Global Market Comments
July 26, 2024
Fiat Lux
Featured Trade:
(AUGUST 15 LONDON ENGLAND STRATEGY LUNCHEON)
(JULY 24 BIWEEKLY STRATEGY WEBINAR Q&A),
(UUP), (FXE), (FXC), (FXA), (FXB), (USO),
(FCX), (CCJ), (FXI), (CAT), (DE), (NVDA)
Posts
Below please find subscribers’ Q&A for the July 24 Mad Hedge Fund Trader Global Strategy Webinar, broadcast from Zermatt, Switzerland.
Q: Does the entry of Kamala Harris into the presidential election have any effect on the stock market?
A: No. I know someone who did research on markets and elections going all the way back to 1792 and the long-term effect has been absolutely zero over the 232-year period. Actually, what happens is you have the two candidates very close to each other in the polls, so uncertainty is at a maximum. Markets hate uncertainty, so they’ll wait until the uncertainty goes away, which will probably be about two weeks before the election. You can expect a really hot 4th quarter in the market though, so get all your cash freed up so you can pour all your money into the market for the last quarter of the year.
Q: How do falling interest rates affect the US dollar (UUP) and the currencies?
A: Currencies (FXE), (FXC), (FXA), (FXB) are always driven by interest rates. Those with high interest rates like the US dollar, are strong; those with low interest rates like Japan, are weak. Japan has had zero rates for over 20 years now. When that reverses, those currencies reverse, ending up with a weak US dollar and a strong euro, pound, etc. These changes in direction for the currency markets only happen every few years, so that will be a reliable trade.
Q: Why is oil (USO) so cheap when the rest of the economy is so strong?
A: There are many reasons. One is that the amount of barrels of oils needed to produce a unit of GDP has been falling for 30 years. That's a function of engines becoming more efficient at using gasoline. Plus more people are switching out of gasoline into electric, and more people flying instead of driving. The “work at home” movement hasn’t helped oil demand either. It’s also the most subsidized industry in the US, and you always get overproduction leading to price crashes, which we now seem to be witnessing.
Q: I have Freeport McMoRan (FCX) as a long-term hold; why has it recently been so weak?
A: Well, the number one reason is China (FXI). China is the biggest consumer of copper in the world and their economy is dead in the water. You know, 4.5% or 4.7% is a long way from the 13% we used to get during the 2000s and when copper was absolutely on fire. Eventually, I expect industrial demand in the US to make up for the shortage of demand from China, but that isn’t happening right now. It isn’t just copper—all the industrial metals have been weak the last couple of months and that is the reason.
Q: Cameco Corporation (CCJ) has been down lately, even with seemingly good news out of Kazakhstan. Is this a good buy here at the 200-day?
A: I would say it is. It’s being dragged down by the rest of the industrial metals and the energy plays. If you watch carefully, the uranium stocks trade very closely with oil, and we have an oil glut, so it tends to drag down all the other energy forms with it, including uranium and natural gas. I love uranium demand long term; it's growing far faster than oil demand and that’s why I own (CCJ).
Q: Do you think falling interest rates will bail out the real estate market?
A: Absolutely, yes. 30-year fixed-rate mortgages hanging around the mid-sixes, you get a couple of rate cuts and we could be back into the fives and even the fours in no time. So yes, big impact on real estate, all the subsidiary plays, on home builders, on the entire economy.
Q: If the market reverses today or tomorrow, what are some of the best call options to put money into?
A: Caterpillar (CAT), Deer & Co. (DE), and you might even go $50 into the money on Nvidia (NVDA). Home builders I would love to get into as well. All of these things have had great runs, but these are just the 1st leg of moves that could go on for years. So yes, this is where the barbell portfolio works: half big tech, half domestic recovery plays.
Q: Are you stopping at Edelweiss for a frosty beer on your hike?
A: Absolutely, I go to Edelweiss every year and don’t mind climbing the 1,200 feet to get there. You certainly have an appetite when you get to the top. It has a fantastic view of the town and you can stay there overnight there as well.
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 Stay Healthy,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Global Market Comments
June 13, 2024
Fiat Lux
Featured Trade:
(THE TWO CENTURY DOLLAR SHORT)
(UUP)
Any trader will tell you the trend is your friend, and the overwhelming direction for the US dollar (UUP) for the last 242 years has been down.
Our first Treasury Secretary, Alexander Hamilton, found himself constantly embroiled in sex scandals. Take a ten-dollar bill out of your wallet and you’re looking at a world-class horn dog, a swordsman of the first order.
