Global Market Comments
January 29, 2019
Fiat Lux
Featured Trade:
(RISK CONTROL FOR DUMMIES),
(SPY), (AMZN), (TLT), (CRM), (VXX)
Posts
There is a method to my madness, although I understand that some new subscribers may need some convincing.
Whenever I change my positions, the market makes a major move or reaches a key crossroads, I look to stress test my portfolio by inflicting various extreme scenarios upon it and analyzing the outcome.
This is second nature for most hedge fund managers. In fact, the larger ones will use top of the line mainframes powered by $100 million worth of in-house custom programming to produce a real-time snapshot of their thousands of positions in all imaginable scenarios at all times.
If you want to invest with these guys feel free to do so. They require a $10-$25 million initial slug of capital, a one year lock up, charge a fixed management fee of 2% and a performance bonus of 20% or more.
You have to show minimum liquid assets of $2 million and sign 50 pages of disclosure documents. If you have ever sued a previous manager, forget it. The door slams shut. And, oh yes, the best performing funds are closed and have a ten-year waiting list to get in. Unless you are a major pension fund, they don’t want to hear from you.
Individual investors are not so sophisticated, and it clearly shows in their performance, which usually mirrors the indexes less a large haircut. So, I am going to let you in on my own, vastly simplified, dumbed down, seat of the pants, down and dirty style of risk management, scenario analysis, and stress testing that replicates 95% of the results of my vastly more expensive competitors.
There is no management fee, performance bonus, disclosure document, lock up, or upfront cash requirement. There’s just my token $3,000 a year subscription fee and that’s it. And I’m not choosy. I’ll take anyone whose credit card doesn’t get declined.
To make this even easier, you can perform your own analysis in the excel spreadsheet I post every day in the paid-up members section of Global Trading Dispatch. You can just download it and play around with it whenever you want, constructing your own best case and worst-case scenarios. To make this easy, I have posted this spreadsheet on my website for you to download by clicking here.
Since this is a “for dummies” explanation, I’ll keep this as simple as possible. No offense, we all started out as dummies, even me.
I’ll take Mad Hedge Model Trading Portfolio at the close of October 29, the date that the stock market bottomed and when I ramped up to a very aggressive 75% long with no hedges. This was the day when the Dow Average saw a 1,000 point intraday range, margin clerks were running rampant, and brokers were jumping out of windows.
I projected my portfolio returns in three possible scenarios: (1) The market collapses an additional 5% by the November 16 option expiration, some 15 trading days away, falling from $260 to $247, (2) the S&P 500 (SPY) rises 5% from $260 to $273 by November 16, and (3) the S&P 500 trades in a narrow range and remains around the then current level of $260.
Scenario 1 – The S&P 500 Falls 5%
A 5% loss and an average of a 5% decline in all stocks would take the (SPY) down to $247, well below the February $250 low, and off an astonishing 15.70% in one month. Such a cataclysmic move would have taken our year to date down to +11.03%. The (SPY) $150-$160 and (AMZN) $1,550-$1,600 call spreads would be total losses but are partly offset by maximum gains on all remaining positions, including the S&P 500 (SPY), Salesforce (CRM), and the United States US Treasury Bond Fund (TLT). My Puts on the iPath S&P 500 VIX Short Term Futures ETN (VXX) would become worthless.
However, with real interest rates at zero (3.1% ten-year US Treasury yield minis 3.1% inflation rate), the geopolitical front quiet, and my Mad Hedge Market Timing Index at a 30 year low of only 4, I thought there was less than a 1% chance of this happening.
Scenario 2 – S&P 500 rises 5%
The impact of a 5% rise in the market is easy to calculate. All positions expire at their maximum profit point, taking our model trading portfolio up 37.03% for 2018. It would be a monster home run. I would make back a little bit on the (VXX) but not much because of time decay.
Scenario 3 – S&P 500 Remains Unchanged
Again, we do OK, given the circumstances. The year-to-date stands at a still respectable 22.03%. Only the (AMZN) $1,550-$1,600 call spread is a total loss. The (VXX) puts would become nearly a total loss.
