(GOOGL) Archives

The Drone Wars Have Started

Drones whip by like mini whirling dervishes but are actually hardworking aerial robots that carry out surveillance and inspections for utilities, construction sites, airplanes, and trains from onboard cameras.

Drone delivery appears to be the next transportation bottleneck in the e-commerce wars as Amazon (AMZN) and Uber (UBER) pile capital investment into the technology.

In 2013, Founder and CEO of Amazon Jeff Bezos audaciously said that Amazon would have drone delivery operational by 2018.

But the Federal Aviation Administration (FAA) did not acquiesce to Bezos’s ambitious timeline.

Progress has been slow.

When it comes to consumer appetite, the demand for drones will be voracious but only if delivered in a way to add value to the customer experience.

The last thing the world needs is billions of unmanned drones polluting the sky and parked in the sky.

More than 60% of consumers would accept the delivery of dry goods through a drone delivery service, it contrasts to only 26% of fresh produce or meat.

Clearly, fresh foods are more complicated to deliver because of temperature requirements to accommodate the products, and more R&D will need to take place to find a solution.

“When we (Amazon) have a full drone fleet, you'll be able to order anything and get it in 30 minutes if you live near a hub that's serviced by drones," said Amazon’s CEO of Worldwide Consumer Jeff Wilke

Amazon has spent more than six years developing drones which may one day drop packages in backyards assuming regulators green light it.

Timely delivery is important but the diversity of products that can be delivered is just as important.

This is not a one-size-fits-all solution.

Amazon has already ravaged through more than $35 billion on shipping costs this year, more than double what it spent two years ago.

It is yet to be determined whether the four-wheeled delivery robots they are testing that roll on sidewalks will ultimately be slipped into the delivery process, but at least they are making headway and allocating new resources to it by announcing plans for a new facility outside Boston to design and build robots.

Major companies such as Alphabet (GOOGL), FedEx (FDX) and UPS (UPS) are all investing in drone delivery all hoping to be the ones to lead this industry in the future.

The drone battles are taking place under the backdrop of military and political gamesmanship because drones have a large and legitimate role in military affairs.

Even though America’s e-commerce companies hope to take drones and nicely fit it into their delivery service, America is not even close to dominating.

One word – China.

The US-China Economic and Security Review Commission recommended that the US government promote advanced manufacturing and robotics technologies, monitor China’s advances, review bilateral investments and cooperation, and consider closely vetting proprietary academic research.

The Shenzhen, China-based drone company DJI Technology is the dominant worldwide market leader in the civilian drone industry, accounting for over 75% of the global drone market.

In 2017, the U.S. Army banned the military application of DJI drones because the Pentagon was worried that DJI would leak data to the Chinese government.

In 2018, the Defense Department banned the purchase of all commercial off-the-shelf unmanned aircraft system (UAS).

An amendment from Sen. Chris Murphy in the 2020 defense policy bill would ban all Chinese-made drones and Chinese-manufactured parts from military purpose.

DJI’s dramatic rise in the drone race has been nothing but breathtaking dwarfing Western competitors such as France’s Parrot.

They are cost-effective, making them the go-to product for individual consumers.

China has not only succeeded in pulling ahead in the drone wars, but are also pushing the envelope in areas like hypersonic weapons, artificial intelligence, and 5G.

The U.S. military has limited options now because of a generation of underinvestment and inactivity causing a dwindling of U.S. supply of the smallest class of unmanned aerial systems (UASs) that are needed for reconnaissance missions.

DJI has a near-monopoly for one of the most important pieces of technology moving forward.

“We don’t have much of a small UAS industrial base because DJI dumped so many low-price quadcopters on the market, and we then became dependent on them,” said Ellen Lord, the Pentagon’s chief weapons buyer. “We want to rebuild that capability,” she added.

China’s DJI was hit by the recent tariff tsunami levied by the U.S. administration and the drone maker has decided to pass on the cost to the consumer.

DJI has also been banned from bidding for any U.S. military contracts because the Trump administration has concerns that DJI is a national security threat.

DJI reacted to the move by commenting that they are “obviously false” and is “unsubstantiated speculation.”

The second tranche of tariffs, which is scheduled to go live on December 15th, will put an additional 15% tariff on virtually everything that comes to the United States from China, including laptops, smartphones, and drones.

The DJI Mavic Air, now costs $919 on Best Buy instead of $799. Similarly, the DJI Mavic 2 Pro which I have crowned as the best drone to buy in 2019 will cost $1,729, up from $1,499.

