Buy The Dip, The Smaller, The Better, ZM Earnings

March 2, 2021 at 5:14 am  ·  Category: Fundamental Analysis, Market Commentary, Stocks, Technical Analysis, YouTube

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On Monday, the bulls roared back with a vengeance pushing the S&P up +2.38%, the NASDAQ +3.01% and the Russell +3.37%. These moves undid a lot of the damage from last week and puts the bulls back in charge once again.

The S&P’s 91 points gain pushed it back above 3,900 to 3,902, wedged right in the middle of its 21 DMA (3,876) and its All Time Closing High (3,933). Both are in play today and whichever level gets taken out first will determine who has control IMO.

While the NASDAQ was even stronger yesterday, adding 396 points to close at 13,589, it is still further from its ATHs and below its 21 DMA (13,699).

My only quibble with yesterday’s rally is light volume. NYSE + NASDAQ volume was 10.163 billion, down 18% from Friday’s 12.399 billion – which itself wasn’t a huge volume day (Source: WSJ Markets Diary).

I don’t think we’ll be able to tell if yesterday meant anything significant until we see what happens over the next few days.

Moving on, Grayson Roze put up an interesting chart yesterday afternoon showing that the smaller the stock, the better its done over the last six months: Micro Caps > Small Caps > Mid Caps > S&P 500. To me, this reeks of speculation as, in general, the smaller the stock, the higher the risk.

Lastly, I want to say a word about Zoom (ZM, Market Cap $133 Billion using the current premarket price) earnings from yesterday afternoon. ZM is the quintessential pandemic stock and it reported a great quarter with Revenue +369% and Non-GAAP Diluted EPS +713% year over year. However, growth will slow dramatically in 2021 as they guided Revenue Growth for the year to +42% and Non-GAAP Diluted EPS Growth to only +8% ($3.59-$3.65).

Because that guidance looks weak to me, I’m surprised investors are currently bidding up shares by ~8% in the premarket. At its current price, ZM has an EV to Forward Revenue multiple of 34x and EV to Forward Non-GAAP Diluted EPS of 119x. Those multiples seem way too high given the dramatic deceleration in growth as the pandemic begins to be contained.

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Friday’s Anemic Bounce Attempt, The Week In A Nutshell: Rising Rates Cause Rotation From Growth to Value

February 28, 2021 at 1:11 am  ·  Category: Interest Rates, Market Commentary, Stocks, Technical Analysis, YouTube

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The bulls tried to rally the market Friday but a nasty selloff in the last 10 minutes vitiated any real upside. The NASDAQ, for example, lost 150 points in the last 10 minutes of the session.

I’ve discussed The Weekend Rule before which claims that the Friday close is the most important price of the week because it’s the price that traders and investors are willing to assume the risk of holding stocks over the weekend at. Apparently, many traders and investors didn’t want to hold them over the weekend.

As a result, after being up of the day, the S&P finished -0.48%, the NASDAQ +0.56% and the Russell +0.04% NYSE + NASDAQ Decliners outpaced Advancers 4466 to 2836. The S&P finished just a couple of points above its 50 DMA.

Salesforce (CRM), which reported earnings Thursday afternoon and is one of the 20 most important stocks in the market, sold off 6.31% to close below its 200 DMA.

So, just like four weeks ago when the S&P closed slightly below its 50 DMA, the bears once again have the ball heading into the week.

Analyzing the week is pretty straightforward since it’s the same thing we saw the week before: Rising rates driving investors out of Growth stocks and into Value stocks. The 10 Year Treasury Yield rose 11 basis points, on top of the 15 basis points it rose the previous week, to finish at 1.46%.

Value stocks as measured by the S&P Value ETF (IVE) have lost 0.27% over the last two weeks compared to 5.65% for the S&P Growth ETF (IVW).

I explained the reason why rising rates hurt growth stocks more than value stocks last Tuesday in “The Differing Impact of Rising Rates on Growth and Value Stocks”.

Bigger picture, rising rates could be the catalyst that ends the bull market since growth makes up such a larger share of the market cap of the major indexes than value. Value can’t move them higher on its own.

