(AMZN) Archives - Page 48 of 102 - Mad Hedge Fund Trader

October 28 Biweekly Strategy Webinar Q&A

Below please find subscribers’ Q&A for the October 28 Mad Hedge Fund Trader Global Strategy Webinar broadcast from Silicon Valley, CA with my guest and co-host Bill Davis of the Mad Day Trader. Keep those questions coming!

Q: Do you think if Trump contests the election, it will be bad for stocks?

A: Yes, count on that knocking another 10% off of stocks. The market has spent the last six months pricing in a Biden win. Take that away and you have to price that back out again, about 6,000 Dow Average points (INDU). We’ve already dropped 2,500 points so that leaves another 3,500 points of downside t0 go in the event of a Trump win.

Q: Will that result in a crash?

A: Yes. At least 1,000 points in the overnight session following.

Q: Do you think it’s going to happen?

A: No. According to the polls, Trump will lose by at least 15 million votes. While the polls missed the Electoral College result last time, they were dead on with the popular vote, with Hillary Clinton winning by 3 million votes. If the margin were only a few hundred or thousand votes in a single battleground state, Trump might win a court fight. But he can’t win if the margin is in ten states and tens of millions of votes. That is too much to fudge. That is how markets react: they hate surprises, and a second Trump win would be the surprise of the century.

Q: With all of the earnings positive, do you think markets will stay positive?

A: Earnings aren’t important right now. Everyone knew earnings would be great because we were coming off of hundred-year lows caused by the pandemic. So yes, we knew they’d be up 50%, 100%, 150%; that's not the surprise. The bigger issue is what the pandemic is going to do, and of course, only biochemists know that—most stock traders have no idea, which is reflected in these gigantic swings we’re seeing in the market both on the upside and the downside. As a biochemist, I can tell you that this is our final wave that's coming up and it could last several months. After that, we get a vaccine or herd immunity. When it's done, you have the bull market of a lifetime—up 400% in ten years from these levels. Dow 120,000 here we come!

Q: Do you see a tax selloff if Biden gets in? Should we get short?

A: Definitely; there will be a tax selloff. Past ones have only lasted a week or two and those were the last two weeks of December, so it really won’t be that bad. It’s not like it’s a surprise that Biden is ahead in the polls, because he has been for 6 months. Nor is it a surprise that he is going to raise taxes on the wealthy. I wouldn’t get short though. The short play was last week and the week before; and I did manage to get out three shorts but didn't want to get too big in front of an election. So those all worked. I'm out of all of them now, and now we’re looking only at long plays. And with the Volatility Index (VIX) over $40, you can go 20% or 30% in-the-money on these call spreads and still look to make 10%-20% profit on the position in a month.

Q: Isn’t the pandemic great for Amazon (AMZN)?

A: Yes, Amazon was taking over the world anyway, and forcing everyone to an online-only economy which couldn’t be better for them. A lot of this shifting is permanent and won’t be going back to the way it was before the pandemic with brick and mortar shops and malls. So yes, we love Amazon and I would buy on the dips. There’s a double from here.

Q: Do you have long term names I can buy to sit on?

A: Yes, we actually do have a long-term portfolio posted on the website. It would be listed under your subscription area once you log in—we rebalance that twice a year. And of course, we had a 10% holding in Tesla (TSLA) which went up ten times, so the performance of the long-term portfolio is through the roof. To find the long-term portfolio, please click here.

Q: Do you record this webinar?

A: Yes, we post it on the www.madhedgefundtrader.com site in two hours.

Q: Do you still like the Internet security stocks like FireEye (FEYE)?

A: Yes. Hacking is growing faster than the Internet itself. You should also look at Palo Alto Networks (PANW) and the ETF (HACK).

Q: Should we hold on to the Visa (V) spread hoping it will come back after the election drop?

A: Hope is not an investment strategy. I always stop out of positions when they hit a 2% loss. The only time I have 4% losses is when we get these gigantic gap moves overnight, which tend to happen once every one or two years. In this case, Visa got hit with a surprise antitrust suit from the Department of Justice that knocked $10 off of the stock. So no, I will not hold on to it in the hope that it does better; I will try to minimize my losses, get out, and get into the next winning position. Hope is what turns a 4% loss into a complete 10% write off.

