“Technology is nothing. What's important is that you have a faith in people, that they're basically good and smart, and if you give them tools, they'll do wonderful things with them.” – Said Steve Jobs
Global Market Comments
March 8, 2024
Fiat Lux
Featured Trade:
(MARCH 6 BIWEEKLY STRATEGY WEBINAR Q&A),
(SPX), (QQQ), (PANW), (SNOW), (NVDA), (GLD), (GOLD), (NEM), (BA), (AMZN), (TLT), (AAPL), (COIN)
Below please find subscribers’ Q&A for the March 6 Mad Hedge Fund Trader Global Strategy Webinar, broadcast from Silicon Valley, CA.
Q: With your projections of the Dow going to $240,000 in 10 years, would it be wise to invest in the Dow?
A: The Dow is just an indicator that everybody understands and is familiar with what the media uses. What I tell people to do is if you are not an aggressive person, put half your money in the S&P 500 (SPX), which is getting most of the gains, and half in the technology (QQQ), which is getting all of the gains. If you're an aggressive person, say in your twenties, thirties, or forties, then you put all of your money in the Invesco QQQ NASDAQ Trust (QQQ) because you'll live long enough to survive the inevitable downturns.
Q: What should we do now with Palo Alto Networks (PANW)?
A: Keep it. It’s a fantastic long-term company. This is a rare opportunity to get in on the long side, as this is a company that I think could double over the next 3 to 5 years. Hacking is never going out of style and now they have AI. The selloff was caused by a major platform upgrade which may cause profits to dip for a quarter. That’s now in the price.
Q: With the successful launch of Bitcoin, should we allocate 5% or 10% of our portfolio to Bitcoin?
A: Only if you can handle a 90% decline at any time without warning because that's exactly what it did in 2021. Calling it a store of value is a fantasy. You also still have big theft issues with Bitcoin. You don't have theft issues if you have all your money at Morgan Stanley, Goldman Sachs, Merrill Lynch, and so on, so there is a security issue (with Bitcoin). The only way to bypass the security issues is to have a hot wallet, and the only way to have a hot wallet is to be a computer programmer yourself or have a degree in computer science—so it's not for most people. If you can navigate all of that, then maybe; but again, nobody knows when the next 90% decline is going to come. By the way, if I can find stocks with Mad Hedge Fund Trader that go up faster than Bitcoin, I'd much rather own the stocks, because at least I know what they make.
Q: Is Snowflake (SNOW) a buy here at $155?
A: Absolutely. Another great cybersecurity database company. But if we drop to $155, we're going to stop out of the front month call spread and try to buy it back lower down.
Q: Do you think it's wise to sell the semiconductor stocks now and buy them back lower down, and pay the taxes?
A: Probably not. They are really the most volatile sector in the market. If you sell now, it's unlikely you'll be able to pick up the next bottom and get back in, and you have to pay the taxes. So it's probably better just to keep a core long-term position in the semis, especially Nvidia (NVDA); and if it drops 200 points, just buy more. That's what I'm doing. I'm keeping all of my Nvidia LEAPS. All my call spreads and short put positions are about to expire at max profit, and I even have a little bit of stock that I'm keeping. So I think Nvidia goes to $1,000 at one point and now, the forecast of $1,400 is out there. So as Nvidia goes, so goes the entire rest of the semiconductor industry.
Q: You're only 30% invested. Are you looking for a pullback, or are you just waiting for new opportunities to appear?
A: Yes and Yes. I'm waiting for a fantastic company to come up with conservative guidance, which these days means an immediate 20 to 25% sell-off. That is your entry point for these good companies. That's how we got into Palo Alto Networks (PANW), and that's how we got into Snowflake (SNOW). In an extremely overbought market, those are your only opportunities until the market generally sells off or until the domestic plays finally start to take off, and we got the first hints of that last week.
Q: What is your view on junior gold mining stocks?
