Elon Musk’s Twitter Debt at Levels Not Seen Since “Lehman Brothers?”... Jerome Does The Deed

Pinch yourself if you want, but it’s not a dream—Jerome Powell just confirmed that a rate cut is in the works. So if you’re waiting tables tonight in Manhattan, you’ve basically won the lottery.

The Dow threw Jerome a 360-point (0.9%) standing ovation, while the S&P 500 and Nasdaq joined the celebration, each climbing 0.9% and 1.2%, respectively.

Powell’s vague promise of future rate cuts during his 17-minute speech in Jackson Hole had traders feeling themselves, though he kept the details as mysterious as a magician’s next trick. He basically said, “Yeah, we’re cutting rates…eventually,” and I’ll admit, I almost cried tears of joy.

Tech stocks hogged the spotlight, with Tesla and Nvidia flexing hard, up over 4% and 3%. Not to be left out, even the small-caps crashed the party, with the Russell 2000 leaping 3%.

Now, everyone’s got their eyes on September, waiting to see how big Powell’s first rate cut will be. Will he give us the dainty .25% trim we’re all expecting, or will he drop it .5%? At this point I’ll take whatever I can get.

As always, here’s the heatmap for today.

Wait, What! Is Elon Musk’s Twitter Debt the Next “Lehman Brothers?”

Did you have an uncle who bought a million dollar house in 2007 right before the great financial crisis hit? (Come on, I can’t be the only one with an unlucky family member.) Well, it turns out, my Uncle Joe might be the smartest guy in the room right now—at least compared to the banks who decided to back Elon Musk’s Twitter (now X) acquisition.

You heard that right. Elon Musk is knee-deep in what “experts” are calling the worst leveraged buyout since the 2008 crisis. Curious how we got here? Let’s rewind and see how one of the world’s richest men ended up with a financial disaster that even Lehman Brothers would cringe at. (Whatever happened to those guys?)

(Source: The Independent)

Anyways, it all started with Musk’s grand plan to buy Twitter for a $44 billion. The deal was supposed to turn Twitter into some kind of digital utopia where free speech reigned supreme, and, presumably, everyone would have blue check marks. But instead of becoming the social media messiah, Musk has found himself neck-deep in debt.

Where’s the debt from? Musk convinced a bunch of banks, including Bank of America and Morgan Stanley, to pitch in $13 billion. The plan? Buy Twitter, make it awesome, and offload the debt fast. Easy, right? Not so much.

The timing couldn’t have been worse. Just as the ink dried, borrowing costs soared, and Twitter’s finances tanked. Since Musk took over, revenue has dropped 84%, from $661 million in Q2 2022 to $114 million in Q2 2024.

The result? Banks have been stuck with this toxic debt for nearly two years—longer than any other similar deal since the dark days of 2008. Reminds me of when I bought some altcoins right at the height of the crypto market in 2021. Perfect timing.

Here’s where things get even more interesting, or terrifying, depending on how much Tesla stock you own. With Twitter’s revenue in the gutter, Musk might have to sell even more of his Tesla shares to cover the losses. Remember when he promised not to sell any more Tesla stock until 2025? Yeah, about that…If Musk starts unloading Tesla shares to cover Twitter’s financial black hole, we could see investors panic sell Tesla’s stock like no tomorrow. Analysts are already warning that another round of stock sales could shave 5% to 10% off Tesla’s value.

So, what’s the real takeaway here? If you’re Elon Musk, it’s time to face the music and come up with some serious solutions. The banks that hitched their wagon to his Twitter deal are already feeling the burn, with Barclays’ top bankers seeing their paychecks slashed by 40%.

If Musk doesn’t start offloading more Tesla stock to cover X’s financial black hole, those banks could be in even deeper trouble. We’re talking about a toxic debt situation that could send shockwaves through the entire market. And if you’re holding Tesla stock, you’d better keep a close eye on Musk’s next move, because if this house of cards comes tumbling down, it’s not just the banks that are going to feel the squeeze. It’s going to hit everyone in the game.

Stock.News has positions in Tesla.