2018 Archive - Mad Hedge Fund Trader

Here's the Biggest Technology Contract in History

The return of the Jedi is coming.

Luke Skywalker and Obi-Wan Kenobi will enter the cloud and use the force.

Not the Jedi of the famous George Lucas films, but JEDI - Joint Enterprise Defense Infrastructure commissioned by the Department of Defense.

This large contract is up for grabs.

Rumor has it that Amazon is in the driver's seat to become the government's right-hand man.

The purpose of this broad-based upgrade is to enhance communication channels among military branches by loading up operations into the cloud.

Artificial Intelligence (A.I.) and machine learning will be integrated as well.

One task slated for modernization includes the heaps of documents waiting to be translated from Arabic, Farsi, Chinese and other foreign languages into English.

A.I. will organize which documents have priority over others as well as aiding in raw translation. This will save the Department of Defense's overworked linguists thousands of hours in brute translation work.

As it stands, the government is grappling with an overlapping fractious system with legacy software up to 20 years old.

These legacy systems of yore are poor at keeping out the cyber criminals looking for a smash-and-data grab.

One instance where massive inefficiencies rear its ugly head is in the Department of Agriculture.

This department has 22 chief information officers that require seven more personal assistants inflating the IT budget.

The government could become the best turnaround story in the tech industry in years.

This turnaround could eventually become bigger than Microsoft and Cisco, which are the poster children for extreme cosmetic surgery in Silicon Valley.

The government burns $90 billion per year servicing IT operations, and JEDI is slated to offer an attractive sum of $100 billion over 10 years to a private company.

Not only will the Department of Defense modernize, but every part of the government will adopt new technologies.

Security is a priority for this administration after its legitimacy was questioned due to alleged nefarious Russian involvement.

The Committee on Foreign Investment in the United States (CFIUS) has buckled down rejecting a myriad of attempted foreign takeovers of cutting-edge tech companies stressing the need to properly harness local tech companies' ingenuity to the benefit of the country.

These new opportunities do not affect the already $1 billion per quarter that Alphabet (GOOGL) takes in from government servicing.

The $1 billion contract was given to Alphabet to develop the Algorithmic Warfare Cross-Functional Team industrially working on Project Maven.

Project Maven is the Department of Defense's attempt to integrate A.I. and machine learning into motion detector technology applied to surveillance drones using the Google cloud.

Project Maven received an additional boost to its objectives with an additional $100 million cash injection recently underlining the government's efforts to make warfare more efficient and less expensive.

Amazon Web Services (AWS) has also carved out a nice $5 billion per quarter business thanks to the power brokers in Washington.

Another side deal consummated recently has thrust Microsoft into the frame as well.

Microsoft (MSFT) agreed with the Office of the Director of National Intelligence to service 17 intelligence agencies with the Microsoft Azure cloud platform.

The deal was reported to be valued at "hundreds of million" of dollars.

Another separate deal agreed by both parties has Microsoft migrating another 3.4 million users and 4 million devices from the Department of Defense into the cloud.

All told, Microsoft has pulled in more than $1.3 billion of orders from the government in the past five years.

Bill Gates's old company was rewarded certification to supply the government with computers, operating systems, Microsoft Office, and the cloud services bolstering their credentials to potentially extract more government business.

The administration has adopted a winner takes all approach to the JEDI contract preferring one cloud provider to maintain the infrastructure.

Companies are scratching and clawing to get within a shout of winning this valuable revenue stream that could extrapolate down the road.

JEDI accounts for just 20% of the cloud possibilities for the tech companies in the government system.

The further 80% of digitization will happen down the road.

Firms are up in arms about the single platform solution and believe branching out to multiple platforms will come in use if part of the operation goes down.

Hybrid solutions are the norm for 80% of Fortune 500 companies.

As it is, International Business Machines Corp. (IBM), Oracle (ORCL), Alphabet, Amazon (AMZN), and Microsoft have been adamant that they are the best candidates for the job.

Amazon has been on a one-man mission mobilizing its all-star team of lobbyists to gain an edge.

Amazon has been part of the government's purse strings for quite some time.

It was awarded a $600 million contract in 2013.

Secretary of Defense James Mattis spoke about the relationship with Amazon in glowing terms characterizing Amazon's performance as "impressive" in terms of securing data and functionality.

The positive Amazon feedback has given AWS a head start. It hopes to capitalize on the biggest transfer of data to the cloud in modern history.

Once completed, departments will at last be able to access files from different branches on the same platform. This process is currently done manually.

Quickening the pace of modernization is a prerogative for the new administration.

President Donald Trump signed an executive order to spur on the process of getting rid of the decaying system.

Son-in-law Jared Kushner has also been an advocate of the agonizing overhaul.

This bold initiative ties in well with enhancing cybersecurity inside Washington at a time when hackers have penetrated legacy systems with ease.

Getting the White House up and running will improve the operation of the government. From an investor's point of view, it will add materially to the bottom line of companies that start to win more contracts.

This underscores the reliance of our government and economy on the large cap tech companies that are single-handedly propping up the current bull market.

The White House will wake up one day and understand that technology innovation is more powerful than ever, and even the mayhem inside the White House can't stop the digitization of politics.

Going forward Amazon and Microsoft should get a healthy boost to their overflowing coffers. Legacy companies such as IBM and Oracle could be punished by the government as well as investors for being legacy companies, which could lead the government to pass over IBM and Oracle.

Yes Mr. President ... An Upgrade Is Needed

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Quote of the Day

"What would I do? I'd shut it down and give the money back to the shareholders." - said Michael Dell in 1997, the founder of Dell Technologies, when asked what he would do if he was in charge of Apple.

May 18, 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 18, 2018

Diary, Newsletter

Global Market Comments
May 18, 2018
Fiat Lux

Featured Trade:
(THEY'RE NOT MAKING AMERICANS ANYMORE),
(THE DEATH OF THE FINANCIAL ADVISOR)

May 18, 2018

Tech Letter

Mad Hedge Technology Letter
May 18, 2018
Fiat Lux

Featured Trade:
(THE HISTORY OF TECHNOLOGY),
(COME MEET JOHN THOMAS AT HIS GLOBAL STRATEGY LUNCHEONS)

Come Meet John Thomas at His Global Strategy Luncheons

Tech Letter

Come join me for lunch at the Mad Hedge Fund Trader's Global Strategy Updates, which I will be conducting in and around the U.S. during the week of June 11-15, 2018. For exact dates, please look at the listing calendar below.

Each luncheon will include an excellent meal 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.

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.

Each 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 luncheons, click on our online store.

LUNCHEONS:

MONDAY, JUNE 11, 2018, FORT WORTH, TX, GLOBAL STRATEGY LUNCHEON

TUESDAY, JUNE 12, 2018, NEW ORLEANS, LA, GLOBAL STRATEGY LUNCHEON

WEDNESDAY, JUNE 13, 2018, PHILADELPHIA, PA, GLOBAL STRATEGY LUNCHEON

THURSDAY, JUNE 14, 2018, NEW YORK, NY, GLOBAL STRATEGY LUNCHEON

FRIDAY, JUNE 15, 2018, DENVER, CO, GLOBAL STRATEGY LUNCHEON

May 17, 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 17, 2018

Diary, Newsletter

Global Market Comments
May 17, 2018
Fiat Lux

Featured Trade:
(WHY THE "MIDTERM EFFECT" RULES THE MARKETS),
(WHO SAYS THERE AREN'T ANY GOOD JOBS?),
(TESTIMONIAL)

Why the "Midterm Effect" Rules the Markets

Diary, Newsletter, Research

If I had a dime for every trading nostrum I have heard over the past 50 years I would be as rich as Croesus by now. And here's a whopper for you.

A 20% corporate growth rate, a 2% inflation rate, and a 0% stock market: These are numbers you never would expect to see in the same sentence.

Yet, that is what we have at the close today, believe it or not.

And what's worse, this condition could last for another five months. It is clear that something is going on here.

For the past six months, my trading has been wildly successful betting that the stock market would go nowhere until the November 6 midterm elections.

