Global Market Comments
February 22, 2022
Fiat Lux
Featured Trades:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or BUYING AT THE SOUND OF THE CANON),
(SPY), (TLT), (TBT), (BRKB), (MSFT), (GOOGL),
(NFLX), (ZM), (DOCU), (ROKU), (VMEO)
Tag Archive for: (NFLX)
“Buy at the sound of the canon.”
That was the sage advice Nathan Rothschild, ancestor of my former London neighbor Jacob Rothschild, gave to friends about trading stocks during the Napoleonic Wars.
Of course, information moved rather slowly back in 1812, pre-internet. Rothschild relied on carrier pigeons to gain his unfair advantage.
You have me.
Somehow, you have descended into Dante’s seventh level of hell. You have to wake up every morning now, wondering if it will be Jay Powell or Vladimir Putin who is going to eviscerate your wealth, postpone your retirement, and otherwise generally ruin your day.
Every price in the market already knows we’re in a bear market except the major indexes.
The roll call of the dead looks like a WWI casualty report: (NFLX), (ZM), (DOCU), (ROKU), (VMEO). It’s like the bid offer spread has suddenly become 25%. Companies are either reporting great earnings and seeing their shares go through the roof. Or they are sorely disappointing and getting sent to perdition on a rocket ship.
The most fascinating thing to happen last week was a new low in the bond market, since you’re all short up the wazoo, courtesy of a certain newsletter. Ten-year US Treasury yields tickled 2.05%, a two-year high, then retreated to 1.92%. That means bonds have completed their $20 swan dive from their December high, a repeat of the 2021 price action.
Trading has gotten too easy, so I think bonds will stall out here for a while. I even added a small long. And please stop calling me to ask if you should sell short bonds down $20. It’s perfect 20/20 hindsight. You can’t imagine how many such calls I’ve already received.
Our old friend, the barbarous relic, returned from the dead last week too. All it needed was for bitcoin to die a horrible death for gold to recover its bid. A prospective war in the Ukraine helped take it to a one-year high.
However, I think it’s safe to say that has lost its value as an inflation hedge for good. If a move in the CPI from 2% to 7.5% can’t elicit a pulse in the yellow metal now, it never will.
The US dollar was another puzzler last week. While the fixed income markets went from discounting three rate hikes this year to six, the greenback flatlined. It was supposed to go up, as currencies with rapidly rising interest rates usually do.
Maybe the buck just forgot how to go down. Or maybe this is the beginning of the end, when sheer over-issuance destroys the value of the US dollar. Some $30 trillion in the national debt will do that to a currency.
I know you will find this difficult to believe, but there are some outstanding money-making opportunities setting up later in the year. The crappier conditions look now, the better they will become later. But you are going to have to practice some extreme patience to get to the other side.
I hope this helps.
Goldman Sachs Chops 2022 Market Forecast, taking the S&P 500 goal from $5,100 down to $4,900. A tighter interest rate picture is to blame, with the year yields topping 2.05% on Friday. Higher interest rates devalue future corporate earnings and kill the shares of non-earning companies.
Oil Hits Seven-Year High, to $94.44 a barrel, up 3.3% on the day. Putin’s strategy of talking oil prices up with Ukrainian invasion threats is working like a charm. That’s what this is all about. Texas tea accounts for 70% of Russian government revenues.
Fed to Front-Load Rate Rises, says St. Louis Fed president Bullard. The drumbeat for a more hawkish central bank continues. Bonds were knocked for two points.
Wholesale Prices Rocket 1% in January and are up a nosebleed 9.7% YOY. Inflation has clearly not peaked yet. Look for stocks to get punished once the current short-covering rally runs out of gas.
Retail Sales Soar by 3.8%, in January indicating that the economy is stronger than it appears. The rapid shift to an online economy is accelerating. Inflation is the turbocharger. When stocks overshoot on the downside load the boat.
Weekly Jobless Claims Jump, to 248,000. The weird thing is that the economic data says the opposite, that the economy is strengthening. Expect flip-flopping data and markets all year.
US GDP Jumped by 6.9% in Q4, well above estimates. Consumers are spending like drunken sailors. Eventually, the stock market will notice this, but not before we see lower lows first.
Gold Catches a Bid, off the back of the unrelenting Ukraine crisis. This may continue as a drip for months. Watch it collapse when peace is declared.
Existing Home Sales Jump 6.7%, to 6.5 million units, far better than expected. Inventory is down to yet another record low of 16.5%, an incredibly short 1.6-month supply. The Median Home Price has risen to $350,300, with the bulk of sales on the high end. Million-dollar plus homes are up 39% YOY.
Bond Yields Dive to a 1.93% Yield after failing at 2.05%. There is another nice (TLT) put spread setting up here. Let’s see if war breaks out over the weekend. The threats continue.
My Ten-Year View
When we come out the other side of pandemic, we will be perfectly poised to launch into my new American Golden Age, or the next Roaring Twenties. With interest rates still at zero, oil cheap, there will be no reason not to. The Dow Average will rise by 800% to 240,000 or more in the coming decade. The American coming out the other side of the pandemic will be far more efficient and profitable than the old. Dow 240,000 here we come!
