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FANGs Deliver on Earnings, But Fail on Price Action

Alphabet (GOOGL) did a great job alleviating fears that large-cap tech would be dragged through the mud and fading earnings would dishearten investors.

The major takeaways from the recent deluge of tech earnings are large-cap tech is getting better at what they do best, and the biggest are getting decisively bigger.

Of the 26% rise to $31.1 billion in Alphabet's quarterly revenue, more than $26 billion was concentrated around its mammoth digital ad revenue business.

Alphabet, even though rebranded to express a diverse portfolio of assets, is still very much reliant on its ad revenue to carry the load made possible by Google search.

Its "other bets" category failed to impact the bottom line with loss-making speculative projects such as Nest Labs in charge of mounting a battle against Amazon's (AMZN) Alexa.

The quandary in this battle is the margins Alphabet will surrender to seize a portion of the future smart home market.

What we are seeing is a case of strength fueling further strength.

Alphabet did a lot to smooth over fears that government regulation would put a dent in its business model, asserting that it has been preparing for the new EU privacy rules for "18 months" and its search ad business will not be materially affected by these new standards.

CFO Ruth Porat emphasized the shift to mobile, as mobile growth is leading the charge due to Internet users' migration to mobile platforms.

Google search remains an unrivaled product that transcends culture, language, and society at optimal levels.

Sure, there are other online search engines out there, but the accuracy of results pale in comparison to the preeminent first-class operation at Google search.

Alphabet does not divulge revenue details about its cloud unit. However, the cloud unit is dropped into the "other revenues" category, which also includes hardware sales and posted close to $4.4 billion, up 36% YOY.

Although the cloud segment will never dwarf its premier digital ad segment, if Alphabet can ameliorate its cloud engine into a $10 billion per quarter segment, investors would dance in the streets with delight.

Another problem with the FANGs is that they are one-trick ponies. And if those ponies ever got locked up in the barn, it would spell imminent disaster.

Apple (AAPL) is trying its best to diversify away from the iconic product with which consumers identify.

The iPhone company is ramping up its services and subscription business to combat waning iPhone demand.

Alphabet is charging hard into the autonomous ride-sharing business seizing a leadership position.

Netflix (NFLX) is doubling down on what it already does great - create top-level original content.

This was after it shed its DVD business in the early stages after CEO Reed Hastings identified its imminent implosion.

Tech companies habitually display flexibility and nimbleness of which big corporations dream.

One of the few negatives in an otherwise solid earnings report was the TAC (traffic acquisition costs) reported at $6.28 billion, which make up 24% of total revenue.

An escalation of TAC as a percentage of revenue is certainly a risk factor for the digital ad business. But nibbling away at margins is not the end of the world, and the digital ad business will remain highly profitable moving forward.

TAC comprised 22% of revenue in Q1 2017, and the rise in costs reflects that mobile ads are priced at a premium.

Google noted that TAC will experience further pricing pressure because of the great leap toward mobile devices, but the pace of price increases will recede.

The increased cost of luring new eyeballs will not diminish FANGs' earnings report buttressed by secular trends that pervade Silicon Valley's platforms.

The year of the cloud has positive implications for Alphabet. It ranks No. 3 in the cloud industry behind Microsoft (MSFT) and Amazon.

Amazon and Microsoft announce earnings later this week. The robust cloud segments should easily reaffirm the bullish sentiment in tech stocks.

Amazon's earnings call could provide clarity on the bizarre backbiting emanating from the White House, even though Jeff Bezos rarely frequents the earnings call.

A thinly veiled or bold response would comfort investors because rumors of tech peaking would add immediate downside pressure to equities.

The wider-reaching short-term problem is the macro headwinds that could knock over tech's position on top of the equity pedestal and bring it back down to reality in a war of diplomatic rhetoric and international tariffs.

Google, Facebook, and Netflix are the least affected FANGs because they have been locked out of the Chinese market for years.

The Amazon Web Services (AWS) cloud arm of Amazon blew past cloud revenue estimates of 42% last quarter by registering a 45% jump in revenue.

Microsoft reiterated that immense cloud growth permeating through the industry, expanding 99% QOQ.

