Posts

October 8, 2019

Global Market Comments
October 8, 2019
Fiat Lux

Featured Trade:

(HOW TO GAIN AN ADVANTAGE WITH PARALLEL TRADING),
(GM), (F), (TM), (NSANY), (DDAIF), BMW (BMWYY), (VWAPY),
(PALL), (GS), (RSX), (EZA), (CAT), (CMI), (KMTUY),
(KODK), (SLV), (AAPL),

How to Gain an Advantage with Parallel Trading

One of the most fascinating things I learned when I first joined the equity trading desk at Morgan Stanley during the early 1980s was how to parallel trade.

A customer order would come in to buy a million shares of General Motors (GM) and what did the in-house proprietary trading book do immediately?

It loaded the boat with the shares of Ford Motors (F).

When I asked about this tactic, I was taken away to a quiet corner of the office and read the riot act.

“This is how you legally front run a customer,” I was told.

Buy (GM) in front of a customer order, and you will find yourself in Sing Sing shortly.

Ford (F), Toyota (TM), Nissan (NSANY), Daimler Benz (DDAIF), BMW (BMWYY), or Volkswagen (VWAPY), are no problem.

The logic here was very simple.

Perhaps the client completed an exhaustive piece of research concluding that (GM) earnings were about to rise.

Or maybe a client old boy network picked up some valuable insider information.

(GM) doesn’t do business in isolation. It has tens of thousands of parts suppliers for a start. While whatever is good for (GM) is good for America, it is GREAT for the auto industry.

So through buying (F) on the back of a (GM) might not only match the (GM) share performance, it might even exceed it.

This is known as a Primary Parallel Trade.

This understanding led me on a lifelong quest to understand Cross Asset Class Correlations, which continues to this day.

Whenever you buy one thing, you buy another related thing as well, which might do considerably better.

I eventually made friends with a senior trader at Salomon Brothers while they were attempting to recruit me to run their Japanese desk.

I asked if this kind of legal front running happened on their desk.

“Absolutely,” he responded. But he then took Cross Asset Class Correlations to a whole new level for me.

Not only did Salomons buy (F) in that situation, they also bought palladium (PALL).

I was puzzled. Why palladium?

Because palladium is the principal metal used in catalytic converters, which remove toxic emissions from car exhaust, and have been required for every U.S. manufactured car since 1975.

Lots of car sales, which the (GM) buying implied, ALSO meant lots of palladium buying.

And here’s the sweetener.

Palladium trading is relatively illiquid.

So, if you catch a surge in the price of this white metal, you would earn a multiple of what you would make on your boring old parallel (F) trade.

This is known in the trade as a Secondary Parallel Trade.

A few months later, Morgan Stanley sent me to an investment conference to represent the firm.

I was having lunch with a trader at Goldman Sachs (GS) who would later become a famous hedge fund manager and asked him about the (GM)-(F)-(PALL) trade.

He said I would be an IDIOT not to take advantage of such correlations. Then he one-upped me.

You can do a Tertiary Parallel Trade here through buying mining equipment companies such as Caterpillar (CAT), Cummins (CMI), and Komatsu (KMTUY).

Since this guy was one of the smartest traders I ever ran into, I asked him if there was such a thing as a Quaternary Parallel Trade.

He answered “Abso******lutely,” as was his way.

But the first thing he always did when searching for Quaternary Parallel Trades would be to buy the country ETF for the world’s largest supplier of the commodity in question.

In the case of palladium, that would be Russia (RSX) followed by South Africa (EZA), which together account for 74% of the world’s total production.

Since then, I have discovered hundreds of what I call Parallel Trading Chains, and have been actively making money off of them. So have you, you just haven’t realized it yet.

I could go on and on.

If you ever become puzzled or confused about a trade alert I am sending out (Why on earth is he doing THAT?), there is often a parallel trade in play.

Do this for decades as I have and you learn that some parallel trades break down and die. The cross relationships no longer function.

The best example I can think of is the photography/silver connection. When the photography business was booming, silver prices rose smartly.

Digital photography wiped out this trade, and silver-based film development is still only used by a handful of professionals and hobbyists.

Oh, and Eastman Kodak (KODK) went bankrupt in 2012.

However, it seems that whenever one Parallel Trading Chain disappears, many more replace it.

You could build chains a mile long simply based on how well Apple (AAPL) is doing.

