(NFLX) Archives - Page 29 of 33 - Mad Hedge Fund Trader

The Regulation Effect

Locking horns with large cap technology companies in court is inconceivable for regulators in Washington.

Yes, it is their job to put out fires left, right, and center, but when the scorching inferno reaches full intensity, regulators hit the pass button.

Taking on an industry that employs an army of lawyers and data analysts up the wazoo is frightful.

Tech wants to make the skirmish into a resource fight and no cohort has more ammunition than these four companies.

They are already on the way to create more unregulated industries simply because they do not exist yet.

This is why regulators cannot keep up with the nimbleness on display by the tech industry.

They are always one, maybe two steps ahead.

Investors have been able to digest consequences of the data fiasco fueling an even more bullish narrative for the likes of Facebook (FB) and Alphabet (GOOGL).

Facebook and Alphabet are the two laggards in the vaunted FANG group, only because they are up against Netflix (NFLX) and Amazon (AMZN), two of the most transformational companies of the gig economy generation.

Facebook and Alphabet give traders entry points; Amazon and Netflix hardly ever.

Investors are hard pressed to find days when Amazon and Netflix drop more than 1%, and a brief respite is met with a torrent of new buying.

Even more of a head-scratcher is the American law etched into the books, calculating harm by connecting it with price increases, underscoring the FANG's dominant position.

It is almost impossible to prove caused "harm" because Alphabet and Facebook services are free. However, the free service is a misnomer, because of the extreme manipulation of data allowing tech titans to profit from data opportunities instead of charging customers a service fee.

The Mad Hedge Technology Letter has been rolling out a steady dose of Facebook recommendations since its inception to scintillating effect.

The Cambridge Analytica scandal stoked mayhem on the global news waves ravaging Facebook shares from $192 down to $153.

Investors were panicking and rightly so. A precipitous drop is nothing investors with skin in the game like to see.

The Mad Hedge Technology Letter saw it as a gift from the celestial stars and ushered subscribers into this suave stock at $168, to reread this memorable story please click here.

Facebook has gone from strength to strength blowing past expectations celebrating all-time highs of a recent intraday price of $207 earlier this week.

I am still highly bullish on Facebook, even more so after the first fines were doled out for the recent scandals.

Under the old data laws in Britain, Facebook was fined a grand total of $660,000 along with a detailed report from the Information Commissioner's Office castigating Facebook's business practices.

This amount is peanuts for Facebook, practically equaling the cost of providing a16-person security detail for CEO Mark Zuckerberg around his Palo Alto, California, estate for maybe two weeks.

If Facebook can hold down these fines to inconsequential amounts, regulation will be a decisive tailwind going forward.

How does a headwind turn into a tailwind in the blink of an eye?

General Data Protection Regulation (GDPR) rolled out in Europe lately has helped Alphabet and Facebook solidify their digital ad business.

Alphabet has adopted a stringent version of the rules to its new model because the behemoth does not need to take on the added risk of noncompliance.

Marginal companies do.

The possibility of exorbitant fines clearly grabbed the attention of Silicon Valley CEOs, and they have put the ball in motion to insulate themselves from such downside risk.

Unsurprisingly, Alphabet has a higher opt-in consent rate than its smaller tech brethren.

Users are more comfortably entrusting data to an Alphabet instead of a smaller unknown that could potentially be 10 times worse than Alphabet.

Uncertainty breeds risk aversion.

Recent data shows other companies have a galling time keeping up with the same percentage of consent as Alphabet.

You cannot expect a college basketball player to perform miracles like Steph Curry.

This puts Alphabet in a healthier strategic position as the users who consent are five times more valuable to digital ad exchanges and easier to monetize.

Other ad exchanges face an uphill battle against Alphabet if they cannot increase the rate of consent.

The extra premium is derived from the ability to personalize the advertisements boosting the conversion rate for sellers.

Alphabet has in effect increased its quality of data just by being Alphabet.

It is certainly not fair, but life is not fair.

