For the first quarter of 2022, the Voss Value Fund returned -5.5% net of fees and expenses compared to a -7.5% total return for the Russell 2000 and a -4.6% total return for the S&P 500. According to a copy of the firm’s first-quarter letter to investors, a copy of which ValueWalk has been able Read More
Rivian Back and Fill
Some of Tesla's (NASDAQ:TSLA) biggest fans, like Cathy Wood, have given a cold shoulder to Rivian (NASDAQ:RIVN). I find Cathy Wood questioning Rivian’s valuation interesting, especially with Tesla trading at 130 times the estimated 2022 earnings and Elon Musk aggressively selling some of his shares. In Cathy Wood’s defense, Rivian currently has a higher market valuation than the old Big 3, namely Ford, GM and Stellantis NV.
What Rivian has going for it is big investors, like Amazon.com, Inc. (NASDAQ:AMZN) for its delivery vans and Ford Motor Company (NYSE:F) for its engineering expertise. Although the F-150 Lighting is expected to be a massive hit, Rivian’s pickups are widely being praised in virtually all reviews and are expected to be a massive success. Furthermore, thanks to its Amazon. com van orders and alliance with Ford, Rivian is expected to be a survivor in the EV battleground.
I should add that despite the enthusiasm surrounding the Rivian IPO, which got bid up excessively by the ESG crowd, as restricted stock becomes unrestricted, I expect Rivian’s stock will have to “back and fill” in the upcoming months. The primary reason that I do not recommend IPOs is that the selling pressure from venture capitalists and insiders is all too often relentless in the first several months after the IPO.
Fed Vice Chairman Richard Clarida said that most of his Fed colleagues who participate in rate-setting meetings believe the risks right now are tilted to higher-than-anticipated inflation outcomes. Clarida is a key architect of the Fed’s policy statements, so his comments are signaling that the Fed has become frustrated with surging inflation and intends to squelch it in 2022, even though it has failed to forecast more than one key interest rate increase.
Permanent Price Increase
Speaking of inflation, the Labor Department announced on Tuesday that its Producer Price Index (PPI) surged 0.6% in October and is now running at an 8.6% annual pace. Service costs accounted for approximately 60% of the PPI increase in October, so much of the rise in wholesale prices is going to be hard to reverse. Vehicle part prices surged 8.9%, so some price increases are becoming more permanent.
On Tuesday, former Fed Chairman and Treasury Secretary Janet Yellen said on National Public Radio that “I’d expect price increases to level off, and we’ll go back to inflation that’s closer to the 2% that we consider normal” as the pandemic fades. In defense of Yellen and other central bankers, inflation on a trailing 12-month basis is expected to decelerate in June 2021, based on some big monthly gains falling off. However, with the resurgence of inflation in October, inflation may not be dissipating as fast as they previously hoped, so I would not be surprised if central bankers kick the “transitory” inflation argument to 2023 and beyond.
The Labor Department also announced on Wednesday that weekly unemployment claims declined to 267,000 in the latest week. Continuing unemployment claims actually rose slightly to 2.16 million. Although weekly unemployment claims are now at a post-pandemic low, both weekly and continuing claims were a bit higher than economists’ consensus expectations. However, weekly claims can be volatile, especially as the holidays approach.
Heard & Notable
Jocelyn Rivas, a 24-year-old runner, became the youngest person to run 100 marathons when she crossed the finish line at the Los Angeles Marathon on November 7. Attending the LA Marathon as a spectator in 2013 inspired her to run and decided she wanted to pursue the Guinness World Record for the youngest person to complete 100 of the races. Source: UPI