27 Feb Elon Musk; Are we experiencing a 1937 Redux?; The Markets*

Elon Musk

Elon Musk is the CEO of Tesla. He used to also be Chairman, but was forced to resign when he allegedly committed securities fraud in September by Tweeting that he had secured financing to take Tesla private. That arguably was a lie. He was fined $20 million and he and Tesla agreed that he would not Tweet without a Tesla lawyer’s pre-clearance. In a subsequent 60 Minutes interview, he said that he and Tesla were not going to abide by any such pre-clearing requirement. He added, gratuitously, that he doesn’t respect the SEC, a sufficient reason, apparently, to flagrantly ignore it and the courts. But then again, he was being honest, and we all can respect that honestly. He demonstrated that honesty last week by Tweeting that Tesla would be producing 500,000 cars this year, in 2019. Alerted to the Tweet, Tesla’s lawyers apparently forced him to correct himself and he retweeted that what he’d really meant was next year, sort of. Ooops! So sorry! Tesla’s recently-hired general counsel resigned the next day. His reason for doing so was not explained. In any event, the SEC was neither amused nor mollified. On Monday, it asked the Judge to hold Musk in contempt. Yet, what does that mean? It’s already clear that neither the SEC nor the Judge believes it’s in the best interests of Tesla to remove Musk, so he’s going to remain Tesla’s CEO. That makes sense. This is so even though Musk has flagrantly violated the securities laws – securities fraud used to be a big deal for CEOs! No more – and has made it abundantly clear that he will not comply with those laws … or with SEC directives or with the rulings of U.S. Courts. Perhaps because they’re part of the Washington swamp? In any event, it would have been prudent for Musk to lie low and await the Judge’s reaction, but that’s not in his nature. At 2 am on Wednesday morning, he Tweeted that “Some Tesla news” will be forthcoming at 3 pm Pacific Time on Thursday (after the market’s Thursday close). The subject matter of that news would be … “California.” What could that mean? Why would Musk send that Tweet? Oh, yes, coincidentally, Tesla has a debt that matures on Friday, a $920 million debt, a big number for Tesla. There has been much speculation as to how Tesla will pay that debt. Perhaps through an equity offering? Following Musk’s seemingly innocuous Tweet, Tesla’s stock popped, rising over 5{29ea29b64b10057f61377b2c087cd5b7537a0cd24da4295a308b0bf589469f35}. Was Musk’s Tweet “material”? How could it be? It said … nothing, right? But it didn’t need to, did it? How is the Judge supposed to respond, both to Musk’s most recent Tweet and to his seeming carelessness in confusing 2019 production with 2020 production? Here’s an idea: double the $20 million fine (and specify that it cannot be reimbursed by Tesla) and declare that each further non-pre-cleared Tweet will result in an automatic doubling of the immediately preceding fine. While that might not faze Musk, it sure would help the U.S. deficit, especially if Musk continues Tweeting!

Are we experiencing a 1937 Redux?

Labor has been devalued and capital has become king. What might that portend?

The Markets

Has the government at last gained control over the economy as well as the stock market? Can we print money indefinitely and enjoy the fruits of the growth that seemingly limitless money-printing provides? So far, so good! It’s been working like a charm. Active investors who were once renowned for their ability to root out value have had their comeuppance (as Warren Buffet predicted). Their style of investing hasn’t worked terribly well this decade. Passive investing – going with the momentum of the leading stocks – has worked. If you’d invested solely in the FAANGs in 2009, you would have been the big winner, the best of the stock pickers. Which seems to have been what the Federal Reserve was struggling to achieve – a perpetually rising tide that would irrigate the economy. Quantitative Easing and its related manipulations have achieved what the Fed intended, albeit with the help of tax cuts and with a few awkward consequences, but nothing horrible (although you might want to again peruse the above chart). We’ve very neatly recovered from the Great Recession, the U.S. economy has been growing and the stock market has been rising for the last 10 years. It’s unprecedented! Those who believed that history repeats and that we were headed for a fall were wrong. Welcome to a new era of perpetual growth!

Finally (from a good friend)

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