(ECONOMIC DATA POINTS ARE POSITIVE FOR THE MARKET)

May 20, 2024

Hello everyone,

Week ahead calendar

Monday, May 20

Australia Consumer Confidence Chg.

Previous: -2.4%

Time: 8:30 pm ET

Earnings: Palo Alto Networks

Tuesday, May 21

Canada Inflation Rate

Previous: 2.9%

Time: 8:30 am

Earnings:  Auto Zone, Lowe’s Companies

Wednesday, May 22

10 a.m. Existing Home Sales (April)

2 p.m. FOMC Minutes

UK Inflation Rate

Previous: 3.2%

Time: 2:00 am ET

Earnings:  Nvidia, TJX Cos, Analog Devices, Target, Raymond James

Thursday, May 23

8 a.m. Building Permits

8:30 a.m. Chicago Fed National Activity Index

8:30 a.m. Continuing Jobless Claims

8:30 a.m. Initial Claims

9:45 a.m. PMI Composite preliminary

9:45 a.m. S&P PMI Manufacturing preliminary

10 a.m. New Home Sales

11 a.m. Kansas City Fed Manufacturing Index

Japan Inflation Rate

Previous: 2.7%

Time: 7:30 pm

Earnings:  Intuit, Ralph Lauren

Friday, May 24

8:30 a.m. Durable Orders

UK Retail Sales

Previous: 0%

Time: 2:00 am

Last week the Dow pushed through 40,000 for the first time ever.  The S&P500 also broke through 5,300 for the first time.  And there are higher targets ahead.

Are you going to argue with a market making new highs?   But many of you will be scratching your heads wondering how healthy this market is and how we got here in the first place.

Let’s start with aggressive market positioning at the end of the first quarter and a test of Wall Street’s faith in an ideal soft economic landing, followed closely by a friendlier set of inflation numbers, and a stellar show of earnings by big companies, and last, but not least, a reversal of the April Treasury yield surge (which I have been predicting for several months through charts on my monthly zoom meetings).

The advice here, then, is not to overthink things and look for elements that don’t fit the narrative thus far.   Many strategists conclude that record closes are more to be respected than feared when they arrive.  Records tend to persist, though one exception is the brief visit to unprecedented heights in 2007.

So, what could go wrong?

Maybe, ugly inflation reports later this month or a not-so-rosy set of numbers from Nvidia’s earnings?   This could stir up the placid landscape and place us all into rethink mode.  But the characteristics we have at the present time are not to be argued with, so let’s go with what the market is giving us – a market with “just the right mix”.

While valuations are elevated at 20.7 times forward earnings, the S&P500 P/E at 5,300 is slightly lower than it was on March 28 with the index at 5,250 because profit forecasts are up more.

The market has shown itself to be a bit more defensive lately.  Consumer cyclicals are losing steam, and transportation stocks are lagging.  The Citi U.S. Economic Surprise index has fallen into negative territory more deeply than any time since late 2022, meaning that the macro data is slipping relative to increased forecasts.  Retail sales for April were flat, too.

So, is this just about the right amount of negative data?   It could actually be seen as a welcome deceleration in the economy that could help the Fed’s disinflationary cause rather than the start of more pronounced weakness.

Lower-income spending softness is being offset by an industrial and tech-hardware capital-spending boom.

Looking more broadly gives us some insights into what is helping sustain bullish sentiment:  there were two bear markets in the past four years, the S&P500 is less than 11% higher than it was 28 months ago, and the current bull run is so far modest in both length and total appreciation compared to historical averages.   In other words, this market has further to run.

In other news:

Nvidia will be in the spotlight this week and I’m sure it will attract a lot of attention. Can Nvidia’s earnings results propel the market higher, for those that are sitting on the AI gravy train?

This week also brings inflation data releases for Canada, Japan, and the UK.   Bank of England officials and GBP/USD traders will be watching the data release closely on Wednesday, as the numbers could either solidify the likelihood of an impending rate cut, or further delay cuts. 

