October 2024

October 10, 2024

WHERE TO ADD WEIGHT IN THE STOCKMARKET – SPECIAL ISSUE

OCTOBER 10, 2024

Hello everyone

I’m often asked where I should be adding weight in my stock portfolio.

In August, when we had that meltdown due to Bank of Japan raising rates, I suggested adding weight to Nvidia (NVDA) and Amazon (AMZN). Congrats to those that took the advice.

I put this list together yesterday, so you could position yourself well before the stock run into year end.

This is a Special Issue as I usually don’t publish on a Thursday.

Here’s what I think -

Once we get the U.S. election out of the road, the stock market can push all the uncertainty to one side.

(Even the conflict in the Middle East is not deterring the market thus far).

From that position, the market should become less volatile and power ahead on all cylinders.

Here’s what I suggest –

Add weight to all interest rate plays, as there should be more rate cuts in the short to medium term.

Additionally, add weight to those sectors/stocks that are China related. It is more than likely that China will continue to stimulate its economy. Xi- Jinping is very anti-capitalist, which has kept the economy, and the Chinese market subdued and stale, to say the least.

Emerging Markets – a play on falling interest rates

(EEM) iShares MSCI Emerging Markets ETF

Banks

(GS) Goldman Sachs

(JPM) JPMorgan

(If you don’t own any banks, either of these stocks is a great buy)

In a falling interest rate economy, which is good for business, there will be a rising demand for loans.

Utilities

(DUK) Duke Energy

(NEE)NextEra Energy

(VST) Vistra Energy Corp.

(XLU) Utilities Select Sector SPDR Fund

The AI revolution will need support from energy infrastructure, so utilities will be a growth sector going forward.

Home Builders

(DHI) DR Horton

(LEN) Lennar

(PHM) Pulte Group

(TOL) Toll Brothers

As interest rate cuts are very likely to continue, and costs subsequently decline, home builders should do well.

(If you don’t own any home builder stocks, I would be looking at DR Horton and Lennar)

Energy

(OXY) Occidental Petroleum

(XOM) Exxon Mobil

(PSX) Phillips 66

(CVX) Chevron

Energy is a hedge against inflation as oil & gas prices rise during inflationary periods. Energy stocks are a great way to play rising oil prices.

Consumer Discretionary

(NFLX) Netflix

Profitable streaming service – best in its class

Q3 earnings = October 17

Several analysts, including JP Morgan, believe Netflix can grow revenue in the mid-teens in 2024 & 2025 and low double digits in 2026. Additionally, it could further expand margins and drive multi-year free cash flow growth.

Catalysts = revenue growth from advertising.

Subscriber growth from a paid sharing initiative.

Commodities – China Play

As China is expected to continue to stimulate its economy, (FCX) and (CAT) should continue to see growth. (FCX) is a big play on copper. (But it is uncertain whether the China move has longevity).

(FCX) Freeport McMcMoRan

(CAT) Caterpillar

Healthcare

(XLV) Health Care Select Sector SPDR Fund

Assets over $40.95 billion. The Health Care Select Sector Index includes companies from the following industries: pharmaceuticals; health care providers & services; health care equipment & supplies; biotechnology; life sciences tools & services; and health care technology.

Annual operating expenses for this ETF are 0.09% making it one of the least expensive products in the space.

12-month trailing dividend yield of 1.51%.

This year (XLE) has gained 7.03% and was up about 17.36% in the last one year (as of 03/25/2024).

Holdings: the ETF has heaviest allocation in the Healthcare Sector - about 100% of the portfolio.

Individual Holdings: UnitedHealth Group Inc. (UNH) accounts for about 9.85% of total assets, followed by Eli Lilly (LLY) and Johnson & Johnson (JNJ).

Top 10 holdings account for about 53.88% of total assets under management.

(I have already recommended Johnson & Johnson Another individual stock I would recommend would be Eli Lilly for the long term).

Precious Metals

(GLD) SPDR Gold Shares

(GOLD) Barrick Gold

(SLV) iShares Silver Trust

(WPM) Wheaton Precious Metal

I have been encouraging everyone to buy gold and silver stocks since last year. If you don’t own any of the stocks listed here, start scaling in now. Gold has pulled back, so it is a great time to add weight or scale in. If you own the above, add weight to any or all by scaling. Gold and silver are in a long-term bull trend.

