“Feels so good!”
-Yumbo Dump
If I haven’t sucked you into watching #AGT (America’s Got Talent) on Tuesday nights, you’ve got to try it; especially if you have kids. They’d have seen the Japanese big belly duo make the sound fish out of water last night!
Admittedly, now that I’m short both Facebook (FB) and Tesla (TSLA) in Real-Time Alerts, I need some distractions in the evening. Twitter hath seen no fury like that reserved for “short sellers” of things some people have a passion for.
While I can empathize with how someone might fall in love with a founder, a product, or a stock, that’s not what I do. I get paid to find countries, sectors, and companies who can or cannot live up to market expectations.
Back to the Global Macro Grind…
Unlike some CEO’s we’ve shorted over the course of the first 10 years of building an independent research firm (like the now bankrupt Linn Energy CEO, Mark Ellis, to name one in particular)…
My Research Partner, Jay Van Sciver, and I both like and respect Elon Musk. As a disruptive entrepreneur vs. the Establishment, how couldn’t I? Many of Musk’s accomplishments over the course of his young life are jaw dropping.
So was his tweet to take the company private with “financing secured” yesterday.
I’ve been buying and shorting companies for almost 20 years now with no promoted bias in either style or direction. Shorting stocks is harder than buying them. The #1 risk to a short is the potentially unlimited nature of losses.
And, to be clear, Elon has pounded some short sellers into insolvency and/or submission.
We, on the other hand, came into the Tesla (TSLA) short on June 9th of 2017. Over the course of time since Van Sciver’s been bearish on TSLA, we were uber bullish on both US #GrowthAccelerating and growth stocks that pounded TSLA.
We also suggested you only short it on squeezes as opposed to pressing the declines. To each their #timestamps.
As of yesterday however, Musk has us in an uncomfortable position. He has his shareholders in an odd position too. If the story, product, and execution towards “profitability” is so clear to him, why cap the return at $420/share?
Another simple way to think about this is what Van Sciver tweeted this morning:
“The easiest way to get rid of short sellers is to post sustained profits. Companies do it all the time. Most companies are really communicative with shorts, actually, and often consider their criticisms respectfully.”
*for more, see Jay’s Institutional Research note this morning titled “TSLA | ‘Tis But A Scratch & Regulation FUD”
Elon, given the level of short interest alone, you’re stock would be at $540 or maybe even $640 on a squeeze via execution of your vision. So thanks in advance for limiting our losses.
Back to our top-down Global Macro view…
Short selling gets less hard when the entire world isn’t in GROWTH #acceleration mode. As a reminder, we went bearish on both China and EM (Emerging Markets) #slowing back in January. It’s a good thing the Chinese didn’t tweet at us too!
Currently 14 of 22 EM countries we model are in what we call Quad 3, or economic stagflation. Russia hasn’t been a big “risk on” call for us until its currency (the Ruble) moved into #crash mode in the most recent week (-10% YTD vs. USD).
The Russian Trading System Index (RTSI) has diverged from Global Equities this week, dropping another -1% this morning, taking its loss in the last month to -2.5% vs. something we like (like Utilities, XLU) which is +3.5% month-over-month.
Long Utes (XLU), Short Facebook (FB). I know. #Boring. I must not “get” building a growth company or something.
With our US GDP predictive tracking algorithm #slowing with the last 3 US economic data points for JUL though, our headline forecast for Q3 GDP has dropped to +2.19% QoQ SAAR vs. political forecasts that are hugely higher.
For the USA, with the US Treasury issuing $239B worth of debt this week, Van Sciver and I have agreed that the country’s financing is indeed “secured.” As for Elon, we don’t feel so good about that part of his new story yet.
Our immediate-term Global Macro Risk Ranges (with intermediate-term TREND views in brackets) are now:
UST 10yr Yield 2.89-3.01% (neutral)
SPX 2 (bullish)
NASDAQ 7 (bullish)
Utilities (XLU) 52.04—53.65 (bullish)
VIX 10.40-14.41 (neutral)
USD 94.02-95.49 (bullish)
Oil (WTI) 67.43-70.28 (bullish)
AAPL 199.98-215.67 (bullish)
FB 160-187 (bearish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
