Mad Hedge Technology Letter
May 29, 2024
Fiat Lux
Featured Trade:
(THE GRIND HIGHER)
(FED FUNDS RATE), ($COMPQ)
Rates will stay higher for longer and the higher income bracket will carry the US economy through any conflict with short-term inflation.
What does that mean for tech stocks?
It will trend higher for longer.
Sure, US rates will stay elevated, but tech stocks have proven they are tough to keep down with elevated inflation.
Most who buy tech stocks have done very well financially in the past 18 months.
There is a high likelihood that higher rates won’t affect their purchasing power to buy more tech stocks.
I do admit a big chunk of Americans are missing out on buying tech stocks at these current prices – I don’t diminish that.
The big spenders have utilized their 3% fixed mortgage to hunker down and continue to spend on devices, software, EVs, and other tech.
This clearly means that 5% isn’t the real neutral rate that the Fed is looking for and I view this rate as a relatively loose fiscal policy that is allowing high-income Americans to splurge on more tech products.
Don’t forget that these are the same stockholders that are reaping increasing tech dividends, higher-tech stocks, and generous shareholder returns.
Further evidence is that the $2 trillion in quantitative tightening along with a 5% Fed Funds rate has resulted in the S&P index rising 37%.
That’s not supposed to happen if rates are high above the neutral rate.
What the Fed gets wrong is that the neutral rate has moved significantly higher when we consider the trillions that were printed for the pandemic programs and stimulus checks.
The additional amount of fiat paper floating around chasing a limited amount of goods results in the neutral rate being somewhere closer to 8-10% and that development gets missed by the Fed.
Therefore, 5% Fed Funds rates are “high” and a lot higher than 0%, but the wealthy have now used this rate as a tailwind to progress their financial goals.
Wealthy households right now can earn upwards of 4.5% in a high-yield savings account, see their tech portfolios go up 20% in a year, and are watching the value of their real estate holdings surge higher.
Given the amount of wealth concentrated among a handful of US households and the skew on the income distribution in the US, just about any change in monetary policy will be regressive, advantaging those with more at the expense of those with less.
Tuesday’s consumer confidence reading — while registering a three-month high — was far from a clear-cut judgment from Americans that things are looking up, economically speaking.
If the Fed holds at 5% and fails to erect rates closer to 8%, tech stocks will grind higher.
Rates would need to be at a nominal number that would give pain to higher-income buyers.
My personal view is that the Fed will stand pat at 5% interest rates and the Nasdaq should perform well in this scenario.
If we get talk of 6 or 7%, tech stocks will produce a minor pullback delivering another fabulous opportunity to buy.
The other piece here is Nvidia delivering stellar earnings and that should keep the shine on high-quality tech stocks when the market sets up to make the next move.
My bet is any dip will be bought ferociously and any “dip” could turn out to be more of a sideways time correction before we rip higher.
This is also why Nvidia is close to 81% above its 200-day moving average and boasts a current $2.7T valuation.
(BUCKLE UP WHEN FLYING – CLIMATE CHANGE MAY BE INCREASING CLEAR-AIR TURBULENCE)
May 29, 2024
Hello everyone,
Scientists at Reading University in the UK have studied clear-air turbulence.
Their research shows that severe turbulence has increased by 55% between 1979 and 2020 on a typically busy North Atlantic route.
Scientists have found that changes in wind speed at high altitudes due to warmer air from carbon emissions have played a role.
Prof. Paul Williams, an atmospheric scientist at the University of Reading has co-authored a decade-long study in this area. He argues that the focus should be on investing in improved turbulence forecasting and detection systems to prevent the rougher air from translating into bumpier flights in the coming decades.
Flight routes in the USA and North Atlantic have seen the largest increases in turbulence. Europe, the Middle East, and the South Atlantic also have seen significant increases in turbulence.
Prof Williams explained that increased turbulence was due to greater wind shear – or differences in wind speed – in the jet stream, a strong wind system blowing from west to east, about five to seven miles above the Earth’s surface. Williams further shows that it exists largely due to the difference in temperature between the world’s equator and poles.
While satellites can’t see the turbulence, they can see the structure and the shape of the jet stream, allowing it to be analysed.
Radar can pick up turbulence from storms, but clear-air turbulence is almost invisible and hard to detect.
We all know that turbulent flights are uncomfortable, but they can also cause injuries for those on the flight. Severe turbulence is very rare, but clear-air turbulence can come out of the blue when passengers are not belted in.
It is sensible to keep your seat belt fastened all the time, unless you are moving around.
The financial costs for airlines can be huge. The aviation industry loses between $150 and $500 million in the US alone annually because of turbulence, including wear and tear on aircraft. There is also an environmental cost, as pilots burn up fuel avoiding the turbulence when they can.
