Tag Archives: Tesla

A Conversation About Tesla, Amazon and Gold

Allegedly (note: emphasis on “allegedly”) Craig “Turd Ferguson” Hemke was awarded a Nobel Prize for his weekly A2A podcast.  If true, the award is more legitimate than the Nobel Peace Prize given to Obama and the Nobel Prize for Economics given to Paul Krugman.  Perhaps those latter two folks should have been awarded the Nobel Price for Charlatanism.

Craig invited me onto his show this week to discuss a variety of issues, including the economy, Tesla and Amazon and, of course, the precious metals market.  I explain why I think there’s one more “shock and awe” attack by the Comex paper bandits on the gold market before the precious metals make a stunning move higher.  I also discuss a couple of my favorite mining stock ideas and the head-scratching market cap of Novo Resources

You can access the podcast here:  TF Metals A2A Conversation

In my latest issue of the Mining Stock Journal I feature a $27 million market cap gold exploration company that I think will eventually be worth at least $100 million.  If you would like to find out more about my Journals click here:  Mining Stock Journal  and Short Seller’s Journal.

TSLA Down 19% – $72 – In Eight Days

In my opinion, the ride down will be worth the pain and blood-loss of sticking with a short bet on TSLA, which is why I continue to buy small quantities of put options that have been expiring worthless. I know at some point I’m going to catch a $100+ reversal in TSLA stock which will more than make-up for the small losses I’m enduring in the puts while I wait for that occurrence. Using puts protects me from the unknown magnitude of upside risk from shorting the stock. Plus, I don’t have make a “stop-loss” decision because I don’t have the theoretic “infinite upside” loss potential that I would face shorting the stock. With my loss capped, I can hang on to the puts through expiration. With a stock like TSLA, often a stop-loss exit is followed up by reversal to the downside, leaving the short-seller without a short position.

As we saw on Friday, TSLA stock can reverse to the downside quite abruptly and sharply. I can guarantee that some number of shorts covered as TSLA was soaring over $370, leaving them with no position when the stock reversed, closing at $357. I don’t want to recommend specific puts to use but I can recommend giving yourself at least four weeks of time. If I were putting on a new put position today, I would probably buy a very small quantity of the July 7th $340-strikes. If TSLA sells back to the $310 area before expiry, which could easily happen as $310 is where the last 2-week push up in price began, the puts would have an intrinsic value of $30. The current cost is about $10.

TSLA reminds me of Commerce One (CMRC), a B2B internet company that went from $10 to $600 in a very short period of time in late 1999 – 2000. It eventually went to $0. I shorted and covered small quantities of stock starting around $450. I was fortunate to have been short from the high $500’s when it finally topped out a $600. The volatility of this stock was extraordinary but persistence and “thick skin” paid off.

The above commentary is from the Short Seller’s Journal. Subscribers who liked the idea have been short TSLA June June 12th, when the stock opened at $359. You can’t time the top or bottom with a stock like TSLA, but you can make a lot of money if you get 2/3’s of the ride down. You can learn more about the Short Seller’s Journal here:  LINK

YTD General Electric has been one of the 3 worst performing Dow stocks.  I presented GE as a short idea In the January 29th issue.  I said it would be a boring but no-brainer short.  So far it’s down 17.5% from that issue.  This has more than doubled the return on an SPX long position in the same time period.  Maybe it’s not so boring…

“Tesla Is A Big Pile Of Sh_t”

Jason Burack (Wall St for Main St) interviews notable Tesla bear, Mark Spiegel. As readers know, I’m in agreement with Spiegel in thinking Tesla stock is worth zero.   In fact, I’ve stated publicly that I’m trying to decide if the world’s greatest Ponzi operator award goes to Jeff Bezos or Elon Musk.  Spiegel makes a great case that it belongs to Musk.

– “They’re losing a massive amount of money and actually showing negative scale [losing more as sales grow]. They’re losing more money on an operating basis with almost no direct long-range electric car competition. A massive amount of that competition rolls out at the of this year and then hugely in 2018, 2019 and 2020.”

– “No sustainable proprietary technology.”    There’s several companies with better technology but they don’t promote the way Musk promotes.

– “Every business Musk has is based on Government subsidies. And they still lose money. He’s the only guy who can pull down billions in Government subsidies and still lose money.”

– “Every business Tesla is in is a shitty business. And when you put together a collection of shitty businesses, you don’t get a good business – you just get a bigger pile of shit”

This is an interview that is a must-listen if you own TSLA and want to hear the truth about the Company and Musk:

TSLA’s market cap now stands at nearly $61 billion. It burns over $1 billion per year in cash and its financials are riddled with what would have been considered accounting fraud 20 years ago. It sold 72.6 thousand cars in 2016. Compare this to GM, which has a market cap of $51 billion and sold over 3 million cars in 2016, and Ford, which has a market cap of $44 billion and sold 2.5 million cars in 2016.

To say that the action in TSLA’s stock price and its market cap is “insane” does not do justice to the word in “insane.” TSLA is the “poster child” for the mass hysteria that fuels investment bubbles. The problem with shorting TSLA is that the hedge funds are chasing its momentum higher, as investors embrace the negative news events as a reason to pay more for the stock. As such, it’s hard to see a catalyst that will “correct” the price, like with retailers for instance. TSLA, along with AMZN, is one of the rare stocks which will continue levitating until it doesn’t – like a Roman candle that eventually burns out falls to earth.

In my opinion, the ride down will be worth the pain and blood-loss of sticking with a short bet on TSLA, which is why I continue to buy small quantities of put options that have been expiring worthless. I know at some point I’m going to catch a $100+ reversal in TSLA stock which will more than make-up for the small losses I’m enduring in the puts while I wait for that big pay-off.

Using puts protects me from the unknown magnitude of upside risk from shorting the stock. Plus, I don’t have to make a “stop-loss” decision because I don’t have the theoretic “infinite upside” loss potential that I would face shorting the stock. With my loss capped, I can hang on to the puts through expiration. With a stock like TSLA, often a stop-loss exit is followed up by reversal to the downside, leaving the short-seller without a short position.

The written analysis just above is from the Short Seller’s Journal. In that particular issue a couple weeks ago I outlined a put option strategy that will keep you exposed to the eventual $100 down-day in the stock that is going to come. You can learn more about the Short Seller’s Journal here: LINK.

On another note, Fidelity – specifically the OTC Portfolio mutual fund (TSLA is 9.2% of the fund’s assets) and the Contrafund – own 15% of the stock.  When TSLA stock ultimately fails, those funds will be hammered.  If you have money in either of those funds, foretold is forewarned.

Gravity Rules: End Of The Bubble Is In Sight

“Even the intelligent investor is likely to need considerable willpower to keep from following the crowd.

The quote above is from Ben Graham, considered to be the father of value investing. Graham followed the crowd in 1929 and lost a small fortune for himself and his investors. Graham collected his learning experience from that disaster and eventually wrote, “The Intelligent Investor,” which is considered to be the one of the best investment books ever written. Warren Buffet enrolled at Columbia to study under Graham. Graham’s teachings formed the foundation of modern money management theories. To this day it is considered the value investor’s “investment bible.”

Wall Street is incentivized to sell the idea that stocks only go up. When I started on the junk bond desk as a salesmen (before switching to trading), I was told my job was to “reach into the portfolio manager’s pocket and take as much money as you can from his pocket and put it into your pocket.”

Wall Street greed has been around as long as stocks have been trading (the NYSE was founded in 1792). But it’s hard to blame stockbrokers for the damaging effects of greed. Stock-peddlers are like well-paid psychologists. They take advantage of human greed. Without investor greed, the stock brokerage business would be considerably smaller than it is today.

A stock bubble can’t exist without investor greed. It starts with greed. It moves into the “bubble” phase when greed is consumed by hysteria. The U.S. stock market has moved into the “hysteria” stage. This would be the point at which the bubble has almost reached maximum inflation. The upward movement in stocks is dominated by a handful of the stocks that, for whatever reason, are moving higher at the fastest rate of levitation. The graphic on the next page shows visually what “bubble to hysteria” looks like.

I reached the conclusion the stock market has moved into the hysteria stage by spending time studying the “Five Horsemen” (AAPL, AMZN, NFLX, FB, MSFT) + TSLA. Even during periods of the trading day when the Dow and SPX are go red, most or all of those six stocks remain green, sometimes moving higher while the broad indices move lower. It’s incredible to watch real-time.

“It’s not to late to catch a ride on the FANG rally” was a headline seen on CNBC last week. This is the type of hysteria that is reflected in the media at bubble peaks.

