Tech Letter Archives - Mad Hedge Fund Trader

Tesla Is In A Pickle

Tesla stock has been falling since the mid of last December, and I expect the short-term trajectory of the stock to be a real slippery slope.

There are a variety of factors causing the stock to struggle.

I won’t ignore the issue that the eccentric and strongly opinionated CEO Elon Musk has aggressively inserted himself into European politics and turning off the political establishment in Europe, which has always been radically left, is just asking for trouble.

It’s my opinion that he has essentially written off doing business in Europe and is throwing his efforts on making political inroads in the old continent.

Long term, I am not sure Musk can compete against the Chinese pricing power, and securing political gains in Western government will help his empire grow.

His sights have shifted away from EVs to rockets, and the stock will likely suffer from this.

Don’t forget that Europeans are facing a stark and grueling cost of living crisis that is degrees of magnitudes worse than what is happening in the United States.

Interesting that Americans complain that rental costs consume half the salary, but in Europe, tenant obligations via leases consume 100% of the average white-color job salary.

The end result is that young Europeans cannot afford to buy cars, whether it be gas powered or electric.

How bad are things for Tesla?

Sales of its EVs dropped 13% in the European Union in 2024.

They are also facing growing pressure as Chinese and Euorpean rivals launch a wave of cheaper electric vehicles.

Tesla saw big drops in sales in major markets dominated by ultra-progressive politics like Germany, France, and Italy.

In Germany, the hub of Europe's auto industry and the home of Tesla's Berlin gigafactory, sales of Tesla vehicles fell by 41% in 2024, outstripping the 27% sales decline in the general battery EV market.

Swedish brand Volvo, which is owned by Chinese conglomerate Geely, saw its sales rise nearly 30% in the EU last year, driven by the popularity of its $40,000 EX30 electric crossover.

Several German companies have announced they will stop buying Tesla vehicles over Musk's political and social comments in recent months.

This trend is likely to grow in 2025.

Musk has also become entangled in UK politics, feuding with British Prime Minister Keir Starmer.

I expect Musk's active political involvements to have a damaging impact on Tesla's European sales for the foreseeable future, and rivals would likely reap the benefit of disgruntled Tesla owners ditching their vehicles.

Tesla makes a great car – I don’t deny that.

Musk has already sold 2 to 3 EVs to every Western progressive that could ever want an EV. Conservatives aren’t interested in EVs. Try selling a Tesla in rural Poland to a Polish milk farmer where it would be almost impossible to find a charging station. EVs are almost entirely reserved for an urban environment where EV infrastructure is beefy and widespread.

Since Musk cannot get that EV sales growth boost in the short-term, he is riding on the coattails of the global populist movement to secure political victories, and it is working to his benefit.

At the end of the day, consumers would ultimately be more concerned about factors such as price and performance, rather than Musk's politics, but with people who can afford buying multiple EVs in Europe, they care about the name on your passport, the university you went to, and especially your political views.

Europe is just like that, and Musk is going ahead and alienating the European market.

In the short-term, I don’t see a lot of individual catalysts that could boost Tesla in the short-term, although after the Deepseek black swan, Tesla could ride a general tech market revision to the mean rally.

Let’s hope the general tech market heals itself from the Deepseek nuclear bomb, but I would stay away from Tesla in the short-term and opt for something more attractive in tech like Meta or Netflix in 2025.

February 7, 2025 - Quote of the Day

Tech Letter

“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

February 5, 2025

Tech Letter

Mad Hedge Technology Letter
February 5, 2025
Fiat Lux

Featured Trade:

(AMAZON DOESN’T NEED WORKERS)
(AMZN), (AAPL)

Amazon Doesn't Need Workers

Tech Letter

Flatten the curve!

No, I am not talking about that 2020 thing, I am talking about the CEO of Amazon Andy Jassy’s vendetta to remove the middle manager tier out of the company he runs.

Flatten the curve so there is no more middle manager and everyone is on the same level with higher-ups rejoicing with the entry levels.

Everything sounds ideal, right?

So why buy this company’s stock?

Why do it?

Easy answer – the stock price goes higher.

Jassy’s campaign to gut the bloat out including the higher earners of Amazon is ringing alarm bells within the employee ecosystem at Amazon.

