I’d been nervous about my Tesla put for a while. Last night I listened to an interesting interview from someone who’s been short the stock for a while here: https://www.listennotes.com/podcasts/tcs-chartcast-teslacharts-georgia-orwell-uYqMyJTiQKN/
A couple interesting things. First, he expects that it’ll probably be a few months before Tesla is added to the S&P 500, and that it will probably hit its high right around then. Second, he said that when Tesla is added, the SPY type funds will have to sell a lot of their holdings in order to allocate to a company with such a large market cap – which could push many of the other components considerably lower.
That being said, I’ve been trying to take advantage of this topping behavior in both Tesla and the NASDAQ to sell off my put as favorably as possible – and my limit sell order finally triggered at the end of the day today. I’m down 35% on that play, but betting on companies over earnings is risky.
Another thing I’ve been thinking about is what Tyler Neville was saying on the Real Vision daily briefing today. He says that there are some signs of a possible correction in equities in the short term, but that you really have to expect them to go up substantially in the next 5 years. In short, the world is run by an older generation who are terrified of the repercussions of letting the stock and bond markets correct substantially as the boomers are averaging 65, thinking about the effect it will have on pension funds and 401k’s as well as their own amassed wealth.
The response of central banks will be keeping rates low and pumping up their balance sheets for a very long time. As a result, we will see a lot of money pushed into assets when there are fewer and fewer companies to invest in. Much of this money will go to older companies that don’t innovate much or grow much, and little of it will go to truly innovative startup firms – so we’ll end up with an enormous and growing pool of money chasing a shrinking number of assets to much higher prices.
Tyler recommends finding the few truly new and innovative companies, perhaps in IPO’s, and focusing on “stores of value” such as precious metals and bitcoin.
I have a substantial portfolio of puts at this time – in IWM and EEM – and I’m thinking of reducing it substantially after the next significant correction. If we see a consolation lower like the month after June 8th, with the Russell potentially testing 1400 again, I’ll probably get out completely just like I used the last dip to 1350 to get out of my Jan 2021 puts. My guess is that this chance will come in the fall as the election nears and COVID resurgences happen while congress fights on fiscal stimulus and the Fed tries to look impartial.
After that I’ll move even more into gold miners, SLV calls, and Bitcoin. I’m getting convinced that the move we’re seeing so far is just the early stage of the rallies to come in these areas. With bonds yielding negative after inflation, many portfolio managers will start to see these instruments as the only real diversification from stocks.
Rick Rule said in an interview that the beginning of the 1970’s saw negative real yields and it started a massive push in precious metals (along with rough corrections along the way of course). He said that after a while, price becomes its own narrative and you get people buying even as bond yields start to rise, and the biggest part of the spike before the crash had very high real yields in the early 1980’s.
Right now the overall allocation to precious metals is relatively low, but that will change. I’m getting more convinced that we’re at the early stages of this rally.
The thing to watch is the yields in JNK and LQD. When those start blowing higher, get out and get some downside protection. Until then, expect asset prices to rise in general, regardless of the underlying economic weakness.