When John identifies a strategic exit point, he will send you an alert with specific trade information as to what security to sell, when to sell it, and at what price. Most often, it will be to TAKE PROFITS, but, on rare occasions, it will be to exercise a STOP LOSS at a predetermined price to adhere to strict risk management discipline. Read more
When John identifies a strategic exit point, he will send you an alert with specific trade information as to what security to sell, when to sell it, and at what price. Most often, it will be to TAKE PROFITS, but, on rare occasions, it will be to exercise a STOP LOSS at a predetermined price to adhere to strict risk management discipline. Read more
When John identifies a strategic exit point, he will send you an alert with specific trade information as to what security to sell, when to sell it, and at what price. Most often, it will be to TAKE PROFITS, but, on rare occasions, it will be to exercise a STOP LOSS at a predetermined price to adhere to strict risk management discipline. Read more
When John identifies a strategic exit point, he will send you an alert with specific trade information as to what security to sell, when to sell it, and at what price. Most often, it will be to TAKE PROFITS, but, on rare occasions, it will be to exercise a STOP LOSS at a predetermined price to adhere to strict risk management discipline. Read more
Global Market Comments
April 24, 2018
Fiat Lux
Featured Trade:
(DON'T MISS THE APRIL 25 GLOBAL STRATEGY WEBINAR),
(MONDAY, JUNE 11, FORT WORTH, TEXAS, GLOBAL STRATEGY LUNCHEON)
(WHY INDEXERS ARE TOAST),
(VIX), (VXX), (SPY), (AAPL), (HACK),
My next global strategy webinar will be held live from Silicon Valley on Wednesday, April 25, at 12:00 PM EST.
Co-hosting the show will my friend, options expert Mike Pisani.
I'll be giving you my updated outlook on stocks, bonds, commodities, currencies, precious metal, and real estate.
The goal is to find the cheapest assets in the world to buy, the most expensive to sell short, and the appropriate securities with which to take these positions.
I will also be opining on recent political events around the world and the investment implications therein.
I usually include some charts to highlight the most interesting new developments in the capital markets. There will be a live chat window with which you can pose your own questions.
The webinar will last 45 minutes to an hour. International readers who are unable to participate in the webinar live will find it posted on my website within a few hours.
I look forward to hearing from you.
To log into the webinar, please click on the link we emailed you entitled, "Next Bi-Weekly Webinar - April 25, 2018" or click here.
Come join me for lunch at the Mad Hedge Fund Trader's Global Strategy Update, which I will be conducting in Fort Worth, Texas, on Monday, June 11, 2018. An excellent meal will be followed by a wide-ranging discussion and an extended question-and-answer period.
I'll be giving you my up-to-date view on stocks, bonds, currencies, commodities, precious metals, and real estate. And to keep you in suspense, I'll be throwing a few surprises out there, too. Tickets are available for $248.
I'll be arriving at 11:30 AM, and leaving late in case anyone wants to have a one-on-one discussion, or just sit around and chew the fat about the financial markets.
The lunch will be held at an exclusive downtown private club. The precise location will be emailed with your purchase confirmation.
I look forward to meeting you and thank you for supporting my research.
To purchase tickets for the luncheon, click here.
Mad Hedge Technology Letter
April 24, 2018
Fiat Lux
Featured Trade:
(WHAT THE MEDIA REALLY WANTS FROM YOU),
(TRNC), (AMZN), (FB), (GOOGL), (USPS), (SFTBY)
Hardly a day goes by without some market expert predicting that it's only a matter of time before machines completely take over the stock market.
Humans are about to be tossed into the dustbin of history.
Recently, money management giant BlackRock, with a staggering $5.4 trillion in assets under management, announced that algorithms would take over a much larger share of the investment decision-making process.
Exchange Traded Funds (ETFs) are adding fuel to the fire.
By moving capital out of single stocks and into baskets, you are also sucking the volatility, and the vitality out of the market.
This is true whether money is moving into the $237 billion S&P 500 (SPY), or the miniscule $1 billion PureFunds ISE Cyber Security ETF (HACK), which holds only 30 individual names.
The problem is being greatly exacerbated by the recent explosive growth of the ETF industry.
In the past five years, the total amount of capital committed to ETFs has doubled to more than $3 trillion, while the number of ETFs has soared to well over 2,000.
In fact, there is now more money committed to ETFs than publicly listed single stocks!
While many individual investors say they are moving into ETFs to save on commissions and expenses, in fact, the opposite is true.
You just don't see them.
They are buried away in wide-dealing spreads and operating expenses buried deeply in prospectuses.
The net effect of the ETF industry is to greatly enhance Wall Street's take from their brokerage business, i.e., from YOU.
Every wonder why the shares of the big banks are REALLY trading at new multi-year highs?
I hate to say this, but I've seen this movie before.
Whenever a strategy becomes popular, it carries with it the seeds of its own destruction.
