Mad Hedge Technology Letter
May 21, 2018
Fiat Lux
Featured Trade:
(HERE'S THE BIGGEST TECHNOLOGY CONTRACT IN HISTORY)
(AMZN), (MSFT), (ORCL), (IBM), (GOOGL)
Tag Archive for: (AMZN)
The return of the Jedi is coming.
Luke Skywalker and Obi-Wan Kenobi will enter the cloud and use the force.
Not the Jedi of the famous George Lucas films, but JEDI - Joint Enterprise Defense Infrastructure commissioned by the Department of Defense.
This large contract is up for grabs.
Rumor has it that Amazon is in the driver's seat to become the government's right-hand man.
The purpose of this broad-based upgrade is to enhance communication channels among military branches by loading up operations into the cloud.
Artificial Intelligence (A.I.) and machine learning will be integrated as well.
One task slated for modernization includes the heaps of documents waiting to be translated from Arabic, Farsi, Chinese and other foreign languages into English.
A.I. will organize which documents have priority over others as well as aiding in raw translation. This will save the Department of Defense's overworked linguists thousands of hours in brute translation work.
As it stands, the government is grappling with an overlapping fractious system with legacy software up to 20 years old.
These legacy systems of yore are poor at keeping out the cyber criminals looking for a smash-and-data grab.
One instance where massive inefficiencies rear its ugly head is in the Department of Agriculture.
This department has 22 chief information officers that require seven more personal assistants inflating the IT budget.
The government could become the best turnaround story in the tech industry in years.
This turnaround could eventually become bigger than Microsoft and Cisco, which are the poster children for extreme cosmetic surgery in Silicon Valley.
The government burns $90 billion per year servicing IT operations, and JEDI is slated to offer an attractive sum of $100 billion over 10 years to a private company.
Not only will the Department of Defense modernize, but every part of the government will adopt new technologies.
Security is a priority for this administration after its legitimacy was questioned due to alleged nefarious Russian involvement.
The Committee on Foreign Investment in the United States (CFIUS) has buckled down rejecting a myriad of attempted foreign takeovers of cutting-edge tech companies stressing the need to properly harness local tech companies' ingenuity to the benefit of the country.
These new opportunities do not affect the already $1 billion per quarter that Alphabet (GOOGL) takes in from government servicing.
The $1 billion contract was given to Alphabet to develop the Algorithmic Warfare Cross-Functional Team industrially working on Project Maven.
Project Maven is the Department of Defense's attempt to integrate A.I. and machine learning into motion detector technology applied to surveillance drones using the Google cloud.
Project Maven received an additional boost to its objectives with an additional $100 million cash injection recently underlining the government's efforts to make warfare more efficient and less expensive.
Amazon Web Services (AWS) has also carved out a nice $5 billion per quarter business thanks to the power brokers in Washington.
Another side deal consummated recently has thrust Microsoft into the frame as well.
Microsoft (MSFT) agreed with the Office of the Director of National Intelligence to service 17 intelligence agencies with the Microsoft Azure cloud platform.
The deal was reported to be valued at "hundreds of million" of dollars.
Another separate deal agreed by both parties has Microsoft migrating another 3.4 million users and 4 million devices from the Department of Defense into the cloud.
All told, Microsoft has pulled in more than $1.3 billion of orders from the government in the past five years.
Bill Gates's old company was rewarded certification to supply the government with computers, operating systems, Microsoft Office, and the cloud services bolstering their credentials to potentially extract more government business.
The administration has adopted a winner takes all approach to the JEDI contract preferring one cloud provider to maintain the infrastructure.
Companies are scratching and clawing to get within a shout of winning this valuable revenue stream that could extrapolate down the road.
JEDI accounts for just 20% of the cloud possibilities for the tech companies in the government system.
The further 80% of digitization will happen down the road.
Firms are up in arms about the single platform solution and believe branching out to multiple platforms will come in use if part of the operation goes down.
