$8.4 trillion of the $21 trillion in US debt matures in 4 years. What could possibly go wrong?

E0F20948-4A5A-48F1-B8AF-06FA92EBAC7AWith a US Fed openly stating it is looking to prune its bloated balance sheet by around $2 trillion, it seems that $8.4 trillion of that debt held by the public matures within the next 4 years according to the US Treasury. To that end, debt maturing in the next 10 years totals $12.233 trillion. It needs to be ‘rolled over’. The national debt pile has jumped $1 trillion in the last 6 months. After the GFC and an overly accommodative central bank, the Treasury took advantage of this free money. Under President Obama, the debt doubled. That’s right, debt in his 8 years equaled that of the previous 43 administrations combined. Most of it was short term meaning the mop up operation starts earlier.

While there is little doubt this $8.4 trillion will be recycled, the question is at what price. With rising rates and a Fed back-pedaling one would expect the interest bill can only lift. At the moment the US federal government pays around $457 billion p.a. in interest alone. Average interest rates rose for the first time since 2006. Were average rates to climb back to 2007 levels then the interest bill alone would surpass $1 trillion.


This global aversion to tightening belts continues. Many US corporations have taken the same approach to their balance sheets as the government as pointed out in the previous example on GE. Lever up and be damned with the credit rating as the spreads have been almost irrelevant to higher rated paper. It has been a financially credible decision to lower WACC and increase ROE provided one didn’t lose control and overdose on free money. However the relatively short duration on corporate debt is facing a similar refinancing cliff as the US government.

All this cumulative debt needing refinancing while credit ratings are on average the worst they’ve ever been in a rising interest rate environment coupled with a bubble in bonds while a growing number of these levered consumer and industrial stocks have negative equity. What could possibly go wrong?

Do we see the Fed reverse its decision and embark on more QE? Indeed to do such a thing would tank the dollar and send the yen back towards the 70s to the US$. Interesting times ahead. Throw on the $7 trillion shortfall in state public pension liabilities and watch the fire from the other side of the river. Finally some university think tank has come out saying that wiping out the $1.5 trillion in student debt would be ‘stimulatory’ to the economy adding 1.5 million jobs. What a world we live in when we get to walk away from responsibility and accountability.

AfD is 2nd most popular party in latest Bild poll


The left leaning Bild newspaper published a poll showing the anti-immigrant AfD as the second most popular party in Germany with 16% (+2) The socialist SPD polled an awful 15.5% (-5), it’s worst post war performance. The Greens also polled well.

Yet another country growing tired of politicians from incumbent major parties who are failing to deliver to their constituents.

Regardless of what one’s views are on Merkel’s misguided altruism, it seems fewer people support it at home. Call it racist, bigoted it worse but the fact more people are prepared to back the party that answers their sense of frustration speaks volumes of underlying mood. Either that or the CDU is doing a terrible job selling its message. What does one expect when the media and police are muzzled?

Across the border Poland and Hungary are linking hands in a sign of solidarity to reject the EU’s forced migration quotas. On April 8 Hungarians vote on whether they want Orban’s Fidesz party to stay in power. It looks a formality. The question is by what margin? When 98.4% who voted in the Hungarian referendum several years back to reject forced migration, this seems an election issue which opposition parties stand no chance of getting up if they support it.

Hottest 5-yr period on record according to NOAA (which was busted for data manipulation)


IT’S official. The world has just experienced its hottest five-year period in history — and there are no signs of things cooling off.” No signs of cooling off? Even though 2018 has kicked off with huge freezes across Japan, Canada, NY, Florida and parts of Europe. The article went on,

The US National Oceanic and Atmospheric Administration (NOAA) released climate data that confirmed global average temperatures between 2013 and 2017 made up the hottest five-year period since monitoring began more than 100 years ago…Agencies were split on whether 2017 was the second or third hottest year. NOAA and the Japanese Meterological Agency rated it the third hottest, while NASA, researchers from a nonprofit in Berkeley, California and European forecasters said it was the second hottest.”

