September 2023

September 20 Biweekly Strategy Webinar Q&A

Below please find subscribers’ Q&A for the September 20 Mad Hedge Fund Trader Global Strategy Webinar, broadcast from Silicon Valley, CA.

Q: How do we know when interest rates have peaked?

A: Well, that's easy—the Fed announces it and they start cutting interest rates. The first hint of that is they don’t raise interest rates when they have the opportunity to do so. That will be today as it was in July. So we’re at the top now, and they’ll probably go sideways for 6 months or even longer before they start cutting. Markets will start to discount this 6-9 months in advance, or about now.

Q: Year-end target for the S&P 500? What about Amazon (AMZN)?

A: 5,000. For the (SPX). For Amazon, I think we could easily tack on another 20-25%.

Q: Does the Mad Hedge Global Trading Dispatch include tech trade alerts?

A: It does, but only the higher quality, lower risk trades. Pure Tech traders are a much higher-risk bunch of people, and they want more aggressive trade alerts in smaller companies. As for me, with Global Trading Dispatch I try to stick to a 90% success rate, and the only way to do that is to avoid tech when it flatlines and not try to catch any falling knives.

Q: Any hope of recovery for the iShares 20 Plus Year Treasury Bond ETF (TLT)?

A: Yes; as I said, the Fed will start cutting interest rates next year, and markets discount 6-9 months in advance, so that gives us 3 months for our January 2024 $100/$105 call spreads to expire at max profit. So yes, it is entirely possible, if not likely, that we will see those numbers by January.

Q: Can you help me jump the line for a Cybertruck from Tesla (TSLA)?

A: Well, if I was going to help anyone get a Cybertruck, it would be me! And I can't get one. Back in the old days, Tesla people would fall down on their knees crying “thank you!” when you bought one of their cars. Now, I think I’m number 2 million on the waiting list. You’re on your own on that one.

Q: Is Disney (DIS) a good LEAP stock?

A: No, Disney has some major problems with their streaming business, and the parks have maxed out. That is why the stock seems immune to good news—unless you know something I don’t. So go for it if you’re ready for that risk.

Q: What is your fact-finding trip to Ukraine all about?

A: Nothing beats research on the ground for finding out what really happened. Second, Ukraine got a lot of aid from other countries when the war started, but it’s since run out and we know that hospitals and orphanages in Ukraine are in trouble and running out of money. So, nothing beats showing up with US dollar cash in that situation. So that is why I’m going. This’ll be my eighth war. I guess the war correspondent in me never left. I’ll also be escorting American doctors to Ukrainian hospitals who don’t know how to do this. There’s more to life than just making money.

Q: Should I buy the dip in homebuilders like Lennar Homes (LEN), D.R. Horton (DHI), and KB Homes (KBH)?

A: Absolutely, yes—with both hands. Who does better with a falling interest rate cycle than home builders who have to depend on falling mortgage rates for business to boom once again. So yes, any dip in this sector and I would be loading the boat. The next declining interest rate cycle could last 5 or 10 years.

Q: Will the United Auto Workers strikes cause inflation to rocket and feed into higher inflation figures?

A: No, not really. Union membership has declined by 75% over the last 40 years. The UAW itself has declined from 1.6 million members to 400,000, and they really have become too small to affect the general economy. What they will do is accelerate existing trends, like people dumping their ice cars and moving to Tesla and other EV manufacturers. This is sort of like a gift for Tesla, and that's why the stock was up 10% last week. Also, in the long, long run, if they force the car companies to move to Mexico and cut the same deals that Elon Musk got, then it reduces inflation.

Q: Does the recent increase in Chinese ships and warplanes near Taiwan change anything?

A: No, it just shows us how weak the economy in China is. It’s effectively in recession even though they refuse to admit it, and therefore they have to create more distractions. The Chinese have been bluffing on Taiwan for 70 years—why stop now?

Q: What is a good time to buy banks?

A: I would start scaling into (JPM), (BAC), and (C) now. They will be a major beneficiary of an economic recovery next year and falling interest rates; and the prices down here are good. They’re one of the worst performers so far this year—one of the few cheap sectors left in the market.

Q: Should I buy Tesla (TSLA) here?

A: The thing here that I’m telling my professional money managers is: scale in on a one-month basis. Figure out how much you want to buy, and then buy 1/30th of that amount every day for a month. Then, you’ll scale in, you won’t get the absolute bottom but you’ll get some kind of bottom, and when a turnaround happens, then it goes up 50% or 100%. That’s the way to play Tesla. A lot of the professional money managers and investment advisors who follow me have a problem; they’re getting tons of new customers based on their performance this year. So yes, what do you do when you get money after a great run? You can only scale in.

