Last weekend, I had dinner with one of the oldest and best-performing technology managers in Silicon Valley. We met at a small out-of-the-way restaurant in Oakland near Jack London Square so no one would recognize us. It was blessed with a very wide sidewalk out front and plenty of patio tables.
The service was poor and the food indifferent, as are most dining experiences these days. I ordered via a QR code menu and paid with a touchless Square swipe.
I wanted to glean from my friend the names of the best tech stocks to own for the long term right now, the kind you can pick up and forget about for a decade or more, a “lose behind the radiator” portfolio.
To get this information I had to promise the utmost in confidentiality. If I mentioned his name you would say “Oh my gosh!”
Amazon (AMZN) is now his largest holding, the current leader in cloud computing. Only 5% of the world’s workload is on the cloud presently so we are still in the early innings of a hyper-growth phase there.
By the time you price in all the transportation, labor, and warehousing costs, Amazon breaks even with its online retail business at best. The mistake people make is only focusing on these lowest-of-margin businesses.
It’s everything else that’s so interesting. While its profitability is quite low compared to the other FANG stocks, Amazon has the best growth outlook. For a start, third-party products hosted on the Amazon site, most of what Amazon sells, offer hefty 30% margins.
Amazon Web Services (AWS) has grown from a money loser to a huge earner in just four years. It’s a productivity improvement machine for the world’s cloud infrastructure where they pass all cost increases on to the customer, who once in, buys more services.
Apple (AAPL) is his second holding, the next AI stock. The company is in transition now justifying a massive increase in earnings multiples, from 9X to 25X over the last several years. The iPhone has become an indispensable device for people around the world, and it is the services sold through the phone that are key.
The iPhone is really not a communications device but a selling device, be it for apps, storage, music, or third-party services. The cream on top is that Apple is at the very beginningof an enormous replacement cycle for its installed base of over one billion phones. Moving from up-front sales to a lifetime subscription model will also give it a boost.
Half of these are more than four years old and positively geriatric in the tech world. More than half of these are outside the US. 5G will add a turbocharger.
Netflix (NFLX) is another favorite. The world is moving to “over-the-top” content delivery and Netflix is already spending twice as much on content as any other company in this area. This is why the company won an amazing 21 Emmys this year. This will become a much more profitable company as it grows its subscriber base and amortizes its content costs. Their cash flow is growing by leaps and bounds, which they can use to buy back stock or pay a dividend.
Generally speaking, there is no doubt that the pandemic has pulled forward some future technology demand with the stay-at-home trend. But these companies have delivered normal growth in a hard world. Tech growth will accelerate in 2021 and 2022.
5G will enable better Internet coverage for everyone and will increase the competitiveness of telecom companies. Factory automation will be another big area for 5G, as it is reliable and secure, and can be integrated with artificial intelligence.
Transportation will benefit greatly. Connected self-driving cars will be a big deal, improving safety and the quality of life.
My friend is not as worried about government-threatened breakups as regulation. There will be more restraints on what these companies can do going forward. Europe, which has no big tech companies of its own, views big American tech companies simply as a source of revenue through fines. Driving companies out of business through cutthroat competition is simply not something Europeans believe in.
Google (GOOG) is probably more subject to antitrust proceedings both in Europe and the US. The founders have both retired to pursue philanthropic activities, so you no longer have the old passion (“don’t be evil”).
Both Google and Meta (META) control 70% of the advertising market, which is inherently a slow-growing market, expanding at 5% a year at best. (META)’s growth has slowed dramatically, while it has reversed at (GOOG).
He is a big fan of (AMD), one of his biggest positions, which is undervalued relative to the other chip companies. They out-executed Intel (INTC) over the last five years and should pass it over the next five years.
He has raised the value of tech stocks from 15% to 30% of his portfolio. Apple used to be one of these. Semiconductor companies today also fall into this category. Samsung with 40% margins in its memory business is a good example. Selling for 10X earnings it is ridiculously cheap. It is just a matter of time before semiconductors get rerated too.
He was an early owner of Tesla (TSLA) back in the nail-biting days when it was constantly running out of cash. Now they have the opposite problem, using their easy access to cash through new share issues as a weapon to fight off the other EV startups. Tesla is doing to Detroit what Apple did to the cell phone companies, redefining the car.
Its stock is overvalued now but will become much more profitable than people realize. They also are starting to extract service revenues from their cars, like Apple has. Tesla will grow revenues by 30%-50% a year for the next two or three years. They should sell several million of the new small SUV Model Y. Most other companies bringing EVs will fall on their faces.
EVs are a big factor in climate change, even in China, the world’s biggest polluter. In Europe, they are legislating gasoline cars out of existence. If you can make money building cars in Fremont, CA, you can make a fortune building them in China.
Tech valuations are high, there is no doubt about it. However, interest rates are much lower. The Fed is forcing people to buy stocks, enabling these companies to evolve even faster.
When rates rise in a year or so tech stocks may have to come down. They have a lot more things going for them than against them. The customers keep coming back for more.
Needless to say, the above stocks should make up your shortlist for LEAPS to buy at the coming market bottom.
https://www.madhedgefundtrader.com/wp-content/uploads/2020/09/oakland-fire-dept.png408608april@madhedgefundtrader.comhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngapril@madhedgefundtrader.com2024-08-29 09:02:202024-08-29 14:30:47Seven Tech Stocks to Buy at the Next Market Bottom
Below please find subscribers’ Q&A for the June 12 Mad Hedge Fund Trader Global Strategy Webinar, broadcast from Incline Village, NV.
Q: How will Nvidia (NVDA) trade post-split?
A: Well, it’ll probably keep going up, because I think the year-end target—the old $1400, which is now $140—is still good. And I have a whole bunch of LEAPS, which are post-split $40, $50, $60 in-the-money, and I’m just keeping those. It’s a good cash management tool to have. So, even $500 points in the money, you’re still looking at about 20% returns by the end of the year on a January LEAPS. If you can buy the January 2025 $70-$71 LEAPS for 83 cents that’s a 20.48% profit at expiration in six months. So if you want a safe, very high return, that is the best way to do it in the financial markets, is to go way in the money. LEAPS will still pay you a lot of money amazingly. This trade will disappear someday but it’s there now and I’m taking it. Screw 90-day T-bills—I’m going into $500 in-the-money LEAPs on Nvidia, which pays four times as much.
