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Something in the air

 


Before unpacking the December 21 issue of Barrons, I want to look back at December 14th issue.

The decision all investors must make right now is how they stand in relation to the method of Index Buying, most specifically in relation to (possibly overbought but certainly very bullish) Nasdaq Tech key names.

The concern a week ago was about what happens to the S&P 500 when Tesla joins the index. That doesn’t happen until Monday Dec 21. On Friday, Tesla set a new closing record of $695 a share. Nearly 200 million shares changed hands, with most action at the very end of the day (when they say the smart guys play).

The skyrocketing stock is likely to have ups and downs with enough impact to noticeably affect the course of the S&P 500 index. Musk is an odd guy and Tesla is an odd stock and it is yet another reason to wonder again (and probably mistakenly) if the era of indexes may be nearing an end. THE S&P's weighting means Apple, Microsoft, Google, Amazon, Facebook and Tesla comprise a quarter of the whole benchmark. 

There's something in the air - but is it static?

Some interesting material from Bond Angle editor Vicki Brian shows energy credit sales are important factor in the company’s free cash flow in recent quarters – how weird is that? [Also weird, there is a thin line between Bond Angle and Boondoggle.]

She writes:

I cover Tesla bonds, not the stock, and they tell a different story as bond markets tend to do. In the past three months, Tesla stock has spiked 85% to $610 as of today on enthusiasm over the company’s four consecutive quarterly “profits” and the prospect of it joining the S&P 500. By comparison, Tesla bonds have remained little changed at roughly 104 on the same major news and even after additional positive nudges when S&P recently increased its credit quality rating a notch to “BB-” and put it on “positive outlook.”

Lesson here: Look at stocks' corporate bond debt

The autonomous electrical vehicle is still a ‘car,’ and Tesla has the same problems as any car company on one level. This together with fevered IPOs for Deal Dash and airBNB bring back memories of the.com bubble era. That and $1.09 will buy you an Almond Joy, as history doesn’t repeat itself … at least not exactly. So far this year, Tesla shares have gained 731% -- in that you can’t say it’s not representative of a familiar something – that being a stock I missed! 

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Also in the air is the notion of Momentum. Which seems to have a technical definition.



Says Wells Analyst: Momentum strategies have gone too far. During the recession [people] ran two momentum strategies they bid them up to a level that I don't think is sustainable and this setup is very much what we've seen in 2003 2009, you had recession. 

Everyone runs to the safety -- momentum, they bid them up to a level that's not sustainable. 

Recovery comes around and [people say] Oh, I need to get cyclicality - they run from momentum, it becomes a catcher indicator, and next thing you know somebody says we have a 2000 sigma event, which isn't true. 

We have a point of inflection, which is what happens with momentum strategies, because ultimately [you] make a deal with the devil, you find momentum, it continues to go up, it performs, but when it turns it turns very badly, and you need to get out quickly ...  And what we've been saying to clients for some time is if you want higher returns - if you want more competitive rates of returns, you need to look down the market capitalization, smaller caps, you need to add more cyclicality higher COVID beta, and you need to start going into the financials. 

Hmmmmmm -- Random Foresight

“Be who you are and say what you feel, because those who mind don't matter, and those who matter don't mind.” ― Bernard M. Baruch





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