Elon Musk Warns Against Margin Debt on Risk of Market ‘Mass Panic’

(Bloomberg) — Billionaire Elon Musk is warning about something he himself has done — borrow against the value of securities one owns — because of the risk of “mass panic” in the stock market.

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

The Tesla Inc. CEO invested billions of his own money when he bought Twitter Inc. for $44 billion earlier this year and saddled the company with $13 billion in debt. Bloomberg News reported that Musk’s bankers were considering replacing some of the high-interest debt he had racked up on Twitter with new margin loans backed by Tesla stock that he would be personally responsible for repaying.

Tesla margin talks show pressure mounting on Musk and bankers

He also sold nearly $40 billion worth of Tesla stock, a move that helped send the stock to its lowest level in two years. Following the latest selloffs, Musk said again this week that he would stop selling stocks, adding that the pause could last around two years.

The warning, at least the second issued by Musk this month, is ironic given that the billionaire has already pledged his Tesla shares. As of December 2020, Musk had 92 million Tesla shares as collateral, according to a filing with the SEC in April 2022.

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

“My best guess is that we have stormy spells for a year to a year and a half and then dawn breaks roughly in the second quarter of 2024, that’s my best guess,” Musk said. “Booms don’t last forever, but neither do recessions.”

–With help from Susanne Barton and Craig Trudell.

(Updates with previous disclosures on Musk’s pledged stock)

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