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
October 2, 2023
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or BACK IN BUSINESS)
(TLT), (GLD), (SLV), (XLU), (IWM), (EEM), (FXA), (FXE), (FXB), (USO), (UUP), (AMZN), (TSLA), (F)
It’s a good thing I don’t rely on my Social Security Check to cover my extravagant cost of living, which is the maximum $4,555 a month. For it came within hours of coming to a halt when an agreement was passed by Congress to renew funding for another 45 days. It was almost an entirely Democratic bill, passing 335 to 91 in the House and the Senate by 88 to 9.
Unfortunately, that does put me in the uncomfortable position of delivering humanitarian aid to Ukraine right when $6.2 billion in US assistance is cut off. That was the price the Dems had to pay to get the Republicans on board needed to pass the bill. Better a half a loaf than no loaf at all. Still, I am going to have some explaining to do next week in Kiev, Mykolaiv, and Kherson. It’s a big win for Vladimir Putin.
Funding now ends on November 17, when the next crisis begins. The big question is when the markets will deliver a sigh of relief rally on Congress hitting the “snooze” button, or whether it will focus on the next disaster in November.
We’ll have to wait and see.
In the meantime, all eyes are on the market’s leading falling interest rate plays, which continue to go from bad to worse. Those include bonds (TLT), precious metals (GLD), (SLV), utilities (XLU), small-cap stocks (IWM), emerging markets (EEM), and foreign currencies (FXA), (FXE), (FXB).
Consider this your 2024 shopping list.
Ten-year US Treasury bond yields reached a stratospheric 4.70% last week a 17-year high and up a monster 0.90% since the end of June. Summer proved a fantastic time to take a vacation from the bond market.
They could easily reach 5% before the crying is all over. Perhaps this is why my old friend, hedge fund legend David Tepper, said his best investment right now is a subprime six-month certificate of deposit yielding 7.0%.
What we might be witnessing here is a return to the “old normal” when bonds spent most of their time ranging between 2%-6%. The 60-year historic average bond yield is 2% over the inflation rate (see chart below). That alone takes us to a 5.0% bond yield.
Interest rates have been kept artificially low for 15 years because no one wanted a recession in 2008 and no one wanted a recession during the pandemic in 2000. It all melded into one big decade-and-a-half period of easy money. Pain avoidance wasn’t just the universal American monetary policy, it was the global policy.
Now it’s time to pay the piper and unwind the thousands of business models that depended on free money. There will be widespread pain, as we are now witnessing in commercial real estate and private equity. Perhaps it is best to take the 5.5% bribe 90-day Treasury bond yield is offering you and stay out of the market.
While Detroit remains mired by the UAW strike, EVs have catapulted to an amazing 8% of the new car market. They have been helped by a never-ending price war and generous government subsidies. EV sales are now up a miraculous 48% YOY and are projected to account for a stunning 23% of all California sales in Q3.
Tesla is the overwhelming leader with a 52% share in a rapidly growing market, distantly followed by Ford (F) at 7% and Jeep at 5%.
However, a slowdown may be at hand, with EV inventories running at 97 days, double that of conventional ICE cars. This could create a rare entry point for what will be the leading industry of this decade, if not the century. Buy more Tesla (TSLA) on bigger dips, if we get them.
Hedge Funds are Cutting Risk at Fastest Pace Since 2020, when the pandemic began. From retail investors to rules-based systematic traders, appetite for equities is subsiding after a 20% rally this year that’s fueled by euphoria over artificial intelligence. Fast money investors increased their bearish wagers to drive down their net leverage — a gauge of risk appetite that measures long versus short positions — by 4.2 percentage points to 50.1%, according to Goldman Sachs Group Inc.’s prime brokerage. That’s the biggest week-on-week decline in portfolio leverage since the depths of the pandemic bear market.
The Treasury Bond Freefall Continues, as long-term yields probe new highs. New issue of $134 billion this week didn’t help. Nothing can move on the risk until rates top out, even if we have to wait until 2024.
