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april@madhedgefundtrader.com

The Market Outlook for the Week Ahead, or Who Needs the Fed?

Diary, Newsletter

I have to tell you that this has been a really good week to be John Thomas.

The accolades have been pouring in. During February, my followers have made the most money in their lives, including myself. NVIDIA (NVDA), up 110% in four months, is now the largest position in everyone’s portfolios, if not because of my prodding, then through capital appreciation alone.

Institutions limited to keeping single holdings to 5% or 10% got away with delaying their rebalancing as long as possible.

Is it 1995 for 2,000? I vote for the former, meaning that the current melt-up could have five more years to run with occasional breaks.

Exploding corporate profits and rocketing share capitalizations have replaced the Federal Reserve as a new endless source of liquidity, as I knew it would.

Who needs the Fed? Who needs interest rate cuts?

Best of all, this new source of super liquidity isn’t at the whim of a single man, nor subject to politics of any kind. It has in fact become its own self-fulfilling prophecy.

Dow 240,000 here we come, as I have been endlessly repeating for years!

It says a lot that hedge funds, the “smart money,” are heavily overweight the Magnificent Seven, while retail mutual funds, the “dumb money” are underweight. The technology they are overweight is mostly in Apple, that great backward-looking company. This implies that to catch up mutual funds are going to have to buy hundreds of billions of Mag Seven stocks and sell their Apple to pay for the move.

The largest single source of demand for stocks will be the $1.25 trillion in corporate buybacks. What will they buy? Apple (AAPL), Alphabet (GOOGL), and Microsoft (MSFT), the three largest purchasers of their own stocks.

When the leader of the fastest-growing, best-performing company with the top-performing stock speaks, you have to pay attention. The next $1 trillion build-out in AI infrastructure is here, says NVIDIA CEO Jensen Huang, now one of the richest men in the world.

Have a good week! I’ll be spending my time shoveling snow.

 

 

In February, we closed up +7.42%. My 2024 year-to-date performance is at +3.14%. The S&P 500 (SPY) is up +7.33% so far in 2024. My trailing one-year return reached +55.73% versus +42.04% for the S&P 500.

That brings my 15-year total return to +679.77%. My average annualized return has recovered to +51.30%.

Some 63 of my 70 trades last year were profitable in 2023. Some 9 of 13 trades have been profitable so far in 2024.

I used the ballistic move-in (NVDA) to take profits in my double long there. I am maintaining a single long in (AMZN) and Snowflake (SNOW) and am 80% in cash given the elevated level of the markets.

Core PCE Comes in Cool, at 2.8%, as expected. The personal consumption expenditures price index excluding food and energy costs increased 0.4% for the month and 2.8% from a year ago, as expected. Stocks and bonds liked it, but the US dollar hated it.

Snowflake Crashes, down 20%, on weak guidance. CEO Frank Slootman is retiring. This is the third company he has taken public and it’s time to retire. He will stay on as chairman. This is one of the best cloud plays out there, and now you have a chance to buy it close to the October bottom. Buy (SNOW) on dips.

Weekly Jobless Claims Pop, up 13,000 to 215,000. However, continuing claims, which run a week behind, rose to just above 1.9 million, a gain of 45,000 and higher than the FactSet estimate of 1.88 million.

Apple Pulls the Plug on EV Project, wrong product at the wrong time. AI is where the action is. We may have to wait until the summer for this company when it starts to discount the next-generation iPhone release in the fall. Tesla can now sleep easy. Avoid (AAPL) and buy (TSLA) on dips.

Berkshire Hathaway to Top $1 Trillion in a Year, up from the current $900 billion, according to UBS analyst Brian Meredith. I think that’s a low target. Buy (BRK/B) on dips.

Boeing Hit by Damning Report, faulting the company for ineffective procedures and a breakdown in communications between senior management and other members of staff, according to an FAA report. The report is the latest to find fault with safety at Boeing, which suffered its latest blow when a panel covering an unused door flew off during an Alaska Airlines flight on Jan. 5. Buy (BA) on dips.

Warren Buffet Says Their Nothing to Buy, in his annual letter to shareholders. The few targets left are few and far between and heavily picked over. (BRK/B) has also lost the advice of its principal mentor, Charlie Munger at the age of 99. Last year Berkshire acquired Dairy Queen and Berkshire Energy. But with $905 billion in assets, those will hardly move the needle on his incredible track record. The 93-year-old Buffet has outperformed the S&P 500 by 141:1 since 1964.

CEO Jamie Diamond
Sell $150 Million in (JPM) Shares, cashing in on the historic “BUY” he had at the 2009 market bottom. He earned a 36X gain on that trade. (JPM) remains the “must-own” bank for most institutional investors.

New Home Sales Weaken, curbed by frigid weather, but demand for new construction remains underpinned by a persistent shortage of previously owned homes. New home sales increased 1.5% to a seasonally adjusted annual rate of 661,000 units in January. Economists had forecast new home sales rising to a rate of 680,000 units.

Another Regional Bank is in Trouble. Commercial real estate lender New York Community Bancorp said it discovered “material weaknesses” in how it tracks loan risks, wrote down the value of companies acquired years ago, and replaced its leadership to grapple with the turmoil. The stock plunged. Expect this to be a recurring problem. The US banking system is in the process of consolidating from 4,236 banks to six. Buy (JPM), (BA), and (C) on dips.

