(SUMMARY OF THE GREAT ROTATION – AUGUST 16, 2023 WEBINAR)

August 23, 2023

Hello everyone,

Webinar Title: The Great Rotation

Thursday, September 6: San Diego luncheon.

Performance: -4.70% MTD
Year to Date: 60.8%
Since inception: +657.99%
Trailing one-year return: +92.45%
Average annualized return: +48.15%

 

Method to My Madness

Rotation underway from Big Tech to industrials, commodities, and energy.
Tech sell-off should be brief/short-term.

Rising interest rate fears are pushing Bonds down.

The Fall may present an excellent window to buy stocks. Make sure precious metals and commodities are at the top of the “buy” list.

Be patient – wait for the set-up.

If you’re interested in SNOWFLAKE wait for a bigger dip.

John’s suggestion – buy TLT LEAPS at 90.

 

The Global Economy – Bouncing

Nonfarm Payroll drops to 187,000 in June. One year low.

Headline unemployment rate returned to 3.5% - a 50-year low.

Inflation jumps to 0.2% in July and 3.2% YOY.

Rents, education, and insurance (climate change) were higher while used cars were down 1.3% and air fares plunged by 8.1%.

PPI rose 0.3% in July.

Deflation hits China – economy struggling post-COVID.

 

Stocks – Correction Time

U.S. seeing big equity outflows. Approx. 15b fleeing the market. They believe the party is over for 2023.

Moody’s threatened downgrade of regional banks.

Albermark (ALB) to boost Lithium Production with a new filtering technology at an Arkansas plant to meet exploding demand from EV makers.

Berkshire Hathaway (BRKB) posts record profits up 38%.

Rivian (RIVN) beats, losing only $1.08 a share versus an expected $1.41.

Biden cracks down on tech.

Buy Adobe on dips.

Freeport McMoran (FCX) – looking like a great LEAPS trade at this level.

Keep buying Berkshire (BRKB) on dips.

Emerging Markets (EEM) strong buy here.

 

BONDS – Probing for a Bottom

The falling interest rates/rising bond prices are delayed after Fitch downgrade and hotter than expected economic growth at 2.40% for Q2.

U.S. Debt downgrade from AAA to AA+ by Fitch rating agency for only the second time in history.

Bonds (TLT) took a hit – but they are still the safest and most liquid investment in the world when held to expiration. Keep buying 90-day T-bills = 5.2% risk-free yield.

Still looking like 3.50% yield by the end of 2023.

Junk Bond ETFs (JNK) and (HYG) still holding up extremely well with a 6.5% yield.

According to John Bonds are still likely to hit $110 by year-end.

Foreign Currencies

Japanese Yen is headed for multi-year lows at 150.

Investors flee to safe-haven short-term investments.

Any strength in U.S.$ will be temporary.

Look for new dollar lows by the end of 2023.

Buy FXE, FXB, and FXA on dips. Avoid FXY.

Energy and Commodities – Reborn Again

Natural Gas soars to a new 2023 high and accomplished an upside breakout on all charts. European gas prices have just jumped 40%. An Australian strike shut down an LNG export facility.
Oil may break out to $100.
China expects LNG Price Spike later this year due to coming supply shortages and a recovering economy.

Exxon Mobile Corp. (XOM) –LEAPS territory.

Precious Metals – Take a Hit.

No Fed Action to lower rates undercuts precious metals. Interest rate rises in Europe and Australia aren’t helping either.

Gold is headed for $3000 by 2025.

New drivers are soon to be falling interest rates and the demise of crypto. Silver is the better play with a higher beta.

Russia and China are also stockpiling gold to sidestep international sanctions. A severe short squeeze in copper is developing, leading to a massive price spike later in 2023.

 

Real Estate – Coming Back

Home Mortgage rates hit a 22-year high at 7.24%. The existing home market and new home market is on fire in anticipation of the coming rate fall.

Rising rents still the big input into the Fed’s inflation calculation.

Case Shiller rose by 0.7% in May.

We are at the beginning of a decade-long demographic-driven bull market in residential real estate.

 

 

Economic growth and market performance should improve in 2023, but things may get worse before they get better.  So, there may be some strong cross currents ahead.

