Streets are busy in Manhattan; Coronavirus testing levels and trends; Vaccine Research Picks Up the Pace; Alphabet earnings; Tesla's amended 10-K; Note from a reader
1) I was out walking Rosie this morning near my home on Fifth Avenue and 98th Street and, in contrast to the empty road in past weeks, the traffic was heavy, as you can see in this picture...
I asked a friend who had biked up from midtown this morning, as well as two parking enforcement guys, and all three said that traffic was indeed much heavier across Manhattan.
If this is happening at the epicenter of the global pandemic, it tells me that the U.S. is quickly reopening – whether we're ready or not. I fear the latter, so let's all cross our fingers, hope, and pray that this ends well!
2) One of my biggest concerns is that we're not where we need to be in terms of testing.
Experts would like testing capacity to be at least 500,000 tests per day... and yet we're currently not even at half of this.
We're moving in the right direction, however, as capacity in recent days has improved significantly – nearly doubling from last week. At the same, the number of positive tests as a percentage of overall tests has also declined, as one would expect with more widespread testing. Both are good signs that support many states' decisions to re-open the economy... slowly.
3) Following up on yesterday's e-mail about progress toward a coronavirus vaccine at Oxford University, here's a front-page story in today's Wall Street Journal: Vaccine Research Picks Up the Pace. Excerpt:
The race for a vaccine to combat the new coronavirus is moving faster than researchers and drugmakers expected, with Pfizer (PFE) joining several other groups saying that they had accelerated the timetable for testing and that a vaccine could be ready for emergency use in the fall.
Pfizer said Tuesday it will begin testing of its experimental vaccine in the U.S. as early as next week. On Monday, Oxford University researchers said their vaccine candidate could be available for emergency use as early as September if it passes muster in studies, while biotech Moderna (MRNA) said it was preparing to enter its vaccine into the second phase of human testing.
Johnson & Johnson (JNJ) said earlier this month it shaved months off the usual timelines for developing a vaccine, and expects to start human testing of a coronavirus candidate as soon as September, with possible availability on an emergency-use basis in early 2021.
If you'd like to join the 4,200-plus readers of my coronavirus e-mail list, simply send a blank e-mail to cv-subscribe@mailer.kasecapital.com.
4) After the close yesterday, Google's parent company Alphabet (GOOGL) reported strong earnings that beat expectations – leading the stock to solid gains today.
Alphabet is one of the anchor stocks we've recommended in multiple Empire Financial Research portfolios. We'll have a full update in our upcoming newsletters, but suffice it to say that we like the company more than ever...
5) My friend and former partner Glenn Tongue sent me some interesting sleuthing and analysis on Tesla (TSLA):
Tesla filed an amendment to its 10-K yesterday. While this kind of filing is common, some of the disclosures were eye-popping.
For starters, D&O coverage (directors and officers insurance) was deemed too expensive, so Tesla decided to have its CEO, Elon Musk, personally provide the coverage. Here is the disclosure:
Tesla determined not to renew its directors and officers liability insurance policy for the 2019-2020 year due to disproportionately high premiums quoted by insurance companies. Instead, Elon Musk agreed with Tesla to personally provide coverage substantially equivalent to such a policy for a one-year period, and the other members of the Board are third-party beneficiaries thereof.
The Board concluded that because such arrangement is governed by a binding agreement with Tesla as to which Mr. Musk does not have unilateral discretion to perform, and is intended to replace an ordinary course insurance policy, it would not impair the independent judgment of the other members of the Board.
This is unprecedented based on my experience and introduces numerous conflicts, making a mockery of the concept of corporate governance at Tesla. I don't think it's a coincidence that the board is the highest-paid board in America, by multiples of the second place.
Another interesting disclosure involves pledging of shares, meaning personal borrowing against the value of one's stock. Musk is now pledging 48% of his shares, up from 35% at the end of 2018. The total shares pledged is now 18,488,225, or about 10% of total shares outstanding. Other board members, Antonio Gracias and Kimbal Musk, also increased their borrowings.
Interestingly, a portion of Musk's new borrowings were used to buy shares. This is quite interesting, because he stands to pocket a roughly $1 billion compensation award in about two months – but only if the stock is at a certain level...
So, he borrows against his stock and then uses the money to buy it. This buying, in turn, helps drive the stock price towards the trigger point for a massive securities grant.
See the circularity here?
Lastly, why did Tesla issue this amended 10-K yesterday, when it reports earnings in a few hours after the market close today? My guess is that the company is running desperately low on cash and will announce an offering quickly after the earnings report. The disclosures in this document would be really important for any new deal – which I don't doubt Tesla will successfully complete.
This is still a treacherous stock to invest in, either long or short. The disclosure/accounting games continue to get more and more outrageous, yet the Cult of Musk seems to be impenetrable...
If you'd like to join the 1,500-plus readers of my Tesla e-mail list, simply send a blank e-mail to tsla-subscribe@mailer.kasecapital.com.
6) Here's another nice note from a reader:
Dear Whitney,
Just wanted to thanks for all your articles and information, volunteer work at Samaritan's Purse, and for being such an all-round public-spirited guy.
I have to tell you, I was shocked by your early emails about the coronavirus. The fact that you were able to change your mind so quickly is impressive. (In my experience, few people change their minds about anything—or at least not until disaster has struck them.)
I really appreciate the emails you've been sending and I admire your energy, commitment, sense of justice, and good humor.
Sincerely,
David
Thank you, David!
Best regards,
Whitney