Mad Hedge Technology Letter
June 7, 2018
Fiat Lux
Featured Trade:
(THE NEW TECHNOLOGY PLAY YOU'VE NEVER HEARD OF),
(GM), (UBER), (WMT), (GOOGL)
SOCIALISM
You have two cows.
You give one to your neighbor.
COMMUNISM
You have two cows.
The State takes both and gives you some watered down milk.
FASCISM
You have two cows.
The State takes both and sells you some milk at an inflated price.
NAZISM
You have two cows.
The State takes both and sends you to a concentration camp.
BUREAUCRATISM
You have two cows.
The State takes both, shoots one, milks the other, and then throws the milk away.
TRADITIONAL CAPITALISM
You have two cows.
You sell one and buy a bull.
Your herd multiplies, and the economy grows.
You sell them and retire on the income, but worry about your cholesterol level and blood pressure.
ROYAL BANK OF SCOTLAND (VENTURE) CAPITALISM
You have two cows.
You sell three of them to your publicly listed company, using letters of credit opened by your brother-in-law at the a nontax treaty offshore bank, then execute a debt/equity swap with an associated general offer so that you get all four cows back, with a tax exemption for five cows.
The milk rights of the six cows are transferred via an anonymous intermediary to a Cayman Island Company secretly owned by the majority shareholder who sells the rights to all seven cows back to your listed company. The annual report says the company owns eight cows, with an option on one more. You sell one cow to buy a new President of the United States, leaving you with nine cows. No balance sheet provided with the release. The public then buys your bull. You are lauded as a titan of free market capitalism.
SURREALISM
You have two giraffes.
The government requires you to take harmonica lessons.
AN AMERICAN CORPORATION
You have two cows.
You sell one and force the other to produce the milk of four cows.
Later, you hire a consultant to analyze why the cow has dropped dead. PETA sues you and pickets your office.
A FRENCH CORPORATION
You have two cows.
You go on strike, organize a riot, and block the roads, because you want three cows. And you have a fabulous time doing all this. The world is shocked.
A JAPANESE CORPORATION
You have two cows.
You redesign them so they are one-tenth the size of an ordinary cow and produce 20 times the milk.
You then create a clever cow cartoon image called a Cowkimona and market it worldwide. Then your stock crashes.
AN ITALIAN CORPORATION
You have two really fine, stylish cows, which cost a fortune, but you don't know where they are.
You decide to have lunch with a fine bottle of Antinori, and top it all off with a potent grappa and double espresso.
A SWISS CORPORATION
You have 5,000 cows. None of them belong to you.
You charge the owners for storing them. The U.S. IRS launches a criminal investigation and arrests every Swiss banker when they go shopping in New York.
A CHINESE CORPORATION
You have two cows.
You have 300 people milking them.
You claim that you have full employment, and high bovine productivity.
You arrest the newsman who reported the real situation. Then your stock crashes.
AN INDIAN CORPORATION
You have two cows.
You worship them, and feed them all your garbage.
A BRITISH CORPORATION
You have two cows.
Both are mad, but drink great beer.
AN IRAQI CORPORATION
Everyone thinks you have lots of cows.
You tell them that you have none.
No one believes you, so they bomb the ** out of you and invade your country.
You still have no cows, but at least you are now a Democracy.
AN AUSTRALIAN CORPORATION
You have two cows.
Business seems pretty good.
You close the office and go for a few beers at the barby to celebrate.
A NEW ZEALAND CORPORATION
You have two cows.
The one on the left looks very attractive. But no one cares because you are in New Zealand.
Welcome to the new cutting-edge high-tech play - General Motors (GM).
The tectonic shifts permeating through the tech landscape seem like there is no end.
Another blockbuster announcement hit the airwaves melding together a brand-new partnership between SoftBank and GM's self-driving unit Cruise.
SoftBank invested an eye-popping $2.25 billion into Cruise for a 19.6% stake, adding to its scintillating arsenal of big data assets focusing on transportation including Uber, India's Ola, China's DiDi, and Southeast Asia's Grab.
GM disclosed it will divvy up a further $1.1 billion into the deal.
The Mad Hedge Technology Letter has been an astute follower of the autonomous driving technology race because the technology will be the next proprietary technology to change the world, creating enormous windfalls for the few involved.
The timeline commences later this year, when Waymo, a subsidiary of Alphabet (GOOGL), rolls out a robo-taxi commercial service.
General Motors is right on Waymo's heels rolling out its own commercial service "sometime in 2019."
This momentous investment by SoftBank solidifies (GM) as the No. 2 industry player going forward.
