Posts

November 6, 2019

Global Market Comments
November 6, 2019
Fiat Lux

Featured Trade:

(THE QUANTUM COMPUTER IN YOUR FUTURE),
(AMZN), (GOOG),

(THE WORST TRADE IN HISTORY), (AAPL)

November 4, 2019

Global Market Comments
November 4, 2019
Fiat Lux

Featured Trade:

(MARKET OUTLOOK FOR THE WEEK AHEAD, or WELCOME TO THE SUMMIT)
(GM), (BA), (MSFT), (SPY), (TLT), (TSLA), (AMZN)

October 29, 2019

Global Market Comments
October 29, 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)

October 28, 2019

Global Market Comments
October 28, 2019
Fiat Lux

Featured Trade:

(MARKET OUTLOOK FOR THE WEEK AHEAD, or DON’T FIGHT THE FED),
(BIIB), (IBB), (TSLA), (VIX), (BA), (AMZN), (AAPL), (MSFT), (GM)

Will A.I. Save Us?

Anti-A.I. physicist Professor Stephen Hawking was a staunch supporter of preserving human interests against the future existential threat from machines and artificial intelligence (A.I.).

He was diagnosed with motor neuron disease, more commonly known as Lou Gehrig’s disease in 1963 at the age of 21 and sadly passed away March 14, 2018 at the age of 76.

Famed for his work on black holes, Professor Hawking represented the human quest to maintain its superiority against quickly advancing artificial acculturation.

His passing was a huge loss for mankind as his voice was a deterrent to A.I.’s relentless march to supremacy. He was one of the few who had the authority to opine on these issues.

Gone is a voice of reason.

Critics have argued that living with A.I. poses a red alert threat to privacy, security, and society as a whole. Unfortunately, those most credible and knowledgeable about A.I. are tech firms.

They have shown that policing themselves on this front is remarkably unproductive.

Mark Zuckerberg, CEO of Facebook (FB), has labeled naysayers as “irresponsible” and dismissed the threat. After failing to prevent Russian interference in the last election, he is exhibiting the same defensive posture translating into a de facto admission of guilt. His track record of shirking accountability is becoming a trend leading him to allow politicians to post untrue marketing material for the 2020 U.S. election.

Share prices will materially nosedive if A.I. is stonewalled and development stunted. Many CEOs who stake careers on doubling or tripling down on A.I. cannot see it die out. There is too much money to lose – even for Mark.

The world will see major improvements in the quality of life in the next 10 years. But there is another side to the coin which Zuckerberg and company refuse to delve into…the dark side of technology.

Tesla’s (TSLA) CEO Elon Musk has shared his anxiety about robots flipping the script on humans. Elon acknowledges that A.I. and autonomous vehicles are important factors in the battle for new technology. The winner is yet to be determined as China has bet the ranch with unlimited resources from the help of Chairman Xi and state sponsored institutions.

The quagmire with China has been squarely centered around the great race for technological supremacy.

A.I. is the ultimate X factor in this race and whoever can harness and develop the fastest will win.

Musk has hinted that robots and humans could merge into one species in the future. Is this the next point of competition among tech companies? The future is murky at best.

Hawking’s premise that evolution has inbuilt greed can be found in the underpinnings of America’s economic miracle.

Wall Street has bred a culture that is entirely self-serving regardless of the bigger system in which it finds itself.

Most of us are participating in this perpetual money game chase because our system treats it as a natural part of life. A.I. will help a select few do well in this paper chase to the detriment of the majority.

Quarterly earnings performance is paramount for CEOs. Return value back to shareholders or face the sack in the morning. It’s impossible to convince anyone that America’s capitalist model is deteriorating in the greatest bull market of all time.

Wall Street has an insatiable hunger for cutting-edge technology from companies that sequentially beat earnings and raise guidance. Flourishing technology companies enrich the participants creating a Teflon-like resistance to downside market risk.

The issue with Professor Hawking’s work is that his timeframe is too far in the future. Professor Hawking was probably correct, but it will take 25 years to prove it.

The world is quickly changing as science fiction becomes reality.

People on Wall Street are a product of the system in place and earn a tremendous amount of money because they proficiently execute a specialized job. Traders are busy focusing on how to move ahead of the next guy.

