Mad Hedge Technology Letter
May 6, 2022
Fiat Lux
Featured Trade:
(ECOMMERCE NOT AS EASY AS IT USED TO BE)
(AMZN), (FED)
Tag Archive for: (AMZN)
The Nasdaq reversing all its previous gains and then some has more to do with the bond market disagreeing with US Fed Chair Jerome Powell.
How do I know that?
After the one-day reversal which materialized because Powell took a 75-basis point cut off the table, the 10-year US treasury bond ripped past the psychological mark of 3% and surged past 3.1%.
As many have taken note, expensive tech stocks crater the deepest with uncontrollable interest rate rises and the pace of the move has been quite rattling for many investors.
In addition, the price action sure smells like a massive hedge fund blowing up and a force unwinding as well to add insult to injury.
Unfortunately for the American consumers, Powell taking 75 basis point cuts off the table does nothing to tame inflation even though I would like to point out that in normal times when the Fed is actually doing its job, a 50-basis point rise would usually be suitable.
However, the Fed is so late to the game, basically ignoring a compounding inflation catastrophe for over a year, that to believe that a 50-basis point rate increase will tame 8.5% inflation is nonsensical.
Without a reasonable plan to fight inflation, Wall Street has sniffed this out and understands that tech firms will suffocate under the pressure of more inflation which is why we are getting these larger-than-life selloffs after Powell tried to package his speech as dovish as possible.
The Fed absolutely neglecting their work duties has real knock-on effects on the tech industry.
It has absolutely poo-pooed the trajectory of Amazon’s (AMZN) stock because Amazon is a comprehensive bet on the rich Western world buying more stuff in volume and the median Amazon prime buyer is bewildered by these aggressive price increases we are seeing all around the economic spectrum.
In short, people aren’t buying more stuff and that hurts Amazon’s ecommerce business.
If oil goes to $150 per barrel, that means more cutting back for Amazon prime customers because filling up at the pump is a necessity and not a luxury like an incremental bottle of perfume on Amazon prime.
In the past 6 months, AMZN’s share price has dropped 35% and that was just a ramp up to the actual rate rises that have barely happened yet.
The market is completely disagreeing with the Fed and instead of aggressive raises, we are stuck with the incremental raises in which the bond market shrugs off and yields are off to the races.
The Fed’s missteps translate into a longer than necessary negative price momentum for tech stocks and it’s the Fed’s fault.
Amazon has been posting weaker-than-usual earnings for a few quarters because not only are their customers dealing with high inflation, but there have been various operational headwinds from unionization, higher expenses, and supply chain problems.
Amazon has almost doubled its fulfillment network since the start of the pandemic, and there is a lot that can go wrong with that in this day and age.
Essentially, the health situation of 2020, brought forward revenue and now we are seeing a major drop off in that rate of growth.
It doesn’t mean that Amazon is dead, but they will need to battle these headwinds for at least the next 12 months if not longer and much of this is not up to them.
That’s because firms have been suffering from the world's deglobalizing and Amazon is hurt more than others.
Amazon Web Services (AWS) is a bright spot.
The business posted a 57% increase in operating income and a 37% gain in sales in the most recent quarter.
For all that think this is the bottom for Amazon, you were also wrong in March as well.
The trading climate couldn’t be worse for Amazon and even though the secular bull case is still intact for Amazon long term, the rest of the year looks harsh.
Being a bet that Americans will buy more stuff isn’t the greatest bet right now.
Mad Hedge Technology Letter
April 25, 2022
Fiat Lux
Featured Trade:
(HIGH STAKES OF TECH EARNINGS)
(AAPL), (MSFT), (AMZN), (NFLX), (FB)
We get a deeper view into the current state of the tech market with the tech behemoths reporting this week.
I don’t expect a Netflix shocker, but the market doesn’t need one for tech stocks to trend lower.
Alphabet, Microsoft, Meta, Amazon, and Apple earnings are on deck at a time when $30 billion of outflows were sucked out of the equity market in the past 2 weeks.