Q: Is oil (USO) topping and going back to 70 a barrel?

A: I think yes. We saw the run from $70 to $95; it looks like it’ll probably hit $100. After that, Saudi Arabia will start bringing supply back on. What they did is create an artificial short squeeze in oil by taking 5 million barrels off the market with Russia—that got prices up. Any higher than that, and high oil starts to adversely affect Saudi Arabia’s foreign investments. So yes, they do back off when we get over 100; they’re very happy with $100/barrel, as is the American oil industry. So, I’m inclined to take profits if you did the oil trade in June.

Q: Would you buy iShares 20 Plus Year Treasury Bond ETF (TLT) now?

A: No, I’ve been holding back because it seems to want to have a capitulation; that’s why it’s not rallying off the 93 level—it’s been bouncing on the bottom. Some piece of bad news, some kind of high inflation, could trigger a capitulation, which would take us down another 5 points—that's where you buy it. Then, all of a sudden something like a 2024 $85/$90 bull call spread is offering you 100% return one year out.

Q: Do you recommend 4-week T-bills?

A: No, I recommend 4-month T-bills. Those expire in January and take advantage of the cash squeeze in the financial system you always get in New Years. Returns on 4-month T-bills are much higher than 3 month, 2 month, or 1 month. I just bought some before this meeting because I’m not going to do a lot of trading this month, and I got a 5.48% yield. For me to do a trade now, it has to have a very low-risk 20% return. That’s what I need to beat T-bills at 5.48%, which have zero risk and a guaranteed return of money. You need the extra 15% return on a 1-month trade to justify the risk that individual stocks have.

Q: Will the Australian dollar (FXA) stay weak as long as China is weak?

A: Yes, and the flip side is also true: Will the Australian dollar be strong when China recovers? Absolutely. I still see 1 to 1 against the US dollar for the long term.

Q: Why is everyone pouring into short-term options?

A: They’re buying lottery tickets. A lot of people are in the markets not to invest, but to gamble. They have gambling addictions quite often, and nothing beats the instant gratification of a same-day win, even though 80% of the same-day options expire worthless. So, enter that market with caution.

Q: After artificial intelligence destroys 90% of jobs, won’t there be nobody left to buy stocks since stocks won’t go up solely on institutional buying?

A: While AI will destroy a lot of jobs, it’s creating even more jobs—that has always been the case with technology from day one. However, you do get mismatches from the time a job is destroyed to when a new one is created. There are also mismatches in skill levels and that can create turmoil in the economy. Look at the United Auto strike, which is hell-bent on stopping technology and automation—stopping any kind of technology they can. Technology in the long term always destroys jobs, but it also creates more jobs, just moving them from old economies into new industries. I’m sure the same thing went on with the hay and leather industries 120 years ago when we moved from horses to internal combustion cars.

Q: If companies go to a four-day workweek, how will that affect stocks?

A: It’ll probably make them go up. When people go to four-day work weeks, productivity goes up and companies get more output for their dollar of labor costs. That’s why it’s happening and why it’s so popular. People who work at home and get to play with their kids on weekends will work for less money—that is a proven fact.

Q: Any thoughts on when we will see the United States Natural Gas Fund (UNG) turn upward?

A: This winter. (UNG) is priced for perfection, sitting around here at the $7 level. The slightest surprise like a cold winter, for example, which we may get (at least in California we will), and then the thing will spike up.

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

2018 On the HMS Victory in Plymouth, England

September 22, 2023 - Quote of the Day

Quote of the Day

"Right now, by historical standards, stocks are significantly undervalued. ?Irrational exuberance? is the last term I would use to characterize the market right now," said former Federal Reserve chairman, Alan Greenspan.

September 21, 2023

Biotech Letter

Mad Hedge Biotech and Healthcare Letter
September 21, 2023
Fiat Lux

Featured Trade:

(HEALTH MEETS WEALTH)

(BSX), (ABT), (JNJ), (MDT), (SYK)

Health Meets Wealth

Biotech Letter

In a state-of-the-art medical facility, a surgeon's hands move with precision, guiding a catheter towards the basivertebral nerve. Their mission is clear: to halt the persistent pain signals traveling to the brain, offering relief to those burdened by vertebrogenic pain. This is the real-world application of the Intracept system, a breakthrough in healthcare.

