Category Archives: Business

Elon Musk: Production Hell or Party Balloons? Pick One. By David Wallace

Elon Musk may be the smartest man who ever lived (he probably thinks he is), but even a hypergenius couldn’t juggle all the balls he’s got in the air. From David Wallace at americanthinker.com:

Is Elon Musk – the recipient of over five billion government dollars – really the focused workhorse he proclaims to be, or is he nothing more than a taxpayer-subsidized, scatterbrained mess hopelessly trying to make his science fiction dreams into reality?

Wall Street is now largely betting against Tesla, which has consistently missed Model 3 production deadline after Model 3 production deadline.  Some believe that the company is nearing its make-or-break moment.

To prove private-sector investment houses like Goldman Sachs wrong, Musk claims he is going through “production hell,” working at all hours to quench Tesla’s backlog bug.  According to him, he moves his desk to wherever the most pressing Tesla problems are.  Musk also claims to sleep on the Tesla factory floor at night, which prompted his all-believers to start a GoFundMe page to finance a couch for the billionaire.

Musk wants you to think he is a busy bee laser-focused on the mission at hand.  But if Musk is truly so engrossed in meeting his Tesla deadlines, why is he spending time working on party balloons and bouncy houses?

Yes, you read that right.  Just days ago on Twitter, Musk – conceding that he recognizes that it may sound crazy – wrote that “SpaceX will try to bring rocket upper stage back from orbital velocity using a giant party balloon … And then land on a bouncy house.”

Who knows?  Although sounding outlandish on its face, maybe the idea will actually work in recovering upper-stage rockets one day.  But is now really the time for wild theorizing and experiments?  Tesla just stopped Model 3 production again to “improve automation.”  Its California factory is currently under investigation for safety issues.  As of November, Musk’s car company is burning nearly half a million dollars an hour, and the billionaire still hasn’t resolved the laundry list of SpaceX security concerns that the NASA Aerospace Advisory Council and Department of Defense inspector general brought to his attention in December and January, respectively.  Party balloons and bouncy houses should be pretty far down on his to-do list right now.

To continue reading: Elon Musk: Production Hell or Party Balloons? Pick One.

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Junk-rated Netflix Borrows $1.9 Bn, Most Ever, in “Drive-By” Bond Issue, to Burn $3-$4 Bn in 2018, Debt Soars to $8.4 billion, by Wolf Richter

It’s hard to see how going deeper in debt every year is a viable business model, but Netflix has made it work…so far. From Wolf Richter at wolfstreet.com:

This junk-bond market is in peak-bubble mode, and Netflix is just doing what investors want it to do. 

Wow, that was fast and huge. After announcing this morning that an investor call was scheduled to try sell a “drive-by” issue of $1.5 billion in 10.5-year bonds that S&P rates four notches into junk (B+) and Moody’s three notches into junk (Ba3), Netflix found insatiable investor demand and sold an additional $400 million, for a total of $1.9 billion, Netflix’s largest bond offering ever.

The investment banks running the deal were Morgan Stanley, Goldman Sachs, J.P. Morgan, Deutsche Bank, and Wells Fargo. The notes, which mature on November 15, 2028, priced at a yield of 5.875%, just 291 basis points over the equivalent US Treasury yield, according to S&P Global Market Intelligence.

This comes just six month after Netflix borrowed $1.6 billion in 4.875% bonds due in April 2028. And earlier in 2017, it had sold €1.3 billion of 10-year unsecured junk bonds in Euroland at a yield of 3.625%, bringing its total issuance in 2017 to about $3 billion. So interest rates are rising, debt is getting more expensive, and there’s a lot more debt, but it doesn’t matter to Netflix investors.

Last week, Netflix reported total long-term debt of $6.5 billion as of March 31. With the $1.9 billion just added, it now has $8.4 billion in long-term debt.

This is in addition to current and noncurrent “content liabilities” of nearly $8 billion. This company is rated deep into junk for a reason.

And it’s going to get a lot worse. In its earnings report last week, it disclosed that its negative “free cash flow” – a measure of the amount of cash it burns – of -$287 million was “less negative than we expected due to content payment timing differences.” In the prior quarter, it had booked negative free cash flow of -$524 million.

In total, it forecasts to be “free-cash-flow negative” between -$3 billion and -$4 billion in 2018. So the next quarters, when the “timing differences” are reversing, the negative free cash flow is going to be a doozie. And it also disclosed that it would be “free cash flow negative for several more years as our original content spend rapidly grows.”

To continue reading: Junk-rated Netflix Borrows $1.9 Bn, Most Ever, in “Drive-By” Bond Issue, to Burn $3-$4 Bn in 2018, Debt Soars to $8.4 billion

Stop and Assess, by James Howard Kunstler

Contraction is coming. From James Howard Kunstler at kunstler.com:

America has become Alzheimer Nation. Nothing is remembered for more than a few minutes. The news media, which used to function as a sort of collective brain, is a memory hole that events are shoved down and extinguished in. An attack in Syria, you ask? What was that about? Facebook stole your…what? Four lives snuffed out in a… a what? Something about waffles? Trump said… what? Let’s pause today and make an assessment of where things stand in this country as Winter finally coils into Spring.

