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 13, 2024
Fiat Lux
Featured Trade:
(WHAT THE ECONOMIST BIG MAC INDEX IS TELLING US NOW),
(FXF), (FXE), (FXA), (CYB)
The Swiss franc is wildly overvalued, as are the Norwegian kroner and the Uruguayan peso. On the other hand, the Venezuelan bolivar, UAE dirham, and the Brazilian real off real value.
Who has the cheapest currency in the world? The Ukrainian hryvnia, which at 25 cents to the US dollar offers the cheapest Big Mac in the world. I had one in October, and they taste just the same, but is a bargain at $5.00. That explains the proliferation of McDonald's hamburger stands in the capital city of Kiev. They are always packed.
With interest rates and inflation the urgent topics of the day, everyone has their favorite inflation indicator. The Fed has money supply growth, you have yours, and well, I have mine.
My former employer, The Economist, once the ever-tolerant editor of my flabby, disjointed, and juvenile prose (Thanks Peter and Marjorie), released its “Big Mac” index of international currency valuations in 1987.
Although initially launched as a joke, I have followed it religiously and found it an amazingly accurate predictor of future economic success. The heart attack on a plate costs $5.69 in most of the US.
The Economist index counts the cost of McDonald’s (MCD) premium sandwiches around the world, ranging from 142% the cost of an American Big Mac in Switzerland to only 84.5% in Brazil, and comes up with a measure of currency under and overvaluation.
I couldn’t agree more with many of these conclusions. It’s as if the August weekly publication was tapping The Diary of the Mad Hedge Fund Trader for ideas.
I am no longer the frequent consumer of Big Macs that I once was, as my metabolism has slowed to such an extent that in eating one, you might as well tape it directly to my middle. Better to use it as an economic forecasting tool, than a speedy lunch.
Having followed this index religiously for 37 years, I am able to make some astute long-term observations. For a start, the US dollar has been at the top of the range for most of its life. This is because the US has had the best major economic growth rate over the last four decades, averaging a real 3.0%.
Another factor is that America has also had the world’s highest large economy interest rates, thanks to a very tough inflation-fighting Federal Reserve. I doubt Jay Powell eats Big Macs. He’s too thin.
You will also find that the cheap end of the range is always populated by the same countries year in and year out. These are poorly governed, money-printing, economically chaotic countries with little regard for their currencies. Don’t cry for me Argentina and throw in Venezuela. They will always be cheap. Invest there at your peril.
And yes, making your currency calls based on the price of hamburgers has its risks. But it does give me a wonderful excuse to travel around the world taking pictures of fast-food stands.
The Big Mac in Swiss francs is Definitely Not a Buy
But it’s the Deal of the Century in Kiev
(SNOW), (BRK.B), (KO), (AAPL), (BAC), (AMZN), (MSFT), (GOOGL), (NET), (DDOG), (MDB)
The legendary Warren Buffett, a man who's as synonymous with cherry Coke as he is with savvy investments, has a knack for picking stocks that resonate with the American spirit.
His powerhouse, Berkshire Hathaway (BRK.B), is a treasure trove of investments that scream "USA!" from the top of their lungs, boasting big names like Coca-Cola (KO), Apple (AAPL), and Bank of America (BAC).
But, among the classic Americana, there lurks a tech unicorn that's not your typical Buffett bet: Snowflake (SNOW).
Snowflake, a cloud data platform, might not be the first thing that comes to mind when you think of consumer-driven stocks. Yet, Berkshire Hathaway has thrown $1.2 billion into this high-flyer, even though it's seen better days, price-wise.
Despite its shares plummeting 50% from their zenith, Snowflake could very well be the dark horse in Berkshire's stable, with the potential to gallop ahead in the long run.
Why the excitement around Snowflake, you ask? Well, it's all about data.
In the era of artificial intelligence (AI), where ChatGPT has become everyone's new best friend, the real MVP behind the scenes is data. Snowflake is like the Marie Kondo of data - it helps businesses tidy up their digital mess, making sure everything sparks joy... or, in this case, insights.
Imagine trying to make sense of data scattered across different cloud services like Amazon's (AMZN), Microsoft's (MSFT), and Alphabet's (GOOGL). That’s pretty much like trying to assemble a jigsaw puzzle with pieces from different boxes.
Snowflake's platform is the table that lets you lay out all the pieces, clearly see the big picture, and actually do something useful with it.
With the world becoming more digital by the minute, the amount of data we're producing is frankly crazy. It's estimated that 90% of the world's data was generated in just the last 2 years. Let that sink in.
And, this digital deluge shows no signs of abating, making Snowflake's usage-based billing model an attractive proposition for businesses looking to scale their data operations without breaking the bank.
