Tech Letter Archives - Mad Hedge Fund Trader

The New Rules to Tech Stocks

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

September 12, 2022 - Quote of the Day

Tech Letter

“There are a lot of politicians who are just obstructionists.” – Said CEO of Salesforce Marc Benioff

September 9, 2022

Tech Letter

Mad Hedge Technology Letter
September 9, 2022
Fiat Lux

Featured Trade:

(THE GIFT THAT KEEPS GIVING)
(APPL)

The Gift That Keeps Giving

Tech Letter

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.