Global Market Comments
March 28, 2022
Fiat Lux
(SPECIAL WARTIME ISSUE)
Featured Trade:
(TESTIMONIAL),
(MARKET OUTLOOK FOR THE WEEK AHEAD, or THE UNBELIEVABLE MARKET),
(SPY), (TLT), (TBT), (TSLA), (NVDA)
Posts
Listening to the market commentary this week, the word “unbelievable” kept popping up.
It was “unbelievable” that the market crashed by 15% when Russia invaded Ukraine. It was equally “unbelievable” that it then melted up 7% over five trading days.
So has the market gone from discounting the outbreak of WWIII and complete Armageddon to a total victory by Ukraine, the resurgence of NATO, and the end of Russia….in a week?
Well, maybe they have done just that.
The only thing we can count on for sure is that volatility will continue for the indefinite future. The only certainty we have is that change will continue, and it is accelerating at a phenomenal rate.
Of course, it’s all amazing to me. I am a creature of the American 1950s who is now living 70 years in the future. Yes, even the Jetson-type flying cars have happened.
Let me update you on the war, since I know you’re all dying to know.
The Ukraine is winning. What once appeared to be a small, defenseless nation had in fact been preparing for a prolonged guerilla war for seven years, ever since Crimea was invaded.
Javelin and stinger missiles were stockpiled at every key intersection in the country. And the California National Guard has been training the army on how to use them for the last seven years. It was all a gigantic ambush in the making.
The Russian Army, which has seen no real combat experience for 30 years, believed their own propaganda and literally expected to be showered with roses on day one. As a result, they ran out of gasoline, food, and ammunition, and now precision weapons. Some 10% of the army has been killed and maybe 20% of their Air Force shot down. The war is essentially over, so Putin is desperately seeking a way to call it a victory and get out.
Putin himself is toast. At this point, he is the richest man in the world who can’t spend a single ruble of his money. What wealth he had overseas has been seized and will be used to finance the reconstruction of Ukraine. Putin can never leave Russia again without being arrested as a war criminal. But if he stays, he runs the constant risk of assassination. The guy has made a lot of enemies.
What about Putin’s nukes you may ask? Of the headline 7,000 such weapons mentioned in the SALT treaties, only 200 actually work. The rest are corroding empty shells. The math is very simple. Russia’s $1 trillion GDP can’t support any more of these wildly expensive weapons. By the way, China has the same number.
The logic of MAD (Mutually Assured Destruction) still applies, making nuclear weapons useless. If Putin fires off one nuke, his entire country vaporizes in 30 minutes. His generals know this. If ordered to use nukes, they would either ignore the order or depose him immediately.
As someone who has spent the last half-century contemplating the future of the universe, the consequences of this are absolutely mind-boggling.
Economic warfare has finally come into its own as a weapon more destructive than nuclear weapons. In a year, per capita income in Russia will have plunged from last year’s $10,000 to the Soviet-era $1,000. In weeks, Putin has written off 30 years of economic growth. A second Russian Revolution is a sure thing, but what form it will take should be interesting.
How did such a clever man as Putin end up in such a predicament? He surrounded himself with advisors who told him only what he wanted to hear. Such is the way of dictators who have been in power too long. A recent US president had the same problem, with similar results.
The US is the huge winner in all this. Biden announced on Friday that America will replace the missing Russian oil and gas, some 10% of the total world supply. This has already started a renaissance of the US energy industry, which only two years ago was on its heels and destinated to become the next buggy whip industry.
As I have been pointing out to the Joint Chiefs since all this started, strong support for Ukraine not only eliminates Russia as a threat, it puts the shackles on China with its own expansionist desires. You haven’t heard much about Taiwan lately. For America, it’s a twofer.
To say all of this is wildly positive for American stock markets is an understatement. It certainly keeps my $240,000 forecast for the Dow by 2030 on the table. How long it will take investors to figure all this out is anyone’s guess. But I think we are setting up for one hell of a second half.
You see all this in the behavior of a single stock. After NVIDIA (NVDA), the best stock in the world, plunged 40% on fears of deglobalization, it rocketed by 47% in the past week, suggesting that deglobalization is coming back stronger than ever. It reiterates my argument that you use this correction to pick up the Cadillacs at a discount, not Volkswagens.
Bonds Crashed, on comments from Fed governor Jay Powell that if he has to raise interest rates by 50 basis points next month, he will. It’s nothing new but it certainly set the cat among the pigeons with bond longs. The (TLT) broke $130, triggering a round of stop losses before it bounced back. The double short (TBT) popped to $21.33. The good news is that this is more than covered by the seven other bond trades we have closed in 2022 that made money. Those who have bond put LEAPS, which is almost all of you, are making a fortune. It looks like my yearend target of a $2.50% ten-year yield may be hit imminently. Keep selling rallies in the (TLT).
Will the Fed Raise Interest Rates by a Full 1% in April? Our central banks could make such a move at their April 28 confab as they are so far behind the curve, especially if inflation data continues hot. Such a move, or the fear of us, might give us a second shot at a double bottom in stocks at the (SPY) $410 level. Such a move would make your sizeable bond shorts look pretty good.
Recession is Unavoidable Without Russian Oil, says the Dallas Fed. There isn’t enough time to bring alternatives on to the market. The scenario is similar to the invasion of Kuwait in 1991 when we lost 1.5 million barrels a day overnight. This time, it’s 9 million b/d. It all augers for higher oil prices and slower economic growth….unless you drive a Tesla!
Weekly Jobless Claims Lowest Since 1969 at 187,000, down an eye-popping 28,000 on the week. No problems with the economy here. The drop in claims is consistent with a labor market in which employers are desperately trying to hang onto workers and attract new ones.
