Yes, the EV sector is absurdly over valued

This article makes a compelling case that battery electric vehicle makers will as a group crash and burn. Or, at least their share prices will. Well, the majority, probably, unless one emerges as the dominant force in the global market. It compares the industry to the aviation industry, which has nearly always lost money for investors, mainly because of the low barriers to entry but high (underlying) capital costs. It of course is closest to the traditional auto industry, which has always struggled to make a good return on capital. I don’t suppose analysis like this will make a difference, until it does.

In our view, today’s electric vehicle industry is a classic example of the big market delusion. The EV phenomenon will not change the fact that the auto industry will remain highly competitive and capital intensive, and not every company can be a winner. Further, it remains unclear how simply switching the means of auto propulsion will make the entire light EV market more profitable, an assumption the market is now currently making. We suspect that as EV competition heats up, many companies will fail, as was the case in previous industry booms—whether autos, airlines, or technology—and with time the total value of the industry will recede to more reasonable levels.

Kuppy’s Konclusions

Kuppy has called a to in the Ponzi sector. It’s a tough call. We are in the midst of Project Zimbabwe in the USA, and if this succeeds then it will be followed by #metoo

Back to the markets, I have been talking for months about the coming rotation out of Ponzi and into value (or at least companies with assets and earnings). The past week has seen the spread between my two favorite proxies for that theme, ARKK and IWN, blow out dramatically. My hunch is that this continues. After a multi- year cycle, most investors are over-exposed to Ponzi and under-exposed to real businesses. Furthermore, I’m increasingly convinced that this week’s bounce in Ponzi was simply a dead-cat bounce, to be followed by a failed rally—then it’s lights out for Ponzi. Especially given all the supply that keeps coming. I’m using this rally to check my book and check it twice. Anything exposed to Ponzi simply has to go. This is about as good as it is going to get in terms of where to exit. Remember, everyone’s definition of Ponzi is different, so there will be a lot of fringe Ponzi names that get annihilated as well—it comes down to the shareholder base. If you love it and cannot bring yourself to sell, at least sell some calls against—IV is stupid here.

Louis Gave’s Thesis

This pretty simple:

• yields on USTs have been drifting down for a year, in spite of huge equity volatility,
• USTs are no longer the ‘anti-fragile’ asset which diversifies risk: in recent risk-off excursions, bond and equity prices have been positively correlated,
• the US economy is being turbo charged, because of a successful vaccine roll-out and an improving economy, as reflected in equity prices, but the dollar has barely moved,
• nobody wants the dollar because the creation of dollars by the US Treasury is such that the only buyer left is the Fed,
• The Fed is buying $180bln per month, even though they said they’d be buying $120bln. They will never be able to reduce this: they cannot allow yields to rise any more, even though asset prices clearly are signalling inflation,
• Oil and equities keep grinding higher, and this is evidence that inflation is coming,
• There are bubbles everywhere: BTC, $GME, an infinity of SPACs.,
• yield curve control is being talked about, but is this deliverable?
• emerging markets bonds are a better options than any US asset, and will also provide the ‘anti-fragile’ asset,
• ‘the shittier the emerging market, the better it will do as the dollar falls.’ (The logic for this is that local investors will not deploy capital locally when local currencies are weak),
• eventually, the stresses will show up in the dollar: the Fed can stabilize USTs, but it cannot simultaneously save the dollar,

My instinct is that Gave has a point, but DXY has rallied from 89 to 92 over the last few weeks, so the ‘grinding higher ever single day’ is not borne out by the prices.

SLR

Nothing to do with photography. Much more important. This is a temporary relaxation on liquidity rules for banks. It could cause a ‘tantrum.’ I have only skimmed this, so don’t expect the above to be a fully informed comment. What is the SLR.