Friday, February 26, 2021

Video Obscura alert: The Fabulous Baron Munchausen (because the Amazon Prime recommendation engine sucks)

... and HBOmax is worse.

Don't get me wrong Amazon's catalog is good and HBOmax's is great but I don't recall ever actually watching a movie or TV show their algorithm picked for me.

Instead, I get most of my recommendations when I Google a film or a show and it pops up in the streaming options. Notably Kanopy is never listed, making me wonder if there's an element of pay-to-play involved.

My latest discovery is this hard to find classic from Karel Zeman, currently on Amazon.

Thursday, February 25, 2021

Controlling the boards of both companies may have helped with the negotiations

 One of the essential texts for understanding how Musk became the world's richest man is this long-form expose by Bethany McLean (best known for her reporting on Enron). We've talked about this piece before, but it's worth revisiting given recent events.

Remember Musk's fortune is almost entirely based on the sudden spike in Tesla's stock price and his holdings in the company (though the bonus deal didn't hurt). I'm not a finance guy, so I may be missing something, but it appears that a big chunk of those holdings came from this deal (keep in mind, Tesla was trading around $40 at the time of the merger. As I'm writing this it's at $742).

 Emphasis added.

SolarCity was founded by two of Musk’s cousins, Lyndon and Peter Rive, who grew up with him in South Africa. Musk, who put in $10 million, was the largest shareholder and chairman of the board. The initial idea, the Rives explained, was not to be a manufacturer but rather to control the entire consumer experience of going solar, from sale to installation, thereby driving down costs. For a time, SolarCity was a hot stock, growing almost tenfold from its public offering in 2012 to its peak in early 2014.


 But the initial success of the company’s stock masked some difficult realities. SolarCity’s business model was to front the costs of installing solar panels and allow homeowners to pay over time, which created a constant need for cash. That required raising money from outside investors, often big banks, who were then entitled to the first chunk of the payments homeowners made—leaving SolarCity in a never-ending scramble to raise more debt. The real engineering that took place at SolarCity, in short, was financial, not environmental.

On the consumer side, SolarCity was plagued by complaints about misleading sales tactics and shoddy installations. As the problems mounted, some workers began to feel manipulated by the company’s talk about being a force for good in the world. “I turned a blind eye to a lot of the silliness because of the idealism,” says one former senior employee. “I don’t know when the Rubicon was crossed, but there were micro-crossings every day.”


On October 28, 2016, just before shareholders were set to vote on the acquisition of SolarCity, Musk strode onto a platform erected on the set of Desperate Housewives at Universal Studios’ back lot in Los Angeles. He talked about the existential threat presented by global warming and the desperate need for sustainable energy. Then he gestured to a group of houses that had been set up around him. They might look normal, he said, but they actually featured a revolutionary new product called the Solar Roof—shingles that would last longer and cost less than a regular roof, even before factoring in electricity. Tesla expected production to begin the following summer.

The next month, shareholders approved Tesla’s acquisition of SolarCity. “Vote tally shows ~85% of unaffiliated shareholders in favor of the Tesla/SolarCity merger!” Musk tweeted. The deal doubled Tesla’s debt load, but it was good for Musk, who converted his stake in SolarCity into more than $500 million in Tesla stock. By preventing SolarCity from collapsing, he also shored up his most valuable asset: investor faith in his own genius. If any piece of his empire had faltered—if Musk were shown to be fallible rather than superhuman—it would have cast doubt on the narrative that enables him to raise cheap capital for his money-losing enterprises.

“Thanks for believing,” Musk tweeted to his shareholders.

That October, as Musk was making his pitch about the Solar Roof, a former Fortune 500 executive was watching it online at a friend’s barbecue. The former executive, who had spent years researching solar technology, understood what it took to make the Solar Roof work—and he was confident that Musk hadn’t figured it out. “He spewed total BS,” says the executive, who asked not to be identified. “I was flabbergasted. I was convinced in the moment that the shingles were fake.”

Adopting the Twitter handle @TeslaCharts, the executive began drawing on his Ph.D. in science, and his background as a financial analyst, to share infographics that detailed Musk’s overreach. His follower count mushroomed, and he became a core member of a group of outspoken Tesla critics who go by the Twitter hashtag #TSLAQ—Tesla’s stock symbol followed by the Q that companies pick up when they are delisted due to bankruptcy.

Many of them, in fact, were first drawn to Tesla by SolarCity, with its pile of debt and mountain of losses. “If it weren’t for SolarCity, #TSLAQ wouldn’t exist,” says @TeslaCharts. He points out that Musk faced a catch-22 of sorts: If he hadn’t bailed out SolarCity, his whole debt-laden empire might have cracked. Yet without the bailout, Tesla would be far more healthy. “When the history of Tesla is written,” he says, “the acquisition of SolarCity will be seen as the moment where the narrative took a decisive turn.”

Others shared @TeslaCharts’ suspicions about Solar Roof. Robinson, who covers SolarCity for the Buffalo News, had flown to Los Angeles for Musk’s presentation. Afterward, he asked an engineer for the company if the tiles Musk had pointed to were real. “Oh no,” the engineer replied. “These are dummies. We just popped them up here to show you.” Robinson wasn’t outraged—it made sense that Musk would show a prototype—but he took note of the contrast between the rhetoric and the reality. “They made it sound like they had figured out how to get it to work,” he says.

And Tesla continued to make it sound that way. In early 2018, the company announced that production of the Solar Roof had begun in Buffalo. That fall, Tesla told Bloomberg News it was “gearing up for tremendous growth in 2019. We have a product, we have the customers, we are just ramping it up to a point where it is sustainable.”

But in its quarterly letter, a month earlier, Tesla had confessed that the product wasn’t actually ready yet.
“We continue to iterate,” the company wrote. In a legal filing, Tesla acknowledged that the much-hyped technology it had acquired from Silevo wasn’t all that it was cracked up to be. And last May, an investigation by Reuters revealed that most of the solar cells being produced in Buffalo were being sold overseas, not used in the Solar Roof, because demand was so low.

Customers who tried to purchase a Solar Roof took to Twitter to share their horror stories: Kevin Pereau, a California homeowner, said he paid a deposit of $2,000 to have a Solar Roof installed more than two years ago—then never heard from the company again. He got his money back only after he started tweeting at Musk every single day.

Musk, meanwhile, is still making promises. Last March, he proclaimed that 2019 would be the “year of the Solar Roof.” In late July, he tweeted that Tesla is “hoping” to turn out 1,000 Solar Roofs a week by the end of the year. But even onetime believers have become doubters. The MIT Technology Review, which included the Solar Roof in its list of 10 “breakthrough technologies” in 2016, now calls it a “flop.” In a recent analyst note, JP Morgan warned that Solar Roof will be a “niche” product at best. Musk has “sustained a kind of Kabuki theater in which the Solar Roof ramp is always imminent, but never here,” wrote investor John Engle, a #TSLAQ member.

Wednesday, February 24, 2021

Covid-19 updates

This is Joseph

I wanted to highlight two recent covid-19 articles. The first is about vaccine gloom and doom. There are many dangerous infectious diseases that have been banished by strong public vaccination programs. Here is a good example:

Measles. Has a 25% hospitalization rate and 1-2% case fatality rate (and not a lot of occult infection). That is pretty similar to the US case fatality rate for covid-19. The R0 reported for measles varies a lot (as we expect given how the context of R0 changes) but is pretty consistently reported as > 10 and commonly said to be between 12 and 18.  The MMR vaccine has similar efficacy for measles as the mRNA vaccines do for covid-19. There is some age dependence, which makes it hard to be sure of the actual effectiveness in practice, but it is not any different than ranges seen for different vaccines strategies for covid-19. The median R0 for covid-19 has been estimated as 5.7, which seems high but is a good scenario for comparing to measles. 

Do we fear measles enough to go into lockdown? I am not saying we can't learn from this and improve a lot of public health practice but I agree that it doesn't seem to match this message:

But the message from public health officials, the framing of it by the media, strikes me as bizarrely dour. It’s basically something like, “don’t expect to get anything like your normal life back for a very long time, because the vaccine isn’t a magic bullet.”

This is success. 

The second item I want to highlight is this article from Marginal Revolution looking at how early adopters are getting empirical data as to AZ vaccine effectiveness. It is a point that is getting old hat by now, but it involves the question of how fast to authorize vaccines that appear to work quite well. Matt Yglesias did a deep dive into this question and basically concluded that the impediments seem to be process and not anybody disbelieving that the vaccine would be effective. As the results from early adopters come in (see above), this only strengthens decisions by countries like denmark to try.

And this really gets to one of my main points: is this an emergency or isn't it? I think that it is, and that would suggest moving quickly to mitigate covid-19 infections. Vaccination was heralded as the tool of choice from the beginning -- why does Health Canada delay? The vaccine has been under rolling review since October of last year and as of today (Feb 23 is the date of authoring the post) it is still not an approved therapy. As of today, 2.4% of adults have been vaccinated in Manitoba. Compare that to Florida, with 6.9% fully vaccinated and 13.4% with 2 doses. Canada looks worse when you realize that Manitoba has 25,699 people with two doses and only 12, 572 with one dose. This is not picking on Manitoba, I will note that Nova Scotia lags behind them by quite a bit, as do Ontario and Newfoundland.  

I understand the need for safety and evaluation of therapies, but I wonder what is the concern that is slowing approval of vaccines once the phase 3 trials are completed? 

Tuesday, February 23, 2021

"Musk is not in it for the money."

I need to come back to this article because there's a lot of wrong packed in here but this one brief section needs to be singled out because it spells out one of the fundamental lies upon which the myth of Elon rests. It is a lie that is completely transparent and yet persists to this day.

David Roberts writing for Vox:

Musk is not in it for the money. If all he wanted was money, he wouldn’t keep risking enormous sums of it on schemes that nine out of 10 people predict will fail.