And guess what? There is a new parallel trade in silver developing. For whenever someone builds a solar panel anywhere in the world, they are using a small amount of silver for the wiring. Build several tens of millions of solar panels and that can add up to quite a lot of silver.

What goes around comes around.

Suffice it to say that parallel trading is an incredibly useful trading strategy.

Ignore it at your peril.

 

 

 

September 30, 2019

Global Market Comments
September 30, 2019
Fiat Lux

Featured Trade:

(MARKET OUTLOOK FOR THE WEEK AHEAD, or INTERESTING TIMES ARE UPON US)

(MO), (PM), (FXB), (SPY), ($INDU), (GS), (MTCH), (USO), (UUP)

The Market Outlook for the Week Ahead, or Interesting Times are Upon Us

“May you live in interesting times.” The question is whether this old Chinese proverb is a blessing or a curse.

Our beleaguered lives have certainly been getting more interesting by the day, if not the hour. Trump has been withholding military aid from foreign leaders to fish for dirt on those who may run against him in 2020. The prospects of the Chinese trade negotiations seem to flip flop by the day.

Prospective IPOs for Saudi ARAMCO and WeWork have been stood up against a wall and shot. The Altria (MO) – Philip Morris (PM) merger went up in smoke. Brexit (FXB) has turned into a runaway roller coaster that has lost its brakes. And that was just last week!

All of this is happening with the major indices (SPY), ($INDU) mere inches away from all-time highs, with valuations at the high end of the decade-old band. A worse risk/reward for initiating new positions I can’t imagine. I think I’ll go take a long nap instead.

There are times to trade and there are times to engage in research and this is definitely time for the latter. That means when it is time to strike, you already have a list of short names on which to execute. The worst time to initiate research is when the Dow is down 1,000 points.

I believe the markets are gridlocked until we get a good look at Q3 corporate earnings. If they are as bad as the macro data is suggesting, markets will tank. If they aren’t, we may see a begrudging slow-motion grind up to new highs.

Our launch of the Mad Hedge Biotech and Healthcare Letter was a huge success. Let me tell you, we have some real blockbusters lined up in our newsletter queue. The Tuesday letter will have a link that will enable you to get in at the $997 a year founders’ price. Otherwise, you can find it in our store now for $1,500 a year. Please click here.

The WeWork IPO is on the Rocks, with the CEO soon to be fired for self-dealing. In any case, the company has minimal added value and will not survive the next recession when the bulk of its tenants walk. Don’t touch this one on pain of death, even down three quarters from its original valuation.

Watch out for October, says Goldman Sachs (GS), which will see a volatility (VIX) spike 25%. Shockingly poor Q3 corporate earnings results could be the trigger with almost every company negatively impacted by the trade war. This could set up our next entry point on the long side.

The Saudi ARAMCO IPO is on the skids in the wake of the mass drone attack. Terrorist attacks on your key infrastructure is not a great selling point for new shareholders. It just underlines the high-risk investing in the area. The world’s largest IPO may get cancelled.

A huge killing was made on the Thomas Cook affair. It looks like short sellers raked in $2.7 billion in profits on the collapse. Some 600,000 mostly British travelers were stranded or had future vacations cancelled.

Thomas Cook never figured out the Internet, were destroyed by the collapse of the pound triggered by Brexit and, horror upon horrors, bought an airline. It’s all great news for surviving European tour operators and discount airlines. Airfares are already rising.

The S&P Case Shiller ticked up in July, showing that the National Home Price Index rising 3.2%. It’s the first positive move in more than a year. It’s got to be super-low interest rates finally kicking in. But the real move up won’t start until SALT deductions come back in 18 months.

That went over like a lead balloon. From the moment Trump started speaking at the United Nations, stocks went into free fall, dropping 450 points from top to bottom. It’s trade war against everyone all the time with his withdrawal from globalization. Oh, and if you want to resist America’s incredible military might, we will crush you. It’s not what traders wanted to hear.

In the meantime, the impeachment moved forward, with younger Democrats forcing Pelosi’s hand. The Ukraine scandal, a Trump effort to have candidate Joe Biden arrested, was the stick that broke the camel’s back. Fortunately, the stock market could care less. Stocks rose 20% during the last impeachment in the 1990s.

US Consumer Confidence dove in September from 133 estimated down to 125.1 as trade war concerns take their toll. It’s one of the first September data points to come out and presages worse to come. News fatigue has to be a factor.

