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The Market Outlook for the Week Ahead, or Vindication Week

It was truly vindication week for the bulls. All major Indexes clocked their best week of the year

The patience was rewarded. The S&P 500 (SPY) gained an impressive 6.09%, the NASDAQ ETF (QQQ) 7.35%, and the small-cap Russell 2000 (IWM) 8.64%. A recent favorite of mine, mortgage REIT lender Anally Capital Management (NLY) soared by an amazing 21%

Better yet, all of my Mad Hedge forecasts came true. Big tech led the charge, with our long in NVIDIA (NVDA) up a gob-smacking 16.67%. Another long in Berkshire Hathaway (BRK/B) gained 7.5%. And our long in US Treasury bonds (TLT) picked up a welcome $6.00, dropping ten-year yield from 5.0% to 4.52%.

The 60/40 stock and bond/portfolio came back with a vengeance. This time, everything went up.

The harder I work, the luckier I get.

The markets accomplished these feats against a geopolitical background that couldn’t be worse. The Gaza War is lurching from one tragedy to the next. The Ukraine War grinds on (but without me). Saber rattling continues in China.

It just goes to show how far out on a limb the shorts had gotten and the extent of buying demand that was pent up.

It all sets up a nice year-end rally. We may not reach the $4,800 target I expected at the beginning of 2023. But a $4,600 hit is within range. Don’t expect a straight line move there. The world is still a pretty unsettled place. It's definitely going to be a stock pickers market (NVDA), (BRK/B), and (TLT) and not an index one.

Particularly fascinating is how Berkshire Hathaway absolutely Knocked it Out of the Park, with a 41% gain in operating earnings from companies like BNSF Railroad, Geico, and Precision Castparts. But Warren Buffet was noted in his weekend earnings report more from what he didn’t own than what he did.

The Oracle of Omaha unloaded $5 billion worth of global stocks in Q3, taking his cash position up to a record $157 billion. He can now earn a staggering $8.6 billion in interest in the coming year. His explanation is that stocks never really got cheap this year and high rates were just too attractive. Keep buying (BRK/B) on dips. And buy the things he buys.

And with the number of new investment opportunities and sectors to chase that almost can’t be counted, I will prompt you to look at some oldies buy goodies.

PC stocks are back in play, namely Dell Computer (DELL) and Hewlett Packard (HPQ). How about those for a blast from the past? I think it’s been 30 years since I touched these legacy tech companies.

The fact is that AI is rapidly moving downstream as far down as your humble PC, which in the meantime has gotten cheaper and much more powerful. PCs are now the dumb end of a link that can access the AI superheroes of the day, like ChatGPT. It’s a lot like the old Quotron used to be the access point to the New York Stock Exchange mainframes for current price information.

Dell shares have already outperformed, up 57% in just six months, while HP is just getting started. You might take a look.

So far in November, we are up +1.97%. My 2023 year-to-date performance is still at an eye-popping +68.15%. The S&P 500 (SPY) is up +14.21% so far in 2023. My trailing one-year return reached +75.21% versus +25.62% for the S&P 500.

That brings my 15-year total return to +665.34%. My average annualized return has rocketed to +50.85%, another new high, some 2.61 times the S&P 500 over the same period. I am at maximum profit on all positions and am looking to add more on a dip.

Some 47 of my 52 trades this year have been profitable.

Fed Leaves Rates Unchanged. It’s not the end of high rates, nor the end of the beginning, but the beginning of the end. Powell may contemplate actual rate CUTS in six months, driven by the certain slowing of growth and inflation in the current quarter. Markets will start discounting that now as seen by the 30-basis point back off in rates this week. No surprise then that there is a short covering buying panic across the entire fixed income front today.

Palantir Rockets on New AI Demand, up 20% at the opening, even though its substantial government business slowed. The company announced the fourth consecutive quarter of profitability and highest earnings since its founding 20 years ago. The Denver-based data analysis company said Thursday it expects 2023 revenue of about $2.22 billion. Buy (PLTR) on dips.

Buying Panic Hits All Fixed Income Markets, with falling Fed interest rates appearing on the distant horizon. (TLT) is up $1.60, (JNK) $0.80, and (NLY) REITS up $0.45. This could be the trade of the decade, with (TLT) targeting $110 by early 2024.

Homebuyers are Pouring into ARMs, or adjustable-rate mortgages, shunning 30-year fixed rates at a mind-numbing 8.0%. ARMs could be had at 6.77% last week. Overall, mortgage applications are down 22% YOY.

Panasonic Says EV Demand is Sluggish, taking Tesla Shares down 5%, and off 35% from the recent high. Elon Musk says the Cybertruck will take a year to 18 months before it is a significant positive cash flow contributor. Full disclosure: I am on the waiting list. The Street expects Tesla to hit 2.3 million vehicle deliveries next year, an increase of about 500,000 year over year. Buy (TSLA) on dips.

Bank of Japan Eases Grip on Bond Yields, ending its unlimited buying operation to keep interest rates down. Japan is the last country to allow rates to rise. Expect the Japanese yen to take off like a rocket.

Hedge Fund Pour into Uranium, as the nuclear renaissance gains steam. Prices have gained 125% in three years. The International Energy Agency says demand will double by 2050. There are 440 nuclear power plants in the world that represent a non-carbon source of energy and China plans another 100 coming on line. Buy (CCJ) on dips.

My Ten-Year View

When we come out the other side of the recession, we will be perfectly poised to launch into my new American Golden Age, or the next Roaring Twenties. The economy decarbonizing and technology hyper-accelerating, creating enormous investment opportunities. The Dow Average will rise by 800% to 240,000 or more in the coming decade. The new America will be far more efficient and profitable than the old.

Dow 240,000 here we come!

On Monday, November 6 at 8:30 PM EST, the US Loan Officer Survey is out.

On Tuesday, November 7 at 2:30 PM, the US Imports and Exports are released.

On Wednesday, November 8 at 3:15 PM, the Fed Chair Jay Powell Speaks.

On Thursday, November 9 at 8:30 AM, the Weekly Jobless Claims are announced.

On Friday, November 10 at 2:30 PM, the University of Michigan Consumer Sentiment is published. At 2:00 PM the Baker Hughes Rig Count is printed.

As for me, I have been doing a lot of high-altitude winter mountain climbing lately, and with the warm spring weather, the risk of avalanches is ever-present. It takes me back to the American Bicentennial Everest Expedition, which I joined in 1976.

It was led by my old friend, instructor, and climbing mentor Jim Whitaker, who pulled an ice ax out of my nose on Mt. Rainer in 1967 (you can still see the scar). Jim was the first American to summit the world’s highest mountain. I tried to break a high-speed fall and an ice ax kicked back and hit me square in the face. If I hadn’t been wearing goggles I would have been blinded.

I made it up to 22,000 feet on Everest, to Base Camp II without oxygen because there were only a limited number of canisters reserved for those planning to summit. At that altitude, you take two steps and then break to catch your breath.

There is a surreal thing about that trip that I remember. One day, a block of ice the size of a skyscraper shifted on the Khumbu Ice Fall, and out of the bottom popped a body. It was a man who went missing on the 1962 American expedition. Everyone recognized him as he hadn’t aged a day in 15 years, since he was frozen solid.

