With high flying stocks, most buy arguments are actually sell arguments

I've been meaning to write for a while. Now Jamie Powell of FT Alphaville has done most of the work for me.

In the annals of investing literature, there are a few lessons which stick out. But perhaps none more so than the adage that at the right price, every asset is potentially a good investment. Even subprime CDOs. The flip side of this axiom is, of course, that if you pay too much the experience can be a painful one.

...

At the turn of the new millennium, the IT hardware, software and networking equipment company was one of the hottest stocks in the US equity market. From the beginning of 1999 to March 2000 the shares rose 236 per cent to a market capitalisation of $555bn, or $80.06 per share, backed by a crazed-enthusiasm for the technological shifts bought about by the internet. The thesis was solid: as a provider of networking equipment for both telecom players and other businesses, Cisco was the shovel-seller in a dot com gold rush. What could go wrong?

And, some might argue, it had the numbers to back it up. In the 2000 financial year, Cisco posted revenue growth of 55 per cent, gross margins of 66 per cent and had a return-on-equity of 14 per cent. Sure, top-line growth had slowed from 1994 when revenue had doubled, but as one of the few players sitting at the intersection of several technological trends, it surely was going to be one of the big winners of the new millennium.

Well yes and no. In one way, investors were right. Cisco was a big winner. Over the next 21 years, Cisco’s revenues grew four fold to $49bn, with profits quintupling to $11bn. Return-on-equity even improved, with the figure averaging 17 per cent over the next two decades, 3 percentage points above its 2000 number.

The problem was the share price. It was, simply, too damn high. At the March 2000 peak, Cisco’s price-to-earnings ratio stood at 201 times, its enterprise value to sales at 31 times and its price-to-free cash flow at 176 times. By anyone’s standards, the valuation was over-egged.

And, suddenly, everyone cottoned on. Over the next two years, Cisco’s share price collapsed 80 per cent, a total market capitalisation loss of $431bn, as the dot com bubble deflated and telecom capital expenditure with it. Twenty-odd years later at pixel time, Cisco’s shares are at $46.25, still 42 per cent below their dot com peak.

Imagine a stock analyst in 2000 who sat down with Louis Rukeyser and laid out a scenario for Cisco that was completely prescient. The case would sound spectacularly bullish. The company really did have a long and profitable future ahead of it. In the context of Cisco's peak price, however, this would have been anything but a case for going all in. When a stock is flying that high, what would normally be a buy argument more often than not becomes a sell argument.

You probably expect me to talk about a certain car company now, but that's not the only example in 2021. It might not even be the most egregious one.

Alex Wilhelm writing for TechCrunch:

Using normal accounting rules, Uber lost $6.77 billion in 2020, an improvement from its 2019 loss of $8.51 billion. However, if you lean on Uber’s definition of adjusted EBITDA, its 2019 and 2020 losses fall to $2.73 billion and $2.53 billion, respectively.

And as Wilhelm notes later in the piece, it takes a hell of a lot of adjusting to get the loss down to two and a half billion.

Despite this, Uber has a market cap of over $100 billion. Its spokespeople and shills will argue that the company is about to become profitable but even if it does go into the real black (and not just the creative accounting black), no one is offering a convincing scenario where the stock is worth more than a fraction of its current price;

 

There are plenty of other examples where that came from.

A lot of investors, particularly retail investors, operate under the assumption that if you like a company and have faith in it, you should buy. They ignore Powell's basic lesson that any investment is a bad investment beyond a certain price and, as he points out, sooner or later someone is in for a painful experience.

The self-proclaimed "next Warren Buffett" is perfect for the age of Trump and Musk

A quick aside, at some point over the past few years, Linette Lopez became one of our best financial journalists and (being a woman of color who stood up to Elon Musk) one of the most courageous as well.