A case in point is the Singapore Airlines flight (SQ321) from London to Singapore on May 21. About 10 hours into the flight when the staff were serving breakfast, the airline hit severe clear air turbulence passing over the Irrawaddy Basin (Myanmar). The crew requested an emergency landing at Bangkok airport as one of the passengers had died. At least 50 people were injured including two crew members and a toddler. All were admitted to a hospital in Bangkok; some had serious injuries. More than 20 were admitted to ICU with spinal injuries. (Many people were obviously not wearing their seatbelts).
On Sunday, May 26 a Qatar Airways flight from Doha to Dublin experienced clear air turbulence but managed to land safely in Ireland. 12 people were injured and eight were taken to hospital.
In August 2023 a Delta flight hit severe turbulence about 40 miles outside of Atlanta catapulting passengers out of their seats. Another incident involving an Allegiant Air flight last July that was flying from North Carolina to Florida. One passenger described the experience like being in “The Matrix.”
NASA is working on a way to detect clear-air turbulence.
The technology, under development at NASA’s Langley Research Centre and involving government, university and private sector experts, anticipates using ground-mounted infrasonic microphones that can pick up ultralow frequencies produced by turbulence -possibly as far as 300 miles away.
Such microphones could provide an early warning for what’s known as “clear-air turbulence,” the top cause of inflight injuries and fatalities, according to researchers at the University of Reading.
Clear air turbulence differs from other forms of turbulence in several ways, and it can occur without warning at altitudes of 20,000 to 40,000 feet. The unstable air masses can be as much as 100 miles wide and 300 miles long, and they often are found just above the jet stream core, researchers say.
Turbulence is expected to get worse as the world warms.
Prof. Williams and his team at the University of Reading project that the frequency of clear-air turbulence events will double by 2050 and that the intensity of such events will increase by as much as 40%.
The NASA research effort could make flight crews, passengers, and aircraft more resilient to that future.
Market Update
The summer season is almost upon us. A retracement is imminent in the DOW and S&P500 in line with retracements in the metals sector and Bitcoin & crypto in general as well.
S&P500 – expecting a pullback to 5221 or as far as 5140.
DOW – looking for trendline support around 37810 price point. A lower price point would be 37000.
US tech 100 – looking for consolidation now towards the 18450-price level. 18085 possible support level before a further rally in the tech sector.
GOLD- looking for a correction back towards the 2275 price range and potentially as low as 2220. Subsequent profit targets for further highs sit at 2482 and 2689.
SILVER – expecting retracement towards 3050. Following correction, the metal will rally toward the longer-term target of 3470.
US dollar –expecting a short-term rise in the USD basket towards 10800 before a decline to the 10,000-price zone. So, you should be looking to short the US dollar in 4-6 weeks and buy the EURO, POUND Sterling, and Australian dollar.
Cheers,
Jacquie
Global Market Comments
May 29, 2024
Fiat Lux
Featured Trade:
(WHY THE REAL ESTATE BOOM HAS A DECADE TO RUN),
(DHI), (LEN), (PHM), (ITB)
I received a call from a real estate agent the other day asking if I wanted to sell my San Francisco home. She knew I wasn’t planning on going anywhere. But would $1 million over market tempt me?
Lately, I have been getting a lot of calls from concerned readers worried that we might be going into another 2008-2011 style real estate crash when home prices cratered by 50%-70%.
It’s not going to happen and there are a dozen reasons why. Worst case, I expect a short, shallow pause in the market, followed by a ballistic move to new all-time highs starting now. The latest S&P Case Shiller Data showing a 6.5% rise in home prices confirms my view.
Some sectors are already starting to heat up, while others, like San Diego, Miami, Tampa, and Atlanta never really cooled down.
If you have any doubt, look no further than the superheated bond market which is taking interest rates to new all-time highs. Despite a hefty 30-year fixed rate mortgage rate of 7.00%, prices are still holding up, except for San Francisco and Seattle where they have barely fallen.
You see, there is a method to my Madness.
It is all fresh fuel for a continuation in the bull market for US residential real estate, not just for this year, but for another decade, or more. More high-paying jobs means more big-spending home buyers and AI is creating those high-paying jobs at a record pace.
Although prices seem high now, I am convinced that we are only at the beginning of a long-term secular bull market in housing. If you don’t believe me check out the sky-high prices in Shanghai, Vancouver, and Sydney Australia.
Anything you purchase now is going to make you look like a genius ten years down the road.
The best is yet to come.
The big driver will be demographics, as it always is.
From 2023 onward, 65 million Gen Xers will be joined by 85 million late-blooming Millennials in a bidding war for the same houses. That will create a market of 150 million buyers, unprecedented in the history of the American real estate market.
In the meantime, 80 million baby boomers, net sellers and downsizers of homes for the past decade, will slowly die off and disappear from the scene as a negative influence. Only one-third are still working.
The first boomer, Kathleen Casey-Kirschling, born seconds after midnight on January 1, 1946, became 78 years old this year. A former schoolteacher, she took early retirement at 62.
The real fat on the fire here is that 10 million homes went missing in action this past decade, thanks to the 2008 financial crisis. They were never built.
This is the result of the bankruptcy of several homebuilding companies, and the new-found ultra-conservatism of the survivors, like DR Horton (DHI), Lennar Homes (LEN), and Pulte Group (PHM).
Did I mention that all of this makes this sector a screaming “BUY”?
Talk to any real estate agent and they will complain about the shortage of inventory (except in Chicago, the slowest growing market in the country).
Prices are so high already that flippers have been squeezed out of the market for good. Bottom feeders, like hedge funds buying at the bankruptcy auctions, are a distant memory. Some, like BlackRock (BLK) now own more than 40,000 homes and are the biggest landlords in the county.
Nobody wants to sell because it means giving up ultra-low 2.75% mortgages which they obtained during the salad days and will not see again in their lifetimes. I am one of those happy homeowners. We are prisoners of our own mortgages.
The rising rents that are turning Millennials from renters to buyers may be the first sign of real inflation beyond the increasingly dear health care and higher education that we’re already seeing.
And Millennials are having kids that demand a bigger living space! Who knew?
Have I Got a Fixer-Upper for You!
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
May 28, 2024
Fiat Lux
Featured Trade:
(GET YOUR GEIGER COUNTERS READY)
(NVS), (LLY), (BMY), (AZN)
Hang on to your Geiger counters because we’re about to dive deep into the world of radiopharmaceutical therapy. I bet even Marie Curie would be impressed by the mind-blowing leaps we’ve made since her ground-shattering discoveries a century ago.
Now, don’t get me wrong, she’s a tough act to follow. But the big guns in pharma have taken up the challenge, piling up billions on the roulette table of targeted radiopharmaceutical therapy.
And from where I’m sitting, the odds are looking pretty darn exciting.
Just picture the scene: Radiation that directly takes the fight to those nasty tumor cells, like a microscopic missile strike that zaps cancer cells while ignoring the innocent bystanders.
How? By hitching a radioactive particle to a targeting molecule – think Uber, but for cancer therapy.
This healthcare game-changer, dubbed radiopharmaceutical therapy is projected to become a whopping $25 billion goldmine.
Forget the clunky radiation therapy your grandparents endured – this is precision, it’s innovation, and it could potentially enrich your investment portfolio.
Actually, everyone seems to be piling into the radiopharma race. Experts say we’re merely at the start line and these next-gen technologies could bring a windfall.
Evidence? The recent flurry of acquisitions, with no less than four deals being sealed just these past months.
Now, let’s put some names to this game.
Novartis (NVS) is leading the pack with two radiopharmaceutical showstoppers under its belt. With their drugs Pluvicto and Lutathera, they’re forecasted to rake in a whopping $5 billion by 2028 – that’s more zeros than I can count on two hands.
Not just resting on their pile of success, they’ve scooped up Mariana Oncology in a $1 billion deal. This strategic move solidifies Novartis’ dominion in the radiopharmaceutical arena – and you can quote me on that.
Inspired by Novartis’ success, other pharmaceutical titans are catching the FOMO fever.
Eli Lilly (LLY), for instance, handed over $1.4 billion to acquire Point Biopharma and its promising radiation drug, PNT2002.
The investors’ darling this year with a near 38% surge in stock price (thanks to the overwhelming success of its obesity drugs), Eli Lilly is set to maintain its upward trajectory by venturing into the radiopharmaceutical space.
Bristol-Myers Squibb (BMY) isn’t about to be left out of the radiopharmaceutical race either.
They ponied up a cool $4.1 billion for RayzeBio, snagging a promising pipeline of treatments. One standout is RYZ101, a late-stage targeted radiopharma therapy already making waves in trials for gastroenteropancreatic neuroendocrine tumors and small-cell lung cancer.
This acquisition followed closely on the heels of their $14 billion buyout of schizophrenia drug developer Karuna Therapeutics. Clearly, they’re feeling the heat as patents on some of their older cash cows are set to expire.
So, sure, BMY’s stock has been a bit sluggish lately, but this radiopharmaceutical gamble could be the shot in the arm they need.
And the acquisition spree doesn’t stop there. AstraZeneca (AZN) also dove headfirst into the radiopharmaceutical pool, shelling out $2.4 billion for Fusion Pharmaceuticals in March.
Fusion’s pipeline, including their Phase 2 candidate FPI-2265 for metastatic castration-resistant prostate cancer, adds another potential blockbuster to the mix.
