Global Market Comments
January 8, 2025
Fiat Lux
2025 Annual Asset Class Review
A Global Vision
FOR PAID SUBSCRIBERS ONLY
Featured Trades:
(SPY), (QQQ), (IWM), (GS), (MS), (JPM), (BAC), (C), (BLK),
(TLT), (TBT), (JNK), (PHB), (HYG), (MUB), (LQD), (FXE), (FXY), (FXB), (FXE), (FXA)
(FCX), (BHP), (RIO), (VALE), (DBA), (DIG), (USO), (DUG), (UNG), (USO),
(XLE), (LNG), (CCJ), (VST), (SMR), (GLD), (DGP), (SLV), (PPTL), (PALL),
(ITB), (LEN), (KBH), (PHM), (DHI)
I am once again writing this report from a first-class sleeping cabin on Amtrak’s legendary California Zephyr.
By day, I have a comfortable seat next to a panoramic window. At night, they fold into two bunk beds, a single and a double. There is a shower, but only Houdini can navigate it.
I am anything but Houdini, so I foray downstairs to use the larger public hot showers. They are divine.
We are now pulling away from Chicago’s Union Station, leaving its hurried commuters, buskers, panhandlers, and majestic great halls behind. I love this building as a monument to American exceptionalism.
I am headed for Emeryville, California, just across the bay from San Francisco, some 2,121.6 miles away. That gives me only 56 hours to complete this report.
I tip my porter, Raymond, $100 in advance to make sure everything goes well during the long adventure and to keep me up to date with the onboard gossip.
The rolling and pitching of the car is causing my fingers to dance all over the keyboard. Microsoft’s Spellchecker can catch most of the mistakes, but not all of them.
Chicago’s Union Station
As both broadband and cell phone coverage are unavailable along most of the route, I have to rely on frenzied Internet searches during stops at major stations along the way, like Omaha, Salt Lake City, and Reno, to Google obscure data points and download the latest charts.
You know those cool maps in the Verizon stores that show the vast coverage of their cell phone networks? They are complete BS.
Who knew that 95% of America is off the grid? That explains so much about our country today.
I have posted many of my favorite photos from the trip below, although there is only so much you can do from a moving train and an iPhone 16 Pro.
Somewhere in Iowa
The Thumbnail Portfolio
Equities – buy dips, but sell rallies too
Bonds – avoid
Foreign Currencies – avoid
Commodities – avoid
Precious Metals – avoid
Energy – avoid
Real Estate – avoid
1) The Economy – Cooling
I expect a modest 2.0% real GDP growth with a 4.0% inflation rate, giving an unadjusted shrinkage of the economy of negative -2% for 2025. That is down from 0% in in 2024. This may sound discouraging, but believe me, this is the optimistic view. Some of my hedge fund buddies are expecting a zero return over the next four years.
Virtually all independent economists expect the new administration's economic policies will be a drag on both the US and global economies. Trade wars are bad for everyone. When your customers are impoverished, your own business turns south. This is a big deal, since the Magnificent Seven, which accounted for 70% of stock market gains last year, get 60% of their profits from abroad.
The ballooning National Debt is another concern. The last time Trump was in office, he added $10 trillion to the deficit through aggressive tax cuts and spending increases. If this time, he adds another $10-$15 trillion, the National Debt could reach $50 trillion by 2030.
There are two issues here. For a start, Trump will find it a lot harder and more expensive to fund a National Debt at $50 trillion than $20 trillion. Second, borrowing of this unprecedented magnitude, double US GDP, will send interest rates soaring, causing a recession.
The only question then is whether this will be a pandemic-style recession, which took stocks down 30% and recovered quickly, or a 2008 recession which demolished stocks by 52% and dragged on for years.
Hope for the best but expect the worst, unless you want to consider a future career as an Uber driver.
2) Equities – (SPY), (QQQ), (IWM), (GS), (MS), (JPM), (BAC), (C), (BLK)
The outlook for stocks for 2025 is pretty simple. You are going to have to work twice as hard to make half the money you did last year with twice the volatility. You will not be able to be as nowhere near aggressive in 2025 as you were in 2024 It’s a dream scenario for somebody like me. For you, I’m not so sure.
It’s not that US companies aren't growing gangbusters. I expect 2% GDP growth, 15% profit growth, and 12% net margin growth in 2025. But let’s face reality. Stocks are the most expensive they have been in 17 years and we know what happened after 2008. Much of the stock market gain achieved last year was through hefty multiple expansions. This is not good.
Big tech companies might be able to deliver 20% gains and are still the lead sector for the market. Normally that should deliver you a 15%, or $800 gain in the S&P 500 (SPX). We might be able to capture this in the first half of 2025.
Financials will remain the sector with the best risk/reward, and I mean the broader definition of the term, including banks, brokers, money managers, and some small-cap regional banks. The reason is very simple. Their income statements will get juiced at both ends as revenues soar and costs plunge, thanks to deregulation.
No passage of new laws is required to achieve this, just a failure to enforce existing ones. The hint for this is a new SEC chair whose primary interest is promoting the Bitcoin bubble. Buy (GS), (MS), (JPM), (BAC), (C), and (BLK).
However, this is anything but a normal year. Uncertainty is at an eight-year high, thanks to an incoming administration. If the promised policies are delivered, inflation will soar and interest rates will rise, as they already have. We could lose half or all of our stock market gains by the end of 2025.
The big “tell” for this was the awful market performance in December, down 5%. The Dow Average was down ten days in a row for the first time in 70 years. Santa Claus was unceremoniously sent packing. People Are clearly nervous. But then they should be with a bull market that is approaching a decrepit five years in age.
