Posts

September 26, 2018

Global Market Comments
September 26, 2018
Fiat Lux

SPECIAL CAR ISSUE

Featured Trade:
(SAY GOODBYE TO THAT GAS GUZZLER),
(GM), (F), (TSLA), (GOOGL), (AAPL)

September 21, 2018

Global Market Comments
September 21, 2018
Fiat Lux

Featured Trade:
(SEPTEMBER 19 BIWEEKLY STRATEGY WEBINAR Q&A),
(SPY), (VIX), (VXX), (GS), (BABA), (BIDU), (TLT), (TBT),
(TSLA), (NVDA), (MU), (XLP), (AAPL), (EEM),
(MONDAY, OCTOBER 15, 2018, ATLANTA, GA,
GLOBAL STRATEGY LUNCHEON)

September 17, 2018

Global Market Comments
September 17, 2018
Fiat Lux

Featured Trade:
(THE MARKET OUTLOOK FOR THE WEEK AHEAD),
(AAPL), (CBS), (EEM), (BABA), (UUP), (MSFT), (VIX), (VXX), (TLT),
(TUESDAY, OCTOBER 16, 2018, MIAMI, FL, GLOBAL STRATEGY LUNCHEON)

September 7, 2018

Global Market Comments
September 7, 2018
Fiat Lux

Featured Trade:
(MONDAY, OCTOBER 15, 2018, ATLANTA, GA,
GLOBAL STRATEGY LUNCHEON),
(SEPTEMBER 5 BIWEEKLY STRATEGY WEBINAR Q&A),
(AMZN), (MU), (MSFT), (LRCX), (GOOGL), (TSLA),
(TBT), (EEM), (PIN), (VXX), (VIX), (JNK), (HYG), (AAPL)

September 4, 2018

Global Market Comments
September 4, 2018
Fiat Lux

Featured Trade:
(WEDNESDAY, OCTOBER 17, 2018, HOUSTON GLOBAL STRATEGY LUNCHEON),
(DON’T MISS THE SEPTEMBER 5 GLOBAL STRATEGY WEBINAR),
(THE MARKET OUTLOOK FOR THE WEEK AHEAD, or
THE WAR WITH CANADA STARTS ON TUESDAY),
(MSFT), (VXX), (TLT), (AAPL), (KO), (GM), (F)

August 28, 2018

Mad Hedge Technology Letter
August 28, 2018
Fiat Lux

Featured Trade:
(SPOTIFY STILL HAS SOME UPSIDE),
(SPOT), (AMZN), (AAPL), (P)

Spotify Still Has Some Upside

Investors sulking about Spotify’s (SPOT) inability to make money do not get the point.

Yes, the job of every company to be in the black, but the No. 1 responsibility for a modern tech company is to grow, and grow fast.

Tech investors pay for growth, period.

As investors have seen from Netflix, companies can always raise prices after seizing market share because of the stranglehold on eyeballs inside a walled garden.

That potent formula has been the bread and butter of powerful tech companies of late.

Spotify is a captive of the music industry, of which it is entirely dependent for its source of goods, in this case songs.

At the same time, the music industry has fought tooth and nail to destroy the likes of Spotify, which benefits immensely from distributing the content it creates.

History is littered with failed music streaming services outgunned in the courtroom. Pandora (P) is the biggest public name out there whose share price has tanked over the long haul.

The music industry will battle relentlessly to exterminate Spotify and force up the royalties these Internet giants must pay as their main input.

But that does not mean Spotify is a bad company or even a bad stock.

Every company has its share of pitfalls. Throw in the mix that Amazon (AMZN) and Apple (AAPL) have music streaming services that do not even need to make a profit, and you will understand why some might be wary about putting new money to work in music streaming business stocks.

The primary reason that Spotify shares will outperform for the foreseeable future is because it is the preeminent music streaming platform.

Also, there is favorable latitude to make way toward the goal of monetization, and ample space to improve gross margins.

Global streaming revenue growth has gone ballistic as the migration to mobile and cord cutting has exacerbated the monetization prospects of the music industry.

Streaming revenue was a shade under $2 billion in 2013, and continued to post a growth trajectory of more than 40% each year since.

