Optimism for 2024; More on the 'Magnificent Seven'; Sector and sentiment reversals; Update on three frauds: Nikola, Tingo, and Ebix; Pictures from Kenya
1) In a post on X, formerly Twitter, CNBC's Carl Quintanilla captures Yardeni Research's "A Dozen Reasons to Remain Bullish in 2024":
- Interest rates are back to normal
- Consumers have purchasing power
- Households are wealthy and liquid
- Demand for labor is strong
- Onshoring boom is boosting capital spending
- Housing is all set for a recovery
- Corporate cash flow is at a record high
- Inflation is turning out to be transitory
- The High-Tech Revolution is boosting productivity
- Leading indicators are mostly misleading
- The rest of the world's challenges should remain contained
- The Roaring 2020s will broaden the bull market
He also shared these two relevant charts from Yardeni:
I tend to agree with this bullishness, though I prefer to use the word "constructive" – which perhaps is the difference between thinking the S&P 500 Index will be up 5% to 10% next year and not 20%-plus...
2) I continue to believe that, going forward, the market will no longer be led by the "Magnificent Seven" tech stocks – Apple (AAPL), Microsoft (MSFT), Alphabet (GOOGL), Amazon (AMZN), Nvidia (NVDA), Tesla (TSLA), and Meta Platforms (META) – for reasons I outlined in my December 6 and December 7 e-mails.
Take a look at this chart from Charlie Bilello's latest Week in Charts on these tech giants compared with the rest of the S&P 500:
And as he also notes:
Their combined weighting in the S&P 500 of nearly 30% is the largest share for any 7 companies on record with data going back to 1980.
3) Bilello also shows how the market-leading sectors this year are the exact opposite as last year:
The bottom 3 sectors in 2022 (Communications, Consumer Discretionary, Tech) are the top 3 in 2023. The top 3 sectors in 2022 (Energy, Consumer Staples, Utilities) are the bottom 3 in 2023.
And how investor sentiment has shifted almost 180 degrees:
Last December, Bears outnumbered Bulls by 32% in the AAII Sentiment Poll. Today, Bulls outnumber Bears by 32%.
What changed? The S&P 500 is over 25% higher and the Nasdaq 100 is over 55% higher.
Lastly, Bilello has interesting charts on inflation, what investors expect the U.S. Federal Reserve to do in 2024 and 2025, the rally in bonds, and the drop in mortgage rates.
4) There was news yesterday on three stocks that activist short seller Nate Anderson of Hindenburg Research has targeted over the years, the dangers of which I've long highlighted for my readers.
First, regarding Nikola's (NKLA) founder Trevor Milton – as the Wall Street Journal reports: Trevor Milton Gets Four Years in Prison for Deceptions on Zero-Emission Trucks. Excerpt:
A judge sentenced Trevor Milton on Monday to four years in prison for defrauding investors in Nikola, the electric-truck company he founded...
Milton said the company's zero-emission truck prototype was drivable when it wasn't. He said Nikola was equipped to produce the necessary hydrogen to power the trucks when it wasn't. And he boasted that the company had a long list of sales orders, many to companies that didn't exist.
I think Milton got off easy and the judge should have given him the 11 years prosecutors were asking for – the same amount that Theranos founder Elizabeth Holmes got. Milton is a lifelong fraudster and remains unrepentant, as evidenced by his ridiculous statements at his sentencing hearing:
5) Anderson also nailed Tingo (TIO). In my June 7 e-mail, I wrote:
Yesterday, Nate Anderson of Hindenburg Research exposed another obvious fraud, New Jersey-based Tingo, which claims to be operating a wide range of businesses in Nigeria, most of which, Hindenburg claims, don't even exist.
The stock was cut in half yesterday in the aftermath of this report: Tingo Group: Fake Farmers, Phones, and Financials – The Nigerian Empire That Isn't.
Yesterday, the U.S. Securities and Exchange Commission ("SEC") charged Tingo founder Dozy Mmobuosi and three affiliated U.S.-based entities with "massive fraud." Anderson covered it all in this thread, which begins:
I agree with Anderson that Deloitte has a lot of explaining to do...
6) Lastly, the stock of software supplier Ebix (EBIX) plunged 68% yesterday to $1.60 per share after the company filed for bankruptcy. Here's the WSJ with the story: Ebix Files for U.S. Bankruptcy With $400 Million Bid for North American Business. Excerpt:
Software and e-commerce services supplier Ebix, facing interest-rate pressures and fallout from auditing questions, has filed for bankruptcy with a roughly $400 million offer in hand for its North American life and annuity business...
The company's problems have included rising interest rates as well as questions raised about its auditing and accounting practices, Chief Financial Officer Amit Garg said in a sworn declaration...
Ebix was pressured after its independent auditor resigned in 2021 over a disagreement about accounting used in the company's gift card business, Garg said. The company conducted a review to address the auditing issue, but "the market dramatically reacted to the resignation," Garg said.
A subsequent report by short seller Hindenburg Research, which Ebix also disputed, caused a 40% decline in the company's market value and generated shareholder litigation, Garg said.
This is what I wrote about Ebix nearly three years ago on February 23, 2021, when the stock closed at $23.20 per share:
Shares of software supplier Ebix plunged 40% yesterday (and were down another 14% this morning) after the company's auditor, RSM US, resigned.
According to Ebix's press release:
RSM stated in its letter that its resignation was the "result of being unable, despite repeated inquiries, to obtain sufficient appropriate audit evidence that would allow it to evaluate the business purpose of significant unusual transactions that occurred in the fourth quarter of 2020."
RSM informed the Company that the unusual transactions related to the Company's gift card business in India. RSM also stated in its letter that it had identified a material weakness because "management did not design or implement the necessary procedures and controls over the gift or prepaid card revenue transaction cycle sufficient to prevent or detect a material misstatement."
Ebix attempted – but failed – to assuage investors in a follow-up press release yesterday morning: Ebix Reaffirms Business Outlook for 2021 and Beyond.
As I continued:
I've known to avoid this stock ever since two short sellers pitched it as their favorite idea at my Kase Learning Shorting Conference on December 3, 2018: Fraser Perring of Viceroy Research (a PDF of his presentation is here) and Mads Thamsborg of Bodenholm Capital (slides here).
They've been proven correct... though EBIX shares have certainly had their ups and downs, as you can see in this chart:
7) Susan and I are having a wonderful time visiting my parents in Kenya – we've been playing tennis and walking in the tea plantations:
Today, we fly to the coast to spend the rest of our holiday at my parents' beach house on Lamu Island.
Best regards,
Whitney
P.S. I welcome your feedback – send me an e-mail by clicking here.