February 2019

The Cleanest Internet Play Out There

Check out GoDaddy (GDDY).

It’s a general bet on more people using the internet.

This trade dovetails nicely with my broader thesis of the dramatic migration to digital.

Brick and mortar stores will have no choice but to create a unique website and one of the most prominent web hosting services is GoDaddy.

The Mad Hedge Technology Letter is even powered by its services.

Lately, I’ve been all about this digital migration mantra and we are in the early innings of this seminal trend.

I gave you Cisco (CSCO) as a hot pick which is a bet on an increase in enterprise software business.

This is more of a question of how fast than if or when.

Are you ready for 5G?

The technology is on the verge of rolling-out to select cities around the US, and it will juice of web usage simply because users can navigate around more in a smaller time window.

GoDaddy was established by fellow Marine Bob Parsons in Baltimore 22 years ago and before GoDaddy, Parsons sold off his financial software services company, Parsons Technology to Intuit for $65 million.

He then launched Jomax Technologies which later morphed into GoDaddy in 1999 when employees were collaborating to change the company name and someone jokingly shouted out, "How about Big Daddy?"

Sadly, when the company found out that domain name had already been registered, Parsons replied, "How about Go Daddy?" and that was that.

What do I like about GoDaddy’s financials?

Better than expected profitability.

EPS forecasts were beaten handily with the company posting 24 cents, almost a double of the forecasted 13 cents.

Estimates of $693.5 million for the top line were marginally beaten by $2.3 million.

The company gave positive all-important guidance indicating robust momentum.

The firm is expecting $3 billion in 2019 sales and that is after doing $2.23 billion of sales in 2017.

Management has kept sales growth strong with a 3-year sales growth rate of 19%.

Customer renewal strength and higher average revenue per user (ARPU) growth is resonating with investors, and fused with higher operating margin could propel this firm’s shares higher.

ARPU mushroomed to $148.00 up 7% YOY while total customers rose 7% bringing the total customer base to over 18.5 million.

In 2018, over 1 million new customers were lured into the ecosystem.

The reason for this successful rise in domestic ARPU is enhanced site and product experiences, interactions focused on details and conversational marketing.

In a tech climate where a good portion of company outlooks are tepid at best, GoDaddy didn’t mince its words offering a better than expected positive outlook.

The financials look solid but allow me to explain a little more about its core products.

Almost 35% of websites on the internet is already constructed using WordPress’s platform and GoDaddy is the biggest host of paid WordPress at the end of last year.

GoDaddy’s supported WordPress offering automates the entire process of operating a secure WordPress website making it easy to use and highly popular to its customer base.

The role GoCentral's, GoDaddy’s flagship DIY website building product, plays is expanding as its numerous features increase and efficient performance is a consistent highlight for the firm.

The journey started in 2017 when GoDaddy established this service as a simple website building tool.

Concrete foundations were set and this service was integrated across a myriad of relevant third-party platforms while boosting product functions that are seeing outsized growth.

Daily entrepreneurs can now produce robust websites and carry out syndicate marketing across the e-commerce landscape.

The tandem of WordPress and GoCentral are growing subscriptions more than 40% YOY.

North America and Canada are the main revenue drivers, but international business is a wide-open opportunity waiting for management to pick off whether that's Latin America, Asia, or even in the Middle East.

The strategy for Europe is extracting the capability and product portfolio of North America, whether it be conversational marketing or features like security, backup, malware scans, plug-ins, and proactively migrate it to Europe because the model in America is obviously working and using that model will be a great development point.

Mexico and Brazil possess great growth potential and Asia continues to be about customer adds because the willingness to pay is different.

Competitor Wix (WIX) lately announced a shift in strategy, removing Domain Connect, and some of the low-end products and saying that they're going to come after WordPress.

But Chief Executive Officer of GoDaddy Scott Wagner is not worried about this nascent threat and is sure that this is the case of GoDaddy is in control of its own destiny than Wix being a viable threat.

As long as the company reinvests in its offerings and maximizes the user experience, Wix has a long way to go to compete with WordPress and are substantially smaller than GoDaddy.

And as GoDaddy keeps working on offering great value propositions and expanding the ecosphere with integrated and high-quality software, the stock is bound to jump further.

