Weekly TLDR - Elon Playing The Pauper
Weekly TLDR - Elon Playing The Pauper
In this week’s TLDR, we talk about geopolitical risk with China stocks, Elon’s tightening wallet, Cruise’ progress in driverless self-driving cars, and a former Obama admin lawyer’s new mission to mak
The TLDR
In this week’s TLDR, we talk about geopolitical risk with China stocks, Elon’s tightening wallet, Cruise’ progress in driverless self-driving cars, and a former Obama admin lawyer’s new mission to make Bitcoin ETFs a reality.
Chart of the Week
The red hot labor market continues with mentions of “labor shortages” still very high on earnings calls so we have that as inflation, energy prices, commodity prices and just about everything else is reaching new highs. We found this measure to be a very interesting and novel perspective on the labor market. Labor shortages are creating a demand imbalance where wages are also going up and more employees are quitting for better opportunities. This scares the Fed, as they’re worried of a wage-price spiral where high wages will push inflation up further into an uncontrollable spiral. Wages tend to play catch up, but in catching up, they start the next round of inflation.
However, in the meantime, the jury is still out on whether we’ll be plunged into a wage-price spiral and we hope all of our readers are able to benefit from the hot wage market!
Stock Market TLDR
Outperform During Indecision
The market is currently split between the Superstorm Sandy’s (they think there’s more to fall) and the September Pause’s (they think the worst is behind us). It’s in a zone of indecision and SPY is trading in a range between 410 and 415. This is a very difficult area to trade with significantly more risk. Thankfully, there’s certainty in uncertainty.
In this week’s Friday issue we will dive into where your mindset should be in this zone of indecision to outperform the market. Don’t miss it!
Didi Gets Mobile App Back as it Delists from US Markets
The Short: We’ve warned folks around investing in US-listed China stocks multiple times already. Here is another example of the deep bag of tricks the Chinese government has and the lack of recourse companies and investors have. Didi has had its Mobile app taken off of app stores for over a year now. Since its delisting from the US, it now gets its mobile app back on the app stores. The lesson here? Don’t fight the Chinese government.
The Long: The Chinese government has been clear on how it wants to bolster its own capital markets, encourage foreign investments, as well as increase its position geopolitically. Pulling its largest companies back to be listed in China is just one step. Companies like BABA, BIDU, JD, TCOM etc all have headline risk as the Chinese government continues to find ways to force these companies back to China. It’s a double whammy as US regulators are at the same time upping their scrutiny of US-listed Chinese companies. For example, the US is looking to increase auditing standards for these companies while the Chinese government is pushing back.
Elon’s Tightening Wallet
The Short: All signs point to Elon Musk being pessimistic on macroeconomic outlook. Elon revealed his desire to cut 10% of all jobs at Tesla and institute a hiring freeze worldwide. Elon is also threatening to walk away from his deal to acquire Twitter. The consistent theme here is Elon looking to reduce his liabilities as he has a “super bad feeling” about the economy.
The Long: Tesla joins a long list of companies with hiring freezes like Meta, Coinbase, and others. While fundamentals have not yet followed the general pessimism that is floating around, investors have already hammered growth companies with low or negative earnings. With much of Elon’s Twitter bid backed by TSLA stock, which is down significantly from its highs, the Twitter deal is looking more and more expensive as the days go by. No wonder Elon is getting cold feet. Another sign of his anxiety can be seen in the escalation of his spat with Bill Gates, who is on record with a short position on TSLA.
Cruising To The Bank
The Short: Cruise, the autonomous driving unit of GM, has been given permission to charge fares for its robotaxi service in San Francisco. This is a strong sign that Cruise’s robotaxi pilot has been progressing well. There are limitations for this next phase around maximum speeds and hours of operation but I would view it as the next milestone in the goal of going fully autonomous.
The Long: There will be many milestones on the path of a fully autonomous service but Cruise is making good progress. GM’s stock has been hammered lately, like the rest of the market, and much has been discussed about Cruise’s “down round” when GM repurchased shares from Softbank. Passing this milestone should allay some of those fears. GM is trading at ~5x earnings and around 10-12x earnings net of cash and debt so it’s definitely not priced as a growth story. Cruise is the golden ticket for GM to not only start printing cash at high margins but also turn around investor sentiment with its recent market share loss and vehicle delivery declines.
Crypto TLDR
New Proposed US Crypto Legislation, Hot Off The Presses
The Short: Senators Kirsten Gillibrand and Cynthia Lummis just proposed a bipartisan legislation to classify cryptocurrencies as commodities by default to be regulated by the Commodity Futures Trading Commission (CFTC). Only if the cryptocurrency is deemed to behave like a security will it be treated as a security and regulated by the SEC. NFTs will be treated as a totally new asset class.
The Long: Commodities are treated as goods (e.g. food, oil, and precious metals), while securities are treated as ownership of future profits in a company. It has long been unclear whether the CFTC or the SEC should regulate crypto, with the SEC having taken the lead on regulation in lieu of regulatory guidance. Unfortunately for SEC Chair Gensler and his crypto crew, this bill significantly reduces their implied jurisdiction over crypto. If passed, this bill is yet another positive move forward for crypto, adding more regulatory clarity and recognition. The more regulatory oversight there is, the wider the gates of institutional investment into crypto are.
Grayscale Hired Former Obama Supreme Court Lawyer to Lobby SEC
The Short: Grayscale is a major institutional crypto asset manager that currently has two major traded products for crypto, a Bitcoin Trust and an Ethereum Trust. They want the SEC to approve a Bitcoin ETF, yet the SEC has been mysteriously hesitant. As such, they’ve hired former Obama admin lawyer Donald B. Verrilli Jr. for a legal push on the SEC to legalize crypto ETFs.
The Long: What’s awkward is that if the aforementioned Gillibrand Lummis Bill passes, there would be no point in lobbying the SEC, since the CFTC would be regulating Bitcoin. In that case, I guess Verrilli Jr. can focus his efforts on the CFTC? Some readers might also be wondering about the difference between trusts and ETFs. I can explain. They’re both investment products tradeable on public exchanges, so why the push for an ETF? At a high level, ETFs are much more investable for institutions since they’re more transparent and it’s possible to redeem or create shares of an ETF. Trusts, on the other hand, don’t allow market participants to redeem or create shares and thus can easily trade at a price that’s different from its Net Asset Value (NAV). This adds more risk to the investment.
Ethereum's Ropsten Proof of Stake Test Merge is Successful (so far)
The Short: To prepare for Ethereum’s full conversion to a proof of stake blockchain later this summer, Ethereum developers have completed a test proof of stake merge on one of Ethereum’s top public test nets, Ropsten. The merge went well, but it’s too early to declare success.
The Long: Ethereum is set to transition from proof of work to proof of stake later this summer. This is a huge transition, reducing its environmental impact, significantly increasing its scalability, and potentially turning it into an asset with a deflationary supply (it currently has an inflationary supply). On the way to this merge is a series of test net merges to verify that everything is working well before making such a big change on the production blockchain. The Ropsten merge might have been a success but it’s too early to call it a resounding success. Ethereum founder Vitalik Buterin is quoted as saying: “I mean of course, the merge working well for 6 hours isn’t evidence of complete success… There are all of these kind of longer term issues around MEV and staking centralization and protection against DOS attacks and things that could potentially bite us 3 weeks after the merge instead of 2 minutes during the process”.
In Case You Missed It
This week’s market forecast issue where we discuss the curious flip flopping messaging of JPMorgan Chase CEO Jamie Dimon.