And then there is the conundrum of where do you go if you do not want to sell on Alphabet or Facebook?

Well, Twitter (TWTR), Snapchat (SNAP), and Instagram (owned by Facebook) are the other alternatives fighting for the scraps.

The battle to get users to consent is really the be-all and end-all for many of these ad sellers.

Facebook and Alphabet have seen the best results and will likely extend their hegemony.

Recently, Alphabet has been offering 15% less ads on its exchange. But, it all involves consented users demonstrating the unenviable position for other exchanges to match Alphabet's quality.

The EU antirust watchdog is expected to levy a multi-billion dollar fine for abusing its dominant position of its Android operating system.

This comes on the heals of fining Alphabet $2.82 billion last year for abusing the dominance of a search again.

The stock barely budged on this news.

Alphabet's punishment for being too dominant in Europe is laughable.

When a company is punished for being too good then you sit back and admire from afar.

There is no other company that can undermine its position and even hit with billions in fines - its leadership status is unquestioned.

American readers sometimes forget the popularity of the Android ecosystem outside of America because of the ubiquitous nature of iPhones stateside. The network effect has made it impossible to do business in Europe without collaborating with the Android platform.

Facebook took more than eight years to reach a billion users but only half that time to reach the next billion.

The stock has held up relatively well. The 73% market share of digital ad dollars Facebook and Alphabet extracted in 2017 is up from 63% in 2015.

This two-headed monster shows no sign of abating, demonstrated by taking in 83% of all digital ad growth, leaving the crumbs for the rest.

They are specialists at exploiting their business environments, much like mining companies exploit the earth.

Their platforms are so influential, they turn elections on its head.

Governments are scared of taking them down, empowering these companies to new heights creating a massive halo effect worldwide.

The Chinese communist government has even used Chinese social media platforms to establish an Orwellian surveillance system monitoring its people at all times. Such is the power of technology these days.

Users are forced to accept any conditional terms they offer, because many jobs are reliant on these platforms such as the millions of app developers hustling to create the new hot app.

They all have families to feed.

On an individual level, people would not sacrifice a cushy income because they do not wish to consent to tracking services.

The next step is for the Amazons and Alphabets to ramp up their private label businesses using their high-quality treasure trove of data.

Amazon has been the leader in selling its own products from tech behemoths, and that percentage in terms of overall sales will increase over time.

It does not need others to sell products they can make themselves for cheaper, better quality retaining every cent.

Amazon's private label is geared toward decent quality and low prices capturing the volume of transactions desired.

Bundling services, exploiting the data, and applying discriminatory pricing will become the new normal for these powerful platforms and nobody does that better than Amazon.

It has no incentive to allow eyeballs, data and dollars to escape these proprietary walled gardens hence the term walled gardens.

Even more genius, Facebook and Alphabet can track users outside their walled gardens if they are signed into their Facebook or Google accounts.

Granted, Facebook has had better price action of late as traders understand there has been no lasting effect from the misuse of leaked data.

However, Alphabet has the crown jewel of the next leg up in A.I. (Artificial Intelligence) - Waymo. Waymo is a company I have chronicled in the past leading the race in autonomous driving inching closer to full-scale deployment sometime in the next year.

If you think Alphabet and Facebook shares are lofty now and "overbought," then I cannot imagine what you'll think when these companies dominate further because the runway is as far as the eye can see.

________________________________________________________________________________________________

Quote of the Day

"One machine can do the work of 50 ordinary men. No machine can do the work of one extraordinary man," - said American author Elbert Hubbard.

July 2, 2018

Diary, Newsletter

Global Market Comments
July 2, 2018
Fiat Lux

Featured Trade:
(THE MARKET OUTLOOK FOR THE WEEK AHEAD, OR THE FUTURE IS HAPPENING FAST),
(HOG), (TLT), (ROM), (MU), (NVDA), (LRCX),
(SPY), (AMZN), (NFLX), (EEM), (UUP), (WBA),
(THE WORST TRADE IN HISTORY), (AAPL)

The Market Outlook for the Week Ahead, or The Future is Happening Fast

Diary, Newsletter, Research

I feel like I'm living life in fast forward these days.

