Rioting in Holland and Austria, protests in France, the new lockdowns prompted by the new Omicron Variant of the Covid virus had only one message for American Investors: SELL!
The end result was the biggest down day in 15 months, with the Dow exceeding a 1,000-point bruise at the lows, not bad for a half-day holiday session.
While the market was bidless for most stocks, that wasn’t true for the best quality fastest growers. Tesla (TSLA) gave up only 3%, Microsoft 2.4%., and NVIDIA (NVDA) 3.5%. I tried to buy several at the close and failed, even though I kept raising my bid.
We also saw one of the sharpest declines in the history of the Mad Hedge Market Timing Index, from an overbought 85 to a bargain basement 31 in mere days.
This is exactly what the market needed.
I went into last week 100% in cash because I was leery of a market that traded sideways on declining volume after a historic run. In fact, we needed some kind of selloff before the market could go higher.
As I never tire of telling followers, cash is a position and has option value. A dollar at a market top is worth $10 at a market bottom. I had to endure only 50 market corrections before I figured this out, wishing I had cash at the bottom.
At the Friday low, stocks had sold off 1,850 points, or exactly 5.0% from the November 8 high. Heard that number before?
Before stock could rise, they had to fall first. The fears over Omicron are complete nonsense. It will not affect the US economy or stock markets one iota. Some 90% of the US population is now immune to Covid. There is no evidence that Omicron can overcome vaccines. When the variant comes here, and you can’t stop it, it will only kill anti-vaxers, as it did in Europe.
The fact is that the US continues to grow at a prolific 7% rate, with no sign of slowing in sight. As the port congestion fades, supply chains will repair and the inflation that is incited will fade. US companies are making more money than ever.
We still have a second reopening trade on for 2022. In a year, the economy will be booming, we will be at full employment, inflation will have faded, the pandemic will be over, and stocks will be at new all-time highs.
While some of next year’s performance has been pulled forward into 2021, much of it remains in the future.
So, when next time we take another run at a Volatility Index (VIX) of $29, I’ll be in there with guns blazing picking up all the usual suspects.
Global Stock on Pandemic Fears Smashes Markets, with Dow futures down 800 and ten-year yields off 13 basis points. New mandatory lockdowns in Austria and Holland have triggered rioting. It’s just another less than 5% correction.
The farther we go down now, the more we can go up in December and January. America’s 90% immunity will hold at bay any variants. There is no evidence this new one can’t be stopped by vaccines. Africa is another story. I went into this 80% cash. Wait for the selling to burn out in a day or two then use the high volatility to add front-month call spreads and LEAPS in your favorites.
Biden Appoints Jay Powell for a second time in a major lurch to the middle by the president. It’s the opening shot in the 2022 mid-term elections. I’ll approve your Fed governor if you pass my social safety net. It turned out to be impossible to find anyone more dovish than Jay Powell. The stock market loves it, especially interest rate-sensitive financials. The yearend rally continues.
Another $1.75 trillion Social Spending Bill passes the House, but most won’t see the light of day in the Senate. At best, maybe a few hundred million in spending gets through. Expect to hear a lot about socialism and deficits. No market impact here.
New Home Sales lag, up only 0.8% in October versus 1.4% expected. Some 6.34 million units were shifted. Only 1.25 million homes are for sale, down 12% YOY, representing only a 2.4-month supply.
The median price for a home rose to $353,900, up 13.1% YOY, but local markets like Phoenix and Seattle are seeing far greater gains. Million-dollar homes are seeing the greatest gains, with institutional investors pouring into the market to lock in historic low-interest rates.
Rents soar by 36% in New York and Florida against a national average of 13% in October is another sign of reopening and a return to normal.
Biden Taps the SPR, releasing some 50 million barrels, or two days’ worth of consumption. The president is throwing the gauntlet down at OPEC. Oil rallied on the news, as it was not more. This is largely a symbolic gesture and will have a minimal impact on gasoline prices. Now that the US is a net energy exporter it should close down the SPR as it is simply a subsidy for a dying fuel source that is going to zero and a bribe for Texas and Louisiana voters.
