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The Market Outlook for the Week Ahead, or It’s Finally Over

Last week, I was too busy to cook dinner for my brood, so I ordered a pizza delivery. When an older man showed up with our dinner, I told the kids to tip him double. After all, he might be an unpaid federal air traffic controller.

It is a good thing I work late on Friday afternoon because that's when the government shutdown ended after 35 days. The bad news? The government stops getting paid again in only 18 more days. If you have to travel, you better do it quick as the open window may be short.

The most valuable thing we learned from all of this is that the weak point in America is the airline transportation system which relies on 4,000 flights to get the country’s business done.

Having once owned a European air charter company, I could have told you as much was coming. Every nut, bolt, and screw that goes into a US registered aircraft has to be inspected by the federal government. They are painted yellow when viewed which is called “yellow tagging”. No inspection, no screw. No screw, no airplane. No airplane, no flight. No flight, no economy. I can’t tell you how many times I have seen a $30 million aircraft grounded by a failed 50-cent part.

And here’s what most investors don’t get. We lost 75 basis points in GDP growth from the shutdown. We may lose another 75 basis points restarting. And if you lose 1.50% from a post-Christmas period that is normally weak anyway, Q1 GDP may well come in negative. Hello recession!

We won’t know for sure until the first advanced estimate of Q1 GDP from the US Department of Commerce’s Bureau of Economic Analysis is published on April 26. That’s when the sushi will hit the fan. That, by the way, is perilously close for the May 10 prediction of the end of the entire ten-year bull market.

How did investors fare during the shutdown? We clocked the best January in 32 years with the Dow Average up 7.55%. Maybe the government should stay closed all the time!

It is not like the government shutdown, the fading Chinese trade talks, and the arrest of the president’s pal were the only things happening last week.

A slowing China is freaking out investors everywhere. Even if a trade deal is cut tomorrow, it may not be enough to pull the economy out of a downward death spiral. Look out below! A 6.6% growth rate for 2018 is the slowest in 30 years.

Existing Home Sales were down a disastrous 6.4%, in December and 10% YOY, the worst read since 2012. The government shutdown is made closings nearly impossible.

The EC’s Mario Draghi said there would be no euro rate rises until 2020 and the US bond market took off like a rocket. Another point or two and we’ll be in short selling territory again. Don’t count on Europe to pull us out of the next recession. Whoever came up with the idea of putting an Italian in charge of Europe’s finances anyway? Like that was such a great idea.

Procter & Gamble (PG) beat with an upside earnings surprise. It must be all those people buying soap to wash their hands of our political system. But Ford (F) disappointed, dragged down by weak foreign earnings. The weakest big car company to get into electric cars is really starting to suffer. The last of the buggy whip makers is taking a swan dive

The semis have bottomed in the wake of spectacular earnings reports from (LRCX), (AMD), and (XLNX). The great artificial intelligence play is back in action after a severe spanking. I never had any doubt they would come back. Now for an entry point.

Farmers are leaving crops to rot in the field as the trade war with China destroys prices and the Mexicans needed to harvest them are trapped at the border. There’s got to be an easier way to earn a living. Avoid the ags and all ag plays. Short tofu stocks!

Investors are now sitting on pins and needles wondering if we get a repeat of the horrific February of 2018, or whether so far great earnings reports will drive us to higher highs. Earnings tail off right when the next government shutdown is supposed to start so our lives will be interesting, to say the least.

My January and 2019 year to date return soared to +7.24%, boosting my trailing one-year return back up to +30.23%.

My nine-year return climbed up to +308.14%, a mere 1.72% short of a new all time high. The average annualized return revived to +33.61%.

I have been dancing in between the raindrops using rallies to take profits on longs and big dips to cover shorts.

I started out the week using the 4 1/2 point plunge in the bond market (TLT) to cover the last of my shorts there, bring in a whopper of a $1,680 profit in only 13 trading days. To quote the Terminator (whose girlfriend I once dated, the Terminatrix), I’ll be back.”

