A lot of ground to cover today, so I will dispense with my usual classic rock references...or incorporate them into section headings.
Free Bird. The market is flipping Elon the bird, as Twitter (TWTR) shares have given up most of their early gains and sits at $46.88 per share. But Elon has an all-cash offer of $54.20 per share. So we discount that at 15%... seriously? And what of the possibility that Elon becomes a "stalking horse" and Twitter is auctioned to other, higher bidders? Well, "higher" may be the key word in that sentence, because Elon's decision to include a "420" reference in his offer amount - a callback to his infamous and expensive, for him, "funding secured" TSLA tweet - might have made risk arbitrageurs doubt if he is really serious.
As I have exhaustively presented in my research for OHM Research in Sao Paulo, TWTR is worth $10/share. So if a billionaire is using his own incredibly overvalued asset (Elon's Tesla (TSLA) holdings) to mount a takeover offer for an only-slightly-less-overvalued asset - Twitter - then it just seems as if...
Charles Ponzi has left the building. Going back to Elvis Presley's famous concert-enders for that one. Elon's takeover attempt on TWTR - and the market's apparent disbelief of his bid - is a sign that the era of indulgence is ending. What is killing it? Well, anyone who is deluded enough to watch Fin TV for more than 30 seconds would know that it is not common sense of equity research from "analysts" that parade in front of the cameras. No, It is higher interest rates.
The yield on the 10-year US Treasury note inexplicably pulled back after yesterday's horrifying PPI report - the 11.2% annual inflation rate indicated in the March data was the highest in the history of that data series - but we are back to bond market carnage today. The yield on the 10-year UST sits at 2.78% today, up a mere 64 basis points in the past month and 155 basis points in the past year. That is a huge brake on the economy and leads to a huge increase in the valuation discount that must be applied to TSLA, TWTR and other "fairy dust" names which make up Cathie Wood's (ARKK) and other such crap-laden portfolios.
To that end, I launched two new portfolios this week. They follow on the great success I have had with the HOAX and HOAX 2.0 portfolios, which are both long-only and are benchmarked against ARKK and (QQQ) , respectively.
Go your own way. As a general rule, I don't follow the investing heard, and to make money in today's market, you should chart your own path. To exploit this bond market selloff - and the marginal slowdown in economic activity that must accompany higher interest rates - I started two short portfolios this week, SHORT and FKBGT.
SHORT is composed of 10 shorts on names that will be most immediately impacted by higher interest rates. Cars ( (GM) , (F) , (STLA) ) and houses ( (DHI) , (LEN) ) are getting more expensive seemingly by the day. As finance rates rise, SHORT takes that negativity to another level, by shorting the banks ( (BAC) , (WFC) ) and insurance companies ( (PGR) , (BRK.A) ) that finance and insure those purchases. Less volume is not good for anyone. The proceeds from those short sales were reinvested in natural gas superstar Antero Resources (AR) , which benefits from natgas futures' epic run toward $7/mmBTU, a level that hasn't been seen since 2008. Yes, that is more inflation.
My other short portfolio has the prisitine moniker of FKBGT. You might be able to divine my true feeling about Big Tech from that symbol. This one is short the names whose valuation should be immediately impacted by higher interest rates, even if the business impact is less immediate than it is for GM or D.R Horton. I am going after my least favorites - TWTR, (FB) , TSLA - and a few others - Amazon (AMZN) , Netflix (NFLX) , Moderna (MRNA) - for valuation reasons.
Starbucks (SBUX) is included in FKBGT for unionization reasons, which also impact Amazon, and don't be fooled into thinking that TSLA is immune from unionization risk. To those seven names I added three of Cathie's picks just because - in case you hadn't figured it out - I think she is a total ignoramus. So, that adds Teladoc (TDOC) , Zoom (ZM) and Coinbase (COIN) to FKBGT.
The "juice" to FKBGT is provided by the reinvestment of short sale proceeds into Exxon (XOM) . By buying Exxon, I can use dividend payments (none of the short names pay a dividend, so I won't own those) to effectively reduce my short exposure every three months. COIN is a smaller position, so I will probably buy that one back, AMZN and TSLA are larger than average, but that is mainly owing to their high absolute share prices.
HOAX is here
HOAX 2.0 is here
SHORT is here
FKBGT is here
So, as Madonna sang (I lean more toward the George Harrison album title) we are Living In a Material World. Those materials cost more. Play the companies that benefit from inflation, not Cathie's clowns, which are hurt by it.