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Tag Archive for: (GOOGL)

Mad Hedge Fund Trader

August 8, 2022

Diary, Newsletter, Summary

Global Market Comments
August 8, 2022
Fiat Lux

Featured Trade:

(MARKET OUTLOOK FOR THE WEEK AHEAD, or THE BOTTOM IS IN),
(AAPL), (AMZN), (GOOGL), (MSFT), (TSLA)

https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png 0 0 Mad Hedge Fund Trader https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png Mad Hedge Fund Trader2022-08-08 11:04:482022-08-08 12:21:35August 8, 2022
Mad Hedge Fund Trader

The Market Outlook for the Week Ahead, or The Bottom is In

Diary, Newsletter

When the train conductor says “Run”, it’s generally not a good sign.

That’s what happened to me when I had to make a crucial transfer in Visp, Switzerland last month. I’m fine with running. With 200 pounds of luggage? Not so much.

A lot of fund managers started running from their cash positions last week. Tesla (TSLA) shorts ran even faster.

There is a rising sense of panic among money managers today.

The stock market just brought in a blockbuster 7.9% return in July, and they are underweight stocks and loaded with cash. What they DO own are in all the wrong defensive sectors.

A panic is imminent.

A soft landing for the economy is in the cards. There are still plenty of risks out there, as there always are. But bond yields have collapsed, commodity and energy prices are in free fall, and the futures markets are indicating that interest rate hikes ahead will be modest at best.

The Fed is also getting an assist in its tightening efforts from a strong dollar, which pares U.S. multinational earnings, and a recessionary China and Europe. Those two alone are the equivalent of another 100 basis points in rate rises.

The Fed’s work has already been done for it.

The Fed’s Quantitative Tightening is also sucking $120 million a month out of the economy.

The bond vigilantes who were riding hard in the first half have gone to sleep, or at least gone on vacation. That has dropped ten-year US Treasury yields by an amazing 100 basis points in seven weeks. That doesn’t seem to warrant an over-aggressive Fed to me.

Remember also that interest rates no longer have the impact on the economy they once had. The stock of every company I buy has no net debt and are in fact huge net creditors, like Apple (AAPL), Amazon (AMZN), Alphabet (GOOGL), and Microsoft (MSFT).

Those that have refinanced their debts at 150-year lows over the last three years, including myself (30-year fixed rate mortgage at 2.75%, some 6.35% under the current inflation rate!).

No credit crunch here, or distressed financial institutions, the fodder of past recessions.

Sure, earnings have come down. But they are being shaved, not decimated. Again, the companies I buy aren’t growing at a modest 5%-10%, but more like 40%-50%, like Tesla (TSLA). Slow growing companies are other peoples’ problems, not mine.

Better yet, they are likely to bounce back hard next year, which is what the market is discounting now.

I’m buying next year’s market, while everyone else is still selling this year’s.

The bottom line is that the U.S. has the strongest economy and currency in the world, making its stocks deserving of a serious premium. Add up rate rises, QT, a strong greenback, a recessionary world, the largest deficit reduction in history, war, and stocks STILL can’t go down.

It's an old trader’s nostrum that if you dump bad news on a market and it fails to go down, you buy the heck out of it. This is one of those times.

That makes my yearend forecast of an S&P 500 of 4,800 by year-end not only possible but likely. Buy every substantial dip in every one of your favorite stocks from here on out. You might be risking 10%-20% over the short term but gain 100% on a three-year view.

The risk/reward is overwhelmingly in your favor.

I hope this helps.

July Nonfarm Payroll Hits a Blockbuster 528,000, double expectations, the best since February. The Headline Unemployment rate fell to 3.5%, a new post pandemic low. No recession here. Average hourly earnings popped 0.5%. The Dow dropped $250 as possible scenarios were already discounted in the market in a classic “Buy the rumor, sell the news” move. Bond yields soared. The difficulty in finding workers is overwhelming recession fears. Hotels and restaurants created enormous numbers of jobs. The Fed now has a license to maintain aggressive interest rate rises. My bond short in the (TLT) is looking good.

Weekly Jobless Claims hit 260,000, an 8-month high, as recession fears fan the flames. That beats the 1 million figure we saw at the pandemic high two years ago. Layoffs are falling. That makes tomorrows July Nonfarm Payroll Report more important than usual.

