(BAC) Archives - Page 16 of 19 - Mad Hedge Fund Trader

The Market Outlook for the Week Ahead, or Saved by a Hurricane

This was the week when the stock market was saved by Hurricane Dorian.

Why a hurricane?

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Because it gave President Trump something else to Tweet about beside China and Jay Powell. The White House went totally silent, at least on matters concerning the stock market. There, the focus instead turned on whether Trump predicted Dorian was going to hit Alabama (it didn’t).

Thank goodness for small favors.

Instead, investors got to hear about progress was purported to be made on the China trade talks with a possible October meeting.

It all reminds me of the 1968 Paris peace talks, which I visited, where I remember Ambassador Avril Harriman storming out of the Majestic Hotel with a very stern expression on his face. They had just spent a year arguing with the North Vietnamese over the shape of the table (they finally settled on an oval).

Brexit finally started lurching towards its inevitable demise. Hard Brexit failed in Parliament, a disaster for Prime Minister Boris Johnson, whose own party and even his own brother voted against him.

Elections will follow which will finally plunge a dagger through the heart of Britain’s attempt to leave the European Community. If this happens, it will be a huge positive for risk markets globally. This is the beginning of the end. Get ready to buy the pound (FXB).

The bad news? Don’t count on this happening again this week, unless we get another hurricane. When a stock market rally is led by sectors with the worst fundamentals, like retail (M), energy (XOM), and banks (BAC), you want to run a mile. It means the rally was driven by short-covering, we are now at a market high, and the short players have a ton of cash.

I have been pounded with questions all week if the bottom is in and if it’s time to load the boat with tech stocks yet again. I have to answer with a firm “Not yet!” We still have three weeks to go in September with plenty of time for more volatility.

If the Fed cuts interest rates by 25 basis points, the Dow average could crater by 1,000 points. If they don’t cut, which I give a 50/50 chance, it will be down by 2,000 points.

They will be encouraged to cut by an August Nonfarm Payroll Report that came in at a tepid 130,000. The headline Unemployment Rate remained unchanged at 3.7%, a 50-year low. Average Hourly Earnings were an inflationary 0.4%, or 3.2% YOY. June and July were revised down.

The 2020 census was a big factor in August, where the US government hired 25,000 workers to prepare for next year. Without this, August would have come in at a weak 105,000 jobs.

Manufacturing hiring amounted to only 3,000, while Retail lost 11,000 jobs for the seventh consecutive monthly decline. The broader U-6 “discouraged worker” unemployment rate rose from 7.0% to 7.2%.

To demonstrate how much value you are gaining with this service, I generated the chart below. Since January 26, 2018 when the S&P 500 peaked, the total return has been zero, with a lot of heart-stopping volatility, including one 20% drawdown.

That has been the cost to the stock market of the trade war, which started only a few days later. The profit created by the Mad Hedge Fund Trader during the same period has been 58.97%.

You couldn’t even beat the Mad Hedge Fund Trader by pouring all your money into big technology stocks. Over the same time, Facebook (FB) fell 4.1%, Apple (AAPL) rose 21.7%, and Amazon (AMZN) by 22.2%.

The only way you could have topped my performance was to pour your life savings into Roku (ROKU), right when Amazon was about to put it out of business. Jeff Bezos partnered with Roku instead of delivering a 225% pop in the shares.

You might think such a performance is blown out of proportion, exaggerated, and fake. However, it is perfectly consistent with the numbers generated for the in-house trading books by senior traders at Goldman Sachs (GS) and Morgan Stanley (MS) where I come from.

In fact, during my day, if a trader earned less than 30% a year on his capital, he got fired or transferred over to covering retail accounts because the firm had so many better places to invest. They are also consistent with the performance of the top-end hedge managers, of which I used to be one.

Chinese Manufacturing Activity fell for four consecutive months taking the Purchasing Managers Index below a recessionary 50. If you wreck the economy of the world’s largest customer, the rest of the world goes into recession.