This is a huge victory.
The historic shift symbolizes the next gap up in the technology movement.
Tech stocks have been on a tear of late leaving other equities in the dust.
Waymo was the first mover and confidently never relinquished the top-dog position while avoiding any big disasters along the way.
The unparalleled success of Waymo's self-driving unit has led analysts to put a valuation figure ranging anywhere from $75 billion to $125 billion.
GM paid a measly $1 billion for Cruise in 2016, which is peanuts in today's thriving tech landscape.
Analysts estimated the valuation of Cruise at $4 billion just before the SoftBank investment. The almost 20% stake for $2.25 billion puts the new valuation number over $11 billion, three times more than analysts initially speculated.
Tech acquisitions have exploded in 2018 and show no signs of slowing down.
The hallmarks of Waymo's operation hinge on safety-first initiatives, which went a long way to upholding its industry leader position.
The safety-second attitude led Uber to attempt to short circuit its way to the top from a position of weakness to ill effect.
Uber's technology failed, and the result of the Phoenix, Arizona, casualty was a suspended operation.
Game over.
To stick the blade cleanly through the back, Uber CEO Dara Khosrowshahi revealed that talks are ongoing between Waymo and Uber to add Waymo's technology to Uber's broker app service.
This revelation is interesting considering Uber infuriated Waymo. It means Uber will effectively recede itself from competing with Waymo in self-driving technology.
The company doesn't need to anymore and it burns too much cash.
The protracted court ruling revealed Uber had stolen trade secrets using poached Waymo engineers.
This time, it really is the nail in the coffin for Uber's self-driving technology.
It will change strategy and refine its core app that made them famous in the first place.
The SoftBank investment into Cruise has clear synergies with Uber.
If Waymo refuses to go into bed with Uber, the natural logical step would be for the GM Cruise technology to be integrated with the Uber platform since they are both SoftBank investments.
SoftBank's management will clearly push for this arrangement. It makes no sense to use the Lyft platform with the GM Cruise division.
The tie up with GM Cruise was the catalyst for Uber seeking "talks" with Waymo, knowing very well if talks failed, a backup plan was hatched and would be able to partner up with Cruise's technology.
This is the luxury Uber has now since it is part of the SoftBank umbrella along with the GM Cruise division.
This nullifies the existential threat Uber was anxious about as it is guaranteed a certain slice of the pie leading to material future revenue stream post IPO.
The SoftBank investment is a stamp of approval for the quality of GM self-driving technology.
SoftBank only invests in the most innovative firms.
The conundrum with legacy car companies is that the bulk of revenue is reliant on selling combustion-engine cars that will soon become obsolete.
Any large commitment to R&D, unfocused on its main profits levers, hurt margins. Investors do not buy American car manufacturers that operate at a loss.
Therefore, legacy companies are penalized for spending on new businesses that could be hit or miss.
They stick with their bread and butter through thick and thin because that is what investors expect them to do. This was why Walmart (WMT) sold off when it acquired a stake in Flipkart.
A certain type of Walmart investor would be aghast at this unexpected new direction and amount of dollars drained.
In support of Walmart, CEO Doug McMillon has been positively vocal about the pivot to tech and e-commerce.
It should not be a surprise.
Old technology gets swept into the dustbin of history. Examples are legion.
Let me explain why.
The shift from horse-drawn carriages to the automobile was an equally jaw-dropping development at the time.
Not all horse-drawn carriage manufacturers were able to make the massive leap from creating simple horse-carriage passenger vehicles to automotive vehicles with combustion engines.
When Abraham Lincoln was transported to the Ford Theatre the night of his assassination, he was rolling in a Studebaker horse-drawn carriage.
Studebaker, which was established in 1852 with $68 of capital and a tool belt, was the only top-notch horse-drawn carriage manufacturer to make the gigantic shift from horse-drawn carriage builder to automotive producer.
The other players shriveled up and waved the white flag.
Studebaker actually manufactured both horse-drawn carriages and cars from 1902-1920.
The company mutated again during World War II making military vehicles, M29, M29C, and engines for B-17 bombers.
Financial mismanagement ruined the company. In 1963 it shuttered its South Bend, Indiana, factory and then went out of business by 1967, missing out on a chance to take on Uber and Waymo by about 55 years.
Such are the annals of history.
(GM) is the first American legacy car company to make the complicated transition from traditional American car producer to self-driving technology player.
And it could be the only one.
The deal will raise the price range for the Uber IPO planned for 2019. The (GM) cruise division will report financials separately from the rest of the (GM) balance sheet, which could be the precursor to spinning it out as its own company creating more shareholder value.
