MACROECONOMIC OUTLOOK

US inflation expectations are rising. Fiscal and monetary policy means inflation will further pick up the pace

Photo by maria pagan on Unsplash

Investors are obsessed with inflation. And with good reason.

It’s closely tied to interest rates and has ample implications for the relative valuation of current and future profits.

Shifts in the inflation outlook can cause sector rotations and shifts in Wall Street’s weighing of growth versus value, staples versus cyclical, and domestic versus foreign equities.

Inflation expectations are rising. But they could go up further.

With the reopening of the world economy over the coming six months as a catalyst, investors can face a spike in short term inflation.

The below outlines the key reasons for inflationary pressure being imminent.


The only thing scarce is probably the amount of real money in the Bitcoin ecosystem, yet people flock to exchange their dollars for Bitcoin on the notion of scarcity.

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(This is part 1 in a new series on the behavioral economics behind speculation in Bitcoin and other cryptocurrencies)

Have you ever went to the supermarket for a gallon of skimmed milk, arrived to find only one gallon there, and been overly excited that you didn’t miss out on it?

Even if you could easily substitute it for semi-skimmed milk or go to the supermarket further down the street?

It’s your instinct playing you. Sure, it’s nice to not have to spend extra time acquiring your needed goods or settle for less than your preferred variety. …


CRYPTOCURRENCIES

Crypto-traders and HODLers alike are affected by the wild swings in crypto prices. Elon Musk’s antics are an effort to profit off the little man.

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If I was a crypto-evangelist, I would be tired of Elon Musk.

The Tesla CEO appears to have the power to move markets, even for the largest cryptocurrencies Bitcoin and Ethereum, with a few lines in a tweet.

And Musk is making a mockery of the entire crypto space. He seems to enjoy it.

Those who got lured into buying Bitcoin during Elon Musk’s Bitcoin appraisals near the tops in February, March, and April, probably aren’t enjoying it as much.

Pissing off the Bitcoin crowd and pumping the parody cryptocurrency DogeCoin (and even get rich quick scheme coins such as…


RETAIL MANIA IN THE STOCK MARKET

The world’s largest cinema chain was slowly edging toward bankruptcy, even before COVID-19 struck. Now, retail investor appetite, driven by users on the sub-Reddit WallStreetBets, may provide an out for the faltering company.

Photo by Donreál Lunkin on Unsplash

The challenges for AMC Entertainment — the holding company of cinema chain AMC Theaters — were large in both size and quantity.

Then the COVID-19 pandemic hit and lockdowns forced theaters to close.

Not exactly a dream scenario for the management of AMC, who needed (and still need) to perform a turnaround of the company.

But somehow, the tables have turned themselves. Not in the theaters — where the company desperately needs to increase revenue — but over on 11 Wall Street, home of the New York Stock Exchange.

Completely detached from the business fundamentals, one might even say from…


TESLA: FIRST QUARTER REPORT, DEMAND SHORTAGE & BITCOIN

The latest financial report and conference call left investors with a bleak vision of the future. Musk’s random walk on crypto adds to concerns.

Collage by author. Grap: Saxo Bank

With the latest quarterly numbers, Tesla has grown revenue per share at below 7 % over the last two years. Does that warrant a 1000 % increase in stock price?

The questions are many, and a lot is going on in Tesla-town these days:

  • Elon Musk with a surprising U-turn on Bitcoin.
  • Arguably the worst performance of Musk in an investor conference call yet.
  • Increasing tension in China, where Tesla is accused by customers of faulty brake systems, reported also by Chinese state media.
  • A concerning outlook regarding Q2 deliveries. …


MARKET COMMENTARY

Retail investors’ favorite stocks are underperforming the broad indices

Meme by unknown. Creative commons.

Retail investors, overexposed to a narrow basket of highly correlated stocks, could be in for a rough ride.

The time where one could throw a dart at the Russel 2000 or randomly pick amongst the most mentioned tickers on Reddit and make instant profits is over.

It’s only April and yet, 2021’s markets have already offered a lot of action. Amongst the most prominent stories from the financial markets in the first four months of the year is the retail frenzy.

The conditions for retail investors to get excited were optimal. The perfect storm

Steady multiple expansion in the second…


STOCK COMMENTARY

In the three days following the stock exchange listing of Coinbase, the company’s management and PIPE investors have unloaded huge amounts of overpriced shares to retail investors

Photo by Pierre Borthiry on Unsplash

Coinbase ($COIN) is a terrible investment opportunity.

No economic moat. Low entry costs for competitors. Revenue is tied to an underlying asset with large price fluctuations. Uncertainty about the stickiness of customers.

Factors discounting the value of Coinbase are many.

Yet, the company's management has not been shy of contributing to their crypto-mania-fuelled hype.

Efforts that aren’t aligned with the same management and other insiders dumping billions worth of shares as soon as…


MARKET COMMENTARY: TESLA

Elon Musk has a history of making bold unfounded claims and something about the latest delivery numbers just don’t add up

Collage by author. Source graph: Saxo Bank

The 2021 first-quarter delivery numbers of Tesla’s electric vehicles are out.

185.000 EVs were “delivered” (a term Tesla has yet to unambiguously define) to customers across the world in the first three months of the year.

Or at least, so claims the company itself.

As argued below, this number may be inflated due to several causes. From frontloading to repurchasing agreements and a general lack of transparency.

The coming financial statement and the investor call following will be exciting for bulls and bears.

While bulls are hailing Tesla’s ability to beat estimates of a range of analysts, bears point to…


MARKET COMMENTARY

A large share of Tesla vehicles contain batteries of subpar quality, with battery day promises on standby

Collage by author. Background source: Tesla 4680 battery patent

Using subpar Chinese batteries on a large share of vehicles. Failing to deliver on promises of new (4680 cell) batteries.

Fierce — and increasing — competition in the EV space ramping up battery R&D efforts.

Elon Musk and the rest of the Tesla management team have probably had chronic headaches for a long time as their first-mover advantage in the EV market is vanishing like dew in the morning sun.

With the price of Bitcoin about to kick in the door to $60k, Elon Musk fanatics and Tesla cultists alike have been quick to applaud Musk’s decision to allocate equity…


FINANCIAL ANALYSIS GONE WRONG

From the misuse of Monte Carlo simulations to ridiculous assumptions, critics have a hard time keeping a straight face

Collage by author. Underlying graph source: ARK Invest

ARK Invest has put out an eyebrow-raising price target for electric vehicle maker Tesla.

Their fair value estimate, or base case, sees Tesla’s share value at $3.000 in 2025, up around 2.900 percent from the 2020 low (and more than 650 % from Friday's closing price at $654.87).

Price targets landed just in time for retail investors receiving their stimulus checks

Their bull scenario puts a staggering $4.000 price tag on the carmaker. ARK believes there to be a 25 percent chance of that.

But most jaw-dropping, the “bear” scenario, which is quite the ridiculous name considering the price target…

Asger Bruhn

I’m an economist doing policy design and analysis. I write about the economy, taxation, innovation and growth, policy design, and financial markets.

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