Global Market Comments
June 9, 2023
Fiat Lux
Featured Trades:
(JUNE 7 BIWEEKLY STRATEGY WEBINAR Q&A),
($VIX), (TSLA), (TLT), (FCX), (RUT), (COIN), (AAPL),
(ROM), (AMZN), (PYPL), (NVDA), (COPX), (FXI)
CLICK HERE to download today's position sheet.
Below please find subscribers’ Q&A for the June 7 Mad Hedge Fund Trader Global Strategy Webinar, broadcast from Lake Tahoe, NV.
Q: Do you ever trade the CBOE Volatility Index ($VIX)?
A: No, I used to, but I got hit a few times. That’s because 95% of the year is spent seeing the ($VIX) go down, and then the other 5% basically doubles overnight. It’s a short play only. With a long ($VIX), the time decay is enormous, and it’s just not worth owning. The only way to make money in ($VIX) is to buy it right before a giant VIX spike. And the floor traders in Chicago have a huge inside advantage in that market. So, I finally gave up and decided there's better things to do.
Q: Buy the price dip for Tesla (TSLA)?
A: I’d have to look at the charts, but if it gets back down to $200, I would start hoovering it up again. The fundamentals are really arriving for Tesla big time, as is the long-term bull case.
Q: With the debt crisis over, how low will the iShares 20 Plus Year Treasury Bond ETF (TLT) go in the short term?
A: Well, we know they have to issue a trillion dollars of 90-day T-bills in the next few weeks. The debt ceiling crisis stopped Treasury bill issuance for several months and now they have a lot of catch-up to do. So, best case scenario, the (TLT) drops to $95, then you load the boat for the rest of your life in (TLT) LEAPS, like a $95-$100 2024 LEAPS. And that should double about every year.
Q: Are you concerned about commodities given the weakness in the Chinese economy?
A: Yes, it’s definitely slowing the commodities recovery, but is also giving you a fantastic opportunity to get into things like Freeport McMoRan (FCX) at a cheaper price, where it was just a couple of weeks ago. All of the commodities look like they’re bottoming now, it’s time to buy them.
Q: It seems like you really love the Russell 2000 (RUT).
A: I hate the Russell. You only want to own big money stocks because that's where the big money goes first. Big money doesn’t go into the Russell, and as long as there's any doubt of a recession coming, they’ll perform poorly.
Q: Coinbase (COIN) is getting sued by the SEC, should I buy on the dip?
A: No, the whole crypto infrastructure is getting sued out of existence and disappearing. They went after Binance also. It seems like the SEC just doesn’t like crypto very much. That kind of shrinks the whole industry back down to hot wallets, where you slowly have direct control of your bitcoin on the network and you don't use any outside brokers to buy and sell it because there may not be any left shortly.
Q: Should we still hold the Apple (AAPL) bull call spread?
A: Yes, I think we have enough room on our call spread in the next 7 trading days to take max profit. However, if you have any doubts, no one ever gets fired for taking a profit.
Q: Is the ProShares Ultra Technology ETF (ROM) a buy at this time?
A: No, if anything, ROM is a sell. It almost had a near-double move. So no, wait for a 20% or 30% correction this summer in ROM and then go in. It has actually led most tech because it's a 2X long ETF. Sometimes I just want to shoot myself. You buy before stocks double, not afterwards.
Q: What will trigger a correction this summer?
A: The risk of a further rise in interest rates, which we may get. Other than that, the market is running out of negatives.
Q: What is the risk of US currency not being the world reserve?
A: Zero. I have been asked this question every day for the last 50 years and so far, I have been right. What would you rather keep your savings in Chinese Yuan, Russian rubles, or Euros? I would say none of those. And US currency will remain the reserve currency for this century, easily, until a digital US dollar comes out.
Q: Do you want to buy the cellphone companies?
A: No, not really. They weren’t very interesting before—it's a low margin, highly competitive cutthroat business—and now you have one of the world's largest companies, Amazon (AMZN), potentially offering phones for free? I think I'll pass on that one.
Q: Do you have any interest in pairs trading?
A: No, they blow up too often.
Q: Did you say you sent out a one-year LEAPS on Freeport McMoRan (FCX), the $35-$38?
A: Yes, if you didn’t get it, email customer support.
Q: Are investing in 90-day Treasury bills until the next one or two Fed meetings are over a good idea?
A: Yes, that is a good idea. Cash has a high-value night now. Remember, a dollar at a market top is worth $10 at a market bottom, and we now have a rare opportunity to get paid 5.2% or 5.3% while we wait. That hasn’t happened in almost 20 years.
