Global Market Comments
March 24, 2023
Fiat Lux
Featured Trade:
(MARCH 22 BIWEEKLY STRATEGY WEBINAR Q&A),
(IBB), (INTC), (AMD), (XLU), (NVDA), (TSLA), (FRC), (QQQ), (SPY), (TLT), (UNG), (USO), (VLO), (DINO), (SUN), (FCX), (JPM), (RIVN), (DVN), (LNG), (KMI), (DAL)
CLICK HERE to download today's position sheet.
Below please find subscribers’ Q&A for the March 22 Mad Hedge Fund Trader Global Strategy Webinar, broadcast from Silicon Valley, CA.
Q: I have big losses in biotech (IBB) but am a long-term believer—do you think it will recover?
A: Yes, I do. But we are still looking at the post-COVID hangover, where Biotechs rocketed for about a year. We’re simply coming off that overbought situation. In the meantime, the industry continues to generate groundbreaking discoveries at the fastest rate in history. When those translate into profit-making products, the stocks will perform, and many of them already have.
Q: Advanced Micro Devices (AMD) appears to be overbought, what are your thoughts?
A: Yes absolutely, the whole chip sector is overbought, because guess what, they benefit from falling interest rates and an economic recovery. That group will absolutely lead going into the future, and it’s hard to get into—these things just go up in a straight line. Look at Nvidia (NVDA), it has more than doubled since the October low and you barely get pullbacks. It’s looking like Nvidia is going to take over the world; we’d love to get into it but it seems like it will only be a high-risk/high-reward stock. They are now having the tailwind with Chat GPT—which everyone has to own now or go out of business—and buy Nvidia chips to make it work.
Q: Would you recommend banks and brokerages here?
A; Yes, because of the banking crisis, they’ll be the best performers as we come out of it. The end of the interest rate rising cycle is now in sight, and we are about to enter the golden age of banking. Institutions are buying stocks for that now. And your next entry point will be Friday because the pattern has been to sell off everything on Fridays in expectation of a new bank going under on the weekend. If nothing happens, then you have a big rally on Monday morning. So that you can probably play.
Q: Are there recordings of this webinar?
A: Yes, to find all past recordings, just go to www.madhedgefundtrader.com and log in.
Q: When does Intel (INTC) become a buy, if ever?
A: It’s probably a “BUY” right here. You never want to buy a tech company run by a salesman, and that’s what happened with Intel. As soon as you had a salesman guaranteeing he’d turn the company around, the stock dropped by half. So down here, it’s looking more likely that they’ll fire the head of Intel, get an engineer back in charge, and the stock should double. But clearly, it’s the only value left in the semiconductor area.
Q: Would you double up on the United States Natural Gas Fund (UNG)?
A: Yes, and I'd be doing 2-year (UNG) LEAPS. There’s no way you have an economic recovery over the next two years that will get us a double, triple, or quadruple in the price of natural gas, and (UNG) will catch that move less 35% for the contango (the 1-year differential between front month and one-year futures contracts).
Q: What’s your favorite tech stock to buy on the dip?
A: It has to be Tesla (TSLA). And I’m in the middle of writing a massive opus on the Tesla Investors Day, which included far more news and content than people realize. That's because you have journalists covering investors' day, not engineers. So I’ll get to the engineers’ and scientists view, which is much more interesting.
Q: Buy bitcoin after the financial contagion?
A: No, bitcoin is what you bought at the market top because there was nothing else to buy because everything else was so expensive. Now everything else is cheap when you can buy Apple (AAPL) at $160, Nvidia at $272 (NVDA), or Tesla (TSLA) at $200. Those are far better choices than a purely speculative asset class which you may never see again once you send in your money. That has been the experience of a lot of people.
Q: Should I sell short the Utility ETF (XLU) if investors head into growth stocks?
A: No, utilities are very heavy borrowers with big capital requirements, and also will benefit heavily from falling interest rates. Basically, everything goes up on an economic recovery. So, your short ideas were great a year ago, not so much now. Now we’re looking for long plays, and just a few hedges, like in bonds, to control risk.
Q: What's the net entry point for Freeport McMoRan (FCX)?
A: I would say here, and my target for this year for Freeport is at the very least hitting $50 again; someday we hit $100, once we get another ramp-up for EV production and the demand for copper sores accordingly.
Q: I hear China has a battery that will go 600 miles and is coming soon.
A: Tesla has a battery that will go 1,000 miles now, but it can only be recharged once. It turns out that the military is very interested in using these, converting Humvees to EVs; then you could parachute them charged batteries which you just pop in. That eliminates having to move these giant bladders of gasoline which easily explode. So yes, the 1,000-mile battery has actually been around for 10 years but can’t be mass-produced. That is the issue.
Q: How will Tesla deal with hydrogen?
A: It will ignore it. Hydrogen will never go mainstream—it can’t compete with an existing electric power grid. But there are fleet or utility applications that make sense; so other than a small, limited fleet confined to a local area, I don't see hydrogen ever catching up. And Saudi Arabia can easily convert their entire oil supply into hydrogen to create a “green” carbon-free fuel. Remember, the cost of electric power cars is dropping dramatically—at about 20% a year—so hydrogen has to keep up with that too which they’re not.
Q: Please explain a bank LEAPS.
A: You buy a call option, you sell short a call option higher up, and you do it with a maturity of one year longer, or more. That’s what makes it a LEAPS. If you want more details, just go to www.madhedgefundtrader.com, and search LEAPS and a full explanation of how to execute these will come up.
Q: What do you think of Rivian (RIVN)?
A: It’s a long-term play—they got knocked down by half on their latest $1.2 billion capital raise, which everybody knew was coming, but still seemed to surprise some traders. It’s a long-term hold, not a short term trade. That said, it’s tempting to do LEAPS on Rivian right here going out two years. The stock is down 95% from the highs.
Q: What level LEAPS do you do on JP Morgan (JPM)?
A: I sent that out to everybody last week—that would be to buy the $130 call option and sell short the $135 call option for January of 2024. That way the stock only has to go up 4% for you to make a 100% return on that investment. That’s why we love LEAPS.
Q: I had First Republic Bank (FRC) at $30, took a bath, and got rid of it. Should I have held on?
A: Yes. There's nothing wrong with First Republic's business, and that’s what's new in all of this current round of bank failures—the assets are fine. Usually when a bank goes under it’s because they extended too many dubious loans that defaulted. First Republic not only has a great loan book, but a great asset base in high-net-worth individuals. This is not a bank you would normally expect to go under. Which is why private banks are pouring money into it to save it. I’d be a buyer at the $10 level if we get down that far again. And I actually bought a little bit of First Republic myself on Monday, the meltdown day at $15, with the theory that it will get bailed out and the stock goes up ten times.
Q: Would you do vertical credit spreads on the SPDR S&P 500 ETF Fund (SPY) or Invesco QQQ ETF (QQQ) with the $2 spread?
A: No, the big money is made on single stocks, which have double or triple the volatility of indexes, and you know which single stocks to buy right now—the ones that just had a big selloff. You want more volatility at market bottoms, not less; and I would recommend doing all the financial and call spreads and LEAPS right here. They will have higher volatility and deliver much better risk/reward ratios. That is basic trading 101: you short indexes on the way down, you buy single stocks on the way up. That's what every hedge fund worth its salt does.
Q: Do you have an opinion on Zero Days to Expiration causing greater volatility?
A: Absolutely, it is—especially on Fridays. And I'm not doing these because they are basically lottery tickets. But, if it's a coin toss on whether you make money or not, and you write off the bad ones and make a nice profit on the good ones, that could be a profitable trade. I actually have several followers experimenting with that type of strategy, so I'll let you know if they make any money on it.
Q: What do you think about oil in this environment?
A: It’s discounting a recession which is never going to happen; so oil and oil plays are probably a good trade here, especially with front-month calls. I would be going for Valero Energy (VLO) and the refiners like Sinclair (DINO) and Sunoco (SUN), rather than the big producers because they have already had big moves which they have held onto mostly. Expect oil to go up—I’d be buying the commodity here (USO) and I’d be buying the United States Natural Gas Fund (UNG).
Q: What's the maximum downside in the next 30 days?
A: Well I showed you on that S&P 500 (SPY) chart at the beginning—$350 is the worst-case scenario with a deep recession, and that assumes the banking crisis doesn’t go away and gets worse. I think the banking crisis is done and getting better so we won’t test the downside, but the unanticipated can happen, so you have to be ready for anything. The non-recessionary low looks to be $375.
Q: What if you can’t do spreads in an IRA, like for iShares 20 Plus Year Treasury Bond ETF (TLT)?
A: Just buy the (TLT) outright, or buy it on 2:1 margin. (TLT) is probably a great buy around 100 or 101. ProShares has the 2X long Ultra Treasury ETF (UBT), but the fees are high, the spreads are wide, and the tracking error is large, as is standard for these kinds of instruments.
Q: When taking a position in LEAPS, how do you decide the position size per holding?
A: I send out all the LEAPS assuming one contract, then you can adjust your size according to your own experience level and risk tolerance. Keep in mind that if I’m wrong on everything, the value of all LEAPS goes to zero, so it may not be for you. On the other hand, if I am right on my one-year and two-year views, all these LEAPS will deliver a 100-120% return. You decide.
Q: Are you expecting a seasonal rally in oil?
A: Yes I am, and we’re coming off very low levels. Buy the United States Oil ETF (USO) and buy the United States Natural Gas Fund (UNG).
Q: Is a recession still on the table with all the banking crises?
A: No, if anything, it brings the end of any possibility of a recession because it’s bringing interest rate cuts sooner than expected, which brings a recovery that’s sooner than expected. And that’s why you’re getting interest-rate-sensitive stocks holding here and starting to rally.
Q: My retirement account won’t let me buy (UNG)—Are there any other good companies I can buy?
A: Yes, Devon Energy (DVN) is big in the gas area. So are Cheniere Energy (LNG) and Kinder Morgan (KMI).
Q: If the market is oversupplied with oil, why is gasoline so expensive?
A: Endless middlemen add-ons. This is one of the greatest continuing rip-offs in human history—gasoline prices always take the elevator up and the escalator down, it’s always that way. And that's how oil companies make money—by squeezing consumers. I’ve been tracking it for 50 years and that’s my conclusion. The State of California has done a lot of research on this and learned that only half of their higher prices are from taxes to pay for roads and the other half comes from a myriad of markups. Also, a lot of businessmen just don’t want to be in the gasoline retailing business and will only enter when the returns are very high. Plus, oil companies are trying to milk companies for all their worth right now because the industry may disappear in 10 years. Go electric, that’s my solution. I haven’t bought gasoline for 13 years, except for my kids. I only buy cars for my kids at junkyards and fix them up. If they want to do better they can go out and earn it.
Q: Do we need to worry about China supporting Russia in the war against Ukraine?
A: Not really, because all we have to do to cut off Chinese supplies for Russia is to cut off trade with China, and their economy will completely collapse. China knows this, so they may do some token support for Russia like send them sweatshirts or something like that. If they start a large arms supply, which they could, then the political costs and the trade costs would be more than it’s worth. And at the end of the day, China has no principles, it really is only interested in itself and its own people and will do business with anybody.
Q: What do you think about the recovery in solar?
A: What’s been going on in solar is very interesting because for the last 20 years, solar has moved one to one with oil. So, you would expect that from collapsing oil prices and more price competition from oil, solar would collapse too. Instead, solar has had tremendous moves up and is close to highs for the year. The difference has to be the Biden alternative energy subsidies, which are floating the entire industry and accelerating the entire conversion of the United States to an all-electric economy. So they've had great runs. I wouldn’t get involved here, but it’s nice to contemplate what this means for the long-term future of the country.
Q: Should I buy the airline stocks here?
A: Yes, I’d go for Delta (DAL). Again, it’s one of the sectors that’s discounting a recession that’s not going to happen. They’re going to have the biggest airline boom ever this summer as the reopening trade continues on for another year, and a lot of pent-up travel demand hits the market.
Q: Do you like platinum?
A: I do—not because of EVs but because of hydrogen. You need platinum for hydrogen fuel cells to work. That’s a brand new demand, and there’s supposed to be a shortage of half a million ounces of platinum this year.
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
Global Market Comments
February 6, 2023
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or WELCOME TO THE WHIPSAW)
(SPY), (TLT), (TSLA), (QQQ), (DOCU), (META), (AMZN)
CLICK HERE to download today's position sheet.
Note: We are moving webinar platforms to Zoom for the February 8, 12:00 EST Mad Hedge Biweekly Strategy
Webinar. To join, please click here.
Well, that was some week!
The next time there is a Fed interest rate announcement, earnings from all the big tech companies, and a Nonfarm Payroll Report all within five days, I am going to call in sick, volunteer at the Oakland Food Bank, or explore some remote Pacific island!
For good measure, a top-secret Chinese spy balloon passed overhead before it was shot down, which I was able to read all about in USA Today.
Still, when you live life in the front trenches and on the cutting edge and use the kind of leverage that I do, you are going to take hits. It’s all a cost of doing business. If you can’t stand the heat, get out of the kitchen.
The last month in the markets have seen one of the greatest whipsaws of all time. Many leading stocks are up 40%-100%, while the Volatility Index ($VIX) plunged to a two-year low. Stocks have gone from zero bid to zero offered. The bulls are back in charge, for now.
Go figure.
This year has proved full of flocks of black swans so far, with February setting me back -5.70%. My 2023 year-to-date performance is still at the top at +16.65%. The S&P 500 (SPY) is up +9.92% so far in 2023. My trailing one-year return maintains a sky-high +84.10%.
That brings my 15-year total return to +613.84%, some 2.59 times the S&P 500 (SPX) over the same period. My average annualized return has retreated to +46.62%, still the highest in the industry.
Last week, I got stopped out of my short position in the (QQQ), in what will hopefully be my biggest loss of the year, but not the last. Once or twice a year, you get a major gap opening that takes you through one, and sometimes two full strike prices, taking you to the cleaners, and this was one of those times. It takes three more winning trades to make up for these.
I also took small profits on my remaining long in Apple (AAPL). That leaves me 80% in cash, with a double short in Tesla (TSLA). Markets are wildly overextended here with my own Mad Hedge Market Timing Index well into “SELL” territory at 76. Tread at your own peril. Cash is king right here.
Growth stocks are on fire and small caps have been prospering, all classic bull market indicators. This has triggered panic short covering by hedge funds which have seen their worst start to a New Year in decades. The old pros are getting carried out on stretchers.
