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
January 23, 2024
Fiat Lux
Featured Trade:
LEAPS Trade Alert - (TLT) – BUY
BUY the United States Treasury Bond Fund (TLT) January 17, 2025 $95-98 at-the-money vertical Bull Call spread LEAPS at $1.25 or best
Opening Trade
1-23-2024
expiration date: January 17, 2025
Number of Contracts = 1 contract
An $8 selloff in the (TLT) is the best entry point we are going to get for this LEAPS. This is a gift from the Federal Reserve which has indicated it may cut interest rates 3-6 times this year.
While the chance of winning a real lottery is something like a million to one, this one is more like 10:1 in your favor. And the payoff is a double in a year. That is the probability that (TLT) shares will rise by only 1.28% over the next 12 months.
The logic behind this LEAPS is fairly simple.
After keeping interest rates too low for too long, and then raising them too far too fast, what does the Fed do next? It then lowers interest rates too far too fast. In other words, a mistake-prone Jay Powell will keep on making mistakes. That’s what you get with a Fed chair who only has a degree in political science.
The rate of interest rate rises has been the most rapid in history. Keep it up and a recession in 2024 is a sure thing. When recession hits, demand for money will dry up and interest rates will collapse. For that reason, the Fed has to start its interest-cutting cycle sooner than later.
Yields on ten-year US Treasury bonds that bottomed at 0.32% in 2020 and reached a peak of 5.08% in October 2023 will easily fall back down to 3.00% by the time this LEAPS matures. That will take the (TLT) at least back up to $120.
I am using the very conservative $95-$98 strike price in case bonds continue bouncing along a bottom before turning higher in a few months. If a double in a year is not enough for you, perhaps you should consider another line of business.
I am therefore buying the United States Treasury Bond Fund (TLT) January 17, 2025 $95-98 at-the-money vertical Bull Call spread LEAPS at $1.25 or best.
Don’t pay more than $1.80 or you’ll be chasing on a risk/reward basis.
I am going out to only a January 17, 2025 expiration because I think this trade will work fairly quickly. Please note that these options are illiquid, and it may take some work to get in or out. Executing these trades is more an art than a science.
Let’s say the United States Treasury Bond Fund (TLT) January 17, 2025 $95-98 at-the-money vertical Bull Call spread LEAPS are showing a bid/offer spread of $1.10-$1.50, which is typical. Enter an order for one contract at $1.10, another for $1.20, another for $1.30 and so on. Eventually, you will enter a price that gets filled immediately. That is the real price. Then enter an order for your full position at that real price.
A lot of people ask me about the appropriate size. Remember, if the (TLT) does NOT rise by 1.28% in 12 months, the value of your investment goes to zero. The way to play this is to buy LEAPS in ten different names. If one out of ten increases ten times, you break even. If two of ten work, you double your money, and if only three of ten work, you triple your money.
You never should have a position that is so big that you can’t sleep at night, or worse, need to call John Thomas asking if you should sell at a market bottom.
There is another way to cash in. Let’s say we get half of your double in the next three months, which from these low levels is entirely possible. Then you could earn half of the maximum potential profit in months. You can decide whether to keep the threefold return or go for the full five-bagger. It’s a nice problem to have.
Notice that the day-to-day volatility of LEAPS prices is minuscule since the time value is so great, usually sporting implied of less than 10%. This means that the day-to-day moves in your P&L will be small. It also means you can buy your position over the course of a month just entering new orders every day. I know this can be tedious but getting screwed by overpaying for a position is even more tedious.
Look at the math below and you will see that a 1.28% rise in (TLT) shares will generate a 100% profit with this position, such is the wonder of LEAPS. That gives you an implied leverage of 68:1 across the $95-$98 space.
Only use a limit order. DO NOT USE MARKET ORDERS UNDER ANY CIRCUMSTANCES. Just enter a limit order and work it.
This is a bet that the (TLT) will not fall below $98 by the January 17, 2025 option expiration in 12 months.
Here are the specific trades you need to execute this position:
Buy 1 January 2025 (TLT) $95 calls at………….………$5.00
Sell short 1 January 2025 (TLT) $98 calls at…….……$3.75
Net Cost:………………………….………..………….…...........$1.25
Potential Profit: $3.00 - $1.25 = $1.75
(1 X 100 X $1.75) = $175 or 140% in 12 months.
