe it was George’s risk control discipline kicking in?
At the end of the month, we then took a $75 million hit on our share of the British Petroleum privatization, because Prime Minister Margaret Thatcher refused to postpone the issue, believing that the banks had already made too much money.
That gave Morgan Stanley’s equity division a break-even P&L for the month of October 1987, the worst in market history. Even now, I refuse to gas up at a BP station on the very rare occasions I am driving a rental internal combustion engine from Enterprise.
My Quotron Screen on 1987 Crash Day
Good luck and good trading!
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Global Market Comments
May 26, 2023
Fiat Lux
Featured Trades:
(MAY 24 BIWEEKLY STRATEGY WEBINAR Q&A),
(FCX), ($INDU), (NVDA), (TSLA), (AMZN), (TLT), ($VIX), (CCI), (BABA)
CLICK HERE to download today's position sheet.
Below please find subscribers’ Q&A for the May 24 Mad Hedge Fund Trader Global Strategy Webinar, broadcast from Silicon Valley, CA.
Q: Should I roll over my $55-$60 Freeport-McMoRan (FCX) 2024 LEAPS?
A: Yes, move it from the January 2024 expiration to January 2025—that gives you a full 18 months for the stock to recover from a recession (which it’s now discounting) and then double, which is where you make the really big money on our LEAPS.
Q: What's your year-end price prediction for Freeport-McMoRan (FCX)?
A: $50, this year’s high.
Q: If there’s a default, do members of Congress get paid?
A: No, they don’t, no money is no money, the cupboard is bare. Nothing gets paid. And the Treasury will have to choose who gets paid last because when they run out of money there's no money to pay anybody, which then leads to a default and a 50% stock market correction.
Q: Why do you buy in-the-money bull call spreads instead of selling credit spreads?
A: They’re easier to understand for beginners. It’s easier for people to understand that if you buy something and it goes up, you make money. It’s harder for people to understand that if you sell short something and it goes down, you make money. And it’s basically six of one and half a dozen of the other in terms of profit. I get that question constantly and that is always going to be the answer.
Q: What do you think about artificial intelligence; how will it affect stock prices?
A: It’ll be what takes the Dow average ($INDU) from $32,000 to $240,000 over the next 10 years. What AI does is it automatically triples the value of any company using it, even though now it may take years for the stock market to catch up. On top of that, companies will have their regular earnings growth from their traditional businesses.
Q: How far will Nvidia (NVDA) stock go up?
A: Well the consensus between fund managers is it goes up 7 times from here, to well over 1,000. It's at 300 today, so it sounds like 2,100 is the final target, assuming we don't have any more recessions. And by the way, we did recommend NVDA on a split adjusted basis around $2, so NVDA has gone up 175 times already from our initial recommendation 7 years ago when it was just a gaming play. The (NVDA) January 2025 LEAPS I recommended on September 29 at 50 cents is now worth $6.25 and expires worth $10, up 20-fold!
Q: How can companies be selling AI prediction services for traders, as no one can predict the future?
A: Well that is accurate, no one person can predict the future. However, algorithms can take patterns in the past, project them in the future, and they're often accurate as long as a black swan doesn’t happen. AI is getting so sophisticated now—not only do we have index predictions which we’ve been using now for almost 10 years to great success, but Mad Hedge is now services with single stock recommendations. They will say in 30 days (AMZN) will be at $X, and they’re right 90% of the time. This is getting very advanced very quickly, and we are at the absolute cutting edge of this (and have been for a long time), and that’s why we’re getting such spectacular results—it's me plus my algorithm.
Q: Are money market funds at risk if the US defaults?
A: If the US defaults and stays defaulted, then yes. Nothing anywhere is safe except gold bricks under the bed. If the US does default, they’ll get defaulted probably in days. And that's what happened last time, 12 years ago. So, I don't expect the world to end.
Q: What is the best strategy for a long-term retirement account?
