(AMZN) Archives - Page 26 of 101 - Mad Hedge Fund Trader

May 4 Biweekly Strategy Webinar Q&A

Below please find subscribers’ Q&A for the May 4 Mad Hedge Fund Trader Global Strategy Webinar broadcast from Silicon Valley.

Q: How confident are you to jump into stocks right now?

A: Not confident at all. If you look at all of my positions, they’re very deep in the money and fully hedged—I have longs offsetting my shorts—and everything I own expires in 12 days. So, I’m expecting a little rally still here—maybe 1,000 points after the Fed announcement, and then we could go back to new lows.

Q: Would you scale into ProShares Ultra Technology ETF (ROM) if you’ve been holding it for several years?

A: I would—in the $40s, the (ROM) is very tempting. On like a 5-year view, you could probably go from the $40s to $150 or $200. But don’t expect to sleep very much at night if you take this position, because this is volatile as all get out. It's not exactly clear whether we have bottomed out in tech or not, especially small tech, which the (ROM) owns a lot of.

Q: Is it time to buy the Ark Innovation ETF (ARKK) with the 5-year view?

A: Yes. I mentioned the math on that a couple of days ago in my hot tips. Out of 10 positions, you only need one to go up ten times to make the whole thing worth it, and you can write off everything else. Again, we’re looking at venture capital type math on these leverage tech plays, and that makes them very attractive; however I’m always trying to get the best possible price, so I haven’t done it yet.

Q: We’ve been hit hard with the tech trade alerts since March. Any thoughts?

A: Yes, we’re getting close to a bottom here. The short squeeze on the Chinese tech trade alerts that we had out was a one-day thing. However, when you get these ferocious short covering rallies at the bottom—we certainly got one on Monday in the S&P 500 (SPY) —it means we’re close to a bottom. So, we may go down maybe 4%-6% and test a couple more times and have 500- or 1000-point rallies right after that, which is a sign of a bottom. There’s a 50% chance the bottom was at $407 on Monday, and 50% chance we go down $27 more points to $380.

Q: Is the Roaring 20s hypothesis still on?

A: Yes absolutely; technology is still hyper-accelerating, and that is the driver of all of this. And while tech stocks may get cheap, the actual technology underlying the stocks is still increasing at an unbelievable rate. You just have to be here in Silicon Valley to see it happening.

Q: Do you like defense stocks?

A: Yes, because companies like Lockheed Martin (LMT) and Raytheon (RTN) operate on very long-term contracts that never go away—they basically have guaranteed income from the government—meeting the supply of F35 fighters for example, for 20 years. Certainly, the war in Ukraine has increased defense spending; not just the US but every country in the world that has a military. So all of a sudden, everybody is buying everything—especially the javelin missiles which are made in Florida, Georgia and Arizona. The Peace Dividend is over and all defense companies will benefit from that.

Q: Is Buffet wrong to go into energy right now? How will Berkshire Hathaway Inc. (BRK.B) perform if energy tanks?

A: Well first of all, energy is only a small part of his portfolio. Any losses in energy would be counterbalanced by big gains in his banking holdings, which are among his largest holdings, and in Apple (AAPL). Buffet does what I do, he cross-hedges positions and always has something that’s going up. I think Berkshire is still a buy. And he's not buying oil, per say; he is buying the energy producing companies which right now have record margins. Even if oil goes back down to $50 a barrel, these companies will still keep making money. However, he can wait 5 years for things to work for him and I can’t; I need them to work in 5 minutes.

Q: You must have suffered big oil (USO) losses in the past, right?

A: Actually I have not, but I have seen other people go bankrupt on faulty assumptions of what energy prices are going to do. In the 1990s Gulf War, someone made an enormous bet that oil would go up when the actual shooting started. But of course, it didn’t, it was a “buy the rumor, sell the news” situation. Energy prices collapsed and this hedge fund had a 100% loss in one day. That is what keeps me from going long energy at the top. And the other evidence that the energy companies themselves believe this is true is that they’re refusing to invest in their own businesses, they won’t expand capacity even though the government is begging them to do so.

Q: Why should we stay short the iShares 20 Plus Year Treasury Bond ETF (TLT) instead of selling out for a profit or holding on due to your statement that the TLT will go down to $105/$110?

A; If you have the December LEAPS, which most of you do, there’s still a 10% profit in that position running it seven more months. In this day and age, 7% is worth going for because there isn’t anything else to buy right now, except very aggressive, very short term, front month options, which I've been doing. So, the only reason to sell the TLT now and take a profit—even though it’s probably the biggest profit of your life—is that you found something better; and I doubt you're finding anything better to do right now than running your short Treasuries.

Q: Are you still short the TLT?

A: Yes, the front months, the Mays, expire in 8 days and I’m running them into expiration.

Q: What will Bitcoin do?

A: It will continue to bounce along a bottom, or maybe go lower as long as liquidity in the financial system is shrinking, which it is now at roughly a $90 billion/month rate. That’s not good for Bitcoin.

Q: Is now the time for Nvidia Corporation (NVDA)?

A: Yes, it’s definitely time to nibble here. It’s one of the best companies in the world that’s dropped more than 50%. I think we’d have a final bottom, and then we’re entering a new long term bull market where we’d go into 1-2 year LEAPS.

Q: What do you think of buying the iShares iBoxx $ High Yield Corporate Bond ETF (HYG) junk bond fund here for 6% dividend?

A: If you’re happy with that, I would go for it. But I think junk is going to have a higher dividend yet still. This thing had a dividend in the teens during the financial crisis; I don’t think we’ll get to the teens this time because we don’t have a financial crisis, but 7% or 8% are definitely doable. And then you want to look at the 2x long junk bond special ETFs, because you’re going to get a 16% return on a very boring junk bond fund to own.

Q: What do you think about Amazon (AMZN) at this level?

A: I think it’s too early and it goes lower. Not a good stock to own during recession worries. At some point it’ll be a good buy, but not yet.

Q: Energy is the best sector this year—how long can it keep going?

A: Until we get a recession. By the way, if you want evidence that we’re not in a recession, look at $100/barrel oil. When you get real recessions, oil goes down to 420 or $30….or negative $37 as it did in 2020. There’s a lot of conflicting data out in the market these days and a lot of conflicting price reactions so you have to learn which ones to ignore.

Q: Should we stay short the (TLT)?

A: Yes, we should. I’m looking for a 3.50% yield this year that should take us down to $105.

To watch a replay of this webinar with all the charts, bells, whistles, and classic rock music, just log in to www.madhedgefundtrader.com , go to MY ACCOUNT, click on GLOBAL TRADING DISPATCH, then WEBINARS, and all the webinars from the last 12 years are there in all their glory.

Good Luck and Stay Healthy

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

May 9, 2022

Tech Letter

Mad Hedge Technology Letter
May 9, 2022
Fiat Lux

Featured Trade:

(BUYER STRIKE HAS LEGS)
($COMPQ), (AMZN), (FB)

Buyer Strike Has Legs

Tech Letter

The buyer strike roars ahead as the 10-year U.S. treasure accelerates its rate of decline touching 3.2%.

We are dealing with a major deleveraging of the tech sector as a massive rotation flood into commodity-linked assets, the US dollar, and shorting bonds.

Sadly, we got another kick up the rear side when US Central Bank governor Jerome Powell committed yet another policy mistake by attempting to save the stock market.

Things could get ugly from here.

Many investors believed the Fed would self-correct after the “transitory” inflation nonsense.

It’s not so much the actual 3.2% rate today, but the velocity of the move which is creating many air pockets that are not being filled.

Why?

Investors are betting that Powell will most likely make a third policy mistake which could create another suicidal spiral downwards.

Investors have no incentive to buy stocks when the Fed has not only lost credibility but appears to not understand what is going on with real inflation tearing apart economic health.

This looks a lot like the 1970s just before former US Fed Chair Paul Volcker was brought in to slam the economy and raise interest rates to 18%.