Maybe this is a good time to hire some kid to do your trading, like one who has never seen markets go down before, one who started his career only on January 1? Or maybe one who retired on December 31 2021, and took a year off?
So, what are markets trying to tell us? That in an hour, the view of the economy has flipped from a mild recession to a soft landing? That interest rates don’t matter anymore? That big chunks of the economy can operate without outside money? That big tech will always make money, it will just rotate from large profits to small ones and back to outrageous ones again?
Those who instead bet on a severe recession are currently filling out their applications as Uber drivers. Warning: it’s harder than it used to be, no more fake IDs or salvage title cars. Next, they’ll want your DNA sample.
If it is any consolation, Fed governor Jay Powell hasn’t a clue about what’s happening either, and that’s with 100 PhD's in economics on his staff. He was just as flummoxed as we over a January Nonfarm Payroll Report that came in 2.5 X expectations on top of 4.5% in interest rate hikes.
Clearly, a new economy has emerged from the wreckage of the pandemic, and no one, not anyone, has quite figured out what it is yet.
Some ten years’ worth of economic evolution has been pulled forward. Everything is digitizing at an astonishing rate. What do I do after slaving away in front of a computer all day? Go back to my computer to have fun. Lots of “zeros” and “ones” there.
It looks like we get a new stock market too.
All of this frenetic market action does fit one theory that I spelled out for you in great detail last week. It is that technology stocks are about to spin off such immense profits that it is about to replace the Fed as a new immense supply of free money.
META up 20% in a day? That’s what it says to me. Notice that Mark Zuckerberg mentioned “AI” 16 times in his earnings call.
Is it possible that I nailed this one….again?
On another related topic, the last three months have just given us a wonderful illustration of how well the Mad Hedge Market Timing Index works (see chart below). We got a strong BUY at an Index reading of 30 on December 22, when the (SPY) began a robust 12% move up. We are now at the top end of an upward trend with my Index at 76. You’d be Mad to add a long position here, at least for the short term.
Someone asked me the other day if the algorithm has gotten smarter in the seven years I have been using it. The answer is absolutely “yes,” and you can see it in my performance. During this time, my average annualized return has jumped from 31% to 46%. That’s because the algorithm gets smarter with the hundreds of new data points that are added every day. Believe it or not, this is how much of the economy is run now.
But there is another factor. I get smarter every year. Believe it or not, when you go from year 54 to 55, you actually learn quite a lot about the markets. Of course, markets are evolving all the time and the rate of change is accelerating. When I saw the market moving towards algorithms, I wrote an algorithm. The challenge is to solve each new problem the market throws at you every year, which I love doing.
Nonfarm Payroll Report at 513,000 Blows Away Estimates, more than double expectations. The Headline Unemployment Rate fell to a new 53-year low at 3.4%. Leisure & Hospitality gained an incredible 128,000, Professional & Business Services 82,000, and Government 74,000. You can kiss that interest rate cut goodbye. Bonds believe it, down 3 points, but stocks are still in Lalaland, reversing a 300-point reversal in the (QQQ)s.
Fed Raises Rates 25 basis points, but Powell talks hawkish, smashing stocks for an hour. He needs more evidence that inflation is finally headed down. He might as well have said he’ll burn the place down. One or two more rate rises to go before the pivot.
Weekly Jobless Claims Hit New 9 Month Low, at 183,000, down 3,000, and is close to a multi-generational low. A recession is rapidly moving off the table as today’s move in tech stocks indicates.
JOLTS Surges Past 11 Million Job Openings in December to a five-month high. The Fed’s assault on labor clearly isn’t working. The million who died from Covid certainly aren’t coming back to work, nor are the 500,000 long Covid cases. That’s 1% of the US workforce.
Ukraine War is Accelerating Move to Green Energy, or so thinks British Petroleum, cutting its ten-year energy demand forecast. Russian energy has proven unreliable at best, and the key pipelines have been blown up anyway. Massive subsidies have been unleashed in Europe and the US for solar, wind, EVs, hydro, and even nuclear. The war gave coal a respite from oblivion, but only a temporary one.
S&P Case Shiller Drops to an 8.6% Annual Gain, the National Home Price Index falling for five consecutive months. No green shoots here. The deeply lagging indicator may not turn positive until yearend. Miami, Tampa, and Atlanta showed the biggest gains, with San Francisco the biggest loser.
Office Occupancy Recovers to 50%, according to a private research firm. New York, San Jose, and San Francisco are still lagging. With the work-from-home trend and high interest rates, commercial properties have entered a perfect storm. Austin, TX was the highest at 68%.
Europe Delivers Surprising Q4 Growth, despite WWIII playing out on its doorstep. GDP increased by 0.1% when a decline was expected. European stocks should outperform American ones in 2023.
IMF Upgrades Global Growth Forecast for 2023 to 2.9% and sees a modest recovery in 2024. The figures are an improvement from the last report, thanks to falling inflation and energy prices. China ending lockdowns is another plus.
General Motors to Invest $650 Million in Lithium Americas, pouring money into a Nevada mine at Thacker Pass, the largest such US investment so far. (GM) says it will raise EV production to 400,000 this year versus 120,000 for all of 2022. Good luck because local environmental opposition to the new mine has been enormous. Goodbye China.
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, February 6, no data of note is announced.
On Tuesday, February 7 January 31 at 5:30 AM EST, the Balance of Trade is out.
On Wednesday, February 8 at 7:30 AM, the Crude Oil Stocks are published.
On Thursday, February 9 at 8:30 AM, the Weekly Jobless Claims are announced.
On Friday, February 10 at 8:30 AM, the University of Michigan Consumer Sentiment is printed. At 2:00 the Baker Hughes Oil Rig Count is out.
As for me, the telephone call went out amongst the family with lightning speed, and this was back in 1962 when long-distance calls cost a fortune. President Dwight D. Eisenhower was going to visit my grandfather’s cactus garden in Indio the next day, said to be the largest in the country, and family members were invited.
I spent much of my childhood in the 1950s and 1960s helping grandpa look for rare cactus in California’s lower Colorado Desert, where General Patton trained before invading Africa. That involved a lot of digging out a GM pickup truck from deep sand in the remorseless heat. SUVs hadn’t been invented yet, and a Willys Jeep (click here) was the only four-wheel drive then available in the US.
I have met nine of the last 13 presidents, but Eisenhower was my favorite. He certainly made an impression on me as a ten-year-old boy, who I remember as a kindly old man.
I walked with Eisenhower and my grandfather plant by plant, me giving him the Latin name for its genus and species, and citing unique characteristics and uses by the Indians. The former president showed great interest and in two hours we covered the entire garden. I still make my kids learn the Latin names of plants.
Eisenhower lived on a remote farm at the famous Gettysburg, PA battlefield given to him by a grateful nation. But the winters there were harsh so he often visited the Palm Springs mansion of TV Guide publisher Walter Annenberg, a major campaign donor.
Eisenhower was one of the kind of brilliant men that America always comes up with when it needs them the most. He learned the ropes serving as Douglas MacArthur’s Chief of Staff during the 1930s. Franklin Roosevelt picked him out of 100 possible generals to head the allied invasion of Europe, even though he had no combat experience.
After the war, both the Democratic and Republican parties recruited him as a candidate for the 1952 election. The latter prevailed, and “Ike” served two terms, defeating the governor of Illinois Adlai Stevenson twice. During his time, he ended the Korean War, started the battle over civil rights at Little Rock, began the Interstate Highway System, and admitted Hawaii as the 50th state.
