Elon’s Gambit

  • [Young founder] Elon Musk, Scotiabank and crypto
  • The Nasdaq’s no good, very bad month
  • Inflation and the bare necessities of life
  • Zach Scheidt on one evasive maneuver (inflation)
  • Ray Blanco: “Microsoft is firing on all cylinders”
  • Jackassery is the mother of invention?

“Please don’t share news or information with me about Reid Hoffman, Peter Thiel [or] Elon Musk,” was Jimmy Soni’s plea to friends, family and colleagues while he was writing his most recent book, The Founders: The Story of PayPal and the Entrepreneurs Who Shaped Silicon Valley.

One reason for the radio silence?

“I didn’t want to pollute my understanding of the people they were before they were the 2021 and 2022 versions [of themselves],” he says.

But under current circumstances, Mr. Soni would have to make his abode under a rock in order to avoid news coverage of that last tech “founder” listed above: Elon Musk.

“But if you are mainlining SNL,” Mr. Soni says, that’s not the Elon he’s interested in

In fact, his book zooms in on “a young Elon Musk from the moment he arrives in North America” in the late 1980s. And one of his first gambits was “cold calling” former adviser to the prime minister of Canada Dr. Peter Nicholson for an internship at Bank of Nova Scotia.

Dr. Nicholson became Musk’s mentor (and remains so to this day). “At one point Elon recognizes that there’s some opportunity with bad Latin American debt that the bank has… Essentially, [they’re] going to have all of this debt that is valueless suddenly,” Mr. Soni notes. “And you’ve got the U.S. government, the IMF, the U.N. and others participating in a series of fixes… to make sure these governments don’t collapse.”

On the table? A Brady bond proposal whereby sovereign debt securities — denominated in U.S. dollars — are issued by developing countries and backed by U.S. Treasuries. “Elon recognizes this toxic debt is going to have more value in the future than it does now by virtue of the fact that it’s backed by the U.S. government,” Soni says. “And so he tries to encourage his superiors at the bank to aggressively buy more of this debt.

“It’s an interesting moment because you have this young person who has no real experience” who believes “it’s a risk worth taking.” The upshot? Scotiabank’s CEO at the time passed on the opportunity. Soni says: “In the long arc of history, [Musk] was right.”

The upshot for Musk personally?

“For Elon, the lesson was that banks are unwilling to take big risks and they’re unwilling to innovate.” Which is a throughline to one of Musk’s early business ventures, the company which would become PayPal, and beyond…

“Crypto is a really good example,” says Mr. Soni. “When I spoke to Elon about money, his line — it’s in the book — is ‘Money is an information system.’”

Soni adds: “Think about the… latency and the friction within our existing money system we’ve all experienced.” For instance: “You’ve received a wire transfer and you get like a $25 fee, and you ask yourself at some point: ‘Wait, why am I paying for this? What exactly did the bank do other than move a few ones and zeros from Point A to Point B?’

“[Musk’s] view at that time and now was the internet and digital technology have made it possible to move ones and zeros [at] very low cost. So why are bank customers paying so much in fees? That was actually one of the big [ideas] behind X.com” — aka PayPal’s precursor — “a big war on fees.

“And you could tie that to some of the ambitions of the modern cryptocurrency movement,” he concludes.

Mr. Soni adds: “Is it maybe more fun or satisfying to believe that these entrepreneurs” — including Musk — “are sort of shadowy mustache-twirling super villains? Sure.

“Is it less satisfying trying to think of them as people coding and creating technology? Yes… but it’s the truth,” he says.

what makes...

To wit, The 5’s founding editor Addison Wiggin just put out an episode of The Wiggin Sessions with Jimmy Soni who interviewed Musk face-to-face for his book The Founders.

Addison was interested in what makes the techno-billionaire tick. You probably are too. Check out the discussion right here.

As we approach the end of April, the Nasdaq is having its worst month since March 2020… 2008.

So far today, the tech-dragged index is down 2.15% to 12,595. It might have something to do with Amazon’s Q1 earnings report yesterday, indicating the company’s revenue dropped about $4 billion from the same quarter last year. The company’s forward guidance was pessimistic for next quarter too. Thus, AMZN shares have plunged almost 14% at the time of writing.

On the other hand, Apple reported an impressive earnings beat with revenue up almost 9% year over year, but the company warns of supply-chain drawdowns for the rest of 2022. In light of the good news-bad news scenario, Apple shares are down about 3%.

The other major U.S. stock indexes? The Dow and S&P 500 are both in the red, down 2.15% and 1.25% respectively. Meanwhile, on the commodities beat, oil’s churning around $106 for a barrel of WTI. And while gold is up 1.10% to $1,912.30 per ounce, silver is barely hanging on to $23.

As if in sympathy with the Nasdaq… Bitcoin is down 3.4% to $38,685, and Ethereum is getting clobbered, down 4.4% to $2,825 at the time of writing.

For the major economic number of the day, the Commerce Department issued its personal income and outlays report.

Personal incomes grew ever so slightly more than anticipated in March, up 0.5%, but consumer spending expanded significantly more than the consensus (+0.6%) — up 1.1% over February’s number.

The big number in this report is “core PCE” — the Federal Reserve’s preferred measure of inflation. It’s now running 5.2% year over year, down infinitesimally since February.

Of course, that figure is radically understated, stripping out, as it does, some of the bare necessities of life: food and energy costs.

“Inflation continues to be a major problem that we’re going to be talking about for months (if not years),” says our retirement-and-income specialist Zach Scheidt.

“But some companies are helping to reduce inflation — and are booking large profits at the same time,” he adds.

Today’s “inflation-busting” stock? “The company I want to introduce to you today is Cleveland-Cliffs Inc. (CLF), an all-American steel company operating in the heart of the American Rust Belt.

“Shares of CLF jumped higher [last week] after the company released a very strong earnings report,” Zach continues. For the first quarter of 2022, the company earned $1.71 per share, well above the $1.44 that Wall Street was expecting.

“So what drove such a strong jump in profits? Cleveland-Cliffs’ business actually benefits from inflation. And I’m impressed with the way the company is building long-term profits into its business expectations for many quarters to come.

“On one side of its business… Cleveland-Cliffs is the largest supplier of steel to the U.S. automotive industry,” Zach says.

“Demand for new cars is extremely high, and companies like Ford, GM and even Tesla are pushing as many cars through their factories as possible.

“And that means car manufacturers need to buy steel… a lot of steel! Meanwhile, now that Russian steel is largely off the global market, there’s a lot less steel available.” So steel shortages alongside high demand mean higher prices…

“CLF will continue to receive premium prices for steel it delivers to key customers, which should keep the company’s sales high for quite some time,” Zach notes. “Of course, high sales only help when companies can keep their costs under control. Which brings me to another key CLF strength…

“While many of CLF’s competitors are scrambling to find affordable iron ore” — a necessary material for steel manufacturing — “CLF has a huge advantage,” says Zach.

“Cleveland-Cliffs has access to some of the best local mines for iron ore situated very close to the Great Lakes region,” he says. “Since CLF doesn’t have to import iron ore from overseas or find another source, the company can keep costs relatively stable.

“And lest you think we’re late to the party on this one, keep in mind that CLF can move substantially higher when the company’s business is working well. Just look at CLF’s long-term stock chart…

image

Source: Rich Retirement Letter

“CLF hit a high near $120 back in 2008 when investors were worried about potential inflation following the Fed’s response to the financial crisis,” says Zach. “I don’t know if CLF will get back to $120. But even covering half of that ground would still give you a great return from today’s level ($26.50).

“Consider adding this ‘inflation buster’ to your investment account today,” Zach concludes, “to grow your wealth and give you the resources to enjoy the things that are important to you and your family.”

