not-advice
and not a prediction or expectation of mine, but something I am also thinking about.
2008 market crash
This has some high level details about the 2008 crash, as well as a (very) brief comparison to the market crash in '29. The short summary - 50% drop over 18 months in 2008 vs. 90% drop over 4 years starting in '29.
The question I ask myself - is the current macro situation bad enough, not as I decide using logic and my own opinion, but in the point of view of enough investors in the market to behave as if the current macro is that bad.
There is talk about a war in Europe. I mostly discount that happening, but I also don't live in Europe and haven't been following it nearly closely enough to have all that much of an opinion. I think that this is more of a
red herring.
What I'm spending more time thinking about is the pandemic more broadly, the disconnect between the real economy and the stock market, and the "end to easy money". And more importantly - not what I think about it, but what I think the broader investor community think about it. When the pandemic got started and the shutdowns started happening I started seeing at minimum a 2008 type of crash, if not the ground work for a 1929 type of crash. The economy was shutting down at a very large scale with the biggest impact hitting the parts of society that could least afford it. I even bought some SPY puts (something I haven't done before or since) that, of course, proved how very wrong I was about that.
At least on the stock market side. That was also when the Fed started rolling out easy money (bond buying every month, low interest rates though that had been around for awhile) and the US Govt stepped in with a lot of money to expand unemployment benefits. My understanding is that similar actions were taken elsewhere in the world but I live in the US and don't follow the rest of the globe as much. I should probably change that, but I should probably eat better and exercise more (there are lots of really important things for all of us to do, but we rarely do ALL of them
).
What I've begun asking myself is whether I was right back then, but 2 years early. The expanded unemployment benefits have been withdrawn and the bond buying is tapering down rapidly and will stop in a month (March, though it isn't clear to me if its the beginning or the end of the month). We're also all expecting a .25 increase in the interest rate as the era of easy money comes to a close.
The logical side of me is thinking "even 4 of these rate increases only gets us to 1%, still a historically low interest rate". But my logical side isn't what the market is thinking or behaving as (as if it ever were). How will investors react? So far it looks to me like the answer is "cash is king".
The real economy still isn't fully recovered - travel is coming back for some reasons and not for others. Restaurants and other businesses dependent on in-person gathering of people aren't doing great, even if the mandated restrictions on what people can and can't do have been lifted. There will be a subset of people that are going to continue behaving as if the restrictions are in place (such as my wife and I). Unless the remainder offset all of us and then some that portion of the economy will be doing better than disastrous, but nothing resembling great.
Back to the starting point - if the market goes down 50% from its high and Tesla tracks that exactly then that sounds like a $600 share price to me. If that happens over 18 months, given that it is reasonably well distributed, then trading down with the stock price using puts or put spreads should be reasonably straightforward. Heck my currently open put spread is a 700 strike, so I'm nearly there!
If the market goes down 90% then we'd be looking at a $120 share price though that was over 4 years before. It seems unachievable and yet the economy didn't shut down in 2008 the way it did in 1930. The economy also hasn't shut down today as it did in 1930 (the most visible employment metric says things are peachy; it wasn't in 1930 by a long shot). This also ignores the fact that the S&P 500 / DOW / Nasdaq are aggregate measures of the market - there will individual companies that do better and that do worse. For a variety of reasons I see Tesla as the safest thing I can invest in, period full stop.
That doesn't mean that the wider investment community agrees with me.
What I do remember really clearly from 2008 - I found a company to invest in
Oneok Partners. The company was on sale for a 50% discount to something I considered reasonable (split adjusted $20- looks like I caught the bottom!). At the purchase price I bought in at the company was providing a 10.8% dividend with a history of increasing the dividend quarterly going back multiple years. And with good reason - as a natural gas pipeline company a large fraction of quarterly revenue was contracted out for years in advance. You could almost fill out the annual financial results at the beginning of the year.
I bought in and it worked exactly as I hoped it would.
The relevant learning from that is that when a strong enough market downdraft occurs everything goes down with it. If nothing else those with too much leverage will be forced to sell stuff on margin calls, and if they get bad enough they'll have to sell anything and everything as needed. Do you sell the stuff that's taken the biggest hit (yes). But that might also not be enough / good enough, and you also need to sell the good stuff. Thus everything comes down.
If the market goes down 50% and Tesla goes down 40%, that looks like an unreasonably low share price from today's point of view. It would also be market outperformance.
I really, really don't have an idea of what is coming. I am seeing people writing about the Fed raising rates as if the Fed will also begin selling off the bonds they've been buying. I haven't seen the Fed say that, and I really really don't see that happening. What I do expect will happen is that the purchased bonds will sit on the balance sheet until they reach expiration and expire (paid off) naturally. That will provide a taper to the --bond holding-- and avoid dumping 10's of billions of bonds into the bond market, month after month. I expect that is a good thing for the market, but the market needs to see it that way - not me.
I also have seen an article talking about Tesla results that seems pretty dramatically confused about what was said. "No new products" in 2022 is a bad thing, when what Elon said was "bringing new products to market will distract from scaling which will lead to a smaller number of total units delivered". WHich is totally par for the course when following Tesla for 5+ years. We've also been through a many-year period in which company financials and results kept getting better and better, a break through to a new ATH was any day now, and then the shares broke down 50% (380s down to 180s), even though Model 3 was shipping and scaling.
All of which is a very long winded way of saying (closest to advice I have) - separate events / news as one thing from how the market will react. The two are not the same, can be very very different, and its the latter that matters in the short term.
In the long term (buy and hold shares, no margin) this is just short term noise. Whether that means 6 months or 6 years, the Q1 call details won't matter, and quarter after quarter of rapidly growing cash and profit will be overwhelming. Our option sales though are shorter term than that, and the market reaction in the short term is important to what we're doing.
. Cannot say he ever secured his future. He did OK in other ways...
