Northern Californian tech companies stopped innovating because of the monopolistic nature of current business models that nestle nicely in unfettered capitalism.
They only go by one principle these days – to crush anything remotely resembling competition and they are damn good at doing it.
This has been going on in Silicon Valley for years and the government has turned a blind eye since the beginning of it.
The end result is the absence of competition.
At a higher tech level, the strong get stronger by stockpiling cash and resources, all while taking advantage of historically low rates to finance their growth models.
Why does the U.S. government largely sit on the sidelines and act if nothing has really happened?
If I deploy the concept of Occam's razor to this situation, a philosophical rule that entities should not be multiplied unnecessarily which is interpreted as requiring that the simplest of competing theories be preferred, my bet is that most of U.S. Congress own stock portfolios, even if they are the index variety, and these portfolios are spearheaded by the likes of Apple (AAPL), Facebook (FB), Amazon (AMZN), Google (GOOGL), Microsoft (MSFT), Netflix (NFLX), and of course Tesla (TSLA).
This has come into the open frequently with members of Congress even front-running the March 2020 sell-off with their own portfolios like U.S. senator Kelly Loeffler from Georgia selling $20 million in stock after attending special intelligence briefings in the weeks building up to the coronavirus pandemic.
We definitely don’t get invites to those special intelligence briefings, but Loeffler getting off scot-free by mainly just playing down what she did proves the immunity that politicians accrue from their lofty positions.
It’s a direct conflict of interest, but that's not surprising for politics in 2021 and I would say it epitomizes the era we are in.
It’s also why Congress hasn’t acted on Silicon Valley’s excessive abuse of power, which is so glaringly blatant that excuses must be crafted just to make it seem they aren’t as bad as they are.
The government likes to jawbone to the public saying they will make competition a level playing field, but actions show they are doing the opposite.
Ultimately, Silicon Valley whispers in the ear of Congress and they listen.
Well, what now?
Tech has now turned mostly into a digital marketing lovefest harnessed around the smartphone and tablet with cheap shortcuts which is partly why the efficacy of the internet has dropped greatly.
The advent of 5G has also been a bust because these titans don’t feel the need to reinvest to make that killer 5G app when they don’t need to.
The truth is Silicon Valley couldn’t be more complacent in 2021.
They are the ultimate corporate entity and more monolithic than ever.
Smart CFO’s are continuing the gravy train by diving deep into stock buybacks to boost stock prices and the dividends are the extra kicker.
The iPhone maker repurchased $19 billion of stock in the first quarter, bringing the total for the past fourth quarters to $77 billion.
GOOGL repurchased a record $11.4 billion of stock in the first quarter, up from $8.5 billion a year earlier, and FB bought back $3.9 billion, triple the total a year ago.
Now, they even got the White House to do their dirty work.
Huawei, the Chinese telecom company, has been the punching bag for the White House’s tech war with China.
In remarks to reporters in March 2019, Chinese politician Guo Ping said, “The U.S. government has a loser’s attitude. They want to smear Huawei because they can’t compete with us.”
Let’s get this straight, U.S. tech was never behind China and still isn’t, but I do believe the U.S. should simply outcompete with Huawei because I know they can and have the capacity to do so.
China hasn’t done much with 5G as well aside from amassing the patents, but they haven’t made it quite practical to the Chinese public as a use case for consumer products.
Instead of competing, we have Facebook tapping the political back channels to encourage the U.S. government to ban TikTok, not because it threatens Facebook’s model but because Facebook is concerned about national security.
This is from the same Mark Zuckerberg that has been attempting to destroy Snapchat (SNAP) for years after SNAP’s CEO Evan Spiegel refused to sell it to Zuckerberg.
So why innovate? Why deploy capital into research and development when you can just nick a crown jewel and make it your own?
Exactly, so innovation does not happen and will not happen.
We, as consumers, have been thrust into the cluster of ever-degrading smartphone apps that offer less and less utility.
But ultimately, even if you hate Silicon Valley at a personal level, it is literally impossible to bet against them, because all this posturing behind the scenes does boost the share price and that’s what this technology letter is about.
As we are whipsawed into this muddling world of partially vaccinated economies, tech will consolidate after they deliver earnings only to prepare for the next leg up in shares.
Sure, this year’s growth and EPS estimates have been priced perfectly, but we will start to move onto next years’ bounty and these models have never been more profitable.
Don’t fight the trend.
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“A good boss is better than a good company.” – Said Founder of Alibaba Jack Ma
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What truly scares investors isn’t really the potential relapse of the financial metrics that would undoubtedly take center stage again since the earnings season already commenced.