When he wasn’t fighting scandalous accusations in the press and the courts, he spent much of his six years in office orchestrating a rescue of our new currency, the US dollar.
Winning the Revolutionary War bankrupted the young United States, draining it of resources and leaving it with huge debts.
Hamilton settled many of these by giving creditors notes exchangeable for then-worthless Indian land west of the Appalachians.
As soon as the ink was dry on these promissory notes, they traded in the secondary market for as low as 25% of face value, beginning a centuries-long government tradition of stiffing its lenders, a practice that continues to this day.
My unfortunate ancestors took him up on his offer, the end result being that I am now writing this letter to you from California—and am part Cherokee, Delaware, and Sioux.
It all ended in tears for Hamilton, who, misjudging former Vice President Aaron Burr’s true intentions in a New Jersey duel, ended up with a bullet in his back that severed his spinal cord.
Since Bloomberg machines weren’t around in 1782, we have to rely on alternative valuation measures for the dollar then, like purchasing power parity, and the value of goods priced in gold.
A chart of this data shows an undeniable permanent downtrend, which greatly accelerated after 1933 when FDR banned private ownership of gold and devalued the dollar.
Today, going short the currency of the world’s largest borrower, running the greatest trade and current account deficits in history, with a diminishing long-term growth rate is a no-brainer.
But once it became every hedge fund trader’s free lunch, and positions became so lopsided against the buck, a reversal was inevitable.
We seem to be solidly in one of those periodic corrections, which began a few years ago and could continue for months, or even years more.
The euro has its own particular problems, with the cost of a generous social safety net sending EC budget deficits careening. Add to that the gargantuan cost of a burgeoning refugee crisis.
Use this strength in the greenback to scale into core long positions in the currencies of countries that are major commodity exporters, boast rising trade and current account surpluses, and possess small consuming populations.
I’m talking about the Canadian dollar (FXC), the Australian dollar (FXA), and the New Zealand dollar (BNZ), all of which will eventually hit parity with the greenback once again.
Think of these as emerging markets where they speak English, best played through the local currencies.
I’m sure that if Alexander Hamilton were alive today, he would counsel our modern Treasury Secretary to talk the dollar up but to do everything he could to undermine the buck behind the scenes, thus over time depreciating our national debt down to nothing through a stealth devaluation.
Given the Treasury’s performance so far regarding the dollar, I’d say they studied history well.
Hamilton must be smiling from the grave.
A 242 Year Chart of the US Dollar priced in Hard Goods
Global Market Comments
March 22, 2024
Fiat Lux
Featured Trade:
(MARCH 20 BIWEEKLY STRATEGY WEBINAR Q&A),
(DIS), (GLD), (BITB), (UUP), (FXY), (F), (TSLA), (NVDA), (FCX), (UNG), (TLT), (MCD)
Below please find subscribers’ Q&A for the March 20 Mad Hedge Fund Trader Global Strategy Webinar, broadcast from Silicon Valley.
Q: Do you recommend a form of dollar-cost averaging, and what is it?
A: Absolutely, yes. It is impossible for anybody to get an absolute bottom when you're buying, so the best thing to do is time average. If you have a position you like, go in there every day and buy a little piece. I bought Nvidia (NVDA) practically every day for months and boy did that work! (NVDA) had already gone up a lot, but I just kept buying it and buying it, averaging up and up. So that is the way I dollar-cost average. It's really more of a time averaging than a price averaging. No one knows where tops and bottoms are, even if they promise you that they do.
Q: Are you still long the Yen (FXY) and shorting the Dollar (UUP) given current conditions?
A: I actually don’t have any positions in the currencies, because the volatility is so low compared to stocks. Suffice to say that over time when US interest rates go down, currencies should go up, especially the Yen, which has been depressed for such a long time.
Q: Can gold (GLD) and Bitcoin (BITB) go up at the same time?
A: Absolutely. They almost always go up at the same time, because they are liquidity-driven assets, and when liquidity is as rich as it is now, all liquidity-driven assets go up at the same time which includes gold, silver, and Bitcoin and other cryptos. The only difference this time is that the source of liquidity is not the Federal Reserve—in fact, the Fed is quite restrictive right now with their high-interest rate policy—the new source of liquidity is corporate profits, especially from technology stocks, and that is unlimited and not subject to political whims. It’s always there and it’s always growing; it's a much better form of liquidity than the old form from the US government.
Q: What are your thoughts on the Disney (DIS) and Peltz fight, and how should that affect the stock price?