A: If you're already retired like over 70, I would go 100% into fixed income, and spread out your fixed income exposure to 10-year treasuries which is now yielding 3.75%, to junk which is yielding 8.5%. And you might throw in a couple high dividend stocks like (CCI). Over age 70 you basically are looking for a 100% income portfolio, because you’re too old to go back to work at Taco Bell if you lose all your money. And believe me, I’ve been to Taco Bell and seen the 70-year-olds working there who did lose all their money, so you don’t want to do that. Equities are for younger kids like me, who are going to live forever.
Q: What about iShares 20 Plus Year Treasury Bond ETF (TLT)?
A: We’re watching very closely. We will do LEAPS, but I’m waiting for a capitulation selloff triggered by inaction in Washington to get there. Also, when they do reach a deal, it unleashes a bunch of bond selling by the government. The US Treasury is going to have to sell 700 billion dollars’ worth of bonds immediately, because they’re behind on their bills, how about that? They’re not paying military contractors. So yes, the initial move of a debt deal could be down for bonds—that's the move I'm waiting for.
Q: Are you buying at the money’s or out of the moneys on LEAPS?
A: At the money if you’re a conservative old fogie like me, and out of the money like 20% or 30% where you get like a 400% return for younger people so they still will live long enough to earn back all the money if they lose it.
Q: What do you think the next move on CBOE Volatility Index ($VIX) is?
A: Up, and I think we could see VIX at $30 sometime in June or July when our 10% selloff happens.
Q: Would you buy the ProShares UltraShort S&P 500 (SDS) now for protection?
A: Yes, I’d be buying some as a hedge against your long-term positions.
Q: Do you prefer one or two year LEAPS?
A: Two years is the more conservative maturity because it gives you two years to go into recession and get back out. If you think there isn’t going to be a recession and we reaccelerate from here, then you only want to do one year. With Treasuries bonds, I’m inclined to do one year because I think once the rise in prices happens it’ll happen very quickly. If you’re not happy with a 100% return in a year maybe you should consider another line of business.
Q: Is the housing market going to crash because of 7% mortgage rates?
A: No, one third of all the buyers now are cash buyers, who are spending their savings and will refinance when mortgages get back to 3% or 4%. Until then, housing prices go sideways because there is a severe shortage of housing nationwide, which is getting worse.
Q: How do I get my wife used to regenerative braking in Tesla (TSLA)?
A: Just take your foot off the acceleration pedal; as the car slows down, each of the four wheels perform as generators and recharge the battery. That means when you drive from Lake Tahoe at 7,000 ft down to the Central Valley at sea level, your power consumption is zero. You’re getting a free ride because you’re gravity powered, the wheels are recharging the battery the whole time. All you have to do is take your foot off the acceleration and the regenerative braking kicks in instantly. Teslas only use actual use brake shoes when they slowdown from five miles an hour down to zero.
Q: Which level is more likely this year in oil: $50 a barrel or $100?
A: Well, if we do get the recession or something close to it, we’ll see the $50 first, and then we’ll see the $100 on the recovery. That is what’s going to happen.
Q: When is the economic recovery going to be this year?
A: In the 4th quarter, starting in October, and the stock market will start discounting that in July or August. That is my view.
Q: What’s a better investment: stocks or real estate?
A: It depends on the person. At this level, stocks will probably deliver bigger returns than real estate. But real estate allows you 5-1 leverage. If you have an 80% mortgage, and that’s more leverage than most people can get in the stock market. The other thing about homes is that you don’t get to see the price every day in the newspaper and then panic and sell at the bottom. That's the other great thing about houses.
Q: Will this recording be available?
A: Yes we post it in about two hours on the website. You can look at all the charts and the commentary then.
Q: How would you hedge a 100% equity portfolio?
A: I would buy deep out of the money puts on the S&P 500, maybe 10% out of the money on puts—something like a 360 put on the SPY with a 2 month maturity. That gets you through the summer, gets you through any debt crisis, and certainly will reduce the volatility of your portfolio.
Q: Would you be buying Alibaba (BABA) down here?
A: No, I don’t want to get involved in China in anything—too much political risk.
