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Tag Archive for: (AMAT)

Mad Hedge Fund Trader

The Market Outlook for the Week Ahead, or It’s All About the Numbers

Diary, Newsletter

I know that not all of you are mathematicians, nor blessed with math degrees from UCLA, as I am. However, the future of your retirement funds relies on a few simple numbers. So, I will try to be gentle.

S&P tech stocks are trading at a 27 price earnings multiple. The S&P 500 Index, as a whole, trades at a 21 multiple. S&P value stocks, financials, and old-line recovery stocks like industrials and materials are trading at a 17 multiple.

Historically, companies with double the earnings power of the index trade at a 5-point premium to the main market. As long as this disparity exists, tech stocks will go down and value with go up.

However, we are getting close to a reversal. Allowing for market noise, I don’t see tech dropping more than 10% from here over the coming months. Then we will see the mother of all Q4 rallies taking it to new highs.

That explains why investors have been nibbling on tech lately, especially the best ones like NVIDIA (NVDA), Applied Materials (AMAT), and Salesforce (CRM). You also want to pick up big cap money machines like Alphabet (GOOG), Amazon (AMZN), Apple (AAPL), and Facebook (FB). Their LEAPS are begging for attention.

That means the downside from here is limited. Sorry Cassandras, no crashes here.

I am more convinced of this outcome than ever, given the substantial number of crashes and disasters, markets have weathered this year. These are truly Teflon markets. Last week, Bitcoin collapsed an amazing 55% in six weeks, wiping $1 trillion off the value of that market.

The fear had been that a crypto crash of this size would ignite a system contagion that would take everything down. A few years ago, it would have. But with massive Fed liquidity and unprecedented deficit spending, all we got was down 600 points one day and 600 up the next.

No crash here.

We’ve also had smaller crashes in sectors that were the most egregiously overpriced in February, like SPACS, meme stocks, and shares trading at 100 times sales with no earnings. Again, no harm no foul. It was a comeuppance that was well earned.

The big tell that I am right came screaming loud and clear last week from the US dollar, which hit a new 2021 low. A cheaper greenback means cheaper US stocks for foreign investors, which means they buy more of them. A weak buck also means that interest rates will stay lower for longer, which is great news for stocks, especially tech.

So, take it easy for the next few months. Keep positions small and rejoin the human race.

It seems odd going out into civilization and seeing live people walking around without masks. All the batteries on my watches are dead, as they have not been used for nearly two years, so they are getting replaced. I walked into my closet, and it was like adventuring into an archeological dig, with dozens of Turnbull & Asser shirts untouched by human hands. I’ve been living in Marine Corps sweats since 2019.

Bitcoin Crashes, down 33% on the day at the lows to $30,000, and off a heart-palpitating 55% from the April high. You wanted volatility, you got volatility! The problem for the rest of us is whether this will cause a real systemic financial crisis, with the Dow already down 560 at today’s low. Was Elon Musk the shoeshine boy giving tips at the market top?

Chip Shortage causes $110 Billion in US Car Industry Sales, in 2021 and will take years to address. Supply chains will need to be rebuilt. My neighbor just had to wait 11 months to take delivery of his Ford F-150.

China’s Industrial Production Slows, from 14.1% in March to only 9.8% in April. That gives us a hint to our own future, as the Middle Kingdom emerged from the pandemic a year before we did. Retail sales also disappointed. After rocketing in 2020, the Chinese economy started slowing at the beginning of this year. The dead cat bounce in the economy is over. If this continues, it's bad news for copper prices of which the Middle Kingdom is the largest producer. If (FCX) closes under $40, stop out of all short-term longs immediately.

Housing Starts Dive, as builders run out of materials at reasonable prices. It gave the Dow Average a punch in the nose worth $220. Single family homes took the big hit, down 13.4% to 1.08 million. Permits are still up 70% YOY from when Covid completely shut the industry down. This is the most inflationary sector of the economy right now but barely registers in the CPI numbers. Prices must go even higher for frustrated buyers which are accelerating their rate of increase. Builders are including contingency clauses that allow price rises after the sale, a first. The South has dominated in starts where the population is moving and took the biggest hit. Buy (LEN), (KBH), and (PHM) on dips.

Existing Home Sales Drop 2.7%, in April to 5.85 million units. Inventories are down 20% YOY to only an unimaginable two-month supply. There’s nothing for sale. With the strongest YOY price gains in history, there is nothing for sale. It’s all about high prices, high prices, high prices. Homes over $1 million are up an incredible 214% YOY. The 70-year migration from North to South continues, costing democrats 5 seats in the House. Millennials are entering their peak home-buying years and that $150,000 four-bedroom home in Savannah, GA doesn’t look so bad.

Bitcoin is the Most Crowded State in the World, according to a survey of investment managers. That may explain the 35% plunge in cryptocurrency since April. Is this the end of the Ponzi scheme? Technology and ESG stocks are the second and third most over-owned, which may explain their recent flaccid performance.

Why is the Gold Hedge Working this Time? The Barbarous relic is finally giving investors the insurance and the downside hedge they need, after failing to do so during the last correction in February. That’s because interest rates were spiking in the winter but aren’t now. Interest rates are the enemy of all no-yielding assets, like precious metals.

Fed Hints of Early Rate Rise, trashing both stocks and bonds. The big one could be here, a complete collapse of the US Treasury bond market. I’m already running the biggest (TLT) shorts ever. We should fall from the current $135 to $120 by yearend. Sell all (TLT) rallies.

