Tesla Investor's General Macroeconomic / Market Discussion

[defc0n]

I did that last week with TVIX and did well. Kinda don't like shorting period, but I bought in AAPL recently at a loss and trying to hedge.

I’m looking for reasons why this should be a bottom and I’m struggling to find any. Sure does seem like more pain yet to go.

• Macro chart technicals
• Schiller PE still on high end
• Looming govt shutdown
• Exodus of Mattis and others
• Tariffs
• Global economic slowdown
• Continued higher interest rates

Maybe come January there could be more deals between China and the US to reduce tariffs. At this point it seems any relief that brings may just be temporary.

 

[neroden]

Do you see any glaring weakness in any of the captive auto finance arms? I'm looking at Ford Motor Credit Company.

I haven't studied them deeply, but they looked horrible last time I looked.

 

[neroden]

And now Afghanistan.

U.S. to Withdraw About 7,000 Troops From Afghanistan, Officials Say U.S. to Withdraw About 7,000 Troops From Afghanistan, Officials Say

Why is this a bad thing even though the communication was handled poorly?

Still leaving 7000. If you're gonna get out, get out -- that's the only really good thing I can say about Trump's move on Syria.

Though really, the thing to do is to get out before you announce that you're leaving.

 

[dmunjal]

Still leaving 7000. If you're gonna get out, get out -- that's the only really good thing I can say about Trump's move on Syria.

Though really, the thing to do is to get out before you announce that you're leaving.

Interesting that most are criticizing Trump for moving too quickly.

 

[neroden]

Well, I've been told that it takes a long time to get troops out safely, so you want to put the plan into motion early, but also that announcing withdrawals in advance runs the risk of being harried by opposing troops as you retreat. That said, an announcement may be necessary in order to commit the military to getting out -- as we see with the quagmires in Iraq and Afghanistan, or indeed the pointless US military bases all over the world.

 

[Intl Professor]

And now Afghanistan.

U.S. to Withdraw About 7,000 Troops From Afghanistan, Officials Say U.S. to Withdraw About 7,000 Troops From Afghanistan, Officials Say

Why is this a bad thing even though the communication was handled poorly?

Afghanistan war was longer than Vietnam.

It could have ended with capture of Bin Laden but W's vice refused help to divert resources to the coming invasion of Iraq, and W. promised Israel Iran would be next.

I think you missed my point that Trump has endangered the troops and now much of the top in command has been disrespected. Of course paying respect by a weak man is a challenge to his greatness so I understand.

Incidentally, what did Libertarians do to stop the Vietnam War, the Iran Contra deal, the Iraq war, Reagan's saber rattling with nuclear weapons, the ill fated and enormously expensive Star Wars plan? Some of us have been on the USG's bellicose ways for a long time.

Off topic, but I think a volunteer army for a great power is a horrible thing for the world. Great powers should always have mandatory military service. To make America great again Trump should bring back the draft. Maybe that's the way he wants the military to build the wall?

Stay tuned to this acid trip.

 

[Intl Professor]

If you want to understand the macro environment today, and for the next several, it's all Washington's fault. I think American business is beginning to realize we are in deep caca and D.C.'s adding daily because of its disfunction.

The next big shock will be a full press by Whittaker or Barr against Mueller's investigation. It is probably too late as the Dems can pry info out of Mueller in testimony if they want, according to Jerry Nadler in an interview tonight.

 

[jbcarioca]

...

Auto loans I can see blowing up. They seem to be pretty overextended, and offered at absurdly low interest rates which are clearly subsidized by the manufacturer or dealer.

It is rare for me to disagree with neroden, but on this issue he is partially in error. Auto manufacturers often subsidize interest rates for loans and both residual values and interest rates (i.e. money factors) for leases. These are referred to as 'subvention'. Historically subvened loans/leases have significantly better credit risk than do non-subvened ones. No doubt, subventions costs money. Manufacturers debit accounts for cost of sales for interest rate subvention, which is usually (not always) paid directly to the captive or other lender. Residual value guarantees are dissimilar in that they are recorded as contingent liability with substantial latitude in GAAP treatment precisely because they cannot be precisely defined until lease termination, and early termination extinguishes the liability.

 

[neroden]

Off topic, but I think a volunteer army for a great power is a horrible thing for the world. Great powers should always have mandatory military service.