To see how to enter this trade in your online platform, please look at the order ticket below, which I pulled off of Interactive Brokers.
If you are uncertain on how to execute an options spread, please watch my training video on “How to Execute a Vertical Bull Call Debit Spread” by clicking here at
https://www.madhedgefundtrader.com/ltt-vbcs/
The best execution can be had by placing your bid for the entire spread in the middle market and waiting for the market to come to you. The difference between the bid and the offer on these deep-in-the-money spread trades can be enormous.
Don’t execute the legs individually or you will end up losing much of your profit. Spread pricing can be very volatile on expiration months farther out.
In the tempestuous arena of artificial intelligence (AI), whispers of a challenger echo on the horizon. Sam Altman, the enigmatic visionary behind OpenAI and former president of Y Combinator, has ignited a fiery debate with his proposition – a network of custom chip factories dedicated solely to accelerating AI development. This audacious gambit threatens to disrupt the established order, casting NVIDIA, the reigning king of graphics processing units (GPUs), in the uncertain glare of potential dethronement.
NVIDIA's Throne: Built on GPU Supremacy
NVIDIA's grip on the AI hardware landscape is undeniable. Their high-performance GPUs, optimized for tasks like parallel processing and matrix multiplication, have become the de facto standard for training and running complex AI models. This dominance owes largely to two factors:
However, NVIDIA's fortress, while formidable, is not impregnable. Cracks have begun to appear, whispering of potential vulnerabilities:
Altman's Gambit: Tailored Silicon for AI's Leap
Enter Sam Altman, the Silicon Valley disruptor, with a bold counter-offensive. His proposed network of chip factories wouldn't simply compete with NVIDIA; it would rewrite the rules of the game. Here's the crux of his strategy:
The Clash of Titans: Uncertainties and Opportunities
But is Altman's plan a masterstroke or a fool's errand? The path ahead is fraught with uncertainties:
Despite these challenges, the potential rewards are tantalizing:
Beyond the Binary: A Symbiotic Future?
Ultimately, the battle between Altman and NVIDIA might not be a zero-sum game. Both players have the potential to contribute significantly to the advancement of AI. Here are some intriguing possibilities:
The Verdict: A Catalyst for Change, Not a Guaranteed Revolution
While it's too early to predict the outcome of this silicon showdown, one thing is clear: Sam Altman's gambit has thrown a stone into the AI hardware pond, sending ripples of excitement and apprehension across the industry
When John identifies a strategic exit point, he will send you an alert with specific trade information on 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
Mad Hedge Technology Letter
January 22, 2024
Fiat Lux
Featured Trade:
(TAKE A DEEP BREATH WITH AI)
(NVDA), (QRVO), (GOOGL), (AMZN), (AMD), (AVGO), (AAPL), (AI)
Stocks and firms tethered to artificial intelligence won’t always have a one-way joyride to profits.
The honest truth is that the road will be met with drawbacks some years and the sector will need time to digest the new developments.
Mainstream tech has made most people believe that AI can do no wrong in the short-term future.
There is a consensus that it’s the panacea for everything and anything.
The Magnificent 7 tech firms are priced for an AI boom and the hype is there, but it will take some time for AI to really filter into meaningful balance sheet development.
We are still in the beginning stages.
It’s not surprising that the Massachusetts Institute of Technology published a study that sought to address fears about AI replacing humans in a swath of industries and found that artificial intelligence can’t ACTUALLY replace the majority of jobs right now in cost-effective ways.
It’s important to note this report because much of AI has been celebrated with no mention of cost control or benefit versus the price or expenses incurred.
Any corporate tech will need to evaluate whether it’s worth gutting whole divisions to replace it with AI.
In many cases in early 2024, this type of strategy to a workforce could turn into an unmitigated disaster.
For instance, a new AI study found only 23% of workers, measured in terms of dollar wages, could be effectively supplanted. In other cases, because AI-assisted visual recognition is expensive to install and operate, humans did the job more economically.
The adoption of AI across industries accelerated last year after OpenAI’s ChatGPT and other generative tools showed the technology’s potential. Tech firms from Microsoft and Alphabet in the US to Baidu and Alibaba in China rolled out new AI services and ramped up development plans which could serve as a canary in the coal mine for things to come. Fears about AI’s impact on jobs have long been a central concern.