I expect repeat performances from the best cloud plays in the industry.

Any cloud firm growing under 20% is not even worth a look since the bull case for cloud revenue revolves around a minimum of 20% growth QOQ.

Amazon still boasts around 30% market share in the cloud space with Microsoft staking 15% but gaining each quarter.

AWS growth has been stunted for the past nine quarters as competition and cybersecurity costs related to patches erode margins.

Above all else, the one company that investors can pinpoint with margin problems is Amazon, which abandoned margin strength for market share years ago and that investors approved in droves.

AWS is the key driver of profits that allows Amazon to fund its e-commerce business.

Cloud adoption is still in the early stages.

Microsoft Azure and Google have a chance to catch up to AWS. There will be ample opportunity for these players to leverage existing infrastructure and expertise to rival AWS's strength.

As the recent IPO performance suggests, there is nothing hotter than this narrow sliver of tech, and this is all happening with numerous companies losing vast amounts of money such as Dropbox (DBX) and Box (BOX).

Microsoft has been inching toward gross profits of $8 billion per quarter and has been profitable for years.

And now it has a hyper-expanding cloud division to boot.

Any macro sell-off that pulls down Microsoft to around the $90 level or if Alphabet dips below $1,000, these would be great entry points into the core pillars of the equity market.

If tech goes, so will everything else.

If it plays its cards right, Microsoft Azure has the tools in place to overtake AWS.

Shorting cloud companies is a difficult proposition because the leg ups are legendary.

If traders are looking for any tech shorts to pile into, then focus on the legacy companies that lack a cloud growth driver.

Another cue would be a company that has not completed the resuscitation process yet, such as Western Digital (WDC) whose shares have traded sideways for the past year.

But for now, as the 10-year interest rate shoots past 3%, investors should bide their time as cheaper entry points will shortly appear.

_________________________________________________________________________________________________

Quote of the Day

"Technology is a word that describes something that doesn't work yet." - said British author Douglas Adams.

April 24, 2018

Diary, Newsletter

Global Market Comments
April 24, 2018
Fiat Lux

Featured Trade:
(DON'T MISS THE APRIL 25 GLOBAL STRATEGY WEBINAR),
(MONDAY, JUNE 11, FORT WORTH, TEXAS, GLOBAL STRATEGY LUNCHEON)
(WHY INDEXERS ARE TOAST),
(VIX), (VXX), (SPY), (AAPL), (HACK),

Why Indexers Are Toast

Diary, Newsletter, Research

Hardly a day goes by without some market expert predicting that it's only a matter of time before machines completely take over the stock market.

Humans are about to be tossed into the dustbin of history.

Recently, money management giant BlackRock, with a staggering $5.4 trillion in assets under management, announced that algorithms would take over a much larger share of the investment decision-making process.

Exchange Traded Funds (ETFs) are adding fuel to the fire.

By moving capital out of single stocks and into baskets, you are also sucking the volatility, and the vitality out of the market.

This is true whether money is moving into the $237 billion S&P 500 (SPY), or the miniscule $1 billion PureFunds ISE Cyber Security ETF (HACK), which holds only 30 individual names.

The problem is being greatly exacerbated by the recent explosive growth of the ETF industry.

In the past five years, the total amount of capital committed to ETFs has doubled to more than $3 trillion, while the number of ETFs has soared to well over 2,000.

In fact, there is now more money committed to ETFs than publicly listed single stocks!

While many individual investors say they are moving into ETFs to save on commissions and expenses, in fact, the opposite is true.

You just don't see them.

They are buried away in wide-dealing spreads and operating expenses buried deeply in prospectuses.

The net effect of the ETF industry is to greatly enhance Wall Street's take from their brokerage business, i.e., from YOU.

Every wonder why the shares of the big banks are REALLY trading at new multi-year highs?

I hate to say this, but I've seen this movie before.

Whenever a strategy becomes popular, it carries with it the seeds of its own destruction.

The most famous scare was the "Portfolio Insurance" of the 1980s, a proprietary formula sold to institutional investors that allegedly protected them by automatically selling in down markets.

Of course, once everyone was in the boat, the end result was the 1987 crash, which saw the Dow Average plunge 20% in one day.

