Crowd Funding

Musk to be investigated by SEC over tweets

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CM has always thought that Elon Musk is the ultimate salesman. CM has also wrote that the biggest risk to being a short seller was then”cult” status of the company. On any rational investment grounds the stock is ridiculously priced but as the old adage goes, “the market can stay irrational longer than you can remain solvent!

Tesla is a car company that is worth more than GM, Ford & FiatChrysler combined. One that trades at 5x Daimler in valuation terms, a luxury competitor that is in the sweet spot of its product line up and rudely profitable.

Back in June, Musk bought $35mn worth of shares in Tesla. The whole idea that someone is willing to fork out $75bn on a whim seems somewhat implausible. Is it safe to assume that all of 100s of lawyers, bankers and brokers would need a little bit of time to prepare the necessary documentation to cement such a ridiculous sum? Or is money now just so free and easy that a billionaire deploys a vault full of cash loaded full of Zero Halliburtons into a private jet after a few phone calls?

SEC enforcement attorneys had already been gathering general information about Tesla’s public statements on manufacturing goals and sales targets. Now SEC attorneys are investigating whether his tweets about securing funding were factual.

CM is not accusing Musk of insider trading albeit as a matter of course the SEC should investigate when he knew about his mega financier. One wonders how it is that we know so little about the buyer, the term sheet, the question of shareholder approval and how “secure” it is? Taking it private will remove the lens of quarterly reporting but it doesn’t remove the fact of how dreadfully the company is run or how amateur production is. Even if public scrutiny is removed, the problems of profitability don’t disappear and the need for funds, credit ratings etc if he taps public markets for debt capital remain.

If Musk pulls it all off and the company becomes a roaring success then CM will gladly eat a whole humble pie and openly admit it was wrong.

As to the SEC investigation let’s hope it has learnt the lessons of its bumbling incompetency over Bernie Madoff and doesn’t miss anything that might be bleeding obvious.

Politicians true colours come through via crowd funding

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What a joke. The spat between Senator Sarah Hanson-Young (SHY) of the Greens and Senator David Leyonhjelm (DL) of the LibDems over defamation is ridiculous. Yes, DL’s words were hardly statesman like and SHY’s double standards not withstanding the public deserves better. Period. Yet so vigorously are these politicians willing to defend YOUR supposed right to free speech that they want YOU to crowd fund it. Talk about principles in action. Supposedly if either loses they’ll crowd fund the penalties as well? Apart from the generous salaries ($200k) and perks (free cars, accommodation, flights etc) of being a politician they still unashamedly come to you to support their own stupidity. If it means so much to them they should back their rights of being offended or protecting free speech on their own dime. #UnfitToServe

Oi vey Australia! Time to develop innovation

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While the Australian school system seems obsessed dealing with LGBT awareness, gender fluidity and social causes, a day in the most up to date Israeli cyber park in the Negev Desert shows just how seriously the small nation deals with the real world and preparing future generations for it.

It should come as no surprise that Israel lives under constant threat. The Jewish State is happy to leave LBGT 20yr celebrations to rainbow flags on the beachfront in Tel Aviv. When it comes to education it is all about working kids hard to be competitive, hungry and innovative. Primary school students learn computer coding and mathematics. They don’t hold cross dressing presentations or participate in Family Day as a replacement for Mothers Day to show inclusiveness for minorities. Survival matters.

Those same primary schoolers learn even more skills when they hit high school. The government monitors 13yo kids for their cyber acumen to screen the best possible assets for the future. By 16yo the weeding out process is all but done.

The notorious IDF cyber unit 8200 is relocating to this cyber centre in Negev where over a dozen buildings are being erected to gather the finest innovators in the world. It’s a $50bn investment. Even the Israeli Defence Force standard cyber units will relocate there. As Israelis have compulsory military service from 18 years of age, the best and brightest get automatically assigned to these cyber teams.

The universities are collaborating with corporates and government. They work on real solutions that matter rather than shoot for research on questions nobody is asking. Companies like Intel are setting up R&D centres in Israel because the talent is there.

Australia may have a Department if Innovation & Science which has a billion dollar budget. The Israeli tech infrastructure organizers in places like the Negev encourage start ups. They award grants thru competitive processes based purely on merit. Instead of cutting grant cheques to all for participating in the Aussie “everyone wins a prize” mentality, the idea is that only the “best” idea out of 500 wins. The rest are forced to make more compelling arguments and work to secure alternative funding. That weeds out waste. If Australia just divvies out with fairness in mind, resources are misallocated and it is more likely the capital allocators are clueless.

The system is impressive beyond words. Listening to a dozen presenttions ranging across medical, cyber and agricultural fields, one cannot be thoroughly in awe of an early-thirties doctor from the neighboring university who has racked up 20+ patents for his inventions.

Then there is the tale of a 17yo intern who was given an asssignment to hack the vulnerability of a mobile phone manufacturer whose PR department lied through its back teeth to cover up a flaw in the system they boasted was secure. They cited the original hack wasn’t done over a secure VPN. In 3 days the 17yo kid hacked that too. Take about a face plant.

The same group told a large American corporate that it’s video streaming had a bug. Instead of admitting the lapse, the tech giant hunkered down and dug in its heels. They put a bandaid on it and were hacked again. They have managed to make a computer that is next to another but not connected in anyway, even via WiFi to make functions purely based on heat.

The answer is simple though. There are many cultural reasons why this type of education system works in Israel. While Australia has no hope of holding a candle to the Israelis there are huge lessons to be learnt about fostering a culture of individual excellence rather than move down the slippery slope that fails to prepare our kids for the future. It maybe too late.

Waking up to a horror of our own creation

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Some will say I am a pessimist. I’d prefer to be called an optimist with experience. At only age 16 (in 1987) I realized the destructive power financial markets had on the family home. Those memories were etched permanently. We weren’t homeless or singing for our supper but things sure weren’t like they use to be. It taught me much about risk and thinking all points of view rather than blindly following the crowd. That just because you were told something by authority it didn’t mean it was necessarily true. It was to critically assess everthing without question.

In 1999, as an industrials analyst in Europe during the raging tech bubble, we were as popular as a kick in the teeth. We were ignored for being old economy. That our stocks deserved to trade at deep discounts to the ‘new economy’ tech companies, no thanks to our relatively poor asset turnover and tepid growth rates. The truest sign of the impending collapse of the tech bubble actually came from sell-side tech analysts quitting their grossly overpaid investment bank salaries for optically eye-watering stock options at the very tech corporations they rated. So engrossed in the untold riches that awaited them they abandoned their judgement and ended up holding worthless scrip. Just like the people who bought a house at the peak of the bubble telling others at a dinner party how they got in ‘early’ and the boom was ahead of them, not behind.

It was so blindingly obvious that the tech bubble would collapse. Every five seconds a 21 year old with a computer had somehow found some internet miracle for a service we never knew we needed. The IPO gravy train was insane. One of my biggest clients said that he was seeing 5 new IPO opportunities every single day for months on end. Mobile phone retailers like Hikari Tsushin in Japan were trading at such ridiculous valuations that the CEO at the time lost himself in the euphoria and printed gold coin chocolates with ‘Target market cap: Y100 trillion.’ The train wreck was inevitable. Greed was a forgone conclusion.

So the tech bubble collapsed under the weight of reality which started the most reckless central bank policy prescriptions ever. Supposedly learning from the mistakes of the post bubble collapse in Japan, then Fed Chairman Alan Greenspan turned on the free money spigots. Instead of allowing the free market to adjust and cauterize the systemic imbalances, he threw caution to the wind and poured gasoline on a raging fire. Programs like ‘Keep America Rolling’ which tried to reboot the auto industry meant cheaper and longer lease loans kept sucking consumption forward. That has been the problem. We’ve been living at the expense of the future for nigh on two decades.

Back in 2001, many laughed me out of court for arguing Greenspan would go down in history as one of the most hated central bankers. At the time prevailing sentiment indeed made me look completely stupid. How could I, a stockbroker, know more than Alan Greenspan? It was not a matter of relative educations between me and the Fed Chairman, rather seeing clearly he was playing god with financial markets.  The Congressional Banking Committee hung off his every word like giddy teenagers with a crush on a pop idol. Ron Paul once set on Greenspan during one of the testimonies only to have the rest of the committee turn on him for embarrassing the newly knighted ‘Maestro.’ It was nauseating to watch. Times seemed too good so how dare Paul question a central bank chief who openly said, “I know you think you understand what you thought I said but I’m not sure you realize that what you heard is not what I meant.”

We all remember the horrors of the collapse of Lehman Brothers and the ensuing Global Financial Crisis (GFC) in September 2008. The nuclear implosions in credit markets had already begun well before this as mortgage defaults screamed. The 7 years of binge investment since the tech bubble collapse meant we never cleansed the wounds. We would undoubtedly be in far better shape had we taken the pain. Yet confusing products like CDOs and CDSs wound their way into the investment portfolios of local country towns in Australia. The punch bowl had duped even local hicks to think they were with the times as any other savvy investor. To turn that on its head, such was the snow job that people who had no business being involved in such investment products were dealing in it.

So Wall St was bailed out by Main St. Yet instead of learning the lessons of the tech bubble collapse and GFC our authorities doubled down on the madness that led to these problems in the first place. Central banks launched QE programs to buy toxic garbage and lower interest rates to get us dragging forward even more consumption. The printing presses were on full speed. Yet what have we bought?

Now we have exchange traded funds (ETFs). Super simple to understand products. While one needed a Field’s Medal in Mathematics to understand the calculations of a CDO or CDS, the ETF is child’s play. Sadly that will only create complacency. We have not really had a chance to see how robots trade in a proper downturn. ETFs follow markets, not lead them. So if the market sells off, the ETF is rapidly trying to keep up. Studies done on ETFs (especially leveraged products) in bear markets shows how they amplify market reactions not mitigate them. So expect to see robots add to the calamity.

Since GFC we’ve had the worst post recession recovery in history. We have asset bubbles in bonds, stocks and property. The Obama Administration doubled the debt pile of the previous 43 presidents in 8 years. Much of it was raised on a short term basis. This year alone, $1.5 trillion must be refinanced.  A total of $8.4 trillion must be refinanced inside the next 4 years. That excludes the funding required for current budget deficits which are growing despite a ‘growing economy’. That excludes the corporate refinancing schedule. Many companies went out of their way to laden the balance sheet in cheap debt. In the process the average corporate credit rating is at its worst levels in a decade. Which means in a market where credit markets are starting to price risk accordingly we also face a Fed openly saying it is tapering its balance sheet and the Chinese and Japanese looking to cut back on US Treasury purchases. Bond spreads like Libor-OIS are already reflecting that pain.

Then there is the tapped out consumer. Unemployment maybe at record lows, yet real wage growth does not appear to be keeping up. The number of people holding down more than one job continues to rebound. The quality of employment is terrible. Poverty continues to remain stubbornly high. There are still three times as many people on food stamps in the US than a decade ago – 41 million people. Public pension unfunded liabilities total $9 trillion. Credit card delinquencies at the sub prime end of town are  back at pre-crisis levels. We could go on and on. Things are terrible out there. Should we be in the least bit surprised that Trump won? Such is the plight of the silent majority, still delinquent after a decade. No wonder Roseanne appeals to so many.

A funny comment was sent by a dyed-in-the-wool Democrat, lambasting Trump on his trade policies. He criticized the fact that America had sold its soul for offshoring for decades. Indeed it had but queried that maybe he should be praising Trump for trying to reverse that tide, despite being so late to the party. Where were the other administrations trying to defend America all this time? Stunned silence.

Yet the trends are ominous. If we go back to the tech bubble IPO-a-thon example. We now have crowd funding and crypto currencies. To date we had 190 odd currencies to trade. Of that maybe a handful were liquid – $US, GBP, JPY, $A, Euro etc – yet we are presented with 1,000s of crypto currency choices. Apart from the numerous breaches, blow ups and cyber thefts to date, more and more of these ‘coins’ are awaiting the next fool to gamble away more in the hope of making a quick buck. Cryptos are backed by nothing other than greed. Yet it sort of proves that more believe that they are falling behind enough such they’re prepared to gamble on the biggest lottery in town. One crypto used Wikipedia as a source for its prospectus.

Yet the media remains engrossed on trying to prove whether the president had sex with a porn star a decade ago, genderless bathrooms, bashing the NRA, pushing for laws to curtail free speech, promoting climate change and covering up crime rather than look at reporting on what truly matters – the biggest financial collapse facing us in 90 years.

There is no ‘told you so’ in any of this. The same feelings in the bones of some 30 years ago are back as they were at the time of Greenspan and Lehman. This time can’t be avoided. We have borrowed too much, saved too little and all the while blissfully ignored the warning signs. The faith and confidence in authorities is evaporating. The failed experiment started by Greenspan is coming home to roost. This will be far worse than 1929. Take that to the bank, if it is still in operation because you won’t be concerned about the return on your money but the return of it!

Worst Q2 start for S&P 500 since 1929

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ZeroHedge reported today that the S&P had its worst percentage 2nd quarter start since 1929 overnight. Both the Dow Jones Industrial Average broke below the 200 day moving average before an at the death rally to close above. Plunge Protection Team (PPT)? The broader S&P 500 failed to hold the 200 dma. All feels ominous. Awaiting the dead cat bounce. Short dated out of the money index put options continue to look ridiculously cheap relative to other asset classes. Gold also having a good day. Bitcoin showing its true value sliding below $7.000. Best to remember in a bear market the winner is the one who loses the least.

A vote for Palestine or a vote against America? Double standards hidden in other votes

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Why is anyone surprised by the UNGA vote on the recognition of Jerusalem as the capital of Israel?  At the UN General Assembly emergency meeting on Thursday to “null & void” the move – 128 votes in favour and nine against, while 35 countries abstained. While it can’t be vetoed it is not legally binding in any way. If one was to break down the vote of the permanent members then without question most of those issued from Russia or China are to stick it to the Americans more than support/reject the cause itself and vice versa . When Turkey’s foreign minister starts talking of not selling out democratic rights of others perhaps he should look to his own boss and question the dictatorship, the lack of freedom of press or an independent judiciary that exists in his own country?

People can stick it to Trump all they want, but a decision was made in mid 1990’s by US Congress, with a clause that had to be signed every 6 months by whomever was President to delay invocation of this act. Between 1998 and 2017, there have been 37 presidential waivers, with the last one expiring a week ago. Trump has just put the ball into motion. After all Presidents Bill Clinton, George W Bush and Barack Obama have all explicitly said on record that “Jerusalem has and always will be the capital of Israel” The irony of chastising the current president for doing what others said speaks of the hypocrisy of bashing a politician for fulfilling a promise. If only the global political class could catch this disease?!?

While it is hardly a surprise to see Trump’s reaction ‘to take names’ the flip side is that he should allow each UN member state to vote how they wish – period. He would be better off not pointing out the obvious. Indeed if “he doesn’t care” he should just act silently. The message will ring louder. All this posturing only seeks to make him look like a spoilt kid taking his toys home (then again one wonders if that is half the reason he does it. UN votes are meaningless to begin with and seldom have they ever achieved anything worthy.

The UN needs to be defunded in order to reform. It has promised many times to streamline yet it continues to expand into irrelevant quangos. The bloated tax free salaries, retirement packages and living allowances are obscene. Is there any wonder that the UN needs more funding, given 80% of the budget is swallowed up on remuneration alone? No wonder they don’t want progress.

While the truth may be that the US ‘pays’ a lot which ends up in the pockets of many countries, the US will likely go ahead and build the embassy in Jerusalem regardless. Political capital is often ‘bought’. It doesn’t make it right although one who gives to charity hopes that the money ends up supporting favorable causes. Indeed Nikki Haley when criticized for “bullying tactics” responded, “So, when we make a decision, at the will of the American people, about where to locate OUR embassy, we don’t expect those we’ve helped to target us…The free money train doesn’t go on forever.

Virtue has and never will be rewarded in politics. To make the point made by the UN’s very own website, some nations lose their right to vote because “according to Charter Article 19, cannot vote because the amount of their arrears equals or exceeds the amount of contributions due from them for the preceding two full years.” So in short if you don’t pay your dues, you lose voting rights. So the UN is basically a ‘club’. Don’t pay your dues, don’t get a vote. Simple. By the same token, some clubs give special treatment for members that pay more. Platinum, Gold, Silver, Bronze etc.

Here is a telling part of the hypocrisy. Look at the efforts made by these unelected UN representatives when exploring the number of abstentions on certain issues such as “Work of the Special Committee to Investigate Israeli Practices Affecting the Human Rights of the Palestinian People and Other Arabs of the Occupied Territories : resolution / adopted by the General Assembly“ So claiming victory and gloating about the embarrassment caused to the US, why  were there 77 abstentions in 2017, 73 abstentions in 2016, 75 in 2015, 79 in 2014, 75 in 203 and 72 in 2012? Notice a pattern? Surely if the evil Israelis don’t rightly deserve to call Jerusalem the capitol and are constantly attacked by the UNHRC for human rights abuses against the Palestinians, why are so many nations abstaining when it comes to investigating these crimes? Surely such evidence would justify the actions of rejecting Israel.

Claiming yesterday as a triumph for the world, the UN is still exposed for what it is. Few bother to look at how nations truly feel when exploring one derivative deeper. The lack of international will is telling. Then again when we only need look at the track record – WHO appointing Robert Mugabe as an ambassador, the proposal to  send in the blue helmets to quell crime in Chicago and the multiple scandals, the complete lack of governance and accountability with respect to the IPCC.

So until all those that vote to punish Israel don’t stick to the script on every vote then the truth is indeed told. Virtue signal on the surface and hide behind abstentions where it matters to ‘keep the funds coming’. Sorry, what was this about principles?

Bitcoin bubble – Nothing to see here

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When it looks like a bubble, acts like a bubble it’s probably a bubble. Bitcoin up another 13% today.