To watch a replay of this webinar with all the charts, bells, whistles, and classic rock music, just log in to www.madhedgefundtrader.com , go to MY ACCOUNT, click on GLOBAL TRADING DISPATCH or TECHNOLOGY LETTER, then WEBINARS, and all the webinars from the last 12 years are there in all their glory
Good Luck and Stay Healthy,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
A Senior Citizen Teach Me the Computer at Taco Bell
Global Market Comments
May 22, 2023
Fiat Lux
Featured Trades:
(MARKET OUTLOOK FOR THE WEEK AHEAD,
or CONCENTRATION OF WEALTH AT THE TOP)
(AAPL), (GOOGL), (AMZN), (MSFT), (NVDA), (TSLA), ($VIX), (JPM), (BAC), (C)
CLICK HERE to download today's position sheet.
As I write this to you, I am flying at 30,000 feet over the red clay of Georgia. The azure blue of the Gulf of Mexico is on the left and the Golden State of California lies straight ahead.
I am returning from a five-day whirlwind tour of Florida, which saw me speak at three Strategy Luncheons and countless private meetings.
It was a blast!
Not only did I learn the local lay of the land, I often pick up some great trading ideas.
I first hitchhiked across the Sunshine State in 1967. Except for a few small towns on the coasts, there was nobody there. The entire inland of the state was covered with small cattle ranches and the odd tourist trap (mermaids, alligator wrestling, snake shows etc).
People thought the extensive freeway system was only built because the state was just 90 miles away from Cuba, then a Cold War flash point (it is officially called the “Dwight D. Eisenhower National System of Interstate and Defense”). Suddenly, somebody secretly started buying up land around Orlando. The locals thought General Motors (GM) was going to build a car plant there.
Then Walt Disney Corp (DIS) swept in and announced they were building a second Disneyland to cater to the east coast, creating an astonishing 70,000 jobs and the freeways started to fill up (click here for the video).
Today, driving around the state is a dystopian nightmare. The US population has doubled since the first Interstates were built in the 1950s, and the US GDP has increased by ten times, a byproduct of the Interstates. That means ten times more heavy truck traffic which has been mercilessly beating the life out of the roads. In Florida, the population has risen by more than fourfold as well, from 5 million to 22.2 million so you get the picture.
You lurch from one traffic jam to the next, even in the middle of the night. Whatever time Google Maps says it will take to get somewhere, triple it. The only consolation is that the traffic is worse in California.
I loved Key West where a very happy Concierge member made available an 1859 mansion close to the waterfront, restored and modernized down to the studs. By this time of the year, anyone with money has decamped for New England leaving only the retirees and beach bums.
I made the pilgrimage to Earnest Hemmingway’s home where he produced 70% of his published writings in only seven years. Another two boxes of manuscripts were discovered in the basement of his favorite bar last year.
It’s ironic that this state is now known for banning books that include sex and violence. Steinbeck’s work has already hit the dustbin, so old Earnest can’t be far behind.
What’s next? The Bible? It has lots of sex and violence.
As for me, Hemingway’s granddaughter, Mariel, stands out as the only Playboy cover girl I ever dated (April, 1982, I think). She is now happily married with three grown kids.
And yes, I did prove that it is possible to eat Key Lime Pie four days in a row.
As for the stock market last week, there really isn’t much to say. The concentration of wealth at the top continues unabated, as it is in the rest of the country. Stocks are still discounting a soft landing, while commodities, energy, and bonds expect a recession.
Go figure.
The top five stocks continues to suck all the money out of the rest of the market, (AAPL), (GOOGL), (AMZN), (MSFT), and (NVIDIA), the early beneficiaries of AI, accounting for 80% of this year’s market gains. Of the other 495 stocks, 250 are below their 200-day moving averages, meaning they are still in bear markets.
This is what has crushed volatility, taking the ($VIX) from $34 down to $15. The last time volatility was this low was just before the Long Term Capital Management fiasco where it languished around $9 (read Liar’s Poker by my friend Michael Lewis). When LTCB went bust, volatility rocketed to $40 overnight and stayed there for two years.
Options traders made fortunes.
