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
February 12, 2024
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or RAISING MY YEAREND TARGET TO (SPX) $6,000)
(AAPL), (GOOGL), (META) (MSFT), (AMZN), (V), (PANW), (CCJ), (ARM), (USO), (XOM), (OXY), (INDA), (INDY), (FXI), (BABA), (NVDA), (TSA), (RCL)
When I announced my year-end target for the S&P 500 on the first of January, I knew it was cautious. That provided for only a 15% gain for 2024. Yet here we are a mere six weeks into the New Year, and we only have 10.4% to go.
That is with the six lead stocks, which account for 30% of the entire stock market capitalization, seeing earnings grow up to 300% annually. With that kind of growth, even $6,000 is looking overly conservative, even allowing for no multiple expansion whatsoever.
The top six stocks are over 11% YTD, while half of all S&P 500 stocks are down. A few friends of mine who are still alive and have been in the market for as long as I have never seen a market this concentrated. They are amazed, befuddled, and aghast, as am I.
And if you do want to buy big tech, you’re going to have to compete with the big tech companies themselves to do so. The buyback machine continues full speed ahead, with Apple (AAPL) Hoovering up $20.5 billion of its own shares, Alphabet (GOOGL) $16.1 billion, Meta (META) 6.3 billion, and Microsoft (MSFT) $4 billion.
I am a firm believer that markets will do whatever they have to do to screw the most people. So far this year it has done an admirable job doing just that, going up in a straight line with everyone underinvested and with $8 trillion on the sideline.
This is how markets will continue screwing most people. It keeps going up a little bit more. The NVIDIA earnings announcement due out on February 21 could be the ideal turning point.
Then the market suffers a ferocious correction, maybe 10% in a short period. Traders panic and dump all their positions. Then the (SPX) turns around at about $4,800 on a dime and then rockets all the way up to $6,000, frustrating investors once again.
I just thought you’d like to know.
I am usually cautious about ultra bears, but I picked up an interesting view last week about how long it may take the Chinese economy to recover.
During the US house bust from 2007 to 2012, the United States had 3 million excess unwanted homes weighing on the market like a dead weight, or about a seven-month oversupply. That was enough excess to cause the Great Recession, a 52% crash in the S&P 500, and the demise of thousands of American companies, including Lehman Brothers and Bear Stearns.
Today, China has a staggering 50 million excess homes in a population only four times larger than ours. That is a 15-year oversupply for the market. That means China could suffer a decade and a half of subpar growth and lagging stock markets. Don’t touch Chinese stocks even though they offer attractive single-digit multiples.
Why do you care? Because China is the world’s largest consumer and importer of most commodities, food, and energy. The stocks that specialize in these areas could be facing a long-term drag from the Middle Kingdom unless it is offset somewhere else.
The Chinese are only now discovering that the principal driver of their economic growth for the past 30 years has been US investment. President Xi has managed to scare that away with a hostile attitude towards America and saber-rattling over Taiwan. Last year for the first time the US imported more from Mexico than from China, where many companies have re-shored.
Wonder why crude oil (USO), (XOM), (OXY) is at $68 a barrel when the US economy is growing at a 3.1% rate? This is the reason. It is also a strong argument in favor of investing in India, which I discussed last week. Buy the (INDA) and the (INDY), not the (FXI) or (BABA).
In the meantime, you’ve got to love ARM Holdings PLC, whose earnings announcement triggered a heroic 56% one-day move up in the stock. They execute sub-designs for almost every AI chip out there. That’s what a 3% float in the stock gets you. Anyone who has any doubts about the durability of the AI story should take a look at what happened to (ARM) last week.
So far in February, we are up +1.78%. My 2024 year-to-date performance is also at -2.50%. The S&P 500 (SPY) is up +5.03% so far in 2024. My trailing one-year return reached +60.44% versus +33.13% for the S&P 500.
That brings my 16-year total return to +674.13%. My average annualized return has retreated to +51.20%.
Some 63 of my 70 trades last year were profitable in 2023.
