Global Market Comments
November 12, 2018
Fiat Lux
Featured Trade:
(THE MARKET OUTLOOK FOR THE WEEK AHEAD, or IT’S FINALLY OVER),
(SPY), (TLT), (AAPL), (ROKU), (USO)
Tag Archive for: (AAPL)
Could it have been the election all along?
Did the massive uncertainty created by the midterm elections hold back investors for all of ten months?
That’s what it looks like now. In a mere three days, shares made back half of what they lost in October, one of the worst trading months in stock market history.
All the market did was trade in a giant range until the day before we trudged out to our local ballot boxes. After that, it was off to the races. Who was the big winner? The people who want to make Donald Trump’s life miserable who now have countless means with which to do so.
Now that the wraps are off, the way is clear for markets to forge on to new all-time highs which they will do by yearend, or early 2019 at the latest.
The Mad Hedge Market Timing Index saw the sharpest rally in 30 years, from 4 to 29 in a week. I told you the market was cheap!
Oil prices (USO) are telling us we are already in recession. Prices are in free fall hitting $60 a barrel, a nine-month low. China certainly is hurting and they are the largest marginal new buyer of Texas tea.
What we are really seeing is a massive unwind of wrong-footed hedge fund oil longs who expected oil prices to soar with the implementation of new sanctions on Iran. They didn’t.
US Exports plunged 26% in September while tariffs paid by US companies soared by an eye-popping 54%. The destruction of American international trade is well underway. When will it end? Who’s benefiting?
Asians are boycotting US Treasury sales and the US needs to sell to staggering $1.3 trillion in new debt in 2019. Keep hammering the (TLT) with those short positions, your new rich uncle trade.
The Producer Price Index Soared in October, up 0.6% versus 0.2% expected. Yikes, and double yikes! Inflation is here. Keep selling short those bonds (TLT)!
Trump threatened anti-trust action against all of big tech. Market yawned, with Amazon down only $50 after an enormous run-up. A 1% market share against falling prices and enormous customer satisfaction never triggered an anti-trust action before. Jeff Bezos is not the robber baron John D. Rockefeller. Could it be political?
The Number of Job Openings exceeded workers by 1 million in August, with 7.01 million openings versus 5.96 million unemployed. It’s the first time since the Dotcom Bubble top. Are we headed for a 3% Headline Unemployment Rate?
The Golden Age of Gridlock began with the Dems taking the House by flipping 40 seats and the Republicans holding the Senate. Now you can turn off your TV and focus on trading for the next two years. Buy stocks on dips, sell bonds on rallies. Oh, and the 2020 presidential election starts tomorrow.
Housing Sentiment hit a one year low, down a humongous five points, the second fastest drop in history. Rising interest rates have driven a stake through the heart of this once rip-roaring market, but it’s no 2008 replay.
November Share Buy Backs are poised to be the largest in history. Of course, you knew this was going to happen a month ago if you read Mad Hedge Fund Trader. Gotta love that tax reform!
My year-to-date performance rocketed to a new all-time high of +32.94%, and my trailing one-year return stands at 35.33%. November so far stands at +3.31%. And this is against a Dow Average that is up a pitiful 4.43% so far in 2018.
My nine-year return ballooned to 309.41%. The average annualized return stands at 34.72%. 2018 is turning into a perfect trading year for me, as I’m sure it is for you.
In the week before the election, I strapped on the most aggressive long portfolio of this year. It worked like a charm. I then went almost entirely in cash before election day, locking a 12% gain for the model trading portfolio.
I lasted in cash on two days. On the first down 300 point Dow day, I started adding positions in the old familiar names, including Apple (AAPL), Roku (ROKU) for the Mad Hedge Technology Letter, and a short in the (TLT). Bonds could really get crushed going into yearend targeting a 3.50% yield.
Q3 earnings have finished with a whimper and the blackout periods for share buybacks are now over. Let the buying begin! Some $200 billion has to hit the market by yearend, mostly in technology stocks.
After all the recent fireworks, this will be a quiet week on the data front. The October CPI will be the big one, out on Wednesday.
Monday, November 12 is Veterans Day. Stock markets are open but bonds are closed.