Mad Hedge has nailed every trend this year. We bought tech and Tesla (TSLA) in January when we should have. We shorted ($VIX) every time it approached $30. Then we bought the banking bottom in March (JPM), (BAC), (C) and carried those positions into April.
We’ve been shorting Tesla strangles every month. And now we are 80% in cash waiting for the world to end one more time in Washington DC so we can load the boat with LEAPS and replay the movie one more time.
By the way, Mad Hedge has issued 25 LEAPS over the past year and 24 made money with an average profit of about 300%. Our sole loser has been with Rivian (RIVN), but even it still has 18 months to run. Never own an EV stock during a price war.
So far in May I have managed a modest 2.43% profit. My 2023 year-to-date performance is now at an eye-popping +64.18%. The S&P 500 (SPY) is up only a miniscule +9.00% so far in 2023. My trailing one-year return reached a 15-year high at +113.84% versus +10.87% for the S&P 500.
That brings my 15-year total return to +661.37%. My average annualized return has blasted up to +48.99%, another new high, some 2.74 times the S&P 500 over the same period.
Some 41 of my 44 trades this year have been profitable. My last 22 consecutive trade alerts have been profitable.
I closed out only one trade last week, a long in the (TLT) just short of max profit a day before expiration. That just leaves me with a long in Tesla and a short in Tesla, the “short strangle”. I now have a very rare 80% cash position due to the lack of high return, low risk trades.
There’s a 1,000 Point Drop in the Market Begging to Happen. That’s what happens when the market rallies on a Biden McCarthy debt ceiling deal, which McCarthy’s own party then votes down. After all, it took McCarthy 15 votes to get his job. Just watch volatility, it’s a coming.
Weekly Jobless Claims Fall to 242,000, down from 264,000. It’s a surprise slowdown. The rumor is that last week’s highpoint was the result of a surge in fraudulent online claims in Massachusetts.
NVIDIA Could Rise Fivefold in Ten years, say fund managers. I think that’s a low number. The Silicon Valley company makes the top performing GPU’s in the industry selling up to $60,000 each. (NVDA) is seeing a perfect storm of demand from the convergence of AI and Internet growth. The shares have already tripled off of the October low.
Tesla is Considering an India Factory, as part of its eventual build out to 10 plants worldwide. The country’s 100% import duty on cars has been a major roadblock. India is now pushing a “Made in India” initiative. Good luck getting anything done in India.
Homebuilder Sentiment Up for 10th Straight Month, as it will be for the next decade. There is no easy escape from a demographic wave. New homebuilders have figured out the new model.
India’s Tata to Build iPhones for Apple, in an accelerating diversification away from China. Apple has had too many of its eggs in one basket, especially given the recent political tensions between the US and the Middle Kingdom.
US Dollar Soars to Three Month High, as investors flee to safe haven short term investments. Rapidly worsening economic data is sparking recession fears. Ten consecutive months of falling inflation is another indicator of a slowdown.
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 22 there is nothing of note to report.
On Tuesday, May 23 at 4:00 PM EST, the inaugural launch of Mad Hedge Jacquie’s Post takes place. Please click here to attend this strategy webinar. The Federal Reserve Open Market Committee minutes are out at 2:00 PM.
On Wednesday, May 24 at 2:00 PM, the Federal Reserve Open Market Committee minutes are out.
On Thursday, May 25 at 8:30 AM, the Weekly Jobless Claims are announced. The US GDP Q2 second estimate is also published.
On Friday, May 26 at 2:00 PM, the University of Personal Income & Spending and Durable Goods are released.
As for me, I am reminded of my own summer of 1967, back when I was 15, which may be the subject of a future book and movie.
My family summer vacation that year was on the slopes of Mount Rainier in Washington State. Since it was raining every day, the other kids wanted to go home early.
So my parents left me and my younger brother in the firm hands of Mount Everest veteran Jim Whitaker to summit the 14,411 peak (click here for this story ). The deal was for us to hitchhike back to Los Angeles as soon as we got off the mountain.
