Mad Hedge Technology Letter
March 22, 2024
Fiat Lux
Featured Trade:
(REDDIT HAS SOME JUICE)
(RDDT), (META)
Readers who missed out on stocks like social media platforms like Facebook (META) now have a chance to grab a pillar of social media in American society.
Reddit (RDDT) went public yesterday and jumped 48% by the end of the trading day cementing its place as a top player of social media stocks in Silicon Valley.
The valuation now is $8 billion and we are just getting started as tech IPOs reverse from its recent dormant activity.
The strong showing by Reddit, along with AI-focused semiconductor connectivity company Astera Labs whose shares have gained 78% since its IPO Tuesday, provides a promising backdrop for other IPO candidates such as Microsoft-backed data security startup Rubrik and health-care payments company Waystar Technologies.
Reddit’s most loyal users were able to buy 8% of the shares at the IPO price, an opportunity typically reserved for institutional investors, and saw a total return in the aggregate of about $29 million by day’s end.
Reddit’s more than two-year slog to listing reflects the ups and downs of the market, beginning with its initial confidential filing in 2021 when IPOs on US exchanges set an all-time record of $339 billion.
Reddit’s listing pushes the total raised by IPOs via US exchanges this year to about $8.8 billion. That’s an increase of around 152% at this point in 2023.
One benefit of Reddit’s slow route to the public market is that enthusiasm for the AI revolution has continued to mount.
The potential of AI was at the center of Reddit’s proposed value proposition to investors, as companies eye the record-setting rallies in stocks like chipmaker Nvidia Corp.
Pay for growth, and for Reddit, which accelerated growth in the past six months, it just makes a strong case that it should be at a premium multiple.
Reddit said it’s in the early stages of allowing third parties to license access to data on the platform, including to coach up artificial intelligence models.
The company said that in January it entered into data licensing arrangements with an aggregate contract value of $203 million and terms ranging from two to three years. It expects a minimum of $66.4 million of revenue from those agreements this year, according to the filings.
Reddit also has announced a deal with Google, allowing Google’s AI products to use Reddit data to improve their technology. Large language models often need vast troves of human-generated content to improve.
Founded in 2005, Reddit averaged 73.1 million daily active unique visitors in the fourth quarter, according to its filings. The company reported a net loss of $91 million on revenue of $804 million in 2023, compared with a net loss of about $159 million on revenue of $667 million a year earlier.
It’s clear to me that there is a solid road map to monetizing Reddit’s platform whether it is licensing in-house data for AI large language models.
Reddit is an extremely rich and diverse social platform in which contributors discuss many topics.
As long as the over 73 million subscribers maintain their engagement, it’s easy to see how the tech company maintains its growth trajectory.
I do believe that subscriber growth will continue and the low-hanging fruit is that 100 million subscriber numbers.
Over time, this platform is a gold mine for AI algorithms to integrate with and that shouldn’t be diminished.
I would invest long-term only on big dips.
(SUMMARY OF JOHN’S MARCH 20, 2024, WEBINAR)
March 22, 2024
Title: Commodities are Back
Trade Alert Performance
March: 1.34%
Since Inception: 681.11%
Average annualized return: +51.40 for 16 years
Trailing One Year Return: +48.70%
Portfolio:
(TLT) 4/$87 - $90 call spread
(FCX) 4/$37 - $40 call spread
(XOM) 4/ $100 - $105 call spread
All positions 10% each.
Total aggregate position = 30%
Method to My Madness
Overheating risk is rising.
Tech will have a “time” correction, not a crash.
Major sector rotation is underway out of big tech and into commodities, energy, and precious metals.
All falling interest rate plays had a great week, including bonds, precious metals, energy, and even uranium.
All economic data is globally slowing, except for the U.S. with the only good economy in the world.
Buy stocks and bonds but only after substantial dips.
The Global Economy – Even Bad News is Good News.
PPI comes in hotter than hot at 0.6%. That was higher than the 0.3% forecast from Dow Jones and comes after a 0.3% increase in January.
CPI comes in hot at 0.4% in February. YOY inflation crawled up to 3.2% to 3.1% expected
Nonfarm Payroll Report rose275,000 in February.
The Headline unemployment rate rose to 3.9%, a two-year high.
