Bought TSLA January 18, 2014 35 Puts

I just threw a couple percent into some TSLA puts, betting on the end times for TSLA shareholders developing sometime in the next 7 months. If the stock can dip below 35, I’ll make a fat payoff. If not, I lost a couple percent (my account deviates by more than I’m betting).

I’ll start by giving a little bit of good news to you TSLA owners. As it turns out, I know one of the guys who helped build their assembly line. That took some hunting, but he mostly had good things to say about TSLA manufacturing.

1) The line is clean, finished, and should be good for up to 35,000 vehicles per year
2) The line is state of the art and not vehicle specific – retooling is easy for new products, unlike at the big automotive companies
3) Building the line was a clusterfuck and TSLA lost its ass; but it made a good move and fired every supplier, then rehired who was needed. TSLA also started scalping their suppliers of their workers – so the company has built up some good internal manufacturing experience by stealing from their contractors.

My friend is rather proud of the TSLA line, and had nothing but good things to say about it. There shouldn’t be any unforseen calamity coming from their production abilities, unless projections start calling for more than 35,000 vehicles per year in the immediate future (assuming they don’t have time to start up another assembly line).

Now for the bad news. My friends are all engineering car junkies (every conversation inevitably turns to auto…ugh) and we held a little pow wow this weekend. There’s a good bit of doubt that TSLA can continue meeting their sales. Even the guy who helped build the line cracked a joke about them just needing to sell cars now.

One of the bigger car guys pointed out that TSLA is trying to outsell several of the luxury/performance car makers “combined”.

Mind you I started the conversation by bashing TSLA a little. Back in ’08/’09, I told this same crowd of friends that GM was going bankrupt and they almost stoned me. Insulting coveted and beloved automotives in this circle is generally met with outright hostility.

When I trashed TSLA, nobody defended them. I was surprised.

The general feel of the group was that TSLA’s product is beautiful, but they don’t stand a chance of edging out other luxury/performance vehicles at the Model S’ price tag.

Now for the worse news.

AutoData is reporting that TSLA sales dropped 15% in May. TSLA shareholders had better pray that’s a one off, and not demand for their vehicles being satisfied. Because at $104 with sky high price to earnings and intrinsic value near to $10 (after the issuance), any disruption of the dream will disembowel the stock. And since Musk just raised a billion, half from new shares, sentiment against him could turn pretty rapidly if people start to get the idea that he duped them.

I for one have had more than enough of the Great Tragedy that is Detroit. Back in the days of Billy Durant, JP Morgan, and Rockefeller, Detroit was a beacon of the Industrial Revolution. The New Paris, it was a destination of distinguished and refined people the world over. Wealth flowed up and down the lakes of Michigan, and Her pride could not be measured.

Today, Detroit is a shit heap.

That last sentence is both succinct and proper – dilapidation deserves few words. Detroit is a terrible place because her residents are stupid people. Every bad judgement that can be exercised has been exercised in Detroit. If you can come up with a horrible idea, Detroit has tried that idea, sometimes multiple times in a row.

Today, the first steps towards the revitalization of this historical city have been made.

Kevin Orr, hand picked general of Rick Snyder (may his pimp hand always be strong), destroyed the gates of the city and entered her walls. The terror of the unwashed masses was great, as any man foolish enough to have lent Detroit money was lead into the public square for prompt execution.

Hail Caesar!

Less the populace think they would get off unscathed for their part in Detroit’s dishonorable rot, Orr then turned his war machine on the cushy public sector jobs and retiree benefits, battering them to ashes. A clear message was sent shivering through the public body: if you are going to choke out a city…nay, a culture…in an attempt to grant yourself her treasury, your claims will not be honored, and you will be left by the wayside.

The entire structure of public unions, city workers, and culture of corruption has been put on notice in a single, fell swipe.

To summarize the exact actions taken today:

If you are owed money by Detroit, you are done
If you are owed benefits by Detroit, you are done
If you receive an excessive salary from Detroit, you are done
If you held any amount of power or sway in Detroit, you are done
If you are keeping Detroit from revitalizing her public services and spaces, you are done
If you are the source of the sprawling blight in Detroit, you are done
If you are a voice keeping taxes high in Detroit, you are done
If you are one of the people generally creating racial tensions to the detriment of the city, you are done
If you are an obstacle to Detroit, you are done

The deal Orr put forward was so byzantine…I positively love it. It’s time to clean out the dead wood, by purging fire. A lesson must be taught: when you let yourself fall sucker to lies and deceit and false promises, no one will be coming to save you. Anyone who let themselves be tricked into thinking those empty promises of pensions, benefits and payments from a defunct body were subject to protections or guarantees by the rest of the state has felt the first shot across the bow today.

