Global Market Comments
September 9, 2024
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or SEPTEMBER LIVES UP TO ITS REPUTATION)
(COPX), (USO), (ARE), (UUP), (TLT), (JNK), (GLD), (SPY), (NASD), ($VIX)
One of my Concierge clients holds a weekly staff meeting. Each employee is told his family is being held hostage and can only be rescued if they recommend the top-performing stock for the coming week. Then everyone throws in their two cents worth.
Last week, for the first time in the company’s history, no one could come up with a single name, even if it meant sacrificing their family (nobody was really sacrificed).
That speaks volumes.
In fact, until last week, every asset class in the market was discounting an imminent recession: Commodities (COPX), energy (USO), real estate (ARE), and the US dollar (UUP). Reliable recession hideouts like bonds (TLT), fixed income (JNK), and gold (GLD) caught an endless bid. Only the stock market (SPY), (NASD) wasn’t reading from the same music sheet.
Well, stocks finally got the memo, delivering the worst week in 2 ½ years. Suddenly, the glass has gone from half full to half empty. Permabears have suddenly morphed from complete idiots to maybe having something to say. Here it is only September 9 and the Month from Hell is already living up to its awful reputation. Is the stock market the slow learner in the bunch?
I came back from Europe in August rested, refreshed, invigorated, and in a near state of panic. The last 11% rally in the (SPY) made absolutely no sense to me whatsoever. Either the September jobs data would come in hot, canceling the Fed’s expected interest rate cut. Or, the data would come in cold, proving that the Fed waited too long to cut rates and inviting a recession, causing stocks to tank.
It would have been one of the worst self-inflicted wounds and own goals of all time.
What was especially dangerous was that we were going into the worth trading month of the year, September, with the (SPY) showing a crystal-clear double top on the charts.
It was a perfect lose/lose situation.
Seasonals are important, especially this month. This is because most mutual funds run an annual year that ends on September 30. To window dress their books and those glossy marketing brochures, they sell all their losers (think energy) in September and use the cash to buy more of their winners in October. (NVDA) yes, (XOM) not so much. This creates a swing in the indexes every year of 10%-20%.
To learn more about the seasonals, read tomorrow’s letter in detail, IF YOU SELL IN MAY AND GO AWAY, WHAT TO DO IN SEPTEMBER?
So I did what I usually do when the market refuses to give me marching orders. I let all my positions expire with the August 16 options expiration, took back the cash, and then sat on my hands. Suddenly, a 100% cash position was looking like a stroke of genius. It cleared the cobwebs, moved the fog away from my eyes, and took the monkey off my back all in one fell swoop.
And you know what? After surveying my big hedge fund clients, I learned they were doing exactly the same thing.
Let me pass on another piece of interesting intel. All of the many algorithms the hedge fund industry follows are bunching up around two specific bottoms for the stock market in coming months: September 18, the Fed rate cut day, and October 22, two weeks before the presidential election.
With any luck, other classic “BUY” signals will kick in at the same time with the Mad Hedge Market Timing Index below 20 by then and the Volatility Index ($VIX) over $30. It could be the best entry point of the year.
What has been fascinating is how much money has been pouring into the interest rate plays I have been banging the table about for the last six months. When was the last time the stock market has been led by AT&T (T), Altria (MO), and Crown Castle International (CCI)? You might have to look behind the radiator to find some old, dusty research on these names.
So far in September, we are down by -1.21%. My 2024 year-to-date performance is at +33.49%. The S&P 500 (SPY) is up +13% so far in 2024. My trailing one-year return reached +51.89. That brings my 16-year total return to +710.12. My average annualized return has recovered to +51.63%.
I executed only one trade last week, covering a short in Tesla at cost. I am now maintaining a 100% cash position. I’ll text you next time I see a bargain in any market. Now there is none. There is no law dictating that you have to have a position every day of the year. Only your broker wants you to trade every day.
Some 63 of my 70 round trips, or 90%, were profitable in 2023. Some 47 of 66 trades have been profitable so far in 2024, and several of those losses were really break-even. That is a success rate of +72.24%.
Try beating that anywhere.