The net effect was to maximize everyone's short positions at absolute market bottoms.

A lot of former portfolio managers started driving Yellow Cabs after that one!

I'll give you another example.

Until 2007, every computer model in the financial industry said that real estate prices only went up.

Trillions of dollars of derivative securities were sold based on this assumption.

However, all of these models relied on only 50 years' worth of data dating back to the immediate postwar era.

Hello subprime crisis!

If their data had gone back 70 years, it would have included the Great Depression.

The superior models would have added one extra proviso - that real estate can collapse by 90% at any time, without warning, and then stay down for a decade.

The derivate securities based on THIS more accurate assumption would have been priced much, much more expensively.

And here is the basic problem.

As soon as money enters a strategy, it changes the behavior of that strategy.

The more money that enters, the more that strategy changes, to the point where it produces the opposite of the promised outcome.

Strategies that attract only $10 million market-wide can make 50% a year returns or better.

But try and execute with $1 billion, and the identical strategies lose money. Guess what happens at $1 trillion?

This is why high frequency traders can't grow beyond their current small size on a capitalized basis, even though they account for 70% of all trading.

I speak from experience.

During the 1980s I used a strategy called "Japanese Equity Warrant Arbitrage," which generated a risk-free return of 30% a year or more.

This was back when overnight Japanese yen interest rates were at 6%, and you could buy Japanese equity warrants at parity with 5:1 leverage (5 X 6 = 30).

When there were only a tiny handful of us trading these arcane securities, we all made fortunes. Every other East End London kid was driving a new Ferrari (yes, David, that's you!).

At its peak in 1989, the strategy probably employed 10,000 people to execute and clear in London, Tokyo, and New York.

However, once the Japanese stock market crash began in earnest, liquidity in the necessary instruments vaporized, and the strategy became a huge loser.

The entire business shut down within two years. Enter several thousand new Yellow Cab drivers.

All of this means that the current indexing fad is setting up for a giant fall.

Except that this time, many managers are going to have to become Uber drivers instead.

Computers are great at purely quantitative analysis based on historical data.

Throw emotion in there anywhere, and the quants are toast.

And, at the end of the day, markets are made up of high emotional human beings who want to get rich, brag to their friends, and argue with their spouses.

In fact, the demise has already started.

Look no further than investment performance so far in 2018.

The (SPY) is up a scant 0% this year.

Amazon (AAPL), on the other hand, one of the most widely owned stocks in the world, is up an eye-popping 30%.

If you DON'T own Amazon, you basically don't HAVE any performance to report for 2017.

I'll tell you my conclusion to all of this.

Use a combination of algorithms AND personal judgment, and you will come out a winner, as I do. It also helps to have 50 years of trading experience.

You have to know when to tell your algorithm a firm "NO."

While your algo may be telling you to "BUY" ahead of a monthly Nonfarm Payroll Report or a presidential election, you may not sleep at night if you do so.

This is how I have been able to triple my own trading performance since 2015, taking my 2017 year-to-date to an enviable 20%.

It's not as good as being 30% invested in Amazon.

But it beats the pants off of any passive index all day long.

Yup, This is a Passive Investor

April 23, 2018

Diary, Newsletter

Global Market Comments
April 23, 2018
Fiat Lux

Featured Trade:
(THE MARKET OUTLOOK FOR THE WEEK AHEAD, or HERE COMES THE FOUR HORSEMEN OF THE APOCALYPSE),
(SPY), (GOOGL), (TLT), (GLD), (AAPL), (VIX), (VXX), (C), (JPM),
(HOW TO AVOID PONZI SCHEMES),
(TESTIMONIAL)

The Market Outlook for the Week Ahead, or Here Comes The Four Horsemen of the Apocalypse

Diary, Newsletter, Research

Have you liked 2018 so far?

Good.

Because if you are an index player, you get to do it all over again. For the major stock indexes are now unchanged on the year. In effect, it is January 1 once more.

Unless of course you are a follower of the Mad Hedge Fund Trader. In that case, you are up an eye-popping 19.75% so far in 2018. But more on that later.