Bitcoin
Crashed 15% to a new three-month low, hitting $7,944. Other cryptos fell 20%. All of the explanations were technical as they always are with this bogus asset class.

The Vaping Crisis demoed the Altria-Philip Morris merger. Suddenly, the crown jewels are toxic and about to be made illegal. The Juul CEO has resigned and the company may be about to go down the tubes. One of the largest mergers in history that would have created a $200 billion company has been tossed on the dustbin of history.

In a rare positive data point, New Homes Sales soared 7.1% in August to a 713,000 annualized rate. Median sales prices rise by 2.2% YOY to $328,400. Inventories drop from 5.9 to 5.5 months. The big numbers are happening in the south and west. Historically low-interest rates are kicking in big time.

The FTC Slammed Match Group (MTCH), the owner of Tinder and OK Cupid, for security lapses and scamming their own customers. Apparently, that gorgeous six-foot blond who speaks six languages who want to meet me if I only subscribed doesn’t actually exist. Oh well.

Q2 GDP final read came in at 2.0% with no change from the last report. Coming quarters will almost certainly be worse as the chickens come home to roost from a global trade war. We may already be in a recession and not know it. Inventories are building at a tremendous rate. Certainly, Fortune 500 CEOs think so.

Tesla deliveries may hit new high in Q3, topping 100,000, according to last week’s leak. The stock is back in play. It looks like I am going to get a new entertainment package upgrade too.

The Mad Hedge Trader Alert Service has blasted through to yet another new all-time high. My Global Trading Dispatch reached new apex of 336.07% and my year-to-date accelerated to +39.47%. The tricky and volatile month of September closed out +3.08%. at My ten-year average annualized profit bobbed up to +34.53%. 

Some 25 out of the last 27 trade alerts have made money, a success rate of 92.59%. Under-promise and over-deliver, that’s the business I have been in all my life. It works.

I took profits in my short position in oil (USO) earlier in the week, capturing a 12% decline there. That gives me a rare 100% cash position. I’m itching to get back in, but conditions right now are terrible

The coming week is all about the September jobs reports. It seems like we just went through those.

On Monday, September 30 at 9:45 AM, the Chicago Purchasing Managers Index for September is out.

On Tuesday, October 1 at 10:00 AM, the US Construction Spending for August is published

On Wednesday, October 2, at 8:15 AM, we learn the ADP Private Employment Report is out for September.

On Thursday, October 3 at 8:30 AM, the Weekly Jobless Claims are printed. At 3:00 PM, we get US Vehicle Sales for September.

On Friday, October 4 at 8:30 AM, the September Nonfarm Payroll Report is announced. Last month was a big disappointment so this month could set a new trend.

The Baker Hughes Rig Count is released at 2:00 PM.

As for me, I’ll be camping out with 2,500 Boy Scouts at the Solano Fair Grounds to attend Advance Camp. That’s where scouts have the opportunity to earn any of 50 merit badges in a single day.

I will be teaching the Swimming Merit Badge class. The basic idea is that if you throw a scout in the pool and he doesn’t drown, he passes. Personally, I wanted to take the welding class. The bonus is that we get to ride nearby roller coasters at Six Flags for free.

Good luck and good trading.

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

 

 

 

 

 

 

 

September 9, 2019

Global Market Comments
September 9, 2019
Fiat Lux

Featured Trade:

(MARKET OUTLOOK FOR THE WEEK AHEAD, or SAVED BY A HURRICANE)
(FXB), (M), (XOM), (BAC), (FB), (AAPL),
 (AMZN), (ROKU), (VIX), (GS), (MS),

 

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?

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

 

 

 

 

 

 

 

August 22, 2019

Global Market Comments
August 22, 2019
Fiat Lux

Featured Trade:


(WHAT THE NEXT RECESSION WILL LOOK LIKE),

(FB), (AAPL), (NFLX), (GOOGL), (KSS), (VIX), (MS), (GS),
(TESTIMONIAL)

What the Next Recession Will Look Like

The probability of a recession taking place over the next 12 months is now ranging as high as 40%. If the trade war with China escalates, you can mark that up to 100%.

And here’s the scary part. Bear markets front-run recessions by 6-12 months, i.e. now. The bear case is now more persuasive than at any time in the last decade.

We’ll get a better read when the Chinese announce their retaliation for the last American escalation of tariffs on September 1, or in eight trading days. The timing couldn’t be worse. The bad news will come over the US three-day Labor Day weekend, allowing market volatility (VIX) to bunch up, setting up an explosive Tuesday, September 3 opening.