With seven options positions expiring at max profit on Friday, my February month-to-date performance rocketed to a blistering 10.37%. My 2022 year-to-date performance has exploded to an unbelievable 24.90%. The Dow Average is down -7.9% so far in 2022. It is the great outperformance on an index since Mad Hedge Fund Trader started 14 years ago.
With 30 trade alerts issued so far in 2022, there was too much going on to describe here. Check your inboxes.
That brings my 13-year total return to 537.46%, some 2.00 times the S&P 500 (SPX) over the same period. My average annualized return has ratcheted up to 44.17% for the first time. How long it will keep rising I have no idea, but as long as it is, I’m not complaining. When you’re hot, you have to be maximum aggressive. That’s me to a tee.
We need to keep an eye on the number of US Coronavirus cases at 78.5 million, down 67% from the January peak, and deaths close to 936,000, off 20% in two weeks, which you can find here.
On Monday, February 21 markets are closed for Presidents Day.
On Tuesday, February 22 at 8:30 AM, the S&P Case Shiller National Home Price Index for December is announced.
On Wednesday, February 23 at 1:30 PM, API Crude Oil Stocks are released.
On Thursday, February 24 at 8:30 AM, Weekly Jobless Claims are published. The second estimate for Q4 GDP is also disclosed.
On Friday, February 25 at 7:00 AM, Personal Income & Spending for January is printed. At 2:00 PM, the Baker Hughes Oil Rig Count is out.
As for me, in the seventies, Air America was not too choosy about who flew their airplanes at the end of the Vietnam War. If you were willing to get behind the stick and didn’t ask too many questions, you were hired.
They didn’t bother with niceties like pilot licenses, medicals, or passports. On some of their missions, the survival rate was less than 50% and there was no retirement plan. The only way to ignore the ratatatat of bullets stitching your aluminum airframe was to turn the volume up on your headphones.
Felix (no last name) taught me to fly straight and level so he could find out where we were on the map. We went out and got drunk on cheap Mekong Whiskey after every mission just to settle our nerves. I still remember the hangovers.
When I moved to London to set up Morgan Stanley’s international trading desk in the eighties, the English had other ideas about who was allowed to fly airplanes. Julie Fisher at the London School of Flying got me my basic British pilot’s license.
If my radio went out, I learned to land by flare gun and navigate by sextant. She also taught me to land at night on a grass field guided by a single red lensed flashlight. For fun, we used to fly across the channel and land at Le Touquet, taxiing over the rails for the old V-1 launching pads.
A retired Battle of Britain Spitfire pilot named Captain John Schooling taught me advanced flying techniques and aerobatics in an old 1949 RAF Chipmunk. I learned barrel rolls, loops, chandelles, whip stalls, wingovers, and Immelmann turns, everything a WWII fighter pilot needed to know.
John was a famed RAF fighter ace. Once he got shot down by a Messerschmitt 109, parachuted to safety, took a taxi back to his field, jumped into his friend’s Spit, and shot down another German. Every lesson ended with a pint of beer at the pub at the end of the runway. John paid me the ultimate compliment, calling me “a natural stick and rudder man,” no pun intended.
John believed in tirelessly practicing engine-off landings. His favorite trick was to reach down and shut off the fuel, telling me that a Messerschmitt had just shot out my engine and to land the plane. When we got within 200 feet of a good landing, he turned the fuel back on and the engine coughed back to life. We practiced this more than 200 times.
When I moved back to the US in the early nineties, it was time to go full instrument in order to get my commercial and military certifications. Emmy Michaelson nursed me through that ordeal. After 50 hours flying blindfolded in a cockpit, you get very close with someone.
Then came flight test day. Emmy gave me the grim news that I had been assigned to “One Engine Larry” the most notorious FAA examiner in Northern California. Like many military flight instructors, Larry believed that no one should be allowed to fly unless they were perfect.
We headed out to the Marin County coast in an old twin-engine Beechcraft Duchess, me under my hood. Suddenly, Larry shut the fuel off, told me my engines failed, and that I had to land the plane. I found a cow pasture aligned with the wind and made a perfect approach. Then he asked, “How did you do that?” I told him. He said, “Do it again” and I did. Then he ordered me back to base. He signed me off on my multi-engine and instrument ratings as soon as we landed. Emmy was thrilled.
I now have to keep my many licenses valid by completing three takeoffs and landings every three months. I usually take my kids and make a day of it, letting them take turns flying the plane straight and level.
On my fourth landing, I warn my girls that I’m shutting the engine off at 2,000 feet. They cry “No dad, don’t.” I do it anyway, coasting in bang on the numbers every time.
A lifetime of flight instruction teaches you not only how to fly, but how to live as well. It makes you who you are. Thus, my insistence on absolute accuracy, precision, risk management, and probability analysis. I live my life by endless checklists, both short and long term. I am the ultimate planner and I have a never-ending obsession with the weather.
It passes down to your kids as well.
Julie became one of the first female British Airways pilots, got married, and had kids. John passed on to his greater reward many years ago. I don’t think there are any surviving Battle of Britain pilots left. Emmy was an early female hire as United pilot. She married another United pilot and was eventually promoted to full captain. I know because I ran into them in an elevator at San Francisco airport ten years ago, four captain’s bars adorning her uniform.
