The Five Most Important Things That Happened Today
(and what to do about them)
1) Alphabet Gets Slaughtered, with the stock down 7% on weak earnings. The strong US dollar gets the blame, decimating foreign earnings for the last FANG to report. Wait two more days and then buy the dip in (GOOGL). Click here.
2) Spotify Hits 100 million Subscribers, on big international push. There’s no trade here, but (SPOT) is a great long term hold for the world’s number two music streamer. Click here.
3) Chicago PMI Dives, in April from 58.7 to 52.6. Purchases are running far behind expectations. Did everyone spend all their money in Q1? Click here.
4) Master Card Earnings Leap. No matter what you do on the Internet, you’re going to need a credit card. Buy (MA) on dips and (V) also. Click here.
5) San Francisco Home Prices Fall for the First Time in 7 Years. The median price is now only $830,000, down 0.1% YOY. Back up the truck! Wait until all that IPO money hits the market! Click here.
Published today in the Mad HedgeGlobal Trading Dispatch and Mad Hedge Technology Letter:
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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.
https://www.madhedgefundtrader.com/wp-content/uploads/2019/04/segment-results.png489972Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2019-04-30 01:06:162019-07-10 21:47:51Amazon's New Game Changer
https://www.madhedgefundtrader.com/wp-content/uploads/2019/04/jeff-bezos-1.png387283Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2019-04-30 01:05:422019-07-10 21:47:56April 30, 2019 - Quote of the Day
The Five Most Important Things That Happened Today
(and what to do about them)
1) Consumer Spending Hits A Decade High, up 0.9% in March, while inflation barely moves. So why is the stock market barely moving? Is Goldilocks about to become a senior citizen? Click here.
2) Meet John Thomas in Auckland New Zealand on June 21. To buy tickets, click here.
3) Berkshire Hathaway May Buy $100 Billion of Own Stock, says Warren Buffet, because everything else is too expensive. If the Oracle of Omaha is buying (BRK/A) at a discount, so should you. Click here.
4) Exxon Bombs, on a lackluster earnings report coming from the worst refining margins in a decade. If an oil company can’t make it on a 40% rise in the price of Texas tea, it never will. Fossil fuels are about to remain….fossils. Click here.
5) There Are 40,000 Dead Bodies in the US, listed as “John” or “Jane” Doe’s, parked in hundreds of morgues around the country. Thanks to ancestral DNA tracing, ALL of them may be identified over the next couple of years. Cold cases are becoming a thing of the past. I never thought I’d live long enough to see this. Click here.
Published today in the Mad HedgeGlobal Trading Dispatch and Mad Hedge Technology Letter:
(MARKET OUTLOOK FOR THE WEEK AHEAD, OR ANOTHER LEG UP FOR THE MARKET),
https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png00Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2019-04-29 13:13:082019-04-29 13:13:08Mad Hedge Hot Tips for April 29, 2019
CEO of Tesla Elon Musk touting his company’s ability to deploy robo-taxis in the next 12 months miffed many industry analysts.
Few tech CEOs would have the balls to get on stage and put themselves out there in that type of manner.
But many tech CEOs aren’t Elon Musk.
I believe Musk calling for these bold predictions will help bend the world in his favor, maybe not right away, but before Tesla burns through their horde of cash.
Of course, there is no way in hell he could pull this off today, regulatory hurdles and in-house capability are two severe constraints.
But confidently proclaiming audacious initiatives that become self-fulfilling prophecies is a smart way to align the stars in the way you want.
Musk certainly believes the scent is in the air for the wolves to go in for the killer blow, he just needs a few miracles and a tad bit of luck on his side.
Tesla is now on record hyping up a custom-made robo-taxi capable of running about a million miles using a single battery pack, with all the sensors and computing power for full autonomy, costing less than $38,000 to produce.
They believe this will come out in 2020.
The combination of low vehicle cost, low maintenance cost and an expected powertrain efficiency of 4.5 miles per kWh should make this the lowest cost of ownership and will be the most profitable autonomous taxi on the market.
Using this state of the art robo-taxi to build a ride-sharing service business would effectively mean an Uber or Lyft without drivers.
Tesla would receive 30% of each fare, with the other 70% sent to Tesla owners that would deploy their own cars into the ride-sharing network.
