The Five Most Important Things That Happened Today
(and what to do about them)
1) Boeing Hits Bottom, as the US becomes the last country to ban the 737 Max 8. Imagine being 35,000 feet in the air and you find out your plane is grounded for safety reasons, as 6,000 people did yesterday. Buy more (BA) on the dip. The next move is from $360 to $450. Click here.
2) New Homes Sales Down 6.9%, in January, far worse than expected. The report is an unmitigated disaster for the industry. If you’re trying to sell a house now, you’re screwed. Click here.
3) Weekly Jobless Claims Jump, by 6,000 to a seasonally adjusted 229,000. Notice claims aren’t calling anymore. Another sign the tax cut stimulus is shrinking? Click here.
4) The Number of US Millionaires Grew for the 10th Year, to 11.8 million. And some 1.4 million are worth $5 million to $25 million. You’re obviously not working hard enough. Click here.
5) General Electric to Burn $2 billion This Year, but the stock rallies anyway. We may be trying to put in a long term bottom this year. Buy (GE) on the dips. Click here.
Published today in the Mad Hedge Global Trading Dispatch and Mad Hedge Technology Letter:
(LEARN MORE ABOUT ME THAN YOU PROBABLY WANT TO KNOW),
https://www.madhedgefundtrader.com/wp-content/uploads/2019/03/John-Thomas.png337325Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2019-03-14 13:11:132019-03-14 13:11:13Mad Hedge Hot Tips for March 14, 2019
In an unusual U-turn, Airbnb co-founder Nathan Blecharczyk revealed sudden skepticism on his companies’ odds of going public in 2019.
The base case was that Airbnb was on schedule to be listed in mid-2019.
Blecharczyk fueled confusion by going on record saying that Airbnb “are taking the steps to be ready to go public in 2019. That doesn’t mean we will go public in 2019.”
The company is currently valued at $31 billion.
The co-founder resisted in offering a specific explanation in why the company is hesitant in pulling back from the public market, but part of the factors could boil down to the Brexit mess currently ongoing at 10 Downing Street and the trade war between America and China creating uncertainty around crucial Airbnb housing markets.
Executing the IPO is another quandary where the Securities and Exchange Commission (SEC) shuttered its IPO division during the government shutdown and its staff has not regained full capabilities.
The global economic slowdown has made IPO investors nervous and the slew of IPOs planned for 2019 could take rolling rain checks to ensure the stability of newly minted shares.
This is not the only problem roiling Airbnb.
Taxes.
Municipalities are sick of being shafted from the outsized revenues pocketed by Airbnb.
Hotels have been incessantly complaining that they are on the leash for taxes that Airbnb does not have to face even though they are directly competing.
Things are about to change.
Let’s take the state of Maryland as an example.
Hosts are now pre-warning potential guests that they are on the hook for 15.5% in taxes upon arrival.
The sticker shock could have the effect of killing demand or reducing it severely.
Another bill before the Senate Budget and Taxation Committee would force short-term rental brokers to collect the 6% Maryland sales and use tax at the time of booking and pass on the fees to the state.
And this is just the beginning when you consider the onslaught of regulation other states are grappling with.
Take for instance, Maryland’s neighbor Washington D.C.
The capital has come down heavy-handed on the short-term rental platform forbidding property owners renting out 2nd homes.
They have also limited the days owners can rent out their house if they are not currently present in the city forcing owners to stick around to maximize revenue.
As of now, D.C. taxes Airbnb and other short-term rental companies 14.5% and the company has aired its grievances claiming favoritism towards the local hotel industry.
City councilors have cited figures as much as $96 million over four years of potential lost taxes.
Airbnb has been painted as the scapegoat by many jurisdictions around America when you consider that traditional hotels are taxed at 13% if averaged out in the largest 150 cities.
In many cases, Airbnb is treated not as a hotel and is responsible to self-report its occupancy and revenue data giving them a chance to find loopholes to push large amounts of revenue streams through unscathed.
Governments are also dealing with additional headaches of a wave of displacement for regular payroll jobs because of the domination of Airbnb units.
