“Bad times are incredibly good for Palantir.” – Said CEO of Palantir Alex Carp
Mad Hedge Technology Letter
January 13, 2023
Fiat Lux
Featured Trade:
(BUY ANY TECH DIP)
($COMPQ), (APPL), (TSLA), (CPI)
Deflation is back and hard to believe after a disastrous 2022.
Tech investors finally are cheering on the positive structural backdrop as the mother’s milk has been removed for quite some time.
Last year was so bad for big tech that CEO Tim Cook’s compensation sunk from $99 million in 2022 to only $48 million in 2023.
Is that Putin’s fault too?
Jokes aside – yeh - it’s that bad for the tech CEOs so you can imagine how bad it is for the part-time worker censoring Facebook posts.
It’s not going all smooth at Apple either.
Apple is in the process of moving production from China to India and Vietnam.
Chinese factories aren’t as cheap as they used to be and they aren’t open consistently.
The 6.5% CPI was right bang on consensus yesterday and confirms the notion that prices are coming down fast.
Just look at some prices like used cars – prices are down 8.8% year over year.
The end result is that a recession will be delayed and the tech market won’t crash because of rapidly sinking earnings, but propped up by rapidly sinking interest rates.
Just look at the bond market – the U.S. 10-year rate has crashed.
Earnings won’t be great and tech has led the way with firings from many of the famous big tech firms.
It’s true that this is a down patch for big tech, but big tech will come roaring back like it always does.
The leaders will most likely be different motley crew this time around.
Tech companies aren’t doing great right now, but it could be worse.
The ones with strong balance sheets are looking to add growth externally such as Microsoft’s potential investment in OpenAI.
The dirty secret is that many tech companies aren’t looking to add cash-burning companies which prevent a lot of potential deals since most start-ups aren’t profitable.
Another clear sign that tech is on sale is the much-publicized Tesla price cuts so lower revenue is definitely on tap or at best – revenue plateauing.
Consumers can now get their Tesla for an eye-watering discount – just don’t anger the CEO or he’ll turn your software off.
The discounts have spread to Europe, in Germany, Tesla cut prices on the Model 3 and the Model Y from 1% to around 17%, depending on the configuration. Tesla’s Model 3 was the bestselling electric vehicle in Germany in December 2022, followed by the Model Y.
Part of the real reason that tech has rallied so hard to begin the year is because the sector was battered so badly last year.
We cannot claim victory after just 2 weeks of positive price action – only politicians get to claim victory for nothing – the rest of the year won’t be easy by any metric.
The world is wonky where the American consumer is tapped out, but much of the job firings have been limited to tech. Former tech workers can still rotate into other sectors to find work as tech companies become streamlined. I expect a very different tech sector moving forward with far less waste. I forecast something more similar to a single CEO delegating work to an army of bots and algorithms.
Tech overhired in the first place, so going back to 2020 staffing levels supersede any sensationalist headline that tech is over. I believe tech companies need to go back to 2015 staffing levels.
As long as deflation is priced into tech shares for the rest of 2023, tech stocks will be a buy-the-dip type of asset class.
However, in the short term, we have run quite hot for the first 2 weeks as the tech sector sets up for the first dip of the year.
“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)