As it stands now, total global streaming revenue registered just a tick under $7 billion per year in 2017, and that was an improvement of 41.1% from 2016.

There are no signs of yielding as more avid music fans push into the music streaming space.

Social media platforms have helped publicize popular artists’ content.

Music is effectively a strong part of youth culture, which will eventually see the youth integrate a music streaming app into their daily lives for the rest of their adult lives.

The choice among choices is Spotify in 2018.

The company was dogged by many years of famous artists removing their proprietary content from the platform citing unfavorable terms.

A prime example was in 2009 when Lady Gaga’s hit song “Poker Face” only received $167 in royalty payments from Spotify for the first million streams. This highlighted the rock-solid position Spotify has curated inside the music industry.

Individual artists’ fight against Spotify has been dead on arrival from the outset, but the benefits and exposure from cooperating with the company far outweigh the drawbacks.

Eventually, almost all artists have relented and reinstalled their music on Spotify. They depend on alternative moneymaking avenues to compensate for lack of royalties, which is mainly live music.

That is why it costs an arm and a leg to go see Taylor Swift in living flesh now, and why those summer festivals dotted around America such as Coachella command premium ticket prices.

How does Spotify make money?

It earns its crust of bread through paid subscriptions but lures in eyeballs using an ad-supported free version of its platform.

Naturally, the paid version is ad-less, and this subscription is around $5 to $15 per month.

In the second quarter, Spotify’s paid subscription volume surpassed 83 million, a sharp uptick of 40% YOY.

Ad-supported users came in at more than 101 million, even under the damage that General Data Protection Regulation (GDPR) did to western tech companies.

The ad-supported subscribers rose 23% YOY, and the paid version expects between 85 million to 88 million paid subscribers in the third quarter.

Many of the new paid subscribers are converts from its free model.

Spotify is poised to increase revenue between 20%-30% for the rest of the year.

The rise of Spotify’s developing data division could extract an additional $580 million of revenue in 2023, making up 2% of total revenue.

Remember that Spotify’s reference price set by the New York Stock Exchange (NYSE) was $132 in April 2018. The parabolic move in the stock on the verge of eclipsing $200 undergirds the demand for high-quality tech companies.

When Spotify did go public, the robust price action was with conviction, making major investors – such as China’s Tencent, which possess a 9.1% stake and Tiger Global Management, which owns 7.2% – happy stakeholders.

In the last quarter’s earnings report, Spotify CFO Barry McCarthy reiterated the company’s goal to push gross margins from the mid-20% range to “gross margins in the 30% to 35% range.”

A jump in gross margins would go a long way in making Spotify appear more profitable, and that is the imminent goal right now.

The path to real profitability is still a long way down the road and small victories will offer short-term strength to the share price.

If Spotify can retrace to around the $185, that would serve as a perfect entry point into a stock that has given investors few chances in which to participate.

July and August have only offered meager entry points into this stock, one around the $180 level in August, and another around $170 in July.

Spotify enjoyed a great first day of being public after its unorthodox IPO ending the day at $149. The momentum has continued unabated while Spotify has posted all the growth targets investors come to expect from companies of this ilk.

Bask in the glow of the growth sweet spot Spotify finds itself in right now.

The long-term narrative of this stock is intact for a joyous ride upward, and only whispers of Amazon and Apple meaningfully attempting to monetize this segment could derail it.

For the time being, the music part of Amazon and Apple are just a side business. They have other priorities, such as Apple’s battle to avoid being exterminated from communist China, and Amazon’s integration of Whole Foods and new-fangled digital ad business.

 

 

 

The Dominant Music Streaming Platform of 2018

________________________________________________________________________________________________

Quote of the Day

“Ever since Napster, I’ve dreamt of building a product similar to Spotify,” – said cofounder and CEO of Spotify Daniel Ek.

 

August 27, 2018

Global Market Comments
August 27, 2018
Fiat Lux

Featured Trade:
(THE MARKET OUTLOOK FOR THE WEEK AHEAD),
(AAPL), (TLT), (SPY),
(BIDDING MORE FOR THE STARS)
,
 (SPY), (INDU), (AAPL), (AMZN)

The Market Outlook for the Week Ahead

Ahhhh…the wonders of global excess liquidity.

