(AMZN) Archives

The Market Outlook for the Week Ahead, or Taking a Break

When I ran the international equity trading desk at Morgan Stanley during the 1980s, there was always one guy I was trying to recruit and that was David Tepper at Goldman Sachs. Whenever we did a trade with David, we lost money.

If we sold David a stock it usually took off like a rocket. If we bought a stock from him it plummeted like a stone. Eventually, unable to lure David over with a monster salary, I had to ban trading with him as it was such a loser for us.

David never did get pried away from Goldman until he left to start his own firm, Appaloosa Management, after he was mistakenly passed over for partner two years in a row. After that, he racked up an annualized return of over 40%, near my own results.

But David was doing it with $20 billion in real money, while I was doing it with newsletters. In 2012, David received a $2.2 billion performance bonus from his fund, one of the largest in history. I bet the partners at Goldman are kicking themselves.

So, I thought it timely to check in with David, now the owner of the Carolina Panthers football team, to see what he thought about the market. The S&P 500, the Dow, Ten-year bond yields, and Bitcoin all simultaneously hit all-time highs last week, and we were long all of them.

David was phlegmatic at best. “There are times to make money and there are times to not lose money, and this is definitely time to make money.” However, nothing is cheap. There are no screaming buys here or screaming shorts. He did expect stocks to keep rising through the end of 2021.

Keep in mind that David is a trader just like me and rarely has a view beyond six months. His last 13F filing on June 30 showed that his five largest positions were T-Mobile (TMUS), Amazon (AMZN), Facebook (FB), Google (GOOG), and Uber (UBER). Uber was the only new buy.

David is not alone in his views.

Up 89.20% so far in 2021, I am sitting here dazed, shocked, and pinching myself. This has been far and away my best year in a 53-year career. I know a lot of you made a lot more. I stared down every correction this year, loaded the boat, and won.

It’s not always like this.

So I think we are in for a few weeks of profit-taking, sideways chop, and minimal action. I call this the “counting your money” time. Traders have visions of Ferraris dancing in their eyes. Then once we form a new base, it will become the springboard for a new yearend rally.

I don’t think stocks will fall enough to justify selling here. And you might miss the next bottom.

Until then, I’m thinking of taking up the banjo.

That brings me to the foremost question in your collective minds. Can I top an astonishing 100% profit this year? Only if we get another great entry point with a 5% correction.

I’m sure that when the financial history of our era is written something in the future, this will be known as the week that Bitcoin went mainstream. That was prompted by the SEC approval of the first futures ETF, the ProShares Bitcoin Futures ETF (BITO).

By giving this approval, which had been sought for years, unlocks $40 trillion worth of assets owned by 100 million shareholders managed under the Investment Company Act of 1940 to go into Bitcoin. The possibilities boggle the mind. The consensus year-end target for Bitcoin is now $100,000, or up 65%.

It’s not too late to subscribe at the founder's rate of $995 a year for the Mad Hedge Bitcoin Letter by clicking here. After that, the price goes up….a lot.

Morgan Stanley (MS) Announces Stellar Earnings, with profits at $3.71 billion, up 36.4%. Morgan Stanley Asset Management sucked in an amazing $300 billion so far in 2021, bringing their total assets to $4.5 trillion.

Goldman Sachs (GS) announces blockbuster earnings, and we are laughing all the way to the bank. Profits soared an eye popping 63% to $5.28 billion.

Existing Home Sales soar by 7% in September to a seasonally adjusted 6.29 million units. First time buyers accounted for only 28%, the lowest since 2015. A brief drop in interest rates is the reason. There are only 1.29 million homes for sale, only a 2.4 month supply.

Housing Starts fall by 1.6% in September. Higher materials and labor costs, rising land expenses, and soaring energy costs are the culprit. A pop in interest rates may mean that the slowdown could last through the winter.

