Global Market Comments
February 3, 2025
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD or THE TRADE WAR BEGINS)
(SPY), ($COMPQ), (TSLA), (VST), (MSFT), (ADBE), (DELL), (NVDA)
Posts
As I write this, tariffs are coming into force and confusion reigns supreme at the borders. The worst-case scenario has arrived.
In the Marine Corp., they say that a missing 50-cent part can ground a $50 million dollar airplane. It turns out that many of the 50-cent parts are made in Canada and Mexico, which are now in trucks stuck in massive traffic jams at the border. The border is in no way set up for any change in the tariff regime.
Think of it as a mini Covid shock to the supply chain. The parts will eventually show up but will be more expensive.
This is not what traders wanted to hear. That great whooshing sound was the stock market giving up hard-fought gains for the day. Nervousness is running rampant.
With mass firing on the way throughout the government, it’s just a matter of time before the passport renewal process extends from weeks to years. I am telling friends and family to renew now before the process clogs up and shuts down. At the very least, fees are about to go up a lot, now at $130.
When I opened up my laptop on Sunday night and saw the NASDAQ ($COMPQ) down 900 points, I thought that a new war had broken out somewhere or another 9/11 event had taken place. That recovered to down only 400 by the New York opening. This is exactly the set up I had been waiting for since mid-December. I started piling in on longs in big tech stocks, turning my January performance from lackluster to robust in a matter of days.
And that’s the way it’s going to be in 2025. Maintain iron discipline and hold out for these rare sweet spots, then pile in. Never chase, that was last year’s game. We could be range trading for quite some time. Index players might be lucky to make anything by year-end, and might be better off parking their money in 90-Treasury bills, now yielding 4.2%.
By the end of the week, most of the losses were recovered, except for the big AI providers like (NVDA) and (AMD), which have had their own problems for the last seven months. The net is that it is potentially bad news for AI providers and great news for AI users, which is almost everybody.
I have heard from several clients that they spent the week trying to trip up the DeepSeek program and have come up with hilariously inaccurate answers. For example, DeepSeek didn’t know that my former USC classmate OJ Simpson died last year and thought he was a current NFL football player. And don’t ask who Winston was in 1984. Other examples about.
In the meantime, the big tech companies are all tinkering with DeepSeek, making changes and improvements. It is definitely a clever programming improvement, but it’s not going to destroy the world.
Whatever happened to Cold Fusion?
Remember that 1990’s meme that set stocks on fire? It was supposed to give us free electricity forever. Except that here I am 35 years later, and cold fusion is still 20-40 years into the future. It’s always 40 years in the future. The same thing happened with the 3D printing craze and the fax mania before that.
That’s what came to mind last December when I first heard that the Chinese app DeepSeek had delivered a revolutionary new AI program that was supposed to cut the need for high-end chips by 99%. I ignored it just like all of the other Chinese apps that come out on a daily basis.
Which leads me to the quandary of the day. Why the heck is Europe suddenly doing so well? The German stock market has outperformed the S&P 500 (SPY) by a large margin in recent months. Whenever I mention putting a dollar into any European country, my continental friends say I’m out of my mind and that they only want more American investment ideas. Is there something going on here?
My only thought is that the markets may be discounting an end to the Ukraine War this year. If so, some 10 million barrels a day of oil would be unleashed on the market, taking prices down to $30 a barrel. Ukraine would reclaim its position as the world’s largest agriculture exporter, collapsing prices for wheat and sunflower oil. And Europe will be able to pare back its recently increased defense spending.
You heard it here first.
By the way, the 9/11 reference brings to mind one of the most notorious short sales of all time. The day before the attack, a Swiss bank acting on behalf of an anonymous client bought several thousand short-dated put options on American Airlines (AA). After two American planes were deliberately crashed in a suicide attack, the trade made $200 million. The FBI set a trap to arrest those who came to collect. But they never showed. Eventually, the trades were unwound by the exchange. It’s all true.
