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
Call me a nervous Nelly or call me what you want, but when I see a spike and gap in a stock I just suggested yesterday, I am hard pressed not to book the profit.
So, I am going to suggest you close the KRO position.
Sell KRO at the market, which is $9.00.
Based on entry yesterday of $8.08, the gain for a day works out to 11.3%.
If you traded the suggested 500 lot share, the cash return will be $460.
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
April 17, 2020
Fiat Lux
Featured Trade:
(WHY YOU SHOULD SELL THE UBER RALLY)
(UBER), (LYFT)
Nimble tech firms like online taxi company Lyft will be penalized in the coronavirus economy as it de-globalizes for a period of time.
If you read the Mad Hedge Technology Letter, you already know that I believe rideshare business models will never become profitable.
Fast forward to today and ask yourself how can these companies make profitability headway when the state mandates shelter in place policies?
The answer is they cannot.
It is not exactly the type of foundational policy that promotes more ride-sharing volume, so bad news for Uber and Lyft.
Uber CEO Dara Khosrowshahi told investors that ride volume has gone down by as much as 60%-70% in ground zero cities like Seattle, and that’s before you consider the pauses in some of its secondary services and the dubious distinction of becoming one of the earliest proof-of-concepts of just how fluid this virus really is.
But Khosrowshahi also told investors that Uber is “well-positioned” to ride the troubles out even in the worst-case scenario of rides down by 80% for the year. And even as ride volume crashes, it is also considering leveraging its network for delivering other things, such as medicine or basic goods.
Basically, Uber specializes in losing money and lots of it.
Then imagine how demoralizing it is for the inferior version of Uber, it’s little brother Lyft.
Lyft has no “other” businesses such as food delivery service Uber Eats, leading me to conclude that this massive retracement in shares must be a bear market rally that will run out of steam.
Finding entry points to short growth stocks is an imprecise endeavor but I do believe that poor revenue reports in the upcoming earnings season is going to cap this bear market rally in Lyft’s shares.
What do we know already?
A global and tech recession will be sharp and it will be worse than the global financial crisis possibly by a factor of 4.
Investors still cannot wrap their head around whether this contagion will spill over into being a depression.
Tech investors will need to respect the “new, new normal” following the pandemic, in which corporates make aggressive cuts to their spending side-- again, bad news for Uber and Lyft.
This type of scenario is especially problematic for Lyft who must spend illogically just to stay in business.
Lyft burned $463.5 million in the third quarter of 2019, which was almost twice the amount that the company lost over the same period of time the previous year.
The fourth quarter net loss includes $246.1 million of stock-based compensation and related payroll tax expenses as well as $86.6 million related to changes to the liabilities for insurance.
That translates into an adjusted net loss of $121.6 million, which is better than the adjusted loss of $245.3 million over the same period last year.
Considering the elevated amount of cash burn to Lyft’s model pre-virus and aware that nobody knows how long the cash burn will accelerate beyond Lyft’s earnings – investors are staring into a black hole of infinite losses moving forward as Lyft’s business model looks worse every day.
I must conclude that the post-coronavirus economy is highly likely to not be kind to marginal companies like Lyft who is a glorified taxi service.
Uber controls about 60% of the ride-sharing market in the US and managed to accomplish this by losing $5.2 billion in the Q2 2019.
Lyft has already slashed its R&D budget by deleting the autonomous vehicle development program.
Yes, the very program that was supposed to be the x-factor in its quest for real profits.
Laughably, Lyft’s executives emphasized that they believed the company will turn a profit in the fourth quarter of 2021, a year earlier than they had previously projected, but that forecasts looks foolish in hindsight.
The one miniscule silver lining for Lyft - fewer discounted rides than it did a year ago.
Lyft is also trying to boost the number of more-profitable rides, which are premium trips such as “airport” or “business” trips.
It’s a shame these premium trips have gone to zero.
The narrative has quickly pivoted to “grow at all costs” to “survive at all costs” and it’s not surprising to see Lyft grossly underperform the Nasdaq index in relative terms and most quality cloud stocks are in the midst of a v-shaped recovery.
Lyft is a sell on a rally type of stock.
“It has become appallingly obvious that our technology has exceeded our humanity.” – Said Scientist Albert Einstein
Global Market Comments
April 17, 2020
Fiat Lux
Featured Trade:
(REMEMBERING GUADALCANAL)
When the Commandant of the Marine Corps asks for a favor, I say “Yes Sir” without hesitating.
So, when General David H. Berger called me and asked to represent him at the 78th annual memorial service for the 1942 Battle of Guadalcanal, I started booking my flight. It turned out to be one of the most amazing experiences of my life. It also may have saved my life.
He needed a Marine veteran who had family members on both sides of the battle and spoke fluent English and Japanese. It turns out that there is only one such individual in the United States, and that would be me.
Both my father and my uncle Mitch fought at the Canal, where he won a Medal of Honor. My late wife’s father was a Captain in the Japanese Army. His family had the government monopoly for supplying “sniper boots”, or “jikatabi.” That enabled me to sympathize with the Japanese families attending the service who lost loved ones.
I have acted as a diplomatic representative for the Marine Corps for many decades. Over the years, I have met presidents, most Medal of Honor winners, and Navaho code talkers.
