What I’m Thinking… About the Tesla Shorts and Shari vs. ‘Succession’

Hello and welcome back to Dry Powder.

Thanks as always for being a subscriber to Puck, our new media company covering the intersection of Wall Street, Washington, Silicon Valley, and Hollywood.

Today, I'm opening my notebook and responding to industry questions about what's really happening on Wall Street, including, among other things, the import of Glenn Youngkin's private equity-fueled victory in Virginia; the irony of Elon Musk's move to unload Tesla stock; and what Succession gets right about the Sumner and Murdoch family dynastic drama.

The Agony of the Tesla Shorts, the P.E. Revolving Door, and Shari vs. Succession

Regarding the most pressing questions on Wall Street and in my inbox.

WILLIAM D. COHAN

Each week, I receive feedback from readers and sources about Wall Street’s biggest characters and concerns. I’ll be engaging with some of those questions here—in addition to a few observations of my own.

Bill, you’re familiar with all the big private equity guys. What are they thinking after one of their own, former Carlyle Group co-C.E.O. Glenn Youngkin, won the governor’s mansion in Virginia?

The truth is this is not anything particularly new. The Wall Street crowd has long been making the pilgrimage into government once they have made their loot. Right off the top of my head, I can think of Mitt Romney, a founder of Bain Capital who was governor of Massachusetts and then the 2012 Republican presidential nominee. Jon Corzine, the former senior partner at Goldman Sachs, was the governor of New Jersey and a U.S. Senator from New Jersey. His former Goldman partner, Phil Murphy, just squeaked by in his re-election bid as New Jersey governor.

Illinois has had a thing for private-equity guys turned politicians, too. Bruce Rauner, the co-founder of Golder Thoma Rauner, was the Illinois governor from 2015 to 2019 and the current governor, Jay Pritzker, is a co-founder of the Pritzker Group, a family investment firm. Heck, we even had a president—Donald Trump—who, fair to say, ran his own private investment firm—whether well or poorly is open to debate.

And Wall Street types have been filling cabinet positions, White House staff positions, and other government positions for decades. The surprising thing to me about Youngkin, who I had never heard of before he briefly became co-C.E.O. of Carlyle, was how much money he seems to have made from working there. According to Forbes, Youngkin has amassed a fortune of $470 million, some of which he used to finance his campaign for governor. Wowza.

The Independent research firm New Constructs suggests that Tesla is overvalued by… $1 trillion. Would love your thoughts, Bill.

This really isn’t up for debate anymore, is it? Tesla’s valuation is totally out of control. The company’s stock price is certainly overvalued. But whether it is overvalued by $1 trillion—meaning it should be valued at $200 billion, rather than $1.2 trillion—is a matter of nuance.

There is no reason on the face of the earth that Tesla, which makes most of its money selling carbon credits, not cars, should be worth more than the entire automotive industry combined. Elon Musk could buy all of GE’s stock himself, and still have more than $200 billion left over. Does the word insanity mean anything to anybody anymore? Musk himself has acknowledged repeatedly that Tesla is almost certainly overvalued. (“What am I supposed to do?” he asked Kara Swisher in September. “I’m not the one making it go up.”) On Saturday, he tweeted a poll asking his Twitter followers whether he should sell 10 percent of his stock, ostensibly to pay more tax, but also, conveniently, after Tesla’s market valuation jumped more than 50 percent in the past month. I think Musk’s tweet is a way to give him cover to allow him to sell Tesla stock without causing the stock price to crater. After all, how would it look if he suddenly decided to sell 10 percent of Tesla unannounced?

The irony of the Tesla stock is not only that it is catastrophically overvalued; it also can’t be bet against by short sellers unless they are willing to risk their net worths and their careers. Musk has utterly vanquished the investors who have been betting against him for years, so that option is out. To paraphrase de Gaulle, who said the “graveyards are filled with indispensable men,” the graveyards are filled with investors who bet that Tesla was overvalued, including the latest victim, Michael Burry, of The Big Short fame, so ya know. How does this story end, other than in tears? I’ll be back later this week with some answers to that question.

You were a consultant for the first season of Succession. How would you compare the Roy dynamics to other media dynasties of our age: the Murdochs, the Redstones, etc.?

As Succession’s creator Jesse Armstrong has said, the show is fictional but draws its inspiration from real-life families such as the Murdochs and the Redstones. There certainly are elements of both families in the Roys. The on-again, off-again relationship between Shiv and Logan reminds me of the on-again, off-again relationship between Sumner Redstone and Shari Redstone. It will be interesting to see if in Succession, Jesse and the other writers draw further inspiration from Shari’s real-life narrative of taking back control of her father’s affairs from his two girlfriends as his health was failing. And from her ability to take control of CBS and Viacom after years of Sumner saying, à la Logan and Kendall Roy, that he didn’t want her to be his successor.

Succession also clearly draws from the Murdoch family drama as well, especially as it relates to James Murdoch breaking away from the family and doing his own thing. Of course, there is no clear comparison between James Murdoch and Kendall Roy; in his estrangement, James Murdoch has been almost diplomatic in his restraint but—spoiler alert—Kendall has been anything but restrained in his estrangement. A recent Journal article also references real-life disputes between family members over the strategic direction of the family business. That seems to be less of a narrative point in Succession; the Roys never seem to spend much time talking about the actual business of Waystar Royco.

But in the vein of family disputes, I am reminded of the story of how Steve Schwarzman wanted to expand his father’s single-location drapery and linen store beyond the outskirts of Philadelphia, to turn it into an early version of Bed, Bath and Beyond. His father didn’t want to expand and Steve moved on and now, thanks to Blackstone, is worth $41 billion. So, sometimes, things work out for the best.

The Dow Jones Industrial average finally crossed 36,000—fulfilling James Glassman’s famed stock market prediction, just two decades late. Any pearls of wisdom, from someone who was working on the Street at the time?

I remember when Glassman made that prediction. It was utterly outlandish at the time and pretty much universally dismissed on Wall Street. In fact, if you had said that in the past five years, the Dow Jones Industrial Average would more than double to 36,000 from where it was, at 17,000, on the night of Trump’s election, I think people would have said you were smoking something. Most prognosticators predicted that Trump’s election would send the stock markets spiraling downward.

That did not happen of course, of course, driven in large part by Trump’s gift to corporations to cut their tax rate to 21 percent, from 35 percent. The result? With the stroke of a pen, reported corporate profits increased virtually overnight. Given the correlation between corporate profits and stock prices—at least for most companies —it’s no surprise the stock market has exploded. Then, when the Federal Reserve reignited Quantitative Easing in March and April 2020, the markets took that rocket fuel and kept rising and rising, finally giving Glassman his well deserved victory lap.

But, let’s be honest, this is all getting more than a bit ridiculous at this point. We’re now in “stage 6” of George Soros’ “boom-bust” cycle framework: “People continue to play the game even though they no longer believe in it.”

That's all for now. I'll be back in your inbox later this week with more Dry Powder.

Bill

Have a question you’d like answered in the next edition? Email us at fritz@puck.news.