Single Family Rents are surging especially for the top end of the market. Nationally, rents rose 9.3% in August year over year, up from a 2.2% year-over-year increase in August 2020, according to CoreLogic. Buy homebuilders on dips like (KBH), (LEN), and (PHM)

If the Rescue Package passes in whatever size, it will trigger a massive new surge in risk prices, including stocks and Bitcoin. Don’t act surprised when it happens. $3.5 trillion, $1.5 trillion who cares? That’s a ton of money to be dumped into the economy ahead of the 2022 elections.

Tesla profits smash records in Q3, reporting a shocking $1.62 billion profit on $13.76 billion in revenues. A 30.5% profit margin blew people away. Imagine how much they’ll earn when they make 25 million cars a year in ten years. Buy (TSLA) on big dips.

Weekly Jobless Claims dive to 290,000, a new post-pandemic low. Delta is in fast retreat. A pre-pandemic normal level of 225,000 is coming within range.

Rising Interest rates are tagging the Real Estate Market, with the 30-year fixed rate hitting 3.23%. Refis are off 7% on the week. The Fed taper is looming large, especially if the 30-year hits 4.0%, which it should, taking affordability down.

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 800% to 240,000 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 240,000 here we come!

My Mad Hedge Global Trading Dispatch saw a heroic +9.60% gain so far in October. My 2021 year-to-date performance soared to 89.20%. The Dow Average is up 16.60% so far in 2021.

After the recent ballistic move in the market, I am continuing to run my longs and those include (MS), (GS), (BAC), and a short in the (TLT). All are approaching their maximum profit point and we have nothing left but time decay to capture. So, I am going to run these into the November 19 expiration in 14 trading days. It’s like having a rich uncle write you a check once a day.

That brings my 12-year total return to 512.75%, some 2.00 times the S&P 500 (SPX) over the same period. My 12-year average annualized return now stands at an unbelievable 43.75%, easily the highest in the industry.

My trailing one-year return popped back to positively eye-popping 120.15%. 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 approaching 46 million and rising quickly and deaths topping 736,000, which you can find here.

The coming week will be slow on the data front.

On Monday, October 25 at 8:30 AM, the Chicago Fed National Activity Index is out. Facebook (FB) earnings are released.

On Tuesday, October 26 at 10:00 AM, the S&P Case-Shiller National Home Price for August Index is released. Alphabet (GOOGL) and Microsoft (MSFT) earnings are out at 5:00 PM.

On Wednesday, October 27 at 7:30 AM, Durable Goods Orders for September are printed. McDonald’s (MCD) earnings are out.

On Thursday, October 28 at 8:30 AM, Weekly Jobless Claims are announced. The first read on Q3 GDP is announced. Apple (AAPL) and Amazon (AMZN) earnings are out.

On Friday, October 29 at 8:45 AM, the US Personal Income & Spending for September is published. At 2:00 PM, the Baker Hughes Oil Rig Count is disclosed.

As for me, when I went to college in Los Angeles, the local rivalries between universities were intense.

UCLA and USC had a particularly intense rivalry, and I went to both. It was traditional to steal Tommy Trojan’s sword prior to each homecoming game and then paint the statue blue. USC had a mascot, a mixed breed dog called “Old Tire Biter.” Prior to one game, UCLA kidnapped the dog.

At halftime, the kidnappers appeared midfield, tied the dog to a helium-filled weather balloon, and let him waft away somewhere over the city. Enraged USC fans stormed the field only to find that the real dog was hidden in a nearby truck. The dog headed for the stratosphere was actually a stuffed one.

Of course, the greatest prank of all time was carried out by the California Institute of Technology in the 1961 Rose Bowl, which didn’t have a football team, on the Washington Huskies. Washington was famous for its elaborate card tricks, which spelled out team names and various corporate sponsors and images.

On the night before a game, imaginative mathematically-oriented Caltech students snuck into the stadium and changed the instructions on the back of each card packet sitting in the seats. When it came time to spell out an enormous “WASHINGTON”, “CALTECH: displayed instead. The incident was broadcast live on national TV ON NBC.

At Caltech, where I studied math, they are still talking about it today.

Stay healthy.

