March 2019

Google’s Aggressive Move Into Gaming

The saturation of tech is upon us.

That is the takeaway from Google’s (GOOGL) hard pivot into gaming.

The goal of their new gaming service is to become the Netflix (NFLX) of gaming allowing gamers to skip purchasing third-party consoles and playing games directly from an Android-based Google device.

Middlemen in the broad economy are getting killed and this is the beginning.

What we are really seeing is a last-ditch effort to protect gaming consoles - these devices will become extinct in less than 20 years boding ill for companies such as Sony and Nintendo

The cloud is still all the rage and companies such as Microsoft (MSFT), Alphabet (GOOGL), and Apple (AAPL) have the natural infrastructure in place to offer cloud-based gaming solutions.

Phenomenon such as internet game Fortnite have shown that consoles are outdated and relying on the cloud as a fulcrum to extract gaming revenue by way of add-ons and in-game enhancements will be the way forward

Another key takeaway from this development is that passive investment is dead, even more so in tech, where these big tech companies are starting to bleed over into each other's territory.

This dispersion will create opportunity and pockets of weakness.

I blame this on a lack of innovation with companies still trying to extract as much as they can from the current smartphone-based status quo which has pretty much run its course.

Technology is itching for something revolutionary and we still have no idea what that new idea or device will be.

The rollout of 5G is promising and companies will need some time to adapt to this super-fast connection speed.

In either case, I can tell you the revolution won’t include foldable smartphones.

In 2018, the gaming industry flourished on accelerating momentum by registering over $136 billion in sales, and the revenue growth rate is already about 15% and increasing.

Naturally, companies such as Amazon and Google want a piece of this action and are hellbent on making inroads in the gaming environment such as Amazon's ownership of Twitch, which is a game streaming service where viewers can watch live tournament-style competitions proving extremely popular with Generation Z.

I applaud this move by Google because they already have proved they can execute on certain mature assets such as YouTube which has become the Netflix replacement of 2019.

Doubling down in the gaming sector would be a bonus as they search a second accelerating revenue driver that will dovetail nicely with the overperformance in YouTube this year.

It’s even possible that YouTube could be modified to support live stream gaming, certainly various synergistic dynamics are at play here.

Even if they fail - it's worth the risk.

Revenue extraction will be painful for certain companies like Facebook (FB) in this new environment, who has seen a horde of top executives abort after the company drastically changed directions, believing the company is on a suicide mission to fines and more regulatory penalties.

I've mentioned in the past that Facebook no longer commands the same type of employee brand recognition they once cultivated.

Facebook will find a tougher time to find the right people they need to execute their private chat plan, by linking the likes of WhatsApp, Instagram, and Facebook Messenger.

This is a high-risk high-reward proposition that could end up with Facebook's co-founder Mark Zuckerberg in tears if regulators give him the cold shoulder, and that is why many executives who are risk-adverse want to cash in now because they sink with the Titanic.

Not only are gaming assets becoming saturated, but the general online streaming environment is attracting a tsunami of supply all at one time.

Online content is already veering into the same type of pricing structures that cable offered traditional customers.

Investors will have to ask themselves, how much will the average consumer spend in content-based entertainment per month?

My guess is not more than $100 per month.

The saturation will cause tech companies to become even more draconian.

Be prepared for some more epic in-fighting until a new gateway of internet monetization opens up.

There has never been a better time to be a tactical and active investor in tech.

The Fang trade has splintered off with each company facing unpredictable futures.

Unearthing value will become more difficult because these traditional bellwether tech stocks have decoupled and aren't going straight up anymore.

Those zigs and zags will still be buttressed by a secular tailwind of the migration to digital, but there are certain winners and losers that will result of this.

Apple announcing a new streaming product is proof that these Silicon Valley tech firms are desperate for new profit drivers as the woodchips that fuel the fire start to run noticeably short on supply.

At the bare minimum, this looks disastrous for the traditional gaming companies of Electronic Arts (EA), Take-Two Interactive (TTWO), and Activision (ATVI) whose shares have been effectively shelved due to the Fortnite revolution.

EA has fought back with their own Fortnite lookalike called Apex Legends which showed a Fortnite-like trajectory sucking in 10 million players in the first 72 hours.

The stock exploded 16%, signaling this is the new way forward for gaming companies.

As a whole, these traditional gaming studios simply don’t have the firepower to compete with the big boys, let alone possess a strong cloud infrastructure.

March 19, 2019 - Quote of the Day

Tech Letter

“Success is a lousy teacher. It seduces smart people into thinking they can't lose.” – Said Founder and Former CEO of Microsoft Bill Gates

Trade Alert - (SPY) March 18, 2019 - SELL-STOP LOSS

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

Trade Alert - (BA) March 18, 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 March 18, 2019

Hot Tips

Mad Hedge Hot Tips
March 18, 2019
Fiat Lux

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

1) More Headaches for Boeing. What can go wrong with a company that has grounded its largest selling product? Answer: they get criminally prosecuted. That was the unhappy news that hit Boeing (BA) this morning, knocking another $7 off the shares. It can’t get any worse than this, can it? Buy this dip in (BA). Click here.

2) Lyft is Aiming for $23 Billion, as a high-end valuation for its IPO. Avoid this one like the plague. When they offer shares to their low-end employees, you want to run a mile. Click here.

3) Oil Prices Hit New Four-Month High, at $58 a barrel as OPEC production caps work and Venezuela melts down. At a certain point, high energy prices are going to hurt the economy. Buy (USO) on dips. Click here.