US Manufacturing hit a three-year low, the ISM Manufacturing PMI diving from an average 56.5 to 49.1 in August. Anything below 50 is a recession indicator. Hoping that China will bleed worse than us in a trade war is not a winning strategy. Stocks dove 300 points and the Volatility Index (VIX) shot up to $21 on the news. Avoid risk, as this is going to be a terrible month.

The prospect of a China meeting popped stocks 400 points, with an agreement to meet in October, citing progress on a phone call. Boy, I’m getting tired of this. When can we go back to looking at earnings, dividends, and book value?

The European Central Bank will almost certainly ease this week. It hasn’t worked for ten years so let’s try it again. They’re obviously not printing enough Euros. Overnight rates will fall from -0.4% to -0.6%. Some 30 billion euros a month will hit the economy in a new QE.

The Atlanta Fed downgraded the economy, cutting its Q3 GDP growth forecast from 2.0% to 1.5%. Expect a string of poor data points in the coming months as the delayed effect of an escalated trade war. However, the non-manufacturing service economy remains strong. That’s me, and probably you too.

The Mad Hedge Trader Alert Service has posted its best month in two years. Some 22 or the last 23 round trips, or 95.6%, have been profitable, generating one of the biggest performance jumps in our 12-year history.

My Global Trading Dispatch has hit a new all-time high of 334.48% and my year-to-date shot up to +34.35%. My ten-year average annualized profit bobbed up to +34.30%.

Better yet, since July 31, we generated a 20% profit for the trade alert service while the gain in the Dow Average was absolutely zero!

I raked in an envious 16.01% in August. All of you people who just subscribed in June and July are looking like geniuses. My staff and I have been working to the point of exhaustion, but it’s worth it if I can print these kinds of numbers.

As long as the Volatility Index (VIX) stays above $20, deep in-the-money options spreads are offering free money. I am now 40% long big tech. It rarely gets this easy.

The coming week will be a snore, as it always is after the jobs data.

On Monday, September 9 at 11:00 AM, August Consumer Inflation Expectations are out.

On Tuesday, September 10 at 12:00 PM, the NFIB Business Optimism Index for August is released.

On Wednesday, September 11, at 8:30 AM, the US Producer Price Index is announced.

On Thursday, September 12 at 8:30 AM, the Weekly Jobless Claims are printed. At the same time, the US Inflation Rate is published.

On Friday, September 13 at 8:30 AM, the US Retails Sales are printed. The Baker Hughes Rig Count follows at 2:00 PM.

As for me, I’ll be driving up to Lake Tahoe to make final preparations for the October 25-26 Mad Hedge Lake Tahoe Conference. A record number of black bears have been breaking into homes this summer and I just want to make sure my lakefront estate is OK.

It seems that Airbnb tenants have been leaving trails of cookies to their front doors and painting their refrigerators with peanut butter so they can get better selfies with their ursine neighbors.

Not a good idea.

I’ll be avoiding Interstate 80. A truck carrying 1,000 live chickens crashed there yesterday and the California Highway Patrol was last seen chasing them down the freeway.

Good luck and good trading.

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

March 5, 2019

Diary, Newsletter, Summary

Global Market Comments
March 5, 2019
Fiat Lux

Featured Trade:

(THE BIPOLAR ECONOMY),
(AAPL), (INTC), (ORCL), (CAT), (IBM),
(TESTIMONIAL)

March 4, 2019

Diary, Newsletter, Summary

Global Market Comments
March 4, 2019
Fiat Lux

Featured Trade:

(THE MARKET FOR THE WEEK AHEAD, or THE RECESSION HAS BEGUN),
(SPY), (TLT), (GLD), (AAPL)

March 1, 2019

Diary, Newsletter, Summary

Global Market Comments
March 1, 2019
Fiat Lux

Featured Trade:

(OH, HOW THE MIGHTY HAVE FALLEN),
(BRK/A), (AXP), (AAPL), (BAC), (KO), (WFC), (KHT),
(AMGEN’S BIG WIN), (AMGN), (SNY), (REGN)

Oh, How the Mighty Have Fallen

Diary, Newsletter, Research

Going through Warren Buffet’s letter to the shareholders of Berkshire Hathaway (BRK/A) you can’t help but notice that his performance nosedived from a breathtaking 21.9% in 2017 to a much more sedentary 2.8% last year. That is with an S&P 500 down -4.4%, including dividends.

