Global Market Comments
February 20, 2025
Fiat Lux
Featured Trade:
(HOW TO HEDGE YOUR CURRENCY RISK),
(FXA), (UUP),
(TESTIMONIAL)
Posts
Let’s say you absolutely love a stock but despise the currency of the country it comes from.
The United States comes to mind. The US Federal Reserve is about to commence with a policy of cutting interest rates that could last a year. That means the greenback is about to become the weakest currency in the world. Look at the ten-year chart below, and you’ll see that a major double bottom for the Aussie may be taking place.
Most American technology stocks are likely to gain 30% or more over the next two years. However, it’s entirely possible that the US dollar declines by 30% or more against the Australian (FXA) and Canadian (FXC) dollars during the same period. Making 30% and then losing 30% leaves you with precisely zero profit.
There is a way to avoid this dilemma that would vex Solomon. Simply hedge out your currency risk. I’ll use the example of the Australian dollar, as we have recently had a large influx of new subscribers from the land down under.
Let’s say you want to buy AUS$100,000 worth of Apple (AAPL), the world’s most widely owned stock.
Since Apple is listed on the New York Stock Exchange, its shares are denominated in US dollars. When you buy Apple in Australia, your local broker will automatically buy the US dollars for your account to settle this trade in the US, taking out a small commission along the way. You are now long US dollars, thus creating a currency risk.
Getting rid of this currency risk is quite simple. You need to offset your US dollar long with a US dollar short of equal value. Long dollars/short dollars give the Australian investor a currency-neutral position. The US dollar can go to hell in a handbasket, and you won’t care.
There are several financial instruments with which you can do this. Buying Invesco Currency Shares Australian Dollar Trust ETF (FXA) is the easiest. This ETF invests 100% of its assets in long Australian dollar/short US dollar futures and overnight cash positions.
I’ll do the math for you on the final hedged position, assuming that the Australian dollar is worth 70 US cents.
BUY AUS$100,000 long US dollars X US$0.70 cents/dollar = US$70,000.
US$70,000/$210 per share for Apple = 333 Apple shares
BUY US$70,000/$70 (FXA) price = US$1,000 shares of the (FXA)
Thus, by owning AUS$100,000 shares of Apple shares and 1,000 shares of the (FXA) you have completely removed the currency risk in owning Apple. You have, in effect, turned Apple into an Australian dollar-denominated stock. Apple can rise, the US dollar will fall, and you will make twice as much money in Australian dollars.
There are a few problems with this precise trade. The liquidity in the (FXA) is not great, especially during US trading hours. Understandably, the bulk of Aussie liquidity takes place during Australian business hours.
There are other instruments with which you can hedge out the currency risk of Apple or any other US dollar-denominated investment.
You can take out your own short dollar position in the futures market. You can ask your bank to create a short position in the US dollar in the cash market. Or, you can simply ask your broker to hedge out your US dollar currency risk, for which they will charge you another small commission.
Hedging out currency risk is not only free; the market will pay you to do it. That’s because Australian dollar overnight interest rates at 1.00% are lower than US dollar overnight interest rates at 2.50%. By shorting the Aussie against the buck, you get to keep this 1.50% interest differential.
You don’t have to be Australian to want your Apple shares denominated in Australian dollars. In fact, hedge funds do this all day long. They pursue a strategy of keeping their long position in the world’s strongest securities (Apple) and their short positions in the world’s weakest securities (the US dollar). This, by the way, is also the strategy of the Mad Hedge Fund Trader. It’s called “global long/short macro.”
The better ones often make money on both sides of the equation, with the longs rising and the shorts falling. You can do the same on your own personal online trading platform.
I should urge a word of caution here. What happens if you hedge out your US dollar risk, and the dollar continues to appreciate? Then you will get none of the gains from that appreciation and will end up losing money in Australian dollars if Apple shares remain unchanged.
In the worst case, if both Apple and the Aussie could go down, this accelerates your losses. So, currency hedging can be a double-edged sword. Yes, this may be irrational given the fundamentals of Aussie and Apple. But as any experienced long-term trader will tell you, “Markets can remain irrational longer than you can remain liquid.”
Many thanks to John Maynard Keynes.
