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Mad Hedge Fund Trader

May 30, 2023

Jacque's Post

 

(MAY 24, 2023 WEBINAR SUMMARY – BIG TECH MELT UP)

May 30, 2023

Hello everyone.

Lunches:
July 6, 2023, New York
July 13, 2023, Seminar at Sea (Aboard the Queen Mary)
July 19, 2023, London (walking distance from Piccadilly in a private military club)

Performance:
May – 2.70% MTD
64.24% so far this year
113.84% trailing one-year return.

Positions:
Short Strangle
Risk on (TSLA) 6/120-130 call spread (idea here is belief it won’t go below 130)
Risk off (TSLA) 6/210-220 put spread (idea here is belief it won’t go above 210)

Now 80% cash. 41-44 positions have made money.

Method to My Madness

The debt ceiling drama has frozen all markets. Lower volatility has managed to recover to $21.

Bond yields have jumped to 3.75%.

Markets are flashing red = reduce risk-taking.

Trading volumes are down.

Summer will be the time to buy.

Put precious metals and commodities at the top of the list.

If there is a default, there may be a 50% stock market correction.

The follow-up would be that it would get defaulted in days.

AI will take the DOW average from 36,000 to 240,000 over the next 10 years.
AI will automatically triple the value of any company now using it even though it may take years for the stock market to catch up. Of course, regular earnings growth will be a boost here also.

NVDA goes up seven times from here to well over $1000.
Mad Hedge recommended NVDA on a split adjusted basis around $20.

Global Economy – Rolling over.
CPI hits 4.9% YOY after the 0.40% report for April.
Leading economic indicators gave up 0.6% in April, to 107.5 (2016 is the baseline at 100) as rolling over economic data heightens recession risks.
Philadelphia Fed Manufacturing Index collapses, down from 20 to 10.5, approaching a three-year low.
Retail sales drop 0.4% in April.

Market Timing Index at high-risk territory.
Risk at 7 months high.
DO NOT BUY here.

Weekly Jobless claims are falling.

Stocks

There is a 1,000-point drop in the market waiting to happen. And that happens when the market rallies on a Biden McCarthy debt ceiling deal, which McCarthy’s own party then votes down.

Equity allocations are at 15-year lows, with massive amounts of cash in 90 days T-bills. Look for money to pour into stocks in the second half.

Insiders are loading the boat with regional bank shares.

First Solar rockets 26% on an easing of U.S. Treasury rules on what defines “Made in America.”

FANGS to rise 50% by year-end, says Fund Strat’s ultra-bull Tom Lee.

All charts on tech shares are looking the same.

In the following list of stocks two-year LEAPS are a possible play at these prices.

UPS United Parcel Service
CAT Caterpillar
FCX Freeport McMoran
DIS Disney
X United States Steel Corporation
UNP Union Pacific
AMGN Amgen
GS Goldman Sachs
MS Morgan Stanley
BAC Bank of America
SCHW Schwab
BLK Blackrock
BRKB Berkshire Hathaway -buy on any dips – it’s a long-term play.

Bonds
Waiting for a capitulation sell-off in the TLT which will be triggered by inaction in Washington.

When a deal is done, it will unleash a new onslaught of bond selling by Treasury – now limited by the old debt ceiling and lower lows on bonds.

Rising interest payments by Treasury = less money to pay other bills and earlier debt ceiling deadline.

If TLT hits $95 we will be issuing recommendations for call spreads and LEAPS.

Treasury to issue $700 billion in T-bills within weeks of a debt ceiling deal, pushing short-term yield ups. The question is with a TLT at a $100 handle, a 2023 low, how much is already in the price?

Keep buying 90-day T-bills, now pushing a 5.2% risk-free yield.

Junk Bond ETFs are great high-yield plays (JNK) and (HYG).

Buy SDS for protection against long-term positions.

Foreign Currencies
Expect the dollar to fade soon. Dollar sell-off will accelerate on any debt default. Any strength in the dollar will be temporary. New lows by end of 2023.
Buy FXE, FXY, FXB, and FXA on dips.

Energy and Commodities
The Oil Collapse is signaling a recession as is weakness in the other commodities, even lithium.

It has been the worse-performing asset class of 2023.

Buy (USO) on dips on an economic recovery play.

Look for UNG to triple in the next year.
FCX – a golden cross is setting up.

Precious Metals are resting for the moment.
Gold is headed for $3000 by 2024.
Drivers – soon to be falling interest rates and demise of crypto.
Silver is the better play with a higher beta.
Buy GOLD, GDX, SLV, SIL.

Real Estate
This sector is showing signs of life. A tidal wave of millennial buyers is under the market.
Some borrowers are moving to 40-year mortgages to lower monthly payments. New home sales hit 13 months high up 4.1% in April.
Median home prices are down 8.2% YOY.

CCI Crown Castle International 5.4% yield. It’s also a LEAPS candidate at this price.

Wishing you all a great week.

Cheers,

Jacquie

 

 

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Mad Hedge Fund Trader

May 26, 2023

Jacque's Post

 

(WHAT IS A BUY WRITE AND HOW DO I USE IT)

 

May 26, 2023

Hello everyone,

Would you like your shares to start working for you? I’m talking about a trading strategy, where your shares pay you. And I‘m not just talking about those dividends you receive.