A: They are a buy here, absolutely, but you get enough volatility in the majors that you don't need to bother with the minors—that's always been my view. Because minors go out of business, they close mines, they don't find gold. A lot of minors have stocks go up on the possibility of gold being found, whereas the majors like Barrick Gold (GOLD) and Newmont Mining (NEM) actually have the gold, and it's just an industrial process of mining it. You know the minors, the juniors, are extremely speculative and high-risk, and that's why most of them are listed in Canada. They can't get a US listing. So that's enough of a tell for me to stay away.
Q: I just realized I have the wrong expiration date on my Amazon (AMZN) spread. Should I exit immediately?
A: What I would do is exit what you have and then wait for another down day on Amazon, and then put it back on. That's the way to deal with that one. The answer to all mistakes is to exit immediately. That's an automatic rule at Morgan Stanley; if you don't do that, you get fired. Or come up with a new set of logic as to why you own this position, which has been done by more than a few traders, I imagine.
Q: Would you be willing to be a Boeing 737 Max passenger right now or ever?
A: Yes! If you don't fly Boeings (BA), your life is suddenly very narrow and limited because you’re stuck on the ground. Boeing is the biggest-selling airplane in the world, and most fleets are made of Boeings. However, I'm a pilot, so if anything goes wrong I can run up front and take control, or at least tell the pilot what to do. I also have 25 parachute jumps, if they're handing those out in first class. So remember, every airplane without engines is a glider and I can land a glider anywhere. The company has major problems to sort out until it becomes a “BUY”.
Q: I cannot get into the (TLT) trade to save my life. Is the (TLT) April $89-$92 vertical bull call debit spread pushing the risk limits?
A: Yes. I would walk away from the trade and wait for a better entry point rather than chase. The whole fixed-income space has flipped from the bid side to the offered side, meaning we've gone from net sellers to net buyers. All asset classes have done that; you're seeing that in gold, silver, and even uranium. All the REITs are having a fantastic week. All interest rate plays are now being bid, and it's hard to buy stuff when things are being bid.
Q: What's it like being 6’4” and living in Japan?
A: Well, I did knock myself out a couple of times, banging myself on the door. You get used to bowing a lot, but bowing is a part of the culture in Japan. If you're watching the new Hulu miniseries, Shogun, you would know that. Once I was working for Sony and I was late for work, so I was running up the stairs, and they had a steel lintel to their door, and I just ran bang into that and knocked myself out. The Sony people thought, “Oh my gosh, we just killed a foreigner!” So yes, it was hard. The only clothes I could buy in Japan for ten years were belts and ties. I had to fly to Hong Kong and had everything else custom-made in those days.
Q: What's your opinion of Masters of the Air?
A: I absolutely love it. It's heartbreaking to watch. I knew a lot of guys who were there, and I was one of the last people trained on how to fly a Boeing B-17 Flying Fortress. Anybody who watched Masters of the Air with me gets to watch it with someone who is one of the last living people who rated on a B-17 as a pilot.
Q: Are we in a liquidity bubble right now?
A: Yes, we are, and boy, I love every minute of it. But we're not in the year 2000 in a liquidity bubble, we're in 1995 just getting started. And the profits from AI are just getting started which is what's creating this endless liquidity that people are seeing now.
Q: What should I buy the dip in Tesla (TSLA)?
A: There's no downside target for Tesla right now. We just have to wait for the meltdown in demand to finish, and who knows where that is. But with BYD entering the market, Tesla is definitely going to get more competition in emerging markets—that's where BYD is selling the cars now. I also understand they're selling them in Australia.
Q: How much longer can tech stocks keep rising?
A: 5 to 10 more years, but we are way overdue for some kind of pullback.
Q: What are your thoughts on Apple's (APPL) weakness?
A: Apple has become that great backward-looking company. It could drop to $160 or even $140, then we’ll be taking a serious look at some call spreads and LEAPS. You just wait. In four months when they announce their next batch of new products suddenly, they’ll become an AI company and recover the $200 level in no time.
Q: Should I dive into Coinbase (COIN)?
A: Absolutely not on pain of death! It's made its move. You're better off buying Nvidia (NVDA) at that kind of inclination because at least you know what they make.
