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 Technology Letter
May 17, 2024
Fiat Lux
Featured Trade:
(AI MOVES THE NEEDLE)
(TSLA), (AI), ($COMPQ), (SORA)
Compassion for humanity – that’s all we need – this is the only trait corporate Americans need for bosses like him to employ humans over AI filmmaker Tyler Perry.
That’s all a tall order for corporate tech ($COMPQ) in Silicon Valley which usually prefers not to prioritize compassion for humanity over profits.
That’s bad news for tech workers and we got more confirmation of this trend with Tesla (TSLA) CEO Elon Musk cutting 600 white-collar corporate jobs from the Fremont, California office.
Elon is usually one to be on the forefront of the curve and he isn’t late with the firing means we are just in the first innings of it.
An interview with Tyler Perry led him down the rabbit hole of the future of AI and it wasn’t pretty if you are a W2 worker.
As it relates to implanting AI, the one irrefutable conclusion he could make was that human workers would lose out at the expense of the bosses who would gain.
Over the past four years, Tyler Perry had been planning an $800 million expansion of his studio in Atlanta, which would have added 12 soundstages to the 330-acre property.
Now, however, those ambitions are on hold — thanks to the rapid developments he’s seeing in the realm of artificial intelligence, including OpenAI’s text-to-video model Sora, which debuted on Feb. 15 and stunned observers with its cinematic video outputs.
His productions might not have to travel to locations or build sets with the assistance of technology.
His expansions are currently and indefinitely on hold because of the quick developments of AI.
He might not need to invest in anything at all except some AI additive technology.
Perry said the job losses in his industry could range from writers, actors, sound specialists, builders, designers, architects, and so on.
Human actors are on the chopping block and the only digestible content that will be saved from the bloodbath is live sports which is why premium content like the NFL, soccer World Cup, and Alabama college football fetch astronomical numbers to license these games.
None of that will be replaced by AI, but much of the best of the rest will and the hundreds and thousands of jobs will sink with them.
Perry also described a situation in which he used AI which kept him out of makeup for hours.
In post and on set, he was able to use this AI technology to avoid ever having to sit through hours of aging makeup.
The movie industry won’t need to negotiate with the actor's or writers' unions again, because they are dispensable.
What will happen in tech?
Google and Apple will build products but with much less staff involved.
Compensation expense is about to drop precipitously without warning.
Remember that the dive into AI won’t be a drip, but a waterfall because once one figures out a way to optimize the technology, everyone else follows suit.
The copycats come out of the woodwork and reverse engineering takes hold.
If you thought that Congress is responsible to save the workers then you’ll be waiting for a long time.
Tech executives have been lobbying Washington for a generation, and I believe they will take the side of management.
And in any case, if the government does get involved, they usually make regulations too onerous to hire humans making the situation worse.
What does this mean for tech stocks?
They go higher.
Expenses will take a meaningful dive, dividends and buybacks go up with more cash on hand, and tech stocks comprise an even larger percentage of the overall market.
We have sunny days ahead for the tech sector.
AI WILL HAVE A BIG IMPACT IN THE MOVIE INDUSTRY
“Never invest in a business you cannot understand.” – Said American Investor Warren Buffett
(SUMMARY OF JOHN’S MAY 15, 2024 WEBINAR)
May 17, 2024
Hello everyone,
Title
The Great American Age
Performance
2024 YTD +18.75%
695.38% since inception
+51.83 average annualized return
Portfolio
Risk On
(GLD) 5/$200-$205 call spread 10%
(SLV) 5/$21-$23 call spread 10%
(TLT) 6/$94-$97 put spread 10%
Risk Off
(NVDA) 5/$980-$990 put spread 10%
(MSFT) 5/$430-$440 put spread 10%
(AAPL) 6/$200-$210 put spread 10%
Total aggregate position = 60%
The Method to My Madness
The focus now is on discounting the first rate cut, which = higher prices for everything.
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.
Interest rates are higher for longer and September is back on the plate in view of recent data releases.
Buy stocks and bonds on dips.
