Global Market Comments
July 6, 2021
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or ALL EYES ON THE FANGS)
(FB), (AAPL), (AMZN), (MSFT), (NFLX), (NVDA), (AMD), (MU)
Posts
If you are a believer in the FANGS (FB), (AAPL), (AMZN), (MSFT), (NFLX), with NVIDIA (NVDA) as an add-on, last week was definitely your week.
They rose every day, ending the week with a melt-up of epic proportions. After eight months in the penalty box, tech came back with a vengeance and is now two months into their comeback tour.
The icing on the cake was Facebook’s big win in the antitrust suit from the FTC. That suitably deep-sixes the issue not just for (FB) but all of big tech, possibly for years. The five stocks above now account for a hefty 22% of the S&P 500 (SPY).
The question now on everyone’s mind is what’s next for tech? 25%? 30% 50%? The answer is all of the above, but you have to give it some time, like years.
We are now in an overbought market where big tech has become the cheapest sector. In addition, the global chip shortage promises to get worse before it gets better, with some products seeing a 10X increase in a single generation.
Companies that can’t get the chips they want are resigning products around the chips they can get on the fly.
This has created enormous spillover demand for marginal suppliers like Advanced Micro Devices (AMD) and Micron Technology (MU). It has also accelerated the evolution of technology.
Companies that already have decade-long supply chains already set up, like Tesla, now have a big advantage. That’s why (TSLA) has managed a healthy 27% gain in six weeks.
The severity of the chip shortage is wildly estimated if you look at future design plans of the biggest industries. A tech rally lasting months, if not years, was a totally natural progression.
I’ll tell you who else is dropping the ball. Analysts and strategists are consistently underestimating the strength of the economic recovery and the torrid growth of earnings. They are lagging by about six months. That is why 80% of announcements have delivered upside surprises.
There are more surprises to come.
When markets peaked in April, an eye-popping 92% of shares were above their 50-day moving average. Now, we are only at 52%. That suggests we have another month of excitement before we get another short-term correction.
June Nonfarm Payroll Report comes in hot, up 850,000, an eye-popping 150,000 better than expected. The headline Unemployment Rate moved up slightly to 5.9%. Accommodation gained 269,000, and Food Services & Drinking Places were up 194,000. It was a true Goldilocks number for the stock market, but not the million some had hoped for. My 30% forecast for the Dow Average is looking good.
The Infrastructure Bill extends the hot economy well into 2023 and longer. Analysts better start upgrading now, who have been badly lagging behind the recovery. Tech stocks saw this six weeks ago and began their torrid rally. Buy everything on dips and stick with the barbell strategy to catch all of the rotations.
Rents will continue to go through the roof. Good thing you don’t live in Boise, ID, which is seeing the fastest rent increases in the county at 39% YOY. Of course, having the Micron Technology (MU) HQ there is a major push. Don’t expect any respite. With home prices soaring, rents will get dragged up as prospective buyers are priced out of the market.
Weekly Jobless Claims moderate further, 364,000 Americans filed new claims for unemployment benefits last week - lowest since pandemic. Still elevated from a typical pre-pandemic week when we would see about 210,000 claims.
Softbank’s capital flooding into Crypto, with Japan's SoftBank Group Corp has invested $200 million in Mercado Bitcoin, one of the largest cryptocurrency exchanges in Latin America signaling the start of the first phase of big institutional money hoping to take advantage of the digital currency craze.
Goldman Sachs is the top financial pick according to JP Morgan Chase. All cylinders are firing and we’ve just come off a fabulous 15% dip. A move to more sustainable revenue streams, like wealth management, is the reason, which Morgan Stanley did decades ago under my watch. I’m looking for $450 on dips. Buy (GS) on dips.
Morgan Stanley doubles its dividend, now that it has passed the Fed stress test and the tethers are off. It also announced a share buyback of $12 billion over the next year which may be increased. Buy (MS) on dips.
