gold investment, silver investment

Your Week In Brief

June 15, 2020, 3:37 AM

Gregory Bergman
Editor-in-chief, CapitalWatch

The internet slang "stonks" is a deliberate misspelling of "stocks," often used in memes referring to such stocks--and finance more generally--in a humorous or ironic way, especially to comment on financial losses. Stonks can refer to good or bad stocks or overall market moves but are more often used to refer to the latter.

Stonks are usually featured in a meme with a man in a business suit with a generic computer-like head next to a stock chart. A typical stonk meme looks like this:

Calling Out Stonk Market Exuberance

No business figure representing a publicly-traded company has lampooned stonk market enthusiasm more than Tesla CEO Elon Musk. The perennially interesting and controversial CEO has tweeted in the recent past that his company's stock was overvalued. Can you imagine any other CEO saying that? This week, Mr. Musk tweeted about as succinctly sarcastic a tweet against market optimism as one could imagine: a simple "LOL."

Indeed, the stonk market sizzled this week before the Fed reminded everyone of the dismal economic reality facing the country and most of the world.

"We have to be honest that it's a long road," Jerome Powell, the Fed chairman, said following the release of the projections. "It's--depending on how you count it--well more than 20 million people displaced in the labor market."

A clear sign of rampant speculation before the announcement, stocks trading below $1 per share have an average gain of nearly 80% in the past week, according to a note from the Institutional Equity Derivatives team at Citadel Securities. As the market falls, this trend will be reversed--small caps are always hit harder in an uncertain market as investors turn to quality.

Covid-19 Will Still Define 2020

Remember that coronavirus thing? Well, it is still out there, in case reopened stores and summer beach picnics and massive throngs of closely huddled protesters gave you some other impression. Racism is indeed a pandemic, but a pandemic is also, you know, a pandemic.

With a second wave of Cobid-19 on the horizon, the market has reached its peak until a viable vaccine makes its way into the arm or buttocks of investors and non-investors alike. While Friday's market as of midday gained some ground back after Thursday's selloff, expect the next selloff to be a bit worse short of achieving significant medical milestones.

The stock that took the wildest ride this week is China-based real estate software platform Fangdd Network Group Ltd. (Nasdaq: DUO) whose shares jumped more than 1200% on Tuesday from $10.00 at the opening to a high of $129.04 before plunging to a close of $47.06. Turnover on Tuesday exceeded 200,000 shares about 50 times higher than the daily average for the previous five months. Prices still swung wildly on Wednesday to close at $15.82. As of midday Friday, the stock traded under $12 per share.

A wild ride, no doubt. There was also no clear answer about the cause. Fangdd issued a statement Wednesday: "The Company cautions investors that the trading price of the Company's ADSs could be subject to significant volatility for various reasons that are out of the Company's control."

Financial journalists attributed the move to confused investor enthusiasm for FANG stocks (Facebook, Google's Parent Alphabet, Netflix, and Apple). But those stocks only rose 1.2% Tuesday. Also, if investors are that easily befuddled, it stands to reason that Diamondback Energy, Inc. (Nasdaq: FANG) would have traveled in a similar trajectory. It didn't. While it moved up a bit Tuesday on an average number of shares traded, it did not perform as it would have if the "FANG" theory was salient.

Now, let me state clearly that Fangdd is a client of CapitalWatch and CapitalWatch has been compensated by Fangdd, and I make it a point not to pick our clients' stocks for my index, about which many of which I am bullish. But, according to CNNBusiness, the two analysts offering 12-month price forecasts for Fangdd Network Group have a median target of $89.66 per share, with a high estimate of $113.58 and a low estimate of $65.74. To what do I attribute this kind of trading? Stonk market speculation of the wildest short-term kind. But longer-term, too; if analysts are right, it is far undervalued again at its current price. Plus, there is always a chance of another wild short-term run early traders at the trough won't want to miss.

