The momentum signals that tech shares ($COMPQ) are still working themselves out and need more time to stomach Fitch’s debt downgrade.
Unfortunately, it hasn’t been a one-day dip buying opportunity and this month has been quite abysmal for the tech sector.
Just look at Apple which lost about 10% in value. That’s almost unheard of in today’s day and age.
Many investors are still recalibrating what it means to be on the end of a stunning sudden downgrade for the biggest economy in the world.
Making matters worse, the empirical data is starting to really show that China is teetering on the edge.
Centrally planned economies can have their time in the sun, but eventually, that system blows up as inefficiencies become a doom loop with no end.
There is a good chance at this point in his leadership that Chinese Communist Party Chairman Xi cannot get the right information about what is going on in China because the ranks have been solidified by cadres that leech off the system.
China could mean another leg down to close off the year instead of the relief rally that is poised to lift us back from the short-term weakness.
The Nasdaq index has dropped 4.2% this month, with top tech companies like Nvidia on the brink of 10% decreases.
Even Microsoft, despite its advancements in AI and partnership with OpenAI, has seen a 4% drop in August. Google has also shed 2.1%.
However, one tech giant that has been able to maintain a positive trajectory is Amazon, with its stock up 4% for the month.
This may be due to the company closely monitoring the productivity of employees returning to the office, as increased productivity can lead to higher profits.
The decrease in tech stocks coincides with the 10-year Treasury yield rising from approximately 3.95% in late July to above 4.1% currently.
Some signals suggest that yields may still go up and Fed futures reflect this with around a 35% chance the Fed will hike another .25% to 5.50%.
We could find us swiveling from the soft landing is complete to a “higher (yields) for longer” pivot which is effectively negative for short-term positive price action in tech stocks.
It’s entirely plausible that yields could retest the highs from 2022, based on the chart and recent trends.
This could spell bad news for tech investors, as tech stocks typically do not perform well in an environment of elevated yields. Higher borrowing costs, more attractive returns on cash, and increased scrutiny of future growth are among the challenges that tech companies face when interest rates rise.
However, the tech story is still intact albeit it a substantial amount more fragile than in early 2023.
The pain trade will be higher, but the fragility exposes itself to quicker external risks than before that could topple the market swiftly.
The United States has nobody but themselves to blame after issuing a mountain of debt and it’s largely true that when China sneezes, the world catches a cold.
Tech shares will be confronted with these two rising risks for the foreseeable future.
Best case scenario will see tech grinding higher into year-end, and don’t expect any gaps up. The low-hanging fruit has already been plucked from the vine this year.
https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png00Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2023-08-14 14:02:592023-08-25 17:50:44Macro Risks Cloud the Picture
(MARKET OUTLOOK FOR THE WEEK AHEAD, or THE GREAT ROTATION OF 2023 IS ON)
(AAPL), (TSLA), (NVDA), (GOOGL), (OXY), (QQQ),
(TSLA), (WPM), (UNG), (BRK/B), (RIVN), (TLT)
When I boarded the Queen Mary II in early July, big technology stocks (AAPL), (TSLA), (NVDA), (GOOGL) were on fire and knew no bounds, while bonds (TLT) were holding steady at a 3.40% yield. Energy stocks (OXY) were scraping the bottom.
One month later and big tech is in free fall while energy, commodities, and precious metals have taken over the lead. Bonds are probing for new lows at a 4.20% yield and may have another $5.00 of downside.
The Great Rotation of 2023 has begun!
The only question is how long it will last.
I happen to believe that we are into a traditional summer correction that could last until the usual September or October bottom. That is when I will be picking up long-term bull LEAPS with both hands. After that, it’s off to the races once again to new all-time highs once again.
Except that this time, everything will go up, both big tech, the domestics recovery plays, and bonds. That’s because they will be discounting the next great market mover, several successive cuts in interest rates by the Federal Reserve certain to take place in 2024.
We all know that markets discount market-moving developments six to nine months in advance. That means you should start buying about….September or October.
Perhaps the best question asked at my many strategy luncheons this summer came from a dear old friend in London. “Where is all the money coming from to pay for all this”? The answer is, well complicated. I’ll give you a list”
1) All of the Quantitative Easing money created since 2008, some $10 trillion worth, is still around. It is just sleeping in 90-day T-bills.