The metals are seen as a safe haven/ insurance against market volatility and geopolitical conflicts. Additionally, falling interest rates will see gold prices rise. Gold is a hedge against inflation.

I introduced the notion of digital gold in the zoom monthly meeting on Sunday afternoon, October 6. Digital gold is like a token – a form of electronic money – that can be exchanged for physical gold. I will do a whole Post about digital gold soon.

Technology

(AMZN) Amazon

In August when the Bank of Japan raised interest rates and the market dropped, I suggested adding weight to both Nvidia and Amazon. I suggest scaling in and adding weight here too.

Amazon’s revenue growth grew by 540% in the last decade, with net income rising to $30-$42 billion in 2023 and projections over the next five years at 4.5x.

Some of the stocks listed above I have already recommended. If you have any of them, you could consider adding weight.

If you don’t own any stocks in a particular sector, I would suggest adding one stock suggested in that sector.

When I say add weight or buy a stock, I mean to scale in. Do not add all your weight at one buy entry. Spread out your entries over a fortnight or a month or so.

Any portfolio should be well diversified. You should have a cash element and some fixed income. You could look at (HYG) and/or (JNK), which are bond ETFs that now offer a good entry point.

Cheers

Jacquie

October 10, 2024

Diary, Newsletter, Summary

Global Market Comments
October 10, 2024
Fiat Lux

Featured Trade:

(PROSHARES ULTRA SILVER ETF LEAPS),
(AGQ)

Proshares Ultra Silver ETF Leaps

Diary, Newsletter

Trade Alert - (AGQ) – BUY

BUY the ProShares Ultra Silver January 2026 $49-$50 out-of-the-money vertical Bull Call spread LEAPS at $0.30 or best

Opening Trade

10-10-2024

expiration date: January 16, 2026

Number of Contracts = 1 contract

There are a few times in your life when bold action and extreme leverage are called for. This is one of those times.

Having 6,000 paid subscribers does have its benefits.

It gives me 6,000 reliable information sources in all 50 states and 135 countries. I pick up a lot of pretty interesting information from this network. It’s like having the “Baker Street Irregulars” on call that Sherlock Holmes frequently relied on.

So today, I learned from one of the largest car importers in the United States that the East and Gulf Coast port strike would knock 0.5% of GDP growth in Q3. Everything from bananas to car parts is trapped at sea.

A few minutes later, I received a call from an analyst in the Southeast US informing me that Hurricane Helene would knock a full 1.0% off of growth.

Add these two events together, and the Fed will read these as a recession that will crush inflation and accelerate the need for interest rate cuts. There is only one possible response to these developments.

You need to run out and buy as much gold (GLD) and silver (SLV) RIGHT NOW!

In addition, the blockbuster Chinese stimulus package will lead to greater savings, and there is only one place people in the Middle Kingdom can save right now, and that is through buying gold.

I am therefore buying the ProShares Ultra Silver (AGQ) January 2026 $49-$50 out-of-the-money vertical Bull Call spread LEAPS at $0.30 or best.

DO NOT USE MARKET ORDERS UNDER ANY CIRCUMSTANCES.

If you don’t do options, buy the stock. My target for (AGQ) in 2025 is $85, up 99%.

This is a bet that ProShares Ultra Silver (AGQ) will not fall below $50.00 by the January 16, 2026 option expiration in 15 months.

To learn more about the company, please click here to visit their website.

Don’t pay more than $0.45 or you’ll be chasing on a risk/reward basis.

Please note that these options are illiquid, and it may take some work to get in or out. Executing these trades is more an art than a science.

Let’s say the ProShares Ultra Silver (AGQ) January 2026 $49-$50 out-of-the-money vertical Bull Call spread LEAPS are showing a bid/offer spread of $0.20-$0.40. Divide your money into five pieces and enter a good-until-cancelled orders for one contract at $0.30, another for $0.32, another for $0.34, another for $0.36, and a final one at $0.38.

Eventually, you will enter a price that gets filled immediately. That is the real price. Then, enter an order for your full position at that real price.

Notice that the day-to-day volatility of LEAPS prices is minuscule, less than 10%, since the time value is so great, and you have a long position simultaneously offset by a short one.