The Global Economy – The Slowing Data
Non-farm payroll comes in at a weak 175,000 in April, the slowest in six months.
The headline unemployment rate ticked up to 3.9% while wage gains slowed.
Fed says no hikes, but no cuts either, triggering a 500-point rally in the market.
Weekly Jobless claims come in at 231,000, the weakest in six months.
Biden to increase China tariffs to 100% on key sectors including electric vehicles, batteries, solar cells, steel and aluminum.
China Home sales plunge by 47%, as the real estate crisis deepens, indicating that a recovery may be far off.
Online Retail Spending up 7% during the January – April period YOY.
US Wholesale Inventories drop by 0.4%.
Morgan Stanley pushes back rate cut expectations to September.
Stocks – A New Golden Age
Stocks up 10 out of 11 days on consistently slowing economic data, the soft landing is here.
The Bull Market has five more years to run, with S&P 500 growing earnings at 10% a year for the foreseeable future.
Last year brought in $222 per share, 2024 will see $250, 2025 $270, and $300 for 2026.
The Great American Golden Age has only just begun.
Profit margins will expand to record highs.
Falling interest rates and a weak dollar will boost exports to a recovering Europe.
Inflation should hit the Fed’s 2% in 2025 as AI chatbots replace workers at a breakneck rate, cutting costs dramatically.
The future is happening fast. Buy everything on dips.
Recommended for LEAPS: ADBE, CRM, AMD.
Bonds – Stabilizing
Bond investors are making a killing with the US Treasury paying out $900 billion in interest in 2023.
That’s double the annual cost of the past decade. Remember those coupons?
That’s another reason for the Fed to cut rates soon, to lessen this backbreaking burden on the government.
After being held hostage by zero-rate policies for almost two decades, US treasuries are finally reverting back to their traditional role in the economy.
Bonds are becoming respectable again after a long winter. Buy (TLT) on dips.
The US Treasury announced a Bond Buyback Program, with the first scheduled on May 29.
The Treasury’s last regular buyback program began in the early 2000s and ended in April 2002.
Foreign Currencies – Sniffing Out a Dollar Top
Japanese yen collapses to at Yen 160.
Bank of Japan intervened with a $35 billion yen buy, dollar sell. Avoid (FXY)
Chinese Yuan remains weak. International trade is collapsing.
Declining exports, collapsing foreign investment, minimal population growth, it all adds up to a weaker Chinese currency.
Higher for longer rates mean higher for longer greenback.
Falling interest rates guarantee a falling dollar in 2024.
Energy & Commodities – Oil Price Drop
Oil sees biggest drop in three months, as tensions in the Middle East fade, economic data slows.
Both benchmarks are set for weekly losses as investors are concerned higher for longer interest rates will curb economic growth in the U.S., the world’s leading oil consumer, as well as in other parts of the world.
Buy (XOM) and (OXY) on dips. A new Golden Age consumes a lot of Texas Tea.
Exxon Cuts deal with the FTC, allowing the pioneer deal to go through.
Commodity takeover wars heat up, as Swiss-based commodity giant Glencore also considers a bid for Anglo-American.
Anglo is attractive to its competitors for its prized copper assets in Chile and Peru, a metal used in everything from electric vehicles and power grids to construction, whose demand is expected to rise as the world moves to cleaner energy and wider use of AI. Follow the big money.
Buy (FCX) and (COPX) on dips.
Precious Metals – Geopolitical Fears
Solar Panels are driving global silver demand.
Global investment in solar PV manufacturing more than doubled last year to around $80 billion.
Miners are expanding their operations and ramping up production as prices for the precious metal climb to decade highs.
Demand for silver from the makers of solar PV panels, particularly those in China, is forecast to increase by almost 170% by 2030, to roughly 273 million ounces – or about one-fifth of total silver demand.
Buy (SLV) and (WPM) on dips.
Real Estate – Underwater Homes
Underwater Home Mortgages are Soaring, with the South taking the biggest hit.
Roughly one in 37 homes are now considered seriously underwater in the US.
Nationally, 2.7% of homes carried loan balances at least 25% more than their market value in the first few months of the year.
