Thread by @gauravsabnis

The Elon Bear Hug Recession?

https://twitter.com/akaneotani/status/1527607402626957312

All past recessions have started with one or two key overvalued company stocks suddenly crashing and then that panic making investors cautious, leading to other structural flaws in the market becoming salient. And then there's a big crash.

It's all there in the textbooks.

Surely you're all old enough to remember the months leading up to and after Bear Sterns. Where CEOs on CNBC kept telling us it's all cool and the bull market will continue, while liquidating their own stocks under various excuses like tax payments.

And then came September 2008. And everyone was like, why didn't anyone see this coming?

Lots of people saw it coming. Y'all just didn't listen to simple textbook lessons. Y'all were more into CNBC.

When a trillion dollar corporation loses 40% of its value in a month, that's $400 bn gone!

The rest of the economy can't be shielded from the ripple effects. Especially in a time if high inflation, low consumer confidence, oil supply issues, and rising interest rates.

Someone or rather a lot of someones lost that $400 billion. That's a huge amount of wealth to just disappear from one company in a month. And the company's CEO obsessed with his own personal grudges.

The recession, when it inevitably hits, will not be Elon Musk's fault as such. Recessions are more structural. But he will have played a big role in triggering it.

Btw recessions are not like hurricanes, that will hit no matter what you do. After recessions, there is a lot of post mortem that tends to say it was inevitable for a variety of reasons. But the timing of it is very much in our collective control.

The 2008 recession could have happened in 2006 but a lot of people invested in the rally postponed it. It could have been postponed till 2010 if a few more people had invested more in postponing it.

For a variety of 2008 specific reasons, it happened in 2008.

Until last month, when the markets started their slides a few weeks prior, things were still in damage control range. The market has had short dips before signaling a big sell-off, which triggers a recession. And it has recovered. It might have done that again last month.

But then Elon pulled his Twitter stunt. And #TSLA, making up a pretty big chunk of many indices, lost 40% in a month. A valuation correction that might have happened slowly over a year or so, suddenly in a month. With even Elon selling billions. So market keeps declining.

There's been a general lacklustre sentiment in the tech stock market anyway. Nasdaq hasn't had a worse run since 2001! Not even 2008 saw months this bad for the Nasdaq.

So the Tesla stock crash compounded an already precarious situation.

All to give Elon a good excuse to sell.

Most people buy stocks to sell them. Same old simple buy low sell high logic. They are always looking for a reason to sell. But selling in big numbers causes price decline. Why there is the whole #HODL movement for Bitcoin. Enough suckers need to hold for some to get rich.

It can theoretically happen in any month, even in a bull rally. If enough people decide to liquidate their positions, bank the money, and sit on the sidelines. That's basically what causes a recession in the United States and then the world. A lot of people thinking let's sell.

And what you have is the world's richest man selling like crazy, using any excuse. Obviously a lot of people are like, hmmm, maybe I should too.

The next couple of months should be interesting. Especially if Twitter really enforces the agreement.