January 10, 2020

Global Market Comments
January 10, 2020
Fiat Lux

Featured Trade:

(VIX), (VXX), (TSLA), (SIL), (SLV),
 (WPM), (RTN), (NOC), (LMT), (BA), (EEM)

July 26, 2019

Mad Hedge Technology Letter
July 26, 2019
Fiat Lux

Featured Trade:

(SSYS), (ETSY), (MSFT), (BA), (NFLX), (GE), (LMT)

Why 3D Printing Will Boost the Airplane Industry

If you need a new investment idea – here’s one.

3D printing.

Yes, the same 3D printing that was once considered a raging but hopeless fad.

A lot has changed since then.

Early adopters were largely cut down at the knees as they tried to traverse the rocky terrain from a niche market to going full out mainstream.

The teething pains echo bitcoin which was the fad of 2017, on the contrary, this technology it is built on is rock solid, yet the path to sustainability is littered with corpses.

Production complications and the lack of specialists in the industry meant that problems were rampant and nurturing an industry from scratch is harder than you think.

It is time to stand up and take notice of 3D printing, this time it is here to stay.

Certain tech companies love this technology.

Etsy (ETSY) e-commerce participants gravitate towards 3D printing because it gets firms from paper to the real world in a fraction of the time.

The cost of production doesn’t change whether you’re producing one item or a million because of the economies of scale.

The previous 3D printing bonanza was a frenzy and this corner of tech became known for the use of buzzwords representing the potential to reinvent the world.

With lofty expectations, there was a natural disappointment when outsiders understood growing pains were part of the critical evolution instead of a direct route to profits.

The initial goal was to democratize production which sounds eerily similar to bitcoins mantra of democratizing money.

The way to do this was to make it simple to produce whatever one wishes.

That would assume that the general public could pick up professional production 3D printing skills on arrival.

That was wishful thinking.

The truth was that applying 3D printers was time-draining and aggravating.

Issues cropped up like faulty first-generation hardware or software -problems that overwhelmed newbies.

Then if everything was going smoothly on that front, there was the larger issue of realizing it’s just a lot harder to design specific things than initially thought without a deep working knowledge of computer-aided software (CAD) design.

Most people know how to throw a football, but that doesn’t mean that most people can wake up one day in their pajamas and convince themselves they will be the next starting quarterback to lead an NFL team to the Super Bowl.

The high-quality 3D printing designs were reserved for authentic professionals that could put together complicated designs.

The move to compiling a comprehensive library will help spur on the 3D printing revolution while upping the foundational skill base.

Then there is the fact that 3D printing technology is a lot better now than it once was, and the printing technology has come down in price making it more affordable for the masses.

These trends will propel broad-based adoption and as the printing process standardizes, more products can rely on this technology from scratch.

The holy grail of 3D printing would be 3D printing on demand like Netflix (NFLX), but imagine this on-demand 3D printing would function to personalize a physical product on the spot.

Think of a hungry customer walking into a restaurant and not even looking at a menu because one sentence would be enough to trigger specific models in the database that could conjure up the design for the meal.

This would involve integrating artificial intelligence into 3D printing and the production process would quicken to minutes, even seconds.

At some point, crafting the perfect meal or designing a personalized Tuscan villa could take minutes.

The 3D printing industry is reaching an inflection point where the advancement of the technology, expertise, and an updated production process are brewing together at the perfect time.

The company at the forefront of this phenomenon is Stratasys (SSYS).

Stratasys produces in-office prototypes and direct digital manufacturing systems for automotive, aerospace, industrial, recreational, electronic, medical and consumer products.

And when I talk about real pros who have the intellectual property to whip out a complex CAD-based 3D design, I am specifically talking about Stratasys who have been in this business since the industry was in infancy.

And if you add in the integration of cloud software, 3D printing would dovetail nicely with it.

All the elements are in place to fuel this industry into the mainstream.

Take for example airplanes made by Boeing (BA) and Airbus, 3D printer-designed parts comprise only 0.1% of the actual plane now.

It is estimated that 3D printed design parts could consist up to 20% of the overall plane.

