The Nasdaq Falls Into Correction Territory

Updated on

Whitney Tilson’s email to investors discussing Nasdaq falls into correction territory; his short squeeze bubble basket is now down 41%; SPAC-Man Chamath Palihapitiya; Questions about a SPAC mogul’s stock sales; Eric Rosen on stocks trading above 10 times sales.

Get Our Icahn eBook!

Get The Full Carl Icahn Series In PDF

Q4 2020 hedge fund letters, conferences and more

Nasdaq Falls Into Correction Territory

1) The rotation I predicted when I was pounding the table on bank stocks late last year continues...

Yesterday was another rare yet increasingly common day in which the tech-heavy Nasdaq Composite Index fell 2.4% while the old-economy-heavy Dow Jones Industrial Average rose 1%. The Nasdaq is now down 10.5% since its record high on February 12, putting it in correction territory (though it's only down 2.2% year to date).

Market darling ARK Innovation Fund (ARKK) and its largest holding, Tesla (TSLA), were both down 5.8% yesterday and are down 29.6% and 36.2% from their all-time highs last month, making them down 20.2% and 11.4% year to date, respectively.

Whitney Tilson's Short Squeeze Bubble Basket Is Now Down 41%

2) Usually, when the Nasdaq sells off hard, the most over-hyped, speculative, and/or fraudulent stocks take an even bigger tumble, but yesterday was weird...

Some of the very worst stocks, which are in my Short Squeeze Bubble Basket, were up big, including Express (EXPR) (up 63.8%), GameStop (GME) aka "GameStink" (41.2%), Koss (KOSS) (27.5%), AMC Entertainment (AMC) (15.4%), and one of the most terrible stocks I know of, Workhorse (WKHS) (12.9%). This is a classic "dead-cat bounce."

Nevertheless, the 25 stocks in my Bubble Basket finished the day down an average of 41% since I warned about them on January 27. 24 are down, 21 are down by 27% or more, and 18 are down by 37% or more.

When SPAC-Man Chamath Palihapitiya Speaks, Reddit and Wall Street Listen

3) The reigning king of hype and speculation is undoubtedly Chamath Palihapitiya. The Wall Street Journal did a fawning profile of him over the weekend: When SPAC-Man Chamath Palihapitiya Speaks, Reddit and Wall Street Listen. Excerpt:

Mr. Palihapitiya is the man of the market moment. The founder of tech-investing firm Social Capital Holdings has charmed Wall Street to raise billions of dollars to bring startups public. Amateur traders hang on his every word for clues about his next target – and for the insults he hurls at the high-finance elite. (Hedge funds, he said last April, deserved to get wiped out when coronavirus shutdowns devastated the economy.)

Wall Street has always had its rock stars. Warren Buffett's carnival-like annual meeting, after all, is nicknamed "Woodstock for Capitalists." But Mr. Palihapitiya, a former Facebook (FB) executive who now has 1.4 million Twitter (TWTR) followers, belongs to a new class of market influencers – social-media savants who've figured out how to take shots at the establishment while taking its money.

Questions About A SPAC Mogul's Stock Sales

4) If Palihapitiya is the king of hype and speculation, ARK Invest's Cathie Wood is the queen. The recent pullback in the most richly valued tech stocks is hitting both of them hard, as it looks like Palihapitiya got a margin call last week.

Here's Andrew Ross Sorkin in yesterday's New York Times: Questions about a SPAC mogul's stock sales. Excerpt:

One of the most prominent names in SPACs, Chamath Palihapitiya, faced backlash last week after regulatory filings showed that he had sold his entire personal stake in Virgin Galactic, which he took public through a blank-check fund. (He will stay on as chairman, and will indirectly remain a shareholder through an investment firm that owns a stake in the company.) The news – coming as shares of many SPACs, as well as Virgin Galactic's, tumbled amid a broader market decline – added to concerns about a blank-check bubble.

Mr. Palihapitiya insists that he's still right. After describing what he called a "super tough week," he tweeted: "I re-questioned my goals and concluded my strategic view is still right." He added that he had sold his Virgin Galactic shares to free up capital to keep investing in companies that address inequality and climate change, themes he said were "a once in a lifetime opportunity." (He previously told Reuters that he would put the proceeds from the stock sale toward a "large investment" focused on fighting climate change, the details of which "will be made public in the next few months.")

Eric Rosen On Stocks Trading Above 10 Times Sales

5) For more on what's happening in the tech sector, here's an interesting analysis by Eric Rosen of The Rosen Report:

Valuation Today-10x Sales

I have had countless calls, texts, and emails regarding the recent "carnage." Let's put this recent volatility into perspective for the hardest hit index, the Nasdaq. In 2020, the Nasdaq was +44.1% and +36.3% in 2019. How much is it down YTD in 2021? 2.2%. After being up 96%+ cumulatively in two years, it is -2% in 2021 and is -10.5% from the record close on February 12.

Selloffs are healthy. To me, valuations have become crazy in some respects.

An avid reader sent me an article with this chart included from Kailish Concepts. It shows that the market capitalization of companies trading at greater than 10x price-to-sales now exceeds $10 trillion. Yet people are freaked with a little volatility?


Thank you, Eric!

Best regards,