I am maintaining longs in (MSFT), (AMZN), (V), (PANW), and (CCJ).
Reheating is Becoming an Issue, with a strong US economy and record-low unemployment rate possibly prompting the Fed to delay interest rate cuts. The stock market has been running on steroids on the expectation of imminent cuts. This is a new market risk and could unleash a thunderstorm on our parade.
CPI Revised Down, in December, from 0.3% to 0.2%. The deflationary economy is back! Stocks loved it, with the S&P 500 catapulting to $5,000. That’s why I revised my yearend target up to $6,000.
Early Retirements are Soaring, thanks to a stock market at new all-time highs. Baby boomers can now afford to “take this job and shove it.”
NVIDIA Enters New Custom Chip Market, potentially adding another $30 billion in revenues. The dominant global designer and supplier of AI chips aim to capture a portion of an exploding market for custom AI chips and to protect itself from the growing number of companies interested in finding alternatives to its products. Buy (NVDA) on dips.
Morgan Stanley Upgrades NVIDIA to an $800 Target. An exceptional supply-demand imbalance in the artificial intelligence-chip sector, as well as a massive shift in spending toward emerging technology, is likely to persist over the near term. Buy (NVDA) on dips.
ARM Holdings (ARM) Soars by 41%, off a spectacular forecast-based demand for designed-up AI chips. UK-based Arm makes money through royalties, when companies pay for access to build Arm-compatible chips, usually amounting to a small percentage of the final chip price. Arm said its customers shipped 7.7 billion Arm chips during the September quarter.
Tesla (TSLA) Looking to Cut Jobs, and reduce costs, as is the rest of Silicon Valley. The move could mark the bottom of the stock. Elon Musk is the master job cutter, axing 80% of the Twitter staff on takeover.
Meta (META) Gains $196 Billion in Market Cap in One Day, off the back of record sales, tripled earnings, and reduced costs.
Construction Spending Gains, up 0.9% in December, the best since October. Watch the industry reaccelerate as interest rates fall.
Royal Caribbean Beats, with record bookings in an industry I have recently become intensely interested in. (RCL) is grabbing market share from land-based vacations, as Millennials are finally discovering cheap cruise vacations, where it is often cheaper than to stay in a motel with all you can eat. Only a few cruises were lost to the Red Sea War. (RCL) just launched Icon of the Seas, the world’s largest cruise ship.
My Ten-Year View
When we come out the other side of the recession, we will be perfectly poised to launch into my new American Golden Age or the next Roaring Twenties. The economy decarbonizing and technology hyper accelerating, creating enormous investment opportunities. The Dow Average will rise by 800% to 240,000 or more in the coming decade. The new America will be far more efficient and profitable than the old.
Dow 240,000 here we come!
On Monday, February 12, the US Consumer Inflation Expectations are announced.
On Tuesday, February 13 at 8:30 AM EST, the Core Inflation Rate will be released.
On Wednesday, February 14 at 2:00 PM, the Producer Price Index is published. The Federal Reserve announces its interest rate decision.
On Thursday, February 15 at 8:30 AM, the Weekly Jobless Claims are announced. We also get Retail Sales.
On Friday, February 16 at 2:30 PM, the January Building Permits are published, along with the University of Michigan Consumer Sentiment. At 2:00 PM the Baker Hughes Rig Count is printed.
As for me, it was in 1986 when the call went out at the London office of Morgan Stanley for someone to undertake an unusual task. They needed someone who knew the Middle East well, spoke some Arabic, was comfortable in the desert, and was a good rider.
The higher-ups had obtained an impossible-to-get invitation from the Kuwaiti Royal family to take part in a camel caravan into the Dibdibah Desert. It was the social event of the year.
More importantly, the event was to be attended by the head of the Kuwait Investment Authority, who ran over $100 billion in assets. Kuwait had immense oil revenues, but almost no people, so the bulk of their oil revenues were invested in western stock markets. An investment of goodwill here could pay off big time down the road.