Nonfarm Payroll Report Fades at 142,000, but the Headline Unemployment Rate stays at 4.2%. More shocking is that the previous two months saw substantial downward revisions. The BLS cut July’s total by 25,000, while June fell to 118,000, a downward revision of 61,000. If the Fed doesn’t cut by 0.50% on September 18, the stock market will crash.
Broadcom Beats and Stock Tanks driven by strong sales of its AI products and VMware software. But management’s guidance for the current quarter disappointed investors, sending shares of the chipmaker down nearly 7% in the after-market. This is too harsh of a reaction to an otherwise solid print. Buy (AVGO) on dips.
ADP Employment Change Report Hits 3 ½-Year Low, up only 99,000 in August. Economists polled had forecast private employment would advance by 145,000 positions after a previously reported gain of 122,000.
Biden Blocks Nippon Steel Takeover of US Steel, no doubt to save the jobs these deals usually destroy. Good thing we got out of the (X) LEAPS a year ago at max profit. (X) dropped 20% on the news. Not a good time to concentrate on industry.
No Subpoenas Here Says NVIDIA, refuting rumors that it was the target of an antitrust action. Don’t believe everything you read on the internet.
The Yield Curve has De-Inverted, meaning that short-term interest rates have fallen below long-term ones. Two-year interest rates at 3.72% are now 0.03% lower than ten-year ones at 3.75%. It’s a clear signal to the Fed that rates must be cut soon.
Weekly Jobless Claims Drop 5,000 to 227,000. The weekly jobless claims report from the Labor Department on Thursday, the most timely data on the economy's health, also showed unemployment rolls shrinking to levels last seen in mid-June. It reduces the urgency for the Federal Reserve to deliver a 50-basis points interest rate cut this month.
US Oil Production Hits All-Time High. In August 2024, U.S. oil production hit a record 13.4 million barrels per day according to the U.S. Energy Information Administration. Big Oil has become more productive as horizontal drilling and hydraulic fracturing, which is also known as fracking, have seen technological breakthroughs. The fossil fuel industry benefits from tax incentives, such as the intangible drilling costs tax credit, that are built into the tax code. The intangible drilling costs tax break is expected to benefit oil and gas companies by $1.7 billion in 2025 and $9.7 billion through 2034
Crude Oil Now Down on the Year, after a precipitous weekend selloff. Blame a weak China, lost OPEC discipline, and overproduction by Iraq. The bearish Goldman Sachs commodities report was also a factor. Avoid the worst-performing asset class in the market.
Eli Lilly is now a trillion-dollar stock, the first Biotech to do so. The drug giant is riding the wave of Mounjaro and Zepbound, its blockbuster injectable GLP-1 medications for weight loss. The drugs are also used to treat diabetes and cardiovascular disease. Eli Lilly’s shares have soared 65% this year.
Goldman Goes Big on Gold. Central banks in emerging market countries are continuing to buy gold — with purchases tripling since the middle of 2022 amid fears of U.S. financial sanctions and a mountain of sovereign debt. Goldman is taking a more selective approach to commodity investing as soft demand in China weighs on crude oil and copper prices. The investment bank has slashed its Brent oil outlook by $5 to a range of $70 to $85 per barrel and delayed its copper target of $12,000 per metric ton until after 2025.
My Ten-Year View
When we come out the other side of the recession, we will be perfectly poised to launch into my new American Golden Age or the next Roaring Twenties. The economy decarbonizing and technology hyper accelerating, creating enormous investment opportunities. The Dow Average will rise by 600% to 240,000 or more in the coming decade. The new America will be far more efficient and profitable than the old.
Dow 240,000 here we come!
On Monday, September 9 at 3:00 PM EST, Consumer Inflation Expectations are out
On Tuesday, September 10 at 6:00 AM, the NFIB Business Optimism Index is released.
On Wednesday, September 11 at 7:30 AM, the Core CPI is printed.
On Thursday, September 12 at 8:30 AM, the Weekly Jobless Claims are announced. We also get the Producer Price Index.
On Friday, September 13 at 8:30 AM, the University of Michigan Consumer Sentiment. At 2:00 PM the Baker Hughes Rig Count is printed.
