Politics

Tesla HK sales in July-Aug just 2 (yes, just two)

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Here we can see the progression of Tesla sales in HK after the subsidies were removed. Of course the 3,697 number is front loaded but the poor Tesla dealer must be twiddling his thumbs dreaming of a sports car that can do 1.9 second 0-100km/h times in heavy HK traffic. 2 sales in the July-August period. Indeed the incentives were generous but just goes to show that the true virtue signaling power of those living in HK is dictated by displaying the wise use of capital than frittering it away trying to save the planet.

$450m for a painting? Maybe but 5 of the top 10 traded artists are now all Chinese!

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While one of Leonardo DaVinci’s pictures might have gone under the hammer for a record $450m (50% more than the previous record) last week,  the TEFAF Art Market Report 2017 shows that Chinese artists occupied 5 of the top 10 traded artists. Zhang Daqian traded almost as much as Pablo Picasso. Admittedly Picasso sales were down 50%YoY but even still the art market has continued to surge in an asset bubble everywhere world.

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So even since the heady days leading into the GFC art related exports are 100% higher than the post Lehman collapse shock and almost 50% higher than the previous peak. Imports showed a similar trend.

Art is usually unique. One offs. Trading of such pieces is also very sporadic. It is rare that a Monet or Chagall gets flipped inside a few weeks.

Perhaps the art world report’s best picture was this one. The political stage and how it will impact the art world?

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Surely art’s crowing glories often come from tortured minds which sees artists lop off their ears, smear themselves in excrement or provide more excuses to take illicit substances to come out with the next masterpieces. Interesting how a US Presidency can impact US based art dealers. Although the data would show otherwise.

Then again as much as the total value is trading higher in the art world, according to Artnet, the average prices have been trending down since 2015. The overall picture is one of general prices having peaked during July 2015 and by the start of 2016, they were back to the level seen at the beginning of 2014. Over 2016 prices have fallen to the level they were at between 2014 and 2015, roughly 15% higher than the market trough in November 2012, and still 6.25% higher than ve-years ago.

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Recall when the Japanese were snapping up Van Gogh & Monet’s during the bubble period. Has the art world sent a subliminal message?

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A long report but one full of surprising trends.

The beauty of honesty

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The above quote is from quirky fund manager Dr Michael Burry MD towards the end of the movie, The Big Short. It says so much of today. One mate who is a very decent asset manager in Australia wrote to his clients, “I realise such may fly in the face of typical adviser recommendations (show me how someone is paid and I’ll show you how they will behave) however, I would rather lose a client than lose a client’s capital.

We share similar views on the state of the global capital markets. We joked about his long message to his investors sounding like Jerry Maguire burning the midnight oil writing the “fewer clients, less money” manifesto which got him sacked.

Now that our world is moving further and further toward automated everything including pre-emptive responses (which I scoffed out the other day about LinkedIn) it is truly refreshing to see this authentic honesty. The irony is that as much as machines are pushing us into ever tighter time windows, humans instinctively carry long term memory whether trauma or positive life events.

May your honesty be paid back in spades when those you saved a bundle recall your genuine gesture.

And so the Hollywood witch hunts come forth

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As CM wrote at the time of #metoo the saddest part to emerge from this campaign will be the risk of witch hunts where potentially innocent people are forced to defend against things that may not have actually happened. As Jeremy Piven points out in the quote above – careers and reputations can be destroyed with impunity even if allegations are proven false. Whether it is Kevin Spacey or the sanctimonious George Takei, so much Hollywood dirt is surfacing and within it there will be ambulance chasers looking for a quick out of court settlement to make the problem disappear.

Real sexual assault is a major issue that should be dealt with. Shame on anyone that looks to take advantage of a serious problem to enrich themselves at the expense of someone who is innocent. That is almost as sick as committing the crime itself. Sure every proven case of sexual assault should be prosecuted to the extent of the law yet so should perjury by the ambulance chasers.

Forbidden fruit(cake) in the Fordbidden City

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Sun Tzu once said, “All men can see the tactics whereby I conquer, but what none can see is the strategy out of which victory is evolved.”

Let us not mistake China for one second. China is the master of the long game. It knows Trump has a maximum of 8 years in power. Letting him dine in the Forbidden City, the first ever foreign head of state to do so, speaks volumes of respecting an unpredictable foe. Xi Jinping knows his adversary is not all about bark. Better to cater to his huge ego and make him feel he has their attention (which he does) and get him to work solutions in their favour now it is clear they do not have carte blanche to use the USA as a door mat as they did with the previous administration.

Recall Obama’s final state visit to China. Air Force One was met with no senior officials, no red carpet and no stairs. Obama had to climb down Air Force One’s emergency exit . No more telling display of complete lack of respect to the leader of the most powerful nation.

China built man made islands in contested regional waters and did so knowing it had a maximum of 8 years to extend its future power base. Even Australia was dim witted enough to lease a port to the Chinese. Yet it was done with military precision when it knew it could.

Now China realises that Trump is not kidding over North Korea and is doing his darnedest to get China to commit to removing the snake head or otherwise America will do it for China. China, as CM has written many times before does not want to lose the strategic buffer North Korea provides from pro-US countries. China knows it could turn the lights out (China is responsible for 80%+ of imports & exports to the hermit kingdom) on Pyongyang in a heartbeat. Yet as a priority it has not been toward the top of the list.

The flip side to China taking care of the North Korean solution could mean that the US gives it certain concessions elsewhere. Foreign policy is very often about ‘optics’. China taking care of North Korea would be seen as preferable to the world than an attack by the US. China wins only if China takes care of it by itself. America wins in either scenario. China knows it is vastly militarily inferior to this US so the idea that China rushes to defend North Korea is more bark than promise to bite.

So view the idea of allowing the forbidden fruitcake (a sop to the liberal media) to dine in the most treasured of places in China as none other than the ultimate display of respect that Trump has the upper hand (which he does) but at the same time allow China to extend the ‘timing’ of any action on dealing with the ‘Rocket Man’ to give maximum optic effect for Xi. Yes, Xi Jinping and Donald Trump must have been summoning The Untouchables – “keep your friends close, keep your enemies closer” (Xi) vs “in my neighborhood they said you can get much further with a kind word and a gun than just a kind word!” (Trump).

The press might want to critique the President’s skill with chopsticks but they should focus on the fact that China put its most expensive national crockery on display to bring Trump over to their side in negotiations over regional problems. To that end call him a fruitcake all you like but this is a win-win for both supposed tyrants.

Snigger if you have to but the bigger trigger is in the voter figures

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The latest Galaxy Poll ahead of the Queensland state election on Nov 25 has the One Nation party surging to 18% of the vote. It was a mere 0.9% in 2015. Once again the stench of the two major parties completely buried in political correctness and tip-toeing around issues that are bothering voters are losing their core supporters. Say what you like about One Nation leader Pauline Hanson’s “in yer face” style but it appears to be working. For all those that look at anyone who would vote for her as being a bigot, racist or fool, the major parties must do soul searching as to why a growing number of voters would look to select her.

It is one thing to ridicule her voters. It is more telling that these mainstream parties can’t seem to win their trust via sensible policies of their own. Surely even bigots and racists have enough common sense to vote for parties that have the best balance of law making. Yet the LNP and Labor parties continue to bleed support heavily.

Yes we can jump to conclusions by pinning it on the “populist” thematic that seems to be sweeping across the world. People are growing sick on tired of governments that lack accountability, The mass screw ups in public policy. They’re sick of seeing limp wristed responses and more laws that gag voters who question their incompetence.

So to mainstream parties across the world. You need to look within rather than blame voters. You either have dreadful delivery, policy that is out of touch or both. Still you will eventually learn that experience is a hard teacher – you get the test first and the lesson afterwards.

 

Tesla – 30 reasons it will likely end up a bug on a windshield

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Contrarian Marketplace ー Tesla – 30 Reasons it will likely be a bug on a windshield

Contrarian Marketplace Research (CMR) provides 30 valid reasons to show Tesla (TSLA) is richly valued. Institutional investors have heard many of the financial arguments of its debt position, subsidies, cash burn and other conventional metrics. What CMR does is give Tesla all the benefits of the doubt. Even when extended every courtesy based on Tesla’s own 2020 production target of 1,000,000 vehicles and ascribing the margins of luxury makers BMW Group (BMW GR) & Daimler (DAI GR) the shares are worth 42% less than they are today. When stacked up against the lower margin volume manufacturers, the shares are worth 83% less. There is no fuzzy math involved. It is merely looking through a different lens. We do not deny Tesla’s projected growth rates are superior to BMW or DAI but the risks appear to be amplifying in a way that exposes the weak flank of the cult that defines the EV maker- ‘production hell’.

