Global Market Comments
December 15, 2021
Fiat Lux
Featured Trade:
(TESTIMONIAL)
(LONG TERM ECONOMIC EFFECTS OF THE CORONAVIRUS),
(ZM), (LOGM), (AMZN), (PYPL), (SQ), CNK), (AMC),
(IMAX), (CCL), (RCL), (NCLH), (CVS), (RAD), (WMT)
Posts
Global Market Comments
December 3, 2021
Fiat Lux
Featured Trade:
(DECEMBER 1 BIWEEKLY STRATEGY WEBINAR Q&A),
(PYPL), (MA), (AXP), (SQ), (TLT), (TBT), (TSLA), (AAPL), (FB), (MSFT), (AA), (FCX), (BITO), (COPA.L)
Mad Hedge Technology Letter
December 1, 2021
Fiat Lux
Featured Trade:
(TAKE A REST FROM FINTECH)
(PYPL), (SQ), (BNPL), (AMZN), (TWTR), (AAPL)
The fintech trade is tiring — that is what the underperformance of stocks like PayPal (PYPL) and Square (SQ) is telling us.
Jack Dorsey’s Square has retraced around 25% from its peak and is bang on even from where it was 365 days ago.
Not what you want to hear if you’re a fintech trader.
The pullback from PYPL is even more precipitous declining around 40% from its peak.
Certainly, it would be cliché for me to say that the low-hanging fruit is gone from the fintech trade, but that’s exactly what is happening here.
Not only that, but I would also like to point out that most companies without a home-field advantage ecosystem are getting penalized for exactly that — not having an ecosystem.
Wasn’t it weird how the whole tech sector literally gave us a rip-your-face-off selloff the other day yet, Apple was one of the only tech stocks that reacted positively?
As we move into the late stages of the economic cycle, the goalposts are certainly narrowing for the tech companies, and that’s bad news for SQ and PYPL.
Another way to get penalized is to let that moat narrow which is effectively what has happened to PYPL and SQ.
And that’s the thing with PYPL, it’s just a way to pay, and not an ecosystem.
It plays second fiddle to that of wall gardens and the user trapped in it who is spending and can’t find a way out.
Another point I would like to make is that Twitter (TWTR) at these levels is an ideal buy-the-dip candidate precisely because it’s a great walled garden whose potential has yet to be untapped.
And readers shouldn’t let the mismanagement of the company by former CEO Jack Dorsey turn you off from a great long-term investment.
PYPL would kill for a platform like Twitter and instead needs to grovel to other strategic platforms to allow them to use PYPL’s technology.
PYPL is finally exposed, and I guess more accurate would be to say they are getting undercut by stickier technology that is more convenient to the consumer.
And what does that get you in late 2021?
Downgrades and slews of them which cut blocks the stock at its knees.
We just got one from Bernstein the other day and then it almost becomes a self-fulfilling prophecy with other analyst outlets doing the same thing in a copycat league.
Instead of catching a falling knife in SQ and PYPL, traders need to let these stocks breathe and find support where we know buyers will come in to breed confidence in an upward trajectory.
Easier said than done.
What has been all the rage so far denting PYPL and SQ’s model?
Enter Buy Now Pay Later (BNPL).
Naturally, the differentiated mechanism around which this technology revolves around is the delay in paying, which is never a good concept for a fintech player who rather gets paid ASAP.
Delayed payment is one headache, but then the downward force on fees is another monumental concern, if not downright scary.
This will no doubt trounce margin expansion moving forward and evidence of slowed growth in the latest quarter does not portend well for the company, especially as pandemic tailwinds continue to fade.
Another talking point is BNPL’s lack of credit checks meaning the quality of purchasers will naturally decline, may I even say attract fraudsters as well, and the companies will need to build up loss reserves to compensate for a riskier purchaser profile.
Klarna is another major BNPL company, and they were part of this new industry that took in around 20% of all sales on Cyber Monday.
