Global Market Comments
November 25, 2019
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or CATCHING OUR BREATH),
(MSFT), (GOOGL), (TLT), (VIX), (TSLA)
Global Market Comments
November 25, 2019
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or CATCHING OUR BREATH),
(MSFT), (GOOGL), (TLT), (VIX), (TSLA)
Mad Hedge Technology Letter
November 20, 2019
Fiat Lux
Featured Trade:
(MY CURRENT TECHNOLOGY TRADING STRATEGY),
(GOOGL), (MSFT), (APPL), (ADBE), (AKAM), (VEEV), (FTNT), (WKDAY), (TTD)
Some might say that we were due for a revaluation of growth tech stocks.
They have contributed greatly in this nine-year bull market.
Profit-generating software stocks are the order of the day.
Tech has led the overall market higher after projected quarterly earnings growth of -9% came in better than expected at -5%.
We have ebbed and flowed from pricing in a full-out recession in mid-2020 to now believing a recession is further off than first thought.
The pendulum swing ruptured many growth stocks from Workday (WKDAY) to The Trade Desk, Inc. (TTD) plummeting 30%.
We have retraced some of those losses but momentum in share appreciation has shifted to the perceived safer variation of tech stocks.
Investors have cut volatility and headed into bulletproof companies of Apple (AAPL), Google (GOOGL), and Microsoft (MSFT).
These companies have significant competitive advantages, Teflon balance sheets, and print money.
The tech markets just about priced in the U.S - China trade war in the fall as broad-based volatility plummeted because of optimism around making a deal.
This, in turn, has boosted chips stocks along with investors front running the 5G revolution and the administration granting Huawei a reprieve was a cherry on top.
The Mad Hedge Technology Letter has taken every dip to initiate new longs in safe trades like software companies Adobe (ADBE) and Veeva Systems (VEEV).
Tech is at the point that all loss-making companies are out of the running for tech alerts because the moment there is a recession scare, these shares drop 10% and often don’t stop until they lose 30%.
Now there is a deeply embedded set of narrow tech leadership by a few dominant tech companies buttressed by a select set of second-tier software stocks.
I would put PayPal (PYPL) and Twitter (TWTR), which I currently have open trades on, in the ranks of the second tier and they should do well as long as economic growth does better than expected.
Their share prices dipped on weak guidance and the bad news appears to have been shaken out of these names.
Professional investors could also be hanging on to meet end-of-year performance targets.
I do expect unique entry points on software stocks that drop after bad future guidance.
Profitability has moved to the fore as the biggest factor in holding a name or not.
Newly minted IPOs have fared even worse showing the markets' waning appetite for loss makers like Uber (UBER) and Lyft (LYFT).
Loss-making companies often tout their ability to change the world and disrupt industry, but that has been discovered as nothing more than a ruse.
They aren’t disrupting the way we change the world. For example, Uber is a dressed-up taxi service and the new CEO has failed to create any new momentum in the unit economics that spectacularly fail by any type of metric.
Even worse for these growth stocks, as the economy starts to falter, there will be even less appetite for them, and even more appetite for safer tech stocks.
A worst-case scenario would see Uber drop to $10 and Lyft to $20.
New all-time highs have crystalized with Google (GOOGL) under the gauntlet of regulation hysteria displaying the domination of these big tech machines.
The ongoing, consistent rotation out of growth and into value hasn’t run its course yet and fortunately, by identifying this important trend, our readers will be well placed to advantageously position themselves going into 2020.
Growth stocks won’t make a comeback anytime soon and deteriorating conditions could trigger renewed synchronized global monetary policy easing and central bank stimulus.
And yes, more negative rates.
I believe Oracle (ORCL), Fortinet (FTNT), Akamai Technologies, Inc. (AKAM) could weather the storm next year.
Tech growth is slowing and trade uncertainty is high, and readers must have a sense of urgency to avoid the losers in this scenario.
U.S. economic growth could slow to 1.3% next year, avoiding a recession, and the lack of enterprise spend will reduce software sales and combine that with peak smartphone growth and it won’t be smooth sailing.
The Mad Hedge Technology Letter has the pulse of the tech market and will show you how to navigate this minefield.
