CCIV, Lucid Motors, Novavax (NVAX) and Margin Accounts

Podcast Transcript

Hey, this is Jeffrey with another edition of Stock Smart, February 23^rd, 2021 edition. Hope you’re doing well. Wanted to start out, the VIX is rising again as the market continues to correct a bit, VIX is up about 4% as we do this recording, up to 24.34 which is a number that should bring some concern the S&P 500 oscillator continues to unwind. We got a heavy sell-off in the morning, maybe a little bit of a hedge fund game where they dump everything early and then buy it back from you 5-10% less because that’s what happened. We got really hammered this morning, down almost 4% in NASDAQ initial opening for about the first hour, hour-and-a-half.

[00:00:37]
And if you held tight things have kind of cleaned up a little bit and there are some corrections still going on, but nowhere near what we hit, at the end of the day we’re going to probably have the oscillator probably at neutral so it might be a good time to start adding a little bit to your positions now, but we are still unwinding a bit. So I wouldn’t put a heavy position in. I told you I had my investment in Bitcoin and I’m watching it very closely on a daily basis. So I did a little bit of a, had the crack team over here, do some research.

[00:01:03]
That’s me of course, I looked at the last 42 days or the last 42 sessions, because Bitcoin trades 24/7 and we know the market closes on holidays and on the weekends. With 42 sessions where they were both trading, notice that in 27 of the sessions, they were perfectly correlated which ends up being about 67%, meaning that when the market, the S&P 500 was down, Bitcoin was also down and when Bitcoin was up the market was up and that’s about 67-70%. It’s not a perfect correlation. I don’t know if there is a perfect 100% correlation, but that’s a pretty good correlation because it’s 2/3. So what you’re seeing now is you’re seeing a pattern where Bitcoin is not a hedge.

[00:01:44]
Like we talked about gold being a hedge against a bad market yesterday when the market went down, gold was up and that’s generally what typically happens when the overall Market in equities goes down, gold, which is a defense to inflation, rising interest rates, that generally will go up in value. Yesterday, it did do that. But Bitcoin is not an inverse to the market. Now, we’re seeing that it’s correlated. It’s not perfectly correlated, but it’s generally correlated. So 67% of the time it was perfectly correlated over the last 42 days or 42 sessions I should say.

[00:02:16]
Again because the market trades only 5 days a week and then is off on the weekends and/or holidays and Bitcoin trades everyday

STOCK WATCH

Stock we’re watching, big news of the day, is CCIV, so CCIV has confirmed that they’re going to buy Lucid Motors or become an investor through the SPAC and essentially CCIV again, a SPAC is a blank check company hoping to lure investors into investing and then they will go out within two years and purchase a company, as they did in this case, buying Lucid Motors, which again is an electric vehicle company in California. So CCIV, what happened in this deal and investors kind of probably feel like they got a little bit screwed especially if they get in later, if investors bought the company at you know $19-20 is doing fine.

[00:03:01]
Because the valuation ends up being when you look at the real valuation of the company, it ends up being about $37 per share because that’s what CCIV got essentially in the deal but what happened was there were the rumors had gotten so good or so great that essentially the stock price of CCIV kept going up and up and up and Lucid not being a dummy said, hey, we think valuation here is wrong and we want more money, thereby giving CCIV less shares. So here’s what happened again. So CCIV SPAC, they go public at 10, went quickly up to 15. Now, there’s a pipe value and that means that insiders got to buy or purchase the stock and they did very well. They get to buy it at 15.

[00:03:44]
So those would be the investors like CCIV itself and other institutional investors got to buy it at $15, so you can see they’re sitting in the stock pretty well today as it sits at 42. They’ve made a full 125-130%. So today, on the news that the SPAC or the buying of Lucid was finalized, the stock went down up to 30% in the pre-market, pretty much exactly to where the valuation should be, which should be 37-38. That’s the actual valuation based on what CCIV got, now market is correcting a little bit but it’s also been bought back a little bit.

