Tesla’s market capitalisation surging to over 1 trillion USD

One major event this week was Tesla’s market capitalisation surging to more than 1 trillion USD. See what our charts show plus ESG, real estate, currency and COVID-19 data.

By 
Julius Probst, PhD
 on 
October 29, 2021

One major event this week was Tesla’s market capitalisation surging to more than 1 trillion USD. The 4 billion order from Hertz for 100,000 Tesla cars increased the company’s market capitalisation by about 100 billion USD, and Elon Musk’s personal wealth by about 30 billion USD. Tesla is now worth more than a handful of the largest car companies combined – which seems excessive.

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Natural gas and oil prices are surging and there is a renewed conversation on energy crisis. European natural gas stock levels are significantly lower than usual during this time of year. 

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If you are interested in real estate analysis and data, feel free to check out recent our blog post on the Chinese real estate bubble: https://www.macrobond.com/blog/is-chinas-house-price-bubble-ready-to-burst

The following chart shows the UBS real estate bubble index. It is striking how two German metropolitan areas, Frankfurt and Munich, are on the top of the list. After decades of meagre price increases, the housing market in Germany is heating up. As one can see, the bubble index was significantly lower just five years ago. In other countries such as Canada and Sweden, which have seen spectacular price performance in recent decades, the UBS bubble index has actually declined compared to two years ago, potentially indicating that the market is starting to cool down a little.

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Economists use Purchasing Power Parity to determine the long-run fundamental value of a currency. In the following chart, the long-run value for the USD/EUR exchange rate based on 5 different variables have been created:

  1. Interest rate differentials
  2. Money stock differentials
  3. Inflation differentials
  4. Growth differentials
  5. PMI differentials

The R2 of the regression model exceeds 40%. The standardised residuals can give us an indication to what extent the exchange rate is over/under valued. Based on the model, the USD seems to be fairly valued right now vis-à-vis the Euro.

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Duplicating the entire document and using the change region function, it is extremely easy in Macrobond to apply the model above to a different currency pair. In this case, the model tells us that the USD is currently overvalued against the Yen based on long-run fundamentals, implying that we should see some Yen appreciation in the medium run.

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The economic shock from the COVID-19 pandemic has caused a huge money demand shock (a decline in velocity). Money velocity calculated as NGDP/M2 is lower across all advanced economies, which is precisely why large increases in monetary aggregates have not turned out be inflationary, as of now.

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Eastern Europe is experiencing a new COVID-19 wave amidst extremely low vaccination rates, especially in countries such as Romania and Bulgaria. As the chart shows, weekly hospital admissions are already way up, and we still have not reached the height of winter yet. Expect this to get worse in the coming months. 

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