Archive for the ‘Showcases’ Category

Drink, Dive, Dance 4: Alessia 2

September 14, 2017

There’d always be some shitty cafes beside the dive shops serving bitter tasting mud that they’d try to pass as coffee accompanied with overpriced croissant that resembles the pastry by name only. By some shitty unwritten rule, they’d always have 2 tables on the side of the road exposed to the dust for you to sit and sip your cup of mud.

The reason why these coffee shops survives, and I am really guessing here, is because of all the early morning divers who have to show up at the dive shop at 6 am in the morning after a night of dancing and binge drinking. Divers are always tourists and tourists always party the night before. The tables outside is for divers to keep an eye out to see if their dive group is departing. Logistics and organizational skills are not the fortes of people living in the country side of Asia.

At dawn, I’d stumble back to our cabin with a bit of the ol’ sailor shuffle from a long day of diving. Swaying from side to side as I fight against the gravity called exhaustion. Everything felt heavier.

Alessia often tried to describe what it felt like seeing me hobble back like that and I’d always chuckle inside because what she experienced and what I was feeling at that time are as different as night and day. Laying in bed at night, she would tell how she’d catch herself holding her breath watching me appearing from the horizon, with my long dark hair flowing in the wind and my tanned body glistening from sweat. Such was our typical day on Poya Lisa island, a true Robinson Crusoe-esq existence, heavenly and harsh at the same time and I wouldn’t do it for longer than that. Our toilet paper would run out for example.

This happened several weeks later after I parted way with Alessia last in Labuan Bajo. I was investigating how to get on a boat to swim with the Whale sharks at Gorontalo, North Sulawesi and preparing for the final leg of my adventure in Indonesia when Alessia decided to join me after finishing her trip with her father. Alessia, it turns out, had two weeks before school starts in UK, but instead of spending the time moving in to her new apartment and getting oriented with the new environment, she wanted more adventure before getting back to the real world. So like this, our path crossed again.

The adventure through North Sulawesi was to finish a trip that I couldn’t finish from Ylva‘s recommendation. It took especially long to prepare as It is a Malaria infested region with real civil war still going on in central Sulawesi with some truly untouched jungles and still unique tribes unfazed by civilization: Tana Toraja (The mountain plateau people) and the Sama Bajau (Sea Gypsies).

Gorontalo, the place that we met for preparation is a frontier town, almost Indiana Jones-esq-ish. Imagine Indiana Jones style conditions with some modern cars thrown in and you get the idea. It has one special feature that most people don’t know of until you get there. Every year, the whale sharks (a holy grail that every diver chase after) would come around summer and feast on the fish trimmings from the sewage pipes of a fish cannery.

It was during this time when Alessia witnessed the power of the Chinese language at work and I have to admit, without Mandarin, I wouldn’t have been able to arrange the whole trip with basic official Indonesia (they speak a different dialect in North Sulawesi) and pointing at a map. Han Chinese lineage, it turns out, is everywhere in the  world. “I feel so safe and protected when traveling with you, never had to think and worry about anything.” said Alessia as we retire back into our cabin on Poya Lisa 4 days later.

This final adventure turns out to be one of my more memorable ones along with that time Mark and I got in trouble in the souqs of Morocco. Particularly because it’s the first time I had an adventure like this with a women who is able to handle such discomfort. Another time perhaps, my coffee ran out.

 

 

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Drink, Dive, Dance 3: Laurence

August 17, 2017

Laurence is French, albeit an atypical one. When nobody is around us on the snowy Annapurna trail, I’d tease her about her Polish accents. She’d lower her head as a reflex and then sneak a peak at me in between her bangs, eyes betraying her anger while simultaneously trying to hold back a laughter. For the French, my Quebec accent is just way too funny to remain serious with me for long.

She is the first French traveler I’ve met who wanders outside of the French circle and mingle with everyone else. Not only that, she is perfectly fluent in English (with that Polish accent). A walking Oxymoron for those of you familiar with how typical French travelers act.

Laurence, revels in finding the cheapest place to eat and then proceed to negotiate the price down. We’d often find ourselves in some hole in the wall local restaurant to eat; grimes on the wall with a fan that’s older than my grandma. She’d sit down after ordering, napkins on her lap, back straight and then proceed to eat her Dal Bhat with the most elegant command of the fork and knife I have ever seen.

Dining, it seems, is a very important event in her blood. I’d learned the difference now her different needs after a while. “Quelque chose à manger” means, let’s grab something on the go and keep sightseeing. “Bon! On trouve un resto là.” means I need to sit down and go through the proper routine of dining à la Français.”

