Tesla Investor's General Macroeconomic / Market Discussion

[mitch672]

I know oil is a "fungable" commodity, but perhaps it's time to stop thinking globaly, and support the U.S. oil companies.
supposedly we can produce enough to sustain U.S. demand, without any imports (I don't think it's true BTW), perhaps we stop exporting oil produced in the U.S., and just use it here, decoupling from the $80/barrel Saudi crude. Not everything has to be about money, we need the U.S. oil industry to survive, more than we need cheap oil.

 

[jhm]

I know oil is a "fungable" commodity, but perhaps it's time to stop thinking globaly, and support the U.S. oil companies.
supposedly we can produce enough to sustain U.S. demand, without any imports (I don't think it's true BTW), perhaps we stop exporting oil produced in the U.S., and just use it here, decoupling from the $80/barrel Saudi crude. Not everything has to be about money, we need the U.S. oil industry to survive, more than we need cheap oil.

I think it is high time to divest from oil, here and elsewhere. That's one of the reason I invest in Tesla. If US oil producers can't survive $80/bbl, they won't survive the disruption Tesla will bring over the next 15 years.

 

[vgrinshpun]

Final comment directed at political comments above, not oil price discussion. No prob.

Economy of Saudi Arabia - Wikipedia, the free encyclopedia

They have trillions to play with. To put it simply, this is classic "dumping" or "flooding the market." This strategy is ruthlessly effective when one has the capital to outlast one's competition. US fracking producers, particularly the ones who borrowed massively to finance their production facilities, will literally start going bankrupt with oil under $80/barrel as their cost to produce it, let alone sell it, is above that. They die, Saudis raise prices again having weathered a storm of their making, and the Saudis both profit and increase their control over the global oil trade. They did it before in 1986 and are doing it again. Make sense?

Or, listen to the talking heads say this evening what I said this morning:

How Stock market Volatility Is Affecting Oil: Video - Bloomberg

Crude: Why Demand for Oil Is Soft as Brent Tumbles: Video - Bloomberg

Finally, to bring this post back around to the intent of this thread:

I have no idea how the market will react to cheap oil with regards to TSLA's share price, but I theorize 2 things based on recent past:

1) Cheap oil subjects the world economy to vicious macroeconomic shocks and reminds world markets of vulnerability to oil fluctuations, potentially putting upward pressure on "alternative energy" stocks, into which TSLA is sometimes lumped. This is the medium to long-term view.
2) Cheap oil potentially lowers the price of perceived "alternative energy" stocks as traders believe all the solar and electric vehicle buyers are focused exclusively on price of electric vs. gasoline alternatives. This has been widely refuted, but traders still think this and thus drive down solars and possibly TSLA. This is the short-term view.

I am holding my TSLA shares for the long haul, but I have no idea what the next days and weeks will bring given these macro shocks we are seeing, derived more from oil than ebola in my opinion.

Thank you for you perspective and links, Flux, I find them very helpful.

Just to add to the potential scenarios on how this ostensible Saudi's dumping can affect TSLA, we can consider that the stated goal of the string of US presidents from both political parties, at least from the times of the Oil Crisis, was achieving NA oil independence. The two basic ways to do this, of course, is to increase NA oil production, decrease NA oil consumption, or some combination of both.

In light of limitations big players like Saudi Arabia can put on increasing oil production in NA by using dumping, the second way of achieving the NA oil independence becomes a strategically more attractive option as it presents a real way to respond to the attempted Saudi's dumping. After all, if significant policy adjustments are made to incentivise electrification of transportation, Saudi's calculations could be given a severe blow: if their strategy is based on ability to raise prices after "taking care" of the competition then reduction of oil demand due to electrification of transportation might make plans to recoup lost revenue by raising oil prices later impossible. If major economies like US, EU, China trigger revolution in electrification of transportation by adopting aggressive incentives, the resulting acceleration of electrification will reduce oil consumption and put serious downward pressure on oil prices.

Above scenario could provide long term, long lasting benefit to Tesla.

 

[mdemetri]

I am really confused by this discussion. First, if high oil prices have been a drag on the economy (as I have been told for many years), why would lower oil prices not drive economic growth? Deflation is not a serious risk now like it was 5 years ago during the financial crisis. The US economy is much stronger now and I cannot see lower oil prices doing anything but boosting GDP. Second, oil prices reflect supply and demand. If supply is too high, then prices should fall. That is the way it is supposed to work. We should not be trying to protect any industry from the supply-demand paradigm, the least of which is the US fracking industry. Third, if Saudi Arabia wants to kill fracking in the short term, I say great. In the medium to long term, the BEV revolution will prevent Saudi Arabia from squeezing oil prices higher in the future. I only see good news in this in the long term. What am I missing?

 

[mitch672]

I think it is high time to divest from oil, here and elsewhere. That's one of the reason I invest in Tesla. If US oil producers can't survive $80/bbl, they won't survive the disruption Tesla will bring over the next 15 years.

Oil is far too valuable to be burning it for personal transportation. Without oil, the food supply is severaly damaged (fertilizer, farm equipment, transport, etc), its a feed stock to mfr plastics, its what roads are made of, it's used for many things... personal transportation can be powered by other sources, but oil cannot be replaced for many other things currently.