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 WEBINARS, and all the webinars from the last 12 years are there in all their glory.
Good Luck and Stay Healthy,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Thank You NVIDIA!
“What we really have to do is get back to fundamentals, and for most Americans that means working for a living and not investing for a living.” said Tom Barrack, CEO of Colony Capital, and a former principal of the Bass Group.
Mad Hedge Biotech and Healthcare Letter
March 7, 2024
Fiat Lux
Featured Trade:
(RALLY CAPS ON)
(VKTX), (LLY), (NVO), (AKRO), (GILD), (BMY), (AMGN), (PFE)
The biotech sector just flipped its rally cap inside out. After a brutal losing streak, it's clawing its way back. The SPDR S&P Biotech (XBI) exchange-traded fund, a barometer for the sector, started to show signs of life when it soared by 5.7% last month, cresting over $100 a share for the first time in two whole years.
While champagne might be premature, this comeback is heating up, and whispers of a full-fledged rally are echoing through Wall Street.
After a rough patch that kicked off in early 2021, seeing the fund take a nosedive of over 60% by late October 2023, the tide began to turn last fall. Initially, whispers of lower interest rates in 2024 sparked interest across small-cap indexes, including our biotech heroes.
Yet, lately, the buzz is all about biotech's own merits — think breakthrough medical trials and the juicy prospect of big pharma playing Pac-Man with smaller but promising biotech firms to beef up their drug pipelines.
And let me tell you, if the current rally's got legs, we might just be witnessing the most thrilling biotech comeback in over half a decade. Especially if the merger and acquisition scene stays hot, we could see biotech stocks climbing even higher.
Take everything that happened in the sector in February as an example. Viking Therapeutics (VKTX) threw down the gauntlet with promising data on its weight loss drug, VK2735, making investors sit up and take notice.
Actually, this candidate is shaping up to be a formidable rival to obesity treatments from Eli Lilly (LLY) and Novo Nordisk (NVO), sending Viking's shares skyward by a jaw-dropping 121% in a single day.
And it's not just Viking stealing the spotlight. Another biotech named Akero Therapeutics (AKRO) also bounced back with some impressive data of its own, challenging the doom and gloom that settled over biotech firms following Eli Lilly's bombshell MASH trial results.
Akero's mid-stage study showed that their drug, efruxifermin, could significantly roll back liver fibrosis in MASH patients — putting a whopping 75% of high-dose recipients on the mend, a stark contrast to the 24% placebo group.
This revelation was a game-changer, especially after Lilly's tirzepatide threw the sector for a loop, hinting at a potential endgame for MASH-specific treatments. But while Lilly's announcement left many details to the imagination, Akero's clear-cut results have reignited excitement over what might be the best MASH treatment yet seen.
As expected, in the midst of this resurgence, the likes of Viking and Akero are catching eyes not just for their groundbreaking treatments but also as tantalizing acquisition targets. Heavyweights like Gilead Sciences (GILD), Bristol Myers Squibb (BMY), Amgen (AMGN), and Pfizer (PFE) are said to be circling, each eyeing a slice of the biotech pie.
As for the biotech investment landscape in general, it's buzzing with renewed vigor. The early months of 2024 have welcomed a smattering of biotech IPOs, a refreshing change after a long drought. CG Oncology's late January debut practically set the market ablaze, doubling in value on its first trading day.
Moreover, public biotechs have found a lifeline in PIPE deals, sidestepping the regulatory hoops of secondary offerings. For instance, Denali Therapeutics' (DNLI) recent PIPE deal, expected to rake in $500 million, is proof of the sector's warming investment climate.
So, dust off those rally caps because the biotech sector isn't just back in the game – it's swinging for the fences.
Breakthrough treatments, a sizzling M&A market, and investors throwing their support behind innovation — this rally has all the ingredients to paint a bright future for the industry. While there will be bumps along the road, one thing's for sure: the biotech sector is poised for a season no one wants to miss.
