Global Market Comments
July 25, 2023
Fiat Lux
Featured Trades:
(TESTIMONIAL)
(ELECTIONS IN DAYS GONE PAST)
CLICK HERE to download today's position sheet.
(THE TRIALS AND TRIBULATIONS OF MIKE CANNON-BROOKES)
July 24, 2023
Hello everyone,
The week beginning Sunday 23rd is a big one for the markets.
It’s earnings season and Fed week all rolled into one.
Right now, investors are happy given the price action, which is based on signs of inflation abating and should lead the Fed to lowering rates down the road. In short, investors are finding it easy to celebrate headlines that talk about earnings beats.
Any signs of a dovish tilt in the Fed announcement will be quite favourable for stocks. Whereas any signs that they are sticking to their hawkish rate hike plans could be the spark for a 5-10% pullback.
Amidst all this financial backdrop, life is marching on.
Right now, it seems to be the season for a lot of high-profile separations in Australia. Andrew “Twiggy” Forrest of Fortescue Metals and his wife have announced their separation and just recently the Aussie tech billionaire Mike Cannon-Brookes has split from his wife of 13 years. The couple married in 2010 and have lived with their four children in a $12 m Fairwater home since 2019. Worth an estimated $19b, the Connecticut-born Cannon-Brookes rose to prominence after co-founding software company Atlassian in 2002.
Cannon-Brookes and co-founder Scott Farquhar have since been lauded as one of the greatest success stories in the Australian tech industry. In 2022, Cannon-Brookes invested in one of Australia’s largest renewable energy projects Sun Cable alongside billionaire Andrew Forest. The project, which involved a 120km2 solar and battery farm in the Northern Territory, went into voluntary administration in January 2023 after disputes amongst its backers as well as economic and engineering factors. However, in May this year, Cannon-Brookes rescued the company with an injection of funds. More recently, Atlassian has faced setbacks with the company slashing about 5% of its workforce, just months after a hiring blitz. This resulted in a drop in the share price and the wealth of Cannon-Brookes plummeting by about $7b.
Cannon-Brookes also faced criticism late last year due to Atlassian’s continued business ties with Russia following the invasion of Ukraine. In September, Cannon-Brookes and Farquhar wrote on the company’s website that “Atlassian stood with Ukraine”.
In addition to their business holdings, Cannon-Brookes and wife Annie also amassed a wide property portfolio. In June, the couple paid $14.25 million to buy a home in Newport on Sydney’s northern beaches. The property neighbours the $24.5 million estate they purchased in 2020.
It comes after the Cannon-Brookes joined several investors in buying Dunk Island on Queensland’s Great Barrier Reef in 2022.
Cannon-Brookes attended Cranbrook School before graduating from UNSW. He is the son of banking executive Mike Cannon-Brookes.
Cannon-Brookes and his wife Annie
Cannon-Brookes and Andrew “Twiggy” Forrest
Mad Hedge Technology Letter
July 24, 2023
Fiat Lux
Featured Trade:
(REBALANCING BEFORE THE NEXT MOVE)
(NFLX), (QQQ)
In quite an unprecedented maneuver; the people who run the Nasdaq have chosen to water down the biggest tech components because a few companies are exerting too much power over the index.
In other words, the big fish have gotten so big that the index is adjusting their formula.
This speaks volumes about how great the top 7 tech stocks have performed in 2023.
They have taken off like a runaway train and haven’t looked back.
If this turns out to be a less-than-blockbuster earnings season and the market offers a pullback, it may be the last opportunity of the year to get into high quality tech stocks at a discount.
Selloffs from blue chip tech firms like Netflix (NFLX) signal that a short-term technical cooldown could be in the cards for tech stocks.
NFLX came back to earth, but I want to reiterate that it is more than healthy price action for this stock which started out the year at $300 per share.
The stock exploded to $480 per share and the post-earnings cooldown has found the stock in the $420 per share range.
There are a handful of blue chip tech stocks that I would regard this sort of price action as a mind-blowing opportunity.
Another reason for a short-term cooldown is the aforementioned reformulation of the Nasdaq index.
The tech-based index - Nasdaq 100 gets tracked by a slew of funds.
