(SPECIAL ISSUE: TAKING PROFITS AND SLIMMING DOWN OUR PORTFOLIO)
February 4, 2025
Hello everyone
Today, I’m listing stocks I’m recommending you sell. Sell at best price.
If you are reluctant to sell out of the whole stock, then look at selling between 50% - 75% of the stock.
Update on tariffs:China has issued retaliatory tariffs – up to 15% -against the U.S.They are due to take effect on February 10.Next week should be interesting.
Here’s the List of Stocks
1/ Johnson & Johnson (JNJ)
Purchase Date:10/25/23
Purchase Price:$150.00
Sell Date:02/03/25
Sell Price:$151.87
+/- +$ 1.87
+/-% +1.87%
2/ Snowflake (SNOW)
Purchase Date:11/24/23
Purchase Price:$171.33
Sell Date:02/03/25
Sell Price:$182.54
+/- +$ 11.21
+/-% +6.54%
3/Palo Alto Networks (PANW)
Purchase Date:01/06/23
Purchase Price:$315.00
Sell Date:02/03/25
Sell Price:$182.79
+/- -$132.21
+/- % -41.97%
4/ Advanced Micro Devices (AMD):
Purchase Date:01/06/23
Purchase Price:$150.00
Sell Date:02/03/25
Sell Price:$114.27
+/- -$35.73
+/-% - 23.82%
5/ Arista Networks (ANET)
Purchase Date:01/06/24
Purchase Price:$62.00 (Stock split June 6, 2024)
Sell Date:02/03/25
Sell Price:$111.50
+/- +$53.50
+/- % +86.29%
6/ Black Rock (BLK)
Purchase Date:01/08/24
Purchase Price: $782.00
Sell Date: 02/03/25
Sell Price:$1,013.75
+/- +$231.75
+/-% +29.63%
7/ Realty Group (O)
Purchase Date:02/21/24
Purchase Price:$52.00
Sell Date:02/03/25
Sell Price:$54.49
+/- +$2.49
+/- % + 4.78%
8/Prologis (PLD)
Purchase Date:02/21/24
Purchase Price: $134.00
Sell Date: 02/03/25
Sell Price:$117.84
+/- -$16.16
+/- % -12.05%
9/ Caterpillar (CAT)
Purchase Date:04/22/24
Purchase Price:$354.56
Sell Date: 02/03/25
Sell Price:$361.55
+/- +$6.99
+/- % +1.97
10/ Eaton Corporation (ETN)
Purchase Date:04/22/24
Purchase Price: $303.02
Sell Date: 02/03/25
Sell Price: $315.55
+/- +$12.39
+/- % +4.08%
11/ General Motors (GM)
Purchase Date:05/15/24
Purchase Price:$45.03
Sell Date:02/03/25
Sell Price:$47.90
+/- +$2.87
+/- % +6.37%
12/ Apple (AAPL)
Purchase Date: 11/24/23
Purchase Price:$190.00
Sell Date: 02/04/25
Sell Price:$228.01
+/- +$38.01
+/- % +20%
13/ Microsoft (MSFT)
Purchase Date:01/05/24
Purchase Price:$372.00
Sell Date:02/03/25
Sell Price:$410.92
+/- +$38.92
+/-% +10.46%
14/ iShares Biotechnology ETF (IBB)
Purchase Date:01/31/24
Purchase Price:$137.49
Sell Date:02/03/25
Sell Price:$137.85
+/- +$0.36
+/- % +0.26%
15/ SPDR S&P Biotech ETF (XBI)
Purchase Date:01/31/24
Purchase Price:$90.80
Sell Date:02/03/25
Sell Price:$91.42
+/- +$0.62
+/- % +0.28%
Percentage gain/loss = + 94.69%
Dollar gain/loss = + $211.86 (if you had bought one stock/share of each of the above)
Now that you know how to make money in the market, I’m going to teach you how to hang on to it. There is no point in booking winning trades only to lose money by making careless beginner’s mistakes. So today, I am going to talk about risk control.
The first goal of risk control is to conserve whatever capital you have. I tell people that I am too old to start over again as a junior trader at Morgan Stanley if I lose all my money. With my attitude, nobody would hire me anyway. So, I’m pretty careful when it comes to risk control.
The art of risk control is to make sure your portfolio is profitable, no matter what happens to the market. You want to be a winner, whether the market goes up, down, or sideways. This is what I do.
Remember, we are not trying to beat an index here. Our goal is to make actual dollars at all times, to keep the P&L chart always moving from the lower left to the upper right. You can’t eat relative performance, nor can you use it to pay your bills.
The second goal of a portfolio manager is to make your portfolio bomb-proof. You never know when a flock of black swans is about to alight on the market, or a geopolitical shock comes out of the blue causing markets to crash.
The biggest mistake I see beginning traders make is that they are in too much of a hurry to get rich. As a result, they make too much money too soon. I can’t tell you how many times I have heard of first-time traders losing all their money on their first trade, well before they got a handle on the basics.
I’m usually right 80% to 90% of the time (this year it’s 95%). That means I’m wrong 10% to 20% of the time. If you bet the ranch on one of my losing trades, you’ll get taken to the cleaners. Never bet the ranch.
