Luck & Good Fortune

Which bullshit artist to choose in 2020?

Deeply left-leaning Robert Reich has written an opinion piece in The Guardian on why Trump should fear Warren Sanders. Cute.

The ultimate irony here is that America has grown up on decades of Trump’s chest beating bluster. Before he was president he was idolized in TV shows and movies. Yes, even Democrats loved him, or at the very least his wallet. What you see is what you get. That is Trump’s charm, as repulsive as many might find it. He doesn’t pretend to be anything other than the brash character that he is. To that end he is authentic.

On the other hand you have bullshit artists like Elizabeth Warren who pretend they are who they are not. It isn’t lost on Americans that Warren has lied about her cultural appropriation. Her bowling alley admission and subsequent apology were as hollow as hijacking minority status to advance her career. She has no persona.

Bernie Sanders too. Bernie pushes hardline socialist ideals but he himself has three mansions. No one should begrudge his making the system work for him but once again it only makes him look a rank hypocrite to espouse that he is one of them.

While Bernie looked the goods in 2016, he has had a heart attack and his health will be an issue.

Reich puts it on the line with,

This is where Warren and Sanders come in.

Their core proposals would make the system work for everyone and alter the power structure in America: Medicare for All based on a single-payer rather than private for-profit corporate insurance; a Green New Deal to create millions of good jobs fighting climate change; free public higher education; universal childcare.

All financed mainly by a tax on the super-rich.”

Reich could square away climate change in a jiffy by questioning why his alarmist mate Barack Obama bought a $15m mansion by the sea in Martha’s Vineyard? Millions of jobs via the Green New Deal? What for? Unemployment is 3%. Free education? I agree there on the basis of the quality of professors on display during the impeachment hearings. It is a crime to make students pay $70,000pa for such drivel.

Of course, it is so easy just to tax the super-rich. Never mind that the top 1% pay c.40% of the income tax take. Had it occurred to Reich that if they embark down the line of a socialist economy the super-rich won’t make the same returns meaning funding these schemes will collapse under the weight of their own lack of due diligence, something Elizabeth Warren was left looking ridiculously stupid in one of the recent debates.

Reich should learn the key tenet of socialism – the reason mice keep dying in mousetraps is that they don’t understand why the cheese is free.

Of course, the lefties reading this piece will say that Trump is the biggest bullshitter of them all. That may be true but he doesn’t try to hide it. That is the quantifiable difference.

Robert Reich should know that a soon to be octogenarian and a dotty aunt don’t make for the type of combo to convince America to change. Better the devil they know.

146,000 Tesla Cybertruck orders

Wow. As written yesterday, CM thought Cybertruck would sell. Not as well as this though. In the $100bn domestic pick-up market Musk went big and it seems it will payoff. Whether all 146,000 (likely to be more going forward) end up being fulfilled is another question. Tesla will need more capital to get there but with an order book, he has bought more time.

It was intriguing that the normal $1000 fully refundable deposit for his cars was only $100 for the Cybertruck, a shrewd bit of marketing which essentially turned it into a virtually free option to put one’s name down. One wonders whether he bumps it up now he has these orders under the belt to help with cash flow.

Credit where credit is due. Musk is a visionary. CM has now praised the Tesla CEO twice in 24-hrs. Must be a blue moon.

This can only end in tears

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As Sweden’s economy slows to the worst economic growth rate in 5 years under a negative interest rate policy, one would think the Swedish Central Bank (Riksbank) would be seeking to prudently manage its asset book on the basis of appropriate risk/reward as opposed to lecturing Australia and Canada on their respective carbon footprints. What we are witnessing is yet another discrete move by authorities to manipulate markets based on fantasy rather than fact.  The hypocrisy is extreme as we shall discover.

While the Riksbank should have complete freedom in how it wishes to deploy capital, we should view this is a pathetic sop to the cabal at the European Central Bank (ECB). Since when did central bankers become experts on climate change? The RBA is no better. Deputy Governor, Guy Debelle, gave a speech in March 2019 on the risks posed by climate change which based prophecies on the data accident-prone IPCC and Bureau of Meteorology. Why not seek balance? Easier to fold to group think so as not to be outed as a pariah. Utterly gutless. Our own APRA is also pushing this ridiculous agenda on climate change reporting. It is willful negligence.