Lumber Futures Collapse by 40%. There goes your inflation. Now if only Biden will end the Trump-era import duty on Canadian lumber. It gives a big boost to the “transitory” camp, arguing that this is just a one or two-month spike spawned by the cover recovery. Soaring lumber prices had been a key factor igniting new home prices.

Applied Materials Knocks the Cover off the Ball, reporting blowout earnings. The semiconductors equipment maker has been the best performing chip-related stock of 2021, up 72%. (AMAT) sees a structural chip shortage lasting for years. DRAMs are speeding up, while NAN is slowing down. Customers are placing orders years in advance for the first time ever. A new $7.5 billion stock buyback plan and 9% dividend increase were announced. Buy (AMAT) on the dips.

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 400% to 120,000 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 120,000 here we come!

My Mad Hedge Global Trading Dispatch profit reached 7.48% gain so far in May on the heels of a spectacular 15.67% profit in April. That leaves me 50% invested and 50% cash. We actually have a shot at reaching a double-digit performance for the seventh month in a row.

My 2021 year-to-date performance soared to 67.24%. The Dow Average is up 11.79% so far in 2021.

We got another major meltdown last week followed by an immediate recovery. I used the dip to reinitiate new positions in the (TLT), Goldman Sachs (GS), and Berkshire Hathaway (BRKB) to replace ones that expired on the Friday options expiration.

That brings my 11-year total return to 489.79%, some 2.00 times the S&P 500 (SPX) over the same period. My 11-year average annualized return now stands at an unbelievable 42.90%, easily the highest in the industry.

My trailing one-year return exploded to positively eye-popping 124.92%. I truly have to pinch myself when I see numbers like this. I bet many of you are making the biggest money of your long lives.

We need to keep an eye on the number of US Coronavirus cases at 33.1 million and deaths topping 590,000, which you can find here. Some 33.1 million Americans have contracted Covid-19.

The coming week will be a weak one on the data front.

On Monday, May 24, at 8:30 AM, the Chicago Fed National Activity Index is released.

On Tuesday, May 25, at 10:00 AM, the S&P Case Shiller National Home Price Index for March is announced.

On Wednesday, May 26 at 8:30 PM, MBA Mortgage Applications are revealed.

On Thursday, May 27 at 8:30 AM, the Weekly Jobless Claims are Published. We also get a second estimate for the red hot Q2 GDP.

On Friday, May 28 at 8:30 AM, the even hotter Personal Spending for April is disclosed. At 2:00 PM, we learn the Baker-Hughes Rig Count.

As for me, as this pandemic winds down, I am reminded of a previous one in which I played a role in ending.

After a 30-year effort, the World Health organization was on the verge of wiping out smallpox, a scourge that had been ravaging the human race since its beginning. I have seen Egyptian mummies at the Museum of Cairo that showed the scarring that is the telltale evidence of smallpox, which is fatal in 50% of cases.

By the early 1970s, the dread disease was almost gone but still remained in some of the most remote parts of the world. So, they offered a reward to anyone who could find live cases.

To join the American Bicentennial Mt. Everest Expedition in 1976, I took a bus to the eastern edge of Katmandu and started walking. That was the furthest roads went in those days. It was only 150 miles to basecamp and a climb of 14,000 feet.

Some 100 miles in, I was hiking through a remote village, which was a page out of the 14th century, back when families threw buckets of sewage into the street. The trail was lined with mud brick two-story homes with wood shingle roofs, with the second story overhanging the first.

As I entered the town, every child ran to their windows to wave, as visitors were so rare. Every smiling face was covered with healing but still bleeding smallpox sores. I was immune, since I received my childhood vaccination, but I kept walking.

Two months later, I returned to Katmandu and wrote to the WHO headquarters in Geneva about the location of the outbreak. A year later, I received a letter of thanks at my California address and a check for $100 telling me they had sent in a team to my valley in Nepal and vaccinated the entire population.

Some 15 years later, while on customer calls in Geneva for Morgan Stanley, I stopped by the WHO to visit a scientist I went to school with. It turned out I had become quite famous, as my smallpox cases in Nepal were the last ever discovered.

The WHO certified the world free of smallpox in 1980. The US stopped vaccinating children for smallpox in 1972, as the risks outweighed the reward.

Today, smallpox samples only exist at the CDC in Atlanta frozen in liquid nitrogen at minus 346 degrees Fahrenheit in a high-security level 5 biohazard storage facility. China and Russia probably have the same.

That’s because scientists fear that terrorists might dig up the bodies of some British sailors who were known to have died of smallpox in the 19th century and were buried on the north coast of Greenland remaining frozen ever since. If you need a new smallpox vaccine, you have to start from somewhere.

As for me, I am now part of the 34% of Americans who remain immune to the disease. I’m glad I could play my own small part in ending it.

Stay healthy.

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

On Mt. Everest, Smallpox-Free in 1976

 

 

 

 

 

 

Bitcoin

https://www.madhedgefundtrader.com/wp-content/uploads/2014/04/Wile-E.-Coyote-TNT.jpg 365 496 Mad Hedge Fund Trader https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png Mad Hedge Fund Trader2021-05-24 10:02:262021-05-24 12:15:14The Market Outlook for the Week Ahead, or It’s All About the Numbers
Mad Hedge Fund Trader

April 5, 2021

Tech Letter

Mad Hedge Technology Letter
April 5, 2021
Fiat Lux

Featured Trade:

(CHIP MANUFACTURERS — A WAY TO PLAY 5G)
(AMAT)

https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png 0 0 Mad Hedge Fund Trader https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png Mad Hedge Fund Trader2021-04-05 14:04:242021-04-05 14:32:14April 5, 2021
Mad Hedge Fund Trader

Chip Manufacturers - A Way to Play 5G

Tech Letter

From every minor data point coming from the semiconductor industry, we are seeing a tidal wave of new demand that is fueling a new megatrend of accelerated chip consumption.

