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Don’t Let Them Fool You – You Can Trade Fad Stocks, But Don’t Hold Them As Investments – Mike Swanson (7/29/2021)

Yesterday, we got dovish talk basically from the Federal Reserve as they cited the delta virus variant as something they think now may be a risk to economic growth. A few months ago Chairman Jerome Powell said that he was expecting inflation to be “transitory” and come back down after a few months. Now he is saying it will go away after several quarters! So he has moved the goal post on that now way beyond the end of this year. The odds of rate cuts diminished and even a little QE pairing has been pushed out into the future too.

The US dollar index fell as a result of this news, which helped bring some money into gold and mining stocks that look like they are getting ready to push up. The rally on the US dollar looks like it is over now.

The dollar index looks like it is rolling over now, much like it did at the end of March. That peak in the dollar coincided with the the start of a rally gold hold. A move in gold up above $1825 will get people to notice.

Right now I think this is the best trade in the market I see. That said, few are interested. There are no gold ETF’s or mining stocks in the top 100 most owned Robinhood list. The stock market as a whole, though, is looking more risky, or tired.

We have seen several key big tech leadership stocks report earnings this week and do nothing. They didn’t go up much nor down. We could be setting up for a dull drifting market for a few weeks now.

I’ve been trading and investing in the financial markets actively since 1999 and during those times I have seen great investment buy points and times to sell. I have seen fad sectors come and go too. I also have seen money managers get hot and fade and at times generate a mass following.

There were several who were put on the covers of magazines in 1999 as their internet stock picks went up 30X in price as they proclaimed that earnings didn’t matter, balance sheets meant nothing, and what them worth buying and investing in was the future. They told stories about how page views were a reason to buy an internet stock.

Now that sounds silly. And almost all of these companies went bankrupt.

At the same time money managers who had been around for decades were knocked for not investing in those stocks. Warren Buffet was one of them. But he is still around and worth billions more. Another one was John Templeton. But while they mocked him he shorted these internet stocks and made another fortune as they crashed.

There was nothing wrong with buying these internet stocks in 1999 as trades. In fact I made a little money doing that and knew of others who bought and sold and made more. What was a mistake to do was to believe the fund managers and analysts who claimed that they were good investments and that they alone understood them, better than those that factor in “traditional” metrics like balance sheets.

Well, in the past few months we have witnessed TENS OF MILLIONS of people get into trading for the very first time through apps. If you have a Robinhood Account you can pull up the list of the top 100 most owned stocks and just about every single one of them is a fad stock, many of which make no money or even lose money. These are the internet stocks of today. Most of them had huge runs last year, which attracted buyers on the way up, but made a peak since February and have been lagging the market averages ever since.

They were all good trades on the way up, but are horrible investments now, because they always were. If you want to invest in a stock you can hold you need to buy one that has real earnings growth and a solid foundation to start with. If it pays dividends then you know it likely has the latter. If it loses money and then uses earnings tricks to claim it is actually making money then you know its toxic. Oh, it can go up on hype and even on a tweet and if you can trade that you can win, but if you hold in time you will only become a bag holder.

And what is disturbing to me is in the financial world the gurus now that have the biggest followings are the ones telling people that these stocks are great investments, when they are not. They are telling their followers what they want to hear and feeding the social media feeds the posts that get them the most attention. They are tick-tock social media maggots feeding off of people.

When it comes to fund managers there is probably no one more symbolic of this problem than Cathie Wood, whose ARKK ETF is one of the most owned positions on the Robinhood 100 list. Her fund is full of money losing companies.

Her top position, with 10% of the funds money in it is in TSLA.

Would you put 10% of your money in that?

Here is Cathie Wood in an interview, talking techno babble gibberish to a media outfit that calls itself Real Vision. When it started it had serious interviews hosted by people like Grant Williams. Then it became a crypto channel, garnering views by attracting investment newbies, of which there were millions of them coming into the market looking to be hyped up.

She claims in this video that Wall Street auto analysts cannot understand Tesla – that you cannot look at its car production or balance sheet or traditional metrics, but instead new technology coming way down the horizon in the future, in order to understand it. She claims that it is not a car company and implies that she is the only one who understands it and all those analysts that are not bullish on Tesla like she is are wrong. In other words, she talks like an internet stock analyst of 1999 or as a cult leader.

In this second video clip, she claims oil prices will crash, because of electric and autonomous vehicles.

Well, oil prices have been going up now for months. They are not crashing. This is what the market is doing – this is the trend this is reality.

Woods says Saudi Arabia is planning new ventures to get away from oil, because oil demand is going to collapse.

This is a lie – or an ignorant statement, to be more generous.

The Saudis are trying to do this, not because they think oil demand is going to collapse, but, because they are going to run out of oil!

At the same time, I will NEVER EVER get in a robot “autonomous” vehicle. In China a man with a robot Tesla car went to a store and the car door locked and stayed locked on him. The Tesla wouldn’t let him out and he became trapped like a dog.

This is what the ARKK ETF has 10% of its money in.

My mother told me of a couple she knows that recently went to Washington, DC and got in a robot Tesla car and were scared to death the entire time. You can find press stories of these cars going down the highway and making a sudden deceleration. People want to be in control of their lives. It is only a few who want to put their lives in the hands of robot Musk cars, and certainly not enough of them to completely change the car market.

On Tuesday, TSLA reported earnings and faded. The stock is lagging the S&P 500 and has been doing so since February. This isn’t a projection or prediction – this is what it IS DOING RIGHT NOW!

When the S&P 500 rallied to a new high in June and July, TSLA barely went up and now sits right on its 200-day moving average.

Generally speaking, to beat the stock market you want to be in stocks and sectors that are beating the market averages. Winning is as simple as that. Holding on laggards will cause you to become a loser. In Bitcoin world they make this sound like being a HOLDR is heroic act. Cathie Wood also is a cryto collectible coin bull and 15% of Americans have bought Bitcoin this year. Meanwhile, 40% of trades going through Robinhood are now for either crypto or are an options trade. This is where the masses are now.

Her ARKK fund is also badly lagging the S&P 500 too.

When the stock market goes through a correction, lagging sectors and stocks tend to simply fall even more than the market does. So, they actually become risky to hold on to.

ARKK is a momentum fund fully invested in fad stocks, like the internet stocks of 1999. It can be traded, but I can’t see how anyone can invest in it and hold it like it is a serious investment.

It reminds me of the JANUS fund of 2000.

If I had a kid with a Robinhood Account holding this fund I would seize their phone and sell it immediately out of thei account!

Be very wary of the smiling gurus talking technobabble or crypto collectible coin nonsense. This is not 1999 nor 2020 for that matter. In 1999 the market was going straight up so money ended up going into high speculation. Something similar happened in 2020, with all of the new people coming into the markets to trade, but at this point the market is getting a bit tired. And to invest to hold you need to have a good buy point and buy things that have good fundamentals. It’s hard to believe in a Dogecoin or invest in companies that lose billions.

People give Jim Cramer a hard time and I can be a critic of his, but he does care about what he is saying. He’s stuck on TV every night and is forced to say something at all times. But he is not a smiling man. Those are the ones that I don’t trust. It’s like the guy that had the ads on the internet with coins in his eyes in 2017.