Mad Hedge Technology Letter
July 31, 2020
Fiat Lux
Featured Trade:
(BIG TECH IS UNSTOPPABLE)
(FB), (AAPL), (AMZN), (GOOGL), (MSFT)
The big loser at the Congress hearing grilling the top 4 CEOs in big tech was by far and away the U.S. government.
The U.S. government accused big tech of operating as illegal monopolies and big tech’s answer was largely indifference, betting that the government is too disjointed to actually hit them with some venom.
The only member of congress who was on point with her questions was Democratic Rep. Pramila Jayapal, who used internal Facebook documents to show data theft artist Mark Zuckerberg suppressing competition when he purchased Instagram in 2012.
Jayapal then cornered Amazon (AMZN) CEO Jeff Bezos into a corner, peppering him with questions about Amazon’s 3rd party data handling.
There has been a long-lasting campaign against Amazon in regard to them using internal data to hijack 3rd party sellers’ products deemed successful by recreating them as in-house products and catapulting their in-house branded products to the top of the Amazon search results.
The success of Congress stopped at Jayapal, as the rest of the motley crew appeared so out of touch with what real tech issues exist that it felt they were unfit to ask questions.
Playing into their inefficient display was the fact that they chose a time delegated for antitrust issues to complain about anti-conservative bias in social media, which is a separate issue entirely.
These arguments were armed with zero data to back up the claims, and gave the tech leaders an easy way out by just grandstanding about the issue.
The biggest winner was the company that was not invited to the session – Microsoft (MSFT).
They were the only tech company over $1 trillion that wasn’t in attendance, and for good reason.
Microsoft CEO Satya Nadella has been able to position the company as a trust-first cloud enterprise and refuse to traverse into that gray area where conflicting interests exist.
They are living proof that tech companies don’t need to swindle personal data to grow revenue, which is why I keep putting on call spreads in this brilliant company.
Microsoft is in great strategic position to expand their business, and the same cannot be said for Facebook because unlike Microsoft, Facebook produces nothing of meaningful substance.
This was evident as Congress picked on Zuckerberg’s company the most, even catching him in a bold face lie.
The most convenient line of reasoning for these tech companies doing what they do was the “American-first” playbook.
Highlighting China’s rise as tech competitor, fearmongering that China could one day be at the top of the tech pyramid but actually just demonstrating another way of avoiding the real issues.
Watching this discussion made me realize that these tech companies have reached a level of power that supersedes the government.
Politicians are only invested in short-term interest and protecting their tenure in government. Bezos, Zuckerberg, Cook, and Pichai can play the long game.
This is exactly why investors pour capital into these 4 stocks plus Microsoft.
Apple earns over $55 billion in profits annually on $260 billion of revenue.
Amazon makes up 40% of U.S. online sales.
Facebook (FB) has 2.6 billion users which is 34% of the world’s population.
Lastly, 90% of internet searches are done through Google (GOOGL) search.
The real question should be: when will these companies hit the $2 trillion mark?
And even if Congress could conjure up some meaningful regulation against these 4, they certainly have the resources to navigate around it, especially when half of Congress still doesn’t understand what they actually do.
As it stands, these data empires are left to go their merry way and Congress is failing to protect individual user data on an epic scale.
To put the cherry on top, I would argue that the coronavirus has done big tech’s dirty work wiping out many businesses while big tech gets stronger.
I am bullish big tech.
“These companies as they exist today have monopoly power. Some need to be broken up, all need to be properly regulated and held accountable.” – Said U.S. Representative David Cicilline
Mad Hedge Technology Letter
July 29, 2020
Fiat Lux
Featured Trade:
(ANOTHER DIGITAL GOLD RUSH?),
(BITCOIN)
Here we go again.
The Bitcoin bulls have crashed the party and they have good reason to celebrate as the so-called digital gold surged from its nadir of $3,715 in January 2019 to over the $11,000 mark today.
The currency was in the doldrums after the crash from $20,000 with many investors left holding the bag.
The Mad Technology Letter doesn’t often foray into the speculation of Bitcoin, predominantly because the asset is untethered to fundamentals, but the price action of late has made us take notice.
There has been resistance at the $10,000 mark and $10,500 mark. Blowing through this resistance signals that Bitcoin could be in for a sustained rally.
What is moving the digital gold?
The gyrations in the digital currency come as gold prices have surged amid a mad migration for assets that are considered alternatives to cash and stocks fueled by the COVID-19 pandemic that has driven much of the developed world into a deep recession.
Gold hasn’t been this high since 9/11 and it’s on the verge of surging past the $2,000 mark.
Prices for gold and bitcoin have climbed as a gauge of the U.S. dollar hit its weakest level since 2018 and the dollar is at a 9-month low.
Not only has the virus dampened sentiment around the global economy, but the insane spending by governments to help prop up economies battered by pandemic has supported bullion prices.
U.S. Treasury Secretary Steve Mnuchin and the GOP are in the works to push through yet another massive stimulus and who knows what is after that.
Bitcoin has benefited from the knock-on effects of gold being a safe haven trade.
