Citrix Systems (CTXS) has benefited from the Nasdaq's record rise, as CTXS shares finished trading yesterday at $113.76, giving the company a market capitalization of $14.8 billion. Citrix has 8,200 employees, generated revenue of $2.5 billion last year, and has existed since 2000. Solid company, probably overpriced at 5.5x trailing sales, but what isn't in this market?
I didn't select Citrix because of its positioning in networking or cloud potential and execution of transformative business practices. I selected Citrix because its market cap is equal to the dollar amount of Tesla (TSLA) shares traded yesterday. That's right, in one trading session, Tesla managed to move "a Citrix" worth of economic value. Most of that volume was on the upside as Musk's machine hit a valuation of $88 billion in midday trading, but just focusing on the final stats -- $491.87, up 4.85% --gives zero informative value.
I watched every Tesla trade yesterday for the final 1.5 hours of trading, and made solid profits for my trading venture, Excelsior Capital Partners, by buying put options in the high $490's and selling item in the low-$490's. That's a one-day strategy...what will happen today?
To answer that question, one would need a knowledge of how Tesla shares rocketed from $178 last May to a high of $496 yesterday. Certainly the raging Nasdaq helped, as it has done for Citrix, especially since Tesla had been a major laggard of the tech-heavy index from mid-2014 to mid-2019. But there's no "mid-" any more. It's now "early" 2020, and Musk has convinced the world that his goal of world domination has been achieved.
I could sit here and kvetch about the praise heaped on Musk for opening Gigafactory 3 in Lingang, China in 12 months when Volkswagen (VLKAF) opened its all-BEV facility in Anting in the same time period (ground break late-October 2018/Job 1 November 2019), but this is not the time for sour grapes. VW will be making models of its ID.3 model in Anting at an annual rate double Tesla's LIngang capacity (300,000 vs. 150,000.) Unlike the mercurial Musk, however, VW is currently producing prototypes on its modular MEB electric car platform at Anting ahead of a broad launch in October rather than salable units.
That says it all.
This market wants instant gratification, and Musk is the best at providing that. So, that is what has fed the frenzy in Tesla's stock. I doubt there are any short-sellers brave enough to bet against Musk in this environment, but if there are, yesterday's volume of >30 million shares traded likely shook them out. That chunk is about 20% of Tesla's float, and probably closer to a third of the real amount of TSLA shares available for trading, given that some long-term holders -- in addition to Elon Musk who controls about 20% -- are not active day-to-day sellers.
So, that's where psychology comes in. Tesla is in the midst of a Minsky rally. I have mentioned the work of the late Dr. Hyman Minsky several times in my RM column, but his descriptions of one way markets -- inevitably fated for a crash -- are very true in today's markets.
Tesla's "beat" on fourth quarter deliveries obscured the fact that its U.S. volumes have been trending downward. The company doesn't break out sales by geography, but I believe Tesla's U.S. unit volume was down year-on-year in the Q4. The market's superficial response also ignores the fact that, as published registrations data show, the normally ignorable country of the Netherlands accounted for an astounding 15% of Tesla's global vehicle deliveries in the fourth quarter.
Holland's subsidies on EVs -- especially expensive ones like Tesla's Model 3 -- were essentially eliminated on January 1st, leading to that inevitable pull-ahead of sales of Teslas into the fourth quarter. Tesla likely benefited from such pull-ahead in the U.S. as well, as my figuring shows the expiration of the $1,875 federal tax credit on Teslas on December 31st resulted in increased U.S. demand. So Tesla's already lackluster domestic 4Q2019 sales (the exact figures live in my model since they are not publicly released) would have been downright ugly without the tax credit pull-ahead. But, three cheers for the Dutch!
Does anybody care about these facts? Or the fact that overall EV sales plunged at least 30% in China in the fourth quarter following a mid-year halving of subsidies there? In the midst of an insane rally, no. People with no grasp of the fundamentals would rather yell "buy, buy, buy" on the television.
Price movements that aren't backed up by fundamentals inevitably lead to Minsky Moments. By my figuring half to the Tesla shares trading in the market today have been purchased at levels above $450. What happens if there is even one piece of negative information to interrupt Musk's -- literal -- victory dance? That's when Dr. Minsky comes in. Minsky moments are never pleasant for those who own risky assets during them.
