Why ARKK is Collapsing: Future Growth vs. Cash Flow

By Andrew Aziz  |  
Andrew's Newsletter  |  
May 25, 2022
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Dear Traders,

First and foremost, to all of my American friends and members of our community, please accept my deepest sympathy regarding the elementary school shooting that happened yesterday in the US. My deepest thoughts are with all of my American friends, and in particular with the family and friends of those who were affected. I am very sorry.

While the market has stabilized, Tesla and the technology sector gave us great trading opportunities. You can watch the recap that Brian and I posted here. It was a good day for trading, but it was hard to get excited about making any profits after such a horrible incident.

Today’s Global News and Financial Recap

Dr. Michael Burry, the notorious investor known for betting against the housing market before the 2008 financial crisis, added to the overall grim mood in the markets by posting in a now-deleted tweet: “As I said about 2008, it is like watching a plane crash. It hurts, it is not fun, and I’m not smiling.” He’s not alone in the corner of doom and gloom. Billionaire George Soros warned that Russia’s invasion of Ukraine has rattled Europe and could be the start of another world war.

Economists downgraded their forecast for China’s economy to expand at a clip of 4.5%, a full percentage point below the official target, as China’s COVID-Zero policy undermines growth. Even though numbers are low, the month-long outbreak in Beijing still shows little sign of being fully controlled. China has also taken part in joint air drills with Russia, rankling their neighbors as President Joe Biden wound down his trip to the region.

At Bear Bull Traders…

Thank you all for taking the time to attend my Tuesday Strategy webinar on how best to find Stocks in Play for day trading in a bear market. I hope you gained a few tips that will lead to improvements in your trading.

Tonight, for Wednesday Psychology, commencing at 8pm ET, Rande Howell will be presenting a webinar entitled: Building a Winning Trading Psychology Mindset. Have you ever asked yourself: Why do I keep losing my emotional control and crashing my potential even when I try really hard? It no doubt seems so doable – all you have to do is keep your act together and success is yours, right? But you can’t. The truth is that you are asking your brain to do something that is its worst nightmare. And it rebels by emotionally hijacking you. This is the problem you have to solve: How do you learn to train the brain into winning ways? Come learn what it takes to build a brain/mind for trading success. Spoiler alert: what you believe about winning is causing you to lose in trading!

And Finally…

Why is ARKK collapsing? Ardi and I recently had this discussion. ARKK is all about the future, innovation, and so forth. It’s implicitly implied that companies which aren’t making a ton of money today will be dominant in the future, and print a lot of cash in the year 2035 (or something). What we’ve seen dramatically over the last six months is a huge premium placed on cash right now, and a huge price reduction on hazy promises in the future. That is why ARKK is collapsing and cash flow producing companies are king these days.

The WSJ had a nice article this week on how CEOs are now incentivized to produce actual cash flow, as opposed to expanding at any cost. Of course, this helps explain why oil prices have soared so much, because there isn’t much incentive to expand production aggressively in response to rising prices. Right now the market is about the future vs. the present. Investors want cash now, and that explains the flow into stable dividend generating funds and the plunge in ARKK, and also why oil prices are so high.

To your success,

Andrew