Global Market Comments
August 16, 2024
Fiat Lux
Featured Trade:
( AUGUST 15 BIWEEKLY STRATEGY WEBINAR Q&A),
(SPY), (CMG), (SBUX), (TLT), (CCI),
(FCX), (SLRN), (DAL), (TSLA), (LRCX)
Posts
Below please find subscribers’ Q&A for the August 15 Mad Hedge Fund Trader Global Strategy Webinar, broadcast from London, England
Q: Do you think we’ll still have another significant test of the lows for the year, or was that it last week? Stocks are rebounding huge this week.
A: They never really went down very much. The average drawdown IN THE S&P 500 (SPY) in any given year is 15%. We only got a 10% drawdown this month because there is still $8 trillion dollars in cash sitting under the market, which never got into stocks. All of this year it's been waiting for a pullback, so I was kind of surprised we even got 10%. I was forecasting maybe 6%. So could we get a new low? You never discount the possibility, but we really have to have another shocking data point to get down to a 15% correction. That is exactly what triggered this sell-off with the Nonfarm Payroll we got in early July. So give me another rotten Nonfarm Payroll report, and we could be back at last week's lows. Which is why I'm 100% cash. I want to have tons of dry powder, if and when that happens.
Q: We've seen a big increase in refi’s for homes in the last week. Is this going to be positive for the economy?
A: Absolutely yes, and that's why we're not going to have a recession. You get housing back into the economy which has been dead meat for almost 3 years now, and suddenly one quarter to one-third of the economy recovers. So that's what takes us into probably 3% economic growth for another year in 2025.
Q: What do you think of the Chipotle CEO (CMG) moving to take over Starbucks (SBUX)?
A: I think it's a very positive move. Starbucks was dead in the water. Their stores are old and dirty and products need refreshing. So if anyone needs a fresh view it's Starbucks, and the guy from Chipotle has a spectacular track record. Chipotle is probably one of the more successful fast-food companies out there. I usually don't ever play fast food—the margins are too low, but I certainly like to watch the fireworks when they happen.
Q: Should I be shorting airline stocks here like Delta Airlines (DAL), now that a recession risk is on the table?
A: Absolutely not. If anything, airlines are a buy here. They've had a major sell-off over the last 3 months for many different reasons, not the least of which was the software crash that they had a month ago. This is not shorting territory. That was 3 months ago for the airlines. Just because it's gone down a lot doesn't mean you now sell, it's the opposite. You should be buying airlines. I usually avoid airlines because they never have any idea if they're going to make money or not, so it's a very high-risk industry, and the margins are shrinking. Let me tell you, the airlines in Europe are absolutely packed. The fares are rock bottom and the service is terrible. Anybody who thinks the consolidation of the airline industry brought you great service has got to be out of their mind.
Q: Do you have any rules on when you stop loss?
A: The answer is very simple. If I do call spreads, whenever we break the nearest strike price, I'm out of there. That’s where the leverage works exponentially against you. Usually, you get a 1 or 2% loss when that happens, and you want to roll it into another trade as fast as you can and make the money back. Sometimes you have to do three trades to make up one loss because when you issue stop losses, everybody else is trying to get out of there at the same time. It's not a happy situation to be in, so we try to keep them to a minimum—but that is the rule of thumb. Keep your discipline. Hoping that it can recover your costs is the worst possible investment strategy out there. Hoping is not a winning strategy.
Q: Why don't you wait for the bottom?
A: Because nobody knows where the bottoms are. All you can do is scale. When you think things are oversold, when you think things are cheap, then you start buying things one at a time unless you get these giant meltdown days like we got on August 5th. So that's what I probably will be doing, is scaling in on the weak days on stocks that have the best fundamentals. That’s the only way to manage a portfolio.
Q: Is it a good time to buy REITs for income?
A: Absolutely. REITs are looking at major drops in interest rates coming. That will greatly reduce their overheads as they refi, and of course, the recovering economy is good for filling buildings. So I've been a very strong advocate of REITs the entire year, and they really have only started to pay off big time in the last month, and Crown Castle Inc (CCI) is my favorite REIT out there.