Q: Is Broadcom Inc (AVGO) the next Nvidia?
A: There is no next Nvidia—the next Nvidia is Nvidia. Buy Nvidia on a 20% decline, which I think we may get sometime this summer. That’s a dip you want to buy for a year-end run to $140. Also, Broadcom isn’t exactly undiscovered at this point. It has doubled since October, while Nvidia is up 4 times. So if the bargain in the market for you is double in six months, I’m not sure you should be in the market. That said, I put out a report on split candidates last week and (AVGO) is very high on the list.
Q: What’s the best way to trade split candidates?
A: I actually just wrote a newsletter about this last week. There are in fact 36 high-priced, good money-earning split candidates, and I listed them all. You can buy really any of those if you’re looking for a high-priced stock that is growing. And management has a huge incentive to do splits because it makes the stock go up faster, and they’re all paid in stock options. So that is another reason you go into these. The best way to trade splits is buying the candidates because the biggest move is on the announcement of the split—you usually get 10%, 15%, or even 20% returns on the announcement.
Q: How do you envision AI in 10 years?
A: Well, it’s unimaginable. I can tell you from experiencing a lot of these big technology changes—it’s always tremendously underestimated by the markets, and you can safely bet on that. It’ll go up a lot more than you realize. That’s what happened when we jumped from six track tapes to cassettes, Betamax to VHS, teletypes to faxes, and faxes to emails. I thought Steve Jobs was crazy when he introduced the iPhone. Nobody makes money in handsets. But he proved me wrong.That makes my $240,000 DOW by 2030 projection completely reasonable.
Q: What will inflation do for the rest of the year, and how will it affect stocks?
A: Inflation will go flat to down for the rest of the year. And that is being driven by artificial intelligence—the greatest deflationary product ever created in the history of the economy. 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 yesterday to buy an international plan, and I never even talked to a human. They listed out three international plans in a calm, even male voice, and I picked one. Or go to McDonald's 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.
Q: What’s your opinion on Arm Holdings (ARM)?
A: I love it. There are very few serious companies in the chip area, and this is one of them.
Q: Do you expect gold mining stocks to continue upward?
A: Yes, but the better play here is the metal. Gold and silver aren't being held back by inflation while the miners are. Plus, the main buyers in the market now are the Chinese, and they don’t buy gold miners—they buy gold, silver, copper, platinum, and uranium outright.
Q: What about Tesla (TSLA) long-term? Kathy Woods's target is $2000 long-term.
A: I think Kathy Woods is right. But we have to get through the nuclear winter in the EV space first, where suddenly the market got saturated. I think Tesla is the only one who could come out of this alive by cutting costs and advancing technology, as they have always done. When I bought my first Tesla Model S1 in 2010, the battery cost $32,000. Now it’s $6,000, and you get a lot more range. Did (GM) offer an equivalent cost improvement with internal combustion engines? So, yes, never bet against Elon Musk—that’s a good 25-year lesson on my part, and should be for you too.
Q: Can you elaborate on the lithium trades?
A: I listed three names in my letter last week, (SQM), (FMC), (ALB),and the only thing you know for sure is that they’re cheap now. They could stay cheap for another six or 12 months. But when you get a turnaround in the global EV market and the manufacturers start screaming for more lithium, and all of the lithium stocks will double, or triple and they’ll do it fairly quickly. You can’t beat a market bottom for getting involved. Just look at my above (NVDA) trade. Not only would they be good stocks buy, but it would be a good LEAPS buy down here because then you could get 4 or 5 times your money on a small move.
Q: Can you suggest Amazon (AMZN) LEAPS?
A: January 2025 $195-200 just out of the money, should give you a return of about 120% over the next 6 months. That gets you the annual yearend run-up. And that’s my conservative position. My aggressive ones are all in Nvidia.
Q: Do you think zero-day options have permanently forced the Volatility Index ($VIX) to the $12 handle?
A: Yes, I do; it’s killed that market. Something like 40% of all the optiontraders on the CBOE were trading the ($VIX) from the short side. Shorting the ($VIX) now would be madness. That has to bring tough times for that whole industry. Trading call spreads at a $12 volatility, you’re better off buying the LEAPS because the LEAPS give you much bigger returns with much less risk. And a $12 ($VIX) means you’re getting your LEAPS at half the historic price. I’m just waiting for a new market low to start pumping out the LEAPS recommendations. All the more reason to sign up for the Mad Hedge Concierge Service to get an early read into the LEAPS recommendations. For more information on that, contact support at support@madhedgefundtrader.com
Q: What will happen to Apple (AAPL) after the 11% surge?
A: It goes to $250 by the end of the year. Now that it has the kiss of AI on it, people will pour into it.
Q: Why is value lagging?
A: Because AI is entirely a growth story, and you look at all the domestic value stocks, they’re going absolutely nowhere. Value has been in the dog house for years and I’m in no hurry to get in there.
Q: What is the best dividend stock I can invest in right now?
A: That’s an easy one.Altria (MO) has a 9% dividend—you can’t beat that. But you have to hold your nose when you buy this stock because they are in the cigarette business. However, their big growth now is in Asia ex-Japan where the government has a monopoly on tobacco, particularly China. Note that this is not an undiscovered idea; lots of people like a 9% dividend stock and (MO) has already gone up 20% this year, but I think there is still some money to be made here.
Q: How can we subscribe to get early LEAPS recommendations?
A: That would be the Concierge Service. Contact Filomena at customer support, and they will get you taken care of right away.
Q: What about the small nuclear plays?
