Alright, this has been on my mind a lot lately, so I imagine if I am thinking about it, then
a lot of you probably are too, so I wanted to run through my thought process about Tesla
as an investment right now with everything going on with inflation, the FED, economy
and US dollar.
FED The FED appear to be going no holds barred
when it comes to inflation.
Doing whatever it takes to reduce aggregate demand in the economy.
Jerome Powell isn't interested at all about what congress can do to improve supply, like
reducing regulation when it comes to energy.
Powell and the FED just want to focus on demand, as supply will take too long.
If we start investing in the likes infrastructure, and education, then there is going to be a
massive delay there until its felt in the economy.
The FED are set on nipping this in the bud asap, and appear dead serious to sort it fast,
before the time the government's treasury bonds come up for renewal, at rates that they
cannot afford and would thus need to borrow money to roll them over, thus resulting in
more inflation, etc.
Yes, its quite the pickle the economy is in.
Right now America's biggest export is inflation, and as they control the global reserve currency
they have this ability to make the rest of the world also pay for their inflation.
If you thought things in Europe couldn't get worse then their US debt has just increased
with the Euro reaching about a 20 year low.
The US could end up creating a global recession or depression if they push too hard.
BREAK They are going to push this hard until they
start breaking things in the economy.
Businesses will start to go under, homes foreclosed on, jobs lost, markets crash.
Elon says recessions are a necessary part of the economic cycle, even referring to them
as an economic enema, as you end up with companies like Rivian being worth $120 billion.
There's a good chance they will never hit that valuation again.
Elon said the situation gets out of control, the economy has a misallocation of human capital
where people are doing things that are silly and not useful to their fellow human beings.
RESTART The question is how hard should the economy
be pushed, how much is necessary to break before we can pivot back out of this insanity.
If too much is broken, then it is terribly difficult to restart it, even with 0% interest
rates, and more money printing.
It doesn't work like that.
On top of that we have other out of control issues like Ukraine.
It's almost like word war, Russia using energy, the US using currency, we just need to hope
that China doesn't try and enter it controlling technology.
Everyone is worried about what's happening in the world.
The markets are reacting, but not crashing too extreme, in the Global Financial Crisis
the NASDAQ dropped almost 50% from its high.
Right now we are down about 30%.
But that was more from an inflated property market.
1980s I mention the Global Financial Crisis, as
its the crash that I have experienced the most hands on in the past, and learned from.
But I think the best way to liken this scenario would be more to what we saw in the early
80s, with inflation then, and interest rates going up to around 20% with the then Federal
Reserve Chairman Paul Volcker.
Inflation rates were higher then, and again this was brought on by an oil crisis too.
However, the FED hadn't just printed a ton load of dollars into the economy.
And there wasn't as much national debt, so the government could actually afford higher
rates.
And they did eventually break the back of inflation.
But the recession did last a couple of years.
BEST INVESTMENT So what is the best investment right now?
Well in any investment I always like to invest in what I know either way.
Of course Tesla is the investment I am most familiar with.
But is the market going to keep crashing, there is so much fear, uncertainty and doubt
right now everywhere.
Are we listening to the media's portrayal of what's actually happening in the world,
when we have evidently seen them be so wrong about Tesla for so long, do we suddenly seem
to think they have an idea of what will actually happen with the macro environment.
Are we scared and just want some answers from whomever will give them to us?
But if you sold some shares, and held some cash, is that actually any better, if everything
is inflating, then that's simply another term for cash crashing.
Is it worth risking investing in cash when there is still likely more inflation on the
way?
What about all the money that's been printed, that still has to end up in the economy somewhere.
What about when interest rates drop, they have to, because the government can't afford
their debt at these rates.
Unless they renege on their treasuries, which I don't think is likely, it would kill the
dollar.
COMPETITION So is Tesla the best investment?
Well if its what you know the best, then I wouldn't suggest you suddenly start buying
into other stocks.
The way I see it is, people won't stop completely buying cars in any economy.
Tesla has no problem dropping prices in order to meet demand, which with additional supply
they may very well need to do.
Their costs have reduced significantly in Shanghai due to these line upgrades.
Their costs will reduce even further when they can use their new production techniques
from their new facilities.
The US are dropping the costs a further $7,500 per vehicle again.
If the economy is bad, then raw material costs will drop, commodity prices, Tesla can negotiate
new contracts at better rates, Tesla can make massive long term deals with other partners,
as their competition is having enough trouble just staying alive, let alone thinking about
massive growth over the next 10 years.
Tesla may have the entire battlefield to themselves.
CHINESE What about the Chinese EVs, will everyone
buy these lower cost versions instead of Teslas?
Well if sales are down for Tesla, they would be down for the Chinese too.
Except the issues the Chinese face, is that they weren't profitable when they economy
was red hot, so they are simply going to lose even more money now.
They won't be able to afford to double down and take a massive market share.
Especially harder if Tesla is reducing their prices too.
SAFETY I have been warning us about protecting ourselves
for a potential crash since December, if you recall I was talking about buying puts in
GM as a hedge to cover myself.
If you recall I said I was just going to buy enough, so that if GM crash, which it did,
50%, there would be enough profit to cover my mortgage for a few years, in case things
were bad.
I had a bad experience from the Global Financial Crisis, which I never wanted to risk going
back to.
But its all very well saying I was going to.
But unfortunately, I got too bullish on Tesla and decided to roll the dice one more time
with some extra options, and was going to use that profit to buy the puts in GM.
I lost on them.
But I did end up selling some of my LEAPS early enough, with a decent enough profit,
that I actually have enough cash to cover my mortgage for 3 more years, by which time
rates have hopefully recovered, and the entire economy is looking promising again.
I made quite a few videos on trying to protect yourself for the potential of these sorts
of events, it was when the stock was 1100-1200.
But not everyone is all in as much as me, over 50% of my net worth is in Tesla, the
reaming being my business and house.
SUMMARY Anyway, some people have been saying that
the smart money now is to sell your shares.
Well to be honest I think the smart money would have already sold.
I am not at all trying to tell you what you should do with your investments or money,
that is up to you.
You know what is best for you entirely.
I am just telling you what I have done.
I have put aside some emergency money, cut back on a few other expenses too.
And I feel I am in a comfortable enough position to hold my shares through the next year or
two if things are rough.
My point is, that even if you didn't feel the economy is going well, then that doesn't
mean cash is the place to invest either.
There doesn't seem to be any safe place to put your money right now.
Even gold is down 25%.
But I really would like to hear all your thoughts on what I have said, and get your view on
what you think is happening too.