How To Get A Car Loan Like A Pro: Life Kit : NPR

Buying a car is often emotional. I encourage you, particular students that are about to graduate and get their first full time job, to attenuate the emotion, read the NPR article, and follow the advice.

In particular, I highly encourage becoming a member of a credit union and getting pre-approved for a loan there as step 1. Or, just save up and by a cheap car cash. The article quotes a couple That paid $2,400 for a 2004 accord. That is an an option to consider. However, being human, note that I said “attenuate the emotion.” :). May you find the middle way.

-Dr. Moore

https://www.npr.org/2020/02/14/806073375/how-to-buy-a-car-without-being-taken-for-a-ride

Tesla, Tulips, and market manipulation | Efficient Minds™

Some philosophy first…

“Without truth, there is only manipulation” -Os Guinness

I have long been skeptical of Tesla’s stock valuation. As a result, I never purchased TSLA stock (entered a long position) either directly or through the S&P500 Index fund of which TSLA is not a member. By the way, why isn’t Tesla in the S&P 500: “The reason is simple: it hasn’t been profitable long enough.”: HTML. More on “profitable” later in this post.

I have never entered a short position on TSLA either for two reasons. One, I’m just too risk averse (chicken). Second, I recently read this quote from the Dhammapada:

“Don’t try to build your happiness on the unhappiness of others. You will be enmeshed in a net of hatred.”

Perhaps there is a lesson for the Trump Administration in there, but I digress. Getting back to the title of the article, does Tesla manipulate financial markets?

Manipulation mechanics

To begin, I assembled the following diagram to illustrate the feedback loop of positive statements (be it qualitative or quantitative), unaudited quarterly reports, uniformed investors jumping in, informed investors ignoring fundamentals and unaudited statement flaws, short squeezes, and inflated prices.

Screen Shot 2020-02-16 at 4.54.47 AMFigure 1. One perspective on TSLA [over]valuation

Fig. 1 shows short-sellers (blocks #3 and #4) are experiencing the karma of that Dhammapada quote. Here is my friendly suggestion for folks out there: if you like the stock, buy it. If you don’t like it, don’t buy it (or sell it if you already have it). If you short it, your are attempting to build your happiness (profit) on the unhappiness of others (stock price drop).

The irony in Fig. 1 is that the price of Tesla rises as short-sellers are forced to close their positions by purchasing Tesla stock (block #4). That purchasing adds further upward pressure on the price forcing other short-positions to lose money and the cycle continues. Figure 2 shows that although short-sellers were winning (and piling on) from February 2019 until June 2019, they started losing and closing their positions thereafter.

Figure 2. TSLA short interest (white) vs. market capitalization (green). Source: Bloomberg.

Let’s look a little deeper at the situation through the lens of Fig. 1.

Figure 1, Block 1: Qualitative manipulation via claims of profitability

Traditionally credible prospects of attainable earnings growth, dividend payment growth, or stock repurchases leads to price increases. In the case of Tesla, there are no dividends and actually the opposite of stock repurchases: continual share and debt issuances (Fig. 1, block #5).

How do the claims of profitability line up with the financial reports? Figures 3 and 4 show unaudited quarterly and audited annual results (more on unaudited vs. audited later).

Figure 3. Quarterly net income (white) and operating cash flow (green) over time. Source: Bloomberg Terminal.Figure 4. Annual net income (white) and operating cash flow (green) over time. Source: Bloomberg Terminal.

Looking at Figures 3 and 4 I wonder how Tesla can go from negative $1 billion in net income to positive $2 billion in operating cash flow in 2018 and 2019? It looks fishy, especially given the historical data, both unaudited quarterly or audited annual data. Perhaps this is related to the 2020.02.13 disclosure in Tesla’s 10-K that the SEC issued a subpoena on 2019.12.04 for “certain financial data and contracts including Tesla’s regular financing arrangements”: HTML.

Speaking of auditing, there is another concern brought to my attention by my accounting colleague. Here is a quote:

“The Trump administration has indicated it plans to abolish the Public Company Accounting Oversight Board (PCAOB), the US audit regulator, and roll its functions into the Securities and Exchange Commission (SEC) in its budget blueprint, although immediate action is unlikely.”

