Global Market Comments
January 12, 2024
Fiat Lux
Featured Trade:
(JANUARY 10 BIWEEKLY STRATEGY WEBINAR Q&A)
(SPY), (UNG), (NVDA), (UUP), (FXA), (GOOG), (GOOGL), (GLD), (GOLD), (WPM), (BYDDY), (F), (GM), (TSLA)
Tag Archive for: (GOOGL)
Below please find subscribers’ Q&A for the January 10 Mad Hedge Fund Trader Global Strategy Webinar, broadcast from Silicon Valley, CA.
Q: Would you sell Nvidia (NVDA) covered calls?
A: No, I would not. Nvidia could double at any time, or at least go up 50%. That is not a covered call writing situation, that is a long call situation, or at the very least a long call spread situation. Do not bet against Nvidia on pain of death—one of the seven-stop losses I had last year was a short in Nvidia.
Q: Do you recommend any brokers for executing my trades?
A: Yes, I recommend tastytrade (click here) because they have some of the lightest code in the entire industry. It’s written to go very fast. Plus they have very competitive margin rates and commissions. They only charge commissions on openings, not on closings for most stocks, etlfs, options and crypto.
Q: Why are you adding positions when the market timing index is so high? Aren't you supposed to be avoiding risk here?
A: The market timing index in the PowerPoint is for the S&P 500 only. If you look at the individual stocks that I've added in the last two days, they've all had 10-20% corrections. So you don't want to touch the main market up here. If anything it's a short, and I am looking at an S&P 500 (SPY) short, by the way, to hedge our other longs. Individual stocks have already corrected, and I've already started to add positions in the leaders for the year. Big tech is moving up; it’s leading the rally so that is what's happening there.
Q: Is it time to buy Tesla (TSLA)? It's a 200-day moving average.
A: I don't want to touch Tesla until the price war is over. Obviously, it's still continuing and Tesla itself is leading the charge on the price war, so I would hold off on that while the other tech stocks like Nvidia (NVDA) are so hot.
Q: I bought the UNG (United States Natural Gas Fund) LEAPS you put out over the Christmas vacation. They have since doubled in value in two weeks. Should I take profits?
A: Yes. Always take a profit in any option play when you get an immediate return because they have the tendency to give up those returns very quickly. They do call natural gas the “widow maker” in the commodities market because of the extreme volatility. So when you get a 50% move in natural gas or any commodity, take the money and run. Go to Las Vegas for a weekend, take your wife to Hawaii, pay off your kid's student loans, or buy yourself a new Rolex watch! Take the quick profit. You always get a chance to buy again on a dip, and there’s nothing like starting off 2024 with a double on a LEAP. For me, it's a matter of professional pride, not about the money. So way to go, John Thomas.
Q: Has crude oil reached the bottom?
A: $70 per barrel has been holding for a long time, but it's not acting like a bottom. I have to tell you, it's not getting any big dead cat bounces you see at real bottoms. So my guess is we have to move into the 60s, maybe all the way down to $62 before we get a turnaround. We need to see a turnaround in the global economy before we get a turnaround in the price of oil, and especially a turnaround in China, which is the world's largest importer of oil—and there is no sign of that happening anytime soon. So there is your answer; watch China.
Q: Will any Bitcoin ETFs be approved in the US?
A: Probably yes, but that also could mark a top of the market. Remember the insiders, the miners, have a huge trading advantage over us. Which is one reason why I'm avoiding this asset class this time around. I have a feeling we'll peak lower than the last high, and then we go back down into lows again. So avoid Bitcoin. There are too many other better things to buy now like Nvidia. During the last Bitcoin peak, all the techs were insanely expensive, and now they're not. We have better alternatives to crypto than we did two years ago.
Q: With China not improving, do you still like the US dollar to drop and the Australian dollar to increase?
A: I do expect the US dollar (UUP) to fall. I think it's peaked out and already dropped 10%, and I expect the Aussie (FXA) to rise. It's already risen by about 7%, but not because of China. It's happening because the US will cut interest rates anywhere from 3 to 6 times this year. And it could be either; it could be 3 quarter-point rate cuts, or it could be 6. I'm kind of leaning towards 6 myself. Which leads to the next question...
Q: Do you still like bonds?
