Global Market Comments
December 18, 2023
Fiat Lux
Featured Trade:
(I’M TAKING OFF FOR THE YEAR)
I need a vacation.
I have been working nonstop for decades and desperately need a break. It seems that the older I get, the more I know, and the more in demand I become.
You can tear up your Rolodex card for me, unfriend me on Facebook, designate my email address as SPAM, and block my Twitter account. It won’t do you any good.
If I don’t take some time off, I am going to start raving MAD!
Over the last 16 years, I have worked the hardest in my entire life. And in the last two months, I have had to work with a bullet wound in my hip courtesy of the Russian Army in Ukraine. Whenever I have free time, I go fight a war. That’s who you want calling your trades.
This year, I have brought in a total return of +79.44%, versus +24.32% for the S&P 500, far and away among the best of my life and almost certainly yours as well. If you got half of my performance, you beat virtually everyone else in the industry, even the best hedge funds. In other words, I underpromised and over-delivered….in spades.
If you wonder why I do this, it’s really very simple. Read my inbox and you would burst into tears.
Every day, I learn tales of mortgages paid off, student loans dealt with, college educations financed, and early retirements launched. I am improving lives by the thousands. That’s far better than any hedge fund bonus could offer me, although I wouldn’t mind owning the Golden State Warriors.
At this late stage in my life, the most valuable thing is to be needed and listened to. If that means becoming a cult leader, that’s fine with me. After all, the last guy to try this route got crucified.
This year was challenging, to say the least. It started with a melt-up, then a banking crisis, then a snore, then a melt-up, then the biggest rally of all time, for both stocks and bonds. A $17 gain in (TLT) in a month? Really? I caught every move. We were all forced to become inveterate Fed watchers, much like 40 years ago.
When horrific uncontrollable wildfires broke out in California, I flew volunteer spotter planes for Cal Fire, holding the stick with one hand and a pair of binoculars with the other, looking for trouble and radioing in coordinates, and directing aerial tankers. Nobody can fly wildfires like I can.
I lost access to my Lake Tahoe house when the big fire hit right in the middle of a remodel. All the contractors disappeared chasing much higher-paying insurance work. At least we now have a 20-mile-wide fire break to the southwest of the house.
I have high hopes for next summer, starting with my seminar at sea on an Alaska cruise in June, another Matterhorn climb in July, client visits in Europe for August, flying Spitfires in England in September, and hiking the 170-mile Tahoe Rim Trail in October.
On top of all this, I was on speed dial at the Joint Chiefs and the US Marine Corps. A major? Really? And now I’m a major in two armies, the US and Ukraine. Seems you’re not the only one in desperate need of global macro advice.
The sanctions are working great by the way. Ukraine is winning, but slowly. The best compliment I received this year was when my commander in Ukraine told me I was the bravest man he ever met. I told him all Americans are like me. Whenever I enter the Marines Club in San Francisco, they call me a hero. In a building full of heroes, that is a big deal.
So, I will spend the next two weeks reading the deep research, speaking with old hedge fund buddies, the few still left alive, and trying to come up with a game plan for 2024. One thing is certain: we will likely make more money this year than next, the setup is so clear. We are at the beginning of a bull market that could last five or ten years.
Instead of sending out urgent trade alerts, emergency news flashes, and more research than you can read, I’ll be playing Monopoly and Risk, practicing my banjo, a catching up on some classic films.
I already have one trade-on: I’ll watch Elf for the millionth time if the kids watch Gary Cooper’s 1949 Task Force, The History of Naval Aviation (semper fi).
In the meantime, I’ll be running some of my favorite research pieces from the past over the next two weeks. Hot Tips will include the same.
We have had no snow at Tahoe so far. Pray for snow so I can use my senior season ski pass.
So, everyone please have some great holidays, spend your trading profits well, and get well rested.
We have some serious work to do in 2024.
Merry Christmas and Happy New Year,
John Thomas
CEO and Publisher
The Diary of a Mad Hedge Fund Trader
Selling Christmas Trees for the Boy Scouts
In the ever-turbulent world of finance, where fortunes are made and lost in the blink of an eye, one company claims to have cracked the code: Danelfin. This AI-powered startup promises to help investors, both seasoned and amateur, pick winning stocks with its sophisticated software. But can their technology truly deliver on its bold claims?
