Global Market Comments
May 25, 2023
Fiat Lux
Featured Trades:
(THEY’RE NOT MAKING AMERICANS ANYMORE)
CLICK HERE to download today's position sheet.
You can count on a bear market hitting sometime in 2038, one falling by at least 40%.
Worse, there is almost a guarantee that a financial crisis, severe real estate crash, and possibly another Great Depression will take place no later than 2058 that would take the major indexes down by 50% or more.
No, I have not taken to using an Ouija board, reading tea leaves, or examining animal entrails in order to predict the future.
I simply read the data just released from the National Center for Health Statistics, a subsidiary of the federal Centers for Disease Control and Prevention (click here for their link).
The government agency reported that the US birth rate fell to a new all-time low for the second year in a row, to 11 births per 1,000 women of childbearing age. A birth rate of 125 per 1,000 is necessary for a population to break even. The absolute number of births is 3,664,292, the lowest since 1987. In 2021, women had 37% fewer babies than in 2007.
These are the lowest number since WWII, when 17 million men were away in the military, a crucial part of the equation.
Babies grow up, at least most of them. In 20 years, they become consumers, earning wages, buying things, paying taxes, and generally contributing to economic growth.
In 45 years, they do so quite substantially, becoming the major drivers of the economy as “peak spenders”. When these numbers fall, recessions and bear markets occur with absolute certainty.
You have long heard me talk about the coming “Golden Age” of the 2020s. That’s when a two-decade-long demographic tailwind ensues because the number of “peak spenders’ in the economy starts to balloon to generational highs. The last time this happened was during the 1980s and in 19990’s stocks rose 20-fold.
Right now we are just coming out of two decades of demographic headwind, when the number of big spenders in the economy reached a low ebb. This was the cause of the Great Recession, the stock market crash, and the anemic 2% annual growth since then.
The reasons for the maternity ward slowdown are many. The great recession certainly blew a hole in the family plans of many Millennials. So did the pandemic. Falling incomes always lead to lower birth rates, with many Millennial couples delaying children by five years or more. Millennial mothers are now having children later than at any time in history.
Burgeoning student debt, which just topped $1.7 trillion is another. Many prospective mothers would rather get out from under substantial debt before they add to the population. So is a structural shortage of housing.
The rising education of women is another drag on childbearing and is a global trend. When spouses become serious wage earners, families inevitably shrink. Husbands would rather take the money and improve their lifestyles than have more kids to feed.
Women are also delaying having children to postpone the “pay gaps” that always kick in after they take maternity leave. Many are pegging income targets before they entertain starting families.
As a result of these trends, one in five children last year were born to women over the age of 35, a new high.
This is how Latin American moved from eight to two-child families in only one generation. The same is about to take place in Africa, where standards of living are rising rapidly, thanks to the eradication of several serious diseases.
The sharpest falls in the US have been with minorities. Since 2017, the birthrates for Hispanics has dropped by 27% from a very high level, African Americans 11%, whites 5%, and Asian 4%.
Europe has long had the same problem with plunging growth rates but only much worse. Historically the US has made up for the shortfall with immigration, but that is now falling thanks to the current administration's policies. Restricting immigration now is a guarantee of slowing economic growth in the future. It’s just a numbers game.
So watch that growth rate. When it starts to tick up again it’s time to buy….in about 20 years. I’ll be there to remind you of this newsletter.
As for me, I’ve been doing my part. I have five kids aged 17-36, and my life is only half over. Where did you say they keep the Pampers?
I'm Doing My Part
(WHO IS IMPACTED IF THE U.S. DEFAULTS ON ITS DEBT)
May 24, 2023
Hello everybody,
98 times in the past, the debt ceiling has been raised. Why should this time be different? If it is different this time, who takes the brunt of the effect?
Let’s see.
First, we have the veterans. There is a bill of $12 billion on June 1 for veterans’ benefits. If there is not enough money on hand to pay those benefits, people who have already sacrificed a lot for their country will have to sacrifice a lot more. There are people on very low, sometimes fixed incomes who rely on these payments as a lifeline to pay for housing, pay for food, to pay for expenses for children and other family members.
The government is also scheduled to pay $12 billion in military and civilian retirement benefits on June 1. If those payments are delayed for any length of time, people with little or no savings might have to turn to credit cards, which carry increasingly costly interest rates.
The government is scheduled to pay $25 billion in Social Security benefits on June 2 – one of several big payments the program will make over the course of the month.