Last week we caught the first glimpse in this cycle of the investment Four Housemen of the Apocalypse. Interest rates are rising, the yield on the 10-year Treasury bond (TLT) reaching a four-year high at 2.96%. When we hit 3.00%, expect all hell to break loose.

The economic data is rolling over bit by bit, although it is more like a death by a thousand cuts than a major swoon. The heavy hand of major tariff increases for steel and aluminum is making itself felt. Chinese investment in the US is falling like a rock.

The duty on newsprint imports from Canada is about to put what's left of the newspaper business out of business. Gee, how did this industry get targeted above all others?

The dollar is weak (UUP), thanks to endless talk about trade wars.

Anecdotal evidence of inflation is everywhere. By this I mean that the price is rising for everything you have to buy, like your home, health care, college education, and website upgrades, while everything you want to sell, such as your own labor, is seeing the price fall.

We're not in a recession yet. Call this a pre-recession, which is a long-leading indicator of a stock market top. The real thing shouldn't show until late 2019 or 2020.

There was a kerfuffle over the outlook for Apple (AAPL) last week, which temporarily demolished the entire technology sector. iPhone sales estimates have been cut, and the parts pipeline has been drying up.

If you're a short-term trader, you should have sold your position in April 13 when I did. If you are a long-term investor, ignore it. You always get this kind of price action in between product cycles. I still see $200 a share in 2018. This too will pass.

This month, I have been busier than a one-armed paper hanger, sending out Trade Alerts across all asset classes almost every day.

Last week, I bought the Volatility Index (VXX) at the low, took profits in longs in gold (GLD), JP Morgan (JPM), Alphabet (GOOGL), and shorts in the US Treasury bond market (TLT), the S&P 500 (SPY), and the Volatility Index (VXX).

It is amazing how well that "buy low, sell high" thing works when you actually execute it. As a result, profits have been raining on the heads of Mad Hedge Trade Alert followers.

That brings April up to an amazing +12.99% profit, my 2018 year-to-date to +19.75%, my trailing one-year return to +56.09%, and my eight-year performance to a new all-time high of 296.22%. This brings my annualized return up to 35.55% since inception.

The last 14 consecutive Trade Alerts have been profitable. As for next week, I am going in with a net short position, with my stock longs in Alphabet (GOOGL) and Citigroup (C) fully hedged up.

And the best is yet to come!

I couldn't help but laugh when I heard that Republican House Speaker Paul Ryan announced his retirement in order to spend more time with his family. He must have the world's most unusual teenagers.

When I take my own teens out to lunch to visit with their friends, I have to sit on the opposite side of the restaurant, hide behind a newspaper, wear an oversized hat, and pretend I don't know them, even though the bill always mysteriously shows up on my table.

This will be FANG week on the earnings front, the most important of the quarter.

On Monday, April 23, at 10:00 AM, we get March Existing-Home Sales. Expect the Sohn Investment Conference in New York to suck up a lot of airtime. Alphabet (GOOGL) reports.

On Tuesday, April 24, at 8:30 AM EST, we receive the February S&P CoreLogic Case-Shiller Home Price Index, which may see prices accelerate from the last 6.3% annual rate. Caterpillar (CAT) and Coca Cola (KO) report.

On Wednesday, April 25, at 2:00 PM, the weekly EIA Petroleum Statistics are out. Facebook (FB), Advanced Micro Devices (AMD), and Boeing (BA) report.

Thursday, April 26, leads with the Weekly Jobless Claims at 8:30 AM EST, which saw a fall of 9,000 last week. At the same time, we get March Durable Goods Orders. American Airlines (AAL), Raytheon (RTN), and KB Homes (KBH) report.

On Friday, April 27, at 8:30 AM EST, we get an early read on US Q1 GDP.

We get the Baker Hughes Rig Count at 1:00 PM EST. Last week brought an increase of 8. Chevron (CVX) reports.

As for me, I am going to take advantage of good weather in San Francisco and bike my way across the San Francisco-Oakland Bay Bridge to Treasure Island.

Good Luck and Good Trading.