Millennials are Becoming the Richest Generation in History. The so-called greatest generation — those typically born from 1928 to 1945 — and baby boomers — born between 1946 and 1964 — will hand over the reins to those born from 1981 to 1996 when they pass on their property- and equity-rich assets. In the U.S. alone, the shift would see $90 trillion of assets move between generations.

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, March 4, nothing of note is announced.

On Tuesday, March 5 at 8:30 AM EST, ISM Services are released.

On Wednesday, March 6 at 2:00 PM, the Jolts Job Openings Report is published

On Thursday, March 7 at 8:30 AM, the Weekly Jobless Claims are announced.

On Friday, March 8 at 2:30 PM, the Nonfarm Payroll Report for February is published. At 2:00 PM the Baker Hughes Rig Count is printed.

As for me, I’ve found a new series on Amazon Prime called 1883. It is definitely NOT PG rated, nor is it for the faint of heart. But it does remind me of my own cowboy days.

When General Custer was slaughtered during his last stand at the Little Big Horn in 1876 in Montana, my ancestors spotted a great buying opportunity. They used the ensuing panic to pick up 50,000 acres near the Wyoming border for ten cents an acre.

Growing up as the oldest of seven kids, my parents never missed an opportunity to farm me out with relatives. That’s how I ended up with my cousins near Broadus, Montana for the summer of 1966.

When I got off the Greyhound bus in nearby Sheridan, I went into a bar to call my uncle. The bartender asked his name and when I told him “Carlat”  he gave me a strange look.

It turned out that my uncle had killed someone in a gunfight in the street out front a few months earlier, which was later ruled self-defense. It was the last public gunfight seen in the state, and my uncle hasn’t been seen in town since.

I was later picked up in a beat-up Ford truck and driven for two hours down a dirt road to a log cabin. There was no electricity, just kerosene lanterns, and a propane-powered refrigerator.

Welcome to the 19th century!

I was hired as a cowboy, lived in a bunk house with the rest of the ranch hands, and was paid the pricely sum of a dollar an hour. I became popular by reading the other cowboys' newspapers and their mail since they were all illiterate. Every three days we slaughtered a cow to feed everyone on the ranch. I ate steak for breakfast, lunch, and dinner.

On weekends, my cousins and I searched for Indian arrowheads on horseback, which we found by the shoe box full. Occasionally we got lucky finding an old rusted Winchester or Colt revolver just lying out on the range, a remnant of the famous battle 90 years before. I carried my own six-shooter to help reduce the local rattlesnake population.

I really learned the meaning of work and developed callouses on my hands in no time. I had to rescue cows trapped in the mud (stick a burr under their tail and make them mad), round up lost ones, and sawed miles of fence posts. When it came time to artificially inseminate the cows with superior semen imported from Scotland, it was my job to hold them still. It was all heady stuff for a 15-year-old.

The highlight of the summer was participating in the Sheridan Rodeo. With my uncle being one of the largest cattle owners in the area, I had my pick of events. So, I ended up racing a chariot made from an old oil drum, team roping (I had to pull the cow down to the ground), and riding a Brahman bull. I still have a scar on my left elbow from where a bull slashed me, the horn pigment clearly visible.

I hated to leave when I had to go home and back to school. But I did hear that the winters in Montana are pretty tough.

It was later discovered that the entire 50,000 acres was sitting on a giant coal seam 50 feet thick. You just knocked off the topsoil and backed up the truck. My cousins became millionaires. They built a modern four-bedroom house closer to town with every amenity, even a big-screen TV. My cousin also built a massive vintage car collection.

During the 2000s, their well water was poisoned by a neighbor’s fracking for natural gas, and water had to be hauled in by truck at great expense. In the end, my cousin was killed when the engine of the classic car he was restoring fell on top of him when the rafter above him snapped.

It all gave me a window into a lifestyle that was then fading fast. It’s an experience I’ll never forget.

 

 

Good Luck and Good Trading,

John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader

 

 

 

 

 

 

 

 

 

 

https://www.madhedgefundtrader.com/wp-content/uploads/2024/03/john-thomas-and-daughter.png 838 664 april@madhedgefundtrader.com https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png april@madhedgefundtrader.com2024-03-04 09:02:182024-03-04 11:21:52The Market Outlook for the Week Ahead, or Who Needs the Fed?
april@madhedgefundtrader.com

February 22, 2024

Diary, Newsletter, Summary

Global Market Comments
February 22, 2024
Fiat Lux

Featured Trade:

(HOW TO GAIN AN ADVANTAGE WITH PARALLEL TRADING),
(GM), (F), (TM), (NSANY), (DDAIF), BMW (BMWYY), (VWAPY),
(PALL), (GS), (EZA), (CAT), (CMI), (KMTUY),
(KODK), (SLV), (AAPL)

https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png 0 0 april@madhedgefundtrader.com https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png april@madhedgefundtrader.com2024-02-22 09:04:152024-02-22 11:20:40February 22, 2024
april@madhedgefundtrader.com

February 20, 2024

Diary, Newsletter, Summary

Global Market Comments
February 20, 2024
Fiat Lux

Featured Trade:

(MARKET OUTLOOK FOR THE WEEK AHEAD, or HOW THE CPI LIED),
(NVDA), (MSFT), (AMZN), (V), (PANW), (CCJ) (AAPL), (TSLA), (GOOGL), (MSFT), (AMZN), (META), (UBER), (UUP)

https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png 0 0 april@madhedgefundtrader.com https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png april@madhedgefundtrader.com2024-02-20 09:04:072024-02-20 10:40:34February 20, 2024
april@madhedgefundtrader.com

The Market Outlook for the Week Ahead or How the CPI Lied

Diary, Newsletter

It’s pretty obvious that when the Consumer Price Index was released last Tuesday, the data point was lying through its teeth. The 0.4% increase in the Core CPI brought the YOY gain to a heart-palpitating 3.9%, much higher than expected. The stock market thought it was telling God’s home truth by plunging 740 points at its low.

