Global Market Comments
September 26, 2024
Fiat Lux
Featured Trade:
(AN INSIDER’S GUIDE TO THE NEXT DECADE OF TECH INVESTMENT),
(AMZN), (AAPL), (NFLX), (AMD), (INTC), (TSLA), (GOOG), (META)
Posts
Last weekend, I had dinner with one of the oldest and best-performing technology managers in Silicon Valley. We met at a small out-of-the-way restaurant in Oakland near Jack London Square so no one would recognize us. It was blessed with a very wide sidewalk out front and plenty of patio tables.
The service was poor and the food indifferent, as are most dining experiences these days. I ordered via a QR code menu and paid with a touchless Square swipe.
I wanted to glean from my friend the names of the best tech stocks to own for the long term right now, the kind you can pick up and forget about for a decade or more, a “lose behind the radiator” portfolio.
To get this information, I had to promise the utmost confidentiality. If I mentioned his name, you would say “Oh my gosh!”
Amazon (AMZN) is now his largest holding, the current leader in cloud computing. Only 5% of the world’s workload is on the cloud presently so we are still in the early innings of a hyper-growth phase there.
By the time you price in all the transportation, labor, and warehousing costs, Amazon breaks even with its online retail business at best. The mistake people make is only focusing on these lowest-of-margin businesses.
It’s everything else that’s so interesting. While its profitability is quite low compared to the other Magnificent Seven stocks, Amazon has the best growth outlook. For a start, third-party products hosted on the Amazon site, most of what Amazon sells, offer hefty 30% margins.
Amazon Web Services (AWS) has grown from a money loser to a huge earner in just four years. It’s a productivity improvement machine for the world’s cloud infrastructure where they pass all cost increases on to the customer, who once in, buys more services.
Apple (AAPL) is his second holding. The company is in transition now justifying a massive increase in earnings multiples, from 9X to 34X over the last several years. The iPhone has become an indispensable device for people around the world, and it is the services sold through the phone that are key.
The iPhone is really not a communications device but a selling device, be it for apps, storage, music, or third-party services. The cream on top is that Apple is at the very beginning of an enormous replacement cycle for its installed base of over one billion phones. Moving from up-front sales to a lifetime subscription model will also give it a he boost.
Half of these are more than four years old and positively geriatric in the tech world. More than half of these are outside the US. 5G will add a turbocharger.
Netflix (NFLX) is another favorite. The world is moving to “over the top” content delivery and Netflix is already spending twice as much on content as any other company in this area. This is why the company won an amazing 21 Emmys this year. This will become a much more profitable company as it grows its subscriber base and amortizes its content costs. Their cash flow is growing by leaps and bounds, which they can use to buy back stock or pay a dividend.
Generally speaking, there is no doubt that the pandemic has pulled forward some future technology demand with the stay-at-home trend. But these companies have delivered normal growth in a hard world. Tech growth will accelerate in 2021 and 2022.
5G will enable better Internet coverage for everyone and will increase the competitiveness of the telecom companies. Factory automation will be another big area for 5G, as it is reliable and secure, and can be integrated with artificial intelligence.
Transportation will benefit greatly. Connected self-driving cars will be a big deal, improving safety and the quality of life.
My friend is not as worried about government-threatened breakups as regulation. There will be more restraints on what these companies can do going forward. Europe, which has no big tech companies if its own, views big American tech companies simply as a source of revenues through fines. Driving companies out of business through cutthroat competition is simply not something Europeans believe in.
Google (GOOG) is probably more subject to antitrust proceedings both in Europe and the US. The founders have both retired to pursue philanthropic activities, so you no longer have the old passion (“don’t be evil”).
Both Google and Meta (META) control 70% of the advertising market between them, which is inherently a slow-growing market, expanding at 5% a year at best. (META)’s growth has slowed dramatically, while it has reversed at (GOOG).
He is a big fan of (AMD), one of his biggest positions, which is undervalued relative to the other chip companies. They out-executed Intel (INTC) over the last five years and should pass it over the next five years.
He has raised value tech stocks from 15% to 30% of his portfolio. Apple used to be one of these. Semiconductor companies today also fall into this category. Samsung with 40% margins in its memory business is a good example. Selling for 10X earnings it is ridiculously cheap. It is just a matter of time before semiconductors get rerated too.
He was an early owner of Tesla (TSLA) back in the nail-biting days when it was constantly running out of cash. Now they have the opposite problem, using their easy access to cash through new share issues as a weapon to fight off the other EV startups. Tesla is doing to Detroit what Apple did to the cell phone companies, redefining the car.
Its stock is overvalued now but will become much more profitable than people realize. They also are starting to extract service revenues from their cars, like Apple has. Tesla will grow revenues by 30%-50% a year for the next two or three years. They should sell several million of the new small SUV Model Y. Most other companies bringing EVs will fall on their faces.
EVs are a big factor in climate change, even in China, the world’s biggest polluter. In Europe, they are legislating gasoline cars out of existence. If you can make money building cars in Fremont, CA, you can make a fortune building them in China.
Tech valuations are high, there is no doubt about it. But interest rates are much lower by comparison. The Fed is forcing people to buy stocks, enabling these companies to evolve even faster.
When rates rise in a year or so tech stocks may have to come down. They have a lot more things going for them than against them. The customers keep coming back for more.
Needless to say, the above stocks should make up your shortlist for LEAPS to buy at the coming market bottom.
Mad Hedge Technology Letter
September 13, 2024
Fiat Lux
Featured Trade:
(ALTERNATIVE TECH GETS HAMMERED)
(BTC), (ETH), (COIN), (NVDA), (ADA), (XRP)
Mad Hedge Technology Letter
September 11, 2024
Fiat Lux
Featured Trade:
(IS THE TRIFOLD SMARTPHONE A GENIUS IDEA?)
(HUAWEI), (APPL)
Silicon Valley is usually on top of the innovation game and as Huawei announced the launching of its trifold smartphone, one must ask whether Silicon Valley is late to the party or if this technology is even worth their time.
My guess is that foldable devices won’t move the needle and these announcements aren’t really about moving revenue, but to offer bluster in a global game of cat and mouse.
In general, the smartphone super cycle is about tapped out and I don’t see a foldable phone as a reason for another re-acceleration of revenue.
There is a higher chance that in the next few years, this foldable technology is adapted for some other technology and written off on the balance sheet.
To think it could be some revolutionary new trend is beggars’ belief.
To be honest, many consumers are tired of screen time and can’t get off their screen because work duties connect them to the screen.
When needing a bigger screen to watch global sporting events, many would prefer a large-screen TV that doesn’t fold. This phone is no TV screen – not by a long shot.
It is a little difficult for me to understand the use case here for Huawei going big in the foldable screen business.
It’s not like the new phone will be cheap either, the new trifold smartphone will start at around $2,800 which is more expensive than most premium laptops.
Huawei announced its foldable product on the same day as Apple unveiling the new iPhone.
Apple announced its iPhone 16 Pro Max will start at $1,199, and the iPhone 16 at $799.
The first set of Apple Intelligence AI features will be available in a free software update next month.
Huawei’s Mate XT also comes with artificial intelligence features, such as text translation and cloud-based content generation.
The device is 3.6 millimeters thick when unfolded, with a 10.2-inch screen.
More than 3.5 million people had pre-ordered Huawei’s trifold Mate XT smartphone as of midday Tuesday.
The Chinese company has sought to make a comeback in the smartphone industry, which was hard hit after the U.S. slapped sanctions on the company in 2019. The U.S. in October 2022 imposed broader restrictions on American sales of advanced chips to Chinese businesses.
Apple fell out of the list of top five smartphone vendors in China in the second quarter of this year. It was the first time that domestic players held all five spots.
Clearly, Chinese tech views Apple as the top dog to compete against, but I would say that Apple’s star is waning in China.
They are being pushed out by the Chinese government who are indirectly suggesting to Chinese consumers to go with domestic alternatives.
National champions and protecting them are the modus operandi in the age of deglobalization and that will not change anytime soon.
As for the tech, foldable screens are a mediocre and lateral upgrade.
