Research Archives - Mad Hedge Fund Trader

What’s Happened to Apple?

One of the great mysteries of the tech world has at last been answered.

Apple’s brand new spaceship-designed headquarter, one of the world’s most valuable buildings, has finally had a value put on it.

New figures released this week show the tech giant’s circular headquarters in Cupertino, CA was assessed at a breathtaking $3.6 billion by Santa Clara County for property tax purposes. The valuation doesn’t perfectly coincide with its market value — how much it would sell for — but is based off a detailed appraisal of the building, which opened in 2017.

If you include computers, furniture, and even farm equipment to take care of the property’s abundant peach trees, the figure rises to $4.17 billion for the fiscal year that ended in June, the assessor’s office said.

Beyond its giant 2.8 million-square-foot size, Apple Park’s high-end materials, abundant glass, and intricate design make it a standout in Silicon Valley. The building is so big it even has its own weather.

Unfortunately, the share prices of companies that spend billions on flashy new designer headquarters do not have a great history. Ride around Manhattan in an Uber cab and you’ll quickly understand that time has not been kind to the extravagant: the Chrysler Building, the Pan Am Building, and the AT&T building to name just a few.

Citicorp’s HQ, with its horizon-defining slant-edged roof, is still in business, but the stock is still down 75% from its pre-crash high. Is Apple headed in the same direction?

Looking at the share price performance of the past year, which has been zero, you might be forgiven for thinking so. Other tech stocks have risen by 50% or more during the same period.

Apple Park is among the world’s dozen most expensive buildings despite its relatively modest four-storey height.

America’s tallest spire, the 1,776-foot One World Trade Center in New York, cost $3.9 billion to build according to the Port Authority of New York and New Jersey which owns the building and has 3.5 million square feet. Singapore’s Marina Bay Sands resort reportedly topped $5 billion in costs, while Finland’s Olkiluoto 3 nuclear reactor exceeded $6 billion.

Saudi Arabia’s holy city of Mecca is home to two of the most valuable buildings in the world: the $15 billion Abraj Al Bait Towers and the $100 billion Great Mosque of Mecca.

Apple Park was assessed at more than twice the amount of Salesforce Tower, San Francisco’s tallest building, which was valued at $1.7 billion by San Francisco. Salesforce Tower has about half as much office space as Apple Park despite being 57 stories taller.

With property taxes in Santa Clara County running around 1.25%, Apple would owe around $50 million annually.

The building is a manageable expense for Apple’s profit machine. In its most recent quarter, Apple reported a mind-numbing $58 billion in revenue and $11.5 billion in net income.

Apple was Santa Clara County’s largest property taxpayer for the 2017-18 fiscal year, with $56 million in taxes paid.

Investors have been frustrated with Apple’s recent performance, although it did make back most of the 40% hickey it suffered last fall.

Its business plan seems well on track, shifting from a hardware company to one that focuses on software and services. If anything, the shift has been taking place faster than expected, with the cloud, iTunes, Apple Wallet, Apple Care, the App Store, and other services accounting for a growing share of earnings.

All will become clear when the company announces their Q3 earnings on Tuesday, July 30 after the stock market close.

No, I think the problem with Apple is that it is suffering from the China Disease. Employing a million people who produce 225 million iPhones a year, Apple is the preeminent hostage in the US-China trade dispute. That, undoubtedly, has been a dead weight on the shares.

However, after covering this field for half a century, I can tell that trade wars start, trade wars play out, and trade wars end. Unlike other trade wars, this one has a specific end date. That would be on Wednesday, January 20, 2021, or in 18 months, the date of the next presidential inauguration.

As for me, I am waiting to upgrade my current iPhone X until it includes 5G wireless technology early next year. I bet 225 million others are as well. Dump the trade war and Apple shares could rocket up towards my old long-term target of $250 a share in a heartbeat.

By the way, there is one other headquarter that may be about to join the dustbin of history. That would be 725 Fifth Avenue, NY, NY 10022, which has been appraised at a mere $371 million and carries a hefty $100 million in debt. In is now partly owned by the US Justice Department, which will soon sell its stake.

Locals know it as Trump Tower.

The Insider's View on the Future of Technology

Diary, Newsletter, Research

How would you like to learn the latest, most important technology trends hitting the global economy today, prepared by one of the most knowledgeable and experienced people in the industry?

It's very simple. Just click on the link below for a wrist-breaking .pdf file packed with 360 slides. It was prepared by my old friend and former Morgan Stanley colleague, Mary Meeker.

Meeker gained fame as the legendary investment banker for technology issues during the Dotcom Boom. She brought to market such blockbusters as Netscape. She also piled investors very early into Amazon (AMZN), Google (GOOG), Dell Computer (DELL), Microsoft (MSFT), and eBay (EBAY) when many of these stocks were trading at single-digit prices. You can understand why she is so popular.

Since 2010, Mary has been with the leading Silicon Valley venture capital firm Kleiner, Perkins, Caufield & Byers. She initially prepared Internet Trends 2018 as a broad ranging 50,000-foot view of technology for her firm. It has since been presented at a number of conferences.

Depending on your interest in technology, you may want to just quickly scroll through the report or analyze each and every single slide. Each slide is a gold mine of information for geeks such as myself. I list a few sample ones below.

The report also gives you some indication of the deep research in which the Diary of a Mad Hedge Fund Trader and the Mad Hedge Technology Letter engage to get you winning Trade Alerts.

To download the report in full please click here.

Enjoy.

Notice to Military Subscribers

Diary, Newsletter, Research

To the dozens of subscribers in Afghanistan, Somalia, Iraq, and the surrounding ships at sea, thank you for your service!

I think it is very wise to use your free time to read my letter and learn about financial markets in preparation for an entry into the financial services when you muster out.

And if Donald Trump gets his way with a 10% rise in defense spending and a 30% cut in the State Department budget, it looks like there are going to be a lot more of you abroad to take advantage of my services.

Nobody is going to call you a baby killer and shun you, as they did when I returned from Southeast Asia four decades ago. In fact, employers have been given fantastic tax breaks and other incentives to hire you.

I have but one request. No more subscriptions with .mil addresses, please. The Defense Department, the CIA, the NSA, Homeland Security, and the FBI do not look kindly on private newsletters entering the military network, even the investment kind.

If you think civilian spam filters are tough, watch out for the military kind! And no, I promise that there are no secret messages embedded with the stock tips. “BUY” really does mean “BUY.” “Sell” means “Sell” too.

If I did not know the higher ups at these agencies, as well as the Joint Chiefs of Staff, I might be bouncing off the walls in a cell at Guantanamo by now wearing an orange jumpsuit.

It also helps that many of the mid-level officers at these organizations have made a fortune with their meager government retirement funds following my advice. All I can say is that if the Baghdad Stock Exchange ever become liquid, I'm going to own it.

Where would you guess the greatest concentration of readers of The Diary of a Mad Hedge Fund Trader is found? New York? Nope. London? Wrong. Chicago? Not even close.

Try a ten-mile radius centered on Langley, Virginia, by a large margin.

The funny thing is, half of the subscribing names coming in are Russian. I haven't quite figured that one out yet.

Did we hire the entire KGB at the end of the cold war? If we did, it was a great move. Those guys were good. That includes you, Yuri.

So keep up the good work, and fight the good fight. But please, only subscribe to my letter with personal Gmail, Yahoo, or Hotmail addresses. That way my life can become a lot more boring.

Oh, and by the way, Langley, you're behind on your bill. Please pay up, pronto, and I don't want to hear whining about any damn budget cuts!

I Want My Mad Hedge Fund Trader!

Where The Economist "Big Mac" Index Finds Currency Value

Diary, Newsletter, Research

My former employer, The Economist, once the ever-tolerant editor of my flabby, disjointed, and juvenile prose (Thanks Peter and Marjorie), has released its "Big Mac" index of international currency valuations.

Although initially launched as a joke three decades ago, I have followed it religiously and found it an amazingly accurate predictor of future economic success.

The index counts the cost of McDonald's (MCD) premium sandwich around the world, ranging from $7.20 in Norway to $1.78 in Argentina, and comes up with a measure of currency under and over valuation.

What are its conclusions today? The Swiss franc (FXF), the Brazilian real, and the Euro (FXE) are overvalued, while the Hong Kong dollar, the Chinese Yuan (CYB), and the Thai baht are cheap.

I couldn't agree more with many of these conclusions. It's as if the august weekly publication was tapping The Diary of a Mad Hedge Fund Trader for ideas.

I am no longer the frequent consumer of Big Macs that I once was as my metabolism has slowed to such an extent that in eating one, you might as well tape it to my ass. Better to use it as an economic forecasting tool than a speedy lunch.

