In my last Real Money column I noted the relationship between demonetization and prior market crashes. As 2019 draws to a close, this week's market action is quite predictable. We are still in melt-up mode, and no one with any sense of market forces would have expected a reversal in a holiday week. Next week will likely start the same way, but Wednesday's New Year's celebration will also bring us back to a new reality. Silly season ends next Tuesday, and January is going to bring some much-needed data to go along with the market's euphoria. Will the numbers support the hype?
Well, at a forward P/E multiple of greater than 20x, the S&P 500 is now trading at a level not seen since 2002. This is generational stuff. So, the first question is: can the Fed keep pouring gasoline in the market's rally?
The current $500 billion in repo operations, authorized by the FOMC on December 13th, are a blatant attempt to re-monetize the economy after slower economic data was revealed throughout the third quarter. It's QE4. Only an idiot would believe otherwise. That said, the repo operations this week, including Friday's injection of $25.8 billion, have actually been well below the amounts offered. So, the system is under-subscribing the Fed's waterfall of cash, and that shows that QE is not necessary to prevent a "repo-calypse."
So, there's not going to be a systemic shock to the U.S. economy over the holidays, but the data train starts again on January 10th. Note that this is not the first Friday of the month, owing to the midweek fall of the New Year's holiday. Thus market analysts will have an extra week to concoct their incredibly unreliable estimates for December non-farm payrolls growth. The Bureau of Labor Statistics survey-based methodology is so flimsy that no one can really predict, it. So, expect a consensus forecast for growth of 180,000 jobs in January, because that's what is posited in most months. If the economy did not produce a rockin' pace of hiring around the Christmas season and if the adjustments made for the GM (GM) strike prove to have been too aggressive (i.e., November and October's gains are revised downward) then this market will fall. Hard.
On a single-stock basis, I would expect Tesla (TSLA) to report fourth quarter delivery data on either Thursday, January 2nd or Friday, January 3rd. TSLA's remarkable run in December has been the stuff of short-squeeze legend. The market seems to forget that Musk and Company actually lowered their guidance for 4Q deliveries during their third quarter conference call on October 23rd. The guidance went from "360,000 to 400,000" to "highly confident that we will exceed 360,000" deliveries. That's a guidance cut to anyone other than folks who don't believe the Fed's current repo actions amount to QE4.
So, Musk needs to deliver at least 104,000 Teslas worldwide in the fourth quarter to hit the 360,000 unit figure. Today's news that 15 Shanghai-made Model 3's would be delivered next Monday hardly moves the needle on that deliveries target. Tesla's sales are a constant stream of first-mover adoption, and in 2019 that has seen Europe's Model 3-driven strength offset slowing growth in the U.S., especially in sales of the Model S. Having lived and worked in Europe for half a decade, I can attest to the pronounced slowdown in commercial activity around the holidays, especially on the Continent. Can Tesla offset those headwinds and the horrible recent Chinese car sales data - especially among EVs, sales of which fell more than 40% in October and November after the removal of subsidies - and deliver a number that would justify the $78 billion valuation implied in a $430 TSLA share price?
If you have been reading my columns for the past five years in RM, you know that I have statistical models out the wazoo, and I certainly have one for Tesla's deliveries. If you have been reading my RM volume for the past four months, however, you know that I have started a new trading venture, Excelsior Capital Partners. With my own capital on the line I can't divulge proprietary research.
Do your own homework. On every stock, not just Tesla. The answers are right in front of you, unless your name is Jerome Powell or Elon Musk. Happy Holidays!