Venture Fortunes September 2021 Video Call

All right. Hello and welcome to the September Monthly Call for Venture Fortunes. I'm Andy Snyder, the founder of Manward Press. Welcome, everybody. If this is your first time, these calls are pretty simple. We'll cover a lot of ground. I want to keep this call pretty short, but we've certainly got a lot to cover today. And if you've been to a lot of these calls, welcome back. You know the deal. We'll get into a bunch here. I'm sharing my screen today. Normally, Alex Moschina tries to join in, but his wife's having a baby. They're not quite having it yet, but any time now. So we gave him a break to go and deal with those sorts of things. Sorry you're stuck with just me today.

But let's get into it. Let me show you what's in the news, what things I'm looking at right now. So probably the biggest one if you know me, this is a very big topic, and interest rates.. Interest rates are climbing over the last two weeks or so. They've made a significant move right now, they're hovering about 1.5% again on the 10 year. That's up fairly significantly from where they were a month or two ago. But really, we're sitting on I think, three month highs. Even at 1.5%, no, we're not down to the 1.29, 1.3 that we were just a couple of weeks ago, but 1.5 is certainly not high. It's a general trend that we want to watch. We don't want to see them climb too much further because that will send ramifications through the market. I think that's what folks are looking at this week and trying to judge everything else.

I don't think they're going to go too much higher. The Fed's tapering is pretty timid. The chances of rate hikes anytime soon, they're thinking late next year, late 2022 for the first very small rate cut, and that's if something doesn't come along and knock all this out. So we've got some inflation worries, economic slowdown worries, China worries that certainly could play into that. So interest rates, I'm not super worried about. Of course, that ties into volatility. And really, volatility should almost be the bottom bullet here because it's a result of all these other things. So we can come back to that. But the Federal Reserve. This is a topic that I've been thinking more and more about\, And I don't think the media is quite on top of it yet. Jay Powell, his term is up early next year.

Elizabeth Warren was in a Senate panel yesterday really picking on him saying she's not going to vote for him to be reconfirmed. And I'm not sure, given the scandal we've seen with the Fed presidents in the last couple of weeks and this wishy washy with inflation where everybody else sees inflation, but the Fed refuses to admit it, I'm not so sure Jay Powell has a job this time next year with the Federal Reserve. And that's interesting, it's kind of scary, because who's going to replace him? The pick comes down to President Biden. It's his choice, and then the Senate has to confirm it. But given Biden's tenure and background in picking things, it's probably a name we already know. It's probably somebody that's been there, but it's also probably, to get the Elizabeth Warren vote, probably somebody pretty progressive. And that's going to be very interesting in these sorts of times, where we're printing so much money, we're monetizing our debt. Some scary things.

And a lot of people look at the Supreme Court as the lay of the land for where the future heads. We've got to look at the Federal Reserve there as well. There's several judges, what, 10 judges, nine judges in the Supreme Court. I should know that. But there's one Federal Reserve chief. There's a big difference there. This government shut down stuff, I'm largely ignoring it, paying attention to it a little bit, but we've been here so many times before. It's all showmanship. The right is trying to blame everything on the left. The left's trying to say, "Well, we're just trying to pay your bills." They'll get it done.

We might see a short shutdown with the government, but I wouldn't worry about the debt ceiling limit. There's no way Congress, as dumb as it is, is going to let us default on our obligations when it's as simple as just passing a law or a piece of legislation that pushes things forward. So not too worried there. The infrastructure spending, that's going to be interesting. That's a big fight. It's getting chopped up. And again, it'll get chopped up and blended around until the headlines don't have much to pick on, but the money will be spent for sure. We know Congress likes to spend the money. They're just right now using it as an obligation or a negotiation tool for everything else that's going on in Washington. But the key thing with the infrastructure spending is it's really just more stimulus.

It's not about roads and bridges. It's about sending free money to anybody that wants it. Anybody that has her handout is going to get included in this, whatever it is, $2 trillion infrastructure bill. So that's why it's important for the markets. It's good for the economy if we actually build good roads and bridges and that sort of thing. That's not what this is about. It's about more handouts and more stimulus in the name of something else. To me, that's very bullish. All these things really add up to more bullishness once we get through this volatility that we're seeing and get things onto paper. Situation in China is very interesting. It's hard to know what metrics to trust, but I've been looking at the energy situation over there. That's pretty scary. They're trying to cut their energy usage by 2030 and have it peak out.

