?The Obamacare website had technical issues all week because of too much web traffic. You can?t campaign on the fact that too many people don?t have health care, and then be surprised that millions don?t have health care. That?s like 1-800-FLOWERS being caught off guard by Valentine?s Day,? said a comedian on Saturday Night Live.
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
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
May 16, 2018
Fiat Lux
Featured Trade:
(THE LAWSUITS ARE PILING UP ON THE XIV),
(XIV), (VXX),
(KISS THAT UNION JOB GOODBYE),
(TESTIMONIAL)
One of the most painful experiences of my half century long trading life involved the Credit Suisse VelocityShares Daily Inverse VIX Short-Term ETNs (XIV).
I was certain that the Volatility Index (VIX) would peak for the year at the Wednesday, February 5, 8:30 AM market opening. So, I shot out a Trade Alert to place only 10% of your capital into the (XIV), a bet that the (VIX) would fall. There was only a 15-minute window before the market closed during which readers could get in. A few managed to do it.
The (XIV) had just fallen from $147 to $95.00. We got in at $97.08, and it closed the day at $100. The (VIX) closed at $37. And we had made money many times selling short volatility over the past decade on spikes just like this one. The (XIV) had been the fastest growing of 3,500 ETFs over the past five years. So far, so good.
Then an hour after the close, I received an urgent call from a client. The (XIV) was trading at $14. What's up?
My initial instinct was that a major hedge fund had either gone bankrupt or had a margin call and was suffering a forced liquidation in the aftermarket.
Overnight, the (XIV) traded as low as $6.50. I later heard that Credit Suisse itself was the major buyer of volatility in the aftermarket, in fact was the ONLY buyer, and that it was deliberately attempting to bankrupt its own fund to limit its liability. Those in management in Zurich were afraid that if the (VIX) shot up to $100 it might take the entire bank down. In short, they panicked.
The next morning they issued notice that they were closing the fund in 10 days. I was certain that the managers were guilty of insider trading and securities fraud in ordering the emergency short cover, and that it was just a matter of time before the class action suits emerged.
Three months later, the lawsuit has been filed by the Gibbs Law Group in Oakland, CA, in the Southern District of New York for unspecified damages, expenses, and legal fees, with a jury trial demanded.
The last time I was involved with one of these was with the MF Global bankruptcy in 2011, where I and most of the rest of the trading community had an account.
I was initially offered 25 cents on the dollar. I refused, expecting to eventually get paid in full. I knew that the MF assets in question were never lost, they were just caught up in a conflict between U.S. and U.S. bankruptcy law that would eventually be resolved. That is what happened, and I was paid in full three years later.
The (XIV) case is much more complicated because there was a huge real loss, about $2 billion, and it involved complex mathematically constructed derivatives. Since the managers behaved so reprehensibly, and because the evidence of their misdeeds is so overwhelming, it is unlikely that the case will ever come to trial. Instead, there will be an out-of-court settlement.
If the SEC takes action it will further strengthen the plaintiffs' hands. There is currently an investigation of Credit Suisse underway and it ultimately could get banned from doing business in the United States.
My bet is that investors will get at least half their money back, if not more. But it could take years to get it, and in a class action the lawyers get a big chunk of any awards for their efforts, usually one-third. Sometimes, class actions can last as long as 10 years.
As for my own followers, most followed my advice to put no more than 10% of their capital into the trade. As it turned out, they made back the 9% loss in less than a month, half of it through selling volatility short again. But this time I used put spreads on the iPath S&P 500 VIX Short-Term Futures ETN (VXX), a long volatility play that will never go to zero overnight.
To read the suit in its entirety, please click here.
To learn more about the suit, please click here and here.
Or you can call the Gibbs Law Group directly at 510-350-9700. I'm sure they'd love to hear from you.
Trading Volatility Can Be Hazardous to Your Wealth
Mad Hedge Technology Letter
May 16, 2018
Fiat Lux
Featured Trade:
(WHAT'S UP AT FACEBOOK?)
(FB), (NFLX), (GOOGL), (AMZN), (GS), (AAPL), (IBM)
Capitol Hill unleashed a healthy dose of criticism on Facebook (FB) CEO Mark Zuckerberg and he has mobilized the forces to avoid a repeat shellacking.
Zuckerberg's response has been to reshuffle his cabinet at the Menlo Park, CA, headquarters, and a few tell-tale signs offer a unique glimpse into Facebook's future.
Basically, something needed to change at Facebook.
The company single-handedly took the blame for the entire sector and was not the only company with a liberal stance on personal data.
Zuckerberg would like to eschew public humiliation and avoid being a sitting duck.
The episode in Washington highlights the need for Facebook to decouple itself from ad revenue, which makes up the lion's share of revenue at the firm and find other levers to pull.
Down the road, Facebook's ad business could get crimped by regulators, and a lack of fallback options haunts Facebook investors in their sleep.
Consequently, a whole slew of high-level management rotation is underway at Facebook.
It is the biggest shake-up in the history of Facebook.
The road map starts with one of Zuckerberg's best friends and protege Chris Cox who will manage the new "family of apps" segment.
This collection of projects he will preside over include WhatsApp, Messenger, Instagram, and the Facebook Core App.
The step up in responsibility is warranted for Chris Cox who was credited with creating the Facebook news feed after joining the company in 2005 after ditching his Stanford graduate degree program at the time.