Looks Like a Good Bet to Me
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 $96,000. Would I recommend it to a customer? Not on pain of death—not at this level. You missed the move. Wait for the next 95% decline, which is a certainty in the future. And, by the way, absolutely nobody in the industry can tell you when that is.
To watch a replay of this webinar with all the charts, bells, whistles, and classic rock music, just log in to www.madhedgefundtrader.com, go to MY ACCOUNT, select your subscription (GLOBAL TRADING DISPATCH, TECHNOLOGY LETTER, or Jacquie's Post), then click on WEBINARS, and all the webinars from the last 12 years are there in all their glory
Good Luck and Good Trading
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Global Market Comments
September 13, 2024
Fiat Lux
Featured Trade:
(The Mad SEPTEMBER traders & Investors Summit is ON!)
(SEPTEMBER 13 BIWEEKLY STRATEGY WEBINAR Q&A),
(USO), (UUP), (FXA), (FXE), (FXC), (FXB), (DJT), ($INDU), (JPM), (BRK), (TSLA), (NVDA), (IBM), (CCJ), (BRK/B)
Below please find subscribers’ Q&A for the September 11 Mad Hedge Fund Trader Global Strategy Webinar, broadcast from Lake Tahoe Nevada.
Q: Will the Fed cut by 50 basis points at their next meeting?
A: The probability of that happening actually dropped by about half with the warm CPI report this morning with core CPI at 0.3%. That may have pushed the Fed from a 50% basis point rate cut back down to only 25%. I think if we only get 25%, the market will sell off. So that’s Wednesday next week. Mark that on your calendars—the market may well be on hold until then.
Q: Is $50/barrel oil (USO) coming by the end of this year?
A: No, but I think $60 is in the works. And that may be the bottom of this cycle because after that we expect an economic recovery, greater demand for oil, and rising prices in 2025. Until then, overproduction both in the US and in the Middle East is knocking prices down.
Q: Will the US dollar (UUP) continue its terrible performance through the end of the year?
A: Yes, and in fact, it may be for the next 10 years that the US dollar is weak—certainly 5—so any rally or dips you get in the currencies (FXA), (FXE), (FXC), and (FXB) I’d be buying with both hands.
Q: Where are you hiding at the moment?
A: 90-day T-bills, which are yielding 4.97%. You can buy and sell them any time you want, and the interest is only payable when you sell them.
Q: Is September 18th the selloff?
A: It depends on how much we do before then. Obviously, we’re making good progress today with the Dow ($INDU) down 700 points, so we shall see. However, the market is flip-flopping every other day, making it untradable—you can’t get any position and hold on to it long enough to make money, so it’s better just to stay out. There’s no law that says you have to be in the market every day of the year, and this is a day not to be in the market for sure.
Q: How will the presidential debate reaction affect the market?
A: There’s only one stock you have to follow for that and that’s the (DJT) SPAC, and that’s Trump’s own personal ETF, and it is down 13% today to a new all-time low. I believe that’s well below its IPO price, so anyone who’s touched that stock is losing money unless they got out at the top. That is a good signal.
Q: JP Morgan (JPM) stock had a steep pullback to $200/share—is it a buy here?
A: No, but we’re getting close. If we can get (JPM) close to its 200-day moving average at $188 on high volatility, that would be a fantastic buy, because (JPM) will benefit enormously from falling interest rates, and it is the world's quality banking play.
Q: Is it too soon on Berkshire Hathaway (BRK) and Tesla (TSLA)?
A: Yes on both. It’s too soon for anything right now. I wouldn’t touch anything before the interest rate cut unless you have a really special situation, and there are some out there.
Q: Do you think Nvidia (NVDA) could test $90 again?
A: It could very easily; it got within $10 of that last week. So, it just depends on how bad the news is and how scared people get in September.
Q: Is the end of carry trade affecting the market?
A: No, we had a big deleveraging there. Although people are going back in again now, it’s not enough to hurt the market.
Q: I heard Putin is threatening over raw materials. What do we get from Russia, and what stocks or ETFs would be impacted?
A: We get nothing from Russia anymore. We used to get a lot of commodities and oil from them, and that has ceased. Russia has essentially exited the global economy because of the sanctions and the war in Ukraine, so they can’t really hurt anyone at this point.
