Global Market Comments
August 15, 2022
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD,
or WHAT THE MARKET IS REALLY DISCOUNTING NOW),
(SPY), (TLT), (AAPL), (AXP), (KO), (XOM). (TBT), (SNOW), (NFLX), (ARKK), (ETHE),
(NLR), (CCR), CORN), (WEAT), (SOYB), (DBA), (UUP), (FXA), (FXC), (BA), (TSLA)
After a half-century in the markets, I have noticed that it is the investors with the correct long-term views who make the biggest money. My favorite example is my friend, Warren Buffet, who doesn’t care if an investment turns good in five minutes or five years.
Buffet’s Berkshire Hathaway (BRKB) is the largest outside investor in Apple (AAPL). And guess what his cost has been? By the time you add up the compounded dividends he has collected since he started buying the stock in 2011, it's zero. The value today? $15.5 billion.
Buffet didn’t buy Apple for its hardware, iPhone, or iTunes. He bought it for the brand, which has improved astronomically. Look at Berkshire’s portfolio and it is packed with brands, like American Express (AXP), Coca-Cola (KO), and Exxon (XOM).
When did Buffet last buy Apple? In May when it hit $130.
That’s why Warren Buffet is Warren Buffet and you are you.
While the inflation news last week has been great and it is likely to get better, I believe that investors are missing the bigger, more important long-term picture.
The fact is that markets are now discounting an earlier than expected end to the Ukraine War, much earlier.
I get constant updates on the war from the Joint Chiefs of Staff, Britain’s Defense Committee, and NATO headquarters and I can tell you that the war has taken a dramatic turn in Ukraine’s favor just in the last two weeks.
Russian casualties have topped 80,000, nearly half the standing army. They have lost 2,200 of their 2,800 operational tanks. Some 120 front line aircraft have been destroyed. This week, Ukraine attacked the principal Russian air base in Crimea, leaving the smoking ruins of seven more aircraft there.
Russia is in effect fighting a modern digitized war with 50-year-old Cold War weapons and it isn’t working. Its generals have no experience fighting wars against determined opposition. Putin would do better listening to the retired generals on CNN for military advice.
America’s High HIMARS (the M142 High Mobility Artillery Rocket System) has become the Stinger missile of this war. The Lockheed Martin (LMT) factory in Camden, Arkansas that makes these missiles is running 24/7 on doubled orders.
The sanctions against Russia have been wildly successful. The Russian economy is utterly collapsing. What oil they are selling now is at half price. Aircraft are being cannibalized for parts to keep others flying. Much of the educated middle class has fled the country. Draft dodging is rampant.
What does all this mean for you and me?
The commodity price spike the war prompted has ended and most are now in steep downtrends. Gold (GLD), where the Russians were major buyers, has been flat as a pancake. This has put our inflation numbers into freefall. Interest rate fears peaked in June and are now in the rear-view mirror.
As is always the case, markets have seen these developments and correctly ascertained their consequences far before we humans did (except for maybe me). It has been no surprise that they have been tracking the Russian defeat day by day and have been on an absolute tear since June 15.
Even small techs suffering 18-month bear markets have now begun major recoveries, with companies like Snowflake (SNOW), up 50%, Netflix (NFLX), up 39%, and Cathie Wood’s Innovation Fund (ARKK) up 57%. Even crypto has returned from the grave, with Ethereum (ETHE) up an eye-popping 105%.
But don’t go gaga over stocks just yet.
The Fed ramps up quantitative tightening in September to $95 billion a month and will deliver another interest rate hike. That's why I am running a double short in the bond market (TLT), (TBT) once again.
We also have the midterms to worry about which, with recent developments, promise to be more contentious than ever. Look for another round of tiring new election fraud claims.
That’s great because these events will give us good entry points lower down for trade alerts, not the short-term top we are looking at right now.
It helps that with ten-year US Treasury yields at 2.80%, it has an effective price earning multiple of 37, while stocks growing earnings at 10% a year boast a price earnings multiple of only 16. That sets up a massive, long stock/short bond trade which Mad Hedge will be pushing well on into 2023.
And you know what?
The smart guys I know in the hedge fund community are starting to model for the next Fed interest rate CUT. Markets will love it and discount this far in advance.
If you want to get on the train with me before it leaves the station, just keep reading this newsletter.
Yes, markets are now being driven by rate cuts and peace prospects, not rate rises and war!
Your retirement fund will love it.
I just thought you’d like to know.
CPI Dives to 8.5%, down 0.6% in July. The peak is in, and stocks rallied 500. Look for another drop in August, with gasoline prices falling daily. The 800-pound gorilla in the room has exited.
The Producer Price Index Dives 0.5%, confirming last week’s weak CPI number. And many core prices are indicating that we will get another drop when the August numbers are reported in September. It was worth another 300-point rally in the Dow Average, which is getting seriously overbought.
Consumer Inflation Expectations dive to 6.2% for the coming year and only 3.2% for three years. according to a New York Fed Survey. Expectations for food costs saw the largest decline. The CPI is out on Wednesday. No doubt a media onslaught over a coming recession has a lot to do with it.
Elon Musk Sells $6.9 billion worth of Tesla (TSLA) Stock, explaining the $100 drop in the shares last week. Ostensibly, this is to pay for Twitter if he loses his court case. Musk clearing took advantage of a 60% rise in (TSLA) to head off distress sales in the future. Musk also opened the door to share buy backs in the future. Buy (TSLA) on dips.
85,000 IRS Agents are Headed Your Way, but only if the government can hire them and only if you are a billionaire or a profitable large oil company. The rest of us will be ignored by this unpublicized portion of the Biden inflation bill.
US Dollar (UUP) Takes a Hit on CPI Report, which effectively showed that the US saw deflation in July. The greenback is pulling back the 20-year highs which gave you the cheapest European vacation in your lives. The prospect of interest rates rising at a slower pace is dollar negative. Buy (FXA) and (FXC) on dips.
Boeing (BA) Delivered its First 787 Dreamliner in a year, after long-awaited regulatory approval. The monster 30% rise in the shares off the June low predicted as much. A global aircraft shortage helps. Airbus is going to have to start earnings its money again. Keep buying (BA) on dips.
Weekly Jobless Claims Pop 12,000 to 262,000, a new high for the year. It’s not at concerning levels yet but is definitely headed in the wrong direction. Maybe it’s just a summer slowdown? Maybe not.
Shipping Container Charges are Plunging Everywhere, except in the US, which currently has the world’s strongest economy. It’s a sign that global supply chain problems are easing. But the US leads the world in demurrage, or delays, with New York the worst, followed by Long Beach.
Import Prices are Plunging, thanks to a super strong dollar, taking more pressure off of inflation. They fell 1.4% in July according to the Department of Labor. Easing supply chain problems are helping. Biden has had the run of the table for months now
My Ten-Year View
When we come out the other side of pandemic and the recession, we will be perfectly poised to launch into my new American Golden Age, or the next Roaring Twenties. With oil prices now rapidly declining, and technology hyper accelerating, there will be no reason not to. The Dow Average will rise by 800% to 240,000 or more in the coming decade. The America coming out the other side will be far more efficient and profitable than the old. Dow 240,000 here we come!
My August performance climbed to +2.14%. My 2022 year-to-date performance ballooned to +56.97%, a new high. The Dow Average is down -7.0% so far in 2022. It is the greatest outperformance on an index since Mad Hedge Fund Trader started 14 years ago. My trailing one-year return maintains a sky-high 74.76%.
That brings my 14-year total return to 569.53%, some 2.56 times the S&P 500 (SPX) over the same period and a new all-time high. My average annualized return has ratcheted up to 44.96%, easily the highest in the industry.
We need to keep an eye on the number of US Coronavirus cases at 93 million, up 300,000 in a week and deaths topping 1,037,000 and have only increased by 2,000 in the past week. You can find the data here.