The fact is that Bitcoin shares gold’s key characteristics of being a store of value and scarcity— and could potentially knock gold off from its perch in the future as the world becomes ever more tech-driven.
Bitcoin is also thriving as it updates itself.
Bitcoin has much more intrinsic value today than it did a year ago just from an infrastructure perspective.
The Lightning network is working, sidechains are working. The currency is just a lot more rock-solid foundationally that it has ever been.
Security has always been a black eye for this asset class and rightly so as who would want their digital fortune pickpocketed by a hacker.
The Lightning network is a second-layer technology for bitcoin that scales the blockchain’s ability to conduct transactions and it is facilitating the ability to operate the network smoothly.
It’s more than just increasing capacity driving the surge in investor interest and prices.
The supply of available bitcoin continues to shrink — a function of the halving of coins in circulation which happened earlier this year.
Another x-factor will be the continuing adoption of financial institutions using bitcoin.
This offers investors more confidence in the security and fungibility of the assets.
Many experts forecasted the digital currency to surge in the third quarter or early fourth quarter solely based on the enhanced infrastructure to support transactions and activity on the blockchain.
A reaction to the halving of currency in circulation was also another inflator.
The coronavirus was just the supercharger to the equation.
With legitimate institutions holding bitcoin for customers, the average person will begin to feel more secure dabbling in Bitcoin, and this will support wide-scale adoption and acceptance of the digital gold.
No doubt that the concept of Bitcoin is hampered by this cult of life characters that go on air to try to bid up the currency saying their yearend targets are $30,000.
The overhyping of Bitcoin is something of an eyesore, but I can definitely vouch for the increasing relative legitimacy of Bitcoin and this asset class is not going away.
There certainly is a case for Bitcoin to go to $15,000 and $20,000 if a much predicted “second wave” hits this fall in large swaths of the world forcing developed governments into yet another stimulus package.
Once Brazilians, Russians, and Americans take their late European summer vacations, it’s hard to not see another lockdown in Europe.
Many investors can observe numerous governments just not having their act together feeding into the Bitcoin narrative and honestly contributing to its legitimacy as well.
It’s hard to remember when faith in certain governments was lower.
I don’t advocate pouring one’s life savings into Bitcoin though, it’s just too untested and needs to prove itself more as a financial asset.
If technology and the digital revolution is the story to believe in, then invest in a Nasdaq exchange listed fintech company.
These platforms offer Bitcoin to customers for purchase as well and are the growth companies that many tech investors dream of.
Mad Hedge Technology Letter
July 27, 2020
Fiat Lux
Featured Trade:
(IS BIG TECH JUST A FLASH IN THE PAN?),
(MSFT), (AMZN), (AAPL), (GOOGL), (FB)
Today’s tech newsletter might be the most important one you will ever read.
It’s my job to distill exactly what is going on in tech and disburse this information in a way that readers can take advantage of it in real-time.
The tech market is all about striking when the soil is fertile.
The five largest stocks in the S&P 500, Microsoft (MSFT), Amazon (AMZN), Apple (AAPL), Google (GOOGL), and Facebook (FB) have accrued a combined valuation that surpasses the valuations of the stocks at the bottom 350 of the index.
This means that if you weren’t in tech the past few years, chances are that your portfolio significantly underperformed the broader market.
Even in August 2018, many active managers could have thrown in the towel and said the late economic cycle was way too frothy for their taste and time to take profits.
Little did they know that betting against the best growth industry in the last 2 generations would equate to self-firing themselves, because to replicate the same type of performance would have meant staying in tech through the coronavirus scare.
Many in the trading community would even go as far as to say to wait for the bear market, then big tech would get hammered first and deepest because of their lofty valuations.
These tech companies were in for a rude awakening and shares had to consolidate, right?
Well, anyone who doesn’t live under a rock is seeing the exact opposite play out with Amazon, Microsoft, and Apple valued above $1 trillion and still soaring as we speak.
This goes to show that betting against something because they are “too expensive” or “too cheap” is a fool’s game.
Just take oil for instance, that many retail investors bought because they came to the conclusion that oil could never go below zero.
Then playing oil through an ETF with massive contango meant that the index is likely to go down even if the price of oil is up.
Not only do investors bear insanely high risk in these trading vehicles, but also a systemic risk of oil ETFs blowing up.
Oil is cheap, and it can get cheaper, while tech is expensive and can get a lot more expensive.
Until there are structural changes, there is no point to bet on a sudden reversal out of thin air.
The “reversion to the mean” trade can blow up in your face if used irresponsibly.
Betting against things that an individual perceives as unsustainable and secretly hoping that they cannot continue to go on is probably the worst strategy that I have ever heard of in my life.
The reality is that these things are sustainable, and tech shares will keep moving higher uninterrupted until they don’t.
"Until they don’t" would mean meaningful structural damage to big tech’s business model, which I do not see one iota in today’s business climate.
In fact, these companies just keep going from strength to strength.
Active managers are the ones who set market prices and they help the momentum accelerate in tech with full knowledge that if they miss out, there is likely no other solution to hit yearend targets.
