It was the kind of dinner invitation I couldn't turn down. What I learned was amazing.
I usually prefer to spend my evenings at home catching up on my research, calling customers, and plotting my next great Trade Alert.
So, it takes a lot to get me out of my cozy digs, especially during an evening of rare torrential downpours.
Attending would be senior executives from Tesla (TSLA), General Motors (GM), and engineering professor from the University of California at Berkeley, and the California Air Resources Board.
The dinner was hosted by a retired billionaire from Microsoft at the top of the Mark Hopkins Hotel in San Francisco.
The topic for discussion would be the very long-term future of the car industry. I get invited to these things because the guests want to know how their views would fit in within a long term global geopolitical/economic context, my own particular specialty.
I didn't want to cramp anyone's style, so I kept my notebook under the table and scribbled away blindly, and illegibly. There's no particular story line here. I'll just give you my random thoughts that I picked up.
(GM) launched its second-generation Chevy Volt and followed up with the all-electric 238 mile range Bolt. The customer response was fantastic, and sales exceeded its monthly target of 3,000 units. The company is building a new $400 million battery plant on the east coast to help meet demand.
Some 60% of the buyers are coming from other auto makers. It is fast becoming the new face of Chevy, like the Corvette Stingray and Camaro of years past.
The future is in a 200-mile range $30,000 car, and the Volt is that car. Customers want to get away from oil and will only buy the products that do that, be they hybrids or all electric.
He also mentioned that GM is launching an electric bike, which is already widespread in Europe. Not a big needle mover there.
The Tesla guy then proceeded to jump all over him, saying the Volt was "green washing" as usual, since it represents only a tiny fraction of the company's sales. GM had a vested interest in promoting the internal combustion engine, in which it had made a century long investment. Its real focus can be seen in the giant new Suburban factory it was now building in Texas.
Mr. Tesla had driven from the south Bay with his S-1 entirely on autopilot. The hardware has already been pre-installed in every S-1 produced since 2014, and all that is needed to make them self-driving is to execute a wireless overnight software upgrade. Point to point self-driving will be activated in two years.
What is truly amazing is that each car will have a learning program unique to the vehicle. If it misses a hard turn the first time, it will remember that turn and then make it perfectly every time from then on.
The Tesla person said that once the new Gigafactory comes online, the company will be on schedule for a tenfold ramp up in car production by 2020.
The $35,000 Tesla 3 that will make this possible, which will be offered in two wheel and four wheel drive variations. That will take them from 100,000 units a year to 500,000.
I asked him if this means that if your wife suspects you of cheating, will your Tesla rat you out. He answered, "Only if she is a coder."
Then I wondered what would stop Tesla from selling your driving habits to marketers, who would then make special offers from stores you prefer. A previous Tesla experiment landed me a pair of Seven for All Mankind designer jeans for half off.
Tesla outsold every other luxury car of its class during 2017, including the Mercedes S class, the BMW Series 7, and the Audi 8. Among the US car industry, only Ford and Tesla have never filed for bankruptcy. Tesla is the first new car manufacturer to succeed since Chrysler made its debut in 1928.
I asked about the S-1 maximum single charge range achieved by a driver. An enthusiast in Norway managed to take one 800 miles on a flat track with no wind and perfect conditions. Wow! My drive from Lake Tahoe record of 400 miles doesn't come close.
I also enquired about the Cambridge University battery breakthrough (click here for "Battery Breakthrough Promises Big Dividends".
He said he was aware of it, but that it takes a long time to get a technology from the bench to the marketplace. Just with their own in-house tinkering, Tesla is boosting battery ranges by 3-5% a year. The current S-1 gets a 290-mile range, compared to my three-year-old 255-mile range.
The Berkeley professor made some interesting observations about Millennials. He said that while 75% of baby boomers got drivers licenses at 16, and 70% of Generation Xer's did so by then, only 55% of Millennials took to the road at that age. The rule of thumb for anything regarding Millennials is that they do everything late.
The gentleman from the Air Resources Board brought out some interesting facts. More than 80% of all cancer-causing chemicals entering the atmosphere come from diesel engines, so a major effort will be made to cut back emissions from commercial trucks. Look for the electric fleet coming to a neighborhood near your. Goodbye Volkswagen!
By the way, the State of California recently received a $800 million settlement from Volkswagen over the "dieselgate" issue. That money is being spent on 7,500 new charging stations for electric cars.
Workplace charging of employee cars will be the next big growth area for charging stations.
Half of all greenhouse gases derive from the burning of oil. The biggest savings in greenhouse gas emissions will come from a clampdown on the refining industry. Think Koch Brothers.
I was amazed at his commitment to meet California's goal of obtaining 50% of its energy from alternative sources by 2030. The oil industry, managed to exempt gasoline from the legislation, SB 350. But Governor Jerry Brown put it back in through an executive order.
The state is paying for the initial build out of hydrogen refueling stations for the new $57,500 Toyota Mirai. A single tank will take the fuel cell vehicle 312 miles.
The state is making major investments in biofuel, planning to obtain 10% of the 50% target from this source.
During a slow moment, I asked a woman sitting next to me of her interest in electric cars, expecting the worst. To my surprise, she said that last summer, she drove an electric bike from New York to Los Angeles, towing a trailer with a solar panel cut in half to provide power.
The southern route avoided the high mountain ranges. I noticed she seemed unusually tanned, and it wasn't from a can.
I was humbled. For once, I knew less about electric cars than anyone else in the room.
After the dinner, I went up to the Tesla executive and told him "Job well done." I owned one of the oldest S-1's, number 125 off the assembly line, and the clock had just turned 40,000, with no major problems.
I even tested their safety claims after a crash with a GM Silverado driven by a texting soccer mom (click here for "16 Facts and 6 Big Surprises I learned Tearing Apart My Tesla S-1").
Thank you Tesla! You saved my life!
Now, if only the stock will do the same! (click here for "About That Tesla Recommendation").
Oops!
Fill Her Up With H2 Please
"He who sacrifices freedom for security deserves neither" said Benjamin Franklin, the Revolutionary War US ambassador to Paris and signer of the Declaration of Independence.
Global Market Comments
December 4, 2017
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, OR THE CHICKENS COME HOME TO ROOST),
(DECEMBER 6 GLOBAL STRATEGY WEBINAR),
(CHICAGO WEDNESDAY, DECEMBER 27 GLOBAL STRATEGY LUNCHEON)
Well what an interesting day that was!
News that former National Security Advisor Michael Flynn had been arrested and turned state's evidence against the president, his family, and his campaign, ignited the most volatile day of 2017.
The Dow Average crashed 350 points in minutes as thousands of pre programmed algorithms simultaneously kicked on the sell side. US Treasury bonds (TLT) rocketed a full three points.
It was like the world was ending.
This could be the beginning of the end for a certain former resident of Queens, NY, but it may take another year to play out.
As if the day did not resemble the plot line of a cheap dime novel enough, the headline hit just as the Republicans were holding a crucial vote on the tax bill.
The Volatility Index (VIX), (VXX), soared 30% in seconds, to $14.50. "RISK OFF" hedges like gold (GLD) and the Euro (FXE) popped nicely.
It certainly was a day when the cautious were rewarded. Cautious people like you, who have hopefully been following my advice.
Me, being the opportunistic, ever nimble trader that I am, took advantage of the turmoil to add two positions to my model trading portfolio.
I used the extreme spike in bonds to re-establish my short position in the United States Treasury Bond Fund (TLT).
I also used the dip in bank shares to add a long position in Bank of America (BAC), which I think could double in value in the next 2-3 years.
The hallmarks of the week were new trends which I have been predicting for months.
Stock pickers viciously rotated out of FANG's and into financials, energy, and industrials. The Wednesday Silicon meltdown, where some stocks fell as much as 15%, confirmed this view.
Big money moved from growth to value.
With the economy heating up the way it is, it couldn't go any other way.
Consider it all an early preview of how stock markets in 2018 will play out.
I am sticking to the same game plan that has worked since 2009. Use every Washington and geopolitical inspired selloff to add to your longs.
In the end, it is all about corporate earnings, no matter what the president says, does, or has happened to him, and those are improving dramatically, as the hard economic data confirms.
You heard it here first.
By the way, the economic data continued to deliver a gangbuster performance. Q3 GDP was revised up from 3.0% to 3.3%, The Chicago Purchasing Managers Index came in at an absolutely blazing 63.0, a decade high.
These hot numbers are coming in not just for the US, but for every major economy in the world. It is all the Global Synchronized Recovery I have been predicting since January.
The global economy is really in the best shape since the 1990's. That is a tough thing to bet against.
While a poor risk/reward has scaled back my trading significantly, the Mad Hedge Trade Alert performance continues to press to new all-time highs.
November finished at 2.08%, and December is already up 1.43%. This brings my trailing 12-month performance up to 55.66%.
This coming week it is all about jobs, jobs, jobs.
On Monday, December 4, at 10:00 AM EST, the November Factory Orders are published.
On Tuesday, December 5 at 8:55 AM EST we get the Redbook for the previous week, a read on chain store sales, which should be fabulous.
On Wednesday, December 6, we obtain November ADP Employment Report on private sector employment at 8:15 AM EST.
The weekly EIA Petroleum Status Report is out at 10:30 AM EST.
Thursday, December 6 leads with the 8:30 EST release of the Weekly Jobless Claims.
On Friday, December 7 at 8:30 AM EST the November Nonfarm Payroll Report is out.
Then at 1:00 PM, we receive the Baker-Hughes Rig Count, which lately has started to turn up again.
As for me, I'll be performing like a FIFA World Cup goalie, fielding all of the Amazon packages sent my way. I was pretty busy on Black Friday and Cyber Monday.
"Short term volatility creates long term opportunity," said Rupal Bhansali, of the Ariel International Fund.
Global Market Comments
December 1, 2017
Fiat Lux
Featured Trade:
(THURSDAY DECEMBER 28 MINNEAPOLIS STRATEGY LUNCHEON),
(THE BRAVE NEW WORLD OF ONLINE RETIALING),
(SFIX), (M), (KSS), (GPS), (JCP)
(BIDDING FOR THE STARS), (SPX), (INDU),
(TESTIMONIAL)
In my wealth management practice, you helped me finesse September like a virtuoso. As my client's investments were crashing through their stops...I hung on.
Your sage counsel helped me ignore the noise, focus on the numbers and add to positions at a great entry point. The scar tissue you've built up over your career is no small benefit to your subscribers.
Thank you so much!
Brad
Bakersfield, California
Global Market Comments
November 30, 2017
Fiat Lux
Featured Trade:
(THE SILICON MELTDOWN FINALLY HITS),
(NVDA), (LRCX), (TSLA), (AMZN), (GS),
(THE GOVERNMENT'S WAR ON MONEY),
(TESTIMONIAL)
I remember 1900 like it was yesterday.
Work on the New York subway began. Women wore huge bustles under their skirts and cinched their waists to 18 inches to make themselves appear more attractive at social events.
The hot new consumer product of the day was the Edison wax cylinder player, the first device that allowed people to play music in their own homes.
The Dow Average brought in a pretty mediocre year, rising a scant 3.4% to close at $70.44.
There was one other thing I recall. The year 1900 was the last time stocks were priced as highly as they are today.
So says Goldman Sachs (GS) in a research report released today.
It was enough to set the cat among the pigeons with technology stocks, 2017's runaway market leaders, which in many cases saw whopping one day declines of 10%-15%.
Much beloved stocks I have been recommending to followers for years like NVIDIA (NVDA), Lam Research (LRCX), Amazon (AMZN), and Tesla (TSLA), running up 200%, 300%, and even 400% gains, we suddenly taken out to the woodshed for a beating.
Is it game over? Has the top been ticked? Should I panic and dump all my technology stocks?
We all knew this day would come.
The theory I have been proposing is coming true.
Technology would not roll over due to deteriorating earnings or a weakening business outlook. The sheer weight of high prices would do the trick, much like they did in Tokyo on the first trading day of 1990.
The Goldman report merely provided the match.
There are an unusual number of risks suddenly piling up for stocks as we rush pell-mell into yearend.
1) Passage of the tax bill could set off one of the greatest "buy the rumor, sell the news" dump of all time. Once the bill becomes law, what will be the next surprise to drive prices ever upward? Nothing.
2) The tax bill doesn't pass. That means we have to back out all the market gains of the fall, or a couple thousands Dow points.
3) An enormous amount of tax selling has been deferred to January to take advantage of perceived lower tax rates. When a ton of selling is about to hit the market in January, what do you do in December? Not much.
4) If you sell your technology stocks now you get paid your annual performance bonus in January. If you lose all your profits before then, you won't.
5) The bitcoin fever is becoming so overheated that it is starting to suck money out of other asset classes. Since Thanksgiving, 100,000 new bitcoin accounts have been opened, mostly by Millennials.
The global cash glut is becoming so severe that we are having to invent new assets out of thin air just to soak up the surplus. Welcome to bitcoin, where 2018 yearend forecasts are now exceeding $50,000.
6) Did I mention that the government is shutting down on December 8?
The tech wreck prompted a vicious sector rotation out of the FANG's and into financials and retail. The move into banks will be sustainable through all of 2018. The switch into retail won't.
Is this REALLY the end of tech?
I don't think so. While the sector periodically suffers serious draw downs, with lead stocks like Apple backing off 40%, they always come back.
That's because the actual technology produced by these companies is hyper accelerating, thanks to artificial intelligence.
Tech isn't dead. It is just resting.
And by the way, will readers please quit asking me if they should buy retailers because they have gone down so much? It is a sector that's NOT coming back. It's a lot like buying buggy whip manufacturers....in 1900.
No, It's NOT Dead
When I lived as a student in West Berlin during the 1960s, I had a nice little side business.
I organized weekend walking tours through the Berlin Wall at Checkpoint Charlie to visit East Berlin for American students too afraid to go alone.
To pay for it, I smuggled US dollars my customers paid me in my boots which I used to buy Ostmarks in the East at a 75% discount to the official price. I then covered lunch and all my other bills, booking a nice profit on the day.
That would be much more difficult to pull off today, as governments around the world have launched a war on cash that will not end until its ultimate demise.
The truth is governments hate cash.
This became clearly apparent when the government of India withdrew circulation of its two largest banknotes. Some 50% of Indian GDP is thought to take place in the underground economy in cash only.
The move caused a financial panic, as consumers sold gold (GLD) and other hard assets to meet bills because they were unable to settle accounts with the large denomination notes they had hoarded.
As we move towards an all-electronic economy, the few remaining purposes where cash is essential are largely illegal.
When I lived as a student in West Berlin during the 1960's, I had a nice little side business.
I organized weekend walking tours through the Berlin Wall at Checkpoint Charlie to visit East Berlin for American students too afraid to go alone.
To pay for it, I smuggled US dollars my customers paid me in my boots, which I used to buy Ostmarks in the East at a 75% discount to the official price. I then covered lunch and all my other bills, booking a nice profit on the day.
That would be much more difficult to pull off today, as governments around the world have launched a war on cash that will not end until its ultimate demise.
The truth is, governments hate cash.
This became clearly apparent when the government of India withdrew circulation of its two largest banknotes. Some 50% of Indian GDP is thought to take place in the underground economy in cash only.
The move caused a financial panic, as consumers sold gold (GLD) and other hard assets to meet bills because they were unable to settle accounts with the large denomination notes they had hoarded.
As we move towards an all-electronic economy, the few remaining purposes where cash is essential are largely illegal.
Waitresses, babysitters, and bookies don't report income to the IRS. Nor do drug dealers.
This is a big deal because eight states legalized marijuana in the last election.
Since banks are still banned from handling pot proceeds, this booming business has to take place entirely in cash. Tales about of dealers making their runs with shopping bags full of $100 bills are rampant.
The IRS estimates that $460 billion in tax revenue is lost every year through unreported income, which is largely earned in cash.
Some half of the entire US paper money supply is held by foreigners, where it is used to evade taxes, bribe foreign officials, and finance terrorism.
The US government's war on cash is not a new thing. In 1929, it cut the size of US banknotes by one third to save money on the cost of high-grade paper.
In 1970 the US Treasury banned the circulation of the $10,000, $5,000, $1,000, and $500 bills to halt mafia money laundering. Since then, the IRS has been the biggest beneficiary of the move.
Large denominations US bills are now solely the domain of collectors.
The US government would love to get out of the cash business, as it is so expensive to run. It spends about $737.4 million a year just to print American $1, $2, $5, $10, $20, $50, and $100 notes.
Paper dollar bills, which are actually made of 75% cotton and 25% linen, are completely worn out and have to be returned in only 18 months.
Coins are even a bigger loser. It costs more than two cents to make a penny.
Since the advent of color printers, counterfeiting has exploded. North Korea runs almost its entire economy on fake $100 bills, which are said to be the best in the world.
Today, some 80% of the entire $1.34 trillion M1 notes and coins in circulation in America are in the form of $100 dollar bills. That works out to $4,200 per person. Where has all that money gone?
The US is now considering eliminating even this convenient denomination. While $1 million in $100's can fit into a tote bag, that quantity of $10 bills would weigh 220 pounds, a quantity much more difficult to sneak around.
An all-electronic economy would certainly pose some privacy problems, as it would leave a massive paper trail on everything you do.
When you get audited by the IRS, the first thing they do it obtain your past three years of bank and credit card records detailing your every transaction.
State authorities will pursue phone records to establish your physical presence to verify residency. So how long did you really spend in tax-free Florida last year?
It would also pare back illegal immigration, as this is another industry that runs entirely on cash. Once here, undocumented workers are often paid in cash in restaurants and on construction sites.
There is truly no place to hide.
Other countries are already well ahead in the war of cash. In Belgium, some 93% of all financial transactions take place electronically.
Sweden has also been pushing hard on this front, taking the M1 money supply there down by 27% over the past two years.
Many small businesses there now post signs saying they don't accept cash. The goal is to move to an all-electronic economy.
The preferences of Millennials are also moving us towards the cashless economy.
Have you every been in line at Starbucks and noticed that the kid in front of you just paid $2 for a cup of coffee with his credit card? Or maybe he swiped his Apple Pay account on his iPhone?
Whatever the means, it is clear that hard cash is about to become a dinosaur.