S&P Case Shiller National Home Price Index for April hits new high, up 14.6%, the biggest increase in 30 years. Phoenix leads at +22.3%, followed by San Diego at +21.6% and Seattle at +20.2%. The numbers run from incredible to unbelievable.
CRISPR Therapeutics goes through the roof, up 12% at the highs, on successful drug trials by Intellia Therapeutics (NTLA) and Regeneron (REGN). The Mad Hedge Biotech Letter core holding provided the gene-editing technology behind the 45% gain in (NTLA) today. It enabled the 85% elimination of a rare inherited fatal liver disease, transthyretin amyloidosis. Say that fast three times. Buy (CRSP) on dips. With Editas, there are only three small companies that have a monopoly here.
Facebook wins antitrust action, a federal judge dismissing an FTC action against the company. The move set the entire tech sector on fire. It looks like all of NASDAQ is going to much higher highs. I bet you had a great day. The court found that (FB) did not enjoy a monopoly which might have forced them to sell off Instagram and WhatsApp.
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 400% to 120,000 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 120,000 here we come!
My Mad Hedge Global Trading Dispatch profit reached 0.71% gain so far in June on the heels of a spectacular 8.13% profit in May. That leaves me 100% in cash.
My 2021 year-to-date performance appreciated to 68.60%. The Dow Average is up 13.7% so far in 2021.
I spent the week sitting in 100% cash, waiting for a better entry point on the long side. Up this much this year, there is no reason to reach for the marginal trade, then maybe instead of the certainty. I’ll leave that for the Millennials.
That brings my 11-year total return to 491.15%, some 2.00 times the S&P 500 (SPX) over the same period. My 11-year average annualized return now stands at an unbelievable 42.40%, easily the highest in the industry.
My trailing one-year return exploded to positively eye-popping 112.59%. 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 at 33.7 million and deaths topping 606,000, which you can find here.
The coming week will be a weak one on the data front.
On Monday, July 5, markets are closed for the US Independence Day celebration.
On Tuesday, July 6 at 10:00 AM, the ISM Non-Manufacturing Index for June is released.
On Wednesday, July 7 at 10:00 AM, the Federal Open Market Committee Meeting from the last meeting are published.
On Thursday, July 8 at 8:30 AM, the Weekly Jobless Claims are published.
On Friday, July 9 at 2:00 PM, we learn the Baker-Hughes Rig Count.
As for me, with all the hiking I have been doing during the pandemic, I have been listening to a lot of WWII audio books lately. That reminds me of an old friendship I had with Toshiro Mifune, then the most movie famous star in Japan.
Mifune was drafted into the Japanese army during WWII where he served as an aerial reconnaissance photographer. After the war, that led him to work as a cameraman at Toho Productions, then the largest movie company in Japan.
A friend submitted his photo with an application for a casting call without his knowledge, and Toshiro, a good-looking guy, was one of 48 picked out of 4,000. He then met the legendary director, Akia Kurosawa, and the two launched the golden age of Japanese cinema in the late 1940s.
In just a couple of years, they produced blockbuster classic films like the Seven Samurai, Rashomon, and Throne of Blood, all of which are now required viewing by every American film school, and where Mifune demonstrated his impressive skills with a sword he picked up in the army.
I met Toshiro late in his career when he was cast as Admiral Isoroku Yamamoto for the 1976 Universal movie Midway. The problem was that Mifune couldn’t speak a word of English. I was brought in to bring Toshiro up to par in a crash course held at his west Tokyo mansion every afternoon seven days a week. We became good friends.
After a heroic effort, Mifune’s English was still awful, so the producers brought in a voice actor to dub Mifune’s part in Midway. That was Paul Frees, who provided the voice for the Disneyland’s Haunted House and Pirates of the Caribbean rides, as well as the cartoon Boris Badenov. His voice is still attached to those rides today, and I recognize it every time I take the kids.
Midway was a huge success and Mifune’s next big role was to play Commander Mitamura in Stephen Spielberg’s 1941. He followed that up with a role as Toranaga in James Clavell’s 1980 miniseries, Shogun, another old friend. (Clavell is a story for another day). My tutoring skills came back into demand once again, with better results.
