“There are a lot of politicians who are just obstructionists.” – Said CEO of Salesforce Marc Benioff
Mad Hedge Technology Letter
September 9, 2022
Fiat Lux
Featured Trade:
(THE GIFT THAT KEEPS GIVING)
(APPL)
If it isn’t broken, then don’t fix it.
That’s what Apple (APPL) management is telling us with the brand-spanking new iPhone 14.
When we boil it down, upper middle-class Americans love Apple products, and the company is taking advantage of that by betting they aren’t willing to move on from their shiny iPhone and iOS.
Apple doesn’t have a monopoly, but the closest thing to it.
Apple product launches once revealed exciting new design features such as touchscreens and Face ID, this event’s debut of a better camera, new notch design, and satellite-enabled emergency calls received a lukewarm critique by reviewers.
This is a change from what used to happen – there used to be way more innovation in the phone but it's not important.
I don’t buy it either when people say there’s not much more a smartphone can do.
That’s not necessarily true.
There is still a lot a smartphone can do, the builders and developers of it just haven’t thought about it yet.
The lack of big changes to the phone design becomes an even bigger issue when you take into account the ‘‘eye-watering’’ price tags attached.
Available for pre-order on September 9, prices for the iPhone 14 start from $1399, and the iPhone 14 Pro from $1749. Price hikes were high in countries with strong Apple brand loyalty like Germany, Japan, and the UK while the prices in America are the same as the last iPhone iteration.
Not everyone is on board with how the new products are rolling out.
Just the other day, the Brazilian government suspended the sales of iPhones without chargers.
Apple is also facing a $2.5 million fine from Brazil's Ministry of Justice and Public Security (MJSP). This is on top of a reported $2 million fine Apple incurred in 2021 after announcing its first smartphone to ship without a power adapter in the box, the iPhone 12 series. Apple can appeal Brazil's decision.
Imagine if houses start to get sold without the car garage door.
Governments are fighting back in some instances, and in some cases, not at all, but people can’t refute that iPhones sell themselves even without a charger, earphones, cover, and whatever you want to strip out of it.
They are high-quality products and priced as such.
Ultimately, this is genius by CEO Tim Cook who oversaw Apple earnings of $275 billion in revenue in 2020 and did $365 billion in annual revenue in 2021.
Not many companies can add an extra $90 billion in revenue in 365 calendar days.
If a CEO can get by with selling basically the same product at a higher price and the consumers agree to it, then I believe that’s magic by a CEO who knows how to sell effectively.
Apple can get away with it.
Competitors aren’t so far ahead where the new product innovations can supersede the power of the Apple brand.
Also, it means billions of dollars saved in not trying to improve the product through research and development.
This money can be used to buy back stock, execute stock splits, issue higher dividends, and pay executive salaries. Cook’s salary is only $3 million annually, but his restricted stock options each year are almost $100 million.
Top level tech CEOs are handsomely paid and worth every cent.
Nobody ever said Tim Cook was Steve Jobs, he’s not a creative talent. Cook will never revolutionize technology or the internet.
Yet, he knows how to milk products others created like the iPhone for maximum profits which Jobs could never do.
And that’s what he is here to do until infinity. Last time I checked, we all need our smartphones to function in the world, so demand won’t fall off a cliff.
I am bullish Apple stock, and I can’t wait for my $2,000 iPhone 14 PRO. I’m also buying 2 extra chargers.
“You can focus on things that are barriers or you can focus on scaling the wall or redefining the problem.” – Said CEO of Apple Tim Cook
Mad Hedge Technology Letter
September 7, 2022
Fiat Lux
Featured Trade:
(JUST A BLIP)
(ISO), (TSLA)
Brushing your teeth will be the least of tech’s worries as California’s power grid operator declared a stage 3 energy emergency alert.
Rotating power outage warnings were “highly likely” as a bone-crushing heat wave descended on the Golden State and the American West stressing the electricity grid to the extreme limit.
I’ve never tried brushing my teeth in the dark, but I imagine it’s not easy.
Toothpaste dripping all over my pajamas is not what I imagine when I think about living the California dream.
Luckily, I installed my luxury solar panel system on my roof that fully charges my 2 Teslas in the garage for free.
Tough obstacles call for smart solutions.
For others, DEFCON 5 is front and center.
California Independent System Operator (ISO) tweeted to customers advising them to “please reduce your energy use.”
Some 67,000 Californians were without power Monday evening.
Tech CEOs are taking notice as Silicon Valley, although blemished from its golden and most lucrative years, is still a massive hub of tech entrepreneurship, innovation, and investment.
There are about half a million tech jobs in the greater San Francisco Bay Area, and it doesn’t take a genius to understand they need the light on to work.
Talking to tech CEOs, they are perplexed.