That’s up from 2.6% in the previous quarter. It’s another cost of high rates.
Demand for Adjustable-Rate Loans Soar, as the 7.25% 30-year fixed sends borrowers fleeing.
The share of ARM applications rose to 7.8% of mortgage demand last week.
S&P Case Shiller National Home Price Index soars. Home prices in February jumped 6.4% year over year, marking another increase after the prior month’s annual gain of 6%, and the fastest rate of price growth since November 2022.
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
May 29, 2024, from Incline Village, Nevada.
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
May 17, 2024
Fiat Lux
Featured Trade:
(MAY 15 BIWEEKLY STRATEGY WEBINAR Q&A),
(GME), (CCI), (ABNB), (TLT), (TSLA), (LMT),
(RTX), (USO), (GLD), (GOLD), (WPM)
Below please find subscribers’ Q&A for the May 15 Mad Hedge Fund Trader Global Strategy Webinar, broadcast from Incline Village, NV.
Q: Is it time to get out of the 94/97 (TLT) spread?
A: No. We're getting close to a stop, but I think markets will peak out in the next couple of days and we can get out with a small profit. The weak PPI/CPI/Nonfarm, payroll was a game changer. So watch carefully as always. I could have come out of that with 2/3 of the profit last week, but who knew the market would go up 10 out of 11 days?
Q: What are your thoughts on meme stocks? I see that GameStop (GME) is up 550% in a week.
A: This is not investment, it's pure gambling. And if you do want to gamble, there are much better games to play than meme stocks. For example, Blackjack gives you a 51-49% risk in your favor, and slot machines are not too far off at 55-45%. This is not the same meme stock run that we had three years ago. Back then, the short interest in (GME) was 125%, which is more than the outstanding shares that existed. People are still trying to figure out how that happened. Now, the short interest is only 20%, so this may peak out a lot quicker than last time. In any case, it’s a totally random movement. It's just for kids to do because if kids lose all their money, they can start over again and still have enough money to retire. Chances are if you lose all your money, you won't have enough money to retire, so just another reason to stay out of meme stocks.
Q: I'm noticing the REITs are beginning to make a comeback. Can you comment?
A: They've actually been on a terrific run the last several weeks. Some of my favorites like Crown Castle Inc. (CCI) have had really big moves, and this is just the beginning of a major upside; and not only REITs, but all interest rate plays, and it turns out almost everything is an interest rate play when you look at it. Utilities, secured loans, junk bonds—it's a huge universe. So that's why I say buy everything; everything that's going to go up at all is especially positively affected by lower rates, especially precious metals—gold and silver. And when things go up, the definition of a precious metal expands. It now includes copper, palladium, and platinum, which has had an enormous run.
Q: Can we expect a recession to hit in 2025?
A: Absolutely not. We're in the early stages of a golden age of a decade, of appreciating assets of all kinds; not only stocks and bonds, but real estate, collectibles, baseball teams—you name it. So don't leave the game after the first inning, to use a baseball metaphor. And for you foreigners out there who know nothing about baseball, that means don't leave too early.
Q: Is the housing market overvalued in the US?
A: Good question, you'd certainly think that if you're out there trying to buy a house (and I've been shopping myself lately). The answer is absolutely not. It may be overpriced in the most expensive US markets like Manhattan, Honolulu, Hawaii, or San Diego, but it's still a fraction of what you have to pay in Hong Kong, Australia, or Vancouver, Canada. So prices can go a lot higher. Remember, we have a structural shortage of 10 million homes in the US and they’re not building new ones fast enough. They could double in price from here, especially if the Fed starts to cut interest rates, which they have promised to do. I think we're on the verge of another big housing boom, which will create more home equity, and guess what happens to that home equity? It eventually ends up in the stock market. It becomes a virtual love fest with housing prices making stocks go up and stocks making housing prices go up.
Q: Would you consider Bitcoin now?
