Mad Hedge Technology Letter
February 28, 2019
Fiat Lux
Featured Trade:
(WHY ETSY KNOCKED IT OUT OF THE PARK),
(ETSY), (AMZN), (WMT), (TGT), (JCP), (M)
Mad Hedge Technology Letter
February 28, 2019
Fiat Lux
Featured Trade:
(WHY ETSY KNOCKED IT OUT OF THE PARK),
(ETSY), (AMZN), (WMT), (TGT), (JCP), (M)
I wrote to readers that I expected online commerce company Etsy to “smash all estimates” in my newsletter Online Commerce is Taking Over the World last holiday season, and that is exactly what they did as they just announced quarterly earnings.
To read that article, click here.
I saw the earnings beat a million miles away and I will duly take the credit for calling this one.
Shares of Etsy have skyrocketed since that newsletter when it was hovering at a cheap $48.
The massive earnings beat spawned a rip-roaring rally to over $71 – the highest level since the IPO in 2015.
Three catalysts serving as Etsy’s engine are sales growth, strength in their core business, and high margin expansion.
Sales growth was nothing short of breathtaking elevating 46.8% YOY – the number sprints by the 3-year sales growth rate of 27% signaling a firm reacceleration of the business.
The company has proven they can handily deal with the Amazon (AMZN) threat by focusing on a line-up of personalized crafts.
Some examples of products are stickers or coffee mugs that have personalized stylized prints.
This navigates around the Amazon business model because Amazon is biased towards high volume, more likely commoditized goods.
Clearly, the personalized aspect of the business model makes the business a totally different animal and they have flourished because of it.
Active sellers have grown by 10% while active buying accounts have risen by 20% speaking volumes to the broad-based popularity of the platform.
On a sequential basis, EPS grew 113% QOQ demonstrating its overall profitability.
Estimates called for the company to post EPS of 21 cents and the 32 cents were a firm nod to the management team who have been working wonders.
Margins were healthy posting a robust 25.7%.
The holiday season of 2018 was one to reminisce with Amazon, Target (TGT), and Walmart (WMT) setting online records.
Pivoting to digital isn’t just a fad or catchy marketing ploy, online businesses harvested the benefits of being an online business in full-effect during this past winter season.
Etsy’s management has been laser-like focusing on key initiatives such as developing the overall product experience for both sellers and buyers, enhancing customer support and infrastructure, and tested new marketing channels.
Context-specific search ranking, signals and nudges, personalized recommendations, and a host of other product launches were built using machine learning technology that aided towards the improved customer experience.
New incremental buyers were led to the site and returning customers were happy enough to buy on Etsy’s platform multiple times voting with their wallet.
The net effect of the deep customization of products results in unique inventory you locate anywhere else, differentiating itself from other e-commerce platforms that scale too wide to include this level of personalization.
Backing up my theory of a hot holiday season giving online retailers a sharp tailwind were impressive Cyber Monday numbers with Etsy totaling nearly $19,000 in Gross Merchandise Sales (GMS) per minute marking it the best single-day performance in the company’s history.
Logistics played a helping hand with 33% of items on Etsy capable to ship for free domestically during the holidays which is a great success for a company its size.
This wrinkle drove meaningful improvements in conversion rate which is evidence that product initiatives, seller education, and incentives are paying dividends.
Overall, Etsy had a fantastic holiday season with sellers’ holiday GMS, the five days from Thanksgiving through Cyber Monday, up 30% YOY.
Forecasts for 2019 did not disappoint which calls for sustained growth and expanding margins with GMS growth in the range of 17% to 20% and revenue growth of 29% to 32%.
Execution is hitting on all cylinders and combined with the backdrop of a strong domestic economy, consumers are likely to gravitate towards this e-commerce platform.
Expanding its marketing initiatives is part of the business Josh Silverman explained during the conference call with Etsy dabbling in TV marketing for the first time in the back half of 2018, and finding it positively impacting the brand health metrics particularly around things like intending to purchase.
However, Etsy has a more predictable set of marketing investments through Google that offers higher conversion rates and the firm can optimize to see how they can shift the ROI curve up.
Etsy can invest more at the same return or get better returns at the existing spend from Google, it is absolutely the firm’s bread and butter for marketing, particularly in Google Shopping, and some Google product listing ads.
With all the creativity and reinvestment, it’s easy to see why Etsy is doing so well.
Online commerce has effectively splintered off into the haves and have-nots.