Q: What’s your view on the Canadian dollar (FXC)?

A: I like it, but it’s not as good as the Australian dollar (FXA) because Canada has a major oil exposure, and actually the worst kind of oil exposure—tar sands in northern Alberta. The outlook for oil is poor and that will be a drag on the currency in the form of fewer exports. Buy the (FXA). No oil troubles here. Kangaroos are another story.

Q: Will you be looking to sell short on the United States Treasury Bond Fund (TLT)?

A: Yes, if we can just get a little bit higher. We’re looking at an economic recovery next year, so we’d expect the (TLT) to be lower by at least $20 points in 2021.

Q: Do you think the San Francisco and New York housing markets will return to what they were before with so many people are moving out of the city?

A: Yes, they will come back, I’ve been through many of these cycles in San Francisco over the past 50 years; it always comes back. Once the pandemic is over, people will say, “Oh my gosh, I can’t believe you can get a two-bedroom apartment in San Francisco for only $2 million.” That's probably another year or two off after a vaccine is in widespread distribution.

Q: Is real estate in a bubble?

A: Absolutely, but real estate bubbles can go on for a long time, like ten years. The bubble in Australia has been going on for 30 years. Ultimately, real estate prices are driven by the earnings power of the local economy which, in the case of San Francisco, is huge. This time around, we have a record large millennial generation looking for real estate. There are 85 million millennia buyers with only 65 million Gen X-er’s selling homes. So, we have to make up a shortfall of 20 million houses at some point. That’s why building permits are through the roof every month.

Q: Zoom (ZM) and DocuSign (DOCU) are the darling stocks of COVID 2020—what do you think about them at these high prices?

A: Very high risk. If you bought these a year ago when we first started covering them, good for you as they're up ten times. However, there are better fish to fry than chasing these big pandemic winners at all-time highs.

Q: If Biden wins, what happens to defense stocks like Raytheon Technology (RTX)?

A: They go down. It turns out a lot of the defense business is in very long term contracts that can’t be broken. They have to supply so many planes a year to the government for a decade or more. However, the sentiment on these sectors sours under democratic administrations because they are not initiating new weapons systems where the big money is made. Lockheed Martin (LMT), Northrop Grumman (NOC), and General Dynamics (GD) all have the same problem. I grew up with these companies. They were the FANGs of their day.

Q: How does a Biden win affect Tesla (TSLA)?

A: Then $2,500 a share for Tesla looks cheap (it’s now at $410). Biden will do everything he can to slow climate change and accelerate alternative energy. Tesla is front and center on that. Under current law, car manufacturers are limited on the number of units they can sell to get the $7,500 tax break per vehicle. Tesla used up all their subsidies five years ago. My bet is that the limits will be eliminated and that leads to a huge surge in Tesla sales in the U.S., which is why the stock has gone up 10 times in the last year. Tesla has promised to drop their car price to $25,000 in three years. If you throw in $10,000 in federal and state tax subsidies you get the car for free. Then you can write off General Motors (GM) and Ford (F).

Good Luck and Stay Healthy.

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

Bear Sighting

October 23, 2020

Diary, Newsletter, Summary

Global Market Comments
October 23, 2020
Fiat Lux

Featured Trade:

(11 SURPRISES THAT WOULD DESTROY THIS MARKET),
(SPY), (USO), (AMZN), (MCD), (WMT), (TGT)

11 Surprises that Would Destroy This Market

Diary, Newsletter, Research

Note to readers: Sorry for the short letter today but PG&E is about to turn off my electric power to reduce the risk of a wildfire during these high, hot winds from the east so I’m sending you just a few quick thoughts.

The Teflon market is back.

Bad news is good news. Good news is good news.

What could be better than that?

However, there are a few issues out there lurking on the horizon that could pee on everyone’s parade.

Risks of an asymmetric outcome right now are huge. Let me call out the roster for you.

1) The China Trade War Escalates – Every day economic advisor Larry Kudlow tells us that the trade talks are progressing nicely, and every day the administration pulls the rug out from under him with new sanctions. The last chance to avoid the next recession is upon us. A trade deal is the rational thing to do. Oops! There's that “rational” word again.

2) Economic Data Gets Worse - After a great data run into the fall, they are suddenly rolling over. All of the forward-looking data is now 100% terrible.