We, yet again, get more confirmation from tech firms that this revenue surge is real and is happening as we speak.

Chip equipment makers have to be the best bet in tech of 2021, and I will explain why.

We are experiencing an assortment of macro and technology factors fueling robust demand for semiconductors.

As the world continues to navigate a health solution, the digital transformation of the economy is moving into warp speed.  

Companies are reformulating the way they operate, and there is a dramatic pull for advanced technology.

This advanced technology needs a high volume of chips.

Consumers are now making digital-centered choices about the way they spend their time and the products and services they buy.

The benefits cannot be ignored and since new ways of working offer compelling advantages in terms of time and productivity, they will be irreversible.

Here are three examples driving increasing silicon consumption.

First, cloud service providers are predicting data center capex growth of more than 15% this year on top of record spending in 2020.

Second, due to the broader adoption of 5G handsets, silicon content in smartphones is growing at double-digit rates.

Third, in automotive, where there are known supply shortfalls since 2018, chip consumption is expected to expand more than 15% this year, translating these factors to heavy industry investments.

The IoT, communications, auto, power, and sensor markets are expected to grow even faster and are on track to exceed $3 billion of revenue for 2021.  

This past year was a strong recovery year with spending up more than 30% and is set to continue.

The result is a strong demand environment for wafer fab equipment, and we believe this strength is sustainable well beyond 2021.

Investors should be looking at wafer fab equipment companies like Applied Materials (AMAT).

When you look at wafer fab equipment intensities, that's wafer fab equipment revenues as a percentage of semiconductor industry revenues, they are well below recent peaks in all three of the device segments: foundry/logic, NAND, and DRAM.

I would recommend one of the most important U.S. wafer fab manufacturers Applied Materials (AMAT) in order to capture the sweet spot of the explosion in chip demand in 2021 and the need to satisfy this demand.

The supply isn’t there and these capital investments mean more building of capacity which is great for (AMAT).

(AMAT) revenues for the first fiscal quarter were up 26% compared to the same period last year.

At the midpoint of Q2 guidance, semi systems will be up around 50% year on year.

There are a number of factors contributing to this overperformance.

(AMAT) has the broadest portfolio of products and capabilities, spanning materials creation, modification, removal, and analysis.

These technologies, combined with their ability to connect in unique ways, are fundamental to enabling customers' power, performance, and cost road maps.

(AMAT)’s latest-generation products have strong momentum, and more than 25% of 2021 revenues will come from critical applications that they have targeted and won since 2018.

Also, over the past few years, (AMAT) started introducing a new class of highly differentiated products that are called Integrated Materials Solutions, or IMS.

(AMAT)’s IMS products can combine multiple process technologies with onboard metrology and sensors within a single system that is capable of enabling unique films, structures, and devices.

Over the past five years, they have grown IMS services business at a compound annual growth rate of 12%, which is twice as fast as (AMAT)’s installed base growth.

Their renewal rates for these agreements are also extraordinarily high at over 90%.

I also see encouraging leading indicators of future growth, including higher OLED adoption in the smartphone market with the vast majority of 5G handsets being equipped with OLED screens and increasing OLED consumption beyond phones in TVs and IT applications.

The manufacturing of more chip equipment will all culminate with (AMAT)’s share price demonstrably higher by the end of 2021.

We are at the beginning of a boom in the wafer fab investment cycle and companies such as (AMAT) will be outsized winners in this 5G economic cycle with major investments into chip equipment taking place in 2021.

 

amat

https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png 0 0 Mad Hedge Fund Trader https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png Mad Hedge Fund Trader2021-04-05 14:02:222021-04-07 23:05:48Chip Manufacturers - A Way to Play 5G
Mad Hedge Fund Trader

April 5, 2021

Diary, Newsletter, Summary

Global Market Comments
April 5, 2021
Fiat Lux

Featured Trade:

(MARKET OUTLOOK FOR THE WEEK AHEAD, or A SUPERCHARGED ECONOMY IS SUPERCHARGING THE STOCK MARKET),
(SPX), (LRCX), (AMAT), (VIX), (BA), (LUV), (AKL), (TSLA), (DAL)

https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png 0 0 Mad Hedge Fund Trader https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png Mad Hedge Fund Trader2021-04-05 09:04:272021-04-05 12:23:09April 5, 2021
Mad Hedge Fund Trader

The Market Outlook for the Week Ahead, or A Supercharged Economy is Supercharging the Stock Market

Diary, Newsletter, Research

Stocks have risen at an annualized rate of 40% so far in 2021. If that sounds too good to be true, it is.

But then, we have the greatest economic and monetary stimulus of all time rolling out also.

Of the $10 trillion in government spending that has or is about to be approved, virtually none of it has been spent. There hasn’t been enough time. It turns out that it is quite hard to spend a trillion dollars. Corporate America and its investors are salivating.

The best guess is that the new spending will create five million jobs for the economy over eight years, taking the headline Unemployment Rate down to a full employment 3-4%. The clever thing about the proposal is that it is financed over 15 years, which takes advantage of the current century's low interest rates.