The problem was that the US had just launched air strikes against Libya, destroying the dictator, Muammar Gaddafi’s royal palace, our response to the bombing of a disco in West Berlin frequented by US soldiers. Terrorist attacks were imminently expected throughout Europe.
Of course, I was the only one who volunteered.
My managing director didn’t want me to go, as they couldn’t afford to lose me. I explained that in reviewing the range of risks I had taken in my life, this one didn’t even register. The following week found myself in a first-class seat on Kuwait Airways headed for a Middle East in turmoil.
A limo picked me up at the Kuwait Hilton, just across the street from the US embassy, where I occupied the presidential suite. We headed west into the desert.
In an hour, I came across the most amazing sight - a collection of large tents accompanied by about 100 camels. Everyone was wearing traditional Arab dress with a ceremonial dagger. I had been riding horses all my life, camels not so much. So, I asked for the gentlest camel they had.
The camel wranglers gave me a tall female, which was more docile and obedient than the males. Imagine that! Getting on a camel is weird, as you mount them while they are sitting down. My camel had no problem lifting my 180 pounds.
They were beautiful animals, highly groomed, and in the pink of health. Some were worth millions of dollars. A handler asked me if I had ever drunk fresh camel milk, and I answered no. They didn’t offer it at Safeway. He picked up a metal bowl, cleaned it out with his hand, and milked a nearby camel.
He then handed me the bowl with a big smile across his face. There were definitely green flecks of manure floating on the top, but I drank it anyway. I had to, lest my host would lose face. At least it was white. It was body temperature warm and much richer than cow’s milk.
The motion of a camel is completely different from a horse. You ride back and forth in a rocking motion. I hoped the trip was short, as this ride had repetitive motion injuries written all over it. I was using muscles I had never used before. Hit your camel with a stick and they take off at 40 miles per hour.
I learned that a camel is a super animal ideally suited for the desert. It can ride 100 miles a day, and 150 miles in emergencies, according to TE Lawrence, who made the epic 600-mile trek to Aquaba in only four weeks in the height of summer. It can live 15 days without water, converting the fat in its hump.
In ten miles, we reached our destination. The tents went up, clouds of dust rose, the camels were corralled, and the cooking began for an epic feast that night.
It was a sight to behold. Elaborately decorated huge three-by-five wide bronze platers were brought overflowing with rice and vegetables, and every part of a sheep you can imagine, none of which was wasted. In the center was a cooked sheep’s head with the top of the skull removed so the brains were easily accessible. We all ate with our right hands.
I learned that I was the first foreigner ever invited to such an event, and the Arabs delighted in feeding me every part of the sheep, the eyes, the brains, the intestines, and the gristle. I pretended to love everything and laid back and thought of England. When they asked how it tasted I said it was great. I lied.
As the evening progressed, the Johnny Walker Red came out of hiding. Alcohol is illegal in Kuwait, and formal events are marked by copious amounts of elaborate fruit juices. I was told that someone with a royal connection had smuggled in an entire container of whiskey and I could drink all I wanted.
The next morning I was awoken by a bellowing camel and the worst headache in the world. I threw a rock at him to get him to shut up and he sauntered over and peed all over me.
The things I did for Morgan Stanley!
Four years later, Iraq invaded Kuwait. Some of my friends were kidnapped and held for ransom, while others were never heard from again.
The Kuwaiti government said they would pay for the war if we provided the troops, tanks, and planes. So they sold their entire $100 million investment portfolio and gave the money to the US.
Morgan Stanley got the mandate to handle the liquidation, earning the biggest commission in the firm’s history. No doubt, the salesman who got the order was considered a genius, earned a promotion, and was paid a huge bonus.
I spent the year as a Marine Corps captain, flying around assorted American generals and doing the odd special opp. I got shot down and still set off airport metal detectors. No bonus here. But at least I gained an insight and an experience into a medieval Bedouin lifestyle that is long gone.
They say success has many fathers. This is a classic example.