The momentum is palpable with this website hosting service a top player in its industry.

Wait for a pullback to buy some shares.

February 25, 2019 - Quote of the Day

Tech Letter

“You got to go down a lot of wrong roads to find the right one.” – Said Founder of GoDaddy Bob Parsons

February 25, 2019

Diary, Newsletter, Summary

Global Market Comments
February 25, 2019
Fiat Lux

Featured Trade:

(THE MARKET FOR THE WEEK AHEAD, or THE BEST OF TIMES AND THE WORST OF TIMES),
(SPY), (TLT), (TLT), (VIX), (KHC), (MAT), (MMT), (GLD)

The Market Outlook for the Week Ahead, or The Best of Times and the Worst of Times

Diary, Newsletter

It is truly the best of times and the worst of times. And it's not a stretch to apply Charles Dickens’ line from the Tale of Two Cities to the stock market these days.

On the one hand, stocks have just delivered one of the sharpest rallies in market history, up a staggering 20% in nine weeks. Everyone is swimming in money once again. It is the kind of move that one sees once a generation, and usually presages the beginning of long term bull markets.

On the other hand, the bull market in stocks is nearly ten years old. Some 13 months ago, the market traded at a lofty multiple of 20X, but earnings were growing at an incredible 26% a year. Today, multiples are at a very high 18X, but earnings growth is zero! This only ends in tears.

Furthermore, the low level of interest rates with the ten year US Treasury bond (TLT) at a subterranean 2.65% suggests that we are on the verge of entering a recession. Warning: bonds are always right.

Of course, it is speculation of a ‘beautiful” trade deal with China that has been driving share prices higher on an almost daily basis. Unfortunately, 90% of the deal has already been discounted in the market. We could be setting up the biggest “Sell on the news of all time.”

If instead, we get a delay of 45-90 days while details are hashed out, markets could move sideways for months. That would be death for Volatility Index (VIX) players which have already seen prices collapse this year from $36 to $13. A return visit to the $9 handle is possible. Yes, the short volatility trade is back in size.

Far and away the most important news of the week was that the Fed Pause Lives! Or so the minutes from the January FOMC meeting imply. Lower interest rates for longer offer more benefits than risks. Less heat from the president too.

Perhaps this is response to economic data that has universally turned bad. Durable Goods dove 1.2%, in January in a big surprise. Recession, here we come!

Europe is falling into recession, and they will likely take us with them. February Eurozone Manufacturing PMI fell to 49.2, a three-year low. You obviously haven’t been buying enough Burberry coats, Mercedes, or French wine.

It was a very rough week for some individual stocks.

The Feds subpoenaed Kraft Heinz (KHC), and stock dove 27% over accounting problems. Warren Buffet took a one-day $4 billion hit. What is really in that ketchup anyway besides sugar and red dye number two? Avoid (KHC).

No toys for Mattel (MAT) which saw the worst stock drop in 20 years on the back of poor earnings and worse guidance. Another leading indicator of a weak economy. Barbie isn’t putting out.

It wasn’t all bleak.

Walmart (WMT) delivered online sales up 46% in Q4. Are they the next FANG? Same-store sales jump at the fastest pace in ten years on soaring grocery sales. The Wall family certainly hopes so. Buy (WMT) on dips.

Gold hit a ten-month high, and we are long. The new supercycle for commodities has already started. Get on board before the train leaves the station. Buy (GLD).

February has so far come in at a hot +4.07% for the Mad Hedge Fund Trader. My 2019 year to date return ratcheted up to +13.55%, boosting my trailing one-year return back up to +27.54%.

My nine-year return clawed its way up to +313.69%, another new high. The average annualized return appreciated to +33.89%.

I am now 80% in cash, 10% long gold (GLD), and 10% short bonds (TLT). We have managed to catch every major market trend this year loading the boat with technology stocks at the beginning of January, selling short bonds, and buying gold (GLD). I am trying to avoid stocks until the China situation resolves itself one way or the other.

It’s real estate week on the data front. An additional data delayed by the government shutdown is trickling out.