Flying is in my blood now and I’ll keep flying for life. I can now fly anything anywhere and am the backup pilot on several WWII aircraft including the B-17, B-24, and B-25 bombers and the P-51 Mustang fighter.
Over the years, I have also contributed to the restoration of a true Battle of Britain Spitfire, and this summer I’ll be taking the controls at the Red Hill Aerodrome for the first time.
Captain John Schooling would be proud.
Stay Healthy.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Captain John Schooling and His RAF 1949 Chipmunk
A Mitchell B-25 Bomber
A 1932 De Havilland Tiger Moth
Flying a P-51 Mustang
The Next Generation
Global Market Comments
January 24, 2022
Fiat Lux
Featured Trades:
(MARKET OUTLOOK FOR THE WEEK AHEAD,
or PARACHUTING WITHOUT A PARACHUTE),
(AAPL), (SPY), (MSFT), (TLT), (TBT), (TDOC), (NFLX), (DIS), (VALE), (FCX), (USO), (JPM), (WFC), (BAC), (TSLA), (AMZN), (NVDA)
It has been the worst New Year stock market opening in history.
After a two-day fake-out to the upside, stocks rolled over like the Bismarck and never looked up. NASDAQ did its best interpretation of flunking parachute school without a parachute, posting the worst month since 2008.
Markets can’t hold on to any rally longer than nanoseconds, and the last hour of the day has turned into one from hell.
What is even more confusing is that stocks are now trading like commodities, with massive one-way moves, while commodities, like oil (USO), copper( FCX), and iron ore (VALE) have resumed a steady grind up.
We had a lovefest going on here at Incline Village, Nevada for Technology and Bitcoin researcher Arthur Henry has been staying with me for the week to plot market strategy.
Once the market showed its hand, I sold short Microsoft (MSFT), which elicited torrents of complaints from readers. Then Arthur sold short Netflix (NFLX), inviting refund demands. Then I sold short Apple (AAPL), prompting accusations of high treason. Then Arthur sold short Teledoc (TDOC). There wasn’t a lot of talking, but frenetic writing and emailing instead.
Followers cried all the way to the bank.
In a mere two weeks, the price earnings multiple for the S&P 500 plunged from 22X to 20X. A lot of traders were only buying stock because they were going up. Take out the “up” and Houston we have a problem.
The entire streaming industry seems to have gone up in smoke and ex-growth practically overnight. Netflix (NFLX) delivered a gob smacking 29.5% swan dive in the wake of disappointing subscriber growth forecasts. Walt Disney (DIS), which ate the Netflix lunch, was dragged down 10% through guilt by association.
It is often said that the stock market has discounted 12 of the last six recessions. It is currently pricing in one of those non-recessions. What we are seeing is a sudden growth scare of the first order.
Despite last week’s carnage, stocks are still the most attractive asset class in the world, offering a potential 10% return in 2022. The problem is that they may make that 10% profit starting from 10% lower than here.
Despite all the red ink, big tech stocks are still on track to see a 30% earnings growth this year, and they account for a hefty 28% of the market.
Let’s look at Apple’s past declines for guidance on this meltdown.
Steve Jobs’ creation gave back 60% in the 2008 Great Recession, 34% during the 2015 growth scare, 48% during the great 2018 Christmas collapse, and 28% in the 2020 pandemic crash. So, the good news is that you won’t get killed by this selloff, you’ll just lose an arm and a leg. But they’ll grow back.
Remember, it’s always darkest just before it goes completely black. This correction is survivable, although it may not seem so at the moment.
It does vindicate my 2022 view that the first half will be about survival and that big money can be had in the second half.
So far, so good.
The Market is De-Grossing Big Time. That means cutting total market exposure and selling everything, regardless of stock or sector. The market is discounting a recession and bear market that isn’t going to happen, which occurs often. When it ends in a few weeks, interest rate sensitives, especially the banks, will bounce back hard, but tech won’t. Buy (JPM), (WFC), and (BAC) on bigger dips.
The Bond Collapse Goes Global, with German 10-year bunds going positive for the first time in three years, up 40 basis points in a month. Yes, inflation is finally hitting the Fatherland, home of post-WWI billion percent inflation. Eurozone inflation just topped 5%, well above its 2% target. British inflation hit a 30-year high. The move has lit a fire under all Euro currencies. Methinks the down move in (TLT) has more to go.
Fed to Raise Rates Eight Times, says Marathon Asset Management. That’s what will be needed to curb the current runaway inflation now at 7.0% and still rising. Personally, I think it will be 12 quarter-point increments to peak out at a 3 ¼% overnight rate. Any more and Powell might bring on a recession.
NASDAQ is Officially in Correction, down 10%, in the wake of poor performance this month. It’s the fourth one since the pandemic began two years ago. Tesla (TSLA), Amazon (AMZN), and NVIDIA (NVDA) have been leading the swan dive, all felled by rapidly rising interest rates. This could go on for months.
Weekly Jobless Claims Hit 286,000, a four-month high, as omicron sends workers fleeing home.
