Enema of the State
I’m in a mood today, dear reader, so let this be a warning that a rant is incoming.
First, let’s start out with today’s astonishing development that sparked this Great Stuff mood.
The Dow Jones Industrial Average topped 25,000 today — the culmination of a 35% rush off its March lows. The S&P 500 Index is also on fire, gaining a similar 35% to trade north of 3,000.
Remember when everything tanked back in March? Wall Street was worried about the coronavirus’s impact on the U.S. economy and corporate earnings — and stocks took a roughly 35% haircut. (35% again? Is that like the new 42?)
The markets are now less than 12% from their February pre-pandemic plunge highs, and you need to ask yourself some critical questions as an investor…
Are things really that good right now?
People are going back to work with the “Grand Reopening,” but tens of millions remain unemployed. Business activity is picking up, but many consumers choose to stay home and stay safe from the virus. Even Federal Reserve Chairman Jerome Powell said last week that the economy might not fully recover until the end of next year.
On the corporate earnings front, first-quarter profits fell by the fastest rate in more than a decade.
Due to the coronavirus’s impact, S&P 500 companies saw earnings collectively plunge 13% on a per-share basis. And that data includes at least two months of a fully open U.S. economy. What will the next quarter look like? The one after that?
This certainly doesn’t look like a “12% away from all-time highs” market or economy to me. Does it to you?
So, Mr. Great Stuff, why are stocks rallying?
That’s an excellent question, and I have an answer: hope and unlimited stimulus.
In the movies, billionaires like Bruce Wayne step in with their snazzy PJs to save humanity from crises like these. They swoop down, solve the problem and everything goes back to normal in less than three hours on the big screen.
Despite what you might think about Elon Musk and his ilk, they aren’t pushing to reopen the U.S. economy for your benefit. They haven’t solved the coronavirus crisis. It’s still out there. It’s still rampaging across the country. More than 1.6 million are infected, and the numbers are rising. Nearly 100,000 are dead.
These supposed modern-day “superheroes” push to reopen the economy because they’ve seen profits plunge 13%. It’s hitting their bank accounts, and that’s serious.
Serious enough to push an economic reopening without a cure or approved treatment in place. That push fuels hope that things aren’t as bad as they seem.
Meanwhile, with unlimited stimulus propping up the whole shebang (and driving interest rates through the floor), what else will you do with your money? Save it? Pay down debt?
Lol, as if. This is America.
You’d buy stocks. You’d help drive the Dow and the S&P 500 back to their all-time highs — whether the economy reflects those gains or not.
But how long can you, the retail investor, hang on? Will you last through the coming second wave of coronavirus infections? Can you withstand a second economic shutdown?
One is coming. COVID-19 can lay dormant for two weeks without showing symptoms. We will all know just how sideways things have gone with the reopening in about a month. The question is: Will you be prepared for the fallout?
Click here to make sure you know what lies ahead … whether you think you’re prepared or know that you’re not.
The Good: [Insert Neo and The Matrix Joke Here]
Chinese electric-vehicle (EV) maker Nio Inc. (Nasdaq: NIO) clambered back into the headlines this week on positive sales data. According to China Daily, Nio CEO William Bin Li livestreamed a presentation on the company’s EVs, which led to 320 vehicle orders and $21 million in sales.
Not too shabby for a CEO livestream. Now imagine if he did it on TikTok!
The bigger excitement surrounding Nio, however, is the company’s deal with China’s Anhui province. Nio will reportedly move to Anhui’s capital city, Hefei, in exchange for $981 million in new funding. Anhui will also take a 24.1% stake in Nio.
There are two massive caveats for investors here:
First, as part of the deal, Nio and Anhui will create a new company that holds all of Nio’s assets. What that means for U.S. investors remains unknown.
Second, there’s that pesky U.S. Senate bill targeting Chinese companies listed on U.S. exchanges. The disclosure of foreign-government ownership could directly affect Nio under this new deal.
So, while Nio has become one of the most popular stocks on Robinhood, buyers really need to beware of the fine print on this Chinese stock.
Besides, we have better opportunities stateside — especially with Trump’s “Re-Declaration of American Independence,” his mission to bring manufacturing and growth back to American soil from overseas. Click here for the scoop.
The Bad: Robinhood’s Most Wanted
Coming in at No. 8 on Robinhood’s most wanted list, Carnival Corp. (NYSE: CCL) has seen an unnerving bout of enthusiasm lately.
