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)
Tag Archive for: (NVDA)
Below please find subscribers’ Q&A for the Mad Hedge Fund Trader August 21 Global Strategy Webinar broadcast with my guest and co-host Bill Davis of the Mad Day Trader. Keep those questions coming!
Q: Hey Bill, how often have you heard the word “recession” in the last 24 hours?
A: Seems like every time I turn around. But then we’re also getting a pop in the market; we thought it bottomed a few days ago. The question was: how far were we going to get to bounce? This is going to be very telling as to what happens on this next rally.
Q: Can interest rates go lower?
A: Yes, they can go a lot lower. The general consensus in the US is that we bottom them out somewhere between zero and 1.0%. We’re already way below that in Europe, so we will see lower here in the US. It’s all happening because QE (quantitative easing) is ramping up on a global basis. Europe is about to announce a major QE program in the beginning of September, and the US ended their quantitative tightening way back in March. So, the global flooding of money from central banks, now at $17 trillion, is about to increase even more. That’s what’s causing these huge dislocations in the bond market.
Q: If we’re having trouble getting into trades, should we chase or not?
A: Never chase. Leave your limit in there at a price you’re happy with. Often times, you’ll get done at the end of the day when the high frequency traders cash out all their positions. They will artificially push up our trade alert prices during the day and take them right back down at the end of the day because they have to go 100% cash by the close of each day—they never carry overnight positions. That’s becoming a common way that people get filled on our Trade Alerts.
Q: Will Boris Johnson get kicked out before the hard Brexit occurs?
A: Probably, yes. I’m hoping for it, anyway. What may happen is Parliament forcing a vote on any hard Brexit. If that happens, it will lose, the prime minister will have to resign, and they’ll get a new prime minister. Labor is now campaigning on putting Brexit up to a vote one more time, and just demographic change alone over the last four years means that Brexit will lose in a landslide. That would pull England out of the last 4 years of indecision, torture, and economic funk. If that happens, expect British stock markets to soar and the pound (FXB) to go up, from $1.17 all the way back up to $1.65, where it was before the whole Brexit disaster took place.
Q: Is the US central bank turning into Japan?
A: Yes. If we go to zero rates and zero growth and recession happens, there’s no way to get out of it; and that is the exact situation Japan has been in. For 30 years they have had zero rates, and it’s done absolutely nothing to stimulate their economy or corporate profits. The question then—and one someone might ask Washington—is: why pursue a policy that’s already been proven unsuccessful in every country it’s been tried in?
Q: Will US household debt become a problem if there is a sharp recession?
A: Yes, that’s always a problem in recessions. It’s a major reason why financials have been in a freefall because default rates are about to rise substantially.
Q: Given the big spike in earnings in NVIDIA (NVDA), what now for the stock?
A: Wait for a 10% dip and buy it. This stock has triple in it over the next 3 years. You want to get into all the chip stocks like this, such as Micron Technology (MU), Lam Research (LRCX), and Advanced Micro Devices (AMD).
Q: Baidu (BIDU) has risen in earnings, with management saying the worst is over. Is this reality or is this a red herring?
A: I vote for A red herring. There’s no way the worst is over, unless the management of Baidu knows something we don’t about Chinese intentions.
Q: When will Wells Fargo (WFC) be out of the woods?
A: I hate the sector so I’m really not desperate to reach for marginal financials that I have to get into. If I do want to get into financials, it will be in JP Morgan (JPM), one of my favorites. The whole sector is getting slaughtered by low interest rates.
Q: Any idea when the trade war will end?
A: Yes, after the next presidential election. It’s not as if the Chinese are negotiating in bad faith here, they just have no idea how to deal with a United States that changes its position every day. It’s like negotiating with a piece of Jell-O, you can’t nail it down. At this point the Chinese have thrown their hands up and think they can get a better deal out of the next president.
Q: Would you short General Electric (GE) or wait for another bump up to short it?
A: I would wait for a bump. Obviously—with the latest accounting scandal, which compares (GE) with Enron and WorldCom—I don’t want to get involved with the stock. And we could get new lows once the facts of the case come out. There are too many better fish to fry, like in technology, so I would stay away from (GE).
Q: How do you put stop losses on your trade?
A: It’s a confluence of fundamentals and technicals. Obviously, we’re looking at key support levels on the charts; if those fail then we stop out of there. That doesn’t happen very often, maybe on 10% of our trades (and more recently even less than that). Our latest stop loss was on the (TLT) short. That was our biggest loss of the year but thank goodness we got out of that, because after we stopped out at $138 it went all the way to $146, so that’s why you do stop losses.
