Mad Hedge Technology Letter
July 24, 2019
Fiat Lux
Featured Trade:
(CIAO SILICON VALLEY),
(AAPL), (CRM), (MSFT), (FB), (AMZN), (GOOGL)
Tag Archive for: (GOOGL)
Bridgewater Associates Founder Ray Dalio carefully articulates an economic landscape in which the unrelenting chase for short-term tech profits finally catches up meaningfully with the gyrations of tech shares.
All of this could come home to roost and the early manifestations can be found in the housing migratory trends.
The robust housing demand, lack of housing supply, mixed with the avalanche of inquisitive tech money will propel these housing markets to new heights and this phenomenon is happening as we speak.
Salesforce Founder and CEO Marc Benioff has lamented that San Francisco, where ironically he is from, is a diabolical “train wreck” and urged fellow tech CEOs to “walk down the street” and see it with their own eyes to observe the numerous homeless encampments dotted around the city limits.
The leader of Salesforce doesn’t mince his words when he talks and beelines to the heart of the issues.
After relinquishing some of his CEO duties to newly anointed Co-CEO Keith Block, Benioff will have the operational time and a wealth of resources to get on top of the pulse of not only tech issues but bigger picture stuff and he now has a mouthpiece for it with Time Magazine which he and his wife recently bought.
In condemning large swaths of the beneficiaries of the Silicon Valley ethos, he has signaled that it won’t be smooth sailing forever.
In tech wonderland, and he urged companies to transform their business model if they are irresponsible with user data.
The tech lash could get messier this year because companies that go rogue with personal data will face a cringeworthy reckoning as the techlash fury seeps into government policy and the social stigma worsens.
I have walked around the streets of San Francisco myself.
Places around Powell Bart station close to the Tenderloin district are eyesores littered with used syringes that lay in the gutter.
South of Market Street isn’t a place I would want to barbecue on a terrace either.
Summing it up, the unlimited tech talent reservoir that Silicon Valley gorged on isn’t flowing anymore because people don’t want to live there now.
This tech talent, equipped with heart-tugging stories from siblings and anecdotes from classmates getting shafted by the San Francisco dream, has recently put the Bay Area in the rear-view mirror for many who would have stayed if it were 20 years ago.
This is exactly what Apple’s $1 billion investment into a new tech campus in Austin, Texas and Amazon adding 500 employees in Nashville, Tennessee are all about.
Apple also added numbers in San Diego, Atlanta, Culver City, and Boulder just to name a few.
Apple currently employs 90,000 people in 50 states and is in the works to create 20,000 more jobs in the US by 2023.
Most of these new jobs won’t be in Silicon Valley.
Since the tech talent isn’t giddy-upping into Silicon Valley anymore, tech firms must get off their saddle and go find them.
The tables have turned but that is what happens when the heart of western tech becomes unlivable to the average tech worker earning $150,000 per year.
Driving out young people who envision a long-term future elsewhere than the San Francisco Bay Area forces Silicon Valley to adapt to the new patterns revealing themselves.
Sacramento has experienced a dizzying rise of newcomers from the Bay Area itself.
Some are even commuting, making that 60-mile jaunt past Davis, but that will give way to entire tech operations moving to the state capitol.
Millennials are reaching that age of family formation and they are fleeing to places that are affordable and possible to become a new home buyer.
These are some of the practical issues that tech has failed to embrace and to maintain the furious pace of growth that investors' capricious expectations harbor.
Silicon Valley will have to become more practical adding a dash of empathy as well instead of just going by the raw and heartless data.
We aren’t robots yet, and much of the world still augurs to emotional decisions and disregards the empirical data.
But, instead of physical offices being planted in the Bay Area, the tech industry will heed way to the “spirit” of Silicon Valley with offices in far-flung places.
And remember that all of these new tech talent strongholds will need housing, and housing that an IT worker making $150,000 per year desires.
No wonder why San Jose real estate has dropped in the past year, people and their paychecks are on the way out.
Mad Hedge Technology Letter
July 19, 2019
Fiat Lux
Featured Trade:
(CLOUD 101)
(AMZN), (MSFT), (GOOGL), (DOCU), (CRM), (ZS)
Global Market Comments
July 17, 2019
Fiat Lux
Featured Trade:
(THE LEADER OF THE PACK),
(GOOGL)
The future is coming a lot faster than anyone expected.
Waymo, once the top-secret Alphabet autonomous driving subsidiary, has beaten all comers to the punch.
The desert state of Arizona granted a permit for it to commence with their autonomous fleet as a commercial entity and the business has rolled out to select riders.
This permit means that Waymo’s futuristic robo-taxi can charge passengers for profit.
The vehicles started testing in 2017 and were monitored with a human safety engineer inside. This is a big deal from a regulatory point of view.
