Fund manager explains why he’s still short Tesla, Ark ETF and Facebook

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  • As of Wednesday’s close, Tesla is up more than 54% in 2021 while Facebook has climbed nearly 25%. The Arc Innovation ETF is down 6.24% year-over-year.
  • Neuhauser argued that the historically high valuation in the tech sector makes it uniquely vulnerable to a “washout or black swan type event”.
  • Famed “The Big Short” investor Michael Bury recently exited short positions on both Tesla and Arc.

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David Neuhauser, chief investment officer at Chicago-based hedge fund Livermore Partners, has defended his short positions in Tesla, Facebook and Kathy Wood’s Arc Innovation ETF, arguing that a downturn in the market could all weaken.

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At the close of Wednesday, Tesla is up more than 54% in 2021, while Facebook, which has recently been rebranded as Meta, has climbed nearly 25%. The Ark Innovation ETF is down 6.24% year-over-year and famed “The Big Short” investor Michael Bury recently exited short positions on both Tesla and Ark.

But speaking to CNBC’s “Squawk Box Europe” on Thursday, when asked if he thinks there’s still money to be made in these short positions, Neuhauser said: “I do.”

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Investors shorting the stock believe it is about to fall; They sell the borrowed shares with the aim of repurchasing them at a reduced price, returning the borrowed shares, and making money on top of that.

Neuhauser argued that although Tesla is the market leader in electric vehicles and its production has been “brilliant” in recent years, competitors such as Rivian are beginning to amass multi-billion dollar valuations despite relatively few vehicles produced.

“It reminds me that there is massive foaming in the market and in specific areas, in specific areas like EVs, I think at some point you are going to see more bearish, and people are going to start feeling some About that pain,” Neuhauser said.

“Historically, when you look at bubbles and speculation, there’s always been a sector or a square that happens to be like the poster child, and it seems like EV to me is one of them.”

He said the broader tech sector includes companies that are seeing valuations at 15 times sales without a “plan to turn a profit”.

These historically high valuations in the tech sector make it uniquely vulnerable to a “washout or black swan type event,” Neuhauser said, due to policy error caused by persistently high inflation.

policy error?

Neuhauser, whose fund is up more than 20% this year, suggested that this “foaminess” in the stock market could be derailed by the Federal Reserve’s “catastrophic policy mistake.”

He argued that inflation is worsening and the Fed is “behind the curve”, while stock markets are being tricked into believing they are in a “Goldilocks” environment with low interest rates and moderate inflation.

However, Neuhauser’s view is not shared by everyone. Economist Carl Weinberg told CNBC on Wednesday that predictors of runaway inflation were “hysterical.” They argued that the breakdown of CPI (Consumer Price Index) data for October showed that price growth was not extending beyond select sectors and did not constitute systemic inflation.

The US CPI on an annualized basis came in at 6.2% in October, the fastest increase in annual inflation for more than thirty years.

Fed Chairman Jerome Powell has also insisted that pulling the trigger on tightening monetary policy too soon would be counter-productive, and maintained that the current spike in inflation is fleeting.

“The early days of stabilization policy in the 1950s taught monetary policymakers not to attempt to offset the potential for temporary fluctuations in inflation,” Powell said at the Fed’s Jackson Hole symposium earlier this year.

“Indeed, the reaction may do more harm than good, especially in an era where policy rates are very close to the effective lower bound even in good times.”

Neuhauser’s view on Tesla is also the opposite. The stock rose after CEO Elon Musk began selling billions of dollars worth of shares in early November, but has since rebounded with many analysts bullish.

“In short, we want Musk to break the band-aid right now and sell this part of the stock quickly, rather than hold it until next year and feed off any non-fundamental bear thesis on the story,” Dan Ives, managing director of equity research at Wedbush Securities, said in a note last week.

“Fundamentally speaking, Tesla remains in pole position to take this EV adoption curve to the next level, both domestically and globally, with Musk & Co. looking to push this $5 trillion green tide over the next decade.” Leading the wave.”

Wedbush holds an “outperform” rating and a $1,100 base case for Tesla stock, with a bull price target of $1,800.

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