The $140 Billion Tweet

You may have heard – the stock of electric vehicle ('EV') maker Tesla (TSLA) had a bit of a rough go yesterday...  I say this with intentional sarcasm... Covering every trading tick of TSLA shares and every statement uttered – or tweeted – by its founder and CEO Elon Musk has turned into a […] Not rendering correctly? View this e-mail as a web page [here](. [Empire Financial Daily] The $140 Billion Tweet By Berna Barshay You may have heard – the stock of electric vehicle ('EV') maker Tesla (TSLA) had a bit of a rough go yesterday...  I say this with intentional sarcasm... Covering every trading tick of TSLA shares and every statement uttered – or tweeted – by its founder and CEO Elon Musk has turned into a bit of a cottage industry within financial media and even the broader press. TSLA shares traded off 12% on Tuesday, a relatively small setback after an extraordinary run since the beginning of September... The extraordinary loss of market cap in the decline did not go unnoticed... Source: Twitter/@CasinoCapital To be fair, Tesla's stunning loss of market cap yesterday was only made possible by its extreme success. You need to be a trillion-dollar company to experience a market cap loss of more than $100 billion on a move of only around 10%. The bigger they are, the harder they fall, indeed. --------------------------------------------------------------- Recommended Links: [Will this deal be the next Coinbase?]( Five years ago, Jeff Brown invested in a tiny pre-IPO company. Today, it's transformed into America's largest crypto exchange. And now, he's uncovered another tiny deal that he believes could have even bigger profit potential. Jeff is holding his first-ever angel investing summit to reveal all the details. [Click here now to register](. --------------------------------------------------------------- [These EV stocks are soaring higher than Tesla]( Few people are paying attention to the little-known EV stocks soaring up to 30%, 100%, and almost 200% higher than Tesla... [Here's the list](. --------------------------------------------------------------- The most interesting part of the Tesla drop was, however, what triggered it... Over the weekend, Musk turned to Twitter (TWTR) to ask whether or not he should sell shares to trigger a taxable event. Musk has famously not been required to pay any material taxes for years because he takes no salary or other cash compensation, thus has no income – only unrealized capital gains on his sizable holdings in Tesla. These unrealized gains have propelled Musk to his status as the world's richest man and a net worth exceeding $300 billion. Elon asked and Twitter answered. In fact, more than 3 million people on Twitter weighed in... Source: Twitter/@elonmusk Twitter users voted decisively for Musk to sell 10% of his stake in Tesla, which he will presumably do. The stock took a tumble on the news, despite the stake to be sold only representing about 2% of all TSLA shares outstanding. This isn't a lot for the market to absorb, especially considering that about 3% of TSLA shares outstanding turn over in regular market trading on an average day. But the overhang of 2% of TSLA shares coming for sale is not what caused the stock to tumble yesterday... The cynics among us – count me as one – saw the poll as cover for Musk to do what he really wanted to do, which is lock in some gains on Tesla... While he positioned the question in almost noble terms – should he sell so he can be a good citizen and pay his fair share of taxes... it's a fact that he is asking this question after a stunning 67% run in the shares over the past two months. How could you not want to sell some after a run like that if most of your net worth is tied up in the stock, as it is for Musk? The Twitter poll also came on the heels of a big move in TSLA shares after the announcement that car rental agency Hertz (HTZZ) had agreed to buy 100,000 Teslas. That is in itself kind of neat, but as I noted in the [October 28 Empire Financial Daily]( Tesla packed on more than $1 million in market cap for each $42,000 car that it struck a deal to sell. That's just bad math and totally silly. Going into the weekend of the Twitter poll, Tesla shares were trading at an eye-popping 200 times price-to-earnings (P/E) ratio. You can believe in the future of EVs and not be part of the Tesla perma-bear club... yet still, view Musk's poll as a calculated move to get permission from the Tesla groupies before ringing the register and cashing out on some bubbly gains. I proudly have never made a stock call on Tesla... The constant bickering about the stock is a waste of time and a good way to self-inflict yourself with temporary brain damage. On the one hand, Musk is a visionary and charismatic leader who seized the first-mover advantage in the extremely promising arena of EVs. On the other hand, he is also extremely promotional – and at times irresponsibly so – with regard to his own stock and various crypto products. And I may be old-fashioned, but I find Musk's conduct at times reckless. Whether it was falsely accusing a rescue worker of being a pedophile during the Thailand cave rescue or calling dogecoin "a hustle" on Saturday Night Live after steering so many of his fans into the cryptocurrency... it's behavior I find unbecoming of a CEO. But I also acknowledge that being an iconoclast and renegade who doesn't play by the rules is part of his shtick... And it was his groupies and their belief in him that gave Tesla the license to operate in the red for nearly a decade before finally turning a meaningful profit last year. Simply put, if people didn't believe in Elon Musk, Tesla wouldn't be where it is today – one of the largest cap companies in the world. Sometimes I would argue that Musk has gone too far –as he did with this 2018 tweet when he suggested he would take Tesla private at $420 per share, with funding already "secured"... Source: Twitter/@elonmusk Funding was famously not secured... and for that, Musk and the company each