Global Market Comments
October 25, 2021
Fiat Lux
Featured Trade:
(TESTIMONIAL),
(MARKET OUTLOOK FOR THE WEEK AHEAD, or TAKING A BREAK)
(MS), (GS), (BAC), (TLT), (TSLA), (AAPL), (AMZN), (GOOGL), (FB)
Posts
When I ran the international equity trading desk at Morgan Stanley during the 1980s, there was always one guy I was trying to recruit and that was David Tepper at Goldman Sachs. Whenever we did a trade with David, we lost money.
If we sold David a stock it usually took off like a rocket. If we bought a stock from him it plummeted like a stone. Eventually, unable to lure David over with a monster salary, I had to ban trading with him as it was such a loser for us.
David never did get pried away from Goldman until he left to start his own firm, Appaloosa Management, after he was mistakenly passed over for partner two years in a row. After that, he racked up an annualized return of over 40%, near my own results.
But David was doing it with $20 billion in real money, while I was doing it with newsletters. In 2012, David received a $2.2 billion performance bonus from his fund, one of the largest in history. I bet the partners at Goldman are kicking themselves.
So, I thought it timely to check in with David, now the owner of the Carolina Panthers football team, to see what he thought about the market. The S&P 500, the Dow, Ten-year bond yields, and Bitcoin all simultaneously hit all-time highs last week, and we were long all of them.
David was phlegmatic at best. “There are times to make money and there are times to not lose money, and this is definitely time to make money.” However, nothing is cheap. There are no screaming buys here or screaming shorts. He did expect stocks to keep rising through the end of 2021.
Keep in mind that David is a trader just like me and rarely has a view beyond six months. His last 13F filing on June 30 showed that his five largest positions were T-Mobile (TMUS), Amazon (AMZN), Facebook (FB), Google (GOOG), and Uber (UBER). Uber was the only new buy.
David is not alone in his views.
Up 89.20% so far in 2021, I am sitting here dazed, shocked, and pinching myself. This has been far and away my best year in a 53-year career. I know a lot of you made a lot more. I stared down every correction this year, loaded the boat, and won.
It’s not always like this.
So I think we are in for a few weeks of profit-taking, sideways chop, and minimal action. I call this the “counting your money” time. Traders have visions of Ferraris dancing in their eyes. Then once we form a new base, it will become the springboard for a new yearend rally.
I don’t think stocks will fall enough to justify selling here. And you might miss the next bottom.
Until then, I’m thinking of taking up the banjo.
That brings me to the foremost question in your collective minds. Can I top an astonishing 100% profit this year? Only if we get another great entry point with a 5% correction.
I’m sure that when the financial history of our era is written something in the future, this will be known as the week that Bitcoin went mainstream. That was prompted by the SEC approval of the first futures ETF, the ProShares Bitcoin Futures ETF (BITO).
By giving this approval, which had been sought for years, unlocks $40 trillion worth of assets owned by 100 million shareholders managed under the Investment Company Act of 1940 to go into Bitcoin. The possibilities boggle the mind. The consensus year-end target for Bitcoin is now $100,000, or up 65%.
It’s not too late to subscribe at the founder's rate of $995 a year for the Mad Hedge Bitcoin Letter by clicking here. After that, the price goes up….a lot.
Morgan Stanley (MS) Announces Stellar Earnings, with profits at $3.71 billion, up 36.4%. Morgan Stanley Asset Management sucked in an amazing $300 billion so far in 2021, bringing their total assets to $4.5 trillion.
Goldman Sachs (GS) announces blockbuster earnings, and we are laughing all the way to the bank. Profits soared an eye popping 63% to $5.28 billion.
Existing Home Sales soar by 7% in September to a seasonally adjusted 6.29 million units. First time buyers accounted for only 28%, the lowest since 2015. A brief drop in interest rates is the reason. There are only 1.29 million homes for sale, only a 2.4 month supply.
Housing Starts fall by 1.6% in September. Higher materials and labor costs, rising land expenses, and soaring energy costs are the culprit. A pop in interest rates may mean that the slowdown could last through the winter.
Single Family Rents are surging especially for the top end of the market. Nationally, rents rose 9.3% in August year over year, up from a 2.2% year-over-year increase in August 2020, according to CoreLogic. Buy homebuilders on dips like (KBH), (LEN), and (PHM)
If the Rescue Package passes in whatever size, it will trigger a massive new surge in risk prices, including stocks and Bitcoin. Don’t act surprised when it happens. $3.5 trillion, $1.5 trillion who cares? That’s a ton of money to be dumped into the economy ahead of the 2022 elections.
Tesla profits smash records in Q3, reporting a shocking $1.62 billion profit on $13.76 billion in revenues. A 30.5% profit margin blew people away. Imagine how much they’ll earn when they make 25 million cars a year in ten years. Buy (TSLA) on big dips.
Weekly Jobless Claims dive to 290,000, a new post-pandemic low. Delta is in fast retreat. A pre-pandemic normal level of 225,000 is coming within range.
Rising Interest rates are tagging the Real Estate Market, with the 30-year fixed rate hitting 3.23%. Refis are off 7% on the week. The Fed taper is looming large, especially if the 30-year hits 4.0%, which it should, taking affordability down.
My Ten-Year View
When we come out the other side of pandemic, we will be perfectly poised to launch into my new American Golden Age, or the next Roaring Twenties. With interest rates still at zero, oil cheap, there will be no reason not to. The Dow Average will rise by 800% to 240,000 or more in the coming decade. The American coming out the other side of the pandemic will be far more efficient and profitable than the old. Dow 240,000 here we come!
My Mad Hedge Global Trading Dispatch saw a heroic +9.60% gain so far in October. My 2021 year-to-date performance soared to 89.20%. The Dow Average is up 16.60% so far in 2021.
After the recent ballistic move in the market, I am continuing to run my longs and those include (MS), (GS), (BAC), and a short in the (TLT). All are approaching their maximum profit point and we have nothing left but time decay to capture. So, I am going to run these into the November 19 expiration in 14 trading days. It’s like having a rich uncle write you a check once a day.
That brings my 12-year total return to 512.75%, some 2.00 times the S&P 500 (SPX) over the same period. My 12-year average annualized return now stands at an unbelievable 43.75%, easily the highest in the industry.
My trailing one-year return popped back to positively eye-popping 120.15%. I truly have to pinch myself when I see numbers like this. I bet many of you are making the biggest money of your long lives.
We need to keep an eye on the number of US Coronavirus cases approaching 46 million and rising quickly and deaths topping 736,000, which you can find here.
The coming week will be slow on the data front.
On Monday, October 25 at 8:30 AM, the Chicago Fed National Activity Index is out. Facebook (FB) earnings are released.
On Tuesday, October 26 at 10:00 AM, the S&P Case-Shiller National Home Price for August Index is released. Alphabet (GOOGL) and Microsoft (MSFT) earnings are out at 5:00 PM.
On Wednesday, October 27 at 7:30 AM, Durable Goods Orders for September are printed. McDonald’s (MCD) earnings are out.
On Thursday, October 28 at 8:30 AM, Weekly Jobless Claims are announced. The first read on Q3 GDP is announced. Apple (AAPL) and Amazon (AMZN) earnings are out.
On Friday, October 29 at 8:45 AM, the US Personal Income & Spending for September is published. At 2:00 PM, the Baker Hughes Oil Rig Count is disclosed.
As for me, when I went to college in Los Angeles, the local rivalries between universities were intense.
UCLA and USC had a particularly intense rivalry, and I went to both. It was traditional to steal Tommy Trojan’s sword prior to each homecoming game and then paint the statue blue. USC had a mascot, a mixed breed dog called “Old Tire Biter.” Prior to one game, UCLA kidnapped the dog.
At halftime, the kidnappers appeared midfield, tied the dog to a helium-filled weather balloon, and let him waft away somewhere over the city. Enraged USC fans stormed the field only to find that the real dog was hidden in a nearby truck. The dog headed for the stratosphere was actually a stuffed one.
