“A.I. is probably the most important thing humanity has ever worked on.” – Said Alphabet CEO Sundar Pichai
Mad Hedge Technology Letter
February 25, 2022
Fiat Lux
Featured Trade:
(BULLISH TAILWINDS DEFEND THE NASDAQ)
($COMPQ)
The 6.5% reversal in the Nasdaq has been as V-shaped as can be.
Let me remind readers that this Ukraine war is just only one external factor the market is trying to stomach.
It’s not the only show in town.
As we zero in on the March Fed Meeting that comes into focus, I would argue unless new developments rear their ugly head, the Ukraine-Russia hot war is what it is which is mostly quantified.
The Nasdaq index was cheering the light sanctions as the West chose to avoid the nuclear option of removing Russia from accessing the SWIFT system of global bank payments.
Germany refuses to support this option as it would make it harder to pay the Russians for their oil and natural gas.
America also doesn’t support this because we have concerns that it would undermine the status of the U.S. dollar as the global reserve currency.
On more of a micro level, the Ukraine-Russia situation mostly affects energy and food prices which is a relative win for the Nasdaq index that is comprised of technology.
The Nasdaq has outperformed the Dow and S&P in this short quick spike to the upside contributing to my thesis of investors feeling more comfortable dollar-cost averaging into the best breed of tech than reaching for something more inferior.
And yes, I am saying the best companies currently listed in America are tech companies.
The geopolitical turmoil overshooting means that the Nasdaq index is now pricing in a 25-basis point cut instead of a 50-basis point cut.
Either case is still highly stimulatory, and the Fed is way behind the curve on inflation, and this does mean that inflation will stick around a lot longer than first anticipated.
According to the Federal Reserve Economic Data (FRED), the US Central Bank has actually been increasing asset purchases to their balance sheet most likely because they are becoming nervous about the transition from dovish to hawkish policy.
To add an inflationary pillow to the interest rate dilemma is irresponsible, but it shows investors how much pressure is on the Fed to get this right after waiting way too long to raise rates.
Ultimately, I believe the Fed is also concerned about the recent selloff and these asset purchases will ensure the market does not dip to painful levels.
Traders got wind of the green lighting of saving the stock market and piled into risk-on assets and this reversal does a lot to draw a line in the sand as to what level of volatility the Fed is able or willing to tolerate.
Boosting the balance sheet to new all-time highs means that the Fed will need to be careful because nobody really knows how much they can push the hawkishness with a $9 trillion debt load.
It seems counterintuitive to initiate new asset purchases at these levels, and this behavior implicitly admits that the Fed cares more about saving the stock market by reducing volatility than putting a kibosh on hyperinflation.
Basically, high inflation is here to stay.
The $9 trillion Central Bank balance sheet is 43% of the United States’ GDP and it appears that the Fed is taking the Japan approach to their balance sheet.
Of course, there is nothing illegal about government asset purchases, just look at Japan whose Central Bank owns about 15% of the Japanese stock market and the US Fed is using their playbook as they look to future decisions on monetary policy.
Will it get to that point of a Japanese monetary policy?
Desperate times call for desperate measures.
If the Fed governor Jerome Powell does go insane with liberal infusions of asset purchases, then readers can bet that tech stocks will be the first to benefit from fresh liquidity.
Does it appear that the U.S. Central Bank is trigger happy when any crisis comes along?
There are elements of truth to that, but we aren’t the ones making the decisions, and on the next mini dip, I would use that as a new entry point into the best American tech stocks on the planet such as the likes of Alphabet (GOOLG), Adobe (ADBE), Microsoft (MSFT), and Apple (AAPL).
Lastly, we are exploding from the embers of the omicron virus and that hasn’t gotten much play because of the war reports.
Once these pandemic headwinds are thrown to the side, the U.S. economy and technology companies will accelerate into the summer.
“The development of full artificial intelligence could spell the end of the human race.” – Said British Physicist Stephen Hawking
Mad Hedge Technology Letter
February 23, 2022
Fiat Lux
Featured Trade:
(5 TIPS TO HELP NAVIGATE THE TECH MARKET CORRECTION)
($COMPQ)
The Nasdaq technology index has been on a bull run for the ages.
You didn’t think it was going to last forever, did you?
In the past 10 years, we’ve only had three little blips, one in 2019 from the temper tantrum, then the 2020 pandemic selloff, and now the 2022 inflation problem.
It’s more or less been strong performance aside from those quick corrections where the Nasdaq bounced back even stronger.
The truth is that meaningful corrections don’t happen that often and every time one has occurred, it’s been a great buying opportunity.
I know it sounds scary in the face of red drowning out your screen, but the silver lining is that this will give readers a chance to grab high quality stocks that are rarely, if at all, on sale.
Here are a few tips on how to navigate a tech market correction.
- Put Market Corrections in Context
Since 1928, a correction of at least 10% has happened about once every 19 months – not that often. Of the 27 corrections since World War II, the index has experienced an average decline of 13.7%.
This highlights the simple truth that investing is not a contest of who can dump stocks as fast as possible.
If you’re convinced a sell-off is on the horizon, consider making the following changes.
- Take Profits
Sell stocks in your portfolio that you think have peaked.
