The Market -- The Day After -- April 11, 2024

Locator: 46979INV.

Updates

April 13, 2024:

Original Post 

I didn't watch any of CNBC -- except maybe 20 minutes the entire day -- so I really don't know what the theme was for the day. 

I have no clue what's driving PARA and I have no interest in looking.

But today was one of the most critical days so far this year: the market fell significantly yesterday when inflation came in "hotter" than forecast. That was the meme yesterday and to some extent today: "hotter than forecast." 

In fact, the number yesterday came in almost in line with the forecast. Which suggests to me, traders were hoping for a number "better" than the forecast. We would have seen the same outcome had the number come in exactly as forecast.

So, today, it would have been a disaster for some traders/investors had today's inflation number come in "hotter" then forecast. In fact, it did not and that gave traders and investors breathing room to take advantage of a buying opportunity following yesterday's market reaction. And, wow, they certainly did.

Exhibit A: Amazon. Hits an all-time high.

This is a trader's market. 

And, an investor's market.

With a 30-year rolling horizon, what the market does on a daily basis doesn't really matter EXCEPT to confirm my thoughts on what the economy is doing and how the "market" -- investors and traders -- "see" the economy. 

So, today's market action supports my thoughts regarding investing:

• there will be no rate cuts this calendar year,
• not all investors/traders accept that, but they are all trading as if they are willing to accept that;
• if there is rate cut, it will have no effect on the economy; it will simply be a signal
• how the signal will be interpreted depends upon what circumstances exist when the cut is announced
• "higher for longer" is an awful meme, because the current Fed rate is pretty much in line with historical norms; it's about as good as it can get;  it's really not "higher for longer"
• higher and the housing market is slammed and a recession becomes a bigger risk; 
• lower and traders / investors become even more exuberant
• tech remains the story; pullbacks offer investors (and traders) great opportunities

With regard to tech (chips, semiconductor, AI, whatever that all means):

• for investors like me there is a finite and relatively small number of tech companies to consider;
• let's say there are ten such companies; I think it's closer to seven; others might suggest closer to twenty
• this is what mom-and-popl / amateur investors don't realize:
• these seven to twenty companies are not all in the same business;
• they are not all in direct competition with each other;
• a rising tide (in this case, AI) raises all boats -- all seven to twenty; 
• but some will do much better than others but that's a discussion for another day
• each one of these seven to twenty chip companies is a monopoly, or part of a duopoly, or at worse, part of a triopoly

In broad outline:

1) only one company makes the high-end etcher needed for ever-small chips and that company is located in the Netherlands:
2) one company is perceived to be in a class by itself, producing high-end, high-margin chips optimized for AI, but there is a second such company that has no interest in being #2
    3) in that arena of high-end, high-margin chips, one is the "Hertz," the other is the "Avis"
4) there may be two foundries, but only one matters to most of us
5) there is only one DRAM -- breadandbutter -- memory chip company that matters
6) there are only two smartphone chips in their own world, and I can't tell the difference between the two; one is now practically joined at Apple's hip; the other replaced Intel in the WINTEL monopoly/duopoly;
7) the designers -- they design chips but don't get their hands dirty manufacturing them

Of those seven, I missed two early on (last year), but quickly pivoted, and started building a huge position in one of the two; the second one, the second one I missed, was a huge mistake and I finally started building a position yesterday when the market "collapsed."

8) there's one company that doesn't know what business it's in; it will likely do well, because a rising tide (AI) will raise all boats (all chip companies) but I wouldn't touch it with a 10-foot pole. It may do very, very, very well, but it if does so will the others. There are at least seven companies with which to build one's own personal ETF.

Most interesting: what is AI? Who is AI? Think about that for a minute. I think I know but I will hold thoughts until later. 

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Updates

Link here.

More here.

From the linked article;

Copper's bull run should continue for at least the next three years, fueled by global supply challenges and hot demand for the metal to power energy transition and artificial intelligence technologies, industry analysts say.

The outlook is an optimistic harbinger for Freeport-McMoRan and other producers as decarbonization and technological shifts fuel copper's latest demand wave after China's rise powered a similar one two decades ago.

See the  $97 below and that was after a 11% gain in one day. Today, when the entire market was down, now trading at $115:

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Deep Dives

I'm really proud of the "deep dives" I've done for the blog over the past ten years. I'm working on a new "deep dive" but I don't think I'm going to be very successful in answering this question: how does one invest in the energy that will be needed to power the AI revolution?

The only thing I know for sure: copper.

I've been building a position in SCCO for decades. Always bought additional shares; never sold. For the longest time, DRIP'd.

But energy source?

• nuclear: wouldn't touch it with a ten-foot pole as an investor; it may be the "final" solution but it will be a real slog and there will be plenty of other options that will provide better returns with much less risk for investors and traders;
  
• coal: no way as an investment. Coal in 2030 will be the natural gas of 2024 -- coal companies will be giving it away if anyone is still using it (yes, I know, China will be still using it, as well as India but the margins will be so low compared to other investing options)
  
• renewables: nope. I think we are already near "peak" renewable energy
  
• that leaves natural gas

I'm already overweight in oil / natural gas, so I have that covered. 

So, I'm still looking -- how to play / invest in energy solutions for AI.

Other AI issues and investment opportunities.

This is a sleeper and plenty of time; but watch this sector closely: transformers. In the old days it was GE, Siemens, I suppose; these days I have no idea, but plenty of time to sort this out.

This is not a sleeper, but not a lot of folks are paying attention: it's batteries and battery technology, both for the grid and for the data centers.

• the grid needs batteries to back-up solar and wind;
• the data centers need batteries to back up the grid
• so, I'll have to a deep dive on companies involved in batteries for the grid and for data centers
• right now, the only name that comes to mind: Tesla

So, that's:

• natural gas
• copper
• transformers
• batteries / battery technology

What else?

• Of course: the cloud -- these are the software companies for the data center hardware: Apple, Microsoft, Google, Amazon, 

How about someone that puts the wiring together?

I'm surprised no one has thought of this. Who's doing the wiring, who has the expertise to put the hardware, in the cloud and the data centers, together? This is why I need to do a "deep dive," but this is where I would start: Oracle and Cisco.

What about electric utilities? Not in a million years. Way too regulated; no YOLO, FOMO, or MOJO. Too many liabilities (forest fires; wild fires). High capital costs with poor margins. Investors demand generous dividends (i.e., capital).

So, I need to do a "deep dive" but at least I have a start:

• seven chip companies -- each a monopoly, part of a duopoly or triopoly
• natural gas
• copper
• transformers
• batteries and battery technology
• the cloud, several companies
• two networking companies

What I won't invest in:

• any energy source other than natural gas
• utilities