Ominous signals have started to emerge in the short-term patterns of tech stocks over the past few weeks.
We have essentially traded a Santa Claus rally to sell the spiked peaks as inflation numbers have come in way too hot for anyone to handle.
The poor inflation numbers have triggered a cascade of algorithmic selling.
Why is this important?
These stock patterns will offer us clues to how tech stocks will react in a quickly changing backdrop where the Fed is backing away from the cheap money cauldron as fast as it can.
For over ten years now, as tech stocks have bulldozed their way to higher highs and as Apple inches closer to $2.9 trillion in market cap and on its way to $3 trillion, investors have been systematically conditioned to buy the dip.
The Fed is doing its best to recreate a new type of conditioning where the dip is not bought and that is awful for tech stock prognosticators.
This effectively means a large layer of buyers on down days will be stripped away from the tech markets.
Any idiot would understand this means that tech stocks will not go as high as they could if dip buying is conditioned.
The tech market is trying to figure out the new rules of the game and that is resulting in choppy patterns almost in whipsawing fashion.
March 2022 is the new consensus for an interest rate rise which is bad news for tech stocks because pulling forward interest rate rises coincides with higher volatility in the short term.
The Fed could make another interest rate move in the second half of 2022.
This means that anyone dallying in the speculative area of the tech market needs to pull the reigns in immediately.
Stocks like Peloton (PTON), essentially a stationary bike with a tablet pasted on the dashboard, will historically underperform in the new environment.
Another tech stock I love to bully is Pinterest (PINS), by far the worst social media platform I have ever seen, will need to face reality without the Fed punchbowl that was most likely their biggest tailwind.
Tech stocks must now stand on their two feet and that’s scary news for all tech stocks not named Tesla, Facebook, Apple, Amazon, Microsoft, and Google.
After these top 5, the quality dwindles fast and expect a slew of rapid downgrades that will throttle the non-elite software stocks.
Adobe’s stock had its second-worst day of the year on Tuesday, as analysts jumped on the higher rates bandwagon and cited high valuations.
Valuations are now “high” even if these business models are the same as they were a few days ago.
Expect poor guidance from management with earnings growth, free cash flow, and annual revenue downgrades in the pipeline.
Other notable sell-offs this week include shares of cybersecurity companies Zscaler and Cloudflare, which crumbled 7.8% and 9%, respectively.
Zscaler had been up 55% for the year, prior to Tuesday, and has an enterprise value to revenue multiple for 2022 of 39. Cloudflare was up 91% and trades at a multiple of 61.
Tech growth works both ways in which they get the benefit of the doubt in a low-rate environment and vice versa in a tightening environment.
Case in point is a company I really like Roku (ROKU) whose shares are down a hideous 230% since mid-July.
The weakness in the secondary names has been biggest secret untold in tech for quite a while and the confirmation of a tough 2022 was what happened in the first two weeks of December.
And it gets worse when looking at the shelter-at-home darlings of 2020 Teledoc (TDOC) and DocuSign (DOCU) who have been totally neglected this year.
This goes to show that every year is different and as the stock market is levered to the skies, the slightest nudge by the Fed does a lot to wobble the trajectory of tech.
Luckily, tech still has the 6 big tech stocks to rally around and even if the best of the rest must go into hibernation in 2022, we still got guys like Mark Zuckerberg, Tim Cook, Elon Musk powering us through the sludge.
https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png00Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2021-12-15 16:02:372021-12-28 01:51:24Buy the Dip is Being Challenged
China is monopolizing the raw materials industry in Africa at such a fast pace that it might be a thorn in the side of American EV makers like Tesla and other US tech companies soon.
Tesla (TSLA) has decided to veer its business interests and kowtow to China and is really doubling down there with a Shanghai Gigafactory which now produces more cars than its plant in California.
Under the hood, most of the material is Chinese-made, and the minerals that power the batteries are largely refined and mined by Chinese companies.
As the world adopts EVs, companies are desperate to secure and strengthen their positions in the battery supply chain, from mineral extraction and processing to battery and EV manufacturing.
Vertical integration is more fashionable than ever, where one company controls a number of steps along the supply chain to guarantee supply.
This is not surprising since the supply chain breakdown has forced many companies to stop production for lack of parts.