There is a bullish scenario out there and that has Trump doing absolutely nothing in 2025, either because he is unwilling or unable to take action. After all, if the economy isn’t actually broken, why fix it? Better yet, if you own an economy it is better not to break it in the first place.
Nothing substantial can pass Congress with a minuscule one-seat majority in the House of Representatives. There will be no new presidential action through tariffs and only a few token, highly televised deportations, not enough to affect the labor market.
Stocks will not only hold, but they may add to the 15% first-half gains for the year. I give this scenario maybe a 50% probability.
The first indication this is happening is when the presidential characterization of the economy flips in a few months from the world’s worst to the world’s best with no actual change in the numbers. Trump will take all the credit.
You heard it here first.
3) Bonds (TLT), (TBT), (JNK), (PHB), (HYG), (MUB), (LQD)
Amtrak needs to fill every seat in the dining car to get everyone fed on time, so you never know who you will share a table with for breakfast, lunch, or dinner.
There was the Vietnam Vet Phantom Jet Pilot who now refused to fly because he was treated so badly at airports. A young couple desperately eloping from Omaha could only afford seats as far as Salt Lake City. After they sat up all night, I paid for their breakfast.
A retired British couple was circumnavigating the entire US in a month on a “See America Pass.” Mennonites returned home by train because their religion forbade travel by automobiles or airplanes.
The big question to ask here after a 100-basis point rise in bond yields in only three months is whether the (TLT) has suffered enough. The short answer is no, not quite yet, but we’re getting close. Fear of Trump policies should eventually take ten-year US Treasury bond yields to 5.00%, and then we will be ready for a pause at a nine-month bottom. After that, it depends on how history unfolds.
If Trump gets everything he wants, inflation will soar, bonds will crash, and 5.00% will be just a pit stop on the way to 6.00%, 7.00%, and who knows what? On the other hand, if Trump gets nothing he says he wants, then both bonds stocks and bonds will rise, creating a Goldilocks scenario for all balanced portfolios and investors.
That also sets up a sweet spot for entry into (TLT) call spreads close to 5.00% yields. A politician campaigning on one policy, then doing the opposite once elected? Stranger things have happened. The black swans will live.
A Visit to the 19th Century
4) Foreign Currencies (FXE), (EUO), (FXC), (FXA), (YCS), (FXY), (CYB)
If your basic assumption for interest rates is that they stay flat or rise, then you have to love the US dollar. Currencies are all about expected interest rate differentials and money always pours into the highest-paying ones. Tariffs will add fat to the fire because any reduction in international trade automatically reduces American trade deficits and is therefore pro-dollar.
This means that you should avoid all foreign currency plays like the plague, including the Euro (FXE), Japanese yen (FXY), British Pound (FXB), Canadian dollar (FXE), and Australian dollar (FXA).
A strong greenback comes with pluses and minuses. It makes our exports expensive and less competitive and therefore creates another drag on the economy. It demolishes traditional weak dollar plays like emerging markets and precious metals. On the other hand, it attracts substantial foreign investments into US stocks and bonds, which has been continuing for the past decade.
Above all, be happy you are paid in US dollars. My foreign clients are getting crushed in an increasingly expensive world.
5) Commodities (FCX), (BHP), (RIO), (VALE), (DBA)
Look at the chart of any commodity stock and you see grim death. Freeport McMoRan (FCX), BHP (BHP), and Rio Tinto (RIO), they’re all the same. They’re all afflicted with the same disease, over-dependence on a robustly growing China, which isn’t growing robustly, if at all.
I firmly believe that this will continue until the current leadership by President Xi Zheng Ping ends. He has spent the last decade globally expanding Chinese interests, engaging in abusive trade practices, hacking, and attacking American allies like Taiwan and the Philippines. You can only wave a red flag in front of the US before it comes back to bite you. A trade war with the US is now imminent.
This will happen sooner than later. The Chinese people don’t like being poor for very long. This is why I didn’t get sucked in on the Chinese long side in the fall, as many hedge funds did.
If China wants to go back to playing nice, as they did in the eighties and nineties, China should return to return to high growth and commodities will look like great “Buys” down here. If they don’t, American growth alone should eventually pull commodities up, as our economy is now growing at a long-term average gross unadjusted 6.00% rate. So the question is how long this takes.
It may pay to start nibbling on the best quality bombed-out names now, like those above.
6) Energy (DIG), (USO), (DUG), (UNG), (USO), (XLE), (LNG), (CCJ), (VST), (SMR)
Energy was one of the worst-performing sectors in the market for the second year in a row and 2025 is looking no better. New supplies are surging, while demand remains stuck in the mud, with the US now producing an incredible 13.5 million barrels a day. OPEC is dead.
EVs now make up 10% of the US auto fleet, and much more in other countries, are making a big dent. Some 50% of all new car sales in China, the world’s largest market, are EVs. The number of barrels of oil needed to increase a unit of American GDP is plunging, as it has done for 25 years, through increased efficiencies. Remember your old Lincoln Continental that used to get eight miles per gallon? Now it gets 27.
Worse yet, a major black swan hovers over the sector. If the Ukraine War somehow ends, some ten million barrels a day of Russian oil will hit the market. Oil prices should plunge to $50 a barrel.
There are always exceptions to the rule, and energy plays not dependent on the price of oil would be a good one. So is natural gas, which will benefit from Cheniere Energy’s (LNG) third export terminal coming online, increasing exports to China. Ukraine cutting off Russian gas flowing to Europe will assure there is plenty of new demand.
