“The bubble is in the bond market, not the stock market,” said Leon Cooperman, CEO of Omega Advisors, an original investor in my 1990s hedge fund.
Mad Hedge Technology Letter
May 4, 2022
Fiat Lux
Featured Trade:
(RIDE-SHARING NEEDS A FACELIFT)
(UBER), (LYFT)
CEO of Uber (UBER) Dara Khosrowshahi earns 200X the salary of the median Uber employee and for that large sum of money, he lost the company $5.9 billion in just the first quarter.
The company is a perennial cash burner, and they haven’t shown us how they will fix this problem.
The company can dish out as many “positive outlooks” as it wants, but rest assured, they usually just move the goalposts and put some lipstick on a pig to dress up even more astronomical losses coming down the pipeline.
Uber’s management obviously did a bad job messaging their “positive outlook” as the share price opened up down 11% in today’s trading.
The time has come to pay the bill for this company and it’s not pretty.
They didn’t come anywhere close to becoming profitable during generational low-interest rates, and now, their prospects look bleak as we barrel towards a world with vastly higher borrowing costs.
Sure, the revenue doubled, but drivers aren’t making any money with such high gas prices and Uber has had to shell out more for labor and that’s not coming down any time soon.
In fact, if there was one tech company that would perform awful in high inflationary conditions, this is the company.
Not only that, but Uber’s service now is also just way too expensive, take a ride, and they charge consumers way more than its worth.
Unless it's 2 in the morning and there is no means back home, consumers won’t rush to order an Uber unless it’s an emergency.
I expect a shortage of drivers to continue as working for Uber as a driver is really bottom-of-the-barrel type of stuff and why do it during a time where labor rights are on the rise?
Remember they had to present a ballot for voters to get them classified as subcontractors and spent $200 million on it.
Investors must have pondered if this $200 million would have been better invested in the actual business instead of ripping off their own employees.
The intensifying competition for labor is also revealing the different ways in which ride-hailing giants are tackling the issue. Uber said it has been making tweaks to the driver app, like unlocking the ability to see upfront fares before accepting a ride, improving maps, and removing bugs.
Uber management touts Uber Eats as the savior of its business but then this company should be valued as a food delivery company with a lower multiple.
Uber eats is still losing money with no end in sight and one must conclude that it appears as if this “tech” firm has no chance of ever becoming profitable based on this current business model.
I fully expect Uber eats to burn more cash as food inflation goes from bad to awful which will mean demand destruction of its customers.
These customers can easily substitute Uber eats services by ordering supermarket delivery and throwing a frozen pizza in the oven.
Uber eats service is a luxury, not a necessity as many Americans cut back on spending because of major economic policy mistakes by the US Central Bank and the current White House administration.
It’s not a shocker to fin
d out that in the 3 years of Uber’s stock being public, shares have gone down 35% since the IPO in dreamy financial conditions with unlimited investment appetite for inferior tech companies.
The stock currently trades at $26 per share, and I would say this stock would be a good short-term trade at around $17.
Lastly, Uber’s way of saying they are a good tech company is by describing themselves as “not Lyft” and that right there is a massive smokescreen.
Mad Hedge Bitcoin Letter
May 3, 2022
Fiat Lux
Featured Trade:
(MINERS CHOKE ON HIGHER ENERGY COSTS)
(MARA), (RIOT), (CAN)
It represents strength that Bitcoin is holding the $38,000 level considering that energy costs have spiraled out of control.
I would consider this a relative victory for Bitcoin.
Like many other businesses, the cost of producing products is important and when the cost of oil is low, crypto miners laugh all the way to the bank.
That hasn’t been the case lately.
It was only just at the end of 2019 that the price of Brent crude was $20 and fast forward to 2022, the price touched $130 and has now settled around the $105 per barrel mark today.
It was no coincidence that Bitcoin’s most recent meteoric rise took place when the nominal cost of energy was half of what it is today.
The most glaring unintended consequence is the distressed nature of Bitcoin miners whom many have gone out of business because they simply aren’t profitable amid uncontrollable energy prices.
To dig deeper in the weeds, electricity comprises 90-95% of Bitcoin mining costs.
There was further news this week that a Russian Bitcoin miner had been included in the latest round of US sanctions. The Swiss-based Bitriver AG had moved its assets to Switzerland last year but found itself in the crosshairs, alongside 10 of its subsidiaries.
Bitriver claims to be the world's largest hosting provider for climate-friendly crypto mining (using renewable energy), and boasts a 100-megawatt data center in the Siberian city of Bratsk which it outsources to foreign miners from the United States and other Western nations.
HIVE (HIVE) is a Canadian miner which produced 278 BTC in March of 2022. The company also mines Ethereum with 2,549 produced, so that can diversify the company away from BTC. However, the company draws down on its ETH holdings to fund its strategic deal with Intel (INTC). The company sold 10,000 ETH to fund BTC rigs.
Ironically, the company has an ETH mining operation in Sweden which is the very nation leading the charge against Bitcoin operations in Europe.
Hive has access to 50MW of power and has an operating margin of 74% at present.
Marathon Digital (MARA) is focused on North American operations, which would shield it from European legislation. Marathon produced a Record 1,259 BTC in Q1 2022, up 556% Year-Over-Year and its total Bitcoin holdings increased to 9,374 BTC.
Like almost everything else that touches money in Europe, European regulation wants to tax and regulate galore which is what countries do when they are highly uncompetitive.
Europe has never produced an influential tech company from scratch and this is one of the biggest reasons why.
Sweden is in the process of regulating HIVEs ETH mining operations out of business in the name of climate change.
The obsession with climate change in Europe leading to the Stockholm syndrome attachment to green energy is just in its early innings.
It’s crystal clear to me that Europe will kick out all of its crypto miners and now there will be a sense of urgency since there is an energy crisis occurring within the European zone.
This all means that crypto miners will migrate to Russia and America with higher margins in Russia because the cost of energy is so low.
Although that is the long-term prognosis of the mining industry, in the short-term, cost challenges handcuff the best of them and the share prices of stocks like Marathon, Canaan (CAN), Riot, and Marathon are down in the dumps.
When the cost of oil retraces nearer to $70, I believe that will be the elixir for higher crypto mining share prices. Until then, rising interest rates and higher energy are something that miners must navigate or go bust.
“This is the perfect means of transportation, something that can take off and land everywhere.” – Said Co-Founder and CEO of Lilium Daniel Wiegand
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 Trading Dispatch
May 3, 2022
Fiat Lux
Featured Trade:
(FRIDAY, MAY 20 SAN FRANCISCO STRATEGY LUNCHEON)
(A BUY WRITE PRIMER), (AAPL)
Come join me for lunch at the Mad Hedge Fund Trader’s Global Strategy Update, which I will be conducting in San Francisco on Friday, May 20, 2016. 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 $249.
I’ll be arriving at 11:30 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 a private club in downtown San Francisco near Union Square that will be emailed with your purchase confirmation.
I look forward to meeting you and thank you for supporting my research. To purchase tickets for the luncheons, please click here or go to https://www.madhedgefundtrader.com/luncheons/
Mad Hedge Technology Letter
May 2, 2022
Fiat Lux
Featured Trade:
(ANOTHER TECH SUPPLY SHOCK)
(SOXX)