Episode 58: "Elon-gated:" Force-feeding SpaceX into your Portfolio

The NASDAQ is changing the rules for the worlds wealthiest man - and you're going to help make it worth their while. You, your parents, customers, cousins and friends are about to be force fed ownership of SpaceX. Whether you know it, like it or not. I want to explain why the upcoming SpaceX IPO may be the most dangerous and egregious financial sleight of hand in market history, and why most people aren't even aware of it, or concerned enough to pay attention. With US equity markets sitting at record profits and record valuations simultaneously, the timing makes perfect sense. But major rule changes are being made, and critical fences and gates are being dropped for the fastest hand off in equity market history. The rules are actually, truly changing. You will want to know how and why it all happened, and wonder why we tolerated it.

Transcript

0:01

Welcome to The Sovereign Guide. I'm your host McDonald. Let's get started.

Speaker 0:09

One of the most predictable and difficult truths is when something massive, something meaningful happens in society and we suddenly look up and a force to ask ourselves, what was I doing? What were we thinking about? What was it that had our attention.

Speaker 4 0:34

Quite literally, what were we doing when Rome burned?

Speaker 0:39

When we do this, it never fails to shock us. We're forced to look back and realize that while We bicker and moan and start petitions to argue about the impact of one particular wind turbine ruining the view off of Martha's Vineyard. China is installing 100 industrial scale solar panels every second. I don't have any judgment here, but I do wonder how this plays out in the fullness of time. And I'm mentioning this because as it stands today, here in the middle of March, 2026, I believe that we are sitting atop one of those exact examples. The kind of opportunity to catch ourselves in real time where we just get to check in on the quality and direction and focus of our attention. And I think that we're overlooking a number of critical and important things, but I wanna grab one in particular, and it relates to this thing that has everybody's attention. The apparently endless profit machine that is the stock market. Any basic or rudimentary analysis of global investment markets today, particularly US markets, which is gonna be the bulk of my focus because it's what most specifically relates to the break in historic precedent here that really needs attention and it's just not getting it. So any analysis is gonna be, make it as plainly obvious as possible. Super obvious that we are sitting in a unique spot in market history by market. I'm using a general term to capture the s and p 500, the Dow Jones, the nasdaq, et cetera. And what's unique about this is we are sitting at a spot of record corporate profits all time high. Corporate profits in public traded companies. On top of that, those prices of those companies are themselves trading at record valuations. We are talking about profits that have exceeded anything we've ever seen in history and valuations, multiplying and leveraging that, that are themselves at levels never seen in history. The Shiller Cape Index is probably the best, the most universally accurate, comprehensive snapshot of what we are risking when we invest in the s and p. Today we're sitting on what I call a double leveraged bet. Record profits compounded by record valuations. Now, when I say Record, I mean, standard deviations above any historic averages of profitability or any such thing of valuations. In the same, in the same realm. So by investing in the equity markets today, we're not just buying businesses that are reflective of the greatest profits we're assigning. The most extraordinary multiples to those profits that need to sustain themselves into an infinite future. What do I mean by that? When you buy a company, whether it's directly you purchasing a private business or you buying shares of Apple, you are buying the rights to a stream of future cash flows. Now because those current cash flows are trading at a record level, we have decided that the future is going to be even brighter than this beautiful spot in the sun, even though it's never been this good in history. So this creates a really tricky dynamic because as I look out into this future, I need. Not just valuations to remain elevated or get more elevated to go from, holy crap, are you serious to, are you really serious now? But I need the same from profit margins to at a minimum, stay exactly where they are. Here's the interesting thing, just as record profits are being leveraged by record valuations. and driving prices higher and pulling in more and more people, because nothing draws a crowd like a crowd. As PT Bonham so beautifully said. The funny thing about equity markets is, unlike its standard economics, the more the price rises, the more people buy of it. Whereas in all other areas of economics, the more the price rises, the less people buy it. The less they buy it, the more prices come down. This is why economics is not finance and finance is not economics. That's a conversation for another day. But as we look out into this future, we are betting that not just valuations, as I say, will remain elevated, but profits will too. Why? Because if we should find ourselves, say in a, say, recession induced by, I don't know, say an invasion of a country like Iran. That profits might actually get squeezed because the price of oil is at 110, $120 a barrel. What happens when those profits begin to decrease? Well, all of the people that are so excitedly bidding up the stock price will no longer be