Tesla Investor's General Macroeconomic / Market Discussion

[AlMc]

For those following the Grexit closely an investment opportunity I missed, but my brother got.....NBG up 15% today.

 

[MitchJi]

Email from Robert Reich via MoveOn.org:

Dear MoveOn member,

Greece is all over the news this week—but how come so few people are talking about Wall Street's role in creating the crisis, or what people like us can do to change the outcome?

Read on to see how I see it. Once you've read this, please chip in to help MoveOn launch an emergency global campaign for progress, not austerity.

People seem to forget that the Greek debt crisis—which is becoming a European and even possibly a world economic crisis—grew out of a deal with Goldman Sachs, engineered by Goldman's Lloyd Blankfein.

Several years ago, Blankfein and his Goldman team helped Greece hide the true extent of its debt—and in the process almost doubled it. When the first debt deal was struck in 2001, Greece owed about 600 million euros ($793 million) more than the 2.8 billion euros it had borrowed. Goldman then cooked up an off-the-books derivative for Greece that disguised the shortfall but increased the government's losses to 5.1 billion euros.

In 2005, the deal was restructured and the 5.1 billion euro debt was locked in. After that, Goldman and the rest of Wall Street pulled the global economy to its knees—whacking Greece even harder.

Undoubtedly, Greece suffers from years of corruption and tax avoidance by its wealthy. But Goldman Sachs isn't exactly innocent. It padded its profits by catastrophically leveraging up the global economy with secret, off-balance-sheet debt deals.

Did any of its executives ever go to jail? Of course not. They all got fat bonuses and promotions. Blankfein, now CEO, raked in $24 million in 2014 alone. Meanwhile, the people of Greece struggle to buy medicine and food.

Economists Thomas Piketty and Jeffrey Sachs also have weighed in, writing in The Nation that the results of European austerity in Greece have hit the vulnerable the worst—"40 percent of children now live in poverty, infant mortality is sky-rocketing and youth unemployment is close to 50 percent." 1

Debt restructuring must be part of any solution for economic reforms in Greece. But instead of doing that, the European powers have made eleventh-hour, draconian demands: slash pensions, privatize even more core state functions, and attack unions and workers' collective bargaining rights. 2

The U.S. can help make things better (instead of worse, like Goldman Sachs did). In addition to diplomatic power, the U.S. has voting power in the International Monetary Fund—one of Greece's creditors.

President Obama and Secretary of the Treasury Jack Lew can use their pulpits and their votes to yield a positive and just outcome. The Greek parliament on Friday approved a new plan that Prime Minister Alexis Tsipras proposed, but so far the European parties aren't offering up the debt restructuring that's needed for a real solution and instead are demanding even more draconian austerity measures from Greece to even keep talking.

What happens in Greece will impact the economic agenda in America, and it will have ripple effects around the world.

Thanks for all you do.
–Robert Reich

Robert Reich
Robert Reich, Chancellor's Professor of Public Policy at the University of California at Berkeley, was secretary of labor in the Clinton administration. He has written thirteen books, including the best-sellers "Aftershock" and "The Work of Nations." His latest, "Beyond Outrage," is now out in paperback. His new film, "Inequality for All," is now available on Netflix, iTunes, DVD, and on demand.

Sources:
1. "Austerity Has Failed: An Open Letter From Thomas Piketty to Angela Merkel,"The Nation, July 7, 2015
Austerity Has Failed: An Open Letter From Thomas Piketty to Angela Merkel | The Nation

2. "Eurogroup draft on demands for Greek reforms," Reuters, July 12, 2015
http://www.moveon.org/r/?r=305398&id=124142-15425600-nSb9iax&t=2

 

[ev-enthusiast]

Donald Tusk (President of the European Council):

EuroSummit has unanimously reached agreement. All ready to go for ESM programme for #Greece with serious reforms & financial support

(link: twitter)

Finance ministers will as a matter of urgency discuss how to help #Greece meet her financial needs in the short term (bridge financing).

(link: twitter)

Update:
Official statement of EuroSummit can now be found at EU Council Press here: link

 

[MikeC]

So after all the referendum drama and the pain of capital controls, Greece got a worse deal than was on the table a couple weeks ago. I thought Tsipras had some sort of plan but it looks like he did not. Not sure what he was thinking.

