‘Risk of mass panic…’: Elon Musk warns against margin debt

Billionaire Elon Musk is warning against doing something he has done himself – borrowing against the value of securities because of the risk of a “massive panic” in the stock market.

“I would really advise people not to have margin debt in a volatile stock market and, you know, from a cash perspective, keep the powder dry,” Musk said in the All-In podcast released Friday. “You can get some pretty extreme things in a down market.”

The chief executive officer of Tesla Inc bought Twitter Inc earlier this year for $44 billion and saddled the company with $13 billion in debt. Bloomberg News reports that Musk’s bankers are considering replacing some of the high-interest debt layered on Twitter with new margin loans backed by Tesla stock, which he will then be personally responsible for paying back.

Musk’s Tesla margin-loan talks reflect mounting pressure on bankers

He also disposed of about $40 billion worth of Tesla shares, a move that contributed to pushing the stock to a two-year low. Following the latest selloff, Musk reiterated this week that he would stop selling shares, adding that the pause could last two years or more.

The warning, the second made by Musk at least this month, ironically comes after the billionaire previously pledged his Tesla shares. As of December 2020, Musk had 92 million Tesla shares pledged as collateral, according to an SEC filing in April 2022.

During the podcast, Musk also reiterated his belief that the economy is overdue for a recession and that the recession could be similar in scale to the one seen in 2009.

“My best guess is we have a year to a year and a half of storm time, and then, dawn almost breaks in Q2 2024, that’s my best guess,” Musk said. “A boom doesn’t last forever, but neither does a recession.”

— With assistance from Suzanne Barton and Craig Trudell.

(Updated with previous disclosure on Musk’s pledged shares)

More stories like this are available at bloomberg.com

©2022 Bloomberg L.P.

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