As for me, I was having lunch at the Paris France casino in Las Vegas at Mon Ami Gabi, one of the top ten-grossing restaurants in the United States. My usual waiter, Pierre from Bordeaux, took care of me with his typical ebullient way, graciously letting me practice my rusty French.
As I finished an excellent, but calorie packed breakfast (eggs Benedict, caramelized bacon, hash browns, and a café au lait), I noticed an elderly couple sitting at the table next to me. Easily in their 80s, they were dressed to the nines and out on the town.
I told them I wanted to be like them when I grew up.
Then I asked when they first went to Paris, expecting a date sometime after WWII. The gentleman responded, “Seven years ago.”
And what brought them to France?
“My father is buried there. He’s at the American Military Cemetery at Colleville-sur-Mer along with 9,386 other Americans. He died on Omaha Beach on D-Day. I went for the D-Day 70th anniversary.” He also mentioned that he never met his dad, as he was killed in action weeks after he was born.
I reeled with the possibilities. First, I mentioned that I participated in the 40-year D-Day anniversary with my uncle, Medal of Honor winner Mitchell Paige, and met with President Ronald Reagan.
We joined the RAF fly-past in my own private plane and flew low over the invasion beaches at 200 feet, spotting the remaining bunkers and the rusted-out remains of the once floating pier. Pont du Hoc is a sight to behold from above, pockmarked with shell craters like the moon. When we landed at a nearby airport, I taxied over railroad tracks that were the launch site for the German V1 “buzzbomb” rockets.
D-Day was a close-run thing and was nearly lost. Only the determination of individual American soldiers saved the day. The US Navy helped too, bringing destroyers right to the shoreline to pummel the German defenses with their five-inch guns. Eventually, battleships working in concert with very lightweight Stinson L5 spotter planes made sure that anything the Germans brought to within 20 miles of the coast was destroyed.
Then the gentleman noticed the gold Marine Corps pin on my lapel and volunteered that he had been with the Third Marine Division in Vietnam. I replied that my father had been with the Third Marine Division during WWII at Bougainville and Guadalcanal and that I had been with the Third Marine Air Wing during Desert Storm.
I also informed him that I had led an expedition to Guadalcanal two years ago looking for some of the 400 Marines still missing in action. We found 30 dog tags and sent them to the Marine Historical Division at Quantico, Virginia for tracing. I proudly showed them my pictures.
When the stories came back it, turned out that many survivors were children now in their 80s who had never met their fathers because they were killed in action on Guadalcanal.
Small world.
I didn’t want to infringe any further on their fine morning out, so I excused myself. He said Semper Fi, the Marine Corps motto, thanked me for my service, and gave me a fist pump and a smile. I responded in kind and made my way home.
Oh and say “Hi” when you visit Mon Ami Gabi. Tell Pierre that John Thomas sent you and give him a big tip. It’s not easy for a Frenchman to cater to all these loud Americans.
Third Marine Air Wing
The D-Day Couple
The American Military Cemetery at Colleville-sur-Mer
Stay Healthy,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
“Over the long term, all of the fiat currencies of the world are involved in a competitive devaluation. The structural stresses in most of the western economies are such that central banks will attempt to continue to substitute liquidity for solvency,” said Rick Rule, director, president and CEO of Sprott U.S. Holdings, a precious metals specialist.
(AAPL), (GOOGL), (PYPL), (SQ), (SHOP)
Remember when cash was king? Well, the monarchy's been overthrown by a bunch of ones and zeros.
Whether we like it or not, the digital wallet revolution isn't just coming—it's already here, and it's moving faster than a high-frequency trading algorithm. Back when I started in this business, we thought electronic trading was cutting edge.
Now? We're watching cash disappear faster than free drinks at a Wall Street Christmas party.
Let me throw some numbers at you to give more context. In 2022, digital wallets grabbed 53% of global e-commerce transaction value, up from 49% in 2021. And by 2026? They're projected to dominate 60% of global e-commerce transactions.
It's a shift as dramatic as the rise of derivatives in the '80s, only this time, the asset is pure data.
