(NFLX) Archives - Page 27 of 34 - Mad Hedge Fund Trader

August 22 Biweekly Strategy Webinar Q&A

Below please find subscribers’ Q&A for the Mad Hedge Fund Trader August 22 Global Strategy Webinar with my guest and co-host Bill Davis of the Mad Day Trader.

As usual, every asset class long and short was covered. You are certainly an inquisitive lot, and keep those questions coming!

Q: How do you think the trade talks will resolve?

A: There will be no resolution this next round of trade talks. China has sent only their most hawkish negotiators who believe that China has done nothing wrong, so don’t expect results any time soon.

Also, because of the arrests in Washington, China is more inclined to just wait out Donald Trump, whether that’s 6 months or 6 1/2 years. They believe they have the upper hand now, sensing weakness in Washington, and in any case, many of the American requests are ridiculous.

Trade talks will likely overhang the market for the rest of this year and you don’t want to go running back into those China Tech plays, like Alibaba (BABA) and Baidu (BIDU) too soon. However, they are offering fantastic value at these levels.

Q: Will the Washington political storm bring down the market?

A: No, it won’t. Even in the case of impeachment, all that will happen is the market will stall and go sideways for a while until it’s over. The market went straight up during the Clinton impeachment, but that was during the tail end of the Dotcom Boom.

Q: Is Alibaba oversold here at 177?

A: Absolutely, it is a great buy. There is a double in this stock over the long term. But, be prepared for more volatility until the trade wars end, especially with China, which could be quite some time.

Q: What would you do with the Volatility Index (VIX) now?

A: Buy at 11 and buy more at 10. It’s a great hedge against your existing long portfolio. It’s at $12 right now.

Q: Are the emerging markets (EEM) a place to be again right now or do you see more carnage?

A: I see more carnage. As long as the dollar is strong, U.S. interest rates are rising, and we have trade wars, the worst victims of all of that are emerging markets as you can see in the charts. Anything emerging market, whether you’re looking at the stocks, bonds or currency, has been a disaster.

Q: Is it time to go short or neutral in the S&P 500 (SPY)?

A: Keep a minimal long just so you have some participation if the slow-motion melt-up continues, but that is it. I’m keeping risks to a minimum now. I only really have one position to prove that I’m not dead or retired. If it were up to me I’d be 100% cash right now.

Q: Would you buy Bitcoin here around $6,500?

A: No, I would not. There still is a 50/50 chance that Bitcoin goes to zero. It’s looking more and more like a Ponzi scheme every day. If we do break the $6,000 level again, look for $4,000 very quickly. Overall, there are too many better fish to fry.

Q: Is it time to buy gold (GLD) and gold miners (GDX)?

A: No, as long as the U.S. is raising interest rates, you don’t want to go anywhere near the precious metals. No yield plays do well in the current environment, and gold is part of that.

Q: What do you think about Lithium?

A: Lithium has been dragged down all year, just like the rest of the commodities. You would think that with rising electric car production around the world, and with Tesla building a second Gigafactory in Nevada, there would be a high demand for Lithium.

But, it turns out Lithium is not that rare; it’s actually one of the most common elements in the world. What is rare is cheap labor and the lack of environmental controls in the processing.

However, it’s not a terrible idea to buy a position in Sociedad Química y Minera (SQM), the major Chilean Lithium producer, but only if you have a nice long-term view, like well into next year. (SQM) was an old favorite of mine during the last commodity boom, when we caught a few doubles. (Check our research data base).

Q: How can the U.S. debt be resolved? Or can we continue on indefinitely with this level of debt?

A: Actually, we can go on indefinitely with this level of debt; what we can’t do is keep adding a trillion dollars a year, which the current federal budget is guaranteed to deliver. At some point the government will crowd out private borrowers, including you and me, out of the market, which will eventually cause the next recession.

Q: Time to rotate out of stocks?

