Silly Season

by JDH on July 4, 2020

Sell in May and Go Away used to be a thing.

This year it’s “Just Keep Buying”

Tesla, a company that has never made an annual profit, was trading around $400 at the start of the year, and around $400 again after the crash in March, and is now trading at $1,208.  Does it make sense to you that a company making a product that has shrinking demand (no-one is buying a car in the age of work from home), that has serious quality issues, that has issues with the SEC, and has no reasonable expectation of making a profit, has tripled in value in three months, and is worth more than Toyota?

That’s crazy.

The price of gold makes somewhat more sense, trading at an 8 year high.  Massive money printing devalues the currency, so it’s logical to want to hold something tangible.  That makes sense.  In contrast to Tesla, gold is up about 17% on the year.  Gold stocks, due to leverage, have done much better, but they aren’t up 3 times this year.

So what does it mean?

I have no idea, other than that we are in silly season.

I’ve had some stocks in my portfolio experience crazy gains, and I’m happy, but I’m also prudent, so where I have a profit, I’m pulling cash off the table, because moonshots can’t go up forever.

That’s my take.

More next week.

Take Your Pick

by JDH on June 27, 2020

We all know the story.

The markets were humming along, everything appeared to be great, we hit new highs in February.

Then came the Big Bad Virus, and down we went, hitting a bottom on March 23.  Then, when it appeared the world would not end, the market recovered into the first week of June, and from there it has stalled or weakened.  This is best demonstrated in the chart of ZEB.TO – BMO S&P/TSX Equal Weight Banks Index ETF

As you can see, ZEB peaked just shy of $30, and then collapsed to just under $18, a stunning 40% drop in exactly one month.  That has never happened to the blue chip Canadian bank stock index.  It would appear that the correction was over-blown, hence the recovery.  So now what?

As the chart clearly shows, we have a wedge formation, so either the red down trend line will continue, and the bear market rally is over, or the blue up trend line will provide support, and $23 is a great buying opportunity.  Take your pick.

The answer depends on what speculators think will happen in the “real world”.

Canada appears to have the Big Bad Virus under control; the death rate is plummeting, and while there are some new cases, testing has ramped up, so more testing is the obvious reason why we are seeing more cases.  The United States, in some states, appears to be going the other way, with more new cases, leading some to assume that the economy will take a turn for the worse.

The other wildcard is the government itself.  Does stimulus continue, or is it done?

In Canada, the CERB benefit for workers is extended to the end of the summer, so many will take the summer off, but have no choice but to return to work in September.  If the economy is on better footing then, then there will be jobs to return to, and the recovery can continue.

But, if the stimulus ends, and employees are too worried for their safety to return to work, or if the schools aren’t open and parents don’t have daycare so they can’t return to work, or if businesses (like restaurants) have permanently closed and there are no jobs to return to, the economy will not recover, or not recover quickly.

Which will it be?

I don’t know, but if I had to guess, I would bet on human ingenuity.

The human race has beaten every other challenge; we aren’t dead yet.  So, if I was looking for a place to park cash, gold stocks and ZEB would be high on my list.  Currently ZEB pays a dividend of close to 5%, and it’s distributed monthly.  The Big Banks currently distribute about half of their earnings as dividends, so even if their profit drops considerably, they have a lot of room to continue paying their current dividend rate.  So, you buy ZEB, and hold it for two or three years until the recession is over, and it’s likely you have a capital gain, and a dividend.  (If you plan to sell it in two months, it’s a very risky investment; long term, probably safe).

Those are my thoughts.

Let’s keep our fingers crossed.  More next week.

Now we know

June 13, 2020

Last week I asked the question: New highs, or a correction first? Well, I guess we now know the answer, eh? I see no point in over-thinking this.  We are living in artificial times.  Markets go up and down.  Volatility is the new reality. So, if your stock shoots up for no good reason, sell […]

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Dog Days of Summer Already?

June 12, 2020

The markets appear to be just floating along.  Like ZEB: New highs before the crash, then the crash, then a big recovery, and now it has settled in to a range between $24 and $25. The hot summer weather is here, the economy is gradually re-opening so normal humans are spending whatever time they can […]

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New Highs, or a Correction First?

June 6, 2020

Pick a chart, any chart.  How about SPX: From a high in mid February, the market crashed to 2,200, but amazingly it has recovered almost all of those losses, and is now back to almost 3,200, the same level it was at the end of January.  So, after a massive crash, the market is essentially […]

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ZEB and Gold

May 30, 2020

As mentioned last week, I have taken a position in ZEB.TO – BMO Equal Weight Banks Index ETF, an ETF that has an equal weight of the six largest Canadian bank stocks. You would think this is a horrible idea, given that the banks this past week reported much higher loan loss provisions, and therefore […]

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Time to Buy Bank Stocks? Have I Lost My Mind?

May 23, 2020

We’ll get back to talk of gold and bitcoin next week.  (I still like gold, by the way, and Bitcoin will be higher in a year than it is today, but it’s a speculation, not an investment).  But let’s go off the board and discuss something I have never discussed before: Bank stocks. What? The […]

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Gold and Bitcoin

May 16, 2020

It’s the long weekend here in Ontario, and today, Saturday, we will have our first decent weekend weather day in a long time, and the next few days will be rainy, so everyone will be outside today, lock down or not.  That’s good.  Let’s be safe, but let’s get on with it. Two charts for […]

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Stress Levels Rising

May 9, 2020

To answer my question from last week: Tesla: Is this the end? the answer, apparently, was no, at least not this week, as Tesla went from $700 on Monday to $819 on Friday.  Yup, a 17% gain on the week when factories are shut down and no-one is buying cars.  Amazing.  The crash will be […]

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Tesla: Is This Finally The End?

May 2, 2020

I currently have no position in Tesla, but I am on record as thinking it’s a gigantic fraud.  Their technology is no better than anyone else’s, and despite a decade in business they have never made an annual profit.  They exist entirely due to government largess. And their CEO is nuts.  On Friday he tweeted […]

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