Global Market Comments
October 19, 2023
Fiat Lux
Featured Trade:
(WHO WAS THE GREATEST WEALTH CREATOR IN HISTORY?)
(FB), (AAPL), (GOOG), (AMZON),
(XOM), (BRKY), (T), (GM), (VZ), (CCA),
(WHY DOCTORS MAKE TERRIBLE TRADERS?)
Global Market Comments
October 19, 2023
Fiat Lux
Featured Trade:
(WHO WAS THE GREATEST WEALTH CREATOR IN HISTORY?)
(FB), (AAPL), (GOOG), (AMZON),
(XOM), (BRKY), (T), (GM), (VZ), (CCA),
(WHY DOCTORS MAKE TERRIBLE TRADERS?)
Global Market Comments
December 17, 2021
Fiat Lux
Featured Trade:
(DECEMBER 15 BIWEEKLY STRATEGY WEBINAR Q&A),
(FCX), (FCI), (TLT), (TBT), (BITO), (AAPL), (AMZN), (T), (TSLA), (BABA), (BLOK), (MSTR), (COIN)
Global Market Comments
April 30, 2021
Fiat Lux
Featured Trade:
(APRIL 28 BIWEEKLY STRATEGY WEBINAR Q&A),
(PFE), (MRNA), (USO), (DAL), (TSLA), (CRSP), (ROM), (QQQ), (T), (NTLA),
(EDIT), (FARO), (PYPL), (COPX), (FCX), (IWM), (GOOG), (MSFT), (AMZN)
Global Market Comments
February 19, 2021
Fiat Lux
Featured Trade:
(FEBRUARY 17 BIWEEKLY STRATEGY WEBINAR Q&A),
(USO), (XLE), (AMZN), (SPY), (RIOT), (T), (ZM), (ROKU), (TSLA), (NVDA) (TMQ) (TLRY), (ACB), (KO), (XLF), (AAPL) (REMX), (GLD), (SLV), (CPER)
Global Market Comments
January 8, 2021
Fiat Lux
Featured Trade:
(JANUARY 6 BIWEEKLY STRATEGY WEBINAR Q&A),
(TSLA), (SQM), (GLD), (SLV), (GOLD), (WPM), (TLT), (FCX), (IBB), (XOM), (UPS), (FDX), (ZM), (DOCU), (VZ), (T), (RTX), (UT), (NOC),
(FXE), (FXY), (FXA), (UUP)
It will be inevitable – the 5G shift in 2020 will be delayed.
Last year, 5G was available on only about 1% of phones sold in 2019 and demand has cratered this year because of exogenous variables.
Up to just recently, Apple (AAPL) was the bellwether of the success of tech with wildly appreciating shares due to the expected ramp-up to a new 5G phone later this year.
Well, things are more complicated now.
I will be the first one to say it - the new Apple 5G iPhone will be delayed until 2021 – the project has been thrown into doubt because of a demand drop off and headaches with the supply chain in China.
The phenomenon of 5G cannot blossom until consumers can upgrade to 5G devices.
Concerning all the media print of China Inc. going back to work, don’t believe a word of it.
People of the Middle Kingdom are sitting at home just like you and me by navigating around top-down government edicts.
Instead of the perilous commute in a country of 1.4 billion people, Chinese workers are fabricating attendance figures per my sources.
Overall data is grim - global smartphone shipments dropped 38% year-over-year during February from 99.2 million devices to 61.8 million - the largest fall ever in the history of the smartphone market and that is just the tip of the iceberg.
The new data point underscores the magnitude of how the coronavirus is sucking the vitality out of the tech ecosystem in China and thus the end market for global consumer electronics.
The statistic also foreshadows imminent trouble in the smartphone market as other regions have now shut down not only in China but the manufacturing hubs of South East Asia.
The outbreak squeezes both supply and demand.
Factories in Asia are unable to manufacture phones as usual because of obligatory government shutdowns and complexities securing critical components from the supply chain.
5G has been hyped up as the great leap forward for wireless technology that will usher in unprecedented new use cases supercharging global GDP — from driverless transport to robotic automation to smart football stadiums.
And coronavirus is just that Godzilla destroying 5G momentum down.
Mass quarantines, social distancing, remote work, and schooling have been instituted in American cities, meaning that the current network carriers are swamped and overloaded with a surge in data usage.
The Verizon’s (VZ) and the AT&T (T) Broadbands of America are currently focused on maintaining their current core customers, adding extra broadband to handle the increased load, and making sure the health of the network stays intact.
