Mad Hedge Technology Letter
December 9, 2022
Fiat Lux
Featured Trade:
(THE GOOD AND BAD ABOUT TECH)
(MSFT), (ATVI)
It was so easy during the 10-year technology bull market after the Great Finance Crisis (GFC).
Investors just needed to buy and go take a nap.
Not anymore.
Around November 2021 was when the tech momentum came to a screeching halt with most tech shares reversing on a dime.
Many tech stocks sit today far from their peak.
Now more than ever, active stock management will be critical to overperforming in a world where index funds are effectively dead.
Yet there is still a large risk that we need to calculate in the tech world and that is regulation.
Just in the last week or two, two of techs biggest stalwarts have been hit with turbulence from the powerful regulators.
In a world where more government from every Western country has means higher costs and more bureaucracy, even more government rules appear to be coming our way.
Microsoft, once synonymous with large antitrust cases, is being scrutinized for its execution of monopoly powers.
The US Federal Trade Commission (FTC) announced it will sue to block Microsoft’s $69 billion takeover of Activision, the video game publisher responsible for titles such as Call of Duty, World of Warcraft, Overwatch, and the mobile game Candy Crush.
If approved, the deal would enable Microsoft to corner the video game market and force all game titles on its in-house console called Xbox.
It’s likely that this is just the beginning of anti-trust issue for many strong American tech companies.
The Democrats retook the Senate, meaning that American consumers are satisfied with the status quo, actively voted for high inflationary policies and want more government in American lives.
The populace’s stamp of approval with accelerated price rises for many of our cherished tech software and services means more profits for tech companies.
Luckily for these tech companies, software such as Microsoft Office or Google’s Gmail is monopoly, and any cost explosion will be passed along to the end consumer.
Can you imagine a world where an annual Microsoft Office subscription is $400 per year?
Of course this won’t happen in one day, but I can ensure everyone that Silicon Valley giants with monopolistic products won’t reduce profit just because they feel like it.
Microsoft’s focus on enterprise software has largely kept it out of the US regulatory tussling in recent years over content moderation and predatory pricing discussions that embroil the other Big Tech companies.
Microsoft was thus able slyly close deal, including the acquisitions of:
- video-conferencing software Skype for $8.5 billion in 2011,
- multiplayer gaming company Minecraft for $2.5 billion in 2014,
- social network LinkedIn for $26 million in 2016,
- software platform GitHub for $7.5 billion in 2018, and
- the speech recognition company Nuance for $26 billion in 2021.
I do believe this is the beginning of something more insidious, where many tech companies are blocked from vanilla takeovers under the banner of anti-trust or anti-competitiveness.
To some extent, these preventative moves from the US government will stymy US tech companies from expanding through mergers and acquisition.
Therefore, the backup plan is to charge everyone more for the current products they sell now.
What’s worse, the next generation visionary technology has yet to surface that changes the rules of tech and the only hope – metaverse – appears to be a bust.
We have nothing to hang our hat on yet.
Ultimately, we are gearing up for an optimistic 2023 in the technology sector, the government won’t be able to stop revenue growth, but they will be able to stop explosive revenue growth.
The expectations of lower rates next year will finally breathe new life into technology stocks, while the government regulation and antitrust concerns will put a cap on accelerating growth.
After a terrible year in 2022, I will be more than happy to take moderate success over the demolition of 2022.
“If humanity doesn't land on Mars in my lifetime, I would be very disappointed.” – Said CEO of Tesla Elon Musk
Global Market Comments
December 9, 2022
Fiat Lux
Featured Trade:
(WHY TECHNICAL ANALYSIS NEVER WORKS)
(FB), (AAPL), (AMZN), (GOOG), (MSFT), (VIX)
Welcome to the year from hell.
We have now collapsed 16% from the January high. Buyers are few and far between, with one day, 5% crashes becoming common.
By comparison, the Mad Hedge Fund Trader is up a nosebleed 88.48% during the same period.
The Harder I work, the luckier I get.
Go figure.
It makes you want to throw up your hands in despair and throw your empty beer can at the TV set.
Let me point out a few harsh lessons learned from this most recent meltdown and the rip-your-face-off rally that followed.
Remember all those market gurus claiming stocks would rise every day for the rest of the 2022?
