Global Market Comments
February 28, 2022
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or FAREWELL THE PEACE DIVIDEND),
(SPY), (TLT), (TBT), (TSLA), (AAPL)
Tag Archive for: (AAPL)
Remember that great bull market of the Dotcom Boom? Most investors believe it was the result of combining a new Internet, cheap PCs, and the Mosaic Application which made it all work together.
But to Wall Street types usually blind to geopolitics, there was another important factor: The peace dividend paid out by the end of the Cold War. The end result was 30 years of less defense spending, lower taxes, and higher profits for corporate America.
The numbers are pretty compelling. Since the Soviet Union collapsed in 1991, the Dow Average has risen from $2,875 to $34,000, a gain of 12 times. That averages out to an incredible 40% a year. Individual stocks like Monster Beverage (MNST), Tractor Supply (TSCO), and Altria (MO) appreciated a thousandfold or more.
So what happens if the Cold War resumes? Do we have to pay the money back?
In part, yes.
Not that you have to have to write a check anytime soon. But you will have to pay in the form of higher taxes for more defense spending, slower economic growth, fewer corporate profits, and a more modestly appreciating stock market. And that great multiplier of growth, globalization, just suffered a dagger through its heart.
While we have just seen one of the greatest short-covering rallies of all time, $1,800 points or 5.6% in two days, don’t think you’re back on Easy Street yet. A worst-case scenario full-scale Russian invasion of the Ukraine is in the price. So, it's back to focusing on runaway inflation and the certain multiple Fed interest rate hikes to fight it once again.
And guess what? Wars are inflationary. We are already seeing surges in the price of energy, wheat, and nonferrous metals.
So, I think I’ll stick to the short side for the time being. After all, it’s worked pretty well so far in 2022. You’ll still need to maintain some discipline here, only selling rallies.
If the US acts fast, there is an opportunity here for it to create a second War in Afghanistan for Russia. It’s certainly trying. As I write this, there are already long convoys of NATO trucks that carry ammunition and antitank missiles into the Ukraine. If you remember, it was its loss of the first one that led to the demise of the Soviet Union. I think Putin has bit off more than he expected.
For those who are maintaining core long-term portfolios, which are most of you, writing, or selling short front month out-of-the-money call options against your positions is a great idea. It will reduce your risk, lower your average cost, reduce your volatility, and bring in some extra income. Option volatilities are still high, so you can earn a pretty penny with such a strategy.
And if in case we return to happy days again, you will be taken out of your positions at higher prices with bigger profits and will think you have died and gone to Heaven.
What is the other smart trade here? If you have any energy exposure whatsoever this is a generational opportunity to get rid of it. The best-case golden scenario has happened. Even if oil goes to $125 short term, your energy stocks won’t go much higher from here.
If Russia and Saudi Arabia are trying to exit the energy business, maybe you should too.
There has been a lot of speculation about Putin’s timing of his invasion of the Ukraine. The winter, oil inventory shortages, and NATO’s half-century of underinvestment in defense were all factors.
But the most important one is being completely ignored. Putin has to unload his country’s energy resources before they become worthless, which I reckon will happen in about 20 years.
That means in two decades, some 70% of Russia’s total government revenues vaporize. The invasion of the Ukraine allows Putin to get rid of more energy faster at higher prices right now.
As my old friend, Dr. Armand Hammer used to say, “Everything boils down to oil.” (click here for the link).
Without energy, Russia has little to offer the world but a few metals and a lot of unregulated hackers. You see the same motivation in Saudi Arabia’s massive investment in alternative energy in California. And yes, they really did try to buy all of Tesla three years ago (TSLA) before the shares rose fivefold.
My Ten-Year View
When we come out the other side of pandemic, we will be perfectly poised to launch into my new American Golden Age, or the next Roaring Twenties. With interest rates still at zero, oil cheap, there will be no reason not to. The Dow Average will rise by 800% to 240,000 or more in the coming decade. The American coming out the other side of the pandemic will be far more efficient and profitable than the old. Dow 240,000 here we come!
With near-record volatility fading fast, my February month-to-date performance rocketed to a blistering 10.51%. It turned out to be a great month to play from the short side in size. My 2022 year-to-date performance ended at 25.10%. The Dow Average is down -6.1% so far in 2022. It is the great outperformance on an index since Mad Hedge Fund Trader started 14 years ago.
