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Market Insights

Elon, Tesla & the curse of time

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Sorry to be the bearer of bad news... It’s over. The top is in, the Tesla bubble has already been pricked and it’s time to strap in for a bumpy ride…

My source? Why, the internet of course!

For a few months now, industry veterans have been warning about frothiness in markets and the many parallels between the 2000 tech bubble and now. “This won’t end well” say the doomer boomers.

Not so fast! There are some important differences between 1999/2000 and now. One is the TINA effect:

  • There
  • Is
  • No
  • Alternative
  • TINA

One of the golden rules of investing is that capital must be deployed. The job of a money manager is to put capital to work and earn a return. If they’re sitting in cash on the sidelines, investors won’t be too happy when it comes time to pay the fees!

“What am I paying YOU for? If I wanted a near-zero return, I’d just put my cash in a savings account at the bank!”

With global bond yields on the floor, it’s hard to earn a decent return in the fixed income market too. Which is why There Is No Alternative other than putting money to work in the stock market.

That’s been the justification for a lot of the more extreme valuations we’ve seen and has fuelled a belief that stocks only go up…

Now the ‘bad’ news....

Elon’s been named Time Magazine Person Of The Year.

Tesla article content image 1

Source: https://twitter.com/TIME/status/1470372755384291331?s=20

You might ask why this could be a bad thing. Well… Magazine covers are often known as a contrarian indicator:

The premise behind the indicator is that when a journalist or editor finally devotes a cover to a market trend, company, country or person, the story or theme has been in vogue for some time and is likely past its peak.

Positioning and sentiment should already fully reflect the story on the cover of the publication and the story should be fully priced in. In other words, by the time a journalist writes about the trend, a majority of the move has already happened.

So, is there some kind of historical comparison we could make to the 2000 dot-com bubble?

Absolutely!

Recognise this guy?

Tesla article content image 2

Source: https://www.socialfuturo.com/tal-dia-como-hoy/jeff-bezos-nombrado-hombre-del-ano-por-la-revista-time/

Jeff Bezos was on the Time cover as person of the year in December 1999. Amazon’s stock plunged from over $90 to a mere $7 less than two years later.

Tesla article content image 3

There’s another factor of confluence at play here too. Between June 1999 and May 2000, amid talk of a resilient US economy and a pre-emptive strike to keep inflation away, the Federal Reserve hiked interest rates six times.

And that was the end for the dot-com bubble.

Many of those companies went out of business. Some were more resilient, and just about survived. Others prospered. Amazon did OK in the end…

If (and it’s a big IF), Tesla were to experience anything similar to the Amazon drawdown, it would undo all of the gains shown in the blue shaded area… Seems impossible, right? The veterans tell us that’s what everyone said back then too.

Tesla article content image 4

Inflation is ALREADY an issue this time around and the Federal Reserve may signal rate hikes as early as March....

"History doesn't repeat itself, but it often rhymes"

Buyer beware?

Not investment advice. Past performance does not guarantee or predict future performance.

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