Alternatively, you may want to establish a selling strategy that dictates when you sell stocks and remove any emotion from the decision.
This type of strategy is a method of managing stress and you will avoid misusing that fat finger to get rid of your best assets.
- Focus on Asset Allocation
Preside over a healthy mix of different types of investments that will hold their value until you can jump back into tech stocks.
Don’t put all your money into Facebook (FB) and feel wounded after it drops 25% after their business model collapses (which is essentially what just happened.)
Rarely will everything go down all at once.
The tech sector usually experiences more downside in a correction than others due to their high growth nature.
This is when dividend-paying stocks start to outperform and a huge rotation rapidly takes place.
- Smarten Up by Placing Limit Orders
It is essential to always place limit orders and not market orders. With a limit order, you specify the price you want to buy or sell at, and the trade is only executed at that price or better.
Meanwhile, opting for a market order means your trade is at the whim of the market. The final filled order could be a few percentage points of where you expected it.
This nasty surprise is easy to avoid.
- Don’t Lose Sight of Your Ultimate Goal
Even if you’re a buy-and-hold investor, you’ll eventually want to sell some of your investments.
Minimizing risks is the name of the game and most investors have a number in mind at the end of the day.
This number is complemented by a timeline; don’t lose sight of the path towards that, and the process needed to achieve that final number.
Markets almost never sell off by 20% and many of these market corrections are great chances to get into the best of tech.
Let’s be honest, tech has been very expensive the last few years and to get a great company like Google, Apple, or Microsoft on discount is something that people pray for.
The tech market has always recovered from its short- and longer-term market dips and this correction won’t be any different.
“AI doesn’t have to be evil to destroy humanity – if AI has a goal and humanity just happens to come in the way, it will destroy humanity as a matter of course without even thinking about it, no hard feelings.” – Said Founder and CEO of Tesla Elon Musk
Mad Hedge Technology Letter
February 18, 2022
Fiat Lux
Featured Trade:
(AVOID ARKK)
(ARKK), (ARKG), (ARKX)
With a reported net worth of a few hundred million dollars, Ark Invests CEO Cathie Wood laid an egg in her interview yesterday defending the company’s lousy recent performance.
It wasn’t so much that tech has sold off and especially growth stocks have bore the brunt of the carnage, but it was her logic behind her answers that raises more questions than answers.
Doing a deep drive into her array of ETFs, there are some headscratchers.
For example, in her ARKX Space Exploration and Innovation ETF (ARKX), why is her 5th biggest holding a Japanese construction company that specializes in making excavators Komatsu?
Her ETFs are full of these stocks that shouldn’t be there and she continues to bang on the drum about her portfolio possessing superior innovation.
Her second largest holding in this same ETF is a 3D printing ETF (PRNT) which also is illogical and has nothing to do with space exploration.
In her ARK Genomic Fund ETF (ARKG) her second largest position is Teladoc (TDOC) which provides remote doctor services through an app.
TDOC has nothing to do with genomics whatsoever.
Her flagship fund ARK Innovation ETF (ARKK) fund is down 60% in the past 365 years and it appears as if the pain is just starting, with huge drawdowns in many of her core holdings.
In the interview, she also gave some bizarre answers.
She reasoned to the viewer that the reason her team avoided Moderna (MRNA) is because the valuation is too high.
This is at the same time she completely ignores valuation for “innovation” stocks that aren’t interested in turning a profit because they are too “innovative.”
A company like TDOC has an EPS of -$5.5 and many of her key holdings are big loss makers which in the era of Central Bank hawkishness is a death knell.
Some of her other key holdings like Roku (ROKU) are down 25% just today and down 77% in the last 365 days.
TDOC is also down 77% in the last 365 days and 7% just today.
I mean for a net worth of a few hundred million dollars, surely, performance could be a little better, right?
What Cathy Wood misses completely is that being in the stock market is about the right and wrong timing which she behaves like it doesn’t exist because her time horizon is forever.
She likes to say “innovation is on sale,” but I would argue, quality is on sale and readers should migrate to higher ground to the likes of Amazon, Google, Apple, and Microsoft.
Wood's response was that other people “aren’t doing the research” which I find to be a ridiculous claim in itself.
In another absolute shocker, she played down inflation as something that has been more or less contained and will work itself through.
Then she highlighted all the “deflationary forces” as the reasons why inflation will be tamed which seems highly unlikely.
She plain out avoided many of the hard questions because she simply had no good response.
She stuck with the marketing pamphlet as if that was all she knew.
Wood also completely ignored anything related to tactical and active portfolio management and her plan is pretty much to stick with what she has even if there are 99% selloffs or drastic shifts in market conditions.
ROKU and TDOC are down 77% and she repeats the same general phrases as if we are in a bull market.
Readers wants to know what the next step is and how to strategically navigate through this bout of high volatility.
To shame the market and blame others on not “doing the research” is quite tone deaf and I could never recommend Cathy Wood and her ARKK fund to anyone.
To give her credit, she got the Tesla (TSLA) call spot on and crushed that one, but the real stock market people know that this industry is a what have you done for me lately industry and only when the tide goes out, we see who’s swimming naked.
“My goal wasn't to make a ton of money. It was to build good computers.” – Said Co-Founder of Apple Steve Wozniak
