"Risk is measurable. Uncertainty is not" said Sandra Navidi, CEO of Beyond Global, and international macro economic consultancy
While the Diary of a Mad Hedge Fund Trader focuses on investment over a one week to the 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
March 19, 2019
Fiat Lux
Featured Trade:
(TURBULENCE AT BOEING), (BA),
(AN AFTERNOON WITH BOONE PICKENS)
You would think that with all the bad news out, Boeing shares would finally hit bottom.
All Boeing 737 Max 8 planes have been grounded. The 58 new $100 million planes a month scheduled for delivery have been suspended. That means one of the largest companies in the United States is banned from selling far and away its most important product.
Wrong!
This morning we learned that Federal prosecutors are investigating Boeing as to whether it was criminally negligent in obtaining the troubled aircraft’s original FAA certification. Subpoenas for emails and documentation have been issued, and a general ruckus created.
This was a guaranteed outcome. You want deregulation? This is what you get. You cut budgets? This is also what you get. I highly doubt that Boeing will be found criminally culpable for the two crashes. This is all an outcome from the US government’s withdrawal from oversite of the private sector.
The truth is that the technological and cost advantages of the Boeing 737 Max are so enormous that airlines have little choice but to stand behinf them. That explains why Boeing has a ten-year, 4,636 plane order book for the plane. Boeing has to fix this problem or there will be NO aircraft industry.
This is why Southwest Airlines (LUV) has ordered 249 of the cutting edge planes, followed by 123 for United (UAL) and 76 for American (AAL).
Having been a commercial pilot for most of my life, and once owning a European air charter company I have some insights into this issue.
These two crashes are not a software problem, which can be fixed in days. It is a pilot training issue. And I have been subjected to this training myself hundreds of times until I can do it blindfolded and in my sleep. Whenever you have a runaway autopilot problem, you PULL THE DAMN CIRCUIT BREAKER!
However, if you are poorly trained, as are many emerging airline pilots, and can’t remember which of the 100 circuit breakers you need to pull with a runaway autopilot then the plane will crash. The harsh truth here is that MOST modern-day pilots can’t hand fly a plane without an autopilot.
I am therefore willing to bet that Boeing shares are near or at a medium-term bottom, now $75 off its high from only weeks ago.
Boeing Aircraft (BA) is one of the great icons of American manufacturing, and also one of the country’s largest exporters. I was given a private, sneak preview of the new Dreamliner at the Everett plant days before the official launch with the public, and I can tell you that this engineering marvel is a quantitative leap forward in technology. No surprise that the company has amassed one of the greatest back order books in history.
I can also tell you that my family has a very long history with Boeing (BA). During WWII, my dad got down on his knees and kissed the runway when the B-17 bomber in which he served as tail gunner (two probables) made it back despite the many holes. It was only after the war that he learned that the job had one of the highest fatality rates in the services.
Some 40 years later, I got down on my knees and kissed the runway when a tired and rickety Boeing 707 held together with spit and bailing wire which was first delivered as Dwight Eisenhower’s Air Force One in 1955, flew me and the rest of Reagan’s White House Press Corp to Tokyo in 1983 and made it there in one piece.
I even tried to buy my own personal B-17 bomber in the nineties for a nonprofit air show I was planning but was outbid by the late Paul Allen on behalf of his new aviation museum. Note to self: never try to outbid a co-founder of Microsoft on anything.
So it is with the greatest difficulty that I examine this company in the cold hard light of a stock analyst. There is nothing fundamentally wrong with the company. But its major customers around the world are suffering from some unprecedented stress.
US airlines are getting hammered by the rising cost of fuel. Delta even resorted to the unprecedented move of buying its own refinery to assure fuel supplies. Europe, where Boeing competes fiercely against its arch enemy, Airbus, is clearly in recession. Government-owned airlines there are in ferocious cost-cutting mode.
China, another one of Boeing’s largest customers, is also slowing down, thanks to the trade war. As for Japan, the economy there is going from bad to worse. All Nippon Airways was awarded the first Dreamliner for delivery because it is such a large customer. It is just a matter of time before this harsh reality starts to put a dent in the company’s impressive earnings growth.
This is not for the weak of heart.
They Build Those Boeings to Last
“The VIX right here is unsustainably low. I think China has more of a downside surprise. Analyst expectations for earnings are overly aggressive. There are just a few too many things that can go wrong out there,” said Vadim Zlotnikov, chief market strategist at Alliance Bernstein.
While the Diary of a Mad Hedge Fund Trader focuses on investment over a one week to the 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
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
Mad Hedge Technology Letter
March 19, 2019
Fiat Lux
Featured Trade:
(GOOGLE’S AGGRESSIVE MOVE INTO GAMING),
(GOOGL), (AAPL), (FB), (NFLX), (MSFT) (EA), (TTWO), (ATVI)
The saturation of tech is upon us.
