Tesla Goes Bonkers (Audio Podcast)

February 8, 2020

On this week’s show, Karl Eggerss discusses the meteoric rise in Tesla shares this week and how this one stock has proved so many wrong and yet so many right.

Hello. Good morning, everybody. Welcome to the podcast. My name is Karl Eggers, and if you want to get more information, you can go to Creatingricherlives.com or our telephone number is (210) 526-0057. Just a reminder, the show is brought to you by Covenant, lifestyle, legacy philanthropy. By the way, if you do go to our website, what you will see on there is our First Quarter Economic Review and Outlook.

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All right. Well, let’s jump right in the show. It’s a pretty crazy week for a lot of reasons. I said last week on the show, “Watch for the peak.” Not in the peak of the cases of the Corona virus, but the peak in the growth of the new cases, the second derivative, the statisticians and the mathematicians might call it. It was slowing down. That was one good thing, and then secondly, we saw over the weekend the massive amount of stimulus that China put in and cutting their interest rates. Remember, we talked about that right here last week. We said, “Look, watch for China to do something and America if need be,” and we are already getting lower oil prices, we’re getting lower interest rates, and those are stimulative. China may add on and pile on, and that’s exactly what they did last weekend.

So lo and behold, we come out, and the market bounced and was up over 350 points at one point on Monday. But Dow did finish up about 150, so it was off its best levels. It didn’t change things like oil on Monday. Oil had been down 15 out of 19 days, and now oil is officially in a bear market, at least the way the technicians would use the definition. It’s down over 20% from the high, which was early January all the way toward this, and copper, another… something that really points to the global economy and potentially China slowing down with this Coronavirus. Copper, down 13 days in a row, but we came back Tuesday, 500-point jump. We did see interest rates jump a little bit.

Then, look, the Dow was up about 500, but it still finished up about 400. So we saw some solid moves Monday and Tuesday, but the 30-year fixed rate, this was something else that came out on Wednesday, is at 3.71%. The lowest since October of 2016, and we told you, “Hey, if you can lock in an interest rate to refinance or to buy a home, lock it in. Interest rate is very, very low.”

Another strong down Wednesday. The Dow is up 400 points, so it was kind of like, “Hey, the Coronavirus is in the rear-view mirror. Markets are at all-time highs once again, and we saw oil bounced. We saw energy stocks bounced, but it was really just for one day because they kind of gave some of those gains up on Thursday and Friday, but another good day for the markets on Thursday.

Then, Friday, we saw the Jobs Report come out better than expected, 225,000 jobs created in January, the non-farm payrolls. Better than the 165,000 jobs, but here’s the kicker. The jobs’ growth continues to slow, and so just like… and this is a great lesson. Just like the Coronavirus started to slow, the growth rate started to slow. It was still building new cases, right? We still have new cases happening, new outbreaks and new deaths, but the rate of change is slowing down, and that’s precisely what some people look at for the economy.

It’s not about, “Are we growing at 3%, or 2%, or 1%?” It’s, “How fast are we growing?” and the difference between those rates each time it’s reported, and so what’s happening is even though the jobs market looks stable and is very good, 225,000 jobs created, the growth is slowing. So you have to look forward and say, “Well, if the growth is slowing, does that mean the wages are going to slow and continue to slow, and the hours worked are going to continue to slow, and people will spend less? If that happens, then do we get an economy that may start to struggle?

That’s what Wall Street is focused on. I think that’s what may have caused a little bit of the downdraft on Friday. But look, at the end of the day, it was a very good week for the markets. In fact, if we look at the Dow Jones, Dow Jones was up about 3%. Standard and Poor’s 500 up about 3%. You had the Nasdaq up over 4%. [Big Magoo’s 00:06:37] volatility fell 18%. I mean, in value, actually jumped in the game, which it hasn’t done recently as you know. So a very good week pretty much across the board.

The things that kind of led were: Biotech was really strong, up 7%. Metals and mining, up about 5%. Technology, as I mentioned, up about 4.5%. The things that were down were things like the gold miners, down over 3%. Oil, down another 2.5% as I mentioned. Gold itself, down 1%. Treasury bonds, down 1%. Utilities, down a half of percent. So you saw the risk back on, but it’s interesting to look at because the stock market right now seems to be… Even though it had a really good week, it seemed to lack a little bit of intensity, and you have to look underneath the hood to see what’s really going on with the stock market. You can’t always just look at the Dow Jones or the Standard and Poor’s to figure out what kind of strength is behind it.

So let’s see if we pull back. Remember, we went to kind of the… We broke out to new highs, but not by much. Let’s see if the old highs that were there in mid January, if we break back above that, or did we lose a little bit of momentum here? It wouldn’t surprise me to see us continue to pause because the stock market is still in the big picture pretty stretched. But again, I want to reiterate. The bull market, as I see, is not over, especially if we see earnings start to re-accelerate, but we could see a little pullback simply because of the fact that you’re seeing some real just, I would say, a little stretched on the upside.

