Mad Hedge Technology Letter
July 13, 2020
Fiat Lux
Featured Trade:
(WILL A.I. SAVE US)
(TSLA), (AMZN), (FB)
Anti-A.I. physicist Professor Stephen Hawking was a staunch supporter of preserving human interests against the future existential threat from machines and artificial intelligence (A.I.).
He was diagnosed with motor neuron disease, more commonly known as Lou Gehrig's disease, in 1963 at the age of 21 and sadly passed away March 14, 2018 at the age of 76.
Famed for his work on black holes, Professor Hawking represented the human quest to maintain its superiority against quickly advancing artificial acculturation.
His passing was a huge loss for mankind as his voice was a deterrent to A.I.'s relentless march to supremacy. He was one of the few who had the authority to opine on these issues.
Gone is a voice of reason.
Critics have argued that living with A.I. poses a red alert threat to privacy, security, and society as a whole. Unfortunately, those most credible and knowledgeable about A.I. are tech firms.
They have shown that policing themselves on this front is remarkably unproductive.
Mark Zuckerberg, CEO of Facebook (FB), has labeled naysayers as "irresponsible" and dismissed the threat. After failing to prevent Russian interference in the last election, he is exhibiting the same defensive posture translating into a de facto admission of guilt. His track record of shirking accountability is becoming a trend leading him to allow politicians to post untrue marketing material for the 2020 U.S. election.
Share prices will materially nosedive if A.I. is stonewalled and development stunted. Many CEOs who stake careers on doubling or tripling down on A.I. cannot see it die out. There is too much money to lose – even for Mark.
The world will see major improvements in the quality of life in the next 10 years. But there is another side to the coin which Zuckerberg and company refuse to delve into...the dark side of technology.
Tesla's (TSLA) CEO Elon Musk has shared his anxiety about robots flipping the script on humans. Elon acknowledges that A.I. and autonomous vehicles are important factors in the battle for new technology. The winner is yet to be determined as China has bet the ranch with unlimited resources from the help of Chairman Xi and state-sponsored institutions.
The quagmire with China has been squarely centered around the great race for technological supremacy.
A.I. is the ultimate X factor in this race and whoever can harness and develop the fastest will win.
Musk has hinted that robots and humans could merge into one species in the future. Is this the next point of competition among tech companies? The future is murky at best.
Hawking's premise that evolution has inbuilt greed can be found in the underpinnings of America's economic miracle.
Wall Street has bred a culture that is entirely self-serving regardless of the bigger system in which it finds itself, with one of the few winners of the coronavirus being the stock market.
Most of us are participating in this perpetual money game chase because our system treats it as a natural part of life. A.I. will help a select few do well in this paper chase to the detriment of the majority and even more so that the pandemic shed 50 million U.S. jobs with many of them to never come back.
Quarterly earnings performance is paramount for CEOs. Return value back to shareholders or face the sack in the morning. It's impossible to convince anyone that America's capitalist model is deteriorating since the ones who are set to gain are the exact people in power.
Wall Street has an insatiable hunger for cutting-edge technology from companies that sequentially beat earnings and raise guidance. Flourishing technology companies enrich the participants creating a Teflon-like resistance to downside market risk.
The issue with Stephen Hawking's work is that his timeframe was too far in the future. Professor Hawking was probably correct, but it will take 25 years to prove it.
The world is quickly changing as science fiction becomes reality.
People on Wall Street are a product of the system in place and earn a tremendous amount of money because they proficiently execute a specialized job. Traders are busy focusing on how to move ahead of the next guy.
Firms building autonomous cars are free to operate as is. Hyper-accelerating technology spurs on the development of A.I., machine learning, and enhanced algorithms. Record profits will topple, and investors will funnel investments back into an even narrower grouping of technology stocks after the weak hands are flushed out.
That is exactly what is happening with 6 tech companies dominating during the health crisis with everyone falling out of the race.
Professor Hawking said we need to explore our technological capabilities to the fullest in order to avoid extinction. In 2020, exploring these new capabilities still equals monetizing through the medium of products and services.
This is all bullish for equities as the leading companies associated with A.I. to reap the benefits.
And let me remind you that technology is still the least regulated industry on the planet even with all the recent hoopla.
It is having its cake and eating it too. Hence, technology is starting to cross over into other industries demonstrating the powerful footprint tech has extracted in economics and the stock market.
The only solution is keeping companies accountable by a function of law or creating a third-party task force to regulate A.I., but as many can see, global governance is failing miserably already with keeping global citizens safe from the health crisis.
In 2020, the thought of overseeing robots sounds crazy.
...The future will be here sooner than you think.
"The greatest enemy of knowledge is not ignorance, it is the illusion of knowledge," said the late Professor Stephen Hawking.
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
Mad Hedge Technology Letter
July 10, 2020
Fiat Lux
Featured Trade:
(HOW TWITTER KNOCKED IT OUT OF THE PARK)
(TWTR)
Twitter (TWTR) shares have really been explosive in the last 5 trading days moving higher in excess of 15%.
Speculation has been coalescing around a new project that is in the works that has Twitter launching a subscription service.
The social media juggernaut posted a job advert for engineers to develop a subscription platform.
“We are building a subscription platform, one that can be reused by other teams in the future,” the listing stated and investors took that cue to buy shares by the bucketful.
The new web engineers will be deployed on the company’s Gryphon team, which collaborates closely with the payroll team and the Twitter.com group.
An employee close to the discussion said the company is exploring “alternative revenue sources.”
The social media firm currently generates about 85% of its revenue from advertising, and it is safe to say they are a one-trick pony like Facebook.
Therefore, a subscription service would help diversify as businesses rein in their marketing budgets amid ongoing uncertainty.
The aggressiveness on show by Twitter’s CEO Jack Dorsey and his fellow management team is unsurprising.
Don’t forget that it was just in March that vulture fund investor Elliot Management, who owns a good chunk of Twitter, vowed to overthrow Dorsey after he announced plans to run both his creations, Twitter and Square, in Africa.
Running two Silicon Valley firms at the same time from Africa remotely stretched Elliot’s patience a tad thin and they hoped to go in for the kill and remove him cleanly.
Dorsey relented to Elliot’s demand and agreed to sideline his African safari and focus on juicing up its ad business.
Well, push comes to shove and Dorsey has decided on rolling out the time-honored way of tech companies making money – subscription as a service (SAAS).
Simply put, Twitter isn’t profitable enough and the buck stops at Dorsey.
Despite Twitter adding 14 million new users in the first quarter, its revenues rose just 3% from the March 2019 quarter, the smallest increase in over two years.
There is a substantial chance that the firm would be more likely to launch an offering utilizing its data and analytics, rather than moving to paid tiers for Twitter usage.
At the bare minimum, they will bring out some type of high-level tools to give ad buyers a way to pull away from the competition and that is worth paying for.
Twitter quickly changed the language of the job ad to make it look less conspicuous.
This isn’t out of left field.
In 2017, former CFO and COO Anthony Noto (now CEO of online lending start-up SoFi) had discussed the idea of adding premium services to TweetDeck, while acknowledging the separation of Twitter remaining a free-to-use service.
Global ad spending has been damaged due to the pandemic and investors are clamoring for more growth for a company that has several levers at their disposal.
They are finally putting these levers to work, and as global growth starts to slowly make a comeback, Twitter will be even better positioned than before.
Dorsey did agree with Elliot Management that Twitter should achieve a target to grow monetizable daily active users (mDAUs) by 20% in 2020 while accelerating revenue growth.
It is clear that Elliot Management is becoming impatient with Dorsey and will most likely look to make some waves in 2021 and finally replace the co-creator of Twitter.
Elliot Management is ruthless, but I do commend them on their magic in creating shareholder value even if they ruffle some feathers.
They have a track record of raising the profiles of other tech stocks and one that comes to mind is eBay.
Unfortunately for Dorsey, Elliot Management’s time-honored strategy usually comes in the form of wholesale changes in management boding poorly for Dorsey to cling on to his job through 2021.
Twitter is a great tech company, a unique asset in the tech ecosphere and Elliot simply believes Dorsey isn’t pressing the right keys on the piano right now.
This is a way of telling Dorsey that he is on thin ice and he is responding with some last-ditch efforts that could save his job.
However, I would like to point out that tech companies are benefitting from a once-in-a-generation tailwind of the coronavirus accelerating the migration to digital.
This essentially means that mediocre tech firms should have an easy time hitting expected targets even if they are lofty.
Just look at Thursday’s trading and the Dow index fell 360 points while the Nasdaq finished the day up 55 points.
The relative outperformance is just the beginning of tech’s dominance.
Dorsey just isn’t delivering the “growth” that comes to be expected from tech firms of Twitter’s caliber in the stage it’s at.
Hopefully, this will be the final wake up call because he certainly has the capacity to deliver what the vulture investors want, it will boil down to if he can apply the focus needed to acquire those mandated results.
“Stock market bubbles don't grow out of thin air. They have a solid basis in reality, but reality as distorted by a misconception.” – Said Hungarian-American billionaire investor George Soros
CME has not been able to follow through on the strong daily move it made two days ago.
And we will begin to experience strong time premium erosion holding this position into next week.
As a result, I am going to suggest you close the position.
Here is how you close the position:
Sell to Close July 17 - $167.50 call for $2.40
Buy to Close July 17 - $172.50 call for $0.80.
The net credit will be $1.60 per spread.
If you traded the suggested 5 lot, the loss is $200.
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
While the Diary of a Mad Hedge Fund Trader focuses on investment over a one week to a 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