(ZM) Archives

Darling to Demoted

ARK Innovation ETF (ARKK) and its infamous CEO Cathie Wood was the poster boy for tech growth as the 10-year bull market in technology shifted into high gear.

That was then and this is now.

Oh, how one full year makes a world of difference in the tech universe.

ARKK is not touted anymore as the tech fund that could do no wrong.

We, as investors, cannot recreate the world we desire by a click of a button but must roll with the punches and embrace a paradigm shift into a new normal of economic uncertainty, stagnation, de-globalization, supply chain bottlenecks, weak emerging currencies, and most important, higher interest rates.

It just so happens that the best trade out there all along has been long the US dollar to the detriment of tech stocks. Tech usually does well when the US dollar is weak.

ARK’s underperformance is finally creating a change as Wood is relinquishing her role as portfolio at 3D Printing ETF (PRNT) and ARK Israel Innovative Technology ETF (IZRL).

Recent criticism has been fierce accusing the fund of being a one-woman show with much of the hopes and dreams pinned on Wood.

Much of this has to do with her earlier success in Tesla (TSLA) which I would like to give her credit for.

However, since then, she has ridden the coattails of popularity to become a tech growth evangelist no matter what conditions.

She has often cut a polarizing figure in the world of tech investing.

ARK’s centralization of management could prove to be their downfall.

The demotion for Wood won’t be taken lightly and this also could be a way to throw the next guy under the bus as tech stocks go from bad to worse.

There have been headscratchers lately.

ARKK bought more of Zoom Video Communications Inc. (ZM) last month and I find that more of a beggar’s belief than anything else.

A pandemic darling shouldn’t be confused with a small company with no competitive advantages against big tech.

Another bizarre decision was to buy Ginkgo Bioworks Holdings Inc. (DNA), which has fallen 69% this year. The company invests in early-stage biotech companies and has lost around $1.5 billion in the first half of 2022. The company in 2021 lost $1.8 billion as well, but Wood continues to pour capital into this start-up.

The Nasdaq is now rescinding the premium they used to generously deliver for loss-making companies but fast-growing companies.

Woods hypers herself up as investing in disruptive tech, but many of her companies aren’t that disruptive and she is not aware of market cycles or market timing.

For the past year, she has proved that she is a specialist in being wrong.

ARKK needs to be careful of a meltdown instead of flashing the cash on pandemic darlings because they are cheap today.

There is a reason that many of these speculative tech firms are now cheap, it’s because they aren’t growing enough or making enough money. She still doesn’t understand that.

Expect more demotions for Wood as her pixie dust has run dry.

Buy the inverse of ARKK called AXS Short Innovation Daily ETF (SARK) after bear market rallies.

arkk

September 16, 2022

Diary, Newsletter, Summary

Global Market Comments
September 16, 2022
Fiat Lux

Featured Trade:

(TESTIMONIAL)
(LONG-TERM ECONOMIC EFFECTS OF THE CORONAVIRUS),
(ZM), (LOGM), (AMZN), (PYPL), (SQ), CNK), (AMC), (IMAX),
(CCL), (RCL), (NCLH), (CVS), (RAD), (WMT)

Long-Term Economic Effects of the Coronavirus

Diary, Newsletter

The world will never be the same again.

Not only is the old world rapidly disappearing before our eyes, the new one is kicking down the front door with alarming speed.

In short: the future is happening fast, very fast.

To a large extent, long-term economic trends already in place have been given a turbocharger. Quite simply, you just take out the people. Human contact of any kind has been minimized.

I’ll tick off some of the more obvious changes.

To say that we are merely fatigued from a nearly three-year quarantine would be a vast understatement. Climbing the walls is more like it.

As I write this, US Covid-19 deaths have topped one million and cases have surpassed 95 million. China peaked at over 5,000 deaths with four times our population. The difference was leadership issue. China welded the doors shut of early Covid carriers.

Here, it said it was a big nothing and would “magically” go away.

The magic didn’t work, nor did bleach injections.

In the meantime, you better get used to your new life. You know that home office of yours you’ve been living in? It is now a permanent affair for many of you, as your employer figured out they can make more money and earn a high stock multiple with you at home.

Besides, they didn’t like you anyway.

Many employees are never coming back, preferring to avoid horrendous commutes, $5.40 a gallon gasoline, mass transit, lower costs, and yes, future pandemic viruses. GoToMeeting (LOGM) and Zoom (ZM) are now a permanent aspect of your life.

