Global Market Comments
July 15, 2024
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or SEA CHANGE), (BB RATED BANKS LOANS), and (RESCUING THE USS POTOMAC),
(TLT), (JNK), (SLRN), (BRLN), (BKLN), (FFRHX), (WES), (CCI), (GLD), (DE), (BRK/B), (TSLA), (NVDA).
I believe there was a major sea change in the markets last week, which has taken the economy from inflation to deflation. All asset classes performed as they should, with some extreme moves. It is now time to focus on the 493 of the S&P 500 and let the Magnificent Seven take a long-needed rest.
Not only does this pave the way for a Fed interest rate cut in September, but several more to follow. This opens the floodgates for the (TLT) to rise above $100 by yearend, and maybe even to $110. Remember the old high for bonds is $166. Higher beta fixed-income plays will rise much more.
Stocks will keep rising but with different leadership from dozens of interest-sensitive sectors, including real estate, their suppliers, industrials, precious metals, financials, energy, and outright value plays long left in the doghouse. If you can’t grasp these new trends, your portfolio will be out to sea shortly. An S&P 500 of 6,000 looks like a pretty safe bet by yearend.
That brings to the fore investment in fixed-income securities. There are two ways to make money on a fixed income. Coupon interest rates are still at historically high levels. And as rates fall, fixed-income prices rise, opening the door to capital gains, which could reach 10%-20% in the coming year.
The fixed-income market at $100 trillion is double the size of the stock market. And there are many more bond listings than stock ones. So the number of possible investments is almost endless. I shall give you a brief overview of some of the more interesting subsectors.
US Government bonds – are the gold standard with a guaranteed return. But you pay for the extra security with lower rates; the current ten-year US Treasury bond yield is 4.20%, much lower than the present 90-day T-bill of 5.21%. The easiest way to buy these is through the (TLT). The 30-year government bond should be avoided as the extra 0.14% in yield doesn’t adequately compensate you for the extra 20 years of risk
Junk Bonds – Also known as “high yield” bonds have always been misnamed. The default rates never remotely approached the levels that justified their high yields, not even during the financial crisis, as my old friend former junk bond king Michael Milliken has amply proven. The (JNK) is currently yielding 6.59% and has the potential for larger capital gains than government bonds.
Master Limited Partnerships – These are partnerships granted generous tax benefits with the goal of producing oil. They issue annual Form K-1’s to include with your tax return. Dividends are deferred until the MLP’s investment reaches the end of its useful life, which can be decades. MLPs used to be a huge industry with dozens of listed companies.
When the price of oil went to negative numbers during the pandemic, most of them got wiped out. Because of this rocky past, there are a handful of large, well-capitalized MLPs with extremely high yields. One is Western Midstream Partners (WES) with a 9.20% yield. Energy Transfer Partners (ET) pay a 7.96% yield.
These yields will remain safe as long as oil prices are stable or rising, as I expect in a long-term global economic recovery. Take oil back to zero again in another pandemic and these returns will get turned on their head.
With the normalizing of interest rates, it's time to normalize investment strategies as well. That means bringing back the old 60/40 strategy where one half of the portfolio ensures the other, with a modern twist. You can put 60% of your assets in stocks, with half on technology and half on domestic cyclicals.
The other 40% should be allocated to some mix of the above fixed-income investments guaranteeing annual high returns. It is not a bad strategy for mature investors, especially if they would rather be on a golf course instead of spending all day in front of a screen picking bottoms and tops for stocks, like Millennials.
Here’s where to get a Safe 8.48% Yield, BB-rated bank loans, which will soar in value with even just one quarter-point rate cut. BB bank loans are very low risk, and they have a spread that’s about 290 basis points above the overnight Fed rate. How does one buy such an animal? The actual bank loans themselves are made by lending institutions to companies. These loans aren’t made accessible to individual investors who want to make a play for yield. Rather, large institutional investors snap them up and add them to their fixed-income portfolios. The top ticker symbols are (SLRN), (BRLN), (BKLN), and (FFRHX). Check them out.
So far in July, we are up +2.17%. My 2024 year-to-date performance is at +22.19%. The S&P 500 (SPY) is up +17.40% so far in 2024. My trailing one-year return reached +37.07.
That brings my 16-year total return to +698.82%. My average annualized return has recovered to +51.44%.
I used the blockbuster CPI Report last week to jump off my 100% cash position and piled on six new positions. Those included interest rate-sensitive longs in (CCI), (GLD), (DE), (BRK/B), and shorts in big tech leaders (TSLA) and (NVDA).
