Mad Hedge Technology Letter
April 23, 2025
Fiat Lux
Featured Trade:
(TESLA HITS AN AIR POCKET)
(TSLA)
Tesla (TSLA) has problems and so do other tech firms at the start of 2025.
Saying that doesn’t give comfort even with a great bull market of 12 years.
The scary thing here is that many tech bulls might believe this is the end of the stock market party.
Moving forward, we will see many tech firms miss gross revenue and profitability.
Then there is the future forecast and I wouldn’t blame management on making excuses using the trade war which they can’t control.
Tesla missed their first quarter revenue target by nearly $2 billion.
Management has literally been in Washington DC getting into politics, and that has hurt Tesla’s stock.
Tesla’s stock almost halved to around $200 before catching a bid.
CEO and Founder Elon Musk said he will step back from his role with DOGE, staying involved part time.
He said he'll continue to spend a day or two a week on government matters, for as long as President Donald Trump wants him to.
Looking forward, a potential key revenue driver is the robo-taxi.
Tesla is set to debut this service in Austin this June, starting with "maybe 10 to 20 vehicles," Musk said.
Tesla also confirmed on the call that the initial launch will include remote human operators who can intervene if a vehicle becomes stuck or encounters an issue.
Musk said the goal is to bring the service to "many other cities in the US by the end of this year," predicting that "there will be millions of Teslas operating fully autonomously in the second half of next year."
Musk said that Tesla would be "the least affected car company" when it comes to tariffs.
"With respect to supply chain risk, something that Tesla has been working on for several years, is to localize supply chains," Musk said. "Tariffs are still tough on a company when margins are still low, but we do have localized supply chains in both America, Europe, and China, so that puts us in a stronger position than any of our competitors."
I do believe the low 200 level for the stock should hold as resistance for TSLA.
Much of the bad news, and there is a lot, is already priced into the stock.
It will be interesting to see if the brand recovers, because the product is deeply unpopular in California and Western Europe.
To be honest, while we wait on the robo-taxi to roll out, Musk saw an air pocket and we are hitting that with full turbulence.
That being said, if there was not a change of administration, there is no way he could make headway with the robo-taxi division.
Musk is waiting on the robo-taxi to save the day and the possibility that happens is better than 50%. In the meantime, I believe he will have a hard time moving sales of his standard EV. He has done a lot of damage by alienating half of his addressable audience.
I believe the stock slowly creeps higher, but in a volatile way.
As for Musk, I think he’ll be spending more time at his day job moving forward and that should help the stock just for that.
“People work better when they know what the goal is and why.” – Said Elon Musk
(TRUMP WAS FORCED TO EAT HIS WORDS)
April 23, 2025
Hello everyone
President Trump has indicated that he will lower the tariffs on Chinese goods, after acknowledging that the current trade war between the world’s two largest economies cannot last.
Trump has said the tariff won’t be 0, but it won’t be anything like 145 per cent.
The IMF has forecast a significant slowdown in global growth due to Trump’s tariffs and has slashed its US growth forecast from 2.7 per cent to 1.8 per cent, due partly to the tariff program.
The IMF has also cut Australia’s 2025 growth forecast from 2.1 per cent to 1.6 per cent, a cost to the economy of about $13 billion.
IMF chief economist Pierre Olivier Gourinchas said the fund was not forecasting a US recession because the US economy was “coming from a position of strength.”
That position of strength will be a needed buffer over the next couple of years.
HEADLINE CORNER
American consumers and companies are likely to be the biggest tariff victims.
Travellers are avoiding the US.
Airlines see steep declines in travel to and from America.
GOLD UPDATE
You will see that gold has dropped from its record high of $3,500 yesterday.
I’m watching the price action closely, and if gold falls $400 from its peak – breaks $3100 - and you are short-term to medium-term focused, I suggest you close some gold trades/stocks.
If you are long - term focused, hold.
I will be able to give you a better update next week after I see more price action this week.
BITCOIN UPDATE
Bitcoin is $93k+ as I write this, and I am expecting it to keep rallying, as it appears to have made a bottom.
When the US stock market was tanking on Monday, Bitcoin was quietly rising and has continued to gain ground.
