Mad Hedge Technology Letter
November 13, 2024
Fiat Lux
Featured Trade:
(HANG ON TO THE A.I. STORY WITH META)
(META), (AAPL)
One of the reasons I believe this AI narrative will continue in the short-term is because cash cow tech firms like Meta (META) are pouring cash into AI infrastructure.
There is a lot we still don’t know about the direction of AI – the future is uncertain.
However, the one takeaway is that the AI infrastructure spend continues right now unabated, and we know that because Meta raised capital expenditures guidance for the 2024 fiscal year to between $38 billion and $40 billion, up from $37 billion to $40 billion previously.
They also expect capital expenditures to continue to grow significantly in 2025 due to an acceleration in infrastructure expenses.
Founder Mark Zuckerberg is desperate to not miss out on the “next big thing.” Remember, he whiffed big time at the smartphone, and he will never stop blaming himself for it. Apple has been a constant pain in the ass for his company because Meta still needs to go through Apple management and their app store to get their platform to users. They also changed the privacy settings, which were directly targeted at Meta.
Zuckerberg is also on record for saying that Meta would be twice as profitable if he could remove the costs of going through Apple.
Meta is still growing at 19% year over year, and that is quite impressive for a company this big.
The company reported 3.29 billion daily active people for the third quarter. That was up 5% year over year, and we can expect that percentage point to stick in the single digits.
Zuckerberg has been pointing to the company’s massive investments in artificial intelligence, which includes spending billions of dollars on Nvidia’s popular graphics processing units, as helping improve the company’s core online ad business in the aftermath of Apple’s 2021 iOS privacy update. The company has been improving upon and building more data centers to help provide the technology infrastructure needed for its AI strategy.
The company’s Reality Labs hardware unit posted an operating loss of $4.4 billion in the third quarter, which was less than analysts’ expectations of $4.68 billion.
Facebook Reality Labs is a research and business unit of Meta Platform that develops virtual reality (VR) and augmented reality (AR) products and technologies.
I do believe the jury is still out on the Facebook Google story. It is not a given that consumers will just adopt some ridiculously looking VR headset and venture off into daily life with that thing on. The over $4 billion of losses points to a challenging time to turn the VR business into something legitimate.
Apple has also had some issues with its VR headset as well.
In the short term, Meta is still highly profitable, and they roll these profits into trying out new businesses.
It only takes one new killer business for the stock to explode again, much like what happened when Zuckerberg doubled down in social media through the acquisition of Instagram.
Investors need to be patient and keep a hold of META stock as it grinds higher.
In the event the stock does experience a mild sell-off, I am certain dip buyers will come to the rescue because of the nature of the stock being high quality.
Although digital ads aren’t the growth engine it once was, they are giving time and money for META to find the next path forward. 99% of tech companies don’t have that luxury.
(CRYPTO MINERS CATCH-UP AS BITCOIN RALLIES)
November 13, 2024
Hello everyone
Crypto Miners will power ahead as Bitcoin rallies
Bitcoin has been rallying strongly since Trump secured the Presidency.
Bitcoin recently broke out of the flag pattern that has been forming for the past year and has rocketed to the upside.
I have been recommending a small portfolio allocation into Bitcoin and related crypto stocks for over a year now.
With Bitcoin consistently reaching new records since Election Day – a trend that is likely to continue through next year – crypto miners could start to play catch-up.
The buying opportunity is here for Bitcoin miners.
Bitcoin miners are among the best investment vehicles for investors to express their bullish outlook on Bitcoin.
CleanSpark is up nearly 50% year to date.
Among the diversified miners, TeraWulf has soared 246% in the same period, and Core Scientific (CORZ) has rallied 407%. (I recommended (CORZ) on August 7 this year at the price of $9.71). It is now just over $17.00.
Core Scientific Weekly Chart (CORZ)
The promises made by Trump in his campaign included keeping all bitcoin mined in the U.S.
The previous administration thwarted the crypto industry as it attempted to mandate energy surveys on miners and proposed a 30% excise tax on them.
Private Prison Operators See a Big Move
We can understand Tesla and Bitcoin moving up strongly. Tesla can almost be seen as a sector on its own. But let’s dive into Prison Operators and see what their move is all about.
Shares in the leading publicly traded prison firms GEO Group and CoreCivic have jumped roughly 70% since November 4.
The gains point to the big opportunity investors see for private prison operators as Trump vows to round up and deport millions of migrants.
Trump’s first actions as president have been focused on assembling the team in charge of immigration policy, a signal it is likely to be a priority.
While Trump’s immigration policy may be sound for private prisons, it may not be good for the economy. The housing, agriculture, and hospitality industries rely on migrants to fill laboring jobs. Without that labour pool, the U.S. could see labour shortages, and higher wages, an environment that would not be conducive to helping remedy the housing shortage.
AUSTRALIAN CORNER
The Australian Government has become a big spender on quantum computing, outcompeting private capital in hopes to make Australia a world leader.
In the past 18 months, there has been a $470 million investment into PsiQuantum, matched by Queensland, a company that promises to deliver the world’s first “utility-scale” quantum computer from its Brisbane headquarters.
Global consultancy McKinsey has estimated the sector could be worth trillions within the next decade, with particular applications for problem-solving in the sciences and powering navigation and communication tools.
The first “State of Australian Quantum” report says Australia’s own quantum industry will be worth a projected $6 billion and employ 19,400 Australians by 2045.
Earlier this year, QuintessenceLabs, announced a US partnership to provide “quantum-safe cybersecurity” to government agencies.
As of August this year, there were at least 53 facilities and laboratories researching quantum technology in Australia and 38 quantum businesses headquartered in Australia.
QUIRKY CORNER
Cheers
Jacquie
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
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
November 13, 2024
Fiat Lux
Featured Trade:
(DON’T GET SCAMMED BY THE MUTUAL FUNDS),
(TESTIMONIAL)
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
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 Biotech and Healthcare Letter
November 12, 2024
Fiat Lux
Featured Trade:
(MEDTECH’S TRUMP CARD)
(RMD), (STE), (TNDM), (JNJ), (BDX), (MDT), (BSX), (SYK), (ZBH)
After seeing Trump sweep back into office, my phone's been ringing off the hook with one question: "What happens to my portfolio now?"
Look, I've been around this circus since covering Reagan in the White House press corps, and I can tell you that market hysteria rarely matches reality.
But this time, we need to pay attention - especially in the $567 billion medtech industry that's about to face some serious disruption.
What's different now? Trump's not just talking about those 10% to 20% blanket tariffs anymore - he's dead serious about slapping a potential 60% tariff on Chinese imports.
And after spending years watching supply chains twist themselves into pretzels during COVID, this is going to hit different.
To understand just how big this could be, let's look at what's really at stake here.
In vitro diagnostics makes up 18% of the medtech industry, and cardiology devices are sitting at $75 billion in 2024, expected to hit $95 billion by 2028.
Those aren't just numbers on a page - they represent real money that could take a serious hit. If these tariffs go through, we're looking at a 3.2% hit to S&P 500 earnings per share in 2025.
And it gets worse - add another 1.5% drop if our trading partners decide to play hardball with retaliatory tariffs.
Given all this, where should you put your money? The answer lies in looking at who's already ahead of the curve.
Well, established players like Johnson & Johnson (JNJ) and Becton Dickinson and Co. (BDX) are looking increasingly shrewd with their local-for-local manufacturing strategy.
They might not give you the same adrenaline rush as scaling Mount Everest, but they're solid holds in this environment.
But they’re not the only companies securing their positions. ResMed (RMD), for instance, just posted third-quarter sales up 11% to $1.22 billion, with adjusted earnings jumping 34% to $2.20 per share.
That's not just good numbers - that's a company that knows how to execute regardless of who's in the White House.
In the same vein, Steris deserves attention. Their "front-shoring" strategy in Malaysia isn't just smart - it's prescient. After years of covering Asia for The Economist, I can spot smart positioning when I see it.
Now, let's talk about some of the bigger players in the room. Medtronic (MDT), our industry giant, is giving me pause.
Sure, they're a global leader, but their heavy reliance on Chinese manufacturing and components is about to become a serious headache under these new tariffs.
Same story with Boston Scientific (BSX) - they've got manufacturing facilities in China that could turn from assets to liabilities pretty quickly.
Stryker (SYK) and Zimmer Biomet (ZBH) are in the same boat, but with a twist. Both companies have been smart enough to spread their supply chains globally, but they're still catching enough Chinese exposure to make me nervous.
When those tariffs hit their component costs, watch their margins. This isn't just about bottom lines - it's about how much wiggle room these companies have to absorb higher costs without passing them on to hospitals and patients.
On the flip side, I'm watching companies like Tandem Diabetes Care (TNDM) with growing concern.
Their heavy Asian supply chain exposure under Trump's trade policies is going to be about as comfortable as my MIG-25 flight at 90,000 feet - and trust me, that wasn't comfortable at all.
But, what’s really telling is where the smart money is flowing.
Keep your eyes on three key trends that are reshaping the industry: supply chain resilience, M&A activity (now up 18% to $57.7 billion), and digital transformation.
About 30% of medtech companies are getting serious about digitizing their operations - and they're the ones to watch.
So, here's my bottom line: Trump's return is going to shake up medtech, but not every tremor is an earthquake.
The winners in this new landscape will be companies that have already diversified their manufacturing outside China, built up strong balance sheets to absorb these tariff impacts, and proven they can adapt - like ResMed and Steris have shown us.
The real champions will be those making serious investments in digital transformation. These are the companies that won't just survive Trump's trade policies - they'll thrive under them.
And if you're still holding onto companies with heavy Chinese exposure?
Well, let's just say it might be time to look for higher ground - and I'm speaking as someone who's made that call at both 20,000 feet on Everest and during the 2008 crash.
The medtech industry isn't going anywhere - people will always need medical devices. But which companies thrive under Trump's second term? That's going to depend on who's prepared for the storm and who's still standing in the open.
Now, if you'll excuse me, I've got some vintage wine to open. Making sense of these markets is thirsty work.
