Mad Hedge Technology Letter
August 9, 2023
Fiat Lux
Featured Trade:
(YOU’LL BE DRIVING CHINESE SOON)
(BYD), (TSLA), (GM), (LCID), (SAIC), (GEELY), (CATL)
Posts
You’ll most likely be driving a Chinese car soon.
It’s not because I want you to.
The trend is headed that way and the trend is usually your friend in economics and the stock market.
In the past year, China has blazed past Germany and Japan to become the world’s biggest exporter of cars for better or worse.
They shipped 1.07 million abroad in the first quarter of 2023.
At the same time, net zero rules are set to outlaw the sale of conventional petrol cars from 2030 in the UK and 2035 across the rest of Europe.
This is a golden opportunity for entrenched Chinese brands including SAIC, BYD, and Geely.
With rivals such as Volkswagen, Ford and Toyota scrambling to catch up, Chinese manufacturers are poised to offer cars costing as much as €10,000 (£8,600) less than their European, Japanese, and American competitors.
Beijing has sought to dominate the electric vehicles global market as part of its Made in China 2025 strategy.
More than half of the electric cars on roads worldwide are now in China, according to the International Energy Agency, while in 2022 the country accounted for around 60pc of all BEVs sold.
They have been focused on having an industrial upgrade in China, moving from lower value-added production to higher value-added, higher-technological production.
The strategy has worked like clockwork as Chinese-produced cell phones have achieved flagship levels.
Contemporary Amperex Technology Limited (CATL), based in the city of Ningde in the Fujian province, is now the world’s biggest lithium battery manufacturer.
In 2023, the country is set to export 1.3 million BEVs, up from 679,000 last year when government lockdowns were still in force.
Not only are these vehicles tick the box of high quality, they also boast long ranges, attractive designs, and smart interiors, they are also extremely cheap.
One brand British motorists should expect to see more of is BYD, which recently unveiled an electric hatchback that it plans to sell for less than £8,000 – far cheaper than many petrol-fueled models.
The approach contrasts sharply with that of America, where Joe Biden is showering firms that set up BEV factories with subsidies and hitting Chinese car imports with tariffs of 27.5%.
Ominously, however, China’s lead in EV technology is now so great that it “cannot be bridged” by 2030 – when Britain and Europe will impose restrictions on the sale of new petrol cars – and Europe should cut its losses by encouraging Chinese car makers to set up factories here instead.
For US EV makers like Tesla, the protectionist restrictions placed on foreign EVs will mean that it will take longer for the Chinese EVs to penetrate the US vehicle market.
However, the tsunami of deflation is coming whether the Chinese need to add an intermediary or not before they can start pouring the products into the United States.
If China is able to breach the US market, this would pose a severe test for US EV makers like GM, Tesla, Ford, and Lucid.
The Europeans are asleep at the wheel and could expose their consumers to a bevy of Chinese cars.
Don’t be shocked to see a stream of Chinese EVs when you cruise around Rome instead of Fiats and Vespas.
I expect restrictions to ramp up even more against foreign-made EVs and lithium batteries in the short term.
This could also set the stage for Tesla getting kicked out of Shanghai and a massive forced technology transfer which the Chinese are famous for.
The Chinese are playing the long game and that’s highly negative for American EV makers who are hell-bent on short-term profits.
Global Market Comments
May 10, 2023
Fiat Lux
Featured Trades:
(FRIDAY MAY 19, 2023 BOCA RATON, FLORIDA GLOBAL STRATEGY LUNCHEON)
(WHY THE ROBOTICS INDUSTRY IS RAINING GOLD)
(GM), (ISRG), (ABB), (TER), (YASKY), (FANUY), (AMZN), (BMWYY), (KUKAF)
CLICK HERE to download today's position sheet.
We need to look back to the ancient world to discover the origins of robots. During the industrial revolution, humans developed the structural engineering capability to control electricity so that machines could be powered with small motors.
The idea of the humanoid machine was developed in the early 20th century. The first uses of modern robots were in factories as industrial robots. A car company - General Motors - paved the way here first.
General Motors (GM) introduced the first industrial robot, called "The Unimate," back in 1959. It was just a simple hydraulic arm that did some repetitive welding tasks. Seven years later, "The Unimate" made a friendly appearance on The Tonight Show with Johnny Carson, where it played not such a bad imitation of golf.
As technology has improved and become cheaper, robots have become more prevalent. Robot sales in North America have hit record highs for the last three consecutive quarters. We now encounter robots in our daily lives in various forms: they vacuum floors (Zoomba), mow lawns, make coffee, and even provide companionship (see the movie Her).
