Mad Hedge Technology Letter
October 27, 2023
Fiat Lux
Featured Trade:
(CRYPTO IS BACK AT IT AGAIN)
(MSTR), (BTC)
Cryptocurrency prices have been on a tear lately as bitcoin continues to rally on hopes a spot bitcoin exchange-traded fund will launch soon.
Last week Bitcoin had a 24-hour time period where it exploded 13% to the upside as the digital gold wakes up from its slumber.
Lately, it certainly is odd to see US treasury yield surpassing any type of volatility that crypto can offer proving that volatility is more about a time and place dynamic rather than a certain asset class.
The volatility meant that Bitcoin passed $35,000 for the first time since May 2022 even though it has pulled back a little today.
The rally could be fueled in part by investors who were betting against the crypto asset scrambling to cover short positions as well.
Bitcoin led cryptocurrency prices higher over the past two weeks after the SEC declined to challenge its court loss against Grayscale Investments (GBTC) and its effort to convert its Grayscale Bitcoin Trust into a spot bitcoin ETF on Oct. 13.
A U.S. appeals court ordered the SEC to review Grayscale's ETF application. The regulator could still reject the spot bitcoin application, but it would need a new justification to do so.
Institutional demand for a spot bitcoin ETF is stronger than ever before. For many institutions, it is a matter of when — not if — the SEC will approve a spot bitcoin ETF.
A spot bitcoin ETF would provide a regulated and accessible vehicle for bitcoin exposure, and also mark a major vote of institutional confidence.
MicroStrategy (MSTR) added 21% and the computer software company holds 158,245 bitcoin with an average purchase price of $29,582.
Sooner or later, unless regulation totally wipes out Bitcoin, crypto is likely to find itself finagling its way into 401K’s.
The longer it lingers around, institutional pockets, which are deep, will find a way to onboard it into its business model.
For many years, institutional money has stayed away from crypto primarily because it is built on nothing and most conservative investors want to see cash flow.
At least an asset like gold bullion, there is a physical nature of what one buys.
Yet, as the world becomes more digitized and globalized, institutional money is starting to take the bait.
To Bitcoin’s credit, the absolute collapse of volatility in the past few years has been an interesting talking point because too much volatility used to be the problem for this asset class.
There is a chance that as we begin to start a new economic cycle because of a Fed pivot, that $16,000 per Bitcoin at the end of December 2022 could register the low of the next cycle.
Bitcoin is more appealing as a risk-reward proposition now than it was exactly a year ago as the Fed embarked on an epic tightening cycle.
Throw into the mix that the quality of global government has cratered to a generational low and it makes sense for institutional backers from Blackrock to front-run the next bull market in crypto as capital looks to de-risk from fiat currencies.
This could finally end up being the run-up to $100,000 per bitcoin that everyone expected during the last bitcoin spike.
Readers can play this in the equity market by buying MSTR.
“Don't let the noise of others' opinions drown out your own inner voice.” – Said Steve Jobs
Mad Hedge Technology Letter
October 25, 2023
Fiat Lux
Featured Trade:
(AMERICA SHINES WHILE EUROPE SLUMBERS)
(TSLA), (NVDA), (AAPL), (ABNB), (UBER)
Europe’s fintech companies are exploding.
The weakness in stock prices is emblematic of the broader malaise in the Eurozone economy.
The positive here is that the US economy keeps chugging along and on a relative basis, is leaps and bounds stronger than its counterpart.
Why does that matter?
The less money invested into European tech can be diverted into the likes of Tesla (TSLA), Nvidia (NVDA), Apple (APPL), and the rest of the American tech companies.
I absolutely see this as a zero sum game in a world where all the low-hanging fruit has been plucked.
In a globalized world, investors can really just dabble in whatever national market they seek to profit from with ease.
It’s really just a few taps of the screen.
Silicon Valley is already heavily entrenched in Europe with sprawling workforces in many of the 27 countries in which they arbitrage lower wages to their benefit.
If one ever hoped a local rival would root out American variants, it’s a hard slog ahead.
France’s worldline shares plummeted a record 59%, erasing €3.8 billion ($4 billion) of market value, after the French payments company slashed future forecasts.