Market Update

S&P 500 - has rallied as anticipated. The market is undergoing a 5^th wave advance onto new highs for the year. First target lies around mid 5,400 and then next target = around 5,700.

Gold – advance in progress.Target = around $2,500.Higher targets are around $2,650 and $3,270.

Silver – advance in progress.Target = around $34.80.

Bitcoin – Uptrend has resumed. The rally will first meet resistance around $73,790 (March 14 peak).After breaking through this resistance, the next target = around the mid $80,000’s.Support is found around $63,000 max. (There is a chance that Bitcoin could retest the low $50k level at some point before continuing to rally – you are forewarned).

Cheers,

Jacquie

(GM’s INVESTMENT IN EVs IS ATTRACTING ATTENTION)

May 15, 2024

Hello everyone,

General Motors could be a bright spot in an automobile industry challenged by a weakening electric vehicle market.

Slowing sales and sluggish adoption rates have driven down shares of EV leader Tesla by 31% this year, raising concerns over whether the Elon Musk-led company can build on its EV market share globally while also delivering on full self-driving initiatives.

Citigroup and Bank of America have General Motors in their sights as they believe this company can strengthen its position in EVs.

Shares of General Motors have climbed 26% in 2024, far outperforming the 9.5% gain in the S&P500.  Last month, GM topped sales and earnings in the first quarter and raised its full-year outlook.

Citigroup has a buy rating on GM with a $96 per share price target, implying a 113% upside from Monday’s $45.17 close.

Also bullish on the stock is Bank of America.  Analysts at the bank think GM’s forward guidance after its first-quarter results will prove too conservative.  GM’s execution and strength in its Core business continue to enable the company to make investments in EVs [autonomous vehicles] and other areas to future-proof the business while continuing to return value to shareholders.  BofA analysts have given GM a $75 per share price target implying a 66% upside over the next 12 months.

Recommended Action:  Buy 50/60 out of the money June 2025 Bull Call LEAPS and/or buy the stock.  GM stock price:  $45.03

General Motors – committing to an all-electric future

Cheers,

Jacquie

(AUSTRALIA IS CONFLICTED ABOUT ITS APPROACH TO ENERGY)

May 10, 2024

Hello everyone,

I recently heard Sky News host, Rita Panahi interview Ian Plimer, a geologist.  Plimer talked about the types of energy Australia has at its disposal and the damage wind and solar are doing to the environment.

Plimer pointed out that Australia has a huge supply of gas that is not being used.  In Victoria, for example, he said that there is an enormous amount of onshore gas in the Gippsland region that is low in carbon dioxide, and low in mercury, but regulations state that companies cannot drill onshore for gas.  Rather they must drill onshore for gas offshore and vice versa.  This is creating massive gas shortages in Victoria. 

In New South Wales, too, there is also a gas shortage, due to mismanagement.  Massive reserves at Narrabri have taken a decade to get that up producing gas for the people.

Eastern Australia relies on Queensland for much of its gas. 

Plimer argued that there are thousands of years of gas in Australia and millions of years of uranium.

Six projects have been named to start feasibility studies for Australia’s first offshore wind farms.  Plimer was scathing about wind projects because he says they “don’t save anything.”  Rather, he says they have a telling negative effect.  They “change aviation patterns, change shipping patterns, change fishing patterns, and kill a lot of wildlife.”

Killing the wildlife offshore hides the damage – the death of wildlife, and possibly whales.  In effect, it puts the problem out of sight offshore.  Interestingly, Plimer noted that elsewhere in the world wind projects are being shut down because of environmental damage. 

Beautiful Australian agricultural land is being covered with wind turbine farms.  Plimer argued that these wind turbines pollute large rich parcels of land with dangerous chemicals.  Instead of disposing of wind turbine blades, he says “We bury them, or we cut them up and bury them in the ground.”  He was critical of the fact that there is no industry at all where we can recycle these items.