For her, my ability to barter even better than her was the biggest turn on. We’d often have bartering matches where we take turn at different shops to get the same items at prices lower than the other was able to get. Each one of us is fully capable of planning the whole trip by ourselves and is able to get the best deal out of it while the other person can focus on whatever frivolous adventure that we want to try. The complete trust in each other’s abilities as travelers is unprecedented.

Laurence, for me, is the perfect traveling girlfriend… except for her quirky need to experience proper dining from time to time, as if straying away too far from “culture” is too painful. But its the memories of these quirks that brings a smiles to my face.

Whenever I miss Laurence, I’d visit a high end French restaurant, lean back on my chair and just close my eyes.

 

 

2016 year of confirmation

July 9, 2017

Another year, another review of my life, took a while before posting this cause life got in the way.

The great experiment

The nuances between different culture is big enough to completely throw off my interpretation of intentions based on the subtle cues in language and behavior. For the longest time in my life, I was ignorant of this fact and believed that my interpretation has been correct. After a year of travel, I’ve figured out that it is wrong. Even between similar western countries, the differences exist due to different history.

So during the next 2 years of my travel, I set out to train my intuition to be able to interpret people’s feeling correctly in a boring but logical manner. I built a few scenario and guessed their emotional state based on the resulting action they took after.  Every time there’s a new unexpected action, I add in another possibility to the end action as well as guess their emotional state. If possible, I find out what they are feeling in a roundabout way after a few drinks so as to not seem creepy.

After 10 000+ encounters with strangers, I believe I’ve built a good enough modeling to be right 80% of the time.

Silence

As a result of the experiment, and many major events that happened in my life in the past 3 years, I’ve become a man with few words. This change is as a result of being able to see certain truth due to the better modeling of people’s emotional state. Most of the time, people do not care about what I want.  Everyone is selfish. Those who care too much about other and react to others gets walked all over. It does not benefit me whatsoever to say anything or let people know what I really believe unless what I say is an action that I am doing that will advance my position in society.

I believe that silence is probably going to become my main theme in 2017.

Body

I have been tracking my body’s progress for a while. A year ago, I finally started seriously building it up. Part of the 3 year progress to reach my natural maximum muscle mass. I’ve always been into sports and worked out sporadically, but I didn’t know that to build up muscle mass requires dedicated 5 times per week workout and adherence to nutrition. Especially so since I have Asian genes, which does not naturally give its owners a lot of muscles. But I do enjoy the fact that I age slower than any other race, which is not something that can be achieved based on effort. Here is me 3 years later at 21% body fat. The goal is to reach 13% at which point I will be back to 155lb, which was the weight where I was when I started. It’s amazing how skinny fat I was yet I still looked like a skeleton.

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My genetic makeup is such that most of the fat is stored in my thighs and then my stomach. They never go up to my chest area or arm area. It’s the reason why I remain looking skinny up until about 28% body fat when the fat start showing up on my face. So to make anything protrude or having a “shape” in my upper body, it has to be built from the exercise I do instead of “chiseled” out like Americans.

How funny it is that the whole journey started when I decided I want to have 6 packs. Then I realized that the proportion doesn’t look right without a well built upper body. Which leads to finding out about the body fat % necessary for 6 packs to even show. Which leads me to this point in time.

Projects

I have finally completely digitized everything in my life. Thanks in part to a big burglary that took most of my memorable stuff. I don’t want to go into details of this event because I do not wish to relive it in my mind again. It is the single event that caused me to be outright hostile to the homeless drug addict population and nudged me on the path to always take the offensive and get as much advantage for myself as possible in any situation. Whereas before, I use simple tit for tat measures.

Because of the burglary, the amount of things I need to digitize reduced by a lot and it forced me to dedicate 3 months to complete it once and for all.

Lifestyle

I experienced my first bout of lifestyle inflation. Tried to go back to being a vagabond, but I just couldn’t after experiencing how much more time gets saved and how my body feels better and less sick. Partly feelings and partly because I value my time and health as the no.1 and no.2 most important thing in my life. I do not wish to deal with shit anymore. From now on, if I travel, I travel in luxury and I will be staying in one place for longer period of time so I can settle down and work on things that matters most.

 

Vancouver real estate V

April 27, 2017

Two major events occurred today.

