How Elon Musk Moves Markets
on the religion of meme, option market dynamics, and technoptimism
Last time, it was unhappiness, short-termism, and speculation. This time, its’s meme markets, meaning, and religion. A quick piece on the fragility of meme markets.
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Meaning vs Truth and the Religion of Meme
“The need of reason is not inspired by the quest for truth but by the quest for meaning. And truth and meaning are not the same” - Hannah Arendt
Life is undoubtedly absurd - the tails of the distribution are becoming more and more chaotic, and the shape of the curve becoming bimodal. It’s hard to keep up with everything, and of course, to attach meaning to what is happening. Often times, there feels like there isn’t meaning, or that maybe none of this matters after all - because as Arendt wrote, “truth and meaning are not the same”.
When we rationalize, we seek meaning - and we don’t always reconcile that with pure capital-T Truth. Meaning is much more fluid, much more subjective, and it’s almost meaningless to seek meaning (!!!! i know!!!!) because we end up molding the world “in the world given by our five senses; there we are and no questions asked" - we create our own meaning.
We often conflate truth and meaning. People think that there has to be a certain truth about Tesla and Musk - but there isn’t. Elon constructs the meaning.
The Elon situation is quite simple, really. There are a few layers to his thinking (he is Grandmaster Elon, of course). I think the broad Tesla equation boils down into
TeslaGoUp = MemeMusk(MarketDynamics + Technoptimism)
MemeMusk = Marketing + Fervor + Fans + Game
MarketDynamics = Options Market Structure + Passive Flows + Elon’s Compensation Plan
Technoptimism = Hope + Failed Leadership
The Religion of the Meme
We saw this with AMC and GME - market mechanics were in place to cause a huge gamma squeeze, but even months and months after the run-up, you have people saying things like #AMCArmy and #AMCstrong and #AMCtothemoon.
There is really no difference between these people and the framework of a cult - which sounds alarming at first, but the definition of a cult is:
And Tesla falls a bit into this category too - there is a religious fervor around Tesla, Elon, and the world that he has built. The meme complex is strong.
And Musk perfectly plays into this - he knows how to meme, he is a meme - he is entertaining, and as he himself said, the most entertaining outcome is the most likely. There are a few technical factors fueling him, but overwhelmingingly - the man has manifested billions and billions of dollars through being Lorde Edge.
So he is going to make himself as entertaining as possible to make himself the most likely outcome.
The Dynamics of the Market
There are a few structural components behind the Tesla meme market phenomenon.
I wrote a little about this in the Volmaggedon piece with Simplify ETFs, but the main thing here is that Vanguard, Fidelity, et al - the passive bro-flows, if you will - are going to keep on buying Tesla stock. That ultimately gives the stock a floor and enables it to keep going up - because Vanguard will buy Tesla at $1,000 per share, but they will also buy Tesla at $2,000 $3,000 bc that is what they do.
More here: “Vanguard essentially dollar-cost-averages themselves into every single stock every month - “oh wow, the market is extremely overvalued? We still have to buy.” (they literally do have to buy because of fund mandates)”
They never stop buying: Tesla directly benefits from the 401k accounts that hold the S&P 500, of which Tesla is now in top ten largest companies after increasing several billion in market cap over the past month
Options market structure
Kris did an excellent job explaining the underlying mechanics of the Tesla options market (I highly suggest that you read it). There are many key points to apply why Tesla goes up the way that it does:
Everyone is yolo’ing calls on TSLA - “Even if call options are the right expression of a bullish bet on a liquidity spiral, you still need to estimate what the options should be worth.”
Reliance on Inflows into TSLA - “The buyers of these options need to win. For them to win, either the sellers of the options need to lose OR the folks selling TSLA shares need to lose (which is another way of saying the stock needs to continue going up). So the stock requires more inflows OR the options need to be systematically too cheap.”
Entertainment Value Income into TSLA - “To find new people to FOMO into it requires more premium thrown away. The only way to maintain the squeeze forever cleanly is through straight delta. If done via options, you need path and disposable "entertainment value income"(from bauhiniacapital)
So essentially to make all of this work, it requires people to continue to yolo calls, to expect the share price to continue to increase, and for there to be enough money for all of this to continue working (aka people need cash to throw into stocks)
As Kris concludes:
Musk’s focus on vesting:
Musk has ~$27.4bn in options expiring in 9 months, which will require ~$15bn in cash to execute upon.
2012 Stock Compensation Plan: Musk has ~22mn shares that can be exercised at $6.24 before Aug 13 2022 - with the stock trading at $1,100, he’s going to want to capture that $28bn upside.
