Below please find subscribers’ Q&A for the September 25 Mad Hedge Fund Trader Global Strategy Webinar, broadcast from Lake Tahoe Nevada.
Q: The iShares 20+ Year Treasury Bond ETF (TLT) is not advancing like I had hoped. I’m not sure why the interest rate cuts have not impacted the 20-year maturity—is it too far out?
A: It’s not an issue of maturity; the fact is that the market has been discounting falling interest rates for six months, all the way back to March. It’s a classic “buy the rumor, sell the news” scenario. (TLT) rose $20 off the low this year, and once the rate cut actually happened, all the news was in. That is why I actually went short the TLT a couple of days ago, and that trade immediately started making money. Here’s the real problem: Fed futures are discounting 250 basis points in rate cuts by June of next year. If you don’t think we’re going to get 250 basis points in rate cuts, which is two 50 basis point rate cuts and five 25 basis point rate cuts, then the market is overbought for the short term and we’re selling short. That’s exactly what I did.
Q: Is it too late to buy Tesla (TSLA) and Nvidia (NVDA)?
A: No, it’s not, I think Tesla could hit $300 this year, and Nvidia could revisit $140. However, the more you wait, the more pain you have to take along the way. Nvidia did drop 40% off its high at one point this year, and Tesla dropped 80% off its high. The price of coming in late is pain, so be ready to take that pain or, even worse, to stop out.
Q: What is your take on Japan’s attempt to take over US Steel (X)?
A: Well, it’s entirely political. They definitely picked the wrong year to take a run at US steel because it’s headquartered in Pittsburgh, Pennsylvania, and neither political party can win their election without winning Pennsylvania. Nippon Steel is now 3x larger than US Steel (I covered the company for ten years when I lived in Japan.) It’s the steel factor Jimmy Doolittle bombed in the Pearl Harbor movie. US Steel is using 140-year-old technology—Open Hearth Technology—which hasn’t been updated since the Great Depression. Nippon Steel, meanwhile, is promising to scrap all of that and bring the Steel Industry into the 21st Century. All great ideas for Nippon Steel and their shareholders, but not so great for Unions; all of these takeovers always result in massive layoffs of Union workers. So, that is the issue. That’s where a large part of the added value comes from.
Q: What are the chances that interest rates drop to zero?
A: Zero. I don’t think we’ll ever see 0% interest rates again because people now understand the massive damage that causes to the economy and to savers. So, on the next interest rate cycle, we’ll go down maybe to 2% if we get a recession, but probably not much more than that.
Q: Is it a good time to buy FedEx Corp (FDX)?
A: Yes, it probably is. If there was one rule of trading this year, you buy everything on top of these monster selloffs that are caused by weak guidance. We did it on Palo Alto Networks (PANW) earlier this year—people made a fortune on that. FedEx just did the same thing, so yes, I’m looking very carefully at FedEx calls, call spreads, and LEAPS two years out.
Q: I recently saw a recommendation to buy California Utility Company PG&E (PGE) because of recent revenue gains. Should I take a look?
A: Absolutely, you should. PG&E has gone bankrupt twice in the last 25 years, and the current new management seems to know what they’re doing. They borrowed $20 billion to underground all the long-distance power lines in the state so they won’t be liable for any of these gigantic wildfires that caused the last bankruptcy. Also, you kind of want to own utilities when interest rates are falling because utilities are among the biggest borrowers in the country.
Q: Is Global X Uranium ETF (URA) a good proxy for Cameco Corp (CCJ)?
A: Yes, another one is Consolidation Energy Corp. (CEG), but they’ve all had absolutely astronomical moves ever since the announcement came out that Microsoft was reopening the Three Mile Island nuclear power plant. So, wait for a dip, but the thing is just going up every day right now.
Q: Is it time to buy iShares 20+ Year Treasury Bond ETF (TLT) LEAPS?
A: No, LEAPS territory was last year or the beginning of this year when we were in the $80s (and we issued a ton of (TLT) LEAPS last year.) LEAPS are what you do at market bottoms, not at new all-time highs or two-year highs. Remember, if LEAPS don’t work, they can go to zero, and you want to avoid the zero outcome as much as possible.
Q: Should I look at Visa Inc (V)?
A: Yes, this is another one of those poor guidance situations leading to 20% selloffs. In Visa’s case, they’re being sued by the US government for antitrust because they own 47% of the credit card market. So, I would maybe wait a little bit more, let the market fully digest that, and then Visa’s probably a really strong buy because they’re still growing at 15% a year and minting money like crazy.
Q: Do you see gold going to $3,000 next year?
A: Absolutely, yes, unless it goes to $3,000 this year, which raises a better question: what happens when gold hits $3,000? It goes to 4$,500, because Chinese savers have no other place to put their money except gold. The real estate has crashed and isn’t coming back, they don’t trust their own banks or currency—there really is nowhere else for them to put their own money. They don’t even buy gold miners, they just buy the gold metal and coins. So I think we could see much higher highs than gold, and I’m sticking to my longs.
Q: Will silver continue to lag?
A: No. In fact, in the last couple of weeks, silver has done a big catch-up that is happening because recession fears are going away. Even the soft-landing fears are starting to vaporize—we may have no landing at all. The economy may just keep going, and silver is far more sensitive to the economy than gold is; and that is all silver positive. When we get to the metals, you’ll see how much silver has actually caught up. Silver is probably the better buy here because it tends to outperform gold by two to one.
Q: Do you think the Japanese will cross 100 yen to the dollar in the near future?
A: No, but I think it may cross 100 to the dollar in two years. You’re looking at a permanently weak US dollar from now on. As long as we’re cutting interest rates faster than anyone else, our currency will be the weakest. Japan’s rates are at zero, so they’re not going to cut interest rates at all, which is why we've had this enormous move in the Japanese yen.
Q: Can you give me some good renewable energy stocks and reasons why they are good buys?
A: Well, my favorite renewables are the Canadian Uranium stock Cameco Corporation (CCJ), First Solar (FSLR), which has been the leading industrial-scale solar producer for a long time, and NextEra Energy (NEE), which is very heavily dependent on producing electric power from renewables and also have a 3% dividend.
Q: Why is the euro going up even though their economy is in such terrible shape?
A: Europe has much lower interest rates than the US, and therefore, much less ability to cut interest rates than the US; it is the interest rate cuts that are driving currencies down, and we are the world’s greatest interest rates cutter right now. So, that is why you’re getting outperformance of the euro (FXE).
Q: Financials have moved up over the last two weeks; what’s your take on year-end and beyond? Should I buy Goldman Sachs (GS), JP Morgan (JPM) and Morgan Stanley (MS)?
A: Yes on all three. They’re all big beneficiaries of falling interest rates, improving economies, declining default rates, and rising stock markets. So, you have a triple play on all three of those. I’d be buying the dips on all financials.
Q: When will the sell volatility come back?
A: When you get the Volatility Index ($VIX) over $30. That seems to be the sweet spot for selling volatility. We are now at $15.
Q: If the US sharply increases tariffs, what will be the impact on the economy?
A: It would basically amount to a 20% price increase on everything you buy—from clothes to electronic parts to everything else—and the stock market would crash. Probably 90% of the non-food items Walmart (WMT) sells is from China. That’s why they call it the Chinese embassy. Tariffs are a tremendous restraint of trade and never, ever work, except for targeted items like cars or solar panels. For instance, I am in favor of a 100% tariff on Chinese cars to keep them from demolishing our own car industry as they are currently doing in Europe.
Q: Do we expect commodities like copper (FCX) and foodstuffs to go up as rates are cut?
A: I do. They’re big beneficiaries of falling rates, but more importantly, they’re even bigger beneficiaries of a stimulated Chinese economy, and that’s why we see these monster moves over the last two days.
Q: If you had to invest in one rideshare company, would it be Lyft (LYFT) or Uber (UBER)?
A: Uber—they have far superior management, they’ll be the first into robo-taxis, and they are constantly evolving their model, with Lyft always struggling to catch up.
Q: How will antitrust regulation affect the Magnificent Seven?
A: The bottom line is it will double the value of the Magnificent Seven. If these companies are broken up, the individual parts are worth far more than the whole companies, and we saw this when we broke up AT&T (T) 50 years ago, and the resulting seven companies within a year had a combined market value that vastly exceeded the original AT&T. I actually participated in that deal when I was at Morgan Stanley (since I am 6’4” I was asked to carry the ballots from one floor to another). Expect the same to happen with the Magnificent Seven. They will be worth double or triple more.
Q: If China has a falling population, how will a stimulus program help?
A: Well, it will fill in for the 600 million consumers who were never born as a result of the one-child policy. Not many others are talking about this besides me, but the fact is that the current economic weakness comes entirely from the one-child policy, and there is no way out of that, so they are going to have to keep stimulating again and again, much like the US did through the pandemic.
Q: If you can buy gold and silver on the UK market in sterling, does that make more sense for a UK resident?
A: Yes, it does, since your home currency is in sterling. You will actually get a double play or a “hockey stick effect” because not only is gold going up against the US dollar, but sterling (FXB) is going up against the US dollar, so you’ll get a multiplied effect relative to the pound. We used to play this all day long in Europe in the 1970s and 1980s, back when you had individual currencies to trade and the euro hadn’t been invented yet.
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 Good Trading
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
(MARKET OUTLOOK FOR THE WEEK AHEAD, or THE BIG ROTATION IS ON),
(SNOW), (FCX), (XOM), (TLT), (ALB), (NVDA), (MSFT), (AAPL), (META), (GOOGL), (GOLD), (WPM), (UNP) (FDX), (UNG)
Here is the only statistic you need to know right now.
If NVIDIA (NVDA) continues growing at the same rate it has for the last year it will be larger than the entire global economy by 2030, about $100 trillion, up from the current $2 trillion.
Which suggests that it might not actually achieve that lofty goal. Others have reached the same conclusion as I and the stock held up remarkably well in the face of absolutely massive profit-taking last week.
I have been through past market cycles when other stocks seemed to want to go to infinity. There was Apple (AAPL) in the 1980s which went ballistic, then died, was reborn, and then went ballistic again. It is now capped out at a $2.7 trillion market valuation.
Then we all had a great time trading Tesla, which exploded from a split-adjusted $2.35 to $424 and now seems mired in one of its periodic 80% corrections. But mark my word, it is headed to $1,000 someday, taking it up to a $3.2 trillion valuation.
So if NVIDIA isn’t going to $100 trillion what else should be buying right now?
The answer has been apparent in the market for the past two weeks. Interest rate-sensitive commodities have been on a tear, rising 15%-20% across the board. Investors have been using expensive stocks like (NVDA), (MSFT), (AAPL), (META), and (GOOGL) as ATMs to fund purchases of cheap stocks which in some cases have not moved for years.
It really has been an across-the-board move with money pouring into the entire interest rate-sensitive sectors, including copper (FCX), gold (GOLD), silver (WPM), lithium (ALB), Aluminum (AA), and energy (XOM).
It has spread to other economically sensitive stocks like Union Pacific (UNP) and FedEx (FDX). There seems to be an Americaneconomic recovery underway, and the bull market is broadening out. The good news is that it’s not too late to get involved.
A lot of it is investor psychology. Investors fear looking stupid more than they fear losing money. If you buy NVIDIA here on top of a one-year tripling and it tanks you will look like an idiot. If you buy commodities here and they grind up for the rest of 2024 you will look like a genius.
While many of you got slaughtered by the collapse of natural gas this winter, with (UNG) cratering from $32 down to a lowly $15, there is in fact a silver lining to this cloud. Cheap energy costs are now permeating throughout the entire global economy and are filtering down to the bottom lines of companies, municipalities, and even governments.
This has been made possible by the growth of US natural gas production from 1 trillion MM BTUs to 7.5 trillion in just the past ten years. The US is now the largest gas and oil producer in the world by a large margin. Replacing Russia as Europe’s largest energy source in just a year was thought impossible and is now a fact and is also enabling the Continent to stand up to Russian Aggression.
There is hope after all.
One question I constantly received during last week’s Mad Hedge Traders & Investors Summit was “When will Tesla (TSLA) shares bottom? The answer is a very firm “Not yet!”
I have been trading the shares of Elon Musk’s creation for 15 years and can tell you that big surges in the stock always precede major generational changes at the company.
We had a nice run from my $2.35 split-adjusted cost when the first Model S came out (I got chassis number 125 off the assembly line), replacing the toy-like two-seat Tesla Roadster, which was built on a cute little Lotus Elise body from England.