On Tuesday, November 13 at 6:00 AM EST, the NFIB Small Business Optimism Index is released.
On Wednesday, November 14 at 8:30 EST, we have the all-important Consumer Price Index announced. How hot will it be?
At 10:30 AM the Energy Information Administration announces oil inventory figures with its Petroleum Status Report.
Thursday, November 15 at 8:30, we get Weekly Jobless Claims. At the same time, October Retail Sales are put out.
On Friday, November 16, at 9:15 AM, the October Industrial Production is published.
The Baker-Hughes Rig Count follows at 1:00 PM.
As for me, I am on standby to volunteer as a pilot and serve as spotter for Calfire for the latest Northern California wildfires. I put my name on the waiting list last year, and they only just got around to calling me. There were 2,000 other volunteer pilots on the waiting list ahead of me.
You gotta love America.
Good luck and good trading.
Captain John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Mad Hedge Technology Letter
November 12, 2018
Fiat Lux
Featured Trade:
(THE NEXT OVERHYPED TECH PRODUCT TO BOMB)
(SSNGY), (AAPL), (GOOGL)
I’m unimpressed.
The Samsung (SSNGY) Galaxy F foldable smartphone will be a complete failure just like the Google Glass.
Heralding this product as the new disruptor ready to displace the Apple (AAPL) iPhone is a bunch of garbage.
Yes, Korean stalwart Samsung did achieve success with their flagship smartphone device the Samsung Galaxy which took 6 years to produce. But don’t expect anything similar in terms of sales and scale of adoption.
This will be a dud.
I will outline some of the problems creating a foldable smartphone for mass use.
In fact, why not call a laptop a “foldable smartphone”? I routinely wield my Google (GOOGL) Voice and Skype to call my Rolodex of phone numbers around the world from my computer and my laptop definitely folds!
This smells like desperation from Samsung who has grossly miscalculated gimmicky innovation coining it as a true gamechanger.
Illogically, the act of folding creates a second layer that will result in a bulky product. Logically, it makes sense to have one layer and one layer only.
The sleek smartphones of today are trending towards becoming A2 paper thin and lugging around a brick is not what contemporary-minded netizens had in mind.
Naturally, each future iteration will gradually solve this problem just like Moore’s law observes that the number of transistors in a dense integrated circuit doubles about every two years, meaning you can pack more components into a product over time.
But will there be a second version of this foldable phone?
And then manufacturers must keep in mind which addressable market could this foldable device disrupt. Will it replace the smartphone or the tablet?
Smartphone screens have become bigger with each generation eroding the share and application of the tablet once the smartphone eclipsed the 6-inch screen size.
The tablet industry has suffered since with smartphone enhancements only adding to the misery. This is all evident in this year’s tablet sales down 5.4% YOY through September.
If this foldable phone is pigeonholed as a replaceable tablet product, then sales would address a niche market product at best and have a higher chance of being an outsized flop.
No matter how you cut it up, iPhone users won’t gravitate towards this gimmicky device and chuck their iPhones in the bin.
Cost is also a big factor in this type of product because of the capital thrown at it by Samsung.
They no doubt hope to recoup some of the exorbitant R&D that went into building a brand-new product from scratch.
Rumors floating around the Samsung developer conference pin this foldable phone at a retail price of around $2000.
With this high of price point, I would expect the phone to fly out of my pocket by itself and fold out without me physically doing anything or something similarly impressive.
I highly doubt that Samsung can pull off something that innovative.
The nature of Apple producing brilliant smartphones is that to topple the iPhone, something special is needed to clearly surpass the predecessor along with a must have “it” factor.
That is what you got with the hoards of customers camping overnight in a tent outside of Apple stores dotted around the world waiting to be the first to buy the next version of the iPhone.
That type of pandemonium and hoopla surrounding a consumer product hasn’t been replicated since the days of Steve Jobs.
In general, customers want convenience and the arduous nature of folding out a phone will become tedious in actual reality because most phone users have the propensity to check their phone 15 times per hour.
That also means folding out a phone 15 times per hour and that doesn’t dovetail well with most phone users who, as of now, just slip their phone in and out of a coat or trouser pocket ready in half a second to navigate the e-world.