So, it’s time to start asking the question of what the next recession will look like. Are we in for another 2008-2009 meltdown, when friends and relatives lost homes, jobs, and their entire net worth? Or can we look forward to a mild pullback that only economists and data junkies like myself will notice?

I’ll paraphrase one of my favorite Russian authors, Fyodor Dostoevsky, who in Anna Karenina might have said, “all economic expansions are all alike, while recessions are all miserable in their own way.”

Let’s look at some major pillars in the economy. A hallmark of the last recession was the near collapse of the financial system, where the ATMs were probably within a week of shutting down nationally. The government had to step in with the TARP, and mandatory 5% equity ownership in the country’s 20 largest banks.

Back then, banks were leveraged 40:1 in the case of Morgan Stanley (MS) and Goldman Sachs (GS), while Lehman Brothers and Bear Stearns were leveraged 100:1. In that case, the most heavily borrowed companies only needed markets to move 1% against them to wipe out their entire capital. That’s exactly what happened. (MS) and (GS) came within a hair’s breadth of going the same way.

Thanks to the Dodd Frank financial regulation bill, banks cannot leverage themselves more than 10:1. They have spent a decade rebuilding balance sheets and reserves. They are now among the healthiest in the world, having become low margin, very low-risk utilities. It is now European and Chinese banks that are going down the tubes.

How about real estate, another major cause of angst in the last recession? The market couldn’t be any more different today. There is a structural shortage of housing, especially at entry-level affordable prices. While liar loans and house flipping are starting to make a comeback, they are nowhere near as prevalent a decade ago. And the mis-rating of mortgage-backed securities from single “C” to triple “A” is now a distant memory. (I still can’t believe no one ever went to jail for that!).

And interest rates? We went into the last recession with a 6% overnight rate and 7% 30-year fixed rate mortgage. Now, overnight rates are at 2.25% and the 30-year is at 3.6% with both falling like a stone. It’s hard to imagine a real estate crisis with rates at zero and a shortage of supply.

The auto industry has been in a mild recession for the past two years, with annual production stalling at 16.8 million units, versus a 2009 low of 9 million units. In any case, the challenges to the industry are now more structural than cyclical, with new buyers decamping en masse to electric vehicles made on the west coast.

Of far greater concern are industries that are already in recession now. Energy has been flagging since oil prices peaked seven years ago, despite massive tax subsidies. It is suffering from a structural over supply and falling demand.

Retailers have been in a Great Depression for five years, squeezed on one side by Amazon and the other by China. A decade into store closings and the US is STILL over stored. However, many of these shares are already so close to zero that the marginal impact on the major indexes will be small.

Financials and legacy banks are also facing a double squeeze from Fintech innovation and collapsing interest rates. There isn’t much margin in a loan where the customer is paying only 3.6%, and 2% in a year. All of those expensive national networks with branches on every street corner will be gone in the 2020s.

And no matter how bad the coming recession gets, technology, now 26% of the S&P 500, will keep powering on. Combined revenues of the four FANGs in Q2 came in at $118.7 billion and earnings were at $26.5 billion. That leaves a mighty big cushion for any slowdown. That’s a lot more than the “eyeballs” and market shares they possessed of a decade ago.

So, netting all this out, how bad will the next recession be? Not bad at all. I’m looking at a couple of quarters small negative numbers. Then the end of the China trade war, which can’t last any more than 18 months, and ultra-low interest rates, will enable recovery and probably another decade of decent US growth.

The stock market, however, is another kettle of fish. While the economy may slow from a 2.2% annual rate to -0.1% or -0.2%, the major indexes could fall much more than that, say 30% to 40%. Don’t forget, we already saw a horrendous 20% swan dive in the run-up to last December.

Earnings multiples are still at a 17X high compared to a 9X low in 2009. Shares would have to drop 47% just to match the last low, and earnings are already falling. Equity weightings in portfolios are high. Money is pouring out of stock funds into bond ones.

Corporations buying back their own shares have been the principal prop from the market for the past three years. Some large companies, like Kohls (KSS), have retired as much as 50% of their outstanding equity in ten years.

So get used to the high market volatility (VIX) we have seen in August. It could be only the trailer for the main show.