Boston Scientific Corporation (BSX) has recently made headlines by announcing its definitive agreement to acquire Relievant Medsystems, Inc., the very creators of the Intracept Intraosseous Nerve Ablation System. This power move, sealed with a cool $850 million upfront cash payment, also includes some exciting performance-based bonuses over the next three years.

Let's zoom in on the Intracept system for a moment. It's the only kid on the block with a nod from the U.S. Food and Drug Administration, specifically tailored for vertebrogenic pain. This sleek, implant-free outpatient procedure employs radiofrequency energy, acting like a mute button for the pain-causing basivertebral nerve.

And with over 5.3 million Americans wrestling with vertebrogenic pain, the ripple effect of this innovation is monumental. So, mark your calendars: the acquisition is set to be finalized in the first half of 2024 once all the formalities are squared away.

On the financial front, the future's looking bright for Relievant. They're gearing up to clock sales north of $70 million in 2023, with a growth spurt expected to zoom past 50% in 2024. And while the 2024 earnings per share (EPS) might not cause a big splash, 2025 and beyond are looking sunny.

While the acquisition is a major step, Boston Scientific's journey doesn't stop there.

Their Watchman device, which dominates its market segment, is poised to bring transformative changes to atrial fibrillation treatments. Just think of this gadget as a guardian angel for patients with non-valvular atrial fibrillation, shielding them from stroke risks without the ball-and-chain of long-term blood thinners.

Apart from this, Boston Scientific dropped some exciting news earlier this year about their ADVENT Study of the FARAPULSE Pulsed Field Ablation System (PFA). This nifty gadget uses electric fields to treat atrial fibrillation (AF), sidestepping the need to heat up the tissue. The study was a trailblazer, being the first to pit the FARAPULSE system against traditional AF treatments.

However, Boston Scientific's game plan goes beyond just gadgets and gizmos.

Their keen interest in Shockwave (SWAV) and a track record of smart acquisitions hint at a company that's always two steps ahead. This forward-thinking mindset has earned them nods of approval from both the medical community and sharp-eyed investors. The success of its ADVENT study, for instance, has further underscored its growing prominence in the sector.

In today's roller-coaster financial world, with storm clouds of economic downturns gathering, investors are on the hunt for solid ground. This is where Boston Scientific comes through. They're not just a safe harbor; they're also a vessel of growth.

With two solid quarters in the bag and a projected 11% revenue growth on the horizon, they're on a skyward journey. And while there might be some chatter about its share valuation, their blend of innovation and strategy makes every penny worth it.

In a nutshell, Boston Scientific is more than a company name; it's a promise of a brighter, healthier tomorrow. Moreover, the stock has consistently outpaced the broader medical device sector, gaining an edge of about 10% over notable competitors like Abbott (ABT), Johnson & Johnson (JNJ), Medtronic (MDT), and Stryker (SYK). This performance was evident even before the company unveiled the impressive results of its ADVENT study on the Farapulse ablation.

Currently, I remain optimistic about the potential of BSX shares. Granted, a forward revenue multiple of 6.5x isn't exactly modest, and the valuation might appear ambitious when assessed through traditional metrics like discounted free cash flow. However, top-tier growth med-tech stocks rarely come with a discount tag.

Given the prospects of Farapulse, Watchman label extension studies, innovative CRM products, the Agent drug-coated balloon, and growth avenues in peripheral intervention, endoscopy, and urology, Boston Scientific stands out as a unique growth narrative. Historically, investors have shown a willingness to pay premium multiples for such consistent growth in this market segment.

September 21, 2023

Diary, Newsletter, Summary

Global Market Comments
September 21, 2023
Fiat Lux

Featured Trade:

(THE MAD HEDGE TRADERS & INVESTORS SUMMIT VIDEOS ARE UP!)
(THE NEW OFFSHORE CENTER: AMERICA),
(SIGN UP NOW FOR TEXT MESSAGING OF TRADE ALERTS),

The Mad Hedge Summit Videos are Up,

Diary, Newsletter

Video replays from the September 12-13 confab are up. Listen to 15 speakers opine on the best strategies, tactics, and instruments to use in these volatile markets. It is a true smorgasbord of investment strategies. Find the best one that suits your own goals.

