“There are seven billion people in the world. And I think phones are the first time most people will have access to a modern computing device. With Android, we want to enable that for people.” – Said CEO of Alphabet Sundar Pichai
(MARKETS ARE OVERBOUGHT AS THEY COUNTDOWN TO YEAREND)
December 18, 2023
Hello everyone,
Calendar for Week Ahead
Monday, Dec. 18
10 a.m. ET NAHB Housing Market Index
Tuesday, Dec. 19
8:30 a.m. Building Permits preliminary (November)
8:30 a.m. Housing Starts (November)
Earnings: FedEx
Wednesday, Dec. 20
8:30 a.m. Current Account (Q3)
10 a.m. Consumer Confidence (December)
10 a.m. Existing Home Sales (November)
Earnings: General Mills, Micron Technology
Thursday, Dec. 21
8:30 a.m. GDP Chain Price final (Q3)
8:30 a.m. GDP (Q3)
8:30 a.m. Initial Claims (12/16)
8:30 a.m. Philadelphia Fed Index (December)
10 a.m. Leading Indicators (November)
Earnings: Nike, CarMax
Friday, Dec. 22
8:30 a.m. Durable Orders preliminary (November)
8:30 a.m. PCE Deflator (November)
8:30 a.m. Personal Consumption Expenditure (November)
8:30 a.m. Personal Income (November)
10 a.m. Michigan Sentiment final (December)
10 a.m. New Home Sales (November)
One week until Christmas. Happy Holidays. If you have family around and go all out on the gift-giving and the food, I wish you well and hope the day is memorable for all the right reasons.
Me. I prefer to go to the beach, take an esky, an umbrella, a beach towel, a good book, and soak up some sun and enjoy the warm ocean water. No stress, no hassle, no family arguments. Just a really chill day.
So, at this time of year, the markets are starting to wind down. We have had a great bull move over the last couple of months, and I hope many of you have made good profits this year.
Stocks last Friday registered their seventh straight week of gains. For the S&P 500, that’s the best winning streak since 2017. For the DOW, it’s the best going back to 2019.
This week coming is expected to be a slower one. With the last Fed meeting of 2023 behind us, we are heading into the holidays with few catalysts. But let’s remember, any indication the Fed may not start to cut rates as they suggested in 2024 could hurt stocks. Just stay mindful of this. It will be several data points during the next several months that ultimately matter.
Some notable earnings to look out for include FedEx on Tuesday and General Mills on Wednesday. Results from retail company Nike are also on deck Thursday and should give investors insight into the state of the consumer, as well as clarity into markets abroad, particularly China.
Most investors expect stocks to continue the rally into the final part of the year in the so-called Santa Clause Rally. In other words, the stretch between Christmas Day – Dec. 25 through to January 2.
The rally is broad, and so is lifting all boats. But we are very overbought.
With this in mind, let’s look at some of the most overbought names in the market right now.
Boeing (BA)
FedEx (FDX)
D.R. Horton (DHI)
Equifax (EFX)
Caterpillar (CAT)
Skyworks Solutions (SWKS)
BA climbed about 8% last week. The company announced leadership appointments over the course of the week with Stephanie Pope chosen as operations chief and Brian Moran as sustainability chief. The stock has soared more than 38% this year. Two out of every three analysts have a buy rating on (BA), however, the average analysts expect shares to slide lower in the next 12 months following recent gains.
Cheers,
Jacquie
Global Market Comments
December 18, 2023
Fiat Lux
Featured Trade:
(I’M TAKING OFF FOR THE YEAR)
I need a vacation.
I have been working nonstop for decades and desperately need a break. It seems that the older I get, the more I know, and the more in demand I become.
You can tear up your Rolodex card for me, unfriend me on Facebook, designate my email address as SPAM, and block my Twitter account. It won’t do you any good.
If I don’t take some time off, I am going to start raving MAD!
Over the last 16 years, I have worked the hardest in my entire life. And in the last two months, I have had to work with a bullet wound in my hip courtesy of the Russian Army in Ukraine. Whenever I have free time, I go fight a war. That’s who you want calling your trades.
This year, I have brought in a total return of +79.44%, versus +24.32% for the S&P 500, far and away among the best of my life and almost certainly yours as well. If you got half of my performance, you beat virtually everyone else in the industry, even the best hedge funds. In other words, I underpromised and over-delivered….in spades.
If you wonder why I do this, it’s really very simple. Read my inbox and you would burst into tears.
Every day, I learn tales of mortgages paid off, student loans dealt with, college educations financed, and early retirements launched. I am improving lives by the thousands. That’s far better than any hedge fund bonus could offer me, although I wouldn’t mind owning the Golden State Warriors.
