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)
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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.
Mad Hedge Technology Letter
January 8, 2019
Fiat Lux
Featured Trade:
(WHY I SOLD SHORT APPLE),
(AAPL), (FB), (SNAP), (SQ), (AMZN), (BB), (NOK)
Apple (AAPL) needs Jack Dorsey to save them.
That is what the steep sell-off is telling us.
Lately, Apple’s tumultuous short-term weakness is indicative of the broader mare’s nest that large-cap tech is confronting, and the unintended consequences this monstrous profit-making industry causes.
These powerful tech companies have sucked out the marrow of the innovative bones that the American economy represents, applying this know-how to pile up ceaseless profits to the detriment of the incubational start-ups that used to be part and parcel of the DNA of Silicon Valley.
In the last few years, the number of unicorns has been drying up rapidly on a relative basis to decades of the ’90s and the early 2000s – this is not a startling coincidence.
The mighty FANGs were once fledging start-ups themselves but have become entrenched enough to the point they transcend every swath of culture, society, and digital wallet now.
Becoming too big to boss around has its competitive advantages, namely harnessing the hoards of data to destroy any competition that has any iota of chance of uprooting their current business model.
And if these large tech companies can “borrow” the innovation that these smaller firms cultivate, they wield the necessary resources to undercut or just decapitate the burgeoning competition.
The net effect is that innovation has been crushed and the big tech companies are milking their profits for what its worth.
Fair?
Not at all.
But tech has never been a fair game and going to a gun fight with a knife is why militaries incessantly focus on technology to accrue a level of firepower head and shoulders above their peers.
The career of Co-Founder of Jet.com, an e-commerce platform bought by Walmart for $3.3 billion in 2016, perfectly illustrates my point.
Marc Lore was born from the mold of leaders such as Amazon (AMZN) founder Jeff Bezos, leveraging the wonders and functionality of the e-commerce platform to construct a thriving business empire.
Quidsi, an e-commerce company, was founded by Marc Lore on the back of Lore maxing out personal credit cards to rent trucks to head to wholesale stores up and down the East coast to buy diapers, wipes, and formula in large quantities.
Under the umbrella of Quidsi, diapers.com and soap.com were successful e-commerce businesses and a segment that Amazon hadn’t cracked yet.
CEO of Amazon Jeff Bezos identified Lore as a mild threat to his low-end pricing, high-volume business empire.
Yes, this was a market grab, but to avoid a looming and an escalating price war, Amazon bought Quidsi for $500 million and $45 million of debt leaving Lore with millions after repaying earlier investors but effectively neutering Lore and putting him out to pasture.
The best way to ensure there is not another Jeff Bezos is for Jeff Bezos to buy out the upcoming Jeff Bezos before he can get close enough to go for the kill.
While both Bezos and Lore extolled the acquisition with pleasantries, Lore later described it as a glass half empty scenario akin to a mourning.
Getting a golden parachute-like payment for innovation is the best-case scenario for these up and coming stars of tech.
Others aren’t as lucky.
The castle that Bezos built and this type of reaction to stunting competition cannot be quantified and has a net negative effect on the overall level of innovation in the tech sector.
Then there is the worst-case scenario for tech companies such as Snapchat (SNAP). They have been courted numerous times by Facebook (FB) and offered sweetened deals that most people would salivate over.
Each rebuff followed a further Facebook retrenchment onto Snapchat’s territory hoping that they would gradually tap out from this vicious headlock.
In return, Snapchat has had the Turkish carpet pulled out from underneath them and most of their in-house innovation has been borrowed by Facebook’s subsidiary social media platform Instagram.
During this time span, Snapchat’s share price has nosedived and the defiant Snapchat management has lost the momentum and bravado that was emblematic to their business model.
Innovation has also been strangled in Venice, California as declining usership has been partly due to a lack of fresh features and an emphasis on profit creation instead of innovation that led to a botched redesign and sacking of 100 engineers.
Then there is that one's company, two's a crowd and three's a party and Snapchat’s growth model trailed Facebook and Twitter who took advantage of the era of zero regulation to build usership and brand awareness.
Snapchat was late to the feast and has suffered because of it.
The climate and mood for social media have significantly soured in the past six months and have tainted this whole niche sector with one toxic stroke with a brushstroke that has encapsulated any company within two degrees of this sector.
So where do the innovative problems start with Apple?
Right at the top with CEO Tim Cook.
