“In the short term, the market moves on behavior and in the long term it moves on math,” said Jenny Harrington, the CEO of Gilman Asset Management.
(SUMMARY OF JOHN’S AUGUST 30, 2023, WEBINAR – “HIGHER FOR LONGER.”)
September 1, 2023
Hello everyone,
Webinar Title: Higher for Longer
John believes there is an upside move coming as there is big money on the sidelines waiting to buy the next dip.
September 12-14th Summit – highly educational, prizes, please join us.
San Diego September 6 Luncheon – Join John and other concierge members at a waterfront restaurant.
Trade Alert Performance: -4.70% for August. Stopped out of long position in TLT before sell-off down to 92. Now have a cushion of cash.
92.45% trailing one-year return.
48.15% average annualized return.
No Positions – 100% cash.
Method to My Madness
John is looking for TLT to get down to around 92 where he will issue LEAPS.
He has ignored all the hype about sells on Tesla.
Funds have shown record underperformance this year.
The next big dip is the one you buy, with $5.6 trillion in cash sitting on the sidelines.
John argues that stocks could rally for 6-9 months after that. Looking for a hot economy for 2024.
Tech is completing a sideways “time” correction and will lead the next leg of the bull market, now 10 months old.
Bonds may have bottomed – buy LEAPS on the next dip.
Precious metals and commodities should be at the top of any “buy” list to cash in on an economic recovery.
Housing is starting a comeback, 20% of the U.S. economy.
Oil is getting ready for an upside breakout to $100/barrel.
Patience is a virtue – let the market come to you.
Global Economy
Powell says it’s “higher for longer.”
August Non-Farm Payroll is expected to come in at a weak 175,000.
September 10 – Inflation Read – if we get a rise in inflation, we could get a sell-off. May be a good entry point.
Industrial production rises – 1.0% in July, the second best read since January.
Chinese profits continue to slump – down 6.7% YOY in July. Youth unemployment exceeds 20%.
Strikes threatening Detroit, as the United Auto Workers call for a vote, demanding a 40% wage increase over four years.
Market Timing Index – chopping around 50. Do nothing territory.
Possibility of black swan in September/October.
Stocks
Weekly Jobless Claims down 10K - strong economy.
On John’s travels, he noted that a large proportion of London’s cabs have gone electric.
John is in cash – no trades. Waiting for the next big dip.
Waiting for the Fed to make its move. Will rates be Up, Down, or Paused?
Berkshire Hathaway (BRKB) posts record profit – with profits up 38%.
Microsoft – looks to double in the next three years.
Advised all members to take profits on U.S. Steel.
John’s BRKB LEAPS are up 50%.
S&P – looking for a lower low and then a year-end rally to take us up to 480 or 500.
A drop of 17+% down to 380 is possible if the inflation number is bad.
Time correction on Apple, Meta, and Netflix.
Nvidia (NVDA) hits an all-time high. The target is 1000.
John believes UPS could be fully automated in five years’ time making all staff redundant.
Looks like a good entry point on FCX.
Walt Disney is out of favour.
Health Care is a buy here.
Morgan Stanley – a great buy here.
Japanese stocks are making a killing off a weak yen.
Bonds - Looking for the Double Bottom
10-year Treasury yields hit a new 16-year high at 4.38%.
The U.S. Budget Deficit is climbing once again increasing Treasury Bond Sales.
The whole falling interest rate/rising bond price trade has been delayed for six months which is thanks to the Fitch downgrade and hotter-than-expected economic growth at 2.40% for Q2.
Keep buying 90-day T bills, now pushing a 5.31% risk-free yield.
Still looking like 3.50% 10-year yield by end of 2023.
Junk Bonds ETFs (JNK) and (HYG) are holding up extremely well with a 6.5% yield.
Bonds (TLT) still likely to hit $110 by year-end.
A hot inflation number will be a big negative.
Foreign Currencies
“Higher for Longer” gives an adrenaline shot for the US$ taking it to new 2023 highs.
Yen headed to new multi-year lows at $150.
Investors flee to safe-haven short-term investments.
“Higher for Longer” delays the first rate cut to March or even June.
Collapse of the dollar is now a 2024 story.
Aussie dollar collapse prompted by slowing Chinese economy not buying their energy or commodities.
Buy FXE, FXB, FXA on big dips. Avoid (FXY).
Aussie now at around 64.74 – headed for parity.
Energy and Commodities – on a roll
Natural gas is now trading in new higher range awaiting a breakout.
An Australian strike shut down on LNG export facility still looming.