April 16, 2018

Diary, Newsletter

Global Market Comments
April 16, 2018
Fiat Lux

Featured Trade:
(THE MARKET OUTLOOK FOR THE WEEK AHEAD, or THE WEEK THAT NOTHING HAPPENED),
(TLT), (GLD), (SPY), (QQQ), (USO), (UUP),
(VXX), (GOOGL), (JPM), (AAPL),
(HOW TO HANDLE THE FRIDAY, APRIL 20 OPTIONS EXPIRATION), (TLT), (VXX), (GOOGL), (JPM)

The Market Outlook for the Week Ahead, or The Week That Nothing Happened

Diary, Newsletter, Research

This was the week that American missiles were supposed to rain down upon war-torn Syria, embroiling Russia in the process. It didn't happen.

This was the week that the president was supposed to fire special prosecutor Robert Mueller, who with his personal lawyer is currently reading his private correspondence for the past decade with great interest. That didn't happen either.

It was also the week that China was supposed to raise the stakes in its trade war with the United States. Instead, President Xi offered a conciliatory speech, taking the high road.

What happens when you get a whole lot of nothing?

Stocks rally smartly, the S&P 500 (SPY) rising by 2.87% and the NASDAQ (QQQ) tacking on an impressive 3.45%. Several of the Mad Hedge long positions jumped by 10%.

And that pretty much sums up the state of the market today.

Get a quiet week and share prices will naturally rise, thanks to the power of that fastest earnings growth in history, stable interest rates, a falling dollar, and gargantuan share buybacks that are growing by the day.

With a price earnings multiple of only 16, shares are offering investors the best value in three years, and there is very little else to buy.

This is why I am running one of the most aggressive trading books in memory with a 70% long 30% short balance.

Something else unusual happened this week. I added my first short position of the year in the form of puts on the S&P 500 right at the Friday highs.

And, here is where I am sticking to my guns on my six-month range trade call. If you buy every dip and sell every rally in a market that is going nowhere, you will make a fortune over time.

Provided that the (SPY) stays between $250 and $277 that is exactly what followers of the Mad Hedge Fund Trader are going to do.

By the way, 3 1/2 months into 2018, the Dow Average is dead unchanged at 24,800.

Will next week be so quiet?

I doubt it, which is why I'm starting to hedge up my trading book for the first time in two years. Washington seems to be an endless font of chaos and volatility, and the pace of disruption is increasing.

The impending attack on Syria is shaping up to more than the one-hit wonder we saw last year. It's looking more like a prolonged air, sea, and ground campaign. When your policies are blowing up, nothing beats like bombing foreigners to distract attention.

Expect a 500-point dive in the Dow Average when this happens, followed by a rapid recovery. Gold (GLD) and oil prices (USO) will rocket. The firing of Robert Mueller is worth about 2,000 Dow points of downside.

Followers of the Mad Hedge Trade Alert Service continued to knock the cover off the ball.

I continued to use weakness to scale into long in the best technology companies Alphabet (GOOGL) and banks J.P. Morgan Chase (JPM), and Citigroup (C). A short position in the Volatility Index (VXX) is a nice thing to have during a dead week, which will expire shortly.

As hedges, I'm running a double short in the bond market (TLT) and a double long in gold (GLD). And then there is the aforementioned short position in the (SPY). I just marked to market my trading book and all 10 positions are in the money.

Finally, I took profits in my Apple (AAPL) long, which I bought at the absolute bottom during the February 9 meltdown. I expect the stock to hit a new all-time high in the next several weeks.

That brings April up to a +5.81% profit, my trailing one-year return to +50.23%, and my eight-year average performance to a new all-time high of 289.19%. This brings my annualized return up to 34.70%.

The coming week will be a slow one on the data front. However, there has been a noticeable slowing of the data across the board recently.

Is this a one-off weather-related event, or the beginning of something bigger? Is the trade war starting to decimate confidence and drag on the economy?

On Monday, April 16, at 8:30 AM, we get March Retail Sales. Bank of America (BAC) and Netflix (NFLX) report.

On Tuesday, April 17, at 8:30 AM EST, we receive March Housing Starts. Goldman Sachs (GS) and United Airlines (UAL) report.

On Wednesday, April 18, at 2:00 PM, the Fed Beige Book is released, giving an insider's view of our central bank's thinking on interest rates and the state of the economy. Morgan Stanley (MS) and American Express (AXP) report.

