Month: December 2018

Wired has published a stunning longform expose on what it has been like to work for Tesla over the last few years. The piece dives into life at the company’s Nevada Gigafactory and the seemingly abusive management style of CEO Elon Musk.

The piece opens with a story about an engineer at the company’s Nevada plant who “had been living out of a suitcase, putting in 13-hour days, seven days a week,” and who one day was excited to hear that Elon Musk himself needed his help on the production line. When the engineer was asked about one of the mechanized modules on the company‘s production line, instead of Elon seeking his assistance, he was berated and fired within a minute.

“Hey, buddy, this doesn’t work!” Musk shouted at the engineer, according to someone who heard the conversation. “Did you do this?”

“You mean, program the robot?” the engineer said. “Or design that tool?”

“Did you fucking do this?” Musk asked him.

“I’m not sure what you’re referring to?” the engineer replied apologetically.

“You’re a fucking idiot!” Musk shouted back. “Get the fuck out and don’t come back!”

Instead of his performance review, which the engineer was expecting in the next week, he wound up signing separation papers. This type of volatility and abuse from Musk was rampant throughout the article.

The article also tells the story about Musk flying in several weeks later, marching through the factory and telling employees that “Tesla excellence wasn’t a passing grade, and that they were failing”. Musk also reportedly told people “they weren’t smart enough to be working on these problems”.

This feeling of superiority seemed to be a constant. One senior executive told Wired: “We called it ‘the idiot bit’. If you said something wrong or made one mistake or rubbed him the wrong way, he would decide you’re an idiot and there was nothing that could change his mind.”

These temper tantrums and ego rampages were well-known throughout the company. Sometimes Musk would instantly fire people, other times simply intimidate them. It had gotten so bad that people were afraid to walk too close to Musk’s desk at the Gigafactory for fear of coming in contact with him. Musk wound deride people in meetings, insult workers’ competence and bully those below him, sometimes demoting them on the spot.

Then, during a meeting with one of his right hand men about fixing the production issues at the Gigafactory, Musk – known to be sensitive to odors – caught the smell of nearby liquid silicone vats. Musk reportedly said, “These vapors [are] going to kill people. They’re going to kill me.”

As a reminder, in a recent 60 Minutes interview, Musk was asked about potential toxic fumes in his factories, a notion he laughed off and joked about:

Lesley Stahl: Well, there are several investigations by the press and by regulators in California about injuries on the job. Breathing toxic fumes, stress injuries, over 100 ambulance calls.

Elon Musk: I don’t think that’s correct.

Elon Musk: I was literally living in the factory. If these– if there’s, like, toxic fumes, I’m breathing them. Okay?

During the trip, Musk was tasked with motivating workers at the plant. After thanking them, he informed them that it wasn’t a 9-to-5 company and that more work was on its way. He told the employees that the Model 3 was a “bet the company decision” and that everybody needed to work harder and smarter.

Wired spoke to dozens of current and former Tesla employees from nearly every division of the company. While some called the company a thrilling place to work, one executive stated “everyone in Tesla is in an abusive relationship with Elon”. Musk was described in the piece as socially awkward and defensive when corrected. 

“People used to tell me to hunch down lower in my seat during meetings. Elon reacted better to people when he was sitting higher than them,” a former high ranking Tesla executive stated. 

Many employees and executives also said that they monitored Musk’s Twitter account often, and that complaints on Twitter would cause people to “drop everything” to address the situation. 

A former SolarCity employee stated: “We called it management by Twitter. Some customer would tweet some random complaint, and then we would be ordered to drop everything and spend a week on some problem affecting one loudmouth in Pasadena, rather than all the work we’re supposed to do to support the thousands of customers who didn’t tweet that day.”

The piece also highlighted what appeared to be a precise and conservative method to beginning production of the Model 3 that de facto COO Doug Field had put into place. Instead of following his idea of beginning production in October 2017, Musk upended these plans in Summer of 2016, claiming he wanted to move the start date up four months because of a dream he had, where “he had seen the factory of the future, a fully automated manufacturing plant where robots built everything at high speed and parts moved along conveyor belts that delivered each piece, just in time, to exactly the right place.”

A former high ranking executive told Wired that Musk would walk around on days when the company was trying to build his vision of the alien dreadnaught – sometimes burning $100 million per week – and would say to him “I’ve got to fire someone today. I just do. I’ve got to fire somebody”.

“Everyone came to work each day wondering if that was going to be their last day,” another former executive at the company stated.

