Tesla, TSLA & the Investment World: the Perpetual Investors' Roundtable

[ShareLofty]

All-in Podcast - Good takes from each of the 4 about the bank meltdown.

Isn’t Jason Calacanis on that podcast? I can’t take him serious after his behavior on Twitter the last 48 hours. He says 100,000 people will be lined up at their banks tomorrow to withdraw their savings. He’s trying to create panic

 

[unk45]

FDIC Auction for Failed SVB Underway, Final Bids Due Sunday

The Federal Deposit Insurance Corp. kicked off an auction process late Saturday for Silicon Valley Bank, with final bids due by Sunday afternoon, according to people familiar with the matter.

www.bloomberg.com

Man, the FDIC moves fast!

Not quite so fast. The imminent failure was obvious when long Treasury rates began to rise late in 2022, precisely because CVB was deeply concentrated in long Treasuries unhedged. Regular reporting made that clear and made large SVB losses inevitable.

That did not explicitly forecast demise but certainly major trouble. Traditionally FDIC hunts for a takeover plan before the failure so that happens often within hours. SVB was not very easy because:

SVB had almost no conventional retail deposits with risk assets predominately of startups unlikely to be attractive to bank takeover candidates. This one is hard because it is so unlike any other major bank.

 

[Tommy O]

Elon thinks a conflict with China over Taiwan is inevitable and would cut the global economy by 30%

Geopolitics is probably the biggest real risk out there right now, the world can handle higher interest rates

He does? Can you provide a reference?

 

[AndrewZ]

He does? Can you provide a reference?

Interview with Roula Khalaf @ Financial Times

Elon Musk: ‘Aren’t you entertained?’

The Tesla chief talks to Roula Khalaf about moving to Mars, saving free speech via Twitter — and why ageing is one ‘problem’ that should not be solved

www.ft.com

If this happens, he thinks Tesla would be allowed to continue selling vehicles within mainland China but not export.

This is presumably why he was previously floating very controversial suggestions around making Taiwan an administrative zone like Hong Kong

 

[Tommy O]

If this happens, he thinks Tesla would be allowed to continue selling vehicles within mainland China but not export.

This is presumably why he was previously floating very controversial suggestions around making Taiwan an administrative zone like Hong Kong

Paywalled. But thank you for the link. I wasn’t aware of him making such direct comments on this topic. Can you provide any key quotes? I’m very interested.

 

[Cosmacelf]

It's scary how many stupid millionaires and CEOs had large % of their assets at one bank let alone well over the insured limits. And what a dumb#$% CEO at SIVB.

It's always a good time to avoid large balances in money market accounts but especially so today.

That's not how it works. Any reasonable sized business has large cash balances in their accounts for working capital. You know, for things like paying suppliers, receiving payments and making payroll. There is no way even a tiny business (say $20M revenue per year) can have less than $250K in a working capital account.

And the problem isn't money market accounts, it is the cash accounts like checking accounts. A money market account actually takes money away from the bank's ledger and is protected in a bank failure.

 

[totoro722]

The Tundra is a great truck by any
objective measure. But being equal to or marginally better than Ford or Chevy is not enough in that market.

Cybertruck has to be a better value and clearly superior to ford, Chevy and dodge.

I anticipate that Cybertruck will have a very different experience from Tundra. Tundra was very much in the mold of Chevrolet, Ford, and RAM trucks. There is a strong preference for Japanese cars on the West Coast, so they did well in California. Cybertruck brings something radically different to the pickup truck market. I expect it will be very polarizing: some will be very enthusiastic, some will be quite resistant because of the difference. Expect some vandalism if you are an early owner. Eventually people will judge it on build quality and performance, but at first it will be about appearance I suspect. If Tesla can continue to make a superior product in each market category it enters, I believe it will eventually prosper with Cybertruck. Maybe immediately prosper.

 

[AndrewZ]

Paywalled. But thank you for the link. I wasn’t aware of him making such direct comments on this topic. Can you provide any key quotes? I’m very interested.

So weird, I can access the article on my iphone but it's paywalled on the computer

There are some topics that amuse Musk, eliciting prolonged laughter, and other questions that are met with deliberate silence before he speaks. The longest silence follows my question about China and the risk to Tesla’s Shanghai factory, which produces between 30 per cent and 50 per cent of Tesla’s total production. Musk has been an admirer of as well as an investor in China. But he is not immune to the gathering US-China tensions or the risk of a Chinese takeover of Taiwan. Musk says Beijing has made clear its disapproval of his recent rollout of Starlink, SpaceX’s satellite communications system, in Ukraine to help the military circumvent Russia’s cut-off of the internet. He says Beijing sought assurances that he would not sell Starlink in China.

Musk reckons that conflict over Taiwan is inevitable but he is quick to point out that he won’t be alone in suffering the consequences. Tesla will be caught up in any conflict, he says, though, curiously, he seems to assume that the Shanghai factory will still be able to supply to customers in China, but not anywhere else. “Apple would be in very deep trouble, that’s for sure . . . ” he adds, not to mention the global economy, which he estimates, with precision, will take a 30 per cent hit.

It may be Musk’s realisation that business decisions can no longer be made without regard to security and geopolitics — or perhaps it’s simply an arrogant belief that he has all the answers — that now leads him to offer his own solutions to the world’s most complex geopolitical problems. “My recommendation . . . would be to figure out a special administrative zone for Taiwan that is reasonably palatable, probably won’t make everyone happy. And it’s possible, and I think probably, in fact, that they could have an arrangement that’s more lenient than Hong Kong.” I doubt his proposal will be taken up.

On Ukraine too, he has advocated a compromise with Russia that has earned him ridicule in Kyiv, where Starlink had made him a hero until now. He launched his peace plan in a poll on Twitter and suggested that Crimea, which Russia invaded in 2014 and later annexed, should simply be given away to Russia. Volodymyr Zelenskyy, the Ukrainian president, shot back with his own Twitter poll: which Elon Musk do you like more, he asked, the one who supports Ukraine or the one who supports Russia?

This was published in October

 

[Tommy O]

So weird, I can access the article on my iphone but it's paywalled on the computer

I found a link that gets around the paywall: FT Elon Interview Oct 2022

Edit: worth a read and again thanks for sharing this @AndrewZ

 

[Cosmacelf]

Well, there's a difference between "we were this close to running out of money" and being unable to raise money, right? Having watched/read several accounts about the last minute xmas infusion from Mercedes Benz back in the original Roadster days, I don't think the claim they were close to running out of cash is BS.. And it appears even raising cash was a bit of a challenge... unless I'm missing something?

You two guys are talking about different events. The person you are replying to was talking about the initial Model 3 ramp where Elon stated they were close to bankruptcy.

You are correct, scaesare, that Tesla was literally hours away from bankruptcy December 24, 2008. That's when the Tesla Board was about to pull the plug (no one wanted to fund its losses anymore), and Elon said, **** it, and put his last $40M he had into Tesla. At that point he was literally broke, having invested all his Paypal gains into SpaceX and Tesla. That so impressed the VCs around the Board table that they too then joined him and together put in place a rescue round.

BTW, I don't think Elon's comment about the Model 3 ramp was hyperbole. He often uses shortcuts when talking. What I think he meant when he said Tesla was on the verge of bankruptcy was that if they hadn't figured out the production ramp, they'd be burning through boatloads of cash, since they had hired and tooled for volume production (kinda like Rivian/Lucid today). They probably could have raised more money, but that wouldn't have been a solution. It was at most a stopgap. They had to solve their production issues to avoid bankruptcy.

And the market, oddly enough, knows this. That's why Rivian's market cap more or less follows their cash balance, effectively valuing Rivian's actual operations at $0. Tesla's actual valuation would have trended very close to their cash balance too (which was only a few $B) if they hadn't solved volume production.

 

[jerry33]

Out of interest, what did happen with the Tundra, and why was that the outcome ? What did Toyota do wrong ? What can be learnt from that ?

It didn’t look big like the Fords and GMs. Also it wasn’t significantly better, so people just stuck with what they knew. Also, the first trucks were small so most people thought Japanese trucks eauals small, even after larger models were introduced.

 

[Cosmacelf]

For only $2.79 and $6.67 per share??? What am I missing?

It was a stock option grant. Those were the strike prices. The options were going to expire later this year, so he exercised them before they expired.

 

[Knightshade]

For only $2.79 and $6.67 per share??? What am I missing?

That these were options from Teslas patent program from April 2013....so likely expiring next month and needing to be exercised now or be lost.

Pretty much a nothingburger as far as being "news" of any sort.

 

[Singuy]

Not quite so fast. The imminent failure was obvious when long Treasury rates began to rise late in 2022, precisely because CVB was deeply concentrated in long Treasuries unhedged. Regular reporting made that clear and made large SVB losses inevitable.

That did not explicitly forecast demise but certainly major trouble. Traditionally FDIC hunts for a takeover plan before the failure so that happens often within hours. SVB was not very easy because:

SVB had almost no conventional retail deposits with risk assets predominately of startups unlikely to be attractive to bank takeover candidates. This one is hard because it is so unlike any other major bank.

I don't think SVB projected a bank run and imminent crash of their stock. Their balance sheet didn't suggest any kind of massive loss. Business is suppose to be as usual. As they take in new depositors money, they would buy higher interest rate bonds to eventually dilute the old. Their short fall ONLY happens there's a run but that happens with almost every bank that only keeps 10% reserve as very liquid assets for depositors yo withdrawal.

It's suppose to be a nothing burger that became a something burger which hopefully triggers the the fed to respond favorably to rates. Shorts are actually kind of concerned. GJo is freakening out right now pleading for the feds to continue rate hikes for the sake of the working class..lol.

