🎙️ An Incredible Moment

If you want some (great) weekend reading, Howard Marks dropped another new memo this week titled “Ruminating on Asset Allocation,” which is all about balancing risk in your investment portfolio.

“You can’t simultaneously emphasize both preservation of capital and maximization of growth, or offense and defense,” he writes. “This is the fundamental, inescapable truth in investing.”

Have a great weekend.

— Matthew & Shawn

Here’s today’s rundown:

Today, we'll discuss the biggest stories in markets:

• Hedge fund icon Paul Tudor Jones weighs in on markets

• Tesla’s earnings shine bright

This, and more, in just 5 minutes to read.

Chart(s) of the Day

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In The News

💭 Paul Tudor Jones on Inflation, Gold, Bitcoin, and More

Hedge fund icon Paul Tudor Jones didn’t mince words this week in a wide-ranging conversation with CNBC, saying the U.S. must inflate and outgrow its debt burden. Thus, he has an ideal portfolio mix: owning a basket of gold, bitcoin, and the Nasdaq, while steering clear from fixed income. 

Specifically, he said ballooning U.S. debt is unsustainable, so owning bonds is unwise. Tudor added that he would short fixed income, particularly longer duration paper. The founder and chief investment officer of Tudor Investment also said he was worried that government spending could cause a big sell-off in the bond market, spiking interest rates higher.

• "I think all roads lead to inflation," he said. "I'm long gold, long bitcoin…I think most young people find their inflation hedges via the Nasdaq; that's also been great.”

An incredible moment: Tudor's words mirror those of fellow legendary investor Stanley Druckenmiller, who also recently said he was betting against U.S. government bonds.

• Jones said the U.S. is at an "incredible moment in history," noting that the national debt has risen to over 100% of GDP from just 40% 25 years ago. The next president should deal with the issue, he said, but more government spending could exacerbate the problem.
  

• "We are going to be broke really quick unless we get serious about dealing with our spending issues," he said.

Why it matters:

For investors, the best way to hedge against the situation is to own a "basket of gold, bitcoin, commodities, and Nasdaq, and zero fixed income…Commodities are ridiculously under-owned,” Jones said.

Jones became famous for predicting the 1987 Black Monday stock market crash. The 70-year-old is now worth about $8 billion. 

• He also said the "playbook" for reducing the country's debt-to-GDP ratio is to "inflate your way out."
  

• "You have a small tax on the consumer, and you run interest rates below inflation and nominal growth above inflation," Jones told CNBC.

Jones’ comments come as gold is at all-time highs (up over 30% year-to-date), while bitcoin isn’t too far off from its high of around $73,000. The Nasdaq is up about 26% this year.

Read more

More Headlines

🗣️ Warren Buffett says he doesn’t endorse candidates or investments

📈 Russia’s central bank raises key rate to 21% to rein in high inflation

🍔 What McDonald’s needs to do next after E. coli outbreak

📉 Why Nike, Starbucks, and Boeing have all lost their magic

✈️ American Airlines fined $50 million for mistreating passengers with disabilities

🚗 Tesla Soars to Best Day in 11 Years After Blowout Quarter

Tesla enjoyed its best day in over a decade on Thursday, rising 22% after its blowout third-quarter earnings report. It was the company’s best day since May 2013, effectively erasing the year’s losses. 

• Though Tesla came up short on revenue, it beat expectations for profit and margins. That’s important because its stock performance remains tethered to vehicle margins despite Tesla's position as an AI frontrunner. The numbers tell a stark story: gross profit per vehicle has fallen 60% from $14,400 in Q3 2021 to under $6,000 in Q2 2024.

The culprit? A high interest rate environment forces Tesla to prioritize affordability through aggressive price cuts, promotional financing rates, and lower average selling prices. 

What to know: While Tesla’s Q3 results suggest margins may have found their floor despite continued pricing pressure, the market remains focused on near-term profitability rather than Tesla's ambitious long-term vision of robotaxi fleet deployment, humanoid robotics, and recurring software revenue.

For now, margins—not necessarily future tech potential—continue to drive Tesla's stock price. Shares in Tesla are up about 8% this year vs. the S&P 500’s 23% gain.

Why it matters:

Tesla is one of the more widely owned and closely followed companies today. It has a ~$838 billion market capitalization and a polarizing leader, Elon Musk, who’s always in the news. 

Tesla’s auto gross margin, excluding regulatory credits, reached 17.1%. Musk provided an optimistic forecast for 2025: "Something like 20% to 30% growth next year is my best guess."

Golden carrot: Tesla also reported $326 million in revenue from its Full Self-Driving (FSD) features during the quarter. Tesla also raised its forecast for capital expenditures this year to over $11 billion from over $10 billion. Its energy and store business is on a tear, with reported growth of 50%.

• One analyst said, "Investors who wanted something today got better-than-expected profit and guidance for deliveries. The long-term investors got the golden carrot."
  

• On the less bullish end, an analyst said: “Expectations were low heading into the release after four consecutive bottom-line misses and a Robotaxi Day that left investors with more questions than answers."

New ventures: Tesla plans to launch a ride-hailing app next year in California and Texas, a “profound change” as it evolves from a vehicle company to a tech/AI company. 

“That would be very exciting,” Musk said. “Tesla becomes more than a sort of vehicle and battery manufacturing company at that point.”

Read more

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Quick Poll

On Wednesday, we asked: How do you typically cope with stress related to financial markets?

— More than half of investors say exercise helps minimize stress related to financial markets. “Not much I can do about fluctuations. I just try to bleed off the stress so I can think clearly.”

— One investor said: “Meditate, THC, walk.” Another: I talk to family (mostly) and let them know that my plans may see some draw-downs, but not to worry about it. Everything always makes a comeback. Right?”

— Another added: “I really don't get stressed by financial markets. I've been investing for 20 years, and when the market goes down, I get giddy.”

See you next time!

That's it for today on We Study Markets!

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