Global Market Comments
October 5, 2022
Fiat Lux
Featured Trade:
(TESTIMONIAL),
(DINNER WITH DAVID POGUE),
(TSLA)
Posts
Global Market Comments
October 3, 2022
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or BET THE RANCH TIME IS APPROACHING),
(SPY), (VIX), (UUP), (TSLA), (RIVN), (USO), (TLT), (FCX), (SPY), (NVDA), (BRKB)
September is notorious as the worst month of the year for the market. Boy, did it deliver, down a gut busting 9.7%!
As for the Mad Hedge Fund Trader, September was one of the best trading months of my 54-year career. But then I knew what was coming.
So did you.
With some of the greatest market volatility in market history, my September month-to-date performance exploded to exactly +9.72%.
I used last week’s extreme volatility and move to a Volatility Index (VIX) of $34 to add longs in Freeport McMoRan (FCX), S&P 500 (SPY), NVIDIA (NVDA), and Berkshire Hathaway (BRKB). I added shorts in the (SPY) and the (TLT). That takes me to 70% long, 20% short, and 10% cash. I am holding back my cash for any kind of rally to sell into.
My 2022 year-to-date performance ballooned to +69.68%, a new high. The Dow Average is down -23.44% so far in 2022. It is the greatest outperformance on an index since Mad Hedge Fund Trader started 14 years ago. My trailing one-year return maintains a sky high +80.08%.
That brings my 14-year total return to +582.24%, some 3.03 times the S&P 500 (SPX) over the same period and a new all-time high. My average annualized return has ratcheted up to +45.45%, easily the highest in the industry.
It was in May of 2020 when 34 of my clients became millionaires through buying TESLA at precisely the right time…
Well, the stars have aligned once again!!!!
In my TESLA free report, I list 10 reasons I’d tell my grandmother to mortgage her house and go all in.
Go to MADHEDGERADIO.com and download my “Tesla takes over the world” free report…that’s
madhedgeradio.com.
At the end of the month, the market was down six days in a row. That has only happened 20 times since 1950.
However, bet the ranch time is approaching. It’s time to start scaling in in a small way into your favorite long term names where the value is the greatest.
The Fed has taken away the free put that the stock market has enjoyed for the last 13 years. Now, it’s the bond market that has the free put. Hint: always own the market where the Fed is giving you free, unlimited downside protection.
People often ask what I do for a living. I always answer, “Talking people out of selling stocks at the bottom.” Here is the cycle I see repeating endlessly. They tell me they are long term investors. Then the markets take a sudden dive, like to (SPX) $3,300, a geopolitical event takes place, and the TV networks only run nonstop Armageddon gurus. They sell everything.
Then the market turns sharply, and they helplessly watch stocks soar. When they get frustrated enough, they buy, usually near a market top.
Sell low, buy high, they are perfect money destruction machines. And they wonder why they never make money in the stock market!
If any of this sounds familiar you have a problem and need to read more Mad Hedge newsletters. The people who ignore me I never hear from again. Those who follow me stick with me for decades.
Don’t make the mistake here of only looking at real GDP growth which, in recessions, is always negative. Nominal GDP is growing like a bat out of hell, 12% in 2021 and 8% in 2022. That’s 20% in two years, nothing to be sneezed at.
The problem is that all economic data has been rendered useless by the pandemic, even for legitimate and accomplished Wall Street analysts. The US economy was put through a massive restructuring practically overnight, the long-term consequences of which nobody will understand for years. Typical is the recently released Consumer Price Index, which said that real estate prices are rocketing, when in fact they are crashing.
A lot of people have asked me about the comments from my old friend, hedge fund legend Paul Tudor Jones, that the Dow Average would show a zero return for the next decade.
For Paul to be right, technological innovation would have to completely cease for the next decade. Sitting here in the middle of Silicon Valley, I can tell you that is absolutely not happening. In fact, I’m seeing the opposite. Innovation is accelerating at an exponential rate. For goodness sakes, Apple just brought out a satellite phone with its iPhone 14 pro for a $100 upgrade!
Remember, Paul got famous, and rich, from the trades he did 40 years ago with me, not because of anything he did recently. Paul has in fact been bearish for at least five years.