I went into the Russian invasion with 90% cash, expecting trouble. I stopped out of a long in Apple (AAPL) in a day for a small loss. The next trade I added was another short in bonds, followed quickly by a new long in Tesla (TSLA) ($700 a share? Really?). Within hours the stock was up $100!
That brings my 13-year total return to 537.66%, some 2.00 times the S&P 500 (SPX) over the same period. My average annualized return has ratcheted up to 43.89%, easily the highest in the industry.
We need to keep an eye on the number of US Coronavirus cases at 79 million and rising quickly and deaths topping 950,000, which you can find here.
On Monday, February 28 at 8:00 AM EST, the president delivers the State of the Union Speech
On Tuesday, March 1 at 8:30 AM, the ISM Manufacturing Index for February is out.
On Wednesday, March 2 at 5:15 AM, the ADP Private Employment Index is released.
On Thursday, March 3 at 8:30 AM, Weekly Jobless Claims are published.
On Friday, March 4 at 8:30 AM, the February Nonfarm Payroll Report is Published. At 2:00 PM, the Baker Hughes Oil Rig Count is out.
As for me, I’m not supposed to be alive right now. In fact, the betting in my extended family is that I would never make it past 30. But here I am 40 years after my “sell by” date and I’m having the last laugh.
There were times when it was a close-run thing. Breaking my neck in a 70 mile per hour head-on collision in Sweden in 1968 didn’t exactly help my odds. Nor did watching a land mine blow up the guy in front of me in Cambodia in 1975, showering me head to toe with shrapnel and bone fragments.
After crashing three airplanes in Italy, Austria, and France, the European Union Aviation Safety Agency certainly wishes I died at a much earlier age. So, no doubt did the tourists at the top of the Eifel Tower one day in 1987, who I just missed hitting by 100 feet (yes, I was the Black Baron).
When I was in high school, the same group of four boys met every day at recess. We were all in the same Boy Scout Troop and became lifelong friends. Since I had been to over 50 countries by the age of 16, I was considered the wild man of the bunch, the risk-taker, always willing to roll the dice. The rest lived vicariously through me. But I was also the lucky one.
For a start, I was not among the 22 from my school who died in Vietnam, 11 officers and 11 draftees. Their names are all on the Vietnam Memorial Wall in Washington DC. My work for the Atomic Energy Commission at the Nuclear Test Site gave me a lifetime draft exception on national security grounds.
But I went anyway, on my own dime, to see who was telling the truth. It turned out no one was.
The other three boys in my group played it safe, pursuing conventional careers and never took any risks.
David Wilson was the first to go. He managed a hotel in Park City, Utah for a national chain. When he was hiking in the Rocky Mountains one day, a storm blew in and he went over a cliff. They didn’t find his body for a week.
Paul Blaine went on to USC and law school. In his mid-fifties, he lost a crucial case and shot himself at his desk at his Newport Bay office. I later learned he had been fighting a lifetime battle against depression. We never knew.
Robert Sandiford spent his entire career working as a computer programmer for the city of Los Angeles. By the time he retired at 65, he was managing 40 people. He pursued his dream to buy a large RV, drive it to Alaska, and play his banjo in a series of blue grass festivals.
Robert was unfamiliar with driving such a large vehicle. Around midnight, he was driving north on Interstate 5 near Modesto, CA when he passed a semi. When he pulled back into the slow lane, he clipped the front of the truck on cruise control with a driver half asleep. The truck pierced a propane tank on the RV, blowing up both vehicles. Robert, his wife Elise, and the truck driver were all burned to death.
At least, this was the speculation by the California Highway Patrol. Robert and Elise went missing for months. We thought that maybe his RV had broken down somewhere on the Alaskan Highway and family members went there to look for him. It was only after the Los Angeles County Coroner discovered some dental records that we learned the truth.
When the bones were returned, the family had them cremated and we scattered the ashes in the Pacific Ocean off Catalina Island where we used to camp as scouts.
I have been rewarded for risk taking for my entire life, so I keep at it. Similarly, I have seen others punished for risk avoidance, as happened to all my friends. The same applies to my trading as well. The price of doing nothing is far greater than doing something, and being aggressive offers the greatest reward of all.
This summer, I am scheduled to fly an 80-year-old Supermarine Spitfire fighter aircraft over the white cliffs of Dover, of Battle of Britain fame. I am spending my evenings memorizing the 1940 operations manual just to be safe, as I always do with new aircraft.
A 70-year-old flying an 80-year-old plane, what could go wrong with that?