The product discounts offered last week are still valid. Start, stop, and pause the videos at your leisure. Best of all, access to the videos is FREE. Access them all by clicking here, then going to CURRENT SUMMIT REPLAYS, and then selecting the speaker of your choice.

Navigating the US Copyright Office's AI NOI: Balancing Innovation and Intellectual Property Rights

Mad Hedge AI

Introduction

In recent years, the rapid advancements in artificial intelligence (AI) have transformed various industries, from healthcare to entertainment. However, these technological leaps have also raised complex questions about intellectual property rights and copyright issues. In response to this ever-evolving landscape, the United States Copyright Office (USCO) issued a Notice of Inquiry (NOI) on AI and copyright in 2022. In this 1200-word article, we will explore the USCO's AI NOI, the issues it addresses, and the implications it holds for creators, innovators, and the broader AI ecosystem.

I. The USCO's AI NOI: An Overview

The USCO's Notice of Inquiry (NOI) on AI and copyright, issued in February 2022, marks a significant step towards understanding and addressing the challenges and opportunities posed by AI in the realm of copyright. The NOI sought public input and comments on several key aspects, including the following:

The implications of AI on copyright law.
The role of human involvement in AI-generated works.
Copyright registration of AI-generated works.
Ownership and authorship of AI-created content.
The application of fair use to AI-generated content.
Potential changes to the Copyright Act to accommodate AI.

II. AI and Copyright: A Complex Relationship

A. AI as a Tool

One of the primary questions addressed in the AI NOI is whether AI should be considered a tool that assists human creators or an autonomous entity that can generate its own creative works. Many argue that AI is merely a tool that extends the capabilities of human creators, akin to a paintbrush or a musical instrument. However, this notion is challenged by AI systems that can autonomously generate text, music, art, and more.

B. Human Involvement

The extent of human involvement in AI-generated works is a central issue. The Copyright Act typically requires human authorship for copyright protection. However, AI can generate content independently, blurring the lines of authorship. The AI NOI sought input on defining the threshold of human involvement necessary to claim authorship.

III. Copyright Registration and AI-Generated Works

The AI NOI also examined the copyright registration process and how it applies to AI-generated works. Copyright registration provides creators with legal protection and enforcement rights. The challenge with AI-generated content lies in determining who should be eligible for copyright registration – the human operator, the AI developer, or the AI itself.

The NOI raised questions about whether modifications or adaptations made by a human operator to AI-generated content should be eligible for copyright protection and how registration procedures should accommodate these scenarios.

IV. Ownership and Authorship

Ownership and authorship are critical components of copyright law. The AI NOI sought to address whether AI-generated works should be subject to the same rules as human-authored works when determining copyright ownership. This consideration is vital for establishing clear rights and responsibilities in cases where AI-generated content becomes commercially valuable.

V. Fair Use and AI-Generated Content

Fair use, a fundamental doctrine in copyright law, allows for limited use of copyrighted material without permission from or payment to the copyright holder. The AI NOI explored whether fair use principles should apply to AI-generated content and whether AI systems should be designed to consider potential fair use defenses when generating content.

VI. Potential Changes to the Copyright Act

The AI NOI also raised the possibility of revising the Copyright Act to address the unique challenges posed by AI-generated content. This could include updating definitions, establishing clearer guidelines for registration, and addressing questions of ownership and authorship in AI-generated works.

VII. Implications for Creators and Innovators

A. Creativity and Innovation

The AI NOI has significant implications for creators and innovators in the AI industry. On one hand, it recognizes the importance of fostering creativity and innovation in AI development. However, it also seeks to strike a balance by addressing the potential impact on traditional creative industries, where human authors and artists may face competition from AI-generated content.

B. Legal Clarity

The AI NOI aims to provide legal clarity in an increasingly complex landscape. Determining ownership and authorship, setting guidelines for copyright registration, and defining the role of fair use in AI-generated content are crucial for establishing a framework that encourages responsible AI development.

C. Protecting Intellectual Property

Ensuring that creators and innovators can protect their intellectual property rights is essential. The AI NOI seeks to establish a foundation for copyright protection in the AI era while avoiding stifling innovation.

VIII. The Road Ahead

As of the publication of this article, the USCO continues to review the comments and feedback received in response to the AI NOI. The results of this inquiry will play a pivotal role in shaping the future of copyright law in the context of AI. It is expected that the USCO will release guidelines or recommendations that provide clarity on issues such as authorship, registration, and fair use in AI-generated works.

