David Fuller and Eoin Treacy's
Comment of the Day
December - 062021
Eoin Treacy's view
Some of the topics discussed include: stocks rebounds as omicron fears retreat, bitcoin rebounds from flash crash low, reopening shares back in favour, bond yields climb.
Morgan Stanley (NYSE:MS) Sees Fed as Greater Threat to Stocks Than Omicron
This article from Bloomberg may be of interest to subscribers. Here is a section:
While “not that concerned about omicron as a major risk factor for equities,” the strategists led by Michael Wilson see headwinds building elsewhere, after Federal Reserve Chairman Jerome Powell signaled the possible accelerated tapering of asset purchases. “Tapering is tightening for the markets and it will lead to lower valuations like it always does at this stage of any recovery,” the strategists wrote in a note to clients.
Brian Nick of Nuveen, the investment arm of TIAA, with $1.3 trillion in assets under management, also said Monday that “the major risk to our outlook remains a sudden tightening of financial conditions if central banks are forced to respond to inflation driven by an overly tight labor market.” In contrast, most of the economic and market risks associated with the virus “are behind,” according to Nuveen’s outlook for 2022.
Other strategists, including those at JPMorgan Chase & Co (NYSE:JPM)., have also singled out a hawkish turn by central banks, and not Covid-19, as the main risk to their outlook for stocks. But while JPMorgan reiterated on Monday that its base-case scenario is for the equities rally to continue into next year, Morgan Stanley sees the S&P 500 trending lower, and valuations declining.
Eoin Treacy's view
There is rising enthusiasm that the omicron variant is more transmissible, but less deadly than its predecessors. That lends further credence to the view the COVID virus is following the established pattern of becoming less deadly over time. From an evolutionary perspective, transmissibility is preferrable to killing the host, so this progression makes sense.
That suggests the end point of the pandemic is in sight. In just the same way we have vaccines and early treatment options for the flu, we will have the same for COVID possibly as soon as the next few months. The “bad flu” conclusion will be vindicated even if it depends on evolution to get there. That’s also the view of a group of doctors I had brunch with yesterday morning.
That complicates the market view of how interest rates will move. Bond yields compressed in a violent manner last week with the 10-year dropping from a peak of 1.69% in late November to a low of 1.33% on Friday. At least a pause is to be expected following such a large move.
The pattern in the bond market is investors are buying aggressively on moves above 1.6% and particularly if they are accompanied by a fear that deflation will prevail. That also reflects the widely held view the Fed is going to have a very difficult time raising rates.
In order to get to a point where they can remove monetary assistance, they will need reopening of the economy to go full tilt. News over the weekend that a Norwegian cruise found 17 cases, with one omicron infection confirmed, despite everyone having been vaccinated, did not stop the share rebounding from a short-term oversold condition today to become the S&P500’s top mover. That suggests a continued willingness to look past short-term bad news to the future where reasonably worry-free travel will be normal.
It also suggests the beginning of yet another sharp rotation back to opening-up shares from the stay-at-home champions.
I continue to see significant figures talking about bubbles and how everything will end in tears. It’s true. Every bull market eventually ends. I’m fully aware of the rich valuations on stocks and the dependence on a very small number of shares for performance. However, the bull market will continue until it is choked off by tighter liquidity. That’s a threat at present but nothing has occurred to suggest central banks aren’t going to be very careful.
For the trend to end, we first need to see inconsistency in the chart patterns. The Nasdaq-100 and S&P500 needed to bounce today and they did. That suggests we may be seeing a higher reaction low and support coming back in the region of the upper side of the underlying range.
This chartbook from Yardeni Research focusing on margin debt may be of interest. The time to be worried about the market is when margin debt begins to trend lower relative to the wider market.
SEC probes Tesla over whistleblower claims on solar panel defects
This article from Bloomberg may be of interest to subscribers. Here is a section:
Henkes, a former Toyota Motor (NYSE:TM) quality division manager, was fired from Tesla in August 2020 and he sued Tesla claiming the dismissal was in retaliation for raising safety concerns. Tesla did not respond to Reuters' emailed questions, while the SEC declined to comment.
In the SEC complaint, Henkes said Tesla and SolarCity, which it acquired in 2016, did not disclose its "liability and exposure to property damage, risk of injury of users, fire etc to shareholders" prior and after the acquisition.
Tesla also failed to notify its customers that defective electrical connectors could lead to fires, according to the complaint.
Tesla told consumers that it needed to conduct maintenance on the solar panel system to avoid a failure that could shut down the system. It did not warn of fire risks, offer temporary shutdown to mitigate risk, or report the problems to regulators, Henkes said.
Tesla shares fell 5.5% at $960.25 on Monday after the Reuters report.
More than 60,000 residential customers in the U.S. and 500 government and commercial accounts were affected by the issue, according to his lawsuit filed in November last year against Tesla Energy over wrongful termination.
