"We are about to do something terrible to you. We are going to deprive you of an enemy," Soviet commentator, Georgi Arbitov, told Secretary of State George Schultz at the end of the cold war.
Mad Hedge Technology Letter
October 6, 2023
Fiat Lux
Featured Trade:
(TESLA GAINS UPPER HAND WITH HELP FROM CHINA)
(TSLA), (LCID), (RIVN), (EV), (CHINA)
The American consumer has been battered.
Declining iPhone sales says it all, but that is nothing compared to the Chinese consumer who are drowning in a cesspool of their own debt.
The Chinese economy is threatening to become the new Japanese economy which is infamous for its run of lost decade after lost decade.
Who cares?
I don’t, but lithium prices do and that’s why we need to focus on as the lust for EVs in the western world picks up pace.
The Chinese have cornered the lithium market and supply has expanded.
This should allow EV makers like Elon Musk to lower the price of Tesla’s further effectively winning the price war. The inverse of Bidenomics sometimes happens, but usually takes the Chinese to flood the market with extra product and in this case lithium.
Every small EV stock should be ignored. There is Tesla and nobody else.
Lithium prices are crashing around the world.
After a buying frenzy sent global prices soaring though last year, they’ve since plunged as electric vehicle demand crashes and supplies are expected to remain strong.
The weakness has been especially pronounced there as battery makers tap stockpiles built up during the boom, while demand concerns are being exacerbated by wider fears about the country’s economy.
Chinese sentiment is being hurt by weak consumer and business confidence and an ongoing property crisis.
The nation’s EV sales growth slowed to 37% in the second quarter from a year earlier, versus a global average of 50%.
That’s helped push most-active Chinese lithium carbonate futures down about 37% since they started trading in July. They’re at a level that works out to a roughly 35% discount to lithium hydroxide futures in the US, according to traders.
The price decline has further to go. Lithium carbonate and hydroxide could drop another 30% in the near term on the back of weaker demand, high inventories and improved supply.
Tesla can lower the price of EVs as it seeks to capitalize on US consumer’s lack of discretionary budget as inflation takes a bite out of their daily budgets.
Today, the carmaker marked down the starting price of the base Model 3 by $1,250 to $38,990.
Tesla also lopped $2,250 off the price of the performance version of the Model 3, which now starts at $50,990, and $2,000 off the long-range and performance versions of the Model Y sport utility vehicle, which now cost $48,490 and $52,490, respectively.
The biggest factor contributing to Tesla’s price cuts has been the lifting of production constraints that held the company back for years.
Tesla still maintains a dominant position in the US electric-vehicle market, though it’s increasingly relied on discounting to preserve its position. Fresh product could help buoy pricing in the coming months, with the carmaker recently debuting an updated version of the Model 3.
Tesla has already identified the race to the bottom for the price of EVs and this should crush the rest of the competition as EVs turn from luxury goods to commodities.
Just take a look at rivals like Rivian (RIVN) who lose $33,000 for each vehicle they sell. EV maker Lucid’s $338,000 loss per car Is turning investors off
I wouldn’t put a cent into any other EV stock aside from Tesla.
They will be the future iPad on wheels that Steve Jobs dreamed about and now they can lower prices even more aggressively now that the price of lithium has crashed.
Musk was smart to start the price war earlier to crush competition.
“You can't connect the dots looking forward; you can only connect them looking backwards.” – Said Apple Co-Founder Steve Jobs
(SUMMARY OF JOHN’S OCTOBER 4, 2023, WEBINAR – CHAOS REIGNS)
October 6, 2023
Hello everyone.
LUNCHES
October 6, 2023 – Frankfurt, Germany
October 13, 2023- Kiev, Ukraine
October 20, 2023- London, England
October 30, 2023- Sarasota, Florida
October 31, 2023- Miami, Florida
PERFORMANCE
61% on the year.
83.85% trailing one year return.
657.99% since inception.
48.15% average annualised return.
POSITIONS
Risk On
TSLA 10 $200-$210 call spread
NVDA 10 $370-$380 call spread
Risk Off
TLT 10 $89-$92 put spread.
THE METHOD TO MY MADNESS
The market is discounting a worst-case scenario – no budget deal until we get a new congress in January 2025.
Technically, we are without a government now.
The markets will refocus on the possibility of a shutdown as November 17 draws near.
The tech sell-off will be brief. Too many people are trying to get into accelerating long term earnings.
Bonds breakdown to new 2023 lows.
Fall will present the best buying opportunities of the year.
Precious metals take a hit. But they should certainly be at the top of any “BUY” list to cash in on an economic recovery.
Patience. Let the market come to you.
A year-end rally may be compressed into a short-term time frame. If we get a shut-down, we can write off any rally.
THE GLOBAL ECONOMY – UNCHANGED RATE
Fed leaves interest rates unchanged.
John says that the most important things that Powell didn’t say in the Fed press conference is that quantitative tightening or QT continues. And that drains $1 trillion a year from the financial system through bond sales until 2031 to get the Fed balance sheet down to zero.
Soft Commodity prices are soaring, from orange juice to live cattle, which are complicating the inflation picture.
Personal Consumption rose 3.9% YOY and only 0.1% in August alone.
Personal Spending was up only 0.4% versus 0.9% in July, a three-year low.
Are we going to be hit with another rate rise in November?
If inflation goes up to 4%, we may be able to have a soft landing, but if inflation goes above 4% the Fed is looking at tightening more, raising interest rates, which could be enough to tip us over into recession, which according to John, will be short in timeframe.
After 150 days, the Hollywood Screenwriters Guild strike is over. The strike probably cost the U.S. economy around $5 billion.
STOCKS – LOOKING FOR LOWS
Stocks probing a 10% correction. We can thank the Oil price rise, inflation rate rise, Fed rate rise, Bond market collapse.
Government shutdown is adding extra fuel to the fire.
Hedge Funds have been cutting risk at their fastest pace since 2020.
Biggest week-on-week decline in portfolio leverage since the depths of the pandemic bear market.
A Nobel Prize in chemistry is presented to Moderna (MRNA).
Rite-Aid will file for bankruptcy – it plans to close 500 of its 2,100 stores.
If we have more bad news, we could get down to 4000 on the S&P.
PANW – holding up well. If we get close to the 200MA enter a trade.
CAT and FCX – buy on the dip. FCX is a great LEAP opportunity going out two years.
BRKB – has fallen along with everything else. If the stock moves toward the 200MA, it is a great buy.
BONDS – SEARCHING FOR A NEW NORMAL
The Treasury Bond Freefall continues as long-term yields probe new highs. New issue of $134 billion this week didn’t help. Nothing can move – risk is heightened – until rates top out. May have to wait until 2024.
Ten Year Treasury yields hit new 16 year high, at 4.70%.
Government shutdown is a new negative, even when it’s delayed by 45 days.
Moody’s warns of further U.S. government downgrades.
The U.S. budget deficit is climbing once again increasing bond sales.
Falling interest rate/rising bond price trade has been delayed for six months. There has been hotter than expected economic growth at 2.40% for Q2 and more Fed rate rises are possible.
Keep buying 90-day T-bills, now pushing a 5.48% risk free yield.
Junk bond ETF’s (JNK) and (HYG) are holding up extremely well with a 6.5% yield.
Stand aside from (TLT) until we find the new floor.
FOREIGN CURRENCIES - NEW DOLLAR HIGHS
The Fed message “higher for longer” has rocketed the U.S.$ to new 2023 highs.
The possibility of a government shutdown is also adding fuel to the dollar’s rally as it has become a flight to safety bid.
Collapse of the dollar is now a 2024 story.
The Aussie dollar collapse has been prompted by a slowing Chinese economy – no demand for Aussie energy or commodities.
Put the following on your shopping list before the U.S.$ turns down from its rally. (FXE), (FXB), (FXA), (FXY).
ENERGY AND COMMODITIES – NEW 2023 HIGHS
Saudi Arabia continues Oil supply squeeze into Q4.
A cold winter will see demand for oil rise.
Russia bans all diesel exports, partly to meet its own military needs but also to squeeze the price up.
Strike ends at Australian export facilities.
Electrification will be the big theme of this century.
The power grid must increase fivefold in size to accommodate the electrifications projects already underway.
(My input here) The OPEC Secretary General, Haitham Al Ghais, argues that oil underinvestment is endangering the energy sector. He points out that the world will require at least 12 trillion of new investment globally for the oil industry until 2045. Of significance is the fact that by 2030 over ½ billion people will move into cities globally. Ghais argues that there is no way we can meet this future demand by relying on renewables alone. Thirty years ago, fossil fuel consumption was 80% globally. And thirty years on today, it is still at 80% or over 80%. So, if we project into the future – say 2030 – how far do you think we will be with our transition to a renewable energy world? Five or six years is not a long time. If we consider the challenges that are facing the introduction of electric vehicles, penetration of EV’s globally, availability of critical minerals globally, the supply chain and logistical issues, then we start to comprehend that the sheer size and volume of electrification required globally to be able to move to an electric world is a monumental challenge.
PRECIOUS METALS
The Fed’s stance on interest rates pushes precious metals to new 2023 lows.
Costco has started selling gold bars, and they are selling out within hours.
Gold Target = $3000 by 2025.
Silver is the better play with a higher beta.
Russia and China are also stockpiling gold to sidestep international sanctions.
REAL ESTATE
New U.S. Home mortgage rates hit 17- year high and have virtually ground to a halt.
Homebuilder sentiment turns down for the first time in seven months in August to 45.
S&P Case Shiller rises to new all-time high for sixth consecutive month as inventory shortages drove up competition housing.
In July the index increased 0.6% month over month and 1% over the last 12 months, on a seasonally adjusted basis.
July’s movement reached a new high for the nationwide home index, surpassing the record set in June 2022.
The median home price for existing homes rose to 1.9% to $406,700 according to the National Association of Realtors (NAR).
The robust housing market suggests that while some buyers pulled back due to high borrowing costs, demand continues to outweigh supply.
Wishing you all a great weekend.
Cheers
Jacquie
Introduction
The dotcom bubble of the late 1990s and early 2000s remains a stark reminder of the euphoria and subsequent disillusionment that can accompany emerging technologies in the world of finance. Fast forward to today, and we are witnessing another technological revolution in the financial industry, this time driven by Artificial Intelligence (AI). In this article, we will explore the striking parallels between the dotcom bubble and the AI revolution in financial services, examining the similarities in hype, investment patterns, and potential pitfalls.
The Dotcom Bubble: A Blast from the Past
The dotcom bubble was characterized by a frenzy of investment in internet-based companies during the late 1990s. Companies with little or no profit, but grand visions of the digital future, saw their stock prices skyrocket. Investors, driven by the belief that the internet would revolutionize business, poured money into these ventures, creating an unsustainable market bubble.
Hype and Overinflated Expectations
One of the defining features of the dotcom bubble was the extraordinary hype surrounding internet-based companies. The promise of the internet as a transformative force was intoxicating, leading investors to overlook fundamental metrics like revenue and profit. The belief that traditional business models were becoming obsolete contributed to irrational exuberance.
Similarly, the AI revolution in financial services has been accompanied by immense hype. AI technologies, including machine learning and deep learning, have been touted as the panacea for financial institutions. From fraud detection to portfolio management, AI promises to streamline processes and maximize returns. However, the hype surrounding AI often exceeds the actual capabilities and readiness of these technologies.
Investment Frenzy and Valuations
During the dotcom bubble, venture capitalists and retail investors alike rushed to invest in internet startups, often without a clear understanding of the underlying businesses. As a result, stock valuations soared to astronomical levels, with price-to-earnings (P/E) ratios reaching unsustainable heights. Companies were valued more for their potential than for their actual performance.
In the AI-driven financial services sector, a similar investment frenzy has taken hold. Startups and established firms alike have attracted significant funding, with valuations often based on the promise of AI rather than concrete financial results. This surge in investment has the potential to create a bubble if the underlying technology fails to deliver the expected returns.
Rapid Innovation and Technological Advancements
The dotcom era witnessed rapid innovation in web technologies, leading to the creation of new online businesses and services. Many of these innovations eventually became integral parts of our daily lives, such as e-commerce, search engines, and social media platforms. However, the pace of innovation often outstripped the ability of companies to monetize these technologies, leading to widespread failures.
In the AI financial services sector, we are witnessing a similar wave of innovation. AI is being applied to trading algorithms, risk assessment, customer service, and more. While some of these applications are already yielding tangible benefits, others remain in the experimental stage. The challenge lies in successfully translating these innovations into sustainable revenue streams.
The Parallels Between the Dotcom Bubble and AI in Financial Services
- Hype and Expectations: Both the dotcom bubble and the AI revolution have been marked by excessive hype and sky-high expectations. In both cases, the promise of transformative technology led to a rush of investment, often driven more by belief than by a clear understanding of the risks and challenges involved.
- Investment Patterns: The dotcom bubble and the AI boom share similarities in investment patterns. In both cases, companies with unproven business models attracted significant capital, leading to inflated valuations. Investors seem willing to overlook traditional metrics like revenue and profit in favor of future potential.
- Technological Advancements: Rapid technological advancements have fueled both phenomena. The internet's evolution in the dotcom era and the development of advanced AI algorithms have driven innovation in their respective times. However, the challenge of successfully monetizing these technologies remains a common thread.
Potential Pitfalls of the AI Financial Services Bubble
While the parallels between the dotcom bubble and the AI revolution in financial services are striking, it's important to consider the potential pitfalls that could befall the latter:
- Overspeculation: As with the dotcom bubble, overspeculation in AI-driven financial services could lead to inflated valuations and unsustainable investments. Companies that fail to deliver on their AI promises may face significant financial consequences.
- Regulatory Challenges: The use of AI in financial services is subject to increasing scrutiny and regulation. Misuse or abuse of AI technologies could lead to regulatory backlash, damaging both individual companies and the industry as a whole.
- Ethical Concerns: AI systems are not immune to bias and ethical concerns. Financial institutions that rely heavily on AI algorithms must navigate the challenges of fairness, transparency, and accountability to avoid public backlash.
- Technological Limitations: Despite the incredible potential of AI, it is not a panacea. The technology has limitations, and its performance can be influenced by the quality of data and the algorithms used. Overreliance on AI without a clear understanding of these limitations could lead to failures.
Conclusion
The parallel between the dotcom bubble and the AI revolution in financial services serves as a cautionary tale for investors, startups, and established financial institutions. While AI holds immense promise and has the potential to transform the industry, it is crucial to approach it with a balanced perspective, focusing on both opportunities and risks.
Investors should exercise caution and conduct thorough due diligence when considering AI-focused investments. Startups should be prepared to demonstrate tangible value and a clear path to profitability rather than relying solely on hype. Established financial institutions must strike a balance between innovation and regulatory compliance, ensuring that their AI initiatives align with ethical and responsible practices.
In the end, the lessons learned from the dotcom bubble can help guide us through the AI revolution in financial services, ensuring that the potential benefits of this transformative technology are realized while avoiding the pitfalls of excessive speculation and irrational exuberance.
Midjourney prompt: “The bubble of AI in financial services”
Mad Hedge Biotech and Healthcare Letter
October 5, 2023
Fiat Lux
Featured Trade:
(FROM FRUSTRATING WHACK-A-MOLE ATTEMPTS TO PRECISION STRIKES)
(MRK), (MRNA)
The age-old battle against cancer is getting a revolutionary upgrade, with our own immune systems leading the charge. Imagine if our body's defense system could be tweaked, tuned, and harnessed to target and decimate previously unconquerable tumors specifically. With the global oncology market previously valued at a staggering USD 167.9 billion in 2021 and anticipated to grow to about USD 286.3 billion by 2030, the promise of that dream is becoming closer to reality.