Fed Says More Rate Hikes Coming but No Recession, says St Louis Fed president James Bullard. I couldn’t agree more. If inflation dips look for only a 50-basis point rate hike in September. Stocks will soar.

England Predicts Major Recession after hiking interest rates by 0.50% to 1.75%. The Bank of England expects inflation to peak at 13.3%. Europe economy is in the toilet and China is weak. It all highlights how America now has the strongest economy in the world and is therefore the first choice for equity investors.

Weak Chinese Data Torpedoes Oil, down 34% from its February peak. Oil is now lower than when the Ukraine War started. Manufacturing PMI dropped from 51.7 to 50.4, barely outside recessionary data. New Chinese Covid shutdowns are the cause. Could this recession go global?

Home Prices fall at a Record Pace, down from a 19.3% annual gain to 17.3% in June, according to Black Knight, a mortgage analytics firm. Some 25% of major U.S. markets saw growth slow by three percentage points in June. It’s all about interest rates.

Mortgage Rates Drop Below 5%, for the 30-year fixed, a four-month low. It’s putting a floor under the housing market. Refi’s are still near zero. The collapse in bond yields is feeding through.

Half of U.S. Homes are Equity Rich, indicating homeowner equity is more than 50% of market value. That makes available trillions of dollars in potential second mortgages to support the economy. Americans are richer than they think.

Tesla Voted to Split Shares. The 3:1 split will make the shares more affordable for lower-end (poorer) investors who want to make the millions we have for the past decade. Watch for a spike in the price as share splits always attract a hoard of short-term meme investors. The last 5:1 split in 2020 brought an eye-popping near doubling of the shares in six months

ISM Non-Manufacturing Gains 2%, in June where tech lives. It shows that our “recessionary” economy may be stronger than you think, especially in the right sectors. No wonder stocks are going up every day.

Carried Interest Lives Again, with Arizona’s Kristin Sinema stopping the abolishment of tax-free treatment of hedge funds and private equity funds as her pound of flesh for backing Biden’s stimulus bill. People have been trying to end carried interest since President Carter pushed it through in 1979 to jump-start venture capital and Silicon Valley. It truly demonstrates the power of lobbying and will lead to more concentration of wealth at the top. Look for a vote next week.

My Ten-Year View

When we come out the other side of pandemic and the recession, we will be perfectly poised to launch into my new American Golden Age, or the next Roaring Twenties. With oil peaking out soon, 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!

With some of the greatest market volatility in market history, my August month-to-date performance reached +0.46%.

My 2022 year-to-date performance expanded to 55.29%, a new high. The Dow Average is down -9.64% 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 74.73%.

That brings my 14-year total return to 567.85%, some 2.39 times the S&P 500 (SPX) over the same period and a new all-time high. My average annualized return has ratcheted up to 44.83%, easily the highest in the industry.

We need to keep an eye on the number of US Coronavirus cases at 91 million, up 300,000 in a week, and deaths topping 1,033,000 and have only increased by 2,000 in the past week. You can find the data here at https://coronavirus.jhu.edu.

On Monday, August 8, there is no data of note.

On Tuesday, August 9 at 8:30 AM, the NFIB Business Optimism Index for July is out.

On Wednesday, August 10 at 8:30 AM, the CPI Index for July is published.

On Thursday, August 11 at 8:30 AM, Weekly Jobless Claims are announced. The Producer Price Index for August is printed.

On Friday, August 12 at 7:00 AM, the University of Michigan Consumer Sentiment Index is disclosed. At 2:00 the Baker Hughes Oil Rig Count is out.

As for me, I had the good fortune to live with a Nazi family in West Berlin during the 1960s. While working at the Sarotti chocolate factory in Templehof, my boss took pity on me and invited me to move in with his family. I jumped at the chance of free rent and all the German food I could eat.

What I learned was amazing.

Even though the Germans had lost WWII 20 years earlier, they still believed in the core Nazi beliefs. However, they loved Americans as we had saved them from the Bolsheviks, especially in Berlin. President Kennedy had delivered his famous “Ich bin ein Berliner” speech only seven years earlier.

There have been thousands of books written about wartime Germany, but almost none about what happened afterwards. I absorbed dozens of stories from my adopted German family, and I’ll tell you one of the most unbelievable ones.

