Mad Hedge Technology Letter
June 5, 2024
Fiat Lux
Featured Trade:
(A HIGH RISK STRATEGY)
(NVDA), (AAPL)
“Heavy losses” is something that any investor would not want to hear but over time, it has become synonymous with short sellers.
Tech stocks are unusually volatile so it has been fashionable in the past to start a fund proclaiming that great performance can be secured by finding the most likely tech stocks to drop.
It’s like shooting fish in a barrel? Right?
Not even close.
In reality, it is hard to predict a big drop and identify the perfect timing in which tech stocks will blow up.
Even if a short seller guesses right, the timing could be off by years and to hold a position forever eats at the profitability.
If anyone knows a successful trader that has made a nice living shorting Nvidia (NVDA) in the last year then I would like to meet that person.
Likewise goes for Apple over their massive bull run.
Shorting the best tech stocks in the world usually meant financial underperformance.
Just in recent memory, the whole Gamestop spike up when a bunch of hedge funds had massive short positions.
Short sellers were the ones run over by the GameStop phenomenon.
Retail traders have flexed their muscles again in the past two months, with shares of several meme-stock favorites including GameStop surging anew.
Meme-stock dramas demonstrate a “gamification” of the market that has undermined the whole short-selling industry.
And remember that GME is a garbage company with paltry revenue that surges for alternative reasoning.
Practitioners say it’s getting increasingly difficult to attract new cash for a risky bearish approach (the downside of short selling is theoretically limitless), whether for an activist firm or simply a short-biased fund.
Assets in his RC Global Fund, which wagered against tech companies both in China and the US, had dropped to $200 million from about $1.7 billion six years earlier. The Asia positions had paid off, but going against mighty American megacaps hammered performance.
The longer the cycles go, the more short selling seems to be simply a bad investment strategy and out of favor.
The idea is that a relentlessly rising market not only creates the kind of overvalued companies short sellers will ultimately feast on, it also masks badly run and sometimes fraudulent businesses.
That may be especially true when short selling is at such a low ebb since bearish activity has been shown to act as a brake on bad corporate behavior and keep the prices of companies with questionable financial statements in check.
Yet even as central bankers around the world have lifted interest rates back to levels not seen in decades — usually a handbrake on equity markets — stocks have generally churned higher, making it difficult to sustain bearish bets for any length of time.
In an era of 5% interest rates, it is not viable to borrow that capital to bet against skyrocketing AI stocks like Nvidia.
Why not ride the elevator up with Nvidia?
The absence of short sellers has meant “all systems go” for tech stocks and they have been off to the races with almost no pushback.
The bullishness has been so intense that the faster rate hike cycle in the modern financial history has done little to dissuade investors from pouring into tech stocks.
As interest rates lower from 5% to 2 or 3, tech stocks are likely preparing to lift off into another stratosphere.
If lowering rates catalyzes tech stocks to the upside, imagine how demoralizing for the few if any short sellers left shorting tech.
I am bullish on tech stocks in the short-term with the Central Bank telegraphing a drop in Fed Funds rates.
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
(AUSTRALIAN RED TAPE IS A REAL SPOILER FOR FOREIGN DATA CENTRE OPERATORS)
June 5, 2024
Hello everyone,
Established data centre operators in Australia have an economic moat. Red tape appears to be preventing foreign data centre owners from operating in Australia.
There is a growing appetite for more data storage and management, which is being pushed along by the AI technology revolution. Morgan Stanley points to the fact that Australian companies such as Goodman Group and NextDC have a special home advantage. They are potentially better positioned because they have significant, well-established land banks that hold large value.
Analysts at Morgan Stanley point to the challenging issues global competitors are encountering. Difficulties with working with local councils and utilities are stalling progress, and then there is the cost of development approvals and so on.
That advantage for existing Australian companies will provide attractive opportunities. Morgan Stanley expects data centre operators – the sector as a whole – to grow at a compound annual growth rate of 13% out to 2030.
It’s all good news for Goodman. Analysts at Morgan Stanley see the market pricing in a data centre pipeline of $9 billion, but it puts that figure at more like $20 billion.
Goodman also has significant flexibility with the land bank, where it can sell with approvals or develop the land to client specifications. Land that is developed into data centres is valued at a significant premium to that of typical industrial use, providing an attractive return-on-investment option should the company not want to hold the land long-term.
NextDC has a similar narrative to Goodman, with recent contracts confirmed and international expansion in the pipeline.
This sector has growth written all over it.
(This is an article of interest, not a recommendation to purchase Goodman Group or Next DC).
Natural disasters are a real threat to a large percentage of Australian properties.
Consider this scenario. You have finally purchased your home. And for a while, all is well in your world. Then a natural disaster strikes. Suddenly, everything is not so rosy anymore. Are you insured? If you are insured, will the insurance company cover all costs?
