Global Market Comments
June 6, 2022
Fiat Lux
Featured Trade:
(THE MAD HEDGE TRADERS & INVESTORS SUMMIT IS ON FOR JUNE 14-16)
(MARKET OUTLOOK FOR THE WEEK AHEAD, or PUTIN’S DEAD END),
(VIX), (HYG), (JNK), (PTON), (W), (MSTR), (RDFN), (BYND), (F), (TSLA), (NVDA)
The current consensus for market strategists is that volatility will remain high.
Please pinch me because I think I died and went to heaven. For every time the Volatility Index (VIX) tops $30, I make another 10%-15% for my followers.
The bulk of market players are now obsessing whether we are entering a recession or not, as if their investment faith depended on it.
Recession, resmession.
As long as I can keep making a 65.40% trailing one-year return, while the Dow Average is off -4.2% during the same time period, I could care less what the economy is actually going to do.
After an impressive 380-point, 10% rally in the S&P 500, it now looks like the stock market is failing once again. Best case, we revisit this year’s low at 3,800. Worst case, we break to new lows at 3,600. The very worst case, we break below 3,500 and wish you had never heard of the stock market.
If you are a trader, there is a fantastic opportunity here to buy low, sell high, and retire early. If you are disciplined, you still have a ton of cash left over from the end of 2021 (I was 100% cash) and will be cherry-picking on the big down days.
It's really very simple. The longer you have been doing this, the easier it gets and the more money you will make. After 52 years of practice, I can do this in my sleep.
As the bear market worsens, we are seeing old asset classes return from the dead like the revived dinosaurs of Jurassic Park. Call convertible bonds are the velociraptors of the bunch.
Take the main junk bond ETF like the iShares iBoxx High Yield Corporate Bond Fund (HYG) and the SPDR Barclays High Yield Bond Fund (JNK), which have seen yields double from 3% to over 6% in only six months.
If you are willing to take on more risk, individual busted convertible bonds yield infinitely more. You know all the names. Peloton (PTON) converts are paying a 10.4% yield to maturity, Wayfair (W) 11.0%, MicroStrategy (MSTR) 13.1%, Redfin (RDFN) 14.5%, and Beyond Meat (BYND) 19.5%. Buy ten of these and even if one goes under, you still earn a decent double-digit return.
Having run a convertible bond trading desk for ten years, I can tell you that the risk/reward balance for many individuals with this investment class is just right.
As my summer military duty approaches, information about the Ukraine War is pouring into me. I will share with you what I can, what has been declassified for the war is still a major factor in your investment outcomes. I have been able to use my “top secret” status for 50 years,= to your benefit.
The amazing thing is that in this modern age, information goes from “top secret” to declassified in only a day. It is a new strategy used by the current administration that is working incredibly well. Information is more valuable shared than locked up.
I have been getting a lot of questions from readers as to why Vladimir Putin committed such a disastrous error by invading Ukraine as he is considered a smart guy. My initial response was that he surrounded himself with “yes” men who only told him what he wanted to hear, leading to terrible outcomes, which I have seen happen many times.
The costs of the war for Putin have so far been enormous; 50,000 casualties, 1,000 tanks, 1,300 armored vehicles, banishment from the western economy, the loss of $1 trillion in foreign held assets, and the decline of the national GDP from $1.5 trillion to $1 trillion.
The costs are about to substantially rise. The US is now sending over its most advanced artillery systems, the MRLS, or Multiple Rocket Launch System, which can hit any target within 300 miles with an accuracy of one meter. All you have to do is dial in the latitude and longitude of the target and it never misses. This one weapon will certainly bring the war to a stalemate and consign it to page three of the newspapers.
But after doing a ton more research, my view has evolved. Putin has in fact launched a Resource War against the entire rest of the world. The result has been to boost the price of practically everything Russia produces, including oil ($123 billion), refined petroleum products ($63 billion), iron & steel ($28 billion), coal ($17 billion), fertilizer ($13 billion), wood ($12 billion), wheat ($9 billion), aluminium ($8 billion), platinum, palladium, uranium.
There is also the inflation angle. While the US benefits from many of these high prices as well, they have raised the US inflation rate from 5% to 8.3%. That damages the election prospects of Biden and the Democrats. High inflation improves the election of prospects of a former president who Putin seems to vastly prefer for whatever reason.
