This is the new Silicon Valley, where layoffs are the talk of the town!
That’s not always a good thing if you’re an employee, but at least health service jobs are still available for the newly unemployed tech workers.
Better get a move on before they run out.
The recent data backs up my biggest fears that many tech firms are getting out the machete and slicing and dicing the fat off the bone.
Staff cuts are on the menu and it’s the main dish, unfortunately.
This will be a roller-coaster ride for the ages where employees suddenly face a predicament in which they must finally prove their value to their bosses, and do it fast.
Gone are the times when Twitter workers could waltz into the front entrance 2 hours late and sit in the cafeteria all day with a cup of joe and an ice cream sandwich.
Not going to happen anymore!
Gone are the cheerleading warriors who were whole “marketing” departments acting like they market products but really doing no work at all.
Three-hour bathroom breaks are now caput.
You know who you are!
It’s finally time to get fingers out of noses.
If companies haven’t announced heart-palpitating layoffs, then they have instituted hiring, promotion, and wage hike freezes.
One company I know well from the inside is Amazon, which announced it will no longer fill certain corporate positions, while Apple said it would stop hiring in most departments.
Meanwhile, younger tech companies including payment provider Stripe and ride-hailing business Lyft (LYFT) are also slashing workforce.
They both said the decelerating economy was becoming increasingly unfavorable for tech.
Last week, Amazon released dismal third-quarter earnings showing revenue growth of 15% which was down from 37% growth a year ago.
AMZN’s stock plummeted 20% overnight, sending the company’s market value below $1 trillion for the first time since 2020.
With aggregate demand for its services falling, Amazon is looking to shrink its risk exposure.
Last week, after the poor earnings report, the company laid off around 150 people from its live radio division, and on Thursday shared with employees that it was implementing a hiring freeze for corporate retail jobs.
All eyes are on Twitter’s Musk now, who is really dishing out the new playbook for how to cut down while being most efficient and productive.
He’s even looking at cutting Twitter cloud costs by $1 billion per year at Twitter.
Musk’s management style is distinguishing him from the charlatans, and I see that as a highly positive development in corporate America long term.
Rumors of workers required to work 84 hours in a sink-or-swim scenario could be true; Musk is testing workers to see who he wants to keep.
I’ve also seen photos of workers who have resorted to taking naps on the ground in sleeping bags in Twitter’s San Francisco headquarters.
The leverage of in-person work is now over for 2023, and we most likely will see another paradigm shift in terms of work environment.
Even more important, the massive .75% rate hike and waving away any possible pauses in interbank interest hikes means that the dollar will get stronger and tech stocks will continue to be a sell-the-rally or buy-the-bear-market-rally type of deal.
Ultimately, this industry needs a reset as the supercharged growth coincided with too much bloat, which is really starting to reveal itself.
In the last few years, effectiveness definitely suffered from diminishing returns, and now that cost of capital is not free; management cannot just sling things at walls to see what sticks.
Responsible management will be the x-factor in choosing who thrives in the next tech bull market.
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“Any product that needs a manual to work is broken.” – Said CEO of Twitter Elon Musk
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Below please find subscribers’ Q&A for the November 2 Mad Hedge Fund Trader Global Strategy Webinar broadcast from Silicon Valley in California.
Q: The country is running out of diesel fuel this month. Should I be stocking up on food?
A: No, any shortages of any fuel type are all deliberately engineered by the refiners to get higher fuel prices and will go away soon. I think there was a major effort to get energy prices up before the election. If that's the case, then look for a major decline after the election. The US has an energy glut. We are a net energy exporter. We’re supplying enormous amounts of natural gas to Europe right now, and natural gas is close to a one-year low. Shortages are not the problem, intentions are. And this is the problem with the whole energy industry, and the reason I'm not investing in it. Any moves up are short-term. And the industry's goal is to keep prices as high as possible for the next few years while demand goes to zero for their biggest selling products, like gasoline. I would be very wary about doing anything in the energy industry here, as you could get gigantic moves one way or the other with no warning.