But I prefer investing in sectors that have tailwinds and not headwinds. Better leave energy to the pros who have the inside information they need to make money here.
If someone is holding a gun to your head tell you that you MUST invest in energy, go for the new nuclear plays like (CCJ), (VST), and (SMR). We are only at the becoming of the small modular reactor trend, which could accelerate for decades.
7) Precious Metals (GLD), (DGP), (SLV), (PPTL), (PALL)
The train has added extra engines at Denver, so now we may begin the long laboring climb up the Eastern slope of the Rocky Mountains.
On a steep curve, we pass along an antiquated freight train of hopper cars filled with large boulders.
The porter tells me this train is welded to the tracks to create a windbreak. Once, a gust howled out of the pass so swiftly, that it blew a passenger train over on its side.
In the snow-filled canyons, we saw a family of three moose, a huge herd of elk, and another group of wild mustangs. The engineer informs us that a rare bald eagle is flying along the left side of the train. It’s a good omen for the coming year.
We also see countless abandoned 19th-century gold mines and the broken-down wooden trestles leading to huge piles of tailings, relics of previous precious metals booms. So, it is timely here to speak about the future of precious metals.
We certainly got a terrific run on precious metals in 2025, with gold at its highs up 33% and silver up 65%. The miners did even better. Even after the post-election selloff, it was still one of the best-performing asset classes of the year.
But the heat has definitely gone out of this trade. The prospect of higher interest rates for longer in 2025 has sent short-term traders elsewhere. That’s because the opportunity cost of owning precious metals is rising since they pay no interest rates or dividends. And let’s face it, there was definitely new competition for hot money from crypto, which doubled after the election.
The sector is not dead, it is resting. Central bank buying of the barbarous relic continues unabated, especially among sanctioned countries, like Russia and China. Gold is still the principal savings vehicle for many Chinese. They are not going to recover confidence in their own currency, banks, or government anytime soon. And there is still slow but steadily rising industrial demand from solar sectors.
Gold supply has also been falling for years, while costs are rising at least at double the headline inflation rate. So it’s just a matter of time before the supply/demand balance comes back in our favor. Where the final bottom is anyone’s guess as gold lacks the traditional valuation parameters of other asset classes, like dividends or interest paid. We’ll just have to wait for Mr. Market to tell us, who is always right.
Give (GLD), (SLV), (GDX), (GOLD), and (WPM) a rest for now but I’ll be back.
Crossing the Great Nevada Desert Near Area 51
8) Real Estate (ITB), (LEN), (KBH), (PHM), (DHI)
The majestic snow-covered Rocky Mountains are behind me. There is now a paucity of scenery, with the endless ocean of sagebrush and salt flats of Northern Nevada outside my window, so there is nothing else to do but write.
My apologies in advance to readers in Wells, Elko, Battle Mountain, and Winnemucca, Nevada.
It is a route long traversed by roving bands of Indians, itinerant fur traders, the Pony Express, my own immigrant forebearers in wagon trains, the Transcontinental Railroad, the Lincoln Highway, and finally US Interstate 80, which was built for the 1960 Winter Olympics at Squaw Valley, California.
Passing by shantytowns and the forlorn communities of the high desert, I am prompted to comment on the state of the US real estate market.
Real estate was a nice earner for us in 2024 in the new homes sector. The election promptly demolished this trade with the prospect of higher interest rates for longer. Expect this unwelcome drag to continue in 2025.
I am not expecting a housing crash unless interest rates take off. More likely it will continue to grind sideways on low volume. That’s because the market has support from a structural shortage of 10 million homes in the US, the debris left over from the 2008 housing crash. That’s why there is still a Millennial living in your basement. Homebuilders now prioritize profit margins over market share.
I expect this sector to come back someday. New homebuilders have the advantage of offering free upgrades and discounted in-house financing. Avoid for now (DHI), (KBH), (TOL), and (PHM).
9) Postscript
We have pulled into the station at Truckee amid a howling blizzard.
My loyal staff have made the ten-mile trek from my estate at Incline Village to welcome me to California with a couple of hot breakfast burritos and a chilled bottle of Dom Perignon Champagne, which has been cooling in a nearby snowbank. I am thankfully spared from taking my last meal with Amtrak.
After that, it was over legendary Donner Pass, and then all downhill from the Sierras, across the Central Valley, and into the Sacramento River Delta.
Well, that’s all for now. We’ve just passed what was left of the Pacific mothball fleet moored near the Benicia Bridge (2,000 ships down to six in 80 years). The pressure increase caused by a 7,200-foot descent from Donner Pass has crushed my plastic water bottle. Nice science experiment!
The Golden Gate Bridge and the soaring spire of Salesforce Tower are just coming into view across San Francisco Bay.
A storm has blown through, leaving the air crystal clear and the bay as flat as glass. It is time for me to unplug my MacBook Pro, iPad, and iPhone, pick up my various adapters, and pack up.
We arrive in Emeryville 45 minutes early. With any luck, I can squeeze in a ten-mile night hike up Grizzly Peak tonight and still get home in time to watch the ball drop in New York’s Times Square on TV.
I reach the ridge just in time to catch a spectacular pastel sunset over the Pacific Ocean. The omens are there. It is going to be another good year.
I’ll shoot you a Trade Alert whenever I see a window open at a sweet spot on any of the dozens of trades described above, which should be soon.
Good luck and good trading in 2025!
