Why I just went from sell to strong buy on Apple and Goldman.

I have to admit that I have never really been a big fan of Tim Cook; to me he has always seemed like a rather disappointing replacement compared to Steve Jobs. However, I have to admit that he has got some serious brainpower (or at least someone in Apple does) after the launch of the Apple Card and Apple Pay system a few years ago.


Like millions of other people, I love the convenience of Apple Pay; I don't need to carry around a fat wallet filled with twenty different cards and instead can just use whichever card I want direct from my phone. The introduction of the Apple Pay system revolutionised payments from mobile devices, and has since been taken up by Android in the form of Android Pay.

What I did not know at the time of the launch of Apple Pay, was that it was actually just part of a bigger picture. I believe Apple launched Apple Pay with this credit card in mind all along - to totally revolutionise the payment system while expanding its profit margins.

Allow me to explain further; the number of businesses in the US and the UK who accept Apple Pay is around 80%, and the number of worldwide users of Apple Pay is 252 million according to Statista. Now, this has completely revolutionised the framework of making payments across the world. Fortunately for Apple, this means that the infrastructure for the Apple Card is already in place, and actually, Apple/Goldman now has a form of monopoly power over businesses and can charge whatever they want for purchases.

The Apple Card comes with such great perks that all iPhone users and Apple Pay users will immediately want to make all of their purchases on Apple Pay. The 2% cashback rivals that of the best credit card rewards and the total lack of fees is astounding. Therefore, consumers will be incredibly inclined to make managing their money easier and more flexible by taking advantage.

It is currently estimated that the value of transactions placed on mobile devices is over $50 billion in the US alone each year. It is safe to say that approximately 50% of such transactions are directly placed through iPhones.

Let's say that Apple charges businesses 3-4% on purchases made through the Apple Card, when Apple gives 2% back to consumers, they are left with a tidy 1-2% profit. Just in the US, this would be equivalent to $250 million a year right now in pure profits. This doesn't even account for the money which would be made of the interest!
But we can take this further as the Apple Card will also have a physical card to accompany it (made of titanium!) This means that users will also be using their Apple Card to make purchases online, in store with a card and in all purchases. This means that we could easily see a trillion dollars of transactions processed through the Apple Card each year in the US alone within the next 5 years.

Any maths brains already calculated the potential windfall this would mean for Apple? Well I have. When we account for the cashback rewards, the fees Apple will have to pay to Mastercard for its transaction technology and the Goldman partnership, we are looking at a comfortable $5 billion for Apple a year from the US alone.

Assuming that Apple continues to be the industry titan that it is and competition from Android does not become more rife,  we can safely assume that this number will only rise in decades to come. As the world becomes more tech savvy, it is highly likely that we see this new payment scheme being a driver of growth for Apple and Goldman.


Tim Cook, I should never have doubted you. Well done.

The Week Ahead

Hi all,

Thought I would just upload a few comments about the trading week which lies ahead; there are likely to be a few big movers in the financial markets - particularly surrounding the outcome of the Brexit process.

At the end of last week, the EU was kind enough to allow Britain a short extension to the Brexit process in the event that May's deal passes so that we both have time to sort out of all the legislation necessary to enact the withdrawal agreement. Similarly, in the event that May's deal does not pass, there will be an emergency summit of EU leaders to work out a way forward and a short two-week extension for the UK to decide its fate.

The options which lie open to Theresa May involve asking the EU for a longer extension, leaving the EU without a deal (although there are questions about whether this would be legal), or revoking Article 50 altogether. Also, there is the possibility that May could resign in the coming weeks - and then this leaves the prospect of a Tory leadership contest (and general election?......) and then who knows what would happen to Sterling.

This is the pattern I have been trading all week with Cable and as we can see the downward sloping trendline has now been violated and it seems highly possible that Cable starts to rise from a technical perspective.

However, the technical analysis seems somewhat irrelevant with the cloud of a no-deal Brexit lingering, and I currently have a selection of pending trades which execute if the pound falls below a certain level ($1.298) as this would be an indicator that the pound will continue to fall. According to analysts surveyed by Bloomberg (https://www.bloomberg.com/news/articles/2019-03-21/no-deal-brexit-possibility-suddenly-comes-alive-for-the-markets), the pound could fall to a value of $1.20 if there is a no-deal Brexit - yielding a tidy profit for me.

However, it remains highly unlikely that such an eventuality would materialise, and consequently, for the short term, I anticipate much volatility in the pound between the ranges we have been in recently - fluctuating between $1.30 and $1.335.