If you do, you are turning a calculated list into random risk, or throwing darts at a dartboard and hoping for the best. It is akin to buying a lottery ticket. I often tell clients they have gambling addictions. Make sure you’re not one of them. You can’t trade yourself back from zero with no money.
If you can master the skills I'm teaching you, you can make a living at this FOREVER! So, what’s the hurry? As my old trading mentor used to tell me, the late Barton Biggs of Morgan Stanley, “Invest in haste, repent in leisure,” a time-tested nostrum that is always true in this business.
I recommend that you use NO real money on your first few trades. Start with paper trading only. All of the online trading platforms offer wonderful tools that allow you to practice trading before you try the real thing. If you lose in their “pretend money”, no harm, no foul. They don’t want you to go broke either. Broke customers don’t pay commissions. They also sue.
The more time you spend learning to trade, the more money you will get out of it. Remember, work in, money out. Spend at least an hour or two getting to know your own trading platform well.
Once you start trading will real money it will become a totally different experience. Your heart rate steps up. Your hands get sweaty. You start checking your watch. It’s a lot like going into combat. In fact, combat veterans make great traders, which is why the military recruits so actively from the military. I think all these instincts trace back to our Neanderthal days when our main concern was being chased by a saber-toothed tiger.
The time to learn a trading discipline is NOW. All of a sudden, your opinions, your ego, and your savings are on the line. It’s crucial for you to always start small when using real money.
That way, making a beginner’s mistake, like confusing “BUY” and “SELL” (I see it every day) will only cost you a cup of coffee at Starbucks, and not your kid's college education, your house, or your retirement. It won’t take long for you to grow from one contract to thousands, as I have done myself for many years.
It’s all about finding your comfort level and risk tolerance. You never want to have a position that is so large that you can’t sleep at night, or worse, call me in the middle of the night and ask what to do with it. My answer is always the same. Cut your position in half. If you still can’t sleep, cut it in half again.
I make a bold prediction here. The more experience you gain, the faster your risk tolerance goes up.
I’ll give you one more piece of advice. Take your broker's technical support phone number and paste it to the top of your computer monitor. You don’t want to go look for it when you can’t figure out how to get out of a position, or your platform breaks. These are machines. It happens. As they teach in flight school, it’s not a matter of if but when a machine breaks.
There’s one more thing. When you’re ready to commit real money, don’t forget to take your account off of paper trading. The profits you make there can’t be spent.
Risk management is an important part of the position sheet I update every day.
Take a look below at a past position sheet I sent out during sharply rising markets.
The important thing to look at here is my long/short balance. On the left is the position name and on the right is the position weighting. I usually run 10% positions so I don’t have all my eggs in one basket. Maybe twice a year, I’ll run a 20% position in a single stock, and once a year I’ll have a 30% weighting. Above that, I start to lose sleep.
I have further subdivided the portfolio into “RISK ON” and “RISK OFF.” “RISK ON” means the world is getting better, while “RISK OFF” means the world is getting worse. The long positions have positive numbers, while the short positions have negative ones.
I like to balance “RISK ON” and “RISK OFF” to remove overall market risk from the portfolio. When markets are rising, I turn positive. When markets are falling, I tilt negative. At the bottom, I have my total net exposure. On this particular day, I was running 60% in long and 20% in shorts, for a total net position of 40% long. This is an aggressively bullish portfolio.
When I’m bullish, the net position is positive. When I’m bearish the net position is negative. When I have no strong views, the net position is zero. That way, if nothing happens you still get to rake the money in.
I have no positions at all only a few days a year. I only play when the risk/reward is overwhelmingly in my favor, and sometimes that is just not possible.
One more warning to the wise. There are literally hundreds of gurus out there marketing services promising 100% a year, if not 100% a month, or even 100% a day. They are all fake, created by 20-year-old marketing types who have never worked in the stock market, or even traded. Unfortunately, I work in an industry where almost everyone else is a crook.
I have worked in the markets for more than 50 years and have seen everything. Ray Dalio is the top-performing hedge fund manager in history and he only averages 35% a year.The number of real traders who are right more than 80% of the time you can almost count on one hand. If returns sound too good to be true, they never are.
I want to offer special caution about naked put shorting strategies which are promoted by 90% of these letters. This is where a trader sells short a put position without any accompanying hedge, hence the word “naked.” This is an unlimited-risk position.
You might take in a $1 premium with this approach, but if the market turns against you, and implied volatilities go through the roof, your losses could balloon exponentially to $100 or more, wiping you out. The newsletters recommending these have absolutely no idea when or if this is going to happen.
I call this the “picking up the pennies in front of the steamroller strategy.” No professional trader worth his salt will put money into it. It is banned by most investing institutions. And only a few brokers will still let you do this, and then only with 100% margin requirements, because when losses exceed 100% of capital, they’re left carrying the bag.
Many of those strategies you see being hawked online look great on paper but can’t actually be executed. In other words, you just paid thousands of dollars for a service that is utterly useless. Sounds like a “No Go” to me.
Stop losses are an important part of any trading strategy.No one is right 100% of the time. If they claim so they are lying. The best way to avoid a big loss is to take a small one.
There are many possible places to use stop losses. I use 2% of my total capital. If I start to lose more than that I am out of there. It’s easy for me to do this because 90% of the time the next trade will be a winner and I’ll make back all the money I just lost.
Others use a 10% decline in the underlying stock as a good arbitrary point to limit losses. Others rely on Fibonacci levels (I’ll get to him later). Many traders rely on key moving averages, like the 50-day or the 200-day.
The problem with this is that high-frequency traders have access to the same charting data as you do. They’ll program their algorithms to quickly take a stock through your stop loss level, buy your stock for cheap, and then take it right back up again to book a quick profit. You are left with a “SELL” confirmation in your inbox and no position in a rising market. No wonder people think Wall Street is rigged.
Another concept is the “trailing stop”. That’s when after an initial rise, you place a stop-loss order at your cost. That way you CAN’T lose money. This is known as “playing with the house's money.” This approach has one shortfall. You can’t place stop losses in the options market that are executed automatically. The same is true for options spreads.
In this case, you use what is known as a “pocket stop loss” where you set your mental level on when to get out. Also, these are not automatic, they do establish a trading discipline. Caution: You can’t execute a pock-stop loss when you’re playing gold or on a one-week cruise in the Caribbean.
So, there you have it. By managing your risk prudently, you can tip the risk/reward balance in your favor.
I hope this helps.
https://www.madhedgefundtrader.com/wp-content/uploads/2018/01/john-truckee.jpg316352Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2025-02-04 09:02:202025-02-20 12:38:49Learning the Art of Risk Control
The insurance industry is undergoing a seismic shift as artificial intelligence (AI) transforms the way insurers assess and manage risks associated with properties, particularly those vulnerable to natural disasters, climate change, and other hazards. From predictive analytics to real-time monitoring, AI is enabling insurers to make faster, more accurate, and data-driven decisions, helping them navigate an increasingly complex risk landscape.
The Growing Need for Advanced Risk Assessment
Climate Change and Natural Disasters
Climate change is driving a surge in the frequency and severity of natural disasters, including hurricanes, wildfires, floods, and earthquakes. According to the National Oceanic and Atmospheric Administration (NOAA), the number of billion-dollar weather and climate disasters in the U.S. has risen dramatically over the past few decades. This trend is global, leaving insurers grappling with higher claims and greater financial exposure.
Traditional risk assessment methods, which rely heavily on historical data, are struggling to keep pace with these evolving risks. AI, however, offers a solution by analyzing vast amounts of real-time data and identifying patterns that traditional methods might miss.
Urbanization and Property Density
Urbanization is compounding the problem, with more properties being built in disaster-prone areas. Coastal cities, for instance, face heightened risks from hurricanes and rising sea levels. The increasing density of properties in these regions means that a single catastrophic event can result in massive losses for insurers.
AI is helping insurers better understand these risks by integrating data from satellite imagery, weather forecasts, and building codes. This allows for more informed underwriting and pricing decisions, ensuring that insurers can manage their exposure effectively.
Regulatory and Consumer Pressures
Regulators and consumers are demanding greater transparency and accuracy in risk assessment. Insurers are under pressure to offer affordable yet comprehensive policies while maintaining financial stability to pay out claims. AI is helping insurers meet these demands by providing more precise risk assessments, enabling better pricing and underwriting decisions, and ensuring compliance with regulatory requirements.
How AI is Transforming Risk Assessment
Data Collection and Integration
AI excels at collecting and integrating data from diverse sources, including:
Satellite Imagery: AI analyzes satellite images to assess property conditions, identify hazards, and monitor changes over time, such as erosion or deforestation.
Weather Data: Real-time weather data from satellites, IoT devices, and weather stations helps insurers predict extreme weather events and their potential impact.
Social Media and News Feeds: AI scans social media and news articles to identify emerging risks like wildfires or civil unrest.
Building and Infrastructure Data: AI evaluates building materials, construction methods, and infrastructure to assess vulnerability to hazards.
Historical Claims Data: AI identifies patterns in past claims to predict future risks.
By integrating these data sources, AI provides a comprehensive and accurate risk assessment for each property.
Predictive Analytics
Predictive analytics is one of AI's most powerful tools. By analyzing historical data, AI can forecast the likelihood of future events and their potential impact. For example, AI can predict hurricane landfalls and estimate property damage based on factors like wind speed, storm surge, and building resilience. This allows insurers to adjust premiums, recommend mitigation measures, and prepare for potential claims.
AI is also being used to assess long-term climate risks, such as rising sea levels and changing precipitation patterns, helping insurers plan for future challenges.
Machine Learning and Risk Modeling
Machine learning algorithms analyze large datasets to identify complex relationships between variables, enabling the development of sophisticated risk models. These models consider factors like geographic location, building characteristics, and environmental conditions, and are continuously updated with new data.
For example, machine learning can identify properties at higher risk of water damage due to flooding or plumbing issues, allowing insurers to adjust premiums or recommend specific mitigation measures.
Real-Time Monitoring and Alerts
AI enables real-time monitoring of properties through IoT sensors that track conditions like temperature, humidity, and water levels. If a sensor detects a potential hazard, such as a sudden increase in water levels, the system can alert both the insurer and the property owner.
AI also assesses the impact of natural disasters as they unfold by analyzing data from social media, news feeds, and satellite imagery. This helps insurers prioritize claims and allocate resources more effectively.
