Global Market Comments
June 11, 2020
Fiat Lux
Featured Trade:
(WHY TECHNICAL ANALYSIS DOESN’T WORK)
(FB), (AAPL), (AMZN), (GOOG), (MSFT), (VIX)
(TESTIMONIAL)
Global Market Comments
June 11, 2020
Fiat Lux
Featured Trade:
(WHY TECHNICAL ANALYSIS DOESN’T WORK)
(FB), (AAPL), (AMZN), (GOOG), (MSFT), (VIX)
(TESTIMONIAL)
Santa Claus came early this year.
We have now rocketed all the back from -37% to a feeble 0% return for the Dow Average for 2018. By comparison, the Mad Hedge Fund Trader is up a nosebleed 8.5% during the same period.
If you had taken Cunard’s round-the-world cruise four months ago, as I recommended, you would be landing in New York about now, wondering what the big deal was. Indexes are nearly unchanged since you departed, with the Dow only 5.50% short of an all-time high.
This truly has been the Teflon market. Nothing will stick to it. Not, plague, not depression, not mass bankruptcies, not the worst economic data in history.
Go figure.
It makes you want to throw your hands up in despair and your empty beer can at the TV set. All this work and I’m delivered the perfectly wrong conclusions?
Let me point out a few harsh lessons learned from this most recent meltdown and the rip-your-face-off rally that followed.
Remember all those market gurus claiming stocks would rise every day for the rest of the year? They were wrong.
This is why almost every Trade Alert I shot out for the past two months has been from the “RISK ON” side, but only after cataclysmic market selloffs.
We have just moved from a “Buy in November” to a “Sell in May” posture.
The next six months are ones of historical seasonal market weakness. For the misty origins of this trend, read “If You Sell in May, What to Do in April?” On top of that, we have the uncertainty of the presidential election to deal with.
We go into this with big tech leaders, including Facebook (FB), Apple (AAPL), Amazon (AMZN), Google (GOOG), and Microsoft (MSFT), all at or close to all-time highs.
The other lesson learned this year was the utter uselessness of technical analyses. Usually, these guys are right only 50% of the time. This year, they missed the boat entirely. After perfectly buying the last top, they begged you to dump shares at the bottom.
When the S&P 500 (SPY) was meandering in a narrow nine-point range, and the Volatility Index (VIX) hugged the $11-$15 neighborhood, they said this would continue for the rest of the year.
It didn’t.
When the market finally broke down in February, cutting through imaginary support levels like a hot knife through butter ($26,000? $25,000? $24,500?), they said the market would plunge to $24,000, and possibly as low as $22,000.
It didn’t do that either.
If you believed their hogwash, you lost your shirt. The market just kept going, and going, and going down to $18,000.
This is why technical analysis is utterly useless as an investment strategy. How many hedge funds use a pure technical strategy? Absolutely none, as it doesn’t make any money on a stand-alone basis.
At best, it is just one of 100 tools you need to trade the market effectively. The shorter the time frame, the more accurate it becomes.
On an intraday basis, technical analysis is actually quite useful. But I doubt a few of you engage in this hopeless persuasion.
This is why I advise portfolio managers and financial advisors to use technical analysis as a means of timing order executions, and nothing more.
Most professionals agree with me.
Technical analysis derives from humans’ preference for looking at pictures instead of engaging in abstract mental processes. A picture is worth 1,000 words, and probably a lot more.
This is why technical analysis appeals to so many young people entering the market for the first time. Buy a book for $5 on Amazon and you can become a Master of the Universe.
Who can resist that?
The problem is that high-frequency traders also bought that same book from Amazon a long time ago and have designed algorithms to frustrate every move of the technical analyst.
Sorry to be the buzzkill, but that is my take on technical analysis.
Hope you enjoyed your cruise.
As you may imagine, the most interesting man in the world is impossible to shop for when it comes to Christmas and birthdays.
So, it was no surprise when I opened a box and found a DNA testing kit from 23 and Me. So, I spit into a small test tube to humor the kids, mailed it off, and forgot about it.
I have long been a keeper of the Thomas family history and legends, so it would be interesting to learn which were true and which were myths.
A month later, what I discovered was amazing.
For a start, I am related to Louis the 16th, the last Bourbon king of France who was beheaded after the 1789 revolution.
I am a direct descendant from Otzi the Iceman who is 5,000 years old and was recently discovered frozen in an Alpine glacier. He currently resides in mummified form in an Italian museum.
Oh, one more. The reason I don’t have any hair on my back is that I carry 346 gene fragments that I inherited directly from a Neanderthal. Yes, I am part caveman, although past girlfriends suspected as much.
There were other conclusions.
