Global Market Comments
November 18, 2024
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD or OUT WITH THE NEW, IN WITH THE OLD) Plus REPORT FROM THE QUEEN MARY II),
(TLT), (TSLA), (DHI), (LEN), (KBH), (LMT), (RTX), (GD), (GLD), (SLV), (GOLD), (WPM), (JPM), (NVDA), (BAC), (C), (CCJ), (MS), (SPY)
“Take things as they are and profit off the folly of the world.”
That is one of my favorite quotes from Anselm Rothschild, founder of the Rothschild banking dynasty, which ruled the financing of Europe for centuries. I lived next door to his great X 10 grandson in London for ten years, the late Jacob Rothschild, and boy, did I learn a few nuggets from him.
It's really just another way of saying that you have to trade the market you have, not the one you want. By the way, Anselm’s other famous quote? In 1815, the year the British defeated Napoleon at the Battle of Waterloo, he said, "I care not what puppet is placed upon the throne of England to rule the Empire on which the sun never sets. The man who controls the British money supply controls the British Empire, and I control the British money supply."
And that shall be my strategy in the coming years. The good news? There is a ton of folly out there and, therefore, tons of great new trades.
Let’s start with the market themes. Out with the new, in with the old. Falling interest rates plays are out. Rates will stay higher for longer. Artificial Intelligence will take an extended vacation. Saving the environment is history. Take a look at the woeful underperformance of NASDAQ. That will allow earnings to catch up with share prices, which are already at nosebleed levels.
Money managers will sell these areas, which in many cases have seen enormous appreciation, to finance the purchase of the new themes. These include deregulation, the end of antitrust, the Bitcoin ecosystem, and Tesla (TSLA).
It helps a lot that the outgoing themes are incredibly expensive, with price-earnings multiple of 30X-100X, while the new ones are dirt cheap, with multiples of 15X down to single digits.
Buy cheap, sell expensive….I like it!
If you think I’m just an aging old hippy from Berkeley spouting his iconoclastic, out-of-touch-with-reality views, then check with Mr. Market, who agrees with me on every point and is never wrong.
Notice the collapse of the bond market (TLT) since September. Fed funds futures have already backed out 100 basis points of easing, from 250 basis points to only 150, and we have already seen the first 75. If inflation makes a rapid comeback (prices started rising on November 6), we are likely to only see a couple more 25 basis point cuts from the Fed in this cycle, and that’s it.
The 30-year fixed rate mortgage has rocketed from 6.0% to 7.13%, sticking a dagger through the heart of the real estate market and homebuilders (DHI) (LEN), KBH).
Defense? Who needs weapons when we are withdrawing from the international community? We will just have to depend on our existing 50-year-old defense systems. And while you’re at it, end “cost plus” contracts, which have inflated defense spending since 1940.
This is what fried the shares of Lockheed Martin (LMT), builder of the Blackhawk helicopter, Raytheon (RTX), maker of Javelin antitank missiles, and General Dynamics (GD), manufacturer of the Abrams tank after the past month. What happens to these stocks when the Ukraine War ends?
I have received a lot of questions about whether it is time to go into pharmaceutical and biotech stocks. The answer is no, a thousand times no. The appointment of anti-vaxxer Robert F. Kennedy as the head of Health and Human Services puts the kibosh on that trade, who is likely to declare war on that department. That explains the wipeout of shares in that sector.
Precious metals? Forget it (GLD), (SLV), (GOLD), and (WPM). Witness their own recent hell they have entered. There is no doubt that the election ended the gold trade, which has fallen by 8.3% since November 5. That’s because investors pulled $600 million out of gold-backed ETFs just in the week ending November 8, according to the World Gold Council. It just had its worst week in three years. “Interest rates higher for longer” absolutely does not fit anywhere in the precious metals trade.
Another contributing factor has been the strength of Bitcoin, which raced to a new all-time high of $93,000 on the back of the Trump win. The industry had been a major contributor to the Trump campaign. What better way to fund Bitcoin purchases than to sell your gold, which in any case is up 40% in a year? Money has been pouring into Tesla shares for the same reason.
At some point, gold will fall to a level where Chinese saving alone supports the price. There is no way of knowing where that is, so I’ll wait for the market to tell me. Central bank buying will continue unabated, which has totaled 694 metric tonnes ($5.3 billion) so far in 2024.
I believe that gold will still hit $3,000 an ounce over the long term. But for now, the shine is clearly off those American Eagles. The last time gold took a rest, from 2011 to 2019, it was for eight years.
The bottom line is that there are plenty of new fish to fry out there and plenty of fire with which to cook them. Does anyone have any matches?
In November, we have gained a breathtaking +8.19%, amazing adding to our gains while the market dropped 2.3%. My 2024 year-to-date performance is at an amazing +61.33%. The S&P 500 (SPY) is up +25.79% so far in 2024. My trailing one-year return reached a nosebleed +62.15%. That brings my 16-year total return to +737.86%. My average annualized return has recovered to +53.02%.
I maintained a 100% long-invested portfolio, betting that the market doesn’t drop below pre-election levels. That includes (JPM), (NVDA), (BAC), (C), (CCJ), (MS), and a triple long in (TSLA). My November position in (JPM) expired at max profit. We should make 46 basis points a day until the December 20 option expiration in 24 trading days, thanks to time decay and falling volatility.
Some 63 of my 70 round trips, or 90%, were profitable in 2023. Some 73 of 93 trades have been profitable so far in 2024, and several of those losses were really break-even. That is a success rate of +78.49%.
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 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, November 18 at 8:30 AM EST, the NAHB Housing Market Index is out.
On Tuesday, November 19 at 8:30 AM, the US Building Permits take place. Nvidia (NVDA) announces earnings after the close.
On Wednesday, November 20 at 8:30 AM, the MBA Mortgages Rates are announced.
On Thursday, November 21 at 8:30 AM, Existing Home sales are printed. We also get Weekly Jobless Claims.
On Friday, November 22 at 8:30 AM, the S&P Global Flash PMI is announced. At 2:00 PM the Baker Hughes Rig Count is printed.
Location: 48 degrees, 02.12 minutes North, 043 degrees, 42.08 minutes West, or 1,421 nautical miles ENE of New York.
As for me, The Queen Mary 2 is currently plowing its way through a massive fog bank a thousand miles thick, sounding the foghorn every two minutes. Visibility is less than 100 yards, and the waves are a rough 12 feet high. The captain has closed the outside decks for fear of losing a passenger overboard. The weather has disrupted our satellite link, and our Internet is down. So here I write. Leave me alone with a laptop for an hour, and I can conquer the world.
One hour out of New York, and a passenger suffered a heart attack. So the captain turned the ship around and headed back to the harbor, where the New Jersey Search and Rescue sent out a launch to pick up the unfortunate man and his distraught spouse. Every passenger leaned over the port railing to watch.
That meant we could pass under the Verrazano Bridge three times, on each occasion deftly clearing the span by a mere ten feet. Talk about inauspicious beginnings. Visions of Leonardo di Caprio going down with the ship danced across my mind.
The ship is truly gigantic. You must allow 20 minutes to get anywhere, 5 minutes to walk there, and 15 minutes to get lost. When launched two decades ago, it was the largest cruise ship ever built at 148,900 tons, nearly double the size of the now decommissioned Queen Elizabeth II. It whisks up to 3,000 passengers and 1,325 crew across the seas in the utmost luxury at a steady 21.5 knots. You could water ski behind this leviathan of a vessel if only the crew permitted it.