 

[SmokyPeat]

At annual sales of around 2M, Morgan Stanley's 50K/yr would be 5% of the market. This is a declining market, with most offering's sales falling off since the reveal of the CT. (coincidence?)

Yes, I'd say coincidence. Rising gas prices and tightening budgets are surely more causitive for the drop in sales. Even with the decline in sales over the last few years, annual US light truck sales in both 2021 and 2022 were nearly double what they were in 2010.

 

[unk45]

I don't think SVB projected a bank run and imminent crash of their stock. Their balance sheet didn't suggest any kind of massive loss. Business is suppose to be as usual. ..

I marked Disagree because you're largely incorrect on facts
"SVB did not project a 'bank run'." You're correct,;OTOH has any banker ever projected a bank run on their own bank? The answer is NO. OTOH again, when the CEO, CFO and another high officer bailed on large amounts just before the disclosure that insider trading did make such a forecast indirectly, as did their yE 2022 financials which showed them functionally insolvent. The data was screaming for attention that nobody heard.
"It had mark-to-market losses in excess of $15 billion at the end of 2022 for securities held to maturity, almost equivalent to its entire equity base of $16.2 billion."

How Silicon Valley Bank's fate was sealed at the moment of its triumph just a few years ago

Tens of billions of dollars flooded into SVB during venture capital's bumper 2021, and it bet on interest rates staying steady by investing in longer-term bonds.

fortune.com

That means, in plain English that anyone competent who looked at their 2022 YE financials knew there was high risk of imminent failure because their entire capital base was impaired.

@Singuy I'm sorry to tell you that you either did not look at the financials of else did not understand them. There are more very serious problems that were reflected in past regulatory reviews. In sum; SVB was at risk anyway, not coincidently being without a Chief Risk Officer for most of 2022. That is a gigantic warning sign just by itself.

Just as ICE experience does not help understand BEV technology, Tech industry expertise does not help with risk management nor the closely related Treasury management.

Short version: going naked, unhedged, on long US Treasuries is death if rates rise. They did.

Please do not post things about which you are completely unfamiliar, at least read the data openly available. FWIW, bank failures are nearly always obvious in retrospect but securities analysts and customers seem not to read them. It probably wasn't fraud. Just stupidity.

 

[SmokyPeat]

Isn’t Jason Calacanis on that podcast? I can’t take him serious after his behavior on Twitter the last 48 hours. He says 100,000 people will be lined up at their banks tomorrow to withdraw their savings. He’s trying to create panic

I'm not surprised. Peter Thiel pretty much initiated the run on SVB. Calacanis probably didn't get his money out in time and wants to stir the fears of contagion so the govt. will step in quickly and make him whole.

 

[Singuy]

SVB did not project a 'bank run'.
"It had mark-to-market losses in excess of $15 billion at the end of 2022 for securities held to maturity, almost equivalent to its entire equity base of $16.2 billion."

How Silicon Valley Bank's fate was sealed at the moment of its triumph just a few years ago

Tens of billions of dollars flooded into SVB during venture capital's bumper 2021, and it bet on interest rates staying steady by investing in longer-term bonds.

fortune.com

Thatmeans, in plain English that anyone competent who looked at their 2022 YE financials knew there was high risk of imminent failure because their entire capital base was impaired.

@Singuy I'm sorry to tell you that you either did not look at the financials of else did not understand them. There are more very serious problems that were reflected in past regulatory reviews. In sum; SVB was at risk anyway, not coincidently being without a Chief Risk Officer for most of 2022. That is a gigantic warning sign just by itself.

Just as ICE experience does not help understand BEV technology, Tech industry expertise does not help with risk management nor the closely related Treasury management.

Short version: going naked, unhedged, on long US Treasuries is death if rates rise. They did.

Those are paper losses with speculative rates. Principle is persevered if held to maturity. The "loss" is the difference of returns. So yes a run will cause that loss to be realized. If business as usually then who cares.

 

[unk45]

Those are paper losses with speculative rates. Principle is persevered if held to maturity. The "loss" is the difference of returns. So yes a run will cause that loss to be realized. If business as usually then who cares.

Good Grief! Their reserves were GONE! The rule is mark to market precisely because those are reserves. The rates absolutely were not "speculative", they were contractual. If you want to comment on this please, please read a bit about bank reserve calculations. Then read about CAMEL ratings. If that is too much work please don't promote these fallacious ideas. They are dangerous!

 

[Singuy]

Good Grief! Their reserves were GONE! The rule is mark to market precisely because those are reserves. The rates absolutely were not "speculative", they were contractual. If you want to comment on this please, please read a bit about bank reserve calculations. Then read about CAMEL ratings. If that is too much work please don't promote these fallacious ideas. They are dangerous!

Maybe I didn't understand it correctly, but am in the "it's no big deal" camp. How is they camp dangerous? What are you promoting? Sky is falling and we should all bank run tomorrow? Maybe it's more correct, but certainly more dangerous to our institutions.