“I hope Puerto Rico munis go lower so I can buy more.” – Said Founder of DoubleLine Capital Investment Firm Jeffrey Gundlach three years ago.
When John identifies a strategic exit point, he will send you an alert with specific trade information as to what security to sell, when to sell it, and at what price. Most often, it will be to TAKE PROFITS, but, on rare occasions, it will be to exercise a STOP LOSS at a predetermined price to adhere to strict risk management discipline. Read more
Mad Hedge Technology Letter
October 4, 2018
Fiat Lux
Featured Trade:
(HOW SOFTBANK IS TAKING OVER THE US VENTURE CAPITAL BUSINESS),
(SFTBY), (BABA), (GRUB), (WMT), (GM), (GS)
One of the few people who can magnify pressure on the venture capitalists of Silicon Valley is none other than Masayoshi Son.
What a ride it has been so far. At least for him.
His $100 billion SoftBank Vision Fund has put the Sand Hill Road faithful in a tizzy – utterly revolutionizing an industry and showing who the true power broker is in Silicon Valley.
He has even gone so far as doubling down his prospects by claiming that he will raise a $100 billion fund every few years and spend $50 billion per year.
This capital logically would flow into what he knows best – technology and the best technology money can buy.
As Yahoo Japan and Alibaba (BABA) shares have floundered, SoftBank’s stock has decoupled from the duo displaying explosive brawn.
SoftBank’s stock is up 30% in the past few months and I can tell you it’s not because of his Japanese telecommunications business which has served him well until now as his cash cow.
Yahoo Japan, in which SoftBank owns a 48.17% stake, has existing synergies with SoftBank’s Japanese business, but has experienced a tumble in share price as Son turns his laser-like focus to his epic Vision Fund.
His tech investments are bearing fruit and not only that, Son revealed his Alibaba investment is about to clean up shop to the tune of $11.7 billion next year shooting SoftBank shares into orbit.
A good portion of the lucrative windfall will arrive from derivatives connected to the sale of Alibaba, and the other 60% comes from the paper profits finally realized in this shrewd piece of business.
Equally paramount, SoftBank’s Vision Fund hauled in $2.13 billion in operating profits from the April-June quarter underscoring the effectiveness of Masayoshi Son’s tech ardor.
Son said it best of the performance of the Vision Fund saying, “Results have actually been too good.”
So good that after this June, Son changed his schedule to spend 3% of his time on his telecom business down from 97% before June.
His telecommunications business in Japan has turned into a footnote.
It was the first quarter that Son’s tech investments eclipsed his legacy communications company.
Son vies to rinse and repeat this strategy to the horror of other venture capitalists.
The bottomless pit of capital he brings to the table predictably raises the prices for everyone in the tech investment world.
Son’s capital warfare strategy revolves around one main trope – Artificial Intelligence.
He also strictly selects industry leaders which have a high chance of dominating their field of expertise.
Geographically speaking, the fund has pinpointed America and China as the best sources of companies. India takes in the bronze medal.
Unsurprisingly, these two heavyweights are the unequivocal leaders in artificial intelligence spearheading this movement with the utmost zeal.
His eyes have been squarely set on Silicon Valley for quite some time and his record speaks for himself scooping up stakes in power players such as Uber, WeWork, Slack, and GM (GM) Cruise.
Other stakes in Chinese firms he’s picked up are China’s Uber Didi Chuxing, China’s GrubHub (GRUB) Ele.me and the first digital insurer in China named Zhongan International costing him $500 million.
Other notable deals done are its sale of Flipkart to Walmart (WMT) for $4 billion giving SoftBank a $1.5 billion or 60% profit on the $2.5 billion position.
In 2016, the entire venture capitalist industry registered $75.3 billion in capital allocation according to the National Venture Capital Association.
This one company is rivalling that same spending power by itself.
Its smallest deal isn’t even small at $100 million, baffling the local players forcing them to scurry back to the drawing board.
The reverberation has been intense and far-reaching in Silicon Valley with former stalwarts such as Kleiner Perkins Caufield & Byers breaking up, outmaneuvered by this fresh newcomer with unlimited capital.
Let me remind you that it was considered standard to cautiously wade into investment with several millions.
Venture capitalists would take stock of the progress and reassess if they wanted to delve in some more.
There was no bazooka strategy then.
SoftBank has thrown this tactic out the window by offering aspiring firms showing promise boatloads of capital up front even overpaying in some cases.
