2018 Archive - Mad Hedge Fund Trader

Here Are Some Early 5G Wireless Plays

Tech Letter

How would you like to be part of the biggest business development in the history of mankind?

This revolution will increase business functionality up to 10 times while flattening costs by up to 90%.

Still interested?

Enter the Internet of Things (IoT).

The Internet of Things (IoT) can be boiled down to Internet connectivity with things.

Your luxury juice maker, hair removal kit, and multi-colored Post-its will soon be online.

No, you won't be able to have Tinder chats with the new connectivity, but embedded sensors, tracking technology, and data mining software will aggregate a digital dossier on how products are performing.

The data will be fed back to the manufacturing company offering a comprehensive and accurate review without ever asking a human.

The magic glue making IoT ubiquitous and stickier than a hornet's nest is the emergence and application of 5G.

4G is simply not fast enough to facilitate the astronomical surge in data these devices must process.

5G is the lubricant that makes IoT products a reality.

Verizon Communications (VZ) and AT&T (T) have been assiduously rolling out tests to select American cities as they lay the groundwork for the 5G revolution.

The aim is for these companies to deliver customers a velocious 1 Gbps (gigabits per second) wireless connection speed.

Delivering more than 10 times the average speed today will be a game changer.

America isn't the only one with skin in the game and some would say we are not even leading the pack.

China Mobile (CHL) is carrying out a bigger test in select Chinese cities, and Chinese telecom company Huawei can lay claim to 10% of the 5G patents.

Americans should start to notice broad-based adoption of 5G networks around 2020.

Once widespread usage materializes, watch out!

It will go down in history books as a transformational headline.

The IoT revolution will follow right after.

Until the 5G rollout is done and dusted, tech companies are licking their chops and preparing for one of the biggest shifts in the tech ecosphere affecting every product, service, and industry.

The worldwide IoT market is poised to mushroom into a $934 billion market by 2025 on the back of cloud computing, big data, autonomous transport technology, and a host of other rapidly emerging technology.

The arrival of 5G will have an astronomical network effect. Companies will be able to enhance product specs faster than before because of the feedback of data accumulated by the tracking technology and sensors.

The appearance of this flashy new technology will spawn yet another immeasurable migration to technological devices by 2020.

In just two years, the world will play host to more than 50 billion connected devices all pumping out data as well as consuming data.

What a frightful thought!

IoT's synergies with new 5G technology will have an unassailable influence on the business environment.

For instance, industrial products in the form of robots and equipment will be a huge winner with 5G and IoT technology.

The industrial IoT market is expected to sprout to $233 billion by 2023.

Robots will pervade deeply into economic provenance acting as the mule for brute strength heavy labor plus more advanced tasks as they become more sophisticated.

Total global spending related to IoT products will surpass 1.4 trillion dollars by 2021, according to the International Data Corporation (IDC).

IoT growth will become most robust in the thriving Asian markets fueled by a bonus tailwind of the fastest growing region in the world.

The advanced automation abilities of Germany and the U.K. will also give them a seat at the table.

Micron CEO Sanjay Mehrotra gushed about the future at Micron's investor day celebrating IoT and data as the way forward. Mehrotra explained that the explosion of IoT products will create a new tidal wave of "growing demand for storage and memory."

Chips are a great investment to grab exposure to the 5G, IoT, and big data movement.

Up until today, the last generation of technological innovation brought consumers computers and smartphones.

That world has moved on.

Open up your eyes and you will notice that literally everything will become a "data center on wheels or on feet."

To arrive at this stage, products will need chips.

As many high-grade chips as they can find.

Data centers are one segment in dire need of chips. This market will more than double from $29 billion in 2017 to $62 billion in 2021.

The general-purpose chip market for servers is cornered by Intel.

Industry insiders estimate Intel's market share at 98% to 99% of data center chips. Clientele are heavy hitters such as Amazon Web Services, Google, and Microsoft Azure along with other industry peers.

The only other players with data server chips out there are Qualcomm (QCOM) and Advanced Micro Devices Inc. (AMD).

However, there have been whispers of Qualcomm shutting down the 48-core Centriq 2400 chip for data centers that was launched only last November after head of Qualcomm's data center division, Anand Chandrasekher, was demoted via reassignment.

AMD's new data center chip, Epyc, has already claimed a few scalps with Baidu (BIDU) and Microsoft Azure promising to deploy the new design.

IoT integration is the path the world will take to adopting full-scale digitization.

Microsoft just announced at its own Build 2018 conference its plans to invest $5 billion into IoT in the next four years.

The Redmond, Washington-based company noted operational savings and productivity gains as two positive momentum drivers that will benefit IoT production.

Consulting firm A.T. Kearny identified IoT as the catalyst fueling a $1.9 trillion in productivity increases while shaving $177 billion off of expenses by 2020.

These cloud platforms give tech companies the optimal stage to win over the hearts and dollars of non-tech and tech companies that want to digitize services.

Many of these companies will have IoT products percolating in their portfolio.

Examples are rampant.

Schneider Electric in collaboration with Microsoft's IoT Azure platform brought solar energy to Nigeria by the bucket full.

The company successfully installed solar panels harnessing its performance using IoT technology through the Microsoft cloud.

Kohler rolled out a new lineup of smart kitchen appliances and bathroom fixtures coined "Kohler Konnect" with the help of Microsoft's Azure IoT platform.

Consumers will be able to remotely fill up the bathtub to a personalized temperature.

Real-time data analytics will be available to the consumer by using the bathroom mirror as a visual interface with touch screen functionality giving users the option to adjust settings to optimal levels on the fly.

Kohler's tie-up with Microsoft IoT technology has proved fruitful with product development time slashed in half.

To watch a video of Kohler's new budding relationship with Microsoft's Azure IoT platform, please click here.

It is safe to say operations will cut out the wastefulness using these new tools.

Look no further than legacy American stocks such as oil and gas producer Chevron (CVX), which wants a piece of the IoT pie.

Chevron announced a lengthy seven-year partnership with Microsoft's Azure platform.

The fiber optic cables inside oil production facilities generate more than 1 terabyte of data per day.

In the Houston, Texas, offices, sensors installed six miles below the surface shoot back data to engineers who monitor human safety and system operations on four continents from the Lone Star State.

The newest facility in Kazakhstan, using state-of-the-art technology, will produce more data than all the refineries in North America combined.

Using the aid of artificial intelligence (A.I.), computers will analyze seismic surveys. This pre-emptive technology customizes solutions before problems can germinate.

The new smart-work environment will multiply worker productivity that has been at best stagnant for the past generation.

To get in on the IoT action, buy shares of companies with solid IoT cloud platforms such as Microsoft and Amazon.

Buy best-of-breed chip companies such as Nvidia (NVDA), Intel (INTC), Advanced Micro Devices (AMD) and Micron (MU).

And buy tech companies that produce wafer fab equipment such as Applied Materials (AMAT) and Lam Research (LRCX).

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Quote of the Day

"Don't be afraid to change the model." - said cofounder and CEO of Netflix Reed Hastings.

May 29, 2018 - Quote of the Day

Diary, Newsletter, Quote of the Day

"Getting information off the Internet is akin to trying to sweep back the ocean with a broom," said Ray Kurzweil, director of engineering at Google.

May 25, 2018 - MDT Alert (BERY)

MDT Alert

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

May 25, 2018 - MDT Pro Tips A.M.

MDT Alert

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

May 25, 2018

Diary, Newsletter

Global Market Comments
May 25, 2018
Fiat Lux

Featured Trade:
(FRIDAY, AUGUST 3, 2018, AMSTERDAM, THE NETHERLANDS GLOBAL STRATEGY DINNER),
(MAY 23 BIWEEKLY STRATEGY WEBINAR Q&A),
(TLT), (SPY), (TSLA), (EEM), (USO), (NVDA),
(GILD), (GE), (PIN), (GLD), (XOM), (FCX), (VIX)

Friday, August 3, 2018, Amsterdam, The Netherlands Global Strategy Dinner

Diary, Newsletter

Come join John Thomas at the Mad Hedge Fund Trader's Global Strategy Dinner, which I will be conducting in Amsterdam, The Netherlands, on Friday, August 3, 2018 at 7:00 PM. A three-course dinner will be followed by an extended question-and-answer period.