Q: What about Russia doing an end-run around with direct trade? BRICS block is going to make the dollar even more worthless in the future.
A: I don’t buy that at all. I’ve been covering sanctions for 50 years; they always work, but they always take a long time. You could always do black market trade through the back door, but the volumes are way down, and the profits are much less because people only buy sanctioned goods at big discounts. The oil that China is buying from Russia is something like a 30% discount to the market. They execute a high cost of doing business, and nobody wants to be in sanctions if they can possibly do avoid. That said, when the war ends, the sanctions may end. That could be some time next year when Russia completely runs out of tanks and airplanes.
Q: Should I buy Nvidia (NVDA) call options now?
A: It's not just a matter of Nvidia. It's what the general market is doing, and tech is doing. And tech is not doing that well—even on the up days. So I would hold off a bit on Nvidia.
Q: Why is Warren Buffet (BRK/B) unloading so much of his equity portfolio?
A: He thinks the market is expensive, and he has thought it has been expensive for years and he's been unloading stocks for years. He has something like $250 billion in cash now so he can buy whole companies in the next recession. Whether he'll live long enough to see that recession is another question, but his replacement staff is already at work and running the fund, so Berkshire will continue running on autopilot even after he’s gone.
Q: Is IBM an AI play?
A: (IBM) wants to think that it’s an AI play. They haven’t disclosed enough to the public to make the stock a real AI investment, so I would say it probably is, but we don’t know enough at this point, and there are probably too many other candidates to buy in the meantime.
Q: How do I invest in green energy stocks, and do you have any names for me?
A: Well here’s one right here and that’s the Canadian uranium producer Cameco (CCJ). There is a nuclear renaissance going on. China just announced an increase in their plants under construction from 100 to 115. You have the new modular technology ready to take off in the US, and it uses uranium alloys, or uranium aggregates, so it’s impossible for a plant to go supercritical. You also have other countries reactivating nuclear plants that have been closed, and California even delayed its Diablo Canyon shutdown by 5 years. So Nuclear is back in play, and we have an absolute bottom in the stock here and it just dropped 37%, in case you needed any more temptation. So this would be a very attractive alternative energy play for the long term right here.
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
1942 Grumman Wildcat on Guadalcanal
Global Market Comments
September 9, 2024
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or SEPTEMBER LIVES UP TO ITS REPUTATION)
(COPX), (USO), (ARE), (UUP), (TLT), (JNK), (GLD), (SPY), (NASD), ($VIX)
One of my Concierge clients holds a weekly staff meeting. Each employee is told his family is being held hostage and can only be rescued if they recommend the top-performing stock for the coming week. Then everyone throws in their two cents worth.
Last week, for the first time in the company’s history, no one could come up with a single name, even if it meant sacrificing their family (nobody was really sacrificed).
That speaks volumes.
In fact, until last week, every asset class in the market was discounting an imminent recession: Commodities (COPX), energy (USO), real estate (ARE), and the US dollar (UUP). Reliable recession hideouts like bonds (TLT), fixed income (JNK), and gold (GLD) caught an endless bid. Only the stock market (SPY), (NASD) wasn’t reading from the same music sheet.
Well, stocks finally got the memo, delivering the worst week in 2 ½ years. Suddenly, the glass has gone from half full to half empty. Permabears have suddenly morphed from complete idiots to maybe having something to say. Here it is only September 9 and the Month from Hell is already living up to its awful reputation. Is the stock market the slow learner in the bunch?
I came back from Europe in August rested, refreshed, invigorated, and in a near state of panic. The last 11% rally in the (SPY) made absolutely no sense to me whatsoever. Either the September jobs data would come in hot, canceling the Fed’s expected interest rate cut. Or, the data would come in cold, proving that the Fed waited too long to cut rates and inviting a recession, causing stocks to tank.
It would have been one of the worst self-inflicted wounds and own goals of all time.
What was especially dangerous was that we were going into the worth trading month of the year, September, with the (SPY) showing a crystal-clear double top on the charts.
It was a perfect lose/lose situation.
