Global Market Comments
February 26, 2024
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or WHO NEEDS RATE CUTS?
(NVDA), (TSLA), (BRK/B), (SPY), (AMZN), (UNG)
Tag Archive for: (TSLA)
People will be sitting around campfires trading stories about last week’s NVIDIA move for decades.
Analysts have been struggling to outdo each other in describing their earnings report that came out on Thursday. Here’s my favorite: The gain in the company’s market capitalization on that day, at $278 billion the largest in history, exceeded its TOTAL market capitalization at the pandemic bottom.
And here I deserve some bragging rights. Mad Hedge followers went into last week’s melt-up, UP TO THEIR EYEBALLS in (NVDA). They owned the stock, call options, and call spreads. The LEAPS alone delivered a 12X return, and some readers who customize their own strike prices (the $295-$300s) received a 50X return. It was almost everyone’s largest position.
It was easy for me to do the NVIDIA trade. When the company launched its first high-end graphics card in 1993, every computer geek out there flocked to them. I used to tear apart my company’s PCs, throw out the graphics cards they came with, and install NVIDIA cards. The performance improvement was remarkable, especially for advanced mathematical calculations.
The company is blessed. It went public at $12 a share just before the Dotcom Bust and the IPO window closed for years. Adjusted for 12:1 splits over the years and that drops the original IPO price to $1. A dollar invested in 1999 would be worth $750 at last week’s high. NVIDIA’s CEO, Jensen Huang, is now one of the richest men in the world solely through the ownership of his NVIDIA shares.
God Bless America!
Also last week, my inbox was jammed with inquiries on what company will become the next NVIDIA. And here is the bad news. There aren’t any 750:1 returns anywhere on the horizon. There are not even any 175:1 opportunities that we earned from Tesla (TSLA) over the years either where we also had heavy exposure.
And the reason is very simple. You are not going to get the entry points today with the Dow Average at 39,000 that you got in 2009 when it was at only 6,000, or when it was at a mere 600 when I joined Morgan Stanley in 1982. The last decent entry point for (NVDA) was the $100 pandemic low in April 2020.
Want to own the next (NVDA)? Try buying (NVDA), where an analyst raised his target to $1,420, up 80% from the Friday close. It’s just a matter of time before its market cap jumps from $2 trillion to $3 trillion, making it the largest company in the world. That’s what an airtight monopoly in the world’s most valuable product gets you.
Technology earnings are now exploding at such a rapid pace that it is time to consider the unthinkable: What if stocks don’t need interest rate cuts for the bull market to continue? After all, the companies seem to be doing just fine without any such assistance.
Why try to fix what isn’t broken?
In fact, these large cash flow companies would take a hit on their income statements as they are already net creditors to the financial system. Apple (AAPL) alone would lose $8 billion in annual income if interest rates went back to zero.
While that may be true for the Magnificent Seven or the AI Five, it is not true for the Unimagnificent 493. They actually need cheaper money for their stock prices to get going or even just to survive. That is especially true for all the falling interest rate plays, like bonds, utilities, real estate, precious metals, energy, and foreign currencies.
And don’t even talk to me about small caps, which depend on low interest rates for the breath of life.
It says a lot that Warren Buffet believes there is nothing left to buy in his annual letter to shareholders, an early Mad Hedge subscriber. His spectacular annual compounded returns of 19.8% a year, more than double that of the S&P 500 (SPY), are now a thing of the past.
The few targets left out there are few and far between and heavily picked over. (BRK/B) has also lost the advice of its principal mentor, Charlie Munger at the ripe old age of 99. Last year Berkshire acquired Dairy Queen and Berkshire Energy. But at $905 billion in assets under management, those will hardly move the needle. The 93-year-old Buffet has outperformed the S&P 500 by 141:1 since 1964.
Who says age is an impediment?
So far in February, we are up +5.92%. My 2024 year-to-date performance is also at +1.64%. The S&P 500 (SPY) is up +6.50% so far in 2024. My trailing one-year return reached +57.73% versus +38.67% for the S&P 500.
That brings my 15-year total return to +678.27%. My average annualized return has recovered to +51.19%, another new high.
Some 63 of my 70 trades last year were profitable in 2023.
I used the ballistic move-in (NVDA) to take profits in my double long there. I am maintaining a single long (AMZN) and am 90% in cash given the elevated level of the markets.
NVIDIA Announces Blowout Earnings, with AI reaching the “tipping point” according to the CEO Jensen Huang. Revenues came in at a spectacular $22.1 billion versus an expected $20.6 billion off the backing of exploding data center demand, up 33%. Earnings were up 22% QOQ and 225% YOY. The shares exploded $100 in the aftermarket at one point, up 15.6%. Forward guidance was ramped up too. Buy NVDA on dips. At a PE multiple of 18X, it is the cheapest AI stock out there.
Mad Hedge Clocks Biggest One Day Gain in 16 Years, with a double weighting in NVIDIA (NVDA), up +6.072%. If you like that the Mad Hedge Technology Letter is doing even better, up +13% YTD. And we are still early days into the tech melt-up, which could go on for another decade. Our YOY gain is up +59.62%. The harder I work, the luckier I get.
Existing Home Sales Jumped 3% YOY, boosted by lower mortgage interest rates in November and December. Inventories of homes for sale in January increased to 1.01 million units, up 3.1% from January 2023, but still at a low 3-month supply. The median existing home price for all housing types in January was $379,100, up 5.1% from a year earlier and an all-time high for the month of January.
Weekly Jobless Claims Dropped to a one-month low, down 12,000 to 201,000. No recession here. California and Kentucky saw the largest declines.
China Bans Stock Selling, by institutional investors at market openings and closes when liquidity is the greatest. It’s part of the government’s most forceful attempt yet to prop up the nation’s $8.6 trillion stock market. It’s another sign of a weakening China. When restrictions are placed on markets, capital flees. Whoever thought of this one must have a hole in their head. Avoid (FXI).