Q: Will the new Apple VR headset be a boon to the stock price?
A: Yes, adding 10% to your earnings is always good, but it won’t happen immediately. You need a few thousand third-party app developers to come through with services before the earnings really get going. That's what happened with iTunes when the iPhone came out. Growth was slow when Apple only allowed its in-house apps to be sold—when they opened to the public, the business went up 100 times. That's maybe what will happen with the virtual headset.
Q: PayPal (PYPL) has dropped a lot, should I buy it here?
A: No, cutthroat competition in the sector is destroying the share price. There are too many other better things to buy.
Q: Why do so many professional analysts say the market will go down this year, but it goes up every day?
A: Professional analysts are just that—they're analysts, not traders. And often these days, to save money, your professional analyst is 26 years old, so they don’t have much market experience. I like to think that 50 years of trading experience backed with algorithms helps.
Q: Do you think oil could hit $100 a barrel next year?
A: Yes, definitely. Especially if we get a decent economic recovery and Saudi Arabia doesn’t immediately bring back 3 million barrels a day that they’ve cut.
Q: Should I chase NVIDIA (NVDA) here?
A: No, better to own cash here than Nvidia. Buy Nvidia on the next dip, or another Nvidia wannabe company, which will almost certainly arrive shortly.
Q: When will we get peace in Ukraine?
A: Within a year, I would say. Russia has literally run out of ammunition, and Ukraine is getting more. Ukraine is also getting F16s, our older fighter planes, and many other advanced weapons and parts—those are a big help. They can beat anything the Russians throw up.
Q: Is Global X Copper Miners ETF (COPX) a good copper play?
A: Yes it is, but you don’t get the leverage that you do with an FCX LEAP. I don’t know how far the top will go, but that would be a great trade one to two years out.
Q: Can you explain why there is a short squeeze in copper?
A: There are 200 pounds of copper needed for each EV, and EV production is exploding both here and in China. Tesla is expected to make 2 million EVs this year, especially with the $33,000 price point. China manufactures this many EVs as well. Four million EVS and 200 pounds of copper per EV equals the entire annual production of copper right now. At some point, people will notice that and they’ll take copper as much as they took lithium up last year.
Q: What do you mean when you say LEAPS one or two years?
A: It really depends on your risk. When you buy a two-year LEAPS, you usually get the extra year for free or almost nothing, and if you get a rapid increase in the underlying share price, the two-year LEAP will go up almost as much as the one year. So for most people who don’t want to watch the market every day, the two-year LEAPS is probably a better choice.
Q: Why did you buy only one LEAPS contracts?
A: All of my LEAPS recommendations are only for one contract. It is up to you to decide what your risk tolerance and experience level is, whether you buy 1, 100, or 1,000 contracts, so I leave the size up to you because it can vary tremendously depending on the person. Also, one contract makes the math really easy for people to understand.
Q: At what point do you sell your LEAPS?
A: Well, if you get a rapid 500% profit, which happened with many of the LEAPS that we did in October as well as the ones we did in March, I would take it. However, the goal on these is to go for the 10 baggers, or the 100% return in a year, and you usually need to hold it for the full year to get that. But, if the stock takes off like a rocket, I would take the profit. How many times in your life do you get a 500% profit in a month or two? I would say none. So, when you get that with these LEAPS recommendations, take it and run like a madman, move to a different country, and change your name.
Q: With the ($VIX) this low and many great companies for the second half down, would you buy single LEAPS instead of spreads?
A: I would; the problem with the call spread strategy is that it’s not the best thing to do at big market bottoms, down 20%, 30%, and 40%. The better thing to do is the LEAPS, but the LEAPS is a one- or two-year position, and I have to be sending out trade alerts every day. At market bottoms, you definitely want to get the most market leverage possible on the upside, and LEAPS does that for you in spades. They essentially turn your stock into a synthetic futures contract with a 10x leverage.
Q: When do we expect China (FXI) to take over Taiwan?
A: Never, because if they invade Taiwan, China loses its food supply from the US, which cannot be replaced anywhere. They also lose their international trade, so they won’t have the profits with which to buy food elsewhere. I’ve been in China when millions died during a famine and let me tell you, there is NO substitute for food. Not all the money in the world can buy it when it just plain isn’t available. But China will keep threatening and bluffing as they have done for 74 years.
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 or TECHNOLOGY LETTER 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
Sometimes the Market Can be Tough to Figure Out
Mad Hedge Biotech and Healthcare Letter
June 8, 2023
Fiat Lux
Featured Trade:
(THE AI INFUSION)
(MDT), (NVDA), (GEHC), (LLY)
Curious about the true potential of AI to drive earnings growth in the healthcare industry?
