During my 40-year Wall St career, I’ve never seen a mania like this. The problem is that central banks are rogue hedge funds with printing presses who are not elected or accountable and make policies that are consistently wrong.
US stock markets were rocked last week by massive volatility that saw the most significant declines since the March correction. The US Congress and Federal Reserve policy of endless bailouts, moral hazard and exponential money printing are extreme fiscal profligacy that will sink capitalism faster than the Titanic on its maiden voyage.
Stock market indexes have recently rocketed to record highs. The NASDAQ traded up at 12,050.46, and the Standard & Poor’s 500 index traded at 3,588.11, achieving another benchmark. Stock valuations are the highest they’ve ever been, exceeding the crash of 1929 and the 2000 technology bubble. Just six stocks have driven this rally: Apple, Amazon, Microsoft, Facebook, Google and Tesla.
Should you worry that the world has never witnessed a stock mania that has seen valuations skyrocket during the worst economic depression the world has ever experienced? Yes, indeed, you should step back from the cliff’s edge immediately.
The billionaire oligarchs of Silicon Valley, whose stocks are at all-time highs during an economic depression, will utilize censorship to manipulate the outcome of the 2020 election. These oligarchs demand one rule for thee and another for me. They demand equality of outcome and will implement laws that prevent equality of opportunity. The US is in a class war dressed up as a race war. Google, Facebook, Amazon and Twitter are “all in” on ensuring their power base is protected with the election of Biden and Harris.
Financial media’s illiteracy is compounded by the army of analysts repeating nauseatingly insane sound bites such as: “Don’t fight the Fed and Central Bank Policies,”“You don’t understand, you’re a dinosaur,” and their power punch, “It’s different this time.”
Most sincere apologies, but it’s “not different this time”, next time or anytime – ever! Mean reversion is a “thing” and to quote the head of the Bank of Japan, who based his country’s failed monetary policy on Peter Pan, “You can fly if you believe you can; the problems begin when you stop believing you can fly.” Are we at that point in markets now?
No one can pick the moment of peak insanity during a period of extreme, irrational exuberance. However, during my 40-year career, I have never seen a mania like this before. The Problem: Central banks are rogue hedge funds with printing presses who are not elected or accountable, and make policies that are consistently wrong.
A few weeks back, I wrote an article analyzing Apple’s revenues, product pipeline, share buyback scheme, upcoming stock split and Apple’s extraordinary two-trillion-dollar valuation. I warned that post 4-1 stock split buyers would likely lose money in the long run on Apple.
I suggested Elon Musk’s Tesla as the poster child for a Harvard Business School case study in irrational exuberance and stock manias. Tesla is a profitless maker of electric vehicles, with a stock price that has surged 1,000 percent in a year and seen its market capitalization rocket to $450 billion before a 5-1 split that was declared by the geniuses in the financial media as a Tesla “dividend” making shares available at a price for every investor. The dividend comment is idiocy. It’s the same as asking a five-year-old: Would you rather have this entire bag filled with 50 one pound coins or one wrinkled old 50 pound note?
After achieving its record valuation, Tesla’s most prominent institutional shareholder, Baillie Gifford, has dumped nearly 20 million of its Tesla shares since the end of June. Baillie was not alone in selling; almost every Tesla executive sold some of their shares at or right near the top and before the further dilution of value by Tesla’s issuance of $5 billion in new shares – what did they all know and when did they know it? Elon’s brother Kimbal Musk, a Tesla board member since 2014 who also sits on Tesla’s compensation, corporate governance and disclosures controls committees, made over $8 million by selling his shares for $498.32, the top. It’s okay because, after all, the laws and rules do not apply to oligarchs – just shut-up and obey.
During last Thursday and Friday’s trading sessions, Tesla’s stock lost nearly $100 billion in its market capitalization. That loss is more than Boeing’s entire market cap, which was $93 billion on Friday and more than every automaker combined.
Why is Tesla’s share price a mania? For Tesla to be worth $450 billion, Musk’s EV auto-maker would need to capture far more than a 50 percent share of all automobiles sold in the world, and Tesla’s current market share stands below one percent. Media hype and Musk’s daily fantastic claims and unfulfilled promises have helped propel these shares into the stratosphere. After Friday’s close, the S&P 500 rebalanced. Tesla was not included in the index and dropped eight percent; guess something scared the index away from Tesla, but it probably had nothing to do with valuations, accounting gimmicks or some other reason.
There is more trouble on the immediate horizon for Tesla, based upon Musk’s fantastical claims and material misrepresentations regarding Tesla’s sale of an $8,000 “Full Self Driving” (FSD) option that Musk claims will be “fully autonomous” soon. In addition to Tesla’s FSD causing numerous deaths, as a result of Tesla’s smashing into stationary objects that include parked police cars, Consumer Reports (CR) said “The $8,000 FSD doesn’t make the car self-driving.”
CR’s manager went even further in his rebuke, saying: “Tesla has repeatedly rolled out crude beta features, some of which can put peoples’ safety at risk and shouldn’t be used anywhere but on a private test track or proving ground.”
It has been reported that a Tesla crashed in China on September 5, killing two and injuring six. Considering Tesla has manufactured only around a million automobiles, the incidents reported involving their cars are extraordinary. The US National Highway Traffic Safety Administration has been aware of many deaths associated with Tesla crashes, yet has done nothing. People keep dying, when will action be taken? Perhaps never. Oligarchs Rule!
At one point during Friday’s trading session, we saw the NASDAQ down nearly 11 percent in two days, and a 2,000-point reversal in the Dow Jones Industrial Average. What does this mean for you?
Some of the moves were exaggerated by many plays in the derivative product options markets. But when you see extreme volatility when markets are in a “mania,” it’s time to take your chips off the table and re-assess.
Remember, if something seems too good to be true, it usually is. The economic, political and social culture has drastically shifted in the past few years to embrace “woke” socialism, anarchy and lawlessness. We have reached an incredibly dangerous flashpoint that must be addressed, countered and resolved by strong leadership. Do we have anyone available?
Fasten your seatbelts: it may be time to go short and severe turbulence is on its way because it is different this time – you ain’t seen nothing yet!