 

These are the kinds of charlatans who show up when Wall Street gets weird 

King of wishful SPAC-ing

There are a few ways to tell if the person you are listening to is a bubble charlatan. For one thing, they can't handle criticism of themselves or their product. Debate — one of the most important elements of price discovery — is not tolerated. To them, short sellers are market villains. They also dislike traditional valuation metrics, regulators who put guardrails around trading or promoting, and — to ingratiate themselves with retail investors — other rich people.

You can also find them shilling free advice on social media and constantly calling into CNBC to rant.

Chamath Palihapitiya, founder of the now defunct venture-capital firm Social Capital, is skilled at all of those things. His success stems mainly from being at Facebook early. Since then he has perfected the art of raising money from people who should know better, and teasing a run for governor of California.

...

Did I mention that Palihapitiya hates short sellers?

 

About the time Lopez hit send on her piece, Palihapitiya's most hyped SPAC reached what we might call the post-pump stage.

. @chamath dumped > $200mm of $spce yesterday whilst it was in free fall 💎💎💎💎💎 pic.twitter.com/rAORoW5XQH

— luis carruthers (@orthereaboot) March 5, 2021

"Some" shares in $SPCE. I.e. every single one of them. Gaslighting clown. @chamath https://t.co/Jw7m4EF2jD pic.twitter.com/HlPRHlhGED

— Keubiko (@Keubiko) March 6, 2021

Remember to live, laugh and love to lose money in this dude’s SPACs after he’s exited them. https://t.co/P4a8tdbQJT

— Linette Lopez (@lopezlinette) March 6, 2021

A small point on Kevin Drum

This is Joseph.

Kevin Drum is advocating for a free of cost national ID card that is used for voting. It's not a terrible idea, especially in the United States. The objection he anticipates is a case of closing the barn door after the horse is already out:

No, it wouldn't turn us into a "papers please" police state. No, it wouldn't do anything that we haven't already done in a chaotic way already.

 Like this case here of a passenger in a car being arrested for not showing ID at a traffic stop. Similarly, there are already stop and identify laws. I am not sure that a secure national id would do anything to make this situation worse and would be a nice way to get around issues like name conflicts in e-verify. 

Just imagine what they could have done with blockchains -- a proto-SPAC repost

Michael Hiltzik writing for the LA Times:

Someone on Wall Street ought to erect a statue to Henry Villard.

Villard made the discovery that if you don’t tell investors how you’re going to spend their money, they get more eager, not less.

Seeking to raise several millions of dollars in capital to take over a company but unwilling to reveal his target for fear of driving its price beyond his reach, Villard sent out a prospectus for a “blind pool,” stating that he would reveal “the exact nature” of his plans 90 days hence.

Rather to his surprise, his pool was sold out within 24 hours; indeed, investors bid for twice what he was asking. “All wanted more,” he recalled.

The year was 1881. Villard’s quarry was the Northern Pacific Railroad, with which he hoped to build a railroad network to the Pacific Northwest.

But what makes his scheme relevant is that the same principle of raising money via a blank check has become the latest craze sweeping Wall Street.

 ...

All would be well-advised to consider the ultimate fate of Henry Villard. As he neared the apogee of success, he built a landmark residence on New York’s Madison Avenue, designed by Stanford White, that is still remembered as the Villard Houses.

One night after he moved in, he was visited by a delegation of investors and auditors who informed him he was bankrupt. He and his family vacated the residence, which was sold to Whitelaw Reid, publisher of the New York Tribune.

Much later it served as the facade of the 55-story Helmsley Palace Hotel, where the society figure Leona Helmsley reigned until her conviction for tax evasion in 1989. The hotel passed into the ownership of the Sultan of Brunei, who eventually sold it to a South Korean resort firm that operates it today.

Villard had one more brush with greatness. In 1887 he was invited to resume the presidency of the Northern Pacific but drove it into receivership by loading it with extortionate loans to himself.

But with all due respect to Villard, he was by no means the first.

Wednesday, July 26, 2017

"A company for carrying on an undertaking of great advantage, but nobody to know what it is."