A: Whenever Nelson Peltz gets involved in a company, it's almost always positive for the stock even if he makes boards uncomfortable. That's why he's going in—to force better management. He usually succeeds and then gets out at a higher price. And if it means forcing some things on management they don't like (and I'm not really sure in the case of Disney what it is he's pressuring them for), he gets his profit and he leaves, and that's what corporate raiders do.
Q: Should I buy the dip in the EV narrative?
A: Not yet. You need a global economic recovery for that to happen, especially in Europe and China. We forget how prosperous we are here, and how weak things are in pretty much the rest of the world—and that is where the EV sales have really collapsed. So let the burden of proof be on the EV companies to report better sales and better technology, and then I'll be back in. Tesla periodically has 80% corrections: we’re right at the tail end of one of those. We may have another 10% to go and that's it. I'm a fair-weather friend, I only like to be long stocks when they're going up. How about that?
Q: I am understanding correctly that you believe the transition from technology and semiconductors to commodities and elsewhere is actually showing long-term strength growth for the tech stocks since they are mostly going sideways from here and not crashing with the rotation.
A: What I see is a time correction in technology where after tremendous moves they go sideways for a period, and new money switches over to other sectors like commodities and energy. And then you'll have a rotation back into technology after they've had a rest, probably before the end of the year. This back-and-forth kind of action could go on for many years—I've seen this happen before. So that's what I'm trying to position for now. And you know, I'm not alone in saying I don't like buying stocks after they tripled in a year. It's almost a no-win trade if you're a professional manager.
Q: Are we heading towards $90 a barrel in oil (USO), and will we pass $100?
A: Yes, we’re definitely headed to $90. But I think the new range is sort of like $65 to $95 because when you get up to the high prices, all of a sudden supply starts coming out of the woodwork, especially from the United States, which is already the world's largest oil producer at 13 million barrels a day. As soon as you get a high price, money just starts pouring in to start new drilling, setting up the next price collapse. The United States is the cap on global oil prices and China is the floor. They come in as the buyer of last resort as the world's largest consumer whenever prices get super cheap, and that actually is a best-case scenario—not only for us but for OPEC. Because their investments do well in the US when oil is in a $65 to $95 range. Any higher than that, the stock market crashes, wiping out the value of their savings. And that is how the modern world has evolved.
Q: Will today's Fed meeting be a non-event?
A: Yes, no interest rate changes until June, maybe even later. And the market is basically telling us that—dead in the water as it is. Dow is nowhere, and there are no big moves. Everyone is just treading water here.
Q: Would you take profits on NVIDIA (NVDA)?
A: Yes, some profits. I structured my own personal portfolio so I have expiring front month short put positions, which are ringing the cash register every month, but my long-term LEAPS I'm keeping. Because I think you could have another 50% move up in a year in (NVDA) stock given their dominant position in the market, and the fact that the new Blackwell chip, the $40,000 Blackwell chip is taking over the world. It's essentially a computer on its own, and it writes its own software. Nobody else is close to that, nor will they be. So keep the long-term positions to LEAPS, and keep taking profits every month. And you have to keep in mind also that (NVDA) is almost every portfolio manager's larger single position through capital appreciation, or they're not in it at all, and they're looking for a job or driving an Uber cab somewhere.
Q: Should I buy Ford (F) or Tesla (TSLA) or both?
A: Wait for the market to start discounting the Tesla Model 2 when it comes out next year. Maybe you start buying the stock in 6 months or a year. Probably the better question is not Ford or Tesla, but Tesla or Rivian (RIVN), which seems to be making progress in their mass production. I just don't see any future for the legacy car companies at all. They're just so far behind in technology. I spent most of my life trying to tell them what to do, and if they had followed my advice, they would be much better off than now.
Q: How long can an employment number stay strong? I feel like we have been waiting for a recession for almost 5 years now.
A: Actually the last real recession was the pandemic in 2020, which only lasted a couple of quarters. We may not have another real recession for 5 or 10 years. Why? Because we're in the roaring twenties and we have 6 more years to go. We also are in the new American Golden Age, and who's been predicting that for the last 10 years? I have! It's all about demographics. We happen to have peak spenders, i.e. people in their thirties and forties, at all-time highs, and that is what drives the economy—that is what makes the golden ages predictable as they have been for hundreds of years.
Q: How are the stem cell injections working?