Instead, as he’s been very forthright in saying, he’s trying to address what he sees as humanity’s most pressing problems. 

Even by 2016, it was obvious that Musk had gotten extremely rich from government subsidies and by playing the game mainly with other people's money. Well over a year before the Roberts piece came out, the LA Times laid out in great detail the dependency on taxpayer money while the then upcoming SolarCity merger looked like (and turned out to be) an attempt to have Tesla stockholders save Musk's dying company. And this wasn't the first time he had used investors' money from another company to bail out his ill-conceived solar business.

Musk has now become the world's richest man largely by manipulating stocks, using questionable accounting practices and flat out lying about his products and paradoxically he's gotten away with it in no small part because the standard narrative holds that his motives are pure and he's "not in it for the money."

I suppose we're lucky. Imagine the level of criminal behavior we'd have seen  if he were just motivated by greed.

Monday, February 22, 2021

FT Alphaville: "We kind of have the feeling that Mirabaud has someone in mind, but we can’t for the life of us think of a large listed company that ticks these boxes. We are stumped."

I've linked to this article before but only in a brief post. It needs to be read in full (in part to appreciate the level of snark in the paragraph I took the title from). Campling's list of red flags is devastating. I limited myself to a few (13. in particular, has become more relevant) but every one of them is damning.

Jemima Kelly writing for FT Alphaville:

Now that Wirecard has been proven once and for all to be a massive fraud and is rapidly dying away into oblivion, many of us — and you, we’re sure — have been thinking about where the next big corporate scandal might come from.

Mirabaud Securities, the equity research house whose analyst Neil Campling stood out for being the only person to put a price target of zero on the German payments processor, have been thinking about this too.

They’ve come up with 20 warning signs that they are looking out for in trying to determine the next “Big Disaster”. They are as follows:

1. Massively promotional CEO who actively looks for publicity and spends a lot of time courting Wall Street/investors etc and is very media savvy

2. Huge CEO/Senior Management compensation package NOT tied to cash flow or Earnings but just to Sales and/or the stock price, creating the possibility of egregious wealth creation if the stock goes up a lot. Huge pledging of collateral by the CEO in return for margin loans to fund a billionaire lifestyle

3. Management compensation generally way out of line with peers despite notably less profitability

4. Glossy future projections that have a habit over a long period of being proven to be too optimistic

5. Questionable product quality, ie defects (boon??) or debatable technological leads over similar products


13. Dislike of Hedge Funds

14. Possible Narcissistic Personality Disorder on the part of the CEO. Additional points if he/she uses Twitter a lot

15. Large cabal of outcasts/weirdos/bloggers/Twitter groups who have been saying for years that everything is amiss but just get a lot of criticism because the stock keeps going up ergo they must be idiots


19. Weak Board, preferably also small and ideally in hock in some way to the CEO, who therefore do his/her bidding. Helps if some of them are related physically to the CEO.

20. Gullible media, gullible analysts and dozens of paid bloggers who produce Price Targets out of nowhere based on “Option Value” or put another way products that are at least 5 years away from having any material impact.

 Alphaville has a great record of calling a spade a spade but it's important to note that FT is not outside the mainstream on this. Pretty much every serious, sober analyst and business journalist who has done deep dive into Tesla has walked away telling basically the same story.

 The company was wildly overvalued when this post came out in June of 2020, since then it has more than tripled. During that time the fundamentals have only gotten worse. Waymo's lead in self-driving technology continues to widen. VW has pushed Tesla to second place in European EV sales and market share is likely to shrink further as the other major car makers transition to electric. The picture looks even worse when you consider what EV competition will do to regulatory credits, which are the only thing that kept Tesla from losing money in 2020.

At the risk of over-sharpening the edge, the most responsible and respected voices such as the Financial Times have been warning us (in some cases for years) that Elon Musk is looking more and more like a 21st century Match King. At this point, the biggest question is why aren't more people listening?

Friday, February 19, 2021

"7 minutes of terror"

There's a huge disconnect in our discussion of manned space travel. We've grown accustomed to vague promises about Martian cities just around the corner, but in the real world, our best engineering minds have never landed anything larger than a car on Mars and this is the least risky way they've come up with to do it.

Of course, these engineers are working with serious cost constraints. If we made an Apollo-level commitment, we could get an expedition there and back. If we made a WWII-level commitment, we could probably maintain a mostly self-sustaining human presence, but those kinds of commitments would violate the other essential aspect of the fantasy, that this wonderful future will be quick, easy, and most of all, cheap.

The real thing, like the Perseverance mission, is slow, difficult and expensive, but far cooler than the make-believe alternative.

Thursday, February 18, 2021

I could put a positive spin by saying that I agree with Musk that we should be pursuing better tech than SpaceX rockets

While the event itself was trivial, this provides a useful example of how journalists continue not only to repeat but to add to the mountain of bullshit that supports the myth of the real life Tony Stark. Though the tweet Musk was replying to has been deleted confusing matters a bit, this seems to be the sequence:

1. Musk responds to a tweet about an article on nuclear rockets with a vaguely positive comment.

2. He apparently didn't read article (at least not in depth) nor is he well versed on the topic. The "would be" suggests he didn't realize the research was ongoing. More telling is his lack of comment on the greatly reduced role SpaceX would play in a world of interplanetary nuclear thermal rockets. He's talking about a technology that would make his "starships" obsolete for anything more than ferrying (perhaps limited to large cargo if we continue to see advances in air-breathing rockets), but the apparent contradiction doesn't seem to occur to him.