Conspiracy Nation

First, an important point: If you believe a maxim as simple as "things happen for a reason"--you are a conspiracy theorist. You indeed adhere to a conspiracy, denuded as it may be from any doctrine or theology. Namely, that there are forces conspiring to create or adjust events to fit some premeditated moral plan

For clarity, by "things happen for a reason," I do not mean in some Freudian psychological sense, in which individuals are driven by subconscious forces resulting in subsequent behaviors. The phenomena of cause and effect and the unfolding of some universal teleology are two very different things.

In the final analysis, you either believe little Tommy was hit by the car because he wasn't looking, or because his death was part of some grand, mysterious plan. Whether Tommy wasn't looking because he was subconsciously suicidal, a byproduct of some automobile-related childhood trauma through the fault of his mother is a separate point.

Now, most people on Earth by far--and most people in the U.S.--hold, on some level, a view that the universe has inherent meaning or purport (i.e. that things happen for a reason).

Human beings crave order; they fear chaos. There is a comfort in thinking that there is a plan, even a malevolent one. It is more satisfying psychologically to think that bad things are a product of the Devil or Hillary Clinton or the Deep State or The Jews or The Corporations than to think that the world is an indifferent, chaotic place, a moral landscape of hills and valleys--good and bad intentions motivated by good and bad incentives. There is comfort in believing that the American military or a lab in Wuhan made Covid-19 --just as there is a comfort in believing that grandma died of it because "God needed her." What does he need an elderly babbling crochet enthusiast for exactly? God only knows.

The two driving forces behind the growth of conspiracy theories are the democratization of "information" on the internet and the consequent dismissal of expertise, journalistic or otherwise, and the growing lack of religious faith. In the absence of an all-knowing, omnipotent God with a mysterious but benevolent plan, people look to other entities and ascribe to them an almost equal amount of influence--be it aliens or the CIA or the Illuminati or Jeff Bezos. God may be dead or dying, but in His place, there is conspiracy theory. As the U.S. and the world become less religious, truth-seekers turn from Jesus to Jeffrey Epstein.

A new Pew study finds 30% of Americans believe scientists created Covid-19. A total of 13% of Americans polled in a 23-country survey conducted by the YouGov-Cambridge Globalism Project agreed with the statement that the climate is changing "but human activity is not responsible at all." A further 5% said the climate was not changing. Only Saudi Arabia (16%) and Indonesia (18%) had a higher proportion of global warming deniers, chalking up so-called global warming to a conspiratorial cabal of misguided scientists and left-wing political actors.

Conspiracy theories like these have policy consequences--the fact that so many Americans think that ancient aliens build the pyramids or that NASA faked the moon landing is comparatively harmless, if inane.

Now conspiracies do occur--and often. History is full of them. In recent years, the papacy has been guilty of the most wretched variety of conspiracy, protecting and even promoting its pathologically pedophilic priests. You know, an actual pedophile conspiracy, unlike #Pizzagate.

In the U.S., from the Gulf of Tonkin incident to the Iran-Contra Scandal, governments, corporations, and organizations frequently conspire--just as Wells Fargo did when it opened extra accounts for its customers without their knowledge. The American Revolution itself began as a conspiracy to commit treason against the King. The Civil War? That was a product of a conspiracy by the South to succeed from the Union. If ever there was a conspiracy to loathe, it is that one. And yet the Confederate flag, a symbol of such cruel conspiracy, is still venerated by many people more worried about #Obamagate.

Setting aside grand conspiracies, on a smaller level, millions of people every day conspire with others to do something to someone-- from extramarital affairs to throwing a bad employee under the bus for a botched project. (Do not even think about it, team; it was just a typo.)

So, how to tell a real conspiracy from just an unfounded and unlikely conspiracy theory? Five basic things to evaluate:

1) All the different actors involved.

2) The amount of cooperation necessary and the difficulty doing so while keeping the conspiracy a secret.

3) What competing interests these different groups have and how they all benefit from the conspiracy in question (i.e. the reward).

4) The potential penalty for the participants if the conspiracy or cover-up is uncovered.

5) The potential reward for leaking the truth of the conspiracy--from the Witness Protection Plan to a "tell-all" book that could generate millions of dollars for the squealer.

