(MSFT) Archives - Page 4 of 76 - Mad Hedge Fund Trader

The Market Outlook for the Week Ahead, or the Dr. Jekyll to a Mr. Hyde

I have to tell you that every year I do this, calling the market gets easier and easier. That’s because when you go from year 62 to 63 in the market, you actually learn quite a lot.

What gets more frustrating every year is convincing people to execute my trades because they are increasingly out of consensus, as opposed to conventional wisdom, tradition-shattering, or downright Mad.

Nuclear stocks? Are you out of your mind? Haven’t you heard of Three Mile Island?

So, the Fed went with 50.

Initially, the stock reaction was “Oh my gosh, the free lunch is bigger than we thought!” By the close, this morphed to “Oh my gosh, the economy must be worse than we thought!” This opens the way to another possible 50 basis point rate cut in November, which happens to be the day after the presidential election. It only took 5 seconds for most investors to realize that they had way too much cash.

By acting so aggressively and out of character, Fed governor Jay Powell is admitting that he blundered, blew it, dropped the ball, and scored an own goal all at once by not lowering interest rates in July.

By doing his best impression of a deer frozen in the headlights in H1, all Powell got us were six more weeks of job losses, taking the headline Unemployment Rate up to 4.2%.

Don’t get too complacent though. Look at the chart below and you will see that when the Fed began an aggressive round of interest rate cuts in 2007, the market launched into a major crash of 57%.

Dow 42,000.

It may seem commonplace and ordinary for mere mortals to see this number. But for those of us who remember when it was only 600 back in 1982 (and predicted to immediately plunge to 300 by the late Joe Granville), we are now in the realm of science fiction.

However, in Q3 this year, the character of the bull market suddenly changed, from a Dr. Jekyll to a Mr. Hyde. The Magnificent Seven has shrunk to the Pitiful Seven, with long boring sideways-range trades. In the meantime, growth and interest rate-sensitive value stocks that I have been pounding the table about for six months have begun trading like red-hot must-own biotech IPOs.

The choice is very simple. Do I buy a stock that has a single-digit price-earnings multiple that is flying like a bat out of hell, or do I choose an incredibly expensive tech stock with a PE multiple of 27X or worse that is stagnating?

I know what I’m going to do with my money, which reached new all-time highs almost every day this month. I’ll go with the former all day long.

Don’t get me wrong. The Mag Seven aren’t going to stay out of favor for very long. It’s like holding a basketball underwater that keeps inflating. Their earnings are still growing at an explosive rate. Personally, I think Nvidia (NVDA) will hit $160 a share by early 2025.

If there is one common factor in all financial markets today, it is the vast underestimation of the potential of AI and the impact on stock prices, which keeps surreptitiously sneaking into our lives every day.

My Cameco (CCJ) trade alert came through in a week, immediately tacking on 10%. I have to tell you that reading my email, there is a lot of demand for positions that rise by 15% in a week. But that is better than the two-week wait for the Concierge clients who bought the 2026 $40-$42 LEAPS for only 75 cents. The consolation is that they will make a lot more money, potentially some 167% by expiration. The big money is always made with long-term trades.

I can honestly say that I put 54 years of work into this trade, dating back to when I started my work at the Atomic Energy Commission Nuclear Test Site in Nevada. While advanced nuclear power plant design and fuels (low enriched uranium oxide with an M5TM zirconium-based cladding) have been around for a long time, the industry had the kiss of death on it thanks to Three Mile Island (watch the movie China Syndrome), Chornobyl, and Fukushima.

It was going to take someone bold with deep pockets to restart this industry. Then out of the blue Microsoft (MSFT) announced the reopening of Three Mile Island, the site of the worst nuclear accident in US history in 1979.

Constellation Energy announced Friday that its Unit 1 reactor, which closed five years ago, is expected to be revived in 2028, dependent on Nuclear Regulatory Commission approval. Microsoft will purchase the carbon-free energy produced from it to power its data centers to support artificial intelligence.

Twelve U.S. nuclear power reactors have permanently closed since 2012, with the most recent being Indian Point 3 on April 30, 2021. Another seven U.S. reactor retirements have been announced through 2025, with a total generating capacity of 7,109 MW (equal to roughly 7% of U.S. nuclear capacity).

I have a feeling that all of these will get reopened, which cost about $4 billion each to build and can be bought now for pennies on the dollar. In the meantime, the world’s largest uranium supplier, Kazakhstan, is cutting supplies. Buy all nuclear plays in dips.