Berkshire Hathaway Buys Alleghany Insurance for $11.6 billion, taking (BRKB) to yet another new all-time high. Warren Buffet definitely loves the insurance industry, which he uses as a cash cow to fund all his other investments. Alleghany Insurance is in effect a mini-Berkshire, starting out in railroads and evolving into a general investment holding company. Keep buying (BRKB) on dips, a long time Mad Hedge favorite
Tesla Delivers First German Made Model Y, which will enable the company to reach its 1.5 million vehicle target for 2022, up 50%. With an energy crisis in Europe, Tesla will sell these as fast as they can make them. There is currently a one-year wait to get a Model X in the US, and I can sell mine for more than I paid for it three years ago.
Jeffries Raises Tesla Target from $1,250 to $1,400. It cites a dramatically changed geopolitical environment which sent oil prices through the roof, greatly benefiting all makers of electric vehicles, of which Tesla is far and away the largest. The company is firing on all cylinders, which it actually doesn’t make. Maybe in five years, they will get to my own $10,000 target for Tesla. Buy (TSLA) on dips.
Alibaba Announces Monster Share $25 billion Buy Back, taking the shares up 11%. Could this spell the end of the Chinese stock market crash, with many companies down 80%-90%?
New Home Sales Dive, down 2% to 772,000 in February. Inventories are still very light at 6 months compared to a scant 2-month supply for existing homes. Interest rates are starting to bite, and prices are still soaring, taking the median national price to a new high of $406,600, up 10.6% YOY.
The US to Replace Russian Gas for Germany, some two-thirds by year-end and completely by 2027. It is already on track to supply a record 22 billion cubic feet last year and 50 billion cubic feet by 2030. But the US is at maximum capacity and only major investments will increase supply. More specialized LNG carriers will need to be built and Golar LNG (GLNG) and Flex LTD (FLEX) are the plays there. Buy Chenier Energy (LNG), Tellurian Inc. (TELL), and Sempra (SRE) on dips.
Pending Homes Sales Sink, down 4.1% in February, the fourth straight month of declines. The share of disposable income taken by monthly mortgage payments rose by an incredible 8.3% last month, shutting out buyers. It explains why homebuilder stocks like Lennar (LEN) and KB (KBH) are getting slaughtered.
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 at zero, oil cheap, there will be no reason not to. The Dow Average will rise by 800% to 240,000 or more in the coming decade. The American 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 near-record volatility, my March month-to-date performance retreated to a still blistering 12.60%. My 2022 year-to-date performance ended at a chest-beating 27.19%. The Dow Average is down -4.00% so far in 2022. It is the greatest outperformance on an index since Mad Hedge Fund Trader started 14 years ago.
On the next capitulation selloff day, which might come with the April Q1 earnings reports, I’ll be adding more long positions in technology.
That brings my 13-year total return to 539.75%, some 2.10 times the S&P 500 (SPX) over the same period. My average annualized return has ratcheted up to 44.36%, easily the highest in the industry.
We need to keep an eye on the number of US Coronavirus cases at 80 million and rising quickly and deaths topping 976,000 and have only increased by 7,000 in the past week. You can find the data here. Growth of the pandemic has virtually stopped, with new cases down 96% in a month.
On Monday, March 28 at 7:30 AM EST, the Dallas Fed Manufacturing Index is out.
On Tuesday, March 29 at 9:00 AM, The S&P Case Shiller National Home Price Index is published.
On Wednesday, March 30 at 8:15 AM, the ADP Private Employment Data is out.
On Thursday, March 31 at 7:30 AM, the Weekly Jobless Claims are printed.
On Friday, April 1 at 8:30 AM, the March Nonfarm Payroll Report is announced. At 2:00 PM, the Baker Hughes Oil Rig Count is out.
As for me, I received calls from six readers last week saying I remind them of Ernest Hemingway. This, no doubt, was the result of Ken Burns’ excellent documentary about the Nobel prize-winning writer on PBS last week.
It is no accident.
My grandfather drove for the Italian Red Cross on the Alpine front during WWI, where Hemingway got his start, so we had a connection right there.
Since I read Hemingway’s books in my mid-teens, I decided I wanted to be him and became a war correspondent. In those days, you traveled by ship a lot, leaving ample time to finish off his complete works.
I visited his homes in Key West and Ketchum, Idaho. His Cuban residence is high on my list now that Castro is gone.
I used to stay in the Hemingway Suite at the Ritz Hotel on Place Vendome in Paris where he lived during WWII. I had drinks at the Hemingway Bar downstairs where war correspondent Ernest shot a German colonel in the face at point blank range. I still have the ashtrays.
Harry’s Bar in Venice, a Hemingway favorite, was a regular stopping off point for me. I have those ashtrays too.
I even dated his granddaughter from his first wife, Hadley, the movie star Mariel Hemingway, before she got married, and when she was still being pursued by Robert de Niro and Woody Allen. Some genes skip generations and she was a dead ringer for her grandfather. She was the only Playboy centerfold I ever went out with. We still keep in touch.
So, I’ll spend the weekend watching Farewell to Arms….again, after I finish my writing.
Oh, and if you visit the Ritz Hotel today, you’ll find the ashtrays are now glued to the tables.
Stay Healthy,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Global Market Comments
March 25, 2022
Fiat Lux
Featured Trade:
(THE MAD HEDGE TRADERS & INVESTORS SUMMIT VIDEOS ARE UP!)