He is receiving all this money because he met all the goals that they set back in 2012 - he achieved the car sales, he achieved the market cap, he did it all! Talk to me about incentives
He’s probably also prepping for a share split with the current discourse
But now he has to find $143mn in order to execute the options, and another $14.5bn in order to pay his 53% tax rate on the $28bn in income. He will exercise over the next two quarters so he can cash out in time - and he is cash poor, so all of this boils down into “How Get Money to Pay Taxes (sell shares)”
2018 CEO Performance Award: This will happen again (which isn’t a big deal, he should be able to sell).
101.3 million stock options on 12 milestone based tranches - in order for this one to work, Tesla’s market cap will have to get to $650bn - which he has achieved, of course. Once again, the incentives.
The only reason he wanted to do a Twitter poll was to get people behind him selling stock, which he was likely already going to do
So with the market dynamics part of the Tesla equation, we have this perfect storm:
Continuous passive inflows that will buy Tesla stock at absolutely any price which makes stock go up
A weird options market that literally requires that stock go up
A compensation plan that incentives Musk to make stock go up (most CEOs have this, but his is extra juicy)
All of this results in stock go up.
The Memefication of Musk
Elon has always been meme’ing.
The Marketing: Tesla has a $zero$ marketing budget - and this is primarily because Elon is their vector for marketing.
Normie guy vibes: When you see Elon, it sometimes feels like “He’s a billionaire, and he is just like me, and maybe one day I can be just like him”. To be able to relate to customers is a huge growth hack.
The Fervor: He knows how to get the people talking - and a twitter poll for the seemingly random allocation of $20bn (more money than 99% of the population will see in their entire lives) is something to talk about
The Fans: When he tweeted about taking Tesla private at $420 (the stock is now at $1,200 for context on that) he said he would “ensure prosperity in any scenario” for Tesla hodlers - he has fans, and the fans care about him. That’s huge for any company - if your customers love you, you’re teflon (telon?)
People broadly think that him tweeting about selling $20bn of his own stock was “gangster” or was somehow him defying the overarching governmental structure - but it wasn’t.
But it’s once again - “Elon sticking up for the little guy!”
Also that he is creating a buying opportunity for *them* while also bringing the short sellers to their knees
The Game: Elon is very very good at playing the game. He’s very good at making other people play the game alongside him - but no one else can keep up because he pushes the envelope so much. Like you just can’t compete with this - Musk knows he is insulated, and he plays the game as such.
Elon feels like the leader of a Last Great Hope. A lot of our discourse is around what we can’t do - because of regulation, whatever. He breaks those barriers down.
We Crave Hope: Elon has done a really great job at getting people aligned his missions — sending people to Mars, building a tunnel underneath the ground, sticking stuff into our brain — people are like “yes dude this is IT”
Tbh, the real world is a bummer sometimes, and people like Elon make it exciting and hopeful. If he believes that we can have a better future, we probably will right?
Lack of Leadership: Our leaders haven’t done a great job recently - someone like Elon can fill that gap and help to fuel innovation and hope, which is net-net pretty cool
The Wolves in Yellowstone
There is an element of calibration that meme markets require.
I probably read into each and every situation far too deeply, the bane of Kyla as an investor truly - but as Albert Camus writes in his book, “Lyrical and Critical Essays” -
Accepting the absurdity of everything around us is one step, a necessary experience: it should not become a dead end. It arouses a revolt that can become fruitful. An analysis of the idea of revolt could help us to discover ideas capable of restoring a relative meaning to existence, although a meaning that would always be in danger.
I do think Elon is just having fun. Why wouldn’t you troll millions if you could? A lot of what people do boils down into - why not?
Elon might be playing chess, he might just be trolling (he’s probably just trolling).
Elon is sort of like a wolf in Yellowstone park (kind of). There used to be a lot of wolves in Yellowstone, but people started killing them. The elk population began to rise, and the park fell apart, because the elk were eating everything. The park then tried to kill the elk, but that didn’t work - then coyotes came and killed the pronghorn antelopes.
Things fell apart because one thing was removed from the natural ecosystem.
They brought the wolves back eventually.
Guy Admani made a really interesting comparison to short sellers and the wolves - and with Elon, we sort of need to have these trolls, the people making the markets moves, or else the meme facade cannot keep up.
If Elon isn’t in the market, maybe the bull run would stop. He’s the ecosystem at this point.
So this isn’t even about him playing chess with everyone - this is about the entire chess board being supported by all these different variables. The different wolves supporting Yellowstone, like Elon. If one piece falls, the entire board gets wiped.
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