Global Market Comments
June 24, 2024
Fiat Lux
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(TESTIMONIAL),
(WHAT EVER HAPPENED TO THE GREAT DEPRESSION DEBT?),
($TNX), (TLT), (TBT)
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It’s “all systems go” for tech stocks ($COMPQ) as the latest inflation report offers us juicy morsels of data laying out a more attractive backdrop for tech companies in the short term.
The Mad Hedge Tech portfolio has benefited from this “bet on the Fed pivot” trend to great effect and I took profits on my Micron June bull call spread.
Remember that short-term rates ($TNX) are the most important variable to whether certain stocks go up and down in the short term.
Long term, the story could be very much different.
A higher-than-consensus report would have resulted in a red day for tech stocks, a pullback of commodities, bond yields spiking, and the dollar launching into the orbit.
We got the inverse of that and this is a strong signal that tech stocks will be like a stallion bolting out the back of the stable because tech stocks are the biggest winners of a lower rate environment.
The Consumer Price Index (CPI) remained flat over the previous month and rose 3.3% over the prior year in May — a deceleration from April's 0.3% month-over-month increase and 3.4% annual gain in prices.
Inflation has remained stubbornly above the Federal Reserve's 2% target on an annual basis.
Fed officials have categorized the path down to 2% as "bumpy," while other recent economic data has fueled the Fed's higher-for-longer narrative on the path of interest rates.
On Friday, the Bureau of Labor Statistics showed the labor market added 272,000 nonfarm payroll jobs last month, significantly more additions than the 180,000 expected by economists. Wages also came in ahead of estimates at 4.1%, although the unemployment rate rose slightly to 4% from 3.9%.
Notably, the Fed's preferred inflation gauge, the so-called core PCE price index, has remained particularly high. The year-over-year change in core PCE, closely watched by the Fed, held steady at 2.8% for the month of April, matching March.
The Fed has been unbelievably late in controlling inflation, but that market doesn’t care and tech stocks care less as the AI narrative has been able to supersede anything and everything.
The market is controlled and dictated to by a bunch of algorithms.
Food up 2% after a double is in fact a “victory” to the algorithms even if the middle class in the United States has felt the heavy brunt of it.
It is probably accurate to say that tech stocks are in a world of their own and the price action certainly behaves as if this is the case.
What does this all mean?
Get ready for higher-tech share prices.
Lower rates will help emerging tech companies tap the debt market to fund operations.
Many smaller tech firms don’t have the privilege to tap a multi-trillion dollar balance sheet for cash whenever they want.
In the short-term, except the AI stocks to gap up yet another leg as the market prices at lower rates for companies that hardly need it.
Talk about having your cake and eating it too – this would be it!
For the best of the rest, it helps but won’t move the needle in terms of catching up to big tech, but this should stimulate the investors on the sidelines nudging them to handpick certain stocks that have been ignored during the time of high rates.
Either way, the Fed has really put itself in a box here and without even killing inflation to the 2% mandate.
The markets fully expect the Fed to cut once or twice by the end of the year.
Whether this decision is political or not, the new developments have put a floor under many high-quality tech names.
Consequently, the second half of the year should see some ample returns in tech stocks that preside over good business models.
Global Market Comments
December 19, 2023
Fiat Lux
Featured Trade:
(TESTIMONIAL),
(WHAT EVER HAPPENED TO THE GREAT DEPRESSION DEBT?),
($TNX), (TLT), (TBT)
Global Market Comments
October 27, 2023
Fiat Lux
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($GOLD), (GLD), (IAU), (NEM), (GOLD), ($TNX),
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If you are a current gold investor, you have to love the latest monthly statistics just published by the World Gold Council.
After years of a death by a thousand cuts inflicted by endless redemptions of gold ETFs and ETNs, recent reports showed a sudden influx into the barbarous relic.
North American ETFs led the charge, with some 28.8 metric tonnes valued at $1.3 billion pouring into the funds.