Automated Underwriting and Pricing
AI automates underwriting and pricing by analyzing property data to determine appropriate premiums and coverage. It can also flag high-risk properties for further review, ensuring that underwriters focus on the most complex cases.
Customer Engagement and Risk Mitigation
AI-powered chatbots provide policyholders with personalized recommendations on reducing risks, such as maintaining properties or installing protective measures. AI also delivers real-time updates on emerging risks, such as approaching wildfires, helping policyholders take proactive steps to protect their properties.
Case Studies: AI in Action
Lemonade: AI-Powered Insurance
Lemonade, a tech-driven insurer, uses AI to assess risks and process claims in real-time. Its AI system analyzes property data to determine premiums and coverage, while its chatbot, Maya, engages with customers, answers questions, and even helps file claims.
Zurich Insurance: AI for Flood Risk Assessment
Zurich Insurance has developed an AI-powered flood risk assessment tool that uses satellite imagery, weather data, and machine learning to predict flooding likelihood and potential damage. The tool helps underwriters assess risks and provides policyholders with mitigation recommendations.
Allstate: AI for Wildfire Risk Assessment
Allstate's AI tool predicts wildfire risks by analyzing factors like temperature, humidity, wind speed, and vegetation density. It helps underwriters evaluate properties in wildfire-prone areas and provides real-time updates to policyholders.
Challenges and Ethical Considerations
Data Privacy and Security
The use of AI requires collecting and analyzing vast amounts of sensitive data. Insurers must implement robust data protection measures to safeguard this information and comply with privacy regulations.
Bias and Fairness
AI systems can produce biased results if trained on unrepresentative data. Insurers must ensure their AI models are trained on diverse datasets to avoid bias and ensure fairness.
Transparency and Explainability
The complexity of AI algorithms can make it difficult to explain how risk assessments are made. Insurers must prioritize transparency to build trust with regulators and policyholders.
Regulatory Compliance
AI-driven risk assessment must comply with regulations on data privacy, fairness, and transparency. Insurers must stay ahead of evolving regulatory requirements to avoid legal and reputational risks.
The Future of AI in Risk Assessment
Integration with IoT and Smart Homes
The integration of AI with IoT devices and smart home technology will enhance real-time risk monitoring. Smart sensors can detect leaks, smoke, or unusual activity, helping prevent damage and reduce claims.
AI-Driven Climate Risk Models
As climate change intensifies, insurers will rely on AI-driven climate risk models to assess long-term risks and develop strategies to mitigate them.
Collaboration with Governments and NGOs
Insurers are increasingly partnering with governments and NGOs to address climate risks. AI provides the data needed to develop effective policies and mitigation strategies.
Personalized Insurance Products
AI enables insurers to offer tailored policies based on specific property risks, such as flood or wildfire coverage, ensuring that policyholders receive the protection they need.
Conclusion
AI is revolutionizing the insurance industry by enabling more accurate, efficient, and scalable risk assessment. From predictive analytics to real-time monitoring, AI is helping insurers navigate the growing risks posed by climate change and natural disasters. While challenges remain, the potential benefits of AI are immense, promising a more resilient and sustainable future for the insurance industry. As AI technology continues to evolve, its role in risk assessment will only grow, reshaping the industry for years to come.
https://www.madhedgefundtrader.com/wp-content/uploads/2025/02/Screenshot-2025-02-03-164141.png587914Douglas Davenporthttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngDouglas Davenport2025-02-03 16:47:562025-02-03 16:49:04How AI is Revolutionizing Risk Assessment in the Insurance Industry
Tech stocks have felt the full effect of the volatile nature of the new federal government in charge in Washington.
Tech stocks aren’t looking too pretty today.
The new admin levied a 25% tariff on goods from Mexico only to give the Mexicans a 1-month reprieve.
Like a game of high-stakes poker, but Trump is wielding the American economy at the poker table with reckless abandon.
Tech stocks whipsawed and most stocks opened up in the red, however, a stock like Meta was able to ride out the instability by surging at the open.
Not all tech stocks are created equal.
If many investors thought Trump wouldn’t follow through with his sabre-rattling, then think again.
He is hell-bent on going full throttle and pushing allies to the brink whether they can tolerate it or not.
The surge in interest rates because of the perception of higher inflation and higher geopolitical risk was the reason tech stocks were jolted at the beginning of this week.
Indeed, tech stocks are in for a sideways correction if American government policy becomes constantly aggressive and brutal.
Tech stocks will have a narrow path to go higher, but not like the prior 10 years when stocks were cheered higher by almost everyone.
Trump said this will boost US manufacturing.
The tariffs will grow the US economy, protect jobs, and raise tax revenue, he argues.
Canada’s Trudeau declared retaliatory 25% tariffs on $107 billion dollars worth of US goods on Saturday.
Mexican President Claudia Sheinbaum has directed the Secretary of Economy to impose a plan including "tariff and non-tariff measures in defense of Mexico's interests".
Together, China, Mexico, and Canada accounted for more than 40% of imports into the US last year.
Most goods from Mexico don’t affect tech stocks such as fruits like avocado, vegetables, tequila, and beer.
