“You get a reputation for stability if you are stable for years.” – Said CEO of Meta Mark Zuckerberg
(THE SECTORS FAMILY OFFICES ARE FAVOURING in 2024)
February 5, 2024
Hello everyone,
Welcome to another big week of earnings. Media and consumer names feature this week.
Disney, McDonalds, and Uber Technologies are among the 94 S&P 500 companies due to report this week. 230 S&P500 companies have already reported their 4th quarter numbers. Of those, 75% have exceeded expectations. (All times: Eastern)
Monday, Feb 5, 2024
9:45 a.m. PMI Composite
9:45 a.m. Markit PMI Services
10 a.m. ISM Services PMI
Australia Interest Rate Decision
Previous: 4.35%
Time: 10:30 pm ET
Earnings: McDonald's, Simon Property Group, Estee Lauder Companies, Tyson Foods, On Semiconductor, Caterpillar
Tuesday, Feb 6, 2024
Euro Area Retail Sales
Previous: -0.3%
Time: 5:00 am ET
Earnings: Chipotle Mexican Grill, Prudential Financial, Fortinet, Enphase Energy, Eli Lilly, GE Healthcare Technologies, Ford Motor.
Wednesday, Feb 7, 2024
8:30 a.m. Trade Balance
Previous: $63.2B
Time: 8:30 am ET
3:00 p.m. Consumer Credit
Earnings: Uber Technologies, Wynn Resorts, PayPal, Yum! Brands, CVS Health, Hilton Worldwide, Costco Wholesale, Disney.
Thursday, Feb 8, 2024
8:30 a.m. Continuing Jobless Claims
8:30 a.m. Initial Claims
10 a.m. Wholesale Inventories
Australian Governor Bullock's Speech
Previous: N/A
Time: 5:30 pm ET
Earnings: Motorola Solutions, Expedia Group, Ralph Lauren, T. Rowe Price Group, ConocoPhillips, The Hershey Co., Philip Morris International, Tapestry.
Friday, Feb 9, 2024
Canada Unemployment Rate
Previous: 5.8%
Time: 8:30 am ET
Earnings: PepsiCo
An ever-increasing number of wealthy individuals has contributed to a boom in family offices in the last few years.
In the United States, in the last three years alone billionaires are 46% richer than they were in 2020.
Studies show that the ultra-high net worth population overall declined in Asia last year, but rose in India, while Europe and America recorded smaller declines. The combined net worth of Asia’s super-rich population was at $12.13 trillion, above Europe’s $11.73 trillion.
Family offices typically cater or investors with $100 million or more in net worth. According to a 2023 study by KPMG, 26% of family offices most commonly manage between $251 million and $500 million in assets, while 65 manage over $5 billion. A 2022 report citing various estimates said that family offices were managing more than $6 trillion in wealth.
So how are family offices allocating right now and in the next few years – in the face of major global shifts?
UBS notes that the current trend among family offices is a return to fixed income as a diversifier, although stocks in developed markets remain the most important asset class.
Currently, UBS states, that the most favored diversification strategy globally is high-quality short-duration fixed income. The bank also states that family offices are planning to buy more developed market bonds over the next five years.
The table here shows how family offices are planning to change their asset allocations in the next five years, according to UBS’s 2023 survey.
Citi points out that most family offices have started to shift toward higher-risk asset allocations, which is in line with Citi going overweight on stocks in December for the first time since 2020, as it expects earnings growth to broaden across sectors.
One type of fixed income that family offices are positive on right now is U.S. investment grade credit of long duration and high quality.
There is also more hedging in portfolios now than two years ago, with clients using macro trading strategies tied to geopolitical uncertainty.
What type of assets are family offices looking to buy in the next few years?
Japan stocks are one area. The ‘Japan thesis’ is built around resurgent inflation, and resulting wage growth, which has created better purchasing power for Japanese corporates. Also, better corporate governance.