In the image above (click to enlarge), the graph on the left is the NASDAQ index since the election (from Jesse’s Cafe Americain). The graph on the right is the price-path that occurred during the Dutch Tulip Bulb mania of the 1630’s. You can see that both graphs go vertical. The vertical stage is driven by hysteria in which investors are terrified of missing the next move higher. It also ends with a decline, the rate of which is typically stunning.

The push higher in stocks like AAPL and AMZN is irrational, but TSLA has been infected with outright hysteria.

The worse the news on Tesla gets, the more quickly the stock seems to move up in price. Early in the week last week, Triple-A (the Auto Club group) announced that it was going to raise the its insurance premiums on Tesla cars by as much as 30%. A highway loss data study revealed that Tesla’s vehicles have higher claim numbers and repair costs vs. other vehicles in Tesla’s category. The Tesla S model claims were said to be 46% greater than the average number of claims for similar vehicles. Servicing those claims cost twice as much. The X model car reported a 41% higher crash-rate than similar vehicles and cost 89% more to repair.

In addition, it was reported on Monday that Toyota had unloaded the last of its remaining stake in Tesla before the end of 2016. It marked the end of a collaboration between Tesla and Toyota that began in 2010. Toyota announced that it plans to release its own fleet of long-range mass produced electric vehicles by 2020. Despite this blow of negative news about Tesla, the stock powered up over 8% last week before a late-day sell-off in the 5 Horsemen + Tesla inflicted a $19 reversal in TSLA’s stock price from its high Friday to the close. My puts, the June 30th $317.50-strikes, traded from Friday from a low of $1.06 to close at $2.40 on the bid side.

The graph below shows the price-path of TSLA’s stock since the election. Note that the graph looks very similar to the graphs of the NASDAQ/Tulip Bulb mania. In the 1800’s, writer Charles Mackay wrote a highly acclaimed book called, “Extraordinary Popular Delusions and the Madness of Crowds,” in which he presented his studies on crowd psychology and how it leads to financial manias, among other destructive events. The chart below reflects “crowd” madness as it applies to TSLA stock (the inset price-box from last Thursday morning) – click to enlarge:

While the NASDAQ has appreciated 22% since the election, TSLA’s stock, on deteriorating fundamentals, has shot up 191%. TSLA’s market cap now stands at nearly $61 billion. It burns over $1 billion per year in cash and its financials are riddled with what would have been considered accounting fraud 20 years ago. It sold 72.6 thousand cars in 2016. Compare this to GM, which has a market cap of $51 billion and sold over 3 million cars in 2016, and Ford, which has a market cap of $44 billion and sold 2.5 million cars in 2016.
To say that the action in TSLA’s stock price and its market cap is “insane” does not do justice to the word in “insane.” TSLA is the “poster child” for the mass hysteria that fuels investment bubbles. The problem with shorting TSLA is that the hedge funds are chasing its momentum higher, as investors as investors embrace the negative news events as a reason to pay more for the stock. As such, it’s hard to see a catalyst that will “correct” the price, like with retailers for instance. TSLA, along with AMZN, is one of the rare stocks which will continue levitating until it doesn’t – like a meteor that eventually burns out falls to earth.

In my opinion, the ride down will be worth the pain and blood-loss of sticking with a short bet on TSLA, which is why I continue to buy small quantities of put options that have been expiring worthless. I know at some point I’m going to catch a $100+ reversal in TSLA stock which will more than make-up for the small losses I’m enduring in the puts while I wait for that occurrence. Using puts protects me from the unknown magnitude of upside risk from shorting the stock. Plus, I don’t have make a “stop-loss” decision because I don’t have the theoretic “infinite upside” loss potential that I would face shorting the stock. With my loss capped, I can hang on to the puts through expiration. With a stock like TSLA, often a stop-loss exit is followed up by reversal to the downside, leaving the short-seller without a short position.

As we saw on Friday, TSLA stock can reverse to the downside quite abruptly and sharply. I can guarantee that some number of shorts covered as TSLA was soaring over $370, leaving them with no position when the stock reversed, closing at $357. I don’t want to recommend specific puts to use but I can recommend giving yourself at least four weeks of time. If I were putting on a new put position today, I would probably buy a very small quantity of the July 7th $340-strikes. If TSLA sells back to the $310 area before expiry, which could easily happen as $310 is where the last 2-week push up in price began, the puts would have an intrinsic value of $30. The current cost is about $10.

TSLA reminds me of Commerce One (CMRC), a B2B internet company that went from $10 to $600 in a very short period of time in late 1999 – 2000. It eventually went to $0. I shorted and covered small quantities of stock starting around $450. I was fortunate to have been short from the high $500’s when it finally topped out a $600. The volatility of this stock was extraordinary but persistence and “thick skin” paid off.

