Mad Hedge Technology Letter
October 13, 2021
Fiat Lux
Featured Trade:
(AMERICA’S NEW SOCIAL CREDIT SYSTEM IS HERE)
(ABNB), (PYPL), (FB), (GOOLG), (AMZN)
Several external events have prompted Silicon Valley giants to unveil a predecessor to what effectively could become a de facto social credit system by the end of this decade.
I would argue that it is already here, and we are just blind to it.
Take short-term housing agent Airbnb (ABNB) and their business model.
Try searching for a specific listing in any city with a certain date, number of guests.
If you ask other friends and family around the world to input the same data into the same listing, prices will vary greatly.
This is intentionally done because pricing depends on the profile of a certain customer.
If it is $80 per night for me, it could be $100 for the next person.
Why?
Airbnb has an embedded algorithm that conjures up a de facto social credit score, applies it to the situation, and bam — you get your price.
Through my rough research, I have found that males tend to get charged less and especially males wielding a financial profile from a rich country.
I honestly am not sure what data Airbnb is privy to, whether it is only based on a customer’s prior internal Airbnb history, or if it is pieced together from other “sources.”
I am not sure, but if they somehow have access to alternative sources to understand their client better, they might already know that this 47-year-old John Doe booking a 3-night stay in Chicago, Illinois earns $300,000 per year, 1 out of his 5 credit cards is American Express among others, he reported $300,000 of Bitcoin profits in 2020 to the IRS and he owns 3 mansions in Miami, Florida.
It would almost be safe to say that this John Doe would get a better daily rate on the same Airbnb listing than if a 19-year-old student from Albania with no credit card, no assets, and no income tried to book the same listing.
Of course, this also goes for a hardworking single mother trying to take her kids on vacation. So, in the end wealthy men get benefited by a system with discounts that other customers could probably use. But, I guess that's just business in corporate America.
This is just the beginning of the race to pad a soft social credit system so tech companies and others can charge different prices to different people, or maybe not sell some customers services at all.
Relying on an indirect boost from D.C., corporate America will attempt to force the most profound changes our society has seen during the internet era.
Last week, PayPal (PYPL) announced they would start to crack down on users that did not use their platform responsibly.
This group could potentially lose access to PayPal’s services.
PayPal says the collected information will be shared with other financial firms and politicians.
Facebook (FB) is adopting similar practices, recently introducing messages that ask users to snitch on their potentially “extremist” friends.
At the same time, Facebook and Microsoft are working with several other web giants and the United Nations on a database to block potential extremist content.
Some banking platforms already have announced a ban on certain legal purchases, such as firearms.
The growth of such restrictions will accelerate to every part of the business world.
The potential scope of the soft social credit system under construction is enormous and the data exchange practices could have all tech companies swapping customer info in some type of private network that is only accessible to them.
A creation of a “Digital Dollar” would put the tools in place to make sure customer data and flow of money are followed to the very kilobyte.
Working in conjunction with major tech companies, citizens convicted of a crime could lose their ability to transact any business as well.
On a business level, this is great for all the big Silicon Valley companies involved because they would be more efficient at deploying the business intelligence at hand to make money.
I won’t go through the Rolodex of tech companies that are in the data business, but anything involving the cloud and anything in the cloud making great margins, will go gangbusters if this is allowed to happen, which it's looking like it will.
Imagine how conversion rates at Facebook, Google (GOOGL), and Amazon (AMZN) will skyrocket because they already know how to sell stuff to the end guy.
Imagine how Airbnb could ban guests before they even had a chance to destroy somebody’s residence or give generous rates to big spenders that would encourage even more big spending.
This is essentially the dream of Silicon Valley, not for only ad tech like Roku, The Trade Desk, Snapchat, and so on, but the software companies too.
Accurate and voluminous data means better decisions and a super-charged business model.
"Software is like Lego. You can make anything with it, but it may not be appropriate." - CEO of IMC Worldwide Stuart Sherman
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
Global Market Comments
October 13, 2021
Fiat Lux
Featured Trade:
(THE BRAVE NEW WORLD OF ONLINE RETAILING),
(SNAP), (GPRO), (APRN), (SFIX)
I was flying on first class flight on Virgin America from New York to San Francisco last year, and all I can say is that you meet the most interesting people in first class.
The woman sitting next to me was dark-haired, rail-thin, elegantly dressed, and utterly gorgeous. She addressed the flight attendant in a heavy Italian accent.
I hadn’t been to the former Roman empire since the summer, so I thought I would give my Italian a workout.
What I learned was amazing and opened up nothing less than a peek into the future of retailing.
I am always on the lookout for the next “big thing” than can generate a great Trade Alert, and suddenly here was a golden opportunity
It turned out that the woman was a senior executive with the fashion house Prada, based in Milan. Why was a fashion executive flying to a city where the hoodie and torn designer jeans were the primary means of dress?