First mover advantage is pivotal in dictating an agenda and setting the rules of the road in the world of innovation.
The desperation of being first to market was epitomized by an email that former top engineer Chris Urmson sent Alphabet founders Larry Page and Sergey Brin, “We have a choice between being the headline or the footnote in history’s book on the next revolution in transportation. Let’s make the right choice.”
Waymo, a subsidiary of Alphabet (GOOG), is the preeminent force in the quest for mass market driver-less vehicles.
Before Waymo was coined, Google's self-driving-car research was an internal program referred to as Project Chauffeur. The project was created in 2009, hidden from the public eye to keep its technology safeguarded from intruders.
Alphabet invested at least $1.1 billion between 2009 and 2015 to grab the undisputed lead position of this newly created industry.
Most industry analysts estimate that commercialization of level 4 self-driving vehicles will occur sometime around 2020.
The time sensitivity is palpable as Waymo has a chance to flood American streets with its technology before GM (GM) or Uber can get off the starting blocks.
Waymo outmuscled its opponents reaching a Level 3 standard in 2012.
Level 4 is the grade that automakers wish to proceed with. Although not fully Level 5 automated, Level 4 technology can operate under controlled factors without a driver.
The Fiat Chrysler minivans tricked out with Waymo technology have been racking up test miles in Phoenix, Arizona to the tune of around 5 million on Level 4 technology.
Arizona has been a fertile breeding ground for driver-less car development since 2015 when Governor Doug Ducey signed an executive order giving authority to state agencies to “undertake any necessary steps to support the testing and operation of self-driving vehicles on public roads within Arizona.”
The success or failure in Arizona will go a long way to test the quality and sustainability of this new phenomenon.
It helps a lot that Phoenix streets are laid out in a simple grid that the current level of artificial intelligence finds easy to recognize and understand.
Waymo is essentially Uber with no driver.
Drivers cost money. Waymo hopes to remove the highest input in ride sharing transport - the driver itself.
Uber routinely shells out driver subsidies equating to around 72% of quarterly gross revenue.
Waymo plans to expand its coverage to other locations.
Google CFO Ruth Porat has gone on record saying “We do continue to explore a range of options beyond the program we’re piloting in Phoenix, including ride sharing and personal use vehicles, logistics, deliveries, and working with cities to help them address public transportation objectives.”
The first commercial operation has been groundbreakingly successful in Arizona and is crucial to enhance consumer sentiment for reliable driver-less vehicles.
The accumulated data will be vital to prove Waymo’s safety record.
If all goes smoothly, Waymo’s autonomous vehicles and technology will spread like wildfire to other locations.
The potential success will fundamentally change the way people live their lives.
Up to 10 million employed drivers are set to be on the chopping block in America.
That includes about 3.5 million professional truck drivers who earn between $30,000-$45,000 per year along with 2 million Uber/Lyft drivers participating in the gig economy at $7.25 an hour.
The mass adoption of autonomous vehicles will eliminate a huge chunk of the American workforce, while redrawing additional income streams to Alphabet (GOOG).
Insurance companies would take a direct hit with the future pipeline of drivers irrevocably thwarted from learning how to drive.
If the preliminary data comes up roses, parents will not allow their 16-year-old kid to learn how to drive and instead throw them into a Waymo to be chauffeured to school.
Also, the tragic 40,000 annual fatalities caused by motor vehicle crashes will drop off a cliff.
The pick up in productivity would be astounding as workers will no longer need to drive themselves anymore, cutting costs and allowing additional time to work while in transit.
The unintended consequences will change the world while making the leaders of the space richer. A deeper underlying effect is that it will strengthen (GOOG)’s credentials going forward to apply A.I. in other spheres.
Global Market Comments
July 16, 2019
Fiat Lux
Featured Trade:
(THE BIGGEST TELL IN THE MARKET RIGHT NOW),
(GOOGL), (FRC), (PINS), (WORK), (UBER),
(ADSK), (WDAY), (SNE), (NVDA), (MSFT),
(POPULATION BOMB ECHOES),
(CORN), (WEAT), (SOYB), (DBA), (MOS)
Mad Hedge Technology Letter
July 10, 2019
Fiat Lux
Featured Trade:
(THE LOPSIDED WORLD OF TECH)
(FB), (GOOGL)
Is it unfair?
No, technology is afforded higher multiples than other industries and it’s completely justified.
Don’t allow anyone to convince you that tech companies are expensive because there are plausible reasons why they are expensive and will get even more expensive.
Technology sits on its perch as the single best investment opportunity of not only our lifetime but our children’s lifetime as well.