The size of a screen has a size limit to its usefulness and building gargantuan screens does not suggest that it could trigger some new wave of untapped profits.
I believe Apple is smart in not aggressively pursuing foldables and the quest continues to find the new killer tech that will take over.
Until then, tech stocks should grind up but not in a dramatic fashion.
Global Market Comments
September 3, 2024
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD or THE HIDDEN AI IN YOUR LIFE),
(SPX), (NVDA), (CSCO), (LEN), (DHI), (KBH), (SMCI), (BRK/B), (META), (AAPL), (GOOGL), (TSLA), (JNK), (HYG), (FXA), (FXE), (FXB), (FXC), (EEM), (IWM)
It's great to be back in California, even just temporarily.
Driving down to visit a Concierge client, the weather is hot and dry, the scenery is spectacular. What were once endless hills of dry grass are now countless miles of vineyards. Boy, has the Golden State changed a lot since 1952.
The vines are heavy with grapes. I stopped by and picked a purple bunch to test out the fruit. The grapes were rich and sweet. It looks like 2024 is going to be a good vintage. No wonder there is a wine glut.
It's going to be a vintage year for Mad Hedge performance as well. We picked up a welcome +3.74% in the testing month of August, +33.61% so far in 2024, and +711.32% since inception.
The harder I work, the luckier I get.
Which raises the most important question of the day: Did September just happen in August? The price action we saw last month is certainly reminiscent of many recent faith-testing Septembers and Octobers.
If that is the case, then it could be off to the races from now. Except this time, it won’t be just a Magnificent Seven rally. It will be an everything rally as the bull broadens out to include all interest rate sectors, which is almost everything.
(SPX) 6,000 by yearend looks like a piece of cake.
The bottom line for all of this is that investors and the markets are still wildly underestimating the impact artificial intelligence will have on our futures, and therefore stock prices. Publishing the Mad Hedge AI Letter three times a week (click here for the link), I can see AI sneaking into every aspect of our lives without our knowledge.
I visited my doctor the other day and they asked for my Medicare card. I didn’t have it because there is no use for this US government ID in Europe from where I just returned. The receptionist said, “Don’t worry, may I have your phone please?” She went into my photos app, searched for “Medicare” and there it appeared instantly. Apple had surreptitiously installed an AI search function on my phone without even telling me.
Try it!
What we are witnessing is the greatest capital spending binge since WWII 83 years ago, when in three short years, the US produced 297,000 aircraft, 193,000 artillery pieces, 86,000 tanks, and two million army trucks. It also double-tracked all east-west rail lines and created from scratch four atomic bombs.
And you want to short that???
The indexes certainly have plenty of room to run. Since the 2020 pandemic bottom, virtually all money has gone into big tech and out of the rest of the market, generating net outflows out of equities and into bonds. What happens when you get net inflows into big tech AND the rest of the market? Markets go up a….lot.
Dow 240,000 here we come.
Now for the challenging chore of sector picking.
Bonds (TLT) are usually the first pick at the beginning of any interest rate-cutting cycle. However, this has been the best telegraphed interest rate cut in history so most of the juice has already been squeezed out of this one. The (TLT) has moved a prolific $18 off the $82 bottom with no interest rate cuts at all. So there might be $5 or $10 of upside left this year, but no more.
Derivative high-yield plays have much more to offer. Those would include junk bonds (JNK), (HYG), BB-rated loans (SLRN), and REITS like the Vornado Realty Trust (VOR), my favorite Crown Castle International (CCI), and Health Properties (DOC).
Utilities usually do well in falling interest rate cycles as they are such big borrowers. In this basket, you can throw NextEra Energy (NEE), Southern Company (SO), and Duke Energy (DUK).
Falling rates also reliably deliver a weak US dollar, so buy every foreign currency play out there (FXA), (FXE), (FXB), (FXC). Also, buy foreign stock markets like the (EEM).
And then there are always big borrowing small caps (IWM), poor performers for the last decade which can always use the life jackets of falling interest rates. Keep in mind that 40% of small caps are regional banks and another 40% are money losers.
And then there are the old reliables. Any of the Magnificent Seven will probably work if you can get them on any selloff like we had on August 5.