I respect that Musk can feel sentiment behind Tesla's brand slipping away after heavy criticism, personal backlash from a spat with the SEC, and a boatload of competition hoping to smash him in the mouth.
Musk needed to shift the narrative into Tesla’s brand being the most innovative and publicly letting investors know there are more irons in the fire that will entrench Tesla supporters further while giving the Tesla haters more fodder to terrorize Musk.
Tesla is a luxury brand and constructed in the image of Elon Musk - making the impossible possible ethos needed a facelift and Musk gave what his supporters wanted in spades.
His showmanship is not misplaced and is part of who he is. But more importantly, if Tesla makes serious headway in the robo-taxi business in the next 12 months, Musk will be able to stand on the podium to whip up enough support needed to nudge this over the line.
Musk is very much from the mold of build it and they will come, and he has what few other CEOs have – vision.
The vision comes with a pricey premium.
And Musk must nurture this vision and urge believers to keep believing to carry on this act.
I was surprised that one of the most applicable pieces of news in the shareholder letter was something that nobody excavated.
Tesla will build a second-generation Model 3 line in China that projects to be at least 50% cheaper per unit of capacity than the Model 3-related lines in Fremont and at Gigafactory 1.
The cost to produce Model 3's is about to crash all while Tesla is still considered a premium, luxury vehicle.
This will free up space at the Reno Gigafactory and Fremont to focus on the robo-taxi challenge.
The latest news in Shanghai was an explosion at the half-built Gigafactory parking lot, but not much will come of that.
For investors on the sideline, the nadir of Tesla stock is approaching, another more shakeout might give investors the green light for a trade, that is if they aren’t already long-time holders.
Tesla mentioned they had trouble delivering new Teslas to foreign countries because of headwinds putting the logistics in place for the first time.
This one-off write-down will come off the balance sheet in next quarter’s earnings report and more information on the Shanghai Gigafactory will start to filter in aside from its boost to Tesla being able to produce 500,000 cars in 2019 once it comes online.
The Shanghai Gigafactory will unlock substantial value for shareholders once it's fully operational and finishing the construction ahead of time would be a boon.
Part of the plan to go into China results from snapping up more of a battery supply which Musk feels is the Achilles heel right now in Reno.
He continues to fault Panasonic for not delivering enough cells which, in turn, is holding back the power wall business creating a backlog in orders.
Many of the talking heads appearing on major networks were too trigger-happy in tearing Musk to shreds because of the way he speaks in hyperbole.
Musk even came out with another zinger that could pick up traction - an insurance product to marry up with Tesla vehicle purchases because Tesla believed Tesla owners are being price gouged by insurance companies.
As the impact of higher deliveries and cost reduction take full effect, Tesla expects to return to profitability in Q3 and significantly reduce losses in Q2.
Most of the bad news is baked into the stock and there could be another leg-down before this stock starts to look compelling.
Whether you love them or hate them, visionary tech CEOs get a lot of slack because the upside is so lucrative for shareholders.
That is part of why it is excruciating trading the stock led by a moody visionary with a larger-than-life persona, better to buy and hold if you are a Tesla believer.
https://www.madhedgefundtrader.com/wp-content/uploads/2019/04/tesla.png368972Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2019-04-29 01:06:502019-07-10 21:48:10A Tesla Entry Point is Finally Opening Up
This is one of those markets where you should have followed your mother’s advice and become a doctor.
I was shocked, amazed, and gobsmacked when the Q1 GDP came in at a red hot 3.2%. The economy had every reason to slow down during the first three months of 2019 with the government shutdown, trade war, and terrible winter. Many estimates were below 1%.
I took solace in the news by doing what I do best: I shot out four Trade Alerts within the hour.
Of course, the stock market knew this already, rising almost every day this year. Both the S&P 500 and the NASDAQ (QQQ) ground up to new all-time highs last week. The Dow Average will be the last to fall.
Did stock really just get another leg up, or this the greatest “Sell the news” of all time. Nevertheless, we have to trade the market we have, not the one we want or expect, so I quickly dove back in with new positions in both my portfolios.
One has to ask the question of how strong the economy really would have been without the above self-induced drags. 4%, 5%, yikes!
However, digging into the numbers, there is far less than meets the eye with the 3.2% figure. Exports accounted for a full 1% of this. That is unlikely to continue with Europe in free fall. A sharp growth in inventories generated another 0.7%, meaning companies making stuff that no one is buying. This is growth that has been pulled forward from future quarters.
