Archive for February, 2016

The TSLA saga Feb 28

February 28, 2016

It’s when I start writing down things that I realized how much of the analysis I do have been internalized. What took a fraction of a second for me to realize actually takes a long time to type out in plain English and present with graphs.

Today is about the most recent TA. Since that is probably the most pressing matter on your mind. Short term, what’s coming this week type of things. I have some long term debt analysis and the current profit analysis from my conservative straddle to come in next weeks’ time frame. Excuse me for the lack of anything as I focus 3 days per week on Canadian Real Estate as I am making quite a few large moves.Feb28tsla

The red channel

TSLA is currently in a general downtrend channel that began in July 20 2015. If you draw the top channel using the high of the day for 7/20, 9/25 and 12/30, you will get the channel. The lower channel is established with the use of the low of the day on 8/24. As you can see, the reversal happened around the price point of the lower channel. The id channel is established by taking out the extreme price swing of 8/24 and use the lowers candle of the rest of the trend. So you can say that the lower bound represent potential extreme move. The mid channel is the bearish case and the top channel is potential resistance.

Coming week

Barring any macro shock, I believe the coming week will see a mean reversion as we move away from oversold conditions. $198.7 is one of the fib retracement levels that will present slight resistance while the $206.44 gap made in 2013 Q4 will present a higher than normal resistance. My personal guess is that the stock price will reach the $206.44 resistance when the 100 day moving average (thick yellow line in the graph) actually meets $206.44 level (Thick purple horizontal line).

Keeping this in mind, if you look at short term volatility, at 0.504, you’ll realize that this is smaller than the usual volatility while the actual risk for a upward rebound is greater than normal. This, in my opinion is due to computer algorithms not accounting for the March 31 Model 3 reveal volatility because it can’t read like human. The other reason is the fact that volatility to the downside seems to affect the premium calculation more than volatility to the upside. I remember something like that when I spent time to actually derive the Black-Scholes algorithm, can’t remember the details though.

So with the two in mind, $200 is again a very attractive price point to initiate a straddle strategy. However this time, I would go for a shorter term straddle instead of the longer term conservative straddle like last time. If you look at the volatility graph in the TA pic, you understand that long term volatility have now crossed above short term volatility.

Macro

You can discount any Macro news from China now. While researching Real Estate movements in Vancouver, I confirmed that the Chinese is selling things in China in order to move money out to other places. The first place where this is manifesting is in Real Estate prices of several targeted cities. The Chinese have an inherent distrust of the stock market, so the trickle down will not move to the actual stock market until the people who sold their houses to Chinese investors begin moving their money into the stock market. Seeing how slow Real Estate transactions are, I’d guesstimate next year. The detail of this research will be presented once I have finalized all my real estate moves.

So if China is not going to affect us, I believe the most important Macro events are Feds, Syria and Europe. Oil is moving to the bankruptcy and consolidation phase now. Hopefully within 1 year or two, the bankruptcy will subside and we will finally see a rebound. So I doubt oil is going to affect us much more. The Syrian conflict is interesting in that if it were to happen, oil price should shoot up and it will happen without USA’s involvement. The current feeling I get from most people in the western world is that they don’t want to get in between the conflict of two arab nations and Saudi Arabia cannot beat Russia.

Advertisements

Merit only exists for the 1%

February 24, 2016

Another day, another experiment completed. It is kind of sad to learn the truth but it is how the world functions.

As I’ve mentioned before, when I got hired here, the then manager wanted me to move to a supervisory role. I asked to wait 3 months before deciding. 3 months later after a manager change and all previous conversation forgotten. I get to see whether or not the world works on merit.

The current manager is not a person of the same race as me. I watched in horror as one good candidate after another who applied gets turned down and only those of the manager’s race gets hired. Then something happened. A new hire of the manager’s same race is on the fast track to be a supervisor. It wasn’t that I was bypassed that is behind this sad feeling, but the disillusionment that arises after my pessimistic view of the world gets proven right again. Two other workers of my race quit a while before me, I guess they felt the change a lot sooner than me. Thinking back, a lot of the fun was also because I was working with a core people that comes from my own race. I didn’t feel as excluded.

At this moment, I am very sure that if the situation were to repeat and I was interviewed by the current manager, I would not have been hired.

That’s when it hits me. That anytime I have ever gotten into a position of significance, it was always because of help from someone of my own race. Merit for an immigrant of any country does not exist. The only option is to start my own and also to help only those of my own race.