Another excerpt from Charles Mackay's  Extraordinary Popular Delusions and the Madness of Crowds. I believe "a company for carrying on an undertaking of great advantage, but nobody to know what it is" was an initial business plan for Groupon.

Some of these schemes were plausible enough, and, had they been undertaken at a time when the public mind was unexcited, might have been pursued with advantage to all concerned. But they were established merely with the view of raising the shares in the market. The projectors took the first opportunity of a rise to sell out, and next morning the scheme was at an end. Maitland, in his History of London, gravely informs us, that one of the projects which received great encouragement, was for the establishment of a company "to make deal-boards out of saw-dust." This is, no doubt, intended as a joke; but there is abundance of evidence to show that dozens of schemes hardly a whir more reasonable, lived their little day, ruining hundreds ere they fell. One of them was for a wheel for perpetual motion—capital, one million; another was "for encouraging the breed of horses in England, and improving of glebe and church lands, and repairing and rebuilding parsonage and vicarage houses." Why the clergy, who were so mainly interested in the latter clause, should have taken so much interest in the first, is only to be explained on the supposition that the scheme was projected by a knot of the foxhunting parsons, once so common in England. The shares of this company were rapidly subscribed for. But the most absurd and preposterous of all, and which showed, more completely than any other, the utter madness of the people, was one, started by an unknown adventurer, entitled "company for carrying on an undertaking of great advantage, but nobody to know what it is." Were not the fact stated by scores of credible witnesses, it would be impossible to believe that any person could have been duped by such a project. The man of genius who essayed this bold and successful inroad upon public credulity, merely stated in his prospectus that the required capital was half a million, in five thousand shares of 100 pounds each, deposit 2 pounds per share. Each subscriber, paying his deposit, would be entitled to 100 pounds per annum per share. How this immense profit was to be obtained, he did not condescend to inform them at that time, but promised, that in a month full particulars should be duly announced, and a call made for the remaining 98 pounds of the subscription. Next morning, at nine o'clock, this great man opened an office in Cornhill. Crowds of people beset his door, and when he shut up at three o'clock, he found that no less than one thousand shares had been subscribed for, and the deposits paid. He was thus, in five hours, the winner of 2,000 pounds. He was philosopher enough to be contented with his venture, and set off the same evening for the Continent. He was never heard of again

 

He's gotta a great big house on the cliffside, 'nother great big house beside it

Back in '88, having side by side swimming pools seemed an absurd example of wretched excess. If only we'd known.

WhatsApp co-founder Jan Koum just grabbed another slice of Malibu shoreline, paying $87 million for an oceanfront home right next to his other one, The Times has confirmed.

The billionaire has been on a Southern California spending spree for the last three years. In 2019, he paid $100 million for the Malibu home of longtime NBCUniversal executive Ron Meyer. A year later he ventured inland, shelling out $125 million for the Beverly Hills mansion of Quibi founder Jeffrey Katzenberg.

The $87-million sale, which was first reported by the Wall Street Journal, is by far the priciest home sale in L.A. County so far this year. The property originally was put on the market last summer for $125 million, The Times previously reported.

 

Tesla, the Sinatra of car companies

"Frank Sinatra saved my life once. He said, "Okay, boys. That's enough." - Shecky Greene

I feel a little bad picking on the the company this way, but fellow blogger know when you really like a title you almost have to run the post. The joke was based on a real incident. The bruises were still visible the night he first used the line.  

At the risk of putting too fine a point on the analogy, if you get someone into a life-threatening situation, you don't get credit for getting them out of it.

To add to this, I was able to safely get back in my intended lane after disengagement due to the tight handling & quick acceleration. Thank you for making the safest cars in the world. 🙏

— Marge ♡ (@Manic_Marge) February 25, 2021

Rear camera view pic.twitter.com/pe2E2RFXIg

— Marge ♡ (@Manic_Marge) February 25, 2021

Jason Torchinsky writing for Jalopnik

So, the situation is that the Tesla’s owner was driving along the I-5 North in Los Angeles, with Autopilot engaged, when a truck changed lanes in front of the Tesla, to which the Tesla reacted by maintaining its speed and crossing over the unbroken white line that marks where the highway divides between the I-5 North and the 101 North, putting the car onto the 101 North instead of its intended path.

