Tesla’s 21% Plunge Is Not the Only Sign That Stocks May Be Ready to Top Out

[Money Trends with Andy Krieger]( Welcome to Money Trends! If this is your first time reading one of our issues, learn more about us [here](. And if you have any questions or comments, shoot us a note anytime [here]( or at feedback@andykriegertrading.com. Tesla’s 21% Plunge Is Not the Only Sign That Stocks May Be Ready to Top Out By Andy Krieger, Editor, Money Trends “I can calculate the motions of the heavenly bodies, but not the madness of the people.” This is the famous quote of Sir Isaac Newton, the brilliant scientist, as reported in Benjamin Graham’s The Intelligent Investor. From the book: Back in the spring of 1720, Sir Isaac Newton owned shares in the South Sea Company, the hottest stock in England. Sensing that the market was getting out of hand, the great physicist muttered that he “could calculate the motions of the heavenly bodies, but not the madness of the people.” Newton dumped his South Sea shares, pocketing a 100% profit totaling £7,000. But just months later, swept up in the wild enthusiasm of the market, Newton jumped back in at a much higher price – and lost £20,000... For the rest of his life, he forbade anyone to speak the words “South Sea” in his presence. The chart below tracks the investments Newton made that led to his financial ruin. In today’s dollars, £20,000 for Newton would be equivalent to nearly $4 million. The poor guy went from wealthy to bankrupt due to a market bubble. Today, once again, the stock market is dangerously overbought. So are quite a few of the currency pairs that have been relentlessly going farther and farther without a correction. To put things in perspective, I did some back-of-the-envelope calculations during a recent phone call with my associate, Imre Gams. I was curious to see how Tesla might stack up against fellow automakers Volkswagen and Toyota. Well, the results floored me. Here are some of the numbers: - Toyota and Volkswagen combined have about 80% of the market value of Tesla. - Since 2012, Tesla has sold about 900,000 vehicles. Last year alone, Volkswagen and Toyota combined sold about 20 million vehicles. - In 2019, Tesla had a loss of $862 million. Volkswagen and Toyota combined earned a bit more than $32 billion in profits over the same period. - Through the end of June 2020, Tesla had total revenues of $25.7 billion for the prior 12 months. Toyota and Volkswagen had combined total revenues for the prior 12 months of roughly $501 billion. The numbers, which imply Tesla is dramatically overvalued, are staggering. It was during my review of these numbers that I was reminded of Sir Isaac Newton’s quote about the madness of men being unfathomable. As I wrote to my Big Trades subscribers on September 4 – right before Tesla’s 21% plunge over the next four days – one day, people will wake up and regret being swept away in the wave of Tesla stock buying… just like Newton regretted being swept away in the South Sea mania that cost him his fortune. Of course, that doesn’t mean everything is as overvalued as Tesla. Companies like Amazon, Netflix, Microsoft, Facebook, and Apple are also overbought, but at least that’s grounded in some understandable assumptions about how the future will play out. They have sound business models that are well-positioned for a pandemic-afflicted society. The currencies, meanwhile, have some similarly mispriced pairs which have been driven by “irrational exuberance.” That’s the phrase former Fed chairman Alan Greenspan used to describe the dot-com bubble, to warn investors to not get too carried away. His warnings went unheeded. But at least he had the decency to warn people that the valuations in the market were insane. On the other hand, current Federal Reserve chair Jerome Powell and other Fed officials have been trying to maintain that there isn’t a financial bubble today. Ultimately, they’re doing us a disservice by not being straight with us – now more than ever. Why? Because as I wrote [here]( we just saw a rare technical formation in the stock market. Essentially, it forecasted a nasty reversal which should ultimately shock all of us with its force and persistence. That’s why, on September 1, I sent out a warning to my Big Trades subscribers. I wrote that the S&P 500’s rally since March should mark “the end of the supercycle, and the start of a major down leg in stocks.” Since then, the S&P 500 has fallen as much as 7% from its peak. I am not convinced yet that this is the start of the move the technical signs are warning us about, but the recent action is compelling. In any case, let me leave you with this strange coincidence: In 1929, September 3 marked the top of the stock market. That was after a fierce rally took the market from 192 points up to 381, almost doubling. That rally was fueled by enormous speculation and a crazy amount of optimism. Sound familiar? By November 11, 1929, the market had dropped 48% from the high, en route to a much, much lower price. By the end of the decline in 1932, the market lost 89% of its value. Let’s hope history doesn’t repeat itself. Regards, Andy Krieger Editor, Money Trends P.S. Last time I [sent out a warning like this]( was right before stocks plunged 34% this year. If you weren’t prepared, you may still be recovering. But if you heeded [my warning in February]( you could’ve saved yourself some big losses… and potentially walked away with gains as high as 105%, 114%, and even 299% in a matter of weeks... --------------------------------------------------------------- Like what you’re reading? 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