Mad Hedge Technology Letter
May 26, 2023
Fiat Lux
Featured Trade:
(RIDE THE ELEVATOR UP WITH GENERATIVE AI)
(NVIDA), (FOMO), (APPL), (MSFT), (META), (GOOGL), (AMZN)
Posts
Part of these artificial intelligence executives going on record to sound out the problems with AI is mostly to protect themselves if this weird digital experiment goes disastrously wrong.
They have mostly said that AI going rogue is a real possibility and could end mankind.
Obviously, we hope that doesn’t happen.
Much of the tech market gains this year have been because of the technology surrounding AI.
Strip that out and the gains will look paltry.
A good example is Nvidia (NVDA) offering legendary guidance to the demand of their chips because of the need to install them in AI-based technology.
The AI narrative truly has legs – it will be the theme that defines 2023 in technology stocks.
The Big 7 tech stocks will possess explosive qualities to their stock precisely because of this thesis.
Then there is the fear of missing out (FOMO).
Every financial advisor is pitching AI as an investment of a lifetime – something that cannot be missed by their clients.
Therefore, I do expect meteoric legs up in shares of Nvidia, Apple, Microsoft, Tesla, Amazon, Facebook, and Google in 2023.
These 7 stocks dominate the tech market and the generative AI gains will mostly manifest themselves in these 7 tech firms.
Yet there are dangerous concerns that AI could also destroy these companies and the internet which we interface with, because the changes could erode the trust in platforms by populating fake photos like deep fakes.
In Washington speech, Brad Smith calls for steps to ensure people know when a photo or video is generated by AI.
Brad Smith, the president of Microsoft, has said that his biggest concern around artificial intelligence was deep fakes, realistic-looking but false content.
Smith called for steps to ensure that people know when a photo or video is real and when it is generated by AI, potentially for harmful purposes.
For weeks, lawmakers in Washington have struggled with what laws to pass to control AI even as companies large and small have raced to bring increasingly versatile AI to market.
Last week, Sam Altman, CEO of OpenAI, the startup behind ChatGPT, told a Senate panel in his first appearance before Congress that the use of AI interferes with election integrity is a “significant area of concern,” adding that it needs regulation.
Lawmakers need to ensure that safety brakes be put on AI used to control the electric grid, water supply and other critical infrastructure so that humans remain in control.
It’s hard to know what is fake and real these days. Fake photos of politicians getting attacked or fake videos of tigers roaming around freely in Times Square New York look weirdly authentic.
AI is getting so good that nobody knows what is real anymore.
I’m sure some of you saw the recent Tom Cruise deep fake where the fake Tom Cruise is telling the audience that he does a lot of “industrial clean up” along with his own stunts. Honestly, I could not tell it was fake, and most people wouldn’t. It caught me – hook, line, and sinker.
As it stands, ride this generative AI to riches in the short-term, but be aware that this technology could blow up the internet or make the internet unusable because of security and trust reasons.
DEEPFAKES LOOK AND SOUND TOTALLY REAL IN 2023
Mad Hedge Bitcoin Letter
September 29, 2022
Fiat Lux
Featured Trade:
(WHERE DOES THE UTILITY COME FROM?)
(FOMO), (BTC)
Crypto insider Mike Novogratz had a lot to say at the TOKEN2049 conference in Singapore and he struck an upbeat tone as crypto has been one of the worst performing assets in the past 365 days.
His words were mostly silver linings and an optimistic view of the future.
His argument for another spike up in bitcoin was mostly centered around how the next Bitcoin’s (BTC) bull run will have to be much different from historical cryptocurrency rallies in terms of story and utility.
Compared to previous bull runs, the next Bitcoin rally will be more focused on utility and less on the story.
An asset can only go so far based on fear-of-miss-out (FOMO) hype.
The issue now is the lack of buyers and it’s no surprise.
Every little bump up is a great exit point for holders to dump more coins.
In almost every crypto newsletter I’ve written, I chronicle how recent events make it less attractive for the incremental investors to bite at crypto.
The data backs me up as new buyers have quit this speculative industry and need something that pays an annuity-like premium.
According to Novogratz, the 2017 bull run was mostly about the story of people not trusting the government and wanting more privacy and decentralization.
The blockchain narrative hasn’t really budged at all as well as few institutions have integrated the technology into daily tasks.
I don’t see where the “utility” comes from.
Some speculative investors began buying digital real estate in the metaverse in hopes of accruing rental digital revenue is beggars’ belief.
I don’t see the utility there as well.
It’s all good to use buzz words like “scalable” and “user friendly” – yet I see no actual development.