Oh, and I am learning the banjo too.
I’ll send you the videos.
Stay Healthy,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
That’s a Heck of a Dividend
Global Market Comments
February 14, 2022
Fiat Lux
Featured Trades:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or WELCOME TO WORLD WAR III),
(TLT), (SPY), (MSFT), (AMZN), (BKKB), (AAPL)
The market finally found something worse than inflation to rattle it: WWIII.
I’m not expecting my call-up papers from the Marine Corps anytime soon. After all, there isn’t a war that is about to happen. In any case, if the defense of the nation relies upon me as a pilot, we are in big trouble.
The market clearly thought otherwise last week, when the Dow swooned 1,200 points in two days. The Friday close was a dog’s breakfast.
It gets worse.
The collapse sets up a perfect “head and shoulders” top which the hedge fund community has been gunning for all year. That beckons eventual lows that will finally bring us into decent LEAPS territory, especially if the Volatility Index (VIX) leaps over $40.
Biden actually has a pretty good strategy going in the Ukraine. By announcing the time and date of the Russian invasion in advance, he boxes Putin into a corner, forcing him to put up or shut up.
It's really all one big chess game, with the two countries attempting to each gain maximum security advantages at minimum cost. Putin would love the Ukraine if he could get it. So did Hitler, Napoleon, and Genghis Khan before him.
Biden hopes to make the price so high it’s not worth it. After all, Hitler, Napoleon, and Genghis Khan didn’t come to good endings.
It’s really meaningless to fight this battle when modern national borders are rapidly dissolving anyway. Modern borders are increasingly being drawn by operating systems, apps, and security suites rather than lines on a map.
Of course, bonds were discounting a completely different scenario, that of peace, prosperity, and booming economies that demand more capital at higher interest rates. Fed members are now playing a game of competitive hawkishness, talking interest rates up and bond prices down.
It all sounds like a great short bond environment to me, which is why I have been running a triple short position since the beginning of the year. The best is yet to come.
So we flipped from being long everything in 2021 to short the works in 2022. That’s just the way markets work now. So, if you can’t stand the heat, get out of the kitchen.
Fed Now Pushing a Half-Point Hike, tanking the markets, and could deliver 100 basis points by July. Competitive hawkishness has broken out at the Fed. Looks like a bond short will be the trade of the year. Who knew? (You did).
Core CPI Comes in Hot at 7.5%, the highest since 1982, and hotter than expected. The news finally took bond prices to new multi-year lows and ten-year yields to 2.0%. One-third of this number is rent, which is rising at a record rate. Wages are up an eye-popping 5% YOY. Used car prices were up massively. Stocks took it on the news. It’s going to get worse before it gets better. The chances of a 50-basis point hike in March.
Real Yields Turn Positive, for the first time in a decade, at least for 30-year US treasury bonds. That is the real inflation-adjusted yield for TIPS, or Treasury Inflation-Protected Securities, which now yield 0.08%. Expect real yields to soar from here. Yes, positive returns for bonds at last!
JGB Yields Approach Five Year High, at 0.25%, so will the Bank of Japan be forced to raise rates for the first time in 21 years to come in line with the market. Quantitative Easing is also ending. Gee, do you think zero rates have worked? It's all part of an accelerating trend for more expensive global money.
Pfizer Hauls in $32 Billion From Covid, and another $22 billion for its antiviral Paxlovid. Still, the stock market is a “What have you done for me lately,” and the shares are off 20% since December.
NVIDIA Cancels ARM Purchase, ending its $66 billion attempt to buy market share. UK regulatory opposition was the issue. Buy (NVDA) on dips. The best-run company in the market has just suffered a 40% selloff.
GM to Ramp Up EV Production Sixfold This Year. Electric Escalade SUVs and trucks are the top priority. But while saying is one thing, doing is another. No mention has been made of how they will obtain the extra chips and batteries. Avoid (GM) a never-ending font of disappointment.
Weekly Jobless Claims Prints at 223,000, well above the post-pandemic low of 188,000 in December. Continuing Claims post at 1,621,000.
Foreclosures are Soaring now that the pandemic relief is over. They were up 29% in January, double YOY levels. Florida leads in this troubled category. The numbers would be higher save for enormous rises in home prices which permit cash out refis.
