Mad Hedge Technology Letter
May 13, 2024
Fiat Lux
Featured Trade:
(BUY THE TOURIST PLATFORM TECH STOCK)
(ABNB), (EXPE)
Posts
Any type of selloff in Airbnb (ABNB) shares will be short-lived as we approach the summer Olympics and European soccer summer tournament.
Global Events of a month-long will get people out of their homes and spending their cash.
These premium events will move the needle for Airbnb revenue-wise in Europe.
The heart of world travel is Western Europe so it’s convenient that these mega-events are in France and Germany and not in some backwater.
Better luck next time if you haven’t locked up your Airbnb in Germany or France by now.
Travelers even have the option to stay through September and enjoy the annual Oktoberfest in Bavaria.
There isn’t lodging to be found in Western Europe in the summer months and even though the economy is starting to weaken around the edges, we are still in for another summer of travel post-pandemic style.
Tourists are splurging like there is no tomorrow held up by the higher income bracket.
Italy is famous for hosting 8 million Americans per year and is otherwise known as Americans' favorite European destination.
That number is poised to balloon to 12 million by 2030 and that means revenue growth for Airbnb as Italian Airbnb’s are rampant everywhere you go in Italy.
As for the company, the business model has been doing great ever since CEO and Founder Brian Chesky put a tight leash on expenses after being caught wrongfooted during the pandemic.
The stock sold off on the earnings even with the nice beat and the Mad Hedge tech letter executed a call spread on the underlying shares.
Weak guidance has been a hallmark of this past earnings season as the economy softens.
Management needs a lower bar to jump over for later this year.
Revenue increased 18% year over year to $2.14 billion last quarter, ahead of the $2.06 billion consensus.
The surge in profit margins was due in part to a shift in the Easter holiday to the first quarter, strong interest income, and leverage from its revenue growth and cost discipline.
The stock is now down 13% from its year-to-date peak and at its lowest point in close to three months.
Airbnb competes with hotels and other types of overnight accommodations, but its closest competitors are other home-sharing platforms like Expedia's VRBO.
But Airbnb already dominates the home-sharing niche with a leading market share among those platforms, and the company appeared to strengthen its position in the first quarter. Revenue at Expedia (EXPE) increased 8% in the period, while its B2C division which includes VRBO was up just 3%.
Competitors have been unable to overcome the powerful network effect present on Airbnb's platform, allowing it to continue growing its lead.
The shareholder returns program is beefing up.
The company continues to return capital to shareholders, buying back $750 million in stock last quarter. With $2.5 billion in total share repurchases over the past year,
Airbnb has reduced its shares outstanding by nearly 3% over that period. While 3% might not sound like much, this strategy compounds over time, and Airbnb should be able to increase buybacks as profits grow.
Additionally, the company is benefiting from higher interest rates as it's on track to generate close to $1 billion in interest income this year, giving it a significant boost on the bottom line.
I’m betting on an uptick in shareholder interest in the short term at these price levels.
I was a little uncomfortable chasing it higher from $170, but $150 is more reasonable and I do believe the Fed pivot tailwinds could catapult us into profits with this trade.
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 18, 2023
Fiat Lux
Featured Trade:
(THE MORAL HIGH GROUND MANIFESTO)
(ABNB), (META), (VENTURE CAPITALISM)
Venture capitalist Marc Andreessen posted a manifesto, calling for “techno-optimism” and delivered quite a few bizarre ideas all under the idea that “we are being lied to.”
He starts out his rant by playing the victim as a man whose net worth has surged to around $2 billion and he also doesn’t tell us who is lying to us.
He articulates to his audience that “we are told that technology takes our jobs, reduces our wages, increases inequality, threatens our health, ruins the environment, degrades our society, corrupts our children, impairs our humanity, threatens our future, and is ever on the verge of ruining everything.”
That is quite the doomsday prognosis of technology and sounds like someone who spends too much time watching TikTok videos.
I believe that most US consumers have some idea that technology can be divided into the good, the bad, and the ugly.
Painting the concept of technology as all bad or all good is an attempt to play up the drama of his blog which isn’t quite dramatic.
One of the biggest takeaways from his blog is that Mr. Horowitz has minimal opportunities to communicate with normal American people and because of that, he doesn’t understand what is considered common sense.
Living in a bubble can be dangerous and group think becomes entrenches with the same narrow opinions swiftly rotating through a tight knit circle.
Laughably, Horowitz tries to take the moral high ground saying that “we believe that advancing technology is one of the most virtuous things that we can do.”
I believe he is only saying that because he will have skin in the game and if technology equals high morality, then it would be impossible for a man like Horowitz, in his position, to not double or quadruple his net wealth.
He even double downs on the moral high ground position by giving us a blockbuster quote of “we believe Artificial Intelligence can save lives.”
He, again, paints a sub-sector of technology into a save lives or die proposition.
Technology is more nuanced and it’s blatantly obvious that he is attempting to skew the narrative in which he sees fit so it benefits him.
Horowitz intentionally skips the possibility that AI could be used to kill people out of malice in terms of drones, killer robots, autonomous weapons, nuclear bombs, hypersonic missiles.
He arrives at the conclusion that “the only perpetual source of growth is technology.” Thus, we need this only perpetual growth to makes peoples likes better.
This quote only sounds like he is wants the world to believe that the world cannot function without him and his huge ego.
My opinion is that many of these billionaires have lost the real pulse of the nation and are living too much in an alternative reality that are occupied by other billionaires and their consensus ideas.
This blog almost sounded like a real estate agent telling a buyer that it is a great time to buy a house, even with 10, 20, 30% mortgage rates.
I do believe that technologists like him will never be able to re-establish the moral high ground for at least 2 or 3 generations.
The whole Facebook (META) connecting the world marketing ploy and Airbnb (ABNB) live next to your neighbor because we are all buddy buddy is gone and won’t come back soon.
Selling hopium is old news and I don’t believe the same guys who profited from Facebook will lead the technology innovation races in the next round.
The quality of their ideas has deteriorated and it’s clear that leading technologies like the iPhone is on its last legs.
This manifesto screams desperation. It’s also interesting that he didn’t even mention crypto which he’s a huge investor in.
It’s even more interesting that he is calling for no regulations on technology in which crypto would massively benefits. He intentionally stays away from that central topic.
Technology needs to be re-imagined and by a new set of fresh blood. The old guard has become stale and this manifesto is proof of their desperation that it might be hard for their old ideas to become accepted in a rapidly changing world. They want the era of zero rates to never end.
Andreessen Horowitz investments
Mad Hedge Technology Letter
October 4, 2023
Fiat Lux
Featured Trade:
(HARD LANDING RISK BLOWS UP SMALL TECH)
($COMPQ), (AAPL), (ZM), (CPI), (ABNB)
Today’s price action in technology stocks ($COMPQ) offers us one oversized takeaway – an increased recession scare and a lower chance of the mythical “soft landing.”
Remember, for so long, trading models priced in almost no recession in 2024 and that has quickly changed recently with souring fundamentals.
That’s why Airbnb (ABNB) was down 7% yesterday, not because more people will travel in 6 months, but less.
Whether a recession will hit or not is a big deal, because consumers and corporations tighten up purse strings and contracts don’t get done.
That means a reduced budget for cyber security, cloud space, semiconductor chips, and less money to buy iPhones.
What are some of the warning signs I am talking about?
An entrenched inflation problem which many would agree has been incredibly sticky.
Price inflation soared to a four-decade high in the summer of 2022. While it has cooled in recent months, the CPI began creeping up again in July and continued to rise in August.
The second canary in the coal mine is an inverted yield curve.
This happens when longer-term bonds offer higher yields than short-term bonds.
A 10-year US Treasury generally features a lower yield than a 30-year.
When this reverses and short-term bonds start yielding more than long-term bonds, it’s called a yield curve inversion.
Traders still expect the front end of the curve to drop which will result in the Fed cutting rates to save the day.
Until then, there is no reason to borrow at 30-year durations when investors aren’t rewarded and capital projects are harder to finance when 30-year rates are artificially expensive.
The US Federal Reserve has hiked rates by more than 5% in just 18 months, but it hasn’t had the desired effect because fiscal spending is out of control.
The economy is built on a foundation of cheap money. It’s not just the economy; it’s every facet of it.
The government, the deficits, and the government budget are built on cheap money. And it’s not just the federal government that’s been gorging on this cheap money.
Tech stocks have every reason to want a soft landing to happen or an orderly, short, and shallow recession.
Panic and chaotic unwinding can result in scaring away the dip buyers and after that, it’s free fall.
As volatility creeps up, tech investors need to be on red alert to observe whether fear and panic manifest inside the price action of tech stocks.
If Apple (AAPL) could pull itself out of the short-term doldrums, that would go a long way to delaying the 2024 recession since it comprises a big chunk of tech indices.
Right now, I believe the consensus is a short recession at the end of 2024 and what occurs in the next 2 months will tell investors whether that is moved up or moved back.
If a hard landing rears its ugly head, smaller tech stocks will get hammered.
I have no doubt that these smaller balance sheets won’t be able to endure the roughness of market mayhem.
It could all lead to smaller tech firms selling themselves at fire sale prices to tech behemoths for pennies on the dollar making big tech even bigger.
In the short term, sell any rip in small tech like Zoom Technologies (ZM) and buy and buy large dips in big tech.