Those pouring resources into innovating their e-commerce platform, customer experience, marketing, and social media are likely to be doing quite well.
Retailers such as JCPenney (JCP) and Macy’s (M) have borne the brunt of the e-commerce migration wrath and will go down without a fight.
Basing a retail model on mostly physical stores is a death knell and the models that lean feverishly on an online presence are thriving.
At the end of the day, the right management team with flawless execution skills must be in place too and that is what we have with Etsy CEO Josh Silverman and Etsy CFO Rachel Glaser.
Buy this great e-commerce story Etsy on the next pullback – shares are overbought.
“Well, if you can buy 1,000 of anything, it doesn’t belong on Etsy” – Said CEO of Etsy Josh Silverman
Mad Hedge Hot Tips
February 28, 2019
Fiat Lux
The Five Most Important Things That Happened Today
(and what to do about them)
1) Bonds Get Crushed, down 1.38 points yesterday as the great “crowding out” begins. Massive corporate borrowing can’t compete with government borrowing, so rates are rising sharply. This is the beginning of the end. Sell short the (TLT). Click here.
2) 30 Feet of Snow in One Month, at Lake Tahoe is a new all-time record for a single month. It looks like my roof is going to get crushed for the second year in three. My insurance company hates me. I don’t know about you, but climate change is kicking my butt. Click here.
3) US Factory Orders Come in Incredibly Weak, at 0.1% in December when 0.6% was expected. Recession indicator number one million. Limit your risk. Click here.
4) Home Depot Announces a New $15 Billion Share Buy Back, to their existing program. It is the best investment they could ever make. (HD) has bought back 25% of its shares since 2010 while the shares rose by 2,000%. Companies are now the sole net buyers of stock in the market. Buy (HD) on dips.
5) 11 Million Americans Paying Substantially Higher Taxes, thanks to the loss of $323 billion in local tax deductions. The cap is now set at $10,000. Complain to your congressman. Click here.
Published today in the Mad Hedge Global Trading Dispatch and Mad Hedge Technology Letter:
(GOLD IS BREAK OUT ALL OVER),
(GLD), (GDX), (NEM),
(THE STEM CELLS IN YOUR INVESTMENT FUTURE)
(CELG), (TMO), (REGN)
(WHY ETSY KNOCKED IT OUT OF THE PARK),
(ETSY), (AMZN), (WMT), (TGT), (JCP), (M)
Global Market Comments
February 28, 2019
Fiat Lux
Featured Trade:
(GOLD IS BREAKING OUT ALL OVER),
(GLD), (GDX), (NEM),
(THE STEM CELLS IN YOUR INVESTMENT FUTURE)
(CELG), (TMO), (REGN)
Longtime readers of this letter are well aware that I have been bullish on gold since August. However, this week, the barbarous relic really got the bit between its teeth and is now poised to break out to a new five year high.
All of a sudden, the sun, moon, and stars have aligned in favor of a new leg of the bull market for gold. We could even see a bitcoin-style melt up over the next 18 months to its previous all-time high of $1,927 an ounce.
Gold is not seeing this in isolation. With the primary focus of all financial markets now exploding US deficits, inflation plays everywhere have found new vigor. These would include, other precious metals, commodities, energy, and any security that shorts the bond market.
The really great news here is that your investment life has suddenly gotten very easy. We are probably only months into a megatrend that could last for another decade.
If you look carefully at the long-term charts you will see that gold has in fact been in a new bull market for three years now. But the rate of appreciation was at a snail’s pace, with the yellow metal averaging only 14% a year since then.
For a while, bitcoin and other cryptocurrencies were stealing gold’s thunder and sucking up gold’s volatility. Inflation, the traditional driver of gold prices, was nowhere to be seen.
It is no accident that the recent strength in gold has been matched with the decimation of Bitcoin, down 80% from its high. Investors are finally seeing the light of day.
Other factors have been assisting in gold’s resurgence. Chinese dumping of US treasury bonds is freeing up lots of cash in the middle Kingdom to buy gold.
The run-up to the Chinese New Year on February 16, when Chinese traditionally settle debts with gold coin purchases, has thrown some exploding firecrackers on the move.
The Europeans saw the inflation boogeyman before we did. Look at the chart below showing global gold ETF purchases, which helped market the 2015 bottom. Some 75% of global flows into gold ETF’s were for Europe based funds.