2) With inflation basically over, thanks to hyper-accelerating technology and collapsing energy prices, the case for the Fed to stop raising and start cutting interest rates is clear.
3) Falling interest rates trigger a collapse in the US dollar.
4) Earnings at big tech companies explode, which earn about half of their revenues from abroad.
5) The falling interest rate sectors are also set alike. These include energy, commodities, precious metals, and bonds.
6) A cheap greenback pours gasoline on the economy.
7) The $1 trillion in stimulus approved last year provides the match as most of it has yet to be spent.
8) China finally recovers and turbocharges all of the above trends.
9) 2024 is a presidential election year and the economy always seems to do mysteriously well going into such events.
10) All we are left to do is sit back and watch all our positions go up, figure out how we are going to spend all that money, and sing the praises of the Mad Hedge Fund Trader.
So far in August, we are down -4.70%. My 2023 year-to-date performance is still at an eye-popping +60.80%. The S&P 500 (SPY) is up +17.10% so far in 2023. My trailing one-year return reached +92.45% versus +8.45% for the S&P 500.
That brings my 15-year total return to +657.99%. My average annualized return has fallen back to +48.15%, some 2.50 times the S&P 500 over the same period.
Some 41 of my 46 trades this year have been profitable.
The Nonfarm Payroll drops to 187,000 in July, a one-year low, less than expectations. The Headline Unemployment Rate returned to 3.5%, a 50-year low. The soft-landing scenario lives! That’s supposed to be impossible in the face of 5.25% interest rates. Average hourly earnings grew at a restrained 3.6% annual rate. Half of the new jobs were in health care. At the rate we are aging, that is no surprise.
Rating Agencies Strike Again, with Moody’s threatened downgrade of a dozen regional banks. Stocks took it up on the nose giving up Monday’s 400-point gain. Higher funding costs, potential regulatory capital weaknesses, and rising risks tied to commercial real estate are among strains prompting the review, Moody’s said late Monday. The summer correction is finally here.
Berkshire Hathaway Post Record Profit, with profits up 38% and interest and other investment income growing sixfold as Warren Buffet’s trading vehicle goes from strength to strength to strength. Sky-high interest rates enabled its Geico insurance holding to really coin it this time. Buffet turns 93 this month. Keep buying (BRK/B) on dips. Our LEAPS are looking great, up 327% in 11 months.
Rivian Beats, losing only $1.08 a share versus an expected $1.41. The stock jumped 3% on the news. The gross profit per vehicle showed a dramatic improvement at $35,000. The production forecast edged up from 50,000 to 52,000 vehicles for 2023. Momentum is clearly improving making our LEAPS look better by the day. Buy (RIVN) on dips as the next (TSLA).
Deflation Hits China, as the post-Covid recovery continues to lag. Their Consumer Price Index fell 0.3% YOY. Imports and exports are falling dramatically as trade sanctions bite. Youth unemployment hit a new high as 11.6 million new college grads hit the market. Global commodities could get hit but so far the stocks aren’t seeing it. Avoid anything Chinese (FXI), even the food.
Inflation Jumps, 0.2% in July and 3.2% YOY. Rents, education, and insurance (climate change) were higher while used cars were down 1.3% and airfares plunged by 8.1%. Stocks rallied on the small increase preferring to focus on the smallest back-to-back increase in two years. Bonds (TLT) rallied big. The big question is what will the Fed do with this?
Weekly Jobless Claims came in at a strong 278,000, showing the Fed’s high-interest rate policy is having an effect on the jobs market. Stocks want to know how much longer it will last.
Natural Gas Soars to a new high and accomplished an upside breakout on all charts. European gas prices have just jumped 40%. An Australian strike shut down an LNG export facility. Energy traders are looking for higher highs. My (UNG) LEAPS, a Mad Hedge AI pick, are looking great, doubling off our cost in two months.
Biden Cracks Down on Technology Investment in China, especially on our most advanced tech which can be used in weapons development. Tech investment in the Middle Kingdom is already down 70% over the last two years. No point in selling China the rope with which to hang us.
Home Mortgage Rates Hit a 22-Year High, at 7.08%. But the existing home market is heating up and the new home market is absolutely on fire in anticipating of a coming rate fall. You can’t beat a gale-force demographic tailwind.
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, August 14 at 8:00 AM EST, the US Consumer Inflation Expectations are out,
On Tuesday, August 15 at 8:30 AM, US Retail Sales are released.
On Wednesday, August 16 at 2:30 PM, the US Building Permits are published.
On Thursday, August 17 at 8:30 AM, the Weekly Jobless Claims are announced.
On Friday, August 18 at 2:00 PM, the Baker Hughes Rig Count is printed.
As for me, occasionally, I tell close friends that I hitchhiked across the Sahara Desert alone when I was 16 and I am met with looks that are amazed, befuddled, and disbelieving, but I actually did it in the summer of 1968.
I had spent two months hitchhiking from a hospital in Sweden all the way to my ancestral roots in Monreale, Sicily, the home of my Italian grandfather. My next goal was to visit my Uncle Charles who was stationed at the Torreon Air Force base outside of Madrid, Spain.
I looked at my Michelin map of the Mediterranean and quickly realized that it would be much quicker to cut across North Africa than hitching all the way back up the length of Italy, cutting across the Cote d’Azur, where no one ever picked up hitchhikers, then all the way down to Madrid, where the people were too poor to own cars. So one fine morning found me taking deck passage on a ferry from Palermo to Tunis. From here on, my memory is hazy and I remember only a few flashbacks.
Ever the historian, even at age 16, I made straight for the Carthaginian ruins where the Romans allegedly salted the earth to prevent any recovery of a country they had just wasted. Some 2,000 years later it, worked as there was nothing left but an endless sea of scattered rocks. At night, I laid out my sleeping bag to catch some shut-eye. But at 2:00 AM, someone tried to bash my head in with a rock. I scared them off but haven’t had a decent night of sleep since.
The next day, I made for the spectacular Roman ruins at Leptus Magna on the Libyan coast. But Muamar Khadafi pulled off a coup d’état earlier and closed the border to all Americans. My visa obtained in Rome from King Idris was useless.
I used to opportunity to hitchhike over Kasserine Pass into Algeria, where my uncle served under General Patton in WWII. US forces suffered an ignominious defeat until General Patton took over the army 1n 1943. Some 25 years later, the scenery was still littered with blown-up tanks, destroyed trucks, and crashed Messerschmitts. Approaching the coastal road, I started jumping trains headed west. While officially the Algerian Civil War ended in 1962, in fact, it was still going on in 1968. We passed derailed trains and smashed bridges. The cattle were starving. There was no food anywhere.
At night, Arab families invited me to stay over in their mud brick homes as I always traveled with a big American Flag on my pack. Their hospitality was endless, and they shared what little food they had.
As a train pulled into Algiers, a conductor caught me without a ticket. So, the railway police arrested me and on arrival took me to the central Algiers prison, not a very nice place. After the police left, the head of the prison took me to a back door, opened it, smiled, and said “si vou plais”. That was all the French I ever needed to know. I quickly disappeared into the Algiers souk.
As we approached the Moroccan border, I saw trains of camels 1,000 animals long, rhythmically swaying back and forth with their cargoes of spices from central Africa. These don’t exist anymore, replaced by modern trucks.
Out in the middle of nowhere, bullets started flying through the passenger cars splintering wood. I poked my Kodak Instamatic out the window in between volleys of shots and snapped a few pictures.
The train juddered to a halt and robbers boarded. They shook down the passengers, seizing whatever silver jewelry and bolts of cloth they could find.
When they came to me, they just laughed and moved on. As a ragged backpacker, I had nothing of interest for them.
The train ended up in Marrakesh on the edge of the Sahara and the final destination of the camel trains. It was like visiting the Arabian Nights. The main Jemaa el-Fna square was amazing, with masses of crafts for sale, magicians, snake charmers, and men breathing fire.
Next stop was Tangiers, site of the oldest foreign American embassy, which is now open to tourists. For 50 cents a night, you could sleep on a rooftop under the stars and pass the pipe with fellow travelers which contained something called hashish.