Some 63 of my 70 round trips were profitable in 2023. Some 35 of 44 trades have been profitable so far in 2024, and several of those losses were really break-even.
Nonfarm Payroll Report Comes in Weak for June at 206,000. The Headline Unemployment rate rose to a three-year high at 4.1%. All interest rate plays rocketed as a September interest rate comes back on the table. If the Fed doesn’t cut soon, we are going into recession. Buy (TLT) on dips.
Fed Governor Jay Powell Warns of Recession Risks if interest rate cuts don’t take place soon, spiking all markets. Powell is showing his cards for the next few Fed Meetings. Buy all interest rates plays like (TLT), (JNK), (NLY), and (CCI).
CPI comes in Negative. The writing is not only on the wall right now, it’s blasting us with great neon lights. That was the message this morning from the Consumer Price Index, which this morning delivered a gob-smacking 0.1% DECLINE in June. We are now in deflation and the YOY inflation rate is now down to only 3.0%. As a result, a Fed interest rate cut of 25 basis points is now a certainty in September and more will follow. All falling interest rate plays in the stock market are in play. Rising rate plays could be the trade for the rest of 2024.
PPI Rises 0.2%, with Wholesale Prices coming in as expected. The producer price index is now up 2.6% year over year. The inflation pictures goes back to mixed. Stocks rallied with big tech recovering about half of yesterday’s losses.
Consumer Sentiment at a Three-Year Low at 66.0%, down from 68.5 as the economic slide continues, according to the University of Michigan. It’s another pre-recession indicator.
Bank Earnings Beat and the stocks are rising in expectation of falling interest rates, with (JPM), (BAC), and (C) reporting. Wells Fargo (WFC) Bombed again. Buy banks on dips which have been on a tear all day.
Tesla Delays Robotaxi Day, past its original August 8 target to probably October, tanking the shares by 11%. The date propelled the massive 50% rally in the hares over the past month. Musk is always overly aggressive on his targets. Sell calls against existing (TSLA) stock positions.
Apple Expects 10% Rise in iPhone Shipments in 2024, after a bumpy 2023, counting on AI features to fuel demand for the iPhone 16. Apple is now the newly discovered AI stock. Buy (AAPL) 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, July 15 at 9:30 AM EST, Feder Governor Jay Powell speaks. He has lately been leaning dovish.
On Tuesday, July 16 at 9:30 AM, Retail Sales are published.
On Wednesday, July 17 at 9:30 AM, Building Permits are out.
On Thursday, July 18 at 8:30 AM, the Weekly Jobless Claims are announced.
On Friday, July 19 at 2:00 PM, the Baker Hughes Rig Count is printed.
As for me, I usually get a request to fund some charity about once a day. I ignore them because they usually enrich the fundraisers more than the potential beneficiaries. But one request seemed to hit all my soft spots at once.
Would I be interested in financing the refit of the USS Potomac (AG-25), Franklin Delano Roosevelt’s presidential yacht?
I had just sold my oil and gas business for an outrageous profit and had some free time on my hands so I said, “Hell Yes,” but only if I get to drive. The trick was to raise the necessary $5 million without it costing me any money.
To say that the Potomac had fallen on hard times was an understatement.
When Roosevelt entered the White House in 1932, he inherited the presidential yacht of Herbert Hoover, the USS Sequoia. But the Sequoia was entirely made of wood, which Roosevelt had a lifelong fear of. When he was a young child, he nearly perished when a wooden ship caught fire and sank, he was passed to a lifeboat by a devoted nanny.
Roosevelt settled on the 165-foot USS Electra, launched from the Manitowoc Shipyard in Wisconsin, whose lines he greatly admired. The government had ordered 34 of these cutters to fight rum runners across the Great Lakes during Prohibition. Deliveries began just as the ban on alcohol ended.
Some $60,000 was poured into the ship to bring it up to presidential standards and it was made wheelchair accessible with an elevator, which FDR operated himself with ropes. The ship became the “floating White House,” and numerous political deals were hammered out on its decks. Some noted guests included King George VI of England, Queen Elizabeth, and Winston Churchill.
During WWII Roosevelt hosted his weekly “fireside chats” on the ship’s short-wave radio. The concern was that the Germans would attempt to block transmissions if the broadcast came from the White House.
After Roosevelt’s death, the Potomac was decommissioned and sold off by Harry Truman, who favored the much more substantial 243-foot USS Williamsburg. The Potomac became a Dept of Fisheries enforcement boat until 1960 and then was used as a ferry to Puerto Rico until 1962.
