August 13, 2018

Tesla is probably not going private

Tesla CEO Elon Musk recently announced plans to take the company private at $420 per share. Doug Kass thinks that is not going to happen because of several reasons as outlined in a recent article.

"To begin with, Elon Musk has a unique sense of humor. The number 420, or 4:20 or 4/20 is a code-term in cannabis culture that refers to the consumption of cannabis.

The company’s fundamentals and balance sheet do not support a leveraged transaction. A LBO is not financeable in the current market and this is the least demanding market in history for financing. Tesla is losing money, has large capital spending requirements, is bleeding cash, has meaningful contingent product liability risks and already has $9 billion of net debt.

The only way the LBO could be done is if several large strategic buyers lost their collective minds and invested in the transaction. 

There was no mention of investment banking advisors or outside legal counsel in the Tesla statement. This makes me suspect of the proposed transaction. 

Musk recently purchased stock in the open market. I presume Musk has been thinking about a going private deal for some time, which raises potential legal (SEC) problems.

Not only do I believe there will be no going private transaction but I suspect Musk has gone too far with his tweets and will likely pay a legal toll for it."

August 7, 2018

Rise in FAANG stock ownership within ETF's

Passive Investing has grown in popularity versus Active investing and increasingly more number of ETF's have included the FAANG stocks according to Doug Kass in Realinvestmentadvice.

The dominance of FAANG stocks in the increasingly popular passive market  makes the acronym (and market) risky as many of the ETFs are using the same “momentum” factor. Consider that just five stocks (FAANG) are a top 15 holding in 605 ETFs:

ETF Ownership of FAANG Equities

2018: 605
2017: 501
2016: 430
2015: 332
2014: 277
2013; 230
2012: 175
2011: 101
2010: 62
2009: 14
2008: 9

August 1, 2018

Market Tops VS Market Bottoms

The similarities between Icecream to the Stock Market

"Tops are a process and bottoms are an event, at least most of the time in the stock market. If you looked at an ice cream cone’s profile, the top is generally rounded and the bottom V-shaped. That is how tops and bottoms often look in the stock market, and I believe that the market is forming such a top now." 

via RealInvestmentAdvice

July 30, 2018

Is Cash the alternative to equities ?

Doug Kass wonders if investors should consider keeping Cash instead of buying/holding stocks - via RealInvestmentAdvice.

"For nearly a decade, the Fed has pushed investors into long dated assets, like equities, with the T.I.N.A. mindset (“there is no alternative”). But this has changed in the last 12 months (Treasury bill yields are much higher on a year over years basis) coincident with the Fed’s pivot – as, for the first time in years, C.I.T.A. (“cash is the alternative”). Today the yield on the three month US Treasury note (1.98%) exceeds the dividend yield of the S&P Index (1.80%). Actually, the one month bill’s yield (1.85%) exceeds the S&P dividend yield."