A Brave New Market
Summer has come and passed; Wall Street’s innocence can never last.
Wake me up when September ends.
Like bull markets come to pass, 11 years have gone so fast…
August is ending, dear reader, and I still feel like it’s April for some reason. Where did this year go? And how are we still in a bull market?
If I’ve learned one thing in my time as a market analyst, it’s to not look a gift bull in the mouth. They spit, you know.
Both the Dow and the S&P 500 closed out their best August since 1984 — up about 7.8% and 7.2%, respectively. The irony of the year and the reason why the markets are still climbing wasn’t lost on yours truly.
As I’m sure most of you are aware, 1984 is a critically acclaimed book by George Orwell on the dangers of government control. Orwell feared government control over information and truth would lead to a captive populace with no will of its own.
And who controls the market right now? The U.S. Federal Reserve.
There’s a case to be made that we as investors aren’t getting all the information we need on crucial economic factors right now. One need only look at COVID-19 and the media’s muddled mess to reach that conclusion.
However, I can almost hear the Huxley supporters screaming right now … and they’re probably more right than any of us want to admit.
Aldous Huxley’s Brave New World is widely considered the counterpoint to 1984. Instead of broad, overreaching government control, Huxley feared that a veritable flood of feel-good information and irrelevance will drown out the truth.
Huxley adherents would argue that the U.S. economy is drowned out on Wall Street by the Federal Reserve’s unlimited stimulus. Ed Yardeni, Chief Investment Strategist at Yardeni Research — who knew? — recently echoed this:
[We] had hoped that the market would consolidate its gains since March 23, giving earnings a chance to rebound … However, Fed officials continue to drive up stock prices by committing to keeping interest rates close to zero for a very long time … Consequently, they are fueling the melt up in stock prices.
Yes, “melt up” Joseph J. Time for another Scotch with the boys.
For investors, the Orwell versus Huxley debate is a moot point. The bottom line is that both theories invite volatility. I believe the market still has room left to run, especially with Wall Street dosing heavily on Fed Chairman Jerome Powell’s steady stream of soma.
But it’ll definitely be a bumpy ride — and we need to tell “traditional investing” to take a hike if we want to keep seeing green.
Wall Street brainwashes investors into believing that a buy-and-hold strategy is the best way to make money in the markets. But nothing could be further from the truth.
So, are you ready to shake off the Fed’s soma coma and take full advantage of everything this market has to offer?
The Good: Wave a Magic Wand
One of the biggest detractors for newcomers in the electric vehicle (EV) market is manufacturing and supply chain. Many people don’t realize that Tesla Inc. (Nasdaq: TSLA) spent its formative years building out capacity before it turned a profit.
Today’s EV whippersnappers have a bit more of an edge thanks to industry leaders such as Tesla, and Workhorse Group Inc. (Nasdaq: WKHS) is taking full advantage.
Today, electric van and drone pro Workhorse announced a strategic agreement with Hitachi America and Hitachi Capital America to address manufacturing, supply chain and financing needs.
The agreements address crucial needs for Workhorse and will help the EV maker build out a global supply chain, develop a dealer network and support financing options for customers.
“With Hitachi’s innovation and invaluable expertise in EV technology, smart factory automation and digital technologies, Workhorse is primed to build on our early leadership position as the only last-mile EV distributor selling vehicles for commercial use across the country,” announced CEO Duane Hughes.
WKHS shares surged on news of the agreement, gaining nearly 8% on the day. That said, Workhorse stock still appears to be in consolidation mode after June’s massive run-up. The shares haven’t reached those lofty $20 heights since, staying trapped in the $15 to $19 range.
Today’s rally is no different, with WKHS reversing quickly after it briefly flirted with $19 not long past the open.
For those interested, WKHS looks like a good long-term EV play … if you can stomach the volatility.
The Bad: The Little EV That Could
You have to give it to Nio Inc. (NYSE: NIO) … the company knows how to take advantage of a situation.
The EV maker all but rode Tesla’s coattails higher in terms of Chinese registrations and sales. Tesla made EVs popular in the country, but Nio made them cheaper.
Furthermore, Tesla spurred the EV craze on Wall Street, and investors have snapped up EV stocks like they’re going out of style.