At this late stage in my life, the most valuable thing is to be needed and listened to. If that means becoming a cult leader, that’s fine with me. After all, the last guy to try this route got crucified.
This year was challenging, to say the least. It started with a melt-up, then a banking crisis, then a snore, then a melt-up, then the biggest rally of all time, for both stocks and bonds. A $17 gain in (TLT) in a month? Really? I caught every move. We were all forced to become inveterate Fed watchers, much like 40 years ago.
When horrific uncontrollable wildfires broke out in California, I flew volunteer spotter planes for Cal Fire, holding the stick with one hand and a pair of binoculars with the other, looking for trouble and radioing in coordinates, and directing aerial tankers. Nobody can fly wildfires like I can.
I lost access to my Lake Tahoe house when the big fire hit right in the middle of a remodel. All the contractors disappeared chasing much higher-paying insurance work. At least we now have a 20-mile-wide fire break to the southwest of the house.
I have high hopes for next summer, starting with my seminar at sea on an Alaska cruise in June, another Matterhorn climb in July, client visits in Europe for August, flying Spitfires in England in September, and hiking the 170-mile Tahoe Rim Trail in October.
On top of all this, I was on speed dial at the Joint Chiefs and the US Marine Corps. A major? Really? And now I’m a major in two armies, the US and Ukraine. Seems you’re not the only one in desperate need of global macro advice.
The sanctions are working great by the way. Ukraine is winning, but slowly. The best compliment I received this year was when my commander in Ukraine told me I was the bravest man he ever met. I told him all Americans are like me. Whenever I enter the Marines Club in San Francisco, they call me a hero. In a building full of heroes, that is a big deal.
So, I will spend the next two weeks reading the deep research, speaking with old hedge fund buddies, the few still left alive, and trying to come up with a game plan for 2024. One thing is certain: we will likely make more money this year than next, the setup is so clear. We are at the beginning of a bull market that could last five or ten years.
Instead of sending out urgent trade alerts, emergency news flashes, and more research than you can read, I’ll be playing Monopoly and Risk, practicing my banjo, a catching up on some classic films.
I already have one trade-on: I’ll watch Elf for the millionth time if the kids watch Gary Cooper’s 1949 Task Force, The History of Naval Aviation (semper fi).
In the meantime, I’ll be running some of my favorite research pieces from the past over the next two weeks. Hot Tips will include the same.
We have had no snow at Tahoe so far. Pray for snow so I can use my senior season ski pass.
So, everyone please have some great holidays, spend your trading profits well, and get well rested.
We have some serious work to do in 2024.
Merry Christmas and Happy New Year,
John Thomas
CEO and Publisher
The Diary of a Mad Hedge Fund Trader
Selling Christmas Trees for the Boy Scouts
In the ever-turbulent world of finance, where fortunes are made and lost in the blink of an eye, one company claims to have cracked the code: Danelfin. This AI-powered startup promises to help investors, both seasoned and amateur, pick winning stocks with its sophisticated software. But can their technology truly deliver on its bold claims?
The Rise of AI in Investing
The rise of artificial intelligence (AI) has infiltrated nearly every aspect of our lives, and the financial sector is no exception. Algorithmic trading, powered by complex machine learning models, has become commonplace on Wall Street. However, AI-driven tools for individual investors are still in their nascent stages.
Danelfin steps into this nascent market with a unique proposition. Their software analyzes a staggering 10,000+ features per day per stock, taking into account everything from financial data and company news to social media sentiment and even weather patterns. This data is then crunched through their proprietary AI models, resulting in an "AI Score" for each stock. This score is essentially Danelfin's prediction of the stock's future performance, with a higher score indicating a higher probability of beating the market.
How Does Danelfin's Software Work?
The inner workings of Danelfin's AI are shrouded in secrecy, much like the algorithms that power self-driving cars or Google search. However, the company does offer some insights into their approach. They emphasize the use of explainable AI, meaning their models are designed to be transparent and understandable to users. This is in contrast to many black-box AI models, where the decision-making process remains opaque.
Danelfin also highlights its focus on alternative data sources. Beyond traditional financial metrics, their AI considers factors like news sentiment, social media buzz, and even satellite imagery to gain a more holistic understanding of a company's prospects.
Can AI Outsmart the Market?
The big question, of course, is whether Danelfin's AI can actually outperform the market. While the company boasts impressive backtesting results, past performance is not necessarily indicative of future success. The stock market is notoriously unpredictable, and even the most sophisticated models can be caught off guard by unforeseen events.
