Soren Kierkegaard, the Danish existentialist philosopher once remarked, “Geniuses are like thunderstorms. They go against the wind, terrify people, clean the air.”
Source: ADragan / Shutterstock.com
Short-sellers often perform a similar function. Although they certainly are not all geniuses, their incisive analyses can swirl through the financial markets and terrify investors for a spell, while cleansing the air of misinformation and/or fraudulent behavior.
Because these financial thunderstorms can strike an individual stock like a thunderbolt, they usually singe every investor who happens to be in the vicinity.
Not surprisingly, therefore, short-sellers are about as welcome on Wall Street as a thunderstorm at a garden wedding. To put it bluntly, most folks hate short-sellers.
I don’t. I hate the misinformation and/or deception that causes investors to make ill-informed decisions…
Steel Yourself Against the Misinformation
Generally speaking, short-sellers are a fringy community of forensic analysts and truth-seekers. As a group, they expose the sort of misinformation that deceives investors. That’s a public service to all of us investors.
But sometimes, short-sellers themselves, are a source of misinformation — fonts of fake news.
In other words, not all short-sellers are created equal… neither are any other sources of investment information and “analysis” equally reliable.
This fact has never been timelier and more relevant than it is today, when social media sites funnel most of the minute-by-minute investment narrative that we consume.
Because of social media’s scope and dominance, deceptions can magnify quickly and “go viral,” often with mind-numbing speed and destructive power.
In such circumstances, getting to the truth can be challenging.
But a couple of simple steps can facilitate the process of fact-finding. Both of these steps are so ancient (and timeless) that they predate the internet itself:
These two simple steps, by themselves, can usually help investors navigate deception and/or discover truth… like they did during the last two weeks when a short-selling firm attacked SLI), a stock I have recommended in my investment services.(NYSEAMERICAN:
On November 18, a short-selling outfit called Blue Orca Capital issued a negative report about the company.
The report’s most damaging assertion was that’s direct extraction technology could recover only 13% of the lithium that is contained in the brines it is processing — not the 90% recovery rate the company had been reporting.
The stock plummeted 35% after Blue Orca’s report crossed the wires.
But I issued an alert to my subscribers that stated the following:
“If that assertion is true, it would be a truly damaging data point, perhaps even fatal to. However, as recently as November 12, submitted a detailed filing with the SEC that stated the following:
“The final product lithium recovery is about 90%.
“In other words, six days ago, the company informed a federal agency that its lithium extraction process recovers 90% of the lithium contained in the Arkansas brine it is processing.
“If the actual number is 13%, as Blue Orca Capital asserts, then the entire management team ofand its Board of Directors has committed a large-scale fraud…
“A conspiracy and fraud of this scale and complexity seems unlikely…
“More likely is that an ill-intentioned, or ill-informed, short seller has conspired to hammer the share price of a stock its firm has sold short.”
In other words, I considered the source of the surprising story and deemed it to be untrustworthy. Furthermore, previous reports by Blue Orca about other companies revealed a consistent pattern of unreliable, one-sided analysis.
But the most important detail from the company’s response was that its direct extraction technology does, in fact, recover about 90% of the lithium that’s contained in the brine it is processing.
The company stated flatly:
“Blue Orca Capital’s interpretation of lithium recovery rates is incorrect and underestimates lithium extraction efficiencies.”
Despite this comprehensive rebuttal, Blue Orca did not issue a mea culpa or concede defeat in any way. Instead, it simply doubled down on the identical claimshad debunked.
The new attack from Blue Orca triggered another wave of selling that pushed the stock lower again on Nov. 22. But the selling pressure abruptly reversed on the day before Thanksgiving.
That’s when the company announced a $100 million investment by Koch Strategic Platforms (KSP), a subsidiary of Koch Investment Group.
Importantly, the press release that announced this investment included the following line:
“[KSP’s] Direct Investment follows extensive due diligence into’s LiSTR DLE technology, Demonstration Plant and project objectives…”
Presumably, therefore, KSP possesses a more intimate and sophisticated understanding of’s extraction technology than do the short-sellers at Blue Orca.
The stock has been rallying ever since.
An Early Warning
To be sure, the short-seller’s attack onwas a frightening event. But ultimately, misinformation lost this battle.
Furthermore, the company has emerged from that attack with its credibility intact and its investment potential greatly enhanced by a major new investment from what could become a major strategic partner.
