Decade Long Asset Bubble to Burst? with Mark Spiegel
Overall Thesis
A decade-long asset bubble built on monetary stimulus is reversing as central banks tighten policy, causing U.S. stocks to decline considerably throughout 2023 and potentially into 2024.
Narratives
Mark Spiegel believes the S&P 500 will grind significantly lower throughout 2023 and into 2024 due to the reversal from a decade of zero interest rates and money printing to 5% rates and quantitative tightening. He sees the market as still very expensive despite recent declines, with earnings deteriorating and profit margins compressing.
Key Arguments
- Decade-long asset bubble built on free money now reversing with 5% interest rates and $95B monthly quantitative tightening
- S&P 500 trading at unreasonable multiples - should be below 3000 based on 2022 earnings and historical inflation/PE relationships
- Risk-free 5% treasury bills provide attractive alternative to dividend yields below 2%
- Earnings have been terrible relative to stock prices with conditions worsening
Mark Spiegel is bullish on Stellantis, viewing it as extremely undervalued at 2.5x free cash flow with strong fundamentals. He sees it as a value play in contrast to overvalued Tesla, representing the traditional automakers that will benefit from the EV transition.
Key Arguments
- Trading at only 2.5x free cash flow on enterprise value basis
- Reported 'unbelievable' free cash flow and earnings
- Has significant net cash position
- Part of paired trade - long undervalued traditional OEMs, short overvalued Tesla
Mark Spiegel sees exceptional value in Volkswagen, arguing that after netting out its Porsche ownership, investors get the entire rest of the company essentially for free. He views it as extremely undervalued at 4.5x earnings with valuable brand portfolio.
Key Arguments
- After netting out 75% Porsche ownership, get rest of company for free
- Audi alone worth ~40 billion euros
- Owns valuable brands: Skoda, Lamborghini, Ducati, VW trucks
- Trading at only 4.5x earnings
- Porsche IPO fairly valued at 15x earnings with luxury margins
Mark Spiegel views Tesla as absurdly overvalued at 70x earnings, arguing the company has trailing-edge technology, faces intense competition, and has had to slash prices significantly which will crush margins. He sees the stock as worth only $17-18 per share based on comparison to BMW's valuation.
Key Arguments
- Trading at 70x earnings while traditional automakers trade at 2.5-6x earnings
- Technology now trailing-edge with competitors offering better charging, interiors, and range
- Massive price cuts destroying profit margins - making half as much profit per car
- Self-driving technology is 'garbage' and fraudulent marketing with fake demonstrations
- Losing market share globally to superior competitors
Predictions (1)
Hedges & Caveats
- Speaker acknowledges uncertainty about long-term recovery timing
- Admits central banks may resume money printing at some point, which could drive asset prices up
- Notes this is a medium-term prediction, not a long-term forecast
- Acknowledges bear market will likely include rallies similar to recent 6.5-week bounce
- Recognizes stocks may not bounce back quickly even after decline