Seasonals are important, especially this month. This is because most mutual funds run an annual year that ends on September 30. To window dress their books and those glossy marketing brochures, they sell all their losers (think energy) in September and use the cash to buy more of their winners in October. (NVDA) yes, (XOM) not so much. This creates a swing in the indexes every year of 10%-20%.
To learn more about the seasonals, read tomorrow’s letter in detail, IF YOU SELL IN MAY AND GO AWAY, WHAT TO DO IN SEPTEMBER?
So I did what I usually do when the market refuses to give me marching orders. I let all my positions expire with the August 16 options expiration, took back the cash, and then sat on my hands. Suddenly, a 100% cash position was looking like a stroke of genius. It cleared the cobwebs, moved the fog away from my eyes, and took the monkey off my back all in one fell swoop.
And you know what? After surveying my big hedge fund clients, I learned they were doing exactly the same thing.
Let me pass on another piece of interesting intel. All of the many algorithms the hedge fund industry follows are bunching up around two specific bottoms for the stock market in coming months: September 18, the Fed rate cut day, and October 22, two weeks before the presidential election.
With any luck, other classic “BUY” signals will kick in at the same time with the Mad Hedge Market Timing Index below 20 by then and the Volatility Index ($VIX) over $30. It could be the best entry point of the year.
What has been fascinating is how much money has been pouring into the interest rate plays I have been banging the table about for the last six months. When was the last time the stock market has been led by AT&T (T), Altria (MO), and Crown Castle International (CCI)? You might have to look behind the radiator to find some old, dusty research on these names.
So far in September, we are down by -1.21%. My 2024 year-to-date performance is at +33.49%. The S&P 500 (SPY) is up +13% so far in 2024. My trailing one-year return reached +51.89. That brings my 16-year total return to +710.12. My average annualized return has recovered to +51.63%.
I executed only one trade last week, covering a short in Tesla at cost. I am now maintaining a 100% cash position. I’ll text you next time I see a bargain in any market. Now there is none. There is no law dictating that you have to have a position every day of the year. Only your broker wants you to trade every day.
Some 63 of my 70 round trips, or 90%, were profitable in 2023. Some 47 of 66 trades have been profitable so far in 2024, and several of those losses were really break-even. That is a success rate of +72.24%.
Try beating that anywhere.
Nonfarm Payroll Report Fades at 142,000, but the Headline Unemployment Rate stays at 4.2%. More shocking is that the previous two months saw substantial downward revisions. The BLS cut July’s total by 25,000, while June fell to 118,000, a downward revision of 61,000. If the Fed doesn’t cut by 0.50% on September 18, the stock market will crash.
Broadcom Beats and Stock Tanks driven by strong sales of its AI products and VMware software. But management’s guidance for the current quarter disappointed investors, sending shares of the chipmaker down nearly 7% in the after-market. This is too harsh of a reaction to an otherwise solid print. Buy (AVGO) on dips.
ADP Employment Change Report Hits 3 ½-Year Low, up only 99,000 in August. Economists polled had forecast private employment would advance by 145,000 positions after a previously reported gain of 122,000.
Biden Blocks Nippon Steel Takeover of US Steel, no doubt to save the jobs these deals usually destroy. Good thing we got out of the (X) LEAPS a year ago at max profit. (X) dropped 20% on the news. Not a good time to concentrate on industry.
No Subpoenas Here Says NVIDIA, refuting rumors that it was the target of an antitrust action. Don’t believe everything you read on the internet.
The Yield Curve has De-Inverted, meaning that short-term interest rates have fallen below long-term ones. Two-year interest rates at 3.72% are now 0.03% lower than ten-year ones at 3.75%. It’s a clear signal to the Fed that rates must be cut soon.
Weekly Jobless Claims Drop 5,000 to 227,000. The weekly jobless claims report from the Labor Department on Thursday, the most timely data on the economy's health, also showed unemployment rolls shrinking to levels last seen in mid-June. It reduces the urgency for the Federal Reserve to deliver a 50-basis points interest rate cut this month.