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The End Game: 1 – 10 Year Treasury Yield Jumps 13 Basis Points, 2 – Stocks Plummet, 3 – Crescat: The Fed Is Trapped, 4 – Young and Dumb

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After rising 15 basis points last week and another 4 basis points through Wednesday, the 10 Year Treasury yield jumped 13 basis points on Thursday to 1.52%.

The jump in yields yesterday led to a massive selloff in stocks with the S&P -2.45%, NASDAQ -3.52% and Russell -3.69%. Real technical damage was done. The NASDAQ closed below its 50 DMA.

The most important ETF in the market, the QQQ, was -3.49% and closed below its 50 DMA as well on almost 4x three month average volume. It is now negative YTD.

The QQQ is dominated by FAAMG and Tesla (TSLA) with Amazon (AMZN) and Facebook (FB) both closing below their 200 DMAs.

I believe the 2nd most important ETF in the market right now is the Ark Innovation ETF (ARKK) and it also closed below its 50 DMA. It is -17.3% over the last eight sessions and now up only $5 YTD.

Yesterday (Thursday) morning, I reviewed Nvidia (NVDA) earnings, calling in the 7th most important stock in the market, and advising to focus on the reaction to their earnings report, not the report itself which was excellent. NVDA was -8.22% yesterday on 3x three month average volume. The stock is -13.2% over the last seven sessions.

In sum, the 13 basis point jump in treasury yield resulted in significant stock market carnage. Next, I want to discuss an excellent letter put out by hedge fund Crescat Capital yesterday (Thu 2/25) titled “The Fed Is Trapped”. Crescat starts the letter out this way:

The Fed faces the impossible task of continuing to prop up already historic asset bubbles while also preventing inflation. The current extreme fiscal imbalances put the central bank on a crash course to fail at both.

With the Federal Government running historic deficits and a stock market bubble that is propping up the economy, the Fed has no choice but to continue down its current path of easy money. If if stops monetizing the Federal Government’s debt, interest rates will surge pricking the stock market bubble leading to an immediate collapse. Instead, they’ll try to hold this thing together for as long as possible by continuing to monetize the debt though investors are starting to price in inflation from all this money printing by selling treasuries anyways which will eventually lead to the same outcome.

This is now The End Game for the Fed as inflation is percolating causing interest rates to rise which are pricking the stock market bubble. A modern, complex, global division of labor economy depends on sound money and that money has been the dollar since Bretton Woods. However, with the Fed’s injection of more than $3 trillion of liquidity into financial markets over the last year, the dollar is in freefall. As Crescat says, however, they are trapped and have to continue printing money though this may well mean the end of the dollar as a viable medium of exchange. That’s why we’re now facing not just a Second Great Depression but Civilizational Breakdown like what happened in Germany in the early 1920s when the Mark failed to function as a medium of exchange due to the central bank’s unending money printing.

Lastly, I want to talk about a fascinating survey of retail investors by Deutsche Bank which showed investors between 25 and 54 and those with less than 1 year experience to be quite bullish while those over 55 and with more than a year of experience far less so. “Stonks only go up” say the young folks. While that’s been true for almost a year now, they’re about to find out that making money in the stock market isn’t this easy.

The Kiddie Technicians are also uber bullish at what may be the top of the greatest bubble in history.

There is an early 30s technician by the name of Ian McMillan who has almost 50k Twitter followers who personally attacked me about three months ago calling my work “shitty” and me a “shitty person” and a “dork”. Just last week he was tweeting about how strong the intermediate to long term case for stocks was, that we are closer to the beginning of the uptrend than the end and that this move is a “generational trend”. I tried to reconcile with Ian but he simply took my entreaties as an opportunity to further attack me so we already know who the shitty person is. Now we’re going to find out whose work is actually “shitty”.