Canadian goods such as steel, lumber, grains, and potatoes are also likely to get pricier.
It is expected that the car manufacturing sector could see the brunt of the effects of the tariff.
It’s not like Trump is only going after Mexico and Canada, he also has the U.K. and Europe in his crosshairs.
Do tariffs cause inflation?
In the short term, tariffs will hit consumers in the U.S. with corporations front-running price increases by passing on the higher inputs to the end buyer.
The market also senses higher inflation and interest rate yields will get bid up, which is negative for tech stocks.
It is naïve to think that tech stocks will go up in a straight line like the past 10 years – they certainly will not.
If the government is hell-bent on this type of tactic, global markets will feel the pain.
Even if this doesn’t directly affect tech stocks, the American consumer will not go unscathed.
Interest rates exploding higher will certainly mean tech stocks opening up Monday mornings 3% down.
That is not a good starting point for the week and explains why the bellwether Nvidia (NVDA) is down 15% year to date.
Then throw in the chaos from the Deepseek fiasco that threatens the valuations of many AI stocks.
It’ll be tough sledding from here on out and tech investors need to be mindful to not get caved in out of nowhere.
https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png00april@madhedgefundtrader.comhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngapril@madhedgefundtrader.com2025-02-03 14:02:082025-02-03 14:50:27Tarrifs Come For Tech Stocks
Earnings: Apollo Global Management, KKR & Co, PayPal, PepsiCo, Merck & Co, Regeneron Pharmaceuticals, Marathon Petroleum, The Estee Lauder Companies, Pfizer, Advanced Micro Devices, Alphabet, Match Group, Prudential Financial, Simon Property Group, Electronic Arts, Enphase Energy, Mondelez
WEDNESDAY FEB. 5
8:30 a.m. Trade Balance (December)
9:45 a.m. PMI Composite final (January)
9:45 a.m. S&P PMI Services final (January)
10:00 a.m. U.S. Services PMI (January)
Previous: 54.1
Forecast: 54.3
Earnings:Walt Disney Co., Emerson Electric, Stanley Black & Decker, Boston Scientific, Uber Technologies, Yum! Brands, T. Row Price Group, MetLife, Align Technology, Qualcomm, Ford Motor, Allstate, O’Reilly Automotive.
THURSDAY FEB. 6
7:00 a.m. UK Rate Decision
Previous: 4.75%
Forecast: 4.50%
8:30 a.m. Continuing Jobless Claims (01/25)
8:30 a.m. Initial Claims (02/01)
8:30 a.m. Unit Labor Costs preliminary (Q4)
8:30 a.m. Productivity preliminary (Q4)
Earnings: Hilton Worldwide, Air Products & Chemicals, Honeywell International, Eli Lilly & Co, Tapestry, ConocoPhillips, Fastenal, Hershey, Ralph Lauren, Microchip Technology, Take-Two Interactive Software, Amazon.com, Expedia Group, Monolithic Power Systems, Fortinet.
FRIDAY FEB. 7
8:30 a.m. Hourly Earnings preliminary (January)
8:30 a.m. Average Workweek preliminary (January)
8:30 a.m. Manufacturing Payrolls (January)
8:30 a.m. U.S. Nonfarm Payrolls
Previous: 256k
Forecast: 170k
10:00 a.m. Michigan Sentiment (February)
10:00 a.m. Wholesale Inventories (December)
3:00 p.m. Consumer Credit (December)
Another busy week is upon us.More than 120 S&P 500 companies are scheduled to report. Some of them include Amazon, Alphabet, Walt Disney and PepsiCo.
So far, the reporting season has been good.Most companies have beaten expectations, according to FactSet data.What investors will be paying close attention to in the earnings this week is the future guidance of each business.
Policy will be market-moving this week.President Trump tapped the green light with tariffs in Canada, Mexico, and China.The impact of these tariffs could be far-reaching and could even trigger retaliatory tariffs from the targeted countries.A high level of uncertainty will be felt in the market.
Nonfarm payrolls are due out on Friday.It is expected that the economy added 165,000 jobs last month, down from 223,000 new hires the prior month.The unemployment rate is forecast to have remained unchanged at 4.1%
Another perspective on AI
Last week, Deep Seek - even with everything we don’t know about it, - stopped investors in their tracks and caused discomfort and disquiet, to say the least.So much so, that seeds of doubt over everything investors thought they knew about artificial intelligence has become the new narrative.
Everything is being questioned, including the stock market valuations on AI stocks.
Investors are rethinking their Nvidia investment.Are Nvidia’s chips worth the price?This question caused the shares of the AI leader to plunge 17% last Monday, stripping around$600 billion in market value from the stock.
And what about AI data centre operators - Amazon, Microsoft, and Alphabet?Will they be able to justify the fees and spending if Deep Seek is so cheap?
Furthermore, Deep Seek has also called into question the projections about electricity demand related to more AI usage.Are they vastly exaggerated?Power producers took it on the nose last Monday with stocks like Constellation Energy, Vistra, and Talen Energy among others, being smacked lower.
Last Monday, certainty was challenged.Valuation multiples will need to find a new level.
President Trump introduces tariffs.
We are now beyond talk, as the first steps of implementation of Trump’s tariffs to match Trump’s promised policy agenda took place on the weekend.On Friday, Trump said he would implement a 25% tariff on Canada and Mexico and a 10% on China on Saturday.No exemptions are known yet.
Until the market becomes familiar with the details, uncertainty will influence the market environment. Jitters could become very evident in sectors that could be hit hard by a trade battle with America’s closest trading partners, such as autos, industrials, food and beverage companies.
If the administration builds on existing steel and aluminum tariffs with Mexico and Canada, that could create volatility given Trump’s plans to build new power infrastructure and re-energize the manufacturing sector.
How will Canada and Mexico respond?Will they issue their own tariffs?Canada could slap tariffs on critical minerals, natural gas, and electricity.Furthermore, the country could also ban U.S. dairy, cattle, and fresh meat.And some provinces could choose to ban the purchase of U.S. alcohol, which would certainly cause ripples amongst some stocks.
Mexico, too, could implement an offensive approach by targeting U.S. corn or soybean exports, before expanding its retaliation into other areas.
One thing is for sure, the market could be very turbulent.
MARKET UPDATE
S&P500
The index will be choppy, particularly with the introduction of tariffs on several countries.This will create uncertainty in various markets/sectors.The ranging action of the index shows a bigger picture topping action.
Support = ~ $5955/65.The base of the rising wedge since October 2023 lies around $5750/75.Any break/close below here argues a major top has formed and the market is rolling over (9-12 months or more).I strongly recommend everyone take some profits now and enter a limit order for a put option or bear put spread to come into play on the SPY on any break and close below $5770.Also, buy SDS as protection.If you are short-term focused, you should take profits on stocks. I am expecting a strong bear move in the market either this month or next month.
GOLD
Gold reached a new all-time high.The metal will continue to range and could continue to nudge to the upside for now.
Resistance = ~$2817/25
Support = ~$2785/90 and $2737/40
BITCOIN
Topping movement continues to play out here. I would expect any upside to be limited.Resistance remains at ~$109.30/$109.80k.Support is seen at around~ $91/$92, and below there at ~ $85,000k.
As I write this, tariffs are coming into force and confusion reigns supreme at the borders. The worst-case scenario has arrived.
In the Marine Corp., they say that a missing 50-cent part can ground a $50 million dollar airplane. It turns out that many of the 50-cent parts are made in Canada and Mexico, which are now in trucks stuck in massive traffic jams at the border. The border is in no way set up for any change in the tariff regime.
Think of it as a mini Covid shock to the supply chain. The parts will eventually show up but will be more expensive.
This is not what traders wanted to hear. That great whooshing sound was the stock market giving up hard-fought gains for the day. Nervousness is running rampant.
With mass firing on the way throughout the government, it’s just a matter of time before the passport renewal process extends from weeks to years. I am telling friends and family to renew now before the process clogs up and shuts down. At the very least, fees are about to go up a lot, now at $130.
When I opened up my laptop on Sunday night and saw the NASDAQ ($COMPQ) down 900 points, I thought that a new war had broken out somewhere or another 9/11 event had taken place. That recovered to down only 400 by the New York opening. This is exactly the set up I had been waiting for since mid-December. I started piling in on longs in big tech stocks, turning my January performance from lackluster to robust in a matter of days.
And that’s the way it’s going to be in 2025. Maintain iron discipline and hold out for these rare sweet spots, then pile in. Never chase, that was last year’s game. We could be range trading for quite some time. Index players might be lucky to make anything by year-end, and might be better off parking their money in 90-Treasury bills, now yielding 4.2%.
By the end of the week, most of the losses were recovered, except for the big AI providers like (NVDA) and (AMD), which have had their own problems for the last seven months. The net is that it is potentially bad news for AI providers and great news for AI users, which is almost everybody.
I have heard from several clients that they spent the week trying to trip up the DeepSeek program and have come up with hilariously inaccurate answers. For example, DeepSeek didn’t know that my former USC classmate OJ Simpson died last year and thought he was a current NFL football player. And don’t ask who Winston was in 1984. Other examples about.
In the meantime, the big tech companies are all tinkering with DeepSeek, making changes and improvements. It is definitely a clever programming improvement, but it’s not going to destroy the world.
Whatever happened to Cold Fusion?
Remember that 1990’s meme that set stocks on fire? It was supposed to give us free electricity forever. Except that here I am 35 years later, and cold fusion is still 20-40 years into the future. It’s always 40 years in the future. The same thing happened with the 3D printing craze and the fax mania before that.
That’s what came to mind last December when I first heard that the Chinese app DeepSeek had delivered a revolutionary new AI program that was supposed to cut the need for high-end chips by 99%. I ignored it just like all of the other Chinese apps that come out on a daily basis.
Which leads me to the quandary of the day. Why the heck is Europe suddenly doing so well? The German stock market has outperformed the S&P 500 (SPY) by a large margin in recent months. Whenever I mention putting a dollar into any European country, my continental friends say I’m out of my mind and that they only want more American investment ideas. Is there something going on here?
My only thought is that themarkets may be discounting an end to the Ukraine War this year. If so, some 10 million barrels a day of oil would be unleashed on the market, taking prices down to $30 a barrel. Ukraine would reclaim its position as the world’s largest agriculture exporter, collapsing prices for wheat and sunflower oil. And Europe will be able to pare back its recently increased defense spending.
You heard it here first.
By the way, the 9/11 reference brings to mind one of the most notorious short sales of all time. The day before the attack, a Swiss bank acting on behalf of an anonymous client bought several thousand short-dated put options on American Airlines (AA). After two American planes were deliberately crashed in a suicide attack, the trade made $200 million. The FBI set a trap to arrest those who came to collect. But they never showed. Eventually, the trades were unwound by the exchange. It’s all true.
We managed to attain a respectable +5.80% return in January. That is close to my average monthly return for all of 2024. The magic is still there.
That takes us to a year-to-date profit of +5.80%so far in 2025. My trailing one-year return stands at +85.34% as a bad trade a year ago fell off the one-year record. That takes my average annualized return to +49.96%and my performance since inception to +757.69%.
I used the Monday meltdown to start filing in positions in Nvidia (NVDA) and Vistra (VST). That is on top of my existing short strangle in Tesla (TSLA). The Mad Hedge Technology added a slew of long on Microsoft (MSFT), Adobe (ADBE), Dell (DELL), and (NVDA).
Some 63 of my 70 round trips, or 90%, were profitable in 2023. Some 74 of 94 trades have been profitable in 2024, and several of those losses were really break-even. That is a success rate of +78.72%.
Try beating that anywhere.
Technology Stocks Destroyed on News of China’s DeepSeek, an AI program that takes them a great leap forward. U.S. technology firms like Nvidia plunged, as Chinese startup DeepSeek sparked concerns over competitiveness in AI and America’s lead in the sector, triggering a global sell-off. DeepSeek launched a free, open-source large language model in late December, claiming it was developed in just two months at a cost of under $6 million. These developments have bolstered questions about the large amounts of money big tech companies have been investing in artificial intelligence models and data centers.
US Home Sales Hit 30-Year Low in 2024, the second year in a row of weak sales. High costs related to homeownership sapped sales again. The average rate for a 30-year fixed mortgage has hovered between 6% and 8% since late 2022. Avoid interest rate plays.
Nvidia Drops $600 Billion in Market Capitalization, the largest in stock market history. CEO Jensen Huang’s net worth dropped below $100 billion, while CEOs of the Mangiest Seven plunged by $67 Billion. I told you it was coming. Buy when the washout finishes. The bubble didn’t burst.
The Cruise Business is Rocketing, with Royal Caribbean (RCL) just running up its best five-week sales period in history. There is a two-year wait to order the enormous new ships, the biggest, 264,000-tonne Icon of the Seas, carries a mind-blowing 7,400 passengers. Buy (RCL) and (CCL)on dips.
US Consumer Confidence Divesamid renewed concerns about the labor market and inflation. The Conference Board said on Tuesday its consumer confidence index fell to 104.1 this month from an upwardly revised 109.5 in December. Economists polled by Reuters had forecast the index rising to 105.6 from the previously reported 104.7.
Fed Leaves Interest Rates Unchanged at 4.25%, tanking stocks. All interest rate plays will remain dead in the water. Will the pause be for six months or a year, or will the next Fed be a rate rise? Jay Powell is waiting for the impact of new government policies like all the rest of us. Buy financials on dips. The Fed's balance sheet continues to shrink and is down to $6.8 trillion, withdrawing liquidity from the system. All references to “progress” on inflation were dropped.
Coffee Prices Hit a New All-Time High at $3.60/pound for Arabica. Brazil, by far the world's largest producer, has few beans left to sell, and worries over its upcoming harvest persist. Dealers said 70%-80% of Brazil's current arabica harvest has been sold and new trades are slow. Brazil produces nearly half the world's arabica beans, a high-end variety typically used in roast and ground blends. This is yet another climate change play.
Waymo Self-Driving Taxis Expanding to Ten New Cities.After testing the Waymo Driver in multiple cities, the company says the technology is adapting successfully to new environments, leading to the expansion. In addition to ongoing trips to Truckee, Michigan's Upper Peninsula, Upstate New York, and Tokyo, the expansion includes testing in San Diego and Las Vegas, with more cities yet to be announced.
Tesla Bombs in 2024, with earnings at $25.5 billion last year versus $27.2 billion, or down 5.5%. Even a presidential friendship can’t boost earnings. Despite missing on every metric, the shares were only down $3 today. Tesla is more about belief in the future and today’s facts. But full self-driving will launch in the US in June after being stalled by the previous administration.No guidance for sales in 2025. Energy storage was the big grower last year and will do well this year. Not the rose bed I was promised. My short position is looking good, but I’m maintaining my long-term target of $1,000. US GDP Finishes 2024 at 2.3%, less than expected but still the strongest in the world. Household spending grew at a 4.2% pace, most since early 2023. Equipment spending fell at a 7.8% rate on the Boeing strike impact. What happens next is anyone’s guess.
Microsoft Blows Up on Cloud Guidance, on huge earnings disappointment, taking the stock down 6%. The company beat estimates on the top and bottom lines but fell short on estimates for its Intelligent Cloud business. Microsoft’s Commercial Cloud segment revenue, which includes cloud services sales, saw revenue of $40 billion, a 21% year-over-year increase but shy of Wall Street expectations of $41.1 billion. Microsoft's intelligent cloud business, which includes its Azure platform, saw revenue of $25.5 billion. Wall Street was expecting $25.8 billion. I’m buying the dip.