as excited. What I'm getting at is unless those profits are sustained in perpetuity. The valuation multiple will come down and inevitably as one falls, so does the other who is going to climb all over any competitors to buy the stock. In a company whose profits are decreasing, nobody, so when one falls, they both fall, and this is a very important thing. Now it's important to pause here and point out. This is not an opinion based issue. I'm probably gonna say this a few times. This is a math calculation. There's actually no opinion required. We're talking about reversion to the mean, and reversion to the mean always kicks in. What do I mean by that? Well, we could say of course, yes, but insert excuse du jour. What about ai? Yes. AI is factored into mean reversion. Just like railway lines were factored into the means and averages of a century ago. Just like cell phones and smartphones were factored in to valuations and profits. Averages and means when they came online in 2007, which it's worth pointing out, was exactly the year that we saw the peak in equity, valuations and profits, and the start of the greatest financial crisis since the Great Depression. My point is AI is as much going to be a part of current and future valuations and averages and means as any data point is. You can insert anything, the automobile, a fax machine. And on and on. Reversion to the mean always kicks in because averages represent the best of the worst and the worst of the best. Matching historic average valuations to historic average profits right now would demand an approximate 70% decline from today's s and p levels. Just getting back to average. Valuations and profit margins. Now, if you know anything about averages, they don't fall to the average. They fall through it, uh, and then they work their way back up in a stair step, fractal type fashion. I'm not here to doom and gloom. I'm talking about a bizarre phenomenon that is happening in plain sight, but we are just not choosing to talk about it. A big misunderstanding about Wall Street is the idea that they make money by running up asset values. They make money because Bitcoin is at a hundred thousand. They don't, they don't make money by price appreciation. They make money by flow. It is the movement of money. That profits Wall Street, through its various vehicles and options and strategies and holdings and so forth, they are toll keepers. They're not some random bandit robbing people who come by. They literally charge the toll for the roads that we have access to in the marketplace, both the exchanges, and by both I'm referring to the NASDAQ and the Dow Jones. Are in a battle to get the biggest flashiest companies in the world into their index to increase that flow. If you can get Apple to trade on your exchange, you will do a mountain more business and charging toll booth profits moneymaking than you would without them. So the first tier of qualification, there's two critical pieces to address here. The first is the tier of qualification to trade on an exchange, and that usually involves being audited and scrutinized to near death to prove the legitimacy of your business. It's balance sheet, it's p and ls, it's uh, profit margins, it's product line, its full disclosure of what products and services you've got, lawsuits out there et cetera. All of this has to be exposed when a private company wants to go public. You don't get invited to the index unless you've been trading successfully for at least six to 12 months. You've gotta have before you are going to be invited to the index, which is the next step up. You can trade on the exchange, but to get into the index, you're gonna need typically at least six, more often than not 12 months of successful trading. Now a pause for a critical distinction. The New York Stock Exchange and the NASDAQ are the two largest exchanges for general equity transactions in the United States. The New York Stock Exchange is the home of the Dow Jones Industrial Average. The NASDAQ 100 or the NASDAQ is its own exchange, but the NASDAQ 100 is the 100 largest companies trading on that exchange. The s and p 500 is simply the 500 largest publicly traded companies in the United States. That's three indices, the Dow, the Nasdaq 100, and the s and p and two exchanges, the New York Stock Exchange and the nasdaq. The New York Stock Exchange and the NASDAQ are both biting each other's necks to get whatever businesses of significant importance onto their exchange. It is especially attractive when they can upgrade those companies into an index. Again, why deal flow when you are in an index companies that own that index? Every exchange traded fund, every mutual fund, every financial advisor that mimics an index is forced by decree, by mandate to buy your stock. What does that mean? Well, for Wall Street, it means more tolls to charge. So taking a step back, first qualification to trade on an exchange, you've gotta be audited, scrutinized, and we need to see all of the backlog of everything that got you to now. But you don't get invited to an index unless you've been successfully transparently trading for essentially a year. And this makes sense. Because up until that point, they've been private companies, private companies cruising along, owing nothing to anybody. Private companies are not required to share anything about their debt profile, their employee turnover, as I say, lawsuits, any of these things. This is why private equity and private credit or such a cesspool of danger right now, we don't even know what they own. Why? Well, the clue is in the first name. They're private, but in a public exchange, that 12 month window allows for what is called price discovery, where investors get to see how much is trading on any given day, find it, and watch and see the level of demand, the trend and appetite for the price, how the company is doing underneath it all, et cetera, et cetera. We need time to make sure that these are legitimate businesses. Along comes the opportunity for the largest IPO initial public offering in American and I believe world history. SpaceX, SpaceX has announced that they plan on going public as soon as the next couple of months, in the middle of 2026. And for the NASDAQ, they've decided this is a bonanza opportunity. Elon Musk's next big IPO is gonna be a hit and they wanna be a part of it. So this company is right now allegedly valued with a market cap of about $1.7 trillion. It would immediately become the largest company on the planet to ever go public to secure this business. The NASDAQ is putting in an application to the Securities and Exchange Commission to change the rules so radically. That it looks like outright chicanery, if not straightforward. They want to slash the 12 month vetting period to just 15 days. That's how long investors will have to make their minds up and do due diligence on a company whose books we've never even seen. Second to that, they are manipulating what is called the float. What is the float? The float is essentially the percentage of the company's shares that the public has access to. If we have a million dollar company with a million shares, the float is the 200,500,000 shares that we in the public have access to. You have a million dollar company, a 50% float, $500,000 worth of shares are actually available. We take the total number of shares. In this case, 500,000 multiplied by the most recent trade, and we get the valuation, the capitalization, the value of the company. Now, normally your float has to be 10, two more often than not 50% of your shares to the public for the sake of transparency and legitimacy and so forth. We'll pause here for a critical distinction. The Dow Jones Industrial Average is an average that includes 30 specifically qualified and targeted companies in the industrial sectors of the United States. That trade on the New York Stock Exchange, it is somewhat of a merit-based index. The NASDAQ 100 is again, just the 100 largest companies trading on the nasdaq. The s and p 500 is again, a cap weighted index, meaning if you are big, you are in, it says nothing about the qualifications beneath that. So historically, you would need 10, 20, 50% of your company to be floated, make it available. But no, the NASDAQ is proposing for SpaceX whose business they will clearly bend any rule to attract. Is proposing a 5% float for SpaceX, that means that of the $1.7 trillion value, only 87 billion in actual shares will actually be available to support the remaining 95% of the share price. The share value. But wait, it's as if this were a late night QVC commercial. They've added a turbocharger, you know, buy now and you get two free ginza knives. No, no, not just do they only ask that only 5% of SpaceX be floated, but they are going to assign to it a recent made up, unprecedented, five times multiple. That means they will treat whatever is floated as if it is actually five times that number of shares that are trading hands. Why? Well, this gives the appearance of liquidity for the index funds, but it's not true. There is one fifth. The number of shares actually available then appears. Why does this matter? Because the moment that a company gets to that sort of size float, it is immediately thrust into the 500 largest companies in America, the s and p 500 index, and immediately thrown into the top 100 of the NASDAQ 100. What has this got to do with us? It means that this trick of accounting. Forces every ETF and fund manager, sovereign wealth fund insurance company, on and on to have to buy SpaceX shares, but only 5% of the company is available to support a 100% claimed value. What do you think is gonna happen? The largest, deepest pockets on earth, these ETFs, S-P-Y-D-I-A-Q-Q-Q for the s and p 500, the Dow Jones Industrial Average and the NASDAQ literally have trillions of dollars under their management. In fact, most individual shares are not bought directly by investors. They just buy these types of ETFs, these index mimicking ETFs. So coming back to SpaceX, there is one fifth the number of shares available that actually appears, but every index tracking ETF owned by you, your parents, your retired cousin, your kids' 5 29 plan is a mandatory consumer, legally forced to buy it at any price the moment it hits the index. This is the greatest bag holder trick of all time. When you have five times the number of buyers at an auction, as you do shares available, you create an unbelievable parabolic spike in the price. This is a mathematical manipulation and it's taking advantage of our distraction, our greed, and our naivete. Wall Street refers to investors like you and I as bag holders when they're sitting on assets that they can't sell to each other or to sovereign wealth funds, or to anybody willing to pay what they think they can get for it. They roll them into consumer level products, camouflage them inside ETFs and pump them out to mom and pop investors like us. What does this do? Well, it means that the insiders, the vc, the private equity firms, Elon Musk himself, have to wait for their vesting periods to end. They are not allowed to sell the first day that the shares go public. They will have a 3, 6, 12, 18 month vesting schedule that consistently rolls over when the time comes for them to sell their shares. I remind you that that accounts for 95% of all of the shares have not been made available, and