(MARCH 23 BIWEEKLY STRATEGY WEBINAR Q&A),
(QQQ), (TSLA), (BA), (DEER), (CAT),
(AAPL), (SLV), (FCX), (TLT), (TBT)
Below please find subscribers’ Q&A for the March 23 Mad Hedge Fund Trader Global Strategy Webinar broadcast from Silicon Valley.
Q: What is the best way to keep your money in cash?
A: That’s quite a complicated answer. If you leave cash in your brokerage account, they will give you nothing. If you move it to your bank account they will, again, give you nothing. But, if you keep the money in your brokerage account and then buy 2-year US Treasury bills, those are yielding 2.2% right now, and will probably be yielding over 3% in two years, so we’re actually being paid for cash for the first time in over ten years. And, as long as it’s in your brokerage account, you can then sell those Treasury bonds when you’re ready to go back into the market and buy your stock, same day, without having to perform any complicated wire transfers, which take a week to clear. Also, if your broker goes bankrupt and you hold Treasury bills, they are required by law to give you the Treasury bills. If you have your cash in a brokerage cash account, you lose all of it or at least the part above the SIPC-insured $250,000 per account. And believe me, I learned that the hard way when Bearings went bankrupt in the 1990s. People who had the Bearings securities lost everything, people who owned Treasury bills got their cashback in weeks.
Q: Is the pain over for growth stocks?
A: Probably yes, for the smaller ones; but they may flatline for a long time until a real earnings story returns for them. As for the banks, I think the pain is over and now it’s a question of just when we can get back in.
Q: Why did you initiate shorts on the Invesco QQQ Trust Series (QQQ) and SPDR S&P 500 ETF Trust (SPY) this week, instead of continuing with the iShares 20 Plus Year Treasury Bond ETF (TLT) shorts?
A: We are down 27 points in 10 weeks on the (TLT); that is the most in history. And every other country in the world is seeing the same thing. That is not shorting territory—you should have been shorting above $150 in the (TLT) when I was falling down on my knees and begging you to do so. Now it’s too late. If we get a 5-point rally, which we could get any time, that’s another story. It is so oversold that a bounce of some sort is inevitable. I’d rather be in cash going into that.
Q: Do you think Tesla (TSLA) has put in a bottom, or do you still see more downside? Is it time to buy?
A: The time to buy is not when it is up 50% in 3 weeks, which it has just done. The time to buy is when I sent out the last trade alert to buy it at $700. This was a complete layup as a long three weeks ago because I knew the German production was coming onstream very shortly; and that opens up a whole new continent, right when energy prices are going through the roof—the best-case scenario for Tesla. And the same is happening in the US—it’s a one-year wait now to get a new Model X in the US. In fact, I can sell my existing model X for the same price I paid for it 3 years ago, if I were happy to wait another year to get a replacement car.
Q: Will the Boeing (BA) crash in China damage the short-term prospects? And as a pilot, what do you think actually happened?
A: Boeing has been beat-up for so long that a mere crash in one of its safest planes isn’t going to do much. It could have been a maintenance issue in China, but the fact that there was no “mayday” call means only two or three possibilities. One is a bomb, which would explain there being no mayday call—the pilots were already dead when it went into freefall. Number two would be a complete structural failure, which is hard to believe because I’ve been flying Boeings my entire life, and these things are made out of steel girders—you can’t break them. And number three is a pilot suicide—there have been a couple of those over the years. The Malaysia flight that disappeared over the south Indian Ocean was almost certainly a pilot suicide, and there was another one in Germany and another in Japan about 20 years ago. So, if they come up with no answer, that's the answer. It’s not a Boeing issue, whatever it is.
Q: Is John Deer (DEER) or Caterpillar (CAT) a better trade right now?
A: It’s kind of six of one, half a dozen of the other. Caterpillar I’ve been following for 50 years, so I’m kind of partial to CAT, and Caterpillar has a much bigger international presence, but that could be a negative these days in a deglobalizing world.
Q: Apple (AAPL) has really caught fire past $170. Should I chase it here or wait until it’s too overbought?
A: I never liked chasing. Even a small dip, like we’re having today, is worth getting into. So always buy on the dips.
Q: Is Silver (SLV) still a good long-term play?
A: Yes, because we do expect EV production to ramp up as fast as they can possibly do it. Too bad the American companies don’t know how to make electric cars—they just haven’t been able to get their volumes up because of production problems that Tesla solved 12 years ago. So, long term, I think it will do better, but right now the risk-on move is definitely negative for the precious metals.
Q: How low will the iShares 20 Plus Year Treasury Bond ETF (TLT) go in April before the next Fed meeting?
A: I think we’re bottoming for the short term right around here. That’s why I had on that $127-$130 call spread in the (TLT) that I got stopped out of. And I may well end up being right, but with these call spreads, once you break your upper strike, the math goes against you dramatically. You go from like a 1-1 risk profile to like a 10-1 against you. So, you have to get out of those things when you break your upper strike, otherwise, you risk writing off the entire position with 100% loss. As long as Jay Powell keeps talking about successive half-point rate cuts, we will get lower lows, and my 2023 target for the TLT is $105, or about $20.00 points below here.
Q: Do you think we retest the bottoms?
A: Absolutely, yes; it just depends on where the test is successful—with a double bottom or with a retrace of half the recent moves. Keep in mind that stocks go up 80% of the time over the last 120 years, and that includes the Great Depression when they hardly went up at all for 10 years, so selling short is a professional’s game, and I wouldn’t attempt it unless you had somebody like me helping you. You're betting against the long-term trend with every short position. That said, if you’re quick you can make decent money. Most of the money we’ve made this year has been in short positions, both in stocks and in bonds.
Q: Where can we find this webinar?
A: The recording for this webinar will be posted on the website in about two hours. Just log into your account and you’ll find them all listed.