Interest rate sensitives, like bonds, utilities, real estate, precious metals, energy, and foreign currencies were particularly hard hit.

I have been in the financial markets quite a long time now and as a result, am pretty used to being told porky pies (lies in London’s East End). Take the CPI for example. The reported number came in at a sizzling 3.3% for January. That is enough to kill off any hopes of a Fed interest rate cut in 2024, thus the ensuing wreckage in the market.

However, back out a single number, the 6.0% rise in housing rental costs, and the inflation rate drops all the way to 2.0%, bang on the Fed’s long-term inflation target. In other words, interest rates should be cut RIGHT NOW!
That is clearly the view that the markets came around to on Wednesday, which saw the Dow Average recover 151 points.

Unfortunately, lying is a fact of life in the stock market at every conceivable level. But learn to tolerate it and you can make millions of dollars. That works for me. Like my old college statistics professor used to tell me: “Statistics are like a bikini bathing suit; what they reveal is fascinating, but what they conceal is essential.”

In fact, we may see the stock market bouncing back and forth like a ping pong ball between big technology and the interest rate sectors, depending on what the bond market is doing that day driving traders nuts. After all, it was YOU who wanted to be in show business!

In the meantime, complacency rules all. Cash flows into stocks are near all-time highs. Market strategists have been ratcheting up their yearend targets on a daily basis, even me (I’m now at SPX 6,000). The option put/call ratio is about as low as it gets, meaning there is a universal belief that stocks will continue to appreciate. That’s with the S&P 500 earnings multiple trading at a rich 20.5.

I would be remiss in my duties as a financial advisor if I did not also warn you that these are all market-topping signals, at least for the short term.

Double Yikes, and Heavens to Betsy!

Of course, all eyes will be on the Q4 NVIDIA earnings this week, out after the close on Wednesday and probably the most important data release of the year. Everything else this week is essentially meaningless.

If earnings come in anything less than perfect, up 100% YOY, it could trigger a long overdue correction in the stock market in general and (NVDA) in particular. On the other hand, earnings just might come in more than perfect.

I have been covering (NVDA) for more than a decade back when it was just a video game play and I describe it today as a monopoly on the world’s most valuable product. Their top-end H100 graphics cards are now selling for a breathtaking $30,000 each and Meta (META) just ordered 450,000 of these babies, partly so their competitors can’t get their hands on them. For those who don’t have a calculator that is a single order worth a mind-blowing $13.5 billion.

That is why the stock is up 224% in a year and 50X since the first Mad Hedge trade alert on the company went out at a split-adjusted $2.00. Those who think they can clone (NVDA) and their products overnight can dream on. Most employees have golden handcuffs in the form of vested options at the same $2.00 strike price or lower.

The Magnificent Seven are still cheap relative to the rest of the market. Their price-to-growth ratio (PEG Ratio) is still only half the rest of the market. The Mag Seven will see earnings grow 20% this year with a price-earnings multiple of 30X giving you a PEG of 1.5X. The Unmagnificent 493 are selling at a PEG ratio of 3.0X, meaning they are twice as expensive.

Just thought you’d like to know.

So far in February, we are up +3.42%. My 2024 year-to-date performance is also at -0.86%. The S&P 500 (SPY) is up +4.72% so far in 2024. My trailing one-year return reached +59.62% versus +24.57% for the S&P 500.

That brings my 15-year total return to +675.77%. My average annualized return has retreated to +51.32%.

Some 63 of my 70 trades last year were profitable in 2023.

I am maintaining a double long in, you guessed it, (NVDA). My longs in (MSFT), (AMZN), (V), (PANW), and (CCJ) all expired at their maximum potential profits with the February option expiration.

CPI Smacks Market, coming in at 0.3% in January instead of the expected 0.2%. The highflyers took the biggest hit. Bonds were destroyed, taking ten-year US Treasury yields up to 4.30%. Is the falling interest rate story dead, or just resting? Rising rents were the big villain here.

 

 

US Retail Sales Dive 0.8% in January, a shocking decline from the blowout in December. Consumers didn’t bite on those New Year Sales because they actually started in November. Winter storms as well as technical factors had distorted the data.

Weekly Jobless Claims Dropped to 212,000, an improvement of 8,000 from the previous week. Continuing claims rose to 1,895,000.
https://www.dol.gov/ui/data.pdf

Here are Dan Niles’ Tech Shorts, Apple (AAPL), (TSLA), and Alphabet (GOOGL). He is long Microsoft (MSFT), (AMZN), (META), and of course NVIDIA (NVDA). Sounds like a good call to me. Dan knows what he is doing.

Uber Announces First Ever Share Buy Back, some $7 billion. In the meantime, they have to cope with a driver strike. Buy (UBER) on dips.

