Global Market Comments
April 14, 2025
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD or REARRANGING THE DECKCHAIRS ON THE TITANIC),
(SPY), (GLD), (NFLX), (NVDA), (TLT), (MSTR), (SVXY), ($VIX)
(AMZN), (AAPL), (GOOGL), (PANW), (NFLX), (CORN), (WEAT), (SOYB)
Global Market Comments
September 30, 2024
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or CHINA IS BACK! plus MY ENCOUNTER WITH ALIENS),
(GLD), (CCJ), (NEM), (TSLA), TLT), (DHI), (FXI), (BIDU), (TNE)
(USO), (BTU), (UNG), (CORN), (WEAT), (SOYB), (LVS), (WYNN) (LVUY) (HESAF)
There are always many unintended consequences to any Fed move, such as the 50-basis point interest rate cut on September 18. This time, a big one is that China would match and then exceed our own central bank’s move with a blockbuster stimulus package of their own. China has finally reached the “whatever it takes” moment, and the programs are squarely aimed at stimulating consumption.
You will hear from the talking heads on TV that the package is inadequate, a weak effort, an hour late, and a Yuan short, and will fail. But China has massive resources and will follow up with a second, larger package if they need to.
For a start, they own $860 billion worth of our US Treasury bonds, more than any foreign country, and unimaginable amounts of rapidly appreciating gold (GLD), which they have been accumulating since it was $1,020 an ounce (it is now $2,600).
China really pulled out all the stops on this one. The People's Bank of China on Wednesday cut its medium-term lending facility -- the interest for one-year loans to financial institutions -- from 2.3% to 2.0%, the lowest since 2020. The rate cuts are going to bring $140 billion in new lending.
They reduced deposits for new investment property purchases to 10% in a move clearly aimed at resuscitating their moribund real estate market. For the first time ever, they are handing out cash payments to poor people. It is the most stimulus since Covid.
China is not to be taken lightly.
Certainly, the stock market is buying it….at least for now. The main China ETF, the (FXI) had its best week in history, up 20%. Most of this was short covering. The short interest in the leading Chinese stocks like Alibaba (BABA), Baidu (BIDU), and Tencent Music Holdings (TNE) was running close to an eye-popping 50%.
So, why bother with a country half the size of our own, where the writing looks like chicken scratching, and the food has way too much MSG? Because the Middle Kingdom is the largest buyer of almost everything, including oil (USO), coal (BTU), natural gas (UNG), corn (CORN), wheat (WEAT), and soybeans (SOYB), most of which is supplied by the United States.
So, have I been burying you with China-oriented trade alerts this week? No, not really. First of all, I never buy on top of a 20% move in five days. It just goes against my bargain-hunting character. More importantly, the best China plays are here in the US. You can start with all of the ticker symbols I listed above.
There are also quite a few indirect China plays available in the West. Notice that the casinos Las Vegas Sands (LVS) and Wynn Resorts (WYNN) are up 20% across the board. The luxury stocks like LVMH Moet Hennessy (LVUY) and Hermes International (HESAF) also saw monster moves.
Dare I say it? Buy China on dips, especially blue-chip names like Alibaba (BABA) and Baidu (BIDU). If this Beijing stimulus fails, they’ll probably follow up with another one.
And what do newly enriched Chinese consumers do? They buy more gold. In fact, the gold story keeps getting better the higher it goes.
Another gold positive is the US National Debt, now at $35 trillion. Whichever candidate wins the presidential election, the national debt will keep rising, either by $500 billion a year or $2.5 trillion. Foreigners seem more worried about our debt than we are and are finding any non-dollar asset more attractive by the day. Gold is at the very top of that list.
It turns out that in a world of falling interest rates, a declining dollar, and fading faith in financial institutions, quite a few Americans like gold as well. Hey, Costco (CSCO) is selling it. How bad can it be?
So far in September, we are up by a spectacular +9.54%. My 2024 year-to-date performance is at +44.23%. The S&P 500 (SPY) is up +20.33% so far in 2024. My trailing one-year return reached +62.87%. That brings my 16-year total return to +720.86%. My average annualized return has recovered to +52.47%.
Last week was mostly about running existing successful long positions. Those would include (CCJ), (NEM), (TLT), (TSLA), and (DHI). I have one short position in (TLT).
I did add a (TLT) call spread, taking advantage of a rapid $4 dip. I also increased my Tesla (TSLA) long to a double, believing that the stock will keep running into the October 10 Robotaxi announcement.
Some 63 of my 75 round trips, or 90%, were profitable in 2023. Some 59 of 77 trades have been profitable so far in 2024, and several of those losses were really break-even. That is a success rate of +76.62%.
Try beating that anywhere.