It makes for sensational reading but had the authors preaching the global warming faith dug a little deeper they’d discover that NOAA was subpoenaed before Congress after a whistleblower showed that data was being fabricated ahead of the Paris Climate Summit to fit an agenda. According to Dr. John Bates, the recently retired principal scientist at NOAA’s National Climatic Data Center, the Karl study was used “to discredit the notion of a global warming hiatus and rush to time the publication of the paper to influence national and international deliberations on climate policy.

Chairman of the Commitee on Science, Space & Technology, Lamar Smith said in Feb 2017,

I thank Dr. John Bates for courageously stepping forward to tell the truth about NOAA’s senior officials playing fast and loose with the data in order to meet a politically predetermined conclusion. In the summer of 2015, whistleblowers alerted the Committee that the Karl study was rushed to publication before underlying data issues were resolved to help influence public debate about the so-called Clean Power Plan and upcoming Paris climate conference. Since then, the Committee has attempted to obtain information that would shed further light on these allegations, but was obstructed at every turn by the previous administration’s officials. I repeatedly asked, ‘What does NOAA have to hide?

Indeed. What is there to hide? Surely the global warming data should speak for itself. Anything that requires manipulation to make a point can hardly be “settled” science. Fraud is fraud and it is a shame that climate scientists busted for manipulation are not  jailed. While evil banksters were charged for the devil’s work after GFC why should climate scientists escape the misappropriation of billions in taxpayer dollars based on lies. NOAA refused to hand over emails related to the Karl Study despite being politely asked at first by its boss (i.e. Congress) which was eventually required to subpoena the science body.

Even if you believe in global warming can you honestly look at the fraud taking place with these so called trusted government bodies and take their word for granted despite such lapses in ethics?

Canada’s last cold snap before snow is never seen again


Canada has had a cold snap. The coldest temperatures in 57 years. Jo Nova writes,

In freak conditions, Canadians (and many people in the US too) are getting a chance to enjoy record cold for the last time before climate change makes winters unbearably mild.”

Temperatures observed at Toronto’s Pearson International Airport bottomed out at -22 C [-7.7F] this morning. The previous record for this date was set in 1960, when it hit -18.9 C. [-2F]”

New York is likely to have the coldest New Year’s since 1960.

Where are the scientific models that predicted this? All of the billions and trillions we must spend to prevent a catastrophe based on these models that are 98% wrong?

Tesla is trucking kidding itself


Tesla has bagged 55 orders for the semi so far. Although it is no surprise that no major truck hauling companies have signed up. Funny that. To expect trucking companies who operate under strict cashflow constraints (afterall they’re businesses not wealthy consumers) to give Musk a $200,000 upfront deposit (aka interest free loan) per ‘founder series’ truck is to put in Tesla lexicon – ludicrous. Truck companies, as CM wrote in its 30 reasons why Tesla is likely to be a bug on a windshield, are conservative. They want to see the technology proven in the field before just forking over $150-200,000 and hoping for the best. Were the technology or charging infrastructure to come up short then the whole economic proposition would come unstuck.

The Tesla trucks are roughly 30% to 70% more expensive than diesel trucks which have up to triple the range on full tanks. Many new 2018 diesel models are available now at $120k vs Tesla’s $150k (300mi range) and $180k (500mi range).

If we used the $60,000 more expensive Tesla Semi can to recoup the difference then it will need to be driven 240,000 miles using the $.25/saving per mile vs diesel Tesla number. Some estimates suggest payback in 3-4 years.

One former trucking company planner wrote,

I was surprised when I saw this “two-year” payback period quoted by Musk last week and repeated on the website. Two years? Really? He had just gotten through showing us an operational cost savings of $.25 per mile over diesel.

Well if I am going to pay back the truck I need those savings to equal the purchase price in two years. Well $180,000 divided by $.25 is 720,000 miles or 360,000 miles per year. That is not even physically possible. A truck would have to drive non-stop for 24 hours a day, 365 days a year at an average speed of 41 mph. Subtract out recharging time of 30 minutes every six hours or two hours per day and four hours per day for loading and unloading and the truck must average 54.7 miles per hour for every mile driven. It is impossible to do.

My big trucks ran long trips moving from coast to coast or north to south. I pulled out my records just for the fun of it and my trucks averaged 13,000 miles per month in summer months and under 10,000 in winter months because of weather and tougher loading and unloading conditions. Most trucks ran about 120,000 miles per year maximum even with driver teams. This was due in many cases to operational time limits of over-sized loads (half hour before sunrise until half hour after sunset is mandatory in many states for safety reasons).“

Whether the new Tesla Roadster or Tesla Semi this new deposit scheme is actually more telling than the vehicles themselves. This can be none other than a cash grab interest free loans to keep the thing alive. I salute Musk for his pioneering spirit but playing with the big boys is never easier done than said. Can’t wait to see the cashflow numbers in Q4 reporting early next year. If we get a worsening of this chart beware.


Perhaps we can also find some amusement in Tesla’s competitor (Nikola) tweets


The truth in bumper stickers


Its often said that bumper stickers carry harsh truths wrapped in comedy. On the highway yesterday see exhibit A – “After you please to save the earth”. This is a good reference to human behaviour. How often we see that the people who preach the global warming faith often  don’t practice it. Gas guzzling SUVs continue to dominate new car sales charts and according to the IATA air travel is expected to “double” by 2030. After all when 50,000 climate alarmists fly to exotic locations half way around the world  every year to kneel at the altar of the UNIPCC and tell us why we must cut our environmental impact. Then again we only need listen to IPCC co-chair of a working group Dr Ottmar Endenhofer who in his own words said, “We [UNIPCC] redistribute de factor the world’s wealth by climate policy…one has to free oneself from the illusion that international climate policy is environmental policy. T has almost nothing to do with environmental policy anymore”

Tesla – terrible Q3


Tesla’s Q3 2017 results came out last night and were in a word terrible with a capital T. Tesla reported an adjusted, non-GAAP loss of $2.92 per share, far worse than the expected loss of $2.27, which was more than double the $1.33 loss in Q2. The chart above tabulates the cash flow progression from the CMR report published Monday. While Tesla claimsit has $3.5bn cash in the bank it has more than $3.9bn in accounts payable liabilities! Tesla continued to burn piles of cash on the factory floor. Q3 cashburn was a record $1.4 billion ($16 million per day): much higher than the $1.2bn forecast.

Im our report we said that production issues were the one area that will catch Tesla out. In the car game, production efficiency is everything- the promises to make 5,000 Model 3s every week by December is now a goal likely pushed out til March 2018 at the earliest as “production hell” bites.

Musk blamed suppliers for having to push back the delivery schedule again, He said,

to date, our primary production constraint has been in the battery module assembly line at Gigafactory 1, where cells are packaged into modules. Four modules are packaged into an aluminum case to form a Model 3 battery pack. The combined complexity of module design and its automated manufacturing process has taken this line longer to ramp than expected. The biggest challenge is that the first two zones of a four zone process, key elements of which were done by manufacturing systems suppliers, had to be taken over and significantly redesigned by Tesla.”

The amusing thing about this quote is that Tesla is somehow telling (presumably Panasonic) how to do mass manufacturing. That is telling in itself – the rookie telling the amateur.

Also in our report we noted that no single mainstream auto supplier is on Tesla’s deck which tells us how little faith they have in the company. Auto suppliers run on the smell of an oily rag and after so many bad experiences won’t accept dealing with auto makers who may jeopardize their own future. Recall how many auto suppliers almost went to the wall (many were in Chapter 11) after the tech bubble collapse at the turn of the century.

Tesla expects capex of $1 billion in Q4 which is mainly for milestone payments on Model 3 production equipment and Gigafactory 1. So cash burn continues.

Tesla promised to redirect “our best engineering talent to fine-tune the automated processes and related robotic programming…and we are confident that throughput will increase substantially in upcoming weeks and ultimately be capable of production rates significantly greater than the original specification.” What??? Why weren’t the engineers working on that before. The whole point of mass production is to stamp out the bugs before a conveyor belt is turned in anger. Tesla, true to rookie form is doing everything back to front.

Are investors starting to see through the charade? Shares were pounded 5% after market. Although some may draw comfort from better Tesla S & X production, Model 3 looks like a nightmare of Halloween. Maybe the next capital raising can be called “trick or treat”!