Mad Hedge Technology Letter
May 15, 2024
Fiat Lux
Featured Trade:
(MEME MAYHEM)
(GME), (AMC), (NVDA), (SMCI)
Posts
GameStop (GME) and AMC (AMC) shares taking off like a bandit from a bank heist is highly advantageous for tech stocks.
Everyone who owns tech stocks maybe doesn’t know that but won’t complain when their shares go up.
This aggressive price action clearly signals to the rest of the stock market that monetary policy is way too loose.
Yes, and I am saying that at Fed Fund rate sitting at 5% today.
It’s a tough job to reign in the inflationary genie after it’s out of the bottle, and the liquidity sloshing around that overflows into a high inflation backdrop means that prices trend up.
That also goes for tech stocks.
Much of that liquidity has found its way into growth tech stocks like Nvidia (NVDA) and Super Micro Computers (SMCI).
It’s also found its way into marginal tech companies like Gamestop and meme movie cinema stock AMC.
Capital wouldn’t be allocated this poorly into mediocre stocks if there was a tighter cap on liquidity which there isn’t.
It was only just the other week in which the US Central Bank slowed the pace of asset run off to their balance sheet which equated to yet another injection of quantitative easing for tech stocks.
What does that mean?
In the short-term, tech stocks are off to the races.
This is a side effect to the easy money policies resulting in 100% moves in AMC and GME.
It’s almost laughable but that is the world we live in.
The moves higher in both stocks, which have since been followed by several trading halts and subsequent paring of gains Tuesday, came after the reemergence of Keith Gill, also known as "Roaring Kitty," whose bull case on GameStop ignited the meme stock rally back in 2021.
Every bull market has its share of excess and mini bubbles, but this only becomes dangerous when it becomes widespread.
Even if interest in ‘meme’ stocks rebounds following a renewed surge in GameStop’s share price, it doesn’t mean that we are at the end of the tech sector’s Bull Run.
It does mean we are very late in the tech cycle, but honestly speaking, we have been late cycle since 2019.
It’s so late that tech companies now have to issue dividends to keep investors onboard.
They used not have to do that because they were growing so fast.
Sometimes tech stocks don’t sell themselves and this is a period when that is so.
The almost 5 year late cycle action has meant that tech stocks are a good bet in the short-run and the underpinnings to this rally has been fortified due to AI mania that has engulfed many of the best and brightest of tech.
Stocks like GME and AMC shouldn’t be experiencing 100% gains in days in this part of the late cycle, not because I don’t like these companies, but because their business models don’t support such price action.
Gamestop sells video games at the mall.
AMC has a failing movie theatre business.
My take from it is that the tech Bull Run is alive and well in the short-term and there is definitely enough capital to stage a summer tech rally.
Hold on to your hat cowboy!
Global Market Comments
September 1, 2023
Fiat Lux
Featured Trades:
(AUGUST 30 BIWEEKLY STRATEGY WEBINAR Q&A),
(AMZN), (NVDA), (AAPL), (GOOG), (TSLA), (TLT), (TSLA), (FXI), (GOLD), (WPM), (AMC), (MSFT), (CCJ)
CLICK HERE to download today's position sheet.
Below please find subscribers’ Q&A for the August 30 Mad Hedge Fund Trader Global Strategy Webinar, broadcast from Silicon Valley, CA.
Q: I have a question about NVDA. While NVIDIA is a top-of-the-line chip company, there are many companies, i.e., Amazon (AMZN), Microsoft (MSFT), and of course, China (FXI), that are looking to get into the arena and build their own chips-cutting into (NVDA) space. How soon do you think this will happen and how good will those chips be?
A: NVIDIA is ahead now because of decisions on software and platforms they made 20 years ago. As all the important employees are also shareholders with minimal cost there is no way you’re going to pry them away to another company. You can’t copy NVIDIA with a simple cut-and-paste operation as you can with most other companies and the market has figured this out. (NVDA) has a moat that will remain unassailable for years. Now they have the AI turbocharger. My short-term target is $1,000 and it probably goes much higher. I reiterate my strong “BUY” issued in 2015 at $15.
Q: Why do you think the demise of crypto is coming?
A: Not so much a demise as a long nuclear winter. The SEC has declared war on all the intermediaries, and if you don’t have intermediaries you can’t trade. That shrinks the market to hot wallets only, which only computer programmers can do. That is much smaller than the current market. The other reason is that crypto prospered when we had a cash surplus and an asset shortage. We had to invent new assets to soak up all that cash—that's what Bitcoin did, it soaked up about $2 trillion dollars. Now we have the opposite: a cash shortage thanks to high-interest rates and an asset oversupply—all of the busted stocks that emanated from crypto, all the SPACS, the ETFs, and so on, where people lost 90%-100% of their money. #3, there is still a massive fraud and theft problem with crypto running in the hundreds of billions of dollars. I’d rather just buy Apple (AAPL) or Google (GOOG) or Tesla (TSLA) with my money. Those are cheaper alternatives than existed 18 months ago.
Q: Will iShares 20+ Year Treasury Bond ETF (TLT) visit the $92.25 low or have yields peaked?
A: I hope it visits the $92 low—I’m going to be buying my pants off if we get that low, plus issuing two-year LEAPs with 100% returns. So absolutely, yes. (TLT) is bottoming here and starting to discount interest rate cuts which will begin in March or June.
Q: What do you think of sells on Tesla (TSLA)?
A: I ignore all sells on Tesla, as I have done for the last 13 years. Keep in mind that Tesla has always had one of the largest short interests in the market, and will continue to do so as many people don’t buy the hype, or the vision.
Q: Why haven’t we gotten any trade alerts on gold and silver?
A: We sent out trade alerts for the concierge customers on gold (GOLD) and silver (WPM), and if we see another good entry point we’ll send those out also to the regular Global Trading Dispatch customers.
Q: When you say dip, how much of a dip do you mean?
A: We’ve really only had a 7% dip in the S&P 500 (SPY) this summer top to bottom. Usually, you get 10%, but with $5.6 trillion in cash on the sideline and with AI and multiple other technologies accelerating, people are just not willing to wait. When you throw cold water on the market, as we have been doing all summer, you buy the heck out of it.
Q: Will China’s (FXI) real estate collapse cause a black swan for US markets? Will China go the way of Japan?
A: No, the Chinese real estate market is almost completely isolated from the rest of the global economy. Additionally, most of the Chinese debt is owned by a dozen or so government-controlled banks. So, real estate prices there can implode and have virtually no effect on anywhere else. I’m not worried about that at all. You might get a down day of a few hundred points when one of the biggest companies goes under, but no more than that, and it doesn’t affect China’s trading economy at all. On a list of things to worry about, that’s probably number 100.
Q: It’s said a lot of the recent gains in the market are from short covering—how do you determine the number of shorts out there?
A: Well, most short interest in stocks is in the public domain; all you have to do is Google the term “how many Tesla shorts,” and you’ll get a number—it’ll be like 20-25% of the outstanding shares. For some companies, like AMC Entertainment Holdings (AMC), the short interest can be 50% or more. So, it’s easy to find out; however, you want to buy the market before people start covering shorts, not after, because that buying power is then already in the market, and that would have been a couple of months ago. For any of the big hedge funds, almost none of them were shorting stocks. All of them were looking to buy on any declines; that’s what they’ve been doing all summer, and that's why the market was unable to appreciably fall.
Q: Outlook on Microsoft Corp (MSFT)?
A: Double in the next 3 years, as is the case with all of big tech.
Q; What about my iShares 20+ Year Treasury Bond ETF (TLT) 2024 LEAPS?
A: I think we will get enough of a rally in TLT by January for all of those Jan 2024 LEAPS to expire at max profit. They’re only $4 points away from max profit for the $95/$100s and $9 points away for the $100/$105s, and that is entirely doable if the Fed stops raising interest rates or even cuts them. At one point these LEAPS were up 70% from cost so that might have been a great time to take profits.
Q: Is your AI product different from the one offered by Tradesmith?
A: Yes, we have completely different trade alerts than Tradesmith has; and they are using different algorithms than we are, so, totally they’re different services. If you have the Tradesmith product, just keep watching it and see if it performs. Usually, it takes six months to decide whether a new service is worth renewing, so I would keep watching it. Also, Tradesmith has a ton of analytical tools which we don’t offer. They made a massive seven-year investment in their own AI tools, which are completely different than ours. They disclose some of theirs, but we don’t. Why give away the keys to the kingdom? We’ll just send you our trade alerts, which by the way have been 100% profitable.
Q: Whatever happened to meme stocks like AMC Entertainment Holdings (AMC)? Should I look at these?
A: Absolutely not—they’re pure gambling. You’re better off just buying a New York lottery ticket. No fundamentals; I’m amazed AMC is even still in business. I went to the movies a few weeks ago and I was the only person in the theater. I went to see the Oppenheimer movie, which I highly recommend by the way. I’m still radioactive from when I worked with his lot.
Q: Credit card debt has spiked to historic levels—will this eventually come back to haunt the US economy?
A: Not really, it really doesn’t translate to lower consumer spending or a weaker economy yet. My bet is these people get bailed out by falling interest rates again as they always are. Consumer Spending Rocketed in July, up a monster 0.8%, the second-best number of the year, in further evidence of improving economic growth. Never underestimate the ability of Americans to spend money
Q: Can we access recordings of these webinars?
A: Yes, we post them on the website in your members' section two hours after it’s recorded. Just log into madhedgefundtrader.com, go to your membership section, and it’ll list webinars as one of the services you have purchased and have access to.
Q: How will markets respond if Trump gets back in the White House?
A: Major market crash—that’s an easy one. The Trump who won in 2016 is not the same Trump as today.
Q: What will happen to the price of EVs when the world runs out of lithium?
A: The world will never run out of lithium, it’s one of the world's most abundant elements. The bottleneck is in lithium processing, and there are multiple lithium processing facilities using new technologies under construction around the country. That gets you around that bottleneck, and you also free yourself from Chinese sources of processed lithium. Elon Musk planned all this out 25 years ago when he first started Tesla. He planned for a 20 million unit/year scale-up and has locked up the lithium supplies to accommodate that level of construction, leaving the rest of the world in the dust.
Q: Would you comment on the potential of new EV car batteries to enhance travel distances?
A: Tesla has a new solid-state battery that increases battery ranges from 10 times to 20 times, but it hasn’t been able to economically produce them in large enough numbers to put them in new cars. That’s in the wings. If that happens, Tesla will be able to cut costs by $10,000 per car and shrink the battery size from 1,000 pounds to 50 pounds, which would be revolutionary and absolutely wipe out Detroit, China, and Japan. That would allow Tesla to take over the entire global car market. So, yes, when you consider all that, it makes my current forecast of $1,000 for Tesla look stupidly conservative.
Q: What’s your take on the state of the Russia/Ukraine war?
A: Ask me in three weeks, when I will be in Ukraine seeing the actual state of the war, visiting the front lines, delivering doctors and supplies to children’s hospitals, and doing assorted odd jobs that have been requested of me. You’ll get the full read on Ukraine then. For now, I can tell you that Ukraine is still winning, but 18 months in, the people are getting tired. The people in my team in Ukraine who are organizing this trip sometimes break down in tears from the sheer weight of the war on them. Of course, being bombed every day doesn’t help your sleep either. So be prepared for my report and video of the century on the Ukraine war.
Q: Stanley Druckenmiller has a big position in Cameco Corp (CCJ).
A: That’s absolutely true, and I’d be a LEAPS buyer there on any kind of pullback. Stanley is a billionaire for a reason.
Q: What happens to gold at the introduction of the US government's digital currency?
A: It probably goes up. Actually, it’ll probably have no impact, but if it’s going to do anything it’ll make gold go up because people who are frightened of digital currencies will buy gold as a safe haven. I happen to know a few of those who have millions of dollars worth of gold stashed away under their mattresses for this purpose.
To watch a replay of this webinar with all the charts, bells, whistles, and classic rock music, just log in to www.madhedgefundtrader.com, go to MY ACCOUNT, click on GLOBAL TRADING DISPATCH, then WEBINARS, and all the webinars from the last 12 years are there in all their glory.
Good Luck and Stay Healthy,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
2023 in the Naval & Military Club in London
Global Market Comments
September 16, 2022
Fiat Lux
Featured Trade:
(TESTIMONIAL)
(LONG-TERM ECONOMIC EFFECTS OF THE CORONAVIRUS),
(ZM), (LOGM), (AMZN), (PYPL), (SQ), CNK), (AMC), (IMAX),
(CCL), (RCL), (NCLH), (CVS), (RAD), (WMT)
The world will never be the same again.
Not only is the old world rapidly disappearing before our eyes, the new one is kicking down the front door with alarming speed.
In short: the future is happening fast, very fast.
To a large extent, long-term economic trends already in place have been given a turbocharger. Quite simply, you just take out the people. Human contact of any kind has been minimized.
I’ll tick off some of the more obvious changes.
To say that we are merely fatigued from a nearly three-year quarantine would be a vast understatement. Climbing the walls is more like it.
As I write this, US Covid-19 deaths have topped one million and cases have surpassed 95 million. China peaked at over 5,000 deaths with four times our population. The difference was leadership issue. China welded the doors shut of early Covid carriers.
Here, it said it was a big nothing and would “magically” go away.
The magic didn’t work, nor did bleach injections.
In the meantime, you better get used to your new life. You know that home office of yours you’ve been living in? It is now a permanent affair for many of you, as your employer figured out they can make more money and earn a high stock multiple with you at home.
Besides, they didn’t like you anyway.
Many employees are never coming back, preferring to avoid horrendous commutes, $5.40 a gallon gasoline, mass transit, lower costs, and yes, future pandemic viruses. GoToMeeting (LOGM) and Zoom (ZM) are now a permanent aspect of your life.
Commerce has changed beyond all recognition. Did you do a lot of shopping on Amazon (AMZN) like I do? Now, you’re really going to pour it on.
Amazon hired a staggering one million new distribution and delivery people in 2020 and 2021 to handle the surge in business, the most by any organization since WWII. I can’t believe the stock is only at $122. It is worth double that, especially if they break up the company.
The epidemic really hammered the mall, where a fatal disease is only a sneeze away. Mall REITs have since taken off like a rocket, once it was clear that the virus was coming under control.
And how are you going to pay for that transaction? Guess what one of the most efficient transmitters of disease is? That would be US dollar bills. Something like 50% of all US paper money already test positive for drugs, according to one Fed study. While in Scandinavia last summer, I learned that physical money has almost completely phased out.
Take paper money in change and you are not only getting contact from the sales clerk, but the last dozen people who handled the money. You are crazy now to take change and then not go swimming in Purell afterwards.
Personally, I leave it all as a tip.
Contactless payment deals with this nicely and is now here to stay. Next to come is simply scanning people when they walk in the store, as with some Whole Foods shops owned by Amazon.
Conferences?
They are now a luxury. All of my public speaking events around the world have been cancelled. Webinars now rule. They offer lower conversion rates but include vastly cheaper costs as well. I can reach more viewers for $1,100 a month on Zoom (ZM) than the Money Show could ever attract to the Las Vegas Mandalay Bay for $1 million.
At least I won’t have 18 hours of jet lag to deal with anymore on my Australia trips. I’m sure Qantas will miss those first-class ticket purchases and I’ll miss the free Champaign.
Entertainment is also morphing beyond all recognition. Streaming is now the order of the day. Disney+ (DIS) was probably the best-timed launch in business history, coming out just two months before the pandemic.
They earned enough to cancel out most of the losses from the closure of the theme parks. Again, this has been a long time coming and the other major movie producers will soon follow suit.
Movie theaters, which have been closed for years, may also never see their peak business again (CNK), (AMC), (IMAX). The theaters that survive will do so by only accumulating so much debt that they won’t be attractive investments for a decade.
The same is true for cruise lines (CCL), (RCL), (NCLH). But that won’t forestall dead cat bounces that are worth a double in the meantime, as they are coming off of such low levels. No vaccination, no cruise.
Exercise has changed overnight. All gyms and health clubs closed, and are only just now slowly reopening. Working out will become a solo exercise far away on a high mountain. I have already been doing this for 30 years, so piece of cake here.
Friends with yoga classes are now doing them in the living room, streaming their instructors online. The economics of online yoga classes are so compelling, with hundreds attending online classes at once. The old model may never come back.
If you are having trouble getting your kids to comply with social distancing requirements, have a family movie night and watch Gwyneth Paltrow and Cate Winslet die horrible deaths in Contagion. It has been applauded by scientists as the most accurate presentation of the kind of out-of-control pandemic we have been dealt with.
It is bone-chilling.
I hope you learned from the last pandemic because the next one may be just around the corner, thanks to globalization. In 1918, it took three months for an enhanced mutated flu virus to get from Europe to the US. This time, it took a day to get from China.
Stay healthy.
Mad Hedge Bitcoin Letter
August 11, 2022
Fiat Lux
Featured Trade:
(FINK AT IT AGAIN)
(BLK), ($BTCUSD), (GME), (AMC)
BlackRock (BLK) investment fund was the first asset manager to surpass $10 trillion in assets held as the US Central Bank fueled the largest asset bubble created in human civilization.
That was a great achievement.
This is also why the CEO of BLK Larry Fink, as of April 2022, is worth an estimated US$1 billion according to Forbes Magazine.
Not too shabby.
Fast forward to the end of 2nd quarter of 2022, BLK was the first to lose $1.7 trillion in assets in the first half of 2022 when the tech market nosedived.
The monumental loss has resulted in some unique unintended consequences that have now manifested in BlackRock migrating into crypto by teaming up with Coinbase on a product designed to help institutional investors trade bitcoin.
The propensity for BlackRock to entertain asset inflow by sliding them into passive funds is great on the way up, but volatility has really twisted the fork into that strategy as the deleveraging in the capital markets has made it harder to achieve alpha.
How will BLKs new partnership work?
The world’s largest asset manager will allow clients to use its Aladdin investment management system to buy, sell and monitor their cryptocurrency holdings via Coinbase’s exchange, the biggest in the US.
BlackRock said the partnership will be focused on bitcoin – at least “initially”.
The move is the latest sign that some of the biggest players in traditional finance – known as TradFi in crypto circles – are confident in the long-term prospects for cryptocurrencies.
This major nod of approval to crypto was a glimmer of good news among the bad as Coinbase, which has been mired in multiple investigations from the Federal government, is handcuffed in regulatory limbo.
The major crypto exchanges have also slashed jobs at a dizzying pace with 1,100 jobs in recent months, after admitting that it hired too quickly during the crypto bull run of 2021.
Institutions made up about three-quarters of Coinbase's $309 billion in trading volumes in the first quarter, the company said in May. Among others, its clients include asset managers, large corporate treasuries, and asset managers.
I believe this is BLK's buy-low approach to the crypto industry as many critical pieces to the crypto infrastructure have flamed out in bankruptcy lately.
BLK wants to cover its bases by being able to take part in the next crypto resurgence if and when that happens.
This also gives them a low-cost exit strategy if the sushi hits the fan.
As investors believe rate cuts will occur next June, that obviously brightens the prospects for crypto prices.
This by no means translates into BLK exposing clients to major crypto investments.
I hear that they are advising high net worth clients into an asset allocation of 1-3%.
I highly doubt there will be a comingling of assets like crypto and equities into one branded ETF.
BLK most likely will silo the crypto business and see if it takes off all while taking a measured approach to its prospects.
The BLK management are already smoothing over the normal talking points like paying lip service to the superior technology of blockchain and how it can be “incredibly innovation and disruptive.”
Buzz words are nice on the ear but usually short on substance.
The truth is that crypto has been an absolute failure since November 2021 and its latest rally has evolved from the backdrop of an expectation of sooner interest rate cuts.
Unfortunately, the crypto industry was one of the few industries in America that got hit by the deleveraging bubble because it is the most speculative.
One might also throw in meme stocks like Gamestop (GME) and AMC (AMC) as secondary losers to the central bank tightening.
Even zombie corporate companies are alive and kicking as the tightening cycle hasn’t been that tight.
We are setting up for a positive 2023 and crypto could really take off when interest rate cuts become the new normal.
Mad Hedge Technology Letter
May 16, 2022
Fiat Lux
Featured Trade:
(INSANITY AT CALPERS)
(GME), (AMC), (NFLX)
Pension funds are famous for being slow rollers, usually taking the safest of safest routes to preserve capital and slowly grow asset portfolios.
The people they serve, the pensioner, should be a microcosm of what the fund is about.
This would make sense since the capital in the first place comes from employees and is meant to fund these workers after retirement.
Many people don’t know that modern pension funds serve a dual mandate of, not only doling out monthly stipends to old people, but playing the role of trader on the active markets.
American states and sovereign countries usually have massive pension funds which can move markets.
The board usually hires qualified and credentialed management to oversee funds...or do they?
So one might ask, what on earth is going on with the largest pension fund in America, representing the state of California CALPERS?
CALPERS increased its meme stock and movie theatre company AMC (AMC) stake this first quarter again.
Last year the institution loaded up on AMC and GameStop (GME).
During this time, the California Public Employees’ Retirement System (CALPERS) had sold an 11% stake in Palantir (PLTR).
CALPERS is betting the ranch on meme stocks, and that is scary news.
It obviously means that the bottom is not in since there is more dumb money flooding into the system.
Once we flush out the weak hands then it will signify rock bottom, but as long as we have CALPERS buying up meme stocks then it’s hard not to be bearish.
Even more baffling was the decision to sell an extreme amount of Netflix (NFLX) after colossal losses.
Netflix stock is down almost 69% this year-to-date and it dropped 38% in the first quarter of 2022 alone.
Taking a major loss in Netflix only to roll money into GameStop and AMC is seriously what the California state pension fund is doing.
This is no joke.
At least they don’t own cryptos like Dogecoin or Shiba Inu coin.
I am not sure exactly what their plan is but movie theatre watching is dead.
Perhaps, CALPERS plan to offer their retirees free movie tickets along with a depreciating amount of monthly pension.
Suspicion runs deep into who is making decisions at the helm and that is the CEO of CALPERS Marcie Frost.
She spent 30 years as a public servant in Washington state. Her early leadership roles were in human resources with an emphasis on employee benefit programs and information technology.
In 2013 Marcie was named cabinet lead by Washington State Governor Jay Inslee for the Results Washington performance and accountability system, where she served as an early creator and architect for the platform that tracks goals and progress in education, the state's economy, sustainable energy, healthy and safe communities, and efficient government.
Basically, she has no idea about the stock market yet she is CEO of the biggest pension fund in America.
Her role as tracking the “progress in education” is somehow supposed to transfer over to stock market overperformance.
This screams a breach of fiduciary duty and it could end up in tatters for CALPERS.
CALPERS has been infamous for terrible management decisions and Marcie’s predecessor breached conflict of interest mandates by investing in Los Angeles real estate that he has an interest in.
Clearly, the board of CALPERS favors crony capitalism as a management style.
Any 14-year-old student would know under no circumstance, should a pension fund choose to voluntarily speculate on high-risk assets.
Is it really a thirst for yield?
If CALPERS blows up and is forced to mass unwind, don’t forget this story.