The most famous scare was the "Portfolio Insurance" of the 1980s, a proprietary formula sold to institutional investors that allegedly protected them by automatically selling in down markets.
Of course, once everyone was in the boat, the end result was the 1987 crash, which saw the Dow Average plunge 20% in one day.
The net effect was to maximize everyone's short positions at absolute market bottoms.
A lot of former portfolio managers started driving Yellow Cabs after that one!
I'll give you another example.
Until 2007, every computer model in the financial industry said that real estate prices only went up.
Trillions of dollars of derivative securities were sold based on this assumption.
However, all of these models relied on only 50 years' worth of data dating back to the immediate postwar era.
Hello subprime crisis!
If their data had gone back 70 years, it would have included the Great Depression.
The superior models would have added one extra proviso - that real estate can collapse by 90% at any time, without warning, and then stay down for a decade.
The derivate securities based on THIS more accurate assumption would have been priced much, much more expensively.
And here is the basic problem.
As soon as money enters a strategy, it changes the behavior of that strategy.
The more money that enters, the more that strategy changes, to the point where it produces the opposite of the promised outcome.
Strategies that attract only $10 million market-wide can make 50% a year returns or better.
But try and execute with $1 billion, and the identical strategies lose money. Guess what happens at $1 trillion?
This is why high frequency traders can't grow beyond their current small size on a capitalized basis, even though they account for 70% of all trading.
I speak from experience.
During the 1980s I used a strategy called "Japanese Equity Warrant Arbitrage," which generated a risk-free return of 30% a year or more.
This was back when overnight Japanese yen interest rates were at 6%, and you could buy Japanese equity warrants at parity with 5:1 leverage (5 X 6 = 30).
When there were only a tiny handful of us trading these arcane securities, we all made fortunes. Every other East End London kid was driving a new Ferrari (yes, David, that's you!).
At its peak in 1989, the strategy probably employed 10,000 people to execute and clear in London, Tokyo, and New York.
However, once the Japanese stock market crash began in earnest, liquidity in the necessary instruments vaporized, and the strategy became a huge loser.
The entire business shut down within two years. Enter several thousand new Yellow Cab drivers.
All of this means that the current indexing fad is setting up for a giant fall.
Except that this time, many managers are going to have to become Uber drivers instead.
Computers are great at purely quantitative analysis based on historical data.
Throw emotion in there anywhere, and the quants are toast.
And, at the end of the day, markets are made up of high emotional human beings who want to get rich, brag to their friends, and argue with their spouses.
In fact, the demise has already started.
Look no further than investment performance so far in 2018.
The (SPY) is up a scant 0% this year.
Amazon (AAPL), on the other hand, one of the most widely owned stocks in the world, is up an eye-popping 30%.
If you DON'T own Amazon, you basically don't HAVE any performance to report for 2017.
I'll tell you my conclusion to all of this.
Use a combination of algorithms AND personal judgment, and you will come out a winner, as I do. It also helps to have 50 years of trading experience.
You have to know when to tell your algorithm a firm "NO."
While your algo may be telling you to "BUY" ahead of a monthly Nonfarm Payroll Report or a presidential election, you may not sleep at night if you do so.
This is how I have been able to triple my own trading performance since 2015, taking my 2017 year-to-date to an enviable 20%.
It's not as good as being 30% invested in Amazon.
But it beats the pants off of any passive index all day long.
Yup, This is a Passive Investor
Publishing magnate and self-described populist William Randolph Hearst was a deep admirer of Adolph Hitler and did not shy away from using his newspapers as a de-facto mouthpiece spouting off Der Fuhrer's propaganda.
Hearst created content sympathizing with the Nazi ethos and even mobilized an embedded secret agent from the German government to act as a correspondent that followed hot, daily scoops inside Germany.
Hearst also used his publishing clout to pull the strings in the 1932 presidential election backing candidate John Nance Garner or "Cactus Jack" who later agreed to be Franklin D. Roosevelt's running mate.
The fusion of politics and media has been chiseled into human DNA since antiquity. However, the purpose of newspapers has evolved significantly since it became impossible to break even about 10 years ago.
Print newspapers are a lot like the US Postal Service - they specialize in losing money.
However, the (USPS) was never politicized as was the publishing industry until President Trump managed to commingle the loss-making mail outfit and Amazon as a joint problem roiling society.
The politicization comes at a cost to society.
All the well-intentioned journalists involved in earnest and quality journalism lose out because the new normal for newspapers has evolved into a William Hearst-like blatant tool promoting targeted interests.
Do you ever wonder why the Washington Post hardly ever publishes content harmful to the image of Amazon?
Because it is owned by the same man, Jeff Bezos, who founded Amazon (AMZN) in 1994, as he cruised in his car cross-country from New York to Seattle where he would start his tech empire.
Effectively, Jeff Bezos has the ear of each corner of the political power grid in Washington.