I actually don't think mandatory military service is possible in technological periods when soldiering requires skill. It's too easy to "Schweik". Drafts *are* known for causing the overthrow of the government which instituted them.

 

[neroden]

It is rare for me to disagree with neroden, but on this issue he is partially in error. Auto manufacturers often subsidize interest rates for loans and both residual values and interest rates (i.e. money factors) for leases. These are referred to as 'subvention'. Historically subvened loans/leases have significantly better credit risk than do non-subvened ones.

Less interest to pay, obviously.

No doubt, subventions costs money. Manufacturers debit accounts for cost of sales for interest rate subvention, which is usually (not always) paid directly to the captive or other lender. Residual value guarantees are dissimilar in that they are recorded as contingent liability with substantial latitude in GAAP treatment precisely because they cannot be precisely defined until lease termination, and early termination extinguishes the liability.

So what you're saying is that the subsidies are directly passed from the manufacturer to the lender, so when the loan blows up, the lender's OK but the manufacturer gets hit. The thing is that many of these lenders are direct subsidiaries of the manufacturer. So...

GM is more than half a car loan company, and less than half a car manufacturing company. So GM records the subvention, which it pays to itself, to cost of sales but then records it as a profit in the other half of the business. if the loans default, GM gets hit either way. Same situation with Ford. I don't know which other manufacturers use outside finance vs. in-house finance off the top of my head.

 

[jbcarioca]

Do you see any glaring weakness in any of the captive auto finance arms? I'm looking at Ford Motor Credit Company.

...

One need not look too far to see poor fundamentals for FMCC. There are three major issues that are inadequately reserved and for which minimal disclosure has been made. I make each one a qualitative statement here because I cannot share the quantitative data:

1. FMCC has had a disproportionate share of Ford car financing in recent periods. This has been driven by large incentives for sale of new sedans, almost all of which have been/ are being discontinued, plus massive resale of fleet vehicles. Almost all of those have been subject to interest rate subvention, which helps, but resale values are plummeting, which makes repossession loss severity rise rapidly. The overall reduction of typical credit quality is demonstrated by reducing proportions of high quality borrowers, lengthening average tenor and increasing dealer reserves.
2. Higher-end FMC paper (F-series, Lincoln, SUV) has also seen rapid rise in dealer adds (i.e. financing greater % of MSRP) and slight, but significant, reductions in credit quality. Those mostly are not resulting in major increases in Probability of Default (POD) but are producing clear Loss Given Default (LGD)
3. FMCC pretty much carries the higher risk of FMC, so cost fo funds has been rising. If Ford suffers more US competitive disadvantage from any source FMCC will continue to face higher funding costs and less easy access to credit. In this respect, reputational risk is a clear and present danger for FMCC.

After those three things come all the other issues about FMC preparedness for evolving vehicle markets. Although not a major issues today FMCC exposure in commercial vehicles, formerly a bright spot, is already being less advantageous in Europe (e.g. Ford Transit- FMC strongest product in Europe) and coming that way in North America.

In our own terms for Tesla, the evolving sad story for FMC, FCA and GM may be positive, but as these companies decline political risk for Tesla will rise from the politically strong NADA members and stakeholders (including lenders).

The foregoing are my views, but are not to be relied upon. After all I supplied no data to support my statements.

 

[jbcarioca]

... I don't know which other manufacturers use outside finance vs. in-house finance off the top of my head.

I do agree with much of what you say. FWIW, these days non-manufacturer owned captives are pretty common, more so among smaller manufacturers than larger. Chase, for example, runs captives for parts of FCA (Maserati), Subaru, Mazda and others. Several entities run preferred financing that is not structured as a named captive, especially Wells Fargo and Ally (the successor to GMAC). Those 'preferred' lenders are also beneficiaries of various types of subvention, often not publicly disclosed in Automotive News incentives lists.

In general the financial impact and risks for manufacturers directly is recognized and provisioned in COGS somewhere. The captives traditionally have been pretty well insulated from their parents except in the gigantic issue of LGD. Not too many analysts even understand the term. One major advantage for Tesla in this respect is that even totaled Tesla vehicles have pretty decent resale value. Not so much for most other expensive vehicles.

These macro issues are about to become far more important for Tesla than they have been. We probably will see the first major insights when UK lease returns begin in high volume and Model 3 becomes a major force there. California already has some leading indications but none of them are easily accessible to the public AFAIK. The clearest hints are in insurance rates and financing rates for Tesla, which are from my data, trending slightly more competitive.