The Rise of AI in Investing
The rise of artificial intelligence (AI) has infiltrated nearly every aspect of our lives, and the financial sector is no exception. Algorithmic trading, powered by complex machine learning models, has become commonplace on Wall Street. However, AI-driven tools for individual investors are still in their nascent stages.
Danelfin steps into this nascent market with a unique proposition. Their software analyzes a staggering 10,000+ features per day per stock, taking into account everything from financial data and company news to social media sentiment and even weather patterns. This data is then crunched through their proprietary AI models, resulting in an "AI Score" for each stock. This score is essentially Danelfin's prediction of the stock's future performance, with a higher score indicating a higher probability of beating the market.
How Does Danelfin's Software Work?
The inner workings of Danelfin's AI are shrouded in secrecy, much like the algorithms that power self-driving cars or Google search. However, the company does offer some insights into their approach. They emphasize the use of explainable AI, meaning their models are designed to be transparent and understandable to users. This is in contrast to many black-box AI models, where the decision-making process remains opaque.
Danelfin also highlights its focus on alternative data sources. Beyond traditional financial metrics, their AI considers factors like news sentiment, social media buzz, and even satellite imagery to gain a more holistic understanding of a company's prospects.
Can AI Outsmart the Market?
The big question, of course, is whether Danelfin's AI can actually outperform the market. While the company boasts impressive backtesting results, past performance is not necessarily indicative of future success. The stock market is notoriously unpredictable, and even the most sophisticated models can be caught off guard by unforeseen events.
Furthermore, the reliance on AI raises concerns about potential biases and overfitting. AI models trained on historical data can inadvertently learn and perpetuate existing market inefficiencies. Additionally, overfitting to specific training data can lead to poor performance when applied to real-world markets.
The Verdict: A Promising Approach with Caveats
While Danelfin's AI-powered approach to stock picking is certainly intriguing, it's important to approach it with cautious optimism. The technology holds the potential to democratize investing and make it more accessible to the average person. However, it's crucial to remember that AI is not a magic bullet, and relying solely on Danelfin's recommendations without conducting your own due diligence could be a recipe for disaster.
Ultimately, Danelfin is a valuable tool that can be used as part of a comprehensive investment strategy. However, it's important to remember that no single tool can guarantee success in the market. Investors should always do their own research, consider their risk tolerance, and seek professional advice if necessary.
The Future of AI in Investing
While the jury is still out on whether Danelfin's AI can consistently beat the market, their approach represents a significant step forward in the field of AI-powered investment tools. As AI technology continues to evolve and become more sophisticated, we can expect to see even more innovative solutions emerge in the years to come. The future of investing may very well be driven by algorithms, but it's important to remember that human judgment and critical thinking will always play a crucial role in making sound investment decisions.
Remember, investing is a complex endeavor, and there is no guaranteed path to success. Always conduct your own research and consult with a financial advisor before making any investment decisions.
Mad Hedge Technology Letter
December 15, 2023
Fiat Lux
Featured Trade:
(A TECH COMPANY MOST PEOPLE HAVEN’T HEARD OF)
(SMCI), (PLTR)
It won’t be the case that only 1 or 2 AI stocks hit pay dirt.
There will be more winners.
Most importantly, companies need to get a set at the table whether it be hardware, software, or chips.
There are different ways to play AI and for example, Palantir is a good bet through the software side of it as it gobbles up government contracts that are indeed lucrative, but also highly stable.
Palantir (PLTR) has become one of the top stocks mentioned in conversations I’ve had and I don’t believe it’s going away.
The company has long used AI in its Gotham and Foundry platforms, and its Artificial Intelligence Platform (AIP) has produced eye-popping productivity gains.
But Palantir is currently expensive and management likes to issue new stock like there is no tomorrow.
One stock that could garner attention is Super Micro Computer (SMCI).
It’s a dark horse AI stock that few know about.
Super Micro stands out as a "rack-scale" IT solutions provider, designing servers, switches, storage systems, and software with global support services.
Since this approach combines hardware and software, it provides a competitive advantage over peers who focus primarily on either hardware or software.
Despite a market cap of only $14 billion, Super Micro has built a customer base in more than 100 countries. And so large is its operation that it requires more than 6 million square feet of manufacturing space globally.
A demand surge led to more need to attract talent through stock-based compensation.
Thus, that expense came to $57 million in fiscal Q1, up from $11 million in the year-ago quarter.
Super Micro maintained its fiscal 2024 revenue guidance of $10 billion to $11 billion.
This amounts to a 47% increase which definitely bolsters this tech stock as a prototypical growth stock that investors love.
