Morning Report: The SEC goes after Musk 9/28/18

Vital Statistics:

Last Change
S&P futures 2909 -10.5
Eurostoxx index 382 -4.4
Oil (WTI) 72.1 0.02
10 year government bond yield 3.03%
30 year fixed rate mortgage 4.74%

Stocks are lower this morning on overseas weakness. Bonds and MBS are up.

Personal incomes rose 0.3% in August, as did personal spending. The inflation numbers came in a little tamer than expected, with the headline number up 2.2% and the core number up 2%, right in line with the Fed’s target.

The Fed’s holding of Treasuries and MBS (relics of the QE and Operation Twist days) have dropped below $4 trillion. Total Assets at the Fed are still around $4.2 trillion, compared to pre-crisis levels below $1 trillion.

Fed assets

Jerome Powell suggested that the Fed is going to return to its more typical opaque posture with respect to the markets. In the aftermath of the crisis, the Fed became very open about its intentions and policies, and often seemed to follow the markets. This is a sensible posture when the economy is fragile, but the financial crisis is probably far enough in the rear view mirror that the Fed can start returning to normalcy. If Janet Yellen’s handholding of the markets was one extreme, Alan Greenspan’s Fed raising the Fed Funds rate 50 basis points at a surprise Saturday meeting was the other.

The SEC has is suing Elon Musk for issuing “false and misleading statements” and failing to notify regulators of material company changes relating to the ill-fated 420 tweet. On August 7, Elon tweeted “Am considering taking Tesla private at $420. Funding secured.” Tesla stock rallied on the announcement and then sold off as investors figured out it wasn’t as solid as it initially appeared. The SEC complaint is fascinating reading – the Board of Directors was blindsided by this, and I think it never dawned on Elon what the implications of that tweet would be. Essentially, he had initial talks with a large Middle Eastern investor who was interested in taking a strategic stake in Tesla. No price, percentage stake or other specifics were mentioned. Elon arrived at the $420 price by applying a 20% takeover premium to Tesla’s existing share price (which came to $419) and then rounded up to $420.

From the complaint: “According to Musk, he calculated the $420 price per share based on a 20% premium over that day’s closing share price because he thought 20% was a “standard premium” in going-private transactions. This calculation resulted in a price of $419, and Musk stated that he rounded the price up to $420 because he had recently learned about the number’s significance in marijuana culture and thought his girlfriend “would find it funny, which admittedly is not a great reason to pick a price.”

Elon never thought through any of the regulatory conditions, financing conditions, legal issues, how retail investors would have to be treated, etc before making the tweet, which was probably meant to stick it to short sellers. Tesla’s stock is down about 30% from its peak, and is a classic example of what happens when cult stocks stumble. As an aside, when company CEOs get into public wars with short sellers, that is generally not a bullish sign.

One of the remedies will be to ban Musk from ever serving on the Board of Directors of a public company, and he will certainly face civil suits from people who bought TSLA in the aftermath of the tweet, before the relevant information came out. Suffice it to say, this is one of the biggest corporate brain farts I have seen since Martha Stewart went to the big house (and lost about $1 billion in wealth from MSO’s stock decline) in order to prevent $60,000 in losses on IMCL stock.

In the aftermath of the US housing bubble, massive coordinated central bank easing has led to bubble conditions in six large cities: Hong Kong, Munich, Toronto, Vancouver, London and Amsterdam. Extreme overvaluation exists in Stockholm, Paris, San Francisco, Frankfurt and Sydney. Who knows when these bubbles will burst, but when they do, it will tend to pull rates lower, despite what the Fed is doing to short rates.

42 Responses

  1. “seen since Martha Stewart went to the big house (and lost about $1 billion in wealth from MSO’s stock decline) in order to prevent $60,000 in losses on IMCL stock.”

    Except she actually wasn’t convicted of insider trading. It was the classic lying to the FBI charge.

    Comey’s involvement and justification are amusing in retrospect.

    http://thefederalist.com/2018/04/26/seven-reasons-donald-trump-should-pardon-martha-stewart/

    “But at the time, Comey was the US attorney for the Southern District of New York, high-profile securities fraud cases were in vogue, and allegations emerged that Martha Stewart had violated the rules against insider trading. She was ultimately exonerated in this investigation but was nonetheless prosecuted and convicted of making false statements to investigators and of a securities fraud violation that amounted to making false statements about the case in public. At the time, a range of observers from Michael McMenamin in Reason on the right to Doug Henwood in the Nation on the left saw the prosecution as a huge stretch, with Stewart essentially convicted of covering up a crime she didn’t commit.”

    https://www.vox.com/2018/4/18/17242766/book-james-comey-hillary-emails-trump-firing-fbi-director

    Liked by 1 person

    • Martha Stewart got snared. She made some bad decisions once in the snare, but in a lot of ways it was a setup and bs.

      Musk made his own snare and then caught himself in it. He *started* this in a way Stewart did not.

      Like

  2. Slowly it dawns:

    “He’s Going to Get Reelected, Isn’t He?

    The president’s press conference showcased what his critics hate about him—and what his supporters love about him.

    Sarada Peri
    Former senior speechwriter for President Barack Obama
    Sep 27, 2018”

    https://www.theatlantic.com/ideas/archive/2018/09/trump-could-get-reelected/571522/

    Like

  3. Curious if Bob Menendez thinks if one is innocent of a charge the moral thing to do is demand an FBI investigation of oneself? And if so, did he do so in his case?