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Redler: Bears “Don’t Have Much Power”, Interest Rates Continue Higher, NVDA Earnings, CRM Earnings Preview

February 25, 2021 at 12:40 am  ·  Category: Fundamental Analysis, Interest Rates, Market Commentary, Stocks, YouTube

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After seeming to take control Monday and especially Tuesday morning, the bears have once again turned the ball over. After rallying mostly or even all the way back from being down big in the first 20 minutes of Tuesday’s session, the bulls continued to push the market higher Wednesday. The S&P was +1.14%, NASDAQ +0.99% and Russell +2.38%. It’s like Monday and Tuesday morning didn’t even happen.

Nevertheless, the catalyst for the selloff, rising interest rates, have continued to push higher this week with the 10 Year Treasury yield closing yesterday around 1.39%, up 4 more basis points from last week. While I agree with Cornell Professor Dave Collum that the Fed is “feckless”, I’m not yet prepared to say they’re losing control of the bond market. If this is about growth, then investors are simply shifting out of bonds and into riskier parts of the market. If it’s about inflation, then Professor Collum could be right. My feeling is that it’s a little of both. Definitely keep an eye on this.

Nvidia (NVDA, Market Cap $357 Billion), perhaps the 7th most important stock in the US market after Apple, Amazon, Microsoft, Google, Facebook and Tesla, reported earnings yesterday afternoon. As expected the numbers were spectacular with Revenue +61% and Non-GAAP Diluted EPS +64%. However, even with such stellar numbers, the stock couldn’t get much traction in the after hours as Enterprise Value (EV) to Trailing Twelve Month (TTM) EPS is 56x. As I wrote yesterday morning: “The quarter was likely excellent; it’s the reaction we want to pay attention to”. So let’s keep an eye on NVDA today as well for any tells it might give us on any limits to tech stock valuations.

Finally, Salesforce (CRM, Market Cap $226 Billion), another Top 20 stock, reports earnings this afternoon. Again, like NVDA, the numbers are likely to be good but it’s the reaction we’re focused on because CRM is also very expensive at 51x EV to TTM EPS.

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Not Your Ordinary Tuesday, HD Earnings, NVDA Earnings Preview

February 24, 2021 at 1:50 am  ·  Category: Fundamental Analysis, Market Commentary, Stocks, YouTube

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Yesterday was not your ordinary Tuesday! The NASDAQ dropped about 550 points (4%) within the first 20 minutes of trading. I had seen the NASDAQ down almost 3% in the locker room of my gym near the open and was surprised when my friend said it was down 4% as we walked out of the gym at about 6:50am PST. That would turn out to be the day’s low as the NASDAQ rallied almost all the way back to breakeven, finishing down just 68 points or 0.5%.

I focus on the NASDAQ because tech has been the leader of this bull market, especially the last year. If and when the NASDAQ breaks down, I don’t believe the rest of the market has enough to carry the S&P higher.

What does it mean? Of course, nobody knows but the guys at Sentimentrader looked at times since 1990 when the NASDAQ “almost” recovered from a greater than 2.5% drop when trading within 5% of ATHs. It turns out that it’s happened 7 times previously, three of them in 1999 and three of them in 2000 within one month of the top of The Dot Com Bubble on March 10, 2000 (“Daily Report”, Sentimentrader, February 23, 2021 [SUBSCRIPTION REQUIRED]).

If history is any guide, then, we are in the latter stages of a massive bubble. Of course it makes a big difference whether this is early 1999 or February/March 2000. My own sense is that this is February/March 2000. So while yesterday was a win for the bulls who were able to absorb the growing selling pressure, soon enough it will overwhelm them.

Now let’s take a look at Home Depot (HD, Market Cap $288 billion) earnings from Tuesday morning. HD reported another exceptionally strong quarter with US Comps +25% and Operating Income +20%. However, the stock traded down 3.12% on greater than 3x three month average volume. It’s always about the reaction, not the news.

Lastly, let’s preview Nvidia (NVDA, Market Cap $356 billion) earnings this afternoon. NVDA is one of the largest and most important stocks in the market, perhaps coming in importance only after The Big 5 and TSLA. It is the seventh and second biggest component of the important QQQ and SMH ETFs.

