When does this selloff end? When there is DEATH after life... and not the other way around.
Last week I started another model portfolio, the charmingly titled DEATH, to bet on the other shoe dropping. I am not talking about Elon, Zuck and Bezos losing a few billion dollars from their collective net worth. I am talking about companies that could die, hence the portfolio's name. Bankruptcy filings are never pleasant, and in a Chapter 11 situation a company's common equity becomes worthless.
Of course, just as I locked the values from my portfolio, on May 11 at noon, the market declined further that day, then bounced back with a fury. But if you look at the indexes, you will see that those declines melted away. So the names in DEATH must be turning into dust, right?
Not at all. As of Thursday's close, nine of the 10 names in DEATH had risen from that short-lock, some dramatically. On the whole, the aggregate value of DEATH has risen 14.22% in six-and-a-half days, which is not what you want as a hedge fund manager. I can take it, though. I have had worse weeks, and DEATH is strictly an academic exercise, with none of my real-world clients in that strategy.
But in the current wave of the pullback, driven by Target's (TGT) startlingly bad earnings report Tuesday, DEATH has held up. With Doom and Gloom replacing Disruption and Sustainability as the key buzzwords of the hour, shouldn't these names -- all of them profitless, and none of them cash-generative -- be being taken to the woodshed like Cisco (CSCO) and Walmart (WMT) ?
They should, but they are not. That shows me, as a longtime observer of market psychology, that we are nowhere near a bottom in the Nasdaq, simply because we are nowhere near a bottom in cockeyed optimism. That optimism has been expensive thus far in 2022, but really, how else could one explain a 36.6% jump in Lordstown Motors (RIDE) and a 38.2% jump in Rivian Automotive (RIVN) in a week?
It's risk-on at the worst possible time. Until that sort of Las Vegas-style chicanery is well and truly abandoned by market participants, I cannot even think about calling a bottom. So, I won't.
This market was dominated for so long by Fed Chairman Jerome Powell's torrent of free money, and an even larger torrent of meme "stonks" and other such fundamentally challenged non-analysis. The problem is that portfolio managers can't just exit positions without lowering the market values of those positions, which lowers the value of their funds. They are stuck.
Instead, they go on CNBC and repeat their ridiculous assertions about a melting planet that somehow will be saved by a transition to self-flying electric vehicles. Come on. Let's just let our Geek Flags fly and look at some hard numbers.
Target absolutely incinerated cash in the April quarter. So did Amazon (AMZN) in its March quarter.
The motto of my firm, Excelsior Capital Partners, is Cash Flow Never Lies. But, at the end of the day, some entity must be responsible for supplying that cash. If it's not the Fed, it has to be the Street. Not the website, but the major investment banks. My alma mater, I guess you would say.
Elon is going to be Elon, but he's not the real villain in this selloff even as Tesla (TSLA) uber-bull Dan Ives of Wedbush lowered his price target on TSLA by $400 billion yesterday, going from $1,400 a share to $1,000.
No, against the backdrop of a new Tech Wreck, Elon was somehow led down the primrose path of Twitter (TWTR) by Morgan Stanley (MS) . They are the real villains, along with Goldman (GS) , JP Morgan (JPM) and the rest. They are the ones who conned Elon into launching a bid at $44 billion for a company that is not even worth half that. They are the ones who led the offerings for the 10 names in DEATH and reaped huge fees while individual investors got left holding the collective bag. They are the ones who set ridiculous price targets on Big Tech names as the Nasdaq hit 16,000 in mid-November and, trust me, they don't give a hoot that we said bye-bye to 12,000 this week.
I know these folks. So, short some of the DEATH names, but know that the real collateral damage from this selloff will be felt in MS, GS and JPM, not just in the fantasyland of profitless tech stocks that they created.
