Luck & Good Fortune

Musk flips the ‘bird’ at the SEC

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Tesla shareholders must wish Elon Musk would be as silent as his products. It seems the Tesla CEO has learnt nothing from his $20mn fine. Given that Tesla is still under investigation for other reporting  matters, it seems unprofessional to bait the SEC when shareholders want to see stability at the helm. Musk tweeted,

Just want to that the Shortseller Enrichment Commission is doing incredible work. And the name change is so on point!,”

Just further evidence this CEO has no wish to listen to his board or interact with them in a way that promotes best practice corporate governance. It’s still a one man band. The irony of the tweet is that the SEC’s leniency allowed him to stay at the top causing a 17% jump on the settlement.

Even worse Paragraph 13 of his settlement with the SEC requires him to seek board oversight of any public communications although has yet to be officially signed off by a judge.

In a twist or irony one shareholder tweeted back that he wasn’t just attacking the stock shorters  but the long only owners as well.

Tesla shares closed down 4.4% and indicated at $273 in the after market, a fitter 3% fall. At the start of the SEC decision last week the shares had traded as low as $267. In a sense Musk has been the Shortsellers Enrichment CEO not the SEC.

Musk’s $20mn fine covered if Tesla shares jump 59 cents

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$20mn sounds like a lot. It is a lot. The SEC has struck a deal with Tesla’s Elon Musk which demands he steps down as chairman and hires two independent directors. Musk owns 33.7mn shares. Technically he would only require a 59c share price rise to cover his fine. Make it a dollar to cover taxes and transaction costs plus legal fees. In any event the fine is peanuts in the grand scheme of things.

To be honest, Tesla disciples will breathe a sigh of relief that their king still remains in the company and more importantly as the figure head. The question remains is whether a new chairman (from outside?) will see to it that the company is not just a one man band which has been painfully obvious with so many senior level defections. Too often the board has seemed to be an onerous burden for Musk in that his intergalactic brilliance shouldn’t require checks and balances.

Will a new chairman demand a thorough audit into business practices to date? It is likely that the SEC will expect a new chairman to lift the standards of the board to make sure that shareholders interests are properly decided with all directors heard. An independent audit should be viewed as the bare minimum. What would that unearth?

Tesla shares should bounce on this news and in aftermarket trading it is up. The question is how a new structure changes dynamics which reveal the short cuts and internal processes which have created so many reporting inconsistencies.

Will financial planners bring out a Naomi Osaka ETF?

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Japanese investors can get star-struck with investments. In 2015, popular pop-idol band AKB-48 saw the stocks of companies it was sponsored by surge 136% relative to the market. Aggregate sales of those companies surged 46% and 30% over the following two years. Such is the ‘hayari‘ (boom) culture in Japan. Corporates know this.

Since the US Open win by tennis star Naomi Osaka, sponsors are lining up to sign her. Prior to the win, Nissin Foods, WOWOW & Yonex were already sponsors. Nissan has just signed her. Since the win, the Topix has risen a tad over 6% while Nissan, Nissan & WOWOW have risen 7.5% in aggregate. Yonex has jumped 12.2% Early days to be sure, but the likelihood is that if she is sponsored by some smaller less liquid stock names these stocks could well fly.

Forget fancy models and esoteric investment strategies. Find whatever Osaka will be sponsored by in Japan and outperform through popularity over underlying earnings performance.

Any financial firm that launched a Naomi Osaka basket would likely see massive inflows and be able to charge higher fees on the back of it. Will the marketing departments wake up?

Cheers

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Honouring a hero  – Lt. Norman Martin Peterson was born this day in 1914. Larrakin, ladies man, comedian who enjoyed his long necks. Here is a poem he wrote during his time on Crete during his service in the Field Ambulance. He’d  probably be court-martialed in today’s Aussie Defence Force for his prose.

