Elon Musk warns against margin debt due to risk of market ‘mass panic’

(Bloomberg) — Billionaire Elon Musk is warning against something he’s done himself — borrowing against the value of securities he owns — because of the risk of a “mass panic” in the stock market.

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

The CEO of Tesla Inc. invested billions of its own money when it 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 are considering replacing some of the high-interest debt he imposed on Twitter with new margin loans backed by Tesla stock that he would be personally responsible for repaying.

Tesla’s margin loan talks show increasing pressure on Musk, bankers

He also got rid of nearly $40 billion in Tesla stock, a move that helped send the stock to a two-year low. After the latest selloff, Musk said again this week that he would stop selling shares, adding that the pause could last about two years.

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

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

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

–With assistance from Susanne Barton and Craig Trudell.

(Updates with previous disclosures about Musk’s stakes)

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