Posts

June 7, 2019

Global Market Comments
June 7, 2019
Fiat Lux

Featured Trade:

(SUNDAY, JUNE 30 MANILA, PHILIPPINES STRATEGY LUNCHEON)
(THE CONTINUING DEATH OF RETAIL),
(AMZN), (WMT), (M), (JWN),
(TESTIMONIAL)

June 5, 2019

Global Market Comments
June 5, 2019
Fiat Lux

Featured Trade:

(WEDNESDAY, JUNE 26 BRISBANE, AUSTRALIA STRATEGY LUNCHEON)
(WHY CONSUMER STAPLES ARE DYING),
(XLP), (PG), (KO), (PEP), (PM), (WMT), (AMZN),
(WHY YOUR OTHER INVESTMENT NEWSLETTER IS SO DANGEROUS)

May 20, 2019

Global Market Comments
May 20, 2019
Fiat Lux

Featured Trade:

(MARKET OUTLOOK FOR THE WEEK AHEAD, OR I’LL TAKE SOME OF THAT!)
(FXI), (CYB), (TSLA), (AAPL), (BA), (WMT), (TLT), (INTU), (GOOGL)

The Market Outlook for the Week Ahead, or I’ll Take Some of That!

Whatever the market is drinking right now, I’ll take some of that stuff. If you could bottle it and sell it, you’d be rich. Certainly, the Viagra business would go broke.

To see the Dow average only give up 7% in response to the worst trade war in a century is nothing less than stunning. To see it then make half of that back in the next four days is even more amazing. But then, that is the world we live in now.

When the stock market shrugs off the causes of the last great depression like it’s nothing, you have to reexamine the root causes of the bull market. It’s all about the Fed, the Fed, the Fed.

Our August central bank’s decision to cancel all interest rate rises for a year provided a major tailwind for share prices at the end of 2018. The ending of quantitative tightening six months early injected the steroids, some $50 billion in new cash for the economy per month.

We now have a free Fed put option on share prices. Even if we did enter another 4,500-point swan dive, most now believe that the Fed will counter with more interest rate cuts, thanks to extreme pressure from Washington. A high stock market is seen as crucial to winning the 2020 presidential election.

Furthermore, permabulls are poo-pooing the threat to the US economy the China (FXI) trade war presents. Some $500 billion in Chinese exports barely dent the $21.3 trillion US GDP. It’s not even a lot for China, amounting to 3.7% of their $13.4 trillion GDP, or so the argument goes.

Here’s the problem with that logic. The lack of a $5 part from China can ground the manufacture of $30 million aircraft when there are no domestic alternatives. Similarly, millions of small online businesses, mostly based in the Midwest, couldn’t survive a 25% price increase in the cost of their inventory.

As for the Chinese, while trade with us is only 3.7% of their economy, it most likely accounts for 90% of their profits. That’s why the Chinese yuan (CYB) has recently been in free fall in a desperate attempt to offset punitive tariffs with a substantially cheaper currency.

The market will figure out all of this eventually on a delayed basis and probably in a few months when slowing economic growth becomes undeniable. However, the answer for now is NOT YET!

Markets can be dumb, poor sighted, and mostly deaf animals. It takes them a while to see the obvious. One of the problems with seeing things before the rest of the world does, I can be early on trades, and that can translate into losing money. So, I have to be cautious here.

When that happens, I revert to an approach I call “Trading devoid of the thought process.” When prices are high, I sell. When they are low, I buy. All other information is noise. And I keep my size small and stop out of losers lightning fast. That’s how I managed to eke out a modest 0.63% profit so far this month, despite horrendous trading conditions.

You have to trade the market you have, not what it should be, or what you wish you had. It goes without saying that the Mad Hedge Market Timing Index become an incredibly valuable tool in such conditions.

It was a volatile week, to say the least.

China retaliated, raising tariffs on US goods, ratcheting up the trade war. US markets were crushed with the Dow average down 720 intraday and Chinese plays like Apple (AAPL) and Boeing (BA) especially hard hit.

China tariffs are to cost US households $500 each in rising import costs. Don’t point at me! I buy all American with my Tesla (TSLA).

The China tariffs delivered the largest tax increases in history, some $72 billion according to US Treasury figures. With Walmart (WMT) already issuing warnings on coming price hikes, we should sit up and take notice. It is a highly regressive tax hike, with the poorest hardest hit.

The Atlanta Fed already axed growth prospects for Q2, from 3.2% to 1.1%. This trade war is getting expensive. No wonder stocks have been in a swan dive.

US Retail Sales cratered in March while Industrial Production was off 0.5%. Why is the data suddenly turning recessionary? It isn’t even reflecting the escalated trade war yet.

European auto tariff delay boosted markets in one of the administration’s daily attempts to manipulate the stock market and guarantee support of Michigan, Wisconsin, and Pennsylvania during the next presidential election. All government decisions are now political all the time.

Weekly Jobless Claims plunged by 16,000 to 212,000. Have you noticed how dumb support staff have recently become? I have started asking workers how long they have been at their jobs and the average so far is three months. No one knows anything. This is what a full employment economy gets you.

Four oil tankers were attacked at the Saudi port of Fujairah, sending oil soaring. America’s “two war” strategy may be put to the test, with the US attacking Iran and North Korea simultaneously.

Bitcoin topped 8,000, on a massive “RISK OFF” trade, now double its December low. The cryptocurrency is clearly replacing gold as the fear trade.

The Mad Hedge Fund Trader managed to blast through to a new all-time high last week.

Global Trading Dispatch closed the week up 16.35% year to date and is up 0.63% so far in May. My trailing one-year rose to +20.19%. We jumped in and out of short positions in bonds (TLT) for a small profit, and our tech positions appreciated.

The Mad Hedge Technology Letter did OK, making some good money with a long position in Intuit (INTU) but stopping out for a small loss in Alphabet (GOOGL).

Some 10 out of 13 Mad Hedge Technology Letter round trips have been profitable this year.
 
My nine and a half year profit jumped to +316.49%. The average annualized return popped to +33.21%. With the markets incredibly and dangerously volatile, I am now 80% in cash with Global Trading Dispatch and 80% cash in the Mad Hedge Tech Letter.

I’ll wait until the markets retest the bottom end of the recent range before considering another long position.

The coming week will see only one report of any real importance, the Fed Minutes on Wednesday afternoon. Q1 earnings are almost done.

On Monday, May 20 at 8:30 AM, the April Chicago Fed National Activity Index is out.

On Tuesday, May 21, 10:00 AM EST, the April Existing Home Sales is released. Home Depot (HD) announces earnings.

On Wednesday, May 22 at 2:00 PM, the minutes of the last FOMC Meeting are published. Lowes (LOW) announces earnings.

On Thursday, May 16 at 23 AM, Weekly Jobless Claims are published. Intuit (INTU) announces earnings.

On Friday, May 24 at 8:30 AM, April Durable Goods is announced.

As for me, I’ll be taking a carload of Boy Scouts to volunteer at the Oakland Food Bank to help distribute food to the poor and the homeless. Despite living in the richest and highest paid urban area in the world, some 20% of the population now lives on handouts, including many public employees and members of the military. It truly is a have, or have-not economy.

Good luck and good trading.

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

 

 

 

 

 

 

April 30, 2019

Mad Hedge Technology Letter
April 30, 2019
Fiat Lux

Featured Trade:

(AMAZON’S NEW GAME CHANGER)
(AMZN), (WMT), (TGT), (UPS), (FDX)

Amazon's New Game Changer

Amazon’s free 2-day shipping for Prime Customers is on the verge of becoming free 1-day shipping after the company recently announced this new wrinkle to their business model.

Amazon’s competitors should be shivering in their wake.

But it’s not all doom and gloom for the other e-commerce giants, hardly so, the gap up in the fierce competition will do what General Data Protection Regulation (GDPR) rules in Europe did to competition – enclose the existing players off from the smaller fish.