I have a higher than average probability of getting prostate cancer, advanced macular degeneration (my mother had it), celiac disease, and melanoma.
The service also offered to introduce me to 1,107 close relatives around the world who I didn’t know, mostly in New York, California, and Florida.
The French connection I already knew about. During the 16th century, my ancestors rebelled against the French kings over the non-payment of taxes and were exiled to Louisiana. Fleeing a malaria epidemic, they moved up the Mississippi River to St. Louis and stayed there for 200 years. When gold was discovered in California in 1849, they joined a wagon train west. We have been here ever since.
I am half Italian and have birth certificates going back to 1800 to prove it. But 23 and Me says that I am only 40.7% Italian (see table below). It turns out that your genes show not only where you came from, but also who invaded your home country since the beginning of time.
In Italy’s case that would include the ancient Greeks, Vikings, Arabs, the Normans, French, Germans, and the Spanish, thus making up my other 9.3%. Your genes also reflect the slaves your ancestors owned, for obvious reasons, as well as many of the servants who may have worked for them.
It gets better.
All modern humans are decended from a single primordial “Eve” who lived in Eastern Africa 180,000 years ago. Of the thousands of homo sapiens who probably lived at that time, the genes of no other human made it into the modern age. We are all decended from a single “Adam” who lived 275,000 years ago. Obviously, the two never met, debunking some modern conventions.
Around 53,000 years ago, my intrepid ancestors cross the Red Sea to a lush jungle in the Sinai Penninsula probably pursuing abundant game. 53,000 years ago, they moved on the vast grasslands of the Cental Asian Steppes. As the last Ice Age retreated, they moved into the warmer climes of South Europe. We have been there ever since.
23 and Me was founded in 2006 by Anne Wojcicki, wife of Google founder Sergei Brin. It is owned today by her and a few other partners. Its name is based on the fact that humans' entire DNA code is found on 23 chromosomes.
23 and Me and other competitors like Ancestry.com, MyHeritage, and Living DNA have sparked a DNA boom that has led to once unimaged economic and social consequences. DNA promises to be for the 21st century what electricity was to the 20th century. The investment consequences are amazing.
Talk about unintended consequences with a turbocharger.
A common ancestor going back to the early 1800s enabled Sacramento police to capture the Golden State killer. Unsolved for 40 years, it took a week for them to find him after a DNA sample was sent to a DNA database.
Thirty and 40-year cold cases are now being solved on a weekly basis. Long ago kidnapped children are being reunited with parents after decades of separation.
California just froze all executions. That’s because DNA evidence showed that approximately 30% of all capital case convictions were of innocent men. That was enough for me to change my own view on the death penalty. The error rate was just too high. Dozens of men around the country have been freed after new DNA evidence surfaced, some after serving 30 years or more in prison.
23 and Me had some medical advice for me as well. They strongly recommended that I get tested for diabetes and high blood pressure as these maladies are rife among my ancestors. They even name the specific guilty gene and haploid group.
This explains why major technology companies, like Amazon (AMZN) and Apple (AAPL), are pouring billions of dollars into genetic research.
I have long had a personal connection with DNA research. I worked on the team that sequenced the first ever string of DNA at UCLA in 1974. It was groundbreaking work. We obtained our raw DNA from Dr. James Watson of Harvard who, along with Francis Crick, was the first to discover its three-dimensional structure. As for my UCLA professor, Dr. Winston Salser, he went on to found Amgen (AMGN) in 1980 and became a billionaire.
The developments that are taking place today then seemed to us like science fiction that was hundreds of years into the future. To see the paper created by this work, please click here.
As research into DNA advances, it is about to pervade every aspect of our lives. Do you have a high probability of getting a disease that costs a million dollars to cure and is counting on getting health insurance? Think again. That may well bring forward single-payer national healthcare for the US, as only the government could absorb that kind of liability.
And if you can only hang on a few years, you might live forever. That’s when DNA-based monoclonal antibodies and gene editing are about to cure all major human diseases. DNA is about to become central to your physical health and your financial health as well.
To learn more about 23 and Me please visit their website here.
Maybe the next time I visit the Versaille Palace outside of Paris, I should ask for a set of keys now that I’m a relative? Unfortunately, it’s much more likely that I’ll get the keys to my Neanderthal ancestor’s cave.
Global Market Comments
December 30, 2019
Fiat Lux
Featured Trade:
(WILL SYNBIO SAVE OR DESTROY THE WORLD?),
(XLV), (XPH), (XBI), (IMB), (GOOG), (AAPL), (CSCO), (BIIB)
Global Market Comments
December 27, 2019
Fiat Lux
SPECIAL ISSUE ABOUT THE FAR FUTURE
Featured Trade:
(PEAKING INTO THE FUTURE WITH RAY KURZWEIL),
(GOOG), (INTC), (AAPL), (TXN),
Global Market Comments
November 6, 2019
Fiat Lux
Featured Trade:
(THE QUANTUM COMPUTER IN YOUR FUTURE),
(AMZN), (GOOG),
(THE WORST TRADE IN HISTORY), (AAPL)
Global Market Comments
October 29, 2018
Fiat Lux
Featured Trade:
(PLAYING THE SHORT SIDE WITH VERTICAL BEAR PUT SPREADS), (TLT)
(WHY TECHNICAL ANALYSIS DOESN’T WORK)
(FB), (AAPL), (AMZN), (GOOG), (MSFT), (VIX)
Customers like to call me and tell me how cheap Spotify is.
Well, it’s cheap for more than one reason.
Even though Spotify (SPOT) dominates the music streaming space just like Netflix (NFLX) dominates the video streaming space, that does not mean investors should go out and buy the stock by the handful.
The numbers are quite impressive when you consider that Spotify boasts 100 million paying music subscribers.
In the iOS world, Apple (APPL) has 60 million music subscribers while Google (GOOGL) has only 15 million music subscribers.
Why do I mention Google?
They aren’t in the online streaming business, or are they?
Google has signaled its intent that they won’t just allow Spotify and Apple to turn the online streaming industry into a duopoly.
They are the third horse in the race.
Recently, Google announced that its YouTube Music app would now come preinstalled on all new Android devices.
Naturally, absorption rates will increase dramatically, and this app could become quite sticky.
Apple has a moat around its castle because of the iOS system but Spotify has no defenses against such attack.
Spotify is a slave to the Android platform to reach customers which is dominated by Google by not only their software but also their hardware now.
Spotify won a recent deal to preinstall its music app on Samsung (SSNLF) devices, but this won’t be the case for most devices.
Google has a two-way money-making strategy for YouTube Music service through both advertising and subscription sales.
Accessibility comes with ads and to remove ads, YouTube Music charges $9.99 per month.
Consumers spent $7.0 billion on music streaming subscriptions in 2018 and diversifying away from Google Search is something that CEO Sundar Pichai is hellbent on.
Google has lept into selling cloud computing services and hardware products, including speakers, in search of non-advertising revenue.
In reaction, Spotify cannot just lay vulnerable like a sitting duck, and have announced tests for a price increase for family plan subscribers in Scandinavia.
The family plan in Sweden currently costs about 149 Swedish krona ($15.45) per month, similar to the pricing in the United States and the rest of Europe and it will be interesting to see if they can stomach a 13% increase.
I bet there will be a revolt as Scandinavians know they can just hook up to YouTube with an ad-less browser to listen to whatever they want for free.
Looking to lucrative markets to squeeze more juice out of a lemon would have a higher chance of succeeding if a level up in service is also offered.
The desperation is palpable as Spotify’s Average Revenue Per User (ARPU) falls off a cliff and is the reinforcement I need to feel that this business is impossible to make money in.
Just the unforgivable headwind that licensing music eats up is enough pain with allocating 75 cents on every $1 of revenue.
The company has been in a precarious position right out of the gates.
Even publishers have gripes against Spotify's declining ARPU, since a large part of their contracts include revenue-sharing agreements with the music streamer.
Ultimately, Spotify is a service that cannot differentiate itself through exclusive original series and films which is inherent to survival.
Their attempts to allow individual singers to upload backfired because only their users are interested in hearing the 0.1% of popular music deemed popular from mainstream culture.
Spotify, Apple Music, and Google will possess more or less the same library of music that most people want to listen to.
Then it comes down to what platform is more convenient than the other.
Apple and Google have strong financial backing giving them higher pain thresholds if they lose money.
Until Spotify can find a magical way to make their product unique, they are on the path to a death by thousand cuts even if they do have a great product.
Global Market Comments
October 2, 2019
Fiat Lux
Featured Trade:
(TEN MORE REASONS WHY BONDS WON’T CRASH),
(TLT), (TBT), (ELD), (MUB)
(COFFEE WITH RAY KURZWEIL), (GOOG)
Global Market Comments
October 1, 2019
Fiat Lux
Featured Trade:
(LAUNCHING THE NEW MAD HEDGE BIOTECH AND HEALTHCARE LETTER)
(THE NEW AI BOOK THAT INVESTORS ARE SCRAMBLING FOR),
(GOOG), (FB), (AMZN), MSFT), (BABA), (BIDU),
(TENCENT), (TSLA), (NVDA), (AMD), (MU), (LRCX)
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