Mad Hedge Technology Letter
June 24, 2024
Fiat Lux
Featured Trade:
(E-COMMERCE PARTNERSHIPS WILL THRIVE)
(TGT), (SHOP), (WMT)
Target (TGT) is partnering with e-commerce specialist Shopify (SHOP) to expand its marketplace for third-party merchants.
This is a big deal so don’t diminish this news.
I honestly applaud this maneuver by Target, because it adds e-commerce footprint without paying a premium for it.
Everyone knows that everything is a total rip-off these days like adding an incremental addressable audience at a tech company.
Target has a lot to do to catch up with Amazon, but that’s the direction they should be headed in.
In the future, there is a highly likelihood that TGTs digital business will determine whether they succeed or fail as a tech company.
Everyone is going digital now. Adapt or die.
Shopify is a powerful back-end ecommerce foundation and integrating that with Target appears as a win-win decision moving forward.
We only need to look at competitor Walmart (WMT) which presides over a booming e-commerce business.
That is by decision as they launched a digital-first strategy and have made serious inroads into picking up e-commerce market share.
This partnership also on boards Target into a whole load of new products that they could only dream of selling and the process was rather painful.
Target Plus operates on an invite-only basis for merchants and currently offers more than 2 million items through more than 1,200 sellers.
Online marketplaces can also be launch pads for profitable advertising businesses, with merchants paying for prominent placement in front of shoppers.
Target more than doubled the number of sellers and products on its marketplace over the past year.
The company plans to maintain its invite-only model and continue vetting sellers on the platform.
Curating the selection — for example, allowing only one vendor to offer any given item — is a strategy that will let Target stand out.
Target’s partner, Shopify, makes software that helps vendors quickly set up online stores and process payments.
The company says it works with millions of merchants in about 175 countries. Globally, shoppers will spend $282 billion this year on stores managed with Shopify software. That’s more than double Target’s projected sales for the year.
We are at the late stage of the tech cycle that has been long in the tooth.
It’s not a shocker at this point for tech models to be petering out and management looking for that extra juice to kick-start revenue growth for however long the rest of the business cycle lasts.
Clearly, debt financing isn’t an option these days and I do believe this is a time when management showed their worth as conditions have been extraordinarily tight for the last 2 years.
There is also no guarantee that business conditions will reverse and go back into that pre-pandemic goldilocks phase.
The jury is still out but higher interest rates could be in the mix for the foreseeable future.
Therefore, it is clever by TGT and SHOP to strike up a partnership in which TGT expands their offerings and SHOP merchants get a crack at a new audience.
These opportunities are limited in fashion, but tech in 2024 isn’t about an unlimited addressable audience.
Tech in 2024 is more about efficiency and staying lean because the past 2 years have really been about cutting the bloat.
Target obviously has the more upside in this relationship and I expect them to add other partners that can move the needle.
TGTs share price has been flat for the past 6 months and migrating further into a digital strategy could be the formula to nudge that share price back into high gear.
The stock price is now at $150 per share and I do believe TGT has the chance to grind higher closer to $200 per share by year-end.
(THE POP STAR OF TECH FORGED THE GENESIS OF NVIDIA IN A DENNY’S FAST-FOOD RESTAURANT)
June 24, 2024
Hello everyone,
Monday, June 24
10:30 a.m. Dallas Fed Index (June)
Tuesday, June 25
8:30 a.m. Chicago Fed National Activity Index (May)
9:00 a.m. FHFA Home Price Index (April)
9:00 a.m. S&P/Case Shiller comp. 20 Home Price Index (April)
10:00 a.m. Consumer Confidence (June)
10:00 a.m. Richmond Fed Index (June)
Earnings: FedEx, Carnival
Wednesday, June 26
8:00 a.m. Building Permits final (May)
10 a.m. New Home Sales (May)
Earnings: Micron Technology, General Mills
Thursday, June 27
8:30 a.m. Durable Orders preliminary (May)
8:30 a.m. GDP final (Q1)
8:30 a.m. Initial Claims (06/22)
8:30 a.m. Wholesale Inventories (May)
10 a.m. Pending Home Sales Index (May)
11:00 a.m. Kansas City Fed Manufacturing Index (June)
Earnings: Nike, Walgreens Boots Alliance, McCormick & Co.
