How to Recognize the Peak of the Market – Week 5


In the first week of May, Tesla reported its first quarter financial report, which was exceptionally disappointing to the market. It appears that perhaps the irrational exuberance for Tesla stock and bonds may have peaked. Let’s look at the three worst numbers:

  1. The Current Accounts (combination of cash equivalents on-hand and short-term liabilities) was a negative $2B (a very bad indication of the health of the company).
  2. The reported loss of $1B in the first quarter of 2018 leaves them with perhaps one year’s worth of cash on-hand.
  3. Of the cash on-hand, one-third of it is refundable customer deposits. This further reduces the liquidity available to operate Tesla.

Because Tesla has been such a darling of the stock market, if it has an Enron moment, confidence could evaporate in other unprofitable or marginally profitable high-flying companies. A loss of confidence could ripple through the stock market and global economy.

It is critical to remember that land is the source of all wealth. Every product that we humans consume originates with land. Not all tracts of land are equal in quality and portfolio management requires every investor to hold some cash for liquidity. But historically, long term the best investment is land.