(GOOGL) - Page 5 - Mad Hedge Fund Trader

The Market Outlook for the Week Ahead, or Digestion Time

Before you even ask, I’ll give you the answer you’ve all been waiting for: It’s too late to sell and too early to buy.

Stocks may still have some digesting to do having soared by 27% in six months. Nobody wants to look like an idiot by buying a market top. As I have learned over the decades, investors fear looking stupid more than they fear losing money, especially if they are professionals.

Everyone knows the market is eventually going higher so they are not selling in any meaningful way unless they are short-term, algos, or day traders.

This means we may have a whole lot of nothing going on in the coming weeks or months.

That leaves us time to examine the most interesting trends going on in the markets right now, especially the new bull market in commodities. Believe it or not, we are still unwinding the long-term effects of Covid 19 and commodities have only recently come to the fore.

Remember Covid?

Since October, copper prices have risen by 22%, oil by 23%, gold by 34%, and uranium by a gobsmacking 83%. What’s causing this sudden new interest? It’s not a recovering Chinese economy, that’s for sure. Investors have been waiting for a bounce back in the Middle Kingdom seemingly forever. But China remains hobbled by the bitter fruit of a 40-year one-child policy and an ineffective government. History tells us that the United States does not make a great enemy.

So what’s driving the new demand? Remember Covid? Believe it or not, we are still unwinding the long-term effects of Covid 19 and commodities have only recently started to play catch up.

Commodities are unique in that they have such a long lead time to add new supply. It can take 5-10 years, to map out new sites, get government approvals, deliver heavy equipment, and mine, process, refine, and ship the final product.

In the meantime, enormous new demand has arisen. There have been 10 million EVs manufactured in recent years and each one needs 200 pounds of copper. AI means the electric power grid has to double in size quickly. Commodity markets are unable to meet the supply. Therefore, prices can only go up.

That enabled Freeport McMoRan (FCX), the world’s largest copper producer, to handily beat its earnings expectations, helped by higher production and easing costs. The mining giant said its quarterly production of copper rose to 1.1 billion pounds from 965 million pounds a year earlier, helped by a 49% jump in output from its Indonesia operations. (FCX) said it was working with the Indonesian government, which has put a ban on raw material exports, to obtain approvals to continue shipping copper concentrates and anode slimes. Its current license is set to expire in May. Buy (FCX) and (COPX) on dips.

Corporate raiders have taken notice.

Activist Elliot is taking a Run at Mining Giant Anglo American, accumulating a $1 billion stake. BHP, the largest iron ore miner, is also making a takeover bid here on the coattails of which Elliot is trying to ride. It just highlights the global interest in mining shares.

Anglo American plc is a British multinational mining company that is the world's largest producer of platinum, with around 40% of world output, as well as being a major producer of diamonds, copper, nickel, iron ore, polyhalite, and steelmaking coal. On a side note, copper hit a two-year high above $10,000 per metric tonne in the London Market last week.

Needless to say, the commodity boom could continue for another decade.

So far in April, we are up +4.24%. My 2024 year-to-date performance is at +13.61%. The S&P 500 (SPY) is up +6.50% so far in 2024. My trailing one-year return reached +32.40% versus +23.14% for the S&P 500.

That brings my 16-year total return to +690.24%. My average annualized return has recovered to +51.77%.

Some 63 of my 70 round trips were profitable in 2023. Some 25 of 33 trades have been profitable so far in 2024.

Tesla Delivers Worst Earnings in 12 Years, with a 9% revenue drop, but the stock rallies big as the disappointment was well telegraphed. Revenue declined from $23.33 billion a year earlier and from $25.17 billion in the fourth quarter. Net income dropped 55% to $1.13 billion, or 34 cents a share, from $2.51 billion, or 73 cents a share, a year ago. The drop in sales was even steeper than the company’s last decline in 2020, which was due to disrupted production during the Covid-19 pandemic. Tesla’s automotive revenue declined 13% year over year to $17.38 billion in the first three months of 2024. I’ll watch (TSLA) from the sidelines from now.

Personal Consumption Expenditures (PCE) Comes in Warm for March, up 2.8% YOY, the same as for February. Service prices led. But the numbers were not as hot as feared so both bonds and stocks rose.

Big Tech Crashes, with all of the Magnificent Seven breaking 50-day moving averages. (NVDA) alone gave up 10% on Friday. The next stop is the 200-day moving averages, which are far, far away. If those hold this is just a correction. If they don’t the bear market is back.

Biggest Treasury Bill Auction in History is a Huge Success, at $69 billion for a two-year paper with a 4.898% yield. That is almost a risk-free government-guaranteed 10% yield in two years. Another $70 billion of five-year notes go on sale today. Half of this is going to foreign investors and central banks. Faith in America and the US dollar remains strong. Who else’s bonds would you rather buy? Passage of the Ukraine aid bill was probably a help. Wait for (TLT) to bottom.

