(GOOGL) Archives

The Market Outlook for the Week Ahead, or the Fed Giveth and the Fed Taketh Away

Now you see it, now you don’t.

The rip-roaring rally that started in October, with which we made so much money on, vaporized in a heartbeat. Traders lulled into a false sense of security with happy talk among themselves were suddenly throwing up on their shoes.

Fed governor Powell clearly indicated that interest rates will remain higher for longer, and therefore, stock prices lower. Powell promised us pain last summer and is delivering big time. Powell’s job is NOT to defend the stock market.

Personally, I’m looking for another 75 basis points on December 14, followed by 50 basis points on February 1 and another 25 basis points on March 22. This will bring us 4.75%-5.00% range for overnight Fed funds. After that, rates will fall for years as the Fed rushes to repair the damage it inflicted on the economy. Stocks will deliver the 800% return I have been promising.

I went into the Fed meeting short and used the ensuing meltdown to take profits.

As a result, my November month-to-date performance went off to the races, already achieving a hot +2.20%.

That leaves me with a very rare 100% cash position. With midterm election results out on Wednesday and the next report on the Consumer Price Index on Thursday, that sounds like a prudent place to be.

My 2022 year-to-date performance ballooned to +77.57%, a new high. The Dow Average is down -11.85% so far in 2022.

It is the greatest outperformance on an index since Mad Hedge Fund Trader started 14 years ago. My trailing one-year return maintains a sky-high +49.51%.

That brings my 14-year total return to +590.13%, some 2.86 times the S&P 500 (SPX) over the same period and a new all-time high. My average annualized return has ratcheted up to +49.51%, easily the highest in the industry.

There is no doubt that the greatest buying opportunity of the century is setting up. Those who bought the Dotcom Crash bottom in 2003 snapped up Apple (AAPL) at 20 cents on its way to $186, split adjusted. During the 2009 Financial Crisis bottom, the savvy snapped up Microsoft (MSFT) at $11. Its top tick last year was $23.

A similar golden opportunity is setting up in the next year and will create immense wealth. Just remember that things always go down more than you think, and then rise far more than you believe possible.

However, one of the greatest questions of all time has finally been resolved. Can stock markets rise without big tech? The answer has been an overwhelming “YES.” Financial, where we have been very heavily involved, rose up to 25% while tech was falling 20%. Healthcare has been on fire as well. It all gives us a place to earn our crust of bread until the long-term trend up in tech resumes, however long that may take.

The turn will be called by the prospect of Fed interest rate CUTS sometime in 2023, and good luck calling that.

Further complicating matters near term is that this could be the greatest tax loss selling year of all time, with some stocks down up to 80% sold to offset gains elsewhere, such as in energy. But the mutual funds are already done, their tax year already ended. Whatever is left must be wound up by December 31.

Nonfarm Payroll Comes in at a Hot 261,000 in October, higher than hoped. The Headline Unemployment Rate crawled up to 3.7%, the highest since February. Average hourly earnings are up 4.7% YOY, far below the inflation rate. The U-6 “Discourage worker” rate rose from 6.7% to 6.8%. Anyone who thinks these numbers will lead to an earlier end to the Fed interest rate rises has a hole in their head.

JOLTS Beats Bigtime, with 10.7 million jobs opening, a million more than expected. No cooling of labor demand here.

ADP Rises 239,000, more than expected, nailing the coffin shut on the 75-basis point rate hike. The strong industries, like Airlines and Leisure & Hospitality, are still hiring like crazy.

Is Big Tech Dead Money? It may be for months, or even years, but Big Tech always comes back. It’s just a matter of how long it takes big double-digit earnings to return with the onset of the next robust economic recovery. Until then, expect a lot of differentiation. Apple (AAPL) will hold up best, followed by Amazon (AMZN) and Google (GOOGL). As for Meta (META), the old Facebook, it may never come back.

Tech Austerity Accelerates, with Apple (AAPL) announcing an unheard-of hiring freeze. The rest of big tech is following suit. The knees are about to be cut from under the market’s safest stock.