Hybrid solutions are the norm for 80% of Fortune 500 companies.
As it is, International Business Machines Corp. (IBM), Oracle (ORCL), Alphabet, Amazon (AMZN), and Microsoft have been adamant that they are the best candidates for the job.
Amazon has been on a one-man mission mobilizing its all-star team of lobbyists to gain an edge.
Amazon has been part of the government's purse strings for quite some time.
It was awarded a $600 million contract in 2013.
Secretary of Defense James Mattis spoke about the relationship with Amazon in glowing terms characterizing Amazon's performance as "impressive" in terms of securing data and functionality.
The positive Amazon feedback has given AWS a head start. It hopes to capitalize on the biggest transfer of data to the cloud in modern history.
Once completed, departments will at last be able to access files from different branches on the same platform. This process is currently done manually.
Quickening the pace of modernization is a prerogative for the new administration.
President Donald Trump signed an executive order to spur on the process of getting rid of the decaying system.
Son-in-law Jared Kushner has also been an advocate of the agonizing overhaul.
This bold initiative ties in well with enhancing cybersecurity inside Washington at a time when hackers have penetrated legacy systems with ease.
Getting the White House up and running will improve the operation of the government. From an investor's point of view, it will add materially to the bottom line of companies that start to win more contracts.
This underscores the reliance of our government and economy on the large cap tech companies that are single-handedly propping up the current bull market.
The White House will wake up one day and understand that technology innovation is more powerful than ever, and even the mayhem inside the White House can't stop the digitization of politics.
Going forward Amazon and Microsoft should get a healthy boost to their overflowing coffers. Legacy companies such as IBM and Oracle could be punished by the government as well as investors for being legacy companies, which could lead the government to pass over IBM and Oracle.
Yes Mr. President ... An Upgrade Is Needed
_________________________________________________________________________________________________
Quote of the Day
"What would I do? I'd shut it down and give the money back to the shareholders." - said Michael Dell in 1997, the founder of Dell Technologies, when asked what he would do if he was in charge of Apple.
Mad Hedge Technology Letter
May 16, 2018
Fiat Lux
Featured Trade:
(WHAT'S UP AT FACEBOOK?)
(FB), (NFLX), (GOOGL), (AMZN), (GS), (AAPL), (IBM)
Capitol Hill unleashed a healthy dose of criticism on Facebook (FB) CEO Mark Zuckerberg and he has mobilized the forces to avoid a repeat shellacking.
Zuckerberg's response has been to reshuffle his cabinet at the Menlo Park, CA, headquarters, and a few tell-tale signs offer a unique glimpse into Facebook's future.
Basically, something needed to change at Facebook.
The company single-handedly took the blame for the entire sector and was not the only company with a liberal stance on personal data.
Zuckerberg would like to eschew public humiliation and avoid being a sitting duck.
The episode in Washington highlights the need for Facebook to decouple itself from ad revenue, which makes up the lion's share of revenue at the firm and find other levers to pull.
Down the road, Facebook's ad business could get crimped by regulators, and a lack of fallback options haunts Facebook investors in their sleep.
Consequently, a whole slew of high-level management rotation is underway at Facebook.
It is the biggest shake-up in the history of Facebook.
The road map starts with one of Zuckerberg's best friends and protege Chris Cox who will manage the new "family of apps" segment.
This collection of projects he will preside over include WhatsApp, Messenger, Instagram, and the Facebook Core App.
The step up in responsibility is warranted for Chris Cox who was credited with creating the Facebook news feed after joining the company in 2005 after ditching his Stanford graduate degree program at the time.
The executive reshuffle coincided with WhatsApp co-founder Jan Koum, one of Silicon Valley's biggest advocates for data privacy, who quit his post as a show of disapproval to Facebook's business model.
Mark Zuckerberg wants to aggressively monetize the WhatsApp messenger service that was acquired for $19 billion in 2014.
Zuckerberg's blueprint involves using the WhatsApp phone numbers as a vehicle to monetize through offering different products.
