Global Market Comments
November 27, 2023
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or MELT UP),
(MSFT), (NLY), (BRK/B), (CCJ), (CRM), (GOOGL), (SNOW), (CAT), (XOM), (TLT)
Tag Archive for: (GOOGL)
If you think the market performance for the past month has been spectacular, you have seen nothing yet. We have two major positive catalysts that are about to hit stock prices.
On December 10, we will see a lower-than-expected Consumer Price Index, driving yet another stake through the heart of inflation. On December 13, we will also be greeted with a Federal Reserve decision to keep interest rates unchanged, as they will do over the next several meetings.
“Higher for shorter” is about to become the new market mantra.
That will give the market the shot in the arm it needs to reach my $4,800 yearend target, which was precisely the goal I laid out on January 1. Caution has been thrown to the wind and hedging downside risks has become a distant memory. One of the fastest market melt-ups in 100 years will do that. Complacency is the order of the day.
Equity-oriented mutual funds have seen $43 billion in inflows so far in November. Commodity Trading Funds, or CTA’s, have seen a breathtaking $60 billion piled into long equity strategies.
Hedge funds flipped from short to long and now have the most aggressively bullish positions in 22 years, mostly in big tech. All of this has taken the Volatility Index (VIX) down to a subterranean $12 handle. Bears are suddenly lonely….and afraid.
Yes, 55 years of practice makes this easy.
On October 28, it turns out that we reached a decade-high peak in bond investment when Treasuries were flirting with new highs in yields. With perfect rear-view mirror hindsight that’s when many investors cut stock holdings to the bone. They will spend the next several months desperately trying to get back in.
Oh yes, and Company buybacks are about to surge as companies race to pick up their own stocks before the yearend deadline. Apple is the top buyback stock followed by Alphabet (GOOGL) and Microsoft (MSFT). Heard these names before?
And while big tech is starting to look expensive, they are cheap when you factor in the trillions of dollars in profits that are headed their way over the next decade.
That’s what always happens.
What could pee on my victory parade? Ten-year US treasury bonds revisiting a 5.08% yield, crude oil popping back up to $100 a barrel, oil another new blacking swan alighting out of the blue, like a Chinese invasion of Taiwan, or Russia retaking the Baltic states. That’s all.
Avoid these and stocks will continue to rise, as will your retirement funds.
The Magnificent Seven will continue to lead, as will big financials, which are still at bargain-basement levels. Energy and commodities are already posting January sale prices, discounting a 2024 recession that isn’t going to happen. This is fertile LEAPS territory.
Weekly Jobless Claims Drop 24,000, to 209,000 in one of the sharpest declines this year. It makes last week’s jump look like an anomaly.
Consumer Inflation Expectations Rise, to 3.2%, a 12-year high. They are counting on a 4.5% in 2024. They are now looking at gasoline prices. There’s your mismatch. Any decline in inflation will be viewed as a shocker and drive share prices to new all-time highs.
US Gasoline Prices Hit Three-Year Low, on recession fears and replacement concerns by EVs. Energy stocks are tracing the downside tic for tic, pulling down all other commodities. Don’t buy this dip.
Pending Home Sales Plunge to 13-Year Low, down 4.1% in October, on a signed contracts basis. Sales were down 14.6% year over year. The median price of an existing home sold in October was $391,800, an increase of 3.4% from October 2022. These are the last poor sales numbers before the collapse in interest rates. At the end of October, there were 1.15 million homes for sale, down 5.7% from a year earlier. This is about half as many homes as were available for sale pre-Covid. At the current sales pace, that represents a 3.6-month supply. A six-month supply is considered a balanced market between buyer and seller.
Monster Pay Hikes Will Lead to Strong Japanese Yen, with whiskey maker Suntory offering 7% pay hikes. The prospect of falling US interest rates adds fuel to the fire. Buy (FXY) on dips.
Starship Two Blows Up, two minutes or 92 miles after launch. The test fire of the 33-engine spacecraft was considered a success. The massive 397-foot tall, 30-foot-wide rocket, the largest ever built, is crucial for the NASA moon launch in 2025 and the SpaceX Mars trip further down the road.
NVIDIA (NVDA) Beats, with a profit triple, but that stock sells off 6% on the news. It was a classic buy the rumor, sell the news move. Future earnings increases will not be as big. Keep "buy (NVDA) on dips" as a must-own.