Q Is the SPDR S&P 500 ETF (SPY) put spread, correct?
A: Yes, we had the November $400-$410 vertical bear put spread, which we just sold for a nice profit.
Q: I missed the LEAPS on J.P. Morgan (JPM) which has already doubled in value since last month, will we get another shot to buy?
A: Well you will get another shot to buy especially if another major selloff develops, but we’re not going down to the old October lows in the financial sector. I believe that a major long-term bull move has started in financials and other sectors, like healthcare. You won’t get the October lows, but you might get close to them.
Q: I’m waiting for a dip to get into Eli Lilly (LLY), but there are no dips.
A: Buy a little bit every day and you’ll get a nice average in a rising market. By the way, I just added Eli Lilly to my Mad Hedge long-term model portfolio, which you received on Thursday.
Q: Any thoughts about the conclusion of the Twitter deal and how it will affect tech and social media?
A: So far all of the indications are terrible. Advertisers have been canceling left and right, hate speech is up 500%, and Elon Musk personally responded to the Pelosi assassination attempt by trotting out a bunch of conspiracy theories for the sole purpose of raising traffic and not bringing light to the issue. All indications are bad, but I've been with Elon Musk on several startups in the last 25 years and they always look like they’re going bust in the beginning. It’s not even a public stock anymore and it shouldn’t be affecting Tesla (TSLA) prices either, which is still growing 50% a year, but it is.
Q: In terms of food commodities for 2023, where are prices headed?
A: Up. Not only do you have the war in Ukraine boosting wheat, soybean, and sunflower prices, but every year, global warming is going to take an increasing toll on the food supply. I know last summer when it hit 121 degrees in the Central Valley, huge amounts of crops were lost due to heat. They were literally cooked on the vine. We now have a tomato shortage and people can’t make pasta sauce because the tomatoes were all destroyed by the heat. That’s going to become an increasingly common issue in the future as temperatures rise as fast as they have been.
Q: Do I trade options in Alphabet (GOOG) or Alphabet (GOOGL)?
A: The one with the L is the holding company, the one without the L is the advertising company and the stock movements are really identical over the long term, so there really isn’t much differentiation there.
Q: Why can’t inflation be brought down by increasing the supply of all goods?
A: Because the companies won’t make them. The companies these days very carefully manage output to keep prices as high as possible. It’s not only the energy industry that does that but also all industries. So those in the manufacturing sector don’t have an interest in lowering their prices—they want high prices. If they see the prices fall, they will cut back supply.
Q: What do you think about growth plays?
A: As long as interest rates are rising, growth will lag and value will lead, and that has been clear as day for the last month. This is why we have an overwhelming value tilt to our model portfolio and our recent trade alerts. They’ve all been banks—JP Morgan (JPM), Bank of America (BAC), Citigroup (C), plus Berkshire Hathaway (BRK) and Visa (V) and virtually nothing in tech.
Q: I don’t know how to execute spread trades in options so how do I take advantage of your service?
A: Every trade alert we send out has a link to a video that shows you exactly how to do the trade. I have to admit, I’m not as young as I was when I made the videos, but they’re still valid.
Q: Is the US housing market about to crash?
A: There is a shortage of 10 million houses in the US, with the Millennials trying to buy them. If you sell your house now, you may not be able to buy another one without your mortgage going from 2.75% to 7.75%—that tends to dissuade a lot of potential selling. We also have this massive demographic wave of 85 million millennials trying to buy homes from 65 million gen x-ers. That creates a shortage of 20 million right there. That's why rents are going up at a tremendous rate, and that's why house prices have barely fallen despite the highest interest rates in 20 years.
Q: If we get good news from the Fed, should we invest in 3X ETFs such as the ProShares UltraPro QQQ (TQQQ)?
A: No, I never invest in 3X ETFs, because they are structured to screw the investor for the benefit of the issuer. These reset at the close every day, so do 2 Xs and not more. If you're not making enough money on the 2Xs, maybe you should consider another line of business.
Q: Do you think BlackRock Corporate High Yield Fund (HYT) will show the pain of slights because of their green positioning?
A: No I don’t, if anything green investing is going to accelerate as the entire economy goes green. And you’ll notice even the oil companies in their advertising are trying to paint themselves as green. They are really wolves in sheep’s clothing. They’ll never be green, but they’ll pretend to be green to cover up the fact that they just doubled the cost of gasoline.
Q: Where do you find the yield on Blackrock?
A: Just go to Yahoo Finance, type in (BLK), and it will show the yield right there under the product description. That’s recalculated by algorithms constantly, depending on the price.
Q: Do you like Cameco (CCJ)?
A: Yes, for the long term. Nuclear reactors have been given an extra five years of life worldwide thanks to the Russian invasion of Ukraine. Even Japan is opening theirs.
Q: Should I short the US dollar (UUP) here?
A: The answer is definitely maybe. I would look for the dollar to try to take one more run at the highs. If that fails, we could be beginning a 10-year bear market in the dollar, and bull market in the Japanese yen, Australian dollar, British pound, and euro. This could be the next big trade.
Q: What is your outlook on Real Estate Investment Trusts (REITs) now?
A: I think it looks great. REITs are now commonly yielding 10%. The worst-case scenario on interest rates has been priced in—buying a REIT is essentially the same thing as buying a treasury bond, but with twice the leverage, because they have commercial credits and not government credits. We’ll be doing a lot more work on REITS. We also have tons of research on REITS from 12 years ago, the last time interest rates spiked. I'll go in and see who’s still around, and I'll be putting out some research on it.
Q: How do you see the price development of gold (GLD)?
A: Lower—the charts are saying overwhelmingly lower. Gold has no place in a rising interest rate world. At least silver (SLV) has solar panel demand.
Q: Do you have any fear of Korea going into IT?
A: Yes, they will always occupy the low end of mass manufacturing, and you can see that in the cellphone area; Samsung actually sells more phones than Apple, but they’re cheaper phones with lower-end lagging technology, and that’s the way it’s always going to be. They make practically no money on these.
Q: When can we get some more trade alerts?
A: We are dead in the middle of my market timing index, so it says do nothing. I’m looking for either a big move down or big move up to get back into the market. This is a terrible environment to chase trades when you're trading, so I'm going to wait for the market to come to me.
Q: What about water as an investment? The Invesco Water Resources ETF (PHO)?
A: Long term I like it. There’s a chronic shortage of fresh water developing all over the world, and we, by the way, need major upgrades of a lot of water systems in the US, as we saw in Jackson, MS, and Flint, MI.
Q: Will REITs perform as well as buying rental properties over the next 10 to 20 years?
A: Yes, rental properties should do very well, as long as you’re not buying any city that has rent control. I have some rental properties in SF and dealing with rent control is a total nightmare, you’re basically waiting for your tenants to die before you raise the rent. I don’t think they have that in Nevada. But in Las Vegas, you have the other issue that is water. I think the shortage of water will start to drag on real estate prices in Las Vegas.
To watch a replay of this webinar with all the charts, bells, whistles, and classic rock music, just log on to www.madhedgefundtrader.com go to MY ACCOUNT, click on GLOBAL TRADING DISPATCH, then WEBINARS, and all the webinars from the last 12 years are there in all their glory.
Good Luck and Stay Healthy,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
It’s Been a Tough Market
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P.S. John has updated his long-term portfolio. That will be in my next post to all the emails on my list. Subscribe to Jacquie’s Post at https://www.madhedgefundtrader.com/ and go to the Store tab. It will not go to my Facebook group.
Cheers,
Jacque
If you look at what you have in life, you’ll always have more. If you look at what you don’t have in life, you’ll never have enough. - Oprah Winfrey
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Some investors look at a glass of water as half-empty, while hardcore pessimists believe that the glass is drizzled with arsenic. I’m neither.