Commerce has changed beyond all recognition. Did you do a lot of shopping on Amazon (AMZN) like I do? Now, you’re really going to pour it on.

Amazon hired a staggering one million new distribution and delivery people in 2020 and 2021 to handle the surge in business, the most by any organization since WWII. I can’t believe the stock is only at $122. It is worth double that, especially if they break up the company.

The epidemic really hammered the mall, where a fatal disease is only a sneeze away. Mall REITs have since taken off like a rocket, once it was clear that the virus was coming under control.

And how are you going to pay for that transaction? Guess what one of the most efficient transmitters of disease is? That would be US dollar bills. Something like 50% of all US paper money already test positive for drugs, according to one Fed study. While in Scandinavia last summer, I learned that physical money has almost completely phased out.

Take paper money in change and you are not only getting contact from the sales clerk, but the last dozen people who handled the money. You are crazy now to take change and then not go swimming in Purell afterwards.

Personally, I leave it all as a tip.

Contactless payment deals with this nicely and is now here to stay. Next to come is simply scanning people when they walk in the store, as with some Whole Foods shops owned by Amazon.

Conferences?

They are now a luxury. All of my public speaking events around the world have been cancelled. Webinars now rule. They offer lower conversion rates but include vastly cheaper costs as well. I can reach more viewers for $1,100 a month on Zoom (ZM) than the Money Show could ever attract to the Las Vegas Mandalay Bay for $1 million.

At least I won’t have 18 hours of jet lag to deal with anymore on my Australia trips. I’m sure Qantas will miss those first-class ticket purchases and I’ll miss the free Champaign.

Entertainment is also morphing beyond all recognition. Streaming is now the order of the day. Disney+ (DIS) was probably the best-timed launch in business history, coming out just two months before the pandemic.

They earned enough to cancel out most of the losses from the closure of the theme parks. Again, this has been a long time coming and the other major movie producers will soon follow suit.

Movie theaters, which have been closed for years, may also never see their peak business again (CNK), (AMC), (IMAX). The theaters that survive will do so by only accumulating so much debt that they won’t be attractive investments for a decade.

The same is true for cruise lines (CCL), (RCL), (NCLH). But that won’t forestall dead cat bounces that are worth a double in the meantime, as they are coming off of such low levels. No vaccination, no cruise.

Exercise has changed overnight. All gyms and health clubs closed, and are only just now slowly reopening. Working out will become a solo exercise far away on a high mountain. I have already been doing this for 30 years, so piece of cake here.

Friends with yoga classes are now doing them in the living room, streaming their instructors online. The economics of online yoga classes are so compelling, with hundreds attending online classes at once. The old model may never come back.

If you are having trouble getting your kids to comply with social distancing requirements, have a family movie night and watch Gwyneth Paltrow and Cate Winslet die horrible deaths in Contagion. It has been applauded by scientists as the most accurate presentation of the kind of out-of-control pandemic we have been dealt with.

It is bone-chilling.

I hope you learned from the last pandemic because the next one may be just around the corner, thanks to globalization. In 1918, it took three months for an enhanced mutated flu virus to get from Europe to the US. This time, it took a day to get from China.

Stay healthy.

August 24, 2022

Tech Letter

Mad Hedge Technology Letter
August 24, 2022
Fiat Lux

Featured Trade:

(ZOOMING TO FAILURE)
(ZM), (MSFT), (TDOC)

Zooming To Failure

Tech Letter

Let’s call it what it is – a one-hit wonder.

Zoom Video Technologies (ZM) was the darling of 2020 as we idled in our homes and succumbed to digital use if we liked it or not.

ZM became the hot item because they had an edge in the video conferencing product and their stock price boomed as we were all hooked on their software.

Fast forward to today and ZM CEO Eric Yuan wishes conditions were similar to 2020 so he can somehow combat the growth of Microsoft Teams which is essentially the same product as ZM but offered for free from competitor Microsoft (MSFT).

Teams keeps adding new features and when the inflationary monster disrupts the balance sheet too much, enterprises stop paying for ZM.

ZM is having a tough time battling it out with free software.

The company also cut its annual revenue forecast, saying it’s losing sales from consumers and small business faster than anticipated.

Zoom’s breakneck growth during the pandemic has cooled considerably as offices reopen and other software copycats take shape.