I’m talking about Buy Writes. Also called covered calls. The investors sell options over a stock held in a portfolio to generate cash and therefore guarantee a modest return from them. The option buyer gets the right to “call away” the fund’s shares if they hit or exceed agreed-upon prices.

So, for the beginner, a buy write is combination of positions where you buy a stock and sell short options on the same stock against the shares at a higher price, usually on a one-to-one basis.

“Writing” is another term for selling short in the options world because you are in effect entering into a binding contract. When you sell short an option you are paid the premium the buyer pays, and the cash sits in your brokerage account accruing interest.

If the stock rallies, remains the same price or rises just short of the strike price you sold short, you get to keep the entire premium.

Most buy writes take place in front-month options and the strike prices are 5 or 10% above the current share price. I’ll give you an example of a 2021 Apple position.

Let’s say you own 100 shares of Apple (AAPL) at $140. You can sell short one August 2021 $150 call for $1.47. You will receive the premium of $147.00 ($1.47 X 100 shares per option). Remember, one option contract is exercisable into 100 shares.

If Apple shares close under $150 at the August 20 option expiration you get to keep the entire premium. If Apple closes over $150 you automatically become short 100 Apple shares. Then you simply instruct your broker to cover your short in the shares with the 100 Apple shares you already have in your account.

Buy writes accomplish several things. Firstly, they reduce risk, pare back the volatility of your portfolio, and bring in extra income. In a nutshell, it will enhance the overall performance of your portfolio.

But how do you know when to pull the trigger on this strategy? If the market is going straight up, you don’t want to touch buy writes with a ten-foot pole as your stock will get called away and you will miss substantial upside.

It’s preferable to skip dividend-paying months, usually March, June, September, and December, to avoid your short option getting called away mid-month by a hedge fund trying to get the dividend on the cheap.

You don’t want to engage in buy writes in bear markets. Whatever you take in with option premium it will be more than offset by losses on your long stock position.

O.K. let’s say you are a very cautious kind of person. Instead of selling short the $150 strike you call sell the $155 strike for less money. Then your risk of a call away drops too.

You can also go much further out in your expiration date to bring in more money. If you go out to the January expiration you will take in more option premium.

Let’s say you are a particularly aggressive trader. You can double your buy write income by doubling your option short sales at the ratio of 2:1. However, if Apple closes above $150 by expiration day you will be naked short 100 shares of Apple.

It may be that you won’t have enough cash in your account to meet the margin call for selling short 100 shares of Apple so you will have to buy the shares in the market immediately. Maybe you should leave that to the professionals.

Hang on. There’s another way to do this.

Instead of buying stock, you can establish your long position with another call option. These are called “vertical bull call debit spreads” and are a regular feature of the Mad Hedge Trade Alert Service. The “vertical” refers to strike prices lined up above each other. The “debit” means you must pay cash for the position instead of getting paid for it.

What about if there was a way to get into the position for free?

You could buy one call option and sell short two call options against it for no cost. The downside is that you go naked short if the share rises above the short strike prices, again triggering a margin call.

One strategy you must love is LEAPS (Long Term Equity Anticipation Securities). Go out with your expiration one to two years. Some investors are purely directional in their options. In other words, they buy a straight call, rather than doing a bull call spread. That’s OK. It’s up to you. I’m just giving you options (sorry for the play on words there).

Wishing you all a happy mid-week.

Cheers,

Jacquie

 

 

 

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Mad Hedge Fund Trader

May 24, 2023

Jacque's Post

 

(WHO IS IMPACTED IF THE U.S. DEFAULTS ON ITS DEBT)

May 24, 2023

Hello everybody,

98 times in the past, the debt ceiling has been raised. Why should this time be different? If it is different this time, who takes the brunt of the effect?

Let’s see.

First, we have the veterans. There is a bill of $12 billion on June 1 for veterans’ benefits. If there is not enough money on hand to pay those benefits, people who have already sacrificed a lot for their country will have to sacrifice a lot more. There are people on very low, sometimes fixed incomes who rely on these payments as a lifeline to pay for housing, pay for food, to pay for expenses for children and other family members.

The government is also scheduled to pay $12 billion in military and civilian retirement benefits on June 1. If those payments are delayed for any length of time, people with little or no savings might have to turn to credit cards, which carry increasingly costly interest rates.

The government is scheduled to pay $25 billion in Social Security benefits on June 2 – one of several big payments the program will make over the course of the month.

Another group that would be impacted would be home buyers. The real estate website Zillow estimates that a prolonged government default could send mortgage rates soaring as high as 8.4% from about 6.4% today. That would put homes out of reach for hundreds of thousands of would-be buyers.

Other payments that would be jeopardised include the following:

$47 billion for Medicare providers, due on June 1.

$1 billion in tax refunds, set to go out June 7.

$4 billion in federal salaries, payable on June 9.

Others include:

Food stamp recipients. Education programs, Défense contractors.

Ok, let’s look at the markets for a bit.

The S&P advance should persist and is still able to extend on to the next resistance at around 4310 – 4325. Above this resistance lies 4385.

The U.S. stock market’s advance this year has been led by the Nasdaq index, with the FANG stocks leading the charge forward. In late March this year, the Nasdaq completed a bullish 9-month inverse Head and Shoulders reversal pattern, yielding up an upside target around the 15,600 level. This target remains in play. If this target is punched through, we could see 18,000.

