Why Elon Musk’s $420 tweet could signal gloom for the stock market

For much of last week, MarketWatch unofficially became MuskWatch — kind of like when IHOP became IHOb. But instead of burgers, we were busy flipping every relevant angle we could relating to Elon Musk’s “Am considering taking Tesla private at $420. Funding secured” tweet.

Well, here’s another one: Musk’s tweet could signal market disaster.

In our call of the day, Barron’s columnist Randall Forsyth say Musk’s tweet is just the kind of thing that could lead to “market woes.”

After all, there’s precedent for it.

At $82 billion — though the size of the package could ultimately be much smaller — Forsyth explains that such a leveraged buyout to take Tesla TSLA, +0.86%  private would easily be a record, surpassing the record held by Texas utility TXU. That LBO was worth $44 billion when it happened almost 11 years ago.

There’s a significance to that timeline. The TXU deal closed on Oct. 10, 2007, or one day after the Dow DJIA, -0.77%  hit a then-record close and shortly before the financial crisis would blow up global markets.

Are we headed for a “Minksy moment?” That’s basically when a prolonged period of prosperity leads to investors taking on more and more risk until it all hits the fan, resulting in a crash. Essentially, stability gives way to financial instability. One look at the “fear gauge” VIX, +8.13%  , and it’s clear markets have been enjoying historic stability.

Furthermore, Forsyth says the current low-credit-spread climate suggests “financing markets are in a quiescent stage, the propitious time for audacious investing schemes.” He pointed to former Citi C, -2.39%  boss Chuck Prince, who famously said as long as music is playing in the markets, lenders have to dance, and “we’re still dancing.”

They didn’t dance for long.

“The crisis of a decade ago followed a prolonged period of stable financing conditions, marked by slow, regular Federal Reserve interest-rate hikes,” Forsyth wrote. “That, in retrospect, encouraged all sorts of feckless mortgage borrowing, which was repackaged in nefarious manner by Wall Street.”

Stability resulted in instability, as Minsky might have predicted.

“What would he say about Elon Musk’s audacious scheme, hatched after years of relative calm in the financial markets?” Forsyth pondered.

Meanwhile, no rebound in sight this morning.

The market

Futures for the Dow YMU8, -0.29%  , S&P ESU8, -0.23%  and Nasdaq NQU8, -0.29%  are all pointing to a red start to the week. Gold GCU8, -0.64%  and crude oil CLU8, -0.04%  are down, as the dollar index DXY, +1.29%  gains. Overseas, sellers have the upper hand in Asia ADOW, -1.66%  and Europe SXXP, -0.37%  , as the Turkish lira USDTRY, +7.4212%  continues its descent. Bitcoin BTCUSD, +2.11%  is trading hands around $6,500.

The buzz

Investors keep eyeing Turkey’s perilous financial condition, as fears of a spillover effect from the troubles in the world’s 17th largest economy could keep dogging global markets. The country’s central bank today made policy moves that failed to alleviate concerns among investors.

“Without a safety net this time, the current crisis in Turkey may well reveal the fragility of the global financial system once again,” writes Clarity Financial’s Lance Roberts. “As always, it is the unexpected event which starts the chain reaction.”

A California jury has ordered Bayer’s BAYN, -11.01% BAYRY, -3.66%  Monsanto business to pay $289 million in a landmark lawsuit over whether exposure to two of its powerful weed killers — Ranger Pro and Roundup — caused cancer.

The chart

Barry Ritholtz of Ritholtz Wealth Management posted this telling chart from Georgetown professor Don Moynihan and says, “I don’t understand why the Democrats are not pounding on this chart every single day from now until the midterm elections.” It pretty much speaks for itself:

The stat

61% — That’s how many Americans say they believe racial tensions have actually gotten worse over the past year, according to a CBS News poll released on the one-year anniversary of the deadly rally in Charlottesville, Va. Most also don’t approve of how Trump’s handling the issue:

The quote

“Omarosa, what do you think about me getting sworn in on ‘The Art of the Deal?’ It’s the greatest business book of all time. It’s how I’m going to make great deals for the country. Just think how many copies I’d sell — maybe a commemorative inauguration copy?” — Donald Trump, according to an excerpt from former White House aide Omarosa Manigault Newman’s new book cited by Slate.

Trump’s clearly not a fan:

The economy

We have July housing starts to look forward to on Thursday.

Random reads

This just might be “the world’s most peculiar company.”

“Show me the victims of insider trading... I’ll wait.”

American’s own less stuff, and here’s why you should be nervous.

Lessons to learn from that bizarre Seattle plane crash.

The infamous Trump Tower meeting gets the Larry David treatment.

And this tweet makes me sad:

Need to Know starts early and is updated until the opening bell, but sign up here to get it delivered once to your email box. Be sure to check the Need to Know item. The emailed version will be sent out at about 7:30 a.m. Eastern.

Follow MarketWatch on Twitter, Instagram, Facebook.

Providing critical information for the U.S. trading day. Subscribe to MarketWatch's free Need to Know newsletter. Sign up here.