Posts

October 1, 2019

Global Market Comments
October 1, 2019
Fiat Lux

Featured Trade:

(LAUNCHING THE NEW MAD HEDGE BIOTECH AND HEALTHCARE LETTER)
(THE NEW AI BOOK THAT INVESTORS ARE SCRAMBLING FOR),
(GOOG), (FB), (AMZN), MSFT), (BABA), (BIDU),
(TENCENT), (TSLA), (NVDA), (AMD), (MU), (LRCX)

September 10, 2019

Global Market Comments
September 10, 2019
Fiat Lux

SPECIAL ARTIFICIAL INTELLIGENCE ISSUE

Featured Trade:
(NEW PLAYS IN ARTIFICIAL INTELLIGENCE),
(NVDA), (AMD), (ADI), (AMAT), (AVGO), (CRUS),
 (CY), (INTC), (LRCX), (MU), (TSM)

August 23, 2019

Global Market Comments
August 23, 2019
Fiat Lux

Featured Trade:

(AUGUST 21 BIWEEKLY STRATEGY WEBINAR Q&A),
(FXB), (NVDA), (MU), (LRCX), (AMD),
 (WFC), (JPM), (BIDU), (GE), (TLT), (BA)

August 21, 2019

Global Market Comments
August 21, 2019
Fiat Lux

Featured Trade:

(WHY YOU MIISED THE TECHNOLOGY BOOM AND WHAT TO DO ABOUT IT NOW),
(AAPL), (AMZN), (MSFT), (NVDA), (TSLA), (WFC), (FB)

August 5, 2019

Mad Hedge Technology Letter
August 5, 2019
Fiat Lux

Featured Trade:

(THE CHINA TARIFF BOMBSHELL AND TECHNOLOGY),
(AAPL), (NVDA), (INTC), (MU), (WDC), (BBY)

The China Tariff Bombshell and Technology

With one little tweet, the state of technology and the companies that rely on the public markets that serve them went haywire.

U.S. President Donald Trump levied another 10% on the $300 billion that had not been tariffed up yet compounding the misery for anyone who has any vested interest in trade with mainland China.

The tariffs will take effect on September 1st.

How does this shake out for American technology?

Any brand tech name that has substantial supply chain operations can kiss their stay in the Middle Kingdom goodbye.

If management didn’t understand that before, then it’s clear as night that they need to shift their supply chain out of the reaches of the Chinese communist party.

The U.S. Administration tripling down on China being our archnemesis means that any sort of cross-border economic trade or cultural exchange will be viewed through the prism of warped geopolitics.

The U.S. President Donald Trump has in fact taken a page out of the Chinese playbook turning everything he sees and touches into a transactional tool for what he is pursuing at the time or in the future.

Specific companies facing the wrath of the tariffs are companies as conspicuous as Apple filtering down to the SMEs that make local business local.

Semiconductor chips are a huge loser in this new development as the price of electronic goods will rise with the tariffs.

If you want a name that lies in the heart of electronic consumer goods, then BestBuy (BBY) would encapsulate this thesis and unsurprisingly they were taken out to the back of the woodshed and taught a lesson dropping 10% on the news.

Any technology outfit that imports goods from China will be hit as well and this means semiconductor chips along the lines of Nvidia (NVDA), Intel (INTC), Western Digital (WDC) and Micron (MU) among others.

Chips are the meat and bones that go into end products like iPads and a slew of smart devices.

Demand will be hit because of the cost of producing these types of consumer products will rise.

The softness is showing up in the numbers with Apple’s iPhone revenue down 12% year-over-year.

Samsung of Korea also showed that this isn’t just an American problem with their semiconductor division’s operating profits down 71% year-over-year.

The Korean conglomerate is in a spat with the Japanese government over war crimes from the second world war causing the Japanese government to bottleneck the supply of chemicals needed to produce high-level semiconductor chips.

The export restriction will drag down SK Hynix display business who is one of the largest producers of DRAM chips and also a Korean company.

Consumers are also using their phones longer with Apple iPhone customers holding their device up to 4 years delaying the refresh cycle.

The company that Steve Jobs built will have to repurpose themselves for a brave new tech landscape that includes heavier regulation, trade tariffs, and device saturation.

When investors talk about the “low hanging fruit,” at this point, Apple isn’t one of them.

And if you think the services business is a cakewalk, ponder about how many apps and behemoths that spit out a whole lineup of apps.

Apple still has its ecosystem and should guard it with its life, this is the same ecosystem that can charge Google around $10 billion per year to slap on Google search as the primary search engine on Apple devices.

Expect tech to telegraph a deceleration in revenue for the last quarter and next year.

The tech environment is brittle at this point and uncertainty wafts in the air like a hot stack of pancakes.

