Tesla sinks, MKS and ITV deliver

Musk things 

About those unrealised gains being tax avoidance? What about unrealised losses? I mean, Elon musk is now worth about $50bn less than he was before Twitter poll. Surely that should count for something, too…?! Tesla shares skidded lower by another 12% on Tuesday, taking the two-day losses from Friday’s closing price to approximately 16%. 

Clearly, the poll has affected the stock price. But attributing a reason for conducting the Twitter poll is probably a pointless and fruitless exercise, since as we have noted before Musk is regularly doing dumb stuff on Twitter. There are theories – boy, are there theories. Big Short trader Michael Burry flagged personal debts for the reason – “Regarding what @elonmusk NEEDS to sell because of the proposed unrealized gains tax, or to #solveworldhunger, or … well, there is the matter of the tax-free cash he took out in the form of personal loans backed by 88.3 million of his shares at June 30th,” he tweeted. I’ve even heard chatter about Musk seeking to lower the strike price on a bunch of fresh options coming his way… 

Whatever… what we know is that several insiders have been selling stock lately, capitalising on the $1tn valuation; Musk probably must sell soon – has said as much – to cover tax liabilities. Among the insiders, Musk’s brother Kimbal sold $109m the day before the tweet. Not an ideal setup – supply is likely exceeding demand, plus ‘optics’ – Musk is very much Tesla personified. He’s previously said he’d be the last money out – selling for whatever reason is problematic, partly because of his cult like status among investors.  When insiders sell, or say they will sell, stock after a huge run up in the shares it’s usually a sign they are not comfortable with the valuation. That is something to bear in mind. Even allowing for the stock’s drop over the last two days, it’s still commanding an absurd valuation – should the stock be worth what it is? Jefferies says more, raising its price target on the stock this week to a Street high $1,400.  

Whether it should or shouldn’t, a more pertinent question is can Tesla sustain a valuation that makes it worth more than every other carmaker combined? It seems unlikely. Competition for one. Rivian is an Amazon and Ford-back electric carmaker about to go public today on the Nasdaq with a stonking $66.5bn valuation after pricing shares at $78, well north of expectations. Revenues so far zero, losses high. But it’s got an order from Amazon for 100,000 trucks by 2025 – an actual order with a contract and everything (cf Tesla-Hertz). It’s an ‘exciting’ time for EV investors, for sure.

After announcing an order of 100,000 Teslas – well, sort of announcing – Hertz is back on the Nasdaq having been traded over the counter since it went bust last year. As part of the marketing push around this re-IPO it’s enlisted Tom Brady, who is very good a throwing an oval bowl forwards a long distance.  Yesterday Brady tweeted “To the moooooon… @Hertz #IPO #LETSGO.” (the tweet has been deleted, it seems). A fleet of Teslas on order, what could go wrong? Hertz has traded OTC under HTZZ since Oct 2020 following its Chapter 11 filing in May of that year. It’s now back under HTZ on the Nasdaq – shares closed Monday at $32.62 and closed Tuesday down about 9% on relisting. Presumably, Brady will be on CNBC or whatever soon with his take on the 2s10s curve flattening and who should be Fed president. It’s not that celebrities shouldn’t endorse brands, but it’s unclear to me why a celebrity endorsement is required for a stock market thing.  

The Metaverse 

An ETF called META has doubled its net asset value from $130m to $260m since Facebook changed its name two weeks ago. Volumes have also soared – right place, right time? Sometimes stocks with similar tickers to really buzzy or big names can find investors piling in by mistake. The SEC had to halt trading in Zoom last March because people were buying the wrong Zoom. Sometimes this gets front run by clever hedge fund types in expectation of mistaken identity. In the case of META, I’m not so sure it’s just some punters getting confused – META is designed to give investors exposure to the ‘metaverse’, whatever that is. So, if you think FB is doubling, trebling down on this area then META could be a vehicle for investors to tap the growth in the sector.  

Bitcoin eased off its all-time high made early Monday. Apple boss Tim Cook said he owns cryptocurrency and has been interested in it for some time. He said he believes it’s reasonable to own Bitcoin and Ethereum as a part of a diversified portfolio. However, he stressed that Apple would not invest in crypto since that is not why people own the stock. 