In the weeks after the German surrender on May 7, 1945, Berlin was shattered. The city had been the subject of countless 1,000 bomber raids and the population had shrunk from 5 million to only 1.5 million. Most of the military-aged men were absent. Survivors were living under the rubble.

What’s worse, everyone knew that the allies would soon declare the German currency, the Reichsmark, worthless and replace it with a new one, wiping out everyone’s life savings. So, they had to spend as fast as they could. But with the economy in ruins, there was nothing to buy. In any case, the only thing they really wanted was food, which they could get on a thriving black market.

It turned out that there was only one thing they could buy in unlimited quantities:

Movie tickets.

When Hitler came to power in 1933, one of the first things he did was ban American movies. The industry was taken over by propaganda minister Joseph Goebbels who only permitted propaganda films promoting Nazi values for domestic consumption.

The only American film permitted in Germany during the 1930s was Grapes of Wrath because it highlighted U.S. weaknesses. Movie production was shut down completely in 1943 because of the war’s demands on supplies.

When the war ended, suddenly, the iconic movies of the Great Depression became available, such as the works of the Marx Brothers, Shirley Temple, The Wizard of Oz, Gone with the Wind, and King Kong.

Impromptu movie theaters were thrown up against standing walls of destroyed buildings. Within two weeks of the surrender, half of Berlin’s prewar 550 theaters had reopened. Of a population of 1.5 million, 850,000 movie tickets were sold every weekend. The summer of 1945 became one long film festival. The Germans laughed, cried, and were enthralled.

Every weekend was a sellout. The only movie that bombed that summer was a U.S. Army documentary about the concentration camps. But even that one sold 400,000 tickets.

The movies had a therapeutic effect on the German people. It distracted them from their daily privations, starvation, and suffering. It also allowed them to reconnect with western civilization. Ask any Berliner about what they did after the war and all they will talk about are the movies.

The allies finally did withdraw the Reichsmark in 1948. Individuals were only permitted to convert $40 out of the old currency into the new Deutschmark, which was then worth 25 cents. Only those who had title to land maintained their wealth, and most of those were farmers in the new West Germany.

I hope you enjoyed this little fragment of unwritten history, which I find amazing. But then, I find everything amazing.

Stay healthy,

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

 

Berlin in 1945

 

Berlin in 1968

 

 

 

 

 

 

 

 

https://www.madhedgefundtrader.com/wp-content/uploads/2022/08/berlin-1945.png 496 882 Mad Hedge Fund Trader https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png Mad Hedge Fund Trader2022-08-08 11:02:372022-08-08 13:23:18The Market Outlook for the Week Ahead, or The Bottom is In
Mad Hedge Fund Trader

August 3, 2022

Diary, Newsletter, Summary

Global Market Comments
August 3, 2022
Fiat Lux

Featured Trade:

(GOOGLE’S MAJOR BREAKTHROUGH IN QUANTUM COMPUTING),
(GOOGL), (IBM)

https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png 0 0 Mad Hedge Fund Trader https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png Mad Hedge Fund Trader2022-08-03 13:04:032022-08-03 22:46:34August 3, 2022
Mad Hedge Fund Trader

July 28, 2022

Bitcoin Letter

Mad Hedge Bitcoin Letter
July 28, 2022
Fiat Lux

Featured Trade:

(ANOTHER 130 MILLION)
(BTC), (AMZN), (MSFT), (GOOGL)

https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png 0 0 Mad Hedge Fund Trader https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png Mad Hedge Fund Trader2022-07-28 16:04:262022-07-28 17:27:07July 28, 2022
Mad Hedge Fund Trader

July 26, 2022

Biotech Letter

Mad Hedge Biotech and Healthcare Letter
July 26, 2022
Fiat Lux

Featured Trade:

(ANOTHER TECH AND HEALTHCARE CROSSOVER)
(ONEM), (AMZN), (TDOC), (AMWL), (GOOGL), (AAPL), (MSFT), (CVS), (WBA), (UNH)

https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png 0 0 Mad Hedge Fund Trader https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png Mad Hedge Fund Trader2022-07-26 17:02:162022-08-03 10:52:47July 26, 2022
Mad Hedge Fund Trader

Another Tech and Healthcare Crossover

Biotech Letter

The battle for telemedicine dominance might have just ended before it even began.