A: Fantastic. After I got shot in the hip last year in Ukraine, I got one and I literally was walking around in weeks and eliminated the pain completely. I went from talking about hip replacement to climbing Kilimanjaro in literally a matter of weeks. So yes, they work for me. I know they don't work for everyone, but I've used them on both my knees, my back, and my hip, and they've been wildly successful. I won't need any more stem cell injections until I go back to Ukraine and get shot again.
Q: Where are you traveling to this time?
A: I’ll be working out of Florida during April, and probably take the quickie trip to Cuba. After that, it's Ecuador and the Galapagos Islands where I want to challenge Darwin’s Theory of Evolution. It turns out that it is in the same time zone as New York, so it'll be easy to work there from a time zone point of view. The Space X Starlink has provided great Internet everywhere, the Galapagos and Ukraine.
Q: Our real estate commission is about to disappear. Will that benefit housing prices?
A: You get what you pay for. If you have commissions drop from 6% to 1%, you'll get 1% worth of the service out of your agent. So if you want your house sold and sold well, you’d better keep paying the commission. Otherwise, your agent will not work for it. You get what you pay for. However, I always thought real estate commissions were too high for too long, and that may be about to change. And if you don't believe me, try selling your house on the internet someday. It doesn't work.
Q: Does the US have the infrastructure for electrification?
A: No, it does not. That means it has to be built out, and that is why we own Freeport McMoRan (FCX) and you should too! Anything involving electrification involves a lot of copper. The grid has to double in size to accommodate the needs of AI.
Q: Should I continue with natural gas (UNG)?
A: If you have a long-term position I would hang on because you're only one cold snap away from a major rally, and at some point, China will come back on stream as a major buyer. So long term I would hold it. Short term positions I would get rid of it before accelerated time decay wipes out your position.
Q: Will the US 10-year Treasury bond (TLT) go below 4% again?
A: Yes, when you get the Fed on an interest rate cutting cycle, 4% is easy; and by the way, home mortgages will be much cheaper in a year, so it's probably not a bad idea if you're buying a home now to take an adjustable-rate mortgage (ARM) then refinance after the Fed finishing cutting rates.
Q: Should I buy the dip in McDonald's (MCD)?
A: Probably not. The concern there is that the weight loss drugs are destroying American appetites and reducing their need for fast food. Eventually, some 100 million Americans could end up taking weight loss drugs. So that's why the stock is sold off. Fundamentally, (MCD) is a low-margin retail play so it's never interested me. The good news is that they're cutting jobs with computers. So that is the only reason to buy it, is the computerization effort. Walk into a new McDonald’s and you can only order by computer. The people there don’t even know how to take a verbal order. This is even more widespread in Europe where labor costs are higher.
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 WEBINARS, and all the webinars from the last 12 years are there in all their glory.
Good Luck and Stay Healthy,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Home Sweet Home
Global Market Comments
February 20, 2024
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or HOW THE CPI LIED),
(NVDA), (MSFT), (AMZN), (V), (PANW), (CCJ) (AAPL), (TSLA), (GOOGL), (MSFT), (AMZN), (META), (UBER), (UUP)
It’s pretty obvious that when the Consumer Price Index was released last Tuesday, the data point was lying through its teeth. The 0.4% increase in the Core CPI brought the YOY gain to a heart-palpitating 3.9%, much higher than expected. The stock market thought it was telling God’s home truth by plunging 740 points at its low.
Interest rate sensitives, like bonds, utilities, real estate, precious metals, energy, and foreign currencies were particularly hard hit.
I have been in the financial markets quite a long time now and as a result, am pretty used to being told porky pies (lies in London’s East End). Take the CPI for example. The reported number came in at a sizzling 3.3% for January. That is enough to kill off any hopes of a Fed interest rate cut in 2024, thus the ensuing wreckage in the market.
However, back out a single number, the 6.0% rise in housing rental costs, and the inflation rate drops all the way to 2.0%, bang on the Fed’s long-term inflation target. In other words, interest rates should be cut RIGHT NOW!
That is clearly the view that the markets came around to on Wednesday, which saw the Dow Average recover 151 points.
Unfortunately, lying is a fact of life in the stock market at every conceivable level. But learn to tolerate it and you can make millions of dollars. That works for me. Like my old college statistics professor used to tell me: “Statistics are like a bikini bathing suit; what they reveal is fascinating, but what they conceal is essential.”
In fact, we may see the stock market bouncing back and forth like a ping pong ball between big technology and the interest rate sectors, depending on what the bond market is doing that day driving traders nuts. After all, it was YOU who wanted to be in show business!