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

October 13, 2021

Tech Letter

Mad Hedge Technology Letter
October 13, 2021
Fiat Lux

Featured Trade:

(AMERICA’S NEW SOCIAL CREDIT SYSTEM IS HERE)
(ABNB), (PYPL), (FB), (GOOLG), (AMZN)

America's New Social Credit System is Here

Tech Letter

Several external events have prompted Silicon Valley giants to unveil a predecessor to what effectively could become a de facto social credit system by the end of this decade.

I would argue that it is already here, and we are just blind to it.

Take short-term housing agent Airbnb (ABNB) and their business model.

Try searching for a specific listing in any city with a certain date, number of guests.

If you ask other friends and family around the world to input the same data into the same listing, prices will vary greatly.

This is intentionally done because pricing depends on the profile of a certain customer.

If it is $80 per night for me, it could be $100 for the next person.

Why?

Airbnb has an embedded algorithm that conjures up a de facto social credit score, applies it to the situation, and bam — you get your price.

Through my rough research, I have found that males tend to get charged less and especially males wielding a financial profile from a rich country.

I honestly am not sure what data Airbnb is privy to, whether it is only based on a customer’s prior internal Airbnb history, or if it is pieced together from other “sources.”

I am not sure, but if they somehow have access to alternative sources to understand their client better, they might already know that this 47-year-old John Doe booking a 3-night stay in Chicago, Illinois earns $300,000 per year, 1 out of his 5 credit cards is American Express among others, he reported $300,000 of Bitcoin profits in 2020 to the IRS and he owns 3 mansions in Miami, Florida.

It would almost be safe to say that this John Doe would get a better daily rate on the same Airbnb listing than if a 19-year-old student from Albania with no credit card, no assets, and no income tried to book the same listing.

Of course, this also goes for a hardworking single mother trying to take her kids on vacation. So, in the end wealthy men get benefited by a system with discounts that other customers could probably use. But, I guess that's just business in corporate America.

This is just the beginning of the race to pad a soft social credit system so tech companies and others can charge different prices to different people, or maybe not sell some customers services at all.

Relying on an indirect boost from D.C., corporate America will attempt to force the most profound changes our society has seen during the internet era.

Last week, PayPal (PYPL) announced they would start to crack down on users that did not use their platform responsibly.

This group could potentially lose access to PayPal’s services.

PayPal says the collected information will be shared with other financial firms and politicians.

Facebook (FB) is adopting similar practices, recently introducing messages that ask users to snitch on their potentially “extremist” friends.

At the same time, Facebook and Microsoft are working with several other web giants and the United Nations on a database to block potential extremist content.

Some banking platforms already have announced a ban on certain legal purchases, such as firearms.

The growth of such restrictions will accelerate to every part of the business world.

The potential scope of the soft social credit system under construction is enormous and the data exchange practices could have all tech companies swapping customer info in some type of private network that is only accessible to them.

A creation of a “Digital Dollar” would put the tools in place to make sure customer data and flow of money are followed to the very kilobyte.

Working in conjunction with major tech companies, citizens convicted of a crime could lose their ability to transact any business as well.

On a business level, this is great for all the big Silicon Valley companies involved because they would be more efficient at deploying the business intelligence at hand to make money.

I won’t go through the Rolodex of tech companies that are in the data business, but anything involving the cloud and anything in the cloud making great margins, will go gangbusters if this is allowed to happen, which it's looking like it will.

Imagine how conversion rates at Facebook, Google (GOOGL), and Amazon (AMZN) will skyrocket because they already know how to sell stuff to the end guy.

Imagine how Airbnb could ban guests before they even had a chance to destroy somebody’s residence or give generous rates to big spenders that would encourage even more big spending.

This is essentially the dream of Silicon Valley, not for only ad tech like Roku, The Trade Desk, Snapchat, and so on, but the software companies too.

Accurate and voluminous data means better decisions and a super-charged business model.

October 4, 2021

Tech Letter

Mad Hedge Technology Letter
October 4, 2021
Fiat Lux

Featured Trade:

(IT WILL JUST TAKE LONGER)
(ROKU), (TSLA), (FB), (AMZN), (AAPL)

It Will Just Take Longer

Tech Letter

The “Buy the Dip” strategy in tech stocks hasn’t failed — it will just take longer than it used to.