A: I actually happen to know quite a lot about nuclear plant design, having worked for the Atomic Energy Commission in my youth, and the new designs address every major issue that held back nuclear power with the old 1950s designs. For example, building them underground and eliminated the need for these giant billion-dollar four-foot-thick reinforced concrete containment structures that dot the horizon. Not using pure Uranium alloys that can’t go supercritical is another great idea. So I like them. Are they good stock plays? Not right now. It takes a long time to introduce a new energy technology. Bill Gates is financing a new plant built by Terrapower in Wyoming, and it looks like a fantastic plant, but only Bill Gates could invest at this stage and expect to make money on it. He has very long-term money and you don’t. I would wait until you get a working model plant in the United States before going into these things, but potentially you’re looking at a 10 to 100 times return on your money if it works.
Q: Should I invest in Airbnb (ABNB) because of increased international travel?
A: Yes, we like Airbnb. Especially since they will get a push with the Paris Olympics next month. Not only does that get people to Paris, but it gets people to all of Europe because they usually add on additional trips to a visit to the Olympics.
Q: What would you do in Netflix (NFLX), and what strikes would you use?
A: I would do a LEAPS. Wait for a correction, at least 10%, preferably 20%, and then I would go at the money one year out and that would get you about 100% return. So, that’s the way to do that. This is not LEAPS territory right here —all-time highs are not LEAPS territory. You want to put on LEAPS when everyone else is throwing up on their shoes; the last time they did that was October 26.
To watch a replay of this webinar with all the charts, bells, whistles, and classic rock music, just log in to www.madhedgefundtrader.com, go to MY ACCOUNT, select your subscription (GLOBAL TRADING DISPATCH, TECHNOLOGY LETTER, or Jacquie's Post), then click on WEBINARS, and all the webinars from the last 12 years are there in all their glory
Good Luck and Stay Healthy,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
(The Mad June traders & Investors Summit is ON!)
(MARKET OUTLOOK FOR THE WEEK AHEAD, or WELCOME TO THE MALLARD MARKET and ME AND 23 AND ME),
(AAPL), (GOOGL), (AMZN), (TSLA), (MSFT), (META), (AVGO), (LRCX), (SMCI), (NVR), (BKNG), (LLY), (NFLX), (VIX), (COPX), (T), (NVDA), (LEN), (KBH)
There’s nothing like the comfort and self-satisfaction of having a 100% cash position in a falling market. While everyone else is bleeding red ink, I am happily plotting my next trades.
Of course, the rest of the market isn’t really bleeding red ink, just giving up windfall profits. Still, it’s better to trade from a position of strength than weakness. It makes identifying the next winners easier.
Think of this as the “Mallard Market”. On the surface, it seems calm and peaceful, while underwater, it is paddling along like crazy. The damage has been unmistakable. Dell, the faux AI stock (DELL) crashed by 28%, Salesforce (CRM) got creamed for 34%, and ServiceNow (NOW) got taken to the woodshed for 22%.
It all belies a market that is incredibly nervous and fast on the trigger. The tolerance for any bad news is zero. Yet there has been no market crash as I expected. The 5,300 level for the (SPX) seems to possess a gravitational field, powered by $250 earnings per share and a multiple of 51X.
It was NVIDIA that put the writing on the wall by announcing a 10:1 split that has opened the floodgates for similar prosperous and high-priced companies.
There are now 36 stocks with share prices of $500 or more ripe for splits with $7 trillion in market cap, or 16% of the total market. While splits don’t change the value of a company, perceptions are everything, as they prove shareholder-friendly policies. While individual investors are confused by an onslaught of contradictory research recommendations, splits are a great “tell” on what to buy next.
Apple (AAPL), Alphabet (GOOGL), Amazon (AMZN), and Tesla (TSLA) have already carried out splits, some multiple times, to great success. Of the Magnificent Seven, only Microsoft (MSFT) and Meta (META) have yet to split.
In the tech area Broadcom (AVGO), Lam Research (LRCX), Super Micro Computer (SMCI), and Service Now (NOW) have yet to split. In the non-tech area, there are NVR Inc. (NVR), Booking Holdings (BKNG), Eli Lilly (LLY), and Netflix (NFLX). Many of these are well-known Mad Hedge recommended stocks.
History has shown that stocks rise 25% one year after a split compared to 12% for the market as a whole. A stock’s addition to the Dow Average or the S&P 500 (SPY) provides a boost. If both occur, stocks will absolutely explode. Stock splits are also much more attractive than buybacks at these high prices.
So, I’ll be trolling the market for split-happy candidates.
You should too.
Since it may be some time before we capitulate and take a worthwhile run at new highs, I thought I’d update you on the global demographic outlook, which is always a long-term driver of economies and markets.
People are now living longer than ever before. But postponing death is only a part of the demographic story. The other is the decline in births. The combination of the two is creating huge changes in the global economy.
The notion of a “demographic transition” is almost a century old. Human societies used to have roughly stable populations, with high mortality matched by high fertility. Families had eight kids and 3-5 usually died in childhood, barely maintaining population growth.
In England and Wales in the 18th and 19th centuries, death rates suddenly plummeted. But fertility did not. The result was a population explosion. As the benefits of economic growth and advances in medicine and public health spread, most of the world has followed a similar transition, but far faster. As a result, human numbers rose fourfold over the last hundred years, from 2 billion to 8 billion.
In time, fertility followed mortality on a downward path across most of the world. As a result, fertility rates in more than half of all countries and territories in 2021 fell below the replacement level. For the world as a whole, the fertility rate was 2.3 in 2021, barely above the replacement of 2.1, down from 4.7 in 1960.
For high-income countries, the fertility rate was a mere 1.6, down from 3.0 in 1960. In general, poor countries still have higher fertility rates than richer ones, but they have been falling there, too.
What explains this collapse in fertility rates? An important part of the answer is the wonderful surprise that more children survived than expected. So, people started to practice various forms of birth control.
But the desire to have many children also shrank sharply. When husbands realized that smaller families meant high standards of living for themselves, family sizes dropped sharply. Even in ultra-conservative Iran, the fertility rate has collapsed from 6.6 in 1980 to only 1.7 in 2021.
