Tesla Investor's General Macroeconomic / Market Discussion

[Auzie]

I agree let's not debate subjective ideas and ideology. But there is a conondrum: how come it's so hard to combine low wealth inequality and economic policies that favor redistribution of wealth with a societal climate that stimulates inovation, entrepeneurship and hard work?

The first economic principle: people respond to incentives

When incentives are flattened out or removed, as they are in some societies, that often leads to people slacking off

Your question deals with complex issues hence the answer can not be reduced to a single line

The challenge is to preserve incentives whilst still rewarding all sorts of work in such a manner that people can earn enough for decent living but are motivated to strive for more.

Much more could be said on the subject, but I doubt that such discussion would be helpful in understanding the macroeconomic situation and possible implications on TSLA.

Interesting article in HBR, You can't understand China's slowdown without understanding supply chains

Highlights:

The evidence (surveys) points to the practice of near-shoring acceleration. This practice involves producing good closer to the customer.

The world seems to be in a transition, with businesses moving from a global manufacturing strategy with a focus on low-cost countries, to a more regional manufacturing.

This trend accelerates because the economics that made off shoring attractive have changed for the following reasons:

Logistics costs increases

Labour cost increase in China of 20% vs 3% increase in the US

Automation reduces the relevance of labour costs

Skilled labour and its availability is more relevant with automation

Risk is significantly higher with geographically diverse supply chains

Industries sensitive to shipping costs (cars) are more likely to go regional

 

[Johan]

The first economic principle: people respond to incentives

When incentives are flattened out or removed, as they are in some societies, that often leads to people slacking off

Your question deals with complex issues hence the answer can not be reduced to a single line

The challenge is to preserve incentives whilst still rewarding all sorts of work in such a manner that people can earn enough for decent living but are motivated to strive for more.

Much more could be said on the subject, but I doubt that such discussion would be helpful in understanding the macroeconomic situation and possible implications on TSLA.

I agree it's super complex, but I'm hoping we can transition in to a better world where other things motivate us rather than wealth and money. There is a lot of research that basically shows that after you reach the point where you pay people "enough" further increases in financial incentives does not increase productivity, after this point other thing motivate us such as mastery, solidarity, curiousness etc.

I think if you look at people like "our hero" Elon for example, he is not motivated by money or wealth in itself, but only sees money as a tool of accomplishing the things he believes are actually important and matter (as we all know the transformation of transport, space colonization, the transformation of how we generate and use energy).

Great info animation from RSA to sum up our knowledge about these issues:

Interesting article in HBR, You can't understand China's slowdown without understanding supply chains

Highlights:

The evidence (surveys) points to the practice of near-shoring acceleration. This practice involves producing good closer to the customer.

The world seems to be in a transition, with businesses moving from a global manufacturing strategy with a focus on low-cost countries, to a more regional manufacturing.

This trend accelerates because the economics that made off shoring attractive have changed for the following reasons:

Logistics costs increases

Labour cost increase in China of 20% vs 3% increase in the US

Automation reduces the relevance of labour costs

Skilled labour and its availability is more relevant with automation

Risk is significantly higher with geographically diverse supply chains

Industries sensitive to shipping costs (cars) are more likely to go regional

Thanks, very interesting artcile. We see all of these things happening with Tesla, who are once again leading the way to the future. It's a matter of time before they open a second factory on another continent, either EU or Asia I presume. 3D printing and manufacturing will also be very big deal in this future. Energy will be produced locally and physical good will also be produced locally, while information flow will be global and instanteneous (the Cloud).

 

[Drax7]

Winner take all type emerging industries that dis intermediate entire sections of the economy
are creating huge income inequalities. It's the creative destruction phase that
accompanies free market economies and free trade. The Internet, Microsoft, Google, Apple, Amazon, Netflix,
Tesla eventually, etc....create winner take all type businesses with massive capitalizations at
the expense of many middle class jobs.

That couple with outsourcing and massive illegal
immigration in the USA further increases the supply of labor
Resulting in lower paying jobs and
magnifying the the rich/poor gap.

The forbes 400 list of Today is not that of 20 years ago, and is in continuous flux.
Upward mobility is alive and well in the USA.

These conditions are likely to create a political opportunity for the anti free market saving angels that call for income redistribution . I am against it, but that seems to be the political reality.

 

[Robert.Boston]

Moderator's Note

Some posts were shifted to Politics - Quarantine Thread

 

[Thumper]

Thanks Johan for the great RSA clip. Very interesting.

