(PYPL) Archives

The Normalization of Cryptocurrency

The price of Bitcoin mushrooming to an all-time peak of just south of $20,000 is a seminal moment for digital currencies.

Although the Mad Hedge Technology Letter rarely wades into these types of waters, crypto must be addressed because the recent legitimization of digital currencies cannot be diminished.

That’s not to say they will be the de facto monetary instrument tomorrow morning, but the concept of digital currencies and development of it this year has been far and wide-reaching.

The price of Bitcoin has gained more than 170% this year, with most of the price action coming since September.

Why has it been so successful?

Riskier assets are back in vogue as the unprecedented fiscal and monetary stimulus means there are fewer places to achieve any sort of proper yield.

Then consider recent mainstream acceptance that is coming to full fruition such as payment companies including PayPal (PYPL) and Square (SQ) which have recently incorporated digital currencies into their business model.

Government and Central Banks are the largest reason for the short-term elevated attention as their fumbled virus response has led to lockdowns and a massive loss of trust in their leadership.

The global debacle has led many investors to search for alternative routes to fiscal safe havens seeking shelter from rapidly increasing central bank quantitate easing and the rampant asset inflation that everyone agrees is already taking place.

Much of the money printing has not been done responsibly with mainly only corporations and their offshoots benefiting from an unprecedented, pandemic-marred market reality in which stocks are trading at nosebleed prices while bond yields are hovering around zero.

Moving forward, the risk of protests, revolution, and war has increased significantly in large swaths of the developed and undeveloped world and higher societal and systemic risk makes the idea of digital currencies that are out of the reach of taxable authorities more conducive to storing savings and for-profit trading.

Bonds have no yield EVERYWHERE at this point and keeping wealth in cash is dangerous.

Investors used to put their money in gold, but gold is going down because it is being replaced by digital gold called bitcoin.

It was only in 2017 when the bitcoin surge lost momentum and caused the price of Bitcoin to lose half its value within days of reaching an all-time high.

What is the difference today?

Today’s bull market is resting upon more solid foundations and in 2017, the bubble was artificially propped up by Initial Coin Offerings (ICOs), which saw charlatans sell mostly worthless new currencies to the naïve retail investor.

It’s true that today, Bitcoin is regulated tighter translating to less dumb money circulating in the system.

Bitcoin’s foundations are also more firm in 2020 because its adoption base has increased meaning more people have skin in the game and aren’t going to dump the asset at the first sign of consolidation.

A company called Grayscale has been quite intelligent in pitching Bitcoin as an alternative to gold and selling it to millions of millennial investors in the form of shares.

The large avoidance of corporate bitcoin adoption has changed 180 degrees in the year of the pandemic with PayPal announcing last month that it will soon allow users to buy cryptocurrency within its app.

Next year, PayPal will allow users to draw from cryptocurrency accounts to pay for goods and services at 28 million merchants that use the company's platform.

PayPal will also enable customers to use Venmo, its popular peer-to-peer payment service, to buy and shop with cryptocurrencies.

CEO Dan Schulman implied that the size of the waiting list for last month's crypto offering for access to crypto was two or three times as great as what the company anticipated.

Obviously, this is setting up a shortage of bitcoin in more corporates needing access to its supply.

Schulman also argued that companies and central banks are experimenting with cryptocurrencies and the utility of digital wallets.

“Digital wallets are a natural complement to all forms of digital currency,” said Schulman, adding that PayPal is in close talks with central banks and regulators to explore new uses for these wallets.

Schulman said PayPal views cryptocurrency systems as cheaper and more efficient than ACH, which is the network that supports the existing banking system.

He also said that the current financial system is “not working” for many low-income people meaning that there is a huge untapped audience that would find crypto more useful.

Last week, cryptocurrency giant Coinbase announced a debit card that can be used at ordinary merchants, while MasterCard in September announced a service to let central banks test out digital currencies.

There are strong rumblings by investors that gold will eventually be displaced by “digital gold” and abandoning the sinking ship early could lead to all gold investors diverting their capital into bitcoin.

This would massively expand the user base as well and the valuation could be 25 times higher than it is today.

