Mad Hedge Technology Letter
October 25, 2023
Fiat Lux
Featured Trade:
(AMERICA SHINES WHILE EUROPE SLUMBERS)
(TSLA), (NVDA), (AAPL), (ABNB), (UBER)
Tag Archive for: (TSLA)
Europe’s fintech companies are exploding.
The weakness in stock prices is emblematic of the broader malaise in the Eurozone economy.
The positive here is that the US economy keeps chugging along and on a relative basis, is leaps and bounds stronger than its counterpart.
Why does that matter?
The less money invested into European tech can be diverted into the likes of Tesla (TSLA), Nvidia (NVDA), Apple (APPL), and the rest of the American tech companies.
I absolutely see this as a zero sum game in a world where all the low-hanging fruit has been plucked.
In a globalized world, investors can really just dabble in whatever national market they seek to profit from with ease.
It’s really just a few taps of the screen.
Silicon Valley is already heavily entrenched in Europe with sprawling workforces in many of the 27 countries in which they arbitrage lower wages to their benefit.
If one ever hoped a local rival would root out American variants, it’s a hard slog ahead.
France’s worldline shares plummeted a record 59%, erasing €3.8 billion ($4 billion) of market value, after the French payments company slashed future forecasts.
The stock’s plunge echoes August’s huge fall in peer Adyen NV and follows Tuesday’s 72% drop in fintech CAB Payments Plc. Shares in Adyen declined 7.5% on Wednesday, while another peer, Nexi SpA, slid 18%.
Since then, worries over lofty valuations and a broader slowdown in consumer spending have brought the high-flying stocks back to earth. Adyen, Nexi, and Worldline have lost more than $33 billion in market value combined in the year to date.
Worldline said it now sees full-year organic revenue growth of 6% to 7%, down from a previous forecast of 8% to 10%. The company’s third-quarter sales also missed estimates.
Small fintech companies growing in the single digits is one of the biggest fopaux an up-and-coming fintech company can commit.
Management also complained that European consumers are tapped out.
They don’t have the money to allocate to “non-discretionary” items.
Europeans are basically paying for shelter, energy, and food.
If there is anything else left over, it’s not much. That’s what happens when the cost of living rises between two and three times.
Management also emphasized an acute slowdown in German consumer spending which hurts since these consumers are some of Europe fintechs biggest customers.
I do believe that many investors aren’t going to stay invested in Europe’s fintech space and it is ripe for consolidation which ironically could come from America’s magnificent 7 who have the deep pockets.
It’s a fragmented sub-sector of tech with some operators pigeonholed into one microscopic area of Europe like Andorra or Slovenia.
Technology scales but Europe is hard in the sense it must cut through a vast language, sprawling bureaucracy, high tax regimes, and cultural barriers not to mention different laws. Throw into the mix that multinationals have stopped supporting work visas for non-EU citizens and it is easy to understand why Europe is not ideal for starting tech firms.
The narrow path is why a company like Worldline generates revenue of around $1.2 billion per quarter as opposed to an American PayPal (PYPL) which does $8 billion per quarter.
If we look at the big boys like Google, quarterly revenue goes up to $80 billion per quarter highlighting how far back Europe is from the real upper echelon of American tech.
If Europe is getting trounced by the likes of PayPal, then investors can’t get angry when they get labeled the bush leagues of global technology.
Look at Silicon Valley and especially the tier 2 firms like Uber (UBER) or AirBnb (ABNB) for the real growth instead of Europe’s suffocation of free market technology.
Global Market Comments
October 23, 2023
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or WAS THAT THE CAPITULATION?),
(SPY), (TLT), (TSLA), (NVDA)
It’s very relaxing writing here in West London, recovering from my injuries.
No air raid alerts, no incoming missiles, no heavy artillery. The people you encounter are upbeat and optimistic, not haggard, sleep-deprived, and war-weary. I just knock out a newsletter and then head for the King’s Head for a pint of Guinness and a fish and chips.
What can be better than that?
With stocks holding up relatively well and bonds in free fall, valuations have befuddled and confused analysts, as well as sent them running for their history books. For the market as a whole, the price earnings yield for stocks how of bonds has dropped to zero for the first time in history. Both are at 5%.
With big tech share prices maintaining flatlines worst case and edging up best case, the debate has reignited as to how expensive these companies can get. The price earnings ratio for the Magnificent Seven has leapt from 29 to 45 this year.
There is an explanation for all of this.
The bottom line is that as long as the economy holds up, so will markets. The US has the only strong major economy in the world, held up by accelerating tech and AI.
That explains why even after a traumatic 2.4% drop in the S&P 500, the Volatility Index has only made it up to 21%. The first read on Q3 GDP is out on Thursday and the consensus forecast at 3.3%, or about the long-term average growth rate for the postwar US economy. The Atlanta Fed has Q3 growth as high as 5.4%.
So the growth is there.
All we need now is for bond yields to find their peak. Then we will be in for the yearend rally we have all been waiting for. From that point, you will want to own companies that suffer from rising interest rates. They will see explosive moves and the list is long.
I was walking down one of London’s cobble-stoned lanes the other day when a motorcycle passed by and backfired. I hit the ground, expecting an imminent missile strike. Passerbyes stared at me in awe, thinking an old man just suffered a massive heart attack. I simply got up, brushed myself off, and walked away.
It takes longer to leave a war than I thought.
So far in October, we are up +3.14%. My 2023 year-to-date performance is still at an eye-popping +63.94%. The S&P 500 (SPY) is up +10.79% so far in 2023. My trailing one-year return reached +71.56% versus +22.90% for the S&P 500.
That brings my 15-year total return to +661.13%. My average annualized return has returned to +47.79%, another new high, some 2.71 times the S&P 500 over the same period. A short in the bond market was a big help and long positions in Tesla and NVIDIA expired at max profit.
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, October 23, at 8:30 AM EST, the Chicago Fed National Activity Index is out.
On Tuesday, October 24 at 8:30 AM, the S&P Global Flash PMI is released.
On Wednesday, October 25 at 2:30 PM, the New Home Sales are published.
On Thursday, October 26 at 8:30 AM, the Weekly Jobless Claims are announced. The US GDP Growth Rate is revised.
On Friday, October 27 at 8:30 AM, Personal Income & Spending are published. At 2:00 PM the Baker Hughes Rig Count is printed.
As for me, you know you’re headed into a war zone the moment you board the train in Krakow, Poland. There are only women and children headed for Kiev, plus a few old men like me. Men of military age have been barred from leaving the country. That leaves about 8 million to travel to Ukraine from Western Europe to visit spouses and loved ones.
After a 15-hour train ride, I arrived at Kiev’s Art Deco station. I was met by my translator and guide, Alicia, who escorted me to the city’s finest hotel, the Premier Palace on T. Shevchenka Blvd. The hotel, built in 1909, is an important historic site as it was where the Czarist general surrendered Kiev to the Bolsheviks in 1919. No one in the hotel could tell me what happened to the general afterwards.
Staying in the best hotel in a city run by Oligarchs does have its distractions. That’s to the war occupancy was about 10%. That didn’t keep away four heavily armed bodyguards from the lobby 24/7. Breakfast was well populated by foreign arms merchants. And for some reason, there were always a lot of beautiful women hanging around.
The population is definitely getting war-weary. Nightly air raids across the country and constant bombings take their emotional toll. Kiev’s Metro system is the world’s deepest and at two cents a ride the cheapest. It where the government set up during the early days of the war. They perform a dual function as bomb shelters when the missiles become particularly heavy.
My Look Out Ukraine has duly announced every incoming Russian missile and its targeted neighborhood. The buzzing app kept me awake at night so I turned it off. The missiles themselves were nowhere near as noisy.
The sound of the attacks was unmistakable. The anti-aircraft drones started with a pop, pop, pop until they hit a big 1,000-pound incoming Russian cruise missile, then you heard a big kaboom! Disarmed missiles that were duds are placed all over the city and are amply decorated with colorful comments about Putin.
The extent of the Russian scourge has been breathtaking with an an epic resource grab. The most important resource is people to make up for a Russian population growth that has been plunging for decades. The Russians depopulated their occupied territory, sending adults to Siberia and children to orphanages to turn them into Russians. If this all sounds medieval, it is. Some 19,000 Ukrainian children have gone missing since the war started.
Everyone has their own atrocity story, most too gruesome to repeat here. Suffice it to say that every Ukrainian knows these stories and will fight to the death to avoid the unthinkable happening to them.
It will be a long war.
Touring the children’s hospital in Kiev is one of the toughest jobs I've ever undertaken. Kids are there shredded by shrapnel, crushed by falling walls, and newly orphaned. I did what I could to deliver advanced technology, but their medical system is so backward, maybe 30 years behind our own, that it couldn’t be employed. Still, the few smiles I was able to inspire made the trip worth it.
The hospital is also taking the overflow of patients from the military hospitals. One foreign volunteer from Sweden was severely banged up, a mortar shell landing yards behind him. He had enough shrapnel in him to light up an ultrasound and had already been undergoing operations for months.
To get to the heavy fighting, I had to take another train ride a further 15 hours east. You really get a sense of how far Hitler overreached in Russia in WWII. After traveling by train for 30 hours to get to Kherson, Stalingrad, where the German tide was turned, is another 700 miles east!
I shared a cabin with Oleg, a man of about 50 who ran a car rental business in Kiev with 200 vehicles. When the invasion started, he abandoned the business and fled the country with his family because they had three military-aged sons. He now works a minimum wage job in Norway and never expects to do better.
What the West doesn’t understand is that Ukraine is not only fighting the Russians but a Great Depression as well. Some tens of thousands of businesses have gone under because people save during war and also because 20% of their customer base has fled.
I visited several villages where the inhabitants had been completely wiped out. Only their pet dogs remained alive, which roved in feral starving packs. For this reason, my major issued me my own AK47. Seeing me heavily armed also gave the peasants a greater sense of security.
It’s been a long time since I’ve held an AK, which is a marvelous weapon. But it’s like riding a bicycle. Once you learn, you never forget.
I’ve covered a lot of wars in my lifetime, but this is the first fought by Millennials. They post their kills on their Facebook pages. Every army unit has a GoFundMe account where donors can buy them drones, mine sweepers, and other equipment.
Everyone is on their smartphones all day long killing time and units receive orders this way. But go too close to the front and the Russians will track your signal and call in an artillery strike. The army had to ban new Facebook postings from the front for his exact reason.
Ukraine has been rightly criticized for rampant corruption which dates back to the Soviet era. Several ministers were rightly fired for skimming off government arms contracts to deal with this. When I tried to give $3,000 to the Children’s Hospital, they refused to take it. They insisted I send a wire transfer to a dedicated account to create a paper trail and avoid sticky fingers.
I will recall more memories from my war in Ukraine in future letters, but only if I have the heart to do so. They will also be permanently posted on the home page at www.madhedfefundtrader.com under the tab “War Diary”.
Stay Healthy,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Global Market Comments
October 20, 2023
Fiat Lux
Featured Trade:
(TESTIMONIAL)
(OCTOBER 18 BIWEEKLY STRATEGY WEBINAR Q&A),
(LMT), (MS), (GOOG), (NVDA), (TSLA), (MSFT), (AMZN), (APPL), (META), (FXI), (RIVN), (NFLX)
Below please find subscribers’ Q&A for the October 18 Mad Hedge Fund Trader Global Strategy Webinar, broadcast from London England.
Q: Is Nvidia (NVDA) a buy at the current price?
A: Absolutely, if your view is more than, say, a month. This stock will easily be $1,000 in the next year or two. They have such a huge moat on their business, and the high-end chips that are banned in China are only a tiny fraction of their overall business—they’re still allowed to sell small and medium-sized chips.
Q: Where do you see bond yields peaking out?
A: My pet target is 5.2% on a spike. We may get there in a few weeks or months. The position we have breaks even at 5.15% in 21 trading days. So any kind of rally on that position becomes profitable—even a one-day rally.
Q: Are you hitting Israel next?
A: No, I covered the Middle Eastern wars for 10 years starting with the ‘73 Yom Kippur wars, and I got sick of it. They’re using the same arguments to justify their positions that they were 50 years ago. In fact, the disputes have been going on for hundreds of years. So, I moved on to other more interesting wars like Ukraine. There are plenty of newbies cutting their teeth as war correspondents in Gaza now—I'll leave it to them.
Q: Are the results for all of the newsletters or just for one?
A: Those alerts that I send out personally are the results for the Mad Hedge Global Trading Dispatch. All of the other services (we have six now) have their own trade histories which we don’t publish, as it’s too much of an account job effort to update six independent track records. People know whether they’re making money or not—that's good enough for me. That’s how we’re set up; we’re a staff-light operation so that we can keep the prices low.
Q: What do you expect for Tesla (TSLA) earnings today?
A: I never make same-day earnings calls, but I would expect they’d be good. They would be less than they were in the past because the price wars are cutting into margins, but they’re gaining market shares at everybody else’s expense, which makes (TSLA) a “BUY”. In fact, if you look at the charts, it seems to be moving sideways into an upside breakout.
Q: Is it too late to buy military?
A: No, I’d be buying any of the big military stocks like Lockheed Martin (LMT), because the increase in demand for weapons is not a short-term thing—it is a more or less permanent thing which will go out decades. Also, they all already have massive government contracts to rebuild our own weapons. Most people don't realize that almost every weapons system in the United States is more than 50 years old. The reason is we quit investing in conventional weapons because we all thought the next war would be cyber. Well, Russia got absolutely nowhere on cyber—they made a few weak attempts to shut down Ukraine and couldn't even break into Elon Musk’s Skylink system, which all of Ukraine is running on.
Q: Why is Morgan Stanley (MS) doing so poorly?
A: All the financials are getting hit because of the collapsing bond market. Once the bond market finds a bottom you want to be buying financials with both hands.
Q: When the market recovers, which sector will lead?
A: Technology. The Magnificent Seven will lead. There’s safety in size. Google/Alphabet (GOOG), Nvidia (NVDA), Tesla (TSLA), Microsoft (MSFT), Amazon (AMZN), Apple (APPL), Facebook/Meta (META). They’re already leading now, so if you have those positions, I’d keep them. If you don’t, you should start picking them up.
Q: Is Rivian (RIVN) a buy at this level?
A: Absolutely. Amazon, which owns 25% of the company, just hit 10,000 Rivian delivery vans. I’ve seen them in California, they’re completely silent—very interesting cars. It’s just a question of how quickly they can produce them.
Q: Why is there a market drop today?
A: It’s the bond market. The first thing you look at every day is the bond market—if it's doing crappy, everything sells off.
Q: Do you still suggest 90-day T-bills at this point?
A: We may end up getting a stock buying opportunity into the year-end. Even if we have to wait for a yearend rally, you get paid every day for 90-day T-bills, and you can sell them at any time and get interest up to the day you sell them because they’re discount bonds that appreciate every day to reflect the yield. It’s a great way to park money, and most brokers will let you buy stocks against your 90-day T-bill position. So say you want to go fully invested in stocks—you could do that while selling your 90-day T-bills the same day. Most brokers will let you do that, worst case charging you one day of margin.
Q: Do you think China is using the Hamas attack on Israel to distract the US?
A: No, China wouldn’t want to get involved in this. Iran has its fingerprints all over it. Iran supplied all the missiles used to attack Israel, and if the Israelis turn around and attack Iran by destroying all of their nuclear and missile-making facilities, I would not be surprised one bit. That may be what Biden is really doing over there—trying to convince the Israelis not to escalate the war.
Q: What are the chances of a US default on November 17 (TLT)?
A: So far on all of these government shutdowns, the US Treasury has been able to come up with magic tricks to keep from defaulting; but if the default is long enough, even they will have to stop paying interest to bondholders, which will increase the debt burden of the US government because a lower credit rating will cause it to pay higher interest rates. Why people think this is a great strategy is beyond me.
Q: Gasoline is down and oil is up—what’s going on?
A: That’s usually driven by the crack spread—the availability of gasoline from refineries in the US, so I wouldn’t use that as any kind of indicator.
Q: Do you think China (FXI) is shifting priorities away from economic growth to military strength?
A: No I don’t, they would love to have economic growth if they could, and in fact, their central bank has been stimulating their economy, and it's working; that’s how this morning’s report got back up to 5%. At the end of the day, they just want peace. All this military stuff—they’re just bluffing and posturing, which is really all they’ve ever done, at least since the Korean War. They weren’t even big participants in the Vietnam War, so China doesn’t worry me at all; there are bigger things to worry about. But they definitely have hit a wall in economic growth, and a big part of that is Covid, and a big part of that is a shrinking population—a shortage of workers, and a shortage of workers who can support older parents.
Q: Will there be an oil embargo against Israel? The US and Europe by OPEC countries?
A: No. The Middle Eastern governments know what's really going on here, even though what they may say in public is completely different. The fact is that Hamas started this war, and none of these other countries want Hamas in their countries because they know that the first thing they'll do is overthrow the local government. Effectively, Hamas doesn’t exist anymore either—they've really all been killed, so you just have to give some time for things to cool down out there, and of course, the US is working overtime to keep the situation from escalating, but we can only try—we can’t enforce this thing. One question I've been getting from a lot of people lately is: will the US send troops to Israel or to Gaza? The answer is no—we were in Iraq and Afghanistan for 20 years! We’re in no hurry to get back into a new war, especially a new 20-year war, and that would not be in our own interest. By the way, Israel can amply defend itself; they have the best military in the Middle East by far, largely supported by the United States. For me, the big mystery is how intelligence in Israel missed this attack. They were just completely asleep at the switch, and some day in the future there will be an investigation about this, but don’t expect it from the current government.
Q: Why won’t Egypt and Jordan take the Palestinian refugees?
A: They are both poor countries. Neither of them is oil-rich, and Egypt especially has a horrendous population problem—they are in fact the world's second largest food importer after China. They have 110 million people to feed and not enough production locally to do that, so it isn’t easy to take in 2 million Palestinians. If you don't believe me, go to Cairo—it's just incredibly crowded. With a population of 10 million you can't go anywhere, so where are they going to put 2 million more people? So this is a difficult problem, there's no easy fix depending on what side you’re on.
To watch a replay of this webinar with all the charts, bells, whistles, and classic rock music, just log in to www.madhedgefundtrader.com, go to MY ACCOUNT, select your subscription (GLOBAL TRADING DISPATCH, TECHNOLOGY LETTER, or Jacquie's Post), then click on WEBINARS, and all the webinars from the last 12 years are there in all their glory.
Good Luck and Good Trading.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
2021 Mount Rose Summit Nevada
Global Market Comments
October 10, 2023
Fiat Lux
Featured Trade:
(FRIDAY, OCTOBER 13 KIEV, UKRAINE GLOBAL STRATEGY LUNCHEON)
(WILL SPACEX BE YOUR NEXT TEN BAGGER?)
(EBAY), (TSLA), (SCTY), (BA), (LMT)
I am constantly on the lookout for ten baggers, stocks that have the potential to rise tenfold over the long term.
Look at the great long-term track records compiled by the most outstanding money managers, and they always have a handful of these that account for the bulk of their outperformance, or alpha, as it is known in the industry.
I’ve found another live one for you.
News came out last week that Elon Musk’s SpaceX has just landed a $70 million contract with the Department of Defense for the creation of its military Star Shield satellite network.
Elon Musk’s SpaceX is so forcefully pushing forward rocket technology that he is setting up one of the great investment opportunities of the century.
In the past decade, his start-up has accomplished more breakthroughs in advanced rocket technology than seen in the last 60 years, since the golden age of the Apollo space program.
As a result, we are now on the threshold of another great leap forward into space. Musk’s ultimate goal is to make mankind an “interplanetary species.”
There is only one catch.
SpaceX is not yet a public company, being owned by a handful of fortunate insiders and venture capital firms. But you should get a shot at the brass ring someday.
The rocket launch and satellite industry is the biggest business you have never heard of, accounting for $200 billion a year in sales globally. This is probably because there are no pure stock market plays.
Only two major companies are public, Boeing (BA) and Lockheed Martin (LMT), and their rocket businesses are overwhelmed by other aerospace lines.
The high value-added product here is satellite design and construction, with rocket launches completing the job.
Once dominated by the US, the market for launches has long since been ceded to foreign competitors. The business is now captured by Europe (the Arianne 5), and China (the Long March 5). Space business for Russia and its Angara A5 rocket abruptly ended with its invasion of Ukraine.
Until recently, American rocket makers were unable to compete because decades of generous government contracts enabled costs to spiral wildly out of control.
Whenever I move from the private to the governmental sphere, I am always horrified by the gross indifference to costs. This is the world of the $10,000 coffee maker and the $20,000 toilet seat.
Until 2010, there was only a single US company building rockets, the United Launch Alliance (ULA), a joint venture of Boeing and Lockheed Martin. ULA builds the aging Delta IV and Atlas V rockets.
The vehicles are launched from Cape Canaveral, Florida and Vandenberg Air Force Base in California, both of which I had the privilege to witness. They look like huge Roman candles that just keep on going until they disappear into the blackness of space.
Enter SpaceX.
Extreme entrepreneur Elon Musk has shown a keen interest in space travel throughout his life. The sale of his interest in PayPal, his invention, to eBay (EBAY) in 2002 for $165 million, gave him the means to do something about it.
He then discovered Tom Mueller, a childhood rocket genius from remote Idaho who built the largest ever amateur liquid-fueled vehicle, with 13,000 pounds of thrust. Musk teamed up with Mueller to found SpaceX in 2002.
Two decades of grinding hard work, bold experimentation, and heart-rending testing ensued, made vastly more difficult by the 2008 Great Recession.
SpaceX’s Falcon 9 first flew in June 2010 and successfully orbited Earth. In December 2010, it launched the Dragon space capsule and recovered it at sea. It was the first private company ever to accomplish this feat.
Dragon successfully docked with the International Space Station (ISS) in May 2012. NASA has since provided $440 million to SpaceX for further Dragon development.
The result was the launch of the Dragon V2 (no doubt another historical reference) in May 2014, large enough to carry seven astronauts.
The largest SpaceX rocket now in testing has Mars capability, the 27-engine, 394-foot-high Starship, the largest rocket ever built.
Commit all these names to memory. You are going to hear a lot about them.
Musk’s spectacular success with SpaceX can be traced to several different innovations.
He has taken the Silicon Valley hyper-competitive ethos and financial model and applied it to the aerospace industry, the home of the bloated bureaucracy, the no-bid contract, and the agonizingly long time frame.
For example, his initial avionics budget for the early Falcon 1 rocket was $10,000 and was spent on off-the-shelf consumer electronics. It turns out that their quality had improved so much in recent years they met military standards.
But no one ever bothered to test them. $10,000 wouldn’t have covered the food at the design meetings at Boeing or Lockheed Martin, which would have stretched over the years.
Similarly, Musk sent out the specs for a third-party valve actuator no more complicated than a garage door opener, and a $120,000, one-year bid came back. He ended up building it in-house for $3,000. Musk now tries to build as many parts in-house as possible, giving it additional design and competitive advantages.
This tightwad, full speed ahead and damn the torpedoes philosophy overrides every part that goes into SpaceX rockets.
Amazingly, the company is using 3D printers to make rocket parts, instead of having each one custom-made.
Machines guided by computers carve rocket engines out of a single block of Inconel nickel-chromium super alloy, foregoing the need for conventional welding, a frequent cause of engine failures.
SpaceX is using every launch to simultaneously test dozens of new parts on every flight, a huge cost saver that involves extra risks that NASA would never take. It also uses parts that are interchangeable for all its rocket types, another substantial cost saver.
SpaceX has effectively combined three nine-engine Falcon 9 rockets to create the 27-engine Falcon Heavy, the world’s largest operational rocket. It has a load capacity of a staggering 53 metric tons, the same as a fully loaded Boeing 737 can carry. It has half the thrust of the gargantuan Saturn V moon rocket that last flew in 1973.
Musk is able to capture synergies among his three companies not available to any competitor. SpaceX gets the manufacturing efficiencies of a mass-production carmaker.
Tesla Motors has access to the futuristic space-age technology of a rocket maker. Solar City (SCTY) provides cheap solar energy to all of the above.
And herein lies the play.
As a result of all these efforts, SpaceX today can deliver what ULA does for 73% less money with vastly superior technology and capability. Specifically, its Falcon Heavy can deliver a 116,600-pound payload into low earth orbit for only $90 million, compared to the $380 million price tag for a ULA Delta IV 57, 156-pound launch.
In other words, SpaceX can deliver cargo to space for $772 a pound, compared to the $7,515 a pound UAL charges the US government. That’s a hell of a price advantage.
You would wonder when the free enterprise system is going to kick in and why SpaceX doesn’t already own this market.
But selling rockets is not the same as shifting iPhones, laptops, watches, or cars. There is a large overlap with the national defense of every country involved.
Many of the satellite launches are military in nature and top secret. As the cargoes are so valuable, costing tens of millions of dollars each, reliability and long track records are big issues.
Enter the wonderful world of Washington DC politics. UAL constructs its Delta IV rocket in Decatur, Alabama, the home state of Senator Richard Shelby, the powerful head of the Banking, Finance, and Urban Affairs Committee.
The first Delta rocket was launched in 1960, and much of its original ancient designs persist in the modern variants. It is a major job creator in the state.
ULA has no rocket engine of its own. So it bought engines from Russia, complete with blueprints, hardly a reliable supplier. Magically, the engines have so far been exempted from the economic and trade sanctions enforced by the US against Russia for its invasion of Ukraine.
ULA has since signed a contract with Amazon’s Jeff Bezos-owned Blue Origin, which is also attempting to develop a private rocket business but is miles behind SpaceX.
Musk testified in front of Congress in 2014 about the viability of SpaceX rockets as a financially attractive, cost-saving option. His goal is to break the ULA monopoly and get the US government to buy American. You wouldn’t think this is such a tough job, but it is.
Elon became a US citizen in 2002 primarily to qualify for bidding on government rocket contracts, addressing national security concerns.
NASA did hold open bidding to build a space capsule to ferry astronauts to the International Space Station. Boeing won a $4.2 billion contract, while SpaceX received only $2.6 billion, despite superior technology and a lower price.
It is all part of a 50-year plan that Musk confidently outlined to me 25 years ago. So far, everything has played out as predicted.
The Holy Grail for the space industry has long been the building of reusable rockets, thought by many industry veterans to be impossible.
Imagine what the economics of the airline business would be if you threw away the airplane after every flight. It would cost $1 million for one person to fly from San Francisco to Los Angeles.
This is how the launch business has been conducted since the inception of the industry in the 1950s.
SpaceX is on the verge of accomplishing exactly that. It will do so by using its Super Draco engines and thrusters to land rockets at a platform at sea. Then you just reload the propellant and relaunch.
What's coming down the line? A SpaceX cargo business where you can ship high value products like semiconductors from Silicon Value to Australia in 30 minutes, or to Europe in 20 minutes.
Talk about disruptive innovation with a turbocharger!
The company has built its own spaceport in Brownsville, Texas that will be able to launch multiple rockets a day.
The Hawthorne, CA factory (where I charge my own Tesla S-1 when in LA) now has the capacity to build 160 rockets a year. This will eventually be ramped up to hundreds.
SpaceX is the only organization that offers a launch price list on its website (click here for that link), as much as Amazon sells its books. The Falcon 9 will carry 28,930 pounds of cargo into low earth orbit for only $60.2 million. Sounds like a bargain to me.
This no doubt includes an assortment of tax breaks, which Musk has proven adept at harvesting. Elon has been a quick learner of the ways of Washington.
Customers have included the Thai telecommunications firm, Rupert Murdock’s Sky News Japan, an Israeli telecommunications group, and the US Air Force.
So when do we mere mortals get to buy the stock? Analysts now estimate that SpaceX is worth up to $200 billion.
The current exponential growth in broadband and SpaceX’s Starlink will lead to a similar growth in satellite orders, and therefore rocket launches. So the commercial future of the company looks especially bright.
However, Musk is in no rush to go public. A permanent, viable, and sustainable colony on Mars has always been a fundamental goal of SpaceX. It would be a huge distraction for a publicly managed company. That makes it a tough sell to investors in the public markets.
You can well imagine that the next recession would bring cries from shareholders for cost-cutting that would put the Mars program at the top of any list of projects to go on the chopping block. So Musk prefers to wait until the Mars project is well established before entertaining an IPO.
Musk expects to launch a trip to Mars by 2027 and establish a colony that will eventually grow to 80,000. Tickets will be sold for $500,000. Click here for the details.
There are other considerations. Many employees and early venture capital investors wish to realize their gains and move on. Public ownership would also give the company extra ammunition for cutting through Washington red tape. These factors point to an IPO that is earlier than later.
On the other hand, Musk may not care. The last net worth estimate I saw for his net worth was $300 billion. If his many companies increase in value by ten times over the next decade, as I expect, that would increase his wealth to $3 trillion, making him the richest person in the world by miles.
If an IPO does come, investors should jump in with both boots. While the value of the firm may have already increased tenfold by then, there may be another tenfold gain to come. Get on the Elon Musk train before it leaves the station.
To describe Elon as a larger-than-life figure would be something of an understatement. Musk is the person on which the fictional playboy/industrialist/technology genius, Tony Stark in the Iron Man movies, has been based.
Musk has said he wishes to die on Mars, but not on impact. Perhaps it would be the ideal retirement for him, say around 2045 when he will be 75.
To visit the SpaceX website, please click here. It offers very cool videos of rocket launches and a discussion with Elon Musk on the need for a Mars mission.
Catching a Dragon by the Tail
This Could Be the Stock Performance
Is Mars the Next Hot Retirement Spot?
We’ve just seen our last interest rate rise in the economic cycle. Yes, I know that our central bank took no action at their last meeting in September. The market has just done its work for it.
And the markets are no shrinking violet when it comes to taking bold action. The 50 basis points it took bond yields up over the last two weeks is far more than even the most aggressive, economy-wrecking, stock market-destroying Fed was even considering.
And that doesn’t even include the rate hikes no one can see, the deflationary effects of quantitative tightening, or QT. That is the $1 trillion a year the Fed is sucking out of the economy with its massive bond sales.
It really is a miracle that the US economy is growing as fast as it is. After a warm 2.4% growth rate in Q2, Q3 looks to come in at a blistering 4%-5%. That is definitely NOT what recessions are made of.
Where is all this growth coming from?
Some of the credit goes to the pandemic spending, the free handouts we call got to avoid starvation while Covid ravaged the country. You probably don’t know this, but nothing happens fast in Washington. Government spending is an extremely slow and tedious affair.
By the time that contracts are announced, bids awarded, permits obtained, men hired, and the money spent, years have passed. That means money approved by Congress way back in 2020 is just hitting the economy now.
But that is not the only reason. There is also the long-term structural push that is a constant tailwind for investors:
Hyper-accelerating technology.
Yes, I know, there goes John Thomas spouting off about technology again. But it is a really big deal.
I have noticed that the farther away you get from Silicon Valley, the more clueless money managers are about technology. You can pick up more stock tips waiting in line at a Starbucks in Palo Alto than you can read a year’s worth of research on Wall Street.
What this means is that most large money managers, who are based on the east coast are constantly chasing the train that is leaving the station when it comes to tech.
On the west coast, managers not only know about the new tech, but the tech that comes after that and another tech that comes after that, if they are not already insiders in the current hot deal. This is how artificial intelligence stole a march on almost everyone, until a year ago, unless you were on the west coast already working in the industry. Mad Hedge has been using AI for 11 years.
You may be asking, “What does all of this mean for my pocketbook?” a perfectly valid question. It means that there isn’t going to be a recession, just a recession scare. That technology will bail us out again, even though our old BFF, the Fed, has abandoned us completely.
Which brings me to the current level of interest rates. I have also noticed that the farther away you get from New York and Washington, the less people know about bonds. On the west coast mention the word “bond” and they stare at you cluelessly. Indeed, I spent much of this year explaining the magic of the discount 90-day T-bill, which no one had ever heard of before (What! They pay interest daily?).
In fact, most big technology companies have positive cash balances. Look no further than Apple’s $140 billion cash hoard, which is invested in, you guessed it, 90-day T-bills when it isn’t buying its own stock, and is earning a staggering $7.7 billion a year in interest.
The great commonality in the recent stock market correction is easy to see. Any company that borrows a lot of money saw its stock get slaughtered. Technology stocks held up surprisingly well. That sets up your 2024 portfolio.
Put half your money in the Magnificent Seven stocks of Apple (AAPL), Amazon (AMZN), Meta (META), Microsoft (MSFT), Tesla (TSLA), (NVIDIA), and Salesforce (CRM).
Put your other half into heavy borrowers that benefit from FALLING interest rates, including bonds (TLT), junk bonds (JNK), (HYG), Utilities (XLU), precious metals (GOLD), (WPM), copper (FCX), foreign currencies (FXA), (FXE), (FXY), emerging markets (EEM).
As for me, I never do anything by halves. I’m putting all my money into Tesla. If I want to diversify, I’ll buy NVIDIA. Diversification is only for people who don’t know what is going to happen.
I just thought you’d like to know.
So far in October, we are up +2.96%. My 2023 year-to-date performance is still at an eye-popping +63.76%. The S&P 500 (SPY) is up +12.89% so far in 2023. My trailing one-year return reached +76.46% versus +22.57% for the S&P 500.
That brings my 15-year total return to +660.95%. My average annualized return has fallen back to +48.07%, another new high, some 2.64 times the S&P 500 over the same period.
Some 44 of my 49 trades this year have been profitable.
Chaos Reigns Supreme in Washington, with the firing of the first House speaker in history. Will the next budget agreement take place on November 17, or not until we get a new Congress in January 2025? Markets are discounting the worst-case scenario, with government debt in free fall. Definitely NOT good for stocks, which are reaching for a full 10% correction, half of 2023’s gains.
September Nonfarm Payroll Report Rockets, to 336,000, and August was bumped up another 50,000. The economy remains on fire. The headline Unemployment Rate remains steady at an unbelievable 3.8%. And that’s with the UAW strike sucking workers out of the system. This is supposed to by impossible with 5.5% interest rates. Throw out you economics books for this one!
JOLTS Comes in Hot at 9.61 million job openings in August, 700,000 more than the July report. The record labor shortage continues. Will the Friday Nonfarm Payroll Report deliver the same?
ADP Rises 89,000 in September, down sharply from previous months, showing that private job growth is growing slower than expected. August was revised down. It’s part of the trifecta of jobs data for the new month. The mild recession scenario is back on the table, at least stocks think so.
Weekly Jobless Claims Rise to 207,000, still unspeakably strong for this point in the economic cycle. Continuing claims were unchanged at 1.664%.
Traders Pile on to Strong Dollar, headed for new highs, propelled by rising interest rates. There is a heck of a short setting up for next year.
Yen Soars on suspected Bank of Japan intervention in the foreign exchange markets to defend the 150 line against the US dollar. The currency is down 35% in three years and could be the BUY of the century.
Kaiser Goes on Strike with 75,000 health care workers walking out on the west coast. The issue is money. The company has a long history of labor problems. This seems to be the year of the strike.
Oil (USO)Gets Slammed on Recession Fears, down 5% on the day to $85, in a clear demand destruction move and worsening macroeconomic picture. Europe and China are already in recession. It’s the biggest one-day drop in a year. Is the top in?
Tesla Delivers 435,059 Vehicles in September, down 5% from forecast, but the stock rose anyway. The Cybertruck launch is imminent, where the company has 2 million new orders. Keep buying (TSLA) on Dips. Technology is accelerating.
EVs have Captured an Amazing 8% of the New Car Market. They have been helped by a never-ending price war and generous government subsidies. EV sales are now up a miraculous 48% YOY and are projected to account for a stunning 23% of all California sales in Q3. Tesla is the overwhelming leader with a 52% share in a rapidly growing market, distantly followed by Ford (F) at 7% and Jeep at 5%. However, a slowdown may be at hand, with EV inventories running at 97 days, double that of conventional ICE cars. This could create a rare entry point for what will be the leading industry of this decade, if not the century. Buy more Tesla (TSLA) on bigger dips, if we get them.
Apple Upgrades New iPhone 15 to deal with overheating from third-party gaming. It will shut down some of its background activity, including some of the new AI functions, which were stressing the central processor. Third-party apps were adding to the problem, such as Uber and games from (META). This is really cutting-edge technology.
Moderna (MRNA) Bags a Nobel Prize in Chemistry. Katalin Kariko and Drew Weissman’s work helped pioneer the technology that enabled Moderna and the Pfizer Inc.-BioNTech SE partnership to swiftly develop shots. I got four and they saved my life when I caught Covid. I survived but lost 20 pounds in two weeks. It was worth it.
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, October 9, there is no data of note released.
On Tuesday, October 10 at 8:30 AM EST, the Consumer Inflation Expectations is released.
On Wednesday, October 11 at 2:30 PM, the Producer Price Index is published.
On Thursday, October 12 at 8:30 AM, the Weekly Jobless Claims are announced. The Consumer Price Index is also released.
On Friday, October 13 at 1:00 PM the September University of Michigan Consumer Expectations is published. At 2:00 PM, the Baker Hughes Rig Count is printed.
As for me, one of the many benefits of being married to a British Airways senior stewardess is that you get to visit some pretty obscure parts of the world. In the 1970s, that meant going first class for free with an open bar, and occasionally time in the cockpit jump seat.
To extend our 1977 honeymoon, Kyoko agreed to an extra round trip for BA from Hong Kong to Colombo in Sri Lanka. That left me on my own for a week in the former British crown colony of Ceylon.
I rented an antiquated left-hand drive stick shift Vauxhall and drove around the island nation counterclockwise. I only drove during the day in army convoys to avoid terrorist attacks from the Tamil Tigers. The scenery included endless verdant tea fields, pristine beaches, and wild elephants and monkeys.
My eventual destination was the 1,500-year-old Sigiriya Rock Fort in the middle of the island which stood 600 feet above the surrounding jungle. I was nearly at the top when I thought I found a shortcut. I jumped over a wall and suddenly found myself up to my armpits in fresh bat shit.
That cut my visit short, and I headed for a nearby river to wash off. But the smell stayed with me for weeks.
Before Kyoko took off for Hong Kong in her Vickers Viscount, she asked me if she should bring anything back. I heard that McDonald’s had just opened a stand there, so I asked her to bring back two Big Macs.
She dutifully showed up in the hotel restaurant the following week with the telltale paper bag in hand. I gave them to the waiter and asked him to heat them up for lunch. He returned shortly with the burgers on plates surrounded by some elaborate garnish and colorful vegetables. It was a real work of art.
Suddenly, every hand in the restaurant shot up. They all wanted to order the same thing, even though the nearest stand was 2,494 miles away.
We continued our round-the-world honeymoon to a beach vacation in the Seychelles where we just missed a coup d’état, a safari in Kenya, apartheid South Africa, London, San Francisco, and finally back to Tokyo. It was the honeymoon of a lifetime.
Kyoko passed away in 2002 from breast cancer at the age of 50, well before her time.
Stay Healthy,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Sigiriya Rock Fort
Kyoko
Mad Hedge Technology Letter
October 6, 2023
Fiat Lux
Featured Trade:
(TESLA GAINS UPPER HAND WITH HELP FROM CHINA)
(TSLA), (LCID), (RIVN), (EV), (CHINA)