Facebook would then collect the data from its 1 billion usership and WhatsApp would become Facebook's new advertisement clearing house.
WhatsApp's leadership vehemently refused this U-turn and Koum decided he would rather leave then see his baby ruined.
Facebook consistently refrained in the past from passing WhatsApp to the data mining scientists and was able to prevent full-scale implementations of advertisements onto its platform.
Currently, there are no ads on WhatsApp's interface, and users could be in store for a massive transformation in look and feel.
Facebook investors have been clamoring for Zuckerberg to start the process of making WhatsApp into a material revenue stream.
Time is of the essence as the big data police creep in from the shadows.
Putting Zuckerberg's top guy on the job embarks Facebook down a new path of hyper accelerated profit-making.
Well, that is the goal.
Compounding Facebook's pivot to other businesses is commissioning a new blockchain tech team.
Blockchain technology, the technology that helped unearth bitcoin, has seen a recent slew of endorsements from financial heavy hitters such as Goldman Sachs (GS), which acknowledged the formation of a new business brokering in bitcoin futures.
A year ago, no reputable organization would touch blockchain with a 10-foot pole.
The utilization of blockchain technology would allow trackability and provide more security.
That would help Facebook to understand the provenance of unique problems allowing staff to nip problems in the bud before they snowball.
Blockchain tech fits nicely within the constraints of the model and would enhance the existing Facebook product.
Let's not forget that Facebook has a mountain of cash to fix any problem that crops up.
It is not one of these early stage seed companies burning through heaps of cash waiting for "scalability" down the road.
Facebook is here and now, and it has the money to show for it.
The pillars of blockchain revolve around cryptography. Blockchain would effectively allow individuals to possess more power over their identity decentralizing the stranglehold from Menlo Park.
Thus, Facebook must invest deeply into blockchain to counter the fear that this technology can marginalize the core business.
This epitomizes the tendency for large-cap tech to become preemptive.
None of the powerful FANGs want to miss the next big shift in technology, and the cash hoard allows them to have skin in the game in each revolutionary trend.
The tide has changed at Facebook from the early years where growing the user base was paramount.
Now that user base has matured into a 2.2 billion marketplace.
Facebook's strategy has shifted to extracting more revenue per user and management closely follows this metric.
Mike Schroepfer, the CTO of Facebook, was tabbed as the man leading the charge for Artificial Intelligence (A.I.), Augmented Reality (A.R.), and Virtual Reality (V.R.) technology.
Facebook was able to poach Jerome Pesenti from IBM (IBM), where he was a critical cog in the development of IBM's Watson, to run the Facebook A.I. team. A.I. is routinely implemented into Facebook's core products to enhance performance.
Promoting Chris Cox as the next in line and giving him control over all the powerful products effectively pushes ad tech down the pecking order.
Javier Olivan is the new man at Facebook tasked for managing ads, analytics, and integrity, growth and product management.
Moving forward, the ad division will be laced with a certain level of security to avoid a repeat of Cambridge Analytica.
Zuckerberg must know that there are other Cambridge Analytica's hidden somewhere in the system; another incident would knock down the stock 5% to 10%.
Facebook could look vastly different in a few years if some of these profit drivers prove successful. It only needs one to work.
Disrupt or be disrupted.
At this point, the big tech companies are considering anywhere or anyone to capture accelerated growth. The FANGs are spilling over to other companies' turf.
Crossover is everywhere and this is just the beginning.
Expect Amazon's (AMZN) ad division to grow from the already $2 billion per quarter, gradually challenging the duopoly of Facebook and Alphabet in the digital ad revenue industry.
It is yet to be seen if the new revamp of management will produce better results.
This move could backfire as the management carousel excluded any fresh blood from taking part.
Effectively, Zuckerberg rotated his best friends into different parts of the business without demoting anyone.
Solidifying his close-knit circle of trust is no doubt a defensive reaction to being hounded the past few months, leaving his existing circle as the few people on which he can still count.