Institutions have taken the baton from the retail-driven pandemonium of 2017 and in 2020, many liquid investors will look at any crash or dip in bitcoin as a buying opportunity.

What a change from just 4 years ago!

I hate to say it, but as central banks go even more off the deep end to prop up a decaying financial system riddled with conflicts of interest, the price of bitcoin will gain in strength resulting in much higher prices.

Not only that, but the adoption rate could also go into overdrive opening up pathways for secondary coins like Ethereum to gain widespread adoption as well.

At this point, it appears that this overarching trend is unstoppable, and in the future, historians will look at this 2^nd bull run to $20,000 in 2020 as just another data point in its meteoric rise to jaw-dropping prices of $30,000 then $40,000.

September 18, 2020

Diary, Newsletter, Summary

Global Market Comments
September 18, 2020
Fiat Lux

Featured Trade:

(SEPTEMBER 16 BIWEEKLY STRATEGY WEBINAR Q&A),
(INDU), (TSLA), (DIS), (NKLA),
(GM), (PYPL), (FXI), (XOM), (KCAC),

September 16 Biweekly Strategy Webinar Q&A

Diary, Newsletter, Summary

Below please find subscribers’ Q&A for the September 16 Mad Hedge Fund Trader 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: Is the Russian vaccine real or just a publicity stunt?

A: I would say it’s real. Russia is much more prone to experimentation, that is a luxury they have. If they kill off a million people because the vaccine is no good, there is no litigation risk. So, it may work, but it is a high-risk drug.

Q: What will a contested election mean for the markets?

A: The Dow (INDU) will be down 2,000 points in one day. But I don’t think it’s going to happen; I think the media has greatly exaggerated the chances of a Trump victory. I don’t think there are any undecided votes now. The only way you’d be undecided by now is if you’ve lived in a care for the past four years. The market has got this completely wrong, and once it’s clear who won, you’ll get a monster rally in the stock market that goes until this year’s end, and the game from here until election day is to try to get into the market as low as possible before then.

Q: Do you think big tech is a crowded trade, and what do you think will eventually happen?

A: It is an extremely crowded trade; eventually it will go down big. If you remember the Dotcom Bubble, everything dropped 80% or went to zero. Having said that, we’ve never had this amount of Fed stimulus before, so we should go higher first, especially after the election. The fact is that the big techs are growing gangbusters—30%, 40%, or 50% a year so spectacular multiples are called for. This is the argument Mad Hedge Fund Trader has been making for the last 10 years, by the way.

Q: Do you think the residential real estate market will crash before or after the election?

A: I would say well after the election because I don't think it will crash until 2030. All these millennial buyers are out there in droves, interest rates are at record lows, and you have this massive work-at-home trend going on, which is going to be largely permanent. So, all of a sudden, the demand is huge for homes that you can convert into a kitchen with 4 home offices. A lot of companies have discovered this to be a very profitable way to work. So, I don’t see any crash happening in housing, perhaps even in my lifetime. We’re not seeing all the excesses in housing now that we saw in the Great Recession 13 years ago.

Q: How will Joe Biden’s election change the wealth of America’s finances?

A: Move money from the extremely rich to the middle class. That is the one-liner. It looks like any tax increases for individuals who make less than $400,000 a year will be minimal. The big hit will be those that make over a billion a year, and that category could even see Roosevelt level tax rates of 90% or more.

Q: What do you think of the condo market in San Francisco?

A: It is terrible now with prices down about 20%. We’re seeing exactly the same thing in New York City as people flee to the suburbs, and in the meantime, we have bidding wars going on in the outer suburbs. This will continue for about another year until people pour back into the city once the pandemic all-clear signal is given. That may be in about two years.

Q: Tesla (TSLA) has retraced half of its recent losses; do you think it will go another leg higher?

A: At this point, Tesla is an extremely high-risk stock. I would only want to be day trading it. The overnight gaps are so enormous. At $500 a share, it’s discounting a best-case scenario for 2025 already, so that is kind of stretching it. Better to buy the car than the stock.

Q: Do you have any other names in the EV market to recommend?

