In his Daily Market Notes report to investors, while commenting on the Biden administration ignoring Tesla Inc (NASDAQ:TSLA) from the big EV announcement, Louis Navellier wrote:
Q2 2021 hedge fund letters, conferences and more
We are now in the dog days of summer. That means that when news hits, there’s a big yawn often. Obviously, last week was very strong for us. And the fact that we’re treading water now on light volume I think is very good, but there are some significant news events out there I should address.
Treasury Cracks 1.3%
The first one is that the 10-year Treasury yield has cracked 1.3%. Now, last week it was 1.12%, intraday. So this is a big deal. That’s all because we had that very strong Friday payroll report. We’ve had three strong months of payroll growth and the Fed has an inflation mandate and an employment mandate. The Federal Reserve was ignoring inflation to deal with the unemployment mandate. So now that job creation is very, very strong, everybody thinks the Fed is going to taper sooner than later. I am not in that camp. Obviously, the Biden Administration wants to spend a lot of money. They put a lot of pressure on our deficits and the Fed has to keep rates low, to keep them happy.
Fed Chairman Powell is up for renewal, and I would assume the Biden administration‘s going to reapprove him. Janet Yellen likes him, but his biggest opposition is actually coming from West Virginia, Senator Joe Manchin who’s obviously the most powerful person in Congress. It’ll be interesting to see what happens, but I do expect Powell to be reappointed.
Despite robust job creation, the Biden administration is still trying to create a lot of what they call blue collar jobs. So we’ll get some clarification on this, but market forces alone will force the 10-year Treasury yield higher.
Tesla Snubs Biden
The Biden administration had a meeting last week with the UAW, as well as Ford, GM, and Stilantis (Chrysler) about the EV mandate that 50% of our cars and vehicles need to be electric by 2030. What’s so fascinating about that meeting is who wasn’t there. Basically all the non-union shops in the south that make vehicles, a lot of more transplants from Germany and Japan, were not there. Hyundai wasn’t there. They’re huge in the south. Tesla wasn’t there, that’s the elephant in the room. So the federal government has mandated that it wants to buy 650,000 electric vehicles for the government, but Ford, GM, Chrysler don’t make that many electric vehicles.
So there’s a chicken and an egg problem. And it’s getting to be very acute in the EV sector. There’s this lithium battery shortage, and we don’t have enough giga factories to make all the EVs the governments are mandating. When they do make them, they sell them predominantly in Europe because there’s big tax incentives there. The Biden administration is proposing new tax incentives, but it’s interesting. And there’s a lot of doubt about this transition in the UAW because an electric vehicle has fewer parts. So that means fewer jobs long-term as everybody switches over.
In the meantime, Tesla’s doing very well because their third quarter production is sold out. Even though there’s a lithium battery shortage and a chip shortage, they’re figured out how to reprogram their cars with fewer chips. And furthermore, the Teslas in China are increasingly using iron phosphate batteries, which aren’t as efficient. And they don’t go as far, but they can sell the cars a lot cheaper, which is important in China and in Europe. They basically become city cars because the range is not as far.
So fascinating times we’re in. The government is trying to push a lot of stuff on us and it’ll be fascinating to see if it can happen, but it’s also fascinating to ignore the biggest players in electric vehicles. Although Ford, I have to say is doing pretty good right now, they’re still constrained by the lithium battery shortage.
The Infrastructure Bill
The infrastructure bill is probably going to pass. And then they’re going to try to pass some other stuff. And that’s where I do expect that’ll stall. I don’t expect any significant tax increases. Hopefully, the infrastructure bill will be passed by usury taxes. We’ll find out. In the meantime, they’ll just print more money. It puts more pressure on the Fed to keep rates low. And so, in my opinion, the Fed isn’t going to taper until next year. If they announced they’re going to taper, it’ll be December. It could be October, but I expect it to be December. I think Wall Street got ahead of itself. And the recent spike in the ten-year treasury yield is interesting.
News travels more slowly in August. So what we have to do is we have to not panic, not overreact. We have to ride through August. Our best defense is a strong offense. If you want to sell stocks, I recommend you sell them in strength. If you want to buy stocks, I recommend you buy them on dips. And we just power through this.
If you see a company come out with blow out earnings and the market doesn’t react, probably a good buy that day. If a stock’s sloppy, you want to sell it, wait for a bounce. I just think that you have to realize that things do slow down and now we’re in the dog days of summer. So that’s my main mission that I wanted to let you know, is hang on, let’s ride through this. But as far as I’m concerned, our best defense is strong offense and things will be fine because we have better sales and earnings.