Tesla Investor's General Macroeconomic / Market Discussion

[Auzie]

The best place to invest, for now

That's pretty impressive, Auzie, that you avoided your domestic market. In my not inconsiderable experience, very, very few investors, with the exception of an irrelevant number of ultra-wealthy living in ultra-undesirable states (say, for example, Venezuela), stay out of their home country.

There are significant hurdles to be overcome to get out of the home market, the biggest one for me is the time difference. My trading and my sleep are incompatible :biggrin: as I like to watch orders getting filled. A bit of a loss of sleep was well worth it.

Let's have a look:

The US has been the best place for investors

Easy money: Former Federal Reserve Chair Ben Bernanke played no small part in making that happen. The former Federal Reserve chief masterminded emergency policies that juiced risky assets like stocks and stabilized confidence in the economy.
"I would give Bernanke and the Fed the lion's share of the credit for repairing the economy," said Phil Orlando, chief equity strategist at Federated Investors.

But the market rally was also fueled by the U.S. energy revolution as well as aggressive cost-cutting moves that left Corporate America very lean.
The stock market proved resilient enough to overcome a number of major obstacles, including the slow U.S. recovery, political dysfunction in Washington (see: 2011 debt ceiling debacle) and Europe's debt mess.

The optimism is being fueled by the U.S. economy, which looks relatively good compared with slowing China and flatlining Europe and Japan.
"We believe the U.S. economy will continue to outperform many parts of the world in the half-decade ahead and generate the necessary profit growth to sustain the current equity rally," Joseph Quinlan, chief market strategist at U.S. Trust, wrote in a recent note.
He pointed to America's "unique ability to leverage disruptive technologies" like robotics, cyber security, 3-D printing and cloud computing.

The solid growth could clear the path for the Federal Reserve to increase interest rates in 2015. While there is some trepidation about the first interest rate hike in nearly a decade, it would signal that the U.S. economy in actually strong enough to take off the training wheels.

 

[Vger]

Vger,
I totally agree with you and I share your opinion that the current situation in the oil market will set off some serious volatility over the next few years. I was merely saying that I don't think the short-term nature of shale oil extraction will be a primary reason for that volatility. It will be fascinating to watch what will possibly be the death throes of this mighty industry.

I agree with you too! I was just extending the point to look at the bigger picture.

Happy New Year!

 

[Robert.Boston]

Moderator's Note

Some posts were moved to AESOP engines in the Electric Vehicle forum.

 

[FluxCap]

More woes from the Eurozone today coinciding with continued dive in price of crude.

I'm seeing a rumor that the Greek Syriza party is advocating Greek debt default. That's obviously not good.

Watching Eurozone closely.

 

[Auzie]

More woes from the Eurozone today coinciding with continued dive in price of crude.

I'm seeing a rumor that the Greek Syriza party is advocating Greek debt default. That's obviously not good.

Watching Eurozone closely.

My bet is that Greece will leave Eurozone. It baffles me how the potential exit may play out. One thing for sure, it will be messy.

 

[hockeythug]

Why are airlines down on yet another drop on oil?

 

[jhm]

Why are airlines down on yet another drop on oil?

Same reason Tesla is down: with gas prices so low everyone would rather drive a gas guzzler than fly.

 

[Robert.Boston]

Why are airlines down on yet another drop on oil?

Also, many airlines have hedged their fuel prices, leaving them stuck with above-market fuel costs. Airlines that didn't hedge (as much) will be able to drive prices down, leaving the hedged airlines in a world of hurt.

 

[Cattledog]

Also, many airlines have hedged their fuel prices, leaving them stuck with above-market fuel costs. Airlines that didn't hedge (as much) will be able to drive prices down, leaving the hedged airlines in a world of hurt.

AAL is apparently not hedged, don't know why it's down. Apparently the recent drop (as of the weekend) equals $1.2B for them in 2015.

 

[hockeythug]

Also, many airlines have hedged their fuel prices, leaving them stuck with above-market fuel costs. Airlines that didn't hedge (as much) will be able to drive prices down, leaving the hedged airlines in a world of hurt.

Intresting that some don't. Never knew that.

 

[sundaymorning]

European Central Bank president stated that it was ready for "full blown" quantitative easing. Europe markets are up 2-3% across the board on this statement. Hope we have a good US jobs report tomorrow to follow up on this momentum.

 

[Auzie]

Fixing the Eurozone and reducing inequality

Interesting article in Harward Business Review, Fixing the Eurozone and reducing inequality.

Main points:

What do deflation and rising inequality have in common? The answer is that we have too much of both and they threaten the nascent global recovery. The US economy is in cyclical full-steam-ahead mode, but it’s mainly benefitting the owners of financial assets – wage growth is missing.
In Europe,deflation and rising inequality are combining to make a bad situation much worse. Prior to the global financial crisis, deflation looked like a uniquely Japanese problem. But today this malaise is most acute in the euro zone, where demand has been depressed due to counterproductive fiscal policies.