Famed Short Seller Jim Chanos shut down after a massive short in Tesla shares blew up. His funds under management have plunged from $6 billion to $200 million since (TSLA) went public. Chanos had a few big wins, notably Enron in 2001. But he was also seen as a hedge against other long positions.
So far in November, we are up +12.62%. My 2023 year-to-date performance is still at an eye-popping +78.79%. The S&P 500 (SPY) is up +19.73% so far in 2023. My trailing one-year return reached +81.00% versus +18.91% for the S&P 500.
That brings my 15-year total return to +675.98%. My average annualized return has exploded to +48.57%, another new high, some 2.49 times the S&P 500 over the same period.
I am 100% fully invested, with longs in (MSFT), (NLY), (BRK/B), (CCJ), (CRM), (GOOGL), (SNOW), (CAT), and (XOM). I have one short in the (TLT).
Some 66 of my 61 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, November 27, at 8:30 AM EST, the New Home Sales are out.
On Tuesday, November 28 at 2:30 PM, the S&P National Home Price Index is released.
On Wednesday, November 29 at 8:30 AM, the Q2 GDP Growth Rate is published.
On Thursday, November 30 at 8:30 AM, the Weekly Jobless Claims are announced.
On Friday, December 1 at 2:30 PM, the October ISM Manufacturing Index is published. At 2:00 PM the Baker Hughes Rig Count is printed.
As for me, When I landed in Tokyo in 1974, there were very few foreigners in the country. The WWII occupation forces had left, but the international business community had yet to arrive. You met a lot of guys who used to work for Douglas MacArthur.
There was only one way to stay more than 90 days on the standard tourist visa. That was to get another visa to study “Japanese culture.” There were only two choices: flower arranging or karate.
Since this was at the height of Bruce Lee’s career, I went for karate.
It was not an easy choice.
World War II was not that distant, and there were still hundreds of army veterans missing limbs begging for money under railroad overpasses. Some back then were still fighting on remote Pacific islands.
Many in the karate community believed that the art was a national secret and should never be taught to foreigners. So those who entered this tight-knit community paid the price and had the daylights beaten out of them. I was one of those.
To this day, I am missing five of my original teeth. There is nothing like taking a kick to the mouth and watching your front teeth fly across the dojo, skittering on the teak floor.
We trained three hours a day, five days a week. It involved punching a bloody hardwood makiwara at least 200 times. The beginners were paired with black belts who thoroughly worked us over. Then the entire class met up at a nearby public bath to soak in a piping hot ofuro. You always hurt.
During the dead of winter, we ran five miles around the Imperial Palace in our karate gi’s barefoot in freezing temperatures daily. Then we were hosed down with cold water and trained for three hours.
During this time, I was infused with the spirit of bushido, the thousand-year-old Japanese warrior code. I learned self-discipline, stamina, and concentration. In the end, karate is a form of meditation.
Knowing you’re indestructible and unassailable is not such a bad thing, especially when you’re traveling in some of the harsher parts of the world. When muggers in bad neighborhoods see me late at night, they cross the street to avoid me. I am not a guy to mess with. Utter fearlessness is a great asset to possess.
The highlight of the annual training schedule was the All-Japan Karate Championship held in the prestigious Budokan, headquarters of all Japanese martial arts near the ghostly Yasukuni Jinja, Japan’s National Cemetery. By my last year in Japan, I had my black belt, and my instructor, Higaona Sensei, urged me to enter.
Because I had such a long reach, incredibly, I made it to the finals. I was matched with a very tough-looking six-footer who was fighting for Japan’s national prestige, as no foreigner had ever won the contest.
I punched, he kicked, fist met foot, and foot won. My left wrist was broken. My opponent knew what happened and graciously let me fight on one hand for another minute to save face. Then he knocked me out on points.
The crowds roared.
It’s all part of a full life.
Losing the All-Japan National Karate Championship
1974 Higaona Sensei
Stay Healthy,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Global Market Comments
November 14, 2023
Fiat Lux
Featured Trade:
(WHY YOU WILL LOSE YOU JOB IN THE NEXT FIVE YEARS, AND WHAT TO DO ABOUT IT),
(INTU), (AMZN), (GOOGL), (TSLA), (BLK), (HRB)
Yes, it’s happening.
