Mad Hedge Technology Letter
July 1, 2024
Fiat Lux
Featured Trade:
(SOFTBANK BETS THE RANCH ON AI)
(SFTBY), (NVDA)
SoftBank Group raised about $1.86 billion via dollar and euro bond sales in one of the biggest foreign-currency deals by a Japanese company this year.
This is big news.
Softbank is one of the most prominent venture capitalist funds in the world and they plan on deploying the capital solely into generative artificial intelligence.
Many of these heavyweights from Asia, and the Middle East, and other billionaires around the finance world are chomping at the bit to get a piece of American AI firms.
This trend is in the early innings and won’t slow down.
It’s interesting that Softbank raised the currency in dollars and euros which is another bet on the Japanese yen strengthening and the Fed cutting rates.
The Yen has been one of the worst-performing currencies in the past few years and there is a chance this move could blow up in Softbank’s face.
The dollar is strong and has been increasingly strong lately as the Fed stays higher for longer.
However, if the dollar does get stronger, it will mean that Softbank will need to pay higher costs. Even that said, they will still dive head-first into AI.
My belief is that their CEO Masayoshi Son, who I know very well, will bet the ranch on AI considering he sold out of his Nvidia shares in 2022 and calls it the “fish that got away.”
He rues leaving hundreds of billions of dollars in profits on the table and I don’t believe he is willing to allow that to happen again.
So he will approach these new investments as an “all or nothing” all guns blazing type of strategy.
In its first non-yen debt offering since 2021, billionaire Masayoshi Son’s company priced two dollar tranches totaling $900 million and two euro tranches raising €900 million ($964 million).
It’s not only Softbank, it’s also other Japanese companies looking for ample liquidity.
SoftBank joins a bond bonanza by issuers from Asia and elsewhere including even bigger deals from fellow Japanese borrowers such as Takeda Pharmaceutical and Rakuten.
The Japanese firm this year directly invested $200 million into Tempus AI, a startup that analyzes medical data for doctors and patients to come up with better treatments. More recently, it backed Perplexity AI at a $3 billion valuation, betting on a firm that aims to use AI to compete with Alphabet’s Google search.
Longer term, SoftBank is working on a plan to deploy some $100 billion into AI-related chips in a project dubbed Izanagi, Bloomberg News reported in February.
My belief here is that Softbank and other Japanese companies are on the verge of deploying over $1 trillion of new money into generative artificial companies in America.
There is a reason why leading AI companies like Nvidia (NVDA) have surged to the skies and a lot of it is foreign money coming chasing the new hot trend.
I don’t believe this trend will stop will money from all corners of the globe from flooding the US markets chasing the few quality AI companies.
The ultimate takeaway is that the best companies connected the generative artificial intelligence are at the beginning of a huge run in share price that will extend years into the future.
Don’t fight the trend – especially the biggest ones in the world.
“The most important thing to do if you find yourself in a hole is to stop digging.” – Said American Investor Warren Buffett
(WHAT THE MARKET ACTION MIGHT LOOK LIKE IN THE SECOND HALF OF 2024)
July 1, 2024
Hello everyone,
Week ahead calendar
Monday, July 1
9:45 a.m. S&P PMI Manufacturing final (June)
10 a.m. Construction Spending (May)
10 a.m. ISM Manufacturing (June)
Tuesday, July 2
10 a.m. JOLTS Job Openings (May)
5:00 a.m. Euro Area Inflation Rate
Previous: 2.6%
Forecast: 2.5%
Wednesday, July 3
8:15 a.m. ADP Employment Survey (June)
8:30 a.m. Continuing Jobless Claims (6/22)
8:30 a.m. Initial Claims (6/29)
8:30 a.m. Trade Balance (May)
9:45 a.m. PMI Composite final (June)
9:45 a.m. S&P PMI Services final (June)
10 a.m. Durable Orders (May)
10 a.m. Factory Orders (May)
10 a.m. ISM Services PMI (June)
2 p.m. FOMC Minutes
Earnings: Constellation Brands
Thursday, July 4
Independence Day Holiday
UK General Election
Friday, July 5
8:30 a.m. June Jobs Report
Previous: 272k
Forecast: 180k
Friday is the Labor Report, and this will give us some insight into the consumer. The U.S. economy is anticipated to have added 190,000 jobs in June, down from 272,000 in the prior month, according to FactSet consensus estimates. The unemployment rate is expected to hold at 4%.