While it is true that on a per capita basis, Australia and Canada’s emissions are higher than the global average, why doesn’t the Riksbank give us credit for lowering that amount 11.4% since 2000? Even Canada has reduced its carbon emissions by 7.3% over the last 18 years. Admittedly Sweden’s emissions per capita have fallen 21.9% according to the IEA. Greta will be happy.

Why hasn’t the Riksbank taken China or India to task for their 169.9% or 94.7% growth in CO2 emissions respectively? There are plenty of oil-producing nations – Qatar, UAE, Bahrain, Saudi Arabia and Oman that have worse per capita outcomes than Australia or Canada. Do these countries get special dispensation from the wrath of the Riksbank? Clearly.

The US has pulled out of the Paris Climate Accord. If the US has marginally lower emissions per capita (15.74t/CO2-e) than Australia (16.45t/CO2-e), isn’t a double standard to write,

The conditions for active climate consideration are slightly better in our work with the foreign exchange reserves. To ensure that the foreign exchange reserves fulfil their purpose, they need to consist of assets that can be rapidly converted to money even when the markets are not functioning properly. Our assessment is that the foreign exchange reserves best correspond to this need if they consist of 75 per cent US government bonds, 20 per cent German and 5 per cent British, Danish and Norwegian government bonds.

Essentially Riksbank commitment to climate change is conditional. The US which is responsible for 13.8% of global emissions can be 75% of holdings. Australia at 1.3% can’t. No doubt sacrificing Queensland Treasury Corp, WA Treasury Corp and Albertan bonds from a Riksbank balance sheet perspective will have little impact on the total. In short, it looks to be pure tokenism. The Riksbank has invested around 8% of its foreign exchange reserves in Australian and Canadian central and federal government bonds. So perhaps at the moment, it is nothing but substitution from state to federal. Why not punish NSW TCorp for being part of a state that has 85%+ coal-fired power generation?

At the very least the Riksbank admits its own hypocrisy.

The Riksbank needs to develop its work on how to take climate change into consideration in asset management. For instance, we need a broader and deeper analysis of the issuers’ climate footprint. At the same time, one must remember that the foreign exchange reserves are unavoidably dominated by US and German government bonds. The Riksbank’s contribution to a better development of the climate will, therefore, remain small. This is entirely natural. The important decisions on how climate change should be counteracted in Sweden are political and should be taken by the government and the Riksdag (parliament).

Still, what hope have we got when Benoît Cœuré, member of the Executive Board of the ECB, lecturing those on “Scaling up Green Finance: The Role of Central Banks.” He noted,

2018 has seen one of the hottest summers in Europe since weather records began. Increasing weather extremes, rising sea levels and the Arctic melting are now clearly visible consequences of human-induced warming. Climate change is not a theory. It is a fact.

Reading more of this report only confirms the commitment of the ECB to follow the UN’s lead and deliberately look to misallocate capital based on unfounded claims of falling crop yields and rising prices (the opposite is occurring) and rising hurricane and drought activity (claims that even the IPCC has admitted there is little or no evidence by climate change). Sweden is merely being a well-behaved schoolboy.

Cœuré made the explicit claim, “The ECB, together with other national central banks of the Eurosystem, is actively supporting the European Commission’s sustainable finance agenda.

CM thinks the biggest problem with this “agenda” is that it risks even further misallocation of capital within global markets already drowning in poorly directed investment. It isn’t hard to see what is going on here. It is nothing short of deliberate market manipulation by trying to increase the cost of funding to conventional energy using farcical concocted “climate risks” to regulate them out of existence.

Cœuré made this clear in his speech,

once markets and credit risk agencies price climate risks properly, the amount of collateralised borrowing counterparties can obtain from the ECB will be adjusted accordingly.

What do you know? On cue, Seeking Alpha notes,

Cutting €2bn of yearly investments, the European Union will stop funding oil, natural gas and coal projects at the end of 2021 as it aims to become the first climate-neutral continent.

All CM will say is best of luck with this decision. Just watch how this kneeling at the altar of the pagan god of climate change will completely ruin the EU economy. The long term ramifications are already being felt. The EU can’t escape the fact that 118mn of its citizens (up from 78m in 2007) are below the poverty line. That is 22% of the population. So why then does Cœuré mention, in spite of such alarming poverty, that taking actions (that will likely increase unemployment) will be helped by “migration [which] has contributed to dampening wage growth…in recent years, thereby further complicating our efforts to bring inflation back to levels closer to 2%.