I boiled my drinking water but at that altitude, water can’t get hot enough to purify it. So I walked 100 miles back to Katmandu with amoebic dysentery. By the time I got there, I’d lost 50 pounds, taking my weight to 120 pounds.

Jim was an Eagle Scout, the first full-time employee of Recreational Equipment Inc. (REI), and last climbed Everest when he was 61. Today, he is 92 and lives in Seattle, WA.

Jim reaffirms my belief that daily mountain climbing is a great life extension strategy, if not an aphrodisiac.

Mount Everest 1976

Stay Healthy,

John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader

November 6, 2023/by april@madhedgefundtrader.com

October 23, 2023

Diary, Newsletter, Summary

Global Market Comments
October 23, 2023
Fiat Lux

Featured Trade:

(MARKET OUTLOOK FOR THE WEEK AHEAD, or WAS THAT THE CAPITULATION?),
(SPY), (TLT), (TSLA), (NVDA)

October 23, 2023/by april@madhedgefundtrader.com

The Market Outlook for the Week Ahead, or Was that the Capitulation?

Diary, Newsletter

It’s very relaxing writing here in West London, recovering from my injuries.

No air raid alerts, no incoming missiles, no heavy artillery. The people you encounter are upbeat and optimistic, not haggard, sleep-deprived, and war-weary. I just knock out a newsletter and then head for the King’s Head for a pint of Guinness and a fish and chips.

What can be better than that?

With stocks holding up relatively well and bonds in free fall, valuations have befuddled and confused analysts, as well as sent them running for their history books. For the market as a whole, the price earnings yield for stocks how of bonds has dropped to zero for the first time in history. Both are at 5%.

With big tech share prices maintaining flatlines worst case and edging up best case, the debate has reignited as to how expensive these companies can get. The price earnings ratio for the Magnificent Seven has leapt from 29 to 45 this year.

There is an explanation for all of this.

The bottom line is that as long as the economy holds up, so will markets. The US has the only strong major economy in the world, held up by accelerating tech and AI.

That explains why even after a traumatic 2.4% drop in the S&P 500, the Volatility Index has only made it up to 21%. The first read on Q3 GDP is out on Thursday and the consensus forecast at 3.3%, or about the long-term average growth rate for the postwar US economy. The Atlanta Fed has Q3 growth as high as 5.4%.

So the growth is there.

All we need now is for bond yields to find their peak. Then we will be in for the yearend rally we have all been waiting for. From that point, you will want to own companies that suffer from rising interest rates. They will see explosive moves and the list is long.

I was walking down one of London’s cobble-stoned lanes the other day when a motorcycle passed by and backfired. I hit the ground, expecting an imminent missile strike. Passerbyes stared at me in awe, thinking an old man just suffered a massive heart attack. I simply got up, brushed myself off, and walked away.

It takes longer to leave a war than I thought.

So far in October, we are up +3.14%. My 2023 year-to-date performance is still at an eye-popping +63.94%. The S&P 500 (SPY) is up +10.79% so far in 2023. My trailing one-year return reached +71.56% versus +22.90% for the S&P 500.

That brings my 15-year total return to +661.13%. My average annualized return has returned to +47.79%, another new high, some 2.71 times the S&P 500 over the same period. A short in the bond market was a big help and long positions in Tesla and NVIDIA expired at max profit.

Some 41 of my 46 trades this year have been profitable.

My Ten-Year View

On Monday, October 23, at 8:30 AM EST, the Chicago Fed National Activity Index is out.

On Tuesday, October 24 at 8:30 AM, the S&P Global Flash PMI is released.

On Wednesday, October 25 at 2:30 PM, the New Home Sales are published.

On Thursday, October 26 at 8:30 AM, the Weekly Jobless Claims are announced. The US GDP Growth Rate is revised.

On Friday, October 27 at 8:30 AM, Personal Income & Spending are published. At 2:00 PM the Baker Hughes Rig Count is printed.

As for me, you know you’re headed into a war zone the moment you board the train in Krakow, Poland. There are only women and children headed for Kiev, plus a few old men like me. Men of military age have been barred from leaving the country. That leaves about 8 million to travel to Ukraine from Western Europe to visit spouses and loved ones.

After a 15-hour train ride, I arrived at Kiev’s Art Deco station. I was met by my translator and guide, Alicia, who escorted me to the city’s finest hotel, the Premier Palace on T. Shevchenka Blvd. The hotel, built in 1909, is an important historic site as it was where the Czarist general surrendered Kiev to the Bolsheviks in 1919. No one in the hotel could tell me what happened to the general afterwards.

Staying in the best hotel in a city run by Oligarchs does have its distractions. That’s to the war occupancy was about 10%. That didn’t keep away four heavily armed bodyguards from the lobby 24/7. Breakfast was well populated by foreign arms merchants. And for some reason, there were always a lot of beautiful women hanging around.

The population is definitely getting war-weary. Nightly air raids across the country and constant bombings take their emotional toll. Kiev’s Metro system is the world’s deepest and at two cents a ride the cheapest. It where the government set up during the early days of the war. They perform a dual function as bomb shelters when the missiles become particularly heavy.

My Look Out Ukraine has duly announced every incoming Russian missile and its targeted neighborhood. The buzzing app kept me awake at night so I turned it off. The missiles themselves were nowhere near as noisy.

The sound of the attacks was unmistakable. The anti-aircraft drones started with a pop, pop, pop until they hit a big 1,000-pound incoming Russian cruise missile, then you heard a big kaboom! Disarmed missiles that were duds are placed all over the city and are amply decorated with colorful comments about Putin.

The extent of the Russian scourge has been breathtaking with an an epic resource grab. The most important resource is people to make up for a Russian population growth that has been plunging for decades. The Russians depopulated their occupied territory, sending adults to Siberia and children to orphanages to turn them into Russians. If this all sounds medieval, it is. Some 19,000 Ukrainian children have gone missing since the war started.

Everyone has their own atrocity story, most too gruesome to repeat here. Suffice it to say that every Ukrainian knows these stories and will fight to the death to avoid the unthinkable happening to them.

It will be a long war.

Touring the children’s hospital in Kiev is one of the toughest jobs I've ever undertaken. Kids are there shredded by shrapnel, crushed by falling walls, and newly orphaned. I did what I could to deliver advanced technology, but their medical system is so backward, maybe 30 years behind our own, that it couldn’t be employed. Still, the few smiles I was able to inspire made the trip worth it.

The hospital is also taking the overflow of patients from the military hospitals. One foreign volunteer from Sweden was severely banged up, a mortar shell landing yards behind him. He had enough shrapnel in him to light up an ultrasound and had already been undergoing operations for months.

To get to the heavy fighting, I had to take another train ride a further 15 hours east. You really get a sense of how far Hitler overreached in Russia in WWII. After traveling by train for 30 hours to get to Kherson, Stalingrad, where the German tide was turned, is another 700 miles east!

I shared a cabin with Oleg, a man of about 50 who ran a car rental business in Kiev with 200 vehicles. When the invasion started, he abandoned the business and fled the country with his family because they had three military-aged sons. He now works a minimum wage job in Norway and never expects to do better.

What the West doesn’t understand is that Ukraine is not only fighting the Russians but a Great Depression as well. Some tens of thousands of businesses have gone under because people save during war and also because 20% of their customer base has fled.