As a 50-year guest of Cunard and the highest paying customer on the ship, I managed to bag the Sandringham Suite, possibly the most luxurious publicly available oceangoing accommodation ever created. The 2,200 square foot, two-floor, two-bedroom, three-bathroom, Q1 class apartment on decks nine and ten included a formal dining room, kitchen, his and her closets, a small gym, and 1,000 square feet of rear-facing teak deck.
All of this was a bargain for $56,000, or about the same as renting the presidential suite at the San Francisco Ritz for a week at $10,000 a night, except at the end, you wake up in England five pounds heavier. Not that I noticed, though. By the afternoon, the two complimentary bottles of Dom Perignon Champagne were already headed for the recycling bin.
The suite came staffed with two full-time butlers, Peter and Henry, who were an endless font of fascinating information about the ship. During one unfortunate cruise, eight senior citizens passed away. The onboard morgue held only six, so the extra two were stashed in the meat locker for the duration of the voyage. There was no reported change in the flavor of the Beef Wellington.
I asked if Cunard had ever performed burials at sea in these circumstances. They said they used to. But a few years back, an elderly billionaire, “Mr. Smith,” checked into a deluxe Q1 cabin with a hot young “Mrs. Smith” and then promptly expired. The grieving widow requested he be buried mid-Atlantic with the traditional yard of sail and a cannonball. When the ship docked at Southampton, a much older, real “Mrs. Smith” appeared to claim the body and sued the company when informed of his current disposition. So, no more burials at sea.
Yes, the ship did hit a whale once, which stuck to the bulbous bow. When it landed in Portugal, Cunard was fined for commercial fishing without a license. The unlucky cetacean’s skeleton is now in a Lisbon maritime museum. Apparently, this company gets sued a lot.
Of course, the memory of the sinking of the Titanic is ever present. There is a history display down on deck 2, and you can even have your photo taken in front of a backdrop of the grand staircase of the ill-fated ship. When we passed 10,000 feet over the wreck at 48 degrees, 38.50 minutes North, 50 degrees, 00.11 minutes West one day out of New York, the Queen Mary 2 let out three long blasts of its horn in memory of the lost. Cunard took over the Titanic’s White Star Line during the Great Depression and is, therefore, the inheritor of this legacy.
When I visited the computer center, I was stunned to learn that they were offering three-hour long classes on Apple products and programs every hour, all day long. They covered iMacs, iPads, iPhones, and all of the associated software and gizmos. I promptly signed up for five classes. Watch for my next webinar. It will be a real humdinger, with all the bells and whistles.
You would think that with 280 pounds of luggage, I could remember to bring a pair of black socks. It was not to be. So I headed out to the ballroom with my black tux and navy blue socks to tango, rhumba, and foxtrot with the best of them. The problem is that just as you twirl, the ship rolls, swiping the dance floor right out from under you. With several Octogenarian couples within range and my size, the consequences could have been fatal. Still, those oldsters really knew their steps. I really hope those pictures come out, especially the one of me on the dance floor, flat on my back.
Looking at the vast expanse of the sea outside my cabin window, I am reminded of the opening scenes of the 1950’s WWII documentary Victory at Sea. An endless, dark, tempestuous ocean churns and boils relentlessly. I am now even more awed by my early ancestors, who took three months to cross from Falmouth to Boston in a 50-foot-long wooden ship called the Pied Cow in 1630. They did this without navigation to speak of rotten food and a dreaded fear of sea monsters. What courage or religious ferocity must have driven them?
Four days of hearing foghorns is starting to get tiring. Captain Wells has been ducking many of his social responsibilities, feeling more secure in the bridge close to the radar. After a few days of intermittent access, the Internet is now gone for good, the satellite connection having given up the ghost. People are blaming everything from a lightning strike on the Virginia ground station to late-night watching of porn by the crew.
Instead of surfing the net, I am devoting more time to exercise in anticipation of my upcoming Swiss mountain climbing adventures. I have developed a careful routine where I fast walk three times around deck 7 in a brisk wind, take the elevator down to deck 1, walk up the stairs to deck 13, speed past the kennels, the practice golf range, two swimming pools, and a bar.
I can accomplish all of this three times in an hour and do it with 40 pounds of books stashed in my backpack. My butler, Peter, tells me there is always a certifiable nut case on every cruise, and I have been designated by the crew as “THE ONE”.
The 2,600 passengers are quite a mixed batch. We have 1,200 British, 750 Americans, 350 Germans, 80 Canadians, 4 dogs, three cats, and an assortment of other nationalities, and exactly one Japanese couple who didn’t speak a word of English.
I took pity on them and spent an evening translating and catching up on the world at large with them. He was a retired dance instructor, which explains why he and his wife owned the dance floor on most nights. They were grateful for the conversation, for during their entire 30-day cruise from New York to Southampton, then the Baltic Sea and the Norwegian fiords, then back to New York, they had no one to speak to. Still, that was better than last year, when they completed a 105-day round-the-world cruise with no one to talk to. Before they left, they gave me an exquisite, handmade, traditional Japanese purse as a gift.
Queen Mary II Passing Under the Verrazano Bridge
Your Intrepid Reporter
Breakfast on the High Seas
Check Out My New Digs
The Hard Life at Sea
Good Luck and Good Trading,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Before I took off for the current trip to Europe, I logged into my Amazon Prime account to buy some lightweight polyester T-shirts, size 4XL. Not only are these ideal for long-distance hiking but they can be washed in a hotel sink and dried quickly when I am traveling too fast to use the house laundry.
The next morning when I logged into my laptop, my email account was flooded with ads for every kind of T-shirt in the world, from heavy-duty sports types FOR $100 to bargain basement $5 ones from China (although the Chinese ones were a little light on the 4X sizes).
That is Amazon’s AI at work. And you know what? It is getting smarter. And while the big fear among investors is that the US government will break up this retail giant for antitrust reasons, Amazon is integrating faster than ever. The impact on profits will be enormous.
My friend Jeff Bezos’ creation has a lot to work with. Amazon not only pioneered online retail. It subsequently invented the Kindle, an e-reader (click here where the John Thomas autobiography is for sale) Alexa, a smart speaker and, more consequentially, cloud-computing—Amazon Web Services has a 31% share of that $300bn market (full disclosure: Mad Hedge uses their service).
It also runs Prime Video, America’s fourth-most-watched video-streaming service (full disclosure: Mad Hedge is a Prime member). Its newish, high-margin advertising business is already the third largest in the world behind Alphabet (GOOGL) (Google’s parent company) and Meta (META) (Facebook’s).
Amazon also has a few moonshot projects of its own. One subsidiary, Zoox, is building self-driving cars. Another, Kuiper, is developing a fleet of communications satellites in low-Earth orbit, in competition with SpaceX Starlink (full disclosure: Mad Hedge is a Starlink user).
This year, Amazon’s websites will sell a staggering $554bn-worth of goods in America. That gives it a 42% share of American e-commerce, far beyond the 6% captured by Walmart (WMT), its nearest online competitor (and the country’s biggest retailer overall). The reward for all these efforts was a $2 trillion market capitalization in June and an all-time high share price of $203.
