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TSLA. $$$. Past, Present, and Future.
@SamO nice! From the article:
>According to analysis by S3 Partners, short investors in Tesla— those who placed bets in the market that its shares would lose value — have lost $35 billion on those positions so far this year.
Makes you wonder who invests with these incompetent speculators?
If shorts were smart they’d take the hit now, to mitigate losses while the price is damped before inclusion.
Once it goes into the 700’s, that 60B short float will lose them more than 70B.
The nature of such psychology though, is denial, so they keep kicking the can down the road to avoid the reckoning.
Ultimately, they get shut down involuntarily by litigious investors.
A few good posts of note today -
- Tesla Daily on dark pools
- Frank Peleen on twitter re price direction Friday and next week
- Dave Lee and Emmet Peppers on price this week and next
To distill, no evidence yet of any position in TSLA in a few samples of major index funds.
Vanguard SP500 Index alone needs an $8B buy.
2 days left to do it all, so where are the hiding it?
Dark pools are not the stash. They have to report within 10 seconds of trades.
I’m guessing the most likely cache of off-radar reserved shares is in private agreements with front-runner hedge funds, that kick-in once a closing price has been set, and the exact weight for inclusion is established.
Those shares would be automatically deeded over to the index funds after close, at pre-agreed price formulas, with the ownership change reported to the SEC Monday.
Emmet said it best - ‘the market has a way of doing what you don’t expect”.
The week may end quietly, near its present price. And it could go up next week instead.
More thoughts on why a little later.
Why powerful funds will work hard to manage TSLA inclusion.
This can be predicted with a bit of logic.
Some tools to reason from -
“Reason from first principles.”
- Elon Musk
“Show me the incentive, and I’ll show you the outcome.”
- Charlie Munger
1. S&P wants its index to gain from the first day of TSLA inclusion.
2. Overshooting before, then falling after, hurts Index performance.
3. Exaggerated price causes irrationally high initial weight.
4. Hence, S&P wants a low closing price Friday.
5. S&P wants price to rise after rebalancing, to benefit index.
6. S&P favors an orderly managed transition for steady growth.
7. S&P grants extraordinary 35 day notice time. Longest ever.
8. Index funds would not do nothing with this useful advance notice.
9. 6-8 day typical notice time is too short to negotiate smart deals.
10. Therefore, 35 day notice was to allow fund deals to be papered.
11. Deals must achieve rational vs panic pricing, and guarantee supply.
12. Front-runner funds can be incented to buy & hold reserved shares.
13. Cost of incentives is far less than losses from market chaos.
14. Largest inclusion in history demands extraordinary measures.
15. The 35 day plan was wise planning by the committee.
Conclusion - there is a rational basis to project that price will be subdued before inclusion, and gains from the huge new buyer pool will emerge mostly afterward.
This is the opposite of what we’ve been repeatedly told.
Whenever there’s a flood of headlines with a particular fud narrative, the opposite is likely true.
Someone paid for those headlines, so it’s not chance, there’s motive.
In this case, the news has been thick with 2 narrative themes.
1. “High volatility before inclusion”
—> Dump your shares to dodge scary risk of loss. (We need ‘em.)
2. “Big correction coming after inclusion”
—> Give us your shares early. So we skim the profit before they go up.
Logic has a way of stripping away veils, to reveal ground truth.
A lot more buyers need to hold the stock, so that presses prices up.
Misdirection tries to complicate it, but the core truth is very simple.
Supply and demand find equilibrium through pricing.
SPY does not hold TSLA as of 16 Dec.
IVV does not hold TSLA as of 16 Dec.
SPY: SPDR® S&P 500® ETF Trust
And yet it’s still staying within a narrow band near $650.
Volume is relatively light, with price nudging up only slightly to mid 640’s
It’s like Adam Smith’s invisible hand, its biggest one, is steering a steady glide path.
If it stays this way, sure feels great to be HODL.
Good things to do come for those who wait.
Even better things come to those that continue to buy. :-0
Meanwhile, a heaping helping of fresh FUD -
Tesla's inclusion in the S&P 500 spells trouble for investors, according to New Constructs CEO David Trainer.
