Global Market Comments
October 6, 2015
Fiat Lux
SPECIAL TESLA ISSUE
Featured Trade:
(OCTOBER 7 GLOBAL STRATEGY WEBINAR)
(PLUNGING BACK INTO TESLA),
(TSLA)
Tesla Motors, Inc. (TSLA)
I didn?t mean to rip apart my $110,000 Tesla Signature Series S1.
The soccer mom texting while driving her GM Silverado pickup truck who T-boned me made that decision.
Why not make lemonade out of lemons?
So I studiously took notes while a specialized body shop carefully took apart the revolutionary car from the future, and then gingerly put it back together.
What I discovered was incredible.
It was also immensely valuable in gaining insight into how to trade one of the most controversial and volatile stocks in the market.
During last month?s Concourse d? Elegance vintage car show at Pebble Beach, California, I managed to catch up with Tesla?s senior management. All lights were flashing green, and it was full speed ahead.
The new Gigafactory being built outside Reno, Nevada will pave the way for the firm?s entry into the mass market. The big issue in selecting a site was not cost or subsidies, but the permitting process.
In Nevada, where almost everything is legal, you can get a building permit in 30 days, compared to months elsewhere, and years in California.
Expect to see the Model Tesla 3 out in three years, which will cost $35,000 and get a 300-mile range. Buying a car at that price, with no maintenance and free fuel for life, is the same as paying $20,000 for a gasoline driven car.
That?s when Tesla ramps up production from this year?s 40,000 units to 500,000, turning the ?Big Three? auto makers into the ?Big Four.? This is why the big institutional investors are going gaga over the stock.
All that has been missing this year has been a decent entry point to buy the stock. It now appears we have one, the stock giving up 17% from its August, 2014 $295 high.
All of which brings me to Tesla?s share price, which has just taken a swan dive from $265 to $190 on the flash crash day, as hot money fled the big momentum names.
Let me tell you that the revolutionary vehicle is still wildly misunderstood, and the company has done a lousy job making its case. I guess you can afford that luxury when consumers line up for a year to buy your product.
The electric power source is, in fact, the least important aspect of the Tesla cars. Here are 16 reasons that are more important:
1) The vehicle has 75% fewer parts than any other, massively reducing production costs. The drive train has 11 parts, compared to over 1,500 for conventional gasoline powered transportation. Tour the factory and it is eerily silent. There are almost no people, just a handful who service the German robots that put these things together.
2) No maintenance is required, as any engineer will tell you about electric motors. You just rotate the tires every 6,000 miles.
3) This means that no dealer network is required. There is nothing to fix.
4) If you do need to repair something, usually it can be done over the phone. Rebooting the computer addresses most issues. If not, they will send a van to do a repair at your house for free.
5) The car runs at room temperature, not the 500 degrees in standard internal combustion cars. This means that the parts last forever.
6) The car is connected to the Internet 24/7. Once a month it upgrades its own software when you are sleeping. You jump in the car the next morning and a message appears on your screen saying, ?We just upgraded the following 20 Apps.? This is the first car I ever owned that improved itself with age, as I do myself.
7) This is how most of the recalls have been done as well, over the Internet while you are sleeping.
8) If you need to recharge at a public station, it is free. Tesla has its own national network of superchargers that will top you up in 45 minutes, and allow you to drive across the country (see map below). But hotels and businesses have figured out that electric car drivers are the kind of big spending customers they want to attract. So public stations have been multiplying like rabbits. When I first started driving my Nissan Leaf in 2010 there were only 25 charging stations in the Bay Area. There are now over 1,000. They even have them at Costco.
9) No engine means a lot more space for other things, like storage. You get two trunks in the Model-S, a generous one behind, and a ?frunk? in front.
10) Drive an electric car in California, and you are treated like visiting royalty. You can drive in the HOV commuter lanes as a single driver. This won?t last forever, but it?s a nice perk now.
11) There is a large and growing market for all American made products. Tesla has a far higher percentage of US parts (100%) than any of the big three.
12) Since almost every part is made on site at the Fremont factory, supply line disruptions are eliminated. Most American cars are over dependent on Asian supply lines for parts and frequently fall victim to disruptions, like floods and tidal waves.
13) There are almost no controls, providing for more cost savings. Except for the drive train, windows, and turn signals, all vehicle controls are on the touch screen, like a giant iPhone 6 plus.
14) A number of readers have argued that the Tesla really runs on coal, as this is still the source of 36% of the US power supply. However, if you program the car between midnight and 7:00 AM (one of my ideas that Tesla adopted in a recent upgrade), you are using electricity generated by the utilities to maintain grid integrity at night that otherwise goes unused and wasted. How much power is wasted like this in the US every night? Enough to recharge 150 million cars per night!
15) With a one-year waiting list for new Model X orders, Tesla does not need to advertise. This is one of the biggest expenses of the Detroit Big Three.
16) Oh yes, the car is good for the environment, a big political issue for at least half the country.
No machine made by humans is perfect. So in the interest of full disclosure, here are a few things Tesla did not tell you before you bought the car.
1) There is no spare tire or jack, just an instant repair kit in a can.
2) The car weighs a staggering 3 tons, so conventional jacks don?t work. Lithium is heavy stuff, and the electric rotors and stators on the wheels that generate power weigh 250 pounds each. This means you only get 12,000 miles per set of tires.
3) The car is only 8 inches off the ground, so only a scissor jack works.
4) The 21-inch tires on the high performance model are a special order. Get a blowout in the middle of nowhere and you could get stranded for days. So if you plan to drive to remote places, like Lake Tahoe, as I do, better carry a 19-inch spare in the ?frunk? to get you back home.
5) If you let some dummy out in the boonies jack the car up the wrong way, he might puncture the battery and set it on fire. It will be a decade before many mechanics learn how to work with this advanced technology. The solution here is to put a hockey puck between the car and the jack. And good luck explaining what this is to a Californian.
6) With my Nissan Leaf, I always carried a 100-foot extension cord in the trunk. If power got low, I just stopped for lunch at the nearest sushi shop and plugged in for a charge. Not so with Tesla. You are limited to using their 20-foot charging cable, or it won?t work. Tesla says this is because they can?t risk the variation of voltage that comes with a long cable.
The investment play here is not with the current Model S1, which is really just a test bed for the company to learn how to execute real mass production. This is why the current price/earnings multiple is meaningless. Battery technologies are advancing so fast now, that range/weights are doubling every four years.
And guess what? Detroit is so far behind developing this technology that they will never catch up. My guess is that they eventually buy batteries and drive trains from Tesla on a licensed basis,
as Toyota (for the RAV4) and Daimler Benz (for the A Class) already are.
Detroit?s entire existing hybrid technologies are older versions similarly purchased from the Japanese (bet you didn?t know that).
All of this will boost the shares from the present $250 to over $500. I would say $1,000 a share, but I don?t want to give it the Apple (AAPL) curse. So if you can use the current weakness to buy it under $250, you will be well rewarded.
You might also go out and buy a Model S1 for yourself as well. It?s like driving a street legal Formula 1 racecar and is a total blast. Just watch out for soccer moms driving Silverado?s speaking on cell phones.
Ouch!
The Car Factory Formerly Known as GM
?Tesla (TSLA) is running faster than everyone else, so it?s hard to see how others can close the gap. I think the market smells this,? said Colin Rusch of Northland Capital Markets, and early investor in the Tesla IPO.
Global Market Comments
October 5, 2015
Fiat Lux
Featured Trade:
(FRIDAY, OCTOBER 23 INCLINE VILLAGE, NEVADA STRATEGY LUNCHEON),
(IS THE US HEADED FOR NEGATIVE INTEREST RATES?),
(TLT), (USO), (CU),
(CHINA?S LONG AND WINDING ROAD),
(FSLR), (STPFQ), (YGE)
iShares 20+ Year Treasury Bond (TLT)
United States Oil (USO)
First Trust ISE Global Copper ETF (CU)
First Solar, Inc. (FSLR)
Suntech Power Holdings Co. Ltd. (STPFQ)
Yingli Green Energy Holding Co. Ltd. (YGE)
The bond market (TLT) thinks so.
The commodities markets (CU) think so.
The oil market (USO) absolutely thinks so.
Who am I to argue?
The disappointing August nonfarm payroll certainly took the wind out of the sales of stock market bulls and bond bears.
It also totally vindicates the decision by the Federal Reserve not to raise interest rates on September 17.
It all becomes so clear now, like when the morning fog lifts here in San Francisco. The things they were seeing and we weren?t were both important, and dangerous.
Who needs more expensive money anyway when wage growth is zero and the rate of hiring is falling?
Now that my former professor and friend, Janet Yellen, has Beijing, Tokyo, and Berlin on her speed dial, global economic turmoil is looming larger than ever.
And what did former Treasury secretary Larry Summers say about the whites of inflation?s eyes? I ain?t seeing no white eyes here.
And he?s not my friend. I doubt he has any.
Fed funds futures are now indicating that the Fed will not raise interest rates until March, 2016.
Wasn?t there a newsletter out there somewhere in the void that predicted all the way back in January that there would be no interest rate hike in 2015 (click here)?
It was certainly a challenge to put lipstick on this pig.
Headline unemployment stayed nailed at 5.1%. But private sector employment plunged to only 118,000.
Health care added a robust +34,000 jobs, but we knew that was coming. Professional and business services contributed +31,000, and retail +21,000.
But mining really took it in the shorts with a loss of -10,000. No wonder the stocks are in the dump. The labor participation rate hit the lowest level since October, 1977 at a basement 62.4%.
One bright spot was that the broader U6 measure of ?discouraged workers? dropped to an even 10%, the lowest since May, 2008.
Which all raises a frightening prospect. What if we go into the next recession with interest rates at zero? Janet will then have to reduce interest rates to negative numbers to stimulate the economy.
If the Fed doesn?t raise interest rates soon, it will have no other choice than to do the unimaginable, once we hit the next rough patch.
But then, there have been a lot of unimaginables lately.
Japan and Europe have had negative interest rates until recently, so why not us?
In fact, friends of mine at the Fed tell me that one voting member was already pushing for negative overnight rates at their September 17 meeting.
And we were expecting them to raise rates?
I don?t think it will get to that because of what I call ?The Great Contradiction?, or better yet, ?The Great Conundrum?.
Yesterday?s red-hot sales figures indicate that the US auto industry is headed for a blistering 18 million annual production rate.
The housing market is on fire. I just went to some open houses in the neighborhood today, and the listing agents tell me they are blown away by the incredible number of 30 something tech workers buying $2 million houses for cash!
Early signs of wage hikes are popping up everywhere. There is a shortage of 50,000 truck drivers. Fulfillment centers, such as at Amazon (AMZN), in nearby Nevada are having difficulty finding minimum wage workers.
It had to happen eventually.
And guess who got a job offer the other day?
A local charter air service called and asked if I wanted to go back to work as a pilot!
It seems my name still appears on a list of local commercial pilots. The pilot shortage has become so severe airlines have taken to cold calling lists to find them. It was about flying around someone ?important.?
Well HELLOOOO!
I?m told that the pilot situation in China is far worse, now that they have a staggering 1,000 wide body jets on order.
The last time I said ?Yes? to an offer like that was to the United States Marine Corps. in 1990. My back still hurts from that one (semper fi).
But wait! There?s more!
Driving back from Lake Tahoe in August, I was struck by the number of out-of-state plates pulling U-Haul trailers over historic Donner Pass.
Some 350,000 are moving to the Golden State this year, chasing our newest gold rush, the much-desired high paying technology jobs of the San Francisco Bay area.
It is a migration of epic proportions, much like the influx of Oakies we saw arriving here during the Great Depression (think Grapes of Wrath).
I know of a dozen structures under construction in the San Francisco Bay area that will employee more than 10,000 each (the new Apple headquarters is a big one)!
I?m sorry, but none of this squares with a 2% GDP growth rate, and an August nonfarm payroll of 142,000.
Has the American economy really become that bifurcated?
Is the robust strength in California being horribly offset by weakness in Kentucky (coal), North Dakota (oil), Iowa (agriculture), Wyoming (mining), and Texas (more oil)?
Do we have one good economy and one bad economy all mixed up together in the data, obscuring the true picture?
The problem for we traders is that the government numbers usually reflect actual business conditions three to six months late. Yet, that?s all we have to go by, beyond what we witness with our own two eyes.
So what are these anecdotes telling us that the government data isn?t?
That a summer slowdown inspired by international economic turmoil is already in the rear view mirror, and that the next round of business data will be positive.
That means up for stocks for the rest of the year, and down for bonds, for the rest of 2015.
Gee, that short position in Treasury bonds I strapped on during Friday?s chaos is suddenly feeling pretty good.
Maybe I should pile on more?
In the wake of the latest round of pro democracy demonstrations in China, I spent the evening speaking to Gao Jie, a Beijing civil judge who left the bench to join China's growing environmental movement when her kids came home from school one day coughing and wheezing.
You only have to inhale in the capitol city these days to understand that they have a huge problem there. It?s a lot like Los Angeles was 50 years ago before the environmental movement arrived here. I remember it all too well.
One of the dirty little secrets of international trade for the last three decades has been the offshoring of high polluting industries from the US and Europe to China, which then vociferously complain about the emerging country's toxic environment.
Much of the Middle Kingdom's record carbon emissions these days have been imported from the West. 'Cancer villages' are now proliferating throughout the landscape.
China gets 80% of its power from coal, compared to only 36% in the US. As a result, scientists figure that China became the world's largest emitter of CO2 in 2006.
The central government is now asking the provinces to achieve both GDP and energy conservation goals at the same time, a difficult task at best.
Government policy dictates that air conditioners only kick in at 79 degrees. If you think that went down well, try spending a summer in Beijing sometime.
It is also pushing headlong into alternative energy, is already the technological leader in key areas like wind, and has an eye to exporting low cost platforms to the US.
