Mad Hedge Technology Letter
November 14, 2022
Fiat Lux
Featured Trade:
(LOW BAR HAS BEEN SET)
(COIN), (HOOD), (MSTR)
It’s been a historic and unprecedented last few weeks in the world of technology.
99.9% of crypto projects are effectively a zero after this weekend.
Cryptocurrency has now descended into a death spiral due to a fraud so large that it makes many who got caught up in the mess sick to their stomach.
This “trigger” event has massive ramifications for the technology industry and is highly positive for the health of the tech sector.
Enter Former CEO of FTX, the former second biggest crypto exchange, Sam Bankman-Fried or SBF.
His crypto exchange FTX filed for bankruptcy just days ago.
SBF was stealing customer deposits to invest in his lifestyle and bought off everyone he thought was useful, including politicians, regulators, sports athletes, and famous actors.
SBF even bailed out many crypto-related companies during the recent downturn that were confirmed Ponzi schemes or frauds just to onboard them onto an even bigger scam.
In the end, a bank run collapsed SBF’s crypto empire and exchange.
It was only after the house was on fire that normal investors found out that his business was rotten to the core.
How did SBF hide this?
FTX and SBF literally replaced these funds on their balance sheet with their own in-house crypto coin that was produced and created by FTX.
This self-made coin was called FTT and FTT represented $7.4 billion of “liquid” funds for FTX on their balance sheet.
Therefore, when mass demands for withdrawals took place, FTX didn’t have the capital to distribute back to account holders because the value of FTT had sunk 95%.
The $18 billion in liabilities was only propped up by $900 million of real liquidity with $470 million comprising of Robinhood (HOOD) stock shares.
Ultimately, FTX faced an $8 billion shortfall to fill in short notice or go under.
Any reader holding any crypto on any exchange should request immediate withdrawal of funds as soon as possible.
Don’t be the last one to ask for your money back. Get out while you can!
There is a good chance that every crypto exchange was faking their balance sheet with fake coins that have fake values while claiming these coins are liquid as US dollars.
That means weak balance sheets could plant the seeds of more bank runs putting extreme stress on liquidity and forcing them to halt withdrawals.
Any project related to FTX is now a zero.
This industry is truly broken and will take a generation to heal itself or might never come back.
I understand the FTX debacle as a highly positive event for the tech sector and tech stocks moving forward because it makes legitimate tech stocks look great.
FTX has set a low bar for tech stocks to jump over.
The Nasdaq market needed the fluff removed after the tech bubble had a 2-year accelerated bull market until 2022 and that came after a 10-year garden variety bull market in tech stocks.
FTX was the fluff. Avoid stocks such as Coinbase (COIN), Robinhood (HOOD), and MicroStrategy (MSTR).
Normal tech stocks will benefit after many incremental investors now believe crypto is completely fake.
This will forever be known as the colossal event that brought crypto to its knees.
I do believe that many of the leftover Bitcoin survivors will migrate into tech stocks moving forward because that’s the closest derivative to crypto.
Tech companies need to go through a lot of soul-searching to get their mojo back and a recession is always a good time to separate the good from the bad. Now, this is even better.
Crypto’s demise means venture capitalists will start to open the checkbook for non-crypto tech instead of spilling their money down a black hole.
“Technology is the key weapon in the fight for control of the industries of the future and in combating pandemics.” – Said American Economist Nouriel Roubini
Mad Hedge Technology Letter
November 11, 2022
Fiat Lux
Featured Trade:
(POSITIONING COUNTS)
(AMZN), (CVNA), (CPI)
Yesterday was a historic day for technology stocks as blue chips firm such as ecommerce firm Amazon (AMZN) was up over 12% on the day.
It was a day to remember.
Even the marginal tech stocks did well like digital used car dealer Carvana (CVNA) which delivered almost 31% of performance in just one day.
I would boil down one of the greatest up days in tech stocks’ history to positioning.
Tech stocks have been crushed on almost every inflation report and when the October Consumer Price Index (CPI) dished us a 7.7% increase over last year and 0.4% increase over the prior month, tech stocks took off like a rocket.
We finally clawed one back for the tech companies.
That’s not to say we are in a deflationary environment – hardly so.
However, the bar has been set so unbelievably low at this point, that any measly beat of consensus was going to cause this type of explosive reaction.
The highly positive unintended result is that it offers investors an attractive entry point into tech stocks until the November CPI report in December where we play chicken yet again.
I fully expect dip buyers and portfolio managers chasing year-end performance to jump into this bear market rally until December 13th.
Long term, the Central Bankers must be shaking their heads as this sets the stage for even more inflation as a cheaper dollar will bid up the price of commodities possibly delivering consumers higher oil prices and higher raw material costs next year.
That means higher iPhone costs and higher EV costs that get passed onto the guy or gal opposite the cashier's counter – the American consumer.
Other knock-on effects will mean higher gas prices for Uber, Lyft, and DoorDash drivers to deliver hot meals.
Celebrating a 7.7% inflation headline as a homerun is funny when we think about it, but that’s how negative positioning was going into yesterday.
The indexes for used cars and trucks, medical care, apparel, and airline fares all declined over the month.
Looking into individual aspects of the report, housing prices continued their climb, with the cost of shelter recording its largest month-on-month increase — 0.8% — since August 1990, while rising 6.9% from a year ago.
The food index increased 0.6%, down slightly from September's 0.8% increase.
I can easily see the shelter portion of inflation dropping for the November CPI report in December because shelter is a lagging indicator and my analysis earths reductions in rental listing prices and greater supply.
Therefore, shelter coming down would stoke yet another bull rush into New Year for tech stocks.
In a nutshell, short-term highly positive and long-term somewhat negative for tech stocks is how I would categorize this report.
At the end of the day, investors and traders scoff at the 5% Fed Funds rate as not a big deal and are weaponizing any scintilla of relative loosening to pile into the long side.
This is the problem when the smartest people in the world are convinced that the Fed will save the day if systemic contagion ever emerges and until then, keep bulldozing into the bull side on every modicum of perceived easing to the credit liquidity story.
It is basically a lift-off for tech stocks until December 13th.
“The joke about SAP has always been, it's the lingering hangover from the dot-com crash.” – Said American Venture Capitalist Marc Andreessen
Mad Hedge Technology Letter
November 9, 2022
Fiat Lux
Featured Trade:
(RISKY BUSINESS)
(ARKK), (SARK), (ROKU), (TSLA)
Tech growth is a sub-sector that readers really need to stay away from right now.
It’s toxic for the time being.
We are still right in the middle of the Fed Funds rate hike cycle and the pounding has been relentless with former tech darlings breaking records for lower lows.
The poster child for the excesses in tech growth is Cathie Wood who is the CEO of ARK (ARKK) innovation funds.
She has completely ignored “market timing” and has used every brash sell-off to go big without doing much research.
This strategy has proven to be highly unsuccessful, as many of her top holdings like Tesla are again in free fall.
CEO of Tesla Elon Musk just sold $4 billion of stock to divert into his new company Twitter which lost a massive amount of advertising revenue when he took over.
Yesterday, crypto experienced an unbelievable meltdown when the 2nd largest exchange FTX once valued around $35 billion was and still is on the brink of bankruptcy.
The same day Wood bet the ranch on crypto exchange Coinbase (COIN) adding 420,949 shares of COIN to the current 7.7 million that ARK Investment Management currently holds.
Bitcoin is down 13% at the time of this writing, representing yet another giant flop for Wood.
Wood is performing highly risky moves at the peak of turmoil in an industry that many think is a Ponzi scheme.
Her exploits are so infamous that it now has an inverse ETF that tracks the opposite of what she decides and performance has been stellar.
That ETF, called AXS Short Innovation Daily ETF (SARK), has soared more than 111% since launching a year ago. That’s the second best performance among the nearly 450 ETFs that launched over the past year.
Wood’s second biggest position is ad tech firm Roku (ROKU) which has gone from $460 to $48 today.
SARK’s first-year performance is among the 20 best of all-time measured against funds that are still trading.
Wood’s poor performance represents the pitfalls of choosing an investment adviser when they are one-dimensional and unable to acknowledge initial mistakes.
Instead of adjusting a flawed strategy, she has used it as the impetus to double down on a bad strategy.
The best hedge fund managers know when they are wrong and quickly reverse course or cut their losses.
Wood’s failures are quickly dealt with by blaming others, routinely saying that others “don’t do their research.”
Wood’s propensity to hype up tech like there is no tomorrow is now directly working against her.
She views any and every selloff as a brilliant entry point while ignoring broader market fundamentals.
In short, the day Cathie Wood is bearish is the day to go big into tech shares, because there are likely no more incremental buyers willing to hold the bag.
Truth be told, the Nasdaq currently sits 35% down from its November 2021 peak a year on.
I would call that pretty good, considering we are deleveraging from the biggest man-made financial bubble that was ever created in financial markets.
The bubble has caused the US Federal government to shoulder more than $31 billion of government debt that needs to be serviced with constant interest payments.
The only reason why tech shares are down 35% is because every investor believes the US Central Bank will kick the can down the road and save corporate America when push comes to shove.
This is precisely why recent bear market rallies have been epic, and any scintilla of interest rate loosening talk is met with thunderous buying.
If investors were more scared of the Fed, tech shares would be down at least 60% by now.
“A.I. is probably the most important thing humanity has ever worked on.” – Said Alphabet CEO Sundar Pichai
Mad Hedge Technology Letter
November 7, 2022
Fiat Lux
Featured Trade:
(UNREGULATED TECH)
(U.S. MIDTERMS)
