(SUMMARY OF JOHN’S DECEMBER 13, 2023 WEBINAR)
December 15, 2023
Hello everyone,
Title: The Fed Wins
Performance:
2023 year to date: +78.86%
Since inception +676.05%
Average annualized return: +52.00% for 15 years
Trailing one-year return: 75.38%
Positions:
90% long, 10% short, 0% cash.
Risk on
(NLY) 12/$15-$16 call spread. 10%
(BRK/B) 12 $320-$330 call spread 10%
(GOOGL) 12 $110-$120 call spread 10%
(CAT) 12 $220 - $230 call spread 10%
Risk off
No positions 0%
Total Aggregate Position = 40.00%
Method to my Madness
The Fed is done raising interest rates. Markets are now discounting the first rate cut which could be as early as March, but more likely June 2024.
All interest rate plays reacted positively to the news – bonds, REITS, precious metals, and financials.
The year-end rally is on, but what happens in January?
All economic data is globally slowing.
Oil prices and commodities are now trading as one, selling off on a slowing economy.
The tech bull market is back and will continue for years.
Time to go aggressively long on stocks and bonds.
Commodities and industrials are a second-half play.
The Global Economy - Shrinking
Non-farm payrolls come in soft in November at 199,000. The headline unemployment rate fell to 3.7%, near a 50-year low.
US GDP revised up to a blistering 5.2%.
S&P Global Services PMI comes in flat at 50.8, but still above the boom/bust level. It’s the 11th consecutive month over 50 in expansion territory.
Fed’s favorite inflation gauge rises a modest 0.2%, and 3.5% on a YOY basis, a new cycle low.
ISM Services came in at 52.7 versus an estimated 52.4. No recession here, nor a super-heated economy. Another Fed-friendly number.
China moves to further stimulate the economy after many failed efforts. This time through reduced reserve requirements.
Stocks – Buy Back Boom
The year-end rally started on October 26, happened in November, now losing momentum.
Santa came early this year, clearly confusing Thanksgiving with Christmas.
70% of corporate profits went into stock buybacks this year.
Alaska Air Buys Hawaiian for $1.9 billion in a big overpay. (ALK) dropped 15% on the news.
Uber entered the S&P500 on December 18, taking the stock up 10% on the news.
IBM announces New Quantum Computing Chip.
Snowflake delivers a big beat, taking the stock up 10% in hours.
Berkshire Hathaway fails to fall on Munger's death.
Bonds – Blowout Top
Panic buying drives Treasury yields to 4.13%, down nearly a full percentage point in little more than a month on weakening economic data.
US Government to finance million-dollar mortgages, through its Fannie Mae and Freddie Mac finance agencies.
Fed to Cut interest rates as early as March or so says the futures market, which gives this a 40% probability.
Crown Castle International catches activist bid from Elliot Management
Junk bond ETFs (JNK) and (HYG) are holding up extremely well with an 8.74% yield and an 18-month high.
Buy (TLT) on dips.
Foreign Currencies – Massive Yen Reversal
Massive short cover hits Japanese yen, taking it up 10% in days.
The prospect of falling US interest rates adds fuel to the fire.
Buy (FXY) on dips.
Bank of Japan eases grip on bond yields, ending its unlimited buying operation to keep interest rates down.
Japan is the last country to allow rates to rise.
Expect the Japanese yen to take off like a rocket.
The collapse of dollar is a 2024 story.
Energy and Commodities- New Lows
Exploding sales of EVs are ringing the bell for Oil, leading forecasters to speed up their projections for when global oil will peak, as public subsidies and improved technology help consumers overcome the sometimes-eye-popping sticker prices for battery-powered cars.
Oil crashes from $96 down to $68 in less than six months, as fears of a global economic slowdown continue.
US Gasoline prices hit a three-year low on recession fears and replacement concerns by EVs.
Energy stocks are tracking the downside tic for tic, pulling down all other commodities.
There is a BUY setting up here when the global economy reaccelerates on a lower interest rates world. Watch (XOM) and (OXY).
Warm weather is capping rallies in natural gas (UNG).
Precious Metals – A New 10-year bull market
Gold hits a new all-time high – another falling interest rate play.
Sharp drop in interest is very positive for gold.
Investors are picking up gold as a hedge for 2024 volatility.
Gold headed for $3,000 by 2025.
Silver is the better play with a higher beta.
Russia and China are also stockpiling gold to sidestep international sanctions.
Real Estate – The Bull is Back
Refi demand rockets, as interest rates plunge to four-month lows.
The rate for the popular 30-year mortgage fell back toward 7% after hitting 8% earlier this fall.
Applications to refinance a home loan index increased 14% from the previous week and were 10% higher than the same week one year ago.
Zombie Malls are a new term you should get used to. People are just not coming back to work.
It’s very bad in San Francisco where tech discovered the wonders of cost-cutting, taking the office vacancy rate up to 35%.
Pending home sales collapse, dropping to the lowest level since the National Association of Realtors began tracking them in 2001.
Tight supply and still-strong demand have kept pressure on home prices, which only continue to hit new highs. S&P Case Shiller hits new highs – 3.9% higher in September.
Trade Sheet
Stocks – buy any dips.
Bonds – buy dips.
Commodities – buy dips.
Currencies – sell dollar rallies, buy currencies.
Precious metals – buy dips.
Energy – buy dips.
Volatility – buy at $12.
Real Estate – buy dips.
Next Strategy Webinar: January 10 from Silicon Valley
Here is a copy of the November Jacquie’s Post zoom meeting. Enjoy!
https://www.madhedgefundtrader.com/meeting-replay-november-2023/
Cheers,
Jacquie
