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Tesla, GameStop, and the power of ‘meme stocks’



Tesla, GameStop, and the power of 'meme stocks'

“Who controls the memes, controls the Universe” — Elon Musk (June 26, 2020)

Eons ago, when I was interviewing for a job at another financial publication, I could tell the precise moment everything went off the rails. All was going well—until my last interview when a wizened editor showed up and asked me a question I knew would be the make-or-breaker: “What do you think about Tesla?”

The hard-nosed type before me wanted to hear, plainly, that I did not buy Tesla’s hocus-pocus. The electric carmaker was burning through cash like a West Coast wildfire. Tesla was hugely unprofitable, saddled with mountains of debt, and consistently missing expectations. The entire automotive industry had it out for the company, competition was intensifying from the likes of tech giants, like Apple, Google, and others, and just about every short seller was betting on its demise. Oh, and the company had a loose cannon liability in the driver’s seat in Elon Musk. Tesla’s market valuation was obviously out of whack with reality.

I said all this. And then I did myself in.

Even knowing all that, I said, apparently prizing candor above employment, I wouldn’t bet against Tesla. Musk built a cult-like fan base that will follow him into the infernos of hell or the vacuum of space or wherever else he wants to go and back again. If you’re “short” Tesla, then you’re underestimating Musk’s influence and failing to grasp the underlying dynamics of the marketplace.

I could see micro-stress lines forming in the corners of the editor’s eyes. I could sense his smile fading. My response was not what he hoped to hear. The answer didn’t gel with his decades-long experience as a shrewd observer of market shakeouts. He was clearly a student of value investing, the rational, Warren Buffett-approach to pricing stocks. Another foolish Musk fanboy, I’m sure he thought.

Tesla shares have surged well over 1,000% since I blew that opportunity. Similarly, Bitcoin has rebounded in a moon-ward blastoff. An army of Redditors have bid up new fad GameStop until it’s become the most traded stock in America, causing it to gusher more than 1,600% since the start of the year. A slew of other formerly down-and-out stocks are likewise hitting the jackpot, if temporarily, including AMC, Bed Bath & Beyond, and Roomba-maker iRobot.

All these companies—and, yes, Bitcoin too—have something in common. Their valuation successes—however short- or long-lived—are products of “meme” culture, the phenomenon of people convening, commiserating, and cracking jokes on social media. Stocks that can generate ample amounts of enthusiasm online, whether inspiring loyalty or just lulz, will, as a rule, be breakouts.

Bubbles aren’t anything new, to be sure. (See: Bulbs, Tulip.) But millions-strong message boards, like Reddit’s “wallstreetbets” forum, and phone-accessible brokerage apps featuring 24/7, no-fee trading, like Robinhood, are. Even if the highs we’re experiencing today are just a temporary bout of market insanity headed for a white-knuckled correction—which, yeah, is likely—I reckon something fundamental about the world, about the way the Internet’s speed and scale influences the analytical calculus of equities, has changed.

Investing is growing more democratized by the day, and the unwashed masses outside Wall Street are wielding more power as a result. “Becoming an investor is the new American dream, just like home ownership was before,” as Vlad Tenev, the chief executive of IPO-bound Robinhood, writes. In this new era, assets’ intangible factors—ones that can inspire religious devotion (like Tesla) or Dionysian, flash-mob-style decadence (GameStop)—gain sway. Memes matter.

The other day, I tweeted, half-jokingly, “If you don’t calculate a stock’s price-to-memes ratio then your fundamental analysis is lacking.” I stand by that now, just as I did during my failed job interview.

Robert Hackett



Coinbase’s near-term outlook is ‘still grim’, JPMorgan says, while BofA is more positive about firm’s ability to face crypto winter



Coinbase's near-term outlook is 'still grim', JPMorgan says, while BofA is more positive about firm's ability to face crypto winter

Coinbase is well positioned to successfully navigate this crypto winter and take market share, Bank of America said in a research report Tuesday. It maintained its buy recommendation following the exchange’s second-quarter results.

The results warrant “a muted stock reaction,” the report said. Net revenue of $803 million was below the bank’s and consensus estimates, while its adjusted $151 million loss before interest, tax, depreciation and amortization was better than the street expected. Importantly, the company remains “cautiously optimistic” it can reach its goal of no more than $500 million of adjusted EBITDA loss for the full year, the report added.

Coinbase shares fell almost 8% in premarket trading to $80.74.

Bank of America notes that Coinbase had no counterparty exposure to the crypto insolvencies witnessed in the second quarter. The company also has a “history of no credit losses from financing activities, holds customer assets 1:1, and any lending activity of customer crypto is at the discretion of the customer, with 100%+ collateral required.” These rigorous risk-management practices will be a “positive long-term differentiator” for the stock, the bank said.

JPMorgan said Coinbase had endured another challenging quarter, while noting some positives.

Trading volume and revenue were down materially. Subscription revenue was also lower, but would have been much worse were it not for higher interest rates, it said in a research report Wednesday.

The company is taking steps on expense management, and in addition to the June headcount reductions, is scaling back marketing and pausing some product investments, the note said.

The bank says the company’s near-term outlook is “still grim,” noting that the exchange expects a continued decline in 3Q 2022 monthly transacting users (MTUs) and trading volumes, but says Coinbase could take more “cost actions” if crypto prices fall further.