That rather high number bodes poorly for PYPL in the short term.
Reinforcing the strategic hole of a lack of walled garden is that PYPL is desperate to cultivate partnerships like PYPL’s Venmo joining forces with Amazon (AMZN) — Starting next year, you'll be able to use the money anybody Venmo’s you to buy products directly from Amazon — so long as you live in the US.
But again, Amazon is infamous for replacing outside technology with its own in-house solution over time.
PYPL’s counter solution for BNPL is to enter the BNPL lovefest as well which will effectively trigger a race to zero.
Stopgap solutions will inevitably cannibalize its own business model.
Then let’s point to another walled garden — Tim Cook’s Apple with its Apple wallet.
It’s getting better and with the Apple Card, do they ever really need to spend one second considering a partnership with PYPL or SQ.
There is an inquisition going on in the fintech industry and big body blows will need to be landed for some clear-cut solutions that will ultimately lead to consolidation.
In this precarious environment, don’t get too fancy while fintech is getting elbowed out the way, head to higher ground where balance sheets can absorb just about anything.
Global Market Comments
November 5, 2021
Fiat Lux
Featured Trade:
(NOVEMBER 3 BIWEEKLY STRATEGY WEBINAR Q&A),
(BRKB), (COIN), (IWM), (GOOGL), (MSFT), (MS), (GS), (JPM),
(BABA), (BIDU), (JD), (ROM), (PYPL), (FXE), (FXA), (FXB), (CRSP), (TSLA), (FXI), (BITO), (ETHE), (TLT), (TBT), (BITO), (CGW)
Below please find subscribers’ Q&A for the November 3 Mad Hedge Fund Trader Global Strategy Webinar broadcast from the safety of Silicon
Valley.
Q: Have you considered buying Coinbase (COIN)?
A: Yes, we actually recommended it as part of our Bitcoin service in the early days back in July. It’s gone up 62% since then, right along with the Bitcoin move itself. So yeah, buy (COIN) on dips—and there will be dips because it will be at least triple the volatility of the main market. And be sure to dollar cost average.
Q: Do you think the breakout in small caps (IWM) will hold and, if so, should we focus on small-c growth?
A: Yes it will hold, but no I would focus on the big cap barbells, which will lead this rally for the next 6 months. And there you’re talking about the best of tech which is Google (GOOGL) and Microsoft (MSFT), and the best of financials which is Morgan Stanley (MS), Goldman Sachs (GS), and JP Morgan (JPM).
Q: Why not time the webinar for after the FOMC? What will be the market reaction?
A: Well, first of all, we already know what they’re going to say—it’s been heavily leaked in the last week. The market reaction will be initially a potential sharp down move that lasts a few minutes or hours, and then we start a grind up for the next two months. So that's why I wanted to be 80% leverage long going into this. Second, we have broadcast this webinar at the same time for the last 13 years and if we change the time we will lose half our customers.
Q: Why do you always do debit spreads?
A: They’re easier for beginners to understand. That’s the only reason. If you’re sophisticated enough to do a credit spread, the results will be the same but the liquidity will be slightly better, and you can also apply that credit to meet your margin requirements. We have a lot of basic beginners signing up for our service in addition to seasoned pros and I always encourage people to do what they're most comfortable with.
Q: Are you still comfortable with the Morgan Stanley (MS) and Berkshire Hathaway (BRKB) positions?
A: I expect both to go up 10-20% by March, so that’s pretty comfortable. By the way, if you have extremely deep in the money call spreads on Goldman Sachs or Morgan, consider taking profits on those and rolling your strikes up. If you have like the $360-$380 vertical bull call spread in Goldman Sachs, realize that gain and roll up to the $420-$430 March position in Goldman Sachs—that will give you another 100% profit by March. With the $360-$ 380s, you have like 97% of the profit already in the price, there’s no leverage left and no point in continuing, you can only go down.
Q: What should I do with my China position?