Visa Pops on Earnings Beat, continuing as the powerhouse that it has been for years. Reported at $4.7 billion, showing a 10% increase year-over-year, slightly above the estimate of $4.943 billion. Visa is a call option on the growth of the Internet. Buy (V) on dips.

Apple China Sales Dive, by 19% as Chinese switch to cheaper Huawei phones for nationalism reasons. It’s also another sign of a slow Chinese economy. China remains one of the company’s biggest markets, but business there has grown harder after Beijing escalated a ban on foreign devices in state-backed firms and government agencies. Avoid (AAPL) until the turnaround.

Alphabet Earnings Beat Delivers Monster 10% Move, recovering a $2 trillion market cap. It also announced its first-ever dividend and a $70 billion share back, the second largest after Apple. Buy (GOOGL) on dips.

March New Home Sales Jump, by 8.1% when only 1.1% is expected, to 693,000. The median price of a home sold fell to $430,700 as builders pulled back on incentives like those cherry cabinets. It’s an uphill slog with those 7.0% mortgage rates.

CDC Birth Data Fall to Lowest Level Since the Great Depression, 1.1 births per 1,000 people. That is well below the Great Depression levels. Only 3,664,292 new Americans were born in 2021. It means there will be a shortage of consumers in 20 years so be out of stock by then. The good news is that Covid deaths have fallen from 4,000 per day to only 19 a day since January 2020.

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, April 29, at 10:30 AM EST, the Dallas Fed Manufacturing Index is announced.

On Tuesday, April 30 at 9:00 AM, S&P Case Shiller National Home Price Index is released.

On Wednesday, May 1 at 2:00 PM, the ADP Private Employment Change report will be published

On Thursday, May 2 at 8:30 AM, the Weekly Jobless Claims are announced.

On Friday, May 3 at 8:30 AM, the April Nonfarm Payroll Report is announced. At 2:00 PM, the Baker Hughes Rig Count is printed.

As for me, I have wanted to visit Cuba for decades. But relations with the US have run hot and cold over the years and whenever I had the time and money to go, the was a chill on, sometimes an extreme one.

So when I arrived in Key West and learned they were offering Cuba tour packages, I jumped at the chance. Unfortunately, you need to book three months in advance so that option was out.

Then I thought, “Why not fly there myself?” After payment of some hefty fees, commissions, and some outright bribes, I scored a Cuban visa and an aging Britten-Norman Islander twin built in the UK some 40 years ago. It was perhaps the smallest twin I have ever flown, with two minuscule 270 horsepower engines.

Although it was only 90 miles to Cuba, I had to load up with full tanks. Cuban aviation fuel is often contaminated with sludge or water and is unsafe to use. Losing both engines over shark-infested waters doesn’t fit in with my retirement plan. So I needed enough 100LL avgas to make the round drip, which meant skipping breakfast to stay within my weight limitations.

It was a clear and balmy morning when I received my clearance for takeoff, the sky dotted with fluffy white cumulus clouds. Of course, I had to skirt the Bermuda Triangle to get there, but no worries.

Amazingly Cuban air traffic control spoke English. Soon, the green hills of Cuba appeared on the horizon, and I received the words I will never forget: “N686KW you are cleared for landing in Havana.” I haven’t felt like that since I last landed in Moscow.

Much to my surprise, I found other US aircraft there as I was parked near jets from Southwest and American Airlines. I was greeted by an immigration officer who escorted me into the country, putting my Spanish skills to the test.

I had some concerns that I might be arrested in case Russia put me on a wanted list due to my recent work in Ukraine. But my fears proved unwarranted. You see, you get paranoid in your old age. A private car, a French Citroen van, a driver, and a government guide were waiting for me outside the airport.

Suddenly, I found myself in a strange new world. A darkly tanned people wore tired polyester clothes. Everyone was rail thin and the only obese people I saw were foreign tourists. There was an incredible variety of vehicles on the road, including ancient cars from Russia, China, Poland, and Japan. Apparently, Chevrolet had a great year in Cuba in 1956 because no American cars have entered the country since then and they are everywhere.

We headed straight for Earnest Hemingway’s Cuban home, known as Finca Vigia, or “Lookout Farm” built in 1886 on a hilltop overlooking Havana. The building was falling apart and showed large cracks, but going inside I was transported in time back to 1960, when Hemingway left the property ahead of the Cuban Revolution.

Finca Vigia has been untouched since. The walls are covered with an assortment of hunting trophies from Africa, including springboks, cape buffalo, lions, and leopards. They were collections of African spears and gun cases. Mounted on the walls were paintings of bullfights in Spain, cartoons about Hemingway, and family photos.

