Going To California?
Spend my days with a driver unkind, smoke their tires and were … heavily fined.
Made up my mind, won’t sink below. Goin’ to California with an achin’ … in my portfolio.
Someone told me there’s a driver out there, with a silent smile and flowers … in her hair.
Oh! Oh! I think I know this one! “Going to California” by Led Zeppelin?
Right you are, Great Ones!
And if you’re going to California anytime soon, you’re probably gonna pay more for Uber (NYSE: UBER) and Lyft (Nasdaq: LYFT) rides. It seems that the wrath of the ride-hailing gods got a punch on the nose, and it’s startin’ to flow — I think UBER and LYFT might be sinkin’.
OK, let’s set the lyrics aside for a moment. Tell me what in the wild, wild world of sports is a-goin’ on here!
Fair enough. Late on Friday, Alameda County Superior Court Judge Frank Roesch ruled that California’s Proposition 22 is unconstitutional.
What’s Prop 22? It’s that ballot measure that Californians passed last year that exempts Uber, Lyft and DoorDash (NYSE: DASH) employees from the state’s new gig-workers law.
The gig-workers law — Assembly Bill 5 — was designed to make certain formerly contract workers into full-time employees. This means those employees would get nice things like minimum earnings, unemployment insurance, employer-provided health care and other benefits.
Proposition 22 carved out a niche for ride-hailing and delivery employees. The measure was heavily backed and funded by Uber, Lyft and DoorDash. But Judge Roesch just brought that whole house of cards tumbling down … and not for any of the reasons you might think.
Roesch invalidated Prop 22 because the measure limited “the power of a future Legislature to define app-based drivers as workers subject to workers’ compensation law.” Because of this one clause in Prop 22, the entire thing is unconstitutional, said Roesch.
This is a major problem for all three Prop 22 sponsors — aka, Uber, Lyft and DoorDash. Back in 2019, my colleague Ted Bauman — editor of The Bauman Letter and Profit Switch — had the following take on the ride-hailing business:
Uber and Lyft are in a duopoly situation that poses a problem for both companies. Neither company has reached a breakeven point in cost per rider; they are still losing money for each ride, and as long as they want to undercut each other in that way, it will prevent them from gaining profitability.
The critical question is: Where does that breakeven point come from? The way to reduce breakeven is to reduce cost.
To this day, neither Uber nor Lyft nor DoorDash are profitable … even despite pandemic lockdowns, which should’ve been a slam-dunk for food-delivery services. As Ted said, these companies need to reduce costs. That was true before Prop 22, and it’s true now that Prop 22 is gone — well, gone for the time being. Uber says it plans to appeal the ruling.
Here’s what bothers me most about these kinds of companies: Their business models rely on a steady supply of low-wage workers. As we’ve seen this year, it’s been really hard for businesses to fill low-wage positions, forcing many to raise pay to attract workers.
But if Uber, Lyft and DoorDash are forced to raise pay and offer benefits … they may never reduce costs enough to turn a profit.
The bottom line here: If your business model depends on a certain class of worker, and you need legislation passed to keep that class of worker available … you might need a new business model.
Good: We Didn’t Start The Fire
General Motors (NYSE: GM), Bolts away, LG now in disarray, electric vehicles, Chevrolet … what else do I have to say?
That’s GM’s story, and they’re sticking to it.
In case you missed it last week, GM issued its third Bolt electric vehicle (EV) recall in nine months. The reason? Those pesky batteries keep bursting into flames.
The new recall affects some 73,000 vehicles and brings the total cost of GM’s Bolt recall spree to roughly $1 billion.
Needless to say, GM is not happy about this at all. However, the issue doesn’t appear to be with GM’s side of Bolt production. According to GM, the problem lies with LG Electronics — GM’s battery partner since 2010, when the hybrid Chevy Volt first rolled off the line.
Here’s the thing, though: All the problems with GM Bolt batteries originate from LG manufacturing facilities in South Korea. The question now is whether GM will get LG to pay for the cost of these recalls … and if the push for compensation will strain relations between the two companies.
For GM, this is a PR nightmare … but at least it knows the issues don’t lie with its own designs.
GM could possibly find a new battery partner, though most of the EV battery makers out there are already at capacity with current customers. Furthermore, GM is already developing its next-generation Ultium batteries with LG Electronics, so switching manufacturers now would set the company back years.
It seems to me like GM might want to start dumping more resources into its Hydrotec fuel cell division. Despite some of you Great Ones out there who bring up the Hindenburg every time I mention hydrogen fuel cells, you don’t see them catching fire in driveways.
Ha, ha … Mr. Great Stuff. So, how is this “good” for GM?
It’s not, really. The only “good” part about it is that it’s not GM technology catching fire. It’s LG’s. So, it’s “good” because it could’ve been worse? Yeah, let’s go with that. Until it’s time for GM to live the hydrogen high life … it’s time to build a better battery.
Better: Hit Me With Your Best Shot
Why don’t you hit me with your best COVID shot? Fire awayyyyyy.
Great Ones, the vaccination arms race is officially over. This morning, the FDA granted Pfizer’s (NYSE: PFE) COVID-19 drug full approval in the United States for people ages 16 and older. There was much rejoicing all around … unless you happen to work at Moderna (Nasdaq: MRNA) or Johnson & Johnson (NYSE: JNJ).
So far, more than 204 million Pfizer COVID-19 shots have been administered. But that’s still a drop in the bucket when you consider that roughly 35% of Americans remain unvaccinated.
Hopefully, full FDA approval of the Pfizer-BioNTech vaccine will help convince wary antivaxxers of the drug’s safety. In turn, it may incentivize companies, schools and other organizations to … I don’t know … maybe require COVID-19 shots?
Do it for your portfolio. Your portfolio wants you to. But we’ll save that can of worms for another day…
My money is on Moderna to receive the next green light from the FDA, as the company applied for full approval of its mRNA vaccine back in May. But hey … that’s, like, just my opinion, man.
Of course, if you thought Pfizer had enough going for it for one day … think again! In true “hold my beer” fashion, the Big Pharma giant also announced plans to buy biotech company Trillium Therapeutics (Nasdaq: TRIL) for $2.3 billion in cash — a 208.8% premium on Friday’s closing prices.
If you’re new to the Great Stuff world, Trillium specializes in immuno-oncology. Essentially, it helps turn the body’s own immune system into a cancer-fighting badass.
Not to toot my own horn or anything — because I would never do that — but I did say back in November ’20 that Trillium was ripe for a buyout. Man, I love being right.
Trillium shares are up a mind-numbing 189% today following the announcement, while Pfizer shares are up a more modest 2.89%. But hey, that’s a nice move higher for a 172-year-old blue chip. You try moving that fast at Pfizer’s age!
Best: If I Had A Million Dollars…
I would buy you a house … but not a house in this market; that’s cruel. Well … maybe not too cruel, if you had listened to my good friend Ian Dyer earlier this month.
You see, Ian is the editor of Crypto Flash Trader, which focuses on setting you up to profit from some of the most traction-gaining, competitor-beating opportunities in the cryptoverse. Ian’s words … not mine. But hey, if the shoe fits…
Anywho, back on August 6, Ian claimed: “Bitcoin $50K is imminent.” And just look at where we are now! Bitcoin (BTC) just topped $50K less than a month after Ian’s prediction. Can that boy trade crypto or what?
(Again, not to toot my own horn, but back on July 21, I said: “I sincerely hope y’all bought in when bitcoin dipped below $30,000 … ‘cause that was a serious buying opportunity.”)
But the big question is: Can you still get in on the bitcoin and cryptocurrency rallies?
The short answer is: Yes!
The long answer is: Yeeeeeeeeeeeeeess!
According to analysts, the Federal Reserve’s annual Jackson Hole economic symposium could be a catalyst for an even bigger rally in cryptocurrencies.
“After Jackson Hole, the dollar could see some depreciation, and with institutions missing out on bitcoin in the last two weeks and now slowly coming back to work for September start, this will trigger renewed inflows into the cryptocurrency and also equity,” said Laurent Kssis, managing director of exchange-traded products at 21Shares.
