Debt

You’ll never guess how we can Save the Planet

Here is a credit card business model bound to fail. Johan Pihl, one of the founders of Doconomy, is launching a new credit card in collaboration with the UN Climate Change Secretariat and Mastercard. It cuts your ability to spend when you’ve hit your “carbon” limit, not your financial one. Now we will be able to stop our rampant plastic use with, you guessed it, plastic!  Although Doconomy claims the card will be made from bio-sourced material. Sadly the silicon chip will require high energy intensity to make. At least air pollution is good for something as it will be the main source of the ink.

Pihl said, “we realized that putting a limit that blocks your ability to complete the transaction is radical…but it’s the clearest way to illustrate the severity of the situation we’re in...Imagine if the consumer would pick up our app and actually look at their footprint and that’s the basis for whether they buy something or not,”

Perhaps we should ask all UN staffers to use it as their business credit card. If Doconomy lived up to its promises, most would have their carbon limit triggered when paying for flights to the next COP summit halfway around the globe. That would be a plus!

It uses the Åland Index to identify the CO2 of every transaction. CM encourages everyone to have a play with the carbon calculator.

For instance, if one spends 100 euro in a supermarket, the carbon footprint is almost the same as spending 100 euro in a department store. So regardless of whether one buys 100 euro of fruit or 100 euro of plastic-packaged flash-fried instant noodles, the impact of 4,902g of CO2 footprint is the same. Buy a 100 euro bottle of perfume or 100 euro of cuff links at a department store, the impact is still 4,293g. What you probably didn’t know is that smoking has a lower carbon footprint than buying groceries on a euro for euro basis. If smokers ever wanted an excuse to repeal these oppressively high taxes on tobacco, surely we should be getting Extinction Rebellion to add it to the list of demands because of the lower carbon footprint that can be achieved.

Whatever you do, don’t buy your loved one flowers! 100 euros of flowers has a 4,696g impact. That 200 euro Valentine’s dinner will add 15,928g. However, will the app calculate the 200 euro bottle of wine to celebrate an anniversary at 2x the 100 euro bottle? Yes it will.

If you do online gambling, 100 euro will cost 38,066g. You guessed it, if you spent 1,000 euro (exactly the same transaction time and keystrokes) it will cost 380,660g. Just shows how woefully inaccurate these carbon calculators are. To save the planet, instead of fuelling a gambling addiction,  you can cut your impact on the social fabric of society and save 90% by filling your car (118,600g of CO2) with 100 euro of fuel and enjoy a spiritual country drive to avoid regular attendance at Gamblers Anonymous.

Hotels – same thing. 100 euro on a hotel has 1/4 the emissions of a 400 euro hotel. Presumably if one is a master of Trivago or Hotels Combined website one can cut the emissions on exactly the same hotel room by the level of the discount. Who knew being environmental was so simple?

Doconomy states,

With DO, you get actual refunds from connected DO stores, based on the carbon impact of your purchase. We call it DO credits…The refunds can be used to compensate for the carbon footprint of your purchase. You can direct it to UN-certified carbon offset projects, or invest in sustainable funds. If you choose to invest in a fund, you must add the same amount as the value of your DO credit. You choose.”

Damn. How much will one have to spend to get enough DO credits to make an impact on a sustainable investment fund?

What a joke. As soon as the UN is involved in any such project we can absolutely guarantee the outcome will be a farce.

Japanese FSA concedes defeat on pensions

Image result for japanese pensioner

So the Japanese Financial Services Agency (FSA) has finally conceded that the pot can’t sustain elderly pensioners and believe that the onus should be pushed back on individuals. Unsurprisingly the natives are upset.

On May 22, the FSA presented a draft report entitled “Asset Formation and Management in an Aging Society” to the Financial Council. This draft report summarizes the ideal form of finances based on a 100-year lifespan but also aims to encourage individuals to form assets on their own of at least ¥20,000,000 (c.US$180,000). It also recommended long-term investment in stocks formed between 30 and 60 years old. After retirement, the premise is to continue working and earn salaries to maintain the asset level.  Sadly by 2060, 40% of the population will be aged over 65! It stands at 28% today.

