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Correction in Energy Provides High-Yield Buying Opportunity

By now, most investors have heard and come to understand how the yield curve for the bond market is inverted — where the two-year Treasury Note yields…

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By now, most investors have heard and come to understand how the yield curve for the bond market is inverted — where the two-year Treasury Note yields considerably more than the 10-year Treasury Bond.

An inverted yield curve historically marks a very difficult time for the economy in the coming months. Examples include major events like 13% inflation in 1979, the dot-com blowup of 2000, the housing crisis of 2008, the COVID-19 outbreak in 2020 and, in the current case, aggressive rate hikes to force a slowdown in demand after massive spending triggered rapid inflation.

As of Dec. 1, the yield on the two-year T-Note stood at 4.27% while the yield on the 10-year T-Bond paid out 3.54%. The difference between the two yields is 0.73%, or 73 basis points, as illustrated by the graph below. This is the widest 2-10 spread since 1980, when the economy was in a deep recession. While there is one camp that argues such an inversion is a precursor to a hard-landing-type recession, others would contend that it marks a bottom for the economy followed by a gradual recovery.

What history tells us is that the economy does suffer a material slowing in the year following peak yield curve inversion, meaning 2023 will likely prove to be a challenging time for the U.S. economy that will include higher unemployment, lower housing prices, low gross domestic product (GDP) growth and lower earnings for the S&P 500. For the record, the past week’s rally has raised hopes that the economy will not fall into recession, but simply endure a slow growth environment.

Here is just one example of what’s happening in the housing market. The monthly payment on a 3%, 30-year fixed mortgage for a $400,000 home was $1,349 during December 2021. Today, the monthly payment on a 7%, 30-year fixed mortgage for a $400,000 home is $2,129 – a $780 increase. For a home buyer who wants to maintain that $1,349 monthly payment per their budget, she or he will have to settle on a home priced at $253,000. That’s 37% price differential. Either wages move higher or home prices decline further, or both occur.

History also shows that the year following a steep inverted yield curve, the stock market begins the next leg of the secular bull market. If past is prologue, 2023 should be a pretty good year for stocks. There are those who argue the bottom is in and the next bull leg has just begun. Some of this uncertainty will be sorted out by Dec. 14 at the Federal Open Market Committee (FOMC) meeting.

In another high profile and fluid situation, more volatility in the crude oil market can be expected. On Sunday, OPEC+ agreed to stay put on its production output targets as the energy markets contend with pricing in a slowing Chinese economy and a potential European Union boycott of most Russian oil imports and a price cap of $60 per barrel on Russian exports imposed by the European Union, the Group of Seven countries and Australia.

Some countries won’t sign on, and the policy directive is coming at a time when China and India are content to buy Russian oil at its current $66 per barrel price while WTI crude trades at around $81 per barrel. Russia has been effective at circumventing sanctions to date. If there were any teeth to this new set of sanctions and price caps, oil prices would likely be trading much higher. So, it stands to reason the status quo for an ongoing tight global energy market will persist.

The resurgence of COVID-19 in China has dampened sentiment for demand by oil traders amid a long-term timeline by which demand in China will increase when that economy full reopens. Overt pressure from the Biden administration on OPEC+ to increase supply had also weighed on oil prices heading into last Sunday’s meeting, but that obviously did not work out to the liking of the White House. WTI closed out the week around $80/bbl. and right where the Saudis want to maintain a floor.

Back in June of this year, the Royal Bank of Canada hosted an energy conference in New York with the highlight being a keynote speech by Mohammed Barkindo, the secretary general of OPEC. In his keynote speech, Barkindo warned that “OPEC is running out of capacity,” and that “with the exception of two or three members, all are maxed out.”  Further, “the world needs to come to terms with this brutal fact” and that it is a “global challenge.”

I’ll take that statement at face value. OPEC+ is running out of spare capacity that supports the bull case for a strong pricing environment for crude oil and natural gas into 2023. Amidst all the confusion, most exploration and production energy stocks have pulled back off their recent highs and offer, in my view, some attractive entry points — especially in those stocks with variable dividend policies and those high-yielding domestic infrastructure investments.

