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I appreciate what Ford has attempted to do with electric vehicles but what few understand is that electric cars are still a cult in the US. And that cult is the TSLA cult. It's not unlike the early iPhone. They have problems, they don't really perform the way they say they perform and there are serious issues at the edges. The question is; will TSLA prove to be another AAPL or will the legacy companies overtake them. I've no dog in this fight but I find it quite interesting.
Maybe this Supreme Court will finally go so far over the line in their rulings next June that even overly-cautious Uncle Joe will agree to expand the court and put these people out of business. Of course that would mean that Dems would actually show up and vote. Hope springs eternal, (stolen from Alexander Pope). I also occasionally steal "damn with faint praise".
Or they may be like Alaska, it's simply running out of oil retrieved at a reasonable cost.
Putin is planning on Trump in 2024 to bail him out of his horrible miscalculation regarding Ukraine. The disinformation on the next election cycle will be epic.
But how long will they hang around this level? I'd certainly like to know. I'll be adding to my preferreds over the next few weeks as I think we're getting close to a pinch-point in consumer spending for this cycle.
I was listening to How I Built This today and the entrepreneur was a Cal Tech grad that decided to build an AI vision assisted robot to sort recycled items. It's taken 10 years, but now his robots are 95-99% correct in sorting, (based on the client's requirements), where people are closer to 90% because it's a disgusting, horrible job no one really wants. His company can fully automate a line over a weekend. Currently only 35% of possible recyclable products actually get recycled. He thinks he'll cut the cost by 50-80% by the end of the decade. Although he didn't specifically recommend it, he did mention that money from recyclables was a growing income area for WM. For my investing style, WM is a bit expensive today but then I've thought that about John Deere for a long time..:).
The link redirected me to WSJ comments. Appreciate your direct thoughts. Thanks.
If I were still supporting any Republicans I would need many a "doubled-barreled Scotch whiskey". Of course, David Brooks has always been one of the NYT diversity morons. The rest of the staff has to have someone to laugh about in the lunch room.
I think it's important to distinguish between Elon Musk the liar and all around jerk and Elon Musk the entrepreneurial genius. I thought the Wired article posted by biocqr made an excellent point; the three traditional majors are still trying to build ICE vehicles with batteries instead of gasoline powered engines. I understand that's a bit unfair but he's been building a software company that also builds cars from day one. These three are still building cars that attempt to use software to provide some modern features.
Agree or disagree with the UAW and their employees, it's a gift to Musk. As if he needed a mulligan.
On top of student loan payments beginning again, another pandemic era program is ending for child care assistance. It's estimated that as many as 30% of licensed child care facilities will shut down as they will not be able to raise prices enough to cover expenses. Child care cost averages just over $10,000 a year.
Still fighting the ghost of the 1970s.
Maybe not as clearly as I could have proposed, I was talking about those folks living on Social Security and making near $44,000. The median income in 2022 for retirees in the US is ~$47,600. That's just enough to get you into the 85% taxable arena. As you said, thanks Mr. Morning in America.
A couple of notes on munis. Since we moved to Maryland I've been looking for municipal bonds that make sense but they tend to trade above par and net close to 3%. For us, that doesn't make sense. Also, if you collect social security, munis can cause your social security to be taxed. How is it that old people on a limited income think anyone in the Republican party is their friend?
Bought some 6, 9, 12 & 18 month treasuries for ~5.5-5.4%. The short term spread between CDs and treasuries is so small the state and local tax exemption makes them a marginally better investment. My preferreds are hanging in there but they really won't begin to move up until the Fed decides they've applied enough pain to the economy. The UAW is helping. How long can they give their workers $500 a week and what middle class family can live on that? As student loan payments ramp up and the economy begins to cool I'm watching personal debt. It's been going in the wrong direction for a while now.
I don't think the entire article says much more than the headline, but this is enough. From the WSJ:
Fed Holds Rates Steady but Pencils in One More Hike This Year
Stronger growth prompts officials to project that rates will stay higher for longer in 2024
It's more fun watching the market gyrate without listening to what Powell says. Not sure what he's been saying but the market had almost recovered before he started at 2:30. Now it's taking a Powell Plunge.
Trump is going to speak to the UAW to tell them he supports their cause. He will, of course, tell the auto companies not to worry, just support him in his run for president. This snake appears to be figuring out how to lie like a real politician. See Reagan, Bush, Clinton, Bush Jr. and Obama. All of them let us slide slowly toward fascism. But unlike all the other politicians who've been recent presidents, this one has no desire to keep the current system of government in the US.
No, this is going to blow-up in China. It won't be good for our economy, (or others), but not a disaster.
OK, that was hilarious. I read that post and thought what the hell does Twitter have to do with US Steel...:).
China's housing crisis is only getting worse. From the WSJ:
An Even Bigger Housing Crisis Threatens China’s Economy
Two years after Evergrande’s fall, distressed property giant Country Garden could create worse problems
https://www.wsj.com/world/china/china-economy-housing-country-garden-ea0db13f?mod=economy_lead_pos1
This sign at water's edge in the nearly bankrupt Southern Malaysian city of Forest City. That's Singapore across the water. The idea was that China's citizens could have easy access to Singapore without the high cost. It's one of thousands of ghost projects owned by Country Garden.
I read this article over the weekend Nick. While the thesis is reasonable I wasn't excited about his #1 recommendation; ADC.
I'm beginning to look for a few income investments now that some sectors of the market are down again. Companies like PFE may overshoot to the downside now that their COVID based earnings are faltering. It still looks like it has farther to fall but it's worth watching as long as their new M&A based debt doesn't hold back earnings.
That's good news Elroy. Having lived in CA in the '70s-'80s I can remember when Reagan did this and the devastating effect it had on the mentally ill, their families and to a lesser effect, the public as a whole. Then this libertarian disease spread to the rest of the country. People under 50 in the US have never seen a time when homelessness is not a massive problem. The great majority of it is caused by mental illness and drug addition and the two issues are highly correlated.
Not to worry Elroy, Trump is still trying to understand why 10% of free is still free.
Interesting ideas and I think anyone trading options regularly would have noticed that the final options week of trading each month is often more volatile. As he noted, it can be even more volatile at the end of a quarter. This idea isn't dissimilar from the work I was attempting to do last year where I'd find the balanced price for all S&P 500 options. If that price is drastically higher or lower than the current SPX price, there is a tendency for market makers to push prices toward a more balanced SPX close that Friday. At least it appears they do this because when options and the SPX are out of balance, options tend to expire with less value than they had the previous week. It's an idea that proved to be a lot of work to complete with not a lot of value unless one were trading millions of dollars. While I'm sure markets are manipulated in the short term, good luck proving it. It's better to just use TA to help understand when that may happen and which direction stocks and/or markets will be pushed.
Why not, that logic works several ways.
Good article from Barron's regarding climate related mortgage risk.
Mortgage Lenders Face Climate Risk. Why It Might Be Worse Than Insurers
The U.S. housing market is facing increasing risks from more frequent and damaging natural disasters. While insurers are the first to endure the losses, the mortgage industry might be in a more precarious position.
Since insurers renew policies every year, they can raise premiums or cut underwriting when a market becomes too risky. Mortgage lenders, on the other hand, could be stuck with a property—and its risks—for as long as 30 years, often on fixed interest rates.
When natural catastrophes hit, insurance payouts don’t always cover the total costs to rebuild. Homeowners could have difficulties making mortgage payments, especially as high insurance costs further strain their bank accounts. In extreme cases, the damaged properties might not recover at all. But such risks aren’t incorporated in mortgage pricing.
“If you are underwriting a 30-year loan on a property at the Outer Banks of North Carolina, which will likely be washed into the ocean in 10 years, it needs to be taken into account very explicitly,” says Eddie Seiler, executive director of the Research Institute for Housing America at Mortgage Bankers Association. “We’re not there yet as an industry.”
Even when insurance covers the physical damages, home values in disaster-prone areas could fall if more people move away, leaving lenders and investors of their loans holding the bag.
Concerned about such risks, the mortgage industry is spending big bucks on climate data and analysis, but it’s a challenging task: There simply isn’t enough certainty about climate change ‘s trajectory and how it would affect individual areas in the long term.
The various climate-risk models often spit out very different projections, says Timothy Judge, head of modeling and chief climate officer of Fannie Mae . “We use a lot of external providers because I find it hard to believe that there’s any one model capable of giving property-level analytics that are really accurate.”