That is something many strategists have been begging the US Treasury to do for years. Take the free money while it is on offer.

There is something Rooseveltean about all this, with great plans and huge amounts of money, like 10% of GDP on the table. But then we did just come out of a Great Depression, with unemployment peaking at 25 million, the same as in 1933.

The package is so complex that it is unlikely to pass by summer. Until then, stocks will probably continue to rally on the prospect.

It makes my own forecast of a 30% gain in stocks and a Dow Average of 40,000 for 2021 look overly cautious, conservative, and feeble (click here). But then, you have to trade the market you have, not the one you want.

And here is the really fun part. After a grinding seven-month-long correction, technology stocks have suddenly returned from the dead. All the best names gained 10% or more in the previous four-day holiday-shortened week. Clearly, investors have itchy trigger fingers with tech stocks at these levels.

In the meantime, technology stock prices have fallen 20-50% while earnings have jumped by 20% to 40%. What was expensive became cheap. It was a setup that was begging to happen.

This is great news because technology stocks are the core to all non-indexed retirement funds.

The S&P 500 (SPX) blasted through 4,000, a new all-time high, off the back of one of the largest infrastructure spends in history. Job creation over the next eight years is estimated at 5 million. Corporate earnings will go through the roof. Tech is back from the dead. Leaders were semiconductor equipment makers like my old favorites, Applied Materials (AMAT) and Lam Research (LRCX). The Volatility Index (VIX) sees the $17 handle, hinting at much higher to come. The next leg up for the Roaring Twenties has begun!

Biden Infrastructure Bill Tops $2.3 Trillion. Of course, some of it isn’t infrastructure but other laudable programs that starved under the Trump administration, like spending on seniors (I’m all for that!). Still, spending is spending, and this will turbocharge the economy all the way out to say….2024. The impact on interest rates will be minimal as long as the Fed keeps overnight rates near zero, as they have promised to do for nearly three years. Making the power grid carbon-free by 2035 is a goal and would require a 50% increase in solar national installations. Infrastructure spending is always a win-win because the new tax revenues it generates always pay for it in the end.

March Nonfarm Payroll Report exploded to the upside, adding a near record 917,000 jobs, and taking the headline Unemployment Rate down to 6.0%. Employers are front running Biden’s infrastructure plans, hiring essential workers while they are still available. Look for labor shortages by summer, especially in high paying tech. Leisure & Hospitality was the overwhelming leader at a staggering 280,000, followed by Government at 136,000 and Construction at 110,000.

 

Goldilocks lives on, with a 1.0% drop in Consumer Spending in February, keeping inflation close to zero. The Midwest big freeze is to blame. You can’t buy anything when there’s no gas for the car and no electricity once you get there, as what happened in Texas. The $1,400 stimulus checks have yet to hit much of the country, although I got mine. It couldn’t be a better environment for owning stocks. Keep buying everything on dips.

Consumer Confidence
soared, up 19.3 points to 109 in February, according to the Conference Board. It’s the second-biggest move on record. A doubling of the value of your home AND your stock portfolio in a year is making people feel positively ebullient. Oh, and free money from the government is in the mail.

The Suez Canal reopened, allowing 10% of international trade to resume. A massive salvage effort that freed the 200,000 ton Ever Given. The ship will be grounded for weeks pending multiple inspections. Somebody’s insurance rates are about to rachet up. It all shows how fragile is the international trading system. Deliveries to Europe will still be disrupted for months. It puts a new spotlight on the Arctic route from Asia to Europe, which is 4,000 nm shorter.

Boeing
(BA) won a massive order, some 100 planes from Southwest Air (LUV), practically the only airline to use the pandemic to expand. Boeing can fill the order almost immediately from 2020 cancelled orders for the $50 million 737 MAX. Keep buying both (BA), (LUV), and (AKL) on dips.

Tesla
blows away Q1 deliveries, with a 184,400 print, or 47.5% high than the 2021 rate. That is without any of the new Biden EV subsidies yet to kick in. Lower priced Model 3 sedans and Model Y SUVs accounted for virtually all of the report. The Shanghai factory is kicking in as a major supplier to high Chinese demand. The one million target for 2021 is within easy reach. Traders saw this coming (including me) and ramped the stock up $100. Buy (TSLA) on dips. My long-term target is $10,000.

United Airlines hires 300 pilots to front-run expected exposure summer travel. CEO Scott Kirby says domestic vacation travel has almost completely recovered. Keep buying (LUV), (AKL), and (DAL) on dips.

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 400% to 120,000 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 120,000 here we come!

My Mad Hedge Global Trading Dispatch profit reached 0.38% gain during the first two days of April on the heels of a spectacular 20.60% profit in March.

I used the Monday low to double up my long in Tesla. After that, it was off to the races for all of tech. I caught a $100 move on the week.

My new large Tesla (TSLA) long expires in 9 trading days.

That leaves me with 50% cash and a barrel full of dry powder.

My 2021 year-to-date performance soared to 44.47%. The Dow Average is up 9.40% so far in 2021.

That brings my 11-year total return to 467.02%, some 2.08 times the S&P 500 (SPX) over the same period. My 11-year average annualized return now stands at an unbelievable 41.20%, the highest in the industry.

My trailing one-year return exploded to positively eye-popping 108.51%. I truly have to pinch myself when I see numbers like this. I bet many of you are making the biggest money of your long lives.