Q: How about putting on a (TLT) short now?
A: No, I think we’re going to new highs on (TLT) and new lows on interest rates. We’re just going through a temporary digestion period now. We’ll challenge the lows in rates and highs in prices once again, and you don’t want to be short when that happens. The liquidity is getting so bad in the bond market, you’re getting these gigantic gaps as a global buy panic in bonds continues.
Q: Do you have thoughts on what Fed Governor Powell may say in Jackson Hole, and any market reaction?
A: I have no idea what he might say, but he seems to be trying to walk a tightrope between presidential attacks and economic reality. With the stock market 3% short of an all-time high, I’m not sure how much of a hurry he will be in to lower interest rates. The Fed is usually behind the curve, lowering rates in response to a weak economy, and I’m not sure the actual data is weak enough yet for them to lower. The Fed never anticipates potential weakness (at least until the last raise) so we shall see. But we may have little volatility for the rest of the week and then a big move on Friday, depending on what he says.
Q: What is your take on the short term 6-18 months in residential real estate? Are Chinese tariffs and recession fears already priced in or will prices continue to drop?
A: Prices will continue to drop but not to the extent that we saw in ‘08 and ‘09 when prices dropped by 50, 60, 70% in the worst markets like Florida, Las Vegas, and Arizona. The reason for that is you have a chronic structural shortage in housing. All the home builders that went bankrupt in the last crash has resulted in a shortage, and you also have an immense generation of Millennials trying to buy homes now who’ve been shut out by higher interest rates and who may be coming back in. So, I’m not expecting anything remotely resembling a crash in real estate, just a slowdown. And new homes are actually not falling at all. That’s because the builders are deliberately restraining supply there.
Q: What is a good LEAP to put on now?
A: There aren’t any. We’re somewhat in the middle of a wider, longer-term range, and I want to wait until we get to the bottom of that; when people are jumping out of windows—that’s when you want to start putting on your long term LEAPS (long term equity anticipation securities), and when you get the biggest returns. We may get a shot at that sometime in the next month or two before a year in rally begins. If you held a gun to my head and told me I had to buy a leap, it would probably be in Boeing (BA), which is down 35% from its high.
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)
Mad Hedge Technology Letter
August 5, 2019
Fiat Lux
Featured Trade:
(THE CHINA TARIFF BOMBSHELL AND TECHNOLOGY),
(AAPL), (NVDA), (INTC), (MU), (WDC), (BBY)
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.
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)
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)
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.
Global Market Comments
May 22, 2019
Fiat Lux
SPECIAL ARTIFICIAL INTELLIGENCE ISSUE
Featured Trade:
(HERE’S AN EASY WAY TO PLAY ARTIFICIAL INTELLIGENCE),
(BOTZ), (NVDA), (ISRG)
(FRIDAY, JULY 5 CAIRO, EGYPT GLOBAL STRATEGY DINNER)
We are now in the throes of a market correction that could last anywhere from a couple of more week to a couple of months. So, generational opportunities are starting to open up in some of the best long term market sectors.
Suppose there was an exchange-traded fund that focused on the single most important technology trend in the world today.
You might think that I was smoking California’s largest export (it’s not grapes). But such a fund DOES exist.
The Global X Robotics & Artificial Intelligence ETF (BOTZ) drops a golden opportunity into investors’ laps as a way to capture part of the growing movement behind automation.
The fund currently has an impressive $2.2 billion in assets under management.
The universal trend of preferring automation over human labor is spreading with each passing day. Suffice to say there is the unfortunate emotional element of sacking a human and the negative knock-on effect to the local community like in Detroit, Michigan.
But simply put, robots do a better job, don’t complain, don’t fall ill, don’t join unions, or don’t ask for pay rises. It’s all very much a capitalist’s dream come true.
Instead of dallying around in single stock symbols, now is the time to seize the moment and take advantage of the single seminal trend of our lifetime.
No, it’s not online dating, gambling, or bitcoin. It’s Artificial Intelligence.
Selecting individual stocks that are purely exposed to AI is a challenging endeavor. Companies need a way to generate returns to shareholders first and foremost, hence, most pure AI plays do not exist right now.
However, the Mad Hedge Fund Trader has found the most unadulterated AI play out there. A real diamond in the rough.
The best way to expose yourself to this AI trend is through Global X Robotics & Artificial Intelligence ETF (BOTZ).
This ETF tracks the price and yield performance of ten crucial companies that sit at the forefront of the AI and robotic development curve. It invests at least 80% of its total assets in the securities of the underlying index. The expense ratio is only 0.68%.
