Kill the Robots... Before They Bankrupt Us

[Midday Momentum] Wednesday, May 11, 2022 [Kill the Robots… Before They Bankrupt Us]( By Garrett {NAME} Dear Reader, Improving Sectors: Energy and Materials Weakening Sectors: Technology Communications Cyclicals (Same as it’s been since January) Watch List: ARKK, SLV, LCID, UPST, DDOG, MSFT, AMZN, AAPL, TSLA Today, it is acceptable for anyone who has put unbridled confidence in artificial intelligence (AI) to pour themselves a stiff drink at lunch and join me [right here]( for Midday Momentum at 12:30pm. The robots are going to ruin us. The last 24 hours have exposed some gaping holes in the future of AI and its impact on the financial sector. A stablecoin in the crypto-space - relying on the unbiased and "perfect" use of AI - has imploded and temporarily pulled bitcoin under $30,000. Meanwhile, that great story about AI being better at underwriting loans for consumers because it reduces human bias? Yeah, that blew up today in the form of Upstart Holdings Inc's (UPST) dismal numbers. Let's kill the robots before they kill your money. The Big Headline It's an excellent time to remind people that when human coders program AI, they still do so with human bias attached. But robots, man. They're supposed to be so much more intelligent than us. They ain't. So, when I read this headline last Wednesday, I realized that people weren't digging under the hood too much. Spoiler alert... it wasn't. Shares have plunged more than 66% since last Thursday. On top of ugly quarterly numbers, the company has increased its loan balance, and its risks are sky-high. CNBC, which typically never torches a stock because of balance sheet risks (hello, Bear Stearns in 2008), said that this AI lending platform creates "far more risk" than most people anticipated. Because robots are intelligent, remember? Then there's TerraUSD (UST), a cryptocurrency stablecoin that's supposed to maintain a peg to the U.S. dollar at $1. Instead, it hit $0.26 today. Twenty-six cents. That's worse than some fiat currency pegs that have imploded in recent decades. I imagine that several crypto hedge funds sitting in UST as they waited for buying opportunities will be answering many client calls in the next five weeks. This is pure wealth destruction. And it's a reason why I don't play with stablecoins when trading crypto on momentum. Instead, despite the fees, I ALWAYS move to cold, hard cash. The magic behind TerraUSD was that it's supposed to be an "algorithmic" stablecoin. What is that? I don't care. It's supposed to sound smart, but it's just an unstable con. However, it's supposed to be "decentralized" and rely on algos and "trust" - HA! - to ensure that it remains at the $1 peg. Well, it didn't. Instead, its implosion has prompted the Federal Reserve to issue a warning about stablecoins... and it's the type of event that could set back regulatory pushes or broader adoption by months, if not years. Thanks, robots. By the way, Upstart's liquidation value is 32 cents. So I won't be buying the dip here. Instead, [I've recommended a short on it over at]( Today](. MOMENTUM INDICATOR RED ALERT Recap: Cash again remains your best option right now after the alarming Consumer Price Index (CPI) number this morning. There are good reasons to speculate on energy stocks using deep-out-of-the-money credit spreads (selling them) in companies I love in Devon Energy Corp. (DVN), Valero Energy Corp. (VLO), and Marathon Oil Corp. (MRO). Aside from that, we may see even more selling pressure as we approach the Producer Price Index (PPI) on Thursday. The FAANGs are under pressure, but it's good to see that banks are starting to get a little more action on the back of higher rates. THREE THINGS I'M WATCHING - It's been a pretty brutal few weeks for gold and silver. The rising dollar, mixed with the outflows from materials among speculators, has taken the wind out of both metals' sails. However, the CPI and PPI numbers give us an opportunity to take advantage of bottom-feeders who might start poking around, given the lower volatility on the SPDR Gold Shares (GLD) and iShares Silver Trust (SLV) options chains, compared to other volatile sectors. World's Biggest Trade subscribers received a cheap trade earlier this morning (under $0.60), to take advantage of any rally. - Short-covering occurred again in the first 20 minutes of trading this morning, followed by more institutional selling that has defined these short-term moves. The ARK Innovation ETF (ARKK) is again testing more downside, while the Invesco QQQ Trust (QQQ) for the Nasdaq desperately tries to hold 300. The squeeze is likely on right now, followed by another leg down. This afternoon, I predict.... more pain. - Finally, energy stocks took a little punch after the Energy Information Administration (EIA) announced a surprise buildup in domestic inventory levels. I'd use any of these short-term drops in the energy space to go long in the upstream and downstream parts of the energy sector. The upside for WTI crude later this year remains $130 or more. HOT LONG SHOT The short-covering on Peloton Interactive Inc. (PTON) today is robust. But in a hostile environment for momentum, always aim - with little cash - at the extreme downside for companies like this. If Peloton crawls back to $14, I'll look to short this again. Where's the downside? If we have a big capitulation day, I'm seriously looking at every company's liquidation value. What's liquidation for PTON? Under $6.00. If Peloton rallies to nearly $14 today, look at the $10 puts for June 17, 2022, under $0.65. From there, this is a pure lottery play. This low-probability trade could quickly push higher if Thursday fuels another massive selloff. WHAT YOU MISSED Cathie Wood said she saw "a recession" and blamed the Federal Reserve for her fund's poor performance. She also noted that short-sellers are aiming at "innovative" companies. A few things: First, Wood's fund completely ignores fundamentals. So when she buys stocks trading at 20 times revenue, how can she be surprised that valuations are compressing rapidly in a down market. That's not short-selling. That's the result of people not willing to pay 19 times revenue... 18 times revenue... 10 times revenue... seven times revenue... on companies that are effectively unprofitable. In addition, I've shown that insiders - executives at the companies she calls innovative - are NOT buying their stocks at current price/valuation levels. If they aren't buying, executives likely believe their stocks are going lower. This is not rocket science. The insiders will call the bottom. Please, check out my previous commentary on ARKK, insider buying, and why you need to be patient with these innovative stocks. Do not try to catch a falling knife. We are still undergoing a rapid period of price discovery, and Wood will blame everyone except herself for this ongoing wealth destruction. I've shown ways to short these overvalued stocks. We'll go over them again today. Join me today at Midday Momentum at [12:30 pm EST in the main room](. Stay liquid, Garrett {NAME} You are receiving this e-mail at {EMAIL}, as part of your subscription to Midday Momentum. To remove your email from this list: [unsubscribe here](. To cancel, or for any other questions or requests, please contact our Customer Service team: [Online]( Phone: 888-384-8339 (North America) 443-353-4519 (International) Mail: Midday Momentum | Attn: Member Services | 1125 N Charles Street | Baltimore, MD 21201 Fax: 410-622-3050 Our Customer Service team is available Monday ‑ Friday between 9:00 AM and 5:00 PM ET. © 2022 Money Map Press. All Rights Reserved. Nothing in this email should be considered personalized financial advice. 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