A big reason for this shift was that, for their parents, children have moved from being a valuable productive asset in the 19th century to an expensive luxury today. That was back when 50% of our population worked on farms. Today it’s only 2%.
In the meantime, female participation in the economy rose dramatically in the 20th century, including in highly skilled careers. That raised the “opportunity cost” of producing children, especially for mothers. So, they have children later, or even not at all.
Where public childcare is more generous women are encouraged to combine careers with having children. The absence of such help helps explain the exceptionally low fertility rates in much of East Asia and Southern Europe, where parental support is limited.
This global shift towards very low fertility, with the exception (so far) of sub-Saharan Africa, is among the most important events driving the global economy. One implication is that the population of Africa is forecast to be larger than that of all today’s high-income countries, plus China by 2060, thanks to the elimination of many diseases there.
Why is all this important?
Because rising populations create larger markets, more profits for corporations, and rising share prices. Shrinking populations have the opposite effect, as China is learning about its distress now. One reason the US is growing faster than the rest of the world is that a continuous stream of new immigrants since its foundation has created endless numbers of new workers and customers. Dow 240,000 here we come!
Just thought you’d like to know.
So far in May, we are up +3.74%. My 2024 year-to-date performance is at +18.35%.The S&P 500 (SPY) is up +10.48%so far in 2024. My trailing one-year return reached +35.74%. That brings my 16-year total return to +694.78%.My average annualized return has recovered to +51.48%.
As the market reaches higher and higher, I continue to pare back risk in my portfolio. I bailed on my last position early in the week, covering a short in Apple for a profit.
Some 63 of my 70 round trips were profitable in 2023. Some 27 of 37 trades have been profitable so far in 2024.
The Fed’s Favorite Inflation Gauge Cools by 0.2% in April, with the PCE, or the Personal Consumer Inflation Expectations Price Index. This one strips out the volatile food and energy components. It gives more credibility to a September rate cut and gave bonds a good day. NVIDIA Shares Continues to Go Ballistic, creating another $800 billion in market capitalization in three trading days. That is the most in history. That took NASDAQ to a new all-time high at 17,000. At $2.8 trillion (NVDA) could become the largest publicly traded company in the world in another day. Today’s tailwind came from an Elon Musk comment that his new xAI start-up would buy the company's high-end H100 graphics cards. Buy (NVDA) on the next 20% dip.
Pending Home Sales Dive, down 7.7% in April, the worst since the Covid market three years ago. The impact of escalating interest rates throughout April dampened home buying, even with more inventory in the market. But the anticipated rate cuts later this year should lead to better conditions, with improved affordability and more supply. Buy (LEN) and (KBH) on dips.
Money Supply Rises for the First Time in More than a Year. Remember money supply? As measured by M2, it sums up the currency, coins, and savings deposits held by banks, balances in retail money-market funds, and more. Data for April released on Tuesday afternoon showed an increase of 0.6% from a year ago. The Fed balance sheet has shrunk by $1.5 trillion in two years, the fastest decline in history, slowing the economy.
AT&T’s (T) Copper is Worth More Than the Company, and with plans to convert half its copper network to fiber by 2025 could free up billions of tons of the red metal to sell on the market. Copper prices have doubled over the past two years, and they could double again by next year. Worldwide there are 7 trillion tons of copper wire in place. Fiber is cheaper and exponentially more efficient than copper, which is facing huge demands from AI, EVs, and the electrification of the grid. Buy copper (COPX) on dips.
Markets are Underpricing Low Volatility (VIX), not a good thing at all-time highs. Volatility across equity and currency markets is low. The Volatility Index (VIX) at $12.46 compares with an average over five years of $21.5 and over the longer term of $19.9. Markets are heavily discounting good news and a disinflationary environment. It is not only stocks. There is also low volatility across currency markets. The DB index of foreign exchange volatility is at $6.3 versus an average of $7.6 over five years and $9.3 over the longer term. This will end in tears.
S&P Case Shiller Jumps to New All-Time High, with its National Home Price Index. The index rose by 1.29%, the fastest growth since April 2023. All 20 major metro cities were up last month and gained 6.5% YOY. Four cities are currently at all-time highs: San Diego, Los Angeles, Washington, D.C., and New York. Prices in San Diego saw the biggest gain, up 11.4% from February of 2023. Both Chicago and Detroit reported 8.9% annual increases. Portland, Oregon, saw the smallest gain in the index of just 2.2%. Unaffordability is the big story in the market right now. The sunbelt is seeing the most weakness, thanks to a post-pandemic construction boom.
Space X’s Starlink Tops 3 million Subscribers, and is rapidly moving towards a global WiFi network. I set up a dozen of these in Ukraine last October and even the Russians couldn’t hack them. It sets a global 200 Mb standard usable in most countries, even the remote Galapagos Islands in the Pacific. It’s only a VC investment now but could become Elon Musk’s next trillion-dollar company.
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 3, the ISM Manufacturing PMI is released.
On Tuesday, June 4 at 7:00 AM, the JOLTS Job Openings Report will be published.
On Wednesday, June 5 at 7:00 AM, the ISM Services PMI is published.
On Thursday, June 6 at 8:30 AM, the Weekly Jobless Claims are announced. We also get the Challenger Job Cuts Report.
On Friday, June 7 at 8:30 AM, the Nonfarm Payroll and headline Unemployment Rate are announced. At 2:00 PM the Baker Hughes Rig Count is printed.
As for me, when Anne Wojcicki founded 23andMe in 2007, I was not surprised. As a DNA sequencing pioneer at UCLA, I had been expecting it for 35 years. It just came 70 years sooner than I expected.
For a mere $99 back then they could analyze your DNA, learn your family history, and be apprised of your genetic medical risks. But there were also risks. Some early customers learned that their father wasn’t their real father, learned of unknown brothers and sisters, that they had over 100 brothers and sisters (gotta love that Berkeley water polo team!), and other dark family secrets.
So, when someone finally gave me a kit as a birthday present, I proceeded with some foreboding. My mother spent 40 years tracing our family back 1,000 years all the way back to the 1086 English Domesday Book (click here)
I thought it would be interesting to learn how much was actually fact and how much fiction. Suffice it to say that while many questions were answered, alarming new ones were raised.