In those days, it wasn’t such an unreasonable plan. The Vietnam War was on, and a lot of soldiers were thumbing their way to report to duty. My parents figured that since I was an Eagle Scout, I could take care of myself anywhere.
When we got off the mountain, I looked at the map and saw there was this fascinating-sounding country called “Canada” just to the north. So, it was off to Vancouver. Once there I learned there was a world’s fair going on in Montreal some 2,843 away, so we hit the TransCanada Highway going east.
We ran out of money in Alberta, so we took jobs as ranch hands. There we learned the joys of running down lost cattle on horseback, working all day at a buzz saw, artificially inseminating cows, and eating steak three times a day.
I made friends with the cowboys by reading them their mail, which they were unable to do since they were all illiterate. There were lots of bills due, child support owed, and alimony demands.
In Saskatchewan, the roads ran out of cars, so we hopped a freight train in Manitoba, narrowly missing getting mugged in the rail yard. We camped out in a box car occupied by other rough sorts for three days. There’s nothing like opening the doors and watching the scenery go by with no billboards and the wind blowing through your hair!
When the engineer spotted us on a curve, he stopped the train and invited us to up the engine. There, we slept on the floor, and he even let us take turns driving! That’s how we made it to Ontario, the most mosquito-infested place on the face of the earth.
Our last ride into Montreal offered to let us stay in his boat house as long as we wanted so there we stayed. Thank you, WWII RAF Bomber Command pilot Group Captain John Chenier!
Broke again, we landed jobs at a hamburger stand at Expo 67 in front of the imposing Russian pavilion with the ski jump roof. The pay was $1 an hour and all we could eat.
At the end of the month, Madame Desjardin couldn’t balance her inventory, so she asked how many burgers I was eating a day. I answer 20, and my brother answered 21. “Well, there’s my inventory problem” she replied.
And then there was Suzanne Baribeau, the love of my life. I wonder whatever happened to her?
I had to allow two weeks to hitchhike home in time for school. When we crossed the border at Niagara Falls, we were arrested as draft dodgers as we were too young to have driver’s licenses. It took a long conversation between US Immigration and my dad to convince them we weren’t. It wasn’t the last time my dad had to talk me out of jail.
We developed a system where my parents could keep track of us across the continent. Long-distance calls were then enormously expensive. So, I called home collect and when my dad answered, he asked what city the call was coming from.
When the operator gave him the answer, he said he would NOT accept the call. I remember lots of surprised operators. But the calls were free, and Dad always knew where we were. At least he had a starting point to look for the bodies.
We had to divert around Detroit to avoid the race riots there. We got robbed in North Dakota, where we were in the only car for 50 miles. We made it as far as Seattle with only three days left until high school started.
Finally, my parents had a nervous breakdown. They bought us our first air tickets ever to get back to LA, then quite an investment.
I haven’t stopped traveling since, my tally now tops all 50 states and 135 countries.
And I learned an amazing thing about the United States. Almost everyone in the country is honest, kind, and generous. Virtually every night, our last ride of the day took us home and provided us with an extra bedroom, garage, barn or tool shed to sleep in. The next morning, they fed us a big breakfast and dropped us off at a good spot to catch the next ride.
It was the adventure of a lifetime and I profited enormously from it. As a result, I am a better man.
As for my brother Chris, he died of covid in early 2020 at the age of 65, right at the onset of the pandemic. Unfortunately, he lived very close to the initial Washington State hot spot.
People often ask me what makes me so different from others. I answer, “My parents taught me I could do anything with my life, and I proved them right.”
Good luck and good trading.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Summit of Mt. Rainier 1967
McKinnon Ranch Bassano Alberta 1967
American Pavilion Expo 67
Hamburger Stand at Expo 67
Picking Cherries in Michigan 1967
Mad Hedge Technology Letter
May 17, 2023
Fiat Lux
Featured Trade:
(THE BEST TECH STOCK FOR SPECTACULAR GROWTH)
(NVDA)
Nvidia (NVDA) is expensive, but it’s expensive for a reason.
Readers need to participate in this epic move going on in Nvidia’s stock.