1. I’ve completed one of the major project I have going today and

2. Today marked the beginning of Canada’s Real Estate Collapse with Home Capital Group (HCG.to) falling 60% due to some shit that hit the fan.

For me, #1 is the most important thing as it relieved me of a major source of stress. For the rest of the world. #2 is more important. So let’s go into that a bit.

As those of you from Tesla already knew, my 8 ball and crystal balls have been deployed in two different projects so I’ve had no time to spare on Tesla. The shorter term 8 ball is deployed in Canada’s real estate while the longer term Crystal ball best suited for detecting sentiment and the beginning of a trend is deployed in yet another secret related to #1.

For me to come out and tell you that 8 ball’s job was on Canada’s Real Estate sector would mean that I’ve already positioned myself to benefit from the downfall. The almost collapse of Home capital group is testament to what my predictions are. I expect things to get a lot worse and that the government will have to somehow find $150 billion in order to plug the hole.

You see, while the Americans have been deleveraging and repairing from the housing market in 2008 all that we did as Canadians was leverage up and double down on housing. The full research and reasoning can make for a good 10 000 word essay, but who’s paying me to actually type it out? Yep, nobody. So it’ll just stay in my mind to benefit me.

By benefit, I don’t mean I am actively participating in the destruction of the housing market. I did not enter any major short or anything. Just one or two position so that it is marked on my statement that I called it. What I meant is that I’ve completely withdrawn from the Canadian market to wait it out and I will enter again once the destruction is done in order to help with the reconstruction effort.

I strongly recommend going through the detailed event log that I meticulously jogged down starting in 2007 to see the series of events that might happen in the coming years. Here is the link: http://www.alongside.me/2010/financial-collapse-through-my-eyes/

For those of you who will be impacted by this negatively. Remember, this too shall pass.

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.

The TSLA Saga Jan 31

January 31, 2016

TSLABUYSELLSo, I have superimposed 5 years of TSLA stock price from 2011 to 2015 in one graph to give you a view of the cyclical nature of TSLA. This is nothing groundbreaking, but something that’s overlooked by most people. Except for 2012, most of the data conforms to one story and that is of the March ~ April ramp up and a significant slow down after October. And if you look at this chart carefully, there is almost always a crash in January ~ February area. Which is where we are now.

I have a few theories on why this is happening and it has something to do with Asia. Most of asia, operate in a lunar calendar cycle which centers around the lunar new year. The lunar new year changes each year, but it can be approximated by “sometimes around February”. It is a two week to one month ordeal where all factory workers go home to spend time with their grandparents and parents. Which means that, one month before the event, only maintenance works are scheduled into the queue. Any new production, or retooling will be marked for after the year.

This calendar has a lot of synergy with western world’s Christmas season, allowing production to ramp up for western holiday season and ramp down during Q1’s strategic decision making. In any event, if you believe the same cycle will play out again this year, which so far it has, then I’d start gathering cash to arrive in the March~April time frame.

With regards to TSLA

Those of you expecting a surprise ramp up in Q1 will probably be disappointed as this means that even if TSLA wants to ramp up, they will not be able to because most of its suppliers have shutdown their production during the holiday season. Unless TSLA manages to bring production of every single part in-house, they will be hostage to the lunar calendar.

The recent passage of anti dumping tariff in USA on Asia Steel has the effect of increasing the accuracy of my information network on this sector as steelmakers and automakers increase their orders from my network of contacts while simultaneously decreasing their orders from the rest of Asia. I had mistaken this as increasing orders from automakers when in fact, it is a simple shifting of contracts to different suppliers. In 3~ 4 months, I’ll get a clearer picture of whether or not production is increasing or not.

The TSLA Saga Jan 27

January 28, 2016

This is a quick post since I am busy packing up to fly to Asia.

Those of you who executed The Conservative Straddle should exit one of the put options. If you know what you are doing then disregard my advice.

The TSLA Saga Jan 25

January 25, 2016

Today is about Elon’s debt and how it relates to events

Digging into several hundred pages SEC filings was not what I had in mind for my weekend, but once I combed through the numbers the first time, I felt that it is important enough to drop all my other activities. Remember this as you read on. The reality is grey.