As you might expect, a nation overrun with lawyers has litigated itself into a cul-de-sac of charges, arrests, suits, countersuits, and allegations that will rack up billable hours until the Rockies tumble. The best outcome may be that half the lawyers in this land will put the other half in jail, and then, finally, there will be space for the rest of us to re-connect with reality.

What does that reality consist of? Troublingly, an economy that can’t go on as we would like it to: a machine that spews out ever more stuff for ever more people. We really have reached limits for an industrial economy based on cheap, potent energy supplies. The energy, oil especially, isn’t cheap anymore. The fantasy that we can easily replace it with wind turbines, solar panels, and as-yet-unseen science projects is going to leave a lot of people not just disappointed but bereft, floundering, and probably dead, unless we make some pretty severe readjustments in daily life.

We’ve been papering this problem over by borrowing so much money from the future to cover costs today that eventually it will lose its meaning as money — that is, faith that it is worth anything. That’s what happens when money is just a representation of debt that can’t be paid back. This habit of heedless borrowing has enabled the country to pretend that it is functioning effectively. Lately, this game of pretend has sent the financial corps into a rapture of jubilation. The market speed bumps of February are behind us and the road ahead looks like the highway to Vegas at dawn on a summer’s day.

To continue reading: Stop and Assess

This is Not a Market, by Raúl Ilargi Meijer

A supposed market in which the government intervenes to suppress price discovery is not a market. From Raúl Ilargi Meijer at theautomaticearth.com:


René Magritte La trahison des images 1929“[Price discovery] is the process of determining the price of an asset in the marketplace through the interactions of buyers and sellers”, says Wikipedia. Perhaps not a perfect definition, but it’ll do. They add: “The futures and options market serve all important functions of price discovery.”

What follows from this is that markets need price discovery as much as price discovery needs markets. They are two sides of the same coin. Markets are the mechanism that makes price discovery possible, and vice versa. Functioning markets, that is.

Given the interdependence between the two, we must conclude that when there is no price discovery, there are no functioning markets. And a market that doesn’t function is not a market at all. Also, if you don’t have functioning markets, you have no investors. Who’s going to spend money purchasing things they can’t determine the value of? (I know: oh, wait..)

Ergo: we must wonder why everyone in the financial world, and the media, is still talking about ‘the markets’ (stocks, bonds et al) as if they still existed. Is it because they think there still is price discovery? Or do they think that even without price discovery, you can still have functioning markets? Or is their idea that a market is still a market even if it doesn’t function?

Or is it because they once started out as ‘investors’ or finance journalists, bankers or politicians, and wouldn’t know what to call themselves now, or simply can’t be bothered to think about such trivial matters?

Doesn’t a little warning voice pop up, somewhere in the back of their minds, in the middle of a sweaty sleepless night, that says perhaps they shouldn’t get this one wrong? Because if you think about, and treat, a ‘thing’, as something that it’s not at all, don’t you run the risk of getting it awfully wrong?

To continue reading: This is Not a Market

Russia’s New Energy Gamble, by Bruno Maçães

This article offers plausible conjectures about Russia’s strategy in the Middle East. From Bruno Maçães at thecairoreview.com:

Russia aims to position itself as a leader among energy-producing equals in Eurasia. Since 2015, Russia has sought to play a more active role in the Middle East, setting its sights on the region’s energy resources to achieve this strategic goal.

Workers attend a training class at LUKOIL, Basra, Dec. 25, 2012. Atef Hassan/Reuters

Having abandoned any attempt to join the Western global political order, Russia seems to have quickly found a new self-image: as the center and core of the Eurasian supercontinent, it can reach in all directions and provide a bridge between Europe and China on both ends. In this context, the Middle East has emerged as a central axis of Russia’s strategic concerns, perhaps for the first time in the country’s history.

In his recent book What Is Russia Up To in the Middle East?, Dmitri Trenin shows how the Middle East was always marginal to Russian geopolitical interests. When progressing south, Russian military expansion had its eyes on the Balkans or Istanbul, in some periods extending to British India, Afghanistan or northern Iran, but a serious push beyond those areas was never considered. Against Ottoman Turkey, Russia waged twelve wars. It took the czarist army half a century to prevail over the mountaineers of the North Caucasus. Russia also conquered Central Asia and invaded Afghanistan, a military adventure that left little appetite for a return to the heart of the Muslim world. But neither the Russian Empire nor the Soviet Union had ever fought directly in Arab lands. In 2015, something genuinely new and unexpected took place. Russia stepped into the Syrian conflict.

Any exercise considering what the Kremlin’s intentions and goals might have been has to start by noting how Syria offered a unique opportunity for promoting Russian strategic interests. By 2015 the United States had exhausted all choices there and showed signs of disinterest and disengagement. A Russian military intervention would constitute something of a revolution in global affairs. For the first time since the end of the Cold War, a country other than the United States would be projecting military force far away from its borders without consulting or involving Washington in the decision.