This means that the day-to-day moves in your P&L will be small. It also means you can buy your position over the course of a month, just entering new orders every day. I know this can be tedious but getting screwed by overpaying for a position is even more tedious.

Look at the math below, and you will see that a 16.93% rise in (AGQ) shares, or an 8.47% rise in silver (SLV) over 15 months will generate a 233% profit with this position, such is the wonder of LEAPS. That gives you an implied leverage of 27.51:1 across the $49-$50 space. LEAPS stands for Long-Term Equity Anticipation Securities.

Only use a limit order. DO NOT USE MARKET ORDERS UNDER ANY CIRCUMSTANCES. Just enter a limit order and work it.

Here are the specific trades you need to execute this position:

Buy 1 January 2026 (AGQ) $49.00 calls at………….………$12.00

Sell short 1 January 2026 (SLB) $50.00 calls at….,………$11.70

Net Cost:………………………….………..………….….................$0.30

Potential Profit: $1.00 - $0.30 = $0.70

(1 X 100 X $0.70) = $70 or 233% in 15 months.

To see how to enter this trade in your online platform, please look at the order ticket below, which I pulled off of Interactive Brokers.

If you are uncertain on how to execute an options spread, please watch my training video on “How to Execute a Vertical Bull Call Debit Spread” by clicking here at

https://www.madhedgefundtrader.com/ltt-vbcs/

The best execution can be had by placing your bid for the entire spread in the middle market and waiting for the market to come to you. The difference between the bid and the offer on these deep in-the-money spread trades can be enormous.

Don’t execute the legs individually or you will end up losing much of your profit. Spread pricing can be very volatile on expiration months farther out.

Keep in mind that these are ballpark prices at best. After the alerts go out, prices can be all over the map.

Riding the Tech Wave: Insights from T. Rowe Price's Dominic Rizzo

Mad Hedge AI

The technology sector is a dynamic landscape, constantly evolving and presenting new opportunities and challenges for investors. To navigate this complex terrain, it's essential to have expert guidance. Dominic Rizzo, portfolio manager at T. Rowe Price, recently joined Market Domination to share his insights on how investors can best position themselves within the tech sector. This article summarizes the key takeaways from their discussion, offering valuable perspectives on current trends, valuations, and potential investment strategies.

The Current Tech Landscape: A Mixed Bag

Rizzo begins by acknowledging the mixed performance of the tech sector in recent times. While some segments have shown remarkable growth, others have faced headwinds. He points to the underperformance of the "Magnificent Seven" tech stocks (Meta, Microsoft, Alphabet, Amazon, Apple, Nvidia, and Tesla) relative to the S&P 500 as an example of this divergence. However, he remains optimistic about the long-term prospects of the sector, emphasizing the ongoing innovation and transformative potential of technology.

AI: The Driving Force

Artificial intelligence (AI) is undoubtedly a major focus for tech investors, and Rizzo believes it will continue to be a significant driver of growth in the coming years. He highlights the increasing return on investment in AI, particularly for hyperscalers like Meta, who are leveraging AI to improve ad targeting and boost revenue growth. Rizzo also expects Apple to benefit from the integration of AI capabilities in its iPhone 16 series, potentially triggering an upgrade cycle.

Beyond the Magnificent Seven

While the Magnificent Seven dominate headlines, Rizzo encourages investors to look beyond these giants and explore opportunities in other areas of the tech sector. He sees potential in:

Semiconductors: Rizzo believes the semiconductor industry is poised for growth, driven by the increasing demand for chips in various applications, including AI, data centers, and automotive.
Cloud Computing: The shift towards cloud computing continues to accelerate, creating opportunities for companies offering cloud infrastructure, software, and services.
Cybersecurity: With the growing threat of cyberattacks, cybersecurity companies are becoming increasingly important, providing essential protection for businesses and individuals.

Valuations and Investment Strategies

Rizzo acknowledges that valuations in the tech sector are not cheap, but he argues that they are still reasonable compared to historical levels. He advises investors to focus on companies with strong fundamentals, sustainable growth prospects, and a clear competitive advantage. He also emphasizes the importance of diversification, recommending a portfolio approach that includes exposure to various segments of the tech sector.