Let me paint you a picture of how AI's transformative power is set to revolutionize medical products and services. Imagine cutting-edge devices that can detect diseases at their earliest stages, leading to increased adoption by healthcare facilities.
And what does that mean for the companies behind these remarkable tools? More revenue, of course.
It is no surprise that experts predict exponential growth for AI in the healthcare market. This sector is projected to skyrocket at a compound annual growth rate of 47%, reaching a staggering $100 billion by 2030.
One company that has embraced this inevitable shift is Medtronic (MDT), a leading player in the medical device industry.
With a robust portfolio of innovative products, Medtronic has witnessed steady revenue growth over the years.
In fact, in its most recent fiscal year, the company invested a whopping $2.7 billion, equivalent to 8.6% of its sales, in research and development (R&D) to fund over 200 clinical trials. These trials cover a wide range of medical conditions, from diabetes management to a host of other ailments.
Thanks to its extensive product lineup, this Ireland-based medical device giant impacts the lives of approximately 76 million patients annually.
In recent times, however, Medtronic has faced a significant challenge: a lack of substantial growth. Hence, the company has taken decisive measures to address this issue by streamlining its operations and making strategic acquisitions to unlock future revenue potential.
This is undoubtedly encouraging news. But there's an additional factor that has everyone buzzing with excitement these days: artificial intelligence (AI).
Thus far, Medtronic has successfully implemented AI across its diverse platforms, revolutionizing how it caters to patients, from delivering precise insulin dosages to individuals using their continuous glucose monitoring systems to refining the outcomes of intricate spinal surgeries.
The company's endeavors in the field of AI have even garnered accolades.
Actually, Medtronic's groundbreaking AccuRhythm AI algorithm technology recently secured the prestigious "best new monitoring solution" award from MedTech Breakthrough. This remarkable innovation significantly enhances the quality of data derived from cardiac monitors, benefiting individuals with abnormal heart rhythms.
Moreover, Medtronic recently forged a partnership with NVIDIA (NVDA).
This collaboration aims to enhance the capabilities of Medtronic's GI Genius endoscopy tool, which already employs AI to detect pre-cancerous tissue.
By enabling third-party developers to train and test AI models that could eventually be integrated into the GI Genius, this strategic alliance holds immense potential for future advancements in the field.
Recognizing the transformative impact of AI, Medtronic envisions it as a pivotal element in the future of healthcare. The company considers AI to be the linchpin of personalized medicine, and this belief holds considerable merit.
Evidently, AI's remarkable capacity to predict and anticipate medical issues or outcomes on an individualized basis aligns seamlessly with the very essence of personalized medicine.
Naturally, Medtronic isn't the sole player in this groundbreaking realm of investment.
Take, for instance, GE Healthcare (GEHC), which recently obtained approval for its revolutionary deep-learning technology aimed at enhancing PET/CT scan images. Major pharmaceutical giants like Eli Lilly (LLY) have also joined forces with AI technology companies to expedite their drug-discovery endeavors.
When you consider the extensive integration of AI within Medtronic's operations, though, the company emerges as a frontrunner in this field. Its AI initiatives have already contributed to notable growth in specific sectors.
Just look at its gastrointestinal (GI) business, which experienced a remarkable 16% increase in the latest quarter, thanks to the strong adoption of the innovative GI Genius technology. Additionally, Medtronic's neuroscience division, encompassing its spine surgery products, witnessed a respectable 6% growth.
This success story doesn't end there.
With its recent dividend increase marking the 46th consecutive year of such a move, Medtronic is on the verge of achieving Dividend King status.
What's even more enticing is the current valuation of Medtronic's stock, trading at a modest 16 times forward-earnings estimates. This presents a compelling opportunity for investors, considering the company's significant advantages.
For one, even if overall growth may not be skyrocketing at the moment, Medtronic continues to generate impressive billion-dollar earnings. On top of that, and perhaps most intriguingly, Medtronic has positioned itself at the forefront of a potentially game-changing new market.
Taking all of this into account, there has never been a better time to consider investing in Medtronic. I suggest you buy the dip.
Mad Hedge Technology Letter
June 2, 2023
Fiat Lux
Featured Trade:
(SEPARATE THE WHEAT FROM THE CHAFF)
(AI), (NVDA)
Readers should be careful about being the last ones getting into this generative AI craze.
I’m not saying it is over, but the last ones in can sometimes be the first one’s out.
The data shows that retail traders are pouring into AI stocks in droves without the inside knowledge they really need to succeed.
The truth is that not every AI stock is worth investing in and as time goes by, we will see this play out.
