Mad Hedge Technology Letter
June 11, 2021
Fiat Lux
Featured Trade:
(DON’T FALL INTO THE LORDSTOWN TRAP)
(RIDE), (NKLA), (VLDR), (TSLA)
Lordstown Motors Inc. (RIDE), an EV startup that recently went public, lacks the money to build a debut pickup truck and might go out of business if funding dries up in the next 12 months.
That’s what you get if you go for the “cheap” tech that offers some pipedream of fantasy managed by charlatans.
The company believes that its current level of cash and cash equivalents are not sufficient to complete the development of its electric vehicles and launch the Endurance pickup.
Investors should have seen this coming from a million miles away.
Lordstown went public through a SPAC and numerous have gone through upheaval as analysts critique their business practices.
Some, like Nikola Corp. (NKLA) and Velodyne Lidar Inc. (VLDR), have had their founders ousted.
Lordstown now has balance sheet problems.
In the filing, Lordstown said it has approximately $587 million in cash and an accumulated deficit of $259.7 million as of March 31, after reporting a first-quarter net loss of $125.2 million.
Going public gifted RIDE $675 million, but the company has burned through that quickly.
Let’s run down the list of red flags I have seen pop up at this supposed EV producer.
The company has no revenue and no sellable product, and they have most likely misled investors on both its demand and production capabilities.
The company has consistently pointed to its book of 100,000 pre-orders as proof of insatiable demand for its proposed EV truck.
Lordstown recently announced a 14,000-truck deal from E Squared Energy, supposedly representing $735 million in sales.
But E Squared is based out of a small residential apartment in Texas that doesn’t operate a vehicle fleet.
Another 1,000-truck, $52.5 million order comes from a 2-person startup that operates out of a Regus virtual office with a mailing address at a UPS Store.
Lordstown has thrived off the notion that the faster the pre-orders arrive, the greater investors’ confidence would be in the company and the faster funds would flow in and subsequently lift shares for long enough that management can cash out.
What management has failed to tell us is that these pre-orders are non-binding letters of intent, require $0 as a reservation payment, do not require an actual purchase.
Do I have other gripes about the company?
Yes.
Despite claims that battery packs would be manufactured in-house, the product is definitely not.
Former employees revealed that the company has completed none of its needed testing or validation, including cold-weather testing, durability testing, and Federal Motor Vehicle Safety Standards (FMVSS) testing required by the NHTSA.
Lordstown only went public in October 2020, but in that brief time, executives and directors have unloaded around $28 million in stock.
It seems awfully plausible that management is unloading stock because they think the company will ultimately fail and the stock will go to 0.
The pre-orders representing over $5 billion in future revenue couldn’t be further from the truth.
So basically this is an EV company out of the mold of Nikola that has no product but tout some marketing gimmicks as empirical evidence that should nudge investors to believe they are on the brink of full-out mass production.
It’s possible no company has ever done just on the basis of hyping up their non-binding, zero dollars down pre-orders and RIDE is still living off of these fumes.
Ultimately, the company isn’t even close to producing a car and any capital thrown at it is dead money that will disappear into a black hole.
It’s plausible that this is a sign of froth when marginal tech firms like RIDE can pull off their act for this long.
It almost makes sense as the market-altering retail army funnels capital to spin into meme trades and make a mockery of the real traders who try to treat this seriously let alone value investors.
I doubt that Reddit’s retail army will save RIDE since the word is out of their business practices.
It’s not too far-flung to consider that the same mysticism brought to the EV industry by Elon Musk is being deployed nefariously to excite the incremental investor that RIDE is about to strike it rich with the “next Tesla.”
The truth is that there is only one Tesla and there will be only one Tesla because they thread the needle through the hole popularizing the EV when there was no competition.
And now the conglomerates have closed that gap and are chasing after Tesla, meaning it’s impossible that there could even be another Tesla in 2021.
And by competition, I first mean GM, then the tier after that of Toyota, Ford, and European players who allowed Tesla to take the lead.
I would say that any reader mustn’t believe that charlatans masquerading as the “next Elon Musk” could be just as good as the real thing.
Take these words with a grain of salt.
Capital should not be considered in any of these unless there’s a real product and proof of product success.
And I am not even talking about accelerated earnings reports yet, or consistent outperformance, this is way off of that.
There are some instances where a premium is paid for potential, especially if it will shift the paradigm in the industry, but if it smells like a rat, the rat should prove he isn’t a rat and not vice-versa.
“I think frugality drives innovation, just like other constraints do. One of the only ways to get out of a tight box is to invent your way out.” – Said Founder of Amazon Jeff Bezos
Mad Hedge Technology Letter
June 9, 2021
Fiat Lux
Featured Trade:
(APPLE RAMPS UP PRODUCT DEVELOPMENT)
(AAPL), (CVS), (AMZN), (FB)
Last year was The Identifier for Advertisers (IDFA), a random device identifier assigned by Apple to a user’s device.