Now, if you think this digital wave is hitting every shore equally, you'd be mistaken. The Asia-Pacific region, always ahead of the curve (remember when I told you about Deng Xiaoping's economic reforms?), is surfing this wave like a pro, with digital wallets handling 69% of e-commerce transactions. North America? Well, they're still fumbling with their leather billfolds at 37%.
Consumer behavior is also shifting faster than anticipated. A recent study found 65% of consumers are storing their payment info with merchants they frequent. It's convenient, sure, but it's also changing the game entirely.
By 2025, we're looking at over 125 million Americans using proximity mobile payments, up from 101.2 million in 2021. That's a trend you can't ignore.
Next, let’s talk about the future. The global digital payments market is set to explode from $96.19 billion in 2023 to a staggering $254.83 billion by 2028. That's a CAGR of 21.5%, and when you throw AI into this mix? It's like adding rocket fuel to an already blazing fire.
The AI in fintech market is projected to surge from $11.7 billion to $61.3 billion between 2023 and 2030, with a CAGR of 26.7%. The last time I saw numbers like these, I was looking at tech stocks in the late '90s.
In fact, AI in finance is becoming as crucial as Bloomberg terminals. A whopping 83% of financial services firms are already leveraging AI.
But what about the average Joe and Jane? Are they ready to trust their hard-earned cash to a bunch of algorithms? You bet your bottom dollar they are.
Actually, 75% of consumers trust AI to handle financial services tasks. Even more surprisingly, 64% believe AI can make better decisions about their finances than they can.
It's like we're outsourcing our financial common sense to machines, and we're doing it gladly.
Now, let’s zoom in on the players who are making this happen. First up is Apple (AAPL). Apple Pay has turned into this unstoppable colossal force, with 640 million users to date. If this trend continues, then over 25% of consumers globally will use Apple Pay by 2030.
Looking at their technology, Apple's Neural Engine in iPhone chips is driving their AI push, with patents like the "Intelligent automated assistant in a messaging environment" setting the stage for a smarter, more personalized Apple Pay.
With AI in the mix, Apple Pay could soon be offering financial advice as personalized as having Warren Buffett on speed dial.
Google (GOOGL) might not match Apple’s numbers, but with around 150 million users across 42 countries, it’s certainly holding its own.
In 2022, Google took a significant step forward by integrating Google Pay with Gmail, making it easier for users to track expenses and split bills directly from their inbox. This move highlights Google’s real strength: its ecosystem.
By seamlessly connecting your wallet to your email, calendar, maps, and search history, Google has turned its vast digital network into a powerful tool. And with $31.6 billion invested in R&D in 2021, Google isn’t just keeping pace with the future—it’s actively shaping it.
PayPal (PYPL) is another heavyweight in the digital wallet arena. With 431 million active accounts worldwide as of Q2 2023, PayPal is leveraging AI to enhance customer service and personalize user experiences.
Venmo, PayPal’s cooler, younger sibling, has over 70 million users and saw a 44% year-over-year growth in payment volume in Q1 2023.
Block (SQ), formerly Square, is the wild card here. Its Cash App has more than 44 million monthly active users. Block’s deep dive into crypto is paying off — Cash App generated $2.4 billion in revenue in Q2 2023, with Bitcoin transactions making up over 40% of that.
The company’s acquisition of AI company Dessa in 2020 signals they’re serious about integrating AI into their services. It’s like they’re building a financial Terminator, minus the whole apocalypse thing.
Meanwhile, Shopify (SHOP) is approaching the digital wallet space from a unique angle, leveraging its e-commerce dominance. Think about it: there are over 2 million websites across 175 countries, all powered by Shopify.
In 2022, these digital storefronts pushed $200 billion in Gross Merchandise Volume through the pipes. That's no chump change.
But here's where it gets even more interesting. In 2023, Shopify threw $100 million at a conversational AI company called Attentive. Why? Because they're not content with just processing payments. No, they're aiming to turn Shop Pay into the Einstein of e-commerce.
We're talking about AI so smart, it'll know what you want to buy before you do.
This isn't just about making shopping easier. It's about creating an experience so personalized, you'll feel like every online store is your own personal boutique.
And let me tell you, when that happens, that $200 billion GMV figure? It's going to look like pocket change.
As you can see, the digital wallet revolution isn't some distant possibility — it's happening right now. From Apple's dominance to Google's ecosystem integration, from PayPal's AI chatbots to Block's crypto innovations, the financial landscape is being reshaped right before our very eyes.
So, the question isn’t if digital wallets will change finance—they already have.
The real question is: how will you position yourself in this new financial order? Are you ready to bend the knee to the new king? Or better yet, are you prepared to claim your stake in this digital gold rush?
Mad Hedge Technology Letter
September 6, 2024
Fiat Lux
Featured Trade:
(BROADCOM A LONG-TERM WINNER)
(AI), (NVDA), (AVGO),
The chip trade isn’t in the dumps, but traders are taking a fine tooth comb to earnings guidance to see if the numbers are stacking up with the hype.
Today we got yet another data point that suggests chip stocks are great, but they aren’t living up to the lofty expectations of growth that tech companies are used to.
In short, they are too expensive and investors want a cheaper multiple for chip stocks right here and now.
So be prepared for a little bit of a selloff in the immediate short term.
One of the best second-tier chip stocks and one of Apple's biggest customers gave us a glimpse into operations behind the scenes at one of Silicon Valley’s robust silicon makers.
Broadcom (AVGO) delivered a disappointing sales forecast, hurt by the parts of its business that aren’t tied to artificial intelligence.
The company projected sales of roughly $14 billion in the fourth quarter while they expect $12 billion of revenue from AI-related products for the full year, beating the average estimate of $11.8 billion.
The forecast showed that Broadcom’s non-AI operations are growing more slowly than anticipated. Though the company has benefited from a surge in artificial intelligence spending, not all of its wide-ranging divisions are significantly profiting.
The AI spending boom has turned Broadcom’s rival Nvidia (NVDA) into the richest, most valuable company in the industry. Nvidia sells so-called AI accelerators that help develop tools such as ChatGPT. Broadcom has benefited as well by supplying related components and software.
Datacenter providers rely on Broadcom’s custom-chip design and networking semiconductors to build their AI systems. The company also sells components for cars, smartphones, and internet access gear. Its push into software, meanwhile, includes products for mainframe computers, cybersecurity, and data center optimization.
Over the long term, the AVGOs CEO believes that the AI chip market will move to custom, in-house designs. That would mean shifting away from Nvidia components — a change that could benefit Broadcom since it helps customers produce their chips.
Apple is a top customer as well: Broadcom provides key components for the iPhone.
Chip stocks were hovering at an all-time high just a few weeks ago.
The scandal that spurred a selloff in chips was the accounting issues at SuperMicro.
The initial event opened up a can of worms and signaled to traders to take profits while conditions were still favorable.
Now chip stocks are telling traders that they cannot keep up with the high expectations and investors will need to taper back the whole idea that AI is about to overtake the world.
Even if AVGOs AI business is doing exceptionally well, they have a legacy business that is bringing up the rear and could be a drag on the overall business for years to come.
AVGO is still a stalwart in the chip business with interests in the right verticals and I do believe it is still a long-term buy especially considering they still haven’t successfully integrated VMware.
(INVESTORS ARE PAYING ATTENTION TO CHINA’S EV INDUSTRY)
September 6, 2024
Hello everyone
Xpeng (XPEV) to launch new models later this year.
Chinese EV maker, Xpeng could see a significant move by the end of the year as two new key EV models are being unveiled in the fourth quarter of this year.
JP Morgan has upgraded the China-based electric vehicle maker from overweight to neutral. It also increased its price target for U.S.-listed shares to $11.50 from $8 per share. From Wednesday’s close that implies a 36% upside.
The demand for EV’s globally has cooled in 2024. Consumers have obviously rebelled against the EV adoption marketing slogans & EV technology and have instead dug in their heels…sticking closely to their traditional gas-guzzling machines.
Demand in China for EV’s has been much higher compared to the U.S. The rollout of its Mona M03 and P7 plus sedans could nearly double the company’s overall vehicle delivery from the third to the fourth quarter.