Are Markets Melting Up? So thinks my friend Ed Yardeni. The latest policy decision lifted the odds of an “outright melt-up” in equity prices — like during the dot-com bubble when the (SPY) roared 220% from 1995 to the end of the century — to 30% from 20%. Another 50-basis point rate cut might do it. One can only hope.
What Happens When Gold Hits $3,000? It then moves on to $4,400 an ounce. Chinese savers will still have nowhere else to go. The real estate market is still dead, Chinese stocks are moribund, and they don’t trust their own currency. Keep buying (GLD), (NEM), and (GOLD) on dips.
The Core Personal Consumption Expenditures Price Index Falls, to a 2.2% annual rate, much lower than expected. The Federal Reserve’s preferred gauge to measure underlying inflation,rose 0.1% for the month, putting the 12-month inflation rate at 2.2%. Excluding food and energy, core PCE rose 0.1% in August and was up 2.7% from a year ago. The all-items inflation gauge was below Wall Street estimates and the lowest since early 2021.
American China Plays Roar, like commodities plays Freeport McMoRan (FCX), the Copper ETF, COPX), Peabody Energy (BTU), and the Platinum ETF. Indirect plays like the casinos Las Vegas Sands (LVS) and Wynn Resorts (WYNN). Dare I say it? Buy China on dips, like Alibaba (BABA) and Baidu (BIDU). If this Beijing stimulus fails, they’ll probably follow up with another one.
Silver is on a Roll, and is finally outperforming gold, as it has historically done. Silver just hit its highest price in more than a decade, and growing demand and falling interest rates mean it could have more room to run.
On Thursday, silver hit $32.43 an ounce, its highest price since 2012. The metal is up 35% so far this year. That beats a 30% rally for gold, which has been trading at all-time highs. Silver is much more sensitive to an industrial recovery than gold. Buy (SLV), (AGQ), (SIL), and (WPM) on dips.
Oil Gets Crushed on Saudi Output Burst. After a brief bounce back last week, it looks like oil is in a bearish pattern now that will be hard to break for the next few months. OPEC and its allies have been holding at least 5 million barrels of daily output off the market to prop prices, but they are expected to start bringing back production soon. Saudi Arabia, the strongest member of OPEC in that it has the most capacity to pump oil, is no longer willing to hold back production to try to push the price up to $100 a barrel.
US GDP Revised up to 5.5% Growth, since the second quarter of 2020, when the pandemic began through 2023. It was spurred mainly by bigger consumer-driven growth fueled by robust incomes. The revised figure is compared with a previously published 5.1% advance. You can’t beat America.
Electrification is the Latest Hot Investment Theme, seeking to cash in on AI demands on the power grid. Issuer Global X last week filed for its U.S. Electrification ETF, which would track an index of conventional companies in the sector, as well as those involved in alternative or cleaner energy sources — such as wind and solar — and grid infrastructure firms. Fund firm Tema also recently submitted paperwork for an ETF that would invest in companies “tied to global electrification.” These funds could become big winners.
US Homes Plunge, down 4.7% in August. Buyers are clearly remaining patient amid steadily declining mortgage rates. New single-family home sales decreased last month to an annualized rate of 716,000 after rising at the fastest pace since early 2022. The median sales price, in the meantime, decreased by 4.6% from a year earlier to $420,600. That marked the seventh straight month of annual price declines, extending what was already the longest streak since 2009
Home Mortgage Rates are in Free Fall, with the 30-year fixed at 6.08% and adjustable well into the fives. Refi activity is also exploding. Expect a real estate boom to ensue.
Can Tesla Reach $300? With (TSLA) possibly looking at a great quarter in China, Wall Street pros are rushing to increase their outlooks for the electric vehicle maker’s quarterly sales. At least four analysts have boosted their estimates for Tesla’s third-quarter delivery numbers, which are due next week. All point to signs that sales are starting to pick up in China, a key area for Tesla and a major market for electric cars globally.
Vistra Tops Nvidia, as the top S&P 500 stock this year. Vistra is a utility company based in Irving, Tex. that just so happens to be the second-largest owner of independent nuclear plants after buying three nuclear plants in Pennsylvania last year, and these days nuclear power is all the rage. Buy (VST) on dips.
My Ten-Year View
When we come out the other side of the recession, we will be perfectly poised to launch into my new American Golden Age, or the next Roaring Twenties. The economy decarbonizing and technology hyper accelerating, creating enormous investment opportunities. The Dow Average will rise by 600% to 240,000 or more in the coming decade. The new America will be far more efficient and profitable than the old.
Dow 240,000 here we come!
On Monday, September 30 at 8:30 AM EST, the Chicago PMI is out
On Tuesday, October 1 at 6:00 AM, the JOLTS Job Openings Report is released.
On Wednesday, October 2 at 7:30 PM, ADP Employment Change is printed.
On Thursday, October 3 at 8:30 AM, the Weekly Jobless Claims are announced. We also get the ISM Services PMI.
On Friday, October 4 at 8:30 AM, we get the September Nonfarm Payroll Report. At 2:00 PM, the Baker Hughes Rig Count is printed.
As for me, I am often told that I am the most interesting man people ever met, sometimes daily. I had the good fortune to know someone far more interesting than myself.
When I was 14, I decided to start earning merit badges if I was ever going to become an Eagle Scout. I decided to begin with an easy one, Reading Merit Badge, where you only had to read four books and write one review. I loved reading, so “piece of cake”, I thought.
I was directed to Kent Cullers, a high school kid who had been blind since birth. During the late 1940s, the medical community thought it would be a great idea to give newborns pure oxygen. It was months before it was discovered that the procedure caused the clouding of corneas and total blindness in infants.
Kent was one of these kids.
It turned out that everyone in the troop already had Reading Merit Badge and that Kent had exhausted our supply of readers. Fresh meat was needed.
So, I rode my bicycle over to Kent’s house and started reading. It was all science fiction. America’s Space Program ignited a science fiction boom during the early 1960s and writers like Isaac Asimov, Jules Verne, Arthur C. Clark, and H.G. Wells were in huge demand. Star Trek came out the following year, in 1966. That was the year I became an Eagle Scout.
It only took a week for me to blow through the first four books. In the end, I read hundreds of books to Kent. Kent didn’t just listen to me read. He explained the implications of what I was reading (got to watch out for those non-carbon-based life forms).
Having listened to thousands of books on the subject Kent gave me a first class education and I credit him with moving me towards a career in science. Kent is also the reason why I got an 800 SAT score in Math.
When we got tired of reading, we played around with Kent’s radio. His dad was a physicist and had bought him a state-of-the-art high-powered short-wave radio. I always found Kent’s house from the 50 foot tall radio antenna.
That led to another merit badge, one for Radio, where I had to transmit in Morse Code at five words a minute. Kent could do 50. On the badge below the Morse Code says “BSA.” In those days, when you made a new contact, you traded addresses and sent each other postcards.
Kent had postcards with colorful call signs from more than 100 countries plastered all over his wall. One of our regular correspondents was the president of the Palo Alto High School Radio Club, Steve Wozniak, who later went on to co-found Apple (AAPL) with Steve Jobs.
It was a sad day in 1999 when the US Navy retired the Morse Code and replaced it with satellites and digital communication far faster than any human could send. However, it is still used as beacon identifiers at US airfields.
Kent’s great ambition was to become an astronomer. I asked how he would become an astronomer when he couldn’t see anything. He responded that Galileo, the inventor of the telescope, was blind in his later years.
I replied, “Good point”.
Kent went on to get a PhD in Physics from UC Berkeley, no mean accomplishment even for sighted people. He lobbied heavily for the creation of SETI, or the Search for Extra-Terrestrial Intelligence, once an arm of NASA. He became its first director in 1985 and worked there for 20 years.
In the 1987 movie Contact written by Carl Sagan and starring Jodie Foster, the movie was filmed at the Very Large Array in western New Mexico. The algorithms Kent developed there are still in widespread use today. I’ve never been there because I never had the time to drive an hour and a half down a dirt road.
Out here in the West, aliens have been a big deal, ever since that weather balloon crashed in Roswell, New Mexico in 1947. In fact, it was a spy balloon meant to overfly and photograph Russia, but it blew back on the US, thus its top secret status.
When people learn I used to work at Area 51, I am constantly asked if I have seen any spaceships. The road there, Nevada State Route 375, is called the Extra Terrestrial Highway. Who says we don’t have a sense of humor in Nevada?
After devoting his entire life to searching, Kent gave me the inside story on searching for aliens. We will never meet them but we will talk to them. That’s because the acceleration needed to get to a high enough speed to reach outer space would tear apart a human body. On the other hand, radio waves travel effortlessly at the speed of light.
Sadly, Kent passed away in 2021 at the age of 72. Kent, ever the optimist, had his body cryogenically frozen in Hawaii where he will remain until the technology evolves to wake him up. Minor planet 35056 Cullers is named in his honor.
There are no movies being made about my life…. yet. But there are a couple of scripts out there under development.
Watch this space.
Dr. Kent Cullers
New Mexico Very Large Array
Reading Merit Badge
Radio Merit Badge
Stay Healthy,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Pack your portfolios with agricultural plays like Mosaic (MOS) if Dr. Paul Ehrlich is just partially right about the impending collapse of the world’s food supply.