Furthermore, Plimer details the long-term effects of pollution from solar panels.  He stated that solar panels leak out cadmium telluride, and leak out lead, which is left in the soil.

OK, so how damaging is cadmium telluride?

Acute toxicity – oral, category 4

Acute toxicity – dermal, category 4

Acute toxicity – inhalation, category 4

Harmful if swallowed, Harmful in contact with skin, Harmful if inhaled.

Breathing high levels of cadmium damages people’s lungs and can cause death.  Exposure to low levels of cadmium in air, food, water, and particularly in tobacco smoke over time may build up cadmium in the kidneys and cause kidney disease and fragile bones.  Cadmium is considered a cancer-causing agent. 

The United States is the leader in cadmium telluride (CdTe) photovoltaic (PV) manufacturing…due to their efficiency and relatively low manufacturing energy requirements.

Cadmium is recognized as a toxic substance by the United States Environmental Protection Agency (EPA), which set a maximum contaminant level (MCL) for cadmium (Cd) of 0.005 mgL in drinking water.  Tellurium (Te) while not regulated by the EPA, has also been shown to have the potential to cause kidney, heart, skin, lung, and gastrointestinal system damage in rats and in humans. 

Plimer was very critical of governments, past and present, for their poor decisions regarding effective energy solutions for Australia.

He pointed out that Australia has plenty of energy and it is cheap. 

Impact of Wind Turbines:

Visual Pollution

Noise Pollution

Impact on Wildlife

Disturbance to existing ecosystems and land use.

Update to Australia’s future energy direction as of Thursday, May 9, 2024.

New gas fields will be key to the Labour’s government strategy.  Gas will become a central part of Australia’s energy and export sectors by 2050 and beyond.  The government is backing the energy source as the key to transitioning the energy sector and economy.  Environmental and climate groups have condemned the strategy saying it will lead to more emissions, not less.

Responses to Labour’s plan have been mixed.

The Business Council of Australia was supportive, saying the plan struck the right balance ‘” by ensuring Australia can transition to net zero, while also keeping prices down, delivering reliable power supply and retaining jobs.”’

The Australia Institute called the strategy “regressive”, while the federal Greens leader, Adam Bandt, said Labour was “’ threatening its legislative agenda by committing to a future fuelled by fossil fuels.’”

Environmental groups including the Australian Conservation Foundation, Surfers for Climate, Solutions for Climate Australia, Climate Communities Alliance, and Parents for Climate were all disappointed.

Attention will now turn to how Labour plans to meet Australia’s climate targets as it embarks on an expansion of the gas industry.

The Safest and Deadliest Energy Sources

There are vastly divergent views on the impact of different energy sources on the environment.  As of 2021, nearly 90% of global CO2 emissions came from fossil fuels.  But as we know energy production doesn’t only lead to carbon emissions, it can also cause accidents and air pollution that have a significant toll on human life.

Ruben Mathisen has used data from Our World in Data to help visualize exactly how safe or deadly these energy sources are:

Fossil Fuels are the highest emitters.

Deadly effects

Air pollution or accidents can take human lives when we are generating energy on a massive scale.

According to Our World in Data, air pollution and accidents from mining and burning coal fuels account for around 25 deaths per terawatt-hour of electricity – roughly the amount consumed by about 150,000 EU citizens in one year.  The same measurement sees oil responsible for 18 annual deaths, and natural gas causing three annual deaths.

Meanwhile, hydropower, which is the most widely used renewable energy source, causes one annual death per 150,000 people.  The safest energy sources by far are wind, solar, and nuclear energy at fewer than 0.1 annual deaths per terawatt-hour.

Depending on who you speak to about energy, opinions will vary widely about the best future path for Australia to follow.  There are arguments for and against all energy sources.  You will never be able to please everyone.  Economics, the environment, and sustainability must all be considered when planning for the future. 