As it turned out, Scenario 2 played out and was the way to go. I stopped out of the losing (AMZN) $1,550-$1,600 call spread two days later for only a 1.73% loss, instead of -12.23% in the worst-case scenario. It was a case of $12.23 worth of risk control that only cost me $1.73. I’ll do that all day long, even though it cost me money. When running hedge funds, you are judged on how you manage your losses, not your gains, which are easy.
I took profit on the rest of my positions when they reached 88%-95% of their maximum potential profits and thus cut my risk to zero during these uncertain times. October finished with a gain of +1.24. By the time I liquidated my last position and went 95% cash, I was up 32.95% so far in 2018, against a Dow average that is up 2% on the year. It was a performance for the ages.
Keep in mind that these are only estimates, not guarantees, nor are they set in stone. Future levels of securities, like index ETFs, are easy to estimate. For other positions, it is more of an educated guess. This analysis is only as good as its assumptions. As we used to say in the computer world, garbage in equals garbage out.
Professionals who may want to take this out a few iterations can make further assumptions about market volatility, options implied volatility or the future course of interest rates. And let’s face it, politics was a major influence this year.
Keep the number of positions small to keep your workload under control. Imagine being Goldman Sachs and doing this for several thousand positions a day across all asset classes.
Once you get the hang of this, you can start projecting the effect on your portfolio of all kinds of outlying events. What if a major world leader is assassinated? Piece of cake. How about another 9/11? No problem. Oil at $150 a barrel? That’s a gimme.
What if there is an Israeli attack on Iranian nuclear facilities? That might take you all of two minutes to figure out. The Federal Reserve launches a surprise QE5 out of the blue? I think you already know the answer.
Now that you know how to make money in the options market, thanks to my Trade Alert service, I am going to teach you how to hang on to it.
There is no point in being clever and executing profitable trades only to lose your profits through some simple, careless mistakes.
So I have posted a training video on Risk Management. Note: you have to be logged in to the www.madhedgefundtrader.com website to view it.
The first goal of risk control is to preserve whatever capital you have. I tell people that I am too old to lose all my money and start over again as a junior trader at Morgan Stanley. Therefore, I am pretty careful when it comes to risk control.
The other goal of risk control is the art of managing your portfolio to make sure it is profitable no matter what happens in the marketplace. Ideally, you want to be a winner whether the market moves up, down, or sideways. I do this on a regular basis.
Remember, we are not trying to beat an index here. Our goal is to make absolute returns, or real dollars, at all times, no matter what the market does. You can’t eat relative performance, nor can you use it to pay your bills.
So the second goal of every portfolio manager is to make it bomb proof. You never know when a flock of black swans is going to come out of nowhere, or another geopolitical shock occurs, causing the market crash.
I’ll also show you how to use my Trade Alert service to squeeze every dollar out of your trading.
So, let’s get on with it!
To watch the Introduction to Risk Management, please click here.
Mad Hedge Market Timing Index
Mad Hedge Technology Letter
January 23, 2019
Fiat Lux
Featured Trade:
(WHY TECH IS FLEEING SILICON VALLEY),
(AAPL), (CRM), (MSFT), (FB), (AMZN), (GOOGL)
When did Marc Benioff become a real estate agent?
That is the main takeaway from the interview he gave to the world from the annual powerful people conference in Davos, Switzerland.
During the interview, he cut straight to the chase and described the cocktail of negative unintended consequences that the tsunami of tech profits has spawned.
His thesis, though not new, parlayed admirably with Bridgewater Associates Founder Ray Dalio interview in chronicling an economic landscape in which geopolitical turmoil finally catches up meaningfully with the movement of tech shares because of the underlying threat to influence concrete economic policy moving forward.
Why is he a real estate seller?
Well, he might as well be one in second-tier cities with copious amounts of tech talent such as Austin, Nashville, Sacramento, Atlanta, and Portland because these metro areas are about to experience a wild ride in the property market rollercoaster.
Benioff just added fuel to this fire.
The robust housing demand, lack of housing supply, mixed with the avalanche of inquisitive tech money will propel these housing markets to new heights and this phenomenon is happening as we speak.
Benioff lamented that San Francisco, where ironically he is from, is a diabolical “train wreck” and urged fellow tech CEOs to “walk down the street” and see it with their own eyes to observe the numerous homeless encampments dotted around the city limits.
The leader of Salesforce doesn’t mince his words when he talks and beelines to the heart of the issues.
