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Interest Rates Rising, Federal Reserve, Monetary Policy, Market Crash - YouTube
Channel: Tesla Economist
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[Music]
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i most likely do not need to go over the
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reason as to why your tesla holdings
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have dropped in price recently but
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basically the fed is finally admitting
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that inflation may not be transitory
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what a surprise who would have thought
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that if you have low interest rates and
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print an absolute fortune that perhaps
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prices might rise don't get me wrong
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there's still a lot of issues with
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supply chains too and shipping is still
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significantly more expensive not only
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that but shipping takes longer which
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means businesses require more working
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capital as their inventory is tied up
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for longer some businesses are passing
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on this cost to the end user others are
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having to wear the costs themselves but
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now the fed is admitting we may actually
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have real inflation and are potentially
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intending to raise interest rates as a
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result however judging by the market's
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reaction raising rates may not be an
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option for the fed it's clearly going to
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kill the economy people will lose their
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houses and banks will go under the issue
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is that government or all governments
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are stuck between a rock and a hard
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place right now inflation is running
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rampant but they can't crash the economy
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not only that though well no other
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entity on the entire planet happens to
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have as much debt as the us government
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the government also have to pay interest
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on their debt too the interest on the
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public debt for fiscal year 2021 is
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estimated to be
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413 billion dollars according to the
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congressional budget office if the fed
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raise rates as much as they're
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indicating then the interest payments
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will likely double of course to pay for
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this interest will likely require more
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borrowing too which will lead to more
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interest and more inflation you get the
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point a downward spiral of debt and
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inflation and potentially hyperinflation
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so the fed are trying to prevent
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inflation within the economy yet it will
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mean they also have to create more
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inflation potentially trying to pay for
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their own interest due to the rising
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rates you might think the government can
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use fiscal policy instead this is part
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of mmt modern monetary theory they can
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raise taxes to slow down the economy but
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for one any tax rises won't bring in
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very much extra income and most people
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are going to be struggling enough to
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make ends meet as it is hence why there
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is so much talk about taxing the likes
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of unrealised capital gains of which
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elon recently demonstrated the results
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of by selling some shares even when we
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had these record deliveries we still
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didn't recover to where we were before
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elon started selling his stock tax on
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unrealized games will remove so much
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more value from the market than the
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actual tax that will be received let
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alone the end result of how much
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actually gets spent once it's been
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through the government but the
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government like to peddle the idea that
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there are these greedy billionaires that
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have taken all your money don't look at
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the government we're here to help we
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don't make mistakes we haven't taken
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your money elon musk has despite seeing
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senators flying on private jets with
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your tax dollars the hypocrisy makes my
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head spin bear in mind the average
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senator spent about 30 hours a week
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fundraising and guess what they're not
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charities these donations that are given
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require something in return all right so
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we just saw only the mention of rates
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make the markets freak out especially
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tech stocks namely tesla ouch that hurt
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especially if you had options so clearly
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i don't think the government can really
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take this path it could destroy the
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economy but why are high interest rates
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bad for stocks well for starters the
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opportunity cost of investing compared
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to receiving interest on cash increases
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if before you only received eg one
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percent return then it becomes two
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percent then the return is twice as good
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so more money goes into the likes of
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bonds and savings accounts this in turn
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affects the p e ratios of stocks as you
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know p ratios are historically high
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obviously if p ratios reduce then stock
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prices will also reduce accordingly even
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if profits remain the same but also with
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higher rates then money becomes more
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expensive as in it becomes more
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expensive to borrow due to higher
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interest payments therefore consumers
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are less inclined to spend along with
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the opportunity cost of getting better
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rates in the bank if consumers spending
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reduces then they're buying fewer items
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if fewer people are buying teslas then
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there will not be as much revenue for
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the company although i don't think fewer
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people will be buying tesla's we'll go
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over that in another video i just use
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that as an example obviously if there is
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less revenue then there is less profit
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for the company with less profit than
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the stock price reduces accordingly with
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rate rises eventually homeowners
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mortgages come up for renewal then they
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have to renew their mortgages at a
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higher interest rate and thus higher
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payments this means they have less money
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to spend on consumption which means
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businesses have less sales less revenue
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less profit and a lower valuation if
