FT Alphaville: "We kind of have the feeling that Mirabaud has someone in mind, but we can’t for the life of us think of a large listed company that ticks these boxes. We are stumped."

I've linked to this article before but only in a brief post. It needs to be read in full (in part to appreciate the level of snark in the paragraph I took the title from). Campling's list of red flags is devastating. I limited myself to a few (13. in particular, has become more relevant) but every one of them is damning.

Jemima Kelly writing for FT Alphaville:

Now that Wirecard has been proven once and for all to be a massive fraud and is rapidly dying away into oblivion, many of us — and you, we’re sure — have been thinking about where the next big corporate scandal might come from.

Mirabaud Securities, the equity research house whose analyst Neil Campling stood out for being the only person to put a price target of zero on the German payments processor, have been thinking about this too.

They’ve come up with 20 warning signs that they are looking out for in trying to determine the next “Big Disaster”. They are as follows:

1. Massively promotional CEO who actively looks for publicity and spends a lot of time courting Wall Street/investors etc and is very media savvy

2. Huge CEO/Senior Management compensation package NOT tied to cash flow or Earnings but just to Sales and/or the stock price, creating the possibility of egregious wealth creation if the stock goes up a lot. Huge pledging of collateral by the CEO in return for margin loans to fund a billionaire lifestyle

3. Management compensation generally way out of line with peers despite notably less profitability

4. Glossy future projections that have a habit over a long period of being proven to be too optimistic

5. Questionable product quality, ie defects (boon??) or debatable technological leads over similar products

...

13. Dislike of Hedge Funds

14. Possible Narcissistic Personality Disorder on the part of the CEO. Additional points if he/she uses Twitter a lot

15. Large cabal of outcasts/weirdos/bloggers/Twitter groups who have been saying for years that everything is amiss but just get a lot of criticism because the stock keeps going up ergo they must be idiots

...

19. Weak Board, preferably also small and ideally in hock in some way to the CEO, who therefore do his/her bidding. Helps if some of them are related physically to the CEO.

20. Gullible media, gullible analysts and dozens of paid bloggers who produce Price Targets out of nowhere based on “Option Value” or put another way products that are at least 5 years away from having any material impact.

 Alphaville has a great record of calling a spade a spade but it's important to note that FT is not outside the mainstream on this. Pretty much every serious, sober analyst and business journalist who has done deep dive into Tesla has walked away telling basically the same story.

 The company was wildly overvalued when this post came out in June of 2020, since then it has more than tripled. During that time the fundamentals have only gotten worse. Waymo's lead in self-driving technology continues to widen. VW has pushed Tesla to second place in European EV sales and market share is likely to shrink further as the other major car makers transition to electric. The picture looks even worse when you consider what EV competition will do to regulatory credits, which are the only thing that kept Tesla from losing money in 2020.

At the risk of over-sharpening the edge, the most responsible and respected voices such as the Financial Times have been warning us (in some cases for years) that Elon Musk is looking more and more like a 21st century Match King. At this point, the biggest question is why aren't more people listening?

"7 minutes of terror"

There's a huge disconnect in our discussion of manned space travel. We've grown accustomed to vague promises about Martian cities just around the corner, but in the real world, our best engineering minds have never landed anything larger than a car on Mars and this is the least risky way they've come up with to do it.








Of course, these engineers are working with serious cost constraints. If we made an Apollo-level commitment, we could get an expedition there and back. If we made a WWII-level commitment, we could probably maintain a mostly self-sustaining human presence, but those kinds of commitments would violate the other essential aspect of the fantasy, that this wonderful future will be quick, easy, and most of all, cheap.

The real thing, like the Perseverance mission, is slow, difficult and expensive, but far cooler than the make-believe alternative.

I could put a positive spin by saying that I agree with Musk that we should be pursuing better tech than SpaceX rockets

While the event itself was trivial, this provides a useful example of how journalists continue not only to repeat but to add to the mountain of bullshit that supports the myth of the real life Tony Stark. Though the tweet Musk was replying to has been deleted confusing matters a bit, this seems to be the sequence:

1. Musk responds to a tweet about an article on nuclear rockets with a vaguely positive comment.

To be clear: good for in-space transit, but not recommended for Earth to orbit!

— Elon Musk (@elonmusk) July 22, 2019

2. He apparently didn't read article (at least not in depth) nor is he well versed on the topic. The "would be" suggests he didn't realize the research was ongoing. More telling is his lack of comment on the greatly reduced role SpaceX would play in a world of interplanetary nuclear thermal rockets. He's talking about a technology that would make his "starships" obsolete for anything more than ferrying (perhaps limited to large cargo if we continue to see advances in air-breathing rockets), but the apparent contradiction doesn't seem to occur to him.