Amazon’s fourth decade looks poised to be an era of integration. The company has grown to the size that any needle-moving new investment is costly and high-risk. Andy Jassy, the former boss of AWS whom Bezos appointed as his successor as CEO in 2021, therefore appears keen to generate value by stitching the company’s existing businesses together more tightly.
Jeff, who I knew at Morgan Stanley, still retains a 9% stake after some hefty recent sales and a big say over strategy, seems to approve. This metamorphosis would make Amazon more similar to Apple (AAPL) and Microsoft (MSFT), two older big-tech rivals that have bundled and cross-sold their way to world domination in consumer devices and business software, respectively—and to $3trn valuations.
Retail and advertising appear to be the first to integrate. The thread running through the two businesses is Prime, Amazon’s $139 a-year subscription service, which has 300m-odd members around the world, providing shoppers with free delivery and access to Prime Video. Prime members like me spend twice as much on Amazon’s websites as non-members do and they tend to be logged in more often. Amazon also has intimate knowledge of their shopping behavior, which allows it to target ads more accurately.
Advertising is another great hope at Amazon. Advertisers are willing to pay handsomely for this service: analysts estimate that Amazon’s ads business enjoys operating margins of around a mind-blowing 40%, higher even than those of the cloud operation, not to mention the much less lucrative retail division.
Most of these ads, responsible for four-fifths of the company’s ad sales, are nestled among search results on its app or next to information about products, as with my above-mentioned T-shirts. But a growing share is coming from third-party websites and, most recently, from Prime Video. In January Amazon started showing commercials to viewers in America, Britain, Canada, and Germany.
Analysts reckon that video ads alone will boost Amazon’s ads sales by about 6% this year, adding $3bn to the top line. Given the ad operation’s fat margins, the impact on profit will be considerably larger.
To turn more Prime members into actual ad-watchers, Amazon is splurging on content. It recently signed a contract with Mr. Beast (??), a YouTube superstar, rumored to be worth $100m. It is trying to seal a deal in which it would pay $2bn a year for the rights to show National Basketball Association games on Prime Video. It is already reportedly spending $1bn annually to stream some National Football League (NFL) fixtures.
This hefty price tag is worth it, the company thinks, because popular sporting moments, such as “Thursday Night Football”, have turned out to be among the biggest sign-up days for Prime. Ads aired during sports events are some of the most lucrative in all of the ad business.
Analysts speculate that clever AWS software may also be assisting the retail operation’s 750,000 warehouse robots in sorting shoppers’ packages. And having a business as gigantic as Amazon’s retail arm as a captive customer gives AWS the confidence to scale up, helping spread costs.
The most important thread stitching Amazon’s two main businesses together is generative AI. Most rivals will struggle to match Amazon’s access to specialized AI hardware, which is in short supply but which it has in abundance thanks to long-standing commercial partnerships with companies like Nvidia (NVDA), which makes advanced AI semiconductors.
Amazon’s recent share-price rise was uninterrupted by a Fair Trade Commission lawsuit. But for every cloud customer that AWS loses to rivals such as Microsoft Azure or Google Cloud Platform, it could win one that is repelled by Microsoft’s and Google’s new businesses in their own increasingly tightly-knit empires.
It all looks like a giant, super-efficient machine to me which should justify at least a 50% gain in Amazon’s share price in the next year or two.
Global Market Comments
May 17, 2024
Fiat Lux
Featured Trade:
(MAY 15 BIWEEKLY STRATEGY WEBINAR Q&A),
(GME), (CCI), (ABNB), (TLT), (TSLA), (LMT),
(RTX), (USO), (GLD), (GOLD), (WPM)
Below please find subscribers’ Q&A for the May 15 Mad Hedge Fund Trader Global Strategy Webinar, broadcast from Incline Village, NV.
Q: Is it time to get out of the 94/97 (TLT) spread?
A: No. We're getting close to a stop, but I think markets will peak out in the next couple of days and we can get out with a small profit. The weak PPI/CPI/Nonfarm, payroll was a game changer. So watch carefully as always. I could have come out of that with 2/3 of the profit last week, but who knew the market would go up 10 out of 11 days?
Q: What are your thoughts on meme stocks? I see that GameStop (GME) is up 550% in a week.
A: This is not investment, it's pure gambling. And if you do want to gamble, there are much better games to play than meme stocks. For example, Blackjack gives you a 51-49% risk in your favor, and slot machines are not too far off at 55-45%. This is not the same meme stock run that we had three years ago. Back then, the short interest in (GME) was 125%, which is more than the outstanding shares that existed. People are still trying to figure out how that happened. Now, the short interest is only 20%, so this may peak out a lot quicker than last time. In any case, it’s a totally random movement. It's just for kids to do because if kids lose all their money, they can start over again and still have enough money to retire. Chances are if you lose all your money, you won't have enough money to retire, so just another reason to stay out of meme stocks.
Q: I'm noticing the REITs are beginning to make a comeback. Can you comment?
A: They've actually been on a terrific run the last several weeks. Some of my favorites like Crown Castle Inc. (CCI) have had really big moves, and this is just the beginning of a major upside; and not only REITs, but all interest rate plays, and it turns out almost everything is an interest rate play when you look at it. Utilities, secured loans, junk bonds—it's a huge universe. So that's why I say buy everything; everything that's going to go up at all is especially positively affected by lower rates, especially precious metals—gold and silver. And when things go up, the definition of a precious metal expands. It now includes copper, palladium, and platinum, which has had an enormous run.
Q: Can we expect a recession to hit in 2025?
A: Absolutely not. We're in the early stages of a golden age of a decade, of appreciating assets of all kinds; not only stocks and bonds, but real estate, collectibles, baseball teams—you name it. So don't leave the game after the first inning, to use a baseball metaphor. And for you foreigners out there who know nothing about baseball, that means don't leave too early.
Q: Is the housing market overvalued in the US?
A: Good question, you'd certainly think that if you're out there trying to buy a house (and I've been shopping myself lately). The answer is absolutely not. It may be overpriced in the most expensive US markets like Manhattan, Honolulu, Hawaii, or San Diego, but it's still a fraction of what you have to pay in Hong Kong, Australia, or Vancouver, Canada. So prices can go a lot higher. Remember, we have a structural shortage of 10 million homes in the US and they’re not building new ones fast enough. They could double in price from here, especially if the Fed starts to cut interest rates, which they have promised to do. I think we're on the verge of another big housing boom, which will create more home equity, and guess what happens to that home equity? It eventually ends up in the stock market. It becomes a virtual love fest with housing prices making stocks go up and stocks making housing prices go up.
Q: Would you consider Bitcoin now?
A: Absolutely not, especially when you can buy things like Wheaton Precious Metals (WPM) and Barrick Gold (GOLD), which will probably double in the next year and actually have real assets with real earnings flows. With Bitcoin, you're essentially buying ether, and the time to buy Bitcoin was at $6,000, not at $60,000. You don't buy stuff after it's gone up 10 times. So again, just from a market timing point of view, it's a terrible idea. So there are better things to do. You can buy high-quality stocks at reasonable multiples right now.
Q: Is Airbnb (ABNB) a buy here?
A: I would. It is the world's largest hotel in an economic recovery. There's a huge demand for hotels and revenge travel. They're also branching out into higher-margin items like experiences. So yes, I do love the company and the quality of its management for sure.
Q: Markets are all-time high. Should I sell in May and go away?