The policy response to the global financial crisis exacerbated and entwined these trends still further. The traditional response to the problem of insufficient demand is government-led infrastructure spending.
Rather than continue their stimulus spending, many economies began to cut back excessively, especially in Europe, which made their economies slump further. With fiscal remedies on the sidelines, monetary policy had to take up the slack. Interest rates of zero meant that central banks took to targeting asset prices – stocks and bonds – to boost spending. But the ownership of financial assets is highly concentrated and the effect was to compound the existing trends of wealth and income inequality, with muted effects on demand.
Both of these reinforcing trends have created a tax revenue problem for governments. Today, the burden of income tax is increasingly being borne by middle and upper-salary households. In short, the middle is being squeezed, the top doesn’t spend enough, the bottom doesn’t earn enough, and the policy mix is fatally flawed. We need new policies.

The simplest way to boost demand is to give power to central banks to transfer cash in equal amounts to all households. For example, the European central bank, which by law is prohibited from financing government spending, could simply credit the bank accounts of all tax-paying euro zone citizens.Such a policy would be cheaper than the alternatives and more effective.
Quantitative easing (QE) by the Fed, Bank of England and the Bank of Japan, has involved asset purchases equivalent to more than 20% of GDP. A payment of cash to Eurozone households of 3-5% of GDP would probably suffice to generate a recovery.

This policy is also fairer. Each household gets the same amount of money and there is no favoring of borrowers, lenders, or owners of assets. It’s also faster and more direct than infrastructure spending.

Whilst I agree with some points of the article, that current policies contribute to income inequality by favouring asset holders over wage earners especially the ones at the lower levels, I disagree with the proposed remedy. Wages are sticky, wage growth is lagging, my expectation is for wages to eventually catch up.

I find the proposed remedial policy (handing out cash to households) lacking creativity and imagination. Policy like that can only exist in an article, it is unlikely in a real world.

What about inflation, or worse still, hyperinflation? These fears are emotional and fade under clear analysis. Any impact on prices would depend on how much spare capacity there is in the economy. Firms in the euro zone are desperate for higher sales; price increases would be corporate suicide in the current, intensely competitive economic environment. For Europe to have an inflation problem, there would need to be a boom first – and nothing could be further from the current reality.

 

[Robert.Boston]

A payment of cash to Eurozone households of 3-5% of GDP would probably suffice to generate a recovery.

GDP per capita in the EU is about $34,300. So this notional transfer would be about $1,000-$1,700 per person. I'm skeptical that that would have a huge impact. The author also blithely assumes that all EU citizens have bank accounts. While that's nearly true in many EU countries, in Italy on 71% of adults are "banked". Also, putting money directly into the bank probably leads to a higher marginal propensity to save than if the money were mailed as currency (sure, lots of problems with that approach, too).

 

[Johan]

GDP per capita in the EU is about $34,300. So this notional transfer would be about $1,000-$1,700 per person. I'm skeptical that that would have a huge impact. The author also blithely assumes that all EU citizens have bank accounts. While that's nearly true in many EU countries, in Italy on 71% of adults are "banked". Also, putting money directly into the bank probably leads to a higher marginal propensity to save than if the money were mailed as currency (sure, lots of problems with that approach, too).

I would think mail theft would be rampant as these envelopes started going out

Now seriously they way to do a stimulus like that is of course to do a green tax shift i.e. Stimulate spending in "green" areas by tax brakes and the following price reductions in areas such as energy conservation, renewable power generation for homes, EVs etc. that way the increased consumption is steered in a desired direction and as we all know accelerated development of these green markets will benefit the economy hugely in the future in the EU as it will create a lot of work and exports. (As opposed to unfocused stimuli such as rebates of cash or cuts in income tax which only stimulate spending and investments in an unspecific way and only partly increases spending/consumption overall).

 

[mrdoubleb]

Wow. Seriously?! The article in the HBR suggest the ECB crediting the bank accounts of all EU taxpayers to stimulate growth? Are these people for real?! They do realize this is the 21st Century, right?

So what, the ECB transfers 2k EUR to my bank account and expectes i will hit downtown Budapest and spend all 2k on goods manufactured in Europe, thus boosting demand and production, creating jobs, etc?

Let alone the fact I would drop the whole 2k on TSLA at these prices right now... here are some of the choices these taxpayers have:

- Invest (funds, stocks, bank deposit, etc)
- Spend on goods not manufactured in the EU. Many would buy a new TV, appliance, computer, clothes, furniture, etc. Not all of these is manufactured in Europe, in fact most things are "made in China".
- Go on vacation outside of the EU. Yes, you are not obliged to stay within the EU...

The problem with giving cash is that you can't control how it's spent.

Here is a better idea:invest in the future
- modernize infrastructure (e.g. high speed EU railways, modernize healthcare, etc. with the condition of 80%+ EU built parts & workforce)
- go green (as suggested above): major financial boost and advedrtising to go solar, wind, replace cars older than e.g. 7 years with EURO 5+ or zero emission vehicles; mandate 100% zero emission public transportation vehicles by [insert ambitious deadline], target an EU wide 80%+ recycling initiative, etc.
- allow a higher deficit as long as it's realted to investments and not day to day costs
- give generous incentives for hiring/keeping workforce in areas with high unemployment

etc.

