In Focus: Tesla and the Markets
In my youth, I would play a game with my friends. The game was what would we buy if lady luck shined her precious light upon us and we were able to accumulate wealth. When it came down to cars, it was the same argument every time. For the work car it was a BMW versus a Mercedes, for weekend cars it was Ferrari versus Lamborghini. In Florida, some kid would say a Cadillac for his work car and we would laugh him out of the debate. In New York, some kid would say a Jaguar, we wouldn't laugh at him as hard, but we still laughed at them.
In 2020, do kids play this game with electric vehicles, and if so, if Tesla is the Mercedes of now, who is BMW? If you scan the market place, you'll see Tesla has no equivalent.
We've heard a lot from EV companies set to go public, set to go into production, set to do a lot of things in the future to catch Tesla, and all of their talk reminds me of the early iPhone days. In the first three years of the iPhone, several phone companies would market their smartphone offerings as the iPhone killer. More than a decade later the iPhone is still going strong, and the iPhone killers, not so much. We'll likely see the same thing play out with Tesla.
Tesla investors swallowed a very big and bitter pill at the end of the week, after finding out that Tesla would not be added to the S&P 500.
Investors poured into Tesla after the rumors of an S&P 500 invite surfaced during the earlier parts of the summer. The investment play was to get in before the exchange traded fund money had to and it was a good play and made investors lots of money. But now what?
Just the ideal that Tesla was being considered for a spot in the S&P 500 tells me that people with more pull and insight than me see it as a stable company. Contrary to my thoughts a year ago, I now believe Tesla is a firm creating value for its shareholders and has shifted from money losing enterprise that over promises and under delivers to a money making enterprise that over promises and under delivers.
Not being included in the S&P 500 would not be a reason to bail on Tesla now, assuming you invested early, like in April when this article suggested.
The Economy and Markets
The economy and the markets continued to move in two different directions up until Thursday of last week when the Dow fell 807 points, followed by another decline of 159 points on Friday. Investors went into the long weekend wondering if this was a blip or the start of a bigger pull back?
A market pull back will be good for investors and non-investors alike.
For investors it allows the markets to catch its breath. It's been on an incredible pace since late March, and a handful of companies have been doing most of the heavy lifting. A market pull back will allow the sweet smell of the FAANG stocks, Zoom, Microsoft and a few others to pass so that investors can smell the stench from the "zombie companies," or those that aren't contributing to the market's rise.
For the non-investor, those desperately in need of stimulus, the market's fall will motivate Washington to get a new stimulus bill passed.
The administration, as I've stated before, has made the stock market its report card. If the market is good, they believe the economy is good, which isn't always true. A sinking market could bring the right and left together to get money into the hands of the people.
Without stimulus my feeling is that things start to look really bad. Corporate Q4 2020 numbers will be a disaster, Black Friday won't be what we're used to seeing, and the Holiday Season will be the reminder us all of how badly this crisis has been managed.
Is This the Start of Something Big or a Blip?
I don't know what the recent pull back means, but I hope it's the start of something big, which isn't what you would expect to hear from someone who makes a living from investing, but it boils down to this. Market participants, big and small are euphoric right now, which is always the feeling before a major drop. It would be better to have a major decline happen now than for the markets to continue running up, convincing Wall Street that everything is all right, because it isn't.