Apart from DJI, China has state money pouring into the sector with the most cutting-edge drone technology in the works called Tianyi quadcopter built by a subsidiary of a state aerospace corporation.

It is designed to carry out ground-level reconnaissance and hyper-targeted strikes in cities.

The unmanned aerial vehicles (UAV) are still in the works, but once ready, could be available on the international market as a cheap and versatile option widening the gulf between America’s military in drone technology.

The drone is designed to be controlled by soldiers on the ground, has an operational distance of 5km (3 miles) and has a vertical range of 6km.

It will be loaded with infrared and laser detectors to enable night surveillance operations and is armed with two 50mm rockets designed to strike from up to 1km.

Sadly, there are no quality drone plays on the American public markets that I can confidently recommend.

The seriousness of the lack of investment really appears in the weakness of U.S. military drone capabilities and on the consumer side of things, drones will be a supercharger input to revenue growth for the likes of Walmart (WMT), Amazon, and the e-commerce companies.

It might be time to wake up and support the creation of a national champion in this critical technology then spin off the commercial synergies in similar fashion to how the personal computer and the internet developed.

The longer we wait, the further we fall behind.

DJI Mavic Air for $919

November 27, 2019

Tech Letter

Mad Hedge Technology Letter
November 27, 2019
Fiat Lux

Featured Trade:

(THE SAD TRUTH ABOUT DIGITAL MARKETING),
(FB), (YELP), (GOOGL)

The Sad Truth About Digital Marketing

Tech Letter

Granted that technology companies have been the mule carrying the load for the broader market, beneath it is an ugly underbelly of venomous spirits.

Digital tech companies are frauds.

This could crater the broader market if the worst-case scenarios play out.

What do I mean by labeling them frauds?

Well, first, not all tech companies are charlatans. The ones producing components like semiconductor companies and others creating hardware are not the target of my wrath.

Since content has migrated into an all-out assault on traditional media, there is a dirty little secret that is festering because the new online media isn’t regulated.

The numbers are all a lie.

Much of the analytics and calculus involved with crafting cost to the other side is being entirely gamed by tech companies quoting prices based on fake analytics.

Instagram switched over its algorithm to displaying photos chronologically, to now display posts that engage the most, more specifically, what gets clicked the most.

Consumers have complained about it being significantly harder to gain likes and followers because, for the ones that don’t have many clicks, it’s harder to get those added clicks if your post is relegated down the feed.

The platform has also been a breeding ground for fabricating likes, friends, views, clicks and so on. Companies can be hired per like, resulting in a beefed-up profile built on fantasy.

Ad companies gauge each Instagram profile by the amount of engagement generated and if most of them are fraudulent likes, there will be weak follow-through in sales after ad purchases since a good chunk of the potential audience is a mirage.

Instagram is the preferred social platform of most influencers and Facebook is attempting to merge both assets into one in order to claim to regulators that they can’t be separated.

Much of digital marketing has migrated down the path of growing a large following for the reason to qualify as an effective brand ambassador and siphon off influencer marketing budgets from corporates who desperately want to penetrate a target audience.

In an age of automated robocalls and strict email rules, companies hesitantly confess that the only way to reach their end buyer is through social media channels.

Corporates are wasting billions of dollars because they aren’t getting what they really pay for and are basically being fleeced by tech companies.

And if you think this is mutually exclusive to Facebook (FB) and Instagram, it happens in every tech company that involves data.

Tech companies are monetarily incentivized to flat out lie about their data, partially because the penalties are minimal or absent in many cases.

Marginal tactics to fast-track the process by buying likes should be rooted out of the eco-system.

They are not only hurting the trust users have with the platform, but misrepresenting the brand that associates with a product.

Tech firms ward off anyone and everything from taking a peek at internal data by claiming it is their proprietary IP causing them to effectively police themselves.

That is not even the worst part of it all.

Parent company Facebook is turning a blind eye to something that could crash the company.

Mark Zuckerberg's old classmate Aaron Greenspan published a report complaining that over 50% of Facebook accounts are fake.

Facebook is on record admitting that between 2-3% of accounts are fake, but that number is a dream and artificially low by a country mile.

If it is true that half of Facebook accounts are fake, this would mean that Facebook sits on over 1 billion fake accounts.

Never mind the fake likes or clicks issue, Facebook shareholders could lose most of their worth in this stock if the truth is ever discovered.

Remember, the network effect works on the way down just like it works on the way up as a de-facto force multiplier.

Facebook and many other tech firms are a black box just like the Google (GOOGL) search algorithm.

Yelp (YELP), the online review company, could potentially sub-contract out fake reviews and never disclose how many of them are truly fake, they have no incentive to.