Online sales to consumers and small businesses are expected to decline 7% to 8% this year, Chief Financial Officer Kelly Steckelberg said on a conference call.

Zoom has responded by intensifying its focus on larger enterprise clients and pitching an expanded line of products such as software for customer contact centers.

In June, the company unveiled a new service bundle, Zoom One, to highlight offerings like internet-connected phones and physical conference rooms.

I’m not positive on these secondary offerings, particularly Zoom Phone, and see few use cases for it moving forward.

Sales to enterprise customers are expected to grow by more than 20% this year.

The company also reduced its annual sales forecast to about $4.4 billion from its May projection of as much as $4.55 billion. About $115 million of the cut is due to the “broader economic environment” and $35 million is due to the stronger US dollar.

ZM has effectively glamorized Facetime on the computer and the bad news is that there is no moat around this proprietary technology.

Zoom Phone is literally Facetime with no computer.

Good luck finding the incremental client.

This is the reason for big tech catching up to ZM so quickly and after relinquishing their first mover advantage, there has been no second act or even 1.5 act. It’s a quickly eroding wasteland for the ZM brain trust.

Then the company referenced the “broader economic environment” as to reasons for a lower forecast confirming what many people already know that we are barreling straight into a 2023 recession and ZM will be a discretionary service that gets cut with ease.

Not even the newly crowned federal student loan forgiveness group will spend their new bonuses on this unneeded software.

To be fair, it hasn’t only been ZM that has been body slammed, the other lockdown darling Teladoc (TDOC) which specializes in remote health consultations is trading at 5-year lows.

The stock is almost 10X lower than at its point in February 2021.
Even if there’s an apocalypse, users won’t gravitate to ZM highlighting the outsized risks of a one-trick pony with no competitive advantage.

Stay away from this stock.

zoom

June 1, 2022

Tech Letter

Mad Hedge Technology Letter
June 1, 2022
Fiat Lux

Featured Trade:

(FACETIME ON COMPUTER NOT WHAT IT ONCE WAS)
(XOM), (NFLX), (ZM)

Facetime on Computer Not What It Once Was

Tech Letter

Data may be the new oil, but oil is still oil, and the price per barrel of crude oil as we speak is $118.

The high price of energy, amongst other controversial forces, has been the genesis of great pain for tech stocks in 2022 and it was only just 18 months ago Zoom (ZM) had a bigger market cap than Exxon Mobil (XOM).

Fast forward to today, Exxon Mobil is 10x bigger than Zoom.

This is just a sign of the times.

That was then and this is now, and past pricing won't dictate future price and markets can remain irrational much longer than you can stay solvent, but this oil pricing will remain fluid for the foreseeable future.

The cure for higher prices is often said to be higher prices to the further detriment of tech shares.

As we step back for a second and analyze this new world order with new rules, the ‘Facetime on computer’ company ZM SHOULD be worth less than a global oil giant powering civilization.

10 to 1 seems like a mockery of the situation in which the ratio should probably be more like 1000x to 1.

The current price is a reflection of the “good times” in the energy space and tech has by and large been sent to the graveyard.

Concerns that the Fed's rate hikes may induce a recession are keeping investors guessing about the outlook for the economy as rising food and energy costs squeeze consumers, and volatility has picked up.

Therefore, how do we predict the short-term future?

It will clearly be defined by dramatic and volatile stock swings in each direction of the pendulum.

Tech markets, and by default, global markets, since tech is the driving force of the US markets will still indulge in fear of missing out (FOMO) portfolio managers that got whacked the first 6 months of the year, only to try to play catch up to achieve performance targets.

Don’t tell me these people don’t exist, they’ve just been licking their wounds in a more than brutal market setup.

This bear market rally is taking place on the heels of US President Joe Biden using a rare meeting with Federal Reserve Chair Jerome Powell to literally paint Powell as the scapegoat.

These meetings usually take place before a selloff because more often than not, people in certain places know horrible inflation numbers are coming down the pipeline hence the scapegoat meeting.

Even if inflation stays stubbornly high, but comes down to 6%, it will still hurt the American consumer which many economists have referred to as the last peg holding up the US stock market and economy.

The momentum we are seeing in this bear market rally won’t be able to hold much longer as American consumers are priced out of housing and credit card delinquency inches up.