Fed Raises Interest Rates by 75 Basis Points but changed their language to be slightly more accommodative. Stocks rallied 500 points on the news. If this is bullish, it’s a stretch. They are still targeting a 2% inflation rate and will take into account cumulative tightening to date. Acknowledging they have already raised rates a lot is something. That is more dovish than expected.

Chicago PMI is Still Falling, from 47 estimated to 45.2 in October. Under 50 indicates a recessionary economy.

Morgan Stanley Says Rising Rates to End Soon, according to strategist Mike Wilson. The big pivot will happen sooner than later. I agree.

Twitter Hate Speech Spikes 500%, since Elon Musk took over the company, as racists and conspiracy theorists test his looser limits. The entire senior staff has been fired as they are still subject to fraud accusations from Musk. Musk thinks he can resell the company for a big premium in five years. Is this the end of democracy, or just Twitter (TWTR) whose stock no longer trades? More advertisers will bail after Musk paraded conspiracy theories in the wake of the Pelosi assassination attempt.

US Treasury to Borrow $550 Billion in Q4. It means the bond short (TLT) and (TBT) may have one more gasp to go.

Japan Spends $42 Billion to Support the Yen in October to no avail, as it threatens new lows. The yen will remain weak as long as interest rates remain near zero.

First Starship to Launch in December, the largest rock ever launched. The super heavy booster will return to earth while the capsule will land off the coast of Hawaii. Space X has a $3 billion contract from NASA to return to the moon by 2025.

US Banks Processed $1.2 Billion in Ransomware Payments this Year, triple the previous year’s level. Russia is the source of many of the attacks. And you wonder why we are supporting Ukraine?

Russian Economy Shrinks by 5% YOY in September as the sanctions take their toll. Only 45% to go. The call-up of 300,000 reservists has yet to hit the economy.

My Ten-Year View

When we come out the other side of the recession, we will be perfectly poised to launch into my new American Golden Age, or the next Roaring Twenties. With the economy decarbonizing and technology hyper-accelerating, there will be no reason not to. The Dow Average will rise by 800% to 240,000 or more in the coming decade. The America coming out the other side will be far more efficient and profitable than the old. Dow 240,000 here we come!

On Monday, November 7 at 12:00 PM, the Consumer Credit for September is released.

On Tuesday, November 8, the US Midterm elections take place with 532 House and 34 Senate seats up for grabs.

On Wednesday, November 9 the entire day will be spent analyzing election results and tracking the ties.

On Thursday, November 10 at 8:30 AM, Weekly Jobless Claims are announced. We also get the US Core Inflation Rate for October.

On Friday, November 11 at 8:30 AM the University of Michigan Consumer Sentiment for November is printed. At 2:00 PM, the Baker Hughes Oil Rig Count is out.

As for me, I was recently in Los Angeles visiting old friends, and I am reminded of one of the weirdest chapters of my life.

There were not a lot of jobs in the summer of 1971, but Thomas Noguchi, the LA County Coroner, was hiring. The famed USC student jobs board had delivered! Better yet, the job included hours at night and free housing at the coroner's department.

I got the graveyard shift, from midnight to 8:00 AM. All I had to do was buy a black suit from Robert Halls, for $25.

Noguchi was known as the “coroner to the stars” having famously done the autopsies on Marilyn Monroe and Jane Mansfield. He did not disappoint.

For three months, whenever there was a death from unnatural causes, I was there to pick up the bodies. If there was a suicide, gangland shooting, or horrific car accident, I was your man.

Charles Manson had recently been arrested and I was tasked with digging up the victims. One, cowboy stuntman Shorty Shay, had his head cut off and neatly placed in between his ankles.

The first time I ever saw a full set of women’s underclothing, a girdle, and pantyhose, was when I excavated a desert roadside grave that the coyotes had dug up. She was pretty far gone.

