(TSLA) Archives

Tesla Sets the Tone

The 87% year-over-year increase in Tesla deliveries this past quarter really sets the tone for Tesla for rest of 2022.

They are picking up where they left off last year and Tesla’s stock price at the end of the year could be substantially higher than it is now.

It’s been a while since I’ve heard from the Tesla haters — and if you remember correctly, there were angry flocks of them up until just recently.

But that’s what overperformance will do to the naysayers, ironically. They’ve never been this quiet, and rightly so, after crushing delivery expectations by 12%

In the same quarter last year, they registered 180,000 deliveries, and the math is stunning with the company adding an extra nominal 128,000 this past quarter to 308,000 units at a time where supply chain shocks and semiconductor shortages are rocking the EV industry.

This leads me to believe that if Tesla can carve out stellar performance at the height of snarled supply chains, imagine what they can do when the world isn’t clogged up.

We must take it seriously when management predicts 50% gains in deliveries year over year for the foreseeable future and what I mean by that is — multiyear.

Ultimately, there is a strong correlation between accelerating Tesla deliveries and an appreciating Tesla stock price and readers shouldn’t overcomplicate things.

The rest is just fluff and readers need to zone it out.

Readers also get the added bonus that Tesla easily outperforms the S&P benched against any standard metric and they are in online brokerage Robinhood’s top stocks to buy based on the data from their own traders.

The delivery beats against consensus are also widening for Tesla who just in 2020 was only able to overdeliver unit deliveries by 3%, which is no small feat, but the under-promising and over-delivering is getting more impressive by the quarter which is the hallmark of a great company with over 10% beats versus consensus the norm today.

The average consensus for gross 2022 deliveries of about 1.4 million looks highly attainable if Tesla can keep up at this clip, which I have faith they can.

Fortifying their already enviable position is the success of the Shanghai Gigafactory, and the potential to sell 60,000 Tesla’s to Chinese customers this year.

Gazing into our 2022 crystal ball, the EV story and the narrative underpinning it look healthy and, more importantly, sustainable.

Over the past decade, the EV market has gone from a drip of EV choices to a full-out avalanche of options on the US market these days.

Recent surveys back up the concept of insatiable thirst for new EV buyers, and higher oil prices have added an extra turbocharger to EV demand.

A private survey showed that the percentage of U.S. adults who say they would consider purchasing an EV in the next 10 years has seen active growth over the course of 2021, as announcements of new models and new charging infrastructure add gloss to the already emerging industry.

One might surmise that this could be the year of an EV inflection point when it comes to getting bums in EV seats.

This could be the year where the numbers gap up and put gas-powered engines in the rear-view mirror.

The number of options in 2022 starts from roughly 62 models currently available to at least 100 later this year.

But U.S. consumers love to buy pickup trucks, crossovers, and SUVs, and their dramatic arrival on the EV market is one of the main reasons 2022 could be unprecedented for adoption.

The next big blockbuster launch — Ford (F) is beginning production on its F-150 Lightning pickup truck in Spring 2022, giving consumers the option of purchasing an electric version of the best-selling car in the country.

58% of Gen Z and 60% of Millennials have shown a willingness to dip into the future EV market, and by that purchase time, options will be everywhere.

The one true knock against Tesla is the lack of developing a Tesla pick-up truck. Their much-hyped “Cybertruck” has been delayed now over a year to the end of 2022 because of continuous bumps in the supply chain.

This could turn out to be another cash cow for Tesla, with potential Cybertruck revenues topping $400 million in 2023, potentially rising to about $7 billion by 2026.

The takeaway from the Cybertruck project is that Tesla is still in the early stages of its growth cycle, and will be expanding at a 50% rate while ingratiating its diehard audience with more products than they can handle.

Tesla products are backlogged to the hills, try inputting a new Tesla X for online purchase, and their official website spits out an estimated delivery date of January 2023.

That’s how great this product is, so don’t diminish it or its ever-higher stock price.

It’s high for a reason and will be higher in the future.

