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Tesla, TSLA & the Investment World: the Perpetual Investors' Roundtable
- Thread starter AudubonB
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mickificki
Member
OT:
Opinion | I Saw the Crisis Coming. Why Didn’t the Fed?
I Saw the Crisis Coming. Why Didn’t the Fed?
By MICHAEL J. BURRY
APRIL 3, 2010
Cupertino, Calif.
"ALAN GREENSPAN, the former chairman of the Federal Reserve, proclaimed last month that no one could have predicted the housing bubble. “Everybody missed it,” he said, “academia, the Federal Reserve, all regulators.”
But that is not how I remember it. Back in 2005 and 2006, I argued as forcefully as I could, in letters to clients of my investment firm, Scion Capital, that the mortgage market would melt down in the second half of 2007, causing substantial damage to the economy. My prediction was based on my research into the residential mortgage market and mortgage-backed securities. After studying the regulatory filings related to those securities, I waited for the lenders to offer the most risky mortgages conceivable to the least qualified buyers. I knew that would mark the beginning of the end of the housing bubble; it would mean that prices had risen — with the expansion of easy mortgage lending — as high as they could go.
I had begun to worry about the housing market back in 2003, when lenders first resurrected interest-only mortgages, loosening their credit standards to generate a greater volume of loans. Throughout 2004, I had watched as these mortgages were offered to more and more subprime borrowers — those with the weakest credit. The lenders generally then sold these risky loans to Wall Street to be packaged into mortgage-backed securities, thus passing along most of the risk. Increasingly, lenders concerned themselves more with the quantity of mortgages they sold than with their quality.
Meanwhile, home buyers, convinced by recent history that real estate prices would always rise, readily signed onto whatever mortgage would get them the biggest house. The incentive for fraud was great: the F.B.I. reported that its mortgage fraud caseload increased fivefold from 2001 to 2004.
At the same time, I also watched how ratings agencies vouched for subprime mortgage-backed securities. To me, these agencies seemed not to be paying much attention.
By mid-2005, I had so much confidence in my analysis that I staked my reputation on it. That is, I purchased credit default swaps — a type of insurance — on billions of dollars worth of both subprime mortgage-backed securities and the bonds of many of the financial companies that would be devastated when the real estate bubble burst. As the value of the bonds fell, the value of the credit default swaps would rise. Our swaps covered many of the firms that failed or nearly failed, including the insurer American International Group and the mortgage lenders Fannie Mae and Freddie Mac.
I entered these trades carefully. Suspecting that my Wall Street counterparties might not be able or willing to pay up when the time came, I used six counterparties to minimize my exposure to any one of them. I also specifically avoided using Lehman Brothers and Bear Stearns as counterparties, as I viewed both to be mortally exposed to the crisis I foresaw.
What’s more, I demanded daily collateral settlement — if positions moved in our favor, I wanted cash posted to our account the next day. This was something I knew that Goldman Sachs and other derivatives dealers did not demand of AAA-rated A.I.G.
I believed that the collapse of the subprime mortgage market would ultimately lead to huge failures among the largest financial institutions. But at the time almost no one else thought these trades would work out in my favor.
During 2007, under constant pressure from my investors, I liquidated most of our credit default swaps at a substantial profit. By early 2008, I feared the effects of government intervention and exited all our remaining credit default positions — by auctioning them to the many Wall Street banks that were themselves by then desperate to buy protection against default. This was well in advance of the government bailouts. Because I had been operating in the face of strong opposition from both my investors and the Wall Street community, it took everything I had to see these trades through to completion. Disheartened on many fronts, I shut down Scion Capital in 2008.
Since then, I have often wondered why nobody in Washington showed any interest in hearing exactly how I arrived at my conclusions that the housing bubble would burst when it did and that it could cripple the big financial institutions. A week ago I learned the answer when Al Hunt of Bloomberg Television, who had read Michael Lewis’s book, “The Big Short,” which includes the story of my predictions, asked Mr. Greenspan directly. The former Fed chairman responded that my insights had been a “statistical illusion.” Perhaps, he suggested, I was just a supremely lucky flipper of coins.
Mr. Greenspan said that he sat through innumerable meetings at the Fed with crack economists, and not one of them warned of the problems that were to come. By Mr. Greenspan’s logic, anyone who might have foreseen the housing bubble would have been invited into the ivory tower, so if all those who were there did not hear it, then no one could have said it.
