Tag Archives: Moody’s

Tesla’s Irreversible Death Spiral Fait Accompli

The inevitable is finally starting to unfold. The downgrade to triple-C by Moody’s came as a surprise, at least to me. Historically Moody’s has been the last to downgrade collapsing companies. The most famous was its failure to downgrade Enron until about a week before Enron folded. Perhaps this time around it decided to get out in front of the obvious.

Tesla’s continued existence, despite obvious operational and financial problems that were growing in scale by the week, was enabled by the most lascivious monetary policy in U.S. Central Bank history. For me the coup de grace was the $1.5 billion junk bond deal floated last summer. It was emblematic of rookie money managers, unsupervised children in the sandbox, shoveling other people’s money into a cash-burning furnace.

Most managers running retail and pension money have no idea what a triple-hook rating means for any company with massive cash flow deficits operating in a financial environment in which the Fed is not printing trillions of dollars that can be recycled into bad ideas.

Even without the nearly $10 billion in debt on top of several billion in negative free cash flow, TSLA has billions in off-balance-sheet liabilities that don’t seem to exist as long as the Fed is injecting free cash into the financial system for inexperienced money managers to abuse.

All of that changes with a falling stock market and a triple-C credit rating. Now the obvious operational impossibilities and questionably fraudulent projections by Elon Musk will become quite relevant. If those don’t sink the ship, perhaps the SEC investigations, the ones that Musk forgot to disclose, will put an end to Tesla’s Waterloo. Unless the Fed reverses course and re-implements ZIRP and money printing, it will be next impossible for Tesla to raise the several billion it will need to keep its cancer-infested rodent moving its legs on the gerbil-wheel.

If you are invested in TRowe and Fidelity funds with large exposure to Tesla, I highly recommend selling them. At this point the only prayer the managers running those funds have is to throw more of other-people’s-money into Tesla’s furnace and pray for the Second Coming to save them.

Tesla is going to collapse. The collapse will likely occur in the next 12 months unless there’s some form of exogenous intervention. I doubt the Easter Bunny will deliver that sort of help this weekend. Moody’s “bold” downgrade to triple-C has sealed the fate.

Rot Of Empire: Moody’s Downgrades Chicago To Junk Bond Status

I thought junk bonds were ‘high risk – high return’ whereas I’d have thought Chicago was more ‘high risk – no return.   Not so much junk bonds, just junk. Reader comment from  “Mike”

It’s doubtful that Warren Buffet’s Moody’s Investor Services will face the same wrath from Obama that Obama inflicted on S&P after S&P downgraded the U.S. Government debt rating from triple-A to double-A.   After all,  Warren Buffet owns Obama.

The outlook on all long term ratings remains negative (LINK)

But recall that Moody’s did not downgrade Enron to junk status until Enron hit the wall. While I’m not suggesting that Chicago will hit the wall anytime in the next few weeks, it does suggest that the White House is probably evaluating bail-out ideas.

I’m not sure how Obama thinks he can smooth this one by all Federal taxpayers outside of the State of Illinois (which itself is running something like an admitted $21 billion budget deficit).  But, then again, something like 45% of registered Democrats have expressed voting support for a criminal (Hillary Clinton), so anything is possible in this Orwellian paradise.

Here’s a summary of Moody’s downgrade “rationale:”

The Ba1 rating on Chicago’s GO debt incorporates expected growth in the city’s highly elevated unfunded pension liabilities. Based on the Illinois Supreme Court’s May 8 overturning of the statute that governs the State of Illinois’ (A3 negative) pensions, we believe that the city’s options for curbing growth in its own unfunded pension liabilities have narrowed considerably. Whether or not the current statutes that govern Chicago’s pension plans stand, we expect the costs of servicing Chicago’s unfunded liabilities will grow, placing significant strain on the city’s financial operations absent commensurate growth in revenue and/or reductions in other expenditures.

Our negative outlook reflects our expectation that Chicago’s credit challenges will continue, both in the near term and in the long term. Immediate credit challenges include potential draws on liquidity associated with rating triggers embedded in the city’s letters of credit (LOCs), standby bond purchase agreement (SBPA), lines of credit, direct bank loans, and swaps [Oops – banks can and should pull the plug].  The current rating actions give the counterparties of these transactions the option to immediately demand up to $2.2 billion in accelerated principal and accrued interest and associated termination fees.

Chicago, like Detroit before it, is emblematic of the Rot of Empire.  Large industrial-based cities have been gutted by modern day Robber Barons who have moved the bulk of America’s industrial base to cheap-labor eastern hemisphere domains.   These large Rust-Belt metropolitan areas are collapsing under the weight massive budget deficits and catastrophically underfunded public employee pension funds.

I would hazard an educated guess that if Moody’s has determined that Chicago is regarded as below investment grade, the stark reality is that Chicago is likely on the verge of collapse barring some likely smoke-filled back room deals cut between Obama and his former puppet-master, Rahm Emanuel (Mayor of Chicago).

I would bet that the United States is entering it’s Final Chapter.  This is why the Obama regime has intensified its attempt at global military control both domestically (Jade Helm) and abroad.

I hope I’m wrong, but I have a bad feeling that life is going to become very uncomfortable for anyone not a member of highest elitist echelon.  This would mean everyone except those in the “three-comma club” (billionaires) and the political puppets controlled by the ultra-wealthy.