I visited several villages where the inhabitants had been completely wiped out. Only their pet dogs remained alive, which roved in feral starving packs. For this reason, my major issued me my own AK47. Seeing me heavily armed also gave the peasants a greater sense of security.

It’s been a long time since I’ve held an AK, which is a marvelous weapon. But it’s like riding a bicycle. Once you learn, you never forget.

I’ve covered a lot of wars in my lifetime, but this is the first fought by Millennials. They post their kills on their Facebook pages. Every army unit has a GoFundMe account where donors can buy them drones, mine sweepers, and other equipment.

Everyone is on their smartphones all day long killing time and units receive orders this way. But go too close to the front and the Russians will track your signal and call in an artillery strike. The army had to ban new Facebook postings from the front for his exact reason.

Ukraine has been rightly criticized for rampant corruption which dates back to the Soviet era. Several ministers were rightly fired for skimming off government arms contracts to deal with this. When I tried to give $3,000 to the Children’s Hospital, they refused to take it. They insisted I send a wire transfer to a dedicated account to create a paper trail and avoid sticky fingers.

I will recall more memories from my war in Ukraine in future letters, but only if I have the heart to do so. They will also be permanently posted on the home page at www.madhedfefundtrader.com under the tab “War Diary”.

Stay Healthy,

John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader

October 23, 2023/by april@madhedgefundtrader.com

The Market Outlook for the Week Ahead, or The Fed is Done!

Diary, Newsletter

We’ve just seen our last interest rate rise in the economic cycle. Yes, I know that our central bank took no action at their last meeting in September. The market has just done its work for it.

And the markets are no shrinking violet when it comes to taking bold action. The 50 basis points it took bond yields up over the last two weeks is far more than even the most aggressive, economy-wrecking, stock market-destroying Fed was even considering.

And that doesn’t even include the rate hikes no one can see, the deflationary effects of quantitative tightening, or QT. That is the $1 trillion a year the Fed is sucking out of the economy with its massive bond sales.

It really is a miracle that the US economy is growing as fast as it is. After a warm 2.4% growth rate in Q2, Q3 looks to come in at a blistering 4%-5%. That is definitely NOT what recessions are made of.

Where is all this growth coming from?

Some of the credit goes to the pandemic spending, the free handouts we call got to avoid starvation while Covid ravaged the country. You probably don’t know this, but nothing happens fast in Washington. Government spending is an extremely slow and tedious affair.

By the time that contracts are announced, bids awarded, permits obtained, men hired, and the money spent, years have passed. That means money approved by Congress way back in 2020 is just hitting the economy now.

But that is not the only reason. There is also the long-term structural push that is a constant tailwind for investors:

Hyper-accelerating technology.

Yes, I know, there goes John Thomas spouting off about technology again. But it is a really big deal.

I have noticed that the farther away you get from Silicon Valley, the more clueless money managers are about technology. You can pick up more stock tips waiting in line at a Starbucks in Palo Alto than you can read a year’s worth of research on Wall Street.

What this means is that most large money managers, who are based on the east coast are constantly chasing the train that is leaving the station when it comes to tech.

On the west coast, managers not only know about the new tech, but the tech that comes after that and another tech that comes after that, if they are not already insiders in the current hot deal. This is how artificial intelligence stole a march on almost everyone, until a year ago, unless you were on the west coast already working in the industry. Mad Hedge has been using AI for 11 years.

You may be asking, “What does all of this mean for my pocketbook?” a perfectly valid question. It means that there isn’t going to be a recession, just a recession scare. That technology will bail us out again, even though our old BFF, the Fed, has abandoned us completely.

Which brings me to the current level of interest rates. I have also noticed that the farther away you get from New York and Washington, the less people know about bonds. On the west coast mention the word “bond” and they stare at you cluelessly. Indeed, I spent much of this year explaining the magic of the discount 90-day T-bill, which no one had ever heard of before (What! They pay interest daily?).

In fact, most big technology companies have positive cash balances. Look no further than Apple’s $140 billion cash hoard, which is invested in, you guessed it, 90-day T-bills when it isn’t buying its own stock, and is earning a staggering $7.7 billion a year in interest.

The great commonality in the recent stock market correction is easy to see. Any company that borrows a lot of money saw its stock get slaughtered. Technology stocks held up surprisingly well. That sets up your 2024 portfolio.

Put half your money in the Magnificent Seven stocks of Apple (AAPL), Amazon (AMZN), Meta (META), Microsoft (MSFT), Tesla (TSLA), (NVIDIA), and Salesforce (CRM).

Put your other half into heavy borrowers that benefit from FALLING interest rates, including bonds (TLT), junk bonds (JNK), (HYG), Utilities (XLU), precious metals (GOLD), (WPM), copper (FCX), foreign currencies (FXA), (FXE), (FXY), emerging markets (EEM).

As for me, I never do anything by halves. I’m putting all my money into Tesla. If I want to diversify, I’ll buy NVIDIA. Diversification is only for people who don’t know what is going to happen.

I just thought you’d like to know.

So far in October, we are up +2.96%. My 2023 year-to-date performance is still at an eye-popping +63.76%. The S&P 500 (SPY) is up +12.89% so far in 2023. My trailing one-year return reached +76.46% versus +22.57% for the S&P 500.

That brings my 15-year total return to +660.95%. My average annualized return has fallen back to +48.07%, another new high, some 2.64 times the S&P 500 over the same period.

Some 44 of my 49 trades this year have been profitable.

Chaos Reigns Supreme in Washington, with the firing of the first House speaker in history. Will the next budget agreement take place on November 17, or not until we get a new Congress in January 2025? Markets are discounting the worst-case scenario, with government debt in free fall. Definitely NOT good for stocks, which are reaching for a full 10% correction, half of 2023’s gains.

September Nonfarm Payroll Report Rockets, to 336,000, and August was bumped up another 50,000. The economy remains on fire. The headline Unemployment Rate remains steady at an unbelievable 3.8%. And that’s with the UAW strike sucking workers out of the system. This is supposed to by impossible with 5.5% interest rates. Throw out you economics books for this one!

JOLTS Comes in Hot at 9.61 million job openings in August, 700,000 more than the July report. The record labor shortage continues. Will the Friday Nonfarm Payroll Report deliver the same?

ADP Rises 89,000 in September, down sharply from previous months, showing that private job growth is growing slower than expected. August was revised down. It’s part of the trifecta of jobs data for the new month. The mild recession scenario is back on the table, at least stocks think so.

Weekly Jobless Claims Rise to 207,000, still unspeakably strong for this point in the economic cycle. Continuing claims were unchanged at 1.664%.

Traders Pile on to Strong Dollar, headed for new highs, propelled by rising interest rates. There is a heck of a short setting up for next year.

Yen Soars on suspected Bank of Japan intervention in the foreign exchange markets to defend the 150 line against the US dollar. The currency is down 35% in three years and could be the BUY of the century.

Kaiser Goes on Strike with 75,000 health care workers walking out on the west coast. The issue is money. The company has a long history of labor problems. This seems to be the year of the strike.

Oil (USO)Gets Slammed on Recession Fears, down 5% on the day to $85, in a clear demand destruction move and worsening macroeconomic picture. Europe and China are already in recession. It’s the biggest one-day drop in a year. Is the top in?

