“I think the most diverse group will produce the best product; I firmly believe that.” – Said Apple CEO Tim Cook
Mad Hedge Technology Letter
January 11, 2023
Fiat Lux
Featured Trade:
(OPENAI BLAZES A TRAIL)
(BING), (GOOGL)
ChatGPT, the artificial intelligence chat tool created by OpenAI, burst onto the scene only a month ago in December 2022 when the service accumulated a few million subscribers in days.
Artificial intelligence has always been tabbed as the future – the future is now here.
Damn straight, and about time!
ChatGPT is a program that is able to carry on a text-based conversation by generating answers and replies using its artificial algorithm.
In many cases, the answers and replies seem so natural that it is almost impossible to differentiate between a real human and a piece of code.
This software is a game changer.
The piece of technology went viral only last month when its free version launched and students were the first to figure out its usefulness.
December 2022 could be looked back upon as the AHA moment when American students finally stopped needing to ever write essays and that’s exactly what has happened.
Then there is the question of why students securing degrees in fields like art history, language, or any humanity field need to go to school at all.
OpenAI has now rendered American universities worthless.
Aside from specific specialty fields like science, technology, and engineering, the case for students paying a bajillion dollars per year to attend some glorified adult day care center is marginal.
Technology has now democratized knowledge.
It’s not that surprising a big tech company would swoop in to take advantage - Microsoft and their CEO Satya Nadella are in talks with OpenAI to invest $10 billion in ChatGPT-owner OpenAI as part of funding that will value the firm at $29 billion.
Hard to understand why Apple or Meta isn’t in the running.
Microsoft will also get 75% of OpenAI's profits until it recoups its initial investment.
OpenAI expects $200 million in revenue next year and $1 billion by 2024.
OpenAI charges developers licensing its technology about a penny or a little more to generate 20,000 words of text, and about 2 cents to create an image from a written prompt.
This could be the beginning of a foray into intense competition with Google’s search engine by Microsoft’s Bing.
Bing has been deadweight for many years and I hardly know anyone who actually uses it.
The effectiveness of Bing search is mediocre at best and Google search has always been the best in class.
I believe that Microsoft will unleash ChatGPT to skew future content towards its Bing search engine.
If one opens Google Maps on a different browser, it hardly works.
I expect some sort of similar correlation with Microsoft Bing that ties ChatGPT-based content with the Microsoft Bing browser.
Then there is the ChatGPT foreign language potential which could potentially usurp Google Translate in the future simply because it becomes better than Google Translate.
Google translate has cornered the foreign language translation market in a browser market and that could easily be reversed with ChatGPT once it starts integrating with many foreign languages.
I am surprised Google let this one get away because they are directly threatened by it and Google’s acceleration is decelerating.
Microsoft is clearly a winner from this investment and I can expect for its Bing search engine to slowly steal market share from Google search as it integrates ChatGPT into its in-house browser. The American university system is clearly a loser here with most college degrees not worth the ink the diplomas are written on. Don’t waste money on obsolete education.
Buy Microsoft shares on the dip.
“Don't let the noise of others' opinions drown out your own inner voice.” – Said Co-Founder of Apple Steve Jobs
Mad Hedge Technology Letter
January 9, 2023
Fiat Lux
Featured Trade:
(TECH PRICE ACTION BLAZES)
(ZM), (SQ)
The interest rate that impacts tech stocks the most is the federal funds rate, and that’s important to know for readers.
The Federal Reserve is the body of an unelected group of so-called economic experts who mostly have never had a real job or never have had experienced running a company in their life.
Outsized control is given to these decision makers to decide at what interest rate banks and other similar institutions can lend money.
The biggest news nugget not chatted about lately is how the expectations for future Fed Funds interest rates has collapsed from 5% to 4.75%.
Only 2 more quarter-point increases from here and then we are done and dusted and ready for a reverse in policy.
This is why tech stocks have bolted out the back of the stable to start the year.
The setup is incredibly dovish and the price action so far this year has been overwhelmingly positive.
Many traders believe that inflation is decelerating and are taking advantage of this theme by buying tech stocks in the short term.
The outsized beneficiaries in the short term are the tech stocks that went down the most on the way down like video-conferencing technology firm Zoom Video Communications (ZM).
The Friday snapback meant that ZM rose 6% and other similar growth stocks felt the same wicked price action to the upside.
Fintech company Square (SQ) also rose 6.6% representing a nice reprieve from the constant onslaught of weakness in share price since November 2021.
The bright start to tech in January has a lot to do about positioning with many traders previously stationed for a sharp fall in equity prices.