 

[ev-enthusiast]

So after all the referendum drama and the pain of capital controls, Greece got a worse deal than was on the table a couple weeks ago. I thought Tsipras had some sort of plan but it looks like he did not. Not sure what he was thinking.

Previously they discussed an extension of the second package, as far as I know they are discussing a third package now.
An extension of the second package would have only been valid till end of this year.
The new third package will last a lot longer, about three years.
It will be a lot more pratical for investors as well as the government and greek people to have stable conditions not only for a couple of months but for three years.

And yes, in the end the Greek government did not get many items from their original wish list.
It will be difficult for the greek governement to get enough positive votes to agree on this tough third package.
They might need votes from other parties.
Let's see if greek the government agrees to these tough conditions.

I am sure Tsirpas had/has a plan.
Thing is he was not in the position to reach his goals.
E.g. he wanted a deal without IMF, but he did not succeed.
Well, such is life.

 

[The Blue Owl]

So after all the referendum drama and the pain of capital controls, Greece got a worse deal than was on the table a couple weeks ago. I thought Tsipras had some sort of plan but it looks like he did not. Not sure what he was thinking.

He did have a plan, but it failed because he miscalculated the amount of leverage Greece had in the negotiations (zero leverage, as it turned out). Since a majority of Greeks want to keep the euro, they ended up accepting everything that was demanded of them and then some.

I personally think they would have been better off to go their own way. The Eurozone would have had to reform, too, which would have actually made it stronger in the long run. The UKIP speech posted up thread was the truth.

But what do I know.

 

[Auzie]

He did have a plan, but it failed because he miscalculated the amount of leverage Greece had in the negotiations (zero leverage, as it turned out). Since a majority of Greeks want to keep the euro, they ended up accepting everything that was demanded of them and then some.

I personally think they would have been better off to go their own way. The Eurozone would have had to reform, too, which would have actually made it stronger in the long run. The UKIP speech posted up thread was the truth.

But what do I know.

Don't we all sometimes want what is bad for us?:wink:

Agree with your evaluation. This outcome may be just kicking can down the road. Such outcome may not be the best for Greece and for Eurozone in the long run, but it may be the best outcome for Tesla.

With a different outcome, one that involves drastic changes in Greece and Eurozone, economic landscape in Greece and Eurozone would have been in turmoil for the next few years.

This scenario is more of the same, it buys some time, perhaps enough to get to Model 3.

 

[FluxCap]

Some food for thought about the "perma-bears" and their tales of imminent market crashes (to which I more than occasionally succumb):

 

[Auzie]

Some food for thought about the "perma-bears" and their tales of imminent market crashes (to which I more than occasionally succumb):

Here is a link to a bit dated article in Business Insider, The Best Indicator of the Start of Bear Market.

The inverted yield curve is considered by many to be a predictor of the recession.

The inverted yield curve as recession predictor has a perfect track record of being 100% correct signal in the last seven recessions.

The curve also seems to provide hints for the best exit points.

It might be a prudent strategy to sell out at the point of inversion.

Here is the current yield curve in comparison to late 2006 yield curve.

I wish I paid attention to yield curve then as it was correctly predicting coming slide in 2007. In 2007/2008 GFC, my then ASX portfolio suffered more than 70% loss of value. All these losses were quite painful at the time but are now long forgotten and irrelevant. My learnings from these times are to pay attention to US and rest of world politics, monetary policy and invest accordingly. Ignoring these whilst investing is like driving and ignoring road signs.

Current yield curves seem quite healthy, we are unlikely to see inversion for at least 3-5 years. The black swan might be an incompetent replacement of current Fed leadership. That could be a possibility with new Administration although I find it unlikely.

Until we see the inversion, this market is a trading/investing bonanza. It seems so easy to make money, all it takes is throwing it at Tesla or other Nasdaq stocks

 

[kenliles]

excellent post Auzie- Yield curve is my primary indicator for this event- My advise would be not to wait on inversion, but treat it as less binary; As the Yield Curve flattens, pull back investments and vise versa. In addition, in bull markets when interest rates invert from falling to rising is a near 100% correlation to a temporary correction (10% or so). But a resumption of bull as as long as rising rates stay below nominal inflation. The current Yield Curve does indeed look pretty good (here is one of many good places to monitor: StockCharts.com - Free Charts - Dynamic Yield Curve )
I'm currently allocated at a 60% level (40% cash) due to some flattening and and anticipated correction when rates begin to rise- providing an opportunity I'd like to have some cash on hand - otherwise, I'm currently out of Options for the same reason- but largest stock allocation TSLA - anyway happy investing and thanks for a great post..

