(NVDA) Archives - Page 54 of 65 - Mad Hedge Fund Trader

Trading the Blue Wave Stock Market

At this point, it is possible that the president may lose the November election.

He is 14 points behind Democratic candidate Joe Biden in the polls. The odds at the London betting polls have him losing by a similar amount. My old employer The Economist magazine in London gives him a 10% chance of winning using a mix of economic and polling data.

And this assumes the election is held today. The fact is that the president is digging himself into a deeper hole every day, taking the wrong side of every issue confronting the country today. He seems to be refighting the Civil War….and taking the Confederate side when even the State of Mississippi is taking its symbol off its flag.

So, what will the post-Trump world look like? Will taxes go through the roof? Will the market crash? Is it time to go 100% cash, change our names, and move to a country with no US extradition treaty?

I don’t think so. In fact, with stocks soaring to meteoric new highs every day, the market expects that a Biden administration will be great news for stocks, perhaps the best ever.

Taxes will certainly go up. Favorable tax treatment of the energy, real estate, and private equity funds will get axed. Carried interest will finally become history. Marginal tax rate on net income over $1 billion could get hiked to the Roosevelt levels of 80-90%.

Biden has already announced an increase in the corporate tax rate from 21% to 28%. That will cut earnings for the S&P 500 by $9 a share. But the stock market is not the economy, with S&P earnings only accounting for 10% of US GDP.

And the $9 companies lose in taxes they will make back and more from new government spending, which isn’t slowing down any time soon. Some 14,000 American bridges need to be rebuilt. The Interstate Highway System is a shambles. High-speed broadband needs to go rural. The electrification of the US needs to accelerate to accommodate the millions of electric cars headed our way.

I believe that eventually, 51 million Americans will lose their jobs as a result of the pandemic. Perhaps a third of those are never coming back because the future has been so accelerated. That will leave the broader U-6 Unemployment rate stuck in double digits for years, maybe for decades.

So, we’re going to need some kind of Roosevelt style programs like the Works Progress Administration (WPA) and the Civilian Conservation Corps (CCC) who built much of the monolithic infrastructure that we all enjoy today.

At least 300,000 educated workers could immediately be put to work in contact tracing. Millions more could be employed in national infrastructure programs. One thing is certain. A new administration won’t stop massive government spending, it will simply redirect it.

And let's face it. A Biden win would bring a big expansion of Obamacare. With the best healthcare technology in the world, private industry has done the world’s worst job controlling the pandemic.

Countries with well-run national healthcare systems like Australia, New Zealand, Japan, and Singapore have almost wiped out the disease. This is why I am avoiding the healthcare sector for the foreseeable future.

Who are the big winners of all this? Big tech (FB), (AAPL), (MSFT), (AMZN), medium tech (ADBE), fintech (SQ), (PYPL), the cloud (CRM), and biotech (SGEN), (REGN), and (ILMN).

Cybersecurity will always be in demand (FEYE), (PANW). The global chip shortage will continue to worsen (AMD), (MU), (NVDA).

And Tesla (TSLA)? What can I say? It is already up nearly 100-fold from my initial $16.50 recommendation in 2010, and I’ve bought three Tesla’s (two S’s and an X).

Followers of the Mad Hedge Trade Alert service know that I am already long these names up the wazoo, and is why I am up 26% in 2020. It’s simply a matter of all pre-pandemic trends hyper-accelerating, which we were already tapped into.

If you have to add a purely domestic sector, a gigantic Millennial tailwind will keep homebuilders bubbling for years like (LEN), (PHM), and (KBH).

And while you won’t find me as a player here, retail will recover. The sector has not prospered during the current administration, thanks to a trade war with China and the pandemic.

And the losers? There is a classification of “Trump” stocks you don’t want to be anywhere near. Energy will do terribly (XOM), (CVX), (XOM), with Texas tea possibly revisiting negative numbers. If you take away the tax breaks, energy hasn’t really made money in decades.

Defense stocks (RTN), (NOC), (LMT) will take a big hit from budget cutbacks and fewer wars. Coal (KOL) will finally get shut down for good, probably sold to China in bankruptcy proceedings. Industrials will continue to lag (X), (GE), with no more free handouts from the government and no technology advantage.

