Chevy Volt a Failure - GM to Layoff 1,300

Tesla's market cap is double GM and Ford's. ... combined! . ... While it lasts, at least.

The stock price was $200 when the Fed began the repo operations (not QE!) in September. The amount of short-term liqudity they have pumped into the casino over the last 4 1/2 months has been awesome. You can see it directly in Tesla's stock price.

The ECB and BOJ have done their part with ultra loose monetary conditions and runaway balance sheets of buying up mispriced assets with money created out of thin air that have had money globally chasing risk for years now. But not to be outdone, China cut its reverse repo rate and has pumped in more than $170 billion in short-term liqiduity into its banking system over the last 2 days alone in response to the virus (because printing an insane amount of money all at once addresses a virus, naturally). It corresponds exactly with Tesla's stock going batshit crazy -- gapping up the last 2 days.

There has been an insane amount of money on the back of mispriced debt sloshing around the world for the last 6 to 11 years thanks to out of control central banks. It should have been criminal, because while you create a lot of temporary paper wealth for rich people doing that, and people cheerlead it while it is going on, the debt bomb it leaves behind is deadly and has longer-lasting economic consequences than the sugar high did. ... the world has gotten below trend economic growth for it during that time.

Tesla is a side show, just as Pets.com was in 1999. But what most people don't understand (and haven't during the build up to where we are getting to), is that the monetary manipulation and debt levels that led to the dot-com bubble were downright quaint compared to the Frankenstein they have created this time around. ... and why? To prop up their self-made debt mess that created an economic fantasy that should have ended in 2008 with a lot of pain (but when it was more manageable as bad as it was). Instead, they have created something much, much worse to keep up a charade. In the aftermath of this, the typical person isn't going to be that focused on the time that Tesla's stock went parabolic, unfortunately.

For anyone thinking about buying Tesla's stock here (although I doubt many of you are), ponder this. ... Let's say that Tesla is a viable company with good long-term prospects. Put aside the price to sales ratio that puts it in the range of someone buying a pack of gum for thousands of dollars. The tech stocks that survived the dot-com bubble took a very long time to get back to where they peaked in 1999. ... and that took another bubble being blown (something the Fed likely won't be able to do again in the wake of the coming debt implosion, although I am gobsmacked by what they have been allowed to do since 2008). Priceline took until 2013 to get back to where it was in 1999. Amazon took until 2014. Cisco took until 2018. That doesn't include the companies that went bankrupt. It took the Nasdaq as a whole 15 years to get back to its dot-com highs.

 

There have been a lot of shorts who didn't just walk away. ...they were forcibly sold.

That is the thing about shorting a stock. Your upside is defined. The possible loss is infinity. And if you don't have the margin, you get forcibly sold out.

I have followed this company really closely since it went public, and I feel like I know it very well. I don't often trade stocks, other than the futures indexes, and I do that on a technical basis, not based on anything fundamental. ... the way I would an individual stock like this in an environment like this, if I was ever going to do it.

On a fundamental basis I have been tempted to short Tesla or buy put options about 1,000 times. It has been the RIGHT trade. ... It was the right trade when the stock was at $70 a share. ... 10+ billion dollars worth of debt, diluted equity, myriads of bullshit and annual losses ago.

The problem is that in a bubble world, I knew they could blow the bubble way bigger than my ability to remain solvent. Still, I honestly never imagined they would get us to where we are now. It's insane.

 

So not just the two years you are talking about. But heading into 2016, Microsoft had less han $28 billion of long-term debt. Today, it has more than $72 billion.

During that time, Microsoft has embarked on two share buyback programs of $40 billion each, the last one announced in September. It's actually the third time it did that, it did a $40 billion buyback program in 2013. All of this has been during a period in which the Federal Reserve has manipulated real rates to zero (it is free to borrow) to prop up a fantasy of its own making.

Those buybacks artificially juice the stock price by decreasing the number of shares, which brings up the earnings per share, which in turn attracts buyers -- in a short-termism way.

There is nothing wrong with buying back your stock -- IF you think the stock is not being valued correctly and you are getting it at a bargain price. It can be a fine use of capital if you are using operating profits the company generates with its success, and you look around and buying back your own stock looks like a better value than some sort of capital expenditure.

In the case of Microsoft and a lot of companies that have loaded up with debt to buy their stocks back, that isn't the case. They are buying at very expensive levels, with the rationale that it has been so artificially cheap to borrow money (there is no cost) that they it it feels OK to load up on debt and return money to their shareholders. Shareholders love it and agitate for it. Management loves it because it makes them wealthy via their stock options.

It's not a direct transaction, but it is the equivalent of taking cash advances on a credit card at a teaser rate and having a big party with the money, without any regard for what happens down the line. Or put in the context of the Fed's last mess, taking out mortgages because the interest rates don't calibrate to the actual risk, and flipping houses because the prices are just going up, up, up, so what can possibly go wrong?

In the case of Microsoft, it is not very likely to bankrupt the company (I am not comparing Microsoft to Tesla, for example, or all the zombie companes out there with a lot of debt and no earnings) when it goes bad for them, because they have a real business that generates a ton of free cashflow (at least today they do), so presumably they will be able to keep servicing all of the debt they have racked up. In the long-run, though, it is going to prove to have been a collasal waste of money and a huge mistake -- misallocated capital, which is what the Federal Reserve has done to us -- because they are buying their stock at super expensive levels. And all they are likely to have down the line for it is, 1) a lot of debt that they will have to service, with 2) the equity they brought back into the company worth a fraction of what they paid for it. It will weaken the company in the long run.

But Microsoft's stock price directly correlates to the massive buyback programs it has done. In the wake of all of this, people will look back at this period and shake their heads.