Mad Hedge Technology Letter
April 1, 2024
Fiat Lux
Featured Trade:
(THE STREAMING WARS WIND DOWN)
(NFLX, (PARA), (WBD)
Tag Archive for: (NFLX)
For certain segments of the technology sector, it sure does feel like they are fully saturated.
I am not referring to AI, because that is in the early innings of a seismic movement.
However, let’s take a look at streaming.
This category was invented by Netflix (NFLX) and now the whole country pays for streaming.
Netflix had the first-mover advantage and took the initiative.
For the leftovers, the pain and struggle with creating a profitable streaming business is real.
Is the year 2024 the year when streaming management has that Aha moment?
Many have instructed us to stay on board the ship while losses bleed uncontrollably.
Everyone is fighting to be one of the three or four streaming services people can’t live without.
Paramount Global (PARA) is under pressure to abandon its namesake streaming service, and Warner Bros. Discovery (WBD) is desperate for partners that offer Max a better chance to compete with the likes of Netflix.
Let’s look at Disney right now.
Streaming grew quickly from launch in 2019 — we’re talking now about Disney+, ESPN+, and Hulu — but even with strong sales, they are sitting on big losses.
Disney board member Nelson Peltz is unhappy, as outlined in a 133-page manifesto published March 4, that Disney “belatedly” entered the streaming game and has a “poorly planned" strategy to catch up with the likes of Netflix.
He takes issue with Disney trying to achieve scale in streaming by buying Fox’s entertainment assets for $71 billion in 2019 because he thinks it exposed the company more to the dying linear TV business.
He also can’t believe that a company reporting more than $22 billion of run-rate streaming revenue annually is still losing money.
Peltz wants a digital strategy for the ESPN sports assets..
Peltz wants a succession plan put in place for current CEO Bob Iger, who extended his contract with Disney last year after a coming-out-of-retirement return to the company in 2022.
In February, Disney teamed up with Fox and Warner Bros. Discovery to create a streaming service for college and pro sports that you can currently only find on TV.
That seems like what Peltz was asking for. Disney also invested $1.5 billion in Epic Games and gave access to the Fortnite maker for gaming portrayals of Star Wars, Marvel, and Avatar.
The bottom line here is that streaming is not nearly as profitable as many insiders first thought.
Streamers thought they could scale up and acquire subscribers at a loss and then raise prices.
That business model was only for Netflix to accomplish because they started so much earlier than anyone else.
The best of the rest are now saddled with loss-making companies and the cost of content post-covid has never been pricier.
Netflix shares have had a nice run in the last 365 days going from $180 per share to over $600 per share.
A lot of that price movement was an acknowledgement that they are dominating streaming compared to the other legacy corporations that have tried their hand in this game.
Instead of jumping into the legacy TV players turned streamers, I would tell readers to wait for Netflix on the dip.
It’s been tried and tested over time and any big dip should and will be bought by investors.
There is not a lot of room for stocks other than Netflix in a sub-sector of rather scarce any AI.
Global Market Comments
March 6, 2024
Fiat Lux
Featured Trade:
(WHY THE DOW IS GOING TO 240,000)
(X), IBM (IBM), (GM), (MSFT), (INTC), (DELL), (NVDA), (NFLX), (AMZN), (META), (GOOGL), (BITO)
Global Market Comments
February 9, 2024
Fiat Lux
Featured Trade:
(FEBRUARY 7 BIWEEKLY STRATEGY WEBINAR Q&A),
(LLY), (FXI), (TSM), (BABA), (PLTR), (MSBHF), (SMCI), (JPM), (INDY), (INDA), (TSLA), (BYDDF), (NFLX), (META), (UNG)
Below please find subscribers’ Q&A for the February 7 Mad Hedge Fund Trader Global Strategy Webinar, broadcast from Silicon Valley, CA.
Q: Have you ever flown an ME-262?