Powell doesn’t seem like he has the guts to do that which is why the prolonging of this failed interest rate policy will mean a longer and more painful economic recession in the future.

I see many pundits going on record saying that the “risk reward has improved.”

Besides stating the obvious, this analysis doesn’t take into consideration that yields could go higher which would cause tech stocks to plummet further.

So yes, the risk reward has improved, but it can improve even more from here.

That doesn’t tell us much about anything.

All signs are now pointing to a souring paradigm shift among tech firms and dramatic changes under the hood.

Facebook (FB) is pausing hiring, a previously unthinkable prospect.

The company blamed macroeconomic challenges and Apple’s privacy changes for its slowest revenue growth in 10 years last quarter.

Almost 12 months after Apple launched App Tracking Transparency, a new analysis predicts its second year will still see big losses to advertisers on FB and YouTube and more collectively losing around $16 billion.

In total, FB will sink $10 billion into its new business with no revenue in 2022.

In February, Amazon (AMZN) announced it would raise its base pay cap from a maximum of $160,000 for most roles to $350,000.

The news comes after employees listed insufficient base pay as the second-most common reason they're looking to leave Amazon in an internal survey conducted last year.

I don’t have an issue with raising salaries, but AMZN had to boost it by far more than double showing readers the intense pressures on current expenses.

Even more problematic now is that new recruits won’t want to accept restricted stock options because of the tech selloff making their stock options less valuable.

Nobody wants to catch a falling knife, me included.

This will put more cash flow pressure on tech companies as new employees will reject stock options and demand a higher net cash salary.

The incremental micro negatives are causing tech companies to miss earnings and guide lower adding yet another negative layer to the grim outlook.

I would argue that even with earnings beats and positive guidance, the tech sector losses would be less.

However, we are experiencing a perfect storm of poor macro events and bad operational data.

Even though the risk reward has improved, it could improve more as the Fed will be forced to ratchet up rates more than expected to compensate for the latest policy mistake.

The market has sniffed this out and is unwilling to buy the dip until the Fed does what is necessary to seriously fight inflation.

The nonsense needs to stop.

May 6, 2022

Tech Letter

Mad Hedge Technology Letter
May 6, 2022
Fiat Lux

Featured Trade:

(ECOMMERCE NOT AS EASY AS IT USED TO BE)
(AMZN), (FED)

Ecommerce Not As Easy as it Used To Be

Tech Letter

The Nasdaq reversing all its previous gains and then some has more to do with the bond market disagreeing with US Fed Chair Jerome Powell.

How do I know that?

After the one-day reversal which materialized because Powell took a 75-basis point cut off the table, the 10-year US treasury bond ripped past the psychological mark of 3% and surged past 3.1%.

As many have taken note, expensive tech stocks crater the deepest with uncontrollable interest rate rises and the pace of the move has been quite rattling for many investors.

In addition, the price action sure smells like a massive hedge fund blowing up and a force unwinding as well to add insult to injury.

Unfortunately for the American consumers, Powell taking 75 basis point cuts off the table does nothing to tame inflation even though I would like to point out that in normal times when the Fed is actually doing its job, a 50-basis point rise would usually be suitable.

However, the Fed is so late to the game, basically ignoring a compounding inflation catastrophe for over a year, that to believe that a 50-basis point rate increase will tame 8.5% inflation is nonsensical.

Without a reasonable plan to fight inflation, Wall Street has sniffed this out and understands that tech firms will suffocate under the pressure of more inflation which is why we are getting these larger-than-life selloffs after Powell tried to package his speech as dovish as possible.

The Fed absolutely neglecting their work duties has real knock-on effects on the tech industry.

It has absolutely poo-pooed the trajectory of Amazon’s (AMZN) stock because Amazon is a comprehensive bet on the rich Western world buying more stuff in volume and the median Amazon prime buyer is bewildered by these aggressive price increases we are seeing all around the economic spectrum.

In short, people aren’t buying more stuff and that hurts Amazon’s ecommerce business.

If oil goes to $150 per barrel, that means more cutting back for Amazon prime customers because filling up at the pump is a necessity and not a luxury like an incremental bottle of perfume on Amazon prime.

