Global Market Comments
May 16, 2022
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or SIFTING THROUGH THE WRECKAGE),
(SPY), (TLT), (TBT), (GOOGL), (AAPL), (MSFT), (BRKB), (NVDA), (JPM), (BAC), (WFC), ($BTCUSD)LA),
Posts
I have many superpowers, but one of the most useful ones is picking market bottoms. It looks like another one is at hand.
The past week has been one of epic wreckage in the stock market. It’s as if Hurricanes Sandy and Katrina both hit at the same time and were followed by a good old California earthquake.
Your favorite share prices have gone from mildly irritating to disappointing to absolutely gobsmackingly awful in only five months.
As a result, some of the best buying opportunities of the decade are setting up, the kind that you will be able to will on to your grandchildren. This is when mortgages get paid off, college debt is retired, and retirements financed.
There are a couple of key measurements here to watch. When the number of stocks above their 200-day moving averages falls below 20%, it always signifies an important market bottom. At the Thursday low, we were at 15% for the (SPY) and 12% for NASDAQ. It’s just another technical indicator among the hundreds, but a useful one, nonetheless.
Another one that helps is that on Friday, we also saw the first 90% advancing day since June 2020. All correlations went to one last week, meaning that all asset classes went down in unison.
That puts the bottom for the S&P 500 at $3,800 with an initial upside target of $4,200. We are way overdue for an 8%-12% relief rally. If I am wrong, we are only dropping another 200 points, or 5%.
Except that this time, it’s different.
At $3,600, down 25% from the January high, the market will have fully discounted a fairly severe recession that isn’t going to happen. Amazing as it may seem, some of the stocks having the biggest falls are still seeing earnings grow nicely. They are simply being sold because they are widely owned. That snares them in all of the algorithm-driven high-frequency trading that is going on.
I know I’ve said this a million times, but you use markets like this to buy Rolls Royces at Volkswagen prices. I’m talking about Alphabet (GOOGL), Microsoft (MSFT), and Apple (AAPL).
These companies are solid as the Rock of Gibraltar, with massive cash flows, huge cash balances, unassailable moats, and steady, if not spectacular earnings prospects. People have not suddenly abandoned Google as a search engine, Microsoft still has a near-monopoly in PC operating software, and Apple will sell more new and more expensive iPhones than ever.
The other baby that is being thrown out with the bathwater here are the banks. Recession fears have given these shares a haircut by a third by recession fears that damage the credit quality of their loan books.
What if there is no recession? Then the bear market in banks goes up in a puff of smoke. It helps that this time, there is no liquidity or capital crisis to be seen whatsoever. Add JP Morgan (JPM), Bank of America (BAC), and Wells Fargo (WFC) to your growing “BUY” lists.
Buying the best stocks with a recession already baked in the price? Sounds like a winner to me.
As for the smaller tech stocks, I’d take a pass, at least for now. Most of these companies, which never made any money, now have shares down 70% to 90% and are not coming back. They provided to be perfect money destruction machines. Never confuse “gone down a lot” with “cheap.” Take away the punch bowl and suddenly the party becomes very boring.
The Mad Hedge Market Timing Index certainly earned its weight in gold last week. We saw a multi-year low of 6 on Thursday and I was sending out trade alerts to “BUY” as fast as I could write them. A 1,200-point snap-back rally ensued, setting up a bottom that could last for weeks, if not forever.
The other great thing to come out of this selloff is that we learned what a fantastic leading indicator of risk-taking Bitcoin has become. While the S&P 500 plunged by 20%, Bitcoin absolutely cratered by 60%. We saw the correlation on both the upside and the downside.
Bitcoin is basically the (SPY) X 3. Ignore Bitcoin at your peril, even if you think the whole thing is a scam. And keep reading your Mad Hedge Bitcoin Letter.
Was this the grand finale? Big tech stocks like Apple (AAPL) and Microsoft (MSFT) stubbornly held their ranges for months, supporting the market as a whole. That ended last week on no news with the decisive breakdown of the key names. Apple has lost a staggering $350 billion in market cap in a week. Does this signal the final washout of this correction? It could. The Volatility Index (VIX) has ceased rising, and bonds have begun a short-covering countertrend rally.
Jay Powell warns of more 50-basis point rate rises if the economic conditions justify it. He also can’t guarantee a soft landing for the economy. Thanks for telling us precisely nothing. The comments were made on NPR Radio’s marketplace program and immediately tanked Dow futures by 100 points.
Core Inflation moderates slightly, down from 8.5% to 8.3% in April, sparking a stock market rally. That is 0.2% lower than last month’s 8.5% print, hence the bond rally. It was the first decline in the inflation rate in seven months. The probability of a peak in inflation is increasing.
Producer Price Index soars 11.0% YOY and 0.5% in April alone. It is a red-hot number showing that inflation is getting worse. The Producer Price Index (PPI) program measures the average change over time in the selling prices received by domestic producers for their output.
Goldman Sachs quit the SPAC Market, citing unmanageable liability. More likely, they don’t want to get stuck with illiquid longs on SPACS they brought to the market. I warned you this was a roach motel market; you can check in but you can never check out. I have to admit that I never believed in this asset class for two seconds, regarding it as nothing more than a license to steal money from investors.