A: There's only nine of the original German jet fighters left from WWII in museums. One hangs from the ceiling in the Deutsches Museum in Munich (click here for the link), I have been there and seen it and it is truly a thing of beauty. You would have to be out of your mind to fly that plane, because the engines only had a 10 hour life. That's because during WWII, the Germans couldn't get titanium to make jet engine blades and used steel instead, and those fell apart almost as soon as they took off. So, of the 1,443 ME-262’s made there’s only nine left. The Allies were so terrified of this plane, which could outfly our own Mustangs by 100 miles per hour, that they burned every one they found. That’s also why there are no Japanese Zeros.
Q: Thoughts on Palantir (PLTR) long term?
A: I love it, it’s a great data and security play. Right now, markets are revaluing all data plays, whatever they are. But it is also overvalued having almost doubled in a week.
Q: What do you make of all these layoffs in Silicon Valley? What does this mean for tech stocks?
A: It means tech stocks go up. The tech stocks for a long time have practiced over-employment. They were growing so fast, they always kept a reserve of about 10% of extra staff so they could be put them to work immediately when the demand came. Now they are switching to a new business model: fire everybody unless you absolutely have to have them right now, and make everybody you have work twice as hard. That greatly increases the profitability of these companies, as we saw with META (META), which had its profits triple—and that seems to be the new Silicon Valley business model. If you're one of the few 100,000 that have been laid off in Silicon Valley, eventually the economy will grow back to where they can absorb you. That's how it's going to play out. In the meantime, go take a vacation somewhere, because you're not going to get any vacations once you get a new job.
Q: I have had shares of Alibaba (BABA) since 2020 and the stock has been in free fall since. Should I take the 80% loss or hold?
A: Well, number one, you need to learn about risk control. Number two, you need to learn about stop losses. I stop out when things go 10% against me; that's a good level. At 80%, you might as well keep the stock. You've already taken the loss and who knows, China may recover someday. It's not recovering now because no foreigners want to invest in China with all the political risk and invasion risk of Taiwan. After all, look at what happened to Russia when they invaded Ukraine—that didn't work out so well for them.
Q: On the Chinese economy (FXI), is the poorer performance due to the decision to move to a war economy? The move in the economic front was described in Xi's speech to the CCP in January of 2023.
A: The real reason, which no one is talking about except me, is the one child policy, which China practiced for 40 years. What it has meant is you now have 40 years of missing consumers that were never born. And there is no solution to that, at least no short-term solution. They're trying to get Chinese people to have more kids now, and you're seeing three and four child families for the first time in 40 years in China. But there is no short-term fix. When you mess with demographics, you mess with economic growth. We warned the Chinese this would happen at the time, and they ignored us. They said if they hadn't done the one child policy, the population of China today would be 1.8 billion instead of 1.2 billion. Well, they’re kind of damned no matter what they do so there was no good solution for them. Of course, threatening to invade your neighbors is never good for attracting foreign investment for sure. Nobody here wants to touch China with a 10-foot pole until there’s a new leader who is more pacifist.
Q: What do you think of Eli Lilly (LLY)?
A: I absolutely love it. If there's a never-ending bull market in fat Americans, which is will go on forever, they're one of two companies that have the cure at $1,000 a month. On the other hand, the stock has tripled in the last 18 months, so it’s kind of late in the game to get in.
Q: Are there any stocks that become an attractive short in the event of a Taiwan invasion, such as Taiwan Semiconductor (TSM)?
A: All stocks become attractive shorts in the event of another war in China. You don't want to be anywhere near stocks and the semis will have the greatest downside beta as they always do. You don't want to be anywhere near bonds either, because the Chinese still own about a trillion dollars’ worth of our bonds. Cash and T-bills suddenly looks great in the event of a third war on top of the two that we already have in Gaza and Ukraine.
Q: What do you think about the prospects of the Japanese stock market now?