If you were looking to buy any stocks now, I would be looking at Apple, which has a target of around $190, and Microsoft, which has a target of around $345.

GOLD – a correction is in progress. We could get down to around $1920. Then you want to buy with both hands. Look at GOLD, WPM, and SLV. First target is around $2,360.

U.S.$ - Look to fade the dollar very soon. Start buying small parcels of AUD, Euro, Pound, NZ$, and Yen.

 

 

Wishing you all a happy mid-week.

Cheers,

Jacquie

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Mad Hedge Fund Trader

May 22, 2023

Jacque's Post

 
 

(A TANDEM SOLAR PANEL COULD BE THE FUTURE)

May 22, 2023

Hello everyone,

We all know about solar panels. Some of us have them. Some of us don’t.

Is there a chance we can make them more efficient?

Bill Gates seems to think so.

His Breakthrough Energy Ventures is exploring the mineral perovskite, which was found about 200 years ago, to see if it can lead to a new, more efficient leader in solar energy.

Apparently, perovskite has a crystal-like structure that could transform sustainable energy by boosting the efficiency of commercial solar panels.

Solar panels accounted for nearly 5% of U.S. energy production last year, up almost 11-fold from 10 years ago and enough to power about 25 million households. Nearly all the solar modules that are used in power generation today consist of conventional silicon-based panels made in China, a technology that has changed little since silicon cells were discovered in the 1950s.

Other materials used, like gallium arsenide, copper indium gallium selenide and cadmium telluride – the latter a key to the largest U.S. solar company First Solar’s growth - can be very expensive or toxic. Backers of perovskite-based solar cells say they can outperform silicon in at least two ways and accelerate efforts in the race to fight climate change. Just this week, First Solar announced the acquisition of European perovskite technology player Evolar.

How does it all work and what are the barriers in silicon-based solar panels?

Photovoltaic cells convert photons in sunlight into electricity. But not all photons are the same. They have different amounts of energy and correspond to different wavelengths in the solar spectrum. Cells made of perovskites, which refer to various materials with crystal structures resembling that of the mineral, have a higher absorption coefficient, meaning they can grab a wider range of photon energies over the sunlight spectrum to deliver more energy. While standard commercial silicon cells have efficiencies of about 21%, laboratory perovskite cells have efficiencies of up to 25.7% for those base don perovskite alone, and as much as 31.25% for those that are combined with silicon in a so-called tandem cell.

Sustainability and cost are also brought into the frame. Perovskite cells can be more sustainable to produce than silicon. Intense heat and large amounts of energy are needed to remove impurities from silicon, and that produces a lot of carbon emissions. It also has to be relatively thick to work. Perovskite cells are very thin – less than 1 micrometre – and can be pained or sprayed on surfaces, making them cheap to produce. A 2020 Stanford University analysis of an experimental production method estimated that perovskite modules could be made for only 25 cents per square foot, compared to about $2.50 for the silicon equivalent.

It looks like many industries in all corners of the world will start production lines in factories for the commercialization of their solar cells before 2025. And it looks like the tandem module will become a breakthrough climate technology. CubicPV has been backed by Bill Gates’s Breakthrough Energy Ventures and they have been developing these tandem modules since 2019.

A tandem module is one which has a bottom silicon layer and a top perovskite layer, and their efficiency can reach as much as 30%. And there are advantages. CubicPV argues that the company’s perovskite chemistry and its low-cost manufacturing method for the silicon layer make the tandem approach economical. CEO of CubicPV, explains that tandem extracts more power from the sun, making every solar installation more powerful and accelerating the world’s ability to curb the worst impacts of climate change. Furthermore, he believes that the entire industry will switch to tandem within the next decade.

How do these cells perform outside a lab environment?

And will the tandem cells have the required stability to be commercially viable?

Japan seems to think so.

They are now building these panels into walls and windows in their buildings.

Exhibited at CES 2023, Panasonic’s 30 cm-square perovskite-only cell has an efficiency of 17.9%, the highest in the world, according to a ranking from the U.S. National Renewable Energy Laboratory. Panasonic says it aims to commercialize its perovskite cells in the next five years.

Perovskite cell inventor Miyasaka believes perovskite-based power generation will account for more than half of the solar cell market in 2030, not by replacing silicon but through new applications such as building walls and windows.

It looks like this mineral could be a big contributor to realizing a self-sufficient sustainable society.

Welcome to a new week.

Have a good one.

Cheers,

Jacquie

 

 

 

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Mad Hedge Fund Trader

May 19, 2023

Jacque's Post

 

(THESE STOCKS MAY BENEFIT OR LOSE FROM CHINA)

May 19, 2023

Hello everyone,

The U.S. companies listed below have a high revenue exposure to China. If the Chinese economic recovery post pandemic loses momentum, a negative trend may ensue.

 

 

Goldman Sachs has analysed company 10K filings to determine the geographic revenue exposure of each stock in the S&P 500. What they found was that several of the stocks had revenue exposure to Greater China of over 40%.

If the recovery from strict covid measures remains muted, these stocks could be hurt. Early in the year, consumer and business activity was largely robust, but this has since faded.

On the other hand, if China turns on the taps and lets loose with policy stimulus to boost growth, these companies tied to the nation could see a near-term tailwind.

Companies that generate a significant number of sales from Greater China were exclusively in the chip industry, according to Goldman.