So if Biden wins, you don’t need to slit your wrists, hang yourself from the showerhead, or cease investing completely. Just take your stock market winnings and go out and get drunk instead.

May 18, 2020

Tech Letter

Mad Hedge Technology Letter
May 18, 2020
Fiat Lux

Featured Trade:

(CHINA’S BIG SEMICONDUCTOR PLAY),
(SMH), (SOXX), (DOCU), (AKAM), (NVDA), (AMD), (XLNX)

China's Big Semiconductor Play

Tech Letter

We received a convincing data point as to why we trade cloud companies and not the semiconductor chips.

The rift between blacklisted telecom equipment giant Huawei Technologies and the U.S. administration has had a dramatic side-effect on the business models of U.S. chip companies.

The U.S. commerce department now will require licenses for sales to Huawei of semiconductors made abroad with U.S. technology signaling more turbulent times ahead.

Huawei is the Chinese smartphone maker and telecom provider who has stolen intellectual property from the West and used mammoth subsidies funded by the Chinese communist party to build itself into one of the premier telecom equipment sellers and number two maker of smartphones in the world.

I seldom issue trade alerts on semiconductor chip companies because I'd rather not compete with the Chinese communist party and their capital funding capacity.

China is hellbent on subsidizing its own chip capacity as many Western chip companies are blocked from doing deals with them.

A recent example is the Chinese communist party injecting $2.25 billion into a Semiconductor Manufacturing International Corp. wafer plant to ramp up development in the sector.

To read about this, click here.

Exploiting the economic freedom and laws of the West has worked out perfectly for Chinese tech enabling them to develop juggernauts like Tencent and Baidu.

In fact, state-sponsored hacking of Western intellectual property is not considered a malicious activity in China.

There is the Chinese notion that everything is fair game in business and war and protecting company secrets falls on the shoulders of the cybersecurity sector.

To read more about the fallout in the West from China’s aggressive trade strategy, click here.

The concept that you should only blame yourself if you allow your secrets to get stolen prevails in China.

The consequences are impactful with U.S. chip companies suffering large drops in revenue without notice.

Leading up to the coronavirus, chip companies experienced a revenue slide of 12% in 2019 to $412 billion largely due to the trade war.

An example is Xilinx Inc. (XLNX) who will fire 7% of its workforce citing lower revenue from Huawei and delayed adoption of superfast 5G networks.

Along with the West getting smacked by the trade war, the ripple effect of increased uncertainty and guide-downs across the semiconductor supply stems from China’s economy being hit even worse than the U.S. economy.

There are no winners here and it will be a hard slog back from the nadir.

Either way, the sabre-rattling doesn’t stop here and each tweet and counterpunch will cause heightened volatility in chip shares.

Then consider that the existence of supply chains will most likely uproot, and we got indication of that type of activity with Taiwan Semiconductor’s (TSM) announcement to build a new chip factory in Phoenix.

To read more about this impactful deal then click here.

This would have never happened during prior administrations where all manufacturing was offshored to China.

As it stands, China has been circumventing existing U.S. law to clampdown chip sales by buying U.S. chips from 3^rd party channels.

Once many of the supply chains come back, it will be almost impossible for Chinese to procure those same chips.

The Taiwan semiconductor manufacturing facility in Arizona will ultimately employ 1,600 high-tech workers.

Building is slated for 2021 with production targeted to begin in 2024.

Moving forward, the U.S. administration will make it implausible for many U.S. chip companies to offshore using the reasons of national security and domestic job demand to ensure that many factories are rerouted back to U.S. shores.

The boom and bust nature of chip companies make for treacherous spikes and drops in share prices.

The insane volatility is why I stay away from them as the Mad Hedge Technology Letter mainly opts for short-term options trades.

Nvidia (NVDA) and AMD (AMD) are great individual chip stocks that I would encourage readers to buy and hold.

Another option is to just park your money in the semi ETF VanEck Vectors Semiconductor ETF (SMH) or iShares PHLX Semiconductor ETF (SOXX).

On the flip side, cloud stock’s backbone of recurring monthly revenue is just too savory.