Once, I and another driver were sent to pick up a teenage boy who had committed suicide in Beverly Hills. The father came out and asked us to take the mattress as well. I regretted that we were not allowed to do favors on city time. He then said, “can you take it for $200”, then an astronomical sum.

A few minutes later found a hearse driving down the Santa Monica Freeway on the way to the dump with a double mattress expertly tied on the roof with Boy Scout knots with a giant blood spot in the middle.

Once, I was sent to a cheap motel where a drug deal gone wrong had produced several shootings. I found $10,000 in a brown paper bag under the bed. The other driver found another ten grand and a bag of drugs and kept them. He went to jail. I didn’t.

The worst pick-up of the summer was also the most disgusting and even made the old veterans sick. A 300-pound man had died of a heart attack and was not discovered for a month. We decided to each grab an arm or leg and all tug on the count of three. One, two, three, and all four limbs came off!

Eventually, I figured out that handling dead bodies could be hazardous to your health, so I asked for rubber gloves. I was fired.

Still, I ended up with some of the best summer job stories ever.

Stay healthy,

John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader

November 4, 2022

Diary, Newsletter, Summary

Global Market Comments
November 4, 2022
Fiat Lux

Featured Trade:

(NOVEMBER 2 BIWEEKLY STRATEGY WEBINAR Q&A),
(SPY), (LLY), (TSLA), (GOOG), (GOOGL), (JPM), (BAC), (C), (BRK), (V), (TQQQ), (CCJ), (BLK), (PHO), (GLD), (SLV), (UUP)

November 2 Biweekly Strategy Webinar Q&A

Diary, Newsletter

Below please find subscribers’ Q&A for the November 2 Mad Hedge Fund Trader Global Strategy Webinar broadcast from Silicon Valley in California.

Q: The country is running out of diesel fuel this month. Should I be stocking up on food?

A: No, any shortages of any fuel type are all deliberately engineered by the refiners to get higher fuel prices and will go away soon. I think there was a major effort to get energy prices up before the election. If that's the case, then look for a major decline after the election. The US has an energy glut. We are a net energy exporter. We’re supplying enormous amounts of natural gas to Europe right now, and natural gas is close to a one-year low. Shortages are not the problem, intentions are. And this is the problem with the whole energy industry, and the reason I'm not investing in it. Any moves up are short-term. And the industry's goal is to keep prices as high as possible for the next few years while demand goes to zero for their biggest selling products, like gasoline. I would be very wary about doing anything in the energy industry here, as you could get gigantic moves one way or the other with no warning.

Q Is the SPDR S&P 500 ETF (SPY) put spread, correct?

A: Yes, we had the November $400-$410 vertical bear put spread, which we just sold for a nice profit.

Q: I missed the LEAPS on J.P. Morgan (JPM) which has already doubled in value since last month, will we get another shot to buy?

A: Well you will get another shot to buy especially if another major selloff develops, but we’re not going down to the old October lows in the financial sector. I believe that a major long-term bull move has started in financials and other sectors, like healthcare. You won’t get the October lows, but you might get close to them.

Q: I’m waiting for a dip to get into Eli Lilly (LLY), but there are no dips.

A: Buy a little bit every day and you’ll get a nice average in a rising market. By the way, I just added Eli Lilly to my Mad Hedge long-term model portfolio, which you received on Thursday.

Q: Any thoughts about the conclusion of the Twitter deal and how it will affect tech and social media?

A: So far all of the indications are terrible. Advertisers have been canceling left and right, hate speech is up 500%, and Elon Musk personally responded to the Pelosi assassination attempt by trotting out a bunch of conspiracy theories for the sole purpose of raising traffic and not bringing light to the issue. All indications are bad, but I've been with Elon Musk on several startups in the last 25 years and they always look like they’re going bust in the beginning. It’s not even a public stock anymore and it shouldn’t be affecting Tesla (TSLA) prices either, which is still growing 50% a year, but it is.

Q: In terms of food commodities for 2023, where are prices headed?