You can’t just ride out into the Kuwait desert anymore. It is still filled with mines planted by the Iraqis. There are almost no camels left in the Middle East, long ago replaced by trucks. When I was in Egypt in 2019, I rode a few mangy, pitiful animals held over for the tourists.
When I passed through my London Club last summer, the Naval and Military Club on St. James Square, whose portrait was right at the front entrance? None other than that of Lawrence of Arabia.
It turns out we were members of the same club in more ways than one.
Stay healthy,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
John Thomas of Arabia
Checking Out the Local Camel Milk
This One Will Do
Traffic in Arabia
(SMCI), (NVDA), (META), (GOOGL), (TSLA)
Nvidia (NVDA), the king of the AI chipmaker hill, has been making Wall Street swoon for quite some time, with its shares skyrocketing by 1,700% over the past five years. But there seems to be a new kid on the block that has been turning heads lately.
Enter Super Micro Computer (SMCI), whose stock has surged an eye-watering 98% just this year, making it the talk of the town among investors.
Now, you might be wondering, "Is Super Micro a one-hit wonder or a mainstay in the making?" Well, let's dive into the nitty-gritty and find out.
Super Micro Computer is not exactly “new” to the game. Founded in the prehistoric tech era of 1993 and stepping into the public limelight with an initial public offering in 2007, this company has been crafting computer hardware with a focus on servers, storage, and security gear for quite some time.
Fast forward a few years, and artificial intelligence (AI) has become the golden ticket, supercharging Super Micro Computer's sales like never before.
Why, you ask? Well, because when it comes to AI, the name of the game is computing power — tons of it.
Let’s go back to Nvidia. These little electronic geniuses are the muscle behind crunching colossal data sets and birthing AI models. Imagine building a supercomputer; you're not just picking up a couple of GPUs from the store — you're hauling in thousands.
And when I say AI demands computing power, we're talking about a voracious appetite. Companies such as Meta Platforms (META), Alphabet (GOOGL), and Tesla (TSLA) are gobbling up AI chips like there's no tomorrow.
Meta's Mark Zuckerberg, for instance, announced plans to snag a whopping 350,000 H100 chips from Nvidia, each priced at a cool $30,000.
Yes, you heard that right—350,000 chips with a price tag that makes your car look cheap.
Now, making all these GPUs play nice together is no small feat. This is where Super Micro Computer comes in.
Basically, Super Micro Compute serves as the tech world's custom tailor, stitching together server solutions for any tech runway, be it engineering marvels, medical breakthroughs, or the brainy depths of AI.
So, what sets it apart? The company has this knack for creating server racks that are like a cozy, high-tech home for these pricey AI chips, complete with proprietary cooling tech that's a hit among the big data center operators.
The proof of the company’s prowess is in the pudding. For the second quarter of fiscal year 2024 (ending last December 31), Super Micro Computer posted sales of an impressive $3.66 billion.
This is a staggering 103% jump from the previous year, with the company smashing past the $2.8 billion forecast.
And the Super Micro Computer isn't hitting the brakes there either, with revenue expectations soaring to about $3.9 billion for the third quarter and a revised full-year forecast shooting up from $10.5 billion to a whopping $14.5 billion.
But can Super Micro chase down Nvidia's crown? Well, with shares up an astonishing 3,630% over the last five years (putting Nvidia's 1,700% increase in the shade), they're certainly making waves.
Yet, with a market cap of "only" $30 billion compared to Nvidia's titanic over $1 trillion, it's still very much a David versus Goliath scenario.
However, for those investors with a thirst for growth and an eye for AI's future, Super Micro Computer could be your golden ticket. It may not be the cheapest stock on the block, but if it delivers on its lofty earnings promises, there might be more surprises in store.
Mad Hedge Technology Letter
February 9, 2024
Fiat Lux
Featured Trade:
(THE NEW HOT A.I. STOCK)
(SMCI), (NVDA)
Super Micro Computers (SMCI) could be a legitimate dark horse in this race to AI supremacy.
They are the meat of the whole operation.
This is an upstart company from California who really knows their stuff about computer infrastructure.
Although they are no Nvidia, they do pack a punch and its share price has exploded higher as the company has been buoyed by both excellent quarterly results and an even better forecast for the full year.
Institutional interest is also gaining steam as the stock continues to be bid up to higher highs.
It’s proving itself, along with Nvidia, to be one of the cleanest stock plays on the AI theme.
Shares of SMCI were languishing lower than $20 per share in 2019.
Fast forward to today and underlying shares are sitting pretty at $750 per share.
Nvidia and Supermicro are somewhat correlated.
Nvidia’s high-performance chips are essential for the AI revolution, they need cutting-edge data infrastructure and that’s how Supermicro’s slots in nicely.
SMCI takes an innovative, customized, and flexible approach to meet customers’ computing needs – which has made it the choice of heavyweight clients like Meta and Amazon. SMCI supplies in rapid time, and the uber-complicated tech behind these centers, which needs servers, networks, and cloud storage solutions to function.
The company also uses a liquid cooling technique to manage the temperature of its multi-rack servers in a more energy-efficient way.
By the end of September, research firm IDC estimated that Supermicro had become the fourth-biggest server provider in the world, ahead of Lenovo.
And, sure, Dell and Hewlett Packard Enterprise are the leaders, but their revenue growth has been falling while Supermicro’s is muscling up at a double-digit pace, making it a leader in the higher-priced and higher-margin AI server market.
In its latest earnings report, SMCI announced revenues of $3.66 billion, a 133% increase from the year-earlier period, and predicted sales of at least $14.3 billion in 2024.
Supermicro’s leadership will not stay inert.
They are partnering with Nvidia, AMD, and Intel – the three biggest AI chip suppliers – on next-generation AI designs. So its customers will likely include all the big AI spenders like Meta, Amazon, Apple, and Tesla.
SMCI is forecasted to bust out an EPS growth rate of 31% moving forward.
The key risk ahead is that Dell and maybe even Hewlett Packard Enterprise might compete again with Supermicro’s capability in data centers and put its operating margins under pressure.
That could undermine the company’s profit outlook, especially if overall demand growth for data centers wavers.
The stock is expensive even to the point where short-term technical indicators have shown the stock to be overbought for the past 3 weeks.
In fact, the stock was sitting at $300 per share on January 18th and the parabolic trajectory has meant that the stock has more than doubled in the past few weeks.
Readers need to let this stock drop and any medium-sized pullback just be bought with two hands.
These types of premium AI stocks are hard to find optimal entry points which could mean a long wait time.
“What's dangerous is not to evolve.” – Said Founder of Amazon Jeff Bezos
(SUMMARY OF JOHN’S WEBINAR FEBRUARY 7, 2024)
February 9, 2024
Hello everyone,
Title: New All-Time Highs
Performance:
February +2.04%
2024 YTD = -2.24%
51.27% - average annualized return
674.39% since inception
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
Total Net Position 50.00%
The Method to My Madness
The one risk to my hyper-bullish scenario is that the economy doesn’t land at all and overheats forcing the FED to RAISE rates.
Focus remains on AI 5 with spectacular earnings announced last week.
All economic data is globally slowing, except for the U.S. with the only good economy in the world.
Saudi Arabia forced to cut oil production goals because of weak China demand.
Domestic plays have gone silent awaiting actual rate cuts.
Buy stocks and bonds but only after substantial dips.
Commodities and industrials are a second half play, we will keep rotating back and forth all year with tech.
The Trader’s Dilemma
The choice is now between 5 stocks that have gone up for 31/2 months, or a dozen interest rate sectors that may be dead money for four months.
Avoid the frustration trade, the one you should have done on October 26, look for the next one.
Wait for the ideal AI entry point, no matter how long it takes.
A big chunk of 2024 performance was pulled forward into 2023 and you made that money.
The sole exception is energy, which is driven by demand from the Chinese economy.
With markets at all-time highs 90-day T-bills are still yielding 5.43%.