Oil (USO) Hits $95, a one-year high, as the Saudi/Russian short squeeze continues. $100 a barrel is a chipshot and much higher if we get a cold winter. Inventories at the Cushing hub are at a minimum.
The US Dollar (UUP) Hits New Highs, as “high for longer” interest rates keep powering the greenback. The buck is also catching a flight to safety bid from a potential government shutdown. It should be topping soon.
Moody’s Warns of Further US Government Downgrades, in the run up to the Saturday government shutdown. The shutdown lasts, the more negative its impact would be on the broader economy. Unemployment could soar. It would also render all US government data releases useless for the next three months.
ChatGPT Can Now Browse the Internet, according to its creator, OpenAI. Until now, the chatbot could only access data posted before September 2021. The move will exponentially improve the quality and effectiveness of AI apps, including my own Mad Hedge AI
Amazon (AMZN) Pouring $4 Billion into AI, with an investment in Anthropic, a ChatGPT competitor. (AMZN) is racing to catch up with (MSFT) and (GOOGL). Its chatbot is caused Claude 2. Amazon’s card to play here is its massive web services business AWS. The AI wars are heating up.
Hollywood Screenwriters Guild Strike Ends, after 150 days, which is thought to have cost the US economy $5 billion in output. The hit was mostly taken by Los Angeles, where 200,000 are employed. The Actor’s union is still on strike. Talk shows should be offering new content in a few days.
S&P Case Shiller Rises to New All-Time High, for the sixth consecutive month as inventory shortages drove up competition. In July, the index in increased 0.6% month over month and 1% over the last 12 months, on a seasonally adjusted basis. July’s movement reached a new high for the nationwide home index, surpassing the record set in June 2022. Chicago (+4.4%), Cleveland (+4.0%), and New York (+3.8%) delivered the biggest gains. The median home price for existing homes rose to 1.9 to $406,700 according to the National Association of Realtors (NAR). The robust housing market suggests that while some buyers pulled back due to high borrowing costs, demand continues to outweigh supply.
This is the Unit I Will be Joining at the Front in Ukraine, as made clear by their YouTube recruiting video. They asked me to assist with mine removal on territory formerly occupied by Russia. I really don’t know what I’m getting into. Improvision is key. It’s better than playing golf in retirement. Polish up your Ukrainian first.
So far in August, we are down -4.70%. My 2023 year-to-date performance is still at an eye-popping +60.80%. The S&P 500 (SPY) is up +17.10% so far in 2023. My trailing one-year return reached +92.45% versus +8.45% for the S&P 500.
That brings my 15-year total return to +657.99%. My average annualized return has fallen back to +48.15%, another new high, some 2.50 times the S&P 500 over the same period.
Some 41 of my 46 trades this year have been profitable.
My Ten-Year View
When we come out the other side of the recession, we will be perfectly poised to launch into my new American Golden Age, or the next Roaring Twenties. The economy decarbonizing and technology hyper accelerating, creating enormous investment opportunities. The Dow Average will rise by 800% to 240,000 or more in the coming decade. The new America will be far more efficient and profitable than the old.
Dow 240,000 here we come!
On Monday, October 2, at 8:30 PM EST, the ISM Manufacturing PMI is out.
On Tuesday, October 3 at 8:30 AM, the JOLTS Job Openings Report is released.
On Wednesday, October 4 at 2:30 PM, the ISM Services Report is published.
On Thursday, October 5 at 8:30 AM, the Weekly Jobless Claims are announced.
On Friday, October 6 at 2:30 PM the September Nonfarm Payroll Report is published. At 2:00 PM the Baker Hughes Rig Count is printed.
As for me, I will try to knock out a few memories early this morning while waiting for the Matterhorn to warm up so I can launch on another ten-mile hike. So I will reach back into the distant year of 1968 in Sweden.
My trip to Europe was supposed to limit me to staying with a family friend, Pat, in Brighton, England for the summer. His family lived in impoverished council housing.
I remember that you had to put a ten pence coin into the hot water heater for a shower, which inevitably ran out when you were fully soaped up. The trick was to insert another ten pence without getting soap in your eyes.