I used the big 500-point swoon in the Dow on Monday to come out of my (SPY) short at cost. An unfortunate comment on interest rates by the European Central Bank forced me to stop out of my long in the Euro (FXE), also at cost.

That has whittled my portfolio down to only two positions, a long in Microsoft (MSFT) and a short in Apple (AAPL). As a pairs trade you could probably run this position for years. I am now 80% in cash.

The goal is to go 100% into cash into the February option expiration in 14 trading days, wait for a big breakout, and then fade it. Essentially, I am waiting for the market to tell me what to do. That will enable me to bank double-digit profits for the start of 2019, the best in a decade.

The upcoming week is very iffy on the data front because of the government shutdown. Some government data may be delayed and other completely missing. Private sources will continue reporting on schedule. All of the data will be completely skewed for at least the next three months. You can count on the shutdown to dominate all media until it is over.

Jobs data will be the big events over the coming five days along with some important housing numbers. We also have several heavies reporting earnings.

On Monday, January 28 at 8:30 AM EST, we get the Chicago Fed National Activity Index.

On Tuesday, January 29, 9:00 AM EST, the Case Shiller National Home Price Index for November is released. The ever important Apple (AAPL) earnings are out after the close, along with Juniper Networks (JNPR).

On Wednesday, January 30 at 8:15 AM EST, the ADP Private Employment Report is announced. Pending Home Sales for December follows. Boeing Aircraft (BA) and Facebook (FB), and PayPal (PYPL) announce.

Thursday, January 31 at 8:30 AM EST, we get Weekly Jobless Claims. We also get the all-important Consumer Spending Index for December. Amazon (AMZN) and General Electric (GE) announce.

On Friday, February 1 at 8:30 AM EST, the January NonFarm Payroll Report hits the tape.

The Baker-Hughes Rig Count follows at 1:00 PM. Schlumberger (SLB) announces earnings. Home Sales is released. AbbVie Inc (ABBV) and DR Horton (DHI) report.

As for me, I will be celebrating my birthday. Believe me, lighting 67 candles creates a real bonfire. I received the best birthday card ever from my daughter which I have copied below

Good luck and good trading.

John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader

January 24, 2019

Diary, Newsletter, Summary

Global Market Comments
January 24, 2019
Fiat Lux

Featured Trade:

(FROM THE FRONT LINES OF THE TRADE WAR),
(AAPL), (AVGO), (QCOM), (TLT),
(HOW THE MAD HEDGE MARKET TIMING ALGORITHM TRIPLED MY PERFORMANCE),

January 23, 2019

Tech Letter

Mad Hedge Technology Letter
January 23, 2019
Fiat Lux

Featured Trade:

(WHY TECH IS FLEEING SILICON VALLEY),
(AAPL), (CRM), (MSFT), (FB), (AMZN), (GOOGL)

Why Tech is Fleeing Silicon Valley

Tech Letter

When did Marc Benioff become a real estate agent?

That is the main takeaway from the interview he gave to the world from the annual powerful people conference in Davos, Switzerland.

During the interview, he cut straight to the chase and described the cocktail of negative unintended consequences that the tsunami of tech profits has spawned.

His thesis, though not new, parlayed admirably with Bridgewater Associates Founder Ray Dalio interview in chronicling an economic landscape in which geopolitical turmoil finally catches up meaningfully with the movement of tech shares because of the underlying threat to influence concrete economic policy moving forward.

Why is he a real estate seller?

Well, he might as well be one in second-tier cities with copious amounts of tech talent such as Austin, Nashville, Sacramento, Atlanta, and Portland because these metro areas are about to experience a wild ride in the property market rollercoaster.

Benioff just added fuel to this fire.

The robust housing demand, lack of housing supply, mixed with the avalanche of inquisitive tech money will propel these housing markets to new heights and this phenomenon is happening as we speak.