Russian output down 800,000 b/d since January due to sanctions and sinking tankers.
Unilateral Saudi 1 million b/d cut in June worked.
Oil trading at new higher range at $78-$85.
China expects LNG price spike later this year due to coming supply shortages and a recovering economy.
Buy all energy on dips.
FCX – Buy
Precious Metals
“Higher for Longer” knocks the wind out of the precious metals rise.
Interest rate rises in Europe and Australia aren’t helping either.
Gold headed for $3000 by 2025 but will back off from new highs first.
The drivers for the gold rally will be falling interest rates and the demise of crypto.
Silver is the better play with a higher beta.
Russia and China are also stockpiling gold to sidestep international sanctions.
Severe short squeeze in copper is developing, leading to a massive price spike later in 2023 once the Chinese economy comes back online.
John will visit Ukraine in three weeks’ time. He will issue a report and video on Ukraine war.
GOLD stock shows great new LEAPS opportunity.
Real Estate
Existing home sales drop again demolished by record high mortgage rate.
July saw sales decline by 2.2% to a six-month low on sales of 4.15 million units.
Home resales, which account for a big chunk of U.S. housing sales fell 16.6% on year-on-year basis in July.
China’s largest real estate developer goes bankrupt, crushing Asian stock markets along with it.
July Housing starts come in steady at up to 4.0% at 1.45 million.
Building permits were unchanged. June numbers were revised down big.
Home builders’ sentiment dives on record mortgage highs, down 6 points to 50 in August.
Trade Sheet
Stocks – buy big dips at the bottom of the range.
Sell big rallies to hedge holdings.
Bonds – buy dips.
Commodities – buy dips.
Currencies – sell dollar rallies, buy currencies.
Precious metals – buy dips.
Energy – buy dips.
Volatility – sell short over $30.
Real Estate – buy dips.
Wishing you all a great weekend.
Cheers,
Jacquie
(AAPL), (MSFT), (GOOGL)
Apple (AAPL) has once again broken records, recently crossing a staggering $3 trillion valuation a mere five years after achieving its $1 trillion milestone. While this achievement is monumental, some industry watchers find themselves questioning Apple's seeming reticence in the rapidly advancing AI sector, especially when rivals such as Microsoft (MSFT), Google (GOOGL), and OpenAI make daily headlines.
At a casual glance, Apple's involvement in AI seems mainly confined to Siri's responses and the improvements in Apple Maps. But for those familiar with Apple's modus operandi, this quietude could be seen as the tech giant biding its time, waiting for the ideal moment to make a significant move.
Evidence of Apple's deepening interest in AI can be found in its recruitment activities.
The company's AI careers page bristles with excitement over innovative roles, and earlier this year, Apple advertised for 28 new AI positions. They've also been amassing talent for their uniquely named Machine Intelligence, Neural Design (MIND) group, signaling a focus on everything from advanced language model research in Paris to optimizing these models for mobiles without dependency on cloud-based operations.
While other tech giants have made significant strides with AI chatbots and digital assistants, Apple seems to be taking a different trajectory. Their current vacancies suggest a pivot towards Large Language Models (LLMs) tailored for the mobile ecosystem.
This isn't just another technological leap; it's about transforming how users experience AI on mobile devices.
Given Apple's historical approach to innovation, their strategy appears more calculated than cautious.
This perspective is further affirmed by Tim Cook's discussions with investors, highlighting the company's heavy investment in AI, with the recent $3.1 billion increase in R&D spending being partly attributed to AI projects. My recent conversations with insiders hint that Apple's strategy may revolve around the integration of generative AI into their existing product line.
Moreover, Apple's focus isn't solely on software—it's about optimizing where that software functions.
The company seems intent on executing sophisticated AI directly on mobile devices, sidestepping the need to sync with the cloud constantly. Such a move isn’t just about speed; it's a clear nod to enhancing user privacy, a domain where Apple consistently seeks to differentiate itself.
This speculation once again finds support in Apple’s recent recruitment ads, one of which seeks expertise to bolster an "on-device inference engine." Another talks about blending "state-of-the-art foundation models" with mobile devices to pioneer AI experiences grounded in user privacy.
However, AI isn’t Apple's only focus.
Their recent acquisition of an AI music startup known for producing personalized soundtracks through artificial intelligence suggests that they might be setting their sights on the music and entertainment industry, harnessing the power of AI.
Apple’s historical prowess in music, from the iPod to iTunes, means they are well-placed to revolutionize the AI music landscape.
Another potential avenue? Health and wellness.