In Australia, many properties are at risk of being severely damaged or lost to a natural disaster. And what makes the situation even worse is the fact that premiums are so high that many have chosen not to insure. On top of that, in some areas that have a high flood risk, insurers may be unlikely to insure your property anyway.
Research shows that half of all Australian homes are at risk of natural disasters. 5.6 million properties are at risk of bushfires, almost 1 million are at risk of floods and thousands more are threatened by coastal erosion.
The NSW suburb of Ballina has the highest flood risk in the country. Victoria’s Upper Yarra Valley has the highest bushfire risk and Queensland’s Surfers Paradise has the biggest coastal erosion threat.
From my research, it seems many Australians are unaware of the dangers and have become very complacent.
QI CORNER
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
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
June 5, 2024
Fiat Lux
Featured Trade:
(JOIN ME ON CUNARDS QUEEN ELIZABETH FOR MY SATURDAY JUNE 29 ALASKA SEMINAR AT SEA),
(POPULATION BOMB ECHOES)
Come join me in the grand appointments of the Cunard Line’s Queen Elisabeth on an adventurous ten-day cruise through Alaska’s Inside Passage.
The Ship departs from Vancouver, Canada at 10:00 AM on Friday, June 21, 2024 and returns on Monday, July 1. The ship will make day stops at Ketchikan, the Tracy Arm Fjord to view a glacier, Juneau, Haines, the Hubbard Glacier, Sitka, and Victoria. There will be two full days at sea in the North Pacific.
There, I will be conducting the Mad Hedge Fund Trader’s Strategy Luncheon where I will discuss the future of the global financial markets.
I’ll be giving you my up-to-date view on stocks, bonds, currencies, commodities, precious metals, energy, and real estate. I’ll highlight the best long and short opportunities.
And to keep you in suspense, I’ll be tossing a few surprises out there too. Enough charts, tables, graphs, and statistics will be thrown at you to keep your ears ringing for a week. Tickets are available for $499 for the seminar only.
Attendees will be responsible for booking their own cabin through Cunard. They offer everything from an inside stateroom from $799 per person to $26,780 for Q1 deluxe two-bedroom apartment with its own gym and two butlers.
Just visit their website by clicking here or call them directly at 800-528-6273 to make your own arrangements. Only reserve cruise number Q420.
The weather this time of year can range from balmy to tempestuous, depending on our luck. A brisk walk three times around the boat deck adds up to a mile. Full Internet access will be available, for a price, to follow the markets.
Two dinners during the voyage will be black tie, so bring two tuxes or formal dresses. Don’t forget to bring your Dramamine and sea legs, although the ten-year-old, 932-foot-long $1 billion ship is so big I doubt you’ll need them.
The event will be held at the ship’s luxurious Owners Suite, the details of which will be emailed to you with your purchase confirmation.
I look forward to meeting you and thank you for supporting my research.
To purchase tickets for this luncheon, please click here or click the BUY NOW! button above.
Pack your portfolios with agricultural plays like Mosaic (MOS) if Dr. Paul Ehrlich is just partially right about the impending collapse of the world’s food supply.
You might even throw in long positions in wheat (WEAT), corn (CORN), soybeans (SOYB), and rice.
It says a lot that when I update a sector report like this and half the companies have disappeared from takeovers (Potash and Agrium), you should take notice.
The never-dull and often controversial Stanford biology professor told me he expects that global warming is leading to significant changes in world weather patterns that will cause droughts in some of the largest food-producing areas, causing massive famines. Food prices will skyrocket, and billions could die.
At greatest risk are the big rice-producing areas in South Asia, which depend on glacial runoff from the Himalayas. If the glaciers melt, this crucial supply of fresh water will disappear.
California faces a similar problem if the Sierra snowpack fails to show up in sufficient quantities, as it has done in five of the last six years.
Rising sea levels displacing 500 million people in low-lying coastal areas is another big problem.
One of the 92-year-old professor’s early books The Population Bomb was required reading for me in college in the 1960s, and I used to drive up from Los Angeles to Palo Alto just to hear his lectures (followed by the obligatory side trip to the Haight-Ashbury).
Other big risks to the economy are the threat of a third-world nuclear war caused by population pressures, and global insect plagues facilitated by a widespread growth of intercontinental transportation and globalization.
And I won’t get into the threat of a giant solar flare frying our electrical grid. That is already well covered on the Internet.
“Super consumption” in the US needs to be reined in where the population is growing the fastest. If the world adopts an American standard of living, we need four more Earths to supply the needed natural resources.
We must raise the price of all forms of carbon, preferably through taxes, but cap and trade will work too. Population control is the answer to all of these problems, which is best achieved by giving women education, jobs, and rights, has already worked well in Europe and Japan, and is now unfolding in Latin America.
All sobering food for thought. I think I’ll skip that Big Mac for lunch.
Is There Room for Me?