Furthermore, the reliance on AI raises concerns about potential biases and overfitting. AI models trained on historical data can inadvertently learn and perpetuate existing market inefficiencies. Additionally, overfitting to specific training data can lead to poor performance when applied to real-world markets.
The Verdict: A Promising Approach with Caveats
While Danelfin's AI-powered approach to stock picking is certainly intriguing, it's important to approach it with cautious optimism. The technology holds the potential to democratize investing and make it more accessible to the average person. However, it's crucial to remember that AI is not a magic bullet, and relying solely on Danelfin's recommendations without conducting your own due diligence could be a recipe for disaster.
Ultimately, Danelfin is a valuable tool that can be used as part of a comprehensive investment strategy. However, it's important to remember that no single tool can guarantee success in the market. Investors should always do their own research, consider their risk tolerance, and seek professional advice if necessary.
The Future of AI in Investing
While the jury is still out on whether Danelfin's AI can consistently beat the market, their approach represents a significant step forward in the field of AI-powered investment tools. As AI technology continues to evolve and become more sophisticated, we can expect to see even more innovative solutions emerge in the years to come. The future of investing may very well be driven by algorithms, but it's important to remember that human judgment and critical thinking will always play a crucial role in making sound investment decisions.
Remember, investing is a complex endeavor, and there is no guaranteed path to success. Always conduct your own research and consult with a financial advisor before making any investment decisions.
Mad Hedge Technology Letter
December 15, 2023
Fiat Lux
Featured Trade:
(A TECH COMPANY MOST PEOPLE HAVEN’T HEARD OF)
(SMCI), (PLTR)
It won’t be the case that only 1 or 2 AI stocks hit pay dirt.
There will be more winners.
Most importantly, companies need to get a set at the table whether it be hardware, software, or chips.
There are different ways to play AI and for example, Palantir is a good bet through the software side of it as it gobbles up government contracts that are indeed lucrative, but also highly stable.
Palantir (PLTR) has become one of the top stocks mentioned in conversations I’ve had and I don’t believe it’s going away.
The company has long used AI in its Gotham and Foundry platforms, and its Artificial Intelligence Platform (AIP) has produced eye-popping productivity gains.
But Palantir is currently expensive and management likes to issue new stock like there is no tomorrow.
One stock that could garner attention is Super Micro Computer (SMCI).
It’s a dark horse AI stock that few know about.
Super Micro stands out as a "rack-scale" IT solutions provider, designing servers, switches, storage systems, and software with global support services.
Since this approach combines hardware and software, it provides a competitive advantage over peers who focus primarily on either hardware or software.
Despite a market cap of only $14 billion, Super Micro has built a customer base in more than 100 countries. And so large is its operation that it requires more than 6 million square feet of manufacturing space globally.
A demand surge led to more need to attract talent through stock-based compensation.
Thus, that expense came to $57 million in fiscal Q1, up from $11 million in the year-ago quarter.
Super Micro maintained its fiscal 2024 revenue guidance of $10 billion to $11 billion.
This amounts to a 47% increase which definitely bolsters this tech stock as a prototypical growth stock that investors love.
The stock has skyrocketed by 210% over the last 12 months. And despite that surge, the stock sells at a P/E ratio of 24.
Considering the rapid growth expected, Super Micro's gains are not likely to stop anytime soon.
Thanks to a lack of name recognition, investors are only now seeing the potential for this AI stock.
Consequently, investors can buy a fast-growing stock at a low price.
This means that if they missed the opportunity to buy Palantir more cheaply, Super Micro gives them a second chance. Moreover, with its ability to combine hardware and software, it appears to have a competitive advantage in the AI space.
I’m not saying that investing in something like Nvidia won’t work.
There is room for other chip suppliers and Super Micro Computer is one of them.
The stock has really surged in the past year, but I would be inclined to add on big drawdowns.
Entry points are few and far between for SMCI.
This is just the early stages of AI and to get into one of the better names at a cheaper price is a good long-term strategy.
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
(SUMMARY OF JOHN’S DECEMBER 13, 2023 WEBINAR)
December 15, 2023
Hello everyone,
Title: The Fed Wins
Performance:
2023 year to date: +78.86%
Since inception +676.05%
Average annualized return: +52.00% for 15 years
Trailing one-year return: 75.38%
Positions:
90% long, 10% short, 0% cash.
Risk on
(NLY) 12/$15-$16 call spread. 10%
(BRK/B) 12 $320-$330 call spread 10%
(GOOGL) 12 $110-$120 call spread 10%
(CAT) 12 $220 - $230 call spread 10%
Risk off
No positions 0%
Total Aggregate Position = 40.00%
Method to my Madness
The Fed is done raising interest rates. Markets are now discounting the first rate cut which could be as early as March, but more likely June 2024.
All interest rate plays reacted positively to the news – bonds, REITS, precious metals, and financials.
The year-end rally is on, but what happens in January?
All economic data is globally slowing.
Oil prices and commodities are now trading as one, selling off on a slowing economy.
The tech bull market is back and will continue for years.
Time to go aggressively long on stocks and bonds.
Commodities and industrials are a second-half play.
The Global Economy - Shrinking
Non-farm payrolls come in soft in November at 199,000. The headline unemployment rate fell to 3.7%, near a 50-year low.
US GDP revised up to a blistering 5.2%.
S&P Global Services PMI comes in flat at 50.8, but still above the boom/bust level. It’s the 11th consecutive month over 50 in expansion territory.
Fed’s favorite inflation gauge rises a modest 0.2%, and 3.5% on a YOY basis, a new cycle low.
ISM Services came in at 52.7 versus an estimated 52.4. No recession here, nor a super-heated economy. Another Fed-friendly number.
China moves to further stimulate the economy after many failed efforts. This time through reduced reserve requirements.
Stocks – Buy Back Boom
The year-end rally started on October 26, happened in November, now losing momentum.
Santa came early this year, clearly confusing Thanksgiving with Christmas.
70% of corporate profits went into stock buybacks this year.
Alaska Air Buys Hawaiian for $1.9 billion in a big overpay. (ALK) dropped 15% on the news.
Uber entered the S&P500 on December 18, taking the stock up 10% on the news.
IBM announces New Quantum Computing Chip.
Snowflake delivers a big beat, taking the stock up 10% in hours.
Berkshire Hathaway fails to fall on Munger's death.
Bonds – Blowout Top
Panic buying drives Treasury yields to 4.13%, down nearly a full percentage point in little more than a month on weakening economic data.
US Government to finance million-dollar mortgages, through its Fannie Mae and Freddie Mac finance agencies.
Fed to Cut interest rates as early as March or so says the futures market, which gives this a 40% probability.
Crown Castle International catches activist bid from Elliot Management
Junk bond ETFs (JNK) and (HYG) are holding up extremely well with an 8.74% yield and an 18-month high.
Buy (TLT) on dips.
Foreign Currencies – Massive Yen Reversal
Massive short cover hits Japanese yen, taking it up 10% in days.
The prospect of falling US interest rates adds fuel to the fire.
Buy (FXY) on dips.
Bank of Japan eases grip on bond yields, ending its unlimited buying operation to keep interest rates down.
Japan is the last country to allow rates to rise.
Expect the Japanese yen to take off like a rocket.
The collapse of dollar is a 2024 story.
Energy and Commodities- New Lows
Exploding sales of EVs are ringing the bell for Oil, leading forecasters to speed up their projections for when global oil will peak, as public subsidies and improved technology help consumers overcome the sometimes-eye-popping sticker prices for battery-powered cars.
Oil crashes from $96 down to $68 in less than six months, as fears of a global economic slowdown continue.
US Gasoline prices hit a three-year low on recession fears and replacement concerns by EVs.
Energy stocks are tracking the downside tic for tic, pulling down all other commodities.
There is a BUY setting up here when the global economy reaccelerates on a lower interest rates world. Watch (XOM) and (OXY).
Warm weather is capping rallies in natural gas (UNG).
Precious Metals – A New 10-year bull market
Gold hits a new all-time high – another falling interest rate play.
Sharp drop in interest is very positive for gold.
Investors are picking up gold as a hedge for 2024 volatility.
Gold headed for $3,000 by 2025.
Silver is the better play with a higher beta.
Russia and China are also stockpiling gold to sidestep international sanctions.
Real Estate – The Bull is Back
Refi demand rockets, as interest rates plunge to four-month lows.
The rate for the popular 30-year mortgage fell back toward 7% after hitting 8% earlier this fall.
Applications to refinance a home loan index increased 14% from the previous week and were 10% higher than the same week one year ago.
Zombie Malls are a new term you should get used to. People are just not coming back to work.
It’s very bad in San Francisco where tech discovered the wonders of cost-cutting, taking the office vacancy rate up to 35%.
Pending home sales collapse, dropping to the lowest level since the National Association of Realtors began tracking them in 2001.
Tight supply and still-strong demand have kept pressure on home prices, which only continue to hit new highs. S&P Case Shiller hits new highs – 3.9% higher in September.
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 at $12.
Real Estate – buy dips.
Next Strategy Webinar: January 10 from Silicon Valley
Here is a copy of the November Jacquie’s Post zoom meeting. Enjoy!
https://www.madhedgefundtrader.com/meeting-replay-november-2023/
Cheers,
Jacquie
