“If politicians delivered everything they promised, there would be absolutely no reason to go to Heaven,” said American humorist Will Rodgers.
Artificial intelligence (AI) has burst onto the scene, reshaping industries and capturing the imagination of investors. While headlines tout efficiency gains and cost savings, savvy investors know there's a treasure trove of hidden benefits beneath the surface. Are you a newcomer curious about this booming field? Let's crack open the AI treasure chest and explore ways to make wise investments, uncovering gems beyond the obvious.
Hidden Riches: Benefits Beyond the Buzzwords
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Unveiling the Invisible: AI's strength lies in its ability to analyze vast amounts of data, uncovering hidden patterns and relationships invisible to human eyes. This unlocks a treasure trove of insights for investors. Imagine AI predicting market trends based on social media sentiment, or spotting under-valued companies with hidden potential.
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The Empathy Engine: AI isn't just about numbers. It can analyze customer behavior, predict preferences, and personalize experiences to an unprecedented degree. This translates to happier customers, brand loyalty, and ultimately, increased revenue. Investing in companies that leverage AI for a deeper understanding of their audience can yield long-term returns.
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Innovation on Autopilot: AI powers the engine of innovation, constantly evolving and generating new ideas. Imagine AI-driven drug discovery platforms churning out life-saving medications, or self-optimizing algorithms pushing the boundaries of renewable energy. Investing in companies at the forefront of AI-powered innovation provides exposure to potential breakthroughs with exponential returns.
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The Risk Whisperer: AI can analyze mountains of data to identify and mitigate risks far more effectively than traditional methods. This translates to informed investment decisions, protecting portfolios from unexpected market tumbles or operational hiccups. By backing companies that use AI for risk management, investors can navigate turbulent waters with greater confidence.
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The Sustainability Catalyst: AI can be a powerful tool for combating climate change and promoting sustainable practices. From optimizing energy grids to designing eco-friendly products, AI has the potential to drive significant environmental progress. Investing in companies that leverage AI for sustainability not only generates profit but also contributes to a greener future.
Navigating the Treasure Hunt: How to Invest Wisely
- Beyond the Hype: Don't get swept away by flashy AI buzzwords. Look for companies that genuinely harness the power of AI to solve real-world problems and create genuine value.
- Diversify Your Gems: Spread your investments across different AI applications and industries. This mitigates risk and exposes you to a wider range of potential returns.
- Seek the Ethical Diamond: Choose companies that develop and use AI responsibly, with ethical considerations at the core. This not only aligns with your values but also ensures long-term sustainability.
- Consult the Map: Research thoroughly! Understand the AI landscape, identify established players and promising newcomers. Seek guidance from financial advisors experienced in the field.
- Embrace Uncertainty: The AI landscape is constantly evolving, and there will be bumps along the road. Be prepared for volatility and remain patient. Remember, long-term vision often leads to hidden riches.
Investing in AI demands a shift in perspective, moving beyond efficiency gains to unearth the hidden gems of innovation, empathy, and sustainability. By looking beyond the buzzwords, adopting a diversified approach, and prioritizing ethical considerations, you can navigate the AI treasure hunt with wisdom and reap the rewards of this transformative technology. So, put on your explorer hat, embrace the uncertainty, and discover the hidden riches of AI investing!
Remember, this is just a starting point. The world of AI is vast and ever-changing, so continuous exploration and learning are key to successful investments. With dedication and a keen eye, you'll be able to spot the hidden gems and navigate the AI landscape with confidence, emerging with a portfolio filled with the future's most valuable treasures.
Mad Hedge Technology Letter
January 26, 2024
Fiat Lux
Featured Trade:
(WESTERN DIGITAL HAS POTENTIAL)
(WDC), (NVDA), (AMD)
Chip stocks have been the talk of the town in the tech world.
It’s hard not to notice as stock valuations skyrocket.
These aren’t normal times anymore.
A secular trend that could be the biggest we have seen for a generation is taking hold.
That trend today is AI, and this 800-pound gorilla in the room is causing institutional money to pour into the chips that will help AI and the top firm is clearly Nvidia (NVDA).
After NVDA, there is a solid group of others like AMD, but even after that, there is still more ammo left in the shotgun.
Investors could look at an intriguing name - something like Western Digital (WDC).
WDC has a $19 billion valuation and in the long term future could be considered a bargain looking back.
Its earnings weren’t great with another quarter of decelerating revenue.
Western Digital (WDC) reported a narrower-than-expected loss for its December quarter, with revenue just squeaking past expectations.
The business model has been affected due to the impact of structural changes the company implemented in its flash and HDD businesses.
Last quarter, the company said it would spin off its flash memory business, which has been grappling with a supply glut after talks of merging the unit with Japan's Kioxia stalled, by the second half of 2024.
