Healing

June 8, 2016

Got my site backup.

Not that it is a long struggle, it took me 2 days of mental gymnastics to figure out what’s wrong with the transfer and about 3 days of communication between two hosting providers. The debugging part, once I’ve finally convinced myself that I am smart enough and strong enough to endure the process, actually took only 1 hour.

Most of my life’s hurdles are like this. Not really hard to solve when I get down to it, but the mental hurdle that I needed to overcome and convince myself is very high. Think of it as a charging up of a lot of energy before releasing a tsunami to overwhelm the problem. The preparation to have food ready and the process of freeing up the time for the days ahead that I expect to spend on this project. The problem almost always end up being easier than expected and gets solved earlier once all the preparations are done.

It took this long, because fixing this website, is way down on a long list of things I am doing to heal myself. Unbeknownst to me, there were several things that have accumulated in my life and dragging me down with it. (For example, the lower back injury I suffered when the Yogi stood on my back in India during the hardcore class took 1 year to heal). Once I decided to take the hit gave them a proper closure, life feels lighter. I liked the feeling, so I continued to give closure to the list of things I left unresolved. It is also, very surprising, how certain insignificant thing are actually big drags on my mood. I never would’ve known their contribution to the negative had I not attempted to bring closure to them.

I am also surprised at the fact that a lot of my problems actually have solutions to them once I sat down to try and figure it out. Then once I figured out the solution, I’d often look at people in life with the same problems walking past me on the street and wonder why they kept living with the same problems?

That’s when it occurred to me. That you need time and money to solve problems. But most importantly, you need to be open minded enough to understand that the problem can be solved. Or, at least, believe in being able to find a solution if you tried.

It’s been a while since I was able to sit down and type properly with a keyboard. Being able to materialize my thoughts at the speed that it is racing through my mind put a clarity to things that was murky before. You only notice these things, once you’ve abstained from it for a while.

test

June 8, 2016

test

A hard and long battle

March 29, 2016

I didn’t know how much stress I was under until the moment of victory. When all my worries went away and every loose end got tidied up.

A 6 months long all out war of survival where I had to enlist the help of the Royal Canadian Mounted Police, the City Hall and several others for help. A war where the worst case scenario happened and more. All my paranoid safety precautions that I prepared got used up and I am near my limits. A war of human connections where money had no meaning.

Then, just as sudden as it started, it ended whilst I was in the midst of gearing up for 3 more months of the final showdown. I teared up in the aftermath once I am alone. I felt drained. Old, my eyes are constantly sore even though I’ve had 10 hours of sleep. Felt like all my energy got flushed out. The stress must’ve been feeding me the energy.

I don’t want to do anything for a while. Don’t want to talk to anybody. Don’t want to celebrate or be among people. It’s a type of victory that even though you’ve won. Who you are, what you stand for and the world you believe you are living in gets destroyed so much that the victory is meaningless.

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.

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.

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.