Mad Hedge Technology Letter
November 8, 2024
Fiat Lux
Featured Trade:
(AIRBNB IS IN THE DOG HOUSE)
(ABNB)
Revenue increased 10% from $3.4 billion a year earlier, and that is where the problem lies for Airbnb (ABNB).
Growth rates of 10% are a problem in technology.
The mantra of scaling out and monetizing is all but expected for growing tech companies.
Something in the ballpark of 30% and higher is something that shareholders would prefer to see.
Just look at the top tech company right now, Nvidia and the breathtaking 126% revenue growth year over year is an example of what I am talking about.
A measly 10% won’t cut it, and it explains the hard sell-off in shares in the travel platform this morning.
It’s true that the company isn’t a cash burner, and the company noted a $2.8 billion tax benefit during the third quarter of 2023, but to really fetch that premium on the stock market, investors will need to see demonstrably higher growth rates and better profitability.
Average daily rates increased 1% from a year ago to $164 in the third quarter, signaling a cooling down of revenue opportunity.
If per-night revenue isn’t growing fast, then Airbnb will need to make that up on the volume.
This is starting to look and feel like a company that won’t be able to scale their product.
Remember that acquiring a listing on Airbnb is an intensive process for the property owner, and the 12% in commission Airbnb requires is probably at the upper limit of what they can ask.
Airbnb said adjusted EBITDA for the third quarter was $2 billion, up 7% year over year.
Gross booking value, used by Airbnb to track host earnings, service fees, cleaning fees, and taxes, totaled $20.1 billion in the third quarter. The company reported 123 million nights and experiences booked, up 8% from a year ago.
Airbnb said it saw hosting growth across all regions and market types during the third quarter. The company said in its shareholder letter that it has more than 8 million active listings and has worked to improve listing quality. Airbnb has removed more than 300,000 listings since last year.
In 2021, the stock was priced at over $200, and fast forward to today, it is languishing at $135 after another 8% selloff.
Even more prevalent, the stock has also been punished as non-AI stocks and AI stocks have bifurcated into two separate paths.
Airbnb has been talking up getting into other businesses like experiences, and I don’t believe that will move the needle in terms of revenue growth.
Property management is another sub-sector they are talking about to expand, but again, I don’t see that as a solution, and that type of work is incredibly labor intensive, which tech companies should stay away from.
At a time when tech companies are looking to automate to look to go on auto-pilot, Airbnb is going the other way and will need more human labor.
Labor costs have been trending higher, and property management will never be an industry where a tech company can just substitute with an algorithm.
Many of times, when tech and real estate intertwine, the Frankenstein company loses its way and doesn’t succeed.
Airbnb will just need to settle for a lower premium than most other tech stocks. I would stay away from this stock for now and head to higher ground to ride the bandwagon of AI.
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
(SUMMARY OF JOHN’S NOVEMBER 6, 2024, WEBINAR)
November 8, 2024
Hello everyone
TITLE
Trading One Uncertainty for Another
ELECTION OUTCOMES
John says you lose the entire interest rate-sensitive sectors of the economy
Higher inflation
Higher interest rates
Much higher national debt
Govt. shutdowns on Dem house win
Less regulation – full self-driving in US
No environmental control
Accelerated global warming
Extreme labour shortages at low-end hitting agriculture, restaurants, and construction
Democratic control of Congress in 2026
Ukraine withdrawal
Taiwan at risk
Retreat from international commitments
More concentration of wealth at the top
Earlier stock market top
Earlier recession
Earlier stock market crash
All antitrust actions cease
WINNERS AND LOSERS
Winners
Energy
Financials
Crypto
Tesla
Health Insurance
Vladimir Putin
Losers
All interest rate plays
All Bonds
Housing
Real Estate
Construction
TRADE ALERT PERFORMANCE
November +0.30%
Since inception +729.97%
Average annualised return = +51.62%
Trailing One Year Return = +65.56%
PORTFOLIO REVIEW
(JPM) 11/$195/$205 call spread 10%
(NVDA) 12 $117/$120 call spread 10%
(GLD) 12 $235/$240 call spread 10%(Trade closed/Stopped out).
