“If you can't make it good, at least make it look good.” – Said Co-Founder of Microsoft Bill Gates
Global Market Comments
March 25, 2020
Fiat Lux
Featured Trade:
(LEARNING THE ART OF RISK CONTROL)
Mad Hedge Biotech & Healthcare Letter
March 24, 2020
Fiat Lux
Featured Trade:
(THE BIG CORONA PLAY WITH TELEDOC HEALTH),
(TDOC) (HUM), (AET), (CI)
The coronavirus disease (COVID-19) outbreak continues to inspire terror across the globe.
To date, there are roughly 398,107 confirmed cases and over 17,454 documented deaths, pushing communities to take proactive measures to stem the tide of this global pandemic.
In its wake, an increasing number of government officials and health professionals like the US Centers for Disease Control (CDC) have advised patients to take advantage of telemedicine and virtual health systems as much as possible. This is particularly helpful for those with respiratory symptoms since using these platforms could minimize contact with others along with the spread of the virus.
One of the no-brainer beneficiaries of this advice is virtual healthcare services provider Teladoc Health (TDOC).
Basically, companies like Teladoc offer personalized care without the need for patients to leave their houses. Although the kinks have yet to be worked out, the telemedicine sector should be expected to skyrocket in the weeks and even months ahead.
In fact, Teladoc shares gained 9% since February 19 -- a good sign for the company especially since the broader market went down by roughly 20% over the same period.
Earlier this month, Teladoc disclosed that the number of patient visits registered in its system showed a 50% increase week over week.
Ever since COVID-19 hit the country, the company has been fielding at least 15,000 visits on a daily basis, reaching over 100,000 weekly. Teladoc shared that it has been experiencing "visit demand consistent with peak flu volumes."
The convenience that companies like Teladoc provide can ease the burden on the broader healthcare system, which has been overworked with COVID-19 cases.
Another factor that could have contributed to Teladoc’s increasing patient load is the decision of some major health insurers to waive the patient costs for telemedicine visits.
So far, Humana (HUM), Aetna (AET), and Cigna (CI) confirmed that this policy will be relaxed throughout the national health emergency.
Needless to say, this announcement was highly appreciated by their clients, with Teladoc reporting that over half its patient visits in the past weeks are from first-time users.
However, this isn’t exactly Teladoc’s first big break.
Even prior to the pandemic and the recommendations from health experts, Teladoc has been quite impressive on its own.
Throughout the years, Teladoc has been consistent in reporting strong growth metrics. Since it went public in 2015, the stock has skyrocketed to 330% compared to the 30% gain for the S&P 500.
Reviewing its fourth-quarter earnings report for 2019, it’s clear that this is a stock for long-term investors. Based on the management’s commentary and how the story is playing out in the past months, there’s a good possibility that investors will be richly rewarded as well.
In 2019 alone, Teladoc added a total of 14 million new members to record an impressive growth rate of 61%. The company closed the year with 36.7 million patients registered in its system.
In terms of revenue, Teladoc delivered $156.5 million, showing off a 27% jump year over year.
This is particularly impressive as it eclipsed the high end of its guidance, which fell somewhere between $149 million and $153 million. It also beat the consensus estimates of analysts at $152.95 million.
This increase in revenue was bolstered by strong growths both in the US and the international markets. Its subscription-access fees reached $127 million, which was a 24% increase year over year.
Fees collected from visits showed quicker growth to contribute $29.5 million, demonstrating a 47% jump compared to the same period in 2018.
Total office visits increased by 44%, climbing to 1.24 million and surpassing the company’s guidance range of 1 million and 1.2 million as more and more patients opt for the subscription-based plans.
Meanwhile, its paid memberships in the US climbed 61% year over year to reach 36.7 million while its fee-only access soared by 104% to jump to 19.3 million members.
While 2019 was definitely a good year for the company, it’s difficult to downplay the reality that its impressive adoption curve recently could make 2020 an even better year for Teladoc.
Looking at how the company has been thriving, two things could happen for Teladoc.
One possibility is for it to develop into one of the most disruptive companies in the industry. The second possibility is that it will get acquired by a bigger player.
No matter what happens, the outcome will be a win-win for its investors.
FCX is like a lot of stocks at the moment ... oversold and getting a bounce.
It is moving just above the lower band on its daily chart today and I would like to use this as an opportunity to put on a weekly covered call.
Buy FCX at the market, which is $6.93
Then Sell to Open (1) April 3rd - $7 call for every 100 shares you buy.
These are the calls that expire next Friday.
They can be sold for $0.35 and I suggest you collect the premium.
If the calls are assigned next Friday, the return will be 6% for a week and one half.
Based on the nominal portfolio, limit the trade to 500 shares or 3.4% of the portfolio.
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
March 24, 2020
Fiat Lux
Featured Trade:
(TEN SIGNS THE MARKET IS BOTTOMING),
(FXI), (BRK/A), (BA), (DAL), (SPX),
(INDU), (UUP), (VIX), (VXX), (AAPL)
I spent the morning calling some big hedge fund friends asking what they are looking for to indicate the market may be bottoming. I’ll give you a warning right now. None of the traditional fundamental or technical measures have any validity in this market.