Cheers,

Jacquie

 

(AN UPDATE ON MR MARKET AND OXY)

August 18, 2023

Hello everyone,

We are now into the middle of August. It’s looking like August and September will be bearish months for the markets and yields on the 2- and 10-year Bonds will continue to make a final push to the upside. Yields on the 10-year could get up to 4.33% or even 4.80%. Then there is likely to be a medium-term retracement. S&P 500 could dip to around 4,300 before rallying into the end of the year. The gold sell-off is persisting. A final bottom may be found around 1880 or 1850, or even into the 1700’s if there is a capitulation sell-off. Then, it is the buy of the century. Look for Oil to be in the low to mid $90s by the end of the year.

There is constant talk about whether the so-called landing will be soft or hard. Whatever it is, volatility is sure to be present. So, if we have some gut-churning down days in the market, and all the numbers turn red on your screen, please don’t sell everything in your portfolio. This only benefits the brokers, who get the commission on your sales, and the institutions who buy everything you sold at great prices.

Update on Occidental Petroleum
Our OXY trade sent out at the beginning of July is doing well. I hope many of you managed to enter the trade or bought the stock or did both. Looks like we got in near the low in the stock.

 

 

In a deal worth more than $1 billion, Occidental Petroleum (OXY) will acquire Carbon Engineering. It’s just another sign how focused the oil majors are on carbon mitigation. Such partnerships will help Occidental develop carbon air capture solutions as clean energy grows increasingly important to corporate America. Occidental will also likely be a beneficiary of the Inflation Reduction Act benefits for carbon storage. (I mentioned the latter act in Monday’s Post when I was speaking about Hydrogen). Occidental and a handful of other companies such as Baker Hughes, Weyerhaeuser, and Bloom Energy (see Monday’s Post) are potential winners arising from the growing focus on carbon technology.

Some housekeeping:

I am now starting to pair or group subscribers together according to the Buddy System. So, if you answered B in the survey (and would be happy for some help) you will be likely to get a call or email from your Buddy peer over the next week or so. This will only work if people engage with the idea. It is designed to help everyone.

A social get-together is in the planning. It’s likely to be in the next few months. I will give you a fair warning. A survey will be sent out, so we can gauge interest and numbers. It will be held in the U.S.

August Zoom meeting will be held in the next couple of weeks. A Zoom link will be sent out giving you access. This is an informal meeting allowing you to interact with other subscribers, ask questions and make comments.

Wishing you all a great weekend.

Cheers,

Jacquie

 

 

 

(WHAT’S A POTENTIAL $2 TRILLION GREEN FUEL SOURCE – LET’S TAKE A LOOK AT HYDROGEN)

August 14, 2023

Hello everyone,

Hydrogen equities have been tossed about and beaten down in recent months. However, many analysts, believe that this sector remains central to the energy transition and could become a $1 trillion to $2 trillion -size market by 2050.

What deflated hydrogen stocks?

Higher interest rates.
Lack of profitability and improvements in batteries.

To support the hydrogen sector, countries around the world have brought in policies.

Analyst, Neil Beveridge comments that The U.S.’s Inflation Reduction Act and Programs in the European Union and China support the demand case for hydrogen.

Beveridge goes on to argue that most energy companies believe that hydrogen will play an important part in their business in the future. Importantly, he also points out that there are simply no alternatives in areas such as heavy industry, chemicals, and heavy transport. Green hydrogen, he believes, will be the driver of momentum in the industry. It’s the “cleanest” method of hydrogen production fuelled by renewable energy sources, while blue hydrogen is produced from natural gas mixed with hot steam and a catalyst.

Do we want a fast and cheap solution to decarbonization? – then a mix of green and blue hydrogen could be our answer.

Beveridge notes that over the past year, there has been a 200% increase in blue hydrogen projects announced, amounting to 14 million tons per annum.

Hydrogen demand in the U.S. alone could increase up to 17 million metric tons by 2025 and 63 million metric tons by 2050. The heightened demand will in turn result in rapid growth within the hydrogen generation sector at a compounded annual growth rate (CAGR) of at least 9.2% into 2025, resulting in a forecasted market value of $201 billion.

The hydrogen industry is still in its early stages of development, and growth may not start to show a steady pace until 2025. However, the policies are in place to support this industry and analysts remain optimistic about the future.

TOP HYDROGEN STOCK PICKS

Plug Power stock has fallen more than 27% year to date, but many analysts are arguing that shares could double in value from its present price.

