Midnight Musing 07/08/2024 - The Market Is Batshit Crazy, Don't Let Anyone Tell You Differently
This time is different, just like 1929, the Nifty Fifty, the Dot Com bubble, and the 2021 shit show of ARKK, SPAC's, and unbridled speculation...
Fresh off writing a full-fledged piece and a note on the absurdity of market price action occurring in front of our eyes in the market right now, I can’t shake the thought that we are in batshit crazy territory for the broader equity markets and for individual stocks too.
This thought occurred to me as the Invesco QQQ Trust ($QQQ) melts-up literally in the last half-hour of nearly every market session, and gamblers have returned to gamma squeeze Tesla ($TSLA) shares 27.1% higher last week, even though at the beginning of 2023, Tesla’s second quarter 2024 deliveries were estimated at 560,000 (they came in at 423,000) and TSLA’s margin in the second quarter of 2024 was forecasted at the beginning of 2023 to come in at 17% for Q2 of 2024, and it is coming in at 7%.
Given these estimates, and the actual results, what do you think Tesla’s share price has done since the beginning of 2023, even though the targeted 50% a year volume growth in cars has hit a significant speed bump with negative year-over-year growth here in the second quarter of 2024?
If you guessed rise 105.3% you are the winner!
That is the state of the markets today in a nutshell.
Said a different way, Mr, Market is telling investors to never mind the absurd price-to-sales ratio of Apple ($AAPL), which is over 9 and approaching 10, when Apple is trading for a frothy 35 times this year’s price-to-earnings estimates and 32 times next years earnings estimates, crossing the famous Scott McNealy supposedly impenetrable price-to-sales threshold as a $3.4 trillion dollar company, even though Apple’s sales have declined 4% year-over-year, and Apple’s sales have declined 5 of the last 6 quarters year-over-year!
Mr. Market is also saying to never mind the bargain basement price of stocks like Walgreens (WBA), which trades at a price-to-sales ratio of literally .07, receiving from the market’s roughly 1/130th the acclaim for their nearly $139 billion in sales that Apple receives per dollar of sales!
Think about that for a minute!
That is batshit crazy.
Overall, I remain astounded by the degree of crowded trades today and how much faith investors are putting in Mr. Market to get it right.
Suffice it to say, this is not going to end well, with a possible 1987 style melt-down crossed with 2018’s Volmageddon potentially staring us in the face in the draw pile of cards, in my opinion.
Who wants to draw into that draw pile with those potential cards looming?
In wrapping up my inaugural edition of my Midnight Musings, thinking out loud long after the kids have put their heads on their pillows (okay not that long, it is summer after all and kids stay up late these days, especially the older ones, much later than yours truly) Mr. Market does get things right from time to time. As a firm believer in active investing, I can begrudgingly admit that.
However, Mr. Market has also been spectacularly wrong at various junctures in market history.
This includes the permanent high plateau advocated by academic Irving Fisher in 1929, the superlative newness of the Nifty 50 in the 1970’s, where the fledgling S&P 500 Index (SPX) went from 108 in 1968 to 102 in 1982 in nominal terms (the venerable Dow Jones Industrial Average went from 1000 in 1968 to 1000 in 1982 in nominal terms), with both the S&P 500 and the DJIA getting crushed in real terms, the Dot Com Bubble Era that saw shares of Amazon ($AMZN) collapse 94% from 2000-2002 and a wholesale price destruction of the Nasdaq Composite, and more recently, the euphoric speculative blow-off of 2021 that saw the world introduced to SPAC’s and the gamma squeeze.
Amazingly, this speculative orgy today stands above all those legendary euphoric episodes in market history from my vantage point as an active investor and market historian.
Yes, the quality of the bubble may be bigger, the heart of the bubble is carried by truly extraordinary companies, however, that doesn’t excuse the absurdness of the biggest bubble in modern market history.
How did we get here?
The answer is the full-fledged adoption of price insensitive and valuation insensitive investing, something that will be glaringly obvious in the future, yet mired in this orgy of speculative excess, it is harder to define in the moment, as most investors are punch drunk on the irrational price action, dancing while the so called music is playing, not realizing the gravity of the situation at hand.
Using another analogy, it is almost like we are in outer space, and there has been a breach in the oxygenated chambers, yet very few realize the gravity of what is happening, intoxicated by the seemingly all knowing price action.
This same price action is throwing us the Mother of all curveballs, and this will only be evident with the benefit of hindsight.
One last thought, how do you survive a batshit crazy market?
Not drinking the proverbial kool aid is the first step, so snap out of the Matrix, and come back to reality.
Then take advantage of this absurd price action in every way that you can. After all, the only way to get true generational wealth opportunities is for something crazy to happen, and something crazy has happened. In fact, what is happening is crazier than any period in modern market history, in my opinion.
Batshit crazy.