As we have been recently reminded, the world’s worst nightmares still place the COVID-19 virus front and center—this, despite the pandemic supposedly already under control.
COVID cases are starting to rise again, and the delta variant is seen as the latest addition to the problem.
That strain has actually become dominant in the United States, sending unvaccinated individuals to hospitals faster than its predecessor.
This delta variant is said to be more contagious than the previous virus. In fact, the fear over this new wave is incredibly high that the US government decided to issue a “Do Not Travel” advisory for the UK, which has been suffering from outbreaks despite their high vaccination rates.
If this is yet another indication of another disastrous year like 2020, then stocks would most certainly fall.
However, stocks managed to bounce back after the initial scare.
While this sparked a debate on the reason behind the recent sharp losses, investors are encouraged to remain focused on how the virus can still affect their lives despite the strong temptation to believe that the stock market will continue to rise from here.
Vigilance is the key to survival these days. It’s critical to bear in mind that the virus that upended our world and forced us to shutter our economies may not be in retreat just yet.
After all, even paranoids have enemies.
That’s what makes the mRNA vaccines a promising answer to this new issue.
Moreover, against this volatile environment, one stock looks to be extremely intriguing: Moderna (MRNA).
Amid the analyses and reports, the most consistent thing about Moderna—and the most notable quality it has—is its solid science.
At its core, mRNA technology can transform the cells in a person’s body into mini-factories with the ability to produce virtually any kind of protein that Moderna wants.
So when people get inoculated with mRNA-1273, the mRNA instructs the body’s cells to start producing inactive replicas of COVID-19 proteins.
Then, the body’s immune system responds to those replicas.
This process effectively teaches the person’s immune system how to protect itself and fight off any type of exposure to the COVID-19 virus proteins.
Moderna’s vaccine is based on mRNA technology, which is primarily an information molecule. This means that this could be used to create various products, which would reach better technical success over time.
Basically, one major benefit of mRNA is that the chemistry behind the formulation for treatments like the flu shot uses exactly the same when creating more advanced products like the COVID-19 vaccine or even the HIV vaccine.
This makes it easier for Moderna to keep developing vaccines and other treatments because the company no longer needs to implement major changes in its manufacturing system for every new drug.
This is incredible leverage for Moderna, particularly across its manufacturing infrastructure and R&D. With the money saved on this advantage, Moderna can make massive investments in other segments like IT and marketing.
In fact, their quickness to market their vaccine is one of the reasons for Moderna’s success in the COVID-19 vaccine race.
Over the course of the last 52 weeks, Moderna stock has performed within the range of $54.21 to $342.51. The stock also managed to sustain its momentum from the surge of investor interest last year and is up by 207% so far this 2021.
In ensuring that it doesn’t get too far behind the leader, Pfizer (PFE)-BioNTech (BNTX), it secured a huge chunk of the market share as well.
Now, there’s a new virus strain threatening to take down everything we’ve worked hard to rebuild since the first COVID-19 case broke last year. This could mean an additional revenue stream for Moderna considering that it can deliver at lightning speed compared to other developers.
Aside from its work on COVID-19, Moderna is also looking for ways to use mRNA technology to develop treatments for heart failure, cancer, and other severe conditions.
To date, Moderna has roughly 24 mRNA-based programs in its pipeline, ranging from the Zika vaccine to cancer treatments.
Admittedly, buying Moderna stock presents risks. However, the greed and fear that continue to rule the markets places Moderna in a unique position to be the answer to all the questions.
Moderna is estimated to rake in $18.8 billion in revenue for 2021, thanks largely to its COVID-19 vaccine, with the number expected to rise as the company ramps up production to reach 3 billion doses in 2022.
Moderna’s dominance today doesn’t necessarily mean it’ll last forever, especially with competition coming in from Johnson & Johnson (JNJ) and Novavax (NVAX).
However, the technology it uses and the fact that it’s one of the only two biotechnology companies that successfully executed the mRNA place Moderna in an extremely unique, profitable, and secure position for the foreseeable future.
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During the heyday of my Morgan Stanley career in the 1980s, back when I had an unlimited expense account, a favorite place to take clients was Studio 54.
The place was full of rock stars, the music was piercing, and strange things were happening in dark corners. It was all the perfect adventure for the impressible visitor from the sedentary Midwest.