$929 Billion in US Commercial Real Estate Loans are Due this Year or 20% of the total. Will there be widespread defaults or will borrowers get rescued by falling interest rates in the second half? Will they extend and pretend? Avoid regional banks like the plague, which lack the capital to cope with this. 

US Dollar (UUP) Hits Three Month High, on the hot CPI. You need a falling CPI to get a weak buck. The Euro plunged to $1.07, the British pound to $1.25, the Australian dollar to 65 cents, and the Japanese yen to ¥151.

NVIDIA Now Tops Amazon in Market Value, at $1.2 trillion now the fourth most valuable company in the US. It could eventually top Microsoft’s (MSFT) market cap as it is growing much faster. Those (NVDA) LEAPS are looking pretty good. The shares are up 50% so far in 2024. Buy (NVDA) on dips.

Biden to Ban Chinese EV Car Imports. The measures would apply to electric vehicles and parts originating from China, no matter where they are assembled, in a bid to prevent Chinese makers from moving cars and components into the United States through third countries such as Mexico. Chinese cars will never meet US safety standards. Try driving in China.

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, February 19, the markets are closed for Presidents Day.

On Tuesday, February 20 no data of importance is released.

On Wednesday, February 21 at 2:00 PM EST, the Minutes from the previous Federal Open Market Committee meeting are published. NVIDIA earnings are released after the market closes.

On Thursday, February 22 at 8:30 AM EST, the Weekly Jobless Claims are announced. Existing Home Sales are Released.

On Friday, February 23 at 2:30 PM the Baker Hughes Rig Count is printed.

As for me, the first thing I did when I received a big performance bonus from Morgan Stanley in London in 1988 was to run out and buy my own airplane.

By the early 1980s, I’d been flying for over a decade. But it was always in someone else’s plane: a friend’s, the government’s, a rental. And Heaven help you if you broke it!

I researched the market endlessly, as I do with everything, and concluded that what I really needed was a six-passenger Cessna 340 pressurized twin turbo parked in Santa Barbara, CA. After all, the British pound had just enjoyed a surge against the US dollar so American planes were suddenly a bargain. It had a maximum range of 1,448 miles and therefore was perfect for flying around Europe.

The sensible thing to do would have been to hire a professional ferry company to fly it across the pond.  But what’s the fun in that? So, I decided to do it myself with a copilot I knew to keep me company. Even more challenging was that I only had three days to make the trip, as I had to be at my trading desk at Morgan Stanley on Monday morning.

The trip proved eventful from the first night. I was asleep in the back seat over Grand Junction, Colorado, when I was suddenly awoken by the plane veering sharply left. My co-pilot had fallen asleep, running the port wing tanks dry and shutting down the engine. He used the emergency boost pump to get it restarted. I spent the rest of the night in the co-pilot’s seat trading airplane stories.

The stops at Kansas City, MO, Koshokton, OH, and Bangor, ME proved uneventful. Then we refueled at Goose Bay, Labrador in Canada, held our breath, and took off for our first Atlantic leg.

Flying the Atlantic in 1988 is not the same as it is today. There were no navigational aids and GPS was still top secret. There were only a handful of landing strips left over from the WWII summer ferry route, and Greenland was still littered with Mustangs, B-17s, B24s, and DC-3s. Many of these planes were later salvaged when they became immensely valuable. The weather was notoriously bad. And a compass was useless, as we flew so close to the magnetic North Pole the needle would spin in circles.

But we did have NORAD, or America’s early warning system against a Russian missile attack.

The practice back then was to call a secret base somewhere in Northern Greenland called “Sob Story.” Why it was called that I can only guess, but I think it has something to do with a shortage of women. An Air Force technician would mark your position on the radar. Then you called him again two hours later and he gave you the heading you needed to get to Iceland. At no time did he tell you where HE was.

It was a pretty sketchy system, but it usually worked.

To keep from falling asleep the solo pilots ferrying aircraft all chatted on a frequency of 123.45 MHz. Suddenly, we heard a mayday call. A female pilot had taken the backseat out of a Cessna 152 and put in a fuel bladder to make the transatlantic range. The problem was that the pump from the bladder to the main fuel tank didn’t work. With eight pilots chipping in ideas, she finally fixed it. But it was a hair-raising hour. There is no air-sea rescue in the Arctic Ocean.

I decided to play it safe and pick up extra fuel in Godthab, Greenland. Godthab has your worst nightmare of an approach, called a DME Arc. You fly a specific radial from the landing strip, keeping your distance constant. Then at an exact angle, you turn sharply right and begin a decent. If you go one degree further, you crash into a 5,000-foot cliff. Needless to say, this place is fogged 365 days a year.

I executed the arc perfectly, keeping a threatening mountain on my left while landing. The clouds mercifully parted at 1,000 feet and I landed. When I climbed out of the plane to clear Danish customs (yes, it’s theirs), I noticed a metallic scraping sound. The runway was covered with aircraft parts. I looked around and there were at least a dozen crashed airplanes along the runway. I realized then that the weather here was so dire that pilots would rather crash their planes than attempt a second go.

When I took off from Godthab, I was low enough to see the many things that Greenland is famous for polar bears, walruses, and natives paddling in deerskin kayaks. It was all fascinating.

I called into Sob Story a second time for my heading, did some rapid calculations, and thought “damn”. We didn’t have enough fuel to make Iceland. The wind had shifted from a 70 MPH tailwind to a 70 MPH headwind, not unusual in Greenland. I slowed down the plane and configured it for maximum range.