Tesla Delivers 435,059 Vehicles in September, down 5% from forecast, but the stock rose anyway. The Cybertruck launch is imminent, where the company has 2 million new orders. Keep buying (TSLA) on Dips. Technology is accelerating.

EVs have Captured an Amazing 8% of the New Car Market. They have been helped by a never-ending price war and generous government subsidies. EV sales are now up a miraculous 48% YOY and are projected to account for a stunning 23% of all California sales in Q3. Tesla is the overwhelming leader with a 52% share in a rapidly growing market, distantly followed by Ford (F) at 7% and Jeep at 5%. However, a slowdown may be at hand, with EV inventories running at 97 days, double that of conventional ICE cars. This could create a rare entry point for what will be the leading industry of this decade, if not the century. Buy more Tesla (TSLA) on bigger dips, if we get them.

Apple Upgrades New iPhone 15 to deal with overheating from third-party gaming. It will shut down some of its background activity, including some of the new AI functions, which were stressing the central processor. Third-party apps were adding to the problem, such as Uber and games from (META). This is really cutting-edge technology.

Moderna (MRNA) Bags a Nobel Prize in Chemistry. Katalin Kariko and Drew Weissman’s work helped pioneer the technology that enabled Moderna and the Pfizer Inc.-BioNTech SE partnership to swiftly develop shots. I got four and they saved my life when I caught Covid. I survived but lost 20 pounds in two weeks. It was worth it.

My Ten-Year View

On Monday, October 9, there is no data of note released.

On Tuesday, October 10 at 8:30 AM EST, the Consumer Inflation Expectations is released.

On Wednesday, October 11 at 2:30 PM, the Producer Price Index is published.

On Thursday, October 12 at 8:30 AM, the Weekly Jobless Claims are announced. The Consumer Price Index is also released.

On Friday, October 13 at 1:00 PM the September University of Michigan Consumer Expectations is published. At 2:00 PM, the Baker Hughes Rig Count is printed.

As for me, one of the many benefits of being married to a British Airways senior stewardess is that you get to visit some pretty obscure parts of the world. In the 1970s, that meant going first class for free with an open bar, and occasionally time in the cockpit jump seat.

To extend our 1977 honeymoon, Kyoko agreed to an extra round trip for BA from Hong Kong to Colombo in Sri Lanka. That left me on my own for a week in the former British crown colony of Ceylon.

I rented an antiquated left-hand drive stick shift Vauxhall and drove around the island nation counterclockwise. I only drove during the day in army convoys to avoid terrorist attacks from the Tamil Tigers. The scenery included endless verdant tea fields, pristine beaches, and wild elephants and monkeys.

My eventual destination was the 1,500-year-old Sigiriya Rock Fort in the middle of the island which stood 600 feet above the surrounding jungle. I was nearly at the top when I thought I found a shortcut. I jumped over a wall and suddenly found myself up to my armpits in fresh bat shit.

That cut my visit short, and I headed for a nearby river to wash off. But the smell stayed with me for weeks.

Before Kyoko took off for Hong Kong in her Vickers Viscount, she asked me if she should bring anything back. I heard that McDonald’s had just opened a stand there, so I asked her to bring back two Big Macs.

She dutifully showed up in the hotel restaurant the following week with the telltale paper bag in hand. I gave them to the waiter and asked him to heat them up for lunch. He returned shortly with the burgers on plates surrounded by some elaborate garnish and colorful vegetables. It was a real work of art.

Suddenly, every hand in the restaurant shot up. They all wanted to order the same thing, even though the nearest stand was 2,494 miles away.

We continued our round-the-world honeymoon to a beach vacation in the Seychelles where we just missed a coup d’état, a safari in Kenya, apartheid South Africa, London, San Francisco, and finally back to Tokyo. It was the honeymoon of a lifetime.

Kyoko passed away in 2002 from breast cancer at the age of 50, well before her time.

Stay Healthy,

John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader

Sigiriya Rock Fort

Kyoko

October 9, 2023/by april@madhedgefundtrader.com

October 2, 2023

Diary, Newsletter, Summary

Global Market Comments
October 2, 2023
Fiat Lux

Featured Trade:

(MARKET OUTLOOK FOR THE WEEK AHEAD, or BACK IN BUSINESS)
(TLT), (GLD), (SLV), (XLU), (IWM), (EEM), (FXA), (FXE), (FXB), (USO), (UUP), (AMZN), (TSLA), (F)

October 2, 2023/by april@madhedgefundtrader.com

The Market Outlook for the Week Ahead, or Back in Business

Diary, Newsletter

It’s a good thing I don’t rely on my Social Security Check to cover my extravagant cost of living, which is the maximum $4,555 a month. For it came within hours of coming to a halt when an agreement was passed by Congress to renew funding for another 45 days. It was almost an entirely Democratic bill, passing 335 to 91 in the House and the Senate by 88 to 9.

Unfortunately, that does put me in the uncomfortable position of delivering humanitarian aid to Ukraine right when $6.2 billion in US assistance is cut off. That was the price the Dems had to pay to get the Republicans on board needed to pass the bill. Better a half a loaf than no loaf at all. Still, I am going to have some explaining to do next week in Kiev, Mykolaiv, and Kherson. It’s a big win for Vladimir Putin.

Funding now ends on November 17, when the next crisis begins. The big question is when the markets will deliver a sigh of relief rally on Congress hitting the “snooze” button, or whether it will focus on the next disaster in November.

We’ll have to wait and see.

In the meantime, all eyes are on the market’s leading falling interest rate plays, which continue to go from bad to worse. Those include bonds (TLT), precious metals (GLD), (SLV), utilities (XLU), small-cap stocks (IWM), emerging markets (EEM), and foreign currencies (FXA), (FXE), (FXB).

Consider this your 2024 shopping list.

Ten-year US Treasury bond yields reached a stratospheric 4.70% last week a 17-year high and up a monster 0.90% since the end of June. Summer proved a fantastic time to take a vacation from the bond market.

They could easily reach 5% before the crying is all over. Perhaps this is why my old friend, hedge fund legend David Tepper, said his best investment right now is a subprime six-month certificate of deposit yielding 7.0%.

What we might be witnessing here is a return to the “old normal” when bonds spent most of their time ranging between 2%-6%. The 60-year historic average bond yield is 2% over the inflation rate (see chart below). That alone takes us to a 5.0% bond yield.

Interest rates have been kept artificially low for 15 years because no one wanted a recession in 2008 and no one wanted a recession during the pandemic in 2000. It all melded into one big decade-and-a-half period of easy money. Pain avoidance wasn’t just the universal American monetary policy, it was the global policy.

Now it’s time to pay the piper and unwind the thousands of business models that depended on free money. There will be widespread pain, as we are now witnessing in commercial real estate and private equity. Perhaps it is best to take the 5.5% bribe 90-day Treasury bond yield is offering you and stay out of the market.

While Detroit remains mired by the UAW strike, EVs have catapulted to an amazing 8% of the new car market. They have been helped by a never-ending price war and generous government subsidies. EV sales are now up a miraculous 48% YOY and are projected to account for a stunning 23% of all California sales in Q3.

Tesla is the overwhelming leader with a 52% share in a rapidly growing market, distantly followed by Ford (F) at 7% and Jeep at 5%.