In other news, we have the Mueller Report. We are currently waiting for the interpretation of the Attorney General, William Barr. Potentially, this could cause some volatility in the financial markets - particularly with regard to US stock futures. If there is anything in the report which particularly damages Trump's chances of winning the election, we could see some downside movements in all of the major indices. This is because the financial markets have benefitted from the Trump tax cuts and an end to his presidency may result in a more conventional President who would be more committed to fiscal responsibility and this would result in a bad reaction from financial markets.

Looking at the last week as a whole in the S&P 500 we can see that actually there has not been much overall movement in the financial markets. However, throughout the week there have been a couple of massive swings in the indices and this was largely due on Wednesday to Federal Reserve Chairman, Jerome Powell, and the FOMC announcing that the number of expected interest rate hikes for the year would fall from 2 to zero. Essentially, this meant that monetary tightening in the US economy was slowing down, and as a result of this, financial markets had more cash available to them for low cost - i.e. interest rates remaining low.

This resulted in a large spike in the indices which can be seen by the successive green candles in the chart above. However, the news was somewhat limited by the fact that the financial markets now believe that there is something the Federal Reserve is keeping quiet - why the sudden change of policy?

Could it be the R-Word coming?


Nobody knows.

Anyway, my trades for the week ahead will continue to focus on Cable as this will be the area where there is the most news and consequently will cause me the most stress.

To provide you some more information on the investment trades I currently have open:

I recently closed my AAPL trade as a result of reaching my price target at $195 a share. Whilst I believe that AAPL could return to touching a price at the $230 level, the market outlook is starting to sour again and I do not wish to have my fingers burned as I did in the October bull run again. With the recent hardware boost from AAPL as well, it is highly possible that we could see a further upwards run, and naturally, with the increasing pace of buybacks from Apple, we could see an increase in the share price quite comfortably further. Finally, I just bought Airpods 2 as it was my birthday on Monday so treated myself to the new releases.

My Disney positions have currently lost a couple of percent, but I continue to maintain a positive outlook for the DIS future. Furthermore, I have actually used the profits from AAPL to increase the size of my position. I am anticipating selling these shares at the $118 mark.

In addition, I have also increased the size of my position in Coca-Cola - the company is almost recession proof and with the dividend day being quite recent, there has been a little bit of selling off. Thus, I took advantage and increased my position.

Finally, I have also opened up another short on the DJI because I believe that the market sentiment may soon sour. It is of course highly possible that we see another all-time high before the market turns down, but better safe than sorry.


I remain highly confident regardless, that the investments I have selected will outperform the market as a whole.


My final comment of the day, I have also decided to start benchmarking my performance by investing in £100 in Fundsmith to try and determine whether or not I am "beating" the performance of legendary investor Terry Smith. Whilst I appreciate that he does not believe in speculation, and takes the attitude of investing in Good Companies as I do, I anticipate that with a little creativity, I may be able to outperform the fund if market conditions allow. Regardless, it will be an interesting test, and I look forward to the comparison.


Thanks for reading this week - and I will try and post an update mid-week.


P.S.

Please check out my Twitter @LukeYoungInvest - I try to post all of my speculative trades and tradingview ideas there so it may be worth watching throughout the week.


Thanks!

USDJPY Long

Hi All,

Second post of the day and just announcing a new trade I am entering into. 


It involves a USDJPY Long trade. As you can (kind of) see in the picture above, you can see there is a clear channel and it is possible we see a movement back to the top of channel.

On another note, please do follow my twitter @LukeYoungInvest


Thanks!

A Thought on Psychology

Hi everyone,

Welcome to my second post on this blog and my latest set of thoughts on the markets. I would like to talk briefly about psychology today as I have just been on the losing end of a sequence of trades which in hindsight, I should have been more careful with.

Allow me to paint you a picture:

It's Friday morning, and the Euro has regained some of its strength after the previous day's news story with the following headline:


Source: https://www.ft.com/content/a37743f2-4074-11e9-b896-fe36ec32aece

So, after this relative recovery in the Euro which is pictured below, and all the technical indicators suggesting that the Euro was over-valued, I entered into a short on the euro against the pound. 


Following this decision, the Euro continued to become stronger, and instead of allowing the position to trigger my stop-loss, I revised my original placement of stop-loss, and the market continued higher, causing my losses to become increasingly large, as shown in the diagram above.

However, when my stop-loss was eventually triggered, I waited a while and then re-entered short again. Once more, I lost money.

Then a third time.

Loss.






So over the weekend I thought long and hard about why this happened, and the reason is that I was simply too encapsulated by an idea which I had considered to be good. I was not prepared to admit that I had made an error of judgement and consequently I lost.

Eventually, I even ignored all of the technical indicators under the certainty that they were wrong (for example, the oscillators had all moved from strong sell to strong buy since the time of my first short).


So the lesson has hopefully been learned. A small loss and an admission of error is much more important than my pride.