California demolishes Solar Providers, cutting the price the utility PG&E has to pay for home power providers by 75%. Solar companies like SunPower (SPWR), are down 89% since last year. Avoid solar providers for now, which was always a low value-added business.
Amazon (AMZN) is getting added to the Dow Average, opening it up to massive index buying. Retailer Walgreens Boots Alliance (WBA) is getting bumped. Since 1896, the blue-chip index has made few changes to its 30-stock lineup, having altered its constituents about 60 times in its 128-year history. Buy (AMZN) on dips.
US Stocks now account for 70% of Global Stock Market Capitalization, thanks to the ballistic moves in big tech. This level represents the largest country weighting since I helped create this index way back in 1986. It also now has the lowest exposure to non-US stocks. Money is pouring into the US from all corners of the world, the planet's most successful economy.
Natural Gas Hits (UNG) Three Year Low, at $1.63MM BTU, and down an eye-popping 50% in a month. Warm weather, high inventories, and overproduction due to cheap capital are the price killers. An LNG train broke down, cutting export demand. If you didn’t get out on the double in December you’re toast. Avoid (UNG).
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, February 26, the New Home Sales are announced.
On Tuesday, February 27 at 8:30 AM EST, the Durable Goods are released. The S&P Case Shiller for December is announced.
On Wednesday, February 28 at 2:00 PM, the Q2 GDP second read is published.
On Thursday, February 29 at 8:30 AM, the Weekly Jobless Claims are announced. We also get the Core Consumer Price Expectations.
On Friday, March 1 at 2:30 PM, the December ISM Manufacturing PMI is published. At 2:00 PM the Baker Hughes Rig Count is printed.
As for me, the telephone call went out amongst the family with lightning speed, and this was back in 1962 when long-distance cost a fortune. President Dwight D. Eisenhower was going to visit my grandfather’s cactus garden in Indio the next day, said to be the largest in the country, and family members were invited.
I spent much of my childhood in the 1950s and 1960s helping grandpa look for rare cactus in California’s lower Colorado Desert, where General Patton trained before invading Africa. That involved a lot of digging out a GM pickup truck from deep sand in the remorseless heat. SUVs hadn’t been invented yet, and a Willys Jeep (click here) was the only four-wheel drive then available in the US.
I have met nine of the last 13 presidents, but Eisenhower was my favorite. He certainly made an impression on me as a ten-year-old boy, who I remember as a kindly old man.
I walked with Eisenhower and my grandfather plant by plant, me giving him the Latin name for its genus and species and citing unique characteristics and uses by the Indians. The former president showed great interest and in two hours we covered the entire garden. I still make my kids learn the Latin names of plants.
Eisenhower lived on a remote farm at the famous Gettysburg, PA battlefield given to him by a grateful nation. But the winters there were harsh, so he often visited the Palm Springs mansion of TV Guide publisher Walter Annenberg, a major campaign donor.
Eisenhower was a one-of-a-kind brilliant man that America always came up with when it needed them the most. He learned the ropes serving as Douglas MacArthur’s Chief of Staff during the 1930’s. Franklin Roosevelt picked him out of 100 possible generals to head the Allied invasion of Europe, even though he had no combat experience.
After the war, both the Democratic and Republican parties recruited him as a candidate for the 1952 election. The latter prevailed, and “Ike” served two terms, defeating the governor of Illinois Adlai Stevenson twice. During his time, he ended the Korean War, started the battle over civil rights at Little Rock, began the Interstate Highway System, and admitted Hawaii as the 50th state.
As my dad was very senior in the Republican Party in Southern California during the 1950s, I got to meet many of the bigwigs of the day. New York prosecutor Thomas Dewy ran for president twice, against Roosevelt and Truman, and was a cold fish and aloof. Barry Goldwater was friends with everyone and a decorated bomber pilot during the war.
Richard Nixon would do anything to get ahead, and it was said that even his friends despised him. He let the Vietnam War drag out five years too long when it was clear we were leaving. Some 21 guys I went to high school with died in Vietnam during this time. I missed Kennedy and Johnson. Wrong party and they died too soon. Ford was a decent man and I even went to church with him once, but the Nixon pardon ended his political future.
Peanut farmer Carter was characterized as an idealistic wimp. But the last time I checked, the Navy didn’t hire wimps as nuclear submarine commanders. He did offer to appoint me Deputy Assistant Secretary of the Treasury for International Affairs, but I turned him down because I thought the $15,000 salary was too low. There were not a lot of Japanese-speaking experts on the Japanese steel industry around in those days. Biggest mistake I ever made.
Ronald Reagan’s economic policies drove me nuts and led to today’s giant deficits, which was a big deal if you worked for The Economist. But he always had a clever dirty joke at hand which he delivered to great effect….always off camera. The tough guy Reagan you saw on TV was all acting. His big accomplishment was not to drop the ball when it was handed to him to end the Cold War.
I saw quite a lot of George Bush, Sr. whom I met with my Medal of Honor Uncle Mitch Paige at WWII anniversaries, who was a gentleman and fellow pilot. Clinton was definitely a “good old boy” from Arkansas, a glad-hander, and an incredible campaigner, but he was also a Rhodes Scholar. His networking skills were incredible. George Bush, Jr. I missed as he never came to California. And 22 years later we are still fighting in the Middle East.
Obama was a very smart man and his wife Michelle even smarter. Stocks went up 400% on his watch and Mad Hedge Fund Trader prospered mightily. But I thought a black president of the United States was 50 years early. How wrong was I. Trump I already knew too much about from when I was a New York banker.
As for Biden, I have no opinion. I never met the man. He lives on the other side of the country. When I covered the Senate for The Economist, he was a junior member.