The pandemic stimulus has contributed to keeping the economy motoring along. However, I would argue that cracks are starting to appear, now that many consumers have exhausted that stimulus cash injection. The jobs report will take on more significance going forward as it will show a pattern of consumer behaviour.
Let’s delve into history for a moment. According to historical data, a strong first half points to more gains in the second half. And remember, it is an election year as well, which also bodes well for the market. Data analyzed by Sam Stovall at CFRA (Centre for Financial Research and Analysis) shows that whenever a positive first half for the S&P500 eventuated between 1945 and 2023, the second half brought an average rise of 5.3%. The broad index was higher in the second half in more than three out of every four years that it ended the first six months in the green.
The picture gets even better when we dig into detail. The research shows that in the years with the S&P500 rallying more than 10% in the first six months, it climbed 7.9% in the typical second half. The index was positive in the latter half in more than four out of every five of these years. And how much did the S&P500 climb in the first half of 2024? Answer = 14.5%.
Presidential election years also typically result in favourable market returns. Research shows that in all election years since World War II the S&P500 added 0.9% and 2.4% in the average third and fourth quarters, respectively. For the entire second half, the S&P500 has climbed 3.5% on average.
If we take all strategist's forecasts and take the median forecast for the end of 2024, we may see a 1% rise from the close last week.
NEWS IN BRIEF
France votes in an election that could see a significant swing to the far-right. If victorious, Le Pen’s party, National Rally Rassemblement National (RN) may disrupt policy towards EU, and Ukraine.
UK Election on Thursday may result in volatility in GBP pairs.
BRIEF MARKET UPDATE
S&P500 - Risk of a retracement is growing. Downside should see support around 5,000. Then after the correction, the market should continue its upside move.
Gold – has been undergoing a complex correction. If it can hold above $2,290, then we should see a sustained rally above $2,360, to see a retest of the $2,400’s. However, a move to a $2,270/$2,250 area is still a possibility, so don’t rule it out.
Bitcoin – a complex retracement is continuing. Possible downside targets include: $55,000 and $50,000. Scale in all the way down to these levels. Bitcoin may not begin a sustained rally for a month or two.
WHAT IS… Painting the Tape?
Painting the tape is a form of securities fraud where traders create a false appearance of trading activity for a security by buying and selling the security among themselves. Painting the Tape (PTT) can attempt to artificially increase or decrease the price of a security through coordinated trading, or merely give the impression of a high volume of trades without any effort to influence the direction of the price.
PTT is illegal, and the Securities and Exchange Commission (SEC) enforces regulations against PTT and similar attempts at market manipulation.
Probably the simplest and most common form of market manipulation that involves PTT is when traders artificially inflate the trading volume of a security. Many day traders are attracted to securities revealing a sudden spike in volume far above the average. This leads to an increase in the price of the security, which then allows market manipulators to dump their holdings at an inflated price.
PSYCHOLOGY CORNER
Cut Out the Noise
I’m sure I don’t need to tell you that there are tons of supplemental resources and education about trading and investment on the Internet. That’s a good thing – right?
Well, that’s debatable. One of the worst things about all this information is that it is full of “noise” and is likely a distraction that will pull you away from your own confidence in your ability in the market.
Everybody comes to the market with a different approach. There is no one right way to trade the market. What works for one expert might not work for you. It’s always best to develop your own philosophy – your own approach to trading the market that suits your personality, and then shut out the loud voices who claim they have found the very best strategies for trading the market
QI CORNER
The monthly return table for major asset classes/assets. (Mohammed El-Erian, President of Queens’ College, Cambridge & chief economic advisor at Allianz.
MY CORNER
My new best friend at my present Airbnb.
Cheers,
Jacquie
Global Market Comments
July 1, 2024
Fiat Lux
SPECIAL ISSUE ABOUT THE FAR FUTURE
Featured Trade:
(PEAKING INTO THE FUTURE WITH RAY KURZWEIL),
(GOOG), (INTC), (AAPL), (TXN)