Take a moment and think about drugs called PD-1 and PD-L1 inhibitors. No, they don't play the ancient game of "whack-a-mole" with cancer cells. Instead, they orchestrate a sophisticated game of hide-and-seek, unmasking these rogue cells from the vigilant gaze of our cancer-hunting T-cells. The result? Some of the deadliest cancers, like melanoma and certain lung malignancies, are now seeing remarkable increases in survival rates. These advancements are epitomized by companies like Merck (MRK), whose collaborations with biotech giants like Moderna (MRNA) have pushed the frontier of cancer treatment.
However, the innovation doesn't stop there. Enter the realm of personalized cancer vaccines, the latest generals in this battle. Their might was most notably exhibited when Moderna and Merck recently announced that their investigational personalized mRNA cancer vaccine, when combined with Merck's KEYTRUDA, showed promising results in a Phase 2b trial for melanoma treatment.
By employing genetic sequencing, these vaccines pinpoint unique mutations within an individual's cancer. Much like how the COVID-19 vaccines rev up our immune response, these personalized armaments rally T-cells to specifically target and decimate cancer cells brandishing those identified mutations. In fact, such advancements are so promising that Moderna envisions creating a vaccine tailored for every unique cancer mutation.
In 2022, Joe Biden set an ambitious goal of slicing cancer deaths by half in a quarter-century. With early detection, prevention strategies, and these groundbreaking treatments, this goal could very well be within reach. This is also timely since, forecasting a glimpse into 2023, the U.S. is bracing for approximately 1,958,310 fresh cancer diagnoses. Alongside this daunting figure, the shadows of the ailment further extend with an anticipated 609,820 individuals succumbing to the disease.
Let’s dive a bit deeper into the intricacies of immunotherapy. At its heart, it’s about training our body to do what it's naturally designed to do – recognize and obliterate invaders. But cancer, being the wily enemy it is, has learned to don an invisibility cloak. That's where our new drugs, like PD-1 and PD-L1 inhibitors, along with vaccines, step in - revealing these camouflaged enemies and bolstering our body's defense forces to strike back.
Needless to say, this shift in perspective on cancer is a game-changer. Gone are the days of merely categorizing it by body parts. Now, armed with insights into the unique biology of tumors, coupled with advancements from pharmaceutical behemoths like Merck and biotech pioneers like Moderna, hundreds of different cancers can be identified and targeted.
It's undeniable that collaborations, such as the one between Merck and Moderna, have signaled a paradigm shift in the battle against cancer. Their shared vision of pushing forward in the field of personalized cancer vaccines can potentially redefine how we approach oncology in the coming years.
Yet, as with all wars, there are casualties. The treatments, while promising, aren't without risks. Unbridling the immune system, for instance, can sometimes lead to unforeseen reactions, some of which can be fatal. Nonetheless, the consensus is clear: these treatments are generally safer and potentially more effective than the traditional chemotherapy approach.
But what does this mean for the average Joe or Jane grappling with a cancer diagnosis? Simply put, a shimmering beacon of hope. While some cancers remain resilient to these advances, others are showing remarkable progress. However, staying updated with the latest treatments is crucial. This might sometimes involve enrolling in trials or seeking genetic sequencing of one's cancer to unlock potential targeted therapies.
The bottom line, as put succinctly by oncologists working on these treatments: “We’re not in the 1990s anymore.” With key players like Merck and Moderna at the forefront of these innovations, we might just be on the brink of turning the tide in this relentless war. Make sure you don’t get left behind. Buy the dip.
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
October 5, 2023
Fiat Lux
Featured Trade:
(THE JOHN THOMAS BIOGRAPHY IS OUT)
(WHY WATER WILL SOON BE WORTH MORE THAN OIL),
(CGW), (PHO), (FIW), (VE), (TTEK), (PNR)
(THE BEST TESTIMONIAL EVER)