#12 Daily Financial News Round Up - Nov 12,2021
Market Snapshot
Dow Jones is up by 0.50%, S&P500 is up by 0.72%, and Nasdaq Composite is up by 1.00%.
How’s crypto-market?
Bitcoin is down by 0.66%. It continues to be all RED in the cryptomarkets. OmiseGO, XRP and Decentraland emerge as the new top three cryptocurrencies in the last 24 hours this week.
What news caught my attention?
Elon Musk further sold shares roughly worth $687 million. This latest sale brings up the percentage of shares sold by Musk to around 3%. To make good his Twitter pledge, he still needs to sell about 7% or roughly 12 million additional shares.
Musk's Twitter announcement seems like a ploy to reduce share price. Why? This scenario is an excellent illustration of what Economists like to call tension. The tension arises because Musk's benefit from a higher share price or a lower share price is a priori ambiguous. A higher share price will result in higher wealth post stock sale. On the other hand, higher wealth on stock sale will also result in higher taxes due to capital gains tax. The amount of potential tax one has to pay might act as a deterrent to selling stocks in the first place. That has been the case with Musk until recently. Now, with the upcoming billionaire's tax, holding stocks does not seem attractive anymore.
It's well established empirically and theoretically that insiders' intention to sell is always interpreted as a negative signal leading to a drop in share price. For this reason, the timing of the Twitter poll looks pretty suspicious. We now know that Musk had filed his sale plan two months before the Twitter poll. Tesla's share prices fell 13% after the Twitter poll. Based on this evidence, I surmise that the only purpose of the Twitter poll was to reduce the share price. Not to democratize the stock sale decision as it was initially considered to be.
De-conglomerisation seems to be the new trend. GE following in the footsteps of Siemens AG announced it will split its operations into three public companies. Now, Johnson & Johnson and Toshiba join the list of companies splitting their operations. J&J plans to break its consumer business from its pharmaceutical unit. Toshiba also plans to split its operations into three units.
My Takeaways:
The role of the Twitter poll was to reduce share price. Elon Musk hates paying taxes, as is evident from his opposition to the billionaire’s tax. In Musk’s defence, who loves paying taxes?!
Is the era of conglomerations over? Did the economists get it wrong about economies of scale? I am leaving you with more questions than answers. Let me go back to my books to do some more reading ;)