I'll be giving you my up-to-date view on stocks, bonds, foreign currencies, commodities, precious metals, energy, and real estate. And to keep you in suspense, I'll be throwing a few surprises out there, too. Tickets are available for $229.

The dinner will be held at a downtown Amsterdam hotel near The Dam, and the location will be on the "Thank You" screen after your purchase.

I look forward to meeting you and thank you for supporting my research.

To purchase tickets, please click here.

May 23 Biweekly Strategy Webinar Q&A

Diary, Newsletter

Below please find subscribers' Q&A for the Mad Hedge Fund Trader May 23 Global Strategy Webinar with my guest and co-host Bill Davis of the Mad Day Trader.

As usual, every asset class long and short was covered. You are certainly an inquisitive lot, and keep those questions coming!

Q: Would you short Tesla here?

A: Tesla (TSLA) is on the verge of making the big leap to mass production, so they're in somewhat of an in-between time from a profit point of view, and the burden of proof is on them. Elon Musk is notorious for squeezing shorts. I would not want to bet him.

Musk has been successfully squeezing shorts for 10 years now, from the time the stock was at $16.50 all the way up to $392. So, I would not short Tesla. Buy the car but don't play in the stock; it's really a venture capital play that happens to have a stock listing because so many people are willing to back his vision of a carbon-free economy.

Q: What is your takeaway on the China trade war situation?

A: The Chinese said "no," and that is positive for economic growth. Anything that enhances international trade is good for growth and good for the stock market; anything that damages international trade is bad for corporate earnings and bad for the stock market. So, the China win in the trade war is essentially positive, but I don't think we'll see that reflected in stock prices until the end of the year.

Q: What do you think about Gilead Sciences?

A: I don't really want to touch Gilead (GILD), or the entire sector, for that matter. We shouldn't be seeing such a poor performance at this point in the market. Health care has been dead for a long time, and you would have expected a rally based purely on fundamentals; they are delivering good earnings, it's just not reflected in the price action of the stocks. I think with no new money going into the market, there's nothing to push up other sectors; it's really become a "technology on and off" market. Health care doesn't fit anywhere in that world.

Q: Do you still like Nvidia?

A: I love Nvidia (NVDA). The chip sector still has another year to go. Nvidia has the high value-added product, and I'm looking for $300 dollars a share sometime this year/next year. The reason the stock hasn't really been moving is that it's over-owned; too many people know about the Nvidia story, which continues to go "gangbusters," so to speak. The chairman has also put out negative comments on short-term inventories, which have been a drag.

Q: Treasuries (TLT) are over 3%. Will they go over 3.5% by then end of this year?

A: I would say yes. Since that is only 50 basis points away from the current market, I would say it's a pretty good bet. So, if you get any good entry points you can do LEAPS going out to next year, betting that Treasuries will not only be below $116 by the end of the year, but they'll probably be below 110. And that would give you a very good high return LEAP with a yield of 50% in the next, say 8 months. By the way, if the Treasury yield rises to 4% that takes the (TLT) down to $98!

Q: Any chance General Electric will be acquired this year?

A: Absolutely not. General Electric (GE) worth far more if you break it up into individual pieces and sell them. Some parts are very profitable like jet engines and Baker Hughes, while other parts, like their medical insurance exposure, are awful.

Q: What do you see about the India ETF?

A: The one I follow is the PowerShares India Portfolio ETF (PIN) and we love it long term. Short term, they can take some pain with the rest of the emerging markets.

Q: What should I do with my January 2019 Gold calls?

A: I would sell them. It's not worth hanging on to here with too many other better things to do in stocks.

Q: Would you continue to hold ExxonMobile?