The IDFA is used for tracking and identifying a user (without revealing personal information).
And now – it’s the IP address.
Apple will start redirecting web traffic through two separate servers in order to conceal a user’s IP address.
This product will be known as Private Relay and will be part of a new service called iCloud Plus.
This could be one way to prevent fingerprinting, a banned identification method Apple has yet to enforce against on iOS.
Although IP addresses aren’t the only element used in fingerprinting, they are one of the critical parts.
Apple says the feature will ensure that all traffic leaving devices is encrypted so that no one can read or intercept it.
The news comes one year after Apple upended the personal data status quo, when it announced plans for the Private Relay, along with a smorgasbord of supplemental privacy-based announcements.
Apple has made privacy one of its hallmarks as it drives innovation into the future.
Apple also has new privacy system controls on deck that will hide a user’s IP address from third-party trackers within Safari and on the Mail app.
Now, a person’s IP address will be hidden so that email senders can't connect the account to other online activity or to someone’s location.
Senders will also be prevented from seeing whether the receiver has opened an email.
Apple will also obscure IP addresses on Safari, which already blocks third-party cookies by default with Intelligent Tracking Prevention.
This layers well with the new Safari Privacy Report, where people will be able to analyze which trackers are prevented from profiling them.
So Unified ID 2.0 initiative and any email-based identity solution would be able to circumvent these privacy tools, right?
Wrong.
Apple is planning to launch a default feature for Mail, Safari and iCloud called Hide My Mail that allows people to create unique random email addresses that forward to their personal inbox.
Users can set up as many email addresses as they want and delete them at any time.
So what does this mean for the tech world?
Ad distributors like Twitter and Facebook must be tearing their hair out that they won’t be able to track users that use Apple products.
Apple is also making a more concerted effort to block other time-tested method of extracting personal data.
And I will tell you, it’s only going to get harder for Facebook.
It’s clear that Apple is moving into Facebook territory with the spawning of products that look similar to Facebook features as well.
IMessage is freshening up too, with new features that make it easier to share web links, photos, Apple Music tracks, and Apple News articles with your contacts.
CEO of Apple Tim Cook is known to personally dislike the way Facebook does business and it appears many of the new features are directly undermining the existence of Facebook.
It was only a matter of time that big tech behemoths start meaningfully stepping on each other’s toes.
There’s only so much revenue out there for everyone and this proves it.
Cook has piled onto the data privacy narrative and finally making it a reality while many tech companies are just banging the drum about it but still barely moving a finger about it.
We are entering into a phase of technology where firms late on the privacy pivot could fall behind dramatically and even though Facebook is incredibly profitable, that doesn’t mean they always will be.
The health push also can’t go unnoticed.
A few years ago, Apple added a feature to the Apple Watch to call for help if you fall.
Now, the Health app will quantify the chances of you falling.
The company said these quantifiable predictions are scientifically validated, and Apple will send an alert to warn you of a forecasted fall.
The Apple Health App will have more functionality in the future, and they are adding a way to share health data with close family.
This has been the trend for other big tech companies and the news is on the heels of Amazon’s announcement that they are going full steam into the drug prescription business which is bad news for companies like Walgreens and CVS.
We are seeing big tech companies branch out like no other and Apple is on the front foot while Facebook is still ringfenced and only saved by the growth of Instagram.
As we know, these social platforms are an ephemeral phenomenon before, sometimes glitzier and trendier catches fire.
Apple appears to be breaking out in the range and any pullback to $125 should be bought.
This remains one of the preeminent tech companies and the pace of product development, although not as stunning as Amazon, is right up there and outpaces Facebook by a mile.
Every serious tech investor should buy and hold Apple long-term, and we are on the cusp of a buy-back cycle that should help the stock’s price action.
“I force people to have coffee with me, just because I don't trust that a friendship can be maintained without any other senses besides a computer or cellphone screen.” – Said American Actor John Cusack
Mad Hedge Technology Letter
June 7, 2021
Fiat Lux
Featured Trade:
(THE CIRCUSIFICATION OF TEHC STOCKS)
(TSLA), (GME), (RH), (BTC), (ETH)
The younger U.S. generations went from almost not knowing what the stock market was to overnight dominance of it.
They now make the rules.
Millions of new brokerage accounts have been wielded since the start of the pandemic.
Trillions in value transferred from taxpayers and the Federal Reserve into brokerage accounts at Robinhood and Coinbase.
More dollar bills are funneled into these accounts with every paycheck.
