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 Technology Letter
November 9, 2020
Fiat Lux
Featured Trade:
(UBER BACK FROM PURGATORY)
(UBER), (LYFT), (GRUB)
The most impacted tech company in 2020 is most likely ridesharing company Uber and is highly likely to become the new “buy the dip” tech stock.
I’ll tell you why and how they managed to turn it around.
Foundationally, two important data points from their earnings report have to be total revenue declining 18% year-over-year and delivery revenue growing 125% year-over-year.
The good news is that delivering food is turning out to be a monumental growth engine and the bad news is that the core business is hamstrung by the current conditions stemming from the global health crisis.
Even with their core business declining, Uber benefits from a silver lining of the macroeconomy recovering from summer lows and this will follow through into its ride-sharing operations.
The initial recovery from terrible to bad is usually the greatest in terms of percentages similar to recent quarterly GDP numbers.
I am definitely observing positive movement in Uber’s direction, especially as consumers feel less comfortable taking mass transit during the pandemic.
This development is clearly much better than a mass lockdown where Uber is unable to deliver on any rideshare volume whatsoever.
Management has also indicated that the overall environment is starting to considerably improve over the coming quarters with Q2 marking a clear trough in volumes and fundamentals.
Another potential tailwind is that the consumer element is becoming commonplace across cities both in the US and internationally and their preference will steer them away from mass transportation given health concerns.
This could result in an incremental demand driver for ridesharing vendors over the next few quarters and beyond.
Structurally, Uber will get to the other end of the health crisis intact and as a healthy corporation.
That speaks volumes compared to corporates floundering in damaged industries like energy and retail.
But the elephant in the room was finally addressed with the passage of California’s Proposition 22, a measure that exempts it, along with rival Lyft (LYFT) and businesses like Instacart and GrubHub (GRUB), from having to pay drivers like in-house employees.
This is the feather in their cap they needed to become the newest buy the dip tech stock because it essentially means they won’t have to pay drivers much to drive for Uber instead of doling out proper employment contracts.
The passage of the proposition legitimizes Uber’s business model at a time where the global economic environment is precarious, and we could be walking straight into legislative gridlock and an inadequate fiscal stimulus package.
This obviously means putting less dollars in consumers’ pockets to pay for Uber Eats and Uber rideshares.
This was essentially an existential issue for Uber in the state of California and without a win, Uber and Lyft threatened to pull out of California entirely.
This has happened before like in Austin, Texas, which Uber deserted in 2016 after the city passed a measure calling for stricter background checks and fingerprinting for drivers.
Fortunately for Uber, Texas State Legislature overruled Austin, and Uber and Lyft returned to the city.
The current ballot count is 58.4% in favor of Prop 22 and 41.6% in opposition meaning Californian citizens overwhelmingly voted to pass this measure.
Californians, no doubt, were scared to lose their cheap way of getting around the suburban sprawl that is California.
Even if Uber’s company creates a traffic snarl of drivers meaninglessly idling around for more rides – that is a moot point right now.
Gig workers will continue to be classified as independent contractors in the state.
It also essentially makes these gig companies exempt from AB-5, the gig worker bill that went into law at the beginning of the year that forces gig companies to pay sub-contractors like regular workers.
That is off the table and a massive win for Uber.
On the back of this legislative success, Uber will now take this win and go after other states to pass similar types of legislation.
This political template for future anti-labor, corporate law-making is pro-capital to the extreme extent of the law for better or mostly worse in my eyes if you aren’t a corporate shareholder.
This perhaps could open up all corporations in California to never pay health or social security benefits in the future to employees.
If Uber doesn’t have to, then why does Google, Facebook, or Apple need to share the burden of paying for medical and social security benefits?
Labor groups are considering potentially lobbying the newly elected Biden administration’s Department of Labor for improved federal laws for worker classification.
Biden has pledged to narrow economic inequalities and Uber’s win could be in his crosshairs because the result is a massive setback for labor laws in California and potentially around the United States.
Intervention would take some balls by the Biden administration and the most likely scenario is him giving Uber a pass.