The Big Mac in Yen is Definitely Not a Buy

Why US Bonds Love Chinese Tariffs

Diary, Newsletter, Research

For many, one of the most surprising impacts of the administration’s tariffs on Chinese imports announced today has been a rocketing bond market.

Since the December $116 low, the iShares 20+ Year Treasury Bond ETF (TLT) has jumped by a staggering $16 points, the largest move up so far in years.

The tariffs are a highly regressive tax that will hit consumers hard in the pocketbook, thus reducing their purchasing power.

It will dramatically slow US economic growth. If the trade war escalates, and it almost certainly will, it could shrink US GDP by as much as 1% a year. A weaker economy means less demand for money, lower interest rates, and higher bond prices.

There is no political view here. This is just basic economics.

And while there has been a lot of hand-wringing over the prospect of China dumping its $1.1 trillion in American bond holdings, it is unlikely to take action here.

The Beijing government isn’t going to do anything to damage the value of its own investments. The only time it actually does sell US bonds is to support its own currency, the renminbi, in the foreign exchange markets.

What it CAN do is to boycott new Treasury bond purchases, which it already has been doing for the past year.

The tariffs also raise a lot of uncertainty about the future of business in the United States. Companies are definitely not going to increase capital spending if they believe a depression is coming, which the last serious trade war during the 1930s greatly exacerbated.

While stocks despise uncertainty, bonds absolutely love it.

Those of you who are short the bond market through the ProShares Ultra Short 20+ Year Treasury ETF (TBT) have a particular problem that is often ignored.

The cost of carry of this fund is now more than 5% (two times the 2.10% coupon plus management fees and expenses). Thus, long-term holders have to see interest rates rise by more than 5% a year just to break even. The (TBT) can be a great trade, but a money-losing investment.

The Chinese, which have been studying the American economic and political systems very carefully for decades, will be particularly clever in its retaliation. And you thought all those Chinese tourists were over here just to buy our Levi’s?

It will target Republican districts with a laser focus, and those in particular who supported Donald Trump. It wants to make its measures especially hurt for those who started this trade war in the first place.

First on the chopping block: soybeans, which are almost entirely produced in red states. In 2016, the last full year for which data is available, the US sold $15 billion worth of soybeans to China. Which are the largest soybean producing states? Iowa followed by Minnesota.

A major American export is aircraft, some $131 billion in 2017, and China is overwhelmingly the largest buyer. The Middle Kingdom needs to purchase 1,000 aircraft over the next 10 years to accommodate its burgeoning middle class. It will be easy to shift some of these orders to Europe’s Airbus Industries.

This is why the shares of Boeing (BA) have been slaughtered recently, down some 13.5% from the top. While Boeing planes are assembled in Washington state, they draw on parts suppliers in all 50 states.

Guess what the biggest selling foreign car in China is? The General Motors (GM) Buick which saw more than 400,000 in sales last year. I have to tell you that it is hilarious to see my mom’s car driven up to the Great Wall of China. Where are these cars assembled? Michigan and China.

The global trading system is an intricate, finally balanced system that has taken hundreds of years to evolve. Take out one small piece, and the entire structure falls down upon your head.

This is something the administration is about to find out.

Here Comes the Next Biotech Revolution

Diary, Newsletter, Research

Technology and biotechnology are the two seminal investment themes of this century.

And while many tech companies have seen share prices rise 100-fold or more since the millennium, biotech and its parent big pharma have barely moved the needle.

That is about to change.

You can thank the convergence of big data, supercomputing, and the sequencing of the human genome, which overnight, have revolutionized how new drugs are created and brought to market.

So far, only a handful of scientists and industry insiders are in on the new game. Now it’s your turn to get in on the ground floor.

The first shot was fired in December 2017 when CVS (CVS) bought Aetna (AET) for an eye-popping $69 billion, puzzling analysts. A flurry of similar health care deals followed, with Berkshire Hathaway (BRK.A), Amazon (AMZN) with its Verily start-up, and J.P. Morgan (JPM) joining the fray.

March followed up with a Cigna (CI) bid for Express Scripts, a pharmacy benefits manager. Apple (AAPL) has suddenly launched a bunch of healthcare-based apps designed to accumulate its own health data pool.

What’s it all about? Or better yet, is there a trade here?

No, it’s not a naked bid for market share, or an attempt to front run the next change in health care legislation. It’s much deeper than that.

In short, it’s all about you, or your personal data to be more precise.