That compares to my own 23.67% profit for 2018. But Warren has a much higher bar to reach. He does this with a staggering market capitalization that was pegged at $496 billion as of today. At best, the combined buying power of my Trade Alerts is only about a billion dollars.

And here is the stunning piece of information that should have been the headline. Warren has $112 billion in cash and equivalents, some 22.58% of the total, and an all-time high. That means buying stocks at these levels is the least attractive in the fund’s 57-year history.

Buffet would much rather buy back his own stock. He is willing to pay a premium to book value but only when it trades at a discount to intrinsic value, as he did in size during the fourth quarter of 2018.

Which raises one screaming great question. If Warren Buffet isn’t buying stocks, why should you?

Buffet isn’t even buying Apple, which he only started soaking up in 2017. It now is his second largest holding, with an average cost of $140. I’m amazed that the stock didn’t get crushed on this news, but then we live in a constantly amazing world these days.

The big change in Berkshire Hathaway over the years is that it is becoming more of an operating company and less of an investing one. That is because Buffet is increasingly buying entire companies, rather than exchange-traded stocks. One of the reasons for his cash hoard that an effort to buy a company for high double-digit billions of dollars fell through last year.

Still, Warren bought $43 billion worth of public stocks in 2018 and only sold $19 billion worth. These are his five largest public shareholdings and his percentage of outstanding shares:

American Express (AXP) – 17.9%
Apple (AAPL) – 5.4%
Bank of America (BAC) – 9.5%
Coca-Cola (KO) – 9.4%
Wells Fargo (WFC) – 9.8%

Warren likes to break up his entire holdings into five “groves”, as there are too many companies to follow individually.

1) Wholly owned companies where Berkshire has 80%-100% stakes, such as the BNSF railroad and Berkshire Hathaway Energy.
2) Publicly listed equities like those listed above
3) Companies controlled with third parties, like Kraft Heinz (KHT)
4) US Treasury bills
5) Property/Casualty Insurance operations like GEICO that generate an enormous free cash float

Buffet described the enormous tax benefits his company received from the 2017 tax bill. It amounted to the government’s indirect ownership of Berkshire shares falling, which he humorously calls “AA” shares, from 35% to 21% at no cost whatsoever. That greatly increased the value of the remaining shares.

Warren spent the rest of his letter talking about the Great American Tailwind. Since he started investing on March 11, 1942, one dollar invested in the S&P 500 has grown to an eye-popping $5,288! That works out to an average annualized compound return of 11.8% a year.

The end result has been the greatest creation of wealth and rise in standards of living in human history.

That is a tough record to beat.

January 17, 2019

Tech Letter

Mad Hedge Technology Letter
January 17, 2019
Fiat Lux

Featured Trade:

(WHY FINTECH IS EATING THE BANKS’ LUNCH),
(WFC), (JPM), (BAC), (C), (GS), (XLF), (PYPL), (SQ), (SPOT), (FINX), (INTU)

Why FinTech is Eating the Banks’ Lunch

Tech Letter

Going into January 2018, the big banks were highlighted as the pocket of the equity market that would most likely benefit from a rising rate environment which in turn boosts net interest margins (NIM).

Fast forward a year and take a look at the charts of Bank of America (BAC), Citibank (C), JP Morgan (JPM), Goldman Sachs (GS), and Morgan Stanley (GS), and each one of these mainstay banking institutions are down between 10%-20% from January 2018.

Take a look at the Financial Select Sector SPDR ETF (XLF) that backs up my point.

And that was after a recent 10% move up at the turn of the calendar year.

