“Technological progress has merely provided us with more efficient means for going backwards.” – Said English writer and philosopher Aldous Leonard Huxley
Mad Hedge Technology Letter
September 28, 2022
Fiat Lux
Featured Trade:
(CHICKENS COME HOME TO ROOST)
(APPL), (HNHPF), (TSM), (ASML)
I hit the nail on the head – I’ll take another victory lap and you’re welcome.
I’ve been telling all my subscribers.
Apple backing off production of the new iPhone 14s signals that the US consumer is tapped out.
Throw in the towel!
What does that mean?
At the low-end, US consumers don’t have the extra funds to pay for all the streaming services or the extra hardware, gizmos, and gadgets they are used to.
That means the iPhone 14 Pro is next to get squeezed from the budget after an eye-watering $1,500 pretax price tag. At least at that price point, it includes 1 TB of data storage, but no charger.
Personally, I acknowledge that Apple makes a pretty darn good smartphone, but it’s way too overpriced in 2022 and there aren’t enough improvements to justify the lofty prices.
But the killing of new iPhone production goes well beyond just the issue of global sales of smartphones, this is a harbinger of things to come as global economic growth goes from bad to worse.
This is also legit confirmation that inflation is not only transitory, but it’s terrorizing US consumers’ budgets.
Interestingly enough, the most expensive models did still see high demand, confirming what I already have been saying is that high income US consumers are navigating elevated inflation more than superb even if conditions aren’t ideal.
Because they are in good shape – great personal financial balance sheets – hope it stays that way.
Thus, Apple supplier is shifting production capacity from lower-priced iPhones to premium models.
High income households are passing on their costs to the end consumers in the companies they run, and they are jacking up rents in the condos they let out.
They are even hitting up Walmart more than usual and abstaining from pricier options like Whole Foods or Whole paycheck.
Fantastically, high income Americans are ready to spend, spend, spend and that’s great news for employers and employees, but bad news for the bond market.
Apple is cutting the iPhone 14 product family by as many as 6 million units in the second half of this year.
Instead, the company will aim to produce 90 million handsets for the period, roughly the same level as the prior year and in line with Apple’s original forecast this summer.
In Taipei, key chipmaker Taiwan Semiconductor Manufacturing Co. (TSM) fell 2.2% and Apple’s biggest iPhone assembler Hon Hai Precision Industry Co. (HNHPF) was down 2.9%, amid a wide selloff of electronics suppliers.
ASML Holding NV (ASML), maker of advanced chipmaking gear, dropped as much as 3.2% in Amsterdam.
Purchases of the iPhone 14 series over its first three days of availability in China were 11% down on its predecessor the previous year.
Readers must be aware of Apple being the biggest component of the S&P. When Apple goes, so does the market.
Then there is the issue of, maybe the phones just suck now, since each iteration is the trigger for higher expectations which aren’t really met anymore.
Either way, CEO Tim Cook needs to roll up his sleeves, and this report ostensibly means that Apple won’t return to 2022 highs anytime soon.
It also vindicates and confirms that we are still in a sell the rallies mode or buy the dip after deep selloffs mode. This is a short-term traders' world right now and the data backs me up.
Happy trading!
“The thing that we are trying to do at Facebook is just help people connect and communicate more efficiently.” – Said Facebook Co-Founder and CEO Mark Zuckerberg
Mad Hedge Technology Letter
September 26, 2022
Fiat Lux
Featured Trade:
(DARLING TO DEMOTED)
(ARKK), (SARK), (PRNT), (IZRL), (ZM), (DNA), (TSLA)
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.
“I don’t want to fight old battles. I want to find new ones.” – Said Current CEO of Microsoft Satya Nadella
Mad Hedge Technology Letter
September 23, 2022
Fiat Lux
Featured Trade:
(CORPORATE TECH NOTCHES ANOTHER WIN)
(HOOD), (SEC), (VIRT), (SEC), (HFT)
The US Securities and Exchange Commission (SEC) will stop short of banning payment for order flow, which is essentially high-frequency trading (HFT) firms buying the trading history of retail traders.
I believe this was a huge mistake because it inserts an unneeded middleman between the trader and his profits while raising the costs to the trader.
Why do HFT want the trading history in the first place?
They have algorithms built in place that reveals trends in the data allowing them to profit off it.
I guess one might be able to argue that this could also lead to big losses if algorithms are built wrong.
However, much of the time, the profits are risk free by front running the retail traders’ orders by buying and selling in the microsecond after the retail trader clicks buy and receiving the shares.
The outcome is earning a few pennies.
However, multiply that over million and billions of trades each year and that is why CEO of Citadel Ken Griffin has a net worth of over $30 billion and the Founder and Chairman of Virtu Financial (VIRT) Vincent Viola owns the NHL’s Florida Panthers.
Risk free trades work 100% of the time so their trades are never exposed to losses.
Granted, they had to build out the tech expertise and technological infrastructure to pull it off.
In the end, US regulators have been quite tight lipped on what might actually happen, and any move could make Griffin’s and Viola’s HTF companies less profitable.
It’s still a massive victory for the HFT industry as CEO of the SEC Gary Gensler walked back threats of banning payment of order flow.
That is now off the table.
Funnily enough, HFT firms argue they are delivering “greater liquidity” to the end buyer, but that liquidity is almost always in the form of a higher price.
Cynical and straight forward people would call this a rip off.
The flip side is that platforms can offer commission-free trading in the US.
Since 2019, most major online brokerages haven’t charged retail clients fees for their transactions, following a model made popular by Robinhood.
As for the here and now, Virtu’s stock isn’t a buy because the downdraft in the broader tech market has punished Virtu’s stock.
Remember, HFT firms can only front run orders for market orders and not limit orders that specify a certain price.
As for trading platform Robinhood (HOOD), this means that their stock isn’t a zero either, but they bet big on crypto and that investor base in now impoverished.
Citadel and Griffin announced $4.2 billion in net trading revenue in the first 8 months of the year which is a 23% year-over-year bump.
The outperformance occurred because they have gained market share from bigger investment banks and remember that they earn revenue on sell orders as well as buy orders.
Sadly, for investors, Citadel is a private company.
Ultimately, it’s not a good time to buy Robinhood or Virtu Financial, but strategically, selling any large tech rally makes sense as the macro risks of interest rates still rock the market on a consistent basis as high inflation roars along.
“The technology keeps moving forward, which makes it easier for the artists to tell their stories and paint the pictures they want.” – Said American Filmmaker George Lucas
