Man is not free unless government is limited.” – Said Former US President Ronald Reagan
Mad Hedge Technology Letter
December 22, 2023
Fiat Lux
Featured Trade:
(THE FUTURE IS HERE)
(NO CODE)
Cryptocurrency prices have been on a tear lately as bitcoin continues to rally on hopes a spot bitcoin exchange-traded fund will launch soon.
Last week Bitcoin had a 24-hour time period where it exploded 13% to the upside as the digital gold wakes up from its slumber.
Lately, it certainly is odd to see US treasury yield surpassing any type of volatility that crypto can offer proving that volatility is more about a time and place dynamic rather than a certain asset class.
The volatility meant that Bitcoin passed $35,000 for the first time since May 2022 even though it has pulled back a little today.
The rally could be fueled in part by investors who were betting against the crypto asset scrambling to cover short positions as well.
Bitcoin led cryptocurrency prices higher over the past two weeks after the SEC declined to challenge its court loss against Grayscale Investments (GBTC) and its effort to convert its Grayscale Bitcoin Trust into a spot bitcoin ETF on Oct. 13.
A U.S. appeals court ordered the SEC to review Grayscale's ETF application. The regulator could still reject the spot bitcoin application, but it would need a new justification to do so.
Institutional demand for a spot bitcoin ETF is stronger than ever before. For many institutions, it is a matter of when — not if — the SEC will approve a spot bitcoin ETF.
A spot bitcoin ETF would provide a regulated and accessible vehicle for bitcoin exposure, and also mark a major vote of institutional confidence.
MicroStrategy (MSTR) added 21% and the computer software company holds 158,245 bitcoin with an average purchase price of $29,582.
Sooner or later, unless regulation totally wipes out Bitcoin, crypto is likely to find itself finagling its way into 401K’s.
The longer it lingers around, institutional pockets, which are deep, will find a way to onboard it into its business model.
For many years, institutional money has stayed away from crypto primarily because it is built on nothing and most conservative investors want to see cash flow.
At least an asset like gold bullion, there is a physical nature of what one buys.
Yet, as the world becomes more digitized and globalized, institutional money is starting to take the bait.
To Bitcoin’s credit, the absolute collapse of volatility in the past few years has been an interesting talking point because too much volatility used to be the problem for this asset class.
There is a chance that as we begin to start a new economic cycle because of a Fed pivot, that $16,000 per Bitcoin at the end of December 2022 could register the low of the next cycle.
Bitcoin is more appealing as a risk-reward proposition now than it was exactly a year ago as the Fed embarked on an epic tightening cycle.
Throw into the mix that the quality of global government has cratered to a generational low and it makes sense for institutional backers from Blackrock to front-run the next bull market in crypto as capital looks to de-risk from fiat currencies.
This could finally end up being the run-up to $100,000 per bitcoin that everyone expected during the last bitcoin spike.
Readers can play this in the equity market by buying MSTR.
Mad Hedge Technology Letter
September 20, 2023
Fiat Lux
Featured Trade:
(THE BOND KING IS WRONG ABOUT TECH STOCKS)
($COMPQ), (UUP), (MSFT)
Mad Hedge Technology Letter
September 8, 2023
Fiat Lux
Featured Trade:
(THE SUSHI HITS THE FAN IN CUPERTINO)
(APPL), (MCHI),
In the trader's guidebook of how to trade, it’s quite common to cement the nostrum "don’t fight the Fed" into one’s brain.
Many know this.
In 2022, this nostrum served traders quite well as interest rate increases left the tech market in the dust.
Major tech stocks ($COMPQ) from Meta (META) to small-cap Zoom Video Communications (ZM) fell flat on their face.
That was when "don’t fight the Fed" was the smart thing to do.
Fast forward to 2023 and the Fed is still marching towards more interest rate tightening, but astonishingly the opposite has happened, it has paid to fight the Fed this year.
Not only that, the tech-based Nasdaq has gone parabolic, delivering gains of already over 30% in just the first 7 months.
Anyone that hasn’t fought the Fed has been left bloody in the streets like a standard Parisian riot.
One piece of the puzzle that often gets overlooked is one major catalyst to this trade which is the Japanese yen carry trade.
This is how the trade has worked for many hedge funds this year.
Borrow in Japanese yen because the cost of borrowing is still puny compared to yields in Western countries.
Take that yen back over to the Western equity markets and pour them into stocks like Nvidia, Meta, Apple, Tesla, Microsoft, and Amazon.