Q: When should I sell my tradable ProShares UltraShort 20+ Year Treasury ETF (TBT)?
A: You don’t have an options expiration to worry about, so I would just keep in until we hit $105 in the (TLT). If you do want to trade, I’d take a little bit off here and then try to re-buy it a couple of points lower, maybe 10% lower.
Q: What do you think of a Freeport McMoRan (FCX) $55-$60 vertical bull call spread?
A: The market has had such a massive move, that I’m reluctant to do out of the money call spreads from here unless we get a major dip. So, don’t reach for the marginal trade—that’s where you get your head handed to you.
Q: Will yield curve inversions matter this time and foretell a recession?
A: I think no, because corporate earnings are still growing, and by the summer, we probably will have a yield curve inversion.
Q: There seems to be some huge breakthrough in battery technology where batteries could be recharged within four minutes. I believe it’s the Chinese who have the tech, if so how will that impact on Tesla?
A: Every day of the year someone presents Tesla with a revolutionary new battery technology. It either doesn’t work, can’t be mass-produced, or is wildly uneconomical. So, I’ll confine my bet that Tesla will be able to eventually mass produce solid state batteries and get their 95% cost reduction that way.
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 ten 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
March 21, 2022
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or FROM QE TO QT),
(SPY), (TLT), (TBT), (TSLA)
A client asked me today if, after the 5th worst start to a year since 1927, I thought the stock market had bottomed.
My response? One interest rate rise down, 12 to go, or 3.00% if we stick to the quarter-point pace.
And while the first seven rate rises have already been discounted by the futures market, the additional six we will get in 2023 haven’t.
We have just seen the best week for stocks in nearly two years, but don’t get your hopes up. We are in the process of weaning the markets off of 12 years of free money and we aren’t going to get away with a measly 15% correction.
And when I say markets, I don’t just mean stocks, but for bonds, commodities, foreign exchange, precious metals, energy, and real estate as well. No asset has actually had a real price for more than a decade.
So, how does all this end? You can count on several tradable rallies for the rest of the year, like the one we have just had. Big tech earnings are still racing ahead like a bat out of hell. By yearend, tech should be stupid cheap, cheap enough to take the indexes to new highs, even if they are marginal ones at best.
Eventually, the Fed will take rates high enough to assure a recession. That happens when yield curves are completely flat, i.e, when the two, ten, and 30-year yields are the same, which is about two years off.
That could happen sooner if inflation fails to abate and the Fed has to resort to successive half-point hikes to cool a superheated economy. Currently, Jay Powell doesn’t believe that will be necessary because he expects the inflation rate to drop to 4% by the end of 2022 as wage demands fade, supply chain problems sort themselves out, and the Ukraine war stalemates.
News flash: Fed governors have been known to be wrong.
Here’s an interesting tidbit. I renewed my pilot’s medical this week in case I get a midnight call from Washington DC. Don’t worry, I passed with flying colors, thanks to all my nighttime backpacking.
But you know what the flight surgeon told me? Every medical he had done in the last two weeks was for someone headed to Ukraine.
This could be a really interesting war.
The Fed Raises Interest Rates by a quarter point. The futures markets are already discounting seven rate hikes this year, but not the six in 2023. The Fed is so far behind the curve they may have to resort to half-point rises later this year if inflation doesn’t fade. According to that timetable, the yield curve will be completely flat by then, triggering the next recession.
China Crashes, on fears they may get dragged into the Ukraine war by Russia. Delisting threats from the SEC, a slowing economy, flight from growth tech stocks, and a new Covid outbreak aren’t helping either. Some $2.1 trillion in market cap has been lost since these stocks looked so great a year ago. Not a great place to be when a new iron curtain is descending. Right now, the US is the only safe place to be.
Bonds Collapse on happy talks about Russia/Ukraine talks, making my shorts look even better. Ten-year US Treasury yields hit a three-year high at 2.08% yield. It’s a resumption of a steep downtrend in bond prices that started in November. I used the war-induced rally to ramp up positions. But I don’t think we break $130 in the (TLT) for at least another month. Keep selling big rallies in the (TLT).
The Producer Price Index is Up a Hot 10% YOY, and 0.8% in February, largely driven by soaring energy prices. Food prices are up as Ukraine’s wheat, one-third of the world supply, disappears from the marketplace. It makes the Fed rate hike a sure thing.
Russia has $350 Billion of US stock for Sale at Market. That is the amount Russian oligarchs are thought to own in US hedge funds which the Justice Department is in the process of seizing. It’s part of $1 trillion in foreign assets overall, which include the Chelsea soccer team, several tens of billion worth of US real estate, and a $200 billion stake in Uber.
China has to Choose, whether to have Russia or the US as an ally. Will it be the sanctioned $1 trillion economy in free fall, or a booming $25 trillion economy? Certain the costs of going against the US have been made clear. I’ve been arguing vociferously to the Joint Chiefs from the beginning that standing up to Putin gets you a two for: it forces China to back off from aggressive moves towards Taiwan as well. Russia can stand sanction. Chinese would starve, as the bulk of its wealth over the last 30 years came from trade with the US.
Existing Home Sales Plunge by 7.2% to 6.02 million units in February. Soaring mortgage rates and rock bottom inventories are taking their toll. Many homes are gone only a week after listing.
Nickel Futures are Limit Down in London, off by 12%, indicating that the super spike in commodities prices triggered by the Ukraine war may be over. The price fell by $36,915 per metric tonne, well off the $100,000 high from weeks ago when Chinese speculators covered shorts generating massive losses.
