Global Market Comments
October 17, 2018
Fiat Lux
Featured Trade:
(WHO WAS THE GREATEST WEALTH CREATOR IN HISTORY?)
(FB), (AAPL), (GOOG), (AMZN),
(XOM), (BRKY), (T), (GM), (VZ), (CCA),
(WHY DOCTORS MAKE TERRIBLE TRADERS?)
Tag Archive for: (GOOG)
Global Market Comments
October 12, 2018
Fiat Lux
Featured Trade:
(WHY THE STOCK MARKET IS BOTTOMING HERE),
(SPY), (INDU),
(NETFLIX SAYS WE BECOME A NATION OF COUCH POTATOES),
(NFLX), (M), (AMZN), (TSLA), (DIS), (GOOG)
While much of the artificial intelligence focus has been on Amazon (AMZN), Apple (AAPL), Tesla (TSLA), and Alphabet (GOOG) this year, there is another firm in the field making money hand over fist.
That would be Netflix (NFLX), whose earnings have been on a tear all year, sending the shares soaring.
By this summer the company boasted a staggering 130 million subscribers, with much of the recent growth coming from overseas.
Traders went gaga over the numbers.
Indeed, the firm tracks every keystroke you make.
Watch the sultry tropical thriller Bloodline (sadly scheduled for cancellation), and the company’s clever AI will steer you straight into a like-minded series.
It’s like the “roach motel” network. Once you check in, you can never check out.
Analysts briefly worried about Netflix when Disney (DIS) announced it was pulling its offerings from the omniscient online streaming company, a major seller.
To watch Buzz Lightyear, Woody, and an interminable number of nearly identical princesses (I have three daughters) you’ll have to seek out Disney’s own distribution channel sometime in the future.
But the firm shot back with an $8 billion budget for original content for 2018, in one fell swoop making it one of the largest Hollywood production firms.
Now Netflix is a regular feature of the annual Oscar presentations. Last month it won an impressive 23 Emmys, tying AT&T Warner Media’s HBO for the first time.
They say a picture is worth a thousand words, and I just found 3,000 of them.
Look at three stock charts and you will immediately understand some of the most important structural trends now sweeping through our economy.
Those would be the charts for Amazon (AMZN), Netflix (NFLX), and Macy's (M).
Retail Sales are clearly in a secular long-term decline. Indeed, Macy’s (M) announced last year that it is closing 100 of its 769 stores.
Are these numbers revealing a major new trend in our society? Are we soon to have our every need catered to without lifting a finger?
Have We Become a Nation of Couch Potatoes?
After spending weeks preparing a major research piece for a private client on artificial intelligence, I would have to say that the answer is an overwhelming “Yes!”
Artificial intelligence, or AI, is far more pervasive than you think. Half of all apps now rely on some form of AI, and within five years, all of them will.
Within a decade, AI will cure cancer and most other human maladies, drive our cars, decide our elections, and do our shopping.
You probably all know that Northern California has been besieged with wildfires lately.
Guess what has suddenly started populating my screen? Adds for smoke detectors!
AI has become the leading market theme for 2018.
People my age all remember George Jetson, the space age cartoon series, who only had to work an hour a day because machines did the rest of the work for him.
The modern incarnation of his ultra-light workweek will be far darker and more sinister.
Instead of a one-hour day, it is far more likely that one person will keep a full time eight-hour a day job, while another seven unfortunates become full time unemployed.
By the way, I am determined to be that one guy with a job. So should you.
Indeed, I am increasingly coming across dire predictions that 30% of all jobs will disappear within ten years.
I’m sure that they will.
The real question is whether that 30%, or more, will be replaced by jobs yet to be invented. I bet they will.
Evolution and creative destruction are now happening on fast forward.
After all, some 25% of the professions listed on the Department of Labor website did not exist a decade ago.
SEO manager? Concert social media buzz creator? Online affiliate manager? Solar panel installer? Reputation defender?
What does the stock market do in this new dystopian society? It goes through the roof.
After all, far fewer workers creating a greater output generate much larger earnings that send share prices soaring.
It is all a crucial part of my “Golden Age” scenario for the 2020s.
