I’m not so worried that the market won’t go up. It really bothers me that stocks are unable to go down.
That means you don’t get a flush out of positions that generates the cash needed to finance the next leg up in the bull market.
Usually, that happens in the fall because historically that’s when farmers are at maximum distress, when they have run out of cash after paying for seed, fertilizer, and labor all year long but have yet to be paid for their harvest.
This was a big deal in 1900 when farming accounted for 50% of the economy. With farming now at 2% it’s not such a big deal, but once cyclicality in the market is established, it lives on forever.
With the Fed, traders, and investors fixated on inflation, you usually get a big reaction in the monthly release of the Consumer Price Index. This time, we got nada, nothing, bupkiss, even though the 0.6% rise in inflation should have triggered a meaningful market selloff.
You know it’s a pretty dead week when the lead news item is about a union that has been going out of business for 40 years. That’s because all the growth in the country during this period has been in nonunion industries, namely in technology (XLK) and at Tesla (TSLA). Notice that nonunion (TSLA) was up 10% this week, the big winner in the strike. Elon Musk has fought unionization tooth and nail for 20 years and is now coming up roses.
As a result, UAW membership plunged from 1.4 million in 1978 to 400,000, a decline of some 71.4%. The union now has more retirees than workers. That’s a lot of dead weight to carry.
One effect of this decline has been a fall in real wages during the same 45 years. What the UAW is attempting in their demands is to make up for the entire 45 years of real wage losses in one shot with a whopping great 40% increase over five years, a 32-hour work week, and better medical benefits.
It isn’t going to work.
When I picked up my first Tesla Model S some 14 years ago, I was given a tour of the factory. I was blown away by what I saw. There were no people!
I literally saw a vast factory floor of machines making machines. Occasionally, someone passed me by on a bicycle on their way to change a tool on a robot or lubricate a joint. EVs have 80% fewer parts than internal combustion vehicles and therefore require 80% fewer workers.
This is what caused me to immediately plunge into Tesla stock at a split-adjusted $2.45 a share and take my readers there as well.
One is reminded of the Luddite movement in England in 1812 when workers destroyed machines to avoid work. It was an effort to protect home spinning wheels which had until then produced the world’s cotton fabric. After an armed rebellion was put down, the machines eventually reduced the cost of cotton cloth 100-fold and launched the Industrial Revolution.
Some 200 years ago, most people could only afford one set of clothes. Now they have dozens, or hundreds if they have daughters (I have three).
Hint to the UAW: Destroying General Motors (GM), Ford (F), and Stellantis (the old Chrysler) isn’t going to get you a better job.
It's not that I am anti-union. After all, my grandfather was in the Teamsters Union during the great depression at the height of union power. It’s just that this strike is particularly stupid, grasping, and overreaching.
If you want to learn more about the Luddite movement, please click here for the history.
When the market does come out of its coma, there is no doubt where the big money is headed.
The Arm Holdings IPO (ARM) was some six times oversubscribed and it rose 25% from its initial $51 pricing on the first day as institutions rushed to top up meager allocations. The word is out. Stay underweight AI chip design companies at your peril….at whatever the price. At $69, (ARM) sports a positively bubblicious price-earnings multiple of 100X.
Sometimes, the greatest trades are those sitting right in front of our noses begging for attention. That would be the Japanese yen, which has been in free fall for three years.
If the Bank of Japan ends its zero-interest rate policy, the last in country the world to have one, the Japanese yen will rocket, and the Nikkei average will crash. With Japan’s inflation rate now at a 40-year high at 3.30% how far away can that be?
It might be setting up the long of the year in the foreign exchange market. You would think that is a certainty after a 33% drop in recent years. Maybe this is why the Nikkei has been in the doldrums since June.
So far in September, we are down unchanged, with no trade alerts issued. Patience is the name of the game here. My 2023 year-to-date performance is still at an eye-popping +60.80%. The S&P 500 (SPY) is up +16.57% so far in 2023. My trailing one-year return reached +83.85% versus +20.47% for the S&P 500.
That brings my 15-year total return to +657.99%. My average annualized return has fallen back to +47.85%, some 2.47 times the S&P 500 over the same period.
Some 41 of my 46 trades this year have been profitable.
Consumer Price Index Rises 0.6% in August, the hottest read in 18 months, but in line with expectations. Energy was the main cause, which is up 40% from its May low. The Core and Inflation Rate was up only 0.3%. Stocks and bonds barely reacted. A huge increase in auto insurance was another factor, no doubt the result of the multiple climate disasters taking place across the country.
Arm Holdings Jumps 25% on First Day of Trading. Masayoshi Sohn is happy because he still owns the remaining 90% of the company. This is where the hot money is going, and it pulled the rest of tech up as well.
EV Sales Soared by 70% in California in August, and the rest of the country is likely to follow. The coming Cybertruck release will add fuel to the fire. EV is going mainstream. China, the US, and Germany lead in global EV sales. California would be fourth if it were broken out as a separate country at 109,069 units in Q2.
US Jobless Claims Fall Again to 220,000, a drop of 5,000. The US economy is reigniting again.
Gold and Bonds are Bottoming, or so says a UK hedge fund. Distress selling off the UK’s selling of gold market the low for both bonds and the yellow metal back in 1999-2002. We could be seeing a repeat today. I think they’re right.
Morgan Stanley Upgrades Tesla, off the back of its massive AI business, which could add $600 billion in value to the company. (MS) had previously been bearish on Tesla, so (TSLA) rose 6%. (Tesla has long been the largest user of AI with a fleet of 5 million AI-driven EVs. Why was (MS) so slow to figure this out? Buy (TSLA) on dips.
Hydrogen is Going Nowhere, and the stocks are a great short, says the Argonaut hedge fund. While electric power is infinitely scalable, hydrogen demands the same inefficient infrastructure as does gasoline. Saudi Arabia has a massive advantage in that it has an unlimited supply of other energy form to convert oil into hydrogen, and solar power.
Apple is Still a Hold, for the long term and a “BUY” on any 10% correction. It is now basically an India play, as that is where future growth lies. China is peaking out. The titanium finish for the new iPhone 15 looks cool. There is a USB-C charging cable in your future to bring it in compliance with EC rules. The camera goes from a 2X to a 5X zoom. The new Special Video is a killer app. There is also a major increase in the use of artificial intelligence.
Space X is Moving into the Cargo Business, shipping goods from New York to Australia in 35 minutes. That’s what is possible for high value-added freight with rockets that can reliably take off and land. The move should take the value of Space X from the present $150 billion to $500 billion. So thinks my friend Ron Baron of the Baron Funds, and early Tesla investor. He also thinks Tesla will soar from $857 billion today to $5 trillion in five years, making it the most valuable company in the world by far. I couldn’t agree more.
Caesars Entertainment Suffers Major Hack, paying a ransom thought to be in the millions of dollars. The crooks threatened to leak the casino’s entire customer list to the dark web, including mine. A serious hack can wipe out a company, as happened to Sony a decade ago. 1234 no longer works as a password. Buy Palo Alto Networks (PANW).
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, September 18, the NAHB Housing Market Index is out.
On Tuesday, September 19 at 8:30 PM EST, US Building Permits are released.
On Wednesday, September 20 at 2:00 PM EST, the Federal Reserve released its interest rate decision. A press conference follows.
On Thursday, September 21 at 8:30 AM EST, the Weekly Jobless Claims are announced. We also get Existing Homes Sales.
On Friday, September 22 at 6:45 AM the NS&P Global Composite Flash PMI for August is published. At 2:00 PM the Baker Hughes Rig Count is printed.
As for me, having visited and lived in Lake Tahoe for most of my life, I thought I’d pass on a few stories from this historic and beautiful place.
The lake didn’t get its name until 1949 when the Washoe Indian name was bastardized to come up with “Tahoe”. Before that it was called the much less romantic Lake Bigler after the first governor of California.
A young Mark Twain walked here in 1863 from nearby Virginia City where he was writing for the Territorial Enterprise about the silver boom. He described boats as “floating in the air” as the water clarity at 100 feet made them appear to be levitating. Today, clarity is at 50 feet, but it should go back to 100 feet when cars go all-electric.
One of the great engineering feats of the 19th century was the construction of the Transcontinental Railroad. Some 10,000 Chinese workers used black powder to blast a one-mile-long tunnel through solid granite. They tried nitroglycerine for a few months but so many died in accidents they went back to powder.
The Union Pacific moved the line a mile south in the 1950s to make a shorter route. The old tunnel is still there, and you can drive through it at any time if you know the secret entrance. The roof is still covered with soot from woodfired steam engines. At midpoint, you find a shaft to the surface where workers were hung from their ankles with ropes to place charges so they could work on four faces at once.
By the late 19th century, every tree around the lake had been cut down for shoring at the silver mines. Look at photos from the time and the mountains are completely barren. That is except for the southwest corner, which was privately owned by Lucky Baldwin who won the land in a card game. The 300-year-old growth pine trees are still there.
During the 20th century, the entire East Shore was owned by one man, George Whittell Jr., son of one of the original silver barons. A man of eclectic tastes, he owned a Boing 247 private aircraft, a custom mahogany boat powered by two Alison aircraft engines, and kept lions in heated cages.
Thanks to a few well-placed campaign donations, he obtained prison labor from the State of Nevada to build a palatial granite waterfront mansion called Thunderbird, which you can still visit today (click here at https://thunderbirdtahoe.org ). During Prohibition, female “guests” from California crossed the lake and entered the home through a secret tunnel.
When Whittell died in 1969, a Mad Hedge Concierge Client bought the entire East Shore from the estate on behalf of the Fred Harvey Company and then traded it for a huge chunk of land in Arizona. Today the East Shore is a Nevada State Park, including the majestic Sand Harbor, the finest beach in the High Sierras.