Follow social media feeds and Tesla’s fans bathe in the cognitive dissonance of ownership and their charismatic visionary, CEO Elon Musk. No-one can fault Musk’s entrepreneurial sales skills yet his business is at the pointy end of playing in the major leagues of mass production, which he himself admitted 18 months ago was a ‘new’ challenge. Let us not kid ourselves. This is a skill that even Toyota, the undisputed king of manufacturing, a company that has coined pretty much every industrial efficiency jargon (JIT, Kanban, Kaizen) has taken 70 years to hone. It might have escaped most investors’ attention but Lockheed Martin called on Toyota to help refine the manufacturing processes of the over budget F-35 Joint Strike Fighter. If that is not a testament to the Japanese manufacturer’s brilliance Tesla is effectively Conor McGregor taking on Aichi’s version of Floyd Mayweather.

Yet Tesla’s stock has all the hallmarks of the pattern we have seen so many times – the hype and promise of disruptors like Ballard Power, GoPro and Blackberry which sadly ended up in the dustbin of history as reality dawned. Can investors honestly convince themselves that Tesla is worth 25x more than Fiat Chrysler (a company transformed) on a price to sales ratio? 10x Mercedes, which is in the sweet spot of its model cycle?

Conventional wisdom tells us this time is different for Tesla. Investors have been blinded by virtue signalling governments who are making bold claims about hard targets for EVs even though those making the promises are highly unlikely to even be in office by 2040. What has not dawned on many governments is that 4-5% of the tax revenue in most major economies comes from fuel excise. Fiscal budgets around the world make for far from pleasant viewing. Are they about to burn (no pun intended) such a constant tax source? Do investors forget how overly eager governments made such recklessly uncosted subsidies causing the private sector to over invest in renewable energy sending countless companies to the wall?

Let us not forget the subsidies directed at EVs. The irony of Tesla is that it is the EV of the well-heeled. So the taxes of the lawnmower man with a pick-up truck are going to pay for the Tesla owned by the client who pays his wages to cut the lawn. Then we need look no further than the hard evidence of virtue signalling owners who run the other way when the subsidies disappear.

To prove the theory of the recent thought bubbles made by policy makers, they are already getting urgent emails from energy suppliers on how the projections of EV sales will require huge investment in the grid. The UK electricity network is currently connected to systems in France, the Netherlands and Ireland through cables called interconnectors. The UK uses these to import or export electricity when it is most economical. Will this source be curtailed as nations are forced into self-imposed energy security?

So haphazard is the drive for EV legislation there are over 200 cities in Europe with different regulations. In the rush for cities to outdo one another this problem will only get worse. Getting two city councils to compromise is one thing but 200 or more across country lines? Without consistent regulations, it is hard to build EVs that can accommodate all the variance without boosting production costs. On top of that charging infrastructure is an issue. Japan is a good example. Its EV growth will be limited by elevator parking and in some suburban areas, where car lots are little more than a patch of dirt where owners are unlikely to install charging points. Charging and battery technology will keep improving but infrastructure harmonisation and ultimately who pays for the cost is far from decided. With governments making emotional rather than rational decisions, the only conclusion to be drawn is unchecked virtuous bingo which will end up having to be heavily compromised from the initial promises as always.

Then there are the auto makers. While they are all making politically correct statements about their commitments to go full EV, they do recognise that ultimately customers will decide their fate. A universal truth is that car makers do their best to promote their drivetrains as a performance differentiator to rivals. Moving to full EV removes that unique selling property. Volkswagen went out of its way to cheat the system which not only expressed their true feelings about man-made climate change but hidden within the $80bn investment is the 3 million EVs in 2042 would only be c.30% of VW’s total output today. Even Toyota said it would phase out internal combustion in the 2040s. Dec 31st, 2049 perhaps?

Speaking to the engineers of the auto suppliers at the 2017 Tokyo Motor Show, they do not share the fervour of policy makers either. It is not merely the roll out of infrastructure, sourcing battery materials from countries that have appalling human rights records (blood-cobalt?) but they know they must bet on the future. Signs are that the roll out will be way under baked.

While mean reversion is an obvious trade, the reality is that for all the auto makers kneeling at the altar of the EV gods, they are still atheists at heart. The best plays on the long side are those companies that happily play in either pond – EV or ICE. The best positioned makers are those who focus on cost effective weight reduction – the expansion of plastics replacing metal has already started and as autonomous vehicles take hold, the enhanced safety from that should drive its usage further. Daikyo Nishikawa (4246) and Toyoda Gosei (7282) are two plastics makers that should be best positioned to exploit those forking billions to outdo each other on tech widgets by providing low cost, effective solutions for OEMs. Amazing that for all of the high tech hits investors pray to discover, the dumb, analogue solution ends up being the true diamond in the rough!