Mad Hedge Technology Letter
July 12, 2021
Fiat Lux
Featured Trade:
(RIDE THE MOMENTUM)
(SHOP), (NFLX), (FB), (AMZN), (GOOGL), (NFLX), (AAPL), (MSFT)
Mad Hedge Technology Letter
July 12, 2021
Fiat Lux
Featured Trade:
(RIDE THE MOMENTUM)
(SHOP), (NFLX), (FB), (AMZN), (GOOGL), (NFLX), (AAPL), (MSFT)
Just as millions of people in the United States are sensing that life has returned to something that resembles normalcy, the Coronavirus’ delta variant has emerged as American technology stocks biggest upcoming inflection point.
This certainly ups the ante in the struggle to grapple with the pandemic and has wide-reaching consequences for your technology portfolio.
Fresh data from the U.S. Centers for Disease Control and Prevention shows that more than half of all new cases in the U.S. were attributed to the delta variant, which is believed to be easily transmissible.
About 50% of Americans are fully unvaccinated meaning 50% are not, which could lead to hellacious autumn for the 175 million who are not.
The tech market has sniffed this out.
Data suggesting this variant is three times as infectious as the original coronavirus strain is the catalyst for a massive rotation into premium big tech who boast glamorous balance sheets.
It is still unclear if this virus is actually deadlier or leads to more severe illness, but the health of Facebook, Google, Apple, Microsoft, and Amazon aren’t reliant on the outcome of the delta variant or at least relative to companies that have physical storefronts.
I believe the momentum in these names will continue in the short term as more countries prepare to carve up new movement restrictions and quasi lockdowns to combat the new variant.
The recent tech rotation has been inconspicuous but powerful and the who’s who of big tech are enjoying a stellar run in the past month with FB up 6%, GOOGL up 4.5%, AAPL up 13%, MSFT up 8%, and AMZN up 11%.
These premium tech stocks are acting almost like U.S. treasuries and are increasingly defined as a perceived flight to safety because of
the net high quality of the assets.
Whether there is another virus that kills another 4 million globally again, investors are confident that these prioritized tech stocks are immune to any meaningful weaknesses.
On a granular level, pullbacks are becoming highly rare and mini pullbacks are becoming the only practical entry points into these stocks.
Readers waiting for a 5% drop are still waiting.
Reading waiting for 10% drops risk never getting in when the going is good.
Fresh news of Japan banning spectators for the upcoming and badly organized Tokyo Olympics took down GOOGL and FB 2% intraday only for shares to make up half the losses in one afternoon.
The delta variant has strengthened the “buy the dip” philosophy that is deeply entrenched in these 5 tech names.
The strength of tech can be seen further down the totem pole in inferior names.
Shopify (SHOP), Canada’s ecommerce crown jewel, is another winner with shares up 19% in the past 30 days.
If this rotation continues, I can realistically expect dips or sideways price action in Uber (UBER), Lyft (LYFT), and Airbnb (ABNB) because their investment case weakens relative to the big 5 in a delta variant world.
Netflix (NFLX) is another one that will harvest the low-hanging fruit with strong near-term action resulting in a 9% gain in the past 30 days.
It’s highly likely that in more than several regions around the world, the delta variant will re-silo consumers and hamstring businesses.
Crushing any green shoots that the reopening is supposed to deliver isn’t an ideal runway to growth.
Epidemiologists are starting to come out of the woodwork with Hungarian virologist Ferenc Jakab saying Hungary will be lucky to “get away with August” when referring to a possible 4th wave.
This hasn’t been fully priced into the U.S. tech market and tech will enjoy a full-scale rotation if the 4th wave arrives in full force.
However, I don’t believe we are on the cusp of another $12+ trillion bailout for the delta like last time go around, which does cap momentum to the upside.
There will also be a lack of meme stock profit-taking and bitcoin profit-taking that can be rolled into the big tech safety trade.
