The wild swings we see in the stock market aren’t the result of volatility.
Volatility results from the wild swings, not the other way around.
One thing investors don’t understand is, the VIX (the CBOE Volatility Index, sometimes called the market’s “fear gauge”) isn’t predictive. It isn’t a leading indicator; it isn’t telling us what the future holds. It’s misleading.
If you didn’t know that, chances are you may not understand what’s really causing wild market swings.
There was big news this week. News about big names and the big stocks that tanked once the headlines started to hit.
Apparently, Jeff Bezos, Warren Buffett, and Jamie Dimon are throwing in on some kind of healthcare company. A non-profit, of all things.
While the announcement was heavy enough to sink healthcare stocks (including Express Scripts, CVS, Cigna, Anthem, and some biotechnology companies), details were light. A lot of blind speculation and head-scratching followed.
Don’t bother digging around to see if anything anyone said or wrote about the new venture is particularly enlightening. I already did plenty of digging, and no one’s even close to figuring out what they’re planning.
Sure, it’s considered a tech darling. But it’s not. In reality, it’s a car company jumbled in with a solar panel company and a battery company, masquerading as one unified tech company.
Sure, it’s considered a market darling. But it’s not. Tesla’s stock is stuck in the mud and going sideways.
Sure, it’s got earnings growth. But these aren’t “real” earnings – they’re engineered earnings.
The market has strong underpinnings, enough to weather any serious rounds of profit-taking. Tesla, on the other hand, has no profits to hold it up. If the market dips (especially if tech stocks dip on profit-taking), Tesla’s profitless and sideways stock is headed lower.
Even if the market continues higher, Tesla’s going to have to face reality over its Q4 earnings.
If they come out at the end of February and aren’t a huge upside surprise (and they won’t be), if earnings are below consensus estimates (which they will be), and if they’re burning through more cash than they’re already spending (which has already happened), the stock is going to keel over and shake Elon Musk groupies to their core.
Just recently, an indictment of five accountants became unsealed.
This isn’t just any old document. It is proof of just how cozy relationships and revolving doors add to the epidemic of funky accounting practices.
The accountants named include three big-shots from KPMG, one 2015 hire at KPMG who came over from the Public Company Accounting Oversight Board (the regulatory body controlled by the SEC that oversees accounting firms), and a KPMG wannabe who was working at the PCAOB.
Add that to the fact that General Electric’s (NYSE:GE) outside auditor has always been KPMG, and maybe investors will start to understand that audits aren’t foolproof. Sometimes, even the audits that are supposed to be irreproachable are factually lacking and fraudulent.
There’s a lot going on behind the scenes when it comes to GE, the PCAOB, and the Big Four of Accounting (Deloitte & Touche LLP, Ernst & Young LLP, Pricewaterhouse Coopers, and KPMG).
The Securities and Exchange Commission is always one to mince words.
While millions of investors are pumped to start playing cryptocurrency, the SEC just threw two Wall Street trade groups for a loop. They were angling to be able to sell cryptocurrency ETFs and mutual funds to the public before they received a Staff Letter from the Director of the SEC’s Division of Investment Management asking how sponsors of crypto ETFs or mutual funds could safeguard public investors.
Yesterday, I was on a panel at the Black Diamond conference in Delray Beach, FL with Rick Rule, a friend and colleague of mine. When I asked Rick about what he and Matt Warder were cooking up that was becoming the buzz of the conference, he said, “You’ll have to wait, Shah.”
I can’t wait and you can’t, so, let me introduce you to Matt Warder and he’s the natural resource specialist here at Money Morning. I’ve gotten to know Matt very well over the years, and I got to tell you, this guy knows his stuff.