You might even throw in long positions in wheat (WEAT), corn (CORN), soybeans (SOYB), and rice.
It says a lot that when I update a sector report like this and half the companies have disappeared from takeovers (Potash and Agrium), you should take notice.
The never-dull and often controversial Stanford biology professor told me he expects that global warming is leading to significant changes in world weather patterns that will cause droughts in some of the largest food-producing areas, causing massive famines. Food prices will skyrocket, and billions could die.
At greatest risk are the big rice-producing areas in South Asia, which depend on glacial runoff from the Himalayas. If the glaciers melt, this crucial supply of fresh water will disappear.
California faces a similar problem if the Sierra snowpack fails to show up in sufficient quantities, as it has done in five of the last six years.
Rising sea levels displacing 500 million people in low-lying coastal areas is another big problem.
One of the 92-year-old professor’s early books The Population Bomb was required reading for me in college in the 1960s, and I used to drive up from Los Angeles to Palo Alto just to hear his lectures (followed by the obligatory side trip to the Haight-Ashbury).
Other big risks to the economy are the threat of a third-world nuclear war caused by population pressures, and global insect plagues facilitated by a widespread growth of intercontinental transportation and globalization.
And I won’t get into the threat of a giant solar flare frying our electrical grid. That is already well covered on the Internet.
“Super consumption” in the US needs to be reined in where the population is growing the fastest. If the world adopts an American standard of living, we need four more Earths to supply the needed natural resources.
We must raise the price of all forms of carbon, preferably through taxes, but cap and trade will work too. Population control is the answer to all of these problems, which is best achieved by giving women education, jobs, and rights, has already worked well in Europe and Japan, and is now unfolding in Latin America.
All sobering food for thought. I think I’ll skip that Big Mac for lunch.
Is There Room for Me?
Global Market Comments
October 24, 2023
Fiat Lux
Featured Trade:
(POPULATION BOMB ECHOES),
(MOS), (AGU), (WEAT), (CORN), (SOYB), (RJA)
(A SHORT HISTORY OF HEDGE FUNDS)
Global Market Comments
August 18, 2023
Fiat Lux
Featured Trades:
(WEDNESDAY, SEPTEMBER 6, 2023 SAN DIEGO, CALIFORNIA GLOBAL STRATEGY LUNCHEON)
(TESTIMONIAL)
(AUGUST 16 BIWEEKLY STRATEGY WEBINAR Q&A),
(SNOW), (PANW), (AMZN), (FCX), (WPM), (CCI), (GOLD), (WEAT), (JNK), (TLT), (X), (XOM), (HD), (AA), (UNG), (TSLA)
CLICK HERE to download today's position sheet.
Below please find subscribers’ Q&A for the August 16 Mad Hedge Fund Trader Global Strategy Webinar, broadcast from Silicon Valley, CA.
Q: Did you hear that Michael Burry was putting on a big short (the guy who made a fortune shorting housing in 2009)?
A: Yes, I heard that, but I never, ever trade-off of those kinds of comments. First of all, I think he’s wrong; and often, what happens in those situations is you hear about them going into the trade, but you never hear about them getting out, which might be tomorrow or next week. Also, there’s a nasty habit of big hedge fund managers telling you the opposite of what they’re actually doing. We hear big hedge fund traders like Bill Ackman getting super bearish at market bottoms, and then a few months later learn that they were buying with both hands, as was the case with the pandemic bottom. Be careful about other people’s opinions—they can be hazardous to your wealth. Just look at the data and the facts. That’s what I do.
Q: Would you buy Snowflake (SNOW) around current prices?
A: Yes—first of all Snowflake is a Warren Buffet favorite, which I always tend to follow. However, Warren can wait 5 years for a stock to work, and you can’t. So, I would wait for a bigger dip before getting into SNOW. So far, we are down 25% from the recent peak. One thing’s for sure, cybersecurity is a long-term winner, as seen by the ballistic move in Palo Alto Networks (PANW) since we started recommending it about 8 years ago.
Q: Why are US consumers so strong, and will that hold up for the rest of 2023?
A: US consumers are so strong because they banked so much money during 10 years of QE and all the pandemic stimulus, that they have a lot saved. They are now happy to spend to make up for the spending they couldn’t do during the pandemic. They’re basically in spending catch-up mode or revenge spending.
Q: How far do you see the iShares 20 Plus Year Treasury Bond ETF (TLT) go?
A: My worst-case scenario has it going to $90 down from $94—that’s a yield of about 4.50%. And that's where a lot of bond investors see fair value, and will start piling in. But as long as the momentum is against it, I’m not touching it. As soon as I am convinced there is a real bottom in the (TLT), I’m going to jump in with both hands and buy long-term LEAPS, where you can get a 100% or 200% return pretty quickly.
