Global Market Comments
December 31, 2019
Fiat Lux
Featured Trade:
(MY OLD PAL, LEONARDO FIBONACCI),
(TESTIMONIAL)
Global Market Comments
December 31, 2019
Fiat Lux
Featured Trade:
(MY OLD PAL, LEONARDO FIBONACCI),
(TESTIMONIAL)
Global Market Comments
December 30, 2019
Fiat Lux
Featured Trade:
(WILL SYNBIO SAVE OR DESTROY THE WORLD?),
(XLV), (XPH), (XBI), (IMB), (GOOG), (AAPL), (CSCO), (BIIB)
Enough is enough that conditions are such – Americans are leaving California in droves.
The verdict is out, and California isn’t as attractive of place to live as it once was and tech talent isn’t blindly moving there based on the allures of tech stardom.
In an era of minimal regulation, Silicon Valley grew at breakneck speeds right into families' living quarters and it was a win-win proposition for both the consumer and Silicon Valley.
That was then, and this is now.
The San Francisco Bay Area is the mecca of technology, but recent indicators have doom and gloom written all over it.
In general, a healthy and booming local real estate sector is a net positive creating paper wealth the local population and attracting money slated for expansion.
The net positive has flipped, and housing is now a buzzword for the maladies young people face to sustain themselves in the ultra-expensive California megacities.
The loss of tax deductions in the recent tax bill makes conditions even more draconian.
Monthly rental costs are deterring tech's future minions. Without the droves of talent flooding the area, it becomes harder for the industry to incrementally expand.
After surveying a collection of HR staff, there is a shortage of artificial intelligence (A.I.) programmers and coders to fill internal projects.
And it’s not just a domestic brain drain; the international talent pool is drying up as well.
Compounding the housing crisis is the change of immigration policy that has frightened off many future Silicon Valley workers.
The best and brightest foreign minds are trained in America, and a mass exodus would create an even fiercer deficit for global dev-ops talent.
These U.S.-trained foreign tech workers are the main drivers of foreign tech start-ups.
Dangling carrots and sticks for a chance to start an embryonic project in the cozy confines of home is hard to pass up.
Ironically enough, there are more A.I. computer scientists of Chinese origin in America than there are in all of China.
There is a huge movement by the Chinese private sector to bring everyone back home as China vies to become the industry leader in A.I.
Silicon Valley is on the verge of a brain drain of mythical proportions.
If America allows brilliant minds to fly home, America is just training these workers to compete against American workers.
More than 70% of tech employees in Silicon Valley and more than 50% in the San Francisco Bay Area are foreign, according to the 2018 census data.
Adding insult to injury, the exorbitant cost of housing is preventing burgeoning American talent from migrating from rural towns across America and moving to the Bay Area.
They make it as far West as Salt Lake City, Reno, or Las Vegas.
This trend is reinforced by domestic migration statistics.
Ultimately, if VCs think it is expensive now to operate a start-up in Silicon Valley, it will be costlier in the future.
Yes, the FANGs will continue their gravy train, but the next big thing to hit tech will not originate from California.
VCs will overwhelmingly invest in data over rental bills. The percolation of tech ingenuity will likely pop up in either Nevada, Arizona, Texas, Utah, or yes, even Michigan.
Even though these states attract poorer migrants, the lower cost of housing is beginning to attract tech professionals.
Salt Lake City, known as Silicon Slopes, has been a tech magnet of late with big players such as Adobe (ADBE), Twitter (TWTR), and EA Sports (EA) opening new branches there while Reno has become a massive hotspot for data server farms. Nearby Sparks hosts Tesla's Gigafactory 1 along with massive data centers for Apple, Alphabet, and Switch.
The half a billion-dollars required to build a proper tech company will stretch further in Austin or Las Vegas, and most of the funds will be reserved for tech talent - not slum landlords.
The nail in the coffin will be the millions saved in state taxes.
The rise of the second-tier cities is the key to staying ahead of the race for tech supremacy.
Global Market Comments
December 27, 2019
Fiat Lux
SPECIAL ISSUE ABOUT THE FAR FUTURE
Featured Trade:
(PEAKING INTO THE FUTURE WITH RAY KURZWEIL),
(GOOG), (INTC), (AAPL), (TXN),
Cloud stocks should be at the vanguard of your tech portfolio, no ifs, ands, or buts.
If you've been living under a rock the past few years, the cloud phenomenon hasn't passed you by and you still have time to cash in.
Microsoft's (MSFT) pivot to its Azure enterprise business has sent its stock skyward, and it is poised to rake in more than $100 billion in cloud revenue over the next 10 years.
Microsoft's share of the cloud market rose from 10% to 15% and is rapidly zeroing in on Amazon Web Services (AWS).
Amazon leads the cloud industry it created which is partly why the first-mover advantage is so effective.
It still maintains more than 30% of the cloud market and Microsoft still needs to gain a lot of ground to even come close.
Amazon (AMZN) relies on AWS to underpin the rest of its businesses and that is why AWS contributes the lion’s share of Amazon's total operating income.
Cloud revenue is even starting to account for a noticeable share of Apple's (AAPL) earnings, which has previously bet the ranch on hardware products, most notably the iPhone and iPad.
The future is about the cloud.
These days, the average venture capitalist probably hears about the cloud 100 times a day.
So, before we get deep into the weeds with this letter on cloud services, cloud fundamentals, cloud plays, and cloud Trade Alerts, let's get into the basics of what the cloud actually is.
Think of this as a cloud primer.
It's important to understand the cloud, both its strengths and limitations. Giant companies that have it figured out, such as Salesforce (CRM) and Zscaler (ZS), are some of the fastest-growing companies in the world.
Understand the cloud and you will readily identify its bottlenecks and bulges that can lead to dramatic investment opportunities.
And that's where I come in.
Cloud storage refers to the online space where you can store data. It resides across multiple remote servers housed inside imposing data centers all over the country, some as large as football fields, often in rural areas where land, labor, and electricity are cheap.
They are built using virtualization technology, which means that storage space spans across many different servers and multiple locations. If this sounds crazy, remember that the original Department of Defense packet-switching design was intended to make the system atomic bomb-proof.
As a user, you can access any single server at any one time anywhere in the world. These servers are owned, maintained and operated by giant third-party companies such as Amazon, Microsoft, and Alphabet (GOOGL), which may or may not charge a fee for using them.
The most important features of cloud storage are:
1) It is a service provided by an external provider.
2) All data is stored outside your computer residing inside an in-house network.
3) A simple Internet connection will allow you to access your data at any time from anywhere.
4) Because of all these features, sharing data with others is vastly easier, and you can even collaborate in real-time, making it the perfect force multiplier in our globalized world.
Once you start using the cloud to store a company's data, the benefits are countless.
Many companies, regardless of their size, prefer to store data inside in-house servers and data centers.
However, these require constant 24-hour-a-day maintenance, so the company has to employ a large in-house IT staff to manage them - a costly proposition.
Thanks to cloud storage, businesses can save costs on maintenance since their servers are now the headache of third-party providers.
Instead, they can divert resources on the core aspects of their business where they can increase value without worrying about managing IT staff of prima donnas.
Today's employees want to have a better work/life balance and this goal can be best achieved through telecommuting. Increasingly, workers are bending their jobs to fit their lifestyles, and that is certainly the case here at Mad Hedge Fund Trader.
How else can I shoot off a Trade Alert while hanging from the face of a Swiss Alp?
Cloud storage services, such as Google Drive, offer exactly this kind of flexibility for employees while boosting performance.
According to a recent survey, 79% of respondents already work outside of their office some of the time, while another 60% would switch jobs if offered this flexibility.
With data stored online, it's easy for employees to log into a cloud portal, work on the data they need to, and then log off when they're done. This way, a single project can be worked on by a global team, the work handed off from time zone to time zone until it's done.
It also makes them work more efficiently, saving money for penny-pinching entrepreneurs.
In today's business environment, it's common practice for employees to collaborate and communicate with co-workers located around the world.
For example, they may have to work on the same client proposal together or provide feedback on training documents. Cloud-based tools from DocuSign, Dropbox, and Google Drive make collaboration and document management a piece of cake.
These products, which all offer free entry-level versions, allow users to access the latest versions of any document, so they can stay on top of real-time changes which can help businesses to better manage workflow regardless of geographical location.
Another important reason to move to the cloud is superior data security, especially in the event of a natural disaster. Hurricane Sandy wreaked havoc on local data centers in New York City, forcing many websites to shut down operations for days.
The cloud simply routes traffic around disaster zones as if, yes, they have just been destroyed by a nuclear attack.
It's best to move data to the cloud to avoid such disruptions.
Even if one area is affected, your operations don't have to capitulate, and data remains accessible no matter what happens. It's a system called deduplication.
The cloud can slash expenses fast.
By outsourcing data storage to cloud providers, businesses save on capital and maintenance costs, resources that in turn can be used to expand the business. Setting up an in-house data center requires millions, and that's not to mention perpetual maintenance costs.
Creating an in-house data center seems about as contemporary as a buggy whip, a corset, or a Model T.