Q: I own Freeport McMoRan (FCX). Do you think China’s problems will make FCX a sell?
A: Not a sell, but a wait. China (FXI) is delaying any recovery in a bull market. If we get another move in (FCX) down to the thirties I would double up, because eventually American demand offsets Chinese weakness, and we’ll be back in a bull market on the metals. It's American demand that is delivering the long-term bull case for copper, not the return of Chinese construction demand, which led to the last bull market. So we really are changing horses as the main driver of the demand for copper. It still takes 200 pounds of copper to make an EV whose sales are growing globally.
Q: Is it time to buy (TLT) now?
A: No, the time to buy (TLT) was at the beginning of the year, seven months ago, three months ago, a month ago. Now we've just had a really big $12 point rally, and really almost $18 points off the bottom. I would wait for at least a 5-point drop-in (TLT) before we dive back into that. If you noticed, I haven't been doing any (TLT) trades lately because the move has been so extended. And in fact, if they only cut a quarter of a point in September, then you could get a selloff in (TLT), and that'll be your entry point there. You have to ditch your buy high, sell low mentality, which most people have.
Q: What bond should I buy for a 6 to 10-year investment?
A: I’d buy junk bonds. Junk bonds have always been misnamed, or I would buy some of the high-yield plays like the BB loans (SLRN). With junk bonds, the actual default rate even in a recession, only gets to about 2%. So it certainly is worth having. I still think they're yielding 6 or 7% now, so that's where I would put my money. Or you can buy REITs which also have similarly high yields, like the (CCI), which is around 5% now. Risks in both these sectors are about to decline dramatically.
Q: Will there be an inflation spike next year?
A: No. Technology is accelerating so fast it's wiping out the prices of everything that's highly deflationary, and that pretty much has been the trend over the last 40 years. So don't expect that to change. The post-COVID inflationary spike was a one-time-only event, which then ended two years ago. We've gone from a 9% down to a 2.8% inflation rate; unless we get another COVID-induced inflation spike, there's no reason for inflation to return. Deflation is going to be the next game.
Q: What do you think of the UK economy now that you're in London?
A: Awful! Brexit was the worst thing that happened to England—that's why it was financed by the Russians. Brexit will have the effect of dropping both the economic growth rate and standards of living by half over the next 20 years. Expect England to beg their way back into Europe sometime in the future, although I may not live long enough to see it. There are no English people in London anymore. It's all foreigners. No one can afford it.
Q: Should I leap on Tesla (TSLA) where the current price is?
A: No. We’re waiting for the nuclear winter in EVs to end—no sign of it yet. And unfortunately, Elon Musk is scaring away buyers, especially in blue states, by palling around with Donald Trump, a well-known climate change denier. What's in that relationship? I have no idea. One of the first things Trump did was to dump subsidies for electric cars last time he was president. It's hard to tell who’s gone crazier, Trump or Musk.
Q: I have an empty portfolio, when should we expect your options trade to start coming in again?
A: As soon as I see a great sell-off or a great individual situation like we got a couple days ago with the Mad Hedge Technology Letter in Lam Research (LRCX). That's what we look for all day, every day of the year. There's no point in trading for the sake of trading, that only makes your broker rich, not you. There's no law that says you have to have a trade every day, and actually having cash isn't so bad these days. They're still paying 5% for 90-day T Bills. If you don’t know what T Bills are, look up 90-day T bills on my website.
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, then WEBINARS, and all the webinars from the last 12 years are there in all their glory.
Good Luck and Good Trading
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Global Market Comments
August 12, 2024
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD or THE ROUND TRIP TO NOWHERE), plus (A VISIT TO TRINITY),
(ROM), (TQQQ), ($VIX), (TLT), (SLRN), (CAT), (AMZN), and (BRK/B). (NVDA), (TSLA), (AAPL), and (META), ($INDU), (TSLA), (DHI), (DE), (AAPL), (JPM), (DE), (GLD), (DHI)
I am writing this to you from the airport in Vilnius, Lithuania, which is under construction. The airport is packed because people are flying all planes to Paris to catch the closing ceremony of the 2024 Olympics. There is also the inflow of disappointed Taylor Swift fans returning from three concerts in Vienna, Austria that had been canceled due to terrorist threats. Some 150,000 tickets had to be refunded.