Shares in Coinbase sank 13% in after-hours trading after the company reported weaker-than-expected revenue for the third quarter. Turns out less volatile crypto markets (isn’t that what everyone wants?) is not so good for the exchange that is touted as the mainstream ticket to the crypto uni(meta?)verse. Monthly users fell from to 7.4m from 8.8m in the second quarter, though was still up from 6.1m a year earlier. Trading volume fell to $327bn from $462bn in the prior quarter.

Finally, Naked Brand Group, which makes swimwear and lingerie is merging with Cenntro Automotive Group, which works in the field of autonomous driving. Make sense? Nope, but this is 2021. Shares jumped 30% before trimming gains to end the day up 6%.

Markets 

European stock markets are tad higher this morning having closed mildly in the red on Tuesday – the DAX and CAC off by 0.1% and the FTSE 100 lagging at -0.3% for the session to sit underneath 7,300. All three are in the green in early trade today with the FTSE 100  recovering 7,300 but looks tentative – possible bearish MACD crossover to consider. Real yields on 30-year U.S. bonds sunk to a record low, of negative 0.57%, but gold pulled back in the face of key resistance levels. Oil prices firmed on tighter supply, strong demand signal from Vitol and JPM. US stock markets finally eased back after a run of gains that was one of the best for several years.

Wall Street closed lower, ending one of its best win streaks in years. The decline in Tesla was a factor, but ultimately such a straight charge up will just run out of gas sooner or later. The look-ahead to inflation is maybe a factor so this needs to be assessed with today’s CPI print.

Inflation is the order of the day – Chinese PPI – a big leading indicator for global consumer inflation- surged to 13.5% in Oct, hitting a 26-year high. US PPI stands at 8.6%, which was flat on Sep. Today’s US CPI inflation report could show a nudge beyond the 5.4% reported for the last 4 months – consumer prices are seen rising 5.8% on an annual basis in Oct, which would be the highest in 30 years. Core is seen at +0.4% mom and 4.3% yoy. German CPI inflation rose to 4.5% in Oct, +0.5% from the previous month – the highest level in 18 years – driven by an 18.6% rise in energy prices and doubling in heating oil prices. The split between the services inflation (+2.4%) and the inflation in goods (+7%) tells you all you need to know about the dislocation in the post-pandemic global economy. 

ITV update: slogging away – reopening of production and revival of ad revenues continues apace, but the longer-term doubts remain about the position of linear broadcasters in an on-demand world and its reliance on cyclical ad revenues. Still the numbers are v. good – ad revenues are forecast to rise 24% and hit the highest in its history. Total ad revenues (TAR) are growing but seeing sequential decline in growth rates that mirror the year-ago impacts. TAR hit 30% for the 9 months top the end of Sep, with July up 68%, August up 24% and September up 16% compared to the same period in 2020. That compared with growth of 115% in June and 87% in May. These numbers should settle down in due course as the effect of last year wash out. Total revenues were up 8% from 2019. Notable that ITV reports profit to cash conversion is expected to be around 60% in 2021, up from the previous guidance of 30%, due to the stronger than expected TAR performance. Shares rallied 6%.  

Marks & Spencer has smashed expectations as it raised its full-year profit outlook handsomely. Management is guiding profits to be around £500m – which is up from the £300-£350m guided back in May. There clearly must have been a big improvement only in the last few weeks for such a strong upgrade to the profit forecast – as recently as August the guidance was for the upper end of that range only. This upgrade came despite the requisite warning on the ‘supply chain’ – “well publicised cost pressures will become progressively steeper increasing the importance of our productivity plans, store rotation and technology investment in the coming year”. Profit before tax & adjusting items of £269.4m was up more than 50%, with food sales up 10% and ex-hospitality +17%. Ocado partnership is paying off. Shares soared 20% on the profit update before paring gains to trade +15%. Getting back to where it was before the pandemic knocked the stock for six is one thing, but by then it was already nursing years of pain – the recovery from the pandemic is complete, but can it recover 2015-2018-type levels? The restructuring is paying off – the pandemic allowed Marks to accelerate a process that had been taking far too long, and in many ways could have been a blessing. Looking for further progress in the coming quarters to drive positive price action.