The above analysis and commentary is from the latest <ahref=”http://investmentresearchdynamics.com/short-sellers-journal/”>Short Seller’s Journal, in which I present a “Big Short” mortgage derivative stock that will eventually drop close to zero from it’s current price in the mid-teens.  You can find out more here:  Short Seller Journal info.

Orwell’s Theorem: The Opposite of Truth Is The Truth

All propaganda is lies, even when one is telling the truth. – George Orwell

A reader commented that the number of corporate lay-offs in America is escalating, yet the unemployment rate seems to keep going lower.  Part of the reason for this is that the 2008 collapse “cleansed” corporate america’s payrolls of a large number of workers who are eligible to file for unemployment benefits.

The Labor Force is derived from the number of people employed + the number of people looking for work.  To continue receiving jobless benefits during the defined period in which fired workers can receive them, they have to demonstrate that they are looking for work.  Ergo, they are considered part of the Labor Force.  Once the jobless benefits expire, they are removed from the Labor Force unless an enterprising Census Bureau pollster happens to get one on the phone and they answer “yes” when asked if they are/were actively looking for work.   Those who do not qualify for jobless benefits more often than not are removed from the Labor Force tally.  This is why, last month for example, over 600,000 people were removed from the Labor Force.

Reducing the Labor Force de facto reduces the unemployment rate.  Thus, there’s an inverse relationship between layoffs and the unemployment rate.  It’s an Orwellian utopia for the elitists.

Today’s stock market is a great example of the “opposite of truth is the truth” theorem.   It was reported by Moody’s that credit card charge-offs have risen at to their highest rate since 2009 – LINK.  This means that defaults are rising at an even faster rate, as finance companies use accounting gimmicks to defer actual charge-offs as long as possible.  A debt that is charged-off has probably been in non-pay status for at least 9-12 months.

The same story has been developing in auto loans. The 60+ day delinquency rate for subprime auto loans is at 4.51%, just 0.18% below the peak level hit in 2008. The 60+ day delinquency rate for prime auto loans is 0.54%, just 0.28% below the 2008 peak. In terms of outright defaults, subprime auto debt is just a shade under 12%, which is about 2.5% below its 2008 peak. Prime loans are defaulting at a 1.52% rate, about 200 basis points (2%) below the 2008 peak. However, judging from the rise in the 60+ day delinquency rate, I would expect the rate of default on prime auto loans to rise quickly this year.

Now here’s the kicker: In Q3 2008 there was $800 billion in auto loans outstanding. Currently there’s $1.2 trillion, or 50% more. In other words, we’re not in crisis mode yet and the delinquency/default rates on subprime auto debt is near the levels at which it peaked in 2008. These numbers are going to get a lot worse this year and the amount of debt involved is 50% greater. But the real problem will be, once again, the derivatives connected to this debt. It would be a mistake to expect that this problem will not begin to show up in the mortgage market.

Amusingly, the narrative pitched by Wall Street and the sock-puppet financial media analysts is that the credit underwriting standards have only recently been “skewed” toward sub-prime. This is an outright fairytale that is accepted as truth (see Orwell’s Theorem). The issuance of credit to the general population has been skewed toward sub-prime since 2008. It’s the underwriting standards that were loosened.

The definition of non-sub-prime was broadened considerably after 2008.  Many borrowers considered sub-prime prior to 2008 were considered “prime” after 2008. The FHA was the first to pounce on this band-wagon, as it’s 3% down-payment mortgage program enabled the FHA to go from a 2% market share 2008 to a 20% market share of the mortgage market.

Capital One is a good proxy for lower quality credit card and auto loan issuance. While Experian reports an overall default of 3.3% on credit cards, COF reported a 5.14% charge-off rate for its domestically issued credit cards. COF’s Q1 2017 charge-off rate is up 48 basis points (0.48%) from Q4 2016 and up 100 basis points (1%) from Q1 2016. The charge-off rate alone increased at an increasing rate at Capital One over the last 4 quarters. This means the true delinquency rates are likely surging at even higher rates. This would explain why COF is down 17% since March 1st despite a 2.1% rise in the S&P 500 during the same time-period.

To circle back to Orwell’s Theorem, today the S&P 500 is hitting a new record high. But rather than the FANGs + APPL driving the move, the push higher is attributable to a jump in the financial sector. This is despite the fact that there were several news reports released in the last 24 hours which should have triggered another sell-off in the financial sector. Because  the stock market has become a primary propaganda tool, it’s likely that the Fed/Plunge Protection Team was in the market pushing the financials higher in order to “communicate” the message that the negative news connected to the sector is good news.  Afer all, look at the performance of the financials today!

Days like today are great opportunities to set-up shorts. Most (not all) of the ideas presented in the Short Seller’s Journal this year have been/are winners.  As an example Sears (SHLD) is down 39% since it was presented on April 2nd.   I’ll present two great short ideas in the financial sector plus a retailer in the next issue.  You can learn more about the Short Seller’s Journal here:  SSJ Info.

Portrait Of A Stock Bubble

Just like the Dutch Tulip Bulb bubble, internet stock bubble, and the  mid-2000’s financial asset bubble, the current stock market is no longer  a price-discovery mechanism.   It has deteriorated into a venue in which Central Bank-manufctured liquidity – in the form of printed currency and credit creation – has flooded into the system, enabling investors to chase the few stocks rising in price at the highest velocity (click to enlarge, graph on the left sourced from Jesse’s Cafe Americain).

The drivers of this modern day Dutch Tulip phenomenon are the so-called “Five Horsemen” stocks – AAPL, AMZN, FB, GOOG,MSFT. To that grouping I toss in TSLA.  Among all of those bubble stocks, TSLA has become, by far, the most disconnected from any remote intrinsic, fundamental value.  AAPL alone is responsible for 25% of the YTD gain in the Dow and 13% of the YTD gain in the S&P 500. AAPL’s revenues and operating income have declined over the last three years (2014 to 2016).  More often than not, even on days when the S&P/Dow are red, most if not all of the Five Horsemen + TSLA  seem to close green.

Eventually, the music will stop and this “no-price-discovery-possible” market will become a “can’t find a seat” market.  The abruptness and rate of decline will be breathtaking. Perhaps only matched by the outflow of capital from the cryptos by “investors” who leveraged up their cryptocurrency holdings to throw more “money” at TSLA.

The good news is that a lot of money can be made shorting stocks.  Since April, stocks like IBM, GS, SHLD, BZH and GE presented in the Short Seller’s Journal as shorts have outperformed the SPX/Dow.  SHLD is down 47% in 7 weeks – a home run.  BZH is down 18% in three weeks.  In the next issue, a “funky” financial stock will be featured that has the potential to drop at least 50% over the next 12 months if not sooner.

No one knows what event will trigger the stock bubble collapse.  One possibility is the ongoing financial implosion of the State of Illinois.  In stock bubble periods, all news is imbued with “the glass is half full.”  As an example, Illinois’ credit rating was reduced recently to BB+/Baa3.  That is a junk rating. But the media characterizes it as a “the lowest investment grade” rating – i.e. the “glass is half full.”

Both rating agencies never downgraded Enron to junk until it was weeks from Chapter 7 bankruptcy.  Illinois is on the brink of financial disaster.   See this article as an example:  Illinois Owes Billions.  This problem is absolutely dwarfed by Illinios’ public pension problem, which Illinois underfunded by a couple hundred billion (officially about $130 billion but that’s not on a true mark-to-market basis).

When the music finally stops, the perma-bubble bulls will be looking for that proverbial “seat” in all the wrong places.  But the next stampede of capital will be out of stocks, bonds, cryptos and “investment” homes and into physical gold, silver and mining stocks.

A Stock Market Crash: A Matter Of “When,” Not “If”

Given group-think and the determination of policy makers to do ‘whatever it takes’ to prevent the next market ‘crash,’ we think that the low-volatility levitation magic act of stocks and bonds will exist until the disenchanting moment when it does not. And then all hell will break loose, a lamentable scenario that will nevertheless present opportunities that are likely to be both extraordinary and ephemeral.  –  Highly regarded hedge fund manager, Paul Singer, in his latest investor newsletter

Singer has apparently has unloaded $5 billion worth of stock, which is 15% of his funds management.

Anyone happen to notice that several market commentators have argued that Bitcoin is  a bubble but the same stock “experts” look the other way as the U.S. stock market becomes more overvalued by the day vs. the deteriorating underlying fundamentals? Bitcoin going “parabolic” triggers alarm bells but it’s okay if the stock price of AMZN is hurtling toward parity with the price of one ounce of gold. Tesla burns a billion per year in cash. It sold 76,000 cars last year vs. 10 million worldwide for General Motors. Yet Tesla’s market cap is $51.7 billion vs. $48.8 billion for GM.