It is hard to focus on my writing because every 30 seconds, a beautiful woman walks by.
And I am told at my age I am not supposed to learn. I should know better.
Well, that was some week!
If you had taken a ten-day cruise to Alaska, you would wonder what all the fuss was about, for last week the stock market was basically unchanged. The worst day in two years, down 3%, followed by the best, up 2 ½% amounts to a big fat nothing burger.
It all reminds me of one of those advanced aerobatics classes I used to take. I was busier than a one-armed paper hanger, sending out some 13 trade alerts in all.
And while the volatility is certainly not over, it is probably at least two-thirds over, meaning that we can step out for a cup of coffee and NOT expect a 1,000 move in the Dow Average by the time we get back.
Is the Bottom IN?
I don’t think so. The valuation disparity between big tech and value is still miles wide. Uncertainty reaches a maximum just before the US presidential election. A bottom for the year is coming, but not quite yet. When it does, it will be the buying opportunity of the year. Watch this space! And watch (ROM) and (TQQQ) too.
The average drawdown per year since 2020 stands at 15%, so with our 10% haircut, the worst is over. What will remain in high volatility? After staying stuck at $12 for most of 2024 and then spiking to $65 in two days, the $20 handle should remain for the foreseeable future.
That is a dream come true and a license to print money for options traders because the higher options prices effectively double the profit per trade. So, expect a lot of trade alerts from the Mad Hedge Fund Trader going forward. That is, until the ($VIX) returns to $36, then the potential profit triples.
Up until July, I had been concerned that the market might not sell off enough to make a yearend rally worth buying into. There was still $8 trillion in cash sitting under the market buying even the smallest dips.
The Japanese took care of that in a heartbeat with a good old-fashioned financial crisis. In hours trillions of dollars’ worth of yen carry trades unwound, creating an unprecedented 14% move UP in the Japanese currency and a 26% move DOWN in the Japanese stock market.
Suddenly, the world was ending. Or at least the financial media thought it was.
Some hundreds of hedge funds probably went under as their leverage is so great at 10X-20X. But we probably won’t know who until the redemption notices go out at yearend.
It couldn’t happen to a nicer bunch of people.
Don’t expect the Fed to take any emergency action, such as a surprise 50 basis point rate cut, to help us out. Things are just not bad enough. The headline Unemployment Rate is still a low 4.3%. Corporate profits are at all-time highs. We are nowhere near a credit crisis or any other threats to the financial system. The US still has the strongest major economy in the world.
Of course, if you followed my advice and went heavy into falling interest rate plays, as I have been begging you to do for months, last week was your best of the year. The United States US Treasury Bond Fund (TLT) rocketed to a year high at $100. Junk bonds (JNK), REITS (CCI), BB-rated loan ETFs (SLRN), and high-yield stocks (MO) went up even more.
It's still not too late to pile into yield plays because the Fed hasn’t actually cut interest rates YET.
Volatility Index ($VIX) Hits Four-Year High at $65, the most since the 2020 pandemic. That implies a 2% move in the S&P 500 (SPX) every day for the next 30 days, which is $103.42 (SPX) points or $774 Dow ($INDU) points. No doubt, massive short covering played a big role with traders covering shorts they sold in size at $12. Spikes like this are usually great long-term “BUY” signals.
$150 Billion in Volatility Plays were Dumped on Monday. Volatility-linked strategies, including volatility funds and equities trend-following commodity trading advisers (CTAs), are systematic investment strategies that typically buy equities when markets are calm and sell when they grow turbulent. They became heavy sellers of stocks over the last few weeks, exacerbating a market rout brought on by economic worries and the unwind of a massive global carry trade.
Weekly Jobless Claims Drop to 233,000, sparking a 500-point rally in the market. It’s a meaningless report, but traders are now examining every piece of jobs data with a magnifying glass.
