Global Market Comments
August 21, 2023
Fiat Lux
Featured Trades:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or LEARNING A NEW WORD),
(JPM), (WPM), (FCX), (OXY), (CCI)
(SPY), (TLT), (TSLA), (NVDA), ($WTIC)
CLICK HERE to download today's position sheet.
It’s not often that I learn a new word, at least in English anyway. Anyone who has read all 4,000 pages of John Steinbeck, where you are sent running for your Funk & Wagnalls on every page, shouldn’t be surprised too often. Steinbeck spent two winters house-sitting at Lake Tahoe where he memorized the dictionary cover to cover. But, last week I was.
The word in question is “disinversion.”
Disinversion happens in two ways. When bond yields fall and short yields fall much faster, you get good disinversion and stocks usually rise. This is what I expect to happen in 2024 and is why I am loading the boat with falling interest plays like banks (JPM), precious metals (WPM), commodities (FCX), energy (OXY), and REITS (CCI).
However, stock markets are insecure things, afraid of their own shadows, always shrinking from a fight, and constantly looking for new reasons to worry. Now they are also losing sleep over disinversion.
Disinversion also takes place when short rates are falling but bond yields are rising. When that happens the real estate market gets slaughtered but sky-high mortgage rates, the economy collapses and stocks fall. The good news is that bad disinversion only happens about 10% of the time.
However, a rising number of bond analysts are raising the alarm that we may be in for a dose of the bad kind of disinversion before the good kind kicks in. That could trigger a capitulation in the bond market that could take the ten-year US Treasury bond yield from the current 4.25% yield to 5.0% or even higher, and take the (TLT) down to a low of $90, or even $85. Stocks would drop 10%.
That would be a nightmare for 2024 LEAPS holder, no matter how brief it may be.
It doesn’t help that the government is borrowing now at a record pace, some $109 billion last week alone. That is why the (TLT) is probing one-year lows.
But whether bonds are inverting, disinverting, converting, or perverting, I’ll be buying two-year bond (LEAPS) if that happens. A 100% return in two years on a government bond risk sounds like a petty good deal to me, even if they are now rated only AA+, thanks to you know who. However you look at it, there is one heck of a bond trade setting up.
We may get our answer at 10:05 AM EST on Friday, August 25.
That’s when Jay Powell, the governor of the Federal Reserve, is due to be the keynote speaker at the meeting of global central bankers at Jackson Hole. Will this mark the bottom in bond prices and the top in yields?
Last year, Jay’s mumblings lasted only eight minutes and warned of “pain to come.” Pain we got, but for only two months. After that, it was nine months of pleasure in the form of straight-up stock prices.
Will Jay Powell Drop a Bomb Next Week?
Only Jay Powell knows for sure.
In the meantime, stocks will remain as dead as a doorknob and moribund, if not catatonic. Volatility ($VIX) will hug the $15 level, the “A” Team traders will remain at the Hamptons, and the number of new trades alerts emanating from me will remain precisely at zero.
There never is a profit trading when the Mad Hedge AI Market Timing Index vacillates around 50, as it is doing now. Sometimes you just get paid to wait, especially when 90-day T-bills are paying a healthy 5.25%.
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%, another new high, some 2.50 times the S&P 500 over the same period.
Some 41 of my 46 trades this year have been profitable.
My Ten-Year View
When we come out the other side of the recession, we will be perfectly poised to launch into my new American Golden Age, or the next Roaring Twenties. The economy decarbonizing and technology hyper-accelerating, creating enormous investment opportunities. The Dow Average will rise by 800% to 240,000 or more in the coming decade. The new America will be far more efficient and profitable than the old.
Dow 240,000 here we come!
On Monday, August 21, BHP (BHP) and Zoom (ZM) announce earnings.
On Tuesday, August 22 at 7:00 AM EST, Existing Homes Sales for July are released.
On Wednesday, August 23 at 2:30 PM EST, the New Homes Sales are published.