First we got a slap across the face with a wet mackerel on Monday with a 328 plunge in the Dow Average on yet another trade war escalation.

Harley Davidson (HOG) said it was moving a factory out of the country to bypass new European duties imposed in response to ours. If Harley is doing this you can bet there are 10,000 other companies thinking about it.

And even though robust economic growth should assure us that we remain in a new bear market for bonds, traders think otherwise. A 10-year Treasury bond (TLT) yield at 2.81% says that we're already in the next recession, we just don't know it yet.

As always happens with the ebb and flow of the trade war, technology got hammered. My favorite early retirement vehicle, the ProShares Ultra Technology 2X ETF (ROM), plunged some 11.19% to an even $100. Chip stocks such as Micron Technology (MU) and Lam Research (LRCX) get particularly hurt as China buys 80% of their processors from the U.S.

In the meantime, Tesla (TSLA) continues its phoenixlike rise from the ashes yet again, burning the shorts for the umpteenth time. The shares are now taking another run at a new all-time high. You would think people would learn but they don't. Einstein's definition of insanity is repeating the same thing over and over again and expecting a different result.

While bearish analysts predicted the imminent demise of the company, I saw a steady stream of trucks delivering new Tesla 3s from the Fremont factory while driving back from Los Angeles last weekend. Nothing beats on-the-ground research.

I'm sorry, but there is definite disconnect from reality with this company. The most hated company in America has produced the fifth best performing stock in over the past eight years, up more than 2,000%. I guess that's what happens when you disrupt big oil, Detroit, the U.S. dealer network, and the entire advertising industry all at the same time.

Interestingly, we caught three of the five best performers early on, including Tesla, NVIDIA (NVDA), and Netflix (NFLX).

Emerging markets (EEM) continue their death spiral, pummeled by the twin threats of trade wars and a soaring dollar (UUP). Most big emerging companies have their debt in dollars.

Sometimes you have to forget what you know to make money, and that has certainly been the case for me with emerging countries, where I spent a large part of my life.

The future is happening fast. Amazon (AMZN) single-handedly demolished the drug sector when it announced its takeover of online pharmacy company PillPack. The traditional brick-and-mortar retail pharmacy sector lost $9 billion in market capitalization just on the announcement. Walgreens (WBA) alone dropped a gut churning 10%.

If anyone can slash America's bloated health care bill it is Jeff Bezos. Just ask any former bookseller or toy maker.

And for a final middle finger salute to investors, the president said he wants to withdraw from the World Trade Organization, which the U.S. itself created after WWII. That means the United Nations is next on the chopping block.

America is rapidly becoming rogue nation No. 1, the next failed state. And failed states don't have great stock markets. Just check out the Somalia Stock Exchange.

They net of all of this is that the rest of the global economy is rolling over like the Bismarck, while the U.S. remains a sole beacon of strength. That's not good when half of S&P 500 earnings come from abroad.

However, that strength is based on a temporary one-time-only stimulus from massive deficit spending and corporate tax cuts that runs out of juice next year.

So keep tap dancing on the edge of the Grand Canyon. We'll miss you when you're gone. And before you ask, the best hedge in this kind of market is cash, which has huge option value that almost no one recognizes.

Despite all the chaos, uncertainty, and massive headline risk, I managed to tiptoe between the raindrops, keeping the Mad Hedge Fund Trader Alert Service performance just short of a new all-time high.

I closed out the month of June at a healthy 4.45%, my 2018 year-to-date performance rose to 24.82% and my 8 1/2-year return catapulted to 301.29%. The Averaged Annualized Return stands at 35.10%. The more narrowly focused Mad Hedge Technology Fund Trade Alert performance is annualizing now at an impressive 38.69%.

This coming holiday shortened week will be all about the jobs, jobs, jobs. Also, the Fed will raise interest rates by 25 basis points on Wednesday to an overnight rate of 2.00%.