A: I think the big move is done; it finally hit a new high after a 34-year wait. The next big move in Japan is when the Yen gets stronger, and that is bad for Japanese stocks, so I would be a little cautious here unless you have some great single name plays like Warren Buffett does with Mitsubishi Corp. (MSBHF). So that's my view on Japan—I'm not chasing it after being out for 34 years. Why return? The companies in the US are better anyway.
Q: What is the deal with Supermicro Computer (SMCI)? It went up 23 times in a year to $669 after not clear $30 for a decade.
A: The answer is artificial intelligence. It is basically creating immense demand for the entire chip ecosystem, including high end servers, which Supermicro makes. It also has the benefit of being a small company with a small float, hence the ballistic move. It was too small to show up on my radar. I’ll catch the next one. There are literally thousands of companies like (SMCI) in Silicon Valley.
Q: Will JP Morgan (JPM) bank shares keep rising, or will they fall when the Fed cuts rates?
A: (JPM) will keep rising because recovering economies create more loan demand, allow wider margins, and cause default rates to go down. It becomes a sort of best case scenario for banks, and JP Morgan is the best of the breed in the banking sector. It also benefits the most from the concentration of the US banking sector, which is on its way from 4,000 banks to 6 with help from the US government.
Q: Is India a good long-term play? Which of the two ETFs I recommend are the better ones?
A: Yes, India is a good long-term play. You buy both iShares India 50 (INDY) and the iShares MSCI India (INDA), which I helped create yonks ago. India is the new China, and the old China is going nowhere. So, yes, India definitely is a play, especially if the dollar starts to weaken.
Q: Do you expect to pull back in your market timing index?
A: Yes, probably this month. Have I ever seen it go sideways at the top for an extended period? No, I haven't. On the other hand, we’ve never had a new thing like artificial intelligence hit the market, nor have we seen five stocks dominate the entire market like we're seeing now. So, there are a lot of unprecedented factors in the market now which no one has ever seen before, therefore they don't know what to do. That is the difficulty.
Q: Does India have an in-country built EV, and what is their favorite EV in India?
A: No, but Tesla (TSLA) is talking about building a factory there. And I would have to say BYD Motors (BYDDF) because they have the world’s cheapest EV’s. There is essentially no car regulation in India except on imports. Car regulation and safety requirements is what keeps the BYDs out of the United States, and it's kept them out for the last 15 years. So that is the issue there.
Q: What do you think about META as a dividend play?
A: I think META will go higher, but like the rest of the AI 5, it is desperately in need of a pull back and a refresh to allow new traders to come in.
Q: Why does Netflix (NFLX) keep going up? I thought streaming was saturated—what gives?
A: Netflix won the streaming wars. They have the best content and the best business strategy; and they banned sharing of passwords, which hit my family big time since it seemed like the whole world was using my Netflix password. And no, I'm not going tell you what my password is. I’ve already paid for Griselda enough times. Seems there is a lot of demand for strong women in my family. Netflix they seem to be enjoying a near monopoly now on profits.
Q: Has the NASDAQ come too far too fast, and does it have more to run?
A: Well it does have more to run, but needs a pull back first. I'm thinking we'll get one this month, but I'm definitely not shorting it in the meantime.
Q: Have you ordered your Tesla (TSLA) Cybertruck?
A: I actually ordered it two years ago and it may be another two year wait; with my luck the order will come through when I'm in Europe and I'll miss it. Some of my friends have already gotten deliveries because they ordered on day one. They love it.
Q: What happened to United States Natural Gas (UNG)?
A: A super cold spell hit the Midwest, froze all the pipes, and nobody could deliver natural gas just when the power companies were screaming for more gas. That created the double in the price which you should have sold into! Usually, people don't need to be told to take a profit when something doubles in 2 weeks, but apparently there are some out there as I've been here getting emails from them. Further confusing matters further is that (UNG) did a 4:1 reverse split right at this time. They have to do this every few years or the 35% a year contango takes the price below $1.00 and shares can’t trade below $1.00 on the New York Stock Exchange.
