Comment by johnbarron
6 days ago
At 25:48 you have the explanation for the (multiple) tricks: https://youtu.be/8rS3fTbC7TE?t=1548
This Musk guy makes Ponzi look like the Pope.You almost have to admire it the way you admire a raccoon breaking into a triple locked trash can at 2 AM. You are furious. You know you should be furious. But part of you is at the window wondering "how did he do that?". As you will see below, this raccoon is getting the trash can manufacturer to remove the lock for him first.
This is how retail investors are about to get played by the SpaceX IPO:
First they only release 5% to 10% to create an artificially inflated price. Its called the low float strategy...
Also...the Nasdaq 100 inclusion is supposed to be earned. You list, trade for up to a year at least, prove you are stable and then maybe you might be selected for inclusion. That rule protects the millions of people whose retirement money is in index funds.
But Musk told Nasdaq "fast-track me or I list on NYSE... so the Nasdaq invented a "Fast Entry" rule out of thin air....15 trading days and you are in. They openly admitted it was designed for SpaceX. S&P is now considering the same thing for the S&P 500, which has around $24 trillion in assets tracking it.
Why does this matter? The second SpaceX hits these indexes, every passive fund is forced to buy, your 401k, your Vanguard fund, your target date fund. All buying SpaceX at whatever inflated price it opens at, with zero public track record. Nobody asks you.
With the index inclusion and the implication of massive institutional liquidity you have a clean exit for the insiders. After lockup expires, Musk and early investors dump the artificiality rarefied shares (it seems only 5% to 10%) into a pool of demand that was artificially created by forced passive buying.
Your retirement money is their exit liquidity. Madoff went to prison for funneling new investor money to pay old investors. This is funneling passive investor money to inflate the price so insiders can cash out.And the exchange itself is rewriting the rules to make it happen.
Not saying anything positive about Musk, but what is the expected IPO price (I’m more curious about the alleged market cap)? If this scheme allows them to IPO at a valuation of $10T, I would be upset. If the valuation was something like $500B to $1T, that actually seems somewhat reasonable and likely to return value long-term as they are the clear leaders of space (for the time being at least).
The saving grace of the SP500 and most similar indexes is that they are cap-weighted. So if SpaceX only, floats 5% only that 5% of their capitalization counts for index calculation.
The Nasdaq100 is more complicated. SpaceX's 5% would be counted as about 25% of their total market cap for indexing.
It's worse than that, because S&P500 and Nasdaq100 share stocks. Like all of the MAG7 stocks. So if mag7 stocks dip because they're being structurally sold to buy SpaceX, then the S&P500 goes down too.
Arguably even worse because at least Nasdaq100 would have SpaceX in it that's getting bid up to offset the losses in other stocks. S&P won't have SpaceX right away. So it just goes down.
And the more those stocks go down, the lower their market cap - which means next rebalancing date they potentially get re-weighted again causing a bit more selling, etc. Presumably the companies that can will counter this with more buy-backs to keep their share price propped at an acceptable level (?).
Thanks for that. The trajectory of this timeline is beyond disheartening.
From your description it sounds like they could offer SpaceX at a valuation of $10T and be able to still sell because every passive fund is automatically forced to buy it. But obviously they need to target a price range that will be more or less stable, otherwise even in 15 days the price will free fall anyway. The only question is whether 15 days is enough to find a stable price or not, I agree it sounds rushed.
> This Musk guy makes Ponzi look like the Pope
I don't get it. He owns some of the companies out right and has no problem securing financing. Who is he screwing over?
> First they only release 5% to 10% to create an artificially inflated price. Its called the low float strategy...
Why would you float more than you reasonably would need. What's the upside of saying "we're worth X" due to a low float? Doesn't really buy you anything. And financiers are not stupid. Much the same way you can't create a shitcoin, sell one share to your buddy and convince a bank to lend you based on the "full" market cap
> the Nasdaq 100 inclusion is supposed to be earned. You list, trade for up to a year at least, prove you are stable and then maybe you might be selected for inclusion
Not really. Nasdaq and all indexes are supposed to serve as an index of largest companies in the country. It's not a prize that you have to "earn". Not including this company would be activism and against their mission.
> But Musk told Nasdaq "fast-track me or I list on NYSE... so the Nasdaq invented a "Fast Entry" rule out of thin air..
Yeah, it's called competition. You have a choice of where to list. This is how a healthy competitive environment works. Again, who is being harmed? Why is there a "Slow Entry"? No justification for bureaucratic hoop jumping.
> Why does this matter? The second SpaceX hits these indexes, every passive fund is forced to buy, your 401k, your Vanguard fund, your target date fund. All buying SpaceX at whatever inflated price it opens at, with zero public track record. Nobody asks you.
You found a cheat code! Create a company that's generating ~15b in revenue, has a >50% profit margin and ~50% revenue annual growth rate. Now you get to list your stock publicly, let the exchanges compete for your listing considering very few public large companies grow anywhere close to that, and force large indexes to buy you because, by this point you created one of the most valuable companies in the world!
15B in revenue is less than what AirPods sell in 6 months.
It's less revenue than Spotify.
It's nowhere near what should be necessary for a company to be "one one the most valuable companies in the world."
Elon knows this. He knows that the 1.5 T "valuation" is nonsense. The market for space launches is quite simply not that big. How many more Starlinks does the world need? What would you do if I gifted you a satellite?
The SpaceX valuation is predicted on hype for scientifically & economically illiterate ideas like "data centers in space."
Elon knows this. He knows that these indexing rules are the only way to keep the hype going and avoid a space-WeWork failed IPO.
Agree that 15b in revenue is not a lot. Finance has always been about future growth with majority of companies value well out into the future. And this company is growing at around 50% and has insane margins. They dominate their space with overwhelming majority of global launches. So a high multiple is justified imo
Yeah, you’ve shown it’s great to be a billionaire. Slow-clap. What you’re conveniently skirting around is all the little people’s retirement savings being transferred to the billionaires by artificially forcing the price high.
I would think Fidelity, Vanguard et al are going to eat Musk for lunch.
It’ll take a decade.
Is that before or after they eat Tesla for lunch?
I think those boomer firms are asleep at the wheel and this kind of market engineering will completely blindside them. Vanguard can't even figure out how to show me my cost basis on the same screen as the one where I sell a security. What could they possibly be doing to prepare for this?
All of that could be true, but since there has been no SpaceX IPO, it seems a bit early for outrage.