The Tesla owner refers to the truck as “changing lanes last minute” and that the actions of the car “saved my life” and that Autopilot is “life saving tech.”

My problem here is that any human driver would have seen that the truck had its turn indicator on, and was making a pretty normal lane change. You can see the turn indicator blinking from the very start of the dashcam clip; the truck was clearly intending to change lanes, and I don’t see how you’d call it “last minute” unless you just started paying attention as it began actually changing lanes.

We’ve all been in this exact same situation, and we’ve all done the same thing: let off the gas a bit to slow down slightly, and let the truck change lanes in front of us. It’s trivial, really. For most drivers, you can’t even remember how many times you’ve done this.

You just slow down a bit. Not a brake stomp, just a slight slowing to let the truck in. No biggie.

Stubbornly maintaining the same speed and ignoring the truck that is clearly signaling a lane change until it actually begins to move into the lane, as Autopilot did, is just bad driving; plus, Autopilot put the car onto the wrong freeway for the driver’s destination, which she did note she corrected in another tweet:

Bitcoin thoughts

This is Joseph

Just a quick hit (thanks to Mark's cunning eyesight) to note that this Bitcoin report is hilariously bad, as noted by Jemima Kelly. The author of the Financial Times article notes that the authors mistake basis points for percentage points, which leads them to suggest 13.46% of credit and debit card activity is fraudulent. That would be . . . amazing if true. 

They also claim that 36% of small and medium businesses will accept Bitcoin in the US. There are some caveats in this point by Thomas Lumley that the two things are not identical but the volume of Bitcoin, worldwide, is a lot lower than the credit and debit card volume of the New Zealand economy. That's not really a sign of it being a major player as a form of payment, even if a lot of places might (technically) be able to accept them. 

This is besides the increasing issue with the power consumption issues with Bitcoin. 

If nothing else, the value of Bitcoin is going to need to be a lot more stable to be a good currency. The current high level of volatility of Bitcoin is the opposite of what we want in a store of value for exchange purposes and the idea that it might spike in value (relative to the dollar) is exactly what makes it a bad currency when things like taxes are in dollars.  

Mega-repost: "The next big story, but one which we believe will dominate American politics for at least the next decade or so will be how the Republican party deals with the unwinding of the Trump cult of personality."

Meadows: We will see the start of planning for the next administration and I can tell you, the people that are at the top of that list, all of them have Trump as their last name pic.twitter.com/69DMdyFSOO

— Acyn (@Acyn) February 26, 2021

Monday, October 7, 2019

Out with the Wages of Strauss, in with the Great Unwinding

We have reached a point in the show which always makes the fans a little nervous. we have decided that one of our oldest and biggest storylines is starting to come to a natural conclusion so we need to begin wrapping up the loose ends and introducing the next one.

For years now, when it came to politics, the big recurring story was what you might call the wages of Strauss. we pushed the we pushed the idea that either the main cause or the essential context of almost every major political development over the past couple of decades came from the conservative movements relatively public conclusion that their agenda, while it might hold its own for a while and perhaps even surge ahead now and then, was destined to lose the battle of public opinion in the long run.

This left them with two choices, either modify their ideas so that they could win over the majority of the public, or undermine the Democratic process through a Straussian model, an approach based on controlling most of the money and increasing the influence that could be bought with that money, changing government so that an ever smaller part of the population had an ever-larger role in governing the country and creating a sophisticated three-tiered information management system where trusted sources of information were underfunded and undermined, the mainstream press was kept in line through a combination of message discipline and incentives with special emphasis placed on working the refs, and the creation of a special media bubble for the base which used spin, propaganda, and outright disinformation to keep the canon fodder angry, frightened, and loyal.

