Global Market Comments
January 20, 2022
Fiat Lux
Featured Trades:
(HOW THE MAD HEDGE MARKET TIMING ALGORITHM TRIPLED MY PERFORMANCE)
I couldn’t believe my eyes.
Upon analyzing my performance data for the past year, it couldn’t be clearer.
After three years of battle testing, the algorithm has earned its stripes. I started posting it at the top of every Mad Hedge newsletter and Trade Alert three years ago, and will continue to do so in the future.
Once I implemented my proprietary Mad Hedge Market Timing Index in October 2016, the average annualized performance of my Trade Alert service has soared to an eye-popping 42.62%.
As a result, new subscribers have been beating down the doors trying to get in.
Let me list the high points of having a friendly algorithm looking over your shoulder on every trade.
*Algorithms have become so dominant in the market, accounting for up to 80% of total trading volume, that you should never trade without one
*It does the work of a seasoned 100-man research department in seconds
*It runs real-time and optimizes returns with the addition of every new data point far faster than any human can. Imagine a trading strategy that upgrades itself 30 times a day!
*It is artificial intelligence-driven and self-learning.
*Don’t go to a gunfight with a knife. If you are trading against algos alone, you WILL lose!
*Algorithms provide you with a defined systematic trading discipline that will enhance your profits.
And here’s the amazing thing. My algorithm completely nailed the big rotation out of tech and into value stock last September.
My Mad Hedge Market Timing Index also correctly predicted the outcome of the 2020 presidential election.
You saw this in stocks like US Steel (X), which took off like a scalded chimp the week before the election and quickly tripled.
When my and the Market Timing Index’s views sharply diverge, I go into cash rather than bet against it.
Since then, my Trade Alert performance has been on an absolute tear. In 2022 we earned a ballistic 90.02% compared to a paltry 18% gain for the Dow Average.
Here are just a handful of some of the elements which the Mad Hedge Market Timing Index analysis in real-time, 24/7.
50 and 200-day moving averages across all markets and industries
The Volatility Index (VIX)
The junk bond (JNK)/US Treasury bond spread (TLT)
Stocks hitting 52-day highs versus 52-day lows
McClellan Volume Summation Index
20-day stock-bond performance spread
5-day put/call ratio
Stocks with rising versus falling volume
Relative Strength Indicator
12-month US GDP Trend
Case Shiller S&P 500 National Home Price Index
Of course, the Trade Alert service is not entirely algorithm drive. It is just one tool to use among many others.
Yes, 50 years of experience trading the markets is still worth quite a lot.
I plan to constantly revise and upgrade the algorithm that drives the Mad Hedge Market Timing Index continuously as new data sets become available.
Obviously, in light of the recent stock market crash, a ton of new valuable data is available for which my algo can mine.
It’s All About the Inputs
Mad Hedge Technology Letter
January 19, 2022
Fiat Lux
Featured Trade:
(MICROSOFT TAKES A GIANT LEAP FORWARD)
(MSFT), (ATVI), (PINS), (GOOGL), (AAPL), (AMZN)
CEO of Microsoft (MSFT), Satya Nadella, and his management team have made an aggressive step towards making inroads to the metaverse.
Gaming will be the launching pad to the metaverse that will first start as digital communities and later evolve into interoperable and integrated digital worlds.
The rest of the metaverse will germinate via these gaming communities and Microsoft knows that which is why they purchased Activision (ATVI) in cash for $68 billion and change.
The price was 3X higher than what they paid for LinkedIn but equally as strategic as many tech behemoths look forward to the next “big thing.”
The deal will mean MSFT will be one of the biggest gaming companies in the world just nudging out China’s Tencent and Japan’s Sony.
In the U.S., they will be by far the biggest gaming company and Nadella has made it a point of emphasis to navigate the gaming world by tapping M&A.
Remember, it was Nadella who built the MSFT cloud from scratch and Microsoft possessing its own stand-alone cloud asset dovetails nicely with their deep dive into gaming.
There are intrinsic synergies resulting from owning both.
The lack of native cloud infrastructure was a critical reason why ATVI gave up, as Chief Executive Officer Bobby Kotick said in an interview, “You look at companies like Facebook and Google and Amazon and Apple, and especially companies like Tencent — they're enormous and we realized that we needed a partner in order to be able to realize the dreams and aspirations we have,” he said.
This was the best Kotick could have wished for and I’ve mentioned this overarching trend of the best Silicon Valley companies getting stronger and now it’s even more pronounced as we are on the verge of exiting this pandemic this year.
In a higher interest rate environment, cash hoarders like Microsoft, Apple (AAPL), and Amazon (AMZN) simply have more ammunition than these smaller outfits who get penalized because of a harder route to access cheap capital making future cash flows costlier.
Now many of these smaller companies are realizing that they need to stand on their own two feet and that’s a scary thought for many CEOs who have been accustomed to tapping the capital markets to paper over the cracks.
What’s good about ATVI?
Activision owns mobile-gaming studio King, maker of Candy Crush, one of the most popular mobile games of all time.
