Mad Hedge Technology Letter
April 10, 2023
Fiat Lux
Featured Trade:
(UNIGNORABLE SIGNALS)
(AAPL), (HPQ), (NASDAQ)
Posts
This could be the canary in the coal mine for tech that faces a precarious rest of the year.
Personal computers are facing a drop in sales in 2023, and after banging the drum for the last year about an upcoming recession, it might actually be on the way, finally.
When exactly is hard to predict, but it is looking more likely around the third to fourth quarter, unless there are some black and gray swans that explode from nowhere.
Much of the weakness has been pre-empted by mass firings in tech and so the signs have been there.
The hollowing out of Silicon Valley has been due for quite some time now, so just don’t expect your freshly graduated children to ever get a full-time gig at a big name tech company anymore.
That will be reserved for just a few, just like getting a top management job at an NFL football team. These jobs are prized by all, but only begotten by a few.
The new iteration of tech companies will be comprised of an army full of algorithms and human sub-contractors. You might as well extrapolate that theme to the wider economy as well. This is basically the Japanification of the economy.
Apple’s personal computer shipment volume declined by 40.5% in the first quarter which I believe to many is quite surprising, considering the popularity and quality of the product.
Shipments by all PC makers combined slumped 29% to 56.9 million units — and fell below the levels of early 2019 — as the demand surge driven by the work-from-home movement has dissipated.
Among the market leaders, Lenovo Group and Dell Technologies registered drops of more than 30%, while HP was down 24.2%. No major brand was spared from the slowdown, with Asustek Computer Inc. rounding out the top 5 with a 30.3% fall.
Samsung Electronics Co., which provides memory for portable devices as well as desktop and laptop PCs, last week said it’s cutting memory production after reporting its slimmest profit since the 2009 financial crisis.
Apple is gearing up to launch its next slate of laptops and desktops later this year, including a new iMac.
It's also gradually diversifying the geography of its manufacturing base deciding to bet bigger on India and Vietnam.
Looking toward 2024, I foresee a potential rebound for PC makers, driven by a combination of aging hardware that will need to be replaced, and an improving global economy.
Tech shares bounced hard in March as expectations of interest rate hikes were triggered by a slew of bank failures in Europe and America.
That temporary bump in shares delivered a nice 8% return in March and the Mad Hedge Tech Portfolio performed well.
I can say that I am surprised that the Nasdaq only returned 8%, as it should have been more like 12-15% based on the massive re-pricing of rates to now 3 quarter point cuts by the end of 2023.
The market is now betting big that the Fed will pivot and I believe they won’t agree to such fast cuts, which is why, with an April short-term view, I expect bearish price action in tech stocks.
Mad Hedge Technology Letter
February 10, 2023
Fiat Lux
Featured Trade:
(NO LANDING OUTCOME COULD HURT TECH STOCKS)
(NASDAQ)
NO LANDING!
That’s where we are at and that’s what we face as tech stocks need to overcome the “no landing” scenario to see better days in valuation.
There has been much chit-chat about what sort of recession the US economy will face in 2023.
Well, hold your horses there mister.
The smattering of positive labor data means there might not be a recession at all, which translates into neither a soft landing nor a hand landing for the economy.
Why does that matter for tech stocks?
The lack of light or deep recession has absolutely everything to do with inflation. High inflation kills growth stocks!
The logic behind this goes that if there is no recession, US workers will by and large keep their jobs.
From a societal point of view, this is great for Americans who can bank their salaries and spend, spend, spend.
However, this doesn’t work out so great if the stock market needs lower inflation for tech shares to go higher.
Let me just insert here that I am totally aware of all the tech job losses and they have topped around 200,000 so far and it’s a drop in the bucket to overall hiring and firing.
Interestingly enough, tech layoffs haven’t always resulted in the fired getting better jobs.
The jobs report shows a massive uptick in hiring particularly for restaurant jobs, retail, and hospitality.
Many of these are also part-time jobs which means the median US job is decreasing in quality and stability.
The result of more hiring for longer is that the US Central Bank might be forced to jack up rates again past the 5% that is priced in.
This is horrible news for the tech sector as the Nasdaq got off to a blistering start in January because of the clear path to lower inflation. This path is starting to close.
Last Friday’s January employment report saw the economy add a much stronger-than-expected 517,000 jobs, while the unemployment rate fell to 3.4%, its lowest level since 1969.