As much as it pains me to say it, bloated American banks have been completely caught off-guard by the mesmerizing phenomenon that is FinTech.

Banking is the latest cohort of analog business to get torpedoes by the brash tech start-up culture.

This is another fitting example of what will happen when you fail to evolve and overstep your business capabilities allowing technology to move into the gaps of weakness.

Let me give you one example.

I was most recently in Tokyo, Japan and was out of cash in a country that cash is king.

Japan has gone a long way to promoting a cashless society, but some things like a classic sushi dinner outside the old Tsukiji Fish Market can’t always be paid by credit card.

I found an ATM to pull out a few hundred dollars’ worth of Japanese yen.

It was already bad enough that the December 2018 sell-off meant a huge rush into the safe haven currency of the Japanese Yen.

The Yen moved from 114 per $1 down to 107 in one month.

That was the beginning of the bad news.

I whipped out my Wells Fargo debit card to withdraw enough cash and the fees accrued were nonsensical.

Not only was I charged a $5 fixed fee for using a non-Wells Fargo ATM, but Wells Fargo also charged me 3% of the total amount of the transaction amount.

Then I was hit on the other side with the Japanese ATM slamming another $5 fixed fee on top of that for a non-Japanese ATM withdrawal.

For just a small withdrawal of a few hundred dollars, I was hit with a $20 fee just to receive my money in paper form.

Paper money is on their way to being artifacts.

This type of price gouging of banking fees is the next bastion of tech disruption and that is what the market is telling us with traditional banks getting hammered while a strong economy and record profits can’t entice investors to pour money into these stocks.

FinTech will do what most revolutionary technology does, create an enhanced user experience for cheaper prices to the consumers and wipe the greedy traditional competition that was laughing all the way to the bank.

The best example that most people can relate to on a daily basis is the transportation industry that was turned on its head by ride-sharing mavericks Uber and Lyft.

But don’t ask yellow cab drivers how they think about these tech companies.

Highlighting the strong aversion to traditional banking business is Slack, the workplace chat app, who will follow in the footsteps of online music streaming platform Spotify (SPOT) by going public this year without doing a traditional IPO.

What does this mean for the traditional banks?

Less revenue.

Slack will list directly and will set its own market for the sale of shares instead of leaning on an investment bank to stabilize the share price.

Recent tech IPOs such as Apptio, Nutanix and Twilio all paid 7% of the proceeds of their offering to the underwriting banks resulting in hundreds of millions of dollars in revenue.

Directly listings will cut that fee down to $10-20 million, a far cry from what was once status quo and a historical revenue generation machine for Wall Street.

This also layers nicely with my general theme of brokers of all types whether banking, transportation, or in the real estate market gradually be rooted out by technology.

In the world of pervasive technology and free information thanks to Google search, brokers have never before added less value than they do today.

Slowly but surely, this trend will systematically roam throughout the economic landscape culling new victims.

And then there are the actual FinTech companies who are vying to replace the traditional banks with leaner tech models saving money by avoiding costly brick and mortar branches that dot American suburbs.

PayPal (PYPL) has been around forever, but it is in the early stages of ramping up growth.

That doesn’t mean they have a weak balance sheet and their large embedded customer base approaching 250 million users has the network effect most smaller FinTech players lack.

PayPal is directly absorbing market share from the big banks as they have rolled out debit cards and other products that work well for millennials.

They are the owners of Venmo, the super-charged peer-to-peer payment app wildly popular amongst the youth.

Shares of PayPal’s have risen over 200% in the past 2 years and as you guessed, they don’t charge those ridiculous fees that banks do.

Wells Fargo and Bank of America charge a $12 monthly fee for balances that dip below $1,500 at the end of any business day.

Your account at PayPal can have a balance of 0 and there will never be any charge whatsoever.

Then there is the most innovative FinTech company Square who recently locked in a new lease at the Uptown Station in Downtown Oakland expanding their office space by 365,000 square feet for over 2,000 employees.

Square is led by one of the best tech CEOs in Silicon Valley Jack Dorsey.