For a long time this approach worked remarkably well, but you could argue that the signs of instability were there from the beginning, particularly the difficulty of controlling the creation and flow of disinformation, the vulnerability to what you might call hostile take over, and the way the system lent itself to cults of personality.

We've had a good run with this storyline for a long time now, but it seems to be coming to a resolution and it has definitely lost a great deal of its novelty. (Lots of people are making these points now.)

The next big story, but one which we believe will dominate American politics for at least the next decade or so will be how the Republican party deals with the unwinding of the Trump cult of personality. Dismantling such a cult is tremendously difficult under the best of circumstances where the leader can be eased out gently, but you have with Donald Trump someone who has no loyalty to the party whatsoever and who is temperamentally not only capable but inclined to tear the house down should he feel betrayed.

If Trump continues to grow more erratic and public disapproval and support for his removal continues to grow, then association will be increasingly damaging to Republicans in office. However, for those same politicians, at least those who come up for election in the next two to four years, it is not at all clear that any could survive if the Trump loyalists turned on them.

But this goes beyond individual candidates. Trump's hold on the core of the base is so strong and so personal that, if he were to tell them directly that the GOP had betrayed both him and them, they would almost certainly side with him. They might form a third party, or simply boycott if you elections, or, yes, even consider voting for Democrats.. I know that last one sounds unlikely but it is within the realm of possibility if the intraparty civil war got bitter enough.

Obviously, if Trump survives this scandal and is reelected in 2020, all of this is moot, but if not, then how things break will be a story we’ll be glad to have been following.

Thursday, October 8, 2020

More on the great unwinding -- the post-Trump GOP is probably inevitable but still unimaginable

Just to reiterate a few points we've been hammering for a few years now.

1. Trump has become more and more toxic to a growing majority of the country. If things continue going the way they're headed, he will be the ultimate example of von Hoffman's rat on the kitchen floor for the Republican Party.

2. But unlike with Nixon,  the base is personally loyal to Trump, not to the GOP. 

No flight to Berchtesgaden for this loyal man—he's staying in the bunker https://t.co/jlZf09aIlA

— George Conway (@gtconway3d) October 6, 2020

3. It is difficult to describe what we're seeing as anything other than a cult of personality, complete with the Soviet style propaganda images, the assumption of mental and physical perfection and the messianic overtones.

4. Even if the base were to continue to support the party, the Republicans absolutely must broaden its appeal. After 1988, they have won the popular vote for the presidency exactly once and that was the special case of a wartime reelection.

5. But the base will not tolerate disloyalty to either Trump or his message. Keeping them happy while broadening support is impossible, but the alternative is to find a way to go from a minority to a majority party while trying to make up for the loss of around half of your supporters. 

Are there scenarios where this does happen relatively quickly? Sure, but there are no obvious paths that don't require some deus ex machina plot twist. Which leads to the final and most important point.

6. With a handful of possible exceptions like the extraordinarily sharp Josh Marshall, observers are almost all underestimating the chances of profound and unexpected changes to the way American politics works. I'm not saying what's going to fall or which direction it will tip, but things are going to be different.

From Marshall

But don’t take your eyes off this broader calculus – one separate from Trump, his state of mind, one that is above all rational. Yes, everyone should give their 110%. Everybody get out to vote. The stakes for a second Trump term are too high to take anything for granted. But for those gaming out their own moves and post-January realities, Trump’s defeat is starting to look very likely. Under normal circumstances that would lead congressional Republicans to cut Trump loose and pitch their reelection as a check on the power of a Democratic President. That would be a great card to play for a number of endangered Republican Senators at the moment. But it’s all but impossible since loyalty to Trump is now the centerpiece of Republican identity. And any move away from him would trigger a fatal backlash.

______________________________________________________

And if you thought I was exaggerating the cult of personality thing.