On Monday, July 2, at 9:45 AM, the May PMI Manufacturing Index is out.

On Tuesday, July 3, at 10:00 AM, the May Factory Orders are published.

On Wednesday, July 4, U.S. markets are closed for Independence Day. I will be watching the fireworks display over New York's Hudson River from the top of a Midtown Manhattan skyscraper.

Thursday, July 5, sees a huge bunching up of data thanks to the Fourth of July. It leads with the ADP Employment Report for private sector jobs at 8:15 AM EST. The Weekly Jobless Claims follow at 8:30 AM EST, which saw a rise of 9,000 last week to 227,000. Also announced is the all-important 25 basis point interest rate rise from the Federal Reserve and the FOMC Minutes at 2:00 PM, a reading of what was discussed at the last Fed meeting.

On Friday, July 6 at 8:30 AM EST, we get the June Nonfarm Payroll Report. Then the Baker Hughes Rig Count is announced at 1:00 PM EST. I will be sipping a glass of champagne as I board the Queen Mary 2 at the Brooklyn Cruise Terminal. I look forward to all those who signed up for my Seminar at Sea.

As for me, I will be hurriedly packing for the 2018 Mad Hedge European Tour.

Unfortunately, traveling in the grand style of the 19^th century Belle Epoque involves bringing 200 pounds of luggage.

Now where are those darn black dress socks? And why am I missing a stud for my formal shirt?

Good Luck and Good Trading.

Time to Get Off the Merry-Go-Round

June 27, 2018

Tech Letter

Mad Hedge Technology Letter
June 27, 2018
Fiat Lux

Featured Trade:
(DON'T NAP ON ROKU)
(MSFT), (ROKU), (AMZN), (AAPL), (CBS), (DIS), (NFLX), (TWTR), (SQ), (FB)

Don't Nap on Roku

Tech Letter

Unique assets stand the test of time.

In an era of unprecedented disruption, unique assets' strength begets strength.

This is one of the big reasons the vaunted FANG group has carved out power gains in the business landscape bestowed with a largesse dwarfing any other sector.

As the FANGs trot out to imminent profitability by supercharging massive scale, the emerging tech environment gives food for thought.

These up-and-coming companies fight tooth and nail to elevate themselves to FANG status because of the ease of operating in a duopoly or an outright monopoly.

Microsoft (MSFT) is the closest substitute to an outright FANG. In many ways CEO Satya Nadella has positioned himself better than Facebook (FB) and Apple.

The Mad Hedge Technology Letter has pounced on the newest kids on the block offering subscribers buy, sell or hold recommendations zoning in on the best first and second tier companies in tech land.

The top echelon of the second tier is led by no other than Jack Dorsey and both of his companies, Square (SQ) and Twitter (TWTR), offer idiosyncratic services that cannot be found elsewhere.

I have devoted stories to Dorsey gushing about his ability to build a company and rightly so.

Another solid second tier tech company bringing uniqueness to the table is Roku (ROKU), which I have talked about in glowing terms before when I wrote, "How Roku is Winning the Streaming Wars."

To read the archived story, please click here.

Roku is a cluster of in-house, manufactured, online streaming devices offering OTT (over-the-top) content in the form of channels on its proprietary platform.

The word Roku means six in Japanese and it was chosen because Roku was the sixth company established by founder and CEO Anthony Wood commencing in 2002.

Cord-cutting has been a much-covered topic in my newsletters and this generational shift in consumer behavior benefits Roku the most.

In 2017, 25% of televisions purchased were Roku TVs. According to several reports, more than half of all streaming players purchased last year were Roku players.

This would explain how Roku has shifted its income streams from the physical box itself to selling ads and licensing agreements.

Yes, Roku earns the lion's share of its profits similar to the rogue ad seller Facebook.

Roku does not actually sell anything physical except the box you need to operate Roku, which earned Roku a fixed $30 per unit.

The box serves as the gateway to its platform where it sells ads. Migrating to higher caliber digital businesses like selling ads will stunt the hardware revenue part of its business.

