Mad Hedge Technology Letter
February 14, 2025
Fiat Lux
Featured Trade:
(AIRBNB DOES JUST ENOUGH)
(ABNB)
Mad Hedge Technology Letter
February 5, 2025
Fiat Lux
Featured Trade:
(AMAZON DOESN’T NEED WORKERS)
(AMZN), (AAPL)
Mad Hedge Technology Letter
January 15, 2025
Fiat Lux
Featured Trade:
(TIKTOK COULD GET BANNED)
(CHINA), (TSLA)
Mad Hedge Technology Letter
January 6, 2025
Fiat Lux
Featured Trade:
(DIGITAL SPORTS CONTENT RISES TO THE TOP)
(FUBO), (DIS)
“There are seven billion people in the world. And I think phones are the first time most people will have access to a modern computing device. With Android, we want to enable that for people.” – Said CEO of Alphabet Sundar Pichai
“We are the first species capable of self-annihilation.” – Said CEO of Tesla Elon Musk
I know many people don’t talk about this, but they should.
Much of the insurance industry has been lapping up the profits, because of cataclysmic hurricanes, floods, earthquakes, tsunamis, and mudslides.
Why not do the same with tech?
Now there is a new insurance sub-sector that could become equally as expensive for companies protecting against cybersecurity risks.
The demand for cyber insurance is set to grow amid a series of high-profile cyber-attacks and this trend is unrelenting.
From my channel checks, the cyber insurance industry is set to expand at an 18% compound annual growth for the next 5 years.
Instead of physically robbing a bank and exposing oneself to the violent harm, cyber criminals are sitting behind computers in remote parts of the world digitally looting from their laptops.
Even if they do get caught, they are often in countries that have no extradition agreements with victims from the nation state.
The low risk nature of the heist and asymmetrical gains are almost like options trading.
Let’s see some of the instance of recent cyber fraud.
United Healthcare’s Change Healthcare medical billing processor, which links one third of Americans to health-insurance payments, suffered a cyber-attack in February, crippling the payments systems of a significant number of hospitals.
The May attack on Ticketmaster compromising 560 million customer records was another win for the cyber bullies.
An estimated $8 trillion was lost globally to cybercrime in 2023, a significant increase vs. the $600 billion estimated in 2018.
This industry pays and a time will come when Fortune 500 companies will become the main target.
Some of these far flung places that have major cyber hacking operations are little known places in South East Asia where they took in over $200 billion last year.
Malware, generative AI, and deepfakes have been integrated into their operations while opening up new underground markets and cryptocurrency solutions for their money laundering needs.
As a result cyber frauds have continued to intensify from East and Southeast Asia.
This is just the tip of the iceberg, but the message is clear.
If funds are illegal taken, it is almost impossible to recover them when they are funneled into China then laundered into a 3rd party jurisdiction.
Much of this type of cybercrime is now professionalized.
Ultimately, cybersecurity insurance is a variable that is set to mushroom in the coming years.
Cybercriminals are not only in the widely active East Asia, but many more from Eastern Europe and Africa, and each region is imitating each other as they see strategies succeed.
Ironically, according to the data, the only companies that feel it is worth paying up for cybercrime insurance and companies in North America and Europe.
If this starts to become a drag on the earnings, it could really drag down some smaller companies.
As what is usual for bigger companies, these types of costs are usually passed down to the end consumer and their pricing power allows big tech to do it.
Many have not heard of insurance in tech, and it might be the new tail risk to monitor moving forward in tech, because the monetary rewards for starting a hacking ring in a foreign country is too great to ignore.
I predict that in the next few years, one big tech name will fall due to a run on its security integrity creating a new massive windfall into cybersecurity firms.
Readers should not fall asleep at the wheel and invest in First Trust Nasdaq Cybersecurity ETF (CIBR).
Mad Hedge Technology Letter
May 6, 2024
Fiat Lux
Featured Trade:
(BUFFETT CHIMES IN ON AI)
(BRK/A), (SMCI), (AI), ($UST10Y)
At the once-per-year shareholder meeting for Berkshire Hathaway (BRK/A) in Omaha, Nebraska, the shindig has become a caricature of itself.
A company that does so well, but the leader has self-proclaimed to understand nothing about technology.
It was fascinating to see the Oracle of Omaha Warren Buffett dabble in the cooler talk that is talk about artificial intelligence.
Ironically enough, his pep talk about AI was littered with negatives about the consequences of AI.
Warren Buffett's warning about AI’s potential harm has everything to do with his conservative risk tolerance to not beeline straight to the front of the most modern developments in the tech industry.
He’s late on most stocks but he’s right on them in the end.
It wasn’t too far back when Buffett only would invest in a company as complicated as Coca-Cola, because he famously stated that he doesn’t invest in companies that he doesn’t understand.
Insurance also made Buffett a killing pouring capital into companies like Aflac.
He finally came around to Apple which for better or worse is known as the iPhone company.
His risk tolerance of tech increasing to the almighty smartphone was quite a jump for Buffett that took many years, so don’t expect another leap of faith anytime soon.
In fact, Buffett claiming he doesn’t understand AI too well means there is a lot of capital sitting on the sidelines waiting to enter once they finally do “understand.”
I should also just note the general stockpile of money that has been waiting on the sideline since the Covid-era is enormous.
Any meaningful dip in any meaningful tech company will be met by a torrent of new buying demand.
That’s exactly what happens when the number of great tech companies can be counted on 2 hands.
Almost like what is happening with American restaurants – it’s not that American restaurants are going through a generational renaissance, no, they are packed because so many small restaurants closed after COVID.
Tech is experiencing the same playbook with investor money.
The past 7-12 years have seen the spurring on competition squelched, and the tech industry has never been closer to a full-blown monopoly in some sub-sectors.
Once the bulls get back in control, we are off to the races again, because a few companies move markets now.
That’s what I believe we are seeing in the short-term with the US 10-year inching up only for Central Bank Fed Chair Jerome Powell to deliver us a monumental dovish speech to the sticky inflation we are seeing in numbers now.
Buffett chose to talk about the darker side of AI and the potential for scamming people.
He said that scamming using AI will become a “growth industry of all time.”
Buffett pointed to the technology’s ability to reproduce realistic and misleading content in an effort to send money to bad actors.
Just because we don’t like it, we cannot write it off or afford it as investors.
Readers must deal with AI and the manifestations of it.
One of the big side effects is that it accelerates the winner-takes-all dynamics of tech.
If I were a newbie investor, Super Micro Computers (SMCI) would be on the radar as a powerful growth stock with bountiful potential and exposure to AI.
More tech companies will fail, and they will fail faster, without a trace of even existing sometimes.
It also puts extreme pressure on tech management to implement AI, lose funding, or lose the momentum the business model.
It almost makes tech management over-reliant on AI to fix any and every mess.
The reality is that there will be a lot of losers from AI and punishes companies that never figure out AI.
It is best to identify them before the stock goes to 0.
I don’t necessarily share the same dark outlook as Buffett and I commend him for doing so well on his performance, but when it comes to technology stocks, he shows up late, but it is better than never showing up.