 

 

July 16, 2019

Global Market Comments
July 16, 2019
Fiat Lux

Featured Trade:

(THE BIGGEST TELL IN THE MARKET RIGHT NOW),
(GOOGL), (FRC), (PINS), (WORK), (UBER),
 (ADSK), (WDAY), (SNE), (NVDA), (MSFT),
(POPULATION BOMB ECHOES),
(CORN), (WEAT), (SOYB), (DBA), (MOS)

The Biggest “Tell” in the Market Right Now

I am constantly looking for “tells” in the market, little nuggets of information that no one else notices, but gives me a huge trading advantage.

Well, there is a big one out there right now. San Francisco commercial real estate prices are going through the roof, smashing new all-time records on a monthly, if not weekly, basis.

The message for you traders is loud and clear. You should be picking up the highest quality technology growth stocks on every dip for they all know some things that you don’t. Their businesses are about to triple, if not quadruple, over the coming decade.

Technology stocks, which now account for 26% of stock market capitalization, will make up more than half of the market within ten years, much of that through stock price appreciation. And they are all racing to lock up the office space with which to do that….now.

San Francisco office rents reached a record in June as the continued growth of tech — now turbocharged by nearly $100 billion in new capital raised in a series of initial public offerings — met a severe space crunch.

Asking rents rose to a staggering $84.16 per square foot annually for the newest and highest quality offices in the central business district and citywide asking rents for such spaces known as Class A are up over 9% from the prior year. The citywide office vacancy rate was 5.5% in June, down from 7.4% a year ago.

Demand shows no sign of stopping. Brokerage CBRE reported around 20 large tenants are seeking more space. Google and Facebook each want to lease as much as 1 million square feet in additional San Francisco office space — room for more than 6,500 employees.

Google (GOOGL) confirmed on Tuesday that it recently signed an office lease at the Ferry Building, its fifth expansion since 2018.

First Republic Bank (FRC) signed the biggest lease of the second quarter. It expanded by 265,000 square feet at 1 Front St. Financial firms and companies in other sectors continue to scrap with tech companies for space.

What’s the tech connection here? The bank’s expansion is fueled largely by the rise of tech. Its clients include wealthy tech employees, and it could benefit from the wave of local stock-market debuts — an example of how the booming tech sector also lifts the financial sector.

In addition, local Bay Area home prices could get a turbocharger by the fall when restrictions on stock sales expire for some companies that went public in the spring.

San Francisco companies that have gone public continue to grow by leaps and bounds. Pinterest (PINS), Slack (WORK), and Uber (UBER) also signed office leases this year with room for thousands of new employees.

Tech companies Autodesk (ADSK) and Glassdoor also signed deals at 50 Beale St. in the spring. In a sign of the city’s rapidly changing economy, old line construction firm Bechtel and Blue Shield, the legacy health insurer, are both moving out of 50 Beale St. Sensor maker Samsara, software firm Workday (WDAY), and Sony’s (SNE) PlayStation video game division also expanded.

Globally, San Francisco has the seventh-highest rents in prime buildings. It’s still behind financial powerhouses Hong Kong, London, New York, Beijing, Tokyo and New Delhi (San Francisco’s average office rents beat out New York.)

Downtown San Francisco’s office costs in top buildings, including service charges and taxes, are $130 per square foot, while Hong Kong’s Central district is the world’s highest at $322 per square foot.

Only a handful of new office projects are being built, and future supply is further constrained by San Francisco’s Proposition M which limits the amount of office space that can be approved each year. That is creating a steadily worsening structural shortage. Only two large office projects are under construction without tenant commitments.

Which tech stocks should you be picking up now? NVIDIA (NVDA) has recently suffered a major haircut, thanks to the trade war with China. Microsoft (MSFT) seems hellbent on making its way from $140 to $200 a share due to its massive expansion into the cloud.

 

 

Suddenly, it’s Getting Crowded in San Francisco

July 3, 2019

Mad Hedge Technology Letter
July 3, 2019
Fiat Lux

Featured Trade:

(CHIPS ARE BACK FROM THE DEAD)
(XLNX), (HUAWEI), (AAPL), (AMD), (TXN), (QCOM), (ADI), (NVDA), (INTC)

Chips are Back from the Dead

The overwhelming victors of the G20 were the semiconductor companies who have been lumped into the middle of the U.S. and China trade war.

Nothing substantial was agreed at the Osaka event except a small wrinkle allowing American companies to sell certain chips to Huawei on a limited basis for the time being.

As expected, these few words set off an avalanche of risk on sentiment in the broader market along with allowing chip companies to get rid of built-up inventory as the red sea parted.

Tech companies that apply chip stocks to products involved with value added China sales were also rewarded handsomely.

Apple (AAPL) rose almost 4% on this news and many investors believe the market cannot sustain this rally unless Apple isn’t taken along for the ride.

Stepping back and looking at the bigger picture is needed to digest this one-off event.