So far in August, we are up by +2.67%. My 2024 year-to-date performance is at +33.61%. The S&P 500 (SPY) is up +18.23% so far in 2024. My trailing one-year return reached +52.25. That brings my 16-year total return to +710.24. My average annualized return has recovered to +51.91%.
I executed no trades last week and am maintaining a 100% cash position. I’ll text you next time I see a bargain in any market. Now there are none. I am running one short in Tesla (TSLA).
Some 63 of my 70 round trips, or 90%, were profitable in 2023. Some 49 of 66 trades have been profitable so far in 2024, and several of those losses were really break-even. That is a success rate of +74.24%.
Try beating that anywhere.
NVIDIA Dives on Fabulous Earnings, one of the greatest “Buy the rumor, sell the news” moves of all time. The stock dropped to $25, or 17.85% off its all-time high. Production snags with its much-awaited Blackwell chips are to blame. The company’s quarterly met or beat analysts’ estimates on nearly every measure. But Nvidia investors have grown accustomed to blowout quarters, and the latest numbers didn’t qualify. Buy (NVDA) on this dip.
PCE Rises a Modest 02% in July. That is the so-called core personal consumption expenditures price index, which strips out volatile food and energy items, according to Bureau of Economic Analysis data out Friday. On a three-month annualized basis — a metric economists say paints a more accurate picture of the trajectory of inflation — it advanced 1.7%, the slowest this year
Pending Home Sales Drop 5%, and 8.5% YOY, on a signed contracts basis. Many buyers are waiting until after the presidential election to make a move. Pending home sales fell in all four regions last month. The positive impact of job growth and higher inventory could not overcome affordability challenges and some degree of wait-and-see related to the upcoming U.S. presidential election.
Sales of new U.S. single-family homes rocketed by 10.6%, their highest level in more than a year in July. A drop in mortgage rates boosted demand, offering more evidence that the housing market is recovering. Sales reached a seasonally adjusted annual rate of 739,000 units last month, the highest level since May 2023. It was also the sharpest increase in sales since August 2022. New home sales are counted at the signing of a contract. Buy homebuilders on dips (LEN), (DHI), (KBH).
US GDP Reaccelerates to 3.0% Growth in Q2, up from the previous estimate of 2.8%, according to the Bureau of Economic Analysis. Stronger consumer spending more than offset other categories. Can’t beat the USA.
Weekly Jobless Claims Remain Unchanged at 231,000, down 2,000. After being inflated by weather and seasonal factors in July, initial jobless claims in August are stabilizing at a slightly lower level, another indication that layoffs remain low.
Is Costco (CSCO) the Next Stock Split? Costco, which has risen nearly 40% since the start of 2024, is a potential candidate. Given the company’s share price—over $900 as of Tuesday—and the trend among other retailers with similarly high prices to split.
Hindenburg Research Attacks Super Micro, alleging "accounting manipulation" at the AI server maker, the latest by the short seller whose reports have rocked several high-profile companies. Close ties with chip giant Nvidia have allowed Super Micro, known for its liquid cooling technology for high-power semiconductors, to capitalize on the surge in demand for AI servers.
Though revenue has surged, margins have taken a hit recently due to the rising costs of server production and pricing pressure from rivals including Dell. Avoid (SMCI).
Berkshire Hathaway Tops $1 Trillion Market Cap, a long-time Mad Hedge recommendation. It’s the first nontech company ever to do so, even though (BRK/B) has a major holding in Apple (AAPL). Keep buying the big dips. The stock has rallied this year on strong insurance results and economic optimism. The Omaha, Nebraska-based company joins the ranks of a small group to crack the milestone, dominated by technology giants like Alphabet Inc. (GOOGL), Meta Platforms Inc. (META) and Nvidia Corp. (NVDA).
S&P Case Shiller Hits New All-Time High in June. Prices nationally rose 5.4% in June from the year prior. An index measuring prices in 20 of the nation’s large metropolitan areas gained 6.5% from the year prior. On an unadjusted basis, it was the national index’s fourth consecutive all-time high. Prices in New York, San Diego, and Las Vegas grew the most, with year-over-year gains ranging from 8.5% and 9%, while those in Portland, Ore., Denver, Colo., and Minneapolis grew the least.