Sensibly, this could be a short-term boost for emerging growth tech as well with the likes of DocuSign (DOCU), Zoom Video (ZM), and Teladoc (TDOC) benefiting from investors dusting off the 2020 playbook again.
I forgot to mention that U.S. treasuries falling to $1.36% is the primary reason why at the balance sheet level, growth tech will also get the benefit of the doubt in the short term.
This won’t just be a big 5 momentum encore, others will enjoy the fruits of labor.
Loss-making tech is inordinately reliant on rates being low to subsidize losses and as the 10-year rate has gone from 1.72% to 1.36%, it’s no surprise that growth tech looks like eye candy now too.
Big tech is certainly more durable and has the capacity to navigate around rising rates which is the deal-clincher for me.
I am inclined to get back into the market with any delta scare that cheapens tech before the next leg up.
The embarrassing loss in the judicial system against FB by the Feds is the cherry on top.
I am bullish tech in the short term.
“Technology helped end communism by bringing in information from the outside.” - Said Former President of the Republic of Poland Lech Wałęsa
Global Market Comments
July 12, 2021
Fiat Lux
Featured Trade:
(THE MAD HEDGE TRADERS & INVESTORS SUMMIT VIDEOS ARE UP!)
(MARKET OUTLOOK FOR THE WEEK AHEAD, or THE FUN HAS ONLY JUST BEGUN!)
Summit Videos from the June 8-10 confab are up. Listen to 27 speakers opine on the best strategies, tactics, and instruments to use in these volatile markets. It is a true smorgasbord of investment strategies. Find the best one to suit your own goals.
The product discounts offered last week are still valid. Start, stop, and pause the videos at your leisure. Best of all, access to the videos is FREE. Access them all by clicking here, then click on CURRENT SUMMIT REPLAYS in the upper right-hand corner, and then choose the speaker of your choice.
Here is the game-changer that everyone is missing.
Everyone knows that the pandemic pulled forward demand on a monumental scale. What they don’t know is that adoption has also been pulled forward, of new products and services, apps, technology, business organization by years, if not a decade. And while the pull forward in demand is temporary, the pull forward in adoption is permanent.
All this means is that stocks and markets are wildly undervalued, the bull market will last for not weeks or months but 7-10 years, and a Dow Average of 120,000 is the most conservative 2020s target I can come up with.
It's more likely now that the Dow will reach 240,000 in a decade, and that my 120,000 print could come as soon as 2025 or 2026.
The best is yet to come!
Here is the next market top, at least for the short term.
That’s because for the last year, stocks had a nasty habit of selling off after quarterly earnings reports, which are just around the corner. Announcement dates for the FANGS are below. For the short term, you want to sell days before the reports. For the long term, you want to keep them, as I expect all to double or more in the next three years.
Facebook (FB) is July 28
Alphabet (GOOGL) - Jul 25, 2021
Apple (AAPL) Jul 27
Amazon (AMZN) Jul 26, 2021
Netflix (NFLX) Jul 20, 2021
Microsoft (MSFT) - Jul 28, 2021
If you are a chronic worrywart, and I am, you have to be concerned about the crash in defaults in the junk bond market, from 9.5% a year ago to 2% now and 1% in a year. The leverage of issuers is collapsing, and earnings are soaring, causing fundamentals to improve dramatically. Junk bonds have been dragged up kicking and screaming all the way by the monster rally in the bond market, now yielding only a 3.26% yield. That’s an awful lot of risk for very little return. Is this a giant market-topping signal for bonds? Markets certainly looked so on Friday, when bond markets dove two full points.
Double up your short in the (TLT).
Fed Minutes turn dovish, citing that the “Standard of subnational progress in the economy has not been met.” It’s pretty substantial in my neighborhood where hiring and spending is almost impossible. Ten-year US Treasury Bonds (TLT) soared in anticipation of the news to a 1.30% yield, and the dollar sold off in the aftermath.
