What to know today

  • It’s an unusually rough April.
  • Tesla goes full Elon.
  • Cybersecurity is still a big deal
markets

This Mess Is Manageable

And resilience is a wonderful thing.

Things are getting a little sloppy.

The CBOE Volatility Index $VIX poked up to a year-to-date high last Friday on rising fear of a wider war in the Middle East, with crude oil and gold following along in anticipation of further supply constraints and on desire for safety, respectively.

Markets continued to digest Jerome Powell’s Tuesday afternoon discussion with Bank of Canada Governor Tiff Macklem during which the Federal Reserve Chair suggested we could be looking at higher interest rates for longer than anyone anticipated at the start of 2024.

I’m a big fan of utilities – these are essential services, people – but when that group is the best performer on a given day it’s a sign investors, traders, and speculators are in search of some cover.

The Nasdaq Composite and the Russell 2000 led the way down, with the Dow Jones Industrial Average nearly pulling out a green number and the S&P 500 ultimately shedding 0.39 percent.

Crude oil was down about 3 percent, and gold eased back after rising above $2,400 an ounce during the session. Time seems to be chipping away at short-term geopolitical risk premia. 

For those with well-developed short-term strategies, these can be pretty good times: more volatility, more mispricing, more opportunities.

Those looking further out on the time horizon will be mindful of the broad and basic up-and-to-the-right bias for stocks, a trend that dates to the middle of the 19th century.

That chart is pocked with multiple geopolitical cataclysms interpreted in those moments as the very end of the world, a statement that holds even for the period before 1945.

There really is no good time to panic.

The US stock market usually generates positive returns over one- and five-year periods, almost always over 10-year periods, and never hasn’t posted one in a 20-year period.

That’s not to say Powell’s hawkish tone has not complicated the current market environment. Gold and the US dollar, for example, are, as Fidelity Investments Director of Global Macro Jurrien Timmer explained on Wednesday, “on a novel path of mutual strength,” an intermarket dynamic that may only get stronger from here.

The environment Timmer describes includes a resilient US economy characterized by fiscal dominance, monetary restraint, and dollar hegemony.

Timmer’s thesis is “that hard assets are an antidote to fiscal dominance, despite dollar strength, and if the term premium is rising.”

Meanwhile, the European Central Bank remains committed to cutting its benchmark rate in June, which would make it the first to move in the new cycle.

Potential divergences between and among global central banks invites potential for more dollar strength, pressure on other currencies, and the US export of inflation.

At the same time, with Citigroup $C reiterating its call for 125 basis points of rate cuts this year, there is now an undercurrent of dissent on the “higher for longer” narrative that developed after last week’s release of inflation data for March and Tuesday’s remarks by Powell.

We discussed yesterday State Street Global Advisors CIO Lori Heinel’s view that the current inflation picture supports a rate cut and the Fed will begin to trim well before the November election to avoid political complications.

This would require Powell – a lawyer and not an economist by trade, a distinction with a big difference – to move off his case-based “incoming data” position toward a more model-based “skate to where the puck is moving” position.

Powell did note that “we are very, very aware” of the impact “higher for longer” US rates could have on the global economy.

We won’t know whether that marks the beginning of a new operative statement – an update on Powell’s “incoming data” position – until the press conference following the Federal Open Market Committee on May 1.

Even at its Friday peak of 19.56 the VIX – the “fear gauge” – is still below the 52-week high of 23.08 it hit on October 23.

Seems like people are starting to feel the move off the December 12 52-week low of 11.81.

deep dive

Tesla Still Wants To Pay Elon Musk $56 Billion

Shareholders, meme jockeys, and futurologists could vote on June 13.

It’s not our place to offer specific advice. We’re here to share information and perspective, to hopefully educate and maybe even entertain.

But FT Alphaville’s Bryce Elder makes a convincing case that a “yes” vote on Elon Musk’s pay package at the company’s June 13 annual meeting may not be the best move for Tesla $TSLA shareholder value.

In its preliminary proxy statement filing with the SEC, Tesla disclosed that it will ask shareholders to vote again on a $56 billion package voided by Delaware Chancery Court Judge Kathaleen St. J. McCormick in January.

McCormick ruled that TSLA’s directors hadn’t acted in the best interests of shareholders and were “supine servants of an overweening master.”

Tesla $TSLA declines an average of 7 percent during weeks with official earnings or deliveries announcements but rises an average of 1 percent during weeks with no official news.

Elder has compiled quite a bill of particulars:

This month we’ve had Reuters report that Tesla was cancelling its long-promised mass-market EV, known as Model 2, and using the same platform to make a robotaxi. (Shortly after tweeting that “Reuters is lying (again)”, Musk scheduled a robotaxi reveal for August 8.) A detailed follow-up from Electrek on Monday reported that Model 2 work had indeed been “completely defunded” and that the project was “effectively scratched right now as Tesla is putting all resources into its self-driving effort.”
We’ve also had 14,000 job cuts at Tesla and the departure of senior execs, with VPs Drew Baglino and Rohan Patel both exiting. We’ve also had Tesla cut the premium-tier driver assistance subscription price in half to $99 a month. We’ve also had reports that deliveries of Cybertruck, its last-but-one halo product, have been paused and that its accelerator has a tendency to jam.  

Elder breaks the TSLA shareholder base into two basic camps: those who saw the promise of the Model 2 as a market-share driver amid a consolidating domestic EV market and those who are into all the other stuff.

Barclays analyst Dan Levy has described the split as between the “rational” and the “exuberant” bulls.

Barclays also put together a great chart explaining TSLA’s price action around earnings and other official announcements.

“The usual pattern around Tesla results is for the stock to rally from an initial sell-off,” Elder writes. According to Barclays, during weeks with an earnings or a deliveries update, TSLA loses an average of 7 percent.

During weeks without official news — “when it’s just Musk’s tweets and the surrounding ecosystem of grift and nonsense,” as Elder put it — TSLA is up an average of 1 percent.

Upside from here is down to what Elder describes as “the meme jockeys and futurologists.”

deep dive |
April 18, 2024

Tesla Still Wants To Pay Elon Musk $56 Billion

FROM THE RESEARCH DESK

You Can’t Do Anything Without Security

And vulnerabilities are exploding.

We talked about cybersecurity in the March 22 StockPick Daily, highlighting a StockPick Interview with Ophir Gottlieb where the Capital Market Laboratories CEO discussed a geometric explosion in vulnerabilities that will come with the explosion of AI computing.

Gottlieb emphasized that you can’t do anything without security.

But he didn’t name names.

Jefferies analyst Charles Brennan, in an April 16 research note, did.

Darktrace $DARK, a British cybersecurity firm that trades on the London Stock Exchange, is set to double from here even after rallying about 75 percent over the past 12 months.

Cambridge-based Darktrace $DARK looks like a double from here, according to Jefferies analyst Charles Brennan.

A combination of promising technology and positive early indications on its growth-first business model drove DARK’s first-quarter surge and gave Brennan cause to raise his 12-month price target by more than 60 percent, from £5.50 to £8.90.

DARK closed at £4.47 on the LSE on Wednesday.

Brennan agrees with Gottlieb that the cybersecurity sector is well positioned, forecasting 9 percent growth this year.

Markets are murky right now.

But, as we noted in March, there are pockets of strength for long-term investors.

And cybersecurity is one of them.

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