Page 243 - Mad Hedge Fund Trader

The Market Outlook for the Week Ahead, or The Hidden AI in your Life 

It's great to be back in California, even just temporarily.

Driving down to visit a Concierge client, the weather is hot and dry, the scenery is spectacular. What were once endless hills of dry grass are now countless miles of vineyards. Boy, has the Golden State changed a lot since 1952.

The vines are heavy with grapes. I stopped by and picked a purple bunch to test out the fruit. The grapes were rich and sweet. It looks like 2024 is going to be a good vintage. No wonder there is a wine glut.

It's going to be a vintage year for Mad Hedge performance as well. We picked up a welcome +3.74% in the testing month of August, +33.61% so far in 2024, and +711.32% since inception.

The harder I work, the luckier I get.

Which raises the most important question of the day: Did September just happen in August? The price action we saw last month is certainly reminiscent of many recent faith-testing Septembers and Octobers.

If that is the case, then it could be off to the races from now. Except this time, it won’t be just a Magnificent Seven rally. It will be an everything rally as the bull broadens out to include all interest rate sectors, which is almost everything.

(SPX) 6,000 by yearend looks like a piece of cake.

The bottom line for all of this is that investors and the markets are still wildly underestimating the impact artificial intelligence will have on our futures, and therefore stock prices. Publishing the Mad Hedge AI Letter three times a week (click here for the link), I can see AI sneaking into every aspect of our lives without our knowledge.

I visited my doctor the other day and they asked for my Medicare card. I didn’t have it because there is no use for this US government ID in Europe from where I just returned. The receptionist said, “Don’t worry, may I have your phone please?” She went into my photos app, searched for “Medicare” and there it appeared instantly. Apple had surreptitiously installed an AI search function on my phone without even telling me.

Try it!

What we are witnessing is the greatest capital spending binge since WWII 83 years ago, when in three short years, the US produced 297,000 aircraft, 193,000 artillery pieces, 86,000 tanks, and two million army trucks. It also double-tracked all east-west rail lines and created from scratch four atomic bombs.

And you want to short that???

The indexes certainly have plenty of room to run. Since the 2020 pandemic bottom, virtually all money has gone into big tech and out of the rest of the market, generating net outflows out of equities and into bonds. What happens when you get net inflows into big tech AND the rest of the market? Markets go up a….lot.

Dow 240,000 here we come.

Now for the challenging chore of sector picking.

Bonds (TLT) are usually the first pick at the beginning of any interest rate-cutting cycle. However, this has been the best telegraphed interest rate cut in history so most of the juice has already been squeezed out of this one. The (TLT) has moved a prolific $18 off the $82 bottom with no interest rate cuts at all. So there might be $5 or $10 of upside left this year, but no more.

Derivative high-yield plays have much more to offer. Those would include junk bonds (JNK), (HYG), BB-rated loans (SLRN), and REITS like the Vornado Realty Trust (VOR), my favorite Crown Castle International (CCI), and Health Properties (DOC).

Utilities usually do well in falling interest rate cycles as they are such big borrowers. In this basket, you can throw NextEra Energy (NEE), Southern Company (SO), and Duke Energy (DUK).

Falling rates also reliably deliver a weak US dollar, so buy every foreign currency play out there (FXA), (FXE), (FXB), (FXC). Also, buy foreign stock markets like the (EEM).

And then there are always big borrowing small caps (IWM), poor performers for the last decade which can always use the life jackets of falling interest rates. Keep in mind that 40% of small caps are regional banks and another 40% are money losers.

And then there are the old reliables. Any of the Magnificent Seven will probably work if you can get them on any selloff like we had on August 5.

So far in August, we are up by +2.67%. My 2024 year-to-date performance is at +33.61%. The S&P 500 (SPY) is up +18.23% so far in 2024. My trailing one-year return reached +52.25. That brings my 16-year total return to +710.24. My average annualized return has recovered to +51.91%.

I executed no trades last week and am maintaining a 100% cash position. I’ll text you next time I see a bargain in any market. Now there are none. I am running one short in Tesla (TSLA).

Some 63 of my 70 round trips, or 90%, were profitable in 2023. Some 49 of 66 trades have been profitable so far in 2024, and several of those losses were really break-even. That is a success rate of +74.24%.

Try beating that anywhere.

NVIDIA Dives on Fabulous Earnings, one of the greatest “Buy the rumor, sell the news” moves of all time. The stock dropped to $25, or 17.85% off its all-time high. Production snags with its much-awaited Blackwell chips are to blame. The company’s quarterly met or beat analysts’ estimates on nearly every measure. But Nvidia investors have grown accustomed to blowout quarters, and the latest numbers didn’t qualify. Buy (NVDA) on this dip.

PCE Rises a Modest 02% in July. That is the so-called core personal consumption expenditures price index, which strips out volatile food and energy items, according to Bureau of Economic Analysis data out Friday. On a three-month annualized basis — a metric economists say paints a more accurate picture of the trajectory of inflation — it advanced 1.7%, the slowest this year

Pending Home Sales Drop 5%, and 8.5% YOY, on a signed contracts basis. Many buyers are waiting until after the presidential election to make a move. Pending home sales fell in all four regions last month. The positive impact of job growth and higher inventory could not overcome affordability challenges and some degree of wait-and-see related to the upcoming U.S. presidential election.

Sales of new U.S. single-family homes rocketed by 10.6%, their highest level in more than a year in July. A drop in mortgage rates boosted demand, offering more evidence that the housing market is recovering. Sales reached a seasonally adjusted annual rate of 739,000 units last month, the highest level since May 2023. It was also the sharpest increase in sales since August 2022. New home sales are counted at the signing of a contract. Buy homebuilders on dips (LEN), (DHI), (KBH).

US GDP Reaccelerates to 3.0% Growth in Q2, up from the previous estimate of 2.8%, according to the Bureau of Economic Analysis. Stronger consumer spending more than offset other categories. Can’t beat the USA.

Weekly Jobless Claims Remain Unchanged at 231,000, down 2,000. After being inflated by weather and seasonal factors in July, initial jobless claims in August are stabilizing at a slightly lower level, another indication that layoffs remain low.

Is Costco (CSCO) the Next Stock Split? Costco, which has risen nearly 40% since the start of 2024, is a potential candidate. Given the company’s share price—over $900 as of Tuesday—and the trend among other retailers with similarly high prices to split.

Hindenburg Research Attacks Super Micro, alleging "accounting manipulation" at the AI server maker, the latest by the short seller whose reports have rocked several high-profile companies. Close ties with chip giant Nvidia have allowed Super Micro, known for its liquid cooling technology for high-power semiconductors, to capitalize on the surge in demand for AI servers.

Though revenue has surged, margins have taken a hit recently due to the rising costs of server production and pricing pressure from rivals including Dell. Avoid (SMCI).

Berkshire Hathaway Tops $1 Trillion Market Cap, a long-time Mad Hedge recommendation. It’s the first nontech company ever to do so, even though (BRK/B) has a major holding in Apple (AAPL). Keep buying the big dips. The stock has rallied this year on strong insurance results and economic optimism. The Omaha, Nebraska-based company joins the ranks of a small group to crack the milestone, dominated by technology giants like Alphabet Inc. (GOOGL), Meta Platforms Inc. (META) and Nvidia Corp. (NVDA).

S&P Case Shiller Hits New All-Time High in June. Prices nationally rose 5.4% in June from the year prior. An index measuring prices in 20 of the nation’s large metropolitan areas gained 6.5% from the year prior. On an unadjusted basis, it was the national index’s fourth consecutive all-time high. Prices in New York, San Diego, and Las Vegas grew the most, with year-over-year gains ranging from 8.5% and 9%, while those in Portland, Ore., Denver, Colo., and Minneapolis grew the least.

Canada Imposes 100% Tariff on Chinese EVs. The problem for Tesla is that they had been supplying the Canadian market from their China factory. The supply can be replaced with US-made cars but at a much higher cost. Tesla sold off $8 on the news. Sell rallies in (TSLA).

Is the US Tipping into Recession? A continued drop in job openings will translate into faster increases in unemployment, an argument in favor of the Fed beginning to cut interest rates to guard the labor market. The next jobs reports could be crucial. Policymakers face the dilemma of two risks: being too slow to ease policy, potentially causing a 'hard landing' with high unemployment ... or cutting rates prematurely, leaving the economy vulnerable to rising inflation

Yield Chasers Post Record Demand for Junk Bonds. That’s helped make 2024 the busiest year for the issuance of new corporate high-yield bonds, with $357 billion sold so far, since the easy money days during the pandemic. Issuance of US leveraged loans, meanwhile, is running at its fastest pace on record. Buy (JNK) and (HYG).

My Ten-Year View

When we come out the other side of the recession, we will be perfectly poised to launch into my new American Golden Age or the next Roaring Twenties. The economy decarbonizing and technology hyper accelerating, creating enormous investment opportunities. The Dow Average will rise by 600% to 240,000 or more in the coming decade. The new America will be far more efficient and profitable than the old.

Dow 240,000 here we come!

On Monday, September 2 we have Labor Day. All US markets will be closed.

On Tuesday, September 3 at 6:00 AM EST, the ISM Manufacturing PMI is released.

On Wednesday, September 4 at 7:30 PM, the JOLTS Job Openings Report is printed.

On Thursday, September 5 at 8:30 AM, the Weekly Jobless Claims are announced. We also get the ADP Employment Report.

On Friday, September 6 at 8:30 AM, the August Nonfarm Payroll Report is released. At 2:00 PM, the Baker Hughes Rig Count is printed.

As for me, having visited and lived in Lake Tahoe for most of my life, I thought I’d pass on a few stories from this historic and beautiful place.

The lake didn’t get its name until 1949 when the Washoe Indian name was bastardized to come up with “Tahoe”. Before that, it was called the much less romantic Lake Bigler after the first governor of California.

A young Mark Twain walked here in 1863 from nearby Virginia City where he was writing for the Territorial Enterprise about the silver boom. He described boats as “floating in the air” as the water clarity at 100 feet made them appear to be levitating. Today, clarity is at 50 feet, but it should go back to 100 feet when cars go all-electric.

One of the great engineering feats of the 19^th century was the construction of the Transcontinental Railroad. Some 10,000 Chinese workers used black powder to blast a one-mile-long tunnel through solid granite. They tried nitroglycerine for a few months but so many died in accidents they went back to powder.

The Union Pacific moved the line a mile south in the 1950s to make a shorter route. The old tunnel is still there, and you can drive through it at any time if you know the secret entrance. The roof is still covered with soot from woodfired steam engines. At midpoint, you find a shaft to the surface where workers were hung from their ankles with ropes to place charges so they could work on four faces at once.

By the late 19^th century, every tree around the lake had been cut down for shoring at the silver mines. Look at photos from the time and the mountains are completely barren. That is except for the southwest corner, which was privately owned by Lucky Baldwin who won the land in a card game. The 300-year-old growth pine trees are still there.

During the 20^th century, the entire East Shore was owned by one man, George Whittell Jr., son of one of the original silver barons. A man of eclectic tastes, he owned a Boing 247 private aircraft, a custom mahogany boat powered by two Alison aircraft engines, and kept lions in heated cages.

Thanks to a few well-placed campaign donations, he obtained prison labor from the State of Nevada to build a palatial granite waterfront mansion called Thunderbird, which you can still visit today (click here ). During Prohibition, female “guests” from California crossed the lake and entered the home through a secret tunnel.

When Whittell died in 1969, a Mad Hedge Concierge Client bought the entire East Shore from the estate on behalf of the Fred Harvey Company and then traded it for a huge chunk of land in Arizona. Today the East Shore is a Nevada State Park, including the majestic Sand Harbor, the finest beach in the High Sierras.

When a Hollywood scriptwriter took a Tahoe vacation in the early 1960s, he so fell in love with the place that he wrote Bonanza, the top TV show of the decade (in front of Hogan’s Heroes). He created the fictional Ponderosa Ranch, which tourists from Europe come to look for in Incline Village today.

In 1943, a Pan Am pilot named Wayne Poulson who had a love of skiing bought Squaw Valley for $35,000. This was back when it took two days to drive from San Francisco. Wayne flew the China Clippers to Asia in the famed Sikorski flying boats, the first commercial planes to cross the Pacific Ocean. He spent time between flights at a ranch house he built right in the middle of the valley.

His wife Sandy bought baskets from the Washoe Indians who still lived on the land to keep them from starving during the Great Depression. The Poulson’s had eight children and today, each has a street named after them at Squaw.

Not much happened until the late forties when a New York Investor group led by Alex Cushing started building lifts. Through some miracle, and with backing from the Rockefeller family, Cushing won the competition to host the 1960 Winter Olympics, beating out the legendary Innsbruck, Austria, and St. Moritz, Switzerland.

He quickly got the State of California to build Interstate 80, which shortened the trip to Tahoe to only three hours. He also got the state to pass a liability limit for ski accidents to only $2,000, something I learned when my kids plowed into someone, and the money really poured in.

Attending the 1960 Olympic opening ceremony is still one of my fondest childhood memories, produced by Walt Disney, who owned the nearby Sugar Bowl ski resort.

While the Cushing group had bought the rights to the mountains, Poulson owned the valley floor, and he made a fortune as a vacation home developer. The inevitable disputes arose and the two quit talking in the 1980’s.

I used to run into a crusty old Cushing at High Camp now and then and I milked him for local history in exchange for stock tips and a few stiff drinks. Cushing died in 2003 at 92 (click here for the obituary)

I first came to Lake Tahoe in the 1950s with my grandfather who had two horses, a mule, and a Winchester. He was one-quarter Cherokee Indian and knew everything there was to know about the outdoors. Although I am only one-sixteenth Cherokee with some Delaware and Sioux mixed in, I got the full Indian dose. Thanks to him I can live off the land when I need to. Even today, we invite the family medicine man to important events, like births, weddings, and funerals.

We camped on the beach at Incline Beach before the town was built and the Weyerhaeuser lumber mill was still operating. We caught our limit of trout every day, ten back in those days, ate some, and put the rest on ice. It was paradise.

During the late 1990’s when I built a home in Squaw Valley I frequently flew with Glen Poulson, who owned a vintage 1947 Cessna 150 tailwheel, looking for untouched high-country lakes to fish. He said his mother had been lonely since her husband died in 1995 and asked me to have tea with her and tell her some stories.

Sandy told me that in the seventies she asked her kids to clean out the barn and they tossed hundreds of old Washoe baskets. Today Washoe baskets are very rare, highly sought after by wealthy collectors, and sell for $50,000 to $100,000 at auction. “If I had only known,” she sighed. Sandy passed away in 2006 and the remaining 30-acre ranch was sold for $15 million.

To stay in shape, I used to pack up my skis and boots and snowshoe up the 2,000 feet from the Squaw Valley parking lot to High Camp, then ski down. On the way up I provided first aid to injured skiers and made regular calls to the ski patrol.

After doing this for many winters, I finally got busted when they realized I didn’t have a ski pass. It turns out that when you buy a lift ticket you are agreeing to a liability release which they absolutely had to have. I was banned from the mountain.

Today Squaw Valley is owned by the Colorado-based Altera Mountain Company, which along with Vail Resorts owns most of the ski resorts in North America. The concentration has been relentless. Last year Squaw Valley’s name was changed to the Palisades Resort for the sake of political correctness. Last weekend, a gondola connected it with Alpine Meadows next door, creating the largest ski area in the US.

Today there are no Washoe Indians left on the lake. The nearest reservation is 25 miles away in the desert in Gardnerville, NV. They sold or traded away their land for pennies on the current value.

Living at Tahoe has been great, and I get up here whenever I can. I am now one of the few surviving original mountain men and volunteer for North Tahoe Search & Rescue.

On Donner Day, every October 1, I volunteer as a docent to guide visitors up the original trail over Donner Pass. Some 175 years later the oldest trees still bear the scars of being scrapped by passing covered wagon wheels, my own ancestors among them. There is also a wealth of ancient petroglyphs, as the pass was a major meeting place between Indian tribes in ancient times.

The good news is that residents aged 70 or more get free season ski passes at Diamond Peak, where I sponsored the ski team for several years. My will specifies that my ashes be placed in the Middle of Lake Tahoe. At least I’ll be recycled. I’ll be joining my younger brother who was an early Covid-19 victim and whose ashes we placed there in 2020.

Stay Healthy,

John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader

The Ponderosa Ranch

The Poulson Ranch

At the Reno Airport

Donner Pass Petroglyphs

September 3, 2024 - Quote of the Day

Quote of the Day

“There’s a lot of performance anxiety out there right now. There’s nothing worse than sitting on cash watching a market go up double digits,” said Tom Lee, chief US equity strategist of JP Morgan.

September 2, 2024

Jacque's Post

(THIS WEEK THE JOBS NUMBER WILL BE THE HEADLINE EVENT)

September 2, 2024

Hello everyone.

Week ahead calendar

Monday, Sept. 2

Labor Day Public Holiday (U.S.) Markets closed.

4:00 a.m. Euro Area Manuf. PMI

Previous: 45.8

Forecast: 45.6

Tuesday, Sept. 3

9:45 a.m. S&P PMI Manufacturing final (August)

10:00 a.m. Construction spending (July)

10 :00 a.m. ISM Manufacturing (August)

9:30 p.m. Australia GDP Growth

Previous: 0.1%

Forecast: 0.3%

Wednesday, Sept 4

10:00 a.m. Durable Orders final (July)

10:00 a.m. Factory Orders (July)

10:00 a.m. JOLTS Job Openings (July)

2:00 p.m. Fed Beige Book

9:45 a.m. Canada Rate Decision

Previous: 4.5%

Forecast: 4.25%

Earnings: Hewlett Packard Enterprise, Hormel Foods, Dollar Tree.

Thursday, Sept. 5

8:15 a.m. ADP Employment Survey (August)

8:30 a.m. Continuing Jobless Claims (08/24)

8:30 a.m. Initial Claims (08/31)

8:30 a.m. Unit Labor Costs final (Q2)

10:00 a.m. US Services PMI

Previous: 51.4

Forecast: 51.5

Earnings: Broadcom

Friday, Sept. 6

8:30 a.m. US Nonfarm Payrolls

Previous: 114k

Forecast: 163k

Happy Labor Day!

Welcome to September, which is seasonally the weakest month on the calendar. There are plenty of events this month, which will keep investors pacing the floor. To kick off all the action, we have the job numbers this Friday.

This week’s US employment data will be critical for the September FOMC meeting (September 17-18). A significant miss in jobs data could prompt the Fed to cut rates by 50bps in September instead of 25.

Other events include a rate decision from the Bank of Canada on Wednesday. The BoC was the first to cut rates, and other central banks are now following suit. The Canadian dollar has been making significant gains in recent weeks, particularly against the dollar and the euro, but its strength may not hold if the BoC continues its rate cuts.

Rotation out of tech stocks and into this year’s market laggards should continue. But maintain exposure to Big Tech, which could rally closer to year-end.

A few years ago, China cracked down on gaming. Now, it has a global hit on its hands. In its first attempt at a video game, China has smashed records setting alight the industry’s global ambitions. Black Myth: Wukong is an action game set in mythological China, and it has sold 10 million units three days after its launch on August 20. The rich cultural elements give them a global appeal and set them apart from games developed in other regions. China could be on its way to a mega industry with many other stories that have been passed down over the last millennia, yet to be transformed into video games.

QI CORNER

MARKET UPDATE

S&P 5000

The market is still rallying within its final 5^th wave advance to complete its bullish trend sequence from the 3,492 bottom of October 2022.

Support = around 5570

Resistance = 5,735/5765

GOLD

There is potential for more upside here.

Support = $2,470

If we see a strong break of the $2,470 area, a deeper corrective move could see gold correct back to the $2420/$2400 area.

BITCOIN

There has been a lot of choppiness in Bitcoin lately. There is a risk that we could see bitcoin correct towards the $44,000 area before a firm rally takes place. And we might not see this bullish rally take place until late September/October. Be patient.

HISTORY CORNER

PSYCHOLOGY CORNER

SOMETHING TO THINK ABOUT

Cheers

Jacquie

September 2, 2024

Diary, Newsletter, Summary

Global Market Comments
September 2, 2024
Fiat Lux

Featured Trade:

( AUGUST 28 BIWEEKLY STRATEGY WEBINAR Q&A),
(SMCI), (QQQ), (CRWD), (NVDA), (TSLA), (GOLD), (BRK/B), (BAC), (AAPL)

August 28 Biweekly Strategy Webinar Q&A

Diary, Newsletter

Below please find subscribers’ Q&A for the August 28 Mad Hedge Fund Trader Global Strategy Webinar, broadcast from Santa Barbara, CA.

Q: What is your opinion on Supermicro (SMCI)?

A: I can tell you that all fund managers have the same reaction as I do when they hear the words “accounting irregularities” ….run. So, if you haven’t, I would get out. If you’re looking to get in, there’s probably a great opportunity somewhere, but not here. Their product isn’t that high-tech, cooling racks for artificial intelligence servers. But it did have the letters “AI” attached, so it went up 50-fold. But Hindenburg is occasionally right on their research reports, although they’re wildly exaggerated to enhance their short positions. I would stay out of the way on that one for now.

Q: Are there any startup companies worth investing in on the public market right now?

A: No, because new listings are always overhyped. They come in usually double their true value. This happened with Tesla (TSLA)—I think Tesla came out at $32, I waited for the 50% selloff and all the marketing hype to wear off and I bought it at $16, and of course, that's probably about 60 cents now on a split-adjusted basis. So, I don't play the IPO game. If an IPO really is hot, chances are your broker won’t give it to you anyway; he'll give it to his largest clients. That's probably not you. So, I don't get involved in that game, I look at the aftermath. And in hot markets, there is no aftermath, you just watch them go up. The answer to that is a firm no.

Q: Home prices just hit new all-time highs, according to the S&P Case-Shiller. How do the prices keep rising with high interest rates?

A: Because people expect interest rates to fall, and they are doing so dramatically. If you look at all the interest-sensitive sectors which I've been recommending for the last four months, they've all been on fire. So if the cost of your mortgage is about to drop by half, housing prices should double, and we are starting to see that double now.

Q: Should we buy a put on the (QQQ) based on Nvidia (NVDA) earnings?

A: Nobody knows what the Nvidia earnings are going to be, so if you're willing to make a bet on a coin toss, go ahead and do it. I don't make bets on coin tosses. I make bets when there's a 90% chance that I'm going win, and there are no 90% chance trades out there anywhere in any asset class right now. It's better to watch and wait for the next opportunity. If Nvidia sells off 10% on a weak guidance, then I would be in there with both hands buying, because Nvidia is still cheap relative to the rest of the sector and the rest and of the market. And if Nvidia goes up 20%, I might even sell it short. I have shorted Nvidia this year a couple of times this year, and made money both times, so that is the trade. But right here we're in the middle of the next likely range, so no trade there at all.

Q: Will CrowdStrike (CRWD) have a financial liability for the problem it created by crashing the world's travel computers?

A: Yes, and that will no doubt be the subject of litigation for the next 10 years, which I would rather not get involved in.

Q: The tech industry keeps cutting white-collar jobs, and they have been for some time. At which point does this subside, and won’t this crush employment in Silicon Valley?

A: Well, it’s already crushed employment by about 300,000 in Silicon Valley, but artificial intelligence is now starting to soak up those employees, and they certainly are soaking up the office space, which is why the smart money that is now pouring into San Francisco buying up office buildings for pennies on the dollar. They see an employment recovery. In the meantime, buy the Magnificent Seven stocks, because they’re creating profits by cutting the excess staff which they always used to keep.

Q: When you talk about Tesla (TSLA) losing ground in the EV market, do you see the company broadening out its technologies, and growing the company down other avenues?

A: Absolutely, yes. They have a very fast-growing solar panel business, an industrial-scale battery business, and of course, they're basically running the charging network for the entire United States and the entire world. They also have new batteries under development that have the potential to increase car ranges 20 times at zero cost. Elon always has at least a dozen or so other projects underway, many of which he keeps secret. What you have to keep track of is how many of these accrue to Tesla, and how many accrue earnings to his other companies, like SpaceX, Neuralink, and xAI. SpaceX is going gangbusters right now because guess what? They're planning an IPO in the near future and should get a big multiple. xAI just raised $6 billion in a VC round.

Q: How can Nvidia (NVDA) go higher tonight if it disappoints?

A: It won't. It will drop about 10%. I'm just saying you can go higher into next year on 50% earnings growth, but we may have to give back 10%, 20%, or in the case of August 5th, 40% before we can go forward.

Q: Whatever happened to the commercial real estate problem? How is that taken care of so tightly by private capital?

A: It's a play on falling interest rates. A lot of buildings were going for 10 cents on the dollar in Manhattan and in San Francisco, so these guys know bargains, and they're long-term players, and that's how they always make money in that business. I've been watching it for 50 years, and their market timing is excellent.

Q: What will the effects of de-dollarization mean to the long-term health of the stock market?

A: Nothing, because de-dollarization isn't going to happen. It's more or less an internet conspiracy theory. There's no serious move whatsoever to replace the US Dollar, and Bitcoin or crypto in general never got to more than 1% of the total value of US dollars out there, and plus it's had its problems. So I don't think de-dollarization is going to happen in my lifetime.

Q: Why is Warren Buffett (BRK/B) unloading shares in Apple (APPL) and Bank of America (BAC)?

A: He thinks the whole market is expensive, and I would agree with him. He likes having a lot of cash during recessions or during major market crashes, so he can swoop in and buy whole companies. So that is the answer. He's thought the market has been expensive for years now, but that doesn't seem to stop them from making money.

Q: Should we take profit on the LEAPS in Barrick Gold (GOLD) expiring in January?

A: Yes, you should take the profit here. You make maybe 20% or 30% and then wait for the next sell-off, and then go back into (GOLD), but add an extra year to the expiration date. Do a 2026 instead of a 2025, because we're getting kind of short on time on all the January 2025 expirations. So that would be the smart thing to do, is to take profits on all your January 25 LEAPS, raise cash, and go back in into an 18-month LEAP on the next sell-off, and I will be reminding you to do exactly that when it happens.

Q: Should we wait until after the election to invest?

A: No. The market will start running before the election, especially if the election outcome becomes more and more certain. So that kind of sets up an October bottom for the market, and maybe even a September one—who knows? We will just have to see how the polls go, even though they are usually wrong. So that's what I would do on that.

To watch a replay of this webinar with all the charts, bells, whistles, and classic rock music, just log in to www.madhedgefundtrader.com, go to MY ACCOUNT, select your subscription (GLOBAL TRADING DISPATCH, TECHNOLOGY LETTER, or Jacquie's Post), then click on WEBINARS, and all the webinars from the last 12 years are there in all their glory

Good Luck and Good Trading,

John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader

August 30, 2024

Tech Letter

Mad Hedge Technology Letter
August 30, 2024
Fiat Lux

Featured Trade:

(AI SQUEEZES OUT TECH WORK FORCE)
(AI), (NVDA)

AI Squeezes Out Tech Work Force

Tech Letter

Don’t be in denial about artificial intelligence.

The more you fight it – it will fight you back.

It is coming for us and you need to adjust your life accordingly.

That is largely the message I want to convey to readers because the existence of tech companies and how they function has never been changing at such warp speed until today.

Instead of getting all worked up about the hoopla of what it will bring like it is some shiny new Porsche in the garage, we need to get into the weeds to see how it will manifest itself inside the real world.

While the rest of the world still has no idea what artificial intelligence is, tech workers in the Philippines are already living and breathing the new reality every day for better or worse.

The spoiler here is that it is mostly bad for the local workforce in the beautiful island and sovereign nation of the Philippines but positive for the bottom line.

It’s not a shocker that foreign companies don’t like to pay high wages and will even skirt around the low-wage area if they have their way.

Until today, tech workers in the likes of Moldova, Montenegro, and the Philippines were irreplaceable because they represented good value for labor.

Now these workers are getting crushed by the dreaded AI substitute software.

All of the major players in its vast outsourcing industry, which is forecast to cross $38 billion in revenue this year, are rushing to roll out AI tools to stay competitive and defend their business models.

Over the past eight or nine months, most have introduced some form of AI “copilot.” These algorithms mainly work alongside human operators.

Avasant, an outsourcing advisory firm that works extensively in the Philippines, estimates that up to 300,000 business process outsourcing (BPO) jobs could be lost in the country to AI in the next five years.

In February, payments company Klarna Bank announced AI bots were conducting two-thirds of all customer service interactions, equaling the work of 700 full-time agents.

Readers cannot fall asleep at the wheel by downplaying this transition in the business model of tech companies.

This movement to bots has the potential to save many percentage points of expenses on labor.

I don’t know any CEO who is actively ignoring this hard pivot to software.

For every success story, there will also be failures because let's get this straight, not every CEO or COO knows how to implement and harness the powers of AI.

Not all managers are created equally.

I know it sounds cliché to look at big tech but they are the powerbrokers of the AI industry and unsurprisingly are the ones pouring the most capital into this new technology.

The end results are that only a handful of companies will secure the bounty of profits that AI will deliver.

There will be surprises on the way but Nvidia relaying to investors that the AI narrative is still here is just as important as management talking about how great AI is.

The only caveat I would say is that the honeymoon phase of AI is definitely coming to a close.

Now the real tough sledding starts ahead of us.

For the time being, pick up shares in Nvidia on this nice dip.

August 30, 2024

Jacque's Post

(SUMMARY OF JOHN’S AUGUST 28, 2024, WEBINAR)

August 30, 2024

Hello everyone.

TITLE: Waiting for the Other Shoe to Fall

TRADE ALERT PERFORMANCE

August: +3.56% MTD

Average annualized return: +51.62%

Trailing one Year Return: +52.25%

Since inception: +710.24%

PORTFOLIO REVIEW

Risk Off

(TSLA) 9/$250-$260 put spread 10%

THE METHOD TO MY MADNESS

Markets are going into the worst month of the year overbought and begging for a correction.

September 18 interest rate cut now a sure thing, says John, but how much good news is already priced in?

A lot will depend on NVDA earnings out after the close today.

The next selloff is one you buy into.

US dollar is trash and could stay weak for years.

Technology stocks will recover after a much-needed correction.

Energy gets dumped on recession fears if the Fed acts too slowly.

Buy stocks and bonds on dips, but now it’s ALL sectors.

THE GLOBAL ECONOMY – NEW STIMULUS

Jay Powell says the “time to adjust policy is here.

Where did the 818,000 jobs go? Monthly job gains fell from 250,000 to 175,000. Is the message that the Fed waited too long to cut rates?

Goldman Sachs cuts recession risk to 20%

Consumer sentiment drops, to an eight-month low.

Price Index is a snore, at 0.2% MOM and 2.9% YOY.

US Producer Price Index fades, coming in at a weak 0.1%.

China Loan demand hits 15-year low.

UK grows by 0.6% in Q2, a far cry from the US 2.8% rate.

STOCKS – RECORD RALLY

Stocks mount record rally, up 11%, bringing the Magnificent Seven back to the fore.

Risk is now high, and you can still get 5.01% for 90-day T-bills.

The next dip is one you buy.

However, the bull market is finally broadening out with a big focus on interest sensitives like housing, builders, emerging markets, and small caps.

$6 billion poured into US equity funds last week.

Now it’s volatility that’s crashing, down a record $49 points from $65 to $14 in 9 trading days.

Global EV sales jump 21% YOY, in July thanks to a large rise in China.

Buy on dips: Netflix (NFLX), Caterpillar (CAT), Deere (DE), VISA (V)

BONDS – FROM STRENGTH TO STRENGTH

Market prices in 50-point basis cut for September, holding on to massive rally.

A cut of only 25 basis points on September 18 could give us a $5 sell-off.

The September 6 Nonfarm Payroll report and Unemployment rate will be crucial.

(TLT) could make it to $110 by yearend, keep all LEAPS.

It’s not too late to buy derivative fixed-income plays.

Buy (TLT), (JNK), (NLY), (SLRN), and REITS on dips.

FOREIGN CURRENCIES – DOLLAR IS TRASH

Dollar hits seven-month low, as US interest rate cuts loom. It could be a decade-long move.

The Yen carry trade is back, with hedge funds piling back into positions they baled on only two weeks ago.

It’s just a matter of math, now that the Bank of Japan has given up on raising interest rates anytime soon.

What this means is more leverage, risk, and volatility for global financial markets. I love it!

The prospect of falling interest rates means that the greenback is toast.

Buy (FXA), (FXE), (FXB), (FXC).

ENERGY & COMMODITIES – RECESSION DRAG

Oil collapses to $71 a barrel, taking the rest of the commodity space down with it.

Cut off of 1 million barrels/day of Libyan production gives oil a brief respite.

This is despite the support from multiple Middle Eastern wars.

No one wants to pay for storage during a recession, especially with the current high interest rates. The worst-performing asset class of the year just got worse.

Weak Chinese economic data was the gasoline on the fire.

Replacement by EV’s and the shift out of cars into planes are big factors.

Copper flips from shortage to surplus, as the Chinese economic recovery drags on.

PRECIOUS METALS – NEW HIGHS

Gold pennies new all-time highs as Chinese have no other savings alternative.

Silver takes a break from economic slowdown, and enters a sideways range.

Miners have started to outperform metals for the first time in years, indicating an increase in investor leverage.

A global monetary easing is at hand.

Buy precious metals on the dips because rates are now falling decisively.

Buy (GLD), (AGQ), and (WPM) on dips.

REAL ESTATE – SALES BUMP

Mortgage rates hit the new 2024 low. The average for a 30-year, fixed loan was 6.46%, down from 6.49% last week.

Existing Homes sales jump in July for the first time in five months, up 1.3% to 3.95 million units.

Inventory is up a whopping 20% YOY.

The median home price rose to $442,000, up 4.2% YOY, with some 27% of sales all-cash buyers.

Sales of home over $1 million are up 26% YOY because the supply is up over 30%.

New-home construction dives, in July to the lowest level since the aftermath of the pandemic as builders respond to weak demand that’s keeping inventory levels high.

Total housing starts decreased by 6.8% to a 1.2 million annualized rate last month.

TRADE SHEET

Stocks – buy the next big dip.

Bonds – buy dips

Commodities – stand aside

Currencies – sell dollar rallies, buy currencies

Precious Metals – buy dips

Energy – avoid

Volatility – sell over $30

Real Estate – buy dips

NEXT STRATEGY WEBINAR

12:00 EST Wednesday, September 11 from Lake Tahoe, Nevada

JACQUIE’S POST HOUSEKEEPING

The August Monthly Zoom Meeting will be next Tuesday, September 3^rd. I will be sending out the Zoom invitation today.

Cheers

Jacquie

August 29, 2024

Biotech Letter

Mad Hedge Biotech and Healthcare Letter
August 29, 2024
Fiat Lux

Featured Trade:

(ONE TEST TO RULE THEM ALL)

(ILMN), (BAYRY), (LLY), (MRK), (BMY), (AZN), (RHHBY), (NVS), (GH), (TEM), (TMO)

One Test To Rule Them All

Biotech Letter

“One test to rule them all, one test to find them, one test to bring them all, and in the lab bind them,” the scientists at Illumina (ILMN) whispered – probably.

Their latest creation just got the FDA nod, and it's set to turn the world of cancer diagnostics on its head. It's as if Gandalf himself handed oncologists a palantír that reveals tumors' deepest secrets.

For those less versed in Middle-earth lore, this is like inventing a universal remote for tumor profiling, and oncologists can't wait to start channel surfing.

Now, you might be thinking, "What's the big deal?" Well, let me break it down for you.

This test, called TruSight Oncology Comprehensive (TSO for short), is the first FDA-approved genomic in vitro diagnostic kit that can make pan-cancer companion diagnostic claims.

In plain English, that means it's a single test that can be used across multiple cancer types. We're talking about a game-changer in precision oncology here.

Let's get into the nitty-gritty. This TSO test is a beast. It screens for a whopping 517 genes and provides comprehensive information on tumor mutational burden (TMB) and microsatellite instability (MSI).

These are crucial biomarkers that help determine how a patient might respond to immunotherapies. The breadth of data this single FDA-approved test can collect is unprecedented.

Now, you might be wondering, "Haven't we had companion diagnostics before?" Sure, but they've typically been limited to specific drugs or cancer types.

This pan-cancer test from Illumina is different. It can be applied to a wider range of solid tumors, and let me tell you, oncologists are loving it.

In fact, about 39% of U.S. oncologists have already said they strongly prefer using multi-gene panels over single-gene tests for guiding treatment decisions. That's a clear signal that there's demand for comprehensive diagnostic solutions like TSO.

Illumina's been busy across the pond, too. A version of this test has been available in Europe since 2022. But the U.S. version's got some new tricks up its sleeve.

It can help identify patients who might benefit from specific immunotherapies, including Bayer's (BAYRY) Vitrakvi and Eli Lilly's (LLY) Retevmo. The latter is a new addition compared to the EU version of the test.

Let's talk about these therapies for a second. Vitrakvi is used for adult and pediatric patients with certain NTRK mutations, regardless of their type of cancer. That's pretty cool, right?

But here's the kicker - these NTRK gene fusions are only found in about 0.1% to 0.3% of solid tumors, and they're tough to detect.

TSO's ability to scan both RNA and DNA means it can find multiple forms of this biomarker. That's a big deal for companies like Bayer, who've sometimes struggled to find eligible patients for this targeted therapy.

But Illumina's not resting on its laurels. They've got a growing pipeline of companion diagnostic claims in development, working hand in hand with drugmakers. They're planning to seek these in future regulatory submissions.

You see, Illumina's been playing the long game, forging partnerships with big pharma to co-develop companion diagnostics that align with targeted therapies.

Take their 2019 partnership with Merck (MRK), for instance. They teamed up to develop and commercialize a companion diagnostic using Illumina's TruSight Oncology 500 assay.

The goal? To identify genetic mutations in cancer patients that would respond to Merck's cancer drugs like Keytruda. This partnership boosted the adoption of Illumina's NGS platform in clinical oncology settings, contributing to both companies' growth.

The market liked what it saw at the time. Illumina's stock got a nice bump following the partnership announcement. And why wouldn't it?

The deal strengthened Illumina's position in the oncology diagnostics market, which is projected to grow at a CAGR of 12.4% from 2023 to 2030.

But Merck's not the only dance partner Illumina's got. They've also teamed up with Bristol-Myers Squibb (BMY) to use their TSO 500 assay as a companion diagnostic for immuno-oncology therapies.

This collaboration expanded Illumina's reach into new oncology applications, allowing BMY to use the TSO platform to identify patients most likely to benefit from its immune checkpoint inhibitors.

And there's more - Illumina's also forged partnerships with AstraZeneca (AZN), Roche (RHHBY), and Novartis (NVS) to develop companion diagnostic tests.

Next, let's talk numbers. Each new FDA-approved indication could potentially add $100 million to $200 million annually to Illumina's revenue. That's no chump change.

Unsurprisingly, Illumina's not the only player in this game.

Companies like Foundation Medicine (a Roche subsidiary), Guardant Health (GH), Tempus (TEM), Caris Life Sciences, Thermo Fisher Scientific (TMO), and GRAIL (another Illumina subsidiary) are all working towards pan-cancer or multi-cancer diagnostics.

Still, Illumina's TSO test is the first to secure FDA approval for pan-cancer companion diagnostic claims. This lead could translate into a significant market advantage.

Actually, Illumina already holds more than 70% market share in the global NGS market as of 2022. This means it’s well-positioned to benefit from this growth, and this latest FDA approval could further consolidate its market dominance.

Speaking of the FDA, they’ve been busy too. They've ramped up their support for precision medicine in recent years, approving a growing number of companion diagnostics and genomic tests.

From 2017 to 2021, they approved over 25 new companion diagnostics, a significant increase from the 5-10 approvals per year in the early 2010s. And a substantial portion of these approvals has been for oncology-related tests.

In 2021 alone, 68% of the FDA's new drug approvals were for cancer treatments.

Now, let's zoom out and look at the bigger picture. According to the World Health Organization, there were an estimated 19.3 million new cancer cases and 10 million cancer deaths worldwide in 2020.

The global cancer burden is expected to rise to 28.4 million cases by 2040, a 47% increase from 2020.

In the U.S., about 1.9 million new cancer cases are expected to be diagnosed in 2023.

The economic impact is also staggering. The economic burden of cancer in the U.S. was estimated at $157 billion in 2020, and it's projected to increase to over $246 billion by 2030.

These numbers stress the growing need for early detection and personalized treatment solutions.

But, unlike other companies, here's where advanced diagnostics like Illumina's TSO can make a difference. By ensuring patients receive the most effective treatments based on their genetic profiles, these tests can reduce unnecessary treatments and improve outcomes.

Studies have shown that using precision diagnostics can lower overall healthcare costs by 15% to 20% by avoiding ineffective therapies and hospitalizations.

Essentially, what we're seeing here is more than just a new test. It's a glimpse into the future of cancer treatment - more precise, more personalized, and potentially more effective.

For patients, it could mean better outcomes. For healthcare systems, it could mean more efficient use of resources. And for us? Well, it could mean significant opportunities in a rapidly growing market.

As Gandalf might say, "All we have to decide is what to do with the time that is given us." Illumina's chosen to use their time crafting this powerful new tool.

The quest to conquer cancer continues, and Illumina’s TSO might just be the ring-bearer we've been waiting for.

Keep your eyes peeled, fellow adventurers. The journey into precision oncology is only just beginning, and it promises to be an epic saga indeed.