THE METHOD TO MY MADNESS
On Wednesday, we flip from one type of risk to another.
All interest rate plays looking at big sell-offs as John sees it.
US dollar hits one-year high.
Technology stocks still attractive for long term.
Stand by and wait for the initial election euphoria to pass.
Energy rallies on deregulation, but not oil supply.
Wait patiently now to see where the money flows.
THE GLOBAL ECONOMY – SURE THING
Nonfarm payroll collapses at 12,000, down sharply from September and below the Dow Jones estimate for 100,000.
The headline unemployment rate held at 4.1% in line with expectations.
The BLS noted that the Boeing strike likely subtracted 44,000 jobs in the manufacturing sector, while hurricanes also likely held back the total.
It makes a 25-bps interest rate cut on Wednesday a sure thing.
Personal Consumption Expenditures Price Index Rose in September, up 0.3%, which remains above the central bank’s target.
Q3 GDP comes in weak, with real gross domestic product grew at a hardy 2.8%.
Consumer Sentiment hits 6-month high.
STOCKS – POST ELECTION MELT UP ARRIVES
Money Market Funds see massive pre-election inflows as investors seek to avoid promised post-election violence.
Nvidia tops $3.5 trillion as shares hit a new all-time high at $144.45. It looks like it’s on a run to $150, then $160.
Apple iPhone Sales are lagging, according to a leading analyst, with a drop in 10 million orders expected, down to 84 million units.
McDonald's kills two in E. Coli Outbreak, linked to quarter pounders. Avoid (MCD).
Hedge Funds ramping up risk going into the election with more equity leverage in their portfolios than they had in the beginning of the year, indicating higher risk appetite.
IMF cuts Global Growth Forecast, seeing wars and protectionism posing threats to expansion.
BONDS – ELECTION PLAY
Bonds plunge anticipating a Trump win, with the (TLT) down $10 from the recent high.
If he does win, expect another $10 decline to $82. If Harris wins, expect a $10 rally.
This is the best election trade out there.
It’s a choice between Harris, who will increase the deficit by $2.5 trillion, or Trump, who will increase it by $15 trillion.
Either way, the bond market loses.
Bond Yields soar above 4.32% yield, on fears of massive deficit spending by a future Donald Trump. Estimates of his deficits over four years go as high as $15 trillion.
Buy (TLT), (JNK), (NLY), (SLRN), and REITS on this dip.
FOREIGN CURRENCIES – US DOLLAR REBORN
Dollar hits two-month high on rising US interest rates. Ten-year Treasuries have risen from 3.55% to 4.35%.
Harris rise in the polls is killing the US dollar as the prospect of falling interest rates improves.
Lower interest rates make the US dollar much less attractive to traders and investors.
This may be the last chance to sell short the US dollar at a high price.
The long-term downtrend in the dollar is still intact.
There is no way the dollar can stand up to cuts down to 3.5% by summer.
Buy (FXA), (FXE), (FXB), (FXC), and (FXY)
ENERGY AND COMMODITIES – OIL CRASH
Oil crashes 5% as the Israeli retaliation on Iran avoided oil facilities.
Fusion is going commercial in San Francisco with a German company, Focused Energy.
US Nuclear Regulatory Commission has new nuclear move, sending all stock plays into a tailspin.
It’s a great opportunity to buy (CCJ) and (VST) on the dip.
PRECIOUS METALS – NEW HIGHS
Silver and Gold – consolidating until a post-election upside breakout to new all-time highs.
The white metal is a predictor of a healthy recovery and a solar rebound.
Newmont Mining dives 7% after missing Wall Street expectations for third-quarter profit.