This battery arms race is being won by China.
China is the world’s biggest market for EVs with global sales of 1.3m vehicles in 2020, more than 40% of sales worldwide.
Chinese battery-maker CATL has cornered about 35% of the world’s EV battery market.
Chinese refineries supplied 85% of the world’s battery-ready cobalt last year; a mineral that helps the stability of lithium-ion batteries.
Democratic Republic of the Congo (DRC) is where most of the cobalt is found, where almost 70% of the mining sector is dominated by Chinese companies.
Meander around DRC’s southern copper and cobalt mining belt, and it looks as if you are in China.
In August, China Molybdenum Company (CMOC), a giant Chinese mining firm, announced an investment of $2.5bn to triple copper and cobalt production at its Tenke Fungurume Mine, already one of the largest in DRC.
That followed its purchase of a 95% stake in nearby Kisanfu copper and cobalt mine for $550m.
Fellow Chinese corporate giant, Huayou Cobalt has a stake in at least three copper-cobalt mines in DRC and dominates at every step of the cobalt supply chain, from mines to refineries to battery precursor and cathode production.
Some car and battery manufacturers are beginning to reduce the amount of cobalt in their batteries to de-risk themselves from China.
Nickel-rich batteries could be a solution, but the same Chinese companies that dominate cobalt mining in DRC, Huayou Cobalt and CMOC, are also cornering nickel extraction and processing in Indonesia, which has the world’s largest nickel reserves at 72m tons.
This means China is now the largest global market producer of nickel, far surpassing the efforts of Europe and the US.
In Europe too, companies are beginning to gain on China’s lead. By the end of the decade, the continent is expected to have 28 factories producing lithium-ion cells, with production capacity due to increase by 1440% from 2020 levels.
That growth is being driven by companies such as Britishvolt in Northumberland and Sweden’s Northvolt, as well as Asian firms expanding production into Europe.
European investment in mining and the production of battery and cathode materials is not keeping pace.
China is creating the equivalent of one battery Gigafactory a week compared with one every four months in the US.
A new global lithium-ion economy is being developed, and the United States lagging Europe and China means they will need to pay a premium for the raw materials in the future.
It’s almost as if the U.S. is going through a round 2 of outsourcing their rust belt manufacturing, but this time it’s Internet 3.0 manufacturing.
The U.S. has fallen asleep at the wheel and allowed China to coax itself into relevancy by undercutting global competitors, the same is happening in the raw material industry that is fundamental to the survival of the United States tech and EV prowess.
The quickness and potency of a mercantilist one-party state can be felt here as many broader issues are bogged down in the U.S. in Congress and get stuck there in perpetuity.
When allowed to flourish, US capitalism is the most mesmerizing force in global economics, but it is also prone to stumbling over itself.
Policymakers need to reroute their energies to the raw material precious metal sector to make pricing competitive for the American consumers, or the share prices of US tech companies will be hurt.
Like the supply bottlenecks caused pain for many American companies, companies like Apple (AAPL) or Dell might not be able to build smartphones and laptops without the right raw materials.
Tesla might not be able to build a car anymore without bowing down to the Chinese forces.
Don’t be surprised in a few years if tech companies need to halt production due to China not selling certain parts to certain countries, this could be the next battleground between the United States and China.
Rioting in Holland and Austria, protests in France, the new lockdowns prompted by the new Omicron Variant of the Covid virus had only one message for American Investors: SELL!
The end result was the biggest down day in 15 months, with the Dow exceeding a 1,000-point bruise at the lows, not bad for a half-day holiday session.
While the market was bidless for most stocks, that wasn’t true for the best quality fastest growers. Tesla (TSLA) gave up only 3%, Microsoft 2.4%., and NVIDIA (NVDA) 3.5%. I tried to buy several at the close and failed, even though I kept raising my bid.
We also saw one of the sharpest declines in the history of the Mad Hedge Market Timing Index, from an overbought 85 to a bargain basement 31 in mere days.
This is exactly what the market needed.
I went into last week 100% in cash because I was leery of a market that traded sideways on declining volume after a historic run. In fact, we needed some kind of selloff before the market could go higher.
As I never tire of telling followers, cash is a position and has option value. A dollar at a market top is worth $10 at a market bottom. I had to endure only 50 market corrections before I figured this out, wishing I had cash at the bottom.
At the Friday low, stocks had sold off 1,850 points, or exactly 5.0% from the November 8 high. Heard that number before?
Before stock could rise, they had to fall first. The fears over Omicron are complete nonsense. It will not affect the US economy or stock markets one iota. Some 90% of the US population is now immune to Covid. There is no evidence that Omicron can overcome vaccines. When the variant comes here, and you can’t stop it, it will only kill anti-vaxers, as it did in Europe.
The fact is that the US continues to grow at a prolific 7% rate, with no sign of slowing in sight. As the port congestion fades, supply chains will repair and the inflation that is incited will fade. US companies are making more money than ever.
We still have a second reopening trade on for 2022. In a year, the economy will be booming, we will be at full employment, inflation will have faded, the pandemic will be over, and stocks will be at new all-time highs.
While some of next year’s performance has been pulled forward into 2021, much of it remains in the future.
So, when next time we take another run at a Volatility Index (VIX) of $29, I’ll be in there with guns blazing picking up all the usual suspects.
Global Stock on Pandemic Fears Smashes Markets, with Dow futures down 800 and ten-year yields off 13 basis points. New mandatory lockdowns in Austria and Holland have triggered rioting. It’s just another less than 5% correction.
The farther we go down now, the more we can go up in December and January. America’s 90% immunity will hold at bay any variants. There is no evidence this new one can’t be stopped by vaccines. Africa is another story. I went into this 80% cash. Wait for the selling to burn out in a day or two then use the high volatility to add front-month call spreads and LEAPS in your favorites.
Biden Appoints Jay Powell for a second time in a major lurch to the middle by the president. It’s the opening shot in the 2022 mid-term elections. I’ll approve your Fed governor if you pass my social safety net. It turned out to be impossible to find anyone more dovish than Jay Powell. The stock market loves it, especially interest rate-sensitive financials. The yearend rally continues.
Another $1.75 trillion Social Spending Bill passes the House, but most won’t see the light of day in the Senate. At best, maybe a few hundred million in spending gets through. Expect to hear a lot about socialism and deficits. No market impact here.
New Home Sales lag, up only 0.8% in October versus 1.4% expected. Some 6.34 million units were shifted. Only 1.25 million homes are for sale, down 12% YOY, representing only a 2.4-month supply.
The median price for a home rose to $353,900, up 13.1% YOY, but local markets like Phoenix and Seattle are seeing far greater gains. Million-dollar homes are seeing the greatest gains, with institutional investors pouring into the market to lock in historic low-interest rates.
Rents soar by 36% in New York and Florida against a national average of 13% in October is another sign of reopening and a return to normal.
Biden Taps the SPR, releasing some 50 million barrels, or two days’ worth of consumption. The president is throwing the gauntlet down at OPEC. Oil rallied on the news, as it was not more. This is largely a symbolic gesture and will have a minimal impact on gasoline prices. Now that the US is a net energy exporter it should close down the SPR as it is simply a subsidy for a dying fuel source that is going to zero and a bribe for Texas and Louisiana voters.
Weekly Jobless Claims plunge to a 52-year low, to 199,000. People are finally coming out of hiding and going back to work. It makes the upcoming November Nonfarm Payroll Report pretty interesting. Mark it on your calendar.
Tesla sales are on fire in California, the largest market in the US. The newest small SUV Model Y is leading the charge. No other company is close to mass production of a competitor yet. Tesla has a 5% market share in the Golden State ranking it no five among all car sales. A $7,500 tax credit that started last week is a big tailwind, but you have to tax taxes to benefit. Buy (TSLA) on dips, a Mad Hedge 380 bagger. My target is $10,000, 8X from here.
The Ports Log Jam is breaking. 24-hour shifts at Los Angeles and Long Beach, which handle 40% of all US unloadings, are making a big difference. Once the supply chain problems go away, so will inflation.
My Ten Year-View
When we come out the other side of pandemic, we will be perfectly poised to launch into my new American Golden Age, or the next Roaring Twenties. With interest rates still at zero, oil cheap, there will be no reason not to. The Dow Average will rise by 800% to 240,000 or more in the coming decade. The American coming out the other side of the pandemic will be far more efficient and profitable than the old. Dow 240,000 here we come!
