“What's dangerous is not to evolve.” – Said Founder and CEO of Amazon Jeff Bezos
Global Market Comments
May 23, 2019
Fiat Lux
Featured Trade:
(TUESDAY, JUNE 25 SYDNEY, AUSTRALIA STRATEGY LUNCHEON)
(DINING WITH THE BOTTOM 20%)
Mad Hedge Hot Tips
May 22, 2019
Fiat Lux
The Five Most Important Things That Happened Today
(and what to do about them)
1) Fed Minutes Out at 2:00 PM EST. Now we find out what they REALLY think in this review of their last meeting six weeks ago. Will a stock market crash force them to cut interest rates? Or will a China-induced slowdown of economic data do it first? Expect the market to be dead until the release, as it usually is. The data is pre-trade war so there are still giant shoes to fall. Click here.
2) Nordstrom Gets Slaughtered, with the stock down 10%, thanks to collapsing sales and earnings. It seems no one buys shoes in Seattle anymore. Half of retailers won’t be around in a year, with the sector in a complete trade war-induced meltdown. Avoid (JWN) like the plague. There is no place to hide. Click here.
3) Existing Home Sales Shed 0.4%, to only 5.19 million units in April, despite year-low mortgage interest rates. The good news is that inventory shrank to 4.2 months. A lot of homes are now for sale at “aspirational” prices, with sellers hanging on to last year’s prices. I don’t understand why investors are buying the homebuilder stocks, unless its anticipation of the return of SALT deductions in two years. Click here.
4) Three Chinese Airlines Sue Boeing, over loss of use of the 737 MAX. The headaches are only just beginning. (BA) stock is still looking for a final bottom. Click here.
5) Heard at SALT. Some $3 trillion is spent on US Healthcare annually, 14% of GDP, but only 2% goes to prevention. Talk about aiming at where the targets AREN’T. At least 75% of human illnesses are self-induced. Click here.
Published today in the Mad Hedge Global Trading Dispatch and Mad Hedge Technology Letter:
SPECIAL ARTIFICIAL INTELLIGENCE ISSUE
(HERE’S AN EASY WAY TO PLAY ARTIFICIAL INTELLIGENCE)
(BOTZ), (NVDA), (ISRG)
(TUESDAY JULY 5 CAIRO EGYPT STRATEGY DINNER)
(WHY YOU NEED TO CONSIDER ALIBABA)
(BABA), (AMZN)
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
Global Market Comments
May 22, 2019
Fiat Lux
SPECIAL ARTIFICIAL INTELLIGENCE ISSUE
Featured Trade:
(HERE’S AN EASY WAY TO PLAY ARTIFICIAL INTELLIGENCE),
(BOTZ), (NVDA), (ISRG)
(FRIDAY, JULY 5 CAIRO, EGYPT GLOBAL STRATEGY DINNER)
We are now in the throes of a market correction that could last anywhere from a couple of more week to a couple of months. So, generational opportunities are starting to open up in some of the best long term market sectors.
Suppose there was an exchange-traded fund that focused on the single most important technology trend in the world today.
You might think that I was smoking California’s largest export (it’s not grapes). But such a fund DOES exist.
The Global X Robotics & Artificial Intelligence ETF (BOTZ) drops a golden opportunity into investors’ laps as a way to capture part of the growing movement behind automation.
The fund currently has an impressive $2.2 billion in assets under management.
The universal trend of preferring automation over human labor is spreading with each passing day. Suffice to say there is the unfortunate emotional element of sacking a human and the negative knock-on effect to the local community like in Detroit, Michigan.
But simply put, robots do a better job, don’t complain, don’t fall ill, don’t join unions, or don’t ask for pay rises. It’s all very much a capitalist’s dream come true.
Instead of dallying around in single stock symbols, now is the time to seize the moment and take advantage of the single seminal trend of our lifetime.