Mad Hedge Technology Letter
November 18, 2019
Fiat Lux
Featured Trade:
(THE FANG’S BIG MOVE INTO BANKING),
(GOOGL), (MSFT), (APPL), (MA), (V), (PYPL), (SQ), (GS), (FB)
First, Apple (APPL) collaborates with Goldman Sachs’ (GS) offering of a credit card even giving credit access to subprime borrowers.
And now Google (GOOGL) has its eyes on the banking industry — specifically, it’ll soon offer checking accounts.
In a copycat league where anything and everything is fair game, we are seeing a huge influx of big tech companies vie for the digital wallets of Americans.
The project is aptly named Cache and accounts will be handled by Citibank (C) and a credit union at Stanford.
Google’s spokesman shared with us admitting that Google hopes to “partner deeply with banks and the financial system,” and further added, “If we can help more people do more stuff in a digital way online, it’s good for the internet and good for us.”
I would disagree with the marginal statement that it would be good for us.
Facebook (FB) is now offering a Pay option and how long will it be until Amazon (AMZN), Microsoft (MSFT), and others throw their name into the banking mix.
I believe there will be some monumental failures because it appears that these tech companies won’t offer anything that current bank intuitions aren’t offering already.
Moving forward, the odd that digital banking products will become saturated quickly is high.
Let’s cut to the chase, this is a pure data grab, and not in the vein of offering innovative services that force the consumer down a revolutionary product experience.
As the consumer starts to smarten up, will they happily reveal every single data point possible to these tech companies?
Big tech continues to be adamant that personal data is secure with them, but their track records are pitiful.
Even if Google doesn’t sell “individual data”, there are easy workarounds by just slapping number tags on aggregated data, then aggregated data can be reverse-engineered by extracting specific data with number tags.
The cracks have already started to surface, Co-Founder of Apple Steve Wozniak has already claimed that the credit algorithm for Apple’s Goldman Sach’s credit card is sexist and flawed.
Time is ticking until the first mass data theft as well and let me add that the result of this is usually a slap on the wrist incentivizing bad behavior.
I believe big tech companies should be banned from issuing banking products.
Only 4% of consumers switched banks last year, and a 2017 survey by Bankrate shows that the average American adult keeps the same checking account for around 16 years.
As anti-trust regulation starts to gather more steam, I envision lawmakers snuffing out any and every attempt for big tech to diversify into fintech.
It’s fair to say that Google should have done this 10 years ago when the regulatory issues were nonexistent.
Now they have regulators breathing down their necks.
Let me remind readers that the reason why Facebook abandoned their digital currency Libra was because of the pressure lawmakers applied to every company interesting in working with Facebook’s Libra.
Lawmakers threatened Visa and Mastercard that they would investigate every part of their business, including the parts that have nothing to do with Facebook’s Libra, if they went ahead with the Libra project.
The most telling insight comes from the best tech company Microsoft who has raised the bar in terms of protecting their reputation on data and trust.
They decided to stay away from financial products like the black plague.
Better to stay in their lane than take wild shots that incur unneeded high risks.
When U.S. Senator Mark Warner, a Democrat on the Senate panel that oversees banking, was asked about Google and banking, he quipped, “There ought to be very strict scrutiny.”
Big tech is now on the verge of getting ferociously regulated and that could turn out positive for the big American banks, PayPal (PYPL), Visa (V), Mastercard (MA) and Square (SQ).
I heavily doubt that Google will turn Cache into a meaningful business unless Google offers some jaw-dropping interest rates or elevated points to move the needle.
Google has canceled weekly all-hands meetings because of the tension between staff members and Facebook is also just as dysfunctional at the employee level.
Whoever said it's easy to manage a high-stake, too-big-to-fail tech firm?
Even with all the negativity, Google is still a cash cow and if regulatory headwinds are 2-3 years off, they are a buy and hold until they are not.
The recent tech rally, after the rotation to value, has seen investors flood into Apple, Microsoft, and Google as de-facto safe haven tech plays.
