- Musk and Bezos are going head-to-head in a race to the Moon
- Think blockchain is dead? Think again…
- Do you have this smartphone? Bad news… It’s spying on you
Dear Reader,
An economic crisis like this is always a quick and efficient arbiter of the health of a business.
Yes, these are extraordinary times. But there were already some bad businesses holding on by a thread before this all started.
Take Hertz, for example.
Between 2015 and 2019, the company had a combined negative free cash flow of $47 billion. It is no surprise that the company is sitting on $17 billion in debt. Hertz will be completely out of cash before the end of the year.
The company is already missing lease payments for its rental cars. And this morning we learned that the company hired a restructuring adviser to prepare for a possible bankruptcy filing.
The company has been in the same business since 1918, but its time is just about up.
Who in the heck would invest in a business like this? Activist investor Carl Icahn, for one. His firm owns 39% of all outstanding shares in Hertz, a position that he had been building since 2014. His most aggressive buying spree was during the last three quarters – the worst possible time.
The stock has collapsed 82% from its February high and is now trading below $3, a level never seen before. In other words, Icahn lost his shorts.
United Airlines also just announced that it is planning to cut its management and administrative staff by at least 30% in October.
Why October?
To keep the $5 billion of federal aid for salaries and benefits, it needs to keep the staff on board through September. Then the layoffs will begin. United indicated that reductions will also take place among its pilots as well. With United’s flight schedules down by more than 90% in April and almost no demand for travel, the outlook is not good.
United is carrying over $20 billion in debt and will also be out of cash before the end of the year. But here is the worst part.
Unlike Hertz, United had plenty of free cash flow over the last decade. It could have easily built up its cash reserves so that it would be prepared for any economic downturn. What did it do instead?
It spent 80% of its free cash flow over the last 10 years buying back stock in an effort to boost its share price.
This rewarded United executives and shareholders but put the company on the shaky footing it is today. And U.S. taxpayers have bailed out United to the tune of $5 billion. It is hard not to be reminded of the taxpayer-funded bailouts of the investment banks back in 2008–2009.
If we don’t let these businesses fail and go through a normal restructuring process, these kinds of shell games – at the expense of taxpayers – will continue forever.
I mention Hertz and United because it demonstrates what I’ve been warning my readers.
The response to COVID-19 is ushering in a new world order. It will accelerate the demise of legacy industries and old incumbents and rapidly usher in the next generation of technological giants. And I, for one, will be preparing the investors who follow my research for this shift.
Hertz and United are 82% and 70% off their highs, respectively. Meanwhile, readers of my Near Future Report recently locked in a nearly 90% gain with one of our 5G infrastructure plays. The stock hit a 52-week high in the middle of one of the most volatile markets in history.
Which company would we rather be invested in?
Let’s turn to our insights…
The new space race is heating up…
As regular readers know, NASA’s goal is to put Americans back on the Moon by 2024. NASA has been laying the groundwork to make that goal a reality, and it just took an exciting step.
NASA has awarded three companies nearly $1 billion to design and build a modern human landing system for the Moon.
This is going to be a traditional “bake-off,” where these three companies develop and refine their systems over the next 10 months. Then, in February 2021, NASA is going to pick the best system of the three. It’s going to be fun watching this competition play out.
And what’s interesting is the mix of companies selected to compete. They are Elon Musk’s SpaceX, Jeff Bezos’ Blue Origin, and Leidos’ subsidiary Dynetics.
We’ve talked about SpaceX quite a bit in these pages. It is a bleeding-edge tech company that is developing everything in-house. With its reusable launch rockets and starship that has a landing system built in, SpaceX is a dynamic player in the new space race.
Blue Origin is also a dynamic company developing its launch and landing systems in-house. But Bezos is also teaming up with legacy defense companies Lockheed Martin, Northrop Grumman, and Draper on this project.
And Dynetics is a legacy incumbent focused on serving the Department of Defense. It operates in a much more traditional fashion. Defense and intelligence engineering services company Leidos acquired Dynetics just this January.
So here we have one pure bleeding-edge company, one mix of bleeding edge and traditional, and one traditional company… each competing to build the best Moon landing system.
I can’t wait to watch this unfold. Watching two personalities like Musk and Bezos go head-to-head will be exciting to watch.
And from my perspective, the bake-off was a smart move. It doesn’t cost that much to conduct (all things considered), it lasts only 10 months, and it is one heck of an incentive for all three companies/teams to do their very best work.
And there’s one more aspect of this story that I like…
I believe the United States needs bold and ambitious goals like this. Nowadays, most kids want to be YouTube bloggers instead of scientists, physicists, or engineers. Interest in STEM (science, technology, engineering, and mathematics) studies is at all-time lows. If this continues, it won’t end well.