John Thomas
The Mad Hedge Fund Trader
Global Market Comments
December 13, 2024
Fiat Lux
Featured Trade:
(WEDNESDAY, JANUARY 22, 2025 ST AUGUSTINE FLORIDA STRATEGY LUNCHEON)
(DECEMBER 11 BIWEEKLY STRATEGY WEBINAR Q&A),
(BLK), (BAC), (GME), (TSLA), (META),
(AMZN), (WBA), (TSLA), (BITO), (USO), (LCID)
Below, please find subscribers’ Q&A for the December 11 Mad Hedge Fund Trader Global Strategy Webinar, broadcast from Lake Tahoe, Nevada.
Q: I was assigned options—called away on both my short-call positions in BlackRock (BLK) and Bank of America (BAC).
A: What you do there is call your broker and exercise your long to cover your short; that should get you 100% of the profit 10 days ahead of expiration, and that is the best way to get out of that position. If you get hit with the dividend, then you're at break-even on the total trade. The way to get around this is you have 10 positions, including several non-dividend paying positions, so you don't have a call-away risk. You really only have about a 1 in 100 chance to get called away, so it's worth doing. If the worst case is you break even, the best case is you make 15% or 20% on the position in a month. That is worth doing.
Q: What do you think of the situation in Syria?
A: We don't know. For us, it's a huge win because it eliminates the last Russian position in the Middle East. They have lost Egypt, Syria, Iraq, and at one point Algeria—so they have no more positions in the Middle East. They lose all their air bases, military bases, and naval bases in Syria, and they also lose their only warm water port in the Mediterranean. It happened because they couldn't afford to draw troops away from Ukraine to help support Syria. Given the choice between Syria and Ukraine, they'll pick Ukraine. It is another argument for the US to maintain support for Ukraine.
The trouble is in the Middle East, whenever you get a chance, you often end up getting somebody else that's worse. Did we just trade one terrorist for another one? We'll have to wait and see. Fortunately, this war didn't cost us any money. It cost Russia a lot. We had no troops in Syria and no weapons commitments, so we got off easily on this one. It’s probably the most important foreign policy achievement of the last four years.
In the meantime, we're destroying all their weapons stockpiles, just in case the new people coming in are bad guys. We'd rather not wait until after they identify themselves as bad guys—we might as well destroy all the weapons now while nobody is defending them. So, as I speak, we're destroying weapons stockpiles for its ships and rocket facilities. Also, this is a huge loss for Iran because they lose easy sea access to Gaza. They used to just truck weapons to the coast in Lebanon, put them on a boat, and send them to Gaza. Now, they have to go all the way around Africa to supply Gaza. So basically it's a huge win for us, and I'll write more about that in the Monday letter.
Q: Do the spread positions need to be actively closed out to achieve profits?
A: No, they don't. You don't have to touch them. That's the beauty of these positions. All ten I expect to expire in the money at maximum profit point, and on the following Monday morning opening, you will find that the margin is freed up, the cash profit is credited to your account, and you're in a 100% cash position. So don't do anything, even if your broker will tell you to individually buy and sell the individual legs and wipe out your profit. I sent out a research piece on this today about how to handle when calls are called away.
Q: I sold BlackRock (BLK) last week because Schwab called and warned me I could owe $6,000 due to the dividend. They did not suggest I close my long position.
A: Again, it goes back to how to handle option call-aways. The only reason they call you is to eliminate any liability for Charles Schwab because, in the past, people would get options called away, they'd say my broker never told me, and they sued the broker. So, the reason they emailed you and called you with warnings is to avoid liability for themselves. In actual fact, only 1 out of 100 different options actually get called away. It's done randomly by a computer, and you're far better off holding the position. And then, if you do get called away, use your long to exercise your short. It's a perfectly hedged position, so you have no actual outright risk. The only real risk is if you don't check your email every day and you don't know you've been called away, so you don't call your broker to exercise your long to cover your short.
Q: Do you envision other countries trending towards more tariffs? How would that affect global growth?
A: Any time we raise a tariff on another country, they're going to raise by an equal amount, and it becomes a perfect growth destruction machine. That's why every economic agency in the world is predicting lower growth for next year.
Q: Why are stocks so expensive? Can the high prices be an impediment for new investors to participate or not?
A: It's obviously not an impediment because we're at an all-time high, and we keep going to new all-time highs. Most investors, not just a few, are still underweight stocks, and they're chasing the market. I predicted this would happen all year basically, and now it's happening, and we're 100% invested in making a fortune. So that's what happens when you make big predictions far into the future, and they happen.
Q: What do you think about meme stocks like GameStop (GME)?
A: Don't bother with the meme stocks like GameStop when the good stuff like Tesla (TSLA), Meta (META), and Amazon (AMZN) are going up like a rocket. Why buy the garbage when the high-quality stuff is doing well? And, of course, most of the people buying that stuff, the meme stocks, are kids who don't know what the good stuff is, but they'll find out someday.
Q: If you like Japanese cars, what do you think of Korean cars and, therefore, those companies’ stocks?
A: I don't like them. When you take your Tesla in for a service, sometimes you get a KIA in return. Ouch. You can literally hear every bolt rattle as you drive down the freeway, and you leave behind a trail of parts; the quality difference is enormous.
Q: How do you determine the limit price on spread trades?
A: I don't like making less than a 5% profit in a month. It's just not worth the risk. So let's say if I do a trade alert at $9.00, I'll create a spread of, say, $9.00, $9.10, $9.20, $9.30, $9.40, and that's it. We tell people to not pay more than $9.40. Before we told people not to do that, they used to buy at market, and they would end up paying $10.00 for a $10.00 spread, and it is absolutely not worth it. That is the reason we do that.
