1984 Was A Warning, Not An Instruction Manual (& Why You Should Buy FANG Puts)

Authored by Jared Dillian 'The 10th Man' via MauldinEconomics.com,

A little bit of paranoia is always healthy.

In the 1980s, the totalitarian fear was that some overenthusiastic government agent would go to the library and pull your library card to see if you were reading seditious texts.

Seems a bit quaint now, doesn’t it? 

It didn’t at the time.

Of course, the East German Stasi went to those lengths to spy on its citizens, but there was never any real danger of it happening in the US.

Fast forward to today.

  • Facebook knows who your friends, friends of friends, and acquaintances are. It knows what you look like, and what your friends and family look like. It knows what TV shows you watch, what music you listen to, and in all likelihood, your political activities.
  • Amazon is today’s library card—it knows every book you’ve ever ordered, along with more pedestrian purchases like vitamin supplements.
  • Netflix is a database of pretty much every TV show and movie you’ve ever watched.
  • Google has a repository of every Internet search made by every American citizen.

F, A, N, G. What does that spell?

Those four stocks have outperformed over just about any timespan.

Does anyone else find it more than a coincidence that they are also potentially the biggest threat to online privacy?

Like I said, that library card thing seems a bit quaint.

Citizenfour

Upon hearing the Edward Snowden revelations, we discovered we were living in a turnkey totalitarian state.

We learned that the NSA was using pretty much every electronic means available to spy not just on our enemies, but also our allies—and every American citizen.

The intelligence services derived this authority directly from the Patriot Act. This should serve as a reminder that any piece of legislation that passes virtually unopposed in the midst of a crisis is probably bad.

So yes, it is likely that the government knows who your friends are, your political activities, what books you read, what movies you watch, and what you search for on the Internet.

I would bet that it knows all of these things.

Does it care? 

Probably not, unless you simultaneously search for “ISIS” and “Improvised Munitions Handbook.”

But the great libertarian fear is that one day we will have a government that is not so benevolent. And it will know the movements and activities of every person who voluntarily carries one of those surveillance devices with them every minute of the day.

Virtually every aspect of our lives is recorded, unless you arrange to speak with someone in the middle of an open field. And maybe even then…

Divergent

So far, this reads like some dystopian YA novel. I am getting to my point.

It is one thing to bet against Facebook, Amazon, Netflix, and Google—to say that they are overvalued, and to sell them short. That may be a good trade.

But it is unlikely that they will ever, ever go out of business. And it doesn’t really matter if they are profitable. They aren’t “too big to fail,” but “too important to fail.”

I blow minds for a living.

These companies vary from insanely profitable (Google) to somewhat profitable (Facebook) to not at all profitable (Amazon).

People have been complaining about the insane valuations for some time. They’re missing the point.

As I said, it’s not a matter of how profitable these companies are—but how important they are. Not just to you and me, but to Uncle Sam.

Do you think Uncle Sam has an interest in seeing Facebook fail? And to think there was a time when people thought it was the next Myspace. It is immune to obsolescence. It will be around for a hundred years.

Let’s go back to 2011 for a minute.

I posted on Zero Hedge shortly before the Facebook IPO that I thought Facebook would be the first stock to reach $1 trillion market cap. It’s not very well-written by my standards, but read it anyway. Remember, this was pre-Snowden.

The article got very poor reviews (because Zero Hedge commenters are always bearish), and I no longer believe that Facebook will be the first to reach $1 trillion. It will probably be Google or Amazon.

But the point I was making in 2011 stands today - it’s not so much about profitability as it is about importance.

Having Said All That…

I’ve said before that the US stock market is not a bubble.

I’d like to revise those comments - the US stock market is not a bubble, except for a handful of stocks.

Tesla loses money on every car sold and is worth $60 billion. Investors have given Amazon 20 years of runway and there is hardly a dollar of profit.

Which leads us to our quandary:

  • You pretty much have to own these stocks, because otherwise you underperform the index.
  • But you can’t own them, because they are stupid.

What to do?

It gets back to our discussion on volatility, actually.