Friday, June 28
8:30 a.m. Personal Consumption Expenditure (May)
8:30 a.m. Personal Income (May)
9:45 a.m. Chicago PMI (June)
10:00 a.m. Michigan Sentiment final (June)
Personal Consumption Expenditure data will be on the table this week.
We are seeing a trend towards slower inflation at a measured pace, and this quite possibly will keep equities on an upward trajectory in the second half of the year. However, a healthy pullback should not be a surprise in the second half of the year.
Nvidia – A Brief History
Jensen Huang worked at the microchip company AMD before co-founding Nvidia in 1991. Huang dreamt up the idea of Nvidia while at Denny’s, a fast-food restaurant, where he used to wash dishes. A plaque is now situated above the table where he and his co-founders created the idea of Nvidia, which was installed when the company’s market value surpassed $1 trillion.
The company initially focused on video games, developing components that allowed games consoles and personal computers to render three-dimensional graphics by stacking countless microscopic triangles on top of each other. Nvidia went public during the dotcom bubble at a $625 million valuation.
Nvidia held a key place in the gaming industry. But the real turning point in Nvidia’s history can be pinpointed around a decade later when scientists at the University of Toronto, led by the British computer scientist, Geoff Hinton, developed an image recognition program that used Nvidia’s graphics chips, rather than the central processing units that most computers relied on.
The program trounced the competition in an annual machine vision competition and its underlying architecture spawned the deep learning craze. This was something of a happy accident for Huang and he cleverly changed tack to capitalise. So, instead of Nvidia being focused on video games, the company would transform into an AI business. Huang set to work and invested resources to develop chips that could power synthetic intelligence.
Last month it was shown that Nvidia revenues had risen by 262pc in the last quarter, to $262bn. Profits have climbed more than sevenfold, from $2bn to $15bn. The waiting list for the company’s superpowered chips runs into next year.
But let’s not get too carried away with all the Nvidia hype just yet. Nvidia’s profits are less than half of Apple’s and have been built on the large investment in AI infrastructure that has yet to yield tangible profits for many of its customers.
Analysts are divided on what happens next. But some have predicted a valuation of $ 5 trillion within a year, a level that would see Huang’s own net worth overtake Bill Gates’ and see him competing for the title of world’s richest man.
Market Update
S&P 500 – has touched Key chart resistances and recorded a Bearish Outside Reversal Day in the process. From an Elliott Wave perspective, the S&P500 has completed the Wave structure, to signal trend exhaustion. However, any decline ahead is likely to be a Wave 4 correction, finding support around 5,100-5000. A subsequent 5th wave rally can then extend the bull market toward the inverse head and shoulders target level of 5,730.
Gold – is still correcting. Targets include 2,280 down to a possible target of 2, 200 in the short term. After that correction, gold will rally once again onto new highs.
Bitcoin – is still in correction mode and forming a right shoulder in an inverse head and shoulder pattern. After this pattern formation is completed, perhaps in mid to late July, Bitcoin will rally onto new highs.
US dollar – will rally for the short term. Euro, Pound, Aussie and Kiwi, and Japanese Yen will weaken against the dollar. This is a good time to start positioning yourself if you are interested in playing the currencies - start scaling into currency trades in the FXA, FXE, and FXB.
What is… a Share Buy Back?
A Share Buyback program is when a company buys back shares that were sold during the IPO. By doing this they are reducing the number of shares available to trade and everyone holding shares of the company will see their shares increase in value.
QI Corner
The Great Green Wall of China
My Corner
A Beach Volley Ball Competition held on Coolangatta Beach, Queensland in March 2024.
Cheers,
Jacquie
Global Market Comments
June 24, 2024
Fiat Lux
Featured Trade:
(TESTIMONIAL),
(WHAT EVER HAPPENED TO THE GREAT DEPRESSION DEBT?),
($TNX), (TLT), (TBT)
(ADBE), (SPOT), (CSCO), (SOUN), (NVDA), (MSFT), (GOOGL), (AMZN), (AAPL)
So, a buddy of mine recently kicked off a new podcast and boy! Was I blown away by her slick audio editing skills? I was almost turning green with jealousy until she let me in on her little secret—Descript’s AI-powered editing tool.
All the hullabaloo about AI taking over our lives and reshaping jobs as we know them may have been just much ado about nothing. But, hold your horses before you blow the bubble of hype. I've got a few examples of micro-revolutions sparked by AI that might just change your mind.
Take my friend and her podcast, for example. With the ease of Descript, she breezed through hours of laborious tinkering. This magical tool cuts out all the hums, haws, and time-consuming retakes like a pro. Just a few transcript edits, and the audio's all dressed up, ready to impress.
Adobe (ADBE) is walking the same path with their AI-augmented audio editing software like Adobe Audition and Adobe Podcast Production. Not to be outdone, Spotify's (SPOT) AI tech for podcast recommendations is a godsend, benefiting creators and listeners alike.
Having been on the receiving end of this AI wizardry, I can assure you it's nothing short of transformative. This is especially true for time-consuming tasks like editing long interviews or podcasts.
It's here that AI really proves its mettle, streamlining processes that traditionally took hours into mere minutes.
But audio editing is just the tip of the iceberg. Another revolution I've had the pleasure to experience is AI noise canceling. Picture this: the Audeze Filter, a Bluetooth conference speaker, effortlessly silences even the wails of a baby. It’s like some sort of sorcery.
And it's not just Audeze in this game. Cisco (CSCO) has upped the ante by integrating BabbleLabs' advanced noise cancellation tech into their Webex meetings.
Meanwhile, SoundHound (SOUN) is gearing up to go public with its voice AI technologies, and Veritone is optimizing media content, including audio files, with its robust AI platform.
Actually, I tried out the Audeze tech at a noisy café, and believe me, it turned the place into a peaceful sanctuary at the flip of a switch.
Even NVIDIA (NVDA), usually celebrated for its graphic processing prowess, is making significant inroads into the AI-powered audio processing arena, boosting the capabilities of multimedia applications.
These innovations are what AI should be about — solving real-world problems, not just adding bells and whistles. Yet, despite these advancements, AI has become somewhat of a hype machine, promising a sci-fi future that’s yet to be fully realized.
The Humane AI pin and the Rabbit R1 are glaring examples of failed attempts at selling AI disguised in a hardware package. I mean, who needs more gadgets, right?
Even more concerning is the trend I observed at Computex in Taipei earlier this month, where AI seemed to be shoehorned into familiar gadgets and pitched as the next big thing.
But, let's say, Microsoft (MSFT) rolls out these fancy AI laptops and consumers find them...meh?
I foresee a risk of consumer backlash, like the 3D TVs and VR glasses scenario, if the products don't deliver. And when I pressed an executive about their fallback if AI doesn't boost laptop sales, the prolonged silence was telling.
So, where do we go from here?
I'm with those claiming AI will unleash the creative beast within us and free us to enjoy the fun stuff. But, it's going to be a journey of baby steps, not a giant, ground-breaking leap.
Small but impactful changes like accelerated podcast editing from the likes of Descript, and advanced noise-cancellation tech from Audeze, Cisco, SoundHound, Veritone, and NVIDIA, are where the real micro-revolutions lie.
Heck, even tech giants like Alphabet (GOOGL) through its Google AI division, Amazon (AMZN) through its Alexa and AWS divisions, and Apple (AAPL) with its AI-powered audio processing, are fueling these micro-revolutions, transforming industries bit by bit.
Mad Hedge Technology Letter
June 21, 2024
Fiat Lux
Featured Trade:
(CUPERTINO NEEDS A REBOOT)
(AAPL), (PYPL), (SQ)
Fintech used to be the shiny new car and in the last year or two, the sub-sector has entirely reversed.
Look at stock like PayPal (PYPL) or Square (SQ), their market cap is only 20% of what it was in 2021.
The fintech hype didn’t match the results and it definitely wouldn’t be something that Steve Jobs would be interested in getting into.
Getting into the weeds a little, the fintech industry has been saturated.
Too many vendors chasing after the same customers with the same homogenous products doesn’t seem like something Apple is usually associated with.
Almost as if the behavior suggests a mea culpa, Apple officially stopped issuing loans through Apple Pay Later, its buy-now-pay-later program that launched last year.
The move comes after Apple said it would start allowing installment loans later this year in its Apple Pay checkout process through third-party companies, such as Affirm, and credit and debit cards from issuers, such as Citigroup.
This Apple product certainly would have turned into a buy now – pay never platform.
I won’t say that Apple should stay in their lane – they certainly shouldn’t.
The reason is that they are a one-trick pony hoping to pivot into another lucrative cash cow business like the iPhone business. They desperately need to become a two-trick pony but they can’t find that special sauce yet.
Apple also recently announced they are putting their Apple Vision VR goggles on the backburner.
It is sad to see Apple go from project to project with such little follow-through.
They are Apple and many still think that brand still carries a lot of weight.
In the short term, they will get a pass for contracting some terrible projects, but only for so long.
One could argue that wearables like the Apple Watch and the iPad have been somewhat successful and I do acknowledge they have had some stickiness in terms of revenue.
However, the already saturated fintech payments business is a head-scratcher.
Sometimes it’s best to let fintech be fintech and allow them to experience the race to zero.
Apple is bigger and better – their customers deserve something that delivers higher value.
Clearly, the management at Apple at the highest levels is lacking the creative juices to push through something trendsetting or cutting edge and now that is starting to become a serious threat to future cash flows.
The OpenAI partnership was a copycat move and I am not sure if they have really planned how they will seemingly integrate this new tool into their products.
Remember, OpenAI could destroy some of Apple’s products because AI is still rife with errors and can even cause major losses to the share price.
What if the CEO of Apple Tim Cook wakes up one day and AI has deleted half of Apple’s internal software or emailed all of Apple’s intellectual property to a fierce rival?
What if AI magically wires $100 billion of Apple’s war chest to a 3rd world bank under the banner of improving world hunger or balancing income inequality?
Remember that AI has no common sense and that could be very dangerous.
Kids who grew up in front of computers all day are also notorious for having little common sense and the end of the day results show.
Nobody knows what will happen, but Apple sure appears defensive and that is always big trouble in Silicon Valley in an industry where you need to know what will happen in the future.
“Greatness does not come from intelligence. Greatness comes from character, and character isn't formed out of smart people: it's formed out of people who have suffered.” – Said Nvidia CEO Jensen Huang
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
(CHINA AND RUSSIA ARE HUSTLING TO EXERT INFLUENCE GLOBALLY)
June 21, 2024
Hello everyone,
Tensions have been rising in the South China Sea. Clashes between Philippines vessels and Chinese ships have been increasing over recent months. Most recently, several Philippine workers were injured, and one lost his thumb. The Chinese military build-up in the area is increasing as China continues to flex its muscles in the area. These types of incidents are a growing problem for the world.
Second Thomas Shoal is the most dangerous flashpoint today between the U.S. and China. The Shoal is part of the many reefs and shoals in the Spratly Islands which are much closer to the Philippines in the South China Sea.