Another thorny problem: Areas exposed to higher climate risk are often also places with higher concentrations of black, Hispanic, and lower-income households. If lenders start pricing loans based on climate risk, the financial burden will disproportionately fall on communities that already struggle to buy a home.
“The immediate reaction when you see a risk might be to change the pricing,” says Emily Westendorf, climate risk program manager at California-based Fifth Third Bank. “However, that can be quickly detrimental to the end customers.”
Instead of cutting off lending or raising rates, lenders can mitigate climate risk by educating borrowers to make their property more resilient, says Westendorf. Good credit risk management could also help find borrowers with solid financials, who are more likely to withstand the negative events.
A lot of the risks will be taken on by government-sponsored enterprises like Fannie Mae and Freddie Mac , which insure more than 60% of outstanding mortgage debt in the U.S. but charge a flat fee for their guarantees no matter where the property is located.
The same concern remains: Historically redlined areas also tend to be at higher climate risk. “We have to be very mindful of the impacts of changes on vulnerable communities,” says Judge from Fannie Mae.
But this means lenders could pass on the climate liabilities to taxpayers without paying extra for the mortgage insurance they get. In a 2020 research, Jesse Keenan, associate professor of real estate and urban planning at Tulane University, and co-author Jacob Bradt, found that local lenders in the Southeast U.S. have been securitizing more mortgages in high-risk coastal areas and selling them to the federal guarantors.
Even for mortgages protected by federal insurers, investors could be subject to prepayment risk. If a property is destroyed and the homeowner walks away, the mortgage would be bought out and the principal returned early. That means lenders won’t receive the interest payments they expected across the life of the loan.
“If you’re buying a bond with a duration of five years, but it turns out to be a four-year bond because of early buyout, that could obviously change your risk profile and realized return,” says John Bastoni, a senior trader at Breckinridge Capital Advisors.
So far, the housing market hasn’t priced in the climate risks. Drawn by affordable housing and booming local economies, millions of Americans continue to move to areas vulnerable to hurricanes, wildfires, and extreme heat. Many of these places have seen home prices rise higher and faster than the national average.
Local and federal government has spent billions of dollars to rebuild homes and infrastructure after major disasters. New developments are approved to assuage housing shortage—but many are built in some of the least habitable environments like deserts and wetlands.
“States let local governments run wild, and local governments are basically in competition with each other for more development and tax base,” says Tulane’s Keenan. “It’s like eating Halloween candy and getting a sugar rush of cheap housing, but the crash is coming.”
According to a February research in Nature Climate Change, U.S. homes exposed to flood risk alone could be overvalued by as much as $237 billion. Low-income households, particularly, are at greater risk of losing home equity from price deflation.
“We’re still seeing people live in Phoenix with their crazy heat and water stress, and we’re still seeing people move to Miami even with hurricanes and floods risks.” says Brittany Ryan, head of sustainability at Nuveen. “At some point, the risk is going to be so bad and the market is going to flip, but the question of when is kind of a crystal ball.”
And Porsche was saved by building the Macan and to a lesser extent the Cayenne and Boxter. The 911 is a great car but, as it turns out, not a great way to maintain a functional car company.
Mark Smucker just paid $4.6B to buy the twice bankrupt Hostess, maker of Twinkies and Ding Dongs. That's a lot of junk food sales to make this deal work. What's odd is that Smucker's had made their brand based on advertising that touts "made with real fruit, no artificial colors, preservatives or high fructose corn syrup."
Good luck integrating the cockroach of all snacks while trying to sell real food. Of course Jim Cramer thinks Smucker is a buy.
If you don't read anything else in this post, read this from Barron's: "The success of Tesla’s crossover Model Y, the best-selling car in the world during the first half of 2023..." Yup, let that sink in.
Why the UAW Strike Isn’t the Biggest Problem for Ford and GM
The labor action highlights the biggest issue: Can the auto makers afford to spend what it takes to thrive in the new world of EVs?
A strike is only the most immediate issue facing the two biggest U.S. auto makers. The existential threat posed by electric vehicles is the bigger problem.
EVs are finally taking off in the U.S., but EV-related losses are growing for Ford Motor and GM. Now, the companies have some hard decisions to make about how they will spend billions of dollars, decisions sure to have serious consequences for their stocks.