In other words, it looks like the Fed will slow down on ending its easy-money policies due to rising COVID-19 risks. That means continued easy money and more investment capital flowing into higher-risk investments … such as bitcoin. This could be just the catalyst Ian Dyer is looking for to back his prediction that bitcoin will hit $115K before the end of August.
Now, some of you are probably thinking: $115K in August?! Impossible!
It certainly would be impressive, to say the least. Maybe even impossible. But then, we did just see bitcoin rally more than 70% in roughly two weeks. So, there’s still a chance…
If you want to hear the real skinny on all things cryptocurrency and bitcoin, you really need to hit up Ian Dyer’s Crypto Flash Trader. Click here to learn more!
We don’t mention commodities that often here in Great Stuff. Honestly, there’s not that much to mention about them … until there’s suddenly a lot to talk about.
But unless you’re riveted by the ins and outs of steel prices, commodity stocks like ore-producers are probably not lurking ‘round your Robinhood portfolio.
Which is even more reason why we dedicated today’s Chart of the Week to getting back down to Earth … just like the plummeting price of iron ore. After hitting a high of $233.1 per metric ton back in May, the bottom fell out, and iron’s back down below $140.
Check out this handy dandy snapshot of destruction, courtesy of The Wall Street Journal:
Now, to understand iron, we must understand steel — Chinese steel, in fact. I know, I prefer British steel myself, but either way, the metal gods are overseas…
Anyway, steel production uses iron ore — literal tons of it. China makes up half of the world’s steel production. No surprise, China also uses quite a bit of iron ore.
Steelwork is typically tied to economic activity — and in the pandemic era, economic recovery. Iron ore prices are tied to steel demand. And when there are sharp changes in one, there are sharp changes in the other.
Whoa, dude, it’s almost like … everything’s all connected and affects other stuff. Wow…
Welcome to the global commodities economy. And if you were wondering, this is a fast and drastic move for iron. Tech, biotech and crypto investors are used to seeing 40% drops and rallies on a dime. The commodity markets, not so much. It makes my stomach churn. It tears my flesh from bone … and we all die young.
Too dramatic? Maybe … but even Morgan Stanley is freaked out by the sudden ferrous freefall. Boom — time for a bonus Quote of the Week:
So, what could shake up such a huge reversal for iron ore prices? What did China do now?
I mean, construction is usually China’s answer to everything. Economic recovery slowing down? No prob, just build like three dozen apartment buildings and a few train lines, and no one will ever know. So, steel demand was strong in China, and so were iron ore supply prices … up until now.
It’s simple: China’s cutting steel production. Hard. By extension, this means reducing iron ore imports … and by effect, this means a major sell-off in iron ore prices.
What’s not as simple is why China’s cutting its steel production. So far, analysts point toward a handful of factors:
- China’s imposing widespread restrictions to fight off its latest COVID outbreak.
- The Chinese economy is slowing “more generally, particularly property and infrastructure.” Can’t build your way out of that one.
- China wants overall steel output to stay at 2020 levels. Since it produced too much steel in the first half of this year, the rest of the year’s steel production needs to cool off.
- The Winter Olympics are coming, and it’s not unreasonable to think China’s literally clearing the air (pollution) before the media spotlight.
- China is using more scrap steel in production rather than making new crude steel.
- Hot weather and rainfall in China also weakened steel demand, apparently.
It all boils down to a bouillabaisse of plummeting steel demand that spills over into falling iron ore demand … right as the supply of that iron ore is coming back online.
Brazil and Australia, two of the world’s biggest iron ore exporters, were initially hit by pandemic lockdowns but are now producing more iron ore than before. You know how this one goes, Great Ones: What do you get when you have crashing demand and an uptick in supply?
You’re gonna have a bad time. Unless you had bets on an iron ore collapse, then … you go, you … I guess.
And this trend shows little sign of abating. COVID is still a threat to both iron ore mining and steel-working alike, offering up two unknowns in an already frothy market for iron ore.
What do you think, Great Ones? Do any of you invest in commodities? Or is the mining sector just made for metalheads and old fogeys who dig rocks?
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Until next time, stay Great!
Joseph Hargett
Editor, Great Stuff