The constant cash flow with minimal international risk along with pristine balance sheets is what makes U.S. cloud companies top on the list of trade alert candidates.

That won’t stop anytime soon as the pandemic has offered us more conviction into the moat between cloud stocks and the rest of technology.

I apologize if I sound like a broken record, but I love my Akamai’s (AKAM) and DocuSign’s (DOCU), they have the growth portfolio that backs up my thesis.

Buy cloud stocks on the dip.

April 9, 2020

Diary, Newsletter, Summary

Global Market Comments
April 9, 2020
Fiat Lux

Featured Trade:

(TEN LONG TERM LEAPS TO BUY AT THE BOTTOM)
(MSFT), (AAPL), (GOOGL), (QCOM), (AMZN),
(V), (AXP), (NVDA), (DIS), (TGT)

Ten Long Term LEAPS to Buy at the Bottom

Diary, Newsletter

I am often asked how professional hedge fund traders invest their personal money. They all do the exact same thing. They wait for a market crash like we are seeing now, and buy the longest-term LEAPS (Long Term Equity Participation Securities) possible for their favorite names.

The reasons are very simple. The risk on LEAPS is limited. You can’t lose any more than you put in. At the same time, they permit enormous amounts of leverage.

Two years out, the longest maturity available for most LEAPS, allows plenty of time for the world and the markets to get back on an even keel. Recessions, pandemics, hurricanes, oil shocks, interest rate spikes, and political instability all go away within two years and pave the way for dramatic stock market recoveries.

You just put them away and forget about them. Wake me up when it is 2022.

I put together this portfolio using the following parameters. I set the strike prices just short of the all-time highs set two weeks ago. I went for the maximum maturity. I used today’s prices. And of course, I picked the names that have the best long-term outlooks.

You should only buy LEAPS of the best quality companies with the rosiest growth prospects and rock-solid balance sheets to be certain they will still be around in two years. I’m talking about picking up Cadillacs, Rolls Royces, and even Ferraris at fire sale prices. Don’t waste your money on speculative low-quality stocks that may never come back.

If you buy LEAPS at these prices and the stocks all go to new highs, then you should earn an average 131.8% profit from an average stock price increase of only 17.6%.

That is a staggering return 7.7 times greater than the underlying stock gain. And let’s face it. None of the companies below are going to zero, ever. Now you know why hedge fund traders only employ this strategy.

There is a smarter way to execute this portfolio. Put in throw-away crash bids at levels so low they will only get executed on the next cataclysmic 1,000-point down day in the Dow Average.

You can play around with the strike prices all you want. Going farther out of the money increases your returns, but raises your risk as well. Going closer to the money reduces risk and returns, but the gains are still a multiple of the underlying stock.

Buying when everyone else is throwing up on their shoes is always the best policy. That way, your return will rise to ten times the move in the underlying stock.

If you are unable or unwilling to trade options, then you will do well buying the underlying shares outright. I expect the list below to rise by 50% or more over the next two years.

Enjoy.

Microsoft (MSFT) - March 18 2022 $180-$190 bull call spread at $2.67 delivers a 274% gain with the stock at $190, up 16% from the current level. As the global move online vastly accelerates the world is clamoring for more computers and laptops, 90% of which run Microsoft’s Windows operating system. The company’s new cloud present with Azure will also be a big beneficiary.

Apple (AAPL) – June 17 2022 $210-$220 bull call spread at $6.47 delivers a 55% gain with the stock at $226, up 14% from the current level. With most of the world’s Apple stores now closed, sales are cratering. That will translate into an explosion of new sales in the second half when they reopen. The company’s online services business is also exploding.

Alphabet (GOOGL) – January 21 2022 $1,500-$1,520 bull call spread at $7.80 delivers a 28% gain with the stock at $226, up 14% from the current level. Global online searches are up 30% to 300%, depending on the country. While advertising revenues are flagging now, they will come roaring back

QUALCOMM (QCOM) – January 21 2022 $90-$95 bull call spread at $1.55 delivers a 222% gain with the stock at $95, up 23% from the current level. We are on the cusp of a global 5G rollout and almost every cell phone in the world is going to have to use one of QUALCOMM’s proprietary chips.