Japan’s stocks had a bull run last year, and it’s continuing into this year, touching new 33-year highs.
According to Citi, other themes that family offices are bullish on include health care and longevity, the energy transition, and generative artificial intelligence.
Overall, Citi says, that tech led the way as 63% of family offices stated it as their preferred sector to invest in, with real estate coming in second (42%), and health care in third position at 40%.
Providers are showing that alternative assets are also becoming more popular with family offices, such as private equity, private debt, and infrastructure. Private equity is a play on lower interest rates, given so much of the returns from this asset segment are driven by cost and availability of debt. UBS explains that family offices are primarily investing in private equity through funds, which deliver diversification and the ability to enter markets where the family office does not have in-house expertise.
Markets are largely expecting the U.S. Federal Reserve to start cutting rates this year, after a protracted period of hiking.
Cheers,
Jacquie
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 5, 2024
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or WELCOME TO THE DOTCOM BUBBLE PART II),
(NVDA), (MSFT), (AMZN), (META), (GOOGLE), (FDX)
I remember back in 1990 when I was first starting my hedge fund in London England, one of the very first. I hired two Ph.D.’s in Mathematics from Cambridge University, and we started inventing one the first purely quantitative approaches to the stock market. We were playing around with statistical probability arbitrage and Monte Carlo simulations, things like that.
One day, one of my guys said he needed to buy a software patch from a company in Los Angeles. I said “Sure" thinking we could pay up and overnight some floppy discs via a new company called Federal Express (FDX). He said no need, he could simply download them.
I said what?!
Andrew proceeded to connect to the Internet with our screechy landline modem and pay for the software with my American Express card. I watched in utter amazement as the time bar turned green and we got our patch.
I thought “Holly Smokes!”
I immediately realized that this technology was going to change the global economy beyond all recognition and send the stock market soaring. I also realized that I had to move my company out of our leafy West London neighborhood to the peach orchards of Silicon Valley as soon as possible to get in on the ground floor. I did this over a weekend care of, you guessed it, Federal Express. Thank goodness my guys were single.
I then called the Head of Research at Normura Securities in Tokyo and informed him of the incredible power of the Internet, and that in five years, Normura would distribute all of its research online, completely eliminating paper. He said I was out of my mind. I was wrong. In the end, it took Nomura ten years to move to online-only research, vastly improving the profitability of the company.
Over the last month, I have realized that we are seeing a repeat of that magical 1990 “aha” moment. We are only one year into Dotcom Bubble Part II, which has several more years to run. Remember when Fed Chairman Alan Greenspan warned of “irrational exuberance” in December 1996? Technology stocks rocketed for 3 ½ more years, wiping out several hedge funds on the short side along the way.
Think of it as 1997 again. Now, if I can only get my 1997 hair back!
Need any further convincing? Today, graphics card maker NVIDIA (NVDA) is selling at a forward multiple of 20X earnings. In 2000, this type of stock (Cisco Systems, Yahoo, Dell Computer) was selling for 100 times earnings. Add a 2X multiple expansion and a 5X multiple expansion and you get a 10X growth in the lead stock prices in coming years.
The net, net of all this is that the most expensive stocks in the market are not really expensive, but the cheapest. Overbought? Technically insane? Doubled in a year?
Buy em!
For AI, five will continue dominating the market for the foreseeable future. The top five AI stocks are showing an average 60% profit gain in Q1. The remaining S&P 494 are showing a 10% loss. It is a 1990s Dotcom Bubble repeat in miniature. These stocks have gained $5 trillion in market value in only three months, and there is more to come.
What are these companies doing right? They developed the greatest new income streams in history, while at the same time carrying out the most ferocious cost-cutting efforts. The effect on profits is astronomical. It’s like they spent the last 10-40 years preparing for this one moment. Look no further than Meta (META), which cut staff from 87,000 to 67,000, tripling net income to $14 billion, and doubling the share price.
It will be a recurring story.