Having said all that, I think I’ll go binge-watch Netflix’s tropical film noir “Bloodline.” I hear it’s hot.
“Game of Thrones” and “House of Cards” don’t restart until next year.
Our Future?
Global Market Comments
October 5, 2018
Fiat Lux
Featured Trade:
(WEDNESDAY OCTOBER 17 HOUSTON STRATEGY LUNCHEON INVITATION),
(OCTOBER 3 BIWEEKLY STRATEGY WEBINAR Q&A)
(SPY), (VIX), (VXX), (MU), (LRCX), (NVDA), (AAPL), (GOOG), (XLV), (USO), (TLT), (AMD), (LMT), (ACB), (TLRY), (WEED)
Below please find subscribers’ Q&A for the Mad Hedge Fund Trader October 3 Global Strategy Webinar with my guest and 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: Will the market keep increasing for the rest of the year?
A: We haven’t had the pullback yet, so the short answer is yes. My yearend target of and S&P 500 (SPY) for the end of 2018 still stands. You can’t argue with the immediate price action. That said, the market is wildly overbought for the medium term and is approaching valuation levels we haven’t seen since the Dotcom peak in 2000. That why I am running a 70% cash trading book now.
Q: Should I be buying the Volatility Index (VIX) here?
A: Look at the bottom where we broke back in August, if we go down there and sit for a couple of days, then go out and buy the March 2019 $40 iPath S&P 500 VIX Short-Term Futures ETN (VXX) calls—way out of the money, way far in the future—and that way if you get any bounce in the (VIX) in the next 6 months, you’ll make a ton of money on that. You can buy them today for 50 cents. Plus, we could get one of these situations where there’s a major selloff once we’re into the new year, so a 6-month (VXX) call option would hedge that.
Q: Given the choice of Apple (AAPL) or Google (GOOG), which would you buy?
A: If you’re a conservative, old lady, widow and orphan type, you’d probably want to buy Apple— it’s almost turned into a utility, it’s so reliably safe, going up and has a nice dividend. If you want to be aggressive, swinging for the fences young stud and are looking for a double, I would go with Google—much higher growth pattern, pays no dividend and has had a 3-month consolidation going sideways. The only thing that could hurt this company would be government regulation, but with the Democrats possibly taking control of Congress in November, the prospect of government regulation of the entire technology sector could rapidly fade away.
Q: When should I get into Health Care (XLV)?
A: I think you have to wait at this point. To me, it’s tremendously overbought at the moment, but is still enjoying a long-term bull move. This is one of my two favorite sectors in the entire market. It has been rising for four months now, even though the Trump threat of price cuts are constantly overhanging the market.
Q: Is oil (USO) going to 100?
A: Because of the disruptions caused by the Iran sanctions and the tearing up of the Iran Nuclear Treaty, Trump has created a short squeeze in oil prices. He is threatening to boycott any country that buys oil from Iran, so Iran is shipping their oil through China, which is already under sanctions itself. However, that is easier said than done. The oil business is much more complicated than people realize. For China to take Iranian oil, they literally have to build new refineries from scratch to process the crude from Iran; no two crudes are alike. When you build a major supply, you have to build refineries to match that, and you have to get it there. This market will eventually stabilize, but in the meantime, there is a big short squeeze going on in Europe.
Q: Do you see the economy going strong into the end of the year?
A: Yes, I do—we still have the tax cuts, global liquidity, and deregulation kicking in, and those things will all work until the end of the year. I think we close at the highs of the year, and after that we’re going to have to start to work hard for our money once again in 2019. The US economy is like a supertanker; it takes a long time to turn it around.
Q: Will the interest rate spike kill the market?
You think? Investors are so used to ultra-low interest rates that a transition to normal rates will be traumatic. Next Friday, we get Core CPI, and if that comes in hot we could see another spike to 3.35% in the ten-year US Treasury bond (TLT). There are now a ton of people desperate to get out of their bond holdings at last week’s prices. This is why I have been selling short the bond market for the past three years and selling as recently as Monday. The next leg down in a 30-year bear market has begun.
Q: Advanced Micro Devices (AMD) has shot over $30—would you sell it?