The strategy has worked like clockwork and I know many traders that have made second and third fortunes off of the back of this trade so far this year.
Traders have boosted short positions on the yen as the currency moved steadily lower this year amid widening divergence between the Bank of Japan’s easy policy and aggressive hiking cycles for other central banks, notably in the US and Europe.
Talking about the Yen is timely as reports of lower US job numbers and increased Japanese wage gains triggered a one-day selloff in the dollar.
We won’t see a complete unwind of the yen carry trade just yet but the carry trade had gotten a little too long in the tooth, so this is profit-taking to readjust positioning.
If volatility stays high then it will continue to unwind, but if volatility stabilizes then the Japanese yen carry trade parade will continue unabashed.
The yen is one of the worst-performing Group-of-10 this year, reaching 145 per dollar last month, a level unseen since November.
What’s next?
Nothing has fundamentally changed.
The US isn’t going into a recession this year and even if credit card delinquencies are up and household net worth is struggling in America, it’s not enough to move the needle to deter the Japanese yen carry trade.
The mild pullback against the US dollar is in fact a golden opportunity for traders to pour back into the short Japanese yen trade.
As long as the Japanese yen remains weak, tech stocks won’t crack because this liquidity is the lifeblood to many tech stocks.
We have been crowbarred into this goldilocks environment of higher equities, higher bond yields, and now US housing is starting to bounce back.
The Nasdaq has been ironclad this year and even if I don’t think it will deliver another 30% to finish the year, the pain trader is higher in tech stocks, marginally higher in bond yields, higher in US housing, and short Japanese yen.
Until we receive some type of concrete confirmation that this pain trade is over, I expect to grind up in the aforementioned asset classes.
The biggest takeaway I took from the used car platform Carvana’s (CVNA) latest earnings report is: who is dumb enough to buy an old car and get fleeced for $6k?
Apparently, $6k is what CVNA earns per unit in gross terms now.
But hey, if paying a broker $6k is what it takes to buy a used car then so be it.
The problem I have with the $6k gross per unit is how much further can that number go?
My bet is not much.
How much higher broker fees can Americans absorb?
My bet is not much more.
Just doing simple math means that for a $20,000 used car purchase, adding on the Carvana service would mean it costs $26,000 to the end buyer.
Sure, for some people like me and you it’s not a big deal, but I don’t believe this can scale well or efficiently as a tech platform.
That being said, it’s quite a corporate achievement for such gaudy margins and one that meant CVNA’s share exploded to the upside rising 44% on the news.
The stock is down 18% today highlighting the volatile nature of the stock.
Revenue fell 25% to $2.6 billion, but total gross profit rose 14% to $341 million.
The update helped reassure investors that the stock would be able to avoid bankruptcy after plunging as much as 99% from its peak in 2021 on slowing growth and mounting losses, especially as interest rates rise and used car prices fell for much of last year.
Carvana didn’t give guidance for net income but said adjusted earnings before interest, taxes, depreciation and amortization would be $50 million in the current quarter — way above the consensus analyst estimate of a $3.6 million loss — and gross profit per unit would be a record of more than $6,000.
Carvana’s $8.7 billion debt load as of March 31 has been a big problem for the company, which recently scrapped a debt exchange offer that would have reduced its burden because creditors held out for a better deal.
The interest on Carvana’s debt cost the company more than $2,000 per car in the first quarter, which is one reason it reported a loss of $286 million despite gross profit per vehicle sold of more than $4,000.
From peak to trough, Carvana lost 99% of its value as used car prices fell, the company made an ill-timed acquisition of the ADESA auction business, and creditors began preparing for a bankruptcy.
Although in the short term the stock is having a nice bounce, that doesn’t mean the stock’s appreciation is sustainable in the long run.
I do believe the bounce is just the proverbial dead cat bounce and ok for a quick trade and quick profit.
In a world where big tech is really crushing it, small tech needs that extra little bit of juice or special sauce to navigate the iron clad balance sheets of Silicon Valley.
Selling used cars is hard to digitize and I believe this platform will continue to burn cash on the road to a never ending feedback of explaining why it can’t be profitable.
Sell this one on the bounce.
"The greatest enemy of knowledge is not ignorance, it is the illusion of knowledge," said the late Professor Stephen Hawking.
“All of technology, really, is about maximizing free options.” – Said Risk Analyst Writer Nassim Nicholas Taleb