As my dad was very senior in the Republican Party in Southern California during the 1950s, I got to meet many of the bigwigs of the day. New York prosecutor Thomas Dewy ran for president twice, against Roosevelt and Truman, and was a cold fish and aloof. Barry Goldwater was friends with everyone and a decorated bomber pilot during the war.
Richard Nixon would do anything to get ahead, and it was said that even his friends despised him. He let the Vietnam War drag out five years too long when it was clear we were leaving. Some 21 guys I went to high school with died in Vietnam during this time. I missed Kennedy and Johnson. Wrong party and they died too soon. Ford was a decent man and I even went to church with him once, but the Nixon pardon ended his political future.
Peanut farmer Carter was characterized as an idealistic wimp. But the last time I checked, the Navy didn’t hire wimps as nuclear submarine commanders. He did offer to appoint me Deputy Assistant Secretary of the Treasury for International Affairs, but I turned him down because I thought the $15,000 salary was too low. There were not a lot of Japanese-speaking experts on the Japanese steel industry around in those days. Biggest mistake I ever made.
Ronald Reagan’s economic policies drove me nuts and led to today’s giant deficits, which was a big deal if you worked for The Economist. But he always had a clever dirty joke at hand which he delivered to great effect….always off camera. The tough guy Reagan you saw on TV was all acting. His big accomplishment was to not drop the ball when it was handed to him to end the Cold War.
I saw quite a lot of George Bush, Sr. who I met with my Medal of Honor Uncle Mitch Paige at WWII anniversaries, who was a gentleman and fellow pilot. Clinton was definitely a “good old boy” from Arkansas, a glad-hander, and an incredible campaigner, but was also a Rhodes Scholar. His networking skills were incredible. George Bush, Jr. I missed as he never came to California. And 22 years later we are still fighting in the Middle East.
Obama was a very smart man and his wife Michelle even smarter. Stocks went up 400% on his watch and Mad Hedge Fund Trader prospered mightily. But I thought a black president of the United States was 50 years early. How wrong was I. Trump I already knew too much about from when I was a New York banker.
As for Biden, I have no opinion. I never met the man. He lives on the other side of the country. When I covered the Senate for The Economist, he was a junior member.
Still, it’s pretty amazing that I met 9 out of the last 13 presidents. That’s 20% of all the presidents since George Washington. I bet only a handful of people have done that and the rest all live in Washington DC. And I’m a nobody, just an ordinary guy. It just makes you think about the possibilities.
Really.
It’s Been a Long Road
Global Market Comments
January 17, 2023
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or GOING AGAINST THE CONSENSUS),
(TLT), (MUB), (JNK), (HYG), (GLD), (SLV), (GOLD), (WPM), (FCX), (BHP), (EEM), (MS), (GS), (JPM), (BAC), (C), (BRK/B), (SPY), (QQQ), (IWM), (VIX)
Going against the market consensus has been working pretty well lately.
When the world prayed for a Santa Claus rally, I piled on the shorts. When traders expected a New Year January crash, I filled my boots with longs.
That’s how you earn an eye-popping 19.83% profit in a mere nine trading says, or 2.20% a day.
The other day, someone asked me how it is possible to get mind-blowing results like these. It’s very simple. Get insanely aggressive when everyone else is terrified, which I did on January 3. I also knew that with the Volatility Index (VIX) falling to $18, pickings would quickly get extremely thin. It was make money now, or never.
To quote my favorite market strategist, Yankees manager Yogi Berra, “No one goes to that restaurant anymore because it’s too crowded.”
My performance in January has so far tacked on a welcome +19.83%. Therefore, my 2023 year-to-date performance is also +19.83%, a spectacular new high. The S&P 500 (SPY) is up +3.78% so far in 2023.
It is the greatest outperformance on an index since Mad Hedge Fund Trader started 15 years ago. My trailing one-year return maintains a sky-high +103.30%.
That brings my 15-year total return to +617.03%, some 2.73 times the S&P 500 (SPX) over the same period and a new all-time high. My average annualized return has ratcheted up to +47.17%, easily the highest in the industry.
I took profits in my February bonds last week (TLT), taking advantage of a $5 pop in the market. All my remaining positions are profitable, including longs in (GOLD), (WPM), (TSLA), (BRK/B), and (TLT), with 30% in cash for a 10% net long position.
Since my New Year forecasts have worked out so well, I will repeat the high points just in case you were out playing golf or bailing out from a flood when they were published.
Buy Falling Interest Rate Plays, as I expect the yield on the ten-year US Treasury yield to fall from 3.50% to 2.50% by yearend. That means Hoovering up any kind of bond, like (TLT), (MUB), (JNK), and (HYG). Falling interest rates also shine a great spotlight on precious metals like (GLD), (SLV), (GOLD), and (WPM).
The US Dollar Will Continue to Fall. Commodities love this scenario, including (FCX), (BHP), and emerging markets (EEM).
Inflation Will Decline All Year and should go below 4% by the end of 2023. In fact, we have had real deflation for the past six months. Financials do well here, like (MS), (GS), (JPM), (BAC), (C), and (BRK/B).
Which creates another headache for you, if not an opportunity. We may have a situation where the main indexes, (SPY), (QQQ), and (IWM) go nowhere, while individual stocks and sectors skyrocket. That creates a chance to outperform benchmarks…and everyone else.
There has been a lot of discussion among traders lately about the collapse of the Volatility Index ($VIX) to $18, a two-year low and what it means.
They are distressed because a ($VIX) this low greatly shrinks the availability of low risk/high return trading opportunities. A ($VIX) this low is basically shouting at you to “STAY AWAY!”
Does it mean that an explosion of volatility is following? Or are markets going to be exceptionally boring for the next six months?
Beats me. I’ll wait for the market to tell me, as I always do.
Current Positions
Risk On
(TSLA) 1/$75-$80 call spread 10.00%
(GOLD) 1/$15.50-$16.50 call spread. 10.00%
(WPM) 1/$$36-$39 call spread. 10.00%
(BRKB) 1/$290-$300 call spread 10.00%
Risk Off
(TLT) 1/$96-$99 call spread - 10.00%
(TLT) 1/$95-$98 call spread -20.00%
Total Net Position 10.00%
Total Aggregate Position 70.00%
Consumer Price Index Falls 0.1% in December, continuing a trend that started in June. Stocks popped and bonds rallied. YOY inflation has fallen to 6.5%. “RISK ON” continues. Now we have to wait another month to get a new inflation number. The economy has now seen de facto deflation for six months. Gas prices led the decline, now 9.4%. We might get away with only a 0.25% interest rate hike at the February 1 Fed meeting.
Bond Default Risk Rises, as well as a government shutdown, as radicals gain control of the House. This is the group that lost the most seats in the November election. Bonds are the only asset class not performing today, and paper with summer maturities is trading at deep discounts. It certainly casts a shadow over my 50% long bond position. However, I don’t expect it to last more than a month and my longest bond maturity is in February.
The US Consumer is in Good Shape, according to JP Morgan’s Jamie Diamond. Spending is now 10% greater than pre covid, and balance sheets are healthy. No sign of an impending deep recession here.