A: Up. Not only do you have the war in Ukraine boosting wheat, soybean, and sunflower prices, but every year, global warming is going to take an increasing toll on the food supply. I know last summer when it hit 121 degrees in the Central Valley, huge amounts of crops were lost due to heat. They were literally cooked on the vine. We now have a tomato shortage and people can’t make pasta sauce because the tomatoes were all destroyed by the heat. That’s going to become an increasingly common issue in the future as temperatures rise as fast as they have been.

Q: Do I trade options in Alphabet (GOOG) or Alphabet (GOOGL)?

A: The one with the L is the holding company, the one without the L is the advertising company and the stock movements are really identical over the long term, so there really isn’t much differentiation there.

Q: Why can’t inflation be brought down by increasing the supply of all goods?

A: Because the companies won’t make them. The companies these days very carefully manage output to keep prices as high as possible. It’s not only the energy industry that does that but also all industries. So those in the manufacturing sector don’t have an interest in lowering their prices—they want high prices. If they see the prices fall, they will cut back supply.

Q: What do you think about growth plays?

A: As long as interest rates are rising, growth will lag and value will lead, and that has been clear as day for the last month. This is why we have an overwhelming value tilt to our model portfolio and our recent trade alerts. They’ve all been banks—JP Morgan (JPM), Bank of America (BAC), Citigroup (C), plus Berkshire Hathaway (BRK) and Visa (V) and virtually nothing in tech.

Q: I don’t know how to execute spread trades in options so how do I take advantage of your service?

A: Every trade alert we send out has a link to a video that shows you exactly how to do the trade. I have to admit, I’m not as young as I was when I made the videos, but they’re still valid.

Q: Is the US housing market about to crash?

A: There is a shortage of 10 million houses in the US, with the Millennials trying to buy them. If you sell your house now, you may not be able to buy another one without your mortgage going from 2.75% to 7.75%—that tends to dissuade a lot of potential selling. We also have this massive demographic wave of 85 million millennials trying to buy homes from 65 million gen x-ers. That creates a shortage of 20 million right there. That's why rents are going up at a tremendous rate, and that's why house prices have barely fallen despite the highest interest rates in 20 years.

Q: If we get good news from the Fed, should we invest in 3X ETFs such as the ProShares UltraPro QQQ (TQQQ)?

A: No, I never invest in 3X ETFs, because they are structured to screw the investor for the benefit of the issuer. These reset at the close every day, so do 2 Xs and not more. If you're not making enough money on the 2Xs, maybe you should consider another line of business.

Q: Do you think BlackRock Corporate High Yield Fund (HYT) will show the pain of slights because of their green positioning?

A: No I don’t, if anything green investing is going to accelerate as the entire economy goes green. And you’ll notice even the oil companies in their advertising are trying to paint themselves as green. They are really wolves in sheep’s clothing. They’ll never be green, but they’ll pretend to be green to cover up the fact that they just doubled the cost of gasoline.

Q: Where do you find the yield on Blackrock?

A: Just go to Yahoo Finance, type in (BLK), and it will show the yield right there under the product description. That’s recalculated by algorithms constantly, depending on the price.

Q: Do you like Cameco (CCJ)?

A: Yes, for the long term. Nuclear reactors have been given an extra five years of life worldwide thanks to the Russian invasion of Ukraine. Even Japan is opening theirs.

Q: Should I short the US dollar (UUP) here?

A: The answer is definitely maybe. I would look for the dollar to try to take one more run at the highs. If that fails, we could be beginning a 10-year bear market in the dollar, and bull market in the Japanese yen, Australian dollar, British pound, and euro. This could be the next big trade.

Q: What is your outlook on Real Estate Investment Trusts (REITs) now?

A: I think it looks great. REITs are now commonly yielding 10%. The worst-case scenario on interest rates has been priced in—buying a REIT is essentially the same thing as buying a treasury bond, but with twice the leverage, because they have commercial credits and not government credits. We’ll be doing a lot more work on REITS. We also have tons of research on REITS from 12 years ago, the last time interest rates spiked. I'll go in and see who’s still around, and I'll be putting out some research on it.