And so the government is doing rolling blackouts, putting pressure on industry. And now, some of that is trickling down to residential folks are getting their power shut off just to save electricity. And some of that's due to a coal shortage and that sort of thing, but a lot of it is the government's doing. I can't help but think, is that a glimpse of the future with all this global warming? Is that the next COVID crisis when we're shutting down because we're putting too much carbon monoxide into the air, carbon dioxide into the air? What does that look like? But in the short term, it's not great news for China. Six months ago, definitely 18, 20 months ago, China was on America's heels, and now it might be dragging America down. So we'll see what happens there, but that's just a story to watch.

Right now, I'm not super concerned, especially about the debt situation. Folks are saying it's their layman moment. I don't believe that. We've seen some money printing already this week to paper over that. It's more the shutdowns and the shortages of things over there that's more concerning and is a lot harder for the government to control. You can print money, but you can't print and goods and services, so that's going to be interesting. And then much more acute would be the European energy story.

We're seeing some issues again with supply in Great Britain, seeing some natural gas issues coming out of Russia on the Eastern side of Europe. So that's going to be interesting. We're not even into winter yet, and Russia tends to jack around with the pipelines and freeze people out in the name of extortion and more money. It could be a very interesting winter there. I hope none of that spreads to the US. I don't know why it would. Two years ago, we were very, very proud of our energy independence and telling everybody else to go away. Now, here we are dealing with $80 oil and not really being allowed to tap a lot of that. So we can see that sentiment change.

That's all macro. For the sake of Venture Fortunes, short term there's going to be some volatility, but I think once we get out of this over the next two weeks, that's when things are going to take off again. I'm going to see some buying opportunity. We're not going to buy anything this week, going into the mess in Washington, but I think early next week we'll be in a very good spot to do some buying.

Where are we at with the market here? Let me just move myself around, over here. This is the S&P 500 since early April, late March. Very interesting chart. Especially if you're an older Codebreaker subscriber, you can see these K.I. Channels here, the blue, lines top and bottom. We're at the bottom, here. We bounced off it two weeks ago, a week ago, went up to that mid channel line, hit it and came back down. Now we're going to bounce off this lower K.I. We're bouncing off it already today, and we're going to keep testing this.

If we keep testing it, the line's going to go down. But if we can get through there, which I think we will once we get through this current political mess, then 4,500 and up from the S&P is ... We're in good shape. You can see little bit of how that should look. We have a double here forming, but we should be able to springboard right out of that. I'm pretty confident of that.

This is a chart ... Apologize, it's a little tough to see, but it's a very interesting chart. I think it's an important chart. Talks about interest rates and real interest rates. Again, if you're a subscriber for any length of time, you know I say interest rates are the hormones of the economy. They're so important. They play a huge role in our Modern Asset Portfolio (MAP), and they dictate so much of what's happening now.

This is just a chart that really shows interest rates over the long term in relation to real rates and inflation. This black line, here you can see it, in 1981, where it peeks out. That's the 10-year rate, the nominal rate on the 10 year. Then we have ... The red line here is inflation. Real rates are simply the nominal rate minus the rate of inflation. It's basically the inverse here.

This is the real rate. This is what I go on. Again, that's the 10-year rate minus the rate of inflation, to give you really the true interest that you're getting when you invest in the 10-year. At this point, you're losing money. Depends on what metric you look at. Our official metric only has us down about 0.8%. This is using month-over-month CPI, so it's down bigger. This is probably the more realistic, but I go with the other figure just because the data is more accurate and it's easier to track. You just have to take the numbers into context, where negative one is pretty big. We're here, negative five, is pretty big. Again, same idea, just different scale, really.

But what you can see here is just this huge divergence and breaking of the trend in the last few months. Several times before we've seen it. If we went back into the '30s and '40s, it would be wild. That was a very wild time. But you can really see it, right in 1971, when Nixon broke us away from gold. That's when, a couple years later, things really started to break loose.

That was a big shift in the American economy. It took us up to these super high interest rates in 1981. Then we've been trending down ever since. I'm on the record saying, excuse me, interest rates are dead. If I'm wrong, we're going to find out very soon, because this is the sort of thing that turns it around.

I still think something's going to come through and keep the fed from raising rates and ultimately push benchmark yields negative. This could be the catalyst that does it as well, depending on what the reaction to this is. But, really, if we look in the '70s here, go back to the '30s and '40s when we have these sorts of big variances, big divergences, that's when we see big policy changes. That's what affects the next decade, these generational policy shifts, what we saw in the '70s, '30s, '40s, that sort of thing.