The stock remains what it was when I first recommended it to my subscribers: a speculative, unproven play on a “home-grown” battery-metals supply chain. But the stock has become somewhat less speculative in the wake of KSP’s $100 million buy-in.
Now, before I let you go…
2022 is on our heels, and we’re perhaps facing more apprehension than ever.
With the new Omicron variant of the Covid-19 virus potentially bringing about city-, state- and country-wide restrictions, economic uncertainty, inflation and more, the end of 2021 is starting to feel quite a bit like the end of 2020.
As such, it is critical that you hear what my colleagues, Louis Navellier and Luke Lango, and I see for the next year.
And on Tuesday, December 7, at 7:00 p.m. EST, the three of us will give you our investing game plan for 2022.
Click here now to reserve your spot — I’ll tell you more about it this week.
P.S. Louis Navellier, Luke Lango and I will reveal the major events that will rock the markets in 2022. Will your money be safe? Sign up here for the 2022 Early Warning Summit and find out.
On the date of publication, Eric Fry did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Eric Fry is an award-winning stock picker with numerous “10-bagger” calls — in good markets AND bad. How? By finding potent global megatrends… before they take off. In fact, Eric has recommended 41 different 1,000%+ stock market winners in his career. Plus, he beat 650 of the world’s most famous investors (including Bill Ackman and David Einhorn) in a contest. And today he’s revealing his next potential 1,000% winner for free, right here.
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A Market Green Light or No?
Was “selling the rumor” responsible for the recent weakness? … how are traders sizing up Wednesday’s Fed release? … what’s important in today’s…
Was “selling the rumor” responsible for the recent weakness? … how are traders sizing up Wednesday’s Fed release? … what’s important in today’s market
Wall Street traders often front-run major events that are likely to move the markets.
It’s the old adage of “buy the rumor, sell the news” (though in reverse).
Is that what’s been happening with the market weakness over the last few weeks? Have traders been bailing on stocks based on the rumor of what the Fed will do, preparing to buy back stocks after the fact?
Our technical experts, John Jagerson and Wade Hansen of Strategic Trader believe that’s what’s been happening.
From their Wednesday update:
Traders like to be ahead of the curve by both buying before the news is confirmed and then taking their profits off the table once the news is official.
The opposite phenomenon frequently occurs as well; traders sell their stocks before the news is confirmed and then buy back into their previous positions once the news is official.
While there isn’t an old saying that goes, “Sell the rumor; buy the news,” we think that is what has been happening in the stock market.
Traders have been worried for the past two weeks that the Federal Open Market Committee (FOMC) might signal the following things in today’s Monetary Policy statement:
- More than four rate hikes this year…
- An individual rate hike larger than a 0.25%…
- An accelerated tapering of its bond-purchase program…
- And a dramatic reduction of its $9-trillion balance sheet this year.
This worry has caused traders to sell into the rumor… or the worry, in this case.
As you know, the Federal Reserve released its policy statement on Wednesday.
How did it impact these fears? And what does that mean for a market rebound?
Let’s find out.
***Is Wall Street “buying” the news now?
For newer readers, John and Wade are the analysts behind Strategic Trader. This premier trading service combines options, insightful technical and fundamental analysis, and market history to trade the markets, whether they’re up, down, or sideways.
In their Wednesday update, they dove into the details of the Fed’s policy statement. They identified language that speaks directly to the fears that have been weighing on Wall Street traders.
From the update:
The FOMC just released its statement, and here’s what it said:
- It will likely start raising rates in March.
- “With inflation well above 2 percent and a strong labor market, the Committee expects it will soon be appropriate to raise the target range for the federal funds rate.”
- It is not planning on more than four rate hikes in 2022, but it’s not taking the option off the table.
- “In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals.”
- It will be accelerating its tapering… slightly.
- “The Committee decided to continue to reduce the monthly pace of its net asset purchases, bringing them to an end in early March.”
- It has no plans to start dramatically reducing its balance sheet.
- “The Federal Reserve’s ongoing purchases and holdings of securities will continue to foster smooth market functioning and accommodative financial conditions, thereby supporting the flow of credit to households and businesses.”
John and Wade sum up by saying they believe that this statement should ease Wall Street’s worries.
Now, that doesn’t automatically mean these traders will push stocks higher. Rather, it just removes this overhang from the market. But traders are still highly sensitive to economic data and earnings.