However, a slowdown may be at hand, with EV inventories running at 97 days, double that of conventional ICE cars. This could create a rare entry point for what will be the leading industry of this decade, if not the century. Buy more Tesla (TSLA) on bigger dips, if we get them.

Hedge Funds are Cutting Risk at Fastest Pace Since 2020, when the pandemic began. From retail investors to rules-based systematic traders, appetite for equities is subsiding after a 20% rally this year that’s fueled by euphoria over artificial intelligence. Fast money investors increased their bearish wagers to drive down their net leverage — a gauge of risk appetite that measures long versus short positions — by 4.2 percentage points to 50.1%, according to Goldman Sachs Group Inc.’s prime brokerage. That’s the biggest week-on-week decline in portfolio leverage since the depths of the pandemic bear market.

The Treasury Bond Freefall Continues, as long-term yields probe new highs. New issue of $134 billion this week didn’t help. Nothing can move on the risk until rates top out, even if we have to wait until 2024.

Oil (USO) Hits $95, a one-year high, as the Saudi/Russian short squeeze continues. $100 a barrel is a chipshot and much higher if we get a cold winter. Inventories at the Cushing hub are at a minimum.

The US Dollar (UUP) Hits New Highs, as “high for longer” interest rates keep powering the greenback. The buck is also catching a flight to safety bid from a potential government shutdown. It should be topping soon.

Moody’s Warns of Further US Government Downgrades, in the run up to the Saturday government shutdown. The shutdown lasts, the more negative its impact would be on the broader economy. Unemployment could soar. It would also render all US government data releases useless for the next three months.

ChatGPT Can Now Browse the Internet, according to its creator, OpenAI. Until now, the chatbot could only access data posted before September 2021. The move will exponentially improve the quality and effectiveness of AI apps, including my own Mad Hedge AI

Amazon (AMZN) Pouring $4 Billion into AI, with an investment in Anthropic, a ChatGPT competitor. (AMZN) is racing to catch up with (MSFT) and (GOOGL). Its chatbot is caused Claude 2. Amazon’s card to play here is its massive web services business AWS. The AI wars are heating up.

Hollywood Screenwriters Guild Strike Ends, after 150 days, which is thought to have cost the US economy $5 billion in output. The hit was mostly taken by Los Angeles, where 200,000 are employed. The Actor’s union is still on strike. Talk shows should be offering new content in a few days.

S&P Case Shiller Rises to New All-Time High, for the sixth consecutive month as inventory shortages drove up competition. In July, the index in increased 0.6% month over month and 1% over the last 12 months, on a seasonally adjusted basis. July’s movement reached a new high for the nationwide home index, surpassing the record set in June 2022. Chicago (+4.4%), Cleveland (+4.0%), and New York (+3.8%) delivered the biggest gains. The median home price for existing homes rose to 1.9 to $406,700 according to the National Association of Realtors (NAR). The robust housing market suggests that while some buyers pulled back due to high borrowing costs, demand continues to outweigh supply.

This is the Unit I Will be Joining at the Front in Ukraine, as made clear by their YouTube recruiting video. They asked me to assist with mine removal on territory formerly occupied by Russia. I really don’t know what I’m getting into. Improvision is key. It’s better than playing golf in retirement. Polish up your Ukrainian first.

So far in August, we are down -4.70%. My 2023 year-to-date performance is still at an eye-popping +60.80%. The S&P 500 (SPY) is up +17.10% so far in 2023. My trailing one-year return reached +92.45% versus +8.45% for the S&P 500.

That brings my 15-year total return to +657.99%. My average annualized return has fallen back to +48.15%, another new high, some 2.50 times the S&P 500 over the same period.

Some 41 of my 46 trades this year have been profitable.

My Ten-Year View

When we come out the other side of the recession, we will be perfectly poised to launch into my new American Golden Age, or the next Roaring Twenties. The economy decarbonizing and technology hyper accelerating, creating enormous investment opportunities. The Dow Average will rise by 800% to 240,000 or more in the coming decade. The new America will be far more efficient and profitable than the old.

Dow 240,000 here we come!

On Monday, October 2, at 8:30 PM EST, the ISM Manufacturing PMI is out.

On Tuesday, October 3 at 8:30 AM, the JOLTS Job Openings Report is released.

On Wednesday, October 4 at 2:30 PM, the ISM Services Report is published.

On Thursday, October 5 at 8:30 AM, the Weekly Jobless Claims are announced.

On Friday, October 6 at 2:30 PM the September Nonfarm Payroll Report is published. At 2:00 PM the Baker Hughes Rig Count is printed.

As for me, I will try to knock out a few memories early this morning while waiting for the Matterhorn to warm up so I can launch on another ten-mile hike. So I will reach back into the distant year of 1968 in Sweden.

My trip to Europe was supposed to limit me to staying with a family friend, Pat, in Brighton, England for the summer. His family lived in impoverished council housing.

I remember that you had to put a ten pence coin into the hot water heater for a shower, which inevitably ran out when you were fully soaped up. The trick was to insert another ten pence without getting soap in your eyes.

After a week there, we decided the gravel beach and the games arcade on Brighton Pier were pretty boring, so we decided to hitchhike to Paris.

Once there, Pat met a beautiful English girl named Sandy, and they both took off to some obscure Greek island, the ultimate destination if you lived in a cold, foggy country.

That left me stranded in Paris with little money.

So, I hitchhiked to Sweden to meet up with a girl I had run into while she was studying English in Brighton. It was a long trip north of Stockholm, but I eventually made it.

When I finally arrived, I was met at the front door by her boyfriend, a 6’6” Swedish weightlifter. That night found me bedding down in a birch forest in my sleeping bag to ward off the mosquitoes that hovered in clouds.

I started hitchhiking to Berlin, Germany the next day, which offered paying jobs. I was picked up by Ronny Carlson in a beat-up white Volkswagen bug to make the all-night drive to Goteborg where I could catch the ferry to Denmark.

1968 was the year that Sweden switched from driving English style on the left side of the road to the right. There were signs every few miles with a big letter “H”, which stood for “hurger”, or right. The problem was that after 11:00 PM, everyone in the country was drunk and forgot what side of the road to drive on.

Two guys on a motorcycle driving at least 80 mph pulled out to pass a semi-truck on a curve and slammed head-on to us, then were thrown under the wheels of the semi. The motorcycle driver was killed instantly, and his passenger had both legs cut off at the knees.

As for me, our front left wheel was sheared off and we shot off the mountain road, rolled a few times, and was stopped by this enormous pine tree.

The motorcycle riders got the two spots in the only ambulance. A police car took me to a hospital in Goteborg and whenever we hit a bump in the road bolts of pain shot across my chest and neck.

I woke up in the hospital the next day, with a compound fracture of my neck, a dislocated collar bone, and paralyzed from the waist down. The hospital called my mom after booking the call 16 hours in advance and told me I might never walk again. She later told me it was the worst day of her life.

Tall blonde Swedish nurses gave me sponge baths and delighted in teaching me to say Swedish swear words and then laughed uproariously when I made the attempt.

Sweden had a National Health care system then called Scandia, so it was all free.

Decades later a Marine Corps post-traumatic stress psychiatrist told me that this is where I obtained my obsession with tall, blond women with foreign accents.

I thought everyone had that problem.