In the meantime, complacency rules all. Cash flows into stocks are near all-time highs. Market strategists have been ratcheting up their yearend targets on a daily basis, even me (I’m now at SPX 6,000). The option put/call ratio is about as low as it gets, meaning there is a universal belief that stocks will continue to appreciate. That’s with the S&P 500 earnings multiple trading at a rich 20.5.
I would be remiss in my duties as a financial advisor if I did not also warn you that these are all market-topping signals, at least for the short term.
Double Yikes, and Heavens to Betsy!
Of course, all eyes will be on the Q4 NVIDIA earnings this week, out after the close on Wednesday and probably the most important data release of the year. Everything else this week is essentially meaningless.
If earnings come in anything less than perfect, up 100% YOY, it could trigger a long overdue correction in the stock market in general and (NVDA) in particular. On the other hand, earnings just might come in more than perfect.
I have been covering (NVDA) for more than a decade back when it was just a video game play and I describe it today as a monopoly on the world’s most valuable product. Their top-end H100 graphics cards are now selling for a breathtaking $30,000 each and Meta (META) just ordered 450,000 of these babies, partly so their competitors can’t get their hands on them. For those who don’t have a calculator that is a single order worth a mind-blowing $13.5 billion.
That is why the stock is up 224% in a year and 50X since the first Mad Hedge trade alert on the company went out at a split-adjusted $2.00. Those who think they can clone (NVDA) and their products overnight can dream on. Most employees have golden handcuffs in the form of vested options at the same $2.00 strike price or lower.
The Magnificent Seven are still cheap relative to the rest of the market. Their price-to-growth ratio (PEG Ratio) is still only half the rest of the market. The Mag Seven will see earnings grow 20% this year with a price-earnings multiple of 30X giving you a PEG of 1.5X. The Unmagnificent 493 are selling at a PEG ratio of 3.0X, meaning they are twice as expensive.
Just thought you’d like to know.
So far in February, we are up +3.42%. My 2024 year-to-date performance is also at -0.86%. The S&P 500 (SPY) is up +4.72% so far in 2024. My trailing one-year return reached +59.62% versus +24.57% for the S&P 500.
That brings my 15-year total return to +675.77%. My average annualized return has retreated to +51.32%.
Some 63 of my 70 trades last year were profitable in 2023.
I am maintaining a double long in, you guessed it, (NVDA). My longs in (MSFT), (AMZN), (V), (PANW), and (CCJ) all expired at their maximum potential profits with the February option expiration.
CPI Smacks Market, coming in at 0.3% in January instead of the expected 0.2%. The highflyers took the biggest hit. Bonds were destroyed, taking ten-year US Treasury yields up to 4.30%. Is the falling interest rate story dead, or just resting? Rising rents were the big villain here.
US Retail Sales Dive 0.8% in January, a shocking decline from the blowout in December. Consumers didn’t bite on those New Year Sales because they actually started in November. Winter storms as well as technical factors had distorted the data.
Weekly Jobless Claims Dropped to 212,000, an improvement of 8,000 from the previous week. Continuing claims rose to 1,895,000.
https://www.dol.gov/ui/data.pdf
Here are Dan Niles’ Tech Shorts, Apple (AAPL), (TSLA), and Alphabet (GOOGL). He is long Microsoft (MSFT), (AMZN), (META), and of course NVIDIA (NVDA). Sounds like a good call to me. Dan knows what he is doing.
Uber Announces First Ever Share Buy Back, some $7 billion. In the meantime, they have to cope with a driver strike. Buy (UBER) on dips.
$929 Billion in US Commercial Real Estate Loans are Due this Year or 20% of the total. Will there be widespread defaults or will borrowers get rescued by falling interest rates in the second half? Will they extend and pretend? Avoid regional banks like the plague, which lack the capital to cope with this.
US Dollar (UUP) Hits Three Month High, on the hot CPI. You need a falling CPI to get a weak buck. The Euro plunged to $1.07, the British pound to $1.25, the Australian dollar to 65 cents, and the Japanese yen to ¥151.
NVIDIA Now Tops Amazon in Market Value, at $1.2 trillion now the fourth most valuable company in the US. It could eventually top Microsoft’s (MSFT) market cap as it is growing much faster. Those (NVDA) LEAPS are looking pretty good. The shares are up 50% so far in 2024. Buy (NVDA) on dips.
Biden to Ban Chinese EV Car Imports. The measures would apply to electric vehicles and parts originating from China, no matter where they are assembled, in a bid to prevent Chinese makers from moving cars and components into the United States through third countries such as Mexico. Chinese cars will never meet US safety standards. Try driving in China.