Strip out these one-off anomalies and you get a core GDP that is growing at only 1.5%, lower than the previous quarter.
What is driving the recent rally is that corporate earnings are coming in stronger than expected. Back in December, analysts panicked and excessively cut forecasts.
With half of the companies already reporting, it now looks like the quarter will come in a couple of points higher than lower. That may be worth a rally of a few more percentage points higher for a few more weeks, but not much more than that.
So will the Fed raise rates now? A normal Fed certainly would in the face of such a hot GDP number. But nothing is normal anymore. The Fed canceled all four rate hikes for 2019 because the stock market was crashing. Now it’s booming. Does that put autumn rate hikes back on the table, or sooner?
Microsoft (MSFT) knocked it out of the park with great earnings and a massive 47% increase in cloud growth. The stock looks hell-bent to hit $140, and Mad Hedge followers who bought the stock close to $100 are making a killing. (MSFT) is now the third company to join the $1 trillion club.
And it’s not that the economy is without major weak spots. US Existing Home Sales dove in March by 5.9%, to an annualized 5.41 million units. Where is the falling mortgage rate boost here? Keep avoiding the sick man of the US economy. Car sales are also rolling over like the Bismarck, unless they’re electric.
Trump ended all Iran oil export waivers and the oil industry absolutely loved it with Texas tea soaring to new 2019 highs at $67 a barrel. Previously, the administration had been exempting eight major countries from the Iran sanctions. More disruption all the time. The US absolutely DOES NOT need an oil shock right now, unless you’re Exxon (XOM), Chevron (CVX), or Occidental Petroleum (OXY).
NASDAQ hit a new all-time high. Unfortunately, it’s all short covering and company share buybacks with no new money actually entering the market. How high is high? Tech would have to quadruple from here to hit the 2000 Dotcom Bubble top in valuation terms.
Tesla lost $700 million in Q1, and the stock collapsed to a new two-year low. It’s all because the EV subsidy dropped by half since January. Look for a profit rebound in quarters two and three. Capital raise anyone? Tesla junk bonds now yielding 8.51% if you’re looking for an income play. After a very long wait, a decent entry point is finally opening up on the long side.
The Mad Hedge Fund Trader blasted through to a new all-time high, up 16.02% year to date, as we took profits on the last of our technology long positions. I then added new long positions in (DIS), (FCX), and (INTU) on the hot GDP print, but only on a three-week view.
I had cut both Global Trading Dispatch and the Mad Hedge Technology Letter services down to 100% cash positions and waited for markets to tell us what to do next. And so they did.
I dove in with an extremely rare and opportunistic long in the bond market (TLT) and grabbed a quickie 14.61% profit on only three days.
April is now positive +0.60%. My 2019 year to date return gained to +16.02%, boosting my trailing one-year to +21.17%.
My nine and a half year shot up to +316.16%.The average annualized return appreciated to +33.87%. I am now 80% in cash with Global Trading Dispatch and 90% cash in the Mad Hedge Tech Letter.
The coming week will see another jobs trifecta.
On Monday, April 29 at 10:00 AM, we get March Consumer Spending. Alphabet (GOOGL) and Western Digital (WDC) report.
On Tuesday, April 30, 10:00 AM EST, we obtain a new Case Shiller CoreLogic National Home Price Index. Apple (AAPL), MacDonald’s (MCD), and General Electric (GE) report.
On Wednesday, May 1 at 2:00 PM, we get an FOMC statement.
QUALCOMM (QCOM) and Square (SQ) report. The ADP Private Employment Report is released at 8:15 AM.
On Thursday, May 2 at 8:30 AM, the Weekly Jobless Claims are produced. Gilead Sciences (GILD) and Dow Chemical (DOW) report.
On Friday, May 3 at 8:30 AM, we get the April Nonfarm Payroll Report. Adidas reports, and Berkshire Hathaway (BRK/A) reports on Saturday.
As for me, to show you how low my life has sunk, I spent my only free time this weekend watching Avengers: Endgame. It has already become the top movie opening in history which is why I sent out another Trade Alert last week to buy Walt Disney (DIS).
I supposed that now we have all become the dumb extension to our computers, the only entertainment we should expect is computer-generated graphics with only human voice-overs.
Good luck and good trading.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
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