The Global Economy – Beginning
Nonfarm Payroll Report comes in hot at 353,000.
The headline unemployment rate held at 3.7%.
The Fed turns dovish, with all members expecting the next move to be a rate cut.
Job openings hit a three-month high, while fewer Americans quit their jobs.
IMF upgrades Global Growth Forecast on the strength of the US by 0.2% to 3.1%
Chinese fiscal stimulus and a strong performance by large emerging market economies all contributed to the slightly brighter picture.
U.S. GDP rocketed by 2.5% in 2023, cementing its position as the strongest major economy in the world. Q4 came in at a hot 3.3%
Stocks – New Highs!
SPY breaks to new high on strong consumer sentiment.
Big tech continues to dominate.
Market will continue to revalue all AI plays.
Biden to Announce Massive Chip Subsidies, to head off a coming shortage driven by AI.
Bull move could continue into February as investors are under-invested, or even short.
Regional Banks get another Scare, as New York Community Bank drops by half.
Domestic plays have gone back to sleep on rising rates.
The flip-flop continues between tech and domestics.
Bonds – Back to Life
U.S. Treasury borrowing to hit $760 billion in Q1, some $55 billion less than expected.
Q2 then drops to only $202 billion.
Bonds rallied on the good news.
U.S. Budget funded only until March 8.
Bonds could be the Big Trade of 2024.
Markets are discounting three cuts starting in May 2024 more likely.
Junk bond ETFs (JNK) and (HYG) are holding up extremely well with a 6.50% yield and 18-month high.
John is looking for an $18 - $28 point gain in 2024 with interest.
Buy (TLT) on the dip.
Foreign Currencies – US$ back in charge
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, eventual 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 coming bull markets in commodities.
Buy (FXY) on dips.
Energy & Commodities – Saudi Arabia Cuts
Saudi Arabia cuts oil production target – cratering prices and destroying the entire energy sector.
Lack of demand, especially from China, is the reason.
New U.S. output is fuel on the fire.
Production will be throttled back a million barrels to 12 million barrels a day as a long-term goal.
Freeport McMoran kills it, with an earnings upside blowout, taking the stock up 5%.
Political problems in Chile and Peru are an issue, which generates 40% of the world’s copper.
Electrification of the U.S. economy will continue to be a driving theme.
China in free fall is destroying the oil market, the world’s largest energy consumer. There is a “BUY” setting up here in energy when the global economy reaccelerates on a lower interest rates world. Watch (XOM) and (OXY).
Precious Metals – Begging for a Breakout
Gold trending sideways awaiting decisive breakdown in interest rates.
Gold needs a return of falling interest rates to resume rally.
Miners are lagging gold performance but will play catch up.
Investors are picking up gold as a hedge for 2024 volatility.
Gold headed for $3000 by 2025 but backing off 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.
Real Estate – Gearing up for Spring.
S&P Case Shiller Falls in November for the first time in nine months.
This was back when mortgage rates were peaking at 8.0%.
New Home Sales recover on a falling interest rate push, up 8.0% to 664,000.
Sales increased 4.4% on a year-on-year basis in December.
DR Horton misses in a rare sign of weakness in the new home building industry taking the shares down 10%. This industry has a gale force demographic tailwind.
Tight supply and still-strong demand have kept pressure on home prices.
Do you live in Buffalo, New York? If so, you have the good fortune to occupy the hottest housing market in 2023.
Trade Sheet
Stocks – buy 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.
Cheers,
Jacquie
Global Market Comments
February 9, 2024
Fiat Lux
Featured Trade:
(FEBRUARY 7 BIWEEKLY STRATEGY WEBINAR Q&A),
(LLY), (FXI), (TSM), (BABA), (PLTR), (MSBHF), (SMCI), (JPM), (INDY), (INDA), (TSLA), (BYDDF), (NFLX), (META), (UNG)
Below please find subscribers’ Q&A for the February 7 Mad Hedge Fund Trader Global Strategy Webinar, broadcast from Silicon Valley, CA.