Weekly Jobless Claims Come in at 214,000, a two-month low. The economy is recovering slowly and is on the verge of full employment.
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 at zero, oil cheap, there will be no reason not to. The Dow Average will rise by 800% to 240,000 or more in the coming decade. The American 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 near record volatility, my March month to date performance catapulted to a blistering 15.23%. My 2022 year-to-date performance ended at a chest beating 29.82%. The Dow Average is down -4.3% so far in 2022. It is the great outperformance on an index since Mad Hedge Fund Trader started 14 years ago.
My five March positions expired at their maximum potential profit with the options expiration on Friday. That leaves me 90% in cash and 10% in a single long bond position which is close to breaking even. Only the next capitulation selloff day I’ll be adding more long positions in technology.
That brings my 13-year total return to 542.38%, some 2.10 times the S&P 500 (SPX) over the same period. My average annualized return has ratcheted up to 44.88%, easily the highest in the industry.
We need to keep an eye on the number of US Coronavirus cases at 80 million and rising quickly and deaths topping 971,000, which you can find here. Growth of the pandemic has virtually stopped, with new cases down 96% in a month.
On Monday, March 21 at 7:30 AM EST, the Chicago Fed National Activity Index is out.
On Tuesday, March 22 at 12:30 PM, API Crude Oil Stocks are released.
On Wednesday, March 23 at 10:00 AM, New Home Sales for February are printed.
On Thursday, March 23 at 7:30 AM, Durable Goods Orders for February are published. Weekly Jobless Claims are out at 8:30.
On Friday, March 25 at 9:00 AM, Pending Home Sales for February are disclosed. At 2:00 PM, the Baker Hughes Oil Rig Count is out.
As for me, after telling you last week why I walked so funny, let me tell you the other reason.
In 1987, to celebrate obtaining my British commercial pilot’s license, I decided to fly a tiny single engine Grumman Tiger from London to Malta and back.
It turned out to be a one-way trip.
Flying over the many French medieval castles was divine. Flying the length of the Italian coast at 500 feet was fabulous, except for the engine failure over the American airbase at Naples.
But I was a US citizen, wore a New York Yankees baseball cap, and seemed an alright guy, so the Air Force fixed me up for free and sent me on my way. Fortunately, I spotted the heavy cable connecting Sicily with the mainland well in advance.
I had trouble finding Malta and was running low on fuel. So I tuned into a local radio station and homed in on that.
It was on the way home that the trouble started.
I stopped by Palermo in Sicily to see where my grandfather came from and to search for the caves where my great grandmother lived during the waning days of WWII. Little did I know that Palermo had the worst wind shear airport in Europe.
My next leg home took me over 200 miles of the Mediterranean to Sardinia.
I got about 50 feet into the air when a 70-knot gust of wind flipped me on my side perpendicular to the runway and aimed me right at an Alitalia passenger jet with 100 passengers awaiting takeoff. I managed to level the plane right before I hit the ground.
I heard the British pilot of the Alitalia jet say on the air “Well, that was interesting.”
Giant fire engines descended upon me, but I was fine, sitting on my cockpit, admiring the tree that had suddenly sprouted through my port wing.
Then the Carabinieri arrested me for endangering the lives of 100 tourists. Two days later the Ente Nazionale per l’Avizione Civile held a hearing and found me innocent, as the wind shear could not be foreseen. I think they really liked my hat, as most probably had distant relatives in New York City.
As for the plane, the wreckage was sent back to England by insurance syndicate Lloyds of London, where it was disassembled. Inside the starboard wing tank, they found a rag which the American mechanics in Naples had left by accident.
If I has continued my flight, the rag would have settled over my fuel intake valve, cut off my gas supply, and I would have crashed into the sea and disappeared forever. Ironically, it would have been close to where French author Antoine de St.-Exupery (The Little Prince) crashed his Lockheed P-38 Lightning in 1944.
In the end, The crash only cost me a disk in my back, which I had removed in London and led to my funny walk.
Sometimes, it is better to be lucky than smart.
Stay Healthy,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Antoine de St.-Exupery on the Old 50 Franc Note
Global Market Comments
March 7, 2022
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or THE WAR CONTINUES),
(SPY), (TLT), (TBT), (TSLA), (BRKB)
With Hot heads and retaliation ruling everywhere, I think it is safe to say that the war in Ukraine will continue indefinitely and that things will get worse before it gets better.
Biden is threatening to ban Russian oil imports, boosting oil to $135 a barrel. That is a symbolic gesture as the US really doesn’t import oil from Russia and is independent. But if other countries ban imports, it is just a matter of time before the Russian economy completely collapses.
And there is a country that is able to replace one third of all the Russian oil supplies in a heartbeat, some four million barrels a day, and that is Iran. All they need is a quicky nuclear treaty to restore things back to the 2016 status quo.
Putin seems on track to threaten a nuclear war but launch a cyberwar. He has already threatened a nuclear war multiple times to no avail. Cyber is a much safer option.
What will target number one be? The US stock market and banking system. So be prepared for hairier $500 point down days, like we are getting today.
Keep cash positions high, existing positions hedged, only trade on the most extreme days, and you will be greatly rewarded for your discipline down the road.
I spent four hours walking around the Alameda Flea Market today. Every retired GI I spoke to said they were thinking of volunteering to go to Ukraine. Some 20,000 foreign volunteers have already joined the fight . Like me, everyone wants to get in one more “good” war in their lifetimes. If you want to volunteer, please click here at https://volunteerforukraine.org
Sorry, I have to keep the letter short today. The CIA is holding on line 2.
