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Tesla’s stock rally has propelled some early investors to riches – The Globe and Mail

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The Tesla logo shines off the rear deck of an unsold 2020 Model X at a dealership in Littleton, Colo., on April 26, 2020.

David Zalubowski/The Associated Press

Convinced of Tesla Inc.’s imminent meteoric rise, Orestis Palampougioukis, a Netherlands-based software developer, took out a €43,000 (US$49,000) loan in early October to invest it all in the electric-car maker, which at the time was trading at around US$230 a share.

Since then, Mr. Palampougioukis’s bet has paid off as Tesla’s share price has increased more than six-fold, trading around US$1,500 on Monday and surpassing every rival to become the world’s highest-valued automaker. After investing an additional €14,000 in personal funds, he has pocketed around €10,000 in profit to date, even when accounting for the 7-per-cent interest he pays the bank.

“To me it didn’t feel like a bet because I studied what Tesla does very closely and it’s simply inevitable that it would dominate,” Mr. Palampougioukis said, adding that he plans to own the shares for decades.

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He is not alone. Retail investors around the world, staunch believers in the company’s mission to lead the auto industry into a battery-powered future, have invested their personal money, and at times their parents’ retirement funds, in Tesla and reaped handsome rewards.

Tesla reports second-quarter results on Wednesday after the close of trading. While analysts polled by Refinitiv on average expect the company to report a loss, a surprisingly strong vehicle delivery report boosted hopes among many retail investors for a profitable quarter.

Discussions about Tesla on online retail investor forums have surged, with users debating whether to hold their shares in hopes of even higher returns or cash out.

While the total number of Tesla retail investors is not known, around 75 per cent of the company’s stock is owned by large institutional investors and Tesla executives, including chief executive Elon Musk, according to Refinitiv data.

Tesla shares are among the most popular on U.S. retail investor platforms, such as Robinhood Markets Inc. and TD Ameritrade. The number of users holding Tesla stock on the Robinhood trading app increased more than 400 per cent from the first two weeks of July, 2018, to the same point this year, according to data from Robintrack.net, which compiles data on the investing platform.

In South Korea, where Tesla has become the latest craze among tech-savvy professionals, the company is the most-traded overseas stock, with Koreans buying US$3.2-billion worth of Tesla shares so far this year, up nearly 13-fold from all of 2019.

Choi Jong-wan, the former head of Korea’s Tesla owners’ club, borrowed money to invest in Tesla after the company unveiled its Model 3 in 2016. He also bought Tesla stock for his seven-year-old son, taking advantage of Korean inheritance tax breaks.

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Mr. Choi, who bought a Model S, said the company’s shares are supported by its many fans buying stock. Convinced of Mr. Musk’s vision, Mr. Choi bought when Tesla shares tanked in the past.

“I am getting more confident about Tesla,” he said. “I will sell Tesla stock when other automakers introduce better electric cars than Tesla at competitive prices.”

Some investors have invested their stock proceeds in the company by buying its vehicles. David, a marketing specialist from Oakland, Calif., who asked that his last name not be used, bought a Tesla Model 3 last August after selling some of his Tesla shares.

He bought his first Tesla shares for a couple of hundred dollars right out of college in 2010. The company had just listed publicly, with the shares trading around US$29.

David has since invested about another $40,000 and currently holds 180 shares.

“Tesla has treated me well so far. I believe in their vision and I believe in Elon Musk,” he said. “But the house we bought needs a new roof and I’m thinking to just sell a few shares to pay for that.”

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Mr. Musk’s own net worth has soared even higher thanks to the latest share price rally. The outspoken Tesla boss is within reach of another share-based payday potentially worth as much as US$2-billion. Including previously vested tranches, Mr. Musk would own options for about US$4-billion worth of Tesla shares.

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CMHC CEO's letter a bit 'extreme and alarmist': Ex-RBC CEO Nixon – BNNBloomberg.ca

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Canada Mortgage and Housing Corporation CEO Evan Siddall’s recent letter to lenders urging them to avoid risky mortgages is a bit “extreme and alarmist,” according to former Royal Bank of Canada CEO Gord Nixon.