I recently stayed in an Airbnb rental whose active management was sub-contracted to a local property manager.

When I met him, he told me “This apartment was just bought and you are the first guest to stay in this apartment, so if there are any issues, please contact us as soon as possible.”

Wait, hold on, in my head, I am thinking, how did I see 45 great reviews from the apartment’s profile if I am the first guest?

I logged on to reread some reviews and some of the responses were completely inaccurate about the apartment.

It was clear these were made up and paid for and I was, in fact, the first to stay in this apartment like the property manager said.

Expectedly, there was more wrong with the apartment than just the fake reviews.

The television, stove, and hot water didn’t work, the key to the apartment was half broken and I had to perform miracles just to get the front door open.

There is a reckoning coming to technology companies because of the rampant misuse of the technology by nefarious actors monetizing the platform while perverting it.

Companies look the other way because they don’t want a revaluation of their business model which would add costs and, in some cases, bankrupt a company if the problem isn’t fixable.

As we move forward, the problems enlarge.

In a nutshell, this is why everyone hates tech now and its already stomach-churning enough that these firms steal your personal data and sell it to whomever they want.

A harsh reckoning will eventually hit the involved companies, but until then, tech business models are manipulated to the extreme and they continue to print real and fake growth mixed together as one.

One day, that fake growth will vanish and these companies will have to explain why to their shareholders.

In the meantime, just assume all online reviews are fake and enjoy the bull market in tech.

November 25, 2019

Diary, Newsletter, Summary

Global Market Comments
November 25, 2019
Fiat Lux

Featured Trade:

(MARKET OUTLOOK FOR THE WEEK AHEAD, or CATCHING OUR BREATH),
(MSFT), (GOOGL), (TLT), (VIX), (TSLA)

November 20, 2019

Tech Letter

Mad Hedge Technology Letter
November 20, 2019
Fiat Lux

Featured Trade:

(MY CURRENT TECHNOLOGY TRADING STRATEGY),
(GOOGL), (MSFT), (APPL), (ADBE), (AKAM), (VEEV), (FTNT), (WKDAY), (TTD)

My Current Technology Trading Strategy

Tech Letter

Some might say that we were due for a revaluation of growth tech stocks.

They have contributed greatly in this nine-year bull market.

Profit-generating software stocks are the order of the day.

Tech has led the overall market higher after projected quarterly earnings growth of -9% came in better than expected at -5%.

We have ebbed and flowed from pricing in a full-out recession in mid-2020 to now believing a recession is further off than first thought.

The pendulum swing ruptured many growth stocks from Workday (WKDAY) to The Trade Desk, Inc. (TTD) plummeting 30%.

We have retraced some of those losses but momentum in share appreciation has shifted to the perceived safer variation of tech stocks.

Investors have cut volatility and headed into bulletproof companies of Apple (AAPL), Google (GOOGL), and Microsoft (MSFT).

These companies have significant competitive advantages, Teflon balance sheets, and print money.

The tech markets just about priced in the U.S - China trade war in the fall as broad-based volatility plummeted because of optimism around making a deal.

This, in turn, has boosted chips stocks along with investors front running the 5G revolution and the administration granting Huawei a reprieve was a cherry on top.

The Mad Hedge Technology Letter has taken every dip to initiate new longs in safe trades like software companies Adobe (ADBE) and Veeva Systems (VEEV).

Tech is at the point that all loss-making companies are out of the running for tech alerts because the moment there is a recession scare, these shares drop 10% and often don’t stop until they lose 30%.

Now there is a deeply embedded set of narrow tech leadership by a few dominant tech companies buttressed by a select set of second-tier software stocks.

I would put PayPal (PYPL) and Twitter (TWTR), which I currently have open trades on, in the ranks of the second tier and they should do well as long as economic growth does better than expected.

Their share prices dipped on weak guidance and the bad news appears to have been shaken out of these names.

Professional investors could also be hanging on to meet end-of-year performance targets.

I do expect unique entry points on software stocks that drop after bad future guidance.

Profitability has moved to the fore as the biggest factor in holding a name or not.

Newly minted IPOs have fared even worse showing the markets' waning appetite for loss makers like Uber (UBER) and Lyft (LYFT).

Loss-making companies often tout their ability to change the world and disrupt industry, but that has been discovered as nothing more than a ruse.

They aren’t disrupting the way we change the world. For example, Uber is a dressed-up taxi service and the new CEO has failed to create any new momentum in the unit economics that spectacularly fail by any type of metric.

