Global Market Comments
February 18, 2025
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD or THE TALE OF TWO MARKETS)
(GS), (TSLA), (NVDA), (VST)
Posts
While trading one market is hard enough, two is almost more than one can bear. In fact, we have all been trading two markets since 2025 began.
On the up days, it appears that the indexes are about to break out of a tediously narrow trading range. The market’s inability to go down is proof that it has to go up. Thursday was one of those days.
These are followed by down days, it appears that the indexes are about to break down. The market’s inability to stay up is proof that it has to go down. Wednesday was one of those days.
Up….down….up….down. Please excuse me if I get dizzy, which I shouldn’t, as I am a former combat pilot.
The market is calling Trump's bluff, rising in the face of threatened whopping great tariff increases against most of the world. So far, lots of noise, no action. The bark is worse than the bite. As I have been saying all year, ignore the noise and don’t fight the tape.
Which brings me to the price of copper.
Look at the ten-year chart of the red metal below, and you see a pretty positive formation is taking place. You have a similar set up in the chart of Freeport McMoRan, the world’s largest producer of copper.
This is in the face of huge negatives, like the failure of the Chinese economy to recover, the end of all alternative energy subsidies, the government announcing that it will no longer mint pennies, and the ongoing recession in residential real estate.
The seasoned trader in me knows that when you throw bad news on a commodity and it fails to go down, you buy the heck out of it. Is copper discounting the expansion of the grid independent of government assistance? There is more than meets the eye here.
What if the end of the Ukraine War is the big black swan of 2025? The best estimate for the cost of the reconstruction of Ukraine is $1 trillion. That would require a lot of copper, maybe a China’s worth.
It would also present major positives for the global economy. It would give us a peace dividend on the scale of the last one that started in 1991. For a start, energy prices would collapse as restrictions on the export of 10 million barrels a day of Russian oil come off. Ukraine would reclaim its position as one of the world’s largest food exporters, especially wheat and sunflower oil.
I know that Russia is close to running out of weapons. Some two-thirds of Russia’s tanks and planes have been destroyed, and they don’t have the parts to build new ones. That is forcing them to draw on military stockpiles from the 1950s.
I have first-hand knowledge of this. I learned from the Pentagon that the Russian missile fired at me on the eastern front lines failed to explode because it was 55 years old. The best estimate is that Russia will completely run out of some kinds of weapons by this summer.
February has started with a respectable +2.73% return so far. That takes us to a year-to-date profit of +8.53% so far in 2025. My trailing one-year return stands at a spectacular +86.48% as a bad trade a year ago fell off the one-year record. That takes my average annualized return to +50.14% and my performance since inception to +759.42%.
I used the brief weakness in Goldman Sachs (GS) to add a new long. I took profits on my two longs in Tesla on a bounce. That tops up our portfolio with a remaining short in (TSLA) and longs in (NVDA) and (VST). These latter positions expire in three trading days at max profit.
Some 63 of my 70 round trips, or 90%, were profitable in 2023. Some 74 of 94 trades have been profitable in 2024, and several of those losses were really break-even. That is a success rate of +78.72%.
Try beating that anywhere.
US Q4 Profits Hit Three-Year High. With reports in from nearly 70% of the S&P 500 companies as of Wednesday, fourth-quarter earnings are estimated to have risen 15.1% from a year earlier, up from an estimate of 9.6% growth at the start of January. The S&P 500 communication services sector, which includes companies such as Meta Platforms (META), is leading estimated fourth-quarter earnings gains among sectors, with year-over-year growth of 32.2%.
Core Inflation Rate Comes in Red Hot at 0.50%. Overall, advance was broad, led by shelter, food, and medicine. Shelter accounted for nearly 30% of the advance, according to the report from the Bureau of Labor Statistics out Wednesday. The so-called core CPI also climbed by more than forecast. That reflected higher prices for car insurance, airfares, and a record monthly increase in the cost of prescription drugs. It looks like no interest rate cuts for 2025.
PPI comes in Hot, reversing the gains on inflation of the past two years. The Producer Price Index, a measurement of average price changes seen by producers and manufacturers, rose 0.4% on a monthly basis and 3.5% for the 12 months ended in January. That held steady with December, which was upwardly revised to 3.5% according to Bureau of Labor Statistics data released Thursday.
US announced European Tariffs this Week, tanking stocks on Friday. Steel and metals shares are surging this morning. It’s pretty clear that markets hate all things tariff-related. Can we talk more about deregulation, which markets love? The reality is that markets don’t know how to price in Trump, swinging back and forth between euphoria one moment to Armageddon another. Best case, markets flatline. Worst case, they crash.
Gold (GLD) is headed for $3,000, my long-term target, on central bank and flight to safety buying. What’s the next target? $5,000 is the current turmoil in Washington continues. Notice that it’s the physical metal that’s moving, not the miners.
Foreign Investors Continue to Soak Up US Debt, seeking higher interest rates in an appreciating currency. Americans own 55% of the outstanding $36 trillion in US debt, while foreign investors own 24%, and the Federal Reserve 13%.
Wall Street Souring on Magnificent Seven. The market stronghold has diminished slightly, as the cohort struggles to meet ever-loftier expectations, and investors rotate into other parts of the market such as small caps. Tech titans also took a hit in late January after the emergence of Chinese startup DeepSeek raised concerns over how much spending will be needed to implement AI capabilities.
Market is Giving Up on any Interest Rate Cuts this Year, as the prospects of rising inflation from trade wars weigh on the market. Economists have warned that a wide-scale trade war could significantly raise prices, and consumers appear to be worried as well. Respondents to the University of Michigan’s consumer sentiment poll released Friday indicated they expect inflation to run at a 4.3% rate a year from now, up a full percentage point from the January reading.