When a Hollywood scriptwriter took a Tahoe vacation in the early 1960’s, he so fell in love with the place that he wrote Bonanza, the top TV show of the decade (in front of Hogan’s Heroes). He created the fictional Ponderosa Ranch, which tourists from Europe come to look for in Incline Village today.
In 1943, a Pan Am pilot named Wayne Poulson who had a love of skiing bought Squaw Valley for $35,000. This was back when it took two days to drive from San Francisco. Wayne flew the China Clippers to Asia in the famed Sikorski flying boats, the first commercial planes to cross the Pacific Ocean. He spent time between flights at a ranch house he built right in the middle of the valley.
His wife Sandy bought baskets from the Washoe Indians who still lived on the land to keep them from starving during the Great Depression. The Poulson’s had eight children and today, each has a street named after them at Squaw.
Not much happened until the late forties when a New York Investor group led by Alex Cushing started building lifts. Through some miracle, and with backing from the Rockefeller family, Cushing won the competition to host the 1960 Winter Olympics, beating out the legendary Innsbruck, Austria, and St. Moritz, Switzerland.
He quickly got the State of California to build Interstate 80, which shortened the trip to Tahoe to only three hours. He also got the state to pass a liability limit for ski accidents to only $2,000, something I learned when my kids plowed into someone, and the money really poured in.
Attending the 1960 Olympic opening ceremony is still one of my fondest childhood memories, produced by Walt Disney, who owned the nearby Sugar Bowl ski resort.
While the Cushing group had bought the rights to the mountains, Poulson owned the valley floor, and he made a fortune as a vacation home developer. The inevitable disputes arose and the two quit talking in the 1980’s.
I used to run into a crusty old Cushing at High Camp now and then and I milked him for local history in exchange for stock tips and a few stiff drinks. Cushing died in 2003 at 92 (click here for the obituary at https://www.nytimes.com/2006/08/22/obituaries/22cushing.html )
I first came to Lake Tahoe in the 1950s with my grandfather who had two horses, a mule, and a Winchester. He was one-quarter Cherokee Indian and knew everything there was to know about the outdoors. Although I am only one-sixteenth Cherokee with some Delaware and Sioux mixed in, I got the full Indian dose. Thanks to him I can live off the land when I need to. Even today, we invite the family medicine man to important events, like births, weddings, and funerals.
We camped on the beach at Incline Beach before the town was built and the Weyerhaeuser lumber mill was still operating. We caught our limit of trout every day, ten back in those days, ate some, and put the rest on ice. It was paradise.
During the late 1990’s when I built a home in Squaw Valley I frequently flew with Glen Poulson, who owned a vintage 1947 Cessna 150 tailwheel, looking for untouched high-country lakes to fish. He said his mother was lonely since her husband died in 1995 and asked me to have tea with her and tell her some stories.
Sandy told me that in the seventies she asked her kids to clean out the barn and they tossed hundreds of old Washoe baskets. Today Washoe baskets are very rare, highly sought after by wealthy collectors, and sell for $50,000 to $100,000 at auction. “If I had only known,” she sighed. Sandy passed away in 2006 and the remaining 30-acre ranch was sold for $15 million.
To stay in shape, I used to pack up my skis and boots and snowshoe up the 2,000 feet from the Squaw Valley parking lot to High Camp, then ski down. On the way up I provided first aid to injured skiers and made regular calls to the ski patrol.
After doing this for many winters, I finally got busted when they realized I didn’t have a ski pass. It turns out that when you buy a lift ticket you are agreeing to a liability release which they absolutely had to have. I was banned from the mountain.
Today Squaw Valley is owned by the Colorado-based Altera Mountain Company, which along with Vail Resorts own most of the ski resorts in North America. The concentration has been relentless. Last year Squaw Valley’s name was changed to the Palisades Resort for the sake of political correctness. Last weekend, a gondola connected it with Alpine Meadows next door, creating the largest ski area in the US.
Today there are no Washoe Indians left on the lake. The nearest reservation is 25 miles away in the desert in Gardnerville, NV. They sold or traded away their land for pennies on the current value.
Living at Tahoe has been great, and I get up here whenever I can. I am now one of the few surviving original mountain men and volunteer for North Tahoe Search & Rescue.
On Donner Day, every October 1, I volunteer as a docent to guide visitors up the original trail over Donner Pass. Some 175 years later the oldest trees still bear the scars of being scrapped by passing covered wagon wheels, my own ancestors among them. There is also a wealth of ancient petroglyphs, as the pass was a major meeting place between Indian tribes in ancient times.
The good news is that residents aged 70 or more get free season ski passes at Diamond Peak, where I sponsored the ski team for several years. My will specifies that my ashes be placed in the Middle of Lake Tahoe. At least I’ll be recycled. I’ll be joining my younger brother who was an early Covid-19 victim and whose ashes we placed there in 2020.
Stay Healthy,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
The Ponderosa Ranch
The Poulson Ranch
Donner Pass Petroglyphs
An Original Mountain Man
