An opinion by Bill Bonner worth thinking about - :...

  1. 273 Posts.
    lightbulb Created with Sketch. 23

    An opinion by Bill Bonner worth thinking about - : https://www.bonnerandpartners.com/


    When a boom begins, companies are lean…fast-growing…and have nice margins. When it ends, they are worn out, barely profitable, and overpriced. MarketWatch brings us up to date on what’s happening today:

    The percentage of U.S.-listed companies losing money over the past 12 months has risen close to 40% – the highest level since the late 1990s outside of a post-recession period, The Wall Street Journal reported.

    Shares in the two most valuable loss-making companies have soared in the past three months, with electric vehicle maker Tesla’s stock doubling and technology and financial services company General Electric up 44%.

    Bad bet

    At the beginning of a boom, investors are sceptical. They part with their money reluctantly, almost grudgingly…carefully looking for value.

    But after a few years and a few drinks, they forget all about value. They buy companies that are in the news. They want the movers and the shakers, and they don’t care how much they cost…so long as they go up.

    Take Tesla, for example. It’s a company that wouldn’t last long in a normal stock market. But at the bubble-end of a long, Fed-fuelled boom, it’s a favourite. The more it loses…the more investors want a piece of the action.

    The electric auto builder is now worth more than GM and Ford combined. Investors bid up Tesla more than 100% over the last three months, to a market capitalisation of $95 billion.

    But Tesla sold only 368,000 vehicles last year. Ford alone sold 2.9 million in the US and another three million in China.

    Of course, the bet investors are making is that Tesla will be the Amazon or Google of the electric car world — with such a big lead on the competition that the others won’t be able to catch up.

    It’s a bad bet. Google and Amazon both benefit from the network effect. The larger they get, the more of an advantage they have. You are more likely to find what you want on Amazon, so why go elsewhere?

    But Tesla is like WeWork, not Amazon. It gets no network effect or first-mover advantage. Because car buyers, like office-space renters, do their homework…and take the best deal they can find. They don’t care when you got in the business; they want the best car.

    Money masochism

    Tesla will never be a one-stop shop for electric autos. But it is providing a great service to more established automakers.

    At huge cost, it is testing the market. The bigger players should have no trouble building electric cars and capturing market share when they see it is worth doing.

    They will have more dealers…and more options. And they’ll be able to quickly copy…and surpass…any technological innovations Tesla makes. More importantly, they’ll make money on their cars.

    Tesla, we suspect, will turn out to be an artefact of the Bubble Market of ’09–’20. Like the market itself, it depends on regular infusions of fake money. And like the whole stock market, it is financially fragile.

    Since Tesla makes no profits, it relies on investors who are willing to keep losing money. That money masochism will come to an abrupt end when the market goes down.


 
arrow-down-2 Created with Sketch. arrow-down-2 Created with Sketch.