Mad Hedge Technology Letter
October 4, 2021
Fiat Lux
Featured Trade:
(IT WILL JUST TAKE LONGER)
(ROKU), (TSLA), (FB), (AMZN), (AAPL)
The “Buy the Dip” strategy in tech stocks hasn’t failed — it will just take longer than it used to.
Much of this Nasdaq rally has been represented by the resiliency of large cap tech stocks — every mini dip was bought with a vengeance.
This go-to playbook drove tech shares higher after the March 2020 meltdown.
These past 30 days have really tested that thesis and signals that we, as market participants, have arrived at a crossroads because if the dip isn’t bought soon, we could either fall off a ledge and barrel into a harrowing correction or we could initiate a sideways correction and trade in a fixed range.
It’s hard to ignore the near-term weakness in many of the household names like Apple (AAPL), Amazon (AMZN), and Facebook (FB).
The upper echelon of tech leadership is signaling imminent decelerating growth and tightening financial conditions.
I do believe much of it is in the price, yet it’s cognizant to know there could be meaningful spillover from the Evergrande debt implosion in China into other asset classes.
External events are shaping the narrative around the Nasdaq dip buyers.
It also doesn’t help that a Facebook whistleblower came forward to tell the press about its malpractices and less than ideal tendencies to put profit over safety, but everyone already knew that about Facebook.
What I am surprised about is that investors usually look through the bad Facebook press and prioritize the metrics which hasn’t been happening the past month.
Facebook shares are still waiting to be bought after the dip.
The lack of Facebook shoppers on the pullback is definitely one area of concern because the U.S. government still has done very little to stop Facebook in its stubborn practices.
The U.S. government will not crack down through legislation on social media companies in the short term.
Much of the negative Nasdaq price action in the short term can be attributed to the worries about China taking a machete to its susceptible tech sector and crushing it even more.
Many don’t think the cudgeling is over.
In this scenario, a flight to safety could be in the cards, which would suppress interest rates offering an olive branch for the dip-buyers.
Ultimately, I do believe it’s a matter of time before we get some recovery price action in the leadership tech stocks; but yes, it could take 1-3 weeks.
Much of this second half of the year was consolidating tech shares that overshot themselves last year.
That’s why tech firms like Tesla (TSLA) had almost a zero percent chance of repeating last year’s performance.
Take ad tech stock Roku (ROKU) for instance, shares are down 23% YTD and that doesn’t mean it’s a bad stock.
Hardly so.
When one considers that Roku shares ended 2020 up 300%, then giving back 23% or 50% in 2021 is worth the annoyances.
These stocks can’t go up in a straight line even if they almost feel like they can sometimes.
This all sets up for a brilliant 2022, as many of these high-quality names will finally have gotten through the consolidation phase and will be buttered up to initiate their next leg up in early 2022.
In the broad scheme of things, tech won the pandemic over any other sector, and 2021 is turning into a rest year.
Sometimes one needs to go backwards one step to take the next three forward.
“Creativity is just connecting things.” – 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
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
October 4, 2021
Fiat Lux
Featured Trade:
(THE MAD HEDGE SUMMIT VIDEOS ARE UP),
(MARKET OUTLOOK FOR THE WEEK AHEAD, or IT’S SHOPPING TIME),
(MS), (GS), (JPM), (BLK), (BRKB), (C), (TLT), (F), (CRPT)
All indications are that we have a total nightmare of a Christmas coming up this year. Santa Claus and his elves can’t get any parts, and the reindeer are short of hay.
There are now a record 70 large container ships from China parked off the coast of Long Beach, CA and nobody to unload them. If they could be unloaded, there are no trucks to move the cargo or drivers to drive them. It turns out that stores don’t have enough staff to sell the products either.
You see this in share prices that are traditionally strong going into the holidays which have lately taken a pasting, like UPS (UPS) and FedEx (FDX).
Perhaps the US economy is losing up to a third of its total output due to parts and labor shortages. This will take at least a year to sort out.
Then there is the issue of 10 million missing workers. Are they afraid of dying of Covid? Or have they decided it’s time for a career change and that working for a minimum wage of $7.25 an hour is no longer worth it? This may take a decade to sort out.
Covid could be masking fundamental changes to the American economy and society which won’t become obvious until well into the 2030s.
Those of us who analyze these things can’t wait for the outcome. The global economy has just undergone more change than at any time since WWII. But what exactly happened we may not know for years.
Better to complete your Christmas shopping early this year or you may end up with a piece of coal in your stocking (where do I find coal in California?). And don’t forget to do some shopping for your retirement portfolio as well. Valuations are the best they have been in a year and this bull market in stocks has another nine years to run.
In the meantime, after dumping all of my technology stocks, I’ll be betting my entire persona net worth buying financial ones. These should lead the markets for the next six months, or until bond yields hit 2.0%, whichever comes first. Bonds now yield 1.46%.
