"If I played in New York, they'd name a candy bar after me." -- Reggie Jackson
As you rip that ugly grape you call a head away from your beckoning pillow this Monday morning, West Texas Intermediate crude oil is lifting its ugly head above the $70-per-barrel level. This is the first time since 2014 that WTI has traded this high, and it comes despite gains the U.S. dollar is making Monday against its peers.
Some say geopolitical concerns no longer plague financial markets the way they used to. They say that we've become "calloused." Well, those folks don't follow oil too closely.
The 2015 waiver on sanctions that a number of nations granted Iran as part of a deal covering Tehran's nuclear activities appears to be withering on the vine, as expiration looms this Saturday. President Donald Trump isn't expected to extend the waiver and is more likely to instead reimpose sanctions, at least from America. Not only would this reduce Iranian oil's flow into international markets, but it would also potentially restrict crude transport in and around the Persian Gulf.
So, expect a volatile week for oil as far as this headline risk is concerned. Not only will crude prices react to any change in room temperature as far as tensions with Iran are concerned, but currency valuations caused by domestic or foreign factors will likely impact oil as well.
I still prefer oil-services stocks for the long term, hence my longs in Halliburton (HAL) and Schlumberger (SLB) . But for now, I sure am glad that I hung on to my shares of exploration-and-production giant ExxonMobil (XOM) after that name sold off following earnings two weeks ago.
Remember the Reggie Bar?
We had heard rumblings for several weeks now, and on Saturday, Berkshire Hathaway (BRK.A) (BRK.B) officially announced the firm's first quarterly net loss in nine years, blaming accounting-rule changes. However, Berkshire's operating earnings looked better, posting at $5.288 billion vs. $3.556 billion in 2017's first quarter.
The firm held its legendary annual shareholders' meeting over the weekend, and of course, CEO Warren Buffett and Vice Chairman Charlie Munger were the stars of the show. But this year, not only were the firm's holdings like Apple (AAPL) and Wells Fargo (WFC) a focus, but so was the very idea of succession at the firm. If you'll recall, Berkshire promoted both Greg Abel and Ajit Jain to the vice-chair level earlier this year. They now run much of the company's day-to-day business.
Now, while investors should have been focusing on Saturday's Berkshire meeting (or on Jim Cramer's Boot Camp for Investors in New York). it was once again Elon Musk's seemingly never-ending thirst for attention that made the headlines. During his recent, odd earnings call for his company Tesla (TSLA) , Musk referred to business moats as "lame," saying that if "your only defense against invading armies is a moat, you will not last long."
For those just joining us, in business a moat is a competitive advantage created by ownership of a strong brand name that discourages entry into the firm's markets. Buffett has made a career of investing in firms with "moats" -- think Apple, Coca-Cola (KO) , Kraft Heinz (KHC) , Burlington Northern Santa Fe or See's Candy.
Buffett countered Musk's remarks on Saturday at Berkshire's annual meeting, saying: "Elon may turn things upside down in some areas. I don't think he'd want to take us on in [See's] candy." But Musk quickly made like President Trump and tweeted back: "Then I'm going to build a moat & fill it w candy. Warren B. will not be able to resist investing! Berkshire Hathaway kryptonite ... I'm super super serious."
Musk also tweeted: "I'm starting a candy company & it's going to be amazing." That's probably as good an idea as Musk's recent decision to sell flamethrowers to the public.
So, I Might Just Buy Some Tesla
Do I think this is just something of a publicity stunt on Musk's part? Of course -- and who would really care if he started a candy company anyway?
What traders do appear to care about is Tesla's outlook after last week's erratic earnings-call performance by Musk. According to Barron's, short interest in Tesla topped 40 million shares Thursday, and then short-sellers tacked on another half-a-million shares or so on Friday.
That means there's currently more than $11 billion of short interest in the name -- a lot of dough, gang. An absolute ton. Barron's also quoted Ihor Dusaniwsky of analytics firm S3 Partners as saying that with not all Tesla shares in stock-lending programs, that leaves a mere 6.5 million TSLA shares available for additional shorting.
I noted last week (and discussed at Cramer's event on Saturday) that I tried to short Tesla ahead of Musk's earnings call last week and got a "hard-to-borrow" message from my broker. That prompted me to cancel my order, as I didn't care to wonder for possibly hours whether I had entered a valid order or not.
I probably would have made some $30 a share on that position as an overnight rental if my order had gone through in a timely fashion. That said, I'm now considering Tesla as a candidate for a small long position.
Yes, TSLA needs to ramp up production, could require a capital infusion and might even have to consider diluting its shares. And yes, there are many sound fundamental reasons to expect Tesla to see a very large reduction in valuation.
But there's also potential buy interest of more than 40 million shares worth more than $11 billion out there from the stock's short-sellers, who might have to buy TSLA in a hurry on any chunky spike in its price (i.e., a short squeeze).
How do you price that in? I truly hate to bet on a stock I dislike, but with the ability to short the name drying up, that removes sell interest at the same time that built-in buy interest from short-sellers is peaking. A short squeeze could come before the fall -- and by "before the fall," I don't mean "before the autumn," but before the fall of Tesla. So, I might just buy a few shares of TSLA to try this theory out. I'm super, super serious, gang.
Economics (All Times Eastern)
08:25 -- Fed Speaker: Atlanta Fed President Raphael Bostic.
14:00 -- Fed Speaker: Richmond Fed President Tom Barkin.
15:00 - Consumer Credit (March): Expecting $16.1 billion, last reading $10.6 billion.
15:30 - Fed Speaker: Dallas Fed President Robert Kaplan.
15:30 - Fed Speaker: Chicago Fed President Charles Evans.
Today's Earnings Highlights (Consensus EPS Expectations)
Before the open: GCI (.03), SRE (1.62), SYY (.63), TSN (1.31)
After the close: CBT (.99), HTZ (-1.27), IFF (1.60), TREX (1.19), ZG (.06)