NVDA’s fundamentals have been on fire for the last year and I see no reason why that would have changed in the 4Q20. The problem here, as in so much of tech, is valuation. Even after backing out NVDA’s $3 billion net cash, it is trading at an Enterprise Value (EV) to Trailing Twelve Month (TTM) EPS of 64x. NVDA is a great company doing extremely well but there are still limits to how much it’s worth. Again, the quarter was likely excellent; it’s the reaction we want to pay attention to.

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The Differing Impact of Rising Rates on Growth and Value Stocks, Precious Metals Rip, PANW Earnings

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In Saturday morning’s blog, I said that the 15 basis point rise in the 10 year treasury yield was the most important story from last week. While it didn’t really impact stocks last week, it did in a big way Monday.

This can be seen in the vastly different performance yesterday of value vs growth stocks. The iShares S&P 500 Value ETF (IVE) was +0.66% while the corresponding iShares S&P 500 Growth ETF (IVW) was -1.94%. These are big , liquid ETFs with assets of about $20 billion and $32 billion, respectively. You can see their holdings by clicking on the links and then clicking “Holdings”. The value ETF has stocks like Berkshire Hathaway Class B (BRKB), JP Morgan (JPM), Intel (INTC), AT&T (T) and Cisco (CSCO) in its Top 10 holdings while the growth ETF has stocks similar to the QQQ including Apple (AAPL), Amazon (AMZN), Microsoft (MSFT), Google (GOOG GOOGL), Facebook (FB), Tesla (TSLA), Nvidia (NVDA).

The reason they performed so differently yesterday is that growth stocks value comes primarily from future earnings. They’re reinvesting profits and growing now to earn more in the future. However, that makes these stocks more interest rate sensitive because those future earnings have to be discounted by a rate, frequently the “risk-free” rate of the 10 Year Treasury. Value stocks, on the other hand, are more mature companies with more of their earnings in the present and near future. Therefore, a rise in rates doesn’t hurt their present value to nearly the same extent as growth stocks.

This is also why the S&P was -0.77% while the NASDAQ was -2.46% and even more heavily future oriented growth stocks and ETFs performed even worse with the Semiconductor ETF (SMH) -3.66%, Cathie Wood’s Ark Innovation ETF (AARK) -5.79% and TSLA -8.55%. In fact, real technical damage was done to the NASDAQ and AARK which closed below their 21 DMAs and TSLA which closed below the 50 DEMA that Scott Redler likes to use in the chart below as well as its 50 DSMA. The iShares S&P 500 Value ETF (IVE), on the other hand, closed at an All Time High.

The second biggest story of the day was the rip in precious metals and their mining stocks while Bitcoin sold off. While Bitcoin continues to selloff and is currently around $50k, the Gold Miners ETF (GDX) was +4.49% Monday, the Junior Gold Miners ETF (GDXJ) +5.83%, the Silver Miners ETF (SIL) +6.49% and the Junior Silver Miners ETF (SILJ) +8.22%. Since Top Gun is long these precious metals ETFs in a big way along with a decent portfolio of value stocks suffice it to say we had a good day.

Lastly, I want to discuss Palo Alto Networks (PANW, Market Cap $38 billion) earnings reported yesterday afternoon. PANW reported Revenue +25%, Adjusted Diluted EPS +30% and guided FY21 Adjusted Diluted EPS to $5.80-$5.90. It was a solid quarter but the stock closed yesterday at $384.35 for a current year P/E multiple of 66x. The stock closed the after hours down a little less than 2%. Keep your eye on it Tuesday as it’s exactly the kind of stock that got punished Monday.

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“Digestion” Week, 10 Year Yield Jumps 15 Basis Points, Bitcoin $55k, Micro Cap Insanity

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Friday February 19, 2021 marked the one year anniversary of the pre-coronavirus peak. After peaking at 3,386 on February 19, 2020, the awakening to the coronavirus pandemic sent the S&P down 34% in a one month period to 2,370 on March 23, 2020. Incredibly, in the midst of the worst pandemic since The Spanish Flu 100 years ago, the S&P closed yesterday 15% higher than the year ago peak.