This insanity is the surest sign that the stock market bubble is getting ready to pop. If you read between the lines of the the comments from certain Wall Street analysts, the only justification for current valuations is “Central Bank liquidity” and “Fed support of asset values.” This is the most dangerous stage of a market top because it draws in retail “mom & pop” investors who can’t stop themselves from missing out on the next “sure thing.” There will be millions of people who are permanently damaged financially when the Fed loses control of this market. Or, as legendary “vulture” investor Asher Edelman stated on CNBC, “I don’t want to be in the market because I don’t know when the plug is going to be pulled.”

A friend/colleague of mine is a point and figure chart aficionado. He sent me an email on Thursday in which he said even with the five horsemen (FANGs + AAPL) and the SPX and Dow up today (and the SPX setting a new all-time high), the bullish percent index (BPI) of the NYSE is negative which means there are more stocks generating a point and figure sell signal than a buy signal. This has been fairly consistent over the past couple of weeks. (Note: the bullish percent index is a breadth indicator based on the number of stocks on point & figure buy signals). When the BPI is negative over an extended period of time, it reflects the fact that a lot more stocks in the NYSE are trending lower than are trending higher. When a declining number of stocks are participating in the move higher of a stock index, it is a bearish signal.

As my friend says, “in reality this will continue until it doesn’t.” He goes on to say: ” what this shows me is that at this time it’s much better to be strategically short than broadly short. This will change too at some point…”

Picking out strategic shorts has been the focus of the Short Seller’s Journal. Not all of the ideas have worked and a couple back-fired – in defiance of the company’s underlying fundamentals – but many ideas are well below the price at which they were presented either the first time or presented again thereafter. One idea that has declined 39% (declined $42) since August 2016 is Ralph Lauren, which was presented on August 14, 2016 at $108.19. It closed Friday at $66.11, down 41 cents on a day when the SPX hit another all-time high. RL has closed lower on 12 of the last 13 days.

One subscriber emailed me earlier this week to let me know he had shorted 200 shares at $108 and covered 100 of it this week. He’s hanging on to the other 100 share short. I mentioned to him that my 12-18 month target was $50 and that he should hold the other 100 short at least until August because it’s only going to get worse for the consumer and retailers.

Currently there’s a a large percentage of stocks trading below their 50 and 200 day moving averages.  Many stocks are close or at 52-week lows.  Some stocks, like Sears Holdings (SHLD) are no-brainer shorts.  Sears is going to file for bankruptcy – it’s down 32% from April 2nd, when it was presented as a short idea in the Short Seller’s Journal.  Similar to the probability of a stock market crash, it’s  a matter of “when,” not “if.”

Stocks Down Because Of Trump? Plus Target’s Earnings Trick

The by-line on Fox Business this a.m. was that stocks were down because of “DC grid-lock.” Is this some kind of joke? How about stocks are down because they are more overvalued than at anytime in history by every single financial metric except the highly manipulated GAAP accounting net income calculations.

Speaking of which, the entire financial reporting apparatus has become one of the biggest jokes – if not an outright fraud – in financial markets history (with all due respect to the Ponzi scheme’s currently in operation at Amazon and Tesla). Target’s earnings report this morning is the perfect example.

Target’s stock “pop” was being attributed by the cable tv financial “reporters” to the fact Target’s sales and earnings per share “beat” Wall Street estimates. That’s not hard to do because the highly exalted “beat” is a rigged game played by company management and Wall Street, as management slowly “guides” Wall Street’s penguins into a series of reduced “estimates” leading up to the earnings release. By the time the results are reported, the earnings bar is low enough for a paraplegic to “jump” over.

The financial tv sock-puppets were reporting that Target’s sales had increased. Well, maybe vs. “guidance” but unfortunately none of these faux-reporters bothered to look at Target’s actual earnings report. There we find that Target’s sales declined year over year by 1.1%.  Gross profit dropped 2.5%, which means Target likely engaged in predatory price-cutting to stimulate its online sales vs. Amazon.

Targets earnings before interest and taxes – its EBIT – plunged 10.2%.   Provision for taxes increased quarter over quarter by $74 million, or 26%.  So how did Target “beat” earnings?

