#180 - How Tesla Makes Money And The Death Of The Pro Sport Business Model
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The Year Of Efficiency and New Car Programs
China and the balloon
How TSLA makes money
What Sports need to do to survive
Recommendations and predictions
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Companies finally have respect for their shareholders. The year of efficiency has begun.
This is bad for enterprise tech but great for commodity businesses.
So far, 2023 is a mirror image of 2022. The weakest stocks from last year are like rockets year-to-date. Anything that did well last year, has been under pressure. Clear rotation from old-economy sectors back into tech.
It could be a mean reversion after an over-correction; it could be the market assuming that the Fed is almost done raising rates and the economy is still strong. Even the Fed acknowledged that inflation is coming down in many sectors. This is exactly what the market has been pricing in and wanted to hear. Everything ripped higher after Powell’s comments.
What matters more from a practical perspective is the market reaction to earnings so far this quarter. Every single mega-cap tech company either reported earnings below estimates or guided lower. The market didn’t care. Even disaster earnings reports like Intel, Goldman, and Snapchat could not hold them down for too long. The market is sending a clear message. It’s as if it is saying that the reports were so bad that they can only get better from here. The sentiment is extremely bullish. Any bad news is considered temporary and a reflection of past events. Any good news is considered an argument that things are getting better.
Seeing the US economy add 517,000 jobs in January was shocking. Even still, this dataset’s recent history shows
anomalies occur and
labor demand is still weakening.
Wage growth is the thing to focus on, and Friday’s report showed wage inflation is still slowing.
US IG/HY corporate bond spreads over Treasuries are currently 1.21/3.94 pct points. These are noticeably below the 2015 – 2019 5-year average of 1.33/4.56 points. The corporate bond market is not discounting any real possibility of a deep 2023 – 2024 earnings/economic recession.
Q4 US corporate earnings season is (still) not great. Earnings leverage is negative (revenue growth +4 pct, earnings down -5 pct). Expect news of further job cuts as the next 50 pct of the S&P 500 companies report.
Wall Street analysts forecast the S&P 500 to show strong sequential quarterly earnings growth by Q3/Q4 2023. Current equity valuations say the market agrees with that optimistic assessment.
Fed Fund Futures continue to price in “peak Fed” in Q2, rate stability in Q3 and some chance of rate cuts in Q4. As with the prior point, equity markets seem to agree.
US Big Tech is off to strong start in 2023, with TSLA, META, and NDVA all up +40 percent. All three were off at least 50 pct last year, so the YTD move is likely more due to the end of tax loss selling than anything fundamental.
Chanos on China:
💸Reformed Millennials - Post of The Week
Introducing the Slickest Con Artist of All Time:
Is it possible that Chat GPT is just a con? really great rif on that idea here.
My conclusion isn’t just that ChatGPT is another con game—it’s the biggest one of them all. Microsoft even wants to hand over its entire search engine to this AI bot. Premium subscriptions are already available.
Some of you will tell me that I’m making a hasty judgment. ChatGPT will get better, they say. It will get smarter.
That’s exactly what I’m afraid of.
The ethics code should have been inserted at the ground level—but it wasn’t. At this point, incremental improvements only make it better at its confidence game.
Technology of this sort is designed to be a con—if the ancient Romans had invented ChatGPT, it would have told them that it’s cool to conquer barbarians and sacrifice slaughtered bulls to the god Jupiter. Tech like this—truly made in the image of its human creator—can only feeds back what it learns from us. So we shouldn’t be surprised if ChatGPT soaks up all the crap on the Internet, and compresses it into slick-talking crap of a few sentences.
The slickness of the delivery is its major achievement. Gosh, it sounds so convincing, even when it’s so wrong.And that’s precisely how you know it’s a confidence game. But in one way, it’s all so fitting. The con artist always gives people exactly what they want. And in a post-truth society, nobody does this better than AI. So I predict great things for ChatGPT—at least in economic terms. It will certainly live up to Sneaky Pete’s standards:
“I give people confidence. They give me money.”
Best Quotes From The 4 Horsemen Stock Reports:
..it's important to remember that over the last few years, we took a fulfillment center footprint that we've built over 25 years and doubled it in just a couple of years. And then we, at the same time, built out a transportation network for last mile roughly the size of UPS in a couple of years
-Andy Jassy (4Q'22 Earnings Call)
More than 6 years ago, I first spoke about Google being an AI-first company
-Sundar Pichai (4Q'22 Earnings Call)
"Facebook just reached the milestone of 2 billion daily actives. The progress we're making on our AI discovery engine and Reels are major drivers of this"
- MarK Zuckerberg (4Q’22 Earnings Call)
Tweet Thread of the Week:
A discussion about AI and God via Wait but why:
How the s curve works and whether we are going to be able to handle how fast this intelligence is going to race past us.
🎙Podcast & YouTube Recommendations🎙
Fun podcast of the week from Smartless - Dana Carvey
Want an update on china and how to think about Asia - Sharp China
🔮Best Links of The Week🔮
Morgan Housel had a couple good posts - FOMO - The Worst Financial Trait and Everything You Can't Have
"Apple’s exploring the possibility of launching a more expensive iPhone “Ultra” above the iPhone Pro and Pro Max models, according to Apple tracker Mark Gurman. The high-end device could arrive as soon as 2024 with the iPhone 16 lineup. Last September, Gurman predicted that an “Ultra” model could replace the Pro Max branding with this year’s iPhone 15, but his latest theory suggests that Apple wants to establish a more powerful — and more expensive — tier of iPhones. That means the device could have an even higher price tag than the iPhone 14 Pro Max, which starts at $1,099." Source: The Verge
"Oil companies delivered the market’s best shareholder returns last year, but Wall Street is still wary. The biggest Western oil companies, Exxon Mobil, Chevron and Shell together cleared a record of more than $132 billion in annual profit in 2022 and handed investors $78 billion via share buybacks and dividends, about 50% more than the last time oil topped $100 a barrel in 2014." Source: WSJ
"Traders are betting artificial intelligence and machine learning will have the biggest impact on financial markets in the coming years. More than half of respondents to a JPMorgan Chase & Co. survey of 835 institutional and professional traders said those technologies would have the most influence on trading in the next three years. That’s up from a quarter in 2022. “This trend toward automation is something we’re seeing across the market now, and is expanding into the credit and rates side as well as commodities,” said Scott Wacker, head of FICC e-commerce sales at JPMorgan." Source: Bloomberg
The number of newborns in China in 2016 was 17.9 million, a jump of more than 1 million from the year before. However, births dropped each year after that, to 9.56 million in 2022, the lowest since at least 1950. Source: Bloomberg