paid a $20 million penalty to the Securities and Exchange Commission ("SEC"), with the $40 million earmarked for investors harmed by the tweet. $20 million is an expensive tweet... Although, in Musk's world, this amount might also be known as "tip money." Of course, the irony here is that the only long-term holders harmed by the tweet are the ones that sold out after Musk's breach in judgment. Even after yesterday's rough day, TSLA shares sit about 150% above that fake buyout price of $420 (which the observant might note is quite the double-entendre of a number... "420" is popular slang for smoking marijuana. If you thought the 420 joke was a little crude, wait until you see what Musk did this weekend... Musk's Twitter poll came on the heels of his vocal criticism of Sen. Ron Wyden's (D-OR) proposal that billionaires get taxed annually on unrealized capital gains. Under the proposal, people who make more than $100 million three years in a row or own more than $1 billion in assets would pay capital gains taxes on the appreciation in their holdings annually. This would be an expensive proposition for Musk... especially in 2021 when his wealth exploded. In response to Musk's poll, Wyden tweeted... Source: Twitter/@RonWyden While Wyden's proposed tax legislation is reportedly DOA because of lack of support in D.C., he continues to shine a light on the curious – and by almost unanimous agreement, unfair –phenomenon of the richest among us often paying nothing in taxes. Musk, in response, lobbed back an incredibly vulgar – and unprofessional – response to Wyden questioning his profile picture… Then in perhaps the weirdest part of this whole depressing level of discourse, Wyden's own hedge fund manager son piped in... to take Elon Musk's side... Source: Twitter/@elonmusk Oh, to be a fly on the wall at the Wyden family Thanksgiving table... While I prefer my CEOs not to say or tweet things that I need to ask my editors for permission to print because they are so gross, it's all a sideshow when it comes to TSLA shares... The stock is stupidly expensive, but valuation is rarely a great investment thesis for shorting a stock, betting that it will go down. The $TSLAQ crowd – the folks on Twitter who believe this trillion-dollar company will eventually go bankrupt and accordingly add a Q to its ticker, like a bankrupt stock – has many other gripes with the company. The bears cite competition that is heating up in EVs. They note Musk's unprofessional, crude, and at times illegal behavior and question his judgment and trustworthiness. Some of the Tesla bears even accuse the company of fraud and enthusiastically point out that the company has had three chief financial officers in six years. High CFO turnover can signify things being amiss with accounting… or it could be just coincidence. But there's also no question that Tesla is the undisputed leader in EVs on the market right now, and all signs point to the EV market exploding in the years to come. Tesla owners love their cars, and the company claims some of the most evangelist customers of any company on the planet. I'm sticking to my guns and not offering an opinion on TSLA shares. Life is happier for me this way, with no bets on this race. But I sure do enjoy watching the show. In the mailbag, readers react with thoughts on app tracking and a question about Foot Locker (FL)... Any die-hard Tesla bulls or bears out there? I want to hear from you... tell me what you think about TSLA shares. I would also love to hear from Tesla owners or owners of rival EVs. Share your thoughts in an e-mail by clicking [here](mailto:feedback@empirefinancialresearch.com?subject=Feedback%20for%20Berna). "I am an older retired techie. So far, I have clicked do not track me 100% of the time. "I think it is a wonderful addition to iOS and wish everyone would do the same." – Dalton W. "Hi Berna. I am a 60-year-old retiree, and I will never opt-in for any website. Just saying." – Paul M. "Hi Berna, If Foot Locker is selling at a very attractive 7 times P/E and they have tons of cash and are only paying 2.4%, why go to buybacks? The P/E won't go into a super buy zone and a special dividend or an increased dividend will drive the stock price up. "I'm old school. Buybacks are senseless. It buys the CEO a bigger bonus but nothing else. "Higher dividends equal higher stock prices. Reducing the P/E one point is meaningless." – Kenny G. Berna comment: Kenny, the debate over whether buybacks or dividends are a better way to return excess cash to shareholders is an age-old one, with no definitive answer. On the one hand, stock buybacks are very tax efficient. Buying stock reduces the number of shares outstanding. Fewer shares to divide into net income will drive up the "E" in "P/E." As an example, if a company earns $70 million and has 70 million shares outstanding, its earnings per share ("EPS") is $1. If it has a P/E ratio of 10 times, the stock trades at $10. If the same company spends $100 million of excess cash buying back 10 million shares, now it will have 60 million shares. Now EPS is $1.17, and if it holds its 10 P/E ratio, shares will trade at $11.70. In this example, buying back 14% of its share base should cause the stock to go up 17%. And if you don't sell your shares, no taxes will be paid (just like Elon Musk all these years!). Of course, if the P/E ratio goes down proportionately with the number of shares, you won't make any money on paper or otherwise... so dividends are more of a sure thing. But it's also a sure thing that taxable investors will pay taxes on dividends. To me, the biggest knock on buybacks is not that they don't drive stock prices up, but that often companies have terrible timing when buying their own stock. Regards, Berna Barshay November 10, 2021 If someone forwarded you this e-mail and you would like to be added to my e-mail list to receive e-mails like this every weekday, simply [sign up here](. © 2021 Empire Financial Research. All rights reserved. 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