Facebook are hoping they can weather the public outcry regarding whistleblower Frances Haugen’s revelations.
Steve Schmidt on FB’s attempt to “spin” the revelations:
And more on how to conduct interviews:
Facebook (FB) in trouble over hate speech
“It’s easier to inspire people to anger than other emotions…..Facebook has realized that if they change the algorithm to be safer, people will spend less time on the site, they’ll click on less ads, they’ll make less money……It’s one of these unfortunate consequences, right? No one at Facebook is malevolent, but the incentives are misaligned, right? Like, Facebook makes more money when you consume more content. People enjoy engaging with things that elicit an emotional reaction. And the more anger that they get exposed to, the more they interact and the more they consume…” ~ Frances Haugen, Facebook whistleblower
Recent Breakouts
Our latest scan for breakouts turned up only one candidate in the ASX 300:
Computershare (CPU) jumped after release of its annual report on Monday. CPU has grown via global acquisition to become the world’s leading provider of share registry services, which constitutes around 60% of group EBITDA. The remaining 40% largely comprises mortgage administration services in the United States and United Kingdom.
Russell 3000
The Russell 3000 yielded a few more promising candidates, concentrated in a few sectors:
Entertainment/Recreation/Gambling
Banking
Semiconductors
Others
Look for a strong Trend Index (or Twiggs Money Flow), holding above zero, and shallow corrections.
Please note: no evaluation has been done of fundamentals like sales, earnings, debt, etc.
Quote for the Week
The two most powerful warriors are patience and time.
~ Leo Tolstoy
Recent breakouts
Our latest scan for breakouts turned up only one candidate on the ASX:
Premier Investments is an Australian company that operates six specialty retail fashion chains in the specialty retail fashion markets in Australia & New Zealand and also operates the unique Smiggle brand, retailing children’s stationery in Australia and overseas markets.
Not your normal candidate for a growth stock but PMV has been appreciating steadily, with shallow troughs and regular breakouts since March last year. Trend Index is declining; so we would want to see an upswing, respecting the zero line.
Russell 3000
The Russell 3000 yielded a few more promising candidates:
Look for a strong Trend Index, holding above zero, and shallow corrections.
Quote for the Week
No amount of sophistication is going to allay the fact that all your knowledge is about the past and all your decisions are about the future.
~ Ian Wilson, former GE Chairman
Afghanistan: The worst kind of cowardice
I would have expected the former Swedish prime minister to have a better appreciation of the challenges political leaders face when confronted with a choice like Afghanistan:
The media focuses on the 12,000 casualties and more than $1 trillion spent over the past 20 years. A complete waste. Especially when you consider the end result. But the alternative is even worse: to continue spending good money after bad, wasting more lives unnecessarily in the process. Your first duty as a leader is to avoid another young soldier returning home with his/her legs blown off or with brain trauma from an IED.
Sacrifice is necessary when there is a clear and attainable end goal in mind. But the worst kind of sacrifice is the kind politicians make because they don’t want to take a hit in the ratings. That isn’t courage, it’s cowardice.
A long, long time ago I served in a counterinsurgency operation where one of my fellow 18-year olds had his legs blown off above the knee when his horse stepped on a landmine. He died several years later. I often think of him in times like this because the conflict has long since been forgotten, the outcome was inevitable and time has marched on.
No one has the right to ask young men and women to serve in those kind of circumstances. Not you, not me, nor Joe Biden.
The error of a Dollar reserve currency
The era1 of US Dollar reserve currency status started in 1971, when Richard Nixon ended convertibility to gold. The present issues have taken a long time to evolve but are a consequence of that decision.
Yesterday we showed how GDP had declined against the M2 money supply2 since the global financial crisis in 2008-09. Liquidity soared but GDP growth failed to respond to quantitative easing and ultra-low interest rates.
Even when we adjust M2 money supply for recent actions that remove liquidity — commercial bank investment in Treasury & Agency securities and overnight reverse repo from the Fed — there is a sharp fall in money velocity.
With the 2020 pandemic, the Fed doubled down, boosting liquidity and cutting interest rates even further. Bank credit has slowly started to recover.
