Elon Musk takes over Twitter

I like Surowiecki a lot. But there is a more straightforward way to look at this. We are in a rising rate environment, and the Fed is making a halting attempt to drain its balance sheet. A decade plus of them blowing a bubble created a lot of distortions in markets, and in the manias all the liquidity they unleashed set loose, the things that ran up in value the most irrationally were things with no earnings, a ton of debt. ... and a story.

Most of those "story" stocks were getting clobbered for most of 2022 as rates rose. Tesla was holding up relatively well. It was primed to play catch up to lose the value that most stocks like it had already given back. Tesla was holding up (on a relative basis -- it was already getting hit before he bought Twitter) not for any fundamental reason, but because financial conditions are still incredibly loose, even with the little bit of tightening the Fed has done. And Tesla was always going to be one of the last things to fall. It was the highest flyer of them all, and because it was the thickest tree, it was proving to be the hardest to chop down.

If (and it still is an if) financial conditions continue to tighten, Tesla was going to go. ... regardless of Musk and Twitter. But sure, his behavior has been the catalyst. It was a bubble that needs to be popped waiting for that catalyst, and he has been giving it to the market.

It's still just a car company, one that is seeing demand problems and increasing competition, and is now hitting its own margins (which admittedly were amazing the last 2 years) by discounting prices. But it was absurd when it was trading at 190 times earnings. And it's still absurd trading at 35 times earnings (even after it has lost 68 percent of its value), as he points out. Get the stock down to the kind of valuation other car companies have, and it is a $25 stock. If demand continues to fall off, and you see it in its earnings, it could objectively be worth less than that. And Musk's antics have nothing to do with it. Stocks are discounting mechanisms. ... discounting future earnings. Stocks only trade on the antics (positive or negative) of a cult figure, and disregard those earnings, in distorted monetary environments that create bubbles and unleash the monetary inflation into places like risk assets. In that environment, sure, the stock is subject to volatility based on the behavior of the cult figure. So in that regard, his behavior is hurting the stock. But it was an inevitability that the stock was not going to stay a bubble forever, and in a rising rate environment, in which the Fed is draining some of the insane liquidity it spent more than a decade pumping into markets, at a certain point the bubble was going to pop with or without him and the Twitter mess.

 

Tesla Kicks Off New Year in China by Extending Incentive Offers

The reason the Chinese aren't buying as many Teslas, and the discounting is continuing, has nothing to do with Elon Musk's Twitter antics. Twitter is blocked in China.