Here you go with some on-demand commentary dissecting the future of tech stocks after the speech was heard around the world.
The morning of August 26th set among a stunning backdrop at the Grand Teton National Park in Jackson Hole, Wyoming, Central Bank Governor Jerome Powell delivered to us, the people, the financial speech of 2022.
I’ve been waiting all week for this blockbuster speech and had my bag of popcorn and glass of wheat grass smoothie waiting for me in front of my flatscreen to watch the one speech that certainly would move the tech market this year.
It didn’t disappoint. It was loaded with highly impactful soundbites.
The speech was exactly 8 minutes and 38 seconds, and I thought what was said had to be said.
My good friend Jerome spent about 2 minutes of that time explaining to us how the Fed is responsible for a job and how it’s not time to get complacent.
The rest, distilling down to 6 minutes and 38 seconds what was supposed to be a 30-minute speech, signaled to listeners: if the tone of the speech isn’t that positive, you might as well make it short and bitter to get it over with.
Remember that Jerome is renowned and lauded for his dovishness which has delivered us many elevated years of performance in the Nasdaq.
What’s my hot take?
Jerome came out with a largely hawkish tone and even used some stronger than usual verbiage, which is why the Nasdaq plummeted.
The Fed is on record for saying how strong the job market is and how the economy is so great, but they finally acknowledged that the job market will likely “weaken” which is a massive about-face confession.
We’ve seen about 100,000 job losses so far in Silicon Valley tech companies and even Facebook is using an algorithm to fire selected employees and high-pressuring leftover employees to increase production or face a similar cut.
Expect a tsunami of tech job losses in 2023.
Jerome also acknowledged that businesses and consumers will face upcoming “pain” which is a word I’ve never even heard him say in private let alone to the world.
He then later said that he expects a “sustained period of below trend growth” which is the “unfortunate cost of reducing inflation.”
What does this mean for tech stocks?
Inflation continues as the largest and most outsized risk to Nasdaq performance for longer and more serious than first expected.
Rates will go higher interest rates and this scenario clobbers tech companies by reducing the profits of future cash flows.
You can bet that every CFO is biting their nails now, updating their models to reflect the new reality of higher rate expectations, shrinking margins, higher expenses, and lower profits.
The driving forces behind the unrivaled inflation still exist such as the foreign military conflicts in Asia and Europe, supply chain snarls, or even China’s dystopian lockdowns. Many companies like Apple have decided to buy back stock or execute stock splits instead of investing in new businesses. EVs are having a tough time achieving production goals. Just a lot of no bueno all around.
Sadly, these external forces will continue to persist until there is some sort of solution to one or any of them.
Up until now, there hasn’t been any breakthrough, and the clock is still ticking.
Ultimately, inflation can become entrenched and it’s the Fed's job to break the back of those expectations because like how in low inflationary environments, businesses and customers set prices based on expectations of low inflation, the same rings true for high inflation and the prices set based on out-of-control inflation.
Naturally, tech companies will also feel the pain, sadly, this was a highly negative speech for tech stocks, but if the CPI can continue its downtrend, we will see a Nasdaq snapback.
https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png00Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2022-08-26 15:02:342022-08-26 21:03:59Speech Heard Around The World
“It has become appallingly obvious that our technology has exceeded our humanity.” – Said German-born Theoretical Physicist Albert Einstein.
https://www.madhedgefundtrader.com/wp-content/uploads/2022/08/albert-einstein.png408388Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2022-08-26 15:00:302022-08-26 16:39:15August 26, 2022 - Quote of the Day
Below please find subscribers’ Q&A for the August 24 Mad Hedge Fund Trader Global Strategy Webinar broadcast from Silicon Valley in California.
Q: I’ve heard another speaker say that we are not heading for a Roaring Twenties; instead, we are heading for a Great Depression. Who is right?
A: There are many different possible comments to this. Number one, in the newsletter business, the easiest way to make money is to predict the Great Depression and panic people. Stock market Gurus have been predicting the next Great Depression for all of the 54 years that I have been in the financial markets. We’ve gone through a whole series of Dr. Doom's over this time. We had Nouriel Roubini, we had Henry Kaufman, and before that, there was Joe Granville who predicted Dow 300 when the Dow was at 600 and never gave up. The reason is very simple: the people making these dire forecasts are based in depressionary places. If you live in Puerto Rico, or Ukraine, or Europe, it’s easier to be depressed right now, because the economy is falling to pieces. If you live in Silicon Valley, like I do, and you see these incredible technologies delivering every day, it’s easy to be bullish about the future. So, that is another part of it. On top of that, we’ve just had a recession. And even during this last recession, earnings continued to grow at 5% for the main market, and 20-30% for individual technology companies. The market goes up 80% of the time so if you’re bullish, you’re right 80% of the time. In fact, that may increase going into the future because we just had six months of down days behind us.