This is a poor climate to upsell products to beleaguered Americans who have just lost income and possibly their house because they cannot pay mortgages.
Services such as YouTube and Netflix (NFLX) have even decreased the quality of streaming on their platforms to handle the dramatic spike in extra usage in Europe with the whole continent locked down.
The Chinese consumer was the Darkhorse catalyst to ramp up the global economic expansion during the last economic crisis, picking up world spending in 2009.
On the contrary, this group of super spenders is less inclined to save the global economy this time around because they are saddled with domestic debt.
Just as unhelpful to Silicon Valley revenues, the technology relationship at the top of the governments are poised to worsen because of the health scare.
The U.S. administration has already banned the use of Chinese components in the U.S. 5G network amid suspicions the devices would be used for espionage.
Back stateside, I believe the U.S. telecoms will explicitly detail a sudden slowdown in the 5G network rollout during their next earnings report.
The telecom companies have been able to successfully handle the extra incremental load, but it has had to allocate resources to service the extra volume.
In the meantime, companies will shift to doing infrastructure and site preparation in anticipation of the re-build up to 5G, but that could be next to be put on ice if crisis management moves to the forefront.
Considering every 5G base station is being manufactured in Asia, one must be naïve in believing all is well and they will probably need to do what the 2020 Tokyo Olympics will shortly do – postpone it.
It’s not business as usual anymore.
This time it’s different.
The world just isn’t ready to digest such a shift in global business as 5G until the fallout of the coronavirus is in the rear-view mirror.
The 5G phenomenon underlying effect is to supercharge globalization into smaller networks of interconnectivity and that is not possible during a black swan event like the coronavirus which is the antithesis of globalization and interconnected business.
Just take the situation across the Atlantic Ocean in Europe, UBS Group AG, and Credit Suisse Group AG required clients to post additional collateral, and money managers in New York are preparing term sheets for ultra-rich Americans to urgently meet margin calls.
Many people are scurrying back to their doomsday’s shelter and that does not scream global business.
If you thought gold was the safe haven – wrong again – it experienced back-to-back weekly losses as margin pressures force fire sales of gold to raise cash.
Another glaring example are the assets of Eldorado Resorts Inc., controlled by the founding Carano family, which burned $28.7 million of stock in the casino entity to meet a margin call to satisfy a bank loan.
Things are that bad now!
Sure, telecom players might argue that a sudden influx of workers from home necessitates more investment in 5G, but if they have no income, all bets are off.
The capacity of 4G home broadband has proved it is good enough for today’s demands and it means the last stage of 4G will be a high data consumption longer phase before business lethargically pivots to 5G in 2021.
Verizon’s CEO Hans Vestberg said last year that half the U.S. will have access to 5G by the end of 2020, and I will say that is now impossible.
This sets up a generational buy in the Silicon Valley chip names involved in 5G after coronavirus troubles peak such as Nvdia (NVDA), Xilinx (XLNX), Qorvo (QRVO), and QUALCOMM Incorporated (QCOM).
The coronavirus hammer finally came down and hit one of the dominant soldiers of big tech.
Apple (AAPL) led morning headlines nationwide by slashing quarterly revenue guidance stemming from production delays and weak demand in China.
Deleting the China demand for new iPhones is enough for the company to signal a looming revenue miss and rightly so, coronavirus has been 24-hour news for the past 2 months on the Asian continent.
As we speak, the cruise liner named the Diamond Princess is parked outside the port of Yokohama with the victims of infected rising by the day.
The optics are ugly, and China’s cover-up of the spreading went awfully awry and now pandora’s box is open.
Naturally, tech stocks can expect a few percentage points shaved off of this year’s annual growth targets and short-term sluggishness in shares exposed to China revenue.
What are the ramifications?
Telecom companies are in the incubation period of building out 5G wireless networks.
Naturally, tech shares will receive a bounce as network deployment gains traction as management commentary, during company earnings calls, on 5G business heats up.
However, the Mobile World Congress was cancelled by organizers stealing the chance for 5G stocks to hype up their position in 5G.
It is almost guaranteed at this point that China coronavirus will slow down the schedule for 5G wireless network buildouts.
Think about this, SARS lasted roughly half a year during 2002-2003, and the coronavirus appears to be worse than that.
Chinese telcoms will need to delay 5G and related equipment along with business that has around 150 million Chinese ensnared by the domestic quarantine.
Apple’s 5G iPhones in late 2020 could be delayed if there is no meaningful breakthrough in the contagion of the coronavirus and its ill effects on global business.