My Ten-Year View
When we come out the other side of the recession, we will be perfectly poised to launch into my new American Golden Age or the next Roaring Twenties. The economy decarbonizing and technology hyper accelerating, creating enormous investment opportunities. The Dow Average will rise by 800% to 240,000 or more in the coming decade. The new America will be far more efficient and profitable than the old.
Dow 240,000 here we come!
On Monday, February 19, the markets are closed for Presidents Day.
On Tuesday, February 20 no data of importance is released.
On Wednesday, February 21 at 2:00 PM EST, the Minutes from the previous Federal Open Market Committee meeting are published. NVIDIA earnings are released after the market closes.
On Thursday, February 22 at 8:30 AM EST, the Weekly Jobless Claims are announced. Existing Home Sales are Released.
On Friday, February 23 at 2:30 PM the Baker Hughes Rig Count is printed.
As for me, the first thing I did when I received a big performance bonus from Morgan Stanley in London in 1988 was to run out and buy my own airplane.
By the early 1980s, I’d been flying for over a decade. But it was always in someone else’s plane: a friend’s, the government’s, a rental. And Heaven help you if you broke it!
I researched the market endlessly, as I do with everything, and concluded that what I really needed was a six-passenger Cessna 340 pressurized twin turbo parked in Santa Barbara, CA. After all, the British pound had just enjoyed a surge against the US dollar so American planes were suddenly a bargain. It had a maximum range of 1,448 miles and therefore was perfect for flying around Europe.
The sensible thing to do would have been to hire a professional ferry company to fly it across the pond. But what’s the fun in that? So, I decided to do it myself with a copilot I knew to keep me company. Even more challenging was that I only had three days to make the trip, as I had to be at my trading desk at Morgan Stanley on Monday morning.
The trip proved eventful from the first night. I was asleep in the back seat over Grand Junction, Colorado, when I was suddenly awoken by the plane veering sharply left. My co-pilot had fallen asleep, running the port wing tanks dry and shutting down the engine. He used the emergency boost pump to get it restarted. I spent the rest of the night in the co-pilot’s seat trading airplane stories.
The stops at Kansas City, MO, Koshokton, OH, and Bangor, ME proved uneventful. Then we refueled at Goose Bay, Labrador in Canada, held our breath, and took off for our first Atlantic leg.
Flying the Atlantic in 1988 is not the same as it is today. There were no navigational aids and GPS was still top secret. There were only a handful of landing strips left over from the WWII summer ferry route, and Greenland was still littered with Mustangs, B-17s, B24s, and DC-3s. Many of these planes were later salvaged when they became immensely valuable. The weather was notoriously bad. And a compass was useless, as we flew so close to the magnetic North Pole the needle would spin in circles.
But we did have NORAD, or America’s early warning system against a Russian missile attack.
The practice back then was to call a secret base somewhere in Northern Greenland called “Sob Story.” Why it was called that I can only guess, but I think it has something to do with a shortage of women. An Air Force technician would mark your position on the radar. Then you called him again two hours later and he gave you the heading you needed to get to Iceland. At no time did he tell you where HE was.
It was a pretty sketchy system, but it usually worked.
To keep from falling asleep the solo pilots ferrying aircraft all chatted on a frequency of 123.45 MHz. Suddenly, we heard a mayday call. A female pilot had taken the backseat out of a Cessna 152 and put in a fuel bladder to make the transatlantic range. The problem was that the pump from the bladder to the main fuel tank didn’t work. With eight pilots chipping in ideas, she finally fixed it. But it was a hair-raising hour. There is no air-sea rescue in the Arctic Ocean.
I decided to play it safe and pick up extra fuel in Godthab, Greenland. Godthab has your worst nightmare of an approach, called a DME Arc. You fly a specific radial from the landing strip, keeping your distance constant. Then at an exact angle, you turn sharply right and begin a decent. If you go one degree further, you crash into a 5,000-foot cliff. Needless to say, this place is fogged 365 days a year.
I executed the arc perfectly, keeping a threatening mountain on my left while landing. The clouds mercifully parted at 1,000 feet and I landed. When I climbed out of the plane to clear Danish customs (yes, it’s theirs), I noticed a metallic scraping sound. The runway was covered with aircraft parts. I looked around and there were at least a dozen crashed airplanes along the runway. I realized then that the weather here was so dire that pilots would rather crash their planes than attempt a second go.