A: I would not. If you were lucky enough to get in at the bottom on ExxonMobile (XOM). I would be taking profits here. I'm not sure how long this energy rally will last, especially if the global economic slowdown continues.

Q: Is Freeport-McMoRan (FCX) a buy?

A: Yes, but only buy the dip in the recent range, so you don't get stopped out when the price goes against you. Commodities are the best performing asset class this year and that should continue.

Q: How high is oil (USO) headed?

A: I think we're probably peaking out short of $80 a barrel currently unless we get a major geopolitical event. Then it could go up to $100 very quickly and trigger a recession.

Q: Are you looking to buy the Volatility Index here?

A: Buy the next dip, but the trick with (VIX) is buying after it sits on a bottom for about five days. You also want to buy it when stocks (SPY) are at the top of a range, like yesterday.

Q: How long do you think the market will be range-bound for?

A: My bet is at least three months, and possibly four or five. We should start to anticipate the outcome of the midterm congressional elections in September/October; that's when you get your upside breakout.

Q: Is Gold (GLD) not worth buying since Bitcoin has taken over market share from Gold buyers?

A: Essentially, yes. That's probably why you're not getting these big spikes in Gold like you're used to. Instead, you're getting them in Bitcoin. Bitcoin is clearly stealing Gold's thunder. That's a major reason why we haven't been chasing Gold this year.

Q: After the emerging market sell-off, is it a good time to go in?

A: No, I think the emerging market (EEM) sell-off is being created by rising interest rates and a strong dollar. I don't see that ending anytime soon. In a year let's take another look in emerging markets. By then overnight Fed funds should be at 2.50% to 2.75%.

May 25, 2018

Tech Letter

Mad Hedge Technology Letter
May 25, 2018
Fiat Lux

Featured Trade:
(WHERE 5G CONNECTIVITY WILL TAKE US),
(T), (VZ), (INTC), (TSLA), (AAPL), (GOOGL)

Where 5G Connectivity Will Take Us

Tech Letter

AT&T (T), Verizon (VZ), and the other telecom heavies are in the process of investing $30 billion to make sure that fifth-generation wireless, or 5G, will roll out on time in 2020.

What 5G will do is improve the functionality of IoT (Internet of Things) by 10 times at one-tenth the cost, bringing a 100X increase of functionality over price.

The last time I saw a leap that great was when Intel (INTC) brought out its groundbreaking 8008 8-bit microprocessor chip in 1972. I remember it like it was yesterday.

The news that gravitational waves were discovered, as well as wrinkles in the space-time continuum, was big news in my family. 5G will be of that order.

Of course, we knew it was coming. It was just a matter of when.

I have 11- and 13-year-old girls (I can't help it if the plumbing still works!). Whenever we drive somewhere, we carry out what Einstein called "thought experiments."

They will come up with scientific questions, and I then direct them into finding their own answers through a series of prodding and hopeful questions.

It is much like how the children of royalty were tutored during the Middle Ages.

So they asked, "When will we get driverless cars?" which they had heard about on TV.

I answered in about two years, but that I had friends who run Tesla (TSLA) who already have them now.

And you know the interesting thing they discovered? After two years of beta testing, the cars are starting to develop their own personalities.

Each car has highly advanced learning software. When the mapping software requires one to take a difficult sharp left turn, the vehicle may miss it the first time.

It will then make the next legal U-turn, and then nail that turn every time in the future.

The cars are all programmed to drive like little old ladies. It will never speed, break the law, and always lets other cars cut in front. Over time, some are becoming cautious, while others are getting more aggressive depending on each individual's driving experience.

In other words, experience is turning them into "people."

I asked my daughters, "What would the world be like if everyone had driverless cars?" which will occur in about 30 years, or during their middle age.

They pondered for a moment. Then my older daughter shouted out, "There won't be car accidents anymore!" "Right!" I answered.

"But what will that mean?" I asked.

They puzzled over this.

A few seconds passed. Then it came. "The people who fix cars won't have anything to do!"