Source: Accountancy Daily 2020.02.14: HTML.

I see this as a broader deregulation push that can (and likely will) harm investors, consumers, etc. More on deregulation in the GAAP vs. non-GAAP section later in this post.

I now move on to self-funding claims.

Figure 1, Block 5: Qualitative manipulation via claims of self-funding / self-sustainability

Tesla repeatedly claims to be “self-funding” or “self-sustaining” while continually raising funding from equity markets (stock issuances) and debt markets. I present the claims from Tesla followed by a graph that shows evidence to the contrary (Figure 5).

“Tesla does not need to ever raise another funding round” -Tesla CEO Elon Musk in 2012: HTML.

Then, Tesla announces in 2019 that it will raise $2 billion in debt and equity markets:

“Years go by and a self-sustaining Tesla eludes Elon Musk” – LA Times 2019.05.02 article: HTML.

Or even as recently as the January 29, 2020 conference call:

“it doesn’t make sense to raise money, because we expect to generate cash despite this growth level.” -Elon Musk January 29, 2020 conference call: HTML.

But guess what happened just 15 days after making that statement? Tesla announces another $2 billion stock issuance: HTML. It turns out this is nothing new. Tesla issued stock and debt continually since its inception (Fig. 5). Note that some of the issuances are related to stock-based employee compensation (read: that in effect lets market participants pay Tesla employees rather than having a drag on Tesla’s cash).

Figure 5. Tesla shares outstanding (top) and total debt (bottom) over time. Source: Bloomberg Terminal.

So profitability claims are suspect (Figures 3 and 4) while self-funding claims are demonstrably false (Figure 5).

Figure 1, Blocks 2 and 6: Quantitative manipulation via the use of non-GAAP numbers

Ever wonder why Tesla has never had a profitable annual report while having some “profitable” quarterly reports? Two things come to mind: (1) annual reports are audited while quarterly reports are unaudited and (2) the use and emphasis of non-GAAP numbers by corporations such as Tesla.

There are earnings based on Generally Accepted Accounting Principals (GAAP) that companies must follow: HTML. Then there are company “adjusted” and reported “non-GAAP” numbers. In Tesla’s case, let’s go back to August 2016:

“The SEC chided the Palo Alto, California-based electric car maker [Tesla] for employing ‘individually tailored’ metrics in an earnings release this past August and has raised the issue with the company in four separate letters between mid-September and mid-October, according to The Wall Street Journal. In October, Tesla announced it would stop using non-GAAP measures in its releases.” -Accounting Today, 2016.11.26, Tesla Backs Away from Non-GAAP Metrics after SEC Letters

Back then regulation seemed important. These days, under the Trump administration, we see an environment of deregulation. This is evidenced by the recent plans to abolish the PCAOB which regulates the auditors of such financial statements: HTML. While in a deregulation environment, why not go back to your old ways of posting non-GAAP numbers? Figure 6 shows a page from Tesla’s own January filing:

Figure 6. Excerpt from Tesla’s 2020.01.29 8-K filing.

I’m not sure how that comes out here on WordPress, but let me highlight GAAP vs. non-GAAP (also note “unaudited” in top left corner of Tesla’s filing):.

  • Net Income Q42019 (GAAP) = 105 million, QoQ -27%, YoY -25%
  • Net Income Q42019 (non-GAAP) = 386 million, QoQ +13%, YoY +12%
  • EPS Q42019 (GAAP) = 0.58, QoQ -28%, YoY -28%
  • EPS Q42019 (non-GAAP) = 2.14, QoQ +12%, YoY +7%

So clearly, non-GAAP numbers look better than GAAP numbers. But didn’t Tesla respond to the SEC 4 years ago (HTML) saying they were going to stop non-GAAP metrics? Again, emphasis on non-GAAP measures draws in uninformed investors (pushing the price up), pressures short-sellers to close their position (further pushing the price up), then Tesla issues more shares at the higher prices.

