Monday 21, March 2022
Bear Cave 109
I am a huge fan of Edwin Dorsey. He writes a weekly newsletter (free!) with stocks which may be worth looking at more closely, of which the management may have been involved in fraud. The price of these stocks have usually crashed before I get to check the price, but at least his means that these leads would have lead to profits if only they’d been seen earlier. TBF, I think some have been in decline for years.
Lilium ($LILM:NASD)
Electric VTOL plane, can’t fly, won’t fly. Tweet. Iceberg research.
Regencell Bioscience ($RGC:NASD)
Regencell is a developmental stage company based in Hong Kong which focuses on producing Traditional Chinese Medicine (TCM) cures for ADHD & ASD. To date, it has recorded zero revenues and is currently in the developmental stage of creating Traditional Chinese Medicine formulas. Regencell relies heavily on its Traditional Chinese Medicine strategic partner, Sik-Kee Au, who happens to be the father of the CEO, Yat-Gai Au. This comment in Regencell’s 2021 20-F underscores the significance of the role Sik-Kee Au has in dictating success or failure of the company
Red Violet ($RDVT:NASD)
Meet Red Violet (NASDAQ: RDVT), a $350M company specializing in selling personal data to realtors, private investigators, collection agencies, and more. Ironically, when we stumbled upon Red Violet, we originally researched it as a long idea given their growth story seemed compelling. Yet, deep below the surface, we discovered a litany of negative issues which are listed below:
Interactive Data LLC, a core subsidiary of Red Violet, is currently being sued for providing an inaccurate criminal record to a third-party background check company which in turn cost the suing plaintiff an employment opportunity
The lawsuit opens pandora’s box for litigation regarding individuals or entities that have been slighted by Red Violet for furnishing inaccurate consumer reports
More importantly, the lawsuit brings into question possible violations of FCRA; Red Violet’s legal team has been hard at work skirting FCRA regulations
Halo Technologies ($HAL:ASX)
(Note that this stock may have become de-listed. I can’t find it anywhere.)
Infinite Nuance published on upcoming IPO Halo Technologies (ASX: HAL), an Australian financial services conglomerate. Infinite Nuance criticized the company’s executive compensation plan tied to EBITDA and questioned why the majority of the company’s revenue comes from related-party customers. Infinite Nuance also questioned the company’s rich valuation and wrote,
“At IPO, Halo will have a fully diluted market capitalization of $176 million at the minimum level of offer, and historical pro-forma trailing EBITDA of $1.9m. Using the forward FY22 EBITDA performance target of $2.5m as a guide, Halo will list at 70.4x EBITDA.” — Peabody Street
Membership Collective Group ($NYSE:MCG)
CFO of Membership Collective Group (NYSE: MCG — $1.59 billion) resigned after one and a half years “due to factors outside the Company.” The company is down nearly 40% since its July 2021 IPO.
Tightening
The Fed may be the Wizard of Oz, and QE nothing more than a three card trick, but while a lot of people believe in the Fed to make every problem go away. Well, it didn’t quite work in 2008, and it probably won’t now.
With rates being forced up at the short end by central banks, we are within spitting distance of seeing an inverted yield curve. Mostly, I’ve looked at yields on (e.g.) 10Y Treasuries vs 5Y or 2Y. @MacroAlf has some deep insights into yield curves in this post. He basically says that you can’t rely on yields on treasuries because their pricing is distorted by their role as a source of collateral for lending, because they are given zero risk weightings by banking regulators. Alf has spend a lot of time explaining the intricacies of fixed income markets to readers of his blog. You should sign up, because even if I could be sure I understood his points fully, you’d be better off getting it from the horse’s mouth, as it were.
He actually explains why inverting of the yield curve is a problem. Basically, it’s a matter of the long end giving an estimator of the long-run marginal utility of capital and the short run a measure of expectation of policy rates. Alf considers that you need to look out about five years to see an expectation of a central bank’s policy cycle. If you look at 3M or even 2Y, you get only part of a tightening (or loosening) cycle, so you don’t get a full measure of policy rates. The idea is for the policy to rate to be around, or less than “r-star,” the policy rate that keeps the economy at full employment. An inversion of the yield curve suggests that markets expect policy rates to be too high, and that they will result in the rate of growth in the economy to dip below its equilibrium rate.
The equilibrium rate is itself a function of the rate of growth of productivity. I found this interesting paper which explains why this is the case, and why ever-falling productivity has forced rates in developed markets ever lower. In the whole period since the world started globalizing in the 1990s, the rate of productivity growth in developed markets has been extremely low. I don’t have time to discuss this here, but this surely is down to our pivot to a largely service-based economy where all primary and secondary production have been outsourced to low-wage economies like China.
Wrap
Basically, Europe decided that it might stop importing Russian oil, which caused oil prices to spike higher. Yields went up, as did the dollar. I would generally say it was a risk-on day, although European equities went down. The US indices managed a modest rise, but with the SPX having done up about five days in a row, surely a correction is imminent.
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