Apple stock appreciated on the hope that 5G iPhones aim to deliver the first meaningful consumer upgrade cycle in several years with a hefty price tag of $1,250.
This next generation iPhone could get pushed back to 2021 as Apple’s supply chain has been put on ice in mainland China.
If Verizon Communications (VZ), AT&T (T), T-Mobile US (TMUS) and Sprint (S) desire to aggressively expand their 5G networks, they might be in for a rude awakening because semiconductor companies might be stretched to limit and cannot provide the right components with supply chains pressured everywhere.
The truth is that supply chains are impacting diverse and interconnected sectors of the electronics industry.
And the epidemic, arriving at dawn of 5G's mainstream deployment phase, is guaranteed to disrupt the progress of the next-generation wireless standard, as the crisis slows the production of key smartphone components, including displays and semiconductors.
Chip companies and their shares have naturally been rocked by the recent news and they aren’t the only ones.
Expedia (EXPE), the online travel company, revealed it will avoid providing a full-year forecast as the online travel services company reevaluates the impact of the coronavirus outbreak on its operations.
Investors can imagine that on mainland China, the situation is grim exerting a fundamental impact on the country’s consumers and merchants and will slice off revenue growth in the current quarter.
Alibaba (BABA), the Amazon of China, told investors that the virus is undermining production and output in the economy because many workers are stuck at home.
The virus has also changed the commerce patterns of consumers by pulling back on discretionary spending, including travel and restaurants.
The Chinese e-commerce giant’s revenue surged year-over-year by an impressive 38% to 161.5 billion yuan ($23.1 billion), while net income rose 58% to 52.3 billion yuan, but that could symbolize the high-water mark.
Chief Executive Officer Daniel Zhang and Chief Financial Officer Maggie Wu were explicit in mentioning that risks from the pandemic could deaden a piece of revenue moving forward and they weren’t shy about stating this.
Sound bites such as “overall revenue will be negatively impacted,” and expecting growth to be “significantly” negative is quite black and white.
China is almost certain to print weak GDP growth numbers because of cratering imports and a big drop in demand.
Echoing Alibaba’s weakness was network infrastructure company Cisco (CSCO) with a revenue shortfall of 3.5% year-over-year as major product categories like Infrastructure Platforms and Applications were hit.
Cisco must find new cycles in core activities to regain any momentum and chip companies must do the same as the administration turns the screws on Huawei and injects more barriers to U.S. chip companies selling abroad.
This adds to the broader risks of elevated corporate debt and the upcoming U.S. election where tech management is nervous that a new President could throw big tech under the bus.
The coronavirus pours fuel on the flames.
The silver lining is the blows to these companies are softened by the ironic fact that big tech has become the safety trade to the coronavirus and even if 5G is delayed, chip stocks will eventually benefit from a fresh wave of revenue drivers when the 5G network is finally deployed.
However, it is way too early to announce the death of big tech, there are far too many secular tailwinds driving these companies.
The tech bull market is still intact and there will be opportunity to buy.
Global Market Comments
January 9, 2020
Fiat Lux
Featured Trade:
(WEDNESDAY, FEBRUARY 5 MELBOURNE, AUSTRALIA STRATEGY LUNCHEON)
(CAPTURING SOME YIELD WITH CELL PHONE REITS),
(CCI), (AMT), (SBAC),
(JNK), (SPG), (AMLP), (AAPL), (VZ), (T), (TMUS), (S)
I am constantly bombarded with requests for high-yield, low-risk investments in this ultra-low interest rates world.
While high-yield energy Master Limited Partnerships LIKE (AMLP) can offer double-digit returns, they carry immense risks. After all, if the prices of oil drop to $5-$10 a barrel, replaced by alternatives as I eventually expect, all of these instruments will get wiped out.
You can earn 5%-8% from equity-linked junk bonds. However, their fates are tied to the future of the stock market at a 20-year valuation high against flat earnings.
You might then migrate to Real Estate Investment Trusts (REITs) like Simon Property Group (SPG), which acts as a pass-through vehicle for investments in a variety of property investments. However, many of these are tied to shopping malls and the retail industry, the black hole of investment today.
So where is the yield-hungry investor to go?
You may have heard about something called 5G. This refers to the rollout of fifth-generation wireless technology that will increase smartphone capabilities tenfold. Whole new technologies, like autonomous driving and artificial intelligence, will get a huge boost from the advent of 5G. Apple (AAPL) will launch its own 5G phone in September.