December 30, 2021

Diary, Newsletter, Summary

Global Market Comments
December 30, 2021
Fiat Lux

Featured Trade:

(DINNER WITH DAVID POGUE),
(TSLA)

December 17, 2021

Diary, Newsletter, Summary

Global Market Comments
December 17, 2021
Fiat Lux

Featured Trade:

(DECEMBER 15 BIWEEKLY STRATEGY WEBINAR Q&A),
(FCX), (FCI), (TLT), (TBT), (BITO), (AAPL), (AMZN), (T), (TSLA), (BABA), (BLOK), (MSTR), (COIN)

December 15 Biweekly Strategy Webinar Q&A

Diary, Newsletter

Below please find subscribers’ Q&A for the December 15 Mad Hedge Fund Trader Global Strategy Webinar broadcast from the safety of Silicon Valley.

Q: With interest rates going up, would it make sense to short heavily indebted companies as a class?

A: Yes it does; those would be old-line industrials and auto companies with very heavy debts. Technology companies essentially have no debt unless they’re startups. So yeah, that’s a good idea; unless of course inflation is peaking right now, which it may be if you solve these supply chain problems, and it becomes evident that retailers overordered to beat the supply chain problems and now have a ton of excess inventory they can’t meet—then the inflation plays will crash. So, not a low-risk environment right now. No matter where you look, you’re screwed if you do, you’re screwed if you don't. So that is an issue to keep in mind.

Q: What do you think of Freeport McMoRan (FCX) short-term?

A: Short term, (FCX) only sees the Chinese (FXI) real estate crisis, which is getting worse before it gets better and could bring a complete halt to all known construction in China. The government is forcing the real estate companies there to run at losses in order to bring the bottom part of their society into the middle class with houses in third and fourth-tier cities. Long term, as annual electric car production goes from a million cars a year to 25 million cars a year and each car needs 200 lbs. of copper, we have to triple world production practically overnight to accommodate that. That can’t happen, therefore that means much higher prices. If you’re willing to take some pain, picking up freeport McMoRan in the low $30s has to be the trade of the century.

Q: Do you see a Christmas rally or a bigger correction?

A: Rally first. Once we get the Fed out of the way today, we could get our Christmas rally resumed and go to new highs by the end of the year. But, January is starting to look a little bit scary with all the unknowns going forward and massive long positions. January could be okay as hedge funds put positions back on in tech that they’re dumping right now. If they don’t show up…Houston, we might have a problem.

Q: Thoughts on the iShares 20 Plus Year Treasury Bond ETF (TLT) Dec 2022 $150-$155 vertical bear put spread?

A: Since I'm in low-risk mode, I would go up $5 or $10 points and not be greedy. Not being greedy is going to be one of the principal themes of 2022 therefore I’m recommending that people do the $160-$165 or even the $165-$170, which still gives you a 30% return in a year, and I think next year this will be seen as a fabulous return.

Q: What about the $100,000 target for Bitcoin (BITO) by the end of the year?

A: That’s off the table thanks to the Fed tightening and Omicron triggering a massive “RISK OFF” and flight to safety move. Non-yielding instruments tend not to do well during periods of rising interest rates, so gold along with crypto is getting crushed.

Q: What will happen in the case of a black swan event in early 2022, like Russia invading Ukraine?

A: Market impact for that would be a bad couple of days, a buying opportunity, and then you’d want to pile into stocks. Every geopolitical event that’s happened in the last 20 years has been a buying opportunity for stocks. Of course, I would feel bad for the Ukrainians, but it’s kind of like Florida seceding from the US, then the US invading Florida to take it back, and the rest of the world not really caring. Plus, it doesn’t help that their heavily nationalist post-coup government has some fascist tendencies. However, we could get global economic sanctions against Russia like an import/export embargo, which would hurt them and destroy their economy.

Q: Will the European natural gas shortage continue?

A: Yes because the Europeans are at the mercy of the Russians, who have all the gas and none of the economy. Therefore, they can export as much or as little as they want, depending on how much political control they’re trying to exert in Europe.

Q: Apple Inc. (AAPL) price target?

A: Well, my price target for next year was $200; we could hit that by the end of the year if we get a rally after the Fed meeting.

Q: 33% of the population is in collection status with personal debt, credit cards, etc—is that a harbinger of a 2008 crash?