Anything resembling a dip will be bought because the demand for Nvidia’s products vastly outweighs the supply.
There are signs that Nvidia could deliver better-than-expected results thanks to the importance of the company's artificial intelligence (AI) chips, which carry a massive price tag.
Investors have been buying up the stock by the truckload on the hype around AI applications and how they are going to create terrific demand for Nvidia's chips.
They should deliver us a great forecast moving forward as AI is the hottest trend in town.
At the same time, investors shouldn't forget that a third of Nvidia's revenue comes from PC-centric businesses -- gaming and professional visualization. With PC sales declining at an alarming pace and a recovery still some time away, there is a chance of Nvidia's results and guidance not being up to analysts' expectations.
Nvidia gets nearly 60% of its revenue from selling chips deployed in data centers. The sizable influence of the data center business on Nvidia's top line could help it overcome the PC market's weakness, especially considering that companies involved in the development of AI applications made a beeline for its chips.
Nvidia's H100 graphics processing unit (GPU), which is used for training large language models and powers generative AI applications such as chatbots, sells for as much as $40,000. This robust pricing power is the reason AI is expected to substantially boost Nvidia's growth in the coming years, potentially adding billions of dollars to the company's revenue.
The good part is that investors may witness the impact of AI-related demand on Nvidia's business very soon. DigiTimes reports that the semiconductor bellwether reportedly placed more orders for data center chips at foundry partner Taiwan Semiconductor Manufacturing.
A closer look at how AI-related spending is booming gives us more reasons to believe that demand for Nvidia's expensive AI chips could be high.
Meanwhile, the AI chip market alone is expected to grow to a whopping $227 billion a year by 2032 from just $17 billion last year, according to Precedence Research. Nvidia is the leading player in this market, with an estimated share of 95% of the market for GPUs used for machine learning applications. It’s almost guaranteed to see AI turning out to be a long-term catalyst for the stock.
The company's solid pricing power in AI chips and robust demand for those chips could help Nvidia deliver such impressive growth.
If there is some macro event that jolts the market, that would be a perfect entry point into Nvidia shares.
The violent upswings in Nvidia make it difficult to find entry points; therefore, cherish those down days because they are so seldom.
The strong momentum in AI manifests itself directly in this one chip stock Nvidia.
Don’t miss the roller coaster ride to profits.
Global Market Comments
May 8, 2023
Fiat Lux
Featured Trades:
(MARKET OUTLOOK FOR THE WEEK AHEAD,
or THE GOLDEN AGE OF BIG BANKING HAS JUST BEGUN)
(JPM), (FRC), (BAC), (C), (WFC), (AAPL), (GOOGL), (META),
(AMZN), (TSLA), (NVDA), (CRM), ($VIX), (USO), (TLT), (QQQ)
CLICK HERE to download today's position sheet.
The United States is about to change beyond all recognition.
Most investors have missed the true meaning of the JP Morgan takeover of First Republic Bank for sofa change, some $10.6 billion. It in fact heralds the golden age of big banking. The US is about to move from 4,000 banks to four, with all of the profits accruing at the top.
Look at the details of the (JPM)/(FRC) deal and you will become utterly convinced.
(JPM) bought a $90 billion loan portfolio for 87 cents on the dollar, despite the fact that the actual default rate was under 1%. The FDIC agreed to split losses for five years on residential losses and seven years on commercial ones. The deal is accretive to (JPM) book value and earnings. (JPM) gets an entire wealth management business, lock, stock, and barrel. Indeed, CEO Jamie Diamond was almost embarrassed by what a great deal he got.
It was the deal of the century, a true gift for the ages. If this is the model going forward, you want to load the boat with every big bank share out there.
And the amazing thing was that (JPM) made the highest bid among a half dozen contenders.
Along with Health Care, banking is the last unconsolidated US industry. We have five railroads, four airlines, three trucking companies, three telephone companies, two cell phone providers….and 4,000 banks?
