Global Market Comments
December 24, 2021
Fiat Lux
Featured Trade:
(TRADING THE NEW APPLE IN 2022),
(AAPL),
(TESTIMONIAL)
Posts
Not a day goes by when someone doesn’t ask me about what to do about Apple (AAPL).
After all, it is the world's largest publicly-traded company at a $2.1 trillion market capitalization. It is the planet’s most widely owned stock. Almost everyone uses their products in some form or another.
It buys back more of its own stock than any other company on the planet. Oh yes, it is also one of Warren Buffet’s favorite picks and one of his biggest holdings.
So, the widespread adulation is totally understandable.
Apple is a company with which I have a very long relationship. During the early 1980s, I was ordered by Morgan Stanley to take Steve Jobs around to the big New York Institutional Investors to pitch a secondary share offering for the sole reason that I was one of three people who worked for the firm who was then from California.
They thought one West Coast hippy would easily get along with another. Boy, were they wrong, me in my three-piece navy blue pinstripe suit and Steve in his battered Levi’s. It was the worst day of my life.
Steve was not a guy who palled around with anyone. He especially hated investment bankers, like me.
I last got into Apple with my personal account when the company only had four weeks of cash flow remaining and was on the verge of bankruptcy. I got in at $7, which on a split-adjusted basis today is 25 cents. I still have them. In fact, my cost basis in Apple is less than the 88 cents annual dividend now.
Today, some 200 Apple employees subscribe to the Diary of a Mad Hedge Fund Trader looking to diversify their substantial holdings. Many own Apple stock with an adjusted cost basis of under $5. Suffice it to say, they all drive really nice Priuses.
So I get a lot of information about the firm far above and beyond the normal effluent of the media and stock analysts. That’s why Apple has become a favorite target of my Trade Alerts over the years.
And here is the great irony: Nobody would touch the stock with a ten-foot pole at the end of 2018. Since then, Apple has rallied 274%, creating more market cap in a year than any company in history.
Here’s why. Apple was all about the iPhone which then accounted for 75% of its total earnings. The TV, the watch, the car, iPods, the iMac, and Apple Pay were all a waste of time and consumed far more coverage than they are collectively worth.
The good news is that iPhone sales are subject to a fairly predictable cycle. Apple launches a major new iPhone every other fall. The share price peaks shortly after that. The odd years see minor upgrades, not generational changes.
Just like you see a big pullback in the tide before a tsunami hits, iPhone sales are flattening out between major upgrades. This is because consumers start delaying purchases in expectation of the introduction of the new iPhone, more power, gadgets, and gizmos.
So during those in-between years, the stock performance was disappointing. 2018 certainly followed this script with Apple down a horrific 30.13% at the lows. Maybe it’s a coincidence, but the previous generation in Apple shares in 2015 brought a decline of, you guessed it, exactly 29.33%.
But Apple is a much bigger company this time around, and well-established cycles tend to bring in diminishing returns. It’s like watching the declining peaks of a bouncing rubber ball.
This is not your father’s Apple anymore. Services like iTunes and the new Apple+ streaming service are accounting for an even larger share of the company’s profits. And guess what? Services companies command much higher multiples than boring old hardware ones. It’s the old questions of linear versus exponential growth.
Here’s the next new play. Autonomous driving looks to be a huge business for Apple, possibly a $1 trillion a year business. After all, Tesla is already charging $8,000 for the upgrade and it only works on freeways. My bet is that they sell autonomous consoles to legacy Ford (F) and General Motors (GM).
An easing of trade relations with China under a new Biden administration will bring a new spring to Apple’s step, where sales have recently been in free fall. Their new membership lease program promises to deliver a faster upgrade cycle that will allow higher premium prices for their products. That will bring larger profits.
A decade ago, I ran into a local school teacher who, after 30 years of slaving away with your brats, was unable to retire because, with only $100,000 saved, she was too poor to do so. All her money went to expensive California rent and to Blue Cross since her district had no health insurance plan.
I told her to place her entire life savings into Apple. Her financial advisor told her she was nuts. Her friends told her she was crazy. Her mother said she should disown me.
Where is that school teacher today? She just bought a $3 million beachfront home on Hawaii’s Kona Coast. She sold her Apple shares for $7.3 million. I know because I just received a nice Christmas card from her attached to a two-pound box of See’s candy, my favorite.
Who said teaching didn’t pay!
It all adds up to keeping Apple as a core to any long-term portfolio.
Just thought you’d like to know.
I Heard They are Diversifying
Mad Hedge Technology Letter
December 17, 2021
Fiat Lux
Featured Trade:
(LOOKING FORWARD TO TECH IN 2022)
(FB), (NVDA), (AAPL), (MSFT), (AR), (VR)
Another pandemic year is on the verge of being in the books and we need to look yonder to 2022 and what it can offer.
Now that billions are being poured into the project, it’s not weird to say that advanced technology and the arteries and ventricles surrounding it, will all lead to developing this new world called the Metaverse.
The metaverse is a hypothesized iteration of the Internet, supporting persistent online 3-D virtual environments through conventional personal computing, as well as virtual and augmented reality headsets.
And I am not saying this is a new thing just to be cool, analyzing thousands of earnings reports, it’s clear that companies are deploying human capital around gaining a slice of this future Metaverse.
This idea is so prominent that Facebook (FB) changed its name to Meta to signal its commitment to this new technology.
Next year will be the year that we get closer to the real deal — a fully functioning Metaverse even if it might just be a beta version.
And it’s not just Facebook, Apple (AAPL), and Microsoft (MSFT) and the rest are in it too with Nvidia’s (NVDA) chips serving as a building block of the Metaverse.
Naturally, related technologies will be of great importance, and I can easily see a greater surge in augmented reality (AR) interest.
People should also keep a close eye on the introduction of Meta's internet-of-VR.
The idea of the metaverse and an advanced VR world must be seen through the prism of the pandemic which has forced us to become digital first even if many of us aren’t native digital users.
Many of us have had to learn on the go, for instance, download that Zoom video conferencing software or upgrade our home office.
This torrent of internet usage has its pitfalls like explosive growth in cyberattacks, making cybersecurity more important than ever.
Cybersecurity will no longer be seen as an “added extra” by organizations and will be built into the DNA of any and every IT system, from supply chains to infrastructure and devices.
Our reliance on internet leads nicely into 2022 becoming the year when 5G became mainstream.
We are edging towards that point where we need that extra speed to harness our work devices and to wield them in the most efficient and optimal way.
Many of you have had to upgrade data packages, build robust infrastructure into your home office and I don’t mean just buying a better office chair.
This could see the rise of “digital cities” along with new smart mobility services such as autonomous vehicles and 5G connected bicycles. We could also see a rise in private 5G networks for businesses in manufacturing and logistic sectors.
A new era of private connection for businesses will be launched, enabling greater data-driven insights and real-time business decisions.
2022 will see businesses continue to neglect the traditional office and many companies will be at best — hybrid.
We might start seeing companies go bankrupt because they can’t convince any workers to show up in physical form.
It’s already happening to the workers I talk to where limited remote working opportunities when interviewing for new jobs is a deal-breaker.
Next year is also when we finally see artificial intelligence on steroids.
The explosion of AI-powered gadgets, apps, websites, and tools is here for 2022.
It'll become harder to differentiate chatbots from human customer support agents. Other products such as future content recommendations on social media and streaming websites are likely to come from an AI rather than traditional data analysis.
The Internet of Things, AI, and automation will aid businesses to fill gaps created by the labor shortage while optimizing staff. In retail and hospitality, this will take the form of self-serve kiosks, autonomous order fulfillment, and AI-enabled drive-thrus, all freeing people up for higher-skilled roles.
Ultimately, an explosion of data requirements will offer complex challenges to firms that must manage large amounts of data.
This goes triple for many companies still struggling to fully digitize.
Although it’s hard to visualize, our reliance on technology will keep growing and the winners will be the ones who can harness these new technologies to supercharge their financial profiles.
It’s not that I am boring, but the companies leading the new stage of digital technologies are the biggest and richest of Silicon Valley, and I would rather ride the bandwagon with them than try the sexy contrarian play, especially with higher interest rates hurting start-up culture.
Global Market Comments
December 17, 2021
Fiat Lux
Featured Trade:
(DECEMBER 15 BIWEEKLY STRATEGY WEBINAR Q&A),
(FCX), (FCI), (TLT), (TBT), (BITO), (AAPL), (AMZN), (T), (TSLA), (BABA), (BLOK), (MSTR), (COIN)
Below please find subscribers’ Q&A for the December 15 Mad Hedge Fund Trader Global Strategy Webinar broadcast from the safety of Silicon Valley.
