Man is not free unless government is limited.” – Said Former US President Ronald Reagan
SUMMARY OF JOHN’S MAY 1, 2024, WEBINAR)
May 3, 2024
Hello everyone,
TITLE: Digestion Time
TRADE ALERT PERFORMANCE:
2024 YTD: +14.61%
Since inception: +690.24%
Average annualized return: +51.77% for 16 years
PORTFOLIO REVIEW:
Risk On:
NVDA 5/$710-$720 call spread
TLT 5/$82-$85 call spread
META 5/$360-$370 call spread
GLD 5/$200-$205 call spread
Risk Off:
NVDA 5/$960-$970 put spread.
NVDA 5/$980-$990 put spread.
MSFT 5/$430 - $440 put spread.
AAPL 5/$185-$195 put spread.
THE METHOD TO MY MADNESS:
A short-term top for all risk assets is in.
However, the downside is limited to 5%-8% with $8 trillion in cash on the sidelines and a further $26.8 trillion in short-term US treasury bills.
Technology stocks won’t crash, just have a sideways ‘time’ correction.
All economic data is globally slowing, except for the US, with the only good economy in the world.
Interest rates are higher for longer.
Buy stocks and bonds but only after substantial dips.
THE GLOBAL ECONOMY – STAGFLATION:
Personal Consumption Expenditures (PCE) come in warm for March, up 2.8% YOY, the same as for February. Service prices led.
GDP Bombs for Q1, at a 1.6% annualized rate. US economic growth slid to an almost two-year low last quarter.
Leading economic indicators drop 0.3% versus 1.1% expected after increasing by 0.2% in February.
Tariff wars heat up. US President Joe Biden is threatening China again and this time he wants to triple the China tariff rate on steel and aluminum imports.
China surprises with Q1 GDP growth at 5.3%, but John questions the validity of the numbers.
US Retail Sales come in hot, up 0.7% in March.
STOCKS – CORRECTION TIME:
Big Tech crashes, with all the Mag’ 7 breaking 50-day MA’s.
Meta crashes 15% sparking a selloff in big tech stocks after the social media giant signaled its costly bet on AI would take years to pay off.
Volatility Index ($VIX) hits six six-month high, on threats of a new Iran war, oil supply cut-offs, and topping stocks.
Next stop = 200-day moving averages.
If those hold this is just a correction. If they don’t, the bear market is back.
Short sellers pocketed record profits last week, on the technology crash and volatility explosion, raking in $10 billion. (NVDA) shorts accounted for $3 billion of this.
Airlines make contingency plans for new aircraft. United Airlines cut its aircraft-delivery expectations for the year as its main supplier of airplanes Boeing has signaled a slower production schedule.
BONDS – NO 2024 RATE CUTS:
Biggest Treasury Bill Auction in History is a huge success, at $69 billion for a two-year paper with a 4.898% yield.
That is almost a risk-free government guarantee 10% yield in two years.
Another $70 billion of five-year notes sold the next day.
Half of this is going to foreign investors and central banks.
Faith in America and the US$ remains strong.
Passage of the Ukraine aid bill was probably a help.
Junk Bonds see the biggest outflows in a year, as the Federal Reserve’s hawkish approach to inflation makes investors wary, sending yield soaring to 6.33%. Buy (JNK) and (HYG on dips.
FOREIGN CURRENCIES – 40 YEAR YEN LOWS:
Japanese yen collapses to 160.
Bank of Japan intervened, boosting the currency temporarily. Avoid (FXY)
Chinese Yuan remains weak. International trade is collapsing.
Declining exports, collapsing foreign investment, and minimal population growth, it all add up to a weaker Chinese currency.
Higher for Longer rates mean higher for longer greenback.
Falling interest rates = falling USD$.
ENERGY AND COMMODITIES:
Oil and Gas M&A hits record in Q1, hinting that the new bull market in oil may extend.
U.S. oil and gas deals hit a record $51 billion in the first quarter.
BHP makes a $39 billion bid for Agnico Eagle (AEM), to create the world’s largest copper producer.
Activist Elliot takes a run at mining giant Anglo American, accumulating a $1 billion stake. BHP is also making a takeover bid here.
Biden boosts the cost of Alaska Oil Drilling Leases, from $10,000 to $160,000, the first increase since 1960. There is also a bump in the royalty on extracted oil, from 12.25% to 16.27%.