Q: I have trouble getting your recommended price.
A: When we put out a trade alert, and 6,000 people are trying to do it at once, you'll never get the recommended price. You may get it at the close because a lot of the high-frequency traders that pile into these positions and pay the maximum price have to be out of that position by the end of the day, so they often dump their positions at the close. And if you just leave your limit order in there, it'll get filled. If it doesn't get filled at the close, it will get filled at the opening the next morning. So that's why I'm telling people on every alert now to put in a spread, put in good-until-cancelled orders, and most of the time, you'll get some or all of those orders done. That is a good way to make money; if you don't believe me, just go to our testimonials page (click here), where hundreds of people have sent in recommendations on their experience.
Q: What do you think about crypto here (BITO)?
A: I wouldn't touch it with a 10-foot pole. The time to get involved in crypto was when it was at $6,000 two years ago, not at $100,000 now. And when the quality is trading and rising up almost every day, why bother with crypto? You'd never know if your custodian is going to steal your position. And by the way, if anyone knows an attorney expert at recovering stolen crypto, please send me their name because I have a few clients who took someone else's advice, invested in crypto, and had their accounts completely wiped out.
Q: Should I bet big on oil stocks (USO) because of the possible deregulation starting in 2025?
A: Absolutely not. “Drill, baby, drill” means oil glut—lower oil prices, which is terrible for oil companies, so you shouldn't touch them. The only plus for oil under the new administration is they'll probably refill the Strategic Petroleum Reserve in Texas and Louisiana from the current 425 million barrels to 700 million barrels by buying on the open market and enriching the oil companies.
Q: Would you sell long-term holds in pharma stocks?
A: No. If it's a long-term hold, your holding will survive the new administration. They'll probably go back up starting from a year going into the next election unless they find ways to deal with the current administration. But if you're in the vaccine business and the head of Health and Human Services is a lifetime anti-vaxxer, that is not going to be good for business, no matter how you cut it, sorry.
Q: Why is Walgreens (WBA) doing so poorly?
A: Terrible management and too late getting into online commerce. The service there is terrible. Every time I go to Walgreens to get a prescription filled, there's a line a mile long. It seems to be a dying company. Someone actually is making a takeover offer for the company today, so I would stand aside on that.
Q: Is Tesla (TSLA) risky?
A: Any stock that's tripled in four months is risky. But the rule of thumb with Tesla is that it always goes up more than you expect and then down more than you expect. Here is where high risk means high reward. My $1,000 target is now looking pretty good.
Q: If you're receiving Global Trading Dispatch, do you get the stock option service?
A: Yes, every trade alert we send out gives you the choice of a stock, an ETF, or an option to buy to take advantage of that alert.
Q: The EV stock Lucid (LCID) just got an analyst upgrade, but the chart looks terrible. Should I buy this cheap stock?
A: Absolutely not. Never confuse “gone down a lot" with “cheap.” Lucid only exists because it's supported by the Saudi royal family. They own about 75% of the company. They have no chance of ever competing with Tesla. Period. End of story.
Q: I have LEAPS on Google (GOOG), Amazon (AMZN), and Microsoft (MSFT). They expire in January, February, and March.
A: I would keep all of those—those are all good stocks. I expect them to keep rising at least until January 20th. After that, the Trump administration may announce antitrust actions against all three of these companies, but you'll probably have most of your profit by then. So from here on, if I had longs in all of these companies, I would definitely run them over the holidays because you'll probably get another pop sometime in January.
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, TECHNOLOGY LETTER, or JACQUIE'S POST, then WEBINARS, and all the webinars from the last 12 years are there in all their glory.
Good Luck and Good Trading.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Global Market Comments
November 22, 2024
Fiat Lux
Featured Trade:
(WEDNESDAY, JANUARY 22, 2025 ST AUGUSTINE FLORIDA STRATEGY LUNCHEON)
(NOVEMBER 20 BIWEEKLY STRATEGY WEBINAR Q&A),
(NVDA), (TSLA), (TLT), (OXY), (SLB), (MSTR), (USO), (PLTR), (SMCI), (KRE), (SMR), (UUP)
Below, please find subscribers’ Q&A for the November 20 Mad Hedge Fund Trader Global Strategy Webinar, broadcast from Lake Tahoe, Nevada.
Q: What are your stock recommendations for the end of the first quarter of 2025?
A: I say run with the winners. Dance with the girl who brought you to the dance. I think portfolio managers are going to be under tremendous pressure to buy winners and sell losers. And, of course, you all know the winners—they’re the stocks I have been recommending all year, like Nvidia (NVDA), Tesla (TSLA), and so on. And they're going to sell losers like energy to create the tax losses to offset their gains in the technology area. That could continue well into next year. Although, we’ve probably never entered a new administration with more uncertainty at any time in history, except maybe during the Civil War. I don’t think it will get as bad as that, but it could be bad.
Q: Is Putin bluffing about nuclear war?
A: Yes. First of all, Russia has 7,000 nuclear weapons, but only maybe 200 of those work. If he does use nuclear weapons, Ukraine will use its nuclear weapons in retaliation. During the Soviet Union, where did the Soviet Union make all their nuclear weapons? In Ukraine. That's where they had the scientists. They certainly have the Uranium—that's the hard part. You could literally put one together in days if you had the right expertise around. This will never go nuclear, and Putin has always been all about bluffing. There's a reason why the world's greatest chess masters are all Russian; it's all about the art of bluffing. So that doesn't worry me at all.