On Monday, August 15 at 8:30 AM EDT, the New York Empire State Manufacturing Index for August is released.
On Tuesday, August 16 at 8:30 AM, the Housing Starts for July are out.
On Wednesday, August 17 at 8:30 AM, Retail Sales for July are published. At 11:00 AM the Fed Minutes from the last meeting are printed.
On Thursday, August 18 at 8:30 AM, Weekly Jobless Claims are announced. Existing Home Sales for July are announced.
On Friday, August 19 at 2:00 the Baker Hughes Oil Rig Count is out.
As for me, while we’re all waiting for the dog days of August to end, it is time to reminisce about my old friend George Schultz who passed away last year at the age of 101.
My friend was having a hard time finding someone to attend a reception who was knowledgeable about financial markets, White House intrigue, international politics, and nuclear weapons.
I asked who was coming. She said Reagan’s Treasury Secretary George Shultz. I said I’d be there wearing my darkest suit, cleanest shirt, and would be on my best behavior, to boot.
It was a rare opportunity to grill a high-level official on a range of top-secret issues that I would have killed for during my days as a journalist for The Economist magazine. I guess arms control is not exactly a hot button issue these days.
I moved in for the kill.
I have known George Shultz for decades, back when he was the CEO of the San Francisco-based heavy engineering company, Bechtel Corp in the 1970s.
I saluted him as “Captain Schultz”, his WWII Marine Corp rank, which has been our inside joke for years. Now that I am a major, I guess I outrank him.
Since the Marine Corps didn’t know what to do with a PhD in economics from MIT, they put him in charge of an anti-aircraft unit in the South Pacific, as he was already familiar with ballistics, trajectories, and apogees.
I asked him why Reagan was so obsessed with Nicaragua, and if he really believed that if we didn’t fight them there, would we be fighting them in the streets of Los Angeles as the then-president claimed.
He replied that the socialist regime had granted the Soviets bases for listening posts that would be used to monitor US West Coast military movements in exchange for free arms supplies. Closing those bases was the true motivation for the entire Nicaragua policy.
To his credit, George was the only senior official to threaten resignation when he learned of the Iran-contra scandal.
I asked his reaction when he met Soviet premier Mikhail Gorbachev in Reykjavik in 1986 when he proposed total nuclear disarmament.
Shultz said he knew the breakthrough was coming because the KGB analyzed a Reagan speech in which he had made just such a proposal.
Reagan had in fact pursued this as a lifetime goal, wanting to return the world to the pre nuclear age he knew in the 1930s, although he never mentioned this in any election campaign. Reagan didn’t mention a lot of things.
As a result of the Reykjavik Treaty, the number of nuclear warheads in the world has dropped from 70,000 to under 10,000. The Soviets then sold their excess plutonium to the US, which has generated 20% of the total US electric power generation for two decades.
Shultz argued that nuclear weapons were not all they were cracked up to be. Despite the US being armed to the teeth, they did nothing to stop the invasions of Korea, Hungary, Vietnam, Afghanistan, and Kuwait.
Schultz told me that the world has been far closer to an accidental Armageddon than people realize.
Twice during his term as Secretary of State, he was awoken in the middle of the night by officers at the NORAD early warning system in Colorado to be told that there were 200 nuclear missiles inbound from the Soviet Union.
He was given five minutes to recommend to the president to launch a counterstrike. Four minutes later, they called back to tell him that there were no missiles, that it was just a computer glitch projecting ghost images on a screen.
When the US bombed Belgrade in 1989, Russian president Boris Yeltsin, in a drunken rage, ordered a full-scale nuclear alert, which would have triggered an immediate American counter-response. Fortunately, his generals ignored him.
I told Schultz that I doubted Iran had the depth of engineering talent needed to run a full-scale nuclear program of any substance.
He said that aid from North Korea and past contributions from the AQ Khan network in Pakistan had helped them address this shortfall.