Q: How do you know when to buy?
A: Well, I have about 100 different market indicators that I look at, but my favorite one is the Volatility Index (VIX). The (VIX) is the perfect contrary indicator because when fear is high the payoff for taking on risk is huge. The risk/reward swings overwhelmingly in your favor. The simplest indicators are usually the best ones. When (VIX) gets to $30—I don’t think I’ve ever lost money in my life adding on a new trade with (VIX) at $30. If I add positions with the (VIX) at under $30, the loss rate goes up; so, I’m inclined to only do trades when the (VIX) gets close to $30. If that means doing nothing for a month, that’s fine with me. If telling you to stay out of the market makes more money than getting you into the market, I’ll keep you out of the market. I’m not a broker so, I don’t get paid commission; I get paid to give you the highest annual returns so you’ll renew because I only get paid if you renew. Our renewal rate is about 80% these days, and the other 20% either die or retire.
Q: What about the Tesla (TSLA) 3:1 split?
A: In the short term I would stand back and do nothing because you often get a “buy the rumor sell the news” selloff in stocks after splits. Long term, Tesla is a strong buy; short term, we are up close to 60% in a couple of months. Betting that Tesla would rise going into this split was one of the most successful trades that I’ve ever done.
Q: Did you know Julian Robertson?
A: Yes, I did. Julian was one of the first investors in my hedge fund, and then he was one of the first buyers of my Mad Hedge newsletter. He was also my first concierge client. He had one heck of a temper; if you didn’t know your stuff cold, he would just absolutely blow up at you. But he did tend to surround himself with geniuses. He drew on Morgan Stanley people a lot, so I knew a lot of the tiger cubs. But he certainly knew stocks, and he knew markets.
Q: What do we do on the SPDR S&P 500 ETF (SPY) position?
A: Just run it into expiration. As it is my only position, I don’t really have anything else to do and I don’t really see any explosive upside moves in markets this month. And then after that, we will be 10 days to expiration; so there may be enough profit there at that time.
Q: As a long-term investor, should I take Tesla profits now?
A: If you're really a long-term investor and sell now, you’ll miss the move to $10,000. However, if you’re a trader, you should take some profits now and look to buy and scale in down $50 and more down $100, and so on, depending on what the market does.
Q: What are your thoughts on Nvidia Corporation (NVDA) and semis?
A: When recession fears exist, you will have sharp downturns in the semis, because this is the most volatile sector in the market. However, in the long term in Nvidia you might be looking at a 20% of downside, and 200% of upside on a three-year view. It just depends on how much pain you want to take while keeping your long-term position.
Q: Why is September typically the worst month of the year for stocks?
A: You need to go back 120 years when farmers accounted for 50% of the US population. In the farming business, September/October is your maximum stress point, because you’ve put out all your money for seed, for water, for fertilizer, but you don’t get paid until you sell your crop in September/October. That creates a point of maximum stress—when farmers have to max out the loans from the banks, and that creates cascading stresses in the financial system. That’s why almost every stock market crash happened in October. And of course, since that cycle started, it has become a self-fulfilling prophecy to this day. Even though only 2% of the population is in farming now, that selloff in September/October is still there. There’s no real current reason behind it.
Q: How do you find good spreads?
A: You find a good stock first, then a good chart, and then wait for the market to come to you with a high Volatility Index (VIX) with a good micro and macro tailwind. It’s that simple.
Q: Do you think healthcare will sell off once the recession fear is gone?
A: It may not because it had a massive selloff across the entire industry when COVID went away. They've taken that COVID hit. That's a recession if you’re a healthcare company. Now COVID is essentially gone, so they haven’t got it left to lose. In the meantime, technology continues to hyper-accelerate in the healthcare area, just in time for old people like me.
Q: How would you invest $1 million in a retirement portfolio today?
A: Call me—that’s a longer conversation. Or better yet, sign up for the concierge service, and we can talk as long as you want.
