No Easy Way Out
The bull market’s not indestructible. Baby, better see that clear. I think it’s unbelievable, how you give into the hands of fear.
Some things are worth investing in. Some profits never die. I’m not asking for another bull market. I just wanna know why!
There’s no shortcut home, Great Ones. And when the bottom finally drops out of this market, you need to be there ready to buy. But that’s not today…
Today’s market sell-off isn’t the greatest sell-off in the world … no, this is just a tribute.
So, why did the major market indices “plummet” more than 1% across the board?
If you’re a Great One, you probably already know the answer. That’s right: It’s inflation.
In the past few days, the yield on the 10-year Treasury note shot up to a multi-month high of 1.557%. That’s up from 1.29% last week and significantly higher than August’s low of 1.13%.
In layman’s terms, this means that borrowing costs are going up. And when borrowing costs go up, a company’s revenue goes down. You might’ve experienced this at home when interest rates on your variable credit cards rise, lifting your monthly minimum payment.
Stocks fall when Wall Street factors this information into a company’s stock price. After all, lower revenue is supposed to mean a lower stock valuation.
This method for pricing stocks is called the Discounted Cash Flow (DCF) model, and it’s at the heart of why the market sold off today. If you really want to geek out on the DCF (Yeah, you know me!), I recommend you click here.
But I’m not getting that deep today.
Okay, so … “deep state” market pricing is to blame?
Well, kinda … but the real culprit is the U.S. Federal Reserve.
I knew it! It’s always the Fed!
Slow down there, Mongo. We may all be just pawns in the big game of life, but the Fed had to act eventually. You can’t have easy money forever, and last week, the Fed announced that it will start winding down its easy-money policies by curbing its emergency bond-buying stimulus.
That’s $120 billion per month in bond-buying that the Fed said it will end “soon.”
How soon is “soon?” That depends. How soon is now? Only Federal Reserve Chairman Jerome Powell truly knows. But I would argue that it doesn’t matter how soon “soon” is. Wall Street and all the movers and shakers that use DCF to value stocks knew this was coming.
In other words, this rise in bond yields, inflation, interest rates or whatever else you want to call it … it should’ve already been priced into the market. The fact that it wasn’t tells me that there are a lot of investors out there ignoring DCF and corporate fundamentals altogether.
In fact, Wall Street is actually trading almost fully on investor sentiment right now … What that means is that investors are caught up in how they feel about a stock or a company headline or whatever Elon Musk is tweeting.
And if you think about it, Great Ones, you’ve already seen this play out in the past two years.
From meme stocks to crowd-sourced short squeezes to Reddit message boards … investor sentiment rules the day. We’ve even seen it with non-meme stocks as well. I mean, I didn’t just make up the phrase “2021 two-step” for nothing:
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- Company beats earnings.
- Company raises guidance.
- Company’s stock falls anyway.
If the DCF and traditional investing methods are to be believed, said company stock should’ve risen due to higher revenue and higher guidance.
But that hasn’t been the case in many situations because Wall Street is so hopped up on sentiment investing, made complacent by the Fed’s easy-money policies.
So, what are you saying Mr. Great Stuff? That I should sell everything cause the market be cray cray?
What? No. That’s not it at all.
Listen: Yes, there’s a stock market correction coming. It’s unavoidable at this point. But the degree of that correction is contingent on how well the Fed manages to wind down its monetary stimulus that’s basically been in place since 2009.
This is a Herculean feat, and there will be some rather large bumps along the way. But you, Great Ones, you’re gonna hold stock in the companies you believe in and sell the ones you don’t — which, let’s be honest, you should’ve already done.
Market disruptors … well-run companies with excellent products that are poised for massive growth despite all this inflation and DCF mumbo jumbo … these are the stocks you want to hold through the fire and the flames.
And that includes Hyzon Motors (Nasdaq: NYZN), Jacoby K. — I saw your email at the last minute today, Great One. Diamond hands, man.
Don’t panic. Conserve your capital for these stocks.