3. The "would be a great area of research" tweet becomes the headline "Elon Musk Proposes a Controversial Plan to Speed Up Spaceflight to Mars."

This constant nudging toward myth is the original sin of the Tesla bubble, why it started and how it continues to grow despite the accumulation of ever more damning evidence. Even respectable publications go along with at least the minor lies and distortions. They describe Musk as an engineer/inventor. They call him a founder of PayPal and Tesla (both of which predated Musk's involvement). They give him credit for introducing the hyperloop and ignore the fact that his proposal was for a vactrain that traveled on air-bearings, an idea so impractical that none of the "hyperloop" start-ups have even considered it. 

Elon Musk is the world's richest man because he convinced a lot of investors that he was a genius without living equal who was personally about to invent all sorts of wonderful, world-changing technology. He convinced them with the help of a large number of journalists who cared more about good copy than good reporting.

Matthew Yglesias -- "Approve the AstraZeneca vaccine! Yes, their trial was messed up. But it clearly works."

 We will need to more about this.

Meanwhile, there is a plant up and running in Baltimore manufacturing a vaccine that was developed by an Oxford University research team in partnership with AstraZeneca. It’s cheaper and easier to manufacture than the mRNA vaccines developed by Pfizer and Moderna. The World Health Organization’s expert panel says the vaccine should be used in adults of all ages. Given that the United States has access to a considerable supply of more effective mRNA vaccines, I would be more cautious than them and continue vaccinating seniors with the Pfizer/Moderna products but start letting non-seniors who are impatient for vaccination get AstraZeneca’s shot.

...


I do all that throat-clearing because spending last week arguing on the internet made it clear to me that a lot of the people pushing back against fast approval of the AZ vaccine are fundamentally process-trusters who are out here to defend the FDA qua FDA, which I think is leading them to miss the forest for the trees.


For example, nobody on epidemiology Twitter seems to believe that the United Kingdom or European Union regulators are making a huge mistake by authorizing the vaccine. And that’s not because epidemiology Twitter is blind to events occurring outside the United States. People who were very critical of Sweden’s “herd immunity” approach to Covid, or the UK’s absurd initiative to pay people to go eat in restaurants have not been criticizing governments on the other side of the pond for using the AstraZeneca vaccine.


Dr. Anthony Fauci, the patron saint of Trust The Experts sentiment online, has talked about the AstraZeneca vaccine a bunch and is not expressing doubts about its safety and efficacy.


...


For better or worse, the current vaccination effort is not some kind of all-hands-on-deck thing where every qualified person is giving out shots. And while the AstraZeneca vaccine appears somewhat less potent than the mRNA vaccines, it only requires normal refrigerator levels of refrigeration to stay viable. This means it could be delivered to pharmacies and doctors’ offices around the country, and given to people under 65 through those distribution channels in just the way we do flu shots. Retail chains could even contract with pharmacies to have personnel come into the store and vaccinate their staff.


We normally do 2-3 million flu shots per day during peak vaccinations without any kind of emergency mobilization. That would be a game-changingly large increase in vaccine throughput.


...


Biden would do well to be a little less literal in his “learning the lessons of 2009” and instead remember the point about urgency.

Unless someone at the FDA can explain to him in a compelling way that they have actual doubt about the safety and efficacy of the vaccine — as opposed to quibbles about the process or a scientific interest in seeing data from a better-designed trial — he should install a commissioner who’s prepared to authorize it for emergency use on the basis of the existing data. A regulatory system designed to protect us from profit-seeking quacks peddling fake medicine is a perfectly reasonable idea, but it doesn’t apply to this situation, and it’s not the job of political leaders to make that wide-ranging assessment.

 

 

The one Tesla metric that feels the most Ponzi adjacent

Tesla is making a $1.5-billion investment in Bitcoin. That's more than Tesla has spent on R&D in any of the last three years.

From columnist @hiltzikm: https://t.co/SbfHlyyQdV

— Los Angeles Times (@latimes) February 10, 2021

 

Clearly Tesla is not a Ponzi scheme (Ponzis pay dividends), but that doesn't mean that Elon Musk isn't using some similar methods to achieve a level of success that the 1920s con artist could only dream of.