In short, this device isn’t practical and the targeted market who has the cash to pay for this will dislike the inconvenience of the application.
The user experience is demonstrably inferior to the Apple iPhone.
On the surface, the Galaxy F phone looks innovative and the adaptable nature of the foldable screen is a novelty, but Samsung will have to go back to the drawing board on this one.
I incessantly drum up the issue of the lack of visionaries at the helm of tech companies. The number can be counted on one hand, maybe two.
The type of class where you find the Jack Dorsey and Elon Musk level of visionaries is not a dime a dozen.
When you have a lack of vision, consumers get foldable phones.
Forcibly wedging in hyper-charged display technology into a smartphone is a recipe for disaster.
Maybe someday this technology can be more relevantly applied to a consumer product, but this Frankenstein type product is a mix of two sets of technologies not meant to marry each other.
The act of intent is of equal importance.
The bigger takeaway from this fanciful experiment is that the next wave of innovation to replace the smartphone is in full swing and happening as we speak.
Even though Samsung’s Hail Mary pass looking for that elusive last-second touchdown on the last heave of the game will be a bust. It is only a matter of time before another Steve Job’s lookalike hits the jackpot with the perfect consumer device wooing the billions starting another cult-like phenomenon.
In the next 10 years, display technology will be completely revolutionized adorning our megacities and billboards in ways we never imagined.
This is all just the beginning and filtering out the right formula is what we see taking place from all these tech companies determined to become the king of the jungle.
All of this foldable display technology reverts back to one constant desire – the demand for larger screens.
The 6-inch smartphone was the first baby step to something brilliant.
But ultimately, producing a digital device that can easily fit into our pocket, instantaneously ready for action, possessing beautiful optics with the largest screen possible is the eventual chosen one who will win this sweepstake.
And the first company that can figure out how to get the phone out of our pockets, in front of our eyes without the need for human fingers will have the inside track to revolutionize the world.
We are not there yet, but we are inching closer every day because of the hyper-accelerating rate of technology.
Waiting in the queue are Samsung’s biggest rivals looking to enter the foldable phone market such as Huawei, LG, Lenovo, and many other Chinese Android manufacturers.
There have been whispers that Apple has had some patents filed for foldable technology. And with Sir Jonathan Paul Ive, the Chief Design Officer of Apple, a remarkably special talent designing Apple’s revolutionary products, he certainly has something special to offer hidden up his sleeves.
He always does.
Global Market Comments
November 9, 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)
Global Market Comments
November 6, 2018
Fiat Lux
Featured Trade:
(HOW TO EXECUTE A VERTICAL BULL CALL SPREAD),
(AAPL)
(THANK GOODNESS, I DON’T LIVE IN SWEDEN), (EWD),
(PLEASE USE MY FREE DATA BASE SEARCH)
Global Market Comments
November 5, 2018
Fiat Lux
Featured Trade:
(THE MARKET OUTLOOK FOR THE WEEK AHEAD, or THE MAD HEDGE FUND TRADER HITS A NEW ALL TIME HIGH),
(AAPL), (FB), (RHT), (GE), (VXX), (AMZN), (SPY), (IWM), (CRM)
I used to do a lot of skydiving from 20,000 feet. There’s nothing like a freefall, feeling the wind rip at your jumpsuit as you plunge towards the earth at terminal velocity of 125 miles per hour. In the beginning, the ground looks very far away. Then it suddenly gets very close, very fast.
I used to do this during the 1960s with WWII surplus silk parachutes with a “double L” cut. You hit the ground like a ton of bricks. Sometimes, we’d swing back and forth from the wings of the airplane before letting go just to have fun and freak out the pilot who had no chute.
Over time, you develop a very accurate sense of how fast the ground is approaching and when to pull the ripcord. If you’re wrong, you die.
That’s how I felt when markets went into freefall last Monday. However, after a half-century of trading, I have a highly developed sense of where the bottom is.
So, I piled on the “bet the ranch” longs in technology stocks and shorts in the bond market right at the absolute bottom. And to make sure everyone to a man got in, shares swooshed down one final time when rumors spread that Trump was escalating the trade war with China once again.