A: Absolutely, yes. (TLT) is trading around $97 today. I'm looking for it to hit $110 to $120 by the end of the year, plus the interest payments. So the total return on (TLT) bonds will be between 18% and 28% on the year. Most people will take that.
Q: Do you still like uranium?
A: Yes. In fact, just last week, France announced it was building 14 new nuclear power plants. These are the big 1 to 4-megawatt old-style plants on top of their additional programs. So that creates more demand for yellow cake fuel and more demand for uranium, and it is getting a lot of push these days as a green fuel. Which it is—it is non-carbon producing. By the way, look at NuScale (SMR) if you're interested in uranium because they have the newest design that solves all the old nuclear problems. And the stock just had a big selloff because they lost a customer.
Q: Do you still like the banks?
A: Well, all four of the financial LEAPS that I recommended at the bottom of the banking crisis in March are all expiring this month at max profits anywhere over a hundred percent. So yes, I love the banks, but I don't especially like them right here, not on top of 30-35% gains. So wait for a pullback. These would be great candidates for any sell-off going into March; that's when we take another look at these. Oh, and if another bank goes bankrupt so much the better, that creates much better entry points.
Q: What's the best way to trade long-term dollar shorts (UUP)?
A: The answer is through futures contracts through banks, is the cheapest way to do it. You get a leverage of 10 to 100 times depending on the contract. You can do long or short. The dealing expenses are the cheapest, and that's how professionals trade for their own account, is through futures contracts through banks. It's not really an equity play. There are a number of short-dollar ETFs out there, but dealing with expenses wide, tracking errors is big so it is not an efficient way to do it. So, that would be my recommendation on long-term dollar shorts. The other way is to buy the Australian dollar, the (FXA).
Q: How are your stem cell knee injections working, John?
A: Fantastic. It completely cured my arthritis with my stem cell injections in my knees and lower back. And after I got shot in the hip in Ukraine, I had a Stem cell injection there too, and that worked. So the pain is completely gone from that bullet wound I got from the Russians in October. Yes, I'm one of the lucky people where everything stem cell-related seems to work, so I do all of them. Go ahead and try it, it’ll only cost you a thousand dollars or two per injection.
Q: When trading Google, do you use the (GOOGL) or just the (GOOG)?
A: One is the holding company, and one is the operating company for the search business. It's really six of one and half a dozen of the other. Both are liquid. The tracking between the two is almost nil, so I don't bother.
Q: Do you expect a recession or high unemployment this year?
A: No, you never get recessions or high unemployment in election years. And much of the spending that the administration obtained years ago has yet to be spent. You know, the lag time on government spending is in the years and it magically tends to happen the most in election years. Go figure. So after a slowdown in the first quarter, I'm expecting to speed up going into the rest of the year.
Q: How much can gold (GLD) go up this year?
A: At least 20 to 30%. Which means the Barrick Gold (GOLD) and Newmont Mining (NEM) could easily double this year. And what about silver? It should go up even more. Which means a Wheaton Precious Metals (WPM) leap at this level should go up 400%. Yes, you've heard it here first, 400% with fairly low risk. And if you want to know how to do that, just search for LEAPS on my website or become a concierge member and you can call me and I'll tell you how to do it. I'll guide your hand on how to do the trade.
Q: Is BYD in China a threat to Tesla (TSLA)?
A: No. BYD Motors (BYDDY) is taking over the low end of the market. Read the least profitable end of the market in China where they actually sell more cars than Tesla including hybrids, but Tesla still leads in EVs, and it's the question of would you rather own a Rolls Royce or a Volkswagen. That is the choice. In China, people buy EVs to show off their wealth, and a BYD car shows off your humility or at least your stinginess. So in some emerging markets where cost is the issue, BYD may take over the market, but they won't make very much money at it. And in other markets where quality is the issue like the US, like China, Tesla will dominate and you may end up with a situation like you have with Apple (APPL). Apple has only a 6% market share in the global cell phone business, but they account for 91% of global profits in the cell phone business, and Tesla could do the same. They could end up making all the money with a lesser market share ceding the bottom end or the money-losing end of the market to BYD, Ford (F), General Motors (GM), or anybody else down there.
Q: What do you think of a (TLT) February $90-$93 vertical bull call debit spread for February?