Target’s “interest expense” using GAAP accounting manipulation declined by $271 million, or 65%.   This is despite the fact that TGT’s debt level increased by $55 million year over year for Q1. What gives?  Anyone who bothered to read TGT’s earnings release after seeing the headline report, likely nobody except me, would find this disclosure:

The Company’s first quarter 2017 net interest expense was $144 million, compared with $415 million last year. This decrease was driven almost entirely by a $261 million charge related to the early retirement of debt in first quarter 2016.

Target refinanced debt in Q1 2016 and paid a premium to the par (book) value of the debt. This was added in to Target’s interest expense in Q1 2016. It was a one-time charge that could have just as easily been stripped away and disclosed as a “non-recurring loss” in order to keep the income statements comparable for comparison purposes. Adding the $261 million non-operating GAAP charge back into the Q1 2016 EBIT boosts TGT’s earnings before taxes that quarter to $1.158 billion. In Q1 2017 TGT’s earnings before taxes was $1.034 billion. As you can see, TGT’s “apples to apples” earnings before taxes declined by $124 million. From there Targets net income and earnings per share on the true “adjusted-GAAP” basis would show a decline, not a gain.

This type of earnings gamesmanship that goes on between corporate America, Wall Street and the zombified sock-puppet financial “reporters” is endemic to the giant U.S. Ponzi Scheme.  Using earnings “sleight of hand” and allowable GAAP accounting earnings management gimmicks, Target was able to transform deteriorating revenues and economic profitability into something that is being touted in the fast-food financial reporting machinery as “an earnings POP.”   Bad news was converted into good news and Target’s stock jumped 4.4% at the open today despite a 1.1% drop in the S&P 500.

This is the type of financial analysis that you will find in the Short Seller’s Journal and it’s why subscribers were able ride Sears (SHLD) from $11.92 to $7.89 in 5 weeks and KATE from $23.67 to $17 in 8 weeks.  You can find out more about this unique subscription service here:   Short Seller’s Journal.

You can’t throw darts at the market and win every time just yet. At some point everything will no doubt head south, but for now its great having your analysis to pick the ones with best chance. In all honesty mate, the recommendation I am most looking forward to in the SSJ and the MSJ is what bar we all meet at in a couple of years time for some celebratory brewskis. – subscriber “James” from the UK

Is The U.S Ponzi Scheme About To End?

“How did you go bankrupt?” “Two ways. Gradually, then suddenly.”
– Ernest Hemingway, “The Sun Also Rises”

I was chatting with a friend two days ago who was agitated by the insanity of the markets. Look at TSLA, for instance.   This thing loses $13,000 for every car sold.  Soon the tax credits – i.e. the taxpayer subsidies – will expire and TSLA will lose even more per car because it will have to lower the price to entice buyers.   Its balance sheet is a ticking time bomb in the form of residual value guarantees issued by TSLA used to induce buyers into paying up for a car that has depreciated in value considerably more than the value of the guarantee. Those poor saps don’t realize it yet, but they will be unsecured creditors to a bankrupt corpse of a company.  And yet, the market has pushed the market cap above the market caps of GM and Ford.

To say this is absurd is an insult to the word “absurd.”  I’m still trying to decide whether TSLA or AMZN is the biggest Ponzi scheme in U.S. history.  I have not had a chance to dissect TSLA’s financials and operations to the extent that I have done so with AMZN.  With AMZN the market doesn’t seem to care that, on a net income basis, in its latest quarter AMZN’s product sales business (it’s non-cloud, or AWS, business) lost money (that’s right, if you subract the operating income of AWS from total net income,  AMZN lost money – AMZN manufactures net income for its non-AWS business via GAAP gimmicks) .  But why focus on the facts?  The operating income of its AWS cloud business dropped 29%.   Once GOOG, MSFT and ORCL have fully implemented their attack on AMZN’s cloud market share, AWS will become irrelevant.   I would bet every single entity that bought AMZN stock since it released its Q1 earnings does not know these facts.  AMZN, pure and simple, is a Ponzi scheme.

Amusingly, there’s a contest on CNBC over whether AMZN or GOOG hits $1000 first.  This is the surest signal that the end of this fiat currency-driven credit and stock bubble globally is about to collapse.

Given the inability to manipulate its market via paper derivative instruments and short selling, this is the message that Bitcoin is signaling:

In the absence of the ability to manipulate the market, this is the same message that gold and silver would be sending to the world, only the scramble for gold and silver bullion in any form would be more frenzied and it would be widespread. There actually is a somewhat frenzied scramble for gold and silver in eastern hemisphere markets based on the premiums to melt being paid for refined products in places like India, China, Turkey and Viet Nam.

