Stock Market Analysis: 07/01/09


In an earlier post, I argued that it these processes that separate investors from traders, with investors focused on the drivers of value and traders on the pricing process, and that the skills and tools that you need to be a successful trader are different from those that you need to be a successful investor. The Solar City acquisition spotlighted how difficult it is to separate Tesla, the company, from Elon Musk. The most pessimistic read is that talk of synergy notwithstanding, this acquisition is more about Musk using Tesla trendy boutique holder money to preserve his legacy and perhaps get back at short sellers in Solar City. On the plus side, Musk clearly fits the visionary mode, dreaming big, convincing customers, employees and investor to buy into his dreams and, for the most part, working on making the dreams a reality. Can Musk the visionary become Musk the builder? Like Bezos at Amazon and Steve Jobs at Apple, Musk had the audacity to challenge the status quo.


In fact, as someone who has followed Apple for more than three decades, it seems to me that Musk shares more characteristics with Steve Jobs in his first iteration at Apple (which ended with him being fired) than he does with Steve Jobs in his second stint at the company. The fear was they’d get hit by business-interruption claims, meddling politicians who want to “socialize” virus-related losses, and a prolonged slowdown that could cripple demand. Put simply, the value process is driven by a company’s fundamentals (cash flows, growth and risk) or at least your perception of those fundamentals, whereas the pricing process is driven by demand and supply, with mood, momentum and liquidity all playing big roles in determining price. The unprecedented demand for the car, with close to 400,000 people putting down deposits for a vehicle that will not be delivered until 2018, indicates the hold that it has on its customer base. If the trade off on debt is that you weigh the tax benefits of debt against the bankruptcy cost, there can be no arguing against the fact that borrowing money will add value for stockholders. By design, the marginal and the average tax rates are the same, 34%, for corporate incomes between $335,000 and $10,000,000.