No, it’s not online dating, gambling, or bitcoin. It’s Artificial Intelligence.
Selecting individual stocks that are purely exposed to AI is a challenging endeavor. Companies need a way to generate returns to shareholders first and foremost, hence, most pure AI plays do not exist right now.
However, the Mad Hedge Fund Trader has found the most unadulterated AI play out there. A real diamond in the rough.
The best way to expose yourself to this AI trend is through Global X Robotics & Artificial Intelligence ETF (BOTZ).
This ETF tracks the price and yield performance of ten crucial companies that sit at the forefront of the AI and robotic development curve. It invests at least 80% of its total assets in the securities of the underlying index. The expense ratio is only 0.68%.
Another caveat is that the underlying companies are only derived from developed countries. Out of the 10 disclosed largest holdings, seven are from Japan, two are from Silicon Valley, and one, ABB Group, is a Swedish-Swiss multinational headquartered in Zurich, Switzerland.
Robotics and AI walk hand in hand, and robotics are entirely dependent on the germination prospects of AI. Without AI, robots are just a clunk of heavy metal.
Robots require a high level of AI to meld seamlessly into our workforce. The stronger the AI functions, the stronger the robot’s ability, filtering down to the bottom line.
AI-embedded robots are especially prevalent in military, car manufacturing, and heavy machinery. The industrial robot industry projects to reach $80 billion per year in sales by 2024 as more of the workforce gradually becomes automated.
The robotic industry has become so prominent in the automotive industry that they constitute greater than 50% of robot investments in America.
Let’s get the ball rolling and familiarize readers of the Global Trading Dispatch with the top 5 weightings in the underlying ETF (BOTZ).
Nvidia (NVDA)
Nvidia Corporation is a company I often write about as their main business is producing GPU chips for the video game industry.
This Santa Clara, California-based company is spearheading the next wave of AI advancement by focusing on autonomous vehicle technology and AI-integrated cloud data centers as their next cash cow.
All these new groundbreaking technologies require ample amounts of GPU chips. Consumers will eventually cohabitate with state of the art IOT products (internet of things), fueled by GPU chips coming to mass market like the Apple Homepod.
The company is led by genius Jensen Huang, a Taiwanese American, who cut his teeth as a microprocessor designer at competitor Advanced Micro Devices (AMD).
Nvidia constitutes a hefty 8.70% of the BOTZ ETF.
To visit their website, please click here.
Yaskawa Electric (Japan)
Yaskawa Electric is the world's largest manufacturer of AC Inverter Drives, Servo and Motion Control, and Robotics Automation Systems, headquartered in Kitakyushu, Japan.
It is a company I know well, having covered this former zaibatsu company as a budding young analyst in Japan 45 years ago.
Yaskawa has fully committed to improving global productivity through automation. It comprises the 2nd largest portion of BOTZ at 8.35%.
To visit Yaskawa’s website, please click here.
Fanuc Corp. (Japan)
Fanuc was another one of the hot robotics companies I used to trade in during the 1970s, and I have visited their main factory many times.
The 3rd largest portion in the (BOTZ) ETF at 7.78% is Fanuc Corp. This company provides automation products and computer numerical control systems and is headquartered in Oshino, Yamanashi.
They were once a subsidiary of Fujitsu, which focused on the field of numerical control. The bulk of their business is done with American and Japanese automakers and electronics manufacturers.
They have snapped up 65% of the worldwide market in the computerized numerical device market (CNC). Fanuc has branch offices in 46 different countries.
To visit their company website, please click here.
Intuitive Surgical (ISRG)
Intuitive Surgical Inc (ISRG) trades on Nasdaq and is located in sun-drenched Sunnyvale, California.
This local firm designs, manufactures, and markets surgical systems and is completely industriously focused on the medical industry.
The company's da Vinci Surgical System converts surgeon's hand movements into corresponding micro-movements of instruments positioned inside the patient.