At some point the western Central Banks will lose the ability to manipulate the gold and silver price and the Comex will default.  That’s when chaos will break out in the physical gold and silver markets.  That may be what it will take to trigger the collapse of the U.S. Ponzi scheme.   Apparently JP Morgan understands this inevitability.  Prior to 2011, JPM did not operate a Comex vault.  It had zero Comex silver.   Currently JPM is holding nearly 108 million ozs of silver, or 54% of the total silver reportedly held in Comex silver vaults.   This tells us, or at least me, that smart insider money is loading up on precious metals – not Bitcoin – and that silver is a better bet than gold.

Hemingway’s “slowly” method of going bankrupt has nearly run its course.  There’s no way to tell the timing on the “all at once” side of this trade but the price action in Bitcoin is signaling to the world that the obviously inevitable draws near.

Piper Jaffray, Tesla and Creative Analysis

Piper Jaffray stock analyst, Alexander Potter, in what may be the most idiotic stock research report I’ve ever read, issued a buy recommendation on Tesla (TSLA) stock that is completely devoid of any rational arguments or coherent thought:  “before investors can follow our advice and buy TSLA shares, they need to employ a ‘creative’ valuation methodology…”  Anyone who suspends disbelief and reads that report is more dumb for having done so.

Creative valuation methodology?  I had to read that 3 times before I could believe that he put that in the conclusion of his report.  That sounds like something used in conducting human investment analysis tests on stock analysts who have taken LSD.  The CIA might be interested in experiments like that.

While issuing his bullish assessment, Potter at the same time reduced his FY 2017 earnings estimate from $0.42/share to a loss of $4.83.  I shocked that this analyst was forecasting positive net income at all.  But a reduction in an earnings forecast of that magnitude would seem just too embarrassing to report.  Maybe Potter was indeed experimenting with LSD when he was thinking about his investment thesis.

As it is, TSLA uses “creative” accounting methodologies in recognizing “revenues” that would make Amazon’s Jeff Bezos blush with embarrassment.  The Company burned over $1.5 billion in cash in 2016 in its business operations.  This was covered by the most permissive credit and equity markets in U.S. history, which handed over a net $2.7 billion to the Company in  2016.

While the Piper “analyst” claims to have gotten to know the Company because he drove a Tesla around for seven months and met with Tesla’s IR team, he apparently eschewed real fundamental analysis in favor of “creative” methodologies.  The fact that TSLA’s actual vehicle deliveries declined in Q4 from Q3 was creatively removed from his hockey-stick earnings projections.

It will get really interesting  for Tesla when the  tax credits for the first 200,000 vehicle buyers expire. TSLA’s sales are being subsidized heavily by the U.S. taxpayer and yet the company has lost $1.5 billion on GAAP net income basis in which the “net income” was derived using a highly “creative” interpretation of GAAP accounting.   TSLA’s buyback guarantee, in which it has guaranteed the resale value on vehicles sold or leased up until August 2016, has already created a $2.3 billion future liability. Given the plunging prices in the used car market, it is likely that the true level of that resale guarantee is closer to $4 billion.

TSLA delivered 79k cars in 2016 while Ford delivered 2.6 million.  Yet the stock market creatively assigns a market value to TSLA that is about $5 billion higher than Ford’s.  It’s debatable whether or not Tesla will be able to start delivering its highly touted Model 3 before mid-2018 given TSLA’s track record of failure at meeting delivery schedules.

Quite frankly, what’s more amazing than Tesla’s ability to bamboozle investors into throwing more money at the Company’s cash inferno is the willingness of stock “analysts” like Piper’s Potter to release “creative” research reports that read more like “The Onion” than a responsibly prepared business model and projected financial analysis.

Tesla’s GAAP “book value” is listed at  $4.7 billion, or $32/share. Of that $4.7 billion, $3.4 billion is cash that will soon be burned away, leaving $1.3 billion in book value or $9/share. If we mark to market the car value guarantee, Tesla’s book value goes negative.  If we mark to market its $5.9 billion in PP&E, the book value becomes catastrophically negative.   The shorts who defy Elon Musk’s childish Twitter taunts and remain short will eventually make a fortune when reality inevitably seizes the stock market and takes “creatively” valued stocks like Tesla down their intrinsic value, which is close to zero.