After the smoking? trading results of the last month. No wonder JT feels the need to cool down in the snow of the Sierra.?
Malcolm
Hobart, Tasmania, Australia
After the smoking? trading results of the last month. No wonder JT feels the need to cool down in the snow of the Sierra.?
Malcolm
Hobart, Tasmania, Australia
While the Global Trading Dispatch focuses on investment over a one week to six-month time frame, Mad Options Trader, provided by Matt Buckley, will focus primarily on the weekly US equity options expirations, with the goal of making profits at all times. Read more
While the Diary of a Mad Hedge Fund Trader focuses on investment over a one week to six-month time frame, Mad Day Trader, provided by Bill Davis, will exploit money-making opportunities over a brief ten minute to three day window. It is ideally suited for day traders, but can also be used by long-term investors to improve market timing for entry and exit points. Read more
Global Market Comments
November 22, 2016
Fiat Lux
SPECIAL TECHNOLOGY ISSUE
Featured Trade:
(NOVEMBER 23RD LIVE GLOBAL STRATEGY WEBINAR),
(IS TECHNOLOGY DEAD?)
(AAPL), (FB), (AMZN), (GOOG),
(THE UNICORNS ARE EATING YOUR LUNCH)
Apple Inc. (AAPL)
Facebook, Inc. (FB)
Amazon.com, Inc. (AMZN)
Alphabet Inc. (GOOG)
Only if you were living on a small desert island in the middle of the Pacific Ocean with no Internet connection did you miss the horrific selloff in technology stocks since the presidential election.
I knew they would become target number one by an incoming Trump administration.
When tech shares briefly rallied on the morning of November 9th, I couldn?t believe my good luck, and dumped everything I owned. They cratered shortly afterwards.
The wreckage has been widespread.
Apple (AAPL) performed an 11.86% swan dive off its October high. Alphabet (GOOG) pared back 10.67%. Facebook (FB) shed 15.03%. Amazon (AMZN) puked an astounding 16.35%.
Is technology dead? I don?t think so, but to find out why not, you must read on.
President-elect Trump certainly made no secret of his displeasure with the tech sector, attacking several specifically by name.
He said he would demand that Apple manufacture its iPhones in the US which would force it to raise prices fivefold. If iPhone production stays in China, it would be subject to Trump?s 45% import duty.
He specified that Amazon, which accounted for 25% of the growth in retail sales this year, would have antitrust problems.
Facebook now finds itself squarely in the middle of the ?fake news? scandal which the Trump campaign so adeptly mastered.
More than any other sector of the US economy, technology was a beneficiary of the globalized economy.
Many companies obtain more than half of their earnings from abroad. Apple intends to obtain a significant portion of its future sales from China.
There is now a great black cloud hanging over these expectations, especially if there is a trade war with the Middle Kingdom.
We now have the greatest anti-globalization president of all time.
It gets worse.
Promises of massive deficit financed domestic spending have sent US interest rates soaring and the dollar along with it.
That immediately diminishes the value of technology?s foreign earnings when translated back to the greenback.
There is also the ATM effect. Investors are realizing long-term capital gains in their technology positions in order to finance purchases of what I call the ?New World Order? stocks in the beaten down sectors of financials, commodities, health care, construction and defense.
This has been exacerbated by the fact that every portfolio and hedge fund manger expected a Clinton win and were positioned to profit from it.
That left them overweight technology in a Trump world.
Indeed, I had friends loading up on Facebook the day before the election, expecting it to take off like a rocket the moment the results were out.
Oops!
It will take months, if not years, for large funds to reallocate their positions to reflect the new era.
And let's face reality here. Technology CEOs were, to a man, Clinton supporters. No overnights in the Lincoln bedroom here!
However, I don?t believe that it is the end of the world for technology companies. Armageddon it is not.
For a start, as the most profitable companies in America, they stand to become major beneficiaries of the cut in the corporate tax rate to 25%.
Furthermore, they are the largest owners of the $2 trillion in profits stashed abroad. Any kind of tax holiday on repatriation would enable them to bring these funds home at last.
And what will tech companies do with the better part of $2 trillion in cash? They don?t need the money, as they are massive cash flow generators.
My bet is they use it to buy back their own stock. I have already seen one report expecting an increase in company share buy backs of 30% in 2017. This is on top of existing gigantic share repurchase plans.
This virtually assures that any further draw downs in tech share prices from here on will be limited, and will be used as buying opportunities by the companies themselves.
And here is the most important reason of all.
There is a hyper acceleration going on which will lead to the intertwining of maybe two dozen different advanced technologies.
This will lead to a renaissance of the technology industry, a new Golden Age for America, and a second Roaring Twenties for the stock market.
Dump your technology stocks here, and you may be forced to buy them back ten times higher in a decade.