After a week there, we decided the gravel beach and the games arcade on Brighton Pier were pretty boring, so we decided to hitchhike to Paris.
Once there, Pat met a beautiful English girl named Sandy, and they both took off to some obscure Greek island, the ultimate destination if you lived in a cold, foggy country.
That left me stranded in Paris with little money.
So, I hitchhiked to Sweden to meet up with a girl I had run into while she was studying English in Brighton. It was a long trip north of Stockholm, but I eventually made it.
When I finally arrived, I was met at the front door by her boyfriend, a 6’6” Swedish weightlifter. That night found me bedding down in a birch forest in my sleeping bag to ward off the mosquitoes that hovered in clouds.
I started hitchhiking to Berlin, Germany the next day, which offered paying jobs. I was picked up by Ronny Carlson in a beat-up white Volkswagen bug to make the all-night drive to Goteborg where I could catch the ferry to Denmark.
1968 was the year that Sweden switched from driving English style on the left side of the road to the right. There were signs every few miles with a big letter “H”, which stood for “hurger”, or right. The problem was that after 11:00 PM, everyone in the country was drunk and forgot what side of the road to drive on.
Two guys on a motorcycle driving at least 80 mph pulled out to pass a semi-truck on a curve and slammed head-on to us, then were thrown under the wheels of the semi. The motorcycle driver was killed instantly, and his passenger had both legs cut off at the knees.
As for me, our front left wheel was sheared off and we shot off the mountain road, rolled a few times, and was stopped by this enormous pine tree.
The motorcycle riders got the two spots in the only ambulance. A police car took me to a hospital in Goteborg and whenever we hit a bump in the road bolts of pain shot across my chest and neck.
I woke up in the hospital the next day, with a compound fracture of my neck, a dislocated collar bone, and paralyzed from the waist down. The hospital called my mom after booking the call 16 hours in advance and told me I might never walk again. She later told me it was the worst day of her life.
Tall blonde Swedish nurses gave me sponge baths and delighted in teaching me to say Swedish swear words and then laughed uproariously when I made the attempt.
Sweden had a National Health care system then called Scandia, so it was all free.
Decades later a Marine Corps post-traumatic stress psychiatrist told me that this is where I obtained my obsession with tall, blond women with foreign accents.
I thought everyone had that problem.
I ended up spending a month there. The TV was only in Swedish, and after an extensive search, they turned up only one book in English, Madame Bovary. I read it four times but still don’t get the ending. And she killed herself because….?
The only problem was sleeping because I had to share my room with the guy who lost his legs in the same accident. He screamed all night because they wouldn’t give him any morphine.
When I was released, Ronny picked me up and I ended up spending another week at his home, sailing off the Swedish west coast. Then I took off for Berlin to get a job since I was broke. Few Germans wanted to live in West Berlin because of the ever-present risk of a Russian invasion so there we always good-paying jobs.
I ended up recovering completely. But to this day whenever I buy a new Brioni suit in Milan they have to measure me twice because the numbers come out so odd. My bones never returned to their pre-accident position and my right arm is an inch longer than my left. The compound fracture still shows up on X-rays.
And I still have this obsession with tall, blond women with foreign accents.
Go figure.
Brighton 1968
Ronny Carlson in Sweden
Stay Healthy,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
“Adaption is smarter than you are,” said economist Frederich Hayek.
Mad Hedge Technology Letter
September 29, 2023
Fiat Lux
Featured Trade:
(WHAT TO DO ABOUT MICRON)
(MU), (SAMSUNG), (SK HYNIX), (SOXX)
The chip maker Micron Technology (MU) fell 5% yesterday, but the stock is amazingly up 4% today.
The see-saw moves are a feature of this strategically important stock to the tech ecosystem and not just a symptom of it.
The stock is highly volatile which is emblematic of a stock that needs to constantly navigate around unstable geopolitics.