When I took off from Godthab, I was low enough to see the many things that Greenland is famous for polar bears, walruses, and natives paddling in deerskin kayaks. It was all fascinating.
I called into Sob Story a second time for my heading, did some rapid calculations, and thought “damn”. We didn’t have enough fuel to make Iceland. The wind had shifted from a 70 MPH tailwind to a 70 MPH headwind, not unusual in Greenland. I slowed down the plane and configured it for maximum range.
I put out my own mayday call saying we might have to ditch, and Reykjavik Control said they would send out an orange bedecked Westland Super Lynch rescue helicopter to follow me in. I spotted it 50 miles out. I completed a five-hour flight and had 15 minutes of fuel left, kissing the ground after landing.
I went over to Air Sea Rescue to thank them for a job well done and asked them what the survival rate for ditching in the North Atlantic was. They replied that even with a bright orange survival suit on, which I had, it was only about 50%.
Prestwick, Scotland was uneventful, just rain as usual. The hilarious thing about flying the full length of England was that when I reported my position, the accents changed every 20 miles. I put the plane down at my home base of Leavesden and parked the Cessna next to a Mustang owned by rock star Randy Newman.
I asked my ferry pilot if ferrying planes across the Atlantic was always so exciting. He dryly answered “Yes.” He told me in a normal year about 10% of the planes go missing.
I raced home, changed clothes, and strode into Morgan Stanley’s office in my pin-stripped suit right on time. I didn’t say a word about what I just accomplished.
The word slowly leaked out and at lunch, the team gathered around to congratulate me and listen to some war stories.
Good Luck and Good Trading,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Flying the Atlantic in 1988
Looking for a Place to Land in Greenland
Landing on a Postage Stamp in Godthab Greenland
On the Ground in Greenland
No Such a Great Landing
Flying Low Across Greenland
Gassing Up in Iceland
Almost Home at Prestwick
Back to London in 1988
Global Market Comments
January 26, 2024
Fiat Lux
Featured Trade:
(JANUARY 24 BIWEEKLY STRATEGY WEBINAR Q&A)
(TLT), (IWM), (SPY), (ALK), (FXI), (UAL), (BA), (NVDA), (UUP), (UNG), (MSFT), (GOOGL), (AMZN), (NVDA), (META), (CCI)
Below please find subscribers’ Q&A for the January 24 Mad Hedge Fund Trader Global Strategy Webinar, broadcast from Silicon Valley, CA.
Q: Will you stop out of (TLT) if it breaches the $93 level?
A: Yes, and I'm actually hoping it will do that because that sets up some really great two-year LEAPS for the (TLT) going out long-term. It's trying to hold in here at the bottom. It's been in the $93 handle for several days now, so we'll just watch.
Q: There seems to be negativity all over the place, but markets continue upwards. What are the chances of a black swan this year, and what do you think it might be?
A: Well, there always is a possibility of a black swan. That's why we do risk control and risk management all the time because black swans are by definition unpredictable. The reason people are negative is that they don't own more stocks, and they keep going straight up, at least the tech ones do. Money managers always look dumber not owning a market that's going up than owning a market that's going down and losing money with everybody else. It's just the way investor psychology works.
Q: Do you expect small caps (IWM) to outperform the S&P 500 (SPY) this year?
A: Yes I do, but it'll be a second half of the year game. They really need the big drops in interest rates to get earnings moving.
Q: Would Boeing (BA) be good for a LEAPS?
A: Yes, it would, but I would go out to the maximum maturity, say two to two and a half years, and you may get a double on your money on that. Basically, there are only two airplane manufacturers in the world that have a monopoly (or a duopoly to be technically correct) and Boeing is one of them. So love them or hate them, you still have to buy their airplanes; look no further than Alaska Airlines (ALK) and United (UAL), which have had to cancel literally tens of thousands of flights because they don't have enough airplanes. They had to ground all their 737 maxes.
Q: With all the shooting going on in the Middle East, why isn't oil higher?
A: It's all about China (FXI). As long as China is in a recession which seems to be getting worse, oil demand falls. China is the world's largest importer of oil by a large margin. They're also taking all the natural gas that the US will produce, and that is a big drag on prices. That will end when China starts to recover, and we did get a major stimulus package out of the Chinese government this week.
Q: What about NVIDIA (NVDA)? It's gone up so much. I'm up 300% since my cost. Should I sell now and take profits or just run the long?