A: Not yet; all we have to do is rotate out of one kind of stock into another, i.e. out of technology and into consumer staple and value stocks. We will still get that performance, but remember we are 9.5 years into what is probably a 10-year bull market.

So, keep the positions small, rotate when the sector changes, and you’ll still make money. But, let's face it the S&P 500 isn’t 600 anymore, it’s 2,800 and the pickings are going to get a lot slimmer from here on out. Watch the movie but stay close to the exit to escape the coming flash fire.

Q: What kind of time frame does Amazon (AMZN) double?

A: The only question is whether it happens now or on the other side of the next recession. We can assume five years for sure.

Q: More upside to Home Depot (HD)?

A: Absolutely, yes. The high home prices lead to increases in home remodeling, and now that Orchard Hardware has gone out of business, all that business has gone to Home Depot. Home Depot just went over $204 a couple days ago.

Q: Do you still like India (PIN)?

A: If you want to pick an emerging market to enter, that’s the one. It’s a Hedge Fund favorite and has the largest potential for growth.

Q: What about oil stocks (USO)?

A: You don’t want to touch them at all; they look terrible. Wait for Texas tea to fall to $60 at the very least.

Q: What would you do with Netflix (NFLX)?

A: I would probably start scaling into buy right here. If you held a gun to my head, the one trade I would do now would be a deep in the money call spread in Netflix, now that they’ve had their $100 drop. And I can’t wait to see how the final season of House of Cards ends!

Q: If yields are going up, why are utilities doing so well?

A: Yields are going down right now, for the short term. We’ve backed off from 3.05% all the way to 2.81%; that’s why you’re getting this rally in the yield plays, but I think it will be a very short-lived event.

Q: Do you see retail stocks remaining strong from now through Christmas?

A: I don’t see this as part of the Christmas move going on right now; I think it’s a rotation into laggard plays, and it’s also very stock specific. Stocks like Nordstrom (JWN) and Target (TGT) are doing well, for instance, while others are getting slaughtered. I would be careful with which stocks you get into.

Good luck and good trading
John Thomas
CEO & Publisher
Diary of a Mad Hedge Fund Trader

August 23, 2018

Diary, Newsletter, Summary

Global Market Comments
August 23, 2018
Fiat Lux

Featured Trade:
(WHY THE DOW IS GOING TO 120,000),
(X), (IBM), (GM), (MSFT), (INTC), (DELL),
($INDU), (NFLX), (AMZN), (AAPL), (GOOGL),
(THE MAD HEDGE CONCIERGE SERVICE HAS AN OPENING),
(TESTIMONIAL)

Why the Dow is Going to 120,000

Diary, Newsletter, Research

For years, I have been predicting that a new Golden Age was setting up for America, a repeat of the Roaring Twenties. The response I received was that I was a permabull, a nut job, or a conman simply trying to sell more newsletters.

Now some strategists are finally starting to agree with me. They too are recognizing that a ganging up of three generations of investment preferences will combine to drive markets higher during the 2020s, much higher.

How high are we talking? How about a Dow Average of 120,000 by 2030, up another 465% from here? That is a 20-fold gain from the March 2009 bottom.

It’s all about demographics, which are creating an epic structural shortage of stocks. I’m talking about the 80 million Baby Boomers, 65 million from Generation X, and now 85 million Millennials. Add the three generations together and you end up with a staggering 230 million investors chasing stocks, the most in history, perhaps by a factor of two.

Oh, and by the way, the number of shares out there to buy is actually shrinking, thanks to a record $1 trillion in corporate stock buybacks.

I’m not talking pie in the sky stuff here. Such ballistic moves have happened many times in history. And I am not talking about the 17^th century tulip bubble. They have happened in my lifetime. From August 1982 until April 2000 the Dow Average rose, you guessed it, exactly 20 times, from 600 to 12,000, when the Dotcom bubble popped.

