“The best investment you can make is in yourself.” – Said Warren Buffett
Mad Hedge Technology Letter
September 20, 2024
Fiat Lux
Featured Trade:
(TECH STOCKS RECEIVE A GIFT)
($COMPQ), (NVDA)
No recession – highly bullish for technology stocks ($COMPQ) in the short term.
That is my hot take from Jerome Powell’s and the Fed’s surprise 50-point basis interest rate cut.
Tech stocks will overwhelmingly outperform the rest of the equity market because that is where the profits and earnings are.
I don’t see a situation for the ‘catch up’ trade, or if it does transpire, it will be very transitory in nature.
There is no other subsector that is about to overtake technology in terms of prestige or growth, and that is where I take comfort in believing that technology will harvest the lions’ share of the gains from the Central Bank’s interest rate cut.
The cut was a jumbo one, which means even better projections for tech share prices in the short run.
It is hard not to take a look-in back at the Magnificent 7 for another winter rally that should take the Nasdaq quite a bit higher from here.
That is why I executed a deep-in-the-money call spread on chip behemoth Nvidia (NVDA) this morning.
The tech-weighted Nasdaq index hit an all-time high in 2024 around July, with prices trading around 18,700 points, and we are around 5% from that high.
Any pullback in quality tech firms will be brought up, and I urge readers to enjoy the rally because of the unexpected jumbo hike, the rally is now pulled forward.
Highlighting the hawkish cut was the FOMC vote was 11-1, with Governor Michelle Bowman preferring a quarter-point move.
Powell pushed through a half-point move instead and ironically told reporters that the economy was great.
Unemployment numbers of around 4.2% were once considered full employment back in the day.
A half-point cut into a strong economy to pre-empt a recession is an interesting move.
It is clear they don’t want to get behind the curve after they badly botched inflation on the way up.
In most normal cases, tech stocks would rocket higher, and bond yields would sink, but the 10-year yield has gone the other way, signaling that this hawkish cut could ignite another bout of higher inflation at the long end of the yield curve.
The Nasdaq index gained 3%, showing that it can power through no matter what bonds are doing, and that has been the case since 2020.
The Japanese yen also shot higher from the 140 level to the 144 to the US dollar today.
A weaker trending yen is a highly bullish signal for the trajectory of U.S. tech stocks.
The committee expects the long-run neutral rate to be around 3%, a level that has drifted higher as the Fed has struggled to get inflation down to 2%.
Gross domestic product has been rising steadily, and the Atlanta Fed is tracking 3% growth in the third quarter based on continuing strength in consumer spending. Moreover, the Fed chose to cut even though most gauges indicate inflation well ahead of the central bank’s 2% target. The Fed’s preferred measure shows inflation running around 2.5%, well below its peak but still higher than policymakers would like.
The current jobless level is 4.2%, drifting higher over the past year, though still at a level that would be considered full employment.
A 50 basis point rate cut into an economy growing 3% per year will surely get GDP moving closer to 4%.
Think about it in terms of housing and all the buyers waiting on the sidelines waiting to get into the housing market.
Inflation is sure to come back again in the long term, but in the short term, this nudges 3% GDP to 4%, and that is highly bullish for tech stocks. This also should help unemployment stick close to the 4.2% in, which the Fed is worried about, which is a victory for equity markets.
The tech rally is here, and don’t miss out on it!
“It takes 20 years to build a reputation and five minutes to ruin it.” – Said American Investor Warren Buffett
Mad Hedge Technology Letter
September 18, 2024
Fiat Lux
Featured Trade:
(ORACLE’S PLAN TO DOMINATE AI)
(ORCL)
Larry Ellison, who founded Oracle back in the day and was once a legacy data center company, has now transformed into a cutting-edge AI company, and when he talks, people should take note.
The boom in his stock Oracle from the AI mania has meant that he is now almost as rich as Amazon’s Jeff Bezos.
To say the least, Ellison has his pulse on what is going on in the AI community and what is next in store, which is why Oracle, who recently moved to Texas, should be on the radar of every investor who has an interest in technology.
Ellison gave his candid view on how his company, Oracle, along with other AI companies, will profit from the hard pivot to everything and anything AI.