Q: Time to buy the Tesla (TSLA) dip?
A: We’re getting close. My guess is you might get a spike down to $200 from the recent $300 high. That’s also going to be LEAPS territory for us because the long-term outlook for this company is spectacular.
Q: What do you think of Freeport McMoRan (FCX), Silver (WPM), and United States Natural Gas Fund (UNG)?
A: I think they are all strong buys; I have LEAPS out on all of them. I think we start to get a big move in the 4th quarter of this year that’ll go well into next year—so big money just sitting on the table begging for you to take it.
Q: What are we to make of the crash of the Chinese Yuan?
A: The Chinese economy is weak and looks like it’s getting weaker. They still have a pandemic hangover. We don’t know what their real pandemic numbers are—they adopted our pandemic policy 2 years after we did, and they’re suffering as a result. They also insist on using their own vaccine, Sinovac, for nationalist reasons which is only 30% effective. But, when the Chinese economy does come back on stream, that’ll be the gasoline on the fire for the global economy, and that’s why we like commodities, industrials, energy, and so on.
Q: What does an 8% mortgage rate mean for the housing sector?
A: It is a disaster. I don’t think prices will drop very much—it’ll just cease all new buying because nobody qualifies for an 8% mortgage. They are going to either be only cash buyers out there or people waiting for the next drop in interest rates, and we’re already seeing that with the mortgage rate at 7.24%. If we do get a move up to 8%, it’ll just be a short-term spike that won’t last very long.
Q: Aren’t high-interest rates pushing rents higher?
A: Yes, absolutely. Since people can’t afford to buy houses, they are renting until they can, which pushes rental prices up and adds to the inflation numbers.
Q: When do you think the tech sector will rebound? It’s had a really bad three weeks.
A: End of August or sometime in September. I think. When people come back from the beach, they’re going to look at the long-term future of these companies and think “holy smokes,” why don’t I own more of these?” And we may even be doing LEAPS at high prices, which I almost never do, but the growth rate in tech next year is looking to be spectacular, and I think if we do a conservative at-the-money, we should at least double our money in a few months, similar to how US Steel (X) LEAPS did.
Q: Is Amazon (AMZN) a buy? They’re starting to develop their pharmacy rather well.
A: Yes, Amazon is on the buy list—it’s already up 50% this year. Jassy, the new CEO, is doing a great job. They also have a massive investment in AI which they can monetize anytime they want, and online pharmacies are a great place to start. They’ve been talking about doing that for at least 10 years.
Q: Are gold (GLD), wheat (WEAT), and precious metals a buy?
A: Yes, those are all strong buys on the dip.
Q: What about Tesla (TSLA) LEAPS?
A: Yes Tesla is definitely a LEAPS candidate $30 down from where it is now.
Q: What about Crown Castle International (CCI)?
A: CCI took a major hit from Verizon, canceling a contract with them (which is their biggest customer), so I want to wait for that to digest before I do anything yet. However, we are definitely approaching “BUY” territory; I think the yield is up to about 6.5% now.
Q: Should I take profits on the next jump up in United States Steel Corporation (X)?
A: Yes, it’s not worth hanging on 16 more months to maturity when there’s only 30% of the profit left. And, if all the takeover bids fail for some reason, the stock goes back to $20, and then your LEAPS becomes worthless. So, I would take profits; 100% profit in 2 months is nothing to turn up your nose at.
Q: How confident are you in (TLT) going to $110 by the end of the year?
A: Very confident; by then we will start seeing more hints of Fed interest rate cuts, inflation should be lower, and Goldman Sachs is in fact forecasting that the first rate cut will happen in March. So you’ll certainly start discounting that in the (TLT) by December. We could see the high in yields and the low in prices at the central bankers conference in Jackson Hole next week.
Q: What do you think about cruise lines and hotels right now?
A: The business is great, they’re all packed. However, during the pandemic, these sectors had to take on massive amounts of debt to keep from going under when their ships were tied up with zero revenue for two years; same with the hotels. So, the balance sheets are terrible in all of these areas including airlines. That’s why I’ve been avoiding them, too many better plays. Don’t go away from your core trades looking for trouble.
Q: When do we finally start seeing the Fed stop raising rates?
A: I think they already have; I think the most recent rate rise was the last one. If I’m wrong, they’ll do one more quarter—it’s totally dependent on the numbers.
Q: Won’t falling rates be bullish for bonds and gold?
A: Yes, that's why we’re buying them; but I’m waiting on the bond LEAPS—I want to see a firm bottom before getting back in there. 2024 will be all about falling interest rates plays.
