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
Mad Hedge Technology Letter
January 15, 2025
Fiat Lux
Featured Trade:
(TIKTOK COULD GET BANNED)
(CHINA), (TSLA)
Mad Hedge Technology Letter
January 15, 2025
Fiat Lux
Featured Trade:
(TIKTOK COULD GET BANNED)
(CHINA), (TSLA)
I must admit that in 2025, the velocity of change to technology, human communication, business, politics, and society has gone from breakneck speed to lightning speed.
The type of speed is unsettling to many who aren’t willing to bend their lives and every twist and turn. That type of adaptability and awareness is hard to find in many people.
What is this about?
The Chinese are suddenly considering selling social media app TikTok to Elon Musk and the app is also facing a Sunday blanket ban in the United States.
Yes, the very Elon Musk who has successfully sold at least 2 or 4 Teslas to every coastal Democrat then only to become their arch-enemy number 1 after those purchases.
If Musk gets his grubby little fingers on TikTok, he will possess a de-facto media monopoly on the whole world.
X.com is the biggest source of information in the United States, Japan, and many other countries rich or poor.
This acquisition would also madly accelerate the death of legacy media which lost half their audience last year, because of the decrease in content quality.
TikTok is the app that consumers under 30 use, meaning that Musk would now be able to spread his influence even deeper to the younger crowd. None of this cohort even knows what cable TV is or what is on it.
Imagine how many job losses to digital shops on TikTok – perhaps in the 100s of thousands alone if the app gets banned. They are mostly mom-and-pop shops selling small goods and their audience will go to 0 if the app is removed. Think about a college kid selling bouncy balls on this platform - many shops are entirely run on TikTok. This would be another win for the billionaires and a crushing blow to America’s youth.
The Supreme Court could shortly ban TikTok in the United States and the Chinese are debating on whether the least bad option is to sell it to Musk.
Musk already owns and operates the Shanghai Gigafactory.
TikTok’s US operations could be valued at around $80 billion.
Musk paid $44 billion for Twitter in 2022 and is still paying off sizable loans, but in hindsight, the $44 billion price is a huge bargain in 2025 valuation terms.
On a practical level, spinning off TikTok’s US business would be highly complex, affecting shareholders in China as well as the US.
In one of the greatest trades of all time, Musk turned a $250 million investment into the Trump Campaign and applied his leverage on X.com to catapult Tesla’s stock from $600 billion of market cap to $1.3 trillion today.
The almost $700 billion increase in market cap shows no signs of slowing down and if Musk is able to grab TikTok, then watch out, I believe Tesla will be a $2 trillion stock by the summer of 2026.
The German American Venture Capitalist Peter Theil famously said to never bet against Musk no matter what, and those words couldn’t ring truer today.
Buy the dip in any meaningful Tesla weakness and as X.com starts to build clout, I believe Musk will also take his social media platforms public reaping another massive payday in the many billions. Musk owning TikTok would supercharge the asset appreciation in his digital media empire.
(THE BOND MARKET IS SPOOKED BY TRUMP ERA POLICIES)
January 15, 2025
Hello everyone
WHAT IS THE BOND MARKET SAYING?
Fears that the President-elect’s agenda, which has the rally cry “America First”, will reignite inflation and set in motion a wave of economic damage have unsettled bond markets and sent the US dollar sharply higher.
Last Friday, after the sizzling hot jobs report, bond yields spiked, and the US dollar strengthened. But the US is not unique here. A global surge in yields and a significant appreciation of the US dollar in recent months has unsettled investors and policymakers.
The global sell-off of bonds started in mid-September, days ahead of the US Fed’s 50 basis point cut to the federal funds rate. The Fed followed that with a 25-basis point cut in November and another 25-basis in December.
It seems odd, doesn’t it? Yields are rising as central banks like the Fed and the European Central Bank are cutting their policy rates. However, central banks tend to respond to the data in front of them while markets are more forward-looking.
The US jobs report, which showed 100,000 more jobs added in December than forecast, and unemployment falling, could be read as an indicator that the US economy is growing more strongly than investors had anticipated.
However, the longer-term trend, and the fact there has been a rise in yields globally, strongly suggest there are other factors at play here.
The US Treasury bond market tends to lead global bond yields. While some domestic circumstances might help explain movements in other markets, the underlying shift in yields on the longer-dated bonds in recent months appears to have been driven out of the United States.
In that market, the yield on the 10-year bonds has risen from 3.62 percent in mid-September to 4.76 percent, and the yield on the 30-year bonds from 3.93 percent to 4.95 percent. On Friday, the 30-year yield briefly spiked over 5 percent.
In Australia, the 10-year yield has been quite volatile but has trended up from 3.8 percent to 4.55 percent over that period, and the 15-year yield from 4.04 percent to 4.75 percent, even as the economy has essentially been flat-lining.