Huge capital investment is pouring into this glorious opportunity from gleaming offices on Wall Street to Sand Hill Road venture capitalists and even the Saudi Royal Family.
What is money not going into?
If you drive around the urban and suburban roads of America, it’s obvious that not much is going into new infrastructure.
America hasn’t even built a new airport for the past 30 years which CEO of JP Morgan loves to remind his followers of.
The sad truth is that capital is spilling over into the technology sector.
Eclipsing anything that you might believe, technology provides the optimal vehicle to innovate and evolve while offering a platform to incite a surge in performance and profitability.
The agent that is being harnessed to innovate and evolve is the software that is being programmed up to help a slew of other sectors.
Even if a sector hasn’t been touched by the tentacles of software innovation, they rarely stay virgin for long.
Much of the incubator stage capital is funnelled into considerable expenditures on research and development by technology companies, but also the capital is the catalyst to a reactionary tale of steroidal growth fueled by a pipeline of innovative products, services, and unique features.
These products and services are then spread through and delivered to ancillary arteries that serve the subset of the broader economy.
The result is a massive tsunami in incremental productivity when high grade software supercharges every business that implements and integrates the software inside the confines of their business structure.
The supercharge effect of software rapidly forces companies to either evolve fast or go extinct, meaning that whole industries are transformed overnight when they get a whiff of what is happening with their competitor.
Computers and hardware used to take up entire warehouses - they were oversized, bloated, and tended to perform poorly at first.
The evolution of hardware has delivered shiny, modern pocket-sized devices packed with potency.
CEOs are able to manage companies of 10,000 employees just on a screen the size of a wallet all harnessed by, you got it - software.
Even more unbelievable is that the concept of technology must outdo itself, upgrading with every iteration in an increasingly short amount of time, or be cannibalized by a competitor in a blink of an eye.
In the survival of the fittest, the tech industry is the alpha male industry of the American economy.
Nobody understands in what form or shape it will manifest itself in just down the road but it will be the 800-pound gorilla in the room.
Even though software is the fulcrum of the tech industry today, it doesn’t mean it will always be that way.
Trends diverge quickly and you can even ask a semiconductor executive facing a bout of weakness stemming from geopolitical one-upmanship.
Semiconductor companies have been dragged into the middle of a hegemonic battle between the two most dominant economies in the world and revenues will degenerate short term.
Key semi products will not be relinquished because the artificial intelligence that complements these high-grade chips will be the crucial element that determines who runs the world once 5G networks are erected.
Taking away the building blocks that facilitates the artificial intelligence will make it more difficult to produce the finished product.
Handheld devices are another product that has been sidelined for the time being because the global market is currently saturated by smartphones and tablets.
Software has been a key theme for the Mad Hedge Technology Letter and there are no signs of abatement for the foreseeable future.
The truth is that the world will not function without software as we know it and the omnipresence of software stems from the need to automate everything from healthcare devices down to autonomous vehicles.
Even better, software can withhold devastating economic capitulation as many of these companies have bought in to the software miracle and is a fixed part of their model that can’t be replaced.
Just the bare bones type of model badly needs sufficient IT functions to survive.
Then consider that cybersecurity is more and more a part of management’s plan to protect the digital fort from the back to front.
Software requires minimal infrastructure and is difficult to protect via patents or copyright to any effective degree signaling that if software isn’t perpetually improving, they are at risk of being disrupted.
The low barriers of entry consequently mean grassroots start-ups with innovative, game-changing products can appear with a wave of a wand.
After-sales support of the software is becoming a critical part of revenue as software is becoming more complex and requires granular consultation to apply the full range of capabilities demanded of it.
Software as a service (SaaS) is the new payment model that has also poured gas onto the revenue flames.
Software programs used to be purchased once for a fixed price.
The exchange of tender resulted in the consumer obtaining CDs that they inserted into a personal computer hard drive then installed on the desktop.
The technology industry shaped up and realized it could not only extract a one-time fee for software services but accrue an annual fee with the promise of timely and prompt upgrades via the cloud.
A win-win situation unfolded.
In some cases, this has allowed the same companies to make 500% more from the same product and deliver higher performance through enhanced functionality by deploying frequent updates.
And yes, the trade war is stealing some of the tech industries mojo, but software stocks will be most insulated.
The long-term trends are still intact and investors must understand these stocks have had incredible run-ups the past few years, not to mention a great first half of 2019 that saw most software stock rise over 30%.
Investors should be patient and advantageous entry points will be served on a platter but also differentiate between good and bad software stocks.
Mad Hedge Technology Letter
July 8, 2019
Fiat Lux
Featured Trade:
(YOUR UNCONSCIOUS FUTURE)
(FB), (GOOGL)
This might be one of the most important newsletters you will ever read.
