Tesla Investor's General Macroeconomic / Market Discussion

[palmer_md]

funny photo. I guess cash and shorting qqq was not the best move for me either, but its all good. Certainly was an interesting day to watch.

Just to close the loop on above, after de-risking before the event, I'm now sufficiently pleased by the reaction to the Fed and economic outlook for 2016 that I'm back significantly into a select basket of US equities for at least a medium-term hold. I am heavily TSLA-weighted as there are few more high-quality growth companies in the market to own.

So if you are a Flux contrarian, that's the top, we're in a bear market, short everything.

I was still not so sure about the market direction on Wednesday so I held onto my short position, and the last two days have been pretty good to that holding. I probably should have got out of it at the end of the day today, but I was not near my computer, so I'm still holding on to it. I will have to pay close attention on Monday morning to see if I should get out, and hopefully the market does not have a big gap up on the open to erase all my gains.

 

[FluxCap]

I am, quite honestly, feeling about the market in the last few days like the hero in so many Western films before a giant gunfight -- "it's too damn quiet, that's what bothers me."

Is this price movement:

1) Valid, bullish recovery that signals a trend

2) Pumped-up higher price setup for the algos to crash us tomorrow with selling, or

3) Just another random day with no meaning?

I find myself questioning my portfolio weightings going into tomorrow, and naturally opinions are all over the map. My old boss Larry Summers didn't dismiss the possibility of a Fed-induced recession in his WaPo article today, which bothers me more than a bit. If this scenario plays out, it obviously won't happen in a day, but that's obviously the worst-case scenario for stocks:



The Fed is in uncharted waters here, and has a hell of a tough job given that the complete dysfunction in Congress negates the possibility of much more effective fiscal stimulus. They have signaled a raise and HAVE to hike tomorrow to avoid losing all credibility, but I have no idea what effect the rest of their guidance will have on the market.

It still feels like investing in an individual stock is buying the Fed's decision more than the individual company, which is certainly frustrating for investors and rate "normalization" is a good thing in that context. But when the rest of the planet's central banks are all easing, and there is significant risk of flight to the dollar in emerging markets, is it really the time to tighten?

I've moved to an 80% cash and 20% stock balance ahead of tomorrow, and am seriously considering whether to cash out the remaining 20% and re-buy after the hike announcement dust settles.

I'm not sure there are any other people on here who manage other people's money, but if so, please feel free to chime in with your portfolio weightings going into the first rate hike in the aftermath of the Great Recession.

Edit: I have also hedged slightly using OTM QQQ puts.

Edit 2:

Interesting counterpoint on "upside risk" from another macro trader:
View attachment 104456

It seems I should have taken my own advice and held cash for an extra week. Hindsight Capital 100% perfect returns. FluxCap Capital not so much.

I think this is overdone though, and am summoning the courage to buy spoos and hold against the backdrop of a bunch of traders freaking out about the nascent Chinese mahjong-parlor-like market. I hear they removed the circuit breaker today though. If that thing tanks 20%, tomorrow could be vicious.

 

[maoing]

Nasdaq 100 FUT up 50 points. Sell off drama is over. We'll see a big green tomorrow. Personally I loaded a lot of TQQQ today while TSLA is resilient most of the day.

 

[Papafox]

Nasdaq 100 FUT up 50 points. Sell off drama is over. We'll see a big green tomorrow. Personally I loaded a lot of TQQQ today while TSLA is resilient most of the day.

Maoing, thanks for passing this along

 

[FluxCap]

Indeed, "spoos" (E-Mini S&P 500 Futures) are ripping higher as we speak, as the Shanghai composite rebounds. I held strong today, even dipped into some names a bit more. It was not easy.

Here's a good read about China, I think. What do you think about Xi's management of markets, maoing?

I see more capital flight from China to be bullish for US stocks, actually.

 

[Causalien]

Indeed, "spoos" (E-Mini S&P 500 Futures) are ripping higher as we speak, as the Shanghai composite rebounds. I held strong today, even dipped into some names a bit more. It was not easy.

Here's a good read about China, I think. What do you think about Xi's management of markets, maoing?

I see more capital flight from China to be bullish for US stocks, actually.

Cheap oil should be good for company bottom line come earnings season in Feb.

 

[FluxCap]

Cheap oil should be good for company bottom line come earnings season in Feb.

Yes indeed.

 

[maoing]

Here's a good read about China, I think. What do you think about Xi's management of markets, maoing?

Fluxcap, I think China economy is doing well compared to rest of the world. People get worried about China is because growth slowed down, but even 5-6% growth is still very good number. The 2008 collapse won't happen in China at all, if it could, then it should had been occurred multiple times already, but there is NONE. Part of the reason is China government has very strong control over the finance and banking system. Neverthless, China stock market has little to do with the economy, it's a CASINO, a place for gambling. So I don't interpret stock market crash as a sign of economy melt down and thus severely affect rest of the world. US market was overacted to external factors on Monday (China), Wednesday(North Korea) and Thursday (China again), plus the OIL price got manipulated to ridiculous low. All those are just the repeat of Greece crisis, PIGS debt and latest 08/24 crash. Today I personally feel similar "fear" on 08/24 and I believe fear are all over the place. With China and Asian market stablized tonight, OIL rebounce. Most likely we'll see a well rebounce last into early next week at least. Just IMHO.

 

[FluxCap]

Fluxcap, I think China economy is doing well compared to rest of the world. People get worried about China is because growth slowed down, but even 5-6% growth is still very good number. The 2008 collapse won't happen in China at all, if it could, then it should had been occurred multiple times already, but there is NONE. Part of the reason is China government has very strong control over the finance and banking system. Neverthless, China stock market has little to do with the economy, it's a CASINO, a place for gambling. So I don't interpret stock market crash as a sign of economy melt down and thus severely affect rest of the world. US market was overacted to external factors on Monday (China), Wednesday(North Korea) and Thursday (China again), plus the OIL price got manipulated to ridiculous low. All those are just the repeat of Greece crisis, PIGS debt and latest 08/24 crash. Today I personally feel similar "fear" on 08/24 and I believe fear are all over the place. With China and Asian market stablized tonight, OIL rebounce. Most likely we'll see a well rebounce last into early next week at least. Just IMHO.

Great analysis and thank you maoing.

Here's a graphic on the recent changes in the education levels of new (2015) Chinese stock market participants -- I see what you mean by a place for gambling. Really a different situation than US markets:

 

[AudubonB]

The biggest recent news in the world of energy has been the announcement out of Saudi Arabia that the kingdom is contemplating floating to the public Aramco.

First, the immensity of that organization, plus its immediate effects within its business sector of Energy Producers, staggers the imagination and beggars all comparisons.

For those of you who aren't familiar, Aramco owns all Saudi oil production, refining and marketing. If you're interested in learning details, it's best to go to more complete references but I'll write a few below.

* Aramco's oil reserves are something like 260 billion barrels - far greater than the combined reserves of Exxon, Chevron, Rosneft and Petrochina. Greater than every US producer combined. Its oil fields also are the lowest cost to produce on the planet.

* Its refining capacity is about 4.1mm bpd - twice Petrochina's, thrice Rosneft's, two-thirds that of Exxon's - but I didn't look into how much of Exxon's capacity is under its control versus that fraction that it owns (the latter is of course a lower number).

* Its yearly revenue is around $360 billion.

* A first estimate of its market capitalization is $2.5 trillion. That would make it four times as large as current champ, Apple.

Okay, so numbingly immense numbers all around. What does it mean?

My take on this is that the Saudis are conceding exactly what the alternative energy crowd - to which most on this forum belong - has been expostulating. The assets of Aramco are likely to become stranded - unusable - and the means to convert them into usable wealth will not be to develop and sell them over time, but rather to monetize them now. Selling shares would give the House of Saud some fraction of that $2.5 trillion (it's doubtful they would release 100% of the shares). Jam today rather than perhaps jam tomorrow.

Further support for this thesis is the timing. As we all know, crude prices are presently about $100/bbl less than they were at their recent peak and at the lowest in twelve years. Absolutely not the time to sell off....unless one's long-term view is similar to the stranded-assets thesis.

 

[FluxCap]

The biggest recent news in the world of energy has been the announcement out of Saudi Arabia that the kingdom is contemplating floating to the public Aramco.

First, the immensity of that organization, plus its immediate effects within its business sector of Energy Producers, staggers the imagination and beggars all comparisons.

For those of you who aren't familiar, Aramco owns all Saudi oil production, refining and marketing. If you're interested in learning details, it's best to go to more complete references but I'll write a few below.

* Aramco's oil reserves are something like 260 billion barrels - far greater than the combined reserves of Exxon, Chevron, Rosneft and Petrochina. Greater than every US producer combined. Its oil fields also are the lowest cost to produce on the planet.

* Its refining capacity is about 4.1mm bpd - twice Petrochina's, thrice Rosneft's, two-thirds that of Exxon's - but I didn't look into how much of Exxon's capacity is under its control versus that fraction that it owns (the latter is of course a lower number).

* Its yearly revenue is around $360 billion.

* A first estimate of its market capitalization is $2.5 trillion. That would make it four times as large as current champ, Apple.