Money pours into Gold ETF’s taking gold up to new highs, at $2,761 an ounce, as hedge funds pour in.
Seasonals for the barbarous relic are now the most positive of the year.
Gold holding up in the face of big interest rate rises shows it only wants to go up.
Escalation of Middle East war is very pro-gold.
Buy (GLD), (SLV), (AGQ), and (WPM) on dips.
REAL ESTATE – PRE-ELECTION FREEZE
Virtually all real estate transactions have ceased over pre-election fears.
But they will resume on any post-election fall in interest rates.
Pending Home Sales jump 7.4% on a signed contract basis, the highest since March.
New Home Sales Jump 4.1% in September at 738,000 seasonally adjusted unit on a signed contract basis
The median home price rose to $426,300.
This despite a roller coaster month on interest rates, falling to 6.0% for the 30-year, then jumping back up to 7.0%.
Existing Home Sales drop 1% in September, a 14-year low, down to 3.84 million units annualized.
TRADE SHEET
Stocks – stand aside
Bonds – stand aside
Commodities – stand aside
Currencies – stand aside
Precious Metals – stand aside
Energy – stand aside
Energy – stand aside
Volatility – sell over $30
Real estate – stand aside
NEXT STRATEGY WEBINAR
12:00 EST WEDNESDAY, NOVEMBER 20
From Lake Tahoe, Nevada
Cheers
Jacquie
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
November 8, 2024
Fiat Lux
Featured Trade:
(NOVEMBER 6 BIWEEKLY STRATEGY WEBINAR Q&A),
(CCJ), (LMT), (VST), (RTX), (CCI), (GLD), (SLV), (TLT), (NVDA), (OXY), (FXA), (FXE), (FXB), (FXC)
Below, please find subscribers’ Q&A for the November 6 Mad Hedge Fund Trader Global Strategy Webinar, broadcast from Lake Tahoe, Nevada.
Q: What do we do in the market now in view of the Trump Victory?
The driving theme of the market has completely changed overnight. Falling interest rate plays are dead. The new theme is deregulation. The good news is that there are a lot of cheap deregulation plays out there, especially in financials. Deregulation is also a factor with (NVDA), where the government was lining up for an antitrust suit. New nuclear stocks like (CCJ) and (VST) also do well with a lighter regulatory touch.
Q: How will the defense industry perform under Trump?
A: Poorly. If we cease supplying Ukraine with weapons and withdraw from our international commitments, there’s no need for weapons at all. We’ll just have to be happy with the 50-year-old weapons that we have right now. And, of course, that's one of the reasons why Putin was such a big supporter of Trump. Avoid (LMT) and (RTX). Other stocks were already selling off as Trump rose in the polls.
Q: Will housing be a loser with the housing shortage?
A: Yes, it will, because you won’t find home buyers if they don’t have any money—if interest rates and mortgage payments are too high, those buyers are absent from the market. They can’t afford to step up to the current price levels and mortgage levels.
Q: Do you really think the Fed may not cut interest rates?
A: All of the announced Trump policies are highly inflationary, and one of the Fed’s primary missions is to control inflation. But, it comes down to: is the Fed going to look forward or look back? Historically, it is very much a “look back” organization, so they will probably wait on their higher interest rates. And that is what uncertainty is all about; all of a sudden, you go from very firm convictions of what’s going to happen next—what stocks to buy, what sectors to play—to “I don’t know!”. With a Harris win, at least you had some certainly. With Trump, we don’t know what he really wants to do, can do, or be allowed by the courts. It will take time to figure all this out.
Q: Why did none of these issues occur during Trump’s first term?
A: Well, virtually all of Trump’s first term, interest rates were at zero because the Fed was still doing quantitative easing, trying to recover from the ‘08 financial crisis, but also recovering from the pandemic. The amazing thing about the Biden administration is that the stock market did so well during the 5% interest rates that prevailed practically for his entire term.