The products include surgeon's consoles, patient-side carts, 3D vision systems, da Vinci skills simulators, da Vinci Xi integrated table motions.
This company comprises 7.60% of BOTZ. To visit their website, please click here.
Keyence Corp (Japan)
Keyence Corp is the leading supplier of automation sensors, vision systems, barcode readers, laser markers, measuring instruments, and digital microscope.
They offer a full array of service support and closely work with customers to guarantee full functionality and operation of the equipment. Their technical staff and sales teams add value to the company by cooperating with its buyers.
They have been consistently ranked as the top 10 best companies in Japan and boast an eye-popping 50% operating margin.
They are headquartered in Osaka, Japan and make up 7.54% of the BOTZ ETF.
To visit their website please click here.
(BOTZ) does have some pros and cons. The best AI plays are either still private at the venture capital level or have already been taken over by giant firms like NVIDIA.
You also need to have a pretty broad definition of AI to bring together enough companies to make up a decent ETF.
However, it does get you a cheap entry into many of the illiquid foreign names in this fund.
Automation is one of the reasons why this is turning into the deflationary century and I recommend all readers who don’t have their own robotic-led business pick up some Global X Robotics & Artificial Intelligence ETF (BOTZ).
And by the way, the entry point right here on the charts is almost perfect.
To learn more about (BOTZ), please visit their website by clicking here.
Mad Hedge Technology Letter
May 22, 2019
Fiat Lux
Featured Trade:
(WHY YOU NEED TO CONSIDER ALIBABA)
(BABA), (AMZN)
If you’re looking for a long-term trend that highlights the state of the world, then there is no other source than Alibaba (BABA), the Amazon (AMZN) of China.
I am not saying to go out and buy this e-commerce juggernaut hand over fist, but understanding the essence of Alibaba offers an insight into the technological effects that big tech companies have on the global consumer.
Alibaba and Amazon, together, and their success have had an outsized influence on central banks around the world.
Back stateside, mixed data of persistently low inflation has confounded economists in the years since the Federal Reserve first adopted its 2% inflation target after the financial crisis.
These e-commerce firms' endeavors mean that we can whittle down expenses, migrating pricing power away from the middle class while padding the pockets of a few tech shareholders.
And if you thought Amazon offers low prices, Alibaba often offers even lower price tags because of knockoffs that are blatantly hawked on their platform.
These two companies have rocked the current marketplace by jacking up supply, which in effect brings prices down with their volume-first business models.
Inflationary signals have continued to be suppressed below the Federal Reserve’s 2% target and is mostly likely to stay low into the foreseeable future.
The Fed’s concocted measure of inflation – or the “core” personal consumption expenditures index excludes the volatile categories of food and energy.
This slowed to a rate of 1.6% year-over-year in March, marking the slowest pace since January 2018.
Combine low inflation with a national unemployment rate cratering to a 49-year low in April, and economists start to sniff around attempting to understand what is truly happening.
Theoretically, a low unemployment rate generally translates into higher levels of inflation, but the inflation is being captured by tech CEOs who are offering free services or something close to it that destroys traditional pricing mechanisms.
Once ingrained economic relationships are going extinct, and the underlying relationship has mutated to the benefit of Silicon Valley.
The economic models you once learned in school are now dead and I am giving you the reasons why.
In the Federal Reserve’s most recent policy meeting, Chairman Jerome Powell attributed factors blaming lower inflation on “transitory” variables including slipping financial service fees after the stock market’s fourth-quarter slide, along with healthcare costs.
The consequence is massive with the Fed unable to aggressively raise rates while putting the kibosh on any meaningful wage growth even while the economy is growing at 4% annually.
This has given the Fed the impetus to put rates on pause this year, which is a net dovish outcome after offering a more hawkish stance last winter.
The closely watched Fed Funds Futures tool signaled markets pricing in a 75% probability that the central bank would cut rates at least once by its December meeting which could be an overzealous prediction.