Weekly Jobless Claims plunge to a 52-year low, to 199,000. People are finally coming out of hiding and going back to work. It makes the upcoming November Nonfarm Payroll Report pretty interesting. Mark it on your calendar.
Tesla sales are on fire in California, the largest market in the US. The newest small SUV Model Y is leading the charge. No other company is close to mass production of a competitor yet. Tesla has a 5% market share in the Golden State ranking it no five among all car sales. A $7,500 tax credit that started last week is a big tailwind, but you have to tax taxes to benefit. Buy (TSLA) on dips, a Mad Hedge 380 bagger. My target is $10,000, 8X from here.
The Ports Log Jam is breaking. 24-hour shifts at Los Angeles and Long Beach, which handle 40% of all US unloadings, are making a big difference. Once the supply chain problems go away, so will inflation.
My Ten Year-View
When we come out the other side of pandemic, we will be perfectly poised to launch into my new American Golden Age, or the next Roaring Twenties. With interest rates still at zero, oil cheap, there will be no reason not to. The Dow Average will rise by 800% to 240,000 or more in the coming decade. The American coming out the other side of the pandemic will be far more efficient and profitable than the old. Dow 240,000 here we come!
With the pandemic-driven meltdown on Friday, my November month-to-date performance plunged to -10.74%. My 2021 year-to-date performance took a haircut to 77.82%. The Dow Average is up 14.05% so far in 2021.
I used a spike on bond prices to add a 20% position in bonds and the Friday dive to go long JP Morgan (JPM), so I am 70% in cash. I will be using any further volatility spikes to add positions in the coming week.
That brings my 12-year total return to 500.37%, some 2.00 times the S&P 500 (SPX) over the same period. My 12-year average annualized return has ratcheted up to 41.69% easily the highest in the industry.
We need to keep an eye on the number of US Coronavirus cases at 48.2 million and rising quickly and deaths topping 780,000, which you can find here.
The coming week will be all about the inflation numbers.
On Monday, November 29 at 7:00 AM, Pending Homes Sales for October are released.
On Tuesday, November 30 at 6.45 AM, the S&P Case Shiller National Home Price Index is announced.
On Wednesday, December 1 at 5:15 AM, the ADP Private Employment Report is printed.
On Thursday, December 2 at 8:30 AM, the Weekly Jobless Claims are disclosed.
On Friday, December 3 at 8:30 AM EST, the November Nonfarm Payroll Report is published. At 2:00 PM, the Baker Hughes Oil Rig Count is out.
As for me, with all the recent violence in the Middle East, I am reminded of my own stint in that troubled part of the world. I have been emptying sand out of my pockets since 1968, when I hitchhiked across the Sahara Desert, from Tunisia to Morocco.
During the mid-1970s, I was invited to a press conference given by Yasser Arafat, founder of the Al Fatah terrorist organization and leader of the Palestine Liberation Organization, at the Foreign Correspondents Club of Japan. His organization then rampaged throughout Europe, attacking Jewish targets everywhere.
Japan recognized the PLO to secure their oil supplies from the Persian Gulf, on which they were utterly dependent.
It was a packed room on the 20th floor of the Yurakucho Denki Building, and much of the world’s major press was represented, as the PLO had few contacts with the west.
Many placed cassette recorders on Arafat’s table in case he said anything quotable. Then Arafat ranted and raved about Israel in broken English.
Mid-sentence, one machine started beeping. A journalist jumped up to turn his tape over. Suddenly, four bodyguards pulled out Uzi machine guns and pointed them directly at us.
The room froze.
Then a bodyguard deftly set his Uzi down on the table flipped over the offending cassette, and the remaining men stowed their weapons. Everyone sighed in relief. I thought it was interesting that the PLO was using Israeli firearms.
The PLO was later kicked out of Jordan for undermining the government there. They fled Lebanon for Tunisia after an Israeli invasion. Arafat was always on the losing side, ever the martyr.
He later shared a Nobel Prize for cutting a deal with Israel engineered by Bill Clinton in 1993, recognizing its right to exist. He died in 2004.
Many speculated that he had been poisoned by the Israelis. My theory is that the Israelis deliberately kept Arafat alive because he was so incompetent. That is the only reason he made it until 75.
Stay Healthy,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader