Author: Andrew Packer

Tech stocks

The Pomp Letter: Why Most People Are Wrong About DeepSeek AI and The Impact on Financial Markets

Posted on by Andrew Packer

Tech stocks sank on Monday, following the release of the DeepSeek AI. Based out of China, the AI program claims it performs as well as ChatGPT. But, it does so at a fraction of the processing power and energy needed.

That news hit markets hard. After several years of big-tech stocks soaring, they now carry a hefty market weighting. What’s next for investors?

First, the news should be approached with some skepticism. There’s no independent verification of DeepSeek’s performance. And China has been less than honest sometimes about various developments.

Plus, claims about how little the development cost may not be accurate depending on how the AI sourced its data. Also, China is coming into its New Year. The country often likes to announce positive news going into the holiday.

In the meantime, it’s clear that there’s a global race for AI. And that AI programs will likely get faster, better, and cheaper. The big winner may not be investors in big tech companies going forward.

Rather, the winners will be consumers themselves. And as other companies are able to utilize AI programs, they can increase their productivity. That could allow other companies to flourish amid the AI boom.

Either way, it’s clear that the AI boom is just getting started. And that there will be more AI tools in the future.

 

To read the full analysis, click here.

Commodities

Lead-Lag Report: The Gold Strategy For 2025

Posted on by Andrew Packer

After beating out the stock market last year, gold prices are poised for further gains. The metal has topped $2,800 per ounce this week for the first time. More impressively, that move has occurred as the U.S. dollar has been strengthening in global markets.

Investors are generally bullish, but several risks remain. A potential increase in tariffs could increase the cost of goods, and create further inflation. Under that scenario, gold’s returns could accelerate.

Meanwhile, governments continue to run deficits, even in a growing economy. A crisis of confidence could erupt in debt markets, which would likely send investors to gold. That crisis could take multiple forms, from a failed bond auction to a credit crisis.

The bond market continues to flash warning signs for investors. Bond yields have trended higher. That reflects rising uncertainty. Bond yields rising while most economic indicators are calm suggests that the market anticipates more inflation.

A rise in inflation tends to benefit gold prices as well.

Meanwhile, gold prices continue to outperform other assets such as lumber. That’s another historical sign that investors continue to see caution. Lumber prices tend to rise when the real economy is in growth mode, and gold tends to rise when inflation pressures remain strong.

Gold miners have underperformed during gold’s recent rally. That trend could change on a further rally in gold this year.

 

To watch the full interview, click here.

Technical Analysis

Tastylive: How We Trade 0DTE With 90% Less Capital

Posted on by Andrew Packer

Traders have flocked to zero-day, or 0DTE, trading with their options. Since these options started trading nearly two years ago, they’ve grown substantially. 0DTE trades now account for nearly half of all options trades.

Investors have plenty of strategies that they can employ with 0DTEs. Some of these strategies can be costly. But there are several tools available to allow for profitable 0DTE trading with substantially less capital involved.

One strategy is to use a strangle. A strangle involves buying and selling an option with different strike prices, but the same expiration date. In essence, the trader is looking to make a small profit. At least as long as a stock or index trades within a certain range.

A short strangle can have higher risk, but can be built at a lower cost of capital compared to directional options bets. Plus, far out-of-the-money options can avoid capital restrictions. That also allows for traders to use less capital.

Typically, a 30-delta strangle option would carry a huge cost for investors. They may need to put up over $100,000 in capital. But by using more out-of-the-money trades, investors could make a similar return while risking just 1/10th of the capital.

So, investors should look to buy cheap options and using strangle trades. That will help maximize returns and lower capital costs on 0DTE trades.

 

For the full study behind this trading strategy, click here.

Private equity

A Wealth of Common Sense: Margin of Too Much Safety

Posted on by Andrew Packer

The data for 2024 is out. Most hedge funds managed to earn returns of around 15-20%. For most years, that’s a good return. But buying the stock market index would have generated returns of nearly 25%.

It’s just one more year of hedge funds generally underperforming the overall stock market. And that doesn’t even factor in costs. Hedge funds typically take 2% of assets and 20% of returns.

That fee remains much more expensive than the 0.1% fee that investors might face buying a market index fund.

With thousand of hedge funds still around today, their real issue is that these funds may be too hedged.

They simply have too much downside protection. While a hedged fund may fare better than stocks during a market meltdown, such meltdowns are rare.

Plus, many funds don’t really hedge intelligently. Some may look to short overpriced stocks and go long undervalued stocks. But overpriced stocks may be momentum and tech companies that could fare higher.

Meanwhile, most fund managers end up becoming large investors in the fund. As their wealth in the fund grows, so does their caution to protect what they do have.

Overall, hedge funds may sound like an intelligent investment for high net-worth investors. But their overreliance on safety ensures underperformance.

 

For the full details on the trouble with hedge funds, click here.

 

Stock market

Beyond The Charts : Reversion Beyond the Mean and the Search for Market Bases

Posted on by Andrew Packer

While most investors and traders are focused on the stock market, the bond market tends to drive financial markets overall. That’s because the bond market represents cautious money.

And shifting trades in the bond market reflect interest rates. Interest rates are the cost of capital. With interest rates rising, it’s clear that bond holders are increasingly cautious. That could mean potential danger for stocks ahead.

Plus, the stock market tends to rise and fall much more on animal spirits. However, the bond market has fewer emotional swings. That means investors should pay attention to the bond market.

With bond yields rising, it’s time for investors to get cautious. That doesn’t mean the market rally is over, simply that the biggest part of the move has already been made.

As long as the 200-day moving average is trending higher, investors can expect risk-on conditions. That’s good for stocks, most commodities, and cryptocurrencies.

However, once markets start to level out and trade sideways, it may be a sign to get increasingly cautious. Once the 200-day moving average starts trending lower, it becomes more challenging for investors.

For now, it’s clear that there’s some caution in markets. But the trends are overall positive, even as the bond market gives an early warning.

 

To watch the full analysis, click here.  

 

Cryptocurrencies

Rajat Soni, CFA: How Much Bitcoin to Retire in 20 Years?

Posted on by Andrew Packer

Since the launch of bitcoin in 2009, it has been the greatest-performing asset of all time. With those high returns come high volatility. As the crypto space matures, bitcoin has become easier to buy and hold than ever.

While bitcoin’s massive returns will likely slow in the decades ahead, it still remains a big winner. That’s because bitcoin is the only asset globally programmed with a maximum cap.

Currently, over 93% of all bitcoin that will ever exist have been mined. Today’s investors may balk at an asset trading in the six-figure range. But it likely has more upside given that it’s still in early adoption.

If bitcoin continues to outperform traditional assets, a buy today could fund a reasonable retirement in 20 years.

That’s based on several factors. An investor should first estimate their retirement needs. That includes calculating the cost of living in various cities. Then, add in a margin of safety.

For a high cost-of-living area like New York, it may take about 4 bitcoin to retire in 20 years. That assumes bitcoin averages a 20% return.

That would cost just over $400,000 today. If bitcoin averages a 30% annual return, however, it may take less than 1.5 bitcoin to fund a retirement. Investors who buy today can still get a valuable bargain in the future.

 

To see the full calculations behind retiring on bitcoin, click here.

 

Commodities

Sprott: Top 10 Themes For 2025

Posted on by Andrew Packer

2025 starts off as a continuation of 2024. That bodes well for some commodities, particularly precious metals and uranium. Gold just beat out the S&P 500 in 2024, soaring about 25%. That’s the metal’s best annual performance in 14 years.

Meanwhile, the rollout of AI has led to a resurgence of demand for nuclear power. That, in turn, has pushed uranium higher. That’s another trend still in its early stages with more room to run.

Meanwhile, commodities such as copper have a murkier outlook. Copper plays well to global economic growth. But a slowing economy in China, the world’s second-largest economy, should derail copper.

However, the current imbalance between supply and demand still remains in favor of higher prices. Investors can still look to copper stocks as a potential buy during periods of weakness.

Plus, energy was a lackluster sector in 2024. But events continue to shape up in favor of traditional energy assets. One reason why is the concept of energy security.

America is largely energy independent, but has an opportunity to export significant amounts of natural gas to Europe. That could offset a potential price decline that may otherwise occur as American producers are encouraged to drill.

In this scenario, smaller energy explorers and producers could be the big winner relative to the oil majors.

 

To see the full list and details of 10 commodity themes, click here.

Income investing

Dividend Growth Investor: Three Dividend Growth Companies Increasing Dividends Last Week

Posted on by Andrew Packer

Whether stocks rally or decline, they’re still fractions of a business. And over time, focusing on a company as a business can lead to massive returns. Most businesses mature and slow down after a hefty growth phase.

As that happens, cash flows shift from reinvesting in the business to rewarding the owners. That usually takes the form of dividend payments. A rare handful of companies have a history of increasing that payout over time.

The list narrows further for a ten-year period of raising payouts over time. But these companies tend to be great for long-term, patient investors. For those thinking about future cash needs decades down the line, dividend growth is optimal.

Recently, three companies raised their dividends. That includes utility firm Consolidated Edison (ED), which generates gas and electric power in the New York City area. They just raised dividends for the 51st consecutive year.

Over the past 10 years, Con Ed has raised its payouts by an average of 2.8%, about in-line with average inflation. Shares currently yield 3.5%, more than double the average dividend from the stock market index.

Another player is industrial and construction supplier Fastenal (FAST). They raised their dividend by 10.3%, and for the 26th consecutive year. Fastenal currently pays a 2.1% dividend.

Dividend growth companies may not be exciting short-term trades, but their long term track record is fantastic.

 

To see the third dividend growth play this week, click here.

Economy

QTR’s Fringe Finance: Market Right Now Is “A Story of Contrasts”

Posted on by Andrew Packer

While the stock market has snapped back some weakness to start trending higher in the past week, structural problems remain.

Corporate America is excited about the incoming Trump administration. The economic focus on deregulation and keeping tax rates at their current level, or even lower, is generally bullish. However, tariffs could ignite a trade war, which could lead to another round of inflation. That’s just one contrast.

In that scenario, domestic companies like banks and other financial stocks could fare well. Ditto for smaller energy companies focused on domestic exploration.

For companies with significant global operations, the picture can be a bit murkier. That’s also true for tech companies. Many of today’s semiconductor manufacturing is done overseas. Domestic facilities are being built or retooled for advanced AI chips. But they aren’t ready yet.

And while consumer spending is strong, so is rising credit card debt and delinquencies. If consumers have to slow their spending, the economy could easily slip into a recession.

For now, we’ll know more as specific policies are released from the White House. And as companies report earnings and note on potential dangers.

In this kind of environment, investors and traders should look to scale back aggressive trading. And shouldn’t try to force a trade just for the sake of trying to score a quick profit.

 

To read the full analysis, click here.

Stock market

FX Evolution: You Won’t Believe What Retail Traders Did This Week

Posted on by Andrew Packer

Markets have started the year trending higher, fueled in part by signs of moderating inflation. That’s allowed the market structure to show a better sign of strength. And it reverses the potential selloff signals that stocks were giving in the final weeks of 2024.

While the Santa Claus rally failed to materialize, stocks were up in the first 5 trading days of 2025. And are on track to end January stronger. Both moves point to an up year.

Reads such as improving breadth and moving average convergence/divergence also point to markets closing 2025 higher.

In fact, the stock market just presented a signal it last hit in 1928. It just recorded five straight days of at least 68% breadth. That means two out of three stocks moved higher. That’s a much healthier sign than a market dominated by a few large-cap tech stocks.

Of course, 1928 was the last full year of a bull market before the start of a bear market in late 1929. So traders will want to be mindful that stocks may have more upside this year, but not indefinitely into the future.

However, January’s market moves also indicate that stocks will likely be volatile. And traders and investors alike should be prepared for a correction in the 10% range. For now, the trend is back to bullish.

 

To see the full technical analysis on the market right now, click here.