“I would trade all of my technology for an afternoon with Socrates.” – Said Co-Founder of Apple Steve Jobs
Mad Hedge Technology Letter
August 19, 2020
Fiat Lux
Featured Trade:
(ROBINHOOD – TRADE WITH THE RICH AND GIVE TO THE POOR)
(TECH STOCKS)
In our world of the stock market, one of the big trends that are taking place is not only the digitization of the whole economy, but the secondary effect of a giant tsunami of day traders that are opening day trading accounts with their stimulus checks.
This is moving markets and we must take note!
One thing almost universally preventing day traders from day trading is that it’s a hard hobby — and make no mistake, that’s what it is — to combine with a 50-hour-a-week job or full-time studies.
With the real unemployment rate almost surpassing 20%, there are tens of millions of Americans sitting around doing nothing.
At the same time, many entertainment options revolving around communal gatherings are cancelled for the foreseeable future.
There is undeniable evidence that many of the newly minted day traders are simply frustrated sports gamblers seeking a new addiction.
All this fuss with the growth of apps that, like Robinhood, offer commission-free trading, making it seem all but painless to enter the market and join us professionals at riding this bucking bronco.
This confluence of factors creates a perfect storm for uninformed day trading and brazen risk trading.
Watching the markets on a day to day basis, I can vouch that there is some peculiar price action taking place.
One example: Stocks of companies that file for bankruptcy almost always plunge to near zero for the common-sense reason that they are worthless.
But shares in bankrupt car rental giant Hertz, which should be moribund, exploded from 56 cents per share to more than $5 this month, before falling to less than $2.
I welcome the added volume in the market place, and the increased liquidity means the chances of the market lurching higher increases too, which we have seen with the S&P 500 index reaching new all-time highs partly fueled by the day traders' willingness to dive head first into monopolistic tech stocks and even penny stocks like Hertz.
Also, remember that many of these fresh day traders are Millennials who have an inherent bias towards the tech sector because they literally grew up with it in the palms of their hands.
Studies have shown repeatedly that the typical investor had odds of 0.5% of consistently beating the market.
The increased knowledge of this fact is what has driven the widespread move over the past decade into index funds that replicate such things as the S&P 500.
Robinhood, the stock-trading platform that popularized free trades, grew its user base from 1 million users to over 13 million in just four years.
That explosion of new subscribers forced older online brokerages to offer free trades, destroying their business models and forcing them to consolidate or go extinct.
With no knowledge about financial markets, how are these new traders placing their capital?
Robinhood regularly updates its list of the 100 most popular stocks that Robinhood traders put their money in, which predictably include big tech companies like Amazon (AMZN), Microsoft (MSFT), and Google (GOOGL).
Crazy or not, this list is the rough guide to new traders on where to invest.
Peloton (PTON) is another tech stock that has made this crisis their heaven by frontrunning the shelter-at-home trend, selling a treadmill with a screen on it and hooking up subscribers to fitness classes.
Not a brilliant model, but it will do for now.
They are on the top 100 as well.
I was highly bearish on Peloton before the crisis, but the virus has pumped life into the business model that was marginal at best when the lack of differentiation didn’t allow investors to put a higher premium on this stock.
Other stocks like GoPro (GPRO), Fitbit (FIT), Lyft (LYFT), and Uber (UBER) are pegged as companies that aren’t popular in the data.
GoPro labored to expand beyond its core market of outdoor enthusiasts and failed to pull mainstream users away from increasingly powerful smartphone cameras. Fitbit handed over the low-end market to criminal organizations like Chinese Xiaomi and ceded the high-end market to premium smartwatch makers like Apple.
Google agreed to acquire Fitbit last year for $7.35 per share, but that deal is now being closely scrutinized by U.S. and EU regulators.
If the deal is killed, expect a massive sell-off in Fitbit.
