Tech Letter Archives

Reading the Tech Tea Leaves

Logistics company FedEx, although not a tech company, offers a fascinating insight into the health of the economy and the current state of the tech world.

Unfortunately for tech readers, the shipping company rang the alarm on the rapidly deteriorating state of the economy in August.

It’s my job to tell you how it will shake out for tech stocks.

FedEx’s earnings report disappointed signaling that tech stocks too, could be on the chopping block. I would agree with that too.

This debunks the myth of the “soft landing” that the US Central Bank likes to refer to with their challenge of high inflation. I believe the soft landing is priced into tech stocks, but not a hard landing yet.

The result is possibly more downside price action to tech stocks.

CEO Raj Subramaniam painted a gloomy picture of what to expect in terms of lower volumes.

FedEx could be the canary in the coal mine signaling ugly earnings for other large tech companies that do business around the world.

The tech companies that come to mind are Apple, Google, Facebook or Meta (META), and Snapchat (SNAP).

Raj is not the only executive who is spooking the tech market.

CEO of Alphabet or Google Sundar Pichai had his own gloomy opinion that adds insult to injury to the already negative sentiment prevailing in trader sentiment.

He said he feels “very uncertain” about the macroeconomic backdrop, and he is one of the few who has deep insight into the different layers of this complicated US economy.

He also warned that layoffs could be in the cards as the company seeks to boost its efficiency by 20% while staving off fierce economic headwinds and antitrust investigations.

A large element of such downbeat forecasts by executives is the roaring price hikes from everything like diapers to salami.

The one ironic tidbit that I took away from the last inflation report was that the recent explosion in inflation has been in rental housing.

If this is the case, then high-income individuals, who mostly own rental real estate, are passing on inflationary costs to their tenants who are strapped with a worse financial profile.

This means that high-income individuals still harness the resources to spend, spend, spend.

Why not go lease a new Maserati or Aston Martin?

If that’s the case, we could see this group pick up the slack and power spending all the way until Christmas which is a net negative for tech stocks because it delays the Fed pivot.

Warnings from Subramaniam and Pichai indeed have weight to them, but keep in mind that these businesses are optimized for scale and reflect the general situation of Americans, not just rich people.

High net worth individuals reloading the consumer bazookas don’t move the needle for the entire US economy, but they do have enough gunpowder to trigger another bout of inflation or rental increases to build on the already high inflation existing in US prices.

Short-term traders should focus on selling rallies in poor tech stocks as upside momentum cannot be sustained in the face of anticipated interest rate rises.

September 19, 2022 - Quote of the Day

Tech Letter

“Some say Google is God. Others say Google is Satan. But if they think Google is too powerful, remember that with search engines, unlike other companies, all it takes is a single click to go to another search engine.” – Said Google Co-Founder Sergey Brin

September 16, 2022

Tech Letter

Mad Hedge Technology Letter
September 16, 2022
Fiat Lux

Featured Trade:

(THE NEW RULES TO TECH STOCKS)
(TINA), ($COMPQ)

The New Rules to Tech Stocks

Tech Letter

First, I would like to welcome the hundreds of new subscribers that just recently decided to take the plunge by hand selecting the Mad Hedge Technology Letter.

Our services have experienced a record-breaking year as novice investors and seasoned pros seek out the best tech stock ($COMPQ) advice in turbulent markets which have been riddled with high volatility.

There has never been a better time on earth to be human and there has never been a better time to subscribe to this technology content, offering cheat codes to the technology sector.

On the surface, it doesn’t seem that way.

Daily headlines don’t offer a positive spin on the world with energy caps, social unrest, military operations, supply shortages, cost of living crises, and extreme weather delivering us humble pie in many alternative forms.

However, readers must get in tune with the new world of tech investing.

The most essential thing to know is that passive investing is dead in this new world of high-interest rates, a rapidly deleveraging asset bubble, and broken supply chains.

Passive investing is tailor-made for a low volatility, high liquidity and a low-interest rate environment which has been swept into the dustbin of history.

This world basically ended in March 2020.

If readers aren’t actively managing their tech stocks, then you are behind the game as there are new laws to the land in the wild west of tech stocks.

As managers' focus on active management continues to accelerate, investors are becoming more inclined to not only enlist the service of active managers, but to reward them with even greater responsibility, access, and attractive opportunities.

