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Weston NakamuraVisionary
Real Vision Exchange Manager, Programming and Community Engagement

Cathie Wood RV Series Discussion: TSLA & China

Really been enjoying this Cathie Wood series so far, but also extremely well timed and highly relevant market in real time (I’ve said in many occasions that the RV team who books / sets the programming schedule are like the best market timing “predictors” of all time lol - and it’s very true).

Market Developments in the last 24-48 hours (as Cathie Wood series started):

•TSLA Q2 Earnings beat: EPS $1.45 vs $0.96 est. OP $1.3bn (3x YoY), overcoming the fundamental bear case hurdles. EV deliveries 201k vs 195k est, beating their own estimates even with China/supply chain issues. Gross margins 28.4%, which was +2pp QoQ, despite -$160mn less in gov regulatory credits QoQ ($354 in Q2 vs $514m Q1).

•China tech getting destroyed one new regulatory hit after another.

Takeaways: Cathie Wood, the noise blocker & risk manager

TSLA is ARKK largest holding at 10% allocation. Although she says in her interview that while they obviously watch every earnings quarter, they’re not QoQ focused- they’re looking YoY. And despite being well off highs, stock is still >2x YoY. The only time she sells TSLA is when it’s gone up too much and she needs to rebalance so that it doesnt become 40% of the fund. She has yet to dump TSLA as a core position, despite all the noise to do so.

That leads to people saying she’s just a bull market fund manager, no different from a Portnoy “stocks only go up.” And honestly, that might have been... (More)

Weston NakamuraVisionary
Real Vision Exchange Manager, Programming and Community Engagement

How to EXIT trade: Short China Tech / Long US Tech (Short CQQQ / Long QQQ)

Its time to lock in gains and begin to close the trade.

The objective of this pair trade was to have a market neutral, net zero cost, reduced directional volatility, easy and straight forward way of betting against Chinese tech equities on further Chinese gov control actions (particularly tech focused), while maintaining US tech equity long exposure. Index ETFs (QQQ: Nasdaq100 / CQQQ: China tech) remove the single stock headline volatility single day double digit short squeeze risk, while providing significant enough movements to matter (as foreign investors in particular will go from stock picking which names will be at risk → indiscriminate broad based sector wide selling).

It seems that has been playing out quite well. Since inception, if you were just short CQQQ, you’re up 15% as of Mon close but took massive risk with unlimited downside exposure. If you just were long QQQ, you’re up about 4%, not bad for 1 month on an index. And if you were long QQQ funded by proceeds from short CQQQ, you would be zero cost out of pocket +23%, outperforming just being short CQQQ by 8% and just long QQQ by 19%.

You were also able to avoid drawdowns, which takes the psychologically driven emotional trading out of it and allowing you to keep the position on. For example, if you were just long QQQ opened on July 1, and enjoying a +3% gain by mid July - then on Mon July 19 when markets globally were deeply red and... (More)

Weston NakamuraVisionary
Real Vision Exchange Manager, Programming and Community Engagement

HK & China Equities Hammered

EdTech got hit hard with Chinese Characteristics today in Asia trading - imagine owning shares of a publicly traded capital enterprise, and the government suddenly says “you’re now a non-profit.” Chinese gov clamped down on EdTech industry, citing education inequality among other things - they’re no longer permitted to raise capital or IPO or open new learning centers or hold weekend classes. Or make money, essentially.

Koolearn Technology -34%, New Oriental Education -47% today. The “no profits allowed” for education came last Friday when the sector saw it’s first round of sell offs -40% before heading into the additional -40% today.

Tencent had its worst day in over a decade as the gov came down on their unfair exclusivity for music licensing (also known as music licensing) -7%. @Ralph Humphrey on this story this weekend.

The China & HK indices took a huge hit as a result. CSI300 -3.2%, China A-Shares -5%. HK’s Hang Seng Index -4.1% worst in 14 months. The US-China squaring off not helping either. @Christopher Moir ← bearish HSI call continues working fantastically well.

For those who may be unfamiliar - These may be obscure to western individual (and some institutional) investors - but these are the largest equity markets outside US. Hang Seng index is Tencent, Alibaba etc as well as names like HSBC.

HSI below 2020 & 2019 year end close levels, melting down led by HSI Tech.

HSI vs 10Y UST Yield

CSI300 (largest stocks in Shenzhen and Shanghai) plummets, while copper rises... (More)

Tesla's earnings are out today.

Elon Musk tweeted last week that Tesla will be opening up its charging network to all EVs, which is good because a recent survey revealed that 41% of consumers want their next car to be electric.  A look at the tweet and the overall share of the North American EV charging market Tesla will have is below.  

Players in the North American charging market: