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  • David Alan Carter


Updated: Jul 2, 2021

Daniel Oberhaus, CC BY-SA 4.0 <>, via Wikimedia Commons
Elon Musk, Technoking *

It’s not every day we give birth to royalty in this country. But on March 15th, we did. In a regulatory filing that day, Tesla officially gave CEO Elon Musk the title of “Technoking of Tesla.” True story. In a related gesture, Zach Kirkhorn, the company’s chief financial officer, was anointed “Master of Coin.”

I don’t know about you, but I was excited at the news.

As a tiny, tiny shareholder of the company (a subject of the monarchy, if you will), I strode proudly about that afternoon in my sackcloth and sandaled feet, eagerly awaiting the pomp, the pageantry, the gilded chariots that would pull the stock price from its deepening slumber. Alas, two weeks later and the price is actually down 8% from that day. Indeed, the stock is off 30% from its high on January 25th.

Monarchy aside, Tesla is not alone. As of March 30…

The popular QQQ is down 7% from its recent high.

Amazon is off 10%.

Apple is down 15%.

Paypal is down 22%.

Snowflake, the cloud platform provider and recent IPO darling, has crashed 40% from its December high.

Even ARKK, the flagship fund of celebrated stock picker Cathie Wood, is off 29% from its February high.

What’s going on? An improving economic outlook is what’s going on. By many accounts, the economy is projected to grow at its fastest pace in four decades this year, bolstered by President Biden’s $1.9 trillion stimulus package and the rapid ramp up in vaccinations. As mentioned in last month’s op-ed, this rosy picture has economists and investors debating whether such a forceful turnaround will overheat the economy and herald in cycles of inflation unseen for decades.

This week, the yield on the U.S. 10-year Treasury hit a 14-month high. A rise in yields has particularly hit tech stocks which often have a low-rate environment heavily baked into their high valuations. So, down they go. The tech-heavy Nasdaq is set for its first monthly loss since November even as undervalued banks, energy, materials and industrial stocks surge – pushing the S&P 500 to near all-time highs.

The market would have you believe that Tesla is out and Exxon is in. After all, from the start of February to Monday’s close, Tesla was down almost 30% and Exxon Mobil up more than 30%. “A stunning reversal of the pattern since the start of last year,” says James Mackintosh of the Wall Street Journal.

Am I getting in on that trade? No. For starters, I’m likely too late. But more importantly, “Tesla is a bet on the long term and Exxon is a bet on the short term,” says Mackintosh. When it comes to my little bit of mad money, I’ll be sticking with the former.

Besides, who am I to doubt Elon Musk? In fact, given my own technical dominance in the household – from swapping batteries in the smoke detectors to handling the smart TV remote with aplomb – I thought it high time to take a cue from Mr. Musk. When my wife said the garbage needed to go out, I calmly explained that, as Technoking of the household, that “falls a little outside of my job description.” She gave me the kind of look that only a spouse could decode.

So, as I was taking out the garbage, I was thinking maybe it’s not too late to put a stop order under my Tesla shares.

As noted before, long term, the strategies will get the trends right. Short term, there may be a miss or two as the market juggles conflicting signals. So keep allocations of strategies reasonable within your portfolio, and remember that protection[1 - see below] remains paramount.

Best always, David

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[1] What does protection look like? At the extreme, it’s cash. As I mentioned last month, it’s OK to hold some cash. Cash is, in fact, a position. It means you’re prepared to act when circumstances better align with your risk tolerance. Protection can also mean an overweight position in a model built for protection (i.e., Bond Bulls, The 12% Solution). It can mean putting multiple strategies to work in a portfolio, especially when those models tend toward an inverse relationship with each other, or focus on different asset classes or market sectors. Think Bond Bulls and American Muscle. Or Global Trader and The 12% Solution. Because each strategy uses a slightly different mechanism to identify market risks, and because each can employ different funds representing different market sectors (although there is obviously some overlap), there is beneficial diversification at work when using multiple strategies within a portfolio – helping to reduce volatility and max drawdown. Finally, protection can mean keeping an eye on the provisional picks during the month. These can provide a heads-up on potential trends -- and breakdowns of existing trends. Look for asset class shifts that hold up for a few days. Not every such move is a trading opportunity or justifies a rebalancing, but information is power.

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