 

[Perfectlogic]

These conditions are likely to create a political opportunity for the anti free market saving angels that call for income redistribution . I am against it, but that seems to be the political reality.

You do realize that taxation is wealth redistribution right? You muricans are funny.

There is no question about whether wealth redistribution is a good thing or not, the question is how much.

 

[FluxCap]

Moving away from tax rate discussion and back to macro, here is an interesting (if bearish) read for your Labor Day leisure:

Investors Had Better Hope the US Avoids a Recession Next Year

And here perhaps is a more bullish read:
China is "Blotting out the Sun"

Hope US-based folks had a nice Labor Day.

 

[ev-enthusiast]

Eurozone economic growth revised higher (link).

The eurozone economy grew more rapidly than previously estimated in the three months to June, as a pickup in exports offset a slowdown in household consumption and a decline in investment spending.

 

[MitchJi]

Here's another example where the income inequality is resulting in serious splits in society. A young friend of mine grows delicious heirloom tomatoes and sells them at a NYC farmer's market--for $6. Each. If you have a lot of money in America, you can eat flavorful, healthful food.

IMO it's not quite that simple. I attended a series of lectures on diet, by an world leading expert on nutrition. He said that the Brix level of food directly correlates to the quality of the food (I think that is commonly accepted). He has found that the best commercial organic food normally has a Brix level of 4-5, and rarely up to about 11. He has also found that growing food in soil with specific amendments, that among other things provide a high mineral content, that it is possible to obtain a Brix level of at least 25. He said that unless you eat at least a small amount of food of this quality on a regular basis it is impossible to obtain sufficient quantities of the substances required for good health. Compounding that problem is that a large percentage of the population eats junk. A friend of mine was shocked to discover a Mc Donald's in a local hospital. I said that they have an economic synergy.

 

[Robert.Boston]

IMO it's not quite that simple. I attended a series of lectures on diet, by an world leading expert on nutrition. He said that the Brix level of food directly correlates to the quality of the food (I think that is commonly accepted). He has found that the best commercial organic food normally has a Brix level of 4-5, and rarely up to about 11. He has also found that growing food in soil with specific amendments, that among other things provide a high mineral content, that it is possible to obtain a Brix level of at least 25. He said that unless you eat at least a small amount of food of this quality on a regular basis it is impossible to obtain sufficient quantities of the substances required for good health. Compounding that problem is that a large percentage of the population eats junk. A friend of mine was shocked to discover a Mc Donald's in a local hospital. I said that they have an economic synergy.

I'm puzzling over this, Mitch; Brix simply measures the sugar density of food. But exploring this topic takes us way off topic.

Re McD's and hospitals: I've heard the claim that the French spend the same amount on (food + healthcare) per person as Americans, but that the ratio is approximately 2:1 in favor of food, while in America it's approximately 1:2. Causation or happenstance?

Back on topic: the car industry depends on a healthy middle class for its volume sales. New cars are a luxury, given the availability of used cars (and the quality of used cars is far higher now than 20 years ago). Thus my concern with the declining spending power of the middle class: new car sales will be disproportionately affected.

 

[dmunjal]

I'm puzzling over this, Mitch; Brix simply measures the sugar density of food. But exploring this topic takes us way off topic.

Re McD's and hospitals: I've heard the claim that the French spend the same amount on (food + healthcare) per person as Americans, but that the ratio is approximately 2:1 in favor of food, while in America it's approximately 1:2. Causation or happenstance?

Back on topic: the car industry depends on a healthy middle class for its volume sales. New cars are a luxury, given the availability of used cars (and the quality of used cars is far higher now than 20 years ago). Thus my concern with the declining spending power of the middle class: new car sales will be disproportionately affected.

The middle class will just finance it and extend the loan out to 7 years if necessary.

Surge in car loans pushes auto debt above $1 trillion for first time - LA Times

 

[FluxCap]

Back on topic: the car industry depends on a healthy middle class for its volume sales. New cars are a luxury, given the availability of used cars (and the quality of used cars is far higher now than 20 years ago). Thus my concern with the declining spending power of the middle class: new car sales will be disproportionately affected.