Still, it’s pretty amazing that I met 10 out of the last 14 presidents. That’s 20% of all the presidents since George Washington. I bet only a handful of people have done that, and the rest all live in Washington DC. And I’m a nobody, just an ordinary guy.
It just makes you think about the possibilities.
Really.
Good Luck and Good Trading,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
It’s Been a Long Road
Global Market Comments
February 23, 2024
Fiat Lux
Featured Trade:
(FEBRUARY 21 BIWEEKLY STRATEGY WEBINAR Q&A),
(FXI), (SMCI), (PANW), (TSLA), (NVDA), (XLF),
(CCI), (XOM), (FANG), (AMD), (HD), (LOW)
Below please find subscribers’ Q&A for the February 21 Mad Hedge Fund Trader Global Strategy Webinar, broadcast from Silicon Valley, CA.
Q: What do you think of the comments of Ray Dalio and Jamie Dimon of an imminent war with Russia and China?
A: I think the chances of that are almost zero. You’re talking about Russia with a $1 trillion economy going to war against a combined GDP of the US and Europe of $50 trillion. Even Switzerland is sending tanks to Ukraine now. Our military is so dominant compared to any other country in the world, that it would be an instant wipeout. Russia and China know that, so they can threaten all they want but will take no action. That really has been the course since the end of WWII; talk is cheap. However, it is not a zero risk—a person like Ray Dalio, especially, always has to consider the 1% risk (Jamie Dimon less so.) I don’t worry about that at all; a lot of that is media hype. Newspapers have to fill their space every day of the year, even when nothing is happening.
Q: What about Russia putting nuclear weapons in space?
A: The US actually looked at doing this in the 60s and 70s when I was with the Atomic Energy Commission, and this is the problem: Uranium weighs four times that of lead, and it’s very hard to get any serious weight into space. And Russia has never been able to actually hit anything it aims at, so other than destroying a bunch of nearby Starlink satellites, it wouldn’t really accomplish much. Plus, we do have a treaty with Russia not to put nuclear weapons in space—not that agreements between the US and Russia are particularly trustworthy these days.
Q: Would you sell naked Nvidia (NVDA) puts right now?
A: Dan, somehow you got into my personal trading account and looked at all my positions! You know, I never advise people to sell naked puts unless they're happy to own the stock at that level. That means, first of all, you cannot leverage at all—the way people go bust on short put strategies is they sell far more puts than they have the money to support the cash buy if they have to do it. But I can tell you, I looked at the numbers this morning: if you sell short an Nvidia put now at 600 you can get about $10 for it. And, if Nvidia goes below 600 by option expiration day, you own Nvidia stock at a cost of $590. And I'm happy to own Nvidia at $590 because I think it could be worth $1,000 by yearend. There may be better ways to use your money with Nvidia at $600, like doing an at-the-money LEAPS which will get you a 100% return in a year even on no move. If you want to go, say, $40 out of the money or $50, like a 650-$650 Nvidia LEAPS, then you're looking at it with a 150% return in a year. So that is the better way to do it, it just depends on how aggressive you want to be and how eager you are to go back to work at Taco Bell if you lose all your money.
Q: What would you do with Super Micro Computer Inc. (SMCI) right now?
A: I would sell it, but then I would’ve sold it on the first 23x move. (SMCI) is a no-touch right now—I think they have a 3% float in their shares, and that’s what’s causing the spectacular market volatility.
Q: Will continued weakness in China (FXI) bring down the US markets?
A: No. We have very few investors from China in the US stock market. They really have no impact on our market. And the fundamentals couldn't be more different. You know, the US economy is in great shape right now (and getting better, I might add), while China continues to go down the toilet and is saber-rattling and warmongering. So, it's not good for stock prices for sure. You could put that at the bottom of the list of worries.
Q: Will Tesla (TSLA) ever turn around?
A: Well what you don’t know if you don't follow the company on a daily basis like I do, is that Tesla is continuously cutting costs, and increasing performance, and that will lead to greater sales and greater profits. But when that happens, I have no idea. I think the Tesla 2 coming out next year—the $25,000 EV could be a big turning point for the company. And of course, Tesla stock may front-run that by six months. So eventually, Tesla will come back.
Q: Thanks for your advice. I have a ton of Nvidia (NVDA) and some Tesla (TSLA). Should I sell my Tesla and put it in Nvidia?
A: No, you should do the opposite. Buy low, sell high—it’s my revolutionary new stock trading system which I’m thinking of copywriting. Nvidia has had one of the biggest stock gains in history, and Tesla is down year-on-year. So, that is the trade, and that is what a lot of long-term investors are doing, is doing that swap.
Q: Can we do a LEAPS on Palo Alto Networks (PANW)?
A: Absolutely. Wait for this selloff to finish, then go in at the money one year out and you should get a 100% or a double on your return. And by the way, when I’m convinced that tech stocks have finished this selloff, I’ll be issuing a whole bunch of LEAPS trade alerts. I’ll do the numbers and do the heavy lifting for you.
Q: Can Ukraine win the war against Russia without US aid?
A: No, in fact, it needs aid from both the US and Europe. Right now, Europe is carrying 100% of the burden, as the US has stopped providing aid to Ukraine, thanks to the Republican-led House of Representatives. And Ukraine is now ceding cities to Russia because they don’t have the ammunition or the missiles to defend them. So, give as much ammo as we can. Otherwise, it’s just a matter of time before US soldiers get involved in a European war once again. How the Republicans see cutting off as in America’s benefit, I can’t imagine, nor do many Republicans. They must be reading different news sources. But I’m also prejudiced on this, having been shot by Russians in Ukraine in October. (Those injuries are all healed by the way thanks to a stem cell injection and I’m back to hiking as usual.)
Q: When you say buy on dips, do you have a rule of thumb on what percentage a stock has to drop in order to consider it a dip?