Without Google, Fitbit would be in serious trouble: Its revenue fell 23% annually in the first half of 2020 and it remained deeply unprofitable. Fitbit's share of the wearables market also fell from 7.8% in 2018 to 4.7%
The popularity or unpopularity of these stocks directly correlates to additional volume spiking in these names.
There is no coincidence that these “popular” stocks are some of the market winners of the Covid era and it will continue that way until the next market-changing event hits.
Not only do I love investing in tech stock, but the silver-haired investor loves it; and now we have data points with convincing evidence that young people are pouring their savings into the U.S. tech sector.
At some point soon, Americans won’t be able to achieve a middle-class standard of life unless they are leveraged deeply into the tech sector via the stock market.
Imagine if that market crashes, and the pain it would incur. We would go from a rapidly shrinking middle class to no middle class in a blink of an eye.
Welcome to the high stakes world of 2020!
“Life's too short to hang out with people who aren't resourceful.” – Said Founder and CEO of Amazon Jeff Bezos
Mad Hedge Technology Letter
August 17, 2020
Fiat Lux
Featured Trade:
(U.S. STYMIES THE ADVANCEMENT OF FOREIGN BAD ACTORS)
(BABA), (AAPL), (IQ), (NFLX), (FB), (GOOGL), (AMZN)
Stay away from Chinese tech companies listed on the U.S. exchanges. I wouldn’t touch them with a 10-foot pole.
Not only are these firms unscrupulous, but the U.S. administration is specifically attacking them as a cornerstone campaign strategy as we close in on the November election.
The blitzkrieg has been increasing at a rapid clip with U.S. President Donald Trump banning social media asset TikTok and chat app WeChat.
Just in the last few hours, the U.S. administration has said they are also “looking at” going after Chinese eCommerce firm Alibaba (BABA) who is the Chinese Amazon.
If the trends continue, there could be no Chinese tech companies freely extracting American revenue by this November.
Things will only get worse.
No doubt the coronavirus fiasco has exacerbated tensions between the countries with both sides dealing with a plunging economy.
The only reason we do not hear about the depths of despair going on in the Chinese economy is because the media is suppressed there.
Chinese media is tightly controlled disabling any negative news that shines an unfavorable light on the Chinese communist party.
Then there is the immoral fraud aspect of Chinese tech companies as every mainland Chinese firm wishes to go public in New York because company financials are never audited, and they are immune from any criminal liability.
This is a recipe to enable reckless Chinese management who state opaque numbers in their financials in the hope that American investors will take the bait.
Another cheater has been unearthed by Wolfpack Research who along with Muddy Waters have made it their mission to root out the bad actors.
The supposed “Netflix (NFLX) of China” Chinese streaming service iQiyi (IQ) plunged in after-hours trade in the U.S. after it announced the Securities and Exchange Commission (SEC) has launched a probe into the company.
The case revolves around iQiyi falsifying their subscription numbers which everyone knows is the key to exhibiting growth in the company.
iQiyi said the SEC is “seeking the production of certain financial and operating records dating from January 1, 2018, as well as documents related to certain acquisitions and investments that were identified in a report issued by short-seller firm Wolfpack Research in April 2020.”
Wolfpack Research has accused iQiyi of inflating 2019 revenue by around 44%.
Wolfpack also said iQiyi artificially overexaggerated expenses among other data.
The SEC probe into iQiyi comes amid rising scrutiny on U.S.-listed Chinese companies following the Luckin Coffee debacle in which they committed the same act of falsifying numbers.
This copycat crime is clearly seen as a big winner in Mainland China encouraging a slew of companies to decide on the same strategy.
The Coffee company admitted to fabricating sales numbers for 2019. The company was subsequently delisted from the Nasdaq in June.
China and its tech firms are one of the few bipartisan issues with strong support from both sides of the aisle and I can only see the temperature in the kitchen getting hotter.
The side effect of purging the Chinese tech out of the U.S. is that it bolsters the investor case for American tech.
Not that they needed help in the first place.