Apple is known for brilliantly rewriting history and not fine-tuning it.
This is why I have preached the emphatic value of erratic but visionary leaders such as Steve Jobs and Elon Musk.
They take big risks and do not apologize for their smoking weed on podcasts and laugh about it.
Investors put up with these shenanigans because these leaders understand the scarcity value of themselves.
They don’t play it safe even if profits are the easiest option.
To save Apple, Apple would need to hire Square and Twitter CEO Jack Dorsey to innovate out of this mess.
The stock would double from here because Dorsey would bring back the innovative juices that once permeated through the corridors in Cupertino through Job’s genius ideas.
Under Cook’s tutelage, Apple has made boatloads of cash, but they were going to do that anyway because of Steve Job’s creations.
However, Cook has presided over China rapidly encroaching on its revenue source and is over-reliant on iPhone revenue.
They had years to develop something new but now China is beating Apple at its own game.
Not only has the smartphone market sullied, but so has the relative innovation that once saw every iPhone iteration vastly different from the prior generation.
The petering out of innovative smartphone features has gifted time to the Chinese to figure out how to snatch iPhone loyalists in China with vastly improved devices but at a way lower price point.
The erosion of Samsung’s market share in China should have been a canary in the coal mine and China is in the midst of replicating this same phenomenon in India too.
And I would argue that this would have never happened if Steve Jobs was still alive.
Jobs would have reinvented the world two times over by now with a product that doesn’t exist yet because that is what Jobs does.
As it is, Cook, a great operation officer, is a liability and probably should still be an operations manager.
Cook blared the sirens in early January with a public interview saying that revenue would drop by $9 billion.
This was the first profit warning in 16 years and won’t be the last if Cook retains his position.
Cook has steered the mystical Apple brand careening into the complex dungeon of communist China and was late to react.
Jobs would act first and others would have to react to his decisions, a staple of innovation.
Sailing Apple’s ship into the eye of the China storm stuck out like a sore thumb once Trump took over.
Adding insult to injury, consumers are opting for cheaper Android-based phones that function the same as iPhones.
The 10% of quality that Apple adds to smartphones isn’t enough to persuade the millions of potential customers to pay $1000 for an iPhone when they can get the same job done with a $300 Android version.
Cook badly miscalculated that Apple would be able to leverage its luxury brand to convince prospective buyers that iPhones would be a daily fixture and can’t-miss product.
Even though it was in 2010, it isn’t now.
The type of price points Apple is offering for new iPhone iterations means that this version of the iPhone should be at least 35% or 40% better than the previous version giving the impetus to customers to trade-up.
Sadly, it’s not and Cook was badly caught out.
Therefore, it is confusing that Apple didn’t apply more of its mountain of capital and luxurious brand status to cobble together a game-changing product.
Cook could have put his stamp on the Apple brand and might not have the chance now.
Cook being an “operations guy” has gone to the well too many times and the narrative and direction of Apple is a big question mark going forward.
This is the exact time needed for some long-term vision.
What does this all mean?
The shares’ horrific sell-off means that it is in line for some breathing room from the relentless downward price action.
However, unless the geopolitical tornados can subside, Apple debuts a Steve Jobs-esque bombshell of a product, or Square (SQ) CEO Jack Dorsey takes over the reins in Cupertino, the share price has limited upside in the short-term.
Apple will not have the momentous and breathtaking gap ups until something is fundamentally changed in the house that Steve Jobs built and that is what the tea leaves are telling us.
This has led me to execute a deep-in-the money put spread to take advantage of this limited upside.
Apple is a great long-term hold, but even Cook is threatening this premise.
As Cook is stewing in his office pondering his uncertain future, he forgets what it was that got Apple to the top of the tech ladder – innovation and lots of it.
The Mad Hedge Technology Letter ranks innovation as the most important input and x-factor a tech company can possess.
Steve Jobs understood that, yet, failed to pass on this hard-learned but important lesson to his protégé.
If Apple stays on the same track, they risk being the next Nokia (NOK) or Blackberry (BB).
WHEN WILL APPLE REVOLUTIONIZE THE WORLD AGAIN?