Conveniently, Son stations himself nearby at a nine-acre estate in Woodside, California complete with an Italianate mansion he bought for $117.5 million in 2012.
It was one of the most expensive properties ever purchased in the state of California even topping Hostess Brands owner Daren Metropoulos, who bought the Playboy Mansion from Hugh Hefner in 2016 for $100 million.
If you think Son is posh – he is not. He only fits himself out in the Japanese budget clothing brand Uniqlo. He just needed a comfortable place to stay and he hates hotels.
In August, SoftBank decided to top off the $4.4 billion investment in WeWork, an American office space-share company, with another $1 billion leading Son to proclaim that WeWork would be his “next Alibaba.”
Son continued to say that WeWork is “something completely new that uses technology to build and network communities.”
The rise of remote workers is taking the world by storm and this bet clearly follows this trend.
The unlimited coffee and beer found in the new Japanese Roppongi WeWork office that opened earlier this year was a nice touch.
WeWork plans to open 10-12 offices in Japan by the end of 2018.
Thus far, WeWork is operating in over 300 locations in over 20 countries.
Revenue is growing rapidly with the $900 million in 2017 a 12-fold improvement from 2014.
The newest addition to SoftBank’s dazzling array of unicorns is Bytedance, a start-up whose algorithms have fueled news-stream app Jinri Toutiao’s meteoric rise in China.
The deal values the company at $75 billion.
It also runs video sharing app Douyin, and overseas version TikTok.
Bytedance’s proprietary algorithm, serving to personalize streams for users, is the best in China.
They have been able to insulate themselves from local industry giants Tencent and Alibaba.
TikTok has piled up over 500 million users and brilliant investment like these is why Son revealed that the Vision Fund’s annual rate of return has been 44%.
SoftBank’s ceaseless ambition has them in the news again with whispers of investing in a Chinese online education space with a company called Zuoyebang.
China’s online education market is massive. In 2017, this industry pulled down over $33 billion in revenue, and 2018 is poised to break $55 billion.
Zuoyebang has lured in Goldman Sach’s (GS) as an investor.
This platform allows users to upload homework questions for third party assistance – the name of the app literally translates into “homework help.”
Cherry-picking off the top of the heap from the best artificial intelligence companies in the world is the secret recipe to outperforming your competitors.
At the same time, aggressively throwing money at these companies has effectively frozen out any resemblance of competition. Once the competition is frozen out, the value of these investments explodes, swiftly super-charged by rapidly expanding growth drivers.
How can you compete with a man who is willing to pay $300 million for a dog walking app?
Venture capitalist funds have been scrambling to reload and mimic a Vision Fund-like business of their own, but its not easy raising $100 billion quickly.
This genius strategy has made the founder of SoftBank the most powerful businessman in the world.
Son owns the future and will have the largest say on how the world and economies evolve going forward.
Mad Hedge Technology Letter
October 3, 2018
Fiat Lux
Featured Trade:
(OUR HOME RUN ON SQUARE),
(SQ), (V), (AMZN), (GRUB), (SPOT), (MSFT), (CRM), (AAPL)
Pat yourself on the back if you pulled the trigger on Square (SQ) when I told you so because the stock has just lurched over an intra-day level of $100.
It was me aggressively pushing readers into buying this gem of a fin-tech company at $49. To read that story, please click here (you must be logged in to www.madhedgefundtrader.com).
Since then, the price action has defied gravity levitating higher each passing day immune to any ill-effects.
The Teflon-like momentum boils down to the company being at the cross-section of an American fin-tech renaissance and spewing out supremely innovative products.
At first, Square nurtured the business by targeting the low hanging fruit– small and medium size enterprises in dire need of a strong injection of fin-tech infrastructure.
It largely stayed away from the big corporations that adorn billboards across the Manhattan skyline.
That was then, and this is now.
Square is going after the Goliath’s fueling a violent rise in gross payment volume (GPV).
Modifying themselves for larger institutions is the next leg up for Square.
They recently inaugurated Square for Restaurants for larger full-service restaurants.
Business owners do not need technical backgrounds to operate the software and integrating Caviar into this program emphasizes the feed through all of Square’s software.
Dorsey has built an ecosystem that has morphed into a one-stop shop for comprehensively running a business.
Migrating into business with the premium corporations offers an opportunity to augment higher margin business.
This is the lucrative path ahead for Square and why investors are festively lining up at the door to get a piece of the action.