The SPDR Gold Shares (GLD) took in the most, 22.4 tonnes worth $1.03 billion, followed by the IShares Gold Trust (IAU), which added 4.6 tonnes worth $266 million.
Europe followed with 6.4 tonnes worth $321 million.
Asia was a net seller of 2 tonnes worth $80 million as investors pulled money out of precious metals and placed it in Bitcoin, Ethereum, and other cryptocurrencies.
Global gold-based ETFs collectively hold 2,295 metric tonnes of gold valued at and have picked up 143.5 tonnes so far this year.
For those used to using American measurements of precious metals, there are 32,150.7 troy ounces in one metric tonne.
The figures augur well for continued cash inflows and higher gold prices.
My experience is that sudden directional shifts of fund flows like this are NOT one-offs. They continue for months, if not years.
Of course, the trigger for these large inflows was the yellow metal’s decisive breakout on big volume from a two-year trading range.
Not only did now longs pile into the market, there was frantic short covering as well.
Too many options traders had gotten comfortable selling short gold call options just above the $1,800 level.
Once key upside resistance was shattered, gold tacked on another $50 very quickly. Bearish traders were smartly spanked.
Gold plays that did well, including Van Eck Vectors Gold Miners ETF (GDX), Barrick Gold (ABX), Newmont Mining (NEM), and Global X Silver Miners ETF (SIL), turned profitable.
There are six reasons why gold has gone off to the races.
1) Ten-year Treasury bond yields are peaking out at 5.0%. The opportunity cost of holding gold is about to drop sharply.
2) Falling interest rates guarantee a weaker US dollar, another big pro gold development.
3) The last of the pandemic stimulus is fading fast.
4) The new conflict in the Middle East has poured the fat on the fire.
5) General concerns about the increasing instability in Washington have driven nervous investors into EVERY flight to safety play.
6) The collapse of trust in crypto has propelled a lot of assets back into gold.
Inflation has historically been the great driver of all hard asset prices.
After such a meteoric move, I would expect gold to consolidate here around this level for a while to digest the recent action. It may drift sideways, or fall slightly.
That’s when I’ll pick up my next basket of longs.
Mad Hedge Technology Letter
September 22, 2023
Fiat Lux
Featured Trade:
(THE NEW CORRECTION IS THE SIDEWAYS ONE)
($COMPQ), (NVDA), (AAPL), (META), ($TNX)
Thursday wasn’t a great day for technology stocks ($COMPQ).
It’s not always smooth sailing from the bottom left to the top right.
It never is.
Stocks like Amazon (AMZN) were down more than 4% and other lower-tier growth stocks were down a lot more.
The price action in tech was a knee-jerk reaction after Fed Chair Jerome Powell signaled “higher for longer” for US interest rates ($TNX).
Powell was slightly a little bit more hawkish than consensus had it, and I don’t believe that will have any weight in the short or long term.
Funnily enough, Fed Futures are still pricing in no interest rate hike at the next meeting, even though Powell said there is one more hike.
There is still a deep-seated psychology that the Fed will pivot and this concept that the Fed has our back is not going away with itty bitty hikes.
Is there much of a difference between 5.25% and 5.5%?
The answer is no.
I would say that Powell's slow-walking this whole rate situation has done a lot more damage than good.
In more than 3 years since inflation was supposed to be transitory, inflation is still stuck at 3.7%.
Imagine living in a house with severe water damage to the wall and allowing it to fester over 3 years.
Tech continues to do well relative to expectations because Powell’s minuscule rate hikes have been sanitized to the investor audience.
Investors are scared of uncertainty and Powell is full of certainty.
Investors also don’t believe Powell will do anything to scare the tech market as we approach a federal government shutdown yet again.
Powell keeps pedaling this version of economic success, possibly because it is an election year.
Talking up tech stocks isn’t bad and Powell said that a soft landing is not the Fed's baseline expectation; it's merely a "plausible outcome."
Ultimately, tech investors believe Powell will pivot.
The proof is in the pudding.
Let’s look at the short and long end of the treasury curve.