Other countries get by with much less. England has five major banks, Australia four, and Germany two, one of which goes bankrupt every decade (I’m not naming names). America’s financial system is an anachronism of its federal system where each of the 50 states is treated like a mini country.
The net net of this will be a massive capital drain from the entire country to New York where the big banks are concentrated. Local economies in the Midwest and the South will collapse for lack of funding. The West Coast will be OK with behemoth technology companies spinning off gigantic cash flows.
The other big story here is the dramatic change in the administration’s antitrust policy. Until now, it has opposed every large merger as an undue concentration of economic power. Then suddenly, the second largest bank merger in history took place on a weekend, and there will be more to come.
All it takes is a Twitter run by depositors. Every weekend has become a waiting game for the foreseeable future.
Needless to say, this makes all the big banks a screaming buy. Hoover up every one of the coming dip, including (JPM), (BAC), (C), and (WFC).
Big is beautiful.
To prove I am not perfect, my position in First Republic Bank (FRC) still sits on my broker statement a week after it filed for bankruptcy, dead, moribund, and worthless as if it is some form of punishment. It’s a very small position but it stings nonetheless.
It’s like they want to punish me for leading them astray. They have been copying my trades for ages without paying for them and I hope they took a big one in (FRC).
So far in May, I have managed a modest +0.55% profit. My 2023 year-to-date performance is now at an eye-popping +62.30%. The S&P 500 (SPY) is up only a miniscule +8.40% so far in 2023. My trailing one-year return reached a 15-year high at +120.45% versus -3.67% for the S&P 500.
That brings my 15-year total return to +659.49%. My average annualized return has blasted up to +48.86%, another new high, some 2.79 times the S&P 500 over the same period.
Some 40 of my 43 trades this year have been profitable. My last 20 consecutive trade alerts have been profitable.
I initiated no new trades last week, content to run off existing profitable ones. With the Volatility Index at a two-year low at 15.78%, opportunities are few and far between. Those include both longs and shorts in Tesla (TSLA), a long in the bond market (TLT), and a short in the (QQQ).
That leaves me with only one remaining position, a short-dated long in the bond market. I now have a very rare 90% cash position due to the lack of high-return, low-risk trades.
The Fed Raises Rates 0.25%, likely the last such move in this cycle. Futures markets are now discounting a 25-basis point CUT by September, the beginning of a new decade-long falling rate cycle. The problem is that AI is creating more jobs than it is destroying, keeping the Fed fixated on the wrong data.
Nonfarm Payroll Jumps by 253,000, another hot number. The headline Unemployment Rate dropped to a half-century low of 3.4%. These figures suggest for rate hikes to come.
The JP Morgan Buys First Republic Bank from the FDIC, for $10.6 billion, thus wiping out the shareholders. It’s a huge win for (JPM), which picked up 87 branches and $90 billion in loans in the wealthiest part of the country, taking the share up $5. What you lost on (FRC) you made pack on (JPM) LEAPS. Live and learn. On to the next trade! The FDIC got out for nearly free, a big win for the government.
Government Default Date Moved Up to June 1, by US Treasury Secretary Janet Yellen, smacking the bond market for three points. The House remains an albatross around the bond market’s debt.
Europe Ekes Out 0.1% Growth in Q1, versus a 1.1% rate for the US. This is despite the drag of the Ukraine War, energy shortages, high inflation, and Brexit. What’s the difference between the US and Europe? We allow immigrants who become customers, while the continent doesn’t.
You Only Need to Buy Seven Stocks This Year, as the rest are going nowhere. That include (AAPL), (GOOGL), (META), (AMZN), (TSLA), (NVDA), (CRM). Watch out when the next rotation broadens out to the rest of the market.
Is Volatility Bottoming Now? The Fed announcement of a 25 basis point hike on Wednesday could end the move up in stocks. After that, shares will only have an imminent debt default and US government downgrade to focus on. ($VIX) seven-week fade will end that revisit the old highs in the high $20’s. Great shorting opportunities are setting up.
Oil (USO) Crashes 5% on US debt default fears in the biggest drop since January. This is the worst asset class to own going into a recession. EV competition is also starting to take a bite. No gas needed here. $66 a barrel here we come.