Getting more micro, last week was what the great short term trader and technician Scott Redler characterized as a “digestion” week. The S&P dropped 0.71% but no technical damage was does. The market was essentially “digesting” its previous gains and, presumptively since the trend is up, setting the stage for the next move higher.

However, Arthur Hill pointed out a divergence beneath the surface of the QQQ yesterday. While the QQQ has moved higher in 2021, participation has decreased as represented by the number of components above their 50 DMAs. Currently at 69%, a move below 50% would likely signal the onset of a major correction according to Hill (Arthur Hill, “A Medium-term Breadth Indicator Waves The Caution Flag”, February 19, 2021).

The biggest story of the week was the 15 basis point jump in yield on the 10 Year Treasury. While bullish for banks who borrow short and lend long and thus profit from the increasing spread between short and long term interest rates, rising interest rates are a negative overall for our highly indebted economy by increasing interest costs across governments, businesses and households. So while the XLF made All Time Highs last week, this is something that bears watching.

The second biggest story of the week was Bitcoin surging through $55k! It’s been an incredible move though professional traders like Scott Redler are taking some profits here.

The move in Bitcoin already shows you the speculative nature of the current environment but it doesn’t compare to the action in some of the micro cap stocks. The WSJ’s James Mackintosh wrote an article Friday that blew my mind (James Mackintosh, “Tiny-Company Boom Makes Markets Look Silly”, February 19, 2021 [SUBSCRIPTION REQUIRED]):

Stocks come and go, but every year a few tiny companies get promoted to the small-capitalization indexes. Some eventually make it all the way to the S&P 500.

What they don’t do is go in the space of 18 months from being a penny stock with a market value of $39 million to be worth more than a dozen S&P companies, yet, that is exactly what FuelCell Energy (FCEL) has done.

Plug Power (PLUG) [was] up 973% last year and another 48% this year to make the fuel cell developer big to be in the top half of the S&P, worth about the same as State Street Corp. or Kroger Co.

I just took a quick look at PLUG’s fundamentals and this move has nothing to do with them. With a current market cap around $34 billion, PLUG had revenues of $216 million for the first 9 months of 2020 and lost 4 cents/share pro forma in 3Q20 (Source: PLUG 3Q20 Letter To Shareholders).

Mackintosh names seven stocks that have made these insane moves of late and I can pretty much guarantee you that fundamentals play little role in the story of the rest of them either. I doubt we will ever see a market like this again.

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QE and the K-Shaped Recovery, Copper at 9 Year Highs, Interpreting Rising Interest Rates, WMT Earnings

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In the past, I’ve written about how Quantitative Easing (QE) doesn’t result in real economic growth, increases in productivity do. This morning I want to discuss the regressive nature of QE. That is, how QE benefits the rich and hurts the poor and middle class.

First, as you can see from the tweet and accompanying chart from Holger Zschaepitz, QE is alive and well with the Fed adding $115 billion to its balance sheet in the week ending Wednesday February 17.

The problem with QE, in addition to causing bubbles and not real economic growth, is that by inflating financial markets it benefits the rich who own stocks, not the middle and lower class who do not. As you can see in the chart below from the Tax Policy Center, the average amount of stock held in retirement and taxable accounts by the Top 10% by net worth is $1.7 million while that held by the 50% to 90% is $98,000 and that by the Bottom 50% $11,000. By pumping up financial markets, including the stock market, QE benefits the Top 10% with only trickle down effects for the middle and lower classes.

Obviously, this is unfair and so it’s ironic that Liberals – who are so concerned with the material well being of the lower class – are the biggest supporters of QE. This is the case because they believe in government regulation and management of the economy as well as because they are ignorant about how QE works. For example, economist Stephanie Kelton, author of The Deficit Myth: Modern Monetary Theory and the Birth of the People’s Economy, is the face of the far left’s economics today. The Left embraces her economics without realizing that it’s bad economics resulting in bubbles not real economic growth and is highly regressive as well.