A: No, it is a harbinger of excess liquidity, interest rates being too low, and lenders being too lax. However, we aren’t at the level where it could wipe out the entire economy like with defaulting on a third of all housing market debt in 2008.

Q: What should I do with my call spreads for Amazon.com, Inc. (AMZN)?

A: Well, November would have been a great sell. Down here, I’d be inclined to hold onto the spreads you have, looking for a yearend rally and a new year rally. But remember, with all these short-dated plays risk is rising, so keep that in mind.

Q: What do you think of AT&T Inc (T)?

A: The whole sector has just been treated horrifically; I don’t want to try to catch a falling knife here even though AT&T pays a 10% dividend.

Q: What about quad witching day?

A: Expect a battle by big hedge funds trying to push single stocks options just above or below strike prices. It’s totally unpredictable because of the rise of front-month trading, which is now 80% of all options trading with the participation of algorithms.

Q: Is the Alibaba Group Holding Limited (BABA) $230-$250 LEAP in June 2023 worth keeping?

A: I would say yes, I think the Chinese will come to their senses by then, and all the Chinese tech plays will double, but there’s no guarantee. That is still a high-risk trade.

Q: Does the US have an opportunity to export petroleum products?

A: The answer is yes, we are already a net energy exporter thanks to fracking. But, it is a multi-year infrastructure build-out to add foreign export destinations like Europe, which hasn’t bought our petroleum since WWII. Right now, almost all of our exports are going to Asia. No easy fixes here.

Q: Is Tesla Inc (TSLA) a buy at 935 down 300 in change?

A: Not yet; 45% seems to be the magic number for Tesla correction. We had one this year. And Elon Musk hasn’t quit selling yet, although I suspect he’ll end his selling by the end of the year because he’ll have met all his tax obligations for the year. He has to sell these options before they expire and are rendered useless. So that is what’s happening with Tesla, Elon Musk selling. And can you blame him? He almost worked himself to death making that company, time to spend some money and have a good time, like me.

Q: What if your Chinese company gets delisted?

A: Try to get out before it is delisted. Otherwise, the domicile moves to Hong Kong and you’ll have to sell equivalent shares there. I don’t know what the details of that are going to be, but the Chinese companies are trying to force companies to delist from the US and list in Hong Kong so they have complete control over what's going on. Also, I never liked these New York listings anyway because the disclosures were terrible, with Cayman Island PO Boxes and so on…

Q: Is the ProShares UltraShort 20+ Year Treasury (TBT) a good long-term position to hold?

A: It is to an extent—only if you expect any big moves up in interest rates, which I kind of am. This is because the cost of carry for (TBT) is quite high; you have to pay double the 10-year US Treasury rates, which is double 1.45% or about 2.90%, and then another management fee of 1%, so you have kind of a 4% a year headwind on that because of cost. Remember, if you’re short a bond, you’re short a coupon; if you’re double short a bond you’re short twice the coupon and you have to pay that and they take it out of the share price. But, if you’re expecting bonds to go down more than 4%, you’ll cover that and then some and I think bonds could drop 10-20% this year.

Q: What’s the difference between GBTC and BITO?

A: Nothing, both are Bitcoin plays that are tracking reasonably well. I prefer to go with the miners—the Bitcoin providers, that’s a selling-shovels-to-the-gold-miners play. They tend to have more volatility than the underlying Bitcoin, so that’s why I’m in (BLOK) and (MSTR) when I’m in it.

Q: What’s the best way to buy Crypto?

A: If you really want to buy Crypto directly, the really easy way is to go through one of the top crypto brokerage houses, and we’ve recommended several of those. Coinbase (COIN) is the one I’m in. It literally takes you five minutes to set up an account and you can instantly buy Bitcoin linked to your bank account.

Q: What are the fees like for Coinbase?

A: The fees at (COIN) are exorbitant only if you’re buying $10 worth of Bitcoin. If you’re buying like $1 million worth, they’re much, much smaller. But I recommend you start at $10 and work your way up as I did, and sooner or later you’ll be buying million-dollar chunks of Bitcoin which then double in three months, which happened to me this year.