After covering Russia for 50 years, flying their front-line fighters, springing a wife out of jail in Moscow, I can tell you that everything there is a chess game, and they play a very long game.
Nonfarm Payroll Report comes in at 390,000, better than expected. Leisure & Hospitality led the gains with 84,000, and Professional & Business Services by 75,000. Manufacturing fell to only 18,000, largely because of a shortage of workers. The Headline Unemployment Rate remained the same at 3.6%. Average hourly earnings rose by an inflationary 5.2% YOY. The U6 “discouraged worker” rate rose back to 7.1%.
Weekly Jobless Claims jump 19,000 to 200,000, a two-month high, according to the Department of Labor. Compensation for American workers has hit a 30-year high. New York showed the largest increase followed by Illinois.
OPEC+ raises oil output to meet surging energy demand caused by the Ukraine War. Up 648,000 barrels a month for July and August. They could easily do a lot more. The cartel is aiming for the pre-pandemic 10 million barrels a day. No dent in prices at the pump yet.
Hedge Funds were slaughtered in May, with the flagship Tiger Global Fund down a massive 14%. Gee, Mad Hedge Fund Trader was UP 11% in May and am up 44% on the year. Maybe there’s something in the water here at Lake Tahoe. Or, maybe it’s the “Mad” that is giving me my edge?
S&P Case Shiller National Home Price Index tops 20.6%, a new all-time high. Tampa (34.8%), Miami (32.4%), and Phoenix (32.0%) lead the gains. Incredible as it may seem, price rises are accelerating. But expect that to cool off once current prices start feeding into the index.
Home Listings soar, with homes for sale up 9% YOY as homeowners fear missing getting out at the top. New listings have doubled in a year, according to Redfin. Outrageous over-market bids have definitely ended in California. So far, no hint of price drops….yet.
A Ford (F) Electric Pickup can power your house for ten days, but only if you live in a tiny house. Ford is the first company to introduce bidirectional charging that lets your home run off the vehicle’s 1,300-pound lithium-ion battery. All you need is a $3,895 hardware upgrade from Sunrun. The range is 320 miles, not as much as the latest Tesla Model X (TSLA). Good luck getting one. Ford isn’t taking any new orders until it fills the 200,000 it already has. Expect Tesla to copy the move.
The Fed may overshoot on raising interest rates if Fed governor Christopher Waller has his way. That’s because going too tight may be necessary to break the back of inflation. That’s what happened in 1980, when Fed Funds hit 17%, and ten-year bond yields hit 15.84%. My first home mortgage interest rate for a coop in Manhattan back then was 17%.
China Covid Cases fade, prompting a big Bitcoin rally. This could be the impetus for a sudden global economic recovery that will deliver a big US stock market rally. Good thing I loaded the boat with tech stocks two weeks ago.
The Fed Minutes were not so horrible, downplaying the risk of a full 1% rate rise, triggering a 1,000-point rally in the Dow. With five up days in a row this is starting to look like THE bottom. Is this the light at the end of the tunnel?
NVIDIA (NVDA) rips, surprising to the upside on almost every front, sending the stock up $30, or 18.75%. Mad Hedge followers bought (NVDA) last week. This is one of the best run companies in the world. I expect the shares to rise from the current $178.51 to $1,000 in five years. Buy (NVDA) on dips.
Q1 GDP dives 1.5%, in its final read. It’s the worst quarter since the pandemic began during Q2 2022. Weekly Jobless Claims dropped 8,000 to 210,000.
My Ten-Year View
When we come out the other side of pandemic, we will be perfectly poised to launch into my new American Golden Age, or the next Roaring Twenties. With interest rates still historically cheap, oil peaking out soon, and technology hyperaccelerating, there will be no reason not to. The Dow Average will rise by 800% to 240,000 or more in the coming decade. The American coming out the other side of the pandemic will be far more efficient and profitable than the old. Dow 240,000 here we come!
With some of the greatest market volatility seen since 1987, my June month-to-date performance recovered to +2.49%.
My 2022 year-to-date performance exploded to 44.36%, a new all-time high. The Dow Average is down -9.37% so far in 2022. It is the greatest outperformance on an index since Mad Hedge Fund Trader started 14 years ago. My trailing one-year return maintains a sky high 65.40%.