Essentially, everything will become generative AI, which delivers profitable solutions when anything happens.
Let me explain.
Ellison believes super-invasive, if not totally omnipresent, algorithmic overseers will be the new normal for human society, and that will give a way for tech companies to make a killing.
Powerful and fascinating AI will bring about a new paradigm of supercharged surveillance, guaranteeing that the "citizens" — all behave and stay in line.
"We're going to have supervision," Ellison said.
"Every police officer is going to be supervised at all times, and if there's a problem, AI will report that problem and report it to the appropriate person."
"Citizens will be on their best behavior," he added, "because we are constantly recording and reporting everything that's going on."
Ironically, many of these surveillance apparatuses — security cameras, bodycams — are already in place.
Why have them engaged in a risky car chase, for example, when you can get an AI drone to tail a suspect instead?
"You just have a drone follow the car," Ellison said.
Under Ellison's stewardship, Oracle has been attempting to position itself as another leader in the AI race and has quickly integrated the tech into its cloud computing services.
The examples that Ellison gives are by no mistake.
Ellison plans for Oracle to be the heart and center of this surveillance business, and rightly so, with all the investments and years of getting to this new technology.
Oracle’s data centers and software will be central to how surveillance will operate. CCTV cameras will be absolutely everywhere, “helping” police do their job and identifying if a drone needs to be sent in for more helping.
Police won’t be the only use case in drones and cameras powered by AI helping to build business.
Take the industry of logistics.
They are fast moving towards a time when humans won’t need to be working in the warehouse moving products.
Robots, cameras, and drones in that type of tripartite cooperation will be able to unload, store, organize, and ship powered by Oracle software. Now, that is a really efficient concept!
Humans will really only need to be present to receive the Amazon package at the last mile deliver high likely delivered by a robotic drone in an electric Tesla powered by Oracle software. Oracle is about to hit pay dirt once they are integrated into every business process in the world that happens 24 hours per day.
The future of commerce will look a lot different, and there is a reason why the trajectory is so fluid: and Ellison sits at the intersection of business profits and AI.
Readers should be inclined to buy Oracle on the dip.
Mad Hedge Technology Letter
September 16, 2024
Fiat Lux
Featured Trade:
(DOMINATING THE BATTERY MARKET IN EUROPE)
(CATL), (TSLA), (NKLA), (BYD)
In a sign of the times, the world’s most important EV battery maker is now a Chinese company that is dominating Europe.
It also shows how far Chinese technology has come in terms of value-added products in such a short time.
Europe and Tesla are falling asleep at the wheel and need to figure out how to combat the Chinese from taking over the EV and EV battery industry.
Contemporary Amperex Technology (CATL) is the name, and they plan to expand rapidly in Europe to avoid paying any tariffs on products coming from China.
Circumventing tariffs is the game, and the Chinese are very good at it.
CATL unveiled new technologies and products for heavy-duty vehicles and ships, including a battery with a 15-year and 2.8 million-kilometer lifespan.
The company is already partnering with several European manufacturers, including Daimler Truck Holding, Volkswagen Commercial Vehicles, and Volvo.
It’s involved in early-stage product design as well as research on the infrastructure needed for broader adoption of electrified commercial transport.
CATL is expanding its commercial-vehicle battery business in Europe as the continent moves to slash carbon emissions from trucks, buses, and ships.
It is definitely cheaper to use batteries exported from China, given the maturity of the supply chain there, but the company could ramp up production in Europe based on clients’ needs and other local production requirements.
It already has a plant in Germany, which kicked off production in 2022, and it’s building another in Hungary.
Much like the smartphone business, with every type of technology that the Chinese master, they solve the economies of scale problem and are able to manufacture these products for significantly less than their competitors.
This is why they can sell great driving EVs for $10,000 per vehicle.
Very few companies can compete with China on cost alone.
With inflation staying stubbornly higher and burning a hole in the consumer wallet, many strapped buyers are opting for Chinese substitutes instead of Tesla’s or German EVs.
This is a harbinger for things to come as many lucrative manufacturing jobs in Germany could be lost and replaced by a lower-paid Chinese EV job.