An attempt was made to sail it through the Panama Canal to the 1962 World’s Fair in Seattle, but it broke down on the way in Long Beach, CA. In 1964 Elvis Presley bought the Potomac so it could be auctioned off to raise money for St. Jude Children’s Research Hospital. It sold for $65,000. It then disappeared from maritime registration in 1970. At one point, there was an attempt to turn it into a floating disco.
In 1980, a US Coast Guard cutter spotted a suspicious radar return 20 miles off the coast of San Francisco. It turned out to be the Potomac loaded to the gunnels with bales of illicit marijuana from Mexico. The Coast Guard seized the ship and towed it to the Treasure Island naval base under the Bay Bridge. By now, the 50-year-old ship was leaking badly. The marijuana bales soaked up the seawater and the ship became so heavy it sank at its moorings.
Then a long rescue effort began. Not wanting to get blamed for the sinking of a presidential yacht on its watch, the Navy raised the Potomac at its own expense, about $10 million, putting its heavy lift crane to use. It was then sold to the City of Oakland, CA for a paltry $15,000.
The troubled ship was placed on a barge and floated upriver to Stockton, CA, which had a large but underutilized unionized maritime repair business. The government subsidies started raining down from the skies and a down to the rivets restoration began. Two rebuilt WWII tugboat engines replaced the old, exhausted ones. A nationwide search was launched to recover artifacts from FDR’s time on the ship. The Potomac returned to the seas in 1993.
I came on the scene in 2007 when the ship was due for a second refit. The foundation that now owned the ship needed $5 million. So, I did a deal with National Public Radio for free advertising in exchange for a few hundred dinner cruise tickets. NPR then held a contest to auction off tickets and kept the cash (what was the name of FDR’s dog? Fala!).
I also negotiated landing rights at the Pier One San Francisco Ferry Terminal, which involved negotiating with a half dozen unions, unheard of in San Francisco maritime circles. Every cruise sold out over two years, selling 2,500 tickets. To keep everyone well-lubricated, I became the largest Bay Area buyer of wine for those years. I still have a free T-shirt from every winery in Napa Valley.
It turned out to be the most successful fundraiser in the history of NPR and the Potomac. We easily got the $5 million and then some. The ship received a new coat of white paint, new rigging, modern navigation gear, and more period artifacts. I obtained my captain’s license and learned how to command a former Coast Guard cutter.
It was a win-win-win.
I was trained by a retired US Navy nuclear submarine commander, who was a real expert at navigating a now thin-hulled 73-year-old ship in San Francisco’s crowded bay waters. We were only licensed to cruise up to the Golden Gate Bridge and not beyond, as the ship was so old.
The inaugural cruise was the social event of the year in San Francisco with everyone wearing period Depression-era dress. It was attended by FDR’s grandson, James Roosevelt III, a Bay area attorney who was a dead ringer for his grandfather. I mercilessly grilled him for unpublished historical anecdotes. A handful of still-living Roosevelt cabinet members also came, as well as many WWII veterans.
As we approached the Golden Gate Bridge, some poor soul jumped off and the Coast Guard asked us to perform search and rescue until they could get a ship on station. Nobody was ever found. It certainly made for an eventful first cruise.
Of the original 34 cutters constructed, only four remain. The other three make up the Circle Line tour boats that sail around Manhattan several times a day.
Last summer, I boarded the Potomac for the first time in 14 years for a pleasant afternoon cruise with some guests from Australia. Some of the older crew recognized me and saluted. In the cabin, I noticed a brass urn oddly out of place. It contained the ashes of the sub-commander who had trained me all those years ago.
Good Luck and Good Trading,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Captain Thomas at the Helm
Global Market Comments
July 11, 2024
Fiat Lux
Featured Trade:
(JULY 10 BIWEEKLY STRATEGY WEBINAR Q&A),
(TSLA), (NVDA), (COPX), (CMG), (TLT), (TBT)
Below please find subscribers’ Q&A for the July 10 Mad Hedge Fund Trader Global Strategy Webinar, broadcast from Incline Village NV.
Q: Is the Fed waiting too long to cut interest rates?
A: Yes, they are. We are on a recession track if the Fed doesn’t move soon. In other words, the light at the end of the tunnel isn’t daylight—it’s an oncoming train. So, I think a September rate cut is a certainty. They want to see tomorrow’s data and make sure it’s cool. They need several months of really cool inflation data to justify the first rate cut and we probably are going to get that, so next update is tomorrow with the latest CPI number is crucial. Everybody’s sitting on their hands until then.
Q: When will NVIDIA (NVDA) hit a $4 trillion market valuation?