And if you lose your job to AI in five years you will be one of the lucky ones.
It’s possible that your job is already gone, they just haven’t told you yet.
The shocking conclusion I am getting from dozens of research fronts is that artificial intelligence and automation are accelerating far faster than anyone realizes.
It is all extraordinarily disruptive.
This will cause corporate profits to rocket and share prices to soar but at the price of higher nationwide political instability.
A big leap took place at the beginning of the year when suddenly it appeared that everything got a lot smarter.
My local Safeway has started using self-checkout scanners to enable customers to avoid the long lines still operated by humans.
I hate them because I can never get them to scan pineapples correctly.
Soon, Amazon (AMZN) opened a supermarket in Seattle where there is no checkout stand at all. You simply just pick up whatever products you want, and it will scan them all on the way out to the parking lot.
Once the software is perfected (it is self-learning), and the consumers are educated, 5 million checkout clerks will be joining the unemployment lines.
Uber has been testing self-driving taxis in Phoenix, AZ, with sometimes humorous results. It seems that other human-driven cars like crashing into them. There has been one fatality so far when the human safety driver was caught texting.
When they figure this out, probably in two years, 180,000 taxi drivers and 600,000 Uber and Lyft drivers will have to hit the road.
Some 3 million truck drivers will be right behind them.
Notice that I am only a couple of paragraphs into this peace and already 8,780,000 jobs are about to imminently disappear out of a total of 150 million in the US.
Two decades from now, only vintage car collectors or the very poor will be driving their cars if Tesla (TSLA) has anything to do with it.
I let my Model X drive me around most of the time. It has reaction time, night vision, and a 360-degree radar system that are far better than my 71-year-old senses.
However, all new Teslas now come equipped with the hardware to use it. They are all only one surprise overnight software upgrade away from the future.
And it's not just the low-end high school dropout jobs that are being thrown in the dustbin of history.
Automation is now rapidly moving up the value chain.
A rising share of online news is machine-generated and is targeting you based on your browsing history. You just didn’t know it.
It was a major influence in the last election.
Blackrock (BLK), the largest fund manager in the country, has announced that it is laying off dozens of stock analysts and turning to algorithms to manage its vast $8.6 trillion in assets under management.
As the April 15 tax deadline relentlessly approaches, you are probably totally unaware that an algorithm prepared your return, particularly if you use a low-end service like H & R Block (HRB) or Intuit’s (INTU) TurboTax.
Because of the simultaneous convergence of multiple technologies, half of all current jobs will likely disappear over the next 20 years.
If this sounds alarming, don’t worry.
We’ve been through all of this before.
From 1900 to 1950 farmers fell from 40% to 2% of the labor force. The food output of that 2% has tripled over the last 60 years, thanks to improved seed varieties and farming methods.
The remaining 38% didn’t starve.
They retrained for the emerging growth industries of the day, automobiles, aircraft, and radio.
But there had to be a lot of pain along the way.
More recently, some 30% of all job descriptions listed on the Department of Labor website today didn’t exist 20 years ago.
Yes, disruption happens fast.
And here’s where it gets personal.
Since I implemented an AI-driven, self-learning Mad Hedge Market Timing algorithm to assist me in my own Trade Alert service six months ago, MY PERFORMANCE HAS ROCKETED, FROM A 21% ANNUAL RATE TO 51%!
As a result, YOU have been crying all the way to the bank!
The proof is all in the numbers (see chart below).
Those trading without the tailwind of algorithms today suddenly find the world a very surprising and confusing place.
They lose money too.
The investment implications of all of this are nothing less than mind-boggling.
Wages are almost always the largest cost for any business, especially the labor-intensive ones like retailing, fast food, and restaurants.
Reduce your largest expense by 90% or more, and the drop through to the bottom line will be enormous.
Stock markets have already noticed.
Maybe this is why price-earnings multiples are trading at a multi-decade high of 19.5X.
Perhaps, the markets know something that we mere humans don’t?
It also is the largest budgetary item in any government-supplied service.
I bet that half of the country’s 7 million teaching jobs will be gone in a decade, taken over by much cheaper online programs.
Today, my kids do their homework on their iPhones, complete class projects on Google Docs, and get a report card that is updated and emailed to me daily.
