With Hot heads and retaliation ruling everywhere, I think it is safe to say that the war in Ukraine will continue indefinitely and that things will get worse before it gets better.
Biden is threatening to ban Russian oil imports, boosting oil to $135 a barrel. That is a symbolic gesture as the US really doesn’t import oil from Russia and is independent. But if other countries ban imports, it is just a matter of time before the Russian economy completely collapses.
And there is a country that is able to replace one third of all the Russian oil supplies in a heartbeat, some four million barrels a day, and that is Iran. All they need is a quicky nuclear treaty to restore things back to the 2016 status quo.
Putin seems on track to threaten a nuclear war but launch a cyberwar. He has already threatened a nuclear war multiple times to no avail. Cyber is a much safer option.
What will target number one be? The US stock market and banking system. So be prepared for hairier $500 point down days, like we are getting today.
Keep cash positions high, existing positions hedged, only trade on the most extreme days, and you will be greatly rewarded for your discipline down the road.
I spent four hours walking around the Alameda Flea Market today. Every retired GI I spoke to said they were thinking of volunteering to go to Ukraine. Some 20,000 foreign volunteers have already joined the fight . Like me, everyone wants to get in one more “good” war in their lifetimes. If you want to volunteer, please click here at https://volunteerforukraine.org
Sorry, I have to keep the letter short today. The CIA is holding on line 2.
Nonfarm Payroll Blows it Away, up an eye-popping 678,000 in February. The Headline Unemployment rate fell to 3.8%. The U-6 discouraged worker unemployment rate came in at 7.2%. Amazingly, Average Hourly Earnings fell. Leisure and Hospitality gained 179,000, Professional & Business Services 95,000, Healthcare 94,000, and Construction 36,000, Lower waged workers return to the job in droves. It was a real Goldilocks report and makes a rise in interest rates a sure thing in 12 days.
Weekly Jobless Claims Drop to 215,000, maintaining a new downtrend. Nonfarm Productivity rose by 6.6%. Continuing Claims rose to 1.48 million.
Berkshire Hathaway (BRKB) Profits Soar as Warren Buffet boosts share buybacks to a record $27 billion. Q1 Operating Earnings of the massive conglomerate jumped by $7.3 billion, up 45% YOY. His widespread old economy industrial holdings are working great. Keep buying (BRKB) on dips.
ADP Private Payrolls Explode by 475,000 in February, trouncing analyst expectations. Small companies showed minor losses. It sets up a red-hot Nonfarm Payroll Report on Friday.
Powell Says Rate Hikes are Still On but may not occur as quickly as once thought. He made the comments during congressional testimony. The labor market is extremely tight, auguring for higher rates, while the Ukraine war has delivered a huge dollop of uncertainty. Bonds crashed an astounding $5 points on the news.
Biden’s State of the Union Address Triggers Monster Two-Day $1,200 point Rally. Greater certainty, strong leadership, and a positive attitude are just what investors were looking for. A big focus on the war in Ukraine gave it a boost. The virtual disappearance of the pandemic in a short month is also a big plus. It was the first in-person State of the Union in two years. Bulls loved it.
Switzerland Joins SWIFT Russian Boycott. It’s the first time in 400 years that the Swiss have taken a side. The move freezes maybe $200 billion worth of Putin’s personal bank accounts. The noose tightens. Next to come is Fastrack membership for Ukraine and war crime trials. Ouch.
Russia Raises Interest Rates to 20% since the central bank is frozen out of accessing reserves to support the currency. The Russian economy is being destroyed from within and without. The end result will be to take Russian per capita income from a pre-invasion $10,000 a year to a Soviet era $1,000. I wouldn’t be writing a life insurance policy on Putin right now. He might become accident-prone.
Tesla to Open Berlin Factory in March, taking the stock up $170, or 24% from last week’s low. $700 is a very impressive and tradable low. It will be worth $10,000 when solid state technology is mass-produced.
Bitcoin Jumps 12.5% on Massive Russian Buying, as the world rushes to dump the rogue country from the western financial system.
Oil is Now Targeting $125 a Barrel from the current $103, especially if other countries join Canada in banning imports from Russia. Amazingly, natural gas is still passing through the Ukraine to Europe. My guess is that the Ukrainians are not attacking it in exchange for 1,000 Javelin missiles from Germany. Or they could be just waiting for spring when demand flags. Strategic Petroleum Reserve releases can make only a token contribution as best. Ironically, the war may move Europe faster towards alternatives.
Russia’s Debt Rating is Cut to Junk, and overnight interest rates in Russia have been boosted to 20%. JP Morgan expects the sanctions to shrink the Russian economy by 35%. If Ukraine can hold out for two weeks, they will last years as foreign food, supplies, and volunteers pour in. All roads going into Ukraine are still open. Ukraine has raised $54 million in crypto donations in a week. Once the shock is over, the war will be fully discounted by the financial markets. People forget that Ukraine fought a brutal guerilla war against the Germans during WWII and won, despite enormous casualties.
