Mad Hedge Technology Letter
June 24, 2024
Fiat Lux
Featured Trade:
(E-COMMERCE PARTNERSHIPS WILL THRIVE)
(TGT), (SHOP), (WMT)
Posts
Target (TGT) is partnering with e-commerce specialist Shopify (SHOP) to expand its marketplace for third-party merchants.
This is a big deal so don’t diminish this news.
I honestly applaud this maneuver by Target, because it adds e-commerce footprint without paying a premium for it.
Everyone knows that everything is a total rip-off these days like adding an incremental addressable audience at a tech company.
Target has a lot to do to catch up with Amazon, but that’s the direction they should be headed in.
In the future, there is a highly likelihood that TGTs digital business will determine whether they succeed or fail as a tech company.
Everyone is going digital now. Adapt or die.
Shopify is a powerful back-end ecommerce foundation and integrating that with Target appears as a win-win decision moving forward.
We only need to look at competitor Walmart (WMT) which presides over a booming e-commerce business.
That is by decision as they launched a digital-first strategy and have made serious inroads into picking up e-commerce market share.
This partnership also on boards Target into a whole load of new products that they could only dream of selling and the process was rather painful.
Target Plus operates on an invite-only basis for merchants and currently offers more than 2 million items through more than 1,200 sellers.
Online marketplaces can also be launch pads for profitable advertising businesses, with merchants paying for prominent placement in front of shoppers.
Target more than doubled the number of sellers and products on its marketplace over the past year.
The company plans to maintain its invite-only model and continue vetting sellers on the platform.
Curating the selection — for example, allowing only one vendor to offer any given item — is a strategy that will let Target stand out.
Target’s partner, Shopify, makes software that helps vendors quickly set up online stores and process payments.
The company says it works with millions of merchants in about 175 countries. Globally, shoppers will spend $282 billion this year on stores managed with Shopify software. That’s more than double Target’s projected sales for the year.
We are at the late stage of the tech cycle that has been long in the tooth.
It’s not a shocker at this point for tech models to be petering out and management looking for that extra juice to kick-start revenue growth for however long the rest of the business cycle lasts.
Clearly, debt financing isn’t an option these days and I do believe this is a time when management showed their worth as conditions have been extraordinarily tight for the last 2 years.
There is also no guarantee that business conditions will reverse and go back into that pre-pandemic goldilocks phase.
The jury is still out but higher interest rates could be in the mix for the foreseeable future.
Therefore, it is clever by TGT and SHOP to strike up a partnership in which TGT expands their offerings and SHOP merchants get a crack at a new audience.
These opportunities are limited in fashion, but tech in 2024 isn’t about an unlimited addressable audience.
Tech in 2024 is more about efficiency and staying lean because the past 2 years have really been about cutting the bloat.
Target obviously has the more upside in this relationship and I expect them to add other partners that can move the needle.
TGTs share price has been flat for the past 6 months and migrating further into a digital strategy could be the formula to nudge that share price back into high gear.
The stock price is now at $150 per share and I do believe TGT has the chance to grind higher closer to $200 per share by year-end.
Mad Hedge Technology Letter
July 13, 2022
Fiat Lux
Featured Trade:
(HOT INFLATION NUMBER BODES POORLY FOR TECH STOCKS)
(LYFT), (UBER), (AMZN), (SHOP), (GOOGL), (SNAP), (META), (TWTR), (MELI), (EXPE), (TRIP)
Fed swaps now fully price in 150 basis points of hikes over the next two meetings after awful inflation numbers came in showing inflation heading in the wrong direction.
The 9.1% inflation print was an acceleration of the 8.6% which was what we got last time.
I don’t want to beat a dead horse, but inflation accelerating and beating the expectations of 8.8%, is paramount to the trajectory of tech shares.
The awful number also underscores the magnitude of policy mistakes that the U.S. Fed Central Bank has overseen.
This is the only thing that matters because macro liquidity drives the trajectory of equities in the short term.
These clowns aren’t serious about tackling inflation, as I said a few times already and this proves it!
Itty bitty rate rises won’t stamp out 9.1% inflation and in fact, encourages it.
The Fed would need to raise the Fed Funds rate by 7.35% to 9.1% immediately from the current 1.75% for the real inflation rate to be non-inflationary.
According to the official Fed website, the Fed targets 2% inflation because they call this level “healthy.”
By their own measure, to achieve this 2% inflation, they would still need to raise rates by 5.35% immediately, but they absolutely won’t because Powell simply has no interest in doing his job, period.
These core expenses skyrocketing is why I keep and kept mentioning that Americans have less money to splurge on tech gadgets and software and again, this inflation report validates my thesis.
Think about pitiful tech stocks that didn’t work in bull markets like ride chauffeurs Lyft (LYFT) and Uber (UBER), I fully expect these companies to perform terribly over the next 6 months amid a rising rate backdrop.
Not only are they growth tech, but their business is directly tied to energy prices.
They are the poster boys for the pain tech companies will feel from hyperinflation.
The outlook is quite poor for technology in the short term, and we are still waiting to form a bottom. It will come back but we need a capitulation.
The accelerated rate of inflation means that we push back the big recovery in tech stocks.
Ecommerce stocks will suffer like Amazon (AMZN), Shopify (SHOP), and MercadoLibre (MELI) because of the decline in discretional spending for the consumer.
Digital ad giants like Google (GOOGL), Snap (SNAP), Meta (META), and Twitter (TWTR) will need to reckon with smaller ad budgets from 3rd party ad purchasers as companies cut back on marketing spend.
Don’t need to increase marketing spend when people have no money to spend on products.
Travel tech stocks like Expedia (EXPE) and Tripadvisor (TRIP) can expect summer to mark peak travel as Americans get more concerned about food and oil budgets after the summer of travel revenge from the arbitrary lockdowns.
It also means there will be a meaningful next leg down for tech stocks as many CFOs are now furiously crunching the new revenue and margin downgrades to reflect this heightened risk.
The new re-rating isn’t reflected yet in tech shares.
It’s already been a few months on the trot where many analysts say this is the top, they have been inaccurate every time.
Even if it is the top, inflation will stay higher for longer and stagflation is the consensus for 2023.
The clowns at the Fed not doing their job means that economic cycles will be shorter and a great deal more volatile because the smoothing effect of moderated inflation is now stripped out of calculations. This effectively means a contracted boom-bust trajectory for tech stocks which is unequivocally what we are seeing in market behavior.
Mad Hedge Technology Letter
April 29, 2022
Fiat Lux
Featured Trade:
(TELADOC IMPLODES)
(ARKK), (SARK), (TDOC), (ROKU), (SHOP), (ZM)
The Cathie Wood circus keeps making new lows as digital doctor platform Teladoc (TDOC) recorded the biggest drop in shares since its IPO.
At one point, shares were down 45% and this was the day after buying another tranche of over $200 million worth of shares before the earnings came out.
TDOC was a pandemic darling and since then, the stock has done nothing but dive lower.
There is even an inverse ETF to jump on the anti-Cathie Wood bandwagon called Tuttle Capital Short Innovation ETF (SARK).
SARK is almost up 100% year to date showing that as market conditions distort, traders must distort with them.
To stay long tech growth is like throwing money off an apartment balcony.
The lack of understanding Cathie Woods exhibits about the stock market is hard to fathom.
Her go-to excuse is that others “aren’t doing the research.”
We were smack dab in a low-rate environment for a decade when even marginal tech companies would get the benefit of the doubt.
As the goalposts have moved and narrowed, Wood is still sticking to her 5-year time horizon and still explaining to investors that other analysts “aren’t doing their homework.”
This really is a case of the emperor having no clothes if I have ever seen it.
To add insult to injury, she has gone on public television to speak about how she believes the global economy is experiencing deflationary pressures.
No matter what changes to the trading environment, she sticks to her narrow story of deflation and her 5-year time horizon while her investors lose money.
If that’s not enough, she blames the market for not understanding her ARKK fund which is down more than 50% this year.
She claims that many people are “devaluing innovation” and just do not understand innovation like she does.
With an unrelenting belief in her growth strategy, miraculously, another $1.5 billion of inflows have juiced up her fund in 2022.
There are many out there that still think she is a great money manager after her one call of Tesla going up was correct.
Investors have chosen to back her further even with mounting losses and that has now backfired as ETF ARK Innovation ETF (ARKK) appears as if the market has not recognized how smart Cathie Wood is.
ARKK is Teladoc’s largest shareholder with a 12% stake worth.
It’s not just TDOC, but other investments like Roku (ROKU), Zoom Video Communications (ZM), and Shopify (SHOP) whose shares have experienced cataclysmic meltdowns of epic proportions.
Why did TDOC shares perform so poorly?
Higher advertising expenses in the mental health market, as well as an “elongated sales cycle” in chronic conditions as employers and providers of healthcare plans evaluate strategies.
TDOC’s services aren’t as good as first thought.
TDOC also took a $6.6 billion charge for impairment of goodwill, a non-cash charge the company excluded from its adjusted results.
The competition also has increased significantly and many of these first-move advantages are not holding up like they used to in tech.
The recent performance has been met with a bevy of analyst downgrades and tech growth as a sub-sector will have a hard time recovering until a lower interest rate sentiment comes back to sweep up the market.