We have all seen those clever TV ads about IBM's (IBM) Watson supercomputer knowing what you want before you do. In reality, we are now on the third generation of Watson, known as Summit, the world’s fastest super computer. By the way, Summit uses thousands of NVIDIA (NVDA) graphics cards, which is yet another reason why I love that company.

Summit can process a mind-numbing 4 quadrillion calculations per second. This is the kind of computing muscle power that you once associated with a Star Trek episode.

Financed by the Department of Defense to test virtual nuclear explosions and predict the weather (that’s why we signed the nuclear test ban treaty), Summit has a few other tricks up its sleeve.

It can, for example, store every human genome and medical record of all 330 million people in the United States, process that data instantly, and spit out miracle drugs to cure any disease almost at whim.

You know all those lab tests, X-rays, MRI scans, and other tests you’ve been accumulating over the years? They add up to some 30% of the world daily data creation, or some 4 petabytes (or 4 million gigabytes) a day. That’s a lot of zeroes and ones.

Up until a couple of years ago, this data just sat there. It was like having a copy of the Manhattan telephone book (if it still exists) but not knowing anyone there. Thanks to Summit, we now not only have a few friends in Manhattan, we know everyone’s most intimate personal details.

I have been telling readers for years that if you can last only 10 more years, you might be able to live forever as all major human diseases will be cured during this time. Summit finally gives us the tools to achieve this.

Imagine the investment implications!

The U.S. currently spends more than $3 trillion on health care, or about 15% of GDP, and costs are expected to rise another 6% this year. To modernize this market, you will need to create from scratch four more Apples or six more Facebooks (FB) in terms of market capitalization. You can imagine what getting in early is potentially worth to your investment portfolio.

Crucial to all of this was Craig Venter’s decoding of his own DNA in 2000 for the first time which cost about $1 billion. Today, you and I can get 23andMe, Ancestry.com, or Family Tree DNA to do it for $100, with most of the scut work done in China.

Of course, key to all of this is getting the medical data for every U.S. citizen on line as fast as possible. The Obama administration began this effort seven years ago. Remember those gigantic overstuffed records rooms at your doctor’s office? They’ve all been sent to the recycling bin. You don’t see them anymore.

But we have a long way to go, and 20% of the U.S. population who don’t have HAVE any medical records, including all of the uninsured, will be a challenge.

To give you some idea of the potential and convince you that I have not gone totally MAD, let me tell you about Amgen’s (AMGN) sudden interest in the country of Iceland. Yes, Iceland.

There, a struggling young start-up named deCode sequenced the DNA of the entire population of the country, about 160,000 individuals. It tried to monetize its findings, but it was early and lost money hand over fist. So, the company sold it to Amgen in 2012 for $415 million.

Until then, targeting molecules for development was based on a hope and a prayer, and only a hugely uneconomic 5% of drugs made it to market. I was a bit like wildcatting for oil, another extremely high risk venture.

Using artificial intelligence (yes, those NVIDIA graphics processors again) to pretest against the deCode DNA database, it was able to increase that hit rate to 75%.

It’s not a stretch to assume that a 15-fold increase in success rates leads to a 15-fold improvement in profitability, or thereabouts.

Word leaked out setting off a gold rush for equivalent data pools that led to the takeover boom described above. And what happens when the pool of data explodes from 160,000 individuals to 330 million? It boggles the mind.

Another aspect of this is that Iceland has the purest gene pool in the world. Some 90% of the population is directly descended from Vikings, while the remaining 10% is from the Irish slaves they captured.

As a result, the health care industry is now benefiting from a “golden age” of oncology. Average life expectancy for chemotherapies is increasing by months at a time for specific cancers.

All of this is happening at a particularly fortuitous time for drug, health care, and biotech companies, which are only just now coming out of a long funk.

Traders seemed to have picked up on this new trend in May, which is why I slapped on a long position in the iShares Nasdaq Biotechnology ETF (IBB) (click here for a full description).

Like many companies in the sector, it is coming off of a very solid one-year double bottom and is going ballistic today.

The area is ripe for rotation. Other names you might look at include Biogen (BIIB), Celgene (CELG), and Regeneron (REGN).

If you have grown weary of buying big cap technology stocks at new all-time highs, try adding a few biotech and pharmaceutical stocks to spice this up. The results may surprise you.

As for living forever, that will be the subject of a future research piece. The far future.