The market is always right.
Some AI stocks will just be a flash in the pan, riding on the coattails of the real AI stocks in a fake-it-to-make-it fashion.
Others could get bought out and shut down which was an infamous Facebook strategy called “catch and kill.”
C3.ai could be one of those stocks that I am talking about.
The stock spiked on the pandemonium almost quadrupling in price from around $12 per share to over $45 in the first half of the year, but the stock has come back to reality trading around $31 per share at the time of this writing.
The recent underperformance is due a good quarterly earnings result, but they offered underwhelming guidance to investors. This could become a recurrent problem for these smaller AI stocks that must promise heaven and earth to entice the incremental investor.
C3.ai said it expects total revenue of up to $72.5 million in its upcoming quarter, compared to analyst estimates of $71.3 million.
The management is on record for saying that while it will be a bumpy road, they believe C3 is currently participating in an $800 billion AI transformational opportunity over the next decade.
C3.ai has struggled to sign new major customers and recently shifted to consumption pricing — paying for software based on use rather than in a flat subscription — to court companies that are hesitant to commit to big contracts. The company said it inked 43 agreements in the quarter, including 19 pilots, and touted that the average sales cycle shortens to 3.7 months from 5 months in the same period a year ago.
Still, many are searching for a scalp from C3.ai.
The short side is stacked with traders looking to profit off a big dive in the price of shares.
Short interest amounted to about 29% of shares available to the public as of May 24.
Activist investors have accused the company of chasing trends and employing poor accounting practices.
Former employees said C3.ai has routinely overstated the readiness of its technology in the past, and this issue has not been put to bed yet.
It could be that C3.ai isn’t ready for showtime.
Maybe they are a few years away, but overstating their capabilities to get in on the action could be the best way for management to get rich quickly.
As sometimes in corporate America, it is better to cash out and strike while the iron is hot while they can before they are exposed as an inferior version of what they claim to be.
Mad Hedge Technology Letter
May 31, 2023
Fiat Lux
Featured Trade:
(WILL CHINA WIN THE AI WARS)
(NVDA), (MSFT)
The two tech heavyweights are basically what the generative AI wars are going to come down to.
Who do I mean?
The United States and China are naturally involved in a larger economic spat that has come to define the world we live in.
What’s the good news?
The Yanks are clearly ahead in the technology that could define the future of the human race.
China’s bread and butter has been to steal vital intellectual property, reverse engineer it, then roll it out for mass adoption.
The strategy has been incredibly effective in launching the Chinese to the second-biggest economy in the world.
Rinse and repeat, right?
China won’t be able to just “copy” generative AI unless they can poach the competition, but since American corporations know the Chinese playbook, I doubt they would allow IP secrets to leak out like a broken toilet.
It most likely appears as if the Chinese and their own Silicon Valley or lack of one will need to create this by themselves.
Funnily enough, American artificial intelligence developed from a non-profit OpenAI as it researched the Transformers machine learning model, which eventually powered ChatGPT.
This environment never existed in most Chinese companies. They would build deep learning systems or large language models only after they saw the popularity.
US investors have also been supportive of the country's research push. In 2019, Microsoft said it would put $1bn into OpenAI.
China, meanwhile, benefits from a larger consumer base. It is the world's second-most populous country, home to roughly 1.4 billion people.
China lives in a world where speed is essential, copying is an accepted practice, and competitors will stop at nothing to win a new market.
This rough-and-tumble environment makes a strong contrast to Silicon Valley, where copying is stigmatized and many companies are allowed to coast on the basis of one original idea or a lucky break.
Creativity and entrepreneurship aren’t valued in China.
At the fundamental level, Chinese tech companies might not be able to hang because they won’t have access to suitable materials.
High-performing computer chips, or semiconductors, are now the source of much tension between Washington and Beijing. They are used in everyday products including laptops and smartphones, and could have military applications. They are also crucial to the hardware required for AI learning.
US companies like Nvidia currently have the lead in developing AI chips and that supply is choked off by the US administration.
For now, the US seems to be ahead in the AI race, and there is already the possibility that current restrictions on semiconductor exports to China could hamper Beijing's technological progress.
However, China's ability to manufacture high-end equipment and components is an estimated 10 to 15 years behind global leaders and that could be the determinant between winning and losing.
Readers need to invest in the AI stocks like Nvidia on every dip and the best of the rest to participate in one of the greatest tech trends in the modern era.
Global Market Comments
May 31, 2023
Fiat Lux
Featured Trades:
(WHAT AI CAN AND CAN’T DO)
(AAPL), (GOOGL), (AMZN), (AMZN), (TSLA), (NVDA), (MU)
CLICK HERE to download today's position sheet.