3) The Fed Raises Interest Rates- This has been the world’s greatest guessing game for the past three years. Jay Powell has just promised NOT to raise interest rates for three years, so an increase would be completely out of the blue and have an outsize impact. The Fed lives in perpetual fear of the American economy going into the next recession with interest rates near zero! That would leave them powerless to do anything to engineer a revival.

3) Another Geopolitical Crisis - You could always get a surprise on the international front. But the lesson of this bull market is that traders and investors could care less about North Korea, ISIS, Al Qaida, Afghanistan, Iraq, Syria, Russia, the Ukraine, or the Chinese expansion in the South China Sea.

Every one of these black swans has been a buying opportunity of the first order, and they will continue to be so. At the end of the day, terrorists don’t impact American corporate earnings, nor do they own stocks.

4) A Recovery in Oil – The next drone attack against Saudi Arabia could send oil really flying. If it recovers too fast and rockets back to the $100 level, it could start to eat into stock prices, especially big energy-consuming ones, like transportation and industrials.

5) The End of US QE - The Fed’s $4.5 billion quantitative easing, relaunched in March, could end as soon as it gets the sense that the economy is recovering too fast. That would take the punch bowl away from the party. Anyone who said QE didn’t work obviously doesn’t own stocks.

6) A New War – If the US gets dragged into a major new ground war, in Iran, North Korea, Syria, Iraq, or elsewhere, you can kiss this bull market goodbye. Budget deficits would explode, the dollar would collapse, and there would be a massive exodus out of all risk assets, especially stocks.

7) US Corporate Earnings Collapse – They already have for the sectors of the economy where you can’t socially distance, like movie theaters, restaurants, and airlines. A much higher third wave of Covid-19 would do the trick nicely, bringing a new round of lockdowns. Do you think stocks (SPY) will notice?

8) Another Emerging Market (EEM) Crash - If the greenback resumes its long-term rise, another emerging market debt crisis is in the cards. Venezuela and Argentina are just the opening scenes.

When their local currencies collapse, it has the effect of doubling the principal balance of their loans and doubling the monthly payments, immediately.

This is the problem that is currently taking apart the Brazilian economy right now. It happened in 1998, and it looks like we are seeing a replay.

9) A Trump Victory – Since the stock market has spent the last six months discounting a Biden win, the opposite result would be a total out of the blue shock. Count on a 10% dive in the (SPY) immediately, and 20% eventually. Polls can be wrong. Who knew?

10) Inflation Returns – Steep tariff increases on everything Chinese is rapidly feeding into rising US consumer prices. What do you think the Amazon (AMZN) wage hike to $15 means? If McDonald’s (MCD), Walmart (WMT), and Target (TGT) join them, we’re there. This is a stock market preeminently NOT prepared for a return of inflation.

I know you already have trouble sleeping at night. The above should make your insomnia problem much worse.

Try a 10-mile hike with a heavy pack every night in the mountains. It works for me.

Down the Ambien, and full speed ahead!

A Threat to Your Portfolio?

October 21, 2020

Tech Letter

Mad Hedge Technology Letter
October 21, 2020
Fiat Lux

Featured Trade:

(WILL ANTITRUST PROBLEMS UNLEASH GOOGLE?)
(GOOGL), (AMZN), (FB), (AAPL)

Will Antitrust Problems Unleash Google?

Tech Letter

The Department of Justice and 11 U.S. states filing an antitrust lawsuit against Google isn’t as bad as it seems.

Abusing its monopoly power to make Google the default search service on browsers, mobile devices, computers, and other devices has meant quarter after quarter of cash cow growth.

Alphabet’s cash reserves are to the point where they can fritter away capital on loss-making divisions like autonomous driving technology Waymo.

Yes, it’s true that Google is no longer the scrappy start-up that they once were, but that doesn’t matter, and they certainly have the financial balance sheet to deal with any litigation that might or might not take place.

Part of the Google shares not selling off was validation that they are resourceful enough to get through this unscathed and they certainly have had years to prepare how to defend itself through the courts.

Google let their position known publicly by tweeting that the “lawsuit by the Department of Justice is deeply flawed. People use Google because they choose to — not because they're forced to or because they can't find alternatives.”

The standard corporate speak that Google uses is just a sign of the times where big tech has dwarfed the banks, is too big to fail and of pure clout in American government, business and society.