Tesla Tanks 7%, and down 34% since December after Chinese competitor BYD announces a partnership with DeepSeek. The move is expected to accelerate BYD’s move into full self-driving. Tesla sales are falling in all major markets. Call it DeepSeek hit part 2.
Weekly Jobless Claims Fall. Initial claims for state unemployment benefits fell 7,000 to a seasonally adjusted 213,000 for the week ended February 8, the Labor Department said on Thursday. Economists polled by Reuters had forecast 215,000 claims for the latest week.
My Ten-Year View – A Reassessment
We have to substantially downsize our expectations of equity returns in view of the election outcome. My new American Golden Age, or the next Roaring Twenties, is now looking at multiple gale force headwinds. The economy will completely stop decarbonizing. Technological innovation will slow. Trade wars will exact a high price. Inflation will return. 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.
My Dow 240,000 target has been pushed back to 2035.
On Monday, February 17, markets are closed for President's Day.
On Tuesday, February 18 at 8:30 AM EST, the New York Empire State Manufacturing Index is released.
On Wednesday, February 19 at 8:30 AM EST, the New Housing Starts are printed.
On Thursday, February 20 at 8:30 AM, the Weekly Jobless Claims are disclosed.
On Friday, February 21 at 8:30 AM, the Existing Home Sales are announced. 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 in 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 “buzz bomb” 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
February 10, 2025
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD or BACK TO BOOT CAMP)
(SPY), (EWG), (EWU), (TSLA), (NVDA), (VST)
I have a new outlook for the US stock markets.
The current government's economic policy reminds me a lot about the Marine Corps boot camp. Through harsh treatment and rigorous training, the Marines seek to destroy incoming recruits. They then spend 13 weeks rebuilding a new soldier from scratch who is obedient, respectful, follows orders, and is in much better physical condition. He is also a pretty good shot.
Since Trump inherited an almost perfect economy, with 3% real GDP growth, 2.8% inflation, and 4% unemployment, he has to break it first. Then he can spend the next four years rebuilding it and take credit for the recovery.
It looks like we are going to get more on the destruction front this week, with the US announcing European tariffs, which tanked stocks on Friday. We could remain in the destruction phase for the rest of the year. It sets up nicely at least a 20% correction sometime in 2025. Oh, and never buy on a Friday. All of the “shock and awe” announcements are occurring on the weekends. Wait for the Monday morning opening and buy the collapse.
It’s pretty clear that markets hate all things tariff-related. Can we please talk more about deregulation, which markets love? The reality is that markets don’t know how to price in Trump, swinging back and forth between euphoria one moment to Armageddon another. Best case, markets flat line. Worst case, they crash.
Here are some additional causes for concern. Big Tech was the only stock market sector that saw net inflows in 2024. It was also the only down sector in January. It just so happens to be the most overweight sector among almost all individuals and institutions, including yours. Big Tech now accounts for 35% of stock market capitalization. It is a concentration on steroids. So when we finally DO get a correction, it will be a big one, easily more than 10%.
Looking at stock market performance around the world since the 2008-09 financial crisis, it’s easy to see where the idea of American exceptionalism comes from. Since 2010, the German stock market (EWG) is up by 142% and the UK (EWU) by 112%. During the same 15-year period, the S&P 500 (SPY) soared by 1,112%, an outperformance of an eye-popping 8:1.
Since the beginning of 2025, the German stock market (EWG) is up by 12.7% and the UK (EWU) by 9%. In the meantime, the S&P 500 has managed a mere 3.5% gain. What has happened? Has something changed? Is American exceptionalism a thing of the past? If so, it would be terrible news for stocks.
In the rest of the world, 26% of corporate cash flow is reinvested in the company. In the US, it’s 42%, and for the Magnificent Seven, it’s 57%. This is American Exceptionalism distilled by a single driver. If this continues, that’s great. If rampant uncertainty drives US companies into hiding, it won’t. 90-day US Treasury bills yielding a risk-free 4.2% look pretty good in this new chaotic world, especially if you are still sitting on the gigantic profits of the past two years.
This is why Foreigners have been pouring money into the US as fast as possible and has been a major factor in our price appreciation until now. Foreign investors now own $23 trillion worth of American debt, equities, and real estate today versus only $8 trillion in 2017.
As I mentioned last week, when I suggest a European investment idea to a European, they tell me I am out of my mind and beg for more US investment ideas. I know this because about one-third of the Mad Hedge subscribers are aboard in 134 countries.
And this is why markets are so jittery. Some 23% of all the completed cars sold in the US are actually made in Mexico and Canada. For auto parts, the figure is more than 50%. The US sold 3.7 million vehicles made in Mexico and Canada. The new 25% tariff will increase prices by $6,300 per vehicle. Average car prices are now at $50,000 and are already at all-time highs. That works out to a $22.7 billion tax on the buyers of new cars who are mostly middle class.
My bet? That the prices of used cars soar, which aren’t subject to any such taxes.
Turn off the TV. Ignore the noise. Buy the down days and sell the up days. It’s no more complicated than that. If you want to play headline ping pong with the president, be my guest. But you’ll lose your shirt.
February has started with a breakeven +0.57% return so far.
That takes us to a year-to-date profit of +6.25% so far in 2025. My trailing one-year return stands at +83.45% as a bad trade a year ago fell off the one-year record. That takes my average annualized return to +5.23% and my performance since inception to +757.12%.
I used the weakness in Tesla to double up my long there. That tops up our portfolio to a long in (TSLA), a short in (TSLA), and longs in (NVDA) and (VST).
Some 63 of my 70 round trips, or 90%, were profitable in 2023. Some 74 of 94 trades have been profitable in 2024, and several of those losses were really break-even. That is a success rate of +78.72%.
Try beating that anywhere.