We managed to attain a respectable +5.80% return in January. That is close to my average monthly return for all of 2024. The magic is still there.
That takes us to a year-to-date profit of +5.80% so far in 2025. My trailing one-year return stands at +85.34% as a bad trade a year ago fell off the one-year record. That takes my average annualized return to +49.96% and my performance since inception to +757.69%.
I used the Monday meltdown to start filing in positions in Nvidia (NVDA) and Vistra (VST). That is on top of my existing short strangle in Tesla (TSLA). The Mad Hedge Technology added a slew of long on Microsoft (MSFT), Adobe (ADBE), Dell (DELL), and (NVDA).
Some 63 of my 70 round trips, or 90%, were profitable in 2023. Some 74 of 94 trades have been profitable in 2024, and several of those losses were really break-even. That is a success rate of +78.72%.
Try beating that anywhere.
Technology Stocks Destroyed on News of China’s DeepSeek, an AI program that takes them a great leap forward. U.S. technology firms like Nvidia plunged, as Chinese startup DeepSeek sparked concerns over competitiveness in AI and America’s lead in the sector, triggering a global sell-off. DeepSeek launched a free, open-source large language model in late December, claiming it was developed in just two months at a cost of under $6 million. These developments have bolstered questions about the large amounts of money big tech companies have been investing in artificial intelligence models and data centers.
US Home Sales Hit 30-Year Low in 2024, the second year in a row of weak sales. High costs related to homeownership sapped sales again. The average rate for a 30-year fixed mortgage has hovered between 6% and 8% since late 2022. Avoid interest rate plays.
Nvidia Drops $600 Billion in Market Capitalization, the largest in stock market history. CEO Jensen Huang’s net worth dropped below $100 billion, while CEOs of the Mangiest Seven plunged by $67 Billion. I told you it was coming. Buy when the washout finishes. The bubble didn’t burst.
The Cruise Business is Rocketing, with Royal Caribbean (RCL) just running up its best five-week sales period in history. There is a two-year wait to order the enormous new ships, the biggest, 264,000-tonne Icon of the Seas, carries a mind-blowing 7,400 passengers. Buy (RCL) and (CCL)on dips.
US Consumer Confidence Dives amid renewed concerns about the labor market and inflation. The Conference Board said on Tuesday its consumer confidence index fell to 104.1 this month from an upwardly revised 109.5 in December. Economists polled by Reuters had forecast the index rising to 105.6 from the previously reported 104.7.
Fed Leaves Interest Rates Unchanged at 4.25%, tanking stocks. All interest rate plays will remain dead in the water. Will the pause be for six months or a year, or will the next Fed be a rate rise? Jay Powell is waiting for the impact of new government policies like all the rest of us. Buy financials on dips. The Fed's balance sheet continues to shrink and is down to $6.8 trillion, withdrawing liquidity from the system. All references to “progress” on inflation were dropped.
Coffee Prices Hit a New All-Time High at $3.60/pound for Arabica. Brazil, by far the world's largest producer, has few beans left to sell, and worries over its upcoming harvest persist. Dealers said 70%-80% of Brazil's current arabica harvest has been sold and new trades are slow. Brazil produces nearly half the world's arabica beans, a high-end variety typically used in roast and ground blends. This is yet another climate change play.
Waymo Self-Driving Taxis Expanding to Ten New Cities. After testing the Waymo Driver in multiple cities, the company says the technology is adapting successfully to new environments, leading to the expansion. In addition to ongoing trips to Truckee, Michigan's Upper Peninsula, Upstate New York, and Tokyo, the expansion includes testing in San Diego and Las Vegas, with more cities yet to be announced.
Tesla Bombs in 2024, with earnings at $25.5 billion last year versus $27.2 billion, or down 5.5%. Even a presidential friendship can’t boost earnings. Despite missing on every metric, the shares were only down $3 today. Tesla is more about belief in the future and today’s facts. But full self-driving will launch in the US in June after being stalled by the previous administration. No guidance for sales in 2025. Energy storage was the big grower last year and will do well this year. Not the rose bed I was promised. My short position is looking good, but I’m maintaining my long-term target of $1,000.