Markets will need to see at least one, and maybe all of these before they launch into a sustainable recovery. The good news is that several have already happened and are flashing green.
1) Watch New Corona Cases in China
The pandemic started in China and it will end in China (FXI). The president of China, Xi Jinping, has already announced that the epidemic is over and that the country is returning to normal. The country is donating thousands of respirators and millions of masks to Europe and poor countries all over the world. China was able to enforce a quarantine far more severe than possible in the West, such as using the army to surround 60 million people for a month. So, the results in the Middle Kingdom may not be immediately transferable to the US.
If we do get an actual fall in the number of cases in China, that could indicate the end is near. To keep track, click here.
2) Watch Corona Cases in Italy
Italy quarantined two weeks before California so we should get an earlier answer there. The numbers are reliable, but we don’t know the true extent of their quarantine. After all, this is Italy. Also, Italy has a much older population than the US (that Mediterranean diet keeps Italians alive forever), so they will naturally suffer a higher death rate. However, a decline in cases there will be proof that a western-style shelter-in-place order will work. To keep track, click here.
3) Watch Corona Cases in California
The Golden State was the first to quarantine ten days ago, so it will be the first American state to see cases top out. On Monday, we were at 1,733 cases and 27 deaths, or one in 1.5 million. However, it is a partial quarantine at best, with maybe half of the 20 million workforce staying home. When our cases top out, which should be the week of April 13, it could be an indication that the epidemic is flagging. To keep track, click here.
4) Watch Washington
Passage of a Corona Economic Recovery Bill could take place as early as Friday and could be worth $2 trillion. Add in the massive stimulus provided by the Federal Reserve, a large multiple of the 2008-2009 efforts, and $10 trillion is about to hit the economy. Warning: don’t be short an economy that is about to be hit with $10 trillion worth of stimulus.
5) Watch the Technicals.
Yes, technicals may be worthless now but someday in the future, they won’t be. The stock market has traded 20% below the 200-day moving average only four times in the last century. The Dow Average (INDU) was 32% below the 200-day moving average at the Monday low. The next rip-your-face off short-covering rally is imminent and may initially target that down 20% level at $21,496, or 18% above the Monday low.
6) Watch for the Big Buy
Value players are back in the market for the first time in six years, the last time the S&P 500 (SPX) traded at a discount to its historical 15.5X earnings multiple and are circling targets like hungry sharks. Watch for Warren Buffet of Berkshire Hathaway (BRK/A) to buy a large part of a trophy property, like a major bank or airline. He’s already stepped up his ownership in Delta Airlines (DAL). I’m sure he’s going over the books of Boeing (BA). Warren might even buy back his own stock at a discount to net asset value, down 31.4% in a month. Any move by Warren will signal confidence to the rest of the markets.
7) Watch the US Dollar
With US overnight interest rates having crashed by 1.5% in recent weeks, the US dollar (UUP) should be the weakest currency in the world. The greenback overnight became a zero-yielding currency. Instead, it has been the strongest, rocketing on a gigantic global flight to safety bid. When the foreign exchange rates return to rationality, the buck should weaken, as it has already started to do after last week’s super spike. A weak dollar will be good for American companies and their stocks.
8) Watch the (VIX)
We now know that the Volatility Index (VIX), (VXX) was artificially boosted last week by hundreds of short players covering positions with gigantic losses and going bust. Now that this is washed out, I expect volatility to decline for the rest of 2020. It has already fallen from $80 to $49 in days. This is a precursor to a strong stock market.
9) Watch the Absolute Value of the Market
There could be a magic number beyond which prices can’t fall anymore. That could be yesterday’s 18,000, 17,000, or 15,000. Some 80% of all US stocks are owned by long term holders who never sell, like pension funds, corporate crossholdings, or individuals who have owned them for decades and don’t want to pay the capital gains tax. When the ownership of that 20% is shifted to the 80%, the market runs out of sellers and stocks can’t fall anymore. That may have already happened. Similarly, a final capitulation selloff of market leaders, like Apple (AAPL) may also be a sign that the bear market is ending. (AAPL) is off 34.40% since February.
10) Watch John Thomas
I am watching all of the above 24/7. So rather than chase down all these data points every day, just watch for my next trade alert. I am confined to my home office for the duration, probably for months, so I have nothing else to do. No trips to Switzerland, the Taj Mahal, or the Great Pyramids of Egypt for me this year. It will just be nose to the grindstone.
Stay Healthy and we’ll back a killing on the back nine.
John Thomas
Mad Hedge Technology Letter
March 23, 2020
Fiat Lux
Featured Trade: (THE CORONA DRAG ON 5G)
(VZ), (T), (AAPL), (NFLX), (NVDA), (XLNX), (QRVO), (QCOM)
It will be inevitable – the 5G shift in 2020 will be delayed.
