Deflation or Inflation?

A question I’ve received frequently the last couple months from many different people is about the potential for inflation given the unprecedented response to the Novel Coronavirus Pandemic. It is an important question because it impacts the best investment approach going forward as well as other personal finance decisions.

I understand the rationale behind the question. After all, trillions of dollars have been pledged between the Federal Reserve and the U.S. Treasury in the last few months in what essentially amounts to a “helicopter drop” of money on the economy. So, it is understandable that people are beginning to have concerns about the potential for inflation.

Ultimately, I believe we will get inflation mainly because the Federal Reserve will stop at almost nothing to make it happen, HOWEVER, we must allow for the possibility of getting deflation first. Continue reading “Deflation or Inflation?”

Prospective S&P 500 Returns Back Into Negative Territory

I hope you and your families are staying healthy and have been able to get outside to soak up some sunshine!

Yesterday, the S&P 500 crossed above the 3,000 threshold for the first time since early-March. Unfortunately, it wasn’t able to hold that level into the close (closed at 2,991) although it’s making another run at it today.

The S&P 500 has now rallied about 34% from the March 23rd closing low. That means it needs about another 13% to regain the all-time high of ~3,386 (February 19th). Continue reading “Prospective S&P 500 Returns Back Into Negative Territory”

A Light at the End of the Tunnel

First of all, I am very happy to see new data coming in these last few weeks indicating the Virus is far milder than initially believed. Although the World Health Organization initially indicated at least a 3.4% fatality rate, it appears the fatality rate may even end up closer to 0.05% – 0.4% roughly in the range of the flu even without a vaccine in place.

It appears the risk to young, healthy people is negligible while the older population is at greater risk especially if there are certain other pre-existing conditions present. A large portion of deaths, around 50% in some regions, are in nursing home populations. Lockdown policies around the nation should account for these facts and disparities.

We’re also starting to see COVID-19 hospitalizations waning. There were but a few overwhelmed hospitals, the nation has both excess ICU capacity and excess ventilators at this point contrary to the initial projections from the IHME and many States’ Governors’ offices. In fact, many hospitals around the nation are losing millions of dollars and furloughing staff.

In other words, the light at the end of the tunnel is coming into view. The market has been anticipating and rejoicing at this sight evident by the S&P 500’s ~30% rally from the March lows.

What’s Next? Continue reading “A Light at the End of the Tunnel”

Tesla Update

Back in February I did something rare (for me) and wrote about an individual stock, Tesla. I essentially pointed out the absurdity of the valuation based on Tesla’s revenues, earnings, margins and vehicle sales in the context of the industry.

That was written on February 4th upon which Tesla ticked a high price of 968.99. Over the next two months Tesla’s stock price proceeded to decline over 60% to $350. The stock has since rallied to over $800 as I write this. What a ride.

Last night, Tesla reported Q1 earnings. As usual, there are some inconsistencies and concerns in their financials so let’s take another look to see if the $800 per share price is justified. Continue reading “Tesla Update”