Josh Brown said something on CNBC today that I’ve believed for a long time under the Trump Economy: it’s now impossible to walk-back rate cuts.
We all remember the debacle of December 2018, when the Federal Reserve raised rates by a quarter point, from 2.25 percent to 2.5 percent. The result was a devastating market drop of 20 percent.
After the last seven days of Coronavirus fear and loathing, the Fed made an emergency rate CUT to stave off concerns, and the Dow fell by almost 3 percent. I guess it wasn’t enough, but just imagine if they had attempted to RAISE rates.
Much as Religious Investor thinking may help quench queasy market appetites by feeding the “There’s no limit!” mentality of millennial dreamers, fueled by the likes of Tesla and Virgin Galactic, at a certain point the ties which bind may horribly snap.
In that moment, will rates be cut or raised? Will it even begin to matter?
You’ve probably heard something along those lines in market-based articles. After all, greed and overconfidence are the virtues of constantly churning stock wheels. It should never stop.
Over the last few years, we have witnessed a rather new phenomenon: the Religious Investor. In this case, it is a person who has no regard for reality or the underlying principles of value. Any outcome, regardless of nature, is an affirmation of their stock’s worth, and skepticism? We simply won’t have it!
The Religious Investor operates much like the Chant Warrior where psychological tropes are concerned. Anything Bad is Good, and anything Good is good. Low polling? That’s because the polls are wrong! Not getting positive attention? Only because of media bias! There is zero possibility of an alternative, because that contradicts the religious narrative.
You probably recognize by now that my target here is Tesla. To be clear, it applies to shareholders in other stocks as well, like Buttondown notes:
One January 29th, 2020, they released a fresh earnings report showcasing the following:
Q4 Non-GAAP EPS of $2.14 beats by $0.38
GAAP EPS of $0.58 misses by $0.26.
Revenue estimate was $7.05 billion, actual was $7.38 billion, beating by $330 million
In reaction, the stock rose from around $570 to $644, roughly 11 percent. This despite relatively poor results in the second half of the year, and a weak track record.
Look at how Tesla bulls respond to skepticism:
Comparatively, Apple released the following results not long ago:
Q1 GAAP EPS of $4.99 beats by $0.45.
Revenue of $91.82B (+8.9% Y/Y) beats by $3.41 billion.
Apple’s uptick? About 2 percent. And even in that case, after a long run of success, calling for a sell gets you shredded by the true believers.
So should we all go to cash, or stop being haters and buy?