    Will any reporter ask him that?

    Like

    • Or has DiFi demanded an FBI investigation of why she employed a Chinese spy for 20 years?

      Or has Blumenthal demanded an FBI investigatio into his lying about being in the shit in ‘Nam?

      Or has Cory Booker demanded an FBI investigation into why he created a fake friend named
      T-Bone?

      Like

  4. Interesting take on changes to the Austin housing market:

    “Austin can’t stay weird
    By Matthew Yglesias
    Sep 28, 2018, 1:00pm EDT ”

    https://www.vox.com/policy-and-politics/2018/9/28/17913984/austin-cant-stay-weird

    Like

    • Crunchiness goes away. Went back to Madison WI last year and the old quirky Madison is just corporate sameness… All the edges have been sanded down…

      Like

  5. The left is going to Alinsky the Federalist Society

    https://mobile.twitter.com/henryfarrell/status/1045705082292113413

    Like

  6. It’s over for Kavanuagh, it’s not a question of what other bullshit lies the Democrats come up with in addition to Ford, et al, it’s a question of how many others they’ll be.

    I say 6.

    McConnel need to call the vote and get ALL the Republicans on the record.

    Like

    • TIme to get ACB up in the bullpen?

      Like

    • Interesting. All the MSM and progressive commentators think he’s going to be confirmed.

      Ezra is representative:

      “On this, Trump was right. What Kavanaugh had needed to do was go on the offensive. He needed to remind the all-male Republican panel that he was the victim here, that any of them could be victims, that moving his nomination forward would be a show of strength, a message sent to the Democrats and their allies, a statement that these tactics end here and they end now. This is how you fight #MeToo: by focusing on the pain it’s causing men, by centering their suffering.”

      https://www.vox.com/explainers/2018/9/27/17909782/brett-kavanaugh-christine-ford-supreme-court-senate-sexual-assault-testimony

      Like

      • That was from this morning. Juicebox is one of the idiotic true believers that give credence to these fake allegations.

        Kavanaugh’s done and it’s an 8 member court till the next one dies then it will be a seven member court.

        Like

        • You don’t think they’ll get enough votes for him after the FBI interviews Ford & Judge?

          Liked by 1 person

        • Read my comments below. Ultimately what is happening is Murkowski and Collins do not want to have to vote for Kavanaugh and Flake is providing cover. There will not be another SCOTUS nominee until the same party controls the Presidency and 55 Senate votes. It’s not rational to believe anything else. It would be highly entertaining if Trump does not pull the nominee and McConnell has to sit on it. My assumption is the Democrats then win the House and a filibuster proof democratic senate majority.

          Like

        • I should have written that there will be no future SCOTUS nominee confirmed until the Presidency and Senate parties align with at least 55 votes.

          Like

        • You don’t think they’ll get enough votes for him after the FBI interviews Ford & Judge?

          That’s what I think. I don’t see how Flake and Murk demand a hearing and then say its not enough if the FBI finds nothing new…

          Like

        • It’s not about a good faith effort to investigate, it’s about time to generate more patently obvious Ford-like smears. The new ridiculous Ford-like smears are then going to need to be investigated as well, rinse and repeat. Collins and Murkowski don’t want to vote for Kavanaugh or any other Trump SCOTUS nominee, so they wont, instead they’ll use Flake as their stalking horse to run out the clock.

          Like

        • McWing:

          It’s not about a good faith effort to investigate, it’s about time to generate more patently obvious Ford-like smears.

          I genuinely don’t understand how anyone who has managed to graduate from high school doesn’t grasp this fact.

          Like

  7. Megan McArdle, author of the piece linked by jnc the other day saying that there just had to be an FBI “investigation”, must be the biggest fucking moron in DC. She just can’t understand why Ford’s lawyer won’t “take the win” and is demanding no time limit.

    https://mobile.twitter.com/asymmetricinfo/status/1045790660719194114

    I mean, can anyone really be this unbelievably obtuse? I think she just established herself as unqualified to ever pontificate on politics ever again. People this stupid ought not be allowed to even vote.

    Like

  8. I know Flake’s the weak sisters stalking horse but this couldn’t happen to a more deserving person.

    Liked by 1 person

  9. To me, the most relevant fact in establishing the veracity of her tale is that DiFi sat on this since July. She doesn’t buy it either….A potential blockbuster like this being sat on? They would have leaked it to the press then.

    Pay attention to what people do, not what they say…

    Liked by 1 person

  10. The biggest non-SCOTUS related outcome from this whole thing will be mass acceptance of the Pence Rule.. And the left will dislike that immensely..

    And a year or two later, we’ll be subject to a lot of hectoring lectures about the need to include women socially and the importance of mentoring.

    Liked by 1 person

    • When it’s the Republican’s turn, why shouldn’t they nuke a Democratic nominee? Does not doing it stop the Democrats or is it unilateral disarmament?

      Liked by 1 person

      • The left has proven over and over and over again that they consider themselves the only ones permitted to use that weapon. Plus, does anyone think President Kamala Harris is gonna nominate a white dude?

        Every criticism will be dismissed as racism / sexism.

        Liked by 1 person

  11. True

    Liked by 1 person

  12. “Including”

    Like

    • The tribalism people exhibit is getting kind of gross. Why is that even necessary? “We know it’s hard to believe, but for some stupid reason Kellyanne Conway has the same rights and should be given the same consideration as actual human beings! Because we don’t have enough progressives in power to fix that. Yet.”

      Like

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