[00:04:22]
So now that’s up to like $43. If you’re an investor in this, and you got in at 55,57, 60, you’re just going to have to hold tight and what you may want to do if you really believe in this electric vehicle company and you realize that they’re so pre-earnings, you know, they’re down the road a bit. So you’re going to have to hold it for a while to get a correction, to correct your price if you’re up in $55-57 range, but you may want to dollar cost average in if it goes a little bit lower. I would think this stock could correct a bit more down into the 30 range. Today it’s getting bought back probably because people don’t know why it went down so much and they’re just like, well, we should buy it because it’s down so much or they may be just interested in

[00:05:00]
Lucid and the EV business, which a lot of people are, a lot of the retail investors are really interested in this market, it’s growing and it is the future. So if you’re a long-term investor, you should probably hold if you bought in above the price it’s at now which is 43. If you’re a short-term investor you picked it up in the original SPAC with 19, you’re fine because you know the valuation already of the company is around 37. So going forward if you want to buy this company, you may want to buy it at you know, 35, you can get a 35 and add, lot of people who are investors would see value there, because the net asset value to the company is somewhere around 37.50.

[00:05:34]
If you can get anything under that you have kind of an arbitrage situation where you can make some money, so if you’re in it at a higher price, you can dollar cost average in and add some more shares at a lower price.

So I did have a couple questions on other stocks today too Novavax. Novavax has been hit pretty hard over the last few weeks, one of the reasons when you look in Novavax is we’re getting a lot of drugs in terms of, for Covid. A lot of them are out there already. I don’t know people realize this, but Novavax is not approved. It’s only in clinical testing in the United States right now. So, and their valuation based on their sales of Covid, is somewhere in the three billion range. We have somebody like Moderna is in like the 10 billion dollar range.

[00:06:14]
If you were in Novavax when it hit like an all-time high of 321, and a friend of mine Heidi and she called me and asked me about Novavax today and I said, well to me, it doesn’t look like there’s a lot of support here from a technical read until about 130 to 170, 175. So if you’re in it just a pure technical charting, a look at it, you have a ways the fall. She made a lot of money in the stock has done well, but where is it going? One of the issues for Novavax, and a lot of people just bought these Covid stocks, saying hey, they’re going to have a vaccine, want to be anyone who has the vaccine, but Moderna has one that’s working. Novax is still in clinical trials in the United States.

[00:06:54]
So we don’t know when it’s going to happen, when they’re going to be approved, when they can start releasing it and when they can start, you know, being used for vaccinations, so again their estimates for their Covid vaccine that they’re selling is about 3 billion where Moderna’s is like 10, 3x of them. So if you’re an investor now in Novavax, you may want to consider that investment and maybe clip a little bit off the investment as we can see that the efficacy of these vaccines that are being used right now are having great effect, so you don’t necessarily know if you want to be in Novavax and I would say that stock continues to fall somewhere corrects around 170 and that’s where we’ll find some support.

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THE AVERAGE INVESTOR

So question from Jen. Jen wanted to know what is a margin account. Of course this got a lot of interest because people had asked, how many people who were buying on Robin Hood were able to achieve margin accounts. Essentially a margin account, it’s a brokerage account, in which a broker, in this case Robinhood. So they lend the customer cash to purchase stocks or their financial products. The loan is collateralized by securities purchased. Generally, if you have 5,000 securities purchase, they’ll give you margin up to 2,500, so 50% of what you have securitized by your stocks and it comes with an interest rate. You’re essentially borrowing money and the customer is investing borrowed money and using leverage, it magnifies the profits.

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So if I had 5,000 in stocks, I could invest up to 7,500 but you know, generally you need to start with more than 2,000 in the account and again, you can margin up to 50%. That’s essentially, it’s risky business because let’s say you have a stock you’re invested in and it drops and it has a massive drop sort of like GameStop. Let’s say you bought GameStop, you put 10,000 in, they give you another 5,000 margin, will most investors have the ability to ride out the storm in a stock because we know stocks go up and down. If you’re on margin you’re going to get what’s called a margin call which means when it falls below your valuation and your stocks drop you’re going to have to sell stocks to then cover the losses or to get in a corrected margin position. And that’s dangerous.

[00:08:55]
So that means you’re vulnerable to having to sell things when they’re down and not able to regain the valuation when the stock rebounds. So that’s why margin accounts can be very dangerous, so hey, thanks again for listening. Show is doing well in terms of views and people are sending me questions every day, again to Jeffrey@JeffreyKamys.com. Thanks again, and we’ll see you again next time on Stock Smart.