The Hardest Shorts in the World
Amazon would seem to be an easy short. It doesn’t make any money. Don’t companies have to make money?
You would think so. I attempted this trade, shorting Amazon, back in 2012–2013… unsuccessfully. I was adamant that companies had to make money. I was wrong—but I didn’t understand why. At least I managed not to get my head blown off.
People also like to short Tesla, which also doesn’t make any money. It looks like it never will. Sure, Tesla is a bit of a cult stock: it’s hard not to root for a guy who builds actual spaceships and solar panels and runs three companies at the same time. But the Tesla shorts will also get carried out, for the same reason the Amazon shorts did.
I’ll give you a hint: it has to do with interest rates.
For both of these companies, the cost of capital is effectively zero. Would you be buying TSLA converts yielding 2.375% with a high strike if fed funds were 6%?
You would not.
More at: http://www.mauldineconomics.com/the-10th-man/the-long-term-effects-of-negative-real-interest-rates
Justin Urbas Blog 