Amazon (AMZN) – January 21 2022 $2,100-$2,150 bull call spread at $17.92 delivers a 179% gain with the stock at $2,150, up 15% from the current level. If you thought Amazon was taking over the world before, they have just been given a turbocharger. Much of the new online business is never going back to brick and mortar.

Visa (V) – June 17 2022 $205-$215 bull call spread at $3.75 delivers a 166% gain with the stock at $215, up 16% from the current level. Sales are down for the short term but will benefit enormously from the mass online migration of new business only. They are one of a monopoly of three.

American Express (AXP) – June 17 2022 $130-$135 bull call spread at $1.87 delivers a 167% gain with the stock at $135, up 28% from the current level. This is another one of the three credit card processors in the monopoly, except they get to charge much higher fees.

NVIDIA (NVDA) – September 16 2022 $290-$310 bull call spread at $6.90 delivers a 189% gain with the stock at $310, up 19% from the current level. They are the world’s leader in graphics card design and manufacturing used on high-end PCs, artificial intelligence, and gaining. They befit from the soaring demand for new computers and the coming shortage of chips everywhere.

Walt Disney (DIS) – January 21 2022 $140-$150 bull call spread at $2.55 delivers a 55% gain with the stock at $116, up 31% from the current level. How would you like to be in the theme park, hotel, and cruise line business right now? It’s in the price. Its growing Disney Plus streaming service will make (DIS) the next Netflix.

Target (TGT) – June 17 2022 $125-$130 bull call spread at $1.40 delivers a 257% gain with the stock at $130, up 16% from the current level. Some store sales are up 50% month on month and lines are running around the block. Their recent online growth is also saving their bacon.

Looks Like a “BUY” signal to Me

March 23, 2020

Tech Letter

Mad Hedge Technology Letter
March 23, 2020
Fiat Lux

Featured Trade: (THE CORONA DRAG ON 5G)
(VZ), (T), (AAPL), (NFLX), (NVDA), (XLNX), (QRVO), (QCOM)

The Corona Drag on 5G

Tech Letter

It will be inevitable – the 5G shift in 2020 will be delayed.

Last year, 5G was available on only about 1% of phones sold in 2019 and demand has cratered this year because of exogenous variables.

Up to just recently, Apple (AAPL) was the bellwether of the success of tech with wildly appreciating shares due to the expected ramp-up to a new 5G phone later this year.

Well, things are more complicated now.

I will be the first one to say it - the new Apple 5G iPhone will be delayed until 2021 – the project has been thrown into doubt because of a demand drop off and headaches with the supply chain in China.

The phenomenon of 5G cannot blossom until consumers can upgrade to 5G devices.

Concerning all the media print of China Inc. going back to work, don’t believe a word of it.

People of the Middle Kingdom are sitting at home just like you and me by navigating around top-down government edicts.

Instead of the perilous commute in a country of 1.4 billion people, Chinese workers are fabricating attendance figures per my sources.

Overall data is grim - global smartphone shipments dropped 38% year-over-year during February from 99.2 million devices to 61.8 million - the largest fall ever in the history of the smartphone market and that is just the tip of the iceberg.

The new data point underscores the magnitude of how the coronavirus is sucking the vitality out of the tech ecosystem in China and thus the end market for global consumer electronics.

The statistic also foreshadows imminent trouble in the smartphone market as other regions have now shut down not only in China but the manufacturing hubs of South East Asia.

The outbreak squeezes both supply and demand.

Factories in Asia are unable to manufacture phones as usual because of obligatory government shutdowns and complexities securing critical components from the supply chain.

5G has been hyped up as the great leap forward for wireless technology that will usher in unprecedented new use cases supercharging global GDP — from driverless transport to robotic automation to smart football stadiums.

And coronavirus is just that Godzilla destroying 5G momentum down.

Mass quarantines, social distancing, remote work, and schooling have been instituted in American cities, meaning that the current network carriers are swamped and overloaded with a surge in data usage.

The Verizon’s (VZ) and the AT&T (T) Broadbands of America are currently focused on maintaining their current core customers, adding extra broadband to handle the increased load, and making sure the health of the network stays intact.