The stock's latest whipsaw action stems from the company predicting a steeper loss than anticipated in the current quarter, indicating that an industry slowdown is still weighing on the largest US maker of memory
For chip companies (SOXX), Samsung Electronics Co., and SK Hynix Inc., 2023 has been a crushing time after the glory period of the healthcare lockdown years.
September has been a month where we are experiencing weakening fundamentals as the US consumer is truly stretched.
Customers in big US markets for personal computers and smartphones have slashed orders as they cope with lackluster demand and stockpiles of excess parts.
Many are continuing to dive deeper into debt to make ends meet and that trend will not go away as the US middle class shrinks further as they grapple with soaring inflation.
The lack of consumer strength will mean it will take longer for Micron to return to profits.
Prices for Micron’s products are going up, and the rate of the price jump is increasing and we can probably say that about prices in most industries.
Sales have fallen for five straight quarters. In the three months ended in August, Micron’s revenue declined 40% to $4.01 billion.
The forecast suggests sales will begin to grow again in the fiscal first quarter, which runs through November.
Beijing has proved a thorn in Micron’s side.
This negative headwind has already cut into the US company’s revenue in China — the largest market for semiconductors — in what management has previously called a “significant headwind.”
The outlook remains mixed in the short term. In traditional servers — the computers that are still the mainstay of most data centers — demand remains tepid at best.
Both personal computers and smartphones will return to growth next year, with units increasing by a percentage in the low- to mid-single digits.
To cope with the slowdown, Micron and its peers reined in production, severely reducing supply and helping prices bottom out.
Micron will be demonstrably below peak 2022 output for the foreseeable future. The company plans to continue to run factories at less than full capacity well into calendar 2024. Micron also will further reduce spending on new equipment next year.
These are bad signs in the short term, but the strategic importance of MU puts a solid bid under the stock price.
I wholeheartedly expect the industry outlook to brighten considerably by 2025 — especially as artificial intelligence systems demand new types of more expensive memory chips.
Therefore, every big dip is a buying opportunity in Micron because this stock is resilient.
Luckily, big dips are common in MU and readers should be patient to wait for optimal entry points.
This is a good one to buy and hold for the long term.
“It’s OK to have your eggs in one basket as long as you control what happens to that basket.” – Said Owner of X Elon Musk
(MSFT), (GOOGL), (AMZN)
The artificial intelligence (AI) sector, currently valued at a whopping $137 billion, is poised to skyrocket, with projections showing a compound annual growth rate of 37% all the way through 2030.
This technological marvel is making waves across diverse industries, including manufacturing, healthcare, consumer products, and education, to name a few. It’s no wonder tech behemoths are scrambling to secure their foothold in this lucrative sector, innovating relentlessly to cater to the escalating demand for AI services.
While Nvidia (NVDA) has been stealing the limelight in the AI arena this year, the real goldmine might just be investing in the software giants crafting these revolutionary products.
Enter Microsoft (MSFT), a titan in the tech world, meticulously infusing AI enhancements across its renowned software array, including household names like Windows and Office. Given all its efforts over the past months, one thing is clear: Microsoft is on a mission to bring AI to the fingertips of millions, and it’s just getting warmed up.
Before delving into this, it’s time for a reality check.
The truth is, aside from Nvidia, the tech sector, particularly enterprise AI software, hasn’t really felt the AI adrenaline rush. While Microsoft is dreaming big with AI, it’s still a waiting game for investors to see the digits roll in.
By investing $1 billion in OpenAI in 2019 and adding another $10 billion this year, Microsoft has made a bold and strategic move that has firmly established its presence in the AI industry. With a 49% stake in the start-up, the tech titan has secured access to some of the most advanced AI technologies available.
Integrating OpenAI’s AI models into Microsoft’s widely-used services like Word, Excel, Azure, and Bing is just the tip of the iceberg. Microsoft is also on a quest to redefine productivity, with plans to unveil a plethora of AI tools on its subscription-based platform, Microsoft 365, which has already witnessed a 12% operating income growth in fiscal 2023.