These massive airline manufacturers like Boeing (BA) have profit margins of around 15% to 20%, and carving out more 3D printer-designed parts to integrate into the main design will boost profit margins to up to 50%.

The development of the 3D printing process into aerospace technology is happening fast with Boeing inking a five-year collaboration agreement with Swiss technology and engineering group Oerlikon to develop standard processes and materials for metal 3D printing.

Any combat pilot knows who Oerlikon is because they are famed for building ultra-highspeed machines to shoot down, you guessed it, airplanes and missiles.

They will collaborate to use the data resulting from their agreement to support the creation of a standard titanium 3D printing processes.

Only last November, GE announced that GE’s Aviation’s GEnx-2B aircraft engine for the Boeing 747-8 will apply a 3D printed bracket approved by the Federal Aviation Administration (FAA) for the engine, replacing a traditionally manufactured power door opening system (PDOS) bracket.

With the positive revelations that the (FAA) is supporting the adoption of 3D printing-based designs, GE is preparing to begin imminent mass production of the 3D printed brackets at its Auburn, Alabama facility.

Eric Gatlin, general manager of GE Aviation’s additive integrated product team gushed that “It’s the first project we took from design to production in less than ten months.”

Defense companies are also dipping their toe into the water with aerospace company Lockheed Martin (LMT), the world’s largest defense contractor, winning a $5.8 million contract with the Office of Naval Research to help further develop 3D printing for the aerospace industry.

They will partner up to investigate the use of artificial intelligence in training robots to independently oversee the 3D printing of complex aerospace components.

3D printed designs have the potential to crash the cost of making big-ticket items from cars to nuclear plants while substantially shortening the manufacturing process.

Further emphasis on cornering the North America aerospace market could cement this stock as a no-brainer buy of 2019 as the (FAA) embraces more of the technology opening up the addressable market for the active participants.

As it stands, Stratasys is the industry leader in this field, and placing best of breed tech companies into your portfolio will put you in better position to weather the squalls of the capricious tech sector.

The company is still relatively unknown even though it has been around for ages.

Stratasys is a company to put on your radar and remember this space as the 3D printing market blossoms.

It’s nonetheless still a speculative punt but a compelling part of the tech industry.



May 28, 2019

Mad Hedge Technology Letter
May 28, 2019
Fiat Lux

Featured Trade:


China’s Rare Earth Weapon

There are many ways to describe the trade war the U.S. administration finds itself in.

Many experts have chimed in too categorizing it as a fight for technological supremacy.

There are many different ways to skin a cat.

I’ll tell you what is really going on.

Above all else, this logjam has more to do with a battle for resources, and more specifically, rare earth elements that power the devices, cars, and gadgets that many westerners have become accustomed to.

Let’s make no bones about it, Beijing has cornered the rare earth’s market spanning from assets in the Congo and the cobalt that is produced there to supply on their own turf forcing the U.S. to be reliant on China for about 85% of its rare earth supply.

In other words, the rare earth industry in China is a large industry that is important to Chinese internal economics.

Rare earths are a group of elements on the periodic table with similar properties.

The elements are also critical to national governments because they are used in the defense industry for top-secret weaponry.

Permanent magnets can be used for several applications including serving as essential components of weapon systems and high-performance aircraft such as drones.

China has touted their own state-owned companies to reach deep into this market and make it their own.

The results are visible to the entire world and China gaining a stranglehold on these valuable inputs will have lasting consequences.

Rare earth metals are made up of 17 elements — lanthanum, cerium, praseodymium, neodymium, promethium, samarium, europium, gadolinium, terbium, dysprosium, holmium, erbium, thulium, ytterbium, lutetium, scandium, and yttrium.

U.S. companies will need to start developing new supply channels in other markets and Australia could allow U.S. companies’ lifelines in securing the orders they need to function as a company.

Military companies important to national security devour these types of precious metals and Raytheon Co (RTN), Lockheed Martin Corp (LMT) and BAE Systems (BAESY) all produce sophisticated missiles with these elements powering their guidance systems, and sensors.

These traded companies’ shares could be in for short-term turbulence if China decides to pull the rug out from underneath banning Chinese companies doing business with American companies, or by slapping on tariffs to respond to the tariffs on Chinese imports.

