Market Commentary: Tesla "Loses" One-Third of Its Value

 

Make Sure Your Weighing Machine is Properly Calibrated

Just a few days ago, I read courtesy of Reuters that Tesla had lost one-third of its value. 

Shocked, I rushed to read how such a loss had occurred.

Had Brother Musk misplaced or “lost” the “code” to Tesla’s Bitcoin account?

Did meteors strike Tesla’s factories, wiping out needed capital assets?

Did Lucid leapfrog Tesla's self-driving technology?

I read on.

Rather the article was about the decline in the price of Tesla stock.

The writer of the headline apparently is a naive adherent of the efficient market theory conflating stock prices with value.

So what is the point?

There is a difference between the price of a stock and its (intrinsic) value.

Many tragedies in the investment world have occurred because of a conflation of the two.

Market sentiment plays a large part in the price of a stock.

One day an NMC or a Wirecard are flying high. The next day they are not.

When 911 occurred, prices on the NYSE dropped dramatically forcing the closure of the market.

In both cases there was a wide gap between value (reality) and price (sentiment).

Prior to the price decline NMC and Wirecard had high prices, but no value, unless one were to count negative numbers.

In the second case, the stocks on the NYSE as a general group did not suffer any real loss of value. Their prices just diverged from value.

Earlier this year, one of my colleagues gave me a JPMorgan research piece on Tesla which posited a value of some USD 160 or so a share.

JPM had computed the value using multiple “different” methods, though as Aswath might tell you many of these seemingly independent methods are really fundamentally linked.

I found it entertaining but not convincing reading. The JPM research piece not the Professor's. 

A sum of the parts analysis in a distressed sale might have been more illuminating.

Global FX Code of Ethics: If You Have to State the Obvious, You Obviously Have a Real Problem

Annual Manifestation of the Free Market God at the AEA

Regular readers of this blog will have noticed that AA has little faith in the myth of the “self-regulating free market”.  Just last week  AA’s scant faith was confirmed yet again.

On 25 May the central bank-led Foreign Exchange Working Group (FXWG) in partnership with the private sector Market Participants Group (MPG) released a global code of conduct for the wholesale foreign exchange (FX) market.

The first principle of six in the Code is Ethics.  

This section of the Code calls on market participants to inter alia “strive for the highest ethical standards”, “the highest professional standards”, as well as “identify and address conflicts of interest”.

But let's let the Code "speak" for itself with AA using boldface to highlight key ideas

“Market Participants should:

• Act honestly in dealings with Clients and other Market Participants;
• Act fairly, dealing with Clients and other Market Participants in a consistent and appropriately transparent manner; and
• Act with integrity, particularly in avoiding and confronting questionable practices and behaviours.”

What this means in fewer words is that market participants should be honest and capable.

Two observations:

First, with reference to the “highest ethical standards” AA is at a loss to understand how being honest is an exemplar of “highest ethical standards”.  Are there ethical standards that allow one to be dishonest or act unfairly?  AA holds that being honest and acting fairly is like being pregnant.  One either is or is not.

Second, the six principles are not listed in alphabetical order.  Does the fact that ethics is placed first reflect an assessment by the FXWG and MPG (though perhaps the latter’s assessment is not as strong as the former’s) that there is a particular problem with ethics or more precisely a lack of ethics? If one has to make a point about what is self-evident, that seems to be an indication implication that practice is lacking.    

Does the need for promulgation of ethical standards refute the dogma of the self-regulating market?  If the market regulates itself, then such problems would be transitory and quickly remedied   

AA's parents and then AA himself spent a not inconsiderable sum on education, a good portion of which funded AA’s direct and indirect studies of economic dogma. 

It is an article of the Free Market faith that market forces driven by intense free market competition, act to indirectly compel ethical behavior among market participants.  Those who are unethical and act unfairly are displaced because customers flock to virtuous participants who act fairly and with high ethical standards.  This occurs even though the latter's salutary behaviour is motivated solely by the pursuit of profit not of virtue.  

That's the theory but this press release seems to confirm not the practice.

Who Knew It Was Going to Be So Complicated and/or Hard?

Apparently Not This Clueless Chap

Who knew the following were difficult, complicated, or hard?

Healthcare

North Korea

The Constitution

The Presidency

NAFTA

Taiwan and China

Walking and chewing gum

David Frum summed it up quite nicely.

All this information was cunningly concealed by being put in books and other forms of writing

So what does a chap with good genes (whose uncle was a  scientist!), who knows more than everyone else in the Government, and who doesn't trust either his  diplomats' or intelligence professionals' advice when he finally realizes something is complicated and needs answers? 

1. Well, there's Fox News, Breitbart, or Infowars for honest unbiased journalism.
2. A newly made Chinese "friend" could in ten minutes honestly explain North Korea without trying to advantage his own country's foreign interests.
3. Retreat into a fantasy world.  Actually with #1, it's more of a further descent into fantasy.

Sad.