I ended up spending a month there. The TV was only in Swedish, and after an extensive search, they turned up only one book in English, Madame Bovary. I read it four times but still don’t get the ending. And she killed herself because….?

The only problem was sleeping because I had to share my room with the guy who lost his legs in the same accident. He screamed all night because they wouldn’t give him any morphine.

When I was released, Ronny picked me up and I ended up spending another week at his home, sailing off the Swedish west coast. Then I took off for Berlin to get a job since I was broke. Few Germans wanted to live in West Berlin because of the ever-present risk of a Russian invasion so there we always good-paying jobs.

I ended up recovering completely. But to this day whenever I buy a new Brioni suit in Milan they have to measure me twice because the numbers come out so odd. My bones never returned to their pre-accident position and my right arm is an inch longer than my left. The compound fracture still shows up on X-rays.

And I still have this obsession with tall, blond women with foreign accents.

Go figure.

Brighton 1968

Ronny Carlson in Sweden

Stay Healthy,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader

October 2, 2023/by april@madhedgefundtrader.com

September 25, 2023

Diary, Newsletter, Summary

Global Market Comments
September 25, 2023
Fiat Lux

Featured Trade:

(MARKET OUTLOOK FOR THE WEEK AHEAD, or THE SINGULARITY IS HERE!)
(SPY), (TLT), (MSFT), (TSLA), (USO), (AMZN)

September 25, 2023/by april@madhedgefundtrader.com

The Market Outlook for the Week Ahead, or The Singularity is Here!

Diary, Newsletter

While changing planes at Heathrow airport in London last week, my partners in artificial intelligence graciously came out to join me for lunch over some of the awful food there. I can’t tell you who they are, but if I did you would fall out of your chair.

Whenever someone gets a lead in AI applications these days, mum’s the word. There’s no point in giving the competition a leg up, let alone a commanding lead. What they told me was incredibly exciting, but also terrifying. Suffice it to say that you ain’t seen nothing yet.

2023 is probably the last year when mere humans will be able to identify what’s real and what isn’t. The Turing Test, by which machines become indistinguishable from man, laid out by Dr. Alan Turing in 1950, has been conquered. Dr. Ray Kurzweil got it all wrong. We are not going to have to wait until 2040 for the Singularity to take place, whereby man and machine become one (click here for the link).

It’s happening right now.

It seems that these days. you spend half of your day proving to robots that you’re not a robot. Let me tell you that it’s about to get a lot worse. Lately, I have been irritatingly failing these tests more often because I can’t see the part of a bicycle hiding in a corner of the box next door. It won’t be long before we are working for these robots.

That could be a good thing because robots lack human flaws, like abusing their employees, getting drunk, failing to show up for work, and demanding more pay. What they WILL do is make you work FASTER, as the employees at Amazon (AMZN) found out, where workplace accidents and exhaustion at distribution centers are running rampant. Some workers can only handle six weeks of employment at a time.

It turns out that Elon Musk was the initial founding investor in ChatGBT, pumping in $1 billion in seed capital. When you’re the richest man in the world, you can do that sort of thing.

But Musk had a great falling out in 2021 when management refused to accept his absolute control of their AI in exchange for more money. That led to ChatGPT’s sale to Microsoft (MSFT) for $13 billion, a figure which, in retrospect, seems a pittance given the $1 trillion in value it is expected to create (so buy (MSFT).

By the way, ChatGPT refers to Generalized Preprogrammed Transformers in a homage to the cartoon series. That’s how nerdy these people are.

In any case, a huge conflict of interest had arisen with Tesla’s own AI efforts. One proof of this is that my own monthly insurance rates with Tesla keep going down, now at an unbelievably low $204 a month for a $165,000 vehicle.

It’s not that I’m a better driver. At my age, I’m probably getting worse. It's because the CAR keeps getting smarter, reducing the chance of an accident and therefore the risk to Tesla’s insurance division. By the way, notice how well Tesla shares have been outperforming the market lately.

Insurance industry watch out! You are about to get disrupted.

What is especially scary is that a presidential election will take place next year just when AI is hitting its stride. In 2016, many thought that the Access Hollywood videotape would make Donald Trump unelectable.

Everyone believed the video was real, but while half the voters were outraged, the other half said that’s just Trump being Trump and he got elected. If that video were released today, only half would believe it’s real while the other half would think it’s a deep fake produced by the opposition.

The possibilities boggle the mind, with multiple deep fakes already gaining airtime for next year’s primaries.

There isn’t much to say about stocks these days except that the grand finale for the current correction is fast approaching.

The UAW strike won’t cause the stock market to crash. But add it in with a prolonged government shutdown, sharply rising interest rates, and recessions in our biggest export markets in Europe and China, and suddenly the short-term downside argument becomes a lot more persuasive.

If you DO need convincing, look no further than my Mad Hedge AI Market Timing Index. It decisively broke 50 on Friday and plunged all the way down to 36. Finally, after a tortuous six months of doing nothing, we are starting to see some value in the market.

Whenever I go through periods of issuing no trade alerts for a prolonged period because the risk/reward is terrible, I get a lot of complaints from customers. After all, who wouldn’t want more trade alerts with a 90% success rate? The only way you achieve that success rate is to stay out of markets when they suck, as in now. Lately, I have noticed on down days, I get absolutely no complaints AT ALL.

I will end this dissertation by telling you a funny story. The last time I landed at San Francisco Airport, I grabbed an Uber cab home. As we departed the airport, I noticed a rolled set of plans on the floor forgotten by the previous passenger. I pointed this out to the driver, but he was from China and didn’t speak English.

So I opened up the plans and called the phone numbers listed in the key. First, I tried the University of California at San Francisco, whose name was clearly marked at the top. No luck there. The university is just too big.

Then I tried the printing company in Berkeley that produced the plans. I asked for the customer’s cell phone number, but the printer said they never released confidential client information. After some prodding, I convinced him to call his own customer and tell him I was headed back to the gate where he debarked with the plans (I can be very convincing).

By now, I was 20 minutes away from the airport, so I had ample time to examine what I had chanced on. It turns out I had blueprints of the human brain showing 100 sites where it can be connected directly to the Internet, ranking them by transmission efficiency. The owner was headed to Los Angeles to make a presentation to fellow scientists and some venture capital investors.

Yikes, I thought!

When we pulled up to the gate, there was a man looking like he had come out of central casting for the role of “scientist”, beard, glasses, and all. He was very grateful and then disappeared into the crowd running for his plane. Yes, I know it sounds like the beginning of a science fiction thriller.

I just thought you’d like to know. Yes, it’s just another day in the life for me.

That brings my 15-year total return to +657.99%. My average annualized return has fallen back to +48.15%, some 2.50 times the S&P 500 over the same period.

Some 41 of my 46 trades this year have been profitable.

The Most Important Thing That Powell Didn’t Say in Fed press conference is that quantitative tightening, or QT, continues. That drains $1 trillion a year from the financial system through bond sales until 2031 to get the Fed balance sheet down to zero. It is a negative for bonds….and the economy. The market is fixated on the 0.25% he did raise on interest rates.

UAW Strike Expanded on Friday, adding 38 new plants to the work stoppage. It’s death by a thousand cuts. The Big Three may respond with lockouts to drain union funds. Factories in Mexico are looking better every day. Elon Musk is laughing.