Thursday, April 19, leads with the Weekly Jobless Claims at 8:30 AM EST, which saw a fall of 9,000 last week. Blackstone (BX) and Nucor (NUE) report.

On Friday, April 20, at 10:00 AM EST, we get the Baker Hughes Rig Count at 1:00 PM EST. Last week brought an increase of 8. General Electric (GE) and Schlumberger (SLB) report.

As for me, I'll be heading into San Francisco's Japantown this weekend for the annual Northern California Cherry Blossom Festival. I'll be viewing the magnificent flowers, listening to the Taiko drums, eating sushi, and practicing my rusty Japanese.

Good Luck and Good Trading.

April 9, 2018

Tech Letter

Mad Hedge Technology Letter
April 9, 2018
Fiat Lux

Featured Trade:
(HOW TO LOSE MONEY IN TECHNOLOGY STOCKS),
(AAPL), (MSFT), (OFO), (UBER), (MOBIKE), (OneCoin), (BABA)

How to Lose Money in Technology Stocks

Tech Letter

Every new bull market in technology brings its excesses, and this time is more different.

Today, I'll outline some of the more egregious cases, which you and your money should avoid like the plague.

Spoiler alert: You are better off just parking your money in Apple (AAPL) or Microsoft (MSFT) and then forgetting about it.

The thirst to own a little sliver of technology in the greatest bull market of all time has reached a fever pitch with capital allocating to marginal assets.

Serious investors need to avoid the madness.

The excess was bred from the realization of how valuable data extraction and generation is to profitability.

The investment climate is reminiscent of the dot-com bubble during the 1990s that spawned companies with no intention of ever turning a profit.

This time, loss-making is blatant.

Ride-share vehicle services such as Uber and Lyft are great at losing money, and passengers would stand aside if prices became exorbitant.

Paying a derisory sum to ride in someone else's car while being chauffeured around is part of the allure of this business model.

The result is an artificially low price for the benefit of consumers amid a vicious price war with competitors.

The biggest problem with these ride-share services is they create nothing.

They are not building a proprietary operating system or creating technology that did not exist before.

Hence, these types of companies execute risky strategies that backfire.

Any technology company that expects to be in the game long term must create something unique and organic that other companies value and cannot copy.

These ride-hailing companies simply use an app on a smartphone, and this smartphone app can be created by any half decent high school app programmer.

Uber lost $4.5 billion in 2017, and that was great news for CEO Dara Khosrowshahi because Uber is losing less than before.

If you thought a tech company glorifying an annual loss of $4.5 billion was strange, then analyzing the state of the ride-share business model for the industry one degree further out on the risk curve will leave you scratching your head.

And by the way, Uber will try to soak your wallet when it launches its initial public offering next year.

Enter dockless ride-sharing bicycles.

Dockless bike-sharing has mushroomed around the world, spreading like wildfire fueled by grotesquely large injections of venture capital.

Ofo, a Chinese firm, initially raised more $1.2 billion and another $866 million from Alibaba (BABA) from a recent round of fundraising. CEO Dai Wei has stated that his company is worth north of $2 billion.

Mobike lured in more than $900 million in venture capital.

China is the epicenter of the bicycle ride-sharing experiment. More than 40 firms have sprouted up creating a bizarre scenario in major Chinese cities because of these companies dumping bicycles on every public street corner.

According to Xinhua News Agency, more than 2.5 million bikes are littered throughout the city by 15 companies in Beijing alone.

Local American firms have jumped on the bandwagon, too, with examples such as LimeBike, based in San Mateo, CA, that raised $12 million from Andreessen Horowitz in 2017, and topped up another $50 million from Coatue Management.

Meanwhile, Spin, the first stationless bikeshare company in the US, raised $8 million led by Grishin Robotics.

More than 40 bike-sharing companies have beat down the price of renting a bicycle to the paltry rate of 1 RMB (renminbi) ($0.15 USD) per 30-minute trip.

The intentional dumping at absurd price levels is not sustainable. The business model is predicated on collecting an initial deposit of $15 before a customer can hop on a bike.