The US is currently the largest oil-producing country in history at 13 million barrels/day and hardly needs any subsidies.
Buy energy stocks on dips, like (XOM) and (OXY), which are posing record profits.
PRECIOUS METALS – GEOPOLITICAL FEARS:
Gold hanging on to all-time highs, up 34.25% since October.
Central bank buying is accelerating, especially from China.
Gold is also being dragged up by the global commodity boom.
Traditional demand for gold has been absent until now.
ETF and jewelry demand fell in 2023.
Their return is what will take gold up to $3000 in 2025.
Silver is also starting to outperform.
REAL ESTATE – RATES BUZZ KILL:
Mortgage rates soar to 7.25%, bringing new applications to a grinding halt. In one shot the market has gone for six Fed rate cuts in 2024 to zero.
March New Home Sales Jump by 8.1% when only 1.1% expected, to 693,000.
The median price of a new home sold fell to $430,700.
Existing home sales dive by 4.3% in March to 4.19 million units.
Housing starts plunge, down 14.5% in March.
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.
NEXT STRATEGY WEBINAR:
Wednesday, May 15 @ 12 EST from Incline Village, Nevada.
Cheers,
Jacquie
Global Market Comments
May 3, 2024
Fiat Lux
Featured Trade:
(MAY 1 BIWEEKLY STRATEGY WEBINAR Q&A),
(TSLA), (TLT), (GOLD), (GLD), (WPM), (NVDA), (OXY), (XOM)
Below please find subscribers’ Q&A for the May 1 Mad Hedge Fund Trader Global Strategy Webinar, broadcast from Silicon Valley.
Q: I see the Bank of Japan bought $35 billion in the foreign exchange on the market. What's going on?
A: First of all, they didn’t buy dollars, they sold dollars and bought yen. Well, It's really very easy. Interest rates are the primary driver of foreign exchange rates. Japan has had the lowest interest rates in the world for 40 years, and the US has had the highest for the last two years. So it’s an easy hedge fund trade—short the Yen, and use the proceeds there to buy US dollar assets—you pick up an automatic spread of 4.7%. You then multiply that 10 times, that becomes 47%, and goes into the trillions of dollars in size. And of course, every hedge fund in the world is doing this trade. So that is a massive amount of Yen selling. They sold some of of their massive dollar reserves in an attempt to head off the collapse of the Japanese yen which hit some Y160, a 40-year low. So that's what's going on there.
Q: What's your updated view on TLT, and what's your yearend view?
A: I think we kind of chop sideways as long as there's indecision on interest rates, and then maybe 3 points of downside max; and then after that, we start another twenty-point rally. So we're all waiting for the bottom of this move on the (TLT), and then we're going to go pedal to the metal, so that's an easy one.
Q: Would you stay away from DJT?
A: Absolutely. This is the most manipulated stock in the market and the largest short interest in the market. More people would short it if they could get the stock, which now costs 550% a year to borrow and has a SPAC set up. I never touch SPACs because 95% of those turn out to be failures. So go express your support for the former president in other ways would be my advice.
Q: My son-in-law works in AI and says Apple (APPL) will be a better player than Tesla (TSLA).
A: No it won't. First of all, Tesla is 15 years ahead of everybody on AI; they actually started a major AI effort in 2014, and they have the data of all the miles driven by 6 million cars all over the world, and nobody can replicate it; so that gives them a huge head start. Tesla also has Elon Musk running it, who would beat the pants on aggressiveness and competitiveness off Tim Cook all day long, so I would vote for Elon Musk on this one. But the next big AI surprise is probably going to come from Apple. That's going to happen in June when they have their developer's conference. I've already had several kids and relatives invited to attend that conference, so I’ll have a really good read on what's happening.
Q: Where do you see inflation for the rest of the year?
A: Tiny up to sideways and then down more—we may hit the 2% target by the end of the year. The key here is you have to let AI kick in and start generating profits instead of promises, as employees start being replaced with AI.
Q: Would you return to Havana?
A: I would. I had a great time, and now I have the knowledge of experience of having gone there. I was actually looking at Airbnb condos on the beach in Havana which you can get for $70 a month. You can't beat the prices in Cuba; they're like a 10th of anywhere in the world. You can buy a two-bedroom condo in Havana for $30,000. Compare that to New York—it would probably cost you $3 million, and would certainly cost you that much in San Francisco.
Q: What is a substantial dip?
