Mad Hedge Technology Letter
January 10, 2020
Fiat Lux
Featured Trade:
(FINTECH IS GOING INTO OVERDRIVE)
(PYPL), (SQ), (MA), (V)
Tag Archive for: (SQ)
Last year was the year of Fintech and 2020 is the year when this industry goes into overdrive.
Let’s take a look at one of my top choices, PayPal (PYPL).
Millennials are the primary customer demographics to the main platform, but the attractiveness of peer-to-peer payment system Venmo is gaining momentum.
PayPal should be on a short list of fintech stocks for investors and there is certainly more room to run for the share price.
Last quarter’s numbers of 9.8 million net new actives mean that PayPal now has 295 million active accounts across all platforms.
Engagement continues to be a bright spot growing by 9% to almost 40 transactions per active account.
Mobile is a major contributor to success with 172 million consumers and 13.8 million merchants.
Venmo processed more than $27 billion in volume for the quarter, growing 64%.
They are doing $300 million in payments per day and an annual run rate that now exceeds $100 billion.
The Venmo team recently inked a deal with Synchrony to provide a Venmo credit card.
Credit products continue to be another gateway to more success with new consumer installment plans in the United States and Germany which allow PayPal customers to pay with streamlined monthly payments.
This capability is already leading to incremental sales and led to signing a long-term strategic partnership agreement with Citi Australia to develop consumer credit products for PayPal's customers in Australia.
Additional relationships were further expanded with Walmart launching PayPal Checkout as the sole payment instrument for its online grocery business in Mexico.
In Japan, PayPal is one of the official partners for the Japanese government's plan to promote cashless payments throughout the country.
PayPal now offers account linking through mobile devices with Capital One and PNC Bank in the United States.
If you thought their international strategy stopped there, there are other irons in the fire.
PayPal became the first non-Chinese payments company to be licensed to provide online payment services in China.
They announced in September that the People's Bank of China has approved a 70% equity interest in GoPay, a license provider of online payment services.
China is a tricky revenue proposition and it’s not guaranteed to flourish on the mainland, but this shows the pro-active way that PayPal seeks to expand its total addressable market and long-term growth prospects.
The license enables PayPal to expand upon relationships with existing partners like China Union Pay and AliExpress and forge fresh partnerships with China's financial institutions and technology platforms.
PayPal’s success has so far depended on innovation and acquisitions - I fully expect this trend to continue in 2020.
PayPal announced it was buying shopping and rewards platform Honey Science Corporation for $4 billion.
This year is the beginning of another compelling one-year bull case aided in part by higher expectations from those diverse set of partnerships, such as with MercadoLibre Inc. and Uber Technologies Inc., along with PayPal’s pricing, Honey online coupon transaction, and Venmo monetization.
I anticipate further sustained overperformance in margin expansion as well.
I expect an overall payments industry-wide volume growth of 11% in 2020 and PayPal will grow into its position in a still healthy broader economy.
Payment sector operating metrics, from credit card volume growth, to enterprise IT budget growth, to U.S. employment growth, are robust supporting the bull case for PayPal in 2020.
Aside from PayPal, my alternative favorites in the payments space that could see anywhere from 7%-20% share appreciation in 2020 are Square (SQ), Mastercard Inc. (MA), and Visa Inc. (V)
It is likely that 2020 will signal a new decade of super growth for the digital payments market.
And I expect PayPal to increase its solid footprint in web, in mobile app platforms, and in retail stores globally through organic growth, acquisitions, and partnerships.
PayPal’s profitable business model and pro-active management will help the share price reach new highs.
However, not only for fintech stocks, but the overall market is ripe for some profit-taking in the short-term because of the recent melt-up.
Mad Hedge Technology Letter
November 18, 2019
Fiat Lux
Featured Trade:
(THE FANG’S BIG MOVE INTO BANKING),
(GOOGL), (MSFT), (APPL), (MA), (V), (PYPL), (SQ), (GS), (FB)
First, Apple (APPL) collaborates with Goldman Sachs’ (GS) offering of a credit card even giving credit access to subprime borrowers.
And now Google (GOOGL) has its eyes on the banking industry — specifically, it’ll soon offer checking accounts.
In a copycat league where anything and everything is fair game, we are seeing a huge influx of big tech companies vie for the digital wallets of Americans.
The project is aptly named Cache and accounts will be handled by Citibank (C) and a credit union at Stanford.
Google’s spokesman shared with us admitting that Google hopes to “partner deeply with banks and the financial system,” and further added, “If we can help more people do more stuff in a digital way online, it’s good for the internet and good for us.”