One more ferry ride and I was at the British naval base at the Rock of Gibraltar and then on a train for Madrid. I made it to the Torreon base main gate where a very surprised master sergeant picked up a half-starved, rail-thin, filthy nephew and took me home. Later, Uncle Charles said I slept for three days straight. Since I had lice, Charles shaved my head when I was asleep. I fit right in with the other airmen.
I woke up with a fever, so Charles took me the base clinic. They never figured out what I had. Maybe it was exhaustion, maybe it was prolonged starvation. Perhaps it was something African. Possibly, it was all one long dream.
Afterwards, my uncle took for to the base commissary where I enjoyed my first cheeseburger, French fries, and chocolate shake in many months. It was the best meal of my life and the only cure I really needed.
I have pictures of all this which are sitting in a box somewhere in my basement. The Michelin map sits in a giant case of old, used maps that I have been collecting for 60 years.
Mediterranean in 1968
Stay healthy,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
https://www.madhedgefundtrader.com/wp-content/uploads/2023/08/young-john-1968-scaled-e1692035288591.jpg429400Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2023-08-14 09:02:072023-08-14 14:39:58The Market Outlook for the Week Ahead, or the Great Rotation of 2023 is On
That’s why tech shares have been relatively impotent the past few weeks as Apple, again, revealed they don’t have much more than the iPhone.
This has spooked tech shares.
Combine the lack of innovation from Apple with the scares of Nvidia not being able to sell their chips in China as Washington clamps down on China’s ability to procure semiconductor products, and there you have it.
Growth fears from the biggest and best tech companies mean that as a sector, the Nasdaq shares pull back and investors are feeling the pain.
Apple is experiencing a slowdown in the smartphone market, but will the presumed iPhone 15 release in September change that for Apple?
NVDA shares surged by over 200% year-to-date in 2023 and replicating that for the back half of the year is almost impossible.
A continued drop in Apple’s overall revenue suggests that investors demand Apple to pull another cat out of the hat and at some point find something new.
A bout of inertia from management could force investors to look elsewhere with their capital allocation strategy.
Services did have a good quarter, but moving forward, what is their grand plan?
What does that mean then for this quarter as well as the next quarter, when we get the presumed iPhone 15?
It's something that Apple is going to have to answer once those phones are revealed in September.
They're going to have to have stellar features and not just the same groundhog day with a different color lock screen.
New cameras, new processor, basically looks the same. So can Apple really push the envelope enough to get people back into stores, back online, and picking up their products?
Take what I just said about the iPhone and apply it to the iPad and the Mac businesses too.
It is an industry-wide trend where people bought their PCs or laptops during the government-mandated lockdowns.
Now they just don't need another new one. And so we're seeing that from manufacturers to chip makers as well.
Beyond Apple, what about Nvidia?
There was a massive run-up on NVDA shares throughout the year. And now the question is, can they keep it rolling?
NVIDIA is a unique company when it comes to the AI space. They produce chips that nobody else can. They've perfected this over decades. They made the bet several years ago, and now it's really paying off for them.
Also, what happens when companies, this kind of hyperscaler companies, go out and begin putting their own chips into their own servers?
We know that Microsoft is working on it, Google is working on it, Amazon's working on it; Tesla has their own supercomputer that they're building with their own chips.
They already use NVIDIA as well and Elon Musk had said, look, we'll order as many as we can.
I don’t believe that will bite Nvidia in the short term, but it’s definitely a long-term risk.
As long as Nvidia produces the quality required to stay ahead of the competition, the stock market will pick back up after it has time to digest the rally in the first half of the year.
Ultimately, these are great companies, but faster than we know it, solutions are demanded for structural problems.
https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png00Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2023-08-11 15:02:582023-08-25 17:30:45Short-Term Stumbles
OpenAI’s splash into AI was the secret sauce as to why tech stocks have gone parabolic in 2023.
The platform achieved a remarkable milestone by amassing 100 million monthly active users quite early on, setting a record for the fastest-growing user base.
With ChatGPT’s widespread absorption, OpenAI has been looked at as the savior for revenue models in Silicon Valley.
However, this period of AI enthusiasm has proved to be short-lived, as the technology experiences its first real pullback.
Based on the latest data, ChatGPT experienced a 9.7% decrease in desktop and mobile web traffic during June. The site also saw a decline of 5.7% in unique visitors.
