Tuesday, November 19, 2019

Trial Date for Vernon Unsworth v. Elon Musk Defamation Case

One of Elon Musk's many legal tangles, Vernon Unsworth v. Elon Musk (2:18-cv-08048-SVW-JC) is in federal court in the California Central District. From yesterday's order denying Musk's motion for summary judgment:

For the reasons discussed above, the Court DENIES Defendant’s motion for summary judgment. Dkt. 58. The jury trial remains scheduled for December 3, 2019 at 9:00 a.m., with pretrial on November 25, 2019 at 3:00 p.m..

Tesla Enterprise Value Now Over $75 Billion

Monday, November 18, 2019

November 18th Links

  • Mark Twain read the Book of Mormon and, knowing what Smith would have read, not to mention knowing about frontier fakery, came to conclusions about both the sources of its prose and the sequence of its composition. [New Yorker]
  • Hugh liked to tell the story of a statue that had been exposed as a forgery. In the nineteenth century, it had been passed off as an ancient Etruscan sculpture; but in the twentieth century a sharp critic had detected its recent origin. How? The forger had endowed it with the ancient Etruscan mannerisms he could see; but also, unconsciously, with the nineteenth-century mannerisms he couldn't see. His contemporaries couldn't see them either, so for a while the counterfeit succeeded. But as fashions changed, those nineteenth-century mannerisms "rose to visibility." As Kenner put it, "The style of your own time is always invisible." This was a favorite moral of his. You have to be alert for the unconscious assumptions you share with your own era. Conservatives and radicals, thinking themselves opposites, may actually share the same prejudices without being aware of them. [link]
  • In his book "The Counterfeiters," Hugh Kenner tells of asking a museum director what had alerted her to a suspected forgery of the horse. "Simple," she said. "The faker had worked into that horse every Etruscan mannerism he knew about and every 19th-century mannerism he didn't." [NY Times]
  • The document known to us as the Donation of Constantine is one of the most famous medieval forgeries. Written at an unknown date and place in the heart of the Dark Ages, for unknown purposes, it was embedded in the Forged Decretals in the early 9th century, and so drifted into the main collections of legal material used in the Middle Ages, including Gratian's Decretum. In the absence of a stable political environment in Italy from the collapse of the Roman empire to the establishment of the modern Italian state, the papacy was obliged to provide for its own security. The document was used to justify it doing so. The text purports to be a legal document issued by the Emperor Constantine, transferring control of Italy and the western provinces to Pope Sylvester in gratitude for being cured of leprosy. The renaissance Popes, whose spiritual role seemed often secondary to their function as the heads of a minor Italian state, used it extensively to oppose the territorial ambitions of the great powers and support their own. But in the Renaissance, for the first time in a millennium, it was possible to compare such documents with the genuine products of antiquity. St. Nicholas of Cusa was one of the first to notice that the Donation did not agree with the picture given by other documents. But it was left to the quarrelsome but brilliant scholar Lorenzo Valla to make public that the document was a fraud. This he did around 1450, while working for King Alfonso of Aragon, Sicily and Naples, who was attempting to make claims to various parts of Italy. [link]
  • In general, there are three ways to trace art forgeries, namely detecting anachronisms, comparison with the artist's palette and differentiation based on impurities. The term "anachronism" points to an error in chronology, especially a chronological misplacing of artifacts. [Infrared and Raman Spectroscopy in Forensic Science]
  • The stock market may be efficient, but emulation is the way of the world. Take a good idea. Drive it into the ground like a tomato stake. Boom: It's a bad idea. Private equity was one such good idea. You borrowed the money with which to buy a nice, stable public company. You didn't overpay. You leveraged the balance sheet, but you didn't overleverage (well, you usually didn't). You fixed up the operations, extracted fees, and paid yourself a cheerful dividend. When the time was right, you sold. [Barron's]
  • Trump left the stage and we rushed off to his plane to fly to New York. Vitale whispered to me, in effect, "Get this book out fast. He is a wasting asset." On the flight, I was watching Trump carefully to see how he was doing. I couldn't spot a trace of anxiety. I don't remember anyone mentioning the story or his finances. After a sumptuous lunch of shrimp, charcuterie, and assorted desserts, Trump took Maples into his private cabin and reĆ«merged about ninety minutes later. Considering the Journal story, I would not have been surprised had he opened the jet's door and jumped out. And yet he seemed unfazed. [New Yorker]
  • Hovnanian Enterprises Inc. is a homebuilder with Caa1/CCC+ credit ratings and a history of creative debt refinancing, and today it announced the commencement of its latest refinancing, which features 1.75-lien notes. This follows the announcement last week of the completion of another Hovnanian refinancing involving first-lien loans, 1.125-lien notes, 1.25-lien notes and 1.5-lien notes. There are also existing second-lien notes, and unsecured notes. The list is therefore (1) first-lien, (2) 1.125-lien, (3) 1.25, (4) 1.5, (5) 1.75, (6) second-lien and (7) unsecured. If you have second-lien notes, you are sixth in line. [Bloomberg]
  • If your market is highly competitive, you may need to spend nearly as much to acquire your customers as you derive from their full lifetime value in order to win the bids to display your ads to those customers, so you may need a ratio like 1.5::1. If there is less competition for your customers, or you prioritize profitability over quantity, you can maximize your returns by targeting a CLV to CAC ratio as high as 4:1. [link]
  • Theroux is also as acerbic as ever. Entering Puebla, he writes that "[t]here is not a big city in Mexico — no matter how charming its plaza, how atmospheric its cathedral, how wonderful its food, or how illustrious its schools — that is not in some way fundamentally grim, with a big-box store, a Sam's Club, and an industrial area, a periphery of urban ugliness that makes your heart sink." [LA Times]

