Trading looked relatively calm but today was all about Tesla and a silver surprise.
Looking Vulnerable
By Bill Fleckenstein President Of Fleckenstein Capital
August 9 (King World News) – The market was modestly higher at midday, led by the Nasdaq, which was boosted by the FAANG, as the chip sector was particularly weak. Even a few Wall Street dead fish are figuring out that the memory sector is way oversupplied and the memory and equipment stocks are starting to act a bit heavy. At the moment I am only short Micron, but the entire group looks to be vulnerable…
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Somebody Woke Up the Watchdog
In other company-specific news, late yesterday the SEC told Tesla it wanted to know more about Mr. Musk’s claims that he had obtained the financing to go private. It should be a relatively straightforward effort to find out if Tesla really does have financing in place. It’s also nice to see the SEC look into something so blatant, but we’ll just have to see what they actually discover. (Today the skeptics won a round, as TSLA’s stock price fell 4%.)
I misspoke the other day when I said Tesla would need $80 billion for a buyout. In the latest issue of Grant’s Interest Rate Observer, my friend, Jim Grant, points out that they could possibly get by with about $22.5 billion. Of course, that debt, in addition to what they already have outstanding, would mean they’d need to cover something on the order of about $2.5 billion in interest payments annually. Thus, they would obviously need a serious boost to their cash flow to come close to servicing that kind of liability. Continue to color me skeptical about all of this, although I have no position right now.
From Kneejerk to Normal
Turning to the mining industry, Pan American was successful at the idiotic game of beat-the-number, as it has been many times, but what was interesting today was that the stock spiked about 10%. The reason I point that out is because I’m sure many readers have become so demoralized that they probably wondered if any news outside of extraordinary drilling results could move up a mining entity. Thus, today’s action in PAAS was somewhat encouraging.
Turning back to the action, in the afternoon, the market drifted sideways and then lower, as the Dow/S&P saw small losses while the Nasdaq was flat. Away from stocks, green paper was a bit weaker, oil was a nonevent, fixed income was higher, and the metals were mixed with tiny changes.
Included below are three questions and answers from the Q&A’s with Bill Fleckenstein.
Pan American Silver
Question: Bill–Woke up & found PAAS up bigly. Conclude that company is going private. Funding secured. Cheers!
Answer from Fleck: “Yep, exactly, at $420 per share. Yeehaw! 🙂
From An Old Money Manager
Question: I’m an old money manager – a dinosaur. It used to be that one would look at cyclical companies and value them at peak cycle EPS using a historically low P/E Why? Because it is peak earnings and I am not paying a peak multiple on peak earnings. Now that the computers have not seen a recession in ten years, they have no problem with that. It’s a game of chicken or stupidity. I guess it is a learning process. There is no fear.
Answer from Fleck: “I don’t think the algos anticipate anything but momentum.”
Why No Mining Share Buybacks?
Question: Hi Fleck- Curious as to why profitable miners are not buying back shares and “growing” earnings like other non-mining companies have been? Any idea or theories why the profitable miners are not supporting their stocks?
Answer from Fleck: “Most of them have big capex budgets (or debt), and the gold price isn’t high enough to have them all swimming in cash. It takes a LOT of buyback to move the needle very far on EPS. It’s an overrated strategy, IMO.”
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