Magazine racks were stuffed with the 1960 issues of Life, Look, and The Saturday Evening Post. The National Geographic issues looked positively prehistoric. And there were thousands of books. Anyone who read his books would recognize all of this.

Hem, as his friends called him, bought the property in 1940 for $8,000, living there with wife three for five years, the famed war correspondent Martha Gellhorn, and wife four, Time magazine reporter Mary Welsch, who became his widow.

After passing on a Che Guevara T-shirt in the gift shop, I enjoyed a glass of freshly squeezed sugar cane juice. Then I headed into Havana, escorted by my guide, Eliar. The trip turned into a Hemingway bar crawl. I visited the well-known La Floridita, which made Hem’s favorite Daiquiri, La Bodegita, which mixed the best mojito and had lunch at his favorite roof terrace restaurant.

Cuba has long been one of the worst-managed countries in the world, second only to North Korea, and I learned why after grilling my guide all day about economic conditions. It’s 11.2 million people earn a per capita of $11,255, with 71% living below the poverty line. The real figure is a third of that as there are now 300 pesos to the US dollar, not the fictitious 120 that the government pretends.

When the Soviet Union collapsed in 1992, generous subsidies ended and Cuba quickly lost 33% of its GDP. With some of the richest farmland in the world, it imports 80% of its food and is currently suffering a food crisis. Even the bottled water I drank came from Panama.

Oil accounts for 100% of its energy supply which mostly comes from Russia and is paid for with raw sugar. Cuba’s largest exports are tobacco, nickel, and zinc most of which are exported to China. China also provided $11 billion in loans which Cuba promptly defaulted on.

The country would have been much better off if only Fidel Castro had accepted an offer from the Washington Senators to play US major league baseball in the early 1950s. Cuba is officially one of the last communist countries in the world, with Russia and China abandoning it years ago. After reforms in the 1990s, what they now practice is an odd mixture of communism and capitalism, with the government and the private sector competing side by side.

With thousands fleeing the country every year the real estate market has collapsed. You can buy a two-bedroom apartment in Havana for $30,000. Flying over the countryside at low altitude you fund vast expanses of agricultural land undeveloped for want of machinery and parts. There is unused labor everywhere. Cuba should be one of the richest countries in the world with all those beaches. The tourism possibilities are enormous. But with a 60-year trade and investment ban from the US, nothing can happen.

American credit cards and cell phones don’t work, so I brought in $200 in ones. You can’t bring back to the US the country’s only two worthy exports, rum and cigars. But there are buskers everywhere and by the end of the trip, I ended up giving it all away in tips. I did OK with the food, but only ate overcooked meals in high-end restaurants. Salads were out of the question but drink all the local beer and rum you can.

I ended my trip with a tour of the enormous Revolution Square where Fidel Castro used to give four-hour speeches to one million. One area the government did not skimp on spending was on the massive ministry buildings that surround the square. It seems the image of a strong government, especially the police, is essential in a workers’ socialist paradise.

Then it was back to the airport where surprisingly I obtained immediate clearance for takeoff. No passport stamps, as the government wanted to leave no evidence of my visit in an American passport. I returned to Key West just in time to catch a magnificent sunset over the Gulf of Mexico. US customs recognized my face and waved me right through.

Damn! Should have picked up some of those $5 bottles of rum.

It's all just another day in the life of John Thomas.

At Hemingway’s Cuban Home

A Look Back into 1960

Where Hem Wrote “Old Man and the Sea”, Standing

Hemingway’s Office

I passed on Che

Meeting an Old Friend for a Round at Floridita

Mixing it up with the Locals

One of Cuba’s Only Exports

Looks Like Chevy had a Great Year in 1956

Good Luck and Good Trading,

John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader

April 29, 2024/by april@madhedgefundtrader.com

April 22, 2024

Tech Letter

Mad Hedge Technology Letter
April 22, 2024
Fiat Lux

Featured Trade:

(TIK TOK IN HOT WATER)
(SMCI), (NVDA), (TIKTOK), (META), (MSFT), (GOOGL), (AMZN)

April 22, 2024/by april@madhedgefundtrader.com

Tiktok In Hot Water

Tech Letter

Tech is getting real political and that’s a problem for tech valuations.

On one side, there are foreign companies hoping to make a buck stateside and they are finding out it is not always smooth sailing.

The cradle of capitalism isn’t unfettered access to unlimited Benjamin’s.

The difficulties and examples are sprinkled through the sub-sectors of tech.

For example, to secure the EV battery plant subsidies from the US federal government, Korean companies have to produce the battery inside the United States.

Being a Korean company, Hyundai and Kia, pulling this off delivered painful financial expenses related to the companies.

Another Asian company grappling with additional political fallout is the social media app TikTok.