Meanwhile, several biopharma companies are still standing tall, catching the eye of investors.
In fact, the venture capital poured into radiopharmaceutical drugs surged to $518 million last year, a cool 722% increase from 2017.
The race isn’t slowing down anytime soon either. Researchers are exploring the use of radiopharmaceuticals alongside other treatments like immunotherapy, and even envision a future where this technology could be applied to any cancer, including ovarian, breast, or brain tumors.
And with only two products currently in the market, the potential for growth in targeted radiotherapies seems almost infinite.
So, I’ll say it one more time – get your Geiger counters ready. The radiopharmaceutical revolution is just getting started, ladies and gentlemen. It’s time to zero in on this hotbed of innovation and watch your investments go nuclear.
(ARE WE ON THE VERGE OF A RENAISSANCE IN NUCLEAR ENERGY?)
May 27, 2024
Hello everyone,
Week Ahead Calendar
Monday, May 27
Australian Retail Sales
Previous: -0.4%
Time: 9:30 p.m. ET
Tuesday, May 28
9 a.m. FHFA Home Price Index (March)
9 a.m. S&P/Case Shiller comp. 20 HPI (March)
10 a.m. Consumer Confidence (May)
10:30 a.m. Dallas Fed Index (May)
Australia CPI Indicator
Previous: 3.5%
Time: 9:30 p.m. ET
Wednesday, May 29
10 a.m. Richmond Fed Index (May)
2 p.m. Fed Beige Book
Germany Inflation Rate
Previous: 2.2%
Time: 8:00 a.m. ET
Earnings: HP, Salesforce, Afilent Technologies
Thursday, May 30
8:30 a.m. Continuing Jobless Claims (05/18)
8:30 a.m. GDP (Q1)
Previous: 3.4%
8:30 a.m. Initial Claims (05/25)
8:30 a.m. Wholesale Inventories (April)
10 a.m. Pending Home Sales (April)
Earnings: Costco Wholesale, Ulta Beauty, NetApp, BestBuy, Dollar General, Hormel Foods
Friday, May 31
8:30 a.m. Personal Consumption Expenditure (April)
Previous: 2.8%
8:30 a.m. Personal Income (April)
9:45 a.m. Chicago PMI (May)
Strong US PMI data last week brought back uncertainty about rate cut possibilities this year. Markets are now predicting only one 25 bps rate cut by the end of the year, with that cut likely delayed until November. US GDP data and the closely monitored PCE inflation rate coming this week could shift the odds further in either direction, possibly affecting USD prices as well.
Are we at the beginning of a resurgence in nuclear energy?
Fifteen years ago, the notion of a nuclear renaissance got shelved due to the political emphasis on renewables and competitively priced alternatives.
The 2011 Fukushima nuclear disaster in Japan also heightened scrutiny on safety.
Now, there are rumblings afoot that there is a resurgence on the horizon.
Electricity demand is forecast to surge due in part to the growth of data centres and artificial intelligence. Demand is growing at the same time that countries are in search of reliable carbon-free energy to address climate change.
After a spate of nuclear plant closures over the past decade, reactors are now being modernized to extend their service life and communities are showing interest in new plants as they phase out coal, according to Morgan Stanley analysts.
Various nations throughout Europe are endeavouring to shore up their energy independence in the wake of Russia’s full-scale invasion of Ukraine. Morgan Stanley analysts expect that 20-25 new third-generation nuclear power plant builds will eventually take place in Europe alone over the next decade.
Curtiss-Wright is one stock poised to benefit from the increasing number of power plants and the modernization of current plants, which is designed to extend their service life.
The company supplies equipment, technical talent and advanced technology and innovative solutions in operating reactors to ensure their safe and reliable operation.
The company supplies all 94 reactors in the U.S. and all nineteen in Canada as well as plants in South Korea. According to management at Curtiss-Wright, modernization of current nuclear plants in the U.S. is a $7 billion opportunity through 2050.
Morgan Stanley estimates that Curtiss-Wright could realize $4.9 billion in revenue through 2050 on AP1000 builds. With this scenario, the company’s valuation rises to $488 per share, implying nearly 74% upside from Friday’s close.
I am not recommending you buy this company now. I wanted to inform you of the interesting developments in this space and the potential of significant investment in this area and be aware of opportunities that will exist going forward.
Market Update:
S&P500 – Advance in progress.
Gold – has succumbed to a short-term correction. We see chart support at around $2270. In the “Bigger Picture” the outlook remains bullish with the next target situated at around $2,530.
Bitcoin -Advance in progress. The next key targets are $71,957, $73,794 and $80,628. Support lies at a max. position of $63,000. (As I said last week, I would not be surprised to see a drop to around $50k in bitcoin at some stage in the future before strong upside rally takes hold).
Wishing you all a great week.
Cheers,
Jacquie