A: By the end of the year. We’re currently at $3.3 trillion, so another $700 billion is nothing for NVIDIA—you could do that in a day if you really wanted to. But give it until the end of the year, just to be conservative. The fact is, they have a global monopoly on the highest-priced product that everybody in the world has to buy or go out of business. It’s not a bad place to be—it’s kind of like where John D. Rockefeller was in the oil industry around 1900.
Q: What do you think about copper (COPX)? Should I maintain my longs?
A: Yes, all we need is further proof of falling interest rates and the entire commodities/precious metals sectors will take off like a rocket. So just sit with your positions. I put out a piece yesterday on copper. All that shines is not Copper, and it’s not dead it’s just resting, like the proverbial John Cleese parrot.
Q: Do you think a 10% stock market correction is likely before the election?
A: No, the most we’ve been able to get this year is 4% or 5% pullbacks, but not much more. We have a world with a cash glut that is underinvested in the face of a global monetary easing. Investors have been net sellers of stocks all of last year, so we were ripe for a meltup, which has, in fact, happened every day so far in July. So no, my S&P 500 target of 6,000 for the end of the year is starting to look too conservative given the moves that we’ve made lately. I’m very positive about that.
Q: Is the real estate market about to crash?
A: Well, the Florida housing collapse that is being driven by the insurance industry feeing that state. Insurance companies don’t like the hurricane risk going forward, which can cost tens of billions of dollars per event. Nobody there can get insurance anymore unless they pay outrageous amounts of money. Some people are only buying fire insurance to save money and skipping the storm insurance and rolling the dice, hoping the storms hit somewhere else in Florida. The fact is, you can’t get a home mortgage without insurance. Banks aren't willing to take the environmental risk of a house without insurance. No insurance means no bank loans, which means the market shrinks to a cash-only market. And there is a cash-only market in Florida, but it’s not at the $500,000 level, it’s more at the $50 million level. So that is a problem unique to Florida. Could it spread to other areas? Yes. Texas is having another energy crisis, as it has twice every year, ever since the power system was privatized there. No reserves for emergencies, no contingency, nothing that costs money basically. And then California definitely has a wildfire problem, although we’ve been getting off pretty light last year and this year. But the insurance companies don’t think like that. They are the classic 20/20 hindsight type companies.
Q: What’s the impact of the election on the market?
A: Zero. But it will defer buying until after the election. So if you have a 50/50 split on polls, uncertainty is at a maximum. People don’t like investing in uncertainty, they like sure things. After the election, you can expect a massive melt-up in the market no matter who wins because the uncertainty will be gone, and tech stocks will lead once again.
Q: What should I do with Nvidia (NVDA)?
A: I put out a report on this on Monday. You keep your long and write calls against them. And you can get quite a lot of money for just the August calls. I think the August $140 calls were selling for $3.50—they’re higher than that now, so you could even go out to August $145, and just keep doing that every month. If Nvidia takes off and you get taken out of your stock, you’re selling it essentially at $143.50. So that is an excellent trade—a lot of the big institutions are doing that now.
Q: Tesla's (TSLA) been on a big rally for the past month; do you expect it to continue?
A: I expect it to take a break, but the long-term uptrend is now back for good, for lots of different reasons. The immediate headline reason was because the Chinese government allowed the buying of Teslas for the first time—they are made in China after all. Second, they had a good earnings beat, so this caused a massive short-covering rally. The shorts got crushed by Tesla once again, as they have been consistently doing for the last 15 years, really. I saw a number of cumulative losses on short positions on Tesla stock since inception: $100 billion. Most of those losses were incurred by oil companies trying to put Tesla out of business.
Q: What do you call a substantial dip?
A: It’s different for every stock—for some it’s 2%, for others like Tesla or Nvidia it’s 20%. It depends on the volatility of the stock; you just have to look at the charts and make your own call.
Q: What do you think for the next earnings season?
A: It’ll be great for technology stocks and not so great for domestics as their businesses cool off.
Q: Is there anything Europe and American EV producers can do to compete against the Chinese at these lower prices?
A: Yes: keep quality high, therefore profits high, therefore profit margins high. That was the Japanese strategy in the US from the 1980s onwards, and it was hugely successful. You can cede the money-losing part—the low-end part of the market, to the Chinese. The quality of the Chinese EVs is terrible, they start to fall apart after four years, and I learned this from several Chinese EV drivers in Ecuador where they have a substantial market share already. But at $15,000 plus the shipping, you don’t make a lot of money in EVs.
Q: Is it a good time to buy put LEAPS on the ProShares UltraShort 20+ Year Treasury (TBT)?