Anything but cash that people will spend on a vacation to Thailand, a new Samsung TV, the Iphone 7, etc...

 

[Auzie]

Here is a better idea:invest in the future
- modernize infrastructure (e.g. high speed EU railways, modernize healthcare, etc. with the condition of 80%+ EU buit parts & workforce)
- go green (as suggested above): major financial boost and advedrtising to go solar, wind, replace cars older than e.g. 7 years with EURO 5+ or zero emmission vehicles; mandate 100% zero emission public transportation vehicles by [insert ambitious deadline], target an EU wide 80%+ recycling initiative, etc.
- allow a higher deficit as long as it's realted to investments and not day to day costs
- give generous incentives for hiring/keeping workforce in areas with high unemployment

etc.

Anything but cash that people will spend on a vacation to Thailand, a new Samsung TV, the Iphone 7, etc...

I am in favour of your suggestions over handing out cash any time.

Also the title of the article is a bit too ambitious, fixing the euro zone and reducing inequality seems like an unachievable goal:biggrin:

 

[AudubonB]

The problem with giving cash is that you can't control how it's spent.

Here is a better idea:invest in the future
- modernize infrastructure (e.g. high speed EU railways, modernize healthcare, etc. with the condition of 80%+ EU built parts & workforce)
- go green (as suggested above): major financial boost and advedrtising to go solar, wind, replace cars older than e.g. 7 years with EURO 5+ or zero emission vehicles; mandate 100% zero emission public transportation vehicles by [insert ambitious deadline], target an EU wide 80%+ recycling initiative, etc.
- allow a higher deficit as long as it's realted to investments and not day to day costs
- give generous incentives for hiring/keeping workforce in areas with high unemployment

etc.

Anything but cash that people will spend on a vacation to Thailand, a new Samsung TV, the Iphone 7, etc...

You are spot on in your criticism, as the real-world example of Alaska will demonstrate. The distribution each Alaskan receives as a function of the rolling 5-year return of the investment portfolio funded by our oil production comes as a single check once a year. US$1884 in 2014, for example. Especially inasmuch as we produce very few manufactured or even semi-manufactured goods in this state, an alarmingly large fraction of the $1.2billion (2014; over its lifetime $22bn) paid out immediately leaves our economy. The multiplier effect of the disbursal is, thus, very close to zero. Even the retail merchants who handle the initial transaction are mostly owned by outsiders: Best Buy (TVs), and so on.

Now, we Alaskans understandably have become very, very attached to our PFD checks, as they are known, and it is political suicide to consider altering the system much. My consistent recommendation has been to split the distribution into 52 weekly checks (almost all distributions are electronically sent). For 2014, for example, that would have been $36.23 each week. It is supremely more likely such amounts would be more equably distributed into the local economy than the "Santa Claus/Free Money" behavior that occurs in fact.

I hope that whatever develops in Europe, it is not the Alaskan model. Good luck!

 

[sundaymorning]

China's trade rose to a whopping 9.9% in December!! Way up from 4.7% in November and much higher than 6.8% expected. Low oil prices are beginning to show benefits that traders can no longer ignore, expect more of these types of beat coming within the next couple weeks.

 

[Auzie]

Macroeconomic predictability

Oil prices are significant input into macroeconomic developments and trends.

Oil prices are plummeting. This sudden unexpected trend demonstrates the difficulties of predicting macroeconomic developments.

If no one saw this coming, then it is highly likely that much more complex macroeconomic changes will be unleashed on investors in unexpected and unpredictable ways.

The moral of the story is to diversify portfolios.

Some background to plummeting oil prices are outlined here.

Over the past five years, demand for oil has almost consistently outpaced production.This has kept the oil price high - averaging $US102.06 a barrel since January 2010 - which in turn spurred further production, as oil producers scrambled to take advantage of the booming profits.
But as demand has weakened in Europe and Asia, due to economic growth slowing more quickly than expected in key European markets and in China, oil producers have begun posting record production.
Russia's production is now at a post-Soviet era high, Iraqi oil exports are at a 35-year peak, and the US has become the world's largest oil producer, churning out 11 million barrels a day.
Coupled with increasing output from Libya and Iraq during 2014, despite domestic turmoil, the oil price has tumbled more than 50 per cent since June 2014, as supply rapidly overtook demand.

A key reason for the worldwide oil glut is the rapid rise of America's domestic oil industry to global dominance.

The "break-even" price point is the price at which revenues from oil sales will allow the government to meet its spending commitments. It is particularly relevant to the OPEC nations, which use their oil revenues to fund their welfare programs which citizens have come to rely on.As the current situation is effectively a "price war" between US oil producers and the OPEC nations, the break-even price is a critical measure when considering how far the price of oil might tumble.


It comes down to how long both sides are willing to ride it out. That is, how much financial hardship they can take until one buckles.

For this reason, most analysts expect the US shale industry to lose the oil price war, as many of the US fracking companies will be unable to withstand crippling debts in the medium term.

 

[sundaymorning]

Retail sales unexpectedly dropped in December but some good news did come out of the economic front, the Feds reported that "faster growth remains the expectation as payrolls and credit demand increases."
-cnbc