In a way, Luckin Coffee (OTCMKTS:LKNCY) is like the fractious relationship we have in American politics. More specifically, Luckin stock is ironically similar to President Donald Trump. Like our commander-in-chief, the embattled coffee giant has faced numerous allegations of fraud and other shenanigans. And sure enough, both were caught red-handed in deceiving their stakeholders or constituents.
You would think at that point, nobody – and I mean absolutely no one – would support either party. As our own Alex Sirois pointed out in early September, “It would seem that this company might have gone to zero by now…” Yet at the time of publication of his article, Luckin stock was around $2.50. At the time of this writing, shares are up $2.89.
What the heck is going on? Well, you could ask the same thing about Trump.
When the Bob Woodward tape revealed that Trump deliberately downplayed the severity of the novel coronavirus pandemic, you would have thought, as Sirois thought about Luckin stock, that this president was knee-deep in the smelly stuff. Yet he is narrowing the gap, making this political race more competitive than Democrats would like.
In large part, that’s because hardened supporters are fully ingrained and will go down with the ship if necessary. But just as importantly, Trump has proven he is a tragically great president.
The biggest example of this is that during the first three years of the Trump administration, the unemployment rate dropped for all major American demographics. If he would have taken decisive action early and championed a message of unity instead of fueling the inevitable stigmatization, Trump would easily win this race.
However, Democratic strategists are not very bright.
Luckin Stock Has a Chance in the New Normal
Honestly, I’m still shocked that the Democrats put their full weight behind former Vice President Joe Biden. If they went with anybody else – Elizabeth Warren, Tulsi Gabbard, Andrew Yang – the mistakes that Trump and the Republicans have made would render this a no-contest.
Instead, it is a contest.
And these inane errors, whether from the White House or from the Democrats, is reminiscent of the unnecessary fraud that Luckin committed. After all, the company was taking it to Starbucks (NASDAQ:SBUX). Plus, the organization had a different business model, specializing in attractively priced coffee for folks on the go instead of serving corporate tools prancing around to look cool in front of others.
Yet despite the terrible lapses in judgment, Luckin stock is still holding on. And you should at least be aware that this dynamic is not just exclusively related to dumb buyer sentiment.
For instance, the trading action of Luckin stock this year between July 15 and Aug. 19 is reminiscent of the price action for Hertz Global (NYSE:HTZ) shares between Aug. 8 and Sep. 9. In fact, the two securities share a 95% correlation coefficient during these time frames.
However, that correlation broke off starting in the week after the aforementioned time intervals. What you saw subsequently was HTZ shares gradually declining while Luckin stock found some serious momentum. Sure, you must account for the law of small numbers but still, the upside has been impressive considering the context.
Thus, the math currently demonstrates that it’s not just silly speculation involved here. Otherwise, you’d expect Luckin stock to follow the bankrupt Hertz into technical ignominy. Instead, it’s sticking around, attempting to make coffee great again.
Of course, the real question is, will the shamed organization succeed?
All Eyes Are on Trump
The comparison I make between Luckin and our president go beyond the obvious. Genuinely, the Chinese barista’s fate may depend on the 2020 election.
As my InvestorPlace colleague pointed out, “U.S. regulators moved quickly to delist Luckin stock from exchanges soon after the scandal broke. However, no penalties or other legal actions have been imposed by U.S. regulators at this point.”
Nevertheless, the specter of such punitive actions lingers. Should Trump win, that threat takes on greater credibility. But if Biden wins, there is a chance that, according to a South China Morning Post analysis, the U.S. and China may be interested in a reset.
Obviously, that’s the outcome you’re looking for if you’re speculating on LKNCY stock. But the problem is that Trump has incredible support. Not only that, the facts overwhelmingly favor the incumbent. For instance, check out these incredible unemployment stats during Trump’s first three years:
- White unemployment declined to 3.2% from 4.2%, a 23.8% reduction.
- Black unemployment declined to 5.9% from 7.5%, a 21.3% reduction.
- Latino/Hispanic unemployment declined to 4.2% from 5.8%, a 27.6% reduction.
- Asian unemployment declined to 2.4% from 3.8%, a 36.8% reduction.
You see why I called Trump tragically great? Economically, he may very well be one of our greatest leaders. Yet because he is unfocused and gets bogged down settling stupid scores, and because he has incredibly idiotic advisors (like Fox News), Trump is making his own election chances unnecessarily dramatic.
In other words, the election is a toss up and so is Luckin stock.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.