Still, we have a long way to go on earnings multiples. The trailing S&P 500 market multiple is now at 19. The historic low is at 15. Current earnings are $245 per (SPX) share. The 3,000 target the bears are shouting from the rooftops assumes that a severe recession takes earnings down to $200 a share ($3,000/$200 = 15X).
I don’t think earnings will get that bad. Big chunks of the economy are still growing nicely. Companies are commanding premium prices for practically everything. There is no unemployment because the jobs market is booming.
That suggests to me a final low in this market of $3,000-$3,300. That means you can buy 15%-20% deep in-the-money vertical bull call spreads RIGHT HERE and make a killing, as Mad Hedge has done all year.
Let me plant a thought in your mind.
After easing for too long, then tightening for too long, what does the Fed do next? It eases for too long….again. You definitely want to be long stocks when that happens, which will probably start some time next year.
Let me give you one more data point. The (SPY) has been down 7% or more in September only seven times since 1950. In six of the Octobers that followed, the market was up 8% or more.
Sounds like it’s time to bet the ranch to me.
Capitulation Indicators are Starting to Flash. Cash levels at mutual funds are at all-time highs. The Bank of America Investors Survey shows the high number of managers expecting a recession since the 2020 pandemic low, the last great buying opportunity. Commercial hedgers are showing the largest short positions since 2020. And of course, my old favorite, the Volatility Index (VIX) hit $34.00 on Tuesday. The risks of NOT being invested are rising.
Bank of England Moves to Support a Crashing Pound (FXB), by flipping from a seller to a buyer in the long-dated bond market, thus dropping interest rates. The move is designed to offset the new Truss government’s plan to cut taxes and boost deficit spending. The BOE also indicated that interest rate hikes are coming. The bond vigilantes are back.
Here’s the Next Financial Crisis, massive unrealized losses in the bond market. The (TLT) alone has lost 43% in 2 ½ years. Apply that to a global $150 trillion bond market and it adds up to a lot of money. Anybody who used leverage is now gone. How many investors without swimsuits will be discovered when the tide goes out?
Will the Strong Dollar (UUP) Do the Fed’s Work, forestalling a 75-basis point rate rise? It will if the buck continues to appreciate at the current rate, up a record five cents against the British pound, taking it to a record low of $1.03. Such is the deflationary impact of weak foreign currencies, which are seriously eating into US multination earnings.
Weekly Jobless Claims Hit Five-Month Low at 195,000, far below expectations. If the Fed is waiting for the job market to roll over before it quits raising interest rates, it could be a long wait.
EV Sales to Hit New All-Time High in 2022, to 13% of global new vehicle sales, up from 9% last year. The IEA expects this figure to reach 50% by 2030. That works out to 6.6 million EVs in 2021, 9.5 million in 2022, and 36 million by 2030. Buy (TSLA), the world’s largest EV seller, and (RIVN), the fastest grower in percentage terms, on dips.
EVs Take 25% of China New Vehicle Sales, and Tesla’s Shanghai factory is a major participant. Tesla just double production there. Some 403,000 EVs were sold in China in May alone. China is also ramping up its own EV production, up 183% YOY. China is much more dependent on imported oil than other large nations, most of which goes to transportation. Global EV production is expected to soar from 8 to 60 million vehicles in five years and Tesla is the overwhelming leader. Buy (TSLA) on dips again.
Oil (USO) Hits New 2022 Low at $78 a Barrel, cheaper than pre–Ukraine War prices, thanks to exploding recession fears. Is Jay Powell the most effective weapon against Russia with his most rapid interest rate rises in history?
Consumer Sentiment Hits Record Low at 59.1 according to the University of Michigan. That’s worse than the pandemic low and the 2009 Great Recession low. It could be that politics has ruined this data source making everyone permanently negative about the future. Inflation at a 40-year high isn’t helping either, nor is the prospect of nuclear war.
Case Shiller Delivers a Shocking Fall, down from 18.7% to 16.1% in June. The other shoe is falling with the sharpest drop in this data series in history. Tampa was up (31.8%), Miami (31.7%), and Dallas (24.7%). Many more declines to come.
30-Year Fixed Rate Mortgage Hits 7.08%, up from 2.75% a year ago. You can kiss those retirement dreams goodbye. It has been the sharpest rise in mortgage rates in history. Real estate has just become an all-cash market. That screeching juddering sound you hear is the existing home market shutting down.