Goldman Sachs (GS) Gets Crushed, down 8%, on disappointing earnings. Tough market conditions are fading trading volumes while 2021 bonuses were through the roof. The move is particularly harsh in that buyers were flooding in right at support at the 200-day moving average.
China GDP (FXI) Grows 8.1% YOY but is rapidly slowing now, thanks to Omicron. China was first in and first out with the pandemic but is getting hit much harder in this round. That has prompted new mass lockdowns which will make out own supply chain problems worse for longer. In Chinese, “lockdown” means they weld your door shut, unlike here. Harsh, but it works.
Oil (USO) Hits Seven-Year High, as inventories hit a 21-year low. No new capital is entering the industry, crimping supplies as old fields play out. The threat of a Russian invasion of the Ukraine is prompting advance stockpiling. Russia is the world’s second-largest oil exporter.
Existing Homes Sales Hit a 15-Year High, at 6.12 million, the best since 2006. December fell 4.6%. Extreme inventory shortage is the issue, with only 910,000 homes for sale at the end of the year, an incredibly low 1.8-month supply. You can’t find anything on the market now, to buy or rent. The median price of a home sold in December was $358,000, a 15.8% gain YOY.
Bitcoin (BITO) Crashes, decisively breaking key support at $40,000. Non-yielding assets of every description are getting wiped. Bail on all crypto options plays asap.
My Ten-Year View
When we come out the other side of pandemic, we will be perfectly poised to launch into my new American Golden Age, or the next Roaring Twenties. With interest rates still at zero, oil cheap, there will be no reason not to. The Dow Average will rise by 800% to 240,000 or more in the coming decade. The American coming out the other side of the pandemic will be far more efficient and profitable than the old. Dow 240,000 here we come!
With the pandemic-driven meltdown on Friday, my January month-to-date performance bounced back hard to 5.05%. My 2022 year-to-date performance also ended at 5.05%. The Dow Average is down -6.12% so far in 2022.
Once stocks went into free fall, I piled on the short positions as fast as I could write the trade alerts, including in Microsoft (MSFT), Apple (AAPL), and a double short in the S&P 500 (SPY). I also increased my shorts in the bond market (TLT) to a triple position. When prices became the most extreme, when the Volatility Index (VIX) hit $30, I bought both (SPY) and (TLT).
If everything goes our way, we should be up 14.26% by the February 18 options expiration.
That brings my 12-year total return to 517.61%, some 2.00 times the S&P 500 (SPX) over the same period. My 12-year average annualized return has ratcheted up to 42.82% easily the highest in the industry.
We need to keep an eye on the number of US Coronavirus cases at 71 million and rising quickly and deaths topping 866,000, which you can find here.
On Monday, January 24 at 6:45 AM, The Market Composite Flash PMI for January is out. Haliburton (HAL) reports.
On Tuesday, January 25 at 6:00 AM, the S&P Case Shiller National Home Price Index for November is released. American Express (AXP) reports.
On Wednesday, January 26 at 7:00 AM, the New Home Sales for December are published. At 11:00 AM The Federal Reserve interest rate decision is announced. Tesla (TSLA), Boeing (BA), and Freeport McMoRan (FCX) report.
On Thursday, January 27 at 8:30 AM the Weekly Jobless Claims are disclosed. We also get the first look at US Q4 GDP. Alaska Air (ALK) and US Steel (X) report.
On Friday, January 28 at 5:30 AM EST US Personal Income & Spending is printed. Caterpillar (CAT) reports. At 2:00 PM, the Baker Hughes Oil Rig Count is out.
As for me, when I drove up to visit my pharmacist in Incline Village, Nevada, I warned him in advance that I had a question he never heard before: How good is 80-year-old morphine?
He stood back and eyed me suspiciously. Then I explained in detail.
Two years ago, I led an expedition to the South Pacific Solomon Island of Guadalcanal for the US Marine Corps Historical Division (click here for the link). My mission was to recover physical remains and dog tags from the missing-in-action there from the epic 1942 battle.
Between 1942 and 1944, nearly four hundred Marines vanished in the jungles, seas, and skies of Guadalcanal. They were the victims of enemy ambushes and friendly fire, hard fighting, malaria, dysentery, and poor planning.
They were buried in field graves, in cemeteries as unknowns, if not at all left out in the open where they fell. They were classified as “missing,” as “not recovered,” as “presumed dead.”
I managed to accomplish this by hiring an army of kids who knew where the most productive battlefields were, offering a reward of $10 a dog tag, a king's ransom in one of the poorest countries in the world. I recovered about 30 rusted, barely legible oval steel tags.
They also brought me unexploded Japanese hand grenades (please don’t drop), live mortar shells, lots of US 50 caliber and Japanese 7.7 mm Arisaka ammo, and the odd human jawbone, nationality undetermined.
I also chased down a lot of rumors.
There was said to be a fully intact Japanese zero fighter in flying condition hidden in a container at the port for sale to the highest bidder. No luck there.
There was also a just discovered intact B-17 Flying Fortress bomber that crash-landed on a mountain peak with a crew of 11. But that required a four-hour mosquito-infested jungle climb and I figured it wasn’t worth the malaria.