Two of the defining aspects of a Ponzi scheme are:

1. Claim to have discovered a fantastic investment opportunity;

2.  Tell investors you are putting their money into that investment when all of it is actually going somewhere else.

Part of the genius of the approach is that discussions about the feasibility of the proposed investment can distract from the fact that the investment isn't being made. It was obvious even at the time that Charles Ponzi wasn't trading international reply coupons on any serious level, but the details of the imaginary arbitrage scheme was so intriguing that other questions were ignored.

The valuation of Tesla has now reached the point where the bulls have had to abandon any arguments claiming that the price can be justified by future automobile sales even assuming market dominance. The new narrative is that cars are just the beginning, that under Musk, the company is on the verge of world-changing breakthroughs in fields including but by no means limited to robo-taxis, AI, battery technology, HVAC, lithium mining, and that old standby, flying cars.

If these revolutionary just-around-the-corner technologies are the IRCs of Tesla, how can we check to see if the investments are actually being made? 

Let's start with a little context.

 Six Car Makers Make the List of Top 20 R&D Spenders

Volkswagen poured $12.1 billion into research and development in 2017, a decline from $12.5 billion last year, but still propelling the German automaker into fifth place in a ranking of global companies by their R&D expenditures.

Amazon stood at the top of the heap with the online retailer's $16.1 into R&D, according to the Global Innovation 1000 report from PricewaterhouseCoopers. 

Number 11, Toyota's R&D spending in 2017 came to $9.3 billion, dropping from $9.5 billion in 2016.

In the 13th slot, General Motors devoted $8.1 billion to R&D this year, up from $7.5 billion last year.

Next up among automakers, Ford held the 15th spot, with $7.3 billion in R&D spending, an increase from $6.7 billion in 2016.

Daimler's $6.9 billion (up from $6.3 billion in 2016) put it in the 16th slot, and Honda's $6.2 billion had it near the bottom, ranking 19. It spent $5.9 billion on R&D in 2016.

Here are the top 25 innovators from that PwC report. The automotive industry is well represented.

But if you're looking for Tesla, you'll have to scroll down a bit.

 

 Of course, Tesla is more profitable now, its value has increased by more than an order of magnitude and its agenda is far more ambitious than it was two years ago. Here's how the company reacted.

There is a big jump, but it's the same one shown in the PwC report. (I assume the 2018 in the innovation study refers to the report date.) Tesla R&D spending has been largely flat for the past four years, still a fraction of any of its major competitors.

You can make arguments about the R&D budget not being that small relative to revenue, but if we start judging Tesla on those terms, it becomes impossible to justify the valuation and if you assume the company really is working on all those spectacular breakthroughs, it becomes impossible to explain the R&D investment.  

We've spent a lot of time asking can Elon Musk change the world with Tesla. Perhaps we should have been asking is he even trying?

P.S. In unrelated news...

Musk Nears Second Part Of $55 Billion Bonus Package
Isabel Togoh
Updated Jul 22, 2020, 11:14am EDT

Tesla CEO Elon Musk is close to securing the second tranche of his $55 billion bonus package following the company’s astronomical share price rise, which if reached, will see him to gain an extra $2.1 billion through a newly released 1.69 billion stock options.

Ramping up for some Tesla posts

Musk and the Musk adjacent stories have started to appear on the horizon so I thought I'd open the week with some appropriate tweets.

u can’t sell houses u don’t own
u can’t sell cars u don’t own
but
u *can* sell stock u don’t own!?
this is bs – shorting is a scam
legal only for vestigial reasons

— Elon Musk (@elonmusk) January 28, 2021

1,184 days ago $TSLA started taking $250,000 deposits for the Roadster II. It still doesn't exist.

— TC (@TESLAcharts) February 12, 2021

 

Non-enforcement of regulations is a very big story across the economy. Tesla figures prominently.

The sad truth is that no person genuinely interested in corporate accountability would hold the stock of a company recently charged with securities fraud, and no other. $TSLA https://t.co/U8YmbYep8j

— PlainSite (@PlainSite) February 13, 2021

Russ Mitchell hit on this as well/

"Musk’s espousal of bitcoin exhibits very questionable judgment. It is hard to see how shares in Tesla can remain in any green portfolio while the company is investing in bitcoin."

Apart from being a terrible speculative bet for shareholders.$TSLA $TSLAQhttps://t.co/w6iNYQuRgq

— Wolfgang Pipperger (@WPipperger) February 14, 2021

When Musk goes off script like this he delights his fans and no doubt horrifies his (real) engineers.

The absolute GOAT of stock promotion. No one will ever compare.