What active manager doesn’t want their year-end bonus?
Even analyze the value investors who, in a normal world, would not even consider tech companies because they avoid the traditional “growth” profile.
Funnily enough, these “value” investors have Microsoft in their portfolios now, even though it is not close to a value stock.
So what has Microsoft accomplished recently?
CEO of Microsoft Satya Nadella has rebuilt a company Microsoft that is now equal in value to The Financial Times Stock Exchange 100 Index, the share index of the 100 companies listed on the London Stock Exchange with the highest market capitalization.
That’s right, one American company is just as valuable as the top 100 public companies in England.
Even more hilarious, Jeff Bezos’s wealth is greater than the entire European country of Hungary.
Yes, the one south of Poland that serves goulash as the national cuisine.
An even broader view of tech would give us an even more stunning snapshot of the success showing that the Top 5 tech stocks are now worth more than the entire developed stock market outside the U.S. such as Europe, Canada, Japan, Hong Kong combined.
Then take into consideration that these companies are on the cusp of penetrating high margin industries like medicine and healthcare which will translate into another golden decade of accelerating revenue and elevated profits relative to the rest of the S&P index.
The U.S. is a place where unfettered capitalism is promoted and implemented, and tech’s outperformance manifests itself by pouncing on the winner-takes-all mentality.
Americans like winners and the rules are no different in corporate America.
These 5 tech names have contributed over 20% of the gains in the past month and until they falter, there will be no tech sell-off.
"We are unicorn hunters." - Said Founder and CEO of SoftBank’s Masayoshi Son
Mad Hedge Technology Letter
July 24, 2020
Fiat Lux
Featured Trade:
(IS ESTONIA YOUR OFFICE?)
Digital nomads are frequently typecast as tech-savvy Millennials remotely working via an Internet connection while living as an expatriate.
However, they come in all shapes and sizes.
The charming Baltic country of Estonia is offering a visa targeted at Non-EU passport holder digital nomads, and other countries will likely copy this progressive type of visa.
Estonia’s revolutionary visa allows digital nomads to work in Estonia all year round.
This visa also includes 90 days of travel in the Schengen Zone of mainland Europe which could be a vital negotiating point in a new era of closed borders and stringent immigration policies.
U.S. citizens are currently banned from entering Europe with no end in sight, thanks to the pitiful handling of the unfortunate health crisis.
This visa origination stems from the Central and Eastern European countries losing their educated youth as they book it out of Latvia, Lithuania, Hungary, and Poland as soon as they first realize that salaries are orders of magnitude higher in Germany.
Estonia has no choice but to pull from Non-EU countries.
More importantly, jacking up the volume of tech workers is becoming an existential issue for many sovereign countries as developed countries reap the monetary rewards from such new cutting-edge technology.
The Baltic nation of Estonia was an architect of tech innovation in the past, rolling out Skype before Facebook and Twitter even existed.
Skype is now owned by Microsoft who acquired them for $8.5 billion in 2011 which is peanuts compared to today’s market valuation.
Skype was entirely comprised of local Estonian developers who achieved this in the early 2000s.
Quite a feat for such a small population.
These digital nomads create communities that harness an enormous flow of tech know-how.
Tallinn, Estonia has erupted into a top 10 digital stronghold attracting hordes of digital nomads.
If technical issues arise, help is on the way!
The message is that simple.
Estonia does not care if you drink kombucha lattes or if you eat green tea ice cream.
Their main concern is if you know how to use a computer well or not - plain and simple.
The global tech talent shortage is a leading issue in many megacities, and this is just the beginning of a world led by digital nomads.
Although the recent wave of Silicon Valley layoffs has offered some slack to the labor market, the onus is on Estonia to convince tech talent to relocate to Tallinn.
The world has moved on from outdated visa policies and Estonia understands it needs to evolve to survive.
Expect more exotic residence visas targeting immigrants who bring value-added computer skills in topics such as machine learning, software engineering, and fintech.
The Estonian government has been bold and is, in some ways, acting with a start-up mentality itself.
This young, audacious government looks to scale up as fast as possible. The visionary policy is seen as the solution to maneuvering around long-lasting social problems.
These pro-growth tech policies could invigorate local youth offering them a lifeline in their own country.
Rebranding itself as the digital nomad epicenter is a risky move that most governments wouldn't dare to do.
It's easy to ignore the brain drain in the Baltics while I am based in the Bay Area.
Silicon Valley has been drawing in the Rolls Royce of tech talent from Estonia for generations.
One of our IT guys is from Estonia himself so I can vouch for the quality there.
How can diminutive Estonia engineer tech growth?
They must learn how to crawl before they can walk.
If this visa experiment gains momentum, it could be a game-changer while nudging the Baltics closer into the developed West’s orbit of influence, reinvigorating the local birth rate, and spurring a rise in income levels.
A win-win situation, but easier said than done.
As for me, I won't be taking a Wizz Air flight to Estonia to work in a coffee shop anytime soon.
I prefer Incline Village, Nevada, and Zermatt, Switzerland, as my go-to digital nomad hideouts.
If it's not broke, don't fix it.