The company said its second-quarter loss included $156 million underutilization-related charges in Flash and HDD.
Western Digital has struggled as demand for memory chips cooled in the past couple of years, but underlying shares have rallied in recent months.
WDC stock had gained nearly 40% since the end of October.
Cloud represented 35% of total revenue, with the quarterly growth attributed to higher “nearline” or onsite data storage shipments to data center customers and better nearline pricing. The increase in client revenue was driven by an increase in the average selling price of flash memory and customer revenue was driven by a seasonal surge in flash bit shipments.
Revenue came in at $3.023 billion, down 2.5% year-over-year but up 10% quarter-over-quarter.
In addition to the recovery in both Flash and HDD markets, I believe storage is entering a multi-year growth period.
Generative AI has quickly emerged as yet another growth driver and transformative technology that is reshaping all industries, all companies, and our daily lives.
Importantly, industry analysts estimate that the edge now represents approximately 80% of total NAND bit shipments, an increase from approximately 75% in 2022, which is another indication that cloud demand was significantly pulled in during the pandemic.
In addition, I believe the second wave of generative AI-driven storage deployments will spark a client and consumer device refresh cycle and reaccelerate content growth in PC, smartphone, gaming, and consumer in the coming years.
WDC has done some nice business specifically in the cloud division with some serious growth.
WDC is also at the center of the generative AI trend and they could be the recipient of “the tide lifts all boats.”
However, I don’t like how revenue as a whole isn’t growing causing major uproar in the investor community.
Splitting up the company should do the trick of weeding out the bad revenue from the good.
I do believe that WDC represents good value for buy-and-hold investors in the mid-$50 range.
This isn’t an ideal stock to trade in and out and even on an earnings beat, the stock sold off which isn’t what investors like to see in terms of price action.
There isn’t enough investor confidence in the stock yet, but that could change in the future.
“I have had all of the disadvantages required for success.” – Said Co-Founder and Chief Technology Officer of Oracle Larry Ellison
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 JANUARY 24, 2024 WEBINAR)
January 26, 2024
TITLE: New All-Time Highs
PERFORMANCE:
Since inception: 670.74%
Average annualized return: 51.27%
Trailing one-year return: 52.86%
January 2024: -3.88%
POSITIONS:
(MSFT) 2/$330-$340 call spread
(AMZN) 2/$130-135 call spread
(V) 2/$240-$250 call spread
(PANW) 2/$260-$270 call spread
(CCJ) 2/$38-$41 call spread
(TLT) 2/$90-$90 call spread
Total Net Position 60%
THE METHOD TO MY MADNESS:
Markets are overbought but keep rising for the time being.
All economic data is globally slowing, except for the U.S. presenting as the only good economy in the world.
Oil is still being pulled down by a collapsing China. Look for improvement in the second half of this year as China starts to pick up.
Domestic plays have gone back to sleep on rates.
Buy stocks and bonds but only after substantial dips.
Commodities and industrials are a second half play.
THE GLOBAL ECONOMY
University of Michigan Consumer Sentiment Index surges up to 78.8 for January, its highest level since July 2021.
US Retail Sales comes in the best in three months, up 0.6% in December, as analysts continue to underestimate the American consumer.
Weekly Jobless claims plunge to 187,000, a 17-month low, underlining the “soft landing” scenario.
PPI falls 0.1% in December, putting the interest rate cutting scenario back on.
Consumer Price Index Flies, coming in at 0.3% for December instead of the anticipated 0.2%, a 3.4% annual rate.
Fed rate cuts just got pushed back from March to June.
STOCKS – New All-Time Highs
SPY breaks to new high on strong consumer sentiment.
Big Tech continues to dominate.
Market will continue to revalue all AI plays.
Bull move could continue into February as investors are underinvested, or even short.
Analysts are vastly underestimating technology earnings, only upgrading in 5% increments creating constant upside surprises.
Domestic plays have gone back to sleep on rising rates.
The flip-flop continues between tech and domestics.
TSLA – if Tesla hits $190 a good trade would be a 150/160 LEAPS two years out. But I would suggest holding off until the dust settles and the price war is over.
BA – LEAPS two years out = double your money.
Market timing index is at 76 – in sell territory, so don’t get greedy. Be patient and wait.
Don’t try and time the market – keep the AI five stocks. You generate a tax bill if you sell and may have difficulty getting back into the stock at a good price.
BONDS – Still Fading
U.S. Budget funded for two more months, kicking the can down to March 8.
U.S. Budget Deficit tops $500 billion in Q1.
Bonds could be the big trade of 2024.
After the sharpest 19-point two-month rise in market history, markets are taking a break.
Markets are discounting three cuts in 2024. May 2024 the mostly likely start date.