The downside with an uber-growth company like Square are lean profits, but they have managed to eke out three straight quarters of marginal spoils.
However, the absence of profits can be stomached considering the total addressable market is up to $350 billion.
Grabbing a chunk of that would mean profits galore for this too hot to handle company.
Expenses are always a head spinner for Silicon Valley firms and attracting a dazzling array of engineers to spin out breathtaking profits can’t be done on the cheap.
The Cash app download figures are sizzling and is one of the most popular apps in the app store.
Square’s marketing strategy is also turning a corner getting out their name leading to sale conversions.
These are just several irons in the fire.
The last two years has seen this stock double each year, could we be in for another double next year?
If measured by growth, then I see why not.
Growth is the ultimate acid test deciding whether this stock will be dragged down into the quick sand or let loose to run riot.
Other second-tier tech firms in the middle of a sweet growth spot pack a potent punch like Spotify (SPOT) and Grubhub (GRUB) which are growing annual sales around 50-60%.
Material profits are also irrelevant for the aforementioned tech juggernauts.
Square is expanding at the same fervent pace too, and the hyper-growth only makes payment processors like Visa (V) quasi-jealous of such staggering numbers.
And when Square trots out numbers to the public like that with (GPV) shooting out the roof, the stock does nothing but go gangbusters.
Either way, Square has popularized making credit card payments through smartphones and that in itself was a tough nut to crack amongst tough nuts.
Square also has a line-up of impressive point-of-sales products such as Caviar.
In fact, merchant sellers are adopting an average of 3.4 Square software apps with invoices, loans, marketing, and payroll software being the most beloved.
Square also offers other software that can handle back office tasks and manage inventory.
The software and services business is on pace to register over $1 billion in sales in 2019.
The breadth of functions that can boost a company’s execution highlights the quality of software Dorsey has produced.
I always revert back to one key ingredient that all tech companies must wildly indulge in to fire up the stock price – innovation.
Innovation in bucket loads is something all the brilliant tech firms crave such as Microsoft (MSFT), Amazon, and Salesforce (CRM).
Overperformance starts from the top and trickles down to the people they hand pick to manage and run the businesses.
Jack Dorsey is right up there with the best of them and his influence cannot be denied or ignored.
His stewardship over his other company Twitter (TWTR) is sometimes worrisome because of a pure scheduling conflict, but it’s obvious which company is having a better year.
Square steers clear of the privacy and regulatory minefields handcuffing Twitter.
And it could be safely assumed that Dorsey enjoys his afternoons more at Square than his mornings across the street at Twitter where he is bombarded by heinous problems up the wazoo.
When you conjure up an up-and-coming company that could rattle the establishment, Square is one of the first companies that comes to mind.
Some analysts even argue this company deserves to be lifted into the vaunted Fang group.
I would say they are on their merry way but they just aren’t big enough to command a spot on the Fang roster.
I have immense conviction this stock will be a deep influencer of our time, and its diversified software offerings add limitless dimensions underpinning massive revenue streams.
In Q2, the subscription revenue grew 127% YOY underscoring the success the software team is having, crafting productive apps applicable to business owners.
Business owners can even take out a loan through Square Capital which issues micro-loans to small business owners.
In need of financing? Ring up Dorsey’s company for a few quid.
Starkly contrasting Square in the payment processors space is Visa (V).
Visa is not a hyper-growth company going ballistic, but a stoic behemoth unperturbed.
The 3.283 billion visa cards that adorn its insignia represents scintillating brand awareness and efficiency.
When Tim Cook was asked if Apple (AAPL) plans to disrupt Visa, he smirked and said, “People love their credit cards.”
This is a prototypical steady as she goes-type of company.
They do not offer micro-loans to small businesses or dabble with any of the murky sort of products that can be found on the edge of the risk curve.
They are a safe and steady pure payment processor.
Its network can digest 65,000 transactions per second and is universally cherished as a brand around the world.
All of this led to an operating margin of 66% in 2017.
Square has identified other parts of the payment process to snatch and do not directly compete with Visa.
They partner with Visa and pay them a processing fee.
Subsequently, Square is paid a merchant fee after the payment is approved.
Visa has a monopoly and a moat around their business as wide as can be.
Square is a different type of beast – growing uncontrollably and hell-bent on spawning a revolutionary fin-tech paradigm shift.
The question is can Square eventually turn payment heavyweights like Visa on its head?
The path is fraught with booby traps and as Square generates the projected sales and bolsters its revenue, it could start to encroach on these legacy processors too.
