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Liquidity Will Sink Cathie’s ARKK

The following commentary on $TSLA is an excerpt from my latest Short Seller’s Journal – I’ve hit several home runs over the last year, including $DKNG, $HOOD, $Z and $NAIL. There’s still a lot of money to be had on the short side before the stock bubble fully deflates…

I wanted to share this chart prepared by a colleague (@BradMunchen):

The chart is a list the top 20 holdings across all of ARK Invest’s six ETFs. The first two columns show EV/Sales and EV/EBITDA based on the Wall Street consensus 2023 estimate for those companies. EV = Enterprise Value, which is the market cap + debt (most of the companies likely do not have much debt because they don’t generate cash flow and can’t service debt obligations).

The estimates are for 2023, mind you, which have far less certainty than full-year forecasts for 2022. These companies collectively are trading at 24x EV to 2023 sales. So, despite the big decline in the share prices of these stocks, they still trade at idiotically high valuations. For point of reference, in the 1990’s leveraged buyouts for companies that generated enough cash flow to service the high amount of debt were transacted at between 5-7x EBITDA generally. And many of these businesses had easy cost-cuts to improve cash flow. Even in today’s reckless, rapid money supply growth environment a multiple of 10-15x is considered absurd.

The next two columns show the relative liquidity of ARKK’s holdings, measured in terms of the position size relative to the 30-day average daily volume. It’s a measure of how many days it would take ARKK to liquidate a position if ARKK were the only entity selling shares. For instance, it would take ARKK 4.3 days to unload its TDOC position based on the average daily volume and based on ARKK being the only seller over those 4.3 days.

Recall that there are some $ARKK “clone” funds out of Asia. The biggest one is run by Nikko Asset Management. It replicates ARKK’s holdings. This serves to compound the illiquidity of many of ARKK’s positions. Referring back to the TDOC example, the ARKK + Nikko combined position would take, best case, 8.5 days to liquidate.

Compounding this problem even more, in all likelihood ARKK would need to liquidate a sizeable percentage of many of its holdings in a short period of time during a time when the market is going into a multi-day “bear spiral” and big redemptions kick in. The problem is that ARKK/Nikko will not be the only entities trying to unload these shares. The point here is that ARKK is one of the largest holders of many of these stocks. In a panic sell scenario, ARKK/ Nikko’s selling alone will drive these positions much lower in price because bid-side liquidity dies, especially in the crap that ARKK owns.

One other point, despite the 50-70% price decline from their respective 52-week highs, many of the stocks owned by ARKK are still insanely overvalued. Referring to TDOC again – which I recommended as a short about a year ago (maybe the summer of 2020) – it’s down 77.8% from its 52-week high of $294. Yet, it still trades at 24x estimated 2023 EBITDA. Most stocks with earnings, and TDOC never has nor likely never will produce net income, trade for less than a 24 p/e.

Cathie Wood took her farce to a new level last week. She went on CNBC on Thursday and proclaimed that her “innovation” stocks are “way undervalued.”  She referred to her funds’ holdings as a “deep value portfolio.”   I nearly fell off my chair laughing when I heard this. Based the earnings blow-ups with three of her stocks last week, her fund is now even deeper value.

Meanwhile, three more of ARKK’s holdings were decimated last week. Hours after her absurd proclamations about the quality of her firm’s research and her funds’ holdings, ROKU reported after hours and missed badly plus warned. The stock was trounced for 22% on Friday. I have been pounding the table on ROKU as a short for quite some time. ROKU is ARKK’s third largest holding. It’s down 76.6% since its ATH just seven months ago. I guess Cathie would say it’s even better value now than a week ago…

But there’s more. ARKK had three stocks blow-up after earnings. Draft Kings ($DKNG), which I recommended as a short in the low $40’s about five months ago, plunged 21% on Friday after reporting a miss and warning about user growth. No surprise there and DKNG still burns cash at a rate of about half a billion per year. Wood added several hundred thousand shares of DKNG over  the several days prior to its earnings announcement.