The stock saw a significant boost this week following the Memorial Day holiday weekend, after throngs of people threw caution to the wind and rushed out into bars and local watering holes. Once again, we’re looking at you Lake of the Ozarks partygoers.
The idea is that once the CDC lifts its No Sail Order in July, Carnival ships will once again flood with passengers looking to party and forget weeks of at-home quarantine. I’m not sure what gives investors this level of confidence — especially since there’s no vaccine or cure for COVID-19 right now.
But CCL stock certainly is popular.
Even today’s announcement that AIDA Cruises (a Carnival subsidiary) would extend its pause in operations through July 31 didn’t faze CCL investors. AIDA said that international regulations surrounding the pandemic remained unclear, preventing its return to business as usual.
The easing of pandemic-related lockdowns is one thing. It’s another thing entirely to be locked up on a boat at sea for weeks (or potentially longer) if your ship happens to be unlucky enough to have an outbreak.
Once again, buyer beware.
The Ugly: Luckin Nuts
Shares of Chinese caffeine purveyor Luckin Coffee Inc. (Nasdaq: LK) have surged more than 89% in the past two days.
Why? Because investors be crazy. That’s why.
If you don’t remember Luckin, it’s the Chinese coffee company that fabricated roughly $300 million in sales. It just made up cash out of thin air like it was the U.S. Federal Reserve or something.
CEO Jenny Zhiya Qian and Chief Operating Officer Jian Liu were both fired over their roles in the scandal. Luckin faces the very real threat of bankruptcy. LK’s trading was suspended, and the company received a delisting notice from Nasdaq.
Seriously, though … why are people buying this garbage stock?
Well, according to a Reuters report, there’s a chance that Yum China Holdings Inc. (NYSE: YUMC) and other competitors are interested in buying Luckin’s assets, including the company’s popular smartphone app and its customer data.
Now, that sounds nice and all, but it doesn’t mean that the proceeds raised will save Luckin from insolvency. Furthermore, if the company sells its most valuable assets to stay afloat, what exactly are investors left with?
No, dear readers, avoid this coffee nightmare like the plague.
Debates over free speech? Whack.
Completely nonsensical market environments? Whack.
A Wednesday without your Poll of the Week? Now that would be whack.
It’s Poll of the Week time!
With all the divisive news out there, let’s talk about something that definitely won’t ruffle any feathers or split any political hairs — regulations! (OK, I could hardly keep a straight face there.)
Love it or hate it, the regulation pendulum could swing ‘round soon for overseas companies listed on U.S. stock exchanges. At least, if the House picks up what the Senate is putting down.
With the Luckin calamity top of mind, we want your take on Chinese stocks in particular today.
Are you buying up Chinese stocks amid the talks of tighter regulations or have you steered clear completely? Let us know below!
By the way, boy was last week’s Poll a blowout! We asked you whether or not you’ve invested in the biotech sector — you know, that whole medicine-making lifesaving shtick?
By and large, Great Stuff readers are gung ho about biotech investing, with about 82% of you having ventured into the sector.
Another 14% want to see what all the Big Pharma hoopla is about — and for good reason. I mean, Great Stuff readers have already seen an insane 117% gain on our trade with Inovio Pharmaceuticals Inc. (Nasdaq: INO) … not that I’m bragging or anything. Seriously, I’m proud of all of you who got in on that win!
Now, I can’t say when the next biotech opportunity will come up … you know, uncertain markets and whatnot. But trust me, you’ll be the first to know if a Great Stuff Pick comes along!
In the meantime, if you’re still want to chase the biotech bounty, just remember that it can be treacherous terrain until you find treasure.
Don’t go into the great biotech market alone — Click here!
Great Stuff: You Write, We Listen!
Another week, another edition of Reader Feedback! If we’re being honest here, this is one of my favorite parts of the week…
It’s simple: Every email you send us … every message you write … we appreciate it all! From the rants to the raves, you have the entire Great Stuff team in stitches sometimes.
So, why not drop us a line this week?
Send us a message at GreatStuffToday@BanyanHill.com, and you might see your email in tomorrow’s edition of Reader Feedback! Remember, you can always catch up on the latest Great Stuff on social media: Facebook and Twitter.
Until next time, stay Great!
Joseph Hargett
Editor, Great Stuff