Global Market Comments
June 23, 2023
Fiat Lux
Featured Trades:
(JUNE 21 BIWEEKLY STRATEGY WEBINAR Q&A),
(AAPL), (ABNB), (GLD), (BA), (CAT), (DE), (X), (PYPL), (SQ), (MSFT), (GD), (GE), (INDA), (META) (GOOGL), (CCI), (NVDA), (ABNB), (SNOW), (PLTR), (TSLA)
CLICK HERE to download today's position sheet.
Below please find subscribers’ Q&A for the June 21 Mad Hedge Fund Trader Global Strategy Webinar, broadcast from Lake Tahoe, NV.
Q: When do we buy Nvidia (NVDA) and Tesla (TSLA)?
A: On at least a 20% dip. We have had ballistic moves—some of the sharpest up moves in the history of the stock market for large stocks—and certainly the greatest creation of market caps since the market was invented under the Buttonwood Tree in 1792 at 68 Wall Street. Tesla’s almost at a triple now. Tripling one of the world's largest companies in 6 months? You have to live as long as me to see that.
Q: Is it a good time to invest in Bitcoin?
A: No, absolutely not. You only want to invest in Bitcoin when we have an excess of cash and a shortage of assets. Right now, we have the opposite, a shortage of cash and an excess of assets, and that will probably continue for several years.
Q: Should I short Apple (APPL)?
A: Only if you’re a day trader. It’s hugely overbought for the short term, but still in a multiyear long-term uptrend. I think we could see Apple at $300 in the next one or two years.
Q: Is it better to focus on single stocks or ETFs?
A: Single stocks always, because a single stock will outperform a basket that's in an ETF by 2 to 1 or even 3 to 1. That's always the case; whenever you add stocks to a basket, it diversifies risk and dilutes the performance. Better to just own Tesla, and if you want to diversify, diversify to Nvidia, but then I live next door to these two companies. That's what I tell my friends. You only diversify if you don’t know what is going to happen, which is most investors and financial advisors.
Q: Is the bottom of the housing market in, and are we due for a spike in home prices when interest rates can only go lower?
A: Yes, absolutely. In fact, we will enter a new 10-year bull leg for housing because we have a structural shortage of 10 million homes and 82 million millennials desperately trying to buy them at any price. I just got a call from my broker and she is panicking because she is running out of inventory. Even the lemons are starting to move.
Q: When do you think energy will rise?
A: Falling interest rates could be a good key because it sets the whole global economy on fire and increases energy demand.
Q: Outlook for the S&P 500 (SPY) second half of the year?
A: We hit 4,800 at least, maybe even higher. That's about a little more than 10% from here, so it’s not that much of a stretch, not like it was at the beginning of the year when it needed to rise 25% to reach my yearend target.
Q: Best time to invest from here on?
A: Either a 10% pullback in the market, or a sideways move of 3 months—that's called a time correction. It usually counts as a price correction because of course, over 3 months, earnings go up a lot, especially in tech.
Q: I’m seeing grains (WEAT) in rally mode.
A: Yes, that's true. They are commodities, and just like copper’s been rallying, and it’s yet another signal that we may get a much broader global commodity rally in everything: iron ore, coal, energy, gold, silver, you name it.
Q: Will inflation drop to 2%, causing stocks to go on another epic run?
A: The answer is yes, I do see inflation dropping to 2% —maybe not this year, but next year; not because of any action the Fed is doing, but because technology is hyper-accelerating, and technology is highly deflationary. The tech product you bought two years ago is now half the price, and they offer you twice as much functionality with an auto-renew for life. So, that is happening across the entire technology front and feeds into the inflation numbers big time, including labor. There's going to be a lot of labor replacement by machines and AI in the coming years.
Q: Is Airbnb (ABNB) a good stock to buy?
A: Well, if we’re going into the most perfect travel storm of all time, which is this summer, and which is why I’m going to remote places only like Cortina, Italy. Airbnb is the perfect stock to own. It’s a well-run company even in normal times.
Q: Should I buy gold here on the pullback?
A: Yes, you should. Gold is also highly sensitive to any decline in interest rates, and by the way: buy silver, it always moves 2.5x as much as the barbarous relic.
Q: How can inflation not go up if commodities and wage demands are going up due to state and federal unions? What about farm equipment and truck supplies? Costs keep rising, should we buy John Deere (DE)?
A: There are three questions here. Inflation will not go up because, though commodities will rise, they are only 0.6% of the $100 trillion global economy, or $660 billion in 2022. That will be more than offset by technology cutting prices, which is 30% of the stock market. You have to realize how important each individual element is in the global picture. And regarding wage demands going up caused by state and federal unions, less than 11.3% of the workforce is now unionized and that figure has been declining for 40 years. Most growth in the economy has been in non-unionized technology firms which largely depend on temporary workers, by design. What IS unionized is mostly teachers, the lowest paid workers in the economy, so incremental pay rises will be small. Unions were absolutely slaughtered when 25 million jobs were offshored to China during the Bush administration. Buy farm equipment and trucks? Absolutely, buy John Deere (DE) and buy Caterpillar (CAT) on the next dip. I was actually looking at Caterpillar for the next LEAPS the other day, but it’s already had a big run; I'm going to wait for a pullback before I get CAT and John Deere. So, again, people see headlines, see union wage headlines—I say focus on the 89% and not on the 11% if you want to make good decisions.
Q: Is Boeing (BA) a buy on the dip?
A: Yes, they got 1,000 new aircraft orders and the stock hasn't moved. So yes, if you get any kind of selloff down to $200, I'd be hoovering this thing up.
Q: Can you please explain how the profit predictor works?
A: It’s a long story; just go to our website, log in and do a search for “profit predictor,” and you’ll get a full explanation of how it works. It’s actually where Mad Hedge has been using artificial intelligence for 11 years, which is why our performance has doubled. Just for fun, I'll run the piece next week.
Q: Gold (GLD) is having a hard time going up because Russia is being squeezed by other governments. Since they need cash, they may be either selling their gold or stop buying new gold.
A: That is a good point, but at the end of the day, interest rates are the number one driver of all precious metals—period, end of story. We’re long gold too, I’ve got lots of gold coins stashed around the world in various safe deposit boxes, and I'm keeping them. I’ve got even more silver coins, which take up a lot of space.
Q: Do you like India (INDA) long term?
A: Yes, it’s the next China. But as Apple is finding out it is very difficult to get anything done there. A radical reforming Prime Minster Modi may be changing things there with his recent Biden visit and (GE) contract to build jet engines.
Q: What do you think of General Dynamics Corp (GD)?
A: I like General Dynamics because I think defense spending is in a permanent long term upcycle as a result of the Ukraine war. And it won’t end with the Ukraine war—the threat will always be out there, and the buying is done by not only us but all the other countries that think Russia is a threat.
Q: Do you like MP Materials Corp (MP)?
A: Yes, I do. The whole commodities space is ready to take off and go on fire.
Q: What about Square (SQ)?
A: The only reason I’m not recommending Square right now is huge competition in the entire sector, where all the stocks including PayPal (PYPL) are getting crushed. I will pass on Square for now, especially when I can buy US Steel (X) at close to its low for the year.
Q: If you had to pick one: Nvidia (NVDA), Tesla (TSLA), Microsoft (MSFT), Meta (META), and Google (GOOGL), which is the best to buy for next year?
A: All of them. Diversify. If I have to pick the top performer, it’s going to be either Tesla or Nvidia, probably Nvidia. But you need at least a 10% correction before you do anything. Actually, the split-adjusted price for our first (NVDA) recommendation eight years ago was $2 a share.
Q: Do you like Crown Castle International (CCI)?
A: Yes, I like it very much—it has very high dividend yield at 5.5%. The reason it hasn’t moved yet is that as long as interest rates are high, any REIT structure will suffer, and (CCI) has a REIT structure. Sure, it’s in a great sector—5G cell towers—but it is still a REIT nonetheless, and those will start to recover when interest rates go down; that’s why we did a 2.5-year LEAPS on CCI. For sure interest rates are going to go down in the next 2.5 years, and you will double your money on (CCI). That’s why we put it out.
Q: Which mid cap will do best over the long term: Airbnb (ABNB), Snowflake (SNOW), or Palantir (PLTR)?
A: That’s easy: Snowflake. They have such an overwhelming technology on the database and security front; I would be buying Snowflake all day long. Even Warren Buffet owns Snowflake, so that’s good enough for me.
Q: Could you comment on the pace of EV adoption/potential for (TSLA) robot fleet acceleration and implications for oil investments in holding pattern till the eventual collapse to near 0?
A: Yes, oil may collapse to near zero, but it may take twenty years to do it—that’s how long it takes to transition an energy source. That’s how long it took the move from horses and hay to gasoline-powered cars at the beginning of the 20th century. A national robot fleet of taxis with no drivers at all is a couple of years off. There are about 1,000 of them working in San Francisco right now, but they still have more work to do on the software. When it gets foggy, they often congregate at intersections causing traffic jams. Suffice it to say that eventually Tesla shares go to $1,000 and after that, $10,000—that’s my bet. By the way, my Tesla January 2025 $595-$600 LEAPS are starting to look pretty good.
To watch a replay of this webinar with all the charts, bells, whistles, and classic rock music, just log in to www.madhedgefundtrader.com , go to MY ACCOUNT, click on GLOBAL TRADING DISPATCH or TECHNOLOGY LETTER, then WEBINARS, and all the webinars from the last 12 years are there in all their glory.
Good Luck and Stay Healthy,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
2018 in Australia