Mad Hedge Technology Letter
September 23, 2024
Fiat Lux
Featured Trade:
(BE CAUTIOUS ABOUT STOCKS TIED TO GIG WORK)
(UBER)
I do believe companies heavily involved with gig workers will not experience a boon in the stock price in the near future.
Consumers are tapped out and there is not much more pricing power they can pass on to manufacture higher profits in the short run.
There is a chance the tide will rise with all boats, but I would wait this one out in gig work stocks.
As a cultural phenomenon, the gig economy is here to stay until they get muscled out by technology.
Americans are used to the 24-hour on-demand goods and services offered by gig workers.
The number one expense line item for these tech companies is labor.
They are actively working to try and reduce the burden.
I believe they are holding out until the vaunted robotaxi is green-lighted.
This change will crater labor expense to a pittance with most of the labor costs flowing towards the managers and executives.
It is the holy grail of the tech industry and we are rapidly approaching this inflection point.
These companies have come a long way.
In 2010, the smartphone application offered a new competitor to the taxicab industry by linking a paying passenger with a private driver using his or her own car.
The largest services are still focused on transportation. Uber and Lyft dominate the on-demand ride business.
Massive retailers like Walmart and Amazon joined in with their own on-demand platforms: Spark Driver and Amazon Flex.
Gig workers are recruited with the situation of flexible hours to earn additional income. However, as independent contractors, gig workers are not entitled to traditional employment benefits like health insurance, and they must take on additional occupational risks, equipment costs, and tax burdens.
In a 2024 economic impact report, Flex, a federal lobbying association supported by DoorDash, Grubhub, HopSkipDrive, Instacart, Lyft, Shipt, and Uber, estimated there were about 7.3 million “active drivers and delivery partners on major rideshare and delivery platforms” in 2022.
A 2022 report published by the consultancy McKinsey & Co. surveyed workers and estimated as many as 58 million Americans, or 36 percent of the U.S. workforce, did some gig work that year.
In its Securities and Exchange Commission filings, Uber describes the classification of its drivers as “employees, workers, or quasi-employees” as an “operational risk” to its business. The same document details the various legal and political challenges involved in maintaining independent contractor status.
Uber’s latest quarterly filing, published in August, said that if drivers win the reclassification through legal means or the passage of new laws, the company would incur significant expenses for compensating drivers and would pass its elevated costs onto riders. Uber also argues reclassification would limit its ability to find workers due to a loss of flexibility.
Uber is smart at attempting to root out the labor expenses. If robotaxis are integrated into the business model, the stock would increase by 500%.
In the meanwhile, workers forget ahead hoping to procure more benefits from Uber.
Uber is hell-bent on avoiding the financial toll of paying full-time workers and will indefinitely try to pin the label of independent contractor on its workers.
This existential threat will end up in courtrooms and Uber has good enough lawyers to stall out the lawsuits.
All eyes are on Tesla and Elon Musk to give insight into what the future of gig work and autonomous transportation looks like.
Uber knows it cannot maintain the status quo and something must be done to cut labor costs.
If that does happen, the stock will quadruple in short time.
As for the short-term, buy big dips in Uber stock.
“The best investment you can make is in yourself.” – Said Warren Buffett
Mad Hedge Technology Letter
September 20, 2024
Fiat Lux
Featured Trade:
(TECH STOCKS RECEIVE A GIFT)
($COMPQ), (NVDA)
No recession – highly bullish for technology stocks ($COMPQ) in the short term.
That is my hot take from Jerome Powell’s and the Fed’s surprise 50-point basis interest rate cut.
Tech stocks will overwhelmingly outperform the rest of the equity market because that is where the profits and earnings are.
I don’t see a situation for the ‘catch up’ trade, or if it does transpire, it will be very transitory in nature.
There is no other subsector that is about to overtake technology in terms of prestige or growth, and that is where I take comfort in believing that technology will harvest the lions’ share of the gains from the Central Bank’s interest rate cut.
The cut was a jumbo one, which means even better projections for tech share prices in the short run.
It is hard not to take a look-in back at the Magnificent 7 for another winter rally that should take the Nasdaq quite a bit higher from here.