Pending Home Sales Drop, down 2.0% in August on a signed contract basis. Sales are down for the third month in a row and are off 24% YOY. Only the west gained. Mortgage interest rates are now at 20-year highs. Buyers catching recession fears are breaking contracts and walking away from deposits.
Stock Crash Wipes Out $9 Trillion in Personal Wealth, which is the fall in equity holdings and mutual funds as of the end of June. The drop has been from $42 to $33 trillion. The bad news: it’s still going down, putting a dent in consumer spending.
My Ten-Year View
When we come out the other side of pandemic and the recession, we will be perfectly poised to launch into my new American Golden Age, or the next Roaring Twenties. With oil in a sharp downtrend and technology hyper-accelerating, there will be no reason not to. The Dow Average will rise by 800% to 240,000 or more in the coming decade. The America coming out the other side will be far more efficient and profitable than the old. Dow 240,000 here we come!
On Monday, October 3 at 8:30 AM, the ISM Manufacturing PMI for September is released.
On Tuesday, October 4 at 7:00 AM, the JOLTS Report for private job openings for September is out.
On Wednesday, October 5 at 7:00 AM, ADP Private Employment Report for September is published.
On Thursday, October 6 at 8:30 AM, Weekly Jobless Claims are announced.
On Friday, October at 8.30 AM, the Nonfarm Payroll Report for September is disclosed. At 2:00 PM, the Baker Hughes Oil Rig Count is out.
As for me, while working for The Economist magazine in London, I was invited to interview some pretty amazing people: Margaret Thatcher, Ronald Reagan, Yasir Arafat, Zhou Enlai.
But one stands out as an all time favorite.
In 1982, I was working out of the magazine’s New York Bureau off on Third Avenue and 47th Street, just seven blocks from my home on Sutton Place, when a surprise call came in from the editor in London, Andrew Knight. International calls were very expensive then, so it had to be important.
Did anyone in the company happen to have a US top secret clearance?
I answer that it just so happened that I did, a holdover from my days at the the Nuclear Test Site in Nevada. “What’s the deal,” I asked?
A person they had been pursuing for decades had just retired and finally agreed to an interview, but only with someone who had clearance. Who was it? He couldn’t say now. I was ordered to fly to Los Angeles and await further instructions.
Intrigued, I boarded the next flight to LA wondering what this was all about. What I remember about that flight is that sitting next to me in first class was the Hollywood director Oliver Stone, a Vietnam veteran who made the movie Platoon. When Stone learned I was from The Economist, he spent the entire six hours grilling me on every conspiracy theory under the sun, which I shot down one right after the other.
Once in LA, I checked into my favorite haunt, the Beverly Hills Hotel, requesting the suite that Marilyn Monroe used to live in. The call came in the middle of the night. Rent a four-wheel drive asap and head out to a remote ranch in the mountains 20 miles east of Santa Barbara. And who was I interviewing?
Kelly Johnson from Lockheed Aircraft (LMT).
Suddenly, everything became clear.
Kelly Johnson was a legend in the aviation community. He grew up on a farm in Michigan and obtained one of the first masters degrees in Aeronautical Engineering in 1933 at the University of Michigan.
He cold called Lockheed Aircraft in Los Angeles begging for a job, then on the verge of bankruptcy in the depths of the Great Depression. Lockheed hired him for $80 a month. What was one of his early projects? Assisting Amelia Earhart with customization of her Lockheed Electra for her coming around-the-world trip, from which she never returned.
Impressed with his performance, Lockheed assigned him to the company’s most secret project, the twin engine P-38 Lightning, the first American fighter to top 400 miles per hour. With counter rotating props, the plane was so advanced that it killed a quarter of the pilots who trained on it. But it allowed the US do dominate the air war in the Pacific early on.
Kelley’s next big job was the Lockheed Constellation (the “Connie” to us veterans), the plane that entered civil aviation after WWII. It was the first pressurized civilian plane that could fly over the weather and carried an astonishing 44 passengers. Howard Hughes bought 50 just off of the plans to found Trans World Airlines. Every airline eventually had to fly Connie’s or go out of business.