The $40 billion a month in mortgage-backed securities buying will clearly be the first taper target. Tech stocks certainly like the news. The most likely taper target is after Jackson Hole in late August-early fall. Expect bonds to crash and interest rates to soar then. Sell rallies in the (TLT) now.
Weekly Jobless Claims rise to 373,000, but the major trend continues down. Slowing gains on vaccinations could keep elevated longer than hoped for.
Tokyo Bans Olympic Spectators on Covid delta variant fears. The news was bad enough to knock 500 points off the Dow Average….temporarily. The US may be nearly out of the pandemic, but the rest of the world isn’t, raising risk for a recovery of the global economy. I skipped the event when I learned that only participants and families could attend the opening event. Still, it would be nice to visit the old neighborhoods. The public baths are gone, but the sushi is still great.
Pentagon Cancels Microsoft Jedi Cloud Deal. The $10 billion Joint Enterprise Defense Infrastructure deal intended to modernize the Defense Department’s antiquated IT will instead now be evenly split between market leader Amazon (AMZN) and second rung (MSFT). The contract had been subject to bitter litigation. Trump steered the contract away from (AMZN) because Jeff Bezos also owned the Washington Post, which was constantly critical of the former president. (AMZN) shares soared, while (MSFT) dumped, even though it’s good news for both companies. Buy (AMZN) and (MSFT) on dips.
100 Million EVs by 2040, 25 million by 2026, compared to only 1 million now, says EVGO (EVGO) CEO Cathy Zoi. Electrification of US transportation will be a seminal investment theme of our generation, just like electrification was during the 1930s. Biden plans to accelerate the process by creating incentives to build 500,000 charging stations, with 100,000 of these fast chargers that can top you up in 15 minutes. Copper per car will jump from 20 to 400 pounds, and aluminum demand will soar as 200,000 miles of long-distance transmission lines are built out. Buy (FCX) and (AA) on dips.
OPEC battle spikes oil, sending prices up to $75 a barrel, a six-year high. A 400,000 b/d increase was agreed to for two years, then reneged on by the UAE, as is the way at OPEC. The micro country was angry because it felt it was carrying an unfair share of the burden. No deal means much higher prices and even an oil shock. It was enough to knock the Dow Average down 400.
Pfizer to launch Covid Booster in August to bring out more firepower against the many variants. It can raise protection tenfold for the original two shots. It will become an annual shot as with the flu. I’ll be the first in line. Buy (PFE) on dips.
US Hotel Occupancy returns to Pre Covid-Levels, at least the ones that are still in business. It’s all leisure and no business, which is unlikely to return until next year. Avoid (HLT), (H), and (MAR) for now as the good news is already in the price the stocks have already recovered.
Fed ends Emergency Commercial Paper Program, turning it back to the private sector. Is this a stealth taper? Is the real taper around the corner? If so, you must be selling the daylights out of the (TLT), which is begging for a 15-point plunge.
My Ten-Year View
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 800% to 240,000 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 240,000 here we come!
My Mad Hedge Global Trading Dispatch profit reached a 1.79% gain so far in July. My 2021 year-to-date performance appreciated to 70.39%. The Dow Average is up 13.21% so far in 2021.
I spent the week sitting in 80% cash, waiting for a better entry point on the long side. That leaves me with a long in JP Morgan (JPM) and a short on the (TLT). Up this much this year, there is no reason to reach for the marginal trade, the maybe instead of the certainty. I’ll leave that for the Millennials.
That brings my 11-year total return to 492.84%, some 2.00 times the S&P 500 (SPX) over the same period. My 12-year average annualized return now stands at an unbelievable 42.56%, easily the highest in the industry.
My trailing one-year return exploded to positively eye-popping 111.20%. I truly have to pinch myself when I see numbers like this. I bet many of you are making the biggest money of your long lives.
We need to keep an eye on the number of US Coronavirus cases at 33.85 million and deaths topping 607,000 which you can find here.
The coming week will be a weak one on the data front.