In the beginning

Elon’s Paypal payoff was $165 million which translate to approximately $80 million after tax (more if spread out over time). Then an interesting thing happened in 2003. On 2003 July 22,  Elon got a loan from Goldman Sachs in the tune of 125 Million with the intent to purchase TSLA stock. ( Filing )

Then the following series of events happened ( TSLA seed funding histories ). The exact details of the seed funding rounds have been removed from the Internet. I am a bit sad that I did not save the details. So they are approximately as follows:

TSLA series A investment round of 7.5 million (12,880,324) by Elon 2003 July
TSLA series B investment round of $14million by Elon
TSLA series C investment round of $30million May 2006
TSLA series D investment round of $45million  May 2007
TSLA series E investment round of $40million December 2008

Musk’s investment in TSLA after 2008: $70 million

Musk’s investment in SpaceX after 2008: $100 million

Which approximately translate to the $205 million in total capital if we factor in living cost of $10million per year + divorce cost.

Even though the realization that Elon’s take over of the company from Eberheart was done with the blessing of Goldman Sachs might leave a bad taste in some. The fact that he went more than all in, 150% more than all his net worth into both SpaceX and Tesla, is what stood out in my point of view. I have not heard of this in my life up until this point.

Goldman’s blessing, in my opinion, is probably better than the alternative of a super slow progression to bankruptcy. Having Goldman Sachs as your ally means things gets smoothed out for you everywhere you turn. It does, however, sucks for Eberheart the original founder since, in a normal world without loans, nobody would’ve been able to wrest control from him.

Snapshot:

Elon’s TSLA share 28 303 34 at unknown prices.

Elon’s ownership percentage at 28.4%

Elon’s cash reserve at almost 0, sleeping at Sergey’s place.

Goldman Loans $125 million

All funds everywhere else locked up in divorce proceedings to force him to give in to Justine’s terms. On top of having to pay monthly legal fees for himself and his ex-wife Justine. This further exacerbated TSLA and SpaceX’s financial turmoil.

This. This is rock bottom.

IPO

June 29 2010 TSLA IPO at $17, Elon’s ownership stood at 28 303 341 shares = $481 million USD and he sold 908 958 = $15 452 286 in cash.

Snapshot

Elon’s TSLA share 28 303 34 at unknown prices.

Elon’s ownership percentage at 28.4%

Elon’s cash reserve at $15 million.

Goldman Loans $125 million

TSLA capital raise

The following events are more muddy and hard to evaluate.

Elon’s option grant

12/4/2009           3,355,986           6.63           12/4/2009
12/4/2009           3,355,986           6.63           vesting

2013 May 16 ELon borrows 150 million from Goldman to buy tsla $91.5, of which $99 197 803 is used

2013 May 16 Elon borrows 25 million from Morgan stanley to buy TSLA $91.5

2015 May  83 974 shares purchase @$248 which is $20 million

2015 May 175 million borrowed by Elon from Morgan Stanley
http://ir.teslamotors.com/secfiling.cfm?filingID=1193125-15-290590&CIK=1318605

2015 August TSLA sold 2.7million shares @ $242 to raise capital, generating 642 million. Elon buys $20 million worth

Snapshot:

Elon’s TSLA share 35,001,294

Elon’s estimated living cost since 2008 at $10mil per year = $70mil

Goldman Loans $275 million

Morgan Stanley Loans $200 Million

Elon’s Free cash reserve at $130 million.

The Goldman and Morgan Hedge

A very simple game theory about what Goldman would do goes as follows:

Banks as market makers do not want to assume any risks. Therefore, everything that they take on needs to be balanced. Giving the equivalent amount of $175 million loan to Elon means that they need to hedge it somewhere. The simplest way to hedge it is to naked short sell the stocks. This way, they get the cash from naked shorting TSLA stocks, and then make a loan to Elon from these stocks to generate income from the interest. Goldam may very well have the ability to naked sell short shares that are pre IPO, but if we assume no such ability and they sold short the shares during IPO at $17, the following should occur.

Since Goldman lent Elon $150 million they need to sell approximately 9 million shares to balance out the loan. If Elon posted all his shares as collateral, then they will proceed to write covered calls for 21millon more shares which should result in 210 000 call contracts at various strike prices.

The 2013 capital raise means that a further 1.6 million shares needs to be shorted to balance out the loan. With Morgan Stanley further shorting 0.27 million shares to balance out a $25 million loan.

In May 2015, Elon further borrowed $175 million. The share prices around that time averages around $230. So to offset that 0.75 million shares needs to be short.

From these, we can draw some conclusions:

  • The base shares short of a TSLA stock should be: 9 + 1.6 + 0.27 + 0.75 = 11.62 million shares short
  • Adam Jonas, as a Morgan Stanley analyst, has skins in the game and should not be considered a neutral voice. His firm has $200 million in the game.
  • Until Elon repays all his loans, the short interest will remain elevated.