A: Yes, especially if you’re willing to do an at-the-money and bet that the interest rates stay here or lower for the next year. You’d probably get a 100% return on that, but why bother? Because on the TBT itself, you have a much wider trading spread than the (TLT), therefore the dealing costs are higher. You might as well just go and do the long (TLT) LEAP instead.
Q: Chipotle Mexican Grill (CMG) stock has been really successful for the last five years, but it just dropped 20%, should I get in?
A: It’s a very low-margin business—I avoid those. There’s not a lot of meat in the burrito business. It doesn’t have the key elements of success. (Not just Chipotle, but with the whole industry.) It's not like you’re designing 96 stock microprocessors.
Q: Are AI stocks overhyped at this point?
A: Absolutely yes, but they can stay overhyped for another three or four years, so I think we're just at the beginning of a very long-term run. And the people who have been involved so far are making the biggest money in their lives.
To watch a replay of this webinar with all the charts, bells, whistles, and classic rock music, just log in to www.madhedgefundtrader.com , go to MY ACCOUNT, click on GLOBAL TRADING DISPATCH, then WEBINARS, and all the webinars from the last 12 years are there in all their glory.
Good Luck and Stay Healthy
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Mad Hedge Technology Letter
July 8, 2024
Fiat Lux
Featured Trade:
(ARM SHINES BRIGHT)
(ARM), (NVDA), (AMD)
With the US Central Bank’s policy being quite accommodative, this advantageous backdrop has really set the platform for certain strategic tech companies to shine on the public markets.
In particular, chip stocks have been the darlings of the AI revolution and will continue to be in the limelight.
Part of this is about investors not knowing in particular what software firms will benefit from AI.
It is really a crapshoot to know how the software will look like in the future, but investors do know that software will be powered by the backend infrastructure which is why AI chips are fetching a premium at market in today’s stock market.
Once the software part of it starts to reveal itself, then it is highly likely the software winners will start to experience the same sort of price appreciation in shares that AI chip companies are experiencing right now.
That trend reversal is still years off so it is better to spend our energy on chip stocks.
The no-brainers are the likes of Nvidia and AMD, but the lineup is dee.
Look at the 2nd and 3rd tier of chip stocks like British chip company ARM (ARM).
Arm is also right in the mix of the AI boom. The positive market sentiment toward AI advancements continues to propel Arm's stock upwards. Furthermore, the company's former focus on low-power embedded and mobile chips is changing before your eyes. These days, you'll find Arm-based chips all over modern data centers and PC systems.
The broader market dynamics also played a role in Arm's rise. A softer-than-expected jobs report in May fueled hopes for potential interest rate cuts by the Federal Reserve, which would benefit growth stocks. The semiconductor sector is full of growth stories, including Arm.
Industry news also contributed to Arm's strong performance. Reports that Taiwan Semiconductor Manufacturing was investing in extreme ultraviolet lithography suggested a robust demand for next-generation chip technologies. As TSMC is a leading manufacturer of Arm-based chips, this investment indicated a positive outlook for Arm's future growth.
Arm's strategic positioning in the AI ecosystem highlights its potential for sustained growth. The company's advanced v9 architecture and its power-efficient processor platforms are increasingly interesting to major industry players, strengthening Arm's competitive edge in the semiconductor market.
ARM and its ticker symbol were added to the Nasdaq-100 Index on June 24.
This move guarantees more capital flow into ARM as it becomes part of a bigger ETF meaning pension and institutional money will own a piece of ARM and help the stock rise.
Arm's rapid inclusion in the index after an initial public offering last September reminds investors of its growing importance in the global technology ecosystem. As CEO Rene Haas highlighted in that announcement, this achievement validates Arm's business strategy and its critical role in providing foundational compute solutions for AI workloads.
Don’t forget that ARM agreed to be purchased by Nvidia which speaks volumes of what Nvidia believes about ARM.
Unfortunately for both, the deal was shut down due to regulatory issues, and imagines the future trajectory of ARM if that deal went through.
In the past 365 days, the stock is up over 200% and just looking at a 2024 chart, readers can understand how investors have complete belief in the future of ARM.
ARM will continue to maintain an important position in the future of AI and they are a juicy takeover target.
I do believe that AI stocks like ARM will continue to grind up, but we are inching closer to a point where investors will take profits before the next leg up.
Global Market Comments
July 8, 2024
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD,
and NORTH TO ALASKA),
(NVDA)
Yes, I’m back from the Frozen Wasteland of The North.
Except it was anything but a wasteland. It was far more beautiful than I remember 57 years ago. In a world beset with accelerating change everywhere, Alaska is unchanged from the primordial age. It is a natural paradise blessed with spectacular scenery and filled with wild animals.