Mad Hedge Technology Letter
November 15, 2019
Fiat Lux
Featured Trade:
(HERE’S THE INFRASTRUCTURE COMPANY FOR EVERYTHING),
(CSCO), (MSFT)
Cisco (CSCO) is an accurate proxy for global enterprise spending around the world.
This foundational company offers the base for software-reliant companies to flourish and tuning into their quarterly earnings report is a front-row affair.
Even though the firm beat on the bottom line, 2020 prospects dimmed substantially, enough to question whether the underpinnings of global growth remain in-tact.
Topline revenue beat as well with the company earning $13.16 billion in revenue eclipsing the estimated $13.09 billion.
But analysts and investors were mainly there to scrutinize the commentary on future earnings considering that 2020 is unfolding into the most uncertain year in recent history coincides with a potentially fractious U.S. presidential election.
The onus was on CEO Chuck Robbins to provide some comfort and that comfort was visibly lacking in his call.
The disappointment started with the commentary regarding annualized revenue growth.
Cisco expects annual revenue to slide between 3-5% next year.
Earlier this year, Robbins had revealed that the slowdown had been confined to smaller parts of the market but now it is suddenly expanding into almost all corners of the world.
The delay in IT spend has hit conversion rates which were lower than normal and large deals got done but in a smaller way.
Businesses have consciously chosen to elongate their refresh cycle and are defiantly sticking with the current IT technology to subdue costs.
Usually, new IT infrastructure begets more spending on newer software but that is all grinding down to a halt for the foreseeable future.
Cisco has a massive install base of users to grab data points from, and this should put some cold water on a narrowing tech rally.
Safe haven names have received the lion’s share of the tech rally momentum as of late.
The most suitable adjective to describe the current IT slowdown is “broad-based” and countries such as China are showing weak IT spend too.
China isn’t a huge customer for Cisco, and emerging markets have been exhibiting more weakness than the larger economies.
Cisco’s poor guidance dovetails nicely with my recent theme of a prolonged tech earnings recession laced with bad guidance.
The lamentable commentary about 2020 will persist in tech.
I do view the more than 7% dive in Cisco’s shares today as a solid entry point into one of the premier tech infrastructure stocks in the world, but will let the market digest the results first.
Even though corporate America is heading toward a new valley in an earnings recession that could last the entire calendar year, Cisco will muscle its way through as higher-tech spend will at some point reshape the earnings outlook.
But don’t expect that for the next quarter or two.
Investors should expect more softness in tech shares and rerouting of capital into top-grade tech shares like Microsoft (MSFT).
This week, I had to fly off to a party given by my biggest hedge fund client at the Penthouse Suite at the Bellagio Hotel in Las Vegas. And what a party it was!
The showgirls were flowing hot and heavy, roaming magicians performed magic tricks, and there was the odd fire-breather or two. For entertainment, we were treated to rock legend Lenny Kravitz who played his signature song, American Woman.
I managed to get a few hours in private with my client, one of the wealthiest men in the world whom you would all recognize in an instant, and this is what I told him.
SELL THE NEXT BIG RALLY IN STOCKS. IT MAY BE YOUR LAST CHANCE TO GET OUT AT THE TOP BEFORE THE NEXT BEAR MARKET. ANY STOCK YOU KEEP AFTER THAT YOU WILL HAVE TO OWN FOR AT LEAST TWO YEARS AND 4-5 YEARS TO GET BACK UP TO YOUR ORIGINAL COST!
The markets are coiled for a sharp year-end rally for the following 16 reasons:
1) The S&P 500 (SPY) is more overbought than at any time in a decade, according to my Mad Hedge Marketing Timing Index at 90. Technology is the most oversold since the Dotcom bubble. We are in the early stages of the final melt-up.
2) The algorithms that drove the markets down so quickly and severely are now poised to flip to the upside.
3) Bear markets never started with real interest rates of zero (1.75% inflation rate – 1.75% ten year US Treasury yield).
4) Bear markets also don’t start with all-time high profits reported by the leading companies like Apple (AAPL), Amazon (AMZN), and Microsoft (MSFT)
5) We are now in the strongest seasonal period of market gains from November to May.
6) Sales during both Black Friday and Cyber Monday will do exceptionally well as the consumer is on fire.