Bitcoin drops below $28,000, taking the cryptocurrency down to more than half its November peak. It’s acting more like a small-cap tech stock every day, not the thing to be right now. With the Fed shrinking liquidity at a record rate, this is not a favorable backdrop either.
Another crypto bites the dust, as the free fall continues. Tether, a stablecoin tied to the US dollar, has fallen to 69% of its face value. It turns out that backing by the US government is more reliable than support from a PO Box in the Cayman Islands. Expect more to fail. Avoid crypto at all cost.
Ford to unload 8 million Rivian shares, once a lockup expires. Other pick institutional blocks are waiting in the wings. The EV truck is smoking hot on the road, but the shares have been dead as a doorknob, down 85% from the peak and 16% on the day. Avoid (RIVN) while the sector is death warmed over.
Biden mulling dropping Chinese Tariffs to make a dent in inflation. It might help a bit. It just depends on what we might get in return. Such a move wouldn’t exactly protect American workers, a top Biden priority. Relations with China are still fraught at best.
US Dollar blasts through to 20-year high, but a cooling inflation number on Wednesday may signal the top. Soaring interest rates, a strong economy, and a weak Europe and Japan are the drivers. There’s a short play here someday, but not yet.
Housing Supply improves for the first time in three years. Supply of mid-sized single-family loans takes the lead. Inventories are showing smallest declines in a year. Finally, the buyers get a break….now that prices are falling. Almost all new loans are 5/1 ARMS.
Air Ticket Prices are through the roof and were the biggest single factor keeping the CPI inflation figure sky-high yesterday. Buyers cite as reasons a long time since visiting relatives, desperation to get outdoors, and a rush to travel before the next Covid wave hits. It may be a one-time pop only, as used car prices were in previous months.
30-Year Fixed Rate Mortgages Top 5.5% in the fastest rate rise in history. The housing market is still hot, now fueled by exploding adjustable-rate mortgages 1.5% cheaper. Refi’s, however, have gone to zero.
My Ten-Year View
When we come out the other side of pandemic, we will be perfectly poised to launch into my new American Golden Age, or the next Roaring Twenties. With interest rates still historically cheap, oil peaking out soon, and technology hyper accelerating, there will be no reason not to. The Dow Average will rise by 800% to 240,000 or more in the coming decade. The America coming out the other side of the pandemic will be far more efficient and profitable than the old. Dow 240,000 here we come!
With some of the greatest market volatility seen since 1987, my May month-to-date performance recovered to +0.91%. Friday was up +5.12%, the biggest one-day gain in the 14-year history of the Mad Hedge Fund Trader.
My 2022 year-to-date performance exploded to 31.09%, a new high. The Dow Average is down -12.67% so far in 2022. It is the greatest outperformance on an index since Mad Hedge Fund Trader started 14 years ago. My trailing one-year return maintains a sky-high 58.48%.
I used last week’s meltdown to cover shorts in the (SPY) and bonds (TLT) and to buy new longs in technology like (AAPL), (NVDA), and (BRKB). I would have sent out more trade alerts if I had more time and didn’t have Covid and a 102 degrees temperature.
That brings my 14-year total return to 543.65%, some 2.40 times the S&P 500 (SPX) over the same period and a new all-time high. My average annualized return has ratcheted up to 43.78%, easily the highest in the industry.
We need to keep an eye on the number of US Coronavirus cases at 82.5 million, up 300,000 in a week, and deaths topping 1,000,000 and have only increased by 2,000 in the past week. You can find the data here.
On Monday, May 16 at 8:30 AM EST, the New York Empire State Manufacturing Index is released.
On Tuesday, May 17 at 8:30 AM, Retail Sales for April are released.
On Wednesday, May 18 at 8:30 AM, Housing Starts and Building Permits for April are published.
On Thursday, May 19 at 8:30 AM, Weekly Jobless Claims are disclosed. Existing Home Sales for April are printed.
On Friday, May 20 at 8:30 AM, the Baker Hughes Oil Rig Count is out.
As for me, the 1980s found me heading the Japanese equity warrant trading department for Morgan Stanley in London, a unit which eventually produced 80% of the company’s equity division profits. It was like running a printing press for $100 bills.
My east end kids in their twenties were catapulted from earning $10,000 a year to a half million. After buying West End condos, the latest Ferrari or Jaguar, and picking up fashion model girlfriends, they ran out of ideas on how to spend the money.
Maybe it was time to upgrade from pints of Fosters at the local pub to fine French wines?
The problem was that no one knew what to buy. Bordeaux alone produced 5,000 labels, and Burgundy a further 7,000. France had 360 appellations in 11 major wine-growing regions. Worse yet, all the names were in French!
Following a firmwide search, it was decided that I should become the in-house wine connoisseur. After all, I was from a wine-growing region in California, spoke French, and was part-French. How could they lose?
As with everything I do, I intensively threw myself into research. It turns out that the insurance exchange, Lloyds of London, was suffering the first of its claims in its history. US asbestos-related insurance claims were exploding. Then, a giant offshore natural gas rig, Piper Alpha, blew up. Suddenly Lloyd’s syndicates were getting their first-ever cash calls.
These syndicates were sold to members as guaranteed risk-free cash flow. Suddenly many members had to come up with $250,000 each in months. No one was ready. How did many meet their cash calls? By selling off 100-year-old wine cellars through auctions at Sotheby’s in London.