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, select your subscription (GLOBAL TRADING DISPATCH, TECHNOLOGY LETTER, or Jacquie's Post), then WEBINARS, and all the webinars from the last 12 years are there in all their glory.
Good Luck and Stay Healthy,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Mad Hedge Technology Letter
December 18, 2023
Fiat Lux
Featured Trade:
(THE TRUTH ABOUT AUTOMATION AND WALL STREET JOBS)
(AAPL), (GOOGL), (FB), (AMZN), (NFLX)
Automation is taking place at warp speed displacing employees from all walks of life.
According to a recent report, the U.S. financial industry will depose 200,000 workers in the next decade because of automating efficiencies.
Yes, humans are going the way of the dodo bird and banking will effectively become algorithms working for a handful of executives and engineers.
The x-factor in this equation is the direct capital of $150 billion annually that banks spend on technological development in-house which is higher than any other industry.
Welcome to the world of lower costs, shedding wage bills, and boosting performance rates.
We forget to realize that employee compensation eats up 50% of bank expenses.
The 200,000 job trimmings would result in 10% of the U.S. bank jobs getting axed.
The hyped-up “golden age of banking” should deliver extraordinary savings and premium services to the customer at no extra cost.
Mobile and online banking has delivered functionality that no generation of customers has ever seen.
The most gutted part of banking jobs will naturally occur in the call centers because they are the low-hanging fruit for automated chatbots.
A few years ago, chatbots were suboptimal, even spewing out arbitrary profanity, but they have slowly crawled up in performance metrics to the point where some customers are unaware they are communicating with an artificially engineered algorithm.
The wholesale integration of automating the back-office staff isn’t the end of it, the front office will experience a 30% drop in numbers sullying the predated ideology that front-office staff are irreplaceable heavy hitters.
Front-office staff have already felt the brunt of downsizing with purges carried out in 2023 representing a fifth year of decline.
Front-office traders and brokers are being replaced by software engineers as banks follow the wider trend of every company transitioning into a tech company.
The infusion of artificial intelligence will lower mortgage processing costs by 20% and the accumulation of hordes of data will advance the marketing effort into a smart, hybrid cloud-based, and hyper-targeted strategy.
Historically, a strong labor market and low unemployment boosts wage growth, but national income allocated to workers has dipped from about 63% in 2000 to 56% in 2023.
Causes stem from the deceleration in union membership and outsourcing has snatched away negotiating power amongst workers and the implemented mass automation has poured fat on the fire.
I was recently in Budapest, Hungary on a business trip, and on a main thoroughfare, a J.P. Morgan and Blackrock office stood a stone’s throw away from each other employing an army of local English proficient Hungarians for 30% of the cost of American bankers.
Banks simply possess wider optionality to outsource to an emerging nation or to automate hard-to-fill positions now.
In this race to zero, companies can easily rebuff requests for higher salaries and if they threaten to walk off the job, a robot can just pick up the slack.
Automation is getting that good now!
The last two human bank hiring waves are a distant memory.
The most recent spike occurred 7 years after the dot com crash of 2001 until the sub-prime crisis of 2008 adding around half a million jobs on top of the 1.5 million that existed then.
The longest and most dramatic rise in human bankers was from 1935 to 1985, a 50-year boom that delivered over 1.2 million bankers to the U.S. workforce.
This type of human hiring will likely never be seen again in the U.S. financial industry.
Recomposing banks through automation is crucial to surviving as fintech companies are chomping at the bit and even tech companies like Amazon and Apple have started tinkering with new financial products.
The brutal truth out there is sadly; don’t tell your kid to get into banking, because they will most likely be feeding on scraps at that point.