The most recent House bill easily passed meaning that if Senate approved the bill, TikTok might need to divest or be banned from the US.

TikTok told employees it will fight in the courts if a US bill forcing a ban or divestiture of the Chinese-owned app is signed into law.

US President Joe Biden has said he will sign the legislation promptly if it reaches his desk.

TikTok’s 170 million American users and 7 million small businesses would need to find a different platform.

ByteDance, the Chinese communist party-sponsored owner of TikTok, intends to fight the US ban in court and exhaust all legal actions before it considers any kind of divestiture, people familiar with the matter have said.

Beijing, in the meanwhile, will have to green light any TikTok deal on the tech-export ground, and it has reiterated it opposes a forced sale.

The environment for trading tech stocks has nudged into this ferocious backdrop of trading barbs and its increasingly disturbing tech companies from carrying out their duty to serve the end customer.

Tech customers don’t like that and it doesn’t matter if it’s waiting on an iPhone or software product that can’t be delivered in full, the product gets watered down or withheld.

Irreparable harm is being caused if customers don’t have full faith that tomorrow they will wake up and see an app not disappear from the app store or a device become obsolete because of regulation or government saber-rattling.

Part of this is the angst in which traders are seeing the market now as highly fraught, and tech stocks have run into a logjam at these higher levels because profit-taking is the best recipe of the day.

There needs to be a great reason for incremental investors to jump in, because let’s not kid ourselves, tech stocks are expensive at this point.

We pile into them because there are more or less 5 stocks growing robust earnings while many zombie companies don’t punch above their weight.

This is why traders are piling into Nivida, Meta, Microsoft, Amazon, and Google. I would put Super Micro Computers (SMCI) on that list too as a volatile super growth stock.

Tech still is the place to be, but the geopolitical strife is exacerbating the short-term consolidation of tech and we are experiencing larger selloffs than would be otherwise.

Tech readers must be patient as expectations for this earning season must be scaled back and we wait to unload on the next move up.

April 22, 2024/by april@madhedgefundtrader.com

April 15, 2024

Diary, Newsletter, Summary

Global Market Comments
April 15, 2024
Fiat Lux

Featured Trade:

(MARKET OUTLOOK FOR THE WEEK AHEAD, or VOLATILITY IS BACK!)
(REMEMBERING TRINITY)
(TLT), (TSLA), (NVDA), (FCX),
(XOM), (WPM), (GLD), (FXI), (FXY), (USO), (GOOGL)

April 15, 2024/by april@madhedgefundtrader.com

The Market Outlook for the Week Ahead, or Volatility is Back!

Diary, Newsletter

Those who expected markets to go up forever were given a rude awakening last week with a swift slap across the face with a wet kipper. The Volatility Index ($VIX) soared from $12 to $19 and higher highs will unfold this week. The Mad Hedge Market Timing Index dropped below 50 for the first time since October and lower lows beckon.

For those of us who earn our crust of bread off of volatility, its return is like a gift from the gods. The long desert has been crossed and the fresh mountain springs beckon just ahead.

What prompted this ($VIX) melt-up is that many traders and investors are finally throwing in the towel on ANY interest rate cuts in 2024. In a mere four months, we have gone from an expectation of six rate cuts to zero. Not helping matters is that the “May” thing, as in “Sell and Go away” is only two weeks away. After an overcooked Q1, we may be headed into a summer that is the next great Ice Age.

At least that is the assumption we have to make from a trading point of view for the short-term. While this represents a worst-case scenario, I don’t expect bonds to drop much from here, maybe a couple of points, as future interest rate cuts are a certainty. All that has happened is that our rate cuts have been moved out from two months to five months. The next move in interest rates is still down.

At some point, there will be a great bond trade out there, but definitely, not yet!

Watching the market action last week, it was especially impressive how well NVIDIA (NVDA) held up.

NVIDIA is so far ahead of the competition that no one will catch up for years. What the (NVDA) bears don’t get is that the company has a moat so wide it is impossible to cross. Their enormous lead in software is the result of crucial platform decisions made 20 years ago. The key staff are all locked up with ultra-cheap equity options with strike prices around $1-$2.

Virtually everyone has now raised their upside targets for the stock over $1,000/share and there are $1,400 figures out there. That’s because, with a price-earnings multiple of only 30X, it is still the cheapest Big Tech stock in the market. By comparison, its biggest customer, (META) is at 34X, AI Leader (MSFT) is at 38X, and (AMZN) is at a stratospheric 63X.

Efforts by Alphabet (GOOGL) to break into the AI chip business are feeble at best. This is a business that has a very long learning curve with very high capital costs.

Every 15% correction in (NVDA) over the last two years has been a strong “BUY”. It really owns the AI design business. It’s looking at $250-$500 BILLION in sales growth over the next several years.