"You got it," I replied.

In fact, about 1 million people in the car repair industry will lose their jobs. A small group of vintage car fanatics will survive, much like horse and buggy hobbyists do today.

I pointed out that this is already happening because electric cars don't require any maintenance. You just rotate the tires every 6,000 miles (because electric batteries are so heavy).

I moved on. "Who else will lose their jobs when cars become self-driving?" They hit a brick wall. Then I asked "What else breaks when cars have accidents?"

A few seconds later it came. "People!"

"For sure," I shot back.

Actually, about 35,000 people die in car accidents every year in the United States, and another 500,000 are injured.

This means the demand for doctors, hospitals, and ambulances will go down. Say goodbye to another 1 million jobs.

"So, what else will self-driving cars do?" I was relentless.

My older girl was first: "If cars are driven by computers, it means they can drive closer together." I said, "That was true, but what was the consequence of that?"

The mountain scenery whizzed by. Then they got it.

"There won't be traffic jams anymore."

"Yes!" I blurted out. If a car can drive 70 miles per hour, but only needs to remain one car length behind the one in front of it, that effectively increases the capacity of freeways seven times.

We will never need to build another freeway again. Another 1 million jobs go down the drain.

"What else will self-driving cars do?" I carried on.

They hit a dead end. So, I gave a hint. "What do you see in cities?" After going through buildings, parks, roads, lots of cars, and bridges, I finally got the answer I wanted: "Parking lots."

I then posed the conundrum, "What's the connection between self-driving cars and parking lots?"

Now they were getting into the spirit of the thing. "They won't need them." I replied, "Absolutely."

Self-driving cars won't need to park. They'll just be able to drop you off and drive around the block until you are ready to go home.

This will be economical because after three decades of battery and solar improvements, energy will effectively be free, like air is today.

Oh, and at least 100,000 parking attendants might as well start joining the unemployment lines now.

It gets better.

Entrepreneurs now are developing apps for cars so they never need to park.

In an iteration of the sharing economy, and in a club or membership type format, your car will just drive person to person, selling rides, until you are ready to go home.

Think of it as Uber, without the drivers, that pays you.

Today, parking lots occupy about 15% of the land area of large cities. Self-driving cars will free up a lot of that space for other uses, such as housing and parks.

Then I asked the really big question. "What do all of these changes have in common?"

My 11-year-old picked up on this immediately. "A lot of people are going to lose their jobs!"

"For sure," I bubbled. Notice that every new technology improvement creates a lot of job losses. I went on.

"The trick for you girls is to always stay ahead of the technology curve so your job doesn't get lost, too." This is why I have been sending them to Java development school since they were 8 and 9.

They looked daunted.

And this is what 11- and 13-year-olds were able to figure out. Granted, they were MY kids.

Imagine what Google (GOOGL), Apple (AAPL), and Tesla are doing with this idea. It has become a hot bottom "next big thing." Silicon Valley is now rife with rumors of breakthrough developments and the poaching of staff.

The U.S. military and the Defense Advanced Research Projects Agency (DARPA) are involved in self-driving vehicles in a big way as well, holding regular contests with big prize money and the prospect of mammoth government contracts.

More and more generals and admirals are telling me that the wars of the future will be fought with software.

The bottom line is that things are happening much faster than we imagined possible only a few years ago.

Then my oldest daughter piped up.

"Dad, can I get my driver's license before all the cars are self-driving?" I said, "Sure. What kind of car do you want?"

"A red one."

My first car was a red 1957 Volkswagen Beetle.

On our next trip we will cover gravitational waves, Einstein's Theory of Relativity, and the significance of the clock tower in Bern, Switzerland.

By the way, these girls will be graduating from college in 2026 and 2027 and will be looking for jobs.

Just let me know. :-)

_________________________________________________________________________________________________

Quote of the Day

"Homo sapiens, the first truly free species, is about to decommission the natural selection, the force that made us," said E.O. Wilson, a Harvard University biology professor.

May 24, 2018 - MDT Alert (APA)

MDT Alert

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