Mifune died in 1997 at 77 and I miss him still.
Stay healthy,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Mad Hedge Technology Letter
June 30, 2021
Fiat Lux
Featured Trade:
(BIG TECH WINS IN THE COURTROOM)
(AAPL), (AMZN), (GOOGL), (FB), (MSFT)
Federal court dismissed antitrust lawsuits against Facebook that the Federal Trade Commission (FTC) and 48 states seek to pin on the digital ad company.
This isn’t only a feather in the cap for FB, but it’s great news for Google, Snapchat, Twitter and the who’s who of selling digital ads and any tech company that might be perceived as “dominant.”
Many would have been led to believe that big tech and these ad giants were on the cusp of being controlled by legislation, only for the federal court to not even bother with advancing the case.
It means that the law is firmly on the side of big tech and it will be almost impossible to pin charges against big tech unless the law is changed to accommodate a situation that is more conducive to proving that American tech companies abuse their positions in the US economy.
Personally, I do believe they have a monopolistic position against its competitors, but to prove that in court is a different animal with arguments needing to hold up against the test of time.
There is no doubt that the company has a dominant share of the market in the “personal social networking” industry, but market dominance just means they are incredibly good at what they do which is serving ads to targeted audience.
Nothing they do is explicitly illegal and that is the tough part and they do provide “free” services.
Not only that, but Facebook users can also simply not use social media and its various platform as a choice because they can drop it altogether or use a different platform entirely.
The court also dismissed a supplementary complaint by the FTC with the judge ruling that the states had taken too long to take issue with Facebook’s acquisition of Instagram and WhatsApp, which were acquired in 2012 and 2014, respectively.
The ruling made the government’s FTC look bad and tardy.
They also are late to the game, unable to understand the tech of our time and enforce borderline fringe behavior.
This is why anti-trust, which many believe is big tech’s largest existential risk, is not really a risk when politicians fail so miserably at even understanding what they do until 9 years later.
Most tech companies are happy to know they have 9 years to skirt the law and aggressively push their business models until the FTC move their finger an inch.
Might as well bet the ranch, right?
Certainly, there will be another wave of amended filed complaints against Facebook within 30 days, which the court will re-review.
But after some convicting loss, prospects look poor for the FTC.
The way in which the law is worded today means that Facebook has to be on the radar of investors as a premier buy the dip trade now that one of the bigger risks is off the table.
Facebook's valuation has more than doubled since the onset of the pandemic as more people use its diversified network of apps to stay in touch with friends and family in a socially distant world.
The social network had over 2.85 billion monthly active users in Q1 2021 and join other tech firms over $1 trillion such as Apple, Microsoft, Amazon, and Alphabet.
I would execute a bullish position in Facebook after a retracement from the 4% pop on the good news.
Tech is expensive and has had another resurgence over the past few weeks.
It continues to be an industry you cannot bet against and that is why you have to be patient for entry points to come to you.
Global Market Comments
June 28, 2021
Fiat Lux
Featured Trade:
(BACK FROM MY 50-MILE HIKE)
I received an email from a reader last week that I really had no idea what the stock market was going to do and that I was just guessing.
I answered that I couldn’t agree more. These are unprecedented times for the American economy. There is no playbook for what is going on, we’re just making it up.
“I’m guessing, Jay Powell is guessing, we’re all guessing.” I threw in an afterthought: “guessing and hoping.”
That is why the hottest inflation rate in 13 years sends interest rates into freefall when they should be soaring.
I have been one of the most bullish strategists in the market since the March 2009 low and have been richly rewarded as a result. (Even though being bearish sells more newsletters). You have been too.
I thought the market was overdue for a 7.8% correction. So, even I was flabbergasted when the latest market selloff amounted to only a meager 4.3%. There is still so much money trying to get into the market it is unable to go any lower.
Don’t get fooled again, to quote that eminent market guru, Peter Townsend.
