Regulation

Tesla Q2 – Simple Minds

2D9CF341-8A0A-4F3A-AE35-C71EE368C5B4.jpeg

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.

If you’re easily triggered don’t join the military

281C303E-99E3-4815-BD0C-60DF6EB69C94.jpeg

The Australian Defence Force (ADF) should never be actively trying to recruit spent cartridges to serve. What is the purpose to train people that don’t wish to step in harm’s way? Yet our top brass is hell bent on diversity and equality targets. Let’s not get the message confused. Those who actively seek to defend our nation with dignity and bravery deserve our highest praise and support. As written yesterday, it is absolutely clear that the project, even by the ADF’s own data and reporting, is failing. Instead of admitting defeat, the armed forces leadership believes doubling down is preferable.

The Navy thought serving RAN seamen painting fingernails pink in order to push the ‘100 Days for Change’ campaign was more virtuous than spending to defend our nation. Make no mistake, China’s military is not pandering to politically correct posturing. They must have chuckled at this overt display of weakness. President Xi wants to make his country the dominant, God-fearing player in the region and as far as displaying weakness goes Australia may as well hand over the keys to the Lodge.

8CFA86F1-D49C-41F8-8F36-2069B5DF13EF

Speaking to people related to personnel in the Defence Department yesterday, the argument was that diversity is a good thing. When asked to defend the position the individual couldn’t come up with a credible answer. The strongest argument offered was that allow smoother integration into civilian life. Since when did it become a current employers role to help the transition of leavers? Surely the aim is to keep soldiers for the long term not support the 25% who are actively looking to quit.

CM posed a question back. Usain Bolt can run 100m faster than me. I’ve wanted to hold the 100m world record since I was a kid. In order to fulfil my subjective sense of self worth he should be forced to run 150m while I’m at 75m. It’s a stupid argument.  Much like a heavyweight male boxer fighting a female heavyweight in the quest for equality.  The man is likely win 100% of the time. Look at men identifying as women  making such a mockery of women’s sports. Let’s openly accept that I’ll never beat Bolt and there is no point pretending it. If the ADF want to celebrate diversity, embrace the existence of biological and  physiological differences. Stop this nonsense that “diversity is our strength”  because outside of diversity of thought it doesn’t.

Therefore “if” men happen to be more qualified in terms of strength, endurance, fitness, accuracy or whatever metric that is chosen, why shouldn’t they be recruited over women? If women prove to be superior than men on the same metrics then they should be hired over the men they beat.  As written yesterday, the ADF lowered the targets for women because they were too onerous in the hope the execution rate would be more easily achieved yet they missed by a wider margin. Instead of actively accepting fewer women are interested in a military career than men, males are actively discriminated against. Recruiters face demotion for not complying with big brother. In civilian life companies would be fined and face jail terms for operating similar structures. So much for equality!

It’s not rocket science. The military should never be a social experiment. Period. Our military leadership even wants to ban death symbols. Honestly if death symbols make our troops feel better morale then let them. What  surprise that our diversity programs are sinking morale to record lows? Even a large slug of female military  personnel don’t believe these programmes are effective yet we will push our Waterloo strategy.

CM is going to take a wild stab in the dark. War veterans or those in special forces must be rolling their eyes. Some SAS soldiers have confessed that in training, new cadets are able to raise a red card if they feel their instructor is being too harsh? Discipline is the most important part of a military. Following orders. Surely in the heat of battle a commander needs to be able to order troops to take a hill or position, not spend crucial minutes debating subordinates on the validity of the plan. If one is so easily triggered by members of the home team how effective could they possibly be in battle? Instead of waving a white flag why not waggle pink fingers to the enemy in the hopes they won’t be shot?

Time for the military to be handed back to professional soldiers not caught up in political correctness. If our enemies are “sons of bitches” best we become “total sons of bitches” rather than “fairies”.

Pick axe or tape recorder? The murder weapon is actually the dangerous precedent it sets

FBCFCA60-6D50-4950-B013-90B0A1008AE9.jpeg

If this was Cluedo (Trump Edition), Milton Bradley would need to launch a whole new series of weapons, scenes and villains to cover the endless scenarios.  The problem would be that no matter how many times players tried to kill off the president, the perpetrators would turn themselves in with the weapon and inform the scene of the crime, believing it better to seek forgiveness for failing to execute.

