Page 342 - Mad Hedge Fund Trader

The Tech Lender

SoFi Technologies stock exploded higher earlier this week after the financial technology company posted its first quarterly profit.

That’s a mighty feat for a small tech firm - they usually burn through cash fast and cry for help from lenders.

The stock was up over 20% and that moment is another reminder about the absolute ferocity of the January move in short-term tech.

Few big tech stocks have posted positive earnings, and sure, there have been modest selloffs only for the broader tech market to rocket higher.

Each pullback has been met by a rip-your-face-off bullish reversal move.

Try to short tech at your peril.

What does that mean for Sofi?

SOFI retraced its bullishness by 10% and is trading back in the $8 range.

Heightened volatility is a hallmark of small tech stocks like Sofi and the firm won’t be able to shake this label until they grow larger and display stable earnings.

They posted fourth-quarter earnings of 2 cents a share, and in the year-ago quarter, it posted a loss of 5 cents a share.

Adjusted net revenue of $594.25 million in the fourth quarter beat the $572 million analysts had forecast. A year ago, revenue was $443.42 million.

SoFi began as a lender focused on refinancing debt but now operates through three segments: lending, which includes student, personal, and home loans; financial services; and a technology platform.

Record revenue at the company level was driven by record revenue across all three of the business segments, with a record contribution of 40% of adjusted net revenue generated by non-Lending segments (Technology Platform and Financial Services segments).

Deposits increased by $2.9 billion to $18.6 billion in the quarter, and customers grew by nearly 585,000 to more than 7.5 million.

Because personal loans take up the biggest share of the portfolio, analysts tend to pay attention to those numbers. At the end of 2023, the company said, personal loans were marked at 104.9%—up from 104% at the end of the third quarter.

Beyond 2024, the company forecasts 20% to 25% compound revenue growth from 2023 to 2026, with per-share earnings from 55 cents to 80 cents a share in 2026.

Sofi continues to be the high-risk, high-reward name that intrigues investors on big drops.

Every spike in shares has also offered a short window of opportunity to short the stock.

Conversely, each drop of 10% or 20% has been a great entry point into shares.

As we advance further into 2024, the narrative will soon change into the Fed pivot and even though the Fed has said they won’t cut rates yet, the market is anticipating it later this year.

For any tech stock that is interest rate sensitive like Sofi, I don’t see how it is smart to bet against them for the rest of 2024.

Tech often overshoots to each side and Sofi shares will be higher in one year from now after the Fed finally does follow through with 1.5% of interest rate cuts which equals to 6 quarter point cuts.

Sofi’s projected 25% revenue growth certainly will add more firepower to share price action if they can pull it off.

However, these types of early-stage companies are notorious for overpromising and underdelivering.

February 2, 2024

Jacque's Post

(FUND OPTIONS IN THE MARKETPLACE)

February 2, 2024

Hello everyone,

Money market funds are awash with money.

The 2022 sell-off and rapid rise in interest rates in 2023 caused money-market balances to soar, doubling from where they were just five years ago – a far bigger increase than the historical trend. Investors didn’t necessarily want their money to grow but rather keep it safe.

That’s a lot of cash.

And the likelihood that much of that cash will flow into stocks, given the market’s more optimistic mood these days, is why we’re unlikely to see a sharp pullback soon, as counterintuitive as that seems given the markets’ big move of late. Although, I hasten to add that the Magnificent Seven are definitely overstretched.

$6 trillion on the sidelines is a big deal. This pot of money is looking for a home in stocks, bonds, and real estate. Having that much dry powder means there is room left for stocks to fly a little higher before we can call this a bubble.

So, what’s the best way for us to profit in a market like this, other than scaling into stocks on down days and buying LEAPS?

One option is investing in a mutual fund. This type of fund is one that many companies offer to workers in their 401 (k) plans. The problem here is that many of those funds perform poorly. And there is a kickback play taking place on the employers’ side as the latter receive benefits from the high fees charged by the fund managers that run them. I believe it’s called keeping the status quo. Here is an example.

Clearbridge Sustainability Leaders Fund (CBSLX) This fund has an environmental, social, and governance mandate (ESG) that has weighed on its returns, even though it holds many S&P500 standouts, like Apple (AAPL) and Microsoft (MSFT).

Another popular option is an index fund, like the SPDR S&P 500 ETF Trust (SPY), which holds the entire S&P500 and tracks the index. Buffett has often advised investors and anyone willing to listen to buy an index fund – not necessarily the one above – and just keep adding to it on dips.

But how much does it yield?

Only 1.4%. You would need $7.1 million invested to receive $100,000 in passive income from this fund. But it’s a solid fund and over time it will increase in value.

How about a closed-end fund (CEF) called the Liberty All-Star Equity Fund (USA).

