☀️☕️ Teslump

📊 Also: US GDP beats, S&P 5th record; China fires BazookaRRR, Squeezes Crowd; Japan’s X; Data centres eat electricity (lots!) 🎓 Triple R (reserve ratios)

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📈 Market Roundup [26-Jan-24]

US large-cap S&P 500 closed 0.53% UP ▲

Tech-heavy Nasdaq Composite closed 0.18% UP ▲

Pan European STOXX Europe 600 closed 0.3% UP ▲

HK/China's Hang Seng Index closed 1.96% UP ▲

Japan's broad TOPIX closed 0.11% UP ▲

📝 Focus

  • Teslump

📊 In the Markets

  • US GDP beats, S&P 5th record; China fires BazookaRRR, Squeezes Crowd; Japan’s X; Data centres eat electricity (lots!)

📖 MoneyFitt Explains

  • 🎓️ Triple R (reserve ratios)

💸 Personal Finance Corner

📝 Focus


Tesla shares plummeted 12% on Thursday, doubling the after-market fall on Wednesday and logging its worst day in over three years, losing $79bn in market value in a day… or more than the total value of any other carmaker in the world other than Toyota. 

The electric vehicle leader warned that 2024 sales growth “may be notably lower” after reporting earnings that missed the best guesses of Wall Street’s Finest. Growth, nonetheless, just slower than the 37% in unit sales and 18-19% in revenues logged in 2023, thanks to flagging demand, massively increased competition and persistently high interest rates. Fourth quarter auto revenue growth was already only 1%.

But Tesla is positioning itself as being "between two major growth waves" with a new lower-cost Texas-built car in H2 2025 with a “revolutionary manufacturing system” that would slash production costs. This “very compelling $25,000 electric vehicle that's also fully autonomous” was first mentioned in 2020, with hopes to build it in China at half the cost of the Model 3 and Model Y platforms… in 2023.

Long time short sellers, conveniently ignoring the fact that Tesla shares doubled last year. - Image credit: Red Dwarf / BBC via Tenor

..... ▷ Global EV sales are still rising, but more slowly than expected due to mass market resistance to higher prices compared to petrol alternatives. 

Major EV manufacturers, including Ford and General Motors, are scaling back expansion plans and Hertz is selling one-third of its EV fleet for petrol vehicles. 

Stellantis warned a week ago that cutting electric vehicle prices too quickly risked a “bloodbath” in the industry. 

In China, sales by all EV makers combined hit a record last year, with BYD topping Tesla for global EV sales in Q4 2023. But the vast majority of the over 100 EV makers in China are loss making, including some of the largest, like Nio and Xpeng, with the Tesla-initiated price war squeezing margins even as demand softens with the stuttering economy. 

Optimus Prime, the leader of the Autobots and a copyright suit in the making? - Image credit: Takara Tomy & Hasbro / Toei via Tenor

..... ▷ And all this is coming as visionary and somewhat divisive CEO Elon Musk is demanding a 25% stake in Tesla to make it an AI and robotics powerhouse with projects like the humanoid robot, Optimus. (He says Teslas are like “semi-sentient robots with wheels” after all.)

This is close to the 23% he held before selling down to 13% to finance his piece of the $44bn Twitter acquisition. (Fidelity has since written down the value of the shares in X it bought at the same time by 72%... so far.) 

Musk expressed concern about losing influence to shareholder groups with “strange ideas about what should be done”, emphasising responsible stewardship of such powerful technology, threatening to take his more advanced AI projects elsewhere.

“Unless that is the case, I would prefer to build products outside of Tesla.”

Tesla CEO Elon Musk on X, demanding 25% of the firm

..... ▷ Some vindication for long-suffering Tesla non-believers, finally, with the stock now down 27% for the year after more than doubling in 2023.

Short sellers have made more than $2.2 billion on Tesla since Wednesday’s close, according to analytics firm Ortex Media. 

Though Wall Street analysts turned net bullish on Tesla around November 2022, opinions among investors remained divided, with sky high valuations driven at least at first by meme stock level fervour from true believer Musk fanboys.

A price/earnings ratio miles above that of peers needs exceptionally rapid, prolonged superior growth to support it (or other valuation metrics like asset values) - Image credit: FinanceCharts

🇸🇬 Singapore: Let’s Get MoneyFitt!

📊 In the Markets

The S&P 500 hit a record high for a fifth consecutive session driven by robust US economic growth while inflation remained on a glide path to the 2% target. Labour market cooling continued, with initial jobless claims coming in above estimates. 

Driving the other way, Tesla saw a 12% drop (above), reaching its lowest point since May 2023 as CEO Elon Musk cautioned about slowing sales growth and sending Tesla's market value below Eli Lilly and just above Broadcom. 

The US economy has somehow kept growing at a rapid pace - Image credit: Tenor

The US economy blasted past expectations, growing at a 3.3% annualised rate in Q4, after a blazing 4.9% pace in the third quarter, defying all those glum predictions of a recession after over a year of aggressive interest rate hikes. Economists surveyed by Reuters had forecast GDP growth of 2.0%. 

But the report also indicated subsiding inflationary pressures. Full-year growth reached 2.5% and strong economic performance is apparently extending into the new year, so the likelihood of a Fed interest rate cut in March is fast disappearing. But cuts later in the year remain on the cards.

Hong Kong’s Hang Seng index surged 3.5% on Wednesday and another 2.0% on Thursday. 

Wednesday’s rally was driven by tech as Alibaba shares spiked after founder Jack Ma reportedly bought $50 million worth of its Hong Kong stock in the fourth quarter, while chairman Joe Tsai also bought $151 million worth of Alibaba’s US-traded shares. 

On Thursday, China and Hong Kong stocks led gains in the Asia-Pacific region following the People’s Bank of China's announcement of a 50 basis points cut in RRR 🎓 (reserve ratio requirement) for banks from February, stimulating economic growth. These measures will stay in effect until the end of 2024 and effectively injects 1 trillion yuan ($139.8 billion) in long-term capital. 

Basically, a cut in RRR means the amount of liquidity that banks are required to hold as reserves will be reduced, which increases the capacity for China’s banks to extend loans, which will boost spending in the broader economy… and increase liquidity for property developers, which sent their stocks surging. 

Underweight and “crowded short” positions in the HK and China and stock markets are being rather effectively squeezed by a series of consecutive constructive measures from Beijing. (MFM: China’s Market Bazooka-ish.)

📖 MoneyFitt Explains

🎓️ Triple R (reserve ratios)

The "Reserve Requirement Ratio" (RRR) refers to the share of its deposits that a bank is required to hold in reserve, either in its vaults or with the central bank. It is the core element of the fractional reserve banking system. 

When the bank lends out the balance of its deposits, it can earn interest and make a profit. In doing so, it also creates a new asset (the loan) and a new liability (the deposit made by the borrower, in whichever bank it ends up in) and therefore increases the money supply. The “money MULTIPLIER” is 1/RRR. (The smaller the RRR, the bigger the multiplier.)

The reserve ratio is one of many tools that central banks can use to manage the money supply and maintain stability in the economy. Lowering the reserve ratio increases the amount of money banks can lend, leading to an increase in the money supply, which stimulates economic activity, and vice versa.

The central banks that have historically used reserve ratios more actively as a tool for monetary policy include China, India, Brazil and Argentina. 

(The clue is in the name. The Federal Reserve System, the US central bank, gets its name from its role in regulating the reserve requirements of US banks.)

💸 Personal Finance Corner

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