Last year, 5G was available on only about 1% of phones sold in 2019 and demand has cratered this year because of exogenous variables.
Up to just recently, Apple (AAPL) was the bellwether of the success of tech with wildly appreciating shares due to the expected ramp-up to a new 5G phone later this year.
Well, things are more complicated now.
I will be the first one to say it - the new Apple 5G iPhone will be delayed until 2021 – the project has been thrown into doubt because of a demand drop off and headaches with the supply chain in China.
The phenomenon of 5G cannot blossom until consumers can upgrade to 5G devices.
Concerning all the media print of China Inc. going back to work, don’t believe a word of it.
People of the Middle Kingdom are sitting at home just like you and me by navigating around top-down government edicts.
Instead of the perilous commute in a country of 1.4 billion people, Chinese workers are fabricating attendance figures per my sources.
Overall data is grim - global smartphone shipments dropped 38% year-over-year during February from 99.2 million devices to 61.8 million - the largest fall ever in the history of the smartphone market and that is just the tip of the iceberg.
The new data point underscores the magnitude of how the coronavirus is sucking the vitality out of the tech ecosystem in China and thus the end market for global consumer electronics.
The statistic also foreshadows imminent trouble in the smartphone market as other regions have now shut down not only in China but the manufacturing hubs of South East Asia.
The outbreak squeezes both supply and demand.
Factories in Asia are unable to manufacture phones as usual because of obligatory government shutdowns and complexities securing critical components from the supply chain.
5G has been hyped up as the great leap forward for wireless technology that will usher in unprecedented new use cases supercharging global GDP — from driverless transport to robotic automation to smart football stadiums.
And coronavirus is just that Godzilla destroying 5G momentum down.
Mass quarantines, social distancing, remote work, and schooling have been instituted in American cities, meaning that the current network carriers are swamped and overloaded with a surge in data usage.
The Verizon’s (VZ) and the AT&T (T) Broadbands of America are currently focused on maintaining their current core customers, adding extra broadband to handle the increased load, and making sure the health of the network stays intact.
This is a poor climate to upsell products to beleaguered Americans who have just lost income and possibly their house because they cannot pay mortgages.
Services such as YouTube and Netflix (NFLX) have even decreased the quality of streaming on their platforms to handle the dramatic spike in extra usage in Europe with the whole continent locked down.
The Chinese consumer was the Darkhorse catalyst to ramp up the global economic expansion during the last economic crisis, picking up world spending in 2009.
On the contrary, this group of super spenders is less inclined to save the global economy this time around because they are saddled with domestic debt.
Just as unhelpful to Silicon Valley revenues, the technology relationship at the top of the governments are poised to worsen because of the health scare.
The U.S. administration has already banned the use of Chinese components in the U.S. 5G network amid suspicions the devices would be used for espionage.
Back stateside, I believe the U.S. telecoms will explicitly detail a sudden slowdown in the 5G network rollout during their next earnings report.
The telecom companies have been able to successfully handle the extra incremental load, but it has had to allocate resources to service the extra volume.
In the meantime, companies will shift to doing infrastructure and site preparation in anticipation of the re-build up to 5G, but that could be next to be put on ice if crisis management moves to the forefront.
Considering every 5G base station is being manufactured in Asia, one must be naïve in believing all is well and they will probably need to do what the 2020 Tokyo Olympics will shortly do – postpone it.
It’s not business as usual anymore.
This time it’s different.
The world just isn’t ready to digest such a shift in global business as 5G until the fallout of the coronavirus is in the rear-view mirror.
The 5G phenomenon underlying effect is to supercharge globalization into smaller networks of interconnectivity and that is not possible during a black swan event like the coronavirus which is the antithesis of globalization and interconnected business.
Just take the situation across the Atlantic Ocean in Europe, UBS Group AG, and Credit Suisse Group AG required clients to post additional collateral, and money managers in New York are preparing term sheets for ultra-rich Americans to urgently meet margin calls.
Many people are scurrying back to their doomsday’s shelter and that does not scream global business.
If you thought gold was the safe haven – wrong again – it experienced back-to-back weekly losses as margin pressures force fire sales of gold to raise cash.
Another glaring example are the assets of Eldorado Resorts Inc., controlled by the founding Carano family, which burned $28.7 million of stock in the casino entity to meet a margin call to satisfy a bank loan.
Things are that bad now!
Sure, telecom players might argue that a sudden influx of workers from home necessitates more investment in 5G, but if they have no income, all bets are off.
The capacity of 4G home broadband has proved it is good enough for today’s demands and it means the last stage of 4G will be a high data consumption longer phase before business lethargically pivots to 5G in 2021.
Verizon’s CEO Hans Vestberg said last year that half the U.S. will have access to 5G by the end of 2020, and I will say that is now impossible.
This sets up a generational buy in the Silicon Valley chip names involved in 5G after coronavirus troubles peak such as Nvdia (NVDA), Xilinx (XLNX), Qorvo (QRVO), and QUALCOMM Incorporated (QCOM).