The executive reshuffle coincided with WhatsApp co-founder Jan Koum, one of Silicon Valley's biggest advocates for data privacy, who quit his post as a show of disapproval to Facebook's business model.
Mark Zuckerberg wants to aggressively monetize the WhatsApp messenger service that was acquired for $19 billion in 2014.
Zuckerberg's blueprint involves using the WhatsApp phone numbers as a vehicle to monetize through offering different products.
Facebook would then collect the data from its 1 billion usership and WhatsApp would become Facebook's new advertisement clearing house.
WhatsApp's leadership vehemently refused this U-turn and Koum decided he would rather leave then see his baby ruined.
Facebook consistently refrained in the past from passing WhatsApp to the data mining scientists and was able to prevent full-scale implementations of advertisements onto its platform.
Currently, there are no ads on WhatsApp's interface, and users could be in store for a massive transformation in look and feel.
Facebook investors have been clamoring for Zuckerberg to start the process of making WhatsApp into a material revenue stream.
Time is of the essence as the big data police creep in from the shadows.
Putting Zuckerberg's top guy on the job embarks Facebook down a new path of hyper accelerated profit-making.
Well, that is the goal.
Compounding Facebook's pivot to other businesses is commissioning a new blockchain tech team.
Blockchain technology, the technology that helped unearth bitcoin, has seen a recent slew of endorsements from financial heavy hitters such as Goldman Sachs (GS), which acknowledged the formation of a new business brokering in bitcoin futures.
A year ago, no reputable organization would touch blockchain with a 10-foot pole.
The utilization of blockchain technology would allow trackability and provide more security.
That would help Facebook to understand the provenance of unique problems allowing staff to nip problems in the bud before they snowball.
Blockchain tech fits nicely within the constraints of the model and would enhance the existing Facebook product.
Let's not forget that Facebook has a mountain of cash to fix any problem that crops up.
It is not one of these early stage seed companies burning through heaps of cash waiting for "scalability" down the road.
Facebook is here and now, and it has the money to show for it.
The pillars of blockchain revolve around cryptography. Blockchain would effectively allow individuals to possess more power over their identity decentralizing the stranglehold from Menlo Park.
Thus, Facebook must invest deeply into blockchain to counter the fear that this technology can marginalize the core business.
This epitomizes the tendency for large-cap tech to become preemptive.
None of the powerful FANGs want to miss the next big shift in technology, and the cash hoard allows them to have skin in the game in each revolutionary trend.
The tide has changed at Facebook from the early years where growing the user base was paramount.
Now that user base has matured into a 2.2 billion marketplace.
Facebook's strategy has shifted to extracting more revenue per user and management closely follows this metric.
Mike Schroepfer, the CTO of Facebook, was tabbed as the man leading the charge for Artificial Intelligence (A.I.), Augmented Reality (A.R.), and Virtual Reality (V.R.) technology.
Facebook was able to poach Jerome Pesenti from IBM (IBM), where he was a critical cog in the development of IBM's Watson, to run the Facebook A.I. team. A.I. is routinely implemented into Facebook's core products to enhance performance.
Promoting Chris Cox as the next in line and giving him control over all the powerful products effectively pushes ad tech down the pecking order.
Javier Olivan is the new man at Facebook tasked for managing ads, analytics, and integrity, growth and product management.
Moving forward, the ad division will be laced with a certain level of security to avoid a repeat of Cambridge Analytica.
Zuckerberg must know that there are other Cambridge Analytica's hidden somewhere in the system; another incident would knock down the stock 5% to 10%.
Facebook could look vastly different in a few years if some of these profit drivers prove successful. It only needs one to work.
Disrupt or be disrupted.
At this point, the big tech companies are considering anywhere or anyone to capture accelerated growth. The FANGs are spilling over to other companies' turf.
Crossover is everywhere and this is just the beginning.
Expect Amazon's (AMZN) ad division to grow from the already $2 billion per quarter, gradually challenging the duopoly of Facebook and Alphabet in the digital ad revenue industry.
It is yet to be seen if the new revamp of management will produce better results.
This move could backfire as the management carousel excluded any fresh blood from taking part.
Effectively, Zuckerberg rotated his best friends into different parts of the business without demoting anyone.
Solidifying his close-knit circle of trust is no doubt a defensive reaction to being hounded the past few months, leaving his existing circle as the few people on which he can still count.
Facebook's stock remains healthy and the brouhaha stoked by the data leak gave investors a timely entry point.
I pounded on the table calling the bluff, begging readers to get into Facebook.
The long-term Facebook story is intact but the stock is overbought short-term.
Investors should not sleep on Facebook as it is a profit machine printing money like Apple (AAPL) and the executive revamp is a bullish development for Facebook.
My bet is that Chris Cox goes for the low hanging fruit monetizing WhatsApp, inciting the next leg up in Facebook shares later in the year.
_________________________________________________________________________________________________
Quote of the Day
"Simply put: We don't build services to make money; we make money to build better services." - said Facebook CEO Mark Zuckerberg
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
May 15, 2018
Fiat Lux
Featured Trade:
(FRIDAY, JUNE 15, 2018, DENVER, CO, GLOBAL STRATEGY LUNCHEON)
(GET READY FOR THE COMING GOLDEN AGE),
(SPY), (INDU), (FXE), (FXY), (UNG), (EEM), (USO),
(TLT), (NSANY), (TSLA)