us unknowing, naive investors have been scratching and fighting trillions of dollars worth of capital to buy just 5% of the company. Why? Because it gives the impression that we're actually buying 25% of the company. These individuals wait for their vesting periods to end when they decide to step out into the world and sell them. They find a marketplace that is starved for their shares at astronomical valuations. Not because of merit, but because of accounting manipulation. This slight of hand that NASDAQ is trying to bypass their own mandates, they are fighting their own board members. To get this through. Why? Because it will be the most profitable thing that has ever passed by as an opportunity for them. So 95% of the shares are now unlocked over the course of the next year. As those insiders that have been sitting waiting for their opportunity to liquidate, become net sellers, suddenly we're talking about a wave of 20 times the total number of shares previously available, all hitting the market. When those ETFs have already gorged themselves, there's no one left to buy. The ETFs, if, let's say SpaceX accounts for 10% of QQQ, which is the NASDAQ 100, the companies that built, manage and run these ETFs have to buy 10%, have to deploy 10% of their capital into SpaceX, regardless of the price. Quite literally at any price, at any valuation, at any multiple, on any record or not profits. By the time these insiders come to sell, As I say, there is no one left to buy. What's likely to happen? Well, given that we've got trillions of dollars trying to grab. Five of the 100 shares available, we're gonna see a parabolic spike that is again engineered by math and accounting tricks. What happens when we get 20 times the number of shares coming available? Well, the cascading decline will be a complete reverse of this auction mechanism. Because we've now got 20 times the number of shares available to buy. Then we have actual capital to absorb it. This is a reverse of the auction mechanism. It drives prices down in an accelerated spiral to the bottom. How does this happen? Well, because we're distracted. Because we're greedy, because the truth is. We just wanna earn some ourselves. Where is the government? Well, this is where we've gotta be honest about the scathing reality of actual government protection. This is not some end of day's opinion. It's a math problem between valuations, profits, and the numbers of buyers and sellers that exist on the planet. These are standard math challenges. The regulatory bodies that the government is ostensibly designed to protect us are nowhere to be found. And unfortunately, history shows us that there's a pathetic pattern of government failure in this regard. Consider, for example, the SEC, the Securities and Exchange Commission was created in 1932. It's kind of perfect, which was four years too late after the Bear Market of the Great Depression had already begun when the stock market began tanking in 1929. So in comes the essence, SEC, just in time to oversee a 93% decline in equity prices that had already occurred. They're not, it's not the only one. The FDIC here to protect our banks was created in 1933, about a decade later than it should have been showing up only after. The hardworking farmers and savers of America had already seen every penny run out of their bank. Hey guys, now that you've got nothing, we're gonna go ahead and promise to get that to you. We'll protect it. The government is the person that shows up to put out the fire after the bonds already burned. They're the ones that closed the bond door after the horses have fled. And American families have been devastated by the greed of a few, leveraged by the need of the many. The few. Leveraged by the need of the many, the 5% available for the 100% that have to buy it. These are actually being rephrased as SpaceX laws are being rewritten. While we are distracted by the rockstar hype of a low information product. I mean rockstar hype, and what information do we have on it? This means we're gonna be forced, basically by legal agreements amongst private profiteers of Wall Street to give our money to these individuals. We weren't paying attention because we thought we might get ours, but historically, the only ones who ever get theirs are the insiders, and this is unlikely to end well. It's somewhat of a mathematical certainty. Unless I'm missing something, unless when Elon Musk decides that he doesn't want to own SpaceX, everybody else will want to. For myself, I would rather the founders and owners of the company not be sellers is it's possible that I'm missing something here. But I don't believe I am and I'm not the only one. It turns out that a small handful of intellectually courageous and ethically solid fund managers and individuals are actually taking the SEC to court and attempting to sue the NASDAQ for what is so egregiously and obviously a defrauding of the ignorant investor. We'll see what happens. But I don't think it's a, I don't think it's an accident that we are distracted, so beautifully distracted. So many things. Epstein files, Iran conflict, price of oil parabolic. Who was able to buy silver at 25 bucks. Now that it's at 78. Oh. And let's not forget the great opportunity that are in equity markets right now. Record prices. Record valuations. The great philosopher, epic TEUs captured it I think perfectly when he said, full bellies make empty skulls. Let's see what happens.

Speaker 2 28:25

That's it for this episode. Thanks for being here. Hey, there's only two things that you have in your life. Your time and your attention that you've given both to me for these few minutes of today means everything. Cheers.