Nonfarm Payroll Blows it Away, up an eye-popping 678,000 in February. The Headline Unemployment rate fell to 3.8%. The U-6 discouraged worker unemployment rate came in at 7.2%. Amazingly, Average Hourly Earnings fell. Leisure and Hospitality gained 179,000, Professional & Business Services 95,000, Healthcare 94,000, and Construction 36,000, Lower waged workers return to the job in droves. It was a real Goldilocks report and makes a rise in interest rates a sure thing in 12 days.
Weekly Jobless Claims Drop to 215,000, maintaining a new downtrend. Nonfarm Productivity rose by 6.6%. Continuing Claims rose to 1.48 million.
Berkshire Hathaway (BRKB) Profits Soar as Warren Buffet boosts share buybacks to a record $27 billion. Q1 Operating Earnings of the massive conglomerate jumped by $7.3 billion, up 45% YOY. His widespread old economy industrial holdings are working great. Keep buying (BRKB) on dips.
ADP Private Payrolls Explode by 475,000 in February, trouncing analyst expectations. Small companies showed minor losses. It sets up a red-hot Nonfarm Payroll Report on Friday.
Powell Says Rate Hikes are Still On but may not occur as quickly as once thought. He made the comments during congressional testimony. The labor market is extremely tight, auguring for higher rates, while the Ukraine war has delivered a huge dollop of uncertainty. Bonds crashed an astounding $5 points on the news.
Biden’s State of the Union Address Triggers Monster Two-Day $1,200 point Rally. Greater certainty, strong leadership, and a positive attitude are just what investors were looking for. A big focus on the war in Ukraine gave it a boost. The virtual disappearance of the pandemic in a short month is also a big plus. It was the first in-person State of the Union in two years. Bulls loved it.
Switzerland Joins SWIFT Russian Boycott. It’s the first time in 400 years that the Swiss have taken a side. The move freezes maybe $200 billion worth of Putin’s personal bank accounts. The noose tightens. Next to come is Fastrack membership for Ukraine and war crime trials. Ouch.
Russia Raises Interest Rates to 20% since the central bank is frozen out of accessing reserves to support the currency. The Russian economy is being destroyed from within and without. The end result will be to take Russian per capita income from a pre-invasion $10,000 a year to a Soviet era $1,000. I wouldn’t be writing a life insurance policy on Putin right now. He might become accident-prone.
Tesla to Open Berlin Factory in March, taking the stock up $170, or 24% from last week’s low. $700 is a very impressive and tradable low. It will be worth $10,000 when solid state technology is mass-produced.
Bitcoin Jumps 12.5% on Massive Russian Buying, as the world rushes to dump the rogue country from the western financial system.
Oil is Now Targeting $125 a Barrel from the current $103, especially if other countries join Canada in banning imports from Russia. Amazingly, natural gas is still passing through the Ukraine to Europe. My guess is that the Ukrainians are not attacking it in exchange for 1,000 Javelin missiles from Germany. Or they could be just waiting for spring when demand flags. Strategic Petroleum Reserve releases can make only a token contribution as best. Ironically, the war may move Europe faster towards alternatives.
Russia’s Debt Rating is Cut to Junk, and overnight interest rates in Russia have been boosted to 20%. JP Morgan expects the sanctions to shrink the Russian economy by 35%. If Ukraine can hold out for two weeks, they will last years as foreign food, supplies, and volunteers pour in. All roads going into Ukraine are still open. Ukraine has raised $54 million in crypto donations in a week. Once the shock is over, the war will be fully discounted by the financial markets. People forget that Ukraine fought a brutal guerilla war against the Germans during WWII and won, despite enormous casualties.
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 at zero, oil cheap, there will be no reason not to. The Dow Average will rise by 800% to 240,000 or more in the coming decade. The American 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 near-record volatility fading fast, my February month-to-date performance rocketed to a blistering 11.09% in only four days. My 2022 year-to-date performance ended at 25.68%. The Dow Average is down -7.4% so far in 2022. It is the great outperformance on an index since Mad Hedge Fund Trader started 14 years ago.
My only new trade this week was to use a $4.00 spike in the (TLT) to go from a double to a triple short in the bond market. That leaves me 50% invested and 50% in cash, waiting for the next capitulation selloff. So, I am 3X short the (TLT), 1X long the (TLT), and 1X long Tesla.
That brings my 13-year total return to 538.24%, some 2.10 times the S&P 500 (SPX) over the same period. My average annualized return has ratcheted up to 44.54%, easily the highest in the industry.
We need to keep an eye on the number of US Coronavirus cases at close to 80 million and rising quickly and deaths at 960,000, which you can find here.
On Monday, March 7 at 8:30 AM EST, Consumer Credit for January is printed.
On Tuesday, March 8 at 8:30 AM, the Balance of Trade is published.
On Wednesday, March 9 at 7:00 AM, The JOLTS private job openings for January is disclosed.
On Thursday, March 10 at 8:30 AM, Weekly Jobless Claims are published. We also get the big number of the week, the Consumer Price Index for February.
On Friday, March 11 at 7:00 AM, the University of Michigan Consumer Sentiment for March is out. At 2:00 PM, the Baker Hughes Oil Rig Count are out.
As for me, I was having lunch at the Paris France casino in Las Vegas at Mon Ami Gabi, one of the top ten grossing restaurants in the United States. My usual waiter, Pierre from Bordeaux, took care of me with his typical ebullient way, graciously letting me practice my rusty French.
As I finished an excellent, but calorie-packed breakfast (eggs Benedict, caramelized bacon, hash browns, and a café au lait), I noticed an elderly couple sitting at the table next to me. Easily in their 80s, they were dressed to the nines and out on the town.
I told them I wanted to be like them when I grew up.