When the markets made big bets on the re-election of Donald Trump before the November election, share market investors were very bullish but bond investors appeared cautious about the implications for inflation of Trump’s economic agenda.
Now, it seems that bond investors are essentially pacing the floor far more intensely about Trump’s agenda than they were last year. And equity investors are beginning to share the bond investor’s pattern of angst.
Initially, equity investors were delighted about big tax cuts and deregulation, (which ought to mean more growth), but when Trump’s tariffs and his plans for mass deportation of illegal immigrants are factored in, it creates a definite unease about a new and significant outbreak of inflation.
The movement in the longer-term yields can, therefore, be seen as the pricing in of the risks of the Trump agenda. The tariffs on everyone have a global dimension.
Minutes from the December policy meeting show that the Fed has been pricing in the potential impacts of Trump’s trade, immigration, fiscal and regulatory policies.
The Fed’s own projections reflected an expectation in December of at least two more rate cuts this year. Market pricing agreed.
Fast forward a few weeks, and we get the uneasy realization that some US economic analysts are not only talking about just one rate cut but also the potential for rate hikes.
Not something that any of us want to think about.
Higher long-term interest rates and a higher US dollar increase borrowing costs, increase uncertainty, and certainly have a negative impact on emerging market economies, especially low-income countries.
Since September 2024, the US dollar has powered ahead by more than 9 percent against a basket of its major trading partners’ currencies (more than 12 percent against the Australian dollar).
Trump’s anticipated tariffs and the US dollar rally are linked together. When one country imposes tariffs on another, the imposing country’s currency tends to strengthen, and the currency of the country subjected to the tariffs tends to weaken.
So, with that in mind, if Trump’s words are followed by real actions, the dollar ought to strengthen further. I mean, we could be seeing the Euro at 0.9500, and the Aussie below 0.6000. An ever-strengthening dollar besides higher US interest rates rings alarm bells for the global economy, particularly debt-laden emerging economies.
Now, how do you think share markets are going to respond to this?
An attack of the glums would probably hit quite quickly.
Investors who cheered Trump’s tax cuts deregulation and stretched market valuations have been quietly digesting the implications of getting what they wished for:
An over-heated economy.
A massive increase in US government deficits and debt (with a consequent increase in the supply of bonds and another source of pressure for higher interest rates if the market is to absorb them)
A new round of inflation that forces the Fed to respond.
The above does not seem like a recipe for a continuation of last year’s bull market.
Neither would it lend itself to global economic growth and geopolitical stability.
Bonds are speaking; is anyone listening?
The environment is at the red end of risk.
Uncertainty has gripped markets - Trumps’ agenda seems to be entirely at odds with the anticipated economic effects of its implementation.
We will have to wait and see exactly what Trump’s actions are.
QI CORNER
Some suggested nighttime reading for you.
SOMETHING TO THINK ABOUT
Cheers
Jacquie
Global Market Comments
January 15, 2025
Fiat Lux
Featured Trades:
(FRIDAY, JANUARY 31, 2025, SALT LAKE CITY, UTAH STRATEGY LUNCHEON)
(IT’S TIME TO PULL OUT THOSE OLD INFLATION PLAYS OUT OF THE DRAWER),
(GLD), (SLV), (TIPS)
Come join me for the Mad Hedge Fund Trader’s Global Strategy Luncheon, which I will be conducting high in the western desert in Salt Lake City, Utah at the foot of the Rocky Mountains. The event begins at 12:00 noon on Friday, January 31, 2025.
A three-course meal will be provided and an open discussion on the crucial issues facing investors today will take place. The dress is business casual.
I’ll be giving you my up-to-date view on stocks, bonds, foreign currencies, commodities, precious metals, energy, China, and real estate. And to keep you in suspense, I’ll be throwing a few surprises out there too. Tickets are available for $276.
I’ll be arriving early and leaving late in case anyone wants to have a one-on-one discussion, or just sit around and chew the fat about the financial markets.
The event will be held in a private room at a downtown Salt Lake City restaurant, the details of which will be emailed directly to you with your confirmation.
I look forward to meeting you, and thank you for supporting my research.
To purchase tickets for this luncheon, please click here.
Being an old do-it-yourself carpenter, I never throw anything away.
My garage is filled with ancient tools I bought 50 years ago and used only once.
Scraps of wood, odd lengths of wiring, and old coffee cans filled with loose nuts, screws, and nails are everywhere.
You KNOW that if you throw a tool out, you’ll desperately need it the next day.
The same is true of my investment approach. Nothing new ever happens in the financial market, plays that worked in past years just get endlessly recycled.
My inventory of ancient trading strategies includes instruments that were once incredibly profitable (Japanese equity warrant arbitrage?), but haven’t made money in decades.
So I was rooting around my trading toolbox the other day when I found just the ones I needed: inflation plays.
Some of the greatest trades of my half-century-long career in the trenches have been with inflation plays.