With the pandemic-driven meltdown on Friday, my November month-to-date performance plunged to -10.74%. My 2021 year-to-date performance took a haircut to 77.82%. The Dow Average is up 14.05% so far in 2021.
I used a spike on bond prices to add a 20% position in bonds and the Friday dive to go long JP Morgan (JPM), so I am 70% in cash. I will be using any further volatility spikes to add positions in the coming week.
That brings my 12-year total return to 500.37%, some 2.00 times the S&P 500 (SPX) over the same period. My 12-year average annualized return has ratcheted up to 41.69% easily the highest in the industry.
We need to keep an eye on the number of US Coronavirus cases at 48.2 million and rising quickly and deaths topping 780,000, which you can find here.
The coming week will be all about the inflation numbers.
On Monday, November 29 at 7:00 AM, Pending Homes Sales for October are released.
On Tuesday, November 30 at 6.45 AM, the S&P Case Shiller National Home Price Index is announced. On Wednesday, December 1 at 5:15 AM, the ADP Private Employment Report is printed.
On Thursday, December 2 at 8:30 AM, the Weekly Jobless Claims are disclosed.
On Friday, December 3 at 8:30 AM EST, the November Nonfarm Payroll Report is published. At 2:00 PM, the Baker Hughes Oil Rig Count is out.
As for me, with all the recent violence in the Middle East, I am reminded of my own stint in that troubled part of the world. I have been emptying sand out of my pockets since 1968, when I hitchhiked across the Sahara Desert, from Tunisia to Morocco.
During the mid-1970s, I was invited to a press conference given by Yasser Arafat, founder of the Al Fatah terrorist organization and leader of the Palestine Liberation Organization, at the Foreign Correspondents Club of Japan. His organization then rampaged throughout Europe, attacking Jewish targets everywhere.
Japan recognized the PLO to secure their oil supplies from the Persian Gulf, on which they were utterly dependent.
It was a packed room on the 20th floor of the Yurakucho Denki Building, and much of the world’s major press was represented, as the PLO had few contacts with the west.
Many placed cassette recorders on Arafat’s table in case he said anything quotable. Then Arafat ranted and raved about Israel in broken English.
Mid-sentence, one machine started beeping. A journalist jumped up to turn his tape over. Suddenly, four bodyguards pulled out Uzi machine guns and pointed them directly at us.
The room froze.
Then a bodyguard deftly set his Uzi down on the table flipped over the offending cassette, and the remaining men stowed their weapons. Everyone sighed in relief. I thought it was interesting that the PLO was using Israeli firearms.
The PLO was later kicked out of Jordan for undermining the government there. They fled Lebanon for Tunisia after an Israeli invasion. Arafat was always on the losing side, ever the martyr.
He later shared a Nobel Prize for cutting a deal with Israel engineered by Bill Clinton in 1993, recognizing its right to exist. He died in 2004.
Many speculated that he had been poisoned by the Israelis. My theory is that the Israelis deliberately kept Arafat alive because he was so incompetent. That is the only reason he made it until 75.
Stay Healthy,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
https://www.madhedgefundtrader.com/wp-content/uploads/2019/07/john-thomas-pyramid.png445593Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2021-11-29 10:02:242021-11-29 12:18:56The Market Outlook for the Week Ahead, or Now It’s the Omicron Variant
Below please find subscribers’ Q&A for the November 17 Mad Hedge Fund Trader Global Strategy Webinar broadcast from the safety of Silicon Valley.
Q: Even though your trading indicator is over 80, do you think that investors should be 100% long stocks using the barbell names?
A: Yes, in a hyper-liquidity type market like we have now, we can spend months in sell territory before the indexes finally rollover. That happened last year and it’s happening now. So, we can chop in this sort of 50-85 range probably well into next year before we get any sell signals. Selling apparently is something you just do anymore; if things go down, you just buy more. It’s basically the Bitcoin strategy these days.
Q: What do you think about Rivian's (RIVN) future?