WALL STREET IS LEANER THAN EVER
Global Market Comments
October 20, 2023
Fiat Lux
Featured Trade:
(TESTIMONIAL)
(OCTOBER 18 BIWEEKLY STRATEGY WEBINAR Q&A),
(LMT), (MS), (GOOG), (NVDA), (TSLA), (MSFT), (AMZN), (APPL), (META), (FXI), (RIVN), (NFLX)
Below please find subscribers’ Q&A for the October 18 Mad Hedge Fund Trader Global Strategy Webinar, broadcast from London England.
Q: Is Nvidia (NVDA) a buy at the current price?
A: Absolutely, if your view is more than, say, a month. This stock will easily be $1,000 in the next year or two. They have such a huge moat on their business, and the high-end chips that are banned in China are only a tiny fraction of their overall business—they’re still allowed to sell small and medium-sized chips.
Q: Where do you see bond yields peaking out?
A: My pet target is 5.2% on a spike. We may get there in a few weeks or months. The position we have breaks even at 5.15% in 21 trading days. So any kind of rally on that position becomes profitable—even a one-day rally.
Q: Are you hitting Israel next?
A: No, I covered the Middle Eastern wars for 10 years starting with the ‘73 Yom Kippur wars, and I got sick of it. They’re using the same arguments to justify their positions that they were 50 years ago. In fact, the disputes have been going on for hundreds of years. So, I moved on to other more interesting wars like Ukraine. There are plenty of newbies cutting their teeth as war correspondents in Gaza now—I'll leave it to them.
Q: Are the results for all of the newsletters or just for one?
A: Those alerts that I send out personally are the results for the Mad Hedge Global Trading Dispatch. All of the other services (we have six now) have their own trade histories which we don’t publish, as it’s too much of an account job effort to update six independent track records. People know whether they’re making money or not—that's good enough for me. That’s how we’re set up; we’re a staff-light operation so that we can keep the prices low.
Q: What do you expect for Tesla (TSLA) earnings today?
A: I never make same-day earnings calls, but I would expect they’d be good. They would be less than they were in the past because the price wars are cutting into margins, but they’re gaining market shares at everybody else’s expense, which makes (TSLA) a “BUY”. In fact, if you look at the charts, it seems to be moving sideways into an upside breakout.
Q: Is it too late to buy military?
A: No, I’d be buying any of the big military stocks like Lockheed Martin (LMT), because the increase in demand for weapons is not a short-term thing—it is a more or less permanent thing which will go out decades. Also, they all already have massive government contracts to rebuild our own weapons. Most people don't realize that almost every weapons system in the United States is more than 50 years old. The reason is we quit investing in conventional weapons because we all thought the next war would be cyber. Well, Russia got absolutely nowhere on cyber—they made a few weak attempts to shut down Ukraine and couldn't even break into Elon Musk’s Skylink system, which all of Ukraine is running on.
Q: Why is Morgan Stanley (MS) doing so poorly?
A: All the financials are getting hit because of the collapsing bond market. Once the bond market finds a bottom you want to be buying financials with both hands.
Q: When the market recovers, which sector will lead?
A: Technology. The Magnificent Seven will lead. There’s safety in size. Google/Alphabet (GOOG), Nvidia (NVDA), Tesla (TSLA), Microsoft (MSFT), Amazon (AMZN), Apple (APPL), Facebook/Meta (META). They’re already leading now, so if you have those positions, I’d keep them. If you don’t, you should start picking them up.
Q: Is Rivian (RIVN) a buy at this level?
A: Absolutely. Amazon, which owns 25% of the company, just hit 10,000 Rivian delivery vans. I’ve seen them in California, they’re completely silent—very interesting cars. It’s just a question of how quickly they can produce them.
Q: Why is there a market drop today?
A: It’s the bond market. The first thing you look at every day is the bond market—if it's doing crappy, everything sells off.
Q: Do you still suggest 90-day T-bills at this point?