Saturday, November 16, 2019

Wallace Stegner on the Western U.S.

From Beyond the Hundredth Meridian: John Wesley Powell and the Second Opening of the West. Born in 1909, Stegner wrote it in 1954.


A firmly fixed pattern of settlement, of which the rectangular surveys and the traditional quarter-section of land were only outward manifestations, though in some ways determining ones, began to meet on the Great Plains conditions that could not be stretched or lopped to fit Procrustes' bed. A mode of life that despite varying soils and a transition from woods to prairies had been essentially uniform from the east coast through Kentucky and Ohio and on to the Missouri or slightly beyond, met in the West increasingly varied topography, climate, altitudes, crops, opportunities, problems. The Middle West, geographically and socially and economically, was simple; the West was complex. Instead of the gentle roll of the great valley there were high plains, great mountain ranges, alkali valleys, dead lake bottoms, alluvial benchlands. Instead of trees or oak openings there were grasslands, badlands, timbered mountains, rain forests and rain-shadow deserts, climates that ran the scale from Vermont to the Sahara. And more important than all the variety which was hostile to a too-rigid traditional pattern was one overmastering unity, the unity of drouth. With local and minor exceptions, the lands beyond the 100th meridian received less than twenty inches of annual rainfall, and twenty inches was the minimum for unaided agriculture. That one simple fact was to be, and is still to be, more fecund of social and economic and institutional change in the West than all the acts of all the Presidents and Congresses from the Louisiana Purchase to the present.
Where water was available an irrigated farm was the safest in the world, for it depended on no meteorological luck, and properly watered it had its fertilizer spread upon it naturally every year in the form of silt. One hundred and sixty acres in the arid region was utterly incapable of supporting a family without irrigation, but with irrigation it became more than one man could handle. Irrigation agriculture was intensive, it took time and care, and it produced extravagantly. Powell therefore recommended eighty acres as the homestead unit for irrigated farms. But for pasture farms he proposed units of 2560 acres, four full sections, sixteen times the normal homestead. This was calculated to shock the orthodox, and yet in making the suggestion he apologized to many of his Western friends who assured him that he had made the unit too small.
Montana had 35,000,000 irrigable acres, 35,000,000 acres of mountains useful chiefly for their minerals and timber, and 20,000,000 acres of range. Those figures alone had profound institutional - and hence political - implications. Farmers on the irrigable acres needed to control the adjacent mountains, not merely for their timber but for their water-storage facilities, and for their potential exposure to erosion and floods and destruction of the watershed. The relations between mountains and plains wwas so close that the two should not be politically separated. And on the strength of that relationship and of the abiding importance of water ("all the great values of this territory have ultimately to be measured to you in acre feet") he made a set of proposals.

What he suggested was so radical that it could not possibly have any effect on the delegates, so rational that it could not possibly come to pass short of heaven, so intelligently reasoned from fact that it must have sounded to Montana's tradition-and-myth-bound constitution-makers like the program of a crank.

He proposed simply to organize the new state of Montana into counties whose boundaries would be established by the divisions between hydrographic basins rather than by arbitrary political lines drawn on the map. Such basins, already being plotted out in Montana as in other parts of the West by his survey crews, were natural geographical and topographical unities; they might be given political and economic unity as well. Within any drainage basin, timber, grazing, and agriculture were all tied together by the controlling element of water. Suppose local self-government were established within each basin; suppose the federal government ceded to each basin-county all the public lands within its limits; suppose water rights within those limits should be established by locally elected water-masters and enforced by local courts. That way, they could lessen and perhaps eliminate litigation, friction, water-wars, multiplying costs. If it chose, Montana could organize itself and set a pattern for all the still-forming states of the West.

[...] In Montana the race was as cussed as elsewhere. It went ahead and organized the new state according to the tried and true patterns of more than a hundred years, with county lines marking none but the political drainage basins, and county seats competitively chosen in the atmosphere of deal, coup, and horse-trade. The water that was the state's lifeblood was not neglected, but its control was left open to franchise and purchase and grab, and its management confused by four dozen illogical political dividing lines.

Thursday, November 14, 2019

Thursday Bonus Links

  • My suspicion is that Bloomberg with do this: Run hard for the Dem nomination, but if he doesn't get it, he'll run third party with the intention of pulling away enough votes from the Dems to put Trump back in office. I suspect he prefers Trump to anyone on the left, because he knows Trump won't tax him into oblivion. It was when Warren became the front runner and start spouting off about her tax the billionaires plan than Bloomberg suddenly started talking about entering the race again. This is not an accident, and I'll bet Bloomberg got a LOT of phone calls from other billionaires begging him to run right after Warren released her tax plan. Warren scares the heck out of them, and they think she's serious. [Sailer]
  • It's surprising how few times in history we've observed record market highs, while at the same time, our measures of market internals were unfavorable, fewer than 60% of individual stocks were above their respective 200-day averages, and the weekly total of individual stocks hitting 52-week highs had contracted by more than 30% from its 6-month peak. In recent decades, those instances include (exhaustively): today, the September 2018 pre-correction peak (immediately followed by a nearly 20% decline during the fourth quarter), September 2017 (uneventful), July 2015 (followed by a 12% correction over the next 6 weeks), February 2015 (uneventful), October 2007 (the precise bull market peak, followed by a 55% market collapse), December 1999 (a few percent below the ultimate 2000 market peak, yet nevertheless followed by a 9% correction over the next 8 weeks before the market staged its final advance), and July 1998 (followed by a 19% correction over the next 6 weeks). To find another instance, one has to look as far back as November 1972 (about 4% below the January 1973 market high, and followed by a 50% market collapse). [Hussman]
  • [F]armers carry it on incessantly, without challenge or reprisal, and the only thing that keeps them from reducing us, at intervals, to actual famine is their own imbecile knavery. They are all willing and eager to pillage us by starving us, but they can't do it because they can't resist attempts to swindle each other. Recall, for example, the case of the cotton-growers in the South. Back in the 1920s they agreed among themselves to cut down the cotton acreage in order to inflate the price - and instantly every party to the agreement began plainting more cotton in order to profit by the abstinence of his neighbors. That abstinence being wholly imaginary, the price of cotton fell instead of going up - and then the entire pack of scoundrels began demanding assistance from the national treasury - in brief, began demanding that the rest of us indemnify them for the failure of their plot to blackmail us. [Mencken Chrestomathy]
  • James Dagnon, another Boeing executive, said that engineers had to accept that they were no longer the center of the universe. "We laughed," Sorscher recalled. "This is an engineering company—these are complex, heavily engineered products. Of course we're the center of the universe. But he wasn't kidding. We didn't get it. Who is the center of the universe? It's the executives." [New Yorker]

Tuesday, November 12, 2019

Correspondent Comment on Tesla New Highs

Yesterday we pointed out that Tesla is now trading at a record enterprise value of $73 billion. One of our readers pointed out how strange that is given the business results:

Last year in Q3 they had their best quarter ever. I was surprised, so were many and the stock reacted incredibly well. This year, the stock has arguably reacted even better but here is what I see as the differences:

  • Q3 2018 was better than Q3 2019, on revenue and on earnings – hence y/y declines in both
  • Q3 2018 was way better than Q2 2018, showing major sequential improvement – this year there was a decline in revenue from one quarter to next
  • Last year in Q3 it was Tesla's first quarter with full scale Model 3 production, so there was this blue sky that could be imagined that the company had finally created a product (the Model 3) that at scale would change the trajectory of the company forever. I don’t understand what that blue sky is this year. 
  • The improvements from Q2 to Q3 this year seem to have been all on the cost side since revenue actually went down, and isn’t that the opposite of blue sky? 
  • The company has proven in the past that one or two good quarters are usually created by loading everything they could into them, and they are usually preceded and followed by brutal quarters (hence why their GAAP EPS since that great 2018 Q3 and including it (5 quarters), has been negative $3 a share)
So all I can think of is that it was an enormous short-covering rally. Usually seeing things like ARK selling and retail selling, would be met with a pop and fade, but not here. I have seen so many anecdotes of Twitter Tesla bears covering and moving on, so that hasn’t really happened before. I guess there could be fundamental buyers, but I just can't understand what has changed that much unless this theory applies that people are just so convinced that Elon controls earnings from here on out and will keep finding ways to make them "great."

Monday, November 11, 2019

Tesla Now Trading at Record Enterprise Value of $73 Billion

The share price of Tesla has absolutely exploded since hitting a low of $176.99 on June 3rd - it has almost doubled to $346. It has not quite reached the all time high from August 2018 of $387 that was after Elon's $420 per share going private announcement.

However, Tesla's debt has been growing and so has its share count. Total liabilities were $17 billion at year-end 2016 vs $25 billion at the end of Q3 2019. (Remember that Tesla's revenue over the past twelve months was $24 billion. No other auto manufacturer has an enterprise value of more than 0.6x revenue. This obviously raises the question of whether Tesla's business is worth as much as its liabilities. Remember Adam Jonas observed in May, "even at a zero dollar equity value the enterprise value to sales ratio of Tesla would be 50% or so higher than VW.")

And like any unprofitable "tech" company, Tesla's share count continually grows. The result is that the enterprise value of Tesla is now at a record high:

Also, while Tesla's revenue over the past twelve months was $24 billion, sales are now falling year-over-year. Revenue from 2019 year-to-date was $17.2 billion, which annualizes to $23 billion. That means that the EV is now 3.2x a no longer growing revenue. That is absolutely insane for an automotive manufacturing company - too high by an order of magnitude!

The banks handling the WeWork IPO said that company was worth as much as $100 billion despite being unprofitable. There seems to be something really wrong with the markets. Sums of money like tens of billions just do not mean that much anymore.

It is hard to think of a catalyst for things to be normal again besides rising interest rates. When the ten year Treasury yield went above 3% in late 2018, the bubble seemed to deflate. Now with falling interest rates things seem to be crazy again.

Some of our previous posts on Tesla: