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 $15,000 salary was too low. There were not a lot of Japanese-speaking experts on the Japanese steel industry around in those days. Biggest mistake I ever made.
Ronald Reagan’s economic policies drove me nuts and led to today’s giant deficits, which was a big deal if you worked for The Economist. But he always had a clever dirty joke at hand which he delivered to great effect….always off camera. The tough guy Reagan you saw on TV was all acting. His big accomplishment was to not drop the ball when it was handed to him to end the Cold War.
I saw quite a lot of George Bush, Sr. who I met with my Medal of Honor Uncle Mitch Paige at WWII anniversaries, who was a gentleman and fellow pilot. Clinton was definitely a “good old boy” from Arkansas, a glad-hander, and an incredible campaigner, but was also a Rhodes Scholar. His networking skills were incredible. George Bush, Jr. I missed as he never came to California. And 22 years later we are still fighting in the Middle East.
Obama was a very smart man and his wife Michelle even smarter. Stocks went up 400% on his watch and Mad Hedge Fund Trader prospered mightily. But I thought a black president of the United States was 50 years early. How wrong was I. Trump I already knew too much about from when I was a New York banker.
As for Biden, I have no opinion. I never met the man. He lives on the other side of the country. When I covered the Senate for The Economist, he was a junior member.
Still, it’s pretty amazing that I met 9 out of the last 13 presidents. That’s 20% of all the presidents since George Washington. I bet only a handful of people have done that and the rest all live in Washington DC. And I’m a nobody, just an ordinary guy. It just makes you think about the possibilities.
Really.
It’s Been a Long Road
Global Market Comments
January 30, 2023
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or MY NEW THEORY OF EQUITIES)
(TSLA), (SPY), (TLT), (TSLA), (OXY), (UUP), (AAPL), ($VIX)
CLICK HERE to download today's position sheet.
After 54 years of trading, and 60 if you count my paper boy days, I have never seen the conventional wisdom be so wrong about the markets.
There was near universal sentiment that we would crash come January. Instead, with have only seen four down days this year. The shorts got slaughtered.
So it’s clear that something brand new is going on here in the markets. I call it “My New Theory of Equities.”
I always have a new theory of equities. That’s the only way to stay ahead of the unwashed masses and live on the cutting edge. After all, I don’t have to run faster than the bear, just faster than the competition to keep you making money.
So here is my new theory.
Many strategists are bemoaning the loss of the free money that zero interest rates made available for the last decade. They are convinced that we will never see zero interest rates again.
But guess what? Markets are acting like free money is about to return, and a lot faster than you think. Free money isn’t gone forever, it is just taking a much-needed vacation.
What if free money comes from somewhere else? You can forget about free money from the government. Fear of inflation has ended that source, unless we get another pandemic, which is at least a decade off.
No, I found another source of free money, and that would be exponentially growing technology profits. Those who don’t live in Silicon Valley are ignorant of the fact that technology here is hyper accelerating and tech companies are becoming much more profitable.
You know those 80,000 tech workers who just got laid off? They all averaged two job offers each from the thousands of startup companies operating from garages and extra bedrooms all around the Bay Area. As a result, the Silicon Valley unemployment rate is well under 2%, nearly half the national average.
I bet you didn’t know that there are over 100 industrial agricultural startups here growing food in indoor ultraviolet lit lowers. It turns out that these use one tenth of the inputs of a conventional input, like water and fertilizer in half the time.
There are hundreds of solar startups in play, many venture capital financed by Saudi Arabia. While the kingdom has a lot of oil, they have even more sunshine. And what are they going to do with all that oil? Use solar generated electricity to convert it to hydrogen to sell to us as “green” energy.
Solar itself will just be a bridge technology to fusion, which you may have heard about lately. What happens when energy becomes free? It boggles the mind. This appears to be a distant goal now. But remember that we went from atomic bombs to nuclear power plants in only 12 years, the first commercially viable one supplying electricity to Pittsburgh in 1957 (click here for the link).
The future happens fast, far faster than we realize. Always.
Here is another anomaly for you. While these massive tech layoffs have been occurring, Weekly Jobless Claims have plunged to a two-year low from 240,000 to only 186,000.
That is because tech workers aren’t like you and me. When they get laid off the first thing, they do is cheer, then take a trip to Europe. They are too wealthy to qualify for unemployment benefits, so they never apply. When they get home, they immediately get new jobs that pay more money with extra stock options.
I know because I have three kids working in Silicon Valley and enjoy a never-ending stream of inside dope.
This means that you need to be loading the boat with tech stocks on every major dip for the rest of your life, or at least my life. The profit opportunities are exponential.
This creates a new dilemma.
You can pick up the easy doubles and triples now just though buying listed companies. But many of the hundred and thousand baggers haven’t even been created yet. That’s where newly unemployed tech workers are flocking to. That’s where you’ll find the next Tesla (TSLA) at $2 trade.
How will you find those? Don’t worry, that’s my job. After all, I found the last Tesla at $2, minting many new millionaires along the way.
My trading performance certainly shows the possibilities of this My New Theory of Equities, which so far in January has tacked on a robust +19.94%. My 2023 year-to-date performance is the same at +19.94%, a spectacular new high. The S&P 500 (SPY) is up +7.32% so far in 2023.
It is the greatest outperformance on an index since Mad Hedge Fund Trader started 15 years ago. My trailing one-year return maintains a sky-high +95.09%.
That brings my 15-year total return to +617.13%, some 2.66 times the S&P 500 (SPX) over the same period and a new all-time high. My average annualized return has ratcheted up to +46.87%, easily the highest in the industry.
Last week, I took profits on my longs in Tesla (TSLA) and Occidental Petroleum (OXY). That leaves me 90% in cash, with one lonely 10% short in the (QQQ). Markets are wildly overextended here; the Volatility Index ($VIX) is at a two-year low at $18, and my own Mad Hedge Market Timing Index is well into “SELL” territory at 70.
My invitation on the long side is wearing thin.
And while I’m at it, let me introduce one of my favorite secret economic indicators.
I call it the “Flat Tire Indicator”.
It goes something like this. The stronger the economy, the more trucks you have driving to new construction sites to build factories and homes. That means more trucks wearing out the roads, creating more potholes, and bouncing more nails out the back.
Tadah! You get more flat tires.
I am not citing this as some Ivory Tower, pie-in-the-sky academic theory. I spent the morning getting a flat tire on my Tesla Model X fixed. This wasn’t just any old tire I could pick up on sale at Big O Tires. It was a Pirelli Scorpion Zero 265/35 R22 All Season staggered racing tire.
Still, Tesla did well. From the time I typed in my request on the Tesla app on my smartphone to the time the repair was completed at my home, only 45 minutes had elapsed.
Still, $500 for a tire Elon? Really?
Elon Musk Ambushed the shorts, with a Massive Short Squeeze Hitting Tesla, up 80% in three weeks and far and away the top-performing major stock of 2023. Tesla now accounts for an incredible 7% of the entire options market. Bearish hedge funds are panicking. It’s dragging the rest of big tech with it. I think we are due for a rest around the Fed interest rates decision in three days. I warned you about an onslaught of good news coming out about Tesla. It has arrived!
Will This Week See the Last Interest Rate Hike, in this cycle on February 1? That’s what stocks seem to be discounting now, with the major indexes up almost every day this year. And even next week may only deliver a 25-basis point hike.
The Fed’s Favorite Inflation Indicator Fell in December, Core PCE up only 4.4% YOY. It’s fanned the tech flames for a few more days. The University of Michigan is calling for only 3.9%.
Q4 GDP is Up 2.9%, far higher than expected. This is becoming the recession that may not show. New car sales went ballistic and there were huge orders for Boeing. Bonds sold off on the news.
Recession Risk Falls, from a 98% probability to only 73% according to an advanced model from JP Morgan Bank. Other models say it’s dropped to only 50%. A soft landing is now becoming the conventional view. The view is most clearly seen in high-yield bonds which have recently seen interest rates plunge. This may become the recession that never happens.
Tech Layoffs Top 75,000, or 2% of the tech workforce. Most get two job offers on hitting the street from the thousands of garage startups percolating in San Francisco Bay Area garages, taking the Silicon Valley unemployment rate below 2%. All tech is losing is the froth it picked up during the pandemic. As I tell my kids, you want to work in the industry where 2% of the US population spin off 35% of America’s profits. Buy big tech on the coming dips.
Tesla Price Cuts Crush the EV Industry, in a clear grab by Elon for market share, already at 65% globally. Teslas are now the cheapest EVs in the world on a per mile basis, and with the new federal subsidies they now qualify for the discount rises to 35%. (GM), (F), and Volkswagen can’t match the cuts because they are already hemorrhaging money on EVs and lack the parts to appreciably boost production. Keep buying (TSLA) on dips, which is up $8 this morning.
Tesla Beats, on both earnings and guidance. It’s looking for 1.8 million vehicles sold in 2023 versus 2022 sales of 1.31 million. Elon is still planning on 50% annual growth over the foreseeable future. The shares jumped an incredible 12% on the news. The Cybertruck will roll out at the end of this year, and I am on the list. The recent price cuts were hugely successful, killing the EV competition, and could take 2023 production to 2 million. It all makes (TSLA) a strong buy and long-term hold on the next $20 dip.
China is Taking Over the Auto World and is the only country that outsold the US in EVs. The Middle Kingdom exported more than 2.5 million cars last year, taking it just behind Germany. The country is targeting 8 million exports by 2030, double Japan’s. What is not said is that most of these will go to low waged emerging countries without auto regulations, safety standards, or even laws. No Chinese cars were sold in the US, far and away the world’s largest market at 15 million units last year in a global market of 67.6 million.
Pending Home Sales Jump in December, up 2.5%, providing more green shoots for the real estate market. This is on a signed contracts-only basis, the best in 14 months. The January numbers will get a huge boost from dramatically lower mortgage rates.
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 30 a6 7:30 AM EST, the Dallas Fed Manufacturing Index is announced. NXP Semiconductor (NXPI) reports.
On Tuesday, January 31 at 6:00 AM, the S&P Case Shiller National Home Price Index is updated. Caterpillar (CAT) reports.
On Wednesday, February 1 at 7:00 AM EST, the JOLTS Private Sector Job Openings are released. The Fed Interest Rate Decision is disclosed. Meta (META) reports.
On Thursday, February 2 at 8:30 AM EST, the Weekly Jobless Claims are announced. Apple (AAPL), Amazon (AMZN), and Alphabet (GOOGL) report.
On Friday, February 3 at 8:30 AM EST, the January Nonfarm Payroll Report is printed. Regeneron (REGN) reports.
At 2:00 the Baker Hughes Oil Rig Count is out.
As for me, when Anne Wijcicki founded 23andMe in 2007, I was not surprised. As a DNA sequencing pioneer at UCLA, I had been expecting it for 35 years. It just came 70 years sooner than I expected.
For a mere $99 back then they could analyze your DNA, learn your family history, and be apprised of your genetic medical risks. But there were also risks. Some early customers learned that their father wasn’t their real father, learned of unknown brothers and sisters, that they had over 100 brothers and sisters (gotta love that Berkeley water polo team!) and other dark family secrets.
So, when someone finally gave me a kit as a birthday present, I proceeded with some foreboding. My mother spent 40 years tracing our family back 1,000 years all the way back to the 1086 English Domesday Book (click here).
I thought it would be interesting to learn how much was actually fact and how much fiction. Suffice it to say that while many questions were answered, alarming new ones were raised.
It turns out that I am descended from a man who lived in Africa 275,000 years ago. I have 311 genes that came from a Neanderthal. I am descended from a woman who lived in the Caucuses 30,000 year ago, which became the foundation of the European race.
I am 13.7% French and German, 13.4% British and Irish, and 1.4% North African (the Moors occupied Sicily for 200 years). Oh, and I am 50% less likely to be a vegetarian (I grew up on a cattle ranch).
I am related to King Louis XVI of France, who was beheaded during the French Revolution, thus explaining my love of Bordeaux wines, Chanel dresses, and pate foie gras.
Although both my grandparents were Italian, making me 50% Italian, I learned there is no such thing as a pure Italian. I come it at only 40.7% Italian. That’s because a DNA test captures not only my Italian roots, plus everyone who has invaded Italy over the past 250,000 years, which is pretty much everyone.
The real question arose over my native American roots. I am one sixteenth Cherokee Indian according to family lore, so my DNA reading should have come in at 6.25%. Instead. It showed only 3.25% and that launched a prolonged and determined search.
I discovered that my French ancestors in Carondelet, MO, now a suburb of Saint Louis, learned of rich farmland and easy pickings of gold in California and joined a wagon train headed there in 1866. The train was massacred in Kansas. The adults were massacred, and all the young children adopted into the tribe, including my great X 5 Grandfather Alf Carlat and his brother, then aged four and five.
When the Indian Wars ended in the 1870s, all captives were returned. Alf was taken in by a missionary and sent to an eastern seminary to become a minister. He then returned to the Cherokees to convert them to Christianity. By then Alf was in his late twenties so he married a Cherokee woman, baptized her, and gave her the name of Minto, as was the practice of the day.
After a great effort, my mother found a picture of Alf & Minto Carlat taken shortly after. You can see that Alf is wearing a tie pin with the letter “C” for his last name of Carlat. We puzzled over the picture for decades. Was Minto French or Cherokee? You can decide yourself.
Then 23andMe delivered the answer. Aha! She was both French and Cherokee, descended from a mountain man who roamed the western wilderness in the 1840s. That is what diluted my own Cherokee DNA from 6.50% to 3.25%. And thus, the mystery was solved.
The story has a happy ending. During the 1904 World’s Fair in St. Louis (of Meet me in St. Louis fame), Alf, then 46 placed an ad in the newspaper looking for anyone missing a brother from the 1866 Kansas massacre. He ran the ad for three months and on the very last day his brother answered and the two were reunited, both families in tow.
Today, it costs $169 to get you DNA analyzed, but with a much larger data base it is far more thorough. To do so click here at https://www.23andme.com
My DNA has Gotten Around
It All Started in East Africa
1880 Alf & Minto Carlat, Great X 5 Grandparents
My New Coincident Economic Indicator
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 5, 2023
Fiat Lux
Featured Trades:
(TESTIMONIAL),
(THE DEATH OF PASSIVE INVESTING),
(SPY), (SPX), (INDU)
Passive investing, or piling all your money in major stock indexes like the S&P 500 (SPX) or the Dow Average (INDU), just got killed off by the bear market.
The days when you could just index and then go play golf for the rest of the day are gone for good.
Rest in Peace.
On a good day, your investments reliably underperformed the indexes, less management fees and hidden expenses. Even indexers have to work to earn a living.
That was fine as long as the indexes went up like clockwork, as they did almost every year for the last 12 years. Enter Covid-19. Many individual investors will instantly have heart attacks when they opened their annual pension fund and 401k statements.
I have to admit that I was getting pretty sick of index investing. People like me would slave over their computers all day long in some years barely beating the returns of those who never lifted a finger. That is now ancient history.
Look no further than my own performance year to date. Last year, I managed to clock an 86.62% gain, compared to a pitiful 18% for the Dow Average. 2023 could be another great year for me.
How will your index fund perform when US pandemic deaths hit over 1 million as reported by Johns Hopkins University?
The global pandemic is creating a brave new world on countless fronts, and management of your retirement funds is no different. Passive investing will be replaced by active investment whereby educated individuals pick winning stocks and judiciously avoid the awful ones.
The bad news is that you will have to work harder to oversee your nest egg. The good news is that you will make a lot more money. The difference between passive and active investment is now greater than at any time in history, and that chasm is set to increase.
While the bull market allowed all stocks to go up equally, the new one is totally different. There is about to be a huge differentiation between winners and losers like never seen before. The difference between the wheat and the chaff will be enormous.
Those who figure out the new game early will prosper mightily. Those who don’t will crash and burn.
I have been fighting a daily battle with some of my own subscribers, as they are arguing that the biggest gains will simply be made from buying the biggest losers.
I’m not buying that logic for a nanosecond. Many of the worst performers are never coming back to their former glory, such as airlines, cruise lines, hotels, movie theaters, restaurant chains, and casinos. Sure, they may have a brief dead cat bounce off the bottom for a trade. But the long-term outlook for these ill-fated industries is grim at best.
No, the future lies in buying Teslas and Rolls Royces at KIA prices. Come in today and these distressed levels and you may earn as much as 15% a year for the next decade.
You know the companies I am talking about, the ones I have been covering at great length in Global Trading Dispatch, The Mad Hedge Technology Letter, and the Mad Hedge Biotech & Healthcare Letter. If you are missing any of these publications, please feel free to pick them up at our store. Please note that all our prices are going up substantially soon.
This is going to lead to a very interesting future. Those who continue to index are looking at years of subpar performance. Those who go active and do it the right way are going to be looking pretty.
It’s going to be a fun decade. The Roaring Twenties have only just begun.
Good Luck and Good Trading,
John Thomas
Mad Hedge Fund Trader
Global Market Comments
December 16, 2022
Fiat Lux
Featured Trade:
(DECEMBER 14 BIWEEKLY STRATEGY WEBINAR Q&A),
(JPM), (BAC), (C), (WFC), (UNG), (RIVN), (SPY), (TLT), (TBT), (TSLA), (NVDA), (CRM), (FCX)
Below please find subscribers’ Q&A for the December 14 Mad Hedge Fund Trader Global Strategy Webinar broadcast from Silicon Valley in California.
Q: Is it time to short the S&P 500 (SPY), or go into cash?
A: I vote for cash. Number 1. We’ve just had a tremendous run in the market. The 200-day moving average at $405 is proving to be massive resistance, and you could get a bunch of profit-taking in January on all the positions people bought up in October. They’ve made a ton of money on that, and they may be deferring to profit-taking, hoping for the Santa Clause rally to continue and to take advantage of all that time decay over the holidays—so, high risk. Risk-reward right now is terrible, so I don’t want to do anything. I’m 100% cash, and I’ll stay that way until the New Year unless something exceptional happens in the markets—you never know what might happen. And I watch markets 24/7, vacation or not because it's in my blood.
Q: What about Financials?
A: Wait until the next dip and then go for call spreads which deliver max profits in sideways markets. JP Morgan (JPM), Bank of America (BAC), Citigroup (C) and you might take a look at Wells Fargo (WFC) next time around, but they always seem to be getting into trouble.
Q: What do we do about interest rates here?
A: Look for the 10-year Treasury bond (TLT) yield to drop to about 2.50% in 2023, about the first half of 2023—maybe by June or so. We did just have a round of profit-taking, but we’re adding on dips.
Q: What do you think about the US sending patriot batteries to Ukraine?
A: The problem is the MIM-104 Patriot SAM system is kind of old—about 41 years old—and it’s been outrun by the new technologies developed by the Ukraine war. Also, 1,000 drones at $1,000 each would be cheaper than 1 patriot missile for $4 million. Sending swarms of hundreds of super cheap drone bombs to attack targets has only been developed over the past six months and you only need one to get through to destroy the target for which the patriot would be useless. Patriot is really designed to shoot down incoming Russian intercontinental ballistic missiles with nuclear warheads with one hour of notice and highly predictable trajectories. We used them a lot in the Gulf War in 1991, and we gave many to Israel which used them to great effect when defending big cities. But they were only firing against slow WWII German-style V2 rockets which Saddam Hussein literally copied off of Wikipedia. If you want to see how effective the new drone strategy is, watch competitive drone racing (https://www.youtube.com/watch?v=HNRiMgNnuVE ), or robot wars (http://www.robotwars.tv ), or any of these other online programs where you have drones controlled by humans doing exactly what I’m talking about. Also, 1,000 drones at $1,000 each would be cheaper than 1 patriot missile for $ million.
Q: What’s your Rivian (RIVN) target by the January options expiration?
A: I have no idea, but Elon Musk has had the impact of destroying not only Tesla but the entire EV sector, so Rivian is a great company clearly being dragged down by Tesla. But also, a joint venture to make trucks in Europe was also put on hold with Mercedes. And of course, nobody wants to spend money ahead of a recession. Buy (RIVN) two-year LEAPS.
Q: Why is the US buying Natural Gas (UNG) in Massachusetts from Russia when we have so much already in this country?
A: The US does not have a national natural gas pipeline system, so you can have excesses in Texas where it’s produced meet shortages in Massachusetts where it’s consumed. Somebody found a loophole to get Russian gas into the US using offshore shell companies which I’m sure will be closed instantly once that delivery is made. Suffice it to say that the sanctions on Russia are tightening, are having a deeper effect and forcing them to pull out of Ukraine sooner than we expect. That may be the pivotal black swan of 2023—that Russia gives up on Ukraine, which would be a huge positive for all markets.
Q: When will we be using nuclear fusion?
A: I have been following nuclear fusion for 50 years, ever since I worked at the Nuclear Test Site in Nevada—it’s long been the holy grail for alternative energy. I talked to the teams every once in a while, since they live next door. The positive developments we saw in England last week are a big breakthrough, but you’re looking for at least 30 years until we get functional economic nuclear fusion power plants. So, we only have to stay alive for 30 more years (and keep climate change from killing us all off in the meantime) before we get carbon-free energy in an unlimited supply. Having said that, from the time they developed a functional commercial nuclear powerplant using Uranium in 1957 from the initial use of the atomic bomb in 1945, was only 12 years and that had to be equally as daunting. So, I may be wrong, and there may be other breakthroughs coming our way, but you don’t control 150 million degrees easily—that's what’s necessary with fusion. The amounts of power input required are also staggering, like all the power that San Francisco uses in a day, just to produce marginal bits of electricity. And the deuterium fuel needed (H2, or heavy hydrogen) in large quantities would not exactly be cheap either. But in 30 years every city should get its own min sun to provide unlimited electricity. So there’s your science lecture of the day, from a long-term fusion follower. For a more detailed explanation please click here at https://www.energy.gov/science/doe-explainsnuclear-fusion-reactions
Q: Is Tesla (TSLA) a buy here?
A: Absolutely, for the long term, but I would not be amazed to see $110 print first. Number one, there’s a major short play going on here too building huge amounts of buying power, and Number two, we’re flushing out a lot of long-term profit takers for tax loss selling as we go with the year-end to offset 2022 losses in other stocks. Buying Tesla at 27X earnings multiple, and next year’s 19X multiple when it was at 100X just a year ago is kind of unbelievable. An onslaught of new Tesla positives will hit the market in 2023. The new Cybertruck comes out and there is a two-year waiting list out the gate and deposits in hand for 100,000 vehicles. The company is generating such enormous cash flows that it is like to carry out $10 billion in share buybacks, especially with the price this low. There are no real competitors on the horizon, except for a handful with minimal production at big losses outside of China.
Q: Is the demise of FTX the end of crypto?
A: I would say yes, which is why we stopped producing our Bitcoin newsletter. It could take 30 years for this thing to recover. It’s another Japanese stock market type situation, where it literally takes three decades to recover, and by then new technologies will far surpass it. The confidence in anything crypto has been totally destroyed by the FTX scandal—it’s the final nail in the coffin. And there are better things to do—I’d rather be buying NVIDIA (NVDA) or Tesla (TSLA) than crypto. There are too many great trades after a bear market.
Q: Is Blackrock (BLK) in trouble?
A: Not in a million years, and I’d be buying it on any dip. They’re an incredibly well-run company, buy on dips. They have one gated REIT which thei disclosed well in advance that is drawing all the adverse publicity. In bear markets, traders always believe the worst.
Q: Why would you not sell Nvidia (NVDA)?
A: Well, we dumped all our tech stocks in January, so we did sell there. But I try not to go against long-term trends, and the long-term trends for Nvidia is a double or triple from here since they are the 8-pound gorilla in the high-end chip business.
Q: Why is cybersecurity (PANW), (CRWD) so unloved in this environment?
A: They are over-owned. When everybody owns something, you can have the greatest story in the world and it doesn’t go up because you need new buyers for things to go up, and the Cybersecurity story is pretty well known. That’s why it won’t go down either, people are not selling because they believe in the long-term story of cyber security—and quite correctly so, and I might add at the bottom of the ranges.
Q: Isn’t Warren Buffet’s age a worry regarding Berkshire Hathaway (BRKB)?
A: No, the replacement management team that has been there for 20 years, is generating great results. Warren is basically just the front-end mouthpiece for Berkshire Hathaway, just like I’m the front-end mouthpiece for the Mad Hedge Fund Trader and isn't really involved in day-to-day decisions. That’s how Berkshire was able to step up its technology exposure during the teens. When he goes, the stock might drop 5% from algorithm and uninformed sales, but no more.