They’re probably to last generation to ever go to a physical school.
(That’s life. Just as the cost of driving them to school every day becomes free, they don’t have to go anymore).
You can always adopt a “King Canute” strategy and order the tide not to rise.
Or, you can rapidly adapt, as I did.
The choice is yours.
Mad Hedge Technology Letter
November 13, 2023
Fiat Lux
Featured Trade:
(RIDE THE NVIDIA AND AMD ROLLER COASTER)
(NVDA), (AMD), (ORCL), (GOOGL), (AMZN)
It’s scary when the best chip company in the world rolls out new products.
It’s scary because others can’t compete and they get left further behind.
It’s scary because the high level of technology facilitates another new wave of technological expertise in other companies from the software and hardware side.
These new products are almost always faster, more efficient, and better than the previous products catalyzing a snowball effect that lifts everybody’s revenue.
This type of outstanding performance of late is the reason that made Nvidia (NVDA) into the world’s most valuable chipmaker and they have announced they are updating its H100 artificial intelligence processor, adding more capabilities to a product that has fueled its dominance in the AI computing market.
The new model, called the H200, will get the ability to use high-bandwidth memory, or HBM3e, allowing it to better cope with the large data sets needed for developing and implementing AI.
Amazon’s AWS, Alphabet’s Google (GOOGL) Cloud and Oracle’s (ORCL) Cloud Infrastructure have all committed to using the new chip starting next year.
Winning orders is easy with the outsized brand recognition and type of game changing product on offer.
The current version of the Nvidia processor is already experiencing accelerated demand.
But the product is facing stiffer competition: Advanced Micro Devices (AMD) is bringing its rival MI300 chip to market in the fourth quarter, and Intel Corp. claims that its Gaudi 2 model is faster than the H100.
AMD is another chip company that readers should feel comfortable diversifying into if they don’t feel comfortable putting all eggs into the Nvidia basket.
AMD’s stock is surging towards old highs around $125 and should overtake that soon after the nice rally in the 2nd half of the year.
With the new product, Nvidia is trying to keep up with the size of data sets used to create AI models and services.
Adding the enhanced memory capability will make the H200 much faster at bombarding software synthesizing data.
Large computer makers and cloud service providers are expected to start using the H200 in the second quarter of 2024.
Nvidia got its start making graphics cards for gamers, but its powerful processors have now won a following among data center operators.
That division has gone from being a side business to the company’s biggest moneymaker in less than five years.
Nvidia’s graphics chips helped pioneer an approach called parallel computing, where a massive number of relatively simple calculations are handled at the same time.
That’s allowed it win major orders from data center companies, at the expense of traditional processors supplied by Intel.
The growth helped turn Nvidia into the poster child for AI computing earlier this year — and sent its market valuation soaring.
Nvidia is like a freight train that has left the station.
The stock is up 9 straight days as we cruise into its earnings report on November 21st.
It’s hard to see this earnings report being nothing short of spectacular and Nvidia have become famous for forecasting the unthinkable.
They then go and surpass a high bar and push the envelope further so it’s not a bad idea to buy NVDA before the earnings report.
The speed at which they come out with products is astounding and now being able to boast the best server chip in the tech enterprise community, it just represents yet another powerful part of their stunning array of tech arsenal.
$600 per share is a no-brainer for Nvidia and that will be surpassed in 2024.
Mad Hedge Technology Letter
November 6, 2023
Fiat Lux
Featured Trade:
(HIGHER FOR LONGER IS NOT OFF THE TABLE)
(BIG TECH), (QQQ), (AAPL), (GOOGL), (META), (TSLA)
Tech (QQQ) earnings turned out to produce some positive performances.
Dominant companies can produce dominant earnings even in troubled times.
So what is the problem?
The sales outlook underwhelmed as the American consumer and business keep getting stretched to the limit.
I believe that traders shouldn’t expect a quick turnaround of sales projections for 2024 unless there are some material structural improvements in the business and consumer environment.
No savior is coming for 2024.
All signs point to more uncertainty and not less and rightly so as high inflation has only been replaced by a decrease in the rate of inflation.
Things are still expensive and that means less opportunity for tech to build a growth story.
Apple, Alphabet, Meta, and Tesla all gave investors reason to rub smiles off faces.
From Apple’s unimpressive holiday outlook to Alphabet’s tepid cloud computing sales results, a recurring theme for the group was weakness.
Meta warned that the year ahead is looking less predictable, while Tesla raised concerns that demand for electric cars is starting to weaken.
Despite Tesla's missing earnings, the group is poised to surpass the 36% increase estimates called for before earnings season began.
The tech sector in the S&P 500 still carries a nearly 36% premium to the index on a forward price-to-earnings basis, per data compiled by Bloomberg Intelligence.
There’s a lot of AI hype, but not every company is market-ready.
Everything can change in a heartbeat if there is economic or geopolitical upheaval, which would directly impact stocks.
The market is still pricing in no spreading of military activity as it looks through it as a self-contained area.
Therefore, the pendulum has swung the completely opposite direction as the U.S. 10-year treasury yield has dropped from 5% to 4.6%.
The strength in treasuries could be short-lived, because several have told me that traders are jumping back into the short-term trade which would signal higher for longer.
The Fed Futures show that the first 25 basis rate is forecasted for May 2024 with 2 more consecutive .25% rate cuts following the first.
The American consumer just might have enough juice for one more splurge that would then push back rate cuts from May to somewhere closer to July or August.
Therefore, it’s easy for me to see how this 6.5% surge has a little longer follow through only to soon clash with a “higher for longer” narrative.
The true tailwind for tech stocks here is that much of the bad news has been priced in and any violent surge in treasury yields seems like a low probability for the last 7 weeks of the year, unless another global conflict breaks out.
Seasonal buying could mean that November is more positive than negative for tech stocks and any big draw down should be bought in a quality tech name. December could be a harder slog for tech.
Mad Hedge Technology Letter
November 3, 2023
Fiat Lux
Featured Trade:
(THE CATCH UP PLAN)
(GOOGL), (MSFT), (CHATGPT)
The tech industry is quickly morphing into a generative artificial intelligence success story or bust outcome for many involved.
This came pretty much out of nowhere.
December 2022 was the big announcement that ChatGPT went live and everybody in tech has basically been freaking out since then.
Big ideas like the internet and software also had the same type of effect on tech stocks back in the heyday.
What would have Microsoft (MSFT) been without the computer or Windows?
Even more urgent, once perceived growth tech companies like Tesla are starting to cut prices of products because the consumer is tapped out these days.
That means tech corporations can’t sell the current product by adding incremental iterations and passing it off as something “groundbreaking.”
Consumers need something more.
Consumers will spend on the next big thing and generative artificial intelligence still has a long way to go, but stocks participating in generative AI are starting to get those premium multiples that were only reserved for tech royalty.
Everyone is hoping to get in on the action as well as Alphabet.
They are racing to build a new search engine and add artificial intelligence features to its existing products in the face of rapid growth in the field by rivals such as Microsoft Bing.
Google is testing new features called "Magi," with more than 160 people working full-time on the project.
Google's new products will try to predict users' needs, with features such as helping users write software code and display ads in search results, and Google is also exploring mapping technology that allows users to use Google Earth with the help of AI and search music through conversations with chatbots.
Samsung Electronics is reportedly considering replacing Google with Bing, the main search engine on its phones, because of Bing's artificial intelligence capabilities. The Samsung contract is expected to generate $3 billion in annual revenue for Google, a revenue stream that is now in jeopardy. In addition, Google has a $20 billion contract with Apple for a similar default search engine, which is up for renewal this year.
Google’s search engine could be swept into the dustbin of history if they don’t get a move on it pronto.
The ecosystems like Apple and Samsung can easily opt for a better engine if Google falls behind and that is exactly what we are seeing from Samsung.
I would probably say that Google got a little too cocky when they decided to stop developing itself.
They thought that nobody could topple them.
The panoramic views from the ivory tower can look nice from the terrace for a while until somebody builds a bigger ivory tower that obstructs the view.
It’s been quite fascinating to see Google’s sense of urgency lately because it was always assumed they were part of a stable duopoly with Facebook.
Google’s panic indicates that Microsoft’s Bing is a real threat to their revenue stream and at the very minimum, bits and pieces of the new technology will be incorporated into a new version of a search engine that will behave as a supercharged version of the likes we have never seen before.
If Google can catch up then its stock price will go a lot higher from here.