Another group that would be impacted would be home buyers. The real estate website Zillow estimates that a prolonged government default could send mortgage rates soaring as high as 8.4% from about 6.4% today. That would put homes out of reach for hundreds of thousands of would-be buyers.
Other payments that would be jeopardised include the following:
$47 billion for Medicare providers, due on June 1.
$1 billion in tax refunds, set to go out June 7.
$4 billion in federal salaries, payable on June 9.
Others include:
Food stamp recipients. Education programs, Défense contractors.
Ok, let’s look at the markets for a bit.
The S&P advance should persist and is still able to extend on to the next resistance at around 4310 – 4325. Above this resistance lies 4385.
The U.S. stock market’s advance this year has been led by the Nasdaq index, with the FANG stocks leading the charge forward. In late March this year, the Nasdaq completed a bullish 9-month inverse Head and Shoulders reversal pattern, yielding up an upside target around the 15,600 level. This target remains in play. If this target is punched through, we could see 18,000.
If you were looking to buy any stocks now, I would be looking at Apple, which has a target of around $190, and Microsoft, which has a target of around $345.
GOLD – a correction is in progress. We could get down to around $1920. Then you want to buy with both hands. Look at GOLD, WPM, and SLV. First target is around $2,360.
U.S.$ - Look to fade the dollar very soon. Start buying small parcels of AUD, Euro, Pound, NZ$, and Yen.
Wishing you all a happy mid-week.
Cheers,
Jacquie
Mad Hedge Technology Letter
May 24, 2023
Fiat Lux
Featured Trade:
(START-UP EV INDUSTRY WISHES FOR A MIRACLE)
(RIDE), (TSLA)
Not all of the current tech companies have that cushy position at the top of the ivory tower.
The likes of Google, Microsoft, and Apple are just a few of a handful of privileged companies that are too big to fail and have a direct line to Congress if anything starts to go haywire.
Not every tech firm has that luxury and, to be more precise, they are usually start-ups and lesser-known, which makes sense.
In the case of the tech sector, the grass truly is greener on the other side between the haves and have-nots.
Just look at the EV sub-sector that is emblematic of this larger trend.
Lordstown Motors (RIDE) is barely keeping its head above water after the company announced a 1-for-15 reverse stock split.
Investors holding Lordstown stock should see fewer shares at a higher price in their brokerage accounts.
Lordstown has about 243 million shares outstanding. Following the reverse split, the number will be roughly 16 million.
Investors typically like conventional stock splits that reduce the price of shares while increasing the number of shares outstanding. Stock splits can make shares more affordable to retail investors and can signal that management is optimistic about the future. No one would split a stock they expect to go down.
Reverse splits typically happen after a period of hardship. Coming into Tuesday trading, Lordstown stock is down 90% over the past 12 months.
The company has struggled to produce trucks and needs more cash. Lordstown has produced 56 pickup trucks since the start of production.
RIDE is also running out of money fast and the company will need more than $200 million for the remainder of 2023 if the company is to ramp up production.
Lordstown has received a delisting notice from the exchange. It has until mid-October to remedy the situation. The threat of delisting was also a concern to partner Foxconn.
Foxconn owns the factory that produces RIDE’s EVs.
RIDE may be forced to cease operations and file for bankruptcy after manufacturing giant Foxconn told the electric-vehicle company that it’s prepared to pull out of a production partnership.
The deal with Foxconn Technology Group could unravel after the Taiwanese company threatened to withhold funding.
This quickly souring situation could rapidly destabilize the other start-ups in the EV market.
Just about eight months ago, Foxconn agreed to invest as much as $170 million in Lordstown and take two board seats. The deal gave the EV maker much-needed capital while offering Foxconn, the Taiwanese manufacturer best known as the maker of Apple Inc.’s iPhone, a firmer foothold in automotive production.
In January, Lordstown asked Foxconn to suspend production because the cost of making the Endurance battery-powered pickup exceeded the targeted sale price of $65,000 — and said it would need another partner beyond Foxconn's share costs.
RIDE finds itself in quite a pickle. Unlike many of the big tech behemoths, they can’t just make a call to the higher-ups to sort it out and they don’t have the balance sheet nor the clout to get things their way.
Essentially, fighting upstream is not an advantageous proposition and when Tesla started heavily discounting new Teslas, what consumer would opt for an untested brand for the same price?