A: Sell all your positions in China, realize all the losses now so you can offset those with all the huge profits on all your other positions this year. There I’m talking about Ali Baba (BABA), Baidu (BIDU), and (JD), which have been absolutely hammered anywhere from down 50% to down 70%. And do it now before everyone else does it for the same reasons.
Q: Thoughts on Paypal (PYPL) lately?
A: The stock is out of favor as money is moving out of PayPal into newer fintech stocks. The move down is totally unjustified and screaming long term buy here, but for the short-term investors are going to raid the piggy bank, sell the PayPal, and go into the newer apps. This has been my biggest money-losing trade personally this year because PayPal long-term has a great story.
Q: Will earnings fall off next year due to prior year comparisons or supply chain?
A: No, if anything, earnings are accelerating because supply chain problems mean you can charge customers whatever you want and therefore increase margins, which is why the stock market is going up.
Q: Long term, what would your wrong strikes be?
A: I would say don’t get greedy. I’m doing the ProShares Ultra Technology (ROM) $120-$125 call spread for May expiration—the longest expiration they offer. That gives you about 100% return in 6 months; 100% is good enough for me because then I’ll do the same thing again in May and get another 100%. What’s 100% x 100%? It’s 400% because you’re reinvesting a much larger capital base the second time around. If a 100% profit in six months is not enough for you then you are in the wrong line of business.
Q: Do you think Ethereum (ETHE) has long-term potential upside?
A: Yes, is a 10X move enough? We just had a major new high in Ethereum because they made moves to limit the production of new Ethereum. Ethereum is the superior technology because its architecture avoids the code repeats that Bitcoin does and therefore only uses a third of the electricity to create. But Bitcoin is attracting the big institutional cash flows because they have an early mover advantage. By the way, how much electricity does crypto mining consume? The entire consumption of Washington state in a year, so it’s a big deal.
Q: What should I do about Crisper Therapeutics (CRSP)?
Crispr Therapeutics (CRSP) is my other disaster for this year because ignored the move up to $170—we’re now back into the $90’s again. So, I have 2023 LEAPS on that; I’m going to keep them, I’ve already suffered the damage, but the next time it goes up to $170 I’m selling! Once burned, twice forewarned. And part of the problem with the whole biotech sector is we are now in the back end of the pandemic and anything healthcare-related will get hit, except for the vaccine stocks like Pfizer (PFE) which are still making billions and billions of dollars.
Q: I bought Baidu (BIDU) and Alibaba (BABA) years ago at a much lower price and I'm still up quite a lot; what should I do?
A: If you have the big cushion, I would keep them and look for #1 recovery in the Chinese economy next year and #2 for the government to back off from their idiotic anticapitalism strategy because it’s costing them so much money.
Q: Is Robinhood (HOOD) a good LEAP candidate?
A: Only on a really big dip, and then you want to go out two years. With a stock that’s volatile as hell like Robinhood and could drop by half on no notice, so you only buy the big dips. It’s not a slowly grinding upward stock like Goldman Sachs (GS) and Morgan Stanley (MS) where you can add LEAPS now because you know it’s going to keep grinding up.
Q: How can Morgan Stanley go up when the chief strategist is bearish?
A: Their customers aren't listening to their chief strategist—they’re buying. And the volume of the stock, which is where Morgan Stanley makes money, is going through the roof, they’re making record profits there. And I've got Morgan Stanley stock coming out of my ears in LEAPS and so forth.
Q: What are 5 stocks you would buy right now?
A: Easy: Google (GOOGL), Microsoft (MSFT), Morgan Stanley (MS), Goldman Sachs (GS), and JP Morgan (JPM). Buy whatever is down that day. They’re all going up.
Q: Too late to buy Tesla (TSLA) calls?