Firms building autonomous cars are free to operate as is. Hyper-accelerating technology spurs on the development of A.I., machine learning, and enhanced algorithms. Record profits will topple and investors will funnel investments back into an even narrower grouping of technology stocks after the weak hands are flushed out.

Professor Hawking said we need to explore our technological capabilities to the fullest in order to avoid extinction. In 2018, exploring these new capabilities still equals monetizing through the medium of products and services.

This is all bullish for equities as the leading companies associated with A.I. to reap the benefits.

And let me remind you that technology is still the least regulated industry on the planet even with all the recent hoopla.

It is having its cake and is eating it too. Hence, technology is starting to cross over into other industries demonstrating the powerful footprint tech has extracted in economics and the stock market.

The only solution is keeping companies accountable by a function of law or creating a third-party task force to regulate A.I.

In 2019, the thought of overseeing robots sounds crazy.

The future will be here sooner than you think.

 

October 1, 2019

Global Market Comments
October 1, 2019
Fiat Lux

Featured Trade:

(LAUNCHING THE NEW MAD HEDGE BIOTECH AND HEALTHCARE LETTER)
(THE NEW AI BOOK THAT INVESTORS ARE SCRAMBLING FOR),
(GOOG), (FB), (AMZN), MSFT), (BABA), (BIDU),
(TENCENT), (TSLA), (NVDA), (AMD), (MU), (LRCX)

September 20, 2019

Global Market Comments
September 20, 2019
Fiat Lux

Featured Trade:

(SEPTEMBER 18 BIWEEKLY STRATEGY WEBINAR Q&A),
(TLT), (FDX), (FB), (HYG), (JNK), (EEM), (BABA), (JD), (TBT), (FXE), (UUP), (AMZN), (FB), (DIS), (MSFT), (USO), (INDU),
(THE GREAT TRADING GURU SPEAKS)

September 18, 2019

Global Market Comments
September 18, 2019
Fiat Lux

Featured Trade:

(HOW TO HANDLE THE FRIDAY, SEPTEMBER 20 OPTIONS EXPIRATION),
(AMZN), (DIS), (FB), (MSFT), (VIX),
(INDUSTRIES YOU WILL NEVER HEAR FROM ME ABOUT)

 

September 12, 2019

Global Market Comments
September 12, 2019
Fiat Lux

Featured Trade:

(WILL ANTITRUST DESTROY YOUR TECH PORTFOLIO?),
(FB), (AAPL), (AMZN), (GOOG), (SPOT), (IBM), (MSFT)

Will Antitrust Destroy Your Tech Portfolio?

In recent days, two antitrust suits have arisen from both the Federal government and 49 states seeking to fine, or break up the big four tech companies, Facebook (FB), Apple (AAPL), Amazon (AMZN), and Google (GOOG). Let’s call them the “FAAGs.”

And here is the problem. These four companies make up the largest share of your retirement funds, whether you are invested with active managers, mutual funds, or simple index funds. The FAAGs dominate the landscape in every sense, accounting 13% of the S&P 500 and 33% of NASDAQ.

They are also the world’s most profitable large publicly listed companies with the best big company earnings growth.

I’ll list the antitrust concern individually for each company.

Facebook

Facebook has been able to maintain its dominance in social media through buying up any potential competitors it thought might rise up to challenge it through a strategy of serial defense acquisitions

In 2012, it bought the photo-sharing application Instagram for a bargain $1 billion and built it into a wildly successful business. It then overpaid a staggering $19 billion for WhatsApp, the free internet phone and texting service that Mad Hedge Fund Trader uses while I travel. It bought Onovo, a mobile data analytics company, for pennies ($120 million) in 2013.

Facebook has bought over 70 companies in 15 years, and the smaller ones we never heard about. These were done largely to absorb large numbers of talented engineers, their nascent business shut down months after acquisition.

Facebook was fined $5 billion by the Fair Trade Commission (FTC) for data misuse and privacy abuses that were used to help elect Donald Trump in 2016.

Apple

Apple only has a 6% market share in the global smart phone business. Samsung sells nearly 50% more at 9%. So, no antitrust problem here.

The bone of contention with Apple is the App Store, which Steve Jobs created in 2008. The company insists that it has to maintain quality standards. No surprise then that Apple finds the products of many of its fiercest competitors inferior or fraudulent. Apple says nothing could be further from the truth and that it has to compete aggressively with third party apps in its own store. Spotify (SPOT) has already filed complaints in the US and Europe over this issue.