In addition, Palantir Technologies – which boosted its stock price many months ago by announcing a Bitcoin position – tanked 21% on Thursday and Friday after reporting an earnings miss. $PLTR is yet another one of Woods’ many stock holdings that burns cash, has never generated earnings and likely will continue to do both until the capital markets stop funding these financial disasters.

Amazingly, ARKK is only down 59% since its ATH close on February 12, 2021. A big part of the reason it is not down quite bit more on a percentage basis is attributable to the fact that TSLA is 8.8% of ARKK’s assets – at one time is was over 10%. TSLA is down 30% from its ATH on November 4, 2021. Ironically, the biggest financial fraud in history is preventing ARKK from incurring a considerably worse ROR performance – at this point in time, that is.

At some point TSLA will start declining in a “step function.” I suspect that could happen this year. I am still strongly convinced that ARKK will eventually go below $20, if not $10.  When Tesla goes, the implosion of ARKK will accelerate. Plus, even though they are down 60-70% right now, stocks like TDOC, ROKU, SHOP and Z have a lot further to fall.

To be sure, ARKK will participate in the massive short-squeeze rally that is somewhere in the near future, where “near” is defined as “sometime in the next 3-12 months.” But I like long-dated, deep OTM puts. Unfortunately the lowest strike price right now is $35. I like puts in January 2023, June 2023 and January 2024 in the $35-$50 strike price range.

Tesla And Musk May Finally Be Unraveling

The following commentary on $TSLA is an excerpt from my latest Short Seller’s Journal – I’ve hit several home runs over the last year, including $DKNG, $HOOD, $Z and $NAIL. There’s still a lot of money to be had on the short side before the stock bubble fully deflates…

Another interesting week for Tesla. It’s starting to feel like the world around Tesla is unravelingi8, Musk inclusive. It was revealed in a footnote disclosure in Tesla’s 10-K filed last week that the SEC issued a subpoena on November 16, 2021 seeking information about Tesla’s compliance with the settlement that was reached in 2019 over Musk’s tweets – specifically the infamous “funding secured” tweet. Neither Tesla nor the SEC provided information about what might have prompted the subpoena.

In response to this both Musk and Tesla accused the SEC of “unrelenting” harassment. Quite frankly, Musk is fortunate that, for whatever reason (likely pay offs), the SEC doesn’t open up a thorough investigation into Tesla’s accounting. It will likely wait until Tesla hits the wall, like the SEC did with Enron (it was known among those who dig for the truth that Enron was committing fraud many months before it filed for bankruptcy – I was short the stock at the time).

It was also reported that the NHTSA, after receiving 354 complaints about Tesla’s well-documented “phantom braking” problem, has opened up an investigation to determine the “scope and severity of the potential problem and to fully assess the potential safety-related issues.” The probe covers approximately 416,000 Model 3’s and Y’s. This is the second ongoing investigation of TSLA by the NHTSA.

Whether or not Musk has sprinkled enough cash around the upper echelons of the NHTSA to deflect potential regulatory crackdowns, there’s been so many complaints and fatal events involving Tesla’s auto-pilot that the agency at the very least has to give the appearance of investigating the Company. That in and of itself is a PR problem for Musk.

In addition, Insideevs.com, which has been a Tesla cheerleader for a long time, admitted that the Semi won’t happen in 2022. Recall Musk originally said in 2017 that the Semi would go into production in 2019. That was later pushed to 2021. Then 2022. Car and Driver reported than the Cybertruck, Roadster and Semi will not happen in 2022. Insideevs then finally capitulated, though it still reported that Pepsi is expecting a few of the Semis the Company ordered by the end of 2022. I hope the Pepsi CEO isn’t holding his breath waiting…

With respect to Tesla losing market share, Consumer Reports designated the Ford Mach-E as the magazine’s “Top Pick” for an EV in 2022. Among the attributes that set apart the Mach-E from the Tesla were reliability, quality control and the “hands free” driving technology. Overall Tesla dropped seven to 23rd place in CR’s ranking of 32 major auto brands. It’s the poorest showing in the seven years that Tesla has been included in the Top Picks issue.