We need to keep an eye on the number of US Coronavirus cases at 30.6 million and deaths topping 555,000, which you can find here.

The coming week will be dull on the data front.

On Monday, April 5, at 10:00 AM, the ISM Non-Manufacturing Index for March is released.

On Tuesday, April 6, at 10:00 AM, US Consumer Inflation Expectations for March are published.

On Wednesday, April 7 at 2:00 PM, the minutes of the last Federal Open Market Committee Meeting are published.

On Thursday, April 8 at 8:30 AM, the Weekly Jobless Claims are printed.

On Friday, April 9 at 8:30 AM we get the Producer Price Index for March. At 2:00 PM, we learn the Baker-Hughes Rig Count.

As for me, I recently turned 69, so I used a nice day to climb up to the Lake Tahoe High Sierra rim at 9,000 feet, found a nice granite boulder sit on to keep dry, and tried to figure out what it was all about.

I’ve been very lucky.

I had a hell of a life that I wouldn’t trade for anything. I wouldn’t change a bit (well, maybe I would have bought more Apple shares at a split-adjusted 30 cents in 1998. I knew Steve was going to make it).

Since I’ve always loved what I did, journalist, trader, combat pilot, hedge fund manager, writer, I don’t think I have “worked” a day in my life.

I fought for things I believed in passionately and won, and kept on winning. It’s good to be on the right side of history.

I have loved and lost and loved again and lost again, and in the end outlived everyone, even my younger brother, who died of Covid-19 a year ago. The rule here is that it is always the other guy who dies. My legacy is five of the smartest kids you ever ran into. They’re great traders as well.

So I’ll call it a win.

I visited my orthopedic surgeon the other day to get a stem cell top-up for my knees and she asked how long I planned to keep coming back. I told her 30 years, and I meant it.

There’s nothing left for me to do but to make you all savvy in the markets and rich, something I leap out of bed every morning at 5:00 AM to accomplish.

Enjoy your weekend.
 
Stay healthy.

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

 

 

 

 

 

 

 

 

https://www.madhedgefundtrader.com/wp-content/uploads/2019/04/john-thomas-pilot.png 531 597 Mad Hedge Fund Trader https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png Mad Hedge Fund Trader2021-04-05 09:02:332021-04-05 12:22:42The Market Outlook for the Week Ahead, or A Supercharged Economy is Supercharging the Stock Market
Mad Hedge Fund Trader

September 10, 2019

Diary, Newsletter, Summary

Global Market Comments
September 10, 2019
Fiat Lux

SPECIAL ARTIFICIAL INTELLIGENCE ISSUE

Featured Trade:
(NEW PLAYS IN ARTIFICIAL INTELLIGENCE),
(NVDA), (AMD), (ADI), (AMAT), (AVGO), (CRUS),
 (CY), (INTC), (LRCX), (MU), (TSM)

https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png 0 0 Mad Hedge Fund Trader https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png Mad Hedge Fund Trader2019-09-10 01:04:492019-09-09 17:09:22September 10, 2019
MHFTR

New Plays in Artificial Intelligence

Diary, Newsletter

It’s been three years since I published my first Special Report on artificial intelligence and urged readers to buy the processor maker NVIDIA (NVDA) at $68.80.

The stock quadrupled, readers are understandably asking me for my next act in the sector.

The good news is that I have one.

For a start, you could go out and buy NVIDIA again.

With an explosive 50% annual earnings growth, a near-monopoly in super fast processors, and a huge lead over the competition, I think there is another double in the shares that could take the price up to a stratospheric $300. Its newest super-fast graphics card, the Turing, promises to be a real barn burner and dominate the industry yet again.

But I can do better than that.

The good news if you are new to this sector is that the entire AI space has started to broaden out to offer a host of investment opportunities beyond the tiny handful I first mentioned in 2016.

These include legacy chipmakers, survivors of the great Dotcom bust, whose shares have barely moved in years.

Yes, there is such a thing as a cheap AI stock. To find out who they are, read on.

The reason for the expansion of the AI sector is that practically overnight these ultra-sophisticated algorithms have become essential to any company that wants to survive in online commerce or stay in business….period.

Those of us who have been in this business for more than 15 minutes have seen this pattern before, and the resulting impact on share prices: the Boeing 707, the personal computer, Windows, the Internet, and the smart cell phone.

AI is everywhere.

In the old days, visiting a website and window-shopping their products was easy. You just clicked around a few times and then moved on to the next site.

Now if you click on a product once, that site will follow you around relentlessly for months, appearing in the margins of your emails, offering you endless discounts and special deals.

I bought a Dell computer six months ago, and it is still pounding away at me with better offers. I feel like such a dummy buying a machine at the first price asked.

That is all AI.

The auto industry is now a major growth industry for AI. Even a simple garden-variety vehicle needs 100 chips just to operate.

The gull-wing doors on my new Tesla Model X each has its own learning program. They never open the same way twice.

In fact, when I first picked up the car last year, the salesman warned by saying it would be “stupid” for the first 3,000 miles.

It had to “learn” how to drive before I let it attempt any sophisticated self-driving maneuvers, like backing into a parking space on a crowded street.

I let it park itself in my garage now. I have only had a heart attack once.

With US annual auto production at 16.7 million units annualized, and global car and commercial vehicle production at a record 94.64 million, that is a lot of processors.

I have been covering Silicon Valley since it was a verdant, sun-kissed peach orchard in Northern California.

I have to say that in the half-century that I have followed the technology industry, I have never seen the principals, gurus, and visionaries so excited about a major new trend like AI.

Asking if AI is relevant now is like pondering the future of Thomas Edison’s new electricity invention in 1890.

If you think that AI still belongs in the realm of science fiction, you obviously didn’t get the memo. It is all around us all the time, 24/7. You just don’t know it yet.

And here’s the rub.

It is impossible to invest purely in AI.

All-new AI startups comprise small teams of experts from private labs and universities financed by big venture capital firms like Sequoia Capital, Kleiner Perkins, and Andreeson Horowitz.

After developing software for a year or two, they are sold on to major technology firms at huge premiums. They never see the light of day in the form of a public listing.

Alphabet (GOOGL) acquired Britain-based Deep Mind in 2014. Later that year, Google’s AlphaGo program defeated the world’s top-ranked Go player.

In 2016, Microsoft (MSFT) purchased Equivio, a small firm that applies AI to advanced document searches on the Internet.

Amazon (AMZN) recently bought out Orbeus, a startup known for machine learning tools for image recognition.

Amazon’s Jeff Bezos now says that his Amazon Fresh home food delivery service is using AI to grade strawberries.

Really!

We’re not talking small potatoes here.

The global artificial intelligence market is expected to grow at an annual rate of 44.3% a year to $23.5 billion by 2025.

Nearly half of all applications now use some form of AI that by 2020 will earn businesses an extra $60 billion a year in profits.

And from what I have learned from speaking to the major players over the last few weeks, I am convinced that these are low numbers by an order of magnitude.

I have been following developments in artificial intelligence since the 1960s.

There were those feeble computer dating attempts in the early seventies where we all had to prepare IBM punch cards.

I was matched with an annoyingly aggressive bleach blonde real estate agent. (Really?). Her only real qualification was that she was female.

It took decades and tens of thousands of programming man-hours before IBM’s Deep Blue could become a chess grandmaster in 1996, defeating Gary Kasparov.

Big Blue’s latest effort came to us with Watson in 2007, an 85,000-watt behemoth with 90 servers and 15 terabytes of data, or three quarters of the content of the entire Library of Congress.

The machine can read a staggering 1 million books a second. IBM has so far poured $15 billion into the project.

In 2011, Watson defeated the top-rated Jeopardy game show contestant by answering the question “What city’s national museum lost the “Lion of Nimrod.” The answer was “What is Baghdad” (I knew that!).

Today, Watson is on loan to the University of North Carolina at Chapel Hill where it has been deployed to cure cancer.

It took scientists a week to teach Watson how to read medical literature. In the second week, it read every paper published on cancer, some 25 million.

By the third week, it was proposing customized cures for advanced cancer patients, which achieved a 33% success rate.

After all, it can read all of the 8,000 cancer papers that are published every day from around the world IN SECONDS!

Scientists say that Watson has so far reached only 1% of its true potential.

It gets better than that.

A clinic can now biopsy your tumor, sequence its DNA, design a custom protein that will target and destroy your personal tumor, mass-produce it, inject it in your tumor, and cure you of cancer in a month.

This is being done with human volunteers in clinical trials NOW.

Expect this procedure to go retail and be made available to you in about five years. And by that, I mean cheap, locally available, and covered by your health insurance policy.

I believe that Watson and its future offspring will cure the major human maladies within a decade. My generation will probably be the last to suffer serious disease.

It isn’t just Watson that will take us the great leap forward in computing. By 2020, you will be able to buy a low-end laptop for $500 that can hold ALL KNOWLEDGE ACCUMULATED IN HUMAN HISTORY!

They better hurry. That body of knowledge is doubling every 18 months!

It is a key part of my argument that the US will enjoy a Golden Age and see a return of the “Roaring Twenties” during the 2020s.

If you have in any way been involved in the stock market for the past five years, AI has invaded your life.

High frequency trading and hedge funds now account for 70% of the daily trading volume on the major stock exchanges, and almost all of this is AI-driven.

Having spent my entire life trading stocks, I can confirm that in recent years the market’s character has dramatically changed, and not for the better. Call it trading untouched by human hands.

Algorithms are trading against algorithms, and whoever wins the nuclear arms race brings home the big bucks.

You used to need degrees in Finance and Economics, or perhaps an MBA, to become a professional fund manager. Now it’s a Ph.D. in Computer Science.

Remember the May 2010 flash crash when the Dow Average plunged 1,100 points in minutes wiping out $4.1 billion in equity value? AI’s fingerprints were all over that.

In 2016, the British pound lost 6% of its value in a mere two minutes, a move unprecedented in the history of foreign exchange markets. The culprit was AI.

Don’t expect the path forward to AI to be an easy one.

Indeed, the machines already have the power of life and death over all of us.

No less figures than Nobel Prize winner Dr. Stephen Hawking and Tesla’s Elon Musk have warned that computers and the Internet may have the power to pose a threat to human existence within a decade.

They are especially concerned about the militarization of powerful robots, something I know the US Defense Department is hell-bent on developing.

As I write this, the only thing preventing a drone attacking a village in Afghanistan is an Army corporal hitting a red button on a console in Nevada.

In the future, antivirus software won’t be needed to protect your computer. It will be essential to protect you FROM your computer.

You know that massive denial of service attack that hit the United States on October 21, 2016?

I asked one of my friends at security giant Palo Alto Networks (PANW) if it was the Russians again. He replied, “You better hope it’s the Russians.”