Mad Hedge Technology Letter
January 7, 2019
Fiat Lux
Featured Trade:
(NOT TOO GOOD TO BE TRUE),
(SCHW), (FB), (SQ), (WMT), (AMZN), (FFIDX), (BOX)
Mad Hedge Technology Letter
January 2, 2019
Fiat Lux
Featured Trade:
(THE FANGS' PATH TO ONLINE BANKING),
(SQ), (V), (MA), (AXP), (JPM)
Yu'e Bao or "leftover treasure" in English has caught the attention of more than 400 million Chinese investors.
This money market fund has exponentially grown into a $250 billion fund by the end of 2017, and is now the largest money market fund in the world!
This product isn't offered by Bank of China or another giant state-owned bank or financial enterprise, but Alibaba's (BABA) Ant Financial (gotta love those Chinese names).
Assets under management are up 100% YOY and it now accounts for a quarter of China's money-market mutual fund industry in just one fund.
These inflows coincide with the sudden migration into mobile payments. Common folks are comfortable with investing their life savings in these short-term instruments with a too-big-to-fail, larger-than-life firm such as Alibaba.
Yu'e Bao derives its funds from Alipay users, Alibaba's digital third-party platform, that allows consumers to pay for everything in life from theater tickets to utility bills.
Service is unified on a holistic graphic interface. Users can easily divert cash into this fund with a few screen taps on their app. Yu'e Bao's ROI offers a seven-day annualized yield of 4.02%, down from the introductory annualized rate of 6.9% around the launch in 2013.
Yu'e Bao's short-term yield outmuscles the 1.5% interest rate on one-year Chinese bank deposits and the 3.6% yield on 10-year Chinese government debt.
Weak banking regulation has spawned a mammoth FinTech (financial technology) industry in the Middle Kingdom. Only one yuan (16 cents) is enough to create an account and considerable retail flow has rushed in.
China has catapulted ahead of the rest of the world emerging as the leader of global FinTech innovation. The pace, sophistication, and scale of development of China's FinTech have surpassed the level in any other of the developed countries.
The country's digital metamorphosis has enhanced e-commerce, payment systems, and connected logistical services. The Chinese discretionary spender for the past decade has been the deepest and most reliable lever of global growth.
Mobile third-party payments in China, 90% cornered by Tencent's WeChat and Alibaba's Alipay, are estimated to reach a lofty $6 trillion in revenue by 2019, more than 50 times that of the U.S.
These omnipresent payment systems are now deeply embedded into the fabric of Chinese society. It's common to witness homeless people on Shanghai subways waving around a scannable image for WeChat or Alipay money transfers instead of asking for physical cash.
Even in rural farmlands, shabby convenience stores prioritize digital currency and sometimes don't accept paper currency at all. Yes, China is beating the U.S. to a cashless society.
Digitization is changing the competitive balance, and global banks must embrace large-scale disruption caused by big tech platforms.
Banks in China regard these companies as potential collaborators resulting in a net positive long-term infusion of enhanced products and services.
Agreements have been forged between the Bank of China and Tencent, and the China Construction Bank has linked up with Alibaba.
China has incorporated the technical power of A.I. (artificial intelligence) and machine learning into its FinTech platforms at every opportunity. Robo-advisors are also making inroads creating a bespoke financial program for the individual.
This trend has so far failed to go viral in America where individuals still prefer plastic cards or even paper cash. E-commerce clocked in a paltry 9.1% of total U.S. retail sales in the third quarter of 2017.
Even though most of us have our heads buried deep in our smartphone virtual world, Americans are still programmed to whip out debit or credit cards at every opportunity.
Chinese who visit America carp endlessly about America's archaic payment system.
Ultimately, American payment systems are ripe for digital disruption.
The American consumer will ultimately cause severe damage to MasterCard (MA), Visa (V), and American Express (AXP) which are happy with the current status quo.
The lack of innovation in the US FinTech sector is a failure in the otherwise fabulous technological leadership of the US. American smartphones should already be a fertile digital wallet, not just a niche market.
Savvy Jack Dorsey even invented a firm based on this inefficiency exploiting the lack of proficiency in domestic FinTech with Square (SQ).
And a vital reason the stock has gone parabolic this year is because of the brisk execution and the long runway ahead in this industry.
American big tech will gradually utilize China's FinTech model and extrapolate it with "American personality." It is much more of a two-way street now than before with cutting-edge ideas flowing both ways.
The next leg up after digital wallet penetration of FinTech is money market funds on tech platforms. In effect, the Chinese innovation of this industry has allowed more variations of potential financing for the ambitious Chinese, and the same trends will gradually appear on Yankee shores.