This has been a long time coming as the firm has been under investigation by the Justice Department, the Federal Trade Commission, and state attorney general that its search engine and digital advertising businesses may operate as illegal monopolies.

The specific lawsuit will likely reference competitors like Bing for denying them access to user data, as well as targeting Google’s “search advertising.”

It was only in July, Alphabet CEO Sundar Pichai, along with the CEOs of Amazon (AMZN), Apple (AAPL), and Facebook (FB) appeared before a hearing of the House Judiciary Committee’s Subcommittee and were made to look bad for their dominant position in the digital ad game.

Google has repeatedly pointed to earlier antitrust investigations by the FTC and state attorney general into its display search business that concluded in 2013 and 2014 without incident but they surely have known that this issue would pop back up time and time again.

The knock-on effects have been drastic with American innovation sapped of its incubatory juices.

In the modern age of tech, it’s almost impossible to build a unicorn from scratch without getting your business model hijacked from one of the anti-competitive tech firms.

And now — there are 6 tech firms that use their scale and power to drag down innovation.

The consequences have been higher share prices for big tech because if they can’t scare competition out of place, they will either buy them or find internal ways to sabotage their business ala Yelp.

Google’s digital advertising business has faced accusations due to its unrivaled size and volume which is also why it makes so much money.

The company controls some of the most important links in the online advertising chain, centrally its DoubleClick platform, a premier tool for online publishers, helping them to create, manage, and track online marketing campaigns.

This is why the “internet” or the companies that have access to tracking technology know everything about you and can front run the marketing process to cater towards you.

Acquired in 2007, DoubleClick was cited by Senator Elizabeth Warren (D-MA) as one of the major acquisitions Google should be forced to unwind to improve competition in the advertising space.

If DoubleClick were to unwind itself from Google, they would be an instant unicorn out of the gate.

And that isn’t just the only unicorn in the stable, there are many stand-alone unicorns in Google’s umbrella of assets — from Gmail, Google Cloud, Google Maps, YouTube, and even Google’s hardware division that manufactures phones such as the Google Pixel line.

I believe in the argument that the sum of the parts is dragging down each segment meaning once broken from the Alphabet death grip, each unicorn would be able to pursue decisions that are best suited for their own division and not just the parent company Alphabet.

There is only so long that each unicorn is willing to play for the team and once they go out into the wild, each will become its own unique growth company.

One possibility is Google’s search business spun out while the other businesses stay inside under parent company which is also viable since the investigations specifically pinpoint Google search.

Google search controls more than 90% of the world’s search traffic market share and most notably, Yelp complain about Google favoring its own products in search results.

In July, a Wall Street Journal investigation found Google’s search algorithm biased towards its own YouTube videos in search results over those of other services.

Google’s repeated abuses would likely be mitigated just by spinning out Google search and not allowing them to favor itself.

It is highly unlikely that a stand-alone Google search business would cede market share because they are simply the best search engine by a country mile.

They would most likely expand on the lead they already have.

In either case, if Google isn’t broken up, they win, and the share price will rise.

If they are broken up, the victory will be even more emphatic while supercharging each individual asset ending up in an even higher share price.

This could finally offer a jolt of innovation into the stagnant tech space which honestly has too many too-big-to-fail companies that are focused more on financial engineering at this point.

October 19, 2020

Tech Letter

Mad Hedge Technology Letter
October 19, 2020
Fiat Lux

Featured Trade:

(ROLL OUT THE OVERSTOCK.COM PLAYBOOK)
(OSTK), (AMZN)

Roll Out the Overstock.com Playbook

Tech Letter

As the virus engulfs the U.S. once again — I can’t help but think it’s time for the 2^nd wave of Overstock.com (OSTK) going ballistic again.

Highlighting the insanity of 2020, Overstock.com shares were trading at a pitiful $2 on March 11 and then lockdowns happened, and the stock never looked the same again.

To say that underlying shares went parabolic is an understatement, the meteoric rise from $2 to $115 in a 5-month span is stuff of legends.

Remember that Overstock.com was just a middling backwater stock almost as Myanmar’s mediocre geopolitical status is to the Asian continent.

In fact, shareholders were in the process of searching for a buyer — in a way waving the white flag as a resentful ending to a half-hearted try to catch Amazon’s (AMZN) e-commerce business.

