“The most important thing to do if you find yourself in a hole is to stop digging.” – Said American Investor Warren Buffett
(WHAT THE MARKET ACTION MIGHT LOOK LIKE IN THE SECOND HALF OF 2024)
July 1, 2024
Hello everyone,
Week ahead calendar
Monday, July 1
9:45 a.m. S&P PMI Manufacturing final (June)
10 a.m. Construction Spending (May)
10 a.m. ISM Manufacturing (June)
Tuesday, July 2
10 a.m. JOLTS Job Openings (May)
5:00 a.m. Euro Area Inflation Rate
Previous: 2.6%
Forecast: 2.5%
Wednesday, July 3
8:15 a.m. ADP Employment Survey (June)
8:30 a.m. Continuing Jobless Claims (6/22)
8:30 a.m. Initial Claims (6/29)
8:30 a.m. Trade Balance (May)
9:45 a.m. PMI Composite final (June)
9:45 a.m. S&P PMI Services final (June)
10 a.m. Durable Orders (May)
10 a.m. Factory Orders (May)
10 a.m. ISM Services PMI (June)
2 p.m. FOMC Minutes
Earnings: Constellation Brands
Thursday, July 4
Independence Day Holiday
UK General Election
Friday, July 5
8:30 a.m. June Jobs Report
Previous: 272k
Forecast: 180k
Friday is the Labor Report, and this will give us some insight into the consumer. The U.S. economy is anticipated to have added 190,000 jobs in June, down from 272,000 in the prior month, according to FactSet consensus estimates. The unemployment rate is expected to hold at 4%.
The pandemic stimulus has contributed to keeping the economy motoring along. However, I would argue that cracks are starting to appear, now that many consumers have exhausted that stimulus cash injection. The jobs report will take on more significance going forward as it will show a pattern of consumer behaviour.
Let’s delve into history for a moment. According to historical data, a strong first half points to more gains in the second half. And remember, it is an election year as well, which also bodes well for the market. Data analyzed by Sam Stovall at CFRA (Centre for Financial Research and Analysis) shows that whenever a positive first half for the S&P500 eventuated between 1945 and 2023, the second half brought an average rise of 5.3%. The broad index was higher in the second half in more than three out of every four years that it ended the first six months in the green.
The picture gets even better when we dig into detail. The research shows that in the years with the S&P500 rallying more than 10% in the first six months, it climbed 7.9% in the typical second half. The index was positive in the latter half in more than four out of every five of these years. And how much did the S&P500 climb in the first half of 2024? Answer = 14.5%.
Presidential election years also typically result in favourable market returns. Research shows that in all election years since World War II the S&P500 added 0.9% and 2.4% in the average third and fourth quarters, respectively. For the entire second half, the S&P500 has climbed 3.5% on average.
If we take all strategist's forecasts and take the median forecast for the end of 2024, we may see a 1% rise from the close last week.
NEWS IN BRIEF
France votes in an election that could see a significant swing to the far-right. If victorious, Le Pen’s party, National Rally Rassemblement National (RN) may disrupt policy towards EU, and Ukraine.
UK Election on Thursday may result in volatility in GBP pairs.
BRIEF MARKET UPDATE
S&P500 - Risk of a retracement is growing. Downside should see support around 5,000. Then after the correction, the market should continue its upside move.
Gold – has been undergoing a complex correction. If it can hold above $2,290, then we should see a sustained rally above $2,360, to see a retest of the $2,400’s. However, a move to a $2,270/$2,250 area is still a possibility, so don’t rule it out.
Bitcoin – a complex retracement is continuing. Possible downside targets include: $55,000 and $50,000. Scale in all the way down to these levels. Bitcoin may not begin a sustained rally for a month or two.
WHAT IS… Painting the Tape?
Painting the tape is a form of securities fraud where traders create a false appearance of trading activity for a security by buying and selling the security among themselves. Painting the Tape (PTT) can attempt to artificially increase or decrease the price of a security through coordinated trading, or merely give the impression of a high volume of trades without any effort to influence the direction of the price.
PTT is illegal, and the Securities and Exchange Commission (SEC) enforces regulations against PTT and similar attempts at market manipulation.
Probably the simplest and most common form of market manipulation that involves PTT is when traders artificially inflate the trading volume of a security. Many day traders are attracted to securities revealing a sudden spike in volume far above the average. This leads to an increase in the price of the security, which then allows market manipulators to dump their holdings at an inflated price.
PSYCHOLOGY CORNER
Cut Out the Noise
I’m sure I don’t need to tell you that there are tons of supplemental resources and education about trading and investment on the Internet. That’s a good thing – right?
Well, that’s debatable. One of the worst things about all this information is that it is full of “noise” and is likely a distraction that will pull you away from your own confidence in your ability in the market.
Everybody comes to the market with a different approach. There is no one right way to trade the market. What works for one expert might not work for you. It’s always best to develop your own philosophy – your own approach to trading the market that suits your personality, and then shut out the loud voices who claim they have found the very best strategies for trading the market
QI CORNER
The monthly return table for major asset classes/assets. (Mohammed El-Erian, President of Queens’ College, Cambridge & chief economic advisor at Allianz.
MY CORNER
My new best friend at my present Airbnb.
Cheers,
Jacquie
Global Market Comments
July 1, 2024
Fiat Lux
SPECIAL ISSUE ABOUT THE FAR FUTURE
Featured Trade:
(PEAKING INTO THE FUTURE WITH RAY KURZWEIL),
(GOOG), (INTC), (AAPL), (TXN)
(GOOG), (GOOGL), (TEM), (IBM), (IRTC)
Ever heard the saying, "Follow the money"? Well, Google's parent company, Alphabet (GOOG) (GOOGL), is throwing some serious cash at a hot new AI player, Tempus AI (TEM). This isn't just any tech startup; they've recently IPO'd, and their stock is already soaring.
What's got Google so hot and bothered? Let's dive in.
Tempus AI, brainchild of serial entrepreneur Eric Lefkofsky (yes, the Groupon guy), is revolutionizing healthcare with their "intelligence diagnostics."
Notably, Lefkofsky isn't exactly a rookie when it comes to building successful businesses. He's got a proven track record, having also co-founded Lightbank (a venture capital firm), InnerWorkings, Mediaocean, Echo Global Logistics, and Pathos AI.
Alright, let's circle back to Tempus AI.
You know, this isn't some run-of-the-mill, stick-you-with-a-needle, and-call-it-a-day kind of blood test. Nope, Tempus AI is shaking things up with something that feels like it's straight out of a sci-fi flick—but it's as real as it gets.
Essentially, it’s like having a healthcare detective who can analyze your entire medical history, genetic profile, and even your lifestyle choices to uncover the secrets hidden within your own body. That's what Tempus AI is all about.
They're not just diagnosing diseases. The company is predicting them before they even happen, giving you the power to take control of your health and make informed decisions about your treatment.
But, as always, there's more to this story.
While Tempus AI is undoubtedly making waves, it's not the only player in the AI-driven healthcare arena. Established giants like IBM (IBM) Watson Health and iRhythm Technologies (IRTC) are also vying for dominance in this rapidly expanding market.
IBM Watson Health, backed by IBM's global clout, has been a major force in the field. They've been pouring money into AI research and development, tackling everything from electronic health records to cancer diagnostics.
But even with IBM's deep pockets, their broader health segment has hit a few snags, prompting them to rethink their strategy.
Then there's iRhythm Technologies, a specialist in cardiac monitoring. Their Zio patch technology, which uses AI to detect a wide range of heart arrhythmias, has been a big hit with cardiologists.
They raked in $265 million in revenue in 2023, a healthy jump from the previous year. However, like many growing companies, they're still working towards profitability.
So, where does Tempus AI fit into this picture?
Well, their explosive revenue growth of 183% from 2022 to 2023 certainly puts them in the spotlight. While they're starting from a smaller base than the big guys like IBM, their rapid expansion is a sign of strong market acceptance. But remember, they're not profitable yet, either.
Still, it's not just Google who's drinking the Kool-Aid.
Tempus AI's reach extends far beyond Google's investment. Their products have been used by roughly 95% of the top 20 biggest public biopharmaceutical companies in the world.
They've forged partnerships with more than 200 biopharma companies, and over 7,000 physicians across the country are using their technology.
Even more impressive, over 65% of U.S. academic medical centers have adopted Tempus AI's products. Talk about a vote of confidence.
Now, let's get to the most interesting part: should you invest in Tempus AI?
Well, their personalized approach to diagnostics, backed by Google's deep pockets and the overwhelming support from the medical community, could give them a real edge. But as with any investment, there's always risk involved.
That is, if you're risk-averse, this stock might not be your cup of tea. It's volatile, and they're still working on that whole "turning a profit" thing.
Meanwhile, companies like IBM offer stability but might not deliver the same explosive growth. As for iRhythm, they’re focused on a niche market. In comparison, Tempus AI is aiming for a broader reach.
So, for those with an appetite for risk, the potential rewards are tantalizing. Tempus AI is tapping into a massive market, with estimates topping $70 billion for their oncology and neuropsychiatry products alone.
Well, the use of AI in healthcare is still in its infancy, but Tempus AI is already a major player. They've got the tech, the team, and the financial backing from a tech titan. If you're an aggressive investor looking to ride the AI wave, Tempus AI might just be your golden ticket.
Remember, though, that the use of AI in healthcare is still in its infancy. A lot of things can still change, and another leader might emerge. But hey, if Google's putting their money where their mouth is, Tempus AI is certainly worth a closer look.
Mad Hedge Technology Letter
June 28, 2024
Fiat Lux
Featured Trade:
(THE NEW AI PLAY THAT YOU MIGHT WANT TO KNOW ABOUT)
(VRT)
This new artificial intelligence stock could be a keep.
As an insider, let me fill you in on the details.
Readers need to look at a company that is literally collaborating with Nvidia to position themselves closest to Nvidia’s business model.
Aligning themselves with the hottest stock in the best sub-sector in the industry that grows the fastest isn’t a bad idea.
That’s why readers should take a peek at Vertiv (VRT) shares which has gone absolutely ballistic over the past year.
VRT is a provider of coolant distribution infrastructure for data centers.
IT cooling challenges continue escalating as new server-accelerated compute technologies, machine learning, artificial intelligence, and high-performance computing drive higher heat densities in the data center environment. Liquid cooling is rapidly emerging as the technology for efficiently handling power-dense hot spots.
These massive data centers require significantly more electricity to operate.
That offers upside to industrials, utilities, and commodities, according to the firm.
GPUs need 2-2.5x more power than CPUs, and expected power usage for US data centers under construction is equivalent to more than 50% of the power currently used by US data centers.
Here is how Vertiv aids the technological revolution:
High-Density Power and Cooling Solutions: The ever-growing processing power of AI requires robust power and cooling infrastructure.
Vertiv's data center solutions are designed to handle the intense heat generated by AI workloads, ensuring optimal performance and preventing overheating.
Technical Partnerships: Vertiv actively collaborates with leading AI chipmakers like Nvidia. These partnerships ensure their solutions are specifically tailored to meet the unique power and cooling demands of cutting-edge AI hardware.
End-to-End Expertise: Vertiv doesn't just provide individual components. They offer comprehensive solutions that manage power delivery and heat rejection from the power grid all the way to the individual chip. This holistic approach streamlines AI infrastructure deployment and optimizes performance.
Their scalable solutions can adapt to the ever-increasing power and cooling needs of AI applications.
Organic orders increased by 60% compared to the same period last year and net sales reached $6.82 billion.
Operating profit for the quarter was $203 million, while adjusted operating profit stood at $249 million, reflecting a significant year-over-year growth of 42%.
The company also began returning cash to shareholders, repurchasing approximately 9.1 million shares at an average price of $66 per share.
Its strong performance is due to robust demand, particularly in AI-driven deployments and liquid cooling technologies, positioning VRT for continued growth and operational improvement in the evolving digital infrastructure landscape.
The necessity of power usage also makes these GPUs considerably hotter, putting pressure on firms such as VRT to improve cooling systems in data centers.
VRT shares have essentially gone up in a straight line in the past 1.5 years from $12 per share to $86.
That type of return has been entirely justified.
Moving forward, I believe the stock will behave in a similar fashion as the demand for its products grows strongly.
Under no scenario do I find a way that its cooling technology will go by the wayside.
In fact, they could have such a great product that it might fuel speculation of getting acquired which would fuel an even higher share price.
I am bullish VRT.
“The best customer service is if the customer doesn't need to call you, doesn't need to talk to you. It just works.” – Said Founder and CEO of Amazon Jeff Bezos
(WEBTOON ENTERTAINMENT (WBTN) DEBUTED ON THE NASDAQ ON JUNE 27, 2024)
June 28, 2024
Hello everyone,
A Major Australian Bank in a $4.9 billion takeover of Suncorp
ANZ has received approval from the Federal Treasurer for its $4.9 billion takeover of Suncorp’s banking arm. It will become Australia’s third-biggest bank once the takeover of Suncorp is finalized. The approval was made on the condition that ANZ and Suncorp maintain their regional branch numbers throughout Australia for three years. Furthermore, approval was also given if there were no net job losses because of the takeover for three years. Completion of the acquisition is expected to happen at the end of July.
Multiple rate hikes could be on the cards for Australia
Economists are predicting multiple rate hikes increases will be needed to bring inflation to within the RBA’s range.
Annual inflation came in hotter than expected this week at 4%, which was well above market expectations.
Experts believe rate hikes in quick succession, possibly in August and September, will be pivotal in bringing inflation down.
Korean webcomic platform makes its debut on June 27.
Webtoon Entertainment (WBTN), a webcomic platform, has set its market value at $ 2.67 billion ahead of its US listing.
Its shares are due to start trading on the Nasdaq stock exchange today (June 27) at $21 each, the top end of their marketed range.
South Korean technology giant Naver, based in Los Angeles, has been boosted by the growing online popularity of Korean and Japanese comics.
Webtoon says it has 170 million monthly active users in more than 150 counties around the world.
The company is aiming to sell 15 million shares and raise $315 million in the initial public offering (IPO).
The world’s largest fund manager BlackRock has expressed interest in buying up to $50 million of shares.
Webtoon also owns the Japanese webcomic and manga app Line Manga, the web novel platform Wattpad, and the Korean webcomic offering Naver Webtoon.
It offers thousands of titles covering different genres – including action, romance, horror, and science fiction.
The webtoon industry, which focuses on online-only comics optimized for reading on mobile, first emerged in South Korea two decades ago.
Their popularity exploded globally turning them into a major South Korean cultural phenomenon alongside K-pop and Korean dramas.
Webtoons are cheap to produce – a single artist can create one using a tablet – which can make popular comics very profitable.
The webtoon industry made $4.7 billion in 2021 and is projected to grow to $60.1 billion by 2030, according to Spherical Insights & Consulting.
June 27, Webtoon Entertainment’s first day on the Nasdaq.
(This is an article of interest, not a recommendation to buy the stock currently).
Cheers,
Jacquie
Global Market Comments
June 28, 2024
Fiat Lux
Featured Trade:
(THE NEXT COMMODITY SUPER CYCLE HAS ALREADY STARTED),
(COPX), (GLD), (FCX), (BHP), (RIO), (SIL),
(PPLT), (PALL), (GOLD), (ECH), (EWZ), (IDX)
When I closed out my position in Freeport McMoRan (FCX) near its max profit earlier this year, I received a hurried email from a reader asking if he should still keep the stock. I replied very quickly:
“Hell, yes!”
When I toured Australia a couple of years ago, I couldn’t help but notice a surprising number of fresh-faced young people driving luxury Ferraris, Lamborghinis, and Porsches.
I remarked to my Aussie friend that there must be a lot of indulgent parents in The Lucky Country these days. “It’s not the parents who are buying these cars,” he remarked, “It’s the kids.”
He went on to explain that the mining boom had driven wages for skilled labor to spectacular levels. Workers in their early twenties could earn as much as $200,000 a year, with generous benefits.
The big resource companies flew them by private jet a thousand miles to remote locations where they toiled at four-week on, four-week off schedules.
This was creating social problems, as it is tough for parents to manage offspring who make far more than they do.
The Great Commodity Boom has started, and in fact, we are already years into a prolonged super cycle.
China, the world’s largest consumer of commodities, is currently stimulating its economy on multiple fronts, including generous corporate tax breaks and relaxed reserve requirements. Get a trigger like the impending settlement of its trade war with the US and it will be off to the races once more for the entire sector.
The last bear market in commodities was certainly punishing. From the 2011 peaks, copper (COPX) shed 65%, gold (GLD) gave back 47%, and iron ore was cut by 78%. One research house estimated that some $150 billion in resource projects in Australia were suspended or canceled.
Budgeted capital spending during 2012-2015 was slashed by a blood-curdling 30%. Contract negotiations for price breaks demanded by end consumers broke out like a bad case of chicken pox.
The shellacking was reflected in the major producer shares, like BHP Billiton (BHP), Freeport McMoRan (FCX), and Rio Tinto (RIO), with prices down by half or more. Write-downs of asset values became epidemic at many of these firms.
The selloff was especially punishing for the gold miners, with lead firm, Barrack Gold (GOLD), seeing its stock down by nearly 80% at one point, lower than the darkest days of the 2008-9 stock market crash.
You also saw the bloodshed in the currencies of commodity-producing countries. The Australian dollar led the retreat, falling 30%. The South African Rand has also taken it on the nose, off 30%. In Canada, the Loonie got cooked.
The impact of China cannot be underestimated. In 2012, it consumed 11.7% of the planet’s oil, 40% of its copper, 46% of its iron ore, 46% of its aluminum, and 50% of its coal. It is much smaller than that today, with its annual growth rate dropping by more than half, from 13.7% to 2.3% in 2020.
What happens to commodity prices if China recovers the heady growth rates of yore? It boggles the mind. If China doesn’t step up then India certainly will.
The rise of emerging market standards of living will also provide a boost to hard asset prices. As China goes, so do its satellite trading partners, who rely on the Middle Kingdom as their largest customer. Many are also major commodity exporters themselves, like Chile (ECH), Brazil (EWZ), and Indonesia (IDX), who are looking to come back big time.
As a result, western hedge funds will soon be moving money out of paper assets, like stocks and bonds, into hard ones, such as gold, silver (SIL), palladium (PALL), platinum (PPLT), and copper.
A massive US stock market rally has sent managers in search of any investment that can’t be created with a printing press. Look at the best-performing sectors this year and they are dominated by the commodity space.
The bulls may be right for as long as a decade thanks to the cruel arithmetic of the commodities cycle. These are your classic textbook inelastic markets.
Mines often take 10-15 years to progress from conception to production. Deposits need to be mapped, plans drafted, permits obtained, infrastructure built, capital raised, and bribes paid in certain countries. By the time they come online, prices have peaked, drowning investors in red ink.
So a 1% rise in demand can trigger a price rise of 50% or more. There are not a lot of substitutes for iron ore. Hedge funds then throw gasoline on the fire with excess leverage and high-frequency trading. That gives us higher highs, to be followed by lower lows.
I am old enough to have lived through a couple of these cycles now, so it is all old news for me. The previous bull legs of supercycles ran from 1870-1913 and 1945-1973. The current one started for the whole range of commodities in 2016. Before that, it was down from seven years.
While the present one is short in terms of years, no one can deny how business cycles will be greatly accelerated by the end of the pandemic.
Some new factors are weighing on miners that didn’t plague them in the past. Reregulation of the US banking system has forced several large players, like JP Morgan (JPM) and Goldman Sachs (GS) to pull out of the industry completely. That impairs trading liquidity and widens spreads— developments that can only accelerate upside price moves.
The prospect of falling US interest rates is also attracting capital. That reduces the opportunity cost of staying in raw metals, which pay neither interest nor dividends.
The future is bright for the resource industry. While the gains in Chinese demand are smaller than they have been in the past, they are off of a much larger base. In 20 years, Chinese GDP has soared from $1 trillion to $14.5 trillion.
Some 20 million people a year are still moving from the countryside to the coastal cities in search of a better standard of living and improved prospects for their children.
That is the good news. The bad news is that it looks like the headaches of Australian parents of juvenile high earners may persist for a lot longer than they wish.
Buy all commodities on dips for the next several years.
