[CORRECTION] The Tesla Crash (EP.289)

Episode Summary

Executive Summary: The episode is a year-end, holiday-focused market discussion centered on whether 2023 will be more surprising than consensus expects. The hosts argue that recession fears may be overdone as inflation cools, consumers remain resilient, and many asset prices already reflect bad news. They also cover housing, autos, labor, Tesla, airlines, and the growing impact of rates on everyday behavior.

Main Topics: 2023 market outlook: consensus vs. surprise (Priority: 5/5): The hosts debate whether markets and the economy will follow the widely expected script of a shallow recession, Fed pivot, weak first half, and stronger second half. They argue that with so much consensus, a no-landing or milder-than-feared outcome may be more surprising. Inflation cooling and recession odds (Priority: 5/5): They note that core inflation has slowed sharply and question the assumption that a recession is required to bring inflation down. The discussion emphasizes that economic conditions may be normalizing faster than expected. Rates, credit, and consumer behavior (Priority: 4/5): Higher borrowing costs are showing up in autos, home-equity lines, and broader spending decisions. The hosts argue that interest rates are the main lever restraining demand and may eventually force a slowdown. Housing market correction and affordability (Priority: 5/5): They discuss falling home prices, high cash-buying activity, and the tension between housing as an investment and housing as a necessity. One host argues the only structural fix is to make it easier to build homes. Tesla, cars, and market valuation (Priority: 4/5): Tesla’s massive drawdown is framed as a reminder that valuation matters even for great companies. Car affordability is deteriorating, and high auto financing rates are hurting the broader auto market. Labor market, wages, and automation (Priority: 3/5): The episode highlights strong wage gains in lower-paid service work and explores whether automation/AI will destroy jobs or mostly reshape them, with historical evidence suggesting adaptation rather than mass elimination. Pop culture, media, and year-end banter (Priority: 2/5): The hosts weave in movie and TV references, holiday parenting talk, and a review of sequels and streaming content. This lighter segment underscores the informal style of the show.

Key Arguments: Consensus is already heavily tilted toward a shallow recession and Fed pivot, which makes a different outcome more plausible and potentially more market-moving. Inflation has cooled enough that a recession may not be necessary to restore price stability. The Fed and bond market are in a standoff; historically, a two-year/Fed-funds inversion has pushed the Fed to stop hiking. High interest rates are directly slowing sectors like autos and housing by making borrowing materially more expensive. Housing is structurally constrained because it cannot simultaneously be cheap for buyers and a wealth-building machine for owners without supply growth. The consumer still has balance-sheet strength and may keep spending until labor-market deterioration forces a pullback. Tesla and other high-growth assets can be good businesses and still be radically overvalued relative to earnings and peers. Automation tends to eliminate specific tasks/jobs but historically also creates new ones rather than wiping out work entirely.

Data Points: S&P 500 intraday move: down 11 bps on Dec. 27 after being down as much as 60+ bps earlier - Market check-in during the holiday week AAII bull-bear spread: 38 consecutive weeks negative - Longest streak on record, signaling persistent pessimism Recession probability survey: 70% - Bloomberg economist survey for next year Core PCE (3-month annualized): 3.6% - Smallest 3-month rise since Feb. 2021 Year-over-year inflation reference: about 7% - Described as still high because it reflects prior elevated months US inflation target discussion: under 4% for 2023 (host estimate) - One host said they’d take the under based on trend Tesla drawdown: 72% - From all-time highs Tesla drawdown over last 3 months: 59% - Used to argue against the idea that macro alone explains the decline Tesla enterprise value vs. auto peers: bigger than Toyota, Volkswagen, Mercedes, GM, BMW, Ford, Honda, and Ferrari combined - Compared to much lower relative earnings Tesla/peer earnings comparison: about one-tenth - Relative EBITDA/earnings comparison with major automakers Case-Shiller national home prices: down 2.4% since June - Seasonally adjusted national home price correction National home price declines since WWII: only two prior declines: 1990-91 (-2.2%) and 2007-2012 (-26%) - Used to stress rarity of the current decline Cash home purchases: nearly 32% - Highest share in eight years, October data Existing home sales: down 28% year over year - Worst decline since Feb. 2008; 10th straight monthly drop Median existing home price: $370,000 - Still elevated despite sales slowdown Restaurant employment recovery: all but 2.1% of 12.2 million jobs back - Compared with November 2019 employment level Fast food hourly wage: $15.17 - October average wage, up 26% from pre-pandemic Sit-down restaurant hourly wage: $18.70 - Up 21% from pre-pandemic Average worker wage increase: 16% - For comparison with service-sector gains Coinbase users: 101 million - Referenced in discussion of current scale versus 2018 valuation Coinbase revenue: $3.3 billion in 2022 vs. $520 million in 2018 - Used to show business growth despite a similar market valuation Coinbase valuation: $9 billion current vs. $8 billion in 2018 fundraising - Illustrates market compression despite business expansion Airline revenue: back to all-time highs for Delta - Demand has recovered strongly despite weak airline-stock performance Stock drawdowns from highs: Tesla 72%, Meta 69%, Amazon 55%, Netflix 58% - Used to show how harsh 2022 has been for major growth stocks Federal Reserve mortgage-rate context: mortgage rates doubled - Example of aggressive tightening hitting households HELOC rate: 6.75% - Compared with prior low of about 3%

Pivotal Quotes: "The Fed is playing chicken with the bond market right now. Who's going to blink first?" — Ben Carlson: Discussion of the two-year Treasury yield inversion versus Fed funds "Why do we need to have a recession?" — Michael Batnick: Core thesis questioning whether recession is necessary given cooling inflation "It is one of those things where, yes, when it's going in your favor, pretty much. But so stocks are not rallying on this news, why?" — Ben Carlson: Commentary on seasonality and why markets may already have priced in the expected year-end pattern

Implications: Listeners should expect 2023 to be driven by rates, inflation trends, and consumer resilience more than by consensus recession narratives. If inflation keeps easing and labor holds up, markets may surprise to the upside; if not, housing, autos, and leveraged consumers remain vulnerable.