Q: Will Russia sacrifice a higher and higher percentage of its population in the war?
A: Yes, that is the military strategy: keep throwing bodies at your enemy until they run out of bullets.
Q: What is your prediction for 30-year US Treasury yields (TLT)?
A: They go higher. Higher for longer certainly includes the 30-year. The 30-year will be the most sensitive to long-term views of interest rates. If you get a return of inflation, which many people are predicting, the 30-year gets absolutely slaughtered. Adding a potential $10 trillion to the national debt, taking it to $45 trillion, is terrible for debt instruments everywhere.
Q: Should we be exiting the LEAPS that you put out on Occidental Petroleum (OXY) and Schlumberger (SLB)?
A: For Occidental, I would say maybe; it’s already at a low. The outlook for oil prices is poor, with massive new production coming on stream. Regarding Schlumberger, they make their money on the volume of oil production—that probably is going to be a big winner.
Q: What do you think interest rates will do as we go into the end of Powell's term in 18 months?
I have no idea. It just depends on how fast inflation returns. My guess is that we'll get an out-of-the-blue sharp uptick in inflation in the next couple of months, and when that happens, stocks will get slaughtered. People assume that inflation just keeps going up forever after that.
Q: Crude oil (USO) has been choppy at around $70 a barrel. Where do you see it going next year?
A: My immediate target is $60, and possibly lower than that. It just depends on how fast deregulation brings on new oil supplies, especially from the federal lands that have been promised to be opened up. As it turns out, the federal government owns most of the western United States—all the national forests and so on. If you open that up to drilling, it could bring huge supplies onto the market. That would be deflationary. It would be death for oil companies, but it would be a death for OPEC as well. Every cloud has a silver lining. OPEC has been a thorn in my side for the last 60 years.
Q: I'm tempted to buy stocks that are flying up, like Palantir (PLTR) and MicroStrategy (MSTR). What would be an experienced investor trade in these situations?
A: Don't touch them with a 10-foot pole. You buy stocks before they fly up, not afterwards. By the way, if anyone knows of an attorney who is an expert at recovering stolen Crypto, please contact me. I have several clients who've had their crypto accounts cleaned out. Oh, and by the way, the heads of every major crypto exchange have been put in jail in the last three years. Imagine if the heads of Goldman Sachs, Morgan Stanley Fidelity, and Vanguard were all put in jail for fraud and theft? How many stocks would you want to buy after that? Not a lot.
Q: Your recommendations for AI and chips?
A: I think you get a slowdown. In order to buy the new plays in banks, brokers, and money managers, you need to sell the old plays. Those are going to be technology stocks and AI stocks—AI itself will keep winning. They will keep advancing, but the stocks have become extremely expensive. And everyone is waiting to see how anti-technology the new administration will be. Some of the early appointments have been extremely anti-technology, promising to rein in big tech companies. If you rein in big tech companies, you rein in their stock prices, too. I am being very cautious here. The next spike up in Nvidia (NVDA) might be the one you want to sell.
Q: Do you think the uranium play will continue under the new administration?
A: Absolutely, yes. Restrain the Nuclear Regulatory Commission, and costs for the new nuclear starts up like (SMR) go way down.
Q: What do you think of NuScale Power Corp (SMR)?
A: I love it. Again, deregulation is the name of the game—and if you lose a city by accident, tough luck. Let's just hope it happens somewhere else. It's only happened three times before… Three Mile Island, Chernobyl, and Fukushima.
Q: Super Micro Computer (SMCI), what do you think?
A: Don't touch it. There's never just one cockroach. Hiring a new auditor to find out how much money they misrepresented is not a great buy argument to buy the stock. I'm sorry. Very high risk if you get involved.
Q: If Nvidia (NVDA) announces great earnings but sells off anyway, what should I do?
A: Get rid of it and get rid of all your other technology stocks because this is the bellwether for all technology. Tech always comes back over the long term, but short term, they may continue going nowhere as they have done for the last six months, which correctly anticipated a Trump win. Trump is not a technology guy— he hates California. Any California-based company can't expect any favors except for Tesla.
Q: Is there any reason why you prefer in-the-money bull call spreads?
A: Well, there are lots of reasons. Number 1, it's a short volatility play. Number 2 it's a time decay play, which is why I only do front months because that's when the time decay is accelerated. Thirdly, it allows you to increase your exposure to the stock by tenfold, which brings in a much bigger profit when you're right. If you look at our trade alerts, we make 15% to 20% on every trade, and 200 trades a year adds up to a lot of money. You can see that with our 75% return for this year. And it's a great risk management tool; the day-to-day volatility of call spreads is low because you're long one call option short the other. So, the usual day-to-day implied volatility on the combination is only about 8% or 9%. The biggest problem with retail investors is the volatility scares them out of the market at market lows and scares them back in at market highs. So, call spread reduces the volatility and keeps people from doing that. The risk-reward is overwhelmingly in your favor if you have somebody like me with an 80% or 90% success rate making the calls on the stocks. And, of course, having done this for almost 60 years, nothing new ever happens in the stock market—you're just getting repetitions of old stuff. All I have to do is figure out is this the 1970s story, the 1980s story, the 1990s, the 2000s, 2010s story? I have to figure out which pattern is being repeated. People who have been in the market for one year, or even 10 years, don't have that luxury.
Q: I’m having trouble getting filled on your orders.