3. The "would be a great area of research" tweet becomes the headline "Elon Musk Proposes a Controversial Plan to Speed Up Spaceflight to Mars."

This constant nudging toward myth is the original sin of the Tesla bubble, why it started and how it continues to grow despite the accumulation of ever more damning evidence. Even respectable publications go along with at least the minor lies and distortions. They describe Musk as an engineer/inventor. They call him a founder of PayPal and Tesla (both of which predated Musk's involvement). They give him credit for introducing the hyperloop and ignore the fact that his proposal was for a vactrain that traveled on air-bearings, an idea so impractical that none of the "hyperloop" start-ups have even considered it. 

Elon Musk is the world's richest man because he convinced a lot of investors that he was a genius without living equal who was personally about to invent all sorts of wonderful, world-changing technology. He convinced them with the help of a large number of journalists who cared more about good copy than good reporting.

Wednesday, February 17, 2021

Matthew Yglesias -- "Approve the AstraZeneca vaccine! Yes, their trial was messed up. But it clearly works."

 We will need to more about this.

Meanwhile, there is a plant up and running in Baltimore manufacturing a vaccine that was developed by an Oxford University research team in partnership with AstraZeneca. It’s cheaper and easier to manufacture than the mRNA vaccines developed by Pfizer and Moderna. The World Health Organization’s expert panel says the vaccine should be used in adults of all ages. Given that the United States has access to a considerable supply of more effective mRNA vaccines, I would be more cautious than them and continue vaccinating seniors with the Pfizer/Moderna products but start letting non-seniors who are impatient for vaccination get AstraZeneca’s shot.


I do all that throat-clearing because spending last week arguing on the internet made it clear to me that a lot of the people pushing back against fast approval of the AZ vaccine are fundamentally process-trusters who are out here to defend the FDA qua FDA, which I think is leading them to miss the forest for the trees.

For example, nobody on epidemiology Twitter seems to believe that the United Kingdom or European Union regulators are making a huge mistake by authorizing the vaccine. And that’s not because epidemiology Twitter is blind to events occurring outside the United States. People who were very critical of Sweden’s “herd immunity” approach to Covid, or the UK’s absurd initiative to pay people to go eat in restaurants have not been criticizing governments on the other side of the pond for using the AstraZeneca vaccine.

Dr. Anthony Fauci, the patron saint of Trust The Experts sentiment online, has talked about the AstraZeneca vaccine a bunch and is not expressing doubts about its safety and efficacy.


For better or worse, the current vaccination effort is not some kind of all-hands-on-deck thing where every qualified person is giving out shots. And while the AstraZeneca vaccine appears somewhat less potent than the mRNA vaccines, it only requires normal refrigerator levels of refrigeration to stay viable. This means it could be delivered to pharmacies and doctors’ offices around the country, and given to people under 65 through those distribution channels in just the way we do flu shots. Retail chains could even contract with pharmacies to have personnel come into the store and vaccinate their staff.

We normally do 2-3 million flu shots per day during peak vaccinations without any kind of emergency mobilization. That would be a game-changingly large increase in vaccine throughput.


Biden would do well to be a little less literal in his “learning the lessons of 2009” and instead remember the point about urgency.

Unless someone at the FDA can explain to him in a compelling way that they have actual doubt about the safety and efficacy of the vaccine — as opposed to quibbles about the process or a scientific interest in seeing data from a better-designed trial — he should install a commissioner who’s prepared to authorize it for emergency use on the basis of the existing data. A regulatory system designed to protect us from profit-seeking quacks peddling fake medicine is a perfectly reasonable idea, but it doesn’t apply to this situation, and it’s not the job of political leaders to make that wide-ranging assessment.



Tuesday, February 16, 2021

The one Tesla metric that feels the most Ponzi adjacent


Clearly Tesla is not a Ponzi scheme (Ponzis pay dividends), but that doesn't mean that Elon Musk isn't using some similar methods to achieve a level of success that the 1920s con artist could only dream of.

Two of the defining aspects of a Ponzi scheme are:

1. Claim to have discovered a fantastic investment opportunity;

2.  Tell investors you are putting their money into that investment when all of it is actually going somewhere else.

Part of the genius of the approach is that discussions about the feasibility of the proposed investment can distract from the fact that the investment isn't being made. It was obvious even at the time that Charles Ponzi wasn't trading international reply coupons on any serious level, but the details of the imaginary arbitrage scheme was so intriguing that other questions were ignored.