That brings my 14-year total return to 556.92%, some 2.37 times the S&P 500 (SPX) over the same period and a new all-time high. My average annualized return has ratcheted up to 43.97%, easily the highest in the industry.
We need to keep an eye on the number of US Coronavirus cases at 84.7 million, up 300,000 in a week and deaths topping 1,000,000 and have only increased by 2,000 in the past week. You can find the data here.
On Monday, June 6 is the 78th anniversary of the D-Day invasion of Normandy. All of the veterans I knew have long since passed. I’ll miss the memorial this year.
On Tuesday, June 7 at 8:30 AM, the US Balance of Trade for April is released.
On Wednesday, June 8 at 10:30 AM, US Crude Inventories are published.
On Thursday, June 9 at 8:30 AM, Weekly Jobless Claims are out.
On Friday, June 10 at 8:30 AM, the blockbuster US Core Inflation Rate is announced. More importantly, the new dinosaur movie, Jurassic World: Dominion, is released. At 2:00 the Baker Hughes Oil Rig Count are out.
As for me, this is not my first Russian invasion.
Early in the morning of August 20, 1968, I was dead asleep at my budget hotel off of Prague’s Wenceslas Square when I was suddenly awoken by a burst of machine gun fire. I looked out the window and found the square filled with T-54 Russian tanks, trucks, and troops.
The Soviet Union was not happy with the liberal, pro-western leaning of the Alexander Dubcek government so they invaded Czechoslovakia with 500,000 troops and overthrew the government.
I ran downstairs and joined a protest demonstration that was rapidly forming in front of Radio Prague trying to prevent the Russians from seizing the national broadcast radio station. At one point, I was interviewed by a reporter from the BBC carrying this hulking great tape recorder over his shoulder, as I was the only one who spoke English.
It seemed wise to hightail it out of the country, post haste, as it was just a matter of time before I would be arrested. The US ambassador to Czechoslovakia, Shirley Temple Black (yes, THE Shirley Temple), organized a train to get all of the Americans out of the country.
I heard about it too late and missed the train.
All borders with the west were closed and domestic trains shut down, so the only way to get out of the country was to hitch hike to Hungary where the border was still open.
This proved amazingly easy as I placed a small American flag on my backpack. I was in Bratislava just across the Danube from Austria in no time. I figured worst case, I could always swim it, as I had earned both, the Boy Scout Swimming, and Lifesaving merit badges.
Then I was picked up by a guy driving a 1949 Plymouth who loved Americans because he had a brother living in New York City. He insisted on taking me out to dinner. As we dined, he introduced me to an old Czech custom, drinking an entire bottle of vodka before an important event, like crossing an international border.
Being 16 years old, I was not used to this amount of high-octane 40 proof rocket fuel and I was shortly drunk out of my mind. After that, my memory is somewhat hazy.
My driver, also wildly drunk, raced up to the border and screeched to a halt. I staggered through Czech passport control which duly stamped my passport. I then lurched another 50 yards to Hungary, which amazingly let me in. Apparently, there is no restriction on entering the country drunk out of your mind. Such is Eastern Europe.
I walked another 100 yards into Hungary and started to feel woozy. So, I stumbled into a wheat field and passed out.
Sometime in the middle of the night, I felt someone kicking me. Two Hungarian border guards had discovered me. They demanded my documents. I said I had no idea what they were talking about. Finally, after their third demand, they loaded their machine guns, pointed them at my forehead, and demanded my documents for the third time.
I said, “Oh, you want my documents!”
I produced my passport, When they got to the page that showed my age they both started laughing.
They picked me and my backpack up and dragged me back to the road. While crossing some railroad tracks, they dropped me, and my knee hit a rail. But since I was numb, I didn’t feel a thing.
When we got to the road, I saw an endless stream of Russian army trucks pouring into Czechoslovakia. They flagged down one of them. I was grabbed by two Russian soldiers and hauled into the truck with my pack thrown on top of me. The truck made a U-turn and drove back into Hungary.
I contemplated my surroundings. There were 16 Russian Army soldiers in full battle dress holding AK-47s between their legs and two German Shepherds all looking at me quizzically. Then I suddenly felt the urge to throw up. As I assessed that this was a life and death situation, I made every effort to restrain myself.
We drove five miles into the country and then stopped at a small church. They carried me out of the truck and dumped me and my pack behind the building. Then they drove off.
The next morning, I woke up with the worst headache of my life. My knee bled throughout the night and hurt like hell. I still have the scar. Even so, in my enfeebled condition, I realized that I had just had one close call.
I hitch-hiked on to Budapest, then to Romania, where I heard that the beaches were filled with beautiful women. My Italian let me get by passably in the local language.
It all turned out to be true.
Stay Healthy,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
One More Off to College
If You Don’t Like the Price, Don’t Use it
Mad Hedge Technology Letter
March 1, 2021
Fiat Lux
Featured Trade:
(HOUSING GOES DIGITAL)
(Z), (RDFN)
One of the more bizarre knock-on effects of the health crisis is the swaths of people doing at-home reconnaissance work on where and how to relocate via the online real estate platform Zillow (Z).
When a polar vortex hits the South of the United States causing electricity bills to spike north of $6,000 per month and folks to boil snow to flush toilets because water treatment facilities are down, you bet that internet search for relocation would explode in a heartbeat.
Well, Zillow makes this a reality and facilitates the better understanding of what type of houses are where and for what listing prices giving users access to an interactive map of properties for sale.
Not only are homes for sale listed, but Zillow has a thriving rental market function where many landlords post units for rent with contact information and details.
The pandemic has been a godsend for Zillow who was floundering before the virus.
Stuck between migrating to selling properties directly from the platform and a slow-to-move advertising business, they couldn’t get their act together.
Fast forward to today, clicks and eyeballs on Zillow have skyrocketed with some looking for larger homes.
Looking for a house during climate change is the new thing to do.
And then there are those who don't even know why they are endlessly looking at listings on the real estate site and most likely because they are bored.
Whatever the reason, the result is clear: Zillow's website traffic numbers are surging.
Some regions have felt some serious follow-through with the newfound attention like the state of Florida.
With its moderate temperature and suppression of state taxes, it's no surprise to see Miami, Tampa Bay, Palm Beach, and Fort Myers, Florida in the top 20 in terms of traffic. Broader demographic and structural shifts also lifted Pennsylvania cities like Scranton and Allentown.
The top three were Las Vegas, Stamford, Connecticut, and Austin, Texas.
Of the 100 largest metros in the country, every one of them saw an increase in traffic.
Millennials are the largest generational group in the country and they're barreling towards home-buying years. They're hitting their mid-30s. They want stability.
Zillow describes it as “the great reshuffling,” and it's leading to a lot more than just a spike in Zillow traffic.
In all four corners of the country, the property market is scolding hot and the median time that a home goes on the market and then goes to pending is 17 days as of December.
That's 25 days faster than a year ago.
How do the numbers look under the hood?
Gangbusters.
Zillow had 9.6 billion page visits to its website and to its app in 2020.
That was up 1.5 billion from 2019.
Zillow shares have been the ultimate benefactor with shares surging up around 500% since the March 2020 bottom.
The ongoing growth acceleration in the real estate macro environment, a sustainable shift in real estate activity online, and the longer-term opportunity for these companies to capture share of industry economics all bode well for the stock price.
Given the pandemic driven outperformance across the internet sector, with housing activity and buyer demand continuing to accelerate, new listings growth and velocity offsetting challenges to supply and lower mortgage rates drive a more affordable buyer environment despite meaningful home price appreciation.
I expect that the macro impact alone will lead to upward forward earnings revisions in the category as companies report results.
I believe that a tectonic shift of real-estate activity online continues.
Lastly, Zillow’s investments in technology and business model evolution which improves conversion of site visitors to home buyers and sellers, increase purchase and sale options, and enhance the experience for agents and consumers.
In the end, this will increase the number of property purchasers.
It’s hard not to see financial outperformance in the near-term future for Zillow.
The growth in the existing home sales market and home price appreciation will continue to benefit Zillow and I expect views of between 13-14 billion in 2021 which sets up the opportunity for Zillow to beat in revenue and profitability. I would also take a look at Redfin Corporation (RDFN) who has a similar business model.
Stocks that negatively correlate with higher trending interest rates are on a suicide mission as the Fed gradually raises interest rates because of the robust domestic economy hitting on all cylinders.
That is why I am unequivocally bearish on online real estate database companies Zillow (Z) and Redfin (RDFN).
Invest in these stocks at your peril because the short-term path to accelerated EPS growth and higher revenue growth looks treacherous at best.
The last few months has brought forth a massive contraction in mortgage applications as a lack of affordability cripples home buyers around the country.
Buyers are simply waiving the white flag and giving up home searches unable to digest the potential monthly mortgage payments.
As recent as last week, mortgage applications dropped 4% from the previous week and this is only the tip of the iceberg.
Buyers are holding off pulling the trigger and have concluded that housing is about to peak, or the peak is in view.
Why splurge on a big investment when you can buy a house cheap on the next dip?
The supposed silver lining is that inventory is slightly up but that is largely irrelevant because the inching up stems from a dire shortage of inventory that incited vicious bidding wars in the most sought-after metropolitan areas mainly around the east and west coasts.
This is all bad news for Zillow and Redfin who are the main real estate database firms buyers use to do research on the properties and sellers use to advertise housing-related products.
The more buyers drop out of the market altogether, the fewer eyeballs gravitate towards these platforms creating less traffic volume.
Aptly aware of the pitfalls around this business model, both Redfin and Zillow desperately attempted to evolve and fortify their business model.
They decided to get into the business of selling houses and originating mortgage loans when real estate specialists view short-term housing prices in a precarious situation at best.
Zillow preceded this up by purchasing online mortgage lender, Mortgage Lenders of America, which is a dangerous short-term bet as the loan book could sour if the real estate market is crushed by rising rates.
Buy low and sell high, it seems Zillow understood this the other way around.
One bright note was that Zillow shouldn’t face liquidity problems because the purchase was made in cash for $65 million.
Attempts to corner the real estate advertising market was Zillow’s cash cow, and careening into a high-risk part of the real estate market at the wrong time could turn into a painful write-off.
Both of these companies are chronic loss-markers and if the recession graces our shores earlier than expected, it could stick Zillow and Redfin with a hefty inventory of housing units in a downtrodden market.
Pouring fuel on the flames, turning into a mortgage lender could cannibalize 3rd party agent business who could decide to pull the plug on their listings and ads from the database completely.
This could be dreadful for Zillow because the main source of revenue is the advertising revenue they rely on from its platform.
In one fell swoop, Zillow effectively damaged both businesses failing to recognize the disconnection of the synergies between them.
I would argue that this could have been a sublime idea if there was no competition and a monopolistic moat would force customers to search on a single platform.
However, these two companies have minimal product differentiation and the risk of starting a pricing war to zero could be in the fold as shoppers will cherry-pick for the best deal depending on the platform since the products are the same.
Fast food outlets have faced this problem in the last few years as their products have been commoditized.
Prematurely rolling out this new strategy could emasculate these companies.
The time is ripe for an outsider with access to cheap capital to easily roll into town and play nice with the independent broker industry promising to protect future broker’s commission and not step onto their turf.
3rd party brokers would migrate towards this peaceful platform in an instant if they sensed cooperating with Redfin and Zillow hampered business, and it would be game over for Zillow and Redfin in a jiffy.
It would make sense for outliers like Homesnap, Neighborhood Scout, and Realtor.com to summon a batch of capital and surgically target the weakness left gaping open by Zillow and Redfin.
Naturally, investors voted with their wallets and each of these “transformational” moves was met by a cascade of torrential selling in the shares.
As interest rates trend higher, it will automatically ratchet up pressure on these marginal business models.
The coming potential lack of mortgage originations from fewer buying candidates and a slide in internet traffic disrupting ad revenue will quickly erode sales revenue growth.
Zillow is already buying houses from sellers in Denver, Atlanta, Las Vegas and Phoenix with their own capital.
If buyers dry up, Zillow will be on the hook for these houses saddled with a growing inventory of units with a return rate of zero while dealing with a high cost of carry.
All of this shouts lower growth and decelerating revenue.
Management has effectively offered shareholders a difficult path to profits beset by landmines that could potentially blow up a limb or two along the way.
If management stuck with the ad business, they could revisit this risky business at the start of the new cycle with the tailwind of low-interest rates and lower house prices.
Patience is a virtue, and nobody told Zillow’s and Redfin’s management.
That is exactly the type of tech company not to invest in even though Zillow’s 22% sales revenue growth is not bad.
I commend management for seeking fresh levers to stoke growth, but this was a badly calibrated commitment that will cast a pall over its operations for the next few years.
As predicted, these companies blew up its future guidance which is a sign of things to come.
Redfin reduced guidance for profits on the home selling unit by 80%.
Not only did they pull back guidance for the new division, but the core advertising unit was hit with a mild reset in guidance.
Elevated execution risk effectively moving forward to this back end of the economic cycle could turn out to be a genius move. But until management can prove this move could gain traction, investors need to abstain from taking risks with this potential catastrophe.
My bet is that this will end in tears.
Zillow is a far stronger company than Redfin with stronger revenue accumulation while boasting higher revenue growth. But when the industry fundamentals are dictating the weak price action, it’s a great time to sit on the sidelines.
Avoid Zillow and Redfin, the boat is sinking and unfortunately this time, the tide won’t raise all boats and say hello to margin capitulation while you’re at it.
Mad Hedge Technology Letter
June 19, 2018
Fiat Lux
Featured Trade:
(TRAVIS IS BACK!),
(UBER), (RDFN), (Z), (LEN), (CRM), (MSFT), (AAPL)
Travis Kalanick is back in full force after his Uber fiasco.
His creation kicked him to the curb preferring a more rigid approach to corporate governance as the 2019 IPO draws closer.
It didn't take much time for him to take stock of his piggy bank.
Yes, the $1.4 billion payout he received means he has nothing to do with Uber anymore.
Some piggy bank.
Travis intends to wield this wad aggressively using his new fund "10100" as his finance vehicle to pounce on hot, new tech names.
Travis doesn't know any other way, and investors should be alert to where he turns to find his new Uber and his new baby.
Future foes should understand Kalanick is one of the most feared disruptors on the face of the earth.
He co-founded Uber in 2009 growing it into the premier transportation platform.
The whirlwind few years launched him from a nobody to one of the premier tech names in Silicon Valley.
So, what's the deal?
What I can tell you is that house prices are about to get a whole lot pricier and there is nothing you can do about it.
Travis Kalanick's investment into house flipping app Opendoor will be the first stage of a torrential stampede of tech capital flowing into this sector.
More importantly, it's a sign of intent by Kalanick.
The real estate industry is the unequivocal prehistoric dinosaur that hasn't changed for decades.
It's almost a matter of time before the process of buying a house becomes digitized, either partially or fully.
Remember, Uber functions as a broker app matching drivers and passengers through a platform built on algorithmic software.
It would make logical sense for tech companies to attack the low-hanging fruit - meaning every industry that places brokers at the heart of business.
The broker app software is tried and tested with a gold stamp of approval. It works, and tech executives understand how to monetize the data.
Traditional brokers would get pummeled in this scenario, as the data applied to a new real estate broker app would eclipse anything a real human would be able to accomplish removing human error.
Real estate is next on disruption pecking order, and tech is coming for its bacon because of the huge sums of money associated with American real estate.
The real estate industry is not a scooter sharing business and requires boat loads of money to get ahead.
Tech has the cash but needs to figure out execution and its future road map.
The bulk of tech capital has been funneled into M&A that has seen tech companies pay multiples above what were guessed as fair value.
Share buybacks have been another hot source of investment.
Opendoor is a house-flipping firm intent on changing the status quo.
The business model entails snapping up distress properties, fixing them up, and selling them for a profit.
Opendoor receives a 6% commission for facilitating this whole process.
Opendoor has already served 20,000 customers saving more than 400,000 of prep time.
It is already on the hook for $1.5 billion in loans. SoftBank's vision fund is knocking on the door eager to become the next investor.
In 2016, this company was valued at $1 billion and after the latest round of financing giving Opendoor another $325 million, that number has crept up to $2 billion.
I have heard from solid sources that the SoftBank capital could be delivered in the next few months, likely paying another solid premium boosting tech valuations across the board.
Paying up has been a universal theme in 2018.
Microsoft's (MSFT) purchase of GitHub and Salesforce's (CRM) purchase of MuleSoft seem like overpaying but appear cheap in hindsight.
With the new cash ready to deploy, Opendoor seeks to expand to 50 cities by 2020, a swift upward jolt from its current 10 cities.