7) At least $100 billion in corporate share buybacks have to kick end by yearend.
8) Risk Parity Traders, another new hedge fund strategy bedeviling the markets, are now in a position to strongly buy stocks, and sell bonds, which have gone nowhere.
9) Both month-end and year-end window-dressing purchases are not to be underestimated.
10) Much stock selling is being deferred to January when capital gains taxes are not payable for 16 months.
11) A lot of hedge fund shorts have to be covered by the end of 2019.
12) Global liquidity growth is slowing but is still enormous. There is nothing else to buy but US stocks. If you missed 2019, you get to do it all over again in 2020.
13) The collapse of oil prices from $77 to $50 a barrel has created a $200 billion surprise economic stimulus package for the US, especially for big energy consumers like transportation.
IT ALL ADDS UP TO A BIG FAT “BUY.”
I expect this rally to set up a classic head and shoulders top in the first quarter of 2019 (see chart below). Here’s where stocks fail, and we enter a new bear market. Here are ten reasons why:
1) Next year, S&P 500 earnings growth will sharply downshift from a 26% annual growth rate in 2018 to zero in 2020.
2) The upfront benefits of the corporate tax cuts will be all spent. With all the tax breaks in the world, companies won’t spend a dime if they believe the US is going into recession.
3) The massive expansion of government spending Trump brought us will be slowed by a Democratic-controlled House of Representatives, especially for defense.
4) The trade war with China will continue, cutting US growth. The Chinese are determined to outlast Donald Trump. The Middle Kingdom can take far more pain than the US, which has open elections.
5) The global synchronized recession worsens, dragging the US into the tar pit.
6) The Fed will cut interest rates any more in this cycle. You’re going to have to live on the hyper stimulus you have already received.
7) If the Fed had any doubts, they only need to look at the inflationary impacts of new duties on most imported goods.
8) A continuation of the China trade war also will trigger depression in the agricultural sector which is suffering from a China boycott that has crushed prices. Millions of tons of crops rotting in storage silos. This will spill over into a regional banking crisis.
9) The mere age of this Methuselah-like bull market at 11 years is an issue. Too many people have made too much money too easily for too long.
This all adds up to a big “SELL” sometime in the spring.
I just thought you’d like to know.
To watch the video of Lenny Kravitz playing, please click here.
Global Market Comments
November 4, 2019
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or WELCOME TO THE SUMMIT)
(GM), (BA), (MSFT), (SPY), (TLT), (TSLA), (AMZN)
In 1976, I joined the American Bicentennial expedition to climb Mount Everest led by my friend and mentor, Jim Whitaker. Since I was a late addition, there was no oxygen budget for me which, in those days, was very heavy and expensive.
Still, I was encouraged to climb as far as I could without it, which turned out to be up to Base Camp II at 21,600 feet. At that altitude, you couldn’t light a cigarette as the matches went out too quickly. There just wasn’t enough oxygen.
Out of 700 men on the team, including 600 barefoot Nepalese porters, only two made it to the top. By the time I made it back to Katmandu 150 miles away, I had lost 50 pounds, taking my weight down to a scarecrow 125.
You can see the metaphor coming already.
Here I am at my screen looking at 27,500 in the Dow Average and not only am I gasping for oxygen, I am ready to pass out. My Mad Hedge Market Timing Index hit a new high for 2019 at an acrophobic 85. All of this is happening in the face of slowly eroding fundamentals and a global economic slowdown.
Could the market go higher? You betcha! At least a couple percent more by yearend. Market bottoms are easy to identify when valuations hit decade lows. Market tops are impossible to gauge because greed is unquantifiable and knows no bounds.
I’ll give you a perfect example. The US and Japan signed the Plaza Accord in 1985 calling a doubling of the value of the yen against the dollar and the eventual transportation of half of Japan’s auto production capacity to the US. We all knew this would eventually destroy the Japanese economy. Yet the Nikkei Average rose for five more years until it finally crashed.
Of course, the impetus for all of this are artificially low-interest rates, which dropped 25 basis points again last week for the third time this year.