No matter how you dice this up, (GM) is the real deal. Investors voted with their feet causing the stock to explode skyward closing 13% higher on the news of the investment.
Buy (GM) on the next sell-off instead of chasing the bolted stallion out of the starting gate.
_________________________________________________________________________________________________
Quote of the Day
"Indian software engineers are the best in the world; even in Silicon Valley, the best software engineers are Indians," - said CEO of Softbank Masayoshi Son
While the Diary of a Mad Hedge Fund Trader focuses on investment over a one week to six-month time frame, Mad Day Trader, provided by Bill Davis, will exploit money-making opportunities over a brief ten minute to three day window. It is ideally suited for day traders, but can also be used by long-term investors to improve market timing for entry and exit points. Read more
Global Market Comments
June 6, 2018
Fiat Lux
SPECIAL SOLAR ISSUE
Featured Trade:
(FRIDAY, JUNE 15, 2018, DENVER, CO, GLOBAL STRATEGY LUNCHEON)
(HOW TO BUY A SOLAR SYSTEM),
(SCTY), (SPWR), (TSLA)
Come join me for lunch at the Mad Hedge Fund Trader's Global Strategy Update, which I will be conducting in Denver, CO, on Friday, June 15, 2018. An excellent meal will be followed by a wide-ranging discussion and an extended question-and-answer period.
I'll be giving you my up-to-date view on stocks, bonds, currencies, commodities, precious metals, and real estate. And to keep you in suspense, I'll be throwing a few surprises out there, too. Tickets are available for $228.
I'll be arriving at 11:30 AM, and leaving late in case anyone wants to have a one-on-one discussion, or just sit around and chew the fat about the financial markets.
The lunch will be held at an exclusive downtown private club. The precise location will be emailed with your purchase confirmation.
I look forward to meeting you and thank you for supporting my research.
To purchase a ticket, please click here.
Mad Hedge Technology Letter
June 6, 2018
Fiat Lux
Featured Trade:
(SHOULD MICROSOFT BE A FANG?),
(MSFT), (AAPL), (AMZN), (MU), (GOOGL)
Microsoft's (MSFT) code grab of GitHub was another virtuoso bit of business by Microsoft CEO Satya Nadella.
Bill Gates' old stomping ground has been identified as a top 3 tech stock by the Mad Hedge Technology Letter since the early days of the letter.
A company with Amazon-esque growth and Apple-like profits is hard to beat.
There is little doubt that Microsoft will be leading the economy for the foreseeable future and its purchase of GitHub for $7.5 billion, a source code library and platform for developers to collaborate together, is testimony that Microsoft is developer friendly and raises its attractiveness level to the best developers on the market.
Universally, this underlines the strength of large-cap tech that keeps strengthening in an attempt to eclipse the competition.
Large-cap tech outperformance is one of the main overarching narratives in equity markets this year.
Investors have been handed more and more bullish evidence that has made Morgan Stanley's downgrade of Micron (MU) absurd.
The ultra-competitive environment tech industry is fighting tooth and nail to find the best technology talent around the world.
GitHub is the largest host of source code the world has ever seen and earns revenue by charging corporate customers who run projects on its platform.
This is definitely not a revenue grab as GitHub's marginal revenue is beside the point.
Upon the announcement, Microsoft shares traded higher confirming the stance of investors treating Microsoft as a super growth stock and not a legacy company of yore that focuses on extracting profits while keeping overhead low.
Growth is about spending and spending some more.
This San Francisco-based company plays host to 24 million developers and has become a critical platform for developers working on collaborative projects for Apple (AAPL), Alphabet (GOOGL), and Amazon developers around the world.
Microsoft is its biggest contributor and the purchase makes sense long term and short term.
GitHub has a de-facto monopoly of open source coding repositories. There is only one game in town for developers to collaborate on, boding well for Microsoft.
Not only will Microsoft have the biggest library of code in the world, but the monetization pathway of GitHub squarely falls on the shoulders of Microsoft Azure - Microsoft's sensational cloud business.
GitHub is just another tool that will be incorporated into its cloud and is part of the strategy to surpass Amazon as the No. 1 cloud provider.
Microsoft envisages developers and businessmen working in concert on Microsoft's cloud using its proprietary software and services that will happily feed through to the bottom line in a material way.
Look for Microsoft to keep adding premium selective parts to its software and services lineup.
As for individual developers, GitHub has been the platform to display their talents.
It is commonplace during interviews for developers to point out contributions to projects through GitHub, giving them an edge in the hiring process.
Any reputable developer should have repositories on GitHub chronicling their every move.