"I thought like maybe we could make it hover but, like, not too high, so like maybe it can hover like a meter above the ground or something like that,”https://t.co/brUVgrG83S pic.twitter.com/NCQJaQOBu7

— Kevin Muir (@kevinmuir) February 12, 2021

ARK has also been an interesting player in this saga.

Is anyone else a little sketched out by the backgrounds on some of the @ARKInvest analysts. As someone that works in the fund/asset mgmt industry, you typically see people with real investing experience on their resume. I'll start with the top and work my way down 1/7

— P̶e̶r̶m̶a̶ B̶e̶a̶r̶ Mega Bear (@perma_bear) February 12, 2021

Since he's no longer taking calls from Trump, he has some time free.

"It Would Be A Great Honor To Speak To You": Musk Seeks To Speak To Putin https://t.co/x2n67Z9W4B

— zerohedge (@zerohedge) February 13, 2021

 

 This last one hits what might be the most telling metric of all. Despite having by far the biggest market cap and claiming much more ambitious technological goals, Tesla has a fraction of the research and development budget of VW or GM or any of the other major car companies. They aren't even trying.

Tesla is making a $1.5-billion investment in Bitcoin. That's more than Tesla has spent on R&D in any of the last three years.

From columnist @hiltzikm: https://t.co/SbfHlyyQdV

— Los Angeles Times (@latimes) February 10, 2021

Terror attacks

 This is Joseph. Spoilers for the Expanse below. 

There was a good article on the Expanse from LGM:

Rather, the impression formed is that the show’s writers wanted to write a post-apocalypse, and they wanted to write 9/11, and never stopped to consider that these two stories don’t mesh together very well. And conversely, the extent of the devastation on Earth makes a lot of the handwringing about the proportionality of Earth’s response seem baffling—this isn’t an isolated terrorist attack; it’s an act of genocide. Given that most of Belt’s military factions fall in behind Inaros, it’s hard to argue with the belief of hardliners in the Earth government that they are at war with the Belt, and that the rules of engagement should reflect that.

This is a very good point and it gets at the tonal dissonance of the last few episodes of the season. The question of whether Earth is over-reacting seems a lot more nuanced than the show would lead you to believe. First, the attack on Earth was mostly stopped (only 3 of 9 rocks hit) and the consequences are a planetary level catastrophe. This is a potentially an extinction level event for Earth. 

Second, we later see the stations that are supposedly civilian launching attacks on Earth ships and the Belter government having absolutely no interest in finding the criminals who did the attack.  

I think that this take is a good one and one of the few places that the season mis-steps. The campaign of Marcos Inaros is a great illustration of people being placed in morally ambiguous spots and is best illustrated by the compelling arc of Camina Drummer, who has to pick one of two completely unappealing sides (the colonial power or the terrorist). But that the focus of Earth would be on peaceful resolution seems unlikely, especially as they are losing direct naval battles with the Free Navy with the help of Belter settlements. 

What I think is actually missing is a Belter view that shows struggle with being caught between Marcos and Earth. Sure, that is the point of Drummer's arc. But there isn't a high level political discussion (likely because of Fred's death) as to how to deal with the terrorists internally. It is that form of state capacity that actually generates the best chance of peace -- terrorists are bad and nobody will ignore repeated attacks of this magnitude (civilian killings in the billions, direct attacks on naval assets). The belt really needs to have a response to avoid total war and that is the piece that is really missing from the discussion on Earth. Who are the political factions that they can appeal to in order to create a actual viable peace process? 

This really is the part of the story that makes it hard to grapple with the current approach as it seems inevitable that the current group is unlikely to settle for peaceful co-existence. 

Something new in marketing

One of my favorite advertising genres is the "We don't suck anymore" campaign. Though I can't find any examples online, sometime around the late 90s (around when they dropped fried chicken), Hardee's ran a series of talking head "give us another try" ads where actors playing customers described how they had written off the chain (sometimes mentioning the smell of the restaurants) but had dropped in recently and it wasn't that bad. Jack in the Box took a humorous but similar approach after its 1993  E. coli outbreak.

Now we have a new variant with a campaign built around how bad the General's ads used to be.



There's a challenges in building a campaign around how inexpensive your product or service is without having your ads look cheap. I'll bet good money that a market research team recently brought that point home to management at the General.

"You knew this day was coming"

The already complicated accounting and business logic of Tesla is about to get even weirder.

Tesla? TESLA? BITCOIN!!!! Let's face it: you knew this day was coming. $TSLA $BTC https://t.co/jDJi0Y3v4P

— Charley Grant (@CGrantWSJ) February 8, 2021

From Grant in the WSJ:

Tesla Buys $1.5 Billion in Bitcoin: What Could Possibly Go Wrong?

