Markets today were mixed. The Dow eked out a gain of 9 points to close at 22,026 on higher volume while the NASDAQ fell a bit on lower volume. BTS indicators are still positive and the high yield bond market is being supported by a strong economy and low default rates.
Tesla reported earnings and the bottom line is the shorts got hammered like nails at a local Dunn Lumber store. The seedy wharf side bars of New York are littered with guys who have bet against Elon “Rocket Man” Musk! Betting against this guy is like trying to get your picture taken next to a buffalo while vacationing in Yellowstone. Not a good idea! Revenue was up 120% and while Tesla posted a net loss, the thing that really impressed investors was the ramp up in production at the Fremont California factory where all models are made. Musk said that by the end of the year they are on track to be at 5,000 vehicles per week. They did burn through $1.2 billion in cash which was less than expected and some are concerned they will need to raise more cash in 2018.
So what does it mean to “short” a stock? Shorting means you are selling stock that you borrowed from someone else and are not the official owner. You borrow the shares, sell them and collect the cash and hope the stock falls so you can buy it back cheap and keep the difference as profit. It is like borrowing your neighbor’s truck, selling it and then when your neighbor wants it back you have to buy it back hopefully for less than you sold it for. Shorting is made possible thanks to the rules associated with margin accounts. If you have a stock in a margin account it becomes available to be shorted.
Oil prices as of late are trading in a narrow range right around $50 per barrel for WTI crude. The price of oil fell to $45ish but is now moving up a bit and today traded at $49 per barrel. Demand for oil is up a bit but supply is still strong and OPEC seems to be having a hard time keeping a lid on production cuts. I view the energy markets in 4 subgroups being coal, which is in decline, oil, which is flat, natural gas, which is growing and alternative energy (wind, solar) which is growing but still faces challenges with costs and variability. These trends indicate that investing in gas and alternatives will see more upside but oil still remains the dominant fuel of choice but will grow but slowly be replaced by gas and alternative energy.