The Red Wave And Shorting Musk

One of my favorite films of all time is The Big Short. My sixth sense tells me it's time to short Elon Musk, and at the end of yesterday's post, I began to muse on how his kids (who apparently owe him very little) might lock in their inheritance in the event he dies a pauper. Of those, one died in infancy, and another, Vivian, changed their name based on "gender identity and the fact that I no longer live with or wish to be related to my biological father in any way, shape or form." This would make Vivian an unlikely candidate for the strategy I have in mind.

But if the others can get their act together, they need to approach Dad in a body and propose jointly that each has a reasonable expectation of $xx,xxx,xxx inheritance at the time of Dad's demise. (Among other things, they would need to engage serious financial analysts as well as estate attorneys in determining this amount.) However, given Dad's recent record, there appears to be a significant chance that instead of leaving a massive estate, he will die a pauper. Thus they have an interest in locking in shares of the current value of his estate.

I wish my late father-in-law, an insurance CEO, were still around to advise me on this -- but even before he left us, he announced that now that he was retired, he had no intention of ever discussing insurance again. So that option's out. Nevertheless, my wife and I both worked for insurance companies, so we have some background in how this might be done.

In brief, assuming the remaining eight children can agree, what they need to do is persuade Dad to buy eight separate single-payment annuities that would pay each the specified $xx,xxx,xxx on Dad's death. The purchase price of each annuity would be actuarially determined by the age of each child at the time of purchase, as well as the insurer's calculation of Dad's likely lifespan and its ability to turn the purchase payment into the final amount, plus profit and the cost of administration. That's my idea of how the kids can short their father, which it sounds as though they'd be inclined to do.

This eliminates the risk that Elon dies a pauper and ensures that their inheritance is paid by an insurance company, not the estate. Remember that effectively, the guy just went long on Twitter, and the Twitter board quite early in the game realized Elon had handed them an unbelievable deal on the basis that he thought it was potentially a going concern. Darn right they sued to make him go through with it!

I'm a little bit surprised that nobody has recognized this. After two weeks of chaos at Twitter, there are still people who think Elon will change the whole world by eliminating blue check marks or something. Just this morning, Glenn Reynolds, who's supposed to be a smart guy, posted:

ANALYSIS: TRUE. Elon Musk is not a national security threat — TikTok is: Joe Biden is focusing on the wrong social media giant.

But Tik Tok isn’t a threat to the Democrats, and Elon Musk is.

Elon Musk is a clown. Remarkably few people in the public forum are coming to this realization -- far more are now discounting Donald Trump. An exception is Alex Berenson, a COVID and vaccine skeptic whose views are being vindicated on a daily basis. I think he has the right call on Musk as well:

[I]n January 2021, Musk and I were chatting (over Twitter, inevitably) about the worsening threat to free speech. Twitter had just banned Donald Trump.

. . . “Buy Twitter and put it in a blind trust,” I suggested. “Or make it a public benefit corporation committed to free speech first.”

“Not feasible,” Musk replied. He had other priorities - notably importing human consciousness into robots and putting humans on Mars. Plus he had two huge companies, Tesla and SpaceX, to run - and what might be called an active social life to boot.

. . . But at some point in late 2021 or early 2022, Musk must have realized buying Twitter would give him chance to reach entirely new heights of societal influence. Let other billionaires have their own football teams or superyachts or private islands.

Musk would have his own social media company, used by hundreds of millions of people every day. He would put himself, in the words of Tour de France, “hors categorie” -beyond categorization.

Buying Twitter would also give Musk a good excuse to sell tens of billions of dollars in Tesla stock at extraordinary prices.

Berenson then argues, obliquely, that Musk's 10-year Tesla options were about to expire, but absent any other reason to exercise them, it could be taken as evidence that he was going to cash out of Tesla as the stock peaked. In effect, he needed an excuse to sell Tesla stock without appearing to short himself as an insider. So along came Twitter and the chance to sell Tesla to buy Twitter. But right now, this deal is looking like a loser. He bought Twitter to cash out his Tesla profits, but Twitter immediately crashes? Smart move, that! I'm not completely sure Berenson fully understands this even now. Nevertheless, he raises a key point:

[E]ven before Musk bought Twitter, he’d shown warning signs he might not be the First Amendment absolutist those of us who had faced social media censorship in the last several years had hoped.

Through Tesla, he was deeply tied to China, which has used advanced technology to crack down on dissent more effectively than any other country. He had also aggressively chased would-be whistleblowers at Tesla, in one case forcing one to repay the company $400,000 for “leaking confidential information to a reporter.” His SpaceX launches American military satellites, among the most highly classified programs in the United States military.

Carl Benjamin, an often insightful UK commentator, ventures a question in this YouTube discussion: up to now, Twitter has almost never been profitable, but influential capital has nevertheless continued to fund it. Its ability to control public dialogue and the width of the Overton window has apparently been worth the investment.

The best we can say at the moment is that Musk has no clear view of where to take Twitter, especially in its current perceived position as an arbiter of acceptable views, but there is absolutely no assurance that Musk can somehow change the world by making changes there.

Any more than anyone thought there was going to be a red wave last Tuesday.