Here?s another prediction. No matter who is in power in a decade, I bet they?ll take credit for this revolution, even if they had nothing to do with it.
The basic fact here is that even a Trump driven economy needs iPhones, software, and connectivity.
They may not earn as much as before, but the companies that provide these products and services are still looking at rivers of profits going forward.
The final outcome of the 2016 election may not be a political one, but an investment one.
We will get a chance to buy the best quality earnings stream on the planet at earnings multiples not seen since the 2008 crash. They have already given back 15% in valuations. The haircut could reach 30% before the carnage ends.
This is why I have been telling readers to unload technology for the short term, but to keep them for the long term, especially if they are held by tax advantaged retirement plans like IRAs and 401ks.
And while the outlook may be bleak now, it could appear dramatically better in four years.
This is a sector that ALWAYS comes back.
I spoke to a senior venture capitalist who you all know well, and what I learned was amazing.
There are 155 start up ?Unicorn? companies with a combined market capitalization of $500 billion. Most of these are located in the San Francisco Bay area.
They are accounting for an outsized portion of the profits of the US economy. Essentially, Silicon Valley is sucking up the best talent in the world and creating monster profits from whole cloth, much of which is spent locally.
There is nothing like watching history unfold on your doorstep.
And here is the problem.
Unicorns, by definition, are all privately held companies. Breathtaking profits are only shared among the founders, senior employees, and venture capitalists that took the leap of faith to invest during the firm?s early days.
As for the rest of us, we can only benefit from the profits of publicly listed companies, whose earnings fell 3% last year.
So while VC investors are feasting on the hyper growth in the technology sector, the rest of us have to get by with leftovers.
In other words, the Unicorns are eating our lunch.
This wasn?t a problem during the Dotcom boom of yore for the simple fact that almost no one made money back then. That was the time of market share, the big idea, the creative business plan, endless potential, and ?eyeballs?, with profits coming somewhere down the road.
They never showed.
The only thing the public investor missed when the inevitable bust occurred 15 years ago was the horrific capital losses that followed.
BUT THIS TIME IT IS DIFFERENT!
Unicorns are now making serious money.
The largest, the ride sharing company Uber, is worth $51 billion according its latest fund raising round.
It is expected to earn $2 billion this year. That could to rise $4 billion as its international expansion unrolls, and ancillary business lines evolve, like same hour intra-city delivery services.
Unlike past VC cycles, Unicorns are staying private for far longer, and there are many more of them. It seems that managers and owners are trying to milk their investment for all they are worth before letting the public in.
It's only when the companies are about to go low growth, or ex growth, and even ex profits that they are listed through an initial public offering (IPO) on a public stock exchange, like the NYSE or NASDAQ.
That explains the recent diabolical performance of many recent IPOs. After the initial post IPO euphoria, Twitter (TWTR) collapsed 65%, while Alibaba (BABA) took a 54% nosedive. More than half of all the IPOs issued this year are underwater.
Remember, Wall Street is all about selling stocks, not buying them.
This is why I have been advising readers to avoid IPOs like the plague. If you apply for shares and get them, watch out below!
It has gotten to the point where many VC investors are demanding that unicorns quit being such hogs and milking their firms for all they are worth before unloading them.
They want their investments to go public so they can cash out and roll the profits into the next generation of technology investment. This constipation of capital is so serious that it is actually slowing the rate of technological development.
And it?s always better to leave some profits for the next guy, lest the industry evolves into a gigantic pump and dump scheme. At least, that?s what my late mentor, Barton Biggs, taught me.
The unicorns are taking more than just cash from the rest of the country.
There is now a wholesale brain drain under way whereby unicorns are seducing the best managers and programmers from across the country with the promise of lucrative stock options. These have the potential to appreciate several hundred fold.
I have been brought in as a ?supervising adult? at a couple of start ups, and it was an eye opening experience.
While some coders are no doubt brilliant at punching in long strings of ?0's? and ?1?s?, apparently, they don?t teach business ethics, accounting, tax law, or even manners at programming school.
You need to possess all of these skills to create a truly successful and enduring company worthy of the public?s attention.
There is a possible happy ending to this fairy tale. As we approach the end of this economic cycle, which clearly has years to run, unicorns will start eyeing the EXIT doors more nervously. That means going public earlier and at lower valuations.
And public company profits are set to improve in 2016. This year the aggregate numbers suffered mightily from a collapsing energy sector, which saw earnings crater a heart rending 70%-80%.
As companies learn to deal with low oil, their year-on-year comparisons will improve or they will disappear altogether.
We might even make it to unchanged for the troubled industry.