A: Only if you're a short-term trader. If you’re a long-term investor and you sell now, I guarantee you'll miss the next bottom to get back in. So for short-term traders, yes, take profits like crazy—markets are way overbought. They either need some kind of correction or flat-line move for a period of time.
Q: Is buying American farmland a good investment for buying an index fund?
A: Well, if you look at the big portfolios of the great wealthy names like the Rockefellers, the Duponts, and all of my former clients at Morgan Stanley basically; they have loads of farmland and loads of forests—lots of forests. In fact, forests are trading at a big premium right now. It's considered the world's safest long-term asset. And as long as you don't have debt on it, it always goes up in value over time. So yes, that is a good investment. US farmland is the most productive in the world, and the number of people in the world isn't shrinking. In fact, the main reason China will never start a war with the US is because they're dependent on the US for about half its total food supply. So that's why I can always ignore all these China or Taiwan invasion warnings.
Q: Should I take a look at defense stocks?
A: Absolutely, yes, thanks to the invasion of Ukraine. Virtually every country in the world that has any money is expanding defense spending. This is not a short-term thing. Defense is a very long-time lag industry. When countries like the US buy planes, it's often for ten or twenty years, and then you have the upgrades to follow that, and third-country sales. So the big stocks are Lockheed Martin (LMT) and Raytheon (RTX). I would buy both of those on the dips. They have already had good moves, but what hasn't? Though there are not a lot of bargains left in this market after a heroic six to seven-month run.
Q: Is the webinar recorded for replay?
A: Yes, just go to our website madhedgefundtrader.com. Log in, go to My Account, and you'll see the opportunity to review the video of this presentation.
Q: Is it time to buy Google (GOOG)?
A: Yes, I think we're on an uptrend that continues for the rest of the year, and Google will keep leaking out its advantage in AI in bits and pieces. I saw the video you were talking about; you just leave the phone’s video on all the time, and then you could say, “Where are my glasses?” and it'll tell you where your glasses are: “You left them on the table in the dining room.” That's one of the many millions of applications we will see.
Q: Thoughts on Tesla (TSLA)?
A: We're trying to put in a bottom here. Get ready for the buy alerts—I think on the next plunge down I may actually jump in. We still have a very high volatility, and you have plenty of great pickings in the options market with high implied volatilities.
Q: Where are we on refilling the strategic oil reserves (USO)?
A: Biden made no effort to refill them. They were about at half-full levels when we hit the bottom last time, so maybe he will next time. I think he's more interested in just getting out of the oil business altogether, moving to alternative energy, and getting rid of the strategic oil reserve since we are now a net energy producer, net oil exporter, the world's largest oil producer in the world. We don't really need emergency reserves like we did in 1970 when these were first set up.
Q: Sometime back, you said to avoid miners of precious metals. Is that still your opinion?
A: No, I think we're in a position now where the miners can start to catch up with the metals. In the beginning of the year, it was clear the metals were going to outperform the miners because the miners were seeing their margins cut by high inflation. That's still the case. My first choice is still the metal, but you could get a big catch-up trade in the silver and gold miners. So, as I keep saying, buy Barrick Gold (GOLD) and (WPM).
To watch a replay of this webinar with all the charts, bells, whistles, and classic rock music, just log in to www.madhedgefundtrader.com, go to MY ACCOUNT, select your subscription (GLOBAL TRADING DISPATCH, TECHNOLOGY LETTER, or Jacquie's Post), then click on WEBINARS, and all the webinars from the last 12 years are there in all their glory
Good Luck and Stay Healthy,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Global Market Comments
May 13, 2024
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or THE GREAT AMERICAN GOLDEN AGE HAS ONLY JUST BEGUN and SWIMMING WITH THE SHARKS)
(AAPL), (NVDA), (META), (GLD), (GOLD), (SLV), (WPM), (MSFT), (NVDA), (TLT), (FCX), (FXI), (BRK/B)
The Bull Market has Five More Years to Run, with S&P 500 growing earnings at 10% a year for the foreseeable future. Last year brought in $222 per share, 2024 will see $250, 2025 $270, and $300 for 2026. The Great American Golden Age has only just begun.
Profit margins will expand to all-time record highs. Falling interest rates and a weak dollar will boost exports to a recovering Europe and Japan. Inflation should hit the Fed’s 2% in 2025 as AI chatbots replace workers at a breakneck rate, cutting costs dramatically as they already have at some firms. The future is happening fast. Buy everything on dips, even bonds.
The stock market couldn’t even manage a 10% correction in April. We got a measly 6.10% instead. It’s all about the economy, stupid. Leftover massive Covid spending and the $280 billion CHIPS Act have created a tidal wave of cash surging through the system with much of it ending up in stocks.
The top eight tech companies (the Magnificent Seven plus Netflix (NFLX)) accounting for 30% of the entire market cap are only getting stronger. The (SPY) has a current price-earnings multiple of 20X with the Big 8 and 17X without them going forward. It’s not cheap but better than a poke in the eye with a sharp stick.
Boring old high-yielding utilities will become a big play as the electric power grid has to triple in size to accommodate the voracious appetites of EV’s and AI. And as we have already seen in California and much of the country, utilities have no reservations about raising prices.
We are back to normal with interest rates, returning to pre-financial crisis levels. Certainly, a stock market at all-time highs is happy with rates. The real concern here is that the Fed DOES cut rates too fast to bail out the loan-dependent half of the economy and the US Treasury as well. That could trigger a melt-up in stocks that would make the last six months pale in comparison and make my own $6,000 target for the (SPX) look ridiculously conservative.
There is also a major generational change in demographics underway. Previous retiring generations, having experienced the Great Depression, hoarded savings and were a drag on the economy. The Baby Boomers are spending like there is no tomorrow because after going through COVID-19, there might not BE a tomorrow. The Boomers have thus turned into the greatest job creators of all time through their spending.
I’ve seen them everywhere in recent weeks in Florida, Cuba, Ecuador, the Galapagos Islands, Panama, and of course, San Francisco where a Big Mac Happy Meal costs $11. What they don’t spend is being passed on to Gen Xers and Millennials, creating a $75 trillion wealth transfer, the largest in history. A lot of this is going into stocks as well. Wonder where all that “meme stock” money is coming from?
And from the “Department of I Told You So”, notice that precious metals were on an absolute tear last week, with gold (GLD) up 4.78% and silver posting a gob-smacking 7.40%. The new demand that I was aware of but had no hard data on finally became public. Solar Panels are Driving Global Silver Demand in an unprecedented fashion. Global investment in solar PV manufacturing more than doubled last year to around $80 billion.
Miners are expanding their operations and ramping up production as prices for the precious metal climb to decade highs, sending gross revenues to the moon. Demand for silver from the makers of solar PV panels, particularly those in China, is forecast to increase by almost 170% by 2030, to roughly 273 million ounces—or about one-fifth of total silver demand.
That’s a lot of silver. Buy (SLV) and (WPM) on dips.
So far in May, we are up +4.14%. My 2024 year-to-date performance is at +18.75%, a new all-time high. The S&P 500 (SPY) is up +10.48% so far in 2024. My trailing one-year return reached +35.79% versus +30.58% for the S&P 500.
That brings my 16-year total return to +695.38%. My average annualized return has recovered to +51.83%.