The valuation of Tesla has now reached the point where the bulls have had to abandon any arguments claiming that the price can be justified by future automobile sales even assuming market dominance. The new narrative is that cars are just the beginning, that under Musk, the company is on the verge of world-changing breakthroughs in fields including but by no means limited to robo-taxis, AI, battery technology, HVAC, lithium mining, and that old standby, flying cars.

If these revolutionary just-around-the-corner technologies are the IRCs of Tesla, how can we check to see if the investments are actually being made? 

Let's start with a little context.

 Six Car Makers Make the List of Top 20 R&D Spenders

Volkswagen poured $12.1 billion into research and development in 2017, a decline from $12.5 billion last year, but still propelling the German automaker into fifth place in a ranking of global companies by their R&D expenditures.

Amazon stood at the top of the heap with the online retailer's $16.1 into R&D, according to the Global Innovation 1000 report from PricewaterhouseCoopers. 

Number 11, Toyota's R&D spending in 2017 came to $9.3 billion, dropping from $9.5 billion in 2016.

In the 13th slot, General Motors devoted $8.1 billion to R&D this year, up from $7.5 billion last year.

Next up among automakers, Ford held the 15th spot, with $7.3 billion in R&D spending, an increase from $6.7 billion in 2016.

Daimler's $6.9 billion (up from $6.3 billion in 2016) put it in the 16th slot, and Honda's $6.2 billion had it near the bottom, ranking 19. It spent $5.9 billion on R&D in 2016.

Here are the top 25 innovators from that PwC report. The automotive industry is well represented.

But if you're looking for Tesla, you'll have to scroll down a bit.


 Of course, Tesla is more profitable now, its value has increased by more than an order of magnitude and its agenda is far more ambitious than it was two years ago. Here's how the company reacted.

There is a big jump, but it's the same one shown in the PwC report. (I assume the 2018 in the innovation study refers to the report date.) Tesla R&D spending has been largely flat for the past four years, still a fraction of any of its major competitors.

You can make arguments about the R&D budget not being that small relative to revenue, but if we start judging Tesla on those terms, it becomes impossible to justify the valuation and if you assume the company really is working on all those spectacular breakthroughs, it becomes impossible to explain the R&D investment.  

We've spent a lot of time asking can Elon Musk change the world with Tesla. Perhaps we should have been asking is he even trying?

P.S. In unrelated news...

Musk Nears Second Part Of $55 Billion Bonus Package
Isabel Togoh
Updated Jul 22, 2020, 11:14am EDT

Tesla CEO Elon Musk is close to securing the second tranche of his $55 billion bonus package following the company’s astronomical share price rise, which if reached, will see him to gain an extra $2.1 billion through a newly released 1.69 billion stock options.

Monday, February 15, 2021

Ramping up for some Tesla posts

Musk and the Musk adjacent stories have started to appear on the horizon so I thought I'd open the week with some appropriate tweets.


Non-enforcement of regulations is a very big story across the economy. Tesla figures prominently.

Russ Mitchell hit on this as well/

When Musk goes off script like this he delights his fans and no doubt horrifies his (real) engineers.

ARK has also been an interesting player in this saga.

Since he's no longer taking calls from Trump, he has some time free.


 This last one hits what might be the most telling metric of all. Despite having by far the biggest market cap and claiming much more ambitious technological goals, Tesla has a fraction of the research and development budget of VW or GM or any of the other major car companies. They aren't even trying.

Sunday, February 14, 2021

Terror attacks

 This is Joseph. Spoilers for the Expanse below. 

There was a good article on the Expanse from LGM:

Rather, the impression formed is that the show’s writers wanted to write a post-apocalypse, and they wanted to write 9/11, and never stopped to consider that these two stories don’t mesh together very well. And conversely, the extent of the devastation on Earth makes a lot of the handwringing about the proportionality of Earth’s response seem baffling—this isn’t an isolated terrorist attack; it’s an act of genocide. Given that most of Belt’s military factions fall in behind Inaros, it’s hard to argue with the belief of hardliners in the Earth government that they are at war with the Belt, and that the rules of engagement should reflect that.

This is a very good point and it gets at the tonal dissonance of the last few episodes of the season. The question of whether Earth is over-reacting seems a lot more nuanced than the show would lead you to believe. First, the attack on Earth was mostly stopped (only 3 of 9 rocks hit) and the consequences are a planetary level catastrophe. This is a potentially an extinction level event for Earth. 

Second, we later see the stations that are supposedly civilian launching attacks on Earth ships and the Belter government having absolutely no interest in finding the criminals who did the attack.  

I think that this take is a good one and one of the few places that the season mis-steps. The campaign of Marcos Inaros is a great illustration of people being placed in morally ambiguous spots and is best illustrated by the compelling arc of Camina Drummer, who has to pick one of two completely unappealing sides (the colonial power or the terrorist). But that the focus of Earth would be on peaceful resolution seems unlikely, especially as they are losing direct naval battles with the Free Navy with the help of Belter settlements. 