Key Takeaways for Investors

Embrace the AI revolution: AI is transforming the tech landscape, creating opportunities for companies across various segments.
Look beyond the giants: While the Magnificent Seven are important players, don't overlook opportunities in other areas of the tech sector.
Focus on fundamentals: Invest in companies with strong financial performance, sustainable growth potential, and a clear competitive edge.
Diversify your portfolio: Spread your investments across different segments of the tech sector to mitigate risk and capture a broader range of opportunities.
Stay informed: The tech sector is constantly evolving, so it's crucial to stay updated on the latest trends and developments.

In Conclusion

Dominic Rizzo's insights provide valuable guidance for investors seeking to navigate the tech sector. By understanding the current trends, focusing on fundamentals, and diversifying their portfolios, investors can position themselves to capture the long-term growth potential of this dynamic industry.

October 9, 2024

Tech Letter

Mad Hedge Technology Letter
October 9, 2024
Fiat Lux

Featured Trade:

(SQUEEZING COMPETITION)
(GOOGL)

Squeezing Competition

Tech Letter

Regulators are inching closer to Mag 7, and that has major ramifications for the trajectory of tech stocks.

It has been a time coming for tech as they have turned from market darlings to quasi-monopolies.

Look at your daily life, and it is hard to get away from some of these services like Google.

That is why the US Justice Department said in a new court filing that it may break up of Google (GOOGL).

Its anti-competitive practices have made it hard for smaller companies to add to the American economy.

It seems as if Google has benefited too much from its success.

Naturally, Google did not agree.

That makes sense because executives at Google would be crazy to want to break itself up simply because they can extract larger compensation when presiding over the current model.

People like the CEO Sundar Pichai have no incentive to splinter the company into many different divisions.

He simply would get paid less, and he would finally have to compete harder.

The move by DOJ also sends a signal to other tech giants currently facing antitrust cases from DOJ and other Washington regulators as part of a wide-ranging effort by the Biden administration to rein in what it views as anticompetitive behavior across a number of industries.

The case against Google targeting its dominance in search resulted in a landmark decision and concluded Google illegally monopolized the online search engine market and the market for search text advertising.

The judge concluded that Google’s agreements with browser providers and devices powered by Google’s Android operating system stifled rivals from entering and growing within the markets.

Google pays as much as $26 billion per year to maintain its position on mobile devices such as Apple (AAPL) and Samsung smartphones.

The DOJ could also ask the judge to force Google to share the data that it uses to refine its search algorithms with rival browsers and search providers and limit the company's dominance over search text ads.

DOJ suggested the judge should also consider blocking Google from illegally monopolizing related markets, in addition to the search and search text advertising markets.

It may ask the judge to force Google to give websites more ability to "opt out" of "any Google-owned artificial-intelligence product."

Forcing Google to reveal its algorithms would be devastating to the business model.

Everyone would know their secrets, and other big tech could take anything usable and inject it into their own algorithms.

Algorithms are the secret sauce to many tech companies, and it will only become more valuable when infused by AI.

In the medium term, this caps any upside to Google shares.

In the short-term, I could see a bounce back after the bad news is priced in.

In the long term, if standalone divisions of Google’s businesses are created, like the ad and search business, being unshackled from old management could make some of these parts into new growth companies.

The unprofitable parts like Waymo might get terminated.

It would be sink or swim time because management isn’t going to prop up anything wasteful.

It would be good for the tech market as a whole, add more value, and deliver more equal competition, which the Feds are set out to do.

Either way, the breaking up of Google is more like a marathon and not a spring, but tech now has to wake up to existential threats that were never there before.

October 9, 2024 - Quote of the Day

Tech Letter

“Risk comes from not knowing what you're doing.” – Said American Investor Warren Buffett

October 9, 2024

Jacque's Post

(FARMLAND INVESTMENT – A RELATIVELY UNKNOWN OPPORTUNITY)

October 9, 2024

Hello everyone

Spanning many decades in the past, farmland has emerged as a very robust and consistent investment vehicle, outperforming traditional investment options such as the S&P500, real estate, gold, and bonds.

How can that be?

Farmland offers consistent returns

Over the past 30 years or so, farmland has never recorded a negative calendar year.

Let’s delve into some examples here. In the first instance, farmland remained positive during the dot-com bubble, when stocks were down for three consecutive years. Similarly, in 2008, when the S&P500 dropped by 37%, farmland recorded a positive return of 16%. This resilience and consistency make farmland a unique and attractive investment option.