GameStop mania was a wake-up call, but now the capital markets have truly reached ludicrous mode.

Electric-car maker Tesla said in a securities filing Monday that it has purchased $1.5 billion worth of bitcoin and that it expects to begin accepting payment in the cryptocurrency for its products in the future. Tesla shares and bitcoin both traded higher after the announcement. This follows social media posts by the auto maker’s influential boss, Elon Musk, that already had helped drive bitcoin’s price to a record. The announcement added roughly $100 billion to the combined market value of bitcoin and Tesla on Monday.

The investment is more than symbolic for the company, being equivalent to Tesla’s research-and-development tab for 2020. And while uniting two of the most popular investment themes under one roof is undoubtedly a winner today, the decision introduces even more risk to owning what is already one of the most speculative stocks of the current bull market.

As Tesla itself said in the filing, prices for digital assets such as bitcoin have been volatile in the past. Cryptocurrencies are a fairly recent development and their long-term adoption by consumers, investors and businesses is highly uncertain. That adds to the speculative fervor already gripping Tesla’s stock price in a feedback loop. Indeed, the manager of the most popular active fund recently, Cathie Wood of ARK Invest, has made big bets on both Tesla and a trust that owns bitcoin, fueling a record pace of inflows.

At a market value of about $800 billion, Tesla trades at about 6.5 times the combined value of Ford and General Motors , despite controlling a small fraction of the global auto market. And Tesla lately has been losing market share in Western Europe to competitors including Volkswagen , which has begun to compete aggressively in the electric category. The news of Tesla’s bitcoin investment eclipsed a negative headline for the company Monday about quality issues identified in the important Chinese market.

LA Times tweet repeat for morning readers: Musk, crytpo, financial speculation, methane drilling, private jet travel, carbon footprint, sustainable energy, mixed messages. https://t.co/5pJifejBcq

— Russ Mitchell (@russ1mitchell) February 9, 2021

Here's Mitchell:

Beyond financial considerations, there’s the question of how promoting and profiting from Bitcoin squares with Tesla’s stated mission, the advancement of sustainable energy, given the enormous amounts of electricity required to support the computing power involved.

A study published by science journal Joule said cryptocurrency computers pumped about 23 megatons of carbon dioxide into the atmosphere in 2018. Much of that is due to so-called cryptocurrency mining, in which massive banks of computers are used to solve the math equations that yield new coins. That’s attracted miners worldwide, many in regions mainly dependent on coal for electricity, although Iceland, where electricity is generated by cheap, clean hydropower, has become a center for cryptocurrency mining.

Those crypto-emissions are equivalent to the CO2 spewed by well over 4 million gas-powered cars each year. (According to U.S. government statistics, a typical internal combustion passenger vehicle emits 4.6 metric tons per year.)

The environmental issues sparked some backlash on Twitter. “Are ESG funds still able to invest ... after this?” said Harper Reed, an entrepreneur who helped Barack Obama win the presidency as the campaign’s chief technology officer. ESG stands for environmental, social and corporate governance, a hot new category for mutual fund and exchange traded fund investing.

And Hiltzik: 

Tesla’s Bitcoin announcement happened to coincide with a couple of doses of bad news for the company.

One was a Feb. 6 report in the Global Times, an English-language publication of the Chinese Communist Party, that the Chinese government had upbraided Tesla for lapses in quality control and consumer relations in China. That’s a concern because Tesla has enjoyed a very favorable relationship with the Chinese government, so far.

“Tesla has shown respect for the potential of the Chinese market, but not the same level of respect is given to Chinese consumers,” the publication reported, citing “analysts.”

The second was a report from German sources that the company’s German car and battery factories were facing months of construction delays, as well as reduced government subsidies for the battery plant.

Jamie Powell writing for FTAlphaville:

    The only certainty here, however, is that it will make Tesla’s GAAP profits, both pre- and post-tax, even further detached from reality than they were before. FT Alphaville notes that the company’s bottom line has been heavily distorted by the pure profit zero emission credits it sells to other auto companies, and wild swings in the price of bitcoin are only going to make unpicking the accounting reality from the headline numbers even harder. Particularly if the company does realise any gains from selling bitcoin to offset losses from its core business lines. A decision that could be taken by the company once it’s clear how a quarter’s numbers are going to pan out.

FT Alphaville isn’t sure what to make of this episode bar the fact its yet another distraction from Tesla’s ongoing struggle to make its core automotive business consistently profitable.