4) Goldman Sachs Facing Criminal Prosecution, over the Malaysia scandal which could cost them billions. Avoid (GS) like smallpox. Click here.

5) Take Profits in Chip Stocks, after the enormous run since December. Chip demand is actually falling off a cliff. It’s a classic bird in the hand versus two in the bush situation. Sell (MU) and (AMD). Click here.

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

(MARKET OUTLOOK FOR THE WEEK AHEAD, OR A STIFF DOSE OF HUMILITY),

(FCX), (AAPL), (IWM), (SPY), (BA), (FXI), (FXB)

(WHY ALPHABET IS THE BEST FANG TO BUY NOW),

(GOOGL), (NFLX), (FB), (TWTR), (DIS)

Chart of the Day

March 18, 2019 - MDT Alert (FEYE)

MDT Alert

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

March 18, 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

March 18, 2019

Diary, Newsletter, Summary

Global Market Comments
March 18, 2019
Fiat Lux

Featured Trade:

(MARKET OUTLOOK FOR THE WEEK AHEAD, OR A STIFF DOSE OF HUMILITY),
(FCX), (AAPL), (IWM), (SPY), (BA), (FXI), (FXB)

March 18, 2019

Tech Letter

Mad Hedge Technology Letter
March 18, 2019
Fiat Lux

Featured Trade:

(WHY ALPHABET IS THE BEST FANG TO BUY NOW),
(GOOGL), (NFLX), (FB), (TWTR), (DIS)

The Market Outlook for the Week Ahead, or a Stiff Dose of Humility

Diary, Newsletter

Sometimes markets have to give you a solid dose of humility, blindside you with a sucker punch, and slap you across the face with a wet kipper. Last week was definitely one of those weeks for me.

It was only just a matter of time before this happened. We posted new record gains for the first ten weeks of 2019. It was just a matter of time before the reality check kicked in.

I believed that we have seen the sharpest rally in stocks since the 2009 bottom, we were overdue for a respite. That respite came and only lasted a week. It has been an especially frustrating week for those few of us who watch economic data because it has been unremittingly awful while stocks rose daily.

There were really no reasons for shares to rise that week. There were also no reasons to sell, other than a dozen or so complete disasters that are looming just over the horizon. Still, to quote an old friend of mine, “Markets can remain irrational longer than you can remain liquid.”

The bull market reached ten years old last week, and if you read this letter you caught every dollar of the move up since then, plus some. But how much longer will it last? The technicals say it’s already in its death throes.

China trade negotiations (FXI) endlessly continued as they have for a year, but now the Chinese have thrown up a roadblock. They want everything in writing. In the wake of the North Korean disaster, can you blame them? This will weigh heavily on stocks until it's done.

Another day, another Brexit vote failed again. The pound (FXB) is doing the Watusi. Avoid all UK plays until the issue is decided.

The share buyback blackout started on Friday for many companies which are not allowed to repurchase their own shares up to 30 days ahead of the Q1 earnings reports. If you take the largest buyers of shares out of the market, what is left? Look to play the short side for the market.

Boeing (BA) hit bottom as the US became 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 last week. Buy more (BA) on the dip. The next move is from $360 to $450.

Weekly Jobless Claims jumped, by 6,000 to a seasonally adjusted 229,000. Notice claims aren’t falling anymore. Another sign the tax cut stimulus is shrinking? Or that there is no one left to hire with any skills whatsoever?

Tesla (TSLA) released its Model Y SUV, but the cheaper $39,000 version won’t be available until 2021 and the stock dove. We are approaching the make or break level for the stock, the bottom of a two-year range. Get ready to buy on the meltdown. This is a ten bagger in a decade. Buy (TSLA).

The Mad Hedge Fund Trader lost ground last week. The tenth rally in 11 weeks made my short positions lose money faster than my long positions could make it back.

The Mad Hedge Technology Letter was stopped pit of a short position in Apple (AAPL) for a small loss a heartbreaking three days before its options expiration.

February came in at a hot +4.16% for the Mad Hedge Fund Trader. March started negative, down -2.18%.

My 2019 year to date return retreated to +11.46%, a new all-time high and boosting my trailing one-year return back up to +23.72%.

My nine-year return pared back to +311.60%. The average annualized return appreciated to +33.69%.

I am now 60% in cash, 20% long Freeport McMoRan (GLD), 10% short the S&P 500, and 10% short the Russell 2000. My short bond position (TLT) expired at its maximum profit point of $1,140.

As for the Mad Hedge Technology Letter, it covered its short in Apple (AAPL) for a small loss.

Q4 earnings reports are pretty much done, so the coming week will be pretty boring on the data front after last week's fireworks.

On Monday, March 18, at 10:00 AM EST, the March Homebuilders Index is out.

On Tuesday, March 19, 8:30 AM EST, February Housing Starts is published.

On Wednesday, March 20 is the first official day of Spring, at last!

Thursday, March 21 at 8:30 AM EST, the Weekly Jobless Claims are announced. At 10:00 AM, we get a new number for Leading Economic Indicators.

On Friday, March 22 we get a delayed number for Existing Home Sales.

The Baker-Hughes Rig Count follows at 1:00 PM.

As for me, it’s fundraising time here in the San Francisco Bay Area for local schools and gala balls are now a weekly event. I, who have pursued a lifelong pursuit of low prices and great deals, ended up paying $1,000 for a homemade coffee cake, $7,000 for tickets to the Golden State Warriors, and $10,000 for the best table in the house. Hey, what’s the value of money if you can’t spend it? You can’t take it with you.

Good luck and good trading.

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