The TSLA Saga Feb 17

February 18, 2016

Slowly getting ramped back up to my life

CFO

Jason sounds like the dark magician that Elon needed to cover up the dirty laundry of a public company. It’s not a bad thing per se as too much honesty often meant the general public misinterpret some mundane happenings of the corporate world. On some comments about him sounding like snake oil salesman. I only hear a CFO who is well versed in wall street speak. Bad news for unsophisticated investors but good news for better messaging.

Analyst Accuracy

So the Q4 2015 TSLA investor conference call came and went. Here’s a list of analysts covering TSLA and their precision from tipranks.com. I don’t know how accurate tiprank is, but assume they are. I’ve bolded a few that I deemed important, either due to their monetary tie to TSLA or their accuracy rate.

Deutsche Rod Lache: 62%
RBC Joseph Spak: 32%
JPM Ryan Brinkman: 62%
Global Trip Chowdry: 55%
Barclays Brian Johnson: 47%
Dougherty Andrea James: 50%
Pacific Crest Brad Erickson: 32%
JMP Alex Guana: 45%
Evercore Arndt Ellinghorst: 17%
Oppenheimer Colin Rusch: 48%
Morgan Stanley Adam Jonas: 43%
CLSA Emmanuel Rosner: 60%
Goldman Patrick Archambault: 56%
Credit Swiss Dan Galves: 44%
Merill Lynch John Murphy: 66%
Robert W. Baird Tyler Frank: 67%

Some interesting stats if you look at it. The prominent well known analysts all have average scores around 50%. This is the worst possible score as it represent random noise. What you need to watch out for are those who scores 60% and higher and those who scores 30% and lower. Follow the 60% and do the opposite of the 30%.

Analysts Questions

Monetary ties

I found a copy of the transcript here. And you can listen to the conference call on Investor Relations.

Goldman and Morgan Stanley have monetary ties and it is pretty self explanatory what they are interested in by the questions they ask. Goldman Sach’s Patrick Archambault (56% accuracy) cares about ramp up speed. Since they are an early investor they are more interested in when TSLA achieves cash flow positive as they’ve already made all the capital gains they needed.

Morgan Stanley, being the newer lender to TSLA is chasing after that 10x capital gain. So it is natural that they are trying to get the scoop on the marketing part. i.e. Microchip legend joining and newspaper reviews.

Negatives

It’ll be interesting to hear from analysts who scores 30% or less, but none of them managed to get on the conference call.

Positives

There is a reason that they scored high and you can tell from the questions they ask. The first person that stood out is Merill Lynch’s John Murphy (66%). His concern is about the Asset backed line. Earlier in the conference call we learned that Tesla obtained an Asset backed line that monetizes their vehicle in transit to customers to the tune of $866 million. This along with the previous Warehouse Line of credit for leasing ($144 million) total up to $1billion in loans available. If you read John Murphy’s Exchange with Jason, he hit the bull’s eye with the question: “As we think about the positive net cash flow and the increase in the cash balance on a year-over-year basis, will that include — I’m trying to be clear, here — the potential draw on the ABL over time as that’s needed to run the business, or does that net cash increase not include whatever draw that happens on the ABL in 2016?”

To which, Jason reluctantly replied with: “That includes the draw on the ABL”

So $866 million with $1.2 billion will be enough to ramp up the capex for setting up the Model 3 production line in my point of view. I have not done the math, but I do not believe it cost $2bil to install the Model X or Model S production line. It’s a cheap and easy way to get capital for what’s coming without diluting the shareholder value. We will no longer be faced with a potential dilution event. However, this is not something glorious that they’d want to advertise either. The ABL grows and shrinks with vehicle in delivery. So if their delivery shrinks, the loan amount shrinks. Which has ramifications.

JPM Ryan Brinkman (62%) is concerned about Capex on Gigafactory expansion. Tyler Frank (Whopping 67%) of Robert W.Baird who is covering for Ben Callo are focused on Delivery ramp and China market. Deutche bank’s Rod Lache (62%) is concerned about Model 3 cannibalizing Model S and the eventual gross margin at the end. Whether or not X can achieve 25% and whether or not S + X can achieve 30% at all and how fast it gets there.

These are the metrics that the accurate analysts uses and these are what will determine the real value of TSLA as a company. I believe these are good points as they represent areas where TSLA had over promised and under delivered.