US GDP Finishes 2024 at 2.3%, less than expected but still the strongest in the world. Household spending grew at a 4.2% pace, most since early 2023. Equipment spending fell at a 7.8% rate on the Boeing strike impact. What happens next is anyone’s guess.
Microsoft Blows Up on Cloud Guidance, on huge earnings disappointment, taking the stock down 6%. The company beat estimates on the top and bottom lines but fell short on estimates for its Intelligent Cloud business. Microsoft’s Commercial Cloud segment revenue, which includes cloud services sales, saw revenue of $40 billion, a 21% year-over-year increase but shy of Wall Street expectations of $41.1 billion. Microsoft's intelligent cloud business, which includes its Azure platform, saw revenue of $25.5 billion. Wall Street was expecting $25.8 billion. I’m buying the dip.
Weekly Jobless Claims Fall 16,000 to a seasonally adjusted 207,000 for the week ended Jan. 25, the Labor Department said on Thursday. Economists polled by Reuters had forecast 220,000 claims for the latest week.
Consumer Inflation Expectations Comes in Soft. The personal consumption expenditures price index increased 2.6% on a year-over-year basis in December, while core PCE was at 2.8%, both in line with expectations but well ahead of the Fed’s 2% target. Personal income climbed 0.4% as forecast, while spending rose 0.7%. Markets liked the number.
Apple is Catching a Bid on the assumption that diplomat Tim Cook can somehow avoid import duties from China. Even at a 100% tariff, it would probably add only $100 to the cost of an iPhone, which is made in China.
My Ten-Year View – A Reassessment
When have to substantially downsize our expectations of equity returns in view of the election outcome. My new American Golden Age, or the next Roaring Twenties is now looking at a headwind. The economy will completely stop decarbonizing. Technology innovation will slow. Trade wars will exact a high price. Inflation will return. The Dow Average will rise by 600% to 240,000 or more in the coming decade. The new America will be far more efficient and profitable than the old.
My Dow 240,000 target has been pushed back to 2035.
On Monday, February 3 at 8:30 AM EST, the ISM Manufacturing Index PMI is out.
On Tuesday, February 4 at 8:30 AM, the JOLTS Job Openings is released.
On Wednesday, February 5 at 8:30 AM, the ISM Survives PMI is printed.
On Thursday, February 6 at 8:30 AM, the Weekly Jobless Claims are disclosed.
On Friday, February 7 at 8:30 AM, Nonfarm Payroll Report for January is announced. At 2:00 PM the Baker Hughes Rig Count is printed.
As for me, the University of Southern California has a student jobs board that is positively legendary. It is where the actor John Wayne picked up a gig working as a stagehand for John Ford which eventually made him a movie star.
As a beneficiary of a federal work/study program in 1970, I was entitled to pick any job I wanted for the princely sum of $1.00 an hour, then the minimum wage. I noticed that the Biology Department was looking for a lab assistant to identify and sort Arctic plankton.
I thought, “What the heck is Arctic plankton?” I decided to apply to find out.
I was hired by a Japanese woman professor whose name I long ago forgot. She had figured out that Russians were far ahead of the US in Arctic plankton research, thus creating a “plankton gap.” “Gaps” were a big deal during the Cold War, so that made her a layup to obtain a generous grant from the Defense Department to close the “plankton gap.”
It turns out that I was the only one who applied for the job, as postwar anti-Japanese sentiment then was still high on the West Coast. I was given my own lab bench and a microscope and told to get to work.
It turns out that there is a vast ecosystem of plankton under 20 feet of ice in the Arctic consisting of thousands of animal and plant varieties. The whole system is powered by sunlight that filters through the ice. The thinner the ice, such as at the edge of the Arctic ice sheet, the more plankton. In no time, I became adept at identifying copepods, euphasia, and calanus hyperboreaus, which all feed on diatoms.