In the past 6 months, AMZN’s share price has dropped 35% and that was just a ramp up to the actual rate rises that have barely happened yet.

The market is completely disagreeing with the Fed and instead of aggressive raises, we are stuck with the incremental raises in which the bond market shrugs off and yields are off to the races.

The Fed’s missteps translate into a longer than necessary negative price momentum for tech stocks and it’s the Fed’s fault.

Amazon has been posting weaker-than-usual earnings for a few quarters because not only are their customers dealing with high inflation, but there have been various operational headwinds from unionization, higher expenses, and supply chain problems.

Amazon has almost doubled its fulfillment network since the start of the pandemic, and there is a lot that can go wrong with that in this day and age.

Essentially, the health situation of 2020, brought forward revenue and now we are seeing a major drop off in that rate of growth.

It doesn’t mean that Amazon is dead, but they will need to battle these headwinds for at least the next 12 months if not longer and much of this is not up to them.

That’s because firms have been suffering from the world's deglobalizing and Amazon is hurt more than others.

Amazon Web Services (AWS) is a bright spot.

The business posted a 57% increase in operating income and a 37% gain in sales in the most recent quarter.

For all that think this is the bottom for Amazon, you were also wrong in March as well.

The trading climate couldn’t be worse for Amazon and even though the secular bull case is still intact for Amazon long term, the rest of the year looks harsh.

Being a bet that Americans will buy more stuff isn’t the greatest bet right now.

April 25, 2022

Tech Letter

Mad Hedge Technology Letter
April 25, 2022
Fiat Lux

Featured Trade:

(HIGH STAKES OF TECH EARNINGS)
(AAPL), (MSFT), (AMZN), (NFLX), (FB)

High Stakes

Tech Letter

We get a deeper view into the current state of the tech market with the tech behemoths reporting this week.

I don’t expect a Netflix shocker, but the market doesn’t need one for tech stocks to trend lower.

Alphabet, Microsoft, Meta, Amazon, and Apple earnings are on deck at a time when $30 billion of outflows were sucked out of the equity market in the past 2 weeks.

As the falling knife dips lower, many traders are looking out for a decent counter-trend rally, I am too, but you better sell the rip as well. So we stay in a no man’s land of individual stock picking at a time when the garden variety of blasé indexing is now dead.

Another paradigm shift that needs to be addressed is the death of the FAANGs.

The writing has been on the wall for quite some time with Meta or Facebook signaling to the outside world that its business model is broken and news of today of Apple’s factory in Kunshan, China ordered for covid closure is a bad omen for Apple earnings.

At a broader level, Head of the IMF Kristalina Georgieva today suggested sovereign debt defaults are coming down the pipeline which means the IMF will most likely construct a rescue deal that ends in understanding why the national debt mattered.

The world continues this sovereign crisis in all emerging corners of the world from Sri Lanka and Turkey because when the US Fed raises rates, it raises rates on the whole world.

Georgieva also said that Ukraine needs $5 billion per month for the Ukraine economy to survive and that economy is already down more than 50% year to date.

The continuing of debt plugging around the world doesn’t necessarily breed confidence in tech stocks as this industry is heavily reliant on globalization working and cheap rates.

Many sovereigns are starting to freak out about the debt dilemma as we see Japan’s yen forge ahead to 130 to $1 USD.

It appears that we are getting a temporary reprieve in oil and fertilizer stocks because China is so locked down that demand destruction will improve the balance of supply and demand.

Clearly, many of these external factors are unsustainable, and yet they are deeply affecting the Nasdaq index.

The rise in interest rates will have many unintended consequences and the one that matters most for us is delivering higher financing costs to the tech sector.

Without the globalization tailwinds, investors must ditch the double and triple standards of before and solely focus on the fundamentals of a tech firm.

What a thought!

Now that tech firms are accountable for their own performance, we will finally see who can punch above their weight.

Specifically, issues in dire need of netting out are the cloud, enterprise, and the state of the American consumer.