On Monday, July 12 at 8:00 AM, US Consumer Inflation Expectations for June are published.
On Tuesday, July 13, at 8:30 AM, the US Core Inflation Rate is released.
On Wednesday, July 14 at 8:30 AM, the US Producer Price Index for June is printed.
On Thursday, July 15 at 8:30 AM, Weekly Jobless Claims are disclosed. We also get the Philadelphia Fed Manufacturing Index for June.
On Friday, July 16 at 8:30 AM US Retail Sales for June are released.
At 2:00 PM, we learn the Baker-Hughes Rig Count.
As for me, I have always been applauded for my iron discipline, which is crucial for all traders. I got mine from a decade of learning karate in Japan.
When I landed in Tokyo in 1974, there were very few foreigners in the country. The WWII occupation forces had left, but the international business community had yet to arrive. You met a lot of guys who used to work for Douglas MacArthur.
There was only one way to stay more than 90 days on the standard tourist visa. That was to get another visa studying “Japanese culture.” There were only two choices: flower arranging or karate.
Since this was at the height of Bruce Lee’s career, I went for karate.
It was not an easy choice.
World War II was not that distant, and there were still hundreds of army veterans missing limbs begging for money under railroad overpasses. Some back then were still fighting on remote Pacific islands.
There were many in the karate community who believed that the art was a national secret and should never be taught to foreigners. So those who entered this tight-knit community paid the price and had the daylights beaten out of them. I was one of those.
To this day, I am missing five of my original teeth. There is nothing like taking a kick to the mouth and watching your front teeth fly across the dojo, skittering on the teak floor.
We trained three hours a day, five days a week. It involved punching a bloody hardwood makiwara at least 200 times. The beginners were paired with blackbelts who thoroughly worked us over. Then the entire class met up at a nearby public bath to soak in a piping hot ofuro. You always hurt.
During the dead of winter, we ran five miles around the Imperial Palace in our karate gi’s barefoot in freezing temperatures daily. Then we were hosed down with cold water and trained for three hours.
During this time, I was infused with the spirit of bushido, the thousand-year-old Japanese warrior code. I learned self-discipline, stamina, and concentration. In the end, karate is actually a form of meditation.
Knowing you’re indestructible and unassailable is not such a bad thing, especially when you’re traveling in some of the harsher parts of the world. When muggers in bad neighborhoods see me late at night, they cross the street to avoid me. I am not a guy to mess with. Utter fearlessness is a great asset to possess.
The highlight of the annual training schedule was the All-Japan Karate Championship held in the prestigious Budokan, headquarters of all Japanese martial arts near the ghostly Yasukuni Jinja, Japan’s National Cemetery. By my last year in Japan, I had my black belt, and my instructor, Higaona Sensei, urged me to enter.
Because I had such a long reach, incredibly, I made it to the finals. I was matched with a very tough-looking six-footer who was fighting for Japan’s national prestige, as no foreigner had ever won the contest.
I punched, he kicked, fist met foot, and foot won. My left wrist was broken. My opponent knew what happened and graciously let me fight on one-handed for another minute to save face. Then he knocked me out on points.
The crowds roared.
It’s all part of a full life.
Stay healthy.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Losing the All-Japan National Karate Championship
Mad Hedge Technology Letter
July 9, 2021
Fiat Lux
Featured Trade:
(BUYER BEWARE)
(DIDI), (PGJ), (FB), (AMZN), (GOOGL), (NFLX), (AAPL)
Chinese regulators announced on our Independence Day that they were banning downloads of Uber’s China DiDi in the app stores in the country because it poses cybersecurity risks and broke privacy laws.
This was after DiDi raised $4.4 billion by listing its shares in New York.
However, unnamed sources leaked that China's cybersecurity watchdog suggested to DiDi that it delay its IPO before it happened.
Delaying a wealth generating event like the IPO is controversial.
At this point, DIDI, the Uber of China, is worth a speculative trade at $1 and that’s if the Chinese tech firm doesn’t delist before that.
No — scratch that — it’s not even worth your time at $1 if you hold currency denominated in USD or anything even half as credible.
But if you’re from somewhere like Venezuela wielding infamous bolivars then take a wild stab around $1 or double up at $0.50 for a trade.
There is a reason that I have never in the history of the Mad Hedge Technology Letter recommended buying a Chinese technology stock.
The astronomical risk isn’t justified.
The evidence is now out in public with Chinese big tech and the Chinese Communist Party (CCP) airing their dirty laundry.
Most sensitive business dealings are usually dealt with in-house in the land of pan-fried dumplings and Beijing roasted duck, so things must be spiraling out of control on the inside.
No doubt that inflation spikes are causing chaos everywhere, but China is particularly vulnerable because of the high volume of Chinese living in poverty.
It’s unrelated to this IPO, but another valid reason why Chinese “growth” is weakening fast.
Stateside, cashing out is normal for tech growth companies who want to reward earlier seed investors, their own management teams, and in this case the early-stage investors were Japanese Softbank (21.5%), Silicon Valley’s Uber (12.8%), and China’s Tencent (6.8%).
This was pretty much a big middle finger to these three along with the other Chinese investors which were about to profit big.
This is on the heels of the CCP nixing the Jack Ma Alipay IPO.
Chinese big tech has gone from darlings to pariahs in a short time proving that in the U.S., you get too big to fail, but in China, you get too big to exist.
Silicon Valley tech princelings are also validated for leaving China such as Facebook (FB), Google (GOOGL), Amazon (AMZN) and Netflix (NFLX).
If local Chinese tech can’t flourish in China, then forget about foreign tech in China.
It’s a non-starter.
Apple (AAPL) is the only exception because they are grandfathered in when China had no smartphone and now they provide too many local jobs to be kicked out.
There is definitely a plausible case that U.S. retail investors who were part of that $4.4 billion holdings should be refunded their capital because DiDi didn’t truthfully disclose the risk of potential Chinese regulations properly.
There is also the logic that Chinese companies should never be able to list in New York in the first place which would be sensible.
As it stands, Chinese companies don’t need to follow U.S. GAAP accounting standards and cannot be prosecuted by the U.S. legal system if they commit fraud, embezzlement, or any other financial crime and decline to leave Chinese soil.
This incentivizes Chinese companies listed in the U.S. to cheat U.S. investors with fraudulent accounting and deceitful behavior because they aren’t accountable at the end of the day.
The Invesco Golden Dragon China ETF (PGJ), which tracks the performance of US-listed Chinese stocks, has lost more than one-third of its value since February.
I can tell you from close friends who call themselves frontier investors that investing in China is not worth your time and the fear of missing out (FOMO) rationale is all marketing chutzpah and nothing much else.
China’s economy hasn’t had any positive growth in the past 10 years according to Chinese insiders off record.
This FOMO narrative is often peddled by Wall Street “professionals” who are making exorbitant fees for selling retail investors Chinese junk stocks masquerading as real companies.
Out of many financial pros I have talked to, China leads in terms of horror stories from foreign investors.
The Chinese financial system is a hoax created to lure foreign capital in and for it to never leave often viewed as a free lunch for the local recipients.
And I am not only talking about Chinese tech, but this phenomenon also extends to every reach of the financial system there.
At the end of the day, China’s tech aristocracy wished they originated in the United States which is why they went public here because our markets work and theirs don’t.
They got to New York in the first place by marketing false numbers to U.S. investors and concealing regulatory issues, and U.S. investors must not fall for this trap.
If you look at the Shanghai Stock Exchange Composite Index ($SSEC), it’s gone nowhere in the past year and rightly so.
Even Chinese investors don’t buy Chinese stocks because there is no trust in their financial system. They buy property instead or buy U.S. tech stocks.
Don’t be the next sucker.
“A good boss is better than a good company.” – Said Founder of Alibaba Jack Ma
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
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