In a three-page letter dated Aug.10, Siddall warned excessive borrowing will worsen the economic pain triggered by the COVID-19 pandemic.

“I must say I was a little surprised. I don’t think I’ve ever seen or received a letter like that,” Nixon told BNN Bloomberg’s Amber Kanwar in a television interview Thursday.

“I think the intent and concern is certainly real,” he added, noting Siddall has been bearish on the Canadian housing market “for quite some time.”

In his letter, which came a little more than a month after CMHC tightened its underwriting standards, Siddall said there’s a “dark economic underbelly in this business that I want to expose.”

Nixon said that while Siddall’s concerns are valid, the Canadian mortgage market has always been a very responsible.

Despite continued signs of strength in the country’s hottest real estate markets, the CMHC has warned average prices could fall as much as 18 per cent from pre-pandemic levels.

“There’s obviously different views on the market,” Nixon said. “And CMHC competitors are certainly being more aggressive. And [Siddall is] raising a concern that if there is a significant downturn, it will have an impact on borrowers.”

Nixon said the unemployment rate, which is currently 10.9 per cent, is the most important factor when it comes to mortgage defaults and deferrals.

“I would say the letter was probably a little bit extreme and alarmist but having said that, who knows what the impact of COVID is going to be a year out from now,” he said.

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Canada's mortgage 'stress test' level falls for 3rd time since pandemic began – CBC.ca

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The bar at which the finances of Canadian mortgage borrowers gets tested has just been lowered, making it easier for would-be home buyers to reach.

Five-year posted mortgage rates at Canada’s big banks have inched lower in recent weeks, enough to compel the Bank of Canada to formally lower the average rate they base their calculations on to 4.74 per cent.

That’s significant because that’s the level the so-called stress test is based on. Announced in 2017, the test was designed to cool the overheated housing market of the time by making sure borrowers would be able to pay back their loans if rates were to suddenly rise.

Even if a borrower could get a mortgage at, for example, three per cent, that person’s lender was obligated to crunch the numbers as though the rate was higher — at around five per cent, for example — to make sure the loan wouldn’t be too onerous for the borrower to pay back at their income level if rates were to suddenly rise. If the borrower failed the test at the higher rate, the lender wasn’t allowed to lend to them, even if they wanted to.

That testing rate has already been lowered twice in this pandemic, first in mid-March when it dropped 15 points from 5.19 per cent to 5.04, and then again in May when it dropped another 10 points to 4.94 per cent.

This week’s 15-point cut comes on top of that and theoretically means qualified borrowers can now be approved for a slightly bigger mortgage than they could last week, even if their income is still the same.

Rate comparison portal Ratehub.ca calculates that the change could increase the purchasing power for qualified borrowers by about 1.5 per cent.

Numbers show what that means in reality. At the old level, a borrower who earns $100,000 a year and has a 10 per cent down payment would have been stress tested at 4.94 per cent and be approved for a loan on a home valued at up to $523,410.

At the new stress test level, that same borrower would be approved for a loan on a home costing up to $531,230. That’s a difference of $7,820.

“Over the last few years, rule changes have made it harder for Canadians to qualify, so the recent reductions in the benchmark qualifying rate is welcome news for first-time home buyers hoping to enter the housing market.,” said James Laird, co-founder of Ratehub.ca and president of mortgage brokerage CanWise Financial.

Ottawa had planned to change the way the stress test was calculated to begin with, announcing in February a plan to tinker with the formula starting in April. But those plans, like many others, were put on hold when the pandemic hit.

Good news for buyers

Sherry Cooper, chief economist at Dominion Lending Centres, said in an interview that move is good for buyers in that it will make it “a touch less difficult to qualify for a loan. People will be able to borrow a bit more money.”

She said she has observed that qualifying rate was quick to move on the way up, but has been much slower to come down even as interest rates have tumbled because of the pandemic, so it’s good to see the qualifying rate come down to something closer to what’s actually happening in reality.

“With record low interest rates, it’s hard to argue that housing hasn’t become more affordable,” she said.

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A financial iron curtain? China seen bracing for more US action – Aljazeera.com

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A sharp escalation in tensions with the United States has stoked fears in China of a deepening financial war that could result in it being shut out of the global dollar system – a devastating prospect once considered far-fetched but now not impossible.