FAANG + Microsoft have lost more than $2.1 trillion in combined market value between them since December, representing nearly half of the S&P 500’s $4.4trn loss over the same period.

This has left five of the six in bear market territory with falls of more than 20%, with Apple the sole exception.

I am expecting strong numbers from Microsoft and Apple as part of branching out in the tech story, where software, semiconductors, cyber security, and product-driven names such as Apple are on the winners’ side of the ongoing digital transformation.

Yet, I believe Microsoft and Apple will use this as a convenient time to guide weak which won’t help the stock prices.

It appears as many of the strong tech performances have been met with giant selloffs and management is acutely aware of that.

Before, liquidity was what mattered and now that has tremendously reversed and the quality of earnings matters more than ever at this point.

April 20, 2022

Diary, Newsletter, Summary

Global Market Comments
April 20, 2022
Fiat Lux

Featured Trade:

(TESTIMONIAL),
(TEN MORE TRENDS TO BET THE RANCH ON),
(AAPL), (AMZN), (GOOGL), (TSLA), (CRSP), (EDIT), (NTLA)

March 24, 2022

Diary, Newsletter, Summary

Global Market Comments
March 24, 2022
Fiat Lux

Featured Trade:

(TEN TECH TRENDS DEFINING YOUR FUTURE, or THE BEST TECH PIECE I HAVE EVER WRITTEN)
(TSLA), (GOOG), (AMZN), (AAPL), (CRSP)

Ten Tech Trends Defining Your Future

Diary, Newsletter

Not a day goes by without a reader asking me what is the next stock ten, hundred, or thousand bagger. After all, I nailed the 295X move in Tesla (TSLA) starting in 2010.

Can’t I do better?

Well actually, I can, which is the purpose of the Diary of a Mad Hedge Fund Trader. There are many potentially Google (GOOG), Amazon (AMZN) and Apple (AAPL) sized opportunities out there today. It’s just a matter of time they become public and investable.

One thing I will tell you today is that they will have some or all of the following gale force tailwinds below. These will turbocharge the value of everything you own now, as well as anything new you might pick up going forward.

The future is happening fast!

1) People are Getting Richer, as the middle-income population continues to rise worldwide. That means more customers for everything, and astronomically greater earnings for the companies inventing and selling them. Every day goods and services (finance, insurance, education, and entertainment) are being digitized and becoming fully demonetized, available to the rising billion on mobile devices. Thank the convergence of high-bandwidth and low-cost communication, ubiquitous AI on the cloud, growing access to AI-aided education, and AI-driven healthcare.

2) And they are Communicating with Each Other More. The deployment of both licensed and unlicensed 5G, plus the launch of a multitude of global satellite networks (Starlink, OneWeb, Viasat, etc.), allow for ubiquitous, low-cost communications for everyone, everywhere, all the time––not to mention the connection of trillions of devices. And today’s skyrocketing connectivity is bringing online an additional 3 billion individuals, driving tens of trillions of dollars into the global economy and into the pockets of shareholders. Thank the convergence of low-cost space launches (Space-X), hardware advancements, 5G networks, artificial intelligence, a new generation of materials science, and exponentially surging computing power.

3) Your Lifespan Will Increase by at Least Ten Years. A dozen game-changing biotech and pharmaceutical solutions (currently in Phase 1, 2, or 3 clinical trials) will reach consumers this decade as covered by the Mad Hedge Biotech & Healthcare Letter (click here for the link). Technologies include stem cell supply restoration, senolytic or age-related medicines, a new generation of Endo-Vaccines, GDF-11, and supplementation of NMD/NAD+, among several others. And as machine learning continues to mature, AI is set to unleash countless new drug candidates, ready for clinical trials. Thank the convergence of genome sequencing, CRISPR technologies (CRSP), AI, quantum computing, and cellular medicine.