Q: Any hope for Facebook (META)?
A: No, when you’re advertising that you’re going to lose money and that you’re not going to make money for five years, that’s bad for the stock. I’m sorry Mr. Zuckerberg, but you should have taken those financial markets classes instead of just doing the programming ones.
Q: Will Powell be dovish or hawkish in his speech?
A: I think he has to go hawkish because he needs to justify the next interest rate hike in September. That’s why I’m 90% cash. The market is set up here not to take disappointments on top of a 4,000-point rally in two months. It’s very sensitive to disappointment, so it’s a good time to be in cash.
Q: What stocks go down the most if we get a 5-10% correction?
A: Semiconductors. Nvidia (NVDA), Advanced Micro Devices (AMD), Micron Technology (MU) are your high beta stocks. Having said that, those are the ones you want to buy at market bottoms. I’ve caught many doubles on Nvidia over the years just using that strategy. When you’ve had a horrible market, you want to go for the highest beta stocks out there, and those are the semis. Plus, semis have a long-term undercurrent of always making more money, always improving their products, always increasing market shares. So, you want to invest with tailwinds behind you all the time. 30 years ago, a new car needed ten chips. Now they need 100. That accelerates exponentially as the entire auto industry goes EV.
Q: What’s your opinion on Lithium companies?
A: You know, I haven’t really done much in this area because it is a basic commodity. The profit margins are minimal, there is no Lithium shortage in the world like there is an oil shortage. Plus, no one has a secret method of mining Lithium that is more profitable than another. No one has an advantage.
Q: Is there a logical maximum number of stocks to have in a share portfolio?
A: I keep mine at ten. You should be able to cover every good sector in the market with ten. When I talk to new concierge customers and review their portfolios, one of the most common mistakes is they own too many stocks – there can be 50, 100, 200 stocks, even several gold stocks. And you never want to own more than you can follow on a daily basis. It’s better to follow ten stocks very closely than 100 stocks just occasionally.
Q: How low do you think Apple (APPL) will go on this dip?
A: Minimum 10%, maybe 20%. Just depends on how weak the market will go in this correction.
Q: What was your defensive plan when you sold short Tesla puts?
A: If they got exercised against me and the Tesla shares were sold to me at my strike price, I was going to take the stock, then let the stock rally. If my long-term view for Tesla is $10,000, it’s not such a problem having a $500 put exercise against you—you just take the stock and run the stock. That was always the strategy. Never sell short more puts than you can take delivery of in the stock. Your broker won’t let you do it anyway to protect themselves.
Q: Do you think we could get a strong rally on the next CPI report?
A: Yes. The report is due out on September 13. But some of a sharp drop in the CPI in the next report is already in the market, so don’t expect another 2,000-point stock market rally like we got last time. It’ll be a much lesser move and after that, we’ll need to see more data. We may get 1,000 points out of it, probably not much more. After that, the November midterm election becomes the dominant factor in the market.
Q: When is natural gas (UNG) going to roll over?
A: When the Ukraine War ends, and that day is getting closer and closer. I think it’ll be sometime in 2023. And if you get an end to the war (and the resumption of Russian supplies is not necessarily a sure thing) you’d get a move in natgas from $9 down to $2. So, that’s why I’m very cautiously avoiding energy plays right now. The big money has been made; next to happen is that the big money gets lost.
Q: What are your thoughts on Florida’s pension fund now banning ESG stocks? I live on Florida state pension fund payments.
A: You might start checking out other income opportunities, like becoming an Uber (UBER) driver or working at MacDonalds (MCD). What the Florida governor has done is ban the pension fund from the sector that is most likely to go up over the next ten years and restricted them to the sector (oil) which is most likely to go down. That is very bad for Florida’s pension fund and any other pension funds that follow them. And I’ve seen this happen before, where a pension fund gets politicized, and it’s 100% of the time a disaster. Governors aren't great market timers; politicians are terrible at making market calls. There are too many examples to name. ESG stocks were one of the top performing sectors of the market for 5 years until we got the pandemic crash. So, that is an awful idea (and one of the many reasons I don’t live in Florida besides hurricanes, humidity, alligators, and the Bermuda Triangle).
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, or BITCOIN LETTER, whichever applies to you, then select 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
https://www.madhedgefundtrader.com/wp-content/uploads/2021/10/John-thomas-with-william-miller.png430612Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2022-08-26 10:02:392022-08-26 11:11:23August 24 Biweekly Strategy Webinar Q&A
Many emerging countries have suffered asymmetric depreciation relative to stronger western currencies.