Santa Clara-based NVIDIA designs and manufactures high-end, top-performing graphics cards or GPUs. There is probably one in your PC. They are essential in the artificial intelligence, automobile, PC, supercomputing, cybersecurity, and gaming industries. As a design company only company NVIDIA represents pure intellectual added value. Its chips are manufactured in Taiwan.

They are also crucial for national defense. The Biden administration recently banned NVIDIA from exporting high-end chips and their manufacturing equipment to China, which they were using to build sophisticated weapons to use against us. Last week China banned NVIDIA chips in a typical tit-for-tat gesture.

We have had a spectacular week here at Mad Hedge Fund Trader.

So far in April, we are up +5.20%. My 2024 year-to-date performance is at +14.47%. The S&P 500 (SPY) is up +7.22% so far in 2024. My trailing one-year return reached +46.01% versus +36.12% for the S&P 500.

That brings my 16-year total return to +691.20%. My average annualized return has recovered to +51.84%.

Some 63 of my 70 round trips were profitable in 2023. Some 20 of 26 trades have been profitable so far in 2024.

We got a rare dip last week, which I used to rush into four new May positions, double positions in (NVDA) and additional ones in (FCX) and (TLT). I will let my existing April longs expire at a max profit in four days on April 19 in Freeport McMoRan (FCX), Occidental Petroleum (OXY), ExxonMobile (XOM), Wheaton Precious Metals (WPM), Tesla (TSLA), and Gold (GLD).

I am in a rare 100% invested position with no cash given the massive upside breakout in commodity, precious metals, and energy we have witnessed. This is going to be a great month.

Consumer Price Index Comes in Hot at 0.4% for March, the same rate as in February according to the Bureau of Labor Statistics, knocking stocks down 500 points. Housing and transportation were the big badges. Hopes of a June interest rate cut have been dashed. September is now the earliest. Avoid (TLT).

Producer Price Index Comes in Cold at 0.2% for March. On a 12-month basis, the PPI rose 2.1%, the biggest gain since April 2023, indicating pipeline pressures that could keep inflation elevated. Stocks rallied 200 points.

US Dollar Rockets on Hot CPI, hitting a new 34-year high against the Japanese yen at ¥151.55. Bank of Japan's intervention to support the yen is expected. Yen shorts in the futures market hit a five-month high. Avoid (FXY).

China Continues Record Gold Buying, soaking up record amounts. Central banks bought a record 1,082 metric tonnes of gold in 2023. The Bank of China bought a record 735 tonnes of gold in 2023, two-thirds of which were purchased through covert third-party middlemen. An additional 1,411 tonnes, likely to bypass a collapsing Yuan, and a whopping 228 tonnes in January 2024 alone. This is what delivered the barbarous relic’s decisive upside breakout from a three-year trading range. This dwarf’s the record 1,082 metric tonnes of gold global central banks bought in 2023. The world gold market has been taken short and prices will continue to rise.

Gold Derivatives are Now Wagging the Dog. There are 187,000 metric tonnes of gold above ground worth a mere $14.4 billion which price is 50 times that figure in paper derivatives, like ETFs, futures contracts, and options. A metric tonne of gold today is worth $77 million. That increases the barbarous relic’s volatility once it breaks out of long-term trading ranges, which it has just done. With new volatility eventually, some bodies have to float to the surface. The bad news is that this may also be a signal that China will invade Taiwan. Buy (GLD) on dips.

Oil (USO) Spikes on New Iran War Threats, sending Brent to $92, a new 2024 high. Gold (GOLD) and silver (WPM) have gone ballistic as well. Hang on for higher highs.

JP Morgan Misses on Earnings, tanking the shares by $10. The firm earned $23.1 billion in net interest income in the first three months of 2024, up 11% from a year earlier. The bank’s NII haul ended a streak of seven quarters where it posted record levels of the metric. The bank cited deposit margin compression — tightening of profits between what the bank earns on loans and pays out on deposits — and lower deposit balances in the consumer business for the sequential decline. Buy (JPM) on dips.

China’s International Trade Collapses. Exports from China slumped 7.5% year-on-year last month by value, the biggest fall since August last year. They had risen 7.1% in the January-February period.

Hong Kong's major indexes extended losses to more than 2%.

Chinese exporters are continuing to slash prices to maintain sales amid stubbornly weak domestic demand. Avoid (FXI).

Tesla Cancels Model 2, a key part of the bull story for (TSLA). Elon Musk says “Not so fast” and instead highlights the company’s move into robotic self-driving cars. Don’t be so dismissive, as Waymo completed an eye-popping 100,000 robotic taxi rides in San Francisco in December, many with thrilled first-time users. The stock held up incredibly well on awful news indicating that it believes Elon and not the media. Buy (TSLA) on dips.