Supply and demand dynamics

The principles of supply and demand go a long way to explain the performance of farmland as an investment. We all know the global population continues to grow on the demand side, leading to an increased need for food. This trend is expected to continue, providing a steady demand for farmland.

On the supply side, as cities expand and populations grow, development often encroaches on farmland, reducing its availability. This phenomenon of urban sprawl has decreased the supply of farmland, further driving up its value.

The combination of increasing demand and decreasing supply creates a healthy investment recipe. It ensures that farmland retains its value and provides consistent returns, making it an attractive investment option.

Farmland - An Underutilized Investment

Despite its impressive performance as an investment, farmland remains relatively unknown in the mainstream financial advisory sector. Many typical advisors have never considered it a viable investment option.

The upfront cost was high, and it was thought that investing required an intimate knowledge of the farming industry. However, that is changing rapidly, with new investment opportunities that greatly reduce these barriers to entry.

Today, all you need to invest in farmland is a bit of extra cash and an investment account. New opportunities are starting to open to the public.

Farmland can be considered as an alternative investment. Farmland produces returns both with rent yields and appreciation in the farmland’s value. So, these investments can work somewhat like dividend stocks or other rental property, with gains from income and capital gains.

Ways to Invest

1/ Owning land directly

If you want to invest in farmland, it’s still possible to own land directly. In this case, you could buy the land outright and rent it to a farmer who would use it for their crops or livestock. So, owning land directly means it would work like an investment property.

The capital needed to buy a farm may be quite significant. For instance, according to the USDA, the average farm size in 2023 was 464 acres. The USDA also reported an average cost of $4,080 per acre in 2023, up from 3,800 the year before. Using these averages, you could expect an average purchase price of $1.89 million for a farm. Naturally, you may be able to get started with less if you can find the right opportunity.

2/ Farmland REITS

Real estate investment trusts (REITS) are not just for office buildings and apartment complexes. REITS can also invest in farmland, and they’re a popular way for investors to enjoy the benefits of real estate investing – that is, enjoying income – without the headaches of management.

Investing in REITS makes diversification easier, and they’re much more liquid, and the minimum investment is often much lower. And REITS enjoy no corporate income tax in exchange for distributing 90% of their taxable income to investors as dividends.

Gladstone Land (LAND) and Farmland Partners (FPI) are two of the most prominent farmland REITS.

3/ Agricultural Stocks

One alternative to investing in farmland directly is investing in agriculture stocks. The idea is simple: instead of buying farmland, you buy shares of stock in companies in the agriculture industry.

These agriculture companies might be involved in things like crop production, agricultural equipment manufacturing, fertilizer production, and distribution. Crop producers, for example, make a return on the investment from producing the land, and they may own the land, too, so they can benefit from the potential rise in land prices.

Widely held agricultural stocks include Archer-Daniels-Midland (ADM), Corteva (CTVA), and Scotts Miracle-Gro (SMG)

4/ Farmland Mutual funds and ETFs.

Some investors prefer mutual funds or ETFs because it is often easier than buying stocks in individual agricultural companies.

Notably, farmland mutual funds don’t always invest exclusively in agriculture and often invest in adjacent sectors.

Buying individual stocks gives you a greater level of certainty over where your funds are being invested. This is not always true when you invest in mutual funds.

The Fidelity Agricultural Productivity Fund (FARMX) aims to invest 80% of its assets in agricultural productivity companies, and its largest holding is Deere (DE), the well-known name behind much agricultural machinery.

It is important to note that these funds can come with high fees – so you always need to check these before investing in any fund.

This is an item of interest Post to show you alternative investments. Overall, it is my preference to buy individual stocks where I can rather than funds.

QI CORNER

SOMETHING TO THINK ABOUT

Cheers

Jacquie

October 9, 2024

Diary, Newsletter, Summary

Global Market Comments
October 9, 2024
Fiat Lux

Featured Trade:

(THE MAD HEDGE SEPTEMBER 17-19 SUMMIT REPLAYS ARE UP),
(SCHLUMBERGER LEAPS),
(SLB)

Schlumberger LEAPS

Diary, Newsletter

Trade Alert - (SLB) – BUY

BUY the Schlumberger (SLB) January 2026 $47.50-$50 out-of-the-money vertical Bull Call spread LEAPS at $0.90 or best

Opening Trade

10-9-2024

expiration date: January 16, 2026

Number of Contracts = 1 contract

China certainly brought out a big bazooka with its massive stimulus package last week. If this one proves inadequate, they can bring out many more. Government agencies have also promised to invest $1 billion into Chinese stock markets. China is no longer the poor country I knew 50 years ago. For a start, they own $869 billion worth of US Treasury bonds.