On a completely different topic, hedge funds are pouring into India once again as the next China. It has the world’s best demographic curve, with an average age of only 20 years old, meaning that in 20 years it will have the most big spending consumers. It has the world’s fastest-growing Services PMI. It is also the most populous country in the world, topping 1.4 billion, exceeding China.
Apple (AAPL), Tesla (TSLA), and many other Western companies are looking to expand there. You always follow direct investment as the head of JP Morgan’s investment division once told me. Buy the (INDA) and the (INDY).
So far in February, we are up +2.04%. My 2024 year-to-date performance is also at -2.24%. The S&P 500 (SPY) is up +5.10% so far in 2024. My trailing one-year return reached +60.43% versus +20.48% for the S&P 500.
That brings my 16-year total return to +674.39%. My average annualized return has recovered to +51.21%.
Some 63 of my 70 trades last year were profitable in 2023.
I am maintaining longs in (MSFT), (AMZN), (V), (PANW), and (CCJ).
The Fed Turns Dovish, with all members expecting the next move to be a rate cut. It’s just a matter of how much, and how soon, but March was taken off the table. All bearish content from the Fed statement was removed. A classic “Buy the rumor, sell the news type of move. Look for a multi-week to one-month correction in tech, then a new rally.
US 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. Buy (TLT) on dips.
S&P Case Shiller National Home Price Index Falls, in November for the first time in nine months. Detroit reported the highest year-over-year gain among the 20 cities, with prices rising 8.2% in November, followed again by San Diego with an 8% increase. Seattle and San Francisco reported the largest monthly declines, falling 1.4% and 1.3%, respectively. This was back when mortgage rates were peaking at 8.0%.
Saudi Arabia Cuts Oil Production Targets, cratering prices and destroying the entire energy sector. Lack of demand, especially from China, is the reason. New US 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. It couldn’t happen to a nicer bunch of people.
Microsoft Beats estimates the steady growth of its Azure cloud business, but the shares dropped. Revenue in the second quarter, which ended Dec. 31, rose 18% to $62 billion, while profit was $2.93 a share, the company said in a statement Tuesday. Azure cloud-services sales gained 30%. Buy (MSFT) on dips.
Biden to Announce Massive Chip Subsidies, to head off a coming shortage driven by AI. The coming announcements are aimed at kick-starting the manufacturing of advanced semiconductors that power smartphones, artificial intelligence, and weapons systems. The $43.5 billion to be spent also has national security implications in moving semiconductor manufacturing from China back to the US. Buy all semiconductor plays. It’s free money for them.
It's the 16th Year Anniversary of the Mad Hedge Fund Trader, and what a long and winding road it has been. Going into the 2008 crash, several investors pulled out of a new hedge fund I was starting because of cash calls so I decided to go into the newsletter business instead. Thanks for your 16 years of your support. We now publish 24 newsletters a week and run summits every three months with a global staff of 15.
My Ten-Year View
When we come out the other side of any 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 5, at 8:30 AM EST, the ISM Services PMI is announced.
On Tuesday, February 6 at 8:30 AM, the Total Household Debt is released by the Federal Reserve Bank of New York.
On Wednesday, February 7 at 2:00 PM, the US Imports and Exports are published. We also get the latest car data.
On Thursday, February 8 at 8:30 AM, the Weekly Jobless Claims are announced.
On Friday, February 9 at 2:00 PM the Baker Hughes Rig Count is printed.
As for me, I’ll never forget when my friend, Don Kagin, one of the world’s top dealers in rare coins, walked into my gym one day and announced that he made $1 million that morning. I enquired “How is that, pray tell?”
He told me that he was an investor and technical consultant to a venture hoping to discover the long-lost USS Central America, which sunk in a storm off the Atlantic Coast in 1857, heavily laden with gold from the California gold fields. He just received an excited call that the wreck had been found in deep water off the US east coast.