Then, one kid said he knows the location of a Japanese hospital. He led me down a steep, crumbling coral ravine, up a canyon and into a dark cave. And there it was, a Japanese field hospital untouched since the day it was abandoned in 1943.
The skeletons of Japanese soldiers in decayed but full uniform laid in cots where they died. There was a pile of skeletons in the back of the cave. Rusted bottles of Japanese drugs were strewn about, and yellowed glass sachets of morphine were scattered everywhere. I slowly backed out, fearing a cave-in.
It was creepy.
I sent my finds to the Marine Corps at Quantico, Virginia, who traced and returned them to the families. Often the survivors were the children or even grandchildren of the MIAs. What came back were stories of pain and loss that had finally reached closure after eight decades.
Wandering about the island, I often ran into Japanese groups with the same goals as mine. My Japanese is still fluent enough to carry on a decent friendly conversation with the grandchildren of their veterans. It turned out I knew far more about their loved ones than they. After all, it was our side that wrote the history. They were very grateful.
How many MIAs were they looking for? 30,000! Every year, they found hundreds of skeletons, cremated in a ceremony, one of which I was invited to. The ashes were returned to giant bronze urns at Yasakuni Ginja in Tokyo, the final resting place of hundreds of thousands of their own.
My pharmacist friend thought the morphine I discovered had lost half of its potency. Would he take it himself? No way!
As for me, I was a lucky one. My dad made it back from Guadalcanal, although the malaria and post-traumatic stress bothered him for years. And you never wanted to get in a fight with him….ever.
I can work here and make money in the stock market all day long. But my efforts on Guadalcanal were infinitely more rewarding. I’ll be going back as soon as the pandemic ends, now that I know where to look.
Stay Healthy.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
True MIAs, the Ultimate Sacrifice
My Collection of Dog Tags and Morphine
My Army of Scavengers
Dad on Guadalcanal (lower right)
Mad Hedge Technology Letter
November 12, 2021
Fiat Lux
Featured Trade:
(PEAK STREAMING GROWTH ISN’T THE END OF STREAMING)
(DIS), (NFLX), (AMZN)
Peak streaming — that’s what the indicators are telling us.
It’s been a good run — lots of money made so far.
The streaming industry is resting after the pandemic pulled revenue forward a few years.
It won’t be as easy now, as the maturity of the industry means that it becomes a war inside the war, instead of the tide-lifts-all-boats type of growth.
The latter is what everyone hopes, but doesn’t always get.
The world’s largest entertainment company, Disney, posted a significant slowdown in subscriber sign-ups at its flagship streaming service in the most recent quarter.
Disney+ added only two million subscribers last quarter bringing its total to 118.1 million.
Analysts had expected this quarter’s total to come to 125.3 million. During the previous quarter, Disney+ had added more than 12 million new subscribers.
First, the follow-through from consumers just wanting to experience outside and the services attached to them ring true.
The price hikes are also another net negative, as it makes consumers less enthused about signing up.
This had to be expected and many of these streaming companies would honestly admit that they couldn’t continue the pandemic era performance.
A reversion to the mean is not the end of streaming and Disney’s streaming services.
It is still on track to reach previous guidance of between 230 million and 260 million paid Disney+ subscribers globally by the end of fiscal 2024.
Dig deeper into the streaming data and it shows that customers in India didn’t sign up because of a delay of Indian Premier League cricket games that were to air on the service.
Another indicator of the pivot to outside business is the Disney theme park revenue climbing 99%.
The trend towards outdoor activities means a slew of cancellations of the monthly subscriptions.
Netflix was the rare streaming company that bucked the trend.
Netflix streaming service added 4.4 million subscribers—or about a million more than it had forecast—on the strength of new popular shows like “Squid Game.”
Moving forward, the bar rises quite a bit for the quality of content.
Viewers are demanding more or they are riding Space Mountain in Anaheim.
Streaming companies won’t be able to pedal out mediocre shows and movies, and secondly, there is no patience for customers as the number of streaming options has multiplied.
The deeper underbelly shows us that the general trend of linear TV cancellations and streaming signups appears to be continuing even if the rate of signups is slowing.
Disney, WarnerMedia, and AMC Networks all reaffirmed previous full-year and future year forecasts. And while pandemic gains may have slowed, production slowdowns and shutdowns have also ended, which will lead to a surge of new content for all of the streaming services.
Disney investors will be zeroed in to see if the company can pump out some blockbusters, but a glut of content might mean not enough eyeballs to digest these blockbusters.
Coronavirus-related production delays continue to disrupt its pipeline of content delivery.
Disney subscriber growth could ramp back up in the latter half of 2022 when they have better titles coming to market.
Another issue for Disney is if they are willing to produce more adult content and veer away from the younger cohort they are used to entertaining.
I don’t mean X rated, but the 25-44 aged bunch, everyone is sick of the superhero movies.
When it comes to attracting subscribers to Disney+, the company in November and December will be relying on a Beatles documentary, “The Beatles: Get Back,” additional Marvel Studios and Lucasfilm Ltd. shows and films that include a new “Home Alone” feature.
In April, Jeff Bezos said more than 175 million Amazon Prime members had streamed shows and movies in the past year.