 

[Intl Professor]

This colloquy displays the best of TMC, however arcane for the unwashed rest of us. As our political discourse becomes coarse and unproductive, it is so refreshing to see keen and courteous discussion among functioning intellects.

 

[Intl Professor]

I actually don't think mandatory military service is possible in technological periods when soldiering requires skill. It's too easy to "Schweik". Drafts *are* known for causing the overthrow of the government which instituted them.

Examples? Clearly Nixon benefitted from getting rid of the draft. I was fairly close to students at the time and predicted the relief as well as fragility of opposition to racism and sexism which piggy-backed on the anti-war movement. For one example I remember a student saying he would much rather die in a nuclear war than rotting in some jungle 8000 miles away. Also, the collapse of the Soviet empire had most to do with Gorby's failure to reconstitute Brezhnev's affirmative action plan at the top in the aftermath of his laudable anti-corruption campaign. But these were established draft plans.

I guess it matters what you mean by "instituted." (Sounds like Clinton on "is" so I should shut up.)

 

[Intl Professor]

I actually don't think mandatory military service is possible in technological periods when soldiering requires skill. It's too easy to "Schweik". Drafts *are* known for causing the overthrow of the government which instituted them.

Soldiering always requires skill and a lot more. I hear what you say about technology. Now that we have in place a pretty effective training program within our military (witness Tesla's preference for veterans), there is no particular reason why that expertise in education which I think is impressive now couldn't be grafted onto a draft. Surely there must be examples of universal service to the state which were productive in developing a sense of nationhood (public service) as well as a source of more productive workers. Sparta? Turkey under Ataturk? The GI Bill after WWII? My first father-in-law said they were the best students he ever had at Colgate just after WWII.

 

[dmckinstry]

I actually don't think mandatory military service is possible in technological periods when soldiering requires skill. It's too easy to "Schweik". Drafts *are* known for causing the overthrow of the government which instituted them.

Could it be in those cases the governments deserve to be overthrown? A mercenary military has its own set of problems.

 

[Johnny Ma]

Thank you very much Johnny Ma for introducing me to great insights.

Just imagine how much better our world could be were world leaders in the US, EU, and a few others were using his insights to guide their policies.
Tariffs would not be imposed. Trade negotiations would be based on an economically balanced view of what constitutes subsidy and what benefits those confer.

You're quite welcome.

I'm sure Yukon Huang isn't right on everything he says, but he provides good evidence that the consensus views on China are very wrong, especially with regards to policy coming out of Washington.

 

[Intl Professor]

There's a quotation from Goethe which goes something like this: "If you take man as he is, you make him worse. If you take him as he should be, you make him into what he can be."

We are in a stage where an arch opportunist has played on divisions in our society and with sufficient help from fossil fuel barons and Russian perfidy, to capture control of one political party and our government. It is common to lament the lack of civic virtue, or even failure to discuss it productively (cf Robert Bellah, Habits of the Heart). However....

I was born in 1936. I don't remember Pearl Harbor but I was well aware we were in a great and just war. How just we did not recognize at the time but the discovery of the death camps was eventually well known. We had such a sense of unity as a nation that even as a kid of six or seven when my Dad railed against FDR at Sunday dinner, I thought it odd because we were supposed to revere the President.

That war unified the country and offers a lesson. When the survival of human civilization is at stake because of global warming, why aren't we mobilizing society to fight that war? Apparently at least one teenager in Sweden got that message some six years ago. Why not everyone everywhere? The apparent holdup for some pseudo world leaders and their followers is it would challenge a psychotic need for radical individualism.

We are at another junction between the evil of personal gain over the collective good. What is different this time is the gamble on success has the highest of stakes. This time toxic individualism is suicidal. This time, as with Nixon, the cookie of fortune is crumbling and we are finding mold everywhere.

 

[jbcarioca]

...

I'm sure Yukon Huang isn't right on everything he says, but he provides good evidence that the consensus views on China are very wrong, especially with regards to policy coming out of Washington.

He cannot be correct about everything, no human is. He is thoughtful, obviously tries to be fact-based, and states his logical basis for his positions. That is exactly what I value. There are odd issues for which I differ with him, although they are thus far arcane ones.

 

[anthonyj]

This is similar to the 2015-16 crash/selloff I think. Nasdaq plunged more than 20% back then too. Even Amazon was almost half off