Not only is the company madly innovative looking to pounce on any pocket of opportunity they observe, but they are extremely diversified in their offerings by selling point of sale (POS) systems and offering an online catering service called Caviar.

They also offer software for Square register for payroll services, large restaurants, analytics, location management, employee management, invoices, and Square capital that provides small loans to businesses and many more.

On average, each customer pays for 3.4 Square software services that are an incredible boon for their software-as-a-service (SaaS) portfolio.

An accelerating recurring revenue stream is the holy grail of software business models and companies who execute this model like Microsoft (MSFT) and Salesforce (CRM) are at the apex of their industry.

The problem with trading this stock is that it is mind-numbingly volatile. Shares sold off 40% in the December 2018 meltdown, but before that, the shares doubled twice in the past two years.

Therefore, I do not promote trading Square short-term unless you have a highly resistant stomach for elevated volatility.

This is a buy and hold stock for the long-term.

And that was only just two companies that are busy redrawing the demarcation lines.

There are others that are following in the same direction as PayPal and Square based in Europe.

French startup Shine is a company building an alternative to traditional bank accounts for freelancers working in France.

First, download the app.

The company will guide you through the simple process — you need to take a photo of your ID and fill out a form.

It almost feels like signing up to a social network and not an app that will store your money.

You can send and receive money from your Shine account just like in any banking app.

After registering, you receive a debit card.

You can temporarily lock the card or disable some features in the app, such as ATM withdrawals and online payments.

Since all these companies are software thoroughbreds, improvement to the platform is swift making the products more efficient and attractive.

There are other European mobile banks that are at the head of the innovation curve namely Revolut and N26.

Revolut, in just 6 months, raised its valuation from $350 million to $1.7 billion in a dazzling display of growth.

Revolut’s core product is a payment card that celebrates low fees when spending abroad—but even more, the company has swiftly added more and more additional financial services, from insurance to cryptocurrency trading and current accounts.

Remember my little anecdote of being price-gouged in Tokyo by Wells Fargo, here would be the solution.

Order a Revolut debit card, the card will come in the mail for a small fee.

Customers then can link a simple checking account to the Revolut debit card ala PayPal.

Why do this?

Because a customer armed with a Revolut debit card linked to a bank account can use the card globally and not be charged any fees.

It would be the same as going down to your local Albertson’s and buying a six-pack, there are no international or hidden fees.

There are no foreign transaction fees and the exchange rate is always the mid-market rate and not some manipulated rate that rips you off.

Ironically enough, the premise behind founding this online bank was exactly that, the originators were tired of meandering around Europe and getting hammered in every which way by inflexible banks who could care less about the user experience.

Revolut’s founder, Nikolay Storonsky, has doubled down on the firm’s growth prospects by claiming to reach the goal of 100 million customers by 2023 and a succession of new features.

To say this business has been wildly popular in Europe is an understatement and the American version just came out and is ready to go.

Since December 2018, Revolut won a specialized banking license from the European Central Bank, facilitated by the Bank of Lithuania which allows them to accept deposits and offer consumer credit products.

N26, a German like-minded online bank, echo the same principles as Revolut and eclipsed them as the most valuable FinTech startup with a $2.7 Billion Valuation.

N26 will come to America sometime in the spring and already boast 2.3 million users.

They execute in five languages across 24 countries with 700 staff, most recently launching in the U.K. last October with a high-profile marketing blitz across the capital.

Most of their revenue is subscription-based paying homage to the time-tested recurring revenue theme that I have harped on since the inception of the Mad Hedge Technology Letter.

And possibly the best part of their growth is that the average age of their customer is 31 which could be the beginning of a beautiful financial relationship that lasts a lifetime.

N26’s basic current account is free, while “Black” and “Metal” cards include higher ATM withdrawal limits overseas and benefits such as travel insurance and WeWork membership for a monthly fee.

Sad to say but Bank of America, Wells Fargo, and the others just can’t compete with the velocity of the new offerings let alone the software-backed talent.