They include the Invesco QQQ Trust (QQQ), the world’s fifth-largest exchange-traded fund (ETF), according to Morningstar.
Nasdaq announced that the Nasdaq 100 index will undergo a "special rebalance" that will come into effect today.
The index is typically rebalanced each quarter, but outside of that, it can employ a special rebalance to address overconcentration in the index by redistributing the weights.
While the organizers have been mum on the technical about the rebalancing, the index's methodology says that it can be adjusted if companies with weightings that exceed 4.5% of the index together make up more than 48% of the index.
This technical maneuver underscores the attractiveness of these tech businesses and compelling investment opportunities relative to other areas.
The result has been increased investor attention and enthusiasm for tech stocks now — at the expense of other sectors, he says.
Investors of funds tracking the Nasdaq 100 Index woke up today with a different portfolio.
Most investors in U.S. stocks will be at least indirectly affected by the rebalance.
That's because "billions of dollars of stock" will be traded as funds tracking the Nasdaq 100 buy and sell in response to the rebalancing.
During this short-term rebalancing phase, I can easily visualize a convenient time for investors to reload their ammunition. Load up the bullets before we are off to the races again.
Heading into the last 4 months of the year, the US consumer is strong as steel and I would beg any black swan to show their ugly face and try to topple this kryptonite tech market.
An orderly dip in tech stocks this earnings season would represent nothing more than a massive victory and if it’s sideways then watch up to the upside.
I would even say there is a higher risk that dip buyers get a little impatient and pull the trigger a little early just to make sure they get some skin in the game for the next elevator up.
That’s how hot tech has been.
(IBM), (NVDA), (MSFT), (GOOGL), (SNOW), (BASFY), (MITSY)
There's a hidden gem shimmering in the vast landscape of artificial intelligence (AI) investment. A household name tech titan, a company whose bread and butter for years has been the cloud and AI, and, not to forget, one that boasts one of the loftiest dividend yields in the tech playground.
This AI dark horse is none other than IBM (IBM).
Sure, the market has reservations about Big Blue's AI capabilities, but this oversight is akin to missing the forest for the trees. Take a look at chip manufacturer NVIDIA (NVDA), with shares surging 172% this 2023, thanks to the rousing performance of its chips in generative AI applications. Microsoft (MSFT) and Alphabet (GOOGL), the uncrowned kings of AI software, have also ratcheted up a solid 40% each.
But IBM? Well, it's dipped by 8%.
This unexpected downturn is a puzzling enigma, given IBM's metamorphosis over the past three years. When it comes to AI acumen, IBM is a seasoned player, arguably outclassing most contenders, and yet the stock trades at a mere two times forward sales, a stark contrast to Nvidia's 20 times.
And did I mention IBM's staggering dividend yield surpassing 5%? This enterprise has been knee-deep in AI exploits for over 40 spins around the sun.
In the twilight of the 90s, precisely two springs before Nvidia took Wall Street by storm, an IBM supercomputer affectionately termed “Deep Blue” tipped the scales in an intellectual duel of chess against world champion Garry Kasparov.
Fast forward to 2011, and IBM's Watson supercomputer was all the rage, besting human virtuosos on the trivia showdown Jeopardy. Among Watson's foes was the trivia titan Ken Jennings, who now runs the show. Quipping underneath his final Jeopardy response, Jennings humorously declared, "I, for one, welcome our new computer overlords."
Now, it's important to note that IBM's trajectory wasn't always skyward.
Following the Jeopardy spectacle, they dove headfirst into the healthcare sector, seeking to leverage Watson for drug discovery and similar pursuits. However, things didn't pan out as planned, leading IBM to bid farewell to Watson Health for a cool billion in 2022.
Understandably, onlookers mistook this move as IBM's surrender to the AI battlefield. However, nothing could be further from the truth.
Actually, IBM has a unique take on the AI industry. For instance, the company has recently unveiled a revamped avatar of Watson, intriguingly dubbed Watson X.
This fresh-off-the-press venture is structured into three distinct components.
Firstly, Watson.ai collaborates with clients to architect new models and data sets.