The numbers are huge. Ford is planning to spend roughly $7 billion over the next few years to build brand-new battery plants and EV manufacturing facilities in Kentucky and Tennessee, while GM has committed to spend $35 billion from 2020 to 2025. All told, EV development will probably eat up roughly half of the companies’ spending on new models, plants, and equipment over the next three to four years.
It’s an enormous bet on the growth of electric vehicles—one that should be paying off. Sales of U.S.-made battery-powered EVs rose 47% in the first half of 2023, compared with the same period of 2022, while first- and second-quarter sales for EVs were both record highs. EVs now account for about 7% of new-vehicle sales in the U.S. and 22% in California, showing what’s possible for the rest of the nation.
The problem is, most of the rewards are flowing to just one company, Tesla. Despite big pushes by a raft of rivals, Elon Musk’s pioneering company still accounts for nearly 60% of all EV sales in the U.S., down only slightly from two years ago. GM has managed to take just 6% of the market, while Ford has 5%. If the two Detroit icons hope to be long-term players in EVs, which look to be the future of cars, they have little choice but to keep spending huge sums of money.
That goes a long way to explaining the intense contract negotiations with the United Auto Workers, whose members launched strikes after the 11:59 p.m. Thursday deadline expired. Union leadership initially asked for 40% wage increases over the four-year life of the new contract, to compensate for high inflation and past concessions that helped the companies through dark times. The companies, however, say they need the money to fund their huge transition from gasoline to electricity.
The standoff probably means that GM and Ford will have to pay employees even more than what they do now in relation to nonunionized companies like Tesla and Rivian Automotive. “Accepting anything north of 20% pay increases [over the life of the contract] would be a tough pill to swallow for the business model of GM,” says Wedbush analyst Dan Ives. “The winner here is Tesla and Rivian in their nonunion stance.” In other words, Tesla could wind up with still-greater dominance of the industry.
Already, Ford and GM are absorbing big losses from their pushes into electric vehicles. In July, Ford increased its EV division’s full-year projected loss to $4.5 billion from $3 billion, while pushing back a goal of producing roughly 50,000 EVs a month from the end of 2023 to some point in 2024. In the U.S., Ford sold 32,000 EVs in the first seven months of the year, up 3.5% compared with 2022.
GM had a better start to 2023, selling about 36,000 EVs, up from fewer than 8,000 in the first half of 2022, though the 2022 figures were affected by battery problems experienced with the Chevy Bolt. First-half sales increased about 15% from the second half of 2022, putting GM back in position as the second-best seller of EVs in the U.S. GM says it doesn’t expect EVs to be profitable until 2025, but it doesn’t break out figures for the division.
Tesla is the one U.S. EV maker that can accurately be called a success. The company sells more than 58,000 cars a month in the U.S. and produces 150,000 EVs a month around the globe, dwarfing the totals that GM, Ford, and other traditional auto makers sell in a year. Tesla is firmly profitable, with Wall Street projecting a 2023 operating profit margin of about 11%.
From inauspicious beginnings in 2003, Elon Musk launched expensive vehicles like its Roadster, Model S, and Model X before releasing the mass-market Model 3 in 2017. The crossover Model Y followed in 2020. The Model 3 became the first battery-powered vehicle to top one million in total sales.
Tesla’s success seemed to create a blueprint for other auto makers to follow: launch high-price vehicles as a proof of concept, and follow that up with a crossover SUV to tap into America’s love of souped-up station wagons. But the blueprint proved difficult to follow. Everyone from start-ups to legacy auto makers assumed that producing EVs would be relatively easy. There are fewer moving parts, simpler motors instead of internal combustion engines, and even more commonality among vehicle platforms. The same batteries go into a Ford F-150 Lightning as a Ford Mustang Mach-E. But production has been far more difficult than many expected. Ford ran into some battery problems with the Lightning, which halted production for weeks early in 2023 just as sales were picking up steam. GM ran into its own battery issues with the Chevy Bolt. EV start-ups have been hampered by production problems, as well.
“Everyone has struggled to manufacture EVs,” says Benchmark analyst Michael Ward. “Everyone. They’re not easy.”