Economics in general and Monetary Theory in particular is intimidating to most people and so they don’t invest time in understanding it despite the fact that it is the most important issue in the world today. The actions of global central banks have caused the biggest bubble in financial history. When it pops, it will wreak havoc across the real economy the likes of which has never been seen before. Further, if they continue down this path, they risk the destruction of the fiat currencies that currently function as our money and Civilizational Breakdown.

While highly unlikely, it is imperative that Americans educate themselves about Monetary Theory before it is too late. The place to start is with the great Austrian Economist Ludwig von Mises’s masterpiece Human Action.

QE is spilling over into the real economy now as commodity prices and interest rates are on the rise. For example, copper is at 9 year highs. Copper is often called the metal with the Phd in Economics because demand for it is a function of economic strength but in this case it’s giving a false signal as it’s being driven by QE not economic growth.

Similarly, interest rates are on the rise which is being interpreted as a sign of economic growth on the horizon when really it’s probably a reflection of investors’ belief in coming inflation.

Lastly, I want to discuss Walmart (WMT, market cap $389 billion) earnings. WMT reported a solid quarter with US Comps excluding fuel +8.6% though Adjusted Operating Income was -3.5% and Adjusted Diluted EPS up less than 1%. For whatever reason, Wall Street didn’t like it and dumped the stock yesterday to the tune of -6.48% on about 4x average three month volume. Though by no means cheap at 25x trailing Adjusted Diluted EPS, I decided to pick up some shares which closed about $1 above their 200 DMA.

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Playing The Bubble: 1 – Bianco: The Bull Case, 2 – Aaron Jackson: NOT The Bull Case, 3 – Cathie Wood on CNBC Fast Money Re: PLTR, 4 – SHOP Earnings

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Jim Bianco was on CNBC’s Trading Nation yesterday with Seema Mody and nicely laid out the bull case. Bianco says “It’s a mania” but that doesn’t mean it won’t keep going higher in the short term. For example, in the late 1990s then Fed Chair Alan Greenspan called the market “irrationally exuberant” in December 1996 but the NASDAQ didn’t top until more than three years later in March 2000. We’re somewhere in that phase according to Bianco.

Bianco also mentions that it’s hard to keep the money you make in mania/bubble because bubbles pop. He is also concerned about rising interest rates and inflation in the second half of the year from all the monetary and fiscal stimulus.

In other words, this is a bubble, this is “the triumph of liquidity over fundamentals” to use Citigroup’s Matt King’s felicitous phrase, but it can, and likely will, keep going higher, at least in the short to medium term, according to Bianco.

Kiddie Technician Aaron Jackson is also bullish but for the wrong reason: Like his hero Cathie Wood, he is a True Believer in this market:

Cathie Wood and ARK are this bull market’s superstar research firm. The research and worldview is enlightening, refreshing and inspiring.

There are larger secular trends supporting the ARK thesis:

There’s exponential growth in information. Remember the Covid vaccine? We had the information just lying around and it took a couple of days to analyze the virus and cook up a vaccine with completely new technology. You better believe that isn’t the only useful information we have lying around waiting for useful application.

Human capital is being unleashed in a manner that is incomprehensible. Not only is information growing exponentially, it’s flowing exponentially. That means access to ideas and opportunity for people in rural areas of developed nations. That means literacy exploding in un-developed countries. That leads to more people having more ideas and solving problems and finding new ones, which leads to more new companies in new industries across the world at a faster and faster rate.

It’s a cycle that’s going to take decades if not generations to fully play out.

(From Aaron Jackson, “The Cathie Wood Report”, Monday February 15)

While it is true that innovation drives economic growth, that is NOT what is driving financial markets right now. Markets have gone parabolic since COVID. Did innovation all of a sudden explode at that time? Of course not. While Jackson’s point about information exploding and becoming more accessible is correct, that has been true for decades. The reason the market has gone parabolic the last 11 months is because the Fed injected $3 trillion into financial markets from mid-March through early June. That this is the case can be seen by comparing a chart of the NASDAQ with a chart of the Fed’s Balance Sheet.