Canada Imposes 100% Tariff on Chinese EVs. The problem for Tesla is that they had been supplying the Canadian market from their China factory. The supply can be replaced with US-made cars but at a much higher cost. Tesla sold off $8 on the news. Sell rallies in (TSLA).
Is the US Tipping into Recession? A continued drop in job openings will translate into faster increases in unemployment, an argument in favor of the Fed beginning to cut interest rates to guard the labor market. The next jobs reports could be crucial. Policymakers face the dilemma of two risks: being too slow to ease policy, potentially causing a 'hard landing' with high unemployment ... or cutting rates prematurely, leaving the economy vulnerable to rising inflation
Yield Chasers Post Record Demand for Junk Bonds. That’s helped make 2024 the busiest year for the issuance of new corporate high-yield bonds, with $357 billion sold so far, since the easy money days during the pandemic. Issuance of US leveraged loans, meanwhile, is running at its fastest pace on record. Buy (JNK) and (HYG).
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 600% 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 2 we have Labor Day. All US markets will be closed.
On Tuesday, September 3 at 6:00 AM EST, the ISM Manufacturing PMI is released.
On Wednesday, September 4 at 7:30 PM, the JOLTS Job Openings Report is printed.
On Thursday, September 5 at 8:30 AM, the Weekly Jobless Claims are announced. We also get the ADP Employment Report.
On Friday, September 6 at 8:30 AM, the August Nonfarm Payroll Report is released. 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 ). 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 1960s, 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)
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 had been 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 owns 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
At the Reno Airport
Donner Pass Petroglyphs
Global Market Comments
September 2, 2024
Fiat Lux
Featured Trade:
( AUGUST 28 BIWEEKLY STRATEGY WEBINAR Q&A),
(SMCI), (QQQ), (CRWD), (NVDA), (TSLA), (GOLD), (BRK/B), (BAC), (AAPL)
Below please find subscribers’ Q&A for the August 28 Mad Hedge Fund Trader Global Strategy Webinar, broadcast from Santa Barbara, CA.
Q: What is your opinion on Supermicro (SMCI)?
A: I can tell you that all fund managers have the same reaction as I do when they hear the words “accounting irregularities” ….run. So, if you haven’t, I would get out. If you’re looking to get in, there’s probably a great opportunity somewhere, but not here. Their product isn’t that high-tech, cooling racks for artificial intelligence servers. But it did have the letters “AI” attached, so it went up 50-fold. But Hindenburg is occasionally right on their research reports, although they’re wildly exaggerated to enhance their short positions. I would stay out of the way on that one for now.
Q: Are there any startup companies worth investing in on the public market right now?
A: No, because new listings are always overhyped. They come in usually double their true value. This happened with Tesla (TSLA)—I think Tesla came out at $32, I waited for the 50% selloff and all the marketing hype to wear off and I bought it at $16, and of course, that's probably about 60 cents now on a split-adjusted basis. So, I don't play the IPO game. If an IPO really is hot, chances are your broker won’t give it to you anyway; he'll give it to his largest clients. That's probably not you. So, I don't get involved in that game, I look at the aftermath. And in hot markets, there is no aftermath, you just watch them go up. The answer to that is a firm no.
Q: Home prices just hit new all-time highs, according to the S&P Case-Shiller. How do the prices keep rising with high interest rates?
A: Because people expect interest rates to fall, and they are doing so dramatically. If you look at all the interest-sensitive sectors which I've been recommending for the last four months, they've all been on fire. So if the cost of your mortgage is about to drop by half, housing prices should double, and we are starting to see that double now.
Q: Should we buy a put on the (QQQ) based on Nvidia (NVDA) earnings?