A: We love the company long term but short term it is just way overdone; take the double and run, and then buy back on the next dip.
Q: Are you still bearish on the chip company?
A: Short term yes, long term no. This sector is now totally driven by the trade war with China. This includes NVIDIA (NVDA), Micron Technology (MU) and LAM Research (LRCX). Lam is particularly exposed because they had ordered to sell ten entire chip factories to China which is now on hold. That said, the day the trade way ends these stocks will all start a 50% run up. If China gets the same free pass and symbolic treaty that Canada did, that could happen sooner than later. If you can’t sleep at night until then, cut your position in half. If you still can’t sleep, cut it again.
Q: Do you think Lockheed Martin (LMT) is a buy Here at $350?
A: No, there is a double top risk for the stock right here. And if the Democrats get control of congress, the whole Trump trade could unwind. That would give the opposition the purse strings and the first thing they’ll do is cut defense spending, which Trump bumped up by $50 billion.
Q: Do you have any views on pot stocks like Aurora Cannabis (ACB), Tilray (TLRY) and (WEED)?
Stay away in droves. They’re this year’s bitcoin stocks. It’s still illegal. That’s why these companies are all based in Canada. And after all it’s a weed. How hard is it to grow? The barriers to entry are zero.
Global Market Comments
September 19, 2018
Fiat Lux
Featured Trade:
(THE QUANTUM COMPUTER IN YOUR FUTURE),
(AMZN), (GOOG),
(WEDNESDAY, OCTOBER 17, 2018, HOUSTON
GLOBAL STRATEGY LUNCHEON)
Global Market Comments
September 18, 2018
Fiat Lux
Featured Trade:
(DON’T MISS THE SEPTEMBER 19 GLOBAL STRATEGY WEBINAR),
(COFFEE WITH RAY KURZWEIL), (GOOG)
Global Market Comments
September 12, 2018
Fiat Lux
THE FUTURE OF AI ISSUE
Featured Trade:
(THE NEW AI BOOK THAT INVESTORS ARE SCRAMBLING FOR),
(GOOG), (FB), (AMZN), MSFT), (BABA), (BIDU),
(TENCENT), (TSLA), (NVDA), (AMD), (MU), (LRCX)
Global Market Comments
August 10, 2018
Fiat Lux
Featured Trade:
(AUGUST 8 BIWEEKLY STRATEGY WEBINAR Q&A),
(SPY), (TBT), (PIN), (ISRG), (EDIT), (MU), (LRCX), (NVDA),
(FXE), (FXA), (FXY), (BOTZ), (VALE), (TSLA), (AMZN),
(THE DEATH OF THE CAR),
(GM), (F), (TSLA), (GOOG), (AAPL)
One of the goals of the Diary of a Mad Hedge Fund Trader is to identify major changes in the global economy early enough to get investors into the impacted shares early.
The death of the car is one of those trends, and it is still early, very early.
This is a very big deal.
Earlier in my lifetime, car production directly and indirectly accounted for about one-third of the U.S. economy.
Much of the growth during our earlier Golden Ages, in the 1920s and the 1950s, were driven by a never-ending cycle of upgrades of our favorite form of transportation and the countless ancillary products and services needed to support them.
Today, 253 million automobiles and trucks prowl America's roads, about half the world's total, with an average age of 11.4 years.
The demise of this crucial industry started during the 2008 crash, when (GM) and Chrysler (owned by Fiat) went bankrupt. Only more conservatively run, family owned Ford (F) survived on its own.
The government stepped in with massive bailouts. That was the cheaper options for the Feds, as the cost of benefits for an entire unemployed industry was far greater than the cost of the companies absorbed.
If it hadn't done so, the auto industry would have decamped for a new base near the technology hub in California, and today would be a decade closer to their futures than they are now.
And remember, the government made billions of dollars of profits from its brief foray into the auto industry. It was one of the best returns on investment in history.
I'll breakout the major directions the industry is now taking. Hint: It doesn't have much to do with traditional metal bashing.
The Car as a Peripheral
The important thing about a car today is not the car, but the various doodads, doohickeys, gizmos, and gadgets they stick in them.