At a starting price of $US16,812.00, the Mon M03 is directed at the lower to middle-income earner.
Looking into 2025, the current estimate is that sales volume can top 300k units thanks to more new models, which is a big jump from 180k in 2024.
Shares could see growth on the heels of the new vehicles. When Xpeng launched its G6 sports utility vehicle in 2023, the stock advanced roughly 30%.
Weekly (XPEV) chart
The Mona M03
I recommended (XPEV) on March 15 this year when it was $10.05. If you bought some shares at that time and are still holding – well done for showing patience.
For those that don’t own the shares, you can either watch the action in the shares from the sidelines or buy a small parcel of the stock over the next month.
You can see from the chart above that the stock has moved sideways since the beginning of year, which could be a precursor to a breakout rally.
China appears to enjoy a solid position in the EV industry. The country is now the world’s largest exporter of cars, having surpassed Germany and is even now outpacing Japan. By destination, the EU holds the majority share, accounting for 47% of China’s EV exports in value last year; exports to Thailand, the Philippines, and India have also proved strong. In a strong contrast, exports to the U.S. fell 32% year over year in January – October, curbed by high taxes and U.S. restrictions. China’s automakers pay a 27.5% import duty to send vehicles to the U.S. compared with just 10% on cars sent to the EU.
SOMETHING TO THINK ABOUT
Have a wonderful weekend.
Cheers
Jacquie
Global Market Comments
September 6, 2024
Fiat Lux
Featured Trade:
(ANOTHER CRYPTO VICTIM BITES THE DUST)
I have been warning readers for years about the dangers inherent in crypto investment. Even if you get the direction right, there is a high probability that your platform will steal your money, or someone pretending to be your platform.
Below is the story of a long-time reader that I only just learned about.
“Here is the meat of what happened. I had a lady who assisted me in setting all of this up. Here is my Vault info. I would bring up the vault, then click on “discover.” The vault was only and always accessed through my Apple iPad. The vault was an app called Trust Wallet. She helped me set it up. After clicking on it, I would click on Discover, and enter https://www.eutrandvs.com.
I used a different address for the first few months and then it would not work and she said it was a security issue with my network. The address of the site came up a network, eugeqrxd.top. My platform password, which I never gave to her, was 121976. Then that would take me to the vault. My account now shows US$ 982,569.958.
I put more than that in, close to $1 million. My computer guy who recommended me to the site said it was an invalid site and was really a website posing as a vault. That was when I got nervous as hell.
I tried to move all of my original funds out, and they just disappeared into the ozone, and my lady and customer service said it was hacked on the way to Coinbase because my network was insecure. This was the same network that I had moved all those funds to the vault. At the top of the game, I had about a million in my funds and about a million in "profits".
So, I told my lady I wanted her to move the funds at one time to Coinbase. It stayed, unmoved in the vault for 24 hours. Then customer service told me they could not move it out without me first paying 30% federal income tax, not to the IRS, but to an address that they would supply, then they would move it for me to Coinbase. They said since the vault was secret with no names, this was the only way they could be sure that taxes owed would be paid, which I knew was BS.
Any assistance you can suggest, I would run with. My hacker person says he can get the money, but, if it is in the USA, he has to have a subpoena from the Secret Service, and then he turns the money over to them, and then they eventually give it back to me. If it is out of the country, he can get it without them, but, he seems to think this is an ongoing scam, and there is always money there.
We shall see. I will let you know how things proceed. The Secret Service is the roadblock now. They just do not respond, even when I have names of the agents that supposedly work with crypto crimes.
If it keeps someone else from going through what I did and have been through, sure. If it looks too good to be true, it probably is, no matter what.
The biggest problem is getting the Secret Service to respond. Why they were ever put in charge of crypto crime is beyond me, and I was told if the victim does not lose at least one million dollars, they won't even respond to the claim, which I believe must be true.”
The lesson of all this? Avoid crypto at all lists unless you want to see your money disappear into the ozone.
“There is no sign of a recession anywhere,” a major bank economist told me in September 2007.