Of course, the greatest prank of all time was carried out by the California Institute of Technology in the 1961 Rose Bowl, which didn’t have a football team, on the Washington Huskies. Washington was famous for its elaborate card tricks, which spelled out team names and various corporate sponsors and images.
On the night before a game, imaginative mathematically-oriented Caltech students snuck into the stadium and changed the instructions on the back of each card packet sitting in the seats. When it came time to spell out an enormous “WASHINGTON”, “CALTECH: displayed instead. The incident was broadcast live on national TV ON NBC.
At Caltech, where I studied math, they are still talking about it today.
Stay healthy.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Mad Hedge Technology Letter
October 22, 2021
Fiat Lux
Featured Trade:
(BOMBSHELL HITS AD TECH)
(SNAP), (FB), (GOOGL), (AAPL)
So, first the good news — SNAP expanded revenue by 57% year-over-year.
It was only a few years ago that this tech company was the backwater of social media, but it’s done its bit to catch up with the crowd.
SNAP targets the 18–29-year-olds and although not minted, there are pathways for a lifetime of revenue generation from this cohort.
In a rough environment battling Google (GOOGL) and Facebook (FB) and despite these challenges, they crossed $1 billion in quarterly revenue for the first time.
That was the good news and now you might want to cover your ears so put on those earmuffs.
The reason SNAP missed guidance by $3 million was because there have been changes to advertising tracking in Apple’s iOS system.
These ongoing changes to digital advertising were introduced as part of iOS 14.5 and were announced ahead of time, and now that move is started to suppress the bottom line for the social media giants.
SNAP anticipated some degree of business disruption, and unfortunately, their provided measurement solution did not scale as expected.
Basically what’s happening is that it’s more difficult for advertising partners to measure and manage ad campaigns for iOS.
Advertisers are no longer able to understand the impact of their unique campaigns based on things like the time between viewing an ad and taking an action or the time spent viewing an ad.
Real-time campaigns and creative management are hindered by extended reporting delays and advertisers are unable to target advertising based on whether or not people have already installed an app.
Without these business analytics, SNAP’s platform is less attractive because sale conversions are a great deal lower.
This impact was compounded by the ongoing macroeconomic effects of the global pandemic with advertising partners facing a variety of supply chain interruptions and labor shortages.
The ongoing magnitude and duration of these global supply and labor disruptions are inherently unpredictable.
Also, businesses do not have the inventory or operational capacity to support incremental demand.
SNAP expect customers to cut marketing budget given the diminished need to drive incremental demand at a time when supply chains are not able to operate at peak capacity.
This in turn that reduces their short-term appetite to generate additional customer demand through advertising at a time when their businesses are already supply-constrained.
The big question is: how bad will the Apple changes impact SNAP in the future?
SNAP is down 25% in today’s trading and that’s just them.
Facebook is down around 6% and Google is also off 3%.
Apple has signaled that they aren’t willing to accommodate the tracking techniques of the social media companies.
Clearly, investors are worried about the magnitude of the drop in shares, and this does a great deal to kill the momentum in the stock.
This isn’t the end of the world because I would like to point out that these changes happened in June and July, yet SNAP was still able to grow revenue by 57% year over year.
But I will say this will crimp the growth elements in the business model and lower the ceiling.
Growth rates of high 50% could start trending towards the lower 40% and investors hate that.
The company is still quite small — less than $90 billion of market cap.
This is exactly what SNAP didn’t want because comparatively speaking, Google and Facebook will be able to absorb this better with their war chest of capital readying itself to plug in the gaps.
The stock essentially gave back a year of performance in one morning, but I do view this as a buying opportunity and readers who have a long-term view will certainly profit once SNAP work itself through this problem, but it will be closer to a crawl up than big gaps up in prices.
