Market Morning: Virgin Rocket, Blain Bashes Tesla, Softbank Bails on Wag, Banks Fret on Repo

Market Morning

Virgin Galactic Explodes Higher On Space Flight Hopes

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Virgin Galactic (NYSE:SPCE) shares are rocketing back into space, or at least to a $9.66 handle at time of writing, on the back of a Morgan Stanley (NYSE:MS) report predicting that shares could climb to $60 if the company executes its business goals. Basically, it wants to become a travel company, flying people across the world through the exosphere rather than through the stratosphere. It is unclear if this is doable or economical at all, but it’s got people excited so they’re buying. “…a chance to disrupt the multi-trillion-dollar airline market is what is really likely to drive the upside,” said the report. The stock is still way down from its IPO price of $10.14, and the Morgan Stanley analyst who wrote it admitted that the stock is a biotech-type risk.

Bill Blain Bashes Tesla, Musk, For Not Being Deserving of Respect

Bill Blain, the famed strategist at Shard Capital, doesn’t like Tesla (NASDAQ:TSLA) or Elon Musk’s leadership style. He thinks the 2020’s are going to be about fundamentals, and less about flashy tech-based futurism led by flamboyant tweeters. “I don’t want to hold an investment in a firm run by someone like Elon Musk. The next 10 years are not going to be about Unicorn Hype — it will be back to fundamentals,” he said. He went on to Bash Elon Musk’s erratic personality and propensity to get himself into needless spats over ‘pedo’ spelunkers. “Musk is a product of our age. Entitled, arrogant, unbelievably rich and powerful, he reckons normal rules don’t apply to him,” he wrote on Monday. “I don’t give a toss if he is a visionary, a great engineer, or whatever baloney he claims. In my opinion, such a man is not fit to run a major firm and is not deserving of our respect.”

Softbank Bails on Dog-Walking Outfit New Wag

The Softbank (OTCQB:SFTBF) is the tail that wags the dog, or is it the other way around? Softbank is cutting the leash between itself and New Wag, which it has already invested $300 million into. New Wag CEO Garrett Smallwood was congenial about the severing, saying that New Wag was “amicably parting ways with SoftBank.” That means Softbank will be off the New Wag board and selling its stake in the company. Wag was unable to keep up with competition, went through layoffs, management changes, shuttered customer service hubs and other cutbacks. It was unable to expand globally into the dog-walking empire it aspired to become. Wag is now cutting more jobs in an effort to “align our organization with the needs of our business,” which is corporate-speak for “We’re spending way too much money and not making enough and we’re running out of generous backers to make up the difference.”

Wall Street Bankers Fret About Bonuses Because of Repo Market Troubles

Will Wall Street bankers get big bonuses this year? Some fear for their yearly reward as market volatility may hit earnings. This, even though the S&P 500, Dow, and Nasdaq are all near all time highs. That’s not high enough to calm worries of the banks though. “Bonus,” though, may be a misleading term, as these payments typically account for about a third of the remuneration for employees that get them. Amazingly, the uncertainty appears to be stemming from overnight lending operations by the end of the year, and the possible ripple effects it might have on other markets. This is why the big banks haven’t divvied up the bonus allocations yet. That’s quite a phenomenal reason for holding off on committing to these payments. Let’s see what the future holds in the overnight lending markets.

Branching from that topic, if the repo markets do go haywire by the end of the year, the Federal Reserve will have to ramp up overnight operations even more, which now total about $100 billion a day at various maturities. A seizing up of overnight lending could send gold (NYSEARCA:GLD) rocketing higher since it would signal the possible restart of QE4 proper, which is money printing outside the context of overnight operations.

Speaking of QE4…

Credit Suisse (NYSE:CS) thinks it could start by the end of the year, which is, like, 3 weeks from now. Talk about a turnaround from predicting rate hikes in 2019. Analyst Zoltan Pozsar believes reserves in the banking system remain insufficient at $1.35 trillion or so. More is needed. Regulatory burdens on the megabanks are “shaping up to be a severe binding constraint,” towards overnight lending according to Pozsar, the same regulatory burdens created to pad the balance sheets of megabanks. It’s a snake eating its own tail.

On that note, the Federal Open Market Committee is meeting today and is not expected to do anything besides provide guidance about what it thinks about the economy. Pozsar doesn’t think much of the Fed’s opinion though and pooh-poohed it, instead saying that “If we’re right about funding stresses, the Fed will be doing ‘QE4’ by year-end…Year-end in the swap market is thus shaping up to be the worst in recent memory, and the markets are not pricing any of this,” he told clients.


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