Last week saw the best week for stocks in two years. As I expected, big tech led the charge and will continue to do so well into next year. Bonds (TLT) stabilized.
It looks like Mad Hedge followers will get to ring the cash register one more time in 2023!
However, we face a couple of speed bumps this coming week. On Tuesday, we get the Consumer Price Index which will tell us if inflation is well and truly dead….or not. On Wednesday, we get the Producer Price Index. And then on Friday, the US government shuts down for lack of funding.
Oops!
There have been some 92 government shutdowns in the last 50 years. Since then, the Dow Average has rocketed by 60 times.
So, I am not worried about the long-term effect on your retirement portfolio. When voters see the gravy train from Washington cut off, not to mention Social Security checks, military pay, and air traffic controller salaries, Congressmen can suddenly become very agreeable.
The short term is another story.
If House recalcitrance triggers a 500 or 1,000-point swan dive in stocks, you want to pile into the big tech leaders I have been begging you to buy for the past three weeks and fill your boots. And while 2023 was a hell of a year to make money in stocks (Mad Hedge has made only 73% so far in 2023, a three-year low), 2024 is looking much, much better.
Think falling inflation, stabilizing wages, fading interest rates, recovering profits, expanding price earnings multiples, and soaring stocks and bonds. The traditional 60/40 portfolio will come back with a vengeance.
I caught up with my old friend Ron Barron the other day, who I talked into buying Tesla shares in 2014. He got in late, at about $100 a share, or 25 times my own original split-adjusted $2.50 cost. But when you’re running big money as Ron, you can’t afford to buy the kind of wild insane risks that buying Tesla in 2010 entailed.
I can.
Ron is now the largest outside shareholder in both Tesla (TSLA) and SpaceX. Tesla is so far ahead of the competition that he expects to hold the shares for the rest of his life. Ford Motors (F) now loses $36,000 for each EV it sells, while Tesla earns a profit of $8,000, down from $15,000 a year ago.
Ford spends $7 billion to build a new factory which generates a miniscule $15 million, or 0.2%. Tesla earns 114% profit on every $7 billion factory it builds.
It's no contest.
During the 1950s, Detroit went all out to earn short-term profits by outsourcing its supply chain. Virtually every one of those third-party companies went bankrupt, irreparably harming their business models. Tesla makes virtually all of its parts in-house, including the Panasonic batteries.
Tesla is learning 100 million miles of data per day from its fleet of 6 million cars. No one else has anything close to this. In 18 months, (TSLA) will have the world’s largest computing ability, which Elon Musk refers to as “Dojo” (karate school in Japanese), which Morgan Stanley estimates will add $500 million to the value of the company.
There are 1.5 billion internal combustion engines in the world that need to be replaced. The present replacement rate is only 80 million cars a year and only 10% of these are EVs. Eventually, 100% will be EVs. Detroit carmakers don’t want to sell EVs because they require no service whereas local dealers make all their money. EVs require no service beyond changing tires every two years,
And while President Biden recently suggested that the UAW targets Tesla for unionization, they don’t have a chance. Tesla workers are by far the highest-paid auto workers in the world with the best benefits. They also own stock, many at my own $2.50 adjusted share cost. Elon was sitting pretty during the recent 46-day UAW nationwide walkout.
Buying Tesla today does not mean you are investing in the achievements of the past, which are formidable. It means that you are buying the new Cybertruck which is rolling out now and offers a new platform with many new technological leaps forward.
More importantly, you are betting on the new $25,000 Model 2 due out in 2025, where Tesla plans to build 5 million a year. Then the EV competition will well and truly be gone.
That makes my $1,000 a share target then $10,000 look extremely modest.
Don’t kid yourself. Tesla can still add to the 35.6% decline it has suffered since July 17. We could go as low as $150, a 50% hickey. This is the most volatile major stock in the market. It always goes down more than you think. But if we do, you want to take a second mortgage out on your home and put it all into Tesla. It’s going up 67 times from there.
I just thought you’d like to know.
So far in November, we are up +7.32%. My 2023 year-to-date performance is still at an eye-popping +73.49%. The S&P 500 (SPY) is up +7.89% so far in 2023. My trailing one-year return reached +74.44% versus +15.78% for the S&P 500.
That brings my 15-year total return to +670.78%. My average annualized return has rocketed to a new all-time high at +51.26%, another new high, some 2.58 times the S&P 500 over the same period.
Some 57 of my 62 trades this year have been profitable.
I went pedal to the metal last week, taking profits on my last three November positions in (TLT), (BRK/B), and (NVDA) that maxed out profits and piling in new December longs in (MSFT), (NLY), (BRK/B), (TLT), (CCJ), (CRM). That’s how you hit new all-time highs every day.
Berkshire Hathaway Knocks it Out of the Park, with a 41% gain in operating earnings from companies like BNSF Railroad, Geico, and Precision Castparts. But Warren Buffet was noted more for what he didn’t own than what he did. He unloaded $5 billion worth of global stocks in Q3, taking his cash position up to a record $157 billion. He can now earn a staggering $8.6 billion in interest in the coming year. He explains that stocks never really got cheap this year and high rates were just too attractive. Keep buying (BRK/B) on dips.
China EV Maker BYD is Building its First European Car Factory, in a clear threat to European car makers. They picked Hungary, one of the lowest-waged countries on the continent. BYD (BYDFF) which I recommended back in 2012 after visiting the factory in China is now the largest EV maker there knocking out 250,000 units this year. Is Tesla worried?
Investors Poured $5 Billion into Bond ETFs in October. Institutional investors were happy with the 5.0% yield last month and if they rose, they would simply buy more. It’s another sign that the bottom for all fixed-income prices is at hand. Buy (TLT), (JNK), and (NLY).
China Lends $1.34 Trillion for Belt and Road Initiative, from 2000 to 2001 to dominate Asian and African infrastructure. Good luck getting it back and good luck foreclosing. In the meantime, China suffered its first-ever deficit in foreign direct investment as the West de-risks from the Middle Kingdom.
Oil Hits a four-month low at $75 a Barrel, down 4% as the shine comes off the energy sector. The Gaza boost is gone. Fears of a global economic slowdown are mounting. China’s exports have fallen for six consecutive months, the world’s largest importer. Biden is back in the oil business, provided a floor bid from the Strategic Petroleum Reserve at $79.
Most 2023 Stock Gains Happened in 8 Days, up some 14% since January 1. If you are a day trader, you most likely missed all of this. This is despite stocks going up 113 days versus 102 down days. Making matters more difficult is that only seven stocks accounted for most of the increase. Talk about a narrow market!
A Soft Landing is Now More Likely, says Bank of America CEO Moynihan. Inflation is falling and could lead to Fed interest rate cuts in H2 2024. Stocks and bonds will love it.
NVIDIA is Designing Dumbed Down Chips for China, to bypass government sanctions. It’s an opportunity to recover some lost market share. Keep buying (NVDA) on dips, up 20% in two weeks. It has an impassable moat.
Weekly Jobless Claims dropped from 3,000 to 217,000. It’s still unusually low. Hiring slowed in October as the economy slowed.
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, November 13, bond markets are closed for Veterans Day. I will be leading the local parade wearing my new Medal from the Ukraine Army.
On Tuesday, November 14 at 2:30 PM EST, the Core Inflation Rate is released.
On Wednesday, November 15 at 8:30 AM, the Producer Price Index is published.
On Thursday, November 16 at 8:30 AM, the Weekly Jobless Claims are announced.
On Friday, November 17 at 2:30 PM the US Building Permits are published. At 2:00 PM the Baker Hughes Rig Count is printed.
As for me, few Americans know that 80% of all US air strikes during the Vietnam War originated in Thailand. At their peak in 1969, more US troops were serving in Thailand than in South Vietnam itself.
I was one of those troops.
When I reported to my handlers at the Ubon Airbase in northern Thailand for my next mission, they had nothing for me. They were waiting for the enemy to make their next move before launching a counteroffensive. They told me to take a week off.
The entertainment options in northern Thailand in those days were somewhat limited. Phuket and the pristine beaches of southern Thailand where people vacation today were then overrun by cutthroat pirates preying on boat people who would kill you for your boots.
Life was cheap in Asia in those days, especially your life. Any trip there would be a one-way ticket.
There were the fleshpots of Bangkok and Chang Mai. But I would likely contract some dreadful disease there. I wasn’t really into drugs, figuring whatever my future was, it required a brain. Besides, some people’s idea of a good time there was throwing a hand grenade into a crowded disco. So, I, ever the history buff, decided to go look for The Bridge Over the River Kwai.
Men of my generation knew the movie well, about a company of British soldiers who were the prisoners of bestial Japanese. At the end of the movie, all the key characters die as the bridge is blown up.
I wasn’t expecting much, maybe some interesting wreckage. I knew that the truth in Hollywood was just a starting point. After that, they did whatever they had to do to make a buck.
The fall of Singapore was one of the great Allied disasters at the beginning of WWII. Japanese on bicycles chased Rolls Royce armored cars and tanks the length of the Thai Peninsula. Two British battleships, the Repulse and the Prince of Wales, were sunk due to the lack of air cover with a great loss of life. When the Japanese arrived at Singapore, the defending heavy guns were useless as they pointed out to sea.
Some 130,000 men surrendered, including those captured in Malaysia. There were also 686 American POWs, the survivors of US Navy ships sunk early in the war. Most were shipped north by train to work as slave labor on the Burma Railway.
The Japanese considered the line strategically essential for their invasion of Burma. By building a 258-mile railway connecting Bangkok and Rangoon they could skip a sea voyage of 2,000 miles in waters increasingly dominated by American submarines.
Some 12,000 Allied troops died of malaria, beriberi, cholera, dysentery, or starvation, along with 90,000 impressed Southeast Asian workers. That earned the line the fitting name: “Death Railway.”
The Burma Railway was one of the greatest engineering accomplishments in human history, ranking alongside the Pyramids of Egypt. It required the construction of 600 bridges and viaducts. It crossed countless rivers and climbed steep mountain ranges. The work was all done in 100-degree temperatures with high humidity in clouds of mosquitoes. And it was all done in 18 months.
One of those captured was my good friend James Clavell, who spent the war at Changi Prison, now the location of Singapore International Airport. Every time I land there, it gives me the creeps.
Clavell wrote up his experiences in the best-selling book and movie King Rat. He followed up with the Taipan series set in 19th-century Hong Kong. We lunched daily at the Foreign Correspondents Club of Japan when he researched another book, Shogun, which became a top TV series for NBC.
So I navigated the Thai railway system to find remote Kanchanaburi Province where the famous bridge was said to be located.
My initial surprise was that the bridge was still standing, not destroyed as it was in the film. It was not a bridge made of wood but concrete and steel trestles. Still, you could see the scars of Allied bombing on the foundations, who tried many times to destroy the bridge from the air.
That day, the Bridge Over the River Kwai was a quiet, tranquil, peaceful place. Farmers wearing traditional conical hats made of palm leaves and bamboo strips called “ngob’s,” crossed to bring topical fruits and vegetables to market. A few water buffalo loped across the narrow tracks. The river Kwai gurgled below.
Once a day, a train drove north towards remote locations near the Burmese border where a bloody rebellion by the indigenous Shan people was underway.
The wars seemed so far away.
The only memorial to the war was a decrepit turn-of-the-century English steam engine badly in need of repair. There were no tourists anywhere.
So I started walking.
After I crossed the bridge, it wasn’t long before I was deep in the jungle. The ghosts of the past were ever present, and I swear I heard voices. I walked a few hundred yards off the line and the detritus of the war was everywhere: abandoned tools, rusted-out helmets, and yes, human bones. I didn’t linger because the snakes here didn’t just bite and poison you, they swallowed you whole.
After the war, the Allies used Japanese prisoners to remove the dead for burial in a nearby cemetery, only identified by their dog tags. Most of the “coolies” or Southeast Asian workers were left where they fell.
Today, only 50 miles of the original Death Railway remain in use. The rest proved impossible to maintain, because of shoddy construction, and the encroaching jungle.
There has been talk over the years of rebuilding the Burma Railway and connecting the rest of Southeast Asia to India and Europe. But with Burma, today known as Myanmar, a pariah state, any progress is unlikely.
Maybe the Chinese will undertake it someday.
Every Christmas vacation, when my family has lots of free time, I sit the kids down to watch The Bridge Over the River Kwai. I just wanted to pass on some of my experiences, teach them a little history, and remember my old friend Clavell.
Good Luck and Good Trading
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Walking the Bridge Over the River Kwai in 1976