Tech earnings won’t be what saves us either as the prospect of downward revisions to earnings estimates is the latest headwind to face stock investors.

We must rejoice around this Nasdaq bear market rally that has seen tech come back to life.

The dominant ecommerce company Amazon has seen a 15% resurgence and left-wing biased streaming company Netflix (NFLX) has recovered 15% from their lows too.

But we need to remember that since February 2022, this is a new world with a new set of rules.

Oil is more important than seeing your coworkers on a video chat, yet the inverse was true before February.

In this new world, tech and its share prices simply don’t stack up like they used to compared to other asset classes.

That being said, tech won’t go up in a straight line from this bear market rally, and that’s certainly better than the kamikaze-esque price action we saw the first half of the year.

The Mad Hedge Technology Letter will pick our spots, but I am not convinced in going completely bullish or 100% bearish at this point in the deleveraging cycle.

May 11, 2022

Tech Letter

Mad Hedge Technology Letter
May 11, 2022
Fiat Lux

Featured Trade:

TECH DESERVES WHAT IT DESERVES)
(RBLX), (ARKK), (ROKU), (TDOC), (ZM), (TSLA), (GM)

Tech Deserves What It Deserves

Tech Letter

A bear market rally in tech would be an overwhelmingly healthy signal that the financial system is working in an orderly fashion.

Yet, as I say that, a looming recession inches closer.

How do I know that?

That was my first reaction when my eyes were stung by the headline of 8.3% inflation.

Sure, not a 10, but it is emblematic of the ongoing inflation concerns with items such as airplane tickets up 18% year over year in price.

Remember the consensus was that inflation pressures are trending towards peaking, potentially setting up for a nice bear market rally.

That narrative hit another catch-22, not as bad as it could have been, but clearly not great and prices biting at the backs of consumers.

The hope that inflation will be crammed back into the genie bottle is not going to happen until later this year and not for the right reasons.

Simply because comparables become easier to beat year over year.

Like I have mentioned in past tech letters, high-growth tech stocks are most sensitive to the fluctuation in rates and investors should be nowhere near growth funds like Cathy Wood’s ARK Innovation ETF (ARKK).

Another head-scratching move was ARK’s Cathy Wood selling Tesla (TSLA) shares and rolling them into GM (GM).

This is for the lady who likes to tell us that we aren’t “doing the research.”

Betting against Elon Musk is a fool’s game.

When it comes to EVs, I would put money on Musk to defy any odds.

Tesla will outperform GM, especially amid a backdrop of lithium prices spiking and supply chain issues going haywire.

Musk is simply the anointed guy that knows how to work miracles.

He only developed the EV industry as he saw fit, invented reusable space rockets, cut the price of space exploration by 10, and reimagined tunneling construction technology.

And by the way, his Neuralink brain interface company is working on implanting chips in human brains so we don’t need to use our fingers on keyboard anymore.

I wouldn’t want to compete with this man and to believe that GM will be able to nimbly outmaneuver Musk who has the audacity to aggressively solve anything no matter how many people he pisses off is not an incremental bet on “innovation” that Wood likes to tout she is participating in.

Neither is the purchase of Roku (ROKU), Zoom (ZM), or Roblox (RBLX) which have all tanked since she put new money to work in them in late April.

Inflation at 8.3% means that the real rate of inflation is still -7.55% and until that’s addressed, any bear market rally will be viciously sold breaching further levels down below.

The carnage in the tech world is indicative at the dregs of the barrel.

Tech IPOs are toxic.

Market for new issues has been bereft throughout the first four-plus months of this year, and nothing that would move the needle is on the tech IPO radar for the duration of the second quarter.

Companies that were aiming to go out in the first half of 2022 have no appetite to continue down that path because there simply won’t be a bid.

Going public today would require a complete revaluation of their business and leave many late-stage investors and employees with out-of-money stock.

Grocery deliverer Instacart is the only company in that class that’s been forthright with its slowing valuation. In March, the company said it cut its valuation by about 40% to $24 billion.

That’s how bad it is out there at the bush league end of the tech sector and many of these stocks that are public such as Teladoc are down 80%.

I do believe that many of these loss-making growth techs are rightfully down 80%.

They had time to show a profit and they failed in the allotted amount of time they were given.

Every window closes and the market moves forward with or without them.

In the near term, I am bearish on the market but I do believe we are oversold which could feed into a dead cat bounce to sell on.