Onshoring Takes Another Great Leap Forward

Diary, Newsletter, Research

Have you tried to hire a sewing machine operator lately?

I haven’t, but I have friends running major apparel companies who have (where do you think I get all those tight-fitting jeans?).

Guess what? There aren’t any to be had.

Since 1990, some 77% of the American textile workforce has been lost, when China joined the world economy in force, and the offshoring trend took flight.

Now that manufacturing is, at last, coming home, the race is on to find the workers to man it.

Welcome to onshoring 2.0.

The development has been prompted by several seemingly unrelated events.

There is an ongoing backlash to several disasters at garment makers in Bangladesh, the current low-cost producer which have killed thousands.

Today’s young consumers want to look cool but have a clean conscience as well. That doesn’t happen when your threads are sewn together by child slave laborers working for $1 a day.

Several firms are now tapping into the high-end market where the well-off are willingly paying top dollar for a well-made “Made in America” label.

Look no further than 7 For All Mankind, which is offering just such a product at a discount to all recent buyers of the Tesla Model S-1 (TSLA), that other great all-American manufacturer.

As a result, wages for cut-and-sew jobs are now among the fastest growing in the country, up 13.2% in real terms since 2007, versus a paltry 1.4% for the industry as a whole.

Apparel industry recruiters are plastering high schools and church communities with flyers in their desperate quest for new workers.

They advertise in languages with high proportions of blue-collar workers, such as Spanish, Somali, and Hmong.

New immigrants are particularly being targeted. And yes, they are resorting to the technology that originally hollowed out their industry, creating websites to suck in new applicants.

Chinese workers now earn $3 an hour versus $9 plus benefits at the lowest paying U.S. factories.

But the extra cost is more than made up for by savings in transportation and logistics, and the rapid time to market.

That is a crucial advantage in today’s fast-paced, high-turnover fashion world. Some companies are even returning to the hiring practices of the past, offering free training programs and paid internships.

By now, we have all become experts in offshoring, the practice whereby American companies relocate manufacturing jobs overseas to take advantage of low wages, missing unions, the lack of regulation, and the paucity of environmental controls.

The strategy has been by far the largest source of new profits enjoyed by big companies for the past two decades.

It has also been blamed for losses of U.S. jobs, with some estimates reaching as high as 25 million.

When offshoring first started 50 years ago, it was a total no-brainer.

Wages were sometimes 95% cheaper than those at home. The cost savings were so great that you could amortize your total capital costs in as little as two years.

So American electronics makers began filing overseas to Singapore, Thailand, Hong Kong, Taiwan, South Korea, and the Philippines.

After the U.S. normalized relations with China in 1978, the action moved there and found that labor was even cheaper.

Then, a funny thing happened. After 30 years of falling real American wages and soaring Chinese wages, offshoring isn’t such a great deal anymore. The average Chinese laborer earned $100 a year in 1977.

Today, it is $6,000, and $26,000 for trained technicians, with total compensation still rising 20% a year. At this rate, U.S. and Chinese wages will reach parity in about 10 years.

But wages won’t have to reach parity for onshoring to accelerate in a meaningful way. Investing in China is still not without risks.

Managing a global supply chain is no piece of cake on a good day. Asian countries still lack much of the infrastructure that we take for granted here.

Natural disasters such as earthquakes, fires, and tidal waves can have a hugely disruptive impact on a manufacturing system that is in effect a highly tuned, incredibly complex watch.

There are also far larger political risks keeping a chunk of our manufacturing base in the Middle Kingdom than most Americans realize. With the U.S. fleet and the Chinese military playing an endless game of chicken off the coast, we are one midair collision away from a major diplomatic incident.

Protectionism constantly threatens to boil over in the U.S., whether it is over the dumping of chicken feet, tires, or the latest, solar cells.

This is what the visit to the Foxconn factory by Apple’s CEO Tim Cook was all about. Be nice to the workers there, let them work only 8 hours a day instead of 16, let them unionize, and guess what?

Work will come back to the U.S. all the faster. The Chinese press was ripe with speculation that Apple-induced reforms might spread to the rest of the country like wildfire.

The late General Motors (GM) CEO Dan Adkerson once told me his company was reconsidering its global production strategy in the wake of the Thai floods.

Which car company was most impacted by the Japanese tsunami? General Motors, which obtained a large portion of its transmissions there.

The impact of a real onshoring move on the U.S. economy would be huge. Some economists estimate that as many as 10% to 30% of the jobs lost to offshoring could return.

At the high end, this could amount to 8 million jobs. That would cut our unemployment rate down by half, at least.

It would add $20 billion to $60 billion in GDP per year or up to 0.4% in economic growth per year.

It would also lead to a much stronger dollar, rising stocks, and lower bond prices. Is this what the stock market is trying to tell us by failing to have any meaningful correction for the past 2 ½ years?

Who would be the biggest beneficiaries of an onshoring trend? Si! Ole! Mexico (UMX) (EWW), which took the biggest hit when China started soaking up all the low-wage jobs in the world.

After that, the industrial Midwest has to figure pretty large, especially gutted Michigan. With real estate prices there under their 1992 lows, if there is a market at all, you know that doing business there costs a fraction of what it did 20 years ago.

So How Does This Thing Work?

Kiss That Union Job Goodbye

Diary, Newsletter, Research

Those of you counting on getting your old union assembly line job back in Detroit can forget it.

The eight-year forecast published by the Bureau of Labor Statistics shows that 4.19 million jobs will be gained in the U.S. in professional and business services, followed by 4 million health care and social assistance jobs, while 1.2 million will be lost in manufacturing.

This is great news for website designers, Internet entrepreneurs, registered nurses, and masseuses in California, but grim tidings for traditional metal bashers in the rust belt manufacturing states such as Michigan, Indiana, and Ohio.

I’m so old now that I am no longer asked for a driver’s license to get into a nightclub. Instead, they ask for carbon dating.

The real challenge for us aged career advisors is that probably half of these new service jobs haven’t even been invented yet, and if they can be described, it is only in a cheesy science fiction paperback with a half-dressed blond on the front cover.

After all, who heard of a webmaster, a cell phone contract sales person, or a blogger 40 years ago?

Where are all these jobs going to? You guessed it, China, which by my calculation has imported 25 million jobs from the U.S. over the past decade.

You can also blame other lower waged, upstream manufacturing countries such as Vietnam, where the Middle Kingdom is increasingly subcontracting its own offshoring.

These forecasts may be optimistic because they assume that Americans can continue to claw their way up the value chain in the global economy, and not get stuck along the way, as the Japanese did in the 90s.

The U.S. desperately needs no less than 27 million new jobs to soak up natural population and immigration growth and get us back to a traditional 5% unemployment rate.

The only way that is going to happen is for America to invent something new, big, and fast.

Personal computers achieved this during the 80s, and the Internet did the trick in the 90s. The fact that we’ve done squat since 2000 but create a giant paper chase of subprime loans and derivatives explains why job growth since then has been zero, real wage growth has been negative, and American standards of living are falling.

While the current crop of politicians extols the virtues of education, the reality is that we are dumbing down our public education system. How do we invent the next “new” thing, while shrinking the University of California’s budget by 25% two years in a row?

If my local high school can’t afford new computers, how is it going to feed Silicon Valley with a computer literate workforce? The U.S. has a “Michael Jackson” economy. It’s still living like a rock star but hasn’t had a hit in 20 years.

China can have all the $20 a day jobs it wants. But if it accelerates its move up the value chain as it clearly aspires to do, then America is in for even harder times.

I’ll be hoping for the best but preparing for the worst. How do you say “unemployment check” in Mandarin?

Is This Your Future?

Here's an Easy Way to Play Artificial Intelligence

Diary, Newsletter, Research

We are now in the throes of a market correction that could last anywhere from a couple of more week to a couple of months. So, generational opportunities are starting to open up in some of the best long term market sectors.

Suppose there was an exchange-traded fund that focused on the single most important technology trend in the world today.

You might think that I was smoking California’s largest export (it’s not grapes). But such a fund DOES exist.

The Global X Robotics & Artificial Intelligence ETF (BOTZ) drops a golden opportunity into investors’ laps as a way to capture part of the growing movement behind automation.

The fund currently has an impressive $2.2 billion in assets under management.

The universal trend of preferring automation over human labor is spreading with each passing day. Suffice to say there is the unfortunate emotional element of sacking a human and the negative knock-on effect to the local community like in Detroit, Michigan.

But simply put, robots do a better job, don’t complain, don’t fall ill, don’t join unions, or don’t ask for pay rises. It’s all very much a capitalist’s dream come true.

Instead of dallying around in single stock symbols, now is the time to seize the moment and take advantage of the single seminal trend of our lifetime.