And then, when Wall Street be cryin’, we be buyin’.
Hang in there, Great Ones. This is only the beginning.
Editor’s Note: Did You Miss Out On Wednesday Windfalls?
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In a move that will undoubtedly send younger generations further and further into debt, Mastercard (NYSE: MA) announced that it will now join Amazon, PayPal and Affirm in the great “buy now, pay later” arms race.
Called “Mastercard Installments” — gotta hand it to them for that level of creativity — Mastercard’s new program lets cash-strapped shoppers pay for online and in-store purchases through interest-free installments.
At least, until they’ve become so uncreditworthy they can’t even get an advance to buy a pack of gum down at the 7-Eleven.
What’s good for the goose may not be good for the gander now that people have gotten a taste for these credit card alternatives. I can already see a dystopian future on the horizon where people start warring for credit like people fight for gasoline and ammunition in Mad Max.
Maybe there are a few Mastercard investors out there who share my concern, as MA stock traded lower today following the announcement. Or maybe it’s just those pesky bond yields scaring everyone off again.
Ford (NYSE: F) gave the electric vehicle (EV) industry a jolt on Monday after announcing its $11.4 billion plan to build EV production sites in Tennessee and my home state of Kentucky.
Apparently, these new sites are going to be big — like, the size of a small city kinda big. The way Ford tells it, the company’s new mega campus in Stanton, Tennessee, will span roughly 3,600 acres and get its own name: Blue Oval City. I wonder if Ford execs called Mastercard for a brainstorming sesh when they came up with that one…
Anyway, the plants are projected to create 11,000 new jobs over the next four years and will be used for battery production and EV assembly. Once operational, they’ll rival Tesla’s Nevada-based Gigafactory and help Ford catch up to Tesla in terms of EV production.
Ford’s latest project is still a few years away from completion, so investors have plenty of time to buy in and ride this latest tailwind if they so choose. But as with all investments, your mileage may vary.
Thor: God Of Thunderous Earnings Growth
Thor Industries (NYSE: THO) reported thunderous fourth-quarter earnings this morning that beat analysts’ expectations by $1.22 per share, proving once and for all that the maker of RVs and motorhomes is indeed still worthy of investors’ attention and praise.
It turned out to be the most profitable quarter in Thor’s Norse history, with revenue ringing in at $3.59 billion compared to $2.32 billion in 2020’s fourth fiscal quarter. Income? That soared too — 93% year over year.
Now, don’t take Thor’s lightning-fast sales growth as a sign that consumers have finally satisfied those wanton Winnebago desires. Thor maintains a positive outlook for future RV sales and cites buying interest coming from “both first-time and repeat RV buyers.” I guess once you get a taste of that fresh mountain air, it’s hard to go back to a cramped cul-de-sac.
THO shares rallied on the upbeat news, climbing nearly 9% before noon. As I’ve said before, so long as Thor can weather potential supply chain issues, it will continue to be one of the best investments in the recreational camping industry … if that kinda thing is your jam.
Does Anybody Remember Laughter?
Would you look at that! A rare spot of healthy green rallying in today’s trading turmoil — and from Aurora Cannabis (Nasdaq: ACB), of all stocks! It’s a stark contrast from most other days when ACB’s in the red while everyone else gains.
Anyway, ACB’s 6% rally today is like a soothing cannabinoid balm over the market bloodbath. The problem is, and I hate to burst the fun here, it was all for nothing! I mean … Aurora just released a stinker of an earnings report, and through some twisted logic, the market laughed it off and sent the stock soaring. So much for DCF, am I right?
Aurora’s Sales dropped 24% year over year to C$54.8 million, which still fell short of Wall Street’s pessimistic estimate for C$56.4 million in sales. Aurora’s earnings loss of C$134 million more than doubled analysts’ expectations for a loss of C$54.1 million.
Per-share figures? Pssh…. You don’t even want to know, and Aurora ain’t saying. But it’s better than the C$1.8 billion quarterly loss Aurora posted one year earlier, so … congrats on the glow-up?