Commercial Real Estate Has Bottomed, which will be great news for regional banks. Visitations are up big in Manhattan, with Class “A” properties gaining the most attention. New leasing is now exceeding vacations.
Warren Buffet Now Owns More T-Bills than the Federal Reserve. The Omaha, Nebraska-based conglomerate held $234.6 billion in short-term investments in Treasury bills at the end of the second quarter. That compared with $195.3 billion in T-bills that the Fed owned as of July 31. The Oracle of Omaha wisely unloaded $84 billion worth of Apple at the market top.
No Recession Here says shipping giant Maersk. U.S. inventories are not at a level that is worrisome says CEO Vincent Clerc, as fears of a recession in the world’s largest economy mount. Chinese exports have helped drive overall container demand in the most recent quarter reported a decline in year-on-year underlying profit to $623 million from $1.346 billion in the second quarter and a dip in revenue to $12.77 billion from $12.99 billion.
A Refi Boom is About to Begin. Mortgage rates in the high fives are now on offer. Over 40% of existing mortgages have rates of over 6%. It’s all driven by the monster rally in the bond market this week which took the (TLT) to $100 and ten-year US Treasury yields down to 3.65%.
Google (GOOG) Gets Hit with an Antitrust Suit, a Federal judge ruling that the company has a monopoly in search, with a 92% market share. The smoking gun was the $20 billion a year (GOOG) paid Apple (AAPL) to remain their exclusive search engine. Apple is the big loser here, which I just sold short.
In July we ended up a stratospheric +10.92%. So far in August, we are up by +2.51% My 2024 year-to-date performance is at +33.45%. The S&P 500 (SPY) is up +7.34% so far in 2024. My trailing one-year return reached +51.92.
That brings my 16-year total return to +710.08. My average annualized return has recovered to +51.94%.
I used the market crash to stop out of three STOP LOSS positions in (CAT), (AMZN), and (BRK/B). When the ($VIX) hit $65 I then made all the losses back when I piled on four new technology longs in (NVDA), (TSLA), (AAPL), and (META). After the Dow Average ($INDU) rallied 2,000 points and volatility was still high I then pumped out short positions in (TSLA), (DHI), (DE), (AAPL), and (JPM). I stopped out of my position in (DE) at breakeven.
This is in addition to existing longs in (GLD) and (DHI), which I will likely run into the August 16 option expiration.
Some 63 of my 70 round trips, or 90%, were profitable in 2023. Some 48 of 66 trades have been profitable so far in 2024, and several of those losses were really break-even. That is a success rate of 72.73%.
If you were wondering why I was sending out so many trade alerts out last week it is because we were getting months’ worth of market action compressed into five days. Make hay while the sun shines and strike while the iron is hot!
Try beating that anywhere.
My Ten-Year View
When we come out the other side of the recession, we will be perfectly poised to launch into my new American Golden Age or the next Roaring Twenties. The economy decarbonizing and technology hyper accelerating, creating enormous investment opportunities. The Dow Average will rise by 600% to 240,000 or more in the coming decade. The new America will be far more efficient and profitable than the old.
Dow 240,000 here we come!
On Monday, August 12 at 8:30 AM EST, the Consumer Inflation Expectations is out.
On Tuesday, August 13 at 9:30 AM, the Producer Price Index is published.
On Wednesday, August 14 at 8:30 AM, the new Core Inflation Rate is printed.
On Thursday, August 15 at 8:30 AM, the Weekly Jobless Claims are announced. Retail Sales are also printed.
On Friday, August 16 at 8:30 AM, Building Permits are disclosed. We also get the University of Michigan Consumer Sentiment. At 2:00 PM, the Baker Hughes Rig Count is printed.
As for me, with the overwhelming success of the Oppenheimer movie, I thought I’d review my long and fruitful connection with America’s nuclear program.
When the Cold War ended in 1992, the United States judiciously stepped in and bought the collapsing Soviet Union’s entire uranium and plutonium supply.
For good measure, my client George Soros provided a $50 million grant to hire every Soviet nuclear engineer. The fear then was that starving scientists would go to work for Libya, North Korea, or Pakistan, which all had active nuclear programs. They ended up here instead.
That provided the fuel to run all US nuclear power plants and warships for 20 years. That fuel has now run out and chances of a resupply from Russia are zero. The Department of Defense attempted to reopen our last plutonium factory in Amarillo, Texas, a legacy of the Johnson administration.
But the facilities were deemed too old and out of date, and it is cheaper to build a new factory from scratch anyway. What better place to do so than Los Alamos, which has the greatest concentration of nuclear expertise in the world?
Los Alamos is a funny sort of place. It sits at 7,320 feet on a mesa on the edge of an ancient volcano so if things go wrong, they won’t blow up the rest of the state. The homes are mid-century modern built when defense budgets were essentially unlimited. As a prime target in a nuclear war, there are said to be miles of secret underground tunnels hacked out of solid rock.
You need to bring a Geiger counter to garage sales because sometimes interesting items are work castaways. A friend almost bought a cool coffee table which turned out to be part of an old cyclotron. And for a town designing the instruments to bring on the possible end of the world, it seems to have an abnormal number of churches. They’re everywhere.
I have hundreds of stories from the old nuclear days passed down from those who worked for J. Robert Oppenheimer and General Leslie Groves, who ran the Manhattan Project in the early 1940s. They were young mathematicians, physicists, and engineers at the time, in their 20’s and 30’s, who later became my university professors. The A-bomb was the most important event of their lives.
Unfortunately, I couldn’t relay this precious unwritten history to anyone without a security clearance. So, it stayed buried with me for a half century, until now.
Some 1,200 engineers will be hired for the first phase of the new plutonium plant, which I got a chance to see. That will create challenges for a town of 13,000 where existing housing shortages already force interns and graduate students to live in tents. It gets cold at night and dropped to 13 degrees F when I was there.
I was allowed to visit the Trinity site at the White Sands Missile Test Range, the first visitor to do so in many years. This is where the first atomic bomb was exploded on July 16, 1945. The 20-kiloton explosion set off burglar alarms for 200 miles and was double to ten times the expected yield.
Enormous targets hundreds of yards away were thrown about like toys (they are still there). Half the scientists thought the bomb might ignite the atmosphere and destroy the world but they went ahead anyway because so much money had been spent, 3% of US GDP for four years. Of the original 100-foot tower, only a tiny stump of concrete is left (picture below).
With the other visitors, there was a carnival atmosphere as people worked so hard to get there. My Army escort never left me out of their sight. Some 78 years after the explosion, the background radiation was ten times normal, so I couldn’t stay more than an hour.
Needless to say, that makes uranium plays like Cameco (CCJ), NextGen Energy (NXE), Uranium Energy (UEC), and Energy Fuels (UUUU) great long-term plays, as prices will almost certainly rise and all of which look cheap. US government demand for uranium and yellow cake, its commercial byproduct, is going to be huge. Uranium is also being touted as a carbon-free energy source needed to replace oil.
At Ground Zero in 1945
What’s Left of a Trinity Target 200 Yards Out
Playing With My Geiger Counter
Atomic Bomb No.3 Which was Never Used on Tokyo
What’s Left from the Original Test
Good Luck and Good Trading,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Global Market Comments
July 15, 2024
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or SEA CHANGE), (BB RATED BANKS LOANS), and (RESCUING THE USS POTOMAC),
(TLT), (JNK), (SLRN), (BRLN), (BKLN), (FFRHX), (WES), (CCI), (GLD), (DE), (BRK/B), (TSLA), (NVDA).
I believe there was a major sea change in the markets last week, which has taken the economy from inflation to deflation. All asset classes performed as they should, with some extreme moves. It is now time to focus on the 493 of the S&P 500 and let the Magnificent Seven take a long-needed rest.
Not only does this pave the way for a Fed interest rate cut in September, but several more to follow. This opens the floodgates for the (TLT) to rise above $100 by yearend, and maybe even to $110. Remember the old high for bonds is $166. Higher beta fixed-income plays will rise much more.