I stopped out of short positions for small losses in (AAPL) and (NVDA) last week. I took profits on my long in (META). I am running my longs in (GLD) and (SLV) and my shorts in (MSFT) and (NVDA) into the Friday, May 17 options expiration. The only new position I added last week was a short in the (TLT).
Some 63 of my 70 round trips were profitable in 2023. Some 27 of 37 trades have been profitable so far in 2024.
Weekly Jobless Claims Hit a Nine Month High at 233,000, the bitter fruit of persistently high interest rates. New York City public school workers such as bus drivers are allowed to apply for benefits during winter and spring breaks, which tend to boost weekly claims numbers. Claims also picked up in California, Indiana, and Illinois.
Underwater Home Mortgages are Soaring, with the South taking the biggest hit. Roughly one in 37 homes are now considered seriously underwater in the US and that share is much higher across a swath of southern states. Nationally, 2.7% of homes carried loan balances at least 25% more than their market value in the first few months of the year. That’s up from 2.6% in the previous quarter. It’s another cost of high rates.
Online Retail Spending Up 7%, during the January-April period YOY. Cheaper items are seeing the fastest growth. Consumer discretionary spending has been in focus over the past several months, as sticky inflation has forced shoppers in various categories to trade down to more affordable products. It’s another sign of a modest slow, 1.6% growing economy.
Morgan Stanley (MS) Pushes Back Rate Cut Expectations to September. I couldn’t agree more. You see this in the $4 rally in bonds since last week. Sell short (TLT) for the very short term.
TikTok Sues the US Government, claiming its first amendment rights have been violated in a ban imposed on Congress. They will probably win. The national security threat posed by millions of dancing teenagers has never been showed. It’s just another talking point for technology-ignorant politicians egged on by Facebook (META) and other competitors. No one ever said the people in Silicon Valley were nice.
Social Security Trust Fund to Go Broke by 2035, according to US Treasury estimates. I knew they wouldn’t pay me after 55 years of contributions. Medicare is in less bad shape, not running out until 2036, a five-year extension. Retirees, the baby boomers, and exceeding new contributors, the Gen Xers. Expect your taxes to go up to fill the gap.
Berkshire Hathaway Delivers Blockbuster Earnings in Q1, thanks to a $9 billion pop in (AAPL) stock last year. Buffet just cut his massive position by 13% and will cut more. Total 2023 profits came in at a mind-numbing $93 billion. The company — whose divisions include insurance, the BNSF railroad, an expansive power utility, Brooks running shoes, Dairy Queen and See’s delivered a sharp swing from its $22 billion loss in 2022 because of the bear market. Its vast insurance operations that include Geico car insurance and reinsurance reported $5.3 billion in after-tax earnings for 2023, thanks to steep premium increases which we have all felt. Sell (AAPL), buy (BRK/B).
Bond Investors are Making a Killing, with the US Treasury paying out $900 billion in interest in 2023. That’s double the annual cost of the past decade. Remember those coupons? That’s another reason for the Fed to cut rates soon, to lessen this backbreaking burden on the government. After being held hostage by zero-rate policies for almost two decades, US Treasuries are finally reverting to their traditional role in the economy. Bonds are becoming respectable again after a long winter. Buy (TLT) on dips.
China Home Sales Plunge by 47%, as the real estate crisis deepened, indicating that a recovery may be far off. But when it does bounce back, expect all commodities to hit record highs. Buy (FCX) on dips.
Biden Piles on the Foreign Tariffs, announcing new China tariffs aimed at the EV Industry that is currently decimating Europe. Europe is in danger of giving away its edge in cars to the Chinese and a proactive response would ensure American car manufacturers can stand up to the low-priced onslaught.
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, May 13, at 10:30 AM EST, the Consumer Inflation Expectations are announced.
On Tuesday, May 14 at 8:30 AM EST, Producer Price Index for April is released.
On Wednesday, May 15 at 8:30 AM EST, the Consumer Price Index is published
On Thursday, May 16 at 8:30 AM EST, the Weekly Jobless Claims are announced.
On Friday, May 17 at 8:30 AM the Monthly Options Expiration takes place at the close.
At 2:00 PM the Baker Hughes Rig Count is printed.
As for me, I will never forget the words from my underwater guide: “Stay where you are and the current will bring the sharks to you.”
Is that something we want, I queried in my fractured Spanish. “Don’t worry”, he answered, “The sharks are vegetarians.” Yes, but did anyone tell the sharks that they were vegetarians?
Sure enough, two six-foot-long hammerhead sharks hungrily swam by me within feet in the green murk, not even pausing to give me the time of day. They swam so close that one almost slapped me in the Face with his tailfin. I guess I wasn’t on the menu that day, not even as a special.
Fortunately, I brought a GoPro underwater video with me and filmed the whole thing. Otherwise, you wouldn’t believe me for a second (click here for the link.)
Such was the high point of my week in the Galapagos Islands last week, a remote archipelago of 13 volcanic islands some 600 miles west of Ecuador, 2 degrees South Latitude in the Pacific Ocean. Sitting in my beachfront house in San Cristobal, I worked all morning, knocking out some eight trade alerts on the week, and explored every afternoon.
It was bliss.
You scientists out there will already know the Galapagos Islands as the place where Charles Darwin landed in 1835 on the HMS Beagle and collected the data that led to the Theory of Evolution and the concept of the Survival of the Fittest. (It was all about black Finches, now known as Darwin’s finches, of which I saw hundreds).
Darwin was at first widely ridiculed, as are the creators of all new revolutionary advances. Critics highlighted his close relationship with monkeys. Now it’s required reading for all high school students. While I was there a reproduction of the Beagle sailed in from Holland to celebrate the 200th anniversary of Darwin’s discoveries….11 years early.
The Galapagos Islands are not an easy place to get to. It was a four-hour flight from Miami to Quito in Ecuador, the worlds third highest airport at 9,500 feet. A lot of transients get altitude sickness. Then an hour's flight to Guayaquil on the coast where the Ecuadorian drug trade is run and another hour to San Cristobal. When I tried to visit here in the 1970’s there was only one ship a week and no planes.
Galapagos connected to the outside world just last year when Space X’s Starlink service initiated a 200mb/sec service. With that, I can trade stocks as if I were in downtown Manhattan. This is true for virtually every remote location in the world now, the consequences of which we have yet to imagine. I set up a Starlink in Ukraine last October while under fire and the Russians never were able to jam it.
The Ecuadorian government has gone through great lengths to keep the Galapagos Islands a pristine eco-tourism destination and they have largely succeeded. I counted only one Cessna G5 jet at the airport. Incoming luggage is X-Rayed for foreign fruit and sniffed for drugs by German Shepherds. Residents are limited to a tiny southwestern sliver of San Cristobal island and the rest is a national park.
A friend charitably turned down a $20 million offer from the Four Seasons international hotel chain for his 120 acres of land there. There are not a lot of places in the world left where you can walk out of your front door to a deserted beach unscarred by footprints. Yet, it offers Ecuadorian prices, about one-third of those found in the US.
I think you should visit there.
HMS Beagle, kind of
55 Years of Trading and Finally my Own Beach!
Let the Current Bring the Sharks to You
Chillin with the Crew
My New Office
The View from Home
My New Neighbors
Good Luck and Good Trading,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Below please find subscribers’ Q&A for the May 1 Mad Hedge Fund Trader Global Strategy Webinar, broadcast from Silicon Valley.