And if the services sector needs to fill hundreds of thousands of jobs, wage gains will threaten to make inflation spike yet again.
The reopening of China’s economy as reverses lockdowns could push commodity prices back to the upside, also contributing to price pressures after several months of slowing inflation readings.
The Fed has always pinpointed strong wage growth and full employment as an impediment to lowering rates.
I have banged on constantly that the Fed hasn’t done enough with lifting rates even though the pace of rate hikes has been historic.
Readers should remember that the amount of stimulus and handouts during the lockdowns were also historic as well.
Demand destruction simply will not occur if real rates are negative and that’s been the case for quite a while I might add.
Now there is a real risk of inflation reaccelerating because the Fed never raised rates high enough for companies to feel pain and fire employees.
This is why tech stocks have been swooning the last few days and the trading environment is still highly complex.
Expect whipsaws for the foreseeable future and if inflation does come back reincarnated, expect a page out of the 2022 playbook with stocks and bonds going decisively lower.
Global Market Comments
June 28, 2018
Fiat Lux
Featured Trade:
(FRIDAY, AUGUST 3, 2018, AMSTERDAM, THE NETHERLANDS GLOBAL STRATEGY DINNER),
(TRAPPED IN PURGATORY),
(INDU), (SPY), (NASDAQ), (IWM), (TLT)
I can't believe my eyes.
Here we are at the midpoint of 2018 and the main markets are virtually unchanged. The Dow Average is down 1.5%, the S&P 500 is up +1%, NASDAQ has gained 8.79%, and the Russell 2000 has tacked on 7.18%.
Despite all the promises that happy days are here again, here we are dead in the water. Since the passage of one of the most simulative tax bills in December, we have gone absolutely nowhere.
We are essentially stuck in stock market purgatory.
Of course, you can blame the trade wars, the onset of which marked the top of the bull market on January 24 at 26,252.
The president got one thing right. Trade wars are easy to win, but for dictatorships not for democracies.
If you complain about trade policies in China you are told to shut up or face getting sent to a re-education camp. Worst case you might disappear in the night as has happened to a number of Chinese billionaires lately.
In America any restraint of trade anywhere invites 10,000 highly paid lobbyists desperate to reverse the action. Offer any resistance and the reprobates are thrown out of office, as may happen here in four months.
The Chinese have one weapon against which we have no defense. They can go hungry. They'll just tell their people to toughen up for the greater good of the nation. When I first arrived in the Middle Kingdom 45 years ago they were still recovering from the aftereffects of a famine that killed 50 million (there are NO substitutes for food). Try doing that in the U.S.
The Chinese have another secret weapon at their disposal. They paid $3.63 a week for a subscription to the New York Times (including Sundays). Because of this they know that the president is going into the midterm elections with the lowest approval ratings in history.
And they are doing this running on a policy of sending children to concentration camps, which they don't even do in China anymore. This will cost the party votes in every state except in Oklahoma.
So the Chinese are content to hang tough, meet every tit with a tat, match every escalation, and wait out the current administration. The only question for them is whether the president will be gone in 2 1/2 years or in six months, so it pays to stall.
This is a country where history is measured in millennia. When I asked premier Zhou Enlai in the 1970s what the outcome of the 1792 French Revolution was, he responded "It's too early to say."
None of this is good for stock prices.
So I will continue with my now five-month-old prediction that markets will remain trapped in narrow ranges until before the midterms, and then rally strongly. It will do this not because of who wins, but because of the mere fact that it is over.
If you are a trader, unless you can buy stocks on those horrific capitulation panic days and sell on the most euphoric peaks, it's better just to stay away. I can do that, but I bet most of you can't. But then I've been practicing for 50 years. This is why I dumped the last of my positions yesterday morning at the highs of the day, shooting out three Trade Alerts in rapid succession.
By the way, these are excellent reasons to avoid the bond market as well. While the fundamentals tell us that interest rates should continue to rise for years, the charts tell us a different story.
With 10-year U.S. Treasury bond yields (TLT) hitting a five-month low today, it is hinting that a recession isn't a 2019 event, it in fact has already started. Bulls better fall down on their knees and pray to their chosen idol that this is nothing more than an extended short covering rally.
It all sounds like a great time to take a long cruise to me.
China in 1973