Aloha John,
Damn, you’re good! I loaded the boat with all your trade alerts. I’m grinning ear to ear.
I will contact you soon to discuss investment strategy for fresh piles of cash. I’m thoroughly enjoying Concierge Service and The Bitcoin Letter, and look forward to your mentorship navigating this turbulent market in 2022.
Mahalo!
Wilson
“If we are just going to argue about how much money we can burn to stay warm while the heater is broken, the unemployment rate is going to come down only 1.5% a year," said economist Austin Goolsby.
Mad Hedge Technology Letter
November 7, 2022
Fiat Lux
Featured Trade:
(UNREGULATED TECH)
(U.S. MIDTERMS)
As we inch our way towards the US midterms, let’s take a quick audit of what are some of the ramifications of the US midterm and what it means to the technology sector.
The good news is that historically, tech stocks almost always burst to the upside after the results are in.
To say that tech has done well the last few years is an understatement, but that doesn’t make it better for this year as tech has poorly performed.
Luckily, Democratic or Republican rule has produced little tech regulation and that was a boon up until Fed Chair Jerome Powell decided to hike rates.
I believe that Democrats and Republics will continue to both turn a blind eye to what’s happening under the tech hood.
That won’t change.
Congress only likes to hype up its image as the big bad wolf, but at the end of the day, it is usually just showmanship which I boil down to politicians caring more about their short-term re-election cycle.
D.C. still allows tech to be the least regulated industry in America which is why prospects are still bright for Silicon Valley.
Part of regulation is intertwined with tracking and data surveillance which is a widely practiced tactic for many internet companies.
The last few years we have seen internet companies run riot on personal data attempting to seize anything they can get their fingers on.
Sure, for the most part, this dirty practice mostly involves selling digital ads and I believe this trend will get worse for consumers as tech firms reach for more revenue.
The overarching theme is that tech companies still get to do what they want to do and how they want to with unfettered impunity.
Then if we shine a torch on anti-trust implications to ecommerce companies like Amazon, there has been very little going on besides processional congressional hearings and a lot of jawboning that results in zilch.
The lack of regulation has allowed Apple to make arbitrary rules for their Apple store which usually favors their net profits.
The lack of regulation has allowed Amazon to prioritize Amazon search results for their own homegrown products which usually favors their net profits too.
The lack of regulation has allowed social media platforms to censor whatever they want to appease sponsorships and ad budgets with the unintended result that social media is now the arbiter of truth like Facebook.
The lack of regulation has allowed the Chinese communist-backed video app TikTok to steal 100s of millions of American’s personal data from facial recognition to location data while selling this on to private companies.
In short, tech gets away with a lot and there’s not much political motivation to reverse that trend.
The only substantial piece of tech legislation passed by Congress lately was when President Biden signed into law a $280 billion package meant to boost the domestic chip-making industry and scientific research.
Ultimately, the federal government has largely stayed in its lane allowing tech companies to profiteer and I fully expect them to give tech a pass for at least the next two years until the next Presidential election.
It was not Congress who popped the tech bubble, but the US Central Bank with higher interest rates.
Congress wished the gravy train kept going.
When interest rate expectations reverse, I would expect the status quo to re-emerge as a key investment thesis with tech growth leading the indexes to higher highs.
Even more specifically, the biggest tech companies will continue to exert a level of market power that is akin to a monopoly or duopoly, and that staying power is potent and time-tested.
Overheated tech shares coming back to reality is not an indictment on the long-term profitability of the sector, but more a buy-the-dip moment in the long-term bullish trajectory of the overall tech sector.
WASHINGTON HASN’T LAID A FINGER ON BIG TECH
“Technology is a useful servant but a dangerous master.” - Said Norwegian Historian Christian Lous Lange
Global Market Comments
November 7, 2022
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or THE FED GIVETH AND THE FED TAKETH AWAY)
(SPY), (TLT), (JNK), (AAPL), (MSFT), (AMZN), (GOOGL), (META)
Now you see it, now you don’t.
The rip-roaring rally that started in October, with which we made so much money on, vaporized in a heartbeat. Traders lulled into a false sense of security with happy talk among themselves were suddenly throwing up on their shoes.
Fed governor Powell clearly indicated that interest rates will remain higher for longer, and therefore, stock prices lower. Powell promised us pain last summer and is delivering big time. Powell’s job is NOT to defend the stock market.
Personally, I’m looking for another 75 basis points on December 14, followed by 50 basis points on February 1 and another 25 basis points on March 22. This will bring us 4.75%-5.00% range for overnight Fed funds. After that, rates will fall for years as the Fed rushes to repair the damage it inflicted on the economy. Stocks will deliver the 800% return I have been promising.
I went into the Fed meeting short and used the ensuing meltdown to take profits.
As a result, my November month-to-date performance went off to the races, already achieving a hot +2.20%.
That leaves me with a very rare 100% cash position. With midterm election results out on Wednesday and the next report on the Consumer Price Index on Thursday, that sounds like a prudent place to be.
My 2022 year-to-date performance ballooned to +77.57%, a new high. The Dow Average is down -11.85% so far in 2022.