There were with two dissents, while the December rate cut futures fall to 20%. If we get Japanese levels of interest rates, we might get a Japanese type 30-year stagnant economy.
US Q3 GDP came in at 1.9% in its most recent report, better than expected, but we are still in a serious downtrend. The economy is most likely running at a lowly 1.5% rate now. Weakness is a sure thing, now the government has run out of money for special projects. Don’t count on more with a Democratic house. It’s not the bed of roses I was promised.
However, if there is trouble, you won’t see it in the employment data. The October Nonfarm Payroll Report surprised to the upside, at 128,000. Many expected much worse in the aftermath of the GM (GM) strike and Boeing (BA) grounding.
The headline Unemployment Rate ticked up 0.1% to 3.6%. The big gains were in Hospitality and Leisure, up a stunning 61,000, Health Care & Social Assistance, up 31,000, and Professional and Business Services, up 22,000. Manufacturing lost 36,000 jobs, a ten-year high. 20,000 temporary jobs were lost from the 2020 census wind down.
August and September were revised up by an unbelievable 95,000. The market loves these numbers.
Tesla shocked, bringing in a profit for only the third time in company history, and causing the stock to soar $55. The 100,000-unit production target within yearend looks within reach. Most importantly they opened up a new supercharger station in Incline Village, Nevada!
Tesla is now America’s most valuable car maker, beating (GM). The ideological Exxon-financed shorts have been destroyed once and for all. Buy (TSLA) on dips. There’s still a ten bagger in this one.
Amazon put out a gloomy Christmas forecast on the back of a disappointing earnings report, crushing the shares by 7%. Looks like the trade war might cause a recession next year. Q3 revenues were great, up 24% to an eye-popping $70 billion.
Good thing I took profits on the last option expiration. Poor Jeff Bezos, the abandoned son of an alcoholic circus clown, dropped $7 billion in net worth on Thursday. Buy (AMZN) on the dips.
The safest stock in the market, Microsoft (MSFT), says it’s all about the cloud. Azure revenues grew a stunning 59% in Q3. (MSFT) is now up 37% on the year. Keep buying every dip, if we ever get another one.
The Chicago PMI crashed, plunging from to 43.2, a four-year low. This horrific number was last seen during the recession scare of 2015. New orders have virtually disappeared, or order backlogs have vaporized. Inventories are soaring. This is the worst economic report this year and will cause a lot of economists’ hair to catch on fire.
This was a week for the Mad Hedge Trader Alert Service to stay level at an all-time high. With only two positions left, in Boeing (BA) and Tesla (TSLA), not much else was going to happen.
My Global Trading Dispatch reached new pinnacle of +350.03% for the past ten years and my 2019 year-to-date accelerated to +49.89%. The notoriously volatile month of October finished at +12.23%. My ten-year average annualized profit held steady at +35.29%.
The coming week is pretty non eventful of the data front after last week’s fireworks. Maybe the stock market will be non-eventful as well.
On Monday, November 4 at 8:00 AM, US Factory Orders for September are out. Uber (UBER) and Under Armor (UAA) report.
On Tuesday, November 5 at 8:00 AM, the October ISM Nonmanufacturing Index is published. US API Crude Oil Stocks are released at 2:30 PM EST. Peloton (PTON) reports.
On Wednesday, November 6, we get a raft of Fed speakers unrestrained by any impending meetings. QUALCOM (QCOM) and Humana (HUM) report.
On Thursday, November 7, there are a heavy duty series of bond auctions. Walt Disney (DIS) and Zoetis (ZTS) Report.
On Friday, November 8 at 8:00 AM, the University of Michigan Consumer Sentiment Indicator is learned.
The Baker Hughes Rig Count follows at 2:00 PM.
As for me, I am heading for Santa Cruz, California for the weekend to get out of the smoke and do some serious backpacking. I might even try to squeeze in a surfing lesson there. I’ll never give up.
By the way, several guests at the Tahoe conference remarked on the prominent scar on the side of my nose. That was caused by an ice ax that plunged straight through it in a fall while climbing Mount Rainer in 1967. Who patched it up and got me back down to the bottom? My friend Jim Whitaker.
Good luck and good trading.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
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