I don’t believe crypto is the inherent successor to fiat either, and I do believe that at best, it could be a nice compliment and that’s if miracle after miracle happens from here on out.
If governments regulate the heck out of it, its value diminishes greatly.
Novogratz needs to stop pushing the “inevitable” theme like a real estate agent advising buyers to buy the most expensive mansion at the top of the market.
Hilariously enough, one of the knocks on crypto was the elevated volatility which has reversed the past few months.
Why?
The lack of volatility stems from the lack of new buyers and sellers. There are still owners who haven’t sold and are holding until infinity, so the price doesn’t get pushed down further, but investors are so turned off by the charlatans and dangers in the industry that they rather put their money in something more real.
Crypto executives need to stop pushing the crypto to $1 million theme as every headwind imaginable is crushing the price of crypto.
Even worse, crypto executives are also facing billions of dollars in lawsuits and I believe it is more responsible to talk about the current existential crisis that Bitcoin faces.
If Bitcoin goes to zero, then crypto is finished so it’ll be interesting to see what the last big holders do with their coin.
Do they sell out the rest and crash the market? Or wait for the next bull run?
My bet is that the price of Bitcoin stays in a range for the next 15 months.
CRYPTO SALESMAN WANTS TO PUMP UP THE COIN
Mad Hedge Bitcoin Letter
March 3, 2022
Fiat Lux
Featured Trade:
(ANOTHER SOVEREIGN COUNTRY CONSIDERS BITCOIN)
(BTC), (FOMO), ($USDMXN)
The Bitcoin adoption rate is picking up steam as other Central American countries indicate that it’s a good idea to ditch their fiat currency for Bitcoin.
I don’t blame them.
Look at their currency charts – it's straight out of a nightmare.
The Mexican Peso for instance has gone from 10 Pesos to $1 to now 20.7 pesos to $1 today.
Not a good deal if you’re holding pesos in the bank.
Much of the same phenomenon is echoed around the region.
Recently, Indira Kempis, a senator from the state of Nuevo Leon in Mexico, wants to make her country the second in the world to adopt Bitcoin as legal tender, even though it will be hard to get over the line.
She praised Bitcoin's attributes as an inclusive currency that benefits the unbanked. She said she has been consulting with people knowledgeable in the asset, and now she wants to use her political influence to promote the usability of Bitcoin in all of Mexico.
And trust me – there are a lot of Mexicans in Mexico without access to the financial system and this would be the way to cure the problem.
If the price of Bitcoin keeps rising long-term, many of these poorer Central American countries will regret not following down the same path as El Salvador.
So there is a little bit of Fear of Missing Out (FOMO) with out-of-the-box legislators believing it’s a panacea to their financial woes.
Following El Salvador President Nayib Bukele's announcement that Bitcoin would be adopted as legal tender in his country, the congresswoman was one of a group of politicians whose interest has been piqued.
This would be major news if legislators could coalesce around these crypto ideas.
On another bullish side note, major crypto exchanges are adding more services to Mexico as Coinbase Global (COIN) said it is launching a pilot program to allow cryptocurrency recipients in Mexico to cash out their funds in pesos, a move aimed at shaking up the $700 billion global remittance market.
If COIN can penetrate the Mexican remittance market, this would be extremely bearish for Western Union (WU).
Crypto recipients in Mexico can now generate a redemption code on their Coinbase app that can be used to receive cash at 37,000 retail and convenience stores across Mexico.
The service will be free of charge through March 31, after which customers will be charged a "nominal fee that’s still 25-50% cheaper" than traditional international payment options.
Even Mexico’s third-richest billionaire, Ricardo Salinas Pliego, is pushing the adoption of Bitcoin in Mexico.
Salinas is the founder and chairman of Grupo Salinas, a group of companies with interests in telecommunications, media, financial services, and retail stores.
He tweeted:
You have to buy bitcoin (keep buying when the price is low), then just hold your BTC, forget about selling … Trust me you’re going to thank me later.
Bitcoin is on sale right now as it retraces from its highs of $65,000 as US Fed Chair Jerome Powell indicated we are at the beginning of a Fed tightening cycle.
Bitcoin has found some stability in the $40,000 range and ironically, tech stocks have been more volatile than crypto lately.
One of the gripes of Bitcoin was that it fluctuates too much, but as this asset matures, volatility will gradually subside.
Bitcoin is now a short-term buy at these levels as the foreign war has forced capital into crypto.
Long term, imagine if all of Central and South America adopted Bitcoin as their national currency.
They might finally be able to balance their annual budgets.
