Monthly Market Debrief

Market Snapshot

Look, I am not saying I know everything, but if you have been reading this newsletter for a while, you shouldn’t have been surprised by the 180 the Fed took this month on inflation and rate cuts. The third month in a row of rising inflation hit like the haymaker Mike Tyson will throw at Jake Paul. 

On April 16th, Fed Chairman Jerome Powell said it’s “likely to take longer than expected” to achieve the confidence that inflation is coming down. Shockingly, he didn’t give me credit even though in March’s Monthly Market Debrief, I said “Historically, inflation takes longer to come back to 2% than everyone wants.” In January’s Monthly Market Debrief, I also said that I strongly disagree with Wall Street’s expectations that rate cuts will be announced in March. @Jerome when’s my job interview? 

The entire market continues to battle with inflation fears. This month was on track to be the worst month in over a year, but earnings reports from tech companies helped relieve some fears. The three big indexes still suffered some big losses at the end of the month.

Company Highlight - Tesla

Electric Vehicles, not so hot anymore? Demand for fully electric vehicles has seemingly fallen off a cliff. It is very possible that the big car makers confused the overall demand for vehicles following the pandemic as a indicator for sky high demand for EVs. Now that supply chains have some breathing room, many of the big automakers are cutting back plans for their EV supply chains. If you are like Ford and sell dinosaur consuming vehicles as well, this isn’t a huge problem. If you are Tesla… this is a problem. 

Tesla started the month by reporting declining delivery numbers for the first time in four years. This comes after multiple price cuts across their fleet of vehicles to try and revamp demand. Tesla stock was down 5.2% on the news. 

There are many factors lowering demand including higher interest rates, increased competition, and outdated car designs. Even with cuts, the higher interest rates are pricing out many consumers. Chinese company, BYD, surpassed Tesla as the world’s largest EV producer, and Rivian saw increased sales and deliveries (still far behind Tesla though). Finally, Tesla’s S, 3, X, and Y models haven’t changed in design since they were first released. They receive updated performance, but the body design doesn’t change. Their newest model, the Cyber Truck, is dealing with a mass recall due to the accelerator pad falling off and getting stuck in ‘full send’ mode. All that to say, Tesla’s in a pretty big hole. 

Just when you think it couldn’t get worse, Tesla’s Quarter 1 earnings showed a 9% decline in revenue, far worse than expected ($21.3 billion versus $22.15 billion expected). Even with this news, Tesla’s stock jumped 13% in after hours trading because Elon said production of an affordable EV will start sooner than expected. Write this up as reason #4927 to stick with ETFs/index funds. Revenue declines but stock price goes up? The ironic part is Elon has been famously late delivering on his promises. It’s like every time he speaks, investors' brains are cleared of all previous wrong doing. He will deliver this time.

Current Event - Tik Tok Ban

In April, President Biden signed a bill that gives Tik Tok 12 months to find a new owner or be banned in the United States. The bill gives Tik Tok 9 months with a 3 month extension if a sale is being negotiated. Since President Trump was in office, the ‘Ban Tik Tok’ drums have been beating. Politicians cite national security concerns, but they fail to provide any specifics issues. The widely agreed upon concern is Tik Tok’s parent company, ByteDance, is a Chinese based company. Chinese law requires all companies to comply with specific regulations that allow the People’s Republic of China (PRC) to access its data. 

Side note, Apple dealt with this same problem several years ago. Apple’s iCloud servers were in America and prevented the PRC from gaining access to its data. To comply with the security law in China, Apple moved all Chinese iCloud accounts to the control of a Chinese company with China based servers. Don’t worry, if you are outside of China, your iCloud data is stored in America. 

Since Congress isn’t releasing any other specific national security claims, let’s look at what other countries already decided to ban Tik Tok:

* = Government Devices Only

Afghanistan, Australia*, Belgium*, Canda*, Denmark*, European Union*, France*, India, Latvia*, Netherlands*, Nepal, New Zealand*, Norway*, Pakistan, Somalia, Taiwan*, United Kingdom*, United States*, and last but not least, China.

The countries' reasons vary from immoral content available on the app to security concerns. The United States already bans the app on all government phones. This new law will apply to all phones. With how many countries ban Tik Tok, it is hard to dismiss the security threat posed by Tik Tok as trivial.  

The ban would be implemented by forcing Apple and Google to remove the app from their app stores. If you have Tik Tok already, the app will not disappear, but the app will not receive any updates or patches. Eventually, the app would stop working. 

Tik Tok claims this law violates the 1st Amendment rights of its users. The US Government claims national security concerns would prevail because the ban doesn’t target any specific content of Tik Tok users, only the app. 

I do not know which side I support. On one hand, I disagree with any law that increases the Government’s control on my daily activities. Even though I don’t have Tik Tok, I fear the slippery slope this may start. On the other hand, if the government can provide specific security threats related to the app, I may support the ban.

What frustrates me the most is Tik Tok (and other social media companies) all cry “1ST AMENDMENT RIGHTS!!” whenever the government tries to impose restrictions and laws, but then they turn around and remove, ban, or demonetize accounts over speech protected by the 1st Amendment. I know the Constitution applies to the Government and not private companies, but it's frustrating that they use the 1st Amendment only when it’s convenient to them.

There are wild rumors floating around who or what may try to bid for Tik Tok. The sale could be worth hundreds of billions of dollars given the massive reach Tik Tok provides for digital advertisers. The PRC, however, stated it would not support a sale of Tik Tok. It’s almost guaranteed that the appeals in this case will eventually make its way to the Supreme Court.

Call to Action

What are your thoughts on the Tik Tok ban? Do you fear this sets a dangerous precedent? Or do you fear how Tik Tok may be manipulating the world to support the PRC? Let us know by replying to this email!

Debrief on Deck

Next Week, Mike is going to talk about a Rising Equities Portfolio. When he explained it to me earlier, all I heard was “in retirement…” Then, I zoned out. My new retirement plan is taking friends to Dave and Busters and betting on arcade games.