It's already a given U.S. producers cannot survive cheap oil, does that mean we should just give in?

BTW, read this article for a none-US view, seems Russia and China are trading oil in Yuan, elliminating the Petrodollar altogether.. lots of other interesting things as well:
http://rt.com/op-edge/196148-saudiarabia-oil-russia-economic-confrontation/

 

[Robert.Boston]

First, "dumping" has a precise meaning: exporting a good at a price below its true production cost. Saudi Arabia can produce crude for something under $20/bbl, if I recall correctly, so they are still earning handsome profits on their sales. This is not "dumping."

I am really confused by this discussion. First, if high oil prices have been a drag on the economy (as I have been told for many years), why would lower oil prices not drive economic growth? Deflation is not a serious risk now like it was 5 years ago during the financial crisis. The US economy is much stronger now and I cannot see lower oil prices doing anything but boosting GDP. Second, oil prices reflect supply and demand. If supply is too high, then prices should fall. That is the way it is supposed to work. We should not be trying to protect any industry from the supply-demand paradigm, the least of which is the US fracking industry. Third, if Saudi Arabia wants to kill fracking in the short term, I say great. In the medium to long term, the BEV revolution will prevent Saudi Arabia from squeezing oil prices higher prices in the future. I only see good news in this in the along term. What am I missing?

I'm with you on this. Low oil prices primarily harm two groups: (a) oil companies and (b) oil exporting countries like Russia, Libya, and Venezuela. Low prices help (a) oil consumers and (b) oil-importing countries, like the US, the EU, Japan, and China. It doesn't concern me at all that lower prices might stall plans to exploit low-grade shale oil in Alberta, stop us building more pipelines to carry shale oil, or reduce rail shipments--these negatives to the economy are more than offset by the savings from lower oil prices. Those oil shale reserves aren't going anywhere, so we can tap then when/if needed.

As I said up-thread, I agree that the low price reflects low demand (present and future--OPEC is very good at forecasting future demand). The low demand is more concerning to me as an investor than the oil price is. If the EU goes back into a regional depression, that will ripple through the global economy. Chinese demand is also growing less rapidly than target, and the US economy, although in relatively good shape, isn't in a position to pick up the slack from other, sagging economies.

 

[FluxCap]

Thanks for comments all (and for thread consolidation).

FWIW, I never intimated that cheap oil is immediately bad for the US economy, just immediately bad for the US stock market which has been celebrating an energy stock boom, bad for US oil producers, and potentially bad for US clean energy alternatives in the short term due to indirect linkages made by some traders. I very much want oil producing companies to go extinct, and hopefully jobs lost due to that can be absorbed by solar-electric endeavors. But that is a very long-term goal.

In this thread and in my posts yesterday, I have been most concerned with the effect of this situation on the *market* and TSLA specifically in the near-term. I'm trying to trade on the realities of the market today, not next year.

Also, though some may view "dumping" as a word with legal or absolute definition, I think there can be no mistake that the predatory competitive strategy of deliberately foregoing profit on a commodity product by supplying that product in quantities that disrupt market price equilibrium, in order to maintain a price below production cost of one's competition, fits my personal definition of "dumping" even if it isn't legally actionable per WTO rules.

 

[davecolene0606]

I would only add that oil below $78pbl or around there makes much of the NA production break even or in loss territory. The risk lies in all,of the debt raised to finance the extraction operations. Whether it's fracking or tar sands or deep ocean material, as long as the operations can service the debt, all is well. If the the debt cant be serviced, that's what could make markets go FUBAR or at least make things hiccup a bit due to the bad debt.

 

[FluxCap]

I would only add that oil below $78pbl or around there makes much of the NA production break even or in loss territory. The risk lies in all,of the debt raised to finance the extraction operations. Whether it's fracking or tar sands or deep ocean material, as long as the operations can service the debt, all is well. If the the debt cant be serviced, that's what could make markets go FUBAR or at least make things hiccup a bit due to the bad debt.

Precisely this.

 

[AlMc]

Well, Yellen speaks tomorrow, premarket. Any guesses as to her effect on the market? Mine is that she will try to say something that is politically correct AND try to stabilize things at the same time but I am not hopeful she will say anything that will be overly effective unless she indicates that they are rescaling their bond buying or delaying the tapering of their current plan to buy fewer in the future.

 

[FluxCap]

If they talk about delaying the taper as is being suggested now then the party's probably back on as far as market equity valuations go. But this is just kicking the can IMO. I haven't been trading today but cashed out my overnight short positions at open for a tidy profit.

 

[Intl Professor]

...BTW, read this article for a none-US view, seems Russia and China are trading oil in Yuan, elliminating the Petrodollar altogether.. lots of other interesting things as well:
http://rt.com/op-edge/196148-saudiar...confrontation/....Thanks, especially for the link.