Q: Do you have a “BUY” target for iShares 20+ Year Treasury Bond ETF (TLT) on the downside after the Trump win?
A: The answer is we are going to retest the low of the year, which is $82 in the TLT, and last time I checked, we were at $89.78—so down seven points. But again, we now have a lame-duck government, so no dramatic action with a split Congress. We basically have until January 20th, when the new government comes in, to find out what they will actually try to do. I think you'll find that the “campaign Trump” and the “in-office Trump” are two totally different people.
Q: Okay, what about the iShares 20+ Year Treasury Bond ETF (TLT) LEAPS position you put out two weeks ago? Should we sell or hold?
A: Well, if you want to be cautious, go cash—sell. But this is a LEAPS that has another 15 months to expiration, and there's a pretty decent chance we'll be going into recession sometime next year, especially if interest rates and inflation take off. That could make your LEAPS trade very attractive—it could drive interest rates down to 3.5%, which is virtually where they were in September. Since September, bonds have basically given up their entire rally for the year on the possibility of a Trump win. So, you know, would I put on that trade today? No. Will I put it on at $82, I probably will. We'll just have to see what the new world looks like.
Q: What's the direction for gold (GLD) and silver (SLV)?
A: Down. Those two plays were dependent on falling interest rates, which are now gone. Now that they're going back up again, it kind of trashes the entire gold-silver trade. So, at some point, gold will drop to a point where the flight to safety bid offsets the fear of rising interest rates. You still have a lot of Chinese savings in gold going on and central bank buying. That's where you get back in. Where that is is anybody's guess.
Q: Any thoughts on Crown Castle International (CCI)?
A: It is an interest-rate play. We did really well with CCI from April to September, when the 10-year treasury went from 4.5% to 3.5%. Run that movie in reverse, and it doesn't do very well. We've had a big sell-off on (CCI) this morning. So it's getting killed on the prospect of rising rates and inflation.
Q: Do smaller stocks do better under Trump?
A: No. Smaller stocks are much more dependent on interest rates than large stocks because they're very heavy borrowers at high rates. So, any rally there should be sold into.
Q: Should I bet the ranch on crypto here?
A: Absolutely not. $6,000 is where you should have bet the ranch on crypto, not at $75,000. Crypto is barely moving today, despite promises by Trump to completely deregulate the sector. So, no, I am definitely not a buyer of crypto here.
Q: What about the gold trade alert that I sent out yesterday?
A: That was on the assumption that Harris would win, and she didn't. If you want to be conservative, get out of the position now. We have five weeks to expiration on that position, so it really depends on where gold finds its bottom—it could hold up here or a little bit lower, and we'll still be at the max profit. If we go into free fall, I'm going to just stop out of the position and write that one off as me being too aggressive before the election when I had the perfect positions going into it, being long JP Morgan (JPM) and Nvidia (NVDA).
Q: Is the Occidental Petroleum (OXY) spread okay?
A: For energy, I would say yes, probably. But we'll have to see how sustainable this current rally is.
Q: So, wait on the currency plays, like (FXA), (FXE), (FXB), and (FXC)?
A: Absolutely, yes. It's another wait for the dust to settle trade.
Q: What will the price of crude oil do from here?
A: Probably go down more with large new supplies coming out of the U.S.
Q: Why are financial stocks up huge?
A: Deregulation. Financials are among the most regulated industries in the world. If you don't believe me, try running a hedge fund someday, where they're breathing down your neck every five seconds for audits, reports, and so on. They also win on the revenue side with restrictions coming off mergers and acquisitions with the end of antitrust enforcement.
To watch a replay of this webinar with all the charts, bells, whistles, and classic rock music, just log in to www.madhedgefundtrader.com, go to MY ACCOUNT, select your subscription (GLOBAL TRADING DISPATCH, TECHNOLOGY LETTER, or Jacquie's Post), then click on WEBINARS, and all the webinars from the last 12 years are there in all their glory.
Good Luck and Good Trading,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
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