That is the takeaway from Google’s (GOOGL) hard pivot into gaming.
The goal of their new gaming service is to become the Netflix (NFLX) of gaming allowing gamers to skip purchasing third-party consoles and playing games directly from an Android-based Google device.
Middlemen in the broad economy are getting killed and this is the beginning.
What we are really seeing is a last-ditch effort to protect gaming consoles - these devices will become extinct in less than 20 years boding ill for companies such as Sony and Nintendo
The cloud is still all the rage and companies such as Microsoft (MSFT), Alphabet (GOOGL), and Apple (AAPL) have the natural infrastructure in place to offer cloud-based gaming solutions.
Phenomenon such as internet game Fortnite have shown that consoles are outdated and relying on the cloud as a fulcrum to extract gaming revenue by way of add-ons and in-game enhancements will be the way forward
Another key takeaway from this development is that passive investment is dead, even more so in tech, where these big tech companies are starting to bleed over into each other's territory.
This dispersion will create opportunity and pockets of weakness.
I blame this on a lack of innovation with companies still trying to extract as much as they can from the current smartphone-based status quo which has pretty much run its course.
Technology is itching for something revolutionary and we still have no idea what that new idea or device will be.
The rollout of 5G is promising and companies will need some time to adapt to this super-fast connection speed.
In either case, I can tell you the revolution won’t include foldable smartphones.
In 2018, the gaming industry flourished on accelerating momentum by registering over $136 billion in sales, and the revenue growth rate is already about 15% and increasing.
Naturally, companies such as Amazon and Google want a piece of this action and are hellbent on making inroads in the gaming environment such as Amazon's ownership of Twitch, which is a game streaming service where viewers can watch live tournament-style competitions proving extremely popular with Generation Z.
I applaud this move by Google because they already have proved they can execute on certain mature assets such as YouTube which has become the Netflix replacement of 2019.
Doubling down in the gaming sector would be a bonus as they search a second accelerating revenue driver that will dovetail nicely with the overperformance in YouTube this year.
It’s even possible that YouTube could be modified to support live stream gaming, certainly various synergistic dynamics are at play here.
Even if they fail - it's worth the risk.
Revenue extraction will be painful for certain companies like Facebook (FB) in this new environment, who has seen a horde of top executives abort after the company drastically changed directions, believing the company is on a suicide mission to fines and more regulatory penalties.
I've mentioned in the past that Facebook no longer commands the same type of employee brand recognition they once cultivated.
Facebook will find a tougher time to find the right people they need to execute their private chat plan, by linking the likes of WhatsApp, Instagram, and Facebook Messenger.
This is a high-risk high-reward proposition that could end up with Facebook's co-founder Mark Zuckerberg in tears if regulators give him the cold shoulder, and that is why many executives who are risk-adverse want to cash in now because they sink with the Titanic.
Not only are gaming assets becoming saturated, but the general online streaming environment is attracting a tsunami of supply all at one time.
Online content is already veering into the same type of pricing structures that cable offered traditional customers.
Investors will have to ask themselves, how much will the average consumer spend in content-based entertainment per month?
My guess is not more than $100 per month.
The saturation will cause tech companies to become even more draconian.
Be prepared for some more epic in-fighting until a new gateway of internet monetization opens up.
There has never been a better time to be a tactical and active investor in tech.
The Fang trade has splintered off with each company facing unpredictable futures.
Unearthing value will become more difficult because these traditional bellwether tech stocks have decoupled and aren't going straight up anymore.
Those zigs and zags will still be buttressed by a secular tailwind of the migration to digital, but there are certain winners and losers that will result of this.
Apple announcing a new streaming product is proof that these Silicon Valley tech firms are desperate for new profit drivers as the woodchips that fuel the fire start to run noticeably short on supply.
At the bare minimum, this looks disastrous for the traditional gaming companies of Electronic Arts (EA), Take-Two Interactive (TTWO), and Activision (ATVI) whose shares have been effectively shelved due to the Fortnite revolution.
EA has fought back with their own Fortnite lookalike called Apex Legends which showed a Fortnite-like trajectory sucking in 10 million players in the first 72 hours.
The stock exploded 16%, signaling this is the new way forward for gaming companies.
As a whole, these traditional gaming studios simply don’t have the firepower to compete with the big boys, let alone possess a strong cloud infrastructure.
“Success is a lousy teacher. It seduces smart people into thinking they can't lose.” – Said Founder and Former CEO of Microsoft Bill Gates