“Microsoft reported fiscal third-quarter earnings earlier this week and posted a nice Wall Street beat!” says our tech-stock expert Ray Blanco.

“The Redmond, Washington, tech giant was expected to generate $49.05 billion in earnings and exceeded that handily at $49.36 billion. Earnings also surprised to the upside, surpassing Wall Street expectations of $2.19 per share by coming in at $2.22 per share.

“What’s even better, Microsoft is firing on all cylinders, with all of its products and services generating strong growth. The company’s shining star, however, is its cloud services segment, led by the Azure cloud computing platform, which grew 46% year over year.

“As for Microsoft itself, the company is uniquely resistant to inflationary pressures,” Ray says. “Unlike other products that require physical inputs, its software is infinitely replicable once coded and compiled. It doesn’t cost much more to distribute 100 million pieces of software than it does to sell 1 million.”

Microsoft’s long-term opportunities? CEO Satya Nadella believes “spending on technology will double as a percentage of GDP by the end of the decade. He intends for Microsoft to stay competitive and keep driving its share of that massive tech growth.

“But despite the stellar report,” Ray cautions, “the market remains bearish on tech.

“Usually, selling starts with smaller companies in the space and eventually spreads even to the big profitable ones like Microsoft. We’ve seen that play out over the past six months,” he says.

“For our Microsoft recommendation,” investors being bearish on tech, “gives the chance to accumulate shares of one of the world’s best tech companies at cheap prices.”

To Ray’s way of thinking: “Microsoft is still a great buy as the company executes its growth plans.”

[Update] On Wednesday, both houses of Tennessee’s legislature voted to eliminate sales taxes on precious metals.

With Gov. Bill Lee’s signature, the Volunteer State will become the 42nd state with no — or conditional — taxes levied against the sale of “all coins, currency and bullion” made of “gold, silver, platinum, palladium or other material.”

“Backed by the Sound Money Defense League, Money Metals Exchange and grassroots activists and coin dealers in Tennessee, the new law will allow Tennessee investors, savers and small businesses to acquire precious metals without being slapped with sales and use taxes which, including local taxes, have ranged from 8.5–9.75%,” says CoinWeek.

Similar bills are under consideration in Kentucky, Mississippi, Hawaii and New Jersey.

“You noted the British startup Zelp designing a device to ‘save the planet’ from greenhouse gasses…

“You quoted the London Telegraph: ‘The device sits around the animal’s head and captures methane emitted when it exhales. The gas travels through a microsized catalytic converter, and it is released into the atmosphere as carbon dioxide and water vapor.’

zelp

Image courtesy: Zelp

“I thought carbon dioxide was greenhouse gas public enemy No. 1? Aren’t we constantly inundated with a barrage of curbing carbon emissions to ‘save the planet’ rhetoric? Seems to me it’s an expensive ‘solution’ exchanging one ‘greenhouse gas’ for another.

“They aren’t even trying to hide the global warming racket anymore — it’s blatantly in our faces. How farcical the whole thing is. Shows what little regard they have for us. But hey, as long as they can keep the ‘climate crisis’ up, the money will keep flowing to pet projects and special interests… with generous ‘donations’ in return, of course.

“What’s next, human versions? (After all, they’ve already seen how compliant people are to masking; seems like a logical next step to me!)”

The 5: That the cow mask won the “Sustainable Markets Initiative” award truly boggles the mind. Particularly since the mask — which had to have started as a bit of jackassery, right? — is neither sustainable nor marketable.

And our reader hit the nail on the head… According to the EPA: “In 2020, CO2 accounted for about 79% of all U.S. greenhouse gas emissions.” Meaning livestock-leaking methane gas must be a miniscule greenhouse-gas contributor.

Finally on the subject, a longtime reader comments: “Okaaay, what about the gas that comes out the other end?”

On that note, enjoy the weekend… Take care!

Best regards,

Emily Clancy
The 5 Min. Forecast

Emily Clancy

Emily Clancy

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