Facebook's stock remains healthy and the brouhaha stoked by the data leak gave investors a timely entry point.
I pounded on the table calling the bluff, begging readers to get into Facebook.
The long-term Facebook story is intact but the stock is overbought short-term.
Investors should not sleep on Facebook as it is a profit machine printing money like Apple (AAPL) and the executive revamp is a bullish development for Facebook.
My bet is that Chris Cox goes for the low hanging fruit monetizing WhatsApp, inciting the next leg up in Facebook shares later in the year.
_________________________________________________________________________________________________
Quote of the Day
"Simply put: We don't build services to make money; we make money to build better services." - said Facebook CEO Mark Zuckerberg
Mad Hedge Technology Letter
May 15, 2018
Fiat Lux
Featured Trade:
(HARD TIMES AT UBER)
(UBER), (NFLX), (GOOGL), (AMZN), (GRUB)
Uber has seen a ferocious challenge to its business model of late. It seems everything it touches turns into fool's gold.
It is easy to assign blame to the current CEO, but Dara Khosrowshahi was shoehorned into a difficult situation after previous CEO Travis Kalanick defiantly departed leaving the company in tatters in his wake.
What could go wrong went wrong.
The company was purged of its license to operate in London, which was one of its highest transactional cities.
Uber boasted a ridership of 3.5 million and sub-contracted 40,000 drivers in London that singlehandedly wiped out the Cockney black cab industry.
The land of fish and chips has not exactly been kind to Uber with the British seaside resort city Brighton the next location to excommunicate Uber from its sandy shores.
Uber's massive data breach of 2016, which took Uber a full year to publicly disclose, of 25.6 million names, 22.1 million mobile phone numbers, and 607,000 driver's license numbers was cited as one of the reasons Uber's license in Brighton was discontinued.
Is there a way back for CEO Dara Khosrowshahi?
The future looks turbulent at best.
Khosrowshahi has left no stone unturned carrying out his search for a new CFO. Uber has not had a CFO since 2015, and a CFO is required to shepherd the company through the IPO process.
Prospective candidates will not touch this position with a 10-foot pole.
Several high-profile hopefuls have already rebuffed offers.
It was painfully obvious to onlookers last week at Uber's Elevate conference in Los Angles that Alphabet (GOOGL) is dominating every potential business that Uber desires to penetrate.
Waymo, Alphabet's autonomous driving technology arm, is miles ahead of Uber after developing in secret for many years.
Waymo's self-driving testing began in 2009 while Uber's first test was carried out in September 2016 in Pittsburgh, conceding a seven-year head start to bitter rivals.
Even worse, Uber's trials have been sidelined as of late because of a casualty in the Phoenix program. Arizona is on the verge of removing Uber from possible future tests along with California making Pittsburgh the last place left to consolidate operations.
At the Elevate conference, Khosrowshahi elucidated Uber's roadmap to industry professionals, and his synopsis was largely underwhelming.
Khosrowshahi broke down the future into three easy-to-understand stages.
In the next two to three years, stage one consists of focusing on improving existing algorithms, enhancing ride share transactions, and expanding to different locations widening the companies ride-share footprint.
Stage 1.5 detailed refining its Uber Eats segment seizing further market share from Grubhub (GRUB) and Amazon (AMZN), the two biggest rivals.
In two to five years from now, stage two entails ramping up the e-bike segment through recently acquired e-bike firm Jump.
Lastly, stage three was proposed to happen in five to 10 years and encompass growing a newly minted air-taxi division called Elevate.
Up until today, Uber's core business has been an unmitigated failure of massive proportions.
In the fourth quarter of 2016, Uber hemorrhaged $2.8 billion then followed up the fourth quarter in 2017 with a $4.5 billion loss, a stark reminder that profits are hard to come by in the tech world.
If losses are what investors want, Uber gives it to you in spades.
If it cannot successfully monetize the core business using cars, the e-biking future is dead on arrival.
Stage 1.5 is all designer chocolates and fancy roses now because growth and margins remain healthy. However, this industry is fraught with booby traps that I chronicled in the recently published story about Grubhub (GRUB).
Stage three was a division that Khosrowshahi reviewed several times after he took the top job and it made the cut after deep contemplation.
Uber plans to start conducting trials in 2020 in Dallas or Los Angeles with the hope of commercial operations starting in 2023.
This timeline is wishful thinking because regulators would never grant operational authority to Uber in a mere five years when it cannot even succeed on asphalt with its self-driving technology.
Lamentably, Alphabet's co-founder Larry Page has an ace up his sleeve.
Since last October, stealth flight trials have been carried out in New Zealand by firm Kitty Hawk led by Sebastian Thrun one of the creators of Waymo, which is developing autonomous flying taxis.
Kitty Hawk was developed for years in secret and personally backed by Larry Page's personal wealth.
He has already poured more than $100 million of his own money into this venture.
To further develop its business, Kitty Hawk was forced to decamp to New Zealand as the Federal Aviation Administration (FAA) in America lacks a path to certification and commercialization.
New Zealand has embraced the revolutionary start-up, and New Zealand is the first country poised to develop a functional robo air-taxi network.
Kitty Hawk's hopes and dreams rely on the aircraft Cora. Please click here to visit its website for more information.
Cora is an all-electric affair powered by batteries with a 36-foot wingspan.
This meshes perfectly with New Zealand's hope to be carbon free by 2050.
Cora has been manufactured with capabilities of flying at heights up to 2,950 feet and a range of 62 miles.
New Zealand has bet the ranch on aerospace technology allowing even marginal start-ups within its borders such as Martin Jetpack, the first commercially sold jetpack, operating with a flight ceiling of 2,500 feet and sold at a starting price of $150,000.
It is ironic that Uber chose to host an aerial-taxi conference considering it is not the company building the flying taxis.
This is the crux of the problem in which Uber finds itself.
It does not produce anything unique.
The biggest winners that take home the lion's share of the spoils are the firms that create a proprietary product that cannot be replicated easily such as Netflix's original content or Google's advanced search engine.
The heavy lifters gain control and can dictate the path toward monetization.
Page's Kitty Hawk is in the driver's seat with the best technology and Uber's Khosrowshahi recently met with Thrun pitching his idea of partnering up.
Expectedly, Kitty Hawk declined to become buddies because nothing can be gained by collaborating with Uber.
Kitty Hawk stated that it plans to develop an app for its own robo-flights, which could crush Uber's dream of being the end all be all of transportation apps.
At the end of the day, Uber is just an app matching drivers and passengers, and creating this app is highly replicable.
It takes billions upon billions of dollars to build an autonomous aerial taxi from scratch. Uber's inability to produce aircraft gives it little negotiating power down the line.
On that note, Uber announced a partnership with NASA to build an air traffic control system, which would logically be used to construct landing ports similar to a helipad for aircraft to land.
By carving out a sliver of the industry mastering port construction, it gives Uber a narrow entranceway into the future of aero-taxi industry albeit a weaker strategic position than Page's Kitty Hawk.
Another day and another loss to Alphabet. Wave the white flag.
Each loss leads to the need for more funding.
More funding has brought on more losses for Uber in a vicious cycle that has seen Uber's valuation slip at the last round of financing.
In the next five years, onlookers can expect much of the same from Uber - underperformance in the form of accelerated losses from its core ride-sharing business.
Capital is disappearing into a black hole and the monetization of Uber Eats and Jump is nothing about which to boast.
These are side businesses at best.
The road map is wishy-washy at best. Uber's Elevate division could turn out to be lipstick on a pig hyping up the company for its 2019 IPO to attract more dollars - the same reason it needs to recruit a new CFO.
The IPO road show will give Uber a platform to explain how it plans to curtail losses. A miracle is required for Uber to finally turn into a profitable business by the time it goes public.