However, the 800-pound gorilla in the room now is China which has reversed policy and is now open for business.
The shuttering of the failed lockdown policy in China is highly bullish for tech stocks and general equity sentiment.
Chinese consumers who go abroad are big spenders and an open China will translate into meaningful demand for tech software, hardware, products, and raw materials.
Get ready for all the large metropolitan areas around the Western World and Asia to be flooded with cash-rich Chinese who have had 3 years to dream about where and how to spend their cash.
This will easily translate into increased purchases of not only second homes on the French Riviera and Zermatt, Switzerland, but shiny new iPhones, new Teslas, new software for their social media businesses, and the ancillary software needed to manage their businesses like Mailchimp, Wix, Slack, Wave Accounting, Trello, and so on.
These larger macro trends can feed into big tech even if some of them have no direct input.
Luckily, traders are chomping at the bit for the Fund Funds rate to flatten then reverse lower and that will equate to a monster rally into battered tech stocks.
The first week of tech strength is just a preview of what will happen later this year as tech goes from ice cold to the hottest asset in the equity markets.
As positioning goes, traders and investors should be skewed towards a quick upwards burst in price action.
There will be a time to sell this rally and take the other side as well.
Positioning from the short and long side is essential to securing alpha in 2023.
Don’t believe anyone who says you can just buy and hold or permanently sell to buy lower as a legitimate investment strategy, because that ship has sailed. The death of straight line investing is upon us.
New investors should start small and build up positions instead of betting the yurt during a massive deleveraging moment in tech stocks.
Consensus is moving towards a “soft landing.”
Mad Hedge Technology Letter
January 6, 2023
Fiat Lux
Featured Trade:
(JOBS REPORT A TAILWIND FOR TECH SHARES)
($COMPQ)
Don’t forget that we are still in the middle of a good-news-is-bad-news paradigm.
This paradigm could be positive for tech stocks in 2023.
Why is that?
Tech shares and the investors that participate in the trading of these shares are betting that the Fed doesn’t have the gall to lower inflation to the mandated 2%.
The incessant desire for the Fed pivot would result in the Fed changing directions and reversing its quantitative tightening.
The Fed will delay the much-awaited easing of monetary policy if there is too much good news.
Sure, this all seems counterintuitive, and that isn’t your fault.
The Fed isn’t too interested in killing inflation because it could instigate a stock market crash or an economic depression.
The verbiage the Fed uses is a “soft landing.” That’s what they want opposed to a “hard landing.”
Why did tech shares skyrocket on the latest jobs report?
The headlines were fantastic therefore based on the above description, tech shares must have sold off, but the inverse happened and tech markets went gangbusters this morning.
The economy added 223,000 jobs in December, beating expectations, but most of these jobs weren’t white-collar or full-time jobs.
The US gained 4.5 million jobs in 2022, making it one of the best years of job growth ever, but the tech market doesn’t care about that one because the stock market trades on forward-looking valuations.
In fact, the US tech sector has been leading the charge in layoffs with many tech executives saying they overhired during the arbitrary lockdowns.
The tech market clung to one number and naturally the one that has a direct influence on the high inflation rate - wage growth at 3.4% year over year.
This was also the smallest job gains in the past 2 years.
Today's jobs report is a stark reminder that wage growth is being smothered by Bidenflation.
More folks have to take on a second job just to make ends meet.
Sometimes even a darn third job if time allows.
Lately, wage growth has come in incredibly high, because for quite some time, those high-paying full-time jobs were still on the table.
Ultimately, broad-based job losses are what will lead to a Fed pivot and not just tech jobs losses.
Tech is way ahead of the game executing broad-based layoffs and they will be rewarded for it. These are also great entry points to buy the dip.
It’s natural to observe many tech firms tightening up operations. Money isn’t free anymore and earnings are falling apart as we speak.
Tesla is cutting the price of Tesla EVs in China.
Amazon is cutting a more-than-expected 18,000 workers.
Many tech firms are slimming down their model to prepare for a recession.
The endpoint here is low rates and a lot of pain will occur to get to that end.
Tech in early 2023 will merely be a high-volatility trader’s dream until we get the green light for easy money again.
Buy big dips and sell large rallies – rinse and repeat. There is no way that tech stocks will go up in a straight line because earnings simply aren’t accelerating – they will be lucky to just pass the sniff test at this point so position accordingly.
“Your time is limited, so don't waste it living someone else's life.” – Said Co-Founder of Apple Steve Jobs
Mad Hedge Technology Letter
January 4, 2023
Fiat Lux
Featured Trade:
(CREATIVE CLOUD SEEKS AN EDGE)
(ADBE)
