Suits and Cybertrucks

Cybertruck 2077

“We dug our own grave with Cybertruck.” It’s not quite “you had me at hello” but I like the honesty. Elon Musk was candid about the company’s new product growth.

“It is going to require immense work to reach production and be cashflow positive at a price that people can afford,” he said of the company’s pickup.

Maybe the DOJ offered him a truth serum before the call? I joke but actually without X we’d not be getting much truth from the normal media channels right now about Israel and Gaza.

Tesla earnings disappointed as revenues dipped below reduced expectations, with shares dipping 4% in the after-hours market, which is not helping futures recover any ground lost in yesterday’s session. Tesla’s third quarter revenue was $23.4bn vs analyst expectations of $24.09bn. Total gross profit declined 22% year-over-year, with net income down to $1.9bn from $3.3bn a year ago. Price cuts are gnawing away at margins – ex-regulatory credits margins slipped to 16.3%, the lowest since 2017 and below forecast. A year ago they were 26.8%.

Hands off the Wheel?

“I am worried about the high interest rate environment we’re in,” Musk added. LOL! There is a genuine question about the impact of rates on profitability etc...some companies only managed to survive in a world of ZIRP. I don’t think Tesla is in that camp exactly, but rates matter.

One more quote. Answering a question about whether Tesla would make Full Self Driving available outside the US, Musk highlighted the regulatory barriers. “Most countries require some sort of extensive approval program,” whilst the US does not. “For most parts of the world, you have to get approval before deploying things [like FSD], whereas in the U.S., you can deploy things at risk or at least you take liability for what you're deploying.” That sounds kind of neat! But also kind of worrying – so did he admit that there is no way FSD would get approved in any other country? Less neat and more scary perhaps? We know the myriad of crashes and problems, but does Musk face charges?

Ok, just one more – work from home has “some real Marie Antoinette vibes”. Look we had cake in the office yesterday Elon, so I don’t know what you mean…

Quite in contrast to Tesla, Netflix jumped almost 13% in after-hours trading as its password sharing crackdown yielded fruit – 9mn new subs vs 6mn expected, totalling 11% more than this time last year. Price hikes for the US, UK and France also buoyed sentiment. ‘Suits’ broke viewing records after being licensed by NBCUniversal – 1bn views! I bet I can guess which episodes and scenes got the most rewinds too - absolutely nothing to do with raunchy bits featuring the future Duchess of Sussex I am absolutely sure!!

Is Higher for Longer Officially Here?

And so it begins: A future British government should raise the Bank of England's inflation target from 2% to 3% to give it more room for manoeuvre during economic downturns. So says the Resolution Foundation. We know it’s coming, I’ve been saying for years now that CBs will either explicitly or implicitly need to accept they are not going back to 2% - it’s just going to be fun to watch the change slowly take shape. The report argues it would ideally need to be done in coordination with other central banks – no really?! They also say that the BoE would first need to get back to 2%...too late guys it’s not happening. The West – Fed, BoE, ECB, RBA, RBNZ, BOC are preparing for higher inflation, higher rates and higher fiscal deficits. War is inflationary.

Bonds Talk, Equities Walk

Stocks slumped as Treasury yields surged to the fresh highs, with the US 10yr approaching the psychologically important 5% mark and the 2yr hitting 5.25%. The Nasdaq slumped 1.62%, the S&P 500 fell 1.34%, and in Europe the FTSE 100, CAC and DAX all declined by around 1% for the session on Wednesday. Look like bond market is in charge this morning still - we are seeing European indices extending losses in early trade as investors face twin threats of geopolitical risks and rising yields.

Meanwhile in central bank land, the Fed’s Williams said “we need to keep this restrictive stance of policy in place for some time”. Fed’s Waller said

"The data in the past few months has been overwhelmingly positive for both of the FOMC’s goals of maximum employment and stable prices…While I tend to be an optimist, things are looking a little too good to be true, so it makes me think that something’s gotta give."

If the scenario for the economy is line with Sep projections than last hike won’t be needed.

Blood and Oil

Oil pushed up to a two-week high yesterday but trades softer this morning with WTI futures pulling back around some Fib resistance at $88.50. Gold extended gains to its best since August yesterday, likewise pulling back this morning.

Finally, 'The first casualty, when war comes, is truth'. To wit, the mind-numbingly dumb people parrot the Hamas line on the hospital blast without stopping for one moment to think whether it’s true. As I said yesterday, a good historian looking at sources always asks ‘cui bono?’. Who benefits from this? Israel stood a big fat 0 to benefit from striking a hospital. Hamas stood to gain a lot.