Global Market Comments
October 5, 2021
Fiat Lux
Featured Trade:
(HOW TO EXECUTE A VERTICAL BULL CALL SPREAD)
(AAPL)
(THANK GOODNESS, I DON’T LIVE IN SWEDEN)
(EWD)
Mad Hedge Technology Letter
October 4, 2021
Fiat Lux
Featured Trade:
(IT WILL JUST TAKE LONGER)
(ROKU), (TSLA), (FB), (AMZN), (AAPL)
The “Buy the Dip” strategy in tech stocks hasn’t failed — it will just take longer than it used to.
Much of this Nasdaq rally has been represented by the resiliency of large cap tech stocks — every mini dip was bought with a vengeance.
This go-to playbook drove tech shares higher after the March 2020 meltdown.
These past 30 days have really tested that thesis and signals that we, as market participants, have arrived at a crossroads because if the dip isn’t bought soon, we could either fall off a ledge and barrel into a harrowing correction or we could initiate a sideways correction and trade in a fixed range.
It’s hard to ignore the near-term weakness in many of the household names like Apple (AAPL), Amazon (AMZN), and Facebook (FB).
The upper echelon of tech leadership is signaling imminent decelerating growth and tightening financial conditions.
I do believe much of it is in the price, yet it’s cognizant to know there could be meaningful spillover from the Evergrande debt implosion in China into other asset classes.
External events are shaping the narrative around the Nasdaq dip buyers.
It also doesn’t help that a Facebook whistleblower came forward to tell the press about its malpractices and less than ideal tendencies to put profit over safety, but everyone already knew that about Facebook.
What I am surprised about is that investors usually look through the bad Facebook press and prioritize the metrics which hasn’t been happening the past month.
Facebook shares are still waiting to be bought after the dip.
The lack of Facebook shoppers on the pullback is definitely one area of concern because the U.S. government still has done very little to stop Facebook in its stubborn practices.
The U.S. government will not crack down through legislation on social media companies in the short term.
Much of the negative Nasdaq price action in the short term can be attributed to the worries about China taking a machete to its susceptible tech sector and crushing it even more.
Many don’t think the cudgeling is over.
In this scenario, a flight to safety could be in the cards, which would suppress interest rates offering an olive branch for the dip-buyers.
Ultimately, I do believe it’s a matter of time before we get some recovery price action in the leadership tech stocks; but yes, it could take 1-3 weeks.
Much of this second half of the year was consolidating tech shares that overshot themselves last year.
That’s why tech firms like Tesla (TSLA) had almost a zero percent chance of repeating last year’s performance.
Take ad tech stock Roku (ROKU) for instance, shares are down 23% YTD and that doesn’t mean it’s a bad stock.
Hardly so.
When one considers that Roku shares ended 2020 up 300%, then giving back 23% or 50% in 2021 is worth the annoyances.
These stocks can’t go up in a straight line even if they almost feel like they can sometimes.
This all sets up for a brilliant 2022, as many of these high-quality names will finally have gotten through the consolidation phase and will be buttered up to initiate their next leg up in early 2022.
In the broad scheme of things, tech won the pandemic over any other sector, and 2021 is turning into a rest year.
Sometimes one needs to go backwards one step to take the next three forward.
Mad Hedge Technology Letter
September 27, 2021
Fiat Lux
Featured Trade:
(A SHORTENED RUNWAY FOR SILICON VALLEY)
(AAPL), (FB), (WIC), (SME)
I’m not going to go so far as to claim the Silicon Valley tech story is over — that’s too premature.
But—and a very big but—I will say that the runway has been significantly shortened for the aircraft taking off.
In an everchanging zig-zagging tech climate — it’s my job to take the pulse of it and correspond it to the reader.
I would characterize myself as concerned with the latest developments in technology, and I specifically mean for those business models that many of you have poured your hard earned cash into.
I have gone on record saying that Silicon Valley suffers from a lack of imagination and the gravitas shortage in which to sort this out is starting to stick out like a sore thumb.
What we have is what we have.
Dynastic, hegemonic tech companies who, instead of taking the reins and helping the industry develop in terms of paradigm shifts, have chosen the way of incremental development to suck the marrow dry via the capitalistic model of short-term profits that manifest themselves in higher stock prices.
