There is growing evidence that China is starting to recover. If that happens, it is going to restart the entire global manufacturing cycle. Emerging markets have been the missing link for the entire year,” said Jim Paulsen, formerly the chief investment strategist of Wells Capital Management.
Mad Hedge Technology Letter
April 19, 2024
Fiat Lux
Featured Trade:
(TECH EARNINGS IS THE NEXT CATALYST)
(SMCI), (NVDA), (MSFT)
It’s been a slap in the face lately in the tech market as the market has realized that rate cuts are not imminent.
The party is over in the short term until a catalyst re-ignites the bull market rally.
The softness has put a real dent into the momentum and trajectory of tech stocks.
Now we are confronted with the sad reality that inflation is here to stay because hot report after hot report is confirming tech investors' greatest fear, that inflation is not transitory like the Fed once said.
In fact, inflation has been a serious problem now for over 4 years and the same Fed that botched the transitory inflation issue is still in charge.
My bet is that they won’t ease prematurely with all the heat they received from the failed transitory inflation call.
Yet here we are with the tech market selling off in the short-term and healthily pulling back.
Even AI chip stock Super Micro Computer (SMCI) is back around $750 per share after skyrocketing past $1,200 per share.
The froth for now is ebbing.
Readers had to expect that a consolidation of some kind was in the cards and that is what we are going through right now.
In the near term, earnings are our best hope for a positive catalyst to offset all the negativity about inflation and interest rates.
There is a good chance we don’t even get one rate cut this year with all the hot job numbers, because the data is just too good to ignore.
In the recent stretch of the bull run, investors looked past higher rates, based in part on their belief that policy cuts were around the corner.
With wage growth starting to cool and excess savings draining, asset markets have seemingly stepped in to help sustain US consumption, adding more than $10 trillion to household net worth in the past year.
Companies need to show that they’re capitalizing on economic strength to expand earnings.
The tech market needs to show in the upcoming earnings season that the artificial intelligence optimism that started with the launch of ChaptGPT is more than hype.
Not all earnings outlooks are created equal, of course, and one can imagine a scenario in which AI darlings Nvidia and Microsoft fan optimism.
Consensus is that we will experience about 5% earnings growth for the S&P 500 from the same period last year excluding the volatile energy sector.
Meanwhile, the economy probably grew about 2.9% in the first quarter, according to the Atlanta Fed’s GDP Now tracker, and that should translate into encouraging earnings and outlooks.
I am of the opinion that all the heavy lifting will be done by several tech behemoths that also double-dip in the AI narrative.
This has also created a massive vacuum of weakness after the likes of MSFT and NVDA.
The narrowness of leadership is a result of a winner takes all of the economy and just several corporations consolidating at the top.
Competition is so fierce that it has left Apple and Tesla by the wayside.
We will reach that 5% earnings growth, but strip out a few tech stocks, and that number is likely to be flat or minus.
I believe the narrowness of leadership will be a hallmark of the future bull market and not just some one-off exception.
Some readers have no idea how ultra-competitive it is at the top of the stock market pyramid with companies fighting for the incremental investment dollar.
“I don't look to jump over 7-foot bars: I look around for 1-foot bars that I can step over.” – Said Warren Buffett
When John identifies a strategic exit point, he will send you an alert with specific trade information as to what security to sell, when to sell it, and at what price. Most often, it will be to TAKE PROFITS, but, on rare occasions, it will be to exercise a STOP LOSS at a predetermined price to adhere to strict risk management discipline. Read more
(SUMMARY OF JOHN’S APRIL 16, 2024, WEBINAR)
April 19, 2024
Hello everyone.
TITLE: Volatility is back.
TRADE ALERT PERFORMANCE:
April: 5.2% MTD
Average annualized return: +51.82% for 16 years.
Trailing One Year Return: +46.01%
PORTFOLIO:
(FCX) 4/$37 - $40 call spread
(XOM) 4/$100 - $105 call spread
(OXY) 4/$59-$62 call spread
(WPM) 4/$39-$42 call spread
(GLD) 4/$194- $197 call spread
(NVDA) 5/$740-$740 call spread
(NVDA) 5/$710 - $720 call spread
(TLT) 5/$82-$85 call spread
(FCX) 5/ $42-$45 call spread
THE METHOD TO MY MADNESS
A short-term top for all risk assets is in, but John believes the downside is limited to 5%-8% with $8 trillion in cash on the sidelines and a further $26.8 trillion in short-term US treasury bills.
Technology stocks will only have a time correction, not a crash.
All economic data is globally slowing, except for the U.S. with the only good economy in the world.
We now understand that interest rates are higher for longer and there may be no rate cuts in 2024.
Buy stocks and bonds but only after substantial dips.
THE GLOBAL ECONOMY – THE ONE BRIGHT LIGHT
Nonfarm payroll jumped by 303,000 in March, almost double what was expected.
The headline unemployment rate drops 0.1% to 3.8%.
CPI comes in hot at 0.4% for March, the same rate as in February. Hopes of a June interest rate cut have been dashed. John thinks September is now the earliest.
PPI comes in cold at 0.2% for March. On a 12-month basis, CPI rose 2.1%, the biggest gain since April 2023.
US Consumer Sentiment fades in April.
Europe sticking to a June rate cut, demanded by a weaker economy.
China’s international trade collapses. Exports from China slumped 7.5% YOY.
The UK remains mired in recession – only seeing 0.1% growth.
STOCKS – CORRECTION TIME
Investors are piling into cash, with money-market funds getting $82 billion in the week through Wednesday.
Investors are still flocking to cash funds, and history suggests redemptions won’t begin buying stocks again until after the Federal Reserve starts cutting interest.
JP Morgan misses on earnings, tanking the shares by $10.
NVIDIA rallies in a terrible market. Large margin between it and other companies.
China’s economy slows, with analysts cutting forecasts to 4.6% against a government target of 5%.
Starlink to boost low earth orbit satellites, from the current 5,000 to 40,000.
Ely Lilly builds a $2.5 billion German weight loss drug factory to meet overwhelming demand in the US and meet severe shortages.
(CAT) a great buy setting up here.
(FCX) target $100 by 2025.
(V) buy setting up soon.
BRK/B soon be time to buy.
Spreads are driven by volatility of the stock.
Do 5% in the money if low volatility and 20% in the money if volatile.
BONDS – BREAKDOWN
Fed not to cut interest rates in 2024, which is a medium-term trading view.
Bonds break down to 2024 lows but only have a couple of points of downside left.
While this represents a worst-case scenario, I don’t expect bonds to drop much from here. Perhaps a couple of points, as future interest rate cuts are a certainty.
At some point, there will be a great bond trade out there, but not yet!
90-day T-bills are still yielding 5.36% and 180 days the same.
Europe and Japan are still on target for rate cuts.
(JNK) good play here.
FOREIGN CURRENCIES – NEW DOLLAR HIGHS
US$ surges on hot CPI hitting a new 34-year high against the Japanese yen at 154.
Bank of Japan's intervention to support the yen is expected. Yen shorts in the futures market hit a five-month high. Avoid (FXY).
Chinese Yuan crashes, suffering worst day in two months. International trade is collapsing.
Declining exports, collapsing foreign investment, and minimal population growth – all add up to a weaker Chinese currency.
All due to 40 years of one child only policy. Avoid (FXI).
Higher rates for longer = higher for the longer greenback.
Falling interest rates guarantee a falling dollar for 2024.
ENERGY & COMMODITIES – NEW HIGHS
Oil spikes on new Iran war threats sending Brent to $92, a new 2024 high.
Oil continues to bubble of tight supplies, supported by geopolitical tensions in the Middle East, concerns over tightening supply, and expectations about demand growth as economies improve.
Biden boosts the cost of Alaska Oil drilling leases, from $10,000 to $160,000, the first increase since 1960. There is also a bump in the royalty on extracted oil, from 12.25% to 16.27%.
Buy energy stocks on dips, like (XOM) and (OXY), which are posing record profits.
A global commodity rally has also dragged oil up.
US continues to dominate markets with 13 million barrels/day production.
Electrification of the US economy will continue to be a driving theme.
Lithium is to stay in the dumps as long as EVs are suffering a nuclear winter on sales.
(CCJ) strong buy – long-term prospect.
PRECIOUS METALS – GEOPOLITICAL FEARS
Gold hits new all-time high on fears of Iran war.
Gold Derivatives are Now Wagging the Dog.
There are 187,000 metric tonnes of gold above ground worth a mere $14.4 billion which price 50 times that figure in paper derivatives, like ETFs, futures contracts, and options.
A metric tonne of gold today is worth $77 million.
REAL ESTATE – FOLLOW THE BIG MONEY
Blackstone bets on higher real estate prices, agreeing to acquire Apartment Income REIT, known as AIR Communities, in an all-cash deal for $10 billion.
The takeover is Blackstone’s latest housing bet, following its $3.5 billion deal to take single-family landlord Tricon private earlier this year.
The company is stepping up its hunt for deals as prices fall in commercial property markets. It’s really a big play on falling interest rates.
US Construction Spending Falls, 0.3% in February.
(CCI) waiting for a bottom in price.
TRADE SHEET
Stocks – buy any dips.
Bonds – buy dips.
Commodities – buy dips.
Currencies – sell dollar rallies, buy currencies.
Precious Metals – buy dips.
Energy – buy dips.
Volatility – buy $12.
Real Estate – buy dips.
NEXT STRATEGY WEBINAR
Wednesday, May 1 @ 12:00 EST
From Key West, Florida
Quite Interesting (QI) Corner
Cheers,
Jacquie
When John identifies a strategic exit point, he will send you an alert with specific trade information as to what security to sell, when to sell it, and at what price. Most often, it will be to TAKE PROFITS, but, on rare occasions, it will be to exercise a STOP LOSS at a predetermined price to adhere to strict risk management discipline. Read more
Global Market Comments
April 19, 2024
Fiat Lux
Featured Trade:
(THE SEVEN WORST FINANCIAL MISTAKES THAT RETIREES MAKE)
When John identifies a strategic exit point, he will send you an alert with specific trade information as to what security to sell, when to sell it, and at what price. Most often, it will be to TAKE PROFITS, but, on rare occasions, it will be to exercise a STOP LOSS at a predetermined price to adhere to strict risk management discipline. Read more
When John identifies a strategic exit point, he will send you an alert with specific trade information as to what security to sell, when to sell it, and at what price. Most often, it will be to TAKE PROFITS, but, on rare occasions, it will be to exercise a STOP LOSS at a predetermined price to adhere to strict risk management discipline. Read more