A: Absolutely not, especially when you can buy things like Wheaton Precious Metals (WPM) and Barrick Gold (GOLD), which will probably double in the next year and actually have real assets with real earnings flows. With Bitcoin, you're essentially buying ether, and the time to buy Bitcoin was at $6,000, not at $60,000. You don't buy stuff after it's gone up 10 times. So again, just from a market timing point of view, it's a terrible idea. So there are better things to do. You can buy high-quality stocks at reasonable multiples right now.
Q: Is Airbnb (ABNB) a buy here?
A: I would. It is the world's largest hotel in an economic recovery. There's a huge demand for hotels and revenge travel. They're also branching out into higher-margin items like experiences. So yes, I do love the company and the quality of its management for sure.
Q: Markets are all-time high. Should I sell in May and go away?
A: Only if you're a short-term trader. If you’re a long-term investor and you sell now, I guarantee you'll miss the next bottom to get back in. So for short-term traders, yes, take profits like crazy—markets are way overbought. They either need some kind of correction or flat-line move for a period of time.
Q: Is buying American farmland a good investment for buying an index fund?
A: Well, if you look at the big portfolios of the great wealthy names like the Rockefellers, the Duponts, and all of my former clients at Morgan Stanley basically; they have loads of farmland and loads of forests—lots of forests. In fact, forests are trading at a big premium right now. It's considered the world's safest long-term asset. And as long as you don't have debt on it, it always goes up in value over time. So yes, that is a good investment. US farmland is the most productive in the world, and the number of people in the world isn't shrinking. In fact, the main reason China will never start a war with the US is because they're dependent on the US for about half its total food supply. So that's why I can always ignore all these China or Taiwan invasion warnings.
Q: Should I take a look at defense stocks?
A: Absolutely, yes, thanks to the invasion of Ukraine. Virtually every country in the world that has any money is expanding defense spending. This is not a short-term thing. Defense is a very long-time lag industry. When countries like the US buy planes, it's often for ten or twenty years, and then you have the upgrades to follow that, and third-country sales. So the big stocks are Lockheed Martin (LMT) and Raytheon (RTX). I would buy both of those on the dips. They have already had good moves, but what hasn't? Though there are not a lot of bargains left in this market after a heroic six to seven-month run.
Q: Is the webinar recorded for replay?
A: Yes, just go to our website madhedgefundtrader.com. Log in, go to My Account, and you'll see the opportunity to review the video of this presentation.
Q: Is it time to buy Google (GOOG)?
A: Yes, I think we're on an uptrend that continues for the rest of the year, and Google will keep leaking out its advantage in AI in bits and pieces. I saw the video you were talking about; you just leave the phone’s video on all the time, and then you could say, “Where are my glasses?” and it'll tell you where your glasses are: “You left them on the table in the dining room.” That's one of the many millions of applications we will see.
Q: Thoughts on Tesla (TSLA)?
A: We're trying to put in a bottom here. Get ready for the buy alerts—I think on the next plunge down I may actually jump in. We still have a very high volatility, and you have plenty of great pickings in the options market with high implied volatilities.
Q: Where are we on refilling the strategic oil reserves (USO)?
A: Biden made no effort to refill them. They were about at half-full levels when we hit the bottom last time, so maybe he will next time. I think he's more interested in just getting out of the oil business altogether, moving to alternative energy, and getting rid of the strategic oil reserve since we are now a net energy producer, net oil exporter, the world's largest oil producer in the world. We don't really need emergency reserves like we did in 1970 when these were first set up.
Q: Sometime back, you said to avoid miners of precious metals. Is that still your opinion?
A: No, I think we're in a position now where the miners can start to catch up with the metals. In the beginning of the year, it was clear the metals were going to outperform the miners because the miners were seeing their margins cut by high inflation. That's still the case. My first choice is still the metal, but you could get a big catch-up trade in the silver and gold miners. So, as I keep saying, buy Barrick Gold (GOLD) and (WPM).
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
“Man, it feels more and more like 1999 every day. Risk is being discounted tremendously,” said venture capitalist, Bill Gurley.
Mad Hedge Biotech and Healthcare Letter
May 16, 2024
Fiat Lux
Featured Trade:
(THE COMEBACK KID OF VACCINES)
(NVAX), (SNY), (BNTX), (PFE)
