Tech Letter Archives - Mad Hedge Fund Trader

Follow The Cell Towers In Tech

I will explain to everyone why the digital revolution is becoming supercharged in the blink of an eye.

Market valuations reflect the state of expected future cash flows in a company.

Under this assumption, some could argue that most big tech companies with staying power are almost a good buy at any price.

No-brainers would include a list of Microsoft, Amazon, Apple, and Netflix.

The global health scare and the carnage associated with it have brought forward revenue and expertise from the tech industry and infused the global economy with more cash.

When you mix that with the Fed playing nice, it sets up conditions for heavy buying in an industry that is going to be king of the global economy anyway.

Tech has been rampant in the first half of 2024 and the brief selloffs we get are only because we are running too hot too fast.

Doing business as we know it has been fast-forwarded by 15 years.

The change took place in a blistering 4 weeks.

The clearest signal of who is really calling the shots in the equity market is looking at which companies are dragging it up.

Technology is shouldering the responsibility of the equity market by outperforming the broader market with many software companies’ share prices higher than before the crisis.

For every Amazon or Microsoft, there is also a Macy’s or JC Pennys showing that this is really a stock pickers market.

We have not only learned that tech companies are critical to our functioning as a society, but that large tech companies will be even more central than ever before.

We are setting up for the Golden Age of tech who are earmarked to capture even more of the broader equity market.

I do agree that currently, the network effect is working in overdrive like a positive force multiplier. The US economy is riding high again, and this cannot be emphasized enough with the US economy printing growth quarter after quarter.

Digital revenue streams will effectively be pumped into every nook and crevice of the digital economy because of current modifications to the business environment.

Tech is destroying literally every sub-sector as we speak.

Take a look at commercial real estate and hotel operators; they have had to fight against the triple whammy of office sharing WeWork, short-term hotel platform Airbnb, and the coronavirus - a lethal three-part cocktail of malicious forces to the “traditional” model.

Any deep-pocketed investors should be cherry-picking every quality cell tower play possible because they are one of the various supercharged sub-sectors of tech.

Obviously, there are other no-brainers like semiconductor chips and certain software companies.

Any long-term investor with a pulse should buy Crown Castle International Corp. (REIT) (CCI) on any and all dips.

They are the largest owner of cell towers owning over 40,000 in the U.S. and the data will flow through these towers juicing the wider economy.

July 17, 2024

Tech Letter

Mad Hedge Technology Letter
July 17, 2024
Fiat Lux

Featured Trade:

(BUYER BEWARE)
(TIKTOK)

Buyer Beware

Tech Letter

Sometimes the best way to become successful at investing in technology stocks is to avoid the black swan or the big disaster.

I hate to say it but investment risk has never been higher.

One question that keeps getting rehashed that I thought I might take time to address is the rise of the TikTok influencer-adviser.

According to a brief Google search, TikTok, known in China as Douyin, is a video-sharing social networking service owned by Chinese company ByteDance.

The social media platform is used to make a variety of short-form videos, from genres like dance, comedy, and education, that have a duration from three seconds to one minute.

Unfortunately, for serious retail investors lately, content has migrated into high-stakes themes like financial education and financial advising giving rise to content that is produced by video creators to get a piece of the financial industry.

Naturally, this has brought down the quality of the financial content on the internet to historic lows simply because most of the content is marginal at best.

These promulgators often preach about their status as “trading gurus” and often leverage the hype of digital currencies to claim they are fully invested in “crypto assets” and urge anyone reading to become one of their new “cult followers.”

They are also usually paid to market a “bulletproof” financial app or certain crypto asset to avid followers without properly disclosing that they are being paid for the advertisement.

This behavior is being encouraged by the TikTok algorithms who order this type of misleading content at the top of searches simply because it gets more hits being a click-bait type of content.

The more outlandish the videos become, gloating about get-rich-quick schemes and 1,000% daily returns, the higher up in the search queries they usually populate when filtered through TikTok algorithms.

These accounts are known as financial “influencers” and post 100s of such videos every month featuring fraudulent success or minimizing the difficulty of profiting through trading and a mix or mash of everything in between.

Even some proclaim to have unlocked the holy grail of trading and “guarantee” 100% returns or your money back.

Another speaking point they like to touch on is how video watchers can “also” afford wealthy lifestyles without having to work, at least in the traditional way.

To dumb down the travails of investing and trading to something easier than pouring a glass of water is a lie.

Many of these novice investors are duped into paying for exorbitant services that are nothing more than promotional buzz offering hyped-up marketing language as specific trading advice.

Unfortunately, US regulators have turned a blind eye to what is happening on this nefarious Chinese platform, and imitators are spawned daily and are certainly incentivized to do so.

While I must admit that regulating this type of behavior on TikTok is incredibly messy, to leave this unchecked will result in massive fraud for the little guy that I try to help.

The justification for ignoring these TikTok “influencers” is because there is even worse cybercrime taking place out there and the content these influencers are peddling is straddling the gray areas of the law.