Much of this Nasdaq rally has been represented by the resiliency of large cap tech stocks — every mini dip was bought with a vengeance.

This go-to playbook drove tech shares higher after the March 2020 meltdown.

These past 30 days have really tested that thesis and signals that we, as market participants, have arrived at a crossroads because if the dip isn’t bought soon, we could either fall off a ledge and barrel into a harrowing correction or we could initiate a sideways correction and trade in a fixed range.

It’s hard to ignore the near-term weakness in many of the household names like Apple (AAPL), Amazon (AMZN), and Facebook (FB).

The upper echelon of tech leadership is signaling imminent decelerating growth and tightening financial conditions.

I do believe much of it is in the price, yet it’s cognizant to know there could be meaningful spillover from the Evergrande debt implosion in China into other asset classes.

External events are shaping the narrative around the Nasdaq dip buyers.

It also doesn’t help that a Facebook whistleblower came forward to tell the press about its malpractices and less than ideal tendencies to put profit over safety, but everyone already knew that about Facebook.

What I am surprised about is that investors usually look through the bad Facebook press and prioritize the metrics which hasn’t been happening the past month.

Facebook shares are still waiting to be bought after the dip.

The lack of Facebook shoppers on the pullback is definitely one area of concern because the U.S. government still has done very little to stop Facebook in its stubborn practices.

The U.S. government will not crack down through legislation on social media companies in the short term.

Much of the negative Nasdaq price action in the short term can be attributed to the worries about China taking a machete to its susceptible tech sector and crushing it even more.

Many don’t think the cudgeling is over.

In this scenario, a flight to safety could be in the cards, which would suppress interest rates offering an olive branch for the dip-buyers.

Ultimately, I do believe it’s a matter of time before we get some recovery price action in the leadership tech stocks; but yes, it could take 1-3 weeks.

Much of this second half of the year was consolidating tech shares that overshot themselves last year.

That’s why tech firms like Tesla (TSLA) had almost a zero percent chance of repeating last year’s performance.

Take ad tech stock Roku (ROKU) for instance, shares are down 23% YTD and that doesn’t mean it’s a bad stock.

Hardly so.

When one considers that Roku shares ended 2020 up 300%, then giving back 23% or 50% in 2021 is worth the annoyances.

These stocks can’t go up in a straight line even if they almost feel like they can sometimes.

This all sets up for a brilliant 2022, as many of these high-quality names will finally have gotten through the consolidation phase and will be buttered up to initiate their next leg up in early 2022.

In the broad scheme of things, tech won the pandemic over any other sector, and 2021 is turning into a rest year.

Sometimes one needs to go backwards one step to take the next three forward.

September 14, 2021

Biotech Letter

Mad Hedge Biotech & Healthcare Letter
September 14, 2021
Fiat Lux

FEATURED TRADE:

(IS THIS THE BIGGEST WINNER IN A WINNER-TAKE-MOST MARKET?)
(NVTA), (ARKK), (ARKG), (SFTBY), (AMZN), (EXAS), (AAPL), (MSFT)

Is This the Biggest Winner in a Winner-Take-Most Market?

Biotech Letter

One of the most underappreciated names in the biotechnology sector might just be the biggest winner in a winner-take-most market today: Invitae (NVTA).

Despite being at the receiving end of a seemingly endless flogging since the year started, Invitae remains an attractive stock for the likes of Cathie Woods.

In fact, this San Francisco-based company is one of the Top 20 holdings of ARK Innovation (ARKK) and ARK Genomic Revolution (ARKG).

Described by Woods as "probably one of the most important companies in the genomic revolution," Invitae is the sixth-largest holding of the ARK Investment portfolio with more than $1 billion worth of exposure.

Aside from ARK, Invitae also recently attracted the attention of Japanese tech conglomerate SoftBank (SFTBY), which came in the form of $1.2 billion worth of convertible bond investment.