More Tesla Price Cuts to Come, with swelling inventories forcing Musk’s hand. The only consolation is that Detroit will suffer more. Musk is cutting profits while the big three are accelerating losses. Tesla has excess inventory for the first time in its 20-year history.
Apple (AAPL) Earnings Beat, led by stronger than expected Q1 iPhone sales at $53.1 billion. EPS came in at $1.53 versus $1.42 expected, revenues at $94.84 billion versus $92.96. Mac and iPad sales are down YOY. Services rose 5.3%. Apple bought back a stunning $90 billion of its own shares and paid dividends. The shares popped $3. The long-term growth play here is low prices phone in India where second hand phone sales have been burgeoning. That's why Apple is now offering to buy your old phone. Next stop: New Delhi.
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 8 at 7:30 AM EST, the Consumer Inflation Expectations are out.
On Tuesday, May 9 at 6:00 AM, the NFIB Business Optimism Index is announced.
On Wednesday, May 10 at 11:00 AM, the US Inflation rate is printed.
On Thursday, May 11 at 8:30 AM, the Weekly Jobless Claims are announced. We also get the Producer Price Index.
On Friday, May 12 at 8:30, the University of Michigan Consumer Sentiment Index for April is released.
As for me, I have been going down memory lane looking at my old travel photos looking for new story ideas and I hit the jackpot.
Most people collect postcards from their foreign travels. I collect lifetime bans from whole countries.
During the 1970s, The Economist magazine of London sent me to investigate the remote country of Nauru, one half degree south of the equator in the middle of the Pacific Ocean.
At the time, they had the world’s highest per capita income due to the fact that the island was entirely composed of valuable bird guano essential for agriculture. Before the Haber-Bosch Process to convert nitrogen into ammonia was discovered, guano was the world’s sole source of high grade fertilizer.
So I packed my camera, extra sunglasses, and a couple of pairs of shorts and headed for the most obscure part of the world. That involved catching Japan Airlines from Tokyo to Hawaii, Air Micronesia to Majuro in the Marshall Islands, and Air Nauru to the island nation in question.
There was a problem in Nauru. Calculating the market value of the bird crap leaving the island, I realized it in no way matched the national budget. It should have since the government owned the guano mines.
Whenever numbers don’t match up, I get interested.
I managed to wrangle an interview with the president of the country in the capital city of Demigomodu. It turns out that was no big deal as visitors were so rare in the least visited country in the world that he met with everyone!
When the president ducked out to take a call, I managed to steal a top-secret copy of the national budget. I took it back to my hotel and read it with great interest.
I discovered that the president’s wife had been commandeering Boeing 727s from Air Nauru to go on lavish shopping expeditions to Sydney, Australia where she was blowing $200,000 a day on jewelry, designer clothes, and purses, all at government expense. Just when I finished reading, there was a heavy knock on the door. The police had come to arrest me.
It didn’t take long for missing budget to be found. I was put on trial, sentenced to death for espionage, and locked up to await my fate. The trial took 20 minutes.
Then one morning I was awoken by the rattling of keys. My editor at The Economist, the late Peter Martin, had made a call and threatened the intervention of the British government. Visions of Her Majesty’s Navy loomed on the horizon.
I was put in handcuffs and placed on the next plane out of the country, a non-stop for Brisbane Australia. When I was seated next to an Australian passenger, he asked “Jees, what did you do mate, kill someone?” On arrival, I sent the story to the Australian papers.
I dined out on that story for years.
Alas, things have not gone well for Nauru in the intervening 50 years. The guano is all gone, mined to exhaustion. It is often cited as an environmental disaster. The population has rocketed from 4,000 to 10,000. Per capita incomes have plunged from $60,000 a year to $10,000. The country is now a ward of the Australian government to keep the Chinese from taking it over.
If you want to learn more about Nauru, which many believe to be a fictitious country, please click here.
As for me, I think I’ll pass. I don’t ever plan to visit Nauru again. Once lucky, twice forewarned.
Stay healthy,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