Given Apple's emphasis on health through products like the Apple Watch, the integration of AI could transform how users track and understand their well-being, providing real-time insights and personalized coaching.
For entrepreneurs and businesses, Apple’s measured entry into the AI sector might seem like a brief respite. With one less tech titan to contend with, market dynamics might be easier to predict.
But it would be unwise to underestimate Apple.
Their dominance in the smartphone market ensures that any significant AI development will need to align with or, more aptly, be approved by Apple. They've subtly positioned themselves as gatekeepers in this space.
History underscores Apple's strategy. They've often observed, learned, and then released a product that redefines the market—think iPhone and iPod. As AI innovations like OpenAI’s ChatGPT and Google’s Bard garner attention, Apple's decision not to rush into a market debut seems consistent with their brand philosophy: quality over speed.
While it may seem like Apple is trailing in the AI narrative, its strategic movements suggest otherwise. Their robust track record in tech innovation means when they do make their play in the AI space, the world will undoubtedly sit up and take note.
Midjourney prompt: “The AI Orchard”
Mad Hedge Technology Letter
September 1, 2023
Fiat Lux
Featured Trade:
(BEST BUY PUTS IN A SHIFT FOR TECH)
(BBY), ($COMPQ)
When interest rates go from zero to 5%, fundamentals tell investors that tech stocks are the most likely to drop.
This was an ironclad rule of the market for centuries until it wasn’t.
In 2023, tech stocks ($COMPQ) continue to climb a wall of worry with this fantasy deriving from the Fed is about to “pivot” narrative.
Traders still believe that the Fed is going to turn around and slam the breaks on this quantitative tightening cycle to breathe life into the economy.
Tech stocks and bond yields going up in tandem is highly rare and the Mad Hedge Technology Letter was able to catch the wave of excitement in the first half of the year.
The Fed pivot is based on people with money believing the Fed will just bail out the whole stock market once things go sour.
Hence, the good news is the bad news paradigm we keenly observe in tech stock price action.
Another data point dropped in the tech market with retailer Best Buy delivered its earnings report.
They issued another unspectacular report with a lowered outlook.
For many tech companies, the lockdown sales will never go back to 2021.
I feel like a broken record here because tech earnings are doing just enough to hop over the low bar. Best Buy (BBY) is just another one of emblematic of tech performance today.
Comparable sales, a key metric that includes sales online and at stores open at least 14 months, decreased 6.2% compared with the year-ago period as customers bought fewer appliances, home theaters, and mobile phones. Gaming systems, on the other hand, were sales drivers in the quarter, the company said.
Best Buy is seeing a reversion to pre-lockdown sales levels analogous to Home Depot and Lowe’s, Best Buy profited from lockdowns, fueled by big purchases that people don’t frequently repeat.
Over the past year, consumer electronics retailers have borne the brunt of disastrous Bidenflation and consumers’ shift back to spending on experiences.
Management said the company is on track with its brick-and-mortar plans for the fiscal year. The company plans to close 20 to 30 stores, remodel eight stores to turn them into more experiential shops, and expand outlet stores from 19 to about 25.
The past 2 weeks have reverted back to the tech bulls as they pull us back from the latest weakness in July.
It’s almost getting comical at this point that we are inching back to all-time highs when so many tech companies aren’t doing anything special in terms of not only growth but negative revenue trajectory.
This isn’t the stuff of legends and in a normal world, these aren’t the type of earning reports that fuels bullish price action.
However, since the Fed is perceived as bail-out trigger-happy, investors are juicing up the stock market based on this hope that the Fed will reroute rates back to 0% when the economy needs to be saved. As long as this counter-intuitive narrative persists and tech companies don’t deliver ugly earnings, the pain trade is ostensibly higher. Welcome to the world where Best Buy does -6% sales, iPhone sales sink, yet we go higher and higher.
“If you must break the law, do it to seize power: in all other cases observe it.” – Said Roman Leader Gaius Julius Caesar
Global Market Comments
September 1, 2023
Fiat Lux
Featured Trades:
(AUGUST 30 BIWEEKLY STRATEGY WEBINAR Q&A),
(AMZN), (NVDA), (AAPL), (GOOG), (TSLA), (TLT), (TSLA), (FXI), (GOLD), (WPM), (AMC), (MSFT), (CCJ)
CLICK HERE to download today's position sheet.
Below please find subscribers’ Q&A for the August 30 Mad Hedge Fund Trader Global Strategy Webinar, broadcast from Silicon Valley, CA.