As production and manufacturing hell continued, Musk went from mad genius to simply mad, according to the report. He would occasionally interrupt meetings and insist that coworkers watch clips of Monty Python movies on his laptop. He’d play these clips more than once, laughing each time. When he split up with Amber Heard, Musk would reportedly miss meetings or cancel at the last minute. 

Other times, Musk simply seemed angry. “There was this constant feeling of dread,” one employee said. 

Almost all of the employees (even the ones with positive things to say) spoke to Wired on the condition of anonymity because of fears of being sued by the company.

The company, when presented with what was going to be reported by Wired, seemed to corroborate many of the stories, opting to try and defend Musk’s actions rather than dispute the content:

Tesla, which was given extensive summaries of the reporting in this article, including what took place during Musk’s Gigafactory visits and the engineer’s dismissal, said through a spokesperson that some aspects were “overly dramatized,” “abbreviated,” and “ultimately misleading anecdotes that completely lack essential context.”

The company added that “Elon cares very deeply about the people who work at his companies. That is why, although it is painful, he sometimes takes the difficult step of firing people who are underperforming and putting the success of the entire company” at risk. Tesla also noted that Musk was worried about the comfort and safety of workers when he complained about the vapors in the Gigafactory.

And maybe next time Musk looks to place the blame at his company for whatever the problem du jour is, he should go back and reference what his former and present coworkers said to Wired:

Among the biggest obstacles, they believed, was Musk himself.

You can read the full Wired piece here. 

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Sign-carrying protesters filled a New York City Council hearing room overnight, and chanted, “Amazon workers are under attack! What do we do? Stand up! Fight back!”

“We have a crumbling subway system, record homelessness, public housing that is in crisis, overcrowded schools, sick people without health insurance and an escalating affordable crisis,” raged New York City Council Speaker Corey Johnson, a Democrat, as  council members grilled Amazon executives about the company’s plan to build a secondary headquarters in New York during a contentious hearing Wednesday that was interrupted several times by jeering protesters.

“Is anyone asking if we should be giving nearly $3 billion in public money to the world’s richest company, valued at $1 trillion?”

As Fox5NY reports, the council members, who have no vote on the project and no apparent path to block it, demanded to know why the city and New York state were offering Amazon up to $2.8 billion in tax breaks and grants to build the new headquarters in the Long Island City neighborhood of Queens.

When the deal was announced last month, New York Gov. Andrew Cuomo and Mayor Bill de Blasio, both Democrats, were quick to hail it as a huge money maker for the state and the city. Amazon is promising to bring 25,000 jobs to New York over 10 years and up to 40,000 in 15 years.

“This is a big moneymaker for us. Costs us nothing,” Cuomo said when the agreement was announced.

A narrative that Brian Huseman, Amazon’s vice president for public policy, attempted to regurgitate in his response that the project would provide “over $186 billion in positive economic impact” over 25 years.

But, as the following clip shows, council members were not convinced:

“That analysis was done by someone who was hired by the state of New York, not by neutral third party academics or companies that can provide that economic analysis.”

Fox notes that some independent economic development researchers said the estimates from city and state officials overlook the cost of Amazon’s growth in the city .

And local officials fumed, criticizing both the process and the Amazon subsidies.

“This is bad for Long Island City, bad for Queens and bad for New York City,” said City Councilman Jimmy Van Bramer, a Democrat whose district includes the projected Amazon offices.

“The mayor and the governor caved to the riches man on Earth and then handed the bill to each and every New Yorker.”

State Assemblyman Ron Kim, a Queens Democrat, told protesters rallying on the steps of City Hall before the hearing,

” Any politician in our progressive city and our state who’s willing to had $3 billion to Amazon – that should be a career ender right there.”

We wonder, in reality, if this ‘anger’ is real or simply reflects their fury at the temerity of being cut out of a deal that was negotiated without their input.

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WTI prices briefly popped above $52 before fading quickly after Bloomberg reported that after flooding the US market in recent months, Saudi Arabia plans to slash exports starting in January in an effort to dampen visible build-ups in crude inventories.

Bloomberg reports that, according to people briefed on the plans of state oil company Saudi Aramco, American-based oil refiners have been told to expect much lower shipments from the kingdom in January than in recent months following the OPEC agreement to reduce production

Oil traders were not that impressed…

And while the plan to slash Saudi exports to America may ultimately convince a skeptical oil market about the kingdom’s resolution to bring supply and demand incline, it may anger President Trump, who has used social media to ask the Saudis and OPEC to keep the taps open.