A: I always get this question. It's different for each stock. It could be 5% for a boring one like Apple (AAPL), or 20% for a really wild one like Nvidia (NVDA). You can see both of them are acting like that right now, so it's different according to the volatility of the individual stock. There's no fixed answer.
Q: Are there expatriates living in Cuba?
A: There are, incredibly; some of them are working in the tourist industry, some in the computer industry. Would you consider it safe? Probably, yes, as long as you don't engage in politics. That would be a really big mistake. It's even dangerous for Cubans to have a political opinion. Best to just shut up and do what the government says; that's what totalitarian regimes are like. I've been in a lot of them, and by the way, that may be what it's like in the United States in another year, so we'll have to wait and see. I felt relatively safe in Cuba. I wasn't followed by the secret police, which I always used to be. Maybe I'm just not as valuable as I used to be!
Q: Do you have a ballpark timeline for Freeport-McMoRan (FCX) to reach under?
A: Time is always difficult to call because there are just so many variables and black swans out there, but I easily could see a spike in (FCX) going up to $100 sometime in 2025 when the global economy starts to recover; and if you're doing LEAPs on any depth here, I would go out to end of 2025 just to be safe. If Chinese ever starts new home contraction again that becomes a chip shot.
Q: The Feds are moving marijuana stocks from a schedule 3 to a schedule 1. Are there any plays here?
A: Well, I've never been a big fan of pot stocks. The barriers to entry are very low from anybody to come in as a competitor. At the end of the day, it's a brand play, much like Coca-Cola (KO), and they still have huge competition from the black market, because the black market doesn't have to pay the 30-40% in sales taxes. And it's a fairly poorly managed business—guess why? Everybody is stoned all the time. So I'm going pass on marijuana, there's too many better fish to fry. Leave it to the potheads.
Q: Why has Nvidia (NVDA) gone flat?
A: Trees don't grow to the sky. Nvidia was up 140% in 6 months, and you have to give time for the earnings to catch up with the stock. The earnings are growing at 40% a year, so they'll catch up pretty quickly. I'm thinking we could have a shot at $1,400 in Nvidia by the end of the year.
Q: McDonald's (MCD) just had a big sell-off on weak earnings, is it a buy-down here?
A: No. McDonald's has the highest exposure to sub $50,000/year earners of any of the fast food companies; they're the ones most affected by McDonald's high prices. Their margins are being crushed, and automation can't happen fast enough. And then there's the Ozempic effect: weight loss drugs are killing appetites, and eventually we'll have a hundred million people on weight loss drugs. And my bet is a lot of those are McDonald's customers, so avoid Mickey D.
Q: What about the silver trade?
A: Silver is actually starting to outperform gold on the upside as it has historically done, so you might go along with a pair of trades owning both gold (GLD) and silver (SLV). Gold just sold off at 5% and silver sold off at 10%, so maybe the old volatility of silver is returning. I'd look to buy Wheaton Precious Metals (WPM) LEAPs down here.
Q: Do you think Starbucks (SBUX) is in the same boat as McDonald's (MCD)?
A: After the similar earnings sell off, I'd say yes. Starbucks doesn't do well in recessions or economic slowdowns. It’s an easy product to economize on. And they don't do well with the sub $50,000/year crowd either. Plus, I think Starbucks in particular is being weighed down by weak China sales.
Q: What's your outlook on energy?
A: Buy the dip. We're all looking for economic recoveries worldwide next year—oil does really well in that situation. We just have to work off the current overbought situation that was given to us by the Gaza War.
Q: Why are the miners not keeping up with gold and silver?
A: The answer is inflation. Inflation in the mining industry is double or triple what it is in a regular economy because you have so many companies chasing so few production resources. For example, those giant tires that go on these huge Caterpillar trucks—those are $200,000 a tire, and there's a two-year waiting list to get one. So as more people try to mine, the cost of mining goes up. That feeds into the earnings of the mining companies. Also, miners are subject to the whims of the stock market, which the metals aren't. So that's why I've been recommending the metals first and then miners second.
Q: With the new Amazon (AMZN) earnings, will they someday pay out a dividend?
A: They just delivered their first substantial profit in the company's history that I'm sure is by design, and if they're willing to increase benefits to shareholders, can dividends and stock buybacks be far behind? If that happens, you can expect Amazon stock to double from here. So absolutely, yes.
Q: Is housing about to crash because of high-interest rates?