To visit Uber's Elevate division to watch a video of its version of the future of aerial taxis, please click here.
Kitty Hawk's Cora in New Zealand
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Quote of the Day
"A computer once beat me at chess, but it was no match for me at kickboxing." - said American comedian Emo Philips.
Mad Hedge Technology Letter
May 14, 2018
Fiat Lux
Featured Trade:
(MEET THE NEW FANG),
(AMZN), (WMT), (FB), (NFLX), (GOOGL), (UBER)
Yes, it's Wal-Mart (WMT).
No, I'm not making this recommendation because they let you park your RV in their parking lots at night for free.
And no, I'm not smoking California's biggest cash crop either (it's not grapes).
I predicted as much in my recent research piece, "Who Will Be the Next FANG?" by clicking here.
It is the dawn of a new era with the world absorbing yet another FANG to add to the list of Facebook (FB), Alphabet (GOOGL), Amazon (AMZN), and Netflix (NFLX).
As the tech world powers on to new heights, nothing can slow down these juggernauts.
Let's face it - companies are more lucrative when technical expertise is ramped up and infused into the business model.
Ground zero of the tech movement - Silicon Valley - has helped supercharge the economy and prodigious earnings' results support this thesis.
New innovations will fuel the next level up in the tech arm's race but more crucially, so will new geographical locations.
Instead of throwing a dart at a world map, the locations are a no-brainer because tech scavenger hunts orbit around one idiosyncrasy and that is scale.
Scalability is a sacred word in the tech world.
If a start-up cannot scale up, investors can't imagine future profits, entrepreneurs can't imagine growth, and funding dries up.
End of story.
For instance, Amazon's business model does not mesh kindly with pint-sized Iceland.
Not because Amazon discriminates against Iceland's culinary delicacy of sheep testicles but because the population is only around 330,000 people.
Scale equals success.
Indisputably, every country with an Amazon-esque business is being bid up because big tech firms know how to digitally monetize, effectively out-sourcing an incredibly profitable business model that has worked unabated for the developed world for the past decade or two.
The heightened awareness of existential survival is pitting foreign money against each other in far-flung places jostling for the same digital assets after a decade of cheap financing enriching tech companies.
Remember that first mover advantage leads to dominance in the datasphere because the volume of data is directly correlated to the bottom line.
Examples are rife around the world, for instance Amazon's $580 million purchase of Souq.com, described as the Amazon of the Middle East headquartered in Dubai and the biggest e-commerce site in the Arab world.
E-commerce commands a paltry 2% of sales in the region. That number is poised to explode as digital-savvy, tech Millennials reach peak consuming age and the migration to mobile erupts.
A preemptive strike is usually the most compelling strategy for large cap tech as it pushes out the smaller players, which lack the resources to compete.
Even the corporate offices of Walmart (WMT) in Bentonville, Arkansas, would wholeheartedly agree with me after doling out for its new toy.
Yes, Walmart acquired a 77% share in the Amazon of India, Flipkart, for $16 billion after the real Amazon failed to cut a deal with the most famous e-commerce unicorn in India.
This new development is a game changer.
India is a country that tech executives pinpoint as the future because of its massive population, economic growth, and economic potential foreign investors hope to tap up.
The International Monetary Fund (IMF) has anointed India as the fastest growing economy in 2018, and the 7.4% growth this year will follow with an even sturdier 7.8% in 2019.
Amazon has been well aware of India's ascent. Its CEO Jeff Bezos pledged to invest more than $5 billion in India and Amazon began its e-commerce operation in 2013.
Amazon's early entrance into the Indian e-commerce industry has paid off grabbing 31% of market share putting it in second place behind Flipkart's 40%, according to big data firms.
The Indian e-commerce space was $20 billion in 2017, and by 2019, expect that number to grow to $35 billion.
Walmart CEO Doug McMillon noted that by 2026, the Indian e-commerce industry will surpass $200 billion. When it comes to clothing and fashion, Flipkart has a 70% share in India.
