Change is Coming
April 14th, 2022: In a Rush, Survival isn't Success, Elon Musk & Twitter, & Cliff Notes
“Go, go, go!”
America is a society built on watching the clock. When you’re at work, you look at the clock to see how long you have in your shift. This started in elementary school when the clock led us to the playground, lunchtime, and end-of-day snacks. We’d watch the clock and pack up minutes before the bell.
How often do you stay after the bell? If you do stay after, do you record that so you can get recognition?
I was driving home the other day and I was “stuck” behind an elderly gentleman who was driving 40mph in a 55mph speed limit zone. I don’t like to ride a car’s bumper, but I was riding his. Until I took a breath.
I realized at that moment that there is nothing wrong with being on the road for a few more minutes. The clock and my urgency made me a less-than-pleasant driver and probably made me a less than pleasant man.
Take a breath and be a little more understanding…
Only The Paranoid Survive
Why did Elon become Twitter’s biggest shareholder?
I think he was paranoid about what Twitter could do (silence anyone at a moment’s notice) from when they kicked Trump off the platform.
Note: I’m happy that they did that, there are people who spew pure bullshit and hate that they need to be shut down… but I’ll also admit that it sets a scary precedent.
I think "only the paranoid survive" is an accurate quote and doesn't need re-evaluation. But we need to remember that it’s only one side of the coin.
Survival is not success.
I like to use the phrase "only the successful thrive". Survival is naturally defensive and limited. It's about short-term thinking and it's opposed to opportunity. When having the "power" to rest you can actually thrive because your bridges are open and your perspective is oriented to the long-term.
I’m not interested in survival, I’m interested in thriving. So I will ensure that I am rested and of sound mind before pushing into the unknown.
Elon’s Twitter
Elon is a master at many things, but most people don't really notice his biggest skill. The pivot. this man is the definition of contradiction more so than hypocrisy. In that respect, he's worthy of admiration.
If you don’t know what’s going on, let me catch you up:
Recently Elon Musk invested in Twitter. He is now the largest individual shareholder in the platform for trollsters, bots, anon accounts, FinTwit, hustle-porn, actual porn, and me. As a part of this investment, he was supposed to become a member of their Board which would restrict him from executing a hostile takeover of the company. It seemed like he was on board with this but then he pulled out at the last minute.
In my opinion, he probably faced pushback and discovered more legal hurdles than he originally perceived so he pivoted.
Being separate from Twitter allows him to win "no matter the outcome". Elon is going to use Twitter to feint left so he can jab with his right. How will he jab? Idk. He probably has different plans depending on varying circumstances.
If Twitter cooperates, he gets the financial win.
If Twitter fights him & social pressure joins him, he gets a reason to be an activist.
If Twitter is dying, he'll back a different horse (he wouldn't waste his time running an SM company, but he'd lift up someone else no prob).
Elon wants Twitter to work with him. It's the best outcome for him and probably for Twitter too (after swallowing some pride and accepting the influence he's honestly had for some time already). If he didn't want it to work, he wouldn't have invested in the first place.
The worst outcome for Elon is having to do an activist takeover. It would be time-consuming and distracting. Legally burdensome. Morale damning for the Twitter workforce too...
He'll do it, of course, if he has no effective alternative and Twitter doesn't cooperate and it'll be something to see. I don't expect it though. Let's remember. Elon's priority is Tesla. That will not change.
Drop the Tesla semi. Drop the humanoid robot. Master the production of his S3XY line of vehicles. Bring out Roadster 2. Finish Full Self Driving (FSD) and get it approved (somewhere in the world at least). Roll out their insurance competitor for every car, not just Teslas (offer discount for Tesla owners). Roll out the drive share app using FSD. Roll out ownership/leasing on-ramp for those that cannot currently afford cars.
Imagine not having to own a Tesla to benefit from its existence. You get the app and pay a subscription. Acts like Uber/Lift, and it picks you up on your schedule. Tesla gets some of the fee & kicks some back to the Tesla owner. Cars don't depreciate anymore.
Tesla becomes your fulfillment and service center. Offers insurance and liability support. Trade-ins and upgrades too, as well as add-on products (such as solar panels for your house). You own a Tesla car, and you also would own a business. It earns money for you when you don't need it.