With interest rates rising sharply, economic growth continuing at record levels, and default rates plunging, we are just entering a new golden age of banking.
Powell sees Inflation lasting higher for longer. It was enough to kill off a nascent rally in the bond market. The Dollar Store is about to become the $2 Store. Shortages from China are the reason.
Treasury Yields hit a three-month high. You can blame the coming taper, deal on a deficit-financed infrastructure bill, and drained Fed accounts against a coming massive supply of bonds. I’m already running a massive bond short. Keep selling rallies in the (TLT), or buy (TBT).
China bans Crypto, triggering a 7% plunge in Bitcoin. Financial systems the government can’t control are forbidden in the Forbidden City. It’s all part of a flight out of a restricted Yuan into unrestricted crypto by wealthy Chinese. China used to account for 99% of all Bitcoin mining and now it is at zero. The business will flock to the US, Canada, and any other country with cheap electricity. It’s a short-term negative for crypto but a long-term positive. Buy Bitcoin and Ethereum on the dip.
Case Shiller shatters all records, rising an astronomical 18.7% in June, a new record. Home prices are now 41% higher than the last peak in 2006. Phoenix was up an eye-popping 29.3%, San Diego by 27.1%, and Seattle by 25.0%. What are they putting in the water in these cities? My belief is that the structural shortfall of housing continues for another decade.
New Home Sales jump by 1.5% in August to a seasonally adjusted 740,000 units. The south saw the biggest gains at 6.0%. Median New Home Prices jumped an amazing 20.1% to 390,000 YOY. The exodus from the city to the burbs continues unabated. Inventory is at 6.1 months.
Pending Home Sales rocket, in August by 8.1% on a signed contract basis compared to only 1.2% expected. That’s a seven-month high. The Midwest led the charge with a 10.4% gain. Rising inventories and continued low interest rates were a big help. The bidding wars are abating.
China Energy Shortage causes Apple and Tesla cutback and they are buying 70% of America’s coal production to meet the shortfall. Several key chip packaging and testing service providers supplying Intel, Nvidia, and Qualcomm also received notices to suspend production at their facilities in Jiangsu for several days. It’s Another Black Swan from the Middle Kingdom.
The First Trust Skybridge Crypto Industry & Digital Economy ETF (CRPT) launched on September 23. It will be kicked off by my longtime friend and Mad Hedge Summit speaker Anthony Scaramucci. Get on the crypto train before it leaves the station.
Ford (F) announced massive $11.4 Billion in US EV factories in Kentucky and Tennessee in partnership with South Korea’s SK Innovations, creating 11,000 jobs. It is one of the largest US industrial investments in recent memory. It is all part of a plan to completely reposition the company and invest $30 billion in EVs by 2025. A smart move, (F) finally read the writing on the wall.
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 saw a modest +1.03% gain in September. That’s against a Dow Average that was down -5.65% for the month. My 2021 year-to-date performance soared to 80.30%. The Dow Average was up 12.18% so far in 2021.
Figuring that we are either at or close to a market bottom, and being a man of my convictions, I am 80% invested in financial stocks. Those include (MS), (GS), (JPM), (BLK), (BRKB), and (C). In for a penny, in for a pound. I am also 10% invested in the (SPY) and 10% long bonds (TLT).
I quick trip by the Volatility Index (VIX) to $29 and a rapid 45 basis point leap in ten-year US Treasury bond yields gave us the entry point for all of these positions.
That brings my 12-year total return to 502.85%, some 2.00 times the S&P 500 (SPX) over the same period. My 12-year average annualized return now stands at an unbelievable 42.49%, easily the highest in the industry.
My trailing one-year return popped back to positively eye-popping 112.44%. 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 44 million and rising quickly and deaths topping 701,000, which you can find here.
The coming week will be slow on the data front.
On Monday, October 4 at 10:00 AM, US Factory Orders for August are out.
On Tuesday, October 5 at 8:30 AM, the US Balance of Trade for August is announced.
On Wednesday, October 6 at 8:15 AM, we get the Challenger Private Jobs Report for September.
On Thursday, October 7 at 8:30 AM, Weekly Jobless Claims are announced.
On Friday, October 8 at 8:30 AM, we learn the September Nonfarm Payroll Report. At 2:00 PM, the Baker Hughes Oil Rig Count are disclosed.
As for me, in my many travels around the world, I never hesitate to visit places of historical interest. The London grave of Carl Marx, the Paris grave of Jim Morrison, the bridge of the cruiser of the USS San Francisco, which took a direct hit from an 18-inch Japanese shell, you name it.
After attending one of my global strategy luncheons in Charleston, South Carolina, where the Civil War began with the Confederates firing on Fort Sumter in 1861, I looked for something to do. Fort Sumter was a full day trip and there wasn’t much to see anyway.
So I pulled out my trusty iPhone to get some ideas. It only took me a second to decide. I attended Sunday church services at the Mother Emanuel African Methodist Episcopal Church, where 15 people were gunned down by a deranged white nationalist in 2014.