The implication is that the Internet may have launched the attack itself.

Now, about that stock recommendation.

Since we aren’t venture capitalists, we can’t buy into pure AI firms in their early stages. And I’m too old to get a Ph.D. in computer science.

We, therefore, have to be sneaky and get in through the back door via an indirect play which still has plenty of upside leverage.

My current favorite among the AI alternative stocks is Advanced Micro Devices (AMD).

If Intel only piques your appetite for AI stocks and you feel you need another serving, I have listed below ten names that will benefit mightily from this once-a-century opportunity.

AI Stock to BUY

Advanced Micro Devices (AMD)
Analogue Devices Communication (ADI)
Applied Materials (AMAT)
Broadcom (AVGO)
Cirrus Logic (CRUS)
Cypress Semiconductor (CY)
Intel (INTC)
Lam Research (LRCX)
Micron Technology (MU)
Taiwan Semiconductor (TSM)

If you’re really lazy, you can just buy a basket of semiconductor stocks through an industry-specific ETF.

The largest is the VanEck Vectors Semiconductor ETF (SMH), with $1.3 billion in assets under management. For a prospectus on the fund, please click here.

Or you could just stick with NVIDIA.

No matter how you want to slice and dice it, AI should be a dominant factor in your IRA, 401k, or benefit plan.

And you are a trader by nature, this will be a great sector to trade around.

As for your computer, you better start leaving it unplugged at night.

You never know.

 

 

 

 

 

 

She’s Smarter Than You Think

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MHFTR

August 16, 2018

Diary, Newsletter, Summary

Global Market Comments
August 16, 2018
Fiat Lux

SPECIAL ARTIFICIAL INTELLIGENCE ISSUE

Featured Trade:
(NEW PLAYS IN ARTIFICIAL INTELLIGENCE),
(NVDA), (AMD), (ADI), (AMAT), (AVGO), (CRUS),
(CY), (INTC), (LRCX), (MU), (TSM)

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MHFTR

July 20, 2018

Tech Letter

Mad Hedge Technology Letter
July 20, 2018
Fiat Lux

Featured Trade:
(A SELLERS' MARKET)
(CSCO), (MSCC), (GOOGL), (MCHP), (SWKS), (JNPR), (AMAT),
(PANW), (UBER), (AMZN), (AVGO), (QCOM), (CA), (CRM)

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MHFTR

A Sellers' Market

Tech Letter

I bet you are wondering where all that money from the tax cuts is going.

Believe it or not, the No. 1 destination of this new windfall is technology companies, not just the stocks, but entire companies.

In fact, the takeover boom in Silicon Valley has already started, and it is rapidly accelerating.

The only logical conclusion in 2018 is that tech firms are about to get a lot more expensive. I'll explain exactly why.

The corporate cash glut is pushing up prices for unrealized M&A activity in 2018. U.S. firms accumulated an overseas treasure trove of around $2.6 trillion and the capital is spilling back into the States with a herd-type mentality.

I have chewed the fat with many CEOs about their cash pile road map. All mirrored each other to a T: strategic acquisition and share buybacks, period. The acquisition effect will be felt through all channels of the tech arterial system in 2018.

As the global race to acquire the best next generation technology heats up, domestic mergers could pierce the 400-deal threshold after a lukewarm 2017.

Spend or die.

Apple alone boomeranged back more than $250 billion with hopes of selective mergers and share buybacks. Cisco (CSCO), Microsoft (MSFT), and Google (GOOGL) were also in the running for most cash repatriated.

The tech behemoths are eager to make transformative injections into security, big data, semiconductor chips, and SaaS (service as a software) among others.

Hint: You want to own stocks in all of these areas.

Even non-traditional tech companies are getting in on the act with Walmart concentrating the heart of its strategic future on the pivot to technology.

Walk into your nearest Walmart every few months.

You'll notice major changes and not for decorative measures.

U-turns from legacy technology firms hawking desktop computers and HDD's (Hard Disk Drive) suddenly realize they are behind the eight ball.

M&A activity will naturally tilt toward firms dabbling in earlier-stage software and 5G supported technology. This flourishing trend will reshape autonomous vehicles and IoT (Internet of Things) products.

The dilemma in waiting to splash on a potential new expansion initiative is that the premium grows with the passage of time. Time is money.

It's a sellers' market and the sellers know this wholeheartedly.

Unleashing the M&A beast comes amid a seismic shift of rapid consolidation in the semiconductor sector. Cut costs to compete now or get crushed under the weight of other rivals that do. Ruthless rules of the game cause ruthless executive decisions.

The best way to cut costs is with immense scale to offer nice shortcuts in the cost structure. Buying another company and using each other's dynamism to find a cheaper way to operate is what Microchip Technology's (MCHP) culling of Microsemi Corporation (MSCC) in a deal worth $10bn was about.

Microsemi, based in Aliso Viejo, California, focuses on manufacturing chips for aerospace, military, and communications equipment.

Microchip's focal point is industrial, automobile and IoT products.

Included in the party bag is a built-in $1.8 billion annual revenue stream and more than $300 million of dynamic synergies set to take effect within three years. The bonus from this package is the ability to cross-sell chips into unique end markets opposed to selling from scratch.

Each business hyper-targets different segments of the chip industry and is highly complementary.

Benefits of a relatively robust credit market create an environment ripe for mergers. Some 57% of tech management questioned intend to go on the prowl for marquee pieces to add to their arsenal.