And what is the best leverage China plays out there?

Oil.

It just so happens that energy is virtually the only cheap sector in the stock market and the worst stock market performer of 2024.

Oil consumption in China amounted to 16.6 million barrels per day in 2023, up from 15 million barrels daily in the prior year. That is 17.2% of the 96.4 million barrels in global oil production last year. Between 1990 and 2023, figures increased by more than 14 million barrels per day, up from 1 million barrels a day.

It has been China’s lagging economy that has dragged down the price of West Texas Intermediate Crude by 31%, from $94 a barrel to $65. China has published GDP growth figures this year of 5%, but most who know China well believe the real figure is close to zero. Get China back in business, and we could revisit $94 in no time.

We have just seen a healthy 34% correction in the shares of California-based oil major Schlumberger (SLB), and I am starting to salivate.

If you don’t do options, buy the stock. My target for (SLB) in 2025 is $65, up 20.3%.

I am therefore buying the Schlumberger (SLB) January 2026 $47.50-$50 out-of-the-money vertical Bull Call spread LEAPS at $0.90 or best

DO NOT USE MARKET ORDERS UNDER ANY CIRCUMSTANCES.

Simply enter your limit order, wait five minutes, and if you don’t get done, cancel your order and increase your bid by 10 cents with a second order.

This is a bet that Schlumberger (SLB) will not fall below $50.00 by the January 16, 2026 option expiration in 15 months.

To learn more about the company, please visit their website at https://www.slb.com

Don’t pay more than $1.30 or you’ll be chasing on a risk/reward basis.

Please note that these options are illiquid, and it may take some work to get in or out. Executing these trades is more an art than a science.

Let’s say the Schlumberger (SLB) January 2026 $47.50-$50 out-of-the-money vertical Bull Call spread LEAPS at $0.90 are showing a bid/offer spread of $0.90-$1.50. Enter a good-until-cancelled order for one contract at $0.90, another for $1.00, another for $1.10, another for $1.20, and so on. Eventually, you will enter a price that gets filled immediately. That is the real price. Then, enter an order for your full position at that real price.

Notice that the day-to-day volatility of LEAPS prices is minuscule, less than 10%, since the time value is so great, and you have a long position simultaneously offset by a short one.

This means that the day-to-day moves in your P&L will be small. It also means you can buy your position over the course of a month just entering new orders every day. I know this can be tedious but getting screwed by overpaying for a position is even more tedious.

Look at the math below, and you will see that a 13.79% rise in (SLB) shares over 15 months will generate a 177% profit with this position, such is the wonder of LEAPS. That gives you an implied leverage of 12.84:1 Across the $47.50-$50 space. LEAPS stands for Long Term Equity Anticipation Securities.

(SLB) doesn’t even have to get to a new all-time high to make the max profit. It only has to get back to $50.00, where it traded in July.

Here are the specific trades you need to execute this position:

Buy 1 January 2026 (SLB) $47.50 calls at………….………$5.60

Sell short 1 January 2026 (SLB) $50.00 calls at…………$4.70

Net Cost:………………………….………..………….…..............$0.90

Potential Profit: $2.50 - $0.90 = $1.60

(1 X 100 X $1.60) = $160 or 177% in 15 months.

To see how to enter this trade in your online platform, please look at the order ticket below, which I pulled from Interactive Brokers.

If you are uncertain on how to execute an options spread, please watch my training video on “How to Execute a Vertical Bull Call Debit Spread” by clicking here at

https://www.madhedgefundtrader.com/ltt-vbcs/

The best execution can be had by placing your bid for the entire spread in the middle market and waiting for the market to come to you. The difference between the bid and the offer on these deep in-the-money spread trades can be enormous.

Don’t execute the legs individually or you will end up losing much of your profit. Spread pricing can be very volatile on expiration months farther out.

Keep in mind that these are ballpark prices at best. After the alerts go out, prices can be all over the map.