I put out my own mayday call saying we might have to ditch, and Reykjavik Control said they would send out an orange bedecked Westland Super Lynch rescue helicopter to follow me in. I spotted it 50 miles out. I completed a five-hour flight and had 15 minutes of fuel left, kissing the ground after landing.

I went over to Air Sea Rescue to thank them for a job well done and asked them what the survival rate for ditching in the North Atlantic was. They replied that even with a bright orange survival suit on, which I had, it was only about 50%.

Prestwick, Scotland was uneventful, just rain as usual. The hilarious thing about flying the full length of England was that when I reported my position, the accents changed every 20 miles. I put the plane down at my home base of Leavesden and parked the Cessna next to a Mustang owned by rock star Randy Newman.

I asked my ferry pilot if ferrying planes across the Atlantic was always so exciting. He dryly answered “Yes.” He told me in a normal year about 10% of the planes go missing.

I raced home, changed clothes, and strode into Morgan Stanley’s office in my pin-stripped suit right on time. I didn’t say a word about what I just accomplished.

The word slowly leaked out and at lunch, the team gathered around to congratulate me and listen to some war stories.

Good Luck and Good Trading,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader

 

Flying the Atlantic in 1988

 

Looking for a Place to Land in Greenland

 

Landing on a Postage Stamp in Godthab Greenland

 

On the Ground in Greenland

 

No Such a Great Landing

 

Flying Low Across Greenland

 

Gassing Up in Iceland

 

Almost Home at Prestwick

 

Back to London in 1988

 

 

 

 

 

https://www.madhedgefundtrader.com/wp-content/uploads/2022/09/flying-1988-scaled.jpg 1543 2560 april@madhedgefundtrader.com https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png april@madhedgefundtrader.com2024-02-20 09:02:342024-02-20 10:40:04The Market Outlook for the Week Ahead or How the CPI Lied
april@madhedgefundtrader.com

February 12, 2024

Diary, Newsletter, Summary

Global Market Comments
February 12, 2024
Fiat Lux

Featured Trade:

(MARKET OUTLOOK FOR THE WEEK AHEAD, or RAISING MY YEAREND TARGET TO (SPX) $6,000)
(AAPL), (GOOGL), (META) (MSFT), (AMZN), (V), (PANW), (CCJ), (ARM), (USO), (XOM), (OXY), (INDA), (INDY), (FXI), (BABA), (NVDA), (TSA), (RCL)

https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png 0 0 april@madhedgefundtrader.com https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png april@madhedgefundtrader.com2024-02-12 09:04:222024-02-12 11:12:05February 12, 2024
april@madhedgefundtrader.com

The Market Outlook for the Week Ahead, or Raising my Yearend Target to (SPX) $6,000

Diary, Newsletter

When I announced my year-end target for the S&P 500 on the first of January, I knew it was cautious. That provided for only a 15% gain for 2024. Yet here we are a mere six weeks into the New Year, and we only have 10.4% to go.

That is with the six lead stocks, which account for 30% of the entire stock market capitalization, seeing earnings grow up to 300% annually. With that kind of growth, even $6,000 is looking overly conservative, even allowing for no multiple expansion whatsoever.

The top six stocks are over 11% YTD, while half of all S&P 500 stocks are down. A few friends of mine who are still alive and have been in the market for as long as I have never seen a market this concentrated. They are amazed, befuddled, and aghast, as am I.

And if you do want to buy big tech, you’re going to have to compete with the big tech companies themselves to do so. The buyback machine continues full speed ahead, with Apple (AAPL) Hoovering up $20.5 billion of its own shares, Alphabet (GOOGL) $16.1 billion, Meta (META) 6.3 billion, and Microsoft (MSFT) $4 billion.

I am a firm believer that markets will do whatever they have to do to screw the most people. So far this year it has done an admirable job doing just that, going up in a straight line with everyone underinvested and with $8 trillion on the sideline.

This is how markets will continue screwing most people. It keeps going up a little bit more. The NVIDIA earnings announcement due out on February 21 could be the ideal turning point.

Then the market suffers a ferocious correction, maybe 10% in a short period. Traders panic and dump all their positions. Then the (SPX) turns around at about $4,800 on a dime and then rockets all the way up to $6,000, frustrating investors once again.

I just thought you’d like to know.

I am usually cautious about ultra bears, but I picked up an interesting view last week about how long it may take the Chinese economy to recover.

During the US house bust from 2007 to 2012, the United States had 3 million excess unwanted homes weighing on the market like a dead weight, or about a seven-month oversupply. That was enough excess to cause the Great Recession, a 52% crash in the S&P 500, and the demise of thousands of American companies, including Lehman Brothers and Bear Stearns.

Today, China has a staggering 50 million excess homes in a population only four times larger than ours. That is a 15-year oversupply for the market. That means China could suffer a decade and a half of subpar growth and lagging stock markets. Don’t touch Chinese stocks even though they offer attractive single-digit multiples.

Why do you care? Because China is the world’s largest consumer and importer of most commodities, food, and energy. The stocks that specialize in these areas could be facing a long-term drag from the Middle Kingdom unless it is offset somewhere else.

The Chinese are only now discovering that the principal driver of their economic growth for the past 30 years has been US investment. President Xi has managed to scare that away with a hostile attitude towards America and saber-rattling over Taiwan. Last year for the first time the US imported more from Mexico than from China, where many companies have re-shored.