Q: What’s causing the volatility in the United States Natural Gas Fund (UNG)?
A: A Strike in Australia, collapsing supplies in Europe (where prices are up 40%), and expectation of a global economic recovery in China. Ultimately, it’ll be China that takes this thing up to $10, $12, or $14 for the UNG, but you need them to recover first. That’ll probably happen next year, which is why we have the two-year LEAPS on there.
Q: With junk (JNK), have we seen the high rates?
A: Yes. If not, we’re very close, so it’s worth starting to scale in here.
Q: Should I short Home Depot (HD), as US consumers are holding back on home upgrades?
A: No, you should not short anything because you’re going against a long-term bull market trend that probably continues for another 10 years. So, any shorts should be measured in days and not weeks.
Q: Should I start chasing oil, because it’s been on quite a run, and should I buy Exxon (XOM)?
A: Yes, if we get an economic recovery next year, oil goes over 100 easily and will take all the oil companies up with it.
Q: Is (UNG) a domestic or foreign gas ETF?
A: It’s mostly domestic, and it’s a mix of the top natural gas producers in the US.
Q: Are the BRIC countries going to bring down the dollar?
A: You’ve got to be out of your mind. Would you rather store your money in China and Indonesia or the US? That’s your choice. I know there’s a lot of internet conspiracy theories out there—I get about a question a day on this. It’s Never going to happen; not in my lifetime. But it does attract internet traffic, which is the purpose of putting out these ridiculous stories like a BRIC-engineered digital currency replacing the dollar as a reserve currency. It’s just clickbait.
Q: Why is there a short squeeze in copper?
A: EV production is going from 2 million to 10 million a year in 2030, and every EV needs 200 pounds of copper. By the way, there are now 527 EV models on the market, but only one company makes money doing this, and that’s Tesla (TSLA).
Q: We’ve been waiting for a recession in the US for years, and US consumers are still going strong. What gives? I want rates to drop so I can invest in real estate again.
A: Well, yes. This recession has been predicted for 2 years. The problem is we have a certain political party telling us every day that the economy is the worst it’s ever been when, in actuality, the health of the economy is amazingly strong, and certainly the strongest economy in the world. So, I don't think we get a real recession until well into the 2030s because of massive technological development and a huge demographic tailwind—that’s an absolute winning combination, last seen in the 1990s. Plus, now we have AI accelerating everything. So, look at the numbers; don’t listen to opinions. Opinions can be fatal to your wealth.
Q: Does the use of an adjustable-rate loan make sense for the purchase of a second home?
A: Yes, it does. During the great interest rate spike of the 1980s, I bought my home in New York with an adjustable-rate loan. The initial interest rate was 18%, but when rates dropped to 11%, the value of the home tripled. Not a bad trade—and I bet the same kind of opportunity is out there now, provided you can get another adjustable-rate loan. By the way, in Europe, they only have adjustable-rate loans. The 30-year fixed anomaly only exists in the US and Canada because you have the US government as the unlimited buyer of last resort for 30-year fixed mortgages.
Q: Thoughts on other steel companies and aluminum?
A: I like them all. The country needs 200,000 miles of new long-distance transmission lines to accommodate the electrification of the economy, and those are all made out of aluminum except for the last mile—most people don’t know that. Buy Alcoa (AA).
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
Global Market Comments
March 6, 2023
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or A WEEK WITH JOHN THOMAS)
(SPY), (TLT), (TSLA), (NVDA), (WEAT)
CLICK HERE to download today's position sheet.
In 1942, after the First Marine Division won the battle of Guadalcanal and my Uncle Mitch won his Medal of Honor, they were shipped to Melbourne, Australia for six months of rest and relaxation.
Since their uniforms were in rags and many men were barefoot, they were handed scratchy WWI surplus wool uniforms. That’s all the Aussies had, as their army was off fighting Rommel in North Africa.
All 8,000 men lived in the Melbourne Cricket Ground, and the government delivered a truckload of beer barrels every day. Whenever the men went outside, they were invited by local families off the street to have dinner. After four months, they were fat and happy.
Then one day, they were placed on a train with full battle gear, taken 50 miles out of town, and told to walk back with no food and a canteen of water. They were retraining for the next battle, which would be in New Guinea.
When economic data flip-flops, so does the market.
The red-hot January Nonfarm Report with the Unemployment Rate at a 50-year low of 3.5% gave the bulls every reason to buy stock. So stocks can’t fall.
But a strong jobs market means the Fed will keep interest rates higher for longer gives plenty of fodder for the bears. So stocks can’t rise.
My Mad Hedge Market Timing Index is equally confused at 55. You can’t get any closer to 50, which means you should do absolutely nothing.