But that’s not all. Microsoft’s cloud service, Azure, is making waves in the business sector, standing as the second-largest cloud market share holder after Amazon Web Services (AMZN). It’s the gateway for companies to access ChatGPT, and Microsoft is solidifying its AI stronghold, showing no signs of hitting the brakes.
Come November 1, Microsoft 365 Copilot will be launched for enterprise customers at $30 per month. J.P. Morgan analysts predict a 12- to 36-month adoption ramp period as enterprises meticulously test before full-scale adoption.
This AI functionality of Copilot would mean corporations shelling out millions more, with an employee costing $782 annually to include Copilot, compared to $432 for Office 365 alone.
Microsoft is also delving into generative AI functions within Bing Search. Still, with only an 8% increase in Search revenues for the July quarter, it seems Google, owned by Alphabet (GOOG, GOOGL), remains the search sovereign.
In terms of revenue, Microsoft reported $56.2 billion for FQ4, marking an 8% increase. So to truly make a splash, AI Copilot needs to rake in billions annually.
Although it sounds impossible, this goal is actually reachable. Even if only a measly 10% of Office customers embrace the new feature, Microsoft could already rake in $14 billion in sales boost, with a potential $100 billion of incremental revenue by 2027.
While tech stocks are often seen as volatile, Microsoft stands out as a symbol of reliability, with a sales footprint exceeding $200 billion in its most recent fiscal year, deriving from diverse revenue streams. The company has managed to keep overall sales on an upward trajectory, with a recent quarter revenue up by 8% and operating income at $24.3 billion, accounting for over 43% of sales.
Its alliance with OpenAI also ensures that it remains a formidable player in the AI arena, with its expansive market share in cloud computing amplifying its prospects. The integration of AI in Microsoft 365's Office suite could be a game-changer, potentially skyrocketing earnings. The potential upside from AI products makes Microsoft a compelling consideration for investors, especially given the current market weakness.
In a nutshell, Microsoft’s strategic moves in AI and its unwavering dominance in productivity services make it a noteworthy contender in the ongoing AI revolution. For investors, it’s time to keep a keen eye on this tech leader. After all, the AI wave is undeniably here, and Microsoft is riding it with finesse.
(THE GLOBAL FINANCIAL SYSTEM COULD BE REVOLUTIONIZED WITHIN THE NEXT DECADE)
September 29, 2023
Hello everyone,
In the NYSE investors make upwards of 1 billion trades per day. Many of those trades appear to happen in milliseconds, except when you investigate further, that’s not the reality.
Trades on Wall Street take days to settle and lots of people to make them happen. Take market makers, for example. They are the middlemen handling all those trades on Wall Street and the top 5% of market makers handle nearly 30% of all trades. The fact is these intermediaries help with volatility, but they create a gap between buyers and sellers in the markets and there are a lot of gaps in the financial system (which are beyond our control.)
Have you ever noticed how long some bank transfers take?
Some of the big banks think they may have a solution. JP Morgan, Citibank, and Goldman Sachs want to push the financial system into the next generation, and to do that they need to borrow a tool from crypto – blockchain. Presently all large-scale global financial infrastructure is highly warehoused or functions through different silos. In other words, money moves on one set of rails, assets move on a different set of rails. They operate independently and information cannot be shared because of system limitations.
But being able to move money 24/7 365 is what we are moving towards.
These banks believe it could become a 5 trillion-dollar industry. In other words, we could see 5 trillion in combined tokenized asset-trading volume by 2030.
Why do these big banks think blockchain can turbo-charge the financial system?
Wall Street still operates in T+2. Trade + two days. That’s how long it takes for the standard securities settlement – for cash and assets to change hands. So, for instance, if you sell some stock on Tuesday, the cash won’t hit your bank until Friday.
Electronic trading and modern payment processing have accelerated the global financial system to move assets much faster. You don’t have to be an investment banker to feel the lag in the financial system. ACH transfers, credit card refunds, all kinds of money that move in our economy take time to go from one person to another. Part of the slowness is how many steps and people are involved. On Wall Street, for example, brokers help set up a transaction and they can charge a commission. Then market makers connect brokers to the assets they are trying to buy or sell. They charge a fee too on the difference or spread of the asking price of an asset and what someone is willing to pay. Very large transactions will need to go through even more steps for security and fraud prevention.