On Thursday, August 24 at 8:30 AM EST, the Weekly Jobless Claims are announced. So are US Durable Goods.
On Friday, August 25 at 7:00 AM, Fed Governor Jay Powell gives his keynote speech at the Jackson Hole Central Bankers Conference. At 2:00 PM, the Baker Hughes Rig Count is printed.
As for me, I am often told that I am the most interesting man people ever met, sometimes daily. I had the good fortune to know someone far more interesting than myself.
When I was 14, I decided to start earning merit badges if I was ever going to become an Eagle Scout. I decided to begin with an easy one, Reading Merit Badge, where you only had to read four books and write one review. I loved reading, so “Piece of cake,” I thought.
I was directed to Kent Cullers, a high school kid who had been blind since birth. During the late 1940s, the medical community thought it would be a great idea to give newborns pure oxygen. It was months before it was discovered that the procedure caused the clouding of corneas and total blindness in infants.
Kent was one of these kids.
It turned out that everyone in the troop already had Reading Merit Badge and that Kent had exhausted our supply of readers. Fresh meat was needed.
So, I rode my bicycle over to Kent’s house and started reading. It was all science fiction. America’s Space Program had ignited a science fiction boom and writers like Isaac Asimov, Jules Verne, Arthur C. Clark, and H.G. Welles were in huge demand. Star Trek came out the following year, in 1966. That was the year I became an Eagle Scout.
It only took a week for me to blow through the first four books. In the end, I read hundreds to Kent. Kent didn’t just listen to me read. He explained the implications of what I was reading (got to watch out for those non-carbon-based life forms).
Having listened to thousands of books on the subject, Kent gave me a first-class education and I credit him with moving me towards a career in science. Kent is also the reason why I got an 800 SAT score in Math.
When we got tired of reading, we played around with Kent’s radio. His dad was a physicist and had bought him a state-of-the-art high-powered short-wave radio. I always found Kent’s house from the 50-foot-tall radio antenna.
That led to another merit badge, one for Radio, where I had to transmit in Morse Code at five words a minute. Kent could do 50. On the badge below, the Morse Code says “BSA.” In those days, when you made a new contact, you traded addresses and sent each other postcards.
Kent had postcards with colorful call signs from more than 100 countries plastered all over his wall. One of our regular correspondents was the president of the Palo Alto High School Radio Club, Steve Wozniak, who later went on to co-found Apple (AAPL) with Steve Jobs.
It was a sad day in 1999 when the US Navy retired Morse Code and replaced it with satellites and digital communication far faster than any human could send. However, it is still used as beacon identifiers at US airfields.
Kent’s great ambition was to become an astronomer. I asked how he would become an astronomer when he couldn’t see anything. He responded that Galileo, the inventor of the telescope, was blind in his later years.
I replied, “Good point.”
Kent went on to get a PhD in Physics from UC Berkeley, no mean accomplishment. He lobbied heavily for the creation of SETI, or the Search for Extra-Terrestrial Intelligence, once an arm of NASA. He became its first director in 1985 and worked there for 20 years.
In the 1987 movie Contact, written by Carl Sagan and starring Jodie Foster, Kent’s character is played by Matthew McConaughey. The movie was filmed at the Very Large Array in western New Mexico. The algorithms Kent developed there are still in widespread use today.
Out here in the West, aliens are a big deal, ever since that weather balloon crashed in Roswell, New Mexico in 1947. In fact, it was a spy balloon meant to overfly and photograph Russia, but it blew back on the US, thus its top secret status.
When people learn I used to work at Area 51, I am constantly asked if I have seen any spaceships. The road there, Nevada State Route 375, is called the Extra Terrestrial Highway. Who says we don’t have a sense of humor in Nevada?
After devoting his entire life to searching, Kent gave me the inside story on searching for aliens. We will never meet them but we will talk to them. That’s because the acceleration needed to get to a high enough speed to reach outer space would tear apart a human body. On the other hand, radio waves travel effortlessly at the speed of light.