A: I like it. It’s a little close to the money—I usually try to go out $5 points on the TLT strikes when I'm setting these up. So that's a little aggressive, but you'll end up making more money. My bet is you could make 20% on this call spread right here. So many people are still trying to get into the bond market. They got left out, the move up was so fast since October. The institutional investors that dominate that market are not used to the idea of speed. So yes, I think we're looking at a sideways move before the next leg up.
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, TECHNOLOGY LETTER, or JACQUIE'S POST, 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
Mad Hedge Biotech and Healthcare Letter
December 19, 2023
Fiat Lux
Featured Trade:
(HIDDEN IN PLAIN SIGHT)
(VRTX), (CRSP), (NVDA), (GOOGL), (AMZN), (AAPL), (META), (MSFT), (TSLA)
In the high-pressure game of stock market investments, where volatility is the norm and certainty a luxury, the Nasdaq Composite’s 36% uptick this year is nothing short of remarkable.
The credit largely goes to the “Magnificent Seven” – a septet of tech behemoths comprising Nvidia (NVDA), Alphabet (GOOGL), Amazon (AMZN), Apple (AAPL), Meta Platforms (META), Microsoft (MSFT), and Tesla (TSLA). These giants have not just captured the market’s imagination; they've powered its ascent.
However, while these tech titans have been capturing the spotlight, there's been a different kind of giant, hidden in plain sight, quietly making significant strides in a sector just as crucial as technology – biotechnology and healthcare.
This is where Vertex Pharmaceuticals (VRTX) emerges, a standout performer in the industry, demonstrating that groundbreaking innovation and solid investment opportunities aren't exclusive to the tech world.
The tech sector's rebound this year, following a tumultuous 2022, wasn't just luck. It was a confluence of a resilient economy and consumer spending that stayed robust.
This buoyancy proved a boon for the Magnificent Seven, whose fortunes often mirror economic trends. Apple's case is illustrative. Its iPhones, a blend of luxury and necessity, see fluctuating demand based on economic health.
But Vertex operates on a different plane.
Vertex specializes in life-saving drugs for cystic fibrosis (CF). This isn't a market swayed by economic tides. CF patients depend on the company’s drugs, literally, for survival.
What's more, Vertex is the only game in town for these medications. This unique position grants Vertex significant pricing power, ensuring stable financial performance, come rain or shine.
Now, let’s zoom in on Trikafta, Vertex’s CF superstar.
This is not just another drug; it’s a lifeline, a revenue juggernaut with 13 years of patent protection left.
While rivals scramble to find footholds in CF therapy, Vertex is already eyeing the next big thing: a once-daily treatment, promising more convenience than Trikafta’s twice-daily regimen.
In short, Vertex isn’t just leading the CF market; it's redefining it.
Vertex's ambition doesn't end with CF. The company is making bold strides in pain management with VX-548, a potential opioid alternative. This pill is a beacon of hope in a field littered with failed attempts at non-opioid pain solutions. The recent Phase 2 study results? Encouraging. The study revealed significant pain reduction in patients with chronic neuropathic pain.
But there's more. Vertex is also pioneering gene-editing therapies. Its latest triumph is Casgevy, developed with CRISPR Therapeutics (CRSP).
This treatment, a potential cure for sickle cell disease (SCD) and transfusion-dependent beta-thalassemia (TDT), recently received UK approval. It’s a complex treatment, not a simple pill. This complexity translates to both a high price and a shield against generic competition. With an initial target market of 32,000 patients, Vertex is looking at a potential goldmine.
Contrast this with the struggles of smaller gene-editing firms. Vertex stands out with its deep pockets and negotiation expertise. It's not just about developing groundbreaking therapies; it's about successfully bringing them to market. As it has shown over the years, Vertex’s prowess in this arena is unrivaled.
Of course, biotech is a realm of high risks and high rewards.
Vertex is no stranger to setbacks. Remember October 2020? The company saw its shares plummet by over 15% in a day after discontinuing a promising program. But it's the rebound that tells the story. Since then, Vertex’s shares have soared, making that drop a mere blip in its upward trajectory.
In the pantheon of biotech, Vertex Pharmaceuticals is a rare breed. It's a company that has not only conquered the CF domain but is also making significant inroads in pain management and gene editing. The financials are solid, the pipeline robust, and the market potential vast. Its collaboration with CRISPR Therapeutics on Casgevy is just one example of its strategic foresight.