Overstock.com sells everything from baby toys to wrought iron firepit décor.

If it’s for the home or something related, they probably have it in store for you and as Covid has throttled the population’s go-to shopping places from strip malls to the shopping lanes of America, Overstock.com has become an outsized winner.

Let’s get into the weeds of their business.

With the tectonic shift to e-commerce likely permanent, shares can keep rallying specifically because the risk of another lockdown is increasing and the virus spreads again.

Multiple catalysts, both on the macro and micro level that can drive continued upside to revenue meaning high estimates for Ebitda (earnings before interest, taxes, depreciation, and amortization).

Bricks-and-mortar stores will continue to bleed market share to online competition even if the virus is handled, providing a tailwind for Overstock into 2021.

The company’s improved pricing model will shoot margins higher, while it also works to broaden its target audience and expand marketing.

Overstock has evolved in recent years, thanks to new management and a new strategy, which includes a timely focus on home goods, a retail standout during the pandemic. It also has blockchain-based ventures that bulls say the market is ignoring.

The one-sentence answer to why the stock has gone ballistic is easy — 109% revenue growth year over year.

The company ended the quarter with a healthy balance sheet that included a cash balance of over $300 million.

Overstock Retail's exceptionally strong second-quarter performance was on fire supporting a 200% increase in new customers, and profitability, as measured by adjusted EBITDA, improved by $51 million year over year.

A key takeaway here is the scalability of Overstock’s pure-play e-commerce model and efficiencies created through partner drop-ship program.

Overstock’s overarching goal is to create operating leverage by growing top line at a faster pace than operating expenses.

Overstock is profitably gaining new customers and making progress toward achieving sustainable, profitable growth long term.

Last quarter, revenue from their Retail business was a record $767 million and customers are increasingly finding and purchasing products in core home furnishings categories.

Compared to the second quarter of 2019, new customer growth increased by over 200%, and Overstock has experienced strong customer purchase repeat behavior.

Gross margin improved by almost 3.5% year over year and the margin improvements were fueled largely by operational efficiencies, as well as several onetime items unique to the second quarter of 2020.

The onetime items included lower costs from being understaffed in the customer care organization as Overstock adjusted to increased sales volumes, a benefit from fulfillment-related charges as part of the service level agreements to protect customers' experience, and lower discounting activity as they strategically balanced marketing efforts against product availability and stockouts.

Operating expenses improved 5% as management was able to leverage technology expenses, illustrating the strong operating leverage inherent in an e-commerce business.

Overstock is one of a slew of internet companies that will harvest the fallout from another spread of the virus.

I believe it’s time to roll out the Overstock playbook again and buy and hold shares.

For short time traders, this is a beast of a stock to execute short-dated trades on because of the elevated volatility, but in general, I am bullish on this company through 2021.

October 9, 2020

Diary, Newsletter, Summary

Global Market Comments
October 9, 2020
Fiat Lux

Featured Trade:

(THE NEW AI BOOK THAT INVESTORS ARE SCRAMBLING FOR),
(GOOG), (FB), (AMZN), MSFT), (BABA), (BIDU),
(TENCENT), (TSLA), (NVDA), (AMD), (MU), (LRCX)

October 5, 2020

Tech Letter

Mad Hedge Technology Letter
October 5, 2020
Fiat Lux

Featured Trade:

(THE AMAZON OF LATIN AMERICA)
(MELI), (AMZN), (ASML)

The Amazon of Latin America

Tech Letter

If you thought you missed profiting off of Amazon then you’re in luck; you still have another chance with the South American iteration of Amazon – MercadoLibre (MELI).

This e-commerce and payments platform in Latin America boasts presence in 18 countries within South and Central America but derives the bulk of its revenue from three countries: Brazil, Argentina, and Mexico.

MELI is the entrenched e-commerce player in the region and has multiple retailer solutions such as MercadoLibre Marketplace (an online platform for the buying and selling of merchandise), Mercado Pago (an online payments solution), and Mercado Envios (a logistics solution).

The company's market-leading position revolves around a strong network effect that has allowed it to expand its exploding user base as well as its gross merchandise volume (GMV).

In 2015, MELI had around 145 million registered users, and that number has more than tripled by 2020.