I don't drive much. My car sits in the parking spot more than 80% of the time. 3 or 4 other families could easily use it when I don't need it. Imagine solving traffic problems, wealth problems, accessibility problems, transit problems, etc... All in one fucking go. Semi is a distraction, the robot is a distraction… Fucking get rid of them. At least for now.
I’m not interested in Tesla as long as they keep chasing little silly things that distract from this grand dream Elon spoke about so many years ago. (I'll try to find the link somehow, I didn't always keep records as I do nowadays) But man, if he said Semi & Robot are on hold. I'd be uber bullish. Until then, Tesla lives and/or dies by the little silly things. Not worth it at ~$1k a share. Maybe if it's below $700, but even then...
Edit: Elon offered to take Twitter private today (April 14th, 2022) at $54.20 a share. This man is unreal.
Cliff Notes: Never Buy New Lows, Never Sell New Highs (TCAF 39)
Here are the notes:
Nick Colas has over 30 years of experience on Wall Street. He’s seen and lived through a LOT.
New York is struggling (as of March 2022). Entertainment is bringing people back on the weekend. The next recession will likely bring NYC all the way back to normal. They discuss multiple anecdotal stories of New York but I bet there are similarities in many of the biggest cities in the US. I was personally intrigued by the idea of turning office space into apartments/condos.
Money has to go somewhere… As we factor in rising rates, inflation, supply, and labor cost increases; this truth should illuminate the fact that the worry is more about change rather than it is about “collapse”. People are anchored to certain costs never changing, but as I’ve been arguing: those costs we’re fucked to begin with (more on this in another letter that’s coming out soon).
“Trading is a craft, not a skill".” At least that was the methodology at SAC when Nick worked there in the early 2000s.
“Your body actually tells you what’s right/wrong before your brain accepts it.” This is explored in a study called the Iowa Gambling Task - people were given a simple game where they had to build a deck of cards with the least amount of black cards and the most amount of red cards using 4 starter decks that they could pull cards from. What these people didn’t know is that 2 of these starter decks were “bad” (full of black cards). After playing the game 10 times, their body’s stress responses were able to recognize which decks were bad. But the players wouldn’t consciously recognize it until 40 or 50 rounds of the game.
“There is always a reason for stock price movement, every second of every day.”
“Prices lead fundamentals… Never buy a new low, or short a new high.”
“The average VIX level from 1990 to now is 20, and standard deviations are every 8 points above that level. The 2nd standard deviation level at 36 points is super significant.”
“Low VIX is good for bankers, high VIX is good for traders.”
Comparing today’s data with historical measures and metrics, even if they’re of the same name is a flawed practice because so many variables have changed between now and then.
Reinvestment rates - GM & Ford have to reinvest some of their cash flow into Internal Combustion Engines (ICE). Tesla doesn’t not. Higher reinvestment rates lead to elevated valuations. Example: “There are 5,000+ power train engineers working on internal combustion. How many at Tesla? 0. What else do you need to know?”
GM & Ford have to spin off their electric vehicle companies from the legacy ICE brand. They won’t until they need the capital. Ford is creating a stronger potential to embrace this pivot because of its internal dual structure strategy.
References the FRED Unemployment Rate chart and says it shows that we’re in a late-cycle economy right now:
The yield curve inversion reveals "brittleness" within the markets and that the next bad thing that happens might just be bad enough to drive us into recession.
Tech is not as volatile as it was historically, maybe a defensive play in the short/mid-term.
Apple and Berkshire are the kings of the stock market.
Nick is generally bullish on Bitcoin, and he asks what is an unhackable technology worth? Quantum computing (not real, yet) may be the only threat to crypto.
Moore’s law has been running since the 1960s and its nearing its final days, so productive capability is unlikely to continue to grow as it has historically (until we get a new advancement anyway).
“If you’re designing technology for the next 20+ years, you can’t have Moore’s law as your backstop. You have to start thinking about how to create scarce commodities in the digital world (metaverse).” because there’s now going to be a limit to computational processing and we can’t just keep throwing more free things online.
Autonomous driving is probably decades away. It’s a giant challenge.
EV adoption is going to be a massive uphill battle (can be made easier if fuel costs rise, if subsidies return, if we get more charging stations, etc…)