This fund (current yield: 9.7%) holds many of the same stocks as SPY, like Microsoft and Apple, as well as United Health Group (UNH), Visa (V), and Capital One Financial (COP). What’s more the fund (USA) has delivered a solid 661.5% return in the last 15 years. So, its appeal is twofold: it returns the profits of the broader stock market in a well-diversified fund and two, it delivers a large slice of those profits as dividends.

What are CEFs:

They are like mutual funds or ETFs in that they pool money from investors, which the fund’s managers then use to buy a basket of stocks, bonds, real estate investment trusts (REITS), or other investments, depending on the CEF’s mandate.

The fund managers then buy and sell over time, handing profits over to investors as dividends. CEFs trade on public exchanges and can be bought and sold, just like a stock.

CEFs are heavily regulated. They must account for their operations and file statements with the SEC every quarter.

Being publicly traded means CEFs are liquid. If you need cash, just sell your shares during market hours, Monday through Friday from 9:30 a.m. to 4 p.m. Eastern time.

The (USA) yield of 9.7% will provide you with a $100,000 annual passive income with $1,030,928 invested.

And this payout will probably grow in the future. All-Star Funds has a policy of paying out 10% of its net asset value (NAV or the value of its underlying portfolio as dividends every year, and the fund’s total NAV return has been 12.6% per year on average over the last 15 years. (With CEFs, per-share NAV returns often differ from a fund’s market price–based returns, in part because CEFs have more or less the same share count for their entire lives.) That means (USA) has earned 121% of its payouts during this period, which also suggests it can sustain its dividend for a long time.

Investors can also look forward to some upside generated by the fund’s discount to net asset value (NAV). Right now, the shares trade for around 3% below NAV, under the five-year average of a 0.9% discount. Not a wide gap, but as it closes it will give the market price an extra push.

This Post has provided you with a brief introduction to closed-end funds, featuring the Liberty All-Star Equity Fund (USA). The discussion here is designed to educate you about what is on offer in the financial marketplace. Always do your own research and make sure you are aware of all the risks.

Cheers,

Jacquie

February 2, 2024

Diary, Newsletter, Summary

Global Market Comments
February 2, 2024
Fiat Lux

Featured Trade:

(Trade Alert - (IBKR) – EXPIRATION)

Trade Alert - (IBKR) - EXPIRATION

Diary, Newsletter

Expiration of the Interactive Brokers (IBKR) December 2023 $80-$85 at-the-money vertical Bull Call debit spread LEAPS at $5.00

Closing Trade

12-15-2023

expiration date: December 15, 2023

Number of Contracts = 1 contract

Just a reminder that for those who weren’t looking, our position in the Interactive Brokers (IBKR) LEAPS expired at its maximum potential profit on December 15, 2023. I am laying out how this trade worked out because I plan to send out many more trade alerts for LEAPS this year.

As a result, followers got to earn $250 for each contract they owned, bringing in a return of 100% in only 9 months. I am pointing this out now just to educate how profitable LEAPS can be when they work.

The brokerage sector had been beaten like the proverbial red-headed stepchild when we added this position last March, with plunging stock market prices and volumes. However, (IBKR) should be at the core of any long-term LEAPS portfolio.

Traders seem to have put brokerages and regional banks all into the same basket. They were dead wrong.

The best time to pick up this position will be during a market meltdown day and the Volatility Index is over $20.

If you are looking for a lottery ticket, then here is a lottery ticket.

(IBKR) is one of the top online brokers, with a market capitalization of $36.9 billion. That has far and away been one of the most sophisticated and conservative risk control procedures out there. If you don’t believe me, just try and sell a naked put short.

The regional banking crisis pulled forward any recession and therefore the recovery.

There will be no interest rate rises for a decade. The cuts will start in June and continue rapidly after that. That’s when the economic data catch up with the reality that is happening right now, which is hugely deflationary.

To learn more about the company, please visit their website at https://www.interactivebrokers.com/

Please note that these options are illiquid, and it may take some work to get in or out. Executing these trades is more an art than a science.

A lot of people ask me about the appropriate size for LEAPS. Remember, if the stock does NOT rise above the upper strike price by the expiration date, the value of your investment goes to zero.

The way to play this is to buy LEAPS in ten different companies. If one out of ten increases ten times, you break even. If two of ten work you double your money, and if only three of ten work you triple your money.

There is another way to cash in. Let’s say we get half of your double in the next three months, which from these low levels is entirely possible. Then you could earn half of the maximum potential profit in months. Then you can decide whether to keep the fivefold return or go for the full ten bagger. It’s a nice problem to have.

Notice that the day-to-day volatility of LEAPS prices is minuscule since the time value is so great. This means that the day-to-day moves in your P&L will be small. It also means you can buy your position over the course of a month just entering new orders every day. I know this can be tedious but getting screwed by overpaying for a position is even more tedious.