The stock has skyrocketed by 210% over the last 12 months. And despite that surge, the stock sells at a P/E ratio of 24.
Considering the rapid growth expected, Super Micro's gains are not likely to stop anytime soon.
Thanks to a lack of name recognition, investors are only now seeing the potential for this AI stock.
Consequently, investors can buy a fast-growing stock at a low price.
This means that if they missed the opportunity to buy Palantir more cheaply, Super Micro gives them a second chance. Moreover, with its ability to combine hardware and software, it appears to have a competitive advantage in the AI space.
I’m not saying that investing in something like Nvidia won’t work.
There is room for other chip suppliers and Super Micro Computer is one of them.
The stock has really surged in the past year, but I would be inclined to add on big drawdowns.
Entry points are few and far between for SMCI.
This is just the early stages of AI and to get into one of the better names at a cheaper price is a good long-term strategy.
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
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
(SUMMARY OF JOHN’S DECEMBER 13, 2023 WEBINAR)
December 15, 2023
Hello everyone,
Title: The Fed Wins
Performance:
2023 year to date: +78.86%
Since inception +676.05%
Average annualized return: +52.00% for 15 years
Trailing one-year return: 75.38%
Positions:
90% long, 10% short, 0% cash.
Risk on
(NLY) 12/$15-$16 call spread. 10%
(BRK/B) 12 $320-$330 call spread 10%
(GOOGL) 12 $110-$120 call spread 10%
(CAT) 12 $220 - $230 call spread 10%
Risk off
No positions 0%
Total Aggregate Position = 40.00%
Method to my Madness
The Fed is done raising interest rates. Markets are now discounting the first rate cut which could be as early as March, but more likely June 2024.
All interest rate plays reacted positively to the news – bonds, REITS, precious metals, and financials.
The year-end rally is on, but what happens in January?
All economic data is globally slowing.
Oil prices and commodities are now trading as one, selling off on a slowing economy.
The tech bull market is back and will continue for years.
Time to go aggressively long on stocks and bonds.
Commodities and industrials are a second-half play.
The Global Economy - Shrinking
Non-farm payrolls come in soft in November at 199,000. The headline unemployment rate fell to 3.7%, near a 50-year low.
US GDP revised up to a blistering 5.2%.
S&P Global Services PMI comes in flat at 50.8, but still above the boom/bust level. It’s the 11th consecutive month over 50 in expansion territory.
Fed’s favorite inflation gauge rises a modest 0.2%, and 3.5% on a YOY basis, a new cycle low.
ISM Services came in at 52.7 versus an estimated 52.4. No recession here, nor a super-heated economy. Another Fed-friendly number.
China moves to further stimulate the economy after many failed efforts. This time through reduced reserve requirements.
Stocks – Buy Back Boom
The year-end rally started on October 26, happened in November, now losing momentum.
Santa came early this year, clearly confusing Thanksgiving with Christmas.
70% of corporate profits went into stock buybacks this year.
Alaska Air Buys Hawaiian for $1.9 billion in a big overpay. (ALK) dropped 15% on the news.
Uber entered the S&P500 on December 18, taking the stock up 10% on the news.
IBM announces New Quantum Computing Chip.
Snowflake delivers a big beat, taking the stock up 10% in hours.
Berkshire Hathaway fails to fall on Munger's death.
Bonds – Blowout Top
Panic buying drives Treasury yields to 4.13%, down nearly a full percentage point in little more than a month on weakening economic data.
US Government to finance million-dollar mortgages, through its Fannie Mae and Freddie Mac finance agencies.
Fed to Cut interest rates as early as March or so says the futures market, which gives this a 40% probability.
Crown Castle International catches activist bid from Elliot Management
Junk bond ETFs (JNK) and (HYG) are holding up extremely well with an 8.74% yield and an 18-month high.
Buy (TLT) on dips.
Foreign Currencies – Massive Yen Reversal
Massive short cover hits Japanese yen, taking it up 10% in days.
The prospect of falling US interest rates adds fuel to the fire.
Buy (FXY) on dips.
Bank of Japan eases grip on bond yields, ending its unlimited buying operation to keep interest rates down.
Japan is the last country to allow rates to rise.
Expect the Japanese yen to take off like a rocket.
The collapse of dollar is a 2024 story.
Energy and Commodities- New Lows
Exploding sales of EVs are ringing the bell for Oil, leading forecasters to speed up their projections for when global oil will peak, as public subsidies and improved technology help consumers overcome the sometimes-eye-popping sticker prices for battery-powered cars.