Additionally, they help combat supply chain disruptions and inflation. Automation allows employees to focus on higher-value tasks and work efficiently. Robots now work successfully alongside humans.
So, the robotics industry looks like a savvy investment.
Why?
The global robotics market is expected to grow at an impressive CAGR of 23% from 2021 to 2026, eventually hitting a cool $186.7 billion by the end of that span.
The range of robotics applications continues to expand at lightning speed and has become evident in everything from manufacturing to healthcare, logistics to agriculture, and beyond. It's all driven by many factors behind the scenes, like advancements in AI and machine learning, growing demand for automation, and improvements in sensor technologies. More and more companies are tapping into robotics R&D, and the stock market is taking notice.
One company that is particularly well-positioned to benefit from the growth of robotics is Intuitive Surgical (ISRG).
Intuitive Surgical is a pioneer in the field of robotic surgery, with its flagship da Vinci Surgical System being used in over 7 million surgeries worldwide. The company has a market cap of $125.6 billion, and its stock has been surging in recent years, growing by over 800% in the last decade.
Presently, about half of all robotic procedures are used in urological and gynecological procedures, but robotic surgery has applications across the medical field. Currently, only 3% of all surgeries are done robotically, so there is a lot of potential for growth in this area.
Another company that benefits from the growth of robotics is ABB (ABB), a Swiss-Swedish multinational corporation specializing in robotics, power, and automation technology.
ABB has a market cap of $67.2 billion and is a leader in industrial robotics, with applications ranging from welding and painting to packaging and palletizing. The company's robotics division has seen double-digit growth in recent years, and it is well-positioned to capitalize on the continued expansion of the global robotics market.
Of course, the growth of the robotics industry isn't limited to these two companies. Other publicly traded firms that are likely to benefit from this trend include Teradyne (TER), Yaskawa Electric (YASKY), and Fanuc (FANUY), among others.
Logistics is also benefiting from robotics. As online shopping and same-day delivery become more popular, companies need help to keep up and must find ways to streamline their supply chains and reduce costs.
Robotics play a major role in solving these problems. Autonomous robots can zip around warehouses, grab products off shelves, and even help load and unload trucks.
A company that is leading the charge in this area is Amazon (AMZN).
Amazon has been investing heavily in robotics for years, and its acquisition of Kiva Systems in 2012 has been instrumental in the company's ability to scale its logistics operations. The company now has over 200,000 robots deployed in its warehouses, and it is constantly experimenting with new ways to use robotics to increase efficiency and reduce costs.
An additional reason that robots are becoming more in demand involves the transportation industry.
People keep coming up with state-of-the-art ways to make cars and trucks, and these new production technologies require lots of robots. Moreover, factories worldwide are getting upgrades, so they need revolutionary robots to help them improve.
In 2020, BMW AG (BMWYY) and industrial robots and systems manufacturer KUKA (KUKAF) signed a deal to provide more than 5,000 robots to new production lines and factories worldwide. KUKA stated that these industrial robots would be utilized globally at the BMW Group's overseas manufacturing facilities to produce present and future vehicle models.
Industrial robot costs have become much more reasonable over the past thirty years. They have dropped by an average of 50%. This decrease makes adopting robotics technology in various industries a feasible option.
Robots are not replacing factory workers. Instead, they're working alongside their human counterparts to free up their time for more critical tasks. The Institute for Operations Research and the Management Sciences backs the idea that investments in robotics technology equaled firm employment.
Science fiction robotic concepts have arrived in our modern-day environments and investors will now be able to profit handsomely from this industry.
In the wise words of Warren Buffett, "Opportunities come infrequently. When it rains gold, put out the bucket, not the thimble."
While the growth of robotics may lead to job displacement in some sectors, it's important to remember that this is a natural evolution of technology. As new jobs are created in various areas, such as robotics engineering and data analysis, we must adapt and embrace these changes.
In the meantime, savvy investors can capitalize on the continued expansion of the robotics market. Companies such as Intuitive Surgical, ABB, and Amazon are just a few examples of publicly traded firms well-positioned to benefit from this trend.
However, let's remember that the robotics industry is still in its early stages, and there are bound to be new players emerging in the coming years.
As with any investment, it's essential to do your due diligence and invest wisely. But the rewards could be massive for those willing to take the risk. So take Buffett’s advice and put out the bucket, to catch some of that golden rain.
Global Market Comments
March 22, 2023
Fiat Lux
Featured Trade:
(THE MAD HEDGE TRADERS & INVESTORS SUMMIT VIDEOS ARE UP!)
(THE BARBELL PLAY WITH BERKSHIRE HATHAWAY),
(BRKA), (BRKA), (BAC), (KO), (AXP), (VZ), (BK) (USB), (TLT), (AAPL), (MRK), (ABBV), (CVX), (GM), (PCC), (BNSF)
CLICK HERE to download today's position sheet.
Global Market Comments
October 19, 2022
Fiat Lux
Featured Trade:
(THE BARBELL PLAY WITH BERKSHIRE HATHAWAY),
(BRKA), (BRKA), (BAC), (KO), (AXP), (VZ), (BK) (USB),
(MRK), (ABBV), (CVX), (GM), (PCC), (BNSF), (TLT), (AAPL)
Global Market Comments
August 30, 2022
Fiat Lux
Featured Trade:
(REPORT FROM THE AUGUST 4 TESLA SHAREHOLDERS MEETING),
(TSLA), (F), (GM)
I have to admit, listening in on the August 4 Tesla (TSLA) shareholder’s meeting was something like going to a rock concert.
There was plenty of loud music, shouting fans, flashing lights, and cool videos, and it definitely had its own rock star dancing on the stage in a black suit.
Yet, there was something different too.
Virtually everyone in the room had placed their entire life savings in the company’s stock, thus immeasurably changing their lives for the better. That includes many who bought in during the early days and faced down several bankruptcy scares and short selling attacks along the way, including me (post-split cost basis is now $2.35).
That kind of math gave the room an undeniable electric atmosphere and elevated Musk to God-like status.
After the somewhat dry recitation of the standard numbers, Elon took questions from an adoring audience. His answers were nothing less than amazing. I list the highlights below.
Tesla will soon become the largest company in the world, exceeding Apple’s current $2.6 trillion value. Tesla currently only has a market capitalization of $295 billion.
That means Tesla has to rise by 8.8 times from the current price, or to $2,512 a share just to top Apple in size. That will be the next number traders will gun for.
The company will be at a 2 million units a year run rate by yearend.
Total production has gone from 3,000 cars a year to 3 million in ten years. Cleanest form of exponential growth Musk has ever seen.
Tesla now has a positive cash flow and retained earnings.
Autonomous driving has 90% success rate with left turns. Whether this was a political reference is anyone’s guess. With Musk, you never know.
Roads are designed for biologicals and eyes, not robots. When the full self-driving autopilot is rolled, out it will solve an important AI challenge. Tesla has just raised the price of its autonomous software from $12,000 to $15,000. Multiply that by $3 million and you get the impact on net earnings. It's all profit.
Elevators went from requiring a human operator in the 1920s to pushbuttons by the 1960s. It will be the same with autonomous cars.
Tesla now has the highest operating margin in the global car industry.
Every time competitors like Ford (F) and General Motors (GM) advertise EVs, Tesla sales go up. Tesla may announce a new North American factory location before the end of 2022. The Tesla Fremont factory, which I have toured more than a dozen times, is the most productive car factory in North America by a huge margin.
If you total all electricity produced by Tesla solar panels in the last ten years, it exceeds all electricity needed to make and drive Tesla cars for those ten years. That makes Tesla a giant power net zero.
Future airbags will anticipate crashes in advance instead of waiting for them to happen, making them much more effective.
Total Tesla miles driven is 40 million up until now and will reach 100 million by yearend.
The Tesla AI software will soon be more valuable than the car, with car costs plummeting.
Tesla will need a dozen factories to produce 20 million cars a year, and they already have four. That suggests massive equity fund raises in the future at $10 billion each.
The Fremont, CA factory (the old GM Geo factory which Tesla got for free) is maxed out and can’t be expanded any further. Tesla is aiming for volume production of its new Cybertruck by mid-2023.
The Supercharging network doubles every year and that growth rate will continue.
Prices for more than half of Tesla commodity inputs are trending down, inflation is falling, pointing to a mild recession at worst. We won’t have a big recession because there isn’t fundamental misallocation of capital as was the case in 2007-2008, such as the overbuilding of new homes and excessive leverage in the stock market.
I just thought you’d like to know.
Global Market Comments
August 12, 2022
Fiat Lux
Featured Trade:
(AUGUST 10 BIWEEKLY STRATEGY WEBINAR Q&A),
(NVDA), (TSLA), (GOOGL), (ROM), (FCX), (AMZN), (AAPL), (MSFT), (MU), (ARKK), (TSLA), (F), (GM)
Below please find subscribers’ Q&A for the August 10 Mad HedgeFund Trader Global Strategy Webinar broadcast from Silicon Valley in California.
Q: What are your yearend targets for Nvidia (NVDA), Tesla (TSLA), and Google (GOOGL)?
A: Higher for all but I can’t give you the exact date and time. Google has a special situation in that they might be hit with an anti-trust suit in September, so that could cap things. For Tesla, we have the Twitter overhang, and Elon Musk sold $6.9 billion worth of stock last week to fund that. And then Nvidia could have another dive, depending on how much of a glut in chips there is, but I'd be buying any chips from here on. By the way, if Tesla breaks the old high of $1,200, which I expect by the end of the year, we could get to $2,000 very rapidly on yet another massive short squeeze against the permanent Tesla haters, who’ve already been completely decimated by the last 60% move.
Q: How would I play Amazon (AMZN) going forward?
A: Buy the dips. I think they’re going to be the world's dominant retailer going forward and they’re doing the right things and going crazy.
Q: Which sectors?
A: Well, for ETFs, you can look at the ProShares Ultra Technology ETF (ROM). That’s 2x leveraged long tech. But only do that on dips because the volatility of the ROM is enormous since it’s 2x in the most volatile sector. Also, I think we can start taking a look at banks again, what with interest rates rising and a recovery on the horizon, banks could come back into play after sitting at the bottom for the last 3 or 4 months.
Q: I’m doing a LEAP on Freeport-McMoRan Inc. (FCX); should I go for January 2025 or 2024?
A: I’d go longer dated—that way you can get a bigger move and will almost certainly be on a full-on economic recovery, and massive electrification of the auto fleet by 2025, thanks to the climate bill that will be passed Friday. That means the demand for copper is about to go absolutely through the roof—I'm looking for (FCX) to go from $30 to $100 in the next 3 years.
Q: Thoughts on Disney (DIS)?
A: No one can believe how cheap Disney has gotten, it’s been a disaster. Obviously (DIS) took it on the nose with the recession and some of the parks still have limitations on the number of visitors. It should do better and I'm amazed it got this cheap. I would expect a move to the $200 level by the end of next year.
Q: What LEAPS do you recommend for January 2023?
A: Well it’s not really a LEAPS if you’re only going out 6 months; that’s just a long-dated call spread. LEAPS are usually a year or longer. I’d say pretty much anything in any sector will be higher except maybe energy by 2023. We’re not at LEAPS territory yet, but we’re getting close. The next major selloff I might start putting LEAPS out there.
Q: Is the Consumer Price Index (CPI) dropping from 9.1% YOY down to 8.5% meaning the top is in and deflation’s over?
A: I think so, because there are a lot of price declines that were not reflected in this July number that have yet to come. I'm talking about wheat, lumber, and energy. So yes, we could get another big move down in August, and if that’s the case, the Fed may only raise by 50 basis points in September. That's the hope. The things that aren’t going to go down are rental costs and labor costs. We may never get back to the inflation rate that we had 2 years ago of 2%. The long-term average for the last 100 years is 3% and certainly a move down to 4% is possible this year (and would be very welcome by the stock market as part of my long-term bull case).
Q: What are your thoughts on Elon Musk selling $6.9 billion worth of Tesla shares?
A: It’s amazing he sold that amount of stock last week and only went down $100. It does remove a big overhang on the stock and paves the way on a much bigger move up later in the year. By selling the $9 in January and $7 now, that’s $16 billion he sold this year. He could almost pay for Twitter with a little outside bank financing.
Q: How far above current prices should I place a LEAPS?
A: It depends on where the market is; if we’re having a cataclysmic selloff down 1,000-point days, then you can have the luxury of going 10%, 20%, or even 30% out-of-the-money; and that of course gets you a 100%, 200% and 300% returns. If we have a higher low, then you may want to go lower risk and go at the money, that might get you a 50% return. On LEAPS that are only slightly in-the-money, even those generate 25% returns one year out with the most conservative possible position.
Q: Would you load the boat on dips?
A: I would but remember: a dip is not one hour or on down days, it’s like half of the recent gain, which would be down 1,500 Dow points, or all of the recent gain, which would be down 3,000 points. So be careful that you don’t get too aggressive just because you’ve gotten bullish.
Q: Do you think the semiconductor chips will lead the tech recovery in the second half of the year?