Every major tech company deeply respects the functionality of GitHub and what it brings to the industry.
This is not just a flash in the pan.
Crucially, the plethora of new data access about coders streaming into the Redmond, Washington, offices is a dream come true.
This will also allow Microsoft to identify and recruit the best of the best in an algorithmic method to the dismay of other tech companies.
Theoretically, the company could create an in-house ranking system of developers using the data and automate its HR department while topping it off with some artificial intelligence sauce.
There is certain to be untold, untapped talent hidden away in the layers of GitHub repositories. Once Microsoft combs through the nitty-gritty, surely a slew of contract offers will head the way for the dark horses roaming around GitHub.
In a sellers' market, the buyers find you and pay you more than the market price and not the other way around.
GitHub flirted with the possibility of going public before meeting with Nadella.
The meeting blew away GitHub leaving management impressed.
That smoothed the way for the decision to accept Nadella's offer of $7.5 billion paid in Microsoft stock.
The inflated price was a head turner.
Just three years ago, the last private round of valuation estimated GitHub at $2 billion in 2015.
Microsoft even floated the idea of buying GitHub for $5 billion in informal talks at one point.
Therefore, the $7.5 billion in stock paid to GitHub is considered a healthy premium to the market price.
Even with the inflated price, this move was a no-brainer.
The deal will see Microsoft's Vice President Nat Friedman take the reins at GitHub as CEO. He will be instructed by Nadella how to exactly realize the perfect fusion between Microsoft Azure and GitHub's code treasure trove.
Naturally, there is no guarantee all 28 million GitHub users will be coding on the Azure platform. However, if just a few million convert and adopt the Azure platform, then a GitHub purchase will seem like a massive bargain.
It's entirely possible that in the near-term future, Microsoft will be crowned as the best place in the world to work as a developer.
If this does not come to fruition, Microsoft will be in the ballpark of the top echelon.
The ability to recruit the best developers in the world is reinforced by its other big-name purchase of LinkedIn, a job networking site purchased for $26.2 billion in 2016.
LinkedIn and the data that came with it, is another salient tool helping Microsoft identify inefficiencies in the job market.
The historical progression of employees' careers is digitized, and trends can be manipulated from the data.
Microsoft will be able to understand more about the state of the job market than any other company in the world.
Ownership of the biggest coding platform, largest job networking site, and massive amounts of prized data resulting from these platforms are precious gems inside of Microsoft's portfolio.
All of these new functions will derive synergies from each other helping evolve Microsoft into a stronger company.
No doubt there will be GitHub links showing up in LinkedIn profiles.
The applications are unlimited.
In the future it might be difficult to entirely avoid the Microsoft ecosystem. The conscious decision to become even more developer friendly is poised to pay dividends in the quality of its tech staff.
Microsoft will have to extend an olive branch to the portion of developers who disagree with this purchase.
A small minority is skeptical.
The integrity of the platform will have the potential to be compromised favoring Microsoft's narrow interests.
Nadella will need to do some smoothing over with the maverick developers to get them on board with everybody else.
Even though some developers are worried the platform will be undermined, certainly the existing developers at Microsoft are jumping with joy about this development.
The GitHub buy will aid Microsoft developers to build more unique cloud products to sell as add-ons.
Venture capital company Andreessen Horowitz will be rewarded with a $1 billion pay packet from its $100 million investment into GitHub.
A cool 10-fold return.
These were the precise deals that Microsoft used to lose out to the vaunted FANGs.
It shows how far Microsoft has come in such a short amount of time.
Smartly, Nadella has used the cash pile to draw in businesses that have synergies with the existing Microsoft ecosystem.
GitHub is another example of round pegs fitting into round holes.
Microsoft is a darling of the Mad Hedge Technology Letter, and now that it has crossed the $100 threshold, this price level will act as ironclad support.
If the stock somehow gets caught up in macro-headwinds and drops to $95, consider it a gift from God.
_________________________________________________________________________________________________
Quote of the Day
"School districts in the U.S. don't adopt technology very quickly," - said co-founder and CEO of Netflix Reed Hastings.
While the Global Trading Dispatch focuses on investment over a one week to six-month time frame, Mad Options Trader, provided by Matt Buckley, will focus primarily on the weekly US equity options expirations, with the goal of making profits at all times. Read more
When John identifies a strategic exit point, he will send you an alert with specific trade information as to what security to sell, when to sell it, and at what price. Most often, it will be to TAKE PROFITS, but, on rare occasions, it will be to exercise a STOP LOSS at a predetermined price to adhere to strict risk management discipline. Read more