The buying has spread into the entire precious metals space. The Van Eck Vectors Gold Miners ETF (GDX) is off to the races. So is Newmont Mining (NEM), Canada’s largest miner and one of my long-time favorites. (NEM) by the way, is considering a takeover offer from Barrick Gold (GOLD).
Look to buy dips in gold whenever you get them. Remember those black swans? They are still out there in a holding pattern awaiting landing instructions.
When they finally return, you’ll be happy you have a nice position in gold to hedge your other risk positions.
I’ll do anything to postpone aging, as regular readers of this letter already know.
So when my doctor told me that she could extend the life of my knees by ten years with a stem cell injection, I was all for it.
You better pay attention too.
Stem cells, along with CRISPR gene editing, are two hyper accelerating medical technologies that promise to cure your ills, extend your life, and make you fabulously rich along the way.
Have I got your attention?
When my doc confirmed that she was already getting a spectacular result from her other elderly patients, such as the dramatic regrowth of knee cartilage, it was like pushing on an open door.
Yes, these are the famous well-worn 67-year-old knees you have heard so much about that hike and snowshoe 2,000 miles a year with a 60-pound backpack.
My doc is no lightweight. She is the orthopedic surgeon for the US Ski Team at Lake Tahoe, which is why I sought her out in the first place.
As a UCLA trained biochemist, I have known about stem cells for most of my life. They only left the realm of science fiction a decade ago.
Early sources of stem cells relied on stillborn human fetuses, creating a religious and political firestorm that led to severe restrictions, a funding drought, or outright bans.
During the 2000s, California was almost the only state that permitted stem cell research.
Since then, the technology has developed to the point where they can be easily harvested throughout the human body.
Easy, except when the source is the bone marrow in your own hip.
“You may feel a slight twinge,” said my doctor, as she flushed the air out of a gigantic horse needle the width of a straw. “I only have to hammer this needle into your hip bone 20 or 25 times to get the marrow I need.”
This was definitely NOT in the literature I had been provided.
I said, “Don’t worry, Marines are immune to pain.”
“Does that work?” she asked.
“No, not really,” I replied, grimacing.
I felt every single blow and tried to imagine myself on a faraway tropical island.
Once she obtained the 10cc she needed, she popped it into a small centrifuge to separate the stem cells (clear) from the red blood cells (red).
She then used an ultrasound machine to precisely inject my own stem cells at the exact right spot in both of my knees.
Being the true journalist that I am, I took pictures throughout the entire procedure with my iPhone 6 (see below).
The problem with advanced, experimental treatments is that they are not covered by your health insurance. Still, I thought $2,000 for ten years of extra life for both knees was a bargain.
Stem cells are undifferentiated cells that can transform into specialized cells such as heart, neurons, liver, lung, skin and so on, and can also divide to produce more stem cells.
You can think of stem cells as chemical factories generating vital growth factors that can help to reduce inflammation, fight autoimmune disease, increase muscle mass, repair joints, and even revitalize skin and grow hair.
Goodbye Rogaine!
When you are young, you have oodles of these cells, which is why kids so rarely die from dread diseases.
However, as you age, your exposure to too much sunlight at the beach, too many chemicals in the food and water you eat and drink, and natural background radiation degrades your DNA and reduces your stem cell supply.
Supplies of stem cells diminish as much as 100 to 10,000-fold in different tissues and organs. Welcome to old age, and eventually death.
The procedure I underwent is called Autologous Adult Stem Cells Treatment.
The great thing about it is that since you are using your own cells, the risk of rejection or infection is minimal. And they are free!
This approach has become the must-go-to treatment for the wealthy seeking to repair aging, sagging parts of their bodies.
They are often sold with vacation packages in exotic third world countries where regulation and medical malpractice suits are non-existent.
The fact that the treatments are now becoming widely available in the US testifies to its effectiveness.
Do any search on stem cell treatments, rejuvenation, or life extension and you will find hundreds and hundreds of private clinics offering to do so for high prices.
California leads the nation with 109 clinics (including 18 in Beverly Hills alone), followed by New York and Texas.
Just follow the money.
The market is now on fire and is expected to reach $170 billion by 2020.
As a result, a number of breakthroughs in longevity are just around the corner.
The industry is now branching out into fields considered unimaginable just a few years ago. I’ll cover some of the highlights.
Imagine using your own stem cells to repair not only your knees but any other organ. This is already being done in the lab with animal trials.
In Japan, they are growing human eyes from scratch, including lenses, and corneas.
At Stanford, stem cells are bringing dramatic improvements in stroke victims.