Stocks will keep rising but with different leadership from dozens of interest-sensitive sectors, including real estate, their suppliers, industrials, precious metals, financials, energy, and outright value plays long left in the doghouse. If you can’t grasp these new trends, your portfolio will be out to sea shortly. An S&P 500 of 6,000 looks like a pretty safe bet by yearend.
That brings to the fore investment in fixed-income securities. There are two ways to make money on a fixed income. Coupon interest rates are still at historically high levels. And as rates fall, fixed-income prices rise, opening the door to capital gains, which could reach 10%-20% in the coming year.
The fixed-income market at $100 trillion is double the size of the stock market. And there are many more bond listings than stock ones. So the number of possible investments is almost endless. I shall give you a brief overview of some of the more interesting subsectors.
US Government bonds – are the gold standard with a guaranteed return. But you pay for the extra security with lower rates; the current ten-year US Treasury bond yield is 4.20%, much lower than the present 90-day T-bill of 5.21%. The easiest way to buy these is through the (TLT). The 30-year government bond should be avoided as the extra 0.14% in yield doesn’t adequately compensate you for the extra 20 years of risk
Junk Bonds – Also known as “high yield” bonds have always been misnamed. The default rates never remotely approached the levels that justified their high yields, not even during the financial crisis, as my old friend former junk bond king Michael Milliken has amply proven. The (JNK) is currently yielding 6.59% and has the potential for larger capital gains than government bonds.
Master Limited Partnerships – These are partnerships granted generous tax benefits with the goal of producing oil. They issue annual Form K-1’s to include with your tax return. Dividends are deferred until the MLP’s investment reaches the end of its useful life, which can be decades. MLPs used to be a huge industry with dozens of listed companies.
When the price of oil went to negative numbers during the pandemic, most of them got wiped out. Because of this rocky past, there are a handful of large, well-capitalized MLPs with extremely high yields. One is Western Midstream Partners (WES) with a 9.20% yield. Energy Transfer Partners (ET) pay a 7.96% yield.
These yields will remain safe as long as oil prices are stable or rising, as I expect in a long-term global economic recovery. Take oil back to zero again in another pandemic and these returns will get turned on their head.
With the normalizing of interest rates, it's time to normalize investment strategies as well. That means bringing back the old 60/40 strategy where one half of the portfolio ensures the other, with a modern twist. You can put 60% of your assets in stocks, with half on technology and half on domestic cyclicals.
The other 40% should be allocated to some mix of the above fixed-income investments guaranteeing annual high returns. It is not a bad strategy for mature investors, especially if they would rather be on a golf course instead of spending all day in front of a screen picking bottoms and tops for stocks, like Millennials.
Here’s where to get a Safe 8.48% Yield, BB-rated bank loans, which will soar in value with even just one quarter-point rate cut. BB bank loans are very low risk, and they have a spread that’s about 290 basis points above the overnight Fed rate. How does one buy such an animal? The actual bank loans themselves are made by lending institutions to companies. These loans aren’t made accessible to individual investors who want to make a play for yield. Rather, large institutional investors snap them up and add them to their fixed-income portfolios. The top ticker symbols are (SLRN), (BRLN), (BKLN), and (FFRHX). Check them out.
So far in July, we are up +2.17%. My 2024 year-to-date performance is at +22.19%. The S&P 500 (SPY) is up +17.40% so far in 2024. My trailing one-year return reached +37.07.
That brings my 16-year total return to +698.82%. My average annualized return has recovered to +51.44%.
I used the blockbuster CPI Report last week to jump off my 100% cash position and piled on six new positions. Those included interest rate-sensitive longs in (CCI), (GLD), (DE), (BRK/B), and shorts in big tech leaders (TSLA) and (NVDA).
Some 63 of my 70 round trips were profitable in 2023. Some 35 of 44 trades have been profitable so far in 2024, and several of those losses were really break-even.
Nonfarm Payroll Report Comes in Weak for June at 206,000. The Headline Unemployment rate rose to a three-year high at 4.1%. All interest rate plays rocketed as a September interest rate comes back on the table. If the Fed doesn’t cut soon, we are going into recession. Buy (TLT) on dips.