Which raises an issue for investors. That 7.8% correction I thought was overdue is still ahead of us. That demands caution and prudence for shorter term investors. Long term investors can work on their golf swings or take that dreamed of round the world cruise.
What was especially encouraging last week was the leadership maintain by the big five tech stocks. I ran some numbers last week to see if there was more than meets the eye and came up with some eye-popping results.
The rocket fuel last week was provided by progress by an infrastructure bill that could unleash another $579 billion. That could be enough stimulus to keep the recovery on steroids powering well into 2022.
Big tech stocks saw this a month ago when they started discounting robust 2023 earnings reports much farther in advance than usual.
The top five big tech companies, Apple (AAPL), Amazon (AMZN), Alphabet (GOOGL), Facebook (FB), and Microsoft (MSFT), earned a staggering $88 billion in profits in Q1, or an annualized $332 billion.
That amounts to an average 40% YOY growth rate. Some 16.7% of total US profits of $1,984 billion was generated by only 2% of the workforce. These are positively ballistic numbers. Tech was never going to be down for long. That’s why most went to new all-time highs last week.
Don’t get fooled again.
The Infrastructure Deal is done, at $579 billion in new spending, will provide a further boost to the economy. The climate had to be cut to get Republican support. Transportation is the big winner at $312 billion. Grid and broadband upgrades received major funding. I don’t think that Biden expected to get his whole $2 trillion. It was just a negotiating strategy. Still, something is better than nothing. Look for Infrastructure 2.0 after the 2022 midterms with lots of climate spending.
NASDAQ Hit New High. Prime day has catapulted Amazon (AMZN). Microsoft (MSFT) became the second $2 trillion company and Alphabet (GOOGL) will probably be next. Apple (AAPL) is bringing up the rear but could hit new highs in the coming months. The big question is whether this is a one-night stand or a long-term relationship with the bull. Me, being the stable guy that I am, vote for the latter.
Poof, Inflation is Gone! Almost all commodity prices have given up their 2021 gains after traumatic selloffs over the past weeks. Bad boy lumber has dropped by half, and bitcoin has been slaughtered. That puts interest rate hikes on hold. In the meantime, Tesla (TSLA) and the Ark stocks are recovering. Load the boat with big tech, we are going to new all-time highs across the board. Turns out the Fed was right after all.
Weekly Jobless Claims drop to 411,000, down from the pandemic peak of 900,000 in January. We’re headed to 100,000 by yearend.
$1.2 Trillion Poured into Equities in H1, more than double the previous 2007 record. Corporate share buybacks are also approaching new highs. That means the 150-day moving average for the (SPY) should hold well into 2022. As high as we are, equities are still the best game in town.
Bitcoin battles at $30,000, for the fourth time in two months, at one point falling to a $24,000 low. China miners, about 70% of the total, are facing a total ban. Many loaded their servers on planes over the weekend and moved to unregulated Maryland or Virginia. The charts are pointing towards a $20,000 bottom. The ultra bulls are targeting $100,000 by yearend.
Existing Home Sales down for the fourth month, down 0.9% to an annualized 5.8 million in May. Shortage of supply remains the big problem with inventories at an incredible 2.5 months. Some 89% of the homes sold were on the market for less than a month. Conditions will get a lot worse before they get better.
New Home Sales dive 5.9%, thanks to shortage of supply and high prices. Labor, land, and lumber are through the roof. The median price of a home sold in May is $374,400, up a staggering 18% YOY. Supplies rose to 5.1 months. The cure for high prices is high prices. This trend should last a decade.
Amazon Prime Day Sales top $11 billion, including the Havaheart 0754 single door humane rabbit trap I bought for only $27. That made Monday and Tuesday the biggest online sales days of the year. Use the recent profit-taking to load up on (AMZN) shares and LEAPS. It’s headed to $5,000. Oh, and I’ve caught three rabbits so far.
Intel to build huge German chip factory,to address the global shortage. Germany’s largest auto industry makes it a natural location. Buy (INTC) on dips.