Closer to home, the National Australia Bank (NAB) has joined in the groupthink by looking to phase out lending to thermal coal companies by 2035. The $760 million exposure will be cut in half by 2028. If climate change is such a huge issue why not look to end it ASAP? This is terrible governance.

Why not assess thermal coal companies on the merits of the industry’s future rather than have the acting-CEO Philip Chronican make a limp-wristed excuse that it is merely getting in line with the government commitment to Paris? If lending to thermal coal is good for shareholders in 2036, who cares what our emissions targets are (which continue to fall per capita)? Maybe this is industry and regulator working hand-in-hand?

The market has always been the best weighing mechanism for risk. Unfortunately, for the last two decades, global central bank policy has gone out of its way to prevent the market from clearing. Now it seems that the authorities are taking actions that look like collusion to bully the ratings agencies into marking down legitimate businesses that are being punished for heresy.

This will ironically only make them even better investments down the track when reality dawns, just as CM pointed out with anti-ESG stocks. Just expect the entry points to these stocks to be exceedingly cheap. Buy what the market hates. It looks as though the bureaucrats are set to make fossil fuel companies penny stocks.

Aussies pay more tax than Japanese and Shorten wants to raise them higher!

CM is repulsed by the confetti blowing promises being made ahead of May 18. This election is about cost of living to be sure. It is not about climate change and not about resettling refugees. Yet there has to be a limit on the free give away with a growing deficit. Where is the fiscal responsibility? Do politicians run their own household budgets like this? Not in a million years.

Our federal tax receipts are A$430bn this year. Did you know Japan collects $A750bn at the national level? So Aus is 1/5th the population and raises 1/2 the coin of Japan. Having said that the Japanese government must raise A$500bn EVERY YEAR to plug the national deficit! That’s what happens with poor fiscal management. So doing the math including the debt financing, we still raise 31% the revenues than the Japanese on 20% of the population. We might argue our economy is 1/4 Japan’s but we’re following an unsustainable trajectory. It’s insane. How can we tax people more? Yet that is what Shorten will do.

We can debate til the cows come home about how GST is funneled back to the states from federal coffers but we need to wake up to our relative costs! Our budget deficit is c.$600bn yet here we see Labor throw confetti promises around everywhere. $1.18bn in new aid to foreign countries over the next 4 years. PNG spent our aid money on 40 new Maseratis. Shorten pledged $1bn to acquire land to put the VFT in place. Surely the private sector can deal with that. $2bn for a Melbourne metro. We can go on and on.

Everyone seems like a winner until everyone becomes a loser. The sad fact is that we must wake people up to reality. We need to spend smarter, not chuck more money and hope it has impact. Neither government will see a surplus. Take it to the bank. The economic growth projections aren’t there. No matter who wins this election, the global economy is slowing and either party will be handed a basket case of economy controlled by external forces which includes a slowing US and China. It won’t be pretty. The question is who can best manage that? Not Labor. Climate change will be so irrelevant in this downturn.

It gets worse. The Reserve Bank and APRA are asleep at the wheel. Instead of navigating sensible policies to thwart the largest recession we will face in almost 30 years which will decimate housing, both are discussing climate change compliance reporting by corporates. Seriously? It is so telling they are focusing on the wrong message. Have they seen that the world’s central banks have printed $140 trillion in extra debt since 2008 and got $20 trillion extra in GDP. Shockingly poor returns. $7 of debt gets us $1 of GDP.

Yet our political system has only one pair of rose tinted spectacles where the prescription is 27 years out of date. They are equally as oblivious to the oncoming onslaught where our Aussie banks face a real risk of part of whole nationalization. Their position is as bad as the Japanese ahead of the collapse of their bubble.

Do not be fooled. CM personally believes that the Coalition is not deserved of government but the alternative is even worse. The last thing we need is to rest on that old Aussie saying of “time to give the others a go!” because this is a time when we can least afford change. It will be buyer’s remorse + alpha.

Harley delinquencies at 8 year high

Just noted from the conference call that Harley-Davidson (HOG) motorcycle loan delinquencies (30+ days in arrears) are at an 8 year high of 3.73%. While actually loss experiences have tracked sideways for the past few years, they are still higher than 8 years ago.

