Traffic Accident

Italy votes – will it mimic the referendum?


Remember the 2016 Italian referendum which was to decide on  whether to grant more power to the incumbent party to accelerate decision making? Well it ended up being a vote on ousting then PM Renzi who put his resignation on the ballot if it failed. The split between the yes/no was largely decided by economic condition. The poorer southern regions were distinctly red while a smattering of wealthy areas voted green (yes).

It is kind of telling that the furthest province in the north (Bolzano/Bozen) had the highest YES vote (63.69%) in the country while the Province of Catania (south-east Sicily) had the highest NO vote at 74.56%. Bolzano/Bozen was diligent with a 67.41% turnout vs 57.41% in Catania. It is a rich/poor divide by the looks of things. If you wish to dig into the details look no further than this site for who voted how.

The last poll showed Beppo Grillo’s eurosceptic M5S party leading with 28%. Berlusconi’s centre right Forza Italia alliance with the anti-immigrant The League is expected to get around 29%. The incumbent PD is looking at around 20%.

Since the collapse of Lehman in 2008, Italy has added 3mn to poverty (now 18mn or 29.7% of the population; EU average is 25%) with the unemployment rate above 11%. Since Merkel’s open door policy 600,000 illegal immigrants have flocked to Italy from Libya.

Italy is the 3rd largest economy in Europe and 30% of corporate debt is held by SMEs who can’t even make enough money to repay the interest. The banks have been slow to write off loans on the basis it will eat up the banks’ dwindling capital. It feels so zombie lending a la Japan in the early 1990s but on an even worse scale.

Monte Dei Paschi De Siena, a bank steeped in 540 years of history has 31% NPLs and its shares are 99.9% below the peak in 2007. Even Portugal and Spain have lower levels of NPLs. The IMF suggested that in southern parts of Italy NPLs for corporates is closer to 50%!

However one views the rising wave of nationalism in Europe, Italy will likely follow the pattern of Austria, the UK, Germany, Holland, Poland, Hungary and France. A growing number of European citizens want to be first in line rather than feel they have an EU directed obligation to bow down to political correctness. How else do we explain the AfD’s surge past the SPD?

If the eurosceptic/anti-immigrant patties get up  we shouldn’t be the least surprised. More Europeans want their own countries to be made great again. The house of cards is crumbling.

Motorcycle theft

Motorcycle theft in the UK is becoming an increasingly bad problem. As this video shows, thieves will steal in the middle of the day. Here are some of the stats by one of the local insurers, Bennett’s.

In 2016, powered two wheeler (PTW) theft rose by 16%. 27,217 machines of all kinds were reported stolen (that’s 523 a week!) and only two out of five were recovered. 25 years ago, scooters accounted for less than 1% of all two wheeled theft; today over half of all the bikes stolen are scooters and mopeds. In London alone, where 4776 larger machines were taken, an increase of 620% meant 6165 mopeds and scooter owners lost their transport.”

The explanation for all this is really quite simple; the interest in motorcycling is huge all over the world, and wherever there’s constant demand – in this case for used machines and spare parts – organised crime is never far behind. At the moment, it’s a battle that the government and police have every intention of winning as soon as possible…However, these new gangs aren’t unique to the UK, and are common in most cities of the world at this time. Many of the continental gangs use stolen scooters and motorcycles as the new currency for buying and selling drugs, and the fear is that this may be the case in the UK. Violence as displayed on YouTube and CCTV footage indicates many gang members themselves may be drug users. Because of this, the police caution against heroism, but do appreciate all the information on these gangs that they can get.

Take a look at this shameless attack on a dealer during operating hours. One can see how thieves would need to be “meth’d“ up to do something so brazen. Good to see the dealers win the battle but the police will back down on any chase of motorcycle thieves if they remove their helmets because of fear of causing death or injury to the criminal. Most bike owners who had their pride and joy stolen would most likely relish broken limbs of the perpetrators.

The UK’s 41 ports handle 9000 container movements every day, and are expected to load at least 12 stolen cars and motorcycles bound for Africa, India, South America, Asia and Europe. The police are likely to check one in every 200, whose manifests will often simply state ‘household goods’ or ‘spare parts’. In just one container, on just one day, in just one port, police found 12 stolen machines worth £70,000, its contents listed as ‘spare vehicle parts”

Affordable tracking devices have become hugely successful in recovering many machines this year, the most popular of which are claiming over a 90% recovery rate. Ironically though, thieves are now using their own cheap tracking devices to find their prey that they fix to a machine and track to its home without spooking owners. If they steal the bike they can use the device again.”

Ironic that the criminals are using technology that is meant to deter theft by leading one to the owner’s home to make a cleaner ‘get away’.

Doesn’t look like the battle to lower theft in the UK can be won without the police being able to dish out far harsher penalties to the criminals. Whistling in the wind won’t stop this.

Truly sickening US Public Pensions data


Following on from the earlier post and our 2016 report on the black hole in US state public pension unfunded liabilities, we have updated the figures to 2016. It is hard to know where to start without chills. The current state of US public pension funds represents the love child of Kathy Bates in Misery and Freddie Krueger. Actuarial accounting allows for pension funds to appear far prettier than they are in reality. For instance the actuarial deficit in public pension funds is a ‘mere’ $1.47 trillion. However using realistic returns data (marking-to-market(M-2-M)) that explodes to $6.74 trillion, 4.6-fold higher.  This is a traffic accident waiting to happen. US Pension Tracker illustrates the changes in the charts presented.

Before we get stuck in, we note that the gross pension deficits do not arrive at once. Naturally it is a balance of contributions from existing employees and achieving long term growth rates that can fund retirees while sustaining future obligations. CM notes that the problems could well get worse with such huge unfunded liabilities coinciding with bubbles in most asset classes. Unlike private sector pension funds, the states have an unwritten obligation to step up and fill the gap. However as we will soon see, M-2-M unfunded liabilities outstrip state government expenditures by huge amounts.

From a layman’s perspective, either taxes go up, public services get culled or pensioners are asked politely to take a substantial haircut to their retirement. Apart from the drastic changes that would be required in lifestyles, the economic slowdown that would ensue would have knock on effects with state revenue collection further exacerbating a terrible situation.

CM will use California as the benchmark. Our studies compare 2016 with 2008.

The chart above shows the M-2-M 2016 unfunded liability per household. In California’s case, the 2016 figure is $122,121. In 2008 this figure was only $36,159. In 8 years the gap has ballooned 3.38x. Every single state in America with the exception of Arizona has seen a deterioration.

The following chart shows the growth rate in M-2-M pension liabilities to total state expenditure. In California’s case that equates to 3.2x in those 8 years.


Sadly it gets worse when we look at the impact on current total state expenditures these deficits comprise. For California the gap is c.6x what the state spends on constituents.


Then taking it further,  in the last 8 years California has seen a 2.62-fold jump in the gap between liabilities and state total expenditures.


This is a ticking time bomb. Moreover it is only the pensions for the public sector. We have already seen raids on particular state pension funds with some looking to retire early merely to cash out before there is nothing left. Take this example in Illinois.

Sadly the Illinois Police Pension is rapidly approaching the point of being unable to service its pension members and a taxpayer bailout looks unlikely given the State of Illinois’ mulling bankruptcy. Local Government Information Services (LGIS) writes, At the end of 2020, LGIS estimates that the Policemen’s Annuity and Benefit Fund of Chicago will have less than $150 million in assets to pay $928 million promised to 14,133 retirees the following yearFund assets will fall from $3.2 billion at the end of 2015 to $1.4 billion at the end of 2018, $751 million at the end of 2019, and $143 million at the end of 2020, according to LGIS…LGIS analyzed 12 years of the fund’s mandated financial filings with the Illinois Department of Insurance (DOI), which regulates public pension funds. It found that– without taxpayer subsidies and the ability to use active employee contributions to pay current retirees, a practice that is illegal in the private sector– the fund would have already run completely dry, in 2015…The Chicago police pension fund held $3.2 billion in assets in 2003. It shelled out $3.8 billion more in benefits to retired police officers than it generated in investment returns between 2003 and 2015…Over that span, the fund paid out $6.9 billion and earned $3.0 billion, paying an additional $134 million in fees to investment managers.”


To highlight the pressure such states/cities could face, this is a frightening example of how the tax base can evaporate before one’s eyes putting even more pressure on bail outs.

This problem is going to get catastrophically worse with the state of bloated asset markets with puny returns. Looking at how it has been handled in the past Detroit, Michigan gives some flavor. It declared bankruptcy around this time three years ago. Its pension and healthcare obligations total north of US$10bn or 4x its annual budget. Accumulated deficits are 7x larger than collections. Dr. Wayne Winegarden of George Mason University wrote that in 2011 half of those occupying the city’s 305,000 properties didn’t pay tax. Almost 80,000 were unoccupied meaning no revenue in the door. Over the three years post the GFC Detroit’s population plunged from 1.8mn to 700,000 putting even more pressure on the shrinking tax base.

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The stock market isn’t America – Mauldin Economics


An interesting article on who owns stocks in America from Mauldin Economics – worth reading. Here is an excerpt:

A big slice of the US stock market isn’t American at all. Foreigners own about 35% of US stocks by value—and their ownership grew considerably over the last few decades…About half of US households have zero exposure to the stock market: no stocks, no mutual funds, no 401(k), no IRA, nothing…According to research by New York University economist Edward Wolff, some 84% of the stocks owned by Americans belong to the wealthiest 10% of households…Subtract that 10%, and subtract the 50% who own no stocks, the remaining 40% of Americans split about 15% of the stock market. For many, their investment is negligible—maybe a few hundred dollars in an old 401(k). Others have a big part of their net worth tied up in stocks. Maybe you’re in that group…But a solid majority of the American population feels no direct impact from stock market performance.”

Speaking of which, it was 35 years ago that Trading Places came out. Time to watch it again for old time’s sake.

Tesla’s FY2017 – cashflow stunts bigger than a roadster in orbit


No beating around the bush. Tesla’s cash-flow situation resembles that of One.Tel in Australia before it became insolvent. Rocketing financing and investing cash-flow with troubled operating cash which in Tesla’s case was flattered by some accounting trickery.  The Q4 2017 earnings release spoke of fairies and magic pixie dust for the most part. Q1 deliveries to date look to undershoot.  Once again a promise to hit production of 2,500 Tesla Model 3s by the end of Q1 and 5,000 a week by end of Q2 2018 (i.e. 6 months away). Note that Tesla had about 860 undelivered Model 3 cars at the end of Q4. That is a high ratio given 1550 were shipped in Q4.

While the company claims a cash balance of $3.4bn which many will pop champagne corks over, Tesla has accrued liabilities, accounts payable and customer deposits totaling $4.975bn at quarter end. This also excludes the $608mn in extra ‘residual value guarantees’ on the books YoY.

The company expects to break even during the year. However with gross automotive margins about to suck up the Model 3 in larger numbers that will take some doing despite claims it can do 25% vs the existing line-up’s 18% range. As at January, Q1 sales in the US are at 2016 levels and European registrations are down around 14% in aggregate across Norway, Holland, Italy, Belgium, Sweden, Austria and Switzerland. Lots can change but it doesn’t read well to kick off 2018’s challenge to break even at an operating level. The Model 3 is on average two-thirds cheaper than the average selling price on existing products so to even hold margins constant will take the mother of all cost cutting all the meanwhile facing new competition over 2018 which will weigh on pricing.

Interesting within the operating cash-flow statement is a term “Changes in operating assets and liabilities,net of effect of business combinations” which shows a quarter on quarter swing of $746.8m pushing net operating cash to +$509mn achieving a new quarterly record. This was achieved mainly by improved collection of receivables (believable), inventory reduction of finished vehicles (were incomplete vehicles that left the factory to parking lots yet to be delivered due to a lack of parts counted?), improved working capital from the ramp of Model 3, and growth in customer deposits (this was only  $168m QoQ vs expectations of $400m) from Semi and Roadsters that were announced with fanfare during Q4. Cash burn appeared lower because the company included customer deposits for the upcoming Semi and Roadster in its operating CF. That is slightly deceiving because deposits aren’t supposed to be drawn from current operations. The Roadster is supposed to be ready by 2020. This seems odd.

Tesla wrote “Despite the delays that we experienced in our production ramp, Model 3 net reservations remained stable in Q4.” Strange there was no mention of progress on Roadster and Semi orders in Q4. Was the $250,000 deposit within 10 days for the Founder series Roadster a bit steep? Truck orders seem around 600-700 at this stage and at $5,000 a deposit, generously speaking $3,500,000 isn’t a swing. As mentioned earlier the +$168m in customer deposits could only reflect how poorly orders for those vehicles are tracking such is the need to avoid talking about them in the statement (surely something to crow about) other than projected performance stats.

Capital expenditures in 2018 are projected to be slightly more than 2017 according to the statement. Tesla also mentioned “quarterly operating income should turn sustainably positive at some point in 2018.” That is a hugely optimistic target for the company which has failed so many times to deliver on promises. As CM always argues, the ‘cult’ following of Tesla is a dangerous vixen which can keep the ‘dream’ floating in orbit when reality is that “Nevada, we have a problem”.

The market can stay irrational longer than you can stay solvent. The 3% bounce in the shares reflects that blind optimism. Our study shows that even if it made margins similar to mainstream makers it is grossly overvalued.

You can never be too connected


For all those that say men can’t multitask, this HK taxi driver can field 8 mobile devices and drive…what next a smart watch? Presume he is trading multiple markets. Either that or he’s sick of the stereotype that taxi drivers are usually the last to know!

What next?


The Queensland Government has decided to remove ‘gender’ from licenses going forward after ‘pressure’ from the LGBTI community.  In what can only be described as a politically correct own goal by the Dept of Transport & Main Roads, surely the best way to pander to all of those minorities would have been to offer the choice of the 63 genders that are available. Imagine the amount of tax dollars we can waste on new sensitivity training for police to make sure that the can ‘protect and serve’ feelings. Or maybe that is the aim to create more state jobs?

What is a poor highway patrol officer (usually operating alone) who pulls over a driver over for speeding on the highway to do? What if he thinks the driver is over the limit when questioning him/her/zie? The bearded driver who looks male can pull out the genderless card and accuse the officer of using the wrong pronoun and request that an LGBT police officer administer any breath test procedure. In fact the driver might just claim an injustice has been served.

So will highway patrols be forced to carry a male, female and LGBT officer on pursuits with a fourth ‘independent observer’ from the Australian Human Rights Commission to ensure that feelings of drivers aren’t hurt?

We keep on being told diversity is our strength. Indeed it would be true were it not for repeated state indoctrination. We only need to look at how celebrating diversity works in places like California where one can be jailed for simply using the wrong pronoun. Welcome to the slippery slope.