“The best customer service is if the customer doesn't need to call you, doesn't need to talk to you. It just works.” – Said Founder and CEO of Amazon Jeff Bezos
Mad Hedge Technology Letter
November 18, 2019
Fiat Lux
Featured Trade:
(THE FANG’S BIG MOVE INTO BANKING),
(GOOGL), (MSFT), (APPL), (MA), (V), (PYPL), (SQ), (GS), (FB)
First, Apple (APPL) collaborates with Goldman Sachs’ (GS) offering of a credit card even giving credit access to subprime borrowers.
And now Google (GOOGL) has its eyes on the banking industry — specifically, it’ll soon offer checking accounts.
In a copycat league where anything and everything is fair game, we are seeing a huge influx of big tech companies vie for the digital wallets of Americans.
The project is aptly named Cache and accounts will be handled by Citibank (C) and a credit union at Stanford.
Google’s spokesman shared with us admitting that Google hopes to “partner deeply with banks and the financial system,” and further added, “If we can help more people do more stuff in a digital way online, it’s good for the internet and good for us.”
I would disagree with the marginal statement that it would be good for us.
Facebook (FB) is now offering a Pay option and how long will it be until Amazon (AMZN), Microsoft (MSFT), and others throw their name into the banking mix.
I believe there will be some monumental failures because it appears that these tech companies won’t offer anything that current bank intuitions aren’t offering already.
Moving forward, the odd that digital banking products will become saturated quickly is high.
Let’s cut to the chase, this is a pure data grab, and not in the vein of offering innovative services that force the consumer down a revolutionary product experience.
As the consumer starts to smarten up, will they happily reveal every single data point possible to these tech companies?
Big tech continues to be adamant that personal data is secure with them, but their track records are pitiful.
Even if Google doesn’t sell “individual data”, there are easy workarounds by just slapping number tags on aggregated data, then aggregated data can be reverse-engineered by extracting specific data with number tags.
The cracks have already started to surface, Co-Founder of Apple Steve Wozniak has already claimed that the credit algorithm for Apple’s Goldman Sach’s credit card is sexist and flawed.
Time is ticking until the first mass data theft as well and let me add that the result of this is usually a slap on the wrist incentivizing bad behavior.
I believe big tech companies should be banned from issuing banking products.
Only 4% of consumers switched banks last year, and a 2017 survey by Bankrate shows that the average American adult keeps the same checking account for around 16 years.
As anti-trust regulation starts to gather more steam, I envision lawmakers snuffing out any and every attempt for big tech to diversify into fintech.
It’s fair to say that Google should have done this 10 years ago when the regulatory issues were nonexistent.
Now they have regulators breathing down their necks.
Let me remind readers that the reason why Facebook abandoned their digital currency Libra was because of the pressure lawmakers applied to every company interesting in working with Facebook’s Libra.
Lawmakers threatened Visa and Mastercard that they would investigate every part of their business, including the parts that have nothing to do with Facebook’s Libra, if they went ahead with the Libra project.
The most telling insight comes from the best tech company Microsoft who has raised the bar in terms of protecting their reputation on data and trust.
They decided to stay away from financial products like the black plague.
Better to stay in their lane than take wild shots that incur unneeded high risks.
When U.S. Senator Mark Warner, a Democrat on the Senate panel that oversees banking, was asked about Google and banking, he quipped, “There ought to be very strict scrutiny.”
Big tech is now on the verge of getting ferociously regulated and that could turn out positive for the big American banks, PayPal (PYPL), Visa (V), Mastercard (MA) and Square (SQ).
I heavily doubt that Google will turn Cache into a meaningful business unless Google offers some jaw-dropping interest rates or elevated points to move the needle.
Google has canceled weekly all-hands meetings because of the tension between staff members and Facebook is also just as dysfunctional at the employee level.
Whoever said it's easy to manage a high-stake, too-big-to-fail tech firm?
Even with all the negativity, Google is still a cash cow and if regulatory headwinds are 2-3 years off, they are a buy and hold until they are not.
The recent tech rally, after the rotation to value, has seen investors flood into Apple, Microsoft, and Google as de-facto safe haven tech plays.
“I worry that if you regulate for the sake of regulating it, it has a lot of unintended consequences.” – Said CEO of Google Sundar Pichai
Mad Hedge Technology Letter
November 15, 2019
Fiat Lux
Featured Trade:
(HERE’S THE INFRASTRUCTURE COMPANY FOR EVERYTHING),
(CSCO), (MSFT)
Cisco (CSCO) is an accurate proxy for global enterprise spending around the world.
This foundational company offers the base for software-reliant companies to flourish and tuning into their quarterly earnings report is a front-row affair.
Even though the firm beat on the bottom line, 2020 prospects dimmed substantially, enough to question whether the underpinnings of global growth remain in-tact.
Topline revenue beat as well with the company earning $13.16 billion in revenue eclipsing the estimated $13.09 billion.
But analysts and investors were mainly there to scrutinize the commentary on future earnings considering that 2020 is unfolding into the most uncertain year in recent history coincides with a potentially fractious U.S. presidential election.
The onus was on CEO Chuck Robbins to provide some comfort and that comfort was visibly lacking in his call.
The disappointment started with the commentary regarding annualized revenue growth.
Cisco expects annual revenue to slide between 3-5% next year.
Earlier this year, Robbins had revealed that the slowdown had been confined to smaller parts of the market but now it is suddenly expanding into almost all corners of the world.