Global Market Comments
December 26, 2019
Fiat Lux
Featured Trade:
(TRADING THE NEW APPLE IN 2020),
(AAPL),
(THE EIGHT WORST TRADES IN HISTORY),
(TESTIMONIAL)
Not a day goes by when someone doesn’t ask me about what to do about Apple (AAPL).
After all, it is the world largest publicly-traded company at a $1.2 trillion market capitalization. It is the planet’s most widely owned stock. Almost everyone uses their products in some form or another. It buys back more of its own stock than any other company on the planet. Oh yes, it is also one of Warren Buffet’s favorite picks.
So, the widespread adulation is totally understandable.
Apple is a company with which I have a very long relationship. During the early 1980s, I was ordered by Morgan Stanley to take Steve Jobs around to the big New York Institutional Investors to pitch a secondary share offering for the sole reason that I was one of three people who worked for the firm who was then from California.
They thought one West Coast hippy would easily get along with another. Boy, were they wrong, me in my three-piece navy blue pinstripe suit and Steve in his work Levi’s. It was the worst day of my life. Steve was not a guy who palled around with anyone. He especially hated investment bankers.
I got into Apple with my personal account when the company only had four weeks of cash flow remaining and was on the verge of bankruptcy. I got in at $7 which, on a split-adjusted basis today, is 50 cents. I still have them. In fact, my cost basis in Apple is less than the 77-cent quarterly dividend now.
Today, some 200 Apple employees subscribe to the Diary of a Mad Hedge Fund Trader looking to diversify their substantial holdings. Many own Apple stock with an adjusted cost basis of under $5. Suffice it to say, they all drive really nice Priuses.
So I get a lot of information about the firm far above and beyond the normal effluent of the media and stock analysts. That’s why Apple has become a favorite target of my Trade Alerts over the years.
And here is the great irony: Nobody would touch the stock with a ten-foot pole at the end of 2018. Since then, Apple has rallied 71%, creating more market cap in a year than any company in history.
Here’s why. Apple was all about the iPhone which then accounted for 75% of its total earnings. The TV, the watch, the car, the iPod, the iMac, and Apple Pay were all a waste of time and consumed far more coverage than they are collectively worth.
The good news is that iPhone sales are subject to a fairly predictable cycle. Apple launches a major new iPhone every other fall. The share price peaks shortly after that. The odd years see minor upgrades, not generational changes.
Just like you see a big pullback in the tide before a tsunami hits, iPhone sales are flattening out between major upgrades. This is because consumers start delaying purchases in expectation of the introduction of the new iPhones 7 more power, gadgets, and gizmos.
So during those in-between years, the stock performance was disappointing. 2018 certainly followed this script with Apple down a horrific 30.13% at the lows. Maybe it’s a coincidence, but the previous generation in Apple shares in 2015 brought a decline of, you guessed it, exactly 29.33%.
The coming quarter could bring quite the opposite.
After March, things will start to get interesting, especially post the Q1 earnings report in April. That’s when investors will start to discount the rollout of the new 5G iPhone seven months later. Everyone and his brother is waiting for 5G until they purchase their next iPhone, unless it gets lost or stolen first.
The last time this happened, in 2018, Apple stock rocketed by $86, or 55.33%. This time, I expect a minimum rally to $400 high, or much higher. After all, I am such a conservative guy with my predictions (Dow 120,000 by 2030?).
Even at that price, it will still be one of the cheaper stocks in the market on a valuation basis which currently trades at a 20X earnings multiple. The is up from a subterranean multiple of 14X a year ago. The value players will have no choice to join in, if they’re not already there.
But Apple is a much bigger company this time around, and well-established cycles tend to bring in diminishing returns. It’s like watching the declining peaks of a bouncing rubber ball.
This is not your father’s Apple anymore. Services like iTunes and the new Apple+ streaming service are accounting for an even larger share of the company’s profits. And guess what? Services companies command much higher multiples than boring old hardware ones. It’s the old questions of linear versus exponential growth.
A China trade deal will bring a new spring to Apple’s step, where sales have recently been in free fall. Their new membership lease program promises to deliver a faster upgrade cycle that will allow higher premium prices for their products. That will bring larger profits.
It all adds up to keeping Apple as a core to any long term portfolio.
Just thought you’d like to know.
Global Market Comments
December 24, 2019
Fiat Lux
Featured Trades:
(A CHRISTMAS STORY),
(THE U-HAUL INDICATOR)
Global Market Comments
December 23, 2019
Fiat Lux
SPECIAL END-OF-YEAR ISSUE
Featured Trade:
(THANK YOU FROM THE MAD HEDGE FUND TRADER),
(MY LAST RESEARCH PIECE OF THE YEAR)
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