Boeing Deliveries Soar from 340 to 480 in 2022, and 479 new orders. A sudden aircraft shortage couldn’t have happened to a nicer bunch of people. The 737 MAX has shaken off all its design problems after two crashes four years ago. Cost-cutting here can be fatal. Europe’s Airbus is still tops, with 663 deliveries last year. Don’t chase the stock up here, up 79% from the October lows, but buy (BA) on dips.
Small Business Optimism Hits Six-Month Low to from 91.9 to 89.8, adding to the onslaught of negative sentiment indicators, so says the National Federation of Independent Business (NFIB).
Copper Prices Set to Soar Further with the post-Covid reopening of China, according to research firm Alliance Bernstein. After a three-year shutdown, there is massive pent-up demand. Copper prices are at seven-month highs. Keep buying (FCX) on dips.
Australian Metals Exports Soar, as the new supercycle in commodities gains steam. Shipments topped $9 billion in November, 20% higher than the most optimistic forecasts. Keep buying copper (FCX), aluminium (AA), iron ore (BHP), gold (GLD) and silver (SLV) on dips.
My Ten-Year View
When we come out the other side of the recession, we will be perfectly poised to launch into my new American Golden Age, or the next Roaring Twenties. The economy decarbonizing and technology hyper-accelerating, creating enormous investment opportunities. The Dow Average will rise by 800% to 240,000 or more in the coming decade. The new America will be far more efficient and profitable than the old. Dow 240,000 here we come!
On Monday, January 16, markets are closed for Martin Luther King Day.
On Tuesday, January 17 at 8:30 AM EST, the New York Empire State Manufacturing Index is out
On Wednesday, January 18 at 11:00 AM, the Producer Price Index is announced, giving us another inflation read.
On Thursday, January 19 at 8:30 AM, the Weekly Jobless Claims are announced. US Housing Starts and Building Permits are printed.
On Friday, January 20 at 7:00 AM, the Existing Home Sales are disclosed. At 2:00, the Baker Hughes Oil Rig Count is out.
As for me, the University of Southern California has a student jobs board that is positively legendary. It is where the actor John Wayne picked up a gig working as a stagehand for John Ford which eventually made him a movie star.
As a beneficiary of a federal work/study program in 1970, I was entitled to pick any job I wanted for the princely sum of $1.00 an hour, then the minimum wage. I noticed that the Biology Department was looking for a lab assistant to identify and sort Arctic plankton.
I thought, “What the heck is Arctic plankton?” I decided to apply to find out.
I was hired by a Japanese woman professor whose name I long ago forgot. She had figured out that Russians were far ahead of the US in Arctic plankton research, thus creating a “plankton gap.” “Gaps” were a big deal during the Cold War, so that made her a layup to obtain a generous grant from the Defense Department to close the “plankton gap.”
It turns out that I was the only one who applied for the job, as postwar anti-Japanese sentiment then was still high on the West Coast. I was given my own lab bench and a microscope and told to get to work.
It turns out that there is a vast ecosystem of plankton under 20 feet of ice in the Arctic consisting of thousands of animal and plant varieties. The whole system is powered by sunlight that filters through the ice. The thinner the ice, such as at the edge of the Arctic ice sheet, the more plankton. In no time, I became adept at identifying copepods, euphasia, and calanus hyperboreaus, which all feed on diatoms.
We discovered that there was enough plankton in the Arctic to feed the entire human race if a food shortage ever arose, then a major concern. There was plenty of plant material and protein there. Just add a little flavoring and you had an endless food supply.
The high point of the job came when my professor traveled to the North Pole, the first woman ever to do so. She was a guest of the US Navy, which was overseeing the collection hole in the ice. We were thinking the hole might be a foot wide. When she got there, she discovered it was in fact 50 feet wide. I thought this might be to keep it from freezing over but thought nothing of it.
My freshman year passed. The following year, the USC jobs board delivered up a far more interesting job, picking up dead bodies for the Los Angeles Counter Coroner, Thomas Noguchi, the “Coroner to the Stars.” This was not long after Charles Manson was locked up, and his bodies were everywhere. The pay was better too, and I got to know the LA freeway system like the back of my hand.
It wasn’t until years later when I had obtained a high-security clearance from the Defense Department that I learned of the true military interest in plankton by both the US and the Soviet Union.
It turns out that the hole was not really for collecting plankton. Plankton was just the cover. It was there so a US submarine could surface, fire nuclear missiles at the Soviet Union, then submarine again under the protection of the ice.
So, not only have you been reading the work of a stock market wizard these many years, you have also been in touch with one of the world’s leading experts on Artic plankton.
Live and learn.
CLICK HERE to download today's position sheet.
1981 On Peleliu Island in the South Pacific
Global Market Comments
January 13, 2023
Fiat Lux
Featured Trade:
(JANUARY 11 BIWEEKLY STRATEGY WEBINAR Q&A)
(ROM), (FCX), (QQQ), (VIX), (TSLA), (TLT), (MSFT), (RIVN), (VIX), (BRK/B), (RTX), (LMT), (FXI), (UNG), (GLD), (GDX), (SLV), (WPM)
Below please find the subscribers’ Q&A for the January 11 Mad Hedge Fund Trader Global Strategy Webinar broadcast from Silicon Valley in California.
Q: In your trade alert you expected that the (TLT) might go up as much as 30% this year. But in your latest newsletter, you mentioned that the chaos in the US House of Representatives would greatly raise the risk of a default on US government debt by the summer and certainly cast a shadow over your 50% long bond position. Is it still a good idea to hold on to the (TLT) ETF over the next 2-6 months?
A: It is. The extremists who now control the House are not interested in governing or passing laws but gaining clicks, raising money, and increasing speaker’s fees. It may have converted (TLT) from a straight-up trade to a flat-line trade. We will still make the maximum profit on call spreads and LEAPS but with greater risk. But even chaos in the House can’t head off a recession, which the bond market seems intent on pricing in by going up. However, if you depend on government payments for any reason, be it Social Security, a government salary, a tax refund, or a payment for a contract, expect delays. The housing market also ceases because closings can’t take place during government shutdowns. Also, 30% of my bond longs expire in four trading days, and the remainder on February 17.
Q: Is it wise to sell the 2X ProShares Ultra Technology ETF (ROM) now or keep holding?
A: I think the (ROM), NASDAQ, and technology stocks in general may make several runs at the lows over the next six months but won’t fall much from here. A recession is priced in. Once we get through this, you’re looking at doubles and triples for the best names. So, the risk/reward overwhelmingly favors holding on to a one-year view.
Q: would you buy Tesla (TSLA) here?
A: I would start scaling in. The bad news is about to dry up, like Twitter, the recession, the pandemic in China, and Elon Musk selling shares. Then we face an onslaught of good news, like the new Mexico factory announcement, the Cybertruck launch, solid state batteries, and annual production hitting 2 million. At this level, the shares are priced in multiple worst-case scenarios. It is selling at 10X 2025 earnings, half the market multiple. At the end of the day, Tesla has an unassailable 14-year start over the rest of the industry and is the only company in the world that makes money on EVs. There’s an easy 10X here on two-year LEAPS.
Q: I’m in the Freeport McMoRan (FCX) January 25 2-year LEAP approaching the upper end of the 42/45 range. If it crosses 45, do we close the position?