Then I asked when they first went to Paris, expecting a date sometime after WWII. The gentleman responded, “Seven years ago”.
And what brought them to France?
“My father is buried there. He’s at the American Military Cemetery at Colleville-sur-Mer along with 9,386 other Americans. He died on Omaha Beach on D-Day. I went for the D-Day 70th anniversary.” He also mentioned that he never met his dad, as he was killed in action weeks after he was born.
I reeled with the possibilities. First, I mentioned that I participated in the 40-year D-Day anniversary with my uncle, Medal of Honor winner Mitchell Paige, and met with President Ronald Reagan.
We joined the RAF fly-past in my own private plane and flew low over the invasion beaches at 200 feet, spotting the remaining bunkers and floating pier. Pont du Hoc is a sight to behold from above, pockmarked with shell craters like the moon. When we landed at a nearby airport, I taxied over railroad tracks that were the launch site for the German V2 rockets.
D-Day was a close-run thing and was nearly lost. Only the determination of individual American soldiers saved the day. The US Navy helped too, bringing destroyers right to the shoreline to pummel the German defenses with their five-inch guns. Eventually battleships made sure that anything the Germans brought to with 20 miles of the coast was destroyed.
Then the gentleman noticed the gold Marine Corps pin on my lapel and volunteered that he had been with the Third Marine Division in Vietnam. I replied that my father had been with the Third Marine Division during WWII at Bougainville and Guadalcanal, and that I had been with the Third Marine Air Wing during Desert storm.
I also informed him that I had led an expedition to Guadalcanal two years ago looking for some of the 400 Marines still missing in action. We found 30 dog tags and sent them to the Marine Historical Division at Quantico, Virginia for tracing.
When the stories came back, it turned out that many survivors were children now in their 80s who had never met their fathers because they were killed in action on Guadalcanal.
Small world.
I didn’t want to infringe any further on their morning out, so I excused myself. He said Semper Fi, the Marine Corps motto, thanked me for my service, and gave me a fist pump and a smile. I responded in kind and made my way home.
Oh and say “Hi” when you visit Mon Ami Gabi. Tell Pierre that John Thomas sent you and give him a big tip. It’s not easy for a Frenchman to cater to all these loud Americans.
Stay Healthy,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Third Marine Air Wing
The American Military Cemetery at Colleville-Sur-Mer
Global Market Comments
March 4, 2022
Fiat Lux
Featured Trade:
(MARCH 2 BIWEEKLY STRATEGY WEBINAR Q&A),
(QQQ), (TSLA), (FCX), (JPM), (BAC), (MS), (TLT),
(TBT),(BA), UPS (UPS), (CAT), (DIS), (DAL),
(GOLD), (VIX), (VXX), (CAT), (BA)
Below please find subscribers’ Q&A for the March 2 Mad Hedge Fund Trader Global Strategy Webinar broadcast from Incline Village, Nevada.
Q: Do you think Vladimir Putin will give up?
A: He will either be forced to give up, run out of resources/money, or he will suddenly have an accident. When the people see their standard of living go from a per capita income of $10,000/year today to $1,000—back to where it was during the old Soviet Union—his lifespan will suddenly become very limited.
Q: Would you be buying Invesco Trusts (QQQs) on dips?
A: I think we have a few more horrible days—sudden $500- or $1,000-point declines—but we’re putting in a bottom of sorts here. It may take a month or two to finalize, but the second buying opportunity of the decade is setting up; of course, the other one was two years ago at the pandemic low. So, do your research, make your stock picks now, and once we get another absolute blow-up to the downside, that is your time to go in.
Q: Materials have gone up astronomically, are they still a buy?
A: Yes, on dips. I wouldn't chase 10% or 20% one-week moves up here—there are too many other better trades to do.
Q: Is it time to go long aggressively in Europe?
A: No, because Europe is going to experience a far greater impact economically than the US, which will have virtually none. In fact, all the impacts on the US are positive except for higher energy prices. So, I think Europe will have a much longer recovery in the stock market than the US.
Q: Would you take a flier on a Russian ETF (RSX)?
A: No, most, if not all, of them are about to be delisted because they have been banned or the liquidity has completely disappeared. The (RSX) has just collapsed 85%, from $26 to $4. Virtually all of Russia is for sale, not only stocks, bonds, junk bonds, ETFs, but also joint ventures. ExxonMobil, Shell and BP are all dumping their ownership of Russian subsidiaries as we speak.
Q: Time for a Freeport-McMoRan (FCX) LEAP?
A: No, November was the time for an (FCX) LEAP—we’ve already had a massive run now, up 66% in five months, so wait for the next dip. The next LEAPS are probably going to be in technology stocks in a few months.
Q: My iShares 20 Plus Year Treasury Bond ETF (TLT) call $130 was assigned, What should I do?
A: Call your broker immediately and tell them to exercise your 127 to cover your short in the 130. They usually charge a few extra fees on that because they can get away with it, but you’ve just made the maximum profit on the position. If you haven’t been exercised yet, that 127/130 call spread will expire at max profit in 10 days.
Q: What if I get my short side called away on a position?
A: Use your long side calls to execute immediately to cover your short side. These call spreads are perfectly hedged positions, same name, same maturity, same size, just different strike prices. If your broker doesn’t hear from you at all, they will just exercise the short call and leave you long the long call, and that can lead to a margin call. So the second you get one of these calls, contact your broker immediately and get out of the position.
Q: Is it safe to put 100% of your money in Tesla (TSLA) for the long term?