To watch a replay of this webinar with all the charts, bells, whistles, and classic rock music, just log in to www.madhedgefundtrader.com, go to MY ACCOUNT, click on GLOBAL TRADING DISPATCH, then WEBINARS, and all the webinars from the last ten years are there in all their glory.

Good Luck and Stay Healthy.

John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader

December 15, 2021

Tech Letter

Mad Hedge Technology Letter
December 15, 2021
Fiat Lux

Featured Trade:

(BUY THE DIP IS BEING CHALLENGED)
(PTON), (ROKU), (TSLA), (GOOGL), (FB), (DOCU), (TDOC)

Buy the Dip is Being Challenged

Tech Letter

Ominous signals have started to emerge in the short-term patterns of tech stocks over the past few weeks.

We have essentially traded a Santa Claus rally to sell the spiked peaks as inflation numbers have come in way too hot for anyone to handle.

The poor inflation numbers have triggered a cascade of algorithmic selling.

Why is this important?

These stock patterns will offer us clues to how tech stocks will react in a quickly changing backdrop where the Fed is backing away from the cheap money cauldron as fast as it can.

For over ten years now, as tech stocks have bulldozed their way to higher highs and as Apple inches closer to $2.9 trillion in market cap and on its way to $3 trillion, investors have been systematically conditioned to buy the dip.

The Fed is doing its best to recreate a new type of conditioning where the dip is not bought and that is awful for tech stock prognosticators.

This effectively means a large layer of buyers on down days will be stripped away from the tech markets.

Any idiot would understand this means that tech stocks will not go as high as they could if dip buying is conditioned.

The tech market is trying to figure out the new rules of the game and that is resulting in choppy patterns almost in whipsawing fashion.

March 2022 is the new consensus for an interest rate rise which is bad news for tech stocks because pulling forward interest rate rises coincides with higher volatility in the short term.

The Fed could make another interest rate move in the second half of 2022.

This means that anyone dallying in the speculative area of the tech market needs to pull the reigns in immediately.

Stocks like Peloton (PTON), essentially a stationary bike with a tablet pasted on the dashboard, will historically underperform in the new environment.

Another tech stock I love to bully is Pinterest (PINS), by far the worst social media platform I have ever seen, will need to face reality without the Fed punchbowl that was most likely their biggest tailwind.

Tech stocks must now stand on their two feet and that’s scary news for all tech stocks not named Tesla, Facebook, Apple, Amazon, Microsoft, and Google.

After these top 5, the quality dwindles fast and expect a slew of rapid downgrades that will throttle the non-elite software stocks.

Adobe’s stock had its second-worst day of the year on Tuesday, as analysts jumped on the higher rates bandwagon and cited high valuations.

Valuations are now “high” even if these business models are the same as they were a few days ago.

Expect poor guidance from management with earnings growth, free cash flow, and annual revenue downgrades in the pipeline.

Other notable sell-offs this week include shares of cybersecurity companies Zscaler and Cloudflare, which crumbled 7.8% and 9%, respectively.

Zscaler had been up 55% for the year, prior to Tuesday, and has an enterprise value to revenue multiple for 2022 of 39. Cloudflare was up 91% and trades at a multiple of 61.

Tech growth works both ways in which they get the benefit of the doubt in a low-rate environment and vice versa in a tightening environment.

Case in point is a company I really like Roku (ROKU) whose shares are down a hideous 230% since mid-July.

The weakness in the secondary names has been biggest secret untold in tech for quite a while and the confirmation of a tough 2022 was what happened in the first two weeks of December.

And it gets worse when looking at the shelter-at-home darlings of 2020 Teledoc (TDOC) and DocuSign (DOCU) who have been totally neglected this year.

This goes to show that every year is different and as the stock market is levered to the skies, the slightest nudge by the Fed does a lot to wobble the trajectory of tech.

Luckily, tech still has the 6 big tech stocks to rally around and even if the best of the rest must go into hibernation in 2022, we still got guys like Mark Zuckerberg, Tim Cook, Elon Musk powering us through the sludge.