I have to tell you that this was one of those weeks that by making 6.74% it makes all the barbarically early mornings and exhausting late nights worth it. While all my friends are working on their golf swings or improving their bowling scores, I am scoring the Internet search for the next original investment theme. Every customer I have spoken to lately is having a great year.

So far in September, we are up by a spectacular +9.67%. My 2024 year-to-date performance is at +44.36%. The S&P 500 (SPY) is up +19.08% so far in 2024. My trailing one-year return reached +63.00%. That brings my 16-year total return to +720.99%. My average annualized return has recovered to +52.43%.

I front-ran the Fed move by adding positions in interest rate sensitives like (GLD), (NEM), and (TSLA). I added (CCJ) based on the arguments above. Once the Fed showed its hand, I added another interest rate sensitives with (DHI). I also added a short in (TLT).

My logic on (TLT) was very simple. I think it is safe to say that we won’t have any downside surprises in interest rates until the next Fed meeting on November 6. We don’t even get a Nonfarm Payroll Report until October 4.

In any case, the bond market has already fully priced in half of the 250 basis points worth of interest rate cuts now discounted by the June Fed futures markets. We have just witnessed a massive $20 rally off the (TLT) bottom. Upside surprises in prices from here should be nil.

If you couldn’t get into (TLT), you are not alone. As soon as the big hedge funds saw my trade alerts, they started hammering not only the options market but the underlying bond market as well with several large $100 million sales. That pushed the trade to near max profit almost immediately and made my trade alert impossible to execute.

At The Economist, they used to say that imitation is the sincerest form of flattery.

Some 63 of my 75 round trips, or 90%, were profitable in 2023. Some 57 of 75 trades have been profitable so far in 2024, and several of those losses were break-even. That is a success rate of +76%.

Try beating that anywhere.

FedEx Gets Crushed 10%, on disappointing earnings and guidance. Cost control is a big issue. Right now, investors are presented with the Dow Industrials at all-time highs and Transports barely positive for the year. Transports are up just 2.7% year to date, and a 13% drop in FedEx shares early Friday will likely drag it into the red for 2024. Buy (FDX) on dips, a great economic recovery play.

Existing Home Sales Drop 4.2%, in August to a seasonally adjusted annualized rate of 3.86 million units, according to the National Association of Realtors. There were 1.35 million units for sale at the end of August. That’s up 0.7% from July and up 22.7% year over year. median price of an existing home sold in August was $416,700, up 3.1% from August 2023, a new all-time high. Real estate should pick up once lower interest rates feed through.

Weekly Jobless Claims Hit 4 Month Low at 219,000. This flies in the face of yesterday’s 50 basis point rate cut by the Fed yesterday based on a weakening jobs market.

Alaska Airlines Takeover of Hawaiian Gets Approval, in a rare case of agreement from the government. The Feds have opposed the most concentration of industry. I think without the deal Hawaiian would have gone under. Expect prices to go and services to decline. Avoid the airlines.

Berkshire Hathaway Cash Approaches $300 Billion. Berkshire ended the second quarter with cash and equivalents (mostly Treasury bills) of $277 billion, up from $168 billion at year-end 2023, mostly due to heavy sales of Apple (AAPL). It highlights how much money is sitting on the sidelines waiting to come in on the next dip. It's also an indication that in the 75 years of Warren Buffet’s investing experience, stocks are expensive.

The Entire Energy Sector is About to Double, once the Chinese economy starts to recover. A recovering US economy powered by lower interest rates will also help. Everything from oil futures to master limited partnerships and stocks are on sale with the highest dividends in the market. It’s almost the only place Warren Buffet is buying.

Amazon Puts AI to Work, using it to plan new delivery routes which saves time and millions of gallons of gasoline. It’s a simple application with vast results. It all goes straight to the bottom line. AI is spreading throughout the economy far faster than most people realize. Buy (AMZN) on dips.

Foreign Direct Investment into China Collapses, down 31.5% in the first eight months of 2024 the Chinese Commerce Ministry said on Saturday. This could be a drag on the recovery of global commodity prices.

US Import Prices are in Free Fall, showing the biggest drop in eight months in August, driven by a broad decline in the costs of goods.

Ebbing price pressures give the Federal Reserve ample room to focus on the labor market which has slowed considerably from last year's robust job growth. Expectations of lower interest rates as well as slowing inflation results are making people feel better about the outlook for the economy.

Foreign Investors Pour $31 Billion into Emerging Markets in August. Fixed income funds ex-China accounted for $27.8 billion of inflows, with $1.4 billion funneled to Chinese debt, the data show. The net inflow to stocks stood at $1.7 billion despite a $1.5 billion outflow from Chinese equities. It’s all about falling US interest rates and a US dollar that is expected to be weak for years.