Fed Governor Jay Powell Warns of Recession Risks if interest rate cuts don’t take place soon, spiking all markets. Powell is showing his cards for the next few Fed Meetings. Buy all interest rates plays like (TLT), (JNK), (NLY), and (CCI).
CPI comes in Negative. The writing is not only on the wall right now, it’s blasting us with great neon lights. That was the message this morning from the Consumer Price Index, which this morning delivered a gob-smacking 0.1% DECLINE in June. We are now in deflation and the YOY inflation rate is now down to only 3.0%. As a result, a Fed interest rate cut of 25 basis points is now a certainty in September and more will follow. All falling interest rate plays in the stock market are in play. Rising rate plays could be the trade for the rest of 2024.
PPI Rises 0.2%, with Wholesale Prices coming in as expected. The producer price index is now up 2.6% year over year. The inflation pictures goes back to mixed. Stocks rallied with big tech recovering about half of yesterday’s losses.
Consumer Sentiment at a Three-Year Low at 66.0%, down from 68.5 as the economic slide continues, according to the University of Michigan. It’s another pre-recession indicator.
Bank Earnings Beat and the stocks are rising in expectation of falling interest rates, with (JPM), (BAC), and (C) reporting. Wells Fargo (WFC) Bombed again. Buy banks on dips which have been on a tear all day.
Tesla Delays Robotaxi Day, past its original August 8 target to probably October, tanking the shares by 11%. The date propelled the massive 50% rally in the hares over the past month. Musk is always overly aggressive on his targets. Sell calls against existing (TSLA) stock positions.
Apple Expects 10% Rise in iPhone Shipments in 2024, after a bumpy 2023, counting on AI features to fuel demand for the iPhone 16. Apple is now the newly discovered AI stock. Buy (AAPL) on dips.
My Ten-Year View
When we come out the other side of the recession, we will be perfectly poised to launch into my new American Golden Age or the next Roaring Twenties. The economy decarbonizing and technology hyper accelerating, creating enormous investment opportunities. The Dow Average will rise by 800% to 240,000 or more in the coming decade. The new America will be far more efficient and profitable than the old.
Dow 240,000 here we come!
On Monday, July 15 at 9:30 AM EST, Feder Governor Jay Powell speaks. He has lately been leaning dovish.
On Tuesday, July 16 at 9:30 AM, Retail Sales are published.
On Wednesday, July 17 at 9:30 AM, Building Permits are out.
On Thursday, July 18 at 8:30 AM, the Weekly Jobless Claims are announced.
On Friday, July 19 at 2:00 PM, the Baker Hughes Rig Count is printed.
As for me, I usually get a request to fund some charity about once a day. I ignore them because they usually enrich the fundraisers more than the potential beneficiaries. But one request seemed to hit all my soft spots at once.
Would I be interested in financing the refit of the USS Potomac (AG-25), Franklin Delano Roosevelt’s presidential yacht?
I had just sold my oil and gas business for an outrageous profit and had some free time on my hands so I said, “Hell Yes,” but only if I get to drive. The trick was to raise the necessary $5 million without it costing me any money.
To say that the Potomac had fallen on hard times was an understatement.
When Roosevelt entered the White House in 1932, he inherited the presidential yacht of Herbert Hoover, the USS Sequoia. But the Sequoia was entirely made of wood, which Roosevelt had a lifelong fear of. When he was a young child, he nearly perished when a wooden ship caught fire and sank, he was passed to a lifeboat by a devoted nanny.
Roosevelt settled on the 165-foot USS Electra, launched from the Manitowoc Shipyard in Wisconsin, whose lines he greatly admired. The government had ordered 34 of these cutters to fight rum runners across the Great Lakes during Prohibition. Deliveries began just as the ban on alcohol ended.
Some $60,000 was poured into the ship to bring it up to presidential standards and it was made wheelchair accessible with an elevator, which FDR operated himself with ropes. The ship became the “floating White House,” and numerous political deals were hammered out on its decks. Some noted guests included King George VI of England, Queen Elizabeth, and Winston Churchill.