This was followed by an 8.5% decrease in the average time users spent on the site. In the United States, the month-on-month traffic decline for the website was recorded at 10.3%.
The downtrend in traffic is quite surprising considering that groundbreaking new technologies which are still in their honeymoon phases never report any decrease in eyeballs whatsoever.
There's been a lot of buzz around artificial intelligence since ChatGPT was released seven months ago. About a month and a half before the chatbot was released to the public, the stock market bottomed in a bear market around the middle of October.
I am not saying the bottom will fall out of tech stocks, but the gaps up will probably cool down in the short term.
Take example one stock that has performed spectacularly – Nvidia (NVDA).
They have even managed to achieve this against a backdrop of challenging macroeconomic headwinds and a hawkish Federal Reserve.
The drop in ChatGPT interest is a warning sign that the beautiful girl has hit the wall.
It can’t be as simple as investors cheering on AI from the sidelines and then stocks go magically up. It’s not that easy.
The inherent technology needs evidence of outperformance and cannot lack substance.
A significant majority, comprising 61%, of ChatGPT’s user base consists of individuals from Generation Z.
This AI tool has gained considerable popularity for its educational applications.
For example, according to a research report, respondents reported using ChatGPT for educational purposes, with 33% utilizing it for educational assistance. 18% rely on it to comprehend complex concepts, and 15% use it to acquire new skills.
Investors need to understand that sliding interest in ChatGPT could be a catalyst for the AI bubble to lose air.
At the moment, AI's risks are as massive as its potential. We won't know until ten years later whether AI's impact is more akin to the internet or the Google Glass.
There are also other issues. Sam Altman, chief executive at OpenAI, has described the cost of running the services as “eye-watering.”
ChatGPT is free to use but also provides a premium subscription, where users can pay $20 a month to access OpenAI’s more advanced model, GPT-4.
Some 1.5 million people have signed up for the subscription, but the other tens of millions aren’t on board yet. For many people, it’s not worth paying for yet.
OpenAI has projected $200 million in revenue this year.
I believe it is time to take a short-term breather for the moment in AI. AI might turn out to be the shiny star many experts think it will be, but it doesn’t take one day to become that shiny start especially when the majority of OpenAI users are applying it to do their homework.
https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png00Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2023-07-07 14:02:032023-07-09 22:13:44Traffic Sags for the Generational Technology
Recently, I have been touting a 2022 track record of +84.63%.
I have a confession to make.
I lied.
In actual fact, my performance was far higher than that. In reality, I generated a multiple of that +84.63% figure.
That is because my published performance is only for my front-month short-term trade alerts. It does not include the LEAPS recommendations (Long Term Equity Anticipation Securities) issued in 2022, the details of which I include below.
LEAPS have the identical structure as a front month vertical bull call debit spread. The only difference is that while front-month call spreads have expiration dates of less than 30 days, LEAPS go out to 18-30 months.
LEAPS also have strike prices far out of-the-money instead of deep in-the-money, giving you infinitely more upside leverage. LEAPS are actually synthetic futures contracts on the underlying stock.
Of the 12 LEAPS executed in 2022, eight made money and four lost. But the successful trades win big, up to 1,260% in the case of NVDIA (NVDA). With the losers, you only write off the money you put up.
And you still have 18 months until expiration for my four losers, ample time for them to turn around and make money. In the case of my biggest loser for Rivian (RIVN), Tesla launched an unprecedented EV price way shortly after I added this position. Never take on Tesla in a price war. Black swans happen.
Of course, timing is everything in this business. I only add LEAPS during major market selloffs as the leverage is so great, over 20X in some cases, of which there were four in 2022.
If you would like to receive more extensive coverage of my LEAPS service, please sign up for the Mad Hedge Concierge Service where you can excess a separate website devoted entirely to LEAPS. Be aware that the Concierge Service is by application only, has a limited number of places, and there is usually a waiting list.
Given the numbers below, it is easy to understand why most professional full-time traders only invest their personal retirement funds in LEAPS.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
The Sweet Taste of LEAPS
https://www.madhedgefundtrader.com/wp-content/uploads/2023/06/john-thomas-red-wine.jpg292317Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2023-06-29 09:02:042023-06-29 12:30:12My 2022 LEAPS Track Record
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