On Monday, February 25, at 8:30 AM EST, the Chicago Fed National Activity Index is out.

On Tuesday, February 26, 8:30 AM EST, January Housing Starts are published. At 9:00 the latest Case Shiller Corelogic National Home Price Index is published.

On Wednesday, February 27 at 10:00 AM EST, January Pending Home Sales are updated.

Thursday, February 28 at 8:30 AM EST, we get Weekly Jobless Claims. We also get an updated estimate on Q4 GDP. At 10:00 AM Fed governor Jerome Powell speaks.

On Friday, March 1 at 8:30 AM, we get data on January Personal Spending delayed by the government shutdown. The Baker-Hughes Rig Count follows at 1:00 PM.

As for me, I’ll be watching the Academy Awards on Sunday night. As I grew up near Hollywood, have dated movie stars my whole life, and even appeared as an extra in a couple of movies, I have always felt close to this industry.

My first pick for Best Picture is Green Book since I recall traveling through the deep south during this period. It was actually much worse than portrayed by the film. Roma is the favorite, but I thought it was boring. I guess I’m not the politically correct art film type.

Good luck and good trading.

John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader

Trade Alert - (TLT) February 22, 2019 - BUY

Trade Alert

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

Mad Hedge Hot Tips for February 22, 2019

Hot Tips

Mad Hedge Hot Tips
February 22, 2019
Fiat Lux

The Five Most Important Things That Happened Today
(and what to do about them)

1) Europe is Falling into Recession, and they will likely take us with them. February Eurozone Manufacturing PMI fell to 49.2, a three-year low. You obviously haven’t been buying enough Burberry coats, Mercedes, or French wine. Click here.

2) US Crude Production Hits 12 Million Barrels a Day. That’s up 25% in a year. It’s been a long wait, but we finally did it! Goodbye OPEC. Buy US oil infrastructure plays like Schlumberger (SLB). Click here.

3) Feds Subpoena Kraft Heinz, and stock dives 27% over accounting problems. Warren Buffet takes a $4 billion hit. What really is in that ketchup anyway, besides sugar and red dye number two? Avoid (KHC). Click here.

4) Johnson & Johnson is Facing an Investigation Too, over rumors of asbestos in their baby powder. It’s probably a long-simmering urban legend. Ignore. Click here.

5) Consumer Reports Pulls its Tesla 3 Recommendation, citing reliability problems. Their customer support sucks too. Buy the dip in (TSLA). This is just a growing pain. Click here.

Published today in the Mad Hedge Global Trading Dispatch and Mad Hedge Technology Letter:

(FEBRUARY 20 BIWEEKLY STRATEGY WEBINAR Q&A),

(NVDA), (MU), (AMD), (LRCX), (GLD), (FXE), (FXB), (AMZN),

(PLAY IT SAFE WITH ANTHEM), (ANTM), (CI)

February 22, 2019 - MDT Pro Tips A.M.

MDT Alert

While the Diary of a Mad Hedge Fund Trader focuses on investment over a one week to a 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

February 22, 2019

Diary, Newsletter, Summary

Global Market Comments
February 22, 2019
Fiat Lux

Featured Trade:

(FEBRUARY 20 BIWEEKLY STRATEGY WEBINAR Q&A),
(NVDA), (MU), (AMD), (LRCX), (GLD), (FXE), (FXB), (AMZN),
(PLAY IT SAFE WITH ANTHEM), (ANTM), (CI)

February 20 Biweekly Strategy Webinar Q&A

Diary, Newsletter

Below please find subscribers’ Q&A for the Mad Hedge Fund Trader February 20 Global Strategy Webinar with my guest and co-host Bill Davis of the Mad Day Trader. Keep those questions coming!

Q: If there is a China trade deal, should I buy China stocks, specifically Alibaba?

A: To a large extent, both Chinese and US stocks have already fully discounted a China trade deal, so buying up here could be very risky. The administration has been letting out a leak a day to support the stock market, so I don’t think there will be much juice left when the announcement is actually made. The current high levels of US stocks make everything risky.

Q: Is it time to buy NVIDIA (NVDA)?