Q: How do you see the price development of gold (GLD)?

A: Lower—the charts are saying overwhelmingly lower. Gold has no place in a rising interest rate world. At least silver (SLV) has solar panel demand.

Q: Do you have any fear of Korea going into IT?

A: Yes, they will always occupy the low end of mass manufacturing, and you can see that in the cellphone area; Samsung actually sells more phones than Apple, but they’re cheaper phones with lower-end lagging technology, and that’s the way it’s always going to be. They make practically no money on these.

Q: When can we get some more trade alerts?

A: We are dead in the middle of my market timing index, so it says do nothing. I’m looking for either a big move down or big move up to get back into the market. This is a terrible environment to chase trades when you're trading, so I'm going to wait for the market to come to me.

Q: What about water as an investment? The Invesco Water Resources ETF (PHO)?

A: Long term I like it. There’s a chronic shortage of fresh water developing all over the world, and we, by the way, need major upgrades of a lot of water systems in the US, as we saw in Jackson, MS, and Flint, MI.

Q: Will REITs perform as well as buying rental properties over the next 10 to 20 years?

A: Yes, rental properties should do very well, as long as you’re not buying any city that has rent control. I have some rental properties in SF and dealing with rent control is a total nightmare, you’re basically waiting for your tenants to die before you raise the rent. I don’t think they have that in Nevada. But in Las Vegas, you have the other issue that is water. I think the shortage of water will start to drag on real estate prices in Las Vegas.

To watch a replay of this webinar with all the charts, bells, whistles, and classic rock music, just log on to www.madhedgefundtrader.com go to MY ACCOUNT, click on GLOBAL TRADING DISPATCH, then WEBINARS, and all the webinars from the last 12 years are there in all their glory.

Good Luck and Stay Healthy,

John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader

It’s Been a Tough Market

October 31, 2022

Tech Letter

Mad Hedge Technology Letter
October 31, 2022
Fiat Lux

Featured Trade:

(MAYBE NEXT GENERATION)
(JD), (BABA), (HUAWEI), (GOOGL), (TENCENT)

Maybe Next Generation

Tech Letter

For all the China lovers out there who think buying Chinese tech after the dip is a good idea – I have bad news for you – it’s just a dead cat bounce.

Don’t be fooled into thinking just because Chinese tech stocks became cheap, it’s a good entry point into corporate China.

It’s not.

The truth is that this isn’t your father’s China.

The situation has dramatically changed in the last 10 days so much so that I will say with conviction to stay away from Chinese technology stocks perhaps forever, almost, like it’s the black plague.

The place is totally done after China’s Chairman Xi Jing Ping was “re-elected” for his 3^rd successive five-year term as the authoritarian leader of the East Asian nation.

Investors have also listened to my advice as Chinese tech shares have been thrown out with the bath water from Hong Kong to mainland China.

Many investors want no more part of China Inc. which is ironic since this was the place they couldn’t get enough of just a few years ago.

Why have investors been so jittery anyway?

Essentially, Chairman Xi packed the Politburo standing committee, the core circle of power in the ruling Communist Party of China, with his friends, poker buddies, and allies.

It was only just recently when China was tightening the tech environment before with examples littered around the country such as putting the shackles on the founder of ecommerce firm Alibaba (BABA) Jack Ma.

The Chinese communist party blocked his IPO of Alibaba’s finance arm Ant Group resulting in mass shareholder losses.

The backdrop has only soured significantly since then.

Under Xi’s leadership, China has implemented a raft of policies that have tightened regulation on the tech sector in areas from data protection to governing the way in which algorithms can be used.

JD.com (JD), Alibaba, and Tencent laid off thousands of employees in April due to tightened regulations and a slowing economy.

What are the rest of the unintended consequences?

A stronger dollar and weaker Chinese yuan just for starters.