We discovered that there was enough plankton in the Arctic to feed the entire human race if a food shortage ever arose, then a major concern. There was plenty of plant material and protein there. Just add a little flavoring and you have an endless food supply.
The high point of the job came when my professor traveled to the North Pole, the first woman ever to do so. She was a guest of the US Navy, which was overseeing the collection hole in the ice. We were thinking the hole might be a foot wide. When she got there, she discovered it was in fact 50 feet wide. I thought this might be to keep it from freezing over, but thought nothing of it.
My freshman year passed. The following year, the USC jobs board delivered up a far more interesting job, picking up dead bodies for the Los Angeles Counter Coroner, Thomas Noguchi, the “Coroner to the Stars.” This was not long after Charles Manson was locked up, and his bodies were everywhere. The pay was better too, and I got to know the LA freeway system like the back of my hand.
It wasn’t until years later, when I had obtained a high security clearance from the Defense Department that I learned of the true military interest in plankton by both the US and the Soviet Union.
It turns out that the hole was not really for collecting plankton. Plankton was just the cover. It was there so a US submarine could surface, fire nuclear missiles at the Soviet Union, and then submarine again under the protection of the ice.
So, not only have you been reading the work of a stock market wizard these many years, you have also been in touch with one of the world’s leading experts on Artic plankton.
Live and learn.
1981 on Peleliu Island in the South Pacific
Stay Healthy,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Global Market Comments
October 7, 2024
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or GOLDILOCKS ON STEROIDS, plus A KERFFUFLE IN PARIS),
(SPY), (FXI), ($COMPQ), (CCJ), (SLB), (OXY), (TSLA),
(TLT), (DHI), (NEM), (GLD), (TSLA)
Global Market Comments
August 26, 2024
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD or BEWARE THE NEXT BLACK SWAN) plus (REVISITING UKRAINE),
(SPY), ($INDU), ($COMPQ), (FXI), (COPX), (NVDA), (GM), (GOOG), (FCX), (UUP), (FXE), (FXB), (FXC), (FXA)
Mad Hedge Technology Letter
September 20, 2023
Fiat Lux
Featured Trade:
(THE BOND KING IS WRONG ABOUT TECH STOCKS)
($COMPQ), (UUP), (MSFT)
In the trader's guidebook of how to trade, it’s quite common to cement the nostrum "don’t fight the Fed" into one’s brain.
Many know this.
In 2022, this nostrum served traders quite well as interest rate increases left the tech market in the dust.
Major tech stocks ($COMPQ) from Meta (META) to small-cap Zoom Video Communications (ZM) fell flat on their face.
That was when "don’t fight the Fed" was the smart thing to do.
Fast forward to 2023 and the Fed is still marching towards more interest rate tightening, but astonishingly the opposite has happened, it has paid to fight the Fed this year.
Not only that, the tech-based Nasdaq has gone parabolic, delivering gains of already over 30% in just the first 7 months.
Anyone that hasn’t fought the Fed has been left bloody in the streets like a standard Parisian riot.
One piece of the puzzle that often gets overlooked is one major catalyst to this trade which is the Japanese yen carry trade.
This is how the trade has worked for many hedge funds this year.
Borrow in Japanese yen because the cost of borrowing is still puny compared to yields in Western countries.
Take that yen back over to the Western equity markets and pour them into stocks like Nvidia, Meta, Apple, Tesla, Microsoft, and Amazon.
The strategy has worked like clockwork and I know many traders that have made second and third fortunes off of the back of this trade so far this year.
Traders have boosted short positions on the yen as the currency moved steadily lower this year amid widening divergence between the Bank of Japan’s easy policy and aggressive hiking cycles for other central banks, notably in the US and Europe.
Talking about the Yen is timely as reports of lower US job numbers and increased Japanese wage gains triggered a one-day selloff in the dollar.