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, April 15, at 7:00 AM EST, the US Retail Sales are announced.

On Tuesday, April 16 at 8:30 AM, US Housing Starts are released.

On Wednesday, April 17 at 2:00 PM, the Beige Book notes from the previous Fed meeting are published

On Thursday, April 18 at 8:30 AM, the Weekly Jobless Claims are announced. At 10:00 AM, Existing Home Sales are out.

On Friday, April 19 at 2:00 PM, the Baker Hughes Rig Count is printed.

As for me, with the spectacular popularity of the Oppenheimer movie, I thought I’d review my own nuclear past. 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 client George Soros provided a $50 million grant to hire every Soviet nuclear engineer. The fear then was that starving homeless scientists would go to work for Libya, North Korea, or Pakistan, which all had active nuclear programs at the time.

They ended up here instead. I just might be that the guy standing next to you in line at Safeway with a foreign accent who knows how to design a state-of-the-art nuclear bomb.

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 a radioactive 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 20s and 30s, 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 actually started in the nuclear biz during the early 1970s when my math professor recommended me for a job there. In those days, mathematicians had only two choices. Teach or work for the Defense Department. As I was sick of school, I chose the latter.

That led me to drive down a bumpy dirt road in Mercury, Nevada to the Nuclear Test Site where underground testing was still underway. There were no signs. You could only find the road marked by four trailers occupied by hookers who did a brisk business with the nearly all-male staff. My fondest memory was the skinny dipping that took place after midnight in a small pool when the MPs were on break.

I was recently allowed to visit the Trinity site at the White Sands Missile Test Range, the first outsider 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 steel targets hundreds of yards away were thrown about like toys (they are still there). Half the 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 and 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

What’s Left from the Original Test

Good Luck and Good Trading,

John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader

April 15, 2024/by april@madhedgefundtrader.com

March 25, 2024

Tech Letter

Mad Hedge Technology Letter
March 25, 2024
Fiat Lux

Featured Trade:

(REGULATIONS REGULATE TECH)
(AAPL), (GOOGL), (META)

March 25, 2024/by april@madhedgefundtrader.com

Regulations Regulate Tech

Tech Letter

I’m not saying the time is up for big tech.

The Magnificent 7 are still by and far great companies who print money.

They dominate in a way that was unfathomable just a generation ago.

Trillion-dollar companies are now commonplace in tech and we have pushed into valuations of over 2 and pushing towards $3 trillion.

Success like this easily could make them easy targets and that is what has become of them in Europe as Apple (AAPL), Google (GOOGL), and Meta (META) are in the firing line under the sweeping new Digital Markets Act tech legislation.

Apple has already been slapped on the wrist quite hard with a $2 billion fee after the European Commission said it found that Apple had applied restrictions on app developers that prevented them from informing iOS users about alternative and cheaper music subscription services available outside of the app.

In a third inquiry, the commission said it is investigating whether Apple has complied with its DMA obligations to ensure that users can easily uninstall apps on iOS and change default settings. The probe also focuses on whether Apple is actively prompting users with choices to allow them to change default services on iOS, such as for the web browser or search engine.

The fourth probe targets Alphabet, as the European Commission looks into whether the firm’s display of Google search results to choosing its own products over other services.

The fifth and final investigation focuses on Meta and its so-called pay and consent model. Last year, Meta introduced an ad-free subscription model for Facebook and Instagram in Europe. The commission is looking into whether offering the subscription model without ads or making users consent to terms and conditions for the free service is in violation of the DMA.

If any company is found to have infringed the DMA, the commission can impose fines of up to 10% of the tech firms’ total worldwide turnover. These penalties can increase to 20% in case of repeated infringement.

Preferring one’s own product from companies like Apple, Amazon, and Google is not a shocking phenomenon. Business can be a dirty game and self-selecting ones products because they own the platform they are sold on is almost common knowledge to the average consumers.

Organizational bodies like the European Commission have an incentive to fine American tech companies that do business in Europe.

Europe has no alternative apps and aren’t competitive in the tech space.

The desperate reach of European bureaucracy has decided to just steal the money in the form of tech fines instead.

One big takeaway that sticks out like a sore thumb is the clear trend to the low-hanging fruit being plucked.

The incremental dollar will be harder to earn for big tech as regulatory commissions around the world zone in on their anti-competitive practices.

I doubt that fines will get so big to the point that these tech firms will go bankrupt, but this could set the stage for a slew of earnings misses which could knock down the share prices.

I still believe these stocks are buys, but only after they are beaten down and repriced.

I wouldn’t go chasing here with regulatory issues rearing its ugly head and revenue forecasts disappointing.

If I had to choose one to avoid then it would be Apple.