It turns out that I am descended from a man who lived in Africa 275,000 years ago. I have 311 genes that came from a Neanderthal. I am descended from a woman who lived in the Caucuses 30,000 years ago, which became the foundation of the European race.
I am 13.7% French and German, 13.4% British and Irish, and 1.4% North African (the Moors occupied Sicily for 200 years). Oh, and I am 50% less likely to be a vegetarian (I grew up on a cattle ranch).
I am related to King Louis XVI of France, who was beheaded during the French Revolution, thus explaining my love of Bordeaux wines, women wearing vintage Channel dresses, and pate foie gras.
Although both my grandparents were Italian, making me 50% Italian, I learned there is no such thing as pure Italian. I come out only 40.7% Italian. That’s because a DNA test captures not only my Italian roots, plus everyone who has invaded Italy over the past 250,000 years, which is pretty much everyone.
The real question arose over my native American roots. I am one-sixteenth Cherokee Indian according to family lore, so my DNA reading should have come in at 6.25%. Instead, it showed only 3.25% and that launched a prolonged and determined search.
I discovered that my French ancestors in Carondelet, MO, now a suburb of Saint Louis, learned of rich farmland and easy pickings of gold in California and joined a wagon train headed there in 1866. The train was massacred in Kansas. The adults were all killed, and the young children were adopted into the tribe, including my great X 5 Grandfather Alf Carlat and his brother, then aged four and five.
When the Indian Wars ended in the 1880s, all captives were returned. Alf was taken in by a missionary and sent to an eastern seminary to become a minister. He then returned to the Cherokees to convert them to Christianity.By then, Alf was in his late twenties so he married a Cherokee woman, baptized her, and gave her the name of Minto, as was the practice of the day.
After a great effort, my mother found a picture of Alf & Minto Carlat taken shortly after. You can see that Alf is wearing a tie pin with the letter “C” for his last name Carlat. We puzzled over the picture for decades. Was Minto French or Cherokee? You can decide for yourself.
Then 23andMe delivered the answer. Aha! She was both French and Cherokee, descended from a mountain man who roamed the western wilderness in the 1840s. That is what diluted my own Cherokee DNA from 6.50% to 3.25%. And thus, the mystery was solved.
The story has a happy ending. During the 1904 World’s Fair in St. Louis (of Meet Me in St. Louis fame), Alf, then 46, placed an ad in the newspaper looking for anyone missing a brother from the 1866 Kansas massacre. He ran the ad for three months and on the very last day, his brother answered and the two were reunited, both families in tow.
Today, getting your DNA analyzed starts from $119, but with a much larger database, it is far more thorough. To do so, click here.
My DNA Has Gotten Around
It All Started in East Africa
1880 Alf & Minto Carlat, Great X 5 Grandparents
The Long-Lost Brother
Good Luck and Good Trading,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
https://www.madhedgefundtrader.com/wp-content/uploads/2023/01/alf-minto.jpg252293april@madhedgefundtrader.comhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngapril@madhedgefundtrader.com2024-06-03 09:02:142024-06-03 11:56:52The Market Outlook for the Week Ahead, or Welcome to the Mallard Market
Below please find subscribers’ Q&A for the May 29 Mad Hedge Fund Trader Global Strategy Webinar, broadcast from Incline Village, NV.
Q: Since Elon Musk is raising tons of money for his AI startup called xAI, will this impact Tesla’s (TSLA) stock price?
A: Yes, it's a very positive move for Tesla because anytime Elon Musk raises money anywhere in his network, it takes the need off of him to sell Tesla shares for cash. And I think his xAI will be the next trillion-dollar company, and SpaceX is in front of it as another trillion-dollar company. Those stocks, he can sell any time and raise a lot of money, but the other two are still private companies. We can't buy them yet unless we buy some of the public vehicles offered by venture capitalists like Ron Baron who has heavy positions in both Tesla and SpaceX. So, no direct plays yet on these companies, but no doubt when they become incredibly valuable, he'll take them all public and become the richest man in the world two or three times over. So yes, that is a positive.
Q: Where do you think (TLT) will be in the next few months?
A: In a narrow trading range. I think we're basically in a $86 to $91 trading range, and we'll go nowhere until we get clarification on Fed interest rate cuts. At the rate the economy is slowing, we may get one in September, and even if the Fed doesn't cut, the rest of the world will, including Japan, Europe, Great Britain, and so on. So we may get our interest rates dragged down here by foreign countries that all have much weaker economies than the US.
Q: Should I keep buying big tech stocks after Nvidia's (NVDA) blowout earnings?
A: Well, if you recall back in the ancient times of April, Nvidia had a 20% sell-off, and most of the tech stocks were down at least 10%. So, I would wait for the next 20% sell-off of Nvidia not only to buy Nvidia but all other big tech stocks as well, because it basically is a big tech story and will continue for the rest of the year like that. So we're really looking to buy dips among the big tech winners, and those would include Amazon (AMZN), Meta (META), Microsoft (MSFT), and so on.
Q: How long can the US economy go without a recession?
A: Five years. The way our economic cycle works is after a long period of growth, companies get overconfident, over-invest, create excessive capacity in the markets for everything, and that leads to a crash and a recession, deflation, and lower interest rates. So even if we don't get major moves in the (TLT) upside now, you always will over the long term get interest rates going back to 2 or 3% for the 10-year so it’s a great long-term hold. That is the economic cycle—that's what creates bear markets and it’s known as “Boom and Bust”. Long may it live because that’s where we traders earn our crust of bread. But this time may be different. We may go longer than 5 years because AI is still in its infancy, still rolling out, and the number of companies making actual profits in AI will go from 3 to 300 over the next five years.
Q: I'm looking to buy gold in an investment account (GLD). Would you do that now, if so, what would you recommend?