Foregoing major capital expenditure (capex) spending in the face of an anti-fossil fuel administration, returning free cash flow to shareholders in the form of variable dividends has turned out to be one of the greatest inflation-fighting asset classes from both fundamental and total return basis in 2022. In the E&P space, Coterra Energy Inc. (CTRA) yields 9.2%, Devon Energy Corp. (DVN) yields 7.9% and Pioneer Natural Resources Co. (PXD) pays out a 10.4% dividend yield. (I have no position in these stocks.)

With oil prices having declined for much of the fourth quarter due to concerns over demand by China, the next round of variable dividends may not be as juicy as recent quarters, but listening to oil execs, their outlook remains bullish. Speaking to the most recent earnings release, Pioneer CEO Scott Sheffield noted, “I still think they will probably get back to $120, sometime mid-next year, once China opens up,” in a Bloomberg Television interview. Sheffield also said China’s growing energy infrastructure could surpass the United States if the country doesn’t invest more in areas such as pipelines and liquefied natural gas terminals.

A couple high-yield energy infrastructure exchange-traded funds (ETFs) and closed-end funds that convert the K-1 MLP income into 1099 ordinary taxable income include:

  • Alerian MLP ETF (AMLP), paying 7.34%
  • InfraCap MLP ETF (AMZA), paying 7.14%
  • Kayne Anderson Energy Infrastructure Fund (KYN), paying 9.03%

(NOTE: I have no position in these funds.)

To ramp up domestic production, Sheffield added, Biden needs to speak not just with leaders of companies like his, but also with shareholders and financial players who fund the industry. Personally, I don’t see this dialogue being anywhere near constructive going forward. That reality will keep new development of energy sources limited and prices elevated. To this point, the risk/reward investment proposition continues to look very promising for energy companies dedicated to fossil fuels, as long as there is a major deficiency in supply by renewables.

The post Correction in Energy Provides High-Yield Buying Opportunity appeared first on Stock Investor.

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Nike Escalates Design Battle Against Lululemon

The sportswear giant is accusing lululemon of patent infringement.

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The sportswear giant is accusing lululemon of patent infringement.

The Gucci loafers. The Burberry  (BBRYF) trench coat. When it comes to fashion, having a unique design is everything. This is why brands spend millions both creating and protecting their signature looks and the reason, as in the case of Adidas  (ADDDF) , extricating a brand's design from creators who behave badly is a costly and difficult process.

There is also the constant effort to release new styles without infringing on another group's style. This week, sportswear giant Nike  (NKE) - Get Free Report filed a lawsuit accusing lululemon  (LULU) - Get Free Report of infringing on its patents in the shoe line that the Vancouver-based activewear company launched last spring.

After years of selling exclusively clothing, accessories and the odd yoga mat, lululemon expanded into the world of footwear with a running shoe it dubbed Blissfeel last March. These were soon followed by training shoe and pool slide styles known as Chargefeel, Strongfeel -- all three of the designs (including a Chargefeel Low and a Chargefeel Mid design) have been mentioned in the lawsuit as causing "economic harm and irreparable injury" to Nike.

Nike's History Of Suing Lululemon Over Design

The specific issue lies in the technology used to build the shoes. According to the lawsuit filed in Manhattan federal court, certain knitted elements, webbing and tubular structures are too similar to ones that had been used by Nike earlier.

Nike is keeping the amount it hopes to receive from lululemon under wraps but is insisting the company infringed on its patent when releasing a shoe line too similar to its own. Lululemon had previously talked about how its shoe line "far exceeded" its leaders' expectations both in terms of sales and ability to expand.

In a Q1 earnings call, chief executive Calvin McDonald said that the line "definitely had a lot more demand than we anticipated."