Amazon (AMZN) just announced its all-cash plan to acquire One Medical (ONEM) for $3.9 billion, paying $18 per share.

To date, this will be Amazon’s biggest step toward the healthcare world.

With the entry of Amazon into this telehealth segment, companies like Teladoc (TDOC) and Amwell (AMWL) would need to work overtime to match the resources of the e-commerce giant.

However, Amazon’s move isn’t exactly novel considering that other FAANG companies like Google (GOOGL), Apple (AAPL), and Microsoft (MSFT) have already acquired healthcare companies.

What this move simply indicates is that Amazon has finally turned serious in its bid for a bigger piece of the healthcare market.

This isn’t even the first time Amazon decided to go beyond its retail business. It has a pretty diverse portfolio including Amazon Web Services, a cloud infrastructure service, and even Whole Foods.

However, the decision to aggressively pursue the $800 billion healthcare industry might just be what Amazon needs to really move the needle.

In 2018, Amazon shelled out roughly $1 billion to buy an online pharmacy called PillPack which led to the launch of virtual Amazon Care clinics.

On that same year, the e-commerce company also pursued a joint venture, dubbed Haven, with Berkshire Hathaway and JPMorgan Chase. Unfortunately, that plan didn’t pan out and was eventually shut down.

Buying One Medical at a premium of 77%, Amazon beat other interested bidders including CVS (CVS), Walgreens (WBA), and UnitedHealth (UNH).

It’s still unclear what Amazon plans with One Medical. The e-commerce giant might add it to its Amazon Care brand or let it operate independently.

One Medical is a membership-based platform, which is backed by the Carlyle Group (CG) and managed under 1Life Healthcare.

Like most telehealth companies, it offers virtual healthcare services like virtual visits. What makes it different is that it also provides in-person checkups in accredited medical offices within the US.

One Medical’s app enables clients to schedule appointments, talk with their healthcare provider, and ask for prescriptions.

A key selling point is that the company guarantees that all the appointments start on time. Another notable feature is that users can gift a yearlong subscription to someone for $199.

Like Teladoc and Amwell, the company isn’t profitable yet. This case isn’t shocking for a relatively new field.

However, One Medical’s strategy has led to impressive revenue and membership growth.

The company’s revenue has consistently increased since its 2020 IPO. In 2021, its membership count climbed by 34% to reach 736,000.

In the first quarter of 2022, One Medical’s membership grew again by 28% and revenue jumped 109% to record over $254 million. So far, more than 8,000 companies provide One Medical services to their staff.

For 2022, One Medical projects its revenue to be between $831 million and $853 million.

Admittedly, these figures seem inconsequential when you compare them to the other sectors of Amazon’s business. For example, Amazon Web Services raked in $18.4 billion in sales in the first quarter of 2022.

Actually, One Medical’s revenue and membership growth might even look small and unimpressive compared to Teladoc, which recorded $565 million in the first quarter and has more than 54 million members in the US alone.

Undoubtedly, the healthcare market offers a mouthwatering opportunity for the likes of Amazon. It’s a lucrative industry, one of the handful that can truly make a difference in an already thriving business. Moreover, it has been highly profitable over the years.

Nonetheless, the acquisition of One Medical isn’t a foolproof plan for Amazon’s dominance in healthcare. So far, the e-commerce giant’s track record has been mixed. That doesn’t mean that the deal is a bad move. In fact, it indicates Amazon’s seriousness in making a play for the healthcare market.

Either way, the clear winner would be One Medical. Since the announcement, the stock has risen 70%.

Moreover, even if Amazon falls victim to politicization or anti-trust issues involving the deal, One Medical still has a number of suitors lined up.

Basically, it’s a win-win for this emerging telehealth company.

 

one medical

 

https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png 0 0 Mad Hedge Fund Trader https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png Mad Hedge Fund Trader2022-07-26 17:00:102022-08-03 10:53:59Another Tech and Healthcare Crossover
Mad Hedge Fund Trader

July 18, 2022

Tech Letter

Mad Hedge Technology Letter
July 18, 2022
Fiat Lux

Featured Trade:

(GO STRAIGHT TO THE TOP WITH THE CLOUD)
(AMZN), (ZS), (CRM), (GOOGL)

https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png 0 0 Mad Hedge Fund Trader https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png Mad Hedge Fund Trader2022-07-18 16:04:312022-07-18 17:57:24July 18, 2022
Mad Hedge Fund Trader

Go Straight To The Top With The Cloud

Tech Letter

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 was rewarded this important position based on his performance in the cloud and faced the 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 and 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 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 work 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 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.