Conclusion

Figure 1 illustrates a feedback loop that can help explain the extreme rise in TSLA stock. Figure 2 shows how the feedback loop has played out in the market via increased prices causing short squeezes. I presented qualitative statements from Tesla regarding profitability and self-funding and empirical evidence to the contrary (Figures 3, 4, and 5). I noted the role of the deregulatory environment that can lead to investor harm. I conclude by saying I don’t know what TSLA stock is worth. I am not licensed to provide financial advice in any jurisdiction on Earth. 🙂

-Dr. Moore

I almost forgot… Tulips!

Just go read the Tulip Mania Wikipedia page when you are bored: HTML.

Tesla, Tulips, and market manipulation

Some philosophy first…

“Without truth, there is only manipulation” -Os Guinness

I have long been skeptical of Tesla’s stock valuation.  As a result, I never purchased TSLA stock (entered a long position) either directly or through the S&P500 Index fund of which TSLA is not a member.  By the way, why isn’t Tesla in the S&P 500: “The reason is simple: it hasn’t been profitable long enough.”: HTML.  More on “profitable” later in this post.

I have never entered a short position on TSLA either for two reasons.  One, I’m just too risk averse (chicken).  Second, I recently read this quote from the Dhammapada:

“Don’t try to build your happiness on the unhappiness of others.  You will be enmeshed in a net of hatred.”

Perhaps there is a lesson for the Trump Administration in there, but I digress.  Getting back to the title of the article, does Tesla manipulate financial markets?

Manipulation mechanics

To begin, I assembled the following diagram to illustrate the feedback loop of positive statements (be it qualitative or quantitative), unaudited quarterly reports, uniformed investors jumping in, informed investors ignoring fundamentals and unaudited statement flaws, short squeezes, and inflated prices.

Figure 1. One perspective on TSLA [over]valuation

Fig. 1 shows short-sellers (blocks #3 and #4) are experiencing the karma of that Dhammapada quote. Here is my friendly suggestion for folks out there: if you like the stock, buy it. If you don’t like it, don’t buy it (or sell it if you already have it). If you short it, your are attempting to build your happiness (profit) on the unhappiness of others (stock price drop).

The irony in Fig. 1 is that the price of Tesla rises as short-sellers are forced to close their positions by purchasing Tesla stock (block #4). That purchasing adds further upward pressure on the price forcing other short-positions to lose money and the cycle continues. Figure 2 shows that although short-sellers were winning (and piling on) from February 2019 until June 2019, they started losing and closing their positions thereafter.

Figure 2. TSLA short interest (white) vs. market capitalization (green). Source: Bloomberg.

Let’s look a little deeper at the situation through the lens of Fig. 1.

Figure 1, Block 1: Qualitative manipulation via claims of profitability

Traditionally credible prospects of attainable earnings growth, dividend payment growth, or stock repurchases leads to price increases. In the case of Tesla, there are no dividends and actually the opposite of stock repurchases: continual share and debt issuances (Fig. 1, block #5).

How do the claims of profitability line up with the financial reports? Figures 3 and 4 show unaudited quarterly and audited annual results (more on unaudited vs. audited later).

Figure 3. Quarterly net income (white) and operating cash flow (green) over time. Source: Bloomberg Terminal.
Figure 4. Annual net income (white) and operating cash flow (green) over time. Source: Bloomberg Terminal.

Looking at Figures 3 and 4 I wonder how Tesla can go from negative $1 billion in net income to positive $2 billion in operating cash flow in 2018 and 2019? It looks fishy, especially given the historical data, both unaudited quarterly or audited annual data. Perhaps this is related to the 2020.02.13 disclosure in Tesla’s 10-K that the SEC issued a subpoena on 2019.12.04 for “certain financial data and contracts including Tesla’s regular financing arrangements”: HTML.

Speaking of auditing, there is another concern brought to my attention by my accounting colleague. Here is a quote:

“The Trump administration has indicated it plans to abolish the Public Company Accounting Oversight Board (PCAOB), the US audit regulator, and roll its functions into the Securities and Exchange Commission (SEC) in its budget blueprint, although immediate action is unlikely.”

Source: Accountancy Daily 2020.02.14: HTML.

I see this as a broader deregulation push that can (and likely will) harm investors, consumers, etc. More on deregulation in the GAAP vs. non-GAAP section later in this post.