My Ten-Year View – A Reassessment
We have to substantially downsize our expectations of equity returns in view of the election outcome. My new American Golden Age, or the next Roaring Twenties, is now looking at multiple gale force headwinds. The economy will completely stop decarbonizing. Technology innovation will slow. Trade wars will exact a high price. Inflation will return. 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.
My Dow 240,000 target has been pushed back to 2035.
On Monday, February 10, nothing of note takes place.
On Tuesday, February 11, at 8:30 AM EST, the NFIB Business Optimism Index is released.
On Wednesday, February 12 at 8:30 AM, the Core Inflation Rate is printed.
On Thursday, February 13 at 8:30 AM, the Weekly Jobless Claims are disclosed.
On Friday, February 14 at 8:30 AM, the Producer Price Index is announced. At 2:00 PM the Baker Hughes Rig Count is printed.
As for me, it was with a heavy heart that I boarded a plane for Los Angeles to attend a funeral for Bob, the former scoutmaster of Boy Scout Troop 108.
The event brought a convocation of ex-scouts from up and down the West coast and said much about our age.
Bob, 85, called me two weeks ago to tell me his CAT scan had just revealed advanced metastatic lung cancer. I said, “Congratulations Bob, you just made your life span.”
It was our last conversation.
He spent only a week in bed and then was gone. As a samurai warrior might have said, it was a good death. Some thought it was the smoking he quit 20 years ago.
Others speculated that it was his close work with uranium during WWII. I chalked it up to a half-century of breathing the air in Los Angeles.
Bob originally hailed from Bloomfield, New Jersey. After WWII, every East Coast college was jammed with returning vets on the GI bill. So he enrolled in a small, well-regarded engineering school in New Mexico in a remote place called Alamogordo.
His first job after graduation was testing V2 rockets newly captured from the Germans at the White Sands Missile Test Range. He graduated to design ignition systems for atomic bombs. A boom in defense spending during the fifties swept him up to the Greater Los Angeles area.
Scouts I last saw at age 13 or 14 were now 60, while the surviving dads were well into their 80s. Everyone was in great shape, those endless miles lugging heavy packs over High Sierra passes obviously yielding lifetime benefits.
Hybrid cars lined both sides of the street. A tag-along guest called out for a cigarette, and a hush came over a crowd numbering over 100.
Apparently, some things stuck. It was a real cycle of life weekend. While the elders spoke about blood pressure and golf handicaps, the next generation of scouts played in the backyard or picked lemons off a ripening tree.
Bob was the guy who taught me how to ski, cast rainbow trout in mountain lakes, transmit Morse code, and survive in the wilderness. He used to scrawl schematic diagrams for simple radios and binary computers on a piece of paper, usually built around a single tube or transistor.
I would run off to Radio Shack to buy WWII surplus parts for pennies on the pound and spend long nights attempting to decode impossibly fast Navy ship-to-ship transmissions. He was also the man who pinned an Eagle Scout badge on my uniform in front of beaming parents when I turned 15.
While in the neighborhood, I thought I would drive by the house in which I grew up, once a modest 1,800 square foot ranch-style home to a happy family of nine. I was horrified to find that it had been torn down, and the majestic maple tree that I planted 40 years ago had been removed.
In its place was a giant, 6,000-square-foot marble and granite monstrosity under construction for a wealthy family from China.
Profits from the enormous China-America trade have been pouring into my hometown from the Middle Kingdom for the last decade, and mine was one of the last houses to go.
When I was class president of the high school here, there were 3,000 white kids and one Chinese. Today, those numbers are reversed. Such is the price of globalization.
I guess you really can’t go home again.
At the request of the family, I assisted in the liquidation of his investment portfolio. Bob had been an avid reader of the Diary of a Mad Hedge Fund Trader since its inception, and he had attended my Los Angeles lunches.
It seems he listened well. There was Apple (AAPL) in all its glory at a cost of $21. I laughed to myself. The master had become the student, and the student had become the master.
Like I said, it was a real circle of life weekend.
Scoutmaster Bob
1965 Scout John Thomas
The Mad Hedge Fund Trader at Age 11 in 1963
Stay Healthy,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Global Market Comments
February 3, 2025
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD or THE TRADE WAR BEGINS)
(SPY), ($COMPQ), (TSLA), (VST), (MSFT), (ADBE), (DELL), (NVDA)
As I write this, tariffs are coming into force and confusion reigns supreme at the borders. The worst-case scenario has arrived.
In the Marine Corp., they say that a missing 50-cent part can ground a $50 million dollar airplane. It turns out that many of the 50-cent parts are made in Canada and Mexico, which are now in trucks stuck in massive traffic jams at the border. The border is in no way set up for any change in the tariff regime.
Think of it as a mini Covid shock to the supply chain. The parts will eventually show up but will be more expensive.
This is not what traders wanted to hear. That great whooshing sound was the stock market giving up hard-fought gains for the day. Nervousness is running rampant.
With mass firing on the way throughout the government, it’s just a matter of time before the passport renewal process extends from weeks to years. I am telling friends and family to renew now before the process clogs up and shuts down. At the very least, fees are about to go up a lot, now at $130.
When I opened up my laptop on Sunday night and saw the NASDAQ ($COMPQ) down 900 points, I thought that a new war had broken out somewhere or another 9/11 event had taken place. That recovered to down only 400 by the New York opening. This is exactly the set up I had been waiting for since mid-December. I started piling in on longs in big tech stocks, turning my January performance from lackluster to robust in a matter of days.
And that’s the way it’s going to be in 2025. Maintain iron discipline and hold out for these rare sweet spots, then pile in. Never chase, that was last year’s game. We could be range trading for quite some time. Index players might be lucky to make anything by year-end, and might be better off parking their money in 90-Treasury bills, now yielding 4.2%.
By the end of the week, most of the losses were recovered, except for the big AI providers like (NVDA) and (AMD), which have had their own problems for the last seven months. The net is that it is potentially bad news for AI providers and great news for AI users, which is almost everybody.
I have heard from several clients that they spent the week trying to trip up the DeepSeek program and have come up with hilariously inaccurate answers. For example, DeepSeek didn’t know that my former USC classmate OJ Simpson died last year and thought he was a current NFL football player. And don’t ask who Winston was in 1984. Other examples about.
In the meantime, the big tech companies are all tinkering with DeepSeek, making changes and improvements. It is definitely a clever programming improvement, but it’s not going to destroy the world.
Whatever happened to Cold Fusion?
Remember that 1990’s meme that set stocks on fire? It was supposed to give us free electricity forever. Except that here I am 35 years later, and cold fusion is still 20-40 years into the future. It’s always 40 years in the future. The same thing happened with the 3D printing craze and the fax mania before that.
That’s what came to mind last December when I first heard that the Chinese app DeepSeek had delivered a revolutionary new AI program that was supposed to cut the need for high-end chips by 99%. I ignored it just like all of the other Chinese apps that come out on a daily basis.
Which leads me to the quandary of the day. Why the heck is Europe suddenly doing so well? The German stock market has outperformed the S&P 500 (SPY) by a large margin in recent months. Whenever I mention putting a dollar into any European country, my continental friends say I’m out of my mind and that they only want more American investment ideas. Is there something going on here?
My only thought is that the markets may be discounting an end to the Ukraine War this year. If so, some 10 million barrels a day of oil would be unleashed on the market, taking prices down to $30 a barrel. Ukraine would reclaim its position as the world’s largest agriculture exporter, collapsing prices for wheat and sunflower oil. And Europe will be able to pare back its recently increased defense spending.
You heard it here first.
By the way, the 9/11 reference brings to mind one of the most notorious short sales of all time. The day before the attack, a Swiss bank acting on behalf of an anonymous client bought several thousand short-dated put options on American Airlines (AA). After two American planes were deliberately crashed in a suicide attack, the trade made $200 million. The FBI set a trap to arrest those who came to collect. But they never showed. Eventually, the trades were unwound by the exchange. It’s all true.
We managed to attain a respectable +5.80% return in January. That is close to my average monthly return for all of 2024. The magic is still there.
That takes us to a year-to-date profit of +5.80% so far in 2025. My trailing one-year return stands at +85.34% as a bad trade a year ago fell off the one-year record. That takes my average annualized return to +49.96% and my performance since inception to +757.69%.
I used the Monday meltdown to start filing in positions in Nvidia (NVDA) and Vistra (VST). That is on top of my existing short strangle in Tesla (TSLA). The Mad Hedge Technology added a slew of long on Microsoft (MSFT), Adobe (ADBE), Dell (DELL), and (NVDA).
Some 63 of my 70 round trips, or 90%, were profitable in 2023. Some 74 of 94 trades have been profitable in 2024, and several of those losses were really break-even. That is a success rate of +78.72%.
Try beating that anywhere.
Technology Stocks Destroyed on News of China’s DeepSeek, an AI program that takes them a great leap forward. U.S. technology firms like Nvidia plunged, as Chinese startup DeepSeek sparked concerns over competitiveness in AI and America’s lead in the sector, triggering a global sell-off. DeepSeek launched a free, open-source large language model in late December, claiming it was developed in just two months at a cost of under $6 million. These developments have bolstered questions about the large amounts of money big tech companies have been investing in artificial intelligence models and data centers.
US Home Sales Hit 30-Year Low in 2024, the second year in a row of weak sales. High costs related to homeownership sapped sales again. The average rate for a 30-year fixed mortgage has hovered between 6% and 8% since late 2022. Avoid interest rate plays.
Nvidia Drops $600 Billion in Market Capitalization, the largest in stock market history. CEO Jensen Huang’s net worth dropped below $100 billion, while CEOs of the Mangiest Seven plunged by $67 Billion. I told you it was coming. Buy when the washout finishes. The bubble didn’t burst.
The Cruise Business is Rocketing, with Royal Caribbean (RCL) just running up its best five-week sales period in history. There is a two-year wait to order the enormous new ships, the biggest, 264,000-tonne Icon of the Seas, carries a mind-blowing 7,400 passengers. Buy (RCL) and (CCL)on dips.
US Consumer Confidence Dives amid renewed concerns about the labor market and inflation. The Conference Board said on Tuesday its consumer confidence index fell to 104.1 this month from an upwardly revised 109.5 in December. Economists polled by Reuters had forecast the index rising to 105.6 from the previously reported 104.7.
Fed Leaves Interest Rates Unchanged at 4.25%, tanking stocks. All interest rate plays will remain dead in the water. Will the pause be for six months or a year, or will the next Fed be a rate rise? Jay Powell is waiting for the impact of new government policies like all the rest of us. Buy financials on dips. The Fed's balance sheet continues to shrink and is down to $6.8 trillion, withdrawing liquidity from the system. All references to “progress” on inflation were dropped.
Coffee Prices Hit a New All-Time High at $3.60/pound for Arabica. Brazil, by far the world's largest producer, has few beans left to sell, and worries over its upcoming harvest persist. Dealers said 70%-80% of Brazil's current arabica harvest has been sold and new trades are slow. Brazil produces nearly half the world's arabica beans, a high-end variety typically used in roast and ground blends. This is yet another climate change play.
Waymo Self-Driving Taxis Expanding to Ten New Cities. After testing the Waymo Driver in multiple cities, the company says the technology is adapting successfully to new environments, leading to the expansion. In addition to ongoing trips to Truckee, Michigan's Upper Peninsula, Upstate New York, and Tokyo, the expansion includes testing in San Diego and Las Vegas, with more cities yet to be announced.