It is the greatest outperformance on an index since Mad Hedge Fund Trader started 14 years ago. My trailing one-year return maintains a sky-high +49.51%.
That brings my 14-year total return to +590.13%, some 2.86 times the S&P 500 (SPX) over the same period and a new all-time high. My average annualized return has ratcheted up to +49.51%, easily the highest in the industry.
There is no doubt that the greatest buying opportunity of the century is setting up. Those who bought the Dotcom Crash bottom in 2003 snapped up Apple (AAPL) at 20 cents on its way to $186, split adjusted. During the 2009 Financial Crisis bottom, the savvy snapped up Microsoft (MSFT) at $11. Its top tick last year was $23.
A similar golden opportunity is setting up in the next year and will create immense wealth. Just remember that things always go down more than you think, and then rise far more than you believe possible.
However, one of the greatest questions of all time has finally been resolved. Can stock markets rise without big tech? The answer has been an overwhelming “YES.” Financial, where we have been very heavily involved, rose up to 25% while tech was falling 20%. Healthcare has been on fire as well. It all gives us a place to earn our crust of bread until the long-term trend up in tech resumes, however long that may take.
The turn will be called by the prospect of Fed interest rate CUTS sometime in 2023, and good luck calling that.
Further complicating matters near term is that this could be the greatest tax loss selling year of all time, with some stocks down up to 80% sold to offset gains elsewhere, such as in energy. But the mutual funds are already done, their tax year already ended. Whatever is left must be wound up by December 31.
Nonfarm Payroll Comes in at a Hot 261,000 in October, higher than hoped. The Headline Unemployment Rate crawled up to 3.7%, the highest since February. Average hourly earnings are up 4.7% YOY, far below the inflation rate. The U-6 “Discourage worker” rate rose from 6.7% to 6.8%. Anyone who thinks these numbers will lead to an earlier end to the Fed interest rate rises has a hole in their head.
JOLTS Beats Bigtime, with 10.7 million jobs opening, a million more than expected. No cooling of labor demand here.
ADP Rises 239,000, more than expected, nailing the coffin shut on the 75-basis point rate hike. The strong industries, like Airlines and Leisure & Hospitality, are still hiring like crazy.
Is Big Tech Dead Money? It may be for months, or even years, but Big Tech always comes back. It’s just a matter of how long it takes big double-digit earnings to return with the onset of the next robust economic recovery. Until then, expect a lot of differentiation. Apple (AAPL) will hold up best, followed by Amazon (AMZN) and Google (GOOGL). As for Meta (META), the old Facebook, it may never come back.
Tech Austerity Accelerates, with Apple (AAPL) announcing an unheard-of hiring freeze. The rest of big tech is following suit. The knees are about to be cut from under the market’s safest stock.
Fed Raises Interest Rates by 75 Basis Points but changed their language to be slightly more accommodative. Stocks rallied 500 points on the news. If this is bullish, it’s a stretch. They are still targeting a 2% inflation rate and will take into account cumulative tightening to date. Acknowledging they have already raised rates a lot is something. That is more dovish than expected.
Chicago PMI is Still Falling, from 47 estimated to 45.2 in October. Under 50 indicates a recessionary economy.
Morgan Stanley Says Rising Rates to End Soon, according to strategist Mike Wilson. The big pivot will happen sooner than later. I agree.
Twitter Hate Speech Spikes 500%, since Elon Musk took over the company, as racists and conspiracy theorists test his looser limits. The entire senior staff has been fired as they are still subject to fraud accusations from Musk. Musk thinks he can resell the company for a big premium in five years. Is this the end of democracy, or just Twitter (TWTR) whose stock no longer trades? More advertisers will bail after Musk paraded conspiracy theories in the wake of the Pelosi assassination attempt.
US Treasury to Borrow $550 Billion in Q4. It means the bond short (TLT) and (TBT) may have one more gasp to go.
Japan Spends $42 Billion to Support the Yen in October to no avail, as it threatens new lows. The yen will remain weak as long as interest rates remain near zero.
First Starship to Launch in December, the largest rock ever launched. The super heavy booster will return to earth while the capsule will land off the coast of Hawaii. Space X has a $3 billion contract from NASA to return to the moon by 2025.
US Banks Processed $1.2 Billion in Ransomware Payments this Year, triple the previous year’s level. Russia is the source of many of the attacks. And you wonder why we are supporting Ukraine?
Russian Economy Shrinks by 5% YOY in September as the sanctions take their toll. Only 45% to go. The call-up of 300,000 reservists has yet to hit the economy.
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. With the economy decarbonizing and technology hyper-accelerating, there will be no reason not to. The Dow Average will rise by 800% to 240,000 or more in the coming decade. The America coming out the other side will be far more efficient and profitable than the old. Dow 240,000 here we come!
On Monday, November 7 at 12:00 PM, the Consumer Credit for September is released.
On Tuesday, November 8, the US Midterm elections take place with 532 House and 34 Senate seats up for grabs.
On Wednesday, November 9 the entire day will be spent analyzing election results and tracking the ties.