Various CFOs and CTOs are having private conversations about buying backup power generators to kick in if power fails at the office.
There are also newer conversations about investing in office space outside the San Francisco tech region, and naturally, those locations gravitate towards cooler regions with better access to water sources.
Tech CEOs that now mandate 100% remote work can sit back and relax knowing that even if a few get taken out, most of the staff will be online from somewhere somehow and someway.
The staff at Mad Hedge Fund Trader are employed over 13 different time zones around the world and boast a similar setup to mine, which are roof solar panels powering a fleet of Teslas. Throw in a satellite signal for broadband internet.
I don’t believe energy prices will factor into the tech earnings this upcoming quarter as electricity prices in California soared to their highest since California's electric grid operator imposed rotating outages in August 2020.
The last time the ISO ordered utilities to shed power was for two days in August 2020 when outages affecting about 800,000 homes and businesses lasted anywhere from 15 minutes to about two-1/2 hours.
At worst, there might be a mini footnote writing down a small sum for electricity bills. Remember that these behemoths earn billions upon billions of annual revenues.
At the individual level, however, convincing the incremental tech worker to move to Silicon Valley has been tough, this just made it infinitely harder.
In the bigger scheme of things, naturally, this is just a blip in the process of going green and for tech taking a larger part of the economic opportunities.
By 2035, the State of California will ban the new sale of gas-powered vehicles giving way to a beautiful renaissance of EVs helmed by the CEO of Tesla Elon Musk.
It’s likely that half of California residents will be driving a Tesla by 2035 and these energy breakages only speed up the process of adoption.
These same tech CFOs are already talking about outfitting their offices with an array of the best solar panels that money can buy as well as recommending that employees choose a more efficient fuel-consuming automobile to drive.
Adapt or stagnate.
Mad Hedge Technology Letter
September 2, 2022
Fiat Lux
Featured Trade:
(DON’T COMPROMISE)
(AAPL), (GOOGL)
A fresh analysis from the C-suite at the top 1,000 U.S. companies by revenue offers us critical insight into the direction of tech management.
It’s important to keep our finger on the pulse of what’s happening at the higher level of tech companies because these are the key people that drive the game-changing decisions.
It’s no surprise that the banking and financial services industry has the oldest average CEO age at 60, and the technology and energy sectors have the youngest CEOs at an average age of 57.
Technology companies harness new technologies that can lead to new businesses so that would usually trend younger.
Compared to other industries, tech companies also have a boom-bust element to them because technologies go extinct quicker, and refreshing a CEO is always on the table if the bust element creeps in.
Interestingly, the current tenure is down from an average of 8 years to 6 years, meaning that the leash for tech CEOs is getting shorter and shorter.
Much like highly paid professional athletes these days, there’s no learning on the job type of mentality. It’s overperform now or face the sack.
This mentality emphasizes short-term performance which revolves around the quarterly earnings report and stock-based compensation to employees.
Then add in the wild card of forced lockdowns and China’s increasingly aggressive attitude to politics and it’s simple to understand that boards need to quickly change management if they believe they cannot navigate these herculean tasks.
Just a few instances where critical decisions are being made can be seen in Apple when CEO Tim Cook yanked China production and moved factories to Vietnam.
Vietnam is becoming the new factory of the world for tech companies because costs and political risks associated with China are accelerating.
Now, throw in the Taiwan situation after top U.S. government officials chose to visit the island and tech companies are now worrying about their supply of Taiwan chips needed to harness artificial intelligence.
CFOs are usually the second most important person in a company behind the CEO because they guard the balance sheet and usually possess a strong accounting background.
Yet they can be disposed of quickly for bad performance which is why tech CFOs only tenure 4.1 years if we compare with other more stable industries.
The key findings here is that tech management has never been so prone to high turnover.
Due to the internet, competition has supercharged the fight for highly paid positions and data can be calculated in real time because of superior analytic platforms.
Management won’t be able to hide poor performance because of the close tracking.
As much as it’s difficult to make a famous name as a C-suite manager, tech CEOs with a proven track record can expect elevated attention which is why if guys who have built successful tech firms like Jack Dorsey reach out to investors, they will get whatever starting funds they need.
This builds on the winning take mentality in technology which has a few outsized winners among the crowd.
On the trading front, I would hesitate to buy tech stocks from management that is unproven.
I would urge traders to go into long-term bets on guys like Tim Cook, Sundar Pichai, and Elon Musk and don’t compromise on the quality of tech management because it makes a big difference in the future price of the stock.
“It's OK to have your eggs in one basket as long as you control what happens to that basket.” – Said Founder and CEO of Tesla Elon Musk
Mad Hedge Technology Letter
August 31, 2022
Fiat Lux
Featured Trade:
(BACK TO THE OFFICE)
(COMPQ)