Studio 54 was notoriously difficult to get into. There were these hefty doormen dressed in black with big gold chains who did the vetting. If you were famous or a free-spending investment banker, the red ropes were cast aside, and you glided right in. $100 tips spoke volumes too. The hoi polloi could only watch with envy, even after spending hours in line.
The stock market has become a lot like Studio 54. It’s not letting you in. I had ten trade alerts lined up to get into the market on Friday and Monday. I only got off four. After a scant 3.2% decline, stocks turned around so fast it made your head spin. There are strange things happening in dark corners too.
Next week is the first time in a decade when the top five tech companies report earnings. If history is any guide, they will sell off sharply on the reports, form a base in August, then begin their yearend ramp up. This is why I have been hanging on to my short positions.
I continue to belie that the major miss by the markets is how much they are underestimating tech earnings. Maybe they have fully discounted 2021 earnings, but what about 2022-2030?
Let me give you the example of Apple alone. 5G wireless technology is rolling out now which is improving performance by ten times. What about 6G, 7G, and 8G? The cumulative performance gains of a decade of technological improvement is 10,000 times at zero cost!
Do you think Apple will buy more of its own stock in anticipation of this? Do you think everyone else will too?
You bet!
The “Delta” Correction lasted a day, with deaths in some states up 100% in a week. It is a pandemic of the unvaccinated and of children. The stock market was already ripe for a 5% correction. That’s what happens when you double in 16 months. The bond market at a 1.10% yield thinks the recovery is over and we’re going below 1.00% for the ten year.
Facebook is killing people, says Biden, through enabling the spread of vaccine information. Right-wing website says the vaccine causes sterility, alters your DNA, and enables the government to track your location. (FB) says members have the right to lie to each other. This isn’t going away. (FB) shares hit a new all-time high, taking its market cap into the trillion-dollar club.
That was the shortest recession in history in 2020, lasting only two months. Straight down and then straight up, making it the shortest recession in history. But what two months it was, with an eye-popping 22 million jobs disappearing in March and April. We have since made more than half back.
The month-end selloff is back in play, with the 800-point bounce behind us. That’s when big tech reports. With trillions of dollars struggling to get into the market on any dip, a two-day, 3.2% correction is all we are going to get. I managed to strap on stock longs and bond shorts yesterday, but even I got left on the sidelines with my other trade alerts.
Bitcoin breaks $30,000, then bounces back up. It seems to be an inflation/rising interest rate play which does poorly when ten-year yields hit 1.12%. It’s almost trading 1:1 with Freeport McMoRan (FCX). That has to mean we’re soon entering “BUY” territory.
Rents are soaring, up 6.6% in May YOY, according to data collection firm Corelogic. It’s the biggest gain since 2005. Single-family homes, about half of the rental market, are leading the charge. Phoenix is delivering the biggest increases, up 14% YOY, followed by Dallas and Atlanta. What a great time to own!
Share buybacks are turbocharging this market, which could reach an eye-popping record $1 trillion in 2021 and another $550 billion in dividends. Q2 has already seen $350 billion in buybacks. Apple (AAPL) is leading the charge with a monster $250 billion in cash. Alphabet (GOOGL), Microsoft (MSFT), and Berkshire Hathaway (BRKB) follow. Even companies that have never bought the stock before may enter the fray, like Netflix (NFLX), which is a cash flow cow. My yearend target of an S&P 500 at 4,750, up 9.2% from here, is now looking totally attainable.
Existing Home Sales are up 1.4% in June to 5.86 million units, less than expected. Inventories are down 18.8% YOY to 1.25 million units to a 2.6-month supply. The Northeast was the leader, up 2.8%. Median home prices are still soaring to $363,000 and up an eye-popping 23.4% YOY. Sales of homes priced over $1 million are up 147%. No typo here. Some 14% of homes are now sold to investors, while 23% were to all-cash buyers.
GM recalls 69,000 bolts over recharging fire risk. The Ev's use will be severely restricted until fixed, citing “rare manufacturing defects.” Bolts use imported Korean batteries from LG. It’s what happens when you move into a new technology a decade late and rush to catch up. GM will never catch (TSLA). Avoid (GM) and buy (TSLA).
My Ten Year View
When we come out the other side of pandemic, we will be perfectly poised to launch into my new American Golden Age, or the next Roaring Twenties. With interest rates still at zero, oil cheap, there will be no reason not to. The Dow Average will rise by 800% to 240,000 or more in the coming decade. The American coming out the other side of the pandemic will be far more efficient and profitable than the old. Dow 240,000 here we come!
My Mad Hedge Global Trading Dispatch profit suffered a -1.65% loss so far in July. My 2021 year-to-date performance appreciated to 66.95%. The Dow Average is up 14.57% so far in 2021.