Another caveat is that the underlying companies are only derived from developed countries. Out of the 10 disclosed largest holdings, seven are from Japan, two are from Silicon Valley, and one, ABB Group, is a Swedish-Swiss multinational headquartered in Zurich, Switzerland.
Robotics and AI walk hand in hand, and robotics are entirely dependent on the germination prospects of AI. Without AI, robots are just a clunk of heavy metal.
Robots require a high level of AI to meld seamlessly into our workforce. The stronger the AI functions, the stronger the robot’s ability, filtering down to the bottom line.
AI-embedded robots are especially prevalent in military, car manufacturing, and heavy machinery. The industrial robot industry projects to reach $80 billion per year in sales by 2024 as more of the workforce gradually becomes automated.
The robotic industry has become so prominent in the automotive industry that they constitute greater than 50% of robot investments in America.
Let’s get the ball rolling and familiarize readers of the Global Trading Dispatch with the top 5 weightings in the underlying ETF (BOTZ).
Nvidia (NVDA)
Nvidia Corporation is a company I often write about as their main business is producing GPU chips for the video game industry.
This Santa Clara, California-based company is spearheading the next wave of AI advancement by focusing on autonomous vehicle technology and AI-integrated cloud data centers as their next cash cow.
All these new groundbreaking technologies require ample amounts of GPU chips. Consumers will eventually cohabitate with state of the art IOT products (internet of things), fueled by GPU chips coming to mass market like the Apple Homepod.
The company is led by genius Jensen Huang, a Taiwanese American, who cut his teeth as a microprocessor designer at competitor Advanced Micro Devices (AMD).
Nvidia constitutes a hefty 8.70% of the BOTZ ETF.
To visit their website, please click here.
Yaskawa Electric (Japan)
Yaskawa Electric is the world's largest manufacturer of AC Inverter Drives, Servo and Motion Control, and Robotics Automation Systems, headquartered in Kitakyushu, Japan.
It is a company I know well, having covered this former zaibatsu company as a budding young analyst in Japan 45 years ago.
Yaskawa has fully committed to improving global productivity through automation. It comprises the 2nd largest portion of BOTZ at 8.35%.
To visit Yaskawa’s website, please click here.
Fanuc Corp. (Japan)
Fanuc was another one of the hot robotics companies I used to trade in during the 1970s, and I have visited their main factory many times.
The 3rd largest portion in the (BOTZ) ETF at 7.78% is Fanuc Corp. This company provides automation products and computer numerical control systems and is headquartered in Oshino, Yamanashi.
They were once a subsidiary of Fujitsu, which focused on the field of numerical control. The bulk of their business is done with American and Japanese automakers and electronics manufacturers.
They have snapped up 65% of the worldwide market in the computerized numerical device market (CNC). Fanuc has branch offices in 46 different countries.
To visit their company website, please click here.
Intuitive Surgical (ISRG)
Intuitive Surgical Inc (ISRG) trades on Nasdaq and is located in sun-drenched Sunnyvale, California.
This local firm designs, manufactures, and markets surgical systems and is completely industriously focused on the medical industry.
The company's da Vinci Surgical System converts surgeon's hand movements into corresponding micro-movements of instruments positioned inside the patient.
The products include surgeon's consoles, patient-side carts, 3D vision systems, da Vinci skills simulators, da Vinci Xi integrated table motions.
This company comprises 7.60% of BOTZ. To visit their website, please click here.
Keyence Corp (Japan)
Keyence Corp is the leading supplier of automation sensors, vision systems, barcode readers, laser markers, measuring instruments, and digital microscope.
They offer a full array of service support and closely work with customers to guarantee full functionality and operation of the equipment. Their technical staff and sales teams add value to the company by cooperating with its buyers.
They have been consistently ranked as the top 10 best companies in Japan and boast an eye-popping 50% operating margin.
They are headquartered in Osaka, Japan and make up 7.54% of the BOTZ ETF.
To visit their website please click here.
(BOTZ) does have some pros and cons. The best AI plays are either still private at the venture capital level or have already been taken over by giant firms like NVIDIA.
You also need to have a pretty broad definition of AI to bring together enough companies to make up a decent ETF.
However, it does get you a cheap entry into many of the illiquid foreign names in this fund.
Automation is one of the reasons why this is turning into the deflationary century and I recommend all readers who don’t have their own robotic-led business pick up some Global X Robotics & Artificial Intelligence ETF (BOTZ).
And by the way, the entry point right here on the charts is almost perfect.
To learn more about (BOTZ), please visit their website by clicking here.
