Mad Hedge Technology Letter
August 21, 2020
Fiat Lux
Featured Trade:
(THE THINKING BEHIND RAY DALIO)
(ZLAB), (TME)
Every time I watch an interview with the Bridgewater hedge fund manager Ray Dalio, what he doesn’t say really paints the picture of who he really is.
Yes, it’s undeniable that he is incredibly wealthy, successful, and has returned shareholder profits continuously, but his support for the Chinese communist party has to be called out.
Dalio necessarily isn’t anti-American, but he loves to trot out propaganda that America is a “weakening” power confronting a “rising” power.
I would argue this isn’t true and that China is just a paper Tiger with infinite more problems than the U.S. and has been hit infinite times harder economically because of this pandemic.
China is hoping to solve the issue from going from the world’s growth engine to 250 million unemployed Chinese on the streets, thanks to the city of Wuhan.
His response is almost automatic at this point in regard to China as he skirts around specifics and issues general statements to avoid criticizing the land of Chairman Xi Jinping.
Why does Ray Dalio give a free pass to China?
The easiest way to understand is to look where he deploys his money.
It’s well known that criticizing the Chinese government is a red line for the communist party and they will sabotage, swindle, destroy anyone that steps over this line, and even more so for a foreigner.
Ray Dalio doesn’t want his capital nicked in China where he would have zero chance of navigating through the corrupt judicial system successfully in a land that has zero rule of law.
As long as Dalio has meaningful investments in Chinese tech companies, he will never say anything bad about China. He is part of the problem that has spread through the U.S. system of self-censored Americans who have a financial interest in China.
What does he own?
Tencent Music Entertainment (TME).
Offering one-stop music services and solutions designed to create a complete music entertainment ecosystem, Tencent Music Entertainment has solidified its status as the biggest online music company in China by monthly active users (MAUs).
Dalio has upped his holdings by a staggering 858% in TME, Bridgewater has pulled the trigger on 620,000 shares in Q2. At 692,262 shares, the total position is valued at $9,318,000.
TME added 4.4 million subscribers in the quarter versus 2.8 million in Q1, and subscriber average revenue per user also grew 8% year-over-year.
What about the direction of the company?
The company renewed the Universal Music Group (UMG) licensing deal.
Additionally, it organized nine TME Live performances in Q2 and long-form audio licensed titles increased 300% year-over-year, with penetration of 9.4% compared to 4.6% last year.
What other Chinese investments does Dalio own? You would think an American billionaire would help the U.S. health industry find solutions against a global health crisis, but no, Dalio is investing in Chinese health companies.
What does he own?
Zai Lab Ltd. (ZLAB)
Zai Lab offers transformative medicines for cancer, autoimmune, and infectious diseases to patients in China.
Dalio's Bridgewater made a splash with a new position buying 63,837 shares. The value of this holding? It lands at $5,243,000.
The firm has performed well driven by Zejula's second-line ovarian cancer (OC) launch in China. Total sales from China, Hong Kong, and Macau reached $13.8 million.
The Chinese government is already requesting applications for the National Drug Reimbursement List (NDRL) for this year. ZLAB is expected to apply for Zejula's second line OC indication, with the results potentially coming in November 2020 and driving upside.
As for its other launch, Optune became commercially available at the end of June. Optune is priced like a premium therapeutic and would be with a list price of $19,000 and a net price around $11,000. This is at a modest discount price of that of the U.S. list price of around $20,000. Most patients in China are self-paying for this innovative device.
Why invest in Chinese tech firms when the U.S. has a perfectly operating tech industry that has seized even more market share from the broader economy?
Growth.
Watching Dalio’s interview, it’s clear to me that he is a numbers guy. The genesis of his logic originates from the debt cycle and how investments and payments function derive from this concept.
It’s hard for Wall Streetists to ignore the growth numbers in China and Chinese tech firms have the best growth numbers in any industry in an otherwise faltering Chinese economy.
Chinese tech firms have the best growth numbers out of any tech industry in the world, that is, if you believe them.
Dalio has put his money where his mouth is and clearly believes in Chinese tech and makes sure his toes are set squarely behind the Chinese communist line.
I just would remind Ray Dalio that he is one investigative report away from losing his money because industry experts agree that no number out of China is even close to accurate.
I again strongly urge readers to never deploy capital in any mainland Chinese tech firm, simply because there are too many great tech firms in the U.S., and also from the risk control perspective.
Do not follow Dalio down this path where you need to drink the same Kool Aid as him.
We are entering into the golden age of U.S. tech and there will be vast amounts of opportunity moving forward.