If the government won’t allow foreign companies to compete with Silicon Valley, then the monopolies built by the likes of Apple (AAPL), Facebook (FB), Google (GOOGL), and Amazon (AMZN) will feel protected because of the government effectively widening their moats.
One might argue that the crimes these American companies have committed are just as bad as the Chinese firms, but they get a free pass for being American.
Remember this is the age of de-globalization with national governments protecting national companies and not the other way around.
Silicon Valley companies have tried to pervert the U.S. employment situation by maneuvering around U.S. nationals by applying for the foreign HB-1 visas in droves and underpaying mostly Chinese and Indian nationals to work for the likes of Google and Facebook.
We can’t say these Silicon Valley companies are saints. They certainly are not, but that doesn’t matter in today’s climate when government, billionaires, and tech moguls are assumed as scum from the get-go.
Then there is the personal data issue that can’t be said to be much better than what the Chinese companies are doing.
The double standard is not surprising, and a heavy dose of politics has been injected into the global tech ecosphere to the detriment of cross border trade.
In the fog of war, this is why I have largely focused on U.S. software companies with subscription revenue because it offers more visibility than an unstable revenue model like Uber or Lyft.
In any case, nobody can blame the U.S. government for going this route since, after all, Facebook, Google, Amazon, and Netflix are all banned in China as well.
You don’t see U.S. tech companies trading on the Shenzhen tech index for a reason and after this monster run-up from the March nadir, it’s obvious why Chinese tech firms want to keep that funnel to U.S. investor capital clear.
This series of events that effectively coddles American big tech will insulate them from any real share weakness. The trend is your friend and I am bullish on American big tech.
“I don't think of Apple as a stock. I think of it as our third business.” – Said Legendary U.S. Investor Warren Buffet
Mad Hedge Technology Letter
August 14, 2020
Fiat Lux
Featured Trade:
(BIG TECH AND THE FUTURE OF COLLEGE CAMPUSES)
(SPG), (AMZN), (APPL), (MSFT), (FB), (GOOGL)
The genie is out of the bottle and things will never go back to how they once were. Sorry to burst your bubble if you thought the economy, society, and travel rules would just revert to the pre-coronavirus status quo.
They certainly will not.
One trend that shows no signs of abating is the “winner take all” mentality of the tech industry.
Tech giants will apply their huge relative gains to gut different industries.
Once a shark smells blood, they go in for the kill; and nothing else will suffice until these revenue machines get their way in every other adjacent industry.
Recently, we got clarity on big box malls becoming the new tech fulfillment centers with the largest mall operator in the United States, Simon Property Group (SPG), signaling they are willing to convert space leftover in malls from Sears and J.C. Penny.
Then I realized that another bombshell would hit sooner rather than later.
College campuses will become the newest of the new Amazon, Walmart, or Target eCommerce fulfillment centers starting this fall, and let me explain to you why.
When the California state college system shut down its campuses and moved classes online due to the coronavirus in March, rising sophomore Jose Garcia returned home to Vallejo, California where he expected to finish his classes and hang out with friends and family.
Then Amazon announced plans to fill 100,000 positions across the U.S at fulfillment and distribution centers to handle the surge of online orders. A month later, the company said it needed another 75,000 positions just to keep up with demand. More than 1,000 of those jobs were added at the five local fulfillment centers. Amazon also announced it would raise the minimum wage from $15 to $17 per hour through the end of April.
Garcia, a marketing and communications major, applied and was hired right away to work in the fulfillment center near Vallejo that mostly services the greater Bay Area. He was thrilled to earn extra spending money while he was home and doing his schoolwork online.
This is just the first wave of hiring for these fulfillment center jobs, and there will be a second, third, and fourth wave as eCommerce volumes have exploded. Even college students desperate for the cash might quit academics to focus on starting from the bottom in Amazon.