Tesla Bombs in 2024, with earnings at $25.5 billion last year versus $27.2 billion, or down 5.5%. Even a presidential friendship can’t boost earnings. Despite missing on every metric, the shares were only down $3 today. Tesla is more about belief in the future and today’s facts. But full self-driving will launch in the US in June after being stalled by the previous administration. No guidance for sales in 2025. Energy storage was the big grower last year and will do well this year. Not the rose bed I was promised. My short position is looking good, but I’m maintaining my long-term target of $1,000.
US GDP Finishes 2024 at 2.3%, less than expected but still the strongest in the world. Household spending grew at a 4.2% pace, most since early 2023. Equipment spending fell at a 7.8% rate on the Boeing strike impact. What happens next is anyone’s guess.
Microsoft Blows Up on Cloud Guidance, on huge earnings disappointment, taking the stock down 6%. The company beat estimates on the top and bottom lines but fell short on estimates for its Intelligent Cloud business. Microsoft’s Commercial Cloud segment revenue, which includes cloud services sales, saw revenue of $40 billion, a 21% year-over-year increase but shy of Wall Street expectations of $41.1 billion. Microsoft's intelligent cloud business, which includes its Azure platform, saw revenue of $25.5 billion. Wall Street was expecting $25.8 billion. I’m buying the dip.
Weekly Jobless Claims Fall 16,000 to a seasonally adjusted 207,000 for the week ended Jan. 25, the Labor Department said on Thursday. Economists polled by Reuters had forecast 220,000 claims for the latest week.
Consumer Inflation Expectations Comes in Soft. The personal consumption expenditures price index increased 2.6% on a year-over-year basis in December, while core PCE was at 2.8%, both in line with expectations but well ahead of the Fed’s 2% target. Personal income climbed 0.4% as forecast, while spending rose 0.7%. Markets liked the number.
Apple is Catching a Bid on the assumption that diplomat Tim Cook can somehow avoid import duties from China. Even at a 100% tariff, it would probably add only $100 to the cost of an iPhone, which is made in China.
My Ten-Year View – A Reassessment
When have to substantially downsize our expectations of equity returns in view of the election outcome. My new American Golden Age, or the next Roaring Twenties is now looking at a headwind. The economy will completely stop decarbonizing. Technology innovation will slow. Trade wars will exact a high price. Inflation will return. 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.
My Dow 240,000 target has been pushed back to 2035.
On Monday, February 3 at 8:30 AM EST, the ISM Manufacturing Index PMI is out.
On Tuesday, February 4 at 8:30 AM, the JOLTS Job Openings is released.
On Wednesday, February 5 at 8:30 AM, the ISM Survives PMI is printed.
On Thursday, February 6 at 8:30 AM, the Weekly Jobless Claims are disclosed.
On Friday, February 7 at 8:30 AM, Nonfarm Payroll Report for January is announced. At 2:00 PM the Baker Hughes Rig Count is printed.
As for me, the University of Southern California has a student jobs board that is positively legendary. It is where the actor John Wayne picked up a gig working as a stagehand for John Ford which eventually made him a movie star.
As a beneficiary of a federal work/study program in 1970, I was entitled to pick any job I wanted for the princely sum of $1.00 an hour, then the minimum wage. I noticed that the Biology Department was looking for a lab assistant to identify and sort Arctic plankton.
I thought, “What the heck is Arctic plankton?” I decided to apply to find out.
I was hired by a Japanese woman professor whose name I long ago forgot. She had figured out that Russians were far ahead of the US in Arctic plankton research, thus creating a “plankton gap.” “Gaps” were a big deal during the Cold War, so that made her a layup to obtain a generous grant from the Defense Department to close the “plankton gap.”
It turns out that I was the only one who applied for the job, as postwar anti-Japanese sentiment then was still high on the West Coast. I was given my own lab bench and a microscope and told to get to work.
It turns out that there is a vast ecosystem of plankton under 20 feet of ice in the Arctic consisting of thousands of animal and plant varieties. The whole system is powered by sunlight that filters through the ice. The thinner the ice, such as at the edge of the Arctic ice sheet, the more plankton. In no time, I became adept at identifying copepods, euphasia, and calanus hyperboreaus, which all feed on diatoms.
We discovered that there was enough plankton in the Arctic to feed the entire human race if a food shortage ever arose, then a major concern. There was plenty of plant material and protein there. Just add a little flavoring and you have an endless food supply.
The high point of the job came when my professor traveled to the North Pole, the first woman ever to do so. She was a guest of the US Navy, which was overseeing the collection hole in the ice. We were thinking the hole might be a foot wide. When she got there, she discovered it was in fact 50 feet wide. I thought this might be to keep it from freezing over, but thought nothing of it.
My freshman year passed. The following year, the USC jobs board delivered up a far more interesting job, picking up dead bodies for the Los Angeles Counter Coroner, Thomas Noguchi, the “Coroner to the Stars.” This was not long after Charles Manson was locked up, and his bodies were everywhere. The pay was better too, and I got to know the LA freeway system like the back of my hand.
It wasn’t until years later, when I had obtained a high security clearance from the Defense Department that I learned of the true military interest in plankton by both the US and the Soviet Union.
It turns out that the hole was not really for collecting plankton. Plankton was just the cover. It was there so a US submarine could surface, fire nuclear missiles at the Soviet Union, and then submarine again under the protection of the ice.
So, not only have you been reading the work of a stock market wizard these many years, you have also been in touch with one of the world’s leading experts on Artic plankton.
Live and learn.