So while the Magnificent Seven continue to dominate headlines, Vertex Pharmaceuticals emerges as a compelling, if quieter, story. It’s a narrative of a company not content with leading just one market but expanding its prowess into new, uncharted territories. I suggest you buy the dip.
Mad Hedge Technology Letter
December 18, 2023
Fiat Lux
Featured Trade:
(THE TRUTH ABOUT AUTOMATION AND WALL STREET JOBS)
(AAPL), (GOOGL), (FB), (AMZN), (NFLX)
Automation is taking place at warp speed displacing employees from all walks of life.
According to a recent report, the U.S. financial industry will depose 200,000 workers in the next decade because of automating efficiencies.
Yes, humans are going the way of the dodo bird and banking will effectively become algorithms working for a handful of executives and engineers.
The x-factor in this equation is the direct capital of $150 billion annually that banks spend on technological development in-house which is higher than any other industry.
Welcome to the world of lower costs, shedding wage bills, and boosting performance rates.
We forget to realize that employee compensation eats up 50% of bank expenses.
The 200,000 job trimmings would result in 10% of the U.S. bank jobs getting axed.
The hyped-up “golden age of banking” should deliver extraordinary savings and premium services to the customer at no extra cost.
Mobile and online banking has delivered functionality that no generation of customers has ever seen.
The most gutted part of banking jobs will naturally occur in the call centers because they are the low-hanging fruit for automated chatbots.
A few years ago, chatbots were suboptimal, even spewing out arbitrary profanity, but they have slowly crawled up in performance metrics to the point where some customers are unaware they are communicating with an artificially engineered algorithm.
The wholesale integration of automating the back-office staff isn’t the end of it, the front office will experience a 30% drop in numbers sullying the predated ideology that front-office staff are irreplaceable heavy hitters.
Front-office staff have already felt the brunt of downsizing with purges carried out in 2023 representing a fifth year of decline.
Front-office traders and brokers are being replaced by software engineers as banks follow the wider trend of every company transitioning into a tech company.
The infusion of artificial intelligence will lower mortgage processing costs by 20% and the accumulation of hordes of data will advance the marketing effort into a smart, hybrid cloud-based, and hyper-targeted strategy.
Historically, a strong labor market and low unemployment boosts wage growth, but national income allocated to workers has dipped from about 63% in 2000 to 56% in 2023.
Causes stem from the deceleration in union membership and outsourcing has snatched away negotiating power amongst workers and the implemented mass automation has poured fat on the fire.
I was recently in Budapest, Hungary on a business trip, and on a main thoroughfare, a J.P. Morgan and Blackrock office stood a stone’s throw away from each other employing an army of local English proficient Hungarians for 30% of the cost of American bankers.
Banks simply possess wider optionality to outsource to an emerging nation or to automate hard-to-fill positions now.
In this race to zero, companies can easily rebuff requests for higher salaries and if they threaten to walk off the job, a robot can just pick up the slack.
Automation is getting that good now!
The last two human bank hiring waves are a distant memory.
The most recent spike occurred 7 years after the dot com crash of 2001 until the sub-prime crisis of 2008 adding around half a million jobs on top of the 1.5 million that existed then.
The longest and most dramatic rise in human bankers was from 1935 to 1985, a 50-year boom that delivered over 1.2 million bankers to the U.S. workforce.
This type of human hiring will likely never be seen again in the U.S. financial industry.
Recomposing banks through automation is crucial to surviving as fintech companies are chomping at the bit and even tech companies like Amazon and Apple have started tinkering with new financial products.
The brutal truth out there is sadly; don’t tell your kid to get into banking, because they will most likely be feeding on scraps at that point.
WALL STREET IS LEANER THAN EVER
Global Market Comments
December 11, 2023
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or POWELL’S VICTORY LAP),
(GS), (KEY), (WBS), (COLB), (PNFP),
(NLY), (BRK/B), (GOOGL), (CAT), (TLT)
With almost all economic data now universally slowing, Fed Governor Jay Powell is limbering up to take his victory lap. That’s put inflation in full retreat and well on its way to our central bank’s 2% target by summer. Interest rate cuts are just a matter of time.