A: I would recommend GLD (SPDR Gold Trust) because the metals are still outperforming the miners, miners being held back by the inflation rates unique to the mining industry, which are much higher than the 3.3% for the general economy. And if you want to add a little more spice to your portfolio, buy some silver (SLV) because it is rising at three times the rate of gold thanks to Chinese speculation. You might buy some copper while you're at it too—it's moving almost as fast as gold is.
Q: Which big tech firm is next to issue a dividend?
A: That's an easy answer, it's Netflix (NFLX). But there's a more important question out here— Which is the next tech stock to issue a stock split? And guess what the answer is? Netflix again, which needs to declare both a dividend and a stock split. It's at an all-time high, has a very high share price, and over time, stocks that split deliver double the performance of the S&P 500. So, the mere announcement will suck in a lot of new retail investors as we just saw with Nvidia (NVDA), where we got a $250 move on the split announcement. So, watch your splits, and in fact, I'm going to be devoting a major piece of next Monday's newsletter to splits and how to play them.
Q: Why has the stock market been so strong this year when interest rates are high?
A: The answer to that is AI. We are still in the very early days of AI, and as I mentioned earlier, only three companies are making money from AI right now. That's Nvidia (NVDA), Microsoft (MSFT), and Google (GOOG). That number will increase as AI moves down the food chain and everybody starts using it, including you and me. I view the AI development as similar to 1995 when all of a sudden we got Netscape, a navigator that made the Internet available to the public, Dell Computers (DELL), and Microsoft (MSFT) software all at once hitting the market and creating the online economy essentially from scratch. Something of that magnitude is what the stock market is discounting now. Think of it in terms of the revolutionary new technologies of 1995, which means we have another 5 or 6 years to go, and that's why the stock market is so strong.
Q: Should I invest in Berkshire Hathaway (BRK/B), or do you think their magic will run out soon?
A: I don't think their magic will ever run out. Of course, the day that Warren Buffett dies it'll be down 10%, but then you'll want to buy it with both hands because Warren has already replaced himself with a first-class management team who is carrying on his strategy. Any selloffs in Berkshire you get this summer, go in there and buy the calls, the call spreads, the stock, the LEAPS, and the kitchen sink. Still a great long-term BUY, and I see $500 either late this year or next year in (BRK/B).
Q: I'm a member of IM Academy.
A: Oh my gosh. I would let your membership expire, except you're probably on auto-renewal, and the only way to stop your subscription is to call your credit card company and ask them to block the billings. That is the problem with these predatory financial newsletters, they're impossible to get out of, even when they promise refunds anytime.
Q: Are there any Chinese stocks you like now?
A: No, but the highest quality stock in China is Alibaba (BABA). It's basically a combination of Amazon and PayPal in China, but you still have a very high political risk investing in anything in China. The currency is very weak, so better fish to fry is my opinion. And I tend to avoid countries suffering from demographic implosions.
Q: Should we buy (TLT) now or wait?
A: I would wait until we get some upside momentum going and we complete a few more downside tests.
Q: What's the best place to put cash in the summer?
A: The answer is always good old 90-day US Treasury bills. They are still paying 5.25%.
Q: What are your thoughts on PayPal (PYPL)?
A: I'm avoiding that sector because of over-competition crushing profit margins; that has been a problem for a couple of years now. Don't confuse “gone down a lot” with cheap.
Q: Which oil companies are the best to invest in right now?
A: You can buy Exxon Mobil (XOM) for the high dividend and the sheer size of the company. My second is Occidental Petroleum (OXY), because Warren Buffett owns 25% of the company, has shrunk the float, and that has a result in magnifying any moves up in the stock. Also, I somewhat admire Warren Buffett's stock-picking ability. And of course, I’ve been following the California company OXY since 1970, back when it was run by Armand Hammer, a friend of Vladimir Lenin, so my connections with the company go back a very long time.
Q: Do you like DuPont (DD) for the three-way split?
A: I do, but DuPont has a major problem looming with lawsuits over the PFAS chemicals—those are the forever chemicals which are all over the country, all over the food supply, and cause cancer. So that could be sort of like a Johnson & Johnson-type liability problem with the talcum powder. So again…why look for trouble? Buying a stock facing that kind of liability could be another tobacco situation.
To watch a replay of this webinar with all the charts, bells, whistles, and classic rock music, just log in to www.madhedgefundtrader.com, go to MY ACCOUNT, select your subscription (GLOBAL TRADING DISPATCH, TECHNOLOGY LETTER, or Jacquie's Post), then click on WEBINARS, and all the webinars from the last 12 years are there in all their glory
Good Luck and Stay Healthy,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
There comes a time in every trader’s life when it’s time to face harsh reality and admit that you’re just dead wrong.
As much as I thought a I had strong case for the best stocks to move sideways before continuing their upward drive, the markets decided otherwise. One thing I have learned over my half-century of trading is that you never argue with Mr. Market. He is always right.
So it was with some dismay that on Friday, I watched NVIDIA (NVDA) shares slice through its 50-day moving average at $840 like a hot knife through butter putting the shares into a free-fall. Virtually the next print was the low of the day at $760, down 10% on the day.
There was no new news about (NVDA). Its prospects look as bright as ever, and there are a series of conferences of earnings reports over the coming month to remind us of that. But sometimes, the market just doesn’t care.
(NVDA) has had a great run, up some 144% since October. During this time, I executed a dozen profitable long-side trades. But when you’re that aggressive you know in advance that the last trade is going to kill you and that is the case today. (NVDA) is falling because of the sheer weight of its price.
New flash: while (NVDA) is still the cheapest big tech stock in the market, cheap stocks can get cheaper as we all know.
With the advantage of 20/20 hindsight, I should have been paying more attention to the Magnificent Seven 50-day moving averages which have been falling like dominoes. First went Tesla (TSLA) in February and Apple in March. The S&P 500 (SPY) gave it up on Monday and Microsoft (MSFT) on Wednesday. Amazon (AMZN), (META), and (NVDA) were the last to go on Friday.
Sure you can blame the April 19 option expiration when traders were loaded to the hilt with expiring longs with all these stocks they had to dump. The dreaded month of May, when traders go to die, and the summer doldrums are just two weeks away. Algorithms poured gasoline on the fire exaggerating the moves, as they always do. But still, wrong is wrong.
