Tech Letter Archives - Mad Hedge Fund Trader

Forming The Next Buying Opportunity

Apple didn’t release a new iPad model in 2023 which speaks volumes to the short-term trajectory of the tech firm that Steve Jobs built.

The current CEO Tim Cook is still living off of Jobs’ past creativity.

I believe the new Apple VR headset named the Vision Pro is still a speculative product that won’t result in any meaningful revenue for at least the next few years if at all.

Part of the blame for Apple’s underperformance stems from the poor macro environment for pure multinational corporations as deglobalization accelerates.

Apple also took their lineup of smartwatches off the display cases minutes before last Christmas signaling a continued malaise for big tech companies that are finding it rough to move the needle along.

Many behemoth tech companies are feeling the pressure to squeeze that incremental revenue out of the consumer and Apple is no different from a company like Tesla which is under attack from Chinese EV maker BYD.

Competition is real and it’s only getting worse.

The proverbial low-hanging fruit has been plucked dry.

Luckily, the lack of expansion didn’t mean that Apple’s stock went down in 2023.

It was very much the opposite with Apple marauded over 40% higher because of the ultra-lucrative tailwind of the “Fed pivot.”

More minutely, Apple managed to underperform other big tech which is where the blips in the operating and creative spheres start to show up.

In 2023, which ended in September, Apple’s iPad revenue dropped 3.4% to $28.3 billion. On a unit basis, iPad sales were even worse, falling 15%.

Even for Apple’s new products, like Mac computers, consumers showed less desire for devices with minor upgrades. Sales of Mac PCs and laptops fell nearly 27% to $10.2 billion in fiscal 2023. Unit sales declined 11%.

In order to return to revenue growth and support its $3 trillion market cap, Apple needs to strike it rich with some new products and global demand for smartphones and laptops to recover.

Despite less-than-stellar performance, Apple is no slouch. The company recorded $383 billion in total revenue in 2023 and earned nearly $97 billion in net income.

Last November, Apple CFO Luca Maestri said the company’s December quarter will experience no growth compared with last year. He warned that Macs, Wearables, and iPads would see a sales drop.

Much of this weakness will eventually drop shares lower, but it is highly likely that a dip will be a garden variety.

Yesterday’s downgrade was a little surprising, but I do believe analysts are prone to issue a downgrade as a reversion to the mean play.

Many might argue that Apple doesn’t deserve as high of a stock price, because its recent near-term ceiling is relatively sagging compared to the past.

That said, its $2.85 billion market cap isn’t too shabby and just a shallow pullback will allow bulls to coalesce around another optimal entry point.

A drawdown will certainly result in a rip-your-face-up move.

Betting against Apple has traditionally been the worst strategy of modern stock trading.

Bears will smartly take profits and run for the hills to get out of the way of the next wave of buy orders.

Wait for the dip to buy Apple.

December 27, 2023

Tech Letter

Mad Hedge Technology Letter
December 27, 2023
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 which 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 that 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 protecting your portfolio by avoiding these TikTok trading gurus is the order of the day.

As we enter 2024, taking tabs on the fallout has been epic.

The TikTok crypto marketers were largely being sponsored by the 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.

BUYER BEWARE

December 22, 2023

Tech Letter

Mad Hedge Technology Letter
December 22, 2023
Fiat Lux

Featured Trade:

(THE FUTURE IS HERE)
(NO CODE)

The Future Is Here

Tech Letter

The future is here.

No code or low code will bring a raft of new innovative tech companies to market, and we are in the early innings of this transformative development.

What is no code?

No-code is an approach to designing and using applications that requires zero coding or knowledge of programming languages.

This type of software hits us at a perfect time when the home office is beginning to become ubiquitous.

The self-service movement that empowers business users will support the creation, manipulation, and employment of data-driven applications.

If we turn back the pages of history, companies need an army of software programmers to develop even the measliest application.

That was then and this is now.

Fast forward to today and automated technology doesn’t only include cutting-edge industries like automotive cars, but also software on laptops that can be rejigged by individual entrepreneurs.

That’s right, one person with no coding experience will be able to design, develop, and offer a real-life application with meaningful business value without the help of expert programmers.

The research data backs up my thesis with research firms projecting a 23% increase in the global market for this type of technology.

During the pandemic, low-code/no-code tools saw steady growth due to their effectiveness in addressing some of tech’s most complicated challenges.

The essential need to digitize workflows and enhance customer and employee experiences will be a boost to the efficiency of commercial and operational teams.