US Oil Production Hits All-Time High. In August 2024, U.S. oil production hit a record 13.4 million barrels per day according to the U.S. Energy Information Administration. Big Oil has become more productive as horizontal drilling and hydraulic fracturing, which is also known as fracking, have seen technological breakthroughs. The fossil fuel industry benefits from tax incentives, such as the intangible drilling costs tax credit, that are built into the tax code. The intangible drilling costs tax break is expected to benefit oil and gas companies by $1.7 billion in 2025 and $9.7 billion through 2034
Crude Oil Now Down on the Year, after a precipitous weekend selloff. Blame a weak China, lost OPEC discipline, and overproduction by Iraq. The bearish Goldman Sachs commodities report was also a factor. Avoid the worst-performing asset class in the market.
Eli Lilly is now a trillion-dollar stock, the first Biotech to do so. The drug giant is riding the wave of Mounjaro and Zepbound, its blockbuster injectable GLP-1 medications for weight loss. The drugs are also used to treat diabetes and cardiovascular disease. Eli Lilly’s shares have soared 65% this year.
Goldman Goes Big on Gold. Central banks in emerging market countries are continuing to buy gold — with purchases tripling since the middle of 2022 amid fears of U.S. financial sanctions and a mountain of sovereign debt. Goldman is taking a more selective approach to commodity investing as soft demand in China weighs on crude oil and copper prices. The investment bank has slashed its Brent oil outlook by $5 to a range of $70 to $85 per barrel and delayed its copper target of $12,000 per metric ton until after 2025.
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 600% 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, September 9 at 3:00 PM EST, Consumer Inflation Expectations are out
On Tuesday, September 10 at 6:00 AM, the NFIB Business Optimism Index is released.
On Wednesday, September 11 at 7:30 AM, the Core CPI is printed.
On Thursday, September 12 at 8:30 AM, the Weekly Jobless Claims are announced. We also get the Producer Price Index.
On Friday, September 13 at 8:30 AM, the University of Michigan Consumer Sentiment. At 2:00 PM the Baker Hughes Rig Count is printed.
As for me, I was having lunch at the Paris France casino in Las Vegas at Mon Ami Gabi, one of the top ten-grossing restaurants in the United States. My usual waiter, Pierre from Bordeaux, took care of me with his typical ebullient way, graciously letting me practice my rusty French.
As I finished an excellent, but calorie packed breakfast (eggs Benedict, caramelized bacon, hash browns, and a café au lait), I noticed an elderly couple sitting at the table next to me. Easily in their 80s, they were dressed to the nines and out on the town.
I told them I wanted to be like them when I grew up.
Then I asked when they first went to Paris, expecting a date sometime after WWII. The gentleman responded, “Seven years ago.”
And what brought them to France?
“My father is buried there. He’s at the American Military Cemetery at Colleville-sur-Mer along with 9,386 other Americans. He died on Omaha Beach on D-Day. I went for the D-Day 70th anniversary.” He also mentioned that he never met his dad, as he was killed in action weeks after he was born.
I reeled with the possibilities. First, I mentioned that I participated in the 40-year D-Day anniversary with my uncle, Medal of Honor winner Mitchell Paige, and met with President Ronald Reagan.
We joined the RAF fly-past in my own private plane and flew low over the invasion beaches at 200 feet, spotting the remaining bunkers and the rusted-out remains of the once floating pier. Pont du Hoc is a sight to behold from above, pockmarked with shell craters like the moon. When we landed at a nearby airport, I taxied over railroad tracks that were the launch site for the German V1 “buzzbomb” rockets.
D-Day was a close-run thing and was nearly lost. Only the determination of individual American soldiers saved the day. The US Navy helped too, bringing destroyers right to the shoreline to pummel the German defenses with their five-inch guns. Eventually, battleships working in concert with very lightweight Stinson L5 spotter planes made sure that anything the Germans brought to within 20 miles of the coast was destroyed.
Then the gentleman noticed the gold Marine Corps pin on my lapel and volunteered that he had been with the Third Marine Division in Vietnam. I replied that my father had been with the Third Marine Division during WWII at Bougainville and Guadalcanal and that I had been with the Third Marine Air Wing during Desert Storm.
I also informed him that I had led an expedition to Guadalcanal two years ago looking for some of the 400 Marines still missing in action. We found 30 dog tags and sent them to the Marine Historical Division at Quantico, Virginia for tracing. I proudly showed them my pictures.