Even though many of these jobs at Amazon fulfillment centers aren’t those corner office job that Ivy League graduates covet, in an economy that has had the bottom fall out from underneath, any job will do.
Chronic unemployment will be around for a while and jobs will be in short supply.
When you marry that up with the boom in ecommerce, then there is an obvious need for more ecommerce fulfillment centers and college campuses would serve as the perfect launching spot for this endeavor.
The rise of ecommerce has happened at a time when the cost of a college education has risen by 250% and, more often than not, doesn’t live up to the hype it sells.
Many fresh graduates are mired in $100,000 plus debt burdens that prevent them from getting a foothold on the property ladder and delays household formation.
Then consider that many of the 1000s of colleges that dot America have borrowed capital to the hills building glitzy business schools and rewarding the entrenched bureaucrats at the school management level outrageous compensation packages.
The cost of tuition has risen by 250% in a generation, but has the quality of education risen 250% during the same time as well?
The answer is a resounding no, and there is a huge reckoning about to happen in the world of college finances.
America will be saddled with scores of colleges and universities shutting down because they can’t meet their debt obligations.
Not to mention the financial profiles of the prospective students have dipped by 50% or more in the short-term with their parents unable to find the money to send their kids to college.
Then there is the international element here with the lucrative Chinese student that added up to 500,000 total students attending American universities in the past.
They won’t come back after observing how America basically shunned the pandemic and the U.S. public health system couldn’t get out of the way of themselves after the virus was heavily politicized on a national level.
The college campuses will be carcasses with mammoth buildings ideal to be transformed into eCommerce inventory centers.
The perfect storm is hitting on every side for Mr. Jeff Bezos to go in and pick up a bunch of empty college campuses for pennies on the dollar as the new Amazon fulfillment centers.
This will happen as the school year starts and schools realize they have no pathway forward and look to liquidate their assets.
Defaults will happen by the handful in the fall, while some won’t even open at all because too many students have quit.
Then the next question we should ask is: will a student want to pay $50,000 in tuition to attend online Zoom classes for a year?
My guess is another resounding no.
By next spring, there will be a meaningful level of these college campuses that are repurposed, as eCommerce delivery centers with the best candidates being near big metropolitan cities that have protected white collar jobs the best.
The coronavirus has exposed the American college system, b as university administrators assumed that tuition would never go down.
Not every college has a $40 billion endowment fund like Harvard to withstand today’s financial apocalypse.
It’s common for colleges to have too many administrators and many on multimillion-dollar packages.
These school administrators made a bet that American families would forever burden themselves with the rise in tuition prices just as the importance of a college degree has never been at a lower ebb.
Like many precarious industries such as college football, commercial real estate, hospitality, and suburban malls, college campuses are now next on the chopping block.
Big tech not only will make these campuses optimized for delivery centers but also gradually dive deep into the realm of educational revenue, hellbent on hijacking it from the schools themselves as curriculum has essentially been digitized.
Colleges will now have to compete with the likes of Google (GOOGL), Facebook (FB), Amazon (AMZN), Apple (AAPL) and Microsoft (MSFT) directly in terms of quality of digital content since they have lost their physical presence advantage now that students are away from campus.
Tech companies already have an army of programmers that in an instance could be rapidly deployed against the snail-like college system.
The only two industries now big enough to quench big tech’s insatiable appetite for devouring revenue is health care and education.
We are seeing this play out quickly, and once tech gets a foothold literally on campus, the rest of the colleges will be thrust into an existential crisis of epic proportions with the only survivors being the ones with large endowment funds.
It’s scary, isn’t it?
This is how tech has evolved in 2020, and the tech iteration of 2021 could be scarier and even more powerful than this year’s iteration. Imagine that!
AMAZON PACKAGES COULD BE DELIVERED FROM HERE SOON!
Mad Hedge Technology Letter
August 12, 2020
Fiat Lux
Featured Trade:
(PUT THE KIBOSH ON TECH STOCKS?)
($COMPQ)