After relinquishing some of his CEO duties to newly anointed Co-CEO Keith Block, Benioff will have the operational time and a wealth of resources to get on top of the pulse of not only tech issues but bigger picture stuff and he now has a mouthpiece for it with Time magazine which he and his wife recently bought.
In condemning large swaths of the beneficiaries of the Silicon Valley ethos, he has signaled that it won’t be smooth sailing for the rest of the year in tech wonderland, and he urged companies to transform their business model if they are irresponsible with user data.
The tech lash could get messier this year because companies that go rogue with personal data will face a cringeworthy reckoning as the tech lash fury seeps into government policy and the social stigma worsens.
I have walked around the streets of San Francisco myself. Places around Powell Bart station close to the Tenderloin district are eyesores. South of Market Street isn’t a place I would want to barbecue on a terrace either.
Summing it up, the unlimited tech talent reservoir that Silicon Valley gorged on isn’t flowing anymore because people don’t want to live there now.
This tech talent, equipped with heart-tugging stories from siblings and anecdotes from classmates getting shafted by the San Francisco dream, has recently put the Bay Area in the rear-view mirror for many who would have stayed if it were 20 years ago.
This is exactly what Apple’s $1 billion investment into a new tech campus in Austin, Texas and Amazon adding 500 employees in Nashville, Tennessee are all about. Apple also added numbers in San Diego, Atlanta, Culver City, and Boulder just to name a few.
Apple currently employs 90,000 people in 50 states and is in the works to create 20,000 more jobs in the US by 2023.
Most of these new jobs won’t be in Silicon Valley.
Since the tech talent isn’t giddy-upping into Silicon Valley anymore, tech firms must get off their saddle and go find them.
The tables have turned but that is what happens when the heart of western tech becomes unlivable to the average tech worker earning $150,000 per year.
I also mind you that these external forces have nothing to do with pure technology, pure technology improves with each iteration and gaps up with each revolutionary idea.
That will not change.
Driving out young people who envision a long-term future elsewhere than the San Francisco Bay Area forces Silicon Valley to adapt to the new patterns revealing themselves.
Sacramento has experienced a dizzying rise of newcomers from the Bay Area itself.
Some are even commuting, making that 60-mile jaunt past Davis, but that will give way to entire tech operations moving to the state capitol.
Millennials are reaching that age of family formation and they are fleeing to places that are affordable and possible to become a new home buyer.
These are some of the practical issues that tech has failed to embrace and to maintain the furious pace of growth that investors' capricious expectations harbor.
Silicon Valley will have to become more practical adding a dash of empathy as well instead of just going by the raw and heartless data.
We aren’t robots yet, and much of the world still augurs to emotional decisions and disregards the empirical data.
My favorite tech companies are not only saying the right things but are doing the right things as well.
Microsoft (MSFT) just laid down a marker promising $500 million to build more affordable housing in Seattle.
Sustainability does not only mean building a sustainable business model on the balance sheet, but this definition is growing to be inclusive of upholding the stability and long-term prospects of a local area.
Microsoft has put the trust in its products at the fore of their business model.
Each time CEO of Microsoft Satya Nadella interviews, he preaches about the universal trust that consumers possess in Microsoft.
He is not off on his claims and Microsoft is riding this mantra all the way to the bank while sidestepping regulatory scrutiny.
Nadella is always smartly one step ahead.
All this screams going long Microsoft by buying the dips.
Sell the rallies in the names that have a crisis of trust such as Facebook (FB) and Google (GOOGL).
I was recently gouged $250 on my monthly phone bill by Google because of a technicality from cell phone service Google Fi.
All a specialist said was that according to the data, I should be charged almost as if I should be shamed for even questioning their business model.
Not only that, the best and brightest from Stanford, University of California at Berkeley, and Ivy league schools do not want to work for Facebook and Google anymore.
These brands have been tainted.
The result will be needing to overpay to secure the able forces needed to pursue growth and success.
Not only that, upper management has left in droves “pursuing new opportunities.”
Google is also grappling with an Apple problem - no new innovative products and it’s yet to be seen if Waymo, the autonomous driving business, can be that solid growth driver going forward.
As the economy creeps closer and closer to the end of the cycle, investors won’t be willing to drain money down some loss-making outfit in the name of growth.
