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
https://www.madhedgefundtrader.com/wp-content/uploads/2023/12/deutsche-bank.png540946april@madhedgefundtrader.comhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngapril@madhedgefundtrader.com2023-12-18 14:02:362023-12-18 11:12:50The Truth About Automation And Wall Street Jobs
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
Negotiations between Spectrum’s parent company, Charter Communications (CHTR), and Walt Disney (DIS) finally got over the impasse and they struck a deal.
No deal for both would have been catastrophic for both.
Disney faced the potential loss of 14.7 million Charter pay TV subscribers, or 20% of ESPN's current linear subscriber base of 74 million.
That equates to linear revenue losses of roughly $5 billion, or 6% of overall revenue.
Cord-cutting has been occurring at a brisk pace in the last few years, but the lack of solidarity among the legacy media negotiators appears to turn the trickle into a breaking of the dam.
What am I talking about?
Disney decided to go nuclear by removing its channels from the cable provider. Charter (CHTR) proposed that Disney (DIS) offer its customers free access to Disney’s streaming services, especially ESPN; Disney rebuffed the offer, but CHTR finally agreed to add Disney+ Basic ad-supported offering being provided to Charter customers who purchase the Spectrum TV Select package at no additional cost, "as part of a wholesale arrangement."
This is really the beginning of the end for legacy media and this melee could trigger a swift bout of consolidation as disagreements become the norm and not the outlier.
It’s no surprise the cost of creating content is going up and these channels like DIS feel they can just pass the costs
Remember that many people pay for cable just to watch college football and the NFL.
Roughly 25% of Charter’s clients engage with Disney content, Charter said on a call last week.
DirecTV is also embroiled in its own content squabble with local broadcast network Nexstar (NXST), which recently pulled over 200 stations in more than 100 metro areas from DirecTV’s network over a similar price dispute.
While the cable TV business has been declining for years, there’s concern this is the last hurrah.
Down the road, the winners out of all of this may be internet TV operators, including YouTube TV, Hulu TV, FuboTV, and Dish’s DISH’s (DISH) Sling. Some of these have been gaining steady traction even before negotiations soured, with Hulu’s web traffic up 7.2% year-over-year in July and Sling’s traffic up 11.8%.
Web traffic may pick up as consumers look for ways to watch their regularly scheduled programming. Online search interest in five major live TV streaming services picked up Sept. 1 when news of Disney’s blackout became public, according to Google Trends data.
I believe that online momentum will translate to a long-term subscriber bump for these companies.
CEO of CHTR Christopher Winfrey and CEO of DIS had to make this deal.
The ongoing chaos in the legacy media markets signals that cord-cutting will supplant the legacy markets within the next 10 years.
Baby Boomers are the last stalwarts of the legacy media market and they are retiring in droves.
Netflix (NFLX) is another streamer that is in line to pick up some of the demand for streaming content.
With high rates, the era of excesses is rearing its ugly head.
Platforms are being careful with the type of agreements they make as less quality content is facing a bleak future.
Live professional sports are lynchpin to why many consumers don’t quit cable.
I believe the next contract cycle will see many pro sports leagues go all streaming much like the American soccer league MLS did with Apple TV.
When pro sports migrate 100% into digital, expect to be outsized winners and losers while distributors like SlingTV should sink like a rock.
https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png00april@madhedgefundtrader.comhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngapril@madhedgefundtrader.com2023-09-11 16:02:152023-09-11 18:40:48Death of Legacy Media
Cord-cutting is going into overdrive as linear TV viewership has just fallen below 50% nationally in July for the first time.
Big changes are about to happen.
This has major ramifications for not only the tech sector but for the broader economy, society, and geopolitics.
We are here to talk about the tech and the sinking of linear TV does mean relative gains for online streamers.
Broadcast and cable each hit a new low of 20% and 29.6% of total TV usage, respectively, to combine for a linear television total of 49.6%.
Has the quality of linear TV channels soured in quality or what is the deal?
It could be a functional reason, as Baby Boomers are watching linear tv because they haven’t figured out the streaming thing yet.
The ease of flipping on the tv with a remote cannot be understated.
In the future, the result is that linear tv penetration will be down to 20% level in around 20 years.
The players that will begin advancing further center stage into the national consciousness are YouTube (GOOGL), Netflix (NFLX), and Amazon Prime Video (AMZN).
They saw month-over-month viewership increases of 5.6%, 4.2%, and 5%, respectively, in July.
Don’t expect a rebound, because linear tv is bleeding viewers reflecting how bad TV channels have become.
Ad revenue across our media network coverage fell 13% on average in Q2, down from -8% in 1Q, which included the Super Bowl.