A: Absolutely not. It's about to take off like a rocket as interest rates fall. You'll never get a crash in housing as long as we have a shortage of 10 million houses. Housing shortages don't get crashes. We had a housing oversupply in 2007 and 2008, and that's what caused that housing crash; but half of the home builders went under then and they never came back, creating the current shortage. In the meantime, people are using 5/1 ARM loans to get lower interest rates and praying that rates fall by the time the first adjustment comes along. Then they'll move into much lower 30-year rate mortgages right around the 5% level. That is the plan of a lot of home buyers these days.
Q: How are technology companies going to cope with the margin squeeze?
A: They will fire people. They have fired 300,000 people in the Bay Area in the last 2 years, and as a result, the stocks have skyrocketed. The prime example is META (META), which fired 20% of the staff and saw the stock double. Once that happened, everybody else jumped on the bandwagon and started laying off people like crazy. It was actually Elon Musk that started the whole cost-cutting trend in Silicon Valley, so you have to thank him for that.
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 click on 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
'The dollar has become a carry trade rag these days. As Rodney Dangerfield would have said, it gets no respect whatsoever,' said Boris Schlossberg of GFT Forex.
Mad Hedge Biotech and Healthcare Letter
May 2, 2024
Fiat Lux
Featured Trade:
(BUT WEIGHT, THERE’S MORE)
(LLY), (NVO)
You know that feeling when you find a crumpled $20 bill in an old jacket? That’s a little like what Eli Lilly must be feeling with tirzepatide, only replace that $20 with a cool $34 billion forecast by 2029. Yeah, it’s been that kind of party over at Lilly.
Tirzepatide, the magic ingredient in both Zepbound for weight loss and Mounjaro for diabetes, is turning heads—and not just because it’s raking in the cash. This drug is proving to be a one-stop-shop for boosting Lilly’s bottom line and shaking up the market.
Since Zepbound’s launch in November 2022, Lilly’s stock has been on a tear, skyrocketing from $349.95 to a whopping $733.51.
That’s a gain of over 109%. It’s like Eli Lilly has turned into the Usain Bolt of the biotech and pharma sector, sprinting past the S&P 500 and its pharma peers without breaking a sweat.
Actually, Lilly's got a double-whammy against the competition. Not only does Tirzepatide keep raking in successful studies, but it's also got a sweet price point.
We're talking about Zepbound being a good 20% cheaper than Novo Nordisk's (NVO) big hitter, semaglutide.
Essentially, patients get the same results, but a lot less strain on their wallet. This combination easily gives Lilly a serious edge in the diabetes and obesity drug battle.
But wait, there’s a hiccup. Despite the blockbuster status of Zepbound, there’s a bit of a snag recently with this drug—supply can’t keep up with demand.
It makes you wonder whether this is a classic case of "too much of a good thing," right?
This shortage has even made the US Food and Drug Administration limited availability list. But fear not, Lilly’s got plans to boost production with a new facility in Concord, North Carolina by year-end.
Still, this supply problem didn’t stop Lilly from coming up with tirzepatide’s latest party trick: tackling obstructive sleep apnea (OSA).
Basically, OSA disrupts your sleep by making your throat muscles a bit too enthusiastic at night. They tighten up and block your airway, leaving you gasping for air (not exactly the recipe for restful sleep). Untreated OSA can be a serious health hazard, linked to heart problems down the line.
And here's a scary statistic: 80 million adults in the US have sleep apnea, but a whopping 85% of those cases go undiagnosed. That's right, millions are unknowingly battling a condition that disrupts sleep, increases the risk of heart problems, and leaves you feeling like a zombie all day.
Given these figures, it’s not surprising that Lilly’s looking to turn this challenge into the next big opportunity.
In fact, recent studies have shown tirzepatide could reduce those pesky episodes of stopped breathing during sleep by about 30 times an hour compared to a placebo. Talk about a breath of fresh air.
So, how much money will tirzepatide rake in at its peak? Well, it's already approved for diabetes AND obesity, but there's room for even more growth.
To date, Lilly is projected to rake in $25 billion in peak sales for this drug, but with recent developments, even that seems low.
Think about this: Tirzepatide made over $5 billion last year – its first full year on the market.
Then, it snagged the obesity indication in November 2023, now pharmacies can't keep it on the shelves, showing demand is off the charts.
Now, I know you’re wondering if you’ve missed the boat with Lilly’s stock price more than doubling in a blink.
