Tuesday, August 18, 2020

The Biggest Heist of All Time: Tesla Will Probably Join the S&P 500

An exchange on Twitter a couple of weeks ago with @walt373 and @irbezek:

It was never clear what Musk's exit strategy was for the massive Tesla fraud, but now it is in view. He figured out how to hack indexation and leave a worthless $500 billion turd in the passive investing punch bowl.

Horizon Kinetics has been writing about indexation flaws for a long time. But what would ever “break” indexation? I think it may very well be scammers figuring out that they can loot the index funds, which have abdicated judgment and stewardship of what they own.

It looks like the tools to get in the S&P 500 are accounting fraud (to generate four quarters of profit) and call buying gamma squeezes (to get a big enough market capitalization).

Some Tesla skeptics think that the S&P 500 selection committee can be talked out of adding Tesla to the index. I doubt it. The market cap is now $350 billion and growing. What are they going to do, not have a top ten (by market cap) company in the index? To exclude it on the basis of skepticism or suspicion would be an active choice of security selection. It would imply that the market could be hugely inefficient, that the entire philosophical predicate of indexation was wrong!

No, the whole philosophy of the S&P 500 index is one of freeloading: the active participants in the market are supposed to set prices, which passive investors can then take as fair. So if the market says that Tesla is worth $350 billion, that is not something for index investors generally or the S&P committee to second guess.


Anonymous said...

Bubble in Tesla share price is a bit tough to overlook.

But the SP committee might take a look at Tesla and wonder if "just maybe" it has deliberately gamed its GAAP earnings specifically for SP500 inclusion.

I think that could be a legitimate reason to hold off on inclusion, or at least for another quarter or three just to see how earnings shake out.

Anonymous said...

I don't think they'll hold off.

Remember also that someone on the inclusion committee might have a Tesla (in which Musk could be recording everything they do and say while driving) or might have gotten an invitation to a Tesla tent at Burning Man.

Keef Wivanef said...

Just too whompy for words.

Allan Folz said...

For those that don't mind sitting through podcasts, this TeslaCharts podcast details the Longfin scam, which was an egregious case of foreign nationals using ETFs to dump a pump into.

ETF (and gamma squeeze!) part of the scam starts at ~29 min.

Anonymous said...

Suntech was an attempted pump and dump.


It seems like what they (Suntech and one of its creditors) wanted to do was regain the NYSE listing after the bankruptcy and fold a bunch of other Chinese solar garbage into it.