A: Well, with Amazon behind them, it was guaranteed to be a success. However, we mere mortals won't be able to buy any cars until 2024, and they have yet to prove themselves on mass production. Moreover, the stock is ridiculously expensive—even more than Tesla was in its most expensive days. And it’s not offering any great value, just momentum so I don’t want to chase it right here. I knew it was going to blow up to the upside when the IPO hit because the EV sector is just so hot and EVs are taking over the global economy. I will watch from a distance unless we get a sudden 40% drawdown which used to happen with Tesla all the time in the early days.
Q: Are you worried about another COVID wave?
A: No, because any new virus that appears on the scene is now attacking a population that is 80-90% immune. Most people got immunity through shots, and the last 10% got immunity by getting the disease. So, it’s a much more difficult population for a new virus to infect, which means no more stock market problems resulting from the pandemic.
Q: Is investing in retail or Walmart (WMT) the best way to protect myself from inflation?
A: It’s actually quite a good way because Walmart has unlimited ability to raise prices, which goes straight through to the share price and increases profit margins. Their core blue-collar customers are now getting the biggest wage hikes in their lives, so disposable income is rocketing. And really, overall, the best way to protect yourself from inflation is to own your own home, which 62% of you do, and to own stocks, which 100% of the people in this webinar do. So, you are inflation-protected up the wazoo coming to Mad Hedge Fund Trader. Not to mention we buy inflation plays like banks here.
Q: Why are financials great, like Bank of America (BAC)?
A: Because the more their assets increase in value, the greater the management fees they get to collect. So, it’s a perfect double hockey stick increase in profits.
*Interest rates are rising
*Rising interest rates increase bank profit margins
*A recovering economy means default rates are collapsing
*Thanks to Dodd-Frank, banks are overcapitalized
*Banks shares are cheap relative to other stocks
*The bank sector has underperformed for a decade
*With rates rising value stocks like banks make the perfect rotation play out of technology stocks.
*Cryptocurrencies will create opportunities for the best-run banks.
Q: Do you think the market is in a state of irrational exuberance?
A: Yes. Warning: irrational exuberance could last for 5 years. That’s what happened when Alan Greenspan, the Fed governor in 1996, coined that phrase and tech stocks went straight up all the way up until 2000. We made fortunes off of it because what happens with irrational exuberance is that it becomes more irrational, and we’re seeing that today with a lot of these overdone stock prices.
Q: Should I hold cash or bonds if you had to choose one?
A: Cash. Bonds have a terrible risk/reward right now. You’re getting like a 1% coupon in the face of inflation that's at 6.2%. It’s like the worst mismatch in history. In fact, we made $8 points on our bond shorts just in the last week. So just keep selling those rallies, never own any bonds at all—I don’t care what your financial advisor tells you, these are worthless pieces of paper that are about to become certificates of confiscation like they did back in the 80s when we had high inflation.
Q: What’s your yearend target for Nvidia (NVDA)?
A: Up. It’s one of the best companies in the world. It’s the next trillion dollar company, but as for the exact day and time of when it hits these upside targets, I have no idea. We’ve been recommending Nvidia since it was $50, and it’s now approaching $400. So that’s another mad hedge 20 bagger setting up.
Q: What about CRISPR Therapeutics (CRSP)?
A: The call spread is looking like a complete write-off; we missed the chance to sell it at $170, it’s now at $88. So, I’m just going to write that one-off. Next time a biotech of mine has a giant one-day spike, I am selling. What you might do though with Crisper is convert your call spread to straight outright calls; that increases your delta on the position from 10% to 40% so that way you only need to get a $20 move up in the stock price and you’ll get a break-even point on your long position. So, convert the spreads to longs—that’s a good way of getting out of failed spreads. You do not need a downside hedge anymore, and you’ll find those deep out of the money calls for pennies on the dollar. That is the smart thing to do, however, you have to put money into the position if you’re going to do that.
Q: Would you buy a LEAP in Tesla (TSLA) at this time?
A: No, it’s starting a multi-month topping out process, then it goes to sleep for 5 months. After it’s been asleep for 5 months then I go back and look at LEAPS. Remember, we had a 45% drawdown last year. I bet we get that again next year.
Q: Will inflation subside?
A: Probably in a year or so. A lot depends on how quickly we can break up the log jam at the ports, and how this infrastructure spending plays out. But if we do end the pandemic, a lot of people who were afraid of working because of the virus (that’s 5 or 10 million people) will come back and that will end at least wage inflation.
Q: When is the next Mad Hedge Fund Trader Summit?
A: December 7, 8, and 9; and we have 27 speakers lined up for you. We’ll start emailing probably next week about that.
Q: Are gold (GLD) and silver (SLV) getting close to a buy?
A: Maybe, unless Bitcoin comes and steals their thunder again. It has been the worst-performing asset this year. The only gold I have now is in my teeth.
Q: Morgan Stanley (MS) is tanking today, should I dump the call spread?
A: I’m going to see if we hold here and can close above our maximum strike price of $98 on Friday. But all of the financials are weak today, it’s nothing specific to Morgan Stanley. Let’s see if we get another bounce back to expiration.
Q: Where can I view all the current positions?
A: We have all of our positions in the trade alert service in your account file, and you should find a spreadsheet with all the current positions marked to market every day.
Q: What is the barbell strategy?
A: Half your money is in big tech and the other half is in financials and other domestic recovery plays. That way you always have something that’s going up.
Q: Is Elon Musk selling everything to avoid taxes from Nancy Pelosi?
A: Actually, he’s selling everything to avoid taxes from California governor Gavin Newsom—it’s the California taxes that he has to pay the bill on, and that’s why he has moved to Texas. As far as I know, you have to pay taxes no matter who is president.
Q: Will the price of oil hit $100?
A: I doubt it. How high can it go before it returns to zero?
Q: Is it time to buy a Caterpillar (CAT) LEAP?
A: We’re getting very close because guess what? We just got another $1.2 billion to spend on infrastructure. Not a single job happens here without a Caterpillar tractor or a tractor from Komatsu for John Deere (DE).
Q: Will small caps do well in 2022?
A: Yes, this is the point in the economic cycle where small caps start to outperform big caps. So, I'd be buying the iShares Russell 2000 ETF (IWM) on dips. That's because smaller, more leveraged companies do better in healthy economies than large ones.
Q: Is it too late to buy coal?
A: Yes, it’s up 10 times. The next big move for coal is going to be down.
Q: Peloton (PTON) is down 300%; should I buy here?
A: Turns out it’s just a clothes rack, after all, it isn't a software company. I didn’t like the Peloton story from the start—of course, I go outside and hike on real mountains rather than on machines, so I’m biased—but it has “busted story” written all over it, so don’t touch Peloton.
Q: Will spiking gasoline prices cause US local governments to finally invest in Subways and Trams like European cities, or is this something that will never happen?
A: This will never happen, except in green states like New York and California. A lot of the big transit systems were built when labor was 10 cents a day by poor Irish and Italian immigrants—those could never be built again, these massive 100-mile subway systems through solid rock. So if you want to ride decent public transportation, go to Europe. Unfortunately, that’s the path the United States never took, and to change that now would be incredibly expensive and time-consuming. They’re talking about building a second BART tunnel under the bay bridge; that’s a $20 billion, 20-year job, these are huge projects. And for the last five years, we’ve had no infrastructure spending at all, just lots of talk.
Q: Would Tesla (TSLA) remains stable if something happened to Elon Musk?
A: Probably not; that would be a nice opportunity for another 45% correction. But if that happened, it would also be a great opportunity for another Tesla LEAPS. My long-term target for the stock is $10,000. Elon actually spends almost no time with Tesla now, it’s basically on autopilot. All his time is going into SpaceX now, which he has a lot more fun with, and which is actually still a private company, so he isn’t restricted with comments about space like he is with comments about Tesla. When you're the richest man in the world you pretty much get to do anything you want as long as you're not subject to regulation by the SEC.
Q: How realistic is it that holiday gatherings will trigger a huge wave of COVID in the United States forcing another lockdown and the Fed to delay a rise in interest rates?
A: I would say there’s a 0% chance of that happening. As I explained earlier, with 90% immunity in much of the country, viruses have a much harder time attacking the population with a new variant. The pandemic is in the process of leaving the stock market, and all I can say is good riddance.
Q: What about the Biden meeting with President Xi and Chinese stocks (FXI)?