Even worse for these growth stocks, as the economy starts to falter, there will be even less appetite for them, and even more appetite for safer tech stocks.

A worst-case scenario would see Uber drop to $10 and Lyft to $20.

New all-time highs have crystalized with Google (GOOGL) under the gauntlet of regulation hysteria displaying the domination of these big tech machines.

The ongoing, consistent rotation out of growth and into value hasn’t run its course yet and fortunately, by identifying this important trend, our readers will be well placed to advantageously position themselves going into 2020.

Growth stocks won’t make a comeback anytime soon and deteriorating conditions could trigger renewed synchronized global monetary policy easing and central bank stimulus.

And yes, more negative rates.

I believe Oracle (ORCL), Fortinet (FTNT), Akamai Technologies, Inc. (AKAM) could weather the storm next year.

Tech growth is slowing and trade uncertainty is high, and readers must have a sense of urgency to avoid the losers in this scenario.

U.S. economic growth could slow to 1.3% next year, avoiding a recession, and the lack of enterprise spend will reduce software sales and combine that with peak smartphone growth and it won’t be smooth sailing.

The Mad Hedge Technology Letter has the pulse of the tech market and will show you how to navigate this minefield.

November 18, 2019

Tech Letter

Mad Hedge Technology Letter
November 18, 2019
Fiat Lux

Featured Trade:

(THE FANG’S BIG MOVE INTO BANKING),
(GOOGL), (MSFT), (APPL), (MA), (V), (PYPL), (SQ), (GS), (FB)

The FANG's Big Move Into Banking

Tech Letter

First, Apple (APPL) collaborates with Goldman Sachs’ (GS) offering of a credit card even giving credit access to subprime borrowers.

And now Google (GOOGL) has its eyes on the banking industry — specifically, it’ll soon offer checking accounts.

In a copycat league where anything and everything is fair game, we are seeing a huge influx of big tech companies vie for the digital wallets of Americans.

The project is aptly named Cache and accounts will be handled by Citibank (C) and a credit union at Stanford.

Google’s spokesman shared with us admitting that Google hopes to “partner deeply with banks and the financial system,” and further added, “If we can help more people do more stuff in a digital way online, it’s good for the internet and good for us.”

I would disagree with the marginal statement that it would be good for us.

Facebook (FB) is now offering a Pay option and how long will it be until Amazon (AMZN), Microsoft (MSFT), and others throw their name into the banking mix.

I believe there will be some monumental failures because it appears that these tech companies won’t offer anything that current bank intuitions aren’t offering already.

Moving forward, the odd that digital banking products will become saturated quickly is high.

Let’s cut to the chase, this is a pure data grab, and not in the vein of offering innovative services that force the consumer down a revolutionary product experience.

As the consumer starts to smarten up, will they happily reveal every single data point possible to these tech companies?

Big tech continues to be adamant that personal data is secure with them, but their track records are pitiful.

Even if Google doesn’t sell “individual data”, there are easy workarounds by just slapping number tags on aggregated data, then aggregated data can be reverse-engineered by extracting specific data with number tags.

The cracks have already started to surface, Co-Founder of Apple Steve Wozniak has already claimed that the credit algorithm for Apple’s Goldman Sach’s credit card is sexist and flawed.

Time is ticking until the first mass data theft as well and let me add that the result of this is usually a slap on the wrist incentivizing bad behavior.

I believe big tech companies should be banned from issuing banking products.

Only 4% of consumers switched banks last year, and a 2017 survey by Bankrate shows that the average American adult keeps the same checking account for around 16 years.

As anti-trust regulation starts to gather more steam, I envision lawmakers snuffing out any and every attempt for big tech to diversify into fintech.

It’s fair to say that Google should have done this 10 years ago when the regulatory issues were nonexistent.

Now they have regulators breathing down their necks.

Let me remind readers that the reason why Facebook abandoned their digital currency Libra was because of the pressure lawmakers applied to every company interesting in working with Facebook’s Libra.

Lawmakers threatened Visa and Mastercard that they would investigate every part of their business, including the parts that have nothing to do with Facebook’s Libra, if they went ahead with the Libra project.

The most telling insight comes from the best tech company Microsoft who has raised the bar in terms of protecting their reputation on data and trust.

They decided to stay away from financial products like the black plague.

Better to stay in their lane than take wild shots that incur unneeded high risks.

When U.S. Senator Mark Warner, a Democrat on the Senate panel that oversees banking, was asked about Google and banking, he quipped, “There ought to be very strict scrutiny.”

Big tech is now on the verge of getting ferociously regulated and that could turn out positive for the big American banks, PayPal (PYPL), Visa (V), Mastercard (MA) and Square (SQ).