"We think Tesla's inclusion in the S&P 500 marks a new peak in the recklessness of today's investment environment and will be the catalyst for the long-awaited reconciliation of Tesla's valuation with the firm's poor fundamentals," the veteran stock analyst said in a Thursday note.
Like analysts at JPMorgan, Trainer says that Tesla's stock price is overvalued and it's 716% rally this year is an ominous sign that a crash may be on the horizon. Trainer says that Tesla's stock should be trading at $172 a share, 73% lower than current levels. JPMorgan analysts have a price target of $90 for Tesla.
Trainer also said that the inclusion in the S&P 500 will pile on unnecessary risk for investors who have exposure to funds that passively track the index.
While the stock price will likely gain even more once it's added on December 21, the boost will be short-lived, added Trainer.
Love the rich language - ‘ominous’ and ‘crash’.
Yes, S&P is a bad thing, yeah, that’s it.
Y’all longs are doomed.
Some updated news -
It still looks like the index funds haven’t bought their shares yet.
So how exactly will the mechanics of trading work on Friday?
Some perspective in an interview on Tesla Daily with Rich Lee of Baird ETF, and also in tweets from Gary Black.
Rich Lee suggests that most Index funds will put in their buy orders to execute at market closing price - which effectively means they won’t buy anything until the end of session.
Gary Black suggests that the front-runner hedge funds will sell their accumulated shares to fulfill the index fund buys at market close and get their payday.
Per Gary Black’s tweet -
“The HFs bought $TSLA shares with the express purpose of re-selling their shares to the Indexers at inclusion. Most of the 130M shares needed by Indexers will be traded at tomorrow’s close. That’s when HFs will unload their shares. I posted my $650-$690 upside est a few weeks ago.“
If they’ve got this right, sufficient hedge fund inventory will dump in at close, at which time they’ll all get bought by the index funds at the last price of the day. Which of course won’t all be known until the session ends.
The trades will then be matched and settled shortly after close, and if this all works perfectly, all the index funds will get it at the same price, the closing price, and there will be no tracking error between their fund and the index.
Ok, so a $100 billion changes hands in a couple minutes of clearing. No sweat. There does seem to be a missing piece here.
Taking them at their word, this prompts a few questions -
1. If the Index funds aren’t buying until end of session, who drives that last price at close?
2. What assures that the hedge funds will indeed dump sufficient shares from their stash at close? What stops them from hoarding?
3. If there’s not enough shares sold at close to match the index buys, how and when are those reconciled? Can it extend to next week?
4. If the last few minutes of trades define the closing price, conceivably a very small volume of final trades can sway the final price a lot. That’s too much leverage for a small amount of capital. What’s the competing dynamic that keeps this reasonable?
5. If the earlier trades won’t define the price, do they even matter? The market may swing wildly earlier, but it’s kind of meaningless for the big move of the day at the end.
6. Net of all these issues, what’s the likely outcome for closing price?
My take -
Weird as it sounds, this ‘Romulan roundhouse ritual’ at the close, would actually equalize the price for all the index funds, and meet their obligation to exactly track the index.
The driver of closing price is whomever buys and sells with sufficient capital and shares at the end of session.
To keep small fry from distorting the market, substantial capital and shares must be at the ready to manage the closing price.
That capital would come from hedge funds who’ll try to maximize price, versus a proxy fund who could flood-sell sufficient share inventory at the end to damp the price, to achieve a reasonable equilibrium.
That proxy fund is the lynchpin to keeping the price manageable. Agreements with such a proxy fund are the most likely means to ensure it exists.
So somewhere in here, there has to be some kind of deal worked out over the 35 day period, that gives the funds confidence that a legitimate liquid price will be achieved.
Without such a proxy agent, possessing both plenty of shares and plenty of capital to modulate the price within some reasonable bounds, the process would be very vulnerable to manipulation by a minor player who could impact much larger interests.
Given the insider influence on Wall Street, it’s not hard to imagine a small buyer with say 20 million dollars, writing that last price that could then cost the index funds $20 billion in additional capital.
So the invisible hand here is not simply free market economic theory, but rather, a very real, very muscular hand that is perhaps simply not visible to us yet.
A proxy fund with a contractual target can remain private, and could be such a hand, to act as referee to support reasonable price equity.