Yes, everyone gets it. The left hate him! How many more ways do we need to be shown this? A few weeks ago a Mexican comedian pretended to urinate on his Hollywood Walk of Fame  star. Now a loony hacked  it with a pick axe. Do these people truly believe hearts and minds are won with such actions?

Now the Cohen tapes are a CNN ‘ratings at all costs’ ploy. Apart from the obvious violation of attorney-client privilege to secretly record a meeting without Trump’s knowledge, the reality is that it doesn’t really prove anything. Without a doubt if Jim Acosta had his own lawyer release tapes of him without consent he’d be demanding remedial action to stop it. Most Americans would feel the same way but the brazenly “because it’s Trump it doesn’t matter” attitude should send shudders down the spines of Americans about setting precedents.

CNN keeps saying it has juicier stuff to reveal but surely if the smoking gun was in its possession, why wouldn’t it seek to impugn the man it hates so much as soon as humanly possible to expedite their lust for impeachment? Why would it bother to hold its audience (what’s left of it) in suspense?

If it is campaign violations, Obama was busted for the same thing in 2013 and all was settled with a fine. A nothing burger.

What the left continue to forget is that he was elected in full knowledge of his vulgarian tendencies (proven & alleged) – racism, sexism, adultery, affairs with porn stars, p*ssy grabbing tapes and so on. Voters are duly aware of these character flaws yet still voted him in because the alternative was so awful. Yet Trump Derangement Syndrome hits new highs (lows) on a daily basis. More centrist Democrats must surely be thinking the actions of their unhinged left brothers and sisters are calling into question their own beliefs in the party platform.

America is a strange nation to many of we non- citizens. Accuse NRA members of being murderers after school shootings and their membership ranks swell in the millions. Shout at deplorables as beyond redemption and they harden against those that berate them. When will they learn that all of the stunts and actions to date turn the “blue wave” into a “red tsunami”?

The precedents of kicking people out of restaurants, threatening them for wearing a MAGA hats or shooting politicians don’t gel well with the normal middle of the road Americans who believe their 1st Amendment rights must be protected. It is no wonder that when they see the 1st being violated that the 2nd Amendment must be defended at all costs.

 

 

Harley – the Milwaukee Anvil

hiog

Harley can blame tariffs for ruining margin but the rot set in well before. 2Q motorcycle shipments came in at 72,593 (-11.3%). The other luxury brands continue to climb. Its long time American arch rival Indian continues to grow. Indian’s parent Polaris Reports Q2 tonight. Indian sales were up double digit in Q1. The limited edition Indian Jack Daniels Scout Bobber sold out in 10 minutes. Product anyone?

Harley is losing share in America, it’s largest market, and Australia and Japan remain soft. Harley used to sell 16,000 units in Japan. In 2018 it will be lucky to ship 9,500. Ironically Europe is its most encouraging growth area yet tariffs will impact it.

Luxury motorbike brands BMW Motorrad, KTM, Ducati, Triumph etc are ALL growing.  Just Harley is flailing – the best motorcycle brand in the business (one where customers are prepared to tattoo the brand to their bodies) is chasing dreams from some consultant inspired long term plan which misses one core ingredient – listening to customers.

Expect the Harley management to keep the excuses rolling. It suffers from the divine franchise and its leadership seem more willing to point to external factors for its issues when internal complacency and resting on the laurels of the glory days seem the biggest factor. It is so obvious.

So Harley met its Luke warm 2Q EPS guidance. Maybe shareholders should reflect on the $103mn (1.3% of outstanding) of the $700mn in planned share buybacks which flatters EPS. E is not rising, S is falling. 10% of the stock is being shorted.