This is a poor climate to upsell products to beleaguered Americans who have just lost income and possibly their house because they cannot pay mortgages.

Services such as YouTube and Netflix (NFLX) have even decreased the quality of streaming on their platforms to handle the dramatic spike in extra usage in Europe with the whole continent locked down.

The Chinese consumer was the Darkhorse catalyst to ramp up the global economic expansion during the last economic crisis, picking up world spending in 2009.

On the contrary, this group of super spenders is less inclined to save the global economy this time around because they are saddled with domestic debt.

Just as unhelpful to Silicon Valley revenues, the technology relationship at the top of the governments are poised to worsen because of the health scare.

The U.S. administration has already banned the use of Chinese components in the U.S. 5G network amid suspicions the devices would be used for espionage.

Back stateside, I believe the U.S. telecoms will explicitly detail a sudden slowdown in the 5G network rollout during their next earnings report.

The telecom companies have been able to successfully handle the extra incremental load, but it has had to allocate resources to service the extra volume.

In the meantime, companies will shift to doing infrastructure and site preparation in anticipation of the re-build up to 5G, but that could be next to be put on ice if crisis management moves to the forefront.

Considering every 5G base station is being manufactured in Asia, one must be naïve in believing all is well and they will probably need to do what the 2020 Tokyo Olympics will shortly do – postpone it.

It’s not business as usual anymore.

This time it’s different.

The world just isn’t ready to digest such a shift in global business as 5G until the fallout of the coronavirus is in the rear-view mirror.

The 5G phenomenon underlying effect is to supercharge globalization into smaller networks of interconnectivity and that is not possible during a black swan event like the coronavirus which is the antithesis of globalization and interconnected business.

Just take the situation across the Atlantic Ocean in Europe, UBS Group AG, and Credit Suisse Group AG required clients to post additional collateral, and money managers in New York are preparing term sheets for ultra-rich Americans to urgently meet margin calls.

Many people are scurrying back to their doomsday’s shelter and that does not scream global business.

If you thought gold was the safe haven – wrong again – it experienced back-to-back weekly losses as margin pressures force fire sales of gold to raise cash.

Another glaring example are the assets of Eldorado Resorts Inc., controlled by the founding Carano family, which burned $28.7 million of stock in the casino entity to meet a margin call to satisfy a bank loan.

Things are that bad now!

Sure, telecom players might argue that a sudden influx of workers from home necessitates more investment in 5G, but if they have no income, all bets are off.

The capacity of 4G home broadband has proved it is good enough for today’s demands and it means the last stage of 4G will be a high data consumption longer phase before business lethargically pivots to 5G in 2021.

Verizon’s CEO Hans Vestberg said last year that half the U.S. will have access to 5G by the end of 2020, and I will say that is now impossible.

This sets up a generational buy in the Silicon Valley chip names involved in 5G after coronavirus troubles peak such as Nvdia (NVDA), Xilinx (XLNX), Qorvo (QRVO), and QUALCOMM Incorporated (QCOM).

March 13, 2020

Diary, Newsletter, Summary

Global Market Comments
March 13, 2020
Fiat Lux

Featured Trade:

(MARCH 11 BIWEEKLY STRATEGY WEBINAR Q&A),
(INDU), (SPX), (LVMH), (CCL), (WYNN), (AXP), (JPM), (MSFT), (AAPL), (NVDA)

March 11, 2020 - Biweekly Strategy Webinar Q&A

Diary, Newsletter, Summary

Below please find subscribers’ Q&A for the Mad Hedge Fund Trader March 11 Global Strategy Webinar broadcast from Silicon Valley, CA with my guest and co-host Bill Davis of the Mad Day Trader. Keep those questions coming!

Q: What is the worst-case scenario for this bear market?

A: The average earnings loss for a recession is 13%. Last year, we earned $165 a share for the S&P 500. So, a recession would take us down to $143 a share. Multiply that by the 15.5X hundred-year average earnings multiple, where we are now, and that would take the (SPX) down to 2,200. However, if we get 100 million cases and 5 million deaths, as some scientists are predicting, we could get a 2008 repeat and a 50% crash in the (SPX) to 1,700. With the administration asleep at the switch, that is clearly a possibility. Nice knowing you all.