That sets up a fabulous year in 2024. While this year was mostly a hard slog, next year should be a piece of cake. I can’t wait until it starts!
That puts my 4,800 target for the end of 2023 well within range. People told me I was crazy when I made such an outlandish forecast last January 1, yet here we are.
Investors missed the mark by a mile this year because they thought the Fed's extreme moves in interest rates would trigger a recession.
It didn’t.
Those who bet on falling inflation this year were big winners. That gave the Fed permission to cancel any further rate rises. Economists were too bearish and the technical picture flipped from bearish to bullish in a heartbeat on October 26.
The kinds of moves you are seeing in the stock market, with banks and industrials turning upward, signal that we are not in a bear market, but the start of a new long-term bull one.
Stocks are looking for at least 15% gains in 2024 with earnings consistently surprising to the upside. Domestics will catch fire in the second half. Inflation will fall further than expected, well into the 2% handle, thanks to hyperaccelerating technology crushing prices.
The Fed has won the war on inflation so there is room for 10-year US Treasury bond yields to hit 3.0% next year, taking mortgage interest rates under 5.0%. That will be a shot of adrenaline for the residential real estate market.
A (SPY) target of 5,500 by the end of 2024 is entirely within reason.
It turns out that when ten-year bond yields are between 4.00% and 5.00%, stocks sport a price-earnings multiple of 20X. That allows S&P 500 earnings to hit $2.65 per share in 2025, up from today’s $2.20.
Financials (JPM), industrials (CAT), energy (XOM), and small caps (IWM) will take over market leadership sometime in 2024. The best market risk reward is here. Financials now trading in the dumps have huge multiple expansion potential.
The $240 billion in cash that left equities in 2023 will have to fight their way back in. That’s why we haven’t seen any substantial pullbacks in share prices since October. Once investors got the cash weightings they were happy with, they could never get back into stocks.
Hedge fund equity weightings are at five-year lows. Small caps have very heavy weightings in regional banks, while large banks have great capital spending plays.
Big techs, the meteoric performers of 2023, will likely take a rest sometime in Q1.
Europe and China took the big hits this year, but we didn’t. If they turn around, it will supercharge our economy….and the stock market.
Which brings me to the subject of bank stocks. Banks have had an atrocious 2023, when their shares were either flat or down big, underperforming the S&P 500 by a massive 30%. However, they are looking pretty darn attractive for 2024.
Banks now offer pretty cheap balance sheets relative to next year’s profit outlook, with many still trading at big discounts to book value. A recovering economy means new capital spending jumps, which is great for big banks. Exposure to high-risk office loans which get so much print from the financial media account for less than 5% of their loan books.
Small banks will put the March crisis behind them by recapitalizing or merging. It turns out that only a handful of banks were badly managed (no downside hedge on (TLT) holdings while they were crashing from $166 to $82!!). The survivors will build market share at higher margins.
Economic recovery also means default rates on loans ebb.
Goldman Sachs (GS) is my top pick, after being taken to the woodshed for a very expensive unwind of their poorly thought-out consumer business this year. Key Corp (KEY) is also looking good on a possible 70% earnings growth.
If you are looking for a pure small bank play, you can buy Webster Financial (WBS) based in Stamford, CT, Columbia Banking (COLB) of Tacoma, WA, or Pinnacle Financial (PNFP) from Nashville, TN.
So far in December, we are down -2.85%. We’ve had a heck of a run and the market was bound to bite back sometime. My 2023 year-to-date performance is still at an eye-popping +78.86%. The S&P 500 (SPY) is up +21.05% so far in 2023. My trailing one-year return reached +75.38% versus +24.75% for the S&P 500.
That brings my 15-year total return to +676.05%. My average annualized return has exploded to +52.00%, another new high.
I am 40% invested with 60% in cash, with longs in (NLY), (BRK/B), (GOOGL), and (CAT). Last week, I got stopped out of a long in (XOM), thanks to the oil price dive, and a short in (TLT).
Some 63 of my 70 trades this year have been profitable this year.
