Source: Tesla, SpaceX
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The ZIRP Paradox
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This commentary is being provided to you as general information only and should not be taken as investment advice. The opinions expressed in these materials represent the personal views of the author(s). It is not investment research or a research recommendation, as it does not constitute substantive research or analysis. Any action that you take as a result of information contained in this document is ultimately your responsibility. Epsilon Theory will not accept liability for any loss or damage, including without limitation to any loss of profit, which may arise directly or indirectly from use of or reliance on such information. Consult your investment advisor before making any investment decisions. It must be noted, that no one can accurately predict the future of the market with certainty or guarantee future investment performance. Past performance is not a guarantee of future results. Statements in this communication are forward-looking statements. The forward-looking statements and other views expressed herein are as of the date of this publication. Actual future results or occurrences may differ significantly from those anticipated in any forward-looking statements, and there is no guarantee that any predictions will come to pass. The views expressed herein are subject to change at any time, due to numerous market and other factors. Epsilon Theory disclaims any obligation to update publicly or revise any forward-looking statements or views expressed herein. This information is neither an offer to sell nor a solicitation of any offer to buy any securities. This commentary has been prepared without regard to the individual financial circumstances and objectives of persons who receive it. Epsilon Theory recommends that investors independently evaluate particular investments and strategies, and encourages investors to seek the advice of a financial advisor. The appropriateness of a particular investment or strategy will depend on an investor’s individual circumstances and objectives.
I find this Tesla review very interesting but it also misses one of the major factors in Tesla’s growth. It is truly one of the best pure play climate change companies in the market. To accelerate the transition to sustainable energy is a great narrative for our times. It is how I can use my money to forward my desire during the world of trump and leaving the Paris accords (which are necessary but nowhere near sufficient). I would much rather put my money in Tesla than Exxon or SP500 or the value dividend stocks (fossil fuel energy company dominated). Yes, the climate change narrative has exceeded all expectations when added to our DCF and ZIRP for Tesla. I have a Tesla since 2017 and it only made me more willing to invest in the company when the shorts caused the stock price to drop way more than necessary. I now see the irrational exuberance of the Tesla crowd and wonder when the merry go round will stop. But woe to me every time I have sold a bit of my Tesla stock because it had shot up like a rocket. It has just kept defying gravity. Perhaps this SP500 addition will be the last major phase of this massive run, But I would hate to bet against Tesla, but I would never purchase the stock at current prices and have accelerated my desire to sell but will never go all in or all out.
With respect, I’m not sure how the piece misses that factor at all, because that’s the entire focus of the piece! A “pure play climate change company” is exactly the kind of platform story we are talking about - an abstraction from the company as a cash-generating construct to a grand concept that investors believe other investors want exposure to.
Energy is quantifiable. Let us define energy as sustainable, unsustainable, or not defined. Then, not unlike the thousands of pages of the tax code, let us, in good governance, require all energy users to report their energy use down to the last joule/calorie and give tax deductions or credits as ‘deserved’. So when a Peloton user burns calories while using ‘unsustainable’ energy electricity, that would not qualify for favored tax treatment. Similarly, a solar panel may have components which were not obtained ‘sustainably’. And so on. Ultimately, the energy on the planet is what was created by the fusion of the contributing stars prior to earth’s formation combined with the cummulative energy of the sun as absorbed since that formation. I would bet that only Buddha has maintained a ‘sustainable’ energy use minimum. Tesla - that’s funny Nanny!
Zimbabwe Industrial Average has been kicking butt too! Yay 800% inflation!
Rusty… using this same myth… now do Bitcoin! I’m a bull, and I think this is the best bear case.
No doubt ZIRP is a major influence in risk markets today. Probably THE major influence . There’s a reason for this latest financial bubble the Fed has “engineered “, 3rd one in 20+ years ( how proud they must be)
Yet the “ZIRP mystique” is completely and totally dependent on a quiescent inflation rate.
This bet that inflation will be quiescent for, well, forever seems unlikely to me.
Anyone ever hear of Milton Friedman? Anyone? If not, “Free to Choose” is a first rate TV series ( and book) and a must see/read for economists/investors.
Anywho, +25% Year over Year M2 growth ( far surpassing anything seen in the inflationary 1970s) is one of several reasons to argue for the end of passive inflation, probably beginning to show next year.
BTW, those that argue low money velocity offsets extremes in money supply growth, well velocity was low in that decade too, yet inflation became oppressive and was seen as the scourge it really is.
It all makes sense but I prefer Occam’s Razor - in this case, good old fashioned stock price manipulation through offshore options buying.
If I was Musk, I would announce another 5-for-1 stock split tomorrow under the guise of “making it more accessible to individual investors”. Then have another capital raise 2 weeks later. It would just be a fitting finale for 2020. I’ve never shorted the stock, seem like there’s always been something hanging (buyout, partnership, we’re going to power your home with our battery, yada yada yada) that just made it too hard for me. Read all the stories, TC charts, podcasts, etc., still don’t see it blowing up. I’m convinced there will be a movie and I’m rooting for blowup, but I wouldn’t put my money there. #ThisAintHowCapitalismIsSupposeToWork #MercyIsStillHard
I’m a software guy, not a car guy, but this topic is up my alley. An anecdote: I was seriously ready to buy a Volt for the climate benefit, but GM messed that one up as well. Too cramped, too meh. Instead I put myself on the Model 3 waiting list for 2+ years. There’s a lot I could say about driving a Tesla, but when people ask me I generally refer to it as an iPhone on wheels.
I have had serious misgivings about Musk and the stock valuation for a long time, but I also believe people are discounting the software angle. It’s not just by about Autopilot. You can even purchase software upgrades for your car, much like in a video game. That is the definition of the hedonic treadmill, is it not?
Why don’t I have access to this liquidity? I am an individual, therefore I have an end date. I am required to pay principal and interest back on my loans. It seems infinity players are only required to pay interest and can roll principal forever. Yeah, ZIRP, MMT, National Debt! To infinity and beyond!