By Wednesday morning, the Mad Hedge Fund Trader model portfolio had booked its largest two day gain since the inception of this letter 11 years ago, some 12%. By miracle of miracles, we ended up positive for October, virtually the only one to do so in the entire hedge fund industry.
I would like to think that 50 years of toil in the markets is finally starting to pay off for me. The truth is, the harder I work, the luckier I get.
Stocks lost $2 trillion in market value in October, off 6.9%. Other than that, how was the play, Mrs. Lincoln? Tech took the worst hit in a decade, with many favorites down 20%-30%.
I am raising as much cash as I can ahead of the Midterm Elections tomorrow. Democrats seizing the House of Representatives is priced into the market already.
If the Republicans end up keeping the House, you can count on at least a 1,000-point rally in the Dow Average in the next few days as the door is now open for more tax cuts, more deregulation, and more deficit spending.
If the Democrats end up taking both the Senate and the House you can look for a 1,000 point drop in the Dow. That would bring on a huge “flight to safety” bid in the bond market and yet another opportunity to sell short at great prices.
Either way, I want more dry powder with which to take advantage of any extreme moves that may take place. “Extreme” seems to be the order of the day.
By the way, we are so far in the money with our remaining positions that even with a 1,000 point drop we should still reap the maximum profit with the November 16 option expiration in only 9 trading days.
Not that it matters, but October Nonfarm Payroll Report came in at a red-hot 250,000. The headline Unemployment Rate remained at a two-decade low at 3.7%. The Broader U-6 “Discouraged worker” unemployment rate fell 0.1% to 7.4%.
For the first time in yonks, no sector lost jobs last month. HealthCare added 36,000 jobs, Manufacturing 32,000 jobs, and Leisure & Hospitality 42,000 jobs.
However, the real blockbuster was that Average Hourly Earnings exploded to a 3.1% YOY rate, the highest in ten years. Yes, ladies and gentlemen, this is what inflation looks like, up close and ugly.
The number immediately knocked the wind out of the bond market taking it to a new low for the year. Yes, this is what double short positions in bonds are all about. I saw this coming a mile off.
The backdrop for the bond market is looking worse than ever. The budget deficit is about to break $1 trillion for the first time since the 2009 crash. Rising interest rates mean the government’s debt burden is about to grow by leaps and bounds, eventually becoming its largest expenditure.
The US Treasury is hitting the markets daily with massive new issuance, and the Chinese are dumping what US bonds they have to support the Yuan, now at a ten-year low. This is what Armageddon looks like in slow motion.
Last week was dominated by a China trade war that was on again, then off, then on one more time. The stock market ratcheted four-digit figures every time this happened.
Apple (AAPL) announced record profits yet again but countered with cautious forward sales guidance. Social media pariah Facebook (FB) delivered an earnings report beyond all expectations popping the stock $10.
IBM took over Red Hat (RHT) for $33 billion, the third largest merger in history. It’s too little too late for Big Blue as the stock falls on the news. It all reeks of a “Hail Mary.”
General Electric (GE) cut its dividend from 12 cents a share to one cent after reporting a breathtaking $22.8 billion loss. The Feds have opened a criminal investigation into accounting practices. This may define the final bottom in the stock. Take another look at those long-term LEAPS.
My year-to-date performance rocketed to a new all-time high of +33.17%, and my trailing one-year return stands at 37.57%. October finished at +1.24% and that includes an ill-fated -4.23% loss in the iPath S&P 500 VIX Short Term Futures ETN (VXX).
And this is against a Dow Average that is up a miniscule 1.9% so far in 2018. So far in November, we are up an eye-popping +3.54%.
Incredible as it may seem, the Mad Hedge Fund Trader has been up 18 consecutive months. That’s what you pay for and that’s what you’re getting. There’s nothing more fulfilling in life than making promises to friends, then delivering in spades.
As the market collapses, I scaled into longs in Amazon (AMZN), the S&P 500 (SPY), the Russell 2000 (IWM), and Salesforce (CRM). I used the flight to safety bid in the bond market to double up my short position there, and am kicking myself for not going triple weight.
My nine-year return ballooned to 309.64%. The average annualized return stands at 34.72%.