Nonfarm Payroll Comes in Soft, in November at 199,000. The headline Unemployment Rate fell to 3.7%, near a 50-year low. Healthcare was the biggest growth industry, adding 77,000. Other big gainers included government (49,000), manufacturing (28,000), and leisure and hospitality (40,000). Average hourly earnings, a key inflation indicator, increased by 0.4% for the month and 4% from a year ago, close to expectations. It was a Goldilocks number for the Fed.
Refi Demand Rockets, as interest rates plunge to four-month lows. The rate for the popular 30-year mortgage fell back toward 7% after hitting 8% earlier this fall. Applications to refinance a home loan index increased 14% from the previous week and were 10% higher than the same week a year ago.
Exploding Sales of EVs Are Ringing the Bell for Oil, leading forecasters to speed up their projections for when global oil use will peak, as public subsidies and improved technology help consumers overcome the sometimes eye-popping sticker prices for battery-powered cars.
Panic Buying Drives Treasury Yields to 4.10%, down nearly a full percentage point in little more than a month on weakening economic data. It’s hard to believe that we drop below 4.10% but anything is possible in this market.
Uber Entered S&P 500, on December 18, taking the stock up 10% on the news. A company needs to fulfill certain criteria to be included in the S&P 500. Firstly, its market capitalization should be at least $14.5 billion. As of Dec 1, 2023, the market capitalization of UBER was $118.02 billion. Additionally, U.S. firms that meet profitability, liquidity, and share-float standards are the ones that can qualify for the S&P 500.
Pending Home Sales Collapse, dropping to the lowest level since the National Association of Realtors began tracking them in 2001. Sales were down 8.5% from October of last year. Tight supply and still-strong demand have kept pressure on home prices, which not only continue to hit new highs but appear to be accelerating in their gains. ales of homes priced above $750,000 have been increasing simply because there is more supply on the high end of the market.
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, December 11, at 8:30 AM EST, the Consumer Inflation Expectations are out, one of the Fed’s favorite inflation reads.
On Tuesday, December 12 at 8:30 AM, the Consumer Price Index will be released. The Federal Reserve Open Market Committee starts a two-day meeting.
On Wednesday, December 13 at 2:00 PM, the Federal Reserve will release its interest rate decision. No change is expected. At 2:30, the Producer Price Index is out.
On Thursday, December 14 at 8:30 AM, the Weekly Jobless Claims are announced. We also get Retail Sales.
On Friday, December 15 at 2:30 PM, the October New York Empire State Manufacturing Index is published. At 2:00 PM, the Baker Hughes Rig Count is printed.
As for me, it was with a heavy heart that I boarded a plane for Los Angeles to attend a funeral for Bob, the former scoutmaster of Boy Scout Troop 108.
The event brought a convocation of ex-scouts from up and down the West Coast and said much about our age.
Bob, 85, called me two weeks ago to tell me his CAT scan had just revealed advanced metastatic lung cancer. I said, “Congratulations Bob, you just made your life span.”
It was our last conversation.
He spent only a week in bed and then was gone. As a samurai warrior might have said, it was a good death. Some thought it was the smoking he quit 20 years ago.
Others speculated that it was his close work with uranium during WWII. I chalked it up to a half-century of breathing the air in Los Angeles.
Bob originally hailed from Bloomfield, New Jersey. After WWII, every East Coast college was jammed with returning vets on the GI bill. So he enrolled in a small, well-regarded engineering school in New Mexico in a remote place called Alamogordo.
His first job after graduation was testing V2 rockets newly captured from the Germans at the White Sands Missile Test Range. He graduated to design ignition systems for atomic bombs. A boom in defense spending during the fifties swept him up to the Greater Los Angeles area.
Scouts I last saw at age 13 or 14 are now 60, while the surviving dads were well into their 80s. Everyone was in great shape, those endless miles lugging heavy packs over High Sierra passes yielding lifetime benefits.
Hybrid cars lined both sides of the street. A tag-along guest called out for a cigarette and a hush came over a crowd numbering over 100.
Some things stuck. It was a real cycle of life weekend. While the elders spoke about blood pressure and golf handicaps, the next generation of scouts played in the backyard or picked lemons off a ripening tree.
Bob was the guy who taught me how to ski, cast rainbow trout in mountain lakes, transmit Morse code, and survive in the wilderness. He used to scrawl schematic diagrams for simple radios and binary computers on a piece of paper, usually built around a single tube or transistor.