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 600% 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, September 23 at 8:30 AM EST, the S&P Global Flash PMI
is out

On Tuesday, September 24 at 6:00 AM, the S&P Case Shiller National Home Price Index is released.

On Wednesday, September 25 at 7:30 AM, New Home Sales are printed.

On Thursday, September 26 at 8:30 AM EST, the Weekly Jobless Claims are announced. We also get the final read on Q2 GDP.

On Friday, September 27 at 8:30 AM, we learn the Fed’s favorite inflation indicator, the Core PCE Price Index. At 2:00 PM EST, the 2:00 PM the Baker Hughes Rig Count is printed.

As for me, when the Cold War ended in 1992, the United States judiciously stepped in and bought the collapsing Soviet Union’s entire uranium and plutonium supply.

For good measure, my client George Soros provided a $50 million grant to hire every Soviet nuclear engineer. The fear then was that starving scientists would go to work for Libya, North Korea, or Pakistan, which all had active nuclear programs. They ended up here instead.

That provided the fuel to run all US nuclear power plants and warships for 20 years. That fuel has now run out and chances of a resupply from Russia are zero. The Department of Defense attempted to reopen our last plutonium factory in Amarillo, Texas, a legacy of the Johnson administration.

But the facilities were deemed too old and out of date, and it is cheaper to build a new factory from scratch anyway. What better place to do so than Los Alamos, which has the greatest concentration of nuclear expertise in the world?

Los Alamos is a funny sort of place. It sits at 7,320 feet on a mesa on the edge of an ancient volcano so if things go wrong, they won’t blow up the rest of the state. The homes are mid-century modern built when defense budgets were essentially unlimited. As a prime target in a nuclear war, there are said to be miles of secret underground tunnels hacked out of solid rock.

You need to bring a Geiger counter to garage sales because sometimes interesting items are work castaways. A friend almost bought a cool coffee table which turned out to be part of an old cyclotron. And for a town designing the instruments to bring on the possible end of the world, it seems to have an abnormal number of churches. They’re everywhere.

I have hundreds of stories from the old nuclear days passed down from those who worked for J. Robert Oppenheimer and General Leslie Groves, who ran the Manhattan Project in the early 1940s. They were young mathematicians, physicists, and engineers at the time, in their 20’s and 30’s, who later became my university professors. The A-bomb was the most important event of their lives.

Unfortunately, I couldn’t relay this precious unwritten history to anyone without a security clearance. So, it stayed buried with me for a half century, until now.

Some 1,200 engineers will be hired for the first phase of the new plutonium plant, which I got a chance to see. That will create challenges for a town of 13,000 where existing housing shortages already force interns and graduate students to live in tents. It gets cold at night and dropped to 13 degrees F when I was there.

I was allowed to visit the Trinity site at the White Sands Missile Test Range, the first visitor to do so in many years. This is where the first atomic bomb was exploded on July 16, 1945. The 20-kiloton explosion set off burglar alarms for 200 miles and was double to ten times the expected yield.

Enormous targets hundreds of yards away were thrown about like toys (they are still there). Half the scientists thought the bomb might ignite the atmosphere and destroy the world but they went ahead anyway because so much money had been spent, 3% of US GDP for four years. Of the original 100-foot tower, only a tiny stump of concrete is left (picture below).

With the other visitors, there was a carnival atmosphere as people worked so hard to get there. My Army escort never left me out of their sight. Some 78 years after the explosion, the background radiation was ten times normal, so I couldn’t stay more than an hour.

Needless to say, that makes uranium plays like Cameco (CCJ), NextGen Energy (NXE), Uranium Energy (UEC), and Energy Fuels (UUUU) great long-term plays, as prices will almost certainly rise and all of which look cheap. US government demand for uranium and yellow cake, its commercial byproduct, is going to be huge. Uranium is also being touted as a carbon-free energy source needed to replace oil.

At Ground Zero in 1945

What’s Left of a Trinity Target 200 Yards Out

Playing With My Geiger Counter

Atomic Bomb No.3 Which was Never Used in Tokyo

What’s Left from the Original Test

Stay Healthy,

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

September 4, 2024

Tech Letter

Mad Hedge Technology Letter
September 4, 2024
Fiat Lux

Featured Trade:

(FEDS KNOCK THE WIND OUT OF TECH)
(AI), (NVDA), (MSFT), (META)

Feds Knock The Wind Out Of Tech

Tech Letter

The U.S. Federal government just took the air out of the tech market rally in the short term.