Q: With interest rates going up, would it make sense to short heavily indebted companies as a class?
A: Yes it does; those would be old-line industrials and auto companies with very heavy debts. Technology companies essentially have no debt unless they’re startups. So yeah, that’s a good idea; unless of course inflation is peaking right now, which it may be if you solve these supply chain problems, and it becomes evident that retailers overordered to beat the supply chain problems and now have a ton of excess inventory they can’t meet—then the inflation plays will crash. So, not a low-risk environment right now. No matter where you look, you’re screwed if you do, you’re screwed if you don't. So that is an issue to keep in mind.
Q: What do you think of Freeport McMoRan (FCX) short-term?
A: Short term, (FCX) only sees the Chinese (FXI) real estate crisis, which is getting worse before it gets better and could bring a complete halt to all known construction in China. The government is forcing the real estate companies there to run at losses in order to bring the bottom part of their society into the middle class with houses in third and fourth-tier cities. Long term, as annual electric car production goes from a million cars a year to 25 million cars a year and each car needs 200 lbs. of copper, we have to triple world production practically overnight to accommodate that. That can’t happen, therefore that means much higher prices. If you’re willing to take some pain, picking up freeport McMoRan in the low $30s has to be the trade of the century.
Q: Do you see a Christmas rally or a bigger correction?
A: Rally first. Once we get the Fed out of the way today, we could get our Christmas rally resumed and go to new highs by the end of the year. But, January is starting to look a little bit scary with all the unknowns going forward and massive long positions. January could be okay as hedge funds put positions back on in tech that they’re dumping right now. If they don’t show up…Houston, we might have a problem.
Q: Thoughts on the iShares 20 Plus Year Treasury Bond ETF (TLT) Dec 2022 $150-$155 vertical bear put spread?
A: Since I'm in low-risk mode, I would go up $5 or $10 points and not be greedy. Not being greedy is going to be one of the principal themes of 2022 therefore I’m recommending that people do the $160-$165 or even the $165-$170, which still gives you a 30% return in a year, and I think next year this will be seen as a fabulous return.
Q: What about the $100,000 target for Bitcoin (BITO) by the end of the year?
A: That’s off the table thanks to the Fed tightening and Omicron triggering a massive “RISK OFF” and flight to safety move. Non-yielding instruments tend not to do well during periods of rising interest rates, so gold along with crypto is getting crushed.
Q: What will happen in the case of a black swan event in early 2022, like Russia invading Ukraine?
A: Market impact for that would be a bad couple of days, a buying opportunity, and then you’d want to pile into stocks. Every geopolitical event that’s happened in the last 20 years has been a buying opportunity for stocks. Of course, I would feel bad for the Ukrainians, but it’s kind of like Florida seceding from the US, then the US invading Florida to take it back, and the rest of the world not really caring. Plus, it doesn’t help that their heavily nationalist post-coup government has some fascist tendencies. However, we could get global economic sanctions against Russia like an import/export embargo, which would hurt them and destroy their economy.
Q: Will the European natural gas shortage continue?
A: Yes because the Europeans are at the mercy of the Russians, who have all the gas and none of the economy. Therefore, they can export as much or as little as they want, depending on how much political control they’re trying to exert in Europe.
Q: Apple Inc. (AAPL) price target?
A: Well, my price target for next year was $200; we could hit that by the end of the year if we get a rally after the Fed meeting.
Q: 33% of the population is in collection status with personal debt, credit cards, etc—is that a harbinger of a 2008 crash?
A: No, it is a harbinger of excess liquidity, interest rates being too low, and lenders being too lax. However, we aren’t at the level where it could wipe out the entire economy like with defaulting on a third of all housing market debt in 2008.
Q: What should I do with my call spreads for Amazon.com, Inc. (AMZN)?
A: Well, November would have been a great sell. Down here, I’d be inclined to hold onto the spreads you have, looking for a yearend rally and a new year rally. But remember, with all these short-dated plays risk is rising, so keep that in mind.
Q: What do you think of AT&T Inc (T)?
A: The whole sector has just been treated horrifically; I don’t want to try to catch a falling knife here even though AT&T pays a 10% dividend.