Q: I have a question about NVDA. While NVIDIA is a top-of-the-line chip company, there are many companies, i.e., Amazon (AMZN), Microsoft (MSFT), and of course, China (FXI), that are looking to get into the arena and build their own chips-cutting into (NVDA) space. How soon do you think this will happen and how good will those chips be?
A: NVIDIA is ahead now because of decisions on software and platforms they made 20 years ago. As all the important employees are also shareholders with minimal cost there is no way you’re going to pry them away to another company. You can’t copy NVIDIA with a simple cut-and-paste operation as you can with most other companies and the market has figured this out. (NVDA) has a moat that will remain unassailable for years. Now they have the AI turbocharger. My short-term target is $1,000 and it probably goes much higher. I reiterate my strong “BUY” issued in 2015 at $15.
Q: Why do you think the demise of crypto is coming?
A: Not so much a demise as a long nuclear winter. The SEC has declared war on all the intermediaries, and if you don’t have intermediaries you can’t trade. That shrinks the market to hot wallets only, which only computer programmers can do. That is much smaller than the current market. The other reason is that crypto prospered when we had a cash surplus and an asset shortage. We had to invent new assets to soak up all that cash—that's what Bitcoin did, it soaked up about $2 trillion dollars. Now we have the opposite: a cash shortage thanks to high-interest rates and an asset oversupply—all of the busted stocks that emanated from crypto, all the SPACS, the ETFs, and so on, where people lost 90%-100% of their money. #3, there is still a massive fraud and theft problem with crypto running in the hundreds of billions of dollars. I’d rather just buy Apple (AAPL) or Google (GOOG) or Tesla (TSLA) with my money. Those are cheaper alternatives than existed 18 months ago.
Q: Will iShares 20+ Year Treasury Bond ETF (TLT) visit the $92.25 low or have yields peaked?
A: I hope it visits the $92 low—I’m going to be buying my pants off if we get that low, plus issuing two-year LEAPs with 100% returns. So absolutely, yes. (TLT) is bottoming here and starting to discount interest rate cuts which will begin in March or June.
Q: What do you think of sells on Tesla (TSLA)?
A: I ignore all sells on Tesla, as I have done for the last 13 years. Keep in mind that Tesla has always had one of the largest short interests in the market, and will continue to do so as many people don’t buy the hype, or the vision.
Q: Why haven’t we gotten any trade alerts on gold and silver?
A: We sent out trade alerts for the concierge customers on gold (GOLD) and silver (WPM), and if we see another good entry point we’ll send those out also to the regular Global Trading Dispatch customers.
Q: When you say dip, how much of a dip do you mean?
A: We’ve really only had a 7% dip in the S&P 500 (SPY) this summer top to bottom. Usually, you get 10%, but with $5.6 trillion in cash on the sideline and with AI and multiple other technologies accelerating, people are just not willing to wait. When you throw cold water on the market, as we have been doing all summer, you buy the heck out of it.
Q: Will China’s (FXI) real estate collapse cause a black swan for US markets? Will China go the way of Japan?
A: No, the Chinese real estate market is almost completely isolated from the rest of the global economy. Additionally, most of the Chinese debt is owned by a dozen or so government-controlled banks. So, real estate prices there can implode and have virtually no effect on anywhere else. I’m not worried about that at all. You might get a down day of a few hundred points when one of the biggest companies goes under, but no more than that, and it doesn’t affect China’s trading economy at all. On a list of things to worry about, that’s probably number 100.
Q: It’s said a lot of the recent gains in the market are from short covering—how do you determine the number of shorts out there?
A: Well, most short interest in stocks is in the public domain; all you have to do is Google the term “how many Tesla shorts,” and you’ll get a number—it’ll be like 20-25% of the outstanding shares. For some companies, like AMC Entertainment Holdings (AMC), the short interest can be 50% or more. So, it’s easy to find out; however, you want to buy the market before people start covering shorts, not after, because that buying power is then already in the market, and that would have been a couple of months ago. For any of the big hedge funds, almost none of them were shorting stocks. All of them were looking to buy on any declines; that’s what they’ve been doing all summer, and that's why the market was unable to appreciably fall.
Q: Outlook on Microsoft Corp (MSFT)?
A: Double in the next 3 years, as is the case with all of big tech.
Q; What about my iShares 20+ Year Treasury Bond ETF (TLT) 2024 LEAPS?
A: I think we will get enough of a rally in TLT by January for all of those Jan 2024 LEAPS to expire at max profit. They’re only $4 points away from max profit for the $95/$100s and $9 points away for the $100/$105s, and that is entirely doable if the Fed stops raising interest rates or even cuts them. At one point these LEAPS were up 70% from cost so that might have been a great time to take profits.