Beige Book comes in moderate, saying “labour market tightness eased further,” in February but noted “difficulties persisted attracting workers for highly skilled positions.”
JOLTS Job Openings Report rises by 140,000 to 8,890,000 less than expected.
China Targets 5% Growth for 2024, but nobody buys it for a second.
Stocks – Commodities are Back!
NVDA replaces TSLA as top traded stock, with volumes migrating to the options market as well.
Fed to scale back bank capital requirements, according to his congressional testimony Wednesday.
Rivian shares soar, on news it is halting plans to build a new $2.25 billion factory in Georgia.
New York Community Bancorp bailed out, with a cash infusion led by former Treasury secretary, Steve Munchin.
Target rockets 10% on an earnings blowout, but the company said it expects another year of weak sales.
Dell becomes an AI stock, sending the shares up 47% in a day.
Private Equity targets Macy’s (M) with a $6.6 billion buyout bid, taking the shares up 16%.
Bonds – Doldrums
Bond investors are moving out the risk curve.
The U.S. market for one of the riskiest types of corporate debt is resurging this year, as companies cater to investor demand for assets that can lock in high yields for several years ahead of an expected decline in interest rates.
Holders of these bonds, called junior subordinated debt, are among the last to be paid in case of a default and companies can defer interest payments.
The word is out: Interest rates are falling.
Europe moves towards interest rate cuts, igniting a global bond market rally.
US National Debt is rising by $1 Trillion every 100 days. A trillion here, a trillion there, sooner or later that adds up to a lot of money.
Bonds may have put in a bottom, markets unable to take prices any lower, yields any higher with the current interest rate outlook.
Foreign Currencies – Another Run at the Dollar Highs
Higher for Longer rates mean higher for longer Greenback.
Bank of Japan cuts interest rates, bringing to an end a 34-year stimulus program that was a dismal failure.
The Japanese yen should have rocketed but collapsed instead.
US$ holds three-month highs.
You need falling interest rates for a weak dollar.
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.
Energy & Commodities – Range Bound
A global commodity rally has dragged oil up.
US continues to dominate markets with 13 million barrels/day production.
The US has saved Europe’s bacon with 1,300 takers of natural gas in two years, replacing Russia practically overnight.
In the meantime, coal has plunged from 50% to 19% of US electricity output in 20 years.
Electrification of the US economy will continue to be a driving theme.
The Uranium Shortage is getting extreme, with yellow cake up 112% in a year, owners of left-for-dead uranium mines are restarting operations to capitalize on rising demand for the nuclear fuel.
AI is finding new copper deposits.
Precious Metals - Signs of Life
Precious metals have a great week on slightly falling rates.
Gold needs – falling interest rates to resume rally (Fed statement confirmed rate cuts – metals rallied thereafter).
Miners are lagging gold performance but will play catch up.
Investors are picking up gold as a hedge for 2024 volatility.
Gold head for $3000 by 2025.
Silver will also rally. (Initial target is around $37.00)
Russia and China are also stockpiling gold to sidestep international sanctions.
Real Estate – Demographic Tailwind
Home prices have risen 2.4 times faster than the inflation rate since 1963.
Gail force demographic tailwinds are the reason helped by a chronic housing shortage.
New Home Sales weaken, curbed by frigid weather increasing 1.5% to a seasonally adjusted annual rate of 661,000 units in January.
But demand for new construction remains underpinned by a persistent shortage of previously owned homes.
Toll Brothers rocks, taking the shares up 6%, with extremely strong demand for new homes on the horizon. The gale force demographic tailwind continues.
Trade Sheet
Stocks: buy any dips
Bonds: buy dips
Commodities: buy dips
Currencies: sell dollar rallies, buy currencies
Precious Metals: buy dips.
Energy: buy dips
Volatility: buy $12
Real Estate: buy dips.
Next Strategy Webinar: April 3 from Key West, Florida at 12 EST
Cheers,
Jacquie
Global Market Comments
March 22, 2024
Fiat Lux
Featured Trade:
(MARCH 20 BIWEEKLY STRATEGY WEBINAR Q&A),
(DIS), (GLD), (BITB), (UUP), (FXY), (F), (TSLA), (NVDA), (FCX), (UNG), (TLT), (MCD)
Below please find subscribers’ Q&A for the March 20 Mad Hedge Fund Trader Global Strategy Webinar, broadcast from Silicon Valley.