Junk bond ETFs (JNK) and (HYG) are holding up extremely well with a 0.50% yield and 18-month high.
John is looking for an $18-$28 point gain in 2024.
Buy (TLT) on dips.
FOREIGN CURRENCIES – giving up gains.
Foreign currencies give up 2024 gains because of the return of higher U.S. interest rates.
A dollar rally could last a couple of months, so a new currency entry point is approaching.
However, according to John, falling interest rates guarantee a falling dollar for 2024.
Bank of Japan eases grip on Bond yields, ending its unlimited buying operation to keep interest rates down.
China markets dive on news that the central bank was forced into the currency markets to support the yuan.
(FXA) to rally on the coming bull markets in commodities.
Buy (FXY) on dips.
ENERGY & COMMODITIES – it’s all about China.
China in free fall is destroying the oil market, the world’s largest energy consumer.
Libya returns 300,000 b/d of production to the market.
U.S. Big Freeze takes 400,000 b/d off the market from North Dakota.
John says that if you throw good news on a commodity and it fails to rally you get rid of it.
This is despite the U.S. government coming in to buy 1-3 million barrels daily for the SPR.
Copper to rise 75% in 2024, say industry analysts.
There is a “BUY” setting up here in energy when the global economy reaccelerates on a lower interest rates world. Watch (XOM) and (OXY).
Natural gas gives up much of 2024 gains.
PRECIOUS METALS – Interest Rate Hit
Gold takes a hit on rising U.S. interest rates.
Gold needs a return of falling interest rates to resume rally
Investors are picking up gold as a hedge for 2024 volatility.
Gold headed for $3,000 by 2025 but will retreat first from new all-time highs.
Silver is the better play with a higher beta.
Russia and China are also stockpiling gold to sidestep international sanctions.
Good LEAPS candidates setting up here: check out GOLD and NEM, SLV, SIL, and WPM.
REAL ESTATE – Ready for Blast off.
Existing home sales come in weak in December MOM, according to the National Association of Realtors.
Sales were 6.2% lower than December 2022, marking the lowest level since August 2010.
Inventory fell 11.5% from November to December, but it was up 4.2% from December 2022.
There were 1 million homes for sale at the end of December, making for a 3.2-month supply at the current sales price.
A six-month supply is considered balanced between buyer and seller.
Real estate is far stronger than people realize.
Refi demand rockets, as interest rates plunge to four-month lows.
Tight supply and still-strong demand have kept pressure on home prices.
ITB – buy any dip – U.S. is short about 10 million homes.
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 $12
Real Estate – buy dips
Next Webinar is on February 7, 2024.
“Success is nothing more than a few simple disciplines, practiced every day.” - Jim Rohn
Cheers,
Jacquie
Global Market Comments
January 26, 2024
Fiat Lux
Featured Trade:
(JANUARY 24 BIWEEKLY STRATEGY WEBINAR Q&A)
(TLT), (IWM), (SPY), (ALK), (FXI), (UAL), (BA), (NVDA), (UUP), (UNG), (MSFT), (GOOGL), (AMZN), (NVDA), (META), (CCI)
Below please find subscribers’ Q&A for the January 24 Mad Hedge Fund Trader Global Strategy Webinar, broadcast from Silicon Valley, CA.
Q: Will you stop out of (TLT) if it breaches the $93 level?
A: Yes, and I'm actually hoping it will do that because that sets up some really great two-year LEAPS for the (TLT) going out long-term. It's trying to hold in here at the bottom. It's been in the $93 handle for several days now, so we'll just watch.
Q: There seems to be negativity all over the place, but markets continue upwards. What are the chances of a black swan this year, and what do you think it might be?
A: Well, there always is a possibility of a black swan. That's why we do risk control and risk management all the time because black swans are by definition unpredictable. The reason people are negative is that they don't own more stocks, and they keep going straight up, at least the tech ones do. Money managers always look dumber not owning a market that's going up than owning a market that's going down and losing money with everybody else. It's just the way investor psychology works.
Q: Do you expect small caps (IWM) to outperform the S&P 500 (SPY) this year?
A: Yes I do, but it'll be a second half of the year game. They really need the big drops in interest rates to get earnings moving.
Q: Would Boeing (BA) be good for a LEAPS?
A: Yes, it would, but I would go out to the maximum maturity, say two to two and a half years, and you may get a double on your money on that. Basically, there are only two airplane manufacturers in the world that have a monopoly (or a duopoly to be technically correct) and Boeing is one of them. So love them or hate them, you still have to buy their airplanes; look no further than Alaska Airlines (ALK) and United (UAL), which have had to cancel literally tens of thousands of flights because they don't have enough airplanes. They had to ground all their 737 maxes.