 

[green1]

I know oil is a "fungable" commodity, but perhaps it's time to stop thinking globaly, and support the U.S. oil companies.
supposedly we can produce enough to sustain U.S. demand, without any imports (I don't think it's true BTW), perhaps we stop exporting oil produced in the U.S., and just use it here, decoupling from the $80/barrel Saudi crude. Not everything has to be about money, we need the U.S. oil industry to survive, more than we need cheap oil.

Actually the oil producers would like nothing more than for north american oil to be used within north america. The problem is that it's cheaper to send it overseas than it is to move it around the continent because it is pretty much impossible to build pipeline infrastructure in north america.

 

[FluxCap]

FYI, IBM is down more than $14/share premarket on disappointing earnings and an announcement that it is planning to offload the last of the "Machines" part of its business. IBM has not gapped down that much in 12 years. As a former IBMer and general fan of Big Blue's contribution to the history of the microcomputer, this is distressing to me. It is also distressing to the market. Look for S&P, Dow and Nasdaq to open significantly lower this morning, likely dragging TSLA along for the ride.

Also, Friday was one of the biggest one-day gains in a while in the S&P after a roller coaster week, so could be primed for a move down. I don't think we have seen the end of these up and down gyrations.

Edit: Move along, nothing to see here, market is fine for the moment it seems.

 

[Auzie]

Monetary policy

New article in The Economist, Monetary Policy.

Summary: Central bankers use Monetary policy, or interest rates management, as a tool to spur economic growth. The study of empirical data suggests that interest rates do not seem to affect investment as economists assume.

Main points: A study was done on data stretching back to 1952. The study investigated the role of central bank monetary policy in business investment, specifically interest rates effect on business investment.

The study concluded that the central bank rates do play some role in how much businesses invest, but not much. Other factors, such as profitability and share price performance, were found to be far more influential in driving the investments.

Such empirical findings suggest that, if government wants to stimulate the economy, lower taxes or less onerous regulation may be more effective measures than the monetary policy instruments.

 

[Chickenlittle]

FYI, IBM is down more than $14/share premarket on disappointing earnings and an announcement that it is planning to offload the last of the "Machines" part of its business. IBM has not gapped down that much in 12 years. As a former IBMer and general fan of Big Blue's contribution to the history of the microcomputer, this is distressing to me. It is also distressing to the market. Look for S&P, Dow and Nasdaq to open significantly lower this morning, likely dragging TSLA along for the ride.

Also, Friday was one of the biggest one-day gains in a while in the S&P after a roller coaster week, so could be primed for a move down. I don't think we have seen the end of these up and down gyrations.

Edit: Move along, nothing to see here, market is fine for the moment it seems.

I agree but it's so sad to see opportunities the company missed. Now borrowing money to buy back stock to keep price higher. Got to go borrow some money so I can pay off my mortgage

 

[techmaven]

All hail Apple. May Apple rescue the NASDAQ and put us back on an upward path.

 

[Auzie]

The Euro Zone, problem area

Article in The Economist, The Euro zone: The world biggest problem

Highlights:

US ok
UK ok
Japan struggling
China growing but at slower rate

The Euro zone is on the way to its third recession in six years.

Prices are falling in eight European countries. The zone's inflation is at 0.3% and may slip into deflation. The Economist predicts Euro collapse. When short term rates are close to zero, Central Banks can not cut rates to stimulate spending. The only tools left are quantitative easing and other forms of printing money. Euro zone has made policy mistakes in opposing Super Mario's requests for monetary easing. Descent into deflation seems probable for Euro zone.

The complication is that the European law bans some textbook solutions to a problem, such as ECB purchases of newly issued gov't bonds. The best legal option is to couple bond buying with large infrastructure spending.

If deflation takes hold in Euro zone, it will be hard to shake off.

 

[The Blue Owl]

For those interested in global macroeconomic analysis, I highly recommend this article from the Financial Times. It provides a very in-depth explanation of the major fault lines in the global economy and the stresses that are slowly building under the surface. It provides a sobering view of the challenges currently confronting policy makers.

It's in the blog section, so you should be able to access it free (you'll still have to sign up for a free account if you don't have one.) I cannot justify forking for a subscription to FT just yet, but I find their blog section a great source of very high quality commentary. This article is a good example of this.

 

[FluxCap]

Thanks, Auzie and Familial for good reads.

Personally, I think the "war on fiscal stimulus" is a completely backwards notion, and is in fact very successful attempt to accelerate the already massively unbalanced redistribution of wealth from the poor to the rich at levels not seen since Feudalism was the order of the day. The Fed under Bernanke and Yellen has said repeatedly that they wish Congress had the cojones to undertake fiscal stimulus, because monetary stimulus is a blunt tool that is imprecise and has unproven effectiveness in actual job creation. But the Fed will act if Congress won't, and it has. Which inflates asset prices. Which benefits those who hold the most capital. Which is not working Americans.

The greatest fiscal stimulus in our history was the New Deal, and it worked. Period. Though the WPA and CCC were lambasted for hiring the poor and destitute to sweep parks that didn't need sweeping, at least it gave people a job, and these and other public infrastructure projects laid the groundwork for 50 years of American Prosperity. I still think we need a New New Deal, but I'm in the minority. Just me and Paul Krugman sittin' alone out in left field, basically. And the ghost of Keynes.