No-code platforms have evolved from just facilitating mundane tasks to making it possible for a broader range of business employees to truly own their automation and build new software applications with no coding while increasing organizational capacity.

A few risks that larger companies might consider is that even for remote developers building new applications, governance is paramount.

IT staff will need to install guardrails in place and have those built into low-code/no-code platforms to maintain consistent levels of security across the organization.

Cybersecurity solutions need to be integrated into this workflow by training every employee at the organization on security behavior and using compartmentalization and limited access to prevent opportunities for mistakes.

Hard landings are hard to recover from and some can be crippling to the business model.

For no-code companies, harmonizing workflows is a key requirement for success.

In a low-code/no-code organization, departments should be able to work without silos and communicate freely across functions.

Elevated performance enabled by low-code/no-code tools will mean that the number of useful apps hurling toward the marketplace will be more and merrier than ever before.

Higher performance will no doubt usher in a new renaissance of efficiency and even better performance.

This also puts a 3 or even 4-day workweek squarely in play.

Many of the best tech minds in the world have supported the concept of working smarter instead of working harder.

A low code/no-code standard will allow for these achievements to take place.

The cratering of costs to start and run a tech firm is affected too.

Deploying startup capital to pay for other expenses will make it easier for successful incubation.

This will ultimately mean that this new type of tech company will need to embrace the fusion of IT and business staff, empowering them with composable applications to speed up the time to market for new solutions.

Low-code/no-code, APIs, and other tools are enabling companies to integrate new applications into their existing tech stack in a more seamless manner with a lift-and-shift approach vs. a rip-and-replace.

At the entrepreneur level, individuals will be able to harness the technology to build $100 million companies with a snap of the fingers when it wasn’t possible to do it before.

This is finally a chance for the little guy to recapture their moxie in the vast and sometimes overwhelming business world.

December 20, 2023

Tech Letter

Mad Hedge Technology Letter
December 20, 2023
Fiat Lux

Featured Trade:

(FUTURE OF AI PATENTS AND LAW)
(CHINA), (NEURALINK)

Future Of AI Patents And Law

Tech Letter

The world is rapidly shifting into a new paradigm where not only do people invent, but people also build artificial intelligence that can invent.

This will have massive ramifications for the business world and the tech industry which is the avant-garde of the business world.

Recent decisions from South Africa and Australia that an artificial intelligence machine can be listed as an inventor on a patent could spur these two locales into being one of the most competitive tech scenes in the world.

The U.S. and Europe will need to figure out what it means to be an inventor.

Registering A.I. as an inventor could potentially mean that multinational corporations won’t shoulder the blame if some sort of insidious experiment with A.I. goes horribly wrong crushing half of mankind.

It also opens up the possibility of some “A.I. invented” app triggering 1000X growth delivering prosperity to half of mankind.

The wide range of possibilities is enough to keep one up at night, and the deeper knock-on effect is that A.I. is now prime for game time.

The rapid acceleration of not only the quantity of A.I., but the increasing quality of A.I. means that countries will need to make some high-stakes business decisions on where A.I. fits into the law and patent system.

Courts in the U.S. and U.K. are expected to issue rulings later this year, and policymakers are gathering information on how to deal with the rising use of AI.

Another piece to the puzzle is how China will treat A.I. and the knock-on effects on American consumers and American businesses.

This sub-sector has been identified as one of the “must-win technologies of the future” by the U.S. administration.

China also leads in AI as it relates to facial recognition and has a database of 1.3 billion citizens to pull data from.

China is pursuing a centrally controlled strategy with hyperlocal implementation. Values and goals are set from above, and resources are made available.

At the local level of municipalities, cities, and provinces, regional administrations compete for the new AI clusters.

The result is a national and regional administrative state that works closely with research, investors, and industry to build a successful AI ecosystem.

In either case, American companies need a verdict and the initial framework of how to treat A.I. in terms of who owns the patents and what that means, or they risk falling behind places like China which is hell-bent on being the first A.I. superpower.

Imagine if all companies were protected from anything negative that AI manufactured and not only with social media.

One could understand how investors could win out big time if a flood of capital nosedived into controversial projects that became money generators.

Big tech has the capital and connections in Washington to advance the initiative.

Another project that comes to mind that would benefit from AI law is Elon Musk-supported Neuralink.

Elon Musk wants everyone to get brain surgery. Specifically, he wants everyone to get a brain implant — the brain-machine interface created by his company, Neuralink. He says it will be able to solve any number of medical conditions — including paralysis, anxiety, and addiction.