At USC, they are deployed to bring rapid repairs to those with severe spinal cord injuries.
A number of private firms have sprung up to facilitate banking of your own stem cells through cryogenic freezing, such as Lifebank. Just harvest them when you are young for future use.
Better yet, get born to wealthy parents who will pay to have your birth placenta and umbilical cord frozen, the two richest sources of stem cells known.
The key term to search for your investment strategy is Mesenchymal Stem Cells, the major stem cells for cell therapy, or MSCs.
These cells have the ability to differentiate into vital cells that can be used to cure autoimmune disease, cardiovascular disease, liver disease, and cancer.
There are now several hundred clinical trials involving these cells underway.
A more adventurous strategy is to buy the stem cells of others and have them injected into yourself, a procedure known as parabiosis.
A company in Monterey, CA named Ambrosia is doing exactly this for $8,000 a patient. The goal here is to reverse aging across every major organ system.
Of course, I’m thinking there’s got to be a trade here.
Not so fast.
Almost all stem cell efforts are now confined to the research labs of major universities or are buried inside of large biotech and drug companies.
A few pieces of research have spun off to set up their own private companies with substantial venture capital backing.
That said, there are a few peripheral listed plays.
Celgene (CELG) is one of my favorites and is an early entrant in the field. They are using placenta-derived cells to cure a whole host of diseases which you can find listed on their site, click here.
Thermo Fischer Scientific (TMO) provides a range of tools and supplies scientists need to pursue stem cell research (click here for their site).
Regeneron (REGN) is using stem cells to pursue a broad range of serious medical conditions, including ophthalmology, cancer, rheumatoid arthritis, asthma, atopic dermatitis, pain, and infectious diseases. Visit their site here.
There is one problem with the entire sector. We have a new president who has opinions on drug companies, which on occasion have led to traumatic one-day declines in these shares.
So these may be next year’s investments, instead of next week’s.
And how are my knees doing? I knew you would ask.
A little swelling in my knees went away in a day. I sat funny for a few more days, thanks to my bone marrow extraction.
It will take about six months before any real growth in new cartilage in my knees can be measured with an MRI scan which I have scheduled. I’ll let you know those results in a future letter.
But you know what?
My knees have not hurt an iota, despite my regular tortuous exercise regimen. And I thank that, right there, it’s a win.
And if it works, my doctor wants to extract fat cells from my middle, known as Adipose Cells, and inject their stems cells, into my knees.
Talk about killing two birds with one stone!
“We live in a world that is not described by classical economics,” said Oracle of Omaha Warren Buffet.
Mad Hedge Hot Tips
February 27, 2019
Fiat Lux
The Five Most Important Things That Happened Today
(and what to do about them)
1) Jay Stays Dovish Again, but markets yawn this time. How much mileage can you get from the same vague assertion? Shorts are about to swarm the market. Take profits on all longs. Click here.
2) India Attack Gives Gold a Boost. Even its one-day war with Pakistan is positive for the barbarous relic. Buy Gold (GLD) on Dips. Click here.
3) US Dollar Hits a Three-Week Low. The Fed’s dovish leanings are hammering the buck. Keep loading the boat with weak dollar plays, like emerging markets (EEM). Click here.
4) Wynn Resorts Gets Hit with $20 Million Fine, by Nevada regulators for sexual misconduct of the management. Stock doesn’t care as worse was expected. Apparently, everything DOESN’T stay in Vegas. Avoid (WYNN). Click here.
5) Pending Home Sales Jump 4.6%, in January in a rare positive data point from real estate. Still down 2.3% YOY. Lower interest rates are a factor. The West was the weakest where prices are highest. Click here.
Published today in the Mad Hedge Global Trading Dispatch and Mad Hedge Technology Letter:
(WHY CHINA’S US TREASURY DUMP WILL CRUSH THE BOND MARKET),
(TLT), (TBT), ($TNX), (FCX), (FXE), (FXY), (FXA), (USO), (OXY), (ITB), (LEN), (HD), (GLD), (SLV), (CU),
(THE 13 NEW TRADING RULES FOR 2019)
(HOW AUTONOMOUS DRIVING WILL CHANGE THE WORLD),
(TSLA), (GM), (GOOGL)
Mad Hedge Technology Letter
February 27, 2019
Fiat Lux
Featured Trade:
(HOW AUTONOMOUS DRIVING WILL CHANGE THE WORLD),
(TSLA), (GM), (GOOGL)
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