My Ten-Year View
When we come out the other side of pandemic, we will be perfectly poised to launch into my new American Golden Age, or the next Roaring Twenties. With interest rates still at zero, oil cheap, there will be no reason not to. The Dow Average will rise by 800% to 240,000 or more in the coming decade. The American coming out the other side of the pandemic will be far more efficient and profitable than the old. Dow 240,000 here we come!
With near record volatility fading fast, my February month to date performance rocketed to a blistering 8.71% in only nine days. My 2022 year-to-date performance has exploded to an unbelievable 23.30%. The Dow Average is down -4.3% so far in 2022. It is the great outperformance on an index since Mad Hedge Fund Trader started 14 years ago.
With 30 trade alerts issued so far in 2022, there was too much going on to describe here. Check your inboxes.
That brings my 13-year total return to 535.86%, some 2.00 times the S&P 500 (SPX) over the same period. My average annualized return has ratcheted up to 44.04% for the first time. How long it will keep rising I have no idea, but as long as it is, I’m not complaining. When you’re hot, you have to be maximum aggressive.
We need to keep an eye on the number of US Coronavirus cases at 78 million and rising quickly and deaths topping 919,000, which you can find here.
On Monday, February 14 at 8:00 AM EST, US Consumer Inflation Expectations are out.
On Tuesday, February 15 at 8:30 AM, the New York Empire State Manufacturing Index is printed.
On Wednesday, February 16 at 8:30 AM, US Retail Sales for January are announced.
On Thursday, February 17 at 8:30 AM, Weekly Jobless Claims are published. Housing Starts and Building Permits for January are announced.
On Friday, February 18 at 7:00 AM, Existing Home Sales for January are disclosed. At 2:00 PM, the Baker Hughes Oil Rig Count are out.
As for me, I made the most unlikely of entries into journalism 50 years ago, thanks to basketball, Mensa, and the kindness of complete strangers.
Struggling as a part-time English teacher in Tokyo for Toyota, Sony, and Meiji Shipping, I noticed one day in the Japan Times an ad for a Mensa meeting, the organization for geniuses.
I joined and, after a few meetings, was invited to give a presentation on the subject of my choice at the next meeting. Since I had just obtained a degree in Biochemistry from UCLA, I spoke on the effects of THC (tetra hydro cannabinol) on the human brain. The meeting was exceptionally well attended by detectives from the Tokyo Police Department, as THC was then highly illegal.
At the end of the meeting, famed Australian journalist Murray Sayle approached me and said he could get me into the Foreign Correspondents Club of Japan. The big attraction was access to the Club’s substantial English language library.
Except for a few well-worn Playboy magazines coming out of the local US Air Force bases, there were almost no English language publications in Japan in those days.
So I joined as a corporate member at 22, the youngest of the 2,000-man club, eating lunch daily with the foreign correspondents on the 20th floor of the Yurakcho Denki Building in central Tokyo. It was just across the street from General Douglas MacArthur’s WWII occupation headquarters.
Many correspondents were holdovers from WWII and had fought their way to Japan on the long island-hopping campaign. Once in Tokyo, they never left, were treated like visiting royalty, paid well, and besieged by beautiful women.
At 6’4” it was only weeks before I was recruited for the club’s basketball team. We played the team from the US Embassy Marine Corps guard, which regularly kicked our butts every week. After all, they had nothing to do all day but play basketball. But they also gave us access to the Tokyo PX where you could get a bottle of Johnny Walker Red for $3.00, versus the local retail price of $100.00.
I managed to eventually get a job at Dai Nana Securities to teach English to the sales staff there. The first oil shock had just taken place and the sole buyers of shares in the world were all in the Middle East.
After two weeks of trying, I met with the president of the company, Mr. Saito, and told him his staff would never learn English. They just lacked the language gene. But if he taught me the stock business, I would sell the shares for him.
He said OK.
Thus, I ensued on a crash course on securities analysis, relying heavily on the firm’s only copies of the 1934 book, Securities Analysis by Benjamin Graham, and his 1949 tome, The Intelligent Investor. I still have a copy of the first research report I wrote on electric tool maker Makita.
It wasn’t long before I became the top salesman at Dai Nana, eventually selling up to 5% holdings in the top 200 Japanese companies to the Saudi Arabia Monetary Authority, the Kuwait Investment Authority, and the Abu Dhabi Investment Authority.
Then the stock market crashed. I lost my job. So, I started asking around the Press Club if anyone had any work. I was broke and nearly homeless.