Q: Have you ever flown an ME-262?
A: There's only nine of the original German jet fighters left from WWII in museums. One hangs from the ceiling in the Deutsches Museum in Munich (click here for the link), I have been there and seen it and it is truly a thing of beauty. You would have to be out of your mind to fly that plane, because the engines only had a 10 hour life. That's because during WWII, the Germans couldn't get titanium to make jet engine blades and used steel instead, and those fell apart almost as soon as they took off. So, of the 1,443 ME-262’s made there’s only nine left. The Allies were so terrified of this plane, which could outfly our own Mustangs by 100 miles per hour, that they burned every one they found. That’s also why there are no Japanese Zeros.
Q: Thoughts on Palantir (PLTR) long term?
A: I love it, it’s a great data and security play. Right now, markets are revaluing all data plays, whatever they are. But it is also overvalued having almost doubled in a week.
Q: What do you make of all these layoffs in Silicon Valley? What does this mean for tech stocks?
A: It means tech stocks go up. The tech stocks for a long time have practiced over-employment. They were growing so fast, they always kept a reserve of about 10% of extra staff so they could be put them to work immediately when the demand came. Now they are switching to a new business model: fire everybody unless you absolutely have to have them right now, and make everybody you have work twice as hard. That greatly increases the profitability of these companies, as we saw with META (META), which had its profits triple—and that seems to be the new Silicon Valley business model. If you're one of the few 100,000 that have been laid off in Silicon Valley, eventually the economy will grow back to where they can absorb you. That's how it's going to play out. In the meantime, go take a vacation somewhere, because you're not going to get any vacations once you get a new job.
Q: I have had shares of Alibaba (BABA) since 2020 and the stock has been in free fall since. Should I take the 80% loss or hold?
A: Well, number one, you need to learn about risk control. Number two, you need to learn about stop losses. I stop out when things go 10% against me; that's a good level. At 80%, you might as well keep the stock. You've already taken the loss and who knows, China may recover someday. It's not recovering now because no foreigners want to invest in China with all the political risk and invasion risk of Taiwan. After all, look at what happened to Russia when they invaded Ukraine—that didn't work out so well for them.
Q: On the Chinese economy (FXI), is the poorer performance due to the decision to move to a war economy? The move in the economic front was described in Xi's speech to the CCP in January of 2023.
A: The real reason, which no one is talking about except me, is the one child policy, which China practiced for 40 years. What it has meant is you now have 40 years of missing consumers that were never born. And there is no solution to that, at least no short-term solution. They're trying to get Chinese people to have more kids now, and you're seeing three and four child families for the first time in 40 years in China. But there is no short-term fix. When you mess with demographics, you mess with economic growth. We warned the Chinese this would happen at the time, and they ignored us. They said if they hadn't done the one child policy, the population of China today would be 1.8 billion instead of 1.2 billion. Well, they’re kind of damned no matter what they do so there was no good solution for them. Of course, threatening to invade your neighbors is never good for attracting foreign investment for sure. Nobody here wants to touch China with a 10-foot pole until there’s a new leader who is more pacifist.
Q: What do you think of Eli Lilly (LLY)?
A: I absolutely love it. If there's a never-ending bull market in fat Americans, which is will go on forever, they're one of two companies that have the cure at $1,000 a month. On the other hand, the stock has tripled in the last 18 months, so it’s kind of late in the game to get in.
Q: Are there any stocks that become an attractive short in the event of a Taiwan invasion, such as Taiwan Semiconductor (TSM)?
A: All stocks become attractive shorts in the event of another war in China. You don't want to be anywhere near stocks and the semis will have the greatest downside beta as they always do. You don't want to be anywhere near bonds either, because the Chinese still own about a trillion dollars’ worth of our bonds. Cash and T-bills suddenly looks great in the event of a third war on top of the two that we already have in Gaza and Ukraine.
Q: What do you think about the prospects of the Japanese stock market now?
