Elon Musk takes over Twitter

Now I got it. Yeah, it sucks.

 

Even with what he's sold, he still owns something like 15 percent of Tesla. His brother has a pretty big stake, too. The next three largest shareholders probably don't equal what he owns.

With that kind of ownership, the board of directors is answering to you. And it's a board that consists of his friends and relatives. His brother Kimball, him, James Murdoch, Ira Ehrenpreis. Larry Ellison was another, but he recently stepped down from that board.

The only way to change the make up of that board would be for some activist investors to acquire enough of the company to force changes. Musk used to own 20 percent of the company, and at the crazy valuation it got up to, you literally would have needed hundreds of billions of dollars to be those activist investors. Those people don't exist. Even at the 15 percent stake he still owns, at the batshit valuation the company is still trading at, it would take a daunting amount of money for anyone to wrestle control of the company and the board of directors away from him. But anyone with say $100 billion lying around could probably do it, I guess.

 

Nooooooo. The valuation of that stock has been more divorced from its fundamentals for a long period of time than any stock ever. This stock has been the poster child for cheap money creating a speculative bubble. The corpses of people who have tried to short that stock are filling graveyards. The company was living off of debt and constant equity dilution (which should have punished the stock), and he'd tweet some bullshit and people would be like, "Genius!" and the stock would rocket higher. No earnings. Losses on every car they were selling. Promises of all kinds of things that were never fulfilled. And the stock was trading like it was hugely profitable.

You can say that is over now, but just look at what has happened as financial conditions started to loosen up (as the bond market has called BS on the Fed's intentions). The stock got down to about $103 a share. But then as the cost of money began to cheapen again and the bubble started to reflate (financial conditions are loosening), the stock started to grind higher in a steady pull higher, and the price is up over $205 a share now. In the last month, it's about doubled off the low it made. Can you imagine being short that? You'd be answering margin calls every afternoon.

It's why when people kept posting on here that the plummet in the stock price was due to his Twitter antics, I kept posting that it had zero to do with Twitter. It had to do with rising interest rates and the cost of money getting more expensive. It had zero to do with Tesla as a company even (on a P/e basis, the stock is ridiculously expensive).

Right now, it's back to being about the cost of borrowing cheapening a little, and how artificially loose financial conditions are. You do not want to short a cult stock in that kind of environment unless you enjoy being run over by locomotives.

 

Fundamentals like what you are talking about have had virtually no bearing on that stock. More than any other stock, really. The entire time it has traded publicly. Markets have been permanently distorted due to the insanely loose financial conditions that have kept liquidity flows searching for gambling outlets, and right now you are talking about the poster child for the era we have been in.

With what you are saying about your view? First, none of those things are a mystery to anyone. Yet, that stock (which is down more than 50 percent from its peak when during the pandemic the Fed was creating money out of thin air and buying every bit of debt being created) is STILL trading at 52 times earnings. That is a dot-com bubble type of valuation. Everyone knows everything you are saying about Tesla. Everyone knows Musk is an unstable jerk. Everyone knows about his Twitter antics. Everyone knows demand for Teslas has been showing weakness. Everyone knows there are competitors coming, and they have known that for years. And the stock is still at 52 times earnings, with all of the uncertainties about its business. Graham and Dodd aren't just literally dead, they are figuratively dead. The fundamentals of the company aren't propping the stock up at that kind of extreme valuation. It's how much liquidity is still sloshing around in markets..

You have had functionally bankrupt companies that were being kept alive by what I am talking about. Bed Bath and Beyond, AMC, Hertz, Gamestop ... which would have been bankrupt immediately without our debt markets being hijacked. Yet, their stocks went ballistic and turned equity investing into a joke. Fundamentals? People might as well have been trading dirt and watching the price skyrocket. Earnings only matter in the environment we have been in when people can retroactively point to those earnings to create a bogus rationale for why people were panic-buying the stock with the "free" money they are playing with. When there are no earnings, it doesn't matter.