The 10-year US treasury is yielding 4.43% and the 30-year US treasury bond is yielding 4.53%.
This means for an extra 20 years of duration, investors are rewarded an extra measly .10% worth of juice, precisely because investors think Powell will drop the front end of the curve like a hot potato.
Investors are just waiting it out.
Thus, Powell has telegraphed that we are basically at the peak of rates which is highly bullish for tech stocks.
Tech stocks are down just slightly in the past 30 days which I would characterize as a massive victory in relative terms.
In normal financial times, tech stocks would be thrown out with the bath water and we haven’t seen that happen.
Any selloff has been pristinely orderly and that’s a bullish sign in the short-term.
I am not saying that tech stocks have unlimited upside, but I do believe there is a solid bottom under them and they will most likely bounce around in a range-bound fashion.
Remember that for most of this year stocks like Apple (AAPL), Nvidia (NVDA), Meta (META), and so on rose while treasury yields spiked.
I don’t see why this correlation will screech to an immediate stop.
The likely bet is it continues but at a slower pace.
Mad Hedge Technology Letter
September 6, 2023
Fiat Lux
Featured Trade:
(SEPARATING THE WHEAT FROM THE CHAFF)
(PTON), ($COMPQ), ($TNX)
Part of the excesses that became ubiquitous with Silicon Valley is starting to get reigned back and that’s a good sign for the tech sector ($COMPQ).
It also means the boom years for the tech sector are over.
I am not talking about the full set of perks tech employees receive at their fingertips in order to entice them to spend most of their time at the office.
I am more referring to ideas that were hyped up as grand but never made a material dent in the tech ecosystem.
Not all tech ideas hit it big and some are complete busts.
Ideas like the Uber of battery-powered scooters are now getting the thumbs down and capital is getting pulled by from these marginal business concepts.
From the get-go, these companies presided over poor unit economics and they could only sustain operations in a world of cheap capital that doesn’t exist anymore.
Rates ($TNX) are high and could shoot higher.
Legally, cities have a say in whether they want their beautiful promenades and piazzas littered with ugly scooters.
In France, Parisians voted to ban battery-powered scooters, confirming that many regarded them as absolutely infuriating.
Banned from the French capital by popular vote, self-service electric scooters are enjoying their last day in Paris on Thursday, marking the end of five tumultuous years of controversial use, much to the dismay of their users.
From 1 September, Paris will become the first European capital to completely ban these self-service two-wheelers.
Many Parisians have become fed up with seeing them as not only an eye sore but also a safety hazard.
Since August, the 15,000 scooters have gradually been taken off the streets.
Of the 5,000 scooters going out to pasture produced by the German company Tier, a third will remain in the Paris region, in 80 communes around Marne-la-Vallée or Saint-Germain-en-Laye. The rest will go mainly to Germany.
In Paris, some 400,000 people chose a scooter to get around in 2022, according to operators.
The operators are banking on their customers switching to bicycles, which are already offered by everyone, which should enable them to avoid redundancies, at least for the time being.
There most likely will never be another boom of battery-powered scooter platforms dressed up as technology companies.
These types of low-quality tech firms are feeling the heat and examples are plentiful such as Peloton (PTON) which has also hit rock bottom.
The next big idea down the pipeline is generative artificial intelligence, but even that has been dialed back somewhat after stocks were priced in for parabolic growth rates.
As the expectation for better technology ideas results in the need to improve business models, there seems to be no room for bottom-of-the-barrel tech like the Uber of battery-powered scooters.
It seemed like a bad idea from the start so it’s surprising it took this long for them to get exposed.
Moving forward, expect tried-and-tested brand names in tech to outperform these mediocre businesses. It’s never been more difficult to grow tech companies with these high interest rates and the death of bad tech ideas will go into overdrive as interest rates continue to surge.
This will help our trading because knowing the pulse of the tech sector is half the battle.
Mad Hedge Technology Letter
August 18, 2023
Fiat Lux
Featured Trade:
(A POOR OMEN)
($TNX), ($COMPQ)