A survey of 125 advisors found that 66% of respondents are more inclined to consider an active manager now than before.

Active advisors are also more likely to be considered in 2022 than passive managers with 89% of respondents saying they are unhappy with their passive ETF performance in 2022.

Almost all show a loss.

The evidence is there for everyone to see.

Investors are migrating away from passive index funds that cannot make money when a basket of stocks go down.

This strategy only works during times of synchronized global growth.

Investors also liked how passive investing was cheap because managers did not have to take profits before an imminent collapse.

Now they do, and I must admit it does create higher execution costs, but would you want to be outright long as streaming services are losing subscribers in an accelerated fashion and constantly giving us downgrades and lower revenue targets?

The truth is that there are a lot of bad active managers out there with a poor track record.

Many don’t know how to time the market, hedge risk, and don’t understand how to analyze or prioritize the large swaths of data that inundate us every day.

The Mad Hedge Fund Trader solves this for you.

Similar to the dynamics of Silicon Valley, risk asset performance is also a winner takes all industry. Tech is even more volatile relative to the S&P meaning even more diligence is required to outperform the Nasdaq.

The shift from passive to active is a paradigm shift that many still haven’t been alerted to.

To top it off, many conservative investors I have chatted to have now been cut off from their go-to industry – real estate.

Readers also won’t be able to effectively invest in real estate with 6% mortgage interest rates and generational high prices with owners sitting on a mountain of equity, boasting 3% mortgages, and nowhere to move if they sell.

For lack of better words, there is no alternative or TINA – which is why there has been an avalanche of interest in how to actively navigate tech stocks.

It’s no surprise that a large portion of our new subscribers come from real estate backgrounds and are looking for new opportunities.

Go where your money is treated best, and I can tell you that you’ve found the right place.

Quit being passive and act fast!

September 16, 2022 - Quote of the Day

Tech Letter

“We've arranged a civilization in which most crucial elements profoundly depend on science and technology.” – Said American astronomer and cosmologist Carl Sagan

September 14, 2022

Tech Letter

Mad Hedge Technology Letter
September 14, 2022
Fiat Lux

Featured Trade:

(JOB MARKET WORKING AGAINST TECH STOCKS)
(TWLO), (META), (NFLX)

Job Market Working Against Tech Stocks

Tech Letter

As the tech job cuts go from bad to terrible, how does this shake out the tech sector?

Just this morning, Twilio (TWLO) announced a major purge sacking 11% of its workforce to focus on reducing operating costs and improving margins.

Is this the end of it for the mighty tech machine?

Hardly so.

Tech companies will get more lean, efficient, and cutthroat which many might argue they should have been like that in the first place.

It’s somewhat true that tech business models got somewhat bloated in the era of euphoria.

Some unnamed big tech companies almost became like adult daycare centers.

Like overshooting in terms of revenue, development, and achievements to the upside in tech, and I acknowledge there was a lot to celebrate, I believe that the same works in reverse.

Staff at tech companies will be disposed of ruthlessly, and tech companies will most likely overcut jobs as a way to get their points across and show shareholders that they will flesh out costs during tough times.

Tough times in the big tech world mean less than growth margins, but they are still doing better than any small business who are outright going bankrupt.

Tech companies are in an advantageous position because the technology they harness can be used to scale up using software.

Less staff that manufactures higher productivity is an executive’s dream.

This time around, I firmly believe that automation will start to reach further up the employment chain because automation gets better with each iteration.

Humans also complain, get sick, need bathroom and coffee breaks, ask for promotions and raises when software code doesn’t.

We aren’t to the point of one CEO and the rest bots and software, but that’s the direction we are headed.

The silver lining for many of these fired tech workers is that the labor market is on fire. Although the unemployment rate ticked up to 3.7% last month, it’s still hovering at a 50-year low. The data is there – there are about two job openings for every unemployed person.

More than 50,000 tech workers have been laid off since the beginning of this year.

These fired tech workers will be able to find new jobs rapidly and in many cases with a juicy promotion, higher wage, and better benefits like 100% remote work opportunities, because there is still a huge shortage of qualified workers. Skills are fungible too.

Many will be able to pivot into the financial world and find jobs on Wall Street, who for the past generation have been losing talent to tech.