It’s no secret that China hoovers up as many dollars as it can find, but in the meantime, the Chinese yuan is under relentless pressure from its underperforming economy, poor government policies, and gargantuan federal debt load.

Tech innovation will drop off a cliff.

Before, Chinese tech innovation meant stealing ideas and IP from Americans, but it will be harder now that this is a bipartisan issue in the US Congress.

China will also slow down the rollout of new tech products simply because they can’t acquire the advanced chips they need to build their products.

Just look at Huawei that was once counted as one of the most popular smartphones in Europe. Nobody buys their phones anymore because Google-based apps are banned on Huawei phones.

Most chilling of all, Chinese tech workers won’t be incentivized to take any risk in an environment that will penalize them by who knows what at this point.

That means many of these firms will be playing it safe yet be pushed by boss, CEO, and the communist party to beat America in the tech race for global hegemony.

In short, America has won and China faces a stark future of mediocrity in the tech space. They churn out a high volume of tech employees but industry can only develop so far by copying. It’s impossible to out-copy oneself or others into the lead.

It’s getting so bad in China that even investor Ray Dalio has stopped cheerleading for the Mandarins.

October 27, 2022

Bitcoin Letter

Mad Hedge Bitcoin Letter
October 27, 2022
Fiat Lux

Featured Trade:

(SILVER LININGS)
(BTC), (GOOGL), (GENZ)

Silver Linings

Bitcoin Letter

With all the Dr. Dooms out there, and you know there are plenty, it might seem like a broken record.

Crypto’s been kicked around, mocked, and left for dead so many times, you’d think it owed Wall Street money. With all the criticism hurled its way lately, you'd be forgiven for thinking it has no future. But I wouldn't bet on that.

The road ahead for crypto is lined with silver linings. Not obvious to the casual observer, perhaps, but impossible for any sharp-eyed investor to ignore.

Let’s talk Google or Alphabet, if you want to be formal about it. Their latest earnings didn’t mention crypto by name, but the subtext was loud and clear. The advertising landscape is shifting. Payments are evolving. And guess who's still lingering in the machinery? Crypto.

In 2025 alone, the blockchain-in-media and advertising market clocked in at a cool $2.68 billion. That’s not chump change. It’s proof that crypto-related ad spend hasn’t vanished but simply changed costumes. The industry didn’t disappear. Instead, it adapted.

So when a behemoth like Google starts missing its growth targets, part of that slowdown reflects a deeper truth: money is moving differently now. And crypto, along with its Web3 cousins, is very much a part of that evolution.

Meanwhile, financial firms are still splashing ad dollars across every media channel that can spell ROI. And while not every banner screams Bitcoin, the underlying infrastructure - wallets, exchanges, DeFi platforms - is still feeding the ecosystem. Big media still wants those clicks, and crypto still delivers the eyeballs.

But forget ad dollars for a second. The more important asset is the audience.

Let’s not kid ourselves. Plenty of retail traders got torched during the last cycle. Some won’t touch crypto again if you paid them in Ethereum. Despite that, the appetite among younger investors is as strong as ever.

Case in point: Gemini’s 2024–2025 survey showed over 51% of Gen Z respondents worldwide have owned, or still own, some form of crypto. In the U.S., that number held steady.

Meanwhile, a separate US investment trends report found that 48% of Gen Z investors are using crypto exchanges. That’s more than those using traditional financial advisors.

This shouldn’t come as a surprise though. After years of arbitrary lockdowns and enough inflation to make your grocery bill look like a car payment, younger generations are rethinking everything. They find traditional retirement plans suspicious. They think the US financial system is rigged. These folks have gone from skeptical to cynical.

And who can blame them? The stock market got clobbered in 2022, and it hasn’t exactly been a parade since. Bonds didn’t offer much comfort either. This might be yet another year where both stocks and bonds disappoint - a double whammy that laughs in the face of your grandpa’s 60/40 portfolio.