Industrial Production Jumps 0.4% in August, in another sign that the US has dodged the recession bullet. It’s one of the strongest numbers of the year. Capacity Utilization also rose to a high 79.7%.

Will a Government Shutdown Finally Drive Stocks Downward? Chaos rules supreme in the House of Representatives where there is a major effort to shut down the US government. Speaker Kevin McCarthy risks getting fired if he allows a spending bill to go through with Democratic support. It’s the result of a devil’s bargain made with his right wing to land the job in January. Will an impeachment inquiry into Biden be enough to placate them?

Cathie Woods’ New Take on Tesla (TSLA). As one of the earliest investors in Tesla, along with myself, it pays to listen to Cathie Woods talk about the stock. The company is headed from a current market valuation of $845 billion to $5 trillion, with two-thirds of the growth coming from its autonomous driving technology, a $15,000 upgrade. AI sold as software-as-a-service has an 80% profit margin compared to only 20%-30% for the EV business. Cathie’s bull case is $2,000 in five to ten years and her bear case is that the stock only reached $1,400. Teslas have a 40% lower accident rate than ICE cars, thanks to AI, so take the human out of the driving formula.

Oil (USO) Hits New 2023 High, with gasoline topping $5.00 a gallon in many states. There is no oil shortage or supply disruptions. This is pure price gouging, with Saudi Arabia and Russia cutting supplies by 5 million barrels/day since June and American oil companies riding on their coattails. The move coincided with a sudden and unexpected improvement in the US economic outlook, increasing demand. Too late to play on the long side here, with prices up 40% from the May lows.

National Debt (TLT) Tops $33 Trillion, or $100,000 per man, woman, and child. Not great news for bonds, as new issuance is swamping the markets. The debt has risen by 50% since 2019. Republicans want Democrats to spend less, while Democrats want Republicans to cut their spending.

My Ten-Year View

On Monday, September 25, the Chicago Fed National Activity Index is out.

On Tuesday, September 26 at 3:00 PM EST, the S&P Case Shiller National Home Price Index is released. We also get New Home Sales.

On Wednesday, September 27 at 2:30 PM, the US Durable Goods is published.

On Thursday, September 28 at 8:30 AM, the Weekly Jobless Claims are announced. We also get the final print for Q2 GDP.

On Friday, September 29 at 2:30 PM, the Personal Income & Spending is published. At 2:00 PM, the Baker Hughes Rig Count is printed.

As for me, this is not my first Russian invasion.

Early in the morning of August 20, 1968, I was dead asleep at my budget hotel off of Prague’s Wenceslas Square when I was suddenly awoken by a burst of machine gun fire. I looked out the window and found the square filled with T-54 Russian tanks, trucks, and troops.

The Soviet Union was not happy with the liberal, pro-western leaning of the Alexander Dubcek government so they invaded Czechoslovakia with 500,000 troops and overthrew the government.

I ran downstairs and joined a protest demonstration that was rapidly forming in front of Radio Prague trying to prevent the Russians from seizing the national broadcast radio station. At one point, I was interviewed by a reporter from the BBC carrying this hulking great tape recorder over his shoulder, as I was the only one who spoke English.

It seemed wise to hightail it out of the country, post haste, as it was just a matter of time before I would be arrested. The US ambassador to Czechoslovakia, Shirley Temple Black (yes, THE Shirley Temple), organized a train to get all of the Americans out of the country.

I heard about it too late and missed the train.

All borders with the west were closed and domestic trains shut down, so the only way to get out of the country was to hitchhike to Hungary where the border was still open.

This proved amazingly easy as I placed a small American flag on my backpack. I was in Bratislava just across the Danube from Austria in no time. I figured worst case, I could always swim it, as I had earned both, the Boy Scout Swimming, and Lifesaving merit badges.

Then I was picked up by a guy driving a 1949 Plymouth who loved Americans because he had a brother living in New York City. He insisted on taking me out to dinner. As we dined, he introduced me to an old Czech custom, drinking an entire bottle of vodka before an important event, like crossing an international border.

Being 16 years old, I was not used to this amount of high-octane 40-proof rocket fuel and I was shortly drunk out of my mind. After that, my memory is somewhat hazy.

My driver, also wildly drunk, raced up to the border and screeched to a halt. I staggered through Czech passport control which duly stamped my passport. I then lurched another 50 yards to Hungary, which amazingly, let me in. Apparently, there is no restriction on entering the country drunk out of your mind. Such is Eastern Europe.

I walked another 100 yards into Hungary and started to feel woozy. So, I stumbled into a wheat field and passed out.

Sometime in the middle of the night, I felt someone kicking me. Two Hungarian border guards had discovered me. They demanded my documents. I said I had no idea what they were talking about. Finally, after their third demand, they loaded their machine guns, pointed them at my forehead, and demanded my documents for the third time.

I said, “Oh, you want my documents!”

I produced my passport, and when they got to the page that showed my age, they both started laughing.

They picked me and my backpack up and dragged me back to the road. While crossing some railroad tracks, they dropped me, and my knee hit a rail. But since I was numb, I didn’t feel a thing.

When we got to the road, I saw an endless stream of Russian army trucks pouring into Czechoslovakia. They flagged down one of them. I was grabbed by two Russian soldiers and hauled into the truck with my pack thrown on top of me. The truck made a U-turn and drove back into Hungary.

I contemplated my surroundings. There were 16 Russian Army soldiers in full battle dress holding AK-47s between their legs and two German Shepherds all looking at me quizzically. Then I suddenly felt the urge to throw up. As I assessed that this was a life-and-death situation, I made every effort to restrain myself.

We drove five miles into the country and stopped at a small church. They carried me out of the truck and dumped me and my pack behind the building. Then they drove off.

The next morning, I woke up with the worst headache of my life. My knee bled throughout the night and hurt like hell. I still have the scar. Even so, in my enfeebled condition, I realized that I just had one close call.

I hitchhiked on to Budapest, then to Romania, where I heard that the beaches were filled with beautiful women. My Italian let me get by passably in the local language.

It all turned out to be true.

Stay Healthy,

John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader

September 25, 2023/by april@madhedgefundtrader.com

September 22, 2023

Diary, Newsletter, Summary

Global Market Comments
September 22, 2023
Fiat Lux

Featured Trade:

(SEPTEMBER 20 BIWEEKLY STRATEGY WEBINAR Q&A),
(AMZN), (SPX), (TLT), (TSLA), (DIS), (LEN), (KBH), (PHM), (USO), (FXA), (UNG), (JPM), (C), (BAC)

September 22, 2023/by april@madhedgefundtrader.com

September 20 Biweekly Strategy Webinar Q&A

Diary, Newsletter

Below please find subscribers’ Q&A for the September 20 Mad Hedge Fund Trader Global Strategy Webinar, broadcast from Silicon Valley, CA.

Q: How do we know when interest rates have peaked?

A: Well, that's easy—the Fed announces it and they start cutting interest rates. The first hint of that is they don’t raise interest rates when they have the opportunity to do so. That will be today as it was in July. So we’re at the top now, and they’ll probably go sideways for 6 months or even longer before they start cutting. Markets will start to discount this 6-9 months in advance, or about now.

Q: Year-end target for the S&P 500? What about Amazon (AMZN)?