Same quandary:

  • You can’t be long volatility because the market doesn’t move.
  • You can’t be short volatility because it’s too cheap.

Let’s combine these two concepts.

Stop trying to trade the stupid VIX and go back to plain vanilla calls and puts.

The cheapest options on the board are slightly downside puts in Facebook, Amazon, Netflix, and Google.

There’s no skew.

Implieds are low.

The market is giving you free convexity, practically.

If one of these names has a 10% blowup, it’s a big winner.

It also has the advantage of being the dumbest trade imaginable. If you went on CNBC and said you were buying puts on FANG, you would get laughed off the set.

Which means it’s probably the right trade.

Comments

Gordon_Gekko Thu, 06/15/2017 - 15:47 Permalink

The BEST option, by the way, is to just buy PHYSICAL Gold and Silver and sit tight. All the gains you can ever imagine will come to you by themselves, instead of you having to run around picking pennies infront of the steamroller in a COMPLETELY CORRUPT AND RIGGED "MARKET".

frank further Thu, 06/15/2017 - 15:57 Permalink

In 1967, the Navy would not accept me for the rate I was applying for until I qualified for a Top Secret clearance.  You wouldn't believe that people I barely knew were interviewed and every previous employer was contacted.  This is when 4k computers and punched cards were the norm.  My point is that the feds knew all, even before the miracles in technology.  Easy when you have unlimited funds and resources.  Still scary, except even more so.

U4 eee aaa Thu, 06/15/2017 - 15:57 Permalink

Facebook doesn't even know my name

I quit the netflix propaganda parade

Amazon doesn't know much about me since they only get about half my net business

I'll give you the google one

And should I be trusting someone who tells me to buy puts after the first few volatility spikes in the put premiums?

fx gold rubeberg Thu, 06/15/2017 - 19:06 Permalink

U4, you are delusional! A handful or two of items purchased (searches for products are an added, but not required bonus) are already sufficient to get a remarkably accurate psychological profile of you.And if it knows half your online retail shopping, then it knows you better than you will likely ever know yourself. FB likely knows your name and it knows verylikely what you searched and shopped for in amzn. As for the put thingy, if the author's logic were correct, then nflx is likely the one Fang stock that is not needed and will be allowed to fail. So that would be the company I would focus on. Of course, that assumes that we will get real price discovery again via market forces. That's actually hard to believe right now.

In reply to by gold rubeberg

U4 eee aaa fx Fri, 06/16/2017 - 15:55 Permalink

I'm a Christian so if the FBI goes looking through my amazon profile I'll make them healthier with good nutrition and give them a good set of christian resources to witness to them.

My point about the put options is if you are getting in now you are already paying a higher premium due to recent downspikes. Why is he counseling after the fact? If you are in after the news you are already chasing the trade and that can be especially expensive with options

In reply to by fx

I am Jobe Thu, 06/15/2017 - 16:05 Permalink

I don't use Netfcuking Flix, those are for the loers most Americans are fucked , Women epciallyAmazon- Do not shopFuckBook- Again losers use it and most Americans think it a fucking great thing. Fcuk that shit

ogretown Thu, 06/15/2017 - 16:11 Permalink

For years I have been postulating that fictional characters like Ellsworth Toohey were providing the 'Death to America' Democrats a blueprint for real life people in how to bring about the destruction of America.  Although that being said, I would agree that viewing the work of Ayn Rand as providing a secret plan while ringing the warning bell against the evils of collectivism is rather paranoid.   But there can be no misinterpretation of George Orwell's 1984.  Although there again it has been said the domestic 'Death to America' crowd views that story as a blueprint for evil as well. 

Deep Snorkeler Thu, 06/15/2017 - 16:37 Permalink

The USA is an Authoritarian Mosaic of PowersThat ensures you pay your taxes,obey the laws du jour,believe national myths, andnever understand what is going on.It is working perfectly,force is never required.

thedespised Thu, 06/15/2017 - 17:02 Permalink

1984 was absolutely a guide.  100% predictive programming, from the illuminati. If you still think that there are that many co-incidences, you're likely a hopeless slave.