But more on that later.
Now on with the most important question of the day.
What to do about NVIDIA?
Those who heeded my advice to load up on the Silicon Valley graphics card maker are facing a dilemma. (NVDA) is now such an outsized share of the entire stock market, some 6% of the S&P 500. Even if you don’t own (NVDA) directly, if you are an index investor in the (SPX), it is still your largest holding.
If you sell NVIDIA and it doubles again, you look like an idiot. If you hold it and it drops by half, you look like a bigger idiot. Here is my five cents worth. It will do both in the coming years.
Fortunately, there is another solution. Sell short (NVDA) out-of-the-money calls against your existing long stock position. If the shares rise, you will think you died and went to heaven. If it falls, at least your cost basis falls by the amount of option premium you received.
I’ll give you an example.
Let’s say you still have 100 shares of (NVDA) that no one has talked you out of selling yet that you bought last October at a split-adjusted $40. You can sell short the August 16, 2024 $140 calls for $3.50 which expire in six weeks and pays you $350 in options premium. If NVIDIA fails to rise above $140 and they expire worthless, you get to keep $350 ($3.50 X 100 shares per option). This reduces your cost basis \by $3.50 to $36.50.
If the shares rise above $140, they will get called away and your upside breakeven point is now $143.50 ($140 + $3.50). You get to make an extra $18.50 in capital gain to get there from Friday’s $125 close.
It’s win, win, win.
The only downside is that shares called away are treated as a sale for tax purposes. Remember, you are being taxed on a much larger profit. You can always offset the gain by taking a loss in another stock, such as in the energy sector.
I just thought you’d like to know.
Silver has been a star performer as the top precious metal this year, up 30% at the highs, but has recently been faltering. A round of profit-taking has knocked the wind out of not just the white metal, but all precious metals. Most silver ETFs have seen outflows this year, while sales of silver Eagle coins from the US mint have dropped by half.
However, while financial demand for silver has been going down the toilet, industrial demand is still soaring. This is a new development in the history of silver.
The great mystery among long-time silver watchers like myself is that silver has gone up at all this year. High interest rates and inflation and a strong economy are not the usual backdrop for a bull market in silver.
But like so many other markets recently, it has irrevocably changed. Industrial demand is taking over. Silver is the world’s best conductor of electricity. Al Capone’s Duesenberg V12 was entirely wired with silver for this reason. And the fivefold demand in the size of the national electrical grid demanded by AI has put a new spotlight on the poor man’s gold.
In 2023 silver demand from the solar panel industry jumped by 64% and it is expected to rise by another 20% this year. In the meantime, supplies of silver from Companies like Wheaton Precious Metals (WPM) have fallen marginally. It's that old supply/demand thing. Never fight it.
So any further falls in in silver prices should be bought with both hands. If you’re lucky, you might get another 10% drop. And if I’ve really hooked you with this piece, buy the 2X long silver ETF (AGQ). It will be up huge by yearend.
So far in July, we are up +0%. My 2024 year-to-date performance is at +20.02%. The S&P 500 (SPY) is up +16.14% so far in 2024. My trailing one-year return reached +34.63%.
That brings my 16-year total return to +696.65%. My average annualized return has recovered to +51.29%.
As the market reaches higher and higher, I continue to pare back risk in my portfolio. I am currently in a very rare 100% cash position.
Some 63 of my 70 round trips were profitable in 2023. Some 29 of 38 trades have been profitable so far in 2024, and several of those losses were really break-even.
Nonfarm Payroll Report Comes up Short in June at 200,000. The Headline Unemployment Rate rose to 4.1% nearly a three-year high.
Price of Bitcoin Sputters, Bitcoin price tanks as traders worry over the likely dumping of tokens from defunct Japanese exchange Mt. Gox and further selling by leveraged players after the cryptocurrency's strong run.
Bezos Cashes Out, Founder and executive chair Jeff Bezos will sell almost $5 billion worth of shares in Amazon as his e-commerce company hits all-time highs.
Trade War Between China And The E.U. Heating Up, China will investigate European brandy imports after the E.U. slapped tariffs on Chinese-made electric vehicles. This will effectively make the price of goods a lot higher in the Old Continent.
US Venture Capitalists Flood into AI Investments, U.S. venture capital funding surged to $55.6 billion in the second quarter, marking the highest quarterly total in two years. The latest data represents a 47% jump from the $37.8 billion U.S. startups raised in the first quarter. Most of these investments will go into AI.