I wouldn't say we have any big policy shifts yet, but you look at what's happening with crypto, Central Bank digital currencies, the death of cash, something's coming. That's what I'm trying to key in on, on a macro scale. If you read Manward Letter, you've seen us talk about that. That's not really what Venture Fortunes is about. We're here to look at ventures, young companies, SPACs, IPOs, that sort of thing. This plays into it a bit, but I just want to give you the overall sense of what I'm thinking for the economy so you have a good handle on where things are going.

In the SPAC world, things have really slowed down. Ultimately, that's a good thing. The last quarter, it hasn't been great. The SPAC performance has not been super strong, but it's becoming a more normal market where we have more efficiency in pricing, and that sort of thing.

You can see here in the bullets, SPAC issuance fell to the lowest level since last year over the last quarter. That's not saying a ton, but we had just tremendous activity in Q4 last year, Q1 of this year. Then the SEC started messing with how warrants are accounted for, and things started to calm down.

But, there's still a lot of SPAC activity out there. 440 SPACs are actively searching for mergers for small private companies or larger companies to bring public. About 20 of them have 90 days or less to do it. That's important to understand.

When a new SPAC is formed, it has two years to find an acquisition target to bring public. The clock's ticking for a lot of them. A lot were launched Q4 last year, earlier this year. The clock's ticking for them. It's not as dire, but the deals need to be made. I wouldn't say these SPACs are desperate, but, they're not finding the companies they're looking for, they could lower the bar. That's really what I'm watching. I want to be careful what we get into and make sure we stick with high quality.

So far, this year, we've seen more than 135 deals, and we're in the biggest, Ginkgo Bioworks or DNA, which is, I got a chart here in a minute, treating us pretty well. I do like the scale and the size of recent SPACs. This is a good example. The bigger they are, the more due diligence and I think the more efficient the market is. That's where I'm leaning right now, looking at SPACs, is trying to get into some of those bigger deals. Not the bigger headline deals, but the bigger market caps, the bigger pipe funding behind them, that sort of thing.

Then, on the regulation front, because everything ties back to the government, it seems, these days, Gary Gensler, the head of the SEC, was out, I think this week, maybe last week, talking about or hinting ... I guess it was last week in his testimony to Congress, was talking about regulation of crypto, and that sort of thing. He snuck some small ideas into SPACs. Nothing crazy, nothing new. It's not going to shut the market down or do anything. Probably make it more efficient. If you know SPACs, the acquired company, the company coming public, can make some projections about their future, where an IPO can't do as much. It has to be backwards looking. Some of that has led to some hyperbole. I'm sure there's some lies and some mistruths in some of the companies, and I think that's what the SEC is trying to go after, there.

Ultimately I think it'd be good for the consumer and good for the retail investor. Regulation can always slow things down, but ultimately I think it's helping to make a more mature, healthier SPAC market. Really, after the spring that we saw, where it's just a big frenzy, that's important. I still am very bullish on SPACs, just have to be careful. Can't just go out there and buy anything right now, but that's been the case for a while.

One thing that's kind of antithetical to all that is this idea of redemptions arising. Again, this is the way that the market should work. It's what's happening after that, after the redemptions, that is catching my eye. If you remember, with SPACs, after a company announces its merger, whatever, shareholders of the SPAC can say, "I don't like that deal. I want my 10 bucks back." There's a bit of an arbitrage opportunity. If a SPAC is trading for $8 and you get your money back, you automatically make two bucks, right?

There's some checks and balances. That's something Gary Gensler was talking about as well. But it's designed that, if the SPAC doesn't make good on its acquisition and does something silly, that investors can help make an efficient market and say, "Nope, we don't want that." They get their money back. They redeem their shares.

I've been watching the redemption rate rise. You can see here, in the first quarter of this year, was 10%. Second quarter was up to 22%. Then, so far in the third quarter, it's 52%. That's pretty big. It's the institutional money, the smart money, saying, "No. These returns, these opportunities, the valuations are not good enough." They're saying, "What we've seen in the SPAC market is not good enough," and I tend to agree. They're saying, "We want our money back, or you got to do something better."

It's turning into a bit of a inefficient market, because the GameStop crowd is coming in and seeing the institutions jumping out, and some liquidity issues there, and are taking advantage of it. The market's getting confused.

eFFECTOR, here, eFFECTOR Therapeutics, sold 97% of its shareholders redeem, and they left 5 million in equity for eFFECTOR when it came public. Not a good deal at all. Yeah. It was a sign that the market didn't like the numbers, and didn't like how things were going. Yet the stock, once it IPO'd, went up like 300%, and then it's come back down. It's because of liquidity issues, and the GameStop's crowd, the meme crowd, pouring in there, trying to go against the institutional crowd and trying to move the stock.