Mulligan Brexit again

「mulligan golf」の画像検索結果

Rebel Tory MP Justine Greening is calling for a second referendum on Brexit to end a parliamentary deadlock. There was never any doubt that ‘leavers’ wanted OUT of the EU. It was pretty clear cut. “Leave the European Union ✅ or ❌” Not half in or any other form of compromise. At what point will politicians get it through their thick skulls that constituents do not want mulligan politics? If some don’t like the outcome, just keep swinging until can deliver the minority the result they wanted? Best of three? Why not conduct parliamentary elections this way? Swing and a miss!

UK PM Theresa May has shown utter incompetence in executing Brexit. She stupidly called an election which cost her a majority forcing her to side with the DUP just to hold onto power. She couldn’t read that the electorate was sick of voting as CM pointed out at the time. She was punished for it, despite the massive lead in the polls she had. One might almost think it was deliberate given the soft stance she has taken on Brexit and the total disregard for the referendum.

Despite jawboning last week there would be no negotiation post the resignations of David Davis & Boris Johnson she has had to cave in to hard line Brexiters (305 vs 302) on the Customs Bill. A narrow 303-300 vote to exit the EU’s VAT scheme post-Brexit was also reached. Shadow chief secretary to the Treasury, Peter Dowd said, “it took two years for the Prime Minister to reach her Chequers deal, but only two days for it to fall apart.” He is not wrong. May has bungled it so poorly one wonders if it isn’t deliberate.

What should be seen here is that politicians (from any party) voting against what their constituents put forward will be political suicide over this.  There is a genuine sense in the House of Commons that all of this will somehow wash over like politics has for decades.  While many might see the ructions inside the Tories as a godsend for Labour’s Jeremy Corbyn (to an extent it is), even he has to realise that almost 40% of his party’s voters wanted to leave, meaning the members from those areas that expressed their intent leaves mixed messaging for the party as a whole. Watch for a resurgence in UKIP.

In any event May needs to go. She should resign. It is unlikely that she will. She is even thinking of bringing summer recess forwards to reduce the chances of a no confidence motion although both Labour & Tory members have quashed the idea of this. 48 members must write letters to the 1922 backbench committee to call a no confidence motion and Theresa May would need to win over half the 316 seats held.

Yet we only need to look at drunkard EC President Jean-Claude Juncker and ask why any UK politician thinks there is merit in negotiating with an unelected mob that can’t walk in a straight line even when sober? Keep calm and Brexit hard.

Why discontinue?

USFEDBS

This is a chart of the change in the US Fed balance sheet, a series that has just been discontinued. Is this because the Fed is about to step up its activity and offering wider disclosure on tapering activity might spook markets? Given that 72% of the growth in S&P earnings has been driven by buybacks since 2012, it stands to reason the market is not exactly providing the type of confidence inducing organic lift the index reflects. Bank of America revealed that “net buying of Tech sector in the 1H was entirely buyback-driven.” 

Kind of reminds CM of the day Bernanke’s Fed announced it would no longer report M3 money supply a year before the financial markets headed into the GFC. CM estimated on p.4 of a report several years ago that M3 money supply by 2018 on constant long-term growth rates would turn into around $35 trillion from the $10 trillion at the time it was discontinued.

M3Disc.png

Nothing to see here? Throw a deteriorating fixed income market with fewer buyers and corporates that have binged on cheap credit to fuel buybacks, it doesn’t look like the stuff dreams are made of. The chart below shows that quarterly pre-tax US profitability is struggling since 2011. Earnings (E) are not doing so well. It is by the grace of falling number of traded shares (S) that makes the EPS look flattering.

US Corp prof.png

We took the liberty of comparing corporate profitability since 1980 and correlating it to what Moody’s Baa rated corporate bond effective 10yr yields. An R-squared of almost 90% was returned.

US Moodys corp

Why not use the Aaa spread instead? Well we could do that but looking over the last decade the average corporate debt rating profile looks like this. We have seen a massive deterioration in credit ratings. If we look at the corporate profitability with Baa interest rates over the past decade, correlation climbs even higher.

D42A75BB-58A4-49A5-B084-32343877CFFF

We shouldn’t forget that the US Government is also drunk on debt, much of it arriving at a store near you. $1.5 trillion in US Treasuries needs refinancing this year and $8.4tn over the next 3.5 years. Couple that with a Japan & China pulling back on UST purchases and the Fed itself promising to taper (but now hide the results of) its balance sheet. So as an investor, would you prefer the relative safety of government debt or take a punt on paper next to junk heading into a tightening cycle?