The Cold War was a golden age for Lockheed. Johnson created the famed “Skunkworks” at Edwards Air Force base in the Mojave Desert where America’s most secret aircraft were developed. He launched the C-130 Hercules, which I flew in Desert Storm, the F-104 Starfighter, and the high altitude U-2 spy plane.
The highlight of his career was the SR-71 Blackbird spy plane where every known technology was pushed to the limit. It could fly at Mach 3.0 at 100,000 feet. The Russians hated it because they couldn’t shoot it down. It was eventually put out of business by low earth satellites. The closest I ever got to the SR-71 was the National Air & Space Museum in Washington DC at Dulles airport where I spent an hour grilling a retired Blackbird pilot.
Johnson greeted me warmly and complimented me on my ability to find the place. I replied, “I’m an Eagle Scout.” He didn’t mind chatting as long as I accompanied him on his morning chores. No problem. We moved a herd of cattle from one field to another, milked a few cows, and fertilized the vegetables.
When I confessed to growing up on a ranch, he really opened up. It didn’t hurt that I was also an engineer and a scientist, so we spoke the same language. He proudly showed off his barn, probably the most technologically advanced one ever built. It looked like a Lockheed R&D lab with every imageable power tool. Clearly Kelley took work home on weekends.
Johnson recited one amazing story after the other. In 1943, the British had managed to construct two Whittle jet engines and asked Kelly to build the first jet fighter. The country that could build jet fighters first would win the war. It was the world’s most valuable machine.
Johnson clamped the engine down to a test bench and fired it up surrounded by fascinated engineers. The engine immediately sucked in a lab coat and blew up. Johnson got on the phone to England and said “Send the other one.”
The Royal Air Force placed their sole remaining jet engine on a plane which flew directly to Burbank airport. It arrived on a Sunday, so the scientist charged with the delivery took the day off and rode a taxi into Hollywood to sightsee.
There, the Los Angeles police arrested him for jaywalking. In the middle of WWII with no passport, no ID, a foreign accent, and no uniform, they hauled him straight off to jail.
It took two days for Lockheed to find him. Johnson eventually attached the jet engine to a P-51 Mustang, creating the P-80, and eventually the F-80 Shooting Star (Lockheed always uses astronomical names). Only four made it to England before the war ended. They were only allowed to fly over England because the Allies were afraid the Germans would shoot one down and gain the technology.
But the Germans did have one thing on their side. The Los Angeles Police Department delayed the development of America’s first jet fighter by two days.
Germany did eventually build 1,000 Messerschmitt Me 262 jet fighters, but too late. Over half were destroyed on the ground and the engines, made of steel and not the necessary titanium, only had a ten hour life.
That evening, I enjoyed a fabulous steak dinner from a freshly slaughtered steer before I made my way home. I even helped Kelly slaughter the animal, just like I used to do on our ranch in Montana. Steaks are always better when the meat is fresh and we picked the best cuts. I went back to the hotel and wrote a story for the ages.
It was never published.
One of the preconditions of the interview was to obtain prior clearance from the National Security Agency. They were horrified with what Johnson had told me. He had gotten so old he couldn’t remember what was declassified and what was still secret.
The NSC already knew me well from our previous encounters, but MI-6 showed up at The Economist office in London and seized all papers related to the interview. That certainly amused my editor.
Johnson died at age 80 in 1990. As for me, it was just another day in my unbelievable life.
Stay healthy,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
SR-71 Blackbird
My Former Employer
Mad Hedge Technology Letter
September 30, 2022
Fiat Lux
Featured Trade:
(CARVANA ISN’T NIRVANA)
(CVNA), (KMX), (TSLA)
Avoid Carvana (CVNA) stock.
Don’t expect a quick reversal in this digital used-car dealer after the car buying frenzy over the past couple of years.
Why?
We have reached the high water mark in American automobile sales setting up a sharp cliff edge as increasingly, US consumers are either priced out of buying a new used car or have decided to drastically cut back discretionary spending on larger items.
This has sent shockwaves for used car retailer CarMax (KMX) whose stock cratered by 24% and our tech play derivative CVNA who dropped 20% when CarMax’s poor earnings report came out. The price action of these two stocks mirrors each other.
Remember that stocks are forward pricing mechanisms and not backwards to the detriment of these two stocks.
KMX and CVNA are inextricably linked and offer deep insights into the state of each other’s companies.