Yet, it’s too early to delve into that threat yet.
Enjoy the ride with Square and better to lay off this potent stock until a better entry point presents itself.
This stock will go higher. Giddy-up!
“Should kids check phones at dinner? I don't know. To me, that's a parenting choice.” - Said Google CEO Sundar Pichai
Given the ballistic growth of our business here at the Mad Hedge Fund Trader, you will soon be seeing some major improvements in the service.
You may have already noticed a substantial upgrade to our website. Further changes will be ongoing in the coming months promising better functionality and faster speeds. Some 10,000 pages of content is a lot to manage.
Mad Hedge Hot Tips started six weeks ago and have proven wildly successful. It enables us to have a more immediate and constant contact with our readers which has become crucial in this hyper accelerating fast forward world.
Our online customer support telephone number has changed. The new one is 347-480-1034. This is a high tech global online telephone number that operates 24 hours a day. If you can’t get through just leave a voicemail with the English lady with the posh accent. It will be transcribed instantly and emailed to us wherever we are.
Hey, what’s the point in publishing the Mad Hedge Technology Letter if you can’t use the new tech to spice up our own service?
Our mailing address has changed to a conveniently tax free domicile at:
John Thomas-Mad Hedge Fund Trader
Conifer Group LLC
PO Box 4470
Stateline, NV 89449
USA
If you want to mail me a bottle of The Glenlivet because you made so much money on you last Trade Alert, please feel free to do so.
Globalizing our production means there will be a slight delay in getting our daily content to you. Instead of 1:00 AM EST you should receive you letter by 9:00 AM EST, or 30 minutes before the New York Stock Exchange opens. Today is the exception.
Finally, it is with a heavy heart that I announce the retirement of Nancy at the end of the year, who has been diligently performing our customer support for the past six years. She is the one who has been instructing you on navigating the site, getting a new password, and dealing with the general ins and out of the Mad Hedge Fund Trader. I understand that a long cruise is in the offing.
Again, thanks for supporting our research and I look forward to meeting you at my next strategy luncheon or the Lake Tahoe conference in October.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Amazon’s reign doesn’t touch everything – there are still nooks and crannies of the business world it still doesn’t dominate.
Hard to believe, right?
As Amazon (AMZN) branches off into every known and unknown crevice of the economy to excavate fresh growth drivers, it’s hard to fathom where they won’t be in the future.
Supermarkets are one of the most innovative parts of technology right now, and even with Amazon’s grocery prize of Whole Foods, they are yet to rule over a broad-based grocer empire.
It might behoove you to discover that Kroger (KR) is on the brink of constructing a high-tech, cutting edge supermarket business that could juice up their crusade against Amazon.
In May, Kroger decided on partnering up with British-based online grocer Ocado (LON: OCDO) to build out a full-fledged, automated warehouse acting as the launching pad to their high-tech supermarket aspirations.
Kroger just announced they will identify 3 of the 20 new warehouse sites by the end of 2018 and the search is “making good progress.” These three warehouses should be functional within a year.
This is the best investment Kroger has ever made in the history of the company.
The deal also gave Kroger a 5% stake in Ocado which has no brick and mortar stores.
Even more brilliant, the deal bans Ocado from selling the technology to other American competitors.
Ocado has been voted the best online U.K. grocer by Consumers' Association magazine Which? every year since 2010.
The company went public on the London Stock Exchange in 2010 and its share price has had a banner year.
Shares were trading at £245 just 11 months ago.
The stock has been a battleground company with massive short interest because a contingent of investors believe this is just a simple grocer company.
Some investors value Ocado as a high-tech company and it is obvious which group has won out as this online grocer saw shares catapult to a tad below £1200 only to slightly retrace and consolidate.
Ocado shares are still hovering around £900 giving credence to this high-tech grocer amidst a country that is bereft of technology companies.
Softbank’s buy of Arm Holdings was the crown jewel of British tech companies to be pocketed and taken off the public markets.
Imagination Technologies was also a blockbuster name that went private after Apple infamously announced it would stop incorporating Imagination Technologies’ system-on-a-chip accounting for over half of total revenue.
Shares cratered by 70% and the company was picked up on the cheap like hawks swooping on prey by private equity fund Canyon Bridge, who is backed by the Chinese communist government.
Ocado is the torch bearer for Britain now and the smorgasbord of deals signed with France, Sweden, Canada and America indicate their intent to be a major tech player.