I have no problem with that at any level—higher stock prices have given my readers a chance to enrich themselves with generational wealth.
And yes, I agree with you, investing for paradigm shifts isn’t cheap, and who wants to be on the hook for this bill anyway when this gravy train isn’t over yet?
Recent signals are emblematic of the narrowing paths to profits for tech companies; they are increasingly required to pull off 4th quarter heroics to get ahead, and we are starting to rub up against the extreme limits.
Exhibit A — Facebook.
The company has confronted sharp criticism from lawmakers and users for its plan to develop an Instagram for kids and said it was pausing work on the project.
Facebook said it will re-evaluate the project at a later date as a damning expose by the Wall Street Journal.
This latest app was intended for children aged 10 to 12.
One internal Facebook presentation said that among teens who reported suicidal thoughts, 13% of British users and 6% of American users traced the issue to Instagram.
Remember that Facebook bought Instagram because Facebook, its flagship platform, was dropping users left and right.
Instagram was the savior.
I would argue that Facebook would be a $200 stock without this asset.
The next question investors should ask is, if Facebook “kids” was going to be the next growth sub-sector for Facebook, what does it do now?
It’s an uncomfortable question for Facebook shareholders and rightly so.
Again, this screams lack of innovation to me—shareholders cannot just tolerate Instagram for 8–10-year-olds, then Instagram for 6–8-year-olds, only to be followed up by the Instagram for 4-6-year-olds.
Crazy as it sounds, that was the path Facebook intended to go down.
Now, it’s time for a reset while their metaverse project isn’t ready.
Silicon Valley's Exhibit B — Apple.
Apple's earnings for Greater China in Q2 2021 were up 87.5% from this time last year, to $17.7 billion.
During its latest earnings call, Apple has announced dramatically increased revenues from Greater China for the three months ending March 2021. At 87.5% year-on-year, the percentage rise exceeds all other territories bar the rest of Asia Pacific.
On a standalone basis, higher revenue is great for the stock, and here at the Mad Hedge Tech Letter, we love higher tech shares.
The problem is that Apple’s biggest growth driver is China revenue.
I am sure that many readers have started to notice the calm before the storm in China.
If it wasn’t the real estate problems there, then sure, that’s a different industry but worrying.
However, Chairman of China Xi Ji Ping has gone on an aggressive defanging of the Chinese tech sector.
From imprisoning executives to massive fines — he is really stirring up the pot.
Apple readers also must ask themselves — how long will Apple be immune to the whims of Chairman Xi?
The answer is that it’s increasingly starting to seem like not long.
Just this last weekend, some of the biggest names in China’s tech industry made an appearance at the World Internet Conference (WIC) in Wuzhen to pledge support for the country’s “common prosperity” and small and medium-sized enterprises (SMEs) nearly a year after the government began an extensive crackdown on the sector.
There’s a legitimate risk that Apple’s immunity pass won’t be valid for much longer.
Remind yourself that Apple just came out with iPhone 13 and is on the path to make iPhone 14, 15, 16, and up to 100 because they make good money doing it.
Also remind yourself that Android phones are now just as good for half the price so in terms of relative competition, if they didn’t have a loyal base, people might not buy iPhones anymore.
Reality sucks, doesn’t it?
The defanging of Silicon Valley is a when and not if proposition; they will be forced to bet on the next paradigm shift and if they choose correctly, they will also be the winner of it so they might as well enlarge the budget for it.
Global Market Comments
September 24, 2021
Fiat Lux
Featured Trade:
(TESTIMONIAL)
(SEPTEMBER 22 BIWEEKLY STRATEGY WEBINAR Q&A),
(TLT), (TBT), (V), (AXP), (MA), (FSLR), (SPWR), (USO), (UNG), (PFE), (JNJ), (MRNA), (MS), (JPM), (FCX), (X), (FDX), (GLD), (UPS), (SLV), (AAPL), (VIX), (VXX), (UAL), (DAL), (ALK), (BRK/B), (BABA), (BITCOIN), (ETHEREUM), (YELL)