Ever in search of the profitable trade, I asked Schultz if there was an opportunity in nuclear plays, like the Market Vectors Uranium and Nuclear Energy ETF (NLR) and Cameco Corp. (CCR), that have been severely beaten down by the Fukushima nuclear disaster.
He said there definitely was. In fact, he was personally going to lead efforts to restart the moribund US nuclear industry. The key here is to promote 5th generation technology that uses small, modular designs, and alternative low-risk fuels like thorium.
Schultz believed that the most likely nuclear war will occur between India and Pakistan. Islamic terrorists are planning another attack on Mumbai. This time, India will retaliate by invading Pakistan. The Pakistanis plan on wiping out this army by dropping an atomic bomb on their own territory, not expecting retaliation in kind.
But India will escalate and go nuclear too. Over 100 million would die from the initial exchange. But when you add in unforeseen factors, like the broader environmental effects and crop failures (CORN), (WEAT), (SOYB), (DBA), that number could rise to 1-2 billion. This could happen as early as 2023.
Schultz argued that further arms control talks with the Russians could be tough. They value these weapons more than we do because that’s all they have left.
Schultz delivered a stunner in telling me that Warren Buffet had contributed $50 million of his own money to enhance security at nuclear power plants in emerging markets.
I hadn’t heard that.
As the event ended, I returned to Secretary Shultz to grill him some more about the details of the Reykjavik conference held some 36 years ago.
He responded with incredible detail about names, numbers, and negotiating postures. I then asked him how old he was. He said he was 100.
I responded, “I want to be like you when I grow up”.
He answered that I was “a promising young man.” I took that as encouragement in the extreme.
Stay healthy,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
We’re Getting Pretty High
Mad Hedge Technology Letter
August 3, 2022
Fiat Lux
Featured Trade:
(LOSING ITS MOJO)
(NFLX), (AMZN)
The reversion to the mean crowd who like to do no research and just buy certain shares when they go down anticipating a quick rebound needs to avoid former streaming darling Netflix (NFLX).
The company has gone from bad to worse and like your black sheep little brother who loves to play the victim, avoid at all costs!
NFLX has parlayed deteriorating content with an even worse future game plan that screams subscriber bleeding.
The headwinds are adding up to something that will be insurmountable quite soon and I don’t believe that has been accurately reflected in the stock price yet.
Let’s take the running of their clean brand.
They are damaging the brand by integrating it with a lower-cost, ad-supported tier in early 2023. This comes on the heels of Netflix tapping Microsoft to be its partner on the ad-supported offering.
For many years, NFLX was adamant they would never go this route only to do an about-face.
Already losing subscribers, inserting ads to only muddy the content further won’t move the needle in terms of improving the quickly eroding content quality.
Like on a sinking ship, they are trying to chug as many whiskey bottles as possible before the ship goes underwater.
Netflix had warned investors last quarter that it expected to shed around 2 million subscribers but only lost around 970,000 during the three-month period ending June 30.
This artsy game of claiming a pyrrhic victory because the subscriber loss was only around a million and not 2 is insane.
A million subscribers lost is detrimental to any subscriber-based company in any sphere of business.
And remember, NFLX is supposed to be the preeminent growth company, yes, the one that is losing 1 million subscribers every 3 months.
Let’s rate the business model today.
Will the median consumer bite at a monthly NFLX subscription?
In the current market environment, which is characterized by inflation, consumers alter spending. In concrete terms, this means that consumers are concentrating on fewer streaming services.
Also, an NFLX content archive that is shrinkflating doesn’t help and I am not talking in terms of volume.
They no longer have access to the hit shows of old like Friends or Seinfeld that many Millennial viewers love to watch because other streaming platforms have recalled that content.
Times are lean to the bone for NFLX these days.
What we have today is a streaming service that can’t make in-house blockbusters apart from Stranger Things and after that, the kitchen is barren.
Weirdly enough, NFLX executives have turned to anime as if it’s a broad solution to the content woes.
I’ll give you a hint - it’s not.
Stealing content ideas from their 14-year-old daughter won’t hack it in this climate.