Mad Hedge Technology Letter
February 24, 2021
Fiat Lux
Featured Trade:
(THE LARGEST RISK TO TECH GROWTH SHARES)
(PYPL), (SQ), (GOOGL), (BTC), (TSLA), (FOMO)
The U.S. Central Bank has chosen to be as accommodative as possible in order to put a floor under the stock market with near-zero interest rates and large-scale asset purchases.
This will have an inordinate effect on tech stocks moving forward because the rhetoric from the Fed is as close as one can get to admitting that tech stocks should be bought in droves.
Fed policy won’t kill the rally and talk up higher interest rates until “substantial further progress (to unemployment numbers) has been made,” and “is likely to take some time” to achieve said Fed Governor Jerome Powell.
Yes, it’s possible to attribute some of the bullishness to the “reopening” trade and the massive migration to digital, but the loose monetary policy is overwhelmingly the predominant catalyst to higher tech shares.
As Powell spoke, the Nasdaq did a wicked U-turn in real-time after being in the red almost 4% and sprinted higher to finish up the trading day only ½ of a percent down on the day.
What does this mean for the broader tech market and Nasdaq index?
We started seeing all sorts of wonky moves like Tesla (TSLA) making a $1.5 billion bitcoin (BTC) investment earlier this month.
Fintech player Square (SQ) bought Bitcoin on the dip pouring $170 million into it.
Yes, this isn’t a joke.
Corporations are becoming the dip buyers in bitcoin which would have never been fathomable a year ago from today.
The risk-taking has literally gone into hyper-acceleration in the tech world and is transforming into a fantasy world of corporations swimming knee-deep in capital trying to outdo one another with fresh bitcoin orders of millions upon billions.
That’s where we are at right now in the tech markets.
Treasury Secretary Janet Yellen has also gotten into the bitcoin story condemning the digital gold by saying that bitcoin is an “extremely inefficient” way to conduct monetary transactions.
But because of the extreme low-rate nature of debt, this just gives investors another entry point into the digital gold.
This sets the stage for a correction in tech stocks and the likely reason for it would possibly be higher interest rates or even negative lockdown news or some combination of both.
On the technical side of things, a result of this magnitude would be set off by first, cascading sell orders at one time, eerily similar to what got us the March 2020 low.
This could happen in either biotechnology stocks or Tesla shares and cause performance to deteriorate which could trigger net outflow and that would trigger a violent feedback loop.
Catherine D. Wood is the Founder, CEO, and CIO of ARK Invest and has been hyping up the super-growth tech assets like she was betting her life on it.
The only way she can get away with this chutzpah is in an anemic rate environment that pushes investors to search for yield.
Her reaction to yesterday’s market action wasn’t to buy bitcoin on the dip but go into a safer asset that actually produces something, and she bought another big chunk of Tesla.
Risk-taking and leverage in tech shares have gone up the wazoo which means that any incremental rising of rates is harder for the overall tech market to absorb.
Bitcoin is now being viewed as just one risk point higher on the risk curve than Tesla and that is a dangerous concept.
Technology often promises investors that they are paying for future cash flows of tomorrow and that story doesn’t work if the margins are turning against the management.
The low rates offer the impetus for characters like Wood to boast that she was surprised by how fast companies are adopting bitcoin and that her “confidence in Tesla has grown.”
It is just a sign of the times and even more money has been injected into zombie companies that have no hope of improving margins ala the retail sector.
Awash in liquidity has the ultimate effect of making tech growth stocks even more attractive than the rest of the crowd which is why we have been seeing sharp upward moves in second derivative plays to bitcoin like PayPal (PYPL), Square while the FANGs, aside from Google (GOOGL), have treaded sideways.
Markets tend to overshoot on the upside and downside and as the sell-off was met with shares that came roaring back in a speculative frenzy, we are now in a situation with many markets, even the foreign ones, hitting fresh records, even as the nations they were based in suffered their sharpest recessions since at least the Great Depression.
The overshooting tends to come from the fear of missing out (FOMO) amongst other reasons.
Ultimately, as the corporate list of characters and billionaire hedge fund community load up on tech growth stocks, just a small movement to higher yield could cause a Jenga-like toppling of their strategy and profits.
This could snowball into a massive unwind of positions to meet margin calls after margin calls.
If we can avoid this indiscriminate fire sale, then, like Bank of America recently just said, it’s hard to make a different analysis aside from being overly bullish as the treasury, Fed, and macroeconomic factors have made a major sell-off less likely.
I am bullish technology and would advise readers to go back into growth names as volatility subsides, but keep an eye out for rates creeping higher because, at the end of the day, it’s clearly the biggest risk to the tech sector.