If readers want to get into EV stocks, buy Tesla on the dip or nothing at all.
“I know that you must be passionate, unreasonable, and a little bit crazy to follow your own ideas and do things differently.” – Said CEO and Founder of Salesforce Marc Benioff
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
May 24, 2023
Fiat Lux
Featured Trades:
(JULY 19 LONDON STRATEGY LUNCHEON)
(TESTING TESLA’S SELF-DRIVING TECHNOLOGY),
(TSLA)
(TESTIMONIAL)
CLICK HERE to download today's position sheet.
I knew I was on the right track when the salesman told me that the customer who just preceded me for a Tesla Model X P100D SUV was the Golden Bay Warriors star basketball player, Steph Currie.
Well, if it’s good enough for Steph, then it’s good enough for me.
Last week, I received a call from Elon Musk’s office to test the company’s self-driving technology embedded in their new vehicles for readers of the Diary of a Mad Hedge Fund Trader.
I did, and prepare to have your mind blown!
I was driving at 80 MPH on CA-24, a windy eight-lane freeway that snakes its way through the East San Francisco Bay Area mountains. Suddenly the salesman reached over and flicked a lever on the left side of the driving column.
The car took over!
There it was, winding and turning along every curve, perfectly centered in the lane. As much as I hated to admit it, the car drove better than I ever could. It does especially well at night or in fog, a valuable asset for senior citizens whose night vision is fading fast.
All that was required was for me to touch the steering wheel every two minutes to prove that I was not sleeping.
The cars do especially well in rush hour driving, as it is adept at stop-and-go traffic. You can just sit there and work on your laptop, read a book, or watch a movie on the built-in 4G WIFI HD TV.
When we returned to the garage, the car really showed off. When we passed a parking space, another button was pushed, and we perfectly backed 90 degrees into a parking space, measuring and calculating all the way.
The range is 290 miles, which I can recharge at home at night from a standard 220-volt socket in my garage in seven hours. When driving to Lake Tahoe, I can stop halfway at get a full charge in 30 minutes. The new chargers operate at a blazing 450 miles per hour.
The chassis can rise as high as eight inches off the ground so it can function as a true SUV.
The “ludicrous mode,” a $10,000 option, takes you from 0 to 60 mph in 2.9. However, even a standard Tesla can accelerate so fast that it will make the average passenger carsick.
Here’s the buzz kill.
Tesla absolutely charges through the nose for extras.
The 22-inch wheels, the third row of seats to get you to seven passengers, the premium sound, the leather seats, and the self-driving software can run you $15,000.
A $750 tow hitch will accommodate a ski or back rack on the back. There is a $1,000 delivery charge, even if you pick it up at the Fremont factory.
It’s easy to see how you can jump from an $84,990 base price to a total cost of $162,500, including taxes, for the ultra-luxury Performance model, as I did.
My company will be purchasing the car under Section 179 of the International Revenue Code. The car qualifies because it weighs over 6,000 pounds and is therefore a truck under the new tax law.
This allows me to deduct the entire $162,500 cost of the vehicle upfront, plus the maintenance and insurance costs for the entire life of the car. However, I will have to maintain a mileage log as a hedge against any future IRS audits.
Ironically, Section 179 was enacted as a subsidy for consumer purchases of the eight miles-per-gallon Hummer, which was originally built by AM General and owned by General Motors (GM).
After several attempts to sell, the division failed, and production was permanently shut down. However, the tax subsidies live on for any like-designed vehicle.
It looks like I’ll have to buy two Teslas this year.
With 4 million Teslas now on the road, a few flaws have come through. The big one is “ghost braking”, where the car suddenly stops for no apparent reason. It appears that when a Tesla in, say, Florida turns right, the Tesla in California will see that car as immediately in front of it and slow down.
I’ve been telling Tesla this may be a byproduct of running the largest AI neural net ever built. Musk may be moving beyond the known physics of electrons without knowing about it. As long as you know about it, you just tap the brakes to turn off the self-driving, then turn it back on.
As for “drop dead’ curb appeal, nothing beats the Model X. Buy the stock on every 20% dip.
It’s another way of saying “buy the shares and you get the car for free.”
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Going to renew my membership today because you provide great ideas. I think you have a lot of integrity in your messages. We may not agree politically, but you have nailed many of the concepts you shepherd. I have become a fan and look forward to your writing every day.
Don,
Cleveland, Ohio
I'm Such a Saint!