Mad Hedge Technology Letter
June 13, 2022
Fiat Lux
Featured Trade:
(INNOVATION IS MISSING)
(AAPL)
There is a big difference in being led by Steve Jobs, and now Apple is showing how much they miss him.
Current Apple CEO Tim Cook was never the innovative genius Jobs became.
Cook was just good at getting Chinese factory workers to finish the latest iPhones and nothing more.
The company hasn’t revealed a “killer app” or a new earth-shattering technology since the Jobs’ iPhone came out.
Cook has used his tenure at Apple to milk profits from the Apple store, iterate on the iPhone, and make sure nothing breaks inside the company.
I would consider there's nothing he has done in a different direction and he has just taken what was already built and then optimized it for profits.
That’s great until it’s not.
It’s mid-way through 2022 and next month will mark exactly 15 years since the first iPhone came out, and the most exciting update from the latest Apple developers conference to the next iPhone is a customizable lock screen.
That’s where we are at with Tim Cook – diminishing returns from technological innovation.
The lack of innovation will start to turn into a massive cancer for Apple because they won’t be able to justify charging $1,000 for a smartphone with no improvements.
Might as well just stick with the one you have and update the battery or downgrade to something similar.
The lack of innovation also allows Android phones to encroach on Apple’s moat.
That inflection point isn’t far off.
The other groundbreaking update is the ability to unsend iMessages.
This unimpressive update really is yesteryears technology, and the question should be asked to as why this wasn’t already available.
The next update is the function of scheduling emails for the future.
This is hardly an innovative feature, and this technology has been around for quite a long time.
The biggest headscratcher Cook delivered to Apple investors was Apple’s foray into short-term loans in Apple Wallet.
This year, Apple introduced a buy now, pay later feature called Apple Pay Later.
Apple has been adamant about how it plans to stay above the low-level businesses.
They don’t want to go into the scummy type of cash flow projects like selling data and so on or pawnbroker (or do they?)
Well, this is almost the same level.
Buy now, pay later is akin to payday loans, but interest isn’t charged on these loans unless payments are late.
The exorbitant interest rates kick in and consumers will find themselves in big debts to Cook’s company.
They are now a de facto debt collector.
I never thought Apple would sink this low, which reflects the dearth of new revenue drivers.
The other updates also smack of desperation, like different ways to control notifications and “use your iPhone as a webcam.”
More surveillance technology and nitpicking in controls are not what I define as top-level innovation.
Investors must question what Cook is really doing wrong.
Cook has essentially had 15 years to bring to market the next killer product and surely, he’s had teams in the office to figure something out.
Perhaps he didn’t want to spend the CAPEX.
Nothing has materialized and Apple consumers get new lock screens and updated notification control.
I would encourage consumers to take advantage of the diversity and superior price points of PCs and Android smartphones.
The stock is down almost 30% from its high and if oil is elevated which exerts pressure on high interest rate expectations, I can’t imagine there is a ton of upside in the stock short-term.
“Things don't have to change the world to be important.” – Said Co-Founder of Apple Steve Jobs
Mad Hedge Technology Letter
June 10, 2022
Fiat Lux
Featured Trade:
(STOCKBROKERS SIGNALING BIG CHANGES AHEAD)
(VIRT), (HOOD), (CITADEL)
Virtu Financial, Inc. (VIRT), Robinhood Markets, Inc. (HOOD), and Citadel Securities will need to change business models after the SEC plans unprecedented market changes so that high-frequency trading companies cannot front-run retail orders anymore.
Citadel is the only one of these 3 that is not public and for the other 2, heavy short interest will attract these stock names.
It’s about time.
The regulation revolves around retail investors finally getting a fair order for their market stock orders.
Market orders aren’t specified at a certain price and because of that, companies front-run these orders and skim a few pennies off their orders, before finally selling them to the end retail investor.
Crazily enough, this has been legal for many years, which is why the CEO of Citadel Ken Griffin can buy a new $100 million property every year.
Under current rules, brokers must perform “reasonable diligence” to determine the likely best market for executing a trade.
Robinhood Markets essentially sell historical retail trade data to Citadel and Virtu, better known as Payment for order flow (PFOF).
This is the juice that these HFT firms use to front-run the retail traders by deploying their professional algorithms.
Nobody in the trading community thought the SEC would get their heads around and do something about this egregious loophole in trading.
I need to give credit where credit is due, and diverting market trades into an auction where the actual best price is procured for the retail trader finally gives power back to the little man after getting fleeced for so many years.
CEO of Virtu Douglas Cifu and Ken Griffin must now expose their capital to risk if they wish to make money in markets.
What a thought!
The zero-risk era of front-running trading is coming to a close meaning companies like Robinhood are worth zero since their profits come from PFOF.