At the time, most of the correspondents had just returned from covering the Vietnam War. In Japan, they wanted to cover politics, geisha girls, and Emperor Hirohito. Business was at the very bottom of the list. Besides, no one cared what happened in Japan anyway.
It turned out that all the members of the Press Club basketball team were business journalists. There was Mike Tharpe from the Wall Street Journal, Tracy Dalby from the New York Times, and Richard Hanson from the Associated Press, all NCAA college athletes.
Then one team member, The Economist correspondent, Doug Ramsey, asked me if I could write a story about the Japanese steel industry, which was then aggressively dumping product in the US, killing American jobs and creating a political firestorm. Using my stock market contacts, I spent a week diligently researching the subject.
The editors in London loved the story and said they’d take two a week at $75 each. Then the Financial Times heard about me and said they’d also take two a week. All of a sudden, I had a full-time job paying the princely sum of $1,200 a month!
I eventually built up a global syndicate of 40 business publications in ten countries. By 26, I was earning $100,000 a year and published several books. At my peak I accounted for about half of all business news coming out of Japan, along with stringer jobs with the British Broadcasting Corp. in London and NBC in New York.
This was all from a person whose only “C” in college was in English. Officially, I didn’t know how to write back then.
Officially, I still don’t.
Stay Healthy,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Mad Hedge Technology Letter
February 11, 2022
Fiat Lux
Featured Trade:
(THE GROWING CLOUT OF TWILIO)
(TWLO), (ADBE), (CRM), (GOOGL), (AAPL)
Twilio (TWLO) cranked the ball out of the ballpark in its latest quarterly performance.
For a company that’s been burning cash for years, such as 2021’s performance of negative $950 million, analysts expected another few years of losses.
That’s not the only loss, the years before were saddled with unprofitable times like the $490 million burnt in 2020 and they still haven’t recorded a single profitable year yet.
So for Chief Executive Officer of Twilio Jeff Lawson to tell us that he expects Twilio to be profitable in 2023 is a gamechanger.
This guy has elevated Twilio to the dominant provider of business-to-consumer communications tools, powering messages such as the Uber notification you receive after ordering a ride, into an estimated $79 billion market for software to help optimize customer experiences.
Busting out the “P word” when many analysts were expecting to count the losses is a big deal for growth tech and TWLO can expect a new breed of institutional investors to enter the fold because of their positive signaling.
It’s not only them.
They have been tactical in a series of aggressive moves adding new companies to their core like Segment.
Segment, the customer data platform provider that Twilio purchased in 2020 for $3.2 billion is one of the reasons why the juice might be worth the squeeze.
It was the company’s biggest acquisition to date and the most-watched by investors.
The integration of Segment is expected to enhance the bulk of Twilio’s product portfolio.
It effectively functions as a repository of continually updated first-party customer information that businesses can use to improve marketing and support, with the goal of fostering loyalty and higher sales.
The timing of the deal was critical given Apple’s (AAPL) stricter data treatment and Google’s (GOOGL) narrowing of its web-tracking software.
At the same time, the acquisition of Segment nudged Twilio towards the direction of competing with Silicon Valley stalwarts like Salesforce (CRM) and Adobe (ADBE).
A key difference between Twilio and its rivals is the ability for developers within businesses to conveniently build customized programs on top of the company’s base tools.
Not only did management indicate that profitability is arriving next year, but they signaled strong revenue growth of over 30% for the next three years.
Easily said, TWLO is morphing into an indestructible force that is harnessing soon-to-be profitability, growth, and future success all wrapped into one company.
In this era, it’s hard to get all broad strategies working simultaneously because most tech firms will sacrifice profits for growth.
On top of that, management shared that they fully expect gross margins to surpass 60% in the long-term translating into a highly profitable company.
That’s the beauty of the software as a service (SaaS) model, the scalability works well inside the financial parameters which is why companies like Adobe and Salesforce bust out such great metrics.
Three other acquisitions Lawson believes will make a difference are Engage for the marketer, which is still very early in its cycle, most recently, a software called Frontline, which can be used by frontline workers and even sales teams to be more efficient, and lastly, Flex for the contact center.
All indications show this is nowhere near a “pandemic stock” and the fourth-quarter revenue jumping to 54% to $842.7 million while guiding for $865 million next quarter validates that.
This communication as a software company is sticky as can be and has a valid use case in many different apps that need to link the back-end interfaces with customer functionality.