We are at an inflection point in the banking system and there will be carnage to the hills, may I even say another Lehman moment for one of these stale business models.

Online banking is here to stay, and the momentum is only picking up steam.

If you want to take the easy way out, then buy the Global X FinTech ETF (FINX) with an assortment of companies exposed to FinTech such as PayPal, Square, and Intuit (INTU).

The death of cash is sooner than you think.

This year is the year of FinTech and I’m not afraid to say it.

December 18, 2018

Tech Letter

Mad Hedge Technology Letter
December 18, 2018
Fiat Lux

Featured Trade:

(THE BIG TECHNOLOGY TRENDS OF 2019)
(MSFT), (AMZN), (BBY), (SONO), (ROKU), (ADBE), (AAPL), (BAC)

The Big Technology Trends of 2019

Tech Letter

As an astute purveyor of technology, it is my job to share with you the upcoming tech trends of 2019.

Some might be easily discernable and some might be a headscratcher, but all must be tabbed up and considered in the current tech outlook that is unpredictable and fluctuating, to say the least.

Part of the moody tech sentiment has been influenced by a changeable macro landscape - the tech sector’s winter freeze was woefully volatile and unfairly capsized good companies with the bad.

There is no means to get around it – the administration's delicate situation as it relates to Beijing and the American tech sector is front and center, and any movement of tech stocks must carefully absorb the ongoings from this complicated relationship.

The number of obstacles that confront this sensitive situation means that the 90-day window granted to solve the trade quagmires appear too brief of a timeframe to really knock out every single disagreement on the table.

The uncertainty over trade policy has really ruffled some of tech’s strongest feathers such as America’s pride and joy Apple (AAPL).

Apple is a great long-term story, but it does not preside over many short-term positive catalysts that can resuscitate the stock.

Analysts' downgrade after downgrade has been most harrowing for the chip components that make up Apple and other consumer electronic devices such as televisions and tablets.

This scenario is expected to extend into 2019 with Bank of America Merrill Lynch (BAC) slashing their price target by nearly 30% on electronics retailer Best Buy (BBY) then sticking the fork in them by downgrading it to underperform.

The premise behind this downgrade was that Best Buy carved out 25% of revenue from television sales and even though Adobe (ADBE) analytics has calculated record online sales in the holiday season, the follow-through has largely been without television sales participating in the seasonal bonanza.

Piggybacking on this trope, I believe electronic device sales could be hard-pressed to eke out growth next year and are set up for a rude awakening.

Therefore, it is sensible to extrapolate this idea out and assume that smart hardware competing against the big boys such as smart speaker firm Sonos (SONO), who I urged readers to stay away at $16 in September, is set up for a painstaking 2019.

To reread the story, please click here.

The stock is now trading at $11 and a mix of weakening consumer device demand layered with the domination that is the Amazon Alexa has pushed up this company’s risk-reward levels to untold heights.

Rounding out the negatives is that content streaming platform Roku has also debuted its own version of a smart speaker.

Roku (ROKU) is one of my favorite long-time tech plays but has been dragged down by the broader trade war because a portion of its revenue is still captured by hardware such as the new speakers and Roku OTT boxes.

Differing from Apple, Roku earns most of their revenue from targeted ads on their proprietary platform, and this is its reason why most investors are in this stock that is set to capture a secular migratory wave of cord-cutters traversing to online streaming.

However, Roku TVs made by Chinese company TCL still draw in small portion of revenue and even though the China revenue is not as high on a relative basis as Apple’s 20%, the stock has floundered in the short-term.

If disruptors such as Roku can get hit savagely with a small portion of revenues from China, then I am convinced that any tech investor going into 2019 should stay away from hardware and hardware that is made in China.

The consensus is that the drawn-out trade war could become the X-factor in the 2020 election because the Chinese are willing to wait for the next guy on the carousel searching for a better deal.

If you thought Chinese supply chains had a tough time of it in 2018, then 2019 is poised to be even more treacherous.