California’s Mountain Pass mine is the sole US rare earth facility with a caveat.

The owner of the mine ships over 50,000 tons of rare earth concentrate for processing in China, meaning that it will be harder than first thought to strip China out of the process.

China and America are in the first stages of a massive decoupling.

Not only smartphone operating systems will be affected with Huawei announcing it will roll out its own in-house operating system after Google announced that they will pull its apps and use of the Android system off of Huawei’s phone, but almost anything of significant value from an Ivy league computer engineering degree to electric cars will be retrenched on each side.

This is terrible news for Tesla (TSLA), and they could be hit next by the Chinese communist party if they deem electric cars integral to national security because of the data and sensors that deliver precious information back to Silicon Valley.

Tesla is in the midst of building a Gigafactory in Shanghai and their growth strategy is solely focused on China.

China standing up to the U.S. is a blunt force way of saying that nobody will dictate to the Chinese their future prospects except themselves.

They feel after 35 years of economic super growth, they should be granted with the options of choosing their destiny.

Huawei will feel the repercussions of these detrimental policies with their European business a big question going forward.

Germany was always a large bullseye for the Chinese government and scooping up robotic centerpiece Kuka, was a smash and grab in broad daylight.

The sleeping giant of Germany has woken up and is on the offensive after allowing the Chinese unfettered access for a generation.

Risks are high in Germany and they could be the first industrial power to be gutted and left behind the woodshed by China Inc and the CCP.

The U.S. faces a conundrum in that the method in which aided China’s rise of forced technology transfers and IP theft can only be stopped if actively removed, meaning we are headed for a game of chicken with the other side hoping the other side blinks first.

The market fallout will be deep and wide-ranging with the most movement in technology companies that are leveraged to China meaning chip companies.

But then there are the tech companies who have deeply embedded interests in China such as Apple (AAPL) whose supply chain is in the eye of the storm with Foxconn.

The worst possible case is China banning the sales of precious earth metals to the U.S. forcing the U.S. to buy from a 3rd party country which in turn would increase costs of American products.

This is what I would categorize as a hard landing and absolute decoupling.

The common denominator of this trade war is higher costs for the American consumer and mass layoffs in China – this is my base case.

However, I would argue that a rare earth’s ban would not be as bad as initially thought because many consumers are tapped out with phones, tablets, and computers.

The elongated refresh cycle will not mean consumers will go without access to the internet and its services.  

In terms of the stock market, this puts a wet towel on the positive momentum of early spring when the Nasdaq roared higher.

The Nasdaq could be stuck under 8,000 for the summer unless a rapprochement takes place which I would put at 30% for a structural détente and 65% for a kick the can down the road détente.  

The ironic unintended consequence is the safe haven trade of buying treasuries has come back in vogue and could be a huge boon for the domestic real estate market.

This extends the bull market in properties at least another six months with lower rates allowing fresh buyers to take advantage of lower financing opportunities amid a bump in inventory.

The bull market absolutely needs the real estate market on-sides to perpetuate because of the fragile nature of this part of the late economic cycle.

I also believe that U.S. President Donald Trump will become even more brazen as stronger economic data stateside suggests he could pile on even more pressure on the Chinese communist party to coerce them into a big win that will aid him in his reelection efforts.

Let’s not forget that much of this has to do with the 2020 road back to the White House.

As it stands, corporate America has finally understood the message of moving their supply chain out of China which means mass layoffs for many Chinese particularly in the southern region around Guangzhou.

This is not a marketing charade, this trade war has teeth.

China’s Central Bank will be forced into dovish policy to help state-owned companies who many are akin to zombie companies and another relic of communism that has yet to be uprooted.

All this means debt, debt, and more debt piling up on the mainland and on American shores.

If you thought this was the time of austerity, then you are truly wrong.

The end game could be a Chinese yuan that drops like a heavy stone through the psychological threshold of $7 and on its way down to $7.50.

If this comes to pass, expect a 10% correction and a demonstrably strong U.S. dollar, Japanese yen, Swiss Franc, and a generational entry points into the equity market.