TWLO will move from strength to strength going forward and this software company has a real chance to make its mark as not just a company considered second tier, but even a flight to safety type of tech stock which are few and far between.
The stock is still highly volatile which makes it easy to add on the big dips, but readers should avoid the small dips.
I am bullish TWLO.
Global Market Comments
February 8, 2022
Fiat Lux
Featured Trades:
(WHY TECHNICAL ANALYSIS NEVER WORKS)
(FB), (AAPL), (AMZN), (GOOG), (MSFT), (VIX)
Global Market Comments
February 7, 2022
Fiat Lux
Featured Trades:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or CASH IS KING),
(SPY), (TLT), (TBT), (MSFT), (AAPL), (TSLA), (BRKB)
Mad Hedge Technology Letter
February 4, 2022
Fiat Lux
Featured Trade:
(FACEBOOK IS BROKEN)
(FB), (AMZN), (MSFT), (AAPL)
Facebook (FB) is broken.
As a stock, management team, product, and as a business model – it is broken.
This portends poorly for the company that Mark Zuckerberg built.
Funnily enough, Zuckerberg decided to opt for a new company name, "Meta," to signal to his investors that the company is barreling straight into a new chapter of its existence.
The problem I have with Meta is that they face 10 years of losses before they can potentially spin a profit from a Metaverse-based product.
Reading the tea leaves, the name change appears to mask the internal destruction of the legacy Facebook model, and the warning signs are more than a few.
They are in the digital ad business at a time when e-commerce company Amazon (AMZN) is rapidly encroaching on their turf.
I would argue that it was Facebook who completely missed out on e-commerce, almost like how Microsoft (MSFT) missed out on the cell phone business that Apple were able to figure out.
The final kick below the belt was Facebook admitting that Apple’s (AAPL) privacy changes have materially affected Facebook’s ability to collect large swaths of data.
The result is less accurate and voluminous data because they can’t steal as much reducing the amount they can charge digital advertisers for the data.
Facebook’s underperformance is the most complete anecdotal evidence so far on the impact to the advertising industry of Apple’s App Tracking Transparency feature, which minimizes targeting capabilities by limiting advertisers from accessing an iPhone user identifier.
Even with the terrible report, I don’t believe a 26% haircut in Meta shares was warranted, but this represents the sign of the times where companies aren’t given a free pass anymore.
If something like this were to happen in a period of easy money, I believe Meta would have only sold off 4%-6%.
So how about that Metaverse business?
Chief Executive Officer Mark Zuckerberg announced Wednesday that Meta had a net loss of $10 billion in 2021 attributable to its investment in the Meeetaverse.
I believe this is a risky stance to take considering it’s not fully guaranteed that the Metaverse will be what all the experts think it might turn into.
It could still only pull through in a diluted way like many things in life.
Amazon has really broken away from the pack, from an advertising minnow into an ad revenue juggernaut with annual sales of $31 billion for 2021, which is more than the $28.8 billion in ad revenue that YouTube posted for the year.
At that pace, Amazon’s ad business is also larger than several other entities in online advertising, including cloud rival Microsoft, whose CEO, Satya Nadella, disclosed last week the company’s 2021 advertising revenue exceeded $10 billion.
Amazon has also decided to increase the price of Prime by nearly 17% all while Facebook lacks pricing power to charge digital ad manufacturers more.
It’s time to retire the acronym starting with F – FANG, which once represented the equity market profile of Facebook, Apple, Netflix, and Google.
Is this the end of Facebook?
No, they still have a sterling balance sheet and are awfully profitable in what they do.
But looking forward, growth rates will contract down to single digits and user growth has turned negative.
These are both ominous signs with no solutions in sight.
Have we seen the high-water mark for Facebook?
Fixing its stock trajectory to the backs of the metaverse is a fool’s game because of the large losses it will incur in the short to mid-term.
Zuckerberg largely understands the Metaverse as an existential crisis of epic proportions, which is why he’s throwing the kitchen sink at it.
Broadly speaking, the stock market might have a Facebook problem because the company is so valuable and part of so many indices that a dip in shares will hurt the wider market.
In any case, the bombshell report means that this bodes poorly for the 3-year trajectory of Meta’s stock; and to give Meta the benefit of the doubt, at least they have the cash to make a legitimate run at the Metaverse business.
Don’t expect high octane price action in Meta until they signal that the Metaverse business is legitimate and just around the corner, which might be a while!
My recommendation is to put this one on the backburner until prospects brighten up.