What have the Millennials been buying? I know many, like my kids, their friends, and the many new Millennials who have recently been subscribing to the Diary of a Mad Hedge Fund Trader. Yes, it seems you can learn new tricks from an old dog. But they are a different kind of investor.

Like all of us, they buy companies they know, work for, and are comfortable with. During my Dad’s generation that meant loading your portfolio with U.S. Steel (X), IBM (IBM), and General Motors (GM).

For my generation that meant buying Microsoft (MSFT), Intel (INTC), and Dell Computer (DELL).

For Millennials that means focusing on Netflix (NFLX), Amazon (AMZN), Apple (AAPL), and Alphabet (GOOGL).

That’s why these four stocks account for some 40% of this year’s 7% gain. Oh yes, and they bought a few Bitcoin along the way too, to their eternal grief.

There is one catch to this hyper-bullish scenario. Somewhere on the way to the next market apex at Dow 120,000 in 2030 we need to squeeze in a recession. That is increasingly becoming a topic of market discussion.

The consensus now is that an impending inverted yield curve will force a recession sometime between August 2019 to August 2020. Throwing fat on the fire will be a one-time only tax break and deficit spending that burns out sometime in 2019. These will be a major factor in U.S. corporate earnings growth dramatically slowing down from 26% today to 5% next year.

Bear markets in stocks historically precede recessions by an average of seven months so that puts the next peak in top prices taking place between February 2019 to February 2020.

When I get a better read on precise dates and market levels, you’ll be the first to know.

To read my full research piece on the topic please click here to read “Get Ready for the Coming Golden Age.”

Dow 1982-2000 Up 20 Times in 18 Years

Dow 2009-Today Up 4.3 Times in 9 Years So Far

August 20, 2018

Diary, Newsletter, Summary

Global Market Comments
August 20, 2018
Fiat Lux

Featured Trade:
(THE MARKET OUTLOOK FOR THE WEEK AHEAD, or
IS THE TRADE WAR ON OR OFF?),
(AAPL), (UUP), (EEM), (NFLX), (TSLA), (GOOGL), (SOYB),
(SOME SAGE ADVICE ABOUT ASSET ALLOCATION)

The Market Outlook for the Week Ahead, or Is the Trade War on or Off?

Diary, Newsletter, Research

Is the trade war on or off? Trillions of dollars in cash flow and investment depend on the answer to the question.

Traders and investors can be forgiven for being confused. It was only a week ago that a doubling of duties on Turkish imports were threatened because of an American pastor locked up there two years ago, triggering a stock meltdown.

Then, on Wednesday night presidential economic advisor Larry Kudlow hinted that he would meet with a Chinese trade delegation, prompting a 400-point Dow melt-up. Please note that except for Apple (AAPL), technology stocks did not participate in the rally one iota.

In the meantime, Apple continued its relentless march to my $220 target for $2018, so you might think about taking some money off the table. The market capitalization now stands at a staggering $1.05 trillion, the largest in the world.

It vindicates my call that at any time the administration could suddenly declare victory in the trade war, prompting a major stock market rally, regardless of the outcome.

So what happens next. Expect the trade talks to fail, or not happen at all. Market meltdowns will be followed by melt-up, then meltdowns again. Certainly, that's what the soybean (SOYB) market believes, that new canary in the coal mine for our global trade wars. It barely moved this week.

Hey, if trading were easy it would pay the federal minimum wage rate of $7.25 an hour, so quit your complaining!

As if trade wars were the only thing to worry about these days.

There is a mass protest underway at Alphabet (GOOGL) over the company's proposal to re-enter the China market. No one wants to assist the Middle Kingdom's harsh censorship regime, and some 1,000 employees have already signed a petition to this effect.

Emerging markets (EEM) continue to get pounded by trade wars and a strong U.S. dollar (UUP), which has the effect of increasing their companies' local currency debt.