The skirmishes that keep happening can be interpreted as a crisis waiting to ignite.
China and the Philippines have been in conflict over control of these waters for decades. But in the past years, tensions are close to the highest they have been.
There have been many reports of clashes and water cannoning against Philippine boats.
The waterway encompasses 1.4 million square miles, larger than the Mediterranean. Much of the sea is disputed. China, Vietnam, Malaysia, Brunei, the Philippines, and Taiwan all claim specific land features.
It is a thriving fishing zone yielding some 10% of the global fishing catch and a vast amount of trade transits through. In 2016, that amounted to some $3 trillion, including more than 30% of the global maritime crude oil trade.
It also holds promising oil and gas deposits which each nation in the area would like to get their hands on in the coming years.
China claims the biggest patch of the South China Sea making it difficult for the Philippines to tap into their reserves.
In 2016, a UN-backed court ruled that China’s claim of historic rights was unlawful and the Philippines has the sovereign right to extract resources like fish and oil. The problem is that the Philippines does not have the military capacity to enforce these rights.
It is important to note that these waters are not just about fishing and oil, but rather they hold military and strategic value for all the area’s claimants and crucially, the U.S.
Maintaining freedom of navigation is a global interest for the U.S. and it is important in the South China Sea.
The U.S. also has other interests here. Upholding the international law of protecting the ability of countries to really exercise sovereignty.
China wants to assert its sovereignty and deny US military access to the region.
Over the last decade, China has been building military bases in the area. The establishment of airstrips, of listening posts, of refueling stations have been well documented; this enables China to send its vessels to those islands and be able to better control much of the greater South China Sea. Today, China operates Navy ships, Coast Guard vessels, maritime, and militia 24/7 around virtually every feature that is disputed.
The U.S. and the Philippines have a mutual defense treaty dating back to 1951, and the circumstances that may trigger US involvement have become clearer recently.
Southeast Asian leaders are anxious over the prospect of war between the U.S. and China, whether it be over Taiwan or in the South China Sea.
A Significant Move by Putin
Russia and North Korean leaders have pledged military cooperation as part of a strategic treaty signed in Pyongyang during Putin’s first visit to the nation in 24 years. The treaty, signed this week, could strengthen Russia’s efforts in Ukraine, give North Korea the freedom to bolster its nuclear weapons program, and potentially lead to a war on the Korean peninsula that could dramatically impact world security.
The two countries have been allies since North Korea’s founding after World War II and have drawn even closer since Russia’s invasion of Ukraine.
Malcolm Davis, senior analyst at the Australian Strategic Policy Institute (ASPI) argues that these two countries are coming closer together as part of this axis of authoritarianism that includes China and Iran as well. Davis sees it as a “significant development” and one that has a substantive impact, thereby increasing the risk of a crisis that has the potential of turning into something much larger.
Davis said the military cooperation dimension of the agreement was “really worrying” because it implied that assistance would increase, and Putin may intend to escalate the war in Ukraine. Davis went on to say that it would certainly imply that North Korea is going to step up its production of munitions to supply to Russia and could provide additional ballistic capabilities, and this assistance would go through China.
If Russia grows stronger over time and if Western military support for Ukraine begins to edge off over the course of 2024, particularly if Donald Trump is elected in November, then it places Ukraine in a really bad situation in 2025. Trump has threatened to cut US aid to Ukraine quickly if re-elected.
Davis points out that if Russia provides more advanced military capabilities to North Korea, this increases its threat to South Korea, which could escalate into something much larger that could also threaten Japan and the United States.
Ray Dalio comments on the Changing World Order
Ray Dalio has recently commented on the geopolitical situation in the world and the jostling by countries to engineer authority and power.
I will quote Dalio from a recent article he posted.
Preparing for War: You can see the sides lining up for a fight both domestically (between the hard rights and the hard lefts in most countries) and the allied powers (the United States, the NATO countries, Japan, Australia, and the Philippines) and the axis powers (China, Russia, North Korea, Iran) in a manner that is similar to what happened prior to World Wars I and II.