Two of my positions, a long in (JPM) and a short in the (TLT) did great. But I really took it on the nose with my short positions in the (SPY) when the market melted up on Friday. That should turn out OK when all five big tech companies report this week, which historically marks a market top. That leaves me 60% in cash. I’m keeping positions small as long as we are at extreme overbought conditions.
That brings my 11-year total return to 489.50%, some 2.00 times the S&P 500 (SPX) over the same period. My 12-year average annualized return now stands at an unbelievable 42.25%, easily the highest in the industry.
My trailing one-year return exploded to positively eye-popping 104.96%. I truly have to pinch myself when I see numbers like this. I bet many of you are making the biggest money of your long lives.
We need to keep an eye on the number of US Coronavirus cases at 34.4 million and rising quickly and deaths topping 611,000, which you can find here. Some 34.1 million Americans have contracted Covid-19.
The coming week will be a weak one on the data front.
On Monday, July 26 at 11:00 AM, New Homes Sales for June are released. Alphabet (GOOGL), Tesla (TSLA), and Amazon (AMZN) report.
On Tuesday, July 27 at 10:00 AM, the S&P Case Shiller National Home Price Index for May is published. Apple (AAPL) reports.
On Wednesday, July 28 at 9:30 AM, the Wholesale Price Index for June is disclosed. Facebook (FB) and Microsoft (MSFT) report.
On Thursday, July 29 at 8:30 AM, we get Weekly Jobless Claims. We also learn the first look at Q2 US GDP, which should be a blockbuster.
On Friday, July 30 at 8:30 PM, we get Personal Income & Spending for June.
As for me, when I was shopping for a Norwegian Fiord cruise for next summer, each stop was familiar to me because a close friend had blown up bridges in every one of them.
During the 1970s at the height of the Cold War, my late wife Kyoko flew a monthly round trip from Moscow to Tokyo as a British Airways stewardess. As she was checking out of her Moscow hote, someone rushed at her and threw a bundled typed manuscript that hit her in the chest.
Seconds later, a half dozen KGB agents dog-piled on top of her. It turned out that a dissident was trying to get Kyoko to smuggle a banned book to the West and she was arrested as a co-conspirator and bundled away to Lubyanka Prison.
I learned of this when the senior KGB agent for Japan contacted me, who had attended my wedding the year before. He said he could get her released, but only if I turned over a top-secret CIA analysis of the Russian oil industry.
At a loss for what to do, I went to the US Embassy to meet with ambassador Mike Mansfield, who as The Economist correspondent in Tokyo I knew well. He said he couldn’t help me as Kyoko was a Japanese national, but he knew someone who could. Then in walked William Colby, head of the CIA.
Colby was a legend in intelligence circles. After leading the French resistance with the OSS, he was parachuted into Norway with orders to disable the railway system. Hiding in the mountains during the day, he led a team of Norwegian freedom fighters who laid waste to the entire rail system from Tromso all the way down to Oslo. He thus bottled up 300,000 German troops, preventing them from retreating home to defend themselves from an allied invasion.
During Vietnam, Colby became notorious for running the Phoenix assassination program.
I asked Colby what to do about the Soviet request. He replied, “give it to them.” Taken aback, I asked how. He replied, “I’ll give you a copy.” Mansfield was my witness so I could never be arrested for being a turncoat. Copy in hand, I turned it over to my KGB friend and Kyoko was released the next day and put on the next flight out of the country. She never took a Moscow flight again.
I learned that the report predicted that the Russian oil industry, its largest source of foreign exchange, was on the verge of collapse. Only massive investment in modern western drilling technology could save it. This prompted Russia to sign deals with American oil service companies worth hundreds of millions of dollars.
Ten years later, I ran into Colby at a Washington event and I reminded him of the incident. He confided in me, “You know that report was completely fake, don’t you?” I was stunned. The goal was to drive the Soviet Union to the bargaining table to dial down the Cold War. I was the unwitting middleman. It worked. That was Bill, always playing the long game.
After Colby retired, he campaigned for nuclear disarmament and gun control. He died in a canoe accident in the lake in from of his Maryland home in 1996.
Nobody believed it for a second.
Stay healthy.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
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Mad Hedge Technology Letter July 23, 2021 Fiat Lux
Featured Trade:
(NEURALINK WILL CHANGE THE WORLD AND YOUR BRAIN) (TSLA), (SPACEX), (NEURALINK), (BORINGCOMPANY)
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