 

[Johan]

Excellent posts Auzi and Ken. I knew the change in the yield curve was considered an important indicator but not that there was such strong historical evidence for it being a very sensitive indicator.

One more thought is that a "7/7 record" could mean that the 8th time the yield curve inverts investors will definitely pull out of stocks, causing the bear market that was predicted- i.e. a self-fulfilled prophecy.

 

[Auzie]

One more thought is that a "7/7 record" could mean that the 8th time the yield curve inverts investors will definitely pull out of stocks, causing the bear market that was predicted- i.e. a self-fulfilled prophecy.

Perhaps there is a bit of self fulfilling prophecy.

I am inclined to think that in an environment where short term yields are higher than long term yields, the dynamics of money inflows and outflows is likely to lead towards the recession, as investors chase higher yields.

My exit plan, when the time comes, is to get out of Nasdaq stocks and into assets that are not sensitive to market dynamics.

Here is a link to Daily Treasury Yield Curve Rates

Here is inverted Yield Curve in Australia, signalling recession here.

 

[ev-enthusiast]

Thanks for all the great posts in this thread everyone, still learning a lot about financial stuff here.

Just wanted to mention that Greece is able to use the bridge-financing to pay pack some loans.
Bloomberg:

Greece has reached the deadline it couldn’t afford to miss - repaying the European Central Bank.

The country ordered payments on Monday totaling 6.8 billion euros ($7.4 billion) to the ECB, the International Monetary Fund and the Greek central bank, a Greek finance-ministry official said on condition of anonymity. The euro extended gains Monday after the news, before retreating.

(link)
Greek newspaper ekathimerini:

Greece's real crisis deadline arrives with ECB debt to pay
Monday is the day the country must reimburse the European Central Bank 4.2 billion euros ($4.5 billion), including interest, as bonds bought during its last debt crisis mature. The impending reckoning may have been the factor that eventually forced Prime Minister Alexis Tsipras on July 13 to accept the austerity he and his electorate had previously rejected, in return for the funds needed to keep his nation from default.
As Greece blew past multiple political and financial supposed end-dates over the past five months, July 20 always remained make-or-break. European Union law bans the ECB from financing governments, meaning a default would probably require it to pull support from Greek lenders, leaving an exit from the single currency all but assured.
“The issue of repayment to the ECB was pivotal, because failure to make the payment would have had a knock-on impact on the ECB’s willingness to continue providing Emergency Liquidity Assistance to the Greek banks,” said Ken Wattret, an economist at BNP Paribas SA in London. “As the realization dawned that Greece was facing a very disorderly, painful exit from the monetary union, the government stepped back from the brink.”

(link)

 

[Auzie]

My advise would be not to wait on inversion, but treat it as less binary; As the Yield Curve flattens, pull back investments and vise versa. In addition, in bull markets when interest rates invert from falling to rising is a near 100% correlation to a temporary correction (10% or so). But a resumption of bull as long as rising rates stay below nominal inflation. The current Yield Curve does indeed look pretty good (here is one of many good places to monitor: StockCharts.com - Free Charts - Dynamic Yield Curve )
I'm currently allocated at a 60% level (40% cash) due to some flattening and anticipated correction when rates begin to rise- providing an opportunity I'd like to have some cash on hand - otherwise, I'm currently out of Options for the same reason- but largest stock allocation TSLA - anyway happy investing and thanks for a great post..

Great animation, it illustrates flattened curve before 2000 and 2007 markets drops. Thanks for the link. I could not figure out how to change time axis, to go back in time much further.

My sun hat is off to you for pulling out ahead of 10% corrections.

It seems that market sometimes recovers from 10% drops - note a couple of S&P drops of ~10% in the period of 2009-2012 that were part of the overall bull market from 2009 to now.

My expectation is that I am likely to be better off just riding through small corrections as my confidence in my ability to time accurate exits and entries is low. It is comforting that these ~10% drops were not preceded by the flattened yield curve, so our exit indicator seems uncompromised.

I am curious about your views on anticipated Fed rate hike. The current inflation rate is 0.1%.

There is not much room for Fed to act in such low inflation environment. Luckily, current Fed leadership has proven themselves to be up to the difficult task, let's hope they act artfully again and we don't have to exit this bull market for many years.