As the falling knife dips lower, many traders are looking out for a decent counter-trend rally, I am too, but you better sell the rip as well. So we stay in a no man’s land of individual stock picking at a time when the garden variety of blasé indexing is now dead.
Another paradigm shift that needs to be addressed is the death of the FAANGs.
The writing has been on the wall for quite some time with Meta or Facebook signaling to the outside world that its business model is broken and news of today of Apple’s factory in Kunshan, China ordered for covid closure is a bad omen for Apple earnings.
At a broader level, Head of the IMF Kristalina Georgieva today suggested sovereign debt defaults are coming down the pipeline which means the IMF will most likely construct a rescue deal that ends in understanding why the national debt mattered.
The world continues this sovereign crisis in all emerging corners of the world from Sri Lanka and Turkey because when the US Fed raises rates, it raises rates on the whole world.
Georgieva also said that Ukraine needs $5 billion per month for the Ukraine economy to survive and that economy is already down more than 50% year to date.
The continuing of debt plugging around the world doesn’t necessarily breed confidence in tech stocks as this industry is heavily reliant on globalization working and cheap rates.
Many sovereigns are starting to freak out about the debt dilemma as we see Japan’s yen forge ahead to 130 to $1 USD.
It appears that we are getting a temporary reprieve in oil and fertilizer stocks because China is so locked down that demand destruction will improve the balance of supply and demand.
Clearly, many of these external factors are unsustainable, and yet they are deeply affecting the Nasdaq index.
The rise in interest rates will have many unintended consequences and the one that matters most for us is delivering higher financing costs to the tech sector.
Without the globalization tailwinds, investors must ditch the double and triple standards of before and solely focus on the fundamentals of a tech firm.
What a thought!
Now that tech firms are accountable for their own performance, we will finally see who can punch above their weight.
Specifically, issues in dire need of netting out are the cloud, enterprise, and the state of the American consumer.
FAANG + Microsoft have lost more than $2.1 trillion in combined market value between them since December, representing nearly half of the S&P 500’s $4.4trn loss over the same period.
This has left five of the six in bear market territory with falls of more than 20%, with Apple the sole exception.
I am expecting strong numbers from Microsoft and Apple as part of branching out in the tech story, where software, semiconductors, cyber security, and product-driven names such as Apple are on the winners’ side of the ongoing digital transformation.
Yet, I believe Microsoft and Apple will use this as a convenient time to guide weak which won’t help the stock prices.
It appears as many of the strong tech performances have been met with giant selloffs and management is acutely aware of that.
Before, liquidity was what mattered and now that has tremendously reversed and the quality of earnings matters more than ever at this point.
Global Market Comments
April 20, 2022
Fiat Lux
Featured Trade:
(TESTIMONIAL),
(TEN MORE TRENDS TO BET THE RANCH ON),
(AAPL), (AMZN), (GOOGL), (TSLA), (CRSP), (EDIT), (NTLA)
Global Market Comments
March 24, 2022
Fiat Lux
Featured Trade:
(TEN TECH TRENDS DEFINING YOUR FUTURE, or THE BEST TECH PIECE I HAVE EVER WRITTEN)
(TSLA), (GOOG), (AMZN), (AAPL), (CRSP)
Not a day goes by without a reader asking me what is the next stock ten, hundred, or thousand bagger. After all, I nailed the 295X move in Tesla (TSLA) starting in 2010.
Can’t I do better?
Well actually, I can, which is the purpose of the Diary of a Mad Hedge Fund Trader. There are many potentially Google (GOOG), Amazon (AMZN) and Apple (AAPL) sized opportunities out there today. It’s just a matter of time they become public and investable.
One thing I will tell you today is that they will have some or all of the following gale force tailwinds below. These will turbocharge the value of everything you own now, as well as anything new you might pick up going forward.
The future is happening fast!