No, it’s not online dating, gambling, or bitcoin. It’s Artificial Intelligence.

Selecting individual stocks that are purely exposed to AI is a challenging endeavor. Companies need a way to generate returns to shareholders first and foremost, hence, most pure AI plays do not exist right now.

However, the Mad Hedge Fund Trader has found the most unadulterated AI play out there. A real diamond in the rough.

The best way to expose yourself to this AI trend is through Global X Robotics & Artificial Intelligence ETF (BOTZ).

This ETF tracks the price and yield performance of ten crucial companies that sit at the forefront of the AI and robotic development curve. It invests at least 80% of its total assets in the securities of the underlying index. The expense ratio is only 0.68%.

Another caveat is that the underlying companies are only derived from developed countries. Out of the 10 disclosed largest holdings, seven are from Japan, two are from Silicon Valley, and one, ABB Group, is a Swedish-Swiss multinational headquartered in Zurich, Switzerland.

Robotics and AI walk hand in hand, and robotics are entirely dependent on the germination prospects of AI. Without AI, robots are just a clunk of heavy metal.

Robots require a high level of AI to meld seamlessly into our workforce. The stronger the AI functions, the stronger the robot’s ability, filtering down to the bottom line.

AI-embedded robots are especially prevalent in military, car manufacturing, and heavy machinery. The industrial robot industry projects to reach $80 billion per year in sales by 2024 as more of the workforce gradually becomes automated.

The robotic industry has become so prominent in the automotive industry that they constitute greater than 50% of robot investments in America.

Let’s get the ball rolling and familiarize readers of the Global Trading Dispatch with the top 5 weightings in the underlying ETF (BOTZ).

Nvidia (NVDA)

Nvidia Corporation is a company I often write about as their main business is producing GPU chips for the video game industry.

This Santa Clara, California-based company is spearheading the next wave of AI advancement by focusing on autonomous vehicle technology and AI-integrated cloud data centers as their next cash cow.

All these new groundbreaking technologies require ample amounts of GPU chips. Consumers will eventually cohabitate with state of the art IOT products (internet of things), fueled by GPU chips coming to mass market like the Apple Homepod.

The company is led by genius Jensen Huang, a Taiwanese American, who cut his teeth as a microprocessor designer at competitor Advanced Micro Devices (AMD).

Nvidia constitutes a hefty 8.70% of the BOTZ ETF.

To visit their website, please click here.

Yaskawa Electric (Japan)

Yaskawa Electric is the world's largest manufacturer of AC Inverter Drives, Servo and Motion Control, and Robotics Automation Systems, headquartered in Kitakyushu, Japan.

It is a company I know well, having covered this former zaibatsu company as a budding young analyst in Japan 45 years ago.

Yaskawa has fully committed to improving global productivity through automation. It comprises the 2^nd largest portion of BOTZ at 8.35%.

To visit Yaskawa’s website, please click here.

Fanuc Corp. (Japan)

Fanuc was another one of the hot robotics companies I used to trade in during the 1970s, and I have visited their main factory many times.

The 3^rd largest portion in the (BOTZ) ETF at 7.78% is Fanuc Corp. This company provides automation products and computer numerical control systems and is headquartered in Oshino, Yamanashi.

They were once a subsidiary of Fujitsu, which focused on the field of numerical control. The bulk of their business is done with American and Japanese automakers and electronics manufacturers.

They have snapped up 65% of the worldwide market in the computerized numerical device market (CNC). Fanuc has branch offices in 46 different countries.

To visit their company website, please click here.

Intuitive Surgical (ISRG)

Intuitive Surgical Inc (ISRG) trades on Nasdaq and is located in sun-drenched Sunnyvale, California.

This local firm designs, manufactures, and markets surgical systems and is completely industriously focused on the medical industry.

The company's da Vinci Surgical System converts surgeon's hand movements into corresponding micro-movements of instruments positioned inside the patient.

The products include surgeon's consoles, patient-side carts, 3D vision systems, da Vinci skills simulators, da Vinci Xi integrated table motions.

This company comprises 7.60% of BOTZ. To visit their website, please click here.

Keyence Corp (Japan)

Keyence Corp is the leading supplier of automation sensors, vision systems, barcode readers, laser markers, measuring instruments, and digital microscope.

They offer a full array of service support and closely work with customers to guarantee full functionality and operation of the equipment. Their technical staff and sales teams add value to the company by cooperating with its buyers.

