by Louis Navellier

November 23, 2021

I must reiterate that I feel that both Rivian Automotive (RIVN) and Lucid Group (LCID) are typical “bubble stocks.” One misleading indicator contributing to the “bubble” nature of Lucid and Rivian stocks is that Lucid Air was just named “Car of the Year” by Motor Trend and Rivian’s R1T pickup continues to get rave reviews. As a result, many investors clearly think that Lucid and Rivian are “the next Tesla,” and therefore they will walk in Elon Musk’s footsteps and race up in price to have similar market valuations.

I feel it is important to remind everyone of the fact that due to an acute shortage of lithium-ion batteries, the entire automobile industry is being held back by both battery and semiconductor chip shortages.

Speaking of Tesla, one of the best things that Tesla has done recently is to shift to less efficient CATL iron-phosphate batteries at its Shanghai plant, so that it can lower the price of its Model 3 and Model Y vehicles to customers in China and Europe. CATL’s patent on iron-phosphate batteries is scheduled to expire soon, so other battery manufacturers, like LG Chem and SK Innovation, are expected to begin making iron-phosphate batteries. VW Group is planning on making cheaper, city-oriented EVs for its SEAT and Skoda brands with iron-phosphate batteries. Right now, as I survey the EV battlefield, BYD Co is winning in China, VW Group is winning in Europe, and Tesla is winning in America.

As far as overall EV sales are concerned, Ford is expected to become #2 in America by 2023 due to its hot selling Mach-e, which has topped 160,000 reservations for the F-150 Lightening, followed by VW Group with all of its Audi, Porsche, and VW EV models. Eventually, I expect VW Group to pass Tesla in worldwide EV sales, but it all depends on how many EVs they sell in China and America. Right now, I am expecting VW Group to pass Tesla in worldwide EV sales by late 2023.

Interestingly, Ford’s CEO, Jim Farley, on Thursday tweeted that he expects Ford will be producing EVs at an annual rate of 600,000 by the end of 2023. Farley also said that Ford aims “to become the second biggest EV producer within the next couple of years.” He didn’t stop there. Farley concluded by saying, “Then, as the huge investments we are making in EV and battery manufacturing come onstream and we rapidly expand our EV lineup, our ambition is for Ford to become the biggest EV maker in the world.”

I should add that Ford is following Apple and getting into the semiconductor chip business. Specifically, Ford entered into a strategic agreement with GlobalFoundries to develop semiconductor chips. This pact may also lead to Ford producing semiconductor chips. Vehicles are increasingly computerized, especially electric vehicles, so other auto manufacturers may follow Ford into the semiconductor chip business to better design their vehicles as well as to alleviate current semiconductor chip shortages.

As for fossil fuel use in cars and other applications, at COP26, the U.S. agreed to stop using fossil fuels for electricity generation by 2035. Folks, this is not going to happen, since we will still need lots of natural gas in 2035. I am from Berkeley, California, where the natural gas ban began. It will soon spread statewide, which is why no new homes in California can have natural gas. Yet, thanks to last year’s drought, California was increasingly forced to utilize natural gas peaker plants to generate electricity.

With hydro-electric output declining, California’s war against natural gas is stupid; but the federal government declaring that they will stop using natural gas by 2035 is even more stupid. The current “Build Back Better” bill that includes money to cap natural gas wells leaking methane in the Permian Basin that were caused by the Biden Administration’s drilling ban on federal land is beyond stupid.

Consumers are frustrated because they cannot do anything about these stupid policies. Energy Secretary Jennifer Granholm was recently seen laughing on Bloomberg Business because she cannot boost U.S. energy output. That is frustrating to consumers. In fact, the Energy Department is impeding energy producers, despite a federal judge overriding the Biden Administration’s drilling ban on federal land. This just shows tremendous disrespect for the rule of law, as well as for the Judicial branch of government.

Natural gas prices surged again last week in Europe, with Germany’s regulatory delays of Russia’s Nord Stream 2 pipeline, so electricity producers in Europe are now operating coal plants at near record capacity. Poland’s electricity is largely coal-fired and Poland exports electricity to other countries in central and eastern Europe. Furthermore, idle coal plants in Portugal and Spain have been reactivated due to high natural gas prices. Politicians do not want to raise electric prices too quickly, so the resurgence of coal in Europe is a bit ironic and counter to everything the politicians said at COP26.

Navellier & Associates owns Tesla (TSLA), for one client, per client request, Volkswagen Ag. (VWAGY), Apple Computer (AAPL), and Ford Motors (F) in managed accounts we do not own LG Chem, Lucid Group (LCID), SK Innovations, Global Foundries (GFS), or Rivian Automototive (RIVN).   Louis Navellier and his family personally own Volkswagen Ag. (VWAGY), Apple Computer (AAPL), and Ford Motors (F) via a Navellier managed account and Apple Computer (AAPL) in a personal account, but do not personally own Tesla (TSLA), LG Chem, Lucid Group (LCID), SK Innovations, Global Foundries (GFS), or Rivian Automototive (RIVN).

Inflation is Making Thanksgiving Turkey a Luxury Expense

Inflation is all over the news, whether it is in business, consumer, or political news. We simply cannot escape it and will continue to debate it. Even though economic growth remains strong, the University of Michigan’s consumer sentiment index recently fell to a 10-year low as both inflation and product shortages are making folks angry. When President Biden cites robust economic growth for the surge in inflation and shortages, no one believes him. It is obviously very odd for a President’s popularity to be plunging when economic growth is reported to be “resurging,” but that is exactly what is happening.