Beyond the big three — Netflix, Disney+, and Amazon Prime — things get cloudier.
In July, NBCUniversal’s Peacock reported 54 million net new subscribers and more than 20 million monthly active accounts.
Other players with potentially strong platforms include WarnerMedia’s HBO Max, with a reported 69.4 million global subscribers, and Apple TV+, which is rumored to have about 20 million U.S. subscribers.
The major streaming competitors are also actively expanding their footprint abroad to acquire more growth, but the issue I have there is that the average revenue per user (ARPU) is nothing close to what it is in North America.
Although oversees revenue could provide a little bump to earnings, it won’t recreate their earnings composition.
Which leads me to a broader take on tech, it’s slowing down because we have been in the same cycle which was essentially initiated by the smartphone, the cloud, 3G super apps, and high-speed internet.
Those super levers are showing exhaustion.
It’s not a coincidence that Facebook’s Mark Zuckerberg was desperately trotting out his vision for the Metaverse and Apple removing personal data tracking from its ecosystem.
These are late cycle signs that shouldn’t be missed.
Big tech has become a great deal more mercantilist during the latter half of this bull market, yet we aren’t at the point of cannibalization, but I do envision that moment 5-7 years out from now.
Until then, high quality tech will grind higher while slowly raising their monthly prices, and the low-quality tech products will fall by the wayside because they lack the killer content.
Mad Hedge Technology Letter
October 20, 2021
Fiat Lux
Featured Trade:
(NETFLIX STILL ADDING VIEWERS)
(NFLX)
Netflix (NFLX) is reaching close to 1 billion TV fans globally with their content, and that can obviously generate a lot of virility for great pieces of content.
That being said, the content has to deliver. Yet that’s what Netflix has essentially done from the beginning, repeatedly offering world-class content that is consumed in nanoseconds.
If you think about the big picture, NFLX is at 213 million subscribers and that doesn’t make a dent compared to pay-TV households, ex-China.
But NFLX certainly believes they can match pay-TV households, and that aspiration signals plenty of room for growth.
Streaming is developing at a breathtaking pace, all kinds of devices and competitors helping that market grow, and it’s not just NFLX even though many of us live in a NFLX-centric world.
Then when I think about what’s out there in terms of competition — competition of content because NFLX doesn’t live in a vacuum.
Allowing to scale with this robust network and offering titles like Squid Game a chance to go viral really just signals overperformance for the NFLX business as a whole.
The most incredible part is the system that NFLX built from scratch that has turned into a highly distributed business model when it was NFLX’s Korean team two years ago that commissioned the hit show.
Just the synergy in that is great for NFLX, while really driving a narrative of a strong international audience that is digesting the Netflix content engine.
To that, I must give NFLX management credit for pushing hard into the content creation business and they have really made miracles happen up against the pandemic and all, but now with the team wrestling with the post-COVID, how do things move forward?
It all comes back to if NFLX can be that first choice in entertainment, then ultimately, that's what's driving that secular growth from linear to streaming entertainment and specifically NFLX’s platform.
The NFLX team recognized something that nobody else did and created an environment for that creator to make a great show.
They pretty much found the best content creators, handed them boatloads of cash, and said go make something kickass and they did.
Hollywood has been notorious for not only selling out but for micromanaging content creators and suffocating the creation process.
Clearly, when creative artists are not given the freedom to create, it negatively impacts the end-product, and that’s a pivotal reason linear television and Hollywood are now chasing NFLX.
NFLX is now the King of content going viral and going viral is really hard to predict, but it's super powerful when it happens, and they deliver the goods to be able to deliver that much viewing when viewers storm NFLX’s platform to consumer adjacent content that turns into binge-watching.
And you have people talk about it in ravenous terms that you can spoof it on Saturday Night Live because it's so in the zeitgeist.
Few companies in the world can accomplish that.
Now it’s not only Korea’s Squid Game, but NFLX is churning out the viral hits like with La Casa de Papel from Spain, with Lupin from France, with the film Blood Red Sky from Germany, from Sex Education in the U.K., where the stories of the world can increasingly come from anywhere in the world.
NFLX has systemized a way to build great hits.
Non-English content viewing has grown three times since NFLX started in 2008 making content.
Installing new storytellers into the world from everywhere in the world is supercharging the business model and that’s why we are experiencing a massive melt-up in NFLX shares.
Global Market Comments
August 27, 2021
Fiat Lux
Featured Trade:
(AUGUST 25 BIWEEKLY STRATEGY WEBINAR Q&A),
(ROM), (EEM), (FXI), (DIS), (AMZN), (NFLX), (CHPT), (TLT), (TBT), (AAPL),
(GOOG), (WPM), (GOLD), (NEM), (GDX), (X), (SLV), (FCX), (BA), (HOOD), (USO)
Below please find subscribers’ Q&A for the August 25 Mad Hedge Fund Trader Global Strategy Webinar broadcast from The Atlantis Casino Hotel in Reno, NV.
Q: How does a 2X ProShares Ultra Technology ETF (ROM) February 2022 vertical bull call spread on the ROM look? Would you do $110-$115 or $115-$120?
A: I would do nothing here at $112.50 because we’ve just gone up 10 points in a week. I’d wait for some kind of pullback, even just $5 or $10 points, and then I would do the $110-$115. I’m leaning towards more conservative LEAPS these days—bets that the market goes sideways to up small rather than going ballistic, which it has done for the last 18 months. Think at-the-money strikes, not deep out-of-the-money on your LEAPS from here on for the rest of this economic cycle. The potential profits are still enormous. The only problem with (ROM) is that the longest maturities on the options are only six months.
Q: How do you recommend entering your long-term portfolio?
A: I would use the one-third rule: you put on ⅓ now, ⅓ higher or lower later on, and ⅓ higher or lower again. That way you get a good average price. Long term, everything goes up until we hit the next recession, which is probably several years off.
Q: I keep reading that the Delta variant is a market risk, but I don’t think that investors will look through this. Is Delta already priced into the shares?
A: Yes, what is not priced into the shares is the end of Delta, the end of the pandemic—and that will lead to my “everything” rally that I’ve been talking about for a month now. And we have already seen the beginning of that, especially with the price action this week. So yes, Delta in: dead market; Delta out: roaring market.
Q: Do you think there will eventually be a rotation into emerging markets (EEM), or has the virus battered these markets too much to even consider it?
A: Sometime in our future—not yet—the emerging markets will be our core holding. And the trigger for that will be the collapse of the dollar, which is hitting an interim high right now. When the greenback rolls over and dies, you can expect emerging markets, especially China, to take off like a rocket. That’s going to be our next big trade. I don't know if it will be this year or next year but it’s coming, so start doing your emerging market research now, and keep reading my newsletter.
Q: Is the coming tax hike a problem for the stock market?
A: No, I don’t think so. First off, I don’t think they’re going to do a tax bill this year; they don’t want anything to interfere with the 2022 election, so it may be next year’s business. Also, any new taxes are going to be overwhelmingly focused on billionaires, carried interest, offshoring, and large corporations. The middle class, people who make less than $400,000 a year, will not see any tax hike at all, possibly even getting some tax cuts via restored SALT deductions. So, I don't really see it affecting the stock market at all.
Q: What do you think about Chinese stocks (FXI)?
A: Long-term they’re okay, short term possibly more downside. Interestingly, the bigger risk may not be China itself and how the government is beating up its own tech companies, but the SEC. It has indicated they don’t really like these offshore vehicles that have been listed on the New York Stock Exchange, and they may move to ban them. I’m not rushing into China right now, only because there are just so many better opportunities in the US stock market for the time being. I may go back in the future—it’s a case where I’d rather buy them on the way up than trying to catch a falling knife on China right now.
Q: Do you expect any market impact from the Jackson Hole meeting?
A: Yes, whatever J Powell says, even if he says nothing, will have a market impact. And it will have a bigger impact on the bond market than it will on the stock market, which is down a full point this morning. So yes, but not yet. I imagine we’ll hear something very soon.
Q: September and October tend to be volatile; do you see us having a 5% or 10% pullback in those months?
A: I don’t see any more than 5%, with the hyper liquidity that we have in the system now. There just aren’t any events out there that could trigger a pullback of 10%—no geopolitical events, and the economy will be getting stronger, not worse. So yes, an “everything rally” doesn’t give you many long side entry points, so I just don’t see 10% happening.
Q: What about a Walt Disney (DIS) January 2022 $180-$220 LEAPS?
A: I would do the $180-$200. I think you can afford to be tighter on your spread there, take some more risk because I think it’s just going to go nuts to the upside once we get a drop in COVID cases. By the way, Disney parks are only operating at 70% capacity, so if you go back up to 100% that's a near 50% increase in profits for the company. And it’s not just Disney, but Netflix (NFLX), Amazon (AMZN), and everybody else that’s about to have the greatest number of blockbuster movies released of all time. They’re holding back their big-ticket movies for the end of the pandemic when people can go back into theaters. We’ll start seeing those movies come out in the last quarter of this year, and I’m particularly looking forward to the next James Bond movie, a man after my own heart.
Q: Are EV car charging companies like ChargePoint Holdings (CHPT) going to do as well as the car companies?
A: No. They’re low margin business, so it’s not a business model for me. I like high-profit margins, huge barriers to entry, and very wide moats, which pretty much characterizes everything I own. The big profits in EVs are going to be in the cars themselves. Charging the cars is a very capital-intensive, highly regulated, and low-margin business.
Q: Would a Fed taper cause a 10% pullback?
A: Absolutely not; in fact, I think a taper would make the market go up because Jay Powell has been talking it into the market all year. And that’s his goal, is to minimize the impact of a taper so when they finally do it, they say ho-hum and “okay you can take that risk out of the market.” That’s the way these things work.
Q: What is your yearend target for United States Treasury Bond Fund (TLT)?
A: $132. Call it bold, but I'm all about bold. I think the first stop will be at $144, then $138, then bombs away!
Q: What will it take for (TLT) to dip below $130?
A: Another year of hot economic growth, which Congress seems hell-bent on delivering us.
Q: What are your ProShares Ultra Short 20+ Year Treasury ETF (TBT) targets?