Absent this, a small confederacy of hedge funds could just spin trades between each other to drive up the price at the very end, enriching themselves at the expense of the index funds, ultimately creating an unsupportable price. If such chaos is not tamed, it would be a very black eye for the committee, and for confidence in the system.
It’s possible that the proxy is a dark horse, whose identity remains concealed in the sec filings for the recent $5B share sale ... Some party motivated to fill that role to insure a just and favorable outcome.
The next several hours will be fascinating, and historic.
Have your popcorn ready.
3/ Unmet shares can be bought into the beginning of next week.
@Bighorn - yes, they’ve got a little wiggle room there.
But the closing price Friday sets the index starting price, and becomes part of the permanent ledger. That can’t be rewritten after the fact.
Even before any of the closing trades settle, the price is set with the last trades done. Even a small volume.
So say, 80% of index buys are settled, and 20% spill into next week.
The index tracking starting number is the Friday closing price.
Many weird outcomes possible, and much jockeying may take place.
HODL should do fine, but some HF traders may try hit and run tactics at the expense of near term stability for the underlying equity.
Need to keep a close watch on speculative manipulations.
Hopefully, a white knight spares everyone the chaos, and keeps order.
Agreed. And to clarify HF to you is hedge or high frequency?
It seems almost interchangeable with Mark. ;-)
I’m going with Hedge Funds.
this is like madlibs. Could be huge fart
Hedge Fund is generally what most use the term for, but depending upon their tax structure, these folks are often also those engaged in high frequency trading. So a bit of a double entendre.
Due to the intense visceral stress of a day like today, the term may as well describe certain gastric manifestations for these traders too.
As to outlook for next week, that has some influence by HF participation.
You may look at today’s transfer of 16% from HF to index funds as demand neutral - just a straight across transfer.
But that would presume HF’s don’t deploy any capital to play in Tesla after inclusion. I don’t think that’s too likely.
Hence the 16% new longs is indeed a step change in demand.
It will show its effects in the coming weeks.
Blimey, spiked to $695 in the last 60 seconds. Surprise, surprise.
Gee, wonder who did that? (Now we all know what HF stands for).
So we enter S&P at $659 Billion market cap.
Can’t complain about that. Not bad at all.
Orderly ascent for the day, and a sane level to start off next week.
One hell of a gladiator battle in the last 15 min though.
White knight did his job well.
Official close 658.34
Probable basis for index?
$695 is the index price at start of record.
HF’s spent around $1B near the close, which boosted their yield on sale to the index funds by about $10B.
Noticed that volume jumped by almost 120 million shares after close.
Unrestrained, price would have been even higher.
White knights came through, and sold shares to restrain the price to a reasonable level.
Very intense day.
Honest wealth building is good clean fun 😎
Vindication of faith is worth noting at milestone moments.
It took years of hard work and genius for them to earn #6 on the list.
Great job Team Tesla. Happy Holidays!!!
Up next: what does the path look like next week, and why?
Raise your divining rods, and have at it.
So my earlier guesses were into the 700’s by this month, and approaching 800 end Jan. Now we’re officially in S&P, (and without exploding), so let’s have a look again at that crystal ball.
Here’s my short-term guessing for closing prices on key dates -
Dec 21 - 670 (resting after main event)
Dec 24 - 710 (if stimulus passes, wider vaccine distribution)
Dec 31 - 725 (gradual updraft from benchmark fund buys)
Take your own shot, and say your reasons. Best guesser gets one damn fine lightning bolt bottle of Tesla Tequila!
Btw - May have to get a second home in Texas, and start spending some time there. This California 13.3% income tax is looking real nasty with the size of my stake, and the gain from just this year. More to come.
Basically, Texas ranch would be totally free, and still save a boatload of taxes.
Staying long TSLA for the event horizon, but CA can still tax you until you’ve changed principal residence for a couple years or so. So it pays to plan ahead.
Elon, Joe Rogan, and many others already doing this. What the heck.
That way I can drive my gleaming steel Cybertrucks straight out of Terra Austin, after a little fishing and beer on the riverside boardwalk.
2021 here we come!
Looked at Austin real estate yesterday.