They were wrong.
This is why almost every Trade Alert I shot out this year have been from the “RISK OFF” side.
“Quantitative Tightening”, or “QT” is definitely not a stock market-friendly environment.
We went into this with big tech leaders, including Apple (AAPL), Amazon (AMZN), Google (GOOG), and Microsoft (MSFT), all at or close to all-time highs.
The other lesson learned this year was the utter uselessness of technical analyses. Usually, these guys are right only 50% of the time. This year, they missed the boat entirely. After perfectly buying the last top, they begged you to dump shares at the bottom.
In 2020, when the S&P 500 (SPY) was meandering in a narrow nine-point range, and the Volatility Index (VIX) hugged the $11-$15 neighborhood, they said this would continue for the rest of the year.
It didn’t.
When the market finally broke down in January, cutting through imaginary support levels like a hot knife through butter ($35,000?, $34,000? $33,000?), they said the market would plunge to $30,000, and possibly as low as $20,000.
It didn’t do that either.
If you believed their hogwash, you lost your shirt.
This is why technical analysis is utterly useless as an investment strategy. How many hedge funds use a pure technical strategy? Absolutely none, as it doesn’t make any money on a stand-alone basis.
At best, it is just one of 100 tools you need to trade the market effectively. The shorter the time frame, the more accurate it becomes.
On an intraday basis, technical analysis is actually quite useful. But I doubt few of you engage in this hopeless persuasion.
This is why I advise portfolio managers and financial advisors to use technical analysis as a means of timing order executions, and nothing more.
Most professionals agree with me.
Technical analysis derives from humans’ preference for looking at pictures instead of engaging in abstract mental processes. A picture is worth 1,000 words, and probably a lot more.
This is why technical analysis appeals to so many young people entering the market for the first time. Buy a book for $5 on Amazon and you can become a Master of the Universe.
Who can resist that?
The problem is that high-frequency traders also bought that same book from Amazon a long time ago and have designed algorithms to frustrate every move of the technical analyst.
Sorry to be the buzzkill, but that is my take on technical analysis.
Hope you enjoyed your cruise.
Mad Hedge Biotech and Healthcare Letter
December 8, 2022
Fiat Lux
Featured Trade:
(THE MASTODON OF HEALTHCARE)
(UNH), (HUM), (CI), (ELV), (CVS)
Most earnings reports across all industries recently include the terms “inflationary pressures,” “short-term macroeconomic conditions,” “labor shortages,” and, of course, “supply chain issues” to justify why revenues are down or flat. The S&P 50 index has declined by over 20% to date, with signs of sliding further.
Clearly, the economy cannot be described as recession-proof. It typically follows a relatively predictable, albeit irregular, path commonly called the economic cycle. Needless to say, recessionary periods can be heartbreaking and brutal for the market and its investors.
However, some sectors are somewhat immune to the ups and downs of the economy. These industries provide investors with recession-proof stocks that can be held onto during these challenging periods. One of them is the healthcare industry.
Healthcare stocks, particularly high-quality businesses, tend to be viewed as recession-proof. Despite the economic turbulence, companies in this sector still enjoy relatively solid and steady demand. That’s not entirely shocking since people can’t exactly just cancel their healthcare needs.
No matter what’s happening in the world, when you’re unwell, you have no other option but to see a doctor and get medicine.
Within the healthcare sector, not all businesses are created equal. Some still felt the recession's nasty consequences, while others managed to thrive.
One name that continues to impress amid the economic turmoil is UnitedHealth Group (UNH).
Basically, UNH operates 2 main segments.
One is UnitedHealthcare, which offers a complete range of healthcare insurance. The other is Optum Health, which provides data-driven healthcare gathered from partner surgery centers. It also obtains information from OptumRx, UNH’s pharmacy management arm.
Both UnitedHealthcare and Optus Health delivered excellent results to date, boosting the company’s full-year guidance from $20.85 to $2105 in terms of EPS. In comparison, UNH recorded an annual EPS of $18.08 back in 2021.
In the first 9 months of 2022, UNH raked in $192.5 billion in revenue. This shows a 14% increase year over year. Meanwhile, its earnings per share climbed to $16.15 compared to the $13.82 it reported during the same period in 2021.
One of the key drivers for these results is the boost in the number of subscribers to UNH’s services, which rose by 850,000 in 2022. Apart from these, the company has an attractive dividend that keeps investors satisfied. For the 13th consecutive year, UNH has raised its dividend, announcing a quarterly boost of 14% to reach $1.65.
Keep in mind that the health insurance industry climbs higher each year, and COVID-19 has forced everyone to reconsider and review their perspectives towards healthcare.
On top of these, UNH’s long-term growth is supported by the inevitable: the continuous and increasingly expensive demands of an aging population. That is, the company has a massive addressable market that keeps on expanding year after year.
Looking at the trajectory of this industry, it is estimated that 73.5 million individuals will be enrolled in Medicare by 2027. This represents a 28.5% boost from the 57.2 million reported in 2017.
Due to the increasing demands in healthcare in the coming years, particularly among the aging population, spending in this segment is also anticipated to rise rapidly. In fact, healthcare spending is projected to hit $6 trillion annually by 2028.
Thus far, UNH is hailed as the leading company in healthcare. The company’s hegemony looks and feels incomparable, and none of its competitors appear to be strong enough to dethrone it. For context, the leading rivals of UNH in the US include Humana (HUM), Cigna (CI), Elevance (ELV), and CVS Health (CVS).
For these competitors to stand a chance at beating or at least competing with its on equal grounds, they would need to merge—a move they’ve all attempted in the past but were blocked by regulators.
Overall, UNH remains a solid choice, especially during these trying times. This company is a widely respected mastodon in the insurance market worldwide, showing off substantial growth in revenue and profit practically every year. Buy the dip.
Global Market Comments
December 8, 2022
Fiat Lux
Featured Trade:
(HOW TO JOIN THE EARLY RETIREMENT STAMPEDE)
(TESTIMONIAL)
Thursday afternoon
December 8, 2022
Hello everyone
What’s your preference? Buy and hold or be an active trader?
Some people may have answered both.
It seems 2023 will not be a time to buy and hold. Expect markets to be choppy. Wells Fargo expects the S&P to end 2023 at 4,200. It also says that equity markets will trade as low as 3,410 in the new year. The bank added that the probability of a soft landing is less than 10%. Furthermore, it envisions a sharp recession rather than a drawn-out slowdown.
Let’s talk about women and work and retirement.
Why is it that women earn less than men for doing the same job? I’ve never quite worked that one out. Not only are they discriminated against in income earned, but half of the women in the workforce say they are behind on retirement savings. More than half of women – 58% - receive half or less than half of their pre-retirement income, compared with 44% of men. Just 20% of women receive 7-% of their pre-retirement income, the amount some experts say retirees need to maintain their standard of living. In comparison, 30% of retired men have income that reaches that level.
Why do women come up short?
They are more likely to take time out of the workforce to care for children or aging relatives.
Women tend to work nine years less than men, which can reduce their retirement savings by 35%. This may also have an adverse effect on the amount of Social Security benefits they receive.
And then, of course, there is the wage gap. They earned just 82 cents for every dollar earned by men in 2020, according to the U.S. Census Bureau.
They may dip into retirement savings for emergencies.
They may choose not to marry, which also affects women’s retirement preparedness.
Women need to learn how to trade, so they can look after themselves.
China is set to ease Covid restrictions. What can we expect?
As they relax measures, 60% of people may get infected. They are nowhere near herd immunity. This may result in a drag on the economy and a temporary shortage of labour and increased supply chain disruptions.
Wishing you all a wonderful weekend.
Cheers
Jacque
"To be yourself in a world that is constantly trying to make you something else is the greatest accomplishment." -
Ralph Waldo Emerson
I was able to get the short Invesco NASDAQ Trust (QQQ) tech trade today and I took profits on a few things and got out of margin on your last warning.
I have done well keeping up with the global alerts for the last couple months and that portfolio is looking good. I was able to fire off an extra (TLT) short and a (TSLA) long trade that seem on solid footing for this monthly expiration, which I think was a tip from your call last month.
The tech trades, (MU) and (PINS) blew up, unfortunately. I seem to do better with tech if I just buy the shares and forget about them. I took a +106% gain on (BNTX) shares and a few other gains that were your tips from earlier in the year.
Thanks for the great writing!
Regards,
Andrew
Washington State