My Ten-Year View
When we come out the other side of pandemic, we will be perfectly poised to launch into my new American Golden Age, or the next Roaring Twenties. With interest rates still at zero, oil cheap, there will be no reason not to. The Dow Average will rise by 800% to 240,000 or more in the coming decade. The American coming out the other side of the pandemic will be far more efficient and profitable than the old. Dow 240,000 here we come!
With near-record volatility fading fast, my February month-to-date performance rocketed to a blistering 11.09% in only four days. My 2022 year-to-date performance ended at 25.68%. The Dow Average is down -7.4% so far in 2022. It is the great outperformance on an index since Mad Hedge Fund Trader started 14 years ago.
My only new trade this week was to use a $4.00 spike in the (TLT) to go from a double to a triple short in the bond market. That leaves me 50% invested and 50% in cash, waiting for the next capitulation selloff. So, I am 3X short the (TLT), 1X long the (TLT), and 1X long Tesla.
That brings my 13-year total return to 538.24%, some 2.10 times the S&P 500 (SPX) over the same period. My average annualized return has ratcheted up to 44.54%, easily the highest in the industry.
We need to keep an eye on the number of US Coronavirus cases at close to 80 million and rising quickly and deaths at 960,000, which you can find here.
On Monday, March 7 at 8:30 AM EST, Consumer Credit for January is printed.
On Tuesday, March 8 at 8:30 AM, the Balance of Trade is published.
On Wednesday, March 9 at 7:00 AM, The JOLTS private job openings for January is disclosed.
On Thursday, March 10 at 8:30 AM, Weekly Jobless Claims are published. We also get the big number of the week, the Consumer Price Index for February.
On Friday, March 11 at 7:00 AM, the University of Michigan Consumer Sentiment for March is out. At 2:00 PM, the Baker Hughes Oil Rig Count are out.
As for me, I was having lunch at the Paris France casino in Las Vegas at Mon Ami Gabi, one of the top ten grossing restaurants in the United States. My usual waiter, Pierre from Bordeaux, took care of me with his typical ebullient way, graciously letting me practice my rusty French.
As I finished an excellent, but calorie-packed breakfast (eggs Benedict, caramelized bacon, hash browns, and a café au lait), I noticed an elderly couple sitting at the table next to me. Easily in their 80s, they were dressed to the nines and out on the town.
I told them I wanted to be like them when I grew up.
Then I asked when they first went to Paris, expecting a date sometime after WWII. The gentleman responded, “Seven years ago”.
And what brought them to France?
“My father is buried there. He’s at the American Military Cemetery at Colleville-sur-Mer along with 9,386 other Americans. He died on Omaha Beach on D-Day. I went for the D-Day 70th anniversary.” He also mentioned that he never met his dad, as he was killed in action weeks after he was born.
I reeled with the possibilities. First, I mentioned that I participated in the 40-year D-Day anniversary with my uncle, Medal of Honor winner Mitchell Paige, and met with President Ronald Reagan.
We joined the RAF fly-past in my own private plane and flew low over the invasion beaches at 200 feet, spotting the remaining bunkers and floating pier. Pont du Hoc is a sight to behold from above, pockmarked with shell craters like the moon. When we landed at a nearby airport, I taxied over railroad tracks that were the launch site for the German V2 rockets.
D-Day was a close-run thing and was nearly lost. Only the determination of individual American soldiers saved the day. The US Navy helped too, bringing destroyers right to the shoreline to pummel the German defenses with their five-inch guns. Eventually battleships made sure that anything the Germans brought to with 20 miles of the coast was destroyed.
Then the gentleman noticed the gold Marine Corps pin on my lapel and volunteered that he had been with the Third Marine Division in Vietnam. I replied that my father had been with the Third Marine Division during WWII at Bougainville and Guadalcanal, and that I had been with the Third Marine Air Wing during Desert storm.
I also informed him that I had led an expedition to Guadalcanal two years ago looking for some of the 400 Marines still missing in action. We found 30 dog tags and sent them to the Marine Historical Division at Quantico, Virginia for tracing.
When the stories came back, it turned out that many survivors were children now in their 80s who had never met their fathers because they were killed in action on Guadalcanal.
Small world.
I didn’t want to infringe any further on their morning out, so I excused myself. He said Semper Fi, the Marine Corps motto, thanked me for my service, and gave me a fist pump and a smile. I responded in kind and made my way home.
Oh and say “Hi” when you visit Mon Ami Gabi. Tell Pierre that John Thomas sent you and give him a big tip. It’s not easy for a Frenchman to cater to all these loud Americans.
Stay Healthy,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Third Marine Air Wing
The American Military Cemetery at Colleville-Sur-Mer