The Atlanta Fed’s GDPNow model shows the U.S. economy’s GDP growth is accelerating from an estimated 2% annual pace in the third quarter to a whopping 8.7% annual pace in the fourth quarter. Although the Atlanta Fed tends to be too optimistic early in a quarter, there is no doubt growth is back.

Inflation makes retirement much more difficult to afford. The poor and middle class are increasingly frustrated every time they go to the gas station or grocery store. Turkey rising 24% in a year is a burden for many, but that is where we are as we head into Thanksgiving. Obviously, due to a turkey shortage, many Americans are going to be eating chicken for Thanksgiving, but the price of chicken has risen as well. It will be interesting to see how long consumers will tolerate inflation eroding their wealth.

Thanksgiving 2021 Dinner Items Cost Survey Pictograph

The Fed saw that inflation rates decelerated some last summer, so they could argue that inflation would be “transitory.” However, that argument ended in October, when inflation resurged and spooked politicians, the news media, and central bankers, but the Fed and other central bankers are experts in “kicking the can down the road” and I suspect that they will now claim that inflation may be transitory until 2023 or later.

In defense of the Fed, the U.S. dollar is now at a 16-month high relative to emerging market currencies, according to The Financial Times. A strong dollar will help suppress inflation somewhat, because most commodities are priced in dollars. However, a stronger dollar makes goods even more expensive for emerging markets, so worldwide GDP growth may stall, especially due to China’s domestic problems.

Major ports on the East Coast and Gulf Coast are not suffering from Southern California’s port back-ups, which are exacerbated by restrictions on what type of trucks can transport containers. Even though the Biden Administration has asked the Longshoremen’s Union to work 24 hours at the Los Angeles ports, the number of container ships stranded offshore is rising, which adds to shortages and boosts inflation.

The Biden Administration may not get the Senate to pass the House of Representatives’ proposed spending bill, since the swing vote in the Senate, namely West Virginia Senator Joe Manchin, is upset with the House for not consulting him, as well as working Americans being hurt by rising inflation. Wages have risen 4.9% in the past year, but after higher food, energy, rent, and real estate prices, Americans are losing ground, and Manchin does not want to add to their suffering with more spending or higher taxes.

After the outcomes of the Virginia and New Jersey elections, many politicians are following Senator Manchin, moving toward the center, or hiding. Already, many members of the House of Representatives are not running for re-election, in anticipation of a defeat, so I anticipate a big leadership change in Congress next November. It will be interesting if the Biden Administration tacks to the center, like Bill Clinton did after 1994, which boosted his popularity. Wall Street likes a more “balanced” government, so the latest political developments are being well received, thereby boosting investor confidence.

In this inflationary environment, millions of Americans are pouring more money into the stock market seeking higher yields and protection from inflation. Also notable is that gold is now at a five-month high. Internationally, the Chinese economy is now in disarray and Europe is struggling with another Covid-19 outbreak. The truth is that as you look around the world, the U.S. is looking more like an oasis, due to higher interest rates, a capitalistic culture, and 50 states that compete with each other for business.

Retail Sales Surge 14.8%, Despite Product Backlog

As I have been saying all year, consumers are not that picky. Put money in their pocket and they will buy things. The Commerce Department reported on Tuesday that retail sales surged 1.7% (month over month) in October and have surged 14.8% in the past 12 months. That number is somewhat inflated by a 46.8% increase in gasoline prices, but the Consumer Price Index has risen 6.2% (including gasoline sales) in the last year, so a 14.8% rise in retail sales is impressive, and bodes well for the holiday shopping season.

Sales at online retailers surged 4% in October and electronics & appliance sales rose an impressive 3.8%. Restaurant and bar sales were flat in October, but they have risen 29.3% in the past 12 months. Retail sales have now risen for three straight months – a good omen for the upcoming holiday shopping season.

I should add that Black Friday this week will provide a good preview of holiday sales. I am getting “Black Friday” special offers from several retailers already, which is a good sign. In the post-Covid era, Black Friday and Cyber Monday sales are mostly fueled by Internet “Clicks” rather than visits to “Brick and Mortar” stores. Our friends from Bespoke Investment Group have a chart that show that Clicks now account for 14.4% of all retail sales, while Bricks account for only 11.4%, with clicks steadily growing.

Finally, the Labor Department on Thursday reported that new claims for unemployment were essentially unchanged in the latest week, coming in at 268,000, compared to a revised 269,000 in the previous week. Continuing unemployment claims were much more encouraging, coming in at 2.08 million in the latest week, down significantly from a revised 2.21 million the previous week.

When continuing unemployment claims crack the 2 million level, it will likely be big news and convince the Fed that they have fulfilled their employment mandate. Even though more than four million jobs have disappeared since the beginning of the pandemic, it appears that many workers decided to retire early. As soon as the Fed decides it has done enough to stimulate job creation, it can turn its attention to inflation.

All content above represents the opinion of Louis Navellier of Navellier & Associates, Inc.

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Louis Navellier

Louis Navellier is Founder, Chairman of the Board, Chief Investment Officer and Chief Compliance Officer of Navellier & Associates, Inc., located in Reno, Nevada. With decades of experience translating what had been purely academic techniques into real market applications, he believes that disciplined, quantitative analysis can select stocks that will significantly outperform the overall market. All content in this “A Look Ahead” section of Market Mail represents the opinion of Louis Navellier of Navellier & Associates, Inc.

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