A: Yes, it is. Tesla has a long history of 40% corrections; we had one that ended in May, and then it doubled (and then some). So yeah, too late to buy the calls here. Go back and read my research from May which said buy the stock and you get a car for free—and that worked again, except this time, you can get three free Tesla’s. A lot of subscribers have sent me pictures of their Teslas they got for free on my advice; I’m probably the largest salesman for Tesla for the last 10 years and all I got out of it was a free Powerwall (the red one)..
Q: How much higher do you think semiconductor companies will go?
A: Higher but it’s impossible to quantify. You’re getting very speculative short-term buying in there. So, I think it continues to the rest of the year, but with chips, you never know.
Q: Would you be buying Crispr Therapeutics (CRSP) at these levels?
A: Yes, but I would either just buy the stock and not be dependent on the calendar or buy a 2 ½ year LEAP and get an easy double on that.
Q: What about the currencies?
A: I don’t see much action in the currencies as long as the US is raising interest rates. I think the Euro (FXE), the Aussie (FXA), and the British pound (FXB) will be dead for the time being. Nobody wants to sell them but nobody wants to buy them either when you’re looking at a potential short term rise in the dollar from rising interest rates.
Q: What stable coins are the right answer for cryptocurrency?
A: The US dollar stable coin, but for price appreciation, you’re really looking at Bitcoin and Ethereum. Stable coins are stable, they don’t move; you want stuff that’s going to go up 5, 10, or 20 times over the next 10 years like Bitcoin (BITO) and Ethereum (ETHE). That is my crypto answer.
Q: What should I do about the iShares 20 Plus Year Treasury Bond ETF (TLT) $135-$140 put spread expiring in January?
A: If we get another run down to the $141 level that we saw last month, I would come out of all short treasury positions because you’re starting to run into time decay problems with the January expirations. And in case we remain in a range for some reason, I would be taking profits at the bottom end of the range. It was my mistake that I didn’t grab those profits when we hit $141 last time. So don’t let profits grow hair on them, they tend to disappear. We lost six months on this trade due to the delta virus and the mini-recession it brought us.
Q: Will there be accelerated tech selling in December because of the new tax rates?
A: What new tax rates? There has been no new tax bill passed and even if there were, I think people wouldn’t tax sell this year because the profits are enormous. They would rather do any selling in January at higher prices and then defer payment of those taxes by 18 months. I don’t think there will be any tax issues this year at all.
Q: What’s your return on solar power investments?
A: My break-even was four years because our local utility, PG&E, went bankrupt and the only way they're getting out of bankruptcy is raising electricity prices by 10% a year. It turns out that as a result of global warming, the panels have operated at a higher efficiency as well, so we’re getting a lot more power output than originally expected. Now I get free electricity for the remaining 20-year life of the panels which is great because with two Tesla’s and all-electric heating and air conditioning I use a lot of juice. My monthly bill is a sight to behold. I also power the 20 surrounding houses and for that PG&E pays me $1,800 a month.
Q: Do you see China (FXI) invading Taiwan as a potential threat to the market?
A: China will never invade Taiwan. They own many of the companies they're already in, they de facto control Taiwan government from a distance; they would not risk the international consequences of an actual invasion. And we have the US seventh fleet there to stop exactly that. So, they can make all the noise they want but nothing will come of it. I’ve been watching this for 50 years and nothing has ever happened.
Q: Would you buy ProShares Ultrashort 20+ Treasury ETF (TBT) here?
A: Absolutely, with both hands, all I can get.
Q: Can you recommend any water ETF opportunity?
A: Yes there is one I wrote a piece on last month. It’s the Claymore S&P Global Water Index ETF (CGW).
Q: How long can you hold the (TBT) before time decay hurts?
A: It doesn’t hurt, the cost of the TBT is two times the 10-year rate. So that would be 3%, plus 1% a year for management fees, and that’s your slippage on the TBT in a year right now—it’s 4%. Remember if you’re short the bond market, you have to pay the coupon when you’re short. Double the bond market and you have to pay double the coupon.