In a quite damaging earnings report, CarMax was able to increase its gross profit per vehicle by boosting its average vehicle sales price. That’s about all that went right. This appears more like a one-off.
Carvana has a history of overpaying for supply during the boom of used car sales over the past few years.
The numbers are clearly working against CVNA.
Even more worrisome, CVNA is facing an uncertain and rapidly deteriorating macroeconomic environment moving forward.
The data bodes ill for future earnings reports as US consumers abruptly pull back on spending especially at the middle-class to lower income levels.
Just as precarious, many in the middle class to lower echelon prefer to secure automobile loans to finance a new used car purchase.
With interest rate yields exploding to the upside, it sets the stage for not only mass automobile loan delinquency and nonpayment, but it also prices out new car shoppers by making the monthly payment too exorbitant.
There will be few buyers using bank financing to get that new used car they have always wanted. And what non-rich person has a car’s worth of cash lying around these days?
At the ground level, things are bleak.
US consumers are increasingly prioritizing paying the utility and food bills over upgrading, upsizing, or even styling their used cars.
For most US consumers, a brand new car sits in the realm of fantasy as the prices of new cars surge because of high input, logistical, and manufacturing costs. A fresh car from the factory is now a luxury many can’t afford which is why many have turned to the used market.
The worsening consumer sentiment will absolutely negatively impact the volume and nominal price of each individual car sale moving forward.
I believe the data will show up in the last quarter of 2022 and 2023.
As the price of cars falls, CVNA are stuck with a higher cost basis because they snapped up many cars at premium prices and now buyers have vacated. These car dealers’ algorithms haven’t adjusted yet to the paradigm shift.
CVNA will need to consider taking a loss on these automobile units to shed inventory otherwise they are on the hook for high carry costs.
Sadly, the short-term outlook doesn’t provide any silver linings and is getting grimmer by the day.
I fully expect gross margins to crater and nominal sales to fall sharply, causing a severe downgrading in annual revenue.
If the high-end consumer holds up, better to migrate into Tesla (TSLA) stock, but that’s a big if.
Mad Hedge Technology Letter
September 26, 2022
Fiat Lux
Featured Trade:
(DARLING TO DEMOTED)
(ARKK), (SARK), (PRNT), (IZRL), (ZM), (DNA), (TSLA)
ARK Innovation ETF (ARKK) and its infamous CEO Cathie Wood was the poster boy for tech growth as the 10-year bull market in technology shifted into high gear.
That was then and this is now.
Oh, how one full year makes a world of difference in the tech universe.
ARKK is not touted anymore as the tech fund that could do no wrong.
We, as investors, cannot recreate the world we desire by a click of a button but must roll with the punches and embrace a paradigm shift into a new normal of economic uncertainty, stagnation, de-globalization, supply chain bottlenecks, weak emerging currencies, and most important, higher interest rates.
It just so happens that the best trade out there all along has been long the US dollar to the detriment of tech stocks. Tech usually does well when the US dollar is weak.
ARK’s underperformance is finally creating a change as Wood is relinquishing her role as portfolio at 3D Printing ETF (PRNT) and ARK Israel Innovative Technology ETF (IZRL).
Recent criticism has been fierce accusing the fund of being a one-woman show with much of the hopes and dreams pinned on Wood.
Much of this has to do with her earlier success in Tesla (TSLA) which I would like to give her credit for.
However, since then, she has ridden the coattails of popularity to become a tech growth evangelist no matter what conditions.
She has often cut a polarizing figure in the world of tech investing.
ARK’s centralization of management could prove to be their downfall.
The demotion for Wood won’t be taken lightly and this also could be a way to throw the next guy under the bus as tech stocks go from bad to worse.
There have been headscratchers lately.
ARKK bought more of Zoom Video Communications Inc. (ZM) last month and I find that more of a beggar’s belief than anything else.
A pandemic darling shouldn’t be confused with a small company with no competitive advantages against big tech.
Another bizarre decision was to buy Ginkgo Bioworks Holdings Inc. (DNA), which has fallen 69% this year. The company invests in early-stage biotech companies and has lost around $1.5 billion in the first half of 2022. The company in 2021 lost $1.8 billion as well, but Wood continues to pour capital into this start-up.