This whole situation will go from bad to worse because local government is frothing at the mouth when they understand the potential tax windfall they could seize from these online platforms.
Whether legitimate or not, states could cite taxes on hotels as a starting point and start purging Airbnb of revenue through cumbersome charges, fees, licenses, penalties, and regulation.
Airbnb could end up with a bunch of Miami Beach markets on their books with the situation on the ground turning into a slugfest.
The state is at war with property owners who rent out their unit short-term with owners trying to skirt the law.
Any rentals of less than 6 months have been illegal in Miami for years.
Fines were small amounts just three years ago but the tsunami of demand to rent units at tourist hot-spots has ignited the debate of short-term rentals and the pros and cons to business and the community.
The fines have exploded to $20,000 for each citation and the local government has bombarded owners with over $8 million in fines since 2016.
Complicating the matter, owners are often not even the culprits renting out the units.
Tenants who sign up for legitimate leases are running the show themselves muddying the situation in who is liable for the fine – the owner or the tenant?
Short-term rentals have generated over $10 million in taxes to Miami-Dade County in 2018, but the state is continuing to take the stance that this tax would have flooded their coffers plus more from hotels.
This sets up a dire situation in which Airbnb will need to report quarterly earnings 4 times per year and explain to analysts and investors alike the state of regulations and engagement with authorities.
I believe the situation will deteriorate with both sides entrenching more looking to get what they want potentially turning into a legal circus.
Tech firms are known to play hardball and brinkmanship encourages rapid growth, however, this will be harder as a public company.
Airbnb is on the way to ex-growth as mounting financial and regulatory burdens are engulfing the firm.
Better to get their ducks all in a row and supercharge growth one last time before the founders finally get their big payday.
Delaying the IPO is a risky move, but if they can squeeze out a few local victories from a New York, London, or another high market revenue driver and the fact they have been cash flow positive for the last few years, look for them to rush into the IPO and cash out.
And when that time comes, Airbnb’s ultimate competitive advantage of paying minimal taxes in many locales could be dead and buried and the company might become a shell of its former self.
https://www.madhedgefundtrader.com/wp-content/uploads/2019/03/airbnb-mar14.png593858Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2019-03-14 07:06:582019-07-10 21:40:51Airbnb's Second Thoughts
https://www.madhedgefundtrader.com/wp-content/uploads/2019/03/airbnb-cofounder.png297293Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2019-03-14 07:05:532019-07-10 21:40:58March 14, 2019 - Quote of the Day
"I manage one million people, and managing people is like managing animals, and I don't like managing one million animals," said Terry Gou, CEO of Chinese manufacturer, Foxconn, where employee suicides have been rife.
https://www.madhedgefundtrader.com/wp-content/uploads/2016/02/Terry-Gou.jpg340468The Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngThe Mad Hedge Fund Trader2019-03-14 01:05:202019-03-13 19:27:49Quote of the Day - March 14, 2019
The Five Most Important Things That Happened Today
(and what to do about them)
1) Pick Your Airline Carefully. Southwest, American, Norwegian, and Icelandic Air have the most 737 Max 8 planes and their shares are getting hammered, while United (UAL) has none. As for me, I either fly my own plane or take the train. Keep buying the dip in (BA). Click here.
2) China Trade Talks to End Within Weeks, deal or no deal, says head US negotiator Robert Lighthizer. What is this, the 45th time the administration has used this headline to goose the market? Traders are getting fed up. Click here.
3) Tesla Unveils its Model Y on Thursday, a small SUV to compete with the Toyota RAV 4. The grab for market share and volume production continues. Firing their sales staff cuts overall costs by 6%. Buy (TSLA) at $260 with a tight stop. Click here.
4) Reverse Mortgages are Making a Big Comeback. Just ask actor Tom Selleck who is making millions advertising them on TV. Be careful, or your mother will end up on the street when the equity goes below zero. Click here.
5) January Construction Spending Up 1.3%, in a rare positive data point. Nothing to say here. Click here.