1) People are Getting Richer, as the middle-income population continues to rise worldwide. That means more customers for everything, and astronomically greater earnings for the companies inventing and selling them. Every day goods and services (finance, insurance, education, and entertainment) are being digitized and becoming fully demonetized, available to the rising billion on mobile devices. Thank the convergence of high-bandwidth and low-cost communication, ubiquitous AI on the cloud, growing access to AI-aided education, and AI-driven healthcare.
2) And they are Communicating with Each Other More. The deployment of both licensed and unlicensed 5G, plus the launch of a multitude of global satellite networks (Starlink, OneWeb, Viasat, etc.), allow for ubiquitous, low-cost communications for everyone, everywhere, all the time––not to mention the connection of trillions of devices. And today’s skyrocketing connectivity is bringing online an additional 3 billion individuals, driving tens of trillions of dollars into the global economy and into the pockets of shareholders. Thank the convergence of low-cost space launches (Space-X), hardware advancements, 5G networks, artificial intelligence, a new generation of materials science, and exponentially surging computing power.
3) Your Lifespan Will Increase by at Least Ten Years. A dozen game-changing biotech and pharmaceutical solutions (currently in Phase 1, 2, or 3 clinical trials) will reach consumers this decade as covered by the Mad Hedge Biotech & Healthcare Letter (click here for the link). Technologies include stem cell supply restoration, senolytic or age-related medicines, a new generation of Endo-Vaccines, GDF-11, and supplementation of NMD/NAD+, among several others. And as machine learning continues to mature, AI is set to unleash countless new drug candidates, ready for clinical trials. Thank the convergence of genome sequencing, CRISPR technologies (CRSP), AI, quantum computing, and cellular medicine.
4) More Capital for Everything Will Become Abundant. Over the past few years, humanity hit all-time highs in the global flow of seed capital, venture capital, and sovereign wealth fund investments. It is expected to continue its overall upward trajectory. Capital abundance leads to the funding and testing of "crazy" entrepreneurial ideas, which in turn accelerate innovation. Already, $300B in crowdfunding is anticipated by 2025, democratizing capital access for entrepreneurs worldwide. And even during a pandemic (2020), the world deployed more venture capital than ever before, handily beating out the last high-water mark in 2019. Thank global connectivity, dematerialization, demonetization, and democratization.
5) Distribution is Becoming Vastly Easier. The combination of Augmented Reality (yielding Web 3.0, or the Spatial Web) and 5G networks (offering lighting fast 100Mb/s - 10Gb/s connection speeds) will transform how we live our everyday lives, impacting every industry from retail and advertising, to education and entertainment. Consumers will play, learn and shop throughout the day in a newly intelligent, virtually overlaid world. This is where technologies like SpatialWeb.net, Vatoms (new digital connections between products and customers), and Apple’s (AAPL) next-generation AR & VR headsets will shine. Thank hardware advancements, 5G networks, AI, materials science, and surging computing power.
(6) Everything is Getting Smarter: The price of specialized machine learning chips is dropping rapidly with a rise in global demand. Imagine a specialized $5 chip that enables AI for a toy, a shoe, a kitchen cabinet? Combined with the explosion of low-cost microscopic sensors and the deployment of high-bandwidth networks, we’re heading into a decade wherein every device becomes intelligent. Your child’s toy remembers her face and name. Your kid's drone safely and diligently follows and videos all the children at the birthday party. Appliances respond to voice commands and anticipate your needs. Thank AI, 5G networks, and more advanced sensors.
(7) Artificial Intelligence is Getting Smarter than We are. Artificial intelligence will reach human-level performance this decade (by 2030). Through the 2020s, AI algorithms and machine learning tools will be increasingly made open source, available on the cloud, allowing any individual with an internet connection to supplement their cognitive ability, augment their problem-solving capacity, and build new ventures at a fraction of the current cost. Thank global high-bandwidth connectivity, neural networks, and cloud computing. Every industry, spanning industrial design, healthcare, education, and entertainment, will be impacted.