Ironically enough, Amazon's (AMZN) land grab strategy is more prevalent in China as artificially low financing and juicier scale justify this strategy.
The scaling premium also explains why corporate China's early adopter advantage is so effective because not many countries boast a 1.3-billion-person consumer market.
Soon, Americans will wake up to the reality that American FinTech must advance or foreign firms will rush in.
Mediocrity is not good enough.
iPhones and Android consumers could direct savings into tech money market funds with compounding yield all on a single digital platform.
Tech companies could deploy some of the repatriated cash to invest in some fledgling FinTech expertise to smoothly execute this new endeavor.
Consequently, a successfully created money market fund on a tech platform would enlarge the already substantial cash hoard these firms possess. Not only will the large tech companies flourish, but the big will get absolutely massive.
The determining factor is financial regulation. Capitol Hill has drawn a large swath of mighty Silicon Valley tech titans to testify because they are stepping on too many toes lately.
A scheme to hijack the digital payments market and dominate the mutual fund industry will cause unyielding push back in Washington especially when the Amazon death star continues pillaging select industries of their choosing and eliminating brick-and-mortar jobs by the millions.
J.P. Morgan (JPM) which has the largest institutional money market fund in the country and retail stalwarts such as BlackRock and Vanguard will be sweating profusely too if mega tech starts probing around its turf.
Alibaba is also coming for its bacon with the failed purchase of payment transfer service MoneyGram International (MGI) temporarily shutting out Jack Ma from a foothold in the American payment system industry.
And if the Chinese aren't let in, there will be others sniffing around for the bacon, too.
The momentum for these financial instruments is robust as FinTech integrates deeper into consumer life. The global cash glut from a decade of cheap financing is causing profit-hungry investors to starve for high-yield vehicles.
The stability and clean balance sheets of tech giants give them ample chance to successfully execute. So, why can't they also become banks? Would you buy an Apple, Amazon, or Google money market fund if they offered a 4% to 7% annualized yield?
I believe most Americans would.
Mad Hedge Technology Letter
December 13, 2018
Fiat Lux
Featured Trade:
(HOW PAYPAL IS DESTROYING LEGACY BANKING)
(MSFT), (TWLO), (ADBE), (PYPL), (CRM), (SQ), (ROKU), (AMZN)
Gazing into the future, investors know it’s time to deploy strategies to make money in 2019.
This year has been a bizarre one for technology stocks.
The industry was overwhelmed by a relentless geopolitical circus that had more sway on tech stock’s price action than in any year that I can remember.
Technology stocks have never been more intertwined with politics.
The so-called FANGs have really been taken out behind the woodshed and beaten, and their get-out-of-jail card is no longer free to access with politicians eyeing them as take down targets.
They are no longer invincible even if they still earn bucket loads of money.
A good amount of the public animosity towards the big tech companies has been directed to socially awkward CEO of Facebook Mark Zuckerberg and his negligence towards the concept of personal data.
Facebook was once the best company in technology to work, I can tell you now that prospective applicants are scrutinizing Facebook’s actions with a gimlet eye and turning to other opportunities.
Current Facebook employees are putting in feelers out to former colleagues planning optimal exit strategies.
Remember that it’s not my job to always tell you which tech stocks are going up, but also to tell you which tech stocks are going down.
One stock poised to outperform in 2019 is international FinTech company PayPal (PYPL).
The stock has proven to be Teflon-like deflecting the pronounced volatility that has soured the tech sector in the second half of the year.
The pendulum of regulation-flipping will concoct new winners for 2019 and I believe PayPal is one of them.
PayPal is in a dominant market position with a core customer base of 254 million users and growing.
The company is so dominant that it processes almost 30% of all global payments excluding China where foreign companies are barred from operating in the FinTech space.
The quality of the product is demonstrated by a recent note from research firm Nielsen offering data showing that on average, PayPal customers complete transactions 88.7% of the time.
This astoundingly high number for PayPal checkout conversion is about 60% better than “other digital wallets” and 82% better than “all payment types."
PayPal’s home country, United States, is still vastly unmonetized in terms of the breadth of penetration of online and e-commerce payments.
America has failed so far to adopt the amount of FinTech that Chinese consumers have rapidly embraced.
The great news is that late-stage adoption of FinTech services will offer PayPal a path to profits that bodes well for the earnings and its share price in 2019 and beyond.
Investors can expect total payment volumes (TPV) consistently nudging up in the mid-20% range.