As interest rates rise, banks become winners.

Lastly, the pedestrian interest rate rises executed by the US Central Bank means that the job market will stay a lot hotter than first expected.

Even if they do get to 4% in the Fed Funds rate by the end of 2023, 4% is still historically low and companies will still be hiring albeit with a more measured approach and lower wages.

The slow pace of rises hurt tech because it allows the fired workers more time and better opportunities to get entrenched in a new sector while job offers are still plentiful.

The net result is the opposite of what the Fed wants which is more inflation as fired tech workers rotate into better-paying jobs spending even more money on goods and services.

This feeds into the higher inflation problem.

In short, this is a death-by-a-hundred-cuts sort of reaction for tech stocks. Tech stocks won’t explode to the upside until the workers can’t just re-up to a cushy healthcare job or Wall Street job like now.

Short every rally in wounded tech stocks like Facebook (META) and Netflix (NFLX).

September 14, 2022 - Quote of the Day

Tech Letter

“Don't chase a girl, let the girl chase you.” – Said Founder and CEO of Softbank Masayoshi Son

September 12, 2022

Tech Letter

Mad Hedge Technology Letter
September 12, 2022
Fiat Lux

Featured Trade:

(CATHIE WOOD URGES ACTION)
(ARKK), ($COMPQ)

Cathie Wood Urges Action

Tech Letter

CEO of Ark Invest and infamous creator of the ARK Innovation ETF (ARKK) Cathie Wood defiantly said that “innovation solves problems, and the world is facing many more problems today than two years ago. Innovation is key to real growth!”

She likes to keep on banging on about innovation being the panacea to the tech industry when the big tech titans are doing absolutely zilch regarding innovation.

Offering new personalized lock screen designs doesn’t move the needle, but that doesn’t mean that tech stocks ($COMPQ) will go down and shareholders will lose money.

Quite the opposite for the tech cash cow business models.

She later goes on to complain that “The Fed seems to be responding to COVID-related supply shocks spanning 15 months the same way that Volcker battled inflation that had been brewing and building for 15 years. I would not be surprised to see a significant policy pivot in the next three to six months.”

First, Fed Central Bank governor Jerome Powell is nowhere close to the Volker era which saw short-term U.S. interest rates raised to 20% in 1981.

Powell is the antithesis of former Fed chair Paul Volcker and that’s why these bear market rallies are strong and lasting.

Powell wants a “soft landing” – that’s his goal.

The Fed has continuously said they aren’t ready to pivot and by pivot, I mean going from raising rates to lowering rates.

Wood believes that raising rates does nothing to help supply side shocks and that the Fed should start to condition itself to soon lower rates.

The Fed deals solely participates in demand-side policies.

The Fed is on record saying they plan to raise Fed Funds rates to 4% by the end of 2023 and keep rates there for an extended period.

That timeline seems to clash with Wood’s idea of dropping rates in 3 months.

The reason Wood has little credibility is because she has been saying the economy is experiencing deflation every 2 weeks for the past 3 years.

She has the most to lose because her portfolio possesses speculative tech stocks that mostly execute unprofitable business models and need low rates to refinance their large debts just to survive.

She continued to say that the Fed should be looking at metrics like “gold and copper” which “are flagging the risk of deflation.”

It’s quite bizarre that gold would be selected as the leading indicator for monetary policy.

Last time I checked, people can’t eat or drink gold and gold doesn’t heat your shower or apartment, even if you can install golden toilets like Russian President Vladimir Putin. Consumers can’t drive gold either. Higher or lower gold prices don’t indicate that our discretionary budgets are crashing or bulging either.

She also says to completely ignore employment because it’s a “lagging indicator.” This last sentence is false as well as it seems she is confusing this with the unemployment rate being a lagging indicator.

Unfortunately for Wood, the Fed slowly raising rates means it will be longer until they lower them because rates are still highly accommodative.

The silver lining for Wood is that the Fed is more worried about breaking the stock market which could evaporate trillions of dollars in stock market wealth.

Bear market rallies are essential for a soft landing, and we are seeing them in full force.

The last thing investors need is a crashing stock market and impotent tech companies. Remember that Silicon Valley and the tech industry are still the drivers of the US economy.

The Fed will do what they need to do to engineer the result of a soft landing regardless of Cathie Wood.

Wood