Q: I see the Bank of Japan bought $35 billion in the foreign exchange on the market. What's going on?
A: First of all, they didn’t buy dollars, they sold dollars and bought yen. Well, It's really very easy. Interest rates are the primary driver of foreign exchange rates. Japan has had the lowest interest rates in the world for 40 years, and the US has had the highest for the last two years. So it’s an easy hedge fund trade—short the Yen, and use the proceeds there to buy US dollar assets—you pick up an automatic spread of 4.7%. You then multiply that 10 times, that becomes 47%, and goes into the trillions of dollars in size. And of course, every hedge fund in the world is doing this trade. So that is a massive amount of Yen selling. They sold some of of their massive dollar reserves in an attempt to head off the collapse of the Japanese yen which hit some Y160, a 40-year low. So that's what's going on there.
Q: What's your updated view on TLT, and what's your yearend view?
A: I think we kind of chop sideways as long as there's indecision on interest rates, and then maybe 3 points of downside max; and then after that, we start another twenty-point rally. So we're all waiting for the bottom of this move on the (TLT), and then we're going to go pedal to the metal, so that's an easy one.
Q: Would you stay away from DJT?
A: Absolutely. This is the most manipulated stock in the market and the largest short interest in the market. More people would short it if they could get the stock, which now costs 550% a year to borrow and has a SPAC set up. I never touch SPACs because 95% of those turn out to be failures. So go express your support for the former president in other ways would be my advice.
Q: My son-in-law works in AI and says Apple (APPL) will be a better player than Tesla (TSLA).
A: No it won't. First of all, Tesla is 15 years ahead of everybody on AI; they actually started a major AI effort in 2014, and they have the data of all the miles driven by 6 million cars all over the world, and nobody can replicate it; so that gives them a huge head start. Tesla also has Elon Musk running it, who would beat the pants on aggressiveness and competitiveness off Tim Cook all day long, so I would vote for Elon Musk on this one. But the next big AI surprise is probably going to come from Apple. That's going to happen in June when they have their developer's conference. I've already had several kids and relatives invited to attend that conference, so I’ll have a really good read on what's happening.
Q: Where do you see inflation for the rest of the year?
A: Tiny up to sideways and then down more—we may hit the 2% target by the end of the year. The key here is you have to let AI kick in and start generating profits instead of promises, as employees start being replaced with AI.
Q: Would you return to Havana?
A: I would. I had a great time, and now I have the knowledge of experience of having gone there. I was actually looking at Airbnb condos on the beach in Havana which you can get for $70 a month. You can't beat the prices in Cuba; they're like a 10th of anywhere in the world. You can buy a two-bedroom condo in Havana for $30,000. Compare that to New York—it would probably cost you $3 million, and would certainly cost you that much in San Francisco.
Q: What is a substantial dip?
A: I always get this question. It's different for each stock. It could be 5% for a boring one like Apple (AAPL), or 20% for a really wild one like Nvidia (NVDA). You can see both of them are acting like that right now, so it's different according to the volatility of the individual stock. There's no fixed answer.
Q: Are there expatriates living in Cuba?
A: There are, incredibly; some of them are working in the tourist industry, some in the computer industry. Would you consider it safe? Probably, yes, as long as you don't engage in politics. That would be a really big mistake. It's even dangerous for Cubans to have a political opinion. Best to just shut up and do what the government says; that's what totalitarian regimes are like. I've been in a lot of them, and by the way, that may be what it's like in the United States in another year, so we'll have to wait and see. I felt relatively safe in Cuba. I wasn't followed by the secret police, which I always used to be. Maybe I'm just not as valuable as I used to be!
Q: Do you have a ballpark timeline for Freeport-McMoRan (FCX) to reach under?
A: Time is always difficult to call because there are just so many variables and black swans out there, but I easily could see a spike in (FCX) going up to $100 sometime in 2025 when the global economy starts to recover; and if you're doing LEAPs on any depth here, I would go out to end of 2025 just to be safe. If Chinese ever starts new home contraction again that becomes a chip shot.
Q: The Feds are moving marijuana stocks from a schedule 3 to a schedule 1. Are there any plays here?
A: Well, I've never been a big fan of pot stocks. The barriers to entry are very low from anybody to come in as a competitor. At the end of the day, it's a brand play, much like Coca-Cola (KO), and they still have huge competition from the black market, because the black market doesn't have to pay the 30-40% in sales taxes. And it's a fairly poorly managed business—guess why? Everybody is stoned all the time. So I'm going pass on marijuana, there's too many better fish to fry. Leave it to the potheads.
Q: Why has Nvidia (NVDA) gone flat?
A: Trees don't grow to the sky. Nvidia was up 140% in 6 months, and you have to give time for the earnings to catch up with the stock. The earnings are growing at 40% a year, so they'll catch up pretty quickly. I'm thinking we could have a shot at $1,400 in Nvidia by the end of the year.
Q: McDonald's (MCD) just had a big sell-off on weak earnings, is it a buy-down here?
A: No. McDonald's has the highest exposure to sub $50,000/year earners of any of the fast food companies; they're the ones most affected by McDonald's high prices. Their margins are being crushed, and automation can't happen fast enough. And then there's the Ozempic effect: weight loss drugs are killing appetites, and eventually we'll have a hundred million people on weight loss drugs. And my bet is a lot of those are McDonald's customers, so avoid Mickey D.
Q: What about the silver trade?
A: Silver is actually starting to outperform gold on the upside as it has historically done, so you might go along with a pair of trades owning both gold (GLD) and silver (SLV). Gold just sold off at 5% and silver sold off at 10%, so maybe the old volatility of silver is returning. I'd look to buy Wheaton Precious Metals (WPM) LEAPs down here.
Q: Do you think Starbucks (SBUX) is in the same boat as McDonald's (MCD)?
A: After the similar earnings sell off, I'd say yes. Starbucks doesn't do well in recessions or economic slowdowns. It’s an easy product to economize on. And they don't do well with the sub $50,000/year crowd either. Plus, I think Starbucks in particular is being weighed down by weak China sales.
Q: What's your outlook on energy?
A: Buy the dip. We're all looking for economic recoveries worldwide next year—oil does really well in that situation. We just have to work off the current overbought situation that was given to us by the Gaza War.
Q: Why are the miners not keeping up with gold and silver?
A: The answer is inflation. Inflation in the mining industry is double or triple what it is in a regular economy because you have so many companies chasing so few production resources. For example, those giant tires that go on these huge Caterpillar trucks—those are $200,000 a tire, and there's a two-year waiting list to get one. So as more people try to mine, the cost of mining goes up. That feeds into the earnings of the mining companies. Also, miners are subject to the whims of the stock market, which the metals aren't. So that's why I've been recommending the metals first and then miners second.
Q: With the new Amazon (AMZN) earnings, will they someday pay out a dividend?
A: They just delivered their first substantial profit in the company's history that I'm sure is by design, and if they're willing to increase benefits to shareholders, can dividends and stock buybacks be far behind? If that happens, you can expect Amazon stock to double from here. So absolutely, yes.
Q: Is housing about to crash because of high-interest rates?