The breathtaking short-squeeze has put bears on alert shying away from their oversized sell button as they have been epically burnt on this trade.
This love them or hate them online grocer plans to license out its industry leading proprietary technology to revolutionize legacy supermarkets such as Kroger.
The stellar performance by Amazon has fueled its competition’s ambition to up its game in any way possible, boding well for the consumer who will benefit from better services and lower prices.
Ocado’s 20 automated warehouses dotted around America will take three years to complete.
Simply put, Ocado is best in show at building these supermarket automated warehouses and could receive a windfall of revenue around the world as grocers from all corners of the world revolutionize logistical processes.
Of the 260,000 orders they receive per week in Britain, error rates have plummeted to a subterranean level of less than 1%.
The whole process is closely monitored by algorithms, scanning, identifying and optimizing each step of the process.
Ocado’s algorithms are quite masterful – they have been programmed to even sort a bag of groceries so the eggs aren’t squashed at the bottom of the order by a sack of potatoes.
The insides are placed for perfection like the interior of Château de Malmaison straddling the suburbs of Paris, France.
These ideally placed items can travel up to 20 miles in Ocado’s boxes.
This might be fine for a land-challenged country like Britain, but distances are grotesquely larger in America, and making sure perishables arrive fit as a fiddle offers complexities to Ocado’s engineering team.
To root out any bugs, Ocado’s phalanx of engineers create digital clones of a functional warehouse mimicking the location-specific conditions and operations to eradicate any faulty processes that crop up.
This has allowed Ocado to refine different models adding to the team’s scope of versatility.
Each set of geographies will present unique challenges and adapting to local needs of each grocer will be a key to harness profitability.
Ultimately, Ocado is not new to this – they have been cultivating this type of technology for 15 years.
Drench Ocado’s model with more technology and it has become faster, more efficient, and systematically accurate.
Humans have been shipped out in favor of a bagging robot that separates out the orders needing to be placed in certain crates.
Humans are redeployed up the value chain of work and retrained as management delegates the lower grade tasks to be taken over by machines.
Ocado’s delivery vehicles are tricked out with telemetry systems, an automated communications process by which measurements and other data are collected remotely in order to ameliorate the delivery time schedules.
Betting the ranch on enhancing the technology, Ocado has rolled out a freshly designed robot that can stack and sort boxes in stacks of up to 21 boxes high.
And here is the kicker – the artificially intelligence-based technology has outsized cross-over effect applicable to a myriad of industries that require warehouses as a main input in an operation which could spawn massive layers of potential profits.
The deep commitment to innovation is costly and investors will always be anxious about the margin story, but that should not be reason to jump ship.
There is no seat at the table if a company is not armed and wielding the best technology current engineering can create.
Top-class engineers aren’t cheap, and like their brethren in Silicon Valley, engineers continue to be tech firm’s largest cost but their best asset.
Machine learning is also deployed across the customer service support platforms to ensure any complaints do not repeat.
Eventually, Ocado hopes to automate everything and once self-driving technologies become customary, they will do away with the human driver too.
They have already carried out tests showing their capabilities of functioning with this technology and did a stint of 2 weeks with little problem.
This May was the first time Ocado netted a nations big fish supermarket business with 1,300-store strong ICA Sweden.
ICA has carved out Swedish market share approaching a third.
Ocado is capitalizing on the new sense of urgency from legacy supermarkets to pivot towards technology to bolster profits.
Online supermarkets were once discarded but now seek to seize 15% of the grocery market share on the way to 20%.
Assuming that 10% is the peak is wrong especially with Ocado’s supermarket warehouse technology.
Most recently, Instacart partnered with German discount supermarket Aldi to offer delivery service.
Ocado has absolutely started to spread its wings by licensing its robot-laden supermarket warehouse technology and this is just the beginning.
More deals will be in the pipeline and consumers will much rather shop for groceries online now.
To admire the scope of Ocado’s pioneering expertise, this is their revolutionary warehouse system controlled by air traffic control technology with R2-D2-like robots careening around on a grid set-up fulfilling orders – click here to watch the video.
BEST OF BREED WAREHOUSE TECHNOLOGY
Mad Hedge Technology Letter
October 2, 2018
Fiat Lux
Featured Trade:
(TAKE A LOOK AT ENGLAND’S AMAZON),
(LON: OCDO), (KR), (AMZN)
(WE'RE MAKING SOME CHANGES HERE AT THE MAD HEDGE FUND TRADER)