You can make a 300% gain, but it's a crapshoot. It's a gamble. Then it comes right back down. If you're not playing it perfectly ... It's easy to look in hindsight and look at the chart, and, "We should have been in on that," but the numbers just are not there. Then, the downside, if you miss it by a day, you're losing 50% really quick.

IronNet is another example. Went up and doubled, and it's back down. Lost more than 50% so far, and the chart's just dropping. That redemption rate is something I'm watching closely. When we get into SPACs, that's one of the bigger factors right now that, as you can see, wasn't there in Q1 and not as much in Q2. It was almost noise in Q1. Now, I don't know, it's the thing. It's one of the biggest things to look at, one more variable for the equation to consider.

All right. This is chart of Lucid. You can see it underneath me, there. Lucid went public this week. The reason I include them today is they had their, basically, investor open house. They opened their factory up, showed some of the production lines. The governor of Arizona was there, some local dignitaries, state dignitaries, that sort of thing. They said that production's going to start in October of this year. That's very good.

Lucid has seen some volatility. It was down a bit yesterday. It's back up today. A lot of things were down yesterday. But the overall trend is looking good. You remember, September 1st I wrote you, and said that September 1st was the first day that the insiders that got in before the IPO, their lockdown period ended and they could start to sell. We didn't see much selling. The market anticipated a lot of selling, but we didn't see it. I said it was a good buying opportunity, and, sure enough, it absolutely turned out to be.

It's looking like this mid-channel line is going to be the new level of support, which, you can see over here, if we went back further, it's very bullish. It would take a lot to get back below that line into more of a bearish trend. Lucid, if you don't own shares yet and you want some shares, I'd look at that $24 level. If we're down here at the midline, absolutely buy. I think and hope it's going to be pretty rare that we're actually hitting that level, but when we're within $1, $1.50 at that level, it's a good buying opportunity, for sure. Super excited about this one.

There's some Tesla designers working for it. It's got great battery technology, great motor technology. There's a lot of noise out there with electric vehicles in the SPAC space, but this one seems to be the real deal. It's treating us well, treating investors. This is the chance to get in, pretty much literally on the ground floor.

They got a new factory. It's a chance to get in as they ramp up production and start selling. As we see their new cars on the streets, and commercials, that sort of thing, $28 a share is going to look pretty cheap. Great job if you got in on that one and followed the advice on the SPAC stage of things. There's more to come, for sure.

Okay. Ginkgo BioWorks. Let me move me down a little bit, there, so you can see that. I mentioned this, DNA. This is a really cool stock that think could be the future of medicine, programming DNA. Works on everything from human medicine, into plants, and that sort of thing. Kind of controversial, of course, but, through our system, we're, especially when we get into the K.I. Channels, largely agnostic to the fundamentals, or what the company does. With SPACs we can't be as agnostic.

Just look at this chart. It's pretty crazy. It's pretty rare to see something as bullish as it is. Will it give back some of these gains? Probably. There is such a thing as too much too soon, but I'd be a buyer anywhere $12 and below, for sure. Even 12.50 is probably where we're going to bounce around. You can almost create another midline in here you can see that we're going to bounce around on. That's just an interesting one.

So, that's just an interesting one. IPO. Well, you can see it here on the chart. Oh, went too far. There we go. You can see it in the chart in mid mid-September or so, a couple weeks ago and it's been doing well ever since. So good job on that one as well now. So let me move me again here. Lucid warrants. So a lucid... I never officially recommended the warrants, but I know a lot of subscribers have bought the warrants. So I just want to do my job and make sure I'm covering subscribers, giving them everything that they would want and expect, even if it wasn't an official recommendation of mine, but Lucid was. Obviously, it was in one of our reports, but if you bought the warrants, you probably got a note recently saying that the company is going to redeem the warrants.

And so if you look at the fine print of the warrants, and this is good news, we'll start there. If you look at the fine print, the company has the right to redeem the warrants anytime that they're trading over $20 for 20 trading days in a 30 day period. I think I said that right. So as long as they're over $18 for 20 trading days within a 30 day period, they can redeem the warrants. That just means that they call them in and they, in, in this case, they're not paying you for them with cash, it's just a cashless redemption. They're paying you with shares. And so if you understand how warrant's work, you could, with when you owned a warrant, you could trade that warrant in for 11 dollars and get a share of the company. The underlying company would pay $11 for that share.