Amid all these, why is Invitae still under-appreciated?

First, it’s essential to understand that biotech companies opt to target particular niches where they aim to maintain high prices and maximize profitability for as long as possible.

That way, they can maintain and continue to boost their profits.

This results in highly prohibitive costs in the healthcare innovation section, which in turn cause rationing of cases because only a select group of patients can actually afford the exorbitant fees for the innovative drug or therapy.

While rationing care and maximizing profits are obviously great for investors, this makes the innovations inaccessible to people who could not shell out the cash to take the tests or treatments.

This is where Invitae comes in.

Basically, Invitae is taking a completely different approach compared to its peers in the biotechnology world.

According to the company, its mission is "to bring comprehensive genetic information into mainstream medicine to improve healthcare for billions of people."

How will Invitae achieve this?

Instead of choosing a single genetic variant to test, which costs over $1,000 each, the company is developing a testing platform that can identify thousands of genetic variants.

The clincher? This will only cost less than $250 for the entire test panel.

This nonconforming approach to biotechnological innovations is what has primarily led to Invitae’s under-appreciation.

However, Invitae’s mission holds incredible potential.

What it means in medical terms is that the company can help about 1 in 6 people suffering from a medical condition with an inherent genetic factor.

What it means in financial terms is that the company holds the possibility of generating several hundred dollars per year from over 2 billion people—a jaw-dropping market opportunity worth $4 trillion.

One of Invitae’s key ideas is to grant people access to their genetic information and then interpret it for them.

To me, this indicates the company’s goal of doing for genetics what Amazon (AMZN) has done for book buyers.

The next question is this: Can Invitae truly accomplish this?

Let’s consider the company’s growth trajectory along with the catalysts ahead.

So far, three catalysts can push the company towards its goals.

First is the steady growth in testing volume. As with most medical procedures, the volume of genetic testing went down during the COVID-19 pandemic. However, this is now rebounding gradually.

In the first quarter of 2021, the billable volume went up by 72% year over year, with roughly 259,000 tests in that quarter alone.

Traditionally, genetic testing is generally driven by orders from doctors and the cooperation of health plans to cover the tests.

Moving forward, we expect pharmaceutical firms to play more significant roles in promoting and even paying for these tests.

Approximately 90% of the pharma pipelines these days are based on genetic conditions.

As these new and innovative genetic treatments gain FDA approval, the pharma companies would have additional vested interest in ensuring eligible patients receive testing. That way, they can drive demand for the therapies they developed.

The second catalyst comprises the oncology sector.

Genetic testing has become the trend, particularly for cancer—an undoubtedly massive and financially lucrative market.

To leverage this growth, Invitae acquired ArcherDX in 2020 in an effort to expand its offerings.

With this purchase, the company can help major cancer centers implement their testing systems while also offering support to healthcare providers who opt not to do their own testing.

The availability of these comprehensive services will serve as critical drivers of income and profitability considering the historically proven high reimbursement rates in the oncology testing segment.

Apart from this, Invitae recently announced its decision to acquire Ciitizen, a consumer health tech firm, for $325 million.

This move will allow Invitae to expand its patient database through the genomic and clinical information gathered from Ciitizen’s platform.

Thus far, Invitae has announced 13 acquisitions over the past 5 years.

The third catalyst is the continuous global growth of Invitae.

Evidently, the mission of reaching 2 billion people requires worldwide expansion—something that the company has been working on.

In fact, roughly 18% of the total billable volume of Invitae in the first quarter came from international transactions, which have the potential to grow faster than their business in the US.

To date, Invitae has been expanding its operations in Japan, Israel, Europe, and Australia.

Meanwhile, Invitae’s incredible potential has attracted other companies as well. Exact Sciences (EXAS) has been linked to the company for a potential merger among the firms interested.

Admittedly, Invitae’s mission to offer affordable and accessible genetic testing to 2 billion people will require many more years before it comes to fruition.

When that day comes, the company will join Apple (APPL), Amazon, and Microsoft (MSFT) as part of an elite group with $1 trillion and over market cap.