Elon Musk continues his slow motion public nervous breakdown, cutting Tesla's stock at the knees down to $305. I hope you all took my advice last week to unload the stock at $380.

Netflix (NFLX) shares are undergoing a serious pullback now that it is in between upgrade launches, and the trade wars and strong dollar eat into international subscriber growth, about 80% of the total. Don't forget to buy this dip.

With the Mad Hedge Market Timing Index stuck dead on 50, I am not inclined to reach for trades here. A reading of 50 gives you the perfect "do nothing" indicator.

As is always the case when I return from vacation my first few trades are a rude awakening. August is now showing a modest return of 0.23%. My 2018 year-to-date performance has clawed its way up to 25.03% and my nine-year return appreciated to 302.61%. The Averaged Annualized Return stands at 34.91%. The more narrowly focused Mad Hedge Technology Fund Trade Alert performance is annualizing now at an impressive 32.24%.

This coming week housing statistics will give the most important insights on the state of the economy.

On Monday, August 20, there will be nothing of note to report. It will just be another boring summer day.

On Tuesday, August 21, same thing.

On Wednesday, August 22 at 9:15 AM, we learn July Existing Home Sales. Will the rot continue? Weekly EIA Petroleum Inventory Statistics are out at 10:30 AM. The Fed Minutes from the meeting six weeks ago are out at 2:00 PM EST.

Thursday, August 23 leads with the Weekly Jobless Claims at 8:30 AM EST, which saw a fall of 12,000 last week to 212,000. Also announced are July New Home Sales. The two-day Jackson Hole Symposium of central bankers starts in the morning.

On Friday, August 24 at 8:30 AM EST, we get July Durable Goods. Then the Baker Hughes Rig Count is announced at 1:00 PM EST.

As for me, it is back to school week for me, so I will be making the rounds with the new teachers at two schools. I have to confess that at my age I have trouble distinguishing between the students and the teachers.

Finally, a sad farewell to Aretha Franklin, the Queen of soul, who provided me with a half century of listening pleasure. When I was young, I couldn't afford to go see her, and when I got old I didn't have the time. Isn't life lived backward?

Good luck and good trading.

UP, DOWN, UP, DOWN!

August 9, 2018

Tech Letter

Mad Hedge Technology Letter
August 9, 2018
Fiat Lux

Featured Trade:
(WHY SNAPCHAT IS GOING DOWN THE SOCIAL MEDIA DRAIN),
(SNAP), (FB), (NFLX), (AMZN), (GOOGL), (TWTR), (BB)

Why Snapchat is Going Down the Social Media Drain

Tech Letter

Companies this small should be growing.

Growth companies and tech go hand in hand, especially at the incubation stage where there is little resistance hindering growth.

The law of numbers dictate that small companies only need marginal gains to generate high growth in terms of percentages.

Once a company becomes as big as Amazon (AMZN), it becomes harder to move the needle.

Snapchat (SNAP), which is in the same social media game as Facebook, is vastly smaller than the incumbent that hoovers up the digital ad dollars.

Facebook (FB) boasts 1.47 billion daily active users (DAU) and is one of the members of a powerful digital ad duopoly along with Alphabet.

Snapchat added 4 million net (DAU)s in Q1 2018 and blew its chance for sequentially increasing usership by losing 4 million (DAU)s last quarter.

The stock sold off hard in after-hours trading, down 11% at one point but rebounded big time with the earnings commentary with Snapchat revealing guidance for the first time.

Snap opened the next trading day demonstrably lower reflecting the disenchantment of investors.

Evan Spiegel's creation has really had a hard go of it lately. The app redesign was a cataclysmic failure of epic proportions denting the popularity of this app.

The fallout was sacking 100 engineers.

Overall, there were some positive takeaways from the earnings report, mainly, the revenue beat was satisfying, and profitability shone through with average revenue per user (ARPU) shooting up 34% YOY.