The church was built in 1891 by freed slaves and their children. The congregation dates back earlier to 1791. It has every bit a handmade touch with fine Victorian stained-glass windows.
The ushers stopped me at the door for 20 minutes where they suspiciously eyed me. Then they invited me in and sat me down next to the only other white person there, a Jewish woman from New York.
It was a working-class congregation and polyester suites and print dresses were the order of the day. Everyone was polite, if not respectful, and I sang the hymns with the air of a book in the pew in front of me.
The gospel singing was incredible, if not angelic. When I left, an usher thanked me for supporting their cause. Very moving. I praised them for their strength and tossed a $100 bill into the basket.
Charleston is a big wedding destination now, with young couples pouring in from all over the South to tie the knot. Saturday night on Market Street saw at least a dozen bachelor and hen parties going bar to bar and getting wasted, the women falling off their platform shoes.
The United States still has a lot of healing to go to recover from the recent years of turmoil. I thought this was one small step.
Mother Emanuel African Methodist Episcopal Church
Punting in Cambridge
Mad Hedge Technology Letter
October 1, 2021
Fiat Lux
Featured Trade:
(CONNECTED TV IS ON FIRE)
(TTD), (DIS), (FUBO)
One of my favorite ad tech companies has to be The Trade Desk (TTD).
They are a middleman of sorts, using an in-house platform to match the inventory of digital ads with the advertisers themselves.
They have been extremely effective at harnessing data to deliver the right ads to the right people and many major streaming companies and Fortune 500 companies are reaching out to them to figure out how to deploy ads in the most systematic way possible.
Let’s just say there is a lot of slippage going on in the linear industry where wrong ad placement is common.
Performance of late has been strong in TTD — more of the world's top advertisers and their agencies signed up or expanded their use of TTD’s platform, which just continues to validate their business strategy.
Companies are now increasingly embracing the opportunities of the open Internet in contrast to the limitations of walled gardens.
The highlight of last quarter’s performance is led by Connected TV (CTV) and premium video.
What is CTV in advertising? CTV is short form, skippable online advertising targeted to relevant content channels and/or audience groups. Connected TV (CTV) refers to any TV that can be connected to the internet and access content beyond what is available via the normal offering from a cable provider.
The CTV growth coincides with a broad move from broadcast and cable to digital on-demand content that is happening all over the world.
CTV as a percentage of TTD’s business continues to grow very rapidly and is, by far, their fastest-growing channel.
Overall, total revenue was up 101% from a year ago to $280 million, significantly surpassing in-house expectations.
Growth occurred mainly because of TTD’s latest platform launch, Solimar, which is the result of more than two years of engineering work, and it addresses many of the opportunities in front of agencies and brands today.
Just to provide some context on growth in CTV, through just the first half of this year, the number of brands spending more than $1 million in CTV to TTD has already more than doubled year over year.
And it's not just larger advertisers that are taking advantage of CTV anymore. The number of advertisers spending over $100,000 has also doubled. In total, TTD has nearly 10,000 CTV advertisers, up over 50% compared to last year.
That exponential growth speaks to how rapidly the TV landscape is evolving. The accelerated consumer shift to digital video is real, including CTV. And that shows no signs of slowing down.
In fact, TTD reached more households via CTV in the U.S. today than are reachable through linear TV. Today, TTD reaches more than 87 million households. Those trends are now well established.
MoffettNathanson recently reported that the ad-supported video-on-demand market is growing from $4.4 billion in 2020 to about $18 billion as early as 2025.
And every major ad-supported platform, whether it's Disney's Hulu, Peacock, Discovery Plus, ViacomCBS' Paramount and Pluto, FOX's 2B or fuboTV and many others, all are reporting record viewership or ad spend figures.
Broadcasters recognize that the traditional upfront process is a mismatch. It doesn't work in a digital world where data and personalization are required to succeed.
The legacy upfront process is really hard to run in an environment with lots of change and lots of uncertainty. I believe that this year will mark a turning point in how the process is managed. In today's fragmented TV environment, linear audiences continue to erode, linear supply is shrinking and the prices are rising simply because of the scarcity. This year, broadcasters use that scarcity to their advantage and lock up commitments as the demand for growth intensifies.
When compared to parallel linear TV ad campaigns, CTV delivered a 51% incremental reach and a four times improvement when analyzing cost per household reach. These are not isolated cases.
Retail is a point of emphasis this year with Walmart integrating Walmart shopper data on TTD’s platform. This is a leading example of how TTD is working with advertising customers to help unlock the value of retail data estimated at $100 billion to $200 billion market.
This is a highly volatile stock and 2021 has been a year of consolidation.
If TTD comes down to $60 from the $70 today, that should represent an optimal entry point into one of the hottest sub-industries in tech.
“The AI technology will keep you out of harm's way. That is why we believe in an AI car that drives for you.” – Said CEO of Nvidia Jensen Huang
