Gold and Tesla are Going to Pot

by JDH on June 23, 2018

Gold

The two month carnage in gold continues.  From the quadruple top resistance level of around $1,360, gold has collapsed, and the next two stops appear to be $1,240 and $1,200.

This is not a pretty picture.

Why is this happening?

I don’t know.  Could be the USD dollar, could be better places to put your money, could be the reduced threat of nuclear annihilation now that President Trump has negotiated peace with everyone.  The reasons are moot.  Gold is not the golden child at the moment.

I’m still holding my core gold stocks, because they are long term holdings, but I am not speculating in NUGT or anything else at the moment.  There are better places to put your money.

Perhaps by the end of the summer this will change.  Perhaps by next week this will change.  Gold is very oversold, but I’m not in the business of trying to catch a falling knife.  I’ll wait until it catches a bottom, and tests that bottom, before I play again.

Tesla

The carnage in Tesla is just beginning.

The epic short squeeze from earlier this month brought Tesla up over $100 from the April bottom, but it couldn’t push it to a new high.  I made some money on puts this week, and I will play that game again, but I’ll wait until Elon says something to drive the price back up over $350.

Here’s the problem:

Tesla has no idea how to make cars, and they are in the car business.  That’s a problem.

The cars that they do make are unprofitable.  They manipulate their accounting so exact numbers are impossible to determine, but it would appear they are losing at least $10,000 per car they manufacturer.  That is structural un-profitability, and that’s a precursor to bankruptcy.

They need to raise capital, but they haven’t.  Why not?  Because they can’t.  My assumption is that there is an ongoing SEC investigation into stock price manipulation (just read Elon Musk’s Twitter feed if you want a crash course in how to hype a stock), and if you are under investigation you would have to disclose it to new investors, and that would kill the golden goose.

If you want to buy a Tesla, you place a $1,000 reservation deposit.  Then, when the car is being built, you place another $2,500 configuration deposit.  That’s when they assign a VIN to your purchase.  You know what car you are getting.  Strangely, there have been no new configuration deposits since early May.  Why not?  Could be because, in a bankruptcy, Tesla wants as much unencumbered inventory as possible, to satisfy the secured creditors.

I am intimately familiar with the bankruptcy process.  Whoever is doing the liquidation doesn’t want a protracted dispute over who owns which car in the factory.  By not assigning VINs, there is no dispute.  Presumably that’s a requirement of the secured creditors; they won’t call the loans as long as there is some security.

We now have the spectacle of Elon Musk doing his best to pump the stock, and promising short squeezes.  It appears that due to production limitations they are only building one car (the red version of the cheapest car) to keep production costs down, so they can announce a build in inventory, announce lots of sales, and squeeze the shorts.  When that happens, load up on puts, because that will be the last gasp.

Currently I have no position in Tesla, but on the next pop I will buy puts, probably with a September or later expiration, and have some fun.

Pot

Gold and Tesla are going to pot.

Pot is not.

Canopy Growth, ticker symbol WEED on Toronto, made another new high this week.  The pot stocks are booming.

The Senate and the House of Commons finally passed legalization legislation this week, and pot for recreational use becomes legal in Canada on October 17.  The market had a “sell on news” moment and marijuana stocks eased off at the end of the week, but as you can see from the charts, there is virtually no overhead resistance, so I expect them to move higher as we approach the implementation date.

The big mutual funds are not in the cannabis business.  There are no big cannabis funds in Canada, because the big guys did not want to offend their conservative investors by creating a fund to invest in something that wasn’t legal.

Now it is, so expect the big money to gravitate towards this sector.

The easy money has already been made.  The time to start buying was two years ago.  (I’m happy to say I was participating in private placements starting in 2016, so I’m a happy camper now).

I don’t use pot, and don’t plan to, but I see no reason not to invest in a sector that will be profitable.

My pot portfolio is:

  • TGOD.TO – The Green Organic Dutchman – my top holding
  • ACB.TO – Aurora
  • WEED.TO – Canopy Growth
  • EMC.V – Emblem
  • OGI.C – Organigram

I have a double weight in TGOD, slightly less than double in WEED, and an equal amount in the rest.  Place buy orders for your first tranche at slightly below current levels, and buy a second tranche on further weakness.

That’s the game plan.  I’m looking forward to a profitable year.

Enjoy.  Thanks for reading.  See you next week.