A: I think the big move is done; it finally hit a new high after a 34-year wait. The next big move in Japan is when the Yen gets stronger, and that is bad for Japanese stocks, so I would be a little cautious here unless you have some great single name plays like Warren Buffett does with Mitsubishi Corp. (MSBHF). So that's my view on Japan—I'm not chasing it after being out for 34 years. Why return? The companies in the US are better anyway.
Q: What is the deal with Supermicro Computer (SMCI)? It went up 23 times in a year to $669 after not clear $30 for a decade.
A: The answer is artificial intelligence. It is basically creating immense demand for the entire chip ecosystem, including high end servers, which Supermicro makes. It also has the benefit of being a small company with a small float, hence the ballistic move. It was too small to show up on my radar. I’ll catch the next one. There are literally thousands of companies like (SMCI) in Silicon Valley.
Q: Will JP Morgan (JPM) bank shares keep rising, or will they fall when the Fed cuts rates?
A: (JPM) will keep rising because recovering economies create more loan demand, allow wider margins, and cause default rates to go down. It becomes a sort of best case scenario for banks, and JP Morgan is the best of the breed in the banking sector. It also benefits the most from the concentration of the US banking sector, which is on its way from 4,000 banks to 6 with help from the US government.
Q: Is India a good long-term play? Which of the two ETFs I recommend are the better ones?
A: Yes, India is a good long-term play. You buy both iShares India 50 (INDY) and the iShares MSCI India (INDA), which I helped create yonks ago. India is the new China, and the old China is going nowhere. So, yes, India definitely is a play, especially if the dollar starts to weaken.
Q: Do you expect to pull back in your market timing index?
A: Yes, probably this month. Have I ever seen it go sideways at the top for an extended period? No, I haven't. On the other hand, we’ve never had a new thing like artificial intelligence hit the market, nor have we seen five stocks dominate the entire market like we're seeing now. So, there are a lot of unprecedented factors in the market now which no one has ever seen before, therefore they don't know what to do. That is the difficulty.
Q: Does India have an in-country built EV, and what is their favorite EV in India?
A: No, but Tesla (TSLA) is talking about building a factory there. And I would have to say BYD Motors (BYDDF) because they have the world’s cheapest EV’s. There is essentially no car regulation in India except on imports. Car regulation and safety requirements is what keeps the BYDs out of the United States, and it's kept them out for the last 15 years. So that is the issue there.
Q: What do you think about META as a dividend play?
A: I think META will go higher, but like the rest of the AI 5, it is desperately in need of a pull back and a refresh to allow new traders to come in.
Q: Why does Netflix (NFLX) keep going up? I thought streaming was saturated—what gives?
A: Netflix won the streaming wars. They have the best content and the best business strategy; and they banned sharing of passwords, which hit my family big time since it seemed like the whole world was using my Netflix password. And no, I'm not going tell you what my password is. I’ve already paid for Griselda enough times. Seems there is a lot of demand for strong women in my family. Netflix they seem to be enjoying a near monopoly now on profits.
Q: Has the NASDAQ come too far too fast, and does it have more to run?
A: Well it does have more to run, but needs a pull back first. I'm thinking we'll get one this month, but I'm definitely not shorting it in the meantime.
Q: Have you ordered your Tesla (TSLA) Cybertruck?
A: I actually ordered it two years ago and it may be another two year wait; with my luck the order will come through when I'm in Europe and I'll miss it. Some of my friends have already gotten deliveries because they ordered on day one. They love it.
Q: What happened to United States Natural Gas (UNG)?
A: A super cold spell hit the Midwest, froze all the pipes, and nobody could deliver natural gas just when the power companies were screaming for more gas. That created the double in the price which you should have sold into! Usually, people don't need to be told to take a profit when something doubles in 2 weeks, but apparently there are some out there as I've been here getting emails from them. Further confusing matters further is that (UNG) did a 4:1 reverse split right at this time. They have to do this every few years or the 35% a year contango takes the price below $1.00 and shares can’t trade below $1.00 on the New York Stock Exchange.
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Good Luck and Stay Healthy,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
