Moby Live: Omicron & The Markets, China vs. US, EV's, Inflation, Crypto & More!Dec 03, 2021
The following is a transcript of the weekly Moby Live Podcast we host on Discord, at 2:00pm PST // 5:00pm EST.
- If you'd like to listen live, join our discord here: Discord Channel
- If you'd like to listen to this in Apple Podcasts: Click here
- We're also on Spotify: Click here!
This week we discussed how to navigate the volatility in the markets being caused by the Omicron variant. We then dive into why Salesforce tanked this week and why Xpeng might be the best EV pick out of China right now. We obviously discuss Jerome Powell, The Fed and Crypto and touch on many other topics such as value vs. growth! It's a wild week here at the end of 2021.
Peter Starr Northrop:
And now coming to you live from our coast to coast trading desk. This is moby.co live. A weekly podcast recorded live in front of our discord audience, where we discuss the stock market, the economy, and the mechanics that move the market around you. As always, I'm your host, Peter Starr Northrop, bringing you today, a mixed bag show. We're going to be talking about all the volatility coming from the Omicron variant, as well as some updates from Salesforce stock, as well as some updates from the Chinese EV market and a grab bag of audience questions, as we roll through. With all that out the way though, as always, I'm joined by Justin Kramer, co-founder of moby.co and our lead analyst here. Justin man. What's good? What's life like on the east coast?
Good so far, in sunny Florida. So, can't complain. Nice spending the winters here, do not miss New York at all. But, so far so good. How about you?
Peter Starr Northrop:
It's going great, California is the foggiest it's ever been apparently. So, everyone here is complaining. I'm like, oh wow. It's back in Philly for me. It rocks. My favorite thing about you is that you chose to simultaneously start a business and retire, in the same 3 month period. I just, love you being super efficient. You're just, cramming it all together. Either way, man. So again, we're here. It's market close here on Thursday. The week's almost over. It has been just the most ping pongiest week. The market is down. The market is up. The market is down. The market is up. And it's, all due to be driven by this, Omricon variant.
A new variant, of the coronavirus, which I will get into with my biology degree momentarily. But, first let's talk about the volatility at first. Looking at just this week of the market, having a panic attack, about this and then completely recovering and then re-panicking and completely recovering. What do you make of this volatility? How does it compare to other moments of market volatility? Obviously the first time that COVID came out, we had a complete crash or no real recovery until, the end of 2020. This, just seems like the market reacting, like a wounded animal, right? How do you, parse that? And, how do you as a long term investor think about that, Justin?
Yeah, it's interesting because, with extreme events you always see, not always. But, most of the time see pretty heavy periods of volatility. Both before it, and then surrounding it and then after it as well. So, seeing these complete up days, these complete down days as people react to the news in real time is not surprising by any means. And obviously, we're not in a position to say, what will happen with this variant today, tomorrow in 6 months from now? But, unlike Delta and unlike the variants, have come before it there's, countries shutting down. There's, parts of even the US, looking to potentially re-enter shutdowns. I know in New York right now, they are looking to potentially implement, an indoor mass policy again.
So, this is definitely not being taken lightly. And then, that's why it translates over to the markets, in terms of the volatility. You saw, Denarius spike, you saw zoom spike and you saw it come back down. And so, long story short. We're, going to have this heightened period of volatility, until more news over the next few weeks, comes out. But, a lot of the companies that we have been and continue to be investing in, regardless of how this shakes out in the long term, we still fundamentally believe in. So, for the things that we've recommended, the things we continue to recommend, we're not letting this really get in the way, unless there's some sort of fundamental news that comes out that just completely shakes the industry.
Peter Starr Northrop:
Exactly. And I think one thing to keep in mind too, is just how, weirdly unprecedented Omicron is compared to other coronavirus variants. You had the Alpha variant, which is the first one that locked down the world March, of 2020. And the other one you've heard the most about is Delta, which is slightly more infectious, but, slightly less deadly than the initial Alpha variant. And now Omicron's here and it's the weirdest possible mutation because, Delta evolved from Alpha, right? Omicron came out of literally nowhere, it's actually evolved from... you'd almost, call it a completely new virus. The way the mutations have happened. And the way it's playing out right now is, current preliminary data is suggesting that A. It might be more infectious than Delta, but again, no one can know that for another 2 weeks. There's literally not enough epidemiological data to suggest what it can do.