Only use a limit order. DO NOT USE MARKET ORDERS UNDER ANY CIRCUMSTANCES. Just enter a limit order in the middle market and work it.

This was a bet that Interactive Brokers would not fall below $85 by the December 15, 2023 option expiration in 9 months.

Here are the specific trades you need to close out this position:

Expiration of 1 December 2023 (IBKR) $80 calls at……...…$6.00

Expiration of short 1 December 2023 (IBKR) $85 calls at...$1.00

Net Proceeds:………….……….………..………….….....................$5.00

Profit: $5.00 - $2.50 = $2.50

(1 X 100 X $2.50) = $250 or 100% in 9 months.

Opening Trade

To see how to enter this trade in your online platform, please look at the order ticket below, which I pulled off of Interactive Brokers.

If you are uncertain on how to execute an options spread, please watch my training video on “How to Execute a Vertical Bull Call Debit Spread” by clicking here.

The best execution can be had by placing your bid for the entire spread in the middle market and waiting for the market to come to you. The difference between the bid and the offer on these deep in-the-money spread trades can be enormous.

Don’t execute the legs individually or you will end up losing much of your profit. Spread pricing can be very volatile on expiration months farther out.

Keep in mind that these are ballpark prices at best. After the alerts go out, prices can be all over the map.

February 1, 2024

Biotech Letter

Mad Hedge Biotech and Healthcare Letter
February 1, 2024
Fiat Lux

Featured Trade:

(STEADY AS SHE GOES)

(JNJ), (WBA), (KVUE)

Steady As She Goes

Biotech Letter

Today, let’s talk about something that might make dividend enthusiasts a tad uncomfortable — when beloved companies take an axe to dividends. Yeah, it’s a bummer.

Imagine you’re on a steady course, relying on those dividends to keep flowing in, and suddenly, a storm hits. That's what happened when Walgreens Boots Alliance (WBA) rocked the boat by slashing its dividend by a whopping 48%. Ouch, right?

But, let's not dwell on the past. Instead, how about we scout for a stock that’s less likely to leave us in such a pickle?

Spoiler alert: no stock comes with a no-risk guarantee, but sticking with big names sporting robust businesses and hefty moats might just do the trick. And where better to look than the evergreen healthcare sector?

That’s where Johnson & Johnson (JNJ) comes in.

This old-timer isn’t just another name in the pharma game; it’s practically royalty, with a lineage stretching back nearly 140 years.

The year 2023 was a period of change for JNJ, as it waved goodbye to slow movers like Band-Aid and Tylenol by spinning off its consumer health division into Kenvue, netting a cool $13 billion from Kenvue’s (KVUE) market debut.

And yes, JNJ still keeps a watchful eye on Kenvue with a 9.5% stake.

Digging into the numbers, JNJ boasted a hefty $21 billion in sales in the third quarter of 2023 alone, marking a 7% jump from the previous year, with profits tallying up to a cool $4.3 billion.

The pharmaceutical division, with stars like Darzalex and Stelara, brought home the bacon, contributing $14 billion to the total revenue.

Not to be outdone, the medical device division strutted its stuff with a 10% sales hike, raking in $7.5 billion.

Here’s the deal with JNJ: it’s like that reliable old friend you can count on for the long haul. It’s not just resting on its laurels, though.

JNJ has been on the prowl, having acquired Abiomed, known for the world's smallest heart pump, and eyeing Ambrx Biopharma (AMAM) for future innovations.

Plus, with a 60-year streak of not just paying but boosting its dividend, JNJ is like that steady drummer in a rock band, keeping the beat alive and kicking, having increased its dividend by 80% over the last decade.

Still, nothing is perfect. So, let’s not sugarcoat it — JNJ has its share of headaches. The Inflation Reduction Act is looking to play hardball on drug prices, which could mean thinner pie slices for JNJ’s top sellers.

And then there’s the talc saga, a storm JNJ is still navigating with a $700 million settlement not putting a full stop to the legal drama, considering there are still thousands of personal injury lawsuits pending.

Yet, for all the turbulence, JNJ’s resilience is nothing short of legendary. With an AAA credit rating, it stands more solid than many sovereign states. It’s the kind of ship that keeps its course steady, no matter the weather.

So, what’s the takeaway for those hunting for dividends in the healthcare seas?

With its solid track record, including a Dividend King crown for 61 years of dividend increases, JNJ is a ship built for long voyages.

Founded in 1886, it has shown a remarkable ability to adapt and grow, charting a course for future success. It’s not promising a gold rush overnight, but as a steadfast companion on your investment journey, JNJ is as good as it comes.

Investing in JNJ is like joining a voyage with a seasoned captain at the helm. Sure, there might be choppy waters ahead, but with a history of navigating through just about any storm, JNJ is a ship you’d be wise to board.

And who knows? With its commitment to growth and a knack for bouncing back, JNJ could well be the treasure chest you’ve been searching for in the vast investment seas.

Tech Alert - (AAPL) February 1, 2024 - TAKE PROFITS - SELL

Tech Alert

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

Closing Trade Alert - SQQQ

Jacque's Post

TRADE ALERT: CLOSE SQQQ

Hello everyone,

As I expect the markets to go back up after a brief blip, I believe we should close the SQQQ ETF.

There is a firm expectation that the Fed will cut rates in June 2024, and this will drive the markets higher.

Additionally, as 10-year yields start to fall, this will also put a tailwind behind stocks.

Close SQQQ at best price.

Cheers,

Jacquie

February 1, 2024

Diary, Newsletter, Summary

Global Market Comments
February 1, 2024
Fiat Lux

Featured Trade:

(THE 16th YEAR ANNIVERSARY OF THE MAD HEDGE FUND TRADER)

The 16th Year Anniversary of the Mad Hedge Fund Trader

Diary, Newsletter

The Diary of a Mad Hedge Fund Trader is now celebrating its 16th year of publication.

Last year, I religiously pumped out 3,000 words a day, writing or editing 24 newsletters a week of original, independent-minded, hard-hitting, and often wickedly funny research.

I spent my life as a war correspondent, Marine Corps combat pilot, Wall Street trader, and hedge fund manager, and if you can’t laugh after that, something is wrong with you.

I’ve been covering stocks, bonds, commodities, foreign exchange, energy, precious metals, real estate, and even agricultural products for 55 years.

You’ve been kept up on my travels around the world and listened in on my conversations with those who drive the financial markets.

The site now contains over 25 million words or 40 times the length of Tolstoy’s epic War and Peace.

Unfortunately, it feels like I have written on every possible topic at least 100 times over, if you sometimes think you’re getting repeats, you are, it’s just updated.

So, I am reaching out to you, the reader, to suggest new areas of research that I may have missed until now which you believe justify further investigation.

Please send any ideas directly to me at support@madhedgefundtrader.com/, and put “RESEARCH IDEA” in the subject line.

The great thing about running an online business is that I can evolve it to meet your needs on a daily basis.

Many of the new products and services that I have introduced since 2008 have come at your suggestion. That has enabled me to improve the product’s quality, to your benefit. Notice how rapidly my trade alert performance is going up, now annualizing at +51% a year.

This originally started as a daily email to my hedge fund investors in 2008 giving them an update on fast market-moving events. That was at a time when the financial markets were in free fall, and the end of the world seemed near.

Here’s a good trading rule of thumb: Usually, the world doesn’t end. History doesn’t repeat itself, but it certainly rhymes.

The daily emails gave me the scalability that I so desperately needed. Today’s global mega enterprise grew from there. Today, the Diary of a Mad Hedge Fund Trader and its Global Trading Dispatch is read in over 140 countries by 30,000 followers. The Mad Hedge Technology Letter the Mad Hedge Biotech & Health Care Letter, Jacquie’s Post, and Mad Hedge AI also have substantial followings. And Mad Hedge Hot Tips is one of the most widely-read publications in the financial industry.

I’m weak in distribution in North Korea and Mali, in both cases due to the lack of electricity. But that may change.

One can only hope.

If you want to read my first pitiful attempt at a post, please click here for my February 1, 2008 post.

It urged readers to buy gold at $950 (it soared to $2,175), and buy the Euro at $1.50 (it went to $1.65).

Now you know why this letter has become so outrageously popular.

I always get asked how long will I keep doing this.

I am already collecting Social Security, so that deadline came and went. My old friend and early Mad Hedge subscriber, Warren Buffet is still working at 93, so that seems like a realistic goal.

Hiking ten miles a day with a 50-pound pack, my doctor tells me I should live forever. He says he spends all day trying to convince his other patients to be like me, and the only one who does it is me.

The harsh truth is that I don’t know how to NOT work. Never tried it, and never will.

This year I received a new reminder of my indestructibility. While observing a Ukrainian HIMARS missile attack on Crimea, a Russian missile landed 100 feet away from me. It was a dud and didn’t go off. If it exploded it would have killed us all. Later that day, a Russian bullet fired across the Dnieper River hit me in my right hip, caught by my body armor. If that isn’t a message from above, I don’t know what is.

The fact is that thousands of subscribers love me for what I do, pay for me to travel around the world first class to the most exotic destinations, eat in the best restaurants, fly the rarest historical aircraft, then say thank you. I even get presents (keep those pounds of fudge and bottles of bourbon coming!).

Given the absolute blast I have doing this job I would be Mad to actually retire.

Take a look at the testimonials I get only on an almost daily basis and you’ll see why this business is so hard to walk away from (click here)

In the end, you are going to have to pry my cold dead fingers off of this keyboard to get me to give up.

Fiat Lux (Let there be light).