A: The word I’m hearing from the industry is that you don’t want to buy the semiconductor stocks until the summer when they start discounting the recovery after the next recession (which is probably a year off from this coming summer). The same is true for Micron Technology (MU), Advanced Micro Devices (AMD), and Lam Research (LRCX).

However, if you’re willing to take some heat in order to own a stock that’s going to triple over the next three years, then you should buy it now. If you’re a long-term investor, these are the entry points you die for. Looking at the charts it looks like it is ready to take off.

Q: Should I be shorting the euro (FXE), with the German economy going into recession?

A: No. We’re at a low for the euro so it’s a bad time to start a short. It’s interest rates that drive the euro more than economies. With the U.S. not raising interest rates for six months, maybe a year, and maybe forever, you probably want to be buying the currencies more than selling them down here.

Q: Would you buy the British pound (FXB) on Brexit fears?

A: I would; my theory all along has been that Brexit will fail and the pound will return to pre-Brexit levels—30% higher than where we are at now. I have always thought that the current government doesn’t believe in Brexit one iota and are therefore executing it as incompetently as possible.

They have done a wonderful job, missing one deadline after the next. In the end, Britain will hold another election and vote to stay in Europe. This will be hugely positive for Europe and would end the recession there.

Q: What do we need to do for the market to retest the highs?

A: China trade deal would do it in a heartbeat. If this happens, we will get the 5% move to the upside initially. Then we’re looking at a double top risk for the entire 10-year bull market. That’s when the short players will start to come in big time. You’d be insane to new positions in stocks here. There is an easy 4,500 Dow points to the downside, and maybe more.

Q: Do you think earnings growth will come in at 5%, or are they looking to be zero or negative?

A: Zero is looking pretty good. We know companies like to guide conservative then surprise to the upside; however, with Europe and China slowing down dramatically, that could very well drag the U.S. into recession and our earnings growth into negative numbers. The capital investment figures have been falling for three months now. US Durable Goods fell by 1.2% in January.

This explains why companies have no faith in the American economy for the rest of this year. This was a big reason why Amazon (AMZN) abandoned their New York headquarters plans. They see the economic data before we do and don’t want to expand going into a recession.

Q: When will rising government debt start to hurt the economy?

A: It already is. Foreign investors have been pulling their bids for fear of a falling US dollar. They have also become big buyers of gold (GLD) in order to avoid anything American, so we have a new bull market there. In the end, the biggest hit is with business confidence.

Nothing good ever comes from exploding US deficits and companies are not inclined to invest going into that. That is a major factor behind the sudden deterioration in virtually all data points over the past month.

Good Luck and Good Trading
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader

Mad Hedge Hot Tips for February 21, 2019

Hot Tips

Mad Hedge Hot Tips
February 21, 2019
Fiat Lux

The Five Most Important Things That Happened Today
(and what to do about them)

1) Fed Pause Lives! Or so the minutes from the January FOMC meeting imply. Lower interest rates for longer offer more benefits than risks. Less heat from the president too. Click here.

2) Will a China Trade Deal Resume the Fed’s Interest Rates Hiking Schedule? If they do you can kiss this rally goodbye. Still, that’s Q2 business. Click here.

3) Existing Home Sales Fall 1.2%, in January. Down three months in a row to a three year low. Get used to this. Housing is going to stay weak for a while. Click here.

4) Durable Goods Dive 1.2%, in January in a big surprise. Notice that virtually all economic data reports are turning negative. Recession, here we come! Click here.

5) Amtrak to End Long Distance Trains, in order to focus more capital spending on commuter trains. From now on, you’ll have to see America by bus. I’ll miss the California Zephyr, which carried me from Chicago to the coast, as well as the Starlight Express, which transported me in luxury from San Francisco to Seattle. Congress will vote on the matter by yearend. That clickety-clack still rings in my ears. Click here.

Published today in the Mad Hedge Global Trading Dispatch and Mad Hedge Technology Letter:

(SHORT SELLING SCHOOL 101),

(SH), (SDS), (PSQ), (DOG), (RWM), (SPXU), (AAPL),

(VIX), (VXX), (IPO), (MTUM), (SPHB), (HDGE),

(BUY AMD ON THE DIP),

(AMD), (NVDA), (INTC),