Rick Snyder (may his pimp hand always be strong) has heard the demands from those who elected him clear and distinctly. Anyone tangled in Detroit’s corruption is to be cut down at the knees.

Michigan has had quite enough of the Renaissance City’s oxymoron for one lifetime.

I added to AEC today for $15.66 and RGR for $45.95, bringing my cash position down a few percent.

Other than that I’m holding put and filled with unbending hatred for anyone long oil.

Someone go back in time and bitch slap me for thinking that shorting oil and the euro into a summer global slowdown was a cool idea.

Rarely has someone been so right while at the exact same moment been so completely wrong.

Thank God for 30%+ cash positions…

Sure I could sit here and gloat, now that oil inventories have ticked higher at twice expectations and global demand forecasts have been torn up. I could, because I told you this wasn’t over, and because I mentioned explicitly that a one off inventory drawdown was more likely noise than anything substantive. Seems that oil actually didn’t have anywhere important to go, so it went back to storage.

I could do that; but I’m not going to.

I’m not going to gloat because that’s what the market wants. It wants to see me give off hearty guffaws so it can reverse higher in my face and make me look like a jackass. It wants to crush my reputation before it does what I know it will inevitably do, because that would hurt me the most. The market is a cruel mistress, like that.

So instead, let’s chat about the global demise of hedge funds.

It’s been riveting, watching the hedge fund structure almost totally impale itself over the last five years. On the face of it, hedge funds should be uncontestably preferable to other financial structures. They have more options at their disposal, and they’re comprised of money from wealthier, (allegedly) savvier investors. There should be no reason for the near total demise of the industry. Yet, here we are.

Why did this happen? Well, the fees are obvious; it’s difficult to outperform when you’re nabbing 2% of all assets under management, then scalping your clients for 20% of any gains in any year. That’s just ridiculous anyway, without your “sage” advice coming attached.

But I think the biggest single problem hedge funds have faced is a saturation of the field with morons.

The hedge fund structure on its own is solid. It’s ideal, even; you have a core group of successful men and women who come together to gain access to expanded options for their money. Under reputable oversight, that should always come out ahead. And the earlier pioneers of the approach did do very well. But like anything that’s popular, it eventually draws out the two bit hucksters and spectacularly untalented self-promoters, who work hand in hand to drive the reputation of the entire sector into the ground.

The 2/20 payment method needs to be looked at to clean the space up. As it stands, an adept marketing major with no special understanding of investing can sell themselves as life extending snake oil and, even if he or she does a God awful job, make a killing. 2% of assets is twice the pay you’d get heading a mutual fund, and these strumpets would never stand a chance of launching past the regulations and oversight that come with one of those. Who cares that the clients are losing their shirts? Sultry words and a nice smile can get them to bunker down for a few years at least, which is still a fat payoff.

The hedgies are in need of a good rain of fire to raise their Sodom and Gomorrah to the ground. Turn those cheap frauds to pillars of salt, and all of that. When the smoke clears, the real deals can set about restoring the reputation of what should be the preeminent investment platform in modern finance.

Waiting for an oil market correction is a lot like watching toddlers playing with toys from the next age category up. The pieces are all there, and they’re having the time of their lives, but they sure as hell have no clue where anything goes.

Italian numbers were just abhorrent this morning. And the long assumed 8% growth rate of China has been humiliated. European recovery and Chinese domination were all cornerstones of the global growth theory. They have since been shattered, but like Wile E. Coyote, the market hasn’t quite worked out that things have changed.

The oil inventory number that got everyone excited last week can be explained away as a one off. Moving inventories around and offloading them to storage facilities. But there’s no doubt that oil demand continues to fall. ISM numbers, manufacturing, foreign economic GDP…it’s all telling the same story. There have been only a handoff of positive reads, and they’re being put on a pedestal, when they should be put under scrutiny.

I’ve seen this plenty of times before now. Oil prices stay elevated, ignoring the bad news, assuming that sooner or later something good will come along to set it all straight again. And the market ignored the news for months.

Then it implodes.

The losses never last long; just a few months. But the moves are fast and gargantuan.

So sit back and enjoy the game for a while. Play it if you want. I’m content to spend nine tenths of the time waiting for that one special moment when all the real money gets made. It’s coming – like gravity.