Secondly, Watson.data establishes itself as a data repository, thereby challenging contenders like Snowflake (SNOW) on their own turf.
Lastly, Watson.governance functions as an overseer for AI models, ensuring accuracy and accountability and steering clear of misinformation or contentious content.
Notably, IBM isn't gearing up to launch its version of ChatGPT. The company views the AI landscape as filled with immense possibilities. Above the surface, we spot AI chatbots like Microsoft Bing and Google Bard. These public-facing AI applications, though significant, represent just a fraction of AI’s potential.
IBM's primary focus isn't to develop a one-size-fits-all AI model like ChatGPT. Its strategy resembles a master craftsman helping clients carve unique AI sculptures to extract more juice from their data troves. This could involve blending open-source models with the client's proprietary data or crafting bespoke models designed to dance harmoniously with their data.
The company’s blueprint for its AI portfolio includes a cadre of specialized domain-specific data sets, much like a family with diverse talents. Consider the chemistry model IBM is sculpting, drawing from the well of public domain information.
For example, IBM is looking into the possibilities of a partnership with chemical titans like Mitsui Chemicals (MITSY) or BASF SE (BASFY). These corporations have a secret sauce, proprietary data, for manufacturing chemicals.
Would any of them willingly pour their secret sauce into a public model? That would be a resounding no.
However, they'd jump at the chance to customize the chemistry model with their secret sauce. The reward? Swift, insightful answers to client and internal queries, innovative formulations, and ultimately, a nitro-boost to their business model.
Another initiative is IBM’s collaboration with a banking institution to enhance compliance and audit data. The endgame? To satisfy regulators with watertight control measures, all honed internally.
IBM has been flexing its intellectual muscles and churned out 20 of these unique domain models. Its repertoire extends from chemistry and banking to code writing, even making IT operations run smoother than a freshly oiled machine. Its venture into geospatial models morphed with NASA's climate data, aiming to revolutionize weather forecasting.
Clearly, AI could be a golden goose for most companies, generating a staggering $16 trillion for the economy by 2030. It's no secret that IBM harbors the vision of single-digit mid-range revenue growth over time.
While the company doesn't openly declare the new lucrative avenues AI could open for IBM, I think it’s time for us to put on our reading glasses and read between the lines.
Midjourney Prompt: “Ken Jennings playing chess with the IBM AI Watson”
Global Market Comments
July 24, 2023
Fiat Lux
Featured Trades:
(PROGRESS REPORT FROM EUROPE – PART ONE)
CLICK HERE to download today's position sheet.
I am now three weeks into a five-week European sojourn and things couldn’t be going better. I missed the US actors strike by a week, the England Southwestern Railway strike by three days, and the London Underground strike by two days. However, in Italy, I was hit by a one-day rail strike there.
Better yet, the stock market is up ten days in a row, torturing the few summer players left in it.
Who wouldn’t love a week in the Big Apple, its vibrancy and energy overwhelming? I booked a VIP seat to watch the Macy's Fourth of July fireworks display, including all the Champaign and hot dogs I could eat and drink. Despite several flirtations with bankruptcy, Macy's still puts on a great show.
I also spent two days at the New York City Department of Records tracing my family history. Among the amazing facts I discovered was that my grandfather’s first job upon entering the US in 1915 was to work as a machinist for Orville Wright at Wright Aeroengine in New Jersey. This was America’s first effort at mass-producing aircraft. That explains my family’s long association with aviation.
The New York Strategy Luncheon was outstanding, with a good time had by all. A collection of long-time loyal subscribers, some going back as far as 12 years, received the briefing of a lifetime and managed to throw in a few ideas of their own.
I joined the Queen Mary II at the Brooklyn Cruise Terminal, reclaiming the owner’s suite. It’s nice to be home again. This 2,200 square-foot palace included a large living room, my own office, and exercise room, a private elevator, a dining room, and a full-time butler. You can’t help but tear up passing the Statue of Liberty where so many of my forebears first glimpsed their new homeland.
A brisk eight times around the deck everyday assured me I was getting in my prober two miles' worth of exercise. You don’t get to be my age and still be ready for battle without a lifetime of tough exercise. At the mid-Atlantic, I even spotted a whale spouting and diving and sending his regards.