(8) AI is Becoming a Service: The rise of “AI as a Service” (AIaaS) platforms will enable humans to partner with AI in every aspect of their work, at every level, in every industry. AI’s will become entrenched in everyday business operations, serving as cognitive collaborators to employees—supporting creative tasks, generating new ideas, and tackling previously unattainable innovations. In some fields, partnership with AI will even become a requirement. For example: in the future, making certain diagnoses without the consultation of AI may be deemed malpractice. And try trading stocks today without AI behind you. Thank increasingly intelligent AI, global high-bandwidth connectivity, neural networks, and cloud computing.
(9) Software Will Become an Integrated Part of Our Lives. As services like Alexa, Google Home, and Apple Homepod expand in functionality, such services will eventually travel beyond the home and become your cognitive prosthetic 24/7. Imagine a secure software shell that you give permission to listen to all your conversations, read your email, monitor your blood chemistry, etc. With access to such data, these AI-enabled software shells will learn your preferences, anticipate your needs and behavior, shop for you, monitor your health, and help you problem-solve in support of your mid- and long-term goals. Thank increasingly intelligent AI, neural networks, and cloud computing.
(10) Energy Will Become Effectively Free when compared to today’s all-in costs. Continued advancements in solar, wind, geothermal, hydroelectric, small nuclear, and localized grids will drive humanity towards cheap, abundant, and ubiquitous renewable energy. The price per kilowatt-hour will drop below 1 cent per kilowatt-hour for renewables, just as storage drops below a mere 3 cents per kilowatt-hour, resulting in the elimination of fossil fuels globally. And as the world’s poorest countries are also the world’s sunniest, the democratization of both new and traditional storage technologies will grant energy abundance to those already bathed in sunlight. We are also on the cusp of many breakthroughs in fusion power at nearby Lawrence Livermore Labs as capital, new materials, and entrepreneurs pour in this arena. Thank materials science, hardware advancements, AI/algorithms, and improved battery technologies.
I just thought you’d like to know.
Mad Hedge Technology Letter
March 21, 2022
Fiat Lux
Featured Trade:
(TRUST THE CLOUD)
(AMZN), (ZS), (CRM), (GOOGL)
Dealing with the Cloud works, and for every relevant tech company, this division serves as the pipeline to the CEO position.
If this isn’t the case for a tech company, then there’s something egregiously wrong with them!
Take Andy Jassy, the mastermind behind Amazon’s (AMZN) lucrative cloud computing division and the man who succeeded company founder, Jeff Bezos.
He’s been rewarded this important position based on his performance in the cloud, and he faces a daunting proposition of following Bezos as CEO.
Bezos incorporated Amazon almost 30 years ago.
Jassy developed a highly profitable and market-leading business, Amazon Web Services, that runs data centers serving a wide range of corporate computing needs.
Cloud 101
If you've been living under a rock the past few years, the cloud phenomenon hasn't passed you by--you still have time to cash in.
You want to hitch your wagon to cloud-based investments in any way, shape, or form.
Amazon leads the cloud industry it created.
It still maintains more than 30% of the cloud market. Microsoft would need to gain a lot of ground to even come close to this jewel of a business.
Amazon relies on AWS to underpin the rest of its businesses and that is why AWS contributes most of Amazon's total operating income.
Total revenue for just the AWS division would operate as a healthy stand-alone tech company if need be.
The future is about the cloud.
These days, the average investor probably hears about the cloud a dozen times a day.
If you work in Silicon Valley, you can quadruple that figure.
So, before we get deep into the weeds with this letter on cloud services, cloud fundamentals, cloud plays, and cloud Trade Alerts, let's get into the basics of what the cloud actually is.
Think of this as a cloud primer.
It's important to understand the cloud, both its strengths and limitations.
Giant companies that have it figured out, such as Salesforce (CRM) and Zscaler (ZS), are some of the fastest-growing companies in the world.
Understand the cloud and you will readily identify its bottlenecks and bulges that can lead to extreme investment opportunities. And that is where I come in.