During WWII Roosevelt hosted his weekly “fireside chats” on the ship’s short-wave radio. The concern was that the Germans would attempt to block transmissions if the broadcast came from the White House.
After Roosevelt’s death, the Potomac was decommissioned and sold off by Harry Truman, who favored the much more substantial 243-foot USS Williamsburg. The Potomac became a Dept of Fisheries enforcement boat until 1960 and then was used as a ferry to Puerto Rico until 1962.
An attempt was made to sail it through the Panama Canal to the 1962 World’s Fair in Seattle, but it broke down on the way in Long Beach, CA. In 1964 Elvis Presley bought the Potomac so it could be auctioned off to raise money for St. Jude Children’s Research Hospital. It sold for $65,000. It then disappeared from maritime registration in 1970. At one point, there was an attempt to turn it into a floating disco.
In 1980, a US Coast Guard cutter spotted a suspicious radar return 20 miles off the coast of San Francisco. It turned out to be the Potomac loaded to the gunnels with bales of illicit marijuana from Mexico. The Coast Guard seized the ship and towed it to the Treasure Island naval base under the Bay Bridge. By now, the 50-year-old ship was leaking badly. The marijuana bales soaked up the seawater and the ship became so heavy it sank at its moorings.
Then a long rescue effort began. Not wanting to get blamed for the sinking of a presidential yacht on its watch, the Navy raised the Potomac at its own expense, about $10 million, putting its heavy lift crane to use. It was then sold to the City of Oakland, CA for a paltry $15,000.
The troubled ship was placed on a barge and floated upriver to Stockton, CA, which had a large but underutilized unionized maritime repair business. The government subsidies started raining down from the skies and a down to the rivets restoration began. Two rebuilt WWII tugboat engines replaced the old, exhausted ones. A nationwide search was launched to recover artifacts from FDR’s time on the ship. The Potomac returned to the seas in 1993.
I came on the scene in 2007 when the ship was due for a second refit. The foundation that now owned the ship needed $5 million. So, I did a deal with National Public Radio for free advertising in exchange for a few hundred dinner cruise tickets. NPR then held a contest to auction off tickets and kept the cash (what was the name of FDR’s dog? Fala!).
I also negotiated landing rights at the Pier One San Francisco Ferry Terminal, which involved negotiating with a half dozen unions, unheard of in San Francisco maritime circles. Every cruise sold out over two years, selling 2,500 tickets. To keep everyone well-lubricated, I became the largest Bay Area buyer of wine for those years. I still have a free T-shirt from every winery in Napa Valley.
It turned out to be the most successful fundraiser in the history of NPR and the Potomac. We easily got the $5 million and then some. The ship received a new coat of white paint, new rigging, modern navigation gear, and more period artifacts. I obtained my captain’s license and learned how to command a former Coast Guard cutter.
It was a win-win-win.
I was trained by a retired US Navy nuclear submarine commander, who was a real expert at navigating a now thin-hulled 73-year-old ship in San Francisco’s crowded bay waters. We were only licensed to cruise up to the Golden Gate Bridge and not beyond, as the ship was so old.
The inaugural cruise was the social event of the year in San Francisco with everyone wearing period Depression-era dress. It was attended by FDR’s grandson, James Roosevelt III, a Bay area attorney who was a dead ringer for his grandfather. I mercilessly grilled him for unpublished historical anecdotes. A handful of still-living Roosevelt cabinet members also came, as well as many WWII veterans.
As we approached the Golden Gate Bridge, some poor soul jumped off and the Coast Guard asked us to perform search and rescue until they could get a ship on station. Nobody was ever found. It certainly made for an eventful first cruise.
Of the original 34 cutters constructed, only four remain. The other three make up the Circle Line tour boats that sail around Manhattan several times a day.
Last summer, I boarded the Potomac for the first time in 14 years for a pleasant afternoon cruise with some guests from Australia. Some of the older crew recognized me and saluted. In the cabin, I noticed a brass urn oddly out of place. It contained the ashes of the sub-commander who had trained me all those years ago.
Good Luck and Good Trading,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Captain Thomas at the Helm