Okay, so numbingly immense numbers all around. What does it mean?

My take on this is that the Saudis are conceding exactly what the alternative energy crowd - to which most on this forum belong - has been expostulating. The assets of Aramco are likely to become stranded - unusable - and the means to convert them into usable wealth will not be to develop and sell them over time, but rather to monetize them now. Selling shares would give the House of Saud some fraction of that $2.5 trillion (it's doubtful they would release 100% of the shares). Jam today rather than perhaps jam tomorrow.

Further support for this thesis is the timing. As we all know, crude prices are presently about $100/bbl less than they were at their recent peak and the at the lowest in twelve years. Absolutely not the time to sell off....unless one's long-term view is similar to the stranded-assets thesis.

This is a particularly eloquent take on something that has been brewing in my mind for quite some time -- that the Saudi intent in these oil price wars is not simply to attempt to dislodge debt-fueled American frackers and shale oil producers temporarily, but to get rid of them and dump as much product as they can before the end of automotive petroleum usage over the coming 10-20 years.

Clearly they have access to the Model S, and my theory is that after spending a moderate amount of time with a Model S, anyone with means and intelligence realizes that there is a very small chance that petrochemical ground transportation has more than a decade or so left to live. How do you protect your wealth for your heirs in that scenario, knowing that it's unlikely that you can figure out how to dominate the EV industry when Tesla has a decade head start? You get desperate and you do things like spend your capital to bankrupt competition, and consider floating Aramco on the open market so you can dump it before the suckers realize what's in store for them.

If I was the House of Saud, I would instead be covering the entire desert with photovoltaics, building massive transmission lines, and funding high-capacity, high-reliability battery development. I.E. offering to build a Saudi Gigafactory to make Tesla PowerPacks, for example.

The human race cannot survive without abandoning fossil fuel combustion, and they are not stupid. They know this. How fast they can extract as much wealth as possible from the existing system before dumping it is the question I'm sure they wrestle with in the halls of oil power.

 

[austinEV]

I agree with all of this and struggle to figure out how I feel about it. The best thing for all of us is policies that leave as much fossil fuels in the ground. Given that shale oil is the dirtiest, most carbon intensive of all, we might owe a big thank you to the Saudis for attempting to strangle the shale baby in the crib. Better to deny the industry a real start, burn off saudi oil until we can make the renewable point of no return. Then shale oil will stay underground forever. Low oil prices also hurt renewable, but my gut feel is not as much as fracking.

 

[dmunjal]

I agree with all of this and struggle to figure out how I feel about it. The best thing for all of us is policies that leave as much fossil fuels in the ground. Given that shale oil is the dirtiest, most carbon intensive of all, we might owe a big thank you to the Saudis for attempting to strangle the shale baby in the crib. Better to deny the industry a real start, burn off saudi oil until we can make the renewable point of no return. Then shale oil will stay underground forever. Low oil prices also hurt renewable, but my gut feel is not as much as fracking.

Economically, this strategy makes sense but maybe not politically.

Saudi oil finances a lot of terror which ends up costing a lot in terms of military expenditures to prevent.

 

[maoing]

Don't be scared by this market. It's similar drop as end of Sept. before upcoming (good) ER season. By end of Jan., we'll see at least 5% higher from today for SPX.

 

[FluxCap]

Don't be scared by this market. It's similar drop as end of Sept. before upcoming (good) ER season. By end of Jan., we'll see at least 5% higher from today for SPX.

I agree. Doesn't make it easy to hold strong / buy more, but this could be where some real $ is made.

 

[Drax7]

Don't be scared by this market. It's similar drop as end of Sept. before upcoming (good) ER season. By end of Jan., we'll see at least 5% higher from today for SPX.

Agree with you, though people's nerves are shattered , they get blind sided so frequently.

I still Remember when Brezhnev died, the market took a hit.

 

[Ohms Andwatts]

Agree with you, though people's nerves are shattered , they get blind sided so frequently.

I still Remember when Brezhnev died, the market took a hit.

Brezhnev died?

 

[AudubonB]

I'm pretty sure he's referring to another leader who kicked the bucket and dropped off.

 

[Drax7]

Brezhnev died?

Yeah. its an inside joke I guess, I've been trading investing since 1980 at least.
Ive seen hundreds of nonsensical breaks , including the irrelevant one based on brezhnev death.

 

[palmer_md]

Yeah. its an inside joke I guess, I've been trading investing since 1980 at least.
Ive seen hundreds of nonsensical breaks , including the irrelevant one based on brezhnev death.

DOW UP 10.21 IN A STRONG RALLY - NYTimes.com