Ah, yes, the sacred 60/40 split. Sixty percent in stocks, forty in bonds. Supposed to give you growth with a safety net. Well, in today’s market, that safety net has more holes than ever.

It’s time for a reset.

Wealth-building isn’t what it used to be. When both stocks and bonds are sagging - and when the Fed spent years flooding the economy with Monopoly money - there are no free lunches left.

Many upper-middle-class families thought they were cruising toward retirement on autopilot. Instead, they’ve been shoved back into the workforce, legs flailing, as everyday costs spike anywhere from 8% to 50%, depending on your zip code.

Now, some people are still parroting the old “crypto is on life support” line. That was maybe true two years ago. Today? Please. Forget survival. In 2025, crypto was on the offensive.

Bitcoin cracked the $100,000 barrier in November. Not on some fantasy of a future Fed pivot, but on the back of actual, real-deal monetary easing that started in late 2023.

We’re no longer guessing about the pivot. It happened. Now the conversation is about stability, and crypto has shown it can handle that just fine.

The idea that Bitcoin rises or falls based purely on Jerome Powell’s caffeine intake is dated. This market has grown up. With spot Bitcoin ETFs, regulated U.S. exchanges, and serious institutional muscle, crypto now has more than just a pulse. It has infrastructure, credibility, and momentum.

That said, the biggest threat to crypto remains the same as always: the people in it. The panic sellers. The hype chasers. The ones who buy the top and sell the bottom. The space could use fewer influencers and more investors.

Meanwhile, the harsh reality is sinking in across America: more families are scrambling to patch together some kind of retirement. And whether you’re 28 or 68, dismissing crypto might not be the smartest move.

According to the 2025 Modern Wealth Survey by Charles Schwab, 41% of Americans now consider crypto a good investment. And 65% of those already in the space say they’re planning to add more.

Here’s the bottom line. If you believe, as I do, that crypto has matured - from a speculative gamble to a legitimate, evolving asset class - then turning your back on it could be the biggest mistake of all.

Position sizing matters. Discipline matters. But the opportunity? Still very much alive.

October 26, 2022

Tech Letter

Mad Hedge Technology Letter
October 26, 2022
Fiat Lux

Featured Trade:

(THE SHINE HAS BEEN WIPED OFF FOR NOW)
(GOOGL)

The Shine Has Been Wiped Off For Now

Tech Letter

Google – it’s not what it used to be.

The sacred Silicon Valley behemoth of technology is finally showing weakness.

Crazier things have happened.

In fact, Google recorded the lowest growth since 2013 and that goes well back when the US economy was picking up steam after the Great Recession.

Revenue growth slowed to 6% from 41% a year earlier as the company suffers from a continued downdraft in online ad spending.

The ramifications are quite large as it essentially means that in the short-term, the digital ad industry is impotent as we head straight for a 2023 recession.

I would say the most surprising part of the whole report was to see Google’s “growth” asset, YouTube, floundering at just 2% growth.

It’s still a $7 billion standalone business but to see that much of a decline was somewhat surprising.

Philipp Schindler, chief business officer for Google, said the company saw a pullback in spend on search ads from certain areas such as insurance, loans, mortgage, and cryptocurrencies.

The underperformance in numbers is yet another bad omen for ad tech companies and Snap was the canary of the coal mine when the stock dropped 28%.

Considering the disappointing tone of the industry now, it’s not shocking to see the CEO of Meta Mark Zuckerberg just ignore his entire Facebook business for the metaverse.

It’s that bad selling digital ads now.

Google’s earnings per share (EPS) dropped by 24% year over year highlighting the challenges of running a large tech company during times of high interest rates and high inflation.

It’s a recipe for underperformance and we are seeing it in every part of Google’s business.

Maybe one of the only bright spots was the Google Cloud surging by 38%.

The cloud is one of the few growth drivers still left at Google.

The problem I have with Google is one that I have with many other big Silicon Valley tech firms.

They have become stagnated and too corporate.