Volkswagen Will Not Produce Rivian Cars, Rivian announced that it has no plans to produce vehicles with Volkswagen after a media report said Rivian is in early talks with the German automaker to extend a recent partnership beyond software.
Inflation Inches Up, The core personal consumption expenditures price index increased just a seasonally adjusted 0.1% for the month and was up 2.6% from a year ago. This inflation number is called the PCE.
Google Buys Solar Power Firm Google will snap up Taiwan's New Green Power and could buy up to 300 megawatts of renewable energy from the BlackRock fund-owned firm to help cut its carbon emissions and those of suppliers.
EU set to charge Meta, the European Union is set to penalize Meta for breaking the bloc's landmark digital rules. Regulators are targeting Meta's "pay or consent" model. It’s illegal in Europe.
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, July 8, the Consumer Inflation Expectations are released.
On Tuesday, July 9 at 7:00 AM EST, the NFIB Business Optimism Index is published.
On Wednesday, July 10, Mortgage Applications are out.
On Thursday, July 11 at 8:30 AM, the Weekly Jobless Claims are announced. We also get the Consumer Price Index.
On Friday, July 12 at 8:30 AM, the Producer Price Index is announced. At 2:00 PM, the Baker Hughes Rig Count is printed.
As for me, it was with great fondness that I returned to Alaska for the first time in 57 years.
But instead of hitchhiking heavily armed with a high-powered rifle and a pistol, this time I embarked on Cunard’s Queen Elizabeth, one of the finest cruise ships afloat.
While before I battled Grizzley bears and torrential rainstorms, in 2024 I observed the ailments that beset old age. Here’s a knee replacement, there goes a new hip, sorry about the emphysema, and hello Mr. Arthritis.
To say that America’s 49th state is enjoying boom times would be a vast understatement. Because of the Gaza War, every cruise line canceled their Middle Eastern tours and moved the ships to the Caribbean in winter and Alaska in the summer.
As a result, you have six gigantic ships disgorging 25,000 passengers and crew onto Juneau, a town of just 30,000. Try to imagine Times Square on New Year's Eve solely occupied by sober waddling obese 70-year-olds. Juneau only has dock space for five ships so one forlorn Celebrity ship had to use shuttles to ferry passengers ashore.
Welcome to the T-shirt-based economy.
Franklin Street was lined door to door with souvenir shops hawking every kind of local knick-knack. Maybe 99% of the souvenirs were made in China. There were no less than 25 jewelry stores. And if you ever had a desire for salmon or king crab for lunch, this is your place.
It has also collapsed cruise prices. The cheapest inside cabin with no windows on my ten-day cruise cost $799 with all the food included. That’s cheaper than staying at the Motel 6 and eating at Taco Bell every day. Cruising is now far and away the cheapest form of vacation travel today.
The demands on the local economy were so great that most shore excursions were sold out. In any case, mushing with sled dogs didn’t really appeal to me, nor did whale watching or sea kayaking with the orcas.
I would have done the fly fishing in a heartbeat, but it was the first to sell out. The Great American Eagle Experience offered only one sorry example which was missing half a wing after getting hit by a car.
As with every large corporation in America today, Cunard is doing everything it can to squeeze every penny of profit out of their business. Recently added were branded Cunard red and white wine, gin, whiskey, and vermouth. Oh, and the penuriously underpaid staff are now billed $1,000 for room and board, which includes a tiny cabin below the waterline with no porthole.
And many of the locals are here only temporarily. Freshly graduated college students come up from the lower 48 to work as drivers, guides, cooks, and dishwashers to handle the summer surge. Many take two or three jobs and bank enough to buy houses back home.
They live in RVs, tents, and abandoned buses. That’s no fun when it rains every day, and you have hungry raiding bears looking for dinner every night.
The population drops by half in September when the cruise ships depart for warmer climes. What do the remaining residents do for the ensuing eight months? Hunt, fish, fix things around the house, watch movies, keep the town bars in business, work on art projects, and dream about next summer. Juneau only gets three hours of sun around the winter solstice.
At one point, fed up with the melee downtown, I took a city bus 20 miles just to enjoy Alaska in its pristine natural state. It was clear that the Inside Passage received massive amounts of rain, over 120 inches a year, and 100 feet of snow. The forest was so thick that you couldn’t walk through it and the ground was covered in moss.
You would think this would make cruise line stocks a screaming buy, and in fact, it has. Carnival Corporation (CCL), the largest, owning nine cruise lines, carried a staggering 12 million passengers last year.
Royal Caribbean Cruises (RCL) has jumped by 35%, Carnival by 40%, and Norwegian Cruise Line Holdings (NCLH) by 20%. Viking Holdings (VIK) only went public in April and was met with a warm reception, tacking on 27% since then.
It's not so much the booming Alaska business that is driving share prices. Remember, these are discount offerings at the expense of higher-margin Middle Eastern business. It has more to do with the expectation of falling interest rates. All the cruise lines took on massive debt to keep from going under during Covid and a Fed interest rate cut will be a shot in the arm for these heavily indebted companies.
At the farthest north point of the trip, some 60 degrees north latitude, I enjoyed the famed Midnight sun. It was fully bright until 10:30 PM and never became completely dark. That explains the legendary size of Alaska’s summer vegetables. When I was in Fairbanks at 70 degrees, the sun came in for a landing, then took off again, never dipping below the horizon. There the Northern Lights were awesome.
The ship hosted two formal nights, a “Fire and Ice” perfect for my white dinner jacket and a “Venetian Masquerade Ball” with masks that had black written all over it. Cunard has been dialing back the formal nights over the years. Perhaps they’re just catering to the US market, or maybe society is just becoming more casual.
Many ship activities are oriented around selling you junk, like “The Excitement of Investing in Tanzanite” and “The Fine Art of Collecting Watercolors” which I learned to pass on a long time ago as blatant rip-offs.
Of course, no cruise is complete without a singles night. I put on my cleanest shirt and pressed jeans and was introduced to a dozen white-haired wealthy widows all in the 70s and 80s. No luck this time.
Maybe next year.
All in all, it was the perfect rest from this year’s tempestuous markets….until the next cruise.
Good Luck and Good Trading,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Mad Hedge Technology Letter
July 3, 2024
Fiat Lux
Featured Trade:
(SHOULD I INVEST IN AI CHIPS OR AI SERVERS?)
(SMCI), (NVDA), (DELL)
The AI server market is booming and so are the AI chip markets.
I’ll talk about 2 prestigious companies right in the mix of things.
For long-term portfolios, it’s essential to not miss out on these supercharge growth companies.
I just don’t think that average investors will be able to make up the performance if they miss the boat of these 2 companies. The law of large numbers will just put you too far behind.
All the hot new money is going into AI which adds to the momentum of the share price trajectories.
Even the old money, after not being convinced by Bitcoin, is starting to come around to AI partly because most of the companies involved in AI are publicly listed companies on the New York Stock Exchange.
It makes it a lot easier when the source of exponential growth isn’t on some alternative exchange in some alternate currency in some backwater jurisdiction.
With a few clicks and moving a few dollars here and there, investors can be part of the AI future whether it be in AI chips or AI servers like the companies I am about to talk about.
What up with Nvidia?
Nvidia (NVDA) dominates an impressive 94% of the AI chip market. It’s basically a monopoly or close to it.
Revenue is rising a stunning 262% year over year.
Even more interesting, emerging growth avenues in the nascent AI market indicate that Nvidia could end up doing even better than that.
For instance, governments are also betting the ranch on AI and this stable source of revenue will highly likely grow substantially for the foreseeable future.
Nvidia's customer base is diversifying beyond the major cloud infrastructure providers that have been deploying its chips in large numbers to train and deploy AI models.
Spending on AI chips is expected to grow more than 10-fold over the next decade, generating $341 billion in revenue in 2033 compared to $23 billion last year.
Nvidia should remain the Tom Brady of AI stocks as the race to develop AI applications by companies and governments alike has created a secular growth opportunity.
What about Super Micro Computer?
Supermicro's future prospects are attached to some extent with that of Nvidia’s.
Data center operators require server rack solutions of the type that Supermicro sells to mount the processors sold by Nvidia and other chipmakers.
Revenue jumped 200% year over year and Supermicro isn't all that far behind Nvidia when it comes to how AI has supercharged its fortunes.
I expect its top line to nearly double over the next couple of years.
Demand for AI servers is expected to expand at a compound annual rate of 25% through 2029.
Supermicro is growing at a faster pace than the AI server market right now. As it turns out, its growth is faster than that of more established companies such as Dell.
How to invest?
Supermicro is cheaper than Nvidia and Nvidia’s run-up to a more than $3 trillion market valuation has got to scare some people with sticker shock.
People with a time advantage of more than a few years should invest in Super Micro, whereas investors looking for that quick sugar high should buy the dips in Nvidia.
In short, anyone under the age of 40 and many years in front of them should invest long-term in Super Micro at a market cap of $50 billion. With Nvidia, I could easily see its market cap climbing to $4 trillion soon, but a wicked pullback would mean its market cap going from $4 to $3 trillion.
Either way, these are two tech firms with great prospects in the current and future.