Notice that the S&P 500 (SPY) bounced off the 200-day moving average at $390.95 to the penny and rallied, a perfect symptom of this disease. When the fundamentals are confused, technicals win.
At this late age, the only one I take orders from is named Mr. Market. Ignore his instructions at your own peril and expense. Everyone else can get lost.
That leaves us nothing to do but to wait for the next events of market consequence, the March 14 CPI and the December 22 Fed interest rate decision. We might as well twiddle our thumbs and watch the clock until then.
So I will stick to my market-neutral strategy as long as I must take in enough money to keep the lights on. I keep doing this knowing full well that the last time I do will lose money.
This could go on for months.
In the meantime, I will keep researching the long term, which continues to look better and better. The dross ends in months. It’s the next decade we need to focus on now.
It's time to polish our armor, sharpen our weapons, and get back in shape, just as the First Marine Division did 81 years ago.
Remember that we are in the “what’s next” business. Whatever you buy now has to be discounting the following coming trends:
Falling interest rates
A weak dollar
Rising commodity prices
Rising energy prices
Reaccelerating tech earnings
A new boom in real estate
Precious metals going to record highs
Strong emerging markets
A Ukraine win leading to global peace
America’s principal adversary is rendered impotent
A second peace dividend ensues
Every trade alert I send you this year will be taking of one or more of these trends. It’s just a matter of time before they begin if they haven’t already.
We had a really great last two days of February, pushing me back in the green for February, taking me up +3.41% on the month. March has so far come in at +0.80%.
My 2023 year-to-date performance is still at the top at +26.56%. The S&P 500 (SPY) is up +6.36% so far in 2023. My trailing one-year return maintains a sky-high +85.51% versus -5.66% for the S&P 500.
That brings my 15-year total return to +623.75%, some 2.72 times the S&P 500 (SPX) over the same period. My average annualized return has recovered to +47.37%, still the highest in the industry.
Nothing Happens Until March 14, at 8:30 AM EST when the next big inflation read, the Core CPI comes out. It’s all about inflation right now. Look for a flat line until then. That’s why it’s a good time to run short strangles and own lots of cash. A dollar at a market bottom is worth $10 at a market top.
S&P Case Shiller Gains 5.7% in December, YOY according to its National Home Price Index. That’s a quarter of the gains seen a year ago. Miami (15.9%), Tampa (13.9%), and Atlanta (10.4%) showed the biggest gains. High mortgage interest rates are still a big drag and will continue for another six months.
Pending Home Sales Soar 8.7% in January on a signed contract basis. It is the second straight month of gains and the biggest in 2 ½ years. See what a 1.5% drop in mortgage rates can do? While rates are back up now it shows how much demand is building up in the residential real estate market. I think this market explodes to the upside by yearend.
Mortgage Rates Jump to 6.65%, snuffing out the green shoots that briefly appeared in January. Mortgages are still maintaining an unprecedented 200 basis point premium to 30-year Treasury bond rates, which should disappear by yearend. The seeds of the next housing boom are germinating.
Tesla Tanks Semiconductor Shares, after Elon Musk announced that he plans to cut silicon carbide chips by 75%. Improved new designs will also slash the number of chips needed for EVs, whose supply and prices are notoriously volatile. New chip designs will appear in the $25,000 model 2 due out in 2025.
Ark’s Dirty Little Secret. Cathy Woods’ ARK Innovation Fund (ARKK) is one of the top-performing funds so far in 2023, up 24%. But strip out the performance of Tesla (TSLA) and the five-year return has been precisely zero. Good thing (TSLA) is up 110% this year. Maybe its cheaper just to buy (TSLA) and skip the dross and high management fees at Ark? Elon Musk thinks it’s going to $1,000 a share and so do I. Oh, and they just dropped the price of their top end Model X by $20,000.
Stellantis (STLA) Buys a Copper Mine, taking a 14.2% stake in Argentina’s McEwen Copper mine. Gee, do you think the owner of the Chrysler brand is going into EVs? They also laid off 2,000 because with 80% fewer parts EVs require far less workers. Buy Copper and Freeport McMoRan (FCX) on dips. The global copper shortage is imminent.
China Manufacturing PMI Hits 11-Year High, at 52.6 in a surprising comeback from the end of covid lockdowns. The news hit the bond market, worried about rising inflation prospects. Supply chain problems in the US should ease as a result.
Wheat Prices Crash, seeing a 6% dive in February. What always follows a food shortage? A food glut, as farmers overplant to cash in on generous government subsidies, creating a bumper crop. It’s only a 100-year cycle. Prices will stay low as long as Ukraine can keep exporting.
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, March 6 at 7:00 AM EST, US Factory Orders are out.
