The Two Poster-Children Of Froth (Or How To Piss Off Half The Market)

Tyler Durden's picture

Authored by Kevin Muir via The Macro Tourist blog,

I am sure to madden a bunch of readers this afternoon, but here it goes nonetheless. For most of the spring and early summer, there were two poster children of speculative froth.

The first was Tesla. Egged higher by Elon Musk’s tweets poking fun at the skeptical short sellers, this stock was seemingly unstoppable. Rising from $240 in March, TSLA ticked at $387 in late June, squeezing the shorts by 61% in the space of one quarter.

http://themacrotourist.com/images/2017/07/Elon0Jul1717.png

http://themacrotourist.com/images/2017/07/TSLAJul1717.png

Have a look at the headlines from ToutTV during this period:

http://themacrotourist.com/images/2017/07/Elon1Jul1717.png

http://themacrotourist.com/images/2017/07/Elon2Jul1717.png

http://themacrotourist.com/images/2017/07/Elon3Jul1717.png

http://themacrotourist.com/images/2017/07/Elon4Jul1717.png

The euphoria for Musk filled the financial news networks, and any naysayers were generally viewed as idiots who just didn’t get it.

http://themacrotourist.com/images/2017/07/BuyJul1717.png

*  *  *

The second investing theme from earlier in the year that caught the public’s attention was bitcoin. In this case, the rally was even more dramatic.

Bitcoin tripled from March to June.

http://themacrotourist.com/images/2017/07/XBTJul1717.png

http://themacrotourist.com/images/2017/07/LifeJul1717.jpg

I wrote an article in late May that did not embrace the new paradigm (My Great Bitcoin Bungle), and I can confirm, bitconians are not the most accepting bunch when it comes to alternative opinions. I was inundated with comments about how I was yet another finance guy unwilling to accept the new world reality.

Barrons’ even went so far to make bitcoin their cover story (and you know how I feel about Barrons’ cover stories).

http://themacrotourist.com/images/2017/07/BarronsJul1717.jpg

And nothing made me laugh more than the bitcoin zealot who sneaked into Fed Chair Janet Yellen’s Humphrey Hawkins’ testimony to hold up a “buy Bitcoin” sign.

http://themacrotourist.com/images/2017/07/YellenJul1717.png

I have to give the kid credit - it was a great stunt. But it sums up the degree at which this theme has captured the enthusiasts’ imagination.

Although there were other stories that dragged the stock market higher during the past few months (NVDA and AMZN are good candidates), I consider TSLA and XBT (bitcoin) the two most prominent leaders. In my mind, these were the two names where speculation was running the most amok.

For the longest time, it seemed like regardless of what the stock market or other financial markets did, each day TSLA and XBT were sure to rally.

And this next statement is where I am going to get myself into some trouble. I don’t think this speculation was healthy. I don’t view either of these themes as particularly well thought out. Yeah, I know Musk is going to change the world, and we will all be paying for our TSLA Model 3’s in bitcoin. Don’t bother trying to convert me. I think both of these assets are legitimate technologies, but both are priced for an unrealistic reality.

Regardless of your views about TESLA’s priced in bitcoin, there can be no denying that the tone of the trading has changed for both of these recent market darlings.

http://themacrotourist.com/images/2017/07/ThreeJul1717.png

What I find interesting is that even though the S&P 500 is hitting new all time highs, both of these other two stories are hitting new six month lows.

If they can’t rally along with the rest of the market, what is that saying about their strength?

I listened to this terrific Felder Report Podcast the other day with Bill Fleckenstein and he had this great line about short selling. Fleck said he likes to shoot his short sell candidates in the back. He would rather wait for the turn, and then lean on the sell button, instead of fighting them on the way up.

I wonder if the kid with the Bitcoin sign was the top. And maybe Tesla’s model 3 production announcement will prove to be a buy-the-rumour-sell-the-news event. Could this be the perfect time to shoot both TSLA and XBT in the back?

If you want to learn more about opportunities on the dark side of TSLA, then I highly suggest you follow Mark Spiegel on Twitter. Not only will he help you understand the absurdity of TSLA’s valuation, it is some of the funniest stuff on financial twitter.

As for bitcoin, I will leave you with an idea if you want to join the group of bitcoin skeptics.

Currently, the only stock exchange bitcoin listed product that I am aware of is Bitcoin Investment Trust sponsored by Grayscale Investments (GBTC). Due to the current lack of competing products, this closed end fund trades at a significant premium to Net Asset Value (NAV). Here is the history of the premium to NAV over the history of the fund:

http://themacrotourist.com/images/2017/07/PremJul1717.png

Although the premium was over 125% during the most recent bitcoin excitement, GBTC is still trading at an 80% premium to NAV.

Given the chances of a variety of new XBT ETFs being introduced in the coming months, I don’t think you even need to get a decline in bitcoin for a short position in GBTC to potentially be profitable. I can’t see this premium hanging in there for much longer.

Although some market pundits are looking at the TSLA and XBT weakness and extrapolating it onto an imminent general stock market crash, I view it in a slightly different light. I think it is merely a return to sanity.

And I know that I will have just pissed off a bunch of TSLA and XBT disciples, but I suggest that you should welcome my negativity. It just gives you a chance to buy more at lower prices from stupid short sellers like me…

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Rick Cerone's picture

Did Musk risk any of his own money on the Tesla scam? No. Next.

mpnut's picture

When did Musk become a financial wizard?  Must be the OCD or some sort of Autism in him..  Its true though, when a CEO becomes more concerned about stock price than the operations in his company, you need to be watching your step..

Glassport's picture

You just described 99.999% of all CEOs.

oldguyonBMXbike's picture

He's just an AI robot playing a part.

Too-Big-to-Bail's picture

Gold gets no respect -- but it will when reality finally returns

Anteater's picture

It will when Modi sells the last 10,000,000 ounce tranche of 24KT physical

to the Bank of London, in return for pound sterling credits for him and his

privatization cronies, using the Ukraine Gambit, perfected by the Israelis.

Then the Queen will own most of the physical, with Putin and the Pope,

(and Modi and Poroshenko will own most of India and Ukraine industry).

Their triades will hunt down any stray ounces on E-Bay and Craigslist:

"Are you the guy with the 1 ounce gold coin on E-bay?"

"Yupp, where my $830 in demi-ethereum?"

"Here's your ethereum ... pffft, pffft, pffft."

But why would the Queen, Putin and the Pope want all the physical!?

Because Satan only trades in physical now. Souls are a dime a dozen.

jmack's picture

yep, in 200 - 500 years....  by which time we will be pulling in tons of gold from orbit.

Moe Hamhead's picture

I wonder how Fonestar is doin?

spdrdr's picture

As they say on the Tesla factory floor:   "Piston broke!"

gilhgvc's picture

Tesla = Deloriean

Winston Churchill's picture

DeLorean was a real engineer, but was also a corporate welfare queen.

Musk is just a corporate welfare queen, but I've never met him,DeLorean I did, at a  weekend party at Colin Chapman's estate.

Another real engineer.Musk couldn't shine either of their shoes properly.

armageddon addahere's picture

Delorean may have been trained as an engineer but he was a scam artist from the word go.

gilhgvc's picture

bitcoin...digital currency in a world of digital pirates and weak ass security...what could go wrong?

youngman's picture

Bitcoin will only work if there is only one option..now there is a new one everyday....not going to work....

techpriest's picture

It only has to work enough to get other people to give you money. However, the "market money" being created in blockchain also means that its impossible to hoard coins since some can always create another one should that happen.

Dragon HAwk's picture

So the play here is buy a Telsa with Bitcoin?

 

techpriest's picture

Gartman is moderately net short of Tesla in Bitcoin terms.

oldguyonBMXbike's picture

Actually I think the better play would have been to sell your Tesla for Bitcoins and BTFD.

max_leering's picture

Elon-gated Musk-y smelling, that prick is taking MY tax dollars for his high risk ventures, or adventures if you will... "hey, let's go to Mars" or "I need seed money for the parasemitic single valve turd cutter"... recently read where the tax subsidies for his battery (included) operated vehicles will start soon to taper off to zero, and I'm fucking stoked 

Setarcos's picture

With a kind of technological twist, Musk reminds me of 60's - 70's gurus who promised wondrous things, sucked in millions and departed with the cash.  I somehow doubt that Musk's stuff is really of his own invention anyway, but he has the gift of the gab, charisma and chutzpah, thus soliciting funds to pay those who actually do the work, whether or not really viable ... colonizing Mars FFS!!  Too cold, too far away, too small to retain much atmosphere ... and so on.

Setarcos's picture

What I find amusing is the number of gold and silver bugs (don't buy unless you have physical in your possession) and anti-fiatites who have gone nuts about bitcoin, which is ethereal (pun intended), subject to power loss  and with no intrinsic value.  Bix Weir comes to mind.  The "fixed" 21 million "coins" are illusory, because they are virtually infinitely divisable of necessity, e.g. if bitcoin goes to $1,000 then it must be split into at least 1000 Satochis for nearly all transactions + mining whole new "coins" is very expensive and specialized.  Who pays for that - in USD?  And what is any of it "worth" if the USD crashes?

I gather that Ethereum is not so much an alternative currency as a platform for numerous applications.  From what I have read: Ethereum is likely to eliminate bitcoin and the burgeoning other "alternative currencies" based on nothing.  I am willing to be proved wrong.

oldguyonBMXbike's picture

Who cares what will happen, I'm making bank right now.  I agree that ETH looks the most promising of the bunch, but I'm long EMP.

Fartboxbuffet's picture

Its one of many ways the tribe robs the goyiums they have many ways they are master liars and theifs just like little devils

zzzz88's picture

from the strategies japan used in whole ww2, we can see japanese like to bet big.

for a very long time, they won big too.

but in the long run, it is suicide strategy.

they won many battles, but they lost the war.

this time, in economy, the final result will be the same---

japan printed at least 20+ years, they already won many battles.

but they will lose the ecnomic war again, very very very BADLY. just like ww2

Chipped ham's picture

Tesla is a bad idea searching for a market. Bitcoin is the real Nikolai Tesla. Way ahead of its time but still dead on right. 

Which has more (by a mile) people heard of? Tesla or Bitcoin?

Bitcoin is not in a bubble. Your thinking is. You'll be hating very soon because of envy, not the derision you spew now.

See you at the finish line. 

Chipped Ham

hanekhw's picture

Buy a Tesla. Crash it claiming it was on autopilot. Later recant and say autopilot wasn't engaged after Tesla pays you twice what you paid AND collect on the insurance. I LOVE Tesla.

e_goldstein's picture

He talks a lot about speculative bubbles, but not one goddamn word about the easy money policies of the FED creating ALL the bubbles.