Even worse, they are taking classic anime titles from Japan and Americanizing them.
This type of Frankenstein anime is hard to watch.
The conclusion of Stranger Things Season 4 is peak NFLX for 2022 as pitiful as that sounds.
The search for content has really gone into full drive with Amazon (AMZN) picking up France Ligue 1 soccer league rights for $250 million per year on a 3-year contract.
Things have moved on a lot in the content world with American tech companies scouring the world for quality content while NFLX has been stuck in neutral.
The stock has gone from $700 to $200, and the poor executive decisions today mixed with inferior content means that they will underperform any tech rally that is manufactured to end the year.
Global Market Comments
August 2, 2022
Fiat Lux
Featured Trade:
(AN INSIDER’S GUIDE TO THE NEXT DECADE OF TECH INVESTMENT),
(AMZN), (AAPL), (NFLX), (AMD), (INTC), (TSLA), (GOOG), (META)
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 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 this 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, buy more services.
Apple (AAPL) is his second holding. The company is in transition now justifying a massive increase in earnings multiples, from 9X to 25X. 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 beginning of an enormous replacement cycle for its installed base of over one billion phones. Moving from upfront 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 has added 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 44 Emmys last 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.
5G has enabled better Internet coverage for everyone and increased the competitiveness of the telecom companies. Factory automation has been 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 break-ups 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 between them, 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 value 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 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 services 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 millions 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. But interest rates are much lower by comparison. The Fed is forcing people to buy stocks, enabling these companies to evolve even faster.
Tech stocks 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 short list for LEAPS to buy at the coming market bottom.
Mad Hedge Technology Letter
June 1, 2022
Fiat Lux
Featured Trade:
(FACETIME ON COMPUTER NOT WHAT IT ONCE WAS)
(XOM), (NFLX), (ZM)
Data may be the new oil, but oil is still oil, and the price per barrel of crude oil as we speak is $118.
The high price of energy, amongst other controversial forces, has been the genesis of great pain for tech stocks in 2022 and it was only just 18 months ago Zoom (ZM) had a bigger market cap than Exxon Mobil (XOM).
Fast forward to today, Exxon Mobil is 10x bigger than Zoom.
This is just a sign of the times.
That was then and this is now, and past pricing won't dictate future price and markets can remain irrational much longer than you can stay solvent, but this oil pricing will remain fluid for the foreseeable future.
The cure for higher prices is often said to be higher prices to the further detriment of tech shares.
As we step back for a second and analyze this new world order with new rules, the ‘Facetime on computer’ company ZM SHOULD be worth less than a global oil giant powering civilization.
10 to 1 seems like a mockery of the situation in which the ratio should probably be more like 1000x to 1.
The current price is a reflection of the “good times” in the energy space and tech has by and large been sent to the graveyard.
Concerns that the Fed's rate hikes may induce a recession are keeping investors guessing about the outlook for the economy as rising food and energy costs squeeze consumers, and volatility has picked up.
Therefore, how do we predict the short-term future?
It will clearly be defined by dramatic and volatile stock swings in each direction of the pendulum.
Tech markets, and by default, global markets, since tech is the driving force of the US markets will still indulge in fear of missing out (FOMO) portfolio managers that got whacked the first 6 months of the year, only to try to play catch up to achieve performance targets.
Don’t tell me these people don’t exist, they’ve just been licking their wounds in a more than brutal market setup.
This bear market rally is taking place on the heels of US President Joe Biden using a rare meeting with Federal Reserve Chair Jerome Powell to literally paint Powell as the scapegoat.
These meetings usually take place before a selloff because more often than not, people in certain places know horrible inflation numbers are coming down the pipeline hence the scapegoat meeting.
Even if inflation stays stubbornly high, but comes down to 6%, it will still hurt the American consumer which many economists have referred to as the last peg holding up the US stock market and economy.
The momentum we are seeing in this bear market rally won’t be able to hold much longer as American consumers are priced out of housing and credit card delinquency inches up.
Tech earnings won’t be what saves us either as the prospect of downward revisions to earnings estimates is the latest headwind to face stock investors.
We must rejoice around this Nasdaq bear market rally that has seen tech come back to life.
The dominant ecommerce company Amazon has seen a 15% resurgence and left-wing biased streaming company Netflix (NFLX) has recovered 15% from their lows too.
But we need to remember that since February 2022, this is a new world with a new set of rules.
Oil is more important than seeing your coworkers on a video chat, yet the inverse was true before February.
In this new world, tech and its share prices simply don’t stack up like they used to compared to other asset classes.
That being said, tech won’t go up in a straight line from this bear market rally, and that’s certainly better than the kamikaze-esque price action we saw the first half of the year.
The Mad Hedge Technology Letter will pick our spots, but I am not convinced in going completely bullish or 100% bearish at this point in the deleveraging cycle.
Mad Hedge Technology Letter
May 16, 2022
Fiat Lux
Featured Trade:
(INSANITY AT CALPERS)
(GME), (AMC), (NFLX)
Pension funds are famous for being slow rollers, usually taking the safest of safest routes to preserve capital and slowly grow asset portfolios.
The people they serve, the pensioner, should be a microcosm of what the fund is about.
This would make sense since the capital in the first place comes from employees and is meant to fund these workers after retirement.
Many people don’t know that modern pension funds serve a dual mandate of, not only doling out monthly stipends to old people, but playing the role of trader on the active markets.
American states and sovereign countries usually have massive pension funds which can move markets.
The board usually hires qualified and credentialed management to oversee funds...or do they?
So one might ask, what on earth is going on with the largest pension fund in America, representing the state of California CALPERS?
CALPERS increased its meme stock and movie theatre company AMC (AMC) stake this first quarter again.
Last year the institution loaded up on AMC and GameStop (GME).
During this time, the California Public Employees’ Retirement System (CALPERS) had sold an 11% stake in Palantir (PLTR).
CALPERS is betting the ranch on meme stocks, and that is scary news.
It obviously means that the bottom is not in since there is more dumb money flooding into the system.
Once we flush out the weak hands then it will signify rock bottom, but as long as we have CALPERS buying up meme stocks then it’s hard not to be bearish.
Even more baffling was the decision to sell an extreme amount of Netflix (NFLX) after colossal losses.
Netflix stock is down almost 69% this year-to-date and it dropped 38% in the first quarter of 2022 alone.
Taking a major loss in Netflix only to roll money into GameStop and AMC is seriously what the California state pension fund is doing.
This is no joke.
At least they don’t own cryptos like Dogecoin or Shiba Inu coin.
I am not sure exactly what their plan is but movie theatre watching is dead.
Perhaps, CALPERS plan to offer their retirees free movie tickets along with a depreciating amount of monthly pension.
Suspicion runs deep into who is making decisions at the helm and that is the CEO of CALPERS Marcie Frost.
She spent 30 years as a public servant in Washington state. Her early leadership roles were in human resources with an emphasis on employee benefit programs and information technology.
In 2013 Marcie was named cabinet lead by Washington State Governor Jay Inslee for the Results Washington performance and accountability system, where she served as an early creator and architect for the platform that tracks goals and progress in education, the state's economy, sustainable energy, healthy and safe communities, and efficient government.
Basically, she has no idea about the stock market yet she is CEO of the biggest pension fund in America.
Her role as tracking the “progress in education” is somehow supposed to transfer over to stock market overperformance.
This screams a breach of fiduciary duty and it could end up in tatters for CALPERS.
CALPERS has been infamous for terrible management decisions and Marcie’s predecessor breached conflict of interest mandates by investing in Los Angeles real estate that he has an interest in.
Clearly, the board of CALPERS favors crony capitalism as a management style.
Any 14-year-old student would know under no circumstance, should a pension fund choose to voluntarily speculate on high-risk assets.
Is it really a thirst for yield?
If CALPERS blows up and is forced to mass unwind, don’t forget this story.