A: It’s different for every stock because every stock has a different volatility. “Buy on the dip” might be a 5% for Cleveland Cliffs but it might be 20% for Nvidia. It’s all over the map—you just have to look at the charts and judge where the next support level is, before considering risking your own money.
Q: What’s your favorite dividend stock?
A: Well my Number One favorite, of course, is Crown Castle International (CCI)—the cellphone tower REIT—and REITS of any kind are going to be very high-yield and very attractive. Just stay away from the commercial office REITS, which are having their own well-publicized problems. Beyond that, the only attractive high dividend stocks are in energy: you have Exxon Mobil (XOM) yielding 3.7% and Diamondback Energy with the lovely ticker symbol of (FANG) yielding 4.48%. On the oils, you get a shot for not only the dividend but a nice capital gain on any recovery in the oil market. So that could be an attractive play once we finish bombing the Houthis and wiping out all their Iran-supplied missiles.
Q: What happened to the Japanese yen rally?
A: Well as with all other foreign currencies, it died and went to Heaven, because of the delay in US interest rate cuts. As long as the US doesn't cut interest rates, it will continue to have the strongest currency in the world. And when we get to the currency charts, you'll see exactly how strong the dollar has been. That does make the currencies very attractive right around here.
Q: Will commercial real estate blow up the banks, and therefore the stock market?
A: No, first of all, for big banks (XLF), commercial real estate is only 5% of their loan portfolio and if they lose 20% of that, that’s only a 1% loss of their total loans year for them and that is totally acceptable by in their business model. Second, if interest rates fall, the commercial real estate problem goes away because they can refinance at lower rates than you get now. Third, as the economy recovers, demand for office space will also recover, though it may take 5 years to soak up all the excess inventory that we have right now. San Francisco has an empty office space rate of about 30%, which is higher than it’s ever been. That is why a lot of smart, long-term real estate money is buying up buildings in San Francisco— they're buying them up for pennies on the dollar, so that sounds like a great investment. I remember back in the early eighties, Morgan Stanley did exactly the same thing in Houston after an oil collapse. You know, they were giving away office buildings—paying you to take them away, literally—and Morgan Stanley set up an in-house partner fund (it was only open for the partners from Morgan Stanley to invest in) and we went in and bought 600 million dollar’s worth of cheap Houston real estate. I think we ended up getting a 10x return on that, but that's what being a Morgan Stanley partner is all about. That was about 45 years ago, and it’s what’s happening now in San Francisco.
Q: Are you worried about Amazon (AMZN) with Jeff Bezos selling 8 billion dollars worth of stock?
A: Well, if you've made a couple of $100 billion you're allowed to spend $8 billion on yourself. And Amazon is one of the early leaders in AI technology, so I'm buying that on every dip. In fact, we had a long position in Amazon that just expired on Friday.
Q: Why is Home Depot Inc. (HD) stagnating?
A: Well that's easy: during the pandemic, everyone was stuck at home 24 hours a day, 7 days a week, so they wanted to fix stuff. With the end of the pandemic, that has ended and has slowed down business at both Home Depot and Lowes (LOW).
Q: Do you like Advanced Micro Devices (AMD) and would you buy it on a dip?
A: Absolutely, it’s all part of the same AI trade, as are all the other big chip stocks.
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 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
Global Market Comments
February 21, 2024
Fiat Lux
Featured Trade:
(HOW FREE ENERGY WILL POWER THE COMING ROARING TWENTIES),
(SPWR), (TSLA)
With the price of Texas tea barely scratching $78 a barrel today it is time to revisit the doomed future of this ancient energy source.
With energy stocks now trading like they’re having a going out of business sale, you have to wonder if the sector will ever come back. The short answer is short-term yes, long term no.
A key part of my argument for a new Golden Age to take place during the current Roaring Twenties is that the price of energy is effectively going to zero.
It may not actually make it to zero. I’ll settle for down 90%-95%, which is good enough for me.
Take a look at the charts below.
The first one shows how the price of a watt of solar generated electricity has plunged by 99.03% since 1977, from $76.67 to $0.74.
Just in the past six years, retail prices for completed solar panels dropped by a staggering 80%. That is cheaper than electricity supplies generated by new natural gas plants
The potential price declines for natural gas from here are near zero. After all, it’s hard to improve on the near 100% burn rates you get with gas, and many producers are already losing money at current price levels of $1.61 per MM BTU.
Squeezing efficiencies out of our existing solar technology through improved software, production methods, chemistry, and design are nearly unlimited, are expected to drive solar costs by half down to 3 cents per kwh by 2035.
And here is the great shortcoming of all these wonderful predictions. Technology NEVER stays the same.
My own SunPower (SPWR) SPR A420 panels with their Maxeon solar cell technology deliver an efficiency of 20.1%, the best on the market available four years ago.
This means that they convert 22.5% of the solar energy they receive into electricity.
SunPower is now producing 25.1% efficiency panels in the lab. Another research lab in Germany, Fraunhofer, is getting 44.7%.
And my friends at the Defense Department tell me they have functioning solar cells delivering 70% efficiencies which they use in space. Whether they are economic and scalable is anyone’s guess.
(Warning: most cheap Chinese made solar cells have only lowly 15% efficiencies, so don’t be tricked by any great “deals”).
And this is how most long-term predictions fall short.
When I bought the system, I was warned the electricity production would fall 1% a year thanks to the natural degradation of the solar cells.
Instead, output has risen by 1% annually. Global warming is the only possibly explanation.
Not only do they assume that technology doesn’t change, they fail to account for dramatic improvements in other related fields.
EV technology is a classic example. Battery costs are currently falling off a cliff.
When I bought the first Nissan Leaf offered for sale in California in 2010, the battery cost $833 per kilowatt. In 2012, I purchased a high-performance Tesla (TSLA) P85 Model S-1 at $353 per kilowatt.