It’s a tough act for these guys and in some cases, they have been penalized by the larger nations for external risks out of their control.
India is said to be the new China and that’s not something to downplay.
They boast a young and highly educated demographic that is hellbent on improving their standard of life.
However, lately, the lust for crypto in India has been met with an iron fist by the Indian government which presented an exorbitant tax move as an opportunity to “professionalize” the asset class.
It also made crypto trading prohibitively expensive.
The decision comes amid an onslaught of criticism of the industry by government officials and regulators.
Some of the most brutal attacks have come from India’s central bank as it prepares to launch a national digital currency.
In short, since April 1, any gains on the transfer of crypto assets are taxed at 30%, a higher rate than many other jurisdictions including the US and the UK.
Trading losses can’t be offset against income as well.
Trading on three exchanges ZebPay, WazirX, and CoinDCX crashed between 60% and 87% after the tax took effect.
Under the banner of protecting against terrorist financing, fraud, and other illicit activities, the Indian government has tried to reign in the crypto industry and put it under its control.
Some of this is about avoiding conservative Indians that might throw their savings down the drain into a highly volatile and uncertain asset.
Central Banks tend to be risk-averse and most bank members have never had a real job in their life and come from academia.
There is still a stigma that crypto is high risk and might crash.
Indians have now been forced to migrate to foreign trading platforms or physically immigrate abroad to countries more favorable to crypto operations.
A huge revenue gap will take effect moving forward as in the past, investments in crypto in India grew from about $923 million in April 2020 to nearly $6.6 billion in May 2021.
The country’s population of 1.4 billion people trends young, with a growing, well-educated middle class.
After Vietnam, India achieved the second highest rate of crypto adoption.
While China has banned crypto transactions entirely because of many of the same reasons, India is yet to introduce a bill defining digital assets and decide how to regulate them.
Indian Finance Minister Nirmala Sitharaman has said any legislation can be effective only with international cooperation to prevent so-called regulatory arbitrage, whereby companies shop for the most lenient jurisdiction to do business.
The uncertainty is sending a chill through the clusters of Indian startups developing products based on blockchains, from decentralized finance applications to nonfungible tokens.
Reading the tea leaves, crypto’s assent clashes with India’s central bank and the central bank rather introduce a central bank digital currency than allow crypto to operate like a wild western.
It’s not surprising that those poorer countries lust for financialized centralization and crypto is the scapegoat.
Scarily, other countries like China have been developing these central bank digital currencies for years like the digital yuan and there is a low risk they could wipe out the existing crypto out there.
This is why many banana republics can never innovate, develop, or thrive. They simply won’t open up enough let alone open up to foreigners. Money and technology are both met with suspicion.
I would go even so far as to say that the future of crypto will either exist in the United States or not at all.
When bureaucrats are only willing to frame any financial conversation by the amount of control they can secure, then developing an alternative financial system like crypto is a non-starter.
America is the best country to nurture emerging technology because leaders understand its power and trajectory of it and even better, do not turn a blind eye to its potency.
This is what happened with inventions like the internet, personal computer, and the smartphone.
It will most likely happen with crypto as well.
https://www.madhedgefundtrader.com/wp-content/uploads/2022/08/bitcoin-1-e1661450634639.png229500Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2022-08-25 16:02:302022-08-26 10:25:36A Thorn in the Side of Crypto
When a drugmaker does not deliver a new product within the promised timeframe, its shares generally drop.
When this happens, investors should take a closer look at regulatory headwinds as potential buying opportunities, especially in the biotechnology world.
However, it’s important to determine whether the business in question can satisfactorily address the issues raised by the regulators and eventually get the green light for the held-up product.
Several companies find themselves in this scenario, but a particular one looks promising: Axsome Therapeutics (AXSM).
While Axsome isn’t one of the most renowned biotechs and its shares may look somewhat risky, it’s worth considering initiating positions in this growing company.
One reason is Axsome’s recent victory over a hurdle, finally gaining the long-awaited FDA approval for its depression drug that can take effect within just 1 week because it uses a unique mechanism instead of the traditional elements.
The drug, previously known as AXS-05, will be marketed as Auvelity and slated for sale in the fourth quarter of 2022.
For months, investors have been closely monitoring the progress and approval of this drug with some concern.