A: Absolutely not. It's about to take off like a rocket as interest rates fall. You'll never get a crash in housing as long as we have a shortage of 10 million houses. Housing shortages don't get crashes. We had a housing oversupply in 2007 and 2008, and that's what caused that housing crash; but half of the home builders went under then and they never came back, creating the current shortage. In the meantime, people are using 5/1 ARM loans to get lower interest rates and praying that rates fall by the time the first adjustment comes along. Then they'll move into much lower 30-year rate mortgages right around the 5% level. That is the plan of a lot of home buyers these days.
Q: How are technology companies going to cope with the margin squeeze?
A: They will fire people. They have fired 300,000 people in the Bay Area in the last 2 years, and as a result, the stocks have skyrocketed. The prime example is META (META), which fired 20% of the staff and saw the stock double. Once that happened, everybody else jumped on the bandwagon and started laying off people like crazy. It was actually Elon Musk that started the whole cost-cutting trend in Silicon Valley, so you have to thank him for that.
To watch a replay of this webinar with all the charts, bells, whistles, and classic rock music, just log in to www.madhedgefundtrader.com, go to MY ACCOUNT, select your subscription (GLOBAL TRADING DISPATCH, TECHNOLOGY LETTER, or Jacquie's Post), then click on WEBINARS, and all the webinars from the last 12 years are there in all their glory
Good Luck and Stay Healthy,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Global Market Comments
April 22, 2024
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or FACING HARSH REALITY)
($VIX), (FCX), (XOM), (WPM), (GLD), (TLT), (FCX), (NVDA), (JNK), (META), (MSFT), (TSLA), (HYG), (NFLX), (OXY), (XOM), (USO)
There comes a time in every trader’s life when it’s time to face harsh reality and admit that you’re just dead wrong.
As much as I thought a I had strong case for the best stocks to move sideways before continuing their upward drive, the markets decided otherwise. One thing I have learned over my half-century of trading is that you never argue with Mr. Market. He is always right.
So it was with some dismay that on Friday, I watched NVIDIA (NVDA) shares slice through its 50-day moving average at $840 like a hot knife through butter putting the shares into a free-fall. Virtually the next print was the low of the day at $760, down 10% on the day.
There was no new news about (NVDA). Its prospects look as bright as ever, and there are a series of conferences of earnings reports over the coming month to remind us of that. But sometimes, the market just doesn’t care.
(NVDA) has had a great run, up some 144% since October. During this time, I executed a dozen profitable long-side trades. But when you’re that aggressive you know in advance that the last trade is going to kill you and that is the case today. (NVDA) is falling because of the sheer weight of its price.
New flash: while (NVDA) is still the cheapest big tech stock in the market, cheap stocks can get cheaper as we all know.
With the advantage of 20/20 hindsight, I should have been paying more attention to the Magnificent Seven 50-day moving averages which have been falling like dominoes. First went Tesla (TSLA) in February and Apple in March. The S&P 500 (SPY) gave it up on Monday and Microsoft (MSFT) on Wednesday. Amazon (AMZN), (META), and (NVDA) were the last to go on Friday.
Sure you can blame the April 19 option expiration when traders were loaded to the hilt with expiring longs with all these stocks they had to dump. The dreaded month of May, when traders go to die, and the summer doldrums are just two weeks away. Algorithms poured gasoline on the fire exaggerating the moves, as they always do. But still, wrong is wrong.
And there’s my mea culpa for 2024. I am human after all. I’m not right all the time, I just act like it. If the horrific market action last week has one silver lining, it’s that it sets up the next great trades, for which there will be many. With my Mad Hedge AI Market Timing Index down to a lowly 31 that may not be far off.
Your next question is “How far down is down?” In the worst-case scenario, the 200-day moving average is in play for all of these. That is pegged at $463 for the S&P 500, $569 for (NVDA), $377 for (MSFT), $150 for (AMZN), and $308 for (META). (AAPL) and (TSLA) already lost their 200-days a long time ago. In other words, the market is in the process of giving up all its 2024 gains and then some.
Sure, the 200 days are all rising sharply so it's unlikely we’ll hit these dire numbers. Still, it's best to prepare your boss for the worst and then let serendipity work its magic.
Remarkably, my commodity and precious metal stocks, where I had eight of ten long positions, stuck to the script and moved sideways instead of down. If you throw bad news on a stock and it refuses to fall, you buy the hell out of it. So that will be my next move in the market, once I clean all the mud off my face and pull the arrows out of my rear.
Those of us who have been trading gold for a long time, I’ve been doing it for 50 years and 60 if you count the Kennedy silver dollars I collected, will tell you that this new bull market in the barbarous relic is a very strange one.
None of the traditional factors that drive gold up are present. Interest rates have lately been rising, not falling. ETF financial demand fell all last year, and much of that money was diverted to Bitcoin. Retail demand, especially from Asia, has also been falling off a cliff. Gold miners have in no way been leading the price of the yellow metal because of their excess leverage as they usually do. But gold has seen a 34% rally off the October low.
Go figure.
It turns out that central bank buying has increased dramatically, especially from China, enough to offset all the other no-shows. The conflict in the Middle East is also drawing in more flight to safety demand. The good news is that the Chinese buying will continue. The bad news is that this might be a precursor to the invasion of Taiwan as it flees the Western financial system.
What does all this mean? When the traditional demand for gold returns, interest rates, ETFs, and retail, the price of gold will move a lot higher. The barbarous relic can easily reach $2,800 this year and possibly $3,000. The miners will play catch up. Buy (GLD) on dips and silver (SLV) as well, which has a lot of catching up to do.
I just thought you’d like to know.
So far in April, we are down a heartbreaking -6.69%. My 2024 year-to-date performance is at +14.47%. The S&P 500 (SPY) is up +2.68% so far in 2024. My trailing one-year return reached +33.69% versus +29.71% for the S&P 500.
That brings my 16-year total return to +676.63%. My average annualized return has recovered to +50.94.
Some 63 of my 70 round trips were profitable in 2023. Some 20 of 28 trades have been profitable so far in 2024.
I stopped out of my long in Tesla last week at cost, expecting further downside, which happened. A week early the position had been at max profit. I let my April longs expire at a max profit on April 19 in Freeport McMoRan (FCX), Occidental Petroleum, ExxonMobile (XOM), Wheaton Precious Metals (WPM), and Gold (GLD).
That leaves me with my remaining May longs in (TLT) and (FCX) a double long in (NVDA) and 60% in cash.
Volatility Index ($VIX) Hits Six-Month High, on threats of a New Iran War, Oil Supply Cut-offs, and topping stocks. It’s been a long and dry desert crossing, but we are finally back to reach the $20 handle. The volatility trade is back. For a double bonus, the Mad Hedge Market Timing Index also dropped below 50 for the first time since October. Options traders will love it!
Junk Bonds See Biggest Outflows in a Year, as the Federal Reserve’s hawkish approach to inflation makes investors wary, sending yields soaring to 6.33%. Yields won’t peak until the Fed actually cuts rates. Buy (JNK) and (HYG) on dips.
Netflix (NFLX) Adds 9.33 Million New Subscribers, nearly double analyst forecasts, including my five kids who aren’t allowed to share my password anymore. But the shares dropped on weak Q2 guidance. Netflix has rebounded from a slowdown in 2021 and 2022 to grow at its fastest rate since the early days of the coronavirus pandemic. That is due in large part to its crackdown on people who were using someone else’s account. The company estimated more than 100 million people were using an account for which they didn’t pay.