I would disagree with the marginal statement that it would be good for us.
Facebook (FB) is now offering a Pay option and how long will it be until Amazon (AMZN), Microsoft (MSFT), and others throw their name into the banking mix.
I believe there will be some monumental failures because it appears that these tech companies won’t offer anything that current bank intuitions aren’t offering already.
Moving forward, the odd that digital banking products will become saturated quickly is high.
Let’s cut to the chase, this is a pure data grab, and not in the vein of offering innovative services that force the consumer down a revolutionary product experience.
As the consumer starts to smarten up, will they happily reveal every single data point possible to these tech companies?
Big tech continues to be adamant that personal data is secure with them, but their track records are pitiful.
Even if Google doesn’t sell “individual data”, there are easy workarounds by just slapping number tags on aggregated data, then aggregated data can be reverse-engineered by extracting specific data with number tags.
The cracks have already started to surface, Co-Founder of Apple Steve Wozniak has already claimed that the credit algorithm for Apple’s Goldman Sach’s credit card is sexist and flawed.
Time is ticking until the first mass data theft as well and let me add that the result of this is usually a slap on the wrist incentivizing bad behavior.
I believe big tech companies should be banned from issuing banking products.
Only 4% of consumers switched banks last year, and a 2017 survey by Bankrate shows that the average American adult keeps the same checking account for around 16 years.
As anti-trust regulation starts to gather more steam, I envision lawmakers snuffing out any and every attempt for big tech to diversify into fintech.
It’s fair to say that Google should have done this 10 years ago when the regulatory issues were nonexistent.
Now they have regulators breathing down their necks.
Let me remind readers that the reason why Facebook abandoned their digital currency Libra was because of the pressure lawmakers applied to every company interesting in working with Facebook’s Libra.
Lawmakers threatened Visa and Mastercard that they would investigate every part of their business, including the parts that have nothing to do with Facebook’s Libra, if they went ahead with the Libra project.
The most telling insight comes from the best tech company Microsoft who has raised the bar in terms of protecting their reputation on data and trust.
They decided to stay away from financial products like the black plague.
Better to stay in their lane than take wild shots that incur unneeded high risks.
When U.S. Senator Mark Warner, a Democrat on the Senate panel that oversees banking, was asked about Google and banking, he quipped, “There ought to be very strict scrutiny.”
Big tech is now on the verge of getting ferociously regulated and that could turn out positive for the big American banks, PayPal (PYPL), Visa (V), Mastercard (MA) and Square (SQ).
I heavily doubt that Google will turn Cache into a meaningful business unless Google offers some jaw-dropping interest rates or elevated points to move the needle.
Google has canceled weekly all-hands meetings because of the tension between staff members and Facebook is also just as dysfunctional at the employee level.
Whoever said it's easy to manage a high-stake, too-big-to-fail tech firm?
Even with all the negativity, Google is still a cash cow and if regulatory headwinds are 2-3 years off, they are a buy and hold until they are not.
The recent tech rally, after the rotation to value, has seen investors flood into Apple, Microsoft, and Google as de-facto safe haven tech plays.
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)
Below please find subscribers’ Q&A for the Mad Hedge Fund Trader October 30 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: Would you buy Square (SQ) around here?
A: I don’t want to buy anything around here—that’s why I’m 90% cash. Would I buy Square on a market selloff? Absolutely, it's one of our favorite fintech stocks for the long term. The fintech stocks are eating the lunch of the legacy banks at an accelerating rate.
Q: What's the best yield play currently, now that bonds have gone so high?
A: High-quality REITs—especially cell tower REITs. We’re going to get a significant increase in the number of cell towers, thanks to 5G, and there are REITs specifically dedicated to cell phone towers. An example is Crown Castle (CCI), which has a generous 3.45% dividend yield. The worst REITs are the mall-based like Simon Property Group (SPG).
Q: PG&E (PGE) has just had a huge selloff of 50%. Should I buy it now or is it a potential zero?
A: I wouldn’t touch PG&E at all—They’re already in bankruptcy, and they are now accepting responsibility for starting another eight fires this week, including the big Kincaid fires. You could have the state government take over the company and wipe out all the shareholders— the liabilities are just growing by the second, so I would turn my attention elsewhere. Don’t reach for new ways to get in trouble.
Q: Regarding Boeing (BA), it looks like you caught the bottom on the last dip—should I buy it here or wait for another dip?
A: Wait for another dip. The company seems to have an endless supply of bad news. That said, if we visit $325 a share one more time, I would buy it again. We caught about a $10 dollar move in Boeing to the upside. Keep buying the dips. The bad news story on this is almost over.