You can count me as one who constantly looks at the glass of water as half-full.
Admittedly, it has been challenging to continue being optimistic, given the current conditions of the stock market. Some stocks in my portfolio have suffered a beating, too. Nevertheless, I’m still optimistic about the next 10 or 15 years.
Why? Because this horrible bear market has presented us with one of the most exciting and promising investment opportunities in over a decade.
If you don’t believe me, think back to 2009. Unquestionably, that was an incredible year to buy stocks. The S&P 500 index skyrocketed over 320% from January 2009 to today. Meanwhile, the Nasdaq 100 index soared 830%.
However, there's a crucial detail: this realization comes in retrospect. Remember, around early 2009, the Great Recession was still well underway. It didn’t feel like any investment was a promising opportunity at that time.
Stocks only showed signs of bottoming out at the very end of the first quarter of that year, and no one could confidently say when the bear market would end.
Fast forward to 2022. While there’s still no official word on whether we are in a recession, analysts have insisted that we’re well on our way to another one soon.
Although the present situation is obviously distinct from what happened in 2009 because of the COVID-induced recession and the continuation of the 2020 bear market, I fully believe that investors will look back to this period and realize that it’s the prime time to buy stocks.
So, how can investors make the most of this buying opportunity?
First, don’t focus on waiting for the market to bottom. A better way to deal with the situation is to determine the stocks of companies with solid core businesses that currently trade reasonably priced (or if you can find them, bargain) valuations.
Second, choose stocks that you can buy incrementally. It’s definitely possible that the market will fall even more. If that happens, investing gradually or in stages rather than dropping all your money into stocks at a single time could be a failsafe strategy.
Third, be patient. This tip cannot be highlighted enough. It’s critical to provide stocks with sufficient time to run. Investors who bought stocks early in 2009 and sold them by 2010 or 2011 missed out on most of the best and longest bull run in history.
The good news is that many excellent stocks meet the criteria mentioned above.
A particular name stands out in the biotechnology and healthcare industry: Vertex Pharmaceuticals (VRTX).
Unlike other businesses, Vertex has been trouncing the broader market this year, climbing by over 35% year to date. More importantly, the company’s pipeline of candidates looks even brighter.
One of the reasons this biotechnology giant is performing well is its monopoly of the cystic fibrosis (CF) market. In the third quarter of 2022, Vertex’s CF programs generated $2.33 billion in sales and $931 million in profits.
It doesn’t end there, as Vertex has plans to maximize its monopoly of the CF market.
More therapies are under development to target more patients in this sector, which means Vertex would eventually become its own biggest rival. Needless to say, this will make its hold in the CF market much stronger.
In terms of adding more monopoly money to its portfolio, Vertex has been working on a treatment for APOL1-mediated kidney disorder. To date, there remains no therapy for this condition.
On top of these, Vertex has been collaborating with CRISPR Therapeutics (CRSP) to develop treatments for two rare blood disorders. Given the timeline released by both companies, these candidates should be ready for regulatory approval by December 2022 or early 2023.
Another promising candidate in its pipeline is the non-opioid pain treatment VX-548 for moderate to severe acute pain. Ultimately, Vertex’s goal is to offer this alternative to end the opioid epidemic.
Meanwhile, its acquisition of Viacyte has catapulted Vertex into one of the Type 1 diabetes market leaders.
Overall, Vertex’s forward earnings multiple of 20 may not look all that attractive, but the biotech’s growth prospects are up-and-coming. Hence, I view this stock as a bargain at the moment.
Again, Vertex is only one of the examples of companies that could be an excellent investment in this bear market. The healthcare and biotechnology sector has more great stocks to buy in this crisis. Indeed, the glass of water is most definitely half-full.
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“Innovation has not died at the tech companies, but valuation has,” said Mark Lehman, CEO of JPM Securities.
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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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