Cloud storage refers to the online space where you can store data. It resides across multiple remote servers housed inside massive data centers all over the country, some as large as football fields, often in rural areas where land, labor, and electricity are cheap.
They are built using virtualization technology, which means that storage space spans across many different servers and multiple locations. If this sounds crazy, remember that the original Department of Defense packet-switching design was intended to make the system atomic bomb-proof.
As a user, you can access any single server at any one time anywhere in the world. These servers are owned, maintained, and operated by giant third-party companies such as Amazon, Microsoft, and Alphabet (GOOGL), which may or may not charge a fee for using them.
The most important features of cloud storage are:
1) It is a service provided by an external provider.
2) All data is stored outside your computer residing inside an in-house network.
3) A simple Internet connection will allow you to access your data at any time from anywhere.
4) Because of all these features, sharing data with others is vastly easier, and you can even work with multiple people online at the same time, making it the perfect, collaborative vehicle for our globalized world.
Once you start using the cloud to store a company's data, the benefits are many.
No Maintenance
Many companies, regardless of their size, prefer to store data inside in-house servers and data centers.
However, these require constant 24-hour-a-day maintenance, so the company has to employ a large in-house IT staff to manage them - a costly proposition.
Thanks to cloud storage, businesses can save costs on maintenance since their servers are now the headache of third-party providers.
Instead, they can focus resources on the core aspects of their business where they can add the most value, without worrying about managing IT staff of prima donnas.
Greater Flexibility
Today's employees want to have a better work/life balance and this goal can be best achieved by letting them working remotely, which effectively happened because of the public health situation. Increasingly, workers are bending their jobs to fit their lifestyles, and that is certainly the case here at Mad Hedge Fund Trader.
How else can I send off a Trade Alert while hanging from the face of a Swiss Alp?
Cloud storage services, such as Google Drive, offer exactly this kind of flexibility for employees.
With data stored online, it's easy for employees to log into a cloud portal, work on the data they need to, and then log off when they're done. This way a single project can be worked on by a global team, the work handed off from time zone to time zone until it's done.
It also makes them work more efficiently, saving money for penny-pinching entrepreneurs.
Better Collaboration and Communication
In today's business environment, it's common practice for employees to collaborate and communicate with co-workers located around the world.
For example, they may have to work on the same client proposal together or provide feedback on training documents. Cloud-based tools from DocuSign, Dropbox, and Google Drive make collaboration and document management a piece of cake.
These products, which all offer free entry-level versions, allow users to access the latest versions of any document so they can stay on top of real-time changes which can help businesses to better manage workflow, regardless of geographical location.
Data Protection
Another important reason to move to the cloud is for better protection of your data, especially in the event of a natural disaster. Hurricane Sandy wreaked havoc on local data centers in New York City, forcing many websites to shut down their operations for days.
And we haven’t talked about the recent ransomware attacks by Eastern Europeans on energy company Colonial Pipeline and meat producer JBS Foods.
The cloud simply routes traffic around problem areas as if, yes, they have just been destroyed by a nuclear attack.
It's best to move data to the cloud, to avoid such disruptions because there your data will be stored in multiple locations.
This redundancy makes it so that even if one area is affected, your operations don't have to capitulate, and data remains accessible no matter what happens. It's a system called deduplication.
Lower Overhead
The cloud can save businesses a lot of money.
By outsourcing data storage to cloud providers, businesses save on capital and maintenance costs, money that in turn can be used to expand the business. Setting up an in-house data center requires tens of thousands of dollars in investment, and that's not to mention the maintenance costs it carries.
Plus, considering the security, reduced lag, up-time and controlled environments that providers such as Amazon's AWS have, creating an in-house data center seems about as contemporary as a buggy whip, a corset, or a Model T.
The cloud is where you want to be.
Mad Hedge Technology Letter
March 11, 2022
Fiat Lux
Featured Trade:
(AMAZON MEANS BUSINESS)
(AMZN), (AAPL), (TSLA), (GOOGL)