1981 on Peleliu Island in the South Pacific
Stay Healthy,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Global Market Comments
January 8, 2025
Fiat Lux
2025 Annual Asset Class Review
A Global Vision
FOR PAID SUBSCRIBERS ONLY
Featured Trades:
(SPY), (QQQ), (IWM), (GS), (MS), (JPM), (BAC), (C), (BLK),
(TLT), (TBT), (JNK), (PHB), (HYG), (MUB), (LQD), (FXE), (FXY), (FXB), (FXE), (FXA)
(FCX), (BHP), (RIO), (VALE), (DBA), (DIG), (USO), (DUG), (UNG), (USO),
(XLE), (LNG), (CCJ), (VST), (SMR), (GLD), (DGP), (SLV), (PPTL), (PALL),
(ITB), (LEN), (KBH), (PHM), (DHI)
I am once again writing this report from a first-class sleeping cabin on Amtrak’s legendary California Zephyr.
By day, I have a comfortable seat next to a panoramic window. At night, they fold into two bunk beds, a single and a double. There is a shower, but only Houdini can navigate it.
I am anything but Houdini, so I foray downstairs to use the larger public hot showers. They are divine.
We are now pulling away from Chicago’s Union Station, leaving its hurried commuters, buskers, panhandlers, and majestic great halls behind. I love this building as a monument to American exceptionalism.
I am headed for Emeryville, California, just across the bay from San Francisco, some 2,121.6 miles away. That gives me only 56 hours to complete this report.
I tip my porter, Raymond, $100 in advance to make sure everything goes well during the long adventure and to keep me up to date with the onboard gossip.
The rolling and pitching of the car is causing my fingers to dance all over the keyboard. Microsoft’s Spellchecker can catch most of the mistakes, but not all of them.
Chicago’s Union Station
As both broadband and cell phone coverage are unavailable along most of the route, I have to rely on frenzied Internet searches during stops at major stations along the way, like Omaha, Salt Lake City, and Reno, to Google obscure data points and download the latest charts.
You know those cool maps in the Verizon stores that show the vast coverage of their cell phone networks? They are complete BS.
Who knew that 95% of America is off the grid? That explains so much about our country today.
I have posted many of my favorite photos from the trip below, although there is only so much you can do from a moving train and an iPhone 16 Pro.
Somewhere in Iowa
The Thumbnail Portfolio
Equities – buy dips, but sell rallies too
Bonds – avoid
Foreign Currencies – avoid
Commodities – avoid
Precious Metals – avoid
Energy – avoid
Real Estate – avoid
1) The Economy – Cooling
I expect a modest 2.0% real GDP growth with a 4.0% inflation rate, giving an unadjusted shrinkage of the economy of negative -2% for 2025. That is down from 0% in in 2024. This may sound discouraging, but believe me, this is the optimistic view. Some of my hedge fund buddies are expecting a zero return over the next four years.
Virtually all independent economists expect the new administration's economic policies will be a drag on both the US and global economies. Trade wars are bad for everyone. When your customers are impoverished, your own business turns south. This is a big deal, since the Magnificent Seven, which accounted for 70% of stock market gains last year, get 60% of their profits from abroad.
The ballooning National Debt is another concern. The last time Trump was in office, he added $10 trillion to the deficit through aggressive tax cuts and spending increases. If this time, he adds another $10-$15 trillion, the National Debt could reach $50 trillion by 2030.
There are two issues here. For a start, Trump will find it a lot harder and more expensive to fund a National Debt at $50 trillion than $20 trillion. Second, borrowing of this unprecedented magnitude, double US GDP, will send interest rates soaring, causing a recession.
The only question then is whether this will be a pandemic-style recession, which took stocks down 30% and recovered quickly, or a 2008 recession which demolished stocks by 52% and dragged on for years.
Hope for the best but expect the worst, unless you want to consider a future career as an Uber driver.
A Rocky Mountain Moose Family
2) Equities – (SPY), (QQQ), (IWM), (GS), (MS), (JPM), (BAC), (C), (BLK)
The outlook for stocks for 2025 is pretty simple. You are going to have to work twice as hard to make half the money you did last year with twice the volatility. You will not be able to be as nowhere near aggressive in 2025 as you were in 2024 It’s a dream scenario for somebody like me. For you, I’m not so sure.
It’s not that US companies aren't growing gangbusters. I expect 2% GDP growth, 15% profit growth, and 12% net margin growth in 2025. But let’s face reality. Stocks are the most expensive they have been in 17 years and we know what happened after 2008. Much of the stock market gain achieved last year was through hefty multiple expansions. This is not good.
Big tech companies might be able to deliver 20% gains and are still the lead sector for the market. Normally that should deliver you a 15%, or $800 gain in the S&P 500 (SPX). We might be able to capture this in the first half of 2025.
Financials will remain the sector with the best risk/reward, and I mean the broader definition of the term, including banks, brokers, money managers, and some small-cap regional banks. The reason is very simple. Their income statements will get juiced at both ends as revenues soar and costs plunge, thanks to deregulation.
No passage of new laws is required to achieve this, just a failure to enforce existing ones. The hint for this is a new SEC chair whose primary interest is promoting the Bitcoin bubble. Buy (GS), (MS), (JPM), (BAC), (C), and (BLK).
However, this is anything but a normal year. Uncertainty is at an eight-year high, thanks to an incoming administration. If the promised policies are delivered, inflation will soar and interest rates will rise, as they already have. We could lose half or all of our stock market gains by the end of 2025.
The big “tell” for this was the awful market performance in December, down 5%. The Dow Average was down ten days in a row for the first time in 70 years. Santa Claus was unceremoniously sent packing. People Are clearly nervous. But then they should be with a bull market that is approaching a decrepit five years in age.
There is a bullish scenario out there and that has Trump doing absolutely nothing in 2025, either because he is unwilling or unable to take action. After all, if the economy isn’t actually broken, why fix it? Better yet, if you own an economy it is better not to break it in the first place.