Computer vision is a field of AI that enables machines to derive meaningful information from digital images and other visual inputs, with its most ubiquitous applications showing up in object detection systems for autonomous driving or in helping categorize photos on smartphones.
The cost-benefit ratio of computer vision is most favorable in segments like retail, transportation, and warehousing.
The study was funded by the MIT-IBM Watson AI Lab and used online surveys to collect data on about 1,000 visually assisted tasks across 800 occupations. Only 3% of such tasks can be automated cost-effectively today, but that could rise to 40% by 2033 if data costs fall and accuracy improves.
When getting academic about the subject, many projections feel way too ambitious.
AI won’t take over the workforce in the next few years and will struggle to make inroads before 2030.
That doesn’t mean firms like Nvidia, AMD, Qorvo, and Broadcom will not sell AI-based chips promising better AI.
That doesn’t mean firms like Google, Apple, Microsoft, Amazon, and Meta won’t feel a small AI bump in revenue.
There certainly will be some changes, but wholesale transformation is a ways off.
I believe the AI hype has gotten too far over its skis.
Tech needs to slow down and make sure it’s properly implemented and the real effects will be seen after 2030.
“The only true wisdom is in knowing you know nothing.” – Said Greek Philosopher Socrates
(BUFFETT INVESTMENT LESSON 101 HAS TWO KEY PRINCIPLES)
January 22, 2024
Hello everyone,
It’s been a very wet and stormy January in Queensland this year. And we now have a cyclone lurking off the Queensland coast about to create havoc with the coastal communities in far north Queensland. The weather might be all over the place, but the stock market appears to be seeing things very clearly.
Welcome to a new bull market which started back in October 2022. Bull markets on average last more than 1,700 days, or longer than four years, the data shows. The median length of a bull is just north of 1,500 days.
The current run has lasted about 15 months, or under a year and a half, thus far. Investors are optimistic and excitement is almost palpable about the Fed cutting interest rates later this year. This excitement has pushed stocks higher in recent months.
Bull markets do not show uniform performance numbers. The longest bull run lasted between 2009 and 2020 – nearly 4,000 calendar days – with an overall gain of more than 400%. The shortest bull run on this list, which started when the index was just 14 points, was less than two years and resulted in a 22% advance.
Despite the market’s strength, the investor has some concerns in 2024. The exact path the Federal Reserve will take to lowering interest rates, the presidential election as well as the prospect of possible weakness in U.S. consumer spending. Data released this week could go a long way toward determining which way the central bank policymakers could lean on policy. Gross domestic product will be released on Thursday and the personal consumption expenditure prices reading on inflation is out on Friday.
Don’t rule out a pullback and some choppiness in the first few months of 2024.
Earnings this week:
Nearly 70 S&P500 companies are due to report earnings this week. Among the biggest reports are Tesla, Netflix, and Intel.
Monday: United Airlines (UAL)
Tuesday: Procter & Gamble (PG), Netflix (NFLX)
Wednesday: IBM (IBM), Tesla (TSLA)
Thursday: Alaska Air Group (ALK), Intel (INTC)
Did you know _
That one of Buffett’s many investments throughout his illustrious career has included the purchase of a farm. This farm is situated around 50 miles north of Omaha and was purchased in 1986. It cost Buffett $280,000, and he estimated that the return from the farm would be about 10% owing to improved productivity and higher crop prices. Years later Buffett advises us that the farm has “tripled its earnings and is worth five times or more what I paid.” He went on to say that he still “knows nothing about farming and recently made just my second visit to the farm.”
Buffett’s lesson to followers is that what matters most to any investment is its future earnings. Another key message from this example is having a long-term horizon for investments. He advises that “when promised quick profits, respond with a quick ‘no.’”
He explains that “income from the farm will probably increase in decades to come, and the investment will be a solid holding for my lifetime, and for my children and grandchildren.”
Both Warren Buffett and Bill Gates love farmland as an investment.
In north Queensland, you can’t really swim in the ocean without a stinger suit. You don’t want to get bitten by an Irukandji jellyfish. It is a potentially deadly sting that can cause cardiac arrest in under 30 minutes. To date, in south-east Queensland, on the Gold Coast (shown above) and Sunshine Coast, we can swim in the ocean without concerns about these jellyfish.
Cheers,
Jacquie
Global Market Comments
January 22, 2024
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or LEARNING FROM YOUR LOSERS)