Now let me tell you about the international wine auction business. Single cases of the first growth wines, like the 1983 Chateaux Laffite Rothchild, are traded on open markets like any other investment. They appreciate in value like bonds, about 5% a year. However, mixed cases filled with odds and ends from different wineries and different years, have no investment value and traded at enormous discounts.
I found my market!
In short order, I put together a syndicate of 20 new wine consumers and went to work.
To separate out the sheep from the goats, I relied on a wine guide that The Economist magazine included at the back of every wallet diary. As each auction catalog came out, I rated every bottle in the mixed cases coming for sale. I then showed up at the bi-monthly auctions and bought every case.
It wasn’t long before I became the largest buyer of wine at Sotheby’s, picking up 20 cases per auction. The higher the Japanese stock market rose, the more money the traders made, and the more they had to spend on better French wines.
It wasn’t long before Morgan Stanley became famed for being a firm of wine authorities. Our guys were getting invited to high-end dinners just so they could pick the wines, including me.
Sotheby’s took note, and set me up with their in-house wine expert, the famed Serena Sutcliffe. I became her favorite customer. Serena knew everyone in Bordeaux. Who is the most popular person in any wine-growing area? Not the one who makes the wine but the one who sells it.
It wasn’t long before Serena set me up with private tours of the top Bordeaux wineries. I’m talking about Laffite Rothchild, Haut-Brion, Yquem (once owned by US Treasury Secretary C. Douglas Dillon), Chateaux Margaux, and Pomerol. I then flew the two of us down to Bordeaux in my twin-engine Cessna 340 for the wine tasting opportunity of a lifetime. I came back full up, with about 10 cases per flight.
I was guided through ancient, spider web-filled, fungus-infused caves and invited to drink their prime stock. Let me tell you that the 1873 Laffite Rothchild is to die for but is bested by the 1848 Chateaux Yquem.
The stories I heard were incredible. During WWII, one winery dumped its entire stock in a nearby pond to keep the Germans from getting it. But the labels floated to the surface. After the war, they fished out the bottles. But they couldn’t identify them until they opened the bottles, where the vintage was printed on the cork. It was free fishing for years for the locals and there are probably a few bottles still in there.
In sommelier school, you have to taste 5,000 wines to graduate. They tell you up front that it will change your life. After my experience as the biggest wine buyer in London for five years, I can tell you this is true.
One of my treasured buys was a bottle of 1952 Laffite Rothchild, the year I was born. Then it was only 40 years old and went down well with a fine dinner of Beef Wellington. I had the bottle for years until a cleaning lady found it on a shelf after a party and put it in the recycling bin.
A few months ago, I was at the Marin French Antique Show browsing for hidden treasures. What did I find but an empty case of 1985 Romanee Conti, the greatest Burgundy of France. The vendor had no idea what he had. To him, it was just a wood box. I offered him $10. He said thanks. It now adorns a place of honor in my own wine cellar to remind me of this grand experience.
And if we ever meet for dinner, don’t bother with the wine list. I’ll be making the pick.
Stay Healthy,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Fill Her Up with Bordeaux
Global Market Comments
May 11, 2022
Fiat Lux
Featured Trade:
(JOIN ME ON CUNARD’S MS QUEEN VICTORIA
FOR MY JULY 9, 2022 SEMINAR AT SEA)
Global Market Comments
May 10, 2022
Fiat Lux
Featured Trade:
(MAY 4 BIWEEKLY STRATEGY WEBINAR Q&A),
(SPY), (ROM), (ARKK), (LMT), (RTN), (USO), (AAPL), (BRKB), (TLT), (TBT), (HYG), (AMZN)
Below please find subscribers’ Q&A for the May 4 Mad Hedge Fund Trader Global Strategy Webinar broadcast from Silicon Valley.
Q: How confident are you to jump into stocks right now?
A: Not confident at all. If you look at all of my positions, they’re very deep in the money and fully hedged—I have longs offsetting my shorts—and everything I own expires in 12 days. So, I’m expecting a little rally still here—maybe 1,000 points after the Fed announcement, and then we could go back to new lows.
Q: Would you scale into ProShares Ultra Technology ETF (ROM) if you’ve been holding it for several years?
A: I would—in the $40s, the (ROM) is very tempting. On like a 5-year view, you could probably go from the $40s to $150 or $200. But don’t expect to sleep very much at night if you take this position, because this is volatile as all get out. It's not exactly clear whether we have bottomed out in tech or not, especially small tech, which the (ROM) owns a lot of.
Q: Is it time to buy the Ark Innovation ETF (ARKK) with the 5-year view?
A: Yes. I mentioned the math on that a couple of days ago in my hot tips. Out of 10 positions, you only need one to go up ten times to make the whole thing worth it, and you can write off everything else. Again, we’re looking at venture capital type math on these leverage tech plays, and that makes them very attractive; however I’m always trying to get the best possible price, so I haven’t done it yet.
Q: We’ve been hit hard with the tech trade alerts since March. Any thoughts?
A: Yes, we’re getting close to a bottom here. The short squeeze on the Chinese tech trade alerts that we had out was a one-day thing. However, when you get these ferocious short covering rallies at the bottom—we certainly got one on Monday in the S&P 500 (SPY) —it means we’re close to a bottom. So, we may go down maybe 4%-6% and test a couple more times and have 500- or 1000-point rallies right after that, which is a sign of a bottom. There’s a 50% chance the bottom was at $407 on Monday, and 50% chance we go down $27 more points to $380.