Of course, gold during the 1970s was the no-brainer after President Nixon took the US off the gold standard. I started buying in the barbarous relic in the mid-$30s and chased it all the way up to $900.
I made similar fortunes in that other great inflation hedge, residential real estate. Some of the properties I owned then in California have risen 100 times in value, thanks to inflation.
It was with those fond memories in mind that found myself looking for similar inflation plays to execute.
Let me stop right here.
The oldies are still the goodies.
In the next surge of inflation that the new administration is about to unleash, I expect gold to rise from today’s $2,703 an ounce to at least $5,000. After that, look out above!
Silver (SLV) should do double, eventually touching $100 an ounce from today’s $30.83.
Your home will also be a fantastic inflation hedge. Anything you own today should rise in value at least tenfold over the next 20 years.
However, in updating my research, I came across a few new wrinkles that are definitely worthy of your attention.
The big one is TIPS.
TIPS are US Treasury bonds that are indexed to inflation. If inflation rises, the value of your TIPS rises.
Specifically, TIPS are tied to the Consumer Price Index as calculated by the US Department of Labor Bureau of Labor Statistics.
Let me show you how they work.
Let’s say you bought $1,000 worth of TIPS with a 1% coupon. If the CPI comes in at zero, you will receive $10 that year in interest payments.
If the CPI rises 2%, your $1,000 in principal increases to $1,020. Your 1% coupon is then calculated off of this new, higher amount and jumps to $10.20, giving you a total return of $32.10.
Now here is the really fun part.
If the CPI rises to 15%, as it did in 1979, the value of your investment rises by 16.15% to $1,161.50.
Yes, I still have my bell bottoms from those days, although the waist is rather tight.
This explains why many high-net-worth individuals always have a few TIPS parked away in their portfolios, usually stuck in a folder behind the radiator.
TIPS are issued by the U.S. Treasury at recurring auctions as part of the government’s overall funding program.
Currently, the Treasury conducts monthly TIPS auctions: three per year for five-year TIPS, six for 10-year TIPS, and three for 30-year TIPS.
You can buy TIPS directly from the US government and bypass hefty third-party management and brokerage fees.
However, the semi-annual inflation adjustments of a TIPS bond are treated as taxable income by the IRS, even though investors won’t see that money until they sell the bond or it matures.
So it may be wise to buy your TIPS via a mutual fund or ETF or to only hold them in a tax-exempt IRA, 401k, or deferred benefit plan.
TIPS also have the additional benefit in that, like municipal bonds, they are exempt from state and local taxes.
Well-heeled residents of highly taxed California, New York, and Illinois absolutely love them.
Like many government programs, TIPS was first created in 1997 for a problem that didn’t exist: inflation. That year the CPI was only 1.7%.
The highest CPI since then was 3.4% in 2000, the year of the dotcom bubble top. For most of 2016, it hung around 1.6%.
Since the first issuance of tips, the US economy has been steadily battered by something no one predicted: deflation.
Thanks to the onslaughts of hyper-accelerating technology, flat wage growth, and global competition, prices worldwide have been heading ever lower.
For more than two decades, investors in TIPS were shortchanged. They accepted lower yields in return for protection against something that never happened. It was the fire insurance without the fire.
That is, no fire until January this year, when we saw an actual spark.
The CPI for that month came in at 0.6%, which works out to 2.5% annualized, the fastest pace of price appreciation in four years.
The TIPS explanation I have given you so far is the simple one. It gets much more complicated.
Seasoned bond pros have figured out ways to game this market six ways from Sunday using an array of sophisticated algorithms.
This enables them to add “alpha” by outperforming generic TIPS returns with aggressive high-turnover trading strategies.
Bond giant PIMCO and DoubleLine Capital are some of the more ardent practitioners of this approach.
These firms employ both top-down and bottom-up strategies, which can be broken down into the following:
Top-down strategies include:
Bottom-up strategies include:
If all of this gives you a headache and you just want to keep your life simple, you can just buy one of the many TIPS ETFs out there.
PIMCO has the Broad US TIPS Index ETF (TIPZ).
BlackRock has the iShares TIPS Bond ETF (TIP). Barclays has the SPDR 1-10 Year TIPS ETF (TIPX).
The only way these won’t work is if deflation, instead of ending, accelerates.
Artificial intelligence is only just starting to pervade our lives, and the productivity increases and cost savings it promises are enormous.
So is the potential job and wage destruction, the largest component of the CPI calculation.
If that is the case, then the CPI could turn negative, and sharply so. In that scenario, inflation-indexed TIPS will deliver losses instead of the promised gains.
"My experience in business helps me as an investor, and my investment experience makes me a better businessman," said Oracle of Omaha, Warren Buffett.
Mad Hedge Biotech and Healthcare Letter
January 14, 2025
Fiat Lux
Featured Trade:
(THE HEAVIEST HITTERS)
(NVO), (LLY)