Q: Is the ProShares Bitcoin Strategy ETF (BITO) a good alternative to buying bitcoin?
A: I would say yes because I’ve been watching the tracking on that very carefully and it’s pretty damn close. Plus there’s a lot of liquidity there, so yeah, buy the (BITO) ETF on dips and dollar cost average.
To watch a replay of this webinar with all the charts, bells, whistles, and classic rock music, just log in to www.madhedgefundtrader.com, go to MY ACCOUNT, click on GLOBAL TRADING DISPATCH, then WEBINARS, and all the webinars from the last ten years are there in all their glory.
Good Luck and Stay Healthy.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Mad Hedge Technology Letter
October 13, 2021
Fiat Lux
Featured Trade:
(AMERICA’S NEW SOCIAL CREDIT SYSTEM IS HERE)
(ABNB), (PYPL), (FB), (GOOLG), (AMZN)
Several external events have prompted Silicon Valley giants to unveil a predecessor to what effectively could become a de facto social credit system by the end of this decade.
I would argue that it is already here, and we are just blind to it.
Take short-term housing agent Airbnb (ABNB) and their business model.
Try searching for a specific listing in any city with a certain date, number of guests.
If you ask other friends and family around the world to input the same data into the same listing, prices will vary greatly.
This is intentionally done because pricing depends on the profile of a certain customer.
If it is $80 per night for me, it could be $100 for the next person.
Why?
Airbnb has an embedded algorithm that conjures up a de facto social credit score, applies it to the situation, and bam — you get your price.
Through my rough research, I have found that males tend to get charged less and especially males wielding a financial profile from a rich country.
I honestly am not sure what data Airbnb is privy to, whether it is only based on a customer’s prior internal Airbnb history, or if it is pieced together from other “sources.”
I am not sure, but if they somehow have access to alternative sources to understand their client better, they might already know that this 47-year-old John Doe booking a 3-night stay in Chicago, Illinois earns $300,000 per year, 1 out of his 5 credit cards is American Express among others, he reported $300,000 of Bitcoin profits in 2020 to the IRS and he owns 3 mansions in Miami, Florida.
It would almost be safe to say that this John Doe would get a better daily rate on the same Airbnb listing than if a 19-year-old student from Albania with no credit card, no assets, and no income tried to book the same listing.
Of course, this also goes for a hardworking single mother trying to take her kids on vacation. So, in the end wealthy men get benefited by a system with discounts that other customers could probably use. But, I guess that's just business in corporate America.
This is just the beginning of the race to pad a soft social credit system so tech companies and others can charge different prices to different people, or maybe not sell some customers services at all.
Relying on an indirect boost from D.C., corporate America will attempt to force the most profound changes our society has seen during the internet era.
Last week, PayPal (PYPL) announced they would start to crack down on users that did not use their platform responsibly.
This group could potentially lose access to PayPal’s services.
PayPal says the collected information will be shared with other financial firms and politicians.
Facebook (FB) is adopting similar practices, recently introducing messages that ask users to snitch on their potentially “extremist” friends.
At the same time, Facebook and Microsoft are working with several other web giants and the United Nations on a database to block potential extremist content.
Some banking platforms already have announced a ban on certain legal purchases, such as firearms.
The growth of such restrictions will accelerate to every part of the business world.
The potential scope of the soft social credit system under construction is enormous and the data exchange practices could have all tech companies swapping customer info in some type of private network that is only accessible to them.
A creation of a “Digital Dollar” would put the tools in place to make sure customer data and flow of money are followed to the very kilobyte.
Working in conjunction with major tech companies, citizens convicted of a crime could lose their ability to transact any business as well.
On a business level, this is great for all the big Silicon Valley companies involved because they would be more efficient at deploying the business intelligence at hand to make money.
I won’t go through the Rolodex of tech companies that are in the data business, but anything involving the cloud and anything in the cloud making great margins, will go gangbusters if this is allowed to happen, which it's looking like it will.
