TSLA and Bitcoin

When we look back on this era, a lot of people will be shaking their heads.  Or will they just dismiss it as just a case of a bubble feeding on itself, pure greed with investors rationalizing the crazy valuations with explanations that were considered reasonable at the time, but in hindsight, are cringeworthy.  

TSLA hit a market cap of $1 trillion yesterday, reaching levels that would make CSCO in 2000 look like a value stock.  Bitcoin is over $60,000, giving it a market cap over $1 trillion.  These are the trillionaire twin towers of this era's bubble.  TSLA is the poster boy for the ESG movement.  Climate change is not something that's going to be solved with ESG investing and building electric cars, solar panels, and windmills.  But seeing their behavior, you would think that somehow renewable energy capacity would magically grow if they stopped investing in fossil fuel production.  Short sighted thinking on Wall Street, as always.  

 Bitcoin is the poster boy for the antiestablishment crowd who think its an inflation hedge, a deflation hedge, a hedge against dollar debasement, a hedge against a stock market crash, etc.  Basically your new age gold bug.  There is no way to value it so in essence, ridiculous price targets (remember those nonchalant calls for $5000 gold in 2010 and 2011? LOL) can't be disproved with fundmentals, because there are no fundamentals.  

Like the dotcom bubble, this bubble has turned into a two tier system of the fundamentally glued and the unglued.  The vast majority are in the glued group:  bonds, global equities ex US, commodities.  Then there is a very loud minority in the unglued group:  US big cap tech (MSFT, AAPL, AMZN, FB, GOOG, etc.), meme stocks (AMC, GME, etc.), speculative playthings (EV and "new" tech stocks (TSLA, NIO, etc), flavors of the day (DWAC, PHUN, etc.), cryptocurrencies, and NFTs.  

I am sure some of you will say that US big cap tech stocks are reasonably valued and deserve their big valuations based on their dominant positions in their industries, but the law of large numbers make continuous double digit growth impossible (unless the US turns into a Jumbo Zimbabwe, then all bets are off).  And bottom line, FB and GOOG are glorified advertisement sellers, AAPL is a glorified phone seller, AMZN is a glorified retail company, and MSFT is a glorified software company.  

During a bubble, the financial markets become an absurdity.  Since people always need a reason for these crazy moves, explanations and rationalizations are made to fit the situation.  For example, the go to rationalization for sky high valuations for such mature and large companies like AAPL, MSFT, GOOG, AMZN, etc. is low bond yields.  Even though bond yields are basically at the same levels as they were in the middle of 2016, when these big cap tech stocks were trading at much lower valuations with more growth potential.  

As for TSLA, bitcoin, and other speculative mania plays, they are just greater fool theory vehicles, and nothing more.  These plays present some great opportunities on the short side, as we get closer to the final top for the stock market, probably sometime in the spring/summer of 2022.  There will be some extremely attractive risk reward trades in put options strategies, or just outright shorts without the need to catch the top, you could wait for downside confirmation and still be shorting at good levels, as there is so much hot air in them.  

After seeing the way that bulls have remained sticky and complacent, even through an extended pullback in Sep/Oct, and seeing how quickly they get greedy and rush towards the most speculative names, its about that time to slowly prepare for how to play the top of the biggest bubble of all time.  Its going to be really choppy for the next few months as the smart money distributes their holdings to the crowd, and I would expect a gradual decline in speculative fervor as the SPX makes marginal new highs, while the likes of TSLA and bitcoin probably top out before the broader market.  Unlike this year, when TSLA and bitcoin weakness in the spring/summer signaled nothing to the SPX, in 2022, I expect TSLA and bitcoin will be canaries in the coalmine, foreshadowing a sharp SPX correction.  In the final stage of a bull market, speculative stocks top out first and lag the overall equity indices (Nasdaq lagged SPX from March 2000 to September 2000 at the top).  

Haven't touched my SPX position, still holding long, been waiting to add on any dips but they've been so shallow and fleeting that I haven't had a chance.  Still a very strong market that effortlessly blasted through all time highs.  SPX flys on a feather, making new highs while Europe, and especially Asia lag behind.  Its only been 2 weeks since the blastoff higher started during opex week.  After extended pullbacks in a strong uptrend, the rallies off the bottom usually last at least 4 weeks, so 2 more weeks of a grind higher at a minimum if history repeats.  Not even thinking about 2022, just trying to milk this move for as much as I can while seasonality is positive and fund managers are still in accumulation mode.