And there’s my mea culpa for 2024. I am human after all. I’m not right all the time, I just act like it. If the horrific market action last week has one silver lining, it’s that it sets up the next great trades, for which there will be many. With my Mad Hedge AI Market Timing Index down to a lowly 31 that may not be far off.
Your next question is “How far down is down?” In the worst-case scenario, the 200-day moving average is in play for all of these. That is pegged at $463 for the S&P 500, $569 for (NVDA), $377 for (MSFT), $150 for (AMZN), and $308 for (META). (AAPL) and (TSLA) already lost their 200-days a long time ago. In other words, the market is in the process of giving up all its 2024 gains and then some.
Sure, the 200 days are all rising sharply so it's unlikely we’ll hit these dire numbers. Still, it's best to prepare your boss for the worst and then let serendipity work its magic.
Remarkably, my commodity and precious metal stocks, where I had eight of ten long positions, stuck to the script and moved sideways instead of down. If you throw bad news on a stock and it refuses to fall, you buy the hell out of it. So that will be my next move in the market, once I clean all the mud off my face and pull the arrows out of my rear.
Those of us who have been trading gold for a long time, I’ve been doing it for 50 years and 60 if you count the Kennedy silver dollars I collected, will tell you that this new bull market in the barbarous relic is a very strange one.
None of the traditional factors that drive gold up are present. Interest rates have lately been rising, not falling. ETF financial demand fell all last year, and much of that money was diverted to Bitcoin. Retail demand, especially from Asia, has also been falling off a cliff. Gold miners have in no way been leading the price of the yellow metal because of their excess leverage as they usually do. But gold has seen a 34% rally off the October low.
Go figure.
It turns out that central bank buying has increased dramatically, especially from China, enough to offset all the other no-shows. The conflict in the Middle East is also drawing in more flight to safety demand. The good news is that the Chinese buying will continue. The bad news is that this might be a precursor to the invasion of Taiwan as it flees the Western financial system.
What does all this mean? When the traditional demand for gold returns, interest rates, ETFs, and retail, the price of gold will move a lot higher. The barbarous relic can easily reach $2,800 this year and possibly $3,000. The miners will play catch up. Buy (GLD) on dips and silver (SLV) as well, which has a lot of catching up to do.
I just thought you’d like to know.
So far in April, we are down a heartbreaking -6.69%. My 2024 year-to-date performance is at +14.47%.The S&P 500 (SPY) is up +2.68%so far in 2024. My trailing one-year return reached +33.69% versus +29.71% for the S&P 500. That brings my 16-year total return to +676.63%.My average annualized return has recovered to +50.94.
Some 63 of my 70 round trips were profitable in 2023. Some 20 of 28 trades have been profitable so far in 2024.
I stopped out of my long in Tesla last week at cost, expecting further downside, which happened. A week early the position had been at max profit. I let my April longs expire at a max profit on April 19 in Freeport McMoRan (FCX), Occidental Petroleum, ExxonMobile (XOM), Wheaton Precious Metals (WPM), and Gold (GLD).
That leaves me with my remaining May longs in (TLT) and (FCX) a double long in (NVDA) and 60% in cash. Volatility Index ($VIX) Hits Six-Month High, on threats of a New Iran War, Oil Supply Cut-offs, and topping stocks. It’s been a long and dry desert crossing, but we are finally back to reach the $20 handle. The volatility trade is back. For a double bonus, the Mad Hedge Market Timing Index also dropped below 50 for the first time since October. Options traders will love it!
Junk Bonds See Biggest Outflows in a Year, as the Federal Reserve’s hawkish approach to inflation makes investors wary, sending yields soaring to 6.33%. Yields won’t peak until the Fed actually cuts rates. Buy (JNK) and (HYG) on dips.
Netflix (NFLX) Adds 9.33 Million New Subscribers, nearly double analyst forecasts, including my five kids who aren’t allowed to share my password anymore. But the shares dropped on weak Q2 guidance. Netflix has rebounded from a slowdown in 2021 and 2022 to grow at its fastest rate since the early days of the coronavirus pandemic. That is due in large part to its crackdown on people who were using someone else’s account. The company estimated more than 100 million people were using an account for which they didn’t pay.
Mortgage Rates Top 7.0% for the first time in 2024, adding dead weight to the housing market. Most borrowers are now taking out adjustable 5/1 ARMS and then praying for a Fed rate cut later this year.
Existing Home Sales Dive by 4.3% in March to 4.19 million units on a sign-contract basis. Inventories rose 4.47% to a 3.2-month supply, up 14% YOY. The median price of an existing home sold in March was $393,500, up 4.8% from the year before. Regionally, sales fell everywhere except in the North, where they rose 4.2% month-to-month. Sales fell hardest in the West, down 8.2%. Prices are highest in the West. Housing Starts Plunge, down 14.5% in March. Permits for future construction of single-family houses fell to a five-month low. Residential investment rebounded in the second half of 2023 after contracting for nine straight quarters, the longest such stretch since the housing market collapse in 2006. But the recovery appears to be losing steam. China Surprises with Q1 GDP Growth at 5.3%, but who knows how real these numbers really are? They don’t line up with individual data like international trade. Peak China is behind us. Avoid (FXI).
Tariff Wars Heat Up, US President Joe Biden is threatening China again, and this time he wants to triple the China tariff rate on steel and aluminum imports. On Wednesday, the president will visit the United Steelworkers headquarters in Pittsburgh and has vowed his saber-rattling is not just empty threats. His rhetoric on China could make relations between the US and the Middle Kingdom that much frostier as we enter into the heart of the US election race.
Biden Boosts the Cost of Alaska Oil Drilling Leases, from $10,000 to $160,000, the first increase since 1920. There is also a bump in the royalty on extracted oil, from 12.25% to 16.27%. The government is no longer giving away oil found on its land for free. Coddling of the oil companies is over. Oil companies will no longer bid for cheap oil leases with the intention of sitting on them for decades. The US is currently the largest oil (USO) producing country in history at 13 million barrels/day and hardly needs any subsidies, which date back to the Great Depression. Buy energy stocks on dips, like (XOM) and (OXY), which are posting record profits.
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, April 22, at 7:00 AM EST, the Chicago Fed National Activity Index is announced.
On Tuesday, April 23 at 8:30 AM, New Home Sales are released.
On Wednesday, April 24 at 2:00 PM, Mortgage applications come out.
On Thursday, April 25 at 8:30 AM, the Weekly Jobless Claims are announced.
On Friday, April 26 at 8:30 AM, Consumer Expectations. At 2:00 PM, the Baker Hughes Rig Count is printed.
As for me, I spent a decade flying planes without a license in various remote war zones because nobody cared.
So, when I finally obtained my British Private Pilot’s License at the Elstree Aerodrome, home of the WWII Mosquito twin-engine bomber, in 1987, it was cause for celebration.
I decided to take on a great challenge to test my newly acquired skills. So, I looked at an aviation chart of Europe, researched the availability of 100LL aviation gasoline in Southern Europe, and concluded that the farthest I could go was the island nation of Malta.
Caution: new pilots with only 50 hours of flying time are the most dangerous people in the world!
Malta looms large in the history of aviation. At the onset of the Second World War, Malta was the only place that could interfere with the resupply of Rommel’s Africa Corps, situated halfway between Sicily and Tunisia. It was also crucial for the British defense of the Suez Canal.
So, Malta was mercilessly bombed, at first by Mussolini’s Regia Aeronautica, and later by the Luftwaffe. By April 1942, the port at Valletta became the single most bombed place on earth.
Initially, Malta had only three obsolete 1934 Gloster Gladiator biplanes to mount a defense, still in their original packing crates. Flown by volunteer pilots, they came to be known as “Faith, Hope, and Charity.”
The three planes held the Italians at bay, shooting down the slower bombers in droves. As my Italian grandmother constantly reminded me, “Italians are better lovers than fighters.” By the time the Germans showed up, the RAF had been able to resupply Malta with as many as 50 infinitely more powerful Spitfires a month, and the battle was won.
So Malta it was.
The flight school only had one plane they could lend me for ten days, a clapped-out, underpowered single-engine Grumman Tiger, which offered a cruising speed of only 160 miles per hour. I paid extra for an inflatable life raft.
Flying over the length of France in good weather at 500 feet was a piece of cake, taking in endless views of castles, vineyards, and bright yellow rapeseed fields. Italy was a little trickier because only four airports offered avgas, Milan, Rome, Naples, and Palermo. Since Italy had lost the war, they never experienced a postwar aviation boom as we did.
I figured that if I filled up in Naples, I could make it all the way to Malta nonstop, a distance of 450 miles, and still have a modest reserve.
Flying the entire length of Italy at 500 feet along the east coast was grand. Genoa, Cinque Terra, the Vatican, and Mount Vesuvius gently passed by. There was a 1,000-foot-high cable connecting Sicily with the mainland that could have been a problem, as it wasn’t marked on the charts. But my US Air Force charts were pretty old, printed just after WWII. But I spotted them in time and flew over.
When I passed Cape Passero, the southeast corner of Sicily, I should have been able to see Malta, but I didn’t. I flew on, figuring a heading of 190 degrees would eventually get me there.
It didn’t.
My fuel was showing only a quarter tank left and my concern was rising. There was now no avgas anywhere within range. I tried triangulating VORs (very high-frequency omnidirectional radar ranging).
No luck.
I tried dead reckoning. No luck there either.
Then I remembered my WWII history. I recalled that returning American bombers with their instruments shot out used to tune in to the BBC AM frequency to find their way back to London. Picking up the Andrews Sisters was confirmation they had the right frequency.
It just so happened that buried in my pilot’s case was a handbook of all European broadcast frequencies. I looked up Malta, and sure enough, there was a high-powered BBC repeater station broadcasting on AM.
I excitedly tuned in to my Automatic Direction Finder.
Nothing. And now my fuel was down to one-eighth tanks and it was getting dark!
In an act of desperation, I kept playing with the ADF dial and eventually picked up a faint signal.
As I got closer, the signal got louder, and I recognized that old familiar clipped English accent. It was the BBC (I did work there for ten years as their Tokyo correspondent).
But the only thing I could see were the shadows of clouds on the Mediterranean below. Eventually, I noticed that one of the shadows wasn’t moving.
It was Malta.
As I was flying at 10,000 feet to extend my range, I cut my engines to conserve fuel and coasted the rest of the way. I landed right as the sun set over Africa.
While on the island, I set myself up in the historic Excelsior Grand Hotel. Malta is bone dry and has almost no beaches. It is surrounded by 100-foot cliffs. I paid homage to Faith, the last of the three historic biplanes, in the National War Museum in Valetta.
The other thing I remember about Malta is that CIA agents were everywhere. Muammar Khadafy’s Libya was a major investor in Malta, recycling their oil riches, and by the late 1980s owned practically everything. How do you spot a CIA agent? Crewcut and pressed, creased blue jeans. It’s like a uniform. What they were doing in Malta I can only imagine.
Before heading back to London, I had to refuel the plane. A truck from air services drove up and dropped a 50-gallon drum of avgas on the tarmac along with a pump. Then they drove off. It took me an hour to hand pump the plane full.
My route home took me directly to Palermo, Sicily to visit my ancestral origins. On takeoff to Sardinia, wind shear flipped my plane over, caused me to crash, and I lost a disk in my back.
But that is a story for another day.
Who says history doesn’t pay!
Stay Healthy,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
“Faith”
The Andrews Sisters
Spitfire
Grumman Tiger
https://www.madhedgefundtrader.com/wp-content/uploads/2024/04/andrews-sisters.png582506april@madhedgefundtrader.comhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngapril@madhedgefundtrader.com2024-04-22 09:02:302024-04-22 12:00:50The Market Outlook for the Week Ahead, or Facing Harsh Reality
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