Benioff lamented that San Francisco, where ironically he is from, is a diabolical “train wreck” and urged fellow tech CEOs to “walk down the street” and see it with their own eyes to observe the numerous homeless encampments dotted around the city limits.

The leader of Salesforce doesn’t mince his words when he talks and beelines to the heart of the issues.

After relinquishing some of his CEO duties to newly anointed Co-CEO Keith Block, Benioff will have the operational time and a wealth of resources to get on top of the pulse of not only tech issues but bigger picture stuff and he now has a mouthpiece for it with Time magazine which he and his wife recently bought.

In condemning large swaths of the beneficiaries of the Silicon Valley ethos, he has signaled that it won’t be smooth sailing for the rest of the year in tech wonderland, and he urged companies to transform their business model if they are irresponsible with user data.

The tech lash could get messier this year because companies that go rogue with personal data will face a cringeworthy reckoning as the tech lash fury seeps into government policy and the social stigma worsens.

I have walked around the streets of San Francisco myself. Places around Powell Bart station close to the Tenderloin district are eyesores. South of Market Street isn’t a place I would want to barbecue on a terrace either.

Summing it up, the unlimited tech talent reservoir that Silicon Valley gorged on isn’t flowing anymore because people don’t want to live there now.

This tech talent, equipped with heart-tugging stories from siblings and anecdotes from classmates getting shafted by the San Francisco dream, has recently put the Bay Area in the rear-view mirror for many who would have stayed if it were 20 years ago.

This is exactly what Apple’s $1 billion investment into a new tech campus in Austin, Texas and Amazon adding 500 employees in Nashville, Tennessee are all about. Apple also added numbers in San Diego, Atlanta, Culver City, and Boulder just to name a few.

Apple currently employs 90,000 people in 50 states and is in the works to create 20,000 more jobs in the US by 2023.

Most of these new jobs won’t be in Silicon Valley.

Since the tech talent isn’t giddy-upping into Silicon Valley anymore, tech firms must get off their saddle and go find them.

The tables have turned but that is what happens when the heart of western tech becomes unlivable to the average tech worker earning $150,000 per year.

I also mind you that these external forces have nothing to do with pure technology, pure technology improves with each iteration and gaps up with each revolutionary idea.

That will not change.

Driving out young people who envision a long-term future elsewhere than the San Francisco Bay Area forces Silicon Valley to adapt to the new patterns revealing themselves.

Sacramento has experienced a dizzying rise of newcomers from the Bay Area itself.

Some are even commuting, making that 60-mile jaunt past Davis, but that will give way to entire tech operations moving to the state capitol.

Millennials are reaching that age of family formation and they are fleeing to places that are affordable and possible to become a new home buyer.

These are some of the practical issues that tech has failed to embrace and to maintain the furious pace of growth that investors' capricious expectations harbor.

Silicon Valley will have to become more practical adding a dash of empathy as well instead of just going by the raw and heartless data.

We aren’t robots yet, and much of the world still augurs to emotional decisions and disregards the empirical data.

My favorite tech companies are not only saying the right things but are doing the right things as well.

Microsoft (MSFT) just laid down a marker promising $500 million to build more affordable housing in Seattle.

Sustainability does not only mean building a sustainable business model on the balance sheet, but this definition is growing to be inclusive of upholding the stability and long-term prospects of a local area.

Microsoft has put the trust in its products at the fore of their business model.

Each time CEO of Microsoft Satya Nadella interviews, he preaches about the universal trust that consumers possess in Microsoft.

He is not off on his claims and Microsoft is riding this mantra all the way to the bank while sidestepping regulatory scrutiny.

Nadella is always smartly one step ahead.

All this screams going long Microsoft by buying the dips.

Sell the rallies in the names that have a crisis of trust such as Facebook (FB) and Google (GOOGL).

