Musk 'Pokes the Bear' Again
Yields continue to surge... The 'Bond God' believes rates are going even higher now... The latest on Tesla... Musk 'pokes the bear' again...
Last Thursday, we noted that long-term interest rates were on the verge of an important breakout...
In particular, we noted that yields on benchmark 10-year U.S. Treasury notes were close to confirming a "double bottom" pattern, which would point to significantly higher rates in the months ahead.
Just two days later, it appears this move may already be underway. Today, the 10-year Treasury trades with a yield of 3.23%, well above the critical 3.2% level our colleagues Ben Morris and Drew McConnell highlighted last month. Barring an immediate reversal back below 3.2% in the days ahead, this pattern will be confirmed.
But we're not alone in thinking significantly higher rates are now likely...
The so-called "Bond God" agrees.
Longtime readers may recall that Jeffrey Gundlach – founder and CEO of investment firm DoubleLine Capital – called the exact bottom in interest rates in July 2016.
Gundlach believes that bottom marked the start of a multi-year bear market in bonds... and a multiyear rally in interest rates. However, like us, he has actually been expecting lower rates in the near term, due to the record speculative bets on higher rates we've been tracking over the past several months.
But that has now changed. Like the breakout in 10-year yields we've been following, Gundlach believes last week's big move in 30-year yields suggests significantly higher rates are now likely. As news service Reuters reported...
Jeffrey Gundlach, chief executive of DoubleLine Capital, on Thursday said the 30-year U.S. Treasury bond yield has broken above a multiyear base, which should lead to significantly higher yields for financial markets.
"As I have been saying, two consecutive closes above 3.25% on the benchmark 30-year Treasury means that my statement in July 2016 that we were seeing the low – I said italicized, underlined and in boldface – is now, looking at the charts, thoroughly corroborated," Gundlach told Reuters...
"The last man standing was the 30-year, and it has definitively broken above a multiyear base that should over time carry us to significantly higher yields," Gundlach said.
On Friday, Porter noted that Elon Musk – CEO of our favorite whipping boy Tesla (TSLA) – was back in the news again last week...
And once again, it had to do with an ill-advised tweet.
Regular readers will recall Musk's last Twitter gaffe resulted in a Securities and Exchange Commission ("SEC") lawsuit for securities fraud, seeking to bar him from serving as an officer for Tesla or any other publicly traded company.
Fortunately for Musk, the SEC was apparently in a forgiving mood. Last week, Musk agreed to a settlement that would require him to pay a $20 million fine and step down as Tesla's chairman. However, the deal would allow him to remain as CEO, and did not require him to admit to any wrongdoing.
Now, most folks in Musk's position might count their blessings for getting off with a 'slap on the wrist'...
At the very least, they'd surely go out of their way to avoid similar trouble in the future.
But not Musk. He decided it would be a great idea to "poke the bear" instead...
Call us crazy, but we don't think publicly ridiculing the SEC is a wise decision for any CEO...
But it's particularly foolish in this case.
First, this latest tweet almost certainly violated the terms of Musk's settlement, which would prohibit him from discussing the merits of the SEC's lawsuit.
More important, this settlement remains pending. It must still be approved by a federal judge... And U.S. District Court Judge Alison Nathan has since requested a joint letter from Musk and the SEC explaining why she should approve the deal.
In other words, even if the SEC continues to support the settlement, Judge Nathan could decide that Musk is unlikely or unable to live up to its terms and dismiss it. And his latest tweet likely did him no favors.
The letter is due to the court by this Thursday, which means we could see a ruling as early as this week.
In the meantime, reports suggest that Tesla's financial condition is deteriorating rapidly...
Longtime readers know the company is running dangerously low on cash. But the situation could soon become critical.
You see, Tesla also has $230 million in convertible debt coming due next month, followed by another $920 million in March. Barring a massive rally in Tesla's share price in the meantime, this debt must be paid back in full. Rumors are now swirling that the company is now pursuing a significant restructuring as a last-ditch effort to stave off bankruptcy.
To be clear, the latter is speculation at this point. But we can't help but wonder: What if Musk's erratic behavior of late isn't as foolish as it appears? What if he's actually trying to get himself removed from Tesla?
It may sound outlandish, but at least one notable investor believes it's possible.
In his latest note to investors, Greenlight Capital's David Einhorn – a longtime Tesla bear – said Musk may simply be seeking to defer the blame for the company's impending demise. "His conduct suggests that he is doing his best to be relieved of his position as CEO to avoid accountability," Einhorn wrote.
Shares closed at a new 52-week low near $250 today. They've now fallen more than 30% since Musk's "going private" tweet two months ago today.
Stay tuned... There's sure to be more drama ahead.
New 52-week highs (as of 10/5/18): none.
In today's mailbag: Several folks weigh in on Porter's latest Friday Digest... and more great feedback on this year's Stansberry Conference and Alliance Meeting. As always, send your notes to feedback@stansberryresearch.com.