I managed to put in a vigorous morning of fencing. With “En Garde” a woman let out a blood-curdling scream and charged, attacking at every opportunity. She attacked so aggressively that at one point the safety fell off the tip of her foil and she started poking me in the chest for real. It turned out she was the former captain of the University of Melbourne Woman’s Fencing Team. But I held my own.
Fencing on a ship adds a new element. When you lunge forward and the deck disappears out from under you, the results can be surprising. Next is fighting with sabers. I never know when I might get challenged to a duel.
In London, I made the pilgrimage to the Royal Air Force Museum in Hendon. It turns out I had flown six of the aircraft types on display.
The London Strategy luncheon was a sold-out affair, with ten guests coming from eight countries. We covered every subject under the sun and a half case of French wine made the ultimate sacrifice. Too bad, the private military club banned photos for security reasons.
Even after three trips, the Orient Express never gets old. It’s even more popular now that the train gets destroyed in the latest Mission Impossible movie by, you guessed it, artificial intelligence. I had a three-star diner approaching Paris, breakfast in the Swiss Alps, and lunch in the Italian Lake District. I was positively waddling by the time I got off.
But traveling on a 100-year-old train has its adventures. A shocked couple discovered that they needed passports to get into the EC post-Brexit, so we were all turned back at the border. A flash flood washed out the tracks behind us. So just ten minutes short of Venice they moved the Orient Express onto a siding, detached the engine, and sent it to help with emergency repairs. As it passed, I thought “There goes our engine.” In recompense, we were offered all the free Champaign we could drink until it returned four hours later.
We finally arrived at a steamy and torrid Venice at midnight, the streets absolutely packed with tourists of countless nationalities and every restaurant full.
TO BE CONTINUED.
To watch the Macy's Fourth of July fireworks display grand finale, please click here. Turn your volume up for maximum effect.
With a 1949 Lockheed Constellation
New York City Department of Records
At Home Again on the Queen Mary II
En Garde!
Making Progress
On the Fantail
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
(HOW TO INVEST IN RENEWABLE ENERGY)
July 21, 2023
Hello everyone,
Thank goodness the European heatwave did not also hit London. Temperatures were a balmy 23-24 degrees Celsius while I was there.
Many electric taxis now grace the roads in London. You must make a mental effort to watch for cars instead of listening for them, as with electric cars, you cannot hear them approaching.
And how will a lot of electricity (Including these electric cars) be fuelled in the future?
Renewable energies.
Solar and wind power generation is set to triple by 2030, according to a report from the Rocky Mountain Institute leading to a disruption in the global electricity sector. And with this disruption comes a promising renewable energy trade for investors.
According to Rocky Mountain Institute (RMI), solar and wind power will fuel 33% of electricity generation in 2030, up from 12% in 2022. Furthermore, the Institute predicts that solar energy, which is already the cheapest energy source in history, will halve in price by 2030, continuing the dramatic downward trajectory of solar and wind energy costs. The levelized cost of energy (LCOE) for solar and wind was around $40 per megawatt hour in the first half of 2023, as noted by (RMI), which is approximately half the cost of coal and gas.
Companies that are well-positioned to outperform from the rise of solar and wind energy production are shown below. Each of these companies secured a buy rating from 60% of analysts, and each has at least 30% upside to the average price target. In addition, they have been covered by at least seven analysts, and are listed on the NYSE or the NASDAQ.
Shares of Sunrun could surge more than 77%, according to the average price target on shares. Andrew Percoco, a Morgan Stanley analyst revealed that 64% of analysts covering the stock have issued a buy rating.
Maxeon shares have risen 68% in 2023 and could jump another 50%, per the average price target on shares. Percoco noted that the decline in solar panel market prices due to oversupply could pressure the company’s margins in 2024. However, it is worth noting that MAXN has largely locked in pricing for the remainder of 2023 and carved a niche with its premium DG (Distributed Generation) storage & energy. According to FactSet data, 71.4% of analysts covering the stock have issued it a buy rating.
Enjoy your weekend.
Cheers,
Jacquie
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