Still, not a peep out of Cathie Wood on modifying her controversial strategies and that’s when we are staring down a barrel of multiple 50 basis point interest rate rises.
She was photographed partying in the Bahamas at some beach parties the day before the TDOC debacle, apparently, she isn’t bothered that much by her followers losing generation wealth.
If readers want to get back into tech growth after an easing of credit conditions, avoid buying ARKK and just buy a collection of strong tech growth yourself.
Mad Hedge Bitcoin Letter
April 26, 2022
Fiat Lux
Featured Trade:
(THE DOGE EFFECT)
(DOGE), (TWTR), (TSLA), (ETH), (BTC)
Global Market Comments
April 22, 2022
Fiat Lux
Featured Trade:
(APRIL 20 BIWEEKLY STRATEGY WEBINAR Q&A),
(SPX), (TSLA), (TBT), (TLT), (BAC), (JPM), (MS),
(BABA), (TWTR), (PYPL), (SHOP), (DOCU),
(ZM), (PTON), (NFLX), (BRKB), (FCX), (CPER)
Below please find subscribers’ Q&A for the April 20 Mad Hedge Fund Trader Global Strategy Webinar broadcast from Silicon Valley.
Q: Should I take profits on the ProShares UltraShort 20+ Year Treasury ETF (TBT), or will it go lower?
A: Well, you’ve just made a 45% profit in 4 months; no one ever gets fired for taking a profit. And yes, it will go lower, but I think we’re due for a 5 -10% rally in the (TBT) and we’re seeing some of that today.
Q: Do you think the bottom is in now for the S&P 500 Index (SPX)?
A: No, I think the 50 basis point rate hikes will put the fear of God into the market and prompt another round of profit-taking in stocks. So will another ramp up or expansion in the Ukraine War, and so could another spike in Covid cases. And interest rates are getting high enough, with a ten-year US Treasury (TLT) at 2.95% and junk at 6.00% that they will start to bleed off money from stocks.
So there are plenty of risks in this market that I don’t need to chase thousand point rallies that fail the following week.
Q: What would cause a rally in the iShares 20 Plus Year Treasury Bond ETF (TLT)?
A: Everyone in the world is short, for a start. And secondly, we’ve had a $36 point drop in the market in 4 ½ months—that is absolutely screaming for a short-covering rally. It would be typical of the market to get everybody in the world short one thing, and then ramp it right back up. You can bet hedge funds are just gunning for that trade. So those are two big reasons. Another big reason is getting a slowdown in the economy. Fear of interest rate rises and yield curve inversions are certainly going to scare people into thinking that.
Q: Where to buy Tesla (TSLA)?
A: We had a $1,200 all-time high at the end of last year, then sold off to $700—that was your ideal entry point, on that one day when the market was down $1,000 and they were throwing out Tesla stock like there was no tomorrow. We have since rallied back to the 1100s, so I'd say at this point, anything you could get under just above the $200-day moving average at $900 would be a gift because the sales are happening and they’re making tons of money. They’re so far ahead of the rest of the world on EV technology that no one will ever be able to catch up. A lot of the biggest companies like Ford (F) and (GM) are still unable to mass produce electric cars, even though they’re all talking about these wonderful models they're bringing out in 2024 and 2025. So, I think Tesla is just so far ahead in the market that no one will catch them. And the stock will have to reflect that by trading at a higher premium.
Q: I Bought the ProShares UltraShort 20+ Year Treasury ETF (TBT) at your advice at $14, it’s now at 425. Time to take the money and run?
A: Yes, so that you’re in position to rebuy the (TBT) at $22, or even $20.
Q: I bought some bank LEAPS such as Bank of America (BAC), JP Morgan (JPM), and Morgan Stanley (MS) just before earnings; they’re doing well so far.
A: That will definitely be one of my target sectors on any recovery; because the only reason the stock market recovers is because recession fears have been put away, and the only reason the banks have been going down is because of recession fears. Certainly, the yield curve inversion has been helping them lot, as are absolute higher interest rates. So yes, zero in on the banks, I’m holding back waiting for better entry points, but for those who are aggressive, there’s no problem with scaling in here.
Q: If Putin uses a tactical nuclear weapon in the Ukraine, what would be the outcome?
A: Well, I don't think he will, because you don’t want to use nukes on your neighbors because the wind tends to blow the radiation back into your own country. It also depends on when he does this; if Ukraine joins NATO, joins the EC, and NATO troops enter Ukraine, and then they use tactical nukes, France and England also have their own nuclear weapons. So, attacking a nuclear foe and risking bringing in the US, who could wipe out the whole country in minutes, would not be a good idea.
Q: Would you get into Chinese stocks here?