Good thing the market usually has a short memory.

Mr. Market did not expect the US Justice Department to barge in and subpoena Nvidia (NVDA).

Nvidia is the gem of the tech industry and the leader of the cutting-edge generative artificial intelligence sub-sector.

To take out Nvidia and destroy it, the tech market would be valued at significantly less than it is today.

Not to mention we are just 2 months away from the U.S. election, this sounds and feels like a bold political move behind the scenes.

Why not wait until after the election?

As it stands, the timing is pretty terrible for tech stocks as the amount of catalysts to take us to new highs has disappeared.

The past earnings seasons were nothing stellar and many tech companies sold off on poor forward guidance.

It is no joke that we have been waiting for over 4 years for the recession that still hasn’t come.

However, it seriously looks like we won’t be able to kick the can down the road anymore and the job market is starting to fall apart to the point where we will need rate cuts.

The DOJ believes Nvidia is too dominant and appears to look like a monopoly and the government is inching closer to filing a formal complaint.

Antitrust officials are concerned that Nvidia is making it harder to switch to other suppliers and penalizes buyers that don’t exclusively use its artificial intelligence chips.

Nvidia has drawn regulatory scrutiny since becoming the world’s most valuable chipmaker and a key beneficiary of the AI spending boom. Sales have been more than doubling each quarter.

Regulators also are digging into whether Nvidia gives preferential supply and pricing to customers who use its technology exclusively or buy its complete systems.

Nvidia Chief Executive Officer Jensen Huang said he prioritizes customers who can make use of his products in ready-to-go data centers as soon as he provides them, a policy designed to prevent stockpiling and speed up the broader adoption of AI.

Microsoft (MSFT) and Meta (META) spend more than 40% of their budget on hardware on the chipmaker’s gear. During the peak of shortages of Nvidia’s H100 accelerator, individual components were retailing for as much as $90,000 each.

There also are broader regulatory questions about Nvidia’s practices. Access to AI capabilities has become a key focus for governments around the world, with the technology becoming increasingly vital to economic strength and national security.

If NVDA shares drop to anything close to the $100 level, I do believe that is a great entry point to add to shares.

Much of the bad news has been priced in and at the end of the day, even if NVDA is broken up, it will happen 10 years later.

As for the larger tech story, September could be a weak month for tech stocks and it is a seasonably slow month.

However, the infrastructure build for AI data centers relentlessly continues, and from my channel checks, I see tech firms increasing their purchases of Nvidia AI chips.

This bodes well for the future and explains why sales keep doubling and doubling like it never ends.

August 7, 2024

Tech Letter

Mad Hedge Technology Letter
August 7, 2024
Fiat Lux

Featured Trade:

(TECH OUTAGE BITES)
(DAL), (MSFT), (CRWD)

August 1, 2024

Diary, Newsletter, Summary

Global Market Comments
August 1, 2024
Fiat Lux

Featured Trade:

(WHY AMAZON IS THE MOST UNDERVALUED AI PLAY OUT THERE),
(AMZN), (NVDA), (GOOGL), (META), (AAPL), (MSFT), (WMT)

Why Amazon is the Most Undervalued AI Play Out There

Diary, Newsletter

Before I took off for the current trip to Europe, I logged into my Amazon Prime account to buy some lightweight polyester T-shirts, size 4XL. Not only are these ideal for long-distance hiking but they can be washed in a hotel sink and dried quickly when I am traveling too fast to use the house laundry.

The next morning when I logged into my laptop, my email account was flooded with ads for every kind of T-shirt in the world, from heavy-duty sports types FOR $100 to bargain basement $5 ones from China (although the Chinese ones were a little light on the 4X sizes).

That is Amazon’s AI at work. And you know what? It is getting smarter. And while the big fear among investors is that the US government will break up this retail giant for antitrust reasons, Amazon is integrating faster than ever. The impact on profits will be enormous.

My friend Jeff Bezos’ creation has a lot to work with. Amazon not only pioneered online retail. It subsequently invented the Kindle, an e-reader (click here where the John Thomas autobiography is for sale) Alexa, a smart speaker and, more consequentially, cloud-computing—Amazon Web Services has a 31% share of that $300bn market (full disclosure: Mad Hedge uses their service).

It also runs Prime Video, America’s fourth-most-watched video-streaming service (full disclosure: Mad Hedge is a Prime member). Its newish, high-margin advertising business is already the third largest in the world behind Alphabet (GOOGL) (Google’s parent company) and Meta (META) (Facebook’s).