Adding fuel to the nascent Tesla dumpster fire, India has declared that it will not award Tesla any special concessions because of Tesla’s refusal to manufacture its vehicles locally. Note that Tesla will soon have a demand problem for its Shanghai vehicles (having exported the majority of January’s production to the EU) and was looking export Shanghai production to India.  Worse, the German Government appears to be somewhat hesitant to issue Tesla the required permits to start production at the Gruenheide “Gigglefactory.”  Last year Musk horrified the local community with his flippant, if not hubristic, remarks about the water supply

I believe that the walls are starting to close in on Tesla and Musk. I think institutional investors are reaching the same conclusion, as the latest data from the Nasdaq shows that institutional holdings are down to 40% as of the end of 2021 from as high as 76% in Q1 2018. A high percentage of that 40% represents shares held by passive index funds. TSLA’s shares have underperformed both the SPX and the Nasdaq since the beginning of November 2021. I expect this under-performance to accelerate this year.

In my opinion, based on extensive analysis and observing the Tesla saga for over four years, the share price is headed below $100 sometime with in the next 12-24 months.

Musk horrifies the local Gruenheide community: 

“This region has so much water – look around you”  [actually the region has water supply issues]

Super Bowls, Economic Calamity And Failed Tyranny

PPI came in much worse than expected – that was predictable. A bona fide measure of PPI would show that real PPI is considerably higher than the shit on stick the Government waves in our face. Also, predictably, Biden’s “Russia will attack Ukraine” fantasy smashed abruptly into reality. Welcome to 2022 – for as horrifying as 2020 and 2021 turned out to be, expected the unexpected and expect that 2022 will be even worse.

James Kunstler’s penmanship is one of the places I turn for a “barometer check” on my sanity. His commentary Monday is priceless in that regard:

If the ads on the Superbowl each year are like a Rorschach test for the nation’s mental condition, then this year’s ad-roll was a cavalcade of frantic hallucinations suggesting a near-complete detachment from reality for an audience of ADD-disabled cell phone slaves locked into a Big Tech induced consensus trance. You could barely tell what these advertisers were trying to sell in their commercials, the psychotic dazzle of half-second jump-cuts was so ferocious…

All this hearty good fellowship marks the journey of our country from a convocation of be-wigged founding fathers wielding quill pens in defense of liberty to a security-and-surveillance state of hebephrenic zombies lurching to a kind of failure that will make the fall of the Roman Empire look like a lawn sale of someone’s dead uncle’s chattels and effects. The drain-pipe beckons… but will America answer that call… or take a different turn?

If World War Three doesn’t pan out for “JB,” there’s always a global meltdown of financial markets, banks, and currencies waiting in the wings to amuse and distract everybody from the post-Covid call for a long, hard look at what the pandemic was actually about. The story, in all its multiple, gruesome levels, has gotten away from them. So many public officials are standing naked that Washington looks like a nudist colony.

Here’s the entire piece: Speed Wobble

Gold, Silver And The Mining Stocks Are Poised To Explode Higher

This commentary plus the quickie review of Gatos Silver is an excerpt from the February 3rd issue of my subscription newsletter. You can learn more here: Mining Stock Journal

Gold is trending higher in correlation with the 10-yr Treasury yield. This is what happens when the Fed begins an interest rate hike cycle, contrary to the mainstream narrative that gold moves inversely with interest rates. I didn’t show the comparison chart because it was “messy.” The RSI/MACD momentum indicators are positioned bullishly – at least for now.

GDX and silver both are also in an uptrend but it’s not as pronounced. Gold has been resilient at the $1800 level, even with China closed for this week in observance of the Lunar New Year. Imports into both India and China have picked up considerably over the last 12 months. I expect that continue if not increase in the quantities imported.

I think the next bull move is beginning, though as with the stock market, I expect increased two-way volatility. I continue to see significant downside risk to the stock market that might affect the pm sector briefly. But I’m also seeing indications that a lot of money is flowing into all flavors of precious metals (GLD, SLV, Comex futures, physical). Premiums for sovereign minted silver bullion coins have risen considerably over the last few weeks.

It’s still not clear whether or not the Fed will actually hike the Fed funds rate in March. If it does start to raise rates, I don’t expect the Fed to follow-through with the number hikes being discussed by Wall Street (6-7). The economy is rapidly deteriorating. The Fed will eventually have to reverse its monetary policy stance or risk a severe financial and economic crisis. This will be jet fuel for the precious metals sector.

Gatos Silver (GATO, GATO.TO – US$3.47) – GATO was massacred on January 26th after it reported on January 25th that there were errors in its resource estimate from July 1, 2020 that could lead to a reduction of 30-50% in the resource estimate. The Company is working with independent consultants to figure out what went wrong and to produce a revised resource estimate.

The stock plunged 69% on January 26th from US$10.17 to $3.17. It fell another 37 cents to below $3 the next day. It has since dead-cat bounced to $3.47. Several subscribers asked me if it was worth taking a position in the stock. I like to have more information before diving into a potential turnaround play. GATO will still be producing silver profitably. But we have no idea what the resource estimate will look like or how it will affect the mine life. It’s possible that the stock could double or triple from here but the stars have to align.

Other than a continued decline in the share price that correlates with any decline in the sector overall, this is probably the bottom. But keep in mind that the Company will be facing numerous class-action lawsuits as well has having regulators breathing down its neck. It might be worth taking a flyer on December $5 calls if you can get them below 80 cents (December is longest option expiry) or August $2.5’s, if you can get them close to the current bid.

Note: with ITM calls, you want to minimize the premium to parity paid. But the option will move almost 1:1 with the stock – up or down – so if GATO falls another $1, you’ll lose that much on the call. With the December $5’s, the full risk is the price paid for the call. I may take a shot at the December $5’s but only in my personal account. I also want to make it clear that I am not recommending buying into GATO yet. I’m just laying out some ideas if this is a risk you want to take.

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Many of the junior exploration/development companies I cover, recommend and invest in have the potential to 5-10 baggers from their current down-trodden level. You can learn more about my newsletter here:  Mining Stock Journal information.  I do not take compensation of any type from mining companies and I have been doing my own research in the sector for over 20 years.

Time To End The Covid/Vax/Mask Insanity

It was only a matter of time before the Covid “bug” was smashed by the windshield of reality. Time to start holding the perps accountable, like Fauci, Pfizer and the Biden Government, among many others. Cui Bono from this madness?  And no one knows the long term side effects from the substance known as “the vax.”  I just hope all of the medical professionals who went along with this scam suffer just consequences…shooting up children who have a near-zero risk of an adverse health reaction to Covid should be punishable by death.

Jerome Powell Finally Flagged For Illegal Trading Activity

“Money is the barometer of a society’s virtue. When you see that trading is done, not by consent, but by compulsion–when you see that in order to produce, you need to obtain permission from men who produce nothing–when you see that money is flowing to those who deal, not in goods, but in favors–when you see that men get richer by graft and by pull than by work, and your laws don’t protect you against them, but protect them against you–when you see corruption being rewarded and honesty becoming a self-sacrifice–you may know that your society is doomed.”Francisco’s Money Speech, “Atlas Shrugged”

The Rule of Law no longer applies to the political and corporate elitists. Recall that three regional Fed Presidents were caught making millions in their personal stock accounts executing trades during “blackout” periods when they are legally forbidden to trade.  All three individuals were pressured to resign. However, they did not suffer any consequences as a result of their illegal trading activities – “your laws don’t protect you against, but protect them against you…”

Apparently the Fed’s El Hefe, Jerome Powell, also decided that he is above the law and executed trades in his personal account during blackout periods. Occupy the Fed Movement scrutinized public filings and determined that Powell on more than one occasion traded stocks in his personal account during legal blackout periods, failed to disclose most trade dates and “apparently” lied about muni bond conflicts.