Conclusion

The USCO's Notice of Inquiry on AI and copyright reflects the growing importance of addressing the complex challenges posed by AI in the realm of intellectual property rights. While AI has the potential to revolutionize creativity and innovation, it also raises fundamental questions about authorship, ownership, and the application of copyright law.

Navigating this evolving landscape requires a delicate balance between fostering innovation and protecting the rights of creators. The results of the AI NOI will serve as a crucial foundation for developing a legal framework that can adapt to the ever-changing landscape of AI-generated content. As AI continues to advance, it is imperative that policymakers, legal experts, and the broader public work together to ensure that intellectual property rights are upheld, innovation is encouraged, and the creative potential of AI is harnessed responsibly.

September 20, 2023

Jacque's Post

(JOHN’S HUMANITARIAN AID MISSION)

September 20, 2023

Hello everyone,

John is leaving for Ukraine this week.

I include below his request for your assistance, no matter how small, to aid hospitals and orphanages in Ukraine.

To contribute toward the humanitarian aid that he will be delivering to Ukraine, please click here.

Thank you so much for your help.

Cheers,

Jacquie

Ukraine’s Children’s Hospitals are stretched.

A mother with her newborn baby.

September 20, 2023

Tech Letter

Mad Hedge Technology Letter
September 20, 2023
Fiat Lux

Featured Trade:

(THE BOND KING IS WRONG ABOUT TECH STOCKS)
($COMPQ), (UUP), (MSFT)

The Bond King is Wrong About Tech Stocks

Tech Letter

At the Future Proof conference last week, Bond King Jeffrey Gundlach gave his expert take on some of the variables in the markets today.

It’s hard for to understand how Gundlach made his money with the amount of fear mongering he is promoting.

He is basically scared of everything in todays market including the stock market, the US dollar (UUP), the upcoming recession that still hasn’t hit, high housing prices, and layoffs just the name the start.

First, the unemployment rate is at 3.8% in the US so to say that this is a canary in the coalmine is quite hilarious.

Tech, even drastically over hired, and they had to take a machete to staff numbers just to get back to the 2020 employment levels.

I would even say that they need to go back to 2015 staff levels with artificial intelligence contributing more efficiency.

I hardly believe it’s time to ring to alarm on tech unemployment.

Look across the Atlantic where Spanish youth unemployment is 30% and Italians, on average, live with their parents until 45 years old because they can’t afford to move out of the house.

The United States is not that and will not become like that.

The Nasdaq Composite ($COMPQ) has surged 31% respectively this year, as investors price in the potential boost to companies from artificial intelligence and future cuts to interest rates.

However, they're overlooking "demons on the horizon," Gundlach cautioned.

We are nearing the top of the interest rate cycle and no other OECD economy has been able to push rates to 5.25% while keeping the economy churning.

Therefore, it might be plausible to say that the demons aren’t on the horizon, but in the rearview mirror.

Japan is still at 0% which has resulted in a massive invisible tax to the Japanese middle class which is basically the whole country.

He also noted the chilling effect of higher mortgage rates on the housing market, and the challenge for small businesses of having to refinance their debts at much higher interest rates.

It’s true that 7% mortgage rates has extraordinarily hit left wing coastal cities.

Combine high mortgage rates with work from home, and Silicon Valley has now moved everywhere with everyone becoming a digital nomad.

This has actually transferred new tech wealth to many other new areas such as Nashville, Austin, and of all places Boise, Idaho.

This trend can’t be understated and is now a growing contributor to the overall economy.

"The economy is definitely weakening" is something I definitely agree with Gundlach, but that doesn’t reveal the whole story.

The internals are slowing down from a very high peak which he failed to mention.

Instead of Microsoft (MSFT) cloud division Azure growing at 40% year over year, we are only getting about 18% these days.

Coming off of Himalayan highs is a tough pill to swallow when many tech investors often expect growth metrics of over 30% year over year, but that’s hard to achieve in 2023.

The strong dollar has also exerted a fierce deflation affect across many tech products making computers and so on cheap. Tech products in Europe and abroad are higher priced even though these places have incomes that a many times lower.

Relatively speaking, US tech companies and US consumers are better placed than any other comparable city or country in the world in the post-covid world.

Fear mongering never got anybody rich. US tech will continue to be the best of breed and in no plausible scenario will a foreign company or country knock any of the top 7 Silicon Valley tech firms off their perch in the next 30 years. I would even argue that as rates peak and interest rates expectation ratchet lower, tech stocks will become the safety trade again like it did in March.