All the BSDs are done reporting Q3 earnings and only a few tag ends are left to report. The carnage is over until we restart the cycle once again in February. In any case, economic data pales in comparison to the election in terms of market impact.
On Monday, November 5 at 10:00 AM, the ISM Manufacturing Index is out.
On Tuesday, November 6 is Election Day. Trading will be a subdued affair and the results will start coming out at 11:00 EST after the west coast polls close.
On Wednesday, October 24 we have the election aftermath to deal with. Up 1,000, down 1,000, or unchanged, who knows?
At 10:30 AM the Energy Information Administration announces oil inventory figures with its Petroleum Status Report.
Thursday, October 25 at 8:30, we get Weekly Jobless Claims. The Federal Open Market Committee meets to discuss interest rates but will take no action.
On Friday, October 26, at 8:30 AM, the October Producer Price Index is out, an important read on inflation.
The Baker-Hughes Rig Count follows at 1:00 PM.
As for me, I made a massive amount of money personally in the October crash. I am going to plop down $150,000 and buy a brand new Tesla Model X for myself. The ashtrays are full on the old one, and besides, there is a tiny nick in the windshield from driving up to Lake Tahoe. I hear the new one has new “Summon” technology that allows it to drive into a parking lot by itself and drive around until it finds an empty space, then back into it, all untouched by human hands.
Good luck and good trading.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Knowing When You Hit the Ground is Crucial
My New Wheels
Mad Hedge Technology Letter
November 5, 2018
Fiat Lux
Featured Trade:
(GET READY FOR ANOTHER BITE OF THE APPLE)
(AAPL), (ROKU), (MSFT), (PYPL)
The biggest news of Apple’s earnings results was what Apple decided they will not do in the future – stop publishing iPhone unit sales.
I applaud CEO of Apple Tim Cook for putting this to rest because it is starting to get out of hand. The outbreak of criticism and grief targeted at Cook has to stop because analysts do not understand.
On one hand, it’s important to be aware of the metrics tech companies are judged on, but if analysts aren’t in tune to what these numbers mean in the bigger scheme of things, then it is irrelevant.
Apple is doing everything it can to turn into a software company. They are not interested in battling it out at the low-end of the totem pole because that path is a scrap down to zero margins.
Migrating up the value chain is something that management has identified, and this strategic shift should be met with rapturous celebrations.
Unit sales growth, gross payment value, and monthly views are all metrics that growth companies hold dear to their heart and a way to show to investors they are worth investing in regardless of the cash burn and cringeworthy operating margins.
Apple is way past that point if you haven’t noticed and should be focusing on how to monetize the existing base of customers.
Plain and simple, Apple is not a start-up growth company and taking away this reporting metric will help investors refocus on the real story at hand which is its core of software and services.
With software and services, profitability by way of innovative software offerings will be magnified and highlighted as the roadmap ahead.
As for the last batch ever of iPhone data, Apple has done a brilliant job, to say the least. They exceeded all expectations by smashing the average selling price (ASP) of iPhones at $793.
This is a monumental jump from $618 at the same time last year, a 28% YOY increase.
I did not say that Apple is the world’s best tech company at the Mad Hedge Lake Tahoe Conference, but I did say Apple is by far the highest quality company and this earnings report is a great example of that.
EPS routinely is beat and raised on a sequential basis.
Doubling down on the theme of quality is the revenue numbers from Japan which were up 34% YOY for a group of people who have the harshest view of quality control in the world.
Believe me, Japanese consumers have no desire to ever buy a Chinese smartphone.
The spike in ASPs was triggered by a flight to its collection of ultra-premium smartphones that has enthralled consumers. The ballooning ASP prices led iPhone revenue to spike 29% YOY to over $37 billion crushing the almost $30 million in quarterly revenue the prior year.
According to data from Hyla Mobile Inc., American iPhones traded in between July 1 and the end of September were 2.92 years old on average, up from 2.37 years old the same period two years earlier.
The reasons are two-fold.
Companies are producing better performing smartphones negating the need to impatiently upgrade right away.
The second reason is that they are just plain out pricey, and not everybody will have the dough to splurge on a new iPhone every year or two.