A: Not really; China seems to have changed its business model permanently by abandoning capitalism. The Mad Hedge Technology Letter is currently running a short position in Alibaba (BABA) which has proved highly successful. Although these things are stupidly cheap, they could get cheaper before they turn around. Also, there’s the threat of delisting on the stock exchanges facing them in a year or two, and the trade tensions which continue with China. China doesn’t seem friendly anymore or is interested in capitalism. You don't want to own stocks anywhere in that situation. And by the way, Russia has also banned all foreign stock listings. China could do the same—not good if you’re an owner of those stocks.
Q: How would you play Twitter (TWTR) now?
A: I think it’s a screaming short, myself. If the board doesn’t accept Elon’s offer, which seems to be the case with their poison pill adoption, there are no other buyers of Twitter; and Elon has already said he’s not going to pay up. So you take Elon Musk’s shareholding out of the picture, and you’re looking at about a 30% drop.
Q: Many of the biggest Covid beneficiaries are near or below their March 2020 lows, such as PayPal (PYPL), Shopify (SHOP), DocuSign (DOCU), Zoom (ZM), Peloton (PTON), Netflix (NFLX), etc. Are these buys soon or are there other new names joining them?
A: I think this will continue to be a laggard sector. I think any recovery will be led by big tech, and once big tech peaks out after a 6-month run, then you may get the smaller ones catching up—especially if they're still down 80% or 90%. So that’s a no-touch for me; too many better fish to fry.
Q: Do you think inflation is transitory or are we headed toward double digits over the long term?
A: The transitory argument got thrown out the window the day Russia invaded Ukraine; they are one of the world’s largest producers of both energy and wheat. So that definitely set those markets on fire and really could end up adding an extra 5% in our inflation numbers before we peak out. I think we will see the highs sometime this year, could be as low as 4% by the end of this year. But we may have a double-digit print before we top out, and that could be next month. So, if you’re looking for another reason for stocks to sell out, that would be a good one.
Q: If the EU could limit oil purchases from Russia, then the war would be over in a month since Russia has no borrowing power or reserves.
A: The problem is whether they actually could limit oil purchases, which they can’t do immediately. If you could limit them in a year or cut them down by like 80%, we could come up with the other 20%, that is possible. Then, the war would end and Russia would starve; but Russia may starve anyway. Even with all the rubles in the world, they can’t buy anything overseas. Basically, Russia makes nothing, they only sell commodities and use those proceeds to buy consumer goods from abroad, which have all been completely cut off. They’re in for an economic disaster no matter what happens, and they have no way of avoiding it.
Q: What are your thoughts on supply chain problems?
A: I actually think they’re getting better; I watch the number of ships at anchor in San Francisco Bay, and it’s actually down by about half over the last 3 months. People are slowly starting to get things that they ordered nine months ago, used car prices are starting to roll over…so yes, it’s going to be a very slow process. It took one week to shut down the global economy, it’ll take three years to get it fully reopened. And of course, that’s extended by the Ukraine War. Plus, as long as there are supply chain problems and huge prices being paid for parts and labor, you’re not going to have a recession, it’s impossible.
Q: What’s your outlook on tech stocks?
A: I see them bottoming in the current quarter, and then going on to new all-time highs in the second half.
Q: What about covered calls?
A: It’s a really good idea, allowing you to get long a stock here, and reduce your average cost every month by writing calls against your position until they eventually get called away. Not too long ago, I wrote a piece on covered calls, so I could rerun that again to get people familiar with the concept.
Q: If Warren Buffet retires, what happens to Berkshire Hathaway (BRKB) stock?
A: It drops about 5% one day, then goes on to new highs. The concept of a 90-year-old passing away in his sleep one night is not exactly revolutionary or new. Replacements for Buffet have been lined up for so long that now the replacements are retiring. I think that’s pretty much baked in the price.
Q: Any plans to update the long-term portfolio?
A: Yes it’s on my list.
Q: Too late to buy Freeport McMoRan (FCX)?
A: Yes I’m afraid so. We’ve had a near double since September when it started moving. However, I would hold it if you already own it and add on any substantial selloff. Freeport McMoRan announced fabulous earnings today, and the stock promptly sold off 9%. It was a classic “buy the rumor, sell the news” type move. This is despite the fact that the United States Copper Fund ETF (CPER), in which (FCX) is a major holding, is up on the day. Please remember that I told you earlier that each Tesla needs 200 pounds of copper, that Tesla sales could double to 2 million this year, and that they could sell 4 million if they could make them. It sounds like a bullish argument of me, of which (FCX) is the world’s largest producer.
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
Mad Hedge Bitcoin Letter
April 21, 2022
Fiat Lux
Featured Trade:
(SHOPIFY BOOSTS DIGITAL GOLD)
(BTC), (SHOP), (MCD), (WMT)