Wonder why crude oil (USO), (XOM), (OXY) is at $68 a barrel when the US economy is growing at a 3.1% rate? This is the reason. It is also a strong argument in favor of investing in India, which I discussed last week. Buy the (INDA) and the (INDY), not the (FXI) or (BABA).

In the meantime, you’ve got to love ARM Holdings PLC, whose earnings announcement triggered a heroic 56% one-day move up in the stock. They execute sub-designs for almost every AI chip out there. That’s what a 3% float in the stock gets you. Anyone who has any doubts about the durability of the AI story should take a look at what happened to (ARM) last week.

So far in February, we are up +1.78%. My 2024 year-to-date performance is also at -2.50%. The S&P 500 (SPY) is up +5.03% so far in 2024. My trailing one-year return reached +60.44% versus +33.13% for the S&P 500.

That brings my 16-year total return to +674.13%. My average annualized return has retreated to +51.20%.

Some 63 of my 70 trades last year were profitable in 2023.

I am maintaining longs in (MSFT), (AMZN), (V), (PANW), and (CCJ).

Reheating is Becoming an Issue, with a strong US economy and record-low unemployment rate possibly prompting the Fed to delay interest rate cuts. The stock market has been running on steroids on the expectation of imminent cuts. This is a new market risk and could unleash a thunderstorm on our parade.

CPI Revised Down, in December, from 0.3% to 0.2%. The deflationary economy is back! Stocks loved it, with the S&P 500 catapulting to $5,000. That’s why I revised my yearend target up to $6,000.

Early Retirements are Soaring, thanks to a stock market at new all-time highs. Baby boomers can now afford to “take this job and shove it.”

 

 

NVIDIA Enters New Custom Chip Market, potentially adding another $30 billion in revenues. The dominant global designer and supplier of AI chips aim to capture a portion of an exploding market for custom AI chips and to protect itself from the growing number of companies interested in finding alternatives to its products. Buy (NVDA) on dips.

Morgan Stanley Upgrades NVIDIA to an $800 Target. An exceptional supply-demand imbalance in the artificial intelligence-chip sector, as well as a massive shift in spending toward emerging technology, is likely to persist over the near term. Buy (NVDA) on dips.

ARM Holdings (ARM) Soars by 41%, off a spectacular forecast-based demand for designed-up AI chips. UK-based Arm makes money through royalties, when companies pay for access to build Arm-compatible chips, usually amounting to a small percentage of the final chip price. Arm said its customers shipped 7.7 billion Arm chips during the September quarter.

Tesla (TSLA) Looking to Cut Jobs, and reduce costs, as is the rest of Silicon Valley. The move could mark the bottom of the stock. Elon Musk is the master job cutter, axing 80% of the Twitter staff on takeover.

Meta (META) Gains $196 Billion in Market Cap in One Day, off the back of record sales, tripled earnings, and reduced costs.

Construction Spending Gains, up 0.9% in December, the best since October. Watch the industry reaccelerate as interest rates fall.

Royal Caribbean Beats, with record bookings in an industry I have recently become intensely interested in. (RCL) is grabbing market share from land-based vacations, as Millennials are finally discovering cheap cruise vacations, where it is often cheaper than to stay in a motel with all you can eat. Only a few cruises were lost to the Red Sea War. (RCL) just launched Icon of the Seas, the world’s largest cruise ship.

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, February 12, the US Consumer Inflation Expectations are announced.

On Tuesday, February 13 at 8:30 AM EST, the Core Inflation Rate will be released.

On Wednesday, February 14 at 2:00 PM, the Producer Price Index is published. The Federal Reserve announces its interest rate decision.

On Thursday, February 15 at 8:30 AM, the Weekly Jobless Claims are announced. We also get Retail Sales.

On Friday, February 16 at 2:30 PM, the January Building Permits are published, along with the University of Michigan Consumer Sentiment. At 2:00 PM the Baker Hughes Rig Count is printed.

As for me, it was in 1986 when the call went out at the London office of Morgan Stanley for someone to undertake an unusual task. They needed someone who knew the Middle East well, spoke some Arabic, was comfortable in the desert, and was a good rider.

The higher-ups had obtained an impossible-to-get invitation from the Kuwaiti Royal family to take part in a camel caravan into the Dibdibah Desert. It was the social event of the year.

More importantly, the event was to be attended by the head of the Kuwait Investment Authority, who ran over $100 billion in assets. Kuwait had immense oil revenues, but almost no people, so the bulk of their oil revenues were invested in western stock markets. An investment of goodwill here could pay off big time down the road.

The problem was that the US had just launched air strikes against Libya, destroying the dictator, Muammar Gaddafi’s royal palace, our response to the bombing of a disco in West Berlin frequented by US soldiers. Terrorist attacks were imminently expected throughout Europe.

Of course, I was the only one who volunteered.

My managing director didn’t want me to go, as they couldn’t afford to lose me. I explained that in reviewing the range of risks I had taken in my life, this one didn’t even register. The following week found myself in a first-class seat on Kuwait Airways headed for a Middle East in turmoil.

A limo picked me up at the Kuwait Hilton, just across the street from the US embassy, where I occupied the presidential suite. We headed west into the desert.

In an hour, I came across the most amazing sight - a collection of large tents accompanied by about 100 camels. Everyone was wearing traditional Arab dress with a ceremonial dagger. I had been riding horses all my life, camels not so much. So, I asked for the gentlest camel they had.