The Nasdaq is now rescinding the premium they used to generously deliver for loss-making companies but fast-growing companies.
Woods hypers herself up as investing in disruptive tech, but many of her companies aren’t that disruptive and she is not aware of market cycles or market timing.
For the past year, she has proved that she is a specialist in being wrong.
ARKK needs to be careful of a meltdown instead of flashing the cash on pandemic darlings because they are cheap today.
There is a reason that many of these speculative tech firms are now cheap, it’s because they aren’t growing enough or making enough money. She still doesn’t understand that.
Expect more demotions for Wood as her pixie dust has run dry.
Buy the inverse of ARKK called AXS Short Innovation Daily ETF (SARK) after bear market rallies.
Global Market Comments
September 26, 2022
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or HOW TO TRADE THE 4TH QUARTER)
(SPY), (TLT), (AAPL), (TSLA), (RIVN)
In a mere six months, the Federal Reserve has morphed from Dr. Jekyll into Mr. Hyde.
It has changed from the stock market’s best friend to its worst enemy. Not only has the punch bowl been taken away, but it has also been smashed on the floor in a thousand pieces. A regime change has taken place in risk.
Welcome to a hostile Fed, one that utterly hates the stock market and loves cash. In fact, it loves cash so much it has raised its bid for overnight money from nothing to 4.2% in only six months. It is the fastest rise in interest rates in history.
To say that conditions have changed for the stocks would be the understatement of the century. This makes stocks less valuable, especially anything connected with growth, like technology stocks, and big borrowers, such as cruise lines.
Which raises the important question of the day: How the HECK are we going to trade the stock market in Q4?
It was in September of 2020 when 34 of my clients became millionaires buying TESLA at precisely the right time…
Well, the stars have aligned once again!!!!
In my TESLA free report, I list 10 reasons I’d tell my grandmother to mortgage her house and go all in.
Go to madhedgeradio.com and download my “Tesla Takes Over the World” free report.
Let me give you the good news first.
Q4 is likely to establish the final low for the bear market in stocks for this cycle. I don’t buy the endless years of suffering or the “lost decade” theories. Technology is just evolving too fast. It really makes no difference whether that low is at (SPX) $3,600, $3,300, or even $3,000. The best entry point for stocks in a decade will soon be at hand.
Keep in mind that with an (SPX) at $3,000 the market will be down a horrific 37.5% in a year. That is a worst-case scenario. A collapse this rapid has not happened since 1929.
This is for an economy that has seen no financial stresses whatsoever, except in crypto. This time, there are no banks going under, brokers going bust, housing crashes, or other similar stresses that drove the (SPX) down 52% by 2009.
There is nowhere near the misallocation of capital and malinvestment that we saw 15 years ago. Down 37.5% sounds like a screaming bargain to me.
The early “tell” that we are approaching the end came on Friday when the Volatility Index (VIX) hit $32.31. With any luck, it could top $40 in the coming weeks. Friday, when the Dow Average was down 800 points, we saw the largest put option buying in market history.
At that point, it will be possible for me to construct positions for you that are mathematically impossible to lose money with and offer the upside potential return of 10:1.
Once a handful of other technical indicators kick in, we’re there. This is what you should be looking for:
The (VIX) tops $40
Volume spikes
Down stocks top up ones by 90:10
The put:call ratio hits 2:1
A big intraday reversal that closes higher, like down $100 for the (SPX), up $150
Technology stocks, the most volatile sector in the market, also deliver a major turnaround
We get a dramatically lower report for the Consumer Price Index (and the next one is out October 13)
The Mad Hedge Market Timing Index falls below 10
So, what to buy this time?
With the Midterm elections now only 43 days away on Tuesday, November 8, it’s time to contemplate the implications for your retirement portfolio. The play of the decade is setting up.
Let me give you the good news first.
Whoever wins, and at this point, it really could be anyone, markets will rally after the election and power on until the end of 2022, some 10%-20%. The mere fact that the election is over is a huge market positive.
That’s the easy part.
But what if the election was held today?
The polls are telling us that the Democrats could pick up 2-3 seats in the Senate. The House now looks like a 50/50 split. Control could literally hinge on a handful of battleground states.
Suburban housewives now appear to be the great deciders.
So, what happens if the Democrats keep control of both houses, and the status quo is maintained?