But results are miniscule compared to the Fed’s $3.9 trillion liquidity injection.
Declining bank credit relative to M2 over the past two decades tells a similar story.
With GDP also declining relative to bank credit.
And unlikely to recover in the foreseeable future.
Conclusion
Fed monetary policy — with quantitative easing and record low interest rates — has not achieved a recovery in GDP growth over the past two decades. It was never designed to do that. Its primary purpose is to fund the federal deficit.
The only way to achieve a true economic recovery, with robust GDP growth, is to end the Dollar’s reserve status. The US has been forced to run massive current account deficits to support the Dollar’s reserve status, eroding the competitiveness of domestic industry in export markets and against imports in domestic markets.
Eliminate the current account deficits and you will eliminate the primary need to run federal deficits — and for the Fed to expand its balance sheet to support them. You will also enhance the competitiveness of US industry.
The longer the Dollar continues as global reserve currency, the higher federal debt will rise, while GDP growth falls.
Notes
- Intentional (era >> error).
- In economics jargon the ratio GDP/M2 is referred to as the velocity of money.
Nasdaq & NYSE breakouts
Our breakout of the week, Cadence Design Systems, Inc. (CDNS), is testing resistance at 150. Repeated Money Flow troughs above zero signal exceptional buying pressure. Breakout above 150 would signal an advance with a target of 1801.
Cadence Design Systems, Inc. provides software, hardware, services, and reusable integrated circuit design blocks worldwide. The company offers functional verification services, including emulation and prototyping hardware. Its functional verification offering consists of JasperGold, a formal verification platform; Xcelium, a parallel logic simulation platform; Palladium, an enterprise emulation platform; and Protium, a prototyping platform for chip verification.
Another, CDW Corporation (CDW), is testing resistance at 185. Rising Money Flow troughs again signal growing buying pressure. Breakout above 185 would signal an advance with a target of 2052.
CDW Corporation provides integrated information technology (IT) solutions to business, government, education, and healthcare customers in the United States, the United Kingdom, and Canada. It operates through three segments: Corporate, Small Business, and Public. The company offers discrete hardware and software products, as well as integrated IT solutions, including on-premise, hybrid and cloud capabilities across data center and networking, digital workspace, security, and virtualization.
Used car retailer CarMax, Inc. (KMX), broke through resistance at 135. Rising Money Flow troughs indicate growing buyer interest. Breakout would signal an advance with a target of 1553.
CarMax, Inc., through its subsidiaries, operates as a retailer of used vehicles in the United States. The company operates in two segments, CarMax Sales Operations and CarMax Auto Finance. It offers customers a range of makes and models of used vehicles, including domestic, imported, and luxury vehicles; and extended protection plans to customers at the time of sale, as well as sells vehicles that are approximately 10 years old and has more than 100,000 miles through whole auctions.
A smaller breakout pattern is Medtronic plc (MDT) which is testing resistance at 132. Money Flow troughs respecting zero signal strong buying pressure. Breakout above 132 would offer a target of 1444.
Medtronic plc develops, manufactures, distributes, and sells device-based medical therapies to hospitals, physicians, clinicians, and patients worldwide. It operates through four segments: Cardiovascular Portfolio, Neuroscience Portfolio, Medical Surgical Portfolio, and Diabetes Operating Unit. The Cardiovascular Portfolio segment offers implantable cardiac pacemakers, cardioverter defibrillators, and cardiac resynchronization therapy devices; AF ablation products; insertable cardiac monitor systems; mechanical circulatory support; TYRX products; and remote monitoring and patient-centered software.
Wingstop Inc. (WING) broke long-term resistance at 170, signaling an advance with a target of 2255. Rising Money Flow troughs signal growing buyer interest.
Wingstop Inc., together with its subsidiaries, franchises and operates restaurants under the Wingstop brand name. Its restaurants offer classic wings, boneless wings, and tenders that are cooked-to-order, and hand-sauced-and-tossed in various flavors. As of December 26, 2020, the company had 1,506 franchised restaurants and 32 company-owned restaurants in 44 states and 10 countries worldwide. Wingstop Inc. was founded in 1994 and is based in Dallas, Texas.