Thus, Apple has strategically placed itself in the correct manner by producing the best smartphone that customers will eventually adopt but carving out as much revenue while consumers are using their phones longer.
During this time, data usage has exploded as consumers are addicted to their smartphones and relying on a whole host of apps to complete their daily lives.
Apple would be stupid to not position themselves to capture this tectonic shift to more hourly data usage and breaking itself from the reliance of smart device revenue itself.
This is what other tech companies are doing like Roku, albeit at an earlier stage in their growth cycle.
In the future, smartphones will become obsolete replaced by something smaller, nimbler, and perhaps integrated with our brain or body or both.
Apple is also acutely aware that the bombardment of Chinese smartphones and the upward trend in the overall quality of these phones has siphoned off part of the iPhone market in specific segments of the world.
Thus, Apple has barely even touched the emerging markets of India that has been flooded by Chinese mid-tier phones without the branding power of Apple.
Apple doesn’t create these trends, they are merely stitching together smart decisions based upon them.
The next step is also a two-pronged proposition.
Apple needs a full-blown enterprise service based upon the cloud.
They can either buy one and they certainly have the cash to do so. Or they can develop one internally from scratch.
The second issue is that Apple also needs to widen its product service offerings that not only include an enterprise cloud option but also entertainment, news, sports, and everything else that could hook user’s attention and stick them to the iOS operating system until death.
Cementing users to the iOS operating system is the overall goal of all of this software infusion because if users start migrating over to the Android platform, it’s real game, set, and match for Apple as we know it.
Instead of myopic analysts focusing on “unit sales”, smart analysts should be focusing on whether what Apple is doing will tie future users to iOS or not.
I am happy with what I have seen so far but there can be a great deal of improvement going forward.
I think my 2-year-old nephew even knows that iPhone sales are maturing by now. This has not been a new story and I would call it poor reporting from a group of lazy-minded analysts.
It’s true that Apple rode the coattails of its miracle hardware products to a $1 trillion market cap. It was a magnificent achievement. I pat all who were involved on the back.
However, it’s clear as daylight that hardware is not what is going to propel Apple to a $2 trillion market cap.
Lost in all the smoke and mirrors is that revenue was up 20% YOY which is a staggering feat for a $1 trillion company.
Even more muddied in the rhetoric is that there has been minimal slowdown in China even after all the trade war jostling which is a miracle in its own right growing 16% YOY.
Software and services were up 27% YOY pulling in $10 billion and the Apple ecosystem has now reached 330 million paid subscribers, a growth of 50% YOY.
Paid subscribers are the most important metric to Apple now as it shows how many users are percolating inside their eco-system wielding their credit card around for software and services whether its maintenance spend or Apple pay.
Apple pay transaction volume tripled in the past year with four times the growth rate of FinTech player PayPal (PYPL).
Wearables still maintain broad-based growth climbing 50% YOY which is slightly down from the 60% YOY last quarter.
All of the wearables such as the amazing Apple Watch, AirPods, and Beats products have a nice supplemental effect to the Apple eco-system and is an over $10 billion business per year.
I am interested to see if Apple can make the quick pivot to an enterprise software company, and Apple’s announcement of Apple business manager, a method to deploy iOS devices at scale, had an initial sign up of 40,000 companies. Apple needs to bet the ranch on this direction and do it fast.
I would like to see Apple attack the enterprise market with zeal because there is a long runway for them to scale and the bulk of companies would welcome Apple products and services littered around their mobile offices.
The most important soundbite was by CFO of Apple Luca Maestri saying, “Given the increasing importance of our services business and in order to provide additional transparency to our financial results, we will start reporting revenue and total services beginning this December quarter.”
There you go…Apple explicitly saying they are the newest software company on the block that should go alongside the likes of Microsoft (MSFT).
The software theme will continue with the Mad Hedge Tech Letter because there are some real gems out there in the software landscape tied to the cloud.
As for Apple, the earnings report reaffirms my opinion that they just keep getting better and are magicians at adjusting to the current tech climate.
Wait for the stock to find some footing then it’s a definite buy, and for long-term holders, it’s a screaming buy.