The firm helmed by Dan Schulman is just scratching the surface on pricing power.
PayPal has changed its approach of ‘one‐size‐fits‐all’ in merchant contracts to a dynamic pricing model reflecting the value‐add of recently acquired products that are more powerful.
Jetlore, launched in 2014, is a provider of predictive artificial intelligence for retail companies able to comb through the data to help boost sales.
Hyperwallet distributes payments to those that sell online, and its purchase was centered around protecting the company's core business, enabling marketplaces to pay into PayPal accounts.
iZettle, an international mobile point-of-sale (POS) provider, is better known as the Square of Europe and has a large footprint. The relationship in PayPal has sounded alarm bells in Britain for being too dominant.
Simility, an AI-based fraud prevention specialist, round out a comprehensive list of new tools and services to PayPal’s all-star caliber lineup that can offer upgrades to businesses through a hybrid solution.
This positivity surrounding the sum of the parts will allow the company to build custom solutions for merchants of all sizes.
Augmenting a solid, stable business is a start-up inside of PayPal’s umbrella of assets with enormous growth potential called Venmo making up one of PayPal’s large future bets.
Venmo is a peer-to-peer payment app acquired by PayPal in 2013.
It is a favorite and mainstay of Millennial users who have gravitated towards this FinTech platform.
PayPal is intently focused on monetizing Venmo and the strategy is paying dividends with last quarter seeing 24% of Venmo traffic monetized which is up sequentially from 17% the quarter before.
Part of the increase in profits can be attributed to integrating Uber Eats into the platform, tacking on a charge for instant money transfers linked to bank accounts, and a Venmo debit card rolled out to the masses.
This innovation was not organic and in fact borrowed from FinTech Square, a great company led by Jack Dorsey, but the stock is incredibly volatile scaring off a certain class of investors.
Former CFO of Square Sarah Friar left her post at Square to boldly take on a CEO job at Nextdoor, a social network app, illustrating that an executive management job at Square is a golden credential able to springboard workers to a CEO job in Silicon Valley.
Shares of Square have doubled in 2018 and 2017, and the recent weakness in shares is more of a case that Square went too far over its skis than anything materially wrong with the company as well as a harsh macro climate that stung most of tech.
The price action can sometimes be breathtaking with 7% moves up and down all in a few days.
If you are searching for a slow grinder on the way up, then Microsoft (MSFT) would be a better tech play to plop your money into.
In my eyes, Microsoft is the most durable, all-terrain tech stock that will weather any type of gale-force squall in 2019.
For me, CEO of Microsoft Satya Nadella is the best CEO out there in the tech industry minus Jeff Bezos at Amazon (AMZN).
The Azure Cloud business is ferociously nipping at Amazon’s heels and Nadella has created a subscription-based monster out of legacy components left behind by failure Steve Ballmer who almost sunk Microsoft.
The stock has risen three-fold since Nadella took the reins, and I believe that Microsoft will soon surpass the trillion-dollar market capitalization level and end 2019 as the most valuable tech company.
Microsoft is indestructible because it’s a hybrid mashup of a growth company whose legacy products are also still delivering fused with a top-notch gaming division and a chance at catching the Amazon cloud.
The only company that can compare in terms of potency is Amazon.
Microsoft is not a one-trick pony like Apple, Facebook, Netflix and the way I see it, there are only two top companies in the tech landscape that will leave the last three companies I mentioned in the rear-view mirror.
Echoing Microsoft, PayPal has adopted a similar magical formula with its legacy core growing at 20% yet has growth levers with Venmo layered with targeted add-on companies that will enhance the firm’s offerings.
Moving forward, tech companies that have one or more growth drivers funded by a successful legacy base will become the ultimate tech stocks.
Playing on the same trope, Adobe (ADBE) is another company that has a software-based iron-clad legacy twinge to it and has the potential to spread its wings in 2019.
PayPal, Microsoft, and Adobe do not have the potential to double like Square or Roku next year, but they have minimal China trade war risk if things turn ugly, highly profitable with growing EPS, and are pure software companies whose CEOs put a massive emphasis on software development.
Expect this trio to melt up in 2019, and be prepared to strap on call spreads at advantageous entry points.
Another pure software service stock I love for 2019 is Twilio (TWLO) who I chronically use when I call an Uber to shuttle me around and take weekend getaways on Airbnb.