Hopefully OPEC will be keeping oil flows as is, not restricted. The World does not want to see, or need, higher oil prices!

— Donald J. Trump (@realDonaldTrump) December 5, 2018

We wonder how quick the response will be from POTUS – will he suddenly be convinced that MbS is guilty?

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The recession warnings are growing louder.

Earlier this week we reported that according to JPMorgan’s latest “real-time quant monitor”, the risk of a recession has spiked to a no longer trivial 35%, the highest in series history (and up from 16% back in March)…

… while the probability that the next presidential election will take place during a recession (i.e., odds in two years) has now surged to more than double that, or over 70%, virtually assuring that the US economy will be contracting in November 2020.

Now, in a new research report by PIMCO, the world’s largest bond manager with $1.7 trillion in AUM, warns that “while the expansion has been ageing gracefully”, the global economy is well past its peak growth phase, and the fund’s recession models are “flashing orange.”

In “Syncing Lower“, PIMCO strategists Joachim Fels and Andrew Balls argue that while the global economy is past peak growth in the cycle, “central bank support continues to be reduced and political risk looms large across countries.”

As a result, “the probability of a U.S. recession over the next 12 months has risen to about 30 percent recently and is thus higher than at any point in this nine-year-old expansion,” Fels and Balls write, although even with the threat of a recession now higher than any time in the past decade, “the models are flashing orange rather than red.”

In the report, which is based on discussions at a forum this month of economists and portfolio managers to guide investments for the coming six to 12 months, the PIMCO duo lay out five key macro debates that will likely shape the cyclical and market outlook for 2019, and include:

• Debate #1: How late is it in the cycle?
• Debate #2: The end of U.S. economic exceptionalism?
• Debate #3: Will inflation ever return?
• Debate #4: The Fed pauses, then what?
• Debate #5: U.S. versus China: Truce or peace?

On Thursday, Pimco CIO Dan Ivascyn warned in a Bloomberg Radio interview Thursday that next year will be as rocky as this one.

“The last few months have given us a sense of the types of risks that are out there, that both the economy and markets are going to face in 2019,” Ivascyn said. “At a minimum, like we have seen this year, expect ongoing volatility and that’s true across all segments of the financial markets.”

While PIMCO is growing increasingly cautious on developed markets, the CIO still sees attractive opportunities for 2019 in emerging markets – echoing Gundlach’s recent assessment according to which US vs EM markets will converge in the coming months.

“Along with fear being reduced, spreads have tightened and prices have gone up,” Ivascyn said. “We continue to be active in emerging markets.”

Here are the key highlights from the PIMCO report, courtesy of Bloomberg:

• U.S. growth will slow to less than 2 percent in the second half of 2019, converging downward with other developed nation economies
• A pause in Federal Reserve interest rate hikes is likely in the first half of 2019, but tightening will persist as the Fed continues reducing its balance sheet holdings
• Investors should stock up on lower-risk, liquid assets to defend against rising volatility and widening credit spreads, saving cash for opportunities ahead
• One opportunity is U.K. financials, where values have fallen amid concerns of a chaotic no-deal Brexit from the European Union, which is “a very low probability”
• U.S. non-agency mortgage-backed securities are a defensive alternative to investment-grade corporate credit. Agency MBS also offer attractive income.

Focusing on a specifically topical question in recent weeks, namely what would happen if and when the Fed Pauses “then what”, Pimco writes that it expects the Fed to raise rates only one or two times more in 2019, and therefore “a pause in the first half of 2019 thus looks increasingly likely as financial conditions and the central bank’s balance sheet runoff are doing some of the tightening for the Fed.” If and when the Fed pauses, however, will this be followed by a resumption of rate hikes, or will the next move after a shorter or longer pause be down in rates?

At the forum, PIMCO said it “reckoned it would be difficult to communicate a pause without markets jumping to the conclusion that this is the end of the rate cycle and the next move will be down” and adds that “as Ben Bernanke reminded us, his attempt to signal a pause in the previous rate cycle led to significant volatility. While central banks such as the Bank of England might get away with a pause and continued tightening, this is more difficult for the Fed given its global importance.”

Against this backdrop, most of us believed that with the probability of recession likely to rise over time, a resumption of rate hikes after a pause was relatively unlikely.