4) More Capital for Everything Will Become Abundant. Over the past few years, humanity hit all-time highs in the global flow of seed capital, venture capital, and sovereign wealth fund investments. It is expected to continue its overall upward trajectory. Capital abundance leads to the funding and testing of "crazy" entrepreneurial ideas, which in turn accelerate innovation. Already, $300B in crowdfunding is anticipated by 2025, democratizing capital access for entrepreneurs worldwide. And even during a pandemic (2020), the world deployed more venture capital than ever before, handily beating out the last high-water mark in 2019. Thank global connectivity, dematerialization, demonetization, and democratization.

5) Distribution is Becoming Vastly Easier. The combination of Augmented Reality (yielding Web 3.0, or the Spatial Web) and 5G networks (offering lighting fast 100Mb/s - 10Gb/s connection speeds) will transform how we live our everyday lives, impacting every industry from retail and advertising, to education and entertainment. Consumers will play, learn and shop throughout the day in a newly intelligent, virtually overlaid world. This is where technologies like SpatialWeb.net, Vatoms (new digital connections between products and customers), and Apple’s (AAPL) next-generation AR & VR headsets will shine. Thank hardware advancements, 5G networks, AI, materials science, and surging computing power.

(6) Everything is Getting Smarter: The price of specialized machine learning chips is dropping rapidly with a rise in global demand. Imagine a specialized $5 chip that enables AI for a toy, a shoe, a kitchen cabinet? Combined with the explosion of low-cost microscopic sensors and the deployment of high-bandwidth networks, we’re heading into a decade wherein every device becomes intelligent. Your child’s toy remembers her face and name. Your kid's drone safely and diligently follows and videos all the children at the birthday party. Appliances respond to voice commands and anticipate your needs. Thank AI, 5G networks, and more advanced sensors.

(7) Artificial Intelligence is Getting Smarter than We are. Artificial intelligence will reach human-level performance this decade (by 2030). Through the 2020s, AI algorithms and machine learning tools will be increasingly made open source, available on the cloud, allowing any individual with an internet connection to supplement their cognitive ability, augment their problem-solving capacity, and build new ventures at a fraction of the current cost. Thank global high-bandwidth connectivity, neural networks, and cloud computing. Every industry, spanning industrial design, healthcare, education, and entertainment, will be impacted.

(8) AI is Becoming a Service: The rise of “AI as a Service” (AIaaS) platforms will enable humans to partner with AI in every aspect of their work, at every level, in every industry. AI’s will become entrenched in everyday business operations, serving as cognitive collaborators to employees—supporting creative tasks, generating new ideas, and tackling previously unattainable innovations. In some fields, partnership with AI will even become a requirement. For example: in the future, making certain diagnoses without the consultation of AI may be deemed malpractice. And try trading stocks today without AI behind you. Thank increasingly intelligent AI, global high-bandwidth connectivity, neural networks, and cloud computing.

(9) Software Will Become an Integrated Part of Our Lives. As services like Alexa, Google Home, and Apple Homepod expand in functionality, such services will eventually travel beyond the home and become your cognitive prosthetic 24/7. Imagine a secure software shell that you give permission to listen to all your conversations, read your email, monitor your blood chemistry, etc. With access to such data, these AI-enabled software shells will learn your preferences, anticipate your needs and behavior, shop for you, monitor your health, and help you problem-solve in support of your mid- and long-term goals. Thank increasingly intelligent AI, neural networks, and cloud computing.

(10) Energy Will Become Effectively Free when compared to today’s all-in costs. Continued advancements in solar, wind, geothermal, hydroelectric, small nuclear, and localized grids will drive humanity towards cheap, abundant, and ubiquitous renewable energy. The price per kilowatt-hour will drop below 1 cent per kilowatt-hour for renewables, just as storage drops below a mere 3 cents per kilowatt-hour, resulting in the elimination of fossil fuels globally. And as the world’s poorest countries are also the world’s sunniest, the democratization of both new and traditional storage technologies will grant energy abundance to those already bathed in sunlight. We are also on the cusp of many breakthroughs in fusion power at nearby Lawrence Livermore Labs as capital, new materials, and entrepreneurs pour in this arena. Thank materials science, hardware advancements, AI/algorithms, and improved battery technologies.

I just thought you’d like to know.

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