Amazon is probably the worst FANG company to search for a job at this point. I would never recommend it to a friend.

The thing about Jeff Bezos, he paid his employees well and promised promotions and lots of other perks.

Jassy is promising the inverse and employee morale has fallen off a cliff then mixed into the fact that workers now go back to the office 5 days per week when the standard at other tech companies is a hybrid 3 days per week in-office requirement.

Tried and Tested Amazon's career paths are drying up faster than the Salt Lake in Utah.

Managers fear replacement by lower-paid people with less experience and half a brain.

Jassy has even coined a new term “horizontal development” which he wants workers to understand as a fake promotion.

Jassy even codified his philosophy into a published 1,400-word manifesto for change on Amazon’s corporate blog — where investors could read it — and appears to have targeted an entire layer of middle managers.

Jassy is pressuring HR to hire from a pool of recent college graduates to fill positions while finding reasons to remove more senior workers.

Jassy’s cost-cutting has helped increase profits in each of the past six quarters, and the shares have surged 42% in the last 12 months.

Targeting middle managers rather than front-line workers has become more common recently in corporate America because these people tend to have higher salaries and usually don’t contribute directly to a project by coding or negotiating deals.

Like 2024, I do believe Amazon has a great chance at defying the tech malaise by pushing the financials over the line.

The stock will be rewarded by a higher share price.

Let’s be straight, Amazon isn’t reinventing the wheel.

There is no big new shiny thing to hang their hat on.

But much like Tim Cook came in for Steven Jobs, Jassy has come in for Jeff Bezos to operate the hell out of Amazon and search for nickels in the corner of every couch.

Sadly, that is what has come of Silicon Valley and the “most innovative” place in the world.

The truth is that Silicon Valley isn’t innovating like it used to aside from a few people like the guy who figured out how to re-use rockets.

However, Amazon and Silicon Valley don’t need to offer something new when there is little competition besides the Chinese (which are taking over the iPhone and EV business).

Unluckily for China, it’s harder for the Chinese to replace a foreign e-commerce and logistics company while easier to rip off a smartphone.

Buy the dip in Amazon in 2025.

February 5, 2025 - Quote of the Day

Tech Letter

“I'd rather be optimistic and wrong than pessimistic and right.” – Said CEO of Twitter Elon Musk

February 3, 2025

Tech Letter

Mad Hedge Technology Letter
February 3, 2025
Fiat Lux

Featured Trade:

(TARIFFS COME FOR TECH STOCKS)
(NVDA), (META)

Tarrifs Come For Tech Stocks

Tech Letter

Tech stocks have felt the full effect of the volatile nature of the new federal government in charge in Washington.

Tech stocks aren’t looking too pretty today.

The new admin levied a 25% tariff on goods from Mexico only to give the Mexicans a 1-month reprieve.

Like a game of high-stakes poker, but Trump is wielding the American economy at the poker table with reckless abandon.

Tech stocks whipsawed and most stocks opened up in the red, however, a stock like Meta was able to ride out the instability by surging at the open.

Not all tech stocks are created equal.

If many investors thought Trump wouldn’t follow through with his sabre-rattling, then think again.

He is hell-bent on going full throttle and pushing allies to the brink whether they can tolerate it or not.

The surge in interest rates because of the perception of higher inflation and higher geopolitical risk was the reason tech stocks were jolted at the beginning of this week.

Indeed, tech stocks are in for a sideways correction if American government policy becomes constantly aggressive and brutal.

Tech stocks will have a narrow path to go higher, but not like the prior 10 years when stocks were cheered higher by almost everyone.

Trump said this will boost US manufacturing.

The tariffs will grow the US economy, protect jobs, and raise tax revenue, he argues.

Canada’s Trudeau declared retaliatory 25% tariffs on $107 billion dollars worth of US goods on Saturday.

Mexican President Claudia Sheinbaum has directed the Secretary of Economy to impose a plan including "tariff and non-tariff measures in defense of Mexico's interests".

Together, China, Mexico, and Canada accounted for more than 40% of imports into the US last year.

Most goods from Mexico don’t affect tech stocks such as fruits like avocado, vegetables, tequila, and beer.

Canadian goods such as steel, lumber, grains, and potatoes are also likely to get pricier.

It is expected that the car manufacturing sector could see the brunt of the effects of the tariff.

It’s not like Trump is only going after Mexico and Canada, he also has the U.K. and Europe in his crosshairs.

Do tariffs cause inflation?

In the short term, tariffs will hit consumers in the U.S. with corporations front-running price increases by passing on the higher inputs to the end buyer.

The market also senses higher inflation and interest rate yields will get bid up, which is negative for tech stocks.

It is naïve to think that tech stocks will go up in a straight line like the past 10 years – they certainly will not.

If the government is hell-bent on this type of tactic, global markets will feel the pain.

Even if this doesn’t directly affect tech stocks, the American consumer will not go unscathed.

Interest rates exploding higher will certainly mean tech stocks opening up Monday mornings 3% down.

That is not a good starting point for the week and explains why the bellwether Nvidia (NVDA) is down 15% year to date.

Then throw in the chaos from the Deepseek fiasco that threatens the valuations of many AI stocks.

It’ll be tough sledding from here on out and tech investors need to be mindful to not get caved in out of nowhere.

January 31, 2025

Tech Letter

Mad Hedge Technology Letter
January 31, 2025
Fiat Lux

Featured Trade:

(AMAZON CUTS OFF THE OUTSIDE)
(AMZN), (UPS)

Amazon Cuts Off The Outside

Tech Letter

UPS cutting back their logistics agreement by 50% with Amazon (AMZN) is not a bug, but a feature of what is to come in 2025 and beyond.

I believe we are at an inflection point where anything and everything that these big tech companies can source in-house, they will do.

That means Amazon going full-on 100% with their own transport, logistics, and everything else.

They already steal popular 3^rd party product designs and manufacture them themselves under their own brand and then sell it on their own website.

This type of behavior will go into overdrive and beyond in 2025.

The writing is on the wall for many small businesses and the leanness in tech companies is also reflected in their aggressive job cuts that started at the end of 2023.

UPS and FedEx will need to find a different source of volume moving forward because e-commerce packages will be operated by tech couriers.

This big pullback in Amazon deliveries sent UPS’s stock off a cliff.

The news has translated into their stock diving from $136 per share to $114 today.

That is just the beginning for many of these tech and non-tech partnerships and I believe we will see more severing off the cord in 2025.

One big trend is also semiconductor chips with the likes of Apple producing their mobile chips themselves.

A deal to cut business with its largest customer will be hard to make up for UPS, and for Amazon, it is great long-term news for the stock.

UPS said it reached an agreement in principle with its largest customer to lower its volume by more than 50% by the second half of 2026. In UPS's latest annual report, the company singled out Amazon and its affiliates, saying they represented about 12% of its revenue, nearly all in its U.S. package business.

Insourcing allows you to have more control over the tasks you have to do. It often involves adding more people to the company’s workforce or investing in training for people already in the company. It also requires new technologies that would otherwise have to be outsourced.

It is the opposite of outsourcing, where services or job functions are contracted from a third party, this is, a company or freelance outside of the organization.

The benefits outweigh the cons.

Amazon will have more control over processes and communication.

There is sensitive information that Amazon is giving out to third parties and these are trade secrets. Ending the partnership will go a long way to keeping data private.

By keeping things in-house, security and information leakage risks are reduced.

The exchange of new knowledge and social capital are positive impacts that insourcing can have. With insourcing strategies where people are trained and more synergies will occur, Amazon will revolutionize the concept of work.

I can envision the day when most of Amazon’s business isn’t outsourced. I mean sure, they cannot insource NFL streaming, but Amazon can produce the video instead of paying an outside contractor to do it.

After 2020, product quality is a real issue and Amazon taking back the initiative while going real lean with operations will ensure they beat quarterly earnings for the foreseeable future.

After hitting a short-term low of $160 last August, the stock has risen to all-time highs of $240 per share today.

I expect traders to continue to buy the dip in Amazon stock.

January 31, 2025 - Quote of the Day

Tech Letter

“Jeff Bezos is opening a retail store and owns a newspaper. Turns out everything we thought about the Internet is wrong.” - Co-Founder and CEO of Box Aaron Levie