E0F20948-4A5A-48F1-B8AF-06FA92EBAC7A

Discontinuation of series always carries a sense of deep cynicism for its true intention. It is not an onerous data set to cull. Sure we can fossick around and try to find it hidden in the archives of the Fed website but the idea is that they probably don’t want to publicise how much more they intend to flog.

Staring at the dictator – redux

507657ED-F3DB-4239-8029-7931BB973B12.jpeg

In Feb 2017, CM wrote a piece titled ‘Staring at the Dictator’ which highlighted that winning hearts and minds comes from sensible and reasonable dialogue. Not from widespread activism where the sole purpose is to shut down debate. Hasn’t the left learnt that physically and verbally bullying people senseless and mocking them for their supposed ignorance doesn’t work? Yet they still keep screaming the same hypo-ventilated bile, as Robert Reich has below. Nothing would make CM happier if democracy does its job in any country. If we believe he speaks for the majority, he has absolutely nothing to fear. No need for protests of any kind. Yet he shouldn’t blame the constituents for overthrowing bad governments who believe in divine incumbency. Blame bad policy.

If Democrats hadn’t treated the last election as a coronation then perhaps Hillary Clinton may have got her wish. Things had obviously become so bad at the grass roots level that the establishment was rejected. Even after all of the p*ssy grabbing allegations had been brought to light, Trump still won. His vulgarity was on the ballot. His “no one respects women more than I do” lie after this revelation in the 2nd debate was broadcast to 100s of millions. It was also on the ticket. Despite his supposed racist demagoguery, he got a higher proportion of black and Hispanic voters than either McCain or Romney. Don’t hate the player, hate the game. These are facts, as much as we may not like what they portend.

The #whitelash arguments don’t rub either because the same people voted a black man in twice. Clinton didn’t lose because she was a woman. She lost in part because she ran on the basis she was a woman. Surveys may show that Republican voters don’t want a female president however should Ambassador to the UN Nikki Haley run in 2024 she would win their support on the basis of her strength, not her gender or her Native American/Sikh heritage. Ability should be all that matters. Clinton’s constant griping 18 months after her loss shows just how poor a president she would have made. It is so bad even Rasmussen reports that a majority of Democrats don’t think she would have been any better than Trump. Take that!

If Trump loses legitimately (assuming he runs) in 2020 then so be it. In the last 1.5 years in office, American citizens have had plenty of time to weigh him in their own minds, regardless of the media’s relentless onslaught of over-the-top sensationalist click-baiting. If citizens feel he has delivered in areas that affected them on a personal level, they’re probably on balance willing to vote for the same again unless the alternative offers something better. At the same time they have had plenty of time to weigh the Democrats. They’ve seen first hand the bitterness at the State of the Union plastered on the faces of Pelosi et al. They’ve heard Maxine Waters call to her supporters to gang up on the staff in the current administration. They’ve seen countless Hollywood celebrities chant vile hate from celebrating the decapitation of the President, calling Ivanka a “feckless c*nt” to hoping 12yo Barron is ripped from Melania’s arms and caged with pedophiles. Democrat supporters have gone so far as to shoot GOP politicians. CM is quite sure that however horrid the President may be, these are hardly the types of antics that will sway opinion of the swing voters to join the self-appointed ‘righteous’ like Reich. And no, not all Democrats think like this much like many Republicans don’t endorse stupidity from their own. It lets down both sides.

Republicans or swing voters do not respond well to being called intolerant, cruel, racist, misogynist, xenophobic or climate sceptics without fact or basis. Since when does one consciously vote for others over their own needs? It isn’t selfish. If one is buried under onerous tax legislation, red tape or financial destitution do they vote to put the interests of others above their own? No. As a long term Liberal Party (aka conservatives) voter in Australia, the current party has ‘left’ me. I didn’t leave them. They did not win my vote last election. It must be earned. They don’t represent my values. It didn’t take tribal beltings to force me to a conclusion. Nor negative media to discover it. Yet somehow the activists believe that constant bleating will cause me to change my mind.

What would be nice is to see properly supported factual (not subjective rhetorical) evidence that 63mn Trump supporters are as one when it comes to all the claims they make. I would love to see the arguments in all their gore should they exist. Not a one off event. Happy to see where my own arguments hold deep flaws.  Many Trump voters detest him on a moralistic level yet are happy to champion his achievements if they feel they get a direct benefit from them. So often claims are made to undermine his followers. Every time (and often) these assertions prove to be baseless, the journey to sway the other side to see reason gets thwarted even further. Time magazine issuing a confession over the photo-shopped cover of last week ended up at the bottom of a long article. It just shows just how unapologetic they are. Kathy Griffin was sorry until she wasn’t again. Talk about self serving.

To the comments made by Robert Reich today:

“My friends, this is a dark hour. Intolerance, cruelty, racism, misogyny, xenophobia, and environmental destruction have been let loose across the land.

Trump controls the Republican Party, the Republican Party controls the House and Senate, and the Senate and Trump will soon control the Supreme Court.

Republicans also control both chambers in 32 states (33 if you count Nebraska) and 33 governorships. And in many of these states they are entrenching their power by gerrymandering and arranging to suppress votes.

Yet only 27 percent of Americans are Republican, and the vast majority of Americans disapprove of Trump. The GOP itself is now little more than Trump, Fox News, a handful of billionaire funders, and evangelicals who oppose a woman’s right to choose, gay marriage, and the Constitution’s separation of church and state.

So what are we – the majority — to do?

First and most importantly, do not give up. That’s what they want us to do. Then they’d have no opposition at all.

Second, in the short term, if you are represented by a Republican senator, do whatever you can to get him or her to reject Trump’s Supreme Court nominee, or, at the least, postpone consideration until after the midterm elections. Urge others to join with you. 202-224-3121

Third, make a ruckus. Demonstrate. Engage in non-violent civil disobedience. Fight lies with truth. Join the resistance. Participate in http://www.indivisible.org and https://swingleft.org.

Fourth, vote this November 6 for people who will stand up to all this outrage. Mobilize and organize others to do so. Contact friends and relations in “red” states, and urge them to do the same.

Fifth, help lay the groundwork for the 2020 presidential election, so that even if Trump survives Mueller and impeachment he will not be reelected.

Finally, know that this fight will be long and hard. It will require our patience, our courage, and our resolve. The stakes could not be higher.”

Perhaps what Reich fails to get is that he is almost backhanding his own supporters in his rant. It is more than likely that a majority of Republican (and no doubt many centrist Democrat) voters want the liberal left to give up because it has become nothing but white noise. The more they protest the more tuned out they become. Control of the Supreme Court? I encourage you to read the cake shop transcript where Associate Justice Sotomayor shows without a doubt she is a political activist, not a judge. It is embarrassingly obvious. The Supreme Court is only supposed to apply impartiality around current laws (or those at the time of the legal action), not make a song and dance about wish lists and try to piece a verdict around how nice it would be if things were different. She was trying to argue 2018 laws around a 2012 issue. One doesn’t have to be a lawyer to work that one out.

To the assertion that a handful of billionaire funders lean the GOPs way, he should reflect that most of the billionaires in America reside in blue states. In today’s world, the big corporations win more by backing Democrats because more onerous regulation benefits their ability to squeeze out the smaller competition thanks to red tape. Laissez faire? You’ve got to be kidding.

Perhaps in closing, the most compelling argument Reich makes is the one which stands out above all others – “we, the majority.” If he wants to stop Trump, he just needs the majority to vote on the shared basis of his beliefs – case closed. No need for protests. After all he says that Trump’s base is so small. If almost 3 years of negative spin on the sitting POTUS has failed to convince the majority, nothing will. Screaming in public may seem therapeutic to the masses but should the GOP win the mid-terms then Reich will prove just as out of touch as he was prior to the election.

Silence is golden. Let democracy take its course. Let us see whether the Russians consolidate their pick in the mid-terms…Putin has even more reason to ensure America sees more “red.”