The camel wranglers gave me a tall female, which was more docile and obedient than the males. Imagine that! Getting on a camel is weird, as you mount them while they are sitting down. My camel had no problem lifting my 180 pounds.

They were beautiful animals, highly groomed, and in the pink of health. Some were worth millions of dollars. A handler asked me if I had ever drunk fresh camel milk, and I answered no. They didn’t offer it at Safeway. He picked up a metal bowl, cleaned it out with his hand, and milked a nearby camel.

He then handed me the bowl with a big smile across his face. There were definitely green flecks of manure floating on the top, but I drank it anyway. I had to, lest my host would lose face. At least it was white. It was body temperature warm and much richer than cow’s milk.

The motion of a camel is completely different from a horse. You ride back and forth in a rocking motion. I hoped the trip was short, as this ride had repetitive motion injuries written all over it. I was using muscles I had never used before. Hit your camel with a stick and they take off at 40 miles per hour.

I learned that a camel is a super animal ideally suited for the desert. It can ride 100 miles a day, and 150 miles in emergencies, according to TE Lawrence, who made the epic 600-mile trek to Aquaba in only four weeks in the height of summer. It can live 15 days without water, converting the fat in its hump.

In ten miles, we reached our destination. The tents went up, clouds of dust rose, the camels were corralled, and the cooking began for an epic feast that night.

It was a sight to behold. Elaborately decorated huge three-by-five wide bronze platers were brought overflowing with rice and vegetables, and every part of a sheep you can imagine, none of which was wasted. In the center was a cooked sheep’s head with the top of the skull removed so the brains were easily accessible. We all ate with our right hands.

I learned that I was the first foreigner ever invited to such an event, and the Arabs delighted in feeding me every part of the sheep, the eyes, the brains, the intestines, and the gristle. I pretended to love everything and laid back and thought of England. When they asked how it tasted I said it was great. I lied.

As the evening progressed, the Johnny Walker Red came out of hiding. Alcohol is illegal in Kuwait, and formal events are marked by copious amounts of elaborate fruit juices. I was told that someone with a royal connection had smuggled in an entire container of whiskey and I could drink all I wanted.

The next morning I was awoken by a bellowing camel and the worst headache in the world. I threw a rock at him to get him to shut up and he sauntered over and peed all over me.

The things I did for Morgan Stanley!

Four years later, Iraq invaded Kuwait. Some of my friends were kidnapped and held for ransom, while others were never heard from again.

The Kuwaiti government said they would pay for the war if we provided the troops, tanks, and planes. So they sold their entire $100 million investment portfolio and gave the money to the US.

Morgan Stanley got the mandate to handle the liquidation, earning the biggest commission in the firm’s history. No doubt, the salesman who got the order was considered a genius, earned a promotion, and was paid a huge bonus.

I spent the year as a Marine Corps captain, flying around assorted American generals and doing the odd special opp. I got shot down and still set off airport metal detectors. No bonus here. But at least I gained an insight and an experience into a medieval Bedouin lifestyle that is long gone.

They say success has many fathers. This is a classic example.

You can’t just ride out into the Kuwait desert anymore. It is still filled with mines planted by the Iraqis. There are almost no camels left in the Middle East, long ago replaced by trucks. When I was in Egypt in 2019, I rode a few mangy, pitiful animals held over for the tourists.

When I passed through my London Club last summer, the Naval and Military Club on St. James Square, whose portrait was right at the front entrance?  None other than that of Lawrence of Arabia.

It turns out we were members of the same club in more ways than one.

Stay healthy,

John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader

 

John Thomas of Arabia

 

Checking Out the Local Camel Milk

This One Will Do

 

Traffic in Arabia

 

 

 

 

 

 

 

 

 

 

https://www.madhedgefundtrader.com/wp-content/uploads/2024/02/John-Thomas-of-Arabia.png 974 752 april@madhedgefundtrader.com https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png april@madhedgefundtrader.com2024-02-12 09:02:392024-02-12 11:11:57The Market Outlook for the Week Ahead, or Raising my Yearend Target to (SPX) $6,000
april@madhedgefundtrader.com

January 22, 2024

Tech Letter

Mad Hedge Technology Letter
January 22, 2024
Fiat Lux

Featured Trade:

(TAKE A DEEP BREATH WITH AI)
(NVDA), (QRVO), (GOOGL), (AMZN), (AMD), (AVGO), (AAPL), (AI)

https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png 0 0 april@madhedgefundtrader.com https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png april@madhedgefundtrader.com2024-01-22 14:04:252024-01-22 15:18:29January 22, 2024
april@madhedgefundtrader.com

Take A Deep Breath With AI

Tech Letter

Stocks and firms tethered to artificial intelligence won’t always have a one-way joyride to profits.

The honest truth is that the road will be met with drawbacks some years and the sector will need time to digest the new developments.

Mainstream tech has made most people believe that AI can do no wrong in the short-term future.

There is a consensus that it’s the panacea for everything and anything.

The Magnificent 7 tech firms are priced for an AI boom and the hype is there, but it will take some time for AI to really filter into meaningful balance sheet development.

We are still in the beginning stages.

It’s not surprising that the Massachusetts Institute of Technology published a study that sought to address fears about AI replacing humans in a swath of industries and found that artificial intelligence can’t ACTUALLY replace the majority of jobs right now in cost-effective ways.