Something in the future

I find it strange that Elon left $130 million cash reserve on the table. I do not believe he is about to fund another venture since he already have too much on his plate. Therefore it is in preparation of adding to his share holdings in a future offering. Elon has a habit of adding at least 10% to any offering if he is not a major investor in that round so as to not dilute his % ownership. At $200 per share, Elon will probably buy in 500 000 shares. Which makes the potential next offering at a potential 5 million shares. This is approximately a $1 billion dollars funding round that should cover TSLA’s operating cost for 12 months.

So on May 2015, Elon was anticipating that Free Cash Flow will not be positive for the next 12 months and will need funding. One capital raise already happened in August for about 6 months of funding and Elon has dry powder to raise another one for 12 months if Model X rollout did not go as planned. As we get closer to April, the likelyhood of a raise increases if the prospect of Free Cash Flow gets further away.

This uncertainty of Free Cash Flow is not something management can be sure about and hence why we are here today. Like the recent Falcon Wing debacle. Any incompetence in any of the suppliers can result in a 12 month delay due to retooling.

Disclaimer

This is a generic disclaimer I attach to all financial based posts to catch all disclaimers. I own everything I talk about. If you suspect I own something or have an Agenda just assume yes. Assume the worst. Assume I am not acting on your best interest.

 

The TSLA Saga Jan 21

January 21, 2016

It’s getting harder to cover everything that’s happening everyday now as the mess accelerates events that happens and need to analyze. So I will just stick to one at a time with the 1 hours per day I have to do this.

The conservative Straddle

I cannot stress how important it is to analyze your options risks before you send them off to be executed. So many times I caught myself from executing the wrong trade after verifying with the risk reward graph. If you play around with it enough, you’ll understand that there are combinations of options where if you do in fact execute the trade, you will be 100% sure to lose money at all possible prices. But if you do find these, make sure you double check by flipping all the trades around to see if the reverse is ones where you are 100% sure to make money at any price.

So before you go ahead and play more with options, go and download Think Or Swim and open up a simulated account which is only 15 minutes delayed. Then follow the next part.

Step 1

Step1The important parts are highlighted in red.

Click the options you want to buy and sell so that they enter into Order Entry. Right click on the order and click Analyze Trade. Do this for each option you are interested in.

Step 2

Step2Once that’s done, go to the top where the tabs are and click on Analyze.

Step 3

Conservative straddleAnalyze. The X axis here are stock prices, the Y axis here are net capital based on the options you have inputted into analysis.

This is the snapshot of Jan 14 when I recommended a conservative approach to straddle. The bottom  of the graph where a bunch of number are highlighted in green and red are the options I have selected to be analyzed. The exact structure is:

Buy 2 $200 Put at $24.70 for June 16
Sell 1 $250 Call at $2.81 for March 16
Buy 100 stock at $202.71

Purple line is the current probability for profitability at each stock price, the blue line is the profitability at March 19th at each stock price.

I use this to target $250 for a potential gap close while protecting a potential for a real market collapse due to oil. What I am betting on is that the stock price will NOT stay around $200. There’s also a Call that’s sold to squeeze out more monthly income. For this structure, I will revisit the call option I sold a week before March to see if I should let it expire or close it before selling a new one for April.

Disclaimer

This is a generic disclaimer I attach to all financial based posts to catch all disclaimers. I own everything I talk about. If you suspect I own something or have an Agenda just assume yes. Assume the worst. Assume I am not acting on your best interest.

The TSLA Saga Jan 18

January 19, 2016

The infinite short condition has been corrected since I last mentioned it. Thank you to whoever it is that abused the hell out of it so that the options skew would correct. Anyway, we no longer have that to worry about.

On Short Interest

That said, I must correct a misconception about short interest that people seem to rely on. There are a lot of reasons to short a stock and the most common reason is that it is part of a broader strategic placement. A high short interest usually grows and shrink along with how active its stocks are. The only time I’d really say it is significant, is if the short interest is bigger than 50% of the shares float.

Even I short the stock sometimes as a broader strategy. You can short the stock as an employee as a way to cash out your employee stock options. The director can use shorting as a way to access illiquid stock option that won’t vest for another 3 years to pay bills. Or they can short to hedge their exposure to their own company. Market makers can short a stock to balance the books because an insane amount of call options have been bought. Whatever the case, unless it is more than 50% of the float, a cornering of the market condition is not really likely to happen hence the short interest is not an indication of a short squeeze. Unless you know exactly how much margin the big short have and when they shorted (Which by the way, is impossible to know since funds are not required to disclose their short positions), it is impossible to force a short squeeze.