 

cloud

 

 

https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png 0 0 Mad Hedge Fund Trader https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png Mad Hedge Fund Trader2022-07-18 16:02:282022-08-02 18:01:12Go Straight To The Top With The Cloud
Mad Hedge Fund Trader

July 13, 2022

Tech Letter

Mad Hedge Technology Letter
July 13, 2022
Fiat Lux

Featured Trade:

(HOT INFLATION NUMBER BODES POORLY FOR TECH STOCKS)
(LYFT), (UBER), (AMZN), (SHOP), (GOOGL), (SNAP), (META), (TWTR), (MELI), (EXPE), (TRIP)

https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png 0 0 Mad Hedge Fund Trader https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png Mad Hedge Fund Trader2022-07-13 13:04:452022-07-13 15:00:04July 13, 2022
Mad Hedge Fund Trader

Hot Inflation Number Bodes Poorly For Tech Stocks

Tech Letter

Fed swaps now fully price in 150 basis points of hikes over the next two meetings after awful inflation numbers came in showing inflation heading in the wrong direction.

The 9.1% inflation print was an acceleration of the 8.6% which was what we got last time.

I don’t want to beat a dead horse, but inflation accelerating and beating the expectations of 8.8%, is paramount to the trajectory of tech shares.

The awful number also underscores the magnitude of policy mistakes that the U.S. Fed Central Bank has overseen.

This is the only thing that matters because macro liquidity drives the trajectory of equities in the short term.

These clowns aren’t serious about tackling inflation, as I said a few times already and this proves it!

Itty bitty rate rises won’t stamp out 9.1% inflation and in fact, encourages it.

The Fed would need to raise the Fed Funds rate by 7.35% to 9.1% immediately from the current 1.75% for the real inflation rate to be non-inflationary.

According to the official Fed website, the Fed targets 2% inflation because they call this level “healthy.”

By their own measure, to achieve this 2% inflation, they would still need to raise rates by 5.35% immediately, but they absolutely won’t because Powell simply has no interest in doing his job, period.

These core expenses skyrocketing is why I keep and kept mentioning that Americans have less money to splurge on tech gadgets and software and again, this inflation report validates my thesis.

Think about pitiful tech stocks that didn’t work in bull markets like ride chauffeurs Lyft (LYFT) and Uber (UBER), I fully expect these companies to perform terribly over the next 6 months amid a rising rate backdrop.

Not only are they growth tech, but their business is directly tied to energy prices.

They are the poster boys for the pain tech companies will feel from hyperinflation.

The outlook is quite poor for technology in the short term, and we are still waiting to form a bottom. It will come back but we need a capitulation.

The accelerated rate of inflation means that we push back the big recovery in tech stocks.

Ecommerce stocks will suffer like Amazon (AMZN), Shopify (SHOP), and MercadoLibre (MELI) because of the decline in discretional spending for the consumer.

Digital ad giants like Google (GOOGL), Snap (SNAP), Meta (META), and Twitter (TWTR) will need to reckon with smaller ad budgets from 3rd party ad purchasers as companies cut back on marketing spend.

Don’t need to increase marketing spend when people have no money to spend on products.

Travel tech stocks like Expedia (EXPE) and Tripadvisor (TRIP) can expect summer to mark peak travel as Americans get more concerned about food and oil budgets after the summer of travel revenge from the arbitrary lockdowns.

It also means there will be a meaningful next leg down for tech stocks as many CFOs are now furiously crunching the new revenue and margin downgrades to reflect this heightened risk.

The new re-rating isn’t reflected yet in tech shares.

It’s already been a few months on the trot where many analysts say this is the top, they have been inaccurate every time.

Even if it is the top, inflation will stay higher for longer and stagflation is the consensus for 2023.

The clowns at the Fed not doing their job means that economic cycles will be shorter and a great deal more volatile because the smoothing effect of moderated inflation is now stripped out of calculations. This effectively means a contracted boom-bust trajectory for tech stocks which is unequivocally what we are seeing in market behavior.

 

tech inflation

 

 

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