Apropo of this discussion, I think that both Wall Street analysts and Washington policymakers (including the Fed) are perhaps too out of touch with today's job market to understand that the old American dream/social contract in which everyone willing to work hard could get a job that could pay for the needs of a family simply does not exist anymore. If it does, young people today certainly don't think so. They are terrified. While browsing a recent Reddit thread, I came across this post by a young person, echoed by many others in the comments:

Sh*t like this is why I'll never even try and start a family. I've been out of work around 6 months now which isn't terribly long compared to some and I couldn't handle being in my situation with people that depended on me. There are just too many ways to lose a job for no reason and too many reasons to bypass a resume. No way would I ever risk bringing that on to someone else. Best of luck to this guy, maybe putting a face behind the paper will get his foot in the door.

The engine of our economy for generations has been consumption levels that rise with wages and job security in which young workers buy homes, cars and start families. Imagine the consequences if this ceases to be the case.

I think the "unemployment rate" alone is an archaic, outdated measure of the overall health of our economy and in fact our civilization that does not adequately capture the degree to which corporations have so eroded their portion of the social contract as to revert to a near feudal system in which oligopolies are increasingly untouchable power centers that exploit workers without any fear of reprisal whatsoever.

It is the situation brought about by this hypothesis which most troubles me long-term, but it is difficult to make investment decisions based on this, more of an observation of the reality we are in. The "New Normal," if you will.

 

[AlMc]

Macro friends: I am interested in your collective thoughts on whether the Fed will raise interest rates this month and the impact on the stock market in general and TSLA specifically. IMO, the market
actually wants to see a small ( 1/8-1/4%) raise. It is the uncertainty that is partially responsible for some (OK China is bigger) of the recent volatility in the markets and a small raise will actually create some stability and let the market move on (up).

 

[Perfectlogic]

I agree with your thoughts AIMc, the uncertainty around the rate has probably suppressed the continuation of the bull run this year. A 17 P/E S&P might be on the high end of the historic average but accounting for the new normal of low inflation and interest rates I would say we have a lot more room to run, especially taking into consideration the low government bond returns due to QE, which I believe also is a new normal, stocks are the only game in town if you want a reasonable return. I think we will see S&P at 2500 next year. Whether the FED will raise rates next week or not is hard to say, I guess my bet will be that they will, they say they are data dependent and imo the data is strong.

 

[Robert.Boston]

The consensus view on Wall St is that the Fed is more likely to hold rates flat rather than raising them. I'll be contrarian and vote for an 1/8% increase this week. Inflation is very low: last month's PPI for demand goods was down 0.2 even after excluding energy and food (undoubtedly because the continued decline in energy prices are making nearly every good cheaper to make). OTOH, demand services prices were up 0.4, suggesting that there upward pressure on wages. Taken together, this is the perfect opportunity to raise rates a bit: a slight slowing in the labor market and a slight increase to the underlying inflation rate would be healthy.

 

[dmunjal]

The consensus view on Wall St is that the Fed is more likely to hold rates flat rather than raising them. I'll be contrarian and vote for an 1/8% increase this week. Inflation is very low: last month's PPI for demand goods was down 0.2 even after excluding energy and food (undoubtedly because the continued decline in energy prices are making nearly every good cheaper to make). OTOH, demand services prices were up 0.4, suggesting that there upward pressure on wages. Taken together, this is the perfect opportunity to raise rates a bit: a slight slowing in the labor market and a slight increase to the underlying inflation rate would be healthy.

I agree but the biggest risk is the dollar. With Japan and Europe thinking about QE again and China devaluing, the dollar is going to keep going up. This is not good for multinationals or US exports.

 

[MitchJi]

I'm puzzling over this, Mitch; Brix simply measures the sugar density of food. But exploring this topic takes us way off topic.

I wanted to convey that the problem of poor nutrient density in our food are deeper than most of us know. There are more powerful indicators of this than Brix. I chose to describe this issue using Brix, because that was the shortest way I could think of, to indicate, the depth of the problem. The main reason I decided to reply your here, rather than via PM, is that I think it is important to convey one thing. It is very important for everyone to do, whatever you can, to maximize the nutrient density of your food. A little more Brix information:
Nutrient Dense High Brix - Nature Crisp

High Brix ™ is a way to measure the actual nutritional value of fresh fruits and vegetables using “Brix,” a method originally developed by Dr. Carey Reams. Brix uses a refractive index with plant sap to determine the nutritional value of produce. While there is a lot of material to read about Brix, Reams’ research, along with others, shows the higher refractive index of a fresh produce item correlates with higher sugar content, higher mineral content, higher protein content and a greater specific gravity or density. This adds up to a sweeter tasting, more nutritious food with lower nitrate and water content, lower freezing point, and better storage attributes.