I learned the other day that Don had scored another bonanza in the rare coins business. He had sold his 1787 Brasher Doubloon for $7.4 million. The price was slightly short of the $7.6 million that a 1933 American $20 gold eagle sold for in 2002.
The Brasher $15 doubloon has long been considered the rarest coin in the United States. Ephraim Brasher, a New York City neighbor of George Washington, was hired to mint the first dollar-denominated coins issued by the new republic.
Treasury Secretary Alexander Hamilton was so impressed with his work that he appointed Brasher as the official American assayer. The coin is now so famous that it is featured in a Raymond Chandler novel where the tough private detective, Phillip Marlowe, attempts to recover the stolen coin. The book was made into a 1947 movie, “The Brasher Doubloon,” starring George Montgomery.
This is not the first time that Don has had a profitable experience with this numismatic treasure. He originally bought it in 1989 for under $1 million and has made several round trips since then. The real mystery is who bought it last? Don wouldn’t say, only hinting that it was a big New York hedge fund manager who adores the barbarous relic. He hopes the coin will eventually be placed in a public museum. In 2021, the Brasher Doubloon sold at auction for $9.36 million.
Mad Hedge followers should start paying more attention to gold which I believe just entered another decade-long bull market, thanks to falling US interest rates. You can’t go wrong buying LEAPS in the top two miners, Barrack Gold (GOLD) and Newmont Mining (NEM).
Who says the rich aren’t getting richer?
Good Luck and Good Trading,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
(LRLYC), (NVDA), (EL), (SSDOY)
Something had been lighting up Las Vegas brighter than its neon signs – Artificial Intelligence (AI).
Forget the glitz of slot machines; the real buzz in Sin City in the past weeks is all about AI. And when I say AI is getting big, I mean it's heading towards a colossal $190.61 billion by 2025.
An excellent example is Nvidia (NVDA). These guys are the wizards behind AI-focused graphics chips, and guess what? Their stock hit a record high at CES after they pulled the curtain back on their latest gizmos. This just shows how hot AI is getting in investor circles.
But it's not just tech gurus diving into the AI pool – even the makeup moguls are getting their feet wet.
Case in point: L’Oreal SA (LRLYC). They're the big shots in the beauty game, and they rocked the CES in January with their CEO, Nicolas Hieronimus, showing off their AI and machine learning tricks.
They've got this slick thing called the “Meta Profiler,” developed alongside Giorgio Armani SA. This baby can boost sales conversions by a jaw-dropping 73%. It's like a personal beauty assistant, trained on a massive 100,000 skin samples. Analysts are betting this could net L'Oréal a cool $1.08 billion by 2025. Talk about cashing in on AI.
L’Oreal isn’t just dabbling in AI for fun; they're serious players. They chalked up a growth rate of 7.8% last year, thanks in part to their AI moves.
Actually, the whole beauty tech scene is on fire, with venture capital funding for AI startups in this space jumping by 15% from year to year.
Now, let's chat about what you and I, the average Joes, are looking for. A recent study showed that 63% of consumers are all about AI-based personalized recommendations. That’s a big thumbs up for tech like L’Oréal’s Meta Profiler and Beauty Genius.
Speaking of Beauty Genius, this isn’t just some run-of-the-mill chatbot. It's a treasure trove of data, trained on 6,000 images and 10,000 products. It's like your personal beauty shopper, matching you with the perfect L'Oréal products and even hooking you up with TikTok tutorials featuring your favorite celebrity.
As expected, it's not just L'Oréal in this beauty tech race. The competition is heating up, with patent filings in this sector jumping by 24% in the last couple of years.
Estée Lauder (EL) and Shiseido (SSDOY) are neck and neck with L'Oréal, splurging big bucks to grab the AI beauty crown.
AI isn’t just about looking good; it’s about doing good too. L'Oréal’s also rolled out this AI-based Water Saver tech that's saved over 42 million liters of water globally. Now, that’s what I call beauty with a conscience.