Amazon also has a few moonshot projects of its own. One subsidiary, Zoox, is building self-driving cars. Another, Kuiper, is developing a fleet of communications satellites in low-Earth orbit, in competition with SpaceX Starlink (full disclosure: Mad Hedge is a Starlink user).

This year, Amazon’s websites will sell a staggering $554bn-worth of goods in America. That gives it a 42% share of American e-commerce, far beyond the 6% captured by Walmart (WMT), its nearest online competitor (and the country’s biggest retailer overall). The reward for all these efforts was a $2 trillion market capitalization in June and an all-time high share price of $203.

Amazon’s fourth decade looks poised to be an era of integration. The company has grown to the size that any needle-moving new investment is costly and high-risk. Andy Jassy, the former boss of AWS whom Bezos appointed as his successor as CEO in 2021, therefore appears keen to generate value by stitching the company’s existing businesses together more tightly.

Jeff, who I knew at Morgan Stanley, still retains a 9% stake after some hefty recent sales and a big say over strategy, seems to approve. This metamorphosis would make Amazon more similar to Apple (AAPL) and Microsoft (MSFT), two older big-tech rivals that have bundled and cross-sold their way to world domination in consumer devices and business software, respectively—and to $3trn valuations.

Retail and advertising appear to be the first to integrate. The thread running through the two businesses is Prime, Amazon’s $139 a-year subscription service, which has 300m-odd members around the world, providing shoppers with free delivery and access to Prime Video. Prime members like me spend twice as much on Amazon’s websites as non-members do and they tend to be logged in more often. Amazon also has intimate knowledge of their shopping behavior, which allows it to target ads more accurately.

Advertising is another great hope at Amazon. Advertisers are willing to pay handsomely for this service: analysts estimate that Amazon’s ads business enjoys operating margins of around a mind-blowing 40%, higher even than those of the cloud operation, not to mention the much less lucrative retail division.

Most of these ads, responsible for four-fifths of the company’s ad sales, are nestled among search results on its app or next to information about products, as with my above-mentioned T-shirts. But a growing share is coming from third-party websites and, most recently, from Prime Video. In January Amazon started showing commercials to viewers in America, Britain, Canada, and Germany.

Analysts reckon that video ads alone will boost Amazon’s ads sales by about 6% this year, adding $3bn to the top line. Given the ad operation’s fat margins, the impact on profit will be considerably larger.

To turn more Prime members into actual ad-watchers, Amazon is splurging on content. It recently signed a contract with Mr. Beast (??), a YouTube superstar, rumored to be worth $100m. It is trying to seal a deal in which it would pay $2bn a year for the rights to show National Basketball Association games on Prime Video. It is already reportedly spending $1bn annually to stream some National Football League (NFL) fixtures.

This hefty price tag is worth it, the company thinks, because popular sporting moments, such as “Thursday Night Football”, have turned out to be among the biggest sign-up days for Prime. Ads aired during sports events are some of the most lucrative in all of the ad business.

Analysts speculate that clever AWS software may also be assisting the retail operation’s 750,000 warehouse robots in sorting shoppers’ packages. And having a business as gigantic as Amazon’s retail arm as a captive customer gives AWS the confidence to scale up, helping spread costs.

The most important thread stitching Amazon’s two main businesses together is generative AI. Most rivals will struggle to match Amazon’s access to specialized AI hardware, which is in short supply but which it has in abundance thanks to long-standing commercial partnerships with companies like Nvidia (NVDA), which makes advanced AI semiconductors.

Amazon’s recent share-price rise was uninterrupted by a Fair Trade Commission lawsuit. But for every cloud customer that AWS loses to rivals such as Microsoft Azure or Google Cloud Platform, it could win one that is repelled by Microsoft’s and Google’s new businesses in their own increasingly tightly-knit empires.

It all looks like a giant, super-efficient machine to me which should justify at least a 50% gain in Amazon’s share price in the next year or two.

July 31, 2024

Tech Letter

Mad Hedge Technology Letter
July 31, 2024
Fiat Lux

Featured Trade:

(CONSOLIDATION TIME)
(MSFT), (PINS), (NVDA)

Consolidation Time

Tech Letter

The Nasdaq experiencing a big dip is in fact healthy for the tech sector long term.

Shaking out the weak hands is necessary a few times per year.

It doesn’t hurt that tech stocks boast the higher growth rates in the entire stock market.

The price action has suggested a winner-take-all mentality with winners like Nvidia and other big tech companies experiencing outsized gains.

Chip stocks have been recent victors while smaller software stocks have been pounded.

Just take a look at social media stock Pinterest (PINS) which is down over 12% on a weak forecast.