But then again, perhaps that’s the entire point.

HODLing with diamond hands

We've previously discussed how many of the Davids in the GameStop saga were crushed as badly as the Goliath was because they seemingly did not grasp the fundamental strategy of a short squeeze. If you know someone is legally obligated to purchase a stock or commodity and you can corner the market, you can sell at wildly inflated prices before the bottom falls out.   

It is a classic get-in, get-out play, but many of the investors who drove the squeeze are shocked and angered at those who sold at the peak. They often seem to be operating under the assumption that the idea was to lift the company's valuation to a new plateau and it was only the panic selling of the fainthearted that ruined the plan. 

Perhaps, though, there's more here than just misunderstanding. The very culture of what we might call, without too much exaggeration, this cult with its emphasis on fearless risk-taking and diamond hands (holding onto investments despite devastating losses) goes against the nature of rational investing. For an interesting parallel with the similar and often overlapping population of crypto traders, consider HODLing. 

Izabella Kaminska writing for FT Alphaville.

Since its biggest existential threat is anything that confirms the view its value may be anything but moon-landing exponential — such as market price corrections or whale-scale liquidations — that ritualised response became the “HODL”.

HODL harks back to the dark days of 2013, when the price of bitcoin had a tendency to go down as well as up. In one particular panic-stricken moment, the bitcoin faithful — gathered as usual in their online chat forums — took towards outlining their coping strategies for what in hindsight became known as one of the greatest testing periods of the early adopter faithful.

This is where the HODL was born.

“I AM HODLING” — wrote one particularly distressed disciple.

Whether the spelling mistake was intentional or strategic is unknown. What matters is that the context of the post struck a cord with the community.

WHY AM I HOLDING? I’LL TELL YOU WHY. It’s because I’m a bad trader and I KNOW I’M A BAD TRADER. Yeah you good traders can spot the highs and the lows pit pat piffy wing wong wang just like that and make a millino bucks sure no problem bro.

[…]

I’m not part of that group. When the traders buy back in I’m already part of the market capital so GUESS WHO YOU’RE CHEATING day traders NOT ME~!

It wasn’t, however, until the arch nemeses of all bitcoiners, the “nocoiner” Buttcoiners, stumbled upon the hilarious turn of phrase and began using it satirically that the phrase became a truly defiant battle cry for the long-only community.

HODL, however, is not a simple recasting of a buy-and-hold strategy. It’s much more than that. It is a cultic philosophy representing the greater strength of mind of the average bitcoin devotee compared to the flaky conventional day-trader.

Nowhere is this strength of mind better represented (especially in the face of a spiteful bear attack) than in the meme culture that accompanies it.

Defiance went in one fell swoop from (source: the internet):

… to:

Resistance, bravery and collective action in the face of panicked selling is exactly what HODLing is all about.

Gloating over Pyrrhic Victories

It will be a long time until the smoke clears enough to tell exactly who the winners were in the GameStop bubble, but it's not too early to spot some clear losers in this hybrid short squeeze/pump-and-dump. The Goliath of the story, Melvin Capital, lost tremendous amounts of money, but many, perhaps most, of the small investors swept up in the storm seem to have badly mistimed the spike and in some cases misunderstood the whole point of engineering a short squeeze was to sell on the peak.

As discussed previously, most small investors who followed the WallStreetBets mantra of go big and hold firm when the stock starts to dive appear to have taken horrible losses, which makes this latest development all the more bizarre and yet perfectly in keeping with the GameStop saga.

The spot that aired during the big game ran for only five seconds, consisting simply of a message paying tribute to the users involved in the GameStop stock frenzy.

Several users from the subreddit r/WallStreetBets helped rally shares of GameStop and other companies such as AMC this year, burning hedge funds who were trying to short sell the stock.

"Wow, this actually worked," reads the title of the ad, which broke into what looked like a car commercial with what resembled a post on Reddit's website.

"One thing we learned from our communities last week is that underdogs can accomplish just about anything when they come together around a common idea," reads an excerpt of the Reddit message. "Who knows, maybe you'll be the reason finance textbooks have to add a chapter on 'tends.' Maybe you'll help r/SuperbOwl teach the world about the majesty of owls."

If you want to watch for yourself, Reddit posted the ad on its Twitter account.

Elon Musk got what he really wanted out of the GameStop bubble and he didn't have to invest a penny

 

Gamestonk!! https://t.co/RZtkDzAewJ

— Elon Musk (@elonmusk) January 26, 2021

Here come the shorty apologists
Give them no respect
Get Shorty

— Elon Musk (@elonmusk) January 28, 2021

The practice of shorting stocks has been getting a lot of heat recently from across the political spectrum, much of it revealing a profound misunderstanding of how betting against the market works and why it's not a bad thing. Here Michael Hiltzik covers the basics.