NVIDIA is going ballistic, with Raymond James raising its target to $900 as the best-positioned chip company over the long term. I was early at $1,000. The explosion in crypto has been a big plus. A new generation of high-end gaming is coming where (NVDA) has a complete monopoly and supplies are short. I have bought six of their GeForce and RTX graphics cards in the past month. But artificial intelligence is the big grower over the long term, which is exploding everywhere, and their $5,000 Tesla M10 GPU is dominant. Buy (NVDA) now.
We may lose Christmas, as lack of containers and ships makes transport from China problematic. Home Depot (HD) has chartered its own ship to make up for the shortfall, and Target (TGT) is considering the same. Conditions are so bad there is also a fireworks shortage for the Fourth of July where China is a major supplier (they invented them).
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 400% to 120,000 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 120,000 here we come!
My Mad Hedge Global Trading Dispatch profit reached 0.71% gain so far in June on the heels of a spectacular 8.13% profit in May. That leaves me 100% in cash.
My 2021 year-to-date performance appreciated to 68.60%. The Dow Average is up 12.62% so far in 2021.
I spent the week sitting in 100% cash, waiting for a better entry point on the long side. Up this much this year, there is no reason to reach for the marginal trade, the maybe instead of the certainty. I’ll leave that for the Millennials.
That brings my 11-year total return to 491.15%, some 2.00 times the S&P 500 (SPX) over the same period. My 11-year average annualized return now stands at an unbelievable 42.70%, easily the highest in the industry.
My trailing one-year return exploded to positively eye-popping 123.54%. 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 at 33.1 million and deaths topping 600,000, which you can find here. Some 33.1 million Americans have contracted Covid-19.
The coming week will be a weak one on the data front.
On Monday, June 28 at 10:30 AM, the Dallas Fed Manufacturing Index for June is out.
On Tuesday, June 29 at 9:00 AM, the S&P Case Shiller National Home Price Index is published.
On Wednesday, June 30 at 8:15 AM, the ADP Private Employment Report is released.
On Thursday, July 1 at 8:30 AM, the Weekly Jobless Claims are published.
On Friday, July 2 at 8:30 AM, the all-important June Nonfarm Payroll Report is announced. At 2:00 PM, we learn the Baker-Hughes Rig Count.
As for me, I’m in Los Angeles this week visiting old friends, and I am reminded of one of the weirdest chapters of my life.
There were not a lot of jobs in the summer of 1971, but Thomas Noguchi, the LA County Coroner, was hiring. The famed USC student jobs board had delivered! Better yet, the job included free housing at the coroner's department.
I got the graveyard shift, from midnight to 8:00 AM. All I had to do was buy a black suit from Robert Halls for $25.
Noguchi was known as the “coroner to the stars” having famously done the autopsies on Marlin Mansfield and Jane Mansfield. He did not disappoint.
For three months, whenever there was a death from unnatural causes, I was there to pick up the bodies. If there was a suicide, gangland shooting, or horrific car accident, I was your man.
Charles Manson had recently been arrested and I was tasked with digging up the victims. One, cowboy stuntman Shorty Shay, had his head cut off and neatly placed in between his ankles.
The first time I ever saw a full set of women’s underclothing, a girdle and pantyhose, was when I excavated a desert roadside grave that the coyotes had dug up. She was pretty far gone.
Once, I and another driver were sent to pick up a teenaged boy who had committed suicide in Beverly Hills. The father came out and asked us to take the mattress as well. I regretted that we were not allowed to do favors on city time. He then said, “Can you take it for $200”, then an astronomical sum.
A few minutes later found a hearse driving down the Santa Monica freeway on the way to the dump with a double mattress expertly tied on the roof with Boy Scout knots with a giant blood spot in the middle.
Once, I was sent to a cheap motel where a drug deal gone bad had produced several shootings. I found $10,000 in a brown paper bag under the bed. The other driver found another ten grand and a bag of drugs and kept them. He went to jail. Eventually, I figured out that handling dead bodies could be hazardous to your health, so I asked for rubber gloves. I was fired.
Still, I ended up with some of the best summer job stories ever.