Conventiently, Wood was on CNBCs Fast Money Halftime yesterday talking about her investment philosophy and Palantir (PLTR) in particular. PLTR is a data analytics software firm with an emphasis on counterterrorism software for the government that also has a division focused on private companies. It’s an interesting company and a holding of Wood’s firm which she added to in the wake of their poorly received earnings report Tuesday morning.

Now, PLTR seems like a very innovative firm doing good work. The problem is that the stock is already priced like a success when it’s still barely profitable and in the early stages of its growth cycle. Even after being hammered Tuesday and Wednesday, it has a $48 billion market cap with only $1.1 billion in revenues in 2020. On Tuesday morning, they guided 2021 revenue growth to greater than 30%. So let’s say 2021 revenue is $1.5 billion. The forward Price to Sales ratio is 32x! So, while I’m all for innovation, I want to pay a fair price for a young, early stage, high risk company, not a price that already prices in an uncertain success as PLTR does. But as far as Cathie Wood is concerned, no price is too high to pay for innovation.

We saw something similar to PLTR on Tuesday play out yesterday (Wednesday) with another Cathie Wood favorite, Shopify (SHOP). SHOP reported a superb 4Q20: Revenue was +94% and they even turned a nice profit with Adjusted Diluted EPS of $1.58. However, SHOP got hit 3.32% on almost 3x three month average volume because great results were already priced in.

SHOP still trades at 59x 2020 revenue – even when subtracting its $6 billion in net cash from its market cap. Like I tweeted yesterday afternoon, I love SHOP’s mission of empowering small businesses. My problem is paying this kind of price for a business at this early stage in its growth cycle. With success already priced in, unless SHOP is the next AAPL or AMZN, the stock can only disappoint from here over the longer term.

In conclusion, if you’re going to speculate in this market – which I have no problem with – understand what’s going on so you don’t give back all your profits. Understand with Jim Bianco that this is a mania that will end badly. Don’t be a True Believer like Aaron Jackson and Cathie Wood who will hold through the bust, giving back all of their gains. If you understand this, you may be able to make a lot of money in a short time right now and hold onto the bulk of your gains. But this will end badly and nobody knows when.

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Rising Interest Rates, ATHs for the Financials, Bitcoin $50k, Crypto Mania, VIX Term Structure, Buying Some CVS

February 17, 2021 at 4:01 am  ·  Category: Bitcoin, Fundamental Analysis, Interest Rates, Stocks, Twitter, VIX, YouTube

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The biggest story in financial markets Tuesday was the 825 basis point jump in the US 10 year treasury yield to 1.3%.

While the long end of the yield curve rose steeply, the short end barely budged increasing the 10 year – 2 year spread to almost 4 year highs.

This is excellent for banks who borrow short (checking accounts, savings accounts, CDs) and lend long, capturing the spread. As a result, the S&P Financials (XLF) finally hit a new ATH. The XLF’s second biggest component at 12.2%, JP Morgan (JPM), did as well.

The second biggest story of the day yesterday (Tuesday) was Bitcoin $50k. Bitcoin briefly touched $50k before retreating but is currently trading around $51.5k.

The secondary coins in the crypto market are also catching a bid and their combined market cap made a new all time high last week.

I’m not going to pretend to understand how the VIX Term Structure is constructed but the recent decline in the VIX has caused it to reach levels that have reliably signaled spikes in the VIX the following 2 weeks, 1 month, 2 months and 3 months (Chart Source: “Excess upon excess as Dumb Money is smart as ever”, Sentimentrader, February 16). Spikes in the VIX invariably correlate with corrections in stocks.

Meanwhile, I bought another consumer staple nobody cares about, CVS (CVS, market cap $93 billion), down 5% on what I thought was solid 2021 Adjusted Diluted EPS Guidance of $7.39-$7.55. That means CVS is trading for < 10x 2021 Guidance with a 2.84% dividend. Yes please!

Posted by Greg Feirman  ·  Link  ·  No Comments Yet »