A: Absolutely not; most of the other entrants in the market have no cars and no mass production abilities, which is the real challenge, and are lagging Tesla with terrible designs. Tesla essentially has the lock on that market, and a 10-year head start. They are accelerating their technology and the only other serious producer in volume is General Motors (GM) with their Bolt, but that hasn’t really taken off. It is cheap at $30,000 but the next thing to happen is that Tesla will drop the price of their model Y below the price of the Bolt which will kill it off. But no, I wouldn't touch any of these other things. The future is all electric. Many people also underestimate the decade-long torture Tesla had to go through to get to where they are. I remember it because I have been with Elon from day one during his PayPal (PYPL) days.

Q: Would you sell Disney (DIS) here at $130? The economic climate for 2021 doesn’t look great for public mass entertainment.

A: That is all true, but their streaming business, Disney Plus, is taking off like a rocket. They just released Mulan, which I watched over the weekend with my kids and loved it. It will undoubtedly be the largest streaming movie release in history once we get a look at the numbers next month. So, they are moving into the online business at an incredible speed, and it may be enough to offset the enormous losses they are running from their hotels, cruise ships, and parks. And also, this is a reopening play big time—one of the few quality reopening plays out there—and the only reason to sell Disney here is if you think the corona epidemic will get dramatically worse and stay worse well into next year.

Q: What about battery names?

A: Batteries are still either owned by giant companies like Tesla or they’re small startups that have a nasty habit of going bankrupt. There really aren't any good clean publicly-listed plays on batteries in the markets these days.

Q: What about a short on Nikola (NKLA)?

A: If I were an aggressive day trader, that would be right in my sights. You can expect nothing but bad news to come out about Nikola. Taking a truck with no motor and then rolling it downhill and calling it a successful trial just invites short-sellers by the hoards. It’s already off 65% from its peak.

Q: Why do you say there's no future in hydrogen?

A: You need to build a large national hydrogen distribution network to make this economically viable and it’s just too expensive. Electricity infrastructure is already in place and just needs to be upgraded and modernized. Electricity is also infinitely scalable in improvements in power output, but hydrogen is only capable of straight-line improvement. No contest.

Q: What about the Solid-State Batteries?

A: I actually wrote a piece about this earlier this week. Solid-State Batteries could allow a 20-fold increase in battery efficiency for cars and houses and that may only be 2 or 3 years off as there are several in development now. QuantumScape (KCAC) is the listed leader there. Bill Gates is a major investor (click here for the link).

Q: Can we play a short-term bounce in big oil like ExxonMobile (XOM)?

A: You can, but remember, this is a trading play only, not an investment play. The long-term future for these companies is to go to zero or to get into another line of business, like alternative energy.

Q: What will happen to the market after the Fed speaks today?

A: My guess is stocks will rally as long as Jerome doesn’t say anything horrendous like “this is your last freebie; I’m raising rates at the next meeting,” which he is not going to say at the last Fed meeting before the presidential election.

Q: I am trying to get through all the fluff of misinformation out there; I want your opinion on who is winning the US-China (FXI) trade war.

A: The simple answer is that China has been winning all along. The proof of that is that their economy is growing and ours is shrinking. That’s because China managed to cap their Corona deaths at 4,000 and ours are at 200,000. In the meantime, the technology improvements in China have been enormous over the last 4 years, so none of the trade war issues, which by the way, were all focused on the lowest margin businesses that China did, have had any effect. If anything, it’s forced China to offshore their low margin business to cheap countries like India, Vietnam, and Bangladesh so they disappear as China trade. I always thought the China trade war was a mistake—it’s always better to trade with someone than go to war with them. I’ve done both and prefer the former.

Q: Do you think Biden is bullish for stocks, considering all the regulations that will be put back?

A: I don’t think there will be many regulations put back except for the energy industry, which has essentially operated regulation-free for the last three years. All of those controls—on flaring, on pipelines, and so on—those will all get put back because they were implemented by executive order, which can be reversed with the stroke of a pen. I don’t see much regulation anywhere else in the economy coming back. And in fact, since Joe Biden pulled ahead in the polls in May, the stock market has gone up almost every day. So clearly, the market thinks Joe Biden will be positive for stocks, and the possibility that he might implement an extra $6 trillion dollars in fiscal spending once in office is the reason why. You have to look at what these people do, not what they say. And my bet is that since Trump set the precedent for record deficit spending, Biden will continue that. And we’ll only worry about things like deficits when the inflation rate tops 5%, when interest rates go back to 10% in five years—all the reasons that caused the massive rise in deficits during the late 70s and early 80s.

Good Luck and Stay Healthy

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

Sitting Pretty

Scraping the Bottom of the Tech Barrel with Uber

Tech Letter

The coronavirus and the resulting effects from it have had the single most sway on tech companies since the 2001 tech bust.

Marginal tech companies or even quasi-fraudulent ones have been exposed for what they are, while the secondary effects from the virus have supercharged the behemoths of the industry.

The stock market has no earnings growth in the past 5 years without the earnings from Microsoft (MSFT), Facebook (FB), Apple (AAPL), Google (GOOGL), Amazon (AMZN), and Netflix (NFLX). That means that without the Republican corporate tax cut, there has been negative earnings growth in the past five years.

One of those tech companies at the bottom of the barrel has been chauffeur service company Uber (UBER) and their latest earnings report is a glaring indictment of a shoddy business model that operates in a gray area.

The only reason this stock is at $33 is because of the piles of easy money printed by the central bank.

Uber needs all the help they can get, and shares are still trading 20% below the IPO price.

Competitor chauffeur service Lyft (LYFT) is doing even worse registering a 50% decline since the IPO.

Let’s do a little snooping around to see why these companies are doing so poorly and why you shouldn’t even think about investing in these companies long-term.

No matter how you dice it up, Uber’s core business, the one where they refuse to properly compensate their drivers, had a disaster of a quarter with gross ride volumes down 73% year-over-year.

Before we go any further with this one, I would like to point out yes, other areas of the business grew substantially, the problem is that the “other” part of the business is only 30% of total revenue.

Therefore, when 70% of your business that relies on pure volume to scale out crashes by 73%, it doesn’t really matter what else is in the report.

The only sensible idea now is capturing a snapshot of the silver linings, of which there were a few.

Delivery volumes through Uber Eats were up 49%, but the problem here is that first, it’s not profitable per delivery and second, it’s still a small part of the business.

Uber acquired Postmates who is another loss-making delivery service and the idea behind this is to achieve significant cost savings by scaling out these powerful assets.

The problem here is that it is essentially throwing good money on top of bad money because it’s proven that deliveries don’t make money per ride and that won’t change in the near future.

CEO of Uber Dara Khosrowshahi is on record saying Uber will become “profitable on an adjusted earnings basis before interest, taxes, depreciation, and amortization before the end of the year.”

This is almost like saying we won’t lose as much money as before and ironically, Dara Khosrowshahi has withdrawn this statement as the ride-sharing model has been repudiated by the consumer during the coronavirus.

Nowhere in the earnings report is the explanation of how Dara Khosrowshahi plans to attract people to share a car ride with a stranger during a global pandemic.

He didn’t share a solution because there isn’t one, hence the 73% decline in ride volumes.

If we assume this company is semi-fraudulent, then the silver lining would be that ride volumes didn’t decline by 100%.

That is where we are now with U.S. corporate companies such as the airlines that fired their employees but have subsidized them to stick around even though there is no work.

Instead of re-imagining itself through bankruptcies, the Fed has encouraged many marginal companies by breathing life into their finances through cheap loans.

This gives failing firms a last chance to enrich management with the capital and “cash out” before they hand the business off to someone who will essentially plan to do the same.

I will say that traders might have a trade or two in this one, because it’s hard to imagine Uber posting another 73% loss in ride volume and a dead cat bounce trade could be in the cards.

Long term investors should steer clear of this one and allow Uber to struggle on its own and just maybe in 5 or 10 years, it might just be “profitable on an adjusted earnings basis before interest, taxes, depreciation, and amortization before the end of the year.”

With so many high-quality tech companies and even one that is about to add super growth elements like TikTok into its portfolio, there are so many superior names to deploy capital in the tech ecosphere.