Another victory was the boost in ad revenue, up 48% YOY, which is the main driver of revenue in the company.

The hairiest issue with this company is the fundamentals are excruciatingly apathetic.

Stagnating usership growth at this stage is a red flag.

Social media stocks were bashed in recent trading sessions with Twitter (TWTR) dropping from $46 to $31 because of diminishing usership and soft guidance.

The amount of monthly active users dropped from 338.5 million to 335 million, and financial guidance was brought down a few notches.

Twitter has made a poignant attempt to clean up its system from the debris molding around the edges.

To "improve the health" of the Twitter platform, Twitter purged 6% of all accounts rooting out the influences undesirable to its ethos.

Social media companies must take the initiative to protect its platforms, instead of being a silent bystander to a stabbing in a dark alley.

Facebook was the mother of all drops in the social media space collapsing from an all-time high of $218 to $171, a drop in one trading day.

Guidance tore apart this stock after a rapid run-up to the earnings report that saw unbelievable strength rising almost every day.

Poor guidance reflects the ill-effects of the recently enacted General Data Protection Regulation (GDPR), which tainted the European numbers.

The epicenter of data regulation has crimped profitability and popularity of social media in the Eurozone.

If Facebook and Twitter are facing tough short-term headwinds, then imagine how Snap feels.

They are the small fish in the big pond, and they are running out of places to hide.

Every new user Instagram picks up is one less potential user missed for Snapchat.

Let me remind you that Instagram is boosting its monthly average usership (MAU) 5% per year.

Instagram recently surpassed the 1 billion (MAU) mark after eclipsing the 800 million mark in September 2017.

Instagram added 200 million users, more than the entire (DAU) for Snap, in 11 months.

Big trouble for Snap.

Effectively, Snap is the inferior version of Instagram for young kids and that narrative does not bode well for the future.

For every $1 Snapchat spends, it earns -$6 on that $1. Kids aren't the biggest distributors of wealth. It would help if Snap matured its interface to accommodate older millennials who are tech savvy to boost its average revenue per user.

As it stands, Facebook earns $9 per daily active user while Snapchat earns a smidgeon over $1 per daily active user.

I cannot say that Facebook is a quality platform, but it has successfully monetized the platform.

What's more, CEO Evan Spiegel blamed the drop in usership on the redesign.

Yes, the redesign didn't help, but the usership would have dropped anyway because of draconian data laws in Europe and the general malaise stigmatized toward current social media platforms.

Management is not executing effectively at Snap, and it is out of touch with its core base without opening up new sources of growth.

If a company redesigns an app, enhance the app, do not make it unusable such as the Snap redesign.

Snap's eggs are all in one basket. And that basket is shrinking in the high revenue locations of North America and Europe.

It only earned $2 million from non-digital ad revenue.

As FANGs power on to pass a trillion dollars of market cap, the diversity in their segments are nothing short of impressive.

Snap has no other irons in the fire and is overly reliant in an industry in which it will slowly bleed to death.

The only savior is in reinventing itself, but that takes guts and a bold CEO with a revolutionary strategy.

There is precedence for this transformation such as BlackBerry (BB), one of the original smartphone makers, which has morphed into an autonomous driving technology company.

Another good example is Netflix, which started out in the DVD industry and pivoted to online streaming.

What Snap is doing has its limits and it needs to shake up its business model or slowly rot.

The company must wake up to the stark realization that its platform is not engaging.

Many analysts believed Snap could become half as big as Facebook and that seems highly unlikely.

I have been bearish on Snap for the entire existence of the Mad Hedge Technology Letter.

And it has been the perfect sell on the rallies stock because of its poor performance, even poorer management, and awful fundamentals.

A telltale sign was the last earnings call.

It was the second quarter in a row of blaming the redesign on bad performance.

If Spiegel underperforms next quarter again - meaning negative growth usership - it will be interesting if he blames the redesign again.

Third times a charm.