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businesses are making less profit or
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even losses then they have to downsize
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and lay off workers these unemployed are
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then less likely to go and spend money
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in the economy and thus business suffers
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even more with all this adding up higher
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mortgage payments and less employed or
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others receiving pay cuts then some
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homeowners simply can't afford to make
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their mortgage payments anymore and must
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be forced to sell their home
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unfortunately they're not the only ones
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and the property market enters a down
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cycle if the property market crashes
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then it's possible some people will
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simply walk away from their homes and
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the debt as they may now be worth less
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than the actual debt this in turn puts
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pressure on the banks when there's
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pressure on the banks people with
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savings are concerned the banks will go
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under and may withdraw some funds
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however the government in the us does
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ensure up to a quarter million dollars
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in deposits to avoid this also the
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central banks help mitigate a run on the
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banks too all of this could bring on a
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severe recession as there'll be less
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money to go around investors sell their
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equities so they have enough money to
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live on if necessary anyway that's why
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rising interest rates could be bad but
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the market may continue to run with ups
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and downs and continual scares just like
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this until it finally does crash the
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ball goes up the stairs the bear goes
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out the window the question is will this
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create the crash will the music finally
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stop or could this even just be a scare
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tactic of the fed to keep inflation in
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check as they know they can't afford to
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raise rates anyway personally i think
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it's most likely the fed are just
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testing the waters personally i really
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didn't want to dip or anything right now
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at least not for another month until we
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had earnings come out and hopefully the
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new factories with 4680 batteries i have
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a lot riding on all of this at the
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moment at least a lot relatively for
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myself if it goes well then i should
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make a good profit i was then planning
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on purchasing my insurance against such
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a crash as investors we just have to
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establish whether this is a dip or this
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is the start of the recession as tesla
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investors we also have a lot of wind
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about to enter the sales with a lot of
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positive events about to come into
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fruition but we see these ups and downs
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in the economy play all the time we just
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experienced the omicron scare only
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recently let's just be glad that tesla
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only has about 10 billion dollars of
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debt and not over 100 billion dollars
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anyway i was super bullish on tesla's
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financials that i placed an order for
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another options contract and it executed
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unfortunately for me i'm asleep during
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most of the time the market is open i
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put a global offering on a february call
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option and it executed whilst i was
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asleep i was unaware of the news that
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was happening if that hadn't been the
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case i likely would have waited it out
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but sometimes this strategy also pays
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off so i guess it bounce itself out i
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mean i've had a pretty good run so far
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since i've been running this channel
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every single trade i've done has won i
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haven't bought one tesla share either
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just options and despite this drop all
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of them are still up and still up a few
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hundred percent i mean surely i can't
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expect to win them all i still think i
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might be okay with this option though
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there's still about a month until it
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expires and a lot of exciting times
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ahead for tesla over that time i mean in
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addition to what i've already said it
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feels like so many other facets of tesla
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are also coming together don't forget
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tesla is much more than simply a car
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company it's just that's mainly the side
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that we focus on as currently that is
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literally where all the profits from the
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company are derived the question is do i
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buy another option this looks to be a
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fairly substantial dip but the stock
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price is not reflecting close to what
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the eps is going to be i think i need to
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start doing some preliminary
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expectations of the q4 results and see
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what we can come up with i was initially
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thinking 50 to 60 percent increase in
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profits from q3 but i'm starting to
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think that perhaps the asps might be
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higher than i expected now and maybe
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margins too
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i get the impression that shanghai model
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wise have really good margins and that
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is mainly what we've been seeing ramp up
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the most this quarter in addition to
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that lfp batteries in fremont more model
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s and x sales and of course the price
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increases are starting to take effect i
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think it might be prudent to do a bear
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bull and base case even this feels like
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a really important quarter or maybe it's
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just extra intense for me as i don't
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think i've ever had so many options
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riding on them if this dips further i'm
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not sure what strategy to take i have a
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bit of cash on hand at the moment i can
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afford another shot at a contract i'm
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just wondering if i take a gamble or go
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back to my old ways and buy another
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leaps contract probably around january
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2014. let me know in the comments what
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strategy all of you are thinking thanks
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for listening please hit the thumbs up
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and subscribe you can follow me on
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twitter and talk to me on patreon
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