Sadly, Kent passed away in 2021 at the age of 72. Kent, ever the optimist, had his body cryogenically frozen in Hawaii where he will remain until the technology evolves to wake him up. Minor planet 35056 Cullers is named in his honor.
There are no movies being made about my life…. yet. But there are a couple of scripts out there under development.
Watch this space.
Good Luck and Good Trading,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Dr. Kent Cullers
New Mexico Very Large Array
Reading Merit Badge
Radio Merit Badge
Here Comes the Heat-Induced Recession.
Large parts of the UK economy are shutting down today, including the entire rail system, due to extreme heat. The temperature in London today is expected to top a record 107 degrees. Much of Britain’s infrastructure is simply not designed to operate at these temperatures.
France is worse, with temperatures there reaching 113 degrees. It will not be the last time that temps get this high. As for Southern Italy, it has become uninhabitable by humans at 116 degrees.
That brings the prospect that weather forecasts may become a much more important aspect of stock market predictions than they have in the past. Just like we have to now include new covid cases and deaths as part of our daily calculation, so might the high temperature of this day.
The temperature has in effect become a new economic indicator.
As for me, I am high in the Alps at 7,000 feet where it is a much more comfortable 80 degrees. The rivers are roaring below me with record glacier melts, tar on the roads is melting, and it is too hot to hike. With ice disappearing, there is talk of the Matterhorn breaking apart.
But at least I can catch up on my paperwork. The trouble is, so is everyone else and my Internet speed has slowed from 45 megabytes per second to an unusable 10.
Below is an email I received from British Rail which I rode only last week.
Dear Customer,
You may be aware that Network Rail has urged people across the country to only travel if absolutely necessary on Monday 18 and Tuesday 19 July. This comes as a result of the extreme heat forecast for these two days.
On Monday and Tuesday, temperatures are expected to reach up to 42°C in London and the surrounding area, and the mid-30s in the western parts of our network. As rail temperatures can be up to 20°C higher than the air around them, there is a risk of them buckling in the extreme heat.
As a result, Network Rail will introduce speed restrictions across the network to minimize the force on the tracks and reduce the chance of buckling. These speed restrictions will, in turn, make journeys longer and we will introduce a reduced service on Monday and Tuesday in a bid to give our customers certainty on what will run.
The speed restrictions will particularly affect our mainline services, with long-distance services to Exeter, Salisbury, Bournemouth, Weymouth, Southampton, and Portsmouth most likely to be impacted.
Service changes are likely to appear in journey planners at short notice, so anyone who chooses to travel despite the warnings on Monday or Tuesday is urged to check their journey before setting off and to expect last-minute delays and cancellations.
If you have no choice but to travel, you are urged to carry water with you, cover up, and wear sunscreen when traveling. Find out more about traveling in hot weather here.
If you choose to delay your travel, please note that the original ticket restrictions will still apply. If you are using an Advance Purchase ticket, please travel as close to the original departure time as possible or make use of Book With Confidence.
Thank you for your patience and understanding.
Yours sincerely,
South Western Railway
Mad Hedge Technology Letter
August 14, 2023
Fiat Lux
Featured Trade:
(MACRO RISKS CLOUD THE PICTURE)
(AAPL), (NVDA), ($COMPQ)
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.
Global Market Comments
August 14, 2023
Fiat Lux
Featured Trades:
(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)
CLICK HERE to download today's position sheet.
What a difference a vacation makes!
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
Mad Hedge Technology Letter
August 11, 2023
Fiat Lux
Featured Trade:
(SHORT-TERM STUMBLES)
(AAPL), (NVDA)
When Apple and Nvidia go, so does the Nasdaq.
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.
Mad Hedge Technology Letter
July 7, 2023
Fiat Lux
Featured Trade:
(TRAFFIC SAGS FOR THE GENERATIONAL TECHNOLOGY)
(OPENAI), (NVDA)