I would run off to Radio Shack to buy WWII surplus parts for pennies on the pound and spend long nights attempting to decode impossibly fast Navy ship-to-ship transmissions. He was also the man who pinned an Eagle Scout badge on my uniform in front of beaming parents when I turned 15.
While in the neighborhood, I thought I would drive by the house in which I grew up, once a modest 1,800 square-foot ranch-style home to a happy family of nine. I was horrified to find that it had been torn down, and the majestic maple tree that I planted 40 years ago had been removed.
In its place was a giant, 6,000-square-foot marble and granite monstrosity under construction for a wealthy family from China.
Profits from the enormous China-America trade have been pouring into my hometown from the Middle Kingdom for the last decade, and mine was one of the last houses to go.
When I was class president of the high school here, there were 3,000 white kids and one Chinese. Today, those numbers are reversed. Such is the price of globalization.
I guess you really can’t go home again.
At the family's request, I assisted in liquidating his investment portfolio. Bob had been an avid reader of the Diary of a Mad Hedge Fund Trader since its inception and attended my Los Angeles lunches.
It seems he listened well. There was Apple (AAPL) in all its glory at a cost of $21. I laughed to myself. The master had become the student and the student had become the master.
Like I said, it was a real circle of life weekend.
Good Luck and Good Trading,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Scoutmaster Bob
1965 Scout John Thomas
The Mad Hedge Fund Trader at Age 11 in 1963
Mad Hedge Technology Letter
December 6, 2023
Fiat Lux
Featured Trade:
(POSITIVE SIGNS FOR 2024)
(AMZN), (APPL), (GOOGL), (MSFT), (TSLA), (META), (NVDA)
There have been a lot of whispers as to who the tech leadership group could be in 2024.
The notion that for the tech rally to continue, more participation is needed is unequivocally false.
A strong but narrow group of tech stocks coined the magnificent seven don’t need smaller stocks to help buoy the broader tech indices.
The law of large numbers also dictates price action meaning even if smaller stocks have the time of their life next year, they still won’t make a dent compared to the absurdly expensive tech stocks that are aiming at $4 trillion in market cap.
Therefore, I believe there is a high likelihood that these potent 7 stocks outperform the rest of tech yet again and I will explain why.
Faster growth rates and reasonable valuations bode well for mega-cap tech stocks.
The seven stocks I am talking about refer to Apple, Amazon, Alphabet, Meta, Microsoft, Tesla, and Nvidia, are responsible for 76% of the S&P 500's 2023 gain of nearly 20%.
Nvidia is up more than 200% year-to-date, and even Apple, the world's largest company, saw its stock price surge nearly 50% this year. The seven companies represent a collective $11.5 trillion in market value
The fundamentals are superior.
The seven mega-cap tech stocks have more attractive fundamentals when compared to the S&P 500's bottom 493 stocks.
They boast faster growth, higher profit margins, stronger balance sheets, and reasonable valuations on a relative basis.
And while price-to-earnings valuations are elevated for the tech stocks, when accounting for growth, they're actually in line with the rest of the market.
Mega-cap tech stocks cratered in 2022.
The sharp outperformance in the mega-cap tech stocks this year comes after a brutal 2022 in which a number of the stocks were severely punished because of the Fed hiking like they have never hiked before.
From their peak, Meta fell more than 70%, Nvidia dropped more than 60%, and Amazon's share price was cut in half in 2022.
The dominance of mega-cap tech in 2023 largely reflected a reversal of meaningful underperformance in 2022 so much so that the group of tech stocks fell a collective 39% that painful year.
The pullback was a healthy consolidation and psychologically, it feels like this bullish year means we are back to neutral.
There is a high chance that tech stocks rally on the belief that a recession will cause the Fed to drop interest rates.
Indicators are starting to look a little sluggish suggesting that earnings could come somewhat soft in the first quarter.
No doubt that the US consumer is stretched to its limit and thinking twice before spending.
The knock-on effect will be delayed iPhone purchases, delayed Tesla purchases and the other 5 of the Magnificent 7 could feel the slowdown as well.
Tech’s path to the recession could cause another rally into the recession when investors are likely to take profits when we finally arrive at the recession that every investor has been waiting for years.
In the meantime, there is a high likelihood that these 7 stocks will continue success in the short-term.