What I think is actually missing is a Belter view that shows struggle with being caught between Marcos and Earth. Sure, that is the point of Drummer's arc. But there isn't a high level political discussion (likely because of Fred's death) as to how to deal with the terrorists internally. It is that form of state capacity that actually generates the best chance of peace -- terrorists are bad and nobody will ignore repeated attacks of this magnitude (civilian killings in the billions, direct attacks on naval assets). The belt really needs to have a response to avoid total war and that is the piece that is really missing from the discussion on Earth. Who are the political factions that they can appeal to in order to create a actual viable peace process? 

This really is the part of the story that makes it hard to grapple with the current approach as it seems inevitable that the current group is unlikely to settle for peaceful co-existence. 

Friday, February 12, 2021

Something new in marketing

One of my favorite advertising genres is the "We don't suck anymore" campaign. Though I can't find any examples online, sometime around the late 90s (around when they dropped fried chicken), Hardee's ran a series of talking head "give us another try" ads where actors playing customers described how they had written off the chain (sometimes mentioning the smell of the restaurants) but had dropped in recently and it wasn't that bad. Jack in the Box took a humorous but similar approach after its 1993  E. coli outbreak.

Now we have a new variant with a campaign built around how bad the General's ads used to be.

There's a challenges in building a campaign around how inexpensive your product or service is without having your ads look cheap. I'll bet good money that a market research team recently brought that point home to management at the General.

Thursday, February 11, 2021

"You knew this day was coming"

The already complicated accounting and business logic of Tesla is about to get even weirder.

From Grant in the WSJ:

Tesla Buys $1.5 Billion in Bitcoin: What Could Possibly Go Wrong?

GameStop mania was a wake-up call, but now the capital markets have truly reached ludicrous mode.

Electric-car maker Tesla said in a securities filing Monday that it has purchased $1.5 billion worth of bitcoin and that it expects to begin accepting payment in the cryptocurrency for its products in the future. Tesla shares and bitcoin both traded higher after the announcement. This follows social media posts by the auto maker’s influential boss, Elon Musk, that already had helped drive bitcoin’s price to a record. The announcement added roughly $100 billion to the combined market value of bitcoin and Tesla on Monday.

The investment is more than symbolic for the company, being equivalent to Tesla’s research-and-development tab for 2020. And while uniting two of the most popular investment themes under one roof is undoubtedly a winner today, the decision introduces even more risk to owning what is already one of the most speculative stocks of the current bull market.

As Tesla itself said in the filing, prices for digital assets such as bitcoin have been volatile in the past. Cryptocurrencies are a fairly recent development and their long-term adoption by consumers, investors and businesses is highly uncertain. That adds to the speculative fervor already gripping Tesla’s stock price in a feedback loop. Indeed, the manager of the most popular active fund recently, Cathie Wood of ARK Invest, has made big bets on both Tesla and a trust that owns bitcoin, fueling a record pace of inflows.

At a market value of about $800 billion, Tesla trades at about 6.5 times the combined value of Ford and General Motors , despite controlling a small fraction of the global auto market. And Tesla lately has been losing market share in Western Europe to competitors including Volkswagen , which has begun to compete aggressively in the electric category. The news of Tesla’s bitcoin investment eclipsed a negative headline for the company Monday about quality issues identified in the important Chinese market.

Here's Mitchell:

Beyond financial considerations, there’s the question of how promoting and profiting from Bitcoin squares with Tesla’s stated mission, the advancement of sustainable energy, given the enormous amounts of electricity required to support the computing power involved.

A study published by science journal Joule said cryptocurrency computers pumped about 23 megatons of carbon dioxide into the atmosphere in 2018. Much of that is due to so-called cryptocurrency mining, in which massive banks of computers are used to solve the math equations that yield new coins. That’s attracted miners worldwide, many in regions mainly dependent on coal for electricity, although Iceland, where electricity is generated by cheap, clean hydropower, has become a center for cryptocurrency mining.

Those crypto-emissions are equivalent to the CO2 spewed by well over 4 million gas-powered cars each year. (According to U.S. government statistics, a typical internal combustion passenger vehicle emits 4.6 metric tons per year.)

The environmental issues sparked some backlash on Twitter. “Are ESG funds still able to invest ... after this?” said Harper Reed, an entrepreneur who helped Barack Obama win the presidency as the campaign’s chief technology officer. ESG stands for environmental, social and corporate governance, a hot new category for mutual fund and exchange traded fund investing.

And Hiltzik

Tesla’s Bitcoin announcement happened to coincide with a couple of doses of bad news for the company.

One was a Feb. 6 report in the Global Times, an English-language publication of the Chinese Communist Party, that the Chinese government had upbraided Tesla for lapses in quality control and consumer relations in China. That’s a concern because Tesla has enjoyed a very favorable relationship with the Chinese government, so far.

“Tesla has shown respect for the potential of the Chinese market, but not the same level of respect is given to Chinese consumers,” the publication reported, citing “analysts.”

The second was a report from German sources that the company’s German car and battery factories were facing months of construction delays, as well as reduced government subsidies for the battery plant.

Jamie Powell writing for FTAlphaville:

    The only certainty here, however, is that it will make Tesla’s GAAP profits, both pre- and post-tax, even further detached from reality than they were before. FT Alphaville notes that the company’s bottom line has been heavily distorted by the pure profit zero emission credits it sells to other auto companies, and wild swings in the price of bitcoin are only going to make unpicking the accounting reality from the headline numbers even harder. Particularly if the company does realise any gains from selling bitcoin to offset losses from its core business lines. A decision that could be taken by the company once it’s clear how a quarter’s numbers are going to pan out.

FT Alphaville isn’t sure what to make of this episode bar the fact its yet another distraction from Tesla’s ongoing struggle to make its core automotive business consistently profitable.

But then again, perhaps that’s the entire point.

Wednesday, February 10, 2021

HODLing with diamond hands

We've previously discussed how many of the Davids in the GameStop saga were crushed as badly as the Goliath was because they seemingly did not grasp the fundamental strategy of a short squeeze. If you know someone is legally obligated to purchase a stock or commodity and you can corner the market, you can sell at wildly inflated prices before the bottom falls out.   

It is a classic get-in, get-out play, but many of the investors who drove the squeeze are shocked and angered at those who sold at the peak. They often seem to be operating under the assumption that the idea was to lift the company's valuation to a new plateau and it was only the panic selling of the fainthearted that ruined the plan. 

Perhaps, though, there's more here than just misunderstanding. The very culture of what we might call, without too much exaggeration, this cult with its emphasis on fearless risk-taking and diamond hands (holding onto investments despite devastating losses) goes against the nature of rational investing. For an interesting parallel with the similar and often overlapping population of crypto traders, consider HODLing. 

Izabella Kaminska writing for FT Alphaville.

Since its biggest existential threat is anything that confirms the view its value may be anything but moon-landing exponential — such as market price corrections or whale-scale liquidations — that ritualised response became the “HODL”.

HODL harks back to the dark days of 2013, when the price of bitcoin had a tendency to go down as well as up. In one particular panic-stricken moment, the bitcoin faithful — gathered as usual in their online chat forums — took towards outlining their coping strategies for what in hindsight became known as one of the greatest testing periods of the early adopter faithful.

This is where the HODL was born.

“I AM HODLING” — wrote one particularly distressed disciple.

Whether the spelling mistake was intentional or strategic is unknown. What matters is that the context of the post struck a cord with the community.

WHY AM I HOLDING? I’LL TELL YOU WHY. It’s because I’m a bad trader and I KNOW I’M A BAD TRADER. Yeah you good traders can spot the highs and the lows pit pat piffy wing wong wang just like that and make a millino bucks sure no problem bro.


I’m not part of that group. When the traders buy back in I’m already part of the market capital so GUESS WHO YOU’RE CHEATING day traders NOT ME~!

It wasn’t, however, until the arch nemeses of all bitcoiners, the “nocoiner” Buttcoiners, stumbled upon the hilarious turn of phrase and began using it satirically that the phrase became a truly defiant battle cry for the long-only community.

HODL, however, is not a simple recasting of a buy-and-hold strategy. It’s much more than that. It is a cultic philosophy representing the greater strength of mind of the average bitcoin devotee compared to the flaky conventional day-trader.

Nowhere is this strength of mind better represented (especially in the face of a spiteful bear attack) than in the meme culture that accompanies it.

Defiance went in one fell swoop from (source: the internet):

… to:

Resistance, bravery and collective action in the face of panicked selling is exactly what HODLing is all about.

Tuesday, February 9, 2021

Gloating over Pyrrhic Victories

It will be a long time until the smoke clears enough to tell exactly who the winners were in the GameStop bubble, but it's not too early to spot some clear losers in this hybrid short squeeze/pump-and-dump. The Goliath of the story, Melvin Capital, lost tremendous amounts of money, but many, perhaps most, of the small investors swept up in the storm seem to have badly mistimed the spike and in some cases misunderstood the whole point of engineering a short squeeze was to sell on the peak.

As discussed previously, most small investors who followed the WallStreetBets mantra of go big and hold firm when the stock starts to dive appear to have taken horrible losses, which makes this latest development all the more bizarre and yet perfectly in keeping with the GameStop saga.

The spot that aired during the big game ran for only five seconds, consisting simply of a message paying tribute to the users involved in the GameStop stock frenzy.

Several users from the subreddit r/WallStreetBets helped rally shares of GameStop and other companies such as AMC this year, burning hedge funds who were trying to short sell the stock.

"Wow, this actually worked," reads the title of the ad, which broke into what looked like a car commercial with what resembled a post on Reddit's website.

"One thing we learned from our communities last week is that underdogs can accomplish just about anything when they come together around a common idea," reads an excerpt of the Reddit message. "Who knows, maybe you'll be the reason finance textbooks have to add a chapter on 'tends.' Maybe you'll help r/SuperbOwl teach the world about the majesty of owls."

If you want to watch for yourself, Reddit posted the ad on its Twitter account.

Monday, February 8, 2021

Elon Musk got what he really wanted out of the GameStop bubble and he didn't have to invest a penny


The practice of shorting stocks has been getting a lot of heat recently from across the political spectrum, much of it revealing a profound misunderstanding of how betting against the market works and why it's not a bad thing. Here Michael Hiltzik covers the basics.

How short selling works

A quick primer on short selling is perhaps in order here.

Short sellers honor the Wall Street mantra to buy low and sell high, but they do so in reverse order. First, they sell high, by borrowing stock from shareholders and selling it. Second, they buy low, by picking up shares at a lower price and returning them to the lenders.

Obviously, for this method to work, the shares must decline in price. That’s what short sellers are betting on. So they’re constantly searching for companies that are overvalued, whether because their business models have flaws unsuspected by investors, or they’re havens for fraud (think Enron), or any other reason.

This makes shorts very unpopular among corporate managements, which prefer that the investment community focus on their upside and swallow their optimistic press releases uncritically, rather than pointing out the downside.

Some executives get downright childish about it, such as Elon Musk, who revels in how shares in his Tesla electric car company have remained buoyant despite short sellers pointing out that it makes money not by selling cars but by trading auto emission credits.

Musk and other executives love to portray short selling as almost un-American.

I’ve taken it upon myself to defend them on numerous occasions, including back in 2014 when a respected Washington financial columnist joined a biotech company named Northwest Biotherapeutics in accusing, without a shred of evidence, a very good financial writer of conniving with short sellers to drive the company down.

Northwest was trading above $5 a share then; it’s now at $1.40 and its future was still in doubt a few months ago, so the short sellers were right to be skeptical.

In truth, short selling is not only proper but also essential for the smooth functioning of the financial markets. As I’ve explained before, although corporate managements believe that unalloyed investor optimism is nirvana, it’s unhealthy for capitalism, just as living on a diet exclusively of Twinkies would be for human beings.

Short sellers counteract this tendency. Shorts sounded early alarms about Enron and many other companies destined for collapse in ways that the investment world didn’t expect. Without shorts, not a few frauds would have continued, costing investors millions more than they did.

Musk has been relentless and (by proxy) vicious not just with investors who short his stock but with anyone he considers their allies.

Here's Felix Salmon:

With more than 22 million followers, Elon Musk knows exactly what happens when he uses his enormous Twitter bully pulpit to bully female journalists. Science writer Erin Biba, for one, has made that abundantly clear, with the story of what happened when he merely replied to one of her tweets.

Which is to say: If you don’t have a strong stomach, don’t look at Business Insider reporter Linette Lopez’s @-replies right now. Musk did much more than just reply to one of her tweets: He has gone on a veritable Twitter rampage aimed at her. A smattering:

This is worse than just stalking: Musk is setting his army of fanboys loose on Lopez, he’s retweeting stuff they find, and he’s encouraging them every step of the way. Milo Yiannopoulos was banned from Twitter for setting mobs upon his enemies; Musk should be banned too, but won’t be.

Musk’s harassment of Lopez is obsessive and deranged, to the point at which it should worry every shareholder of any company where he serves as CEO. But since even former journalists seem to think that somewhere in the madness there’s a legitimate beef, let’s put that idea to rest. Lopez has been reporting aggressively on Tesla for a while; her sources include Tesla whistleblower Martin Tripp, whom Musk considers a saboteur for talking to the press. Lopez has also, in the past, written about Jim Chanos, a dogged investor who is shorting Tesla stock.

Chanos talks to many financial journalists—he was famously a key source for Bethany McLean when she was writing the story that brought down Enron—and sometimes he even hires them to leave journalism and make more money doing private research into companies.. Financial journalists and short sellers are in many ways kindred spirits; they both like uncovering companies’ dirty secrets. And here we get to Musk’s beef with Lopez: He’s accusing her as “serving as an inside trading source” for Chanos. This makes no sense.


The weirdest part of all this is that Musk is on an anti-short-selling rampage at all. Tesla is one of the most-shorted stocks in America, and that’s great for Tesla’s share price: The more shorts there are, the more upward pressure there is on the stock. Shorts only depress a share price when they sell; once you’ve gone public as having a substantial short position, the rest of the market will try to make your life as painful as possible by bidding the stock up. Whatever damage that Chanos has done to Tesla’s share price is in the past; at some point, he will have to exit his position by buying back Tesla stock, and that’s going to help drive the price upwards. Musk should be ecstatic!

It's entirely possible that Musk simply doesn't understand how shorting works -- his appearance of expertise in fields like engineering, AI, manufacturing, and recently medicine and epidemiology has a long history of dissipating the moment he goes off script -- or he might believe, quite reasonably that increased scrutiny of Tesla is not in his best interest.

Whatever his motivation, Musk has spent years mocking and demonizing shorting of Tesla in particular and of stocks in general. He's been remarkably successful persuading his followers, but the GameStop bubble has taken things much further, badly burning investors who shorted this and other stocks and convincing a large part of the public that there's something evil about the very idea of shorting.

 Side note: Tesla routinely makes sales then informs buyers that their car isn't ready. We won't even get into the practice of taking deposits on products that don't exist.