I now move on to self-funding claims.

Figure 1, Block 5: Qualitative manipulation via claims of self-funding / self-sustainability

Tesla repeatedly claims to be “self-funding” or “self-sustaining” while continually raising funding from equity markets (stock issuances) and debt markets. I present the claims from Tesla followed by a graph that shows evidence to the contrary (Figure 5).

“Tesla does not need to ever raise another funding round” -Tesla CEO Elon Musk in 2012: HTML.

Then, Tesla announces in 2019 that it will raise $2 billion in debt and equity markets:

“Years go by and a self-sustaining Tesla eludes Elon Musk” – LA Times 2019.05.02 article: HTML.

Or even as recently as the January 29, 2020 conference call:

“it doesn’t make sense to raise money, because we expect to generate cash despite this growth level.” -Elon Musk January 29, 2020 conference call: HTML.

But guess what happened just 15 days after making that statement? Tesla announces another $2 billion stock issuance: HTML. It turns out this is nothing new. Tesla has issued stock and debt continually since its inception (Fig. 5). Note that some of the issuances are related to stock-based employee compensation (read: that in effect lets market participants pay Tesla employees rather than having a drag on Tesla’s cash).

Figure 5. Tesla shares outstanding (top) and total debt (bottom) over time. Source: Bloomberg Terminal.

So profitability claims are suspect (Figures 3 and 4) while self-funding claims are demonstrably false (Figure 5).

Figure 1, Blocks 2 and 6: Quantitative manipulation via the use of non-GAAP numbers

Ever wonder why Tesla has never had a profitable annual report while having some “profitable” quarterly reports? Two things come to mind: (1) annual reports are audited while quarterly reports are unaudited and (2) the use and emphasis of non-GAAP numbers by corporations such as Tesla.

There are earnings based on Generally Accepted Accounting Principals (GAAP) that companies must follow: HTML. Then there are company “adjusted” and reported “non-GAAP” numbers. In Tesla’s case, let’s go back to August 2016:

“The SEC chided the Palo Alto, California-based electric car maker [Tesla] for employing ‘individually tailored’ metrics in an earnings release this past August and has raised the issue with the company in four separate letters between mid-September and mid-October, according to The Wall Street Journal. In October, Tesla announced it would stop using non-GAAP measures in its releases.” -Accounting Today, 2016.11.26, Tesla Backs Away from Non-GAAP Metrics after SEC Letters

Back then regulation seemed important. These days, under the Trump administration, we see an environment of deregulation. This is evidenced by the recent plans to abolish the PCAOB which regulates the auditors of such financial statements: HTML. While in a deregulation environment, why not go back to your old ways of posting non-GAAP numbers? Figure 6 shows a page from Tesla’s own January filing:

Figure 6. Excerpt from Tesla’s 2020.01.29 8-K filing.

I’m not sure how that comes out here on WordPress, but let me highlight GAAP vs. non-GAAP (also note “unaudited” in top left corner of Tesla’s filing):.

  • Net Income Q42019 (GAAP) = 105 million, QoQ -27%, YoY -25%
  • Net Income Q42019 (non-GAAP) = 386 million, QoQ +13%, YoY +12%
  • EPS Q42019 (GAAP) = 0.58, QoQ -28%, YoY -28%
  • EPS Q42019 (non-GAAP) = 2.14, QoQ +12%, YoY +7%

So clearly, non-GAAP numbers look better than GAAP numbers. But didn’t Tesla respond to the SEC 4 years ago (HTML) saying they were going to stop non-GAAP metrics? Again, emphasis on non-GAAP measures draws in uninformed investors (pushing the price up), pressures short-sellers to close their position (further pushing the price up), then Tesla issues more shares at the higher prices.

Conclusion

Figure 1 illustrates a feedback loop that can help explain the extreme rise in TSLA stock. Figure 2 shows how the feedback loop has played out in the market via increased prices causing short squeezes. I presented qualitative statements from Tesla regarding profitability and self-funding and empirical evidence to the contrary (Figures 3, 4, and 5). I noted the role of the deregulatory environment that can lead to investor harm. I conclude by saying I don’t know what TSLA stock is worth. I am not licensed to provide financial advice in any jurisdiction on Earth. 🙂

-Dr. Moore

I almost forgot… Tulips!

Just go read the Tulip Mania Wikipedia page when you are bored: HTML.

Farmers Got Billions From Taxpayers In 2019, And Hardly Anyone Objected : The Salt : NPR

This NPR article is a very concerning read. Unfortunately, it exemplifies how the current administration operates. Farm bailouts are another government agency sidestepping congress to spend taxpayer money to advance the administration’s political agenda.

A quote from the article:

“ According to studies by several independent economists, the USDA is paying farmers roughly twice as much as the actual harm that they suffered from the trade war. And the payments are based on production; the bigger the farm, the bigger the payments. Thousands of farmers got more than $100,000 each. According to an NPR analysis of USDA records of payments made through July 2019, 100,000 individuals collected just over 70% of the money.“

I can’t speak for others, but I can speak for myself: this sure looks like buying (and overpaying for) votes of rural America while making everyone else (taxpayers) foot the bill. Paying larger farmers more money than smaller farmers appears similar to civil war times where those who owned “enough” slaves didn’t have to fight and die in the war. The effect? The many poor fought and died so the few rich could maintain and expand their ownership of slaves.

To me, small farmers getting paid little to secure their vote while larger farmers get paid substantially more is the same perpetuation wealth transfer from the many poor to the few rich. In other words, the wealth gap is widening at the behest of the current administration. And the widening is implemented on multiple fronts.

This administration, with tax breaks on both personal and corporate income, has done far more for the likes of Tim Cook (Apple up 80% last year) and Jeff Bezos (Amazon CEO) than virtually the entire base that voted for the administration. The rich have gotten way richer. The poor were bought off with some peanuts – and in some cases had peanuts taken away from them (700,000 losing food stamps this year).

Sorry this turned into an opinion piece. But hopefully this sheds some light on the tools used by the administration to widen the wealth gap.

Happy New Year!

-Dr. Moore

https://www.npr.org/sections/thesalt/2019/12/31/790261705/farmers-got-billions-from-taxpayers-in-2019-and-hardly-anyone-objected

The Efficient Christmas: Why Economists Hate Gifts : Planet Money : NPR

For this one you’ll have to listen to the nine minute podcast. It is pretty entertaining. I don’t want to give away the punchline but I’ll paraphrase the Efficient Gift Hypothesis:

“The gift that is wanted is already owned by the recipient.”

I’ll throw in a couple quotes that I keep in mind as my refuge during this time of year:

“I don’t commercialize Christ.”

“The greatest gift you can give someone is your presence, not presents.”

Happy holidays everyone.

-Dr. Moore

https://www.npr.org/2019/12/16/788587668/the-efficient-christmas-why-economists-hate-gifts

Lawsuit Claims SAT, ACT Are Illegal In California College Admissions : NPR

Just as important, in my opinion, is the article’s mention that “research has since shown that SAT scores are strongly linked to family income, and a student’s high school academic record, regardless of what school they attended, does a far better job of predicting college success.”

So, if there are better measures of predicting college success, why not just use those? I’m afraid, as usual, it comes down to money. But I won’t go into that here. It sounds like school systems like the University of California are already considering doing away with SAT/ACT in admissions. Perhaps it will take hold.

I told my son to pay attention, learn as much as possible, and get better grades in high school. I encourage all of you out there with children in high school (or earlier), particularly in California, to do the same. There’s a chance that either by law or by policy that your child’s high school GPA will be of critical importance in college admissions.

https://www.npr.org/2019/12/10/786257347/lawsuit-claims-sat-and-act-are-illegal-in-california-admissions

-Dr. Moore

Coal ?!?!?!: how an unwillingness to adapt and hypocrisy lead to bankruptcy – CNN

On Tuesday CNN released an article titled “America’s largest private coal miner files for bankruptcy”: HTML.