Gig Workers Rising, a campaign supporting and educating app and platform workers, had this to say, “Billionaire corporations just hijacked the ballot measure system in California by spending millions to mislead voters. The victory of Prop 22, the most expensive ballot measure in U.S. history, is a loss for our democracy that could open the door to other attempts by corporations to write their own laws.”
Yes, this is terrible for Uber drivers but highly positive for shareholders of Uber’s stock.
The cost of doing business is effectively passed on to the guy at the bottom – sub-contracted drivers.
Like it or not, it will be enshrined into Californian law and this makes serious inroads to Uber’s business model actually becoming profitable which has been the big knock on this company.
At the very minimum, this will give a stop-gap measure for the 10 or so years Uber needs to get to autonomous driving technology where they can just never pay the driver again.
Not only does the path to autonomous driving technology look optimistic, but the excess liquidity circulating in the market effectively means that zombie companies will be funded infinitely.
Although not a zombie company, Uber has really had a hard time making up the numbers to prove a viable path to sustainability and that basically doesn’t matter anymore.
The existential threat is now out of the window and with several structural tailwinds powering Uber, the stock and the company have never had a brighter future and any medium-sized pullback should be bought.
This one is going higher.
“Technology is the key weapon in the fight for control of the industries of the future and in combating pandemics.” – Said American Economist Nouriel Roubini
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
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
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
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
November 9, 2020
Fiat Lux
FEATURED TRADE:
(MARKET OUTLOOK FOR THE WEEK AHEAD,
or THE ROARING TWENTIES HAVE JUST BEGUN),
(SPY), (TLT), (TSLA), (CAT), (JPM), (GOLD), (UNP), (UPS), (AMGN)
I have a prediction to make.
If you are unhappy about the election result, the world will still turn, the sun will rise in the east and set in the west, and the moon will continue to wax and wane every month.
There, I promise I won’t talk about politics for another four years unless it’s for the Official Incline Village, Nevada Bear Wrangler.
The plywood has started coming down from storefronts in San Francisco, no doubt stored away for another day. Mass celebrations have broken out everywhere.
It is now back to the serious business of making money.
That is easy for me to do because I have just enjoyed the most profitable week in the 13-year history of the Mad Hedge Fund Trader. From the Thursday low last week, our 2020 year-to-date performance has rocketed by an eye-popping 11.46%. This was a once-in-a-decade setup and I struck while the iron was hot.
For only the third time this year, I went 100% fully invested right before the election, and every position dutifully made money across all asset classes. Stocks (SPY) and gold (GLD) soared, while the US Treasury bond market (TLT) and the US dollar (UUP) crashed. On the stock side, everything went up like the true quantitative easing, liquidity-driven market that it is.
My fundamental call on the market came true. It made no difference who won the election, the mere fact that it is over is a major positive for stocks.
With such a historic move last week, the major indexes have pulled forward performance from the rest of 2020 and possibly a piece of 2021 as well. So, I expect to see sideways chop for the next seven weeks with a slight upward bias.
I don’t need to remind the veterans out there that this is the perfect environment for vertical bull call spreads. We may stay fully invested for a while and shoot for a record performance for 2020.
The chance of a market crash now is effectively zero. If for some reason we do get a 5% pullback, for Heaven’s sake please dive in with both hands. The Roaring Twenties and the next American Golden Age have only just begun. Globalization resumes its inevitable course.
The only thing that would trigger a selloff is an exponential growth of the pandemic, which with 122,000 cases and 1,200 deaths yesterday has already started. I have believed all along that the third peak in cases will be the final hyperbolic one, with deaths eventually topping the 1919 Spanish Flu peak of 650,000.
So far, the stock market has chosen to ignore these grim numbers, preferring instead to focus on vaccine hopes. There is effectively no government in Washington until January 21, 2021 so there is no one to step in and stop it. When the market does notice, the next buying opportunity of the decade may be at hand.
Stocks started expecting a Biden Win on Monday when they exploded right out of the gate. The Volatility Index (VIX) will plunge from $40 to $24 in a heartbeat. This was the biggest post-election rally in 100 years, with a 65% voter turnout not seen since women first got to vote in 1918. Buy dips in the (SPY).