With a net revenue retention (NRR) rate of 135%, Snowflake's appeal is evident, reflecting its capacity to grow its revenue base without needing to constantly hunt for new clients.
And Snowflake's business model is brilliantly simple yet genius: pay as you go, which means as the digital universe expands, so does Snowflake's wallet.
Financially, Snowflake is as robust as they come, with over $2.6 billion in annual revenue and a pretty 24% of that turning into free cash flow.
The market looks to be bullish on this company, with Wall Street predicting a 61% annual earnings growth.
However, let's not sugarcoat it. Snowflake doesn’t come cheap. In fact, it’s more expensive than its peers like Cloudflare (NET), Datadog (DDOG) or MongoDB (MDB).
Still, Snowflake's appeal is in its strategic moves, including securing FedRAMP authorization to engage with federal agencies, signaling its ambition to broaden its horizons beyond the private sector.
This pivot not only diversifies its potential revenue streams but also positions Snowflake as a formidable contender in the cloud data arena, potentially encroaching on territories traditionally dominated by companies like Palantir (PLTR).
The stock's current valuation might make some investors sweaty, but for those willing to bet on Snowflake's continued expansion and growth, a long-term hold could be as rewarding as finding a rare vintage in your uncle's basement.
Consider a strategy of dollar-cost averaging to mitigate the risk of its high-flying valuation. It's like adding spices to a stew; you don't dump them all in at once, but a little bit over time to get the flavor just right.
Mad Hedge Technology Letter
February 12, 2024
Fiat Lux
Featured Trade:
(THE AI WAR STOCK)
(PLTR), (SMCI), (NVDA)
Palantir’s (PLTR) performance in the US is nothing short of extraordinary, and some would even say scintillating.
I’ll tell you why.
The numbers on the screen make you giggle like the 70% year-on-year growth in Q4.
It’s almost inconceivable to do what they did and I am referring to signing that many contracts given the way the product is.
We are witnessing a convergence of Palantir’s software products becoming easier to use which is leading to an augmentation of its capabilities, both driven by developments in AI, and large language models.
The heightened demand and ability to meet that demand is something Palantir’s management calls “with a pilot.”
This new piloting approach is what they call boot camp.
They did over 500 boot camps last year.
Palantir’s management travels around the country now convincing CEOs, CTOs, CFOs, and really, whoever has $1 million to buy the software and transform their enterprise by harnessing everything achieved in AI since inception and putting the best people on it.
Palantir then coaches these best employees on how to run data at a boot camp for 10 hours per day until they know it like the back of their hand.
One unique part of Palantir’s business model is their principle of making it known that they are proud of their work on the war front. They are proud to support the US.
Specifically, they are proud to support the US military.
However, this has rubbed some the wrong way like the Europeans who refuse to do much business with PLTR.
PLTR has been unable to make inroads across the Atlantic.
Yet PLTR is proud to have carved out a pivotally crucial role not only in Ukraine, but management is proud that after October 7, within weeks, Palantir is on the ground, and is involved in operationally crucial roles on the software side in Israel.
I know of no other software company in the world that is at the focal point of Ukraine and Israel and it is important for investors to know this before they decide to invest in the company.
This tech company boards the most talented, interesting, and performance-based people in the world.
Some of the numbers that can’t just be ignored are the 55% growth in customer count year-over-year.
This is the early days of generative AI in software products and for Palantir to describe the rocket fuel growth they are experiencing backs up the AI narrative.
For better or worse, the sector is relying on the AI pixie dust to carry the rest of the tech market.
As soon as the market gets wind that AI-based growth isn’t supercharging balance sheets, the tech sector will pull back.
Therefore, it’s highly positive for technology momentum to see stocks like PLTR and chip stocks like Super Micro Computer (SMCI) hit a home run in earnings.
Sadly, Nvidia (NVDA) can’t just carry the load for the entire sector and there needs to be some alternative leadership from other tech stocks connected to the AI story.
PLTR has tripled in the past 365 days and I don’t believe that type of stock performance can continue in the short-term.
The last earnings beat was met with yet another impressive 20% rise in the stock price.
Investors will need to be patient and wait for the stock to pull back otherwise chasing usually ends in tears.
I would advise readers to not chase and wait for big drops in individuals' names to put money to work.