Some big banks are hoping that tokenization on blockchains can streamline the process of trading assets and maybe make it cheaper. It would revolutionize and rewrite financial market infrastructure.
To understand how tokenization works, we need to talk about ownership in the digital era. Right now, it’s hard to transfer ownership of real-world items over the web.
We all know that you can buy a car through an online marketplace, but the title that proves your ownership of this car only arrives in the mail a few weeks later. Inefficient in the modern world, wouldn’t you say? In the hope of bringing ownership online, developers are creating tokens that represent real-world items. You can do this with any kind of asset: stocks, bonds, a token that could represent ownership of a building or a car. Banks backing this believe that it may create new investments altogether and that’s why they are putting their money behind it. For example, JPMorgan has Onyx, a blockchain platform they launched in 2020. In the short time since then, it’s handled 700 billion in short-term loans through its private blockchain. JPMorgan describes it as a “killer app” for the future of finance. Larry Fink, the CEO of BlackRock called digital asset innovation and tokenization the next generation for markets.
A blockchain is basically a database of all the transactions. There are many copies of the database which helps to keep it secure. Each block is cryptographically signed so that any tampering is immediately evident. Additionally, you have a consensus mechanism to control how you update that database.
If technology provides you with the capability to use one rail line to transfer value, assets, and information, a lot of the inefficiencies and friction that exist in the regular financial infrastructure start to disappear.
Blockchains are meant to be transparent, cutting down the need for intermediaries that could charge fees or the need for extra due diligence. Proponents say it could enable P2P transactions across many parts of the economy.
In addition, this technology would allow for brand new forms of ownership, like splitting, fractionalizing ownership of property through real estate tokens, or tokenized deposits in bank accounts to allow for quick transfer of money between people using P2P transactions.
The IMF said in February that tokenising stocks and bonds could cut trading costs but requires the money paying for those assets to be tokenised as well, which would lead banks to make tokenised cheque accounts for faster payments.
The global financial system is one of the most regulated systems in the world and making any changes will be slow going. There will be a gradual movement forward in small steps.
Citibank has recently introduced Citi Token Services, which is a new blockchain-based service that will transform how institutional clients deposit and trade assets. In the evolving world of blockchains, and smart contracts, Citibank has enhanced its products and services, including digital money, trade, securities, custody, asset servicing, and collateral mobility.
Quick market update:
Thank you to all those people who attended my monthly meeting on Wednesday evening. I hope you got something out of it.
I have been studying chart patterns today, so I am providing here an update on the Nasdaq and S&P. By no means is this move confirmed yet, but it is a possibility and so I wanted to make you aware.
We know that the U.S. stock market has sold off this week, and I have to say it has absorbed higher yields and a strong U.S. dollar very well, and with market sentiment moving from bullish to bearish, an upside movement is not out of the question. You can see above a flag pattern is clearly visible, and from an Elliott Wave perspective, it is possible to interpret the completion of a 4th Wave correction, which could see an advance onto a Wave 5 high for the year and a run at the 4,819 peak of January 2022. (See chart below). The market has a lot to prove before we take any rally seriously. A close above 4,345 would certainly help to bring some credibility to a rally as it would invalidate the classical charting Head and Shoulders pattern which “over-hangs” the market.
Joining three points at the base of this flag pattern on the weekly Nasdaq chart may indicate that we have the possibility of a rally ahead of us, and we could see a move towards 16,000 in the next weeks/months. But, as I said above, the market has “all to prove” for this bullish scenario.
Wishing you all a wonderful weekend.
Cheers,
Jacquie
Global Market Comments
September 29, 2023
Fiat Lux
Featured Trade:
(I HAVE A NEW OPENING FOR THE MAD HEDGE FUND TRADER CONCIERGE SERVICE),
(TESTIMONIAL),
(RIGHT SIZING YOUR TRADING)