- It appears to be milder than anything else. And, The mutations are such that it's, weird how it interacts with various vaccines. It has more mutations on the service of that spike protein than any other coronavirus ever has. And that, means that it can either A. Be, worse at infecting humans. And then if it's, that case, it also would not react well to vaccines either. So, you have 3 real scenarios coming out of this. When you look at how just bizarre this is.
- Scenario 2 It just doesn't infect people that well. The preliminary data is just, everyone discovering the sequence and, reporting it and people overreacting to it. And it just happens to kind of fizzle out. Scenario, It is this weird scenario where it mildly infects a lot more people. In which case, you wouldn't see lockdowns, hit so much. You would see just potentially it evolve into something worse potentially, but right now, no real suggestion of that, and then.
- Scenario 3 All the data is wrong and it's simultaneously more infectious and worse. In which case you would see lockdowns. The key here and the reason you're seeing the market bounce up and down is it's, way too soon to say, what Omicron's, going to be? The number 1, thing it is right now, is hella weird by comparison. Just, the number of mutations. So, keep that in mind, as you move through. There needs to be a lot more data when people think about this. Which is why, the market is reacting so strongly in both directions. Because, you're going to get, really good news one day, really bad news the next day, until we hit a Trend line. So, it's going to bounce around a lot. But, getting out of that. When you think about that, our goal here at moby.co, right Justin, is we're long term investors.
Peter Starr Northrop:
So, this is just noise. We fundamentally believe in all of these companies. Almost, all of the companies that we've recommended, will not get hit by short term volatility like this, and will not be long term damaged by this. The main thing, to keep in mind is if there is a huge lockdown that affects supply chains again. But, that remains to be seen. Either way, we get into the rest of the economy. So, let's get out of the noise and get into the signal. And speaking of which, what I really love is how, when we think long term, we tend to go against the market sometimes, against popular sentiment. And that long term perspective, has been proven, really accurate sometimes. Chief among them this week. Justin, in your analysis for the week ahead, this week, you predicted that Salesforce might not be, the best buy right now.
It might... it's either a hold or a sell. And low and behold after Salesforce had earnings, their earnings weren't as strong. The market still really isn't buying the slack acquisition and there's been a pretty significant dip in Salesforce. So, take me through that. A. What is it like being, a soothsayer? And then.
1)Take me through like the fundamentals when you're thinking about. Is this a temporary dip for Salesforce? Does Salesforce need to do a little bit more work to show the world that the slack acquisition was a good idea? Or is it one of those things that they might be systemic? It might be, time to look for better opportunities from your perspective.
From my perspective, it's really interesting right now. Because, exactly to your point. The market did not react well initially to the news that came out of Salesforce. And so, going into it ahead of time. The analysts, here and myself looked at their growth over the last few years. How well the acquisition has actually realized the synergies that they've set out to do? And, what we've seen was an amalgamation of, just under performance in a sense. In terms, of not delivering on expectations and underperforming, what growth expectations would be, for lease, from our perspective? And so going into the earnings call. Based, on the data we had the people we talked to the industry experts in the field. It seemed like this was a logical outcome. And so, fortunately we were right. But, going forward, it really does peg the question for us. Is this going to be something to your point, is this a systemic thing? Or is this just a one off?
And for us, I think the answer is really too hard, to definitively say in either direction. I think we're going to need, maybe a quarter of 2 more data, to see if, this is an overreaction. But, the downfall of Salesforce. Or is this just going to be a little bit of, a blip on the radar and go away? And so, right now I'm tempted to say it's more a blip on the radar. But, I think Salesforce, and we've seen this with other tech companies in the past. They're entering a period where, growth or this intense, hyper growth is just not sustainable. And so, they've definitely paired back, in recent years in terms of their stock performance, as well as their revenue growth. And so, I think from that perspective, they'll continue, to not grow relative to... or grow as fast relative to some of the other tech companies out there.
And so, it makes them a less, return heavy pick. But, it also does come with significantly, less risk than, investing in a company like, Roblox or Spotify. So, long story short, I think they're in a period, where they're not going to be growing nearly as fast anymore. But, I don't think that they're in the long run going to be having this, immense pullback where they're, looking at like an IBM type situation, where they're just so behind, when knowing they should be ahead. So, we'll see on the long term, what happens after a few more quarters. But, I still think that they're a very solid company, I just didn't like, what the projections were coming into this earnings report and the amount of money they spent on the stock acquisition.
Peter Starr Northrop:
And I get that completely. And it's one of those things where I think 1 major question, our audience has, as I think about this. Is the idea of, okay. I understand that Salesforce as a tech company, largely. Its the, everything company within SAS. If, you want to be a SAS company, your model is Salesforce. And then you look at the common knowledge around inflation. And as inflation, becomes "air quotes", less and less transitory as Jerome Powell, keeps making us think more and more inflationary, right? The main question people have is. Is Salesforce the company get affected by inflationary pressure? Or is the revenue such that, inflation's not a big deal for them since they're actually making money right now? How do you parse that? Is, Salesforce within the category of companies that can, have their breaks be pumped by inflationary pressure, or is that people not really understanding the difference between a tech stock and a growth stock.
No, I mean, listen, every single company for the most part, whether it's positive or negative, is going to be impacted by inflation in some capacity. So, in that realm, no, they're not, immune to any inflationary pressures. Having said that, when you take a look at evaluation perspective. And, we've described this before, and I apologize if this is, repeat for anyone. But, when you think about a company's valuation, you think about it in terms of tomorrow's dollars often. What is going to happen? 1 quarter, 2 quarters, 1 year, 2 years, 10 years out. Then you discount it back today to figure out how much a stock should be worth. Just, investing 101 and it's called, the concept is time value of money. And so, when you have these really high periods of inflation. High inflation leads to ultimately raising interest rates and higher interest rates leads to a higher discount rate.
So, for so many stock companies, or for sorry... for so many growth companies. That future cash flow is what everyone's betting on. And so, when you discount it back to today's dollars with higher interest rates, that's when you start getting in a position where the stocks potentially are just not worth as much. And so, Salesforce, when you start looking at it from that perspective. Salesforce, is not going to be nearly affected as the way a company, like zoom or a company like Roblox would be. Because, those cash flows are going to be expected a lot sooner and a lot more predictably, than a company like Roblox will where everything is 5-10-15 years away. So, will they be hurt by rising inflation, rising rates. Yes, will they be hurt to the extent that Roblox and some of these, higher growth names are? No, that's just, how we're looking at valuations relative to each other, from a growth perspective.
Peter Starr Northrop:
Precisely. I think that's a really good way of, thinking about it as you imagine, the too soon to call nature of this Salesforce dip. Is it a buy the dip? Is it the beginning of a huge pullback? There's a lot of reasons for both. So, that's why it's more of, a hold scenario, rather than a, lets get out now type scenario. But, let's get into, rather than, patting ourselves on the back and thinking about sort of the more negative aspects of the market. Let's look at the places where the economy is still really growing. And of course, one of those major areas of excitement is EVs. Today, tesla announced that they were trying to get the US government, to pull back on tariff restrictions from China, because they need more graphite for their batteries, which is my segue.
And of course, Tesla's, down 1% potentially on that news, just potentially on the whole COVID scenario. And that brings me to the strength of Chinese EV companies. Because, that's just a huge growth area right now. And the major advantage Chinese EV companies have is they don't have to ship things from China to the US. They have the graphite, they have the lithium, they have all the raw materials they need right there. And so, we're seeing this really amazing Chinese EV market come in. And I thought, I really understood it, until you made a report Justin yesterday. Where, instead of lucid, you're talking about Xpeng and I would love to hear more about, why you see Xpeng as, the not necessarily the biggest Chinese EV pick. But, one of your most... one of your big areas of focus for Chinese stocks going into 2022. So, I'd love to get more in your perspective on Xpeng. What the Chinese EV market looks like moving forward? And, just your perspective in terms of, what's the potential here on this stock? Take me, more through your research, my dude.
Yeah, totally. So, it's interesting because, we've talked about Lucid, we've talked about Rivian, and we've talked about Tesla and we've even talked about Xpeng before. But, primarily we've done it on us based companies, because that's what people want to hear about. Those are the companies that's in the news, and we're trying to, obviously satisfy the questions everyone has. So, in addition to that, the US is not the only market. So, when you look at the evolution of China over the years. It's really interesting in all ties, eventuated to electric vehicles. But, China obviously opened its doors, not that long ago to Western trading, Western capitalism. And ideas that historically, they've been always inwards. And so, when they first opened up, at the turn of the 90s and even into the 2000s. They, were very behind, from an economic perspective.
And from a world trade perspective. The car market was, already largely passed them and they weren't going to lead that. And so, since they've done a really good job at looking at other opportunities out there and seeing where they can capitalize on any, value additive situations. And so, tying this now to the electrical vehicle market. They saw this years ahead of the American markets. And so, while Tesla and these companies, which are obviously American based, have been doing electric vehicles for a while. They haven't had the support of the government, to the extent that Chinese companies have in China, over the last few years. And so, China, has really been, on the forefront or subsidizing Chinese based electric vehicle companies. And not because, they're, trying, to save the world at all. But, they see an opportunity to literally redefine, who they are from an auto perspective.
And so, as the entire world, starts to shift from, combustion based engines, to electric vehicles. That's going to literally, be a once in a generation event, where every single car, eventually will be replaced on the road. Planes, trains, the entire transportation system will eventually be replaced by this cleaner energy solution. And so, China, has seen this and a company like Xpeng, has been a really good beneficiary of their, friendliness towards the company over the last several years. And so, they're still starting to ramp up production. They're still starting to build a lot of their facilities. But, from what we've seen so far, they're really going to be, both in a position to deliver up to half a million cars per year, relatively soon. And, they have the support of the Chinese government, Chinese suppliers, Chinese supply chain behind them.
So when, you look at the electric vehicle market. Yes, Tesla's important. Yes, Lucid's is important. So, is Rivian. But, you can't discount these Chinese companies, that have the support of the government and literally millions and billions of dollars backing them. So, Xpeng has already shown that they can innovate. They've shown that they can start scaling their... again in the early ages. But, they are a company that, if you want to play the EV trend, is going to have massive upside potential over the next decade.
Peter Starr Northrop:
And I love that too. And I think one thing to keep in mind as well is that as you try to understand EV stocks audience, people keep thinking. Oh, people just overvaluing them, because they're, going to save the planet or whatever. And it's not necessarily about that. It's also, so much of the US economy was built around, building cars, over the 20th century. And, to build a combustion engine, you need several thousand moving parts manufactured, essentially across the whole country. We had figured out a really robust system of transportation manufacturing, and just a lot of specialized tools, that supply chain obviously got punched right in the face by lockdowns in COVID. And the very huge advantage of EV production is, yes, the materials are very expensive, getting lithium and graphite is hard. But, once you get around that difficulty, an electrical engine... an EV engine is very, very simple to produce. Literally 1 moving part besides the wheels and you're golden, right?
So, rather than having to deal with the complexity of a supply chain, you have to deal with the pressure of very expensive. What is it called, technology? And very expensive, raw materials that you eventually turn into a car. That's the major attraction here. As you see, tradition of manufacturing, struggled during these new circumstances while these simple supply chain of EVs ultimately, is not necessarily winning out, but becoming more attracted to investors, which shows you that huge valuation moving forward. So, something to keep in mind, as people think about the technology and examine things moving forward. At the same time audience, we're about halfway through or a little bit more than halfway through here. So, 1 major thing I want to keep in mind here y'all, is if you have any questions at all, if you have anything you want us to discuss, you've got voice chat here in discord, as well as just DMing ME directly.
I want to make sure that the topics we focus on are, exactly what, you them to be. And I want to make sure that you are getting the information you need. So, keep that in mind, as well. As I move forward, you're going to be, spamming that channel a little bit. So, hit me up there. One thing, Justin, that I want to just, throw at you real quick is, I did get a DM as this was starting.
Breaking news, the US government, is suing to block Nvidias acquisition of arm, a semiconductor chip design manufacturer. Nvidias stock hasn't really reacted to that. If this is, up to the minute thing. But, it's interesting how we're seeing a lot of antitrust behavior coming out of the Biden administration. So, just a quick view here. Is this something that, when you think of companies getting hit by these antitrust measures. Nvidia is going to acquire this, chip designer in Europe from SoftBank for something like 82 billion dollars, right. And if it gets blocked, it gets blocked, whatever. But is this one of those things that, what if? Is this finally the thing that can finally pump the bricks in Nvidia stock? Or is this something that just, happens sometimes in companies have to deal with?
Yeah. I mean, it's interesting right now, because exactly to your point. Them stepping in and, blocking an acquisition, especially from the Biden administration, is not pro business. And so, it's definitely not advantageous. Having said that, I don't think this is going to be the catalyst that stops in the video. What I do think is important to watch is, does this set the precedent for other acquisitions? Does this set the precedent for the DOJ to come in? And even not necessarily stop acquisitions, but break companies up. And so this has been over the head of Google and Apple and so many companies for so many years. And, clearly this breakup, of large companies, especially, not to segue this too much into Crypto space, but the whole theme of decentralization, to me this really signals more. Is this going to be a precedent now going forward for big tech, for big companies trying to expand and essentially become monopolies.
And so, to answer your question, I don't think it affects Nvidia stock in the long run. Realistically, this isn't going to be pivotal towards their business, from what I understand about the acquisition. But to me, it's more so how does this affect the rest of the landscape? And that's something I think we are going to all need to pay attention to over the next several quarters.