A: Nobody knows what the Nvidia earnings are going to be, so if you're willing to make a bet on a coin toss, go ahead and do it. I don't make bets on coin tosses. I make bets when there's a 90% chance that I'm going win, and there are no 90% chance trades out there anywhere in any asset class right now. It's better to watch and wait for the next opportunity. If Nvidia sells off 10% on a weak guidance, then I would be in there with both hands buying, because Nvidia is still cheap relative to the rest of the sector and the rest and of the market. And if Nvidia goes up 20%, I might even sell it short. I have shorted Nvidia this year a couple of times this year, and made money both times, so that is the trade. But right here we're in the middle of the next likely range, so no trade there at all.
Q: Will CrowdStrike (CRWD) have a financial liability for the problem it created by crashing the world's travel computers?
A: Yes, and that will no doubt be the subject of litigation for the next 10 years, which I would rather not get involved in.
Q: The tech industry keeps cutting white-collar jobs, and they have been for some time. At which point does this subside, and won’t this crush employment in Silicon Valley?
A: Well, it’s already crushed employment by about 300,000 in Silicon Valley, but artificial intelligence is now starting to soak up those employees, and they certainly are soaking up the office space, which is why the smart money that is now pouring into San Francisco buying up office buildings for pennies on the dollar. They see an employment recovery. In the meantime, buy the Magnificent Seven stocks, because they’re creating profits by cutting the excess staff which they always used to keep.
Q: When you talk about Tesla (TSLA) losing ground in the EV market, do you see the company broadening out its technologies, and growing the company down other avenues?
A: Absolutely, yes. They have a very fast-growing solar panel business, an industrial-scale battery business, and of course, they're basically running the charging network for the entire United States and the entire world. They also have new batteries under development that have the potential to increase car ranges 20 times at zero cost. Elon always has at least a dozen or so other projects underway, many of which he keeps secret. What you have to keep track of is how many of these accrue to Tesla, and how many accrue earnings to his other companies, like SpaceX, Neuralink, and xAI. SpaceX is going gangbusters right now because guess what? They're planning an IPO in the near future and should get a big multiple. xAI just raised $6 billion in a VC round.
Q: How can Nvidia (NVDA) go higher tonight if it disappoints?
A: It won't. It will drop about 10%. I'm just saying you can go higher into next year on 50% earnings growth, but we may have to give back 10%, 20%, or in the case of August 5th, 40% before we can go forward.
Q: Whatever happened to the commercial real estate problem? How is that taken care of so tightly by private capital?
A: It's a play on falling interest rates. A lot of buildings were going for 10 cents on the dollar in Manhattan and in San Francisco, so these guys know bargains, and they're long-term players, and that's how they always make money in that business. I've been watching it for 50 years, and their market timing is excellent.
Q: What will the effects of de-dollarization mean to the long-term health of the stock market?
A: Nothing, because de-dollarization isn't going to happen. It's more or less an internet conspiracy theory. There's no serious move whatsoever to replace the US Dollar, and Bitcoin or crypto in general never got to more than 1% of the total value of US dollars out there, and plus it's had its problems. So I don't think de-dollarization is going to happen in my lifetime.
Q: Why is Warren Buffett (BRK/B) unloading shares in Apple (APPL) and Bank of America (BAC)?
A: He thinks the whole market is expensive, and I would agree with him. He likes having a lot of cash during recessions or during major market crashes, so he can swoop in and buy whole companies. So that is the answer. He's thought the market has been expensive for years now, but that doesn't seem to stop them from making money.
Q: Should we take profit on the LEAPS in Barrick Gold (GOLD) expiring in January?
A: Yes, you should take the profit here. You make maybe 20% or 30% and then wait for the next sell-off, and then go back into (GOLD), but add an extra year to the expiration date. Do a 2026 instead of a 2025, because we're getting kind of short on time on all the January 2025 expirations. So that would be the smart thing to do, is to take profits on all your January 25 LEAPS, raise cash, and go back in into an 18-month LEAP on the next sell-off, and I will be reminding you to do exactly that when it happens.
Q: Should we wait until after the election to invest?
A: No. The market will start running before the election, especially if the election outcome becomes more and more certain. So that kind of sets up an October bottom for the market, and maybe even a September one—who knows? We will just have to see how the polls go, even though they are usually wrong. So that's what I would do on that.
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Good Luck and Good Trading,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Global Market Comments
August 29, 2024
Fiat Lux
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