How short selling works

A quick primer on short selling is perhaps in order here.

Short sellers honor the Wall Street mantra to buy low and sell high, but they do so in reverse order. First, they sell high, by borrowing stock from shareholders and selling it. Second, they buy low, by picking up shares at a lower price and returning them to the lenders.

Obviously, for this method to work, the shares must decline in price. That’s what short sellers are betting on. So they’re constantly searching for companies that are overvalued, whether because their business models have flaws unsuspected by investors, or they’re havens for fraud (think Enron), or any other reason.

This makes shorts very unpopular among corporate managements, which prefer that the investment community focus on their upside and swallow their optimistic press releases uncritically, rather than pointing out the downside.

Some executives get downright childish about it, such as Elon Musk, who revels in how shares in his Tesla electric car company have remained buoyant despite short sellers pointing out that it makes money not by selling cars but by trading auto emission credits.

Musk and other executives love to portray short selling as almost un-American.

I’ve taken it upon myself to defend them on numerous occasions, including back in 2014 when a respected Washington financial columnist joined a biotech company named Northwest Biotherapeutics in accusing, without a shred of evidence, a very good financial writer of conniving with short sellers to drive the company down.

Northwest was trading above $5 a share then; it’s now at $1.40 and its future was still in doubt a few months ago, so the short sellers were right to be skeptical.

In truth, short selling is not only proper but also essential for the smooth functioning of the financial markets. As I’ve explained before, although corporate managements believe that unalloyed investor optimism is nirvana, it’s unhealthy for capitalism, just as living on a diet exclusively of Twinkies would be for human beings.

Short sellers counteract this tendency. Shorts sounded early alarms about Enron and many other companies destined for collapse in ways that the investment world didn’t expect. Without shorts, not a few frauds would have continued, costing investors millions more than they did.

 

Musk has been relentless and (by proxy) vicious not just with investors who short his stock but with anyone he considers their allies.

Here's Felix Salmon:

With more than 22 million followers, Elon Musk knows exactly what happens when he uses his enormous Twitter bully pulpit to bully female journalists. Science writer Erin Biba, for one, has made that abundantly clear, with the story of what happened when he merely replied to one of her tweets.

Which is to say: If you don’t have a strong stomach, don’t look at Business Insider reporter Linette Lopez’s @-replies right now. Musk did much more than just reply to one of her tweets: He has gone on a veritable Twitter rampage aimed at her. A smattering:

@lopezlinette has published several false articles about Tesla, including a doozy where she claimed Tesla scrapped more batteries than our total S,X &3 production number, which is physically impossible.

— Elon Musk (@elonmusk) July 5, 2018

This is worse than just stalking: Musk is setting his army of fanboys loose on Lopez, he’s retweeting stuff they find, and he’s encouraging them every step of the way. Milo Yiannopoulos was banned from Twitter for setting mobs upon his enemies; Musk should be banned too, but won’t be.

Musk’s harassment of Lopez is obsessive and deranged, to the point at which it should worry every shareholder of any company where he serves as CEO. But since even former journalists seem to think that somewhere in the madness there’s a legitimate beef, let’s put that idea to rest. Lopez has been reporting aggressively on Tesla for a while; her sources include Tesla whistleblower Martin Tripp, whom Musk considers a saboteur for talking to the press. Lopez has also, in the past, written about Jim Chanos, a dogged investor who is shorting Tesla stock.

Chanos talks to many financial journalists—he was famously a key source for Bethany McLean when she was writing the story that brought down Enron—and sometimes he even hires them to leave journalism and make more money doing private research into companies.. Financial journalists and short sellers are in many ways kindred spirits; they both like uncovering companies’ dirty secrets. And here we get to Musk’s beef with Lopez: He’s accusing her as “serving as an inside trading source” for Chanos. This makes no sense.

...

The weirdest part of all this is that Musk is on an anti-short-selling rampage at all. Tesla is one of the most-shorted stocks in America, and that’s great for Tesla’s share price: The more shorts there are, the more upward pressure there is on the stock. Shorts only depress a share price when they sell; once you’ve gone public as having a substantial short position, the rest of the market will try to make your life as painful as possible by bidding the stock up. Whatever damage that Chanos has done to Tesla’s share price is in the past; at some point, he will have to exit his position by buying back Tesla stock, and that’s going to help drive the price upwards. Musk should be ecstatic!