 

 

 

 

The Next Bear Market is Not Far Off

July 15, 2019

Mad Hedge Technology Letter
July 15, 2019
Fiat Lux

Featured Trade:

(HOW SOFTBANK IS TAKING OVER THE US VENTURE CAPITAL BUSINESS),
(SFTBY), (BABA), (GRUB), (WMT), (GM), (GS)

How SoftBank is Taking Over the US Venture Capital Business

The man with the 300-year vision – Softbank’s Masayoshi Son.

He is the sole force exerting stultifying pressure on the venture capitalists of Silicon Valley.

What a ride it has been so far.

His $100 billion SoftBank Vision Fund has put the Sand Hill Road faithful in a tizzy – utterly revolutionizing an industry and showing who the true power resides with.

He has even gone so far as to double down on his exploits by claiming that he will raise additional $100 billion fund every few years and spend $50 billion per year.

This capital logically would flow into what he knows best – technology and the best technology money can buy.

Lately, Son said it best of the performance of the Vision Fund saying, “Results have actually been too good.”

So good that after this June, Son changed his schedule to spend 3% of his time on his telecom business down from 97% before June.

His telecommunications business in Japan has turned into a footnote.

It was just recently that Son’s tech investments eclipsed his legacy communications company.

Son vies to rinse and repeat this strategy to the horror of other venture capitalists.

The bottomless pit of capital he brings to the table predictably raises the prices for everyone in the tech investment world.

Son’s capital warfare strategy revolves around one main trope – Artificial Intelligence. 

He also strictly selects industry leaders which have a high chance of dominating their field of expertise.

Geographically speaking, the fund has pinpointed America and China as the best sources of companies. India takes in the bronze medal.

His eyes have been squarely set on Silicon Valley for quite some time and his record speaks for himself scooping up stakes in power players such as Uber, WeWork, Slack, and GM (GM) Cruise.

Other stakes in Chinese firms he’s picked up are China’s Uber Didi Chuxing, China’s GrubHub (GRUB) Ele.me and the first digital insurer in China named Zhongan International costing him $500 million.

Other notable deals done are its sale of Flipkart to Walmart (WMT) for $4 billion giving SoftBank a $1.5 billion or 60% profit on the $2.5 billion position.

In 2016, the entire venture capitalist industry registered $75.3 billion in capital allocation according to the National Venture Capital Association.

This one company is rivalling that same spending power by itself.

Its smallest deal isn’t even small at $100 million, baffling the local players forcing them to scurry back to the drawing board.

The reverberation has been intense and far-reaching in Silicon Valley with former stalwarts such as Kleiner Perkins Caufield & Byers breaking up, outmaneuvered by this fresh newcomer with unlimited capital.

Let me remind you that it was once considered standard to cautiously wade into investment with several millions.

Venture capitalists would take stock of the progress and reassess if they wanted to delve in some more.

There was no bazooka strategy then.

SoftBank has promised boatloads of capital up front even overpaying in some cases in order to set the new market price.

Conveniently, Son stations himself nearby at a nine-acre estate in Woodside, California complete with an Italianate mansion he bought for $117.5 million in 2012.

It was one of the most expensive properties ever purchased in the state of California, even topping Hostess Brands owner Daren Metropoulos, who bought the Playboy Mansion from Hugh Hefner in 2016 for $100 million.

If you think Son is posh – he is not. He only fits himself out in the Japanese budget clothing brand Uniqlo. He just needed a comfortable place to stay and he hates hotels.

SoftBank hopes to cash in on its $4.4 billion investment in WeWork, an American office space-share company, proclaiming that WeWork would be his “next Alibaba.”

The company plans to shortly go public.

Son continued to say that WeWork is “something completely new that uses technology to build and network communities.”

Other additions to SoftBank’s dazzling array of unicorns is Bytedance, a start-up whose algorithms have fueled shot form video content app TikTok.

The deal values the company at $75 billion.

They have been able to insulate themselves from local industry giants Tencent and Alibaba.

Son has revealed that the Vision Fund’s annual rate of return has been 44%.

Cherry-picking off the top of the heap from the best artificial intelligence companies in the world is the secret recipe to outperforming your competitors.

At the same time, aggressively throwing money at these companies has effectively frozen out any resemblance of competition. Once the competition is frozen out, the value of these investments explodes, swiftly super-charged by rapidly expanding growth drivers.

How can you compete with a man who is willing to pay $300 million for a dog walking app?

This genius strategy has made the founder of SoftBank the most powerful businessman in the world.

Son owns the future and will have the largest say on how the world and economies evolve going forward.