A: Only if you can handle a 50% loss of your money at any time. Most people can't. It’s better to wait for Tesla to drop 50%, which it has almost done (it’s gotten down to $700), and then put in a large position. But you never bet all your money on one position under any circumstances. For example, what if Elon Musk died? What would Tesla’s stock do then? It would easily drop by half. So, I’ll leave the “bet the ranch trades” for the younger crowd, because they’re young enough to lose all their money, start all over again, and still earn enough for retirement. As for me, that is not the case, so I will pass on that trade. You should pas too.
Q: Do you foresee NASDAQ (QQQ) being up 5-10% or 10-20% by year-end?
A: I do actually, because business is booming across tech land, and the money-making stocks are hardly going down and will just rocket once the rotation goes back into that sector.
Q: We could see an awful earnings sequence in April, which could put in the final bottom on this whole move.
A: That is right. We need one more good capitulation to get a final bottom in, and then we’re in LEAP territory on probably much of the market. We know we’re having a weak quarter from all the anecdotal data; those companies will produce weak earnings and the year-on-year comparisons are going to be terrible. A lot of companies will probably show down turns in earnings or losses for the quarter, that's all the stuff good bottoms are made out of.
Q: What should we make of the Russian threats of WWIII going Nuclear?
A: I think if Putin gave the order, the generals would ignore it and refuse to fire, because they know it would mean suicide for the entire country. Mutual Assured Destruction (MAD) is still in place, and it still works. And by the way, it hasn’t been in the media, but I happen to know that American nuclear submarines with their massive salvos of MIRVed missiles, have moved much closer to Russian waters. So, you're looking at a war that would be over in 15 minutes. I think that would also be another scenario in which they replace Putin: if he gives such an order. This has actually happened in the past; people without top secret clearance don’t know this but Boris Yeltsen actually gave an order to launch nuclear missiles in the early 90s when he got mad at the US about something. The generals ignored it, because he was drunk. And something else you may not know is that 95% of the Russian nuclear missiles don’t work—they don’t have the GDP to maintain 7,000 nuclear weapons at full readiness. Plutonium is one of the world’s most corrosive substances and very expensive to maintain. Only a wealthy country like the US could maintain that many weapons because it’s so expensive. So no, you don’t need to dig bomb shelters yet, I think this stays conventional.
Q: Banks like (JPM), (BAC), AND (MS) are at a low—are they a buy?
A: Yes, but not yet; wait for more shocks to the system, more panic selling, and then the banks are absolutely going to be a screaming buy because they are on a long-term trend on interest rates, strong economy, lowering defaults—all the reasons we’ve been buying them for the last year.
Q: Should I short bonds or should I buy Freeport up 60%?
A: Short bonds. Next.
Q: Should I buy Europe or should I short bonds?
A: Short bonds. That should be your benchmark for any trade you’re considering right now.
Q: How much and how quickly will we see a collapse in defense stocks?
A: Well, you may not see a collapse in defense stocks, because even if Russia withdraws from Ukraine, they still are a newly heightened threat to the West, and these increases in defense spending are permanent. That’s why the stocks have gone absolutely ballistic. Yeah sure, you may give up some of these monster gains we’ve had in the last week, but this is a dip-buying sector now after being ignored for a long time. So yes, even if Russia gives up, the world is going to be spending a lot more on defense, probably for the rest of our lives.
Q: Just to confirm, LEAP candidates are Boeing (BA), UPS (UPS), Caterpillar (CAT), Disney (DIS), Delta Airlines (DAL)?
A: I would say yes. You may want to hold off, see if there’s one more meltdown to go; or you can buy half now and half on either the next meltdown or the melt-up and get yourself a good average position. And when I say LEAPS, I mean going out at least a year on a call spread in options on all of these things.
Q: Is $143 short safe on the (TLT)?
A: Definitely, probably. In these conditions, you have to allow for one day, out of the blue, supers pikes of $3 like we got last week, or $5 trins week, only to be reversed the next day. The trouble is even if it reverses the next day, you’re still stopped out of your position. So again, the message is, don’t be greedy, don’t over-leverage, don’t go too close to the money. There’s a lot of money to be made here, but not if you blow all your profits on one super aggressive trade. And take it from someone who’s learned the hard way; you want to be semi-conservative in these wild trading conditions. If you do that, you will make some really good money when everyone else is getting their head handed to them.
Q: Would you go in the money or out of the money for Boeing (BA) and Caterpillar (CAT)?
A: It just depends on your risk tolerance. The best thing here is to do several options combinations and then figure out what the worst-case scenario is. If you can handle that worst-case scenario without stopping out, do those strikes. These LEAPS are great, unless you have to stop out, and then they will absolutely kill you. And usually, you only do these with sustained uptrends in place; we don’t have that yet which is why I’m saying, watch these LEAPS. Don’t necessarily execute now, or if you do, just do it in small pieces and leg in. That is the smart answer to that.
Q: What’s the probability that the CBOE Volatility Index (VIX) makes a new high in the next 2 weeks?
A: I give it 50/50.
Q: Call options on the VIX?
A: No, that’s one of the super high-risk trades I have to pass on.
Q: How low can the VIX go down this month?
A: High ten’s is probably a worst-case scenario.
Q: LEAPS on Barrick Gold Corporation (GOLD)?
A: No, that was a 3-month-ago trade. Now it’s too late, never consider a LEAP at an all-time high or close to it.
Q: Time to short oil?
A: Not yet. We have some spike top going on in oil. It’s impossible to find the top on this because, while bottoms are always measurable with PE multiples and such, tops are impossible to measure because then you’re trying to quantify human greed, which can’t be done. So yeah, I would stand by; it’s something you want to sell on the way down. This is the inverse of catching a falling knife.
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 ten years are there in all their glory.
Good Luck and Stay Healthy.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