But it’s not enough, and readers need to understand the heightened risks of diving feet-first into these TikTok polar vortexes where you just get whipped around unknowingly.

Pre-emptively protect your portfolio by avoiding these TikTok trading gurus is the order of the day.

As we enter the back half of 2024, the collapse of crypto broker FTX was a reminder of the large risks associated with investing in an unknown alternative asset class.

The TikTok crypto marketers were largely being sponsored by crypto exchange FTX.

They were peddling FTX’s own digital currency that was made out of thin air.

Anyone trading in this FTX in-house digital coin known as FTT lost most of their money as the CEO of FTX Sam Bankman-Fried was extradited back to the United States and found guilty in court.

FTX’s FTT coin went from $40 at the beginning of 2022 to 80 cents on December 30, 2022, highlighting the dangers of listening to fake crypto “trading gurus” on TikTok pushing FTT coin like there is no tomorrow.

Stay vigilant and happy trading and remember, there is no free lunch in trading.

It’s hard work earning your crust of bread.

July 15, 2024

Tech Letter

Mad Hedge Technology Letter
July 15, 2024
Fiat Lux

Featured Trade:

(AI AND IMPROVED WORKFORCE EFFICIENCY IS HERE TO STAY)
(TSLA)

AI And Improved Workforce Efficiency Is Here To Stay

Tech Letter

Students hoping to become bankers shouldn’t study finance, they should dive into AI programming.

This is the big takeaway from how investment banks are run these days.

Gone are the moments when finance degrees were the hottest commodity, now it is all about generative AI.

Artificial intelligence (AI) could replace the equivalent of 300 million full-time jobs, a report by investment bank Goldman Sachs says.

It could replace a quarter of work tasks in the US and Europe but may also mean new jobs and a productivity boom.

And it could eventually increase the total annual value of goods and services produced globally by 7%.

Generative AI, able to create content indistinguishable from human work, is "a major advancement", the report says.

Silicon Valley is keen to promote investment in AI not only in the United States but in a way that will ultimately drive productivity gains across the global economy.

The report notes AI's impact will vary across different sectors - 46% of tasks in administrative and 44% in legal professions could be automated but only 6% in construction and 4% in maintenance, it says.

Journalists will therefore face more competition, which would drive down wages unless we see a very significant increase in the demand for such work.

Consider the introduction of GPS technology and platforms like Uber (UBER). Suddenly, knowing all the streets in London had much less value - and so incumbent drivers experienced large wage cuts in response, of around 10% according to our research.

The result was lower wages, not fewer drivers.

Over the next few years, generative AI is likely to have similar effects on a broader set of creative tasks.

According to research cited by the report, 60% of workers are in occupations that did not exist in 1940.

However, other research suggests technological change since the 1980s has displaced workers faster than it has created jobs.

Nobody understands how the technology will evolve or how firms will integrate it into how they work.

Lower wages and higher output are a perfect recipe for higher technology share prices and that is exactly what we will get.

Currently, we are experiencing a mild pullback from the AI mania, but that is simply because it got too far ahead of its skis.

I am quite impressed by the price action in a stock like Tesla (TSLA) which executed a major cut to their global workforce to trim costs.

The staff cut of 10% could result in exactly what I mentioned in more output for less pay, but in terms of hiring more workers, they have decided to force less workers to do more.

This type of management decision increases efficiency because it forces workers to work smarter.

It’s certain they will be a major investor in AI chips to outfit their EV cars, and much of this corporate tech business is a feedback loops involving synergies with businesses overlapping.

Tech as a whole is not in trouble, but individual companies will find an imbalanced treatment of their stock.

The AI pixie dust is still strong as many readers bought the shallow dip in Nvidia.

I do believe in the AI hype, and a lot of the price action is skewed toward just a handful of AI stocks.

My advice is to buy AI stocks on the dip and this increased efficiency will certainly filter down into the top and bottom lines.

July 12, 2024

Tech Letter

Mad Hedge Technology Letter
July 12, 2024
Fiat Lux

Featured Trade:

(ROTATION HITS THE TECH SECTOR)
($COMPQ), ($TNX), (IWM)

Rotation Hits The Tech Sector

Tech Letter

Bond yields ($TNX) diving and the market pricing in a 25 basis point rate cut in September surely translates into another swift leg up in tech stocks ($COMPQ), right?

Hold your horses.

The price action resulted in the exact opposite with big names like Tesla down over 4%.

It was ugly but orderly which is a victory and not of the pyrrhic sort.

The sharp selloff stemmed from a lower-than-expected CPI number.

Decreasing CPI is a strong signal that price inflation is coming down and that is highly conducive to higher stock prices.

However, every inflation report reflecting lower inflation doesn’t guarantee tech stocks in unison will go up.

Tech stocks have done exceptionally well during a backdrop of high rates and high inflation which is extremely unusual.

The market took this opportunity to rotate out of tech and into cheaper stocks that look to benefit more from lower rates.

That’s not saying that tech stocks don’t benefit from lower rates, they certainly do, but the best of the rest has been so beaten down behind the woodshed during this higher rate story that many companies have been on life support and are due for a quick bounce.

The bounce, however, could be short-lived and the bounce could also be given back swiftly.

I suspect a temporary slowdown of tech stocks for the moment will take place while beaten-down sectors get their 15 minutes of fame before they disappear into the background.

I do believe once this short event has worked itself through the system, tech will be off to the races again.

It’s hard to keep tech stocks down because nothing of note has and looks like toppling them.

Presiding over iron-clad balance sheets with Teflon business models and wielding cash cows is the secret recipe to success.

The worst-performing sector in 2024 — real estate — had its best day this year. The Russell 2000 (IWM) climbed 3.6% — the most since November.

US inflation cooled broadly in June to the slowest pace since 2021 on the back of a long-awaited slowdown in housing costs, sending the strongest signal yet that the Fed can cut interest rates soon.

I find this rotation highly beneficial for the overall health of the stock market and it is honestly about time.

Higher rates were starting to turn the screws on many smaller companies.

Many have been in survival mode forcing management into maneuvers like cutting staff, doubling up workloads, trimming expenses, and reducing prices for products.

I do believe that this scarcity mentality will come to an end and this does give more room for other tech companies other than the Magnificent 7 to overperform.

To be honest, the over-reliance on 7 tech stocks to power the tech market is getting a little long in the tooth, and the narrow concentration of alpha is highly irregular and negative for the long-term sustainability of the tech sector.

I would tell readers to get your gunpowder ready because we are setting up for an optimal entry point into tech stocks for the next leg up.

Just be patient.

July 12, 2024 - Quote of the Day

Tech Letter

“I’m skeptical of any mission that has advertisers at its centerpiece.” – Said Founder and CEO of Amazon Jeff Bezos

July 10, 2024

Tech Letter

Mad Hedge Technology Letter
July 10, 2024
Fiat Lux

Featured Trade:

(GERMANY BRINGS DOWN BITCOIN)
(BTC), ($COMPQ)

Germany Brings Down Bitcoin

Tech Letter

The German government unloading hundreds of Bitcoin (BTC) shows how a random event can reverse positive sentiment.

Technology stocks ($COMPQ) aren’t immune to this type of price action and as we inch closer to the election in November, get prepared for the likelihood of wonkiness to increase.

Luckily enough, the onslaught of regulatory attacks from all sorts of governments has more or less been priced into tech stocks.

A billion fine here or there for many of these tech titans is just a drop in the ocean.

Even political events now do little to sway tech stocks, because many events are just ephemeral in nature and don’t change the trajectory of tech.

Bitcoin isn’t necessarily directly important to tech stocks but operates in parallel.

It is true that there is a lot of crossover between talent pools in the labor forces. Everyone working in Google and Apple knows people working in Bitcoin and vice versa.

More often than not big tech has acted as a feeder source to fill position at Bitcoin and crypto companies.

For weeks now, Germany’s government has been selling hundreds of millions of dollars worth of Bitcoin — and it’s been a key factor behind the cryptocurrency’s intense sell-off.

Last month, the German government began selling Bitcoin from a wallet operated by the country’s Federal Criminal Police Office.

They also sold 900 bitcoins in June.

Last week, the government sold an additional 3,000 bitcoins worth roughly $172 million. Then on Monday, German police sold a further 2,739 bitcoins or $155 million worth of the cryptocurrency.

Bitcoin prices have also been under stress from the payout of billions of dollars worth of digital currency from the collapsed bitcoin exchange Mt. Gox — which went bankrupt in 2014 — to creditors.

A trustee for the Mt. Gox bankruptcy estate has started making repayments in bitcoin and bitcoin cash to some of the creditors through a number of designated crypto exchanges.

Bitcoin’s price is still up a good 89% in the last 12 months.

In January 2024, police in the eastern German state of Saxony announced the seizure of close to 50,000 bitcoins, worth around $2.2 billion at the time.

Today, Germany’s BKA holds roughly 32,488 bitcoins. At current prices, the government’s holdings are worth roughly $1.9 billion.

Although it might feel like a one-off, I do believe governments around the world will be in a position to confiscate more crypto in the future.

This could end up government owning more and more of the finite Bitcoin supply in circulation and could lead to regulation taking a backseat.

The golden goose won’t be killed if the government has skin in the game.

Even though this could become an unusual way for governments to onboard themselves into the crypto ecosystem, killing crypto would have a contagion whiplash that can’t be fully quantified as of now.

Uncertainty always tanks the market.

In fact, I believe the drop in Bitcoin from $73,000 to $53,000 is a positive event for investors because they can load up again at cheaper prices.

I believe we are in a goldilocks phase in technology where Bitcoin and tech stocks grind higher.

Temporary events that drop tech stocks or bitcoin by 20% are few and far between.

Many tech investors would love a better entry point, and it will truly take a real black swan to knock tech stocks or Bitcoin off their high and mighty perch.

As it stands, expect higher prices in both asset classes.