At the top end, Microsoft (MSFT) is the perennial flag bearer of cloud growth but this time it was different.

The stock sold off hard after earnings because the company missed cloud revenue expectations.

Cloud has been MSFTs bread and butter for years.

Even the CEO Satya Nadella came from the cloud division to grab the title of CEO.

Microsoft's overall cloud revenue came in at $36.8 billion, in line with expectations of $36.8 billion, but the company's Intelligent Cloud revenue, which includes its Azure services, fell short, coming in at $28.5 billion versus expectations of $28.7 billion.

While Microsoft's cloud business missed expectations, overall revenue still rose 21% year over year. Intelligent Cloud revenue, meanwhile, increased 19% year over year. What's more, Microsoft said AI services contributed 8 percentage points of growth to its Azure and other cloud services revenue, which increased by 29%.

The most consistent theme in this round of checks was the number of customers and partners that cited share gains by Microsoft resulting from its early lead on the AI front.

During Alphabet’s earnings call, CFO Ruth Porat said the company spent $13 billion on capital expenditures, up from $12 billion in the prior quarter, adding that the vast majority of that spending is going toward AI.

There are data points showing that growing the cloud is becoming something more similar to stealing rival clients from Google or Amazon.

That is a worrying sign because total addressable cloud revenue has been going up for a whole generation.

The cloud industry has never seen a scarcity mentality.

In the earnings rhetoric, the management talked as if growth is harder to come by in 2024.

I would be hard-pressed to find anyone who disagrees with that opinion.

The overall consensus starting to form is that these growing expenses related to AI won’t produce the blockbuster revenue projected so quickly.

The more likely case is that revenue from AI comes online in late 2025 or 2026 or maybe not at all.

The delay in the benefits of AI will mean shareholders pulling back temporarily and offer AI stocks a “prove it” period to show if they are legit or not.

Before winter, I do expect a consolidation phase in tech and in AI stocks that will set the stage for a Santa Claus rally.

MSFT stock is up over 200% in the past 5 years, and although this 11% or so dip in the past month is very unlike MSFT, this is a healthy and orderly dip.

I am still bullish MSFT in the long term.

June 17, 2024

Diary, Newsletter, Summary

Global Market Comments
June 17, 2024
Fiat Lux

Featured Trade:

(MARKET OUTLOOK FOR THE WEEK AHEAD, or THE THREE HORSE RACE) plus
(HITCHIKING TO ALASKA)
(AAPL), (MSFT), (NVDA), (TLT), (MCD), (VZ), (GLD), (NLY)

The Market Outlook for the Week Ahead, or The Three-Horse Race

Diary, Newsletter

We have a three-horse race underway in the stock market right now between Apple (AAPL), Microsoft (MSFT), and NVIDIA (NVDA). One day, one is the largest company in the world, another day a different company noses ahead.

And here’s the really good news: this race has no end. Sure, (NVDA) has far and away the most momentum and it should hit my long-term target of $1,400 this year, giving it a market capitalization of $3.44 trillion. (MSFT) and (AAPL) will have to stretch to make another 20% gain by year-end.

Who will really end this three-year race? You will, as the benefits of AI, hyper-accelerating technology, and deflation rains down upon you and your retirement portfolio.

Here is the reality of the situation. The Magnificent Seven has really shrunk to the Magnificent One: NVIDIA. (NVDA) alone has accounted for 32% of S&P 500 gains this year. There are now 400 ETFs where (NVDA) is the biggest holding, largely through share price appreciation. These dislocations in the market are grand. This will end in tears….but not yet.

Dow 240,000 here we come!

After six months of grief, pain, and suffering last week, my (TLT) LEAPS finally went into the money last week.

Remember the (TLT)?

On January 18, I bought the United States Treasury Bond Fund (TLT) January 17, 2025, $95-98 at-the-money vertical Bull Call spread LEAPS at $1.25 or best. On Friday, they nudged up to $1.35. But I kept averaging down with the $93-$96’s and the $90-$93’s which are now at a max profit.

We lost six months on this trade thanks to a hyper-conservative which is eternally fighting the last battle. A 9.2% peak certainly put the fear of God in them and they persist in thinking a return to higher inflation rates is just around the corner.

Markets, however, have a different view. They are now discounting a 25-basis point cut in September followed by another in December. That will easily take the (TLT) up to $100. This is why we go long-dated on LEAPS. There is plenty of room for error….lots of room, even room for the Fed’s error. If you wait long enough, everything goes up.