Q: Do you think we’re still setting up for another roaring 20s?

A: Yes, absolutely. We could not have a roaring 20s unless we got a major selloff and clearing out of old positions like we're getting now. That flushes out all the old capital and positions and paves the way for people to set up brand new positions at really bargain prices. If you missed the 2009 bottom, here's another chance.

Q: Will the fiscal stimulus help defeat the coronavirus?

A: No, viruses are immune to money. They don’t take PayPal or American Express (AXP). The president has been able to buy his way out of all his other problems until now; there’s no way to buy his way out of this one.

Q: Is JP Morgan’s (JPM) Jamie Dimon getting a heart attack related to the financial crisis?

A: Probably, yes. In a normal time, the pressure of a CEO in these big banks is enormous. All of a sudden half of your small customers are looking at bankruptcy—the pressure has to be immense. You've got customers screaming for short term loan facilities, you’ve got risk managers asking for margin extensions. And you certainly don't want to buy the banks here. I think this may be the final selloff with legacy banks, from which they never recover. The banks will disappear and come back online.

Q: What would you do with a $45,000-dollar portfolio right now? I don’t do options.

A: Look at my story on Ten Leaps to Buy at Market Bottom. Use those names—Microsoft (MSFT), Apple (AAPL), NVIDIA (NVDA), etc.—and just buy the stocks. Buy half now and a half in a month. This is a time to dollar cost average. And you’re looking at doubles at a minimum 3 years down the road—at the end of this year if you’re lucky. Once the virus burns out, it will only take a couple months to do that. Then it will be off to the races once again.

Q: Since the 2018 low was never tested, what do you think of 2400/2450?

A: I think that’s great. And you can get a half dozen different analyses that all come up with numbers around 2400, 2500, 2600. That’s where the final low will be—where you get a convergence of multiple support lines and opinions.

Q: Will buybacks come back or are they over for now?

A: They will come back once markets bottom. Companies aren’t stupid; they don’t like buying their own stocks at all-time highs, but they certainly will come in with major amounts of buying when they see their stocks down 20% or 30%. That's certainly what Apple is going to do.

Q: Will luxury retail shares get killed in the current market?

A: Yes, especially stocks like (LVMH), the old Louis Vuitton Moet Hennessey. They’re already down 37% this year. When it becomes clear that we are in an actual recession, these luxury names across the board will get completely abandoned. By the way, I worked with the son of the founder of this company when I was at Morgan Stanley. We called him “Bubbles.”

Q: Are there any similarities to 2008?

A: Yes; it’s worse because the market is dropping much faster than it ever has before. The 52% selloff in 2008 was spread out over the course of 18 months. Here, it’s taken only 14 trading days to see half of the damage done back then. It’s truly unbelievable.

Q: What do you think about gold (GLD)?

A: Even though gold is going up, gold miners (GDX) are doing terribly because they are stocks. They get tarred with the same brush blackening all other stocks. This is exactly what happened during the 2008-2009 crash. Fundamentals go out the window in these kinds of trading conditions, but they always come back.

Q: Is Europe in recession?

A: Absolutely, yes. I saw an interview with the Adidas CEO (ADDYY) this morning on TV and they said sales are off 90% on a month-on-month basis. Their stock is down 49% this year. You can bet that every other consumer company in Europe is suffering similar declines.

Q: What will real estate do in the next 3 months?

A: It's impossible to price real estate so finely because it's so illiquid. However, I expect it to hold up here because of super low interest rates, and then keep rising over the long term. We’re not going to get anything like the crashes we saw in 2008-2009 because all the excess leverage is not in the real estate market now, it’s in the stock market, where we are getting a much-deserved crash. If anything, I’d be buying rental properties here in low cost cities.

Q: What if the Dow Average (INDU) reaches the 300-day moving average?

A: It’s a nice theory, but technicals are meaningless in the face of panic selling. You don't want to get too fancy looking at these charts. When you have a billion shares to go at market, the 200 or 300 day moving average means nothing.

Good Luck and Good Trading. And stay healthy.

John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader