I might be the most negative on the overall economy of those posting here
. I don't want to be.
At the simplest level, I see money (USD primarily, but any of them work) as representing claims on economic activity. For a modern economy to work, 99.99999% of transactions needs to be an exchange of economic activity for a claim on economic activity (as opposed to a barter economy where economic activity exchanged is directly exchanged for economic activity).
In a modern economy, there needs to be enough money (claims on economic activity) in circulation to keep the economy lubricated. In theory the economic activity and the claims balance out. But in practice, the value of a unit of economic activity (represented by a claim) is what we all agree it's worth (which changes).
I see a pack of gum at the convenience store and I want it. The store has it priced for $1, and I buy it - we've got an approximately equal view of how big of a claim on economic activity that pack of gum is worth. Most everybody reading this will agree. If that pack of gum were priced for $1000, then we'd also mostly agree that's too much.
The value of a claim on economic activity (money) is what we all agree it is. And mostly agree unconsciously. And have faith that most everybody else shares.
Which leads to my view of the economy today. Simplistically, the Fed's been creating claims on economic activity, and the economic activity to use those claims on doesn't exist / is declining. One possibility is that we had nowhere near enough claims in circulation, and all that new money (claims) just gets us to something closer to where we should be (and that's a good thing).
The other possibility, which is what I see happening, is that we've got huge amounts of money sloshing around with a decreasing level of economic activity to make claims on. This isn't sustainable.
The one other kind of transaction is in the finance and related industries, when we exchange claims on economic activity for claims on economic activity. For now, that's where I see all of that excess money that's been created going. It's enabling the value of companies (represented by their market cap) to become disconnected from the economic activity / value they're creating. Of course this time might be different, but every time valuation and economic activity become disconnected, they reconnect later. And I don't see the economy growing into the valuations fast enough - valuations are going to come down to meet the economic activity.
For TSLA and Tesla specifically, I see the company as being one of the very few companies that will outperform the market, and probably by a wide margin. But since I'm thinking in terms of an 80-90% discount from the market peak (say S&P 500 at 350-700 instead of 3500), if TSLA is only cut in half that's a really high level of outperformance.
A note about the S&P 500 - I won't be personally using this index for any component of my portfolio again. I've finally figured out that it's more like the S&P 50 with 500 company names on the list. The top few companies represent too large of a % of the index, for the index to be a good proxy for the economy. The index is a good investment if you want to own:
Top n S&P 500 Stocks by Index Weight
- Microsoft Corp. (MSFT)
- Apple Inc. (AAPL)
- Amazon.com Inc. (AMZN)
- Berkshire Hathaway Inc. (BRK.B)
- Alphabet Inc. Class C Shares (GOOG)
- 6. Facebook Inc. (FB)
- Johnson & Johnson (JNJ)
- Alphabet Inc. Class A Shares (GOOGL)
Those are good companies, but they don't represent the economy. Good thing J&J and Berkshire are on there - that provides at least some diversification away from high tech (I work in high tech - even I know we're not the whole economy).
Anyway, what I see is that when the market starts selling off strongly, everything is going to come down. Even the really good companies. I learned this back in 08, when I found a company easily worth $80/share (5% safe dividend at that price) that was on sale for $40 (10% safe dividend). They sold down not because they became a bad company, but because people on leverage needed to sell stuff to make margin calls, and eventually they have to sell the good stuff as well as the bad; if for no other reason, the good stuff will raise a noticeable amount of cash to make the margin calls.
So my expectation for TSLA is flat to down for the short term. I see the company going below 700 before going over 900, and I wouldn't be surprised if we see <400 before we see >1000. That view is based on the macro economy and the stock market resetting to more historical valuations of economic activity (not a negative view on Tesla, demand, strategy, execution, or anything else within Tesla's control).
And lastly - I've been so wrong with this point of view so far it's humorous
. Nonetheless, except for my TSLA holdings I'm in cash as I only see reinforcing information on a daily basis for this point of view, rather than meaningful rationale for how the economy, and by extension, the stock market can build from here. I see everything, including TSLA, as being priced approximately to perfection.