When the Tesla 3 became available in 2017, the 60-watt battery will ran at $250 per kilowatt. Efficiencies gained through the economies of scale from the Sparks, Nevada Gigafactory took that under $100.
However, that is not the end of the story.
The car industry will start to move towards carbon fiber in five years, which has ten times the strength of steel at one-tenth the weight. The only issue now is mass production cost.
Some 67% of the weight of a Tesla S-1 is in the body, with the four motors at 13%, and the 1,200-pound lithium ion battery at 20%.
What happens when the body weight falls by 90%, to only 6.7% of total weight? The battery weight, and cost declines by two thirds. That cuts the effective cost of the battery to $66/kilowatt.
Add up all of this, and it is easy to see how energy costs can plunge by 90% or more. And it will happen must faster than you expect.
This has been the experience with memory costs, processor speeds, and hundreds of other digital technologies over the past 70 years. The cost of cotton yarn fell by 1,000 times during the 17th and 18th century, wiping out hundreds of existing industries but creating thousands more.
I could go on and on.
This is why the State of California has mandated to get 50% of its energy from alternative sources by 2030, and to ban the new sale internal combustion engines by 2035.
Some researchers believe a 100% target could be achieved. And it is doing this while closing its last remaining nuclear power plants at Diablo Canyon by 2030.
It already hit that target on several days this year when winter filled up all the dams, producing excess hydroelectric power.
As a result, the wholesale price of electricity fell to zero on those days. The grid was producing more power than could be consumed.
To say that free energy would be a game changer is a huge understatement.
The elimination of energy as a cost has enormous consequences for all companies. You can start with the energy intensive ones in transportation, steel, and aluminum, and work your way down the list.
My bet is that you won’t recognize the car industry in 10 years.
At a $66/kilowatt effective battery cost it will make absolutely no sense to build internal combustion engines in new cars.
Too bad Detroit is a decade behind in this technology.
Lose transportation, and you lose 50% of US oil consumption, or about 10 million barrels a day. Guess what that does to oil prices?
Goodbye Middle East. Go blow yourself up.
The profitability and efficiency of the entire economy will take a great leap forward, much like we saw with the mass industrialization that was first made possible by electricity during the 1920’s.
Share prices of all kinds will go ballistic.
Since energy costs will eventually fall effectively to near zero, that wipes out the present business model of the entire electric power, coal, oil, and gas industries, about 10% of US GDP.
Their business models will be reduced to trying to sell something that is free, like air.
Dow 250,000 anyone?
Goodbye Electric Power Bills
Getting Ready for the 2020’s
Global Market Comments
February 20, 2024
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or HOW THE CPI LIED),
(NVDA), (MSFT), (AMZN), (V), (PANW), (CCJ) (AAPL), (TSLA), (GOOGL), (MSFT), (AMZN), (META), (UBER), (UUP)
It’s pretty obvious that when the Consumer Price Index was released last Tuesday, the data point was lying through its teeth. The 0.4% increase in the Core CPI brought the YOY gain to a heart-palpitating 3.9%, much higher than expected. The stock market thought it was telling God’s home truth by plunging 740 points at its low.
Interest rate sensitives, like bonds, utilities, real estate, precious metals, energy, and foreign currencies were particularly hard hit.
I have been in the financial markets quite a long time now and as a result, am pretty used to being told porky pies (lies in London’s East End). Take the CPI for example. The reported number came in at a sizzling 3.3% for January. That is enough to kill off any hopes of a Fed interest rate cut in 2024, thus the ensuing wreckage in the market.
However, back out a single number, the 6.0% rise in housing rental costs, and the inflation rate drops all the way to 2.0%, bang on the Fed’s long-term inflation target. In other words, interest rates should be cut RIGHT NOW!
That is clearly the view that the markets came around to on Wednesday, which saw the Dow Average recover 151 points.
Unfortunately, lying is a fact of life in the stock market at every conceivable level. But learn to tolerate it and you can make millions of dollars. That works for me. Like my old college statistics professor used to tell me: “Statistics are like a bikini bathing suit; what they reveal is fascinating, but what they conceal is essential.”
In fact, we may see the stock market bouncing back and forth like a ping pong ball between big technology and the interest rate sectors, depending on what the bond market is doing that day driving traders nuts. After all, it was YOU who wanted to be in show business!
In the meantime, complacency rules all. Cash flows into stocks are near all-time highs. Market strategists have been ratcheting up their yearend targets on a daily basis, even me (I’m now at SPX 6,000). The option put/call ratio is about as low as it gets, meaning there is a universal belief that stocks will continue to appreciate. That’s with the S&P 500 earnings multiple trading at a rich 20.5.
I would be remiss in my duties as a financial advisor if I did not also warn you that these are all market-topping signals, at least for the short term.
Double Yikes, and Heavens to Betsy!
Of course, all eyes will be on the Q4 NVIDIA earnings this week, out after the close on Wednesday and probably the most important data release of the year. Everything else this week is essentially meaningless.
If earnings come in anything less than perfect, up 100% YOY, it could trigger a long overdue correction in the stock market in general and (NVDA) in particular. On the other hand, earnings just might come in more than perfect.
I have been covering (NVDA) for more than a decade back when it was just a video game play and I describe it today as a monopoly on the world’s most valuable product. Their top-end H100 graphics cards are now selling for a breathtaking $30,000 each and Meta (META) just ordered 450,000 of these babies, partly so their competitors can’t get their hands on them. For those who don’t have a calculator that is a single order worth a mind-blowing $13.5 billion.
That is why the stock is up 224% in a year and 50X since the first Mad Hedge trade alert on the company went out at a split-adjusted $2.00. Those who think they can clone (NVDA) and their products overnight can dream on. Most employees have golden handcuffs in the form of vested options at the same $2.00 strike price or lower.