I was recently gouged $250 on my monthly phone bill by Google because of a technicality from cell phone service Google Fi.

All a specialist said was that according to the data, I should be charged almost as if I should be shamed for even questioning their business model.

Not only that, the best and brightest from Stanford, University of California at Berkeley, and Ivy league schools do not want to work for Facebook and Google anymore.

These brands have been tainted.

The result will be needing to overpay to secure the able forces needed to pursue growth and success.

Not only that, upper management has left in droves “pursuing new opportunities.”

Google is also grappling with an Apple problem - no new innovative products and it’s yet to be seen if Waymo, the autonomous driving business, can be that solid growth driver going forward.

As the economy creeps closer and closer to the end of the cycle, investors won’t be willing to drain money down some loss-making outfit in the name of growth.

Therefore, software companies based on innovation fused with stable profits will be the go-to formula in tech investing in 2019 and Amazon (AMZN), Salesforce (CRM), and Microsoft (MSFT) are ahead of the curve.

Don’t get me wrong - Silicon Valley is still alive and kicking.

But, instead of physical offices being planted in the Bay Area, the tech industry will give way to the “spirit” of Silicon Valley with offices in far-flung places.

And remember that all of these new tech talent strongholds will need housing, and housing that an IT worker making $150,000 per year desires.

January 23, 2019

Diary, Newsletter, Summary

Global Market Comments
January 23, 2018
Fiat Lux

Featured Trade:

(PLAYING THE SHORT SIDE WITH VERTICAL BEAR PUT SPREADS), (TLT)
(WHY TECHNICAL ANALYSIS DOESN’T WORK)
(FB), (AAPL), (AMZN), (GOOG), (MSFT), (VIX)

January 22, 2019

Diary, Newsletter, Summary

Global Market Comments
January 22, 2019
Fiat Lux

Featured Trade:

(THE MARKET FOR THE WEEK AHEAD, or WHY I LOVE THE STOCK MARKET),
(SPY), (TLT), (MSFT), (CRM), (AMZN), (FXE)
(HOW TO EXECUTE A VERTICAL BULL CALL SPREAD),
(AAPL)

The Market Outlook for the Week Ahead, or Why I love the Stock Market

Diary, Newsletter

I love working in the stock market.

Not only can it be entertaining, it can be downright hilarious. All of the talking heads on TV who were ultra bearish on the December 24 Christmas Eve Massacre are now hyper bullish, stumbling over each other trying to buy back the shares they sold 20%-30% lower.

January is turning into a mirror image of December. Last month you never got the rally to sell into. This month you can’t get a decent dip to buy into. The worst December in history was followed by the best January in 30 years with the mere turning of a page of the calendar.

I suspected as much was coming. That’s why I lurched from 10% to 60% invested during the first few days of 2019. All that’s left now is to take profits.

We got a particularly nice 336-point gap up in the Dow Average ($INDU) on Friday with rumors of progress on the China trade talks. However, those who bought on such speculations over the past nine months have all been badly burned.

A few weeks ago, the biggest threat to the market was failure of the China trade talks and a new government shutdown. Now, with prices 3,250 points, or 15% higher, the biggest threat to the market is SUCCESS of the China trade talks and the END of the government shutdown. They could trigger a huge “buy the rumor, sell the news” market move.

And what if stocks rise virtually every day this month as they did during January a year ago? It could get followed by the February we saw last year which served up a horrific selloff.

Like a hot water heater with a corroded safety valve, pressure is building up in the stock market and it is just a matter of time before it explodes. The Volatility Index (VIX) has just halved from $36 to $17. The only question is whether the next big move will be to the upside or the downside.

Don’t get too bullish now. A ton of bad economic news will hit the market in February. China slowdown, European crash, Brexit, what’s not to hate?

Don’t forget that the deadline for the completion of the trade talks is March 1.

Special persecutor Robert Mueller could also drop his report on the market at any time. Just when you think that things can’t get any worse, they do so, in spades.