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
March 7, 2024
Fiat Lux
Featured Trade:
(REMEMBERING THE OLD DAYS AT MORGAN STANLEY),
(MS), (GS), (GLD), (FCX), (FXE), (FXY), (CCJ)
As we stand here in early 2024, it's clear that the application of artificial intelligence to financial markets has gone through a massive revolution compared to just a year ago. 2023 saw some interesting applications of AI start to take hold, but 2024 has seen a tidal wave of adoption and disruption sweep across the entire financial services industry. From hedge funds to banks, exchanges to fintech startups, AI is now deeply embedded into almost every nook and cranny of global financial markets.
In 2023, we saw the first hedge funds start to use large language models like GPT-3 and more specialized financial AI models to generate investment reports, conduct due diligence on companies, and even generate some basic trading strategies. However, these applications were relatively rudimentary and limited compared to what would follow just a year later.
The Real AI Arms Race Kicked Off in 2024
What kicked the 2024 AI revolution in finance into an entirely new gear was the introduction of more advanced large language models with multi-modal capabilities that could understand diverse data inputs like text, images, videos, and data tables. This new AI was also combined with vastly more powerful reasoning, coding, and mathematical skills that allowed it to build extremely complex models.
Leading financial firms quickly realized that having access to this new breed of general intelligence AI could provide a massive competitive advantage in an industry where being even a tiny step ahead of the competition is worth billions. This sparked a frantic AI arms race as funds raced to acquire the best AI technology and the key personnel to build production-grade AI systems customized for finance.
Virtually every major player, from huge institutions like BlackRock, JP Morgan, and Goldman Sachs to upstart AI-first hedge funds and quant shops doubled or tripled their AI budgets and went on hiring sprees for AI talent that has been dubbed the "AI Draft" of finance's best and brightest technical minds.
Billion Dollar AI Hedge Funds Ascendant
One of the biggest stories of 2024 so far has been the astronomical rise of a new breed of pure AI-driven hedge funds that completely disrupted the traditional investment landscape. These agile funds built from the ground up around large language models and dense neural networks were able to ingest and process a firehose of diverse data far exceeding what any human could consume.
They developed entirely novel trading strategies by combining the multi-modal reasoning of the new AI with advanced models trained on massive datasets of financial data, news, SEC filings, social media, and more. A number of these pure AI funds like Skynet Capital and DeepMind Money racked up staggering returns of over 100% seemingly out of nowhere and instantly became some of the most successful launches in hedge fund history.
Traditional titans of finance were caught completely flat-footed as these AI upstarts rapidly grew assets under management by tens of billions using novel, AI-driven approaches that gave them an information advantage by processing and modeling entirely new data sources traditional funds simply couldn't access or understand.
Banks Turn to AI for Consumer Finance
While hedge funds and asset managers grabbed the AI headlines, some of the biggest AI shifts so far in 2024 come in consumer banking and retail finance as lenders and fintechs scrambled to roll out personalized, AI-driven services to customers.
The largest banks and fintech lenders began deploying AI that could understand an individual's full financial picture and circumstances by being trained on data like income statements, spending habits, employment status, news about their employer, social media activity, investable assets, tax filings, and much more.
With this multi-modal understanding, banks utilized large language models and other AI to provide individually customized financial advice, automated investing services, tax optimization, tailored mortgages, customized lines of credit, and personalized ways to cut costs or increase savings. Banks found consumers placed immense trust in AI-generated advice as it was bespoke for their situation and provided explanations in easy-to-understand natural language.
Beyond just banks, startups and established fintech players made huge strides with AI-powered fintechs for areas like lending decisions, personal financial planning, real estate purchases, insurance plan selection, and more. Big winners were companies that could leverage the combination of specific domain knowledge and advanced AI to provide more personalized experiences tuned to individuals.
AI Also Powers Operational Disruption
AI hasn't just disrupted customer-facing products and investment strategies but also automated back-office processes and everyday operations at many financial firms. By combining large language models with custom internal datasets, firms deployed AI to intelligently draft legal contracts, automate significant pieces of due diligence, conduct audits, handle customer service queries, optimize back-office workflows, and more.
Virtually every major institution had a centralized AI hub or "brain" constantly being updated to build an ever-growing institutional knowledge base that encapsulated firm policies, procedures, historical knowledge, and decision patterns. Staff were able to submit queries to the AI across business units to instantly access relevant information or have the AI generate customized reports and analysis, radically accelerating work streams.
While AI promised immense cost-savings through automation, its biggest impact may have been on employee productivity by making information and analysis instantaneously accessible and consumable across the enterprise.
AI Goes Multi-Lingual for Global Finance
Another major AI trend taking shape in 2024 is the rise of multi-lingual AI support for global financial institutions. As firms rush to implement AI across their operations, they quickly discover many of the best AI models are limited by supporting only English.
This prompted a secondary wave of AI initiatives to develop "multi-lingual AI" that could understand and communicate in all of the world's major languages and even less commonly used languages for specific geographic markets.
With traders, analysts, lawyers, bankers, and investors able to naturally communicate with AI in their native language, it opened the door for deploying advanced AI capabilities to every corner of a firm's global operations rather than just English-speaking hubs. This leveled the playing field by giving all employees and customers access to AI-powered services rather than leaving many regions behind.
Regulatory Headaches Emerge Over AI Risks
Of course, not everything around the AI shakeup in 2024 is celebrated across the financial industry and beyond. As AI capabilities explode in scope and scale, serious questions are emerging about the unforeseen risks of these powerful systems and the need for new governance to oversee them.
A few high-profile cases involving hedge funds allegedly using AI to engage in market manipulation through disseminating rumors or misinformation sparked alarm among regulators. There were also issues raised around AI-generated investment advice having inherent conflicts or blindspots that could harm individual investors and employees of major banks making investment decisions based on potentially flawed AI research.
A major incident involving supposedly "air-gapped" models for a large asset manager being compromised and leaking sensitive trading algorithms caused an industry-wide scare over AI security models. More philosophical quandaries spawned debates around issues of bias, privacy, and the inscrutability of how some AI models arrived at decisions impacting portfolios worth trillions.
At any time, government agencies like the SEC, financial industry self-regulatory groups, and even international bodies like the World Bank could quickly mobilize to establish new legal frameworks and guidelines around the use of AI in finance. The primary goals might be around establishing clear rules around transparency, auditing capabilities, and guardrails to prevent misuse of AI that could destabilize markets or lead to systemic risks building up unnoticed.
While most see the need for smart AI governance, the industry clashes over how heavy a hand regulators should take that could stifle innovation or create imbalances favoring incumbents over nimbler startups. The debates around managing AI risk and capture are just getting started in 2024 with consensus still very elusive.
Looking Ahead into 2025 and Beyond
As we look ahead, most prognosticators expect the AI boom in finance to go to even more meta and extreme levels. The leading AI pioneers are already working on models with vastly more advanced reasoning and predictive capabilities around specific domains like legal contracts, investment research, regulation, and more.
It’s early to speculate, but If 2024 sees general language AIs just starting to gain traction, the next few years might be poised to give rise to ultra-specialized AI "savants" that can match or exceed human-level expertise and capabilities across every finance sub-domain. This could increase the speed and scope of automation, optimization, and data-driven strategies by an order of magnitude.
There's also increasing buzz around the possibility of scaling AI to operate relatively autonomously with diminishing human oversight, raising immense ethical questions over sovereignty and control. It's still uncertain whether AI will ultimately be more of an augmentation tool to empower humans or a path toward truly autonomous, self-directed artificial general intelligence.
Regardless of what the future holds, there's no question that 2024 is starting to feel like the year AI firmly planted itself as the prime disruptor and competitive battleground shaping the future of global finance at its very core. Just a year ago, most of these current impacts were unfathomable even to the leading experts. What new realities will emerge in the next 365 days is perhaps the biggest trillion-dollar question facing the entire industry.
Mad Hedge Technology Letter
March 6, 2024
Fiat Lux
Featured Trade:
(CYBER SECURITY IS STILL GROWTH)
(CRWD), (PANW)