The future has arrived!
Over the last few weeks, I picked up some astonishing developments in artificial intelligence.
*Mainframes at Stanford University and the University of California at Berkeley were given a direct connection to speak freely with each other. Within 30 minutes they dumped English as a means of communication because it was too inefficient and developed their own language which no human could understand. They then began exchanging immense amounts of data. Fearful of what was going on, the schools unplugged the machines after only eight hours.
*All of the soccer videos ever recorded were downloaded into two robots, but they were not taught how to play the game or given any rules. Not only did figure out how to play the game, it developed plays and maneuvers no one in the sport has ever thought of in its 150-year history.
*It normally takes a PhD candidate five years to 3D map a protein. An AI app 3D mapped all 200 million known proteins in seven weeks, shortcutting one billion years of PhD level research with existing technology. These new maps have already been used to design a malaria vaccine and enzymes that eat plastic. They will soon cure all human diseases.
*A developer asked an AI program a half dozen questions in Bengali, not an easy language. Within an hour, it spoke the language fluently, without any instructions to do so.
By now, word has gotten out about the incredible opportunities AI presents. Our only limitation is our own imagination on how to use it. AI will instantly triple the value of any company that uses it.
What has changed is that we now have millions of computers powerful enough and an Internet fast enough to realize its full potential.
It all vindicates my own long-term vision, unique in the investing community, that in the coming decade, immense technology profits will more than replace the trillions of dollars worth of Fed liquidity we feasted on during the 2010s. Extended QE is proving just a bridge to a much more prosperous future.
The Internet has created about $10 trillion in value since its inception. AI will create double that in half the time. That’s what will take the Dow from 33,000 to 240,000.
No surprise then that the top ten AI companies have delivered 120% of the stock market gains so far in 2023. The other 490 companies in the S&P 500 have either gone nowhere to down.
However, there are many things that AI can’t do. Here is the list.
1) AI Can’t Predict large anomalous events, otherwise known as Black Swans. AI takes past trends and extrapolates them into the future. It in no way could have seen 9/11, the 2008 crash or the pandemic coming, although I warned my hedge fund clients for years that we were overdue. All of the AI stock trading apps I have seen so far, including my own, max out at 90% accuracy. The other 10% is accounted for by black swans: earnings shocks, foreign crises, sudden FDA stage three denials, surprise legal judgments, foreign invasions, or the murder of a key man in a tech company, as recently happened in San Francisco.
2) AI Lies and Lies Often. AI was asked to write a scientific paper on a specific subject. It came back with an elegant and well-researched piece. The problem was that all of the books it made reference to didn’t exist. AI learned early to tell humans what they want to hear.
3) AI Requires Exponential Computing Capacity. Only five companies have the muscle to pursue true AI. No surprise that these, including (AAPL), (GOOGL), (AMZN), and (TSLA), account for the bulk of stock market performance this year. This won’t always be the case. Some 30 years ago, it required thousands of mainframes to contain all human knowledge. Today, that task can be accomplished with a cheap $1,000 laptop.
4) Internet Capacity Will Be a Limiting Factor for AI for Years. To accommodate the traffic that is taking place right now, the Internet will have to grow 500% practically overnight, and that is with five main players. What happens when we have 5 million? That’s why NVIDIA (NVDA) has gone nuts.
5) AI Hallucinates, as anyone who drives a Tesla will tell you. If a car makes a left turn in Florida, the 4 million vehicles in the world’s largest neural network learn from it. The problem is that sometimes the data from that Florida car is placed directly in front of a California one, prompting it to brake abruptly, causing accidents. This is known as “ghost braking.” I have explained to Elon Musk that his database has grown so large, eight video feeds per 4 million cars going back many years and billions of miles, that he may be going behind the limits of known physics.
6) While the Growth Opportunities for AI are Unlimited, the ability of humans and society to absorb it isn’t. All jobs will be affected by AI and millions destroyed, starting with low-level programmers and call centers, and millions more will be created. People are talking about regulating AI but have no idea where to start. Maybe with (AAPL), (GOOGL), (AMZN), and (TSLA)?
7) The Terminator Issue. Can AI be controlled? Or have we started a chain reaction that is unstoppable, as with an atomic bomb? AI researchers have noticed a disturbing issue where AI programs are learning skills on their own, without our instructions. This is referred to as “emergent properties.” If AI is using humans as its example, we can’t exactly count on it to be benign.
Needless to say, AI will be at the core of your investment approach, probably for the rest of your life.
2014 at Micron Technology