Nothing substantial can pass Congress with a minuscule one-seat majority in the House of Representatives. There will be no new presidential action through tariffs and only a few token, highly televised deportations, not enough to affect the labor market.
Stocks will not only hold, but they may add to the 15% first-half gains for the year. I give this scenario maybe a 50% probability.
The first indication this is happening is when the presidential characterization of the economy flips in a few months from the world’s worst to the world’s best with no actual change in the numbers. Trump will take all the credit.
You heard it here first.
Frozen Headwaters of the Colorado River
3) Bonds (TLT), (TBT), (JNK), (PHB), (HYG), (MUB), (LQD)
Amtrak needs to fill every seat in the dining car to get everyone fed on time, so you never know who you will share a table with for breakfast, lunch, or dinner.
There was the Vietnam Vet Phantom Jet Pilot who now refused to fly because he was treated so badly at airports. A young couple desperately eloping from Omaha could only afford seats as far as Salt Lake City. After they sat up all night, I paid for their breakfast.
A retired British couple was circumnavigating the entire US in a month on a “See America Pass.” Mennonites returned home by train because their religion forbade travel by automobiles or airplanes.
The big question to ask here after a 100-basis point rise in bond yields in only three months is whether the (TLT) has suffered enough. The short answer is no, not quite yet, but we’re getting close. Fear of Trump policies should eventually take ten-year US Treasury bond yields to 5.00%, and then we will be ready for a pause at a nine-month bottom. After that, it depends on how history unfolds.
If Trump gets everything he wants, inflation will soar, bonds will crash, and 5.00% will be just a pit stop on the way to 6.00%, 7.00%, and who knows what? On the other hand, if Trump gets nothing he says he wants, then both bonds stocks and bonds will rise, creating a Goldilocks scenario for all balanced portfolios and investors.
That also sets up a sweet spot for entry into (TLT) call spreads close to 5.00% yields. A politician campaigning on one policy, then doing the opposite once elected? Stranger things have happened. The black swans will live.
A Visit to the 19th Century
4) Foreign Currencies (FXE), (EUO), (FXC), (FXA), (YCS), (FXY), (CYB)
If your basic assumption for interest rates is that they stay flat or rise, then you have to love the US dollar. Currencies are all about expected interest rate differentials and money always pours into the highest-paying ones. Tariffs will add fat to the fire because any reduction in international trade automatically reduces American trade deficits and is therefore pro-dollar.
This means that you should avoid all foreign currency plays like the plague, including the Euro (FXE), Japanese yen (FXY), British Pound (FXB), Canadian dollar (FXE), and Australian dollar (FXA).
A strong greenback comes with pluses and minuses. It makes our exports expensive and less competitive and therefore creates another drag on the economy. It demolishes traditional weak dollar plays like emerging markets and precious metals. On the other hand, it attracts substantial foreign investments into US stocks and bonds, which has been continuing for the past decade.
Above all, be happy you are paid in US dollars. My foreign clients are getting crushed in an increasingly expensive world.
5) Commodities (FCX), (BHP), (RIO), (VALE), (DBA)
Look at the chart of any commodity stock and you see grim death. Freeport McMoRan (FCX), BHP (BHP), and Rio Tinto (RIO), they’re all the same. They’re all afflicted with the same disease, over-dependence on a robustly growing China, which isn’t growing robustly, if at all.
I firmly believe that this will continue until the current leadership by President Xi Zheng Ping ends. He has spent the last decade globally expanding Chinese interests, engaging in abusive trade practices, hacking, and attacking American allies like Taiwan and the Philippines. You can only wave a red flag in front of the US before it comes back to bite you. A trade war with the US is now imminent.
This will happen sooner than later. The Chinese people don’t like being poor for very long. This is why I didn’t get sucked in on the Chinese long side in the fall, as many hedge funds did.
If China wants to go back to playing nice, as they did in the eighties and nineties, China should return to return to high growth and commodities will look like great “Buys” down here. If they don’t, American growth alone should eventually pull commodities up, as our economy is now growing at a long-term average gross unadjusted 6.00% rate. So the question is how long this takes.
It may pay to start nibbling on the best quality bombed-out names now, like those above.
Snow Angel on the Continental Divide
6) Energy (DIG), (USO), (DUG), (UNG), (USO), (XLE), (LNG), (CCJ), (VST), (SMR)
Energy was one of the worst-performing sectors in the market for the second year in a row and 2025 is looking no better. New supplies are surging, while demand remains stuck in the mud, with the US now producing an incredible 13.5 million barrels a day. OPEC is dead.
EVs now make up 10% of the US auto fleet, and much more in other countries, are making a big dent. Some 50% of all new car sales in China, the world’s largest market, are EVs. The number of barrels of oil needed to increase a unit of American GDP is plunging, as it has done for 25 years, through increased efficiencies. Remember your old Lincoln Continental that used to get eight miles per gallon? Now it gets 27.
Worse yet, a major black swan hovers over the sector. If the Ukraine War somehow ends, some ten million barrels a day of Russian oil will hit the market. Oil prices should plunge to $50 a barrel.
There are always exceptions to the rule, and energy plays not dependent on the price of oil would be a good one. So is natural gas, which will benefit from Cheniere Energy’s (LNG) third export terminal coming online, increasing exports to China. Ukraine cutting off Russian gas flowing to Europe will assure there is plenty of new demand.
But I prefer investing in sectors that have tailwinds and not headwinds. Better leave energy to the pros who have the inside information they need to make money here.
If someone is holding a gun to your head tell you that you MUST invest in energy, go for the new nuclear plays like (CCJ), (VST), and (SMR). We are only at the becoming of the small modular reactor trend, which could accelerate for decades.
7) Precious Metals (GLD), (DGP), (SLV), (PPTL), (PALL)
The train has added extra engines at Denver, so now we may begin the long laboring climb up the Eastern slope of the Rocky Mountains.