The flip side is that massive spending will create monster deficits. Abuse from Trump has prompted the world’s largest buyer of US Treasury Bonds (TLT), China, to cut back their holdings from $1.24 trillion to $1 trillion. If China won’t buy our debt, who will? Sell short the (TLT) on rallies.
The Senate is another story. If the Republicans win, it will block most Biden programs and gridlock government for two years. Gridlocked government is normally good for stocks, except when you have a global pandemic and a Great Depression. No bold action is possible.
Expect slower economic growth as a result, fewer trading opportunities, and less asset appreciation. The Senate’s main job now is to make sure Biden fails. However, if Biden takes Georgia, we won’t know for sure until two Senate runoff elections take place there in January.
Jay Powell isn’t going anywhere, so interest rates are staying at near zero for three more years, according to yesterday’s press conference. Quantitative easing is still the name of the game.
Gold has turned, with the standard 100-day correction over. New highs beckon. The drivers are US interest rates remaining near zero for years, stockpiling by foreign central banks, and a recovering US economy. Notice also that the correlation between US stocks and gold this year has been 1:11. Gold is just another quantitative easing asset class these days. I’m starting to look at silver too, which usually has much more upside volatility.
China’s PMI is up for eight months, to 51.6%, better than expected. The world’s first post-pandemic economic keeps powering on. Anything over 50 is showing expansion.
The US ISM Nonmanufacturing Index hit a two-year high in October, down from 57.5 estimated to 57.5. That’s a two-year high.
The Nonfarm Payroll Report surprises at 638,000 for October, taking the headline Unemployment Rate down to a still recessionary 6.9%. Some 268,000 government jobs were lost, including 147,000 census workers. The rest came from teachers laid off by cash-starved local governments. Leisure & Hospitality jumped by 271,000. There are still 10 million fewer employed than when the pandemic started. The news crushed the bond market, where I’m short. Keep selling rallies in the (TLT).
When we come out the other side of pandemic, we will be perfectly poised to launch into my new American Golden Age, or the next Roaring Twenties. With interest rates still at zero, oil cheap, there will be no reason not to. The Dow Average will rise by 400% to 120,000 or more in the coming decade. The American coming out the other side of the pandemic will be far more efficient and profitable than the old. Dow 120,000 here we come!
My Global Trading Dispatch exploded to another new all-time high last week.
The Friday prior to election week, I picked up new longs in the (SPY), (TSLA), and (CAT). Then on Monday, I bet the ranch, going 100% “RISK ON,” throwing the dice on a post-election melt-up and adding the (TLT), (JPM), (GOLD), (UNP), (UPS), and (AMGN).
It worked in spades.
That keeps our 2020 year-to-date performance at a blistering +44.16%, versus a LOSS of -.06% for the Dow Average. That takes my 11-year average annualized performance back to +36.82%. My 11-year total return stood at new all-time high at +401.96%. My trailing one-year return appreciated to +52.23%.
The coming week will be a sleeper compared to the previous one. We also need to keep an eye on the number of US Coronavirus cases and deaths, now over 10 million and approaching 240,000, which you can find here.
When the market starts to focus on this, we may have a problem.
On Monday, November 9 at 12:00 PM EST, US Consumer Inflation Expectations for October are out.
On Tuesday, November 10 at 7:00 AM EST, we get the NFIB Business Optimism Index for October.
Wednesday, November 11 is Veterans Day and I’ll be leading the local parade. The stock market is still open.
On Thursday, November 12 at 8:30 AM EST, the Weekly Jobless Claims are announced. At 9:30 AM EST, the US Inflation Rate for October is released.
On Friday, November 13, at 9:30 AM EST, the US PPI for October is printed. At 2:00 PM we learn the Baker-Hughes Rig Count.
As for me, driving back from Lake Tahoe, I couldn’t help but sadly notice what a terrible wreck the country is in.
Stores everywhere are shuttered and schools are closed down. Many of my favorite businesses and restaurants are gone for good. Parts are unobtainable because someone in the supply chain either went out of business or died. You can’t go anywhere without being swathed in masks and hand sanitizer.
The new president has a big job ahead of him.
Stay healthy.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