Q: Do you recommend a form of dollar-cost averaging, and what is it?
A: Absolutely, yes. It is impossible for anybody to get an absolute bottom when you're buying, so the best thing to do is time average. If you have a position you like, go in there every day and buy a little piece. I bought Nvidia (NVDA) practically every day for months and boy did that work! (NVDA) had already gone up a lot, but I just kept buying it and buying it, averaging up and up. So that is the way I dollar-cost average. It's really more of a time averaging than a price averaging. No one knows where tops and bottoms are, even if they promise you that they do.
Q: Are you still long the Yen (FXY) and shorting the Dollar (UUP) given current conditions?
A: I actually don’t have any positions in the currencies, because the volatility is so low compared to stocks. Suffice to say that over time when US interest rates go down, currencies should go up, especially the Yen, which has been depressed for such a long time.
Q: Can gold (GLD) and Bitcoin (BITB) go up at the same time?
A: Absolutely. They almost always go up at the same time, because they are liquidity-driven assets, and when liquidity is as rich as it is now, all liquidity-driven assets go up at the same time which includes gold, silver, and Bitcoin and other cryptos. The only difference this time is that the source of liquidity is not the Federal Reserve—in fact, the Fed is quite restrictive right now with their high-interest rate policy—the new source of liquidity is corporate profits, especially from technology stocks, and that is unlimited and not subject to political whims. It’s always there and it’s always growing; it's a much better form of liquidity than the old form from the US government.
Q: What are your thoughts on the Disney (DIS) and Peltz fight, and how should that affect the stock price?
A: Whenever Nelson Peltz gets involved in a company, it's almost always positive for the stock even if he makes boards uncomfortable. That's why he's going in—to force better management. He usually succeeds and then gets out at a higher price. And if it means forcing some things on management they don't like (and I'm not really sure in the case of Disney what it is he's pressuring them for), he gets his profit and he leaves, and that's what corporate raiders do.
Q: Should I buy the dip in the EV narrative?
A: Not yet. You need a global economic recovery for that to happen, especially in Europe and China. We forget how prosperous we are here, and how weak things are in pretty much the rest of the world—and that is where the EV sales have really collapsed. So let the burden of proof be on the EV companies to report better sales and better technology, and then I'll be back in. Tesla periodically has 80% corrections: we’re right at the tail end of one of those. We may have another 10% to go and that's it. I'm a fair-weather friend, I only like to be long stocks when they're going up. How about that?
Q: I am understanding correctly that you believe the transition from technology and semiconductors to commodities and elsewhere is actually showing long-term strength growth for the tech stocks since they are mostly going sideways from here and not crashing with the rotation.
A: What I see is a time correction in technology where after tremendous moves they go sideways for a period, and new money switches over to other sectors like commodities and energy. And then you'll have a rotation back into technology after they've had a rest, probably before the end of the year. This back-and-forth kind of action could go on for many years—I've seen this happen before. So that's what I'm trying to position for now. And you know, I'm not alone in saying I don't like buying stocks after they tripled in a year. It's almost a no-win trade if you're a professional manager.
Q: Are we heading towards $90 a barrel in oil (USO), and will we pass $100?
A: Yes, we’re definitely headed to $90. But I think the new range is sort of like $65 to $95 because when you get up to the high prices, all of a sudden supply starts coming out of the woodwork, especially from the United States, which is already the world's largest oil producer at 13 million barrels a day. As soon as you get a high price, money just starts pouring in to start new drilling, setting up the next price collapse. The United States is the cap on global oil prices and China is the floor. They come in as the buyer of last resort as the world's largest consumer whenever prices get super cheap, and that actually is a best-case scenario—not only for us but for OPEC. Because their investments do well in the US when oil is in a $65 to $95 range. Any higher than that, the stock market crashes, wiping out the value of their savings. And that is how the modern world has evolved.
Q: Will today's Fed meeting be a non-event?
A: Yes, no interest rate changes until June, maybe even later. And the market is basically telling us that—dead in the water as it is. Dow is nowhere, and there are no big moves. Everyone is just treading water here.
Q: Would you take profits on NVIDIA (NVDA)?
