Slope of Hope Blog Posts

Slope initially began as a blog, so this is where most of the website’s content resides. Here we have tens of thousands of posts dating back over a decade. These are listed in reverse chronological order. Click on any category icon below to see posts tagged with that particular subject, or click on a word in the category cloud on the right side of the screen for more specific choices.

Tesla S&P 500 Pop

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Tesla stock has finally been tapped for S&P 500 inclusion, and investors have been buying it up as a result. The shares got another boost today in the form of a major upgrade from analysts at Morgan Stanley, who have shifted to Overweight after keeping them below that for over three years.

Many investors bought Tesla stock because inclusion in the S&P 500 means numerous funds that track the index will be forced to buy it when it’s added. Tesla stock officially gets inclusion in the S&P 500 next month. Many thought it would be added in September at the last rebalancing, but the committee passed it over at the time.

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Central Banks Keep Buying Gold

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The world’s central banks have been buying gold for years, and that trend could drive the price up over $2,000 next year, according to some experts. The problem is the ever-growing pile of public debt, which could be exacerbated by inflation next year.

Noble Gold founder and CEO Collin Plume told ValueWalk in an email that central banks will have to bear to brunt of “government generosity” by covering the costs of the many stimulus packages that have subsidized workers and businesses that couldn’t function during the lockdowns. However, that money will still need to be paid back, which causes three major challenges for central banks.

“They are all struggling with these issues simultaneously, and so borrowing amongst each other is not an option” Plume said. “Unemployment and bankruptcies will mean less tax revenue coming in to balance the books, and inflationary pressures are almost inevitable given the colossal figures involved. All of these realities will likely push prices for everyday household items higher (along with interest rates as well) at a time when people can least afford them – leading to recessionary fears down the line.”

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No China Growth Story For Tesla

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We remain short the biggest bubble in modern stock market history, Tesla Inc. (TSLA), which currently has a fully diluted market cap of approximately $429 billion, which is nearly 90% of those of Toyota, VW, GM, Daimler, BMW and Ford combined despite unprofitably selling fewer than 500,000 cars a year to their nearly 40 million. The core points of our Tesla short thesis are:

  • Tesla has no “moat” of any kind; i.e., nothing meaningfully proprietary in terms of electric car technology, while existing automakers—unlike Tesla­—have a decades-long “experience moat” of knowing how to mass-produce, distribute and service high-quality cars consistently and profitably, as well as the ability to subsidize losses on electric cars with profits from their conventional cars.
  • Excluding sunsetting emission credit sales, in 2020 Tesla will again lose money, as it has every year in its 17-year existence.
  • Unit demand for Tesla’s cars is only maintained via continual price cutting.
  • Elon Musk is a pathological liar who under the terms of his SEC settlement cannot deny having committed securities fraud.
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Negative Sales Growth Emerges

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A much larger volume of filings last week lifted the 3rd quarter financial statement update to about 33% complete. Still too early to make any macro measurements but anecdotally we are seeing a large frequency of rising gross and operating profit margins at companies with negative and falling sales growth. That is the opposite of the last quarter when profit margins fell very broadly. We suggested back in July that layoffs were being delayed but this has now become reality as shown in the recent financial reporting.

Companies are beginning to assess the longer term now as it looks like businesses will be disrupted for an extended period. A higher gross profit margin for a negative sales company means that costs are dropping at a faster rate than sales. That is layoffs of production labor are imminent. Similarly, the only way for costs to decline when sales are negative is to layoff salespeople, administrators, and management.

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Exp World Holdings

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White Diamond noted that eXp’s stock price has surged more than 400% since mid-May, carrying its market capitalization to $3.3 billion. The company’s closest peers are ReMax and Realogy, which have market caps of $630 million and $1.1 billion, respectively. eXp’s gross profit last year was $84 million, compared to Realogy’s $1.1 billion and ReMax’s $210 million.

The White Diamond team said eXp’s recent rally was driven by a rapid increase in its agent growth and promotion of Virbela, the company’s virtual reality remote meeting program. They praised the company’s agent recruiting system but noted some drawbacks, like the generous commission structure, which is good for the agent but bad for the company. Further, the structure is a multi-level marketing structure.

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