Q: Do you think the earnings season will be better than expected? If so, which sectors do you think will outperform?
A: It’s always better than expected because they always downgrade right before earnings, so everything is a surprise to the upside. Some 80% of all stocks surprise to the upside every quarter. And what would I be buying on dips? Big Tech. Especially things like Apple (AAPL), Facebook (FB), Alphabet (GOOGL), and Microsoft (MSFT) —that is where the only reliable longer-term growth is in the economy. If you want to buy cheap companies on dips, go for Biotech (IBB) and Health Care (XLV), which have gone up almost every day since we launched the Biotech letter a month ago. To subscribe to the Mad Hedge Biotech and Healthcare Letter, please click here.
Q: What does it mean that the Chile APEC summit is cancelled? What is Trump going to do now for signing on the trade deal?
A: There may not be a trade deal. It's another postponement and could be another trigger for a long-overdue selloff in the market. We've basically been going up nonstop now for 2½ months, and almost everyone's market timing indicators are saying extreme overbought territory here, including ours.
Q: Will there be a replay of this webinar posted?
A: Yes, we always post these on the website a couple of hours after it airs. Some 95% of our viewers watch the recordings, especially those overseas in weird time zones like Australia and India. You need to be logged in to access it. Just go to www.madhedgefundtrader.com, log in, go to My Account, then Global Trading Dispatch, then click on the Webinars button. It’s there in all its glory.
Q: Does Invesco DB US Dollar Index Bullish Fund ETF (UUP) make sense (the dollar basket)?
A: No, I'm staying out of the currency market because there are no clear trends right now and there are much clearer trends in other asset classes, like stock and bonds.
Q: How do you see General Electric (GE)?
A: There are a lot of people shouting accounting fraud like Harry Markopolos, the whistleblower on Bernie Madoff. Sure, they had a good today, up a buck, but their problems are going to take a long time to fix. So, don't think of this as a trading vehicle, but rather a long-term investment vehicle.
Q: Could the Saudi Aramco IPO push the price of oil up?
A: You can bet they're going to do everything humanly possible to get the price of oil (USO) up and to get this IPO off their hands—that's why you shouldn't buy the IPO. The Saudis are desperate to get out of the oil business before prices go to zero and are pouring money into alternative energy and technology through Masayoshi Son’s Vision Fund. When you have the chief supplier of oil rigging the price, you don’t want to be anywhere near the distributor and that’s Saudi Aramco.
Q: What about selling the (SPG) (Simon Property) REIT?
A: It’s kind of too late to sell, but what you might think of doing is selling short just one deep out-of-the-money put, just to bring in a small amount of income. These things don’t crash, they grind down; so, it could be a good naked put shorting situation, but only on a very small scale. If you want to play REITs on the long side, look at the Vanguard Real Estate ETF (VNQ), which pays a handy 3.12% dividend. Guess what its largest holdings are? 5G cell tower REITs.
Q: Is General Motors (GM) a buy on the union detent?
A: Only for a trade, but not much; the auto industry is the last thing you want to buy into going into a recession, even just a growth recession.
Q: Have we topped out on Apple (AAPL) for the year at $250?
A: If we did, it’s probably just short term. Remember their 5G phone is coming out next September and I expect the stock to go to $300 dollars just off of that. Any dips in Apple won’t last more than a month or two.
Q: Could we get another leg up for the end of the year?
A: Yes, not much, maybe another 5% from here, and I wouldn't do that until we get another 5% drop in the market first which should happen sometime in November. If that happens, then you’ll have a shot at making another 10% by the end of the year, which is exactly what I plan on doing for myself. That would take our 2019 performance from 50% to 60%.
Q: Is the Fed’s printing infinite money going to lead to runaway inflation crashing the value of the dollar?
A: Yes, but it may take us a couple of years to get to that point. So far, no sign of inflation, except inflation of things you want to buy, like healthcare, a college education, and so on. For anything you want to sell, like your labor or service, the prices are collapsing. That’s the new inflation, the type that screws you the most.
Good Luck and Good Trading
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
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)
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),
It was another dreadful DAY for the banks. All bank shares are now down in 2019 with the sole exception of JP Morgan, which is up a modest 10% since January 1. Although their core business is good, the share price hasn’t even bothered to mail it in.
So, I thought it would be time to take another look at what is disrupting the 200-year-old business model of this sector. And that would be Fintech, shorthand for Financial Technology.
To say that fintech was gobbling up the financial industry’s lunch would be a vast understatement. But here’s the problem. Fintech is taking over the world one transaction at a time in an industry that sees billions of transactions a year. The change is almost invisible. If someone were blowing up bank branches on a large scale this would be a far easier trend to see, but the net effect is the same.
The potential market is enormous. While the world’s physical money totals $5 trillion, actual assets controlled by banks today total a staggering $90 trillion.
Why this is all happening now is due to a confluence of several independent technologies. The number of people on the Internet has soared from 1.8 billion in 2010 to 4 billion today, to 8 billion by 2024.
Smartphone usage is diffusing at a similar rate. The roll out of 5G wireless assures that all communications will occur seamlessly, quickly, including financial transactions. Blockchain is enabling encryption on an industrial scale.
This has enabled the rise of a number of online firms over just the last few years that are rapidly taking over a number of traditional banking functions.
So far, the greatest impact has been overseas. Many countries that lack banking infrastructure are leapfrogging straight to mobile. It makes a ton of sense. Poor countries lack the capital to build expensive branch networks to raise fund, and the expertise on how to invest the deposits once in hand.
Good Money (https://goodmoney.com ) is an example of the new online banks that have burst onto the scene. The company offers depositors a generous 1.8% interest rate on overnight funds. Legacy banks are still paying close to zero, even though the Fed has raised rates seven times in three years.
US banks charge an average of $400 in fees a year for a full-service account. Good Money charges nothing.
You will never know where the money goes when you place it with Citibank (C), Bank of America (BAC) or Wells Fargo (WFC). At Good Money, you can specify that your funds be lent to a certain industry or even a specific company. While this means nothing to you or me, it is important issue to oriented Millennials.
Such efforts are called Crowdlending. It first took off in the US with startups like Prosper and Lending Club in the mid 2000s. We’re not talking small potatoes here, or a market that might develop someday. In 2018, some 22,000 businesses extended $380 billion in such loans.
There are other big markets ripe for disruption. I had to pay a Filipino developer $500 for some work he did on my website. Wells Fargo wanted to charge me $50 and the wire transfer would have taken a week. An outfit called Payoneer, Israel-based, did it for $5 and it took 5 seconds.
Wire transfer fees are in fact a global industry worth billions of dollars a year that is there for the taking. The SWIFT international transfer network alone processes some 24 million transactions per day.
It may not surprise many of you that China already has a huge lead in this area. It’s logical since their established banking system is primitive at best. China has three times more mobile phones than the US, five times more Internet customers, sees 10 times more eat-out orders, and 50 times more mobile transactions. In a future where data is currency, this is huge.
Ant Financial, an affiliate of Alibaba (BABA), is in the forefront, facilitating an eye-popping $8 trillion worth of transactions in 2017. Using artificial intelligence to scour public records for past borrowing, income, education, web surfing preferences, and even political leanings, smart finance can use artificial intelligence to gin up a quickie FICO score and generate a new $200 micro loan in as little as eight seconds.
Bank of America eat your heart out.
What gives the Chinese such an advantage here is their huge market, with some 800 million online participants. The money Ant Financial makes isn’t important now. It’s the digitized data they’re collecting and the way it can be manipulated with artificial intelligence. That gives them immense market power. Remember, in the new world, data is the new currency and the Chinese are creating more than we ever will.
The problem with early, under-the-radar but broad-ranging trends, it can be tough to flesh out pure investment plays. Listed liquid tradable stocks are few and far between. You can simply go out and buy Square (SQ) and PayPal (PYPL) and you’d be half the way there in getting some good exposure.
Here’s the problem with that plan. PayPal has tripled in the last two years, while Square has gone ballistic with a 2,000% gain. I expect further appreciation from here, but those ships have already sailed.
A better way to participate might be the Global X Fintech Thematic ETF (FINX), granted you have all the usual problems with specialized ETFs here such as liquidity, high management fees, and tracking error. But you do get exposure to a number of companies that are either domiciled abroad or are not yet publicly listed.
The five largest holdings of (FINX) include Square (SQ), Wirecard AG (WCAGY), Temenos Group AG, Fiserve Inc (FISV), and Intuit (INTU).
You could also simply buy Alibaba. However, as long as America’s trade war with China continues, all Chinese stocks will perform poorly. Given the stubbornness of both sides, the earliest that can happen is January, 2021.
To learn more about (FINX), please go to the manager’s website by clicking here.
Days Gone By
Mad Hedge Technology Letter
September 27, 2019
Fiat Lux
Featured Trade:
(THE REBIRTH OF WESTERN UNION)
(WU), (PYPL), (SQ)