Gerry O’Shea, Head of Global Market Insights at Hashdex, comments that more “investors seem comfortable with the view that Bitcoin is a form of ‘digital gold’ that can perform independently from equities and act as a risk-off asset during periods of uncertainty.”
Hold your position in Bitcoin and your options/stock on (MSTR) and (IBIT).
S&P500 UPDATE
The index rallied yesterday, and futures are up strongly this evening. The index may rally for the short term. ($4800 - $5500/$5700) Expect wide ranging pattern behaviour. However, I don’t believe we have seen the bottom yet. So, don’t get complacent that all is now rosy in the world.
When we do see the bottom, it will be the buying opportunity of the century.
QI CORNER
SOMETHING TO THINK ABOUT
WELL-BEING CORNER
A wallaby in my backyard enjoying a grassy patch in the sunshine.
Cheers
Jacquie
Global Market Comments
April 23, 2025
Fiat Lux
Featured Trade:
(WHERE’S THIS MARKET BOTTOM?),
(SPX), (INDU), (TLT),
(THE ONE SAFE PLACE IN REAL ESTATE)
After Monday’s 1,200-point swoon, the S&P 500 (SPY) has fallen 20.88% from its February peak. And we may still have a “Sell in May” ahead of us.
This was one of the most overbought stock markets in my career. I have to think back to the March 2000 Dotcom Top and the Tokyo bubble in 1989 to recall similar levels of ebullience. It seems that everyone in the world is now dumping US bonds and dollars as well.
With a price/earnings multiple of 20, we are still near the top of a long-time historic range of 9-22. High US interest rates make that level appear even more expensive. The “Buy the Dip” crowd has become an extinct species.
So, how much lower do we have to go? I just completed a conference call with some major hedge fund traders, and thought I‘d throw out my numbers and the logic behind them. The following is an itinerary of what your summer trading might look like, expressed in (SPX) terms:
-20.88% - 4,850 – The April 9 low before a tweet triggered a monster 500-point rally. The market is begging for a retest of this level.
-29.52% - 4,320 is an earnings multiple of 18X times unchanged earnings for the (SPX) of $240 a share.
-37.35% - 3,840 is an earnings multiple of 16X times an unchanged earnings for the (SPX) of $240 a share.
-39.96% - 3,680 is an earnings multiple of 16X times a lower earnings for the (SPX) of $230 a share.
-42.57% - 3,520 is an earnings multiple of 13X times an unchanged earnings for the (SPX) of a recessionary $220 a share.
-45.18% - 3,360 is an earnings multiple of 16X times an unchanged earnings for the (SPX) of $210 a share, which assumes the trade war with China extends into 2026.
Big swings in the market also often start and finish around an options expiration, which takes place on the third Friday of each month.
To confuse you even further, contemplate the concept that I refer to as the “Lead Contract.” There is always a lead contract around, one on which all traders maintain a laser-like focus, which leads every other financial product out there. It says “Jump,” and we ask “How High?” It is also always changing.
Right now, the bond market futures are the lead contract. When bonds rise and interest rates fall, it is a positive for equities. When bonds fall and rates rise, the “Sell America” trade is back on, leading to the dumping of all US assets. If you want to get a preview of each day’s US trading, stay up the night before and watch the action in the US bond futures in Singapore, as I often do.
Looking for More Market Insights
I feel obliged to reveal one corner of this time of great turmoil that might actually make sense.
By 2050, the population of California will soar from 40 million to 50 million, and that of the US from 340 million to 400 million, according to data released by the US Census Bureau and the CIA Factbook (check out the population pyramid below).
That means enormous demand for the low end of the housing market–apartments in multi-family dwellings. They will be joined by generational demand for limited rental housing by 65 million Gen Xer’s and 85 million Millennials enduring a lower standard of living than their parents and grandparents.
These people aren’t going to be living in cardboard boxes under freeway overpasses. The trend towards apartments also fits neatly with the downsizing needs of 80 million retiring Baby Boomers. So you have three different generations converging on a single sector of the real estate market. Prices here will hold up, and may even rise.
Rents are now rising at more than 5% a year in some of the more popular markets, and vacancies are dropping like a stone. Good luck finding an apartment in Silicon Valley. Fannie and Freddie financing is still abundantly available.
Institutions combing the landscape for low volatility cash flows and limited risk are now accounting for up to 30% of the low-end market. In some markets, it is now cheaper to buy than to rent, a 50-year reversal, if you can get the credit.
More a Rectangle Than a Pyramid
“Real Estate is the new gold. It is the gold of 2025,” said Jeffrey Gundlach of Doubleline Capital
Mad Hedge Biotech and Healthcare Letter
April 22, 2025
Fiat Lux
Featured Trade:
(NO MORE TEARS)
(JNJ)
Remember when your mom told you to eat your vegetables? "They're boring but good for you," she'd insist while you eyed that chocolate cake across the room.
Well, in today's market, Johnson & Johnson (JNJ) is that plate of nutritious broccoli – not the sexiest option on the table, but exactly what your financial diet needs.
And if Q1 earnings are any indication, this particular vegetable is secretly packed with more flavor than the market gave it credit for.
Their recent earnings report confirms what I've been telling anyone who would listen: this pharmaceutical tortoise is quietly outpacing flashier hares.
Sales increased 2.4% year-over-year to $21.9 billion, exceeding analyst expectations and demonstrating that steady growth doesn't need to make headlines to fill portfolios.
While the headline diluted EPS was an eye-popping $4.54 (up over 235%), those savvy enough will look at the adjusted figure of $2.77 (excluding one-time charges) for a more realistic picture of operational performance.
Diving deeper into the numbers reveals a company firing on multiple cylinders.
The MedTech division grew 4.1% to $8 billion, with cardiovascular products leading the charge at 17.7% growth.
Meanwhile, Pharmaceuticals grew 4.2% to $13.87 billion, with oncology growing an impressive 20% to $5.68 billion.
Multiple myeloma therapy Darzalex continues its blockbuster trajectory at $3.24 billion, while the approval of Rybrevant in non-small-cell lung cancer adds yet another potential multi-billion dollar earner to the medicine cabinet.
Now, let's talk about pharmaceutical patent cliffs.
Stelara, JNJ's immunology golden goose, is mid-plummet, with Q1 revenues down 33% to $1.63 billion. As expected, though, JNJ has been quietly lining up replacements.
Their immunology bullpen includes nipocalimab (sporting FDA Fast Track status) and icotrokinra (which cleared skin in 84% of adolescent psoriasis patients).
You can actually practically smell the confidence wafting from management's quarterly statements.
They've bumped their full-year revenue guidance to $91.6-$92.4 billion and hiked the quarterly dividend by 4.8% to $1.30 per share. That makes 63 consecutive years of dividend increases.
I'd be remiss not to mention the twin storm clouds hovering over our healthcare heavyweight.
First, there's the $6.97 billion charge for talc lawsuits after a bankruptcy judge essentially told JNJ their "Texas two-step" legal maneuver was more of a stumble.
Second, the Trump administration's threatened 25% pharmaceutical tariffs. With roughly 44% of Q1 revenues coming from overseas ($9.6 billion compared to $12.3 billion domestic), JNJ isn't completely sheltered from cross-border economic squabbles.
But here's where JNJ's strategic thinking earns my respect: they're doubling down on America with a $55 billion U.S. expansion planned over the next four years.
Back when I was launching hedge funds in the late '80s, I quickly learned to separate companies that merely react to policy changes from those that anticipate and adapt. JNJ falls firmly in the latter category.
For the number-crunchers among you (my people!), JNJ trades at 25.6 times earnings with a price-to-free-cash-flow ratio of 19.95. I ran this through my DCF model using a 10% discount rate.
The math suggests JNJ needs approximately 5% annual free cash flow growth to justify today's price.
With MedTech projected to grow 5-7% annually and Pharmaceuticals showing similar potential, plus those steady share buybacks reducing the float at 1.14% yearly, my spreadsheets spit out an intrinsic value of about $168.39 per share – roughly 7% above where we stand today.
Not a screaming bargain, but a fair price for a company that's mastered the art of sustainable growth.
JNJ won't make you the star of your next cocktail party investment brag-fest. But when markets start convulsing like they've touched a live wire, these steady healthcare veterans tend to keep their vital signs stable.
While your trendier holdings might need intensive care during volatility, JNJ has spent over a century perfecting the art of financial first aid.
In a market that often leaves investors reaching for tissues, JNJ's steady performance lives up to its most famous promise: no more tears.