Q: What about quad witching day?
A: Expect a battle by big hedge funds trying to push single stocks options just above or below strike prices. It’s totally unpredictable because of the rise of front-month trading, which is now 80% of all options trading with the participation of algorithms.
Q: Is the Alibaba Group Holding Limited (BABA) $230-$250 LEAP in June 2023 worth keeping?
A: I would say yes, I think the Chinese will come to their senses by then, and all the Chinese tech plays will double, but there’s no guarantee. That is still a high-risk trade.
Q: Does the US have an opportunity to export petroleum products?
A: The answer is yes, we are already a net energy exporter thanks to fracking. But, it is a multi-year infrastructure build-out to add foreign export destinations like Europe, which hasn’t bought our petroleum since WWII. Right now, almost all of our exports are going to Asia. No easy fixes here.
Q: Is Tesla Inc (TSLA) a buy at 935 down 300 in change?
A: Not yet; 45% seems to be the magic number for Tesla correction. We had one this year. And Elon Musk hasn’t quit selling yet, although I suspect he’ll end his selling by the end of the year because he’ll have met all his tax obligations for the year. He has to sell these options before they expire and are rendered useless. So that is what’s happening with Tesla, Elon Musk selling. And can you blame him? He almost worked himself to death making that company, time to spend some money and have a good time, like me.
Q: What if your Chinese company gets delisted?
A: Try to get out before it is delisted. Otherwise, the domicile moves to Hong Kong and you’ll have to sell equivalent shares there. I don’t know what the details of that are going to be, but the Chinese companies are trying to force companies to delist from the US and list in Hong Kong so they have complete control over what's going on. Also, I never liked these New York listings anyway because the disclosures were terrible, with Cayman Island PO Boxes and so on…
Q: Is the ProShares UltraShort 20+ Year Treasury (TBT) a good long-term position to hold?
A: It is to an extent—only if you expect any big moves up in interest rates, which I kind of am. This is because the cost of carry for (TBT) is quite high; you have to pay double the 10-year US Treasury rates, which is double 1.45% or about 2.90%, and then another management fee of 1%, so you have kind of a 4% a year headwind on that because of cost. Remember, if you’re short a bond, you’re short a coupon; if you’re double short a bond you’re short twice the coupon and you have to pay that and they take it out of the share price. But, if you’re expecting bonds to go down more than 4%, you’ll cover that and then some and I think bonds could drop 10-20% this year.
Q: What’s the difference between GBTC and BITO?
A: Nothing, both are Bitcoin plays that are tracking reasonably well. I prefer to go with the miners—the Bitcoin providers, that’s a selling-shovels-to-the-gold-miners play. They tend to have more volatility than the underlying Bitcoin, so that’s why I’m in (BLOK) and (MSTR) when I’m in it.
Q: What’s the best way to buy Crypto?
A: If you really want to buy Crypto directly, the really easy way is to go through one of the top crypto brokerage houses, and we’ve recommended several of those. Coinbase (COIN) is the one I’m in. It literally takes you five minutes to set up an account and you can instantly buy Bitcoin linked to your bank account.
Q: What are the fees like for Coinbase?
A: The fees at (COIN) are exorbitant only if you’re buying $10 worth of Bitcoin. If you’re buying like $1 million worth, they’re much, much smaller. But I recommend you start at $10 and work your way up as I did, and sooner or later you’ll be buying million-dollar chunks of Bitcoin which then double in three months, which happened to me this year.
To watch a replay of this webinar with all the charts, bells, whistles, and classic rock music, just log in to www.madhedgefundtrader.com, go to MY ACCOUNT, click on GLOBAL TRADING DISPATCH, then WEBINARS, and all the webinars from the last ten years are there in all their glory.
Good Luck and Stay Healthy.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Global Market Comments
December 7, 2021
Fiat Lux
Featured Trade:
(GET READY TO TAKE A LEAP BACK INTO LEAPS),
(AAPL), (BRK/B)
(TESTIMONIAL)
Mad Hedge Technology Letter
December 3, 2021
Fiat Lux
Featured Trade:
(THE ULTIMATE TECH SUPPLY CHAIN SHOCK)
(TSLA), (CMOC), (AAPL), (DRC)
China is monopolizing the raw materials industry in Africa at such a fast pace that it might be a thorn in the side of American EV makers like Tesla and other US tech companies soon.