The deposit has proved high risk as some companies have disappeared or gone bust.

Bluegogo, the third leading company in this space, emptied out its headquarters office, locked the doors, and failed to notify employees who claimed their wages had been garnished.

By last count, Bluegogo had distributed roughly 700,000 bicycles, and was estimated to have 20 million users, each paying $15 deposits to use the service.

Bluegogo was considered a legitimate competitor in the space along with Mobike and Ofo.

The $300 million dollars in Bluegogo deposits floated up to money heaven, and the deposits will never be repaid to customers.

Didi Chuxing, China's version of Uber and subsidiary of Tencent and Alibaba (BABA), purchased the bankrupt bike-sharing company, paid the work staff, and slipped them inside its portfolio of emerging tech firms in January 2018.

Mingbike, which failed in Shanghai and Beijing, migrated to emptier pastures in third and fourth tier Chinese cities and sacked 99% of its staff.

All told, $3 billion to $4 billion has been funneled into these bicycle-share monstrosities in the past 18 months.

It gets a lot worse in terms of high risk.

Another frontier of interest that has gone absolutely bananas is the ICO (Initial Coin Offering). ICOs are an unregulated new cryptocurrency venture raising funds by crowdfunding. A certain percentage of coins is sold to early investors in exchange for legal tender or Bitcoin.

This controversial means of raising money is a hotbed for scams galore. Of 1,000 that now exist, maybe 10 are legit.

These criminals are taking advantage of the headline effect of cryptocurrencies, promising every Joe and Jane early retirements and an easy way to provide college funds for children.

It's true that a founder of a cryptocurrency demonstrably benefits financially from leading this new form of payment.

Simply put, these ICOs function as Ponzi schemes with the last one to buy holding the bag when the sushi hits the fan after the founders run for the exits.

These fraudulent ICOs take on some of the characteristics of real Ponzi schemes such as guaranteed profits, promising their blockchain technology will solve all of the world's ills, no detailed roadmap except collecting funds, and lack of an online digital footprint.

Adding to the outsized risk is the confusion of which jurisdiction these companies are in and absence of any proper compliance.

OneCoin was a cryptocurrency promoted by offshore companies OneCoin Ltd (Dubai) and OneLife Network Ltd (Belize), founded by Ruja Ignatova. Many of the shady characters crucial to OneCoin were architects of similar Ponzi schemes, which was a dead giveaway to authorities.

Bulgarian enforcement officials raided and hauled away servers and other sensitive evidence at OneCoin's office in Sofia, Bulgaria, at the request of the prosecutor's office in Bielefeld, Germany.

German police and Europol also busted 14 other companies connected to OneCoin.

OneCoin CEO Ignatova was imprisoned in India for swindling investors after being investigated by Indian authorities in 2017.

The Ministry of Planning and Investment of Vietnam even issued a rebuttal that a forged document OneCoin used as proof to show it was the official licensed cryptocurrency in Vietnam was fake. It stated there was no possibility this document could ever exist.

SEC chairman Jay Clayton recently chimed in after being asked if all ICOs are fraudulent, boldly stating, "Absolutely not."

Uber and Ofo also are not frauds, but that does not mean investors should take a flier on it.

The strength of technology has attracted the marginal character to its doorstep; separating the wheat from the chaff is more important than ever.

These nascent industries can look good in the shop window, and slick advertising campaigns numb our rational decision making, but investors need to stay away at all costs.

The bicycle-sharing industry is a way for cash-rich venture capitalists to hoard data for applications irrespective of operating at a profit. The ICOs are charlatans attracted to the fluid cash flow tech companies command desiring a share in the spoils.

Keep your money in your pockets and wait for my next actionable trade alert.

__________________________________________________________________________________________________

Quote of the Day

"Stay away from it. It's a mirage, basically." - said legendary investor Warren Buffett when asked about cryptocurrency.

April 6, 2018

Tech Letter

Mad Hedge Technology Letter
April 6, 2018
Fiat Lux

Featured Trade:
(THE IMPLICATIONS OF INTEL'S LOST APPLE CONTRACT),
(INTC), (AAPL), (AVGO), (QCOM), (AMD), (NVDA)

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