March 25, 2024/by april@madhedgefundtrader.com

March 25, 2024

Diary, Newsletter, Summary

Global Market Comments
March 25, 2024
Fiat Lux

Featured Trade:

(MARKET OUTLOOK FOR THE WEEK AHEAD, or THE BEST WEEK OF THE YEAR),
(PANW), (NVDA), (LNG), (UNG), (FCX), (TLT), (XOM), (AAPL), (GOOG), (MSTR), (BA), (FXY)

March 25, 2024/by april@madhedgefundtrader.com

The Market Outlook for the Week Ahead, or The Best Week of the Year

Diary, Newsletter

You need to have a sense of humor and a strong dose of humility to work in this market. After predicting last week that the market would NOT crash but grind sideways, it then posted the next week of the year. Stocks are actually accelerating their move to the upside.

Of course, we got a big assist from Fed Governor Jay Powell who practically wrote in his own blood a promise that interest rates would be cut at least three times by the end of the year. That is quite a gesture, and all risk assets loved it, even the ones that have been asleep for a year, like gold (GLD) and silver (SLV).

Miraculously, this does happen and there has been a big one over the last two years that nobody knows about.

Cheniere Energy (LNG) shipped 640 tankers full of natural gas (UNG) to Europe last year and 630 in 2022. One tanker provides enough gas to heat one million homes for a month. You can do the math. In total, it has sent out 3,400 tankers since 2016, mostly to China.

When Russia invaded Ukraine in 2022, Europe was totally dependent on Vladimir Putin for gas. Any doubt about the Russian supply was ended when the Nordstream undersea pipeline was mysteriously blown up. A total cut-off would have been an economic disaster and caused the collapse of NATO.

Two years ago, it was believed that even if we could get the gas to Europe, there were no facilities to liquefy natural gas as it is shipped back into natural gas. Then 16 floating de-liquefaction plants showed up out of nowhere.

Natural gas demand has been soaring in the US as well. Over the past 20 years, coal has dropped from generating 50% of the US electric power supply to only 19% (the unused American share of the coal was sold to China). That has eliminated 500 million tons of carbon dioxide from entering the atmosphere.

If you noticed that the skies over American cities are getting clearer, this is the reason.

Much has been made over Biden’s “pause” of permitting for new natural gas facilities. The reality is that it will take four years to build the 16 new gas export facilities that have already been approved. By then, we’ll have a new president. All Biden did was throw a bone at the environmental wing of his party. Such are the ways of Washington.

By the way, the Republican Party now has an environmental wing too. Who knew? It’s all proof that if you live long enough, you see everything.

One of the reasons I have been in love with cybersecurity stocks like Palo Alto Networks (PANW) for the past decade is that hacking is the ultimate growth industry. It never goes out of style, is recession-proof, and is growing at an exponential rate.

It is also getting more sophisticated. The big hackers are franchising their business models, inviting in criminals with minimal computer knowledge, vastly increasing their numbers. They are attacking small vendors to large companies to get access to the big ones. They are also picking targets too poor to afford the big cybersecurity companies. The City of Oakland is a classic example, which was prevented from paying its teachers for six months. And now they have AI.

Spending on cybersecurity is expected to grow from $188 billion in 2023 to $215 billion this year, a gain of 14.36%. The number of data breaches has rocketed by 78% over the past two years. Buy (PANW) on dips, which we are seeing right now.

“We’re going to need a bigger GPU” to borrow a famous line from Stephen Spielberg’s blockbuster Jaws.

If you want a peak at the future, both of our own and NVIDIA stock, check out the company’s latest entry into the chip wars, the $50,000 Blackwell GPU, available in a few months. In layman’s terms, it offers four times the computing ability but requires only one-quarter of the electric power, which is increasingly becoming an AI issue. It also uses deep learning to write its own software.

The chip was introduced by CEO Jensen Huang at the Developers conference in San Jose, which I attended in a venue normally occupied by rock stars. Huang started the conference by warning he was not there to sing. But perform he did, accompanied by a group of dancing robots powered by AI.

And while NVIDIA’s sales have tripled over the past year, you ain’t seen anything yet. When I recommended (NVDA) for the millionth time at $400 a share last October, my long-term target was $1,000. It recently hit $975, now stands at $943, and shows no sign of abating. NVIDIA could well keep powering on until the actual release of the Blackwell chip.

As in Jaws, I sense a feeding frenzy coming and (NVDA) shorts are the bait.

In February we closed up +7.42%. So far in March, we are up +3.53%. My 2024 year-to-date performance is at +6.67%. The S&P 500 (SPY) is up +9.22% so far in 2024. My trailing one-year return reached +56.98% versus +52% for the S&P 500.

That brings my 16-year total return to +683.30%. My average annualized return has recovered to +51.57%.

Some 63 of my 70 round trips were profitable in 2023. Some 11 of 19 trades have been profitable so far in 2024.

I miniated no new longs last week, content to let my existing longs run in Freeport McMoRan (FCX), bonds (TLT), and ExxonMobile (XOM). I am 70% in cash given the elevated state of the market and am looking for new commodity and energy plays to pile into.

Fed Chair Jay Powell Promises Three Interest Rate Cuts of 25 basis points each, at his press conference on Wednesday. Powell said he did not see "cracks" in the labor market, which he described as "in good shape," noting that "the extreme imbalances that we saw in the early parts of the pandemic recovery have mostly been resolved." These are very pro-risk statements. Buy the dips in everything.

Fed to Dial Back Quantitative Tightening, or QT from the current $120 billion a month. It’s a huge plus for risk assets and explains why the most liquidity-driven ones like gold and silver had such a great day. Buy (GLD) and (SLV) on dips.

The Dept of Justice Goes After Apple on Antitrust, on its 61.3% share of the US smartphone market. It accused the iPhone maker of blocking rivals from accessing hardware and software features on its popular devices. Google’s (GOOG) Android actually has a bigger global market share at 70.3% with Apple at only 24%. This is another waste of time that will last ten years and go nowhere.

Bank of Japan to Cut Interest Rates as Early as April, bringing to an end a 34-year stimulus program that was a dismal failure. The Japanese yen (FXY) should rocket, but Japanese stocks not so much.

MicroStrategy (MSTR) Dives 18%, the largest owner of Bitcoin, on a crypto correction. MicroStrategy is the largest corporate owner of Bitcoin. (MSTR) just completed a massive borrowing to buy more crypto at the top. After SEC approval of ETFs and the imminent halving, what is left to drive crypto? Avoid (MSTR) which was blindsided by the last 90% crypto correction.

Existing Homes Sales Soar 9.7% in February to 4.38 million units, on a seasonally adjusted annualized basis. Inventory rose 5.9% year over year to 1.07 million homes for sale at the end of February. That represents a still low 2.9-month supply at the current sales pace. Higher demand continued to push the median price higher, up 5.7% from the year before to $384,500.

Home Prices Have Risen by 2.4 Times the Inflation Rate Since 1960. The cost of a typical house in the U.S. is nearly half a million dollars: the median price for a home in the U.S. is $412,778, according to Redfin data. That’s what successful demographic tailwinds leading to a chronic housing shortage get you.

Boeing is Leasing 36 Airbuses, to meet its own unfilled orders caused by production delays. Another panel fell off an airborne plane last week in Medford, OR. Looking for missing parts has become a regular part of every Boeing landing. This is an act of desperation. Avoid (BA)

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 25, at 7:00 AM EDT, the US Building Permits are announced.

On Tuesday, March 26 at 8:30 AM, S&P Case Shiller for February is released.

On Wednesday, March 27 at 11:00 AM, the MBA Mortgage Data is published

On Thursday, March 28 at 8:30 AM, the Weekly Jobless Claims are announced. The final read of the Q2 US GDP is also out.

On Friday, March 29 at 2:00 PM, Personal Income and Spending is out. The Baker Hughes Rig Count is printed.

As for me, as I am about to take off for Cuba to visit Finca Vigia (Lookout Farm), the home of Earnest Hemingway and Martha Gellhorn I thought I’d review my long history with this storied family. This is where he finished For Whom the Bells Toll, his epic novel about the Spanish Civil War.

My grandfather drove for the Italian Red Cross on the Alpine front during WWI, where Hemingway got his start, so we had a connection right there going back over 100 years.

Since I read Hemingway’s books in my mid-teens, I decided I wanted to be him and became a war correspondent. In those days, you traveled by ship a lot, leaving ample time to finish off his complete work.

I visited his homes in Key West and Ketchum Idaho. In 2023, he stayed at his Hotel Poste room in Cortina, Italy where he lived for five months during the 1950s. His Cuban residence was high on my list, now that Castro is gone.

I used to stay in the Hemingway Suite at the Ritz Hotel on Place Vendome in Paris where he lived during WWII. I had drinks at the Hemingway Bar downstairs where war correspondent Ernest shot a German colonel in the face at point-blank range. I still have the ashtrays.

Harry’s Bar in Venice, a Hemingway favorite, was a regular stopping-off point for me. I have those ashtrays too.

I even dated his granddaughter from his first wife, Hadley, the movie star Mariel Hemingway, before she got married, and when she was still being pursued by Robert de Niro and Woody Allen. Some genes skip generations and she was a dead ringer for her grandfather. She was the only Playboy centerfold I ever went out with. We still keep in touch.

So, I’ll spend the weekend watching Farewell to Arms….again, after I finish this newsletter.

Oh, and if you visit the Ritz Hotel today, you’ll find the ashtrays are now glued to the tables.