Tesla (TSLA) has decided to veer its business interests and kowtow to China and is really doubling down there with a Shanghai Gigafactory which now produces more cars than its plant in California.
Under the hood, most of the material is Chinese-made, and the minerals that power the batteries are largely refined and mined by Chinese companies.
As the world adopts EVs, companies are desperate to secure and strengthen their positions in the battery supply chain, from mineral extraction and processing to battery and EV manufacturing.
Vertical integration is more fashionable than ever, where one company controls a number of steps along the supply chain to guarantee supply.
This is not surprising since the supply chain breakdown has forced many companies to stop production for lack of parts.
This battery arms race is being won by China.
China is the world’s biggest market for EVs with global sales of 1.3m vehicles in 2020, more than 40% of sales worldwide.
Chinese battery-maker CATL has cornered about 35% of the world’s EV battery market.
Chinese refineries supplied 85% of the world’s battery-ready cobalt last year; a mineral that helps the stability of lithium-ion batteries.
Democratic Republic of the Congo (DRC) is where most of the cobalt is found, where almost 70% of the mining sector is dominated by Chinese companies.
Meander around DRC’s southern copper and cobalt mining belt, and it looks as if you are in China.
In August, China Molybdenum Company (CMOC), a giant Chinese mining firm, announced an investment of $2.5bn to triple copper and cobalt production at its Tenke Fungurume Mine, already one of the largest in DRC.
That followed its purchase of a 95% stake in nearby Kisanfu copper and cobalt mine for $550m.
Fellow Chinese corporate giant, Huayou Cobalt has a stake in at least three copper-cobalt mines in DRC and dominates at every step of the cobalt supply chain, from mines to refineries to battery precursor and cathode production.
Some car and battery manufacturers are beginning to reduce the amount of cobalt in their batteries to de-risk themselves from China.
Nickel-rich batteries could be a solution, but the same Chinese companies that dominate cobalt mining in DRC, Huayou Cobalt and CMOC, are also cornering nickel extraction and processing in Indonesia, which has the world’s largest nickel reserves at 72m tons.
This means China is now the largest global market producer of nickel, far surpassing the efforts of Europe and the US.
In Europe too, companies are beginning to gain on China’s lead. By the end of the decade, the continent is expected to have 28 factories producing lithium-ion cells, with production capacity due to increase by 1440% from 2020 levels.
That growth is being driven by companies such as Britishvolt in Northumberland and Sweden’s Northvolt, as well as Asian firms expanding production into Europe.
European investment in mining and the production of battery and cathode materials is not keeping pace.
China is creating the equivalent of one battery Gigafactory a week compared with one every four months in the US.
A new global lithium-ion economy is being developed, and the United States lagging Europe and China means they will need to pay a premium for the raw materials in the future.
It’s almost as if the U.S. is going through a round 2 of outsourcing their rust belt manufacturing, but this time it’s Internet 3.0 manufacturing.
The U.S. has fallen asleep at the wheel and allowed China to coax itself into relevancy by undercutting global competitors, the same is happening in the raw material industry that is fundamental to the survival of the United States tech and EV prowess.
The quickness and potency of a mercantilist one-party state can be felt here as many broader issues are bogged down in the U.S. in Congress and get stuck there in perpetuity.
When allowed to flourish, US capitalism is the most mesmerizing force in global economics, but it is also prone to stumbling over itself.
Policymakers need to reroute their energies to the raw material precious metal sector to make pricing competitive for the American consumers, or the share prices of US tech companies will be hurt.
Like the supply bottlenecks caused pain for many American companies, companies like Apple (AAPL) or Dell might not be able to build smartphones and laptops without the right raw materials.
Tesla might not be able to build a car anymore without bowing down to the Chinese forces.
Don’t be surprised in a few years if tech companies need to halt production due to China not selling certain parts to certain countries, this could be the next battleground between the United States and China.
Global Market Comments
December 3, 2021
Fiat Lux
Featured Trade:
(DECEMBER 1 BIWEEKLY STRATEGY WEBINAR Q&A),
(PYPL), (MA), (AXP), (SQ), (TLT), (TBT), (TSLA), (AAPL), (FB), (MSFT), (AA), (FCX), (BITO), (COPA.L)