The focus of this report is on the clear recognition of the limits of public pensions. In the report, there is a statement that “public pensions alone may not reach a satisfactory standard of living“.

For such a greying society, the reality is that once people hit retirement age, they are often let go and rehired on fractions of what they once earned. The idea of retiring gracefully is a complete myth. Hence the increase in pensioner crime and the 50% increase in prison capacity to house the highest cohort in Japanese prisons.

So whenever you hear Western central banks wax lyrical that if worst comes to pass, we just need to follow the Japanese example of low growth and low inflation, you have even more evidence that it simply won’t work. The Japanese have a culture of shared misery in tough times. Western culture sadly does not have that feature.

CM wrote about the dangers of pension shortfalls around the globe. The unfunded liabilities in America just for public pensions alone stands at around $5.2 trillion. Such were the shortfalls in Rhode Island, that the whole structure needed to be revamped with payouts being shed 40% just to stay solvent.

At least Japan has fallen on its sword, re pensions. CM is owed a pension but always set aside the amount owed at zero.

NZ Wellbeing Budget? Kiwis still better off in Australia

Image result for wellbeing budget nz

NZ PM Jacinda Ardern’s Wellness Budget is receiving lots of accolades. A true leader! Champagne socialist Sir Richard Branson also praised her saying other countries should take note. The idea that a budget should be solely based on economics is not progressive and more should be directed at “well-being”. That is not to say this budget is not “well-intentioned”. However, the statistics compared to across the ditch do not fare well on relative terms.

Comparing her newest policies versus Australia reveals the kangaroos get better access to social services than the kiwis. How surprising that none of the mainstream media bothered to look at the budget numbers on a like for like basis? Just praise her because she represents their ideal version of a socialist leader.  CM has looked through both budgets and adjusted for currency to make for easier like-for-like comparisons.

When it comes to health spending per capita (currency adjusted), Australia is expected to climb from A$3,324 in 2019 to A$3,568 in 2022. NZ is expected to go up slightly from A$3,516 to A$3,561 respectively.

On social security and welfare, Australia is expected to pay out A$7,322 per capita in 2019, growing to A$7,977. NZ, on the other hand, is forecast to go from A$5,573 per head to A$6,489.

On mental health, Australia forked out around A$9.1bn exclusively on these services reaching 4.2m citizens last year. NZ is planning on spending A$45.1m in 2019 with a total of A$428m by 2023/24 to hit 325,000 people on frontline services for mental health. While the move is a positive one, NZ will allocate A$1.78bn to mental health as a whole over 5 years. On an annualised basis, Australia will still allocate 5x the NZ amount to mental health per capita. So much for wellbeing.

On education, NZ plans to increase per capita spending 7.9% between 2019 and 2022 whereas Australia will lift it 12.5% over the same period. NZ spends around 2x Australia per capita on education although PISA scores between 2006 and 2015 are virtually identical (and both heading south)

On public housing, Ardern can claim a victory. Australia is expected to cut spending per capita from A$240 in 2019 to A$194 in 2022 when NZ will go from A$137 to A$282. Although let’s hope Ardern has more success than her KiwiBuild policy. The Australian’s Judith Sloan rightly pointed out,

“Ardern also has stumbled with other policies, most notably KiwiBuild. The pledge was to build 100,000 additional affordable homes by 2028.

It has since been modified to facili­tation by the government to help build new homes. Moreover, the definition of afford­ability has been altered from between $NZ350,000 ($340,000) and $NZ450,000 to $NZ650,000.

What started off as an ill-considered public housing project has turned out to be an extremely unsuccessful private real estate scam. The government estimated that there would be 1000 homes built last year under KiwiBuild; it turned out to be 47.”

In the process, NZ’s national debt per capita will grow from A$21,550 in 2019 to A$25,206 by 2022. Australia will climb from A$22,764 to A$23,293.

Look at page 119 of the NZ Wellbeing Budget, we can see the government is forecasting the economy to slow and unemployment to rise.

As we wrote several weeks ago, the statistics that Aussies are about to pack their bags and head of to NZ are not supported. CM wrote,

“According to the Australian Bureau of Statistics, there are 568,000 New Zealanders in Australia, or more than double the total 3-decades ago. Therefore more than 11% of the Kiwi population lives in Australia. At last census count, 35,000 New Zealanders migrated to Australia in 2018.

According to the New Zealand Statistics Bureau, 38,700 Aussies live in New Zealand. In the January 2018 year, 24,900 migrants arrived from Australia and a similar number departed for Australia.

Stats NZ stated, “Over half of migrants arriving from Australia are actually returning Kiwis who have been living across the Tasman for more than a year…The number of migrants going back and forth to Australia in the past year almost balanced each other out – the net gain was just 40 people in the last 12 months.”

As socialists love to point out, “feelings matter far more than facts“. Just goes to show how easily people will fall for a catchy headline, rather than judge it on its merits. Time the “woke” wake up from this slumber. By all means, celebrate more recognition of higher mental health spending but best put it in perspective. Jacinda Ardern is ordinary.

Tesla: Catching a falling knife

Tesla is breaking down. So many discipled pundits are looking at the company stock falling into “good value” territory. Good value is always relative. Sadly buying Tesla now is catching a falling knife.

It reminds CM of a time when Fuji Film dominated flat screen TV TAC films. It held 40% market share. Yet the market was shrinking and new competitor products were able to combine two films in one, dispensing with the need for TAC altogether. Yet analysts would crow at 40%. CM said 40% of soon to be nothing will be nothing.

Tesla’s valuation at $180 is ridiculously high compared to other auto manufacturers. Tesla still misses the two most important ingredients to profitable car companies – production efficiency and distribution. It has neither the first and has chopped back on the last. Digital dealerships are just not feasible especially given the nightmare quality or Tesla cars.

Big money is dumping. T Rowe Price has exited. fidelity following suit. Musk’s musings now carry little weight. Promises of stupendous Q2 volumes and making cars with ridiculously short ranges for Canadians to get the benefit of subsidies smacks of desperation.

This company, if it could, is running on the smell of an oily rag. The inability to rally back up above $200 with any conviction is showing the rattled confidence of existing holders. It’s like finding out you’ve been given the employee of the month award from your boss and you’re the only staff member. It carries no significance.

CM holds to the $28 fair value price from the 2017 report. That is CM’s optimistic scenario. So much for funding secured at $420.

Ding dong the switch is dead

Morgan Stanley has finally lowered its bearish scenario on Tesla from $97 to $10. CM wrote in October 2017 that the shares based on production of 500,000 vehicles was worth no more than $28 (refer to report page 5). That was based on rosy scenarios. Sadly CM thinks Tesla will be bought for a song by the Chinese. Maybe $4.20 a share instead of $420 “funding secured” levels.

The stock breached $200 yesterday for the first time since late 2016.

Morgan Stanley analyst, Adam Jonas, has still kept its base case scenario at $230 per share. His bull case is $391.

Where is the conviction? To drop a bear case target by 90% must surely mean the base case is far lower than presently assumed.

Jonas must assume the bear case is actually the base case. Sell side brokers love to hide behind scenario analysis to cop out having to get off the fence. His compliance department probably prevents him from realizing $10 is his true heart.

Tesla was always playing in a market that it had no prior experience. It is not to say the products didn’t have promise. The problem was the execution. Too much senior management turnover, missed targets, poor quality and too many Tweets from Musk.

The amount of bad press arising from a lack of service centers has driven customers to moan on social media at its amateur approach. The fragile dreams of being an early adopter are being shattered. Cash burn remains high and deliveries remain low. Some pundits think Tesla orders are under real pressure in 2Q 2019.

The recent all share deal with Maxwell Technologies has seen those holders -20% since the transaction a few weeks ago. CM argued how a company with such revolutionary technology could sell itself for all shares in a debt-ridden loss making like Tesla? If the technology was of real value PE funds would have snapped it up or at the very least made a bid in cash. That none was made speaks volumes about what was bought.

All of the arguments hold true in the above link, “Tesla – 30 reasons why Tesla will be a bug on a windshield

Tesla below $200 after a successful cap raise is not a good sign. It’s the faithful slowly tipping out. Await another imaginary Musk-inspired growth engine to be announced shortly to try prop up the stock price. Yet the momentum will continue to sink. The market is losing confidence in Musk. The 1Q results were diabolically bad.