We won’t see a complete unwind of the yen carry trade just yet but the carry trade had gotten a little too long in the tooth, so this is profit-taking to readjust positioning.
If volatility stays high then it will continue to unwind, but if volatility stabilizes then the Japanese yen carry trade parade will continue unabashed.
The yen is one of the worst-performing Group-of-10 this year, reaching 145 per dollar last month, a level unseen since November.
What’s next?
Nothing has fundamentally changed.
The US isn’t going into a recession this year and even if credit card delinquencies are up and household net worth is struggling in America, it’s not enough to move the needle to deter the Japanese yen carry trade.
The mild pullback against the US dollar is in fact a golden opportunity for traders to pour back into the short Japanese yen trade.
As long as the Japanese yen remains weak, tech stocks won’t crack because this liquidity is the lifeblood to many tech stocks.
We have been crowbarred into this goldilocks environment of higher equities, higher bond yields, and now US housing is starting to bounce back.
The Nasdaq has been ironclad this year and even if I don’t think it will deliver another 30% to finish the year, the pain trader is higher in tech stocks, marginally higher in bond yields, higher in US housing, and short Japanese yen.
Until we receive some type of concrete confirmation that this pain trade is over, I expect to grind up in the aforementioned asset classes.
Global Market Comments
December 8, 2021
Fiat Lux
Featured Trade:
(ON EXECUTING MY TRADE ALERTS),
(TEN REASONS WHY STOCKS CAN’T SELL OFF BIG TIME),
(SPY), (INDU), ($COMPQ), (IWM), (TLT), (GME)
Global Market Comments
February 9, 2021
Fiat Lux
Featured Trade:
(ON EXECUTING MY TRADE ALERTS),
(TEN REASONS WHY STOCKS CAN’T SELL OFF BIG TIME),
(SPY), (INDU), ($COMPQ), (IWM), (TLT), (GME)
Let me explain how China has created a sudden U.S. tech ($COMPQ) renaissance that will most likely change the face of business and society in the U.S. to a degree we cannot even fathom yet.
To decompress the catalysts and the mechanisms at play in this confusing time in history, it is important to understand how the Middle Kingdom has supercharged American tech being one of the main protagonists.
Part of it is healthcare's role in the events, and part of it is tech’s strategic position waiting for a broad-based pivot in how humans internalize and execute business.
The supercharger has been the algorithms.
To explain in the best way I can, I will reference the Founder and CEO of Tesla (TSLA) and Space X Elon Musk who had a wide-ranging and insightful interview with popular podcast personality Joe Rogan.
The much-viewed interview preceded Musk’s threats to leave Fremont, California for greener pastures and transfer operations to the Gigafactory near Reno, Nevada and Texas.
To check out an article about Musk’s dare this weekend to migrate Tesla’s operations to the “Battle Born State” of Nevada, please click here.
In the interview, he delves into the U.S. healthcare system’s conflicting incentive to label anything remotely close to Covid-19 as symptoms associated with Covid-19 (which there is a long list of) that doesn’t differentiate between deaths attributed to Covid-19.
This line of thought is to widen the Covid-19 healthcare footprint to the point where each hospital can request more government funding based on the high volume of Covid-19 activity and required help to fight it.
We all love extra funding, right?
Musk also disagreed on every procedure not related to Covid-19 labeled as “elective” because it equates a pulled hamstring to a triple bypass heart surgery which can truly be life-threatening.
The point that I would like to expand on is that the attempts at widening the net of Covid-19 cases in order to curry favor for more government aid are effectively widening the digital footprint of Covid-19 internet content that is feeding back into the algorithms that are responsible for the majority of stock trades.
What we have here are vicious feedback loops that can’t be broken out of because of the misallocated tagging of Covid-19 that filters into algorithmic trading.
That is why we open up the newspaper, social media platforms, and any content provider and we are swamped by Covid-19 content and everything “associated” with Covid-19 content meaning all content has become Covid-19 content!