December 3, 2021

Tech Letter

Mad Hedge Technology Letter
December 3, 2021
Fiat Lux

Featured Trade:

(THE ULTIMATE TECH SUPPLY CHAIN SHOCK)
(TSLA), (CMOC), (AAPL), (DRC)

The Ultimate Tech Supply Chain Shock

Tech Letter

China is monopolizing the raw materials industry in Africa at such a fast pace that it might be a thorn in the side of American EV makers like Tesla and other US tech companies soon.

Tesla (TSLA) has decided to veer its business interests and kowtow to China and is really doubling down there with a Shanghai Gigafactory which now produces more cars than its plant in California.

Under the hood, most of the material is Chinese-made, and the minerals that power the batteries are largely refined and mined by Chinese companies.

As the world adopts EVs, companies are desperate to secure and strengthen their positions in the battery supply chain, from mineral extraction and processing to battery and EV manufacturing.

Vertical integration is more fashionable than ever, where one company controls a number of steps along the supply chain to guarantee supply.

This is not surprising since the supply chain breakdown has forced many companies to stop production for lack of parts.

This battery arms race is being won by China.

China is the world’s biggest market for EVs with global sales of 1.3m vehicles in 2020, more than 40% of sales worldwide.

Chinese battery-maker CATL has cornered about 35% of the world’s EV battery market.

Chinese refineries supplied 85% of the world’s battery-ready cobalt last year; a mineral that helps the stability of lithium-ion batteries.

Democratic Republic of the Congo (DRC) is where most of the cobalt is found, where almost 70% of the mining sector is dominated by Chinese companies.

Meander around DRC’s southern copper and cobalt mining belt, and it looks as if you are in China.

In August, China Molybdenum Company (CMOC), a giant Chinese mining firm, announced an investment of $2.5bn to triple copper and cobalt production at its Tenke Fungurume Mine, already one of the largest in DRC.

That followed its purchase of a 95% stake in nearby Kisanfu copper and cobalt mine for $550m.

Fellow Chinese corporate giant, Huayou Cobalt has a stake in at least three copper-cobalt mines in DRC and dominates at every step of the cobalt supply chain, from mines to refineries to battery precursor and cathode production.

Some car and battery manufacturers are beginning to reduce the amount of cobalt in their batteries to de-risk themselves from China.

Nickel-rich batteries could be a solution, but the same Chinese companies that dominate cobalt mining in DRC, Huayou Cobalt and CMOC, are also cornering nickel extraction and processing in Indonesia, which has the world’s largest nickel reserves at 72m tons.

This means China is now the largest global market producer of nickel, far surpassing the efforts of Europe and the US.

In Europe too, companies are beginning to gain on China’s lead. By the end of the decade, the continent is expected to have 28 factories producing lithium-ion cells, with production capacity due to increase by 1440% from 2020 levels.

That growth is being driven by companies such as Britishvolt in Northumberland and Sweden’s Northvolt, as well as Asian firms expanding production into Europe.

European investment in mining and the production of battery and cathode materials is not keeping pace.

China is creating the equivalent of one battery Gigafactory a week compared with one every four months in the US.

A new global lithium-ion economy is being developed, and the United States lagging Europe and China means they will need to pay a premium for the raw materials in the future.

It’s almost as if the U.S. is going through a round 2 of outsourcing their rust belt manufacturing, but this time it’s Internet 3.0 manufacturing.

The U.S. has fallen asleep at the wheel and allowed China to coax itself into relevancy by undercutting global competitors, the same is happening in the raw material industry that is fundamental to the survival of the United States tech and EV prowess.

The quickness and potency of a mercantilist one-party state can be felt here as many broader issues are bogged down in the U.S. in Congress and get stuck there in perpetuity.

When allowed to flourish, US capitalism is the most mesmerizing force in global economics, but it is also prone to stumbling over itself.

Policymakers need to reroute their energies to the raw material precious metal sector to make pricing competitive for the American consumers, or the share prices of US tech companies will be hurt.

Like the supply bottlenecks caused pain for many American companies, companies like Apple (AAPL) or Dell might not be able to build smartphones and laptops without the right raw materials.

Tesla might not be able to build a car anymore without bowing down to the Chinese forces.

Don’t be surprised in a few years if tech companies need to halt production due to China not selling certain parts to certain countries, this could be the next battleground between the United States and China.