5G, like all cell phone transmissions, rely on 50-200-foot steel towers strategically placed throughout the country, frequently on mountain peaks or the tops of buildings. With demand from the big phone carriers soaring, there is a construction boom underway in cell phone towers. There just so happens to be a class of REITs that specializes in investment in this sector.
Cells Phone REITs constitute a $125 billion market and make up 10% of the REIT indexes. They own 50%-80% of all investment-grade towers. They are all benefiting from a massive upgrade cycle to accommodate the 5G rollout. These REITs own or lease the land under the cell towers and then lease them to the phone companies, like Verizon (VZ), AT&T (T), T-Mobile (TMUS), and Sprint (S) for ten years with 3% annual escalation contracts.
American Tower (AMT) is far and away the largest such REIT, with 170,000 towers, has provided an average annual return over the past ten years, and offers a fairly safe 1.65% yield. They are currently expanding in Africa. Even during the 2008 crash, (AMT) still delivered an 8% earnings growth.
SBA Communications (SBAC) is the runt of the sector with only 30,000 towers. However, it has a big presence in Central and South America and is seeing earnings grow at a prolific 80% annual rate. (SBAC) is offering a 1.48% yield at today’s prices.
Crown Castle International (CCI) is in the middle with 40,000 large towers and 65,000 small ones. 5G signals travel only a 1,000 meters, compared to several miles for 4G, requiring the construction of tens of thousands of small towers where (CCI) is best positioned. (CCI) offers a hefty 3.39% yield.
Small cell towers are roughly the size of an extra-large pizza box and will soon be found on every urban street corner in the US. AT&T (T) has estimated that there is a need for over 300,000 small cell phone towers in the US alone.
So, if you’re looking for a sea anchor for your portfolio, a low-risk, high-return investment that won’t see a lot of volatility, Cell phone REITs may be your thing. Buy (CCI) on dips.
Can you hear me now?
Don’t blame the weatherman for the weather forecast.
The writing is on the wall.
Television is dead as the latest iteration of the Emmy’s bombed, reaching just 10.2 million viewers who tuned in to watch Amazon's "The Marvelous Mrs. Maisel" win best comedy and "SNL's" Michael Che and Colin Jost charm the audience.
The paltry numbers were a follow-up to last month's MTV Video Music Awards which reached a record low of 5.23 million viewers, scoring lower ratings than that night's network evening news broadcasts.
Why are viewers dropping like a dead fly on the wall?
It’s difficult to deduce but live TV events including the Super Bowl have lost viewership across the board.
I would attribute part of the blame to the death of the shared center in the American experience.
There are just too many content alternatives.
Viewers have a bevy of channels to choose from and if they aren’t watching television, they have already cut the cord.
This development has removed many millennials out of the traditional TV viewership pool.
To economize time, many consumers review the highlights through a truncated version on YouTube too.
As for the Emmys, the high quantity of content available online means that many people do not even know what shows are up for awards anymore.
We are at “peak tv.”
And the development of content could simply mean that award shows aren’t interesting anymore.
Nobody has time to sit around for hours of commercials when Netflix is one click away.
We have never had so much content before.
Does that mean investors should all buy Netflix and the world is all well and good?
It did before but we need to revisit their narrative.
Netflix doesn’t exist in a vacuum and the internet content space is a fluid situation.
They scooped up the lion shares of the spoils when on-demand streaming content was a monopoly which in fact was an industry created by them.
But the launch of services that could threaten its top position has crashed Netflix’s (NFLX) shares and they are now negative for 2019.
Shares were trading around a comfortable $380 just three months ago and have parachuted down to $250 today.
The alarming underperformance in shares goes hand in hand with an avalanche of negative news engulfing the company.
One of its most popular legacy show “The Office” was sent packing back to its originators NBC, then Netflix followed off that nasty bit with an earnings report that showed negative domestic new subscriber growth for the first time since 2011.
The growth in the international part of the business was underwhelming too, to say the least.
Without much time to recover, Apple (AAPL), Disney (DIS), NBC, and AT&T (T) announced plans to debut new streaming services that would peel off a substantial amount of Netflix demand.
This news, in effect, puts a cap on Netflix raising the price for their streaming service while confronted with the dreadful future of needing to pay higher prices to generate premium content.
The premise behind Netflix was always the super growth engine that superseded any negative aspects.
To add a little more color, most of these new streaming services are priced to undercut Netflix and investors must wonder how Netflix will be able to overcome these various headwinds at a time when growth companies are getting punished by an outsized rotation to value.
I believe that a dead cat bounce should be met with selling short Netflix.
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