Q: Is the Roaring 20s hypothesis still on?
A: Yes absolutely; technology is still hyper-accelerating, and that is the driver of all of this. And while tech stocks may get cheap, the actual technology underlying the stocks is still increasing at an unbelievable rate. You just have to be here in Silicon Valley to see it happening.
Q: Do you like defense stocks?
A: Yes, because companies like Lockheed Martin (LMT) and Raytheon (RTN) operate on very long-term contracts that never go away—they basically have guaranteed income from the government—meeting the supply of F35 fighters for example, for 20 years. Certainly, the war in Ukraine has increased defense spending; not just the US but every country in the world that has a military. So all of a sudden, everybody is buying everything—especially the javelin missiles which are made in Florida, Georgia and Arizona. The Peace Dividend is over and all defense companies will benefit from that.
Q: Is Buffet wrong to go into energy right now? How will Berkshire Hathaway Inc. (BRK.B) perform if energy tanks?
A: Well first of all, energy is only a small part of his portfolio. Any losses in energy would be counterbalanced by big gains in his banking holdings, which are among his largest holdings, and in Apple (AAPL). Buffet does what I do, he cross-hedges positions and always has something that’s going up. I think Berkshire is still a buy. And he's not buying oil, per say; he is buying the energy producing companies which right now have record margins. Even if oil goes back down to $50 a barrel, these companies will still keep making money. However, he can wait 5 years for things to work for him and I can’t; I need them to work in 5 minutes.
Q: You must have suffered big oil (USO) losses in the past, right?
A: Actually I have not, but I have seen other people go bankrupt on faulty assumptions of what energy prices are going to do. In the 1990s Gulf War, someone made an enormous bet that oil would go up when the actual shooting started. But of course, it didn’t, it was a “buy the rumor, sell the news” situation. Energy prices collapsed and this hedge fund had a 100% loss in one day. That is what keeps me from going long energy at the top. And the other evidence that the energy companies themselves believe this is true is that they’re refusing to invest in their own businesses, they won’t expand capacity even though the government is begging them to do so.
Q: Why should we stay short the iShares 20 Plus Year Treasury Bond ETF (TLT) instead of selling out for a profit or holding on due to your statement that the TLT will go down to $105/$110?
A; If you have the December LEAPS, which most of you do, there’s still a 10% profit in that position running it seven more months. In this day and age, 7% is worth going for because there isn’t anything else to buy right now, except very aggressive, very short term, front month options, which I've been doing. So, the only reason to sell the TLT now and take a profit—even though it’s probably the biggest profit of your life—is that you found something better; and I doubt you're finding anything better to do right now than running your short Treasuries.
Q: Are you still short the TLT?
A: Yes, the front months, the Mays, expire in 8 days and I’m running them into expiration.
Q: What will Bitcoin do?
A: It will continue to bounce along a bottom, or maybe go lower as long as liquidity in the financial system is shrinking, which it is now at roughly a $90 billion/month rate. That’s not good for Bitcoin.
Q: Is now the time for Nvidia Corporation (NVDA)?
A: Yes, it’s definitely time to nibble here. It’s one of the best companies in the world that’s dropped more than 50%. I think we’d have a final bottom, and then we’re entering a new long term bull market where we’d go into 1-2 year LEAPS.
Q: What do you think of buying the iShares iBoxx $ High Yield Corporate Bond ETF (HYG) junk bond fund here for 6% dividend?
A: If you’re happy with that, I would go for it. But I think junk is going to have a higher dividend yet still. This thing had a dividend in the teens during the financial crisis; I don’t think we’ll get to the teens this time because we don’t have a financial crisis, but 7% or 8% are definitely doable. And then you want to look at the 2x long junk bond special ETFs, because you’re going to get a 16% return on a very boring junk bond fund to own.
Q: What do you think about Amazon (AMZN) at this level?
A: I think it’s too early and it goes lower. Not a good stock to own during recession worries. At some point it’ll be a good buy, but not yet.
Q: Energy is the best sector this year—how long can it keep going?
A: Until we get a recession. By the way, if you want evidence that we’re not in a recession, look at $100/barrel oil. When you get real recessions, oil goes down to 420 or $30….or negative $37 as it did in 2020. There’s a lot of conflicting data out in the market these days and a lot of conflicting price reactions so you have to learn which ones to ignore.
Q: Should we stay short the (TLT)?
A: Yes, we should. I’m looking for a 3.50% yield this year that should take us down to $105.
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
Global Market Comments
May 9, 2022
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or HEADED FOR THE LEPER COLONY),
(SPY), (TLT), (TBT), (BRKB), (TSLA), (GLD), (AAPL), (GOOGL), (MSFT), (NVDA)
My worst-case scenario for the S&P 500 this year was a dive of 20%. We are now off by 14%. And of course, most stocks are down a lot more than that.
Which means that we are getting close to the tag ends of this move. The kind of wild, daily 1,000-point move up and down we saw last week is typical of market bottoms.
Some $7 trillion in market capitalization lost this year. That means we could be down $10 trillion from a $50 trillion December high before this is all over. That’s a heck of a lot of wealth to disappear from the economy.
So, it may make sense to start scaling into the best quality names on the bad days in small pieces, like Apple (AAPL), Alphabet (GOOGL), Microsoft (MSFT), and NVIDIA (NVDA).
Whatever pain you may have to take what follows, the twofold to threefold gain that will follow over the next five years will make it well worth it. Is a 20% loss upfront worth a long-term gain of 200%? For most people, it is.
Bonds may also be reaching the swan song for their move as well. The United States Treasury Bond Fund (TLT) at $113 has already lost a gobsmacking $42 since the November $155 high.
The markets have already done much of the Fed’s work for it, discounting 200 basis points of an anticipated 350 basis points in rate rises in this cycle. Therefore, I wouldn’t get too cutesy piling on new bond shorts here just because it worked for five months.
Yes, there is another assured 50 basis point rise in six weeks towards the end of June. Jay Powell has effectively written that in stone. We might as well twiddle our fingers and keep playing the ranges until then. We have in effect been sent to the trading leper colony.
The barbarous relic (GLD) seems to be looking better by the day. Q1 saw a massive 551 metric tonnes equivalent pour into gold ETF equivalents, an increase of 203%. Of course, we already know of the step-up in Russian and Chinese demand to defeat western sanctions.
But the yellow metal is also drawing more traditional investment demand. Gold usually does poorly during rising interest rates. This time, it's different. An inflation rate of 8.5% minus an overnight Fed rate of 1.0%, leaving a real inflation rate of negative -7.5%. That means gold has 7.5% yield advantage over cash equivalents.
Gold’s day as an inflation hedge is back!
The April Nonfarm Payroll Report came in near-perfect at 459,000, holding the headline Unemployment Rate at 3.5%. It’s proof that a recession is nowhere near the horizon. A record 2 million workers have recovered jobs during the last four months and 6.6 million over the past 12.
Warren Buffet is Buying Stocks, some $51 billion in Q1. That includes $26 billion into California energy major Chevron (CVX), followed by a big bet on Occidental Petroleum (OXY). These are clearly a bet that oil will remain high for at least five more years. That has whittled his cash position down from $147 billion to only $106 billion. Buffet likes to keep a spare $100 billion on hand so he can take over a big cap at any time. Warren clearly eats his own cooking, buying $26 billion worth of his own stock in 2021. If you can’t afford the lofty $4,773 price for the “A” shares, try the “B” shares at $322.83, which also offer listed options on NASDAQ and in which Mad Hedge Fund Trader currently has a long position.
Elon Musk Crashes His Own Stock, selling $8.4 billion worth last week. His Twitter purchase has already been fully financed, so what else is he going to buy. The move generates a massive Federal tax bill, but Texas, his new residence, is a tax-free state. It continues a long-term trend of billionaires piling fortunes in high tax states, like Jeff Bezos in Washington, and then realizing the gains in tax-free states.
Adjustable-Rate Mortgages are Booming, replacing traditional 30-year fixed-rate mortgage at a rapid pace. Interest rates are 20% lower, but if rates skyrocket to double digits or more in five years, you have a really big problem. ARMs essentially take the interest rate risk off the backs of the lenders and place it firmly on the shoulders of the borrowers.
Travel Stocks are On Fire, with all areas showing the hottest numbers in history. Average daily hotel rates are up 20% YOY, stayed room nights 52%, airfares 39%, and airline tickets sold 48%. Expect these numbers to improve going into the summer.
JOLTS Hits a Record High, with 11.55 million job openings in March, up 205,000 on the month. There are now 5.6 million more jobs than people looking for them. No sign of a recession here. It augurs for a hot Nonfarm Payroll report on Friday.
Natural Gas Soars by 9% in Europe as the continent tries to wean itself off Russian supplies. In the meantime, US producers are refusing to boost output for a commodity that may drop by half in a year, as it has done countless times in the past. If the oil majors are avoiding risk here, maybe you should too.
My Ten-Year View
When we come out the other side of pandemic, we will be perfectly poised to launch into my new American Golden Age, or the next Roaring Twenties. With interest rates still historically cheap, oil peaking out soon, and technology hyper accelerating, there will be no reason not to. The Dow Average will rise by 800% to 240,000 or more in the coming decade. The America coming out the other side of the pandemic will be far more efficient and profitable than the old. Dow 240,000 here we come!
With some of the greatest market volatility seen since 1987, my May month-to-date performance lost 4.27%. My 2022 year-to-date performance retreated to 25.91%. The Dow Average is down -9.3% so far in 2022. It is the greatest outperformance on an index since Mad Hedge Fund Trader started 14 years ago. My trailing one-year return maintains a sky-high 56.62%.
On the next capitulation selloff day, which might come with the April Q1 earnings reports, I’ll be adding long positions in technology, banks, and biotech. I am currently in a rare 50% cash position awaiting the next ideal entry point.
That brings my 13-year total return to 538.47%, some 2.30 times the S&P 500 (SPX) over the same period. My average annualized return has ratcheted up to 43.36%, easily the highest in the industry.
We need to keep an eye on the number of US Coronavirus cases at 81.9 million, up 500,000 in a week, and deaths topping 998,000 and have only increased by 5,000 in the past week. You can find the data here.
The coming week is a big one for jobs reports.