What I think could also be happening is that Goldman Sachs’s book balancing act since Elon is borrowing from his own stocks that’s locked up.

On a bottoming market

All indicators points to a bottoming process forming unless Saudis decide to shit more on the market. If you really think about it. This current fiasco is an artificial construct created by Saudi Arabia alone. Whose stock market is also suffering from its own hubris. The only time where I can see this type of inventory liquidation make sense, is if the seller of the asset sees a future where its wares are no longer in demand. The green energy movement is still in its infancy when you compare all the market cap of old oil and new energy. The last time I checked, the Saudi princes still walks with a swagger as if they are the king of the world. So when I tried to decide whether or not the current oil situation is caused by misjudgment based on an inflated ego or an actual liquidation because of the clarity of a green future. I believe an inflated ego is in play.

An artificially created situation, will eventually correct because of normal market forces. It’s taken longer because so far, nobody dared to take the opposite side bet against the Saudi’s war chest and their war chest is shrinking faster than what they led people to believe as the other 50% of their economy (mostly oil support) have just lost 20% of its net worth. This will have to be made up by government spending which increases the decline of their foreign reserves. Shorting Saud’s market and currency, is probably the most profitable trade this year and should continue to be so even as oil price goes back up the pain in the real economy will continue for some more time as layoffs already happened so you have time to cover.

China’s economy is still growing. Its residents still sending waves of tourists and children out to the world to spend money. The conversion to a consumer based economy is still on going. The USA is still recovering and its consumer spending. If big oil wants to commit seppuku and give the rest of the world free oil, let them.

Canada is going through a lot of pain, but I’d rather see this, than have oil take over its economy. Seriously I fail to see the need to get an education, if a high school grad can go to Calgary and get an unskilled job for 100k/year. This pain, will make high tech job in Canada great again. Maybe we’ll see a revival of the tech industry here.

On 8 ball

8 ball is no longer a good 1 day leading indicator now. Still, I took notice when it went up 11% compared to Friday. Compared to TSLA’s stock, the indicator reacts more on news as they are being released rather than forward looking sentiment. If you look at a time span of 8 ball’s absolute number vs that of TSLA, you can say that 8 ball have finally caught up to TSLA in absolute value terms. I have begun the post-mortem analysis of 8 ball indicator and have been quite astounded by how accurately it jumped a day or two before major movements in TSLA stocks itself. I did not believe the accuracy rate would be this high either. Will post more once I finish with this.

How a market crashes

So what are the things to come. Well, since rate has started rising, I think things will finally start to happen. After having been through two crisis, this are probably the series of event to follow within one year’s time frame as usually 1 year is how long people have cash reserve for after the rate increase.

  1. Mergers will happen first as big swallows small.
  2. Smaller oil related company will start declaring bankruptcy.
  3. Some mergers will start to stall
  4. One or two of the big company in #1 will declare bankruptcy as the mergers were a way to cover their own bad books
  5. Contagion spread
  6. Loan loss declared by Big banks.
  7. Big bank failure
  8. Contagion spread through big banks.
  9. Another huge recession.

You can check out my log of the timeline and series of events for the 2008 crisis here. If we are to compare where we are right now, we are year 2007. Of course at anytime, the current crisis can end if the Saudis decide not to or if either Russia or Iran gets fed up with Saudi Arabia and just nukes them. The fact that they haven’t means that the Saudis got the full blessing of USA to do this. Like I said, this crisis is an artificial construct unlike that of the 2008 crisis which is an entity born out of greed. We do not have “Oil backed security” or derivatives running rampant throughout the general population. Which is why I believe the current crisis will stop at #6. At most 20% drop from peak to trough of S&P. So I would reserve 25% cash for the apocalypse trade. What is the apocalypse trade? Well I’ll have a separate post for it.

No graphs today. I am a bit tired after several full days of work. While most of you are enjoying a long weekend, I’ve been a busy bee. You can check the previous posts as most of the TA are still the same. I do recommend reading Paul Graham’s post about life is short if you having need something else to do. It’ll cut away all the bullshit.

Disclaimer

This is a generic disclaimer I attach to all financial based posts to catch all disclaimers. I own everything I talk about. If you suspect I own something or have an Agenda just assume yes. Assume the worst. Assume I am not acting on your best interest.