Peter Starr Northrop:
Exactly. Yeah, because it's one of those things, whereas we get more confidence, we think more about antitrust. You see the government testing the waters here and you wonder, are they going to go after Facebook next? Are they going to finally go after Google, Amazon and or anyone else next, that sort of thing. And so, that's something, we're watching really closely. And, it's really interesting in terms of, when you think about short term versus long term. If Amazon spun AWS, it would be, a negative in the very short term. But, it would create a lot of shareholders value in the long term. I think, 1 thing that would be amazing is if Google let YouTube go and let YouTube be the powerful tool it could be. But, as it's under the thumb of the largest search engine in the world. YouTube being the second largest search engine in the world underneath Google, within the Google ecosystem, doesn't make sense.
But, if they were an actual competitor to Google, that would be very interesting and also potentially value creating situation. And so that's the way I see it. Regulation's tough in the short term, but I think in the long term, a lot of these things, contend towards value creation for stockholders. Which is the only thing, I really care about. So, yeah you're right. It's not, pro business, but in some cases it can be pro shareholder. And, then as we think about this, moving forward, again you mentioned decentralization as well. A lot of people are thinking about DeFi. I'm really excited that we managed to almost get through this entire podcast without talking about Crypto. It's still been a little volatile along with the stock, except for Solana, which hashtag soul gang, go team, doing well. But, looking from your perspective, how's Crypto looking in the broad sense, is Crypto going to keep getting hammered by this volatility with Omicron, same as a stock market? Or do you think we can finally break out of, this little bear trap and get back into the bull cycle we had for the rest of Q4?
Yeah. So, Crypto obviously runs from what we see now in waves of euphoria. So, they pick up sentiment, everyone starts trading it more money piles in, and it creates like this waterfall effect where their early traders attract the secondary traders into the third tranche and so on and so forth. And then, it cools off and either people continue pouring money in, or there's a little bit of awain in terms of interest. And so, honestly it's anyone who tells you that Crypto's going to go up tomorrow or it's going to go up in a month from now or a year from now is just guessing. So, I'm not going to say, I'm confident that this is going to only be short lived, or we're going to see this for the next few years. From what we've seen from this cycle so far, I wouldn't be surprised to see this just be a short term low over the next month or 2, into the new year.
But, for me to definitively say right now, I think is just inappropriate. And I think a lot of people out there who are saying they know are just honestly full of shit. But, that's from the market's perspective. But, the whole trend of decentralization and building, all these different applications. That I think fundamentally is not going away anytime soon. And I know there's still a lot of skepticism to say, oh, these coins shouldn't be worth so much, this and that. The amount of money from an investing standpoint and the amount of talent from a building standpoint, building out, what we'll call web 3, is so immense that I don't think people honestly realize, how much is going on behind the scenes, that isn't necessarily, built and usable by the general public today. But, I think make no mistake this, trends in Crypto, what coin I'll be, what company I'll be, is impossible to say, who will be, the 10-20-30 winners. But, the theme of decentralization and this building out the next layer of infrastructure. That without a doubt, we're going to be in a bull market for that for the next 20-30 years.
Peter Starr Northrop:
And that's the thing that excites me the most too. As somebody who's been watching Bitcoin and watching the Crypto market evolve for the last, what decade. The thing that genuinely excites me the most is only been something I've discovered in the past year. And that's been me learning about DAO's. And I think there's a lot of really strong potential for rewriting the code of how things are run via DAO's. And I'm very excited for these decentralized autonomous organizations to become, the mainstream as we move into web 3. And as we build our web 3 organizations, I'm doing a lot of research for hopefully a YouTube video coming down the pipe momentarily. But I mean, at the same time, I would love to convert Moby to a DAO, in terms of how we organize ourselves. We can get into that later, but regardless folks, thank you much for being here with us today.
Just so you know, this podcast was produced, hosted and voiced by me, Peter Starr, our Chief analyst here today today at moby.co - was Justin Kramer. At the same time, if you have any other questions for us, hit us up in DMs or hit us up at [email protected], if you want any other Moby stuff, we are posting regularly on YouTube as well. Hit us up at youtube.com/c/mobyinvest, just posted a video today, would love it. If you subscribed, we're very close to a lot of cool milestones on YouTube. We're growing really fast, and we'd love you to be a part of that, regardless folks. I really appreciate your time. And as always, I'd like to lead you with peace, love and incremental gains. Everyone be well, thank you so much.