“Stock market bubbles don't grow out of thin air. They have a solid basis in reality, but the reality is distorted by a misconception.” – Said George Soros
When John identifies a strategic exit point, he will send you an alert with specific trade information as to what security to sell, when to sell it, and at what price. Most often, it will be to TAKE PROFITS, but, on rare occasions, it will be to exercise a STOP LOSS at a predetermined price to adhere to strict risk management discipline. Read more
When John identifies a strategic exit point, he will send you an alert with specific trade information as to what security to sell, when to sell it, and at what price. Most often, it will be to TAKE PROFITS, but, on rare occasions, it will be to exercise a STOP LOSS at a predetermined price to adhere to strict risk management discipline. Read more
(INDIA SHINES AMONGST EMERGING MARKETS)
February 12, 2024
Hello everyone,
The S&P500 has hit 5000. The question now is do we consolidate here or just march higher?
My advice: Watch for volatility and a possible very healthy correction after the Chinese New Year festivities close.
Going forward, better-than-expected earnings results as well as signs of easing inflation, a strong labor market, and a more resilient economy point to a rosier outlook than many anticipated going into 2024. Therefore, when we have a market weakness, look at it as an opportunity to add exposure if you haven’t already.
More big earnings results in the week ahead include Arista Networks, as well as Marriott International, Occidental Petroleum, Deere, and Applied Materials.
Wall Street gets more inflation data, and investors expect it will continue to confirm the recent downward trend. Last Friday, stocks rose after December’s inflation reading was revised even lower than previously reported.
Gold – we are in corrective consolidation awaiting a breakout.
Bitcoin – uptrend in progress. Heading towards $57,000. The bigger picture remains bullish, with the potential to advance to extend toward the Key $69,000 resistance and beyond.
Week ahead calendar
Monday Feb. 12, 2024
2 p.m. Treasury Budget (January)
Australia Consumer Confidence Chg.
Previous: -1.3%
Time: 6:30 pm ET
Earnings: Arista Networks, Waste Management
Tuesday Feb. 13, 2024
6 a.m. NFIB Small Business Index (January)
8:30 a.m. CPI (January)
Earnings: MGM Resorts International, Airbnb, Welltower, Akamai Technologies, Marriott International, Howmet Aerospace, Molson Coors Beverage, Coca-Cola Co., Hasbro, Ecolab, Biogen
Wednesday, Feb. 14, 2024
UK Inflation Rate
Previous: 4%
Time: 2:00 am ET
Earnings: Occidental Petroleum, Albemarie, Kraft Heinz, Generac.
Thursday, Feb. 15, 2024
8:30 a.m. Continuing Jobless Claims (02/03)
8:30 a.m. Export Price Index (January)
8:30 a.m. Initial Claims (02/10)
8:30 a.m. Empire State Index (February)
8:30 a.m. Philadelphia Fed Index (February)
8:30 a.m. Retail Sales (January)
9:15 a.m. Capacity Utilization (January)
9:15 a.m. Industrial Production (January)
9:15 a.m. Manufacturing Production (January)
10 a.m. Business Inventories (December)
10 a.m. NAHB Housing Market Index (February)
UK GDP Growth Rate
Previous: 0.3%
Time: 2:00 am ET
Earnings: Deere, Applied Materials
Friday Feb. 16, 2024
8:30 a.m. Building Permits preliminary (January)
8:30 a.m. Housing Starts (January)
8:30 a.m. PPI (January)
10 a.m. Michigan Sentiment preliminary (February)
If we focus on emerging markets, India seems to come out on top for investors looking for long-term growth. And one ETF appears to have done a great job at capturing those returns compared to its peers.
I’m talking about the Wisdom Tree India Earnings ETF (EPI). It has nailed a total return of 6.6% through Feb. 8, according to FactSet, and is up 18.7% over the past three months.
That makes it the best performing of the five biggest India ETFs with the iShares MSCI India ETF (INDA) and the Franklin FTSE India ETF (FLIN) both up less than 4% year to date. The Wisdom Tree fund is also beating the S&P 500 which is up less than 5% over the same period.
The Wisdom Tree fund has been a long-term winner as well, with an average annualized return of roughly 12% over the past decade.
Jeremey Schwartz, Wisdom Tree's global chief investment officer explains that EPI is based on an index that weights stocks by their total net income, which keeps investors from overpaying for growth.
What makes India particularly attractive is its population profile, which is indicative of a long-term growth story.
EPI’s outperformance could also be explained by its broader collection of stocks. The fund has more than 400 holdings, including some smaller-cap companies, significantly more than some of its key competitors. Schwartz points out that most of the large-cap indexes for India today hold 50, 75, or 100 stocks. EPI is out in front with 400. The fund holds $2.5 billion in assets.
Something to note is that the fund itself has an expense ratio of 0.85%. The iShares INDA ETF has a 0.65% expense ratio and Franklin Templeton (FLIN) comes in lowest at 0.19%.
Cheers,
Jacquie