If nothing gets done, you can expect another Christmas Eve Massacre, except this time it will come nine months early. It could set up the double bottom for the entire correction.

On the other hand, if everything gets resolved all at once, you can count on share prices taking off to the upside and challenge the old highs. And it might all happen on the same day.

We started out the week discovering that Newmont Mining bought Goldcorp for $10 billion to create the world’s largest gold miner. That’s important because another classic sign of a long-term bottom for the barbarous relic is when the miners start taking over each other. I’ve seen it all before.

This was the week when economic data ceased to exist unless it comes from private sources. Entering the fifth week of the government shutdown, we are all now flying blind.

US Core Inflation rose only 2.2% YOY, after a miniscule 0.2% gain in December. Don’t count on that pay rise anytime soon. All your company’s money is going to share buybacks instead.

Apple’s Asian suppliers reported terrible numbers. iPhone prices in China were cut. Apple is also cutting back on hiring. Fewer iPhone sales mean fewer people are needed to make them. I think I’ll keep my Apple short position.

PG&E went Bankrupt in order to keep the lights on in the face of $30 billion in potential wildfire liabilities. It’s the second time in 20 years. Thank goodness for my solar panels. Power prices are about to spike up big time and I’m a net supplier to the grid.

Netflix raised prices and the stock soared. Their monthly take is jumping by 13%-18%. (NFLX) shares are now up by 50% since Christmas Eve. The Walking Dead and House of Cards just got more expensive.

Brexit went down in flames with a crushing 432 to 202 loss in the UK parliament, the worst in 100 years. The opposition tabled a vote of no confidence which failed by only ten votes, barely heading off a general election. Next to come is a new referendum on Brexit itself which will go down in flames. Buy the British pound (FXB).

What does the end of Brexit mean for the Global economy? It strengthens Europe, prevents Italy, Greece, Portugal, and France from leaving the European Community, preserves NATO, and stops the Russian hordes from overrunning Western Europe. Croissants will be cheaper in London too. That’s all.

The December Fed Beige Book came in moderate. “Trade war” was mentioned 20 times but “government shutdown" comes out only once. Inflation is low but companies can’t pass price increases on to consumers. Labor shortages are showing up everywhere, but with few wage increases. The auto industry is flatlining.

My January and 2019 year to date return exploded to +5.29%, boosting my trailing one-year return back up to +31.68%.

My nine-year return climbed up to +306.19%, just short of a new all-time high. The average annualized return revived to +34.00%.

I took profits on one of my big tech longs in Salesforce (CRM) which maxed out the gains in my options position. I love this stock and will be back in there again on the next dip.

I am keeping my option positions in Microsoft (MSFT) and Amazon (AMZN) to take advantage of the time decay over the four day weekend. I cashed in half of my short position in the bond market (TLT), taking advantage of the recent 4 ½ point decline there.

My long position in the Euro (FXE) survived the failure of Brexit and a no-confidence vote in Britain. It continues to bounce along the bottom.

I also kept my short positions in Apple (AAPL) and the S&P 500 (SPY). Happy days are definitely NOT here again, with a government shut down and a continuing trade war with China. I am now nearly neutral, with “RISK ON” positions “RISK OFF” ones.

We have recently seen a surge of new subscribers and for you I urge patience. In this kind of market the money is made on the “BUY”, so timing is everything. The goal is to make as much money you can, not to see how fast or how often you trade.

The upcoming week is very iffy on the data front because of the government shutdown. Some government data may be delayed and other completely missing. Private sources will continue reporting on schedule. All of the data will be completely skewed for at least the next three months. You can count on the shutdown to dominate all media until it is over.

Housing data will be the big events over the coming four days.

On Monday, January 21, markets are closed for Martin Luther King Day.

On Tuesday, January 22, 10:00 AM EST, the December Existing Home Sales are out. IBM (IBM) and Johnson & Johnson (JNJ) announce earnings.