“While the Fed has touted new forthcoming trading rules that are more restrictive, one of the few existing restraints on Fed officials is the financial trading blackout around FOMC meetings. Powell could not even abide by that.”

Keep in mind that Powell directed the massive bailout of Wall Street banks. He knew ahead of time that the trillions printed and transferred to the financial system would send stocks and bonds of all “flavors” soaring. He directly benefited from that by implementing trades that took advantage of his inside knowledge during periods of time when it was unequivocally illegal for him to trade in his personal brokerage account.

“Fed Chair Powell — who is supposed to serve in the public interest and avoid even the appearance of conflicts — traded millions in personal stocks and bonds while obstructing required public disclosures about those trades for years.”

When the reports surfaced about the regional Fed Presidents conducting illegal trades, I knew that Jerome Powell was doing the same thing. Those who live in areas in which cockroaches are prevalent know that when you see one, there’s an entire nest hiding behind the walls. The officials at the Federal Reserves are like cockroaches.

I would bet good money that these Fed officials privately discussed and boasted about their trading activity. After all, they knew that there would be little to consequences. And, trust me, the Fed officials who resigned are not capable of feeling shame. Needless to say the message is clear that public servants are above the law and illegal activities in which they engage will not be subjected to law enforcement.

“Powell is guided in all his actions not only by his fealty to Wall Street cronies, but also by truly outrageous personal financial conflicts and violations. Powell has tried very hard to cover this up before his confirmation hearing. Sadly, there’s no Woodward and Bernstein of the day to shed light on the truth.”

Here is the entire report by Occupy the Fed Movement:  Fed Scandal Bigger Than Watergate? 

Time To Shut Down Roblox – A Viper’s Nest Of Pedophilia

While all sexually motivated crimes are abominable, pedophilia is particularly grotesquely horrifying. Our society is far too tolerant of this crime. It removes completely the innocence of childhood and can undermine, if not destroy, a person’s mental for life. What’s more, exhaustive research shows that it is next to impossible to rehabilitate a pedophile. In my opinion, it’s a crime that should be punishable by death.

While I believe Roblox stock (RBLX) is idiotically overvalued and have been recommending it as short in my Short Seller’s Journal, as well having an intermittent short position in the stock, since early June 2021, I just finished reading a disturbing research piece on Roblox by Edwin Dorsey’s “The Bear Cave” newsletter titled, Problems at Roblox (RBLX).  Here’s some excerpts:

For example, 29-year-old convicted pedophile Owain Thomas “groomed 150 children to engage in sexual activity using Roblox.” 60 of those children were under the age of 13 and in many cases Owain Thomas used Roblox’s in-game currency, Robux, to solicit children. In one case Owain Thomas “paid a 10-year-old victim 400 Robux to perform a sexual act while he watched him on a webcam.” A lawyer called the volume of abuse “possibly unprecedented.”

In September 2020, 48-year-old registered sex offender Clinton McElroy was arrested after convincing an eight-year-old girl “into sending sexually explicit videos in exchange for Robux.” McElroy “was previously convicted in 2018 of commercial sexual exploitation of a 14-year-old child.”

In July 2021, 23-year-old Terrence Barto was arrested for “indecent solicitation of a child, violation of sex offender registry and grooming” after “he contacted a 12-year-old boy in Texas via Roblox.” At the time Barto joined Roblox he was already a convicted sex offender in Washington state

You can read the entire report here: The Bear Cave

That’s just one facet of this. Apparently there’s cult of upper managers at RBLX with a taste for bestiality. As it turns out, Roblox’s head of “safety and moderation” follows a “furry porn” account – you can guess what that’s about. In addition, the former social media manager at Roblox ran a public pornographic blog with “furry porn” and photos of himself.

Quite frankly, with all the crap on prime time television as well as the temptations dangled on the internet, it’s difficult enough for children to have a normal childhood. Parents and their kids DO NOT need an online entertainment platform that is widely used a forum for juvenile sexual solicitation. There’s plenty of “clean” gaming/entertainment online venues. With Roblox’s track record of tolerating pedophilic activity internally and on its entertainment platform, I see no reason why Roblox should not be shut down by the Department of Justice.