With THIS Fed fighting it seems to pay off. That is what happened when Jay Powell waited a full year until raising rates for a super-heated economy. He now risks tipping the US into recession by lowering rates too slowly, when virtually all data points are softening. I guess that’s what happens when you have a Political Science major as Fed governor.

And here is what the Fed is missing. AI is destroying jobs at a staggering rate, not just minimum wage ones but low-end programming ones as well. That’s what the 300,000 job losses over the last two years in Silicon Valley have been all about.

It’s unbelievable the rate at which AI is replacing real people in jobs. If you want a good example of that, I had to call Verizon (VZ) yesterday to buy an international plan, and I never even talked to a human once. They listed three international plans in a calm, even, convincing male voice, and I picked one.

Or go to McDonalds (MCD) where $500 machines are replacing $40,000 a year workers. This is going on everywhere at the same time at the fastest speed I have ever seen any new technology adopted. So buy stocks, that’s all I can say.

It is not just the (TLT) that is having a great month. The entire interest rate-sensitive sector has been on fire as well. My favorite cell phone tower REIT, Crown Castle International with its generous 6.28% dividend yield, has jumped 15%. Distressed lender Annaly Capital Management (NLY) with its spectacular 13.08% dividend, has appreciated by 11%.

So far in June, we are up +1.04%. My 2024 year-to-date performance is at +19.39%. The S&P 500 (SPY) is up +13.83% so far in 2024. My trailing one-year return reached +36.31%.

That brings my 16-year total return to +696.02%. My average annualized return has recovered to +51.56%.

As the market reaches higher and higher, I continue to pare back risk in my portfolio. I stopped out of my near-money gold position (GLD) at close to breakeven because we were getting too close to the nearest strike price.

Some 63 of my 70 round trips were profitable in 2023. Some 29 of 38 trades have been profitable so far in 2024, and several of those losses were really break-even.

Fed Leaves Rates Unchanged at 5.25%-5.5% but reduces the cuts by March from three to one, citing an inflation rate that remains elevated. The projections were very hawkish, and the markets sold off on the news.

CPI Comes in Cool, unchanged MOM and 3.4% YOY. The May Nonfarm Payroll Report out Friday was an anomaly. It’s game on once again.

Europe Imposes Stiff Tariff on Chinese EVs, up to 38.1%. Daimler Benz, BMW, and Fiat have to be protected or they will go out of business.

The Gold Rush Will Continue through 2024, as much of Asia is still accumulating the yellow metal. Asia lacks the stock market we here in the US enjoy. A global monetary easing is at hand.

Broadcom (AVGO) Announces a 10:1 Split, and the shares explode to the upside. Earnings were also great. I actually predicted this in my newsletter last week and again at my Wednesday morning biweekly strategy webinar. The split takes place on July 15. Split fever continues. Buy (AVGO) on dips.

Apple (AAPL) Soars to New All-Time High, over $200 a share for the first time. However, it is now only the third largest company in the world, losing first place to (NVDA) and (MSFT). Analysts piled up the benefits of pitching AI to one billion preexisting customers. Just don’t tell Elon Musk.

Dollar Hits One Month High, on soaring interest rates spinning out from the super-hot May Nonfarm Payroll Report. This may be your last chance to sell at the highs. Never own a currency with falling interest rates. Just look at the Japanese yen.

Stock Buybacks Hit $242 Billion in Q1, but a new 1% tax may slow down the activity. The tax was passed as part of the Inflation Reduction Act in 2022 and is retroactive to January 1, 2023. (AAPL), (DIS), (CVX), (META), (GS), (WFC), and (NVDA) were the big buyers.

Home Equity Hits All-Time High at $17 Trillion according to CoreLogic. About 60% of homeowners have a mortgage. Their equity equals the home’s value minus outstanding debt. Total home equity for U.S. homeowners with and without a mortgage is $34 trillion. That is a lot of cash that could potentially end up in the stock market.

Home Prices to Keep Rising says Redfin CEO. While experts are forecasting more homes will be available, they said the boost in supply is not enough to solve affordability issues for buyers. Interest rates are expected to come down, but not by enough to counteract high prices.

Elon Musk Wins his $56 Billion Pay Package after a shareholder vote where retail investors came to his rescue. Institutional investors like CalPERS were overwhelmingly against it. It didn’t help that Elon moved Tesla to Texas. State pension funds always show a heavy bias in favor of local companies. Luck for California teachers includes (NVDA), (AAPL), (GOOGL), and (SMCI). (TSLA) rose 4% on the news.

The Gold Rush Will Continue through 2024, as much of Asia is still accumulating the yellow metal. Asia lacks the stock market we here in the US enjoy. A global monetary easing is at hand.

