Essentially what has probably happened is they (other longs) have decided that market making for Tesla is a very good business indeed. Notwithstanding the fact that they are up on realized pnl of $1 billion + on Tesla alone, and have significant stakes in Space X, besides Elon Musk and the US taxpayers, only Fidelity has as much to lose if Tesla goes belly up. Musk just has to not fk it up.
But what does fk it up mean these days? It was recently reported that Uber lost $1 billion dollars a quarter in 2017 and has similar valuation to Tesla. Could it be that the folks at Fidelity find losing $1 billion dollars a quarter palatable? I believe given the ambitions of Tesla and SpaceX combined, this has to be the case.
What however to me is even more likely and disturbing is that Fidelity sets the price whenever it wants to, and essentially captures the markets makers vig from the volatility in Tesla’s stock. This is because Tesla’s share float is tight, and Fidelity, outside of signaling theory, as a few levers it can pull. Without going out and trying to prove all this, an impossible task since one would need access and signal proofing, which on the latter can be perfectly legitimate form of trading, we can easily say that the company has multiple funds, the ability to call back shares it lends to its prime brokers, and the ability to buy options through products so aptly named as the OTC fund. Now, why would they want to do this? Doesn’t it all seem a little elaborate you say?
Absolutely not in fact. In fact, part of my reason for doing this blog was to plumb the depth of my imagination. When I curse at mathematicians, it is only because I myself am struggling to understand the mathematical innate beauty of terms such as the E^Pi I+1=0. Also known as Euler’s Identity, which could be restated for instance as E^PiI=-1. Or When one thinks of counting as a sequence of numbers, then one is indelibly drawn to things such as calculus and things such as the Fibonacci series, which begin with and require the first two terms to be stated. The same methodology of viewing sequences leads to the fundamental theorem of arithmetic and other structures in mathematics such as highly. These seemingly odd mathematical numbers, that have structure, makes one being to appreciate why the Square root of 2 was chosen for its proportionality and utility for paper sizes. But mathematical thinking is not as much fun unless it is extended to the areas it can be most utilized. Two of those concern Tesla, Computer science and as John Stuart Mill would say would be political economics. But this is not really itself as enlightening as I would have thought since some people actually express highly complex mathematical logic without ever even saying it as such. One of those individuals is George Soros.
As it turns out, the principal of reflexivity is a far more profound and intuitive than he was every able to explain but he certainly hinted that it was just so. It boils down to this. The seemingly random market participants who have been so discounted by Chicago school economics, with its focus on single equilibrium solutions, is only very vaguely correct. In reality, what Soros implies in respect to markets and politics, is that the market participants are trying to create reality. In essence, they are trying to manipulate this reality.
The question, therefore, can get a bit philosophical as to whether that is right or wrong. it is almost irrelevant because this is what they are doing. So the fraud on the market is to think this isn’t the case. Tesla is a horrible company financially. So what! The same could be said of Amazon that trades at 6 times PEG and god knows what price to book ratio. But one that if it increased it by 10 times, the company would be still trading at 2 times book. So be it, the believers and shapers however of these stocks, in accordance with the principle of reflexivity, are the ones that determine what values that matter. And the way they do that is with there money. As Soros is essentially implying, and what allowed him to break the bank of England, is that the one with the biggest checkbook, which could be viewed in more ways than mere fund size, one thing such as connections and financial innovation are taking to accord, gets to say. Everyone else is just on the sidelines watching the “grown ups” make the decisions about, in essence, the future of World history. We can see in their folly that sometimes these masters of the universe, in a very real sense, contribute to making local situations worse, such as they did with Puerto Rico, or perhaps as Singer has done with Argentina, Greece, or has had tried to do in Russia. Indeed, in the time of increasing income inequality, where the median income of the average American family has stayed flat since 2000 while the electric bill as increased 3% on compound basis, or 168% in total over the last eight years, these masters of the universe have gotten even more say in what becomes of the future history of the World. Nonetheless, if Fidelity or Ron Baron thinks that Tesla is good for the World, and by chance they can capture the market makers, Vig, as the Prediction company did, or has Ren Tech, Paul Tudor Jones, DE Shaw, or even Jeff Bezos believes he will do in the real economy, then by all means, they are welcome to it, since those with the money get to talk. For everyone else, the hope has to be that even when they have to be crooked to achieve their vision, they don’t leave their humanity at the door.
To put it another way, I think this time I am finally done. Not because there isn’t more to discover, there always will be, or that I am 100% certain, to borrow a phrase from Popper, one can never be sure since there are only propensities, I have found the structure. The common thread so to speak that has run through all markets at all times. A law so to speak. He who has the money gets to decide…