“We also welcome any regulation that helps the marketplace not be a race to the bottom.” – Said CEO of Microsoft Satya Nadella
Mad Hedge Technology Letter
March 30, 2022
Fiat Lux
Featured Trade:
(HITTING THE LOTTERY WITH MEME MANIA)
(GME), (AMC), (HYMC)
Meme mania is back and warping the equity markets – many thought they were left for dead.
They have come back in the past week as GameStop (GME) and AMC (AMC) shares have doubled.
The doubling isn’t just because of the extremely oversold nature of the stock market.
It’s not only that.
Even more critical, meme companies are finally embracing who they are – highly speculative in nature and presenting it as a positive to their investor base.
Management has gotten the memo and is pushing the boundaries yet again by stirring up the pot.
Readers with strong stomachs should only consider GME and AMC if they are willing to lose 100% of their principal because these stocks are in no way long-term buy and hold material.
Many traders have already gotten rich by catching parabolic moves, and management’s behavior signals there will be more to come from these highly volatile stocks.
Earlier this month AMC announced it was buying a stake in gold and silver miner Hycroft Mining Holding Corp (HYMC).
Acquiring a major stake in a tiny gold and silver miner that has been on shaky financial ground from a distance appears somewhat bizarre.
CEO Adam Aron is now starting to think more outside the box and traversing industries could play to their alternative audience.
Aron doesn’t need to play to institutional money since it was them that created high amounts of short interest in the stock.
Retail traders are the target audience and third-party external M&A announcements going forward where AMC can reach for the stars could whip up this base of investors.
They are taking over a highly dysfunctional miner with past management problems.
Now Aron views this company as an upstart minnow waiting for a turnaround story at a time when commodities are red hot.
It’s yet to be seen whether this type of move will impact the narrative of AMC but getting AMC out of the movie theatre business should be paramount.
Netflix has effectively killed the movie theatre business during covid and getting into commodities in a high inflationary environment is more sensible.
GME CEO Billionaire Ryan Cohen's investment company bought 100,000 shares of GameStop Corp taking Cohen's stake marginally higher to 11.9%, with the total number of shares owned at 9.1 million.
An oversized reason for the spiking shares is that there is still loads of short interest in these stocks.
Institutional money is still betting on big down moves and when the reverse happens, they must buy back the stock at higher prices to close positions which drives the stock even higher.
Cohen is also hoping to diversify GME’s business from a retail video game store.
He co-founded online pet products retailer Chewy and earlier this month said he now owns nearly 10% of Bed Bath & Beyond and wants the home goods retailer to explore alternatives including a full sale of the company.
He also plans to modernize GMEs business by building a NFT marketplace.
The management at these companies has realized that they can’t stand pat with the current businesses they overlook because they are outdated and lack sustainability.
The spiking stock price has offered them financial gunpowder to go after industries they never even thought about before as well as giving them more financial slack.
Upgrading their business model could go a long way to suppressing volatility in these stocks and making them into appealing long-term buy and hold companies.
They are a long way off from that today, but everyone needs to start somewhere.
“When you give everyone a voice and give people power, the system usually ends up in a really good place. So, what we view our role as, is giving people that power.” – Said Co-Founder and CEO of Facebook Mark Zuckerberg
Mad Hedge Technology Letter
March 28, 2022
Fiat Lux
Featured Trade:
(THE TECH PANACEA TO LOGISTICS)
(LSTR), (JBHT), (ODFL), (KNX), (CVLG)
Sure, technology is advancing at a rapid clip, many of us try to harness it for the better as well as make a little coin from it.
A new tailwind is arriving just at a time when investors have been sick and tired of the barrage of inflation news.
Honestly, I am sick of it too.
Even if oil somehow goes to $300 per barrel, which it won’t, but just visualize that it does: automation will bail out the logistic industry.
This is what we have been waiting for, and it’s coming down the pipeline whether we are ready for it or not.
Self-driving technology is almost a generation old and yes, there have been massive improvements and the part of the world this will first filter down to isn’t individuals, but commerce.
Logistic companies are chomping at the bit to integrate this technology into long-haul transport routes.
We are just about there, as the dearth of truck drivers in the United States has slowed to a crawl.
Apparently, most don’t like to sit and drive all day!
It’s also not a secret that many of the employed truck drivers are not Americans; visa issuance was almost entirely halted for 2 years during the health situation, and these workers must be coaxed into immigrating in order to truck drive from places as far as Uzbekistan and Honduras.
On arrival, salaries are dreamy, with starting pay up to $70,000 per year and closer to $100,000 per year for experienced drivers.
Yet, there is still a massive shortage of drivers, much like construction workers, today.
Well, that’s all about to change because many parts of the United States won’t need that long-haul driver anymore to shuttle around goods.
Automation is transforming the trucking industry as self-driving trucks are already on America's highways, currently in the testing phase, as a new study warns up to a half-million jobs are at risk of being displaced by robots.
The integration of automation in long-haul trucking could replace 97% of human truck drivers, the equivalent of approximately 550,000 jobs.
Researchers developed several automated trucking deployment scenarios, including deployment in southern states, deployment for journeys more than 500 miles, and widespread deployment across the country.
This study was the first to combine a geospatial analysis based on shipment data with explicit consideration of the specific capabilities of automation and how those might evolve over time.