NIO shares benefited from the EV euphoria, gaining nearly 400% this year. But, since Nio doesn’t trade at the same lofty heights as Tesla, the company can’t exactly follow Tesla into Splitsville this week.
But Nio still found a way to take advantage of the Tesla split hype. The company will sell 88.5 million new U.S. American depository receipts (ADRs) at $17 each.
ADRs are essentially shares in overseas companies that trade in the U.S. In other words, U.S. investors who own NIO “shares” own an ADR.
Nio expects to rake in about $1.5 billion from the sale to fund operations and expansion into Europe.
If you’re Nio, it’s a brilliant plan to cash in on Wall Street’s EV hype right now. If you’re an NIO investor … not so much. The shares are down sharply from their Thursday highs north of $20 as investors react to the flood of new NIO ADRs.
That said, there appears to be enough euphoria around EVs on Wall Street to digest the new shares. NIO bounced back from a loss of about 9% earlier this morning to close only slightly down on the day.
The Ugly: GE Is Worth Less…
…Than $5 per share, according to Analyst Stephen Tusa at J.P. Morgan.
Tusa cited GE’s inability to forecast positive cash flow for the latter half of 2020, and that management is banking on better results next year to cover for the shortfall.
“There is apparently enough visibility to not only call positive 2021 free cash flow but also a long-term FCF target, all keeping a persistently optimistic Street from resetting,” Tusa said.
Here’s how to break down the jargon: Essentially, Tusa claims that GE has no idea how much cash it will make in the remainder of 2020.
He also states that GE is using a rosy outlook for 2021 as a cover to keep investors from fleeing.
On that note, Tusa issued this warning: “The collapse of this forward estimate curve is coming soon.”
What will cause this collapse? GE’s weak aviation and power businesses.
This is some harsh news for investors in one of Robinhood’s most popular stocks.
Every time I’ve mentioned the shift to remote work, we always get a few “but waits!” in the inbox, like echoes out of a Manila-hued board room.
But waaAAiiiit … I haven’t worked since ‘86. Telecommutes? Bite me!
Yes, I know many of you are retired out there and frankly indifferent on where the rest of the world works — just as long as work gets done, dagummit. So before we get into walking uphill both ways to the office…
We’re tackling the remote work subject from a different lens: the rigmarole of the road. In other words, here’s a glimpse at how the average commute itself has changed in the past few decades:
Today’s Chart of the Week is dead simple to grasp. If you sat in gridlock at any point in the past 40 years, wondering if it’s getting worse … you were right, if that’s any consolation.
Up until March of this year, the American commute’s endless lengthening knew no bounds. And we could spend weeks unraveling the trends of strained transit, congestion, new housing rates, the flight to suburbs and exurbs…
It’s the cost of living shuffle. And millions of now-remote Americans just realized that, all this time, the real cost of living was … well … time. Yes, I know this is supposed to be a stock e-zine … but when the nature of work itself changes, business will inherently change. And, as the saying goes … time is money.
Just over 5% of the workforce telecommuted in 2018, myself included, and it still felt like the best-kept workplace secret. This year, everyone and their mother finally fell headlong through the looking glass — pushed into Alice’s wonderfully weird land of commuter-less work.
Even when we come out of the pandemic, it’ll be acutely obvious that the way we’ve been ingrained to work is just a default … that there are other ways we can boost our productivity (or at least stop begging for mercy from Traffic Thor).
Freelance platform Upwork noted that people who were able to go remote during the pandemic end up saving just under 50 minutes a day on average. Boom — an hour of phone scrolling is back in your pocket.
All this is to say that blowing open the remote work door was like opening a screen door in a hurricane. While the first domino to fall is a rebalancing of work time and life time, the Remote Revolution will grow in magnitude and momentum over time.
Commercial space? Your days are numbered.
Auto insurance? It’s set for disruption, at the least. Especially with how many ads I’ve seen for folks to pay insurance by the mile.
Then, we can talk about the huge dominos — the changing urban landscape itself. From the kebab stand outside your office building to the downtown bodega, businesses that thrived off crowds flocking to work in the cities face a reckoning.
Where there’s disruption on this scale, there’s an investment opportunity in the making. And when there’s opportunity to be found … there’s Great Stuff on the prowl.
Great Stuff: Going the Distance
From my home office to your home office, I want to thank you for tuning in!
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Until next time, stay Great!
Editor, Great Stuff