Nike has already tried to go after lululemon through the courts once before. In January 2022, it accused the company of infringing on six patents over its at-home Mirror Home Gym. As the world emerged out of the pandemic, lululemon has been billing it as a hybrid model between at-home and in-person classes. 

The lawsuit was also filed in the U.S. District Court in Manhattan but ultimately fizzled out.

When it comes to the shoe line lawsuit, Lululemon has been telling media outlets that "Nike's claims are unjustified" and the company "look[s] forward to proving [their] case in court."

Lululemon

Some More Examples Of Prominent Design Battles

In the fashion industry, design infringement accusations are common and rarely lead to high-profile rulings. While Nike has gone after the technology itself in both cases, lawsuits more often focus on the style or pattern on a given piece.

Shein, a China-based fast-fashion company that took on longtime leaders like H&M  (HNNMY)  and Fast Retailing  (FRCOF) 's Uniqlo with its bottom-of-the-barrel pricing, has faced numerous allegations from smaller and independent designers over the copying of designs -- in some cases not even from fashion designers but artists painting in local communities.

"They didn't remotely bother trying to change anything," U.K.-based artist Vanessa Bowman told the Guardian after seeing her painting of a local church appear on a sweater on Shein's website. "The things I paint are my garden and my little village: it’s my life. And they’ve just taken my world to China and whacked it on an acrylic jumper."

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George Santos: A democracy can’t easily penalize lies by politicians

When candidates can get elected to Congress based on a mountain of lies they’ve told, is it time to reconsider whether such lies are protected by the…

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George Santos, in the middle, lied his way to winning election to Congress, where he took the oath of office on Jan. 7, 2023. AP Photo/Alex Brandon

George Santos is not the first politician to have lied, but the fables he told to get elected to Congress may be in a class by themselves. Historian Sean Wilentz remarked that while embellishments happen, Santos’ lies are different – “there is no example like it” in American history, Wilentz told Vox in a late-January, 2023, story.

Columnist Peggy Noonan wrote that Santos was “a stone cold liar who effectively committed election fraud.”

And now Santos has taken the dramatic step of removing himself temporarily from the committees he’s been assigned to: the House Small Business Committee and the Science, Space and Technology Committee. The Washington Post reports Santos told his GOP colleagues that he would be a “distraction” until cleared in several probes of his lies.

While Santos’ lies got some attention from local media, they did not become widely known until The New York Times published an exposé after his election.

Santos’ lies may have gotten him into hot water with the voters who put him in the House, and a few of his colleagues, including the New York GOP, want him to resign. CBS News reported that federal investigators are looking at Santos’ finances and financial disclosures.

But the bulk of Santos’ misrepresentations may be protected by the First Amendment. The U.S. Supreme Court has concluded that lies enjoy First Amendment protection – not because of their value, but because the government cannot be trusted with the power to regulate lies.

In other words, lies are protected by the First Amendment to safeguard democracy.

So how can unwitting voters be protected from sending a fraud to Congress?

Any attempt to craft a law aimed at the lies in politics will run into practical enforcement problems. And attempts to regulate such lies could collide with a 2012 Supreme Court case United States v. Alvarez.

A large, columned white building at the top of a grand, white set of stairs.
The U.S. Supreme Court has ruled that some false statements are ‘inevitable if there is to be open and vigorous expression of views.’ AP Photo/Manuel Balce Ceneta, File

Lies and the First Amendment

Xavier Alvarez was a fabulist and a member of a public water board who lied about having received the Congressional Medal of Honor in a public meeting. He was charged in 2007 with violating the Stolen Valor Act, which made it a federal crime to lie about having received a military medal.

The Supreme Court rejected the government’s argument that lies should not be protected by the First Amendment. The court concluded that lies are protected by the First Amendment unless there is a legally recognized harm, such as defamation or fraud, associated with the lie. So the Stolen Valor Act was struck down as an unconstitutional restriction on speech. The court pointed out that some false statements are “inevitable if there is to be open and vigorous expression of views in public and private conversation.”

Crucially, the court feared that the power to criminalize lies could damage American democracy. The court reasoned that unless the First Amendment limits the power of the government to criminalize lies, the government could establish an “endless list of subjects about which false statements are punishable.”

Justice Anthony Kennedy, who wrote the majority opinion in Alvarez, illustrated this danger by citing George Orwell’s dystopian novel “1984,” in which a totalitarian government relied on a Ministry of Truth to criminalize dissent. Our constitutional tradition, he wrote, “stands against the idea that we need” a Ministry of Truth.

Lies, politics and social media

George Santos, unlike Xavier Alvarez, lied during an election campaign.

In Alvarez, the Supreme Court expressed concern about laws criminalizing lies in politics. It warned that the Stolen Valor Act applied to “political contexts, where although such lies are more likely to cause harm,” the risk that prosecutors would bring charges for ideological reasons was also high.

The court believed that the marketplace of ideas was a more effective and less dangerous mechanism for policing lies, particularly in politics. Politicians and journalists have the incentives and the resources to examine the records of candidates such as Santos to uncover and expose falsehoods.

The story of George Santos, though, is a cautionary tale for those who hold an idealized view of how the marketplace of ideas operates in contemporary American politics.

Democracy has not had a long run when measured against the course of human history. From the founding of the American republic in the late 18th century until the advent of the modern era, there was a rough division of labor. Citizens selected leaders, and experts played a critical gatekeeping role, mediating the flow of information.

New information technologies have largely displaced the role of experts. Everyone now claims to be an expert who can decide for themselves whether COVID-19 vaccines are effective or who really won the 2020 presidential election. These technologies have also destroyed the economic model that once sustained local newspapers.

Thus, although one local newspaper did report on Santos’ misrepresentations, his election is evidence that the loss of news reporting jobs has damaged America’s democracy.

A piece of newspaper, burning up
With the news business in serious decline, citizens don’t get the information they need to be informed voters. iStock / Getty Images Plus

Lies that harm democracy

The election of George Santos illustrates the challenges facing American democracy. The First Amendment was written in an era when government censorship was the principal danger to self-government. Today, politicians and ordinary citizens can harness new information technologies to spread misinformation and deepen polarization. A weakened news media will fail to police those assertions, or a partisan news media will amplify them.

As a scholar of constitutional law, comparative constitutionalism, democracy and authoritarianism, I believe that Justice Kennedy’s Alvarez opinion relied on a flawed understanding of the dangers facing democracy. He maintained that government regulation of speech is a greater threat to democracy than are lies. Laws that targeted lies would have to survive the most exacting scrutiny – which is nearly always fatal to government regulation of speech.

Justice Stephen Breyer’s concurring opinion argued that a different test should be used. Courts, Breyer said, should assess any speech-related harm that might flow from the law as well as the importance of the government objective and whether the law furthers that objective. This is known as intermediate scrutiny or proportionality analysis. It is a form of analysis that is widely used by constitutional courts in other democracies.

Intermediate scrutiny or proportionality analysis does not treat all government regulations of speech as presumptively unconstitutional. It forces courts to balance the value of the speech against the justifications for the law in question. That is the right test, Justice Breyer concluded, when assessing laws that penalize “false statements about easily verifiable facts.”

The two approaches will lead to different results when governments seek to regulate lies. Even proposed, narrowly written laws aimed at factual misrepresentations by politicians about their records or about who won an election might not survive the high degree of protection afforded lies in the United States.

Intermediate scrutiny or proportionality analysis, on the other hand, will likely enable some government regulation of lies – including those of the next George Santos – to survive legal challenge.

Democracies have a better long-term survival track record than dictatorships because they can and do evolve to deal with new dangers. The success of America’s experiment in self-government may well hinge, I believe, on whether the country’s democracy can evolve to deal with new information technologies that help spread falsehoods that undermine democracy.

Miguel Schor does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.

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10 Top Penny Stocks To Watch With High Short Interest This Week

More short squeeze penny stocks to watch before February 2023.
The post 10 Top Penny Stocks To Watch With High Short Interest This Week appeared first…

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This week could bring some fluctuations to the stock market. Whether you’re investing in penny stocks or more expensive shares, several key factors will shape the year’s first quarter. Economic data releases, earnings announcements, and the highly anticipated January FOMC meeting are just a few of the things that will play a role. However, it’s worth noting that penny stocks often behave independently of broader market trends.

There has recently been a growing interest in cheap stocks with high short interest. Why does that matter? A short squeeze occurs when investors who have bet against a stock by borrowing shares are forced to buy back those shares at higher prices to cover their losses. This phenomenon can result in a rapid surge in the stock price. Where can you start searching for short-squeeze stocks?

Short interest data is a good starting point. There are no guarantees that stocks with a high level of short interest will squeeze. But they are usually the first ones people will take a closer look at. This article focuses on a list of penny stocks that meet these criteria. Additionally, we will try to find any potential catalysts to provide you with a better understanding of the current market conditions surrounding these companies.

With this information, you can decide whether they are worth adding to your watch list. This is also a continuation of our list of short squeeze stocks from the article “Penny Stocks To Buy: 5 Short Interest Stocks To Watch Now.” The complete list will be provided at the end of the article.

Short Interest Stocks To Watch

Faraday Future Intelligent Electric Inc. (FFIE)

Short Data: Fintel – 18.35%, TDAmeritrade – 29.20%

Faraday Future has been on our list of penny stocks to watch for months, and during that period, FFIE stock has continued climbing. A mix of new milestones, speculative trading action, and support from the Fintwit community have helped breed optimism in the stock market for the EV company.

Faraday Future is a smaller EV upstart that has progressed forward in launching its flagship product, FF 91 Futurist. A rework of its leadership and funding seems to have brought more reassurance to traders watching the company. Most recently, Faraday appointed its GLobal Executive VP of Global User Exosystem, Tin Mok, to the Board of Directors.

The news comes just a few weeks after signing a deal with the City of Huanggang Province in China to relocate its future FF China Headquarters to support the US-China “dual home market” and dual “DNA strategy.” Now, attention is likely on Faraday’s production commencement of the FF 91 Futurist. The company set the end of March to begin production and the end of April (or before) to start rolling out deliveries.

Is FFIE a short-squeeze penny stock? According to Fintel & TD Ameritrade data, the FFIE stock short float seems to be sitting between 18% and 29%.

Sientra Inc. (SIEN)

Short Data: Fintel – 122.36%, TDAmeritrade – 124.06%

Sientra stock has one of the group’s highest listed short float percentages. According to Fintel and TD, that figure is between 122% and 124%. Like all types of data, the accuracy of the actual reporting can come into question at such extremes. Nevertheless, it doesn’t discount the figures shown by these outlets today.

7 Top Penny Stocks To Watch With Big News This Week

SIEN stock has only recently begun catching attention after hitting fresh 52-week lows last week. The stock slipped following a reverse split earlier this month. Now, however, it looks like traders are starting to speculate on the company’s next move. The medical aesthetics company won approval from the United Arab Emirates Ministry of Health and Prevention to market its smooth surface, High-Strength Cohesive (HSC and HSC+) silicone gel breast implants in the United Arab Emirates.

But the news may be secondary to market data. That doesn’t only include the short interest. Thanks to the reverse split, it could also put SIEN on the list of low-float penny stocks to watch. Lower floats mean less supply in the market and can translate into higher volatility. Keep this in mind if SIEN is on your watch list.

short squeeze penny stocks to buy Sientra Inc SIEN stock chart

Gossamer Bio Inc (GOSS)

Short Data: Fintel – 35.22%, TDAmeritrade – 30.21%

Last year, Gossamer announced Phase 2 trial data in its study of seralutinib for treating pulmonary arterial hypertension. Among several points of focus was a serious adverse event in the seralutinib arm of the study. Overall treatment-emergent adverse events were reported in 86% and 93% of patients in the placebo and seralutinib arms.

Even with that as the case, there was optimism regarding efficacy results. Pulmonary Hypertension Division head at the University Hospital in Giessen explained, “highlit compelling potential differentiation for seralutinib as an anti-proliferative, anti-inflammatory, and anti-fibrotic therapeutic candidate with possible reverse remodeling effects.”

Earlier this month, State Street Corporation and Millennium Management filed Schedule 13Gs showing stakes in GOSS stock ranging from 5.1% to 29.47% (State Street). While those reports have been out for weeks, it may be something traders are paying attention to if GOSS is on their list of penny stocks to watch. In addition, short data from TD and Fintel have the short float percentage on GOSS stock sitting between 30% and 35%.

short squeeze penny stocks to buy Gossamer Bio GOSS stock chart

Pardes Biosciences Inc. (PRDS)

Short Data: Fintel – 24.88%, TDAmeritrade – 8.12%

The short data between Fintel and TD varies right now. Of the two, Fintel’s is the highest, with a PRDS stock short float percentage of nearly 25%. One thing Pardes has experienced that some of the others on the list haven’t is a more prolonged uptrend that began late last year.

The biotech company has been developing its PBI-0451 platform as a potential oral antiviral drug candidate to potentially treat and prevent COVID-19. Despite easing concerns, the virus still exists, and companies are still looking to “build a better mouse trap,” so to speak. In a quarterly update, CEO Thomas Wiggans explained that Pardes “made significant progress in our pursuit to bring a stand-alone, easily administered oral treatment to patients suffering from COVID-19, highlighted by the commencement of our PBI-0451 Phase 2 trial in September 2022,” and that the company looks forward to “sharing the preliminary results from this study in the first quarter of 2023.”

As the clock ticks on this quarter, some speculation has begun to form. Multiple analysts have set price targets much higher than current levels, and the short data has come into focus this week. JMP Securities and SVB Leerink have set $9 price targets for PRDS stock.

3 Hot Penny Stocks Under $1 To Watch For February 2023

short squeeze penny stocks to buy Pardes Biosciences PRDS stock chart

SmileDirectClub (SDC)

Short Data: Fintel – 20.17%, TDAmeritrade – 20.15%

The beaten-down medtech company has faced plenty of headwinds due to its mixed performance. The most recent update from SmileDirectClub prompted a bit more optimism in the stock. It gave an update highlighting a plan to drive profitability and positive cash flow. It also issued preliminary Q4 revenue guidance, which came in below estimates. Even with that as the case, shares of SDC stock woke up after the company presented its cost-saving strategy for the year.

“SmileDirectClub has taken decisive steps over the past year to embed rigorous financial discipline throughout the business and ensure we are positioned to capitalize on the investments we have made to place our company on the leading edge of innovation in oral care technology,” said CEO David Katzman.

Ahead of the official year-end results coming in February, traders are looking at the SDC stock short data. Right now, Fintel and TD both show this at around 20%.

short squeeze penny stocks to buy SmileDirectClub SDC stock chart

List Of Short-Interest Penny Stocks To Watch

  1. Faraday Future Intelligent Electric Inc. (NASDAQ: FFIE)
  2. Sientra Inc. (NASDAQ: SIEN)
  3. Gossamer Bio Inc (NASDAQ: GOSS)
  4. Pardes Biosciences Inc. (NASDAQ: PRDS)
  5. SmileDirectClub (NASDAQ: SDC)
  6. Tattooed Chef (NASDAQ: TTCF)
  7. Aemetis Inc (NASDAQ: AMTX)
  8. Blue Apron Holdings Inc. (NYSE: APRN)
  9. Vroom Inc. (NASDAQ: VRM)
  10. Biora Therapeutics Inc. (NASDAQ: BIOR)

The post 10 Top Penny Stocks To Watch With High Short Interest This Week appeared first on Penny Stocks to Buy, Picks, News and Information | PennyStocks.com.

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