Interestingly, HOG loans outstanding were $7.53bn in 1Q 2015. In 1Q 2019 that figure was $7.63bn. So next to no loan growth against c.20% lower unit sales. In 1Q 2015 HDFS made $683.6m in new loans, 80% prime out of $1.5bn in 1Q motorcycle (incl parts/accessories) sales (43.6% financed). In 1Q 2019, $685.3m in new loans were made with a claimed 80-85% “prime” against $1.124bn (61.0%) of m/c and P&A sales. Essentially total sales would be worse without the finance arm. Why does CM smell Ford Credit all over?

So delinquencies up against a strategy to pump more bikes through financing. Is it the non-prime portion is faltering at greater rates? Or the prime?

Luxury motorcycles are generally considered discretionary spend items. Are aspirational consumers just tapped out?

HOG’s 2mn new riders in the US by 2027 seems an irrelevant target. 200,000 “new” riders per year by definition should not include existing customers. Management combine new and used sales using IHS Markit Motorcycles in Operation (MIO) data, not their own! That is fine if all are new Harley customers yet the brand has some of the highest loyalty rates of any maker period. Are we to believe that long term Harley owners didn’t upgrade?

Of the 138,000 new domestic US sales in 2018, the brand assumed 278,000 new riders to the family. It also cites that 50% of that were 18-34yo (implies poorer product mix), women (smaller capacity hence poorer product mix) or ethically diverse (irrelevant) riders. So by definition at least 140,000 sales were used bikes. Harley used bike sales in America are around 2.5x new, or 350,000 units. So assuming half were new customer sales for new bikes, 60% of used sales must have been to ‘never owned a Harley’ customers. Seems high.

It doesn’t much matter if HOG hit targets for new riders, the actual financial results point to further deterioration across the board at the top of the cycle. Most competitor luxury brands are ticking along just fine.

100 new high impact motorcycles has all the hallmarks of chucking spaghetti at the wall and hoping some of it sticks.

This stock should continue to flounder. CM thinks it will get back to the GFC $8 handle.

CM is not invested in HOG nor short the stock. This doesn’t constitute financial advice.

Musk flips the ‘bird’ at the SEC

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Tesla shareholders must wish Elon Musk would be as silent as his products. It seems the Tesla CEO has learnt nothing from his $20mn fine. Given that Tesla is still under investigation for other reporting  matters, it seems unprofessional to bait the SEC when shareholders want to see stability at the helm. Musk tweeted,

Just want to that the Shortseller Enrichment Commission is doing incredible work. And the name change is so on point!,”

Just further evidence this CEO has no wish to listen to his board or interact with them in a way that promotes best practice corporate governance. It’s still a one man band. The irony of the tweet is that the SEC’s leniency allowed him to stay at the top causing a 17% jump on the settlement.

Even worse Paragraph 13 of his settlement with the SEC requires him to seek board oversight of any public communications although has yet to be officially signed off by a judge.

In a twist or irony one shareholder tweeted back that he wasn’t just attacking the stock shorters  but the long only owners as well.

Tesla shares closed down 4.4% and indicated at $273 in the after market, a fitter 3% fall. At the start of the SEC decision last week the shares had traded as low as $267. In a sense Musk has been the Shortsellers Enrichment CEO not the SEC.

Musk’s $20mn fine covered if Tesla shares jump 59 cents

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$20mn sounds like a lot. It is a lot. The SEC has struck a deal with Tesla’s Elon Musk which demands he steps down as chairman and hires two independent directors. Musk owns 33.7mn shares. Technically he would only require a 59c share price rise to cover his fine. Make it a dollar to cover taxes and transaction costs plus legal fees. In any event the fine is peanuts in the grand scheme of things.

To be honest, Tesla disciples will breathe a sigh of relief that their king still remains in the company and more importantly as the figure head. The question remains is whether a new chairman (from outside?) will see to it that the company is not just a one man band which has been painfully obvious with so many senior level defections. Too often the board has seemed to be an onerous burden for Musk in that his intergalactic brilliance shouldn’t require checks and balances.

Will a new chairman demand a thorough audit into business practices to date? It is likely that the SEC will expect a new chairman to lift the standards of the board to make sure that shareholders interests are properly decided with all directors heard. An independent audit should be viewed as the bare minimum. What would that unearth?

Tesla shares should bounce on this news and in aftermarket trading it is up. The question is how a new structure changes dynamics which reveal the short cuts and internal processes which have created so many reporting inconsistencies.