Weekly Jobless Claims Fall 16,000to a seasonally adjusted 207,000 for the week ended Jan. 25, the Labor Department said on Thursday. Economists polled by Reuters had forecast 220,000 claims for the latest week.
Consumer Inflation Expectations Comes in Soft. The personal consumption expenditures price index increased 2.6% on a year-over-year basis in December, while core PCE was at 2.8%, both in line with expectations but well ahead of the Fed’s 2% target. Personal income climbed 0.4% as forecast, while spending rose 0.7%. Markets liked the number.
Apple is Catching a Bid on the assumption that diplomat Tim Cook can somehow avoid import duties from China. Even at a 100% tariff, it would probably add only $100 to the cost of an iPhone, which is made in China.
My Ten-Year View – A Reassessment
When have to substantially downsize our expectations of equity returns in view of the election outcome. My new American Golden Age, or the next Roaring Twenties is now looking at a headwind. The economy will completely stop decarbonizing. Technology innovation will slow. Trade wars will exact a high price. Inflation will return. 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.
My Dow 240,000 target has been pushed back to 2035.
On Monday, February 3 at 8:30 AM EST, the ISM Manufacturing Index PMI is out.
On Tuesday, February 4 at 8:30 AM, the JOLTS Job Openings is released.
On Wednesday, February 5 at 8:30 AM, the ISM Survives PMI is printed.
On Thursday, February 6 at 8:30 AM, the Weekly Jobless Claims are disclosed.
On Friday, February 7 at 8:30 AM, Nonfarm Payroll Report for January is announced. At 2:00 PM the Baker Hughes Rig Count is printed.
As for me, the University of Southern California has a student jobs board that is positively legendary. It is where the actor John Wayne picked up a gig working as a stagehand for John Ford which eventually made him a movie star.
As a beneficiary of a federal work/study program in 1970, I was entitled to pick any job I wanted for the princely sum of $1.00 an hour, then the minimum wage. I noticed that the Biology Department was looking for a lab assistant to identify and sort Arctic plankton.
I thought, “What the heck is Arctic plankton?” I decided to apply to find out.
I was hired by a Japanese woman professor whose name I long ago forgot. She had figured out that Russians were far ahead of the US in Arctic plankton research, thus creatinga “plankton gap.” “Gaps” were a big deal during the Cold War, so that made her a layup to obtain a generous grant from the Defense Department to close the “plankton gap.”
It turns out that I was the only one who applied for the job, as postwar anti-Japanese sentiment then was still high on the West Coast. I was given my own lab bench and a microscope and told to get to work.
It turns out that there is a vast ecosystem of plankton under 20 feet of ice in the Arctic consisting of thousands of animal and plant varieties. The whole system is powered by sunlight that filters through the ice. The thinner the ice, such as at the edge of the Arctic ice sheet, the more plankton. In no time, I became adept at identifying copepods, euphasia, and calanus hyperboreaus, which all feed on diatoms.
We discovered that there was enough plankton in the Arctic to feed the entire human race if a food shortage ever arose, then a major concern. There was plenty of plant material and protein there. Just add a little flavoring and you have an endless food supply.
The high point of the job came when my professor traveled to the North Pole, the first woman ever to do so. She was a guest of the US Navy, which was overseeing the collection hole in the ice. We were thinking the hole might be a foot wide. When she got there, she discovered it was in fact 50 feet wide. I thought this might be to keep it from freezing over, but thought nothing of it.
My freshman year passed. The following year, the USC jobs board delivered up a far more interesting job, picking up dead bodies for the Los Angeles Counter Coroner, Thomas Noguchi, the “Coroner to the Stars.” This was not long after Charles Manson was locked up, and his bodies were everywhere. The pay was better too, and I got to know the LA freeway system like the back of my hand.
It wasn’t until years later, when I had obtained a high security clearance from the Defense Department that I learned of the true military interest in plankton by both the US and the Soviet Union.
It turns out that the hole was not really for collecting plankton. Plankton was just the cover. It was there so a US submarine could surface, fire nuclear missiles at the Soviet Union, and then submarine again under the protection of the ice.
So, not only have you been reading the work of a stock market wizard these many years, you have also been in touch with one of the world’s leading experts on Artic plankton.
Live and learn.
1981 on Peleliu Island in the South Pacific
Stay Healthy,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
https://www.madhedgefundtrader.com/wp-content/uploads/2025/02/Young-john.png530658april@madhedgefundtrader.comhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngapril@madhedgefundtrader.com2025-02-03 09:02:162025-02-20 12:38:50The Market Outlook for the Week Ahead, or The Trade War Begins
'There is one peculiarity about mass psychology in that when you are in a bubble, you can't see it. Bubbles are invisible when you are inside the bubble,' said the charming Jim Dines, of The Dines Letter.
https://www.madhedgefundtrader.com/wp-content/uploads/2013/03/Bubbles.jpg233330Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2025-02-03 09:00:492025-02-03 09:17:00February 3, 2025 - Quote of the Day
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