On a steep curve, we pass along an antiquated freight train of hopper cars filled with large boulders.
The porter tells me this train is welded to the tracks to create a windbreak. Once, a gust howled out of the pass so swiftly, that it blew a passenger train over on its side.
In the snow-filled canyons, we saw a family of three moose, a huge herd of elk, and another group of wild mustangs. The engineer informs us that a rare bald eagle is flying along the left side of the train. It’s a good omen for the coming year.
We also see countless abandoned 19th-century gold mines and the broken-down wooden trestles leading to huge piles of tailings, relics of previous precious metals booms. So, it is timely here to speak about the future of precious metals.
We certainly got a terrific run on precious metals in 2025, with gold at its highs up 33% and silver up 65%. The miners did even better. Even after the post-election selloff, it was still one of the best-performing asset classes of the year.
But the heat has definitely gone out of this trade. The prospect of higher interest rates for longer in 2025 has sent short-term traders elsewhere. That’s because the opportunity cost of owning precious metals is rising since they pay no interest rates or dividends. And let’s face it, there was definitely new competition for hot money from crypto, which doubled after the election.
The sector is not dead, it is resting. Central bank buying of the barbarous relic continues unabated, especially among sanctioned countries, like Russia and China. Gold is still the principal savings vehicle for many Chinese. They are not going to recover confidence in their own currency, banks, or government anytime soon. And there is still slow but steadily rising industrial demand from solar sectors.
Gold supply has also been falling for years, while costs are rising at least at double the headline inflation rate. So it’s just a matter of time before the supply/demand balance comes back in our favor. Where the final bottom is anyone’s guess as gold lacks the traditional valuation parameters of other asset classes, like dividends or interest paid. We’ll just have to wait for Mr. Market to tell us, who is always right.
Give (GLD), (SLV), (GDX), (GOLD), and (WPM) a rest for now but I’ll be back.
Crossing the Great Nevada Desert Near Area 51
8) Real Estate (ITB), (LEN), (KBH), (PHM), (DHI)
The majestic snow-covered Rocky Mountains are behind me. There is now a paucity of scenery, with the endless ocean of sagebrush and salt flats of Northern Nevada outside my window, so there is nothing else to do but write.
My apologies in advance to readers in Wells, Elko, Battle Mountain, and Winnemucca, Nevada.
It is a route long traversed by roving bands of Indians, itinerant fur traders, the Pony Express, my own immigrant forebearers in wagon trains, the Transcontinental Railroad, the Lincoln Highway, and finally US Interstate 80, which was built for the 1960 Winter Olympics at Squaw Valley, California.
Passing by shantytowns and the forlorn communities of the high desert, I am prompted to comment on the state of the US real estate market.
Real estate was a nice earner for us in 2024 in the new homes sector. The election promptly demolished this trade with the prospect of higher interest rates for longer. Expect this unwelcome drag to continue in 2025.
I am not expecting a housing crash unless interest rates take off. More likely it will continue to grind sideways on low volume. That’s because the market has support from a structural shortage of 10 million homes in the US, the debris left over from the 2008 housing crash. That’s why there is still a Millennial living in your basement. Homebuilders now prioritize profit margins over market share.
I expect this sector to come back someday. New homebuilders have the advantage of offering free upgrades and discounted in-house financing. Avoid for now (DHI), (KBH), (TOL), and (PHM).
Crossing the Bridge to Home Sweet Home
9) Postscript
We have pulled into the station at Truckee amid a howling blizzard.
My loyal staff have made the ten-mile trek from my estate at Incline Village to welcome me to California with a couple of hot breakfast burritos and a chilled bottle of Dom Perignon Champagne, which has been cooling in a nearby snowbank. I am thankfully spared from taking my last meal with Amtrak.
After that, it was over legendary Donner Pass, and then all downhill from the Sierras, across the Central Valley, and into the Sacramento River Delta.
Well, that’s all for now. We’ve just passed what was left of the Pacific mothball fleet moored near the Benicia Bridge (2,000 ships down to six in 80 years). The pressure increase caused by a 7,200-foot descent from Donner Pass has crushed my plastic water bottle. Nice science experiment!
The Golden Gate Bridge and the soaring spire of Salesforce Tower are just coming into view across San Francisco Bay.
A storm has blown through, leaving the air crystal clear and the bay as flat as glass. It is time for me to unplug my MacBook Pro, iPad, and iPhone, pick up my various adapters, and pack up.
We arrive in Emeryville 45 minutes early. With any luck, I can squeeze in a ten-mile night hike up Grizzly Peak tonight and still get home in time to watch the ball drop in New York’s Times Square on TV.
I reach the ridge just in time to catch a spectacular pastel sunset over the Pacific Ocean. The omens are there. It is going to be another good year.
I’ll shoot you a Trade Alert whenever I see a window open at a sweet spot on any of the dozens of trades described above, which should be soon.
Good luck and good trading in 2025!
John Thomas
The Mad Hedge Fund Trader
The Omens Are Good for 2025!
Global Market Comments
November 8, 2024
Fiat Lux
Featured Trade:
(NOVEMBER 6 BIWEEKLY STRATEGY WEBINAR Q&A),
(CCJ), (LMT), (VST), (RTX), (CCI), (GLD), (SLV), (TLT), (NVDA), (OXY), (FXA), (FXE), (FXB), (FXC)
Global Market Comments
October 25, 2024
Fiat Lux
Featured Trade:
(OCTOBER 23 BIWEEKLY STRATEGY WEBINAR Q&A),
(TLT), (JNK), (CCJ), (VST), (BRK/B), (AGQ), (FCX), (TM), (BLK), (NVDA), (TSLA), (T), (SLV), (GLD), (MO), (PM)