Plug Power is targeting $3 billion in revenue by 2025 and $5 billion by 2026 and has firm plans in place in terms of electrolyser deliveries in the U.S.

 

 

Why Plug matters!

PLUG’s key hydrogen product and solution offerings currently include the following:

• GenDrive – A hydrogen-fueled polymer electrolyte membrane (“PEM”) fuel cell system used in powering material-handling industrial vehicles, including electric forklifts, Automated Guided Vehicles, and ground support equipment.
• GenFuel – A liquid hydrogen fueling delivery, generation, storage, and dispensing system that could be installed on client-site to facility refueling of hydrogen fuel cells.
• GenSure – A stationary fuel cell solution that supports the power requirements of the telecommunications and utility sectors; examples of GenSure applications include serving as backup power generators for data centers and power grids.
• ProGen – A fuel cell engine technology currently used in mobility and stationary fuel cell systems, as well as engines in electric delivery vans.
• GenFuel Electrolyzes – A modular and scalable hydrogen generator that splits water using renewable energy inputs, such as solar or wind power, into green hydrogen and oxygen through a process called “electrolysis.”
• GenCare – An internet-of-things-based maintenance and on-site servicing program for the GenDrive, GenSure, GenFuel, and ProGen systems
• GenKey – A vertically integrated turnkey solution that bundles PLUG’s product and service offerings based on customer needs.

 

 

Bloom Energy is another U.S.-based hydrogen company.   The stock has declined 21.3% year to date.  Many analysts forecast that the shares could rally 73% over the next 12 months.

 

 

Doosan Fuel Cells is a hydrogen company based in South Korea. It trades in the U.S. through over-the-counter securities.   It is a leader in developing the technology used for fuel cells in stationary power.    Bernstein points out that the stationary power market is forecasted to grow 75% in 2023 on a year-over-year basis. 

The next five to ten years will be an opportune time for the hydrogen industry. PLUG has an established reputation in the industry and advanced technology as well as an impressive list of customers (e.g., Amazon, (AMZN) Walmart (WMT), and The Home Depot (HD).  The transition to alternative energies should see this industry boom in the decades ahead.

Please note that I am not making any recommendation to buy any of the shares here.  I am simply sharing analysts’ views on the top stocks in this industry with an eye on what could happen in the future. The industry looks promising, and prices of these top stocks look attractive. Any purchase of a parcel of shares in this industry would be done with a long-term perspective. 

 

 

 

Wishing you all a great week.

Cheers,

Jacquie

 

 

(UNDERSTANDING BEHAVIOURAL FINANCE CAN HELP US MAKE BETTER FINANCIAL DECISIONS)

August 9, 2023

Hello everyone,

Today I want to explore elements of behavioural finance. Behavioural finance explains how decision-makers take financial decisions in real life, and why their decisions might not appear to be rational every time and, therefore, have unpredictable consequences. When we look at the subject of behavioural finance, we are analysing the influence of psychological biases. Among the common behavioural financial aspects are loss aversion, consensus bias, and familiarity tendencies.

Understanding human behaviour is at the core of most behaviour-based finance theories. Learning some common biases and beliefs can help better predict the decisions that individuals might make in the future. The elements of this theory may include:

 

Self-deception

Self-deception relates to the idea that human beings may be missing important information that is required to make an informed decision. People may think they know more than they actually do, which can lead to errors when making financial decisions. This idea can mask itself in our emotions and manifest itself as feelings of overconfidence or self-assurance.

Or we can also term this Overconfidence. Overconfidence is a cognitive bias that causes people to overestimate their knowledge, skills, or ability to predict future outcomes. In finance, overconfidence can lead to excessive trading, under-diversification, and inadequate risk management.

 

Mental accounting

Mental accounting is the human tendency to assign subjective value to money. People tend to separate money into different mental accounts that affect the way they spend it. For example, if someone receives a tax refund, they may likely see it as extra money, or a windfall. In reality, the money already belongs to them. Although the refund money is part of their regular income, they may spend it on discretionary items because they see it as disposable.

 

Heuristic simplification

A heuristic simplification accounts for human error when analysing data and information. Heuristics are mental shortcuts that reduce mental processing effort. They factor into whether people fully process information, which can have a significant impact on their financial decisions.

