Buzz on the Street: Tesla Is No Longer On Fire
A look back at the happenings on Wall Street this week, as seen by Minyanville's Buzz & Banter.
Here is a small sampling of the 120+ posts seen on the Buzz & Banter this week:.
Tuesday, November 19, 2013
On the Wheels of a Dream - 10:49 a.m.
This morning Jonathan Weil has a piece on Bloomberg challenging Tesla (NASDAQ:TSLA) accounting. Over in the Wall Street Journal there are reports of increased regulatory review of Tesla cars as well.
As I joked on Twitter earlier this morning: Accounting issues? Regulatory scrutiny? For a moment I thought someone was talking about the banks in 2008.
More seriously, I think Tesla is a great real-time example of what happens when confidence falls post-bubble. Suddenly non-GAAP accounting measures which were not just accepted by investors but taken as "why this time really is different" substantiation for extraordinary valuations quickly come under siege. And as confidence falls, regulation naturally increases. For post-peak confidence companies, suddenly they are being attacked across multiple fronts. Where just months ago, everyone from investors to suppliers to consumers to regulators all adhered to a "Don't Ask, Don't Tell" operating model, suddenly everyone seems to be out with a microscope. And as we saw with the banks in 2008, incremental disclosure, rather than bringing an end to the questions, only raises more and more.
While I should probably stop here, I would also offer another real-time example of confidence-driven decision making in action and that is Bitcoin. I couldn't help but smile when I read this headline on Dealbook this morning:
"Regulators See Value in Bitcoin, and Investors Hasten to Agree"
Of course they do. Confidence is a social phenomenon and just like Washington deregulated the banks in 2009 at the top of the market, it makes perfect sense that regulators would be positive on Bitcoin with its price a record $1,000.
While Bitcoin may certainly go higher -- much like howTesla took on a rocket-like trajectory honoring its founder Elon Musk at its peak in confidence -- I would remind readers that high regulatory confidence is a bearish, not bullish, indicator. And to these eyes, there seems to be now be a saturating self-assured certainty to the future of virtual currencies.
Clear & Present Markets - 3:26 p.m.
1. The currency wars are taking shape. What we have seen to this point has not been a "war" but rather coordinated devaluations among developed economies. I think it is prudent to use the term "war" in the context of the PBOC actions because emerging market economies have borne the brunt of these policies in the form of inflation and less competitive currencies. The intention of the PBOC to end intervention in the currency market and broaden the yuan's daily trading limit, in addition to implementing market based interest rates, means China is taking meaningful steps to develop competitive capital markets. We have been headed down the road of liberalization for a while, but it seems recent changes empower Chinese officials to accelerate this process, bringing outside capital into China. Replacing a reserve currency is a process, not an event, and this is another of several signs that the dollar is losing its status as the world's reserve currency. Accelerating yuan convertibility and interest rate liberalization are major steps to creating a competitive alternative. A stronger yuan would benefit the Chinese consumer, who would have increased purchasing power, but exports would be less attractive to global consumers. I am long the Asia Ex-Japan ETF (NASDAQ:AAXJ) as a long-term way to play the long awaited, but yet to materialize, rise of the Chinese consumer.
2. I have been looking at some data recently that is helping me make sense of the disconnect between financial market price performance and economic fundamentals. While the Fed has stated that QE is aimed at using asset prices as a policy to drive economic activity through the behavioral impact of a "wealth effect," there does not appear to be a correlation between the financial interventions and fundamentals in the "real" economy. Housing is the one area where I would concede a correlation, but we are seeing asset price inflation across markets, not just housing. In short, while the Fed is causing asset prices to become overvalued, it is doing little to support the fundamentals that support those elevated valuations. What we are left with is declining household income, higher taxes, over indebtedness, and asset valuations that are disconnected from economic realities. If you put all of this together, you will see that it is essentially austerity, using another mechanism. As we heard in comments from Urban Outfitters (NASDAQ:URBN), Wal-Mart (NYSE:WMT), and Best Buy (NYSE:BBY), the consumer is tapped out and price competition is what will drive sales this holiday season. ZIRP is aimed at pulling demand forward, and after 5 years, we may be reaching the point in which we have pulled most of that demand forward and must deal with declining demand. The price competition and deflation we are seeing may be a manifestation of that.
3. Finally, the bombing of the Iranian Embassy in Beirut is a tragedy and a sign of the destabilization in the Middle East. Pay attention to the shifting geo-political landscape there. The Saudis are upset over the US non-action in Syria and then opening a diplomatic dialogue with Iran. Stratfor has been pointing out for years that the US needs to align itself more with Iran and less with Iran's mortal enemy Saudi Arabia, and we are beginning to see the shift emerge. The Saudis seem to be countering this by getting friendly with Egypt and to some extent Israel, but we should be aware that the proxy wars in Iraq and Syria appear to be spreading to other regions.
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