Moving Past Organic Food Into Nutrient Density

2) Purchase a refractometer and use is profusely. A refractometer is a hand held tool that can be taken anywhere that will show the nutrient density in food. This is called a brix reading. Any brix reading above 15 means [Quoted from my previous post; "he has also found...that it is possible to obtain a Brix level of at least 25..."] the plant is going to be high in nutrients, thus making higher quality food. The good news is that this cannot be faked and shows a true reading of how much nutrition is in the food.... More can be read about conventional food vs. organics vs. nutrient dense food here, and brix reading info can be found in the video here.

The first economic principle: people respond to incentives. When incentives are flattened out or removed, as they are in some societies, that often leads to people slacking off.

The engine of our economy for generations has been consumption levels that rise with wages and job security in which young workers buy homes, cars and start families. Imagine the consequences if this ceases to be the case.

Hasn't it already ceased to be the case? For over 30 years, I believed that the fundamental problem with capitalism is that a healthy economy requires levels of consumption that the Earth can't sustain. Something has to give, and it won't be the Earth. But now I believe that the economic problems are that there are no incentives for good, or even sustainable behavior, or disincentives for bad behavior. It is probably easier to make money removing mountaintops in Virginia, than it is making Tesla's. Now, I think the root causes are the associated greed and ignorance that permeates our society. Ishi, the Indian was correct when he said that "we [white Americans] are smart, but not wise".

Personally, I continue to position defensively out of US equities given how on edge the markets are right now with uncertainty over Fed rates and China. I will look for re-entry when I see signs that some of these risks are mitigated and/or certain stocks become oversold and look like bargains.

What do you think, Flux (and anyone else) about investing in Tesla now, considering the current macroeconomic situation? Either stock, or 2017 LEAPS. Now could be a good time to buy. OTOH this might be the start of a 1929 scenario, when most of the losses occurred when people bought back in on rallies.

Tesla should do better than GM (better and more nimble leadership, plus stationary storage products) in a prolonged recession or depression. They could do well, just selling Powerpacks to utilities. And they could use funds from that to fund M3 production.

https://www.bcgperspectives.com/con...kers_accelerated_out_of_the_great_depression/

Although it may seem ironic to look to the U.S. automobile industry for examples of how to thrive in a damaged economy—given its performance during the Great Recession—the truth is that the performance of Chrysler and GM during the 1930s stands out. GM delivered a profit in every year of the Great Depression, and Chrysler incurred a loss in only one year.

At the heart of GM’s success during the Great Depression was its decision to realign its product offering to fit the needs of a consumer base with less money to spend—creating “a car for every purse and purpose,” as Sloan put it. GM expanded aggressively into the lowpriced car market by shifting production from high-end brands to Chevrolet, its high-volume discount brand. GM spent more on advertising for Chevrolet and offered financing as a way to create an attractive package for customers at a time when banks were not lending. As a result, GM gained share and commanded a higher price than Ford could for comparable products.

 

[ev-enthusiast]

EIA Petroleum Status Report this Wednesday, heard that US oil production slowed down a bit recently while OPEC countries keep up their current production levels.
FOMC meeting is scheduled for this Thursday.
Jobless claims, that will be published this Tursday as well, are expected to hold steady at 275,000.
(Bloomberg Economic Calendar)

 

[ev-enthusiast]

Coal lover Tony Abbott is no longer PM in Australia, Malcolm Turnbull following (link).

Turnbull delivers a promise that the renewables target will not be weakened further, and will likely be strengthened.
[...]
Turnbull is certainly not afraid of new technology. He test drove the Tesla, and loved it.

Here is new PM Turnbull with a Model S:

 

[ev-enthusiast]

Just wanted to mention that more and more refugees currently arriving in Europe.
Both politics and society have tried to ignore this issue during the recent years, but an exponential scale has already formed.
Two of the main reasons for the refugees to flee from their home country are war and economics.
The fact that there are more and more refugees from the Syrian region arriving in Europe could be a sign for the situation in Syria getting worse.
The Iraq, Israel, Syria, Turkey region is already under big pressure, no need for any additional trouble.
This is a very sad story, just wanted to mention as from my European point of view I have the impression that this could accelerate.
All the best for the refugees that are really in need.