From a dollars-and-cents perspective, AI is set to boost revenues by 10% to 20% for retail and consumer goods companies. That's serious money we're talking about.
Fast forward to the future, and AI in beauty looks as shiny as a new lipstick. We're not just talking about slapping on makeup; it’s all about smart, personalized solutions. And the investment world is waking up to this.
So, what’s the big picture? We're looking at the global AI market zooming to an eye-popping $2.57 trillion by 2032. The beauty industry is gearing up to cash in big time. We're talking about a market ballooning to a staggering $38.27 billion by 2027, zooming along with a CAGR of 19.22%.
Essentially, L'Oréal’s journey with AI is a story of how tech meets personalization. For investors surfing the AI wave, this is one ride you don’t want to miss. As CES closes its curtains, it's crystal clear: L'Oréal isn't just making faces prettier; they're reshaping the beauty industry's future.
Mad Hedge Technology Letter
February 2, 2024
Fiat Lux
Featured Trade:
(THE TECH LENDER)
(SOFI)
SoFi Technologies stock exploded higher earlier this week after the financial technology company posted its first quarterly profit.
That’s a mighty feat for a small tech firm - they usually burn through cash fast and cry for help from lenders.
The stock was up over 20% and that moment is another reminder about the absolute ferocity of the January move in short-term tech.
Few big tech stocks have posted positive earnings, and sure, there have been modest selloffs only for the broader tech market to rocket higher.
Each pullback has been met by a rip-your-face-off bullish reversal move.
Try to short tech at your peril.
What does that mean for Sofi?
SOFI retraced its bullishness by 10% and is trading back in the $8 range.
Heightened volatility is a hallmark of small tech stocks like Sofi and the firm won’t be able to shake this label until they grow larger and display stable earnings.
They posted fourth-quarter earnings of 2 cents a share, and in the year-ago quarter, it posted a loss of 5 cents a share.
Adjusted net revenue of $594.25 million in the fourth quarter beat the $572 million analysts had forecast. A year ago, revenue was $443.42 million.
SoFi began as a lender focused on refinancing debt but now operates through three segments: lending, which includes student, personal, and home loans; financial services; and a technology platform.
Record revenue at the company level was driven by record revenue across all three of the business segments, with a record contribution of 40% of adjusted net revenue generated by non-Lending segments (Technology Platform and Financial Services segments).
Deposits increased by $2.9 billion to $18.6 billion in the quarter, and customers grew by nearly 585,000 to more than 7.5 million.
Because personal loans take up the biggest share of the portfolio, analysts tend to pay attention to those numbers. At the end of 2023, the company said, personal loans were marked at 104.9%—up from 104% at the end of the third quarter.
Beyond 2024, the company forecasts 20% to 25% compound revenue growth from 2023 to 2026, with per-share earnings from 55 cents to 80 cents a share in 2026.
Sofi continues to be the high-risk, high-reward name that intrigues investors on big drops.
Every spike in shares has also offered a short window of opportunity to short the stock.
Conversely, each drop of 10% or 20% has been a great entry point into shares.
As we advance further into 2024, the narrative will soon change into the Fed pivot and even though the Fed has said they won’t cut rates yet, the market is anticipating it later this year.
For any tech stock that is interest rate sensitive like Sofi, I don’t see how it is smart to bet against them for the rest of 2024.
Tech often overshoots to each side and Sofi shares will be higher in one year from now after the Fed finally does follow through with 1.5% of interest rate cuts which equals to 6 quarter point cuts.
Sofi’s projected 25% revenue growth certainly will add more firepower to share price action if they can pull it off.
However, these types of early-stage companies are notorious for overpromising and underdelivering.
“Unless you are breaking stuff, you are not moving fast enough.” – Said CEO of Facebook Mark Zuckerberg
(FUND OPTIONS IN THE MARKETPLACE)
February 2, 2024
Hello everyone,
Money market funds are awash with money.