Where does this all lead?

Facebook offered to purchase Snapchat after its IPO because management was worried it would steal market share from Instagram.

Snapchat rebuffed the advances and decided to lock horns directly with Instagram.

Well, the David and Goliath battle is playing as most would assume, boding ill for the fate of Snapchat.

Instagram will keep weakening Snapchat moving forward. And Facebook might end up scooping up Snapchat down the road for a discount.

It doesn't look good for Snapchat, and investors should consider shorting this stock after a dead cat bounce.

________________________________________________________________________________________________

Quote of the Day

"The subscription model of buying music is bankrupt. I think you could make available the Second Coming in a subscription model and it might not be successful," - said former Apple cofounder Steve Jobs in a Rolling Stone interview, 2003.

August 7, 2018

Diary, Newsletter

Global Market Comments
August 7, 2018
Fiat Lux

Featured Trade:
(DON'T MISS THE AUGUST 8 GLOBAL STRATEGY WEBINAR),
(TAKING THE E-TICKET RIDE WITH WALT DISNEY),
(DIS), (NFLX), (FOX),
(A VERY BRIGHT SPOT IN REAL ESTATE)

Taking the E-Ticket Ride with Walt Disney

Diary, Newsletter, Research

I'll never forget the first time I met Walt Disney. There he was at the entrance on opening day of the first Disneyland in Anaheim, Calif., in 1955 on Main Street shaking the hand of every visitor as they came in. My dad sold the company truck trailers and managed to score free tickets for the family.

At 100 degrees on that eventful day it was so hot that the asphalt streets melted. Most of the drinking rooms and bathrooms didn't work. And ticket counterfeiters made sure that 100,000 jammed the relatively small park. But we loved it anyway. The band leader handed me his baton and I was allowed to direct the musicians in the most ill-tempoed fashion possible.

After Disney took a vacation to my home away from home in Zermatt, Switzerland, he decided to build a roller-coaster based on bobsleds running down the Matterhorn on a 1:100 scale. In those days, each ride required its own ticket, and the Matterhorn needed an "E-ticket," the most expensive. It was the first tubular steel roller coaster ever built.

Walt Disney shares have been on anything but a roller-coaster ride for the past four years. In fact, they have absolutely gone nowhere.

The main reason has been the drain on the company presented by the sports cable channel ESPN. Once the most valuable cable franchise, the company is now suffering from on multiple fronts, including the acceleration of cord cutting, the demise of traditional cable, the move to online streaming, and the demographic abandonment of traditional sports such as football.

However, ESPN's contribution to Walt Disney earnings is now so small that it is no longer a factor.

In the meantime, a lot has gone right with Walt Disney. The parks are going gangbusters. With two teenaged girls in tow I have hit three in the past two years (Anaheim, Orlando, Paris).

The movie franchise is going from strength to strength. Pixar has Frozen 2 and Toy Story 4 in the pipeline. Look for Lucasfilm to bring out a new trilogy of Star Wars films, even though Solo: A Star Wars Story was a dud. Its online strategy is one of the best in the business. And it's just a matter of time before they hit us with another princess. How many is it now? Nine?

It is about to expand its presence in media networks with the acquisition of 21^st Century Fox (FOX) assets, already its largest source of earnings. It will join the ABC Television Group, the Disney Channel, and the aforementioned ESPN.

It has notified Netflix (NFLX) that it may no longer show Disney films, so it can offer them for sale on its own streaming service. Walt Disney is about to become one of a handful of giant media companies with a near monopoly.

What do you buy in an expensive market? Cheap stuff, especially quality laggards. Walt Disney totally fits the bill.

As for old Walt Disney himself, he died of lung cancer in 1966, just when he was in the planning stages for the Orlando Disney World. All that chain smoking finally got to him. Despite that grandfatherly appearance on the Wonderful World of Color weekly TV show, friends tell me he was a complete bastard to work for.