Depending on the scenario, they found the rollout of automation may have up to a 94% impact on long-haul operator hours, equivalent to up to 550,000 jobs that could be displaced.
Researchers received feedback from trucking companies, logistical experts, and tractor-trailer operators to develop a roadmap for the automation rollout within the trucking industry.
At the bare minimum, the highway part of the automation is solved, allowing technology to solve other parts of the logistical conundrum.
Long haul is first and foremost the easiest part of the equation and I am talking about those large stretches of hundreds of miles that require trucks to merely drive in a straight line.
Certainly, the “last mile” challenge is a whole different animal with navigating through narrow city streets that include one-way streets much harder to just program up in software.
Trucks move 70% of U.S. freight in weight, and labor and fuel costs pressure logistics companies' margins, forcing them to raise shipping rates or face margin compression.
The current dilemma of astronomical oil prices is forcing logistic companies to make some real headway into this much-awaited technology.
Putting the kibosh on costs is sometimes impossible to do, but with this shift on the horizon, logistic companies are about to get a lot more profitable very quickly.
Think about it: truck drivers get tired, perform worse than automated technology, and eventually want to unionize.
Getting rid of the human will result in cost savings, and no need to worry about the immigration process that currently has severe backlogs of over one year because of the Covid knock-on effect.
Eventually, Americans will be able to receive their Amazon package for cheaper in the future with the logistic companies able to pass on some of the savings to the end-user.
Win-win situations are hard to come by in this day and age, but this is definitely one of them.
Stocks in this space poised to win from this new technology are Landstar System (LSTR), J.B. Hunt Transport (JBHT), Old Dominion Freight Line (ODFL), Knight-Swift Transportation (KNX), and Covenant Logistics Group (CVLG).
“My aim is to develop affectionate robots that can make people smile.” – Said CEO of Softbank Masayoshi Son
Mad Hedge Technology Letter
March 25, 2022
Fiat Lux
Featured Trade:
(THE DUMPSTER FIRE SUB-SECTOR OF TECH)
(SSYS), (DDD), (PRLB)
Avoid 3D printing stocks.
It’s not because I hate these companies, but when I delve beneath the surface of these business models, they just aren’t good enough.
3D printing is a great phenomenon, but so was the digital handheld pet Tamagotchi invented by Japanese company Bandai in 1996.
Tamagotchis only went so far, and so will 3D printing.
Take for instance, in just a decade, 3D-printed guns have come a long way from a fully functional 3D-printable semiautomatic pistol carbine entirely printed at home to what now appears to be a rocket launcher-like device.
Does that mean that the U.S. military will start manufacturing Blackhawk helicopters and industrial-grade surface-to-air missile weapons on a 3D printer?
Hell no.
The fact is that for the crème of the crop products, the ones that bring in the revenue that make your eyes big, manufacturers aren’t going to choose a 3D printer to make these products.
If 3D printing isn’t used for these premium products, it means that building an accelerated revenue model will be almost impossible.
Take for instance automobiles, they aren’t a subscription-based business, but car companies scale globally and to all parts of the globe.
I can’t think of one country that doesn’t need cars as a main input in their domestic economy apart from possibly Papa New Guinea.
A classic car dealership might have a 3D printer to replace a few cosmetic parts and if the parts squeak, it's either that part or nothing as there are no more spare parts.
For high quality German cars, drivers would need to wait for the specific part from the specific supplier.
Car manufacturers have high standards, car parts have specific requirements concerning strength, fatigue, heat, fire, color, finish level, recycling, the classic parts are rather cheap to make for cars that sell in high volume, car parts are in general not designed to make with a 3D printer.
Good luck if you’re waiting around for an entire car to be printed, because it will probably never happen.
Most parts in cars need to be strong, lightweight, heat resistant, have a fine finish.
They are often quite big it would be unfeasible to have a 3D printer the size of a 500 sq foot room.
3D printers that size also scale poorly.
With all this being said, let’s take a peak at the financials.
One of the top 3D printing companies Stratasys Ltd. (SSYS) achieved $663 million of annual revenue in 2018 and fast forward to 2021, they decelerated to $607 million.
Not only is revenue decelerating, but they don’t turn a profit.
SSYS lost $62 million in 2021 and they have lost money for the past 4 years.
Let’s find another example in 3D Systems Corporation (DDD) headquartered in Rock Hill, South Carolina.
In 2018, they achieved $691 million of annual revenue and continued to decelerate and earn $615 million in revenue in 2021.
Essentially, some of the largest 3D printing stocks have topped out at a sub-$700 million per year clip and are going in the opposite direction.
Loss-making and revenue deceleration are the two characteristics that investors hate most.
One of the only 3D printing companies to grow revenue in the past 4 years was Proto Labs, Inc. (PRLB).
In 2018, PRLB achieved annual revenue of $445 million and surged ahead to make $488 million in revenue in 2021.
These growth numbers are paltry relative to any other tech sub-sector.
In short, these companies have little access to big revenue-making opportunities, and lucrative industries don’t view them as high quality enough to mass produce anything of real value.
Decelerating revenue, decelerating EPS, and unprofitability are all deal breakers.
Avoid 3D printing stocks like the plague.
“I couldn't imagine a more incompetent politician than myself.” – Said Co-Founder and Co-CEO of Salesforce