On Monday, May 9 at 8:00 AM EST, US Consumer Inflation Expectations are released.
On Tuesday, May 10 at 7:00 AM, the NFIB Business Optimism Index is confirmed.
On Wednesday, May 11 at 8:30 AM, the Core Inflation Rate for April is printed.
On Thursday, May 12 at 8:30 AM, Weekly Jobless Claims are disclosed. Conoco Phillips (COP) reports. We also get the Producer Price Index.
On Friday, May 13 at 8:30 AM, the University of Michigan Consumer Price Index for May is disclosed. At 2:00 PM, the Baker Hughes Oil Rig Count is out.
As for me, not just anybody is allowed to fly in Hawaii. You have to undergo special training and obtain a license endorsement to cope with the Aloha State’s many aviation challenges.
You have to learn how to fly around an erupting volcano, as it can swing your compass by 30 degrees. You must master the fine art of getting hit by a wave on takeoff since it will bend your wingtips forward. And you’re not allowed to harass pods of migrating humpback whales, a sight I will never forget.
Traveling interisland can be highly embarrassing when pronouncing reporting points that have 16 vowels. And better make sure your navigation is good. Once a plane ditched interisland and the crew was found months later off the coast of Australia. Many are never heard from again.
And when landing on the Navy base at Ford Island, you were told to do so lightly, as they still hadn’t found all the bombs the Japanese had dropped during their Pearl Harbor attack.
You are also informed that there is one airfield on the north shore of Molokai you can never land at unless you have the written permission from the Hawaii Department of Public Health. I asked why and was told that it was the last leper colony in the United States.
My interest piqued, the next day found me at the government agency with application in hand. I still carried my UCLA ID which described me as a DNA researcher which did the trick.
When I read my flight clearance to the controller at Honolulu International Airport, he blanched, asking if a had authorization. I answered that yes, I did, I really was headed to the dreaded Kalaupapa Airport, the Airport of no Return.
Getting into Kalaupapa is no mean feat. You have to follow the north coast of Molokai, a 3,000-foot-high series of vertical cliffs punctuated by spectacular waterfalls. Then you have to cut your engine and dive for the runway in order to land into the wind. You can only do this on clear days, as the airport has no navigational aids. The crosswind is horrific.
If you don’t have a plane, it is a 20-mile hike down a slippery trail to get into the leper colony. It wasn’t always so easy.
During the 19th century, Hawaiians were terrified of leprosy, believing it caused the horrifying loss of appendages, like fingers, toes, and noses, leaving bloody open wounds. So, King Kamehameha I exiled them to Kalaupapa, the most isolated place in the Pacific.
Sailing ships were too scared to dock. They simply threw their passengers overboard and forced them to swim for it. Once on the beach, they were beaten a clubbed for their positions. Many starved.
Leprosy was once thought to be the result of sinning or infidelity. In 1873, Dr. Gerhard Henrik Armauer Hansen of Norway was the first person to identify the germ that causes leprosy, the Mycobacterium leprae.
Thereafter, it became known as Hanson’s Disease. A multidrug treatment that arrested the disease, but never cured it, did not become available until 1981.
Leprosy doesn’t actually cause appendages to drop off as once feared. Instead, it deadens the nerves and then rats eat the fingers, toes, and noses of the sufferers when they are sleeping. It can only be contracted through eating or drinking live bacteria.
When I taxied to the modest one-hut airport, I noticed a huge sign warning “Closed by the Department of Health.” As they so rarely get visitors, the mayor came out to greet me. I shook his hand but there was nothing there. He was missing three fingers.
He looked at me, smiled, and asked, “How did you know?”
I answered, “I studied it in college.”
He then proceeded to give me a personal tour of the colony. The first thing you notice is that there are cemeteries everywhere filled with thousands of wooden crosses. Death is the town’s main industry.
There are no jobs. Everyone lives on food stamps. A boat comes once a week from Oahu to resupply the commissary. The government stopped sending new lepers to the colony in 1969 and is just waiting for the existing population to die off before they close it down.
Needless to say, it is one of the most beautiful places on the planet.
The highlight of the day was a stop at Father Damien’s church, the 19th century Belgian catholic missionary who came to care for the lepers. He stayed until the disease claimed him and was later sainted. My late friend Robin Williams made a movie about him but it was never released to the public.
The mayor invited me to stay for lunch, but I said I would pass. I had to take off from Kalaupapa before the winds shifted.
It was an experience I will never forget.
Stay Healthy,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Global Market Comments
May 5, 2022
Fiat Lux
Featured Trade:
(A NOTE ON OPTIONS CALLED AWAY)
(TLT), (BRKB), (SPY), (CCJ), (GLD)
As I expected, the markets have continued their march to “cheap”, with the price-earnings multiple plunging in a week from 19X to 17X. This has occurred both through rising earnings and falling share prices.
“Cheap,” is now within range, a mere 10% drop in the (SPX) to $3,800 only 10% away, taking us to a 15X multiple. With the Volatility Index (VIX) at a sky-high $34, in another week we could be there.
The long-term smart money isn’t bothering to wait and has already started to scale into the best names. For now, they are overwhelmed by sellers panicking to sell the next market bottom, as they usually do. That won’t last.
Stocks have seen their worst start to a year since 1942, right after the crushing Japanese attack on Pearl Harbor attack. They didn’t bottom until the US won the Battle of Midway in May, seven months later, even though the public didn’t learn about the strategic victory until months later.