That being said, certain streamers haven’t exactly cracked the code either, as Peacock, Disney+, Hulu, ESPN+, Paramount+, Max and Discovery+ were down by about 500,000 combined.
However, on the whole, subscriber growth was 8.5% year-over-year with highlights like Netflix adding 5.9 million subscribers in the second quarter.
Comcast's Peacock (CMCSA) was able to grow its subscriber base 84% year-over-year to 24 million, up from the prior 13 million, as the streamer works to catch up to its peers amid a significant lag.
Direct-to-consumer advertising (DTC) grew 27% on average across media companies including Disney (DIS), Comcast, Warner Bros. Discovery (WBD), and Paramount (PARA). That's double from the 13% growth posted in the first quarter.
Comcast is the farthest behind, as only 14% of its estimated revenues are expected to come from DTC in 2024 with the other 85% stemming from its linear networks. Disney is the farthest along, with DTC revenue expected to surpass linear network revenue for the first time in 2024.
As linear tv is headed to the dustbin of history, streaming is also getting more expensive.
Personally, that is what I have seen as many platforms are starting to push the $100 plus per month level.
Many might remember when streaming was $20-$40 per month.
Therefore, I am not surprised to see single-digit growth for streaming as high prices crimps demand.
It’s true that mass media is fracturing into different niches and communities and that isn’t so fantastic for big media corporations as it could mean higher costs and a smaller total addressable audience.
I still do believe there is growth in streaming but not at the elevated levels like the 20% or 30% range.
Customer acquisition will also become more difficult and expensive as people really need to be convinced to move platforms or online channels.
The golden age of streaming growth is over and now each inch will be fought tooth and nail by more competition.
In the short term, I believe a dip in CMCSA should be bought, as they are still driving users to the Peacock platform. NFLX is still worth a trade on the dip as well, but I would avoid DIS until they structurally upgrade the company.
https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png00Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2023-08-16 16:02:232023-08-27 19:39:58Cord-Cutting is Taking Over
In quite an unprecedented maneuver; the people who run the Nasdaq have chosen to water down the biggest tech components because a few companies are exerting too much power over the index.
In other words, the big fish have gotten so big that the index is adjusting their formula.
This speaks volumes about how great the top 7 tech stocks have performed in 2023.
They have taken off like a runaway train and haven’t looked back.
If this turns out to be a less-than-blockbuster earnings season and the market offers a pullback, it may be the last opportunity of the year to get into high quality tech stocks at a discount.
Selloffs from blue chip tech firms like Netflix (NFLX) signal that a short-term technical cooldown could be in the cards for tech stocks.
NFLX came back to earth, but I want to reiterate that it is more than healthy price action for this stock which started out the year at $300 per share.
The stock exploded to $480 per share and the post-earnings cooldown has found the stock in the $420 per share range.
There are a handful of blue chip tech stocks that I would regard this sort of price action as a mind-blowing opportunity.
Another reason for a short-term cooldown is the aforementioned reformulation of the Nasdaq index.
The tech-based index - Nasdaq 100 gets tracked by a slew of funds.
They include the Invesco QQQ Trust (QQQ), the world’s fifth-largest exchange-traded fund (ETF), according to Morningstar.
Nasdaq announced that the Nasdaq 100 index will undergo a "special rebalance" that will come into effect today.
The index is typically rebalanced each quarter, but outside of that, it can employ a special rebalance to address overconcentration in the index by redistributing the weights.
While the organizers have been mum on the technical about the rebalancing, the index's methodology says that it can be adjusted if companies with weightings that exceed 4.5% of the index together make up more than 48% of the index.
This technical maneuver underscores the attractiveness of these tech businesses and compelling investment opportunities relative to other areas.
The result has been increased investor attention and enthusiasm for tech stocks now — at the expense of other sectors, he says.
Investors of funds tracking the Nasdaq 100 Index woke up today with a different portfolio.
Most investors in U.S. stocks will be at least indirectly affected by the rebalance.
That's because "billions of dollars of stock" will be traded as funds tracking the Nasdaq 100 buy and sell in response to the rebalancing.
During this short-term rebalancing phase, I can easily visualize a convenient time for investors to reload their ammunition. Load up the bullets before we are off to the races again.
Heading into the last 4 months of the year, the US consumer is strong as steel and I would beg any black swan to show their ugly face and try to topple this kryptonite tech market.
An orderly dip in tech stocks this earnings season would represent nothing more than a massive victory and if it’s sideways then watch up to the upside.
I would even say there is a higher risk that dip buyers get a little impatient and pull the trigger a little early just to make sure they get some skin in the game for the next elevator up.
That’s how hot tech has been.
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