A: Sell half, take your profit. If you’re in the LEAP, my guess is you probably have a 500% profit here in only 3 months, which is not bad. And then you keep the remaining half because you’re then playing with the house's money, and Freeport has a shot of going all the way to $100 a share by the 2025 expiration, and that will get you your full 1,000% return on the position. It’s always nice to be in a position where it’s impossible to lose money on a trade, and that certainly is where you are now with your (FCX) LEAP and everybody else in the FCX LEAP in October also.
Q: As a member of the Florida Retirement System, I’m curious how Blackrock (BLK) and other firms are dealing with the Santos’ plan for their portfolios.
A: Having a state governor manage your portfolio and make your sector and stock picks is an absolutely terrible idea. I can’t imagine a worse possible outcome for your retirement funds. Florida is not the only state doing this—Louisiana and Texas are doing it too. The goal is to drive money out of alternative energy and back into the oil industry, and obviously, this is being financed by the oil industry, which is pissed off over their low multiples. Suffice it to say it’s not a good idea to move out of one of the fastest-growing industries in the market and move into an industry that’s going to zero in 10 years. If that’s their investment strategy, I wish they’d stick to politics and leave investing for true professionals to do.
Q: What do you think about cannabis stocks?
A: I’m a better user of the product than the stock. How about that? How hard is it to grow weed? At the end of the day, these are just pure marketing companies, and that value added is low. Plus, they have huge competition from the black market still selling ½ to ⅓ below market prices because they’re tax-free; the local taxes on these cannabis sales are enormous.
Q: Would you recommend selling a bear market rally when the S&P goes to 405?
A: The (QQQ) would be the better short, something like the $310-320 vertical bear put spread for February to bring in some free money. That’s what I'm planning to do if we get up that high, which we may not.
Q: How do you take advantage of a low CBOE Volatility Index (VIX)?
A: You don’t; there’s nothing to do here with the (VIX) at $22. My trades this year were not volatility trades—because we did them with low volatility, they were pure directional trades betting that the longs would go up and the shorts would go down and they all worked.
Q: Will Rivian (RIVN) survive?
A: Yes, they have two years of cash flow in the bank, and they’re boosting production. However, a high-growth, non-earning stock like Rivian is just out of favor right now. Will they come back into favor? Yes, probably in a year or so, but in the meantime, people are much happier buying Microsoft (MSFT) at a discount than Rivian.
Q: Do you ever buy butterfly spreads?
A: No, four-legged trades run up a lot of commissions, are hard to execute because you have 4 spreads, and have lower returns. They are also lower risk and for people who have no idea what the market is going to do. I don’t need the lower risk trades because I know what markets are going to do.
Q: Do you suggest any Microsoft (MSFT) LEAPS?
A: Yes, go out two years with LEAPS and go out about 50% on your strike prices. A 50% move here in Microsoft in two years is a complete no-brainer.
Q: With weakness in retail, rising inventories, and high consumer debt, will consumers dip into savings?
A: Yes they will, but that will predominantly happen at the bottom half of the economy—the part of the economy that has minimal to no savings. The upper half seems to be doing well—the middle class and of course, the wealthy— and are not cutting back their spending at all, which is why this seems to be a recession that may not actually show up. So, what can I say? The rich are doing great and everyone else is doing less than great, and stocks are reflecting that. Nothing new here.
Q: Would you hold off on tech LEAPS for a bigger selloff, or closer to April?
A: If we do get another big selloff and challenge the October lows, I’ll be pumping out those LEAPS as fast as I can write them; except then, a two-year LEAPS will have an April of 2025 expiration.
Q: I just signed up. What are the advantages of LEAPS?
A: A possible 10x return in 2 years with very low risk. I would suggest going to my website, logging in, and doing a search for LEAPS. There will be a piece there on how to execute a LEAPS, and the Concierge members can also find that piece by logging into their website.
Q: Best and worst sectors?
A: First half, already mentioned them. We like commodities, healthcare, financials, and Berkshire Hathaway (BRK/B) in the first half and tech in the second half.
Q: Have we reached a low in cryptocurrencies?
A: Probably not, and I’ll tell you why I’ve given up on cryptos: I may not live long enough to see the bottom in crypto. It has Tokyo written all over it, and it took Tokyo 30 years to resume a bull market after it crashed in 1990. We’re still at the scandal stage where it turns out that the majority of these trading platforms were stealing money from customers. This is not a great inspiration for investing in that sector. When you have the best quality growth stocks down 80-90%; why bother with something that may not exist or may never recover in your lifetime? I’m out of the crypto business, but there are a wealth of crypto research sources still online and I’m sure they’d be more than happy to give you an opinion.
Q: Why have defense stocks like Raytheon (RTX) and Lockheed Martin (LMT) been weak recently?
A: A couple of reasons. #1 Just outright profit taking into the end of the year in one of the best-performing sectors. #2 The end of the war in Ukraine may not be that far off, and if that happens that could trigger a major round of selling in defense. We did get the three-day ceasefire over the Russian Orthodox New Year, that’s a possible hint, so that may be another reason.
Q: Political outlook on 2024?
A: It’s too early to make any calls, anything could happen; but if we get a repeat of the November election outcome, you could have Democrats retake control of both houses of congress—that’s where the betting money is going right now.
Q: Would you bottom fish in the United States Natural Gas Fund (UNG)?
A: No, I would not—I am avoiding energy like the plague. Remember the all-time low for natural gas is $0.95 per MM BTU, so we still could have a long way to go.
Q: Would you buy iShares China Large-Cap ETF (FXI) on a post-COVID breakout?
A: It looks like it’s already moved, so maybe kind of late on that. The problem is that in China, you don’t know what you are buying and the locals have a huge advantage in reading Beijing.
Q: What do you think about the Biden administration wanting to ban gas stoves?
A: That’s actually not a federal issue, it’s a state issue. California has already banned gas pipes for all new construction. It looks like New York will follow and that’s one-third of the US population. The goal is to replace them with electrical appliances which emit no carbon. I have a non-carbon house myself, I went down that path about 10 years ago, and it seems to be the only way to reduce carbon emissions—is to either price gasoline or oil out of the market, or to make it illegal, and they’re already making gasoline cars illegal, so gas and oil won’t be far behind. From 1900, we went from a hay powered economy to a gasoline-powered one in only 20 years so it should be doable.
Q: How can the push for all electric work well when we have so many shutdowns, much higher electricity cost, and cannot keep up with the demand already here?
A: Buy lots of copper for new local electric powerlines at the house level and buy lots of aluminum for the long-distance transmission lines. Global demand for both aluminum and copper has to triple to accommodate the grid buildout that is already planned. As far as hurricanes in Florida, there’s nothing you can do to stop those on a hundred-year view; I would move to higher ground, which is hard to do in Florida as the highest point in the state is only 345 feet and that’s a garbage dump.
Q: Can I get a copy of all these slides?
A: Yes, we post the PowerPoint on the website at www.madhedgefundtrader.com usually two hours after the production.
Q: Are you recommending buying precious metals right now (GLD), (GDX), (SLV), (and WPM) even after the upside breakout?
A: On upside breakouts, you buy the dips. A perfect dip would be a retest of the 200-day moving average. But we may not get that, since it seems to be everyone’s number-one choice right now. By the way, I haven’t been telling people to buy gold and LEAPS on all the gold plays since October—that’s where the big move has already been made.
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
CLICK HERE to download today's position sheet.