HOOD is worth zero because they don’t charge traders for trading fees because they package all revenue in the form of PFOF.
If that is now worth zero, then do the math: the company is also worth nothing.
This would also take down one of the biggest crypto-based companies whose claim to fame was being the rock-solid broker for the crypto traders.
Well, it’s hard to make money when your customer goes bankrupt, which is exactly what happened to crypto traders since November 2021.
Now, imagine charging for trades and competing with real brokers in the vanilla game of stock broking and the future looks quite daunting.
On the plus side, VIRT and Citadel can roll their mass profits into risk-based trading strategies. However, that could lose money, which they aren’t used to.
This is still only a proposal and not legislation yet, so the dust has yet to settle.
However, if this does come to pass, expect trading commissions to come back in full and no more free trading, because stockbrokers need some way to make money if they can’t sell your trading data.
The gamification of trading by HOOD has alerted the SEC to tighten down the hatches; and this has been coming for quite a time.
The SEC has proven in the past that when there is a red target on one’s back, they usually don’t just give a pass.
As a response to the SEC proposal, HFT brokers are pedal to the metal with lobbyists and government pressure to block this proposal.
If this proposal goes through in some potent form, expect HOOD and VIRT to be down big and for Ken Griffin to purchase less $100 million mansions.
“The only constant in the technology industry is change.” – Said Founder and CEO of Salesforce Marc Benioff
Mad Hedge Technology Letter
June 8, 2022
Fiat Lux
Featured Trade:
(THE ULTIMATUM)
(TSLA), (TWTR)
Founder and CEO of Tesla (TSLA) Elon Musk is clearly either angling for a cheaper purchase price for Twitter (TWTR) or is ready to walk away from the deal.
Even if he does walk away from the deal, he was able to sell Tesla shares at elevated prices, then rolling the capital into Twitter shares, and that in itself is worth more than $1 billion.
If you haven’t kept up with what’s happening, Tesla shares have fallen quite substantially, about 35% to be precise, since Musk unloaded those shares.
Around 35% of the $8.5 billion in Tesla shares by Musk would amount to around $3 billion and if he is forced to pay that $1 billion walkaway fee then he would still gain $2 billion net from his antics.
He is literally playing with house money at this point.
Aside from the actual deal, the global exposure of this deal to his own brand is worth over $15 billion in itself as everyone has been zoned in on this drama because of simple palace intrigue.
The $1 billion he would pay to walk away would also drum up another tsunami of media exposure for Tesla, Space X, Starlink, and Musk.
Musk treating this as his own Johnny Depp versus Amber Heard case is stimulating the media algorithms to push his name into every corner of the global media world so who cares about the $1 billion.
In short, Musk is already a winner, and if he can parlay this bot angle into a 30% discount on Twitter then that would be some epic showmanship while living on the edge.
He would be really making his cake and eating it too.
Musk has also become highly sensitive to how the social media world operates in which usually the loudest and most frequent poster usually is heard first and clearest.
He’s taken that strategy by posting on Twitter relentlessly and often about highly controversial content just so the media talk about him.
He’s not far away from every 24-hour news cycle at this point.
The Twitter sale agreement does allow Musk to get out of the deal if Twitter causes a “material adverse effect,” defined as a change that negatively affects Twitter’s business or financial conditions.
That's one reason Musk may be focusing on the spam bot problem — though he waived many of his rights to peek under Twitter's hood when he signed the deal.
Bots are basically programs that post automated tweets but have been systematically weaponized in the era of the internet.
Musk says it’s also a problem for advertisers who take out ads on the platform based on how many real people they expect to reach.
Musk wants to be compensated by the Twitter “bot” problem with either a lower Twitter price or the opportunity to walk away for free.
If the deal doesn’t go through, there is a high chance that Twitter shareholders sue the Twitter board for going against their fiduciary duty.
While I can easily see the Twitter board suing Musk while he countersues if he decides to walk away and doesn’t pay the $1 billion termination fee.
It would be a lawyer’s dream and a businessman can afford this if you’re the richest one in the world.
The market sensing Musk might not go through with the deal means that Tesla shares are free to rock higher and Twitter shares could sink.
Musk’s Twitter circus doesn’t affect Tesla’s real business itself.
Twitter has many internal problems along with terrible management and Musk has done everything he can to expose its hypocrisy.
If this deal completely turns sour, expect Twitter shares to tank big time, meaning like a halving.
Personally, I wouldn’t touch Twitter shares with a 10-foot pole.
“The car business is hell,” said founder Elon Musk, when announcing he would sleep in the Fremont Tesla factory until Model S production reached 2,500 units a week.
Mad Hedge Technology Letter
June 6, 2022
Fiat Lux
Featured Trade:
(A KEY CLUE TO THE FUTURE OF META)
(FB), (COMPQ)