In examining who will be the last man standing, I have come to the conclusion that it will not just be one or two grinding it out in a vacuum, but more like several winners that will all benefit to certain degrees.

The outsized denominating factor in the e-commerce wars is logistics and who can best put this segment together.

E-commerce companies are being bullied into leaner models because of the premium on heavy scaling that will pile on added costs to make 1-day free shipping a reality.

This isn’t selling lemonade on your driveway, getting 1-day shipping to work will be a tough nut to crack.

The result will be the imminent deterioration of FedEx (FDX) and United Parcel Service (UPS) on the expectation that Amazon will crowd them out.

It could be the case that Amazon improves its logistical capabilities to the point that FedEx and UPS will have to sell itself off or risk death by a thousand cuts.

There looks like no navigational path ahead for these two legacy logistic companies because of the nature of being lower down on the value chain.

The only other choice is if FedEx or UPS is able to jump into the e-commerce business themselves by buying a Kroger to maneuver into the integration process through the other side.

Either way, acquiring a supermarket is no guarantee of future success considering the stakes are about to become higher and higher.

I believe that Walmart will respond to Amazon by rolling out free 1-day shipping with no membership fee, boosting its customer experience while attracting and retaining customers.

Walmart is in this fight until the bitter end and they have invested heavily in improving the technological aspects of the company.

Where does this end?

Logistics will perpetually improve as companies drain more money into logistics, and customers will eventually receive their e-commerce packages in a drone less than 1-hour after payment.

Amazon CFO Brian Olsavsky told investors that Amazon is plunking down $800 million over the quarter in its fulfillment network and that number should rise every year as Amazon has targeted logistics as a huge competitive advantage that they must capitalize on and thrive in.

Amazon already has the option for 1-day free shipping in the European Union and Japan where the delivery distances are truncated.

America poses geographical challenges that will cost more to solve and will rely on the deregulation of future drone flights and cooperation with Amazon sellers to deliver this big step up in customer experience.

The constant iteration upgrades in logistics for the past 20 years have made this possible, and I believe Amazon would be well served to bite the bullet and splurge for UPS or FedEx to make it easier on themselves.

It is not shocking there is a scarcity value of logistic carriers and e-commerce giants will need more logistical capacity to execute free 1-day shipping and eventually free 1-hour shopping.

Amazon hasn’t figured out how to transport physical goods through a computer yet, but I am certain, if there was the technology, they would spend unlimited amounts to get it to that point.

The most ironic aspect of the e-commerce wars is that supermarkets, being a part of e-commerce and the logistics behind it, is the most innovative part of technology at this moment.

Tech companies have identified that customers need to eat three times per day as paramount and are sizzling through cash to build this unfathomable logistics system - effectively working miracles and becoming whirling dervishes to seize this part of the economy.

I would probably label automobiles and the self-driving autonomous technology behind logistics as the second most innovative part of technology at this moment.

As for Amazon’s earnings report, it was a mixed bag, but the good in the bag was astounding.

Profitability boosts through the scaling and efficiency savings inflated the bottom line with EPS in Q1 at $7.09 compared to expectations of $4.72.

Amazon Web Services (AWS) is still commanding enormous growth rates which is miraculous for a division its size, the cloud unit grew 41% YOY which is down from 49% last year.

On the negative side, the advertising business experienced a sharp slow down growing only 34% YOY to $2.7 billion.

Remember that ad sales were expanding over 100% YOY in prior quarters.

Total Revenue only grew 16.9% which shows how difficult it is to grow at Amazon’s size and brings down the digital ad growth rate almost on par with Facebook.

Walmart and Target will be forced to compete with free 1-day shipping, and this will make their services better as well.

The question is how much pain can investors handle in terms of capital investments?

I believe substantially more.

Walmart and Target shares are poised to move higher on the news because the improvements in their logistical services will widen the gap between the haves and have nots. 

These companies are in the midst of persuading investors they should be revalued as tech companies and duly receive growth multiples.

They are doing a great job and imagine how badly this news feels for medium-tier grocers with a minimal digital footprint.

Investors will come to grips that Amazon, Walmart, and Target will pull away from the pack and trade blows with each other.

This time it's Amazon, but it's not the last laugh.

Where does this all lead?

The end game is voice-triggering smart speakers where Amazon and its Echo speaker have a distinctive lead and a market share of around 70%.

Graphic interfaces will exist in only voice-activated form and content will be bundled into voice technology where even managing a Walmart order will require Amazon Echo to register sales.

That type of future is still a way off, but these are the next baby steps in that direction.

In short, revelations of free 1-day shipping to Amazon prime customers is convincingly bullish for Amazon, quite bullish for Walmart, Target, and a death knell for smaller e-commerce platforms and logistic dinosaurs.

 

 

 

 

April 3, 2019

Global Market Comments
April 3, 2019
Fiat Lux

Featured Trade:

(WHO WILL BE THE NEXT FANG?)
(FB), (AMZN), (NFLX), (GOOGL), (AAPL),
(BABA), (TSLA), (WMT), (MSFT),
(IBM), (VZ), (T), (CMCSA), (TWX)

Who Will Be the Next FANG?

FANGS, FANGS, FANGS! Can’t live with them but can’t live without them either.

I know you’re all dying to get into the next FANG on the ground floor, for to do so means capturing a potential 100-fold return, or more.

I know because I’ve done it four times. The split adjusted average cost of my Apple shares is only 25 cents compared to today’s $174, so you can understand my keen interest. My average on Tesla is $16.50.

Uncover a new FANG and the riches will accrue rapidly. Facebook (FB), Amazon AMZN), Netflix (NFLX), and Alphabet (GOOGL) didn’t exist 25 years ago. Apple (AAPL) is relatively long in the tooth at 40 years. And now all four are in a race to become the world’s first trillion-dollar company.

One thing is certain. The path to FANGdom is shortening. It took Apple four decades to get where it is today, Facebook did it in one. As Steve Jobs used to tell me when he was running both Apple and Pixar, “These overnight successes can take a long time.”

There is also no assurance that once a FANG always a FANG. In my lifetime, I have seen far too many Dow Average components once considered unassailable crash and burn, like Eastman Kodak (KODK), General Electric (GE), General Motors (GM), Sears (SHLD), Bethlehem Steel, and IBM (IBM).

I established in an earlier piece that there are eight essential attributes of a FANG, product differentiation, visionary capital, global reach, likeability, vertical integration, artificial intelligence, accelerant, and geography.

We are really in a “What have you done for me lately” world. That goes for me too. All that said, I shall run through a short list for you of the future FANG candidates we know about today.

Alibaba (BABA)

Alibaba is an amalgamation of the Chinese equivalents of Amazon, PayPal, and Google all sewn together. It accounts for a staggering 63% of all Chinese online commerce and is still growing like crazy. Some 54% of all packages shipped in China originate from Alibaba.

The juggernaut has over half billion active users, and another half billion placing orders through mobile phones. It is a master of AI and B2B commerce. There is nothing else like it in the world.

However, it does have some obvious shortcomings. Its brand is almost unknown in the US. It has a huge problem with fakes sold through their sites.

It also has an ownership structure for foreign investors that is byzantine, to say the least. It is a contractual right to a share of profits funneled through a PO box in the Cayman Island. The SEC is interested, to say the least.

We also don’t know to what extent founder Jack Ma has sold his soul to the Beijing government. It’s probably a lot. That could be a problem if souring trade relations between the US and the Middle Kingdom get worse, a certainty with the current administration.

Tesla (TSLA)

Before you bet on a new startup breaking into the Detroit Big Three, go watch the movie “Tucker” first. Spoiler Alert: It ends in tears.

Still, Tesla (TSLA) has just passed the 270,000 mark in the number of cars manufacturered. Tucker only got to 50.

Having led my readers into the stock after the IPO at $16.50, I am already pretty happy with this company. Owning three of their cars helps too (two totaled). But Tesla still has a long way to go.

It all boils down to the success of the $35,000, 200-mile range Tesla 3 for which it already has 500,000 orders. So far so good.

It’s all about scale. If it can produce these cars in sufficient numbers, it will take over the world and easily become the next FANG. If it can’t, it won’t. It’s that simple.

To say that a lot is already built into the share price would be an understatement. Tesla now trades at ten times revenues compared to 0.5 for Ford (F) and (General Motors (GM). That’s a relative overvaluation of 20:1.

Any of a dozen competing electric car models could scale up with a discount model before they do, such as the similarly priced GM Bolt. But with a ten-year lead in the technology, I doubt it.

It isn’t just cars that will anoint Tesla with FANG sainthood. The firm already has a major presence in rooftop solar cell installation through Solar City, utility sized solar plants, industrial scale battery plants, and is just entering commercial trucks. Consider these all seeds for FANGdom.

One thing is certain. Without Tesla, there wouldn’t be s single mass-market electric car on the road today.

For that, we can already say thanks.

Uber

In the blink of an eye, ride sharing service Uber has become essential for globe-trotting travelers such as myself.

Its 2 million drivers completely disrupted the traditional taxi model for local transportation which remains unchanged since the days of horses and buggies.

That has created the first $75 billion of enterprise value. It’s what’s next that could make the company so interesting.

It is taking the lead in autonomous driving. It could also replace FeDex, UPS, DHL, and the US post office by offering same day deliveries at a fraction of the overnight cost.

It is already doing this now with Uber Foods which offers immediate delivery of takeouts (click here if you want lunch by the time you finish reading this piece.)

UberCopters anyone? Yes, it’s already being offered in France and Brazil.

Uber has the potential to be so much more if it can just outlive its initial growing pains.

It is a classic case of the founder being a terrible manager, as Travis Kalanick has lurched from one controversy to the next. The board finally decided he should spend much time on his new custom built 350-foot boat.

Its “bro” culture is notorious, even in Silicon Valley.

It is also getting enormous pushback from regulators everywhere protecting entrenched local interests. It has lost its license in London, the only place in the world that offered a decent taxi service pre-Uber. Its drivers are getting beaten up in Paris.

However, if it takes advantage of only a few of the doors open to it, status as a FANG beckons.

Walmart (WMT)

A few years ago, I was heavily criticized for pointing out that half the employees at my local Walmart (WMT) were missing their front teeth. They have since received a $2 an hour's pay raise, but the teeth are still missing. They don’t earn enough money to get them fixed.

The company is the epitome of bricks and mortar in a digital world with 12,000 stores in 28 countries. It is the largest private employer in the US, with 1.4 million workers, mostly earning minimum wage.

The Walmart customer is the very definition of the term “late adopter.” Many are there only because unlike Amazon, Wal-Mart accepts cash and Food Stamps.

Still, if Walmart can, in any way, crack the online nut, it would be a turbocharger for growth. It moved in this direction with the acquisition of Jet.com for $3 billion, a cutting-edge e-commerce firm based in Hoboken, NJ.

However, this remains a work in progress. Online sales account for only 4% of Walmart’s total. But they could only be a few good hires at the top away from success.

Microsoft (MSFT)

Talk about going from being the 800-pound gorilla to an 80 pound one, and then back to 800 pounds.

I don’t know why Microsoft (MSFT) lost its way for 15 years, but it did. Blame Bill Gates’s retirement from active management and his replacement by his co-founder Steve Ballmer.

Since Ballmer’s departure in 2014, the performance of the share price has been meteoric, rising by some 125% over the past two years.

You can thank the new CEO Satya Nadella who brought new vitality to the job and has done a complete 180, taking Microsoft belatedly into the cloud.

Microsoft was never one to take lightly. Windows still powers 90% of the world’s PCs. No company can function without its Office suite of applications (Word, Excel, and PowerPoint). SQL Server and Visual Studio are everywhere.

That’s all great if you want to be a public utility, which Microsoft shareholders don’t.

LinkedIn, the social media platform for professionals, could be monetized to a far greater degree. However, specialization does come at the cost of scalability.

It seems that the future is for Microsoft to go head to head against next door neighbor Amazon (AMZN) for the cloud services market while simultaneously duking it out with Alphabet (GOOGL).

My bet is that all three win.

Airbnb

This is another new app that has immeasurably changed my life for the better. Instead of cramming myself into a hotel suite with a wildly overpriced minibar for $600 a night, I get a whole house for $300 anywhere in the world, with a new local best friend along with it.

Overnight, Airbnb has become the world’s largest hotel chain without actually owning a single hotel. At its latest funding round in 2017, it was valued at $31 billion.

The really tricky part here is for the firm to balance out supply and demand in every city in the world at the same time. It is also not a model that lends itself to vertical integration. But who knows? Maybe priority deals with established hotels are to come.

This is another firm that is battling local regulation, that great barrier to technological innovation. None other than its home town of San Francisco now has strict licensing requirements for renters, a 30 day annual limitation, and a $1,000 a day fine for offenders.

The downtowns of many tourist meccas like Florence, Italy and Paris, France have been completely taken over by Airbnb customers, driving rents up and locals out.

IBM (IBM)

There was a time in my life when IBM was so omnipresent we thought like the Great Pyramids of Egypt it would be there forever. How times change. Even Oracle of Omaha Warren Buffet became so discouraged that he recently dumped the last of his entire five-decade long position.

A recent 20 consecutive quarters of declining profits certainly hasn’t helped Big Blue’s case. It is one of the only big technology companies whose share price has gone virtually nowhere for the past two years.

IBM’s problem is that it stuck with hardware for too long. An entrenched bureaucracy delayed its entry into services and the cloud, the highest growth areas of technology.

Still, with some $80 billion in annual revenues, IBM is not to be dismissed. Its brand value is still immense. It still maintains a market capitalization of $144 billion.

And it has a new toy, Watson, the supercomputer named after the company’s founder, which has great promise, but until now has remained largely an advertising ploy.

If IBM can reinvent itself and get back into the game, it has FANG potential. But for the time being, investors are unimpressed and sitting on their hands.

The Big Telecom Companies

My final entrant in the FANGstakes would be any combination of the four top telecommunication companies, Verizon (VZ), AT&T (T), Comcast (CMCSA), and Time Warner (TWX), which now control a near monopoly in the US.

There is a reason why the administration is blocking the AT&T/Time Warner merger, and it is not because these companies are consistently cited in polls as the most despised in America. They are trying to stop the creation of another hostile FANG.

Still, if any of the big four can somehow get together, the consequences would be enormous. Ownership of the pipes through which the modern economy courses bestows great power on these firms.

And Then….

There is one more FANG possibility that I haven’t mentioned. Somewhere, someplace, there is a pimple-faced kid in a dorm room thinking up a brand-new technology or business model that will take the world by storm and create the next FANG.

Call me crazy, but I have been watching this happen for my entire life.

I want to thank my friend, Scott Galloway, of New York University’s Stern School of Business, for some of the concepts in this piece. His book, “The Four” is a must read for the serious tech investor.

 

 

 

 

 

Creating the Next FANG?

February 28, 2019

Mad Hedge Technology Letter
February 28, 2019
Fiat Lux

Featured Trade:

(WHY ETSY KNOCKED IT OUT OF THE PARK),
(ETSY), (AMZN), (WMT), (TGT), (JCP), (M)

Why ETSY Knocked it Out of the Park

I wrote to readers that I expected online commerce company Etsy to “smash all estimates” in my newsletter Online Commerce is Taking Over the World last holiday season, and that is exactly what they did as they just announced quarterly earnings.

To read that article, click here.

I saw the earnings beat a million miles away and I will duly take the credit for calling this one.

Shares of Etsy have skyrocketed since that newsletter when it was hovering at a cheap $48.

The massive earnings beat spawned a rip-roaring rally to over $71 - the highest level since the IPO in 2015.

Three catalysts serving as Etsy’s engine are sales growth, strength in their core business, and high margin expansion.

Sales growth was nothing short of breathtaking elevating 46.8% YOY – the number sprints by the 3-year sales growth rate of 27% signaling a firm reacceleration of the business.

The company has proven they can handily deal with the Amazon (AMZN) threat by focusing on a line-up of personalized crafts.

Some examples of products are stickers or coffee mugs that have personalized stylized prints.

This navigates around the Amazon business model because Amazon is biased towards high volume, more likely commoditized goods.

Clearly, the personalized aspect of the business model makes the business a totally different animal and they have flourished because of it.

Active sellers have grown by 10% while active buying accounts have risen by 20% speaking volumes to the broad-based popularity of the platform.

On a sequential basis, EPS grew 113% QOQ demonstrating its overall profitability.

Estimates called for the company to post EPS of 21 cents and the 32 cents were a firm nod to the management team who have been working wonders.

Margins were healthy posting a robust 25.7%.

The holiday season of 2018 was one to reminisce with Amazon, Target (TGT), and Walmart (WMT) setting online records.

Pivoting to digital isn’t just a fad or catchy marketing ploy, online businesses harvested the benefits of being an online business in full-effect during this past winter season.

Etsy’s management has been laser-like focusing on key initiatives such as developing the overall product experience for both sellers and buyers, enhancing customer support and infrastructure, and tested new marketing channels.

Context-specific search ranking, signals and nudges, personalized recommendations, and a host of other product launches were built using machine learning technology that aided towards the improved customer experience.

New incremental buyers were led to the site and returning customers were happy enough to buy on Etsy’s platform multiple times voting with their wallet.

The net effect of the deep customization of products results in unique inventory you locate anywhere else, differentiating itself from other e-commerce platforms that scale too wide to include this level of personalization.

Backing up my theory of a hot holiday season giving online retailers a sharp tailwind were impressive Cyber Monday numbers with Etsy totaling nearly $19,000 in Gross Merchandise Sales (GMS) per minute marking it the best single-day performance in the company’s history.

Logistics played a helping hand with 33% of items on Etsy capable to ship for free domestically during the holidays which is a great success for a company its size.

This wrinkle drove meaningful improvements in conversion rate which is evidence that product initiatives, seller education, and incentives are paying dividends.

Overall, Etsy had a fantastic holiday season with sellers’ holiday GMS, the five days from Thanksgiving through Cyber Monday, up 30% YOY.

Forecasts for 2019 did not disappoint which calls for sustained growth and expanding margins with GMS growth in the range of 17% to 20% and revenue growth of 29% to 32%.

Execution is hitting on all cylinders and combined with the backdrop of a strong domestic economy, consumers are likely to gravitate towards this e-commerce platform.

Expanding its marketing initiatives is part of the business Josh Silverman explained during the conference call with Etsy dabbling in TV marketing for the first time in the back half of 2018, and finding it positively impacting the brand health metrics particularly around things like intending to purchase.

However, Etsy has a more predictable set of marketing investments through Google that offers higher conversion rates and the firm can optimize to see how they can shift the ROI curve up.

Etsy can invest more at the same return or get better returns at the existing spend from Google, it is absolutely the firm's bread and butter for marketing, particularly in Google Shopping, and some Google product listing ads.

With all the creativity and reinvestment, it’s easy to see why Etsy is doing so well.

Online commerce has effectively splintered off into the haves and have-nots.

Those pouring resources into innovating their e-commerce platform, customer experience, marketing, and social media are likely to be doing quite well.

Retailers such as JCPenney (JCP) and Macy’s (M) have borne the brunt of the e-commerce migration wrath and will go down without a fight.

Basing a retail model on mostly physical stores is a death knell and the models that lean feverishly on an online presence are thriving.

At the end of the day, the right management team with flawless execution skills must be in place too and that is what we have with Etsy CEO Josh Silverman and Etsy CFO Rachel Glaser.

Buy this great e-commerce story Etsy on the next pullback - shares are overbought.