China is also having Phoenix based First Solar (FSLR) build the world's largest thin film solar power plant in Western China, which, it turns out, looks a lot like Arizona.
The mammoth, 25 square mile facility will supply power to three million homes.
China's problems give one an inkling of how we might have ended up if we hadn't passed the Environmental Protection Act in 1970.
I first visited China during the Cultural Revolution, when they doused piles of bodies of those who died in the famine with kerosene and burned them, and anyone educated had to endure being paraded down a street in a dunce cap.
I had to pinch myself after seeing a sophisticated and well-educated woman like Gao Jie openly pursue her liberal goals, unfettered by a totalitarian regime.
Global Market Comments
October 2, 2015
Fiat Lux
Featured Trade:
(OCTOBER 7 GLOBAL STRATEGY WEBINAR),
(PETER F. DRUCKER ON MANAGEMENT),
(THANK GOODNESS I DON?T LIVE IN SWEDEN), (EWD),
(PLEASE USE MY FREE DATA BASE SEARCH)
iShares MSCI Sweden (EWD)
Global Market Comments
October 1, 2015
Fiat Lux
SPECIAL BIOTECH AND HEALTH CARE ISSUE
Featured Trade:
(FRIDAY, MAY 15 SAN FRANCISCO STRATEGY LUNCHEON)
(BIOTECH AND HEALTH CARE STOCKS TO BUY AT THE BOTTOM),
(GILD), (AMGN), (BIIB), (REGN), (HCA),
(CELG), (AGN), (XLV), (IBB),
(KEEP GILEAD SCIENCES ON YOUR RADAR)
Gilead Sciences Inc. (GILD)
Amgen Inc. (AMGN)
Biogen Inc. (BIIB)
Regeneron Pharmaceuticals, Inc. (REGN)
HCA Holdings, Inc. (HCA)
Celgene Corporation (CELG)
Allergan plc (AGN)
Health Care Select Sector SPDR ETF (XLV)
iShares Nasdaq Biotechnology (IBB)
I am going to continue to use this correction in the stock market as an opportunity to put new names in front of you for inclusion in your investment portfolio.
That way, when the markets turn, you can strike with the speed of a rattlesnake in returning to a ?RISK ON? posture.
Major turnarounds are not the time to engage in deep, fundamental research. It is when you should be pulling the trigger on Trade Alerts, which you have wisely spent time lining up.
This brings me back to my three core sectors for long-term investment, technology, health care, and energy. For a four cyclical play, you can add the financials as an interest rate play.
Which brings me to one of my perennial favorites, Gilead Sciences (GILD). Long-term readers will recall this big momentum name, which I first recommended last December at $75 a share. It hit $125 in June, last week, and could fly as high as $200 in 2016.
Obamacare is proving to by one of the greatest windfalls in the history of the health care industry. More than 45 million new individuals now enjoy government guaranteed payments for health care services for the first time. In addition, millions more are signing up for private insurance.
One of the cleanest shots at this new profit stream is Gilead Sciences. The ticker symbol seems so appropriate for this new Golden Age for the health care industry.
(GILD) is an American biotechnology company that discovers, develops and commercializes treatments for a range of different diseases. The California based firm initially concentrated on antiviral drugs to treat patients infected with HIV, hepatitis B, or influenza.
In 2006, Gilead acquired two companies that were developing drugs to treat patients with pulmonary diseases.
These are all expected to be huge growth areas in the future, and the company has become a favorite of hedge fund traders. Both the shares and the sector have been on fire all year.
Don?t rush out and buy (GILD) today. Rather, I?d wait until the last of the sellers get flushed out in this correction, which will probably not be until well into October.
Take a look at the charts below, and they suggest that the S&P 500 could reach as low as 1,976, or down another 160 handles from here.
That will give us another top to bottom pullback of 12.52%, which certainly qualifies as a healthy correction. This will be the time to load the boat with (GILD).
Keep close tabs on your text message service and email, and I?ll let you know when it is time to lay your cajones on the line once more.
Yes, It?s $1,000 a Pill
Global Market Comments
September 30, 2015
Fiat Lux
Featured Trade:
(OCTOBER 12 PORTLAND, OREGON GLOBAL STRATEGY LUNCHEON),
(CARL ICAHN IS AT IT AGAIN),
(LNG), (FCX), (AAPL), (HYG), (JNK),
(SIGN UP NOW FOR TEXT MESSAGING OF TRADE ALERTS)
Cheniere Energy, Inc. (LNG)
Freeport-McMoRan Inc. (FCX)
Apple Inc. (AAPL)
iShares iBoxx $ High Yield Corporate Bd (HYG)
SPDR Barclays High Yield Bond ETF (JNK)