I would also lump Salesforce (CRM) into the discussion for stocks to buy in 2019 too.
Notice that all the stocks I favor next year are heavily weighted towards software and not hardware.
Hardware is going out of fashion at warp speed, the China tariffs just exacerbated this trend since most of the hardware supply chains are based in China.
Currently, the Mad Technology Letter has open positions in Microsoft and PayPal and if you are like most people online, you will probably use their service next year and more than a few times.
Mad Hedge Fund Trader John Thomas was interviewed on a major news network a few days ago talking out the state of the global financial markets. I thought you would be interested in the Q&A that followed.
Q: Bonds (TLT) have come down a lot on sudden flight to safety bid, with the 30-year yield under 2.9%. Do you see yields going back up in the short term?
A: Absolutely, yes. This is a one-time only panic triggered by the failure of the G-20 Summit in Buenos Aires. And we got the second leg down from the arrest of the CFO of Huawei, one of China's biggest companies, so that has triggered a short-term panic. It's temporary and we're going to bounce back strong. In fact, we already have. Now is a great time to be shorting bonds and buying stocks.
Q: How bad are things at Facebook (FB)? Is the bad news priced into the stock?
A: No, all the bad things are not priced into the stock. That’s why we are telling people that Facebook is a “No touch.” Bad news seems to come out every day, it’s a black swan a day stock, you don’t want to be anywhere near it. They will get some regulation, but nobody knows what it is, or how much it will affect profitability. But when a big company has to change their business model in a hurry, you don’t want to be anywhere near it. Far easier to buy it on the way up than on the way down.
Q: Will a cut in the oil supply by OPEC stem the spiraling down price of Oil (USO)? Is there a trade here?
A: “Yes” to both questions. OPEC will probably announce some sort of price cut/production cut in the next meeting which will get prices off the floor. Everyone ramped up their production to try to beat price falls which then makes the price fall worse, which is always what happens. So, yes, I would be buying oil here. I'd be buying oil stocks here too. There is your trade.
Q: Will the markets hold the February Lows?
A: Yes.
Q: If it does not hold, how far can it fall?
A: Worst case, you may get a fall straight down sucking all the sellers. But if you flip the algorithms to the buy side then it’s off the races. Markets have a habit of doing that quite a lot this year, so I think the lows have been made and you want to be buying stocks here. The fundamentals behind the market are just too strong to get beyond what algorithms are doing, what damage algorithms can do on a day trading basis. So yeah, I don't think that we're going to new lows, these are the new lows right here.
Q: Do you see an American Recession by the end of 2019?
A: Yes, I see the bull market ending in the next 3 to 6 months and recessions starting after that. That said, there is plenty to be made on the upside in coming months and then there's a ton of money to be made on the downside after that. That’s when you want to be attending my short selling school which you also get with a subscription to my service.
Q: Will the Chinese (FXI) allow the Yuan to collapse to fuel imports AND stimulate their GDP growth rate?
A: Yes. They have largely offset all of the import duties imposed by the US by depreciating their currency by 10%. If we raise duties more, they'll just cut their currency value by the same amount, so the actual dollar landed price is unchanged. There's nothing the US can do about that. We're already playing our best cards so it’s not like we can do to retaliate if they devalue their currency more. That’s the problem you have shooting all of your arrows on the first attack.
Q: Would you rotate some growth to value-based stocks on the expectation of interest rising next year in crush and grow stocks.
A: You got it half right. I would sell the high growth stocks into the next big rally, take my profits, and then go into cash! You don't want to own defensive stocks in bear markets, you want to own cash. Defensive stocks go down in a bear market, only at a slower rate, but go down they do nonetheless. Cash is king. You can earn 3 or 4% on your cash these days. That is much better than a stock that is going down.
Q: I bought General Electric (GE) about a year ago at $17, and I thought it was a great deal at the time. Unfortunately, it was not, so can (GE) go any lower than it is now? I thought it would hold $10 dollars but then they cut their dividend to one cent and the shares have cratered to seven dollars. What should I do?
A: You're kind of asking me what to do after you close the barn door and the horses have already bolted. If you have (GE), I would keep it at seven dollars. The worst thing, it goes sideways from here. The best case is you get a strong rally and the stock doubles in coming months. This is not a chapter 11 situation as they have too many assets. It’s just a matter of how quickly they can turn around the company. By the way, we told people to stay away from (GE) from $31 all the way down to when it got to single digits. So, we missed that buy every dip mentality in (GE). Thank goodness for that.
Q: Why won’t banks benefit in a rising interest rate environment?
A: The answer is very simple. These are the new buggy whip makers. You don't want to own big banks as they're hobbled by these gigantic branch networks which cost a fortune, and which are all going to disappear in ten years. Fintech companies like Square (SQ) and PayPal (PYPL), these little tiny apps that you've never heard of, they're eating the banks’ businesses one by one. And by the way, even though interest rates are rising, loan volume is falling at a faster rate, so they're making a lot less money than they used to. They're not really allowed to trade markets anymore because the risk is too high. So, even if they knew how to trade markets, they can’t rely on those earnings like they used to. So, avoid the banks like the plague.
Q: Is there any scenario you see stocks rising 10% next year?
A: No. Absolutely not. We're trying to call the top of a 10-year bull market here. The total return on the market in 2019 will probably be negative and could be negative by quite a lot. Maybe by 10%, 15%, or more. So yeah, if you're hanging on for new highs, I would give up that theory and find another one. It could be a very long wait, like a five-year wait before we go back to the old highs we saw in September and before that in January.
Q: Will Geopolitics drive the market more than it did in 2018?
A: Absolutely, it will. In the geopolitics category, you can include the China trade war, the Europe trade war, the possibility that Congress does not approve the new NAFTA. There's a ton of new things that could go wrong next year. And by the way, the burden of proof is now on stocks to prove how good they are. Risk is rising in the market and volatility is rising, but there still is good money to be made for a year-end rally.
Q: Why has gold (GLD) not performed so far?
A: We don't have inflation and gold really needs to get a good ramp up in inflation to get some serious price performance. That said, I expect a return in inflation. The economic data you get lags reality by anywhere from 3 to 6 months, so you will get a rise in inflation well above 3%. That’s when you really start to move on gold, that’s why I'm saying buy the dip.
Q: Would you buy the dollar (UUP)?
A: No, I would not. It’s looking like we have a couple of interest rates rising next year. The dollar will remain strong into that but in some point next year in the whole strong dollar story disappears as the rise in interest rates stops. If the interest rates level, all of the weak dollar plays will take off like a rocket. Those would include the Euro (FXE), Yen (FXY), and emerging markets (EEM). So, watch those spaces very carefully. There are gigantic moves coming in all of those once we stop raising interest rates and once the dollar peaks out.
Q: Will we close at the lows of the year?
A: No, we will not. The lows of the year probably happened right before this interview. I expect a strong rally from here driven by algorithms. Yes, they work on the upside just as well as they do on the downside side. In fact, algorithms really don’t care which way they go just as long as they go.
Q: What securities do you cover?
A: We cover stocks, bonds, commodities, precious metals, real estate, and every trade alert has a recommendation for a stock, an ETF, and an options trade so that way you can tailor the trade alert to meet your own experience level and risk tolerance.
Q: When does the letter come out?
A: It comes out roughly at midnight EST every day before the next trading day. That way early risers can read the letter and then enter their trade alerts at the market opening. It also helps the Europeans read it as their day starts. We have a big following in Europe and an even bigger following in Australia so that is the answer to that question.
Q: Can beginners with no previous experience use your service?
A: Absolutely. Training beginners how to enter the markets for the first time is one of the primary goals of this newsletter. We have customers that range in size from $20 billion dollar hedge funds all the way down to students trading off their dorm room beds with minimal one-contract trades. So yes, it’s for everybody and every trade alert that we send out has a link to a video showing you exactly how to execute this trade on your own trading platform
Q: Are you an algorithm?
A: Well, if I made a machine noise that would help. All I can say is come to one of my global strategy luncheons. You can pinch me and if I bleed, I am real.
Q: You obviously have enough money, why do you do this?
A: Leveling the playing field for the average guy is why I do this. When I worked on Wall Street, I saw so many people get ripped off it used to make me sick. So, this is my chance to get even. Helping you learn how to make money is my way of getting even. That's why I do this.
At the beginning of the interview, I promised you a seasonal trade alert, here is one of the most popular ones, Buy Home Depot (HD) in the Summer before the hurricane season. That’s good every year for a 15% rally and that’s exactly what we got this year. A 15% rally, 2 big hurricanes, big profits, goodbye, and then see you again next year.
Q: Thank you for coming today, John. It was a real pleasure.