So with Lucid, in this case, trading, let's say it was $18. As we saw it's closer to 20, but with $18, there'd be a $7 difference there between the price. And that's why you're getting a fraction of a share. You're getting about half a share automatically so that your warrants will be redeemed and you at 0.44 five eights of a share. And the other part of that is the cost above the warrant. So it's a fair deal. It's kind of confusing, but you don't have to do anything. You don't have much of a choice in it. I would hold onto the shares that you get through it. And really because of the pricing structure, the gains are going to be the same. So it's not like you're losing out on potential gains or a lot of leverage because you're getting half a share essentially for free at basically $11 valuation.

You're going to still have that gain there. So hopefully that makes sense. The big thing is this will occur on October 8. And again, you won't have to do anything. Look forward in your brokerage account. Again, it's a good deal. You're not missing out on anything. The main reason it's a good deal, this is important, is it gets rid of any dilution effects down the road. So it kind of locks in the amount of shares. It's not going to allow for dilution and even more share, a higher share count out there. That's why the company wants to do it and just lock things in. And warrants are issued as an incentive for spec investors and pre IPO folks to get in. Clearly, with Lucid in its activity and its fundamentals, it doesn't need that incentive anymore.

So folks are getting rewarded for it. So it's a very bullish sign for Lucid shareholders. So again, good job. Congrats. Okay. So as we round third base here and started heading for home, what I'm watching. I'm really watching the IPO market. Like I said, the SPAC market's kind of cooled off and we were running 50/50. It was closer to like 48% for IPOs and 52% for SPACs. As things new things come into the market, it was largely 50/50, but it was... The SPACs were the larger of new issuances. That's changing. IPOs are coming back and we're seeing some pretty interesting things there with direct listings as well. So as we go into the future, you think, "What's Andy going to recommend next?" IPOs are going to be a big part of it.

I'm watching the SPAC rebound. I really, like I said, I really like how the market is maturing and we're getting some better deals. Those redemptions are forcing the folks behind it to pay attention and not mess around so much. So we're going to get into some high quality, larger SPACs. Again, I'm really watching those redemptions. And then small cap value, this really hinges on what interest rates do. Again, they're dictating so much. And as we saw yesterday in the market, as tech starts to fall, those small cap stocks are going to start catching the value. Not necessarily the big hyperbolic growth stocks, but the small ones that are cheap that have largely been overlooked as people went for the big returns, the can't-miss plays and the big name tech stocks that we've all read and heard so much about. The small cap value stocks are going to do well.

One other area I'm looking at is private equity. And I think it was 2016, some laws were passed where the average investor can get into to private equity, through different portals and that sort of thing. You can put $100, $500 into startups and lots of new platforms with that. It's higher risk, but the reward is much higher. And these are long-term plays, because they're fairly illiquid. And so I have a question mark here, because I want to hear from you. Is this the stuff that you want to get into? Again, they're higher risk. It won't be everything that we do, but if you want me to go into these portals and find some interesting plays that are outside the stock market, I think they still fit our Venture Fortunes idea, because we're looking for those small companies that are new to the market, new to these platforms and are looking for investor dollars.

So, that's something I've been looking at on my own on the side. And if enough folks want me to bring it into the service, I certainly would. I think it could be very beneficial, but again, higher risk plays, not all of them, not even the majority of them go on to big profits. But when the profits are there, they're big. So it's a good chance just to spread your money around into some smaller companies and some... it's a good way to support smaller companies that are coming up with some pretty cool ideas. So if that's something that in interests you, write down this email address: mailbag@manwardpress.com. Send me a note and tell me your thoughts here. Even if you don't want to do it, tell me why you don't want to do it.

I just want to hear from you on that. And of course, send your questions and comments. Tell me how great these video calls are, or how I stutter and whine on, or get too long-winded. Tell me anything, but seriously, I do appreciate everybody tuning in. I hope these calls give you a good macro look at what I'm looking at. And then we get into the more specifics of the portfolio, but overall, if I had to sum it up right now, things are volatile. Take advantage of it. The next week or so, we're going to get some great buying opportunities. We've been here before. The government meddles with everything, gets the headlines, but then from March 2009 to no, it's been the same thing over and over. But low interest rates just keep pushing the stock market higher and higher, and that's what we're going to see. So send me an email, let me know what your thoughts are. And again, thank you so much for tuning in. I appreciate it.