Posts

November 1, 2019

Global Market Comments
November 1, 2019
Fiat Lux

Featured Trade:

(OCTOBER 30 BIWEEKLY STRATEGY WEBINAR Q&A),
(SQ), (CCI), (SPG), (PGE), (BA), (MSFT), (GOOGL), (FB), (AAPL), (IBB), (XLV), (USO), (GM), (VNQ)

October 17, 2019

Global Market Comments
October 17, 2019
Fiat Lux

Featured Trade:

(UPDATING THE MAD HEDGE LONG TERM MODEL PORTFOLIO),
(USO), (XLV), (CI), (CELG), (BIIB), (AMGN), (CRSP), (IBM), (PYPL), (SQ), (JPM), (BAC), (EEM), (DXJ), (FCX), (GLD)

October 9, 2019

Global Market Comments
October 9, 2019
Fiat Lux

Featured Trade:

(HOW FINTECH IS EATING THE BANKS’ LUNCH),
(BAC), (C), (WFC), (SQ), (PYPL),
 (WCAGY), (FISV), (INTU), (BABA),

August 27, 2019

Global Market Comments
August 27, 2019
Fiat Lux

Featured Trade:

(FIVE STOCKS TO BUY AT THE BOTTOM),
(AAPL), (AMZN), (SQ), (ROKU), (MSFT),
(HOW TO EXECUTE A VERTICAL BULL CALL SPREAD)
(AAPL)

July 29, 2019

Mad Hedge Technology Letter
July 29, 2019
Fiat Lux

Featured Trade:

(THE RACE TO THE BOTTOM),
(SCHW), (FB), (SQ), (WMT), (AMZN), (FFIDX), (BOX)

The Race to the Bottom

Gone are the days of brokers shouting from the trading pits, a bygone era where pimple-faced traders cut their teeth rubbing shoulders with the journeymen of yore.

The stock brokerage industry is at an inflection point with the revolutionary online stock brokerage Robinhood on the verge of shaking up an industry that has needed shaking up for years.

A common thread revisited by this newsletter is the phenomenon of broker apps being low-quality tech.

A broker ultimately serves little or no value to the real players among the deal, usually extracting huge commissions.

Technology and now blockchain technology vie to completely remove this exorbitant layer from the business process.

Well, for the stock brokerage industry, that time is now.

Robinhood is an online stock brokerage company based in Menlo Park, Calif., trading an assortment of asset classes including equities, options, and cryptocurrencies.

So, what’s the catch?

Robinhood does not charge commission.

That’s right, you can invest up until the $500,000 threshold protected by the Securities Investor Protection Corporation (SIPC) and you can go along with your merry day trading for free.

The online brokerage industry has been getting away with murder for years.

They got comfortable and stopped innovating – the death knell of any company in 2019.

Effectively, high execution costs reaping massive profits were the norm for brokers, and nobody questioned this philosophy until Robinhood exposed the ugly truth – unreasonably high rates.

Peeking at a monthly chart of brokerage costs will make your stomach churn.

For instance, a trader frequently executing trades with an account of $100,000 would hand over $1836 in commission in 2017 if their account was with Fidelity.

On the cheaper side, Interactive Brokers would charge $854 for its brokerage services to habitual traders per month.

The outlier was Tradier, a start-up brokerage founded in 2014 using the powerful tool of an Application Programming Interface (API) which charged $213 per month to trade frequently.

An API is described as a software intermediary allowing two applications to communicate with each other.

This model helped cut costs for the online brokerage because Tradier did not have to focus its funds on the trading platform that was delegated to various third-party platforms.

Tradier is largely responsible for the aggregation of data and charts thus employing an army of developers to meet their end of the business.

This model is truly the democratization of the online brokerage industry, which has been coming for years.

Costs are cut to a minimum with equity trades at Tradier costing investors $3.49 per order and options contracts costing $0.35 per contract with a $9 options assignment and exercise fee.

Technology has defeated the traditionalist again.

More than 80% of Robinhood’s accounts are owned by millennials – as expected.

Trading cryptocurrencies act as a gateway asset to springboard into other asset classes such as equities and derivative contracts.

Vlad Tenev, co-CEO of Robinhood, indicated that Robinhood will have to modify its radical business model to monetize more of the business in the future, but he is comfortable with the current business model.

But Tenev has already seen fruit borne with the likes of Robinhood applying fierce pressure to the legacy brokerages’ pricing models.

The traditionalists are locked in a vicious pricing war with each other slashing their commission rates to stay competitive.

The longer the likes of Charles Schwab (SCHW) feel it necessary to charge $4.95, down from the January 2017 cost of $8.95, the better the chances are that Robinhood can build its account base rapidly.

Charles Schwab has more than 10 million accounts, only double the number of Robinhood, after being founded in 1971.

The 42-year head start over Robinhood has not produced the desired effect, and it is ill-prepared to battle these tech companies that enter the fray.

Robinhood has been able to add a million new accounts per year. If Charles Schwab relatively performed at the same rate, it would have 47 million accounts open today.

It doesn’t and that is a problem because the company can be caught up to.

The age of specialization is upon us with full force, and customer demand requires care and diligence that never existed before.

Robinhood continues to enhance its offerings of various products adding Litecoin and Bitcoin Cash to the crypto lineup.

Only Bitcoin and Ethereum were offered before.

And there is one more outrageous thing I forgot to tell you.

Robinhood hopes to snatch away the traditional savings account by offering checking and savings accounts with an interest rate almost 30 times larger than most brick and mortar banks – 3%.

These accounts would have no minimum balances or no fees that nickel and dime customers.

The service will conveniently sit alongside its trading app and this move into the industry led by JP Morgan could start to derail Wall Street.

As with most FinTech start-ups, the roll-out of this new service was slightly botched because Robinhood failed to get the go-ahead from regulators concerning ensuring the accounts properly.

All this does is delay the inevitable and by spring 2019, potential customers should be earning 3% in Robinhood’s checking and savings account.

Sign me up!

 

May 14, 2019

Global Market Comments
May 14, 2019
Fiat Lux

Featured Trade:

(FIVE STOCKS TO BUY AT THE BOTTOM),
(AAPL), (AMZN), (SQ), (ROKU), (MSFT)

May 6, 2019

Mad Hedge Technology Letter
May 6, 2019
Fiat Lux

Featured Trade:

(PAYPAL GOES FROM STRENGTH TO STRENGTH)
(PYPL), (SQ), (GOOGL), (LYFT)

PayPal Goes From Strength to Strength

It’s time to revisit one of my favorite tech picks for 2019 that is a constant trade alert candidate.

The attention is warranted with the stock performance delivering a tidal wave of euphoria rising around 30% in the first half of 2019.

I expected PayPal to have a great year, but I didn’t expect them to perform better than Square who are growing from a lower install base.

PayPal’s overperformance signals to the wider business establishment how important a broad install base can be that can tap the network effect to reel in profits.

This is how once legacy dinosaurs can reinvent themselves in months.

The lack of entry points is a concern prodding investors to chase the stock if they want a piece of the action.

This is one of the drastic side effects of PayPal’s meteoric rise that has been buttressed by dovish Fed policy.

Investors are literally praying to the skies for any softness in tech earnings reports because for the best of the bunch, there have been no moderate pullbacks of note since last winter.

PayPal did offer a slight data point that might be construed as disappointing when total payment volume (TPV) of $161 billion was slightly lower than the consensus of $163 million for the quarter.

It’s slim pickings for the bear camp with not much to feast on in an otherwise pretty solid earnings report.

As PayPal expanded by 9.3 million new active accounts, bringing its total up to 277 million, management has super charged this legacy fintech company into an outright renaissance.

Doing even more to shed the tag of a legacy company, PayPal invested half a billion dollars at $47 per share into the upcoming Uber IPO signaling possibilities that their payment software could at some point integrate into Uber’s network down the road.

Alphabet (GOOGL) has shown that if you get in early with these Silicon Valley unicorns, synergistic effects are plenty with Alphabet lapping up revenue charging Lyft (LYFT) for providing digital ad capabilities on top of the appreciating value of their investment stake.

And if you remember that way back, PayPal was tied to eBay before it was spun out.

Better to attach future hopes and dreams to a leading visionary and innovator instead of a legacy e-commerce platform.

Illustrating the tough task of turning around eBay, eBay clocked in negative TPV growth of 4% in the past quarter.

PayPal offered us more detail into active-account numbers for its Venmo peer-to-peer service with more than 40 million people using Venmo for at least one transaction in the last 12 months.

Venmo processed $21 billion in TPV last quarter, mushrooming by 73%, while the core PayPal platform’s TPV grew 41% to $42 billion.

The success paved the way to raise its full-year EPS outlook from $2.94 to $3.01 ensuring that its prior forecast on revenue and TPV will be met.

PayPal previously guided lower with an expected $2.84 to $2.91 in adjusted EPS and $17.75 billion to $18.1 billion in revenue.

When we tally up all the positive points, it’s hard to ignore the 12% YOY increase in revenue to $4.13B and the more impressive 37% YOY rise in EPS growth signaling the company is applying its giant scale to maximum effect.

Customer engagement of 37.9 payment transactions per active account rose 9% YOY while the TPV which came in lower than consensus was still growth of 22% YOY.

I love that PayPal has migrated towards the heart of innovation while being a legacy fintech company.

Venmo and the Venmo card are rapidly infiltrating the center of consumer’s daily financial lives wielded for groceries, gas, and restaurants.

In February, PayPal introduced a limited-edition rainbow card which became the fastest adopted Venmo card.

I want to reiterate how the proof is in the pudding with Venmo volume increasing 73% to approximately $21B in the quarter.

Not only does this legacy fintech have super growth drivers, they have become quasi venture capitalists applying a horde of capital to snap up attractive assets.

An example is a $750 million investment in the e-commerce and payments leader in Latin America called MercadoLibre which creates a network effect to PayPal’s core business in the region.

If the steady drip of news wasn’t good enough, PayPal announced a partnership with Instagram to process payments when customers are shopping on Instagram in the U.S.

Management is convincingly delivering the goods with 110 basis points of operating margin expansion.

PayPal’s flawless performance is a great model in how to survive the volatile times of rapid tech shifts, and the best way to alter a model to reduce existential threats.

The company has growth drivers, have migrated capital into growth tech, are innovating with the best of them, and management is executing surgically taking advantage of a massive install base.

Buy on any weakness, entry points are few and far between.

 

 

 

March 6, 2019

Global Market Comments
March 6, 2018
Fiat Lux

Featured Trade:

(WILL UNICORNS KILL THE BULL MARKET?),
(TSLA), (NFLX), (DB), (DOCU), (EB), (SVMK), (ZUO), (SQ),
(A NOTE ON OPTIONS CALLED AWAY), (TLT)