Guadalcanal was the decisive battle of WWII. The Americans lost 7,000 men, 25 ships, and 175 planes. The Japanese lost 30,000 men, 25 ships, including a major battleship, and 450 planes.
Before Guadalcanal, the Japanese had never lost a battle. After Guadalcanal, they never won. If the US had lost the battle of Guadalcanal, WWII would have continued until 1948 or 1949.
Today, Guadalcanal is one of the poorest countries in the world, with a per capita income of about $3,000 a year, That’s just a guess from Australian aid workers. Less than 50% of the population participate in the modern economy. Some 70% of the modern economy is accounted for by Chinese logging of ancient tropical hardwood trees.
The rest live a more traditional lifestyle of fishing and growing jungle fruits and vegetables. There are countless barefoot kids running around everywhere. Most families have more than five kids and birth control is unknown. Not helpful to the island's poverty of course is the still present devastation by this military activity from WWII; you can read about it's impacts here.
I hired a local guide and translator of the local language of pigeon, a sturdy four-wheel drive SUV, and sought out the local WWII battlefields. It wasn’t easy, as there were only 20 miles of paved road in the entire country and no street signs.
I was not disappointed.
The first stop was Paige’s Ridge, also known as “Hennikan’s Ridge”, where my uncle won his Medal of Honor, fighting a heroic night battle where he mowed down 2,000 charging Japanese in a torrential rainstorm. For a more detailed description of Mitch, please click here.
Reading from his diary, I was able to locate his exact fighting position, where I used a shovel to dig out several Japanese 6.5mm Arisaka bullet that had been fired at him.
A mob of local kids huddled around me watching my every move. I finally told them to bring me their souvenirs so I might buy some.
What came back was amazing.
One boy around nine years old showed up with a tattered old Marine rucksack and spilled the contents on the ground. There were several live Japanese hand grenades, some unexploded mortar shells, and spent bullets of several kinds. I warned him, these could explode at any time and that he should be careful not to drop them.
My next stop was Hill 27, the subject of the 1998 movie Thin Red Line, and where my dad fought. I found my dad’s foxhole dug out of the coral and extracted out more Japanese bullets. It was moving to finally grasp the suffering he went through as a 19-year-old, starving, afraid, and suffering with malaria.
Scouring the hill, I managed to dig up some USMC dog tags still readable. I forwarded them to the US Marine Corps Historical division so that I might return them to the families. My dad gave me his dog tags right before he died 20 years ago.
In the village near the summit of Hill 27, everyone had huge collections of war relics; pieces of Japanese zero fighters, helmets, coke bottles, rusted-out machine guns, and prewar coins from both sides. One citizen had amassed at least a kilo of morphine in military sachets. I even found a bottle of Old Spice aftershave, my dad’s favorite.
Another offered me a Japanese skeleton in a plastic bag for $10. He said I could get as many as I wanted. There are in fact 23,000 Japanese missing in action on Guadalcanal. So, I emailed a friend in the Japanese government in Tokyo asking if he wanted any wartime remains.
He said not to worry. Once a year, the government sends a scouting party to pick up all the remains they can find. They then cremate them, take the ashes back to Japan, and inter them at Yasakuni Jinja, the country’s equivalent of Arlington National Cemetery.
Next, I drove deep into the jungle to find a graveyard of US fighter planes. They were all there, rusting away in all their glory; Wildcats, Corsairs, and Aircobras. On the way back, I managed to find a battered Sherman tank.
I was invited to explore an intact Boeing B-17 bomber discovered only two years ago. But it involved hiking four hours into the mountains. Since one of my companions hadn’t taken anti-malaria drugs and the mosquitoes were present in great clouds, I passed.
I went on to visit several other historic sites. I saw Red Beach, site of the initial Marine landing, where I found a nearly buried Japanese tank. I spent time at the Alligator Creek, where the Marines wiped out the Ichiki battalion.
With great difficulty, I found John Basilone’s machine gun bunker. John also won a Medal of Honor. I stopped by the soaring monuments of Bloody Ridge, where Edson’s raiders held off another Japanese onslaught. The original wartime tower for Henderson field can still be found at the airport.
Only recently did I realize that this trip commemorating the battle of Guadalcanal may have saved my life. To keep malaria at bay, I took Chloroquine for a week before, during, and after the trip. It is now being explored as a Coronavirus drug.
My original intention had been to make a 45-minute documentary video and give it to you and the Marine Corps. The stock market crashed the day I got back so everything is now on hold. Maybe if things quiet down this summer, I can get to it.
After all, I won’t be going anywhere.
Captain John Thomas
USMC, retired
“The Marines I have seen around the world have the cleanest bodies, the filthiest minds, the highest morale, and the lowest morals of any group of animals I have ever seen. Thank God for the United States Marine Corps!” said Eleanor Roosevelt, First Lady of the United States, 1945.
Today, I would like to make a suggestion on a stock that appears to be bottoming.
That stock is Kronos Worldwide Inc. (KRO).
KRO is trading around $8.08 as I write this.
It does not have weekly options, only monthly options, but I am not going to suggest you sell calls at this time.
My suggestion is to buy KRO at the market, which is $8.08.
Based on the tracking portfolio, I suggest you limit the buy in to 500 shares or 4% of the portfolio.