Then we have chip company Broadcom (AVGO) led by CEO Hock Tan, whose entire strategy is based on M&A and minimal capital spending.

His low-quality strategy of buying market share will ultimately fritter out. His lack of capital spending was also a salient reason for blocking Broadcom's purchase of Qualcomm (QCOM), which if stripped of its capital spending budget would have fallen behind China's Huawei to develop critical 5G infrastructure.

Tan's strategy flies in the face of the most powerful tech companies that are using M&A to enhance their products expanding their halo effect around the world.

Gutting innovation and skimming profits off the top is an entirely self-serving, myopic strategy to the detriment of long-term shareholders.

Investors punished Broadcom for it's latest investment of CA Technologies (CA) for $18.9 billion, even though this pickup signals a different tack.

CA Technologies is a leading provider of information technology (IT) management software, which suggests a belated move into the enterprise software market dominated by incumbents such as Salesforce (CRM).

Better late than never.

No need to mince words here as 2018 won't see any discounts of any sort. Nimble buyers should prepare for price wars as the new normal.

Not only are the plain vanilla big cap tech firms dicing up ways to enter new markets, alternative funds are looking to splash the cash, too.

Sovereign wealth funds and private equity firms are ambitiously circling around like vultures above waiting for the prey to show itself.

Private equity firms dove head first into the M&A circus already tripling output for tech firms.

Highlighting the synchronized show of force is none other than Travis Kalanick, the infamous founder of Uber. He christened his own venture capital fund that hopes to invest in e-commerce, real estate, and companies located in China and India.

The new fund is called 10100 and is backed by his own money. All this is possible because of SoftBank CEO Masayoshi Son's investment in Uber, which netted Kalanick a cool $1.4 billion representing Kalanick's 30% stake in Uber.

It is undeniable that valuations are exorbitant, but all data and chip related companies are selling for huge premiums. The premium will only increase as the applications of 5G, A.I., autonomous cars start to pervade deeper into the mainstream economy.

Adding fuel to the fire is the corporate tax cut. The lower tax rate will rotate more cash into M&A instead of Washington's tax coffers enhancing the ability for companies to stump up for a higher bill. Sellers know firms are bloated with cash and position themselves accordingly.

Highlighting the challenges buyers face in a sellers' market is Microsemi Corp.'s (MSCC) purchase of PMC-Sierra Inc. Even though PMC-Sierra had been looking to get in bed with Skyworks Solutions Inc. (SWKS) just before the MSCC merger, PMC-Sierra reneged on the acquisition after (SWKS) refused to bump up its original offer.

(SWKS) manufactures radio frequency semiconductors facilitating communication among smartphones, tablets and wireless networks found in iPhones and iPads.

(SWKS) is a prime takeover target for Apple. (SWKS) estimates to have the highest EPS growth over the next three to five years for companies not already participating in M&A. Apple (AAPL) could briskly mold this piece into its supply chain. Directly manufacturing chips would be a huge boon for Apple in a chip market in short supply.

In 2013, Japan's Tokyo Electron and Applied Materials (AMAT) angled to become one company called Eteris. This maneuver would have created the world's largest supplier of semiconductor processing equipment.

After two years of regulatory review, the merger was in violation of anti-trust concerns according to the United States. (AMAT), headquartered in Santa Clara, California, is a premium target as equipment is critical to manufacturing semiconductor chips. (AMAT) competes directly with Lam Research (LRCX), which is an absolute gem of a company.

Juniper Networks (JNPR) sells the third-most routers and switches used by ISP's (Internet Service Providers). It is also No. 2 in core routers with a 25% market share. Additionally, (JNPR) has a 24.8% market share of the firewall market.

In 2014, Palo Alto Networks (PANW), another takeover target focusing on cybersecurity, paid a $175 million settlement fee for allegedly infringing (JNPR)'s application firewall patents.

In data center security applications, (JNPR) routinely plays second fiddle to Cisco Systems (CSCO). Cisco, the best of breed in this space would benefit by snapping up (JNPR) and integrating its expertise into an expanding network.

Unsurprisingly, health care is the other sector experiencing a tidal wave of M&A, and it's not shocking that health care firms accumulated cash hoards abroad too. The dots are all starting to connect.

Firms want to partner with innovative companies. Companies hope to focus on customer demands and build a great user experience that will lead the economy. Health care costs are outrageous in America, and Jeff Bezos could flip this industry on its head.

Amazon (AMZN) pursuing lower health costs ultimately will bind these two industries together at the hip and is net positive for the American consumer.

Ride-sharing company Uber embarked on a new digital application called Uber Health that book patients who are medically unfit for regular Uber and shuttle them around to hospital facilities.

Health care providers can hail a ride for sick people immediately and are able to make an appointment 30 days in advance. It is a little difficult to move around in a wheel chair, and tech solves problems that stir up zero appetite for most business ventures. Apple is another large cap tech titan keeping close tabs on the health care space.

It's a two-way street with health care companies looking to snap up exceptional tech and vice versa.

It's practically a game of musical chairs.

Ultimately, Tech M&A is the catch of the day, and boosting earnings requires cutting-edge technology no matter how expensive it is. Investors will be kicking themselves for waiting too long. Buy now while you can.

 

 

 

 

 

 

 

Yes, It's All Going Into Tech Stocks

________________________________________________________________________________________________

Quote of the Day

"Companies in every industry need to assume that a software revolution is coming," - said American venture capitalist Marc Andreessen.

 

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