A: When we were at 1.76% on the 10-year bond, the (TBT) made it all the way back to 22 ½. Next year we go higher, probably to $25, maybe even $30.
Q: What’s your 10-year view on the (TBT)?
A: $200. That’s when you get interest rates back to 10% in 10 years on the 10-year bond. So yes, that’s a great long-term play.
Q: How long can we hold (TBT)?
A: As long as you want. Ten years would be a good time frame if you want to catch that $17 to $200 move. The (TBT) is an ETF, not an option, therefore it doesn’t expire.
Q: Are you working on an electrification stock list?
A: I am not, because it’s such a fragmented sector. It’s tough to really nail down specific stocks. I think it’s safe to say that the electric power grid is going to change beyond all recognition, but they won’t necessarily be in high margin companies, and I tend to prefer high-profit-margin, large-moat companies which nobody else can get into, like Apple (AAPL) or Google (GOOG).
Q: What about gas pipelines with high yields?
A: They have a high yield for a reason; because they’re very high risk. If you're going to a carbon-free economy, you don’t necessarily want to own pipelines whose main job is moving carbon; it’s another buggy whip-type industry I would avoid. I’ve seen people get wiped out by these things more times than I could count. If you remember Master Limited Partnerships, quite a few of them went bankrupt last year with the oil crash, so I would avoid that area. These tend to be very highly leveraged and poorly managed instruments.
Q: Best play on silver (SLV)?
A: Wheaton Precious Metals (WPM) is the highest leveraged silver play out there, and a great LEAPS candidate. Go out 2 years and triple your money.
Q: Geopolitical oil (USO) risks?
A: No, nobody cares about oil anymore—that’s why we’re giving up on Afghanistan. China is buying 80% of the Persian Gulf oil right now. We don’t really need it at all, so why have our military over there to protect China’s oil supply?
Q: What about Freeport McMoRan (FCX)?
A: I absolutely love it. Any big economic recovery can’t happen without copper, and you have a huge tailwind there from electric cars which need 200 pounds of copper each, as opposed to 20 pounds in conventional cars.
Q: I see AMC Entertainment Holdings (AMC) is up 20% today; should everyone be chasing this stock?
A: No, absolutely not. (AMC) and all the meme stocks aren’t investments, they’re gambling, and there are better ways to gamble.
Q: Should I buy the lumber dip?
A: Yes. I think the slowdown on housing is temporary because it will take 10 years for supply and demand in the housing market to come back into balance because of all the millennials entering the housing market for the first time. So, that would be a yes on lumber and all the other commodities out there that go into housing like copper, steel, and aluminum.
Q: Should I put money into Canadian Junior Gold Miners (GDX)?
A: No, I would rather go out and take a long nap first. These are just so high risk, and they often go bankrupt. The liquidity is terrible, and the dealing spreads are wide. I would stick with the bigger precious metal plays like Newmont Mining (NEM), Barrick Gold (GOLD), and Wheaton Precious Metals (WPM).
Q: Is Boeing (BA) a buy here?
A: Yes, we’re back at the bottom end of the trading range for the stock. It’s just a matter of time before they get things right, and the 737 Max orders are rolling in like crazy now that there’s an airplane shortage.
Q: What do you think about Robinhood (HOOD)?
A: I like it quite a lot; I got flushed out of my long position on Friday with a 10% down move. Of course, 90% of my stop losses end up expiring at their maximum profit points, but I have to do it to keep the volatility of the portfolio down. So yes, I’ll try to buy it again on the next dip. The trouble is it’s kind of a quasi-meme stock in its own right, hence the volatility; so I would say on the next 10% down day, you go into Robinhood, and I probably will too.
Q: How are the wildfires around Tahoe?
A: They’re terrible and there are three of them. I did a hike two days ago there, and out of a parking lot with 100 spaces, I was the only one there. It’s the only time I’d ever seen Tahoe deserted in August. With visibility of 500 yards, it's just terrible. Fortunately, I was able to hike without coughing my guts out—it’s not so thick that you can’t breathe.
Q: What do you think of US Steel (X)?
A: I like it, I think the whole industrial commodity complex rallies like crazy going into the end of the year.
Q: As a new member, where is the best place to start? It’s just kind of like drinking from a fire hose.
A: Wait for the trade alerts; they only happen at sweet spots and you may have to wait a few days or weeks to get one since we only like to enter them at good points. That’s the best place to enter new positions for the first time. In the meantime, keep reading all the research, because when these trade alerts do come out, they’re not surprises because I’m pumping out research on them every day, across multiple fronts. Be patient— we are running a 93% success rate, but only because we take our time on entering good trades. The services that guarantee a trade alert every day lose money hand over fist.
Q: If they do delist Chinese stocks, will US investors be left holding the bag?
A: Yes, and that will be the only reason they don’t delist them, that they don’t want to wipe out all current US investors.
To watch a replay of this webinar with all the charts, bells, whistles, and classic rock music, just log in to www.madhedgefundtrader.com, go to MY ACCOUNT, click on GLOBAL TRADING DISPATCH or TECHNOLOGY LETTER (whichever applies to you), then select WEBINARS and all the webinars from the last ten years are there in all their glory.
Good Luck and Stay Healthy.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