A project like this is high risk — a lot could go wrong with it.

But what if the law was set up to just allow investors to write off the externalities and fiscal costs of a failed project?

These rulings also have massive consequences in where the new Silicon Valley migrates to and if the rules are favorable in South Africa, what’s stopping Facebook from exploring an opening of a Cape Town subsidiary?

Not much is the answer.

The issue of inventorship is just a small part of the dilemma over how to deal with AI, such as what types of AI software are eligible for a patent and who owns the massive amounts of data required to “teach” the machines.

A decision clarifying which AI inventions are eligible for patenting would be impactful.

Ultimately, AI is a high-stake game that gets more important by the day and so far there has been nothing detrimental that will affect the fortunes of big tech and their quest for higher share prices.

December 20, 2023 - Quote of the Day

Tech Letter

“You may think using Google's great, but I still think it's terrible.” – Said Co-Founder of Google Larry Page

December 18, 2023

Tech Letter

Mad Hedge Technology Letter
December 18, 2023
Fiat Lux

Featured Trade:

(THE TRUTH ABOUT AUTOMATION AND WALL STREET JOBS)
(AAPL), (GOOGL), (FB), (AMZN), (NFLX)

The Truth About Automation And Wall Street Jobs

Tech Letter

Automation is taking place at warp speed displacing employees from all walks of life.

According to a recent report, the U.S. financial industry will depose 200,000 workers in the next decade because of automating efficiencies.

Yes, humans are going the way of the dodo bird and banking will effectively become algorithms working for a handful of executives and engineers.

The x-factor in this equation is the direct capital of $150 billion annually that banks spend on technological development in-house which is higher than any other industry.

Welcome to the world of lower costs, shedding wage bills, and boosting performance rates.

We forget to realize that employee compensation eats up 50% of bank expenses.

The 200,000 job trimmings would result in 10% of the U.S. bank jobs getting axed.

The hyped-up “golden age of banking” should deliver extraordinary savings and premium services to the customer at no extra cost.

Mobile and online banking has delivered functionality that no generation of customers has ever seen.

The most gutted part of banking jobs will naturally occur in the call centers because they are the low-hanging fruit for automated chatbots.

A few years ago, chatbots were suboptimal, even spewing out arbitrary profanity, but they have slowly crawled up in performance metrics to the point where some customers are unaware they are communicating with an artificially engineered algorithm.

The wholesale integration of automating the back-office staff isn’t the end of it, the front office will experience a 30% drop in numbers sullying the predated ideology that front-office staff are irreplaceable heavy hitters.

Front-office staff have already felt the brunt of downsizing with purges carried out in 2023 representing a fifth year of decline.

Front-office traders and brokers are being replaced by software engineers as banks follow the wider trend of every company transitioning into a tech company.

The infusion of artificial intelligence will lower mortgage processing costs by 20% and the accumulation of hordes of data will advance the marketing effort into a smart, hybrid cloud-based, and hyper-targeted strategy.

Historically, a strong labor market and low unemployment boosts wage growth, but national income allocated to workers has dipped from about 63% in 2000 to 56% in 2023.

Causes stem from the deceleration in union membership and outsourcing has snatched away negotiating power amongst workers and the implemented mass automation has poured fat on the fire.

I was recently in Budapest, Hungary on a business trip, and on a main thoroughfare, a J.P. Morgan and Blackrock office stood a stone’s throw away from each other employing an army of local English proficient Hungarians for 30% of the cost of American bankers.

Banks simply possess wider optionality to outsource to an emerging nation or to automate hard-to-fill positions now.

In this race to zero, companies can easily rebuff requests for higher salaries and if they threaten to walk off the job, a robot can just pick up the slack.

Automation is getting that good now!

The last two human bank hiring waves are a distant memory.

The most recent spike occurred 7 years after the dot com crash of 2001 until the sub-prime crisis of 2008 adding around half a million jobs on top of the 1.5 million that existed then.

The longest and most dramatic rise in human bankers was from 1935 to 1985, a 50-year boom that delivered over 1.2 million bankers to the U.S. workforce.

This type of human hiring will likely never be seen again in the U.S. financial industry.

Recomposing banks through automation is crucial to surviving as fintech companies are chomping at the bit and even tech companies like Amazon and Apple have started tinkering with new financial products.

The brutal truth out there is sadly; don’t tell your kid to get into banking, because they will most likely be feeding on scraps at that point.

WALL STREET IS LEANER THAN EVER