Alibaba is doing its best to crush global inflation by selling over $850 billion in Gross Merchandizing Volume (GMV) last quarter.
Not only are they selling physical goods, but they hope to crash the price for storing digital data with its cloud revenue growing 84% last year dotting Europe with new data centers.
Alibaba’s core e-commerce revenue was up 51% YOY last quarter with 721 million monthly active users.
Alibaba’s monthly active user totals are twice the population size of the United States epitomizing the breadth of this business that is quickly gaining traction in parts of Europe and Russia.
And even with Silicon Valley hijacking inflation, their interests are being staunchly defended by the current American administration from the Chinese who have copied the Silicon Valley deflation model themselves.
The trade fallout could cause massive store closures in America with more malls shuttering from the extra costs of the levied tariffs giving tech even more leeway into the e-commerce game enabling them to capture more revenue.
Brick & mortar retail is incrementally struggling with less foot traffic as customers stay home and click away on Amazon, and the new 25% bump in costs of goods could be the death knell for a large segment of physical stores.
UBS issued a note projecting nearly 21,000 retail stores will close by 2026 in the U.S.
The trade war will put into question future American jobs and increase costs for consumers.
Ultimately, Silicon Valley can have their cake and eat it too boding well for future tech stocks.
The most powerful part about Silicon Valley is the speed in which they can put analog firms out of business leaving the tech wolves to scoop up the most scrumptious leftovers.
We are just scratching the surface of what Silicon Valley will deliver for its stakeholders giving the average investor a strong hint that if you don’t have skin in the tech game yet, then it’s time to join the bandwagon.
Technology will outperform every sector going forward in almost every feasible circumstance, contrast this with sectors who are burning before our eyes, and the smart investor will understand that the deflation signs of the economy are a gilded edge buy sign for the best of breed tech.
Investors should be aware long-term that Amazon and Alibaba will harvest the inflation and pocket it in terms of revenue instead of profits because of the decision to prioritize growth over profits growing so large that they will be akin to a monopoly.
In either outcome, it equates to buy and buy some more of these shares.
Mad Hedge Hot Tips
May 21, 2019
Fiat Lux
The Five Most Important Things That Happened Today
(and what to do about them)
1) Tesla Breaks $200, as fears of Chinese boycotts chop earnings forecasts. Another autonomous driving death in Florida didn’t help either. $180 here we come. Stay out of the way for now, but a generational “BUY” is setting up here. Expect a monster rally on a trade war resolution. They still own the future, but how much will you pay today? Click here.
2) US to Grant Huawei Parts Exemptions on a Case by Case Basis, giving some market reprieve day. Here, political connections are everything, but the paperwork demands are enormous. Tech rebounds. Click here.
3) Some 90% of the Net Buying in the Market Now is Buy Back, shrinking the float of available shares by 4% this year, and more than 10% for single stocks like Apple (AAPL), Microsoft (MSFT), Cisco Systems (CSCO), and Oracle (ORCL). Buy ALL of the buyback stocks on dips. Click here.
4) Trade War Hits Home Depot, and poor weather kept handymen at home. Stocks get hot. Here’s another chance to buy quality at a discount. Buy (HD) on dips. Click here.
5) Remember Rare Earths? We made a killing during the bubble eight years ago in metals like Europium and Niobium. China accounts for 98% of the global supply which are essential for most electronic parts and essential for defense. Buy the (VMX). Click here.
Published today in the Mad Hedge Global Trading Dispatch and Mad Hedge Technology Letter:
(TUESDAY JULY 2 NEW DELHI INDIA STRATEGY LUNCHEON)
(REPORT FROM THE 2019 LAS VEGAS SALT CONFERENCE)
(HUAWEI HITS THE FAN)
(HUAWEI), (MU), (NVDA), (GOOGL), (FB), (TWTR), (APPL)