And while the president has been attacking Bezos as a job destroyer on a daily basis, Amazon has in fact been the largest private job CREATOR in the US. It added a staggering 130,000 new jobs in 2017, and an eye-popping 560,000 jobs over the past 10 years.
Last year saw Laurene Powell Jobs, widow to Steve Jobs, acquire the Boston-based American magazine The Atlantic.
The Atlantic earns more than $10 million per year in revenue and lures in over 33 million readers per month.
Billionaire biotech investor Patrick Soon-Shiong reached a deal with Tronc Inc. (TRNC), which possesses a vast array of various legacy media assets, to take over the LA Times and San Diego Union-Tribune for $500 million.
Tronc Inc. is on the verge of catching another bid with SoftBanks' (SFTBY) Masayoshi Son, looking to scoop up parts of the extensive portfolio.
Private equity group Apollo and media firm Gannett Company are also in the mix to acquire Tronc Inc.
Some of Tronc Inc.'s crown assets are the Chicago Tribune, the New York Daily News, and the Baltimore Sun among other regional newspapers with a large audience base.
Tronc's shares spiked almost 10% on whispers of the rumored news.
The courting of these news media assets comes at a time when Google (GOOGL) is funding a project to automate more than 30,000 stories per month for the local media as a cost-effective way to advance the business model.
Quality journalism written by a human is the last thing in which these mega-tech companies are interested.
The first thought that came into my head when I heard about SoftBank's vision fund swooping in for another company was data grab.
We have seen this story time and time again.
Newspapers and how an online subscriber behaves on a digital newspaper platform offer valuable data points that cannot be extracted elsewhere.
The data will reveal the political ideas, topics of interest, and other sensitive information deduced into a comprehensive data profile.
Effectively, a company such as SoftBank will be able to create a functional shadow profile for almost anyone.
The concept of shadow profiling emerged from the acrimony of Mark Zuckerberg's testimony in Washington and could be the next point of heated contention.
What are shadow profiles?
Shadow profiles are digital profiles crafted by data that were not directly handed over to Facebook (FB) by the user.
This data is extracted through fringe third parties, other friends on Facebook if they post content unique to you, and specifically through the "find your friends" function that recommends the uploading of an entire digital address book giving Facebook access to everyone you know.
Scarily, there is no opt-out for shadow profiling, and there probably won't be another congressional testimony about this topic anytime soon.
If Facebook wanted to turn into the FBI, it would be easy.
The treasure trove of data would give insight on the subtle nuances of authentic human behavior.
This artificial profile would seem real.
If you are an Android user like most of the world, Google could fill out the most comprehensive profile with a high degree of accuracy on most people.
The scandalous bit about shadow profiling is that these profiles are whipped up even if a user has never signed up for Facebook.
Shadow profiling, along with other data, becomes more precise as the volume of data piles up. To understand the behavior, trends, and tastes of most of the world's population is incredibly valuable.
Facebook could use this shadow profiling data to understand the wide range of non-Facebook user behavior.
This way of monetizing data would be highly illegal if leaked to an actionable third party and would be significantly worse than the Cambridge Analytica scandal.
This data should be deleted immediately, but Facebook has a backdoor way to keep the data in the system.
If Facebook got slammed for data leakage then others are in danger, too. That's because Facebook is not the only player mining data for money.
It wouldn't be surprising if other large cap tech companies started to create these shadow profiles to get dirt on their competitors as well as other use cases.
Tech is evolving at such a fast pace. It subconsciously encourages the never-give-up mentality that coerces firms to stay one step ahead, which Amazon has been able to do since its inception.
Newspaper companies are next in line to be absorbed by large cap techs continuously expanding web assets that hyper-focus on exponential data generation.
These newspapers will defend tech's interests in the economy similar to how newspapers were used as William Hearst's rallying cry for politics.
Jeff Bezos has chosen silence to react to President Trump's tweet offensive, but he could easily mobilize his newspaper to protect Amazon's interests.
Bezos just shrugs his shoulders and goes about his day because he knows Washington cannot do anything to change Amazon's dominance at the top of the tech food chain.
Better take the high road.
Not only do these big tech companies know who you talk to, what you buy, and where you are, but now they are given deeper access into the identity of users.
Be on the lookout for these assets to get cherry-picked and look forward to reading your future newspaper owned by Google, Facebook and the usual cast of characters.
The recently elevated existential risk that big cap tech is coping with will see meaningful reforms that will implement better defensive tactics, pre-emptive posturing to promote a positive big-picture narrative, and a bulletproof attempt to protect the moats around lucrative business models.
Stay away from these legacy newspaper stocks and only weigh up the media stocks that have already pivoted to the online streaming business model of scaling original premium content.
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Quote of the Day
"The real danger is not that computers will begin to think like men, but that men will begin to think like computers." - said journalist Sydney Harris.