***On that note, we’re beginning to see a pattern of Wall Street shrugging off strong earnings, focusing on weaker guidance
On Wednesday, this market darling reported strong fourth-quarter results that included a record number of vehicle deliveries.
Adjusted earnings came in at $2.52 per share versus the forecast of $2.36 per share. Revenue rose 65% year over year in the quarter, while automotive revenue totaled $15.97 billion, up 71%.
Great quarter, right? Deserving of a nice pop in the share price?
Nope. Wall Street decided to focus on the potential for problems in the months ahead.
Tesla sold off 5% after hours on Wednesday. And the pressure continued yesterday, with the stock ending the day down 12%.
Here’s CityIndex explaining why:
Tesla warned its ability to meet its ambitious target to grow deliveries this year will depend on the availability of equipment, maintaining operational efficiency and ‘stability in the supply chain’.
It is that last factor that markets fear the most.
Tesla has so far proved to be far more resilient to the supply constraints hampering the global automotive market compared to its rivals, but the company is not immune and warned supply chain issues are ‘likely to continue through 2022’.
***It was similar with Netflix’s earnings last week
The streaming giant beat on its bottom line and was in-line with revenue expectations. But shares plummeted in after-hours trading based on fears of slowing subscriber growth.
From The New York Times:
Netflix added 8.3 million subscribers in the fourth quarter, raising its worldwide subscriber base to 222 million, but the company said on Thursday that it expected growth to slow in the opening months of 2022.
That news, in the company’s earnings release, prompted the stock to drop nearly 20 percent in after-hours trading.
Netflix ended up falling more than 30% over ensuing trading sessions and remains down 26% as I write.
Now, compare Tesla and Netflix to Apple, which released earnings yesterday after the bell.
The world’s most valuable company smashed its revenue record, also topping earnings of $30 billion for the first time.
Most importantly, CEO Tim Cook said that the supply chain challenges are improving. Though Apple hasn’t given formal guidance since the beginning of the pandemic, here were Cook’s comments:
What we expect for the March quarter is solid year-over-year revenue growth.
And we expect supply constraints in the March quarter to be less than they were in the December quarter.
Bottom-line, Apple’s growth story remains intact. So, its share price is benefitting, up 6% as I write.
This all points toward a reality of today’s market…
What matters now is growth.
Can a company continue to grow despite inflation, a rising rate environment, and the threat of a slowing economy?
If so, Wall Street will reward it. If not, watch out.
***Looking at growth on a macro level, we received encouraging GDP news yesterday
Gross Domestic Product grew at a 6.9% annualized pace in the fourth quarter. That’s much higher than the 5.5% estimate.
Plus, consumer spending, which makes up more than two-thirds of GDP, climbed 3.3% for the quarter.
So, there are positives here (despite today’s massive inflation number…but that’s no surprise anymore).
Just make sure any trade you’re considering is similarly rooted in fundamental strength – which means growth.
Returning to John and Wade, they believe some short-term bullish trades are setting up.
They’re not pulling the trigger yet. Instead, they’re giving the market a few more days to digest recent news. But they’re feeling cautiously bullish.
I’ll give them the final word:
What matters most is not whether the Fed will raise the overnight rate in March and then again in the second quarter – traders are already pricing that in. What is important is whether the underlying fundamentals are still positive…
We don’t want to fall into the trap of ignoring the bad news in favor of the good, which is why we are recommending patience before adding more risk to the portfolio.
However, it’s essential to be aware of the solid prospects the market still has in the near term to rally and provide easy profits.
So, for now, we don’t recommend making any changes to our trades. Still, we think the likelihood of new opportunities and some profitable exits over the next few days is high.
Have a good evening,
All The Curves, From Supply To Demand To Yield
Technically speaking, the rebound from the 2020 recession wasn’t strictly a supply shock. That was a huge part of it, no doubt, but a near-concurrent…
Technically speaking, the rebound from the 2020 recession wasn’t strictly a supply shock. That was a huge part of it, no doubt, but a near-concurrent demand shock, if you will, also materialized. The combination of the two left the public bewildered, believing it an actual inflationary impasse which could only be further passed on into this year.
Consumer prices did rise, of course, and they still are rising, though not because of (monetary) inflation. Rather, the first half of 2021 was an anomaly rather easily explained by simple, small “e” economics.