The stock market and the generations above it are still trying to figure out what just happened.
Leverage is another thing this generation Googled and figured out how to harness too during the pandemic.
This generation is truly fearless, or they haven’t been trading long enough to understand what it feels like to lose all your money.
It doesn’t matter because the only thing that matters is what they pay attention to and what’s irrelevant.
If they choose to prop up a 10-word Elon Musk tweet into bulletproof trading strategies, how will you stop them?
If they want Gamestop (GME) to go from $17 before the pandemic to $270 today with even this morning trading in it up 10%, how do you stop something like this?
The answer is you can’t.
How do you convince newly minted investors that diversification makes sense when the first stock they ever bought, Tesla (TSLA), rose 800% while everything else barely moved?
Generations before what is going on now, investors held a series of adages near and dear to them.
Every generation puts its own spin on trading, but what we are witnessing today is that rules are not important anymore when the pace of technology changes every industry to the point that these industries are now unrecognizable.
The new rules mean there are no rules anymore and that’s the beauty or hideous side of investing now, whether you like it or not.
It used to be that “serious” investors religiously followed value investing, which was pioneered by Benjamin Graham and the U.S. emerged from the Great Depression, and his two seminal books were investment bibles.
1934’s Security Analysis and 1949’s The Intelligent Investor laid the groundwork for a generation of contrarian investors who eschewed macroeconomic trends and market patterns, and instead focused on a company’s fundamentals, looking for cheap stocks that they would hold for 20 or even 30 years.
Legends such as Irving Kahn, John Templeton, and Warren Buffett have made value investing synonymous with successful investing for decades.
Now these people who held up these books as bibles can’t understand markets.
They have seen bull and bear markets or all sorts, but nothing like this before.
We locked everyone in their homes for a year and gave them a virtual life to live on their screens.
Why should we be surprised if younger generations treat money and investments like tokens in a video game?
If you had opened your first brokerage account in the spring of 2020, you would most likely have opened it at Robinhood.
You downloaded an app, transferred $500 in from your couch, and pressed some buttons and looked at the screen with some digital numbers that said you had a nice profit.
With a Robinhood account, your first exposure to cryptocurrencies does not frame them as an unproven alternative to stocks. The two stand on equal footing.
This is radically different from the experience of the Gen X and boomer investors logging in through Schwab, Fidelity, or Vanguard to check their balances or download a statement.
What we are seeing is that a new generation is creating the new conventions of the investing landscape and views stocks and crypto coins as interchangeable with equal credibility.
Now every prominent news site is leading with crypto news more often than not and ad platforms like Twitter have said that crypto ads are their highest growth product.
This phenomenon is here to stay because the same will go for any young investor that opens up the incremental brokerage account to trade from their phone tomorrow and the next day after that.
These people are taking profits from Tesla and rolling them into trades like Dogecoin, Ethereum (ETH), and Bitcoin (BTC).
This behavior is starting to become normalized and positive liquidity event in alternative assets will spawn more volume trading in these very assets that were called as “toxic” and a “scam.”
The laughable thing is just one of the 48 U.S.-listed stocks in Berkshire Hathaway portfolio, consumer discretionary RH (RH), topped the price gains of Bitcoin over the past 12 months.
Therefore, don’t ask this generation about the annual average returns of the “safe” 60/40 stock-and-bond portfolios touted by planners and advisers.
Don’t ask this generation to read the Intelligent Investor because it’s outdated. Assets aren’t trading on fundamentals anymore and the Fed printing money like it's their job is fueling a massive tidal wave of new capital into crypto like it's not even funny.
It doesn’t make sense anymore to the Warren Buffets and Charles Munger.
When asked about Bitcoin directly at the Berkshire Hathaway's annual shareholders meeting earlier this month in Los Angeles, he said “I'm going to dodge that question.”
And now, it’s expanded into the exurbs to include blank-check companies, venture-backed startups, tradable bits of computer code, and investable software protocols.
Your father’s stock market is never coming back and the one from before the pandemic isn’t coming either.
The stock market is still one of the only games in town which makes it hard to avoid for any American who prioritizes wealth accumulation.
The pandemic leveled the playing field for crypto and they used that new oxygen to mint many new millionaires and billionaires who now harness capital that has the potential to be reinvested into the asset landscape.
If it’s turned into a 3-ring circus because of a fusional 1-off event, then better figure out how this new circus works earlier than later.
“Getting information off the Internet is like taking a drink from a fire hydrant.” – Said American Entrepreneur Mitch Kapor
Mad Hedge Technology Letter
June 4, 2021
Fiat Lux
Featured Trade:
(RIDING THE COATTAILS OF ELLIOT MANAGEMENT)
(DBX), (TWTR), (EBAY), (CRM), (BOX)