Q: What do you think of the iShares 20 Plus Year Treasury Bond ETF (TLT) versus the ProShares UltraShort 20+ Year Treasury (TBT)?
A: Avoid the (TBT) because it’s a 2x—you have extra management fees, and extra dealing costs—it’s better just to buy (TLT) on a 2x margin than it is shorting the (TBT) which is already a 2x. I’m looking for $120-$130 in the (TLT) by mid-2023, which is also a great LEAPS candidate.
Q: Is the market rethinking technology multiples here which are IBIDTA based?
A: It has already rethought the technology multiples because they have collapsed. They have dropped, in Tesla’s case 100X to 19X, which looks like a pretty serious piece of rethinking to me, so yes absolutely. Where is the final level? My theory always has been that when tech falls to a market multiple, which for the S&P 500 right now is 18.5X, that is your final bottom in tech multiples which means they may have more to go down. And what might really happen is you may have a situation where the market multiples start to rise again and get back up to the 20’s, tech falls, and they meet somewhere in the low 20s. That’s your final bottom for tech, and then you buy it to own for the next 10 years.
Q: When do you think the Fed will start lowering rates?
A: It will be a second-half affair. First of all, they have to raise rates by 50 basis points on Wednesday, then raise them again in February by 50 and again in March by 25, and then leave them alone for 3 months. Then we will have a recession, or dramatically lower inflation by then, or both. And then they’ll have room to start cutting, which sets a calendar of about June where they start several 75 basis point CUTS. Remember, markets discount things 6-9 months in advance, which is why we had that $20 rally in the (TLT) that started in February. There’s your calendar. So far, it’s working.
Q: Will you give a buy signal on Tesla (TSLA)?
A: More like a Hail Mary on Tesla, hoping that it’s the bottom. When you get these capitulation selloffs, which is what we’re getting on Tesla, there is absolutely no way of predicting where the final number is, because you’re dealing with human emotions here, which are totally unpredictable and are panicking. I’d rather wait, give the first 10% of the move to the next guy, and then play the new trend from there. But I think Tesla could be one of the top performers of 2023. Especially if you get down to like $110 or so, something unbelievable—you know, get Tesla to market multiple, that means it’s got to drop another $30 essentially, and in this environment, it could do that. It could keep going down every day for the rest of this year because a lot of these big reversals tend to happen at year ends. When you get the last Tesla bull out of there, that’s when it goes up. After that, it’s all short covering.
Q: Do you think it will be 50 or 75 basis points?
A: It’s a coin toss for whether it’s 50 or 75. Knowing Jay Powell as I do, I’d go for 50, but with harsh talk. I think he wants to shock us, wants to kill off this stock market rally, wants to kill off any hope you can get one more price rise through the system before we hit a recession. A 50 basis points would be a real shocker and, by the way, would also give us easily a 1000-point selloff, which we could then use to buy into for the new year.
Q: Could Tesla reach $600?
A: Yes, I think it could. Remember, the fundamental story for Tesla is still on track. They are still growing at a 40% rate, while the rest of Detroit is going nowhere. All of their leads are overwhelming, and the really telling aspect for the future of Tesla is that Apple gave up on its autonomous driving program. Every other car company in the world is going to come to the same decision, except for maybe Google. So yes, the bull case is absolutely there, you just have to wait for the current capitulation to flush out, and then it becomes a buy for years.
Q: Does the adoption of a digital currency impact the economy?
A: No, I think anything digital money is on hold for the foreseeable future as the FTX disaster unfolds.
Q: Do you like Salesforce (CRM)?
A: Yes, long-term. It’s also in a capitulation “catch a falling knife” stage. Wait for that to finish—better to buy it on the way up than on the way down is all I can say.
Q: Will there be any restrictions on copper mining (FCX)?
A: Not that I can think of—we’re looking at an enormous shortage of copper going forward and a future copper shock. Most of this is produced in emerging markets that have no environmental restrictions, which is why it happens there, like Chile. So yes, looking for new copper sources will be one of the big plays of this decade.
Q: Do you think the market will bottom in 2023?
A: Yes, if it hasn’t already.
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 Stay Healthy.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Peleliu in 1978 with a Japanese 8 Inch Gun