Therefore, software companies based on innovation fused with stable profits will be the go-to formula in tech investing in 2019 and Amazon (AMZN), Salesforce (CRM), and Microsoft (MSFT) are ahead of the curve.
Don’t get me wrong - Silicon Valley is still alive and kicking.
But, instead of physical offices being planted in the Bay Area, the tech industry will give way to the “spirit” of Silicon Valley with offices in far-flung places.
And remember that all of these new tech talent strongholds will need housing, and housing that an IT worker making $150,000 per year desires.
Global Market Comments
January 22, 2019
Fiat Lux
Featured Trade:
(THE MARKET FOR THE WEEK AHEAD, or WHY I LOVE THE STOCK MARKET),
(SPY), (TLT), (MSFT), (CRM), (AMZN), (FXE)
(HOW TO EXECUTE A VERTICAL BULL CALL SPREAD),
(AAPL)
I love working in the stock market.
Not only can it be entertaining, it can be downright hilarious. All of the talking heads on TV who were ultra bearish on the December 24 Christmas Eve Massacre are now hyper bullish, stumbling over each other trying to buy back the shares they sold 20%-30% lower.
January is turning into a mirror image of December. Last month you never got the rally to sell into. This month you can’t get a decent dip to buy into. The worst December in history was followed by the best January in 30 years with the mere turning of a page of the calendar.
I suspected as much was coming. That’s why I lurched from 10% to 60% invested during the first few days of 2019. All that’s left now is to take profits.
We got a particularly nice 336-point gap up in the Dow Average ($INDU) on Friday with rumors of progress on the China trade talks. However, those who bought on such speculations over the past nine months have all been badly burned.
A few weeks ago, the biggest threat to the market was failure of the China trade talks and a new government shutdown. Now, with prices 3,250 points, or 15% higher, the biggest threat to the market is SUCCESS of the China trade talks and the END of the government shutdown. They could trigger a huge “buy the rumor, sell the news” market move.
And what if stocks rise virtually every day this month as they did during January a year ago? It could get followed by the February we saw last year which served up a horrific selloff.
Like a hot water heater with a corroded safety valve, pressure is building up in the stock market and it is just a matter of time before it explodes. The Volatility Index (VIX) has just halved from $36 to $17. The only question is whether the next big move will be to the upside or the downside.
Don’t get too bullish now. A ton of bad economic news will hit the market in February. China slowdown, European crash, Brexit, what’s not to hate?
Don’t forget that the deadline for the completion of the trade talks is March 1.
Special persecutor Robert Mueller could also drop his report on the market at any time. Just when you think that things can’t get any worse, they do so, in spades.
If nothing gets done, you can expect another Christmas Eve Massacre, except this time it will come nine months early. It could set up the double bottom for the entire correction.
On the other hand, if everything gets resolved all at once, you can count on share prices taking off to the upside and challenge the old highs. And it might all happen on the same day.
We started out the week discovering that Newmont Mining bought Goldcorp for $10 billion to create the world’s largest gold miner. That’s important because another classic sign of a long-term bottom for the barbarous relic is when the miners start taking over each other. I’ve seen it all before.
This was the week when economic data ceased to exist unless it comes from private sources. Entering the fifth week of the government shutdown, we are all now flying blind.
US Core Inflation rose only 2.2% YOY, after a miniscule 0.2% gain in December. Don’t count on that pay rise anytime soon. All your company’s money is going to share buybacks instead.
Apple’s Asian suppliers reported terrible numbers. iPhone prices in China were cut. Apple is also cutting back on hiring. Fewer iPhone sales mean fewer people are needed to make them. I think I’ll keep my Apple short position.
PG&E went Bankrupt in order to keep the lights on in the face of $30 billion in potential wildfire liabilities. It’s the second time in 20 years. Thank goodness for my solar panels. Power prices are about to spike up big time and I’m a net supplier to the grid.
Netflix raised prices and the stock soared. Their monthly take is jumping by 13%-18%. (NFLX) shares are now up by 50% since Christmas Eve. The Walking Dead and House of Cards just got more expensive.
Brexit went down in flames with a crushing 432 to 202 loss in the UK parliament, the worst in 100 years. The opposition tabled a vote of no confidence which failed by only ten votes, barely heading off a general election. Next to come is a new referendum on Brexit itself which will go down in flames. Buy the British pound (FXB).
What does the end of Brexit mean for the Global economy? It strengthens Europe, prevents Italy, Greece, Portugal, and France from leaving the European Community, preserves NATO, and stops the Russian hordes from overrunning Western Europe. Croissants will be cheaper in London too. That’s all.
The December Fed Beige Book came in moderate. “Trade war” was mentioned 20 times but “government shutdown" comes out only once. Inflation is low but companies can’t pass price increases on to consumers. Labor shortages are showing up everywhere, but with few wage increases. The auto industry is flatlining.
My January and 2019 year to date return exploded to +5.29%, boosting my trailing one-year return back up to +31.68%.
My nine-year return climbed up to +306.19%, just short of a new all-time high. The average annualized return revived to +34.00%.
I took profits on one of my big tech longs in Salesforce (CRM) which maxed out the gains in my options position. I love this stock and will be back in there again on the next dip.
I am keeping my option positions in Microsoft (MSFT) and Amazon (AMZN) to take advantage of the time decay over the four day weekend. I cashed in half of my short position in the bond market (TLT), taking advantage of the recent 4 ½ point decline there.
My long position in the Euro (FXE) survived the failure of Brexit and a no-confidence vote in Britain. It continues to bounce along the bottom.
I also kept my short positions in Apple (AAPL) and the S&P 500 (SPY). Happy days are definitely NOT here again, with a government shut down and a continuing trade war with China. I am now nearly neutral, with “RISK ON” positions “RISK OFF” ones.
We have recently seen a surge of new subscribers and for you I urge patience. In this kind of market the money is made on the “BUY”, so timing is everything. The goal is to make as much money you can, not to see how fast or how often you trade.
The upcoming week is very iffy on the data front because of the government shutdown. Some government data may be delayed and other completely missing. Private sources will continue reporting on schedule. All of the data will be completely skewed for at least the next three months. You can count on the shutdown to dominate all media until it is over.
Housing data will be the big events over the coming four days.
On Monday, January 21, markets are closed for Martin Luther King Day.
On Tuesday, January 22, 10:00 AM EST, the December Existing Home Sales are out. IBM (IBM) and Johnson & Johnson (JNJ) announce earnings.
On Wednesday, January 23 at 10:30 AM EST the Energy Information Administration announces oil inventory figures with its Petroleum Status Report. Lam Research (LRCX) and Procter & Gamble (PG) report.
Thursday, January 24 at 8:30 AM EST, we get Weekly Jobless Claims. At 10:00 AM, we learn December Leading Economic Indicators. Intel (INTC) and American Airlines (AA) report.
On Friday, January 25, at 10:00 AM EST, the latest read of December New Home Sales is released. The Baker-Hughes Rig Count follows at 1:00 PM. Schlumberger (SLB) announces earnings. Home Sales is released. AbbVie Inc (ABBV) and DR Horton (DHI) report.
As for me, I will be battling my way home from Lake Tahoe which received seven feet of snow last week. It was a real “snowmageddon.”
Good luck and good trading.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Global Market Comments
January 14, 2019
Fiat Lux
Featured Trade:
(THE MARKET FOR THE WEEK AHEAD, or IS THE BULL MARKET BACK?),
(SPY), (TLT), (MSFT), (AMZN), (CRM), (AAPL), (FXE),
(TESTIMONIAL)
During the Christmas Eve Massacre, a close friend sent me a research report he had just received entitled “30 Reasons Equities Will Fall in 2019.” It was laughable in its extreme negativity.
I thought this is it. This is the bottom. ALL of the bad news was there in the market. Stocks could only go up from here.
If I’d had WIFI at 12,000 feet on the ski slopes and if I’d thought you would be there to read them, I would have started shooting out Trade Alerts to followers right then and there. As it turned out, I had to wait a couple of days.
Two weeks later, and here I am basking in the glow of the hottest start to a new year in a decade, up 6.45%. So far in 2019, I am running a success rate of 100% ON MY TRADE ALERTS!
Don’t expect that to continue, but it is nice while it lasts.
I can clearly see how the year is going to play out from here. First of all, my Five Surprises of 2019 will play out during the first half of the year. In case you missed them, here they are.
*The government shutdown ends quickly
*The Chinese trade war ends
*The House makes no moves to impeach the president, focusing on domestic issues instead
*Britain votes to rejoin Europe
*The Mueller investigation concludes that Trump has an unpaid parking ticket in Queens from 1974 and that’s it.
*All of the above are HUGELY risk-positive and will trigger a MONSTER STOCK RALLY.
After that, the Fed will regain its confidence, raise interest rates two more times, and trigger a crash even worse than the one we just saw. We end up down on the year.
My long-held forecast that the bear market will start on May 10, 2019 at 4:00 PM EST is looking better than ever. However, I might be off by an hour. Those last hour algo-driven selloffs can be pretty vicious.
I make all of these predictions firmly with the knowledge that the biggest factors affecting stock prices and the economy are totally unpredictable, random, and could change at any time.
It was certainly an eventful week.
Fed governor Jay Powell essentially flipped from hawk to dove in a heartbeat, prompting a frenetic rally that spilled over into last week.
On the same day, China cut bank reserve requirements, instantly injecting $200 billion worth of stimulus into the economy. That’s the equivalent of spending $400 billion in the US. The last time they did this we saw a huge rally in stocks. It turns out that the Middle Kingdom has a far healthier balance sheet than the US.
Saudi Arabia chopped oil production by 500,000 barrels a day, sending prices soaring. It's not too late to get into what could be a 40% bottom to top rally to $62 (USO).
Macy's (M) disappointed, crushing all of retail with it, and taking down an overbought main market as well. It highlights an accelerating shift from brick and mortar to online, from analog to digital, and from old to new. Online sales in December grew 20% YOY. Will Amazon sponsor those wonderful Thanksgiving Day parades?
Home mortgage rates hit a nine-month low with the conventional 30-year fixed rate loan now wholesaling at an eye-popping 4.4%. Will it be enough to reignite the real estate market? It is actually a pretty decent time to start picking up investment properties with a long view.
My 2019 year to date return recovered to +6.45%, boosting my trailing one-year return back up to 31.68%. 2018 closed out at a respectable +23.67%.
My nine-year return nudged up to +307.35, just short of a new all-time high. The average annualized return revived to +33.90.
I analyzed my Q4 performance on the chart below. While the (SPY) cratered -19.5% in three short months, my Trade Alert Service hung in with only a -4.9% loss. The quarter was all about defense, defense, defense. It was the hardest quarter I ever worked.
While everything failed last year, everything has proven a success this year. I came back from vacation a week early to pile everyone into big tech longs in Salesforce (CRM), Microsoft (MSFT), and Amazon (AMZN). I doubled up my short position in the bond market.
I even added a long position in the Euro (FXE) for the first time in years. If Britain votes to stay in Europe, it is going to go ballistic.
I also top ticketed a near-record rally by laying out a few short positions in Apple (AAPL) and the S&P 500 (SPY). I am now neutral, with “RISK ON” positions “RISK OFF” ones.
The upcoming week is very iffy on the data front because of the government shutdown. Some data may be delayed and other completely missing. All of the data will be completely skewed for at least the next three months. You can count on the shutdown to dominate all media until it is over.
On Monday, January 14 Citigroup (C) announces earnings.
On Tuesday, January 15, 8:30 AM EST, the December Producer Price Index is out. Delta Airlines (DAL), JP Morgan Chase (JPM), and Wells Fargo (WFC) announce earnings.
On Wednesday, January 16 at 8:30 AM EST, we learn December Retail Sales. Alcoa (AA) and Goldman Sachs (GS) announce earnings.
At 10:30 AM EST the Energy Information Administration announces oil inventory figures with its Petroleum Status Report.
Thursday, January 17 at 8:30 AM EST, we get the usual Weekly Jobless Claims. At the same time, December Housing Starts are published. Netflix (NFLX) announces earnings.
On Friday, January 18, at 9:15 AM EST, December Industrial Production is out. The Baker-Hughes Rig Count follows at 1:00 PM. Schlumberger (SLB) announces earnings.
As for me, my girls have joined the Boy Scouts which has been renamed “Scouts.” Their goal is to become the first female Eagle Scouts.