Update:

Global Central Banks are not taking their cues from the Fed.

When it comes to central banking, everyone assumes the Federal Reserve takes the leadership role, and global counterparts follow.  Well, it looks like events are shaping up somewhat differently now. 

Most recently, the Riksbank, Sweden’s Fed equivalent has approved a quarter percentage point reduction (Wednesday), with an indication that two more cuts could be in the pipeline before the end of the year should the inflation outlook hold.

It was the first time the Riksbank had cut since 2016 and took its main policy rate down to 3.75%.  Meanwhile, the Fed’s rate has been locked between 5.25% - 5.5% after a series of 11 hikes that began in March 2022.

In March, this year, the Swiss National Bank also reduced its key rate.

Reductions from the Bank of England and European Central Bank are expected to come next, possibly within a month. Bank of America strategists think the BOE could even cut in June, given the dovish buzz from BOE Governor Mark Bailey and others.  Otherwise, August is a likely time for the rate cut.

Should all these central banks take concrete action on their dovish chatter, and inflation and economic growth slow in the U.S. the Fed could find itself in an uncomfortable spot.

A slowdown in inflation and/or in activity in the U.S., will highlight a growing rate differential between the U.S. and other countries, and perhaps become a factor that will encourage the Fed to follow the global trend toward lower rates.

Central banks are not taking their cues from the Fed.   Christine Lagarde made clear that “we are data-dependent...[and] we have to make our decisions. Hence, we are not Fed-dependent.”

To sum up, if either demand starts to fall and/or core services inflation slows, the Fed is likely to begin its own cutting cycle.

Zoom Recording of April 30, 2024

The Zoom recording is in two parts.

I had technical issues with the videos I wanted to show you, so they are part of the second recording I did.  Additionally, the Excel spreadsheet of all the stocks/options recommended will be shown in this recording as well.

I hope you enjoy the presentation.

Part 1

Munro_May4th_zoom.mp4

Part 2

https://www.madhedgefundtrader.com/jacquie-munro-meeting-replay-april-2024/

Cheers,

Jacquie

(“WOODSTOCK FOR CAPITALISTS” SHOWED BUFFETT IS STILL IN GOOD FORM)

May 6, 2024

Hello everyone.

Week ahead calendar

Monday, May 6

No economic data of note.

Earnings:  Loews, Spirit Airlines, Tyson Foods, BioNTech, Hims & Hers, Vertex Pharmaceuticals, Lucid Group, Palantir Technologies, Simon Property Group, Aecom, Microchip Technology, Rocket lab, Goodyear Tire, Flavours & Fragrances, Marriott Vacations, Noble Corp., Vornado Realty, Coty, Bell Ring Brands, Cabot

Tuesday, May 7

3:00 pm Consumer Credit (March)

Earnings:  UBS, BP, Nintendo, Squarespace, Kenvue, Aramark, Gogo, Energizer, Tempur Sealy, Bloomin’ Brands, Crocs, Datadog, Duke Energy, Rockwell Automation, Spirit AeroSystems, TransDigm, Expeditors, Nikola, Walt Disney, Ferrari, Global Foundries, NRG Energy, Perrigo, Electronic Arts, Cirrus Logic, iRobot, Redfin, Lyft, TripAdvisor, Adaptive Biotech, Arista Networks, Dutch Bros., Kyndryl, Marqeta, Oddity Tech, Olo, Sonos, Toast, Upstart Holdings, Virgin Galactic, Twilio, IAC/InterActive, Match Group, McKesson, Rivian Automative, Brighthouse, Occidental Petroleum, Assurant, Angi, Kinross Gold, Astera Labs, Diamond Offshore, Reddit.