Published today in the Mad Hedge Global Trading Dispatch and Mad Hedge Technology Letter:
https://www.madhedgefundtrader.com/wp-content/uploads/2016/07/John-with-Tiger-Moth-e1469406885370.jpg398400Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2019-03-13 11:35:262019-03-13 12:44:56Mad Hedge Hot Tips for March 13, 2019
Nvidia (NVDA) was right to pull the trigger – that was my first reaction when I first learned that they had aggressively acquired Israeli chip company Mellanox for $6.9 billion.
The fight to seize these assets were fierce triggering a bidding war -American heavyweights Intel and Microsoft were also in the mix but lost out.
CEO of Nvidia Jensen Huang touted the importance of the deal by explaining that “the emergence of AI and data science as well as billions of simultaneous computer users, is fueling skyrocketing demand on the world's data centers."
Therefore, satisfying this demand will require holistic architectures that connect massive numbers of fast computing nodes over intelligent networking fabrics to form a giant datacenter-scale compute engine.
Mellanox and its capabilities cover all the bases for Nvidia and will nicely slot into its portfolio offering, an added bonus of cross-selling and upselling opportunities to existing clients.
The strategic motives behind the deal are plentiful with increased importance of connectivity and bandwidth enhancing Nvidia's ability to provide datacenter-scale computing across the full stack for next-generation high-performance computing and AI workloads.
The agreement is the result of the company's shift toward next-gen technology as adoption of cloud, AI, and robotics ramps up and Nvidia will be at the forefront of this massive migration.
As the fourth industrial revolution advances, Nvidia is best of breed of semiconductor companies and the imminent adoption of 5G will aid the likes of Microchip Technology (MCHP) and Xilinx (XLNX).
Technology is rapidly changing, and the data center is the segment that is accelerating at a faster clip than in previous years translating into de-emphasizing current revenues of gaming and autonomous on a relative growth basis.
These segments will be secondary to the addressable opportunity in data center and signing up Mellanox is a key strategic initiative to exploit this growth opportunity.
Missing the boat on this compelling opportunity could have dragged Nvidia into an existential crisis down the road as the missed opportunity costs of lucrative data center revenues would begin to bite, and with no quick fix on the horizon, Nvidia’s growth drivers would be potentially disarmed.
Investors need to remember that Nvidia derives half of its revenue from China and up until this point, gaming had been a huge tailwind to its total revenue, however, the Chinese communist party has identified gaming addiction in young adults as a national crisis and have been refusing to deliver new gaming licenses to gaming creators.
As the data center via the cloud begins its next ramp-up of insatiable demand, Nvidia was acutely aware they could not miss the boat and to grab a foot hole against larger player Intel.
Almost overpaying to have more skin in the game does not do justice to what the ramifications would have been if Intel or even Microsoft were able to hijack this deal.
The two-fold victory will in turn boost sales of Nvidia's data center products long term while depriving Intel of extending the lead in data center.
And after the lack of recent underperformance in the prior quarter, Nvidia needed a gamechanger to cauterize the blood flow.
Nvidia's total revenue plunged more than 24% YOY in Q4 of 2018, and shareholders have been looking for remedies, especially after the once mythical cryptocurrency business blew up and the company was stuck with a glut of inventory.
The purchase of Mellanox will help Nvidia start competing with other dominant players like Cisco Systems (CSCO) and Arista Networks (ANET).
Mellanox is one of a handful of firms selling hardware that connects devices in the data center through network cards, switches, and cables.
The deal still needs regulatory approval and could be a stumbling block if Chinese authorities drag this into the orbit of the trade war and make it a bullet point in negotiations.
The net result is positive to the overall business model, and this move will breathe oxygen into Nvidia’s long-term narrative with a flow of revenue set to come online once the 5,000 Mellanox employees are integrated into Nvidia’s levers of operation.
Shares should be the recipient of short-term strength and after getting smushed by a poor last quarter, there is substantial room to the upside.
A dip back to $150 would serve as a good entry point to strap on a short-term bullish trade in Nvidia shares.
https://www.madhedgefundtrader.com/wp-content/uploads/2019/03/NVDA-mar13.png564972Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2019-03-13 01:06:052019-07-10 21:43:29Nvidia Steps Up its Game
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