Let's use Donald Trump's nod to a conspiracy theory regarding the recent incident in Buffalo an example:

Recently, a Septuagenarian protestor was pushed to the ground by policemen in Buffalo during a BLM protest. The video has gone viral, and some, including the president of the United States, are claiming that it may have been a setup (i.e. that the man fell to the ground harder intentionally to increase his injuries). Why would he do this? They say because he may be a member of Antifa, the loosely organized leftist organization whose members are intent on making cops look bad.

Now, to prove their point, supporters of this point to the way he fell. But this is only half the story. Even if the man did purposefully fall, the additional crime was the fact that the policemen, seeing him immobilized on the floor bleeding from his head, walked by without lending a hand. So how would that fit into this theory? This would mean that the police--or some of them--are in on it, in on the very conspiracy intended to make themselves look bad. So, you don't just have to look to the interests of the old man (for whom maybe bashing his own head in is a small sacrifice to the cause) or the interests of some bigger group he may be a part of, you have to evaluate the interests of those cops who must have played a part in the stunt for it to really work. Now, I suppose that is possible, too.

For the sake of argument, let's say the cops are indeed double agents and working to make themselves and their fellow cops look cruel in order to further Antifa's designs whilst potentially ending their career in disgrace. Even if that were true, you would think that at least one of the less ideologically committed would be persuaded to take a $1 million advance on a guaranteed bestselling "tell-all" book entitled "Commie Cops: Antifa's Infiltration of the Buffalo PD." Do not expect to see such a book shelved any time soon.

Conspiracies are mostly a product of lazy thinking--not critical thinking, as conspiracy theorists would have to believe. They are a way to bring order to an unordered world, an attempt to make sense of it all. In the Middle Ages it was God making everything in the world spin; today, it is "Q."

In reality, the world is a tumultuous place populated by various independent hierarchies with competing interests. There is no one devil whose eradication would be the panacea of all global or domestic ills. While conspiracies do exist, more often than not what happens in the world can be summed up in a simple expression once popular on 90s T-shirts: "Sh#!t Happens."

SummerStonk 2020

Some Summer Picks:

Pinterest (NYSE: PINS)

As much as I loathe the actual app itself and most social media sites generally, I am late to this one, but I expect social media sites to gain in summer. This is a buy, and I am bullish on all prior social media picks including Facebook. Pinterest's partnership with Shopify allows smaller merchants to sell their products on Pinterest and will continue to be a driver of growth.

DocuSign (Nasdaq: DOCU)

Trading for a little more than two years, the stock is up over 260% from its first day of trading in April 2018. The company just hit $1 billion in trailing-12-month revenue, but many analysts think the best days for DOCU are to come. Late to this stock, this is a long-term perfect stay-at-home pick that will perform swimmingly even in the Covid-19 laden market waters.

Boyd Gaming (Nasdaq: BOYD)

We chose this back in March at $15.30 per share, it has traded close to $25 and is now back down around $20 as the market falls. The Motley Fool's Rich Dupree says that even at $24 per share (trading $4 lower now) the stock is still "trading at a fraction of its revenue and goes for just 12 times the free cash flow it produces. The casino operator did suspend its dividend at the start of the pandemic to conserve cash, but as business picks up again, I'd say it's even money the payout will return."

I was bullish on Boyd in March and am bullish again at these prices. As I am on Wynn, MGM, and other major casino stocks.

Eldorado Resorts (Nasdaq: ERI) is another American hotel and casino entertainment company to buy after it rose last week only to fall Thursday. Founded and based in Reno, Nevada, it operates 23 properties across 11 U.S. states. There is room for this stock to move back up to January levels. This is a new pick.

DouYu (Nasdaq: DOYU)

Competitor of HUYA and backed by Chinese giant Tencent (so is HUYA) this stock has more room to run than HUYA and has been in my view neglected by investors, overshadowed by HUYA. With Tencent backing, I think the regulatory risks are outweighed by the upside here--DOYU is a buy

Gregory Bergman
Editor-in-chief, CapitalWatch

(The opinions expressed in this article do not reflect the position of CapitalWatch or its journalists. The analyst has no business relationship with any company whose stock is mentioned in this article. Information provided is for educational purposes only and does not constitute financial, legal, or investment advice)

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