On Tuesday, March 7 January 31 at 7:00 AM EST, the Federal Reserve Governor Jerome Powell testifies in front of congress.
On Wednesday, March 8 at 7:00 AM EST, the JOLTS Job Opening Report is released.
On Thursday, March 9 at 8:30 AM EST, the Weekly Jobless Claims are announced.
On Friday, March 10 at 8:30 AM EST, the Nonfarm Payroll Report for February is released.
As for me, while I was in Hawaii the other week, I took the opportunity to meet up with my old friend, David, who reminded me of the week to end all week 25 years ago.
I first met David at a Tokyo karate dojo in 1974 when he was 16 and his dad was the Associated Press Bureau Chief.
As we were about the same size, Higaona Sensei paired is off as sparing partners. But to fight, David had to take off his glasses. It wasn’t long before I saw my front teeth flying across the room and skittering across the teak floorboards.
I next met David at Morgan Stanley when I was a London director, and he was a junior trader in Tokyo. After that, I took off to start my own hedge fund.
When Morgan ordered him to meet with their traders in Zurich, Switzerland, I saw the perfect excuse for an adventure. Starting in London, we first dropped off our wives for a week of shopping in Paris, flying my twin Cessna 340.
I used my old trick of getting permission to fly over the center of Paris so I could waggle my wings at the tourists as we passed the top of the Eiffel Tower.
In Zurich, I got in a fight with the tower because they ordered me into a parking stand that was still under construction. I left David to his meetings, thus enabling us to bill the entire trip to Morgan Stanley, aviation fuel, five-star hotels, three-star restaurants, and all. If you did that today at (MS) you’d probably get fired.
I then flew off to pick up a couple of cases of first-growth French wines from the owners in Bordeaux to kill time.
When I picked up David the next day, we headed south. It was a clear day, so I thought it might be a good time to visit the Matterhorn summit. As we circled, the day’s successful climbers waved their ice axes. Then it was up the Rhone River Valley, threading an Alpine valley.
When I realized that I couldn’t climb fast enough to escape the valley, I executed a quick Immelman turn. You’re never supposed to do this in a twin because there is a risk of entering a flat spin (watch the Top Gun movie to see what this is).
But I had my British Aerobatics license, my Swiss Alpine license, plenty of speed, and an oversupply of confidence, so I figured we’d be OK. I performed the first half of a loop, then at the top, I flipped the plane 180 degrees, thus righting it and heading in the opposite direction. But I think we singed the rear ends of a few mountain goats on the way.
Needless to say, this caught David’s attention.
When I popped out of the top of the Alps, I was immediately intercepted by a Mirage fighter from the Swiss Air Force. I was now in military air space. He took a few runs at me at just under Mach 1, using me for target practice. Once I was identified he went on off his merry way.
Now I was lost.
All the maneuvering put me too low to intercept any European navigational aids. So we just looked out the window. Eventually, we noticed that to roof tiles of the city below us were red, which meant we had to be over Italy. I correctly identified it as Bolzano. From there I calculated a direct track to the airfield at St. Moritz in Switzerland.
We stayed at the legendary Badrutt’s Palace Hotel. The next day, we took a cable car to the highest peak. While American ski resorts offer cheeseburgers or pizza, Swiss ones have Michelin Three Star Restaurants. We enjoyed the meal of a lifetime.
When the Tokyo stock market crashed, Morgan Stanley let go of most of its Tokyo staff. David landed on his feet, taking over as the head of trading at Lehman Brothers. He later moved on to a hedge fund, cashing in its Lehman stock well before he went under.
David later retired to the North Share of Oahu in Hawaii, and I visit whenever I’m in town. He is very proud of his tropical fruit orchard. When the 50-foot waves crash at nearby Waimea Bay, the ground shakes.
Whenever I see David, he reminds me of our “lost week” over the Alps. It was the most exciting week of his life. And I always respond, “But David, every week is like that for me.”
When I visit Bolzano this summer to research the battles there in WWI in which my great uncle perished, I’ll ask the residents if they noticed a lost airplane overhead 25 years ago.
Good Luck and Good Trading
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
The First Marine Division in the Melbourne Cricket Ground in 1942
Higaona Sensei in 1974
Badrutt’s Palace Hotel in St. Moritz
Refueling my Cessna 340 in 1988
Global Market Comments
August 15, 2022
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD,
or WHAT THE MARKET IS REALLY DISCOUNTING NOW),
(SPY), (TLT), (AAPL), (AXP), (KO), (XOM). (TBT), (SNOW), (NFLX), (ARKK), (ETHE),
(NLR), (CCR), CORN), (WEAT), (SOYB), (DBA), (UUP), (FXA), (FXC), (BA), (TSLA)
