I know everyone likes to predict the next crash, and how much they love to say there is a big
crash coming with a very somber and serious tone, as some sort of warning and spread fear.
They do this every year, and as they say, economists have predicted 7 of the last 2
crashes. If every year you say there is going to be a crash, well guess what? One of those years,
eventually you will be right. Everyone seems to think its cool predicting bad news, like crashes,
and it probably gets more clicks. Well here at Tesla Economist, we like to stay positive,
whilst preparing for any potential downsides. So rather than expecting a crash to come,
well, what if, its a boom. Why don't people predict booms?
What if there is a serious market boom in the event of everything that has been happening?
Please don't think I am being insensitive to what is happening in Ukraine,
but this channel is about economics, so we will be discussing potential economic impacts,
particularly as how it pertains to Tesla.
I have often discussed about a potential recession and how to prepare for it.
But I have also said that no one can predict one. Sure everyone is expecting one,
its's been 14 years since the global financial crisis. But it still can't be predicted. There
is equally just as much chance that we could enter another boom stage.
The Dow is currently just over twice what it was at the peak
of the last boom around 2007. If we look at other booms in the past, like the .com bubble,
the Down Jones almost quadrupled over a slightly shorter time period,
when compared to the peak of the market at the previous boom, in 1987, aka Black Monday.
Did you hear that? We have before seen the difference in the Dow up 4 times from peak of boom
to boom, compared to where we are currently, where the Dow has only about doubled since
the property bubble. This is a big difference. Often in a boom we see it get the craziest right
before it crashes. In June 99 the Nasdaq doubled 7 months later in march 2000 before it crashed.
Now as far as war is concerned, going previous invasions in history, it would seem that we have
seen the bottom of the market, with uncertainty before an invasion. Implying it should only
recover from here. Of course there are other various macro issues at play, we will just
try and identify what we can individually. There is a good chance of the market recovering soon.
Other macro issues like the excessive money printing we have been seeing.
This should further inflate the markets. Yet they haven't gone insane. Sure some stocks
really are feeling the affects of this changing world more than others. But I am just looking
at the overall market and indexes. The other side of quantitative easing was the exceptionally low
interest rates we have all been feeling too. Low interest rates will always stimulate an economy,
as money becomes cheaper, it just has the downside of inflation, which we are seeing now.
FYI, if we made the same comparison with SnP 500, we would have the snp
up about 5 fold from the 80s to the 90s, and almost 3 fold since the property bubble peak.
A lot of the growth we have seen in the market, isn't just regular economic growth too,
but a transition of industries, where companies like Tesla and Zoom thrive in
this new world we creating. These companies didn't grow just because the economy boomed.
Of course a potential boom is only further again perpetuated by low interest rates.
Yes, rates are rising, rising all the way to a level where they used to be to stimulate an
economy in a recession. Yet we are using the same level of rates to try and slow down an economy.
Although there is so much debt any slight adjustment could have a big impact, I guess we
will have to wait and see what affect rates have. Remember in the 80s we saw interest rates as
high as around 20%. That can't happen this time, the Fed can't afford the interest.
Obviously supply chains have been responsible for a lot of business to run constricted,
due to not being able to get enough supply of products to meet customer demand.
These should start to ease up now covid is calming down. When sorted it should meant
that prices come down, supply increase, spending increases and economies improve.
Also I would say there is a good chance that governments may want to do what they can
to rectify supply chains as much as possible, due to it having such an impact on inflation.
Of course we can't discuss supply chains, without mentioning semi conductors. Towards the end of
this year we should start seeing a much larger supply of semi conductors. Once semi conductors
become more abundant and prices come down, then this will reduce a lot of costs in places, whether
its savings to the end user, meaning they have more expendable income to consume more products
and thus further add to the economy. Or the semi conductor shortage being rectifed,
will be savings for business and thus add to profit further, and again add to the economy.
A lot of businesses have a lot of backlog,
simply waiting for supply, and they are not able to even order all the supply they want,
as their distributors have limited supply too. Once businesses finally have the inventory they
require to serve their customers, then business will start picking up more too.
Although the rise in the stock market over the last couple of years may not have been as big as
some, it was still considerable for many to enough to feel it in their net worth. Almost everyone's
property and stocks have increased. They have more funds available for spending potentially.
And they probably have a lot of pent up spending to do. Once all these items are back in stock,
that people have been waiting to buy, or become more affordable.
Other people desperate to travel to see relatives or friends, or just go on a holiday.
There should be a lot of spending to come. Thus more potential to push for a boom.
Of course if the boom grow, so do consumers asset prices and thus potentially spend more.
Right, so lots of potential consumption to come, to stimulate the economy. But there is also a
lot of production to come, and I do mean a lot. The entire world now understands that we should
not be running the planet on fossil fuels. It would appear that the world has decided that
instead we will use energy from the sun, wind and nuclear, and store the energy in batteries.
In addition to that, all transportation will eventually become emission free too,
and become electric. So all energy renewable,
and all transportation electric, in the world. This is what looks like is happening, with the
backing of government, citizens and corporations. Now, I have this theory, that perhaps rebuilding
these two industries might also be good for the economy too, and all that spending,
may further stimulate economic activity. Of course it just so happens that Tesla is at the
epicenter of this expenditure. Tesla looks like the company to do the most within that movement,
and are gearing themselves up to be able to have as much impact as possible.
Of course with rising oil prices this will continually make solar and EV better and better
value, if the alternatives keep getting more expensive. This will mean there is a continued
investment in alternative energy. Of course OPEC could just flood the market with cheap oil too.
What if we enter another roaring 20s, like a 100 year cycle. We entered the roaring
1920s just after the Spanish Flu too, similar to pandemic of today. The boom
could last the most part of the decade. We don't know how this might play out.
Anyway, I am not trying to predict the future, merely offering more options to
how the future might turn out, and based on solid reasoning, as to how this might play.
Everyone just loves to predict crashes, especially based on what has just happened
or happening in the world right now, people are so quick to jump to all signs point to a crash, but a
boom is also possible. And in a boom, right now, what is going to be the number one coveted item,
a Tesla. Obviously I can predict a boom as likely as I can a crash, my point is it is
just as arbitrary to predict a boom, and gave several reasons why we may not have yet seen
the real boom. We just don't know. Besides even in a recession I wouldn't have expected Tesla' stock
price to drop as low as it has recently. The stock price is always going to be impossible to predict.
For those contrarian investors out there, who had been waiting for a crash, and bought near
the bottom, well I guess that's what they call the smart money, or maybe they just got lucky.