It's entirely possible that Musk simply doesn't understand how shorting works -- his appearance of expertise in fields like engineering, AI, manufacturing, and recently medicine and epidemiology has a long history of dissipating the moment he goes off script -- or he might believe, quite reasonably that increased scrutiny of Tesla is not in his best interest.

Whatever his motivation, Musk has spent years mocking and demonizing shorting of Tesla in particular and of stocks in general. He's been remarkably successful persuading his followers, but the GameStop bubble has taken things much further, badly burning investors who shorted this and other stocks and convincing a large part of the public that there's something evil about the very idea of shorting.

u can’t sell houses u don’t own
u can’t sell cars u don’t own
but
u *can* sell stock u don’t own!?
this is bs – shorting is a scam
legal only for vestigial reasons

— Elon Musk (@elonmusk) January 28, 2021

 Side note: Tesla routinely makes sales then informs buyers that their car isn't ready. We won't even get into the practice of taking deposits on products that don't exist.

If you haven't seen this clip, you really need to check it out.

 I've included two versions from two very different sources. The Colbert version has more interruptions but also includes more of the actual interview.

Beyond its considerable amusement value, the clip also demonstrates how the sudden appearance of legal consequences (after decades of freedom from any form of accountability) is upending the model of conservative media.

Jesus Christ, the Virgin Mary and Tesla chief executive Elon Musk, with GameStop’s logo shining above them."

As mentioned before (see here, here and here), the standard democratization of Wall Street/little guys beat the big boys at their own game narrative never made much sense. Even viewed as zero-sum game, there were always more players at the table than just the hedge funds that went short and the traders on r/WallStreetBets. Certain hedge funds took horrendous losses in the massive short squeeze but on the other side of those trades were many investors like these two who went deep into a once and future five dollar stock when it was trading at somewhere between ten and one hundred times its likely post bubble value. Note how the second trader has not only wiped out his savings but is risking being fired by "sacrificing sleep and calling in sick to work."

 Drew Harwell writing for the Washington Post.

Evan Oosterink, a 19-year-old college student in the Netherlands, knew almost nothing about GameStop when in December he chose the company for one of his first big stock-market bets, calling it some kind of “American games shop where you can get all your games,” he said.

But his favorite Reddit forum, WallStreetBets, was increasingly obsessed with it, casting it as a way to crush billionaires, move the market and profit heavily in the process. Energized by its rising price, Oosterink said he invested another 8,000 euros last month — nearly $10,000, mostly from years of savings from his parents and some government college loans — leaving only about 30 euros in his personal account.

Had he sold last week, he could have pocketed a typical American’s annual salary. But as the stock has crumbled, he has turned to the forum for reassurance, posting a screenshot from his online-banking app showing the day’s losses, totaling about $9,000. He said he was “deep in losses but holding will prevail,” and included the emoji for a rocket and “diamond hands,” the forum’s lingo for not selling when a stock nose-dives.

“Being a part of WallStreetBets, it’s like a religion you’re devoted to,” he said on a Tuesday phone call from his parents’ home, where, in his bedroom, he has hung up a printed-out meme image featuring Jesus Christ, the Virgin Mary and Tesla chief executive Elon Musk, with GameStop’s logo shining above them.

“There’s this enormous power driving WallStreetBets, this energy: ‘Hold the line. We aren’t giving in. We aren’t giving up. We are in for that ride to that moon,’ ” he said, reiterating several of the forum’s catchphrases. “That is the power that keeps everyone holding their shares.”

______________________________________

Several other WallStreetBets believers said they aren’t budging, regardless of the damage. The Reddit poster Volkswagens1, who declined to give his name but said he lives in the Pacific Northwest, showed The Washington Post an image indicating roughly $400,000 in potential GameStop losses from the day but insisted he would not sell.

He said he has “been poor for too long” and works “a god awful amount of hours for a garbage company” and sees betting on popular “meme stocks” as a way to potentially strike it big.

“You can’t get good returns waiting on garbage stocks to increase. Who wants to invest in some boomer a-- SEARS or Macys stock, just to watch it tank,” he said in a conversation on Reddit with The Post.

He said he’s poured most of his saving and checking accounts into the stocks and spent the last week “doing as much research as possible,” including sacrificing sleep and calling in sick to work, to make sure he was staying on top of the market’s moves.

“I’m slightly agitated, but in the end, its just a gamble and Im willing to risk it all,” he wrote. “Ill have diamond hands until the end.”