The net has been cast wide with homelessness caused by Covid-19, tax revenue shortfalls associated to Covid-19, professional sports seasons cancelled by Covid-19, and even a story about the King of Thailand King Maha Vajiralongkorn holed up in Switzerland with his wife and a harem of 20 other women to “quarantine” because of, yes – Covid-19. To read this story, click here.
Basically, all content is Covid-19 content until it isn’t.
This indelible influence on global governance has been deep with every politician feeling the pressure of continuing the lockdown because of a massive dislocation between the real footprint of Covid-19 and the digital footprint of Covid-19.
Healthcare pros as well have been duped by the wrong data and supporting lockdown policies because of the risk of looking bad due to perceived optics not meshing well with the current digital content being published.
The truth is that the real data is probably 1.5 standard deviations from what is believed to be consensus – a far cry from the gross data politicians and healthcare experts are using to make important decisions with.
Naturally, protecting a tenure as a politician is human nature and the unintended consequences to guarding one’s political career are causing longer lockdown periods.
Nobody wants to put their neck out and appear out of line.
Musk argued the case that the virus’s fatality rate is in fact “5-10X” lower than it actually is because of the concept of too many deaths being falsely attributed to Covid-19 symptoms and the lack of tests meaning many people are living with it but have not been accounted for in the data.
The tech market has taken wind of the discrepancy and the fierce rally calling the data’s bluff working with another set of data.
Then add to the casserole that tech companies successfully missed the “big one.”
The “big one” is defined by a virus that actually kills healthy bodies between 20 and 30 years old with no pre-existing conditions at a high rate.
And in economic terms, the “big one” means not being a hospitality, retail, or transport business.
The strength of the tech V-shaped recovery stems from the notion that this pandemic is not nearly as bad as we think it is.
There is definitely a level of truth in this.
Another unavoidable unintended consequence is the hastening of decoupling between the Chinese and U.S. economy as the blame game accelerates.
As a result, corporate manufacturing will be shipped back to the U.S. and this isn’t your father’s manufacturing either.
We are talking about manufacturing in the vein of Tesla, that will sprout up across the U.S. as artificial intelligence is finally good enough to make manufacturing profitable stateside as more automation takes hold.
Many of these new industrial A.I. manufacturing headquarters, factories, and complexes will be set up in tax-friendly states like Nevada and Texas taking a cue from Tesla.
There have been many analysts in the China camp prophesizing that the Chinese Communist Party (CCP) will apply the virus as a vehicle to push their narrow agenda.
However, Liu Chenjie, chief economist at fund manager Upright Asset has estimated job losses in China resulting from the pandemic of up to 205 million workers.
Click here to read about the devastating job losses in China.
The CCP is more worried about cleaning up the mess at home.
I would argue that the post-virus tech economy is setting up for a quicker than expected recovery.
As fast as the virus hit, the algorithms pushing this pandemic into the arteries of all digital channels will disappear in days, almost as if Covid-19 never happened.
Covid-19 has been the direct catalyst to a myriad of firings at digital newspapers all over the U.S., for example, Vice Media cut 10% of company’s employees — resulting in the elimination of 250 jobs.
As one door shuts - another one opens.
As tech companies have withstood semi-apocalyptical conditions, imagine how well they will do on the other side when consumers finally get their incomes flowing again.
U.S. tech is a shining example of the future being limitless, and complicit or not – China, algorithms, and healthcare experts gave a great assist.
The sushi has hit the fan – supply chains are broken.
Let’s gaze East to the inner workings of the tech world and it is clear that the supply chain has been under pressure since the onset of the trade war but the coronavirus is now making operations untenable.
China was the first to lockdown, but now the rest of Asia has followed suit smothering the rest of the region which is economic suicide.
Feeling out the situation, I picked up the blower to get a better understanding of what was going on in the center of the tech manufacturing world and the outlook appears bleak.