As a nation, we cannot afford to live with Mr. Greenspan’s way of thinking. The truth is, he should have seen what was coming and offered a sober, apolitical warning. Everyone would have listened; when he talked about the economy, the world hung on every single word.
Unfortunately, he did not give good advice. In February 2004, a few months before the Fed formally ended a remarkable streak of interest-rate cuts, Mr. Greenspan told Americans that they would be missing out if they failed to take advantage of cost-saving adjustable-rate mortgages. And he suggested to the banks that “American consumers might benefit if lenders provided greater mortgage product alternatives to the traditional fixed-rate mortgage.”
Within a year lenders made interest-only adjustable-rate mortgages readily available to subprime borrowers. And within 18 months lenders offered subprime borrowers so-called pay-option adjustable-rate mortgages, which allowed borrowers to make partial monthly payments and have the remainder added to the loan balance (much like payments on a credit card).
Observing these trends in April 2005, Mr. Greenspan trumpeted the expansion of the subprime mortgage market. “Where once more-marginal applicants would simply have been denied credit,” he said, “lenders are now able to quite efficiently judge the risk posed by individual applicants and to price that risk appropriately.”
Yet the tide was about to turn. By December 2005, subprime mortgages that had been issued just six months earlier were already showing atypically high delinquency rates. (It’s worth noting that even though most of these mortgages had a low two-year teaser rate, the borrowers still had early difficulty making payments.)
The market for subprime mortgages and the derivatives thereof would not begin its spectacular collapse until roughly two years after Mr. Greenspan’s speech. But the signs were all there in 2005, when a bursting of the bubble would have had far less dire consequences, and when the government could have acted to minimize the fallout.
Instead, our leaders in Washington either willfully or ignorantly aided and abetted the bubble. And even when the full extent of the financial crisis became painfully clear early in 2007, the Federal Reserve chairman, the Treasury secretary, the president and senior members of Congress repeatedly underestimated the severity of the problem, ultimately leaving themselves with only one policy tool — the epic and unfair taxpayer-financed bailouts. Now, in exchange for that extra year or two of consumer bliss we all enjoyed, our children and our children’s children will suffer terrible financial consequences.
It did not have to be this way. And at this point there is no reason to reflexively dismiss the analysis of those who foresaw the crisis. Mr. Greenspan should use his substantial intellect and unsurpassed knowledge of government to ascertain and explain exactly how he and other officials missed the boat. If the mistakes were properly outlined, that might both inform Congress’s efforts to improve financial regulation and help keep future Fed chairmen from making the same errors again."
Replace subprime with the current auto industry...a little dramatic but still...
Sounds like a negative spin on what was in the 10-K -- basically "we don't expect to raise capital (other than local loans for GFs) but reserve the right to change our mind."
Moreover, we expect that the cash we generate from our core operations will generally be sufficient to cover our future capital expenditures and to pay down our near-term debt obligations (including the repayment of $920.0 million for our 0.25% Convertible Senior Notes due on March 1, 2019), although we may choose to seek alternative financing sources. For example,we expect that much of our investment in Gigafactory Shanghai will be funded through indebtedness arranged through local financial institutions in China. As always, we continually evaluate our capital expenditure needs and may decide it is best to raise additional capital to fund the rapid growth of our business. http://ir.tesla.com/static-files/15df7636-8cd8-4b18-989b-4badeeda806c
Per The Osborne Effect On The Auto Industry | CleanTechnica
The big elephant is the recession in 2024 due to people not wanting to buy ICEs (analogy is a buggy in 1913).
So, with ~17m annual U.S. demand, (USA - Flash report, Sales volume, 2018 - MarkLines Automotive Industry Portal)
Tesla is expecting to exit 2023 at the 3m/year production rate.
Say it's 4m in 2024. But that is worldwide. Unless you expect them to bring GF3 made cars back to U.S. So, prob. 2m in 2024 can be made by Tesla.
How are they going to take 50% of the market, if only in U.S. they need to add 6.5m to the 2m they will make(to arrive to 8.5m=50% of 17m)?
