Rivian up the market - Your Money November 12th 2021

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What a week! Between flying unicorns and a major uptick in inflation, I can’t help but think markets are due for a correction. Take Rivian Automotive the latest electric vehicle unicorn. Granted it has a lot going for it seeing as how Amazon prefunded the company to the tune of nearly 20% (Ford btw owns nearly 12%) and gave it an order for 100,000 vehicles (we are definitely not sure what the delivery schedule is like), the company seems destined for profitability and glory…but where have I heard that before? Oh yes now I remember, Beyond Meat. Back in May 2019 the vegan burger company went public at a price of $25. The first trade was $46 and by the end of the week it, I believe it was $66. Two months later it was $166 and Wall Street analyst were falling all over themselves singing their glories. This week the company reported an earning’s miss and today the stock is at $85.

Meanwhile back in Detroit, the executives at Ford probably don’t know whether to curse or celebrate. Their holdings in Rivian have skyrocketed so much so that the company is now worth apprpximately 25% more than Ford (and the millions of vehicles it produces each year). I can only guess at the sour grapes in GM’s head office. Both may get the last laugh as they slowly turn their mighty plants to churn out electric vehicles in the coming years and drive any hope of profitability in the upstarts down the road.

What else happened this week? I am happy to say the inflation hawks are finally getting it right. On Tuesday, the US Government reported producer prices jumped 0.6% for the month of October and on Wednesday, the Consumer Price Index jumped 0.9%. More importantly the Core number (which removes food and energy prices) jumped 0.6%. You don’t need to be a rocket scientist to realize prices are going up. The doves will say its an aberration. The Federal Reserve continues to say it is all “transitory and as soon as supply chains resolves themselves the inflation rate will decline… I am not holding my breath.

For the last decade, we have been riding a deflationary wave courtesy of technology improvements in all aspects of information technology as well as an unending supply of cheaper exports out of China. Well earlier this week the Chinese government announced their Producer Prices jumped by 13.5% in the last year and if you think they are not going to use the supply disruptions to jack prices up,  I have some real estate that I can sell you at low tide.

One indicator that caught my eye was the price of bullion. It may finally get its due. I have been maintaining for the last year, bullion would reassert itself as a winning commodity but have been thwarted in my opinion, by skyrocketing crypto currencies. It seems the younger generations prefer their inflation hedge to be more ethereal in nature. I am old school and believe that Asians and Chinese investors will again move their wealth to gold in the coming months. (As a caveat I don’t think gold is going to $5000 an ounce but at $2500, Canada’s mining industry will continue to thrive. I also believe we are in a long-term bull market for energy. Last year during the great economic shutdown, China stepped up and tried to buy every microchip they could get their hands on. Now they are buying as much coal, oil and natural gas contracts to keep the factories running.

This is a broad simplification, but between President Biden’s Infrastructure Spending Bill being passed and the reopening economies post covid, industrial and material-based businesses are going to benefit. If inflation stays sticky, then one could argue Central banks will be forced to raise interest rates which will be good for banks and insurance companies. What’s not to like?

Happy trading and Stay Safe.

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Steve Bokor

Steve Bokor

Portfolio Manager