"Hello Porter & Team Stansberry: I have learned a tremendous amount for Stansberry Research over the past many years and especially since becoming an Alliance member about three years ago. But this past Friday Digest was one of the best educational pieces that you have written because it ties together so many of the other excellent analysis & techniques that Stansberry Research has taught. It is particularly timely as I am beginning to build some basic hedges in my portfolios in conservative preparation for the eventual 'Melt-Down,' primarily through put trades.
"I started buying bonds based on Stansberry's Credit Opportunities a little over a year ago. While the brokerage tried to discourage me (as you wrote that they would), I persisted and began slowly building a 'distressed' bond portfolio, as you had prescribed.
"Thus far, every position has resulted a very positive gain. For closed bond trades the range of annualized, realized gains has been between 37% and 86%. The range for my open bond positions is currently between 22% and 81%. Your statements that bond trading is much easier to assess has proven to be very true for this investor. And the Stansberry work in the bond arena is simply outstanding.
"Having access to the FINRA bond analysis (that I didn't know existed) is a fantastic way to very quickly screen a potential investment. Better yet, it is a good tool for us to individually begin research to create our own 'Golden Triangle' investments. It is also a great way to screen for potential short opportunities, as you explain in the Friday Digest. Thank you so much for sharing these powerful concepts with us!" – Paid-up Stansberry Alliance member Tom S.
"Thank you for the information in the October 5 Digest letting us know some strategies for finding out bond prices and figuring out short interest so we can do a better job of evaluating companies on our own. It's just another example of your mantra 'I want to give you what I'd want if our positions were reversed.' And I want to sincerely thank you for that! It helps me be more self-sufficient." – Paid-up subscriber David F.
"I thought Tilson's presentation [at the Stansberry Conference] was one of the better ones. He was forthcoming about both the good insights that led him to initiate a position and the mistakes that cost him additional upside. And I think his mistakes were very relatable. I was also pleased to get the opportunity to talk with him at the Wednesday evening event, although an annoying person intervened to discuss some book about the five principles of love, and Whitney was too polite to cut him off." – David P.
"Porter, I loved it. Whitney was brilliant and entertaining in his all too SHORT presentation, but fortunately he kindly invited attendees to contact him electronically, which many of us surely will do.
"It was a terrific conference/meeting this week. My sincere special thanks to you for inviting me to Tuesday's luncheon. It's wonderful to have photos of me standing separately with both Steve and you; I can show my long-suffering that you two really exist and that I wasn't running around with an unsavory crowd. (By the way, from a very limited sample size, I'd say you're a better photographer with a cellphone than Steve is.)" – Paid-up Stansberry Flex member Bob M.
"[Regarding] Whitney's presentation: 116 pounds of useful potatoes packed into a 10 pound potato bag... Whitney could have skipped the relentless stream of justifications and charts, let us trust that he wasn't up there without already being a rock star... and went on to tell us how to be rock stars too... which he generally did but it took a lot of will power!
"Also – the entire event was excellent.. motivating, gave plenty of food-for-thought.. and it was great to listen/watch everyone up close. I left with more trust in Stansberry than I started with... and I started with a decent amount! Thanks again-- almost 1 year in to an Alliance membership has been life changing!" – Paid-up Stansberry Alliance member Vaughn M.
"I listened to the Annual conference event from home. Since I was on the east coast and the event took place in Las Vegas in the west it was 3 hours different. For example, the first session started at 8 AM and in a couple of hours I was needing lunch. Basically it was doable. I thought the event was excellent. I would do it next year." – Paid-up subscriber Donald H.
"Hi Porter, I've been a Stansberry subscriber for a lot of years, moved up to Flex and then to a full Alliance member. I'm also a lifetime member of TradeStops, TradeSmith and Bonner & Partners.
"Thank you so much for arranging the webcast of the 2018 Stansberry Conference! Wow, what a fabulous experience. I blocked out the full 3 days and except for a doctor's appointment, I was able to watch the entire conference. I wasn't sure that I would get the 3rd day included with the price of admission and was so happy that it was included. I read all of the analysts' letters each month and it was great to see them in person.
"I'm 74 and have been doing this all of my adult life. I can even remember calling a broker in Los Angeles when I was in the 8th grade to find out what Ford stock was selling at. (As I recall it was about $9.) Between Stansberry and Richard Smith, I finally have confidence in my investing future. Thanks so much, please save a spot for me for next year's webcast." – Paid-up Stansberry Alliance member Bruce N.
"I have watched seven of the presentations of the conference so far... I must say I really am enjoying it... I am also enjoying the Stansberry Alliance. I am 71 and hope my lifetime membership is a long time." – Paid-up Stansberry Alliance member Richard F.
"This year I tried the live webcast and I found it very easy to join the meeting. I loved the flexibility and the ability to replay presenters that I missed to other meeting conflicts. It was a great option for me!" – Paid-up subscriber Mike L.
Porter comment: That's great! Thanks for joining us.
Regards,
Justin Brill
Baltimore, Maryland
October 8, 2018