Immediately made me think of this. (“Sitting in the Kremlin, Stalin worries about each one of us.”) pic.twitter.com/k3P29NoyAV

— Julia Ioffe (@juliaioffe) October 5, 2020

QAnon signs starting to show up here outside Walter Reed pic.twitter.com/5e5zfzmVOx

— Josh Lederman (@JoshNBCNews) October 4, 2020

"The President is working with documents!" was the stock phrase Yeltsin's staff used whenever he was at his dacha in Barvikha unconscious from drinking or feeling the aftereffects of a binge.
It was such a commonly used, thinly veiled excuse, it became a running joke in Russia. https://t.co/mAWzazBDtm

— Slava Malamud (@SlavaMalamud) October 3, 2020

We are now at the point where what used to be a Chuck Norris joke is now used by Republicans to suck up to their Great Leader. pic.twitter.com/6WXVu4Fhy5

— J.P. de Ruiter (@JPdeRuiter) October 6, 2020

‘God-tier genetics’: A stunned MAGA world offers blame, adulation after Trump’s diagnosis https://t.co/2RBd9F1Kky via @politico

— Mark Palko (@MarkPalko1) October 3, 2020

COVID stood NO chance against @realDonaldTrump! pic.twitter.com/GtNPOHkDqF

— Kelly Loeffler (@KLoeffler) October 5, 2020

It’s like house of saddam https://t.co/4YjOGp9vVa

— Josh Marshall (@joshtpm) October 6, 2020

2016, 2020 pic.twitter.com/xx6kL1Z72V

— Dave Weigel, Re-Animator (@daveweigel) October 2, 2020

We have reached the point where stating the obvious is an act of courage

...particularly for a female journalist.

The Atlantic's Shannon Stirone is catching tremendous hell for pointing out that Mars is not habitable.

In the video, Musk is seen reading a passage from Carl Sagan’s book Pale Blue Dot. The book, published in 1994, was Sagan’s response to the famous image of Earth as a tiny speck of light floating in a sunbeam—a shot he’d begged NASA to have the Voyager 1 spacecraft take in 1990 as it sailed into space, 3.7 billion miles from Earth. Sagan believed that if we had a photo of ourselves from this distance, it would forever alter our perspective of our place in the cosmos.


Musk reads from Sagan’s book: “Our planet is a lonely speck in the great enveloping cosmic dark. In our obscurity, in all this vastness, there is no hint that help will come from elsewhere to save us from ourselves. The Earth is the only world known so far to harbor life. There is nowhere else, at least in the near future, to which our species could migrate.”


But there Musk cuts himself off and begins to laugh. He says with incredulity, “This is not true. This is false––Mars.”
...

Mars has a very thin atmosphere; it has no magnetic field to help protect its surface from radiation from the sun or galactic cosmic rays; it has no breathable air and the average surface temperature is a deadly 80 degrees below zero. Musk thinks that Mars is like Earth? For humans to live there in any capacity they would need to build tunnels and live underground, and what is not enticing about living in a tunnel lined with SAD lamps and trying to grow lettuce with UV lights? So long to deep breaths outside and walks without the security of a bulky spacesuit, knowing that if you’re out on an extravehicular activity and something happens, you’ve got an excruciatingly painful 60-second death waiting for you. Granted, walking around on Mars would be a life-changing, amazing, profound experience. But visiting as a proof of technology or to expand the frontier of human possibility is very different from living there. It is not in the realm of hospitable to humans. Mars will kill you.

If anything, the video is worse than Stirone makes it out to be. The smugness of Musk, the sycophancy of the interviewer, the "and I think Carl Sagan would agree with that."

Elon #Musk channels Dr. Carl #Sagan famous saying about the Pale Blue Dot pic.twitter.com/CybqAzmM9i

— John Carlos (@JohnCarlos) February 14, 2021

Postscript:

Four days of consistent trolling, threats and comments and I’ve just about had enough. Taking a little break. I’ll be back soon. Please send all complaints and hate mail to P.O. Box #4 Mars is a Hellhole c/o https://t.co/dm767e5OUs

— Shannon Stirone 💀 (@shannonmstirone) March 1, 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.

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.

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? 

"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.

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?

"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.