On Wednesday, January 23 at 10:30 AM EST the Energy Information Administration announces oil inventory figures with its Petroleum Status Report. Lam Research (LRCX) and Procter & Gamble (PG) report.

Thursday, January 24 at 8:30 AM EST, we get Weekly Jobless Claims. At 10:00 AM, we learn December Leading Economic Indicators. Intel (INTC) and American Airlines (AA) report.

On Friday, January 25, at 10:00 AM EST, the latest read of December New Home Sales is released. The Baker-Hughes Rig Count follows at 1:00 PM. Schlumberger (SLB) announces earnings. Home Sales is released. AbbVie Inc (ABBV) and DR Horton (DHI) report.

As for me, I will be battling my way home from Lake Tahoe which received seven feet of snow last week. It was a real “snowmageddon.”

Good luck and good trading.

John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader

January 22, 2019

Tech Letter

Mad Hedge Technology Letter
January 22, 2019
Fiat Lux

Featured Trade:

(HOW TO PLAY TECHNOLOGY STOCKS IN 2019),
(NFLX), (AAPL), (TSLA), (STT), (BLK)

How to Play Technology Stocks in 2019

Tech Letter

In the past week, the tech sector has received information allowing investors to sketch a concise roadmap of what to expect in the tech sector for the rest of 2019.

One – the bull story in technology isn’t dead and the December sell-off in tech growth stocks was overdone.

Two – the path to tech profits is filled with more booby traps than in year’s past.

Three – the migration to digital is becoming more pronounced by the millisecond.

If you go back about a month ago when tech stocks were at their trough, traders were pricing in about a 60% chance of a recession in 2019 or early 2020 and the data didn’t support it.

What people were confusing themselves with was slowing growth instead of a lack of growth.

Then we got the disastrous news from Apple (AAPL) indicating business in China was petering out forcing them to change tactics cutting iPhone prices.

The tech market went into full-on panic mode and the revelation of weak China data did not help either.

Netflix (NFLX) reported and the online streaming app offered some respite with outperforming growth numbers.

Netflix has been a favorite of the Mad Hedge Technology Letter since its inception but the caveat with Founder and CEO of Netflix Reed Hastings brainchild is that the extreme volatility makes it difficult to trade around on a short-term basis.

The stock is up 50% from its nadir and its growth story is solid and will perpetuate.

The next bastion of juiced-up growth for Netflix is the international audience and these numbers are examined closely with a fine-tooth comb by investors attempting to understand the direction of the company.

The company audaciously added 8.8 million in new international subscribers last quarter which handily beat the 7.6 million estimates by 1.2 million.

Netflix also announced a few days earlier that it would raise the price of a monthly subscription between 13%-18%, and investors treated the news with celebratory shots of tequila.

It has been consensus for years that Netflix was severely underpricing their premium content, and analysts have been screaming and kicking trying to get Hastings to push up their monthly prices.

The price hike coincides with a year where I believe Netflix can grow revenue over 30%.

The mix of these two developments illuminate a few things about Netflix.

Netflix has the content that consumers want and even if competition rears its ugly head, they aren’t even in the same ballpark in terms of breadth and potency of content.

They are the king of contents and I don’t see anyone knocking them off their elevated perch in 2019.

In many ways, the Netflix long-term thesis mirrors the tech industry’s long-term thesis emphasizing supercharged growth by any means possible.

Even though this strategy is risky, it is working for Netflix and the capital isn’t drying up to go after the best content producers money can buy.

This earnings report should put to rest the growth warning sirens for now, tech will grow this year, but earnings results will be more of a mixed bag with the occasional miss.

This is in stark comparison to early 2018 where every tech company and their mother were scorching earnings forecasts by a magnitude of two or three.

Last September, the tech market looked above its head and saw a few boulders about to crush the herd, but investors shrugged it off.

As we move forward, the tech sector and the overall market is inching closer to a recession.