The long wait for Invitae to achieve this ambitious goal would be worth it for patient buy-and-hold investors.

invitae

September 10, 2021

Tech Letter

Mad Hedge Technology Letter
September 10, 2021
Fiat Lux

Featured Trade:

(YOUR GUIDE TO THE METAVERSE)
(RBLX), (FB), (MSFT), (APPL), (AMZN), (EPIC GAMES)

Your Guide to the Metaverse

Tech Letter

People have no idea what the Metaverse is, so I will be the one to fill you in.

What is the Metaverse? Simply put, the Metaverse is the next mega-phase of the internet, a merging of the physical world with XR, AR, and VR that is just beginning to revolutionize.

It is an extensive online world transcending individual tech platforms, where people exist in immersive, shared virtual spaces. Through avatars, people would be able to try on items available in stores or attend concerts with friends, just as they would offline.

On a recent earnings call, Facebook (FB) CEO Mark Zuckerberg detailed the Metaverse: “It's a virtual environment where you can be present with people in digital spaces,” he said. “You can kind of think about this as an embodied internet that you're inside of rather than just looking at. We believe that this is going to be the successor to the mobile internet.”

Does the Metaverse exist anywhere yet? The answer is yes, early versions of it. The closest approximations of it right now include the likes of digital game platforms Roblox (RBLX) and Fortnite.

The internet era was defined by the computer being in the living room and the connection to the internet being occasional.

The shift to mobile computing is defined by moving the computer from the living room to the office and into your pocket and changing access to the internet from occasional to continuous and persistent.

Metaverse is the idea of computing everywhere, ubiquitous, ambient. In a simplified sense, think about the Metaverse as a series of interconnected and persistent simulations.

One could almost describe it as the next internet, web 3.0.

And crypto, or some sort of crypto offspring or cousin of it, will be the coin of this new realm which is why crypto in its form now is so important.

Consider the internet and mobile internet. Over time it disrupted nearly every industry in nearly every geography.

It changed how consumers patronized, business models, products, behaviors. This produces an extraordinary economic opportunity overall.

The same will happen via the Metaverse.

In the future, instead of just doing calls over a phone call, you’ll be able to sit as a hologram on a couch, or I’ll be able to sit as a hologram on your couch, and it’ll actually feel like we’re in the same place even though it is remote.

Sharing space is what humans perceive as closer to something real.

There’s spatial audio in which distance can change the meaning of a sentence.

This has been in the works for years, ever since Zuckerberg bought Oculus in 2014 and Oculus is effectively the gateway to the Metaverse that Zuckerberg wants to spawn.

Other power Silicon Valley elite are also moving forward into the Metaverse for their own objectives. Microsoft (MSFT) CEO Satya Nadella commented at his earnings call, “As the digital and physical worlds converge, we are leading in a new layer of the infrastructure stack, the enterprise Metaverse."

Many Metaverse believers say the economy of the Metaverse will be larger than that of the physical world.

Personally, I believe it will be 100X larger than the physical world’s economies and much more dynamic.

One of the biggest winners of this Metaverse race will be Epic Games —owner of Fortnite —founded by CEO Tim Sweeney.

Epic released "Fortnite" just five years ago. The game now has 350 million registered players, with anywhere from six to 12 million people playing at any given time.

The Metaverse is a great example of a technology that will likely bring huge benefits to people but there will be unintended, unanticipated costs and harms.

Right now, the Metaverse operates with zero regulations, while its previous iteration, the internet, operates with the least number of regulations out of any major industry in 2021.

The bottom line is that every power Silicon Valley has skin in the game such as Facebook, Apple, Amazon, Microsoft, and Netflix after Epic Games, and they will receive another supercharger to accelerating revenue growth.

The revenue growth in the Metaverse for these companies will make what they earn in the physical world look like a pittance.

We are driving to that point in tech development through hell or high water, and like how every company became a tech company to survive, when the Metaverse and an operable iteration of it become good enough for people to transact smoothly, every company will have to become a Metaverse company or die.

This is the future and it’s creeping closer by the day.