Major holder T Rowe Price has stampeded out the door. The stock is too risky. Musk is a brilliant salesman but he has bitten off more than he can chew.

CM always thought that Toyota selling its Tesla stake was a major sign. Acknowledging that under the hood the company possessed no technology that Toyota didn’t already own.

Watch the free fall. The Tesla stock will be below $100 by the year end.

(CM does not hold Tesla stock)

Actually, vote on the political emergency

No surprise to see The Guardian parrot on about a climate emergency. The editorial completely misses out on the political emergency we face. The economic climate is a massive issue facing Australia. When Bill Shorten tells us that he “will change the nation forever” we shouldn’t view that positively. It is probably the honest thing he has said. Labor’s policy suite is the worst possible collection one could assemble to tackle what economic headwinds lie ahead. Our complacency is deeply disconcerting.

First let’s debunk the climate noise in The Guardian.

The math on the climate emergency is simple. Australia contributes 0.0000156% of global carbon emissions. No matter what we do our impact is zip. If we sell it as 560 million tonnes it sounds huge but the percentage term is all that is relevant. Even Dr Finkel, our climate science guru, agrees. What that number means is that Australia could emit 65,000x what it does now in order to get to a 1% global impact. So even if our emissions rise at a diminishing rate with the population, they remain minuscule.

Bill Shorten often tells us the cost of doing nothing on climate change is immeasurable. He’s right, only in that “it is too insignificant” should be the words he’s searching for.

Perhaps the saddest part of the Guardian editorial was to say that the Green New Deal proposed by Alexandria Ocasio Cortez was gaining traction in the US. It has been such a catastrophic failure that she lost an unsolicited vote on the Senate floor 57-0 because Democrats were too embarrassed to show up and support it. Nancy Pelosi dismissed it as a “green dream.” At $97 trillion to implement, no wonder AOC says feelings are more important than facts.

With the 12-year time limit to act before we reach the moving feast known as the tipping point, it gets confusing for climate sceptics. Extinction Rebellion wants things done in only 6 years. The UK House of Commons still can’t get a Brexit deal done inside 3 years but can act instantaneously to call a “climate emergency” after meeting a brainwashed teenager from Sweden. It speaks volumes of the desperation and lack of execution to have to search for political distractions like this.

The ultimate irony in the recent celebration of no coal-fired power in the UK for one week was fossil fuel power substituted all of it – 93% to be exact. Despite the energy market operator telling Brits that zero carbon emissions were possible by 2025 (40% of the current generation capacity is fossil fuel), it forgot that 85% of British homes heat with gas. Presumably, they’d need to pop on down to Dixon’s or Curry’s to buy new electric heaters which would then rely on a grid which will junk 40% of its reliable power…good luck sorting that out without sending prices sky high. Why become beholden to other countries to provide the back-up? It is irrational.

Are people aware that the German electricity regulator noted that 330,000 households (not people) were living in energy poverty? At 2 people per household, that is 1% of the population having their electricity supply cut off because they can’t afford to pay it. That’s what expensive renewables do. If the 330,000 could elect cheap electricity to warm their homes or go without for the sake of the climate, which would they choose? 100% cheap, reliable power. Yet Shorten’s plan can only push more into climate poverty which currently stands at 42,000 homes. This is before the economy has started to tank!

If one looks across Europe, it is no surprise to see the countries with the highest level of fossil fuel power generation (Hungary, Lithuania & Bulgaria) have the lowest electricity prices. Those with more renewables (Denmark, Germany & Belgium), the highest. That is Australia’s experience too. South Australia and Victoria have already revealed their awful track record with going renewable. Why did Coca-Cola and other industries move out of SA after decades? They couldn’t make money with such an unreliable

Ahh, but we must protect our children and grandchildren’s futures. So low have the left’s tactics sunk that using kids as human shields in the fight for climate change wards off conservatives calling out the truth because it is not cool to bully brainwashed kids. We should close all our universities. As the father of two teenagers, CM knows they know everything already so there is little requirement for tertiary education!