Even more valuable than the economic growth is the new pipeline of tech talent that will help Walmart compete with Amazon.
The Trump administration's crackdown on H-1B visas that Silicon Valley utilizes to bring developers to American shores has forced American tech companies to implement a work-around.
Essentially, the only difference now will be that the past recipients of H-1B visas will be sitting in an air-conditioned office in Bengaluru, India, until the visa documents come through.
Flipkart has a deep pipeline into the best engineering schools in India and the staff of more than 30,000 employees work on Indian wage levels.
This deal is one of the biggest talent grabs of tech developers the world has ever seen. And this group has the know-how of building an Amazon-style digital marketplace platform from zero.
The Flipkart investment comes after Walmart's purchase of Jet.com, an e-commerce company based in Hoboken, New Jersey.
The $3.3 billion purchase of Jet.com in 2016 was the beginning of Walmart's digital strategy, and it has come a long way in a very short time.
Walmart is now a vaunted member of the FANG group and has a new army of developers to back up this claim.
Glancing at the opportunities to scale, Indonesia is clearly the runner-up behind India.
Indonesia has been tagged as a tech new battleground with a population of 260 million in 2016 and growing.
The country has a medium age of 28, meaning this young population could turn into a reliable source of new tech developers who traditionally are young and digital natives.
Economic prosperity has been welcomed with open arms to this tropical island nation. It is poised to become the seventh largest economy by 2030, up from its rank of No. 16 today, creating a burgeoning middle class with newfangled discretionary spending.
The rural migration to urban environments will add another 90 million people living in Indonesian cities by 2030, while Internet access is growing by 20% each year in Indonesia.
Goldman Sachs recently issued a note to investors citing Indonesia's unbridled potential.
Capital is pouring into Indonesia at a breakneck speed with Alibaba investing $1.1 billion into Tokopedia, the Amazon of Indonesia.
Companies are coming to the stark realization that the domestic low hanging fruits have been picked, and aging developed countries are turning to undeveloped regions of growth to advance business objectives.
This is why South East Asia has been bombarded with an onslaught of Japanese, Korean, and Chinese investments and not only in the tech sector.
The Far East powerhouse countries are battling each other in Southeast Asia for consumer goods, infrastructure, high speed trains, and of course technology.
Uber just sold its Southeast Asian ride-sharing asset Grab to China's DiDi Chuxing and SoftBank for $2 billion.
The Southeast Asian region is one of the hottest places to make a deal because of a lack of FANG occupancy.
Walmart sold off on the Flipkart news because of the potential impairment to margins, but this move is a long-term positive for Walmart shareholders.
Flipkart does not turn a profit and Walmart is still solely judged by earnings. Unfortunately, it does not receive the same license to focus on growth like Tesla, Amazon, and Netflix.
However, I have a hunch that down the road, investors will agree this move by Walmart's McMillon was as shrewd as can be.
Like the colonial powers of yore, India and Southeast Asia are likely to be divvied up.
American companies already own more than 70% of market share in India e-commerce.
India is the biggest democracy in Asia and a staunch ally of the United States.
India's frosty relationship with China due to border spats and communist origins will stunt China's ability to take over and expand in India.
However, Southeast Asian countries are more likely to go the way of Cambodia, which is reliant on Chinese money to fund new initiatives, hamstrung by Chinese debt up to its eyeballs, and acquiesced political capital to the Mandarins.
Chinese investment's path of least resistance is Southeast Asia. This progression will be facilitated by the sizable Chinese expat population that resides in Indonesia, Vietnam, Thailand, Philippines, Myanmar, Laos and Cambodia.
Long-term shareholders of Amazon and Walmart will be rewarded. However, expect a few more Indians walking around Bentonville, Seattle, and Hoboken.
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Quote of the Day
"My life is now a constant assessment of whether what's happening in real life is more entertaining than what's happening on my phone." - said television host Damien Fahey.