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Tesla Q2 – Simple Minds

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When Simple Minds wrote the lyrics to Promised you a miracle, never could they have imagined Elon Musk could have used them to present his earnings release:
The original lyrics:
Promised you a miracle
Belief is a beauty thing
Promises promises
As golden days break wondering
Chance as love takes a train
Summer breeze and brilliant light
Only love she sees
He controls on love
Love sails to a new life
Promised you a miracle
Belief is a beauty thing
Promises promises
As golden days break wondering
Only love she sees
He controls on love
Life throws a curve
Everything is possible
With promises
Everything is possible
Oh
 
I promised you a miracle
Belief is a beauty thing
Promises promises
As golden days break wondering
Chance reflects on them a while
Love screams so quietly
Slipping back on golden times
Breathing with sweet memories
I promised you a miracle
Belief is a beauty thing
Promises promises
As golden days break wondering
Only love she sees

Perhaps Tesla’s Q2 lyrics may have gone:

 

Promised you a miracle
Belief is a beauty thing
Promises promises
Model 3 customers left wondering
Ever more cashflow down the drain
Suppliers freeze as they’re $3bn light
Only delayed payables do they see
Yet he controls the bluff
Profitabilty sails to a distant life
Promised you a miracle
Credibility is a beauty thing
Promises promises
As the golden payday keeps wandering
Only trust he pleas
He loses controls on Twitter
Life throws a curve
Sledging Thai rescuers is possible
With promises
Everything is possible
Oh
I promised you a miracle
Belief is a beauty thing
Promises promises
As warranty provisions must take a hike
Investors reflect profits may take a while
Short sellers scream so quietly
Slipping back on golden times
Breathing with sweet memories
Banks were promised a profit miracle
Belief is a beauty thing
Promises promises
As targets keep fumbling
Only wait another quarter he says.
CM has said time again that Musk is a brilliant salesman. How he has managed to build a debt edifice worth more than GM, Ford & Fiat-Chrysler combined is a testament. Musk has continually missed delivery on so many promises that there is little stock in backing anything he says.
He championed $2bn in cash & equivalents but leaves out $5bn in accounts payble and accrued liabilities. The cash isn’t “net”
The company still reported $739mn negative free cash. While the rate may have slowed from Q1 it is shockingly high. Is it any wonder letters were sent to suppliers in an attempt to massage the figures to make the numbers look optically pretty.
Tesla wrote, “We aim to increase production to 10,000 Model 3s per week as fast as we can. We believe that the majority of Tesla’s production lines will be ready to produce at this rate by end of this year, but we will still have to increase capacity in certain places and we will need our suppliers to meet this as well. As a result, we expect to hit this rate sometime next year.
The problem with this statement shows the naivety of Musk’s lack of knowledge on mars production. Profitability isn’t sustained by cranking to 10k/week if demand won’t be there when it hits that milestone. There are already flip-a-Model 3 websites littered with early adopters hoping to cash in on the initial euphoria. Yet if new stock is coming out that fast, many are likely to cancel orders because there is no arbitrage opportunity.
Customer deposits fell $42mn on the quarter. Tesla noted non-reservation orders are outstripping reservation orders. If reservation orders are stagnating because or cancellations or deliveries that is not a bold claim worth much. The company suggests it is no longer taking reservations in US or Canada because current supply can meet it but deposits would still be required to hold a car at a showroom before final payment so the customer deposit line should reflect that.
Even when CM ran the most optimistic of scenarios for Tesla, valuations would be mere fractions of what the stock trades today. Yet investors overlook the tsunami of new product from competitors made by brands who have spent decades perfecting production and have access to far superior distribution networks.
More smoke and mirrors. Simple Minds are all that is needed to read through the lines. Nothing remotely impressive with these numbers.
In closing, when the company talks of the ability to power slide the Model 3 when it has faced so much criticism over deaths related to false beliefs in its autopilot system you wonder whether Musk ever listens to legal advice? Well If he can blame the families of crash death victims it is clear he thinks of customers and investors as nothing more than beta testers. Then again if he can promise them miracles he is ultimately the winner if they buy into golden days.

One man’s path to cut the rate of veteran suicides

This video is a wonderful testament to the selfless sacrifice and idea of one man, Jason Zaideman, in order to help US military veterans avoid an all too common fate of suicide due to PTSD (Post Trauma Stress Disorder) and TBI (Traumatic Brain Injury). Jason has set up a charitable centre called Operation Combat Bikesaver (OCB) in Indiana (which has one of the highest veteran suicide rates among 50 states). OCB proclaims,

We believe that breathing new life into tarnished motorcycles by honing in on learned skill sets will relinquish the deafening grasp PTSD / TBI / Depression has on Veterans and First Responders. By creating distinctive works of art, those candidates can give back to others suffering in a brotherhood of unity, targeting relief to the chaos of one’s own mind…They will be introduced to building, fabricating, welding and painting to resurrect something that was once damaged and forgotten into something new and truly unique while rebuilding themselves at the same time…We have lost way too many to PTSD / TBI and Depression. All of us here at Operation Combat Bikesaver have lost someone to the after effects of defending their country and community. We would love nothing more than to help our Heroes return to feeling normal again.

Before we get into the sad details of veteran suicides in the US, OCB has raised a paltry $20,000 through crowd funding.  To put that in context we have all seen the viral photo-shopped Time magazine picture of a little girl crying at a defiant Trump. It was used with great effect by the Refugee and Immigrant Center for Education and Legal Services (RAICES) to raise $20mn via crowdfunding! $20 million!!

Even after it was revealed that the child – stolen from her father – was never separated from the mother (who left her other 3 kids behind) and paid a smuggler to get to the border, RAICES still shamelessly uses the picture to boost its funding target to $25mn. Despite poor veterans committing suicide at a rate of 20/day some citizens seemingly attain higher virtue by pouring 1,000x more into an organisation with highly questionable ethics. So much for thanking those that served one’s country.

The Department of Veterans Affairs (VA) writes it “has worked tirelessly to develop suicide prevention resources for every Veteran who is experiencing a mental health crisis, whether or not that Veteran is enrolled in the VA Health Care System. In fact, of about 21.6 million Veterans across the country —including almost 2 million women — just over 8.5 million are enrolled for care from a VA provider.  VA is committed to identifying and reaching all Veterans who may be at risk for suicide and continues to enhance programs designed to reduce risk among those who receive services from the Veterans Health Administration (VHA). As highlighted in a recent VA-led Call to Action to Prevent Veteran Suicide, eliminating the burden of suicide among Veterans will require participation from a broad group of federal government and community partners.”

Key findings from this year’s report include:

▪ In 2014, an average of 20 Veterans died by suicide each day. Six of the 20 were recent users of VHA services in 2013 or 2014.
▪ In 2014, Veterans accounted for 18% of all deaths by suicide among U.S. adults and constituted 8.5% of the U.S. adult population (ages 18 and older).
▪ The burden of suicide resulting from firearm injuries remains high. In 2014, about 67% of all Veteran deaths by suicide were the result of firearm injuries.
▪ There is continued evidence of a high burden of suicide among middle-aged and older Veterans. In 2014, about 65% of all Veterans who died by suicide were ages 50 and older.
▪ After adjusting for differences in age and sex, risk for suicide was 22% higher among Veterans compared with U.S. civilian adults. (2014)
▪ After adjusting for differences in age, risk for suicide was 19% higher among male Veterans compared with U.S. civilian adult men. (2014)
▪ After adjusting for differences in age, risk for suicide was 2.5 times higher among female Veterans compared with U.S. civilian adult women. (2014)
▪ In 2014, rates of suicide were highest among younger Veterans (ages 18–29) and lowest among older Veterans (ages 60 and older).

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Since 2001, the proportion of VHA users with mental health conditions or substance use disorders (SUD) has increased from 27% in 2001 to 41% in 2014.

Risk for suicide following separation from active duty service remains a concern among Veterans of Operation Enduring Freedom, Operation Iraqi Freedom, and Operation New Dawn (OEF/OIF/OND). 18-24yo suicides in those three categories has surged from 27/100,000 in 2003 to 124 per 100,000 in 2014.

OCB is a truly worthy cause. Sadly in today’s world, too many seek to signal their virtue on social media rather than get their hands dirty and properly do something productive like Zaideman to fix causes. Truly inspirational. $20 million to support a cause based on a fake photo or $20 million to support people who have lost limbs, buddies and in many cases hope? After reading about the gore of war from my own grandfather’s letters from WW2 it is not hard to see what a gross misallocation of money and morals this is.

Israel – myths and realities

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You’ll never understand Israel until you visit it. Almost everything you read in the media is a falsehood. Nadav Tamir, former advisor to the late Prime Minister Shimon Peres, sarcastically quipped this week, “if Moses had possessed GPS there is no way he would have picked Israel as it is the only place in the Middle East without oil.” It might explain why this nation has had to work so hard to be innovative in order to survive. It has no natural resources. It had to invent drip irrigation so it could turn the arid chalky soil into fertile green pastures. Much of the technology inside your smart phone was designed in Israel. Household names Intel, Microsoft and Apple have all established their core R&D centers in the tiny nation state. Israelis are pragmatic and know too well that necessity is the mother of invention. Perhaps the great grandmother might be more apt.

It is perhaps one of the best kept secrets in the world. Sadly also one of the most misreported countries on the planet. Make that the most. Israel wants peace with its neighbors. Yet the mainstream media will not report the fact that Israeli hospitals are treating wounded Syrian troops of Assad as CM writes, The media won’t report that the local Druze population is livid that their fellow Israelis are doing this. Where are the media reporting the fact that hospitals not far from the Gaza Strip are caring for children who can’t get proper access to medical attention because Hamas is only concerned with spending on more rockets and building tunnels using the supplies given to it by the people supposedly oppressing it? Unfortunately the press seem to be stuck in the “if it bleeds, it leads” narrative.

The Israeli Foreign Ministry has launched a program of soft force. PM Benjamin Netanyahu launched a website in Farsi with full details of how to overcome drought gripping Iran through drip irrigation for free. While Iran shouts “Death to Israel”, Israelis shout, “we want to give life to the Iranian people.” Who is the aggressor? The Foreign Ministry is also gaining huge traction with Iraqis with an Arabic Facebook page discussing Iraqi-Jewish history. It launched in May 2018 and has 34,000 followers. Israel believes that the ‘digital embassy’ is an impactful way to get around the hatred often espoused by the regimes.

Then people miss out on news of amazing people like Tanya Oziel,  CEO of the Trans Tasman Business Circle who led a delegation from Australia & NZ to investigate tech fusion in Israel. Tanya, a Sydney based Jew of Iraqi origin, is someone of such passion and foresight that she arranged for AFL legends like Ron Barrassi to come to Israel to train local and Palestinian kids to play a game with a ball they’d never seen in mixed teams. All of a sudden the noise of the two peoples supposedly at each other’s throats was replaced by a sense of common purpose. While some of the Palestinian kids have been pilloried by some quarters in their community they still remain actively engaged with Tanya. They look beyond the hateful rhetoric so often fueled by the media. She has every right to be proud. The idea that this is some sort of jackbooted police state is engaged in apartheid and genocide is patently untrue.

Apartheid is a strange word to be used in an Israeli context. In a tiny country of just under 8 million citizens, the country’s 1.5 million Arabs, whatever challenges they may face enjoy full freedoms, voting rights and serve in the Knesset and the Supreme Court. Ask yourself how many Jews serve in any capacity (much less live) in Egypt, Morocco, Syria, Iraq, Algeria or many other countries? Egypt had 75,000 Jews once upon a time. Algeria 140,000, Iraq 135,000 Jews. Syria 30,000 Jews. Next to none now. Where is the apatheid? Where are their Jews?

Palestine is often a point of deep criticism. At the time of the State of Israel in 1948, 90% of Palestinian Arabs lived in Transjordan. A movement to create a Palestinian state never existed at the time. In fact it wasn’t until 1964 that the PLO was first established at a time the West Bank belonged to Jordan.

What is conveniently forgotten is that of the c.4mn refugees scattered across 60-odd refugee camps, the Palestinians have automatic rights to Jordanian citizenship yet they only covet Israel. Even though 21 Arab nations share a common language, they won’t offer asylum to Palestinian refugees which seems rather calculated. It provides a convenient excuse to maintain hostilities to Israel using the suffering of Palestinians as the bait.

Jordan doesn’t actively push Palestinians to take up citizenship which is their right to do so. While Israel remains an open, democratic and multi-ethnic society the PA has proven itself to be an intolerant, corrupt and self-serving dictatorship which has little interest in serving its constituents as the comptroller of its first ever audit revealed. International aid money lined the pockets of the leaders of the PLO. The French money laundering authorities discovered that Arafat’s wife’s bank account had amassed $3bn over 20 years. It is ironic that most of the original founders of the PLO didn’t live in the Palestinian Mandate when Israel was created. Arafat was born in Egypt. 

How is it that the army of Jordan’s King Hussein murdered thousands of PLO militants in 1970 yet the PLO has never called for the overthrow of the Hashemite monarchy? How is that even with the Oslo peace process coming into effect in 1993 that the PLO carried out 4,000 attacks till 1999. The Israelis so desperate (under Ehud Barak of all people) for peace gave the PLO 95% of their territorial demands yet they still kept up the attacks killing more than 1,000 Israelis, a total exceeding the previous 25 years combined. 

Arafat was presented with an outcome he did not want – peace with the State of Israel. Despite this serious peace offering Arafat accelerated the intifada. These are sad truths.

We need only look at the siege of Masada, the tale of the final revolt of the Jews against the Romans in 73CE. It truly points to the stoic nature we see today. Despite burning the citadel atop Masada and the killing of their families to evade capture, the Jews left the grain and food stores untouched as a way to tell the invaders that they were never at risk of starving but preferred death to being bonded in slavery. It typifies their pride and refusal to submit to persecution.

Jerusalem, the nation’s capitol, holds deep significance as it has been for millennia. CM’s grandfather stood by the Western Wall in 1940. The Jewish people who saw his picture felt a sense of deep gratitude that he helped defend her. The walls were built around the summit of Mount Moriah, where biblically, Abraham offered his son, Isaac, as a sacrifice. In 1948, the Jordanians took control of the wall and it was only in 1967 that Jews were able to pray at the foot of the Temple Mount again. To witness prayers on the Sabbath is something powerful. There is not one whiff of hatred. The chants, songs and prayers resonate throughout the walls. There is nothing but love in what they do. There is no extrapolation of the ancient texts to take extreme measures to murder in the name of their religion.

To witness Judaism, Christianity and Islam in the one city, one can honestly sense and feel similarities than differences. Think of the prophets. Abraham to the Jews was known as Ibrahim to the Muslims. Same for David/Daoud, Mary/Miriam and so on. Indeed if the Jews were as intolerant, racist and deranged as made out surely they would use the pretext to flatten the Al Aqsa mosque built over the Temple Mount ruins and restore it to its former glory.

Modern day history has been tough for Jews. The horrors of the Holocaust are documented at Yad Vashem. Trans Tasman Business Circle leader Johnny Weiss told the tale of how one of the guides showed a series of pictures of supposedly murdered Jews. One of them was his mother who is still alive at the ripe age of 94. What is more amazing is that she cut the guide off to say that “You are wrong. I know that girl is still alive. She is me!” After revealing her tattoo the entire tour group were floored by the revelation. Powerful beyond words. Living history as it were.

So when people wonder why the Jewish state take such measures against those that threaten to “drive them all into the sea” forgive them for doing their best to protect themselves. The last time they did not push back, 6 million died. It has taken 70 years to replenish those stocks. 70 years!

CM could go through the depths of innovation that was the key tenet of this tour. The sheer intelligence of those kids who learn advanced computer coding from age 7. We could discuss a 35 year old university doctor who has over 20 patents to his name but there is so much more to Israel. Its history has forced it to be the most advanced nation on earth. The start up nation is exactly that. When PM Benjamin Netanyahu says “we want your business” at a cyber conference speaking of the $50bn sunk cost in critical cyber infrastructure in the Negev Desert, he means it!

To sum up two weeks in Israel with this simplistic blog doesn’t do it justice. Israel is a proud country. Often brutally direct. Israelis will argue that if you think you’re the smartest in the room then it is time to change rooms. They are confident in their future because they back themselves explicitly. Failure is a good thing. Failing big is even better. Israelis think that experience is a hard teacher: they get the test first and the lesson afterwards. They believe that hard work, persistence and thinking outside the box is what counts. The education ecosystem breeds brilliance. There is no other word for it. This is deeply cultural and exceptionally hard to master.

Perhaps the highlight (there were too many to count) from the trip came on the final day. A photographer at a Tel Aviv flea market showed a picture (above) he took which chronicled a security checkpoint in 1990. The Israeli soldier and Palestinian female look tired of the situation. Things are not like that today. It feels no different to Japan. Not for one second has there been a nervous feeling about personal safety and security. Everyone who visits Israel for the first time will leave with the opposite preconceptions that they came with. It is by no means perfect but name a country that is.

It is with deep regret CM must board a flight tomorrow and leave a country that surprised on pretty much every level. It really is that amazing. Forget what you read in the papers. It is seriously fake news. See it with your own eyes and be prepared to blow your mind. Do it,