A: It’s actually a very positive development; this could be the beginning of the end of the cold war with China and China’s war on capitalism. If that’s true, Chinese stocks are the bargain of the century. However, we’ve had several false green lights already this year, and with stuff like Microsoft (MSFT) rocketing the way it is, I’d rather go for the low-risk high-return trades over the high-risk, high return trades.
Q: What’s your opinion of Zillow (Z)?
A: I actually kind of like it long term, despite their recent disaster and exit from the home-flipping business.
Q: Do you like copper (CPER) for the long term?
A: Yes, because every electric car needs 200 lbs. of copper, and if you’re going from a million units a year to 25 million units a year, that’s a heck of a lot of copper—like three times the total world production right now.
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 ten years are there in all their glory.
Good Luck and Stay Healthy.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Rivian Automotive Inc. (RIVN), the California-based EV company, touched $153 billion in market valuation making Rivian the largest U.S. company with zero revenue.
Exuberance can take you this far, but the company will need to show investors sales after the pixie dust wears off.
I understand that part of the narrative is that this could be the next Tesla (TSLA), and back of the napkin math shows us if it is a certain percentage of Tesla going forward then it would be certain billions of dollars.
The $150 billion valuation is too fast too soon, but when traders grab a hold of this rocket, all they need to do is add a little fuel.
It does speak loudly to investors that there is excess liquidity ebbing and flowing in the financial system where a stock can go this high just based on potential.
Let’s see the damn car first!
Granted, the car looks fantastic based on internet reviews, and if they do become the Tesla of pickup trucks, then anything that means reversion in the stock will be muted.
Word on the street is that only employees are driving the truck around now and the greater public should start receiving their Rivian orders at the end of 2021 or 2022.
EV peer Lucid Group Inc. also rallied intensely closing up 24% and eclipsing the valuation of Ford in the process. Lucid is now a $91 billion company, compared to Ford’s $79 billion.
Rivian will also need to compete with the upcoming European EV behemoths with Volkswagen that is Europe’s largest automaker with about 10 million vehicle deliveries per year, making it the global number two behind Toyota Motor Corp.
Rivian’s trucks are called the R1T and an electric SUV — R1S.
They forecast annual production will hit 150,000 vehicles at its main facility by late 2023.
At one point, Rivian was worth more than almost 90% of S&P 500 companies, including stocks like Goldman Sachs Group Inc., Boeing Co., Citigroup Inc., Starbucks Corp.
Rivian also benefited from Tesla’s Founder Elon Musk selling big tranches of stock which gave EV investors the green light to pile into Rivian even if it’s not for the long term.
Pricing for Rivian’s models starts around $70,000, and each features a base driving range of more than 300 miles on a full charge.
The hope is that mass affluent truck shoppers won’t be able to get enough of Rivian. Remember, the Ford F-150 is the best-selling vehicle in the country. In fact, the top six automobiles in the U.S. by sales are either pickup trucks or SUVs.
Amazon’s 20% stake in the company is the stamp of approval for many investors on the fence and they have already ordered 100,000 units for delivery by the end of 2030.
I could easily see Amazon ramping up orders quickly if they like the quality of the first two models.
Whether the stock should be $150 billion with 0 sales or not, is not really the full story of Rivian.
With only a narrow snapshot of what’s really going on, the high valuation is more a story of the momentum of the market in November that has seen big tech rejuvenate.
Rivian merely just got caught up in the updraft.
I am not diminishing the company, but they will need to demonstrate consistent earnings to build those long-term holders of the stock and I do believe they can do it.
The specs of the car look and feel like a Tesla and if they can replicate 80% of the quality with their first iterations, socially, they could catch on fire and become the new hip car to the masses.
This does set the stage for a critical first earnings report where the first sales will be thoroughly dissected with a fine-tooth comb and possible offer an entry point to investors after people realize this isn’t a $150 billion company yet.
Remember that it took Tesla years to stabilize their volatile stock, and Rivian might have to go through the same right of passage to be legit.
Rivian has the potential to become the #2 behind Tesla and that’s worth $90 billion right there, it’ll be interesting to see what pans out after that.
As for buying the stock, wait for a big sell-off then slowly scale in.
https://www.madhedgefundtrader.com/wp-content/uploads/2021/11/rivian-truck-2.png520936Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2021-11-17 14:02:292021-11-23 23:46:44The Tesla of Pick-Up Trucks
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