However, Apple is on solid ground here because it has nowhere near a dominant market share in the app business and gives away many of its own apps for free. But good luck trying to use these services with anything but Apple’s own browser, Safari.

It’s still a nonissue because services represent less than 15% of total Apple revenues and the App Store is a far smaller share than that.

Amazon

The big issue is whether Amazon unfairly directs its product searches towards its own products first and competitors second. Do a search for bulk baby diapers and you will reliably get “Mama Bears”, the output of a company that Amazon bought at a fire sale price in 2004. In fact, Amazon now has 170 in-house brands and is currently making a big push into designer apparel.

Here is the weakness in that argument. Keeping customers in-house is currently the business strategy of every large business in America. Go into any Costco and you’ll see an ever-larger portion of products from its own “Kirkland” branch (Kirkland, WA is where the company is headquartered).

Amazon has a market share of no more than 4% in any single product. It has the lowest price, and often the lowest quality offering. But it does deliver for free to its 100 million Prime members. In 2018, some 58% of sales were made from third-party sellers.

In the end, I believe that Amazon will be broken up, not through any government action, but because it has become too large to manage. I think that will happen when the company value doubles again to $2 trillion, or in about 3-5 years, especially if the company can obtain a rich premium by doing so.

Google

Directed search is also the big deal here. And it really is a monopoly too, with some 92% of the global search. Its big breadwinner is advertising, where it has a still hefty 37% market share. Google also controls 75% of the world’s smart phones with its own Android operating software, another monopoly.

However, any antitrust argument falls apart because its search service is given away to the public for free, as is Android. Unless you are an advertiser, it is highly unlikely that you have ever paid Google a penny for a service that is worth thousands of dollars a year. I myself use Google ten hours a day for nothing but would pay at least that much.

The company has already survived one FTC investigation without penalty, while the European Union tagged it for $2.7 billion in 2017 and another $1.7 billion in 2019, a pittance of total revenues.

The Bottom Line

The stock market tells the whole story here, with FAAG share prices dropping a desultory 1%-2% for a single day on any antitrust development, and then bouncing back the next day.

Clearly, Google is at greatest risk here as it actually does have a monopoly. Perhaps this is why the stock has lagged the others this year. But you can count on whatever the outcome, the company will just design around it as have others in the past.

For start, there is no current law that makes what the FAAGs do illegal. The Sherman Antitrust Act, first written in 1898 and originally envisioned as a union-busting tool, never anticipated anticompetitive monopolies of free services. To apply this to free online services would be a wild stretch.
 
The current gridlocked congress is unlikely to pass any law of any kind. The earliest they can do so will be in 18 months. But the problems persist in that most congressmen fundamentally don’t understand what these companies do for a living. And even the companies themselves are uncertain about the future.

Even if they passed a law, it would be to regulate yesterday’s business model, not the next one. The FAAGs are evolving so fast that they are really beyond regulation. Artificial intelligence is hyper-accelerating that trend.

It all reminds me of the IBM antitrust case, which started in 1975, which my own mother worked on. It didn’t end until the early 1990s. The government’s beef then was Big Blue’s near-monopoly in mainframe computers. By the time the case ended, IBM had taken over the personal computer market. Legal experts refer to this case as the Justice Department’s Vietnam.

The same thing happened to Microsoft (MSFT) in the 1990s. After ten years, there was a settlement with no net benefit to the consumer. So, the track record of the government attempting to direct the course of technological development through litigation is not great, especially when the lawyers haven’t a clue about what the technology does.

There is also a big “not invented here” effect going on in these cases. It’s easy to sue companies based in other states. Of the 49 states taking action against big tech, California was absent. But California was in the forefront of litigation again for big tobacco (North Carolina), and the Big Three (Detroit).

And the European Community has been far ahead of the US in pursuing tech with assorted actions. Their sum total contribution to the development of technology was the mouse (Sweden) and the World Wide Web (Tim Berners Lee working for CERN in Geneva).

So, I think your investments in FAAGs are safe. No need to start eyeing the nearest McDonald’s for your retirement job yet. Personally, I think the value of the FAAGs will double in five years, as they have over the last five years, recession or not.