It is not clear how many of those remain after Tesla's remediation program.
Eoin Treacy's view
Elon Musk’s Teflon-like ability to bait officialdom, and avoid censure, has been part of his appeal for years. He has actively cultivated the persona of a bad boy as a means of personifying the “move fast and break things” culture of Silicon Valley. So far, it has worked and by attracting legions of retail investors he has a solid backing on social media to support him if the strategy goes sideways.
That’s an important emotional aspect to the market. When the mob is at your back, they offer support. The personification of their zeal is held up like a messiah who can do no wrong despite mounting evidence to the contrary. It is only after a crash that investors start looking for someone to blame. It is then that the corners cut to get to where it is today, will come back and bite Tesla.
Energy generation and storage represents 6.3% of the company’s revenue. It’s unlikely to represent an existential threat regardless of how big the problem is. Selling self-driving technology that does not do what it says on the tin and abdicating responsibility of crashes is a bigger issue.
The share continues to range above the early 2021 peak and mostly above the psychological $1000 level. Provided that remains the case, the benefit of the doubt can continue to be given to the upside.
This article from the Financial Times covering Tesla’s dominance of options trading may also be of interest. The share is a massive outlier in the options market which suggests when it does turn, it will have an outsized effect on investor sentiment.
The additional wrinkle of a significant bitcoin holding is also worth considering. The flash crash on Saturday may have contributed to Tesla weakness this morning.
Email of the day on lithium mining
a contact living in northern Portugal has informed me of the ecological disaster there being caused by Lithium mining. In the attached article we can read that thousands of protesters are marching in Serbia in opposition to Lithium mining there. https://www.theguardian.com/world/2021/dec/05/rio-tinto-lithium-mine-thousands-of-protesters-block-roads-across-serbia Regards A.
Eoin Treacy's view
There is no getting around two important facts. Mining, all mining, is destructive. It is also absolutely necessary to further the goal of global economic development of every kind. There is a good reason that most mining takes place in sparsely populated areas and most particularly in emerging markets. No one wants a mine in their backyard.
Global vehicles sales sit somewhere around 66 million per annum. EV sales are around 4.4 million and plug-in hybrids represent another 2 million. https://www.ev-volumes.com/ Sales of EVs/hybrids are growing quickly and doubled in the last 12 months. Every automotive company has plans to decarbonise and carbon credit prices continue to trend higher. That suggests continued strong demand growth for lithium, copper, nickel, cobalt and manganese.
The recent weakness in the Global X Lithium & Battery Tech ETF (LIT) has strong commonality with the similar pullbacks in Albemarle, SQM, Livent and Allkem (Orocobre’s new name). It is currently firming from the upper side of the underlying and range remains in a steep but consistent uptrend.
The Chart Seminar 2022
Eoin Treacy's view
With global vaccination rates rising, the prospect of anti-COVID pills on the horizon and the promise of travel restrictions being dropped, it is time to start thinking about venues for The Chart Seminar in 2022. Please drop sarah@fullertreacymoney.com a line if you would be interested in attending an event next year, as well as your preferred location. At present the two locations with greatest demand are London and Dubai.
Eoin's personal portfolio: breakeven stop triggered November 25th 2021
Eoin Treacy's view
One of the most commonly asked questions by subscribers is how to find details of my open traders. To make it easier I will simply repost the latest summary daily until there is a change.
My breakeven stop in the Nasdaq-100 was triggered today 16400 against my sale at 16402 including spread-bet dealing costs.
I increased my platinum long on August 27th paying $1002 for another position. My existing platinum longs were purchased at $1072 and $885. I remain of the view that precious metals are still cheap and are to be bought on significant dips.
I also continue to hold my silver trading position, initiated at $23.7. I will buy more if the current reaction deepens.
I have been saying for months that I have purchase orders below the market in gold and silver. The first of these was triggered on August 9th. I was filled at $1702.3 including spread-bet dealing costs. My original positions were opened in Q4 2020 at $1879.2 and $1818.6. That reduces by average purchase price to $1800.
I still have additional bids in the market below prevailing prices in gold and silver and will leave them in place to take advantage of any possible additional volatility. These are leveraged trading positions rather than medium to long-term investments.
With baby steps trading one has to have high conviction prices will recover and the patience to buy on weakness before eventually being proved right; hopefully.
Among my investments, my original position in the VanEck Vectors Gold Miners ETF was purchased on March 25th at $20.12. I bought another unit at $35.79 on December 1st. I continue to shop for opportunities in the gold sector.
My two investment positions in Rolls Royce were purchased at 154.75 and 105p respectively. I also took up the rights issue which has resulted in an average purchase price of 54.63p. Rolls Royce continues to form a first step above the Type-2 base formation.