US Capital Markets Review + Tesla Views

This week was a mixed one for the US capital markets, with the Nasdaq advancing +0.4%, and the Dow Jones Industrial Average retreating -0.6%. The S&P 500 finished down -0.3%, while the Russell 2000 index was up +0.8%. Growth stocks outperformed value stocks, while small cap stocks outperformed large cap stocks.

In terms of sector performance, consumer discretionary performed well at +0.8%, while consumer staples lagged at -1.9%. The 10-year US treasury yield was down 10 basis points. The VIX (fear index) spiked on the week, posting a gain of +13.1%.

Gold was negative -0.3% for the week, closing at $1,212 per ounce. Silver didn’t fare any better and was negative-0.7% for the week, closing at $15.31 per ounce. Oil was also down, finishing at -1.1% for the week, closing at $67.76 per barrel (West Texas Intermediate).

In economic news and political news, initial jobless claims unexpectedly fell during the week and the unemployment rate remains at historic lows of 3.9%. Mortgage applications fell for the week, and consumer credit totals came in below expectations, as consumers paid down their debts overall for the week. The Consumer Confidence Index ticked up slightly as well. Trade war actions continued to have effect on the markets and China retaliated this week with tit-for-tat tariffs on a number of US goods after the US imposed new tariffs on a number of Chinese goods.

Cryptocurrencies had a nightmare of a week. Bitcoin was down -9.6% for the week, currently at $6,280. Steem was down -17.4% for the week, currently at $0.95. EOS was down -27.5% for the week, currently at $5.10. If you are confident in the future and utility of Steem and Bitcoin, and are investing sensibly (not more than you can afford to lose), now might be a good time to add to your position.

To me, the most interesting market activity this week was Elon Musk’s tweet that he was considering taking Tesla private at $420 per share, adding “funding secured”. The stock jumped on this “news”, but it is already starting to backfire. These sorts of tender offers are normally announced through a form 8-K SEC filing, and there are all sorts of non-disclosure agreements signed when these arrangements are being worked out. The SEC is looking into the issue, and we have not heard the end of this, as it is a dangerous precedent to allow CEOs to pump their company to get back at short sellers, which have a large position in Tesla (I think justifiably so). Also, Tesla has no reason to go private, other than to get away from public scrutiny of their company/operations. A company that is undervalued could consider going private to give a greater return on investment to shareholders, but since Tesla has significant operating losses, difficult production targets, growing pains, and an already absurd valuation (currently valued at double what Ford is worth, despite having total sales of only 8% of what Ford has), there is no legitimate reason to go private. Anybody who holds IF the company goes private will lose their shirts, as there is no way the company will be able to return income to investors through dividends and the ability to sell your position gets extremely difficult on any secondary markets (and usually comes with lower valuations). Judging by the way the stock has not crept up to Musk’s “buyout” price (stock is currently at $355 per share), the market isn’t believing his 9 word tweet. I have driven in Teslas before and think they are decent vehicles, but I am not a fan of the stock at this valuation... I also think there is too much key-man risk in Musk.

Overall, the US capital markets remain healthy and I continue to be fully invested.

Cheers!

Brian