CEO Miguel Martin brushed off all those pot stock potshots about ever-mounting losses, stating: “We are very pleased with our strategic and financial progress in growing our high-margin medical revenue, rationalizing expenses, strengthening our balance sheet, and reducing our cash burn.”
Well, goodness me, that’s a relief. Aurora’s expenses are rationalized … as opposed to what? Irrationalized expenses?
But Wall Street doesn’t care and took this as a “clear path to profitability,” which just sounds like exuberant optimism to me, but whatever.
OPEC will be perhaps more vital to oil markets than at any time in its history.
Call me jaded … maybe it’s just because we’re talking about OPEC … but I can almost hear Neil’s hands wringing as he said (or typed) our Quote of the Week.
Now that the world focuses on pathetic clean energy … we shall witness the firepower of OPEC’s fully operational oil battle station!
So, what’s Atkinson on about? What has even self-proclaimed indie energy consultants riled?
In OPEC’s annual report on long-term energy trends, the posse of petroleum pals expects to further increase its oil market share over the next two-plus decades. Oh, happy days.
Basically, OPEC is ready today to crown the oil market leader of the mid-21st century. Surprise … it’s OPEC.
By 2045, OPEC predicts that its members’ oil — are we still doing “phrasing?” — will make up 39% of global crude consumption, up from 33% now. (I’ll show you crude consumption.)
What’s more, OPEC predicts the Middle East overall will supply 57% of the world’s crude oil by 2045. That’s up from 48% today, which in part shows the weakening oil output from clean-transitioning countries like the U.S.
So, wait … OPEC countries will be both the biggest oil suppliers and the biggest oil consumers? Sounds like a personal problem to me.
I mean, if I’m the biggest supplier of snozzberries, but I’m also the biggest consumer of snozzberries … why should anyone else care? Especially when everyone else is moving to blueberries. But I digress…
Wait, I thought oil was dead. Why is OPEC so optimistic?
Well, why not? Might as well get your kicks before the whole house of cards comes down in oil-soaked flames, right?
Oil’s not cool anymore. Ditching oil investments is cool. So is transitioning to green energy sources.
Thing is, cartels don’t really care about being cool. And in this new oil-opposed future, OPEC has no qualms about being the sole supplier of that sweet, sweet dino juice for the few fossil fuel junkies who want it.
OPEC sees the rest of the world giving up the hydrocarbon reins and only chuckles at the domination to come. You have fewer producers willing to start up oil operations and OPEC’s gung-ho to swoop in and make up the oil slack as the world sizzles to a burnt crisp. Or, as the world transitions to a green energy future — you choose your dystopian adventure.
Besides, remember what I said about the oil market last week? How there are only two ways to deal with the collapse of oil? You either get a stranglehold on the market and become a niche provider of the stuff … or you go green.
Even with the massive shift to electric vehicles and alternative energy sources like my beloved hydrogen power … oil demand isn’t totally going to zero anytime soon. In fact, OPEC expects oil demand to increase 28% over the next two decades, but then again … what else would OPEC say?
In the meantime, OPEC is just fine with controlling the flow of the spice. Because the more market share it gobbles up, the more influence over global oil prices OPEC has. And the more pricing power OPEC has in global oil, well, that’s where today’s quote comes in.
If you thought ConocoPhillips was leaning into the oil market to squeeze out the short-term gain, OPEC literally has no other choice than to double down on oil until the end of time. Cartels like crises and OPEC’s biggest time to shine is nigh.
What do you think, Great Ones? Where does the oil market go from here on out? Do you have strong opinions on OPEC, or are you more of an Opeth fan? (If that’s the case, seriously … hit me up, prog heads.)
Tell me what’s on your mind this week: GreatStuffToday@BanyanHill.com. We’d love to hear from you! In the meantime, here’s where else you can find us:
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Until next time, stay Great!
Joseph Hargett
Editor, Great Stuff