Oil is rallying back to $100 on the backs of demand destruction and record supply coming to market.

Cain Thaler has apparently forgetten basic financial reporting concepts.

TSLA stock is rallying because a company that’s never made money selling a car, to this day, has decided to increase the size of its secondary offering.

And of course, everything is up.

I’ll back off my TSLA trash talk a little. Clearly there was no grounds to say that TSLA hasn’t sold any cars. A little hyperbole is fun, but obviously they have had some success. Despite that, there is no doubt in my mind that they are padding the shit out of this quarter. Some of this is political – I don’t trust anyone in bed with the DOE. Some of it is prejudice – I come from Detroit, so if I don’t see cars, I assume they don’t exist.

As it stands, even with the rookie cash flow miss not getting picked up before I rushed to publish, there’s a lot for me to hate about that company’s books. If I’m wrong about sales of the electric platform, I promise I’ll hold a big post where I self flagellate and get all melancholy. But it won’t be for a few quarters because I’m going to give the company plenty of time redact earnings and own up.

I think the problems are there, not initially because of any numbers, but because of the small comments and way the disclaimers and disclosers are being laid out. I went searching for the numbers to support that, and largely failed. But that doesn’t mean I’m going to start jumping up and down with trust of the management.

Ultimately, my opinion is that Tesla’s product is a beautiful piece of craftsmanship and engineering that won’t make any money. The EV1 will have a gravemate yet. I’m not advocating shorting TSLA; merely commenting that paying $90 plus for a company that turned one quarter of profits in 10 years, largely not from selling their main product, is a very bad idea.

For the moment, I am still largely cash, short the euro with EUO, short oil with SCO, and holding AEC, CLP, CCJ, BAS, RGR and physical silver that’s getting cheaper by the day.

A few things you should know about TSLA:

1) If you take the company’s own reporting at face value, the stock is good for – maybe – $1.50. And oh since $200 million of their “net worth” is tied up in inventories at the moment, realistically the stock is worth $0.00. Remind me what the long term value of unsold car inventories is again…

Clearly this is about the earnings. I guess if TSLA can sell like the wind, it will more than compensate, and build some value here.

Too bad…

2) The company’s earnings aren’t believable.

TSLA claims it booked half a billion in revenue last quarter. Alright, so I mosey on down to the cash flow section.

Someone show me where any of those numbers adds to half a billion? Hell, even their financing isn’t showing evidence of any “gimmick” cash flow. So they did half a billion dollars last quarter without half a billion dollars ever changing hands…um, anywhere. (Oops that’s embarrassing. That’ll teach me for writing quickly and not proofreading. Ottnot pointed out why that was clearly wrong – hat tip. I’m caught red handed here. What I was attempting to look for was where the financing for vehicles was going – but it’s run through BAC and another bank so it wouldn’t even show up on their report. Duh)

(That being said, this is a car company that still hasn’t made any money selling cars, as easily witnessed below)

Buried deep in the report is this paragraph:

“Significant operating cash inflows were comprised primarily of automotive sales of $555.2 million, an $18.2 million decrease in inventory and operating lease vehicles, $6.6 million of development services revenue and a $4.1 million net increase in deferred revenue associated with various vehicle service plans introduced in March 2013. Significant operating cash outflows for the three months ended March 31, 2013 were primarily related to $465.5 million of cost of revenues, $101.9 million of operating expenses, a $26.6 million decrease in accounts payable and accrued liabilities primarily due to the timing of vendor payments, an $8.1 million net decrease in customer deposits as a result of the sales of Model S and a $2.6 million increase in prepaid expenses and other current assets.”

That’s funny: 466 + 102 + 27 + 8 + 3 = a number that is definitely greater than 555. It sounds like Tesla didn’t make any money selling these $555 million worth of cars that don’t appear on their primary cash flow statements.

So I push down into their report and find this gem:

“We recognize revenue when: (i) persuasive evidence of an arrangement exists; (ii) delivery has occurred and there are no uncertainties regarding customer acceptance; (iii) fees are fixed or determinable; and (iv) collection is reasonably assured.”

I’m thinking that “and” there before point iv should actually be an “or”; as in, “if we think maybe we really actually are going to sell a car then we just count it right then, rather than, you know, using the same standard of ‘revenue’ as every other person on this planet uses”.

“And – Or” all those other definitions of revenue. Follow?

And someone tell me what this means:

“5. Customer Deposits

Customer deposits consist of payments that allow potential customers to make an advance payment for the future purchase of a Model S, Model X or Tesla Roadster. These amounts are recorded as current liabilities until the vehicle is delivered. We require full payment of the purchase price of the vehicle only upon delivery of the vehicle to the customer. Amounts received by us as customer deposits are generally not restricted as to their use by us. Upon delivery of the vehicle, the related customer deposits are applied against the customer’s total purchase price for the vehicle and recognized in automotive sales as part of the respective vehicle sale.

Historically, we have referred to such customer deposits as reservation payments and these initial reservation payments have been fully refundable until such time that the customer selected the vehicle specifications and entered into a purchase agreement. We recently eliminated the reservation process for Model S in North America as vehicle production became more reliable and customer wait times decreased. Customers now initiate their purchase by ordering their customized Model S rather than placing a generic reservation in queue. As a result of this transition away from reservations, we have renamed the “reservation payments” caption on our condensed consolidated financial statements to “customer deposits.” “

All in all, I very much question whether Tesla sold any real cars. There are only something like 40 servicing stations in their entire network. They’re hoping to double that, but still, not exactly a huge target market here.

I think what Tesla really did was sold options to sell cars. Refundable options…

Which is why their cash flow sucks.

On the plus side, they also don’t seem to have any off balance sheet entities – I was shocked by that. But I guess you don’t need to when the government is handing you hundred million dollar loans.

But other than that, the prospect for high end electric vehicles is pretty much what it’s been since the 90’s…terrible.

If this is really going to take off, the infrastructure for refueling needs to be there, and I doubt Tesla can pull that off on their own.

I’ll leave you with these disclaimers, which were absolutely SUNK in the dark nether regions of their filing:

“If we are unable to adequately reduce the manufacturing costs of Model S or otherwise control the costs associated with operating our business, our business, financial condition, operating results and prospects will suffer. “

“Mr. Musk borrowed funds from an affiliate of our underwriter in our public offering in 2011 and pledged shares of our common stock to secure this borrowing. The forced sale of these shares pursuant to a margin call could cause our stock price to decline and negatively impact our business. “

_____________________________________

Sorry, the amateurish cash flow point not withstanding, this is a very expensive car company, particularly if they can’t get costs down.

And I still can’t help but think maybe the (now announced) secondary offering wasn’t perhaps a little in mind when “sales” were being transacted this quarter…

Rather, let us just stand and remark in awe at the utter magnificence that was the last eight months. Truly, such a thing is like a rare glimpse of a comet or supernova – a celestial blessing to be observed in solemn wonder.

We all got rich here (unless you’re a dumb short seller)…whether you’re sitting 100% long or 80% long, or 50% long, or less, we’re all still making money off of this.

Truly the greatest winter Christmas rally of all time.

Because what has actually been happening is each year, the summer brings with it renewed fears about the sustainability of the recovery, and as the winter optimism from holiday activity slumps, something – maybe speculative buyers in the oil markets, maybe something more complicated than that – slackens and all of a sudden, we get this big rush of inventory that floods our storage centers.

And anyone caught calling plays from their grandfathers old book goes long oil at exactly the worst possible time.

The thing is, for whatever reason, it always seems to get bought towards the end of summer, right when the rule of thumb dictates that oil demand should be falling. Maybe it’s all part of a game. Maybe there’s some reason for it I just don’t understand – I guess having selloffs in the winter months are always more dangerous; what happens if something important, like heating, gets disrupted?

I may not know why this is happening, but I don’t need to be an oil industry expert to know what my eyes are telling me.

SCO is spiking up 5% today, and oil inventories are building quickly. For the moment, everything is just peachy in the markets – actually, in the same day I’m up 5% shorting oil, the rest of my holdings are all largely green.

But it won’t last. We are on the cusp of a nasty selloff that will bring some humanity back to investing and some shame back to the arrogant.

And it will be treated as the end of the world. Or at least until the fall, when buyers likely step back in, claiming “no way that happens ever again…”

But trying to spot the top is almost impossible. The rallies have been so fast, so ferocious, and so long winded that any attempt to short them is simple folly. In hindsight, I would point out that the most severe broad market selloff in a century, beginning sometime between 2007 – 2008 and largely hitting its nadir in 2009, was an equivalent buying opportunity, in terms of raw patience, as shorting the two major rallies off the bottom, first in 2009, then mid-2010. And from 2011 the market has been hit with only ripples, that make it terribly impossible to short the indices.

Which is subsequently why I’m not trying to be short here. A healthy cash position augmented with some mild hedging is the way to go. I may be months early to the selloff, but am betting that at this stage, even foregone gains or some mild gross loss being carried is minimal next to the pain that could be experienced from overconfidence here. And the rewards from being able to buy a bottom are much greater than dumpster diving through whatever picked over scraps I can find.

Whenever we should get a selloff, provided it doesn’t carry with it ominous, new developments, I will then allocate some capital. And the 9th floor shall be all the better for it.

I unloaded them for $50.78 and $13.98, respectively.

I also added to my SCO hedge for $37.30.

Even if I wasn’t expecting the annual recession scare(s), energy demand is clearly falling, and since most of my book is in CCJ and BAS, that leaves me exposed. As I believe this is the start of the next washout, it just makes sense to bunker myself.

Net equivalent cash position now stands north of 50% again, counting on EUO and SCO hedging.