Considering what we know how Tesla's financials work with payments due to supplies, etc...…..it's FUD. Sure would be nice of Tesla PR to reiterate though that's it fake.
1101011
Proud TSLA/SCTY shareholder since 2013.
Many of the MI deliveries are handled through the Cleveland service center.
“Hello legacy ICE vendors, that is a nice SUV market you have retreated into there, would be a shame if something were to happen to it....”
The FUD continues...
“There’s a huge gap between the number of electric cars you see at an auto show and how many cars the dealer will offer you,” he said. “It’s kind of hard to ask the market for huge demand when there is no supply.”
After years of promise, battery cars about to go mainstream
“There’s a huge gap between the number of electric cars you see at an auto show and how many cars the dealer will offer you,” he said. “It’s kind of hard to ask the market for huge demand when there is no supply.”
After years of promise, battery cars about to go mainstream
I still paid sales tax to Michigan when I registered my car. Michigan still gets their cut while putting in roadblocks.
Off Shore
Off Topic Member
Many on this thread talk about the (non-retail) shorts as though they're some cabal of hedge funds trying to make money battling what they believe is a fake company à la Enron. But Enron didn't have a a couple of trillion-dollar industries willing to spend massive amounts of money to depress their stock and to damage the company in as many other ways as possible.
Tesla is still in the phase of growth where they're concentrating first on the product. They're beginning to transition to the phase where they'll pay some attention to the customers, as well. The culmination of Master Plan I is an amazing achievement, but it has taken all of the company's attention, and made them vulnerable in lots of ways to the forces arrayed against them. As sales increase (and they will) the pressure under the stock price will increase as well. It remains to be seen how long Chuck and Dave and their friends can keep the lid on, as they've done so successfully for the two years.
Attachments
Fact Checking
Well-Known Member
Also note that Gasparino was on the bankwuptcy $TSLAQ hype train a few short months ago:
Charles Gasparino on Twitter
"SCOOP: Bankers are inundating @Tesla
w refinancing ideas as two major bond repayments near; one idea floated with be to raise about $5b in new senior secured debt to make payment etc on the notion the $TSLA battery brand and car are worth at least $10b in a worst-case bankruptcy"
"SCOOP: Bankers are inundating @Tesla
w refinancing ideas as two major bond repayments near; one idea floated with be to raise about $5b in new senior secured debt to make payment etc on the notion the $TSLA battery brand and car are worth at least $10b in a worst-case bankruptcy"
That Gasparino tweet didn't age well: two weeks later Tesla posted +~$1b FCF Q3 results, ~3 months later posted +~$1b FCF Q4 results, and paid back both bonds in cash.
We should also remember that a key feature of FUD tactics is that "Doubt" about a complex high-tech company is much cheaper to add than to remove.
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DurandalAI
Member
It's quite true. Even before the Model 3 was available in volume, BMW sales fell. I expect ICE CUV sales to fall considerably after the Model Y unveil as people delay their normal vehicle refresh cycle to hold out for a Tesla. I expect the fossil car companies to be hurting in 2020, and to see at least one bankruptcy by 2022. The Osborne Effect will most certainly apply to fossil cars a couple of years before the car buyers purchase their next vehicle. I expect used vehicle prices for fossil cars to also drop precipitously.
I interpret it as the former.
That very roughly works out to negative $3.5K gross margin. That is inline with a company wide email that Musk sent a few months ago in which he said SR would cost 38.5K to build. The email was screenshot somewhere in Asia and was circulated on various twitter accounts - both bull and bear. The figure is also inline with the transcript of the conference call published by some shorts (Game of Pennies).
JRP3
Hyperactive Member
That's the thing, it's made to sound like new information.
The TL; DR: next election too crazy; will try to do useful stuff instead; unspoken: run in 2024 if Democrats lose to Trump again
DurandalAI
Member
Two Nissan dealerships in my area, both McLarty, only one has a SINGLE Nissan Leaf (S trim) in stock. They have no interest in selling them. Whenever I have inquired about them carrying they Leaf, they say nobody buys them. (Hard to buy what you don't stock, right?) It's a little bit of an anecdote why Tesla moving to online sales only may not be the best move, but most car drivers aren't as willing to give strangers rides in their cars, unlike Tesla owners who want to spread the word.
It was my own fault. I should know not to bother him when he gets in one of his moods.
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