Omen for 2021: the EV Bubble

I will be doing a series of blog posts in the coming months detailing signs which are an omen for a monster bull market top in 2021.  Today we'll talk a little bit about the EV bubble. 

My favorite gauge of retail investor behavior, the EV stocks, are melting up.  Bitcoin has been on fire, another retail favorite.  Speculation is about as rampant as I've ever seen since the dotcom bubble.  The EV stocks are the new internet stocks.  It doesn't matter how trashy the business model is, or how self-serving the corporate governance is, retail can't get enough of these stocks. If Robinhood were releasing their investor holdings data like they used to, I am sure that the top of the recent additions list would be all EV stocks.  

I am starting to do some deeper research into this electric vehicle sector, and my first impression is that the hype is much bigger than the actual potential earnings for these companies.  The barriers to entry for this sector is extremely low, and it is already quickly being commoditized by cheaper producers from China.  There is very little IP involved, and it actually seems like its easier to develop and manufacture electric vehicles than ordinary gasoline/diesel powered cars.  

The valuations for some of these stocks, the most obvious being TSLA, but includes a bunch of questionable Chinese EV names, like NIO, LI, XPEV, just to name a few of the larger ones.  At these levels, I am almost sure they will be at much lower prices 12 months from now, but will they be at lower prices 3 months from now?  I am not so sure about that, which is why I haven't put on any long term short positions yet, but these overvalued levels are definitely getting me interested in doing the research to pick which ones look the worst, although they all look like horrible investments from just doing basic research.  

It looks like we are building a gigantic Frankenstein with retail now believing they are invincible, along with the hedge funds, as they ravenously buy stocks at the highest valuations since the peak of the dotcom bubble.  In the meantime, China has managed to export a bunch of crappy IPOs with big time valuations in the hottest sector of them all, collecting huge amounts of USD from both institutional and retail investors.  China just may come out on top after this bubble bursts, having collected hard currency for worthless shares in what are basically wealth transfer schemes, from retail to corporate management. Same thing happened with most of the internet stocks in 2000.   

Just look up Naveen Jain of Infospace to see what a corporate predator looks like, feeding the retail ducks when they quack. 

I must admit, I didn't have enough experience to take advantage of all the opportunities on the downside after the dotcom bubble burst, in 2000.  But in 2021, I have a strong feeling that I will be given a second chance to short at the beginning of an extended bear market which will confound and demoralize late coming investors for years to come.  

One by one, the signs of a classic extended bull market top are beginning to show.  The pieces of the puzzle are coming together.  It is fascinating to see that human nature really doesn't change, no matter what the new technology is, or what the economy looks like.  Greed always rears its ugly head at the worst possible time after years and years of conditioning to buy stocks, TINA (there is no alternative), and full faith and trust in the Fed, to the extent that we've never seen before.  

The Fed created this field of dreams, and if they build it, they will come.  And they are coming fast and furious.  

Still expecting a pullback down towards the SPX 3500-3520 level, but this market is taking its time consolidating and digesting all the "good news".  My spidey senses are tingling and sensing a sharp one day selloff looming.  Don't want to short, just because of the seasonal bullish tendencies around Thanksgiving holidays, but starting next week, after the holiday is behind us, I could see a back to reality and a reduction in the froth that has built up over the last 3 weeks.