Reminder
The above is only a technical view and does not take into account fundamental data like sales, operating margins, cash flows and debt levels. It is not a recommendation to buy or sell.
Notes
-
- Target of $180 for CDNS is calculated as the trough at 120 projected above resistance at 150.
- Target of $205 for CDW is calculated as the trough at 165 projected above resistance at 185.
- Target of $155 for KMX is calculated as the trough at 115 projected above resistance at 135.
- Target of $144 for MDT is calculated as the trough at 120 projected above resistance at 132.
- Target of $225 for WING is calculated as support at 115 projected above resistance at 170.
Acknowledgement
- Hat tip to SeekingAlpha.com for the company profiles.
A Tesla in the coal mine
All five US technology behemoths — Apple (AAPL), Amazon (AMZN), Alphabet (GOOGL), Facebook (FB) and Microsoft (MSFT) — show strong up-trends over the past 6 months, boosted by strong inflows from international investors who are giving the bond market a wide berth.
But the canary in the coal mine is Tesla (TSLA), the darling of retail investors and the largest holding in Cathy Wood’s ARK Innovation Fund (ARKK). TSLA encountered resistance at 700 and looks ready for another test of primary support. Breach of 550 would signal a primary down-trend.
Trading at more than 17 times sales (TTM Q1 FY21), Tesla shows spectacular exponential growth in revenues over the past ten years. But investors should be wary of extrapolating that growth as heavyweights like Volkswagen, Ford and GM invest heavily in the EV space.
Also, free cash flow is patchy, reaching $3.4 billion in FY20 on a levered basis.
That starts to look anemic when one takes into account stock compensation of $1.7 billion — which does not affect cash flow but dilutes existing stockholders. Adjusted free cash flow, net of stock compensation, is $1.7bn. Against market cap of $621bn that gives an earnings multiple of 365 times!
If we take adjusted free cash flow for the trailing 12 months to March 2021, of $1.4bn, that gives an even higher multiple of 443 times.
Conclusion
Valuations of stocks like Tesla (TSLA) are precarious and breach of primary support levels could spark a flurry of margin calls.
Notes
- Revenue and cash flows are from SeekingAlpha
Stock breakouts
This is just a view of stock market activity, based on technical analysis. It does not take into account fundamentals — like sales growth, margins, return on invested capital, debt and expected dividend streams — and is not a recommendation to buy/sell.
There were two notable breakouts this week in the Russell 3000:
Amazon (AMZN) was the clear winner, breaking resistance at 3500 after forming a solid base (between 3000 and 3500) over the past 10 months. Rising Money Flow troughs signal increased interest from buyers as Jeff Bezos handed over as CEO to Andy Jassy.
RGC Resources (RGCO) was runner up, breaking resistance at 25 at end of the June quarter. The base is not as well-defined as for Amazon, with penetration of support at 22.50 in April ’21 before a strong recovery. Respect of support at 25, however, would confirm the bull signal.
The closest we have to a breakout this week on the ASX 300 is Rural Funds Group (RFF). After breaking resistance at 2.40 RFF formed a loose “cup and handle” pattern1, with a sharp pullback to test support at 2.30 followed by a rally to test resistance at 2.65/2.70. Divergence on Twiggs Money Flow, with a lower TMF peak, however warns of stubborn resistance and another test of support is likely.
Notes
- The “cup” on RFF runs from August ’19 to October ’20, the “handle” from November ’20 to the present.
Fed’s favorite inflation indicator surges
The Fed’s preferred measure of inflation, the Personal Consumption Expenditure (PCE) Index grew by 3.9% in the 12 months ended May ’21, while Core PCE (excluding food & energy) came in slightly lower at 3.4%.
We still have to watch out for base effects, because of the low readings in May last year, but growth for the past 6 months is even higher, registering 5.3% (PCE) and 4.6% (core PCE) annualized gains.
Conclusion
Excluding temporary price spikes due to supply chain disruption, we expect inflation to average a minimum of 4.0% over the next three years.