With the Israeli Army in Jerusalem in 1979
Global Market Comments
January 9, 2023
Fiat Lux
Featured Trades:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or THE “PULL FORWARD” MARKET)
(AAPL), (TLT), (TSLA), (BRKB), (GOLD), (WPM), (QQQ), (VIX)
The market went into the new year short. After listening to dire forecasts for 2023 and January in particular, institutional investors raised cash and hedge funds sold short. That was made clear by the explosive move up in the market on Friday.
Those blinkered by a short-term view got slaughtered. Those who pursued my own long-term view expounded in my Wednesday, January 4 letter made a killing.
The December Nonfarm Payroll Report was the trigger. The headline numbers were just warm, not hot. But the average hourly earnings dropped by half, meaning workers are getting hired at lower pay levels. If we get an even modest inflation print at 8:30 AM on Thursday, January 12, you could get another gap up move in “RISK ON” markets.
The financial markets continue “pull forward movement” as they did for much of the second half of 2022.
The post-Election rally happened in October.
The Santa Claus rally took place in November.
The New Year January selloff struck in December, closing the year near a low.
What happens next?
Another dive at the lows will attack in February.
This is typical of bear markets where liquidity is thin, trading is dominated by a handful of professionals and algorithms, and individual investors are missing in action.
What is most puzzling even to me is how the Volatility Index (VIX) is remaining artificially low at $22. Is the index storing up volatility for a future run at $30 or $40?
We shall see.
My performance in January has so far tacked on an explosive +13.39%. My 2023 year-to-date performance was the same at +13.39%, a spectacular new high. The S&P 500 (SPY) is up +2.29% so far in 2023.
It is the greatest outperformance on an index since Mad Hedge Fund Trader started 15 years ago. My trailing one-year return maintains a sky-high +98.02%.
That brings my 15-year total return to +610.58%, some 2.81 times the S&P 500 (SPX) over the same period and a new all-time high. My average annualized return has ratcheted up to +46.67%, easily the highest in the industry.
I used the new year to go maximum bullish. First, I covered my short in Apple (AAPL) for a nice profit. I took my weighting in long bonds (TLT) up to 50%, which then nicely went ballistic. I also poured on new longs in Tesla (TSLA), Berkshire Hathaway (BRKB), and the metals stocks Barrick Gold (GOLD) and Wheaton Precious Metals (WPM).
That leaves me 90% long and 10% in cash, which I am holding back to add a new short in the (QQQ) at the next market top.
I have been getting a lot of questions about the chaos in the US House of Representatives. It greatly raises the risk of a default on US government debt by the summer and certainly casts a shadow over my 50% long bond position.
It also makes a government shutdown a sure thing, which is a big market negative. However, I don’t expect it to last more than a month.
The US government is basically a big recycling machine which sucks money from the coasts and spends it inland. For example, New York and California get back 75 cents of every tax dollar they send to Washington, while Wyoming and North Dakota get $1.25. They have long distances and few people. The big winners are Alaska and Hawaii, which get back $7.00 and $8.00 because of massive infrastructure and military spending.
Once red states see cash flow from the federal government dry up, opposition to a budget deal will dry up. It always does, usually after one billing cycle.
But if prices flatline and don’t fall, I’ll still make my maximum profit. I’ll just get less sleep at night.
Nonfarm Payroll Report Comes in Warm at 223,000 for November, presenting markets with a Goldilocks scenario. The Headline Unemployment Rate fell to an eye-popping 3.5%, a post-Covid low. Average hourly earnings dropped by half to 0.3% and up 4.6% YOY. No stock market crash here. If the Fed is trying to cause mass joblessness with high interest rates to kill inflation, it’s failing miserably.
Tesla to Announce Fifth Factory in Mexico, near Monterey, the Detroit of Mexico. The move is an important step in taking Tesla to an annual production of 20 million units a year, or 20% of the global car market by 2030. Construction should cost $10 billion - $20 billion. The move is a stroke of genius and is reminiscent of the old Elon Musk. By setting up in Mexico, Tesla can gain ample cheap skilled labor from the General Motors, Ford, and Hyundai factories already there. They negotiated priority customs clearance for parts coming into Mexico and finished cars headed north by rail. It is close to Texas where Tesla is already ramping up production at an Austin plant. The most likely product will be the hot-selling Model Y.
Tesla Suspends Production at Shanghai Plant in response to a rampant Covid-19 wave far worse than disclosed. The Beijing government claims only 2.5 million cases in 2022. But a leaked top-secret report says the true figure is closer to 250 million. The final capitulation selloff in Tesla is at hand. Buy calls, call spread, shares, and two-year LEAPS.
Tesla Q4 Sales Come in Short, delivering 405,278 and 1.3 million for all of 2023. The slight miss took the shares down an astounding 14%, a huge overreaction. The stock is now selling for 22 times 2023 earnings and 11 times 2025 earnings, compared to an average of 17 times earnings for the top four tech companies. That’s an eye-popping 35% discount to big tech. It’s certainly worth taking a risk going long here for a company that is still growing earnings by 40% a year.
Japan Reverses 30-Year Easy Money Policy, allowing interest rates to float up from 0.25% to 0.50%. The Japanese yen soared 4% on the move, the world's most shorted currency, which hedge funds used to fund all positions. US bonds tanked $5 in two days, as Japan is the largest buyer of US Treasury bonds (TLT). Higher rates may bring some of that money back to Japan. It’s all an indication that the US dollar has hit a decades-long peak.
Existing Home Sales Collapse, down 7.7% in November to a seasonally adjusted 4.09 million units. They are off 35.4% YOY. The median sales price is still rising, up 3.5%, to $370,700. Supplies are still tight, so 61% of homes sold in less than a month.
Wells Fargo Gets Tagged for $3.7 Billion, in fines for its seemingly never-ending supply of past offenses. The shares dropped 10% on the news. Avoid (WFC) for now. There are better banks to buy, like (JPM), (BAC), and (C).
Shipping Costs Dive 40%, as supply chain problems end. Container prices from China cratered from $40,000 to $6,000. The market is now discounting a 2023 recession when nobody buys anything. Some retailers are dropping prices by 70%-80%, especially in clothing. The pandemic era over-ordering has come back to haunt buyers.
Case Shiller Drops to 9.24% Annual Gain in October with its National Home Price Index, the fourth consecutive monthly decline. Miami (+21.0%), Tampa (+20.5%), and Charlotte (15.0%) led the gains. The price increase rate has dropped by half in a year.
Fed Minutes Remain Restrictive at the December 12 meeting, with inflation cited as the greatest threat to the economy. Actually, I think the Fed is the threat. All governors voted to maintain a tight policy. They cautioned against an unwarranted early easing. They cited “data dependence,” meaning that when the recession hits in the coming year, they will lower rates then expect a below-trend growth for 2023. Not what a bull wanted to hear.
Natural Gas Crashes, down 10% on the first trading day of 2023 to a new one-year low. Oil also took a 3% hit. The European gas crisis is over and energy markets are discounting a Russian surrender sometime this year. Gas may also be discounting a full-blown recession and warmer weather to come. Avoid all energy plays like the plague. Gas is now cheaper than coal in a race to the bottom.
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 is 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, January 9 at 8:00 AM, the Consumer Inflation Expectations are published.
On Tuesday, January 10 at 8:30 AM, the NFIB Business Optimism Index is out
On Wednesday, January 11 at 8:00 AM, a new batch of Mortgage Data is announced.