Either you must be galvanized by a gambler’s mentality to invest in Uber, or losing money is something that is habitual in your routine.

uber

August 7, 2020

Tech Letter

Mad Hedge Technology Letter
August 7, 2020
Fiat Lux

Featured Trade:

(FINTECH IN 2020 IS TOO HOT TO HANDLE)
(PYPL)

Fintech in 2020 is Too Hot to Handle

Tech Letter

I’ve been kicking myself that I missed the boat this year on a stock that I spent last year hyping like no other after I predicted a tsunami of bullish action from fintech players.

I pigeonholed PayPal (PYPL) as one of the rising stars of the fintech industry and they certainly have delivered in spades.

But even I didn’t see this coming.

PayPal has more than doubled since the tech wreck in March and shares are trading north of $200.

A quick double of the stock has more than 20 analysts raising price targets for the stock since earnings came out, and most reiterated conviction buy ratings on the shares.

PayPal’s monetization engines take from both sides of its consumer and merchant platforms.

I expect growth on the top line to speed up and margins to increase if the rapid digitization of payments turns out to be here to stay, which I wholeheartedly believe it will.

PayPal’s business model has leaned on e-commerce payments, but now is the perfect time to invest in so-called frictionless payments, as well as consumer banking.

They hope to roll out QR code functionality in the US.

PayPal recently announced a partnership with CVS Health (CVS) to roll out QR-code payment options in more than 8,200 pharmacy stores in the fourth quarter.

The better-than-expected second-quarter results were solid across the board stemming from net new additions to the client (and merchant) count, TPV growth, Venmo growth, revenue growth, margins, and cash flow.

That is a whole lot of positives to work from!

Now, there is considerable evidence of sustainability of the underlying behavioral changes that are producing the growth.

Management’s decision to raise and increase estimates it had withdrawn demonstrates the company’s confidence.

There is bullish case for an opportunity for a new margin profile for the company longer term.

PayPal is about the shrug off the end of the eBay operating agreement and start harvesting volumes from several of its multi-year investments (Paymentus, MELI, Uber, Facebook, Honey acquisition).

PayPal is well-positioned in a market that could add up to $5 trillion even excluding online bill-payment services, in-store payments, and the Chinese market.

In mid-2020, it is clearly the most atrocious macroeconomic backdrop any of us have seen, with major parts of business travel and events on the back burner, and PayPal is still pulling off miracles by producing record numbers.

I attribute PayPal’s success to a multipronged, diverse platform scaled across the world that allows users to invest in this environment and shape the outcome, rather than sitting back and being a recipient.

The number that sticks out most is the more than 21 million net new active customers across its platform in the June quarter, a bigger number than in some entire years.

The bullish case for PayPal will outlast the health crisis as consumers are now tied to using PayPal during the crisis and will continue to do so long after because the product delivers the security and convenience that others don’t.

The outperformance certainly has something to do with a high level of trust and security that goes with it to boost the legitimacy of the brand and that is especially salient for new joiners.

No doubt that PayPal is hardly the only digital payment option, and competition is fierce, but they are good at what they do.

This is an inflection point in e-commerce and digital payments; the trends were pulled forward by two or three years, but the most fundamental difference right now is the new and expanded addressable market in the offline world.

The market has increased exponentially, in a world where digital payments are a major slice of all payments, PayPal is fully expected to continue to outperform.

There is the case that shares are too far out over its skis in the short-term, but for good reason.

I would put this stock on the high alert list ready to put new money to work in shares as soon as there is a medium-sized pullback.

Paypal

July 22, 2020

Diary, Newsletter, Summary

Global Market Comments
July 22, 2020
Fiat Lux

Featured Trade:

(MY NEWLY UPDATED LONG-TERM PORTFOLIO),
(PFE), (BMY), (AMGN), (CELG), (CRSP), (FB), (PYPL), (GOOGL), (AAPL), (AMZN), (SQ), (JPM), (BAC), (BABA), (EEM), (FXA), (FCX), (GLD)

My Newly Updated Long-Term Portfolio

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I am really happy with the performance of the Mad Hedge Long Term Portfolio since the last update on October 17, 2019. In fact, not only did we nail the best sectors to go heavily overweight, we completely dodged the bullets in the worst-performing ones, especially in energy.

For new subscribers, the Mad Hedge Long Term Portfolio is a “buy and forget” portfolio of stocks and ETFs. If trading is not your thing, these are the investments you can make, and then not touch until you start drawing down your retirement funds at age 70 ½.

For some of you, that is not for another 50 years. For others, it was yesterday.

There is only one thing you need to do now and that is to rebalance. Buy or sell what you need to reweight every position to its appropriate 5% or 10% weighting. Rebalancing is one of the only free lunches out there and always adds performance over time. You should follow the rules assiduously.

Despite the seismic changes that have taken place in the global economy over the past nine months, I only need to make minor changes to the portfolio, which I have highlighted in red.

To download the entire portfolio in an excel spreadsheet, please go to www.madhedgefundtrader.com , log in, go to “My Account”, then “Global Trading Dispatch”, then click on the “Long Term Portfolio” button.

My 5% holding in Biogen (BIIB) was taken over by Bristol Myers (BMY) at a hefty premium at an all-time high, so I’ll take the win. I am replacing it with Covid-19 vaccine frontrunner Bristol Myers (BMY) itself.

I am also taking out healthcare provider Cigna (CI), whose profits have been hammered by the pandemic. A future Biden administration might also move to a national healthcare system that will cap profits. I am replacing it with another Covid-19 vaccine leader Pfizer (PFE).

My 30% weighting in technology remains the same. Even though these stocks are 30% more expensive than they were three years ago, I believe they will lead the charge into the 2020s. It’s where the big growth is. These have doubled or more over the past nine months.

I am sticking with a 10% weighting in banking. Thanks to trillions in stimulus loans, they are now the most government-subsidized sector of the economy. I also believe that massive bond issuance by the US Treasury will deliver a sharply steepening yield curve, another pro bank development.

With my 10% international exposure, I am taking out a 5% weight in slow-growth Japan and replacing it with Chinese Internet giant Alibaba (BABA). The US will most likely dial back its vociferous anti-Chinese stance next year and (BABA) will soar.

I am executing another switch in my foreign currency exposure, taking out a long in the Japanese yen (FXY) and a short in the Euro (EUO) and substituting in a double long in the Australian dollar (FXA).

Australia will be a leveraged beneficiary of a recovery in the global economy, both through a recovery on commodity prices and gold which has already started, and the post-pandemic return of Chinese tourism and investment. I argue that the Aussie will eventually make it to parity with the US dollar, or 1:1.

I’m quite happy with my 10% holding in gold (GLD), which should move to new all-time highs imminently….and then go ballistic.

As for energy, I will keep my weighting at zero, no matter how cheap it has gotten. Never confuse “gone down a lot” with “cheap”. I think the bankruptcies have only just started and will stretch on for a decade. Thanks to hyper-accelerating technology, the adoption of electric cars, and less movement overall in the new economy, energy is about to become free.

My ten-year assumption for the US and the global economy remains the same.

When we come out the other side of this, we will be perfectly poised to launch into my new American Golden Age, or the next Roaring Twenties. With interest rates still at zero, oil cheap, there will be no reason not to. The Dow Average will rise by 400% or more in the coming decade. The American coming out the other side of the pandemic will be far more efficient and profitable than the old.

I hope you find this useful and I’ll be sending out another update in six months so you can rebalance once again.

Stay healthy.

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

July 8, 2020

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Global Market Comments
July 8, 2020
Fiat Lux

Featured Trade:

(TRADING THE BLUE WAVE STOCK MARKET),
(FB), (AAPL), (MSFT), (AMZN), (ADBE), (SQ), (PYPL), (CRM), (SGEN), (REGN), (ILMN) (FEYE), (PANW), (AMD), (MU), (NVDA), (TSLA), (LEN), (PHM), (KBH), (XOM), (CVX), (XOM), (RTN), (NOC), (LMT), (KOL), (X), (GE)

Trading the Blue Wave Stock Market

Diary, Newsletter

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.

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