Allow me to quote the first eight words of the article:

“The slow death of the American coal industry” -CNN

I interpret this as: the industry had time to adjust to a changing environment and marketplace, but did not. The next sentence in the article states “bankruptcy has been telegraphed for years.” Again, no adjustments, just lobbying the government to help your business survive in a disappearing market. What I highlight in red draws attention to hypocrisy: On one hand, people like Murray Energy’s CEO push for “free markets,” “less government,” and “deregulation.” Then when stuff hits the fan those same people and entities crushed by the free markets they advocated go to the government they criticized for a bailout. Allow me to illustrate with another quote from the CNN article:

“The president [Trump] moved swiftly to slash environmental regulations and even installed a former coal lobbyist to lead the US Environmental Protection Agency. But the deregulatory push has been overwhelmed by market forces. Coal just can’t compete with cheap natural gas and the plunging cost of solar, wind and other forms of renewable energy.” -CNN

Note those market forces are not solely reduced demand in the United States. Coal exports have declined steadily as well. The demise of the coal market was clear, companies like Murrary Energy did not adjust, and now they file for bankruptcy protection. But before bankruptcy protection there was the desperate plea to the government (remember, the “less government” originally advocated for in the “free market” push) for a bailout. Another quote from the article bringing the “free market” hypocrisy to the fore:

“In August 2017, Robert Murray, a forceful Trump supporter, wrote a letter to the Trump administration urgently requesting an emergency order to protect coal-fired power plants from being closed.” -CNN

Note the request for an “emergency order.” Is this how the United States government should be run? Whenever Congress disagrees with the President the President declares a “national emergency”? Fortunately, in the case of Murray Energy “the Trump administration rejected that cry for help because officials determined there wasn’t enough evidence to warrant the use of emergency authority” (CNN).

Now this brings us to Dave Chappelle. What’s a comedian got to do with this? Well if you have Netflix (which I don’t) you may have seen his Equanimity series. In that series Chappelle references the coal industry times (transcript available here: HTML). In reference to listening to alleged coal miners in line to vote in the 2016 election:

“I listened to them say naive poor white people things. ‘Man, Donald Trump’s gonna go to Washington, and he’s gonna fight for us.’ I’m standing there thinking in my mind, ‘You dumb ****. You are poor. He’s fighting for me.’”” -Chappelle, Equanimity

Back to the CNN article, let’s see what is in store for coal mine workers:

“Mine workers stand to lose in the bankruptcy — not just in jobs but potentially in the erosion of healthcare and pension benefits. Murray Energy is the last major company contributing to the pension plan of the United Mine Workers of America. The pension plan’s depleted funding will only get worse if Murray Energy is relieved of its pension requirements.” -CNN

The Trump Administration has already cut taxes for corporations and lowered the rate for top earners (like CEO Murray, and people like Bill Gates, Jeff Bezos, Dave Chappelle, and other rich people.) So yes, Dave Chappelle, while standing in line to vote in 2016, was absolutely correct: President Trump, and his Administration, worked for wealthy people like Dave Chappelle and not the mine workers who are looking at losing their jobs, pension, and healathcare.

Now, why would a bankruptcy court relieve Murray Energy of is pension requirements? Again, to ensure wealthy people who invested into Murray Energy can recoup some of their investment. Again, this would be an example of the Administration working on behalf of the wealthy – and the very people harmed by this (the mine workers) are the very people that voted for this Administration. The same story can be told of the erosion of healthcare benefits: why erode them? So wealthy corporations and individuals can profit more at the expense of those who voted themselves on the path to that erosion.

I’ve rambled on enough now. However, I will share one more quote from Chappelle’s equanimity that humorously speaks to capitalism:

“I want to wear Nikes. I don’t want to make them shits. What the *** are you doing? Stop trying to give us Chinese jobs. ‘I am going to bring back coal.’ Coal?! I’m not even exaggerating… I have never in my life even seen a ******* lump of coal. I honestly don’t even know what coal is for. If you gonna have ******* digging in the dirt looking for shit, find me some truffles” -Chappelle, Equanimity

Actually, I believe truffles are found by certain dogs in certain regions of the world. But I’m not a truffle expert. I trust you get the point Chappelle was making and hopefully this CNN article about Murray Energy puts everything in context.

-Dr. Moore