Photography by Chris Ayers Photo
Retirement takes on a different shape for John Thomas, also known as The Mad Hedge Fund Trader, who now uses that moniker for a web site, daily newsletter and premium-priced trade alert service while also trading his own account.
In his previous 40-year career Thomas has worked as Tokyo correspondent for The Economist magazine and the Financial Times, built and headed Morgan Stanley’s international equity division, run his own hedge fund to a 1,000% return and focused on his own investments and commodities, including oil and gas development in the Barnett Shale of Texas.
He learned to trade, starting with stocks, while working for a brokerage firm on the Tokyo Stock Exchange floor after graduating from college in California. After that he went into Eurobond trading as currency trading was just getting started in the 1970s. "We basically would trade Deutsche mark, yen, Swiss francs and sterling bonds against each other," he says.
The move into journalism with The Economist followed the market crash after the 1973 oil crisis as business dried up. "So I became a journalist just to pay the bills," Thomas says. After he wrote a book in 1980 predicting that the yen would go from 300 to 100, the Nikkei would rise "astronomically" and that the Japanese government bond market and banks would become the world’s largest he was recruited by Morgan Stanley.
"I started out as the low man on the totem pole in the equities division, the first international hire, and I actually built the staff up from one to 200," he says. "We were accounting for 80% of equity division profits."
Trading in the international arena was just getting started and was very simple, mostly involving arbitrage between American depositary receipts and European listed stocks. Following the run up of gold from $32 to $900 a decade earlier most of the international stocks that were active were gold mines.
"So all the volume in international equities was in the gold and precious metals area and that got me into the gold business," Thomas says. "The business I built up after that was all Japan-focused. Japan was the world’s largest foreign stock market at the time. Plus there was a huge economic boom going on. Japan was like China is today."
The Mad Hedge Fund Trader newsletter tends to avoid specific futures market recommendations because most readers are not qualified, have no experience and can’t open online accounts, while professionals who subscribe generally are not commodity trading advisors (CTAs) or don’t want to register with the CFTC. "They play the ETF equivalents," Thomas says.
But he says his own account is "into futures all the time. For me it’s easy." He recently has been in the position of going short many commodities he had previously been long as part of a "risk on, risk off" strategy tied to what he sees as strong prospects of a "Great Crash" and recession in the coming year. "I have silver right now," he says. "Oil I’m out of because it is too expensive. I’m looking to short it. And gold I have been playing from the short side since it peaked at $1,920."
Thomas says he is still a long-term advocate of hard assets investments "but you don’t want to own them in a recession. You know, every time they have a dance they always invite the same girls: commodities, precious metals, oil, hard assets of any kind, bulk commodities like zinc, tin and copper.
"That’s the way it’s going to be for 30 years. All those people in emerging markets want to increase their standard of living. That demand is going to keep growing. It will take five to 10 years to bring the supplies on. So all you have to do is stay out of the way during the recessions, which is just what I’ve been doing."
He also recommends selling currency rallies, forecasting an eventual decline of the euro to parity with the dollar and noting that the structural problems in Europe could take years to resolve. "I’m not a perm-bear, I’m a trader. I don’t really care if the markets go up or down as long as I know in advance which one they are doing," he says. "If you do the hard research you can get that right most of the time, although not all the time."
Thomas also does his own charts, noting that the world’s best chartists generally cherry pick their charts based on fundamentals. "All the best hedge fund traders do that," he says.
He has utilized trading experience and contacts to better understand global market fundamentals. He claims four Federal Reserve governors subscribe to his newsletter. He also has parlayed early career interviews with Chinese senior leaders like Deng Xiaoping and Zhou Enlai into a position as an official advisor to China’s Ministry of Finance and the People’s Bank of China. "Their questions to me are far more valuable than any answers that I’m able to give them," he says.
Given China’s influence on the global commodity markets, that is a pretty good pipeline of information.