A: I do, but we do have an inventory problem to digest first, and we have to figure out the implications of the CHIPS act that was signed this week which makes available a couple hundred billion dollars to build new chip factories in the US. Chip companies are particularly challenged right now because they have to provision for a recession which is going to cut chip demand, and they also have to provision for a potential oversupply created by the CHIPS Act. Remember that for the industry, creating safe supplies of chips means more lots of chips at lower prices for consumers. Great for us, great for the auto industry, not so great for chip companies. You have to be careful. On the other hand, on the bullish side, chips are being designed into more products faster and in larger numbers than ever before. This is the main reason why most investors underestimated the chip industry for the last 10 years. That also is a factor that’s accelerating. The average car now has 100 chips. 20 years ago they had maybe 10 chips, and 30 years ago they had none.
Q: Will the eventual big win of Ukraine against Russia result in inflation going back to 2%?
A: No, but it will result in it going back to 3% or 4%, which we could hit next year. You get oil back down below $50, gasoline down to $2/gallon, and the world's food supply opened up once again, and inflation will disappear in a heartbeat.
Q: What’s the deal with the 1% buyback tax in the inflation reduction package?
A: Well they had to get revenue somewhere, and 1% is so small it won’t inhibit anyone from buying back stock, especially if it makes the CEO a billionaire. That is a great incentive—even if you had a 50% tax, they would still be doing buybacks for things like Apple (AAPL), Microsoft (MSFT), and the other buyback players.
Q: What will high energy prices do to crypto?
A: It might actually make it go up because the cost of electricity feeds straight into the manufacturing/programming cost of crypto. And if you notice, Bitcoin bottomed at $17,000 per bitcoin. But that's exactly where the new mining cost is. Just like all of the commodities, when you hit cost of production, the supply suddenly dries up because nobody can make any money at it.
Q: Will US homebuyers buy the dip since mortgage rates have come down?
A: Yes, and we’re already seeing that in the statistics. The fact is we still have a huge housing shortage in the United States. You don’t get big price falls when you have a shortage of supply, and you have 10 million millennials who still need to trade up from their one and two-bedroom apartments all over the country. So, things may stall a bit in home buying, but I don’t think you get very big price drops.
Q: Do you think the US consumer is strong?
A: They never stopped being strong, even throughout recession fears. Never, ever bet against the propensity of Americans to spend money, both individuals and governments.
Q: What are the chances the US goes to war with China over Taiwan?
A: Zero. # 1 China doesn't have ships, #2 we have the 7th Fleet there, and #3 they have been threatening to invade Taiwan for 70 years and done nothing. The Taiwanese are used to this. Though there is the other side issue that most of the other private companies in Taiwan are already owned by the Chinese and have Chinese capital, so it’s unlikely they want to blow up their own facilities. So, the answer is no.
Q: What is the Long term outlook for gold and silver?
A: It’s been dead for so long that I’m not inclined to rush into gold. But you have to expect that when you get a recovery in the commodity boom, it’s going drag gold and silver along with it. I see upsides for both of these, especially silver.
Q: Should student loans be paid off by the federal government?
A: I think yes, because as long as these people have massive debts, they cannot borrow and they cannot enter the US economy as consumers. If you forgive all student debt, you unleash 10 million new customers onto the market who can now borrow, get credit cards, and take out home mortgages. As long as they have massive debts, they can’t do that.
Q: With all the major companies in the world moving to EVs, where are we going to get these commodities?
A: We’re not. Tesla (TSLA) has already locked up major supplies of commodities over the next 10 years, and everyone else will have to pay more money. Some of the weaker producers like Ford (F) and General Motors (GM), are being restrained on shortages of not just chips but also basic commodities like chromium for stainless steel. They’re going to have a real problem competing with Tesla, which is why you own Tesla.
Q: What do you think about the unprofitable tech companies like those in the ARK ETFs (ARKK)?
A: I would avoid those for now. Why take on additional risk buying a non-earning company when the highest quality companies are selling at the cheapest valuations in ten years? Maybe when the big companies like Apple get overvalued—go up another 100% — then you might look at the smaller companies if they’re still cheap. But the risk/reward on the nonearners right now is no good, while it’s fantastic in the large tech companies. That is my opinion and I’m sticking to it.
Q: It seems Russia’s strategy has mirrored those of the Czars.
A: Actually, what they’re doing is repeating their WWII strategy, which worked in 1945— not so much in 2022; and that was massive artillery barrages against retreating Germans. Except this time Ukrainians are not retreating and have far more modern weapons than the Russians.
Q: Would you buy Micron Technology (MU) on bigger dips?
A: Absolutely yes; but again, wait for the down days. You have plenty of volatility in chip stocks, no need to pay up or chase higher prices.
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, 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