The first part of it, supply, that was all the impediments imposed by both non-economic (lockdowns, reconfiguring product lines) and economic (money and credit) factors which left the supply curve far more inelastic. This simply means suppliers and producers (along with shippers) are less responsive to changes in demand.
Sketching supply inelasticity out like any middle-schooler might upon their very first introduction to economics, the basics of it would look something like this:
It must be noted that these changes were applied globally and not just to or in the United States. Various national parts of the global economy were affected by them differently and to different degrees, by and large this was a universal phenomenon.
What then followed the evolution of supply inelasticity was the demand “shock” in the form of various government interventions; again, not just domestic US, all over the world. Those originating from the American government were the most pronounced, therefore created the biggest bounce to the right for the demand curve. Others followed to lesser extents.
The combined result is somewhat surprising considering how much the economy has been described, repeatedly, especially in America, as red hot and dangerously overheating. On the contrary, supply inelasticity means that most of the effect is illusory in terms of price whereas overall output doesn’t necessarily increase much at all.
Though these drawings are admittedly cartoonish, they aren’t very far off the actual data. Look at GDP or Industrial Production all over the world. Prices went up, especially here, but output not so much.
This has been excused as difficulties sourcing raw materials and whatnot, but that’s baked right into the inelasticity of the supply curve! And while others blame a purported labor shortage, it’s far more easily and readily explained by producers who aren’t producing nearly as much therefore aren’t as willing to pay market clearing wages (or even hire more workers).
Either way, as the supply curve shifts back more elastic, prices begin to come down as output actually rises…only if all things are equal (ceteris paribus). We know, however, they are not equal.
Even as the supply side twists slowly back toward its long run stable state, unless there’s (actual) monetary expansion behind the demand shift, demand won’t stay toward the right, either. Instead, it’s going to migrate back to the left toward its own long run stable state.
Depending upon other factors, output might rise again but much more slowly or in more limited fashion than it otherwise could have, all the while prices descend in the direction of their own starting equilibrium (assuming there is such a thing, or that there is one which could be stable).
Viola, there’s yesterday’s generally ugly GDP figures along with the PCE numbers (monthly) published today. The general supply curve is becoming less elastic (pumping out massive inventory into the supply chain) while the effect of the previous government interventions (including Uncle Sam) fade further and further into the past.
Prices haven’t yet backed off, though they have started to exhibit the general tendency toward deceleration (not all at once, therefore three camel humps that I’m told can’t describe a camel at all). In some places, though, we’re seeing perhaps the beginning stages of outright reversion (like China’s producer prices or US services prices).
The biggest macro problem is that the private economy’s actual state is obscured underneath this “inflation.” Labor shortage, red hot, etc. Because the mainstream treats each and every outbreak of consumer price acceleration as the same thing, especially those times when it is due to something other than money (true inflation), it can only result in mass confusion.
In fact, at some point, the bottleneck of forced price increases actually inhibits the demand curve staying to the right; prices rise faster than the economy’s ability to maintain even the same levels of demand (because it’s not caused by monetary expansion). Thus, what we saw in yesterday’s GDP along with today’s Personal Income and particularly consumer spending:
Even though the labor market has likewise struggled to recover (consist with the low changes in output) despite the artificially-fueled spendy frenzy, incomes have been rising though nowhere near enough to absorb the equally artificial increase in the general price level.
As such, private economy labor falls further and further behind (fails to catch all the way back up) exacerbating the demand curve shift back left.
Economists (capital “E”), however, they all believe (without evidence, only regressions) such interventions as last year’s massive helicopters produce lasting effects – a more durable perhaps permanent move in the (aggregate) demand curve out to the right. Furthermore, after the extreme price changes last year, most (Larry Summers!) are more worried that the curve had been pushed too far to the right and will remain too far out that way.
This group now includes the FOMC whose members then add psychological hokum to their even more primitive curve graphics thereby manufacturing the hawkish double-taper, triple-maybe-quadruple rate hikes for 2022 all the while real markets reject all these things.
True economics, the lack of money impulse, and now more upon more data all bely these mainstream interpretations. It’s only a “growth scare” in the context of merely assuming those first, that Economists and central bankers employing standard DSGE assumptions have anything worthwhile to say about the situation.
Rather than “growth scare”, the actual situation appears to be nothing more than the other side of last year’s double anomalies. One supply. One demand. None monetary.
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