Stay healthy.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Mad Hedge Technology Letter
June 23, 2021
Fiat Lux
Featured Trade:
(IGNORE THE GOOGLE COMPLAINTS)
(GOOGL), (AAPL), (MSFT), (FB), (AMZN)
Another part of the tech bull case that gets overlooked is the more than $700 billion in buyback authorizations that could manifest itself in tech shares in the near term.
Right now, that buyback authorization is holding steady at $500 billion but primed to grow.
This powerful combination of shareholder returns and continuous strong earnings are likely meaningful catalysts that could take us to higher highs in technology stocks later in the year.
Certainly, we have seen a massive rotation back into growth stocks the last few weeks that have buoyed tech shares.
The likes of PayPal (PYPL) are bouncing off technical weakness.
Just take a look at Apple which is the buyback alpha male of the S&P this year and trailing 12-months.
When you consider that apart from the dividends and buybacks, they generate over $110 billion in free cash flow, it’s hard not to like the stock.
Apple itself has authorized $90 billion in buybacks and the company is the biggest in the world.
Yes, the stock underperforms sometimes, but don’t overthink this name.
Apple is easily a $170 stock with no sweat.
The iPhone maker repurchased $19 billion of stock in the March quarter, bringing the total for the past fourth quarters to around $80 billion.
Luca Maestri, the company’s chief financial officer, said in a conference call that “we continue to believe there is great value in our stock and maintain our target of reaching a net cash neutral position over time.”
That is code for many buybacks in the near to medium term and investors must love it.
Apple had $83 billion of net cash at the end of the quarter.
Apple’s aggressive stock buyback plan is one reason that Berkshire Hathaway CEO Warren Buffett is so interested in the company.
Berkshire (BRK.A and BRK.B) holds a 5% stake in Apple and is one of its largest investors.
The same thing is happening at other tech firms.
Google repurchased a record $11.4 billion of stock in the quarter, up from $8.5 billion a year earlier, and Facebook (FB) bought back $3.9 billion, triple the total a year ago.
Apple’s share count declined by almost 4% year-over-year and by over 20% since the end of 2016.
With its elevated repurchase program, Alphabet is slicing into its share count, which fell almost 2% year-over-year in the March quarter. The buybacks are comfortably exceeding Alphabet’s ample issuance of stock compensation to employees. Alphabet authorized an additional $50 billion of stock repurchases.
Facebook’s buyback program hasn’t dented its share count, which was little changed year-over-year at 2.85 billion.
Microsoft (MSFT) is making more headway, with its buyback reducing its share count by nearly 1% in the past year. Microsoft bought back about $7 billion of stock in the March quarter and $20 billion in the first nine months of its fiscal year ending in June.
Apple and Microsoft also return cash to holders through dividends, although both now have yields under 1%. Alphabet and Facebook don’t pay dividends.
Although buybacks have not yet reached pre-health crisis levels, the trend seems to be heading in that direction.
Tech firms are ratcheting up the buybacks, meaning they are comfortable expending that cash in the current economic climate as opposed to holding onto it as reserves or using it for R&D.
There is always unpredictability in the economic environment, but these tech stocks are saying, things are a lot better than 2020 and there are many CFOs out there pulling the trigger on dividends, buybacks, and reducing share count which is a highly bullish signal to the rest of the tech market.
Since 2009, asset inflation has gripped global equity funds everywhere and the most convincing winner in terms of asset classes has to be the Nasdaq index which has experienced a 900% return during that 12-year time span.
You must believe that buybacks are just another reason why this overperformance of 900% has happened.
Tech is still where almost all earnings’ growth resides and that capital flow is being recycled into shareholders’ pockets and catalyzing tech CFOs to execute financial gymnastics by reducing share count.
It’s hard to discount that strength which is why there are always buyers on the dips whether that buyer is a domestic pension fund, short-term speculator, a multibillion-dollar family office, or a foreign hedge fund.