US Homes Sales Fall, down 1.7% month-over-month in May on a seasonally adjusted basis and dropped 2.9% from a year earlier. Median home sale price rose to a record high of $439,716, up 1.6% month-over-month and 5.1% year-over-year.

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, June 17, the New York Empire State Manufacturing Index is released.

On Tuesday, June 18 at 7:00 AM EST, Retail Sales are published.

On Wednesday, June 19, the first-ever Juneteenth holiday where the stock market is closed. Juneteenth celebrates the date when the slaves in Texas were freed in 1866, the last to do so.

On Thursday, June 20 at 8:30 AM, the Weekly Jobless Claims are announced. We also get Building Permits.

On Friday, June 21 at 8:30 AM, the Existing Home Sales are announced.

At 2:00 PM the Baker Hughes Rig Count is printed.

As for me, as I am about to embark on Cunard’s Queen Elisabeth from Vancouver Canada on the Mad Hedge Seminar at Sea, I thought I’d recall some memories from when I first visited there 54 years ago.

Upon graduation from high school in 1970, I received a plethora of scholarships, one of which was for the then astronomical sum of $300 in cash from the Arc Foundation, whoever they were.

By age 18, I had hitchhiked in every country in Europe and North Africa, more than 50. The frozen wasteland of the North and the Land of Jack London and the northern lights beckoned.

After all, it was only 4,000 miles away. How hard could it be? Besides, oil had just been discovered on the North Slope and there were stories of abundant high-paying jobs.

I started hitching to the Northwest, using my grandfather’s 1892 30-40 Krag & Jorgenson rifle to prop up my pack and keeping a Smith & Wesson .38 revolver in my coat pocket. Hitchhikers with firearms were common in those days and they always got rides. Drivers wanted the extra protection.

No trouble crossing the Canadian border either. I was just another hunter.

The Alcan Highway started in Dawson Creek, British Columbia, and was built by an all-black construction crew during the summer of 1942 to prevent the Japanese from invading Alaska. It had not yet been paved and was considered the great driving challenge in North America.

One 20-mile section of road was made out of coal, the only building material then available, and drivers turned black after transiting on a dusty day. I’ll never forget the scenery, vast mountains rising out of endless green forests, the color of the vegetation changing at every altitude.

The rain started almost immediately. The legendary size of the mosquitoes turned out to be true. Sometimes, it took a day to catch a ride. But the scenery was magnificent and pristine.

At one point a Grizzley bear approached me. I let loose a shot over his head at 100 yards and he just turned around and lumbered away. It was too beautiful to kill.

I passed through historic Dawson City in the Yukon, the terminus of the 1898 Gold Rush. There, abandoned steamboats lie rotting away on the banks, being reclaimed by nature. The movie theater was closed but years later was found to have hundreds of rare turn-of-the-century nitrate movie prints frozen in the basement, a true gold mine. Steven Spielberg paid for their restoration.

Eventually, I got a ride with a family returning to Anchorage hauling a big RV. I started out in the back of the truck in the rain, but when I came down with pneumonia, they were kind enough to let me move inside. Their kids sang “Raindrops keep falling on my head” the entire way, driving me nuts. In Anchorage they allowed me to camp out in their garage.

Once in Alaska, there were no jobs. The permits required to start the big pipeline project wouldn’t be granted for four more years. There were 10,000 unemployed.

The big event that year was the opening of the first McDonald’s in Alaska. To promote the event, the company said they would drop dollar bills from a helicopter. Thousands of homesick showed up and a riot broke out, causing the stand to burn down. It was rumored their burgers were made of much cheaper moose meat anyway.

I made it all the way to Fairbanks to catch my first sighting of the wispy green contrails of the northern lights, impressive indeed. Then began the long trip back.

I lucked out by catching an Alaska Airlines promotional truck headed for Seattle. That got me free ferry rides through the inside passage. The driver wanted the extra protection as well. The gaudy, polished cruise destinations of today were back then pretty rough ports inhabited by tough, deeply tanned commercial fishermen and loggers who were heavy drinkers and always short of money. Alcohol features large in the history of Alaska.

From Seattle, it was just a quick 24-hour hop down to LA. I still treasure this trip. The Alaska of 1970 no longer exists, as it is now overrun with summer tourists. It now has 27 McDonald’s stands.

And with runaway global warming the climate is starting to resemble that of California than the polar experience it once was. Permafrost frozen for thousands of years is melting, causing the buildings among them to sink back into the earth.

It was all part of life’s rich tapestry.