On one hand, Huawei sales comprise a massive portion of sales, even up to 50% in Nvidia’s case, but on the other hand, it is the heart and soul of China Inc. hellbent on developing One Belt One Road (OBOR) which is its political and economic vehicle to dominate foreign technology using Huawei, infrastructure markets, and foreign sales of its manufactured products.

Ironically enough, Huawei was created because of exactly that – national security.

China anointed it part of the national security apparatus critical to the health and economy of the Chinese communist party and showered it with generous loans starting from the 1980s.

China still needs about 10 years to figure out how to make better chips than the Americans and if this happens, American chip sales will dry up like a puddle in the Saharan desert.

Considering the background of this complicated issue, American chip companies risk being nationalized because they are following the Chinese communist route of applying the national security tag on this vital sector.

Huawei is effectively dumping products on other markets because private companies cannot compete on any price points against entire states.

This was how Huawei scored their first major tech infrastructure contract in Sweden in 2009 even though Sweden has Ericsson in their backyard.

We were all naïve then, to say the least.

Huawei can afford to take the long view with an Amazon-like market share grab strategy because of possessing the largest population in the world, the biggest market, and backed by the state.

Even more tactically critical is this new development crushes the effectiveness of passive investing.

Before the trade war commenced, the low-hanging fruit were the FANGs.

Buying Google, Amazon, Apple, Netflix, and Facebook were great trades until they weren’t.

Things are different now.

Riding on the coattails of an economic recovery from the 2008 housing crisis, this group of companies could do no wrong with our own economy flooded with cheap money from the Fed.

Well, not anymore.

We are entering into a phase where active investors have tremendous opportunities to exploit market inefficiencies.

Get this correct and the world is your oyster.

Get this wrong, like celebrity investors such as John Paulson, who called the 2008 housing crisis, then your hedge fund will convert to a family office and squeeze out the extra profit through safe fixed income bets.

This is another way to say being put out to pasture in the financial world.

My point being, big cap tech isn’t going up in a straight line anymore.

Investors will need to be more tactically cautious shifting between names that are bullish in the period of time they can be bullish while escaping dreadful selloffs that are pertinent in this stage of the late cycle.

In short, as the trade winds blow each way, strategies must pivot on a dime.

Geopolitical events prompted market participants to buy semis on the dips until something materially changes.

This is the trade today but might be gone with one Tweet.

If you want to reduce your beta, then buy the semiconductor chip iShares PHLX Semiconductor ETF (SOXX).

I will double down in saying that no American chip company will ever commit one more incremental cent of capital in mainland China.

That ship has sailed, and the transition will whipsaw markets because of the uncertainty in earnings.

The rerouting of capital expenditure to lesser-known Asian countries will deliver control of business models back to the corporation’s management and that is how free market capitalism likes it.

Furthermore, the lifting of the ban does not include all components, and this could be a maneuver to deliver more face-saving window-dressing for Chairman Xi.

In reality, there is still an effective ban because technically all chip components could be regarded as connected to the national security interests of the U.S.

Bullish traders are chomping at the bit to see how these narrow exemptions on non-sensitive technologies will lead to a greater rapprochement that could include the removal of all new tariffs imposed since last summer.

The risk that more tariffs are levied is also high as well.

I put the odds of removing tariffs at 30% and I wouldn’t be surprised if the administration doubles down on China to claim a foreign policy victory leading up to the 2020 election which could be the catalyst to more tariffs.

It’s difficult to decode if U.S. President Trump’s statements carry any real weight in real time.

The bottom line is the American government now controls the mechanism to when, how, and the volume of chip sales to Huawei and that is a dangerous game for investors to play if you plan on owning chip stocks that sell to Huawei.

Artificial intelligence or 5G applications chips are the most waterlogged and aren’t and will never be on the table for export.

This means that a variety of companies pulled into the dragnet zone are Intel (INTC), Nvidia (NVDA), and Analog Devices (ADI) as companies that will be deemed vital to national security.

These companies all performed admirably in the market following the news, but that could be short lived.

Other major logjams include Broadcom’s future revenue which is in jeopardy because of a heavy reliance on Huawei as a dominant customer for its networking and storage products.

Rounding out the chip sector, other names with short-term bullish price action are Qualcomm (QCOM) up 2.3%, Texas Instruments (TXN) up 2.6%, and Advanced Micro Devices (AMD) up 3.9%.

(AMD) is a stock I told attendees at the Mad Hedge Lake Tahoe conference to buy at $18 and is now above $31.

Xilinix (XLNX) is another integral 5G company in the mix that has their fortunes tied to this Huawei mess.

Investors must take advantage of this short-term détente with a risk on, buy the dip trade in the semi space and be ready to rip the cord on the first scent of blood.

That is the market we have right now.

If you can’t handle this environment when there is blood in the streets, then stay on the sidelines until there is another market sweet spot.