The next big run came with the advent of the much cheaper Model 3 in 2017. The ballistic melt up to $424 began with the launch of the small SUV Model Y in 2020, now the biggest-selling car in the world. All we needed was for Elon Musk to sell $10 billion worth of his own stock by early 2022 to put the final top in.
Which raises the question of when the next major generational change at Tesla. That would be the introduction of the $25,000 Model 2 in 2025. Since everything at Tesla happens late (Elon uses deadlines to flog his staff), it better count on late 2025. That means you should start scaling in around the summer. I am already running the numbers on call spreads and LEAPS now.
Can it fall more in the meantime? Absolutely. $150 a share looks like a chip shot. But to only focus on the EV business, which will account for a mere 10% of Tesla’s final total profits, is to miss Elon’s long-term grand vision of a carbon-free world.
Tesla is in the process of becoming the largest electric power utility in the US, eventually providing charging for 150 million cars. It is taking over the car insurance business. My own premiums on my Model X have plunged by 90%.
It's on the way to becoming the world’s largest processor and recycler of lithium. Tesla has a massive large-scale power storage business that no one knows about.
I fully expect Tesla to become the world’s largest company in a decade. Tesla at $1,000 a share here we come. And while the car business may be slow to turn around, the ingredients that go into the cars, like copper (FCX), Aluminum (AA), and lithium (ALB) are starting to move now.
In February we closed up +7.42%. So far in March, we are up +1.34%. My 2024 year-to-date performance is at +4.48%.The S&P 500 (SPY) is up +6.92% so far in 2024. My trailing one-year return reached +48.70% versus +27.25% for the S&P 500. That brings my 16-year total return to +681.11%.My average annualized return has recovered to +51.40%.
Some 63 of my 70 round trips were profitable in 2023. Some 11 of 19 trades have been profitable so far in 2024.
I stopped out of my position in Snowflake (SNOW) for a small loss figuring that the tech rally’s days may be number after the most heroic move in history. I then rotated the money into new longs in Freeport McMoRan (FCX) and ExxonMobile (XOM). I also took profits on my short in bonds (TLT) after a $3.50 point dive there. I am maintaining a long in (TLT). I am 70% in cash and am looking for new commodity plays to pile into.
CPI Comes in Hot at 0.4% in February. YOY inflation crawled up to 3.2% to 3.1% expected. Higher shelter and gasoline prices are to blame. Bonds tank as interest rate cuts get pushed back. So do stocks. The market was ripe for a correction anyway.
PPI Comes in Hotter than Hot, at 0.6%. That was higher than the 0.3% forecast from Dow Jones and comes after a 0.3% increase in January. Stocks dipped for two minutes and then rocketed back up. Bad news is good news. Go figure.
Weekly Jobless Claims Dip, to 209,000 to an expected 218,000, and down 1,000 from the previous week.It’s a go-nowhere number.
Next-Generation Boeing Delayed Until 2027, says Delta Airlines, a major customer. The 737-10, Boeing's biggest Max plane with a maximum seating capacity of 230 passengers, is pending certification by the U.S. Federal Aviation Administration (FAA). Expect a hard look. Buy (BA) on the next meltdown.
BYD Launches its $12,500 Car, the Model e2 Hatchback, firing another shot across Tesla’s Bow. The EV will initially be available only in China, Tesla’s biggest market, and then in emerging countries without vehicle standards. Don’t expect to see them in the US.
Toyota Agrees to Biggest Wage Hike in 25 Years. Toyota, the world's biggest carmaker and traditionally a bellwether of the annual talks, said it agreed to the demands of monthly pay increases of as much as 28,440 yen ($193) and record bonus payments. Is the Bank of Japan about to raise interest rates? Is the Japanese yen about to rocket?
Inverted What? Economists are going up on the Inverted Yield Curve as a recession indicator. Short-term interest rates have been higher than long-term ones for two years now, but the recession never showed. Relying on obsolete data analysis can be fatal to your wealth.
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, March 18, at 7:00 AM EST, the NAHB Housing Index is announced.
On Tuesday, March 19 at 8:30 AM, Housing Starts for Februaryare released.
On Wednesday, March 20 at 11:00 AM, the Federal Reserve Interest rate decision is published
On Thursday, March 21 at 8:30 AM, the Weekly Jobless Claims are announced.
On Friday, March 15 At 2:00 PM, the Baker Hughes Rig Count is printed.
As for me, with all of the hoopla over the Oppenheimer movie winning six Academy Awards, including one for best picture, I thought I’d recall my own experience with the nuclear establishment buried in my long and distant past.
If you were good at math there were only two career choices during the early 1970s: teaching math or working for the Dept of Defense. Since I was sick of university after six years, I chose the latter.
That decision sent me down a long bumpy, dusty road in Mercury Nevada headed for the Nuclear Test Site. There was no sign. You could only find the turnoff from US Highway 95 marked by four trailers owned by the nearest hookers to the top-secret base.
Oppenheimer himself had died three years earlier, a victim of throat cancer induced by the chain-smoking of Luck Strikes that was common in those days. But everyone on the base knew him as they had all worked on the Manhattan Project when they were young men. They worshiped him like a god.
I did meet Edward Teller, who argued in the movie that the atomic bomb was a waste of time because his design of a hydrogen bomb was 100 times more powerful. The problem was that there was no target big enough to justify a bomb of that size (there still isn’t).
As I watched the film with my kids, now junior scientists in their own right, I kept pointing out “I knew him,” except they were gnarly old and white-haired by the time I met them. Of course, they are all gone now.
My memories of the Nuclear Test Site were never to ask questions, my visit to the Glass Desert where the sand had been turned into glass by above-ground tests in the fifties, and skinny dipping with the female staff in the small swimming pool at midnight.
The MPs were pissed.
With the signing of the SALT I Treaty in 1972, underground testing moved to computer models and I lost my job. So I was sent to Hiroshima to interview survivors and write a 30-year after-action report. These were some of the most cheerful people I ever met. If an atomic bomb can’t kill you, then nothing can.
When the Cold War ended in 1992, the United States judiciously stepped in and bought the collapsing Soviet Union’s entire uranium and plutonium supply.
For good measure, my hedge fund client George Soros provided a $50 million grant to hire every unemployed Soviet nuclear engineer. The fear then was that starving scientists would go to work for Libya, Iraq, North Korea, or Pakistan, which all had active nuclear programs. They ended up in the US instead.
That provided the fuel to run all US nuclear power plants and warships for 20 years. That fuel has now run out and chances of a resupply from Russia are zero. The Department of Defense attempted to reopen our last plutonium factory in Amarillo, Texas, a legacy of the Johnson administration.
But the facilities were deemed too old and out of date, and it is cheaper to build a new factory from scratch anyway. What better place to do so than Los Alamos, which has the greatest concentration of nuclear expertise in the world.
Los Alamos is a funny sort of place. It sits at 7,320 feet on a mesa on the edge of an ancient volcano so if things go wrong, they won’t blow up the rest of the state. The homes are mid-century modern built when defense budgets were essentially unlimited. As a prime target in a nuclear war, there are said to be miles of secret underground tunnels hacked out of solid rock.
You need to bring a Geiger counter to garage sales because sometimes interesting items are work castaways. A friend almost bought a cool coffee table which turned out to be part of an old cyclotron. And for a town designing the instruments to bring on the possible end of the world, it seems to have an abnormal number of churches. They’re everywhere.
I have hundreds of stories from the old nuclear days passed down from those who worked for J. Robert Oppenheimer and General Leslie Groves, who ran the Manhattan Project in the early 1940s. They were young mathematicians, physicists, and engineers at the time, in their 20’s and 30’s, who later became my university professors. The A-bomb was the most important event of their lives.
Unfortunately, I couldn’t relay this precious unwritten history to anyone without a security clearance. So, it stayed buried with me for a half century, until now.
Some 1,200 engineers will be hired for the first phase of the new plutonium plant, which I got a chance to see. That will create challenges for a town of 13,000 where existing housing shortages already force interns and graduate students to live in tents. It gets cold at night and dropped to 13 degrees F when I was there.
I was allowed to visit the Trinity site at the White Sands Missile Test Range, the first visitor to do so in many years. This is where the first atomic bomb was exploded on July 16, 1945. The 20-kiloton explosion set off burglar alarms for 200 miles and was double to ten times the expected yield.
Enormous targets hundreds of yards away were thrown about like toys (they are still there). Some scientists thought the bomb might ignite the atmosphere and destroy the world but they went ahead anyway because so much money had been spent, 3% of US GDP for four years. Of the original 100-foot tower, only a tiny stump of concrete is left (picture below).
With the other visitors, there was a carnival atmosphere as people worked so hard to get there. My Army escort never left me out of their sight. Some 79 years after the explosion, the background radiation was ten times normal, so I couldn’t stay more than an hour.
Needless to say, that makes uranium plays like Cameco (CCJ), NextGen Energy (NXE), Uranium Energy (UEC), and Energy Fuels (UUUU) great long-term plays, as prices will almost certainly rise all of which look cheap. US government demand for uranium and yellow cake, its commercial byproduct, is going to be huge. Uranium is also being touted as a carbon-free energy source needed to replace oil.
At Ground Zero in 1945
What’s Left of a Trinity Target 200 Yards Out
Playing With My Geiger Counter
Atomic Bomb No.3 Which was Never Used in Tokyo
What’s Left from the Original Test
Good Luck and Good Trading,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
https://www.madhedgefundtrader.com/wp-content/uploads/2024/03/geiger-counter.png438582april@madhedgefundtrader.comhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngapril@madhedgefundtrader.com2024-03-18 09:02:382024-03-18 11:32:08The Market Outlook for the Week Ahead, or The Big Rotation is on
I remember back in 1990 when I was first starting my hedge fund in London England, one of the very first. I hired two Ph.D.’s in Mathematics from Cambridge University, and we started inventing one the first purely quantitative approaches to the stock market. We were playing around with statistical probability arbitrage and Monte Carlo simulations, things like that.
One day, one of my guys said he needed to buy a software patch from a company in Los Angeles. I said “Sure" thinking we could pay up and overnight some floppy discs via a new company called Federal Express (FDX). He said no need, he could simply download them.
I said what?!
Andrew proceeded to connect to the Internet with our screechy landline modem and pay for the software with my American Express card. I watched in utter amazement as the time bar turned green and we got our patch.
I thought “Holly Smokes!”
I immediately realized that this technology was going to change the global economy beyond all recognition and send the stock market soaring. I also realized that I had to move my company out of our leafy West London neighborhood to the peach orchards of Silicon Valley as soon as possible to get in on the ground floor. I did this over a weekend care of, you guessed it, Federal Express. Thank goodness my guys were single.
I then called the Head of Research at Normura Securities in Tokyo and informed him of the incredible power of the Internet, and that in five years, Normura would distribute all of its research online, completely eliminating paper. He said I was out of my mind. I was wrong. In the end, it took Nomura ten years to move to online-only research, vastly improving the profitability of the company.
Over the last month, I have realized that we are seeing a repeat of that magical1990 “aha” moment. We are only one year into Dotcom Bubble Part II, which has several more years to run. Remember when Fed Chairman Alan Greenspan warned of “irrational exuberance” in December 1996? Technology stocks rocketed for 3 ½ more years, wiping out several hedge funds on the short side along the way.
Think of it as 1997 again. Now, if I can only get my 1997 hair back!
Need any further convincing? Today, graphics card maker NVIDIA (NVDA) is selling at a forward multiple of 20X earnings. In 2000, this type of stock (Cisco Systems, Yahoo, Dell Computer) was selling for 100 times earnings. Add a 2X multiple expansion and a 5X multiple expansion and you get a 10X growth in the lead stock prices in coming years.
The net, net of all this is that the most expensive stocks in the market are not really expensive, but the cheapest. Overbought? Technically insane? Doubled in a year?
Buy em!
For AI, five will continue dominating the market for the foreseeable future. The top five AI stocks are showing an average 60% profit gain in Q1. The remaining S&P 494 are showing a 10% loss. It is a 1990s Dotcom Bubble repeat in miniature. These stocks have gained $5 trillion in market value in only three months, and there is more to come.
What are these companies doing right? They developed the greatest new income streams in history, while at the same time carrying out the most ferocious cost-cutting efforts. The effect on profits is astronomical. It’s like they spent the last 10-40 years preparing for this one moment. Look no further than Meta (META), which cut staff from 87,000 to 67,000, tripling net income to $14 billion, and doubling the share price.
It will be a recurring story.
On a completely different topic, hedge funds are pouring into India once again as the next China. It has the world’s best demographic curve, with an average age of only 20 years old, meaning that in 20 years it will have the most big spending consumers. It has the world’s fastest-growing Services PMI. It is also the most populous country in the world, topping 1.4 billion, exceeding China.
Apple (AAPL), Tesla (TSLA), and many other Western companies are looking to expand there. You always follow direct investment as the head of JP Morgan’s investment division once told me. Buy the (INDA) and the (INDY).
So far in February, we are up +2.04%. My 2024 year-to-date performance is also at -2.24%.The S&P 500 (SPY) is up +5.10%so far in 2024. My trailing one-year return reached +60.43% versus +20.48%for the S&P 500.
That brings my 16-year total return to +674.39%. My average annualized return has recovered to +51.21%.
Some 63 of my 70 trades last year were profitable in 2023.
I am maintaining longs in (MSFT), (AMZN), (V), (PANW), and (CCJ).
The Fed Turns Dovish, with all members expecting the next move to be a rate cut. It’s just a matter of how much, and how soon, but March was taken off the table. All bearish content from the Fed statement was removed. A classic “Buy the rumor, sell the news type of move. Look for a multi-week to one-month correction in tech, then a new rally.
US Treasury Borrowing to Hit $760 Billion in Q1, some $55 billion less than expected. Q2 then drops to only $202 billion. Bonds rallied on the good news. Buy (TLT) on dips.
S&P Case Shiller National Home Price Index Falls, in November for the first time in nine months. Detroit reported the highest year-over-year gain among the 20 cities, with prices rising 8.2% in November, followed again by San Diego with an 8% increase. Seattle and San Francisco reported the largest monthly declines, falling 1.4% and 1.3%, respectively. This was back when mortgage rates were peaking at 8.0%.
Saudi Arabia Cuts Oil Production Targets, cratering prices and destroying the entire energy sector. Lack of demand, especially from China, is the reason. New US output is fuel on the fire. Production will be throttled back a million barrels to 12 million barrels a day as a long-term goal. It couldn’t happen to a nicer bunch of people.
Microsoft Beats estimates the steady growth of its Azure cloud business, but the shares dropped. Revenue in the second quarter, which ended Dec. 31, rose 18% to $62 billion, while profit was $2.93 a share, the company said in a statement Tuesday. Azure cloud-services sales gained 30%. Buy (MSFT) on dips.
Biden to Announce Massive Chip Subsidies, to head off a coming shortage driven by AI. The coming announcements are aimed at kick-starting the manufacturing of advanced semiconductors that power smartphones, artificial intelligence, and weapons systems. The $43.5 billion to be spent also has national security implications in moving semiconductor manufacturing from China back to the US. Buy all semiconductor plays. It’s free money for them.
It's the 16th Year Anniversary of the Mad Hedge Fund Trader, and what a long and winding road it has been. Going into the 2008 crash, several investors pulled out of a new hedge fund I was starting because of cash calls so I decided to go into the newsletter business instead. Thanks for your 16 years of your support. We now publish 24 newsletters a week and run summits every three months with a global staff of 15.
My Ten-Year View
When we come out the other side of any 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, February 5, at 8:30 AM EST, the ISM Services PMI is announced.
On Tuesday, February 6 at 8:30 AM,the Total Household Debt is released by the Federal Reserve Bank of New York.
On Wednesday, February 7 at 2:00 PM, the US Imports and Exports are published. We also get the latest car data.
On Thursday, February 8 at 8:30 AM, the Weekly Jobless Claims are announced.
On Friday, February 9 at 2:00 PM the Baker Hughes Rig Count is printed.
As for me, I’ll never forget when my friend, Don Kagin, one of the world’s top dealers in rare coins, walked into my gym one day and announced that he made $1 million that morning.I enquired “How is that, pray tell?”
He told me that he was an investor and technical consultant to a venture hoping to discover the long-lost USS Central America, which sunk in a storm off the Atlantic Coast in 1857, heavily laden with gold from the California gold fields. He just received an excited call that the wreck had been found in deep water off the US east coast.
I learned the other day that Don had scored another bonanza in the rare coins business. He had sold his 1787 Brasher Doubloon for $7.4 million. The price was slightly short of the $7.6 million that a 1933 American $20 gold eagle sold for in 2002.
The Brasher $15 doubloon has long been considered the rarest coin in the United States. Ephraim Brasher, a New York City neighbor of George Washington, was hired to mint the first dollar-denominated coins issued by the new republic.
Treasury Secretary Alexander Hamilton was so impressed with his work that he appointed Brasher as the official American assayer. The coin is now so famous that it is featured in a Raymond Chandler novel where the tough private detective, Phillip Marlowe, attempts to recover the stolen coin. The book was made into a 1947 movie, “The Brasher Doubloon,” starring George Montgomery.
This is not the first time that Don has had a profitable experience with this numismatic treasure. He originally bought it in 1989 for under $1 million and has made several round trips since then. The real mystery is who bought it last? Don wouldn’t say, only hinting that it was a big New York hedge fund manager who adores the barbarous relic. He hopes the coin will eventually be placed in a public museum. In 2021, the Brasher Doubloon sold at auction for $9.36 million.
Mad Hedge followers should start paying more attention to gold which I believe just entered another decade-long bull market, thanks to falling US interest rates. You can’t go wrong buying LEAPS in the top two miners, Barrack Gold (GOLD) and Newmont Mining (NEM).
Who says the rich aren’t getting richer?
Good Luck and Good Trading,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
https://www.madhedgefundtrader.com/wp-content/uploads/2024/02/luribus.png550686april@madhedgefundtrader.comhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngapril@madhedgefundtrader.com2024-02-05 09:02:542024-02-05 11:35:37The Market Outlook for the Week Ahead, or Welcome to Dotcom Bubble Part II
(MARKET OUTLOOK FOR THE WEEK AHEAD, or PREPARING FOR THE NEXT LIQUIDITY SURGE)
(JPM) (BA), (TLT), (TSLA), (BAC), (C), (IBKR), (MS), (FCX), (CCJ), (NXE), (UEC), (UUUU), (FDX)
Logistics company FedEx, although not a tech company, offers a fascinating insight into the health of the economy and the current state of the tech world.
Unfortunately for tech readers, the shipping company rang the alarm on the rapidly deteriorating state of the economy in August.
It’s my job to tell you how it will shake out for tech stocks.
FedEx’s earnings report disappointed signaling that tech stocks too, could be on the chopping block. I would agree with that too.
This debunks the myth of the “soft landing” that the US Central Bank likes to refer to with their challenge of high inflation. I believe the soft landing is priced into tech stocks, but not a hard landing yet.
The result is possibly more downside price action to tech stocks.
CEO Raj Subramaniam painted a gloomy picture of what to expect in terms of lower volumes.
FedEx could be the canary in the coal mine signaling ugly earnings for other large tech companies that do business around the world.
The tech companies that come to mind are Apple, Google, Facebook or Meta (META), and Snapchat (SNAP).
Raj is not the only executive who is spooking the tech market.
CEO of Alphabet or Google Sundar Pichai had his own gloomy opinion that adds insult to injury to the already negative sentiment prevailing in trader sentiment.
He said he feels “very uncertain” about the macroeconomic backdrop, and he is one of the few who has deep insight into the different layers of this complicated US economy.
He also warned that layoffs could be in the cards as the company seeks to boost its efficiency by 20% while staving off fierce economic headwinds and antitrust investigations.
A large element of such downbeat forecasts by executives is the roaring price hikes from everything like diapers to salami.
The one ironic tidbit that I took away from the last inflation report was that the recent explosion in inflation has been in rental housing.
If this is the case, then high-income individuals, who mostly own rental real estate, are passing on inflationary costs to their tenants who are strapped with a worse financial profile.
This means that high-income individuals still harness the resources to spend, spend, spend.
Why not go lease a new Maserati or Aston Martin?
If that’s the case, we could see this group pick up the slack and power spending all the way until Christmas which is a net negative for tech stocks because it delays the Fed pivot.
Warnings from Subramaniam and Pichai indeed have weight to them, but keep in mind that these businesses are optimized for scale and reflect the general situation of Americans, not just rich people.
High net worth individuals reloading the consumer bazookas don’t move the needle for the entire US economy, but they do have enough gunpowder to trigger another bout of inflation or rental increases to build on the already high inflation existing in US prices.
Short-term traders should focus on selling rallies in poor tech stocks as upside momentum cannot be sustained in the face of anticipated interest rate rises.
https://www.madhedgefundtrader.com/wp-content/uploads/2022/09/fred.png7331430Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2022-09-19 16:02:452022-10-02 01:50:13Reading the Tech Tea Leaves
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