 

Emotion

Emotion in finance refers to how our emotions can influence the decisions we make. And doesn’t this ring true for all of us. We all understand how strongly emotions influence our financial decisions making. Emotions help shape the human mindset and are typically the primary reason people may struggle to make informed decisions. For example, when people experience positive emotions, such as excitement and optimism, they’re more likely to take risks when investing. Isn’t it true that when you have had a run of great profitable trades, you tend to place bigger positions?

When people are feeling low in their emotions and experience emotions such as sadness and anxiety, they become more risk-averse and are less likely to make major financial decisions. It can also be said that people with these emotions are often vulnerable and easily influenced by financial “vampires” or fraudulent financial schemes as they are often looking to escape a situation or person and will consider alternatives not normally considered when they are thinking rationally.

 

Social influence

The social environment can play a considerable role in human behaviour. Social influence bias explains why humans make investment decisions based on what other investors are doing. By preparing and planning financial decisions, you are less likely to let factors such as emotion, deception, or social influence affect your actions.

Other key concepts in behavioural finance that you need to be aware of.

 

Confirmation Bias

Confirmation Bias is the tendency to seek, interpret, and remember information that confirms one’s pre-existing beliefs while ignoring or discounting contradictory evidence. This bias can contribute to investment mistakes such as holding onto losing positions or overlooking red flags.

 

Loss aversion

Loss aversion is the tendency for individuals to prefer avoiding losses over acquiring equivalent gains. The bias can lead to risk-averse behaviour when facing potential gains and risk-seeking behaviour when facing potential losses. In other words, we might hear that a trader stops out of winning positions early and doubles up on losing positions.

 

Herding Behaviour

Herding behaviour is individuals’ tendency to follow a larger group’s actions or beliefs, even if It contradicts their own judgement or available information. In finance, herding can contribute to market bubbles and crashes.

Availability bias
Availability bias is the tendency to rely on readily available information or recent experiences when making decisions, often leading to a distorted perception of probabilities and risks.

By identifying the various biases that we may have, we will be better prepared to make more rational, thoughtful, and informed decisions in the future.

 

 

 

 

“Investing isn’t about beating others at their game. It’s about controlling yourself at your own game.”
–Jason Zweig

“The investor’s chief problem – and even his worst enemy – is likely to be himself.” – Benjamin Graham

“Overconfidence is a very serious problem. If you don’t think it affects you, that’s probably because you’re overconfident.”
– Carl Richards

Have a great week.

Cheers,

Jacquie

 

(WHERE THE 10-YEAR TREASURY YIELD COULD BE HEADING AND WHY WE SHOULD CARE?)

August 4, 2023

Hello everyone,

Treasury yields rose on Thursday as investors digested fresh economic data and weighed Fitch’s U.S. downgrade from AAA to AA+ citing “fiscal deterioration” and concerns about growing general debt. The 10-year Treasury was up 11 basis points at 4.187%. The yield on the 2-year Treasury was flat at 4.887%.

What is a Treasury yield?

The Treasury yield is the annual interest rate that the U.S. government pays on one of its debt obligations, expressed as a percentage. In other words, Treasury yield is the annual return investors can expect from holding a U.S. government security with a given maturity.

Why is the 10-year Treasury yield important?

The 10-year Treasury yield indicates the overall state of the stock market and the general economy. Higher yields can indicate higher inflation expectations. It also influences many other interest rates, including mortgage interest rates, auto loans and business loans. Yields have a see-saw effect on these rates.

When the 10-year yield goes up, so do mortgage rates, and other borrowing rates. When the 10-year yield declines and mortgage rates fall, the housing market strengthens, which in turn has a positive impact on economic growth and the economy.

The 10-year Treasury yield also impacts the rate at which companies can borrow money. When the 10-year yield is high, companies will face more expensive borrowing costs that may reduce their ability to engage in the types of projects that lead to growth and innovation.

The 10-year Treasury yield can also impact the stock market, with movements in yield creating volatility. Rising yields may signal that investors are looking for higher-return investments but could also spook investors who fear that rising rates could draw capital away from the stock market.

The chart below shows possible targets on the U.S. 10-year benchmark yield.
In the short term, the latest advance in yields commenced on their 3.7268% low of July 19th. We can see that support now lies at 4.00/3.92%, with an opportunity for rally toward potential targets around the 4.36% and 4.80% levels, before exhaustion. Then we may see a medium-term pullback before another possible rally in yields.

 

 

 

Wishing you all a wonderful weekend.

Cheers,

Jacquie