May 17, 2019

Global Market Comments
May 17, 2019
Fiat Lux

Featured Trade:

(MSFT), (GOOGL), (AAPL), (LMT), (XLV), (EWG), (VIX), (VXX), (BA), (TSLA), (UBER), (LYFT), (ADBE),


May 15 Biweekly Strategy Webinar Q&A

Below please find subscribers’ Q&A for the Mad Hedge Fund Trader May 15 Global Strategy Webinar with my guest and co-host Bill Davis of the Mad Day Trader. Keep those questions coming!

Q: Where are we with Microsoft (MSFT)?

A: I think Microsoft is really trying to bottom here. It’s only giving up $8 from its recent high, that’s why I went long yesterday, and you can be hyper-conservative and only do the June $110-$115 vertical bull call spread like I did. That will bring in a 13.68% profit in 28 trading days, which these days is pretty good. This morning would have been a great entry point for that spread if you couldn’t get it yesterday.

Q: How will tariffs affect Apple (AAPL) when they hit?

A: The price of your iPhone goes up $140—that calculation has already been done. All of Apple’s iPhones are made in China, something like 220 million a year. There’s no way that can be moved, they need a million people for the production of these phones. It took them 20 years to build that facility and production capacity; it would take them 20 years to move it and it couldn’t be done anywhere else in the world. So, that’s why Apple led the charge on the downside and that’s why it will lead the charge to the upside on any trade war resolution.

Q: How bad is the trade war going to get?

A: The market is betting now by only going down 1,400 Dow points it will be resolved on June 28th in Osaka. If that doesn’t happen it could get a lot worse. It could get down to my down 2,250-point target, and if it continues much beyond that, then we’ll get the whole full 4,500 points and be back at December lows. After that, you’re really looking at a global recession, a global depression, and ultimately nearing 18,000 in Dow, the 2016 low.

Q: Will global trade wars force US Treasuries down to around 2.10% on the ten year?

A: Yes. Again, the question is how bad will it get? If we resolve the trade war in six weeks, treasuries will probably double bottom here at around a 2.33% yield. If we go beyond that, then 2.10% is a chip shot and we go into a real live recession. The truth is no one knows anything, and we really don’t have any influence over what happens.

Q: How will equities digest and increase in European tariffs for cars?

A: It would completely demolish the European economy—especially that of Germany (EWG) which has 50% of its economy dependent on exports (primarily cars) and mostly to the U.S. And if we wipe out our biggest customer, Europe, then that would spill over here very quickly. Anybody who sells to Europe—like all the big Tech companies—would get slaughtered in that situation.

Q: Is it time to buy the Volatility Index (VIX)?

A: It’s too late to buy (VIX) now. I don’t want to touch it until we get down to that $12-$13 handle again because the time decay on this is enormous. Time decay is more than  50% a year, so your timing has to be perfect with trading any (VIX) products, whether it’s the (VXX), the (VIX) futures, the (VIX) options, or so on. There are countless people shorting (VIX) here, and they will short it all the way down to $12 again.

Q: What should I do about Boeing at this point?

A: We went long, got out, took our profit and caught this rally up to $400 a share. Then (BA) gave it up and it broke down. It’s a really tempting long here. Along with Apple, Boeing has the largest value of exports to China of any company. They have orders for hundreds of airlines from China, so they are an easy target, especially if there is a ramp up in the intensity of the trade war. That said, something like a June $270-$300 vertical bull call spread is very tempting, especially with elevated volatility up here, so I’m watching that very closely. We’re looking for the recertification of the 737 MAX bounce which could happen in the next few weeks; if that does happen it should rally at least back up to 380.

Q: Are your moving averages simple or exponential?

A: I just use the simple. I find that the simpler a concept is, the more people can understand it, and the more people buy it; that’s why I always try to keep everything simple and leave the algorithms for the computers.

Q: What stocks are insulated from a US/China trade war?

A: None. When the whole market goes risk off, people sell everything. Remember that an overwhelming portion of the market is now indexed with passive investment funds, so they just go straight risk on/risk off. It makes no difference what the fundamentals are, it makes no difference who has a lot of Chinese business or a little—everyone gets hit and everyone will get boosted when the trade war ends. There is no place to hide except cash, which is why I went 100% cash going into this. People seem to forget that cash has option value and having a lot of cash going into one of these situations is actually worth a lot of money in terms of opportunities.

