The $530 Million Bet Against Tesla

Welcome to your Weekly Digest…my breakdown of the stories we’re thinking about and talking about in the Global Intelligence world. 

This week’s edition comes to you from one of my favorite writing spots…a beautiful beer garden surrounded by a park here in Prague.  

Now that spring has arrived, and we’re approaching a post-pandemic world, I’ve been doing a lot of writing and research here, with a cold mug—well, honestly, cold plastic cup—of Bernard beer by my side.  

I can tell you there are worse ways to spend your time. 

First up in our digest this week is a major move by one of my investment heroes.  

If you’re a big investment nerd, or even a cinephile, you’ll probably recognize the name Michael Burry.  

He’s the hedge fund manager who figured out before pretty much anyone else that the U.S. housing bubble was going to implode the economy. And so in the mid-2000s, when real estate was absolutely booming, he made a huge bet against, or “shorted,” the U.S. housing market.  

This decision caused many of his investors to revolt, but Burry knew he was right. He endured the criticism and subsequently made an absolute killing when the U.S. housing bubble burst. This story formed part of the popular book and film, The Big Short. (Burry is the guy played by Christian Bale.) 

Well, this week Burry was back in the news for making another big short…a half-a-billion-dollar bet against the electric car maker Tesla.  

In a recent regulatory filing, Burry’s company, Scion Capital, revealed it owned “put options” on more than 800,000 Tesla shares, worth about $534 million, as of the end of the first quarter. Put options give you the right to sell a stock at a specific price and are basically a sign that you think the stock is going to fall.  

While Burry is a hero of mine, we don’t agree on everything.  

However, on Tesla, we are perfectly aligned.  

Subscribers to my monthly Global Intelligence Letter may remember that in the March issue, back when Tesla was trading at $700, I called the stock massively overvalued.  

At time of writing, it has fallen into the $500s. And I seriously won’t be surprised if it slumps over time all the way down to sub-$100. 

Tesla, as an investment, is 10% company, 90% hype built around a cult of personality. And that is the worst kind of investment. I mean, what does Tesla do that’s so special? Every other car manufacturer on the planet, including all the heavy hitters like Toyota, Porsche, Ford et al. are pushing full steam into electric. And there are tons of new electric vehicle entrants on the market. This space is seriously crowded, and Tesla ultimately is just another car company—egregiously overvalued, at that—run by someone with an ego bigger than his wallet.  

So, I’m with Burry. Don’t invest in the hype. Don’t put a penny of your money in Tesla stock.  

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Speaking of the March issue of the Global Intelligence Letter, we recently got some very good news regarding our Norwegian recommendation. 

Norges Bank, the country’s central bank, announced that it’s considering raising interest rates in the second half of the year…making it the first central bank in the world to foreshadow a hike. Other countries will undoubtedly follow suit.  

A big reason for the worrying spike in inflation at home and around the world is the increase in money supply.  

Frankly, there’s just too much cash sloshing around the world’s major economies because of government COVID stimulus spending and increased state borrowing.  

The big tool central banks have to tackle this problem is increasing interest rates. That makes loans more expensive, so less people borrow to spend—which, in turn, cools demand, which cools inflation. 

In signaling its pending move, Norges Bank has once again shown itself to be a capable steward of Norway’s economy. By raising rates, it would be getting out ahead of the inflation problem. (And this week, the European Union registered for April a 2% annualized inflation rate, the highest reading in nearly a decade.) 

Moreover, since Norway will be offering higher interest rates than other economies, more money will flow into the krone…which in turn means the Norwegian currency should continue to do very well in anticipation of higher rates to come.  

So, if you haven’t checked out my specific recommendation from the March issue, I encourage you to give it a look now. You can view it on the Portfolio Tracker here. 

*** 

From a previous cover story of Global Intelligence to the one I’m currently finalizing.  

I’m really excited to share the June cover story with you because it concerns a major change that’s about to happen in one of the world’s most important precious and industrial metals markets. And we have a chance to invest, before its impact is felt.  

This story is seriously flying under the radar. You won’t see it or read about it in the mainstream media, but it will have big, global ramifications.  

I won’t spoil the story (plus I’m still dotting my i’s and crossing my t’s), but I will say that while gold is up only around 7% this year, the commodity that will be most affected by this change is up about 55%…and that’s only the beginning because of what’s coming next month. 

Check out the upcoming issue of the Global Intelligence Letter for all the details. 

*** 

Finally, a quick note on bitcoin.  

I’ve been looking into the trading patterns around bitcoin’s turbulence this week and surprise, surprise, guess what happened when the price dropped? The hedge funds and big institutional investors stepped in and started snapping up tons of crypto at bargain prices. 

This is what they always do…this is how they play the average investor…they create a crisis by getting unwitting journalists in the mainstream media to promote some story to freak out the market and then they step in and hoover up everything they can.  

In this case, the story was some pumped up nothing about China “cracking down” crypto. The reality is that China has had similar anti-crypto policies since 2019.  

I’ve seen the big banks and hedge funds use this strategy so many times covering Wall Street for 17 years at the Journal, and when I worked as a hedge fund trader. And it’s why patience and stoicism are the keys to success in investing. 

My first thought when I saw this week’s turbulence was “What fundamentals changed?” And the reality is that precisely zero fundamentals in the crypto market have changed. There was no logical reason for the sell-off. There was, however, a lot of pointless emotion tied to a nothing story, which means there was a reason to buy when crypto prices tanked—which is exactly what I did. 

That’s the big lesson to take away from this week: As the crypto market matures, pay attention to the environment…to the fundamentals.  

If nothing significant has changed, stand strong and buy. Don’t let institutions scare you out of your position so that they can snap up your assets on the cheap. 

And with that, we come to the end of our digest. I’ll leave you with another photo of Prague, where patrons are wining and dining outside again and life is returning to normal.  

There’s nothing quite like a beer and a stroll on a blissful spring evening in this stunning city. 

If you have any feedback or questions, please feel free to send me an email any time at jopdyke@globalintelligenceletter.com.  

I hope you enjoy the rest of your Sunday!