Date: 02/25/2021
Author: Mr. X
Like many, I see Elon Musk as a hero. He’s paid his dues as an engineer and an entrepreneur. He’s earned his wealth and brought something genuinely new to the world. He’s an immigrant to this country that shows the American Dream is still possible. Perhaps most importantly, he’s not content with just letting the world sit still. He’s determined to bring solar energy, high-speed Internet, and even space travel within the reach of the common man.
However, I think he might have made a political mistake. Perhaps several.
Elon Musk has already been in trouble with the SEC before for tweeting about Tesla stock. Now, he’s playing with fire again because of his Dogecoin memes. As you probably know, Dogecoin is essentially a joke coin. It doesn’t verify transactions or serve as a decentralized finance platform. It just is there.
Some, perhaps Mr. Musk, might say that’s true of all currency. Currency has value because we believe it does. Of course, fiat currencies also have lots of men with guns and regulatory agencies to force compliance. A meme coin can be fun, but there’s no IRS to force you to accept it as payment or mandate its value.
Now, it appears the SEC is investigating Musk because of his Dogecoin tweets. Treasury Secretary Janet Yellen sounds fairly bearish and suspicious about Bitcoin, where Tesla just made a huge bet. The Department of Justice is reportedly investigating SpaceX for discrimination. The Washington Post has also done some hostile reporting against Mr. Musk. He fired back to a reporter that he gave his regards to the journalist’s “puppet master,” i.e. Jeff Bezos, owner of the Post.
In short, Musk is making enemies. And in today’s world, you must have a certain amount of media and political backing to be allowed to operate. Government regulations, subsidies for certain industries, and media coverage can shape markets and determine policy and legal outcomes. If you are in the crosshairs of too many people, you will be taken down.
I’ve written before that I think “Get Woke, Go Broke” isn’t true. I note that Twitter [TWTR], even on an absolutely gut-wrenching day on Wall Street, was actually up sharply. The “Cynic’s Case” for Twitter seems to be holding. Now, I’m going to make the Cynic’s Case for why I fear for Tesla.
I preface this by saying I would not short Tesla, partially because I don’t like shorts period. There’s also recent history to consider – over 2020, those who shorted Tesla lost about $40.1 billion dollars. Call me superstitious, but not crossing that.
However, I’d pause before buying, even at the stock’s reduced level. As Workhorse [WKHS] investors know, government contracts, subsidies, and patronage are an important part of the renewable energy market. Losing one or two crucial contracts could mean the difference between profitability and failure.
Musk’s rivalry with Bezos isn’t just personal – now that Bezos is no longer chief executive at Amazon [AMZN], he can focus more on Blue Origin, his space company. The competition with Musk for NASA’s new lunar lander will be intense. Political considerations could be just as important as technical ones and here, Bezos has the Post.
Politics may also drive what will happen to traders in Gamestop [GME] stock. On a day when the market essentially collapsed, GME rose again. There were recent changes in personnel at the company, but it’s hard not to see this as another case of Reddit-driven trading. Musk may have a certain populist following because he cheered the last go-around. However, will this protect him?
I suspect retail investors are being used as cannon fodder here for the real players. The major gains have already been made by the time it is trending on Twitter. Once again, the SEC is taking an active role here. As Dr. Kent Moors wrote about a month ago, there may well be legal consequences for some of those involved in pushing these stocks.
What’s the takeaway for traders? Machiavelli himself wrote that even the greatest prince must change his conduct with the times. If you suspect there are more powerful forces moving behind the scenes, there probably are. It’s best not to cross them unless you have no choice.
It’s good to keep tabs on social media to track what people see in the market. However, don’t base your entire trading strategy on tweets and Reddit posts. Don’t chase gains that others have already made. Finally, don’t forget that even in capitalist America, Washington D.C. is ultimately one of the greatest determinants of who wins and who loses.
In the stock market, a crown can be won overnight. It can be lost just as quickly by someone who thinks he is invincible.