The delay in IT spend has hit conversion rates which were lower than normal and large deals got done but in a smaller way.
Businesses have consciously chosen to elongate their refresh cycle and are defiantly sticking with the current IT technology to subdue costs.
Usually, new IT infrastructure begets more spending on newer software but that is all grinding down to a halt for the foreseeable future.
Cisco has a massive install base of users to grab data points from, and this should put some cold water on a narrowing tech rally.
Safe haven names have received the lion’s share of the tech rally momentum as of late.
The most suitable adjective to describe the current IT slowdown is “broad-based” and countries such as China are showing weak IT spend too.
China isn’t a huge customer for Cisco, and emerging markets have been exhibiting more weakness than the larger economies.
Cisco’s poor guidance dovetails nicely with my recent theme of a prolonged tech earnings recession laced with bad guidance.
The lamentable commentary about 2020 will persist in tech.
I do view the more than 7% dive in Cisco’s shares today as a solid entry point into one of the premier tech infrastructure stocks in the world, but will let the market digest the results first.
Even though corporate America is heading toward a new valley in an earnings recession that could last the entire calendar year, Cisco will muscle its way through as higher-tech spend will at some point reshape the earnings outlook.
But don’t expect that for the next quarter or two.
Investors should expect more softness in tech shares and rerouting of capital into top-grade tech shares like Microsoft (MSFT).
“The business model of social media companies, of pure advertising, is problematic. It turns out the huge winner is low-quality content.”– Said Founder of Wikipedia Jimmy Wales
Mad Hedge Technology Letter
November 13, 2019
Fiat Lux
Featured Trade:
(WHY YOUR NEXT TAXI RIDE COULD BE BY AIR),
(UBER), (TSLA), (GOOGL)
San Francisco is 49.2 square miles of pure innovation – at least historically.
The most creative solutions to the world’s most complex problems have been generated from this diminutive peninsula that juts out into the Pacific Ocean.
But when it comes to transportation, and by that, I mean the public transportation efficiently operated in most European and Asian cities like Seoul, Korea and Frankfurt, Germany, San Francisco epically fails at delivering an adequate system to the masses.
Instead, the stopgap solution gave us Uber (UBER), the rideshare company, and the fall out is more cars clogging up a bigger portion of the roadways and bridges.
And then there is Tesla (TSLA), whose enigmatic CEO loves to tell investors that electric is the panacea to the world’s economy.
Is Silicon Valley that far off from solving the conundrum of smooth public transportation by applying technology?
The solution might be percolating in Wessling, Germany by a company named Lilium who developed the Lilium Jet, an electrically powered commuter aircraft capable of vertical taking off and landing (VTOL) flight.
Moving forward, it’s black and white that the answer is 3D and not 2D.
Lilium was founded in 2015 by four engineers and PhD students at the Technical University of Munich.
In 2017, The Lilium Eagle, an unmanned two-seat proof of concept model, performed its initial flight at the airfield Mindelheim-Mattsies near Munich, Germany.
The successful test led the company to launch the 5-seat Lilium Jet and they hope by 2025, to roll out a full-fledged aerial taxi service.
Co-Founder and CEO Daniel Wiegand swears that within five years, a fleet of them could offer a 10-minute trip from Manhattan to Kennedy International Airport for $70.
Expectations that aerial taxis will be a reality in the coming years are quickly skyrocketing.
Companies like Lilium are researching, testing, and laying the groundwork for wider production and hankering for support from government officials.
At least 20 companies have skin in the game, which Morgan Stanley estimates will become a $850 billion market by 2040.
Larry Page, the billionaire co-founder of Google (GOOGL), is financially buttressing Kitty Hawk, a Palo Alto company run by the first engineers on Google’s autonomous car.
Uber is developing an air taxi service, with plans to operate by 2023, but I highly doubt that investors would give the go ahead if the cash burn overwhelms them.
The Federal Aviation Administration (FAA) is another tripwire that could knock the 2025 schedule off kilter and their notorious bureaucratic ways do not infuse certainty into the project.
Can Lilium build a platform that is broadly accessible and efficient?
That answer will be unpacked in the next few years.
The aerial vehicle has a carbon fiber body, 36-foot wingspan, and is battery powered, providing a range of 186 miles and a top speed of nearly 190 mph.
Inside the oblong-shaped cabin, posh seats await four passengers and a pilot.
The aircraft can take off and land vertically like a helicopter and is even quieter than a helicopter.
Once scaled out, production costs will run in the several hundred thousand dollars for each aircraft-making profitability realistic.
There will be lower maintenance costs because there are fewer mechanical components, and rides should cost less than Uber.
If rolled out on a mass scale, cityscapes will be revolutionized.
San Francisco and California effectively could bypass proper land public transport and skip straight to aerial vehicles as taxis.
Lilium’s plane has packed 36 smaller engines in its rotating wings that act as thrusters for takeoffs, landings, and subtle movements forward and back. Encasing the engines in the wings reduces friction and noise.
Lilium’s performance is currently unmatched but its secretive nature of the technology means it’s hard to quantify where they are now in the development.
With the funneling of capital to solve global transportation issues, aerial aspects will definitely be intertwined into the solution.
The race is on to capture the first-mover advantage and my bet it will be Lilium.
“This is the perfect means of transportation, something that can take off and land everywhere.” – Said Co-Founder and CEO Lilium Daniel Wiegand
