Elon Musk blames the Federal Reserve for a big drop in Tesla stock this year.
Rising interest rates have boosted the appeal of Treasuries and stocks, Tesla CEO said. Tesla stock has been fueled by concerns Musk’s Twitter buys could be a costly distraction.
Elon Musk has said that the biggest failure of Tesla this year is in the Federal Reserve, saying that the interest rates of the central bank of the United States made the market not attractive to investors. “Tesla is more efficient than ever!” Musk tweeted on Friday, in response to a Tesla shareholder who blamed him for a $600 billion decline in Tesla’s market capitalization this year.
“We don’t control the Federal Reserve,” the CEO of Tesla, SpaceX added on Twitter. “That’s the real problem here.”
US inflation has hit a 40-year high this year, prompting the Fed to raise interest rates from near zero in March to more than 4% today to cool the economy and stop inflation. Higher rates encourage saving over spending and make borrowing more expensive, which means they lower property prices.
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Elon Musk, Paul Krugman and Jeremy Siegel have warned that the Federal Reserve is in danger of going too far in its fight against inflation, raising the prospect of a painful recession.
Bill Gross, David Rosenberg, Robert Herjavec and Ed Yardeni also told the US central bank not to raise interest rates too much, because of the potential impact on the economy.
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Musk explained in a follow-up tweet that higher rates increase returns on low-risk assets like government bonds, boosting their appeal relative to riskier assets like stocks.
“As the real ‘risk-free’ rate of return on Treasuries approaches the risk-free rate of return on equities, the value of stocks falls,” Musk said. “For example, if two stocks have a 10% rate of return, everyone will buy the first one.”
The stocks of fast-growing companies like Tesla are very difficult this year, because they are valued at their future earnings. Investors realize that these funds can do poorly when prices rise, they can get a strong and safe return elsewhere, and a recession threatens to destroy their assets.
However, Tesla’s stock price has more than halved this year for other reasons. For example, Musk warned that the Chinese property market is slowing and the energy crisis in Europe may increase the demand for industrial vehicles in the coming months.
Also, many Tesla shareholders have expressed concern that Twitter, which Musk bought for $44 billion in October, has become an expensive distraction. The tech billionaire is busy revitalizing the social media industry and has sold $8 billion worth of Tesla stock in recent weeks — likely to repay billions of dollars in bank loans he took out. pay to take over.
Musk has repeatedly criticized the Fed for raising rates too aggressively this year. He warned that he should cut rates immediately because the current level “increases the likelihood of a recession.”
He also pointed out that the debt risk when the number is rising and accused the central bank of paying more attention to historical economic data than the current situation.