She was flying halfway around the world to develop a relationship with Stitch Fix (SFIX), the hottest new concept in online apparel retail.
The fact that major companies were flying people in from Europe to check out a small startup said a lot right there.
The company’s business model is very simple, if not brave.
Consumers fill out a personal profile that includes every conceivable measurement, preference, and lifestyle. A personal stylist is then assigned to you who mails you a monthly box of items they think you would like.
For this service, you are charged a “stylist” fee of $20, which can then be applied as a credit towards any purchases.
You simply buy the items that appeal and mail the rest back. An artificial intelligence-driven algorithm records your picks and returns and then predicts what you are most likely to buy next time.
After several of these cycles, the algorithm knows what you like better than you do and will even mail you special offerings at a discount.
Along the way, Stitch Fix will introduce you to styles and brands that you never would have thought of. In order words, it does all the thinking for you.
The company has already clocked $1 billion in revenues in 2017 and is on an exponential growth trajectory.
Stitch Fix boasts an operating gross margin of 44%, well in excess of traditional retailers like Macy’s (M), Kohl’s (KSS), The Gap (GPS), and JC Penny (JCP).
Originally targeting Millennials, it quickly learned that its real market was with middle-aged professional women who don’t have time to shop.
It is already marketing 700 brands and is working to establish its own brands where the real margins are.
Some 95% of the firm’s employees are women.
The recent history of tech IPOs has not been great ((SNAP), (GPRO), (APRN), etc.). However, given the current online retail explosion, I have great hopes for (SFIX).
Just to have some fun, I filled out a profile but listed my age as 25. I can’t wait to see what they send me.
Hopefully, I won’t blow up their algorithm.
To place your first order with Stitchfix, please visit their website by clicking here.
Mad Hedge Bitcoin Letter
October 12, 2021
Fiat Lux
Featured Trade:
(AN ANTI-BUBBLE HEALTHCARE STOCK TO KEEP YOU SAFE)
(VTRS), (PFE), (SNY), (RHHBY), (REGN)
Some stocks bring red-hot gains. These companies are thrilling. Most investors flock to these businesses like bees to honey. Then, there are stocks such as Viatris (VTRS).
You won’t hear much buzz about Viatris.
After all, this company develops generic drugs—a fairly boring business. At times, it feels like nobody even talks about this stock at all.
However, Wall Street claims that several stocks have more room to expand soon. Interestingly, the names aren’t your usual list of growth stocks that most investors expect to ascend. The largest expected gainers are boring stocks.
This is where Viatris becomes interesting.
One of the possible reasons that Viatris isn’t generating as much buzz is that it was only established in 2020. The company is the product of a spinoff between Pfizer’s (PFE) Upjohn unit and generic drugmaker Mylan.
The spinoff allowed Pfizer to concentrate more on developing its pipeline candidates, while Viatris focused on off-patent and generic drugs.
However, Viatris has been off to a slow start, with the stock down by over 28% this year. In fact, the company has reported net losses for three quarters in a row.
Needless to say, both resulted in having the stock deeply discounted.
While these can cause other investors to shy away from the stock, I look at it as part of the company’s growing pains.
And it looks like things are about to turn around soon.
By the end of this year, Viatris expects to reach cost synergies of roughly $500 million. Through major restructuring, the company anticipates doubling this to more than $1 billion by 2023.
As an early-stage business, Viatris offers a stable long-term investment.
While it recorded a somewhat flat performance at $4.6 billion in sales in June, the company’s lineup of new products signals growth ahead.
For example, Viatris estimates to generate roughly $690 million in revenue for its new products—a highly achievable projection for the company.
Just last July, Viatris scored approval for a biosimilar product called Semglee. This is an insulin biosimilar to the high-selling Lantus of Sanofi (SNY), which peaked at $6.4 billion in sales in 2015 and lost patent exclusivity in 2014.
Semglee is reported to be fully interchangeable with the reference drug, which means that Viatris’ biosimilar is the exact equal of Sanofi’s previous blockbuster.
Moreover, Semglee is priced at about $148 for five pre-filled insulin pens, offering a whopping 65% reduction from Lantus’ cost.
The significant price difference is clearly difficult to ignore, especially at a time when politics has joined the fray in drug pricing.
The ability of Viatris to undercut the prices offered by Big Pharma definitely signals long-term benefits in terms of the company’s bottom line.
Aside from Semglee, Viatris has seven more approved biosimilars on the market.
The list includes Roche’s (RHHBY) breast cancer treatment Herceptin, which peaked at $6 billion in sales, and Regeneron’s (REGN) AMD drug Eylea, which generates an average of $8 billion annually.
It even has AbbVie’s (ABBV) megablockbuster immunology therapy Humira, which averages $20 billion in sales annually.