EV players also thought they could follow Tesla’s strategy of launching expensive vehicles, often north of $100,000, a niche that counts for roughly 2% of the overall auto market, according to data provider Cox Automotive. The Tesla Model S and Model X, GMC Hummer, BMW i7, Lucid Air, Porsche Taycan, Mercedes EQS, and the slightly less expensive Audi e-tron Q8 and Mercedes EQE sold a combined 24,328 units in the U.S. in the second quarter. Tesla’s X and S models captured roughly one-half of that total. There’s just not enough of a market for nine models that are out of reach for most car buyers.
The success of Tesla’s crossover Model Y, the best-selling car in the world during the first half of 2023, spurred other auto makers to launch their own small electric SUVs. That includes the Hyundai Ioniq 5, Kia EV6, Volkswagen ID.4, and Ford Mach-E, among others. The proliferation makes sense: Small and midsize SUVs are among the most popular vehicles in the U.S., accounting for about 33% of all cars sold. But something isn’t translating: The Tesla competitors sold fewer than 80,000 small EV SUVs in the U.S. over the first half of 2023, or about 1,000 per model a month on average, not nearly enough to make the economics work.
Part of the problem is that the average range of a standard and long-range Model Y is about 300 miles per charge, while the average range of the competitors’ EVs is about 240.
Even after UAW-Friday, the SPX still looks OK. It really was trying to crawl back to the late August high when the boys and girls who do the actual work at the big 3 decided they wanted a lot more money to build cars, that robots will build in 20 years, from car companies trying to shoehorn electric vehicles into a 20th Century format. None of this looks excellent to me. We'll have to wait until next week to see if the SPX can hold above 4,435. We should hope so as there's a lot of technical space below this support. See chart at the bottom.
Given the general tenor of political negotiation in the US I suppose the market should have expected this one to go south with a union leader who is willing to sacrifice workers to break the billionaire class. I'm not judging the UAW, the shift in compensation over the last 40 years makes a less than average company like GM look like a clown show when they pay their CEO almost ~$30MM a year. However, this looks less like a negotiation and more like a war. Fein may represent a new class of workers willing to go to war with the ruling class in ways we haven't seen in the US for 50 years or more. I think investors should remain in risk-off positions.
It's going to get even more interesting by the end of the month when the real clown show lands and McCarthy and the Dems have to decide if they'll work with a few moderate Republicans and keep him as speaker or just let the US fall into further financial disrepair. I'll remain largely on the investing sidelines for now as the anti-democratic few continue to take control of a gutless majority.
In a bit over two hours the UAW is set to strike against the 'big 3' auto makers. Workers are asking for a 46% pay raise over four years, a 32 hour work week, reinstatement of health care benefits for retired workers and other requirements that appear to have been cribbed from every high school senior's idea of the perfect college experience. Let's toss in a 24 hour yogurt bar and an on-call masseuse.
Good luck boys and girls. Musk is laughing himself to sleep tonight. When you lose your jobs and have to work for someone like him you have only yourself to blame.
I'm afraid the 1:15 split and the requirement to raise additional millions did not inspire confidence. I bought this as a speculative stock @ $10 and sold at a loss of a few dollars a share. Now it's down to ~15 cents a share pre-split. I don't see anything investible at this point. Too bad they didn't know how to make rockets they could deploy in space. It was a good idea three years ago.
Retail sales were up .6%. Most of that was in higher gasoline prices but none-the-less, consumers are still spending. I still think this will begin to change when Q4 numbers are coming out.
I think Romney's idea for a 3rd party run may ensure a Trump win as he will only siphon off reasonable republicans and conservative democrats.
Here's more background on the planning for the January 6 insurrection. If one has any doubt this was a well planned effort to take over the government of the US, read the following:
Romney knew Jan6 what was coming and asked McConnell to ensure proper defensive measures were in place.
Angus King had warned Romney on January 2nd that the Pentagon had informed him Trump supporters planed to take over the Capitol building.
Chris Miller, the acting Secretary of Defense, wrote a memo to the DC National Guard on January 4th ordering:
* You may not issue weapons, ammunition, bayonets, batons, ballistic protection equipment or body armor.
* You may not physically interact with Trump’s protestors.
* You may not deploy any riot control agents.
* You may not share equipment with law enforcement agencies.
* You are not authorized to use intelligence, surveillance or reconnaissance assets to assist the capitol police.
* You are not allowed to deploy helicopters.
* You are not to employ searches, seizures or other law enforcement activities.
* You are not to seek support from any non-DC national guard units.
It's like the Taliban was working from inside the government.