To continue reading: Russia’s New Energy Gamble

China Slaps 179% Tariff On US Sorghum Hours After US Bans Exports To China’s ZTE, by Tyler Durden

A tit for a tat for a tit for a tat…and that’s how trade wars go. From Tyler Durden at zerohedge.com:

In response to reports that the US is ramping up the “third front” in its trade spat with China by authorizing another investigation under Section 301 of the Trade Act of 1974 – this time, aimed at obstacles that prevent US tech firms from competing in cloud computing and other high-tech industries – China has, as we anticipated, retaliated by slapping tariffs on US sorghum imports.

Yesterday, the US also revealed that it would stop US tech firms from selling components to Chinese telecom giant ZTE after accusing the company of lying during settlement negotiations – eliciting an angry response from Chinese officials, who urged US lawmakers to create a “fair, just and stable legal and policy environment” for Chinese companies, according to Xinhua.

Like Chinese tariffs on US pork products that were imposed earlier this month, the sorghum tariffs aren’t merely a threat: Rather, China says they will take effect on Wednesday, per Bloomberg.

US sorghum imports will incur a 178.6% tariff, China’s Ministry of Commerce said in a preliminary ruling on Tuesday. Wang Hejun, chief of the trade remedy and investigation bureau at the Ministry of Commerce, said the tariffs comply with domestic law and World Trade Organization standards.

The ruling follows a probe into Sorghum imports that began in February after Trump slapped tariffs on imported solar panels and washing machines – a decision that was viewed as an indirect slight at China.

The tariffs come as a shortage of domestic grain has forced domestic feed mills to increase shipments of US grain. Yet, despite the shortage, analysts say the tariffs will force some shipment cancellations.

“The rate is quite high and some buyers may have to cancel shipments,” said Li Qiang, chief analyst with Shanghai JC Intelligence Co.

China imported about 4.8 million metric tons of sorghum from the US in 2017, worth about $957 million (this number isn’t a coincidence, we imagine). Purchases in the first two months of 2018 were 11% lower than a year earlier.

According to Bloomberg, after the tariffs were announced, soybean meal for September delivery on the Dalian Commodity Exchange climbed 2% to close at 3,265 yuan ($520) a ton. The most-active contract climbed more than 2.5 percent in the final 20 minutes of trading.

To continue reading: China Slaps 179% Tariff On US Sorghum Hours After US Bans Exports To China’s ZTE

The New Yorker Warns of ‘Creepy Infiltration’ of Chick-Fil-A Restaurants in New York City, by Thomas D. Williams

That “infiltration” couldn’t have anything to do with the fact that Chick-Fil-A makes darn good chicken sandwiches, could it? From Thomas D. Williams at breitbart.com:

The New Yorker announced in a blatantly anti-Christian essay Friday that the arrival of Chick-fil-A restaurants in New York City “feels like an infiltration, in no small part because of its pervasive Christian traditionalism.”

The April 13 article by Dan Piepenbring, ominously titled “Chick-fil-A’s Creepy Infiltration of New York City,” reads like old Ku Klux Klan propaganda against Catholics, Jews, and blacks. It is evident from the first line through the last that the only thing that disturbs Mr. Piepenbring about the restaurant chain is the overt Christian faith of its owners.

Apparently unaware of just how bigoted his essay sounds, Piepenbring offers as evidence of Chick-fil-A’s “creepiness” that its corporate headquarters in Atlanta “is adorned with Bible verses and a statue of Jesus washing a disciple’s feet. Its stores close on Sundays.”

It makes one shudder just to imagine it.

Mr. Piepenbring suggests, moreover, that there may be a sinister, “ulterior motive” behind the restaurant’s work, other than just selling chicken sandwiches, and it has to do with the G-word.

“The restaurant’s corporate purpose still begins with the words ‘to glorify God,’ and that proselytism thrums below the surface of the Fulton Street restaurant, which has the ersatz homespun ambiance of a megachurch,” the essay announces in what is clearly meant to be a frightening revelation.

As one observer has pointed out, the New Yorker would never dream of asking if Muslim- or Jewish-owned businesses should be allowed to “join” the New York community, but they believe it is perfectly acceptable to do so in the case of Christians.

Mr. Piepenbring has a particular issue with the Chick-fil-A “Cows,” which serve as the chain’s unofficial mascots.

The omnipresent Cows, he states, have “remained one of the most popular, and most morbid, advertising campaigns in fast-food history,” due in part to their mantra of “eat mor chikin.” What Piepenbring apparently finds to be “morbid” about the cows is their willingness to suggest that humans consume a fellow farm animal.

If this seems like a bit of a stretch, well, that’s because it is, but this does not deter Piepenbring in his quest to make readers believe there is something deeply troubling about Chick-fil-A.

“It’s worth asking why Americans fell in love with an ad in which one farm animal begs us to kill another in its place,” he writes.

“The joke is that the Cows are out of place in New York—a winking acknowledgment that Chick-fil-A, too, does not quite belong here,” he declares peremptorily.

To continue reading: The New Yorker Warns of ‘Creepy Infiltration’ of Chick-Fil-A Restaurants in New York City