While Viatris won’t be the only company marketing a biosimilar for Humira, the company has the advantage since its candidate, Hulio, already gained approval in Canada, Europe, and even Japan.
Meanwhile, Viatris’ near-term pipeline candidates hold the potential to generate $57 billion in sales. Adding the rest of its 31 biosimilar candidates could push the figure to $224 billion.
The expansion of the biologics market is anticipated to outpace traditional pharma in the future. From $300 billion in 2020, the biologics segment is projected to reach $690 billion by 2027.
Aside from its biosimilar programs, Viatris has also been working on its internal development plans.
This would mean developing new high-margin brand names as well as diversifying its portfolio to include novel therapies.
Viatris is projected to reach at least $35 per share in the coming months, showing off a promising 155% jump from its current price.
On top of that, investors have been enjoying a juicy payout of 3.2%—higher than the average 1.3% of the S&P 500.
Considering the risks brought by market correction, Viatris emerges as a prime candidate for a safe haven among investors.
That is, they can easily lock in on this relatively anti-bubble business that’s available at practically a bargain bin price.
Mad Hedge Bitcoin Letter
October 12, 2021
Fiat Lux
Featured Trade:
(ON THE WAY TO HIGHER BITCOIN PRICES)
(BTC), (SEC), (CME)
The CEO of JP Morgan Jamie Dimon is being a bit disingenuous by saying that Bitcoin is “worthless.”
He continued to say, “I don’t want to be a spokesperson — I don’t care. It makes no difference to me. Our clients are adults. They disagree. That’s what makes markets. So, if they want to have access to buy yourself bitcoin, we can’t custody it, but we can give them legitimate, as clean as possible, access.”
Dimon strikes me as a very “in the box” type of guy and I understand this mentality makes it hard for his brain to fathom a digital currency run by software that is running simultaneously outside the U.S. financial system.
Yeh — it’s a lot to process Jamie — I get it…the uncertainty and the uncertainty of maybe JP Morgan being adversely affected by this keeps him up at night.
I mean what does Dimon have to gain from this when he has made his career off the backs of American taxpayers paying and depositing into the U.S. financial system propped up by the precipitously devalued U.S. dollar which crypto was borne out of?
Dimon’s risk-reward ratio of getting into crypto ecosystem is mind-numbingly poor at this point, better for him to take the Charlie Munger approach and claim crypto as “snake oil” from his golden perch.
Better for him to retire out to his Colonial Revival mansion in the Hampton’s and sip on mimosas at Sunday brunch.
Dimon also said that bitcoin has “no intrinsic value.”
And although he thinks bitcoin will be around long term, “I’ve always believed it’ll be made illegal someplace, like China made it illegal, so I think it’s a little bit of fool’s gold.
China has also made Amazon and Google de facto illegal by effectively banning them from Mainland Chinese internet, so are we going by Chinese law now?
He says there is no intrinsic value but look at stable coins which are a type of cryptocurrency that offer yields on holding the coin which is highly profitable.
Stable coins are doing WHAT BANKS SHOULD BE DOING.
This whole crypto thing is obviously a little over Dimon’s head which is ok.
And increased regulation will and should happen — it’s in the works and it just doesn’t happen in 6 hours — and yes, it certainly will mean higher Bitcoin prices because of a lower systemic risk after effect.
Federal Reserve Chairman Jerome Powell clarified at the end of September that he has no intention to ban bitcoin in the U.S.
If people want crypto to become more of a mainstream asset, then clearly, regulation is a necessary first step.
Dimon, if like he says — “regulators are going to regulate the hell out of it.” — regulators are doing this because they want to elevate it to a mainstream asset where banks like JP Morgan can charge customers an arm and a leg for custody and levy other fees.
And yes, too much regulation could stifle crypto innovation in the U.S. and push business overseas, this is also certainly another risk.
Ironically enough, the positive shift in sentiment toward Bitcoin can be attributed to recent statements from the United States Securities and Exchange Commission Chairman Gary Gensler suggesting the long-awaited approval of the first Bitcoin exchange-traded fund (ETF) in the U.S. may be just around the corner.
Institutional investors are continuing to pile into Bitcoin as we speak despite prices pushing up to a five-month high.
According to the latest data, more than $226 million in capital flowed to institutional Bitcoin products this past week.
Bitcoin products dominated inflows for the third consecutive week, posting a week-over-week increase of 227%.
Crypto investment products have now posted inflows for eight weeks in a row.
While the SEC has previously shot down every application it has received for physically backed Bitcoin ETFs, the SEC is currently deliberating four applications for exchange-traded funds based on the Chicago Mercantile Exchange’s (CME) regulated futures contracts.
With CME’s futures markets offering a product that is already insured and overseen by U.S. regulators, experts believe that Bitcoin futures ETFs are “likely on schedule” to receive a regulatory green light this month.
This is all highly bullish for Bitcoin and other cryptocurrencies.