 

[kenliles]

Great animation, it illustrates flattened curve before 2000 and 2007 markets drops. Thanks for the link. I could not figure out how to change time axis, to go back in time much further.

I think the time limit is imposed on the free look; different member levels give more capability. I've found the freebie good enough augmentation to other info- but they have a lot of great charting for those interested (I have no affiliation)

It seems that market sometimes recovers from 10% drops - note a couple of S&P drops of ~10% in the period of 2009-2012 that were part of the overall bull market from 2009 to now.

My expectation is that I am likely to be better off just riding through small corrections as my confidence in my ability to time accurate exits and entries is low. It is comforting that these ~10% drops were not preceded by the flattened yield curve, so our exit indicator seems uncompromised.

I am curious about your views on anticipated Fed rate hike. The current inflation rate is 0.1%.

There is not much room for Fed to act in such low inflation environment. Luckily, current Fed leadership has proven themselves to be up to the difficult task, let's hope they act artfully again and we don't have to exit this bull market for many years.

I agree with that. Riding through it likely the best approach with TSLA imo. I believe the market will correct (probably with overshoot) in (over)reaction to the interest rate inflection point, then recover and stay healthy as long as rate increases are slow and measured. Given the World interlock now, I expect the Fed to be very measured, but the market to over-react as usual. For that reason I'm staying out of Options for now sticking with stock and cash ready for a pullback. The market multiples are a bit frothy here if we have normal interest rates. Since (to your point) we don't, the market stays relatively well placed here. But that sentiment will change once the direction of interest rates inflects. I don't see the correction holding and resumption of bull market is what I expect- Globally they have to be slow on the rate hikes, and that is positive for continued bull... [OR alternatively, it's just all a lot Bull - take your pick -Ha! ) -

 

[Auzie]

I believe the market will correct (probably with overshoot) in (over)reaction to the interest rate inflection point, then recover and stay healthy as long as rate increases are slow and measured. Given the World interlock now, I expect the Fed to be very measured, but the market to over-react as usual.

......
I don't see the correction holding and resumption of bull market is what I expect- Globally they have to be slow on the rate hikes, and that is positive for continued bull... [OR alternatively, it's just all a lot Bull - take your pick -Ha! ) -

Expectation of market over-reaction seems to be so common and well placed, makes me wonder about the nature of participants, myself included:wink:

I'd like to believe that the amplitude of these over-reactions taper off with time as measured in decades and centuries, as market matures, gets better regulated and Fed people become better at their job.

Market might appear frothy, but the counterargument is that the products of the companies that are pushing the indices up are just fantastic, they are selling or providing great service, creating growing revenue and adding value to people that use these products.

Less mature markets, like China, are likely to be more turbulent than US market as their market is less likely to have regulatory mechanisms which take time to develop and function. I am worried about people in China that borrowed money to invest in a frothy inflated market. Many people are likely to be squeezed out of their holdings and left with the debts.

Agree with you to be careful with options ahead of rate hike. Rate hike will put downward pressure on TSLA.

Expected price drivers:

Earnings call - unknown, could go either way. If it is positive, that might set the tone.
X debut - likely positive, high impact event
Rate hike - likely negative, possibly low impact effect in short term, but likely to erode sales and revenue off shore long term and thus likely to continue to creep in as long term negative

I am not confident enough to put more money on such expectations, just holding my position.

 

[kenliles]

Good points and counterpoints Auzie. Put that sun hat back on :smile:

 

[ev-enthusiast]

China’s stock markets still volatile:
Shanghai Composite Index fell by 8.5%, Shenzhen A-shares index lost 7% of its value.
(link: quartz)

 

[Auzie]

Interesting article on China market "Beijing political capital greatest casualty of market implosion"

Highlights:

The Chinese leadership actively encouraged investments in markets due to weakening real estate market and a lack of other opportunities.

38 million share accounts were opened in just 10 weeks.

Two-thirds of Chinese investors do not have a high school diploma. I wish that Chinese government had promoted education rather than risky speculation

Banks permitted people to take out loans for investments in share market. Banks will be banks, even in China

Recently, the securities regulator was repeating promises to "punish harshly" malicious short sellers. Yea, that'll work, find and chase the scapegoats

 

[ev-enthusiast]

Interesting video from Bloomberg about financial market interventions in China currently needed to stabilize the market but not being healthy in the long run.