Q: Do you have any thoughts on Uber’s (UBER) bad performance?

A: Yes, the whole sector was wildly overvalued, but no one knew that until they brought it to market and found out the real supply and demand for the issue. The smartest company of the year has to be Lyft (LYFT), which got a nice valuation by doing their issue first and keeping it small. So, they kind of rained on Uber’s parade; at one point, Uber was down 25% from their IPO price. That’s awful.

Q: Is Trump forcing the Fed to drop rates with all this tariff threat?

A: Yes, and if you remember, Trump really ramped up the attacks on the Fed in December. And my bet is at the first sign the trade talks were in trouble, they wanted to lower rates to offset the hit to the U.S. economy. There was no economic reason to suddenly demand huge interest rate cuts last December other than a falling stock market. The tariffs amount to a $72 billion tax increase on the American consumer, felt mostly at the low end, and that is terrible for the economy in that it reduces purchasing power by exactly that much.

Q: Would you buy the dollar as a safe haven trade?

A: No, I would not. The dollar may actually go down some more, especially with the collapse in our interest rates and European interest rates bottoming at negative levels. The best thing in the world in a high-risk environment like this is cash—don’t try to get clever and buy something you think will outperform. You could be disappointed.

Q: Why is healthcare (XLV) behaving so badly?

A: You don’t want to get into political football ahead of an election. That said, they’re already so cheap that any kind of recovery could very well take healthcare up big, especially on an individual company basis. This is a sector where individual stock selection is crucial.

Q: Would you buy deep in the money calls on PayPal (PYPL)?

A: Yes, I would. Wait for a down day. Today we’re up slightly, but if we have a weak afternoon and a weak opening tomorrow morning, that would be a good time to add more longs in technology. PayPal is absolutely at the top of the list, as are names like Adobe (ADBE) and Alphabet (GOOGL).

Q: Should I be buying LEAPS in this environment?

A: No; a LEAP is a one-year long term deep out-of-the-money call spread. That was a great December bottom trade. The people who bought leaps then made huge fortunes. We’re too high here to consider leaps for the main market unless it’s for something that’s just been bombed out, like a Tesla (TSLA) or a Boeing (BA), where you had big drops—then I would look at LEAPS for the super decimated stocks. But the rest of the market is still too high for thinking about leaps. Wait a couple of months and we may get back to those December lows.

Q: What happened to your May 10th bear market call?

A: Actually, it’s kind of looking good. It’s looking in fact like the market topped on May 2nd. If saner heads prevail, the trade war will end (or at least we’ll get a fake agreement) and the market will go to a new high. If not, then that May 10th target forecast I made two years ago IS the final top.

Q: You’re saying today we’re at a bottom?

A: We’re at a bottom for a short-term trade with a June 21st target. That was the expiration date of the options spreads I did this week. Whether this is the final bottom in the whole down move for a longer term, no one has any idea, even if they try to say differently. This is totally dependent on political developments.

Q: What do you have to say about Lockheed Martin (LMT)?

A: This sector usually does well with a wartime background. Expect that to continue for the foreseeable future. But at a certain point, the defense stocks which have had fantastic runs under Trump will start to discount a democratic win in the next election. If that does happen, defense will get slaughtered. I would be using any future strength to sell out of the whole defense area. Peace could be fatal to this sector.










January 16, 2019

Mad Hedge Technology Letter
January 16, 2019
Fiat Lux

Featured Trade:

(SSYS), (ETSY), (MSFT), (BA), (NFLX), (GE), (LMT)

November 7, 2018

Global Market Comments
November 7, 2018
Fiat Lux


Featured Trade:
(RTN), (LMT), (NOC), (HON), (XOM), (CVX), (DVN)

October 11, 2018

Global Market Comments
October 11, 2018
Fiat Lux

Featured Trade:

(GOOGL), (MSFT), (NFLX), (FB), (AAPL),
(LMT), (NOC), (BA)