When the stories came back it, turned out that many survivors were children now in their 80s who had never met their fathers because they were killed in action on Guadalcanal.
Small world.
I didn’t want to infringe any further on their fine morning out, so I excused myself. He said Semper Fi, the Marine Corps motto, thanked me for my service, and gave me a fist pump and a smile. I responded in kind and made my way home.
Oh and say “Hi” when you visit Mon Ami Gabi. Tell Pierre that John Thomas sent you and give him a big tip. It’s not easy for a Frenchman to cater to all these loud Americans.
Third Marine Air Wing
The D-Day Couple
The American Military Cemetery at Colleville-sur-Mer
Stay Healthy,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Global Market Comments
August 26, 2024
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD or BEWARE THE NEXT BLACK SWAN) plus (REVISITING UKRAINE),
(SPY), ($INDU), ($COMPQ), (FXI), (COPX), (NVDA), (GM), (GOOG), (FCX), (UUP), (FXE), (FXB), (FXC), (FXA)
The summer is winding down and I view it as a huge success.
I ended up using all 20 of my vintage Hawaiian shirts, which I often get compliments on. I don’t tell people I bought them when they were new. My dry cleaner thought she died and went to Heaven.
Now that an interest rate cut is a sure thing, what happens next? This is the first bull market in history not preceded by an interest rate cut. It might pay us to review how much markets have really gone up in such a short amount of time.
Since the pandemic low, the Dow Average ($INDU) is up 116%, the S&P 500 (SPY) 181%, and the NASDAQ a positively ballistic 262%. Just since the October 26 low, the Dow Average ($INDU) is up 44%, the S&P 500 (SPY) 60%, and the NASDAQ a positively ballistic 86%.
And you want more?
So, what happens now when we get the first interest rate cut in five years? Another new bull market?
Maybe.
Dow 240,000 here we come.
Mad Hedge Fund Trader enjoyed a meteoric performance run so far in 2024, even dodging a bullet from the August 5 Nonfarm Payroll black swan. Whenever that happens, I start to get nervous. So I thought I’d make a list of potential black swans on our horizon that could upset the apple cart.
1) NVIDIA (NVDA) reports, earnings disappoint, and revises down its spectacular forward guidance citing that the AI boom has become overheated. I give this maybe a 5% probability, but even a good report could mark a market top.
2) The September 6 Nonfarm Payroll Report comes in too hot, and Jay Powell does NOT cut interest rates on September 18. This would be worth a very quick 10% correction and a retest of the (SPY) $510 August low. I give this maybe a 30% probability. The market now considers a rate cut a 100% certainty, which is always dangerous.
3) Jay Powell cuts interest rates on September 18, but only by 25 basis points. If he does this in the wake of an awful September 6 Nonfarm Payroll Report and a jump in the headline Unemployment Rate, we would similarly get a 10% correction and a retest of the (SPY) $510 August low.
4) The calendar alone could give us a correction. The biggest selloffs of both 2022 and 2023 both ended in mid-October. Is history about to repeat itself? Or at least rhyme?
5) The war in the Middle East expands when Iran attacks Israel again. For most American traders the map of the world ends on the US coasts. So even if this happens it’s not worth more than a 4% correction.
Of course, it’s the black swans you don’t see coming that really hurt. That’s why they’re called black swans. Who saw the 9/11 terrorist attacks coming? The 2014 flash crash? The pandemic?
I landed in London on the eve of the big event of the year. No, it was not the King Charles III coronation.
It was the Taylor Swift Eras concert. Thousands of ecstatic Americans crossed the pond to catch the show. I actually thought about going to Wembley Arena to watch her. The last time I had been there was in 1985 for the Live Aid concert. Before that, it was the Beach Boys and Rod Stewart in 1977, which I recently reminded Mike Love about.
But at $1,000 a ticket to get crushed by a crowd of 100,000 I decided to give it a pass. Better to give these old bones a break and catch her on iTunes for free.
But I did get a chance to grill a card-carrying Swifty about the mysterious attraction while waiting at the Virgin Atlantic first-class lounge on the way back to San Francisco.
First of all, she loved the music. But it’s more than just music. More importantly, she admired an independent woman who wrote her own songs and became a billionaire purely through her efforts.
Maybe there will be more strong, independent women in our future.
So far in August, we are up by +2.67%. My 2024 year-to-date performance is at +33.61%. The S&P 500 (SPY) is up +18.23% so far in 2024. My trailing one-year return reached +52.25. That brings my 16-year total return to +710.24. My average annualized return has recovered to +51.91%.
I executed no trades last week and am maintaining a 100% cash position. I’ll text you next time I see a bargain in any market. Now there are none.
Some 63 of my 70 round trips, or 90%, were profitable in 2023. Some 49 of 66 trades have been profitable so far in 2024, and several of those losses were break-even. That is a success rate of +74.24%.
Try beating that anywhere.
Jay Powell Says the Time to Adjust Policy is Here, and that much progress has been made toward the 2% inflation target and a sustainable path to get there is in place. Stocks had already front-run the move, but bonds liked it. The path is now clear for a September rate cut, but how much?
Where did the 818,000 Jobs Go? 50 states compiling data in 50 different ways on differing time frames is going to generate some big errors like this one. That means monthly job gains fell from 250,000 to 175,000. Is the message that the Fed waited too long to cut rates?
Weekly Jobless Claims Fall to 233,000, down a whopping 17,000, but how real is it in the wake of this week’s 12-month revision? The report comes with Wall Street on edge amid signs that job growth is slowing and even signaling a potential recession on the horizon. Jobless claims have been trending higher for much of the year, though still remain relatively tame
$6 billion Poured into US Equity Funds Last Week, bolstered by bets of a Federal Reserve rate cut in September and easing worries about a potential downturn in economic growth. That is the largest weekly net purchase since July 17. A benign inflation report last week and the Fed meeting minutes on Wednesday, indicating a potential rate cut in September, boosted investor appetite for risk assets.
Mortgage Rates Hit New 2024 Low. The average for a 30-year, fixed loan was 6.46%, down from 6.49% last week. Borrowing costs are down significantly after topping 7.48% earlier this year, giving house hunters more purchasing power and coaxing some would-be buyers off the fence. Sales of previously owned US homes in July or the first time in five months.
Waymo Picks Up the Pace, Alphabet's (GOOG) Waymo said it had doubled Robotaxi paid rides to 100,000 per week in just over three months. If robotaxis take over the world, imagine the amount of job losses to taxi drivers.
GM (GM) Cuts Staff, GM is laying off more than 1,000 salaried employees globally in its software and services division following a review to streamline the unit’s operations. This follows many other firms that are trying to keep expenses low as the economy starts to slow.
Copper (COPX) Flips from Shortage to Surplus, as the Chinese economic recovery drags on. Copper surpluses of 265,000 metric tons are now expected this year, 305,000 tons in 2025, and 436,000 in 2026. Prices may recover in the fourth quarter if exchange stocks are drawn down. ME copper hit 4-1/2 month lows of $8,714 a ton in early August as U.S. recession fears and concern the Federal Reserve has kept interest rates too high exacerbated negative sentiment from soaring inventories and lackluster demand.
China (FXI) consumes more than half of global refined copper supplies, estimated at around 26 million tons this year. But much of the copper used in China is for wiring in household goods which are then exported. A housing market slump and China's stagnant manufacturing sector highlight the headwinds copper demand faces. Hold off on (FCX).
Dollar (UUP) Hits Seven Month Low, as US interest rate cuts loom. It could be a decade-long move. Buy (FXE), (FXB), (FXC), and (FXA).
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 600% 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, August 26 at 8:30 AM EST, the US Durable Goods orders are out.
On Tuesday, August 27 at 6:00 AM, the S&P Case Shiller National Home Price Index is released.
On Wednesday, August 28 at 7:30 PM, EIA Crude Stocks are printed.
On Thursday, August 29 at 8:30 AM, the Weekly Jobless Claims are announced. We also get Q2 US GDP.
On Friday, August 30 at 8:30 AM EST, the US Core PCE Index is disclosed. Also, New Home Sales are disclosed. 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 the 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 afterward.
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 we always a lot of beautiful women hanging around.
The population is 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 ap 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, almost 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 ever undertook. 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 doners 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 exactly this 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.
Stay Healthy,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
