Streetwise Professor

July 12, 2021

Elon’s On Fire!

Filed under: China,Climate Change,Cryptocurrency,Energy,Tesla — cpirrong @ 6:29 pm

No. Wait. That was a Tesla in Taiwan City.

But Elon did ignite some (metaphorical) pyrotechnics in a Delaware Chancery courtroom with his fiery defense of the Solar City deal of 2016. My criticism of the deal at the time–which inspired some of my better lines, IMO–is the gravamen of the shareholder lawsuit against Musk. Namely, that the Tesla purchase of Solar City was a bailout of a sinking Solar City, mainly driven by Elon’s desperation to avoid a blow to his reputation as a visionary genius.

Nothing in what I’ve read about Elon’s testimony changes my mind. Ya sure the Tesla board was totes independent of him. Ya sure he did not dominate the board. Ya sure the deal made sense on the merits. Whatever, dude.

All that said, I surmise that the plaintiffs have a difficult hill to climb. Proving, legally, in court, what we all know to be true is sometimes a very difficult thing. That’s probably a good thing, but that’s a statement about the average–not any particular case.

That said, since the Solar City deal Tesla’s stock price, unlike Elon, has gone to Mars. It’s about 20 percent off its all time high in January, but still about 15 times above its June, 2015 price, which I thought was inflated then. So what do I know?

The most logical explanation to me is that $TSLA is not so much a bet on Tesla qua Tesla, or Musk qua Musk, but on government policies around the world that seem hell bent on forcing us all to drive electric cars, never mind fire risks (and Taiwan City is not a freak event), or the environmental costs of mining, or the insanity of renewables, or the increasing inability of electrical grids to handle existing demands let alone massive new ones such as that arising from electric autos, or on and on and on and on. Tesla is a first mover in electric vehicles, governments are compelling the shift to electric vehicles regardless of all the myriad problems, so Tesla stock booms. It’s not an efficiency story or an innovation story. It’s a wealth creation (for Tesla shareholders) by wealth destruction (the rest of us) story.

A couple of other Tesla/Musk-related comments that have struck me recently but not sufficiently to catalyze a post.

Tesla is having problems in China. Musk assiduously courts China. Musk makes huge sunk investments in China. China shtups Musk.

This storyline alone is sufficient to make you question Musk’s acumen. Did he really think that China would not act opportunistically? FFS. Opportunism ‘R Us is the CCP motto. Look at how the CCP is shtupping domestic tech companies (and those foolish enough to invest in tech company IPOs). If that’s what they do to “their” companies, what can foreign devils expect? Foreign devil Elon apparently thought he was special. He ain’t.

Crypto. Elon’s pronouncements can cause massive movements in cryptocurrency prices. This alone is enough to demonstrate the utter arbitrariness of crypto. Why should the value of anything depend on the musings of a mercurial and megalomaniacal individual other than the things that individual can control? Especially when said mercurial and megalomaniacal individual no doubt derives immense glee from watching people jump to his tune? That incentivizes him to say ever more outlandish things. Which the KoolAid drinkers respond to, which just incentivizes him more.

Why do his musings matter? Because people believe they matter.

In coordination games sunspot equilibria exist. In sunspot equilibria, values/prices change in response to a variable that people think matters, even though it is totally unrelated to fundamentals. Currencies–including cryptocurrencies–have a coordination game aspect where expectations matter. The value of currency (or a cryptocurrency) depends on what people think its value is, or what they expect it to be. If people believe that variable X–e.g., what Elon Musk tweets–matters, then X will matter.

That is apparently the case with crypto: whatever Elon says, cryptos do, at least to a considerable degree. What is more bizarre is that whereas “sunspots” are exogenous, Elon’s pronouncements are endogenous–he says what he says almost surely based on the fact that he knows that what he says will move prices. Yeah, that’s exactly the kind of power you want to give a megalomaniac.

Exogenous/extrinsic uncertainty can lead to excessive volatility. Crypto suggests that endogenous uncertainty a la Musk creates massive excess volatility.

So you want to “invest” in crypto why, exactly? To speculate on Elon’s mood swings and narcissism? To speculate on how other speculators speculate on Elon’s mood swings and narcissism? To speculate on how other speculators speculate on how speculators speculate on Elon’s mood swings and narcissism. (To complete this post, continue ad infinitum.)

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8 Comments »

  1. nice rant but honestly, how much did you lose shorting tesla lol?

    Comment by Chris Stepanian — July 12, 2021 @ 8:37 pm

  2. check out Helium.com, or Filecoin and see what they are attempting to build (not spec vehicles like Bitcoin). That’s where you “invest” in crypto for the long term I believe. Bitcoin is Bitcoin. Unlike gold, you can only look at it virtually. Like gold, it’s basically just a vanity investment.

    Comment by Jeffrey Carter — July 13, 2021 @ 8:17 am

  3. Re testimony: if you can’t blind them with brilliance, baffle ‘em with Bullxxxx.

    Tesla stock price shows the truth in Lord Keynes’ observation that markets can stay irrational for a lot longer than one thinks.

    Re sunspots, back in the 70’s there was a trade advisor who used astrology. Crashed and burned. Reopened as Harmonics investments. Harmonics as musica mundana . Did okay for a while .

    Re Bitcoin, it’s primary attraction was that you could moved money anonymously. Great way to avoid central banks, especially CCP controlled ones. I am using the plural because I am deeply suspicious of the Fed.

    Comment by sotosy1 — July 13, 2021 @ 3:32 pm

  4. BTW, the link fro stupid LinkedIn ain’t working, at least from Central America via a vpn.

    Comment by sotosy1 — July 13, 2021 @ 3:35 pm

  5. [So you want to “invest” in crypto why, exactly?] Simply put, I buy crypto as a hedge against government malfeasance. In the long term, expecting governments to, well, fease maliciously, is a good bet, and therefore long-term HODL’ing is, in my view (and historical experience), an appropriate strategy. The Professor is right, of course, in that most of the money in crypto is there for the wrong reasons. All this speculative froth is doing the world a disservice by obfuscating price signals and the making the distribution of scarce crypto inefficient. Wall Street hedge funds don’t need crypto (and, by holding them custodially, negate their value proposition of trustlessness anyhow), and when they snarf up the supply, it raises the costs for (for example) low-income expatriates, who *do* need crypto to avoid poor service and high prices on their meager remittances.

    Whether Musk trolling the crypto market is aggravating the situation by making more noise in the price signals, or actually helping by dispelling illusions with ironic silliness (which was sorta the point of Dogecoin originally), is hard to say.

    Comment by M. Rad. — July 13, 2021 @ 4:06 pm

  6. Black Swan

    https://www.cnbc.com/2021/07/13/black-swan-author-nassim-taleb-says-bitcoin-is-worth-zero.html

    Comment by Henry Barth — July 13, 2021 @ 6:32 pm

  7. Weird – I though such blatant market manipulation was against the law. How times have changed.

    At this rate Musk will be our first trillionaire.

    Gotta love Dogecoin though. What a stupidly brilliant idea.

    Comment by David Mercer — July 14, 2021 @ 9:18 am

  8. @Chris Stepanian. Zero. I’m well aware of Keynes’ dictum that the market can remain irrational longer than one can remain solvent.

    Comment by cpirrong — July 23, 2021 @ 7:09 pm

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