I heavily doubt that Google will turn Cache into a meaningful business unless Google offers some jaw-dropping interest rates or elevated points to move the needle.

Google has canceled weekly all-hands meetings because of the tension between staff members and Facebook is also just as dysfunctional at the employee level.

Whoever said it's easy to manage a high-stake, too-big-to-fail tech firm?

Even with all the negativity, Google is still a cash cow and if regulatory headwinds are 2-3 years off, they are a buy and hold until they are not.

The recent tech rally, after the rotation to value, has seen investors flood into Apple, Microsoft, and Google as de-facto safe haven tech plays.

November 13, 2019

Tech Letter

Mad Hedge Technology Letter
November 13, 2019
Fiat Lux

Featured Trade:

(WHY YOUR NEXT TAXI RIDE COULD BE BY AIR),
(UBER), (TSLA), (GOOGL)

Why Your Next Taxi Ride Could Be By Air

Tech Letter

San Francisco is 49.2 square miles of pure innovation – at least historically.

The most creative solutions to the world’s most complex problems have been generated from this diminutive peninsula that juts out into the Pacific Ocean.

But when it comes to transportation, and by that, I mean the public transportation efficiently operated in most European and Asian cities like Seoul, Korea and Frankfurt, Germany, San Francisco epically fails at delivering an adequate system to the masses.

Instead, the stopgap solution gave us Uber (UBER), the rideshare company, and the fall out is more cars clogging up a bigger portion of the roadways and bridges.

And then there is Tesla (TSLA), whose enigmatic CEO loves to tell investors that electric is the panacea to the world’s economy.

Is Silicon Valley that far off from solving the conundrum of smooth public transportation by applying technology?

The solution might be percolating in Wessling, Germany by a company named Lilium who developed the Lilium Jet, an electrically powered commuter aircraft capable of vertical taking off and landing (VTOL) flight.

Moving forward, it’s black and white that the answer is 3D and not 2D.

Lilium was founded in 2015 by four engineers and PhD students at the Technical University of Munich.

In 2017, The Lilium Eagle, an unmanned two-seat proof of concept model, performed its initial flight at the airfield Mindelheim-Mattsies near Munich, Germany.

The successful test led the company to launch the 5-seat Lilium Jet and they hope by 2025, to roll out a full-fledged aerial taxi service.

Co-Founder and CEO Daniel Wiegand swears that within five years, a fleet of them could offer a 10-minute trip from Manhattan to Kennedy International Airport for $70.

Expectations that aerial taxis will be a reality in the coming years are quickly skyrocketing.

Companies like Lilium are researching, testing, and laying the groundwork for wider production and hankering for support from government officials.

At least 20 companies have skin in the game, which Morgan Stanley estimates will become a $850 billion market by 2040.

Larry Page, the billionaire co-founder of Google (GOOGL), is financially buttressing Kitty Hawk, a Palo Alto company run by the first engineers on Google’s autonomous car.

Uber is developing an air taxi service, with plans to operate by 2023, but I highly doubt that investors would give the go ahead if the cash burn overwhelms them.

The Federal Aviation Administration (FAA) is another tripwire that could knock the 2025 schedule off kilter and their notorious bureaucratic ways do not infuse certainty into the project.

Can Lilium build a platform that is broadly accessible and efficient?

That answer will be unpacked in the next few years.

The aerial vehicle has a carbon fiber body, 36-foot wingspan, and is battery powered, providing a range of 186 miles and a top speed of nearly 190 mph.

Inside the oblong-shaped cabin, posh seats await four passengers and a pilot.

The aircraft can take off and land vertically like a helicopter and is even quieter than a helicopter.

Once scaled out, production costs will run in the several hundred thousand dollars for each aircraft-making profitability realistic.

There will be lower maintenance costs because there are fewer mechanical components, and rides should cost less than Uber.

If rolled out on a mass scale, cityscapes will be revolutionized.

San Francisco and California effectively could bypass proper land public transport and skip straight to aerial vehicles as taxis.

Lilium’s plane has packed 36 smaller engines in its rotating wings that act as thrusters for takeoffs, landings, and subtle movements forward and back. Encasing the engines in the wings reduces friction and noise.

Lilium’s performance is currently unmatched but its secretive nature of the technology means it’s hard to quantify where they are now in the development.

With the funneling of capital to solve global transportation issues, aerial aspects will definitely be intertwined into the solution.

The race is on to capture the first-mover advantage and my bet it will be Lilium.

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DJI Mavic Air for $919