Not only will tier 1 cities feel the brunt of this new development, Opendoor plans to go into the lesser known cities and plans to double its staff from 650 to 1,300 in the upcoming year.
Kalanick caught onto this investment opportunity after one of his former Uber minions, Gautam Gupta, made the jump to Opendoor as COO and liaised CEO Eric Wu with Kalanick to hash out a deal.
It's nice to have friends in high places as Kalanick knows very well.
Even traditional home builders are getting in on the venture capitalist act.
Lennar was one of the investors in the latest round of Opendoor investment, underscoring the existential threat these traditional companies face.
It makes more sense to partner now and form a budding relationship than get utterly wiped out down the road.
Uber hopes to deploy this strategy with Waymo as Kalanick's former company knows it will never possess superior self-driving technology over Waymo.
The Lennar investment also gave Jon Jaffe, the COO of home builder Lennar, a seat on Opendoor's board.
Opendoor is the first serious tech foray into the housing business. It is initiating business on the periphery by focusing on fixer uppers.
This will allow Opendoor to cut its teeth and learn more about the industry before it migrates into higher margin business such as downtown condos that Millennials love.
A swift migration of other tech names will briskly follow into this undisrupted industry if Opendoor can pry open its floodgates.
Fixing up distressed houses is the gateway into brokering and the holy grail of constructing.
Tech could eventually wipe out everyone and control the whole process just like what investors have seen in the transportation industry.
I can imagine a future where tech companies will be the best firms to construct smart houses, which all houses will eventually become.
One massive aftereffect is that the average quality of housing will rise dramatically in all metropolitan areas.
Once the data amasses, Opendoor will be able to identify every property from where it can extract value allowing America to transform into a nation of pristine, smart houses.
Renovating a house and selling it will boost the prices of current houses.
Effectively, tech with gentrify housing creating higher quality but higher priced properties.
Millennials, who have had an awful time jumping on the property ladder, will have an even more difficult task finding a starter home if every starter house turns into a beautiful Tuscan-styled villa from a shabby shed.
Vice-versa, beautiful Tuscan-styled villas that cannot be "flipped" will become smart homes creating even more demand for IoT smart products and higher prices per square foot.
Andreessen Horowitz, a venture capitalist firm based in Menlo Park, California, has been one of the avant-garde tech investors seizing stakes in Twitter, Facebook, Skype, Coinbase, and Lyft.
And these were just some of its investments before 2014!
An industry where Travis Kalanick, SoftBank, and Andreesen Horowitz are piling in must have real estate agents shivering in their wake.
If the general trend keeps up, the Oracle of Omaha Warren Buffett could be next on this powerful list.
He usually likes to buy things he understands with healthy cash flow. I am sure he understands real estate more than Apple (AAPL), in which he had no problem investing.
Traditional home builders and real estate agents aren't the only players that could be left in the dust.
Zillow (Z), the online real estate database company, reacting from the Opendoor threat launched its new business to buy and sell homes.
It was only three years ago that Zillow CEO Spencer Rascoff determinedly hunkered down telling investors "we sell ads, not houses."
Innovation, tech disruption, and competition changes everything.
The stock sold off hard due to the exorbitant costs related to buying homes on the announcement of buying and selling houses.
Margins will get massacred in this scenario, but I applaud the decision to move up higher on the value chain diminishing the existential threat.
This whole industry is about to be flipped on its head, and the winners will be the most innovative companies that incorporate data best.
Rascoff further expanded saying, "I can say without exaggeration, that no company understands the American homebuyer and home seller better than Zillow Group."
Zillow is 12 years old and the12-year treasury trove of data will give it an optimal chance to pivot from selling ads to buying and selling houses.
Seattle-based Redfin (RDFN), Zillow's arch nemesis competitor founded in 2004, has an even larger treasure trove of data dating back 14-plus years and has moved in the same direction.
Redfin was anointed the top tech company to work for in Seattle in 2017 by Hired.com.
There is enormous potential to add another monstrous business to Redfin and Zillow's top line.
The real estate industry is next in line to be digitized, and the Mad Hedge Technology Letter will be the first to know when it's time to dip your toe in.
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Quote of the Day
"As a tech entrepreneur, I try to push the limits. Pedal to the metal," - said former cofounder of Uber Travis Kalanick.
