It’s a…train!

  • We wouldn’t pay it
  • The difference a day makes
  • Shorting is futile

We admit that it’s entirely possible we’re on the wrong side of history.

We’re talking about innovations such as self-driving cars and ‘pod’ transport systems, like Tesla Inc.’s [NASDAQ:TSLA] ‘The Boring Company’.

Tesla, our stock market nemesis, gained another 3% overnight. It’s at another new record high. So much for our short-selling strategy on the stock!

The rationale for the latest price rise? You guessed it, more PR. From MotorTrend.com:

The Boring Company has released photos previewing an electric skate that can transport people at high speeds through a network of underground tunnels.

As the new pictures show, the skates are big enough to carry multiple people and their bikes. A glass enclosure provides passengers with a clear view of the underground tunnel from all angles.

Here’s a picture of the…ahem…‘skate’:



chart image

Source: MotorTrend.com
Click to enlarge


And here’s a picture of the underground roadway:



chart image

Source: MotorTrend.com
Click to enlarge


Based on this view, and animations of the underground system, we have two simple questions: What happens when one of the pods stops? And how do you overtake other pods?

A single lane of traffic can only go as fast as its slowest vehicle. The Boring Company’s scheme seems to rely on a track-guided system. With multiple ‘pods’ using the system, it’s natural there will be multiple stopping points — ‘stations’, or something similar.

And the more pods, the greater the likelihood of ‘pod congestion’. To which the answer could be: Make the ‘pods’ bigger, so they can carry more people, and therefore reduce the number of times the ‘pods’ will need to stop.

To which we reply: Such a ‘pod’ system already exists. It’s called a train! An underground train, no less. The likes of which have existed in the world’s major metropolitan cities for over 100 years.

Again, we’ll admit that we could be on the wrong side of history. But in this instance, it appears to us that The Boring Company and Tesla CEO Elon Musk are trying to reverse-engineer a solution to a problem that was solved a century ago.

To us, this harebrained idea has ‘mono-rail’ written all over it, and will turn out to be just as (non-) profitable as those that cropped up around the world 40 years ago.

But what do we know? The PR keeps coming from Tesla, and the share price keeps rising…for now.

Markets

Overnight, the Dow Jones Industrial Average fell 50.81 points, or 0.24%.

The S&P 500 lost 2.91 points, for a 0.12% drop.

In Europe, the Euro Stoxx 50 index fell 17.73 points, or 0.5%. Meanwhile, the FTSE 100 fell 0.28%, and Germany’s DAX index dropped 0.24%.

In Asian markets, Japan’s Nikkei 225 index is down 56.57 points, or 0.29%. China’s CSI 300 is down 0.13%.

In Australia, the S&P/ASX 200 is up 13.31 points, or 0.23%.

On the commodities markets, West Texas Intermediate crude oil is US$49.35 per barrel. Brent crude is US$51.65 per barrel.

Gold is trading for US$1,260.13 (AU$1,691.36) per troy ounce. Silver is US$17.28 (AU$23.19) per troy ounce.

The Aussie dollar is worth 74.5 US cents.

We wouldn’t pay it

Bloomberg reports:

Australian consumers aren’t happy.

Sentiment has remained negative this year through May for the first time since the depths of the global financial crisis in 2009. That’s left retailers reeling, hurt car dealerships and made investors bearish on mall operators. As many shoppers are saddled with record household debt and weak wages growth, it’s hard to see the pessimism breaking.

Yet, during a brief visit to our Facebook page yesterday, we saw an ad offering investment opportunities in a retirement home project.

Get a yield of almost 8%, and get seven or eight years of rent paid upfront!

Needless to say, there were plenty of ‘thumbs up’, smiley faces, and love hearts for that post.

But not a single comment about the risks of property investing in general…let alone the risks of investing in a scheme that could turn out to be the property equivalent of Quintis Ltd [ASX:QIN] before you know it.

Or maybe it won’t. Maybe it will turn out to be a stunning investment.

Our point is that, regardless of the economic environment, Aussies still believe that property is always a good and sound investment.

We should know. We’ve banged on about an impending house price crash for nigh on 10 years. So far, it has yet to take place.

But wait. Is this the beginning? From the Australian Financial Review:

Australia’s two largest housing markets are cooling, with Sydney values down 1.3 per cent and Melbourne falling 1.8 per cent, CoreLogic figures show.

The falls in the data provider’s home value index for the first 29 days of May likely reflected a continuing decline in apartment values, which lost ground in both cities in April, Corelogic head of research Tim Lawless said.

One day, we’re sure to be right. And we’ll keep saying it until we are.

But we’ll admit that maybe we’re completely out of touch with house price dynamics. We were, for instance, astonished to see the price tag on a home opposite ours, when it went on the market two weeks ago.

They wanted around the million-dollar mark.

It appears they got their number.

We happen to like our house. But would we pay more than double what we paid to build it 12 years ago? Not by choice. But if we were in the market, perhaps we wouldn’t have much of a choice if we wanted to buy a house now.

But we’re not in the market, so we don’t have to think about it too much.

Even so, we can’t help but wonder just how much of Australia’s economic growth has been tied up in house price rises over the past 10 years.

How many people feel wealthy because they’ve ‘traded up’ to a bigger house with a bigger mortgage?

How many people feel wealthy because they’ve borrowed against their home to buy that new Mercedes, BMW, or Audi?

Don’t get us wrong. We’re not a stick-in-the-mud. It’s fun to buy nice things and treat yourself.

The point is: How much of Australia’s spending and ‘investment’ over the past 10 years is purely because of rising house prices, and how much is due to Australia becoming a more productive economy?

We can’t help but think that rising house prices have contributed the lion’s share. That’s fine as long as house prices keep going up. But when they don’t, what happens then?

We can only guess. (But it’s a pretty good guess.)

The difference a day makes

Elsewhere, it’s not all gloomy news. As The Wall Street Journal reported late last week:

Shares of Appian Corp., a maker of software for developing enterprise applications jumped 35% to $16.22 after its initial public offering Thursday.

At this morning’s close, the share price is US$17.90. For investors who bought on the open on the first day of trade, they paid US$15, and are thus sitting on a 19.3% return.

But those with the inside running, who were able to get IPO shares, well, they’re up 49%, after paying just US$12 per share.

That’s a big deal. Double the profits (so far), just by virtue of getting in when the ‘insiders’ get in.

That can be the beauty of buying an IPO stock. It’s one of the reasons we recently launched Greg Canavan’s Exclusive IPO Investor service.

Now, Appian Corp [NASDAQ:APPN] is a US-listed stock. Greg’s service doesn’t cover the US. But it does cover the Aussie market. And in terms of great opportunities, the Aussie IPO sector has been one of the hottest globally.

Over the last 12 months, around US$16 billion of IPO deals have listed on the Aussie market. That’s a long way behind the US$209 billion in the US.

But, compared to the rest of the world, Australia isn’t far behind most of the other major markets.

Over the last 12 months, IPO deals have totalled:

  • US$28.1 billion in Japan
  • US$11.8 billion in Hong Kong
  • US$16.8 billion in South Korea
  • US$17.2 billion in Germany
  • US$27.8 billion in the UK
  • US$11.9 billion in France

Australia is ahead of Hong Kong and France, and hot on the heels of South Korea and Germany.

That tells you Australia has a vibrant and active IPO market.

It’s a market that Greg plans to fully exploit as he focuses on introducing his subscribers to what he believes are the best IPOs due to list on the ASX.

For details on how to get in on Greg’s first IPO opportunity, go here now. But be quick, the doors close on access to this deal at midnight on Friday.

Shorting is futile

We’ve banged on about short-selling Tesla for a long, long time. But as much as we may believe Tesla is overvalued, what we believe doesn’t matter.

Other factors may be in play when it comes to the Tesla share price. Colleague Terence Duffy relayed to Markets & Money and Money Morning readers last week a conversation he had with a New York-based fund manager:

Our insider says this shows four or five big mutual funds stepping up to buy a very large chunk of Tesla stock. They can’t book their entire positions in one day. Instead, they more stealthily accumulate a huge position over many months.

He reckons that, between them, the big fund managers have “cornered the float” in Tesla stock. This is another way of saying there isn’t much of the stock in weak hands.

What does this mean for those calling to short sell Tesla?

Well, whenever the big short sellers drive the price lower, the big fund managers simply buy a bit more. And it’s not hard for them to drive the price straight back up.

This causes a great deal of pain for those who are short at lower prices.

Imagine…

Many of these sellers sold Tesla short at the previous highs near $260. They need to buy back their shorts at lower prices in order to make a profit.

But as you know, that hasn’t happened.

Now that the Tesla share price has pushed higher, a seller wanting to close out the short position will need to buy back the stock at current prices above $300.

And all of the sellers who are still holding their short positions from the last few years are now bleeding from even bigger losses. The higher the stock price goes, the bigger these losses will become.

We were interested in exactly how much pain the short sellers might be suffering. So we took a closer look at the figures quoted by Reuters in the article above.

It just so happens that NASDAQ releases stats on the short interest in a stock twice a month.

In November 2016, the NASDAQ site reported the short interest as 35,687,317 shares. At the then price of $190, it was valued at $6.78 billion.

At today’s price of $315, these same shares are worth $11.24 billion, a difference of $4.46 billion. Ouch…

Phil Anderson has a simple rule he uses to avoid such pain: never trade against the trend. And never trade against the Grand Cycle…

Never trade against the Grand Cycle. Sage advice. But what does it mean? To find out, go here.

Cheers,
Kris