Sep 19, 2013

Tesla, Taper, Solider, Spy

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TSLA

I was stopped out of my TSLA short today, and so I can relate to the rather dark humor of the below video. I realized that TSLA was never a “good short” as the cognoscenti would define it. The company sports a very astute, if not demi-god like CEO as well as a fantastic product. So while it is priced for perfection, it is not inconceivable that the firm will go on to imitate the success of say Apple. My new motto might be; never short a company whose product you’d actually want to buy (if I had the money).

My thesis was, as Solon said to Croesus,

“For the uncertain future has yet to come, with every possible variety of fortune; and him only to whom the divinity has continued happiness unto the end we call happy….”

Taper

Alas the divinity came for me first and one might reasonably argue that said deity was none other than the Ben Bernanke (whose beard is fit for an ancient bust). In deigning not to taper, he return the proverbial punchbowl that has kept markets climbing ever higher. A few hours subsequent to the rally in rates and sell off in USD I initiated long positions in $CAD (1.0218), $YEN (98.10 already closed at a profit) and shorted June Eurodollar futures (99.62). My thinking is that while we have been granted a reprise from Fed tinkering for now, the powers on high remain committed to making the market understand that this extraordinary accommodation will not go on forever and it is therefore only a matter of time before the markets begin itching in anticipation of the end to easy money (relatively speaking).

 Pandora (P)

Another position that has been less than favored by the gods is my short of Pandora Media (P). The simple truth is that when I realized Pandora not only made less than $0.00 dollars over the past 10 years and would soon have direct competition from Apple in the form of ITunes radio, which features a wider selection and a cheaper price tag – I initiated a large short position at $24.00 per share. The next morning the company announced that it would be raising additional equity and to the tune of 10 million shares, and my position was plagued by a case of what looks a lot like reflexivity. Apparently the market was so enthused by the company’s decision to raise capital at such a lofty valuation that it merited the stock rising 14% over the next two days.

This hurt and I’ve realized that my original thesis was a touch too simplistic. Pandora has two things going for it. The first, they are available on non-apple products. This alone will ensure that they don’t drop dead from the equal or superior product being offered by Apple. The second is that they could actually be a decently profitable business, if their cost of product wasn’t so high. This cost disadvantage is due to the comparatively high royalty rates they have to pay. Terrestrial and satellite radio’s royalty rates are much lower than Pandora’s and though I have seen no indication that this is going to change – if they could strike a deal similar to the one Apple has – Pandora might be a worthwhile investment. I’ll have to do some more research before I decide to eat the loss or ride this one out.

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