Neil Young And The Woke Covidian Cultists

When I was growing up in the 1960s and 1970s, the term “liberal” was associated with “open-minded,” “consider all sides of an issue,” “truthseeking,” freedom of expression” and the questioning of authority. The contemporary “wokesters” and the staunch cult of “Covidians” – who identify as being “left of center” – are, if anything, anti-liberal. The Democrats have become the party of war-mongering neocons, populated by an army of mini-dictators, also known as “Wokesters.”   Perhaps Neil Young is the quintessential personification of the neo-liberals.  Hell, I self-identified as a liberal in the 1970s and went to several Neil Young concerts back then. But in the 1970’s context, the term “liberal” has become radioactive.

James Kunstler has written a must-read essay that encapsulates all that has become rotten and corrupt with those who self-identify as “liberal,” “woke,” “Democrat” and “progressive” as personified by the likes of Neil Young, AOC, Hilary Clinton, etc. Sorry for your loss on Spotify, Neil, but I doubt you’ll miss the 90 cents per month in royalties:

Today the Left is not only all-in on speech suppression, but also censorship of print and broadcasting, and is especially avid for the diverse punishments of cancellation — ruining careers, reputations, livelihoods, and families of anyone who opposes Woke right-think. Alternate views are not tolerated, labeled “unacceptable” (Mr. Young put it exactly that way), and flagged as “misinformation” (ditto Mr. Young). It’s gotten to the point where the word misinformation has acquired a distinct odor that signals bad faith in everyone who flogs it. These days, the charge of misinformation is deliberate misinformation.

Today, the Left is all-in for FBI home invasions, DOJ malicious prosecutions, CIA manipulations of public opinion, a fake president fronting for an unseen cabal, and a news media that wouldn’t know the actual shape and substance of reality if it jumped up and bit Jim Acosta on the lips. Ideas and principles don’t really matter to the Left; they’re just window-dressing for their sole interest, which is pushing other people around, in a word: coercion. That is the moral quagmire the Left is in and, having captured so many institutional transmitters of our polity, that is the nature of the evil they represent.

You can read the rest here:  Old Man, Look at Your Life….

Is Your Silver And Gold Safe With A Custodian?

The short answer is “no.”  Just ask those who invested in Morgan Stanley’s silver “investment” product 15 years ago or in UBS’s precious metals custodial services. Time and time again we hear horror stories – some anecdotal and some that come from bona fide lawsuits in which investors who thought they had silver with a “reputable” custodian ended up with no physical silver and, instead, a fiat currency repayment.

Of course, for me the most notable example is when the German Government, in 2012 if memory serves me correctly, requested the repatriation of half of its 1500 tonnes of gold bars stored with the Fed (Germany moved it to the U.S. right after WW2 out of fear that Russia might invade and take its gold – like Germany did to the countries it conquered during WW2). The Fed balked. Eventually the two countries agreed that Germany could have back 300 tonnes that would be shipped over seven years. Much of the gold that was shipped back to Germany was not the original bars Germany sent over here.

The point here is that possession is 100% of the “law” when it comes to silver and gold ownership. It would be unwise to trust ANY precious metals custodian. This includes Brinks or any of the precious metals vault custodians in Delaware plus the few others sprinkled about the country. Especially do not trust IRA custodians. I’ve heard several horror stories about trying to get physical gold and silver out of IRAs from investors who had to settle for cash. In fact, I just heard from a friend yesterday who is in a dog fight with his IRA custodian to get possession of some silver bars. Bottom line: If you don’t have possession of your metal, you may not really own it.

David Morgan invited me to be a guest for his inaugural “Silver Psyop” series to discuss this topic at length:

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Many of the junior exploration/development companies I cover, recommend and invest in have the potential to 5-10 baggers from their current down-trodden level. You can learn more about my newsletter here:  Mining Stock Journal information.  I do not take compensation of any type from mining companies and I have been doing my own research in the sector for over 20 years.