The great power conflict between these major powers that are in or entering into alliances is intertwined with regional conflicts that are defining other countries (e.g. Israel, Saudi, Jordan, Hezbollah, Turkey, India, Pakistan, etc.) alignments with the great powers and with their neighbor countries in their region. This will likely lead to bigger conflicts (between the hard right and hard left within countries and between allied and axis powers internationally) in the next year or two.
If you want to learn more, read Dalio’s book, Principles for Navigating the Changing World Order
Review of some Stocks
I’m going to review a few stocks here. The stocks include GLD, OXY, CVX, PSX, XOM, and DIS. I have particularly focused on the energy sector as it has underperformed and is now undervalued.
GLD is setting up nicely for another bullish run. If you don’t own the stock start scaling in now.
I am also recommending LEAPS on GLD. You could look at June 2026, 250/260, LEAPS, or go with in-the-money LEAPS.
The SPDR Gold Shares ETF (GLD) tracks the price of gold bullion in the over-the-counter ((OTC) market.
There are a variety of factors that will drive the gold price higher, including rising geopolitical tensions, interest rate cuts, and central bank buying of gold, among other factors. I am expecting the gold price to keep rising for the next few years at least.
XLE Energy Select SPDR Fund - Stock Price: $88.64 as of 06/18
The energy sector has underperformed the broader market this year. All the energy stocks shown here, including the (XLE) energy ETF, are sitting on their 200-day moving average.
Oil giant, Chevron is currently trading at a forward P/E ratio below its 5-year average, indicating potential growth ahead. As I have detailed in a previous post, Chevron is battling against Exxon Mobil over offshore oil assets in Guyana. The company also acquired Hess for $53 billion earlier in 2024. Year to date, Chevron shares are up just 2.8%.
There are three key trends driving the energy sector: decarbonisation, decentralisation, and digitalization. These not only influence the way we generate energy but also how we use and distribute it.
Crude oil prices are being driven by tight supply, increasing geopolitical risk, and strengthening global demand for energy, and are likely to remain elevated in 2024. In addition, continued investment in energy production will support growth in energy stocks.
If you do not have any energy stocks in your portfolio, I suggest you either scale into one of the energy stocks or buy LEAPS. In the money is more conservative whereas out of the money is more aggressive.
Chevron Daily Chart (CVX) - Stock Price: $153.33 as of 06/18
We are still holding the CVX January 17, 2025, $165/$170 out of the money LEAPS if you took this trade, HOLD.
Exxon Mobil (XOM) - Stock Price: $109.38 as of 06/18
On February 7, 2024, I recommended January 17, 2025, 105/110 out of the money LEAPS. The stock price was then $102.20. Continue to HOLD.
Occidental Petroleum (OXY) - Stock Price: $61.26 as of 06/18
Warren Buffett has been scaling into (OXY) all the way down to the recent lows. It’s a great buy here, or you could buy in the money LEAPS.
Phillips 66 Daily Chart (PSX) - Stock Price: $135.85 as of 06/18
Recommended on April 30, 2024 (monthly zoom meeting). Now I am recommending the stock again as a buy or a LEAPS trade.
Walt Disney Daily Chart - Stock Price: $101.52 as of 06/18
Disney is a favourite amongst Wall Street analysts going into the second half of the year. According to the stock’s consensus price target, shares could rally nearly 25% in the next 12 months. Disney parks still show a healthy demand trend, and around three-quarters of analysts covering the stock have a strong buy or buy rating. I am favouring an option over a buy on this stock. That healthy demand trend over the long term can change, so I would prefer to dip my toe in via an option trade.
Suggestion:
June 20, 2025, 105/110 bull call LEAPS, but you could also do an in-the-money LEAPS trade as an alternative.
QI CORNER
Cheers.
Jacquie