Chinese officials and economists have in recent months been unusually public in discussing worst-case scenarios under which China is blocked from dollar settlements, or Washington freezes or confiscates a portion of China’s huge US debt holdings.

Those concerns have galvanised some in Beijing to revive calls to bolster the yuan’s global clout as it looks to decrease reliance on the greenback.

Some economists even float the idea of settling exports of China-made COVID-19 vaccines in yuan, and are looking to bypass dollar settlement with a digital version of the currency.

“Yuan internationalisation was a good-to-have. It’s now becoming a must-have,” said Shuang Ding, head of Greater China economic research at London-based lender Standard Chartered and a former economist at the People’s Bank of China (PBOC), the country’s central bank.

The threat of China-US financial “decoupling” is becoming “clear and present”, Ding said.

Although a complete separation of the world’s two largest economies is unlikely, the administration of US President Donald Trump has been pushing for a partial decoupling in key areas related to trade, technology and financial activity.

Washington has unleashed a barrage of actions penalising China, including proposals to bar US listings of Chinese companies that fail to meet US accounting standards and bans on the Chinese-owned TikTok and WeChat apps. Further tension is expected in the run-up to US elections on November 3.

“A broad financial war has already started … the most lethal tactics have yet to be used,” Yu Yongding, an economist at the state-backed Chinese Academy of Social Sciences (CASS) who previously advised the PBOC, told Reuters.

Yu said the ultimate sanction would involve US seizures of China’s US assets – Beijing holds more than $1 trillion in US government debt – which would be difficult to implement and a self-inflicted wound for Washington.

But calling US leaders “extremists”, Yu said a decoupling is not impossible, so China should make preparations.

High stakes

The stakes are high. Any move by Washington to cut China off from the dollar system or retaliation by Beijing to sell a big chunk of US debt could roil financial markets and hurt the global economy, analysts said.

Fang Xinghai, a senior securities regulator, said China is vulnerable to US sanctions and should make “early” and “real” preparations. “Such things have already happened to many Russian businesses and financial institutions,” Fang told a forum in June organised by Chinese media outlet Caixin.

Guan Tao, former director of the international payments department of China’s State Administration of Foreign Exchange and now chief global economist at BOC International (China), also said Beijing should ready itself for decoupling.

“We have to mentally prepare that the United States could expel China from the dollar settlement system,” he told the Reuters news agency.

In a report he co-authored last month, Guan called for increased use of China’s yuan settlement system – the Cross-Border Interbank Payment System – in global trade. Most of China’s cross-border transactions are settled in dollars via the SWIFT system, which some say leaves it vulnerable.

Renewed push

After a five-year lull, Beijing is reviving its push to globalise the yuan.

The PBOC’s Shanghai head office last month urged financial institutions to expand yuan trade and prioritise local currency use in direct investment.

Central bank chief Yi Gang said in remarks published on Sunday that yuan internationalisation is proceeding well, with cross-border settlements growing 36.7 percent in the first half of 2020 from a year earlier.

Still, internationalisation is hampered by China’s own stringent capital controls. It could also face resistance from countries that have criticised China on matters ranging from the coronavirus to its clampdown on Hong Kong.

The yuan’s share of global foreign exchange reserves surpassed 2 percent in the first quarter, Yi said. It also beat the Swiss franc in June to be the fifth most-used currency for international payments, with a share of 1.76 percent, according to SWIFT.

One way to accelerate cross-border settlement would be to price some exports in renminbi, such as a possible coronavirus vaccine, suggested Tommy Xie, head of Greater China research at OCBC Bank in Singapore.

Another is to use a proposed digital yuan in cross-border transactions on the back of currency swaps between central banks, bypassing systems such as SWIFT, said Ding Jianping, finance professor at Shanghai University of Finance and Economics.

China has fast-tracked plans to develop a sovereign digital currency, while the PBOC has been busy signing currency swap deals with foreign counterparts.

Shuang Ding of Standard Chartered said Beijing has no choice but to prepare for Washington’s “nuclear option” of kicking China out of the dollar system.

“Beijing cannot afford to be thrown into disarray when sanctions indeed befall China,” he said.

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