It’s important to note this report because much of AI has been celebrated with no mention of cost control or benefit versus the price or expenses incurred.

Any corporate tech will need to evaluate whether it’s worth gutting whole divisions to replace it with AI.

In many cases in early 2024, this type of strategy to a workforce could turn into an unmitigated disaster. 

For instance, a new AI study found only 23% of workers, measured in terms of dollar wages, could be effectively supplanted. In other cases, because AI-assisted visual recognition is expensive to install and operate, humans did the job more economically.

The adoption of AI across industries accelerated last year after OpenAI’s ChatGPT and other generative tools showed the technology’s potential. Tech firms from Microsoft and Alphabet in the US to Baidu and Alibaba in China rolled out new AI services and ramped up development plans which could serve as a canary in the coal mine for things to come. Fears about AI’s impact on jobs have long been a central concern.

Computer vision is a field of AI that enables machines to derive meaningful information from digital images and other visual inputs, with its most ubiquitous applications showing up in object detection systems for autonomous driving or in helping categorize photos on smartphones.

The cost-benefit ratio of computer vision is most favorable in segments like retail, transportation, and warehousing.

The study was funded by the MIT-IBM Watson AI Lab and used online surveys to collect data on about 1,000 visually assisted tasks across 800 occupations. Only 3% of such tasks can be automated cost-effectively today, but that could rise to 40% by 2033 if data costs fall and accuracy improves.

When getting academic about the subject, many projections feel way too ambitious.

AI won’t take over the workforce in the next few years and will struggle to make inroads before 2030.

That doesn’t mean firms like Nvidia, AMD, Qorvo, and Broadcom will not sell AI-based chips promising better AI.

That doesn’t mean firms like Google, Apple, Microsoft, Amazon, and Meta won’t feel a small AI bump in revenue.

There certainly will be some changes, but wholesale transformation is a ways off.

I believe the AI hype has gotten too far over its skis.

Tech needs to slow down and make sure it’s properly implemented and the real effects will be seen after 2030.

 

 

 

https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png 0 0 april@madhedgefundtrader.com https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png april@madhedgefundtrader.com2024-01-22 14:02:212024-01-22 15:18:21Take A Deep Breath With AI
april@madhedgefundtrader.com

January 19, 2024

Tech Letter

Mad Hedge Technology Letter
January 19, 2024
Fiat Lux

Featured Trade:

(ANOTHER CHIP NAME BESIDES NVIDIA)
(AVGO), (AAPL), (AI)

https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png 0 0 april@madhedgefundtrader.com https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png april@madhedgefundtrader.com2024-01-19 14:04:312024-01-19 14:06:54January 19, 2024
april@madhedgefundtrader.com

Another Chip Name Besides Nvidia

Tech Letter

Broadcom (AVGO) has gone through several major transformations since its founding in 1991, and a chart of the stock looks like a hockey stick.

AVGO is now worth close to $600 billion and the show isn’t over yet folks, there is more yet to come.

AVGO has a history of buying growth using debt.

Prior to buying Broadcom, Avago had already acquired a long list of smaller companies to expand its portfolio of wireless, optical, and data storage chips.

By paying $37 billion for Broadcom, it gained even more mobile, networking, wireless, and industrial chips. That inorganic growth strategy made it one of the world's largest chipmakers.

Broadcom subsequently expanded into the infrastructure software market by buying CA Technologies in 2018, Symantec's enterprise security division in 2019, and the cloud software giant Vmware in 2023.

Those acquisitions should diversify its business away from the cyclical semiconductor market and curb its dependence on Apple, which still accounted for 20% of its revenue over the last two fiscal years.

Growth in the 20% range should be driven by three long-term catalysts.

First, the expansion of the generative artificial intelligence (AI) market should trigger stronger sales of its data center and infrastructure chips over the next few years.

Second, its sales of chips to mobile and IT infrastructure customers should heat up again as the macro environment improves.

Apple also signed a new blockbuster deal to buy Broadcom's 5G radio frequency components and other wireless connectivity components for several more years last May, so it won't lose its top semiconductor customer anytime soon.

Broadcom's aggressive expansion strategies have been lucrative, but the sprawl could weaken the company. If that happens, investors will be a lot less forgiving of its rising debt and dilution.

I fully expect strong double-digit revenue growth in the company's AI-related businesses.

I anticipate a proliferation of Gen AI across a broad set of data center workloads to drive strength in Broadcom's custom compute offload and next-generation Networking businesses both in the near- and medium term.

There is also a strong chance of a cyclical recovery in the company's non-AI business.

In addition, I expect synergy capture following the acquisition of VMware, to drive operating margin expansion and earnings growth well in excess of the industry average.

The last lever that will affect stock appreciation will come in the form of shareholder returns.

I do believe that AVGO will ramp up the dividends as revenue accelerates.

Profits went from around $11.5 billion 2 years ago to $14 billion last year.

It’s easy to see the chip company blow by $16 billion this year as well.

It is well on its way to becoming a trillion-dollar company.

I do believe they will reach that goal around 2030.

The stock has more or less gone parabolic and now sitting around $1,200 per share.

It’s been like that for a while now.

Any dip to around $1,100 or $1,000 would be classified as a buying opportunity.

 

 

https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png 0 0 april@madhedgefundtrader.com https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png april@madhedgefundtrader.com2024-01-19 14:02:072024-01-19 14:06:46Another Chip Name Besides Nvidia
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