Global Market Comments
May 11, 2018
Fiat Lux
Featured Trade:
(WEDNESDAY, JUNE 13, 2018, PHILADELPHIA, PA, GLOBAL STRATEGY LUNCHEON),
(MAY 9 BIWEEKLY STRATEGY WEBINAR Q&A),
(FB), (MU), (NVDA), (AMZN), (GOOGL),
(TLT), (SPX), (MSFT), (DAL),
(MAD HEDGE DINNER WITH BEN BERNANKE)
Below please find subscribers' Q&A for the Mad Hedge Fund Trader May 9 Global Strategy Webinar with my guest co-host Bill Davis of the Mad Day Trader.
As usual, every asset class long and short was covered. You are certainly an inquisitive lot, and keep those questions coming!
Q: Would you still short Facebook (FB)?
A: Right now, no. I thought the dynamics changed off the last earnings report, so the answer is no. We have made a ton of money trading Facebook this year, and all of it has been from the long side.
Q: How will the election affect the market?
A: It will go down into the election, but you'll then get a strong rally as the uncertainty fades away. It really makes no difference who wins. It is the elimination of uncertainty that is the big issue.
Q: Do you have a price to buy Micron Technology (MU) or NVIDIA (NVDA), or do you want to wait for a crash day?
A: I want to wait for a crash day, because even though these are great companies, on the down days, they fall twice as fast as any other stock. Your entry point is very important in that situation.
Q: Do you see opportunities to sell short the U.S. Treasury bond market (TLT) again?
A: Yes. But wait for the four-point rally not the two-point rally.
Q: Rising interest rates should benefit banks - why are they such horrible performers?
A: The double in bank stocks in 2017 fully discounted this year's interest rate move. For banks to really perform interest rates have to move higher still, which they will eventually.
Q: When will the yield curve invert and what will be the implications?
A: You can take the Fed's current rate of interest rate rises (which is 25 basis points every three months) and essentially calculate that the yield curve inverts at the end of 2018 or the beginning of 2019. Recessions and bear markets always follow six months after that inversion takes place. That's when interest rates start to rise very sharply as bond investors panic and unwind all their leveraged long positions.
Q: Why are you not involved with Amazon (AMZN) and Google (GOOGL)?
A: I've already taken big profits in both of these and I'm just waiting for another serious dip before I get back in again.
Q: What happens to stock buybacks?
A: While other investors are pulling out of the market, stock buybacks are doubling. But, that is only happening, essentially, in the tech stocks - they're the buyback kings. If you don't have a serious buyback program this year, your stock is falling. Companies are the sole net buyers of the market this year, and they are only buying their own stocks.
Q: What do you see the upper and lower end of the S&P 500 (SPY) range to November?
A: I think we've already got it: 2,550 on the low side, 2,800 on the high side - that a 10% range and you can expect it to get narrower and narrower going into November. After that, we get an upside breakout to new all-time highs.
Q: When will rates be negative next?
A: In the next recession, the bottom of which will be in 2 to 2.5 years; that's when interest rates in the U.S. could go negative, as they did in Japan and Europe for several years.
Q: What is your No. 1 pick in the market today?
A: We love Microsoft (MSFT) long term. However, right now the background macro picture is more important than stock selection than any single name, so we're keeping a position in Microsoft in the Mad Hedge Technology Letter, but not in Global Trading Dispatch. We're sort of hanging back, waiting for another sell-off before we touch anything on the long side in GTD. Remember, the money is made on a buy in the new position, not on the sell going out.
Q: Was the semiconductor chip sell-off overdone?
A: Absolutely - the negative report was put out by a new analyst to the industry who doesn't know what he's talking about. If you ask all the end users of the chips, all they talk about is A.I., and that means exponential growth of chip demand.
Q: Is it a good time to buy airline stocks (DAL)?
A: No, until we get a definitive peak in oil, and a speed up again in the economy, you don't want to touch economically sensitive sectors like the airlines.