A: You put out a spread of orders. So if I put in an order to buy at $9.00, split your order up into five pieces: at $9.00, $9.10, $9.20, $9.30, $9.40; and one or all of those orders will get filled. Another hint is that algorithms often take my trade alerts to the maximum price. Don't pay more than that price immediately, but they have to be out by the end of the day, so if you just enter good-till-cancel orders, you have an excellent chance of getting filled by the end of the day or at the opening tomorrow.
Q: Should I purchase SPDR S&P Regional Banking ETF (KRE)?
A: I'd say yes. That probably is a good buy with deregulation, making all of these small banks takeover targets.
Q: What should we be looking for in the fear and greed index?
A: When we get to the high end, like in the 70s, start taking profits. When we get to the low end, like the 20s, start buying and adding LEAPS and more long-term leverage option plays.
Q: What are we looking for to go short?
A: Much higher highs and a bunch of other monetary and technical indicators flashing warning signals, which are too many to go into here. Suffice to say, we did make good money on the short side this year, a couple of times on Tesla (TSLA), including a pre-election short that we covered in Tesla, and we were short a whole bunch of technology stocks going into the July meltdown. So, you know, we do both the long side and the short side, but it's been a long play—11 months this year and a short play for a month.
Q: Is the euro going back up eventually, or does the dollar (UUP) rule?
A: Sorry, but as long as the US dollar has the highest interest rates in the developing world and the prospect of even higher rates in the future, it's going to be a dollar game for the next couple of years.
Q: Will a ceasefire in the Middle East affect the markets?
A: No. The U.S. interest in geopolitical data ends at the shores—all three of them. So if the war of the last couple of years doesn't change the market—and it's been an absolutely horrific war with enormous civilian casualties—why should the end of it affect markets?
Q: What stock market returns do you see for the next four years?
A: About half of what they were for the last four years, which will be about 90% by the time Biden leaves office. You're going to have much higher interest rates and much higher inflation, and while the new administration is very friendly for some industries, it is very hostile for others, and the net could be zero. So, enjoy the euphoria rally while it lasts.
Q: What about crypto?
A: Well, I did buy some crypto for myself at $6,000, and I'm now thinking of selling it at $96,000. Would I recommend it to a customer? Not on pain of death—not at this level. You missed the move. Wait for the next 95% decline, which is a certainty in the future. And, by the way, absolutely nobody in the industry can tell you when that is.
To watch a replay of this webinar with all the charts, bells, whistles, and classic rock music, just log in to www.madhedgefundtrader.com, go to MY ACCOUNT, select your subscription (GLOBAL TRADING DISPATCH, TECHNOLOGY LETTER, or Jacquie's Post), then click on WEBINARS, and all the webinars from the last 12 years are there in all their glory
Good Luck and Good Trading
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Global Market Comments
October 11, 2024
Fiat Lux
Featured Trade:
(THE MAD HEDGE SEPTEMBER 17-19 SUMMIT REPLAYS ARE UP),
(OCTOBER 9 BIWEEKLY STRATEGY WEBINAR Q&A),
(TLT), (IWM), ($VIX), (DUK), (NEE), (GLD), (FCX), (BHP), (USO)
Below please find subscribers’ Q&A for the October 9 Mad Hedge Fund Trader Global Strategy Webinar, broadcast from Lake Tahoe, Nevada.
Q: Is the iShares 20+ Year Treasury Bond ETF (TLT) a buy here?
A: I think we are testing the 200-day moving average, which is at 92.75. Let’s see if that holds, and if it does, we want to do at-the-money LEAPS one year out because the Fed has basically said it’s going to keep lowering interest rates until June, and bonds can’t lose on that. That would also be a nine-point pullback from the recent high.
Q: I found a YouTube video about your Uncle Mitchell Paige, who won the first Medal of Honor in WWII.
A: Yes, there’s a ton of stuff on the internet about Uncle Mitch, even though he passed away 22 years ago. There’s even a Mattel G.I Joe version of Uncle Mitch that you can buy, which he gave me. I also inherited his samurai swords.
Q: When will small caps turn around?
A: That’s the iShares Russell 2000 (IWM). Small caps are joined at the hips with interest rates, so when interest rates go up, and bond prices go down, small caps also go down. That is because small caps are much more dependent on borrowed money than any other section of the market, 60% lose money, 40% are regional banks, and they have much weaker credit ratings. They are a leverage play on everything going great—when interest rates are rising, they aren’t great. I would hold off on the (IWM). Even when interest rates start going back down again, which I expect they will do going into the next Fed meeting, (IWM) will be about number ten on the list of interesting things to do.
Q: The hiring numbers were great with the nonfarm payroll on Friday, so will the recession be pushed back to 2026?
A: I don’t think we’re going to have a recession. I think we have a growth scare, a growth slowdown, and then we reaccelerate again as more companies start booking AI profits to their bottom lines. Also, the recovery of China would be nice, recovery of Europe would be nice—so there are many other factors at play here. The fact is the United States has the world’s strongest economy, and we are going from strength to strength. That’s why everybody in the world is sending their money over here.
Q: Do you expect heightened volatility going into the year-end?
A: I expect heightened volatility going into the election; after that, it may collapse. Right now, the Volatility Index ($VIX) is in the low $20s, which is the high end of the recent range. I expect that to fall, and then we get a ballistic market after the election once all the uncertainty is gone.
Q: Should I buy utilities and industrials now?
A: Yes, these are two of the most interest-sensitive sectors in the market—especially utilities, which are very heavy borrowers. They’ve already had tremendous runs—things like Duke Energy (DUK) and NextEra (NEE). However, I think I’m going up more if we’re going to get interest rates down to 3%. Even if we get them down to 3.5 or 4%, the rallies in all the interest-sensitive sectors will continue.