The 2022 sell-off and rapid rise in interest rates in 2023 caused money-market balances to soar, doubling from where they were just five years ago – a far bigger increase than the historical trend. Investors didn’t necessarily want their money to grow but rather keep it safe.
That’s a lot of cash.
And the likelihood that much of that cash will flow into stocks, given the market’s more optimistic mood these days, is why we’re unlikely to see a sharp pullback soon, as counterintuitive as that seems given the markets’ big move of late. Although, I hasten to add that the Magnificent Seven are definitely overstretched.
$6 trillion on the sidelines is a big deal. This pot of money is looking for a home in stocks, bonds, and real estate. Having that much dry powder means there is room left for stocks to fly a little higher before we can call this a bubble.
So, what’s the best way for us to profit in a market like this, other than scaling into stocks on down days and buying LEAPS?
One option is investing in a mutual fund. This type of fund is one that many companies offer to workers in their 401 (k) plans. The problem here is that many of those funds perform poorly. And there is a kickback play taking place on the employers’ side as the latter receive benefits from the high fees charged by the fund managers that run them. I believe it’s called keeping the status quo. Here is an example.
Clearbridge Sustainability Leaders Fund (CBSLX) This fund has an environmental, social, and governance mandate (ESG) that has weighed on its returns, even though it holds many S&P500 standouts, like Apple (AAPL) and Microsoft (MSFT).
Another popular option is an index fund, like the SPDR S&P 500 ETF Trust (SPY), which holds the entire S&P500 and tracks the index. Buffett has often advised investors and anyone willing to listen to buy an index fund – not necessarily the one above – and just keep adding to it on dips.
But how much does it yield?
Only 1.4%. You would need $7.1 million invested to receive $100,000 in passive income from this fund. But it’s a solid fund and over time it will increase in value.
How about a closed-end fund (CEF) called the Liberty All-Star Equity Fund (USA).
This fund (current yield: 9.7%) holds many of the same stocks as SPY, like Microsoft and Apple, as well as United Health Group (UNH), Visa (V), and Capital One Financial (COP). What’s more the fund (USA) has delivered a solid 661.5% return in the last 15 years. So, its appeal is twofold: it returns the profits of the broader stock market in a well-diversified fund and two, it delivers a large slice of those profits as dividends.
What are CEFs:
They are like mutual funds or ETFs in that they pool money from investors, which the fund’s managers then use to buy a basket of stocks, bonds, real estate investment trusts (REITS), or other investments, depending on the CEF’s mandate.
The fund managers then buy and sell over time, handing profits over to investors as dividends. CEFs trade on public exchanges and can be bought and sold, just like a stock.
CEFs are heavily regulated. They must account for their operations and file statements with the SEC every quarter.
Being publicly traded means CEFs are liquid. If you need cash, just sell your shares during market hours, Monday through Friday from 9:30 a.m. to 4 p.m. Eastern time.
The (USA) yield of 9.7% will provide you with a $100,000 annual passive income with $1,030,928 invested.
And this payout will probably grow in the future. All-Star Funds has a policy of paying out 10% of its net asset value (NAV or the value of its underlying portfolio as dividends every year, and the fund’s total NAV return has been 12.6% per year on average over the last 15 years. (With CEFs, per-share NAV returns often differ from a fund’s market price–based returns, in part because CEFs have more or less the same share count for their entire lives.) That means (USA) has earned 121% of its payouts during this period, which also suggests it can sustain its dividend for a long time.
Investors can also look forward to some upside generated by the fund’s discount to net asset value (NAV). Right now, the shares trade for around 3% below NAV, under the five-year average of a 0.9% discount. Not a wide gap, but as it closes it will give the market price an extra push.
This Post has provided you with a brief introduction to closed-end funds, featuring the Liberty All-Star Equity Fund (USA). The discussion here is designed to educate you about what is on offer in the financial marketplace. Always do your own research and make sure you are aware of all the risks.
Cheers,
Jacquie