Hello, welcome to “The Superhighway of Finance”. From last week, the main topic discussed in various fields by the global media is the impact and implications brought by the return of Trump to these areas, and the economic field is the most discussed among them. Therefore, we are no exception. Today, let’s delve into several related topics.
Today’s focus: Why can’t the CCP’s 10 trillion debt match the former 4 trillion? Short sellers lose $5.2 billion, Tesla stocks soar after Trump’s victory! The Trump effect intensifies, questioning whether the Fed will continue to cut interest rates! What is the truth behind Buffett’s massive sale of Apple?
Firstly, with Trump’s victory, some are happy while others are worried. We won’t talk about those who are happy, and let’s talk about a group of people who are worried – those who shorted Tesla betting on Trump not being elected.
Since Trump won the election, due to Musk’s spectacular performance during the election, hedge funds persisting in shorting Tesla (TSLA.US) have lost billions of dollars. According to data calculated by S3 Partners, from Election Day last week to the closing on Friday, hedge funds shorting Tesla faced paper losses of at least $5.2 billion.
Per Lekander, CEO of hedge fund management company Clean Energy Transition, said: “We were slightly short on Tesla before the election. Because we reduced our position significantly, our losses were ultimately quite small. But he also admitted: “We did indeed lose some money.”
On the day after the election, Tesla’s stock price surged nearly 30%, increasing its market value by over $200 billion, breaking through the trillion-dollar mark. Musk’s net worth also exceeded $300 billion, securing his position as the world’s richest person.
It has been proven that Tesla is a risky stock for short sellers. Despite the electric vehicle industry facing unfavorable factors such as trade tensions, subdued consumer demand, and increased competition. In July this year, nearly one-fifth of hedge funds tracked by Hazeltree were short on Tesla, but after Trump’s landslide victory, hedge funds were caught off guard.
Of course, things are not that simple. Although Musk played a significant role in this election, Trump’s attitude towards the electric vehicle industry is not friendly. He has long stated his intention to eliminate government subsidies for electric vehicles, which is unfavorable for Tesla.
Some analysts also point out that Musk is now a bridge between the US tech industry and Washington, and many of the future US government’s policies towards big tech companies will be influenced by Musk. As for how much influence Musk can exert within the Trump administration in the future, and in what areas, remains to be seen.
Continuing with Musk, let’s talk about the “Stock God”, Buffett. Since the beginning of this year, Buffett has been selling off Apple’s stock in large quantities. It is worth noting that Buffett himself has stated: Apple is the most profitable investment in his investment history. Therefore, it is quite surprising for people to see the Stock God mercilessly sell off this golden stock that brought him wealth.
Two days before the election on November 2, Berkshire released its financial report which showed the company continued to reduce its holdings of Apple stock in the third quarter, bringing in a cash profit of $97 billion for the company. Currently, Berkshire has a massive cash reserve of $325 billion, accounting for approximately 28% of the company’s asset value.
Many speculate about the Stock God’s motives. Some analysts believe that Buffett is actually following his consistent investment principle, which is that when a company’s price-earnings ratio is relatively high and no longer matches its potential earnings growth, it is time to dispose of it.
At the end of October, Apple announced its fiscal fourth-quarter earnings for 2024, showing a 6% year-over-year revenue growth, reaching $95 billion. This growth was mainly driven by the iPhone 16 and the lucrative software services segment, with software service revenue for the entire fiscal year reaching $96 billion.
Despite strong growth in the fourth quarter, Apple’s revenue remains subdued compared to several other large tech companies, which have achieved more stable and rapid revenue growth in recent years. Perhaps it was this slowdown in revenue growth that led Buffett to significantly reduce his Apple holdings.
Another risk that may be circulating in Buffett’s mind is the antitrust lawsuits against Google and Apple. Alphabet, Google’s parent company, pays Apple about $20 billion annually to make Google search the default search engine on Apple devices. Currently, the court has ruled against Google, and although Google is seeking an appeal, if the final ruling is unfavorable to these companies, Apple could instantly lose $20 billion in annual profit, which accounts for one-sixth of Apple’s $123 billion profit this year.
On the second day after Trump’s victory in the election, Federal Reserve Chairman Powell announced another interest rate cut of 0.25%.
During the meeting, a journalist asked: Will Trump, who has returned to the presidency, fire Federal Reserve Chairman Powell?
In response, Powell firmly stated that he would not resign, and the president does not have the authority to dismiss him!
So, what is the grudge between Trump and Powell? Why would Trump want to sack him immediately upon taking office?
The origins of their discord trace back to Trump’s previous term. In 2017, Trump nominated Powell to succeed Yellen as Chairman of the Federal Reserve, giving him high praise at the time.
However, by 2018, Powell began to implement rate hikes despite Trump’s opposition, causing their relationship to deteriorate rapidly. Trump wanted to keep market interest rates low to maximize the impact of his tax cuts, but Powell did not cooperate.
Therefore, Trump is very dissatisfied with the Federal Reserve. Upon his return to the White House, it is highly likely that Powell will be replaced immediately.
Alright, this is not what I wanted to talk about. Today, I wanted to delve into what exactly this interest rate, involved in raising or lowering rates, really is. Stay tuned for the next segment.