The electronic manufacturing sector in South East Asia is hit hardest by the coronavirus as many of the test equipment and chip producers face an imminent drastic shortage of raw materials, an unprecedented situation that has disrupted production.
One manager whose company produces 5G radio frequency (RF) chips have bottlenecked due to the disruption in the supply chain.
They use raw materials from the United States but also import from China and although they have 85% of materials to make the RF chips, they still have to put operations on ice because the suppliers in China can’t ship the essential 15% of material needed to complete manufacturing.
This batch of shipments is supposed to be the largest quantity of 5G chips from South East Asia in the first quarter and has now been officially delayed until logistic problems can be solved.
The company can still fulfill its quota for 3G and 4G RF chips, but it’s really hit or miss at this point.
And for manufacturing the older chips, they have sufficient stock of raw materials lasting three to four months, and by then they hope to solve the logistic headwinds from China.
In general, if the virus coerces South East Asian societies to shutdown their economy for another 5 months, the entire Southeast Asian electronic manufacturing sector will be decimated as bills and debt payments come due.
In fact, a current shortage of components is forcing prices to surge 10%-20% for active and passive electronic components.
Another prominent manufacturer who produces about 30% of the RF chips for the worldwide market told me that this is the “biggest disaster to ever hit the local electronic manufacturing sector.”
He continued to say that his supply chain has been hit between “30%-40%.”
About 50% of their raw materials come from Japan, and the rest from the United States and China, and because of an ensuing lockdown in Japan, shipment delays will happen for customers in Singapore, China, and the United States.
To make matters worse, testing engineers cannot travel abroad to install test equipment for customers because of international border closures.
This manufacturer projected revenue annual growth of -5% after initially forecasting for +10% in January.
Another executive at a semiconductor test equipment company told me that he fully expects sales to dissipate by 15% in the first quarter compared to last year.
Customers around the world, not only in the U.S., are delaying orders because they aren’t sure whether there will be new equipment to test because of the delay in the production and shipment of electronic components manufactured in China.
The executive sees a turnaround in June if shipping lanes and borders open, which is still a big IF.
How does this affect the end electronic device market like your iPhone or Amazon Echo?
Smartphone manufacturers need to come out with new products by mid-2020 to sneak in that yearly iteration before that window shuts and that timeline will certainly be pushed back.
Building a smartphone is usually done on a razor-tight deadline, but this puts off anything until they can finally get their hands on the parts needed to build out the phone.
If you think the 3rd quarter would be the time that these new phones could hit the market, then think again. It is likely that the coronavirus domino effect will force smartphone makers to sell these devices next year instead of pushing back a whole refresh cycle of revenue.
Apple is coming to the same conclusion with their 5G phone as well.
The tech world is dangerously close to missing one full year of refresh products and the scarring effects could last much longer.
Then there is the issue of demand and the lack of it moving forward for these products.
We must ask ourselves how scarred are tech consumers?
How scarred are tech companies?
What regulations should shape how businesses should be working as we enter into a new tech world and U.S. economy?
The first order of the day after the coronavirus passes is businesses and consumers will need to restock cash reserves for a rainy day.
The first reaction we will see are small tech companies decline quite dramatically in the second quarter because of the nature of high yields not being able to receive financing because of their low credit grades which could result in an initial barrage of defaults.
It will be just a small blip for the behemoth as they can take the financing if they truly need it and many don’t.
Tech balance sheets also need healing after this bout of craziness.
Not getting caught off guard will now be the new normal.
Even if tech dips into the $2 trillion relief package – it has a long-term cost associated with it that tech businesses must absorb.
How that impacts economic growth is tough to decipher now but it most likely will punish tech growth companies whose mantra is growth at any cost.
There will be a massive rebalancing and redefinition of what outperformance means because the government inherently will be playing an outsized role in our lives for years to come and what that means to lower tech profits and worsening stock multiples will play out in the tech markets.