While the Global Trading Dispatch focuses on investment over a one week to six-month time frame, Mad Options Trader, provided by Matt Buckley, will focus primarily on the weekly US equity options expirations, with the goal of making profits at all times. Read more
While the Diary of a Mad Hedge Fund Trader focuses on investment over a one week to six-month time frame, Mad Day Trader, provided by Bill Davis, will exploit money-making opportunities over a brief ten minute to three day window. It is ideally suited for day traders, but can also be used by long-term investors to improve market timing for entry and exit points. Read more
Global Market Comments
November 21, 2016
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK OF NOVEMBER 21ST),
(AMZN), (FB), (TLT), (SPY),
(SIGN UP NOW FOR OUR FREE TEXT SERVICE FOR TRADE ALERTS)
Amazon.com, Inc. (AMZN)
Facebook, Inc. (FB)
iShares 20+ Year Treasury Bond (TLT)
SPDR S&P 500 ETF (SPY)
Being the armchair general that I am, I think the markets are now in a situation similar to the 1939-40 ?Phony War? between Germany, Britain, and France (or ?Sitzkrieg? in German).
War was declared on September 3, 1940, but no actual fighting took place. Each side maneuvered troops, but not a shot was fired. The British dropped propaganda leaflets on German cities.
The phony war ended when Germany invaded Poland and Belgium on May 10, 1940, and subsequently overran France, with devastating consequences for the continent.
The financial markets are in a similar ?Phony War?.
We saw massive gaps up in what I call ?The New World Order? stocks of the financials, health care, commodities, and construction sectors.
Bonds and technology shares were mercilessly dumped in an ?ATM Effect? as investors sold their winners to reinvest in the rotational stocks.
No new money is coming into the stock market right now, and we probably won?t see any until next year.
Over the past two years, some $160 billion has been withdrawn from the stock market and moved into bonds or cash.
Will 2017 bring that money back in to take advantage of the vast expansion of tax cuts and deficit spending headed our way?
That will be the topic furiously debated by strategists in the weeks to come.
I am happy to say that I managed to navigate my readers successfully through the violence and the sturm und drang seen in the market in the aftermath of the November 8th election.
I swear to God, in the wee hours of Wednesday morning I called Mad Options Trader, Matt Buckley, and told him to buy the market when the S&P 500 (SPY) futures in Asia were trading down 800 points.
I knew they would open much higher.
I then spent the rest of the night thinking hard, cogitating, and plotting out a new roadmap for the Trump era. I managed to deliver my conclusions in a hastily put together webinar for followers at 12:00 PM EST on Wednesday.
It was my best attended webinar of the year.
It normally takes me two weeks to prepare a webinar such as that. This one took me three hours.
As soon as the index went positive the next morning, I sold everything I had and went 100% into cash, as I knew technology would quickly get slaughtered.
I sold my Facebook (FB) and short volatility (XIV) positions for a profit, and stopped out of Amazon (AMZN) for a small loss, disbelieving my good fortune. Amazon then collapsed an eye popping $70!
As a result, the long-term performance of my Trade Alert service has elevated to new all time highs almost every day during one of the most dramatic weeks in market history.
As of this morning, our six-year performance stands at 218.12%, giving us an average annual return of 36.35% since inception. We are up 26.21% so far in 2016.
The only way to stay in the business for a half century, as I have, is to be able to turn on a dime as I did last week.
Not many people can arrive at a totally new, groundbreaking investment thesis for the years ahead in a matter of hours.
Big hedge funds and institutions will be holding committee meetings over the consequences of the election for months.
This is why I do what I do.
While the earth is shaking, we still have the coming four days of economic data releases to deal with.
Monday, November 21st at 8:30 AM EST, we get the Chicago Fed National Activity Index, a weighted average of 85 monthly economic indicators.
On Tuesday, November 22nd at 10:00 AM EST we get a new update on the October Existing Home Sales.
On Wednesday, November 23rd we learn the Weekly Jobless Claims at 8:30 AM EST. Because of the national holiday the next day, the report is coming out a day earlier than usual.
Thursday, November 24th, all markets will be closed for Thanksgiving.
On Friday, November 25th, traders will be phoning it in, with only the ?B? team actually showing up for work.
At 9:45 AM EST we get the October PMI Services Flash, a survey of 400 US companies, and 1:00 PM delivers us the Baker Hughes Rig Count. No one will notice.
Keep in mind that virtually all economic indicators will be useless for the next two months, because they will only reflecting spending and investment conditions prior to the November 8th presidential election, and will be for a world that no longer exists.
Will the economy improve, reflecting new optimism of a pro business administration?
Or will it get worse, showing the rise of uncertainty pending a 180-degree change in US economic policies and a massive expansion of the national debt.
I think it depends on where you live.
We shall see.
With that, I?m keeping the letter short today so I can head off to the airport to host my Las Vegas Global Strategy Luncheon and attend the Traders Expo at Caesar?s Palace.
Wish me luck at the tables.
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