Q: With all the shooting going on in the Middle East, why isn't oil higher?
A: It's all about China (FXI). As long as China is in a recession which seems to be getting worse, oil demand falls. China is the world's largest importer of oil by a large margin. They're also taking all the natural gas that the US will produce, and that is a big drag on prices. That will end when China starts to recover, and we did get a major stimulus package out of the Chinese government this week.
Q: What about NVIDIA (NVDA)? It's gone up so much. I'm up 300% since my cost. Should I sell now and take profits or just run the long?
A: This whole group, which I now call the AI 5—Microsoft (MSFT), Google (GOOGL), Amazon (AMZN), NVIDIA (NVDA), and Meta (META) could drop 20% at any time and then go on to new highs, and that's exactly what happened in the fall. We had a 20% drop in everything and then it just shot off to the races. So as long as you can handle a 20% decline in these stocks, and if you're a long-term investor, then you should keep them. Because the risk is you'll take profits, generate a big tax bill, and then won't be able to get back in at the next low, and you'll end up missing the next $1,000 point move. If you're the trader of the century like me, you can do that. But for your average garden variety trading at-home investor, I would say keep what's winning—keep the AI 5.
Q: Thanks John, I got a double on your (UNG) LEAPS that you put out over Christmas. It's since given back much of the gains. Do you see another big rally in (UNG) this year?
A: Yes, that was a 2-year LEAPS I put out. It doubled in 2 weeks, and I do see a bigger recovery in the second half of the year once the Chinese economy starts to recover. Their marginal first choice for new energy supplies is American natural gas; it's not oil from the Middle East. They're trying to clean up their atmosphere as much as we are, so look for another big demand spike for (UNG) later in the year.
Q: Why has the dollar (UUP) been so strong?
A: Rising interest rates. Currencies are all about interest rates and where the next interest rate move is going to be. Money always pours into the currency that has the next rise in interest rates. That's been the US dollar for all of this year so far.
Q: Will the election have an effect on the market?
A: Absolutely not. Nobody cares about the election. If you're an election junkie, you may stay glued to your TV. I'm not interested myself. I don't expect any changes in the economy to take place this year, and that's all investors and money managers really care about—is how they will do by the end of this year. So you're better off watching sports on ESPN is all I can tell you. Oh yes, and this is supposed to be a record year for disinformation about elections and candidates. Another reason to not bother with the election this year. Go watch the Jack Reacher series. At least there you can keep track of the body count.
Q: Is it a good time to buy a home right now?
A: Yes, if you have cash. It is still too expensive to borrow money to buy a home with 30-year mortgages at 6.5% and 5/1 ARMs at 6% or even 5.5%, but if you have cash, it is a great time to buy a house because what is the next move? Interest rates go down. Suddenly everybody in the world can afford houses and they now want to buy your house. So very rapid price rises are coming for the housing market once the rates start to fall, which could be March, could be June, depending on how Jerome Powell feels that morning.
Q: With EV sales up 50% last year (TSLA), why has copper been so weak?
A: The old high price of copper was based on continuing 50% per year increases in EV sales for the indefinite future. In fact, we got a 50% increase last year and forecasts for 10% growth only this year, so that's a big part of it. Also, backing out the Chinese construction demand gives copper a huge hit. New construction in China is essentially at zero and will be at zero for quite some time because of the real estate crisis there. Some people in China are looking at prices on their homes down 80%, which sounds like a repeat of our 2008 financial crisis. So that is another major drag on copper.
Q: Is it a good time to “buy wrights”?
A: Absolutely yes. If you read today's newsletter, it tells you how to do a buy write, and you do “buy rights” on the most expensive stocks. For example, NVIDIA (NVDA) at $600 today—you can get $8 for the February $650 calls, which you sell short against your stock ownership at $600, or you can go out to March 15th and you can get $19 for the March $650 calls. That will reduce your average cost for the shares by $19, so actually (NVDA) is, in fact, one of the best stocks to do this in, because it has the highest implied volatility of any options, second to Tesla (TSLA), it turns out.
Q: How did you predict the S&P 500 so accurately last year? You got within a point, pretty amazing.
A: All I can say is 55 years of practice helps! And I am a bit of a contrarian person; so when everybody said the market was going to go down, I said, “How about new all-time highs?” But also the answer to all questions really is people are wildly underestimating the impact of technology and AI, which continues to surprise the upside and will keep doing so for the next decade. That is the driver of all asset prices everywhere right now, and people will figure that out in probably about 5 years.
Q: Crown Castle Inc. (CCI), is that a good one to watch, with renewed interest in REITS?
A: Absolutely yes, and it's also a great interest-rate play. It had a horrible selloff going into October and has since made back all of those losses. We actually had a LEAPS in (CCI), which is now making money.
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
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