Doubts over Axsome’s capacity to deliver started to hound the company, especially after FDA’s self-imposed approval deadline for AXS-05 passed in 2021.
However, the company attributed the delay to the pandemic and shrugged off concerns over the actual drug.
Auvelity is the first of a class of drugs, which are classified as NMDA receptor antagonists, to be marketed in pill form created as a treatment for depression.
It is the only approved pill working as a fast-acting drug targeting major depressive disorder. This will also be Axsome’s first-ever marketed product.
Other than Axsome, there are several biotechs working on antidepressant treatments.
Among them, the closest potential competitors are Sage Therapeutics (SAGE) and Relmada Therapeutics (RLMD).
Sage recently started rolling out its own candidate, Zuranalone, for approval as a treatment for major depressive disorder.
Relmada is also working on a similar candidate, REL-1017, but seems to be at an earlier stage.
Psychiatric treatments like Auvelity are widely sought after and highly coveted assets in the biopharma world for a myriad of reasons.
The sheer potential of Auvelity puts Axsome on buyout watch for several Big Pharma and even expanding biotechnology and healthcare companies today.
Moreover, Axsome’s major depressive disorder drug would dovetail conveniently with the lineups of a lot of leading pharmaceutical names in the industry including Pfizer (PFE), Eli Lilly (LLY), Bristol-Myers Squibb (BMY), and even Biogen (BIIB).
With that in mind, Axsome’s brain trust would most likely demand an astronomical premium based on or relative to its current valuation if it ever enters any buyout discussion with interested suitors.
Auvelity sales are projected to hit $209.1 million in 2023, growing impressively to blockbuster status by 2027 at $1.5 billion.
By 2030, sales of this major depressive disorder drug are estimated to reach $2 billion every year.
Auvelity is made up of two drugs that physicians already readily prescribe and are comfortable with for years; one of which is bupropion.
Bupropion, marketed under the brand name Zyban, actually raked in blockbuster sales marketed as a smoking cessation treatment.
Hence, Axsome plans to leverage the success of Auvelity to begin a pivotal study that could utilize this major depressive disorder as a smoking cessation treatment as well.
On top of these, Axsome is anticipating another FDA approval in the next months.
The company submitted its new migraine treatment, AXS-07, for review in 2021. Like Auvelity, it encountered delays due to the pandemic. However, things seem to be moving along as the regulatory committees catch up.
By 2023, Axsome plans to submit another candidate for FDA approval. Clinical trial results for its fibromyalgia treatment, AXS-14, recently released positive data.
So, what now?
When investing in biotech, it’s always good to keep in mind that extreme volatility is an ever-present risk. This makes the sector unfit for those looking for short-term investments.
For Axsome, the biggest challenge today is showing that Auvelity sales can support the development of AXS-07 and AXS-14 and fund operations into 2024 without the need to ask shareholders for more capital.
However, even if Auvelity fails to deliver strong revenues in 2023, the rest of the company’s late-stage pipeline still looks pretty exciting.
Taken together, Axsome looks like a promising stock to invest in as a relatively small portion of a diversified biotech portfolio.
https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png00Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2022-08-25 15:00:332022-08-26 22:00:18A Risk Worth Taking
Last month, I thrilled you with my aerobatics flying a WWII Spitfire over the White Cliffs of Dover (click here if you missed it).
This month, I one-upped myself.
In appreciation to the early buyers of Model S-1’s, Tesla invited me to submit a photo to be etched on the side of a satellite launch into space. Having purchased chassis no. 125, I certainly qualified. Those who referred 25 other buyers were allowed to send videos.
Of course, I had to send a picture of me piloting a 1929 Travelaire D4D biplane, which you can find below. The photo was inserted into the mosaic below. I sent the Spitfire video on an SD card and it’s in orbit as well.
The blast-off took place at Cape Canaveral, Florida on August 4, 2022.
You have to hand it to Tesla, they really know how to do PR, and their advertising budget is nearly zero. The Detroit Big 3 spend $50 billion a year on advertising and get a lesser result.
To watch a video of me blasting off into space on a Space X Falcon 9, or at least my laser etched image, please click here.
Oh, and buy (TSLA) on dips as well.
https://www.madhedgefundtrader.com/wp-content/uploads/2022/08/tesla-mosaic-e1661438774428.png268450Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2022-08-25 10:02:102022-08-25 10:55:36About My Trip To Space
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