So, I will retrieve my worn and dog-eared 1962 Boy Scout Manual and refresh myself with the ins and outs of square knots, taut line hitches, sheepshanks, and bowlines. Some pages are missing as they were used to start fires 55 years ago. I am already signed up to lead a 50-mile hike at Philmont in New Mexico next summer.
As for the Girl Scouts, they are suing the Boy Scouts to get the girls back, claiming that the BSA is infringing on its trademark, engaging in unfair competition, and causing “an extraordinary level of confusion among the public.”
Is there a merit badge for “Frivolous Lawsuits”?
Good luck and good trading.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Mad Hedge Technology Letter
January 9, 2019
Fiat Lux
Featured Trade:
(TOP 8 TECH TRENDS OF 2018),
(GOOGL), (FB), (WMT), (SQ), (AMZN), (ROKU), (KR), (FDX), (UPS), (CRM), (TWLO), (ADBE), (PYPL)
As 2019 christens us with new technological trends, building our portfolio and lives around these themes will give us a leg up in battling the algorithms that have upped the ante in our drive to get ahead.
Now it’s time to chronicle some of these trends that will permeate through the tech universe.
Some are obvious, and some might as well be hidden treasures.
- Smart Areas Will Conspicuously Advance
American consumers will start to notice that locations they frequent and the proximities around them will integrate more smart-tech.
The hoards of data that big tech possesses and the profiles they subsequently create on the American consumer will advance allowing the possibilities of more precise and useful products.
These products won’t just accumulate in a person’s home but in public areas, and business will jump at the chance to improve services if it means more revenue.
Amazon and Google have piled money into the smart home through the voice assistant initiatives and adoption has been breathtaking.
The next generation will provide even more variety to integrate into daily lives.
- Location-based Dispersion Will Ramp Up
The gains in technology have given the consumer broader control over their lives.
The ability to practically manage one’s life from a remote location has remarkably improved leaps and bounds.
The deflation of mobile phone data costs, the advancement of high-speed broadband internet services in developing countries, more cloud-based software accessible from any internet entry point, and the development of affordable professional grade hardware have made life easy for the small business owners.
What a difference a few years make!
This has truly given a headache for traditional companies who have failed to evolve with the times such as television staples who rely on analog advertising revenue.
Millennials are more interested in flicking on their favorite YouTuber channel who broadcast from anywhere and aren’t locally based.
Another example is the quality of cameras and audio equipment that have risen to the point that anybody can become the next Justin Bieber.
Music executives are even using Spotify to target new talent to invest in.
- Overhyped Bitcoin Will Finally Take A Siesta From The Mainstream
Blockchain technology has the makings of transforming the world we live in.
And the currency based on the blockchain technology had a field day in the press and backyard summer barbecues all over the country.
Well, 2019 will finally put this topic on the backburner even though Bitcoin won’t disappear into irrelevancy, the pendulum will swing the other direction and this digital currency will become underhyped.
The rise to $20,000 and the catastrophic selloff down to $4,000 was a bubble popping in front of us.
It made a lot of people rich like the Winklevoss brothers Cameron and Tyler who took the $65 million from Facebook CEO Mark Zuckerberg and spun it into bitcoin before the euphoria mesmerized the American public.
On the way down from $20,000, retail investors were tearing their hair out but that is the type of volatility investors must subscribe to with assets that are far out on the risk curve.
The volatility that FinTech leader Square (SQ) and OTT Box streamer Roku (ROKU) have are nothing compared to the extreme volatility that digital currency investors must endure.
- E-Sports Will Become Even More Popular
Video games classified as a spectator sport will expand up to 40% in 2019.
This phenomenon has already captivated the Asian continent and is coming stateside.
This is a bit out of my realm as standard spectator sports don’t appeal to me much at all, and watching others play video games for fun is something I am even further removed from.
But that’s what the youth like and how they grew up, and this trend shows no signs of stopping.
Industry experts believe that the U.S. is at an inflection point and adoption will accelerate.
Remember that kids don’t play physical sports anymore because of the risk to head trauma, blown ligaments, and the sheer distances involved traveling to and from venues turn participants away.
Franchise rights, advertising, and streaming contracts will energize revenue as a ballooning audience gravitates towards popular leagues, tapping into the fanbase for successful video game series such as Overwatch.
The rise of eSports can be attributed to not only kids not playing physical sports but also younger people watching less television and spending more time online.
Soon, there will be no difference in terms of pay and stature of pro athletes and video gaming athletes.
The amount of money being thrown at the world’s best gamers makes your spine tingle.
- Data Regulation Will Tighten
The era of digital data regulation is upon us and whacked a few companies like Google and Facebook in 2018.
Well, this is just the beginning.
The vacuum that once allowed tech companies to run riot is no more, and the government has big tech in their cross-hairs.
The A word will start to reverberate in social circles around the tech ecosphere – Antitrust.
At some point towards the end of 2019, some of these mammoth technology companies could face the mother of all regulation in dismantling their business model through an antitrust suit.
Companies such as Amazon and Facebook are praying to the heavens that this never comes to fruition, but the rhetoric about it will slowly increase in 2019 because of the mischievous ways these tech companies have behaved.
The unintended consequences in 2018 were too widespread and damaging to ignore anymore.
Antitrust lawsuits will creep closer in 2019 and this has spawned an all-out grab for the best lobbyists tech money can buy.
Tech lobbyists now amount to the most in volume historically and they certainly will be wielded in the best interest of Silicon Valley.
Watch this space.
- Software Favored To Hardware
The demand for smart consumer devices will fall off a cliff because most of the people who can afford a device already are reading my newsletter from it.
The stunting of smart device innovation has made the upgrade cycle duration longer and consumers feel no need to incrementally upgrade when they aren’t getting more bang for their buck.
The late-cycle nature of the economy that is losing momentum because of a trade war and higher interest rates will see companies look to add to efficiencies by upgrading software systems and processes.
This bodes well for companies such as Microsoft (MSFT), Salesforce (CRM), Twilio (TWLO), PayPal (PYPL), and Adobe (ADBE) in 2019.
- Logistics Gets A Boost From Technology
This is where Amazon has gotten so good at efficiently moving goods from point A to point B that it is threatening to blow a hole in the logistic stalwarts of UPS and FedEx.
Robots that help deploy packages in the Amazon warehouses won’t just be an Amazon phenomenon forever.
Smaller businesses will be able to take advantage of more robotics as robotics will benefit from the tailwind of deflation making them affordable to smaller business owners.
Amazon’s ramp-up in logistics was a focal point in their purchase of overpriced grocer Whole Foods.
This was more of a bet on their ability to physically deliver well relative to competition than it was its ability to stock above average quality groceries.
If Whole Foods ever did fail, Amazon would be able to spin the prime real estate into a warehouse located in wealthy areas serving the same wealthy clientele.
Therefore, there is no downside short or long-term by buying Whole Foods. Amazon will be able to fine-tune their logistics strategy which they are piling a ton of innovation into.
Possible new logistical innovations include Amazon attempting to deliver to garages to avoid rampant theft.
This is all happening while Amazon pushes onto FedEx’s (FDX) and UPS’s (UPS) turf by building out their own fleet.
Innovative logistics is forcing other grocers to improve fast giving customers better grocery service and prices.
Kroger (KR) has heavily invested in a new British-based logistics warehouse system and Walmart (WMT) is fast changing into a tech play.
- Tech Volatility Won’t Go Away
Current Chair of the Federal Reserve Jerome Powell unleashed a dragon when he boxed himself into a corner last year and had to announce a rate hike to preserve the integrity of the institution.
Markets whipsawed like a bull at a rodeo and investors lost their pants.
Tech companies who have been leading the economy and trot out robust EPS growth out of a whole swath of industries will experience further volatility as geopolitics and interest rate rhetoric grips the world.
Apple’s revenue warning did not help either and just wait until semiconductors start announcing disastrous earnings.
The short volatility industry crashed last February, and the unwinding of the Fed’s balance sheet mixed with the Chinese avoiding treasury purchases due to the trade war will insert even more volatility into the mix.
Powell attempted to readjust his message by claiming that the Fed “will be patient” and tech shares have had a monstrous rally capped off with Roku exploding over 30% after news of positive subscriber numbers and news of streaming content platform Hulu blowing past the 25 million subscriber mark.
Volatility is good for traders as it offers prime entry points and call spreads can be executed deeper in the money because of the heightened implied volatility.