Imagine how conversion rates at Facebook, Google (GOOGL), and Amazon (AMZN) will skyrocket because they already know how to sell stuff to the end guy.
Imagine how Airbnb could ban guests before they even had a chance to destroy somebody’s residence or give generous rates to big spenders that would encourage even more big spending.
This is essentially the dream of Silicon Valley, not for only ad tech like Roku, The Trade Desk, Snapchat, and so on, but the software companies too.
Accurate and voluminous data means better decisions and a super-charged business model.
Mad Hedge Technology Letter
September 29, 2021
Fiat Lux
Featured Trade:
(THE NEW PAYPAL OR SQUARE)
(SOFI), (PYPL), (SQ)
SoFi Technologies (SOFI), a recent SPAC, is a one-stop fintech platform that provides loan refinancing, private student loans, personal loans, auto loans, mortgage loans and investments, as well as insurance products for renters, homeowners, automobiles and others.
They are a fintech company at a time when fintech companies are fetching premiums.
That’s always a great place to be.
Fintech's outsized attention stems from the position they sit at in today’s world — they truly exist at the intersection of the future and technology.
SoFi’s stock reacted poorly from the missed earnings-per-share estimates, and the stock is down roughly around 20% since the Aug. 12 release.
Volatility is a familiar pain point for emerging tech stocks and the investing backdrop continues to be fickle and frothy.
What do I like about SoFi today?
They are making progress on their overall strategic vision and show signs they might live up to the hype.
Total revenue in the technology division declined from the sequential quarter, while total revenue in the lending segment grew a respectable 12.4%.
But in the financial services segment, which is by far the smallest of the three in terms of revenue, total revenue of more than $17 million grew 164% from the first quarter of 2021 and more than 600% from the second quarter of 2020.
Experiencing green shoots in new businesses gives investors hope that they can turn divisions into cash cows.
The company is seeing a boost coming from new members on its online brokerage, SoFi Invest, as well as from the new equity capital markets and advisory services offerings introduced during the quarter.
SoFi is also getting in on the crypto space, allowing investments in equities, cryptocurrencies, fractional shares, and robo-investing services.
I also love that SoFi is in the process of obtaining an official bank charter — this also opens the door to many new opportunities that require deposits.
It would be accurate to say they are heading down the path of PayPal (PYPL) and Square (SQ), and there are plenty of green pastures to till in this space.
Just look at these two firms’ stock performance and one will understand there are worse places to be in the economy.
Eventually, the company will be able to unearth cross-selling opportunity, along with the SoFi Money checking account product, as members will be easily able to transfer funds to and from their checking and brokerage accounts.
SoFi Invest also doesn't currently offer options trading. In 2020, the online brokerage, Robinhood generated 46% of its total revenue from options trading, so it certainly could be a boost if SoFi eventually offers the feature.
By providing consumers with free access to high-frequency products and lower costs, SoFi eases consumers into the ecosystem.
Then, with the help of a simple UI/UX, customers are drawn toward ancillary products.
The vision they are beholden to is that of insatiable user growth that will nudge the incremental investor into buying more shares of SoFi.
Another reason to get behind SoFi is due to the company bringing market-leading deployable digital platform that is rapidly gaining traction in today’s economy.
In this current climate, growth stocks don’t have the same appeal that they did last year, or even in 2012.
The Nasdaq is frothy and looking for new drivers to take us a leg higher and obviously higher interest rates do a lot to diminish the narrative for stocks like SoFi.
I will say that if SoFi’s stock comes down to $14 which would represent a remarkable discount from the $25 the stock was trading in February, then I would pull the trigger at that point.
This isn’t a stock worth chasing because it’s susceptible to missing forecasts, earnings, EPS, and revenue targets.
SoFi has a hard slog ahead of itself to become the next PayPal or Square, but if they achieve a fraction of the success the aforementioned did, then it will become a $30 stock.