For a start, taxes will be going up a lot, especially for the wealthy. Carried interest might finally make the ultimate sacrifice after coming back from the dead countless times. SALT taxes might get a break, but it is not likely. Once the government gets its hands on a revenue stream, it is loath to give it up.
It’s spending where we will see some important changes. Think more of the last two years, but in larger amounts.
Support for the Ukraine War will continue. So far, the US is getting great value for money. To eliminate the major military threat to the US and Europe for only $50 billion is the deal of the century. I’d pay ten times that.
So far, the Ukrainians are doing all the dying and we only write the checks. I greatly prefer that to a Vietnam-style commitment that bleeds us white (and by the way, I did some of that bleeding). Believe me, I’m doing everything I can to help by advising the Joint Chiefs of Staff.
The real game changer will be an alternative energy bill much larger than the last $733 billion bill. The goal will be to accelerate the decarbonization of the US, and ultimately the global economy. Of course, the free market will drive this anyway. No major automaker will be building internal combustion engines after 2030. What the government can do is to make it happen fast.
A year ago, climate change was an “it might happen someday after I’m long gone” kind of possibility. After a summer of 116 degrees in California and 114 degrees in France, “someday” has become “Yikes, it’s happening now!”
The last bill was truly misnamed as the “Inflation Reduction Act.” It really should have been called the “Tesla Shareholder Enrichment Bill”. Virtually every aspect of the bill somehow impinges on Elon Musk’s creation positively, which has been an overwhelming market leader in national electrification, enhanced EV subsidies, mass construction of charging stations, solar panels, and power walls, and decarbonization.
Since I am a major shareholder in (TSLA) and have been since the shares traded at $2.35, that’s fine with me. That probably explains why the shares are in the process of engineering a major upside breakout well before the election.
It isn’t just Tesla that will cash in. There is a broadening new leadership developing for the market to replace my technology stocks. Call it the “decarbonization sector”.
It includes EVs like Tesla (TSLA) and Rivian (RIVN), commodity stocks like copper miner Freeport McMoRan (FCX), uranium stocks like Cameco (CCJ) and the Uranium ETF (URA), solar companies like First Solar (FSLR) and SunPower (SPWR), alternative utilities like NextEra Energy (NEE), the world’s largest generator of electricity from wind and the sun, and silver plays like the iShares Silver Trust (SLV) and Wheaton Precious Metals (WPM), essential for high-efficiency wiring.
I will be adding more names to this list as I find them. Watch your research inbox.
Of course, 43 days in the political world is a couple of lifetimes in the real world, so anything can happen. A boatload of October surprises is probably just around the corner.
As for me, I’m putting more of my money into Tesla.
It all raises a new risk that we haven’t dealt with before.
What if the US government can’t afford to pay its own debt? When the last financial crisis and recession began in 2007, the US national debt was only a paltry $9 trillion, or 60% of GDP. It has since risen to $30 trillion, or 140% of GDP. Holy smokes!
That was all well and good while interest rates were dropping from 7% to zero. What happens when rates go back up from zero to 7.0%? The cost of carry for the US Treasury more than doubles as well, taking a much bigger bite of government spending, more than it can afford.
Just thought you’d like to know.
My Ten-Year View
When we come out the other side of pandemic and the recession, we will be perfectly poised to launch into my new American Golden Age, or the next Roaring Twenties. With oil peaking out soon, and technology hyper-accelerating, there will be no reason not to. The Dow Average will rise by 800% to 240,000 or more in the coming decade. The America coming out the other side will be far more efficient and profitable than the old. Dow 240,000 here we come!
With some of the greatest market volatility in market history, my September month-to-date performance maintained at +1.68%.
I used last week’s extreme volatility to add shorts in Apple (AAPL), the S&P 500 (SPY), and the United States US Treasury bond fund (TLT). That takes me to 30% long, 30% short, and 40% cash. I am holding back my cash for a truly cataclysmic market selloff.
My 2022 year-to-date performance ballooned to +61.64%, a new high. The Dow Average is down -18.48% so far in 2022. It is the greatest outperformance on an index since Mad Hedge Fund Trader started 14 years ago. My trailing one-year return maintains a sky-high +72.06%.