But here’s the kicker: there’s potentially a lot more upside. Beyond tirzepatide, Lilly’s got a full deck with new drugs and a solid dividend that’s been fattening wallets at a rapid clip—up 101.6% in the last five years alone.
So, what’s the bottom line? If you’re looking to park some cash in a stock that has a track record of turning medical breakthroughs into gold, you might want to give Eli Lilly a closer look.
After all, betting on a company that’s leading the charge in medical innovation can sometimes feel like finding that $20 bill—only a lot, lot bigger.
Global Market Comments
May 2, 2024
Fiat Lux
Featured Trade:
(THE UNITED STATES OF DEBT)
(TLT)
SAN MATEO, CA – May 1, 2024 – Franklin Templeton, a global investment management leader, today announced a groundbreaking collaboration with Microsoft to develop a state-of-the-art financial AI platform. This transformative initiative will reshape the financial services landscape, blending Franklin Templeton's investment expertise with Microsoft's cutting-edge AI technology. The platform promises to redefine personalized client experiences and streamline operations within the financial industry.
Transforming Financial Services Through AI
The collaboration marks a significant turning point in how financial institutions leverage artificial intelligence. By harnessing Microsoft's Azure AI services—including Azure OpenAI Service (GPT-4 model), Azure AI Search, and Azure AI Document Intelligence—Franklin Templeton will be uniquely positioned to create a platform tailored to the specific needs of the financial industry.
"The future of how we work with clients to best meet their desired investment outcomes will require strong technological resources," said Jenny Johnson, President and CEO of Franklin Templeton. "The newly introduced platform we are developing is specifically tailored for investment management, leveraging the full range of Microsoft's AI resources, as a key driver of investment success."
The aim is to create an AI-driven system that delivers unparalleled personalization, enhanced risk management, and superior investment strategies. Franklin Templeton expects to provide its clients with highly tailored investment insights and recommendations, optimizing portfolios in response to rapidly shifting market conditions.
The Promise of Personalized Services
A crucial focal point of this partnership is offering a seamless, highly personalized experience for every client. The AI platform will analyze vast amounts of client data – including risk tolerance, financial goals, and investment preferences – to deliver customized advice and portfolio solutions.
"This partnership is not simply about harnessing AI; it's ultimately about human connection and better client experiences," said Satya Nadella, Chairman and CEO of Microsoft. "Microsoft's technology will allow Franklin Templeton to offer truly individualized financial solutions, helping people achieve their goals with the insight and agility that the market demands."
Unlocking Operational Efficiency
Beyond personalized client experiences, the new financial AI platform promises to redefine operational efficiency within Franklin Templeton. The platform is expected to automate routine tasks such as data analysis, report generation, and compliance monitoring. By streamlining these processes, Franklin Templeton's investment professionals will have more time for high-value activities like client consultation and strategic decision-making.
This enhanced efficiency, enabled by AI, is poised to boost productivity and reduce costs, ultimately resulting in a more focused and streamlined operational model for Franklin Templeton.
A Collaboration Focused on Innovation
The Franklin Templeton-Microsoft partnership marks a convergence of two industries committed to innovation and transformation. Franklin Templeton's deep understanding of financial markets complements Microsoft's leading expertise in cloud computing and artificial intelligence. The synergy is expected to catalyze further advancements in financial services.
Analysts predict this groundbreaking collaboration will inspire similar partnerships across the industry, paving the way toward broader AI adoption in a traditionally conservative sector.
Responsible AI Integration
Given the critical and sensitive nature of financial services, the partnership places a strong emphasis on responsible AI principles. Both Franklin Templeton and Microsoft have pledged to prioritize transparency, explainability, and fairness in the development and deployment of AI solutions.
The companies acknowledge that earning and maintaining trust is crucial to the success of their efforts. Clients will have clear insights into how their data is used to power AI-driven recommendations, with continuous communication around the processes.
A Vision for the Future of Finance
The Franklin Templeton-Microsoft alliance heralds a new era in financial services: one where AI empowers a deeply personalized client experience, optimizes complex processes, and ultimately drives better investment outcomes.
"We strongly believe the collaboration with Microsoft is essential to Franklin Templeton’s strategic commitment to leveraging technology to drive investment success for our clients while simplifying the complexity of wealth management," commented Johnson.
Mad Hedge Technology Letter
May 1, 2024
Fiat Lux
Featured Trade:
(THE BIG RETAILER DIVING INTO FINTECH)
(WMT), (PYPL)