The stock’s plunge echoes August’s huge fall in peer Adyen NV and follows Tuesday’s 72% drop in fintech CAB Payments Plc. Shares in Adyen declined 7.5% on Wednesday, while another peer, Nexi SpA, slid 18%.
Since then, worries over lofty valuations and a broader slowdown in consumer spending have brought the high-flying stocks back to earth. Adyen, Nexi, and Worldline have lost more than $33 billion in market value combined in the year to date.
Worldline said it now sees full-year organic revenue growth of 6% to 7%, down from a previous forecast of 8% to 10%. The company’s third-quarter sales also missed estimates.
Small fintech companies growing in the single digits is one of the biggest fopaux an up-and-coming fintech company can commit.
Management also complained that European consumers are tapped out.
They don’t have the money to allocate to “non-discretionary” items.
Europeans are basically paying for shelter, energy, and food.
If there is anything else left over, it’s not much. That’s what happens when the cost of living rises between two and three times.
Management also emphasized an acute slowdown in German consumer spending which hurts since these consumers are some of Europe fintechs biggest customers.
I do believe that many investors aren’t going to stay invested in Europe’s fintech space and it is ripe for consolidation which ironically could come from America’s magnificent 7 who have the deep pockets.
It’s a fragmented sub-sector of tech with some operators pigeonholed into one microscopic area of Europe like Andorra or Slovenia.
Technology scales but Europe is hard in the sense it must cut through a vast language, sprawling bureaucracy, high tax regimes, and cultural barriers not to mention different laws. Throw into the mix that multinationals have stopped supporting work visas for non-EU citizens and it is easy to understand why Europe is not ideal for starting tech firms.
The narrow path is why a company like Worldline generates revenue of around $1.2 billion per quarter as opposed to an American PayPal (PYPL) which does $8 billion per quarter.
If we look at the big boys like Google, quarterly revenue goes up to $80 billion per quarter highlighting how far back Europe is from the real upper echelon of American tech.
If Europe is getting trounced by the likes of PayPal, then investors can’t get angry when they get labeled the bush leagues of global technology.
Look at Silicon Valley and especially the tier 2 firms like Uber (UBER) or AirBnb (ABNB) for the real growth instead of Europe’s suffocation of free market technology.
Mad Hedge Technology Letter
October 23, 2023
Fiat Lux
Featured Trade:
(A SIMPLE GUIDE TO QUANTUM COMPUTING)
(RGTI), (IONQ)
According to IBM, Quantum computing is a rapidly emerging technology that harnesses the laws of quantum mechanics to solve problems too complex for classical computers.
Used correctly, quantum computers are incredibly fast and effective. They can perform calculations in a few seconds for which today's supercomputers would need decades or even millennia. This fact is also referred to by experts as quantum superiority.
Why Buy Quantum Computing Stocks?
Quantum computing isn’t so crazy as you think and it’s inching closer to reality.
These types of transcendent technologies are what investors need to key in on to help make their tech stock portfolio better than ever.
This will enable researchers to break new ground in areas such as pharmaceutical drug discovery, weather forecasting, cybersecurity, and computational chemistry.
It will also result in unprecedented gains for owners of quantum computing stocks.
The Best Quantum Computing Stocks
Will quantum computing be successful? That's the multi-trillion dollar question.
We're in the first innings of a long ball game if the game has even started.
Still, there are already some pioneers that are re-imagining the field.
Here are two quantum computing stocks to put on your radar:
Rigetti Computing, Inc. (RGTI)
Rigetti Computing builds and deploys integrated quantum computing systems leveraging superconducting qubit technology.
CEO Chad Rigetti has a simple and clear thesis on this space: “In the next decade, a single Rigetti quantum computer could be more powerful than the entire global cloud industry today.”
Rigetti will need the capital infusion from going public because the firm doesn’t have any positive revenue to talk about. The IPO delivered a much-needed financial lifeline and the additional $458 million in funding came after an initial $200 million was raised previously. That could also be a big con about the sub-sector, it might be years until an actual profitable income stream is built.
Whoever said that Rome was built in one day?
Quantum computing is only at the beginning of its development. It is difficult to estimate how large the market demand for this product will be. It's also uncertain how quickly Rigetti or competitors like IonQ will be able to expand their technical capabilities. This is an entirely new technological territory, so there are zero guarantees here in this tech sub-sector.
Needless to say, Rigetti is a concept stock for now. One has to believe in the underlying vision of quantum computing to place a bet here. Otherwise, it would be wise to switch to other stocks without a quantum computing business plan or corporate strategy.
IonQ (IONQ)
IonQ produces quantum hardware and software.
IonQ was faster to market than Rigetti, making it the first publicly traded quantum computer stock. Also, the company is backed by a number of influential investors including Bill Gates, Silver Lake, and Fidelity.
Unfortunately, like many SPACs these days, IonQ only exists on paper. That means there is still very little operational business. IonQ only did a few million in revenue last year and had no revenue in 2019 or 2020. In fact, free cash flow is projected to remain negative through at least 2026. Also, it will take multiple technological leaps - such as machine learning - to reach a point where quantum computing can reach mass markets and make IonQ successful.
RGTI’s market cap is only $125 million and IonQ’s is $927 million and they are cheap for a reason.
Investors aren’t willing to pay for the time it's willing to take for quantum computing to go mainstream yet.
However, if a reader is willing to invest with a 35-year view, then it would make sense to invest 1% of one’s portfolio into these names and also at a time when interest rates are trending lower.
These types of loss-makers and far-in-the-future bets work better when the cost of capital is lower.
Expect some stock appreciation as investors start to bet on the Fed lowering interest rates.
Mad Hedge Technology Letter
October 20, 2023
Fiat Lux
Featured Trade:
(INDIA CATCHES A TECH WAVE)
(GOOGL), (AAPL)
With all the tumult going on in the world today, it’s not shocking that big decisions are being made in terms of tech production and manufacturing outsourcing.
These decisions will reverberate through the tech world for a generation.
China used to be the factory of the world and many thought that its economy would rebound from its lockdown lull to carry the tech world on its shoulders.
It’s clear that China will remain in the doldrums.
China and the west are decoupling fast and that means American tech companies are no longer comfortable doing business in the Middle Kingdom.
Many big players like Apple are hitching a ride out of the land of pot stickers and Beijing roast duck.
The latest announcement was Alphabet (GOOGL) who will begin production in India of its Pixel 8 smartphones in time for sales in 2024.
Google will partner with local and global suppliers to put together its first India-made handsets, hardware.
The move from the company responsible for Android, the world’s most-used mobile operating system, adds to a string of successes by India’s government in enticing international device makers to build locally.
Dixon Technologies India and Foxconn Technology Group’s Indian unit are the leading contenders to manufacture the phone.
Indian Prime Minister Narendra Modi’s administration has attracted greater investment from Apple, which opened its first two stores in India this year and is increasingly shifting iPhone production from China to India.
The latest iPhone 15 generation was also the first in the company’s history to launch made-in-India handsets at the same time as those made in China.
Outside of US device makers, Samsung Electronics Co. also manufactures its Galaxy handsets in India and Chinese Android vendors have set up partnerships with local assemblers.
Google counts India as a critical growth engine, where most smartphones run on its Android ecosystem.
However, Google also faces business and regulatory challenges there – startups and companies like Disney have legally challenged some of its in-app policies. Google is also fighting several antitrust battles including one related to alleged abuse of its position in the Android market.
Interestingly, the South Asia country's approach to attracting big manufacturing investments isn't limited to incentives alone.
The government has also implemented comprehensive restrictions to control the influx of foreign electronic devices. It's a strategic blend of both persuasion and coercion, convincing these tech giants to take the plunge into the Indian manufacturing landscape.
Around 200 U.S. companies are actively exploring the possibility of shifting their manufacturing bases from China to India, according to the US-India Strategic and Partnership Forum (USISPF).
It is entirely realistic that in the short future that India will secure the title of the world's largest global manufacturing hub, toppling China's longstanding dominance in the years to come.
These developments are emblematic of a tech manufacturing world in turmoil.
India is perceived as a safe bet to be able to pump out all those gizmos and gadgets that American big tech is reliant on to drive sales.
India also has a massive work force that specializes in software.
It’s easy to say that if American big and small tech hopes to power itself for the next 30 years; they absolutely need the mojo of Indian tech labor and manufacturing to prop up Silicon Valley.
Google moving their supply chain to India gives me more conviction in recommending this stock for the long term.
“Experience is the teacher of all things.” – Said Former Roman Leader Julius Caesar
