Mad Hedge Technology Letter
February 5, 2025
Fiat Lux
Featured Trade:
(AMAZON DOESN’T NEED WORKERS)
(AMZN), (AAPL)
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.
“I'd rather be optimistic and wrong than pessimistic and right.” – Said CEO of Twitter Elon Musk
Mad Hedge Technology Letter
February 3, 2025
Fiat Lux
Featured Trade:
(TARIFFS COME FOR TECH STOCKS)
(NVDA), (META)
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.
Mad Hedge Technology Letter
January 31, 2025
Fiat Lux
Featured Trade:
(AMAZON CUTS OFF THE OUTSIDE)
(AMZN), (UPS)
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 3rd 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.
“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
Mad Hedge Technology Letter
January 29, 2025
Fiat Lux
Featured Trade:
(DIGITAL MIGRATION HITS THE U.K.)
(SKY), (BBC), (TIKTOK), (GOOGL)
If you thought that the cord-cutting trend is just confined to the United States – it’s not.
It’s happening at breathtaking speed throughout the world.
The biggest English language media base after the United States is also experiencing a huge step forward in digital migration.
How do know that?
Take a look at their linear flagship media company Sky.
They are drowning financially and have taken the hacksaw out to cut in large chunks.
Sky is planning to cut about 2,000 jobs in the UK in 2025, as the media group moves towards more internet-based services. They fired 1,000 people last year. BBC is also going through a similar type of change.
It is understood a significant number will be engineers, as fewer people require satellite dishes to be installed at home.
Sky currently employs about 26,000 people in the UK.
Sky has been shifting its strategy since it was bought by the US media giant Comcast for more than £30bn in 2018.
The British broadcaster wants digital revenues - which accounted for 27% of its total last year - to pass 50% by 2030.
It comes as Sky News tries to reverse a slump in audience due to the plummeting content quality of legacy media stations.
This has forced many subscribers to ditch Sky and go with higher-quality content platforms and channels.
Sky is racking up losses which total in the 100’s of millions pounds PER YEAR, and the hard question of what is the point of paying these high-profile personalities and expensive international assignments when they just drive the audience away?
The same could be said about CNN’s decision to demote media activist Jim Acosta who was unceremoniously downgraded to CNNs worst time slot yesterday.
He resigned instead announcing his resignation on air and clearly couldn’t accept a lesser role at his company.
With the losses in revenue staggering, for some reason, US media giant Comcast guaranteed to maintain the funding commitments until 2028.
Then there is the intense question of whether there will be a Sky after 2028, because at that point, who will be left watching it?
Comcast has already taken an $8.6bn write-down on its investment in Sky.
Staff at Sky News are preparing to unionize in protest against pay and working conditions.
It is understood that a group of employees at the channel have held preliminary talks with the National Union of Journalists (NUJ) about joining the group.
Attempting to unionize will cause the acceleration of firings from legacy media, but it demonstrates the extreme level of desperation at these dinosaur channels.
The future of Sky News, which is led by veteran Murdoch executive David Rhodes, is likely to be on the agenda amid ongoing budget discussions between Sky and Comcast.
Part of the massive changes the world is grappling with is how this new digital media fits into how we live everyday life.
Instead of corporate entities giving us what they think is the “truth,” media has fractured off into individuals doing their own version of media.
Much of this new media is accessed for free on platforms that only require a free signup.
Is it almost impossible for corporate media to compete with free content, especially when corporate media is one of the lowest forms of quality content available to the public?
If X.com was still a private company, then that is the best social media stock available. TikTok is a private company owned by the Chinese. YouTube is one of the platforms I am talking about, but that is part of a bigger company in Google.