Q: Is your AI product different from the one offered by Tradesmith?
A: Yes, we have completely different trade alerts than Tradesmith has; and they are using different algorithms than we are, so, totally they’re different services. If you have the Tradesmith product, just keep watching it and see if it performs. Usually, it takes six months to decide whether a new service is worth renewing, so I would keep watching it. Also, Tradesmith has a ton of analytical tools which we don’t offer. They made a massive seven-year investment in their own AI tools, which are completely different than ours. They disclose some of theirs, but we don’t. Why give away the keys to the kingdom? We’ll just send you our trade alerts, which by the way have been 100% profitable.
Q: Whatever happened to meme stocks like AMC Entertainment Holdings (AMC)? Should I look at these?
A: Absolutely not—they’re pure gambling. You’re better off just buying a New York lottery ticket. No fundamentals; I’m amazed AMC is even still in business. I went to the movies a few weeks ago and I was the only person in the theater. I went to see the Oppenheimer movie, which I highly recommend by the way. I’m still radioactive from when I worked with his lot.
Q: Credit card debt has spiked to historic levels—will this eventually come back to haunt the US economy?
A: Not really, it really doesn’t translate to lower consumer spending or a weaker economy yet. My bet is these people get bailed out by falling interest rates again as they always are. Consumer Spending Rocketed in July, up a monster 0.8%, the second-best number of the year, in further evidence of improving economic growth. Never underestimate the ability of Americans to spend money
Q: Can we access recordings of these webinars?
A: Yes, we post them on the website in your members' section two hours after it’s recorded. Just log into madhedgefundtrader.com, go to your membership section, and it’ll list webinars as one of the services you have purchased and have access to.
Q: How will markets respond if Trump gets back in the White House?
A: Major market crash—that’s an easy one. The Trump who won in 2016 is not the same Trump as today.
Q: What will happen to the price of EVs when the world runs out of lithium?
A: The world will never run out of lithium, it’s one of the world's most abundant elements. The bottleneck is in lithium processing, and there are multiple lithium processing facilities using new technologies under construction around the country. That gets you around that bottleneck, and you also free yourself from Chinese sources of processed lithium. Elon Musk planned all this out 25 years ago when he first started Tesla. He planned for a 20 million unit/year scale-up and has locked up the lithium supplies to accommodate that level of construction, leaving the rest of the world in the dust.
Q: Would you comment on the potential of new EV car batteries to enhance travel distances?
A: Tesla has a new solid-state battery that increases battery ranges from 10 times to 20 times, but it hasn’t been able to economically produce them in large enough numbers to put them in new cars. That’s in the wings. If that happens, Tesla will be able to cut costs by $10,000 per car and shrink the battery size from 1,000 pounds to 50 pounds, which would be revolutionary and absolutely wipe out Detroit, China, and Japan. That would allow Tesla to take over the entire global car market. So, yes, when you consider all that, it makes my current forecast of $1,000 for Tesla look stupidly conservative.
Q: What’s your take on the state of the Russia/Ukraine war?
A: Ask me in three weeks, when I will be in Ukraine seeing the actual state of the war, visiting the front lines, delivering doctors and supplies to children’s hospitals, and doing assorted odd jobs that have been requested of me. You’ll get the full read on Ukraine then. For now, I can tell you that Ukraine is still winning, but 18 months in, the people are getting tired. The people in my team in Ukraine who are organizing this trip sometimes break down in tears from the sheer weight of the war on them. Of course, being bombed every day doesn’t help your sleep either. So be prepared for my report and video of the century on the Ukraine war.
Q: Stanley Druckenmiller has a big position in Cameco Corp (CCJ).
A: That’s absolutely true, and I’d be a LEAPS buyer there on any kind of pullback. Stanley is a billionaire for a reason.
Q: What happens to gold at the introduction of the US government's digital currency?
A: It probably goes up. Actually, it’ll probably have no impact, but if it’s going to do anything it’ll make gold go up because people who are frightened of digital currencies will buy gold as a safe haven. I happen to know a few of those who have millions of dollars worth of gold stashed away under their mattresses for this purpose.
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, then 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
2023 in the Naval & Military Club in London
“I’m just watching in astonishment at the SPAC market. There are companies that I passed on for $5 billion now selling for $20 billion with 1% gross margins in completely undefendable businesses with competitors eating their lunch,” said investor Barry Sternlicht.