That brings my 14-year total return to +574.20%, some 2.86 times the S&P 500 (SPX) over the same period and a new all-time high. My average annualized return has ratcheted up to +44.74%, easily the highest in the industry.
On Monday, September 26 at 8:30 AM, the Chicago Fed National Activity Index for August is released.
On Tuesday, September 26 at 7:00 AM, the Durable Goods Index for August is out. New Home Sales are also printed.
On Wednesday, September 28 at 7:00 AM, Pending Home Sales for August are published.
On Thursday, September 29 at 8:30 AM, Weekly Jobless Claims are announced. We also learn the final report for US Q2 GDP.
On Friday, September 30 at 7:00 AM, the Personal Income and Spending are disclosed. At 2:00 the Baker Hughes Oil Rig Count is out.
As for me, I’ve found a new series on Amazon Prime called 1883. It is definitely NOT PG rated, nor is it for the faint of heart. But it does remind me of my own cowboy days.
When General Custer was slaughtered during his last stand at the Little Big Horn in 1876 in Montana, my ancestors spotted a great buying opportunity. They used the ensuing panic to pick up 50,000 acres near the Wyoming border for ten cents an acre.
Growing up as the oldest of seven kids, my parents never missed an opportunity to farm me out with relatives. That’s how I ended up with my cousins near Broadus, Montana for the summer of 1966.
When I got off the Greyhound bus in nearby Sheridan, I went into a bar to call my uncle. The bartender asked his name and when I told him “Carlat”, he gave me a strange look.
It turned out that my uncle had killed someone in a gunfight in the street out front a few months earlier, which was later ruled self-defense. It was the last public gunfight seen in the state, and my uncle hasn’t been seen in town since.
I was later picked up in a beat-up Ford truck and driven for two hours down a dirt road to a log cabin. There was no electricity, just kerosene lanterns and a propane-powered refrigerator.
Welcome to the 19th century!
I was hired as a cowboy, lived in a bunk house with the rest of the ranch hands, and was paid the princely sum of a dollar an hour. I became popular by reading the other cowboys newspapers and their mail since they were all illiterate. Every three days we slaughtered a cow to feed everyone on the ranch. I ate steak for breakfast, lunch, and dinner.
On weekends, my cousins and I searched for Indian arrowheads on horseback, which we found by the shoe box full. Occasionally, we got lucky finding an old rusted Winchester or Colt revolver just lying out on the range, a remnant of the famous battle 90 years before. I carried my own six-shooter to help reduce the local rattlesnake population.
I really learned the meaning of work and developed callouses on my hands in no time. I had to rescue cows trapped in the mud (stick a burr under their tail and make them mad), round up lost ones, and sawed miles of fence posts. When it came time to artificially inseminate the cows with superior semen imported from Scotland, it was my job to hold them still. It was all heady stuff for a 15-year-old.
The highlight of the summer was participating in the Sheridan Rodeo. With my uncle being one of the largest cattle owners in the area, I had my pick of events. So, I ended up racing a chariot made from an old oil drum, team roping (I had to pull the cow down to the ground), and riding a brahman bull. I still have a scar on my left elbow from where a bull slashed me, the horn pigment clearly visible.
I hated to leave when I had to go home and back to school. But I did hear that the winters in Montana are pretty tough.
It was later discovered that the entire 50,000 acres were sitting on a giant coal seam 50 feet thick. You just knocked off the topsoil and backed up the truck. My cousins became millionaires. They built a modern four-bedroom house closer to town with every amenity, even a big screen TV. My cousin also built a massive vintage car collection.
During the 2000s, their well water was poisoned by a neighbor’s fracking for natural gas, and water had to be hauled in by truck at great expense. In the end, my cousin was killed when the engine of the classic car he was restoring fell on top of him when the rafter above him snapped.
It all gave me a window into a lifestyle that was then fading fast. It’s an experience I’ll never forget.
Stay healthy,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Global Market Comments
September 23, 2022
Fiat Lux
Featured Trade:
(SEPTEMBER 21 BIWEEKLY STRATEGY WEBINAR Q&A),
(SPY), (INTC), (NVDA), (AMD), (MU) (TBT), (TLT), (AMGN),
(VIX), (CHPT), (TSLA), (GS), (BAC), (MS), (JPM), (USO), (TLT)