Last week saw senior-level felony convictions, the real estate and auto industries rolling over and playing dead, rising inflation, escalating trade wars, sagging exports. It’s as if an entire flock of black swans landed on the markets.

And what did stocks do? Rocket to new all-time highs, Of course! What, are you, some kind of dummy? Didn’t you get the memo? With $50 trillion of global excess liquidity spawned by a decade of quantitative easing, of course stocks will go straight up, forever!

Until they don’t.

Even my favorite, Apple (AAPL) blasted through to new highs at $219 after an analyst raised his target to $245. You may recall me loading the boat with Apple calls during the February meltdown when the shares hit $150.

My target for Apple this year was $200, which I then raised to $220. Am I going to raise my target again? No. As my late mentor, Barton Biggs used to say, “Always leave the last 10% for the next guy.”

It kind of makes my own split adjusted cost of Apple shares of 50 cents, which I picked up in 1998, look pretty good. Yup. That double bottom on the charts at 40 cents said it all.

I used the strength to increase my cash position from 80% to 90%, unloading my long position in Walt Disney options at cost. That leaves me with a single short position in bonds (TLT), which have to see yield on the 10-year U.S. Treasury bond market to fall below 2.67% in three weeks before I lose money.

I am even focusing a sharp eye on the Volatility Index (VIX) for a trade alert this week. If you buy the January 2019 (VXX) $40 calls at $2.90 and the ETF rises 25 points to its April high of $54, these calls would rocket by 382% to $14.00. Sounds like a trade to me! Then I can say thank you very much to Mr. Market, thumb my nose at him, and then take off for the rest of the year. TA-TA!

In the meantime, much of industrial America is getting ready to shut down. Tariffs on 50% of all Chinese imports come into force in September. It turns out that you can’t make anything in the U.S. without the millions of little Chinese parts you’ve never heard of, which also have no U.S. equivalent.

Factories will have to either pass their costs on to consumers in a deflationary economy or shut down. What the administration has done is offset a tax cut with a tax increase in the form of higher import taxes. It was not supposed to work out like that.

The bond rally has pared back my August performance to a dead even at 0.02%. My 2018 year-to-date performance has pulled back to 24.84% and my nine-year return appreciated to 301.31%. The Averaged Annualized Return stands at 34.76%. The more narrowly focused Mad Hedge Technology Fund Trade Alert performance is annualizing now at an impressive 32.24%.

This coming week will be real estate dominated on the data front.

On Monday, August 27, at 10:30 AM EST, we obtain the Dallas Fed Manufacturing Survey.

On Tuesday, August 28, at 9:00 AM EST, we get the June S&P CoreLogic Case-Shiller National Home Price Index. Will we start to see the price falls that more current data are already showing?

On Wednesday, August 29, at 10:00 AM EST, we learn July Pending Home Sales, which lately have been weak.

Thursday, August 30, leads with the Weekly Jobless Claims at 8:30 AM EST, which saw a fall of 2,000 last week to 210,000.

On Friday, August 31, at 10:00 AM EST, we get Chicago Purchasing Managers Index for July. Then the Baker Hughes Rig Count is announced at 1:00 PM EST.

As for me, I think I’ll pop over to the Pebble Beach Concours d’Elegance vintage car show this weekend and place a bid on Ferris Bueller’s red 1962 Ferrari GT California. It’s actually a Hollywood custom chassis built around a Ford engine. I can’t afford a real vintage Ferrari GTO, one of which is expected to sell for an eye-popping $60 million this weekend.

Good luck and good trading.

 

 

 

 

 

 

 

 

August 23, 2018

Global Market Comments
August 23, 2018
Fiat Lux

Featured Trade:
(WHY THE DOW IS GOING TO 120,000),
(X), (IBM), (GM), (MSFT), (INTC), (DELL),

($INDU), (NFLX), (AMZN), (AAPL), (GOOGL),
(THE MAD HEDGE CONCIERGE SERVICE HAS AN OPENING),
(TESTIMONIAL)