While we have covered an awful lot of ground during this time with a very wide 3,300-point range in the Dow Average (INDU), we have gone absolutely nowhere. As a result, the Mad Hedge Trade Alert Service stands with a 19.83% so far in 2018.

It turns out that trading around midterm congressional elections is far more successful than any other market traditions, like "Sell in May and go Away." Call it the Midterm Effect.

Since the Dow Average was first created on May 26, 1896, the six months going into a midterm produced a feeble 1.4% gain, while the six months after hauled in a whopping 21.8% increase.

In fact, "Sell in May and go away" only works because of the enormous cyclicality of the Midterm Effect, which takes place only every four years. The other three years of that cycle are usually pretty wishy-washy or go the opposite way. Here we are in mid-May, and so far, the Midterm Effect looks pretty good.

The effect only works for midterm elections. It is much less predictive than the Presidential Election Cycle, another popular piece of folk wisdom.

The reason the Midterm Effect works so well is because of human psychology. Investors absolutely hate uncertainty. They are much more inclined to sit on their hands and do nothing ahead of a major market moving event even one 10 months away, when we entered the current range.

They would much rather pay a premium after an event for any securities they might buy rather than being wrong. Money managers tend to be a conservative lot, and this is how conservatism works.

The outcome of the election would have an enormous effect on corporate earnings. According to PredictIt, an online betting site, there is a 67% chance that the Democrats will take the House in November.

If that occurs, no major changes to the economy nor laws pass for at least two years. If that doesn't occur, the president will have a free hand to pursue his existing policies unfettered. However, the election is not for another five months, and in politics that could be five lifetimes.

So range trading it is. Buy the small dips and sell the small rallies for the foreseeable future. Wake me up around Halloween.

May 17, 2018

Tech Letter

Mad Hedge Technology Letter
May 17, 2018
Fiat Lux

Featured Trade:
(NVIDIA NAILS IT AGAIN)
(NVDA), (ZTE), (GOOGL), (AMD)

Nvidia Nails it Again

Tech Letter

No one does it better than Nvidia (NVDA).

Fetch a measuring stick from the cupboard, gauge the levels of innovation around Silicon Valley, and Nvidia's name floats straight to the top of the list.

Nvidia has it all and more.

Not many firms can brandish one of the best CEOs in all of tech.

Nvidia CEO Jensen Huang is a true visionary.

When he hops on earnings calls, investors and analysts rejoice about the breadth of innovation percolating through the corridors in Santa Clara, CA.

Nvidia was able to increase quarterly revenue by an eye-popping 61% YOY. And this company is one of the quintessential growth companies in tech.

Huang is one of the few CEOs confident enough to talk all the way through the earnings call like he is talking about the back of his hand.

Most CEOs delegate to the CFO after a carefully choreographed introductory statement.

He knows everything about the company and is not afraid to go into detail.

The past few weeks have been hell for chip companies.

The cascade of downgrades undercut momentum with chip shares prices falling across the board.

Every nonsensical downgrade has proved unjustified with chip earnings displaying the robust potency that only FANGs can replicate.

Delve into Nvidia's latest performance and two parts of the business have gone into overdrive.

Gaming has burst to the forefront providing a sturdy pillar to Nvidia's income stream.

Fortunately, crypto mining and e-gamers are dual drivers fueling a rapidly expanding market.

In Q1, crypto miners and e-gamers faced a hysterical "scarcity" of high grade GPU hardware.

To make matters worse, Apple and Samsung are using the same memory as graphic cards.

These two global giants front ran other companies agreeing pricier per unit contracts to guarantee sufficient supply for their product lineup.

This led to a huge famine or feast environment to secure the necessary components.

Huang has ensured investors that Nvidia is moving mountains to meet demand and he hopes prices will "normalize" in the upcoming quarter.

Advanced Micro Devices (AMD) is the other player producing GPU chips that is experiencing a demand overload.

On the last sell-off, AMD dropped as low as 9.50 and was the perfect entry point into a great company led by Lisa Su, PhD.