The tectonic shift toward digital transactions network caused by the pandemic means the number of items sold jumped 66% year over year to 284 million, and the number of unique active users climbed 27% year over year.

It’s undeniable that the company has strong tailwinds backing its overarching story.

MELI was already primed for a strong growth trajectory before the pandemic crushed the global economy.

The company was savvy in introducing new and useful services over the years to solve digital bottlenecks, and its suite of services made customers stickier toward its platform.

Hosting an integrated e-commerce and payments platform meant an unrelenting buildup of new vendors and users coming on board over time.

MELI looks set to take the next step in e-commerce penetration.

Although its growth has been phenomenal over the last decade, I believe the company may be on the cusp of doubling its growth rate because of the rapid digitalization by businesses.

A share repurchase program has been set in motion and I do believe they will dip into this financial tool once the global economy stabilizes.

Getting into the weeds, MELI expanded its category-take rates to Chile and Mexico in Q2 2020, with Brazil and Argentina set for last half of 2020.

For online marketplaces like what Amazon and eBay offer, the take rate refers to the fees and commissions that the companies collect on sales by third-party sellers which is critical to overall revenue.

The successful take rate rationalization could drive sellers to list more of their inventory and reduce prices.

With this increased supply, MELI should be seeing the cascading benefits of an improving shopping experience and rising conversion rates.

Scaling this beautifully translates to lower per-unit logistic costs such as sequential 23% decrease in unit shipping costs.

Ala Amazon, its drive to step up the buildout of its own logistics network to take down the dependency on Correios in Brazil is yielding meaningful results and also places the company to potentially buttress a greater amount of free shipping subsidies as the unit cost of deliveries continues to swan dive.

Logistics transforming into a higher reliability, faster shipping times, and greater cost savings offering can be passed along to the consumer upgrading the quality of service.

Soon, MELI is expected to invest in Consumer Electronics and price competitiveness could see the company grab market share taking down yet another adjacent industry.

At some point, like Amazon, MELI will target the grocery market and will have the logistic infrastructure in place to do the same type of 1-day “free” shipping that Amazon guarantees.

On the digital payments side of the business, MELI has sold over 1 million mobile point-of-sale (mPOS) devices, versus 900,000 during Q1 2020, driven primarily by smaller merchants.

The individual bull case for MELI is rock-solid but feeling out the global state of affairs is a must in a quickly changing environment.

With an onslaught of stimulus in Europe and the U.S. to deal with the pandemic, China’s economy beginning to recover, and a weaker dollar, foreign markets are becoming more attractive to U.S. investors.

Emerging markets could turn from stock market pariah to darling in a nanosecond and if investors are comfortable with targeting companies in higher growth markets, then MELI should be an option.

Emerging markets broadly have lagged behind developed market peers over the past decade, even as some fund managers have found investing in domestically-oriented companies in India, China, or Brazil hugely rewarding—just look at the outperformance by foreign brand names like Alibaba Group (BABA), Meituan Dianping and HDFC Bank (HDFC) in India just to name a few.

It’s true that more developed markets have the advantages of greater trading liquidity, minimal systemic risk, better corporate governance, and greater access to dollar-denominated debt that emerging markets’ companies don’t benefit from.

Therefore, investors seeking a conservatively biased portfolio should only focus on U.S. tech brand names that have moats around their business model.

Another second derivate play would be to find U.S. tech companies that siphon a big chunk of sales in emerging markets and are U.S. companies like Apple (AAPL), Nvidia (NVDA), and Mastercard (M).

Each secures between one-third and two-thirds of sales from emerging markets. But with those companies vulnerable to the geopolitical trip wire between the U.S. and China, proportioning a small amount of the portfolio to a Latin American tech growth firm could produce alpha.

Another quick recommendation is ASML, a semiconductor chip company from the Netherlands.

It’s an option generating outsized sales coming from emerging markets but is headquartered in an economically responsible country.

This Dutch tech firm boasts positive free cash flow yields, a sign the company is generating ample cash to operate and also reinvest in itself.

Investors who can stomach greater risk levels and desire growth should take a serious look at MELI, plus the myriad of other tech recommendations I offered if MELI doesn’t suit your appetite.

MELI

Tag Archive for: (AMZN)

Bear Sighting

A Threat to Your Portfolio?