Economies are mainly defined by seismic revolutions, for example, the industrial revolution that cut down simple, archaic jobs to machinery.
As we are on the verge of shuttering the technological revolution that brought us a party bag of treats like the internet, search engines, smartphones and the personal computer, we must brace ourselves for what is next.
Industry 4.0 is the concept of dazzling smart factories augmented by machines connected to a cloud network and software that processes the operations within the system.
The productivity enhancement will boost performance as machines will be able to visualize and surgically solve problems by applying the software that powers it.
Data exchange in manufacturing technologies which include cyber-physical systems (CPS), the Internet of things (IoT), the Industrial Internet of Things (IIOT), and cognitive computing are concepts that will define Industry 4.0.
As income inequality rears its ugly head and becomes center to what politicians run campaigns on, the world must brace for yet another tsunami of unrivaled job loss on levels that we have never seen before.
The social upheaval that economic chaos will create and offer investors monumental investment opportunities.
One of the manifestations of technological evolution is the optimization of business processes through automation, meaning less people are involved in the value creation process.
The global population is on the verge of mushrooming from 7.7 billion people in 2019 to 10.9 billion in 2100.
If you think overpopulation and sharing the world’s resources are a problem in 2019, then wait until 2050 when more people are squeezed out of revenue windfalls.
This effectively means the global middle class will accelerate its demise as the job market will bifurcate into a narrow sliver of clear winners and mostly losers and not the muddied version of what we have now.
The first Industrial Revolution also delivered uncertainty that hung over the whole job market, but the world was diverse enough and had ample resources to absorb the negative impact.
The global overpopulation is connected to the economy in the sense that most babies will be born outside of developed industrial economies and the world will see a fiercer rush to gain access to jobs in places such as London, Frankfurt, New York, Tokyo, and Silicon Valley.
The net effect of A.I. could be debated all day, specifically whether the absolute progress made in the development of industry and the products that revolve around it outweigh the torrent of human suffering that it will cause to billions of people who are not employable in that job market.
With exponential computational power to apply A.I., existing behavior will change in society and new cultures will be created because of it.
Economic value will not correlate to the amount of people like it once was, countries like Japan have dived headfirst into automating as much as possible with the best in class technology in robotics.
The world which we know it in 2019 is in the last legs of a nostalgic phase with baby boomers clinging on to what they know growing up in the 1950s.
Soon, that will be eradicated and Millennials will pour what they know and the fallacies they support into the system that is supported by algorithms and machine learning as the first human generation to be technology natives.
We are on the cusp of transformative shifts in the world.
In the next 25 years, technology will start migrating into the chambers of neuroscience.
Technology has discovered that more than 99.99% of human behavior happens at an unconscious level and that the unconscious brain is 10 times faster than the conscious brain.
While at any point of time, the conscious brain can focus only on one task, the unconscious can easily execute infinitely more.
The aspects of human behavior that the rational world has pinpointed is the conscious mind which is an ill-suited representative of human behavior.
The mechanics of the unconscious brain is stuff out of science fiction in 2019 but that will slowly change.
Consciousness has no understanding of what is happening in one’s own unconscious.
Science will be required to squeeze out a mechanism to discern the type of data humans can produce to mold this future subset of technology.
Modern qualitative techniques must be developed to be able to extract data from this important pool of knowledge.
Corporations are at the forefront of this trend and tech power brokers such as Co-Founder and CEO of Facebook Mark Zuckerberg hopes to one day install a chip into consumers' brain so that consumers can access the global network from the brain.
A scary thought but a thought gaining traction, nonetheless.
Ideally, the morally attuned stakeholders carry out the process of benefitting humankind instead of enriching a select few.
That will also be a battle that will define the next generation.
Increased focus on the unconscious processes will cause headaches for companies and there will likely be a numerical cost placed on the data it generates after companies like Facebook (FB) and Google (GOOGL) ran wild with abusing free personal data for decades.
Monitoring and managing the unconscious processes of consumers and employees will be hard at first and then society must assess if this violates privacy or not.
Unconsciousness works best when humans are sleeping or resting.
How can companies capture data on how well someone is using her unconscious brain?
This will befuddle tech companies until there is a solution.
Paradigm shifting scientific discoveries and human innovations have emanated from unconscious processes of the human brain in the past.
We still understand little about how powerful this data could become.
The current emergence of AI will be rooted purely in consciousness and the data that revolves around it, but the problem is that this data isn’t entirely accurate.
In capturing absolutes about complicated topics with current machine learning techniques, it doesn’t synthesize the fact that many areas of the human world deal in many shades of grey.
That is why A.I. is not that good today.
The next big find is if a company doubles down on the unconscious processes and that leads to groundbreaking discoveries in the understanding of accurate human behavior and thought.