That is why I executed a deep-in-the-money call spread on chip behemoth Nvidia (NVDA) this morning.
The tech-weighted Nasdaq index hit an all-time high in 2024 around July, with prices trading around 18,700 points, and we are around 5% from that high.
Any pullback in quality tech firms will be brought up, and I urge readers to enjoy the rally because of the unexpected jumbo hike, the rally is now pulled forward.
Highlighting the hawkish cut was the FOMC vote was 11-1, with Governor Michelle Bowman preferring a quarter-point move.
Powell pushed through a half-point move instead and ironically told reporters that the economy was great.
Unemployment numbers of around 4.2% were once considered full employment back in the day.
A half-point cut into a strong economy to pre-empt a recession is an interesting move.
It is clear they don’t want to get behind the curve after they badly botched inflation on the way up.
In most normal cases, tech stocks would rocket higher, and bond yields would sink, but the 10-year yield has gone the other way, signaling that this hawkish cut could ignite another bout of higher inflation at the long end of the yield curve.
The Nasdaq index gained 3%, showing that it can power through no matter what bonds are doing, and that has been the case since 2020.
The Japanese yen also shot higher from the 140 level to the 144 to the US dollar today.
A weaker trending yen is a highly bullish signal for the trajectory of U.S. tech stocks.
The committee expects the long-run neutral rate to be around 3%, a level that has drifted higher as the Fed has struggled to get inflation down to 2%.
Gross domestic product has been rising steadily, and the Atlanta Fed is tracking 3% growth in the third quarter based on continuing strength in consumer spending. Moreover, the Fed chose to cut even though most gauges indicate inflation well ahead of the central bank’s 2% target. The Fed’s preferred measure shows inflation running around 2.5%, well below its peak but still higher than policymakers would like.
The current jobless level is 4.2%, drifting higher over the past year, though still at a level that would be considered full employment.
A 50 basis point rate cut into an economy growing 3% per year will surely get GDP moving closer to 4%.
Think about it in terms of housing and all the buyers waiting on the sidelines waiting to get into the housing market.
Inflation is sure to come back again in the long term, but in the short term, this nudges 3% GDP to 4%, and that is highly bullish for tech stocks. This also should help unemployment stick close to the 4.2% in, which the Fed is worried about, which is a victory for equity markets.
The tech rally is here, and don’t miss out on it!
“It takes 20 years to build a reputation and five minutes to ruin it.” – Said American Investor Warren Buffett
Mad Hedge Technology Letter
September 18, 2024
Fiat Lux
Featured Trade:
(ORACLE’S PLAN TO DOMINATE AI)
(ORCL)
Larry Ellison, who founded Oracle back in the day and was once a legacy data center company, has now transformed into a cutting-edge AI company, and when he talks, people should take note.
The boom in his stock Oracle from the AI mania has meant that he is now almost as rich as Amazon’s Jeff Bezos.
To say the least, Ellison has his pulse on what is going on in the AI community and what is next in store, which is why Oracle, who recently moved to Texas, should be on the radar of every investor who has an interest in technology.
Ellison gave his candid view on how his company, Oracle, along with other AI companies, will profit from the hard pivot to everything and anything AI.
Essentially, everything will become generative AI, which delivers profitable solutions when anything happens.
Let me explain.
Ellison believes super-invasive, if not totally omnipresent, algorithmic overseers will be the new normal for human society, and that will give a way for tech companies to make a killing.
Powerful and fascinating AI will bring about a new paradigm of supercharged surveillance, guaranteeing that the "citizens" — all behave and stay in line.
"We're going to have supervision," Ellison said.
"Every police officer is going to be supervised at all times, and if there's a problem, AI will report that problem and report it to the appropriate person."
"Citizens will be on their best behavior," he added, "because we are constantly recording and reporting everything that's going on."
Ironically, many of these surveillance apparatuses — security cameras, bodycams — are already in place.
Why have them engaged in a risky car chase, for example, when you can get an AI drone to tail a suspect instead?
"You just have a drone follow the car," Ellison said.
Under Ellison's stewardship, Oracle has been attempting to position itself as another leader in the AI race and has quickly integrated the tech into its cloud computing services.
The examples that Ellison gives are by no mistake.
Ellison plans for Oracle to be the heart and center of this surveillance business, and rightly so, with all the investments and years of getting to this new technology.
Oracle’s data centers and software will be central to how surveillance will operate. CCTV cameras will be absolutely everywhere, “helping” police do their job and identifying if a drone needs to be sent in for more helping.
Police won’t be the only use case in drones and cameras powered by AI helping to build business.
Take the industry of logistics.
They are fast moving towards a time when humans won’t need to be working in the warehouse moving products.
Robots, cameras, and drones in that type of tripartite cooperation will be able to unload, store, organize, and ship powered by Oracle software. Now, that is a really efficient concept!
Humans will really only need to be present to receive the Amazon package at the last mile deliver high likely delivered by a robotic drone in an electric Tesla powered by Oracle software. Oracle is about to hit pay dirt once they are integrated into every business process in the world that happens 24 hours per day.
The future of commerce will look a lot different, and there is a reason why the trajectory is so fluid: and Ellison sits at the intersection of business profits and AI.
Readers should be inclined to buy Oracle on the dip.
Mad Hedge Technology Letter
September 16, 2024
Fiat Lux
Featured Trade:
(DOMINATING THE BATTERY MARKET IN EUROPE)
(CATL), (TSLA), (NKLA), (BYD)
In a sign of the times, the world’s most important EV battery maker is now a Chinese company that is dominating Europe.
It also shows how far Chinese technology has come in terms of value-added products in such a short time.
Europe and Tesla are falling asleep at the wheel and need to figure out how to combat the Chinese from taking over the EV and EV battery industry.
Contemporary Amperex Technology (CATL) is the name, and they plan to expand rapidly in Europe to avoid paying any tariffs on products coming from China.
Circumventing tariffs is the game, and the Chinese are very good at it.
CATL unveiled new technologies and products for heavy-duty vehicles and ships, including a battery with a 15-year and 2.8 million-kilometer lifespan.
The company is already partnering with several European manufacturers, including Daimler Truck Holding, Volkswagen Commercial Vehicles, and Volvo.
It’s involved in early-stage product design as well as research on the infrastructure needed for broader adoption of electrified commercial transport.
CATL is expanding its commercial-vehicle battery business in Europe as the continent moves to slash carbon emissions from trucks, buses, and ships.
It is definitely cheaper to use batteries exported from China, given the maturity of the supply chain there, but the company could ramp up production in Europe based on clients’ needs and other local production requirements.
It already has a plant in Germany, which kicked off production in 2022, and it’s building another in Hungary.
Much like the smartphone business, with every type of technology that the Chinese master, they solve the economies of scale problem and are able to manufacture these products for significantly less than their competitors.
This is why they can sell great driving EVs for $10,000 per vehicle.
Very few companies can compete with China on cost alone.
With inflation staying stubbornly higher and burning a hole in the consumer wallet, many strapped buyers are opting for Chinese substitutes instead of Tesla’s or German EVs.
This is a harbinger for things to come as many lucrative manufacturing jobs in Germany could be lost and replaced by a lower-paid Chinese EV job.
My guess is that BYD and CATL, both Chinese companies, are about to muscle out the competition in Europe before they go back to the drawing board to figure out how to do the same in the United States.
BYD has also signaled its strategy to get its cars into the US by building a factory in Mexico.
They plan to tell us publicly their Mexico strategy after the US election is over.
One area that is under consideration was around the city of Guadalajara. That region has emerged over the past decade as a technology hub sometimes described as Mexico’s Silicon Valley. BYD sent a delegation to the area in March.
I do believe the entire world, and not just the Global South, should start getting comfortable with driving Chinese EVs with Chinese-produced batteries.
Many are still are shocked that the Chinese were able to corner the EV market so quickly after Tesla’s first mover advantage kept them top dog for many years.
Although this would not be a reason to bet on the Chinese economy, it would be a good reason to stay out of Tesla shares and to even short companies like Rivian and other small firms such as Nikola.
Unfortunately, BYD and CATL are listed on an exchange in Shenzhen, China, so I would steer clear of that and focus on the knock-on effects on companies in more investable nations.