Oil crashes from $96 down to $68 in less than six months, as fears of a global economic slowdown continue.
US Gasoline prices hit a three-year low on recession fears and replacement concerns by EVs.
Energy stocks are tracking the downside tic for tic, pulling down all other commodities.
There is a BUY setting up here when the global economy reaccelerates on a lower interest rates world. Watch (XOM) and (OXY).
Warm weather is capping rallies in natural gas (UNG).
Precious Metals – A New 10-year bull market
Gold hits a new all-time high – another falling interest rate play.
Sharp drop in interest is very positive for gold.
Investors are picking up gold as a hedge for 2024 volatility.
Gold headed for $3,000 by 2025.
Silver is the better play with a higher beta.
Russia and China are also stockpiling gold to sidestep international sanctions.
Real Estate – The Bull is Back
Refi demand rockets, as interest rates plunge to four-month lows.
The rate for the popular 30-year mortgage fell back toward 7% after hitting 8% earlier this fall.
Applications to refinance a home loan index increased 14% from the previous week and were 10% higher than the same week one year ago.
Zombie Malls are a new term you should get used to. People are just not coming back to work.
It’s very bad in San Francisco where tech discovered the wonders of cost-cutting, taking the office vacancy rate up to 35%.
Pending home sales collapse, dropping to the lowest level since the National Association of Realtors began tracking them in 2001.
Tight supply and still-strong demand have kept pressure on home prices, which only continue to hit new highs. S&P Case Shiller hits new highs – 3.9% higher in September.
Trade Sheet
Stocks – buy any dips.
Bonds – buy dips.
Commodities – buy dips.
Currencies – sell dollar rallies, buy currencies.
Precious metals – buy dips.
Energy – buy dips.
Volatility – buy at $12.
Real Estate – buy dips.
Next Strategy Webinar: January 10 from Silicon Valley
Here is a copy of the November Jacquie’s Post zoom meeting. Enjoy!
https://www.madhedgefundtrader.com/meeting-replay-november-2023/
Cheers,
Jacquie
Global Market Comments
December 15, 2023
Fiat Lux
Featured Trade:
(DECEMBER 13 BIWEEKLY STRATEGY WEBINAR Q&A),
(BYDDF), (TSLA), (NEM), (UNG), (WMT), (TGT), (GOLD), (TLT), (JNK), (HYG)
Below please find subscribers’ Q&A for the December 13 Mad Hedge Fund Trader Global Strategy Webinar, broadcast from Silicon Valley, CA.
Q: I think it's a good time to buy gold, do you agree? If so, what are your top picks for a long-term hold?
A: I was looking at some very long-term gold charts, and gold tends to have really hot and really cold decades, and we're just finishing a cold decade. In fact, the price of gold today is roughly where it was 12 years ago—it hasn't moved in 12 years. But if you look at the decade before that, it went up ten times from $200 to $2,000, so we're about to enter another hot decade. It may not go up 10X, but 5X is realistic. That would take us up from $2,000 to $10,000, and I think we could see $3,000 as early as 2025.
The best plays are always the gold miners. And my two favorite picks there are Barrick Gold (GOLD) and Newmont Mining (NEM). If you want to be even more aggressive than that, the underlying miners tend to go up at four times the rate of the gold metal. I can also go with junior minors who probably are losing money now, but if gold goes up to $5,000, they'll make money. Those are hugely leveraged, high-risk plays.
Q: Is it time to sell Tesla (TSLA) stock on all long-term accounts?
A: It is not. If you truly are long-term, I think Tesla goes to $10,000 eventually, but we are in the middle of a price war. Price wars are not when you want to be involved in the stock, so I wouldn't be adding to Tesla positions here—I want to see what the final bottom looks like, when the price wars end the prices start to go up, and we'll get that with an economic recovery next year.
Q: Who are Tesla's prime competitors?
A: I would say it's BYD CO., INC. (BYDDF) in China. BYD, which I visited in China 12 years ago, is actually out selling Tesla in China, and they have the ability to produce a super cheap car. They have a $25,000 car in Europe right now, and the fear is that they will make a $15,000 car, and then flood the United States with it. I doubt that will happen; they've never been able to reach American quality and safety standards, and that's why you don't see Chinese cars here. You do see them in other countries like Australia, Hong Kong, and parts of Africa; and they're currently making a big push in Europe, which certainly has all the German car producers worried. Competition is out there and does pose a risk to Tesla, but I think long-term Tesla still wins anyway. By the way, I hasten to mention there are no American competitors to Tesla. Tesla is so far ahead that the big three will never ever catch up and eventually just be reduced to selling Teslas on license.
Q: Where do you think the bottom in oil is?
A: The consensus in the market right now is $62 a barrel. That's about another $6 or $8 lower than here, and then I think we really do bottom out. Then you want to start piling into oil producers like ExxonMobil (XOM), which we had a position in last week, and Occidental Petroleum (OXY), which is the number one pick by Berkshire Hathaway. So those are two good names to go with. What drives these and all other commodities in the future? The answer is a recovering economy. Let's assume we drop from 5.2% last quarter to maybe 2% this quarter—we will accelerate to 5% next quarter, and that's what takes all of your commodity plays upward.
Q: Would you buy retailers here like Walmart (WMT) or Target (TGT)?
A: No. The time to buy retailers is in the run-up to Christmas. I don't know about you, but I'm finished with all my Christmas shopping! You want to buy in the run-up to Christmas shopping, not when it's peaking. Target on the other hand has done really well, and on a massive cost-cutting effort.
Q: When do you think is the first interest rate cut?
A: Since the market has a consensus of May, with some people saying March, I'll go for June. I think this Fed wants to torture us a little bit more and delay any interest rate cuts, but markets will discount that anyway. So it all sets up a great backdrop to buy stocks now, because markets discount things six months in advance, and six months from now is May. That's why we've had the ballistic moves that we've seen in stocks.
Q: Whatever happened to the natural gas trade United States Natural Gas Fund (UNG)?
A: The problem with all these commodity trades is that they are all in one way or another dependent on the weather, and we are having a warm winter, so you can't fool Mother Nature. Not only is it warm here, but it's warm in China, and in Europe. I think they have this thing called…global warming? It makes you ask yourself if you even want to be near an energy trade during a time of global warming, which is accelerating. So anyway, we had a nice profit on this in October—it completely went away. The (UNG) ETF went from $8 all the way down to $4.50, so we'll just have to wait for the cold weather and for (UNG) to ramp up. If it doesn’t happen soon, we may not have a rally this year in natural gas. Pray for snow!
Q: Is junk the best to buy in bonds?
A: It's the best risk-reward ratio; it has a yield roughly 50% higher than TLT with only slightly more risk. The default ratio on junk bonds is actually quite low. And in fact, before you buy (JNK) (SPDR Bloomberg High Yield Bond ETF) or (HYG) (iShares iBoxx $ High Yield Corporate Bond ETF), go to the website and look at their largest holdings and you’ll see what I mean, it's all airlines and cruise lines which had to load up on debt during the pandemic but are doing great right now.
Q: How can the market still rally if it's time to sell and take profit?
A: We get a round of profit-taking at some point, and there's your entry point. Right now, no professional trader is buying anything right now, they're just holding back and seeing when they take profits. And the way traders think is they don't want to trade anymore until they get paid! The year end is ending shortly and the risk-reward favors taking profits and then sitting on the profits. Guess what I'm doing? I'm taking profits and sitting on the profits because traders have bonuses that tend to get paid in January.
Q: On the (TLT) put trade, should one get out once it hits $95?
A: Yes, I always stop out when we hit the nearest strike on a call spread or a put spread. That's a good discipline to have. 90% of the time, if you hold on to expiration, you make the maximum profit in these, but that 10% of the time it's a total write-off, so you get to choose. I try to keep the volatility of the Mad Hedge service low so I always stop out quickly—easier to dig yourself out of a small hole than a big one.
Q: How do you think the next two government shutdowns in January and February will affect the market? Is this a buying opportunity?
A: Absolutely, yes, it is a buying opportunity. Shutdowns tend to be short, but you may get a lot of political turmoil, especially in the House. After the Long Island by-election to replace the disgraced George Santos the Republican majority is likely to shrink to only two seats. The House could fire another speaker, for example. We're kind of in unprecedented territory here in terms of the US government, but at any stock market decline, you would be a big buyer. That's how to play it. If people want to puke out on what's happening in Washington—thank you very much, I'll take your stock.
Q: Are we still bullish on the Barack Gold (GOLD) LEAPS?
A: Absolutely, especially if you have the 2025 expiration. There is an easy double or triple here.
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
At BYD in China 2011