Q: If the global economy recovers, would that lead to increased inflation and an increase in interest rates?
A: In an old-fashioned economy—one driven by, for instance, the car industry—yes, that would be happening. Back then, wage settlements with the United Auto Workers had the biggest impact on your portfolio. In the modern economy, technology is dropping prices so fast that even during periods of high growth, prices are still falling. The example I give is: the cheapest PC you could get in 1990 cost $5,000, which was a Compact. Now you could get the same computer for $300. You can bet going forward that eliminating all port workers will also be highly disinflationary; we won’t have to pay those $200,000 salaries for port workers, so that goes to zero. You can cite literally hundreds of examples in the economy where technology is collapsing prices.
Q: Should I go with a safe strategy now or increase my risk?
A: I think if we don’t sell off in the next two weeks, you have to buy the hell out of the market because we have had every excuse to sell off, and the market just won’t do it. Middle Eastern war, uncertainty in the election, gigantic hurricanes which will definitely shrink economic growth this year, the port strike and the Boeing strike, which will take a month out of GDP growth on the coast—and it still won’t go down. So, if you throw bad news on a market and it still won’t go down, you buy the heck out of it. The last chance for this to go down is literally this month. After that, the seasonals turn strongly positive. What’s the opposite of “sell in May, and go away”? It’s “buy in October and ring the cash register.”
Q: Will gold (GLD) go to 3,000/oz soon?
A: Yes. That’ll happen on the next Fed interest rate cuts as we go into the end of the year. We'll probably get two more cuts of 25 basis point cuts. Gold loves that. And guess what? Chinese have nowhere else to save their money except gold. So, yes, I'm looking for $3,000 and then $4,500 after that. You definitely want to own gold.
Q: Should I dump Chinese (FXI) stocks after this short-term spike?
A: Yes, for the short term, but not for the long term. Some kind of recovery will come, because if this Chinese stimulus package fails, they'll bring another one, and you'll get another one of those monster rallies. So, if you're a long-term holder, then I would stay in. The blue-chip stocks are incredibly cheap. But I still believe the best China plays are in the US, in oil (USO), copper (FCX), iron ore (BHP), and gold (GLD).
Q: Is oil headed down after the Israel and Lebanon war?
A: That really isn’t the main factor in the oil market. These people have been fighting for a century, literally, and any geopolitical influence has not had any sustainable impact on the price of oil. Really, the sole driver for oil prices now is China. You get China back in the game, oil goes back to $95 a barrel. If China remains in recession, then oil stays low and goes back to the $60s. It’s purely a China play. The US economy will continue to grow, but most of our oil consumption is domestic now—we are the world’s largest oil producer at 13.5 million barrels a day. We do not need any Middle Eastern oil anymore, really, we’re just running out our existing contracts.
Q: Do you think cryptocurrencies will have a bull market with the stock market?
A: No, I don’t. Cryptocurrencies did well when we had a liquidity surplus and an asset shortage. Now, we have the opposite; we have a liquidity shortage and an asset surplus, and the theft problem is still rampant with the cryptocurrencies keeping most institutional and individual investors out of that market.
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, select your subscription (GLOBAL TRADING DISPATCH, TECHNOLOGY LETTER, or Jacquie's Post), then click on WEBINARS, and all the webinars from the last 12 years are there in all their glory
Good Luck and Good Trading,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Global Market Comments
October 2, 2024
Fiat Lux
Featured Trade:
(FRIDAY OCTOBER 25 SALT LAKE CITY UTAH STRATEGY LUNCHEON)
(TRADING DEVOID OF THE THOUGHT PROCESS),
(SPY), (INDU), (TLT), (USO)
It seems that all anyone has to do is blow their nose these days, and high-frequency trading will amplify the movement, a multiple of what we would have seen in past years. It's like the butterfly flapping its wings in the Amazon.
The exit of institutional money to trading in in-house dark pools, the concentration of trading into single-sector exchange-traded funds (ETFs), and the departure of the traditional individual investor are all exaggerating these moves. It doesn’t help that stock markets are sitting just short of all-time highs.
You could run off and trade something else besides stocks. That’s easier said than done, as virtually all other asset classes have become equally untradeable.
Bonds have gone crazy, rising to mathematically impossible levels. You’re still trying to catch a falling knife in commodities, as the recent action in oil proved, but the Chinese may have just reversed that. Precious metals are at all-time highs. Foreign currencies have gone comatose, with the US dollar rolling over like the Bismarck.
What’s a poor trader to do? Take up the action in collectible Beanie Babies? Rare French postage stamps? Rare vintage Madeira’s?
There are only two ways to deal with a market like this. Turn off the TV, cancel your newswire feeds, quit reading research, and just look at your screens.
Buy the low numbers and sell the high ones.
It is no more complicated than that. Don’t confuse matters with the thought process. The markets are now so illogical you will only muddy the waters.
The other method is to become boring. Just find the cheapest, low-fee index fund you can find, like one of Vanguard’s, buy it, and stuff it under your mattress. I’m pretty confident that it will be up 10% by the end of the year. 90-day T-bills at 4.75% is not a bad second.
That means you will probably beat most hedge managers out there, as you would have done for the past seven consecutive years. Try to earn more than 10% in these choppy markets, and you could end up losing 10% or 100%.
As for me, I am going to stick with trading. At least I’ll be there when it turns easy again, which has to be soon, and I’ll make a hell of a lot more than 10%.
And was never very good at the “boring” thing.
