Twilight Of The Twitter Deal?

Date: 6/07/2022
Author: Mr. X

Elon Musk may be having second thoughts. Or, more likely, he may not be able to fight a war on a second front. Or a third. Or a fourth.

Frederick the Great reportedly said, “He who defends everything, defends nothing.” Not only can you not defend everything at once, but you also can’t just attack in every direction. The latter seems to be Musk’s strategy right now, and it might be too much even for the world’s richest man. He may simply be trying to do too much at once.

One of the fundamental premises of my approach is that wealth is downhill from power. While it is still possible for a person to go from rags-to-riches, once you enter a certain level of success, you are part of a larger game. You aren’t allowed to simply stand still.

You can’t stand still on a moving train – meaning you must keep investing during rising inflation because if you do nothing, you’re actually losing money. The same principle applies when it comes to major businesses and influential figures. You can’t simply hold your position and expect that you’ll be allowed to maintain it. It will be taken from you and you will be destroyed as an example to others.

It’s when a business is trying to transition into a fundamentally different environment that it faces its greatest challenges. Take Meta Platforms, which as of this writing is still trading under the ticker FB but will be switching to META soon. Facebook, originally, was a social media platform that was limited not just to college students, but only college students at specific campuses. Then, Facebook became something for everyone – and if anything, became heavily tilted towards, and dependent on, older customers.

When that happened, Facebook suddenly found itself under major political pressure. When a former employee started providing internal documents to The Wall Street Journal, it was something that journalists were thrilled to write about. From news networks to the nation’s capital, there were constant demands that Facebook needed to crack down on misinformation. That raised two thorny questions.

Who decides what is misinformation?

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How can Facebook remain profitable if the most engaging content is also the most controversial – and therefore the thing that needs to be banned?

Mark Zuckerberg’s answer seems to be to change the subject and bet it all on taking over the metaverse. The name change and rebranding was a way to not just look for new kingdoms to conquer, but to get the press talking about something else. To some extent, it has worked.

Great corporate leaders are right about one important thing, once, but legends can accomplish this feat multiple times. Mark Zuckerberg has proven himself a great leader and he may even think of himself this way. (His sister is a Classics scholar and he reportedly has expressed fascination with the figure of Caesar Augustus.) Yet taking over the metaverse, a marketplace that we can’t even fully conceptualize now, may prove too much for even him. Only time will tell – but Meta Platforms appears far riskier than it did a few years ago.

Musk is on a different level. He’s already proven to be a success in multiple fields. Tesla (TSLA) has utterly revolutionized the EV market. SpaceX is becoming a titan in commercial space enterprises and it hasn’t even gone public. The Boring Company is developing concepts that could prove transformational when it comes to urban design. Starlink has proven invaluable to Ukrainians defending their country from a Russian invasion.

Musk dreams big – and he’s had a massive impact on the way we discuss climate change, crypto, space exploration, and the very purpose of humanity. And this was all after PayPal. We also know from his personal habits that Musk drives himself to a point that would kill a lesser man.

Yet Musk’s plan to take over Twitter is different. It’s a political act – more than that, it’s a contrarian political stance. And that may have led him into taking positions that not only could prove dangerous but could threaten his other holdings.

Until recently, Elon Musk could comfortably be put on the center-left. He was a Barack Obama voter, and the optimistic, technocratic view was arguably a manifestation of what the country’s first black president represented to many people. We had problems – not least climate change – but science, reason, creativity, and good will can allow us to overcome them. They can also be solved through the free-market system. It was easy to align with the Democrats because aside from a few public officials who seemed more charming than threatening, socialism seemed like a thing of the past.

However, the 2015-2016 campaign changed all of this. For many of those in power, free speech went from a cornerstone of American ideals and a progressive force to a possible threat. Both Bernie Sanders’s unsuccessful socialist challenge and Donald Trump’s successful hostile takeover of the GOP remade the two parties. Rather than the culture wars being settled, they intensified as online culture made it almost impossible for any public official or brand to avoid taking a political stance.

Many corporate leaders went with the flow, moving left (but not too fast) and probably being secretly relieved that these kinds of issues were taking up the oxygen that used to be consumed by movements like Occupy Wall Street. Yet post-Trump, Musk has not. He’s tweeted publicly about the “woke mind virus” being a threat to civilization itself. When he moved to acquire Twitter, this was seen as a huge threat by many media organizations – and possible salvation for the right wing, who openly celebrated. Musk has even said he will vote for the GOP in the upcoming midterms.

Some of the things that have happened since are larger than Musk. The stock market has declined, massively reducing Musk’s net worth and the value of his Tesla stock. The Biden Administration has openly taken shots at the TecnoKing and is putting its support behind organized labor, which may rise again as a significant factor in American life thanks to the tight labor market. Cryptocurrency has fallen and even Dogecoin co-creator Jackson Palmer called Musk a “self-absorbed grifter.” The SEC also is looking into whether Musk violated the law by not disclosing his position in Twitter at the appropriate time. Many analysts think the SEC has an open and shut case.

In short, Musk has most of the media, the federal government, the regulatory agencies, and probably most of the employees at Twitter against him. In exchange, Elon Musk has more Republican support – but Republicans aren’t in power and won’t oversee any regulatory agencies until 2024 by the earliest.

Still, that doesn’t mean Elon Musk doesn’t have some powerful friends. Texas Attorney General Ken Paxton has launched an investigation into Twitter to see if the company falsely reported the number of fake bot accounts in violation of the Lone Star State’s Deceptive Trade Practices Act.

Musk himself is using the issue of bots as a possible reason to terminate the deal. He accuses Twitter of not accurately reporting the number of bots. “This is a clear material breach of Twitter’s obligations under the merger agreement and Mr. Musk reserves all rights resulting therefrom,” said his lawyer, “including his right not to consummate the transaction and his right to terminate the merger agreement. ”

Musk is facing challenges on other fronts too. Ford (F) has begun producing an EV version of the F-150, which could prove wildly popular. Boeing’s Starliner successful performance means that SpaceX now has another competitor – besides Jeff Bezos and Blue Origin. Finally, Musk is heavily reliant on the Chinese market – which may be an untenable position if Sino-American relations continue to deteriorate.

I would consider buying Tesla (TSLA) if it drops to $30 as more people begin to conclude the deal is toast. I actually still think the deal will go through, eventually. I think Musk knew that he would face problems as he tried to acquire Twitter and is maneuvering for a lower price. If Twitter is faced to reveal that many of its users are bots, that alone would be a major victory for him.

However, what I don’t think he understands is that he isn’t just facing Twitter, or business rivals, or even the federal government. Twitter is not simply a company. Today, it’s essentially part of the elites’ governing apparatus. States rely on it to distribute trusted information. When Donald Trump was kicked off, we learned that whoever holds true power in the current system, it wasn’t the serving president. Musk is opening up himself up to threats that will never end, attacks on every front, and endless negative media publicity.

Still, as investors, our job isn’t to take any side except our own. I still think Twitter has massive potential – just not at this price. Keep your powder dry until Twitter drops below $30.

However, I’d steer clear of Tesla for some time. When the stakes are this high, it’s not about who makes the best car or who has the most efficient production system. It’s about who has the most powerful friends – and even the world’s richest man can’t compete against that long-term.

Mr. X is an investment analyst working in the Washington DC area who specializes in the intersection of business and public policy. After fifteen years working in politics, he writes on a classified basis for to bring you news on what those with power are debating, planning, and doing.

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