On Thursday, January 12 at 8:30 AM EST, the Weekly Jobless Claims are announced. So is the Consumer Price Index for December.
On Friday, January 13 at 8:30 AM EST, the Michigan Consumer Sentiment is disclosed. At 2:00, the Baker Hughes Oil Rig Count is out.
As for me, having visited and lived in Lake Tahoe for most of my life, I thought I’d pass on a few stories from this historic and beautiful place.
The lake didn’t get its name until 1949 when the Washoe Indian name was bastardized to come up with “Tahoe”. Before that, it was called the much less romantic Lake Bigler after the first governor of California.
A young Mark Twain walked here in 1863 from nearby Virginia City where he was writing for the Territorial Enterprise about the silver boom. He described boats as “floating in the air” as the water clarity at 100 feet made them appear to be levitating. Today, clarity is at 50 feet, but it should go back to 100 feet when cars go all-electric.
One of the great engineering feats of the 19th century was the construction of the Transcontinental Railroad. Some 10,000 Chinese workers used black powder to blast a one-mile-long tunnel through solid granite. They tried nitroglycerine for a few months but so many died in accidents they went back to powder.
The Union Pacific moved the line a mile south in the 1950s to make a shorter route. The old tunnel is still there, and you can drive through it at any time if you know the secret entrance. The roof is still covered with soot from woodfired steam engines. At midpoint, you find a shaft to surface where workers were hung from their ankles with ropes to place charges so they could work on four faces at once.
By the late 19th century, every tree around the lake had been cut down for shoring at the silver mines. Look at photos from the time and the mountains are completely barren. That is except for the southwest corner, which was privately owned by Lucky Baldwin who won the land in a card game. The 300-year-old growth pine trees are still there.
During the 20th century, the entire East shore was owned by one man, George Whittell Jr., son of one of the original silver barons. A man of eclectic tastes, he owned a Boeing 247 private aircraft, a custom mahogany boat powered by two Alison aircraft engines, and kept lions in heated cages.
Thanks to a few well-placed campaign donations, he obtained prison labor from the State of Nevada to build a palatial granite waterfront mansion called Thunderbird, which you can still visit today (click here). During Prohibition, female “guests” from California crossed the lake and entered the home through a secret tunnel.
When Whittell died in 1969, a Mad Hedge Concierge Client bought the entire East Shore from the estate on behalf of the Fred Harvey Company and then traded it for a huge chunk of land in Arizona. Today, the East Shore is a Nevada State Park, including the majestic Sand Harbor, the finest beach in the High Sierras.
When a Hollywood scriptwriter took a Tahoe vacation in the early 1960s, he so fell in love with the place that he wrote Bonanza, the top TV show of the decade (in front of Hogan’s Heroes). He created the fictional Ponderosa Ranch, which tourists from Europe come to look for in Incline Village today.
In 1943, a Pan Am pilot named Wayne Poulsen who had a love of skiing bought Squaw Valley for $35,000. This was back when it took two days to drive from San Francisco. Wayne flew the China Clippers to Asia in the famed Sikorski flying boats, the first commercial planes to cross the Pacific Ocean. He spent time between flights at a ranch house he built right in the middle of the valley.
His wife Sandy bought baskets from the Washoe Indians who still lived on the land to keep them from starving during the Great Depression. The Poulsens had eight children and today, each has a street named after them at Squaw.
Not much happened until the late forties when a New York Investor group led by Alex Cushing started building lifts. Through some miracle, and with backing from the Rockefeller family, Cushing won the competition to host the 1960 Winter Olympics, beating out the legendary Innsbruck, Austria, and St. Moritz, Switzerland.
He quickly got the State of California to build Interstate 80, which shortened the trip to Tahoe to only three hours. He also got the state to pass a liability limit for ski accidents to only $2,000, something I learned when my kids plowed into someone, and the money really poured in.
Attending the 1960 Olympics opening ceremony is still one of my fondest childhood memories, produced by Walt Disney, who owned the nearby Sugar Bowl ski resort.
While the Cushing group had bought the rights to the mountains, Poulsen owned the valley floor, and he made a fortune as a vacation home developer. The inevitable disputes arose and the two quit talking in the 1980s.
I used to run into a crusty old Cushing at High Camp now and then and I milked him for local history in exchange for stock tips and a few stiff drinks. Cushing died in 2003 at 92 (click here for the obituary)
I first came to Lake Tahoe in the 1950s with my grandfather who had two horses, a mule, and a Winchester. He was one-quarter Cherokee Indian and knew everything there was to know about the outdoors. Although I am only one-sixteenth Cherokee with some Delaware and Sioux mixed in, I got the full Indian dose. Thanks to him I can live off the land when I need to. Even today, we invite the family medicine man to important events, like births, weddings, and funerals.
We camped on the beach at Incline Beach before the town was built and the Weyerhaeuser lumber mill was still operating. We caught our limit of trout every day, ten back in those days, ate some, and put the rest on ice. It was paradise.
During the late 1990s when I built a home in Squaw Valley, I frequently flew with Glen Poulsen, who owned a vintage 1947 Cessna 150 tailwheel, looking for untouched high-country lakes to fish. He said his mother was lonely since her husband died in 1995 and asked me to have tea with her and tell her some stories.
Sandy told me that in the seventies she asked her kids to clean out the barn and they tossed hundreds of old Washoe baskets. Today Washoe baskets are very rare, highly sought after by wealthy collectors, and sell for $50,000 to $100,000 at auction. “If I had only known,” she sighed. Sandy passed away in 2006 and the remaining 30-acre ranch was sold for $15 million.
To stay in shape, I used to pack up my skis and boots and snowshoe up the 2,000 feet from the Squaw Valley parking lot to High Camp, then ski down. On the way up, I provided first aid to injured skiers and made regular calls to the ski patrol.
After doing this for many winters, I finally got busted when they realized I didn’t have a ski pass. It turns out that when you buy a lift ticket you are agreeing to a liability release which they absolutely had to have. I was banned from the mountain.
Today Squaw Valley is owned by the Colorado-based Altera Mountain Company, which along with Vail Resorts owns most of the ski resorts in North America. The concentration has been relentless. Last year Squaw Valley’s name was changed to the Palisades Resort for the sake of political correctness. Last weekend, a gondola connected it with Alpine Meadows next door, creating the largest ski area in the US.
Today, there are no Washoe Indians left on the lake. The nearest reservation is 25 miles away in the desert in Gardnerville, NV. They sold or traded away their land for pennies on the current value.
Living at Tahoe has been great, and I get up here whenever I can. I am now one of the few surviving original mountain men and volunteer for North Tahoe Search & Rescue.
On Donner Day, every October 1, I volunteer as a docent to guide visitors up the original trail over Donner Pass. Some 175 years later, the oldest trees still bear the scars of being scrapped by passing covered wagon wheels, my own ancestors among them. There is also a wealth of ancient petroglyphs, as the pass was a major meeting place between Indian tribes in ancient times.
The good news is that residents aged 70 or more get free season ski passes at Diamond Peak, where I sponsored the ski team for several years. My will specifies that my ashes be placed in the Middle of Lake Tahoe. At least, I’ll be recycled. I’ll be joining my younger brother who was an early Covid-19 victim and whose ashes we placed there in 2020.
The Ponderosa Ranch
The Poulsen Ranch
At the Reno Airport
Donner Pass Petroglyphs
An Original Mountain Man