Wednesday, May 8

10:00 a.m.  Wholesale inventories (March)

Earnings:  Anheuser-Busch InBev, Edgewell Personal Care, Embraer, Elanco Animal Health, United Parks & Resorts, ODP, Emerson Electric, Brookfield, New York Times, Performance Food Group, Reynolds Consumer Products, Shopify, Teva Pharma, Uber Technologies, Brink’s Tegna, Hain Celestial, Choice Hotels, Dine Brands, Liberty Broadband, Affirm Holdings, Fox Corp., Cushman & Wakefield, Liberty Media, Valvoline, Arm Holdings, Airbnb, Robinhood, Beyond Meat, Bumble, Kodiak Gas Services, NuSkin, SolarEdge Technologies, TKO Group, Vizio, AMC Entertainment, Cheesecake Factory, News Corp., Toyota Motors, Celanese, Instacart, Klaviyo.

Thursday, May 9

8:30 a.m.

Continuing jobless claims

8:30 a.m. Initial claims

Earnings:  Nissan, Cedar Fair, Six Flags, Yeti, Hanesbrands, Planet Fitness, Sally Beauty, Tapestry, US Foods, Warby Parker, Krispy Kreme, Hyatt Hotels, Warner Bros, Discovery, Roblox, Viatris, Papa John’s, Hilton Grand Vacations, Warner Music Group, Solventum, DropBox, Akamai, Figs, Sweetgreen, Unity Software, Yelp, Synaptics, H&R Block, Iamgold, Fidelis Insurance, GenDigital, Savers Value Village.

Friday, May 10

10:00 a.m. Michigan sentiment (May)

2:00 p.m. Treasury budget (April)

Earnings:  Honda Motor, AMC Networks.

Maybe time to start looking at Emerging Markets.

The weaker than expected employment numbers last Friday marked the first sign this year that we may just see some interest rate movement in the form of cuts toward the latter part of this year.

And if we do see a lower rate environment on the horizon, one area that will be boosted is emerging markets.

Emerging market equities are at attractive valuations presently; earnings growth too has started to accelerate.

Start looking at this ETF:

(EEM)iShares MSCI Emerging Markets ETF

Continue scooping up some Berkshire Hathaway stock.

Berkshire Hathaway’s annual general meeting on Saturday, May 4, has been dubbed “Woodstock for Capitalists.” 

Analysts have a $472 price target on class B shares, and this suggest nearly 18% upside from last Thursday’s close.

I listened to several hours of the meeting and the topics covered included climate change, succession planning, artificial intelligence, the sale of a chunk of Apple shares (around 13%) - 115 million shares. 

The company has approximately $200billion in cash.  Greg Abel will make investing decisions for Berkshire Hathaway when Buffett passes.

Buffett spoke of “scamming” as a growth industry, which will be enabled by AI.  While he didn’t see AI as all bad, he did note that the potential for AI to manipulate videos and images - to extract money from people - poses enormous harm to those who are unsophisticated in critically evaluating these types of media.

One of the best lessons from Charlie Munger.

Patience.

Munger was well known for waiting – not only when it came to building wealth, but for finding attractive investing opportunities.

In his words: “We wait for no-brainers.  We’re not trying to do the difficult things.  And we have the patience to wait.”

When it came to investing in what he viewed as great companies, Munger shared Buffett’s view that your best move as an investor is holding for the long term.

In Buffett’s words: “When we own portions of outstanding businesses with outstanding managements, our favourite holding period is forever.”

Warren Buffett’s insights about life.

“If you are lucky in life, make sure others in life are lucky too.”

“Be kind and the world will be better off.”

Market Update:

S&P500

It’s possible that this correction is completed to enable the resumption of uptrend in a Wave 5 advance towards the next upside target at around 5,450.  If the 5^th wave has begun, then support at 5,060/5,011 should now hold.

We must be aware, though that there is still risk of a final sell-off toward the low/mid 4,800’s, before the uptrend is ready to resume.

The Bigger Picture outlook remains bullish.  The 5,735 mark is the potential target over the coming months.