The low-hanging fruit has been pocketed and incremental gains aren’t no-brainers anymore – this can be gleaned from Tesla (TSLA) curtailing their workforce by 7%.

This news was delivered by a letter from CEO of Tesla Elon Musk noting that these decisions have been made with the goal of “increasing the Model 3 production rate and making many manufacturing engineering improvements in the coming months.”

Basically, Musk has telegraphed that staff needs to perform better, identify efficiencies that will save costs which in turn will boost profit margins.

This doesn’t mean that the era of tech growth is over, but this signals that tech companies are becoming more fidgety about loss-making operations and have ultimately targeted profits which shout at investors' late-cycle economics.

Musk needs to turn Tesla into a perennial profit machine to prove naysayers wrong, and now is the time to turn the page and max out his rocket fuel.

If the recession hits, investors could turn against Tesla and capital could dry up.

This newfound modesty towards the e-car business model is, in no doubt, exacerbated by the ratcheting up of fierce competition from the traditional automobile makers.

Tesla is in the e-car lead for battery technology, revolutionary production processes, and have a treasure trove of data that German companies would do anything to get their hands on.

Musk knows Tesla has fought this hard to get to this point, and he'd rather have the ball in his hands with 10 seconds left and a tie game just like Michael Jordan of the Chicago Bulls did.

Shaving off the excess has meant removing the customer referral program that was too costly that included benefits like half a year of free charging.

Part of this also has to do with Tesla losing their tax credit at the end of the year as well as giving more impetus to trimming costs.

Becoming a mass-market car manufacturer means it is important to price the car at affordable price points and that will be extremely difficult.

The goal is to deliver a $35,000 e-car that performs comparably to the rest of the fleet but produced with 7% less hands.

Can Musk do it?

I wouldn’t bet against him.

Musk means business and is hellbent for revenge against his arch enemies – the Tesla short community who he has habitually dragged under the bus through the media.

Piggybacking on this tougher profit-making climate is Boston-based finance company State Street Corporation’s (STT) announcement reducing headcount by 1,500 amounting to 6% of the global workforce.

The firm cited the urgent need to automate processes that will give the company a bigger foothold into the digital sphere.

The same theme was echoed at BlackRock Inc. (BLK), the world’s largest asset manager, who will eliminate 3% of its global workforce, or 500 people, amid an existential threat from the temporary ineffectiveness of passive investing.

In a rising market, it is guaranteed that assets at these types of funds almost always go up.

However, with an injection of recent volatility, passive investors have seen their balances dwindle with the market spawning abrupt outflows.

The need to zig and zag with the market is now painfully obvious and using technology to plug in the gaps will be cheaper and more appropriate for late cycle price action.

This is a suitable segue way into the third point – the fluid follow-through of the digital migration and the debacle of Sears prove my point.

Hedge fund manager Eddie Lampert and his firm ESL have navigated this famous American retailer into the ground.

This is what happens when the entire retail industry goes online when you don’t.

To make matters worse, Lampert has probably never set foot into his own investment.

Each time I roam the aisles of Sears, it’s about as crowded as a mortuary at midnight – an elementary story of a mismanaged enterprise.

Sears is an example of digital ignorance and it’s not the only one.

Gymboree Group, the baby clothing company, is another one to put on the list – the firm filed for Chapter 11 bankruptcy protection.

The company will close more than 800 Gymboree and Crazy 8 stores, this is the second time they have filed for bankruptcy protection in the past two years.

Unsurprisingly, the firm cited a sudden decrease in mall traffic and a surge in online alternatives as the reason for the economic softness.

The economy does not operate in a vacuum and any analog company who voluntarily misses the pivot to digital is voluntarily digging their own grave.

These three trends will only become more exaggerated moving forward threatening companies like Apple who fail to innovate after more than a decade of selling the same product, other companies don’t have the balance sheets to handle the same weakness.