A: This whole group, which I now call the AI 5—Microsoft (MSFT), Google (GOOGL), Amazon (AMZN), NVIDIA (NVDA), and Meta (META) could drop 20% at any time and then go on to new highs, and that's exactly what happened in the fall. We had a 20% drop in everything and then it just shot off to the races. So as long as you can handle a 20% decline in these stocks, and if you're a long-term investor, then you should keep them. Because the risk is you'll take profits, generate a big tax bill, and then won't be able to get back in at the next low, and you'll end up missing the next $1,000 point move. If you're the trader of the century like me, you can do that. But for your average garden variety trading at-home investor, I would say keep what's winning—keep the AI 5.
Q: Thanks John, I got a double on your (UNG) LEAPS that you put out over Christmas. It's since given back much of the gains. Do you see another big rally in (UNG) this year?
A: Yes, that was a 2-year LEAPS I put out. It doubled in 2 weeks, and I do see a bigger recovery in the second half of the year once the Chinese economy starts to recover. Their marginal first choice for new energy supplies is American natural gas; it's not oil from the Middle East. They're trying to clean up their atmosphere as much as we are, so look for another big demand spike for (UNG) later in the year.
Q: Why has the dollar (UUP) been so strong?
A: Rising interest rates. Currencies are all about interest rates and where the next interest rate move is going to be. Money always pours into the currency that has the next rise in interest rates. That's been the US dollar for all of this year so far.
Q: Will the election have an effect on the market?
A: Absolutely not. Nobody cares about the election. If you're an election junkie, you may stay glued to your TV. I'm not interested myself. I don't expect any changes in the economy to take place this year, and that's all investors and money managers really care about—is how they will do by the end of this year. So you're better off watching sports on ESPN is all I can tell you. Oh yes, and this is supposed to be a record year for disinformation about elections and candidates. Another reason to not bother with the election this year. Go watch the Jack Reacher series. At least there you can keep track of the body count.
Q: Is it a good time to buy a home right now?
A: Yes, if you have cash. It is still too expensive to borrow money to buy a home with 30-year mortgages at 6.5% and 5/1 ARMs at 6% or even 5.5%, but if you have cash, it is a great time to buy a house because what is the next move? Interest rates go down. Suddenly everybody in the world can afford houses and they now want to buy your house. So very rapid price rises are coming for the housing market once the rates start to fall, which could be March, could be June, depending on how Jerome Powell feels that morning.
Q: With EV sales up 50% last year (TSLA), why has copper been so weak?
A: The old high price of copper was based on continuing 50% per year increases in EV sales for the indefinite future. In fact, we got a 50% increase last year and forecasts for 10% growth only this year, so that's a big part of it. Also, backing out the Chinese construction demand gives copper a huge hit. New construction in China is essentially at zero and will be at zero for quite some time because of the real estate crisis there. Some people in China are looking at prices on their homes down 80%, which sounds like a repeat of our 2008 financial crisis. So that is another major drag on copper.
Q: Is it a good time to “buy wrights”?
A: Absolutely yes. If you read today's newsletter, it tells you how to do a buy write, and you do “buy rights” on the most expensive stocks. For example, NVIDIA (NVDA) at $600 today—you can get $8 for the February $650 calls, which you sell short against your stock ownership at $600, or you can go out to March 15th and you can get $19 for the March $650 calls. That will reduce your average cost for the shares by $19, so actually (NVDA) is, in fact, one of the best stocks to do this in, because it has the highest implied volatility of any options, second to Tesla (TSLA), it turns out.
Q: How did you predict the S&P 500 so accurately last year? You got within a point, pretty amazing.
A: All I can say is 55 years of practice helps! And I am a bit of a contrarian person; so when everybody said the market was going to go down, I said, “How about new all-time highs?” But also the answer to all questions really is people are wildly underestimating the impact of technology and AI, which continues to surprise the upside and will keep doing so for the next decade. That is the driver of all asset prices everywhere right now, and people will figure that out in probably about 5 years.
Q: Crown Castle Inc. (CCI), is that a good one to watch, with renewed interest in REITS?
A: Absolutely yes, and it's also a great interest-rate play. It had a horrible selloff going into October and has since made back all of those losses. We actually had a LEAPS in (CCI), which is now making money.
To watch a replay of this webinar with all the charts, bells, whistles, and classic rock music, just log in to www.madhedgefundtrader.com, go to MY ACCOUNT, click on GLOBAL TRADING DISPATCH, then WEBINARS, and all the webinars from the last 12 years are there in all their glory.
Good Luck and Stay Healthy.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