Gold

Gold has been undergoing a 4^th wave correction.  A sustained break above $2,350 resistance will represent the resumption of uptrend for rally back toward the area of $2,430.

The Bigger Picture outlook remains bullish, with the next upside target at around $2,530.

Bitcoin

Bitcoin has been undergoing a 4^th wave correction, and this might be completed now.

Support lies around the $59,500 level.  If this area holds, we should now see rallies on to the next resistance areas at $67,240 and $73,794 levels.

Bitcoin’s bullish structure remains in place.

QI Corner

Cheers

Jacquie

( THE YEN IS FACING A DILEMMA)

May 1, 2024

Hello everyone,

Welcome to May, and what could be a continuation of the market behaviour we saw in April.   The market is in the doldrums about what the Fed might say on Wednesday. Investors are already interpreting and theorizing possible outcomes, hence putting the market on the back foot. 

As we wait to decipher the Fed’s stance on the road ahead, let’s look at what Bank of America thinks about this market correction.

According to the firm, investors should not panic.  Instead, they should use the downside movement as a promising entry point before the market swings back to the green this summer. 

It’s that ‘buy on the low, sell on the high’ idea.  Most of the reluctance to buying at these times comes from the mindset: ‘But, what if the market (or stock) goes lower?’    Answer:  you buy in small parcels at different levels, average in.

That’s how I approach the market.  Take what the market gives you. 

During election years, headwinds in April and May can be expected.   But this is mostly temporary.  Seasonality supports buying the dip prior to a summer rally.  Volume indicators for the S&P 500 are suggesting a pause ahead of upsides in the summer.

Why is the Japanese Yen cratering?

The Japanese stock market has been rallying over the past few years.  From its Covid-induced low in 2020, the Nikkei has run to a record high of over 38,000.   That gallop has even outdone the U.S. S&P500 over the same period. 

Japan’s previous three decades saw stagnant performance and low economic growth.  Now in 2023/2024, we see Japan’s stock market entering a new era of strength, but alongside this strength, the Japanese Yen has collapsed.

On Monday morning the Yen briefly touched 160, a 34-year low compared to the U.S. dollar.  However, in what may have been the Bank of Japan's intervention, the dollar dived below 157 in a heartbeat not long after the low was reached.  In January 2023 the Yen was sitting at 129.  So, what gives?

The Yen’s collapse can mostly be explained by the rising U.S. interest rates.  The currency’s fortunes are mostly tied to expected interest rate differentials.  In other words, the Yen will fluctuate in accordance with the anticipated difference between the interest rates in Japan and other parts of the world, most particularly the U.S.

So, when the U.S.’s interest rates are higher than Japan’s, it puts pressure on the yen.  And the reasons for this are twofold.  Firstly, due to Japan’s low interest rates, the yen is often used in the so-called “carry trade.”  This means investors can borrow at a low interest rate to invest in an asset with a higher return.  So, you might see a fund manager borrowing yen and investing it in a higher-yielding foreign instrument, pocketing the difference. 

The interest rate differentials between Western powers and Japan also impact investment and hedging in Japan’s $4.2 trillion portfolio of overseas assets.  When Japanese investors see that interest rates are far higher in other developed nations, they’ll often increase their investment in these overseas assets, pulling down the yen.  Hence the rising interest-rate differential between the U.S. and Japan has become quite a dilemma for the yen over the past few years.

In the short to medium term, there is little likelihood of change here for JPY/USD.  With the resilient U.S. economy and inflation showing signs of accelerating, many believe the Fed is unlikely to cut interest rates soon, which will see the yen remaining at the mercy of developments, particularly in the U.S.

But the tide will eventually turn.  U.S. and European central banks will eventually cut their respective interest rates, lessening the painful interest-rate differential for Japan.

Bank of America argues that the Bank of Japan may hike rates in the third quarter, and the U.S. could cut rates.  This would then pave the way for yen appreciation. 

QI Corner

Cheers,

Jacquie