A: 5,000. For the (SPX). For Amazon, I think we could easily tack on another 20-25%.

Q: Does the Mad Hedge Global Trading Dispatch include tech trade alerts?

A: It does, but only the higher quality, lower risk trades. Pure Tech traders are a much higher-risk bunch of people, and they want more aggressive trade alerts in smaller companies. As for me, with Global Trading Dispatch I try to stick to a 90% success rate, and the only way to do that is to avoid tech when it flatlines and not try to catch any falling knives.

Q: Any hope of recovery for the iShares 20 Plus Year Treasury Bond ETF (TLT)?

A: Yes; as I said, the Fed will start cutting interest rates next year, and markets discount 6-9 months in advance, so that gives us 3 months for our January 2024 $100/$105 call spreads to expire at max profit. So yes, it is entirely possible, if not likely, that we will see those numbers by January.

Q: Can you help me jump the line for a Cybertruck from Tesla (TSLA)?

A: Well, if I was going to help anyone get a Cybertruck, it would be me! And I can't get one. Back in the old days, Tesla people would fall down on their knees crying “thank you!” when you bought one of their cars. Now, I think I’m number 2 million on the waiting list. You’re on your own on that one.

Q: Is Disney (DIS) a good LEAP stock?

A: No, Disney has some major problems with their streaming business, and the parks have maxed out. That is why the stock seems immune to good news—unless you know something I don’t. So go for it if you’re ready for that risk.

Q: What is your fact-finding trip to Ukraine all about?

A: Nothing beats research on the ground for finding out what really happened. Second, Ukraine got a lot of aid from other countries when the war started, but it’s since run out and we know that hospitals and orphanages in Ukraine are in trouble and running out of money. So, nothing beats showing up with US dollar cash in that situation. So that is why I’m going. This’ll be my eighth war. I guess the war correspondent in me never left. I’ll also be escorting American doctors to Ukrainian hospitals who don’t know how to do this. There’s more to life than just making money.

Q: Should I buy the dip in homebuilders like Lennar Homes (LEN), D.R. Horton (DHI), and KB Homes (KBH)?

A: Absolutely, yes—with both hands. Who does better with a falling interest rate cycle than home builders who have to depend on falling mortgage rates for business to boom once again. So yes, any dip in this sector and I would be loading the boat. The next declining interest rate cycle could last 5 or 10 years.

Q: Will the United Auto Workers strikes cause inflation to rocket and feed into higher inflation figures?

A: No, not really. Union membership has declined by 75% over the last 40 years. The UAW itself has declined from 1.6 million members to 400,000, and they really have become too small to affect the general economy. What they will do is accelerate existing trends, like people dumping their ice cars and moving to Tesla and other EV manufacturers. This is sort of like a gift for Tesla, and that's why the stock was up 10% last week. Also, in the long, long run, if they force the car companies to move to Mexico and cut the same deals that Elon Musk got, then it reduces inflation.

Q: Does the recent increase in Chinese ships and warplanes near Taiwan change anything?

A: No, it just shows us how weak the economy in China is. It’s effectively in recession even though they refuse to admit it, and therefore they have to create more distractions. The Chinese have been bluffing on Taiwan for 70 years—why stop now?

Q: What is a good time to buy banks?

A: I would start scaling into (JPM), (BAC), and (C) now. They will be a major beneficiary of an economic recovery next year and falling interest rates; and the prices down here are good. They’re one of the worst performers so far this year—one of the few cheap sectors left in the market.

Q: Should I buy Tesla (TSLA) here?

A: The thing here that I’m telling my professional money managers is: scale in on a one-month basis. Figure out how much you want to buy, and then buy 1/30th of that amount every day for a month. Then, you’ll scale in, you won’t get the absolute bottom but you’ll get some kind of bottom, and when a turnaround happens, then it goes up 50% or 100%. That’s the way to play Tesla. A lot of the professional money managers and investment advisors who follow me have a problem; they’re getting tons of new customers based on their performance this year. So yes, what do you do when you get money after a great run? You can only scale in.

Q: Is oil (USO) topping and going back to 70 a barrel?

A: I think yes. We saw the run from $70 to $95; it looks like it’ll probably hit $100. After that, Saudi Arabia will start bringing supply back on. What they did is create an artificial short squeeze in oil by taking 5 million barrels off the market with Russia—that got prices up. Any higher than that, and high oil starts to adversely affect Saudi Arabia’s foreign investments. So yes, they do back off when we get over 100; they’re very happy with $100/barrel, as is the American oil industry. So, I’m inclined to take profits if you did the oil trade in June.

Q: Would you buy iShares 20 Plus Year Treasury Bond ETF (TLT) now?

A: No, I’ve been holding back because it seems to want to have a capitulation; that’s why it’s not rallying off the 93 level—it’s been bouncing on the bottom. Some piece of bad news, some kind of high inflation, could trigger a capitulation, which would take us down another 5 points—that's where you buy it. Then, all of a sudden something like a 2024 $85/$90 bull call spread is offering you 100% return one year out.

Q: Do you recommend 4-week T-bills?

A: No, I recommend 4-month T-bills. Those expire in January and take advantage of the cash squeeze in the financial system you always get in New Years. Returns on 4-month T-bills are much higher than 3 month, 2 month, or 1 month. I just bought some before this meeting because I’m not going to do a lot of trading this month, and I got a 5.48% yield. For me to do a trade now, it has to have a very low-risk 20% return. That’s what I need to beat T-bills at 5.48%, which have zero risk and a guaranteed return of money. You need the extra 15% return on a 1-month trade to justify the risk that individual stocks have.

Q: Will the Australian dollar (FXA) stay weak as long as China is weak?

A: Yes, and the flip side is also true: Will the Australian dollar be strong when China recovers? Absolutely. I still see 1 to 1 against the US dollar for the long term.

Q: Why is everyone pouring into short-term options?

A: They’re buying lottery tickets. A lot of people are in the markets not to invest, but to gamble. They have gambling addictions quite often, and nothing beats the instant gratification of a same-day win, even though 80% of the same-day options expire worthless. So, enter that market with caution.

Q: After artificial intelligence destroys 90% of jobs, won’t there be nobody left to buy stocks since stocks won’t go up solely on institutional buying?

A: While AI will destroy a lot of jobs, it’s creating even more jobs—that has always been the case with technology from day one. However, you do get mismatches from the time a job is destroyed to when a new one is created. There are also mismatches in skill levels and that can create turmoil in the economy. Look at the United Auto strike, which is hell-bent on stopping technology and automation—stopping any kind of technology they can. Technology in the long term always destroys jobs, but it also creates more jobs, just moving them from old economies into new industries. I’m sure the same thing went on with the hay and leather industries 120 years ago when we moved from horses to internal combustion cars.

Q: If companies go to a four-day workweek, how will that affect stocks?

A: It’ll probably make them go up. When people go to four-day work weeks, productivity goes up and companies get more output for their dollar of labor costs. That’s why it’s happening and why it’s so popular. People who work at home and get to play with their kids on weekends will work for less money—that is a proven fact.

Q: Any thoughts on when we will see the United States Natural Gas Fund (UNG) turn upward?

A: This winter. (UNG) is priced for perfection, sitting around here at the $7 level. The slightest surprise like a cold winter, for example, which we may get (at least in California we will), and then the thing will spike up.

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