On Thursday, November 10 at 8:30 AM, Weekly Jobless Claims are announced. We also get the US Core Inflation Rate for October.
On Friday, November 11 at 8:30 AM the University of Michigan Consumer Sentiment for November is printed. At 2:00 PM, the Baker Hughes Oil Rig Count is out.
As for me, I was recently in Los Angeles visiting old friends, and I am reminded of one of the weirdest chapters of my life.
There were not a lot of jobs in the summer of 1971, but Thomas Noguchi, the LA County Coroner, was hiring. The famed USC student jobs board had delivered! Better yet, the job included hours at night and free housing at the coroner's department.
I got the graveyard shift, from midnight to 8:00 AM. All I had to do was buy a black suit from Robert Halls, for $25.
Noguchi was known as the “coroner to the stars” having famously done the autopsies on Marilyn Monroe and Jane Mansfield. He did not disappoint.
For three months, whenever there was a death from unnatural causes, I was there to pick up the bodies. If there was a suicide, gangland shooting, or horrific car accident, I was your man.
Charles Manson had recently been arrested and I was tasked with digging up the victims. One, cowboy stuntman Shorty Shay, had his head cut off and neatly placed in between his ankles.
The first time I ever saw a full set of women’s underclothing, a girdle, and pantyhose, was when I excavated a desert roadside grave that the coyotes had dug up. She was pretty far gone.
Once, I and another driver were sent to pick up a teenage boy who had committed suicide in Beverly Hills. The father came out and asked us to take the mattress as well. I regretted that we were not allowed to do favors on city time. He then said, “can you take it for $200”, then an astronomical sum.
A few minutes later found a hearse driving down the Santa Monica Freeway on the way to the dump with a double mattress expertly tied on the roof with Boy Scout knots with a giant blood spot in the middle.
Once, I was sent to a cheap motel where a drug deal gone wrong had produced several shootings. I found $10,000 in a brown paper bag under the bed. The other driver found another ten grand and a bag of drugs and kept them. He went to jail. I didn’t.
The worst pick-up of the summer was also the most disgusting and even made the old veterans sick. A 300-pound man had died of a heart attack and was not discovered for a month. We decided to each grab an arm or leg and all tug on the count of three. One, two, three, and all four limbs came off!
Eventually, I figured out that handling dead bodies could be hazardous to your health, so I asked for rubber gloves. I was fired.
Still, I ended up with some of the best summer job stories ever.
Stay healthy,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
"All men dream, but not equally," said T.E. Lawrence, known as Lawrence of Arabia.
Sunday morning
November 6, 2022
Hello everyone,
I trust your weekend was a good one.
John’s heading for the start of the week: The Fed Giveth and the Fed Taketh Away.
In other words, welcome to volatility, which will be with us for quite some time.
Another .75% rate hike is on the cards in December.
After that, John thinks we may start to see lower rate hikes, but there are no guarantees here.
Going into the mid-term elections, John is now in a 100% cash position. We also have the Consumer Price Index on Thursday.
A great buying opportunity is setting up in the months ahead.
Financials and Healthcare have been doing well, but technology has lagged.
Technology is for the long term – it may be under the weather for months or years, but it always comes back, as John reminds us, so don’t wipe it completely from your portfolios.
Apple has gone on a hiring freeze. Other names in this sector will follow suit. The winter season in tech will bite workers as the Fed hits the rate rise button.
The Fed is targeting a 2% inflation rate. Listen to the language around the next hike to see if we are closer to lower rate hikes soon.
What’s happening in Twitter Kingdom.
Staff have left or been sacked.
Advertisers have abandoned the social media site.
Conspiracy theories have been front and center on the platform, which creates traffic.
Twitter will launch a new subscription service – Twitter Blue. You will pay $7.99 per month.
Updates are listed as available for users in the U.S., Canada, Australia, the UK, and New Zealand.
Japan spends $42 billion to support the Yen. It didn’t work. The Yen will remain weak so long as interest rates remain near zero.
The Russian economy is shrinking as sanctions continue to take their toll. Convicted criminals are now being called up to fight in the war against Ukraine.
John’s stories from his personal life are always interesting. Here is another.
In 1971, John worked for an LA County Coroner, Thomas Noguchi. He was known as the “coroner to the stars” having famously done autopsies on Marilyn Monroe and Jane Mansfield. John did the night shift and there was free housing at the coroner’s department. The work was not for the faint of heart. In one job John writes about, he and his co-worker were asked to go and pick up a 300-pound man who had died of a heart attack and had been undiscovered in his home for a month. As John describes, they each grabbed an arm and a leg and went to move the person on the count of three. On doing so, however, all limbs were severed from the deceased body. When John asked for gloves for health and safety reasons, he was fired.
What an interesting attitude to workers some companies have!!
Wishing you all a fantastic week.
Cheers,
Jacque
"If you cannot do great things, do small things in a great way, " says Napoleon Hill
Mad Hedge Technology Letter
November 4, 2022
Fiat Lux
Featured Trade:
(THE SILICON RESET)
(LYFT), (AMZN), (STRIPE)