What 2018 convincingly demonstrated was that the late economic price action is getting into later and later stages boding negative for tech stocks.

To construct a healthy tech portfolio going into 2019, the change in the tech partiality has made the pivot towards software much more important.

Investors need to mitigate Chinese supply chain risk and seek out domestic software plays.

That should be the playbook as tech investors are on pins and needles going into the new year.

The domestic economy is robust and tech investors should be attracted to top-quality cloud-based enterprise stocks that are profitable.

The FANG story collapsing in our face signaled to investors that it is time to cautiously consider whether to invest heavily into deep loss-maker tech growth stories.

A healthy rotation to premium quality tech with superior cash flow is one way to lock up stocks and slyly deflect the external factors shaking up the tech momentum.

PayPal (PYPL) is a stock that has large international exposure mainly in Europe, but none in China whose 3-year EPS growth rate is 26% and still driving sequential sales in the mid-20% range.

This is just one example of a stock that has the correct make-up in a harsh and brutal tech environment planted with invisible booby traps.

And the most tell-tale sign that the American economy is in for an all-out software frenzy is the number of head-spinning investments from big tech companies looking to expand their footprint into new talent spots around the country.

First, the farcical Amazon beauty pageant came to an end with the e-commerce giant announcing a three-part package deploying new operations in New York, Washington D.C., and Nashville as the next phase of digital growth ramps up.

Google (GOOGL) followed that up by plopping a software office in New York City devouring a huge chunk of the Chelsea neighborhood aimed at doubling the 7,000 employees already there.

Then it was Apple’s turn choreographing a significant investment in Austin, Texas that will cost them $1 billion along with juicing up operations in Seattle, San Diego, and Los Angeles.

They weren’t finished there and promised to double down its presence in Pittsburgh, New York and Boulder, Colorado over the next three years.

It’s clear that big tech has finally understood that it’s not invincible and milking the China supply chain for all its worth is now a taboo business practice that has bipartisan support firmly against it.

Like I said before, the trade war came 1-2 years too early for Apple, and these headline-grabbing talent investments in data centers and its staff underscore the sense of urgency to fully and comprehensively pivot towards a software and services company.

The transition has certainly been an excruciating process exposing the weak spots at a brilliant company at the worst possible time.

I blame CEO of Apple Tim Cook who is the operations expert in the building grappling with Apple overextending themselves in the Middle Kingdom that has come back to haunt him at night.

You would have thought that with the troves of big data on their hands, Apple’s consultants might have found a country allied with America to invest in such a massive supply chain.

This leads me to communicate with conviction that Microsoft (MSFT) is my favorite tech stock going into 2019 because it is the purest, scalable, high-quality software name with minimal hardware drag devoid of weak spots in its armor.

That was what the investment in GitHub for $7.5 billion was about, highlighting the value of owning the meeting place for coders, literally buying up a stash of over 28 million users and 57 million coding repositories in which 28 million are public.

Microsoft has also bought up six video game studios in 2018 attempting to capture a bigger piece of the pie for the video game market that has been throttled by Fortnite.

If the Microsoft baby gets thrown out with the bathwater, then the tech bear market is upon us in full force.

If you didn’t really believe content is king in 2018, then you will really feel the phenomenon further embedded into the economy and society in 2019.

Next year, almost all tech investments will result in more data centers and software engineers in the hope of pumping out the best content and data, whether it’s enterprise software, video games, or pure data storage.

In 2019, I am bullish on companies with a cloud-based bedrock able to grind out the best content in the world, backed by a strong balance sheet that dovetails nicely with a lack of China-based revenue exposure.

The uber-growth models could be taking a rest boding negatively for Uber, Lyft, and Airbnb who must convince a more skeptical tech audience with tighter purse strings as they inject yet another unique dimension into the tech world next year.

December 10, 2018

Tech Letter

Mad Hedge Technology Letter
December 10, 2018
Fiat Lux

Featured Trade:

(IT’S ALL ABOUT THE CLOUD)
(OKTA), (ZS), (DOCU), (INTU)

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