In this category you can include 24/7 4G wireless, full Internet access, mapping software, artificial intelligence, and learning programs. 5G will accelerate this functionality tenfold.
(GM) is now installing more than 100 microprocessors in its vehicles to control and monitor various functions.
Good luck doing your own tune-ups.
The Car as a Service
When you think about it, automobile ownership is a wildly inefficient use of capital. It is usually a family's second-largest expense, after their home, running $30,000-$80,000.
It then sits unused in garages or public parking for 96%-98% of the day. Insurance, maintenance, and liability costs can be off the charts.
What if your car was used 24/7, as is machinery in well-run industrial plants? Your cost drops by 96%-98% to the point where it is almost free.
The sharing economy is the way to accomplish this.
We are already seeing several start-ups in major U.S. cities attempting to achieve this such as Zipcar, Car2Go, Getaround, Turo (formerly RelayRides), and City CarShare.
What happens to conventional car companies when consumers shift from ownership to sharing? Demand plunges by 96%-98%.
Perhaps that is why auto shares (GM), (F) have performed so abysmally this year relative to technology and the main market.
Self-Driving Technology
This is the hottest development area in the industry, with Apple (AAPL), Alphabet (GOOG), and the big European car makers committing thousands of engineers.
Let's say your car is now comfortably driving you to work, allowing you to read the morning papers and catch up on your email. Or maybe you're lazy and would rather watch the season finale for Game of Thrones.
What else is possible?
How about if, instead of parking, your car drops you off, saving that exorbitant fee.
Then it joins Uber, picking up local riders and paying for its own way. It then dutifully returns to pick you up at your office when it's time to go home.
Since the crash rate for computers is vastly lower than for humans, car insurance rates will collapse, gutting that industry.
Ditto for life insurance, as 35,000 people a year will no longer die in car crashes.
Half of all emergency room visits are the result of car accidents, so that business disappears too, dramatically shrinking health care costs in the process.
I have been letting my new Tesla S-1 drive me since last year, and I can assure you that the car can drive better than I can, especially at night.
What better way to get home after I have downed a bottle of Caymus cabernet at a city restaurant?
Driverless electric cars are totally silent, increasing the value of land near freeways.
Nor do they require much maintenance, as they have so few moving parts. Exit the car repair industry.
I could go on and on, but you get the general idea.
For more on the topic, please read "Test Driving Tesla's Self Driving Technology" by clicking here.
Virtual Reality
After 30 years of inadequate infrastructure budgets, trying to get into any American city center is a complete nightmare.
Only last week, a cattle truck turned over on the Golden Gate Bridge, bringing traffic to a halt. Fortunately, a cowboy traveling to a nearby rodeo was able to unload his horse and lasso the errant critters (no, it wasn't me!).
Even if you get into the city, you will be greeted by a $40 tab for a parking space. Hopefully, no one will smash your windows and steal your laptop (happened to me last year).
Why bother?
Thirty years ago, teleconferencing services pitched themselves as replacing the airplane.
Today, we are taking the next step, using Skype and GoToMeeting to conduct even local meetings, as we do at the Mad Hedge Fund Trader.
Virtual reality is clearly the next step, providing a 3-D, 360-degree experience that makes you feel like you and your products are actually there.
Better to leave that car in the garage where it can get a top up on its charge. BART is cheaper anyway, when it runs.
New Materials
We are probably five years away from adopting the carbon fiber technology now used in the aircraft industry for mass-market cars. Carbon has one-tenth the weight of steel, with five times the strength.
The next great leap forward for electric cars won't be through better batteries. It will come through a 70% reduction of the mass of a car, tripling ranges with existing technology.
San Francisco Becomes the Car Capital of the World
This will definitely NOT happen, as sky-high rents assure that the city by the bay will never attract large, labor-intensive industries.
Instead, the industry will develop much as the one for smartphones. The high value-added aspects, design and programming, will stay in California.
The assembly of the chassis, the body, and the rest of the vehicle will be best done in low-cost, tax-free states with a lot of land, such as Texas and Nevada.
What will happen to Detroit? It has already become a favored destination of new venture capital financial start-ups. The cost of offices and housing is virtually free.