That is all part of the plan.

A new survey conducted regarding fresh cord-cutters demonstrated that out of 2,000 cord-cutters questioned, 70% already had a Roku player and felt no need to pay for cable TV anymore.

Second on the list was Amazon Fire TV at 34%, and Apple TV (AAPL) came in third at 10%.

The dominant position has forced content creators to pander toward Roku TV's platform because third-party content creators do not want to miss out on a huge swath of cord-cutter millennials who are entering into their peak spending years and spend most of their time parked on Roku's platform.

Surveys have shown that millennials do not need a million different streaming services.

They only choose one or two for main functionality, and in most cases, these are Netflix (NFLX) and Amazon (AMZN).

Roku allows both these services to be integrated onto its platform. Cord-cutters can supplement their Netflix and Amazon Prime Video binge with a few more a la carte channels to their preference depending on points of interest.

In general, this is how millennials are setting up their entertainment routine, and all roads don't lead through Rome, but Roku.

If the massive scale continues at this pace, 2020 could be the year profitability explodes through the roof.

The next 18 months should give way to parabolic spikes, followed by consolidation to higher lows in the share price.

When I recommended this stock, its shares were trading at a tad above $32 on April 18, 2018, and immediately spiked to $47 on June 20, 2018.

The tariff sell-off hit most second tier tech companies flush in the mouth. The 5% and occasional 7% intraday sell-offs churn the stomach like Mumbai street food during the height of the Indian summer.

That is part and parcel of dipping your toe into these rising stars.

The move ups are parabolic, but the sell-offs make your hair fall out.

Well, glue your locks back onto your scalp, because we have reached another entry point.

Roku is now trading back down in the low $40 range, and I would bet my retirement fund that Roku will end the year above $50.

This unique company is expected to grow its subscriber base by at least 20% annually, and in five years total subscribers will eclipse 45 million users.

Reinforcing its industry leadership, traditional media companies such as Disney and CBS do not have built-in streaming viewership that comes close to touching Roku.

This has forced these traditional media giants to push their content through Roku or lose a huge amount of the 18 to 34 age bracket for which advertisers yearn.

These traditional players are armed with robust ad budgets, and a good bulk of it is allocated to Roku among others.

For each additional a la carte channel users sign up for on Roku, the company earns a sales commission.

As a tidal wave of niche streaming channels plan to hit the market, the first place they will look to is Roku's platform and this trend will only become stronger with time.

A prominent example was Sling TV, which showed up at Roku's front door first before circling around the rest of the neighborhood.

The runway for Roku's three main businesses of video ads, display ads, and licensing with streaming partners, is long and robust.

The one caveat is the fierce competition from Amazon Fire TV, which puts its in-house content on Amazon front and center when you start the experience.

Roku has head and shoulders above the biggest library of content, and the Amazon effect could scare traditional media for licensing content to Amazon.

We have seen the trend of major players removing their content from streamers because of the inherent conflict of interests licensing content to them while they are developing an in-house business.

It makes no sense to voluntarily offer an advantage to competition.

Roku has no plans to initiate its own in-house original content, and this is the main reason that Amazon and Netflix will lose out on Disney (DIS), CBS (CBS), NBC, and Fox content going forward.

These traditional players categorize Roku as a partner and not a foe.

To get into bed with the traditional media giants means digital ads and lots of them. In terms of a user experience, the absence of ads on Netflix and Amazon is a huge positive for the consumer experience.

But traditional players have the option of bundling ads and content together on Roku making Roku even more of a diamond in the rough.

In short, nobody offers the type of supreme aggregator experience, deep penetration of cord-cutting viewership, and the best streaming content on one graphic interface like Roku.

It is truly an innovative company, and it is in the driver's seat to this magnificent growth story.

It's hard to argue with CEO Anthony Wood when he says that Roku is the future of TV.

He might be right.

If Roku keeps pushing the envelope enhancing its product, it will be front and center as a potential takeover target by a bigger tech company.