The Guardian mentioned, “But in Australia, the Coalition appears deaf to the rising clamour from the electorate [on climate change].” Really?

CM has often held that human consumption patterns dictate true feelings about climate change. Climate alarmist Independent candidate Zali Steggall drives a large SUV and has no solar panels on her roof! Her battleground in the wealthy seat of Warringah is probably 70%+ SUV so slapping a Zali bumper sticker does nothing but add to the hypocrisy.

Why do we ignore IATA forecasts that project air travel will double by 2030? Qantas has the largest carbon offset program in the world yet only 2% elect to pay the self-imposed tax. Isn’t that telling? That is the problem. So many climate alarmists expect others to do the heavy lifting.

SUVs make up 43% of all new car sales in Australia. In 2007 it was 19%. Hardly the activity of a population fretting about rising sea levels. In Warringah, waterfront property sales remain buoyant and any bank that feared waves lapping the rooves of Burran Avenue would not take such portfolio risk, much less an insurance company.

Shorten’s EV plan is such a dud that there is a reason he can’t cost it. Following Norway is great in theory but the costs of installing EV infrastructure is prohibitively expensive. It will be NBN Mark II. Will we spend millions to trench 480V connectors along the Stuart Highway?

Norway state enterprise, Enova, said it would install fast chargers every 50km of 7,500km worth of main road/highway. Australia has 234,820km of highways/main roads. Fast chargers at every 50km like the Norwegians would require a minimum of 4,700 charging stations across Australia. Norway commits to a minimum of 2 fast chargers and 2 standard chargers per station.

The problem is our plan for 570,000 cars per annum is 10x the number of EVs sold in Norway, requiring 10x the infrastructure. That would cost closer to $14bn, or the equivalent of half the education budget.

The Guardian griped that “Scott Morrison’s dismissive response to a UN report finding that the world is sleepwalking towards an extinction crisis, and his parliamentary stunt of fondling a lump of coal”

Well, he might doubt the UN which has been embroiled in more scandals related to climate change than can be counted. Most won’t be aware that an internal UN survey revealed the dismay of unqualified people being asked for input for the sake of diversity and inclusion as opposed to choosing those with proper scientific qualifications. The UN has climbed down from most of its alarmist predictions, often citing no or little confidence of the original scare.

Yet this election is truly about the cost of living, not climate or immigration. The biggest emergency is to prepare for the numbers we can properly set policy against.

We have household debt at a record 180% of GDP. We have had 27 years of untrammelled economic growth. Unfortunately, we have traded ourselves into a position of too much complacency. Our major 4 banks are headed for a lot of trouble. Forget meaningless stress tests. APRA is too busy twiddling its thumbs over climate change compliance. While the Royal Commission may reign in loose lending, a slowing global economy with multiple asset bubbles including houses will come crumbling down. These banks rely 40% on wholesale markets to fund growth. A sharp slowdown will mean a weaker dollar which will only exacerbate the problem.

We have yet to see bond markets price risk correctly. Our banks are horribly exposed. They have too little equity and a mortgage debt problem that dwarfs Japan in the late 1980s. Part/whole nationalization is a reality. The leverage is worse than US banks at the time of the Lehman collapse.

We have yet to see 10% unemployment rates. We managed to escape GFC with a peak of 6% but this time we don’t have a buoyant China to rescue us. Consumers are tapped out and any upward pressure on rates (to account for risk) will pop the housing bubble. Not to worry, Shadow Treasurer Chris Bowen assures people not to panic if their home falls into negative equity! This is the level of economic nous on the catastrophe that awaits. It is insanely out of touch.

Are our politicians aware that the US has to refinance US$8.4 trillion in US Treasuries in the next 3 years? That amount of money will crowd out a corporate bond market which has more than 50% of companies rated BBB or less. This will be compounded by the sharp rise in inventories we are witnessing on top of the sharp slowdown in trade (that isn’t just related to the trade war) which is at GFC lows. The 3.2% US economic growth last quarter was dominated by “intellectual property”, not consumption or durable goods.

China car sales have been on a steep double-digit decline trajectory for the last 9 months. China smartphone shipments dwindle at 6 year lows. In just the first four months of 2019, Chinese companies defaulted on $5.8 billion of domestic bonds, c.3.4x the total for the same period of 2018. The pace is over triple that of 2016.

Europe is in the dumps. Germany has had some of the worst industrial production numbers since 2008. German GDP is set to hit 0.5% for 2019. France 1.25% and Italy 0.25%. Note that in 2007, there were 78mn Europeans living in poverty. In the following decade, it hit 118mn or 23.5% of the population.

Global bellwether Parker Hannifin, which is one of the best lead indicators of global industrial growth, reported weaker orders and a soft outlook which suggests the outlook for global growth is not promising.

This election on Saturday is a choice between the lesser of two evils. The LNP has hardly made a strong case for reelection given the shambolic leadership changes. Take it to the bank that neither will be able to achieve surpluses with the backdrop we are headed into. Yet when it comes to economic stewardship, it is clear Labor are out of their depth in this election. Costings are wildly inaccurate but they are based on optimistic growth scenarios that simply don’t exist. We cannot tax our way to prosperity when global growth dives.

Hiking taxes, robbing self-managed super fund retirees and slamming the property market might play well with the classes of envy but they will be the biggest victims of any slowdown. Australia has run out of runway to keep economic growth on a positive footing.

We will do well to learn from our arrogance which has spurned foreign investment like Adani. We miscalculate the damage done to the national brand. Adani has been 8 years in the making. We have tied the deal up in so much onerous red tape, that we have done nothing more than treating our foreign investors with contempt. Those memories will not be forgotten.

There will come a point in years to come where we end up begging for foreigners to invest at home but we will only have ourselves to blame.

The editorial closes with,

However you choose to exercise your democratic decision-making on Saturday, please consider your candidate’s position on climate and the rapidly shrinking timeframe for action. We have endured mindless scare campaigns and half-baked policy for too many decades. We don’t have three more years to waste.

This is the only sensible quote in the entire article. The time for action is rapidly shrinking. However, that only applies to the political and economic climate. One can be absolutely sure that when the slowdown hits, saving the planet will be furthest removed from Aussie voters’ minds.

Was Tesla/Maxwell deal smart?

Related image

Tesla (TSLA) has bought Maxwell (MXWL) for an all-stock transaction at US$288m notional value. The question is why any company would accept an all share transaction from a chronic loss-making company to buy its supposedly “amazing” futuristic dry capacitor technology? Are shareholders of MXWL as hooked into the EV cult as those at Tesla? Clearly not all of them. A group of MXWL investors launched a class action to block the deal. Sadly they failed.

If the management of Maxwell truly believed this deal was a winner and the technology was game-changing, why not demand cash? Why didn’t Tesla invite Panasonic’s battery boffins to assess whether the technology had merit? One must question how good is Maxwell’s IP to only find one buyer and for an all share deal? Where were the private equity (PE) vultures circling? How little confidence in one’s product or how much faith in Musk’s cult-like status to fall for such terms?

Maxwell at the 9 month FY2018 stage reported US$91.6mn (-8%YoY) in revenue and a net loss of $30.2mn. Cash halved from $50.122m in 9M 2017 to $23.561mn 9M 2018. The company did sell its high voltage product line to Renaissance Investment Foundation for $55mn with a 2-year $15mn earn out. That involved an upfront payment of $48m making pro-forma cash as at Sep 30, 2018, total $69mn. The company has an accumulated deficit of $277mn.

While the two companies had been in conversation for several years, Musk seemed to get serious in December 2018.

Forget the technological merits of Maxwell. It is easy to work out the quality of the deal based on the structure and the lack of appetite from the mega battery makers or PE firms to validate it. There is no way that MXWL didn’t show its wares to the majors. Given the deal was announced in February 2019, the EV battery and PE world would have at the very least done some back of the envelope calculations to value the business.

All that Musk has done has absorbed another loss-making business into the same cult and give himself another “dream” to add to the smoke and mirrors story.

Maxwell’s management must have channeled Don Adams, “good thinking, 99” but will undoubtedly end up saying, “sorry about that, Chief!”