That took the Dow Average down exactly 20%, from $115 to $92. Thereafter, the market began one of the greatest bull moves of all time, exploding from $92 to $240, up 161%.
Dow Average 1939-1942
That is how long and how much we may have to wait for a recovery this time as well with the same long-term outcome.
Those of you who have traditional 60/40 portfolios (60% stocks and 40% bonds), which are most of you, even though I advised against it, have suffered their worst start to a year since 1981, 40 years ago. Both bonds AND stocks have gone down huge.
NASDAQ, the red-headed stepchild of the day, delivered the worst monthly performance since October 2008. Playing from the short side has been like shooting fish in a barrel. The Mae Wests which have floated this market for years have been found to be full of holes.
Consumer discretionary stock delivered a horrific performance. The discretion of consumers right now is to flee stocks and own cash.
I prefer Oracle of Omaha Warren Buffet’s approach. For the first time in years, he is pouring money into stocks, some $51 billion in Q1. That includes $26 billion into California energy major Chevron (CVX), followed by a big bet on Occidental Petroleum (OXY) (click here for my piece at https://www.madhedgefundtrader.com/take-a-look-at-occidental-petroleum-oxy-4/ ).
These are clearly a bet that oil will remain high for at least five more years. That has whittled his cash position down from $147 billion to only $106 billion. Buffet likes to keep a spare $100 billion on hand so he can take over a big cap at any time.
Warren clearly eats his own cooking, buying $26 billion worth of his own stock in 2021. If you can’t afford the lofty $4,773 price for the “A” shares, try the “B” shares at $322.83, which also offer listed options on NASDAQ and in which Mad Hedge Fund Trader currently has a long position.
Rather than fleeing what you already own, because it’s too late, you’re better off building lists of what to buy at the bottom. And the farther the market falls, the more volatility I am looking for.
Investors are salivating at the demise of Cathy Wood’s Ark Innovation ETF (ARKK), which has collapsed by 72% in 14 months. In the meantime, the short Ark ETF (SARK) rose by 50% in April Alone.
You can scale into (ARKK) on the next Armageddon Day. Better yet, you can pick up their ten largest holdings. Those include:
Tesla (TSLA)
Zoom (ZM)
Roku (ROKU)
Coinbase (COIN)
Block (BLOK)
Exact Sciences (EXAS)
Unity Software (U)
Teladoc (TDOC)
Unity
UiPath (PATH)
Over five years, you can expect two of these to go bust, three to do nothing, two to get taken over at a 50% premium, one to double, one to go up ten times, and one to go up 50 times. If you do the math on this, it’s pretty attractive. Guess which one I think is going up ten times?
After listening to endless talking heads postulating about what Bitcoin is, I have finally come up with a definition. It is a small-cap non-earning stock. For that is the asset close showing the closest correlation in the current meltdown. That is not good because I expect small-cap non-earning stocks to go nowhere for the foreseeable future. Don’t hold your breath, but when they turn, you can expect a 2X-10X return on investment, as we did before.
My Ten Year View
When we come out the other side of the pandemic, we will be perfectly poised to launch into my new American Golden Age or the next Roaring Twenties. With interest rates still historically cheap, oil peaking out soon, and technology hyper-accelerating, there will be no reason not to. The Dow Average will rise by 800% to 240,000 or more in the coming decade. The America coming out the other side of the pandemic will be far more efficient and profitable than the old. Dow 240,000 here we come!
My April month-to-date performance added a decent 3.33%. My 2022 year-to-date performance ended at a chest-beating 30.18%. The Dow Average is down -13.5% so far in 2022. It is the greatest outperformance on an index since Mad Hedge Fund Trader started 14 years ago. My trailing one-year return maintains a sky-high 62.56%.
On the next capitulation selloff day, which might come with the April Q1 earnings reports, I’ll be adding long positions in technology, banks, and biotech. I am currently in a rare 100% cash position awaiting the next ideal entry point.
That brings my 13-year total return to 542.74%, some 2.10 times the S&P 500 (SPX) over the same period. My average annualized return has ratcheted up to 43.71%, easily the highest in the industry.
We need to keep an eye on the number of US Coronavirus cases at 81.4 million, up only 300,000 in a week, and deaths topping 993,000 and have only increased by 5,000 in the past week. Wow, we only lost the equivalent of 12 Boeing 747 crashes in a week! Great news indeed. You can find the data here at https://coronavirus.jhu.edu.
The coming week is a big one for the jobs reports.
On Monday, May 2 at 7:00 AM EST, the ISM Manufacturing PMI is published. NXP Semiconductors (NXPI) reports.
On Tuesday, May 3 at 7:00 AM, the JOLTS Job Openings report is announced. Skyworks Solutions Reports (SWKS).
On Wednesday, May 4 at 8:30 AM, ADP Private Sector Employment Change is printed. At 11:00 AM the Federal Reserve announced its interest rate decision. Jay Powell’s press conference follows at 11:30. Moderna (MRNA) reports.
On Thursday, May 5 at 8:30 AM, Weekly Jobless Claims are disclosed. Conoco Phillips (COP) reports.
On Friday, May 6 at 8:30 AM, the Nonfarm Payroll Report for April is released.