Semiconductors have been caught up in the U.S.-China battle for tech dominance. Washington has tried to cut China and Chinese firms off through sanctions and export restrictions in the past few years, including blacklisting Huawei.

The U.S. also introduced broader chip restrictions last year, aiming to deprive Chinese firms of critical semiconductors that could serve artificial intelligence and more advanced applications.

Monolithic Power Systems is on the top of the list with 65% of its 2022 revenue derived from Greater China, according to Goldman. The stock has gained about 18% this year.

Qualcomm also generated more than 60% of its revenue from the region. Qualcomm recently saw a big decline in sales from handset chips, a core business for the company. CEO Cristiano Amon has pointed out that there has been no evidence that smartphone sales are recovering in China.

===========================================================================

I’ll leave you today with this possibility. Traders in the fed funds futures are assigning a roughly 1 in 4 probability that the FOMC increases its benchmark rate by another 25 basis points following the June 13-14 meeting, according to the CME Group’s FedWatch tracker.

Have a great weekend.

Cheers,

Jacque

 

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Mad Hedge Fund Trader

May 17, 2023

Jacque's Post

 

(HOW TO PLAY A HARD LANDING)

May 17, 2023

Hello everyone,

One day the media and so-called experts in the know tell us are going to get a soft landing.

The next day they tell us that we are going to get a hard landing.

One day they tell us that inflation data is getting better.

The next day they tell us that inflation data is getting worse.

And they also tell us that the jobs numbers are too strong. The Fed needs more people unemployed.

I get it.

They want to slow things down and bring inflation down, but at what cost?

And what happens when they pause on the rate hikes or even cut, and inflation rears its head again – it’s a possibility.

It’s enough to make your head spin.

 

 

 

 

The market is almost bipolar or even passive-aggressive.
Inflation is getting better, but prices are still high and could remain so.

David Neuhauser, chief investment officer at Livermore Partners said that while the gradual decline in the inflation rate over the past year is a positive sign for the economy, he expects prices to remain stubbornly high for an extended period. He expects a hard landing.

John, on the other hand, believes that the inflation rate will come down and prices will slowly normalise, but it may be a bumpy journey to get there. He is leaning more towards the soft-landing scenario.

Neuhauser is arguing that inflation will remain a problem for some time to come and the markets won’t like that script.

If the markets don’t get a cut in rates, Neuhauser believes the S&P 500 could decline by more than 20%.

The debt ceiling crisis could get to the post first and bring the market down in the summer.

John has told us all to buy gold and silver stocks during the summer period. Specifically, GOLD, WPM, SLV, etc. Also, he has told clients to buy 90-day T-bills and the TLT – calls, call spread, and/or LEAPS.

Maybe you could also think about a couple of these stocks recommended by Neuhauser. Do your research first.

The first is Ferrari, a high-margin automaker with a significant market presence among ultra-high net worth individuals.

As inflation rises, companies serving the wealthy have outperformed as their customers are not as sensitive to price rises.

The trend is also evident in the automotive sector. For instance, Ferrari, which makes about 14,000 cars annually, is currently valued at 53 billion euros ($58 billion), compared to mass-market car maker Stellantis, which produces 6 million vehicles every year and is valued at around 48 billion.

Ferrari also reported a 24% jump in net profit and an increase in its waiting list earlier this month. Its financial results contrast with the wider automotive sector, which is struggling due to supply chain problems and rising costs.

Next is Jadestone Energy. It’s a London-listed oil and gas producer where the dynamics are taking hold and the cashflow is high going forward into next year.

Then we have Amaroq Minerals. Again, do your research. This is an Icelandic company engaged in gold and mineral exploration. It is set for strong cash flows and is about to construct its first mine. The company already owns high-grade gold and copper assets in southern Greenland. As gold prices rise, companies mining the metal benefit from bigger profit margins.

Livermore, the hedge fund founded by Neuhauser in 2009, owns shares in Amaroq, along with billionaire investor Louis Bacon.

 

 

 

 

Happy mid-week.

Be happy, healthy, and wealthy.

Cheers,

Jacque

"Too many people spend money they earned …to buy things they don’t want…to impress people that they don’t like. … The money you make is a symbol of the value you create." - Idowu Koyenikan

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Mad Hedge Fund Trader

May 15, 2023

Jacque's Post

 

(MAY 10, 2023, WEBINAR SUMMARY)
 
May 15, 2023
 
 
Hello everyone,
 
Welcome to a new week.    
 
I hope Mother’s Day celebrations went well.  Traditionally, you gave your mother a white flower on Mother’s Day to thank her for all she did.  Now, it’s become commercialised.  I still love the white flower sentiment.  It’s simple and refined and repels the commercial taint that has become ubiquitous.  
 
So, this Post will be a summary of John’s latest webinar, which was conducted last week on May 10, 2023.
  
TITLE:  DEBT CEILING DEBACLE
 
Lunches
 
May 16 Key West Strategy Luncheon
May 18 Tampa, Florida
May 19 Boca Raton, Florida
July 6 New York
July 13 Seminar at Sea On Queen Mary II
July 19 London
 
Trade Alert Performance:
 
40 out of 43 trade alerts are profitable
March 20.85%
April 15.13%
May to date 0.75%
 
2023 year to date 61.76%
120.45% trailing one-year return
48.86% average annualized return
 
Debt ceiling debacle has frozen all markets driving volatility to 2-year lows at $15.
 
Trading volumes shrinking by the day.
 
Summer will present the best buying opportunity of the year.
 
Precious metals and commodities should be at the top of the “BUY” list to cash in on an economic recovery.
 
Be patient.  Let the market come to you.
 
ADVICE:  Take a look at Schwab LEAPS.
 
The Global Economy- Hard, Soft, Hard, Soft
 
Fed raises rates 0.25%.  is this the last move this cycle and is this the last move up in the next two years?
 
Non-farm payrolls jump by 253,000.  Unemployment rate jumped by 3.4% suggesting rate hikes are to come.  (Perhaps the Fed is looking at the wrong numbers as AI is creating jobs faster than the Fed can create unemployment by raising rates and making everything expensive and unaffordable for many)   
 
Fed Financial Stability Report highlights risk to the economy.
 
Tightening of bank lending is a concern, so is commercial real estate with elevated valuations.
 
Europe ekes out 0.1% growth in Q1 versus a 1.1% rate for the U.S.
 
New car loans are in free fall.  Collateral damage from the regional banking crisis, hastening a coming recession.
 
Stocks – Dead Weight – Debt Ceiling
 
The Regional Banking crisis spreads with Phoenix Bank Western Alliance Bancorp (WAL) down a staggering 65% on the week.
 
Consensus (SPY) earnings are currently $220 a share giving expensive price/earnings multiple of 18.77x.
 
According to John, you only need to buy 7 stocks this year.  Apple, Amazon, Google, Meta, Nvidia, and Salesforce.
 
All technical are now flashing red.  Seasonals are now turning strongly against stocks.
Volatility plunges to $15 putting the market to sleep.
 
First half flat, second half strong to take us to 4,800 by year-end.
 
QUESTION:  Is it too late to buy LEAPS?
 
Two Year LEAPS are a good bet.
 
Big tech – all in LEAP territory – 1-2 years out.
 
Netflix – LEAP candidate – 1 year LEAP
 
Nvidia – John’s advice – try a 300-310 LEAP one year out.
 
Commodities in free fall – stocks have been slaughtered.
 
US Steel (X) – 2-year LEAP at the money
 
BONDS
 
Bonds back in buy territory.
 
Bonds are showing default fears.  Yellen warns of economic catastrophe if debt ceiling is not raised.
 
10-year yields back to up 3.55%
 
Keep buying 90-day T-bills – now pushing 5.2% risk-free yield.
 
Still looking like 2.5% yield by end of 2023.
 
Keep buying TLT calls, call spreads, and LEAPS on dips.
 
Junk bonds ETF – JNK and HYG are great high-yield plays.
 
 
FOREIGN CURRENCIES
 
WEAK US$.  Will accelerate on any debt default.  Any strength in the dollar will be temporary.  Look for new lows in the dollar by the end of 2023.
 
Buy FXE, FXY, FXB, FXA on dips.
 
ENERGY AND COMMODITIES
 
The Oil collapse is signaling a recession, as is weakness in all other commodities, even Lithium.
 
Widespread EV adoption is finally making a big dent, as are the price wars there.   Buy USO on dips as an economic recovery play.
 
Buy Caterpillar (CAT)
 
UNG – 2-year LEAP territory
 
FCX - LEAP territory – John expects this stock to be around $100 in two years.
 
PRECIOUS METALS
 
Chile nationalizes the Lithium industry, sending (SQM) and (ALB) into a tailspin.  The official reason for this was to make the industry more efficient.
 
The real reason is so the government can spin off the profits in this exploding industry.
 
Child is the world’s second largest producer of lithium, which is essential for EV batteries.
 
Gold is headed for $3000 by 2024.  It’s resting now.
 
The new drivers are the soon-to-be falling interest rates and the current winter season in crypto.
 
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
 
Home prices are still rising, even in worse-hit markets, like San Francisco.
 
Pending Home Sales plunge 5.2%
 
New Home sales pop to 683,000
 
S&P Case Shiller Rises 2% in February – the first time in 9 months.
 
Investors are trying to front-run the next leg of the bull market in residential real estate, which should start when interest rates plunge at year-end.
 
Wishing you all an extraordinary week.
 
Cheers,
Jacque
 
We don’t stop playing because we grow old.
We grow old because we stop playing.
 
UNKNOWN
 
 
 
 
 
 
 
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Mad Hedge Fund Trader

May 12, 2023

Jacque's Post

 

(THE BIGGEST FINANCIAL POWERHOUSE ON EARTH IS…THE CATHOLIC CHURCH)

May 12, 2023

Hello everyone,

I’ve just been looking into Avro Manhattan’s book called The Vatican Billions, which gives us a glimpse of the true financial worth of the catholic church.

My goodness! They do have quite a few bucks tucked away in various assets around the world.

Let’s see. There are large investments with the Rothchilds of Britain, France, and America, with the Hambros Bank, and with the Credit Suisse in London and Zurich. In the United States, it has large investments with the Morgan Bank, the Chase-Manhattan Bank, the First National Bank of New York, the Bankers Trust Company, and others.

Then there are investments in commodities. They have billions of shares in corporations such as Gulf Oil, Shell, General Motors, Bethlehem Steel, General Electric, International Business Machines, T.W.A, etc.

A member of the New York Catholic Conference believes that “his church probably ranks second only to the United States Government in total annual purchase.”