The forum also discussed the biggest geopolitical quandary du jour, namely the US vs China conflict, asking if a “truce or peace” is possible. Here is the response:

Some participants argued that the worst of the trade conflict was now behind us, as both sides wanted a deal before the negative economic consequences of higher tariffs would be felt.

However, most of us believed the conflict between the U.S. and China is more deep-rooted and about much more than trade alone, and would thus continue to be a source of uncertainty and volatility even if there were a deal on trade. Mike Spence’s description of the conflict as a “clash of systems” resonated with the audience and reminded us of our discussions at the Secular Forum in May about the “Thucydides trap,” which describes the risks of a confrontation between an established and a rising power.

And while we urge readers to skim the full report, here is what PIMCo believes are the key investment implications as we head into another volatile year:

• Modestly underweight duration, overweight TIPS (While our base case calls for continued modest inflation, Treasury Inflation-Protected Securities (TIPS) breakevens have repriced lower, and we see TIPS as relatively attractively priced)
• Curve: Long the belly, short the long end (We see global curve-steepening positions as a structural source of income generation and, in the current environment, have a preference for the belly of the curve versus the long end of the curve based on valuation) – also explains the recent inversion in the 2s5s and 3s5s.
• Cautious on generic corporate credit (Credit valuations have moved closer to long-term averages, but we don’t see credit as cheap, while volatility is rising and the slowing economy could reveal underlying weaknesses in terms of leverage.)
• Relative value in financials and MBS (We continue to see non-agency mortgages as offering a defensive alternative to investment grade (IG) credit, with a better downside risk profile in the event of weaker macro/credit market outcomes. We also see agency mortgage-backed securities (MBS) as an attractive and relatively stable source of income in our portfolios)
• Underweight European peripheral risk (We remain cautious on European peripheral sovereign credit risk and corporate risk given the immediate challenges in Italy and the longer-term risks to the eurozone more generally in the next recession.)
• Opportunities in EM FX and bonds (In a world in which growth is synching lower across countries, we have a balanced view on the U.S. dollar versus other G-10 currencies)
• Equities: Focus on high quality defensive growth (we expect downward pressure on profit growth expectations… We believe equity markets will remain volatile, favoring high quality defensive growth and minimal exposure to cyclical equity beta. We continue to favor more profitable U.S. equity markets to the rest of the world)
• Commodities: Modestly positive on oil  (OPEC’s recent announcement of a cut in production suggests the desire to support oil prices in the low $60s, avoiding the very low levels of 2014, but not tightening markets enough that it causes more market share losses to shale.)

More in the full report here.

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Russian firearms enthusiast Maria Butina admitted on Wednesday in US District Court in Washington that she conspired with an unnamed American to act at the direction of a Russian official “to establish unofficial lines of communication with Americans having power and influence over U.S. politics…for the benefit of the Russian Federation.”

After initially claiming innocence after her July arrest, the 30-year-old Butina accepted a deal with prosecutors and flipped her plea to guilty – agreeing to work with authorities who accused her of gathering intelligence on American officials as well as conservative political organizations. She has been in jail without bail since her arrest. 

The American Butina worked with has been identified as Paul Erickson, a longtime GOP operative based in South Dakota with strong ties to the National Rifle Association and the Russian gun rights community. Erickson, who was in a romantic relationship with Butina, allegedly attempted to establish a backchannel between the NRA and Russian Government – while also reaching out to Trump campaign members Rick Dearborn and then-Senator Jeff Sessions in a 2016 email with the subject “Kremlin connection.” The email sought a meeting between then-candidate Donald Trump and Russian President Vladimir Putin at an annual NRA convention. 

The Trump campaign declined the invitation, however Butina allegedly worked with Erickson to try and arrange a meeting between Trump and her boss, former Russian central banker Alexander Torshin – who is believed to be her handler. 

Butina, a former graduate student at American University, became a fixture in conservative circles in recent years and a constant presence at functions organized by the NRA, a group closely aligned with Republicans lawmakers and President Trump.

The charges against Butina were brought by federal prosecutors in Washington, and her case was unrelated to special counsel Robert Mueller’s investigation into Russian interference in the 2016 election.

However, the Siberian native, who twice met with a Trump campaign aide and has been photographed with Donald Trump Jr., has reportedly agreed to cooperate with Mueller’s team of investigators. –NY Daily News

Following Butina’s arrest, the Russian embassy complained that Butina was being subjected to unwarranted strip searches and denial of proper medical care in an effort to “break her will.” Her defense attorney, Robert Driscoll, claims she has suffered health problems in jail and has been denied proper treatment. 

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