They have been consistently ranked as the top 10 best companies in Japan and boast an eye-popping 50% operating margin.

They are headquartered in Osaka, Japan and make up 7.54% of the BOTZ ETF.

To visit their website please click here.

(BOTZ) does have some pros and cons. The best AI plays are either still private at the venture capital level or have already been taken over by giant firms like NVIDIA.

You also need to have a pretty broad definition of AI to bring together enough companies to make up a decent ETF.

However, it does get you a cheap entry into many of the illiquid foreign names in this fund.

Automation is one of the reasons why this is turning into the deflationary century and I recommend all readers who don’t have their own robotic-led business pick up some Global X Robotics & Artificial Intelligence ETF (BOTZ).

And by the way, the entry point right here on the charts is almost perfect.

To learn more about (BOTZ), please visit their website by clicking here.

Report from the 2019 Las Vegas SALT Conference

Diary, Newsletter, Research

There is no doubt that the Bellagio Hotel in Las Vegas took on a different character during the first week of May.

Walking out to the pool I ran into David Rubenstein wearing his fancy jogging outfit. He is a co-founder of the Carlyle Group, the world’s preeminent private equity fund.

I listened in on a heated hallway argument between the ever-combative Chris Christie, the former governor of New Jersey, recently retired US attorney general Jeff Sessions, and former New York governor Rudy Giuliani.

The diminutive real estate mogul Sam Zell was holding down a table of admirers for morning coffee.

Oh, and I spent an evening rocking out with legendary venture capitalist Tim Draper, listening to John Fogerty, once of Credence Clearwater Revival. John played his entire set from Woodstock 51 years ago.

The magnet drawing all of these disparate luminaries together was the 2019 SALT conference, assembled by the ever-peripatetic financial entrepreneur and showman Anthony Scaramucci.

I have known Anthony for at least a decade, founder and co-managing director of Skybridge Capital, an allocator of funds to alternative asset management strategies. You may know him as Donald Trump’s press secretary who lasted in the position all of 11 days, depending on how you count.

The mood at the conference was what you might expect in the tenth year of a bull market. Most were bullish, but nervous, as new uncertainties pile up.

As in past years, Anthony delivered a lineup of speakers that was nothing less than blue chip. They included my old friend, USMC general John Kelley, most recently the president’s chief of staff, former Obama advisor Valerie Jarret, artificial intelligence wizard Kai-Fu Lee, Broadcast.com founder and well known “shark” Mark Cuban, and Dr. Nouriel Roubini, otherwise known as “Dr. Doom”, who lived up to his reputation as usual.

Strolling through the coffee lounge between sessions a number of incredibly beautiful young women suddenly found me very attractive. Perhaps they noticed the words “hedge fund” on my name tag. It turned out they were marketing back office services.

Over lunch, I listened to Drs. Bob Hariri and David S. Karow speak of the wonders of placental stem cell technology, which promises to extend our lives by decades. I was an early stem cell user, thanks to my daily hiking regime that wore out my knees. It works.

General David Petraeus and former UN Ambassador Susan Rice discussed solutions for our difficulties in the Middle East. Peter Schiff and Barry Silbert debated the safe haven characteristics of gold versus Bitcoin.

My Incline Village, Nevada neighbor Michael Milken talked about how capital drives rapid technology innovation. I thanked Mike for paying for the town’s annual Fourth of July fireworks budget, which happens to be his birthday.

Anyone with kids knows well Sal Khan, founder of Khan Academy, the renown online tutoring platform. Khan originally started the project in an attempt to help his many relatives with math homework. It now assists millions across 163 countries and is funded by Microsoft founder Bill Gates. By the end of 2018, Khan Academy videos had accumulated over 1.8 billion views on Google’s YouTube.

I ran into another old friend Jon Najarian at one of the nightly pool parties. I have seen former Minnesota Viking Jon reinvent himself over the years more often than I change my socks. Most recently, he is running a family office and marketing various financial products. He still breaks a few bones every time he shakes your hand.

By Friday morning the guests were packing up and heading to McCarran Airport, or to the private jet terminal at Henderson, where I have kept a share in a plane for years for my Grand Canyon jaunts.

I noticed one of the earlier mentioned marketers buying a $695 pair of Christian Louboutin shoes, you know, the ones with the red bottoms? Clearly, they had been successful in their sales efforts.

For more about the 2019 SALT conference, please click here.

For more about Skybridge Capital, please click here.