Axios Markets

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September 15, 2020

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🎙 "The impossible could not have happened, therefore the impossible must be possible in spite of appearances." - See who said it and why it matters at the bottom.

1 big thing: Nikola and the battle for the soul of the stock market

Data: FactSet; Chart: Axios Visuals
Data: FactSet; Chart: Axios Visuals

The fate of one of Wall Street's most polarizing stocks — embattled electric truck maker Nikola, the company accused of being an “intricate fraud built on dozens of lies” and now facing a reported SEC investigation — will be decided almost entirely by long-only investors and mostly by retail traders.

Why it matters: This could be the ultimate test of Wall Street's current buy-the-dip ethos and the option market mania that has driven equity prices and valuations through the roof despite a withering economy.

  • Can a hot tech stock continue to rise, even after being accused of essentially being the next Theranos?

Background: Nikola went public earlier this year through a reverse merger with a blank-check company and has recorded no meaningful revenue, yet reached a market valuation higher than Ford and sold an 11% stake to GM for $2 billion.

What's happening: Short sellers are effectively locked out of Nikola's shares going forward, says Ihor Dusaniwsky, managing director of Predictive Analytics at S3 Partners, which tracks short sales, or bearish bets that a stock's price will fall.

What he's saying: "Short selling can not be a driver of price movement in the near future due to a severe lack of stock loan availability," Dusaniwsky said in a note to clients.

  • "Because non-insider NKLA holders are predominantly retail based who are not active lenders of stock nor in margin accounts and there are not many institutional or hedge fund holders who actively lend stock, or whose stock is [rehypothecated] and lent out, the overall lendable supply of NKLA stock is very small."
  • Just 1.3 million of the 106 million shares traded on Monday had short exposure, and it's likely the ratio will stay that way for some time.

What it means: The lack of short sellers and the high percentage of shares owned by retail traders could push Nikola's price higher, even in the face of an SEC investigation, as the retail market has shown little worry about fundamentals.

  • This was best evidenced by car rental giant Hertz, which saw its stock rise 95% in three weeks after declaring bankruptcy in late May. (Though it has since fallen by 52% from its May 22 level and is down 92% year to date.)

Watch this space: Those betting against Nikola "are walking a tightrope," Dusaniwsky says, as fees to borrow the stock for shorting have risen to 25%, or nearly 100 times the average fee for other auto companies popular among short sellers.

  • And fees could rise back to the 600% level seen as recently as July, he warns.

2. Catch up quick

China’s economic recovery picked up in August, as retail sales gained 0.5% from a year earlier and industrial production rose 5.6% versus August 2019 levels. (Bloomberg)

3. Two-thirds of Americans are not interested in Peloton

Data: CivicScience; Chart: Axios Visuals
Data: CivicScience; Chart: Axios Visuals

Peloton's stock has surged since the company announced its fiscal fourth-quarter sales jumped 172%, thanks to an increase in at-home workouts during the coronavirus pandemic.

  • Investors salivated over Peloton's outlook for the current quarter and fiscal 2021, but a new survey from CivicScience suggests the company may have a hard time finding new customers.

By the numbers: Just 2% of those surveyed are Peloton users and only 4% say they plan to use the products. Worse, the numbers don't improve much at higher income levels — just 1% of respondents making $50,000 or less, 2% of those earning between $50,000–$100,000 and 3% of those earnings over $100,000 are users.

  • High earners are the most likely to report being interested in Peloton, but only 7% of those earning at least $50,000 say they are interested.

What it means: Peloton's problem is no longer a lack of brand awareness. Two-thirds of Americans are familiar with the company's product and say they aren't interested.

  • Given that gyms remain closed in many parts of the country and interest is still this low, future customers and revenue will be harder to find.

4. Distrusting Big Pharma and the FDA

Data: Ipsos/Axios survey; Note: ±3.2% margin of error for the total sample; Chart: Andrew Witherspoon/Axios
Data: Ipsos/Axios survey; Note: ±3.2% margin of error for the total sample; Chart: Andrew Witherspoon/Axios

Axios' Margaret Talev writes: Fewer than one in 10 Americans have a great deal of trust in the Food and Drug Administration or pharmaceutical companies to look out for their interests, in the latest installment of the Axios-Ipsos Coronavirus Index.

Why it matters: This two-headed credibility crisis — over the medicine that's supposed to keep us safe and the regulators tasked with ensuring it does — shows how difficult it may be to get Americans to converge around a vaccine when the time comes.

  • This also underscores the dangers of politicizing government agencies tasked with administering science and protecting the public.

What they're saying: "It’s going to be hard for the authorities to communicate what people should be doing and how to be doing it," said pollster Chris Jackson, SVP for Ipsos Public Affairs.

  • "There’s going to be a huge organizational challenge in how do we get people pulling in the same direction — because nobody’s really trusted."

Between the lines: While both have their doubters, the FDA is the more trusted of the two for now.

  • 57% of Americans have some degree of trust in the FDA, though only 8% of those categorized it as a great deal of trust while the balance said they have a fair amount of trust.
  • Another 42% said they had either not very much trust in the FDA or none at all.
  • For pharmaceutical companies, the attitudes were flipped: 42% had some trust in the industry, though only 6% said they had a great deal of trust. Meanwhile, 57% said they had not very much or none at all.
  • Hispanic respondents have the most trust in both institutions; white respondents have the least.

By the numbers: More than half of respondents age 65 or older — but only one-third of adults under 30 — say they trust pharmaceutical companies.

  • Proximity to cities is a better predictor of skepticism about the FDA or pharmaceutical companies than party ID.
  • 60% of urban respondents and 57% in suburbs, but only 49% in rural areas, express trust in the FDA. When it comes to pharmaceutical companies, only one-third of rural residents express trust, 10 percentage points lower than for suburban or urban areas.

5. Match CEO calls Apple's policies "inconsistent and unfair"

Match Group CEO Shar Dubey stepped up her criticism of Apple's App Store policies in an interview with "Axios on HBO" Monday, saying the way that the company applies its policies is "inconsistent and unfair" and takes choices away from consumers.

What happened: In the interview with your faithful newsletter writer, Dubey said the App Store relationship, wherein the company controls billing and subscriptions, had been "a great source of dissatisfaction."

  • Match, the parent company of Tinder, OKCupid, Hinge and other dating apps and sites, previously issued a statement criticizing Apple's 30% take on App Store purchases.

Why it matters: The latest comments follow increasing scrutiny over Apple's business practices and the way it operates the App Store, including an antitrust investigation by the European Union and a legal battle with Fortnite maker Epic Games.

What's next: Dubey says Match is currently hoping to resolve the issue with Apple through "direct conversations" but has not ruled out the possibility of taking legal action.

Of note: The CEO also made her first comments on the Department of Justice investigation into an FTC lawsuit alleging that the company knowingly sent automated advertisements with expressions of interest from accounts it knew were likely fake to draw in potential subscribers.

  • "It is not a practice we've ever done, we would ever do. It's not good for business," she said.

Go deeper: Match Group CEO Shar Dubey said she sees "long-lasting" changes to dating from coronavirus in what could be another way the economy further shifts to advantage tech companies at the expense of brick-and-mortar and small businesses.

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Thanks for reading!

Quote: “The impossible could not have happened, therefore the impossible must be possible in spite of appearances.”

Why it matters: On Sept. 15, 1890, Agatha Christie, the bestselling novelist of all time was born. Christie’s mystery books have sold an estimated 2 billion copies, putting her third on the all-time bestseller list behind William Shakespeare and the Bible.