Investments

It Sure Could Be the Spark of Something…

By David Stockman  |  August 22, 2018

Major Greene this evening fell into some conversation with me about the Divinity and satisfaction of Jesus Christ. All the argument he advanced was, “that a mere creature or finite being could not make satisfaction to infinite justice for any crimes,” and that “these things are very mysterious.” Thus mystery is made a convenient cover for absurdity.

– John Adams, February 13, 1756

Only someone as absurd as Elon Musk can define this era.

Elon recently “announced” that he might take Tesla (Nasdaq: TSLA) private. It’s already an all-timer in the annals of unintentional comedy.

So, is there a better sign The End Is Near than that infamous “funding secured” tweet?

Not even in this Bubble Finance-besotted world is anybody going to raise the $81 billion it will take to fund the buyout of a cash-bleeding, busted-up jalopy.

TSLA traded up in the initial hours after Elon made his latest plan public. The stock is now down more than 20% since midday August 7.

He’s more “peacock” than “canary.” But he does make a super-pertinent Patient Zero.

Here are a few objective facts.

Tesla is bankrupt. It has been for years. Elon has raised round after round of debt and equity capital on nothing more than hype.

TSLA’s market cap has gone from $3.5 billion to $63 billion over the past half-decade. But Elon’s almost literally burned $10 billion in cash since 2012, too. And the burn rate is quickening.

Wall Street and the Tesla Cult dismiss the massive and unrelenting cash hemorrhage.

Their case is that Elon is building critical mass in the consumer marketplace and in production capacity. That’s the real basis for both its long-run success and its ability to take a place in the global auto market in the years ahead.

None of that’s true.

Tesla’s key financial metrics make clear it’s not growing toward profitability at all. It’s bloating its way toward bankruptcy.

These kinds of behavior – Elon’s carnival-barking, Wall Street’s market-cap expanding – can only be rewarded in a market where honest price discovery has been destroyed.

It’s the fruit of monetary central planning, with its easy money and wealth effects that have nothing to do with economic fundamentals.

The ticker is riddled with these momentum-driven stories. Stocks all over are up on nothing but big air.

I’m going to make a long technical story short: Elon called the top.

There is some truth here. He has to raise cash to keep Tesla’s lights on… and, yeah, that’s ironic. But it serves the secondary purpose of distracting from the company’s death spiral.

Tesla is not going to be profitable in the third quarter or the fourth… or the first or the second…

Indeed, it’s an archetypal late-bubble destroyer of capital.

Late-bubble trading mechanics lifted TSLA to lunatic extremes. Its collapse could trigger waves of selling… margin calls… ETF liquidations… panic.

And Elon’s complicated things even further. His tweet means he’s facing some self-inflicted litigation on top of the operational issues he’s struggling to overcome.

Nobody likes it when you say stuff that could be the “pump” before a “dump.”

I’ve got no use for the SEC and the Nanny State it embodies. At the end of the day, big boys and girls don’t need the government to help them separate an “investment” from a “scam.”

But Elon opted in to the system. And this system requires certain things and obliges still more.

And the impudent high-flyer has violated every one of them.

So, a sweeping SEC investigation will likely uncover Tesla’s accounting shenanigans and operational failures.

The pressure will cause a meltdown.

Elon is not a revolutionary. And Tesla is nothing more than a vanity project.

He’s not going to change the world. And it’s not even going to survive.

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David Stockman

David Stockman is the ultimate Washington insider turned iconoclast. He began his career in Washington as a young man and quickly rose through the ranks of the Republican Party to become the Director of the Office of Management and Budget under President Ronald Reagan.MORE FROM AUTHOR