The Magnificent Seven are still cheap relative to the rest of the market. Their price-to-growth ratio (PEG Ratio) is still only half the rest of the market. The Mag Seven will see earnings grow 20% this year with a price-earnings multiple of 30X giving you a PEG of 1.5X. The Unmagnificent 493 are selling at a PEG ratio of 3.0X, meaning they are twice as expensive.
Just thought you’d like to know.
So far in February, we are up +3.42%. My 2024 year-to-date performance is also at -0.86%. The S&P 500 (SPY) is up +4.72% so far in 2024. My trailing one-year return reached +59.62% versus +24.57% for the S&P 500.
That brings my 15-year total return to +675.77%. My average annualized return has retreated to +51.32%.
Some 63 of my 70 trades last year were profitable in 2023.
I am maintaining a double long in, you guessed it, (NVDA). My longs in (MSFT), (AMZN), (V), (PANW), and (CCJ) all expired at their maximum potential profits with the February option expiration.
CPI Smacks Market, coming in at 0.3% in January instead of the expected 0.2%. The highflyers took the biggest hit. Bonds were destroyed, taking ten-year US Treasury yields up to 4.30%. Is the falling interest rate story dead, or just resting? Rising rents were the big villain here.
US Retail Sales Dive 0.8% in January, a shocking decline from the blowout in December. Consumers didn’t bite on those New Year Sales because they actually started in November. Winter storms as well as technical factors had distorted the data.
Weekly Jobless Claims Dropped to 212,000, an improvement of 8,000 from the previous week. Continuing claims rose to 1,895,000.
https://www.dol.gov/ui/data.pdf
Here are Dan Niles’ Tech Shorts, Apple (AAPL), (TSLA), and Alphabet (GOOGL). He is long Microsoft (MSFT), (AMZN), (META), and of course NVIDIA (NVDA). Sounds like a good call to me. Dan knows what he is doing.
Uber Announces First Ever Share Buy Back, some $7 billion. In the meantime, they have to cope with a driver strike. Buy (UBER) on dips.
$929 Billion in US Commercial Real Estate Loans are Due this Year or 20% of the total. Will there be widespread defaults or will borrowers get rescued by falling interest rates in the second half? Will they extend and pretend? Avoid regional banks like the plague, which lack the capital to cope with this.
US Dollar (UUP) Hits Three Month High, on the hot CPI. You need a falling CPI to get a weak buck. The Euro plunged to $1.07, the British pound to $1.25, the Australian dollar to 65 cents, and the Japanese yen to ¥151.
NVIDIA Now Tops Amazon in Market Value, at $1.2 trillion now the fourth most valuable company in the US. It could eventually top Microsoft’s (MSFT) market cap as it is growing much faster. Those (NVDA) LEAPS are looking pretty good. The shares are up 50% so far in 2024. Buy (NVDA) on dips.
Biden to Ban Chinese EV Car Imports. The measures would apply to electric vehicles and parts originating from China, no matter where they are assembled, in a bid to prevent Chinese makers from moving cars and components into the United States through third countries such as Mexico. Chinese cars will never meet US safety standards. Try driving in China.
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, February 19, the markets are closed for Presidents Day.
On Tuesday, February 20 no data of importance is released.
On Wednesday, February 21 at 2:00 PM EST, the Minutes from the previous Federal Open Market Committee meeting are published. NVIDIA earnings are released after the market closes.
On Thursday, February 22 at 8:30 AM EST, the Weekly Jobless Claims are announced. Existing Home Sales are Released.
On Friday, February 23 at 2:30 PM the Baker Hughes Rig Count is printed.
As for me, the first thing I did when I received a big performance bonus from Morgan Stanley in London in 1988 was to run out and buy my own airplane.
By the early 1980s, I’d been flying for over a decade. But it was always in someone else’s plane: a friend’s, the government’s, a rental. And Heaven help you if you broke it!
I researched the market endlessly, as I do with everything, and concluded that what I really needed was a six-passenger Cessna 340 pressurized twin turbo parked in Santa Barbara, CA. After all, the British pound had just enjoyed a surge against the US dollar so American planes were suddenly a bargain. It had a maximum range of 1,448 miles and therefore was perfect for flying around Europe.
The sensible thing to do would have been to hire a professional ferry company to fly it across the pond. But what’s the fun in that? So, I decided to do it myself with a copilot I knew to keep me company. Even more challenging was that I only had three days to make the trip, as I had to be at my trading desk at Morgan Stanley on Monday morning.
The trip proved eventful from the first night. I was asleep in the back seat over Grand Junction, Colorado, when I was suddenly awoken by the plane veering sharply left. My co-pilot had fallen asleep, running the port wing tanks dry and shutting down the engine. He used the emergency boost pump to get it restarted. I spent the rest of the night in the co-pilot’s seat trading airplane stories.
The stops at Kansas City, MO, Koshokton, OH, and Bangor, ME proved uneventful. Then we refueled at Goose Bay, Labrador in Canada, held our breath, and took off for our first Atlantic leg.
Flying the Atlantic in 1988 is not the same as it is today. There were no navigational aids and GPS was still top secret. There were only a handful of landing strips left over from the WWII summer ferry route, and Greenland was still littered with Mustangs, B-17s, B24s, and DC-3s. Many of these planes were later salvaged when they became immensely valuable. The weather was notoriously bad. And a compass was useless, as we flew so close to the magnetic North Pole the needle would spin in circles.
But we did have NORAD, or America’s early warning system against a Russian missile attack.
The practice back then was to call a secret base somewhere in Northern Greenland called “Sob Story.” Why it was called that I can only guess, but I think it has something to do with a shortage of women. An Air Force technician would mark your position on the radar. Then you called him again two hours later and he gave you the heading you needed to get to Iceland. At no time did he tell you where HE was.
It was a pretty sketchy system, but it usually worked.
To keep from falling asleep the solo pilots ferrying aircraft all chatted on a frequency of 123.45 MHz. Suddenly, we heard a mayday call. A female pilot had taken the backseat out of a Cessna 152 and put in a fuel bladder to make the transatlantic range. The problem was that the pump from the bladder to the main fuel tank didn’t work. With eight pilots chipping in ideas, she finally fixed it. But it was a hair-raising hour. There is no air-sea rescue in the Arctic Ocean.
I decided to play it safe and pick up extra fuel in Godthab, Greenland. Godthab has your worst nightmare of an approach, called a DME Arc. You fly a specific radial from the landing strip, keeping your distance constant. Then at an exact angle, you turn sharply right and begin a decent. If you go one degree further, you crash into a 5,000-foot cliff. Needless to say, this place is fogged 365 days a year.
I executed the arc perfectly, keeping a threatening mountain on my left while landing. The clouds mercifully parted at 1,000 feet and I landed. When I climbed out of the plane to clear Danish customs (yes, it’s theirs), I noticed a metallic scraping sound. The runway was covered with aircraft parts. I looked around and there were at least a dozen crashed airplanes along the runway. I realized then that the weather here was so dire that pilots would rather crash their planes than attempt a second go.
When I took off from Godthab, I was low enough to see the many things that Greenland is famous for polar bears, walruses, and natives paddling in deerskin kayaks. It was all fascinating.
I called into Sob Story a second time for my heading, did some rapid calculations, and thought “damn”. We didn’t have enough fuel to make Iceland. The wind had shifted from a 70 MPH tailwind to a 70 MPH headwind, not unusual in Greenland. I slowed down the plane and configured it for maximum range.
I put out my own mayday call saying we might have to ditch, and Reykjavik Control said they would send out an orange bedecked Westland Super Lynch rescue helicopter to follow me in. I spotted it 50 miles out. I completed a five-hour flight and had 15 minutes of fuel left, kissing the ground after landing.
I went over to Air Sea Rescue to thank them for a job well done and asked them what the survival rate for ditching in the North Atlantic was. They replied that even with a bright orange survival suit on, which I had, it was only about 50%.
Prestwick, Scotland was uneventful, just rain as usual. The hilarious thing about flying the full length of England was that when I reported my position, the accents changed every 20 miles. I put the plane down at my home base of Leavesden and parked the Cessna next to a Mustang owned by rock star Randy Newman.
I asked my ferry pilot if ferrying planes across the Atlantic was always so exciting. He dryly answered “Yes.” He told me in a normal year about 10% of the planes go missing.
I raced home, changed clothes, and strode into Morgan Stanley’s office in my pin-stripped suit right on time. I didn’t say a word about what I just accomplished.
The word slowly leaked out and at lunch, the team gathered around to congratulate me and listen to some war stories.
Good Luck and Good Trading,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Flying the Atlantic in 1988
Looking for a Place to Land in Greenland
Landing on a Postage Stamp in Godthab Greenland
On the Ground in Greenland
No Such a Great Landing
Flying Low Across Greenland
Gassing Up in Iceland
Almost Home at Prestwick
Back to London in 1988
Global Market Comments
February 9, 2024
Fiat Lux
Featured Trade:
(FEBRUARY 7 BIWEEKLY STRATEGY WEBINAR Q&A),
(LLY), (FXI), (TSM), (BABA), (PLTR), (MSBHF), (SMCI), (JPM), (INDY), (INDA), (TSLA), (BYDDF), (NFLX), (META), (UNG)
Below please find subscribers’ Q&A for the February 7 Mad Hedge Fund Trader Global Strategy Webinar, broadcast from Silicon Valley, CA.
Q: Have you ever flown an ME-262?
A: There's only nine of the original German jet fighters left from WWII in museums. One hangs from the ceiling in the Deutsches Museum in Munich (click here for the link), I have been there and seen it and it is truly a thing of beauty. You would have to be out of your mind to fly that plane, because the engines only had a 10 hour life. That's because during WWII, the Germans couldn't get titanium to make jet engine blades and used steel instead, and those fell apart almost as soon as they took off. So, of the 1,443 ME-262’s made there’s only nine left. The Allies were so terrified of this plane, which could outfly our own Mustangs by 100 miles per hour, that they burned every one they found. That’s also why there are no Japanese Zeros.
Q: Thoughts on Palantir (PLTR) long term?
A: I love it, it’s a great data and security play. Right now, markets are revaluing all data plays, whatever they are. But it is also overvalued having almost doubled in a week.
Q: What do you make of all these layoffs in Silicon Valley? What does this mean for tech stocks?
A: It means tech stocks go up. The tech stocks for a long time have practiced over-employment. They were growing so fast, they always kept a reserve of about 10% of extra staff so they could be put them to work immediately when the demand came. Now they are switching to a new business model: fire everybody unless you absolutely have to have them right now, and make everybody you have work twice as hard. That greatly increases the profitability of these companies, as we saw with META (META), which had its profits triple—and that seems to be the new Silicon Valley business model. If you're one of the few 100,000 that have been laid off in Silicon Valley, eventually the economy will grow back to where they can absorb you. That's how it's going to play out. In the meantime, go take a vacation somewhere, because you're not going to get any vacations once you get a new job.
Q: I have had shares of Alibaba (BABA) since 2020 and the stock has been in free fall since. Should I take the 80% loss or hold?
A: Well, number one, you need to learn about risk control. Number two, you need to learn about stop losses. I stop out when things go 10% against me; that's a good level. At 80%, you might as well keep the stock. You've already taken the loss and who knows, China may recover someday. It's not recovering now because no foreigners want to invest in China with all the political risk and invasion risk of Taiwan. After all, look at what happened to Russia when they invaded Ukraine—that didn't work out so well for them.
Q: On the Chinese economy (FXI), is the poorer performance due to the decision to move to a war economy? The move in the economic front was described in Xi's speech to the CCP in January of 2023.
A: The real reason, which no one is talking about except me, is the one child policy, which China practiced for 40 years. What it has meant is you now have 40 years of missing consumers that were never born. And there is no solution to that, at least no short-term solution. They're trying to get Chinese people to have more kids now, and you're seeing three and four child families for the first time in 40 years in China. But there is no short-term fix. When you mess with demographics, you mess with economic growth. We warned the Chinese this would happen at the time, and they ignored us. They said if they hadn't done the one child policy, the population of China today would be 1.8 billion instead of 1.2 billion. Well, they’re kind of damned no matter what they do so there was no good solution for them. Of course, threatening to invade your neighbors is never good for attracting foreign investment for sure. Nobody here wants to touch China with a 10-foot pole until there’s a new leader who is more pacifist.
Q: What do you think of Eli Lilly (LLY)?
A: I absolutely love it. If there's a never-ending bull market in fat Americans, which is will go on forever, they're one of two companies that have the cure at $1,000 a month. On the other hand, the stock has tripled in the last 18 months, so it’s kind of late in the game to get in.
Q: Are there any stocks that become an attractive short in the event of a Taiwan invasion, such as Taiwan Semiconductor (TSM)?
A: All stocks become attractive shorts in the event of another war in China. You don't want to be anywhere near stocks and the semis will have the greatest downside beta as they always do. You don't want to be anywhere near bonds either, because the Chinese still own about a trillion dollars’ worth of our bonds. Cash and T-bills suddenly looks great in the event of a third war on top of the two that we already have in Gaza and Ukraine.
Q: What do you think about the prospects of the Japanese stock market now?
A: I think the big move is done; it finally hit a new high after a 34-year wait. The next big move in Japan is when the Yen gets stronger, and that is bad for Japanese stocks, so I would be a little cautious here unless you have some great single name plays like Warren Buffett does with Mitsubishi Corp. (MSBHF). So that's my view on Japan—I'm not chasing it after being out for 34 years. Why return? The companies in the US are better anyway.
Q: What is the deal with Supermicro Computer (SMCI)? It went up 23 times in a year to $669 after not clear $30 for a decade.
A: The answer is artificial intelligence. It is basically creating immense demand for the entire chip ecosystem, including high end servers, which Supermicro makes. It also has the benefit of being a small company with a small float, hence the ballistic move. It was too small to show up on my radar. I’ll catch the next one. There are literally thousands of companies like (SMCI) in Silicon Valley.
Q: Will JP Morgan (JPM) bank shares keep rising, or will they fall when the Fed cuts rates?
A: (JPM) will keep rising because recovering economies create more loan demand, allow wider margins, and cause default rates to go down. It becomes a sort of best case scenario for banks, and JP Morgan is the best of the breed in the banking sector. It also benefits the most from the concentration of the US banking sector, which is on its way from 4,000 banks to 6 with help from the US government.
Q: Is India a good long-term play? Which of the two ETFs I recommend are the better ones?
A: Yes, India is a good long-term play. You buy both iShares India 50 (INDY) and the iShares MSCI India (INDA), which I helped create yonks ago. India is the new China, and the old China is going nowhere. So, yes, India definitely is a play, especially if the dollar starts to weaken.
Q: Do you expect to pull back in your market timing index?
A: Yes, probably this month. Have I ever seen it go sideways at the top for an extended period? No, I haven't. On the other hand, we’ve never had a new thing like artificial intelligence hit the market, nor have we seen five stocks dominate the entire market like we're seeing now. So, there are a lot of unprecedented factors in the market now which no one has ever seen before, therefore they don't know what to do. That is the difficulty.
Q: Does India have an in-country built EV, and what is their favorite EV in India?
A: No, but Tesla (TSLA) is talking about building a factory there. And I would have to say BYD Motors (BYDDF) because they have the world’s cheapest EV’s. There is essentially no car regulation in India except on imports. Car regulation and safety requirements is what keeps the BYDs out of the United States, and it's kept them out for the last 15 years. So that is the issue there.
Q: What do you think about META as a dividend play?
A: I think META will go higher, but like the rest of the AI 5, it is desperately in need of a pull back and a refresh to allow new traders to come in.
Q: Why does Netflix (NFLX) keep going up? I thought streaming was saturated—what gives?
A: Netflix won the streaming wars. They have the best content and the best business strategy; and they banned sharing of passwords, which hit my family big time since it seemed like the whole world was using my Netflix password. And no, I'm not going tell you what my password is. I’ve already paid for Griselda enough times. Seems there is a lot of demand for strong women in my family. Netflix they seem to be enjoying a near monopoly now on profits.
Q: Has the NASDAQ come too far too fast, and does it have more to run?
A: Well it does have more to run, but needs a pull back first. I'm thinking we'll get one this month, but I'm definitely not shorting it in the meantime.
Q: Have you ordered your Tesla (TSLA) Cybertruck?
A: I actually ordered it two years ago and it may be another two year wait; with my luck the order will come through when I'm in Europe and I'll miss it. Some of my friends have already gotten deliveries because they ordered on day one. They love it.
Q: What happened to United States Natural Gas (UNG)?
A: A super cold spell hit the Midwest, froze all the pipes, and nobody could deliver natural gas just when the power companies were screaming for more gas. That created the double in the price which you should have sold into! Usually, people don't need to be told to take a profit when something doubles in 2 weeks, but apparently there are some out there as I've been here getting emails from them. Further confusing matters further is that (UNG) did a 4:1 reverse split right at this time. They have to do this every few years or the 35% a year contango takes the price below $1.00 and shares can’t trade below $1.00 on the New York Stock Exchange.
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 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