The Vatican, independently of each successive pope, has been increasingly orientated towards the U.S. The Wall Street Journal said that the Vatican’s financial deals in the U.S. alone were so big that very often it sold or bought gold in lots of million or more dollars at a time.

The Vatican’s treasure of solid gold has been estimated by the United Nations World Magazine to amount to several billion dollars. A large bulk of this is stored in gold ingots with the U.S. Federal Reserve Bank, while banks in England and Switzerland hold the rest.

But this is just a small portion of the wealth of the Vatican, which in the U.S. alone, is greater than that of the five wealthiest giant corporations of the country. When you add real estate, property, stocks, and shares abroad, then the staggering accumulation of wealth of the Catholic church almost defies rational assessment.

Mr Manhattan asks some serious questions in the book.

Jesus was poor and it is claimed Roman Catholicism was His Church. How can the richest organisation or corporation in the world – the Catholic Church – represent Jesus, who was the poorest of the poor?

The Church has the power to stop wars, create social programs to end famine on Earth, invest in “green technology” to create an Eco-friendly planet. Is it financially savvy for them to do this?

These are the questions that Manhattan poses.

For an organisation that has been rocked by many sexual abuse scandals and financial corruption, it appears immune to the consequences of such crimes. Any other organisation would probably collapse under the weight of its peoples’ crimes.

So, if you are interested in the Catholic Church and its Wealth, this is an interesting book to read. Another book is listed below.

Wishing you all a great weekend.

Cheers,

Jacque

 

 

 

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Mad Hedge Fund Trader

May 10, 2023

Jacque's Post

 

(IT’S ALL ABOUT THE DEBT CEILING)

May 10, 2023

 

Hello everyone,

The debt ceiling is on everyone’s mind now and is a constant topic of discussion in the financial media. So, I thought I would provide everyone with a Q & A on the issue - which I researched from several articles - to enlighten you. Enjoy.

What is the debt ceiling?

It is the total amount of money that the United States government is authorised to borrow to fulfill its financial obligations. The limit applies to almost all federal debt, including the rightly $24.6 trillion of debt held by the public and the roughly $6.8 trillion the government owes itself because of borrowing from various government accounts, like Social Security and Medicare, and trust funds. As a result, the debt continues to rise due to both annual budget deficits financed by borrowing from the public and from trust fund surpluses, which are invested in Treasury bills with the promise to be repaid later with interest.

When was the debt ceiling established?

The debt ceiling was first enacted in 1917 through the Second Liberty Bond Act and was set at $11.5 billion. In 1939, Congress created the first aggregate debt limit covering nearly all government debt and set it at $45 billion, about 10% above total debt at the time.

How much has the debt ceiling grown?

Since the end of World War II, Congress and the President have modified the debt ceiling more than 100 times, according to the Congressional Research Service. During the 1980s, the debt ceiling was increased from less than $1 trillion to nearly $3 trillion. Over the course of the 1990s, it was doubled to nearly $6 trillion and in the 2000s it was gain doubled to over $12 trillion. The Budget Control Act of 2011 automatically raised the debt ceiling by $900 billion and gave the President authority to increase the limit by an additional $1.2 trillion (for a total of $2.1 trillion) to $16.39 trillion. Lawmakers have suspended the debt limit, rather than raising it by a specific dollar amount, seven times since the beginning of 2013. The debt limit was increased – not suspended – twice in 2021, mostly recently in a December 2021 bill that formally increased the limit to $31.381 trillion.

What are extraordinary measures?

When the debt limit is reached, the Treasury Department both relies on cash on hand and uses a variety of accounting maneuvers, known as extraordinary measures, to avoid defaulting on the government’s obligations. For example, the Treasury has prematurely redeemed Treasury bonds held in federal employee retirement savings accounts (and replaced them later with interest), halted contributions to certain government pension funds, suspended state and local government series securities, and borrowed from one set aside to manage exchange rate fluctuations. The Treasury Department first used these measures in 1985, and there have been nine distinct “debt issuance suspension periods” since enactment of the Budget Control Act in 2011, including the current one.

Can hitting the debt ceiling be avoided without Congressional action?

The Treasury Department’s use of extraordinary measures simply delays when the debt will reach the statutory limit. Spending more than incoming receipts has already been legally obligated; that spending will push debt beyond the ceiling. There is no plausible set of changes that could generate the instant surplus necessary to avoid having to raise or suspend the debt ceiling indefinitely.
Some believe the Treasury Department could buy more time by engaging in other unprecedented actions such as selling large amounts of gold, minting a special large-denomination coin, issuing IOUs that could be sold and traded in private markets, or invoking the Fourteenth Amendment to override the statutory debt limit. Whether any of these tools is truly available is in question, and the potential economic and political consequences of each of these options are unknown. Realistically, once extraordinary measures are exhausted, the only option to avoid defaulting on our nation’s obligations is for Congress to change the law to raise or suspend the debt ceiling.

What happens if the debt ceiling is hit?

Once the government hits the debt ceiling and exhausts all available extraordinary measures, it is no longer allowed to issue debt and soon after will run out of cash-on-hand. At that point, given annual deficits, incoming receipts would be insufficient to pay millions of daily obligations as they come due. Therefore, the federal government would have to default on many of its obligations at least temporarily, from Social Security payments and salaries for federal civilian employees and the military to veterans’ benefits and utility bills, among others.

So-called “prioritization” of payments, or making sure certain obligations among the more than 80 million that get paid per month are paid before others – such as servicing debts to bondholders before making other payments in order to avoid technical default – has been criticized as unrealistic by Treasury officials and economists. A Treasury Inspector General report from 2012 outlined scenarios that were considered during the 2011 debt ceiling run-up and found that delay of payments, which suspended all government payments until they could all be paid on a day-to-day basis, was the least harmful scenario.

How bad are the consequences of default?

A default, or even the perceived threat of one, could have serious negative economic implications. An actual default would roil global financial markets and create chaos, since both domestic and international markets depend on the relative economic and political stability of U.S. debt instruments and the U.S. economy. Interest rates would rise, and demand for Treasuries would drop as investors stop or scale back investments in Treasury securities if they are no longer considered perfectly safe. Even the threat of default during a standoff increases borrowing costs. The Government Accountability Office (GAO) estimatedthat the 2011 debt ceiling standoff raised borrowing costs by a total of $1.3 billion in Fiscal Year (FY) 2011, and the 2013 debt limit impasse led to additional costs over a one-year period of between $38 million and more than $70 million.
If interest rates for Treasuries increase substantially, interest rates across the economy would follow, affecting car loans, credit cards, home mortgages, business investments, and other costs of borrowing and investment. The balance sheets of banks and other institutions with large holdings of Treasuries would decline as the value of Treasuries dropped, potentially tightening the availability of credit as seen most recently in the Great Recession.

A Moody’s Analytics report released in early 2023 estimated that a default could have similar macroeconomic consequences to the Great Recession: a 4 percent Gross Domestic Product (GDP) decline, nearly 6 million lost jobs, and an unemployment rate of more than 7 percent. In addition, Moody’s predicted a $12 trillion loss in household wealth, with stocks dropping by as much as one-third at the depths of the selloff.
The White House Council of Economic Advisers (CEA) has warned that the macroeconomic effects stemming from default – or even getting too close to one – can last months or even years. A CEA report found that following the debt limit run-up in 2011, mortgage rates rose 0.7 to 0.8 percentage points for two months following the crisis and rates for auto and other consumer loans also remained elevated for months. In the event of an actual default, increased unemployment rates could persist for two to four years, the report warned.

In addition, default could also ultimately add significantly to the national debt in the form of increased borrowing costs.

How does a shutdown differ from a default?

A shutdown occurs when Congress fails to pass appropriations bills that allow agencies to obligate new spending. As a result, the government temporarily stops paying employees and contractors who perform government services (see Q&A: Everything You Should Know About Government Shutdowns). However, many more parties are not paid in a default. A default occurs when the Treasury does not have enough cash available to pay for obligations that have already been made. In the debt ceiling context, a default would be precipitated by the government exceeding the statutory debt limit and being unable to pay all its obligations to its citizens and creditors. Without enough money to pay its bills, any of the payments are at risk, including all government spending, mandatory payments, interest on our debt, and payments to U.S. bondholders. While a government shutdown would be disruptive, a government default could be disastrous.

Have policymakers used the debt ceiling to pursue deficit reduction in the past?

Although policymakers have often enacted “clean” debt ceiling increases, Congress has also coupled increases with other legislative priorities. In several cases, Congress has attached debt ceiling increases to budget reconciliation legislation and other deficit reduction policies or processes.
Indeed, most of the major deficit reduction agreements made since 1980 have been accompanied by a debt ceiling increase, although causality has moved in both directions. On some occasions, the debt limit has been used successfully to help prompt deficit reduction, and in other cases, Congress has tacked on debt ceiling increases to deficit reduction efforts. For example, the 2011 Budget Control Act was enacted along with a debt ceiling increase, as was the Gramm-Rudman-Hollings Balanced Budget and Emergency Deficit Control Act of 1985.

In nearly all instances in which a debt limit increase was either accompanied by deficit reduction measures or included in a deficit reduction package, lawmakers have generally approved temporary increases in the debt limit to allow time for negotiations to be completed without the risk of default. For example, Congress approved a modest increase in the debt limit in December of 2009 while negotiations over statutory pay-as-you-go (PAYGO) and the establishment of the National Commission on Fiscal Responsibility and Reform were ongoing. Similarly, during the negotiations and consideration of the 1990 budget agreement, Congress approved six temporary increases in the debt limit before approving a long-term increase as part of the reconciliation bill implementing the deficit reduction agreement.

The Appendix contains further discussion of provisions attached to debt ceiling legislation, including bills in 1993, 1997, 2013, 2015, 2018, and 2019.

What should policymakers do?

Policymakers should work promptly to raise or suspend the debt ceiling by the deadline. Failing to raise the debt ceiling would be disastrous. It would result in severe negative consequences that experts are not capable of fully predicting in advance. Even threatening a default or taking the country to the brink of default could have serious implications. Importantly, though, failing to control the national debt would also have negative consequences; rising debt could ultimately stunt economic growth, reduce fiscal flexibility, and increase the cost burden on future generations. Thus, lawmakers should consider accompanying a debt ceiling increase with measures to begin addressing the debt.

To be sure, political advantage should not be sought by threatening default, and the debt ceiling must be raised or suspended. Lawmakers must not jeopardize the full faith and credit of the U.S. government. At the same time, the need to raise the debt ceiling can serve as a useful moment for taking stock of our fiscal state and for pursuing revenue increases, entitlement reform, and/or spending reductions.

What are the options for improving the debt ceiling?

Increasing the debt ceiling requires frequent and often contentious legislative action. While several increases have been used to enact fiscal reforms, many increases are not necessarily tied to fiscal health. For instance, debates regarding the debt ceiling often take place after the policies producing the debt have already been put in place. The debt ceiling also measures gross debt, which means that even if the budget was balanced, the debt ceiling would still have to be raised if surpluses accumulated in government trust funds like Social Security.

In The Better Budget Process Initiative: Improving the Debt Limit and subsequent publications, we have suggested reforms to the debt ceiling, grouped in four major categories:

• Linking changes in the debt limit to achieving responsible fiscal targets, so that Congress would not need to increase the debt ceiling if fiscal targets are met.

• Having debate about the debt limit when Congress is making decisions on spending and revenue levels, not after those decisions have been made.

• Applying the debt limit to more economically meaningful measures, such as debt held by the public or debt as a share of GDP.

• Replacing the debt limit with limits on future obligations.

 

 

 

 

 

Wishing you all a great week.

Cheers,

Jacque

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Mad Hedge Fund Trader

May 8, 2023

Jacque's Post

 

(THE MONDAY BRIEF ACCORDING TO JOHN)

May 8, 2023

Hello everyone,

According to John, the U.S. banking sector may be in for a shake-up in the future.

• It’s the last unconsolidated U.S. industry along with healthcare.
• In the U.S. there are five railroads, four airlines, three trucking companies, three telephone companies & two cell phone providers … and 4000 banks.
• England has five major banks.
• Australia has four major banks.
• Germany has two major banks.
• Do you think the banking system in America could be seen as a bit anachronistic?
•

Much like its federal system where the 50 states run themselves like mini countries.

The U.S. could pivot from 4000 banks to 4 major banks.

And the JPMorgan takeover of First Republic may be the genesis of such a movement.

John boils down the details here:

Look at the details of the (JPM)/(FRC) deal and you will become utterly convinced.

(JPM) bought a $90 billion loan portfolio for 87 cents on the dollar, despite the fact that the actual default rate was under 1%. The FDIC agreed to split losses for five years on residential losses and seven years on commercial ones. The deal is accretive to (JPM) book value and earnings. (JPM) gets an entire wealth management business, lock, stock, and barrel. Indeed, CEO Jamie Diamond was almost embarrassed by what a great deal he got.

It was the deal of the century, a true gift for the ages. If this is the model going forward, you want to load the boat with every big bank share out there.

So, I guess that is a big hint to buy the big banks or at least one of them now or in the future. Perhaps Bank of America could be a good pick – that’s Warren Buffett’s choice. But JPMorgan, Citibank, Wells Fargo – are all good choices too.

 

 

The next question to consider here is where are the big banks concentrated?

The East Coast – New York.

So, there will be a transfer of funds out of the Midwest and the South to the coast, which may well collapse local economies because of lack of funding. The west coast will do well because of technology companies churning out large cash flows.

 

 

John says the other big story here is:

… the dramatic change in the administration’s antitrust policy. Until now, it has opposed every large merger as an undue concentration of economic power. Then suddenly, the second largest bank merger in history took place on a weekend, and there will be more to come.

 

John’s performance details …

So far in May, I have managed a modest +0.55% profit. My 2023 year-to-date performance is now at an eye-popping +62.30%. The S&P 500 (SPY) is up only a miniscule +8.40% so far in 2023. My trailing one-year return reached a 15-year high at +120.45% versus -3.67% for the S&P 500.

That brings my 15-year total return to +659.49%. My average annualized return has blasted up to +48.86%, another new high, some 2.79 times the S&P 500 over the same period.

Some 40 of my 43 trades this year have been profitable. My last 20 consecutive trade alerts have been profitable.

John says that…

You Only Need to Buy Seven Stocks This Year, as the rest are going nowhere. That include (AAPL), (GOOGL), (META), (AMZN), (TSLA), (NVDA), (CRM). Watch out when the next rotation broadens out to the rest of the market.

The next drama in the works is the Government Default date which has been moved up to June 1. Expect a lot of people to talk about this endlessly.

What would happen to the market if they didn’t raise the ceiling?

Maybe a 20% dive in the market. Jot it down on a sticky label and paste it to your laptop as a reminder that it could happen, so you can be prepared.

 

 

 

Non-Farm Payroll jumps by 253,000 – further proof that the labour market is still hiring, and AI is creating more jobs than it is destroying keeping the Fed focused on the wrong data.

So, do we conclude that rate hikes are over for now or perhaps we pause for a time and then hike again? (These are my thoughts).

Monday, May 8 – Consumer Inflation Expectations are out.

Wednesday, May 10 – U.S. Inflation rate is printed.

I’ll sign off today with thoughts from Warren Buffett. He held his annual general meeting in Omaha, Nebraska on Saturday.

“It’s been an incredible period for the economy but that’s coming to an end”. Buffett expects earnings at the majority of Berkshire’s operations to fall this year as a long-predicted downturn slows economic activity. Berkshire posted an almost 13% gain in operating earnings to $8.07 billion for the first quarter.

 

Wishing you all a fantastic week.

Health, wealth, and wisdom to you all.

Cheers,

Jacque

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