We are just scratching the surface here as technology will become a bigger part of our lives, it’s up to you if you want to be a participant or not.
“I would trade all of my technology for an afternoon with Socrates.” – Said Co-Founder of Apple Steve Jobs
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
Global Market Comments
August 21, 2020
Fiat Lux
Featured Trade:
(COME JOIN THE JOHN THOMAS-HARRY DENT DEBATE ON AUGUST 25)
(JOIN THE AUGUST 24-26 MAD HEDGE TRADERS & INVESTORS SUMMIT
I have been arguing with Harry Dent over the future of all asset classes longer than I can remember.
Online, on stage, in the US, Australia, and around the world, it has been a never-ending debate about who has been right and who has been wrong on where best to invest.
It is a perfect example of two intensive researchers, analysts, and strategists looking exactly at the same data and coming to totally opposite conclusions….sometimes.
The only certainty is that listeners receive a great education on how to look at investments while being wildly entertained.
Harry Dent is one of the early founders of demographic investment. With 40 years in the financial markets, there is much to learn from his many published books on the topic.
Harry is not exactly a shrinking violet and is vociferous in expressing his views. No Marquis of Queensbury rules here.
After decades of searching, I am the only one Harry has found who can stand up against him.
Our debate, or call it a knockdown drag-out brawl, begins at 5:00 PM EST on Tuesday, August 25. To attend, please click this link at XXX.
I’ll see you there.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
I have spent the last 50 years looking for the best traders and investors around the world. Now, I have assembled the cream of the crop to share their wealth of knowledge with you.
These are individuals who can make money in any market conditions, including a global Covid-19 pandemic. Listen to these speakers and they will enhance your earning power mightily.
As much as I loved hosting my annual Mad Hedge Lake Tahoe Conferences, the Coronavirus had other ideas. I doubt followers are racing to get on airplanes and stay in hotels anytime soon. The desire to sit shoulder to shoulder with your fellow investors has also probably waned as well, no matter how fascinating they may be.
I am therefore hosting the online Thursday, August 24-26 Mad Hedge Traders & Investors Summit.
The event will be far bigger and better than the old analog bricks and mortar version. I will be hosting 27 expert traders from all over the world over three days. They will be speaking on the hour every hour starting from Monday, August 24 at 9:00 AM EST.
Some of these speakers I have known for decades. Every trading style and asset class will be covered, including stocks, options, bonds commodities, foreign exchange, precious metals, energy, and real estate. It will be your best investment educational opportunity of the year.
I will also be offering $100,000 in prizes to attendees in the form of free subscriptions to speaker newsletters, as well as those of the other speakers.
To spice things up, I have invited some real heavyweights. On Monday at 5:00 PM EST, my old friend and SALT host, former White House Press Secretary Anthony Scaramucci and I will discuss the current state of the investment world as well as the outlook for the November presidential election.
On Tuesday, August 25, my buddy Harry Dent, one of the founding fathers of long term demographic investing, will slug it out with me over the outlook for every asset class coming out of the current Great Depression. My colleague, Tom Sosnoff, founder of Tastytrade, will provide a tutorial on using online trading platforms.
I will be at Lake Tahoe, and you will be wishing you were here. As far as I know, human viruses can’t travel over the Internet….yet.
To register for the event, please click here.
To view the list of speakers and their topics, please click here.
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
I am going to suggest you close the long side of the CTXS debit spread.
CTXS is trading around $140.98 as I write this and the August 21st $140 call is holding a value of about $1.85, which is about $1 of time value.
The problem is any adverse move against the position will radically impact the value, so I suggest you close today.
Here is the suggestion:
Sell to Close August 21st - $140.00 Call for $1.85
The overall loss if you traded the suggested 5 lot is $400, which includes the profit on the short $145 call.
I would like to make a suggestion on a debit spread and the stock is Cerner Corp. (CERN).
CERN reported on July 29th with a small earnings beat, so we do have to be concerned with an upcoming earnings release.
CERN is trading around $72 as I write this.
My suggestion is to trade the September monthly options that expire on September 19th.
This gives the stock about two weeks to make a move.
Here is how you open the position:
Buy to Open September 19th - $72.50 Call for $1.75
Sell to Open September 19th - $77.70 Call for $0.40
The net debit will be $1.35 per spread.
Based on the tracking portfolio, I suggest you limit the trade to an 8 lot or 1% of the portfolio.
The maximum gain on a five lot would be $2,920.
Limit the risk because the options are slightly out of the money and I am suggesting the front month option series.