Microsoft has almost zero presence in mobile gaming.
Nadella wants his gaming empire to facilitate direct payment like Apple’s App Store.
That’s effectively the holy grail of today’s gaming.
Microsoft has been at war with Apple and Google, over the fees the app stores charge for games.
It’s no surprise that Microsoft wants complete control over its ability to distribute games and content.
The deal also allows Microsoft an access point to secure an influential pool of gamers creating their own gaming content and worlds.
After adding Minecraft, LinkedIn, and GitHub, Nadella has been on the hunt for a game-changing asset that will drive the bottom line of MSFT via a large community of creators.
He failed to land social video service TikTok, while negotiations with Pinterest (PINS) and Discord were rebuffed.
ATVI is really a feather in the cap for Nadella, who won’t stop there and knows it’s just one battle of a greater war for tech supremacy.
These high-quality assets don’t get cheaper over time either.
Simply put, Microsoft loves subscription businesses, and gaming is among the best of them, and they are the stickiest around with recurring revenue that makes predicting future cash flows that much easier.
The ATVI pickup will raise the price of buying gaming assets across the board as I foresee a rush into these types of assets where not only can a company purchase the content, licenses, and gaming platform, but they can also add top-notch gaming developers which are equally as important as Microsoft tries to outmuscle Apple and Google.
This move is highly bullish for MSFT, so much so, that anti-trust regulators might cast a suspicious eye on this deal.
“Well, if you can buy 1,000 of anything, it doesn't belong on Etsy” – Said CEO of Etsy Josh Silverman
When John identifies a strategic exit point, he will send you an alert with specific trade information as to what security to sell, when to sell it, and at what price. Most often, it will be to TAKE PROFITS, but, on rare occasions, it will be to exercise a STOP LOSS at a predetermined price to adhere to strict risk management discipline. Read more
When John identifies a strategic exit point, he will send you an alert with specific trade information as to what security to sell, when to sell it, and at what price. Most often, it will be to TAKE PROFITS, but, on rare occasions, it will be to exercise a STOP LOSS at a predetermined price to adhere to strict risk management discipline. Read more
When John identifies a strategic exit point, he will send you an alert with specific trade information as to what security to sell, when to sell it, and at what price. Most often, it will be to TAKE PROFITS, but, on rare occasions, it will be to exercise a STOP LOSS at a predetermined price to adhere to strict risk management discipline. Read more
Global Market Comments
January 19, 2022
Fiat Lux
Featured Trades:
(NOW THE FAT LADY IS REALLY SINGING FOR THE BOND MARKET),
(TLT), (TBT), ($TNX)
The most significant market development so far in 2022 has not been the epic stock market fail, the explosive growth of the Omicron virus, or the runaway prices at the supermarket, although that is quite a list.
Far from it.
It has been the utter collapse in the bond market, which has seen the (TLT) plunge a gut-punching $15 in only six weeks. Since the beginning of this year, the yields on ten-year US Treasury bonds have rocketed, from 1.34% to 1.82%.
I love it when my short, medium and long-term calls play out according to script. I absolutely hate it when they happen so fast that I and my readers are unable to get in at decent prices.
That is what has happened with my short call for the (TLT), which has been performing a near-perfect swan dive since November. The move has been enough to already boost me into positive numbers for 2022, some 2.5%.
The concierge members who accumulated many bond put LEAPS have made much more.
Lucky borrowers who demanded rate locks in real estate financings in October are now thanking their lucky stars. We may be saying goodbye to the 2% handle on 5/1 ARMS and the 30-year fixed for the rest of our lives.
The technical damage has been near-fatal. The writing is on the wall. A 2.00% yield for the ten-year is now easily on the menu for 2022, if not 2.5% or 3.0%.
This is crucially important for financial markets, as interest rates are the wellspring from which all other market trends arise.
Wiser thinkers are peeved that the promised bleeding of federal tax revenues is causing the annual budget deficit to balloon from a low of a $450 billion annual rate in 2016 to $3 trillion last year and another $3 trillion in 2022.
It will all end in tears for bond and US dollar holders.
With a massive infrastructure budget just ahead of us, that number could soar by the end of the year.
Weimar Republic, eat your heart out! (Millennials please Google this).
It is all a bond short seller’s dream come true.
As rates rise, so does the debt service costs of the world’s largest borrower, the US government. The burden will soar in a hockey stick-like manner, currently at 5% of the total budget.
What is of far greater concern is what the tax bill does to the National Debt, taking it from $30 trillion to $33 trillion over the next year, a staggering rise. Even Tojo and Hitler couldn’t get the US to buy that much during WWII.
Better teach your kids to drive for UBER early, as they are the ones who are going to have to pay off this gargantuan debt. That is if (UBER) is still around.
So what the heck are you supposed to do now? Keep selling those bond rallies, even the little ones. It will be the closest thing to a rich uncle you will ever have, if you don’t already have one, writing you big checks every month.
Make your year now because the longer you put it off, the harder it will be to earn.