Mortgage Rates Top 7.0% for the first time in 2024, adding dead weight to the housing market. Most borrowers are now taking out adjustable 5/1 ARMS and then praying for a Fed rate cut later this year.
Existing Home Sales Dive by 4.3% in March to 4.19 million units on a sign-contract basis. Inventories rose 4.47% to a 3.2-month supply, up 14% YOY. The median price of an existing home sold in March was $393,500, up 4.8% from the year before. Regionally, sales fell everywhere except in the North, where they rose 4.2% month-to-month. Sales fell hardest in the West, down 8.2%. Prices are highest in the West.
Housing Starts Plunge, down 14.5% in March. Permits for future construction of single-family houses fell to a five-month low. Residential investment rebounded in the second half of 2023 after contracting for nine straight quarters, the longest such stretch since the housing market collapse in 2006. But the recovery appears to be losing steam.
China Surprises with Q1 GDP Growth at 5.3%, but who knows how real these numbers really are? They don’t line up with individual data like international trade. Peak China is behind us. Avoid (FXI).
Tariff Wars Heat Up, US President Joe Biden is threatening China again, and this time he wants to triple the China tariff rate on steel and aluminum imports. On Wednesday, the president will visit the United Steelworkers headquarters in Pittsburgh and has vowed his saber-rattling is not just empty threats. His rhetoric on China could make relations between the US and the Middle Kingdom that much frostier as we enter into the heart of the US election race.
Biden Boosts the Cost of Alaska Oil Drilling Leases, from $10,000 to $160,000, the first increase since 1920. There is also a bump in the royalty on extracted oil, from 12.25% to 16.27%. The government is no longer giving away oil found on its land for free. Coddling of the oil companies is over. Oil companies will no longer bid for cheap oil leases with the intention of sitting on them for decades. The US is currently the largest oil (USO) producing country in history at 13 million barrels/day and hardly needs any subsidies, which date back to the Great Depression. Buy energy stocks on dips, like (XOM) and (OXY), which are posting record profits.
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, April 22, at 7:00 AM EST, the Chicago Fed National Activity Index is announced.
On Tuesday, April 23 at 8:30 AM, New Home Sales are released.
On Wednesday, April 24 at 2:00 PM, Mortgage applications come out.
On Thursday, April 25 at 8:30 AM, the Weekly Jobless Claims are announced.
On Friday, April 26 at 8:30 AM, Consumer Expectations. At 2:00 PM, the Baker Hughes Rig Count is printed.
As for me, I spent a decade flying planes without a license in various remote war zones because nobody cared.
So, when I finally obtained my British Private Pilot’s License at the Elstree Aerodrome, home of the WWII Mosquito twin-engine bomber, in 1987, it was cause for celebration.
I decided to take on a great challenge to test my newly acquired skills. So, I looked at an aviation chart of Europe, researched the availability of 100LL aviation gasoline in Southern Europe, and concluded that the farthest I could go was the island nation of Malta.
Caution: new pilots with only 50 hours of flying time are the most dangerous people in the world!
Malta looms large in the history of aviation. At the onset of the Second World War, Malta was the only place that could interfere with the resupply of Rommel’s Africa Corps, situated halfway between Sicily and Tunisia. It was also crucial for the British defense of the Suez Canal.
So, Malta was mercilessly bombed, at first by Mussolini’s Regia Aeronautica, and later by the Luftwaffe. By April 1942, the port at Valletta became the single most bombed place on earth.
Initially, Malta had only three obsolete 1934 Gloster Gladiator biplanes to mount a defense, still in their original packing crates. Flown by volunteer pilots, they came to be known as “Faith, Hope, and Charity.”
The three planes held the Italians at bay, shooting down the slower bombers in droves. As my Italian grandmother constantly reminded me, “Italians are better lovers than fighters.” By the time the Germans showed up, the RAF had been able to resupply Malta with as many as 50 infinitely more powerful Spitfires a month, and the battle was won.
So Malta it was.
The flight school only had one plane they could lend me for ten days, a clapped-out, underpowered single-engine Grumman Tiger, which offered a cruising speed of only 160 miles per hour. I paid extra for an inflatable life raft.
Flying over the length of France in good weather at 500 feet was a piece of cake, taking in endless views of castles, vineyards, and bright yellow rapeseed fields. Italy was a little trickier because only four airports offered avgas, Milan, Rome, Naples, and Palermo. Since Italy had lost the war, they never experienced a postwar aviation boom as we did.
I figured that if I filled up in Naples, I could make it all the way to Malta nonstop, a distance of 450 miles, and still have a modest reserve.
Flying the entire length of Italy at 500 feet along the east coast was grand. Genoa, Cinque Terra, the Vatican, and Mount Vesuvius gently passed by. There was a 1,000-foot-high cable connecting Sicily with the mainland that could have been a problem, as it wasn’t marked on the charts. But my US Air Force charts were pretty old, printed just after WWII. But I spotted them in time and flew over.
When I passed Cape Passero, the southeast corner of Sicily, I should have been able to see Malta, but I didn’t. I flew on, figuring a heading of 190 degrees would eventually get me there.
It didn’t.
My fuel was showing only a quarter tank left and my concern was rising. There was now no avgas anywhere within range. I tried triangulating VORs (very high-frequency omnidirectional radar ranging).
No luck.
I tried dead reckoning. No luck there either.
Then I remembered my WWII history. I recalled that returning American bombers with their instruments shot out used to tune in to the BBC AM frequency to find their way back to London. Picking up the Andrews Sisters was confirmation they had the right frequency.
It just so happened that buried in my pilot’s case was a handbook of all European broadcast frequencies. I looked up Malta, and sure enough, there was a high-powered BBC repeater station broadcasting on AM.
I excitedly tuned in to my Automatic Direction Finder.
Nothing. And now my fuel was down to one-eighth tanks and it was getting dark!
In an act of desperation, I kept playing with the ADF dial and eventually picked up a faint signal.
As I got closer, the signal got louder, and I recognized that old familiar clipped English accent. It was the BBC (I did work there for ten years as their Tokyo correspondent).
But the only thing I could see were the shadows of clouds on the Mediterranean below. Eventually, I noticed that one of the shadows wasn’t moving.
It was Malta.
As I was flying at 10,000 feet to extend my range, I cut my engines to conserve fuel and coasted the rest of the way. I landed right as the sun set over Africa.
While on the island, I set myself up in the historic Excelsior Grand Hotel. Malta is bone dry and has almost no beaches. It is surrounded by 100-foot cliffs. I paid homage to Faith, the last of the three historic biplanes, in the National War Museum in Valetta.
The other thing I remember about Malta is that CIA agents were everywhere. Muammar Khadafy’s Libya was a major investor in Malta, recycling their oil riches, and by the late 1980s owned practically everything. How do you spot a CIA agent? Crewcut and pressed, creased blue jeans. It’s like a uniform. What they were doing in Malta I can only imagine.
Before heading back to London, I had to refuel the plane. A truck from air services drove up and dropped a 50-gallon drum of avgas on the tarmac along with a pump. Then they drove off. It took me an hour to hand pump the plane full.
My route home took me directly to Palermo, Sicily to visit my ancestral origins. On takeoff to Sardinia, wind shear flipped my plane over, caused me to crash, and I lost a disk in my back.
But that is a story for another day.
Who says history doesn’t pay!
Stay Healthy,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
“Faith”
The Andrews Sisters
Spitfire
Grumman Tiger