My guess is that BYD and CATL, both Chinese companies, are about to muscle out the competition in Europe before they go back to the drawing board to figure out how to do the same in the United States.
BYD has also signaled its strategy to get its cars into the US by building a factory in Mexico.
They plan to tell us publicly their Mexico strategy after the US election is over.
One area that is under consideration was around the city of Guadalajara. That region has emerged over the past decade as a technology hub sometimes described as Mexico’s Silicon Valley. BYD sent a delegation to the area in March.
I do believe the entire world, and not just the Global South, should start getting comfortable with driving Chinese EVs with Chinese-produced batteries.
Many are still are shocked that the Chinese were able to corner the EV market so quickly after Tesla’s first mover advantage kept them top dog for many years.
Although this would not be a reason to bet on the Chinese economy, it would be a good reason to stay out of Tesla shares and to even short companies like Rivian and other small firms such as Nikola.
Unfortunately, BYD and CATL are listed on an exchange in Shenzhen, China, so I would steer clear of that and focus on the knock-on effects on companies in more investable nations.
Mad Hedge Technology Letter
September 13, 2024
Fiat Lux
Featured Trade:
(ALTERNATIVE TECH GETS HAMMERED)
(BTC), (ETH), (COIN), (NVDA), (ADA), (XRP)
The goalposts are narrowing with liquidity not making it out to the outer edge of the risk spectrum.
Bitcoin has had some weaknesses but the alternative currencies have really felt the guillotine drop.
When push comes to shove, the tide doesn’t lift all boats in eroding economic conditions.
Yes, we are about to start cutting rates, but that is because the economy is starting to stagnate and tech stocks have felt the full brunt of it.
Tech stocks have had a rough September and it was going to take a lot to move the needle with these lofty prices.
It was about time that investors took profits.
What has that meant for crypto?
It means a grim short-term outlook that the industry will need to endure.
11 U.S. spot bitcoin exchange-traded funds had their worst day in over four months after the report, as more than $287 million was collectively withdrawn from the ETFs.
The data was bad through the end of the week. On Friday, the Bureau of Labor Statistics reported a cooldown in the labor market with August payrolls falling short of expectations.
Last week, Cryptocurrency exchange Coinbase wrapped up its worst week of the year. Bitcoin miner Marathon Digital tumbled 20%.
September is historically a difficult trading month for crypto assets, with bitcoin notching an average loss of 4.8%.
The total market cap of crypto is down close to 30% from its 2024 peak of $2.67 trillion and is now at $1.9 trillion. Altcoins like Solana’s token, XRP, and Cardano’s ADA all dropped more than 8% last week.
While it was a rough week for risky assets of all sorts, investors over-indexed in crypto stocks had it particularly bad.
Coinbase, stuck in a court battle with the SEC over whether the exchange engages in unregistered sales of securities, plummeted 20% to its lowest since February. MicroStrategy, the bitcoin collecting company founded by Michael Saylor, dropped 26% in the last two weeks.
The top Bitcoin mining companies all ended last week with double-digit declines, led by CleanSpark’s 24% plunge. Riot Platforms lost 17%.
As investors turn to what’s coming, one big area of focus is the Federal Reserve.
If the Fed does in fact lower rates, I do see crypto and tech stocks reflating.
However, some alternative crypto stocks might get left behind and I fear for an asset like ether which was once seen as the second-best crypto.
Ether’s price has fallen to the point that suggests it really isn’t that important to the crypto industry.
Bitcoin has stood out as the all-weather crypto asset that could benefit most during the easing cycle.
In truth, technology stocks delivered some type of mini miracle by performing well when rates turned higher.
There is definitely a good chance that initiating a lower rate cycle might add rocket fuel to tech stocks.
Remember that tech stocks are the only equities that have grown their earnings during the past few years.
Much of the recent success is also due to chip stock Nvidia which has led the charge for tech companies surging past other big tech companies as the most influential stock in the world.
As we shake out the good from the bad, I urge readers to get into the best of breed, in tech and not crypto, when risk is initiated again.
I also urge caution to anyone who likes to get into crypto that it is a high-risk asset that could get dumped one day if people need capital to pay for mortgages and food.