Now, probably one of the biggest things that was talked about this week was Tesla, and I’ve said it for literally years. Tesla is probably the most polarizing stock that I have ever seen in my career for as big of company as it is as polarizing. What do I mean by that? It seems like there are just as many people that hate that company, smart people that say it is going to zero, they’re going to go bankrupt to people on the other side that are super smart money managers and observers that say this thing is going to a trillion dollars of revenue. Not a trillion dollars of market cap, a trillion of revenue. That’s what one person predicted this week.

Tesla went on this crazy, crazy tear the last couple of weeks, and it’s up. Get this. Since June of 2019, it’s up over 300%. June of 2019, like as in last summer. 2019. I’m not talking about June of six years ago. I’m talking last summer, and remember the whole funding secured. I want to take it private and got in trouble for that. Stock was moving all over the place. People thought, “Man, they’re going to go private.” Stock jumped up, and then of course, they didn’t really have funding secured. Stock went way down.

Well, now, it’s just going straight up, and it’s pretty amazing to watch, and nobody can really explain why now, why has it made this run in January like it did. Who knows? There could be short-covering. Right? There’s a lot of people betting against it, and when it goes up, they have to cover their shorts. There’s a lot of FOMO, right? FOMO is the acronym for Fear of Missing Out. You have a lot of that going on, but there are plenty of people who say, “I wouldn’t touch that thing with a 10-foot pole,” and there are some people that say, “It’s going to the moon.” But interesting to watch. I mean, that was probably the biggest news story from a stock perspective that we saw this week despite what was going on with the stock market.

Speaking of that Tesla move, by the way, there’s a really interesting picture. I don’t remember who put this out, but they were comparing all the previous peaks and the Standard and Poor’s 500 tend to come hen something is going parabolic, something is going straight up. So right now, it’s Tesla. Tesla goes up at this rapid rate. Everybody is watching it. It tends to be… Is that something that could lead to or is reminiscent of a bubble in the stock market? That’s what they were getting at.

We had things like Tesla, of course, right now. We had Beyond Meat. Remember, that was last summer, right, before the market peaked. Actually, that was in 20… yeah, 2019, and the market kind of sold off. We had natural gas back in 2018. It went on a really big spike, and then the stock market sold off. We had Bitcoin in 2017. Remember Tilray? We had Tilray in 2018. So who knows? We’re just only a couple of years, but they’re pointing out that when you have some kind of spike and some asset that’s going straight up, you tend… When that tends to fall, you tend to get the stock market shortly after doing the same thing. It kind of makes sense. It’s kind of rational, but that’s what caught my attention this week, especially given the Tesla rise.

Now, speaking of other car companies, I mean, remember, Tesla right now is going up obviously for who knows what reason. Toyota and Honda… and maybe this has something to do with it. Well, those are Japanese companies, but they have big manufacturing facilities in China. They’re going to extend their shutdown. So these car companies are having to shut production down because of the Coronavirus, and for you, that could be a good deal as shoppers in the next few months as they may have to slash some prices to entice buyers to come in.

The other thing I wanted to bring up before we wrap up today is Goldman Sachs came out with a pretty interesting little stat, a little pie graph, and it had to do with what rich people invest in, the wealthier households, the top 1% compared to the bottom 50%. Now, some of this is a little self-fulfilling prophecy, right, because some people don’t have the money to invest. So of course, what they invest in is going to look very different, but the top 1% on average have about 61% of their wealth is in equities and stock. About 12% in cash, about 11% in real estate, and then the rest in other little smaller things, but the vast majority is in stocks. That’s the top 1%, which is about $35 trillion.

The bottom 50%, which is about $7 trillion, has 55% in real estate and has only 4% in equity. So they have a… Just what I was just talking about, they have a lot of money tied up in a home that if they’re not going to sell it, they can’t use that for cashflow purposes. So that is something to really consider, and one way to get wealthy over the longterm is to have more equities.

Now, 401(k)s obviously help, dedicated savings accounts, and again, some of this is a self-fulfilling prophecy. Right? There’s people that are going to have a house, and they just can’t save, and they’re living paycheck to paycheck, and the equity is in their house. I get that, but there is a vast difference between what the bottom 50% do and what the top 1% do. I think for those striving to be one of the top 1% in terms of wealth, they don’t keep a ton of money in real estate, about 11%, but the rest is in equities, and that can come in stocks. It can come in mutual funds. It can come in ETFs, but they do own equity.

So it was a wild week, but look, at the end of the day, we’re sitting here right now. 29,100 we’ll call it on the… The Dow Jones is pretty close to all-time highs. We have earnings continuing to come in, and we’re not… We’re seeing the earnings come in pretty good, but we’re not seeing the reactions to those earnings really helping the stocks out that much. So let’s continue to watch. Again, the market is a little stretched. It would not surprise me to see the Dow pull back to maybe 20, even 27,500. I could see the Dow having a 10% correction here for the next few months, a couple of months on its way back up to new highs.

All right, everybody. Have a great weekend. Hey, don’t forget. Creatingricherlives.com is our website, and our telephone number, (210) 526-0057. Have yourself a wonderful weekend, and we’ll see you right back here next week.

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