At 2:00 PM, the Baker Hughes Oil Rig Count are out.
As for me, I spent a decade flying planes without a license in various remote war zones because nobody cared.
So, when I finally obtained my British Private Pilot’s License at the Elstree Aerodrome, home of the WWII Mosquito twin-engine bomber, in 1987, it was cause for celebration.
I decided to take on a great challenge to test my newly acquired skills. So, I looked at an aviation chart of Europe, researched the availability of 100LL aviation gasoline, and concluded that the farthest I could go was the island nation of Malta.
Caution: new pilots with only 50 hours of flying time are the most dangerous people in the world!
Malta looms large in the history of aviation. At the onset of the second world war, Malta was the only place that could interfere with the resupply of Rommel’s Africa Corps, situated halfway between Sicily and Tunisia. It was also crucial for the British defense of the Suez Canal.
So, Malta was mercilessly bombed, at first by Mussolini’s Regia Aeronautica, and later by the Luftwaffe. By April 1942, the port at Valletta became the single most bombed place on earth.
Initially, Malta had only three obsolete 1934 Gloster Gladiator biplanes to mount a defense, still in their original packing crates. Flown by volunteer pilots, they came to be known as “Faith, Hope, and Charity.”
The three planes held the Italians at bay, shooting down the slower bombers in droves. As my Italian grandmother constantly reminded me, “Italians are better lovers than fighters.” By the time the Germans showed up, the RAF had been able to resupply Malta with as many as 50 infinitely more powerful Spitfires a month, and the battle was won.
So Malta it was.
The flight school only had one plane they could lend me for ten days, a clapped-out, underpowered single-engine Grumman Tiger, which offered a cruising speed of only 160 miles per hour. I paid extra for an inflatable life raft.
Flying over the length of France in good weather at 500 feet was a piece of cake, taking in endless views of castles, vineyards, and bright yellow rapeseed fields. Italy was a little trickier because only four airports offered avgas, Milan, Rome, Naples, and Palermo. Since Italy had lost the war, they never experienced a postwar aviation boom as we did.
I figured that if I filled up in Naples, I could make it all the way to Malta nonstop, a distance of 450 miles, and still have a modest reserve.
Flying the entire length of Italy at 500 feet along the east coast was grand. Genoa, Cinque Terra, the Vatican, and Mount Vesuvius gently passed by. There was a 1,000-foot-high cable connecting Sicily with the mainland that could have been a problem, as it wasn’t marked on the charts. But my US Air Force charts were pretty old, printed just after WWII. But I spotted them in time and flew over.
When I passed Cape Passero, the southeast corner of Sicily, I should have been able to see Malta, but I didn’t. I flew on, figuring a heading of 190 degrees would eventually get me there.
It didn’t.
My fuel was showing only quarter tanks left and my concern was rising. There was now no avgas anywhere within range. I tried triangulating VORs (very high-frequency omnidirectional radar ranging).
No luck.
I tried dead reckoning. No luck there either.
Then I remembered my WWII history. I recalled that returning American bombers with their instruments shot out used to tune into the BBC AM frequency to find their way back to London. Picking up the Andrews Sisters was confirmation they had the right frequency.
It just so happened that buried in my pilot’s case was a handbook of all European broadcast frequencies. I look up Malta, and sure enough, there was a high-powered BBC repeater station broadcasting on AM.
I excitedly tuned in to my Automatic Direction Finder.
Nothing. And now my fuel was down to one-eighth tanks and it was getting dark!
In an act of desperation, I kept playing with the ADF dial and eventually picked up a faint signal.
As I got closer, the signal got louder, and I recognized that old familiar clipped English accent. It was the BBC (I did work there for ten years as their Tokyo correspondent).
But the only thing I could see were the shadows of clouds on the Mediterranean below. Eventually, I noticed that one of the shadows wasn’t moving.
It was Malta.
As I was flying at 10,000 feet to extend my range, I cut my engines to conserve fuel and coasted the rest of the way. I landed right as the sunset over Africa.
While on the island, I set myself up in the historic Excelsior Grand Hotel. Malta is bone dry and has almost no beaches. It is surrounded by 100-foot cliffs. I paid homage to Faith, the last of the three historic biplanes, in the National War Museum in Valetta.
The other thing I remember about Malta is that CIA agents were everywhere. Muammar Khadafy’s Libya was a major investor in Malta, recycling their oil riches, and by the late 1980’s owned practically everything. How do you spot a CIA agent? Crewcut and pressed creased blue jeans. It’s like a uniform. What they were doing in Malta I can only imagine.
Before heading back to London, I had to refuel the plane. A truck from air services drove up, dropped a 50-gallon drum of avgas on the tarmac along with a pump then they drove off. It took me an hour to hand pump the plane full.
My route home took me directly to Palermo, Sicily to visit my ancestral origins. On takeoff to Sardinia wind shear flipped my plane over, caused me to crash, and I lost a disk in my back.
But that is a story for another day.
Who says history doesn’t pay!
Stay Healthy,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
“Faith”
The Andrews Sisters
Spitfire
Grumman Tiger
Global Market Comments
April 25, 2022
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or THE ESCALATOR UP AND THE WINDOW DOWN)
($INDU), (SPY), (TLT), (WFC), (JPM),
(TSLA), (TWTR), (FCX), (NFLX), (GLD)