This is a great time to have big, bold, ambitious goals that inspire the next generation of dreamers and technologists.
And ironically, access to space has never been cheaper than it is today… so much so that we’ll see no fewer than three companies offering commercial spaceflight options to “normal” terrestrial beings before the end of next year.
How’s that for social distancing? A trip to space…
Blockchain technology is not dead…
While the cryptocurrency markets have been in a painful and gut-wrenching bear market since December 2017, the same cannot be said for blockchain technology. While deployments and mainstream usage are still in the early days, the effort to develop the technology has remained strong.
Back in 2018, famous venture capital firm Andreessen Horowitz raised $350 million for a crypto fund. That news made a big splash in the industry at the time. And the fund deployed all its capital into the world’s most promising blockchain projects.
And get this…
Last week, Andreessen Horowitz raised $515 million for a second crypto fund. That’s right. It is doubling down on its bets in the blockchain space. And what’s incredible is that the firm was able to raise this much money amid a crypto bear market and the COVID-19 pandemic.
The term “crypto fund” is a bit deceiving, though. While the fund does purchase or invest in digital assets or tokens, it also takes equity stakes in promising blockchain projects.
Andreessen’s second fund will focus on companies using blockchain technology to improve payments, decentralize finance (DeFi), and decentralize the internet. Blockchain holds great promise in each of these areas.
With what’s going on right now, it is easy to see why blockchain-based payments are so promising.
Small businesses are experiencing delays in getting their funds through the Paycheck Protection Program (PPP). This is the program that’s supposed to provide emergency loans to small businesses around the country. These loans are forgivable if businesses use them to cover payroll costs, rent, interest, and utilities for eight weeks.
But it’s a slow and tedious process for businesses to get these loans. That’s because the Treasury Department must send the funds to one of the big banks, which then sends them to the bank where the business owner applied for the loan. There are several middlemen in the process.
And we are hearing that some banks have withheld payments for a few days to generate some revenue from interest before sending the funds to small businesses. This is a disgusting practice, and I hope action is taken against banks that manipulate the system in that way.
But with a blockchain-based payment network, these funds could be sent directly to the business. It removes friction from the distribution of funds.
And settlement would be instant. The business wouldn’t need to wait a day for the funds to clear the bank. They would be available immediately.
There’s no question in my mind that we’ll move to more blockchain-based payment systems in the near future. We’ve already seen incredibly successful proof points like Ripple Lab’s blockchain technology used for cross-border currency transactions.
And Andreessen’s new crypto fund will invest in the top projects working to make that a reality.
Blockchain technology remains one of my favorite technologies to remove friction from legacy systems and processes, increase transparency, and make it very difficult to manipulate systems to someone’s advantage.
More evidence that certain smartphones spy on users…
We’ll wrap up today with a warning: Your phone might be spying on you. That statement is not surprising to regular readers, but we have new research confirming it.
Cybersecurity researchers just published disturbing data from an investigation into Xiaomi smartphones. I suspect many readers haven’t heard of Xiaomi before, but it is the world’s fourth-largest smartphone manufacturer, holding around 9% of the world’s smartphone market share.
And Xiaomi bills itself as the Chinese version of Apple. It sells affordable smartphones that look and feel a lot like the iPhone.
But unlike Apple, Xiaomi is recording everything users do on its phones. The company tracks every website visited, all web searches conducted, and every newsfeed viewed. Xiaomi also tracks which apps are used, what folders are opened, and even what screens are swiped (and how often).
Researchers further learned that Xiaomi is sending all this data back to servers owned by Alibaba, which has close ties to the Chinese government. There, a data analytics subsidiary of Xiaomi analyzes the consumer data for its own purposes.
And guess what?
This is what Google does with its Android smartphones. What’s more, if Apple users install Google apps like Gmail or Waze, Google can track what they do on their iPhones as well.
And Google doesn’t manufacture smartphones. Its reach is far wider because it controls the underlying operating system of the vast majority of the world’s smartphones. Anyone who uses an Android operating system phone is exposed.
For those of us who care about privacy and security, we need to stay away from Google and Xiaomi. I use and highly recommend the Apple iPhone for this reason.
Regards,
Jeff Brown
Editor, The Bleeding Edge
P.S. As my readers know, I believe blockchain technology is here to stay. Because of this, investing in quality digital assets can be a recipe for long-term success. And while I’ve chosen not to cover cryptocurrencies in my research, I know it’s a popular subject for readers.
If investors are interested in cryptocurrencies, I recommend the research from my friend and colleague Teeka Tiwari. Teeka is deeply involved in cryptocurrencies. And he always stresses the importance of risk management and proper position sizing.
Teeka also believes that a looming market catalyst – one that won’t happen again until 2024 – could send a handful of cryptocurrencies higher. You’ll have to get the full analysis from Teeka. Go right here.
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