Either way, the scarcity value of these types of assets will drive its share prices to the moon, just avoid the nasty sell-offs.

_________________________________________________________________________________________________

Quote of the Day

"Google's not a real company. It's a house of cards," - said former CEO of Microsoft Steve Ballmer.

June 26, 2018

Tech Letter

Mad Hedge Technology Letter
June 26, 2018
Fiat Lux

Featured Trade:
(THE CHIP DILEMMA)
(MU), (NFLX), (AMZN), (NVDA), (AMD), (RHT)

The Chip Dilemma

Tech Letter

The hawks are circling around 2019 chip guidance and that is bad news for chip equities.

Perusing through recent earnings reports, it's not a surprise that investors are uncertain whether tech can bail the rest of the equity market out of this slow macro malaise.

The deterioration in the macro climate has given added dependence to the tech vanguard with investors piling into large cap tech as a flight to quality ensues.

It helps when the tech sector is at the heart of every and any future business.

Names such as Amazon (AMZN) and Netflix (NFLX) are so far above their 50-day and 100-day moving averages that investors will take this mild sell-off as a healthy sign of consolidation.

This also means that traders will pin down Netflix's and Amazon's 50-day and 100-day moving averages as the line in the sand for technical support.

The equity weakness underscores that not all tech names are created equal, and firms without moats have been the leakiest.

Red Hat, the up-and-coming enterprise cloud company, became the scapegoat for mid-cap cloud companies triggering a massive sell-off dipping 14.23% instigated by weak guidance.

It was one of the first cloud snafus for a few quarters fueling an intense risk off surge in cloud and chip names.

It seems not a day goes by where the administration does not announce another provocative countermeasure to the tit-for-tat trade skirmish being played out at the highest levels of government.

Analysts have been trigger-happy as the few bears out there are incentivized to be the first one to call the peak of the chip market.

Careers are made and lost with these bold calls.

As bad as the Red Hat (RHT) miss was to the tech narrative, Micron (MU) made a big splash on its quarterly earnings report boding well for large cap tech names.

Micron beat estimates and surprised on the upside on guidance.

Micron was the first recommendation of the Mad Hedge Technology Letter at a cheap $41.

To read the first article of the Mad Hedge Fund Technology Letter about Micron, please click here.

The stock rocketed to more than $60 at the end of March and the end of May, each time dragged down by big picture headwinds.

Micron is a great long-term hold and the volatility in the stock is not for everyone.

If you want to avoid mind-numbing volatility, then stay away from chip stocks as the boom-bust nature of this sector has created a paranoia bias among analysts generating stock downgrades.

Cloud stocks are succinct, zeroing in on the few growth metrics that matter.

The guesswork involved in chip stocks is the perfect formula that leads to downgrades, because the silicon is distributed to other companies for end products of which are hard to keep tabs.

Hence, the chips industry has experienced a tidal wave of wrong analysts calls that unfairly taint chip stocks and the price action that follows.

Micron's data center cloud revenue, a huge driver of DRAM chips, were up 33% QOQ.

The cornerstone of Micron's business and the reinvestment into cloud products has made this stock best of breed in the chip sector and a top 3 chip stock of the Mad Hedge Technology Letter.

The only other stocks that compare with this outstanding growth story and that are at the cutting edge of innovation are hands down Nvidia (NVDA) and Advanced Micro Devices (AMD) in that order.

Next year's profit margins are the next conundrum for the chip industry.

The huge sums of money required to stay ahead of competition could crush profitability.

Pricing is currently stable but stagnant.

The additional marginal costs could be the reason for investors to flee.

More specifically DRAM pricing for 2019 is under the microscope and soft numbers could spell doom for a company that extracts 71% of its revenue from DRAM chips.

All these negative whispers come at a time where DRAM chips are lifting Micron shares to the heavens. And if there was no international friction, the share price would be substantially higher than it is today.

As of today, the chip industry is still grappling with DRAM supply shortages causing costs per unit to spike.

When you consider that DRAM demand is so healthy that China is once again investigating large cap chip companies, investors should be jumping for joy.

These probes are unfounded and are brought about because DRAM pricing is one of the main inputs to setting up data centers and self-driving technology among other businesses.

If China is forced to pay exorbitant prices for groundbreaking chips that can only be found at American and Korean companies, it makes producing every digital end product costlier. infuriating Chinese management.

SK Hynix, Samsung, and Micron comprise more than 90% of the DRAM market, to which Chinese companies need unfettered access.

DRAM chips, unlike other hardware components, are traded on a transparent public market and the probe highlights the building anxiety if Chinese companies are priced out of this sector.

China views the price spike phenomenon in chips as entirely favoring foreign companies that lap up the DRAM profits like money falling from the sky.

Micron carves out half its sales from China, but it is untouchable because loads of chips are required to fuel its global technological supremacy initiative, which is being chipped at by the administration.

CEO of Micron Sanjay Mehrotra has continued to brush off the China threat because he knows Chinese firms cannot fabricate its products.

If this ever happened, kiss the preferential DRAM pricing goodbye, because China would flood the market with substitutes, which has happened to various end markets in the digital and non-digital ecosphere.

The investigation could end in some sort of monetary slap on the wrist and could be payback for blasting a massive hole in Chinese telecommunications hardware conglomerate ZTE's business model.

The administration's heavy-handed response to ban Chinese investment in technology is a long-term victory for Micron, SK Hynix, and Samsung, which have the DRAM market cornered.

These three companies will corner the market even more going forward thanks to help from Washington, widening each moat.

China is not short on funds; it is short on technological expertise because a generation of copy and paste youth cannot compete with the best and brightest minds in Silicon Valley.

Not only can it not compete, it cannot lure the best and brightest to the mainland capitulating local innovation standards.

Its only hope was to pay premium prices for emerging American technology and now that spigot has been turned off.

Technology is in its infancy and is in the early innings of a stunning growth trajectory with a one-way ticket to singularity.

There will be zigs and larger zags on the way. If you thought the Chinese could just ignore Micron and buy from the Koreans, you were wrong.

The relentless demand for DRAM chips is wilder than a British soccer hooligan. Cutting off access to one massive avenue of DRAM chips would be a death knell for any scalable production process that relies on heavy shipments of DRAM chips.

Although markets have been haywire lately, these developments are incredibly bullish, unless China can suddenly produce high-quality chips, which won't be anytime soon.

For the short term, try to pick up the best chip names at yearly lows as tech will not stay suppressed forever.

If you want to scale down the risk, park your funds in the best cloud tech names to weather the storm.

_________________________________________________________________________________________________

Quote of the Day

"We've had three big ideas at Amazon that we've stuck with for 18 years, and they're the reason we're successful: Put the customer first. Invent. And be patient," - said founder and CEO of Amazon Jeff Bezos.

June 25, 2018

Diary, Newsletter

Global Market Comments
June 25, 2018
Fiat Lux

Featured Trade:
(THE MARKET OUTLOOK FOR THE WEEK AHEAD, OR IS THIS A 1999 REPLAY?),
(AAPL), (FB), (NFLX), (AMZN), (GE), (WBT),
(JOIN ME ON THE QUEEN MARY 2 FOR MY JULY 11, 2018 SEMINAR AT SEA),
(JUNE 20 BIWEEKLY STRATEGY WEBINAR Q&A),
(SQ), (PANW), (FEYE), (FB), (LRCX), (BABA), (MOMO), (IQ), (BIDU), (AMD), (MSFT), (EDIT), (NTLA), Bitcoin, (FXE), (SPY), (SPX)

The Market Outlook for the Week Ahead, or is this a 1999 Replay?

Diary, Newsletter, Research

Another week, another trade war.

The stock market did not take well the administration's escalation of international tensions by threatening to increase Chinese imports subject to punitive duties from $50 billion to $250 billion.

Today, it got much worse with our government now targeting French luxury goods, including wine, handbags, and Roquefort cheese.

Please! Anything but the Roquefort cheese!

In the meantime technicians are getting increasingly nervous about the market concentration. Take out the top-performing 15 stocks, such as big tech and Boeing (BA) and we are already in a bear market. Some 60% of S&P 500 stocks are below their 200-day moving averages and in solid downtrends.

One manager told me that a year from now we will be kicking ourselves for not selling, for all the signs to get out of Dodge were there.

In the meantime, I am hearing an alternative theory about technology stocks. The earnings growth is so prolific that they could continue to melt up for the rest of 2018. Indeed, Amazon (AMZN), Facebook (FB), Netflix (NFLX), and Salesforce (CRM) all hit new all-time highs this week.

Tech stocks are melting up because of blowout earnings expected in a month. After all, in this industry great quarters are followed by more great quarters.

By my calculation the shares prices of technology stocks have to double to bring their market capitalization of only 26% in line with their 50% share of the S&P 500 total earnings.

By the way, California now accounts for 19% of the U.S. population, 21% of U.S. GDP, but a staggering 35% of corporate profits, with two of four FANGs just spitting distance from my office.

Holy smokes! Are we seeing a replay of 1999, the notorious dot-com bubble top?

I hope not. Tech earnings multiples now average 25X compared to 100X back in the day. But this analysis does neatly fit in with my prediction that stocks top in the May-September 2019 time frame.

Last week also saw the shares of General Electric (GE) tossed on the ashcan of history, and the stock was taken out of the Dow Average, to be replaced by sedentary drug store Walgreens (WBA).

That's what a decade of lousy management gets you, which has vaporized a half trillion dollars of market capitalization since 2000. Back then, GE was the largest market cap company in the world, the equivalent of Apple (AAPL) today.

During this same time Apple created $900 billion in new market cap, the shares rocketing from $2.50 to $195. What a trade! Long Apple, short (GE) for 18 years.

As for Apple, it is unique among the FANGs in having the biggest exposure to China. It employs 1 million there, sells more iPhones in the Middle Kingdom than in the U.S., and is crucial to the company's long-term growth plans. The rest of the FANGs have virtually NO China exposure.

This realization caused me to stop out of my position in Apple shares for a loss during its $12 plunge off its all-time high at $195. That brought my 2018 year-to-date performance down to 24.91% and my 8 1/2 year return to 301.38%.

Fortunately, aggressive longs in Amazon, Salesforce, Microsoft, and the iShares Nasdaq Biotechnology ETF (IBB) still have me up +4.54% in June, my 12^th consecutive positive month.

This coming week will be all about the May real estate and housing data, which we already know will be hotter than a pistol.

On Monday, June 25, at 10:00 AM, May New Home Sales are out.

On Tuesday, June 26, at 9:00 AM, the S&P CoreLogic Case-Shiller National Home Price Index for April is released. May Consumer Confidence is out at 10:00 AM.

On Wednesday, June 27, at 8:30 AM, May Durable Goods is published. May Pending Home Sales are out at 10:00 AM.

Thursday, June 28, leads with the Weekly Jobless Claims at 8:30 AM EST, which saw a fall of 3,000 last week to 218,000. Also announced is another read on US Q1 GDP. The last report came in at a moderate 2.2%.

On Friday, June 29, at 9:45 AM EST, we get the May Chicago Purchasing Managers Index. Then the Baker Hughes Rig Count is announced at 1:00 PM EST.

As for me, I will be headed to Los Angeles for my one beach weekend this year. Got to keep those body surfing skills finely tuned, and I'll have a chance to work on my tan before going to sea for a week in July.

In California it's all about the tan.

Good Luck and Good Trading.

June 21, 2018

Tech Letter

Mad Hedge Technology Letter
June 21, 2018
Fiat Lux

Featured Trade:
(WHY NETFLIX IS UNSTOPPABLE),
(NFLX), (CAT), (AMZN), (CMCSA), (DIS), (FOX), (TWX), (GM), (WMT), (TGT)

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