They aren’t the leaders of innovation they once were and have pretty much juiced out the cash cow business they possess whether it be Apple’s iPhone or Google’s search engine or Meta’s Facebook.

The Silicon Valley bros aren’t immune from the rough times.

Long term, it’s hard to see Google becoming the growth engine they once were – a firm that consistently expanded 30% each quarter.

In fact, what I see clearer now than before is the cannibalization of Silicon Valley.

These big firms are starting to behave in a way an investor can understand as a scarcity mindset.

When the pie is perceived as shrinking, companies will step on their toes to get that extra piece of the pie.

Many of these moves illustrate this new entrenched mentality whether it be Apple’s sensitivity to others using the Apple store or the inability to offer stock-based compensation to new employees.

And that’s if a company is still hiring, last time I checked, many tech firms have either frozen hiring or are deleting big swaths of employees.

The new acquirer of Twitter also plans to fire 75% of Twitter’s staff on Day 1 removing the Chief Diversity Officer and many of the frothy positions that don’t add much value.

Big tech needs a reset and this is just more confirmation that restructuring is needed badly.

Looking For A Savior

Bitcoin Letter

Bitcoin slipped to around $95,000 this week after a delayed U.S. inflation print and hawkish Federal Reserve commentary raised doubts about a near-term rate cut.

The result means that another modest adjustment in interest rates is already priced into the markets; traders are now focused on whether further cuts or hikes will follow.

There was some fleeting hope back in 2022 that the Federal Reserve wouldn’t need to tighten further, but those ideas were dashed as inflation surged.

A similar dynamic persists in 2025: markets still swing whenever inflation surprises, even though today’s debate is about the timing of cuts rather than large hikes.

Let me remind readers that the US Central Bank employs over 10,000 Ivy League-trained economists earning well over $150,000, yet they are navigating a policy landscape still shaped by earlier missteps.

The longer the Fed allows persistent inflation to erode the health of the US economy, it could be argued that we might be living in an America with only rich and poor people in the future. While “hyperinflation” never arrived, multi-year price increases still stoke that concern.

How does this affect cryptocurrency?

In one word – devastating.

Crypto is reliant on low rates to fuel overperformance.

High liquidity is necessary too.

However, we diverged from those two pillars through 2023–2024, and only recently has easing begun to appear on the horizon.

Crypto, like physical gold, needs rates to be low to represent an attractive investment because of its speculative nature.

The uncertainty now centers on whether the Federal Reserve will delay rate cuts into early 2026.

So what did the price of Bitcoin do upon hearing this news?

In 2022, Bitcoin slid toward $18,000 on similar macro fears. Today, it fell toward $95,000 as traders reassessed the timing of future rate cuts rather than hikes.

Cryptocurrencies had been trading mostly sideways at times earlier in 2025, but Bitcoin’s consolidation ranges now span tens of thousands of dollars, not hundreds.

That’s been a key shift, and a clear move lower this year led to correction lows near $74,000 for Bitcoin. Ether’s mid-2025 lows were near $3,500.

Clearly, there is a lot to worry about for readers who are heavy crypto traders.

Moderating but sticky inflation still leaves the economy vulnerable to price spikes heading into winter.

My guess is that upcoming high inflation data will show up in the form of elevated utility bills, particularly in natural gas.

The sabotage and geopolitical tensions that disrupted energy supply in prior years still echo through markets, and OPEC’s decisions continue to have global effects.

The negative events are just piling on top of each other at this point.

I just don’t see how Bitcoin sustains itself above six-figure territory in the short term.

If it does surpass $120,000 because of a bear-market rally, traders will take profits yet again, rinse and repeat.

Although equity markets may rally through the day, this remains another reminder of the strategic fragility of this alternative asset that once offered so much hope.

Crypto has turned into nothing more than an ultra-speculative asset that, in times of tight liquidity, goes on life support.

It remains volatile, and although institutional adoption and ETFs have added legitimacy, its price still fails many traditional store-of-value tests.

Sell any rally over $120,000 because it won’t last there long.

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