A: We may end up getting a stock buying opportunity into the year-end. Even if we have to wait for a yearend rally, you get paid every day for 90-day T-bills, and you can sell them at any time and get interest up to the day you sell them because they’re discount bonds that appreciate every day to reflect the yield. It’s a great way to park money, and most brokers will let you buy stocks against your 90-day T-bill position. So say you want to go fully invested in stocks—you could do that while selling your 90-day T-bills the same day. Most brokers will let you do that, worst case charging you one day of margin.
Q: Do you think China is using the Hamas attack on Israel to distract the US?
A: No, China wouldn’t want to get involved in this. Iran has its fingerprints all over it. Iran supplied all the missiles used to attack Israel, and if the Israelis turn around and attack Iran by destroying all of their nuclear and missile-making facilities, I would not be surprised one bit. That may be what Biden is really doing over there—trying to convince the Israelis not to escalate the war.
Q: What are the chances of a US default on November 17 (TLT)?
A: So far on all of these government shutdowns, the US Treasury has been able to come up with magic tricks to keep from defaulting; but if the default is long enough, even they will have to stop paying interest to bondholders, which will increase the debt burden of the US government because a lower credit rating will cause it to pay higher interest rates. Why people think this is a great strategy is beyond me.
Q: Gasoline is down and oil is up—what’s going on?
A: That’s usually driven by the crack spread—the availability of gasoline from refineries in the US, so I wouldn’t use that as any kind of indicator.
Q: Do you think China (FXI) is shifting priorities away from economic growth to military strength?
A: No I don’t, they would love to have economic growth if they could, and in fact, their central bank has been stimulating their economy, and it's working; that’s how this morning’s report got back up to 5%. At the end of the day, they just want peace. All this military stuff—they’re just bluffing and posturing, which is really all they’ve ever done, at least since the Korean War. They weren’t even big participants in the Vietnam War, so China doesn’t worry me at all; there are bigger things to worry about. But they definitely have hit a wall in economic growth, and a big part of that is Covid, and a big part of that is a shrinking population—a shortage of workers, and a shortage of workers who can support older parents.
Q: Will there be an oil embargo against Israel? The US and Europe by OPEC countries?
A: No. The Middle Eastern governments know what's really going on here, even though what they may say in public is completely different. The fact is that Hamas started this war, and none of these other countries want Hamas in their countries because they know that the first thing they'll do is overthrow the local government. Effectively, Hamas doesn’t exist anymore either—they've really all been killed, so you just have to give some time for things to cool down out there, and of course, the US is working overtime to keep the situation from escalating, but we can only try—we can’t enforce this thing. One question I've been getting from a lot of people lately is: will the US send troops to Israel or to Gaza? The answer is no—we were in Iraq and Afghanistan for 20 years! We’re in no hurry to get back into a new war, especially a new 20-year war, and that would not be in our own interest. By the way, Israel can amply defend itself; they have the best military in the Middle East by far, largely supported by the United States. For me, the big mystery is how intelligence in Israel missed this attack. They were just completely asleep at the switch, and some day in the future there will be an investigation about this, but don’t expect it from the current government.
Q: Why won’t Egypt and Jordan take the Palestinian refugees?
A: They are both poor countries. Neither of them is oil-rich, and Egypt especially has a horrendous population problem—they are in fact the world's second largest food importer after China. They have 110 million people to feed and not enough production locally to do that, so it isn’t easy to take in 2 million Palestinians. If you don't believe me, go to Cairo—it's just incredibly crowded. With a population of 10 million you can't go anywhere, so where are they going to put 2 million more people? So this is a difficult problem, there's no easy fix depending on what side you’re on.
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, select your subscription (GLOBAL TRADING DISPATCH, TECHNOLOGY LETTER, or Jacquie's Post), then click on WEBINARS, and all the webinars from the last 12 years are there in all their glory.
Good Luck and Good Trading.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
2021 Mount Rose Summit Nevada
Mad Hedge Technology Letter
September 11, 2023
Fiat Lux
Featured Trade:
(DEATH OF LEGACY MEDIA)
(CHTR), (DIS), (NFLX), (NXST), (DISH)