JPMorgan is less optimistic than Bank of America about the company in the near term, saying pressure on revenue from falling crypto markets will have a negative impact on the stock price. Still, it sees positives including higher interest rates, from which the firm will generate revenue. It also sees opportunities for the exchange to grow its user base, leveraging almost $6 billion of cash. The surge in crypto prices in July, and the forthcoming Ethereum Merge are also seen as positive catalysts, it added.

The bank maintained its neutral rating on the stock and raised its price target to $64 from $61.

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Elon Musk sold $6.9B in Tesla stock in case he’s forced to buy Twitter



Elon Musk sold $6.9B in Tesla stock in case he's forced to buy Twitter

Elon Musk sold $6.9 billion of his shares in Tesla Inc., the billionaire’s biggest sale on record, saying he needed cash in case he is forced to go ahead with his aborted deal to buy Twitter Inc.

“In the (hopefully unlikely) event that Twitter forces this deal to close *and* some equity partners don’t come through, it is important to avoid an emergency sale of Tesla stock,” Musk tweeted late Tuesday after the sales were disclosed in a series of regulatory filings. 

Asked by followers if he was done selling and would buy Tesla stock again if the $44 billion deal doesn’t close, Musk responded: “Yes.”

Tesla’s chief executive officer offloaded about 7.92 million shares on Aug. 5, according to the new filings. The sale comes just four months after the world’s richest person said he had no further plans to sell Tesla shares after disposing of $8.5 billion of stock in the wake of his initial offer to buy Twitter.  

Musk last month said he was terminating the agreement to buy the social network where he has more than 102 million followers and take it private, claiming the company has made “misleading representations” over the number of spam bots on the service. Twitter has since sued to force Musk to consummate the deal, and a trial in the Delaware Chancery Court has been set for October. 

In May, Musk dropped plans to partially fund the purchase with a margin loan tied to his Tesla stake and increased the size of the equity component of the deal to $33.5 billion. He had previously announced that he secured $7.1 billion of equity commitments from investors including billionaire Larry Ellison, Sequoia Capital, and Binance. 

“I’ll put the odds at 75% that he’s buying Twitter. I’m shocked,” said Gene Munster, a former technology analyst who’s now a managing partner at venture-capital firm Loup Ventures. “This is going to be a headwind for Tesla in the near term. In the long term, all that matters is deliveries and gross margin.”

At the weekend, Musk tweeted that if Twitter provided its method of sampling accounts to determine the number of bots and how they are confirmed to be real, “the deal should proceed on original terms.” 

Musk, 51, has now sold around $32 billion worth of stock in Tesla over the past 10 months. The disposals started in November after Musk, a prolific Twitter user, polled users of the platform on whether he should trim his stake. The purpose of the latest sales wasn’t immediately clear.  

Tesla shares have risen about 35% from recent lows reached in May, though are still down about 20% this year. 

With a $250.2 billion fortune, Musk is the world’s richest person, according to the Bloomberg Billionaires Index, but his wealth has fallen around $20 billion this year as Tesla shares declined.    

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The rent is too d*mn high for Gen Z: Younger generations are ‘squeezed the most’ by higher rents, BofA says



The rent is too d*mn high for Gen Z: Younger generations are 'squeezed the most' by higher rents, BofA says

Most of Gen Z is too young to remember the 2010 New York gubernatorial candidate Jimmy McMillan.

But over a decade later, they would probably agree with his signature issue (and catchphrase): the rent is too damn high.

This July, median rent payments were 7.4% higher than during the same period last year, according to a Bank of America report released Tuesday. 

The national median price for a one-bedroom apartment has been hitting new highs nearly every month this summer. It was $1,450 for July, according to rental platform Zumper. In the country’s largest city, New York, average rent exceeded a shocking $5,000 a month for the first time ever in June. 

But inflation in the rental market hasn’t hit each generation equally, and no one is getting squeezed harder by the higher monthly payments as Gen Z. Those born after 1996 have seen their median rent payment go up 16% since last July, compared to just a 3% increase for Baby Boomers, BofA internal data shows. 
“Younger consumers are getting squeezed the most by higher rent inflation,” BofA wrote.

The great rent comeback

Early in the pandemic, landlords slashed rents and gave significant COVID discounts to entice tenants to stay instead of leaving urban areas. Once those deals started expiring in 2021, many landlords suddenly raised payments once again, sometimes asking for over double their pandemic value. 

Young people across the board have been hit hard, and rent burdens compared to age can be seen even within a single generation. Younger millennials had their median rent payment grow 11% from last year, while the median payment for older millennials rose 7%. Gen X experienced a 5% median rent increase, according to BofA. 

It’s not a surprise, then, that Gen Z feels so strapped for cash. The majority of young people, 61%, said they want to receive their wages daily instead of twice a week, a practice typically reserved for workers living paycheck to paycheck, according to a report from the Center for Generational Kinetics, which specializes in research across the generations. Rising rent inflation has even priced nearly a third of Gen Zers out of the apartment search altogether. Around 29% of them have resorted to living at home as a “long-term housing solution,” according to a June survey from personal finance company Credit Karma.

It’s no wonder—the rent really is too high.

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