Mad Hedge Technology Letter
June 23, 2021
Fiat Lux
Featured Trade:
(IGNORE THE GOOGLE COMPLAINTS)
(GOOGL), (AAPL), (MSFT), (FB), (AMZN)
The five largest tech companies last Fall 2020, Apple, Microsoft, Amazon, Alphabet, and Facebook, accounted for 23.8% of the S&P 500 and now that figure has surpassed 25%.
As much as we like to bring out the champagne and celebrate how well big tech has done, the euphoric times often lay the groundwork for the dramatic downfall.
A few warning signs have started to rear their ugly head.
These business models are rock-solid now, but that doesn’t mean the people who manage these business models are always rock-solid too.
Today, I would like to zone in on one of the architects of big tech that have taken one of these behemoths and juiced it up for shareholders — Alphabet CEO Sundar Pichai.
I am not arguing that returning capital to shareholders is bad, but when other critical elements are ignored, it sets the stage for toxicity to fester from the top down.
Don’t get me wrong, revenue and profits are charting new highs every three months for Alphabet.
They are now worth $1.67 trillion and rising. Google and its array of apps have made themselves indispensable in the lives of everyday Americans.
But an increasingly hostile workplace is taking hold that has been made worse by decisive leadership and improving the company has been shelved for a stultifying mindset of incrementalism and bureaucracy.
This is the 2021 version of Alphabet and attrition rates have soured at the management level.
Many of these key managers blame Pichai for leaving mentioning a bias toward inaction and a fixation on public perception as the real mantra inside Google headquarters.
This has created a workplace that has devolved into culture fights, and Pichai’s attempts to “wait out” the problems have an air of arrogance about it that employees don’t like.
Internal surveys are also hard to analyze as employees are indirectly encouraged not to speak out against positions of authority.
However, recently left employees do admit that Google is a more professionally run company than the one Pichai inherited six years ago.
During Pichai’s leadership, it has doubled its workforce to about 140,000 people, and Alphabet has tripled in value. It is not unusual for a company that has grown so quickly to get cautious.
At least 36 Google vice presidents have left the company since last year, according to profiles from LinkedIn.
Google executives proposed the idea of acquiring e-commerce firm Shopify as a way to challenge Amazon in online commerce a few years ago.
Rumor has it that Pichai was turned off by the high price of the asset even though SPOT has tripled in value since then.
As time goes by, Pichai is becoming known as the steward of what Google built before he got there and just a guy there to squeeze out the numbers.
Google was once known as the scruffy start-up and it’s only natural that it has become more conservative in its approaches. They simply have more to lose now.
The meteoric growth has also led to rising concerns about the U.S. stock market becoming increasingly concentrated in a just a few names.
The total market capitalization of U.S. tech stocks reached over $11 trillion, eclipsing that of the entire European market—including the UK and Switzerland, which is now valued at $9 trillion.
Although there are some flaws popping up in Google’s business model, and management appears to be getting worse, I don’t believe we are even close to any sort of in-house meaningful reckoning that would adversely affect its share price.
The external risks are currently far greater than the risk of Google blowing up from the inside.
And while I do acknowledge, it might not be the workplace it once was and much less than ideal, it still pumps out record earnings and the degree to which it outperforms earnings’ expectations is uncanny.
That’s why I would recommend trading this stock aggressively in the short-term while rumors of broken management model are unfounded, because fundamentally and technically, it’s hard to find a better business model and more beautiful chart.
While the golden goose is feeding you eggs, you eat as many eggs as you can and ride this trade until Google management finally runs into REAL problems and I am not talking about petty anti-trust fines by European regulators.
Simply put, even the best companies run into vanity problems that are storms in teacups. Artificially creating problems sure has to be a first world problem and until there is true evidence that Google’s ad tech is being dismantled, I don’t believe investors have anything to worry about with the ad dollars coming in.
Big tech is on the verge of breaking out after being range-bound, and it would be daft to overthink this move and not participate in the melt-up.
Short-term, I would be inclined to buy on any big or little dip in GOOGL, take profits, and wait for the next dip to get back into the same position.