AMD continued to bounce off the $9 handle and is trading at $13 after an outstanding earnings report.

Huang also caveated his hopes of chip prices normalizing by saying the "pent-up demand" could get worse because of the unbelievable gaming options in the market, such as blowout title Fortnite and popular online game Player Unknown's Battlegrounds that have sold more than 40 million copies throughout various platforms.

Nvidia has caught the innovation bug with new products coming off the conveyer belt sooner than expected.

Nvidia has announced NVIDIA RTX, the "holy grail" of graphic performance that will offer gamers Hollywood cinematic production quality lighting, reflections, and shadows.

This product has been in the works for the past 10 years and has gamers and miners drooling over this new technology called ray tracing.

Revenue from crypto miners is not a part of Nvidia's core mission, and the stronger than expected numbers are just the beginning.

If bitcoin takes another stab at $20,000, GPU demand will go through the roof.

As the price of cryptocurrencies rise, the profit-making opportunities to mine are greatly enhanced.

Another division running on all cylinders showing no sign of slowing down is the data center segment.

Initially, this industry was tabbed by Nvidia as a $30 billion opportunity by 2020.

They were completely wrong.

Nvidia moved the goal posts and announced at a recent investors day that it believes data center revenue will be a $50 billion market by 2023.

Data center revenue spiked 71% YOY to $701 million highlighting the innovation leadership Nvidia enjoys.

The data center incorporates Nvidia's Volta architecture and adoption has been broad-based.

Volta offers 500% more deep learning power than its previous edition Pascal.

The stamp of approval is evident with every major cloud player embracing the Volta technology.

At some points during the earnings call, it appeared to be a commercial for data center, gaming and crypto because of the strength of these two segments.

Huang did talk about other businesses such as autonomous driving buttering up its place in Nvidia's lineup.

Autonomous driving will be a $60 billion opportunity by 2035, according to conservative estimates.

Nvidia's DRIVE Constellation continues to be the bread-and-butter platform for automotive companies.

The platform allows car companies to use virtual reality (V.R.) to carry out driving trials.

Two servers have been built to aid in development.

The first server allows simulation in the form of a pseudo video game, and the other server is used to process the simulated data.

In whole, autonomous driving lagged gaming and data center with 4% growth YOY.

This should not alarm investors because Nvidia is in it for the long run.

The software system and infotainment in the first generation of commercial autonomous vehicles will have plenty of Nvidia chips hovering around under the hood.

At some point, every vehicle in the world will require autonomous technology. As Nvidia stays ahead of the innovation curve, buyers will gravitate toward its products.

The architecture of Nvidia chips allows car companies to advance their autonomous vehicle technology.

Nvidia is partnering with other industry leaders such as Tesla and Mercedes Benz, just to name a few.

Going forward developers will harness the power of artificial intelligence (A.I.) to build new software programs for the car.

The new car software will be part and parcel with voice recognition that has quickly come to the forefront of tech development.

Creating a whole autonomous vehicle system to just drag and drop into its business could lead to Nvidia's products becoming the industry standard.

Technical superiority eventually wins out.

Nvidia has diversified into every cutting-edge trend in technology.

Huang understands that to keep buyers salivating over its products, they must be the highest quality.

The reason Alphabet (GOOGL) or Apple partner and synergize with Nvidia so well is because it makes the best of the best and they cannot copy their products.

This is why ZTE, one of the biggest tech companies in China, practically went out of business after Donald Trump cut of its pipeline of critical American components.

Chinese companies have been attempting to buy American chip companies for years because the quality of chips is significantly superior.

Amid a backdrop of a trade war, Nvidia shares have been trading choppily from a strong support level of $200.

It is only a matter of time before Nvidia explodes through the $250 resistance level and climbs higher.

To watch a video demonstration on Nvidia's new RTX ray tracing technology click here.

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Quote of the Day

"The United States must possess unquestioned capacity to launch crippling counter-cyberattacks. This is the warfare of the future ... America's dominance in this arena must be unquestioned and today, it's totally questioned." - said President of the United States Donald J. Trump.