A: Yes, some profits. I structured my own personal portfolio so I have expiring front month short put positions, which are ringing the cash register every month, but my long-term LEAPS I'm keeping. Because I think you could have another 50% move up in a year in (NVDA) stock given their dominant position in the market, and the fact that the new Blackwell chip, the $40,000 Blackwell chip is taking over the world. It's essentially a computer on its own, and it writes its own software. Nobody else is close to that, nor will they be. So keep the long-term positions to LEAPS, and keep taking profits every month. And you have to keep in mind also that (NVDA) is almost every portfolio manager's larger single position through capital appreciation, or they're not in it at all, and they're looking for a job or driving an Uber cab somewhere.
Q: Should I buy Ford (F) or Tesla (TSLA) or both?
A: Wait for the market to start discounting the Tesla Model 2 when it comes out next year. Maybe you start buying the stock in 6 months or a year. Probably the better question is not Ford or Tesla, but Tesla or Rivian (RIVN), which seems to be making progress in their mass production. I just don't see any future for the legacy car companies at all. They're just so far behind in technology. I spent most of my life trying to tell them what to do, and if they had followed my advice, they would be much better off than now.
Q: How long can an employment number stay strong? I feel like we have been waiting for a recession for almost 5 years now.
A: Actually the last real recession was the pandemic in 2020, which only lasted a couple of quarters. We may not have another real recession for 5 or 10 years. Why? Because we're in the roaring twenties and we have 6 more years to go. We also are in the new American Golden Age, and who's been predicting that for the last 10 years? I have! It's all about demographics. We happen to have peak spenders, i.e. people in their thirties and forties, at all-time highs, and that is what drives the economy—that is what makes the golden ages predictable as they have been for hundreds of years.
Q: How are the stem cell injections working?
A: Fantastic. After I got shot in the hip last year in Ukraine, I got one and I literally was walking around in weeks and eliminated the pain completely. I went from talking about hip replacement to climbing Kilimanjaro in literally a matter of weeks. So yes, they work for me. I know they don't work for everyone, but I've used them on both my knees, my back, and my hip, and they've been wildly successful. I won't need any more stem cell injections until I go back to Ukraine and get shot again.
Q: Where are you traveling to this time?
A: I’ll be working out of Florida during April, and probably take the quickie trip to Cuba. After that, it's Ecuador and the Galapagos Islands where I want to challenge Darwin’s Theory of Evolution. It turns out that it is in the same time zone as New York, so it'll be easy to work there from a time zone point of view. The Space X Starlink has provided great Internet everywhere, the Galapagos and Ukraine.
Q: Our real estate commission is about to disappear. Will that benefit housing prices?
A: You get what you pay for. If you have commissions drop from 6% to 1%, you'll get 1% worth of the service out of your agent. So if you want your house sold and sold well, you’d better keep paying the commission. Otherwise, your agent will not work for it. You get what you pay for. However, I always thought real estate commissions were too high for too long, and that may be about to change. And if you don't believe me, try selling your house on the internet someday. It doesn't work.
Q: Does the US have the infrastructure for electrification?
A: No, it does not. That means it has to be built out, and that is why we own Freeport McMoRan (FCX) and you should too! Anything involving electrification involves a lot of copper. The grid has to double in size to accommodate the needs of AI.
Q: Should I continue with natural gas (UNG)?
A: If you have a long-term position I would hang on because you're only one cold snap away from a major rally, and at some point, China will come back on stream as a major buyer. So long term I would hold it. Short term positions I would get rid of it before accelerated time decay wipes out your position.
Q: Will the US 10-year Treasury bond (TLT) go below 4% again?
A: Yes, when you get the Fed on an interest rate cutting cycle, 4% is easy; and by the way, home mortgages will be much cheaper in a year, so it's probably not a bad idea if you're buying a home now to take an adjustable-rate mortgage (ARM) then refinance after the Fed finishing cutting rates.
Q: Should I buy the dip in McDonald's (MCD)?
A: Probably not. The concern there is that the weight loss drugs are destroying American appetites and reducing their need for fast food. Eventually, some 100 million Americans could end up taking weight loss drugs. So that's why the stock is sold off. Fundamentally, (MCD) is a low-margin retail play so it's never interested me. The good news is that they're cutting jobs with computers. So that is the only reason to buy it, is the computerization effort. Walk into a new McDonald’s and you can only order by computer. The people there don’t even know how to take a verbal order. This is even more widespread in Europe where labor costs are higher.
To watch a replay of this webinar with all the charts, bells, whistles, and classic rock music, just log in to www.madhedgefundtrader.com, go to MY ACCOUNT, select your subscription (GLOBAL TRADING DISPATCH, TECHNOLOGY LETTER, or Jacquie's Post), then WEBINARS, and all the webinars from the last 12 years are there in all their glory.
Good Luck and Stay Healthy,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Home Sweet Home
“If we’re in a bubble, then we’ll act bubbly,” said legendary hedge fund manager, David Tepper.
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
Mad Hedge Biotech and Healthcare Letter
March 21, 2024
Fiat Lux
Featured Trade:
(THE COMEBACK STORY WE'RE ALL HERE FOR)
(PFE), (GSK), (LON)
Well, well, well. Pfizer (PFE) has been on a bit of a wild ride lately, hasn't it? Its shares have taken a nosedive, dropping over 50% since the company’s glory days in late 2021.
But before you start yelling "timber!" and running for cover, hear me out. I have a hunch that Pfizer's still got a few tricks up its sleeve that might just turn this ship around.
First off, let's talk about the elephant in the room: Pfizer's been playing a little corporate cost-saving efforts with its recent dealings with Haleon (LON), aka the Advil folks.
Remember when Pfizer and GlaxoSmithKline (GSK) decided to spin off their consumer health bits into Haleon back in 2022?
Well, now Pfizer's looking to offload a chunk of those Haleon shares for a cool $3 billion. That would take their stake from a whopping 32% to a more manageable 24%.
And as for GSK? This British biopharma is doing the same, slimming down to just 4.2%. It's like a corporate weight loss challenge, and both are ready to get lean and mean.
That's not all though. Pfizer has been on a shopping spree, dropping a jaw-dropping $43 billion on Seagen, a rising star in the cancer game.
Admittedly, this is a bold move. But, Pfizer's betting big that Seagen's going to be the game-changer they need.
And with Seagen's lymphoma drug, Adcetris, already knocking it out of the park for certain cancer patients, it might just be a bet that pays off big time.
Now, let's talk strategy. Pfizer execs recently revealed that the company would be all about innovation and pinching pennies this year.
Post-Seagen acquisition, they're laser-focused on making oncology the star of the show while also hunting down a whopping $4 billion in savings in 2024.
It's like they're trimming the fat to build some serious financial muscle, even as they brace for some of their cash cows to start slowing down.
Now, I know what you might be thinking. "But what about that Super Bowl ad? How does that fit into Pfizer's grand plan?" Honestly, I'm not entirely sure.
But what I do know is that Pfizer's oncology game is looking stronger than ever. With the FDA giving the green light for one of their leukemia treatments, Besponsa, for the kids, it's clear that Pfizer's cancer-fighting future is as bright as Times Square on New Year's Eve.
Still, Pfizer's not just relying on cost-cutting and its Seagen acquisition to weather the storm. They've got a pipeline bursting with potential, with 31 projects in phase 3 alone, which is corporate-speak for "almost ready to blow your socks off."
That's like having 31 lottery tickets, and you've got to believe that at least a few of them are going to hit the jackpot.
And with new stars like Padcev from the Seagen deal and their shiny RSV vaccine Abrysvo hitting the market, the sales needle is looking to jump up, not down.
I've been singing Pfizer's praises for a while now, and I still stand by that. Sure, their stocks have taken a hit, but that doesn't mean the fat lady's singing just yet.
If anything, it's just the intermission before the big finale. Pfizer's gearing up for a second act that's going to have us all on the edge of our seats, popcorn in hand, ready for the comeback